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O 152
20 AAC 25.025 Bonding Regulations Other 152 1. May 3, 2017 Notice of public hearing; affidavits of publication, email distribution, and mailings and sign in sheet for workshop 2. July 25, 2017 AOGA Comments 3. August 14, 2018 File Opening Request 4. August 14, 2018 Notice of public hearing; affidavits of publication, email distribution, mailings, Comments, transcript and sign in sheet 5. October 22, 2018 Second Notice of public hearing; affidavits of publication, email distribution, mailings, Comments, transcript and sign in sheet 6. March 11, 2019 Email between AOGCC and DOA 7. March 19, 2019 Final Regulations Package to Juneau and Agency -Attorney Review Memorandum It MEMORANDUM To: The Honorable Kevin Meyer Lieutenant Governor Thru: Susan R. Pollard Chief Assistant Attorney General and Regulations Attorney Legislation and Regulations Section }e From: Steven C. Weaver C 1—.1 C Senior Assistant Attorney General and Assistant Regulations Attorney Legislation and Regulations Section State of Alaska Department of Law Date: March 27, 2019 File No.: 2018200786 Tel. No.: 465-3600 Re: Alaska Oil and Gas Conservation Commission regulations re: bonding (20 AAC 25.025) The Department of Law has reviewed the attached regulations of the Alaska Oil and Gas Conservation Commission against the statutory standards of the Administrative Procedure Act. Based upon our review, we find no legal problems. This memorandum constitutes the written statement of approval under AS 44.62.060(b) and (c) that authorizes your office to file the attached regulations. The regulations were adopted by the Alaska Oil and Gas Conservation Commission after the close of the public comment period. The regulations update bonding requirements, ensuring that bonding amounts are sufficient for the state to plug and abandon wells if operators go bankrupt and walk away from regulatory duties to properly plug and abandon wells. The August 15, 2018 public notice, the October 22, 2018 second public notice, and the December 5, 2018 certification of adoption order all state that this action is not expected to require an increased appropriation. Therefore, a fiscal note under AS 44.62.195 is not required. We note that the regulations have five placeholders for dates that are tied to the effective date of the regulations. The first placeholder, one of our technical corrections to the introductory language of 20 AAC 25.025(c), is identified by the notation {effective date of regulations) in braces. When the regulations are filed, and the effective date becomes known, please replace the placeholder in braces with the actual effective date of the regulations. For example, if the regulations are filed April 5, 2019, please strike over the placeholder, and substitute the date "May 5, 2019". The second placeholder, in 20 AAC 25.025(c)(1) is identified by the phrase "«insert date 90 days after the effective date of these regulation>>" enclosed in double angled brackets. When the regulations are filed, and the effective date becomes known, please replace the placeholder in double angled brackets with the actual date that is exactly 90 days after the Hon. Kevin Meyer, Lieutenant Governor Our file: 2018200786 effective date of the regulations. March 27, 2019 Page 2 The third placeholder, in 20 AAC 25.025(c)(2) is identified by the phrase "«inert date one year after date specified in (1) of this subsection»" enclosed in double angled brackets. When the regulations are filed, and the effective date becomes known, please replace the placeholder in double angled brackets with the actual date that is 90 days plus one year after the effective date of the regulations. The fourth placeholder, in 20 AAC 25.025(c)(3) is identified by the phrase "«inert date two years after date specified in (1) of this subsection>>" enclosed in double angled brackets. When the regulations are filed, and the effective date becomes known, please replace the placeholder in double angled brackets with the actual date that is 90 days plus two years after the effective date of the regulations. The fifth placeholder, in 20 AAC 25.025(c)(4) is identified by the phrase "«inert date three years after date specified in (1) of this subsection>>" enclosed in double angled brackets. When the regulations are filed, and the effective date becomes known, please replace the placeholder in double angled brackets with the actual date that is 90 days plus three years after the effective date of the regulations. We have made some technical corrections to conform the regulations in accordance with AS 44.62.125. The corrections are shown on the attached copy of the regulations. cc: Dan Seamount, Commissioner Alaska Oil and Gas Conservation Commission Jessie Chmielowski, Commissioner Alaska Oil and Gas Conservation Commission Paula Vrana, Special Assistant and Regulations Contact Department of Administration Jody Colombie, Special Assistant Alaska Oil and Gas Conservation Commission Thomas Ballantine, Senior Assistant