GAO: BLM needs to better manage onshore well liability

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Feb. 28 -- The US Bureau of Land Management needs to develop a comprehensive strategy to better manage potential onshore oil and gas well liability on acreage it leases to producers, the Government Accountability Office said in a Feb. 25 report.

It said that the US Department of the Interior agency should review its minimum bond requirements, which have not been updated in more than 50 years, and improve its data system so that it does a better job evaluating potential liability and monitoring the agency’s performance.

BLM has two key policies for managing potential oil and gas well liability on land that it manages, the report explained. The agency’s bond adequacy policy is intend to ensure that BLM field office periodically review bonds and increase them as necessary to reflect higher levels of risk, it said.

The agency also has a policy to manage wells which have been idle for at least 7 years, or so-called orphan wells that generally have no responsible or liable parties to make certain the wells are either plugged or returned to production. Under this second policy, BLM field offices are required to develop an inventory of such wells and prioritize them for reclamation, based on potential environmental harm and other factors, GAO said.

“BLM has not consistently implemented its policies for managing potential liabilities,” the report continued. It said that specifically, for fiscal 2005-09, GAO found that 13 of the 33 field office survey respondents reported that they either did not conduct any reviews or did not know the number of reviews conducted. Most field office officials told the congressional government watchdog service that a lack of resources and higher priorities were the primary reasons for not conducting the reviews, it indicated.

BLM state offices also did not consistently interpret policies on when to increase bond amounts, according to GAO. It said that officials in three state offices told investigators that they generally require evidence that an operator has not complied with requirements before raising a bond amount, while officials in another increased bond amounts for most operators because that BLM state office viewed them as potential risks to the government.

GAO said that 11 of 33 field office survey respondents said that they had not reviewed any idle or orphaned wells in one or more fiscal years during 2005-09, primarily because resources were short. Two BLM state offices and 22 field offices have not created action plans for reviewing whether bond requirements are adequate and idled and orphaned wells, as BLM policies require, the report said. It recommended increasing bond requirements over time, revising the bond adequacy policy so that it more clearly defines terms and the conditions which require an increase, implementing an approach to ensure complete and more consistent well records, and finding ways to better monitor the agency’s bond adequacy and idle and orphaned wells reviews.

In a response, Wilma A. Lewis, assistant US Interior secretary for lands and minerals management, said that DOI agreed with all four of GAO’s recommendations. She noted that in addition to the actual bond amounts, BLM’s oil and gas program requires any operator, who has caused BLM within the previous 5 years to demand a bond or financial guarantee after failing to properly plug an abandoned well, to post a bond equal to the full cost of reclaiming the site.

“Further, bondholders who default and fail to reimburse the bureau for the full cost of site reclamation may subject all of the leases under their bond to cancellation,” Lewis continued. “Hence, apart from the bond amount, these regulations expose operators—particularly those with extensive operations on federal lands—to potentially severe consequences for defaulting on their reclamation obligations under the lease. An increase in the minimum bond amount would enhance the protections currently in place.”

She said that BLM is reviewing its bond amount increase policy in an effort to make them clearer, that the agency has taken steps to review bond numbers and other information in its Automated Fluid Minerals Support System, and that it expects well record documentation in the AFMSS database to improve following the August 2009 issuance of an inspection and enforcement documentation and strategy development handbook.

Contact Nick Snow at nicks@pennwell.com.

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