State regulator raises bonds required for drilling

Sunrise on the North Slope behind the two new Parker drilling rigs. (Photo courtesy Kevan Dee)

The regulator that oversees oil and gas drilling in Alaska wants to increase the bond amount it charges companies that drill in the state.

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The bonds are meant to cover the cost of plugging wells and abandoning them. But in some cases, it’s not enough. For example, the state currently has just one $200,000 bond to cover the cost of plugging and abandoning all of BP’s wells at Prudhoe Bay.

Alaska Oil and Gas Conservation Commissioner Hollis French says when a company goes bankrupt or stops operating and leaves without plugging its well properly the state is on the hook to pay for cleanup.

“I think the easy way to think about bonds is like a security deposit on an apartment. When you rent an apartment you put down a security deposit to make sure you leave it just the way you found it and it’s the same concept with these wells. If you clean up after yourself and do all the work, then you get your bond back,” French said. “But if you don’t, the landlord, the state, is holding some money to do the work itself. ”

The commission is proposing a sliding scale based on how many wells an operator has. At minimum, a company would pay $500,000 for one or two wells. That figure goes up to $30 million for companies with more than 3,500 wells.

French says the commission will collect additional bonds from companies already operating in the state. In BP’s case, the company operates about 1,776 wells and would owe the state about $20 million. Companies already operating in the state will have four years to come up with the money.

The commission is taking comments on the new fees until October 16 and will hold a public hearing on that day in Anchorage. French said they hope to have the new regulations in place by the beginning of 2019.