Attorney General Natural Resources Section Register 1 2019 MISCELLANEOUS BOARDS FJAAc 25 02S >I 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, plugged and abandoned and each location is cleared in accordance with this chapter. The bond must be ![1e,.xM�IU Y (1) A surety bond issued on Form 10-402A in favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or 0 LC -'O-ht to i (2) A personal bond of the operator on Fenn 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the A 6.ft 1, commission determines to be adequate to ensure payment. A bond, and if required, security must be in the amount specified in the following 1;e1Qrliy ,k„Sa table: be in ��ufl �rV,aa. 1-10 wells 11aa. 1140 wells Number of Permitted Wellheads Bond Amount in 1-10 wells $400,000 per well 1140 wells $6,000,000 �x 41-100 wells $10,000,000 414 Register , 2019 MISCELLANEOUS BOARDS 10 -1000 wells $20,000,000 Over 1000 wells $30,000,000 i 2) R,r (1�}-Far the purposes of this section, a wellhead is considered any well excepting i r lateral well branches drilled from an existing welfor which the commission has issued a permit \( f nrn.. 10.40I)� ) to drill that has not been permanently plugged and abandonedt I 'A f/tom/e� c� ' equest of an operator, oro its own motion, the commission may yyouCI nr +t.i•: increase or decrease the amounts set 944h in subsection (lag' based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts. J 1 //JJ (c) An operator with a bond and, if required, security in place ese r 4t.rnrrerrieeriue will be allowed to increase the amount of its bond and, if required, security to the amount required under (b) of this section in four installments. The installments shall be made as follows Y (1) The first installment c; b due <<insert date 90 days after the effective date nw ,l �'� of these regulation» and be a minimum of $500,000 or onee quarter of the difference between the operator's existing level of bonding and, if required, security and the level required x¢c�io � � under s6e4en (b) of this*at1 whichever is eateIr itw (2) The second installment due <<insert date one year after date specified in s bseetian (1)» and 9QI be a minimum of $500,000 or oneeythird of the difference between the operator's existing of bonding and, if required, security and the level required under i o' ,i�oma, Ae ieu (b) of this #aft, whichever is greater S Register 2019 MISCELLANEOUS BOARDS y � f . ; (3) The thir stallment >S due <<insert date two years after date specified �� 1 in subsection» and Ube a minimum of $500,000 or one half of the difference between the operator's exisft level of bonding and, if required, security and the level required under StC�;on, s&tion (b) of this whichever is greaterzand (4) The final installment a due <<insert date three years after date specified c+)„f 1' rr si i ubsection ('t}�» and a�rall be in the amount of the difference between the operator's existin level of bonding and, if required, security and the level required under s4tion (b) of this rt: V (d) A bond and, if required, security must remain in effect until the operator's wells have been permanently plugged and abandoned in accordance with 20 AAC 25.105 and the commission approves final clearance of the locations. The commission may then, at the operator's request and depending upon the count of active permitted wellheads for the operator, release all or a portion of the bond and security upon written request of the operator. 4 Ce) The operator must provide written proof that the company that provides its bond or A security in accordance withseetiee (a) of this section has agreed to provide the commission before with written notification at least 90 days the expiration or termination of any bond or security. J (f) Payment under a surety bond or security does not relieve an operator from any other legal requirements. I/ (g) The commission will not approve a permit to drill application A, out of compliance with this section. Authority: AS 31.05.030 am / / Register EA5 3i.05.t501 M om As operator that is 4/f3/s6, Relioer 711j nn, Pedisfer 47i wa I1/7/R9, R,,j;rh._r IS.2; Register 1 2019 MISCELLANEOUS BOARDS 20 AAC 25.025 is repealed: 20 AAC 25.025. Bonding. Repealed. (Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; am _/ / , Register ) 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, plugged and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) A surety bond issued on Form 10-402A in favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) A personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. (b) A bond, and if required, security must be in the amount specified in the following table: Number of Permitted Wellheads Bond Amount 1-10 wells $400,000 per well 11-40 wells $6,000,000 41-100 wells $10,000,000 Register 2019 MISCELLANEOUS BOARDS 101-1000 wells $20,000,000 Over 1000 wells $30,000,000 (1) For the purposes of this section, a wellhead is considered any well (excepting lateral well branches drilled from an existing well) for which the commission has issued a permit to drill