P. 2 ~ Continued - Decommissioning activity forecast high for Gulf of Mexico

NTL NO. 2010-G05

The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) issued new guidelines and measures in a notice to lessees and operators (NTL 2010-G05) for decommissioning idle wells and structures on active leases in the OCS Gulf of Mexico with an effective date of Oct. 15, 2010.

The purpose of NTL No. 2010-G05 is to "establish guidelines that provide a consistent and systematic approach to determine the future utility of idle infrastructure on active leases and to ensure that all wells, structures, and pipelines on terminated leases, and pipelines on terminated pipeline rights-of-way (ROW) are decommissioned within the time frames established by regulations, conditions of approval, and lease instruments."

Well classification

The guidelines specify three classes of wells: wells on expired leases, wells that pose a hazard, and wells on active leases.

Wells on expired leases and wells that pose a hazard are defined similar to previous regulations.

For wells on expired leases, an operator has 1 year after the lease terminates to permanently plug all wells.

For a well that poses a hazard to safety or the environment, operators are required to submit an Application for Permit to Modify and to permanently plug the wellbore within 30 days after identifying the hazard.

No longer useful wells, platforms

Wells on active leases form a new category and are defined as no longer useful for operations and no longer capable of producing in paying quantities.

BOEMRE defines a well as no longer useful for operations if:

• The well has not been used in the past 5 years for operations associated with exploration and production or as infrastructure to support such operations.

• No plans exist for operations associated with exploration and production or infrastructure to support such operations.

BOEMRE defines a platform as no longer useful for operations if the platform:

• Has been toppled or otherwise destroyed.

• Has not been used in the past 5 years for operations associated with exploration and production or as infrastructure to support such operations.

Production in paying quantities

BOEMRE defines producing in paying quantities as production that "yields a positive stream of income after subtracting normal expenses (i.e., operating costs), which include the sum of minimum royalty or actual royalty payments, whichever is greater, and the direct lease operating costs."

Wells on active leases

For any well that has not produced for 5 years or more and can no longer produce in paying quantities, the operator within 3 years after the effective date must:

• Permanently plug the well.

• Temporarily abandon the well.

• Provide the well with downhole zonal isolation and within 2 years either permanently plug or temporarily abandon the well.

For wells that have not been used in the past 5 years that are believed to be useful for operations or capable of future production, operators can submit to the regional supervisor field operations supporting documentation of the well's usefulness for further consideration.

Platforms

An operator with a platform or other facility associated with a terminated lease, right-of-use and easement, or pipeline right-of-way has 1 year after the termination date to remove the platform.

For a platform or other structure that is not being used for exploration and production operations or as infrastructure to support such operations, the operator must remove the platform within 5 years after the effective date of the NTL or within 5 years of the platform meeting the definition of no longer useful for operations, whichever is later.