Enforcement Procedures Associated with BLM Requests to Increase Oil and Gas Bonds

United States Department of the Interior
BUREAU OF LAND MANAGEMENT
Wyoming State Office
P.O. Box 1828
Cheyenne, WY 82003-1828
In Reply Refer To:
3100/3160/3180 (921Gamper) P
October 28, 2016
EMS TRANSMISSION: 11/1/2016
Instruction Memorandum No. WY-2017- 003
Expires 09/30/2020
To: District Managers and Deputy State Director, Minerals and Lands
From: State Director
Subject: Enforcement Procedures Associated with Bureau of Land Management (BLM)
Requests to Increase Oil and Gas Bonds
Program Area: Federal Oil and Gas Operations and Lease Adjudication. This Instruction Memorandum (IM) does not apply to Indian Oil and Gas Bonds, which are administered by the Bureau of Indian Affairs, or Split-Estate Bonds submitted under the regulation at
43 CFR 3814.1(c).
Purpose: The Wyoming (WY) State Office Division of Minerals and Lands, continues to be concerned about potential liability in Wyoming from oil and gas operations on Federal leases. This includes, but is not limited to: (1) large oil/gas companies selling their properties to small independents, (2) the growing number of Federal wells in Wyoming that have been shut-in for an extended period of time, (3) potential insufficient bond coverage, and (4) increased number of companies filing for bankruptcy.
This policy is intended to establish the enforcement process to be used for Federal operations in WY as they relate to Washington Office (WO) IM No. 2013-151 (WO IM No. 2013-151),
Oil and Gas Bond Adequacy Reviews, and applicable regulations.
Policy/Action: In accordance with the WO IM No. 2013-151, each BLM Field Office administering an oil and gas program will perform bond adequacy reviews on all oil and gas bonds at least once every 5 years or whenever a bond review is warranted. It is the responsibility
of WY-923 to require the operator (or bond principal, as appropriate) to raise the bond above the existing amount whenever there is an unacceptable degree of risk and/or potential liability to the Federal Government for the plugging and reclamation costs of unplugged wells. The Field Manager (AO) has been delegated authority to take enforcement actions for noncompliance (See 1203 Wyoming Delegation of Authority Manual Supplement for additional information).
Also, the AO may ask WY-923 to increase the amount of any bond, in accordance with the regulation at 43 CFR 3104.5(b), whenever the operator poses a risk due to factors including, but not limited to:
1. A history of previous violations;
2. A notice from the Office of Natural Resources Revenue that there are uncollected
royalties due; or
3. The total cost of plugging existing wells and reclaiming lands exceeds the present
bond amount.
In order to help ensure proper bond increase compliance, it is the policy of BLM WY that all decisions issued by WY-923 requiring an increase in the operator’s bond will include the following enforcement and appeals language:
You have 60 Calendar Days from receipt of this letter to file a new bond or a rider to your existing bond in the amount specified in this decision. The terms of Federal oil and gas leases and the regulations at 43 CFR 3104.1(a), 3162.3(a) and 3162.3-1(d) (3) specify that a sufficient oil and gas bond is required to drill and/or operate wells on Federal oil and gas leases, and to otherwise ensure compliance with the Mineral Leasing Act of 1920, as amended.
New operations may not be allowed on any Wyoming or Nebraska Federal lease covered by this bond until the requested bond amount is submitted to and accepted by the BLM. Failure to timely comply with this decision is a violation and will result in the issuance of an Incident of Noncompliance in accordance with the regulation at
43 CFR 3163.1(a)(2). Continued noncompliance may result in assessment of civil penalties, the shutdown of all operations covered by the bond, lease termination, or lease cancellation.
Under provisions provided for in 43 CFR 3165.3, you may request a State Director Review of this decision. This request must be filed within 20 business days of receipt of this letter with the Wyoming State Director, Bureau of Land Management, P.O. Box 1828, Cheyenne, Wyoming, 82001-1828.
All programs involved in reviewing and requesting bond increases, will adhere to the following process improvement steps.
1. After completing a bond adequacy review, the AO will prepare and transmit a memo requesting the recommended bond increase amount to WY-923 within 10 business days following the review. Please include a copy of the Bond Adequacy Review Worksheet with the bond memo. The AO will timely input all required data into the Automated Fluid Minerals Support System (AFMSS) including entering the date of transmittal into the appropriate AFMSS screen (Date Recommended).