that has not been permanently plugged and abandoned. (2) Upon request of an operator, or on its own motion, the commission may increase or decrease the amounts set forth in subsection (b) based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts. c) An operator with a bond and, if required, security in place at the time these regulations become effective will be allowed to increase the amount of its bond and, if required, security to the amount required under (b) of this section in four installments. The installments shall be made as follows (1) The first installment shall be due <<insert date 90 days after the effective date of these regulations>> and shall be a minimum of $500,000 or one quarter of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, (2) The second installment shall be due «inert date one year after date specified in subsection (1)» and shall be a minimum of $500,000 or one third of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, Register 2019 MISCELLANEOUS BOARDS (3) The third installment shall be due <<insert date two years after date specified in subsection (1)» and shall be a minimum of $500,000 or one half of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, and (4) The final installment shall be due <<insert date three years after date specified in subsection (1)» and shall be in the amount of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part. d) A bond and, if required, security must remain in effect until the operator's wells have been permanently plugged and abandoned in accordance with 20 AAC 25.105 and the commission approves final clearance of the locations. The commission may then, at the operator's request and depending upon the count of active permitted wellheads for the operator, release all or a portion of the bond and security upon written request of the operator. e) The operator must provide written proof that the company that provides its bond or security in accordance with subsection (a) of this section has agreed to provide the commission with written notification at least 90 days prior to the expiration or termination of any bond or security. f) Payment under a surety bond or security does not relieve an operator from any other legal requirements. g) The commission will not approve a permit to drill application from as operator that is out of compliance with this section. (Eff. am " , Register_.) Authority: AS 31.05.030 7 MEMORANDUM State of Alaska To: Susan Pollard Dale: 3/19/2019 Chief Assistant Attorney General Section Supervisor TeL No.: 269-5232 Legislation and Regulations Section Steven Weaver Assistant Attorney General Legislation and Regulations Pronr Thomas Ballantine Senior Assistant Attorney General Natural Resources Section Department of Law AO. me Na. JU2018200786 RW. Regulations Review: bonding, 20 AAC 25.025 AGENCY -ATTORNEY REVIEW MEMORANDUM The Alaska Oil and Gas Conservation Commission ("AOGCC") has amended its bonding regulation, 20 AAC 25.025, in order to address problems created by its longstanding interpretation of 20 AAC 25.025 as requiring only a blanket bond of $200,000 to cover all of a given operators wells in the state. Prior to drafting the amended regulation, on June 6, 2017 AOGCC held an informal public workshop to obtain input from industry. After obtaining the input, AOGCC began drafting the new bonding regulations. On August 14, 2018 AOGCC provided notice of the proposed changes and a public hearing to be held October 16, 2018 on the proposed changes to 20 AAC 25.025. The notice was provided by 1) furnishing the proposed change to interested persons and the appropriate state officials, 2) transmitting the proposed change to incumbent state legislators, 3) furnishing the proposed change to the Legislative Affairs Agency, and 4) posting the proposed change on the Alaska Online Public Notice System. On August 15, 2018, AOGCC published the notice in the Anchorage Daily News. As a result of input received in connection with the October 16 hearing, AOGCC revised its proposed bonding regulations. On October 22, 2018, AOGCC provided notice of the revised changes and a public hearing to be held November 27, 2018 on those changes. The notice was provided by 1) furnishing the proposed change to interested persons and the appropriate state officials, 2) transmitting the proposed change to incumbent state legislators, 3) furnishing the proposed change to the Legislative Affairs Agency, and 4) posting the proposed change on the Alaska Online Public Notice System. Susan Pollard & Steven Weaver March 19, 2019 A.G. File No: JU2018200786 Page 2 On October 23, that notice was published in the Anchorage Daily News. The public hearing was held November 27, 2018. On December 5, 2018 the Commission adopted the changes to 20 AAC 25.025. Under the provisions of AOGCC's enabling act, AOGCC has authority to require "the furnishing of a reasonable bond with sufficient surety conditions for the performance of the duty to plug each dry or abandoned well or the repair of wells causing waste." AS 31.05.030(d)(4). The language of the current bonding regulation authorizes a bond of "not less than $100,000 to cover a single well or not less than $200,000 for a blanket bond covering all of the operator's wells in the state ..." 