GAO report urges BLM to increase bonds for onshore federal leases

The US Bureau of Land Management should increase bond amounts for federal onshore oil and gas leases that have not been adjusted to account for inflation since the 1950s and 1960s, the US Government Accountability Office recommended in a new report.

The US Bureau of Land Management should increase bond amounts for federal onshore oil and gas leases that have not been adjusted to account for inflation since the 1950s and 1960s, the US Government Accountability Office recommended in a new report. Congress also should consider giving BLM authority to make operators pay for orphaned wells and require the US Department of the Interior agency implement a mechanism to do so, it said on Sept. 18.

“BLM regulations set minimum bond values at $10,000 for all of an operator’s wells on an individual lease, $25,000 for all of an operator’s wells in a state, and $150,000 for all of an operator’s wells nationwide,” GAO’s report noted. “However, when wells are not properly managed, the federal government may end up paying to clean up the wells when they stop producing.”

Paying for such reclamation can fall to BLM when an operator and other liable parties fail to do, making such wells orphans if the bond the agency holds is not enough to cover the costs, the report said.

“Specifically, BLM identified 89 new orphaned wells between July 2017 and April 2019, and BLM offices identified to GAO about $46 million in estimated potential reclamation costs associated with orphaned wells and with inactive wells that officials deemed to be at risk of becoming orphaned in 2018,” it said.

GAO issued its report as US Rep. Alan Lowenthal (D-Calif.), a House Natural Resources Committee member, introduced a bill that would increase bonds oil and gas developers must post before being allowed to drill on federal onshore public lands (OGJ Online, Sept. 18, 2019). HR 4346 also would require producers to develop and present a highly detailed reclamation plan to BLM before any development could occur on leased public acreage, he said.

The report said GAO’s analysis indicates that about 84% of bonds linked to wells that BLM oversees are likely too low to cover their potential reclamation costs because the amounts have not been adjusted for several decades to account for inflation. “Additionally, these minimums do not account for variables such as number of wells they cover or other characteristics that affect reclamation costs, such as well depth,” it pointed out.

“Without taking steps to adjust bond levels to more closely reflect expected reclamation costs, BLM faces ongoing risks that not all wells will be completely and timely reclaimed, as required by law,” the report said.

“It falls to BLM to reclaim orphaned wells, but the bureau does not assess user fees to cover reclamation costs, in part because it believes it does not have authority to do so,” it said. “Providing such authority and developing a mechanism to obtain funds from operators for such costs could help ensure that BLM can completely and timely reclaim wells.”

Contact Nick Snow at nicks@endeavorb2b.com.

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