2. WY-923 will prepare and transmit the Additional Bond Amount Required decision letter, including noncompliance and appeals language, to the operator. A carbon copy should be provided to all Field and District Offices if the requested bond increase is for a statewide or nationwide bond. For good cause, WY-923 may approve a timely request from the operator for an extension of time to comply with the decision letter. WY-923 will track bond increase requests and bond increase amounts for reporting purposes.
3. If the operator does not submit a new bond or rider in the correct amount to WY-923 within 60 calendar days, WY-923 will notify the appropriate AO within 10 business days. If the bond is a statewide or nationwide bond, WY-923 will send electronic notification to all Wyoming Offices advising that the operator’s statewide or nationwide bond is inadequate.
4. The AO, WY-921, and WY-923 will then follow the process outlined in Attachment 1, Bond Increase Noncompliance Enforcement Procedures.
This policy is also intended to re-emphasize that the AO has considerable discretion in determining proper bond amounts. However, if the AO chooses to override the points assigned by the worksheet or the prescribed amount of bond increase found in WO IM No. 2013-151, the AO must document the reason(s) why the bond was not increased by the prescribed amount in the case file. The AO may also decide to increase the bond as described at 43 CFR 3104.5(b).
Timeframe: This policy is effective upon issuance.
Budget Impact: This policy will increase the time needed to follow up on any operator noncompliance issues as described in Attachment 1. Therefore, this policy may result in a slight to moderate impact to oil and gas budgets and workload when noncompliance is involved. However, this policy may actually reduce future adverse impacts to the BLM’s budget by decreasing the risk and potential liability in WY from oil and gas operations on Federal leases.
Background: WO IM No. 2013-151, Oil and Gas Bond Adequacy Reviews established policy requiring the AO to perform bond adequacy reviews on all oil and gas bonds at least once every 5 years or whenever a bond review is warranted. It is the responsibility of WY-923 to issue the Additional Bond Amount Required decision letter to the operator to raise the bond above the existing amount whenever there is an unacceptable degree of risk and potential liability to the Federal Government for the plugging and reclamation costs of unplugged wells.
This IM specifically addresses those situations when the operator does not submit the bond increase as required by the AO and WY-923. Additional enforcement procedures are provided in H-3160-5, INSPECTION AND ENFORCEMENT DOCUMENTATION AND STRATEGY DEVELOPMENT HANDBOOK, and are summarized in Attachment 1.
Coordination: This IM was coordinated with BLM WY District and Field Offices; the Rocky Mountain Regional Solicitor’s Office; and the WO, Division of Fluid Minerals (WO-310).
Contact: If you have questions about the contents of this IM, please contact either Michael Madrid (WY-921) mmadrid@blm.gov, at 307-775-6201 or Chris Hite (WY-923) chite@blm.gov, at 307-775-6176.
Signed by: Authenticated by:
Mary Jo Rugwell Jessica Camargo
State Director State Director’s Office
1 – Attachment
1: Bond Increase Noncompliance Enforcement Procedures (3 pp)
Distribution:
Director (300), MS 5625 1 w/atch.
Field Managers 1 w/atch.
Branch Chief (WY-921) 1 w/atch.
Branch Chief (WY-923) 1 w/atch.
Central Files 2 w/atch.
WYOMING’S (WY) BOND INCREASE NONCOMPLIANCE ENFORCEMENT PROCEDURES
If the operator does not comply with WY-923’s decision to increase the oil and gas bond amount as required, the Bureau of Land Management (BLM) WY will implement the following enforcement procedures. The Field Manager (AO) is responsible to ensure timely and accurate AFMSS data entry during this entire process.
1. After the 60-day timeframe identified in the bond increase decision, within 10 business days, WY-923 will notify the applicable AO that the operator did not comply with the bond increase decision. If the bond is a statewide or nationwide bond, WY-923 will send electronic notification to all WY Field Offices advising that the operator’s statewide or nationwide bond is inadequate. For recommended increases to a nationwide bond,
WY-923 will also notify all BLM State Offices via established communication protocols with a request for the bond status be changed to “restricted” in the LR2000 Bond and Surety system so as to alert anyone viewing the bond that an increase was requested but has not been received.
2. Where BLM WY is the administering State of the Federal bond, WY-923 will change the status of the bond to “restricted” in the LR2000 Bond and Surety system, so as to alert anyone viewing the bond that an increase was requested but has not been received.