20 AAC 25.025. At the time 20 AAC 25.025 was adopted, operators in Alaska were limited to large financially stable corporate entities such as British Petroleum, Conoco Phillips and ExxonMobil. As a result, AOGCC began accepting $200,000 blanket bonds for all of an operator's wells. That practice continued to the present. However, in the last 5-8 years, as fields have matured and wells have been transferred, the operators have begun going bankrupt with increasing frequency, simply walking away from wells which have not been properly plugged and abandoned. Because some of those wells have been on land owned by the state, responsibility to properly plug and abandon the wells has fallen to the state. AOGCC has learned a $200,000 blanket bond is grossly inadequate to cover or defray in any meaningful way the costs of properly plugging and abandoning the wells. The new bonding regulations, drafted in response to input received in a public workshop and two public hearings, represent a reasoned approach to address the problem created when insolvent operators walk away from their wells and their regulatory obligations. The amendments to 20 AAC 25.025 were adopted under the authority of the Alaska Oil and Gas Conservation Act (AS 31.05), are consistent with state and federal statutory and constitutional law and Commission regulations (20 AAC 25), and were adopted in accordance with the requirements of the Administrative Procedure Act (AS 44.62) and the Department of Law's drafting manual for administrative regulations. The amendments to 20 AAC 25.025 are ready for filing. I']IY STATE "'ALASKA 60VERNOR BILL WALKER. Memorandum DATE: December 5, 2018 TO: Susan Pollard, Regulations Attorney Legislative and Regulations Section Department of Law FROM: Hollis S. French, Regulations Contact Department of Administration, Alask Oil and Gas Conservation Commission Alaska Gil and Gas Conservation Commission SUBJECT: Request for legal review of regulation project 20 AAC 25.025 FILE NO.: 2018200786 333 West Seventh Avenue Anchorage, Alaska 99501-3572 Main: 907.279.1433 Fax: 907.276.7542 aogcc.olaska.gov We are requesting legal review and approval of the attached regulations that were adopted by the Alaska Oil and Gas Conservation Commission. Enclosed are the following documents: (1) the original and two copies of the final regulation for use by the Department of Law; (2) the original of the public notices; (3) the original of the additional regulation notice information form distributed with the notices; (4) the original of the publisher's affidavit of publications; (5) order certifying the changes to regulations of the Alaska Oil and Gas Conservation Commission (6) affidavit of notice of proposed regulation and furnishing of additional information (7) the original of the affidavit of oral hearing; (8) excerpt from unapproved minutes; and (9) affidavit of commission action. We have worked with Assistant Attorney General Thomas Ballantine on the project. Upon completion of your review, please forward the regulation to the lieutenant governor for filing. Register , 2019 MISCELLANEOUS BOARDS 20 AAC 25.025 is repealed: 20 AAC 25.025. Bonding. Repealed. (Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; am / /_ Register ) 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, plugged and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) A surety bond issued on Form 10-402A in favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) A personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. (b) A bond, and if required, security must be in the amount specified in the following table: Number of Permitted Wellheads Bond Amount 1-10 wells $400,000 per well 11-40 wells $6,000,000 41-100 wells $10,000,000 Register 2019 MISCELLANEOUS BOARDS 101-1000 wells $20,000,000 Over 1000 wells $30,000,000 (1) For the purposes of this section, a wellhead is considered any well (excepting lateral well branches drilled from an existing well) for which the commission has issued a permit to drill that has not been permanently plugged and abandoned. (2) Upon request of an operator, or on its own motion, the commission may increase or decrease the amounts set forth in subsection (b) based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts. c) An operator with a bond and, if required, security in place at the time these regulations become effective will be allowed to increase the amount of its bond and, if required, security to the amount required under (b) of this section in four installments. The installments shall be made as follows (1) The first installment shall be due «inert date 90 days after the effective date of these regulation» and shall be a minimum of $500,000 or one quarter of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, (2) The second installment shall