Federal Reimbursement for Orphaned Well Reclamation; Section 349(f) of the Energy Policy Act of 2005 (EPAct)

UNITED STATES DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
WASHINGTON, D.C. 20240
http://www.blm.gov

August 30, 2007

In Reply Refer To:
3100 (310) P

EMS TRANSMISSION 09/05/2007
Instruction Memorandum 2007-180
Expires: 09/30/2008

To: State Directors – California, New Mexico, and Wyoming

From: Assistant Director, Minerals, Realty and Resource Protection

Subject: Federal Reimbursement for Orphaned Well Reclamation; Section 349(f) of the Energy Policy Act of 2005 (EPAct)

Program Area: Oil and Gas

Purpose: This Instruction Memorandum (IM) establishes the procedure for a pilot program providing a royalty credit against the Federal share of royalties when a lessee plugs and/or reclaims an orphaned well on Federal lands that the lessee is not legally responsible to reclaim.

Policy/Action: The EPAct allows the Secretary of the Interior to reimburse a lessee for “reasonable actual costs” for plugging and reclaiming orphaned wells. An orphaned well, for the purpose of this pilot program, is defined as an abandoned well that is not associated with a responsible or liable party and for which there is not sufficient bond coverage for plugging and surface restoration costs.

The pilot program applies only to Federal land under the jurisdiction of the California, New Mexico and Wyoming State Offices. When any Federal lessee or his agent plugs an orphaned well or reclaims the surface of an orphaned well site on Federal lands, the lessee may enter into an agreement with the Authorized Officer (AO) to obtain a credit against a portion of the royalties due under the lessees’ Federal leases located on public domain lands in the same state as a method of reimbursing the lessee for the plugging or reclamation costs. The orphaned well may be a well on any leased or un-leased Federal land that the lessee is not legally responsible to reclaim.

To implement the pilot program, the State Offices (SO) in California, New Mexico and Wyoming should notify all lessees/operators within its administrative area of the pilot program. This notification should include:

(1) the text of Section 349(f);

(2) a current list of the orphaned wells within the administrative area;

(3) a statement that the royalty credit may only be applied to 50 percent of the royalty due for any production month under leases on public domain lands issued under the Mineral Leasing Act (MLA), 30 U. S. C. 181 et seq.; within the same State in which the orphaned well is located;

(4) a SO contact person for future orphaned wells and other information. (For efficiency, SOs may make a commitment to post future orphaned well lists on their respective public web sites. If any lands offered for lease contain an orphaned well(s), the lease sale notice shall list the location and other appropriate orphaned well information.)

Before undertaking any plugging and reclamation work under this program, the lessee must enter into an agreement with the AO. The BLM will prescribe the form and content of this agreement. The lessee must obtain prior approval of the work planned and the type and estimated amount of costs (costs for the elements of the planned work) before undertaking any plugging or reclamation work. After the work is completed the lessee must submit an itemized statement of the costs incurred. The AO must ensure that the lessee submits sufficient documentation to enable a determination that the costs are reasonable. If the AO determines that the costs are reasonable the AO will approve the royalty credit amount. The AO must then notify by memorandum, the SO, Washington Office (WO-310), and the Minerals Management Service, Chief, Financial Management, (MMS/FM) P.O. Box 5810, Denver, Colorado, 80217-5810, of the credit and the amount.

A royalty credit earned by one party may be transferred or sold to any other party (who may further transfer or sell it again) on the condition that the transferee specifically agrees to the terms governing the credit to which the lessee agreed. The parties involved are responsible for notifying the MMS/FM of any royalty credit transfers and submit the transferee’s written agreement. The BLM will specify the form and content of the agreement.

The AO for this program is the State Director (SD). However, the SD may delegate the authority to FO Managers.

Timeframe: The pilot program is effective October 1, 2007, and will terminate at the end of Fiscal_Year 2009. If the pilot program proves to be successful, regulations may be promulgated to carry out a permanent reimbursement program.

Budget Impact: Although this involves a new workload item, -the overall budget impact is relatively minor.

Background: Section 349(f) of the EPAct established the authority to provide for a royalty credit against “the Federal share” of royalties when a lessee plugs and reclaims any orphaned well on Federal lands. The number of orphaned wells is small relative to the number of wells that we supervise. Also, the Federal cost to plug and reclaim those wells is small relative to the royalty and bonus income received from Federal oil and gas minerals. Nevertheless, the Federal funds expended to plug and reclaim the wells would come entirely from the BLM’s operating budget in the absence of Section 349(f). Section 349(f) allows the plugging of orphaned wells
without expending agency operating funds if a lessee decides it wants to participate in the program.

Manual/Handbook Sections Affected: None.

Coordination: This IM has been coordinated with the MMS/FM, the Office of the Solicitor and several State/Field Offices.

Contact: Rudy Baier, Senior Operations Specialist, (WO-310), at 202-452-5024; or by e-mail at rudy_baier@blm.gov.

Signed by:
Authenticated by:
Michael D. Nedd
Robert M. Williams
Assistant Director
Division of IRM Governance,WO-560
Minerals, Realty and Resource Protection