3. Failure to comply with WY-923’s decision to raise the bond is considered to be a minor violation. See Handbook 3160-5-1 INSPECTION AND ENFORCEMENT DOCUMENTATION AND STRATEGY DEVELOPMENT HANDBOOK, for additional instruction.
4. The AO will issue an Incident of Noncompliance (INC) to the operator for failure to comply with WY-923’s decision to increase the bond.
When the subject bond is a lease bond, only the applicable lease will be identified on the INC form. When the subject bond is a statewide or nationwide bond, all applicable Federal leases attached to the bond (only leases located within the Field Office that performed the bond review) will be identified on the INC form. When the subject bond is a unit bond, all Federal leases committed to the unit will be identified on the INC form. Generally, the abatement period should be set at 20 calendar days. For good cause, the AO may approve a timely request from the operator for an extension of time to comply with the INC.
If the operator timely submits the required new bond or rider, WY-923 will notify the AO when the bond increase was received.
If the abatement period has expired, the AO will contact WY-923 and verify whether the operator submitted the required new bond or rider in the correct amount.
5. If the operator fails to comply with the INC, the AO will issue a second INC with assessment for failure to comply with the first INC. The AO will send a carbon copy of
the INC to all applicable record title and operating rights owners. The AO will notify all recipients that continued noncompliance may result in an order to shut down all operations, the assessment of civil penalties, potential lease termination, or lease cancellation.
6. If the operator fails to comply with the second INC, the AO will issue a Notice to Shut Down Operation. The shutdown of operations will apply to all operations on the leases located within the applicable Field Office area. The AO will send a copy of the Notice to all record title and operating rights owners. The abatement period to shut down all operations shall take into consideration the number of wells involved, but generally should not be less than 20 calendar days.
Even if the operator’s wells are already shut-in or if some of the wells are shut-in, the AO will still issue a formal shutdown order to the operator.
At the end of the abatement period associated with the shutdown order, the AO shall verify shutdown compliance. If the wells have not been shutdown as ordered, the AO will attach Federal seals to all necessary equipment.
7. If the operator fails to comply with the second INC, the AO will also issue a Notice of Proposed Civil Penalties to the operator with a carbon copy to all applicable record title and operating rights owners. A copy of the Notice of Proposed Civil Penalties should also be sent to the WY-921 Inspection and Enforcement Coordinator and to the DO Energy Resource Advisor.
8. If the operator fails to respond to the Notice of Proposed Civil Penalties, the AO will initiate the Billing and Demand for Payment process.
9. If the operator fails to respond to the Notice of Proposed Civil Penalties, the AO will also issue a Notice of Written Order to the current record title owners requiring them to either comply with the bond increase decision, or provide a plan to plug all the wells, remove all the infrastructure, and reclaim all the disturbed surface. The Notice of Written Order should indicate that the reclamation activities must be completed in accordance with the approved Application for Permit to Drill (APD), or require the record title owners to submit a reclamation plan if the APD did not have a reclamation plan.
10. If the record title owners do not respond to the Notice of Written Order, the AO will repeat the process similar to the steps in 4, 5, 7, and 8 above.
11. If the record title owners do not respond to the Notice of Proposed Civil Penalties, the AO will make a formal request to WY-923 to attach the bond, with a carbon copy of the request sent to the Branch Chief, WY-921.
12. The AO will determine whether the lease(s) is capable of producing hydrocarbons in paying quantities. If the lease(s) is not capable of producing in paying quantities, the AO will notify WY-923. WY-923 will proceed with lease termination. If the lease(s) is capable of producing in paying quantities, the AO will notify WY-923. WY-923 will coordinate with the Regional Solicitor and the Department of Justice to cancel the lease(s).
13. The AO will take appropriate action as described in WO IM No. 2012-131, Entities in Noncompliance with Section 17(g) of the Mineral Leasing Act of 1920. Also, refer to the regulation at 43 CFR 3102.5-1. The Act prohibits the Secretary from issuing an oil and gas lease or approving an assignment or transfer of an oil and gas lease to any entity that has failed or refused to comply with reclamation requirements until such time the noncompliance is resolved to the satisfaction of the AO. The AO will notify WY-921 when entities are potentially eligible to be added to the Section 17(g) list. WY-921 will determine if the entity meets the requirements for listing, and prepare the notification letters to the affected parties; WY-923 will sign the notification letters and distribute as appropriate to WY-923 staff that are responsible for processing leasing actions. WY-921 will then notify WO-310 to place the entity on the 17(g) list.