The Bureau of Land Management released a new Instructional Memorandum 2013-151, clarifying the re-evaluation of bonds required for operations on federal lands. The purpose was to clearly define the terms and conditions now set out in the regulation governing the subject: 43 CFR § 3104.5(b). Here is a brief summary of the IM:
The amount of any bond may be increased whenever it is determined that the operator poses a risk due to certain factors:
a history of previous violations,
a notice from the Service that there are uncollected royalties due,
the total cost of plugging existing wells and reclaiming lands exceeds the present bond amount based on the estimates determined by the authorized officer, or
other factors not specifically enumerated.
The increase in the bond amount may be to any level specified by the BLM’s authorized officer, but in no circumstances can it exceed:
the total of the estimated costs of plugging and reclamation,
the amount of uncollected royalties due to the Service, plus
the amount of monies owed to the lessor due to outstanding violations.
When Can There Be an Increase?
Re-evaluations of all bonds shall take place at least once every five years, or sooner if warranted in situations such as transfer of title, submission of an application to drill, failure to timely plug and abandon.
What Will Trigger an Increase?
The IM now sets the basis for adequacy reviews performed by the BLM field officers. A point system will examine the well status, compliance history, and reclamation stewardship and each criterion will be assigned a number of points based on the risk it creates. One example: each shut-in/shut-down of operations in the last three years will be credited as 50 points.
The total number of points will determine whether a bond increase will be issued. Less than 100 points accrue means no bond increase. If more than 100 points are accrued, the bond will be increased. The points are calculated at $500 each.
Can I Avoid an Increase?
It is possible in certain situations for the BLM’s Authorized Officer to override a bond increase. The primary situations envisioned by an override are:
the operator conducts all operations in a prudent and timely manner and has a history of compliance,
average daily oil production per well over the past 12 months is greater than five barrels, but daily gas production per well over the same period averages less than 30 MCF from marginal wells,
average daily gas production per well over the past 12 months is greater than 30 MCF, but daily oil production per well over the same period averages less than five barrels from marginal wells.
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