U.S. DEPARTMENT OF THE INTERIORBUREAU OF LAND MANAGEMENT
UNITED STATES DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
Washington, DC 20240
September 5, 2012
In Reply Refer To:
3100 (310) P
EMS TRANSMISSION 09/12/2012
Instruction Memorandum No. 2012-181
To: State Directors
From: Assistant Director, Minerals and Realty Management
Subject: Idle Well Review and Data Entry into the Automated Fluid Minerals Support System
Program Areas: Federal and Indian Oil and Gas Operations.
Purpose: This Instruction Memorandum (IM) supplements existing policy and guidance for conducting idle well reviews of oil and gas operations on Federal and Indian leases. This updated policy is intended to ensure that all Federal and Indian wells are regularly reviewed by Bureau of Land Management (BLM) field offices and that appropriate steps are taken to timely reduce the BLM’s idle well inventory. This IM also provides instructions for the data entry of idle well review information into the Automated Fluid Minerals Support System (AFMSS).
Policy/Action: Each BLM field office administering an oil and gas program will periodically review all shut-in wells located on Federal and Indian lands every five (5) years, with a priority placed on idle wells. An idle well is any well that has been non-operational for at least 7 years and has no anticipated beneficial use during the lease term. Moreover, the field offices will ensure that any shut-in well that is no longer capable of producing oil or gas in paying quantities or has no beneficial use, will be timely and properly plugged and abandoned and associated surface disturbance will be timely and properly reclaimed (43 CFR 3162.3-4). The field office will enter idle well reviews into AFMSS within 5 business days of conducting the review. Refer to Attachment 1 for instructions on entering idle well review data into AFMSS, including an example. Field offices must ensure data are entered into AFMSS both timely and completely.
The field office authorized officer (AO) must review all Federal and Indian leases and evaluate every shut-in well at least once every 5 years. This review includes Federal leases/wells that are committed to communitization and unit agreements. Whenever production reports indicate that a well has been idle for at least 7 years, or if the AO determines any other shut-in well is not capable of producing oil or gas in paying quantities, the AO will follow the policy guidance described below. The AO must pay close attention to idle wells that are located on leases in their extended term. However, any well that is no longer capable of producing oil or gas in paying quantities and is located on a lease that is in its primary term should also be on a high priority list for taking appropriate action as described below. Attachment 2 includes AFMSS reports by state, which identify Federal and Indian wells that appear to have been idle for 25 years or longer. The AO will run an updated AFMSS idle well report each year prior to identifying the idle well review workload. Please contact Carol Larson (406-233-3655) for this query to ensure everyone is using the same parameters for the report. All wells that have been idle for at least 25 years must be reviewed by March 29, 2013.
Temporarily Abandoned Wells
If the well is not physically or mechanically capable of producing oil or gas in paying quantities, but may have value as a service well for injection to enhance recovery or as a water disposal well, the well can be defined as temporarily abandoned (TA). Wells cannot be in TA status longer than 30 days without BLM approval. When justified by the operator, the BLM may approve TA status for a period not to exceed 12 months. Offices may approve additional 12-month approvals if they are supported with acceptable and documented justification (43 CFR 3162.3-4(a)). Prior to approving TA status, the AO will require the operator to perform a casing integrity test (unless the well was drilled within the last 5 years) (43 CFR 3162.4-2(b)) and isolate the perforations from the surface in an acceptable manner. If a TA status well is the only well on the lease, the well cannot hold a lease that is in its extended term. In this situation, the AO will send the operator a 60-day letter (see below).
Well Capable of Producing Oil or Gas in Paying Quantities
The AO will determine whether the shut-in well is capable of producing oil or gas in paying quantities. Production in paying quantities can be defined as production in quantity and quality to cover the costs to operate the well and market the products. The phrase “market the products” is further defined as well processing, measurement, and transportation costs which a prudent operator would be expected to incur in order to sell the products. Offices do not include the costs to construct a pipeline in the paying-well determination.
Federal Lease is in its Extended Term
If a Federal lease is in its extended term, and the AO has determined that there are no wells on the lease capable of producing oil or gas in paying quantities, the lease will not terminate upon cessation of production if, within 60 days thereafter, reworking or drilling operations on the lease are commenced and are conducted with reasonable diligence and the lease resumes production in paying quantities. The 60-day period commences upon receipt of a determination from the AO that the lease is not capable of producing oil or gas in paying quantities.
In these situations, the AO will send the operator a written order (60-day letter) by certified mail. This 60-day letter is not a notice of cessation of production; it is a notification that the BLM has determined the lease does not contain any wells that are capable of producing oil or gas in paying quantities. The 60-day letter will give the operator a chance to re-work an existing well, drill another well, or demonstrate that any existing well is still capable of producing oil or gas in paying quantities. For good cause, the AO may approve a timely request for an extension of time to demonstrate that the well is capable of producing oil or gas in paying quantities or drill another well. Refer to BLM Handbook H-3107-1, Continuation, Extension, or Renewal of Leases, for an example of a 60-day letter. As indicated above, a lease cannot terminate before the AO sends the operator a 60-day letter notifying the operator that the AO has determined that there are no wells on the lease capable of producing oil or gas in paying quantities. The AO will send the operator a 60-day letter even if the last well on the lease has already been plugged and abandoned.
When the AO sends the operator a 60-day letter, and the operator does not take any action or does not respond within the 60-day time period, the lease will terminate effective the date of last production. If the operator attempts to rework a well or drills another well, and these operations are unsuccessful, the lease will terminate the date the operations ceased. Once the lease terminates, the AO will require the operator to immediately plug and abandon all the wells and reclaim all associated surface disturbance.
