U.S. DEPARTMENT OF THE INTERIORBUREAU OF LAND MANAGEMENT
UNITED STATES DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
WASHINGTON, D.C. 20240
July 3, 2013
In Reply Refer To:
3100 (310) P
Instruction Memorandum No. 2013-151
To: All Field Officials
From: Assistant Director, Minerals and Realty Management
Subject: Oil and Gas Bond Adequacy Reviews DD: 04/30/2014
Program Areas: Federal Oil and Gas Operations and Lease Adjudication.
Purpose: This Instruction Memorandum (IM) supplements existing policy and guidance for conducting bond adequacy reviews for operations on Federal oil and gas leases. This updated policy requires that Bureau of Land Management (BLM) field offices regularly review oil and gas bonds to determine whether the bond amount appropriately reflects the level of potential risk (liability) posed by the operator. This IM does not address Indian oil and gas bonds; appropriate provisions at 25 CFR, Subchapter I, govern these bonds.
Policy/Action: Each BLM field office administering an oil and gas program will perform bond adequacy reviews on all bonds at least once every 5 years or whenever a bond review is warranted. It is the responsibility of the state office to raise the bond amount above the minimum required by the regulations when there is an unacceptable degree of risk and potential liability to the Federal Government for the plugging and reclamation costs of non-plugged wells. The authorized officer (AO) may require an increase in the amount of any bond, in accordance with 43 CFR 3104.5 (b), whenever the operator poses an unacceptable risk due to factors including, but not limited to:
The operator compliance history becomes the largest factor for the measure of risk, including drilling without an approval (DWOA) as described in Attachment 1. To assist the field with their review of bonds, the instructions and worksheets attached to this IM and listed below are to be used during the review:
The BLM field offices will perform adequacy reviews on all bonds using the Bond Adequacy Review Instructions (attachment 1) and the Bond Adequacy Review Point System Worksheet (attachment 3) to determine how much to adjust the bond (if necessary). If the bond being reviewed is a statewide or nationwide bond, the field office is only required to review the wells within their field office. It is also appropriate to review bonds:
If the Forest Service requests the BLM to increase the bond amount, the BLM will conduct a review to determine if the bond should be adjusted. However, to be consistent with the BLM Bond Adequacy Review policy, as established in this IM, the AO will ensure that the bond amount meets the minimum, but does not exceed the maximum amount set by the prescribed point system as outlined in attachment 1.
Prior to approval of an APD, the BLM will require a bond in an amount equal to the actual costs to plug and abandon the subject well and adequately reclaim the lands if the same operator has caused the BLM to make a demand for payment under a bond within the 5-year period prior to submission of the APD.
The record title owner, operating rights owner, or operator may post a lease, statewide, or nationwide bond. The unit operator may post a unit bond. If the AO determines that the bond amount is insufficient, the AO will take the necessary steps to increase the bond as provided in attachment 2. If the AO determines that it is necessary to raise one of the operator’s lease bonds, it is not appropriate to automatically raise any other lease bond the operator may hold without documenting the specific bond adequacy determination. A lease bond is lease (property) specific. To increase the amount of a statewide or nationwide bond, the AO will require the operator to file a bond rider to specify the designated liability on the bond so that any other demands on the bond cannot draw on that rider.
If the operator reduces the liability covered by the bond by undertaking normal operating practices, such as plugging and abandoning a well(s) and adequately reclaiming all associated surface disturbance; upon request by the operator, the AO may consider reducing the bond amount in accordance with the attached Bond Adequacy Review Instructions. However, the remaining bond amount cannot be less than the minimum regulatory amount.
Authorized Officer Discretion:
To provide maximum flexibility across the range of scenarios likely to be encountered, the AO has the discretion to override a bond increase to the prescribed amount as outlined in attachment 1, primarily in the following situations:
If the AO chooses to override the points assigned by the worksheet or the prescribed amount of bond increase, the AO must document and file the reason(s) and considerations that the points were overridden and why the bond was not increased by the prescribed amount in the case file. The AO responsibility is to monitor this situation to ensure adequate bonding for any unforeseen changes in the lease-specific operations and manage the overall risk to the public lands as appropriate.
Bond Adequacy Calculation:
The potential exposure of risk is measured by the degree of operation soundness. The BLM will measure this risk by three factors:
The point totals for each of these factors trigger an increase in bond calculated as $500 per point of risk as shown in attachment 3.
Automated Fluid Minerals Support System (AFMSS) Data Entry Requirements:
It is mandatory that the field office timely and accurately enters all bonds into the Automated Fluid Minerals Support System (AFMSS) and that the field office verifies and ties all Federal wells (not State or fee wells) to the appropriate bond number. The field office must enter bond information into AFMSS as soon as the AO approves an APD. However, the field office may enter the information at the time the field office receives an APD.