be due «inert date one year after date specified in subsection (1)» and shall be a minimum of $500,000 or one third of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, Register , 2019 MISCELLANEOUS BOARDS (3) The third installment shall be due «inert date two years after date specified in subsection (1)» and shall be a minimum of $500,000 or one half of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, and (4) The final installment shall be due «inert date three years after date specified in subsection (1)» and shall be in the amount of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part. d) A bond and, if required, security must remain in effect until the operator's wells have been permanently plugged and abandoned in accordance with 20 AAC 25.105 and the commission approves final clearance of the locations. The commission may then, at the operator's request and depending upon the count of active permitted wellheads for the operator, release all or a portion of the bond and security upon written request of the operator. e) The operator must provide written proof that the company that provides its bond or security in accordance with subsection (a) of this section has agreed to provide the commission with written notification at least 90 days prior to the expiration or termination of any bond or security. I) Payment under a surety bond or security does not relieve an operator from any other legal requirements. g) The commission will not approve a permit to drill application from as operator that is out of compliance with this section. (Eff. am /_/ , Register _.) Authority: AS 31.05.030 Register 1 2019 MISCELLANEOUS BOARDS 20 AAC 25.025 is repealed: 20 AAC 25.025. Bonding. Repealed. (Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; am / / , Register_) 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, plugged and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) A surety bond issued on Form 10-402A in favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) A personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. (b) A bond, and if required, security must be in the amount specified in the following table: Number of Permitted Wellheads Bond Amount 1-10 wells $400,000 per well 11-40 wells $6,000,000 41-100 wells $10,000,000 Register 1 2019 MISCELLANEOUS BOARDS 101-] 000 wells $20,000,000 Over 1000 wells $30,000,000 (1) For the purposes of this section, a wellhead is considered any well (excepting lateral well branches drilled from an existing well) for which the commission has issued a permit to drill that has not been permanently plugged and abandoned. (2) Upon request of an operator, or on its own motion, the commission may increase or decrease the amounts set forth in subsection (b) based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts. c) An operator with a bond and, if required, security in place at the time these regulations become effective will be allowed to increase the amount of its bond and, if required, security to the amount required under (b) of this section in four installments. The installments shall be made as follows (1) The first installment shall be due «inert date 90 days after the effective date of these regulation» and shall be a minimum of $500,000 or one quarter of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, (2) The second installment shall be due «inert date one year after date specified in subsection (1)» and shall be a minimum of $500,000 or one third of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, Register 2019 MISCELLANEOUS BOARDS (3) The third installment shall be due «insert date two years after date specified in subsection (1)» and shall be a minimum of $500,000 or one half of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, and (4) The final installment shall be due «inert date three years after date specified in subsection (1)» and shall be in the amount of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part. d) A bond and, if required, security must remain in effect until the operator's wells have been permanently plugged and abandoned in accordance with 20 AAC 25.105 and the commission approves final clearance of the locations. The commission may then, at the operator's request and depending upon the count of active permitted wellheads for the operator, release all or a portion of the bond and security upon written request of the operator. e) The operator must provide written proof that the company that provides its bond or security in accordance with subsection (a) of this section has agreed to provide the commission with written notification at least 90 days prior to the expiration or termination of any bond or security. f) Payment under a surety bond or security does not relieve an operator from any other legal requirements. g) The commission will not approve a permit to drill application from as operator that is out of compliance with this section. (Eff. am /_/ , Register .) Authority: AS 31.05.030 Register 2019 MISCELLANEOUS BOARDS 20 AAC 25.025 is repealed: 