If the Federal lease is in its extended term and there is at least one well on the lease that is capable of producing oil or gas in paying quantities, the lease is held by production. However, if the AO determines that there are other wells located on the lease that are not capable of producing oil or gas in paying quantities or have no beneficial use, the AO will send the operator a written order requiring the operator to demonstrate that these other wells are capable of producing oil or gas in paying quantities or have a future beneficial use; otherwise, the operator must submit plans to promptly plug and abandon the well(s). The AO must not wait until the last well on the lease stops producing before taking action to require the operator to plug and abandon any uneconomic wells.
If the operator can convince the AO that an existing well is capable of producing oil or gas in paying quantities (well test or other acceptable method), or if the operator’s efforts to re-work a well or drill another well are successful, the lease is held by production. The AO must continue to periodically monitor the status of these leases/wells.
In the case of the last well in a Communitization Agreement (CA) or the last well in a Unit Agreement Participating Area (PA), once the CA or PA terminates, the Federal leases may be entitled to a 2-year extension. The AO needs to refer to the terms of the CA or PA regarding agreement termination and effect on committed Federal leases.
If the lease is in its extended term and all the wells have been shut-in for an extended period of time, the AO needs to evaluate this situation closely. If the AO determines that the wells have been shut-in for a valid reason (temporary lack of market, temporary low commodity prices, or temporary equipment malfunction), the lease is considered to be held by production. However, if the AO determines that there is not a valid reason for a well to be shut-in, the AO will order the operator to place at least one well on the lease in a producing status within 60 days of receipt of such order in accordance with the regulations at 43 CFR 3107.2-3.
Federal Lease is in its Primary Term
If the AO determines that any well on the lease is not capable of producing oil or gas in paying quantities, or does not have a beneficial use, the AO will send the operator a written order requiring the operator to demonstrate that the well is capable of producing oil or gas in paying quantities or has a future beneficial use. If the operator cannot demonstrate that the well is capable of producing oil or gas in paying quantities or has a future beneficial use, the AO will require the operator to submit plans to promptly plug and abandon the well. The AO must not wait until the lease reaches the end of its primary term before taking action to require the operator to plug and abandon any uneconomic wells.
On Indian leases (except those excluded by statute), when the AO determines that a well is no longer capable of producing oil or gas in paying quantities, the AO will notify the Bureau of Indian Affairs (BIA) in writing. The terms and conditions of individual Indian leases will vary. The AO must not send the operator a 60-day letter prior to coordinating with the BIA. The BIA will make the final determination for extensions and terminations of Indian oil and gas leases.
Each state office must submit to the Washington Office Division of Fluid Minerals (WO-310) a consolidated annual report tracking idle well reviews. This report will be due 30 days after the close of the fiscal year. The annual reports must identify the leases that were reviewed and the wells that were reviewed on each lease, and describe what follow-up action the AO performed. All idle well reviews must be documented in the applicable lease file (see Attachment 3 for the idle well review tracking sheet with required information). AFMSS is unable to generate an annual tracking report at this time. It is anticipated that AFMSS will be able to accomplish this task in an updated version.
Timeframe: This policy is effective upon issuance.
Budget Impact: This policy will result in increased demand on staff time to perform the idle well reviews, enter the required idle well review information into AFMSS, document the information in the applicable lease file, take necessary follow-up actions, and prepare annual reports. Therefore, this policy will have a moderate impact to field office oil and gas budgets.
Background: The Energy Policy Act of 2005 (EPAct) requires the Secretary of the Interior, in cooperation with the Secretary of Agriculture, to establish a program to “remediate, reclaim, and close…idled wells.” An idle well is defined in the EPAct as any well that has been non-operational for at least 7 years and has no anticipated future beneficial use. Recent BLM records indicate that there are 4,812 wells that have been idle for at least 7 years; 921 wells that have been idle for at least 25 years (Attachment 2), and 318 wells that have been idle for at least 50 years.
The Government Accountability Office (GAO) released report GAO-11-292, Oil and Gas Bonds: BLM Needs a Comprehensive Strategy to Better Manage Potential Oil and Gas Well Liability, in February 2011. The GAO found that most BLM offices are not doing an adequate job managing all the idle wells located on Federal land, or making relevant progress in reducing the idle well inventory. The GAO recommended that the BLM take necessary steps to reduce the Federal Government’s potential liability with respect to idle wells.
In their response to the GAO Report, the Department of the Interior (DOI), Assistant Secretary for Land and Minerals Management, accepted all of the GAO’s findings and recommendations. As follow-up to the subject GAO report, WO-310 agreed to update the BLM idle well review policy, including direction to reduce the idle well inventory.
Manual/Handbook Sections Affected: BLM Handbook H-3107-1, Continuation, Extension, or Renewal of Leases, will incorporate the policy stated in this IM the next time the handbook is updated.
Coordination: Representatives from WO-310, all state offices, and the Washington Office Solicitor helped develop this IM.
Contact: If there are any questions concerning this IM, please contact me, Michael Nedd, Assistant Director, Minerals and Realty Management at 202-208-4201. Your staff may contact Steven Wells, Division Chief, Washington Office Division of Fluid Minerals (WO-310), at 202-912-7143 or firstname.lastname@example.org,or John Ajak, Petroleum Engineer, Washington Office Division of Fluid Minerals (WO-310), at 202-912-7147 or email@example.com. AFMSS-related questions may be directed to Caroline Larson, BLM AFMSS Technician, at 406‑233-3655 or firstname.lastname@example.org
Signed by: Authenticated by:
Michael Nedd Robert M. Williams
Assistant Director Division of IRM Governance,WO-560
Minerals and Realty Management
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