The AO will verify that the field office has entered all active bonds into AFMSS and the field office made the appropriate association to all Federal wells. The field office must enter bond adequacy review data into the AFMSS bond review screen within 5 days of conducting the bond adequacy review (see attachment 5 for instructions). The field office must always document the bond review in the applicable case file. In addition, the Bond and Surety System is the BLM’s official database for all oil and gas bonds. To preserve accurate recordation, the field office must update the Bond and Surety system as well. When the AO approves a Final Abandonment Notice, the field office must remove the well from the associated bond number in AFMSS and update the Bond and Surety System accordingly.
For oversight, transparency, and to address questions from audits, the Legislative Branch, and other stakeholders, all state offices with an oil and gas program must submit a consolidated semi-annual bond adequacy review report to the Washington Office (WO) Division of Fluid Minerals (WO-310). A report covering the first and second quarters (October – March) of each fiscal year is due by April 30 of each year. A report covering the third and fourth quarters (April – September) is due by October 31 of each year. The state office will run the AFMSS “Bonds Reviewed Report” (GLB.102) for each of their field offices and submit a statewide, consolidated report to WO-310. Please refer to attachment 5, AFMSS Bond Adequacy Review Instructions, for directions to run this report in AFMSS. This report will list the bonds that the field offices reviewed (bond number), whether the field office increased/decreased the bond (if any), the amount of the increase/decrease (if any) for each bond, and a short cover letter narrative summarizing the activity. The first semi-annual report is due April 30, 2014.
What Existing Policies Pertain to Bond Adequacy Processing?
For reference, the following is a list of IMs that pertain to the Bond Adequacy process:
Bond Adequacy- Related IMs:
IM 2010-161, July 2010,
IM 2008-122, May 2008,
IM 2006-206, August 2006,
Timeframe: This policy is effective upon issuance.
Implementation Plan: All state offices with an oil and gas program must submit a consolidated semi-annual bond adequacy review report to the Washington Office (WO) Division of Fluid Minerals (WO-310). A report covering the first and second quarters (October – March) of each fiscal year is due by April 30 of each year. A report covering the third and fourth quarters (April – September) is due by October 31 of each year. The first report is due to WO-310 by April 30, 2014.
The report should include the following:
Budget Impact: This policy will increase the time needed to perform the bond adequacy reviews, documentation, and reporting, and result in a moderate impact to oil and gas budgets with less time available for oversight and permitting.
Background: The Government Accountability Office (GAO) released Report 11-292, entitled, “Oil and Gas Bonds: BLM Needs a Comprehensive Strategy to Better Manage Potential Oil and Gas Well Liability,” in February 2011 (http://www.gao.gov/new.items/d11292.pdf). The GAO found that current BLM policy for deciding when to increase a bond is vague and creates ambiguity about whether a field office should request a bond increase and whether the AO should approve the request. The GAO recommended “revising the bond adequacy review policy to more clearly define terms and the conditions that warrant a bond increase.”
In our response to the GAO Report, the Department of the Interior, Assistant Secretary for Land and Minerals Management (ASLM), accepted all of the GAO’s findings and recommendations. Specifically, the ASLM agreed to update the BLM current bond adequacy review policy to ensure that BLM state and field offices require the appropriate bond amount, including any warranted increase.
The regulations at 43 CFR 3104.5 (b) authorize the AO to increase the amount of any bond whenever it is determined that the operator poses a risk due to factors including, but not limited to:
The record title owner, the operating rights owner, or the operator can request a State Director Review whenever the AO issues a decision to increase any bond (43 CFR 3165.3). The AO will attach appropriate appeals language to all bond increase decisions.
Manual/Handbook Sections Affected: The BLM Handbooks H-3104-1, Bonds, and H-3106-1, Assignments and Other Transfers, will incorporate this interim policy during their next revision.
Coordination: Representatives from WO-310, all state offices, and the Office of the Solicitor coordinated in the development of this IM.
Contact: If there are any questions concerning this IM, please contact me at 202-208-4201. Your staff may contact Steven Wells, Division Chief, WO-310, at 202‑912-7143 or firstname.lastname@example.org, or John Ajak, Petroleum Engineer, WO-310, at 202-912-7147 or email@example.com. For questions related to AFMSS, you may contact Carol Larson, BLM AFMSS Technician, 406-233-3655 or firstname.lastname@example.org.
Signed by: Authenticated by:
Michael Nedd Catherine Emmett
Assistant Director Division of IRM Governance
Minerals and Realty Management