BLM proposed in July to increase the amount of the rental deposit
Too few orphan wells to justify change: industry
In addition to protesting plans to restrict leasing in Colorado and Alaska, the oil and gas industry is lashing out at the U.S. Bureau of Land Management’s proposal to increase bond costs for leasing , telling U.S. lawmakers that it is unfair to impose new costs when there are risks. there are so few abandoned wells.
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Current bonding rules work and that’s why there are only 37 orphan wells on federal lands, Kathleen Sgamma, president of the Western Energy Alliance, told the Energy and Mineral Resources Subcommittee. the United States House of Representatives. 19.
“The numbers show that it is an arbitrary and capricious rule to increase costs to this extent when the problem affects such a small number,” Sgamma said at a hearing.
The Department of the Interior and the BLM proposed July 20 to increase minimum royalty rates, increase minimum bids, and increase minimum rental deposit amounts. Under the proposal, the minimum rental deposit amount would be $150,000, up from the current minimum of $10,000.
Bond Concerns
Pete Stauber, the Minnesota Republican who chairs the subcommittee, asked whether the BLM’s proposal to increase bond costs and other fees would risk creating more orphan wells by putting small oil and gas producers to bankruptcy.
“As written, if these rules were adopted, more wells would be at risk of being orphaned,” Sgamma said. “The idea of a bonding and surety market is not to lock up all the capital in the bond, because if you do that, you won’t have the resources available to actually do the work of patching, abandonment and reclamation,” she said. .
But Barbara Vasquez, advocate for the Western Organization of Resource Councils, says increased bonding requirements are necessary. The BLM has not increased the minimum bond amount in 60 years, she noted.
“More than 99 percent of federal wells have bonds that are insufficient to cover the full cost of reclamation,” Vasquez said. “This means that oil and gas operators are often financially incentivized to shirk their responsibilities at the end of the economically useful life of wells,” she said.
Federal wells often sit idle for years, even decades, before being declared orphaned and then plugged and reclaimed, Vasquez said. There are more than 2,300 wells that have been inactive for more than 25 years, she said. Until they are plugged, these wells can potentially release pollutants into the air and water, she said.
Hindsight on rental decisions
Republicans on the committee and some witnesses also denounced the Biden administration’s recent plans to restrict rentals in Colorado and Alaska.
In August, BLM released a proposal to remove 1.6 million acres of Colorado from future oil and gas leases. And in September, the Biden administration canceled the last remaining oil and gas leases in the coastal plain of the Arctic National Wildlife Refuge and proposed new restrictions on oil and gas development in the Arctic National Petroleum Reserve. ‘Alaska.
“I think the intent is to stop development of the very promising Mancos Shale,” Sgamma said of the Colorado proposal. BLM is closing nearly 1.6 million acres under the guise of closing areas that have no, low or medium oil and gas potential, she said.
“The problem is that 15 years ago the Bakken was considered to be of medium potential, whereas 20 years ago the Permian Basin in New Mexico was considered to be of fundamentally low potential,” he said. said Sgamma. “These are now two of the most prolific basins in the world,” she said. “So by banning any new exploration in the Mancos Shale, we will never know what was low and what might become high potential.”