20 AAC 25.025. Bonding. Repealed. (Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; am / / , Register _) 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, plugged and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) A surety bond issued on Form 10-402A in favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) A personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. (b) A bond, and if required, security must be in the amount specified in the following table: Number of Permitted Wellheads Bond Amount 1-10 wells $400,000 per well 11-40 wells $6,000,000 41-100 wells $10,000,000 Register 2019 MISCELLANEOUS BOARDS 101-1000 wells $20,000,000 Over 1000 wells $30,000,000 (1) For the purposes of this section, a wellhead is considered any well (excepting lateral well branches drilled from an existing well) for which the commission has issued a permit to drill that has not been permanently plugged and abandoned. (2) Upon request of an operator, or on its own motion, the commission may increase or decrease the amounts set forth in subsection (b) based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts. c) An operator with a bond and, if required, security in place at the time these regulations become effective will be allowed to increase the amount of its bond and, if required, security to the amount required under (b) of this section in four installments. The installments shall be made as follows (1) The first installment shall be due «inert date 90 days after the effective date of these regulation» and shall be a minimum of $500,000 or one quarter of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, (2) The second installment shall be due «inert date one year after date specified in subsection (1)» and shall be a minimum of $500,000 or one third of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, Register 12019 MISCELLANEOUS BOARDS (3) The third installment shall be due «inert date two years after date specified in subsection (] )>> and shall be a minimum of $500,000 or one half of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, and (4) The final installment shall be due <<insert date three years after date specified in subsection (1)» and shall be in the amount of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part. d) A bond and, if required, security must remain in effect until the operator's wells have been permanently plugged and abandoned in accordance with 20 AAC 25.105 and the commission approves final clearance of the locations. The commission may then, at the operator's request and depending upon the count of active permitted wellheads for the operator, release all or a portion of the bond and security upon written request of the operator. e) The operator must provide written proof that the company that provides its bond or security in accordance with subsection (a) of this section has agreed to provide the commission with written notification at least 90 days prior to the expiration or termination of any bond or security. f) Payment under a surety bond or security does not relieve an operator from any other legal requirements. g) The commission will not approve a permit to drill application from as operator that is out of compliance with this section. (Eff. am _/_/ , Register _.) Authority: AS 31.05.030 NOTICE OF PROPOSED CHANGES ON BONDING IN THE REGULATIONS OF ALASKA OIL AND GAS CONSERVATION COMMISSION The Alaska Oil and Gas Conservation Commission proposes to adopt regulation changes in 20 AAC 25.025 of the Alaska Administrative Code, dealing with Bonding, including the following: (1) 20 AAC 25.025 is proposed to be repealed and rewritten as follows: Increasing the minimum bonding amount to more accurately reflect the costs of abandoning wells by establishing a multi -tiered bonding schedule based on the number of wells an operator has. You may comment on the proposed regulation changes, including the potential costs to private persons of complying with the proposed changes, by submitting written comments to Jody Colombie at 333 West 7m Avenue, Anchorage, Alaska 99501. Additionally, the Alaska Oil and Gas Conservation Commission will accept comments by facsimile at (907) 276-7542 and by electronic mail at aogcc.customer.svc@alaska.gov. Comments may also be submitted through the Alaska Online Public Notice System, by accessing this notice on the system and using the comment link. The comments must be received not later than 4:30 p.m. on October 16, 2018. Written comments also may be submitted at a hearing to be held on October 16, 2018, at 333 West 7`h Avenue, Anchorage, Alaska 99501. The hearing will be held from 10:00 a.m. to 2:00 p.m. and might be extended to accommodate those present before 10:30 a.m. who did not have an opportunity to comment. If you are a person with a disability who needs a special accommodation in order to participate in this process, please contact Jody Colombie at jody.colombie@alaska.gov or mailing 333 West 71h Avenue, Anchorage, Alaska 99501 or calling (907) 793-1221 not later than October 10, 2018 to ensure that any necessary accommodation can be provided. For a copy of the proposed regulation changes, contact Jody Colombie at the Alaska Oil and Gas Conservation Commission at West 7`" Avenue, Anchorage, Alaska 99501 or calling (907) 793- 1221, or go to http://doa.alaska.eov/ogc/. After the public comment period ends, the Alaska Oil and Gas Conservation Commission may either adopt the proposed regulation changes or other provisions dealing with the same subject, without further notice, or decide to take no action. The language of the final regulation may be different from that of the proposed regulation. You should comment during the time allowed if your interests could be affected. Statutory authority: AS 31.05.030 Statutes being implemented, interpreted, or made specific: AS 31.05.030 Fiscal information: The proposed regulation changes are not expected to require an increased appropriation Date: August 14, 2018 Hollis S. French, Chair, Commissioner Alaska Oil and Gas Conservation Commission ADDITIONAL REGULATION NOTICE INFORMATION (AS 44.62.190(g)) 1. Adopting agency: Alaska Oil and Gas Conservation Commission 2. General subject of regulation: Bonding 3. Citation of regulation (may be grouped): 20 AAC.25.025 4. Department of Law file number, if any: E Ga 7 Reason for the proposed action: ( ) Compliance with federal law ( ) Compliance with new or changed state statute ( ) Compliance with court order ( ) Development of program standards (X) Other (identify): Current bonding requirements are insufficient to ensure a well can be properly plugged and abandoned. Appropriation/Allocation: 2010/21 Cost of implementation to the state agency and available funding (in thousands of dollars): Operating Cost Capital Cost 1002 Federal receipts 1003 General fund match 1004 General fund 1005 General fund/ program Other (identify) Initial Year FY2020 $0 $0 $0 $0 $0 Subsequent Years $0 $0 $0 $0 $0 $0 $0 $0 $0 8. The name of the contact person for the regulation: Name: Jodv Colombie Title: Special Assistant to the Commission Address: 333 West 7th Avenue, Anchorage, AK 99501 Telephone: (907) 793-1221 E-mail address: iody.colombie@alaska.gov 9. The origin of the proposed action: X Staff of state agency Federal government General public Petition for regulation change Other (identify) 10. Date: August 14, 2018 Prepared by: PJAAJ Name: Jody C.Ioom6fe Title: Special Assistant to the Commission Telephone: (907) 793-1221 FISCAL NOTE Agency: Department of Administration, Alaska Oil and Gas Conservation Commission Appropriation/Allocation: 2010/21 General subject of regulation: Bonding Citation of regulation: 20 AAC 25.025 Estimated appropriations required (in thousands of dollars) $0.00 Expenditures/Revenues FY 2020 Appropriation Requested OPERATING EXPENDITURES I FY 2020 1 FY 2021 1 FY 2022 1 Personal Services Travel Services Commodities Capital Outlay Grants & Benefits Miscellaneous TOTAL OPERATING 1 0.00 1 0.00 1 CHANGE IN REVENUES Date August 14, 2018 Prepared by: C�ct� Jo Col bie, Special Assistant DOA/Alaska Oil and Gas Conservation Commission Phone No.: (907) 793-1221 ANcHoiLAGE ITAIIN \I-AfgICEIVEID AUG ?3 1018 AFFIDAVIT OF PUBLICATION AOGCC auwM.: tI0]6, 6i OFhWAI(DILµD60S a STATEOFAJIMPA THIRDJUDICA DISTRICT J Sbgdn dand, fiRl euyswmmontM Eep.sa. ane ssp Man flI'dM Y a Iepmenlfltire OI Ne MNwage Deb N. flealh namMpBY ThMvit newep.pfl. nas eine' ap W oree ov Ma il.m JW2rtidC Mtl We, Mani vkamx and Me emn wbNmeW in the Esg6en lelOi CwmnexlvmaeNyneaspaperinNWwapB Xb , Nxp, in iweneeuMBelaeMbm mi did. i1 an A. m unanetl al in, ini nxek pam on Wdi.dri W eae nempalw, Tinel Me annenCiea mpy el M...I id It was duddsl In leynm ewes (ane not In wpplamenrsl blml.leaW newwwa, on N idlii]DIN eM DNI. rer.Epygl was 1pi d&neuby b Ye supivleBR Jwmp Ll .Y satl -1iM. rnM Msfuusm.um Ol M.lm Ggrys. Iw e peMmM1pny MIIne�¢s.1 d.,rzW id. MaryM pnrale intiro]uMi. n dddHpei61 n.d. Pm. .,. D.BVxers din, R AB1G PMDm— diet I. . PMI 9uew. am.mm me.rom da Ind IM eq orSngund ID34 �hblmpP�YI .eryPDDI In ' Mb the slMe orAMsna. Tniw Dividon MNdni A48ka MY COMMIS E%PIRES xoury p.oux BW 'Iind e.lplykiXO.. 666 a^xax Mr Comlrvx b Fep iMR], }dl9 . �+vaTSMl+e 4lNWIAIDi6 sddmdxu Mw NDvuIxwarw]Iw. Y3... 1WIg1 1 =�Mj,.nN . M inn GM Wl6Bney> GBIWeIMOImKutuatlllµvlaM Btlka[ i dpwblam Mlawflle nwnMxN. wtl eNML:NPatSBroS B ind—ididn'. nrtY.n PpwgINDtin"i n:.., ew lad MExi M tlnuWlOdeWM1: M•'ry .w m.lNmea M.�r p.lson ror Mel.D,Mu.n �momnre IA491tVX RbYe� NlxB�wHge.Nt Wsdl ThewYN W Mepi.p]neeN.n 6`�WMy®egexity P:mlo`�ly"w0 Ntlpn IIX ttW {�pl®e ab: ws�M1, AIB 'diem di, M,Nd,,esi SyuYbpiwe tl�l inin Y KKNrtme¢� y •. wra MINM MtlM in 50 N m.lNmea M.�r p.lson ror Mel.D,Mu.n �momnre IA491tVX RbYe� NlxB�wHge.Nt Wsdl ThewYN W Mepi.p]neeN.n 6`�WMy®egexity P:mlo`�ly"w0 Ntlpn IIX ttW {�pl®e ab: ws�M1, AIB 'diem di, SECOND NOTICE OF PROPOSED CHANGES ON BONDING IN THE REGULATIONS OF ALASKA OIL AND GAS CONSERVATION COMMISSION The Alaska Oil and Gas Conservation Commission proposes to adopt regulation changes in 20 AAC 25.025 of the Alaska Administrative Code, dealing with Bonding, including the following: (1) 20 AAC 25.025 is proposed to be repealed and rewritten as follows: Increasing the minimum bonding amount to more accurately reflect the costs of abandoning wells by establishing a multi -tiered bonding schedule based on the number of wells an operator has. You may comment on the proposed regulation changes, including the potential costs to private persons of complying with the proposed changes, by submitting written comments to Jody Colombie at 333 West 7' Avenue, Anchorage, Alaska 99501. Additionally, the Alaska Oil and Gas Conservation Commission will accept comments by facsimile at (907) 276-7542 and by electronic mail at aoecc.customer. svcAalaska.gov. Comments may also be submitted through the Alaska Online Public Notice System, by accessing this notice on the system and using the comment link. The comments must be received not later than 4:30 p.m. on November 27, 2018. Written comments also may be submitted at a hearing to be held on November 27, 2018, at 333 West 7°i Avenue, Anchorage, Alaska 99501. The hearing will be held from 10:00 a.m. to 2:00 p.m. and might be extended to accommodate those present before 10:30 a.m. who did not have an opportunity to comment. If you are a person with a disability who needs a special accommodation in order to participate in this process, please contact Jody Colombie at jody.colombie@alaska.gov or mailing 333 West 7a' Avenue, Anchorage, Alaska 99501 or calling (907) 793-1221 not later than November 23, 2018 to ensure that any necessary accommodation can be provided. For a copy of the proposed regulation changes, contact Jody Colombie at the Alaska Oil and Gas Conservation Commission at West 70' Avenue, Anchorage, Alaska 99501 or calling (907) 793- 1221, or go to http://doa.alaska.gov/ogc/. After the public comment period ends, the Alaska Oil. and Gas Conservation Commission may either adopt the proposed regulation changes or other provisions dealing with the same subject, without further notice, or decide to take no action. The language of the final regulation may be different from that of the proposed regulation. You should comment during the time allowed if your interests could be affected. Statutory authority: AS 31.05.030 Statutes being implemented, interpreted, or made specific: AS 31.05.030 Fiscal information: The proposed regulation changes are not expected to require an increased appropriation Date: October 22, 2018 l CUXOL'� Hollis S. French, Chair, Commissioner Alaska Oil and Gas Conservation Commission SECOND ADDITIONAL REGULATION NOTICE INFORMATION (AS 44.62.190(g)) 1. Adopting agency: Alaska Oil and Gas Conservation Commission 2. General subject of regulation: Bonding 3. Citation of regulation (may be grouped): 20 AAC.25.025 4. Department of Law file number, if any: 5. 0 7 Reason for the proposed action: ( ) Compliance with federal law ( ) Compliance with new or changed state statute ( ) Compliance with court order ( ) Development of program standards (X) Other (identify): Current bonding requirements are insufficient to ensure a well can be properly plugged and abandoned. Appropriation/Allocation: 2010/21 Cost of implementation to the state agency and available funding (in thousands of dollars): Initial Year Subsequent FY2020 Years Operating Cost $0 $0 Capital Cost $0 $0 1002 Federal receipts $0 $0 1003 General fund match $0 $0 1004 General fund $0 $0 1005 General fund/ program $0 $0 Other (identify) $0 $0 8. The name of the contact person for the regulation: Name: Jodv Colombie Title: Special Assistant to the Commission Address: 333 West 7's Avenue, Anchorage AK 99501 Telephone: (907) 793-1221 E-mail address: iody.colombieOalaska eov 9. The origin of the proposed action: X Staff of state agency Federal government General public Petition for regulation change Other (identify) 10. Date: October 22, 2018 Prepared by: 9 L/ Name: Jody C691nbie Title: Special Assistant to the Commission Telephone: (907)793-1221 ANCHORAGE Dmix Etms AFFIDAVIT OF PUBLICATION RECEIVED MmaM.:MMf Si OF WgI(aLPNDGi6 Ori ppJaAlBa ASS MST SJPTIONLONM T 1. Oen f01]N 139 WETM4YF SiE 1W STATE Of ALASKA THIRD JUDICDLL DISTRICT SN1r J°rvretl W irg enl tlury awom cn peer eapmas ore Bays Wt M'sne m e reprpeanMuw oTooMtllpagp Deily flaws. °gaily Too. eeq JudnawspapM il Wan app= N by -11r1ro Md hial Loud, An oh.,.,.. EiRe'W'.i ane Ires Man pudisnee in Ne Hygun pyuap WnYnwYy ps a Wily rrewspgerrn Mdopa, MYM, aW A k now aW gonna ql utl time °° nirmp in.n pmre marnmWn uvN °mresaiE pla® pl prrmiWMn Sin a&oTR e M Tnalmo annaiaelsa mvr plan"(ancl rtgm as p.I n-) rn ngwr novo IaM not In auppM1manui rprm)olaap newspper on O0000.12� NIS ..""R "'. na"R"'. WwspaperwR"S"" d -o --h i4auMplMn arrnp A W WN pen W. ma11W rrru anpom mn»rW mwae More mrpproa pone®lion la n°IM mrw or m. nre= spree a MMame lbW Dlniaipn Mdrwpe, AS. MYCOMMIN FJIpII�E$ '� L/]J2I UYI IIYRYL IMIIWgM �gMNY •W4�Ir4m1� ('" 0 f(20W� PivMl IIIMPM6Nja6YYlsaLJ Ygn M Sul Pmrybn p]pl -on,on 4 d ORR IIA9a rmn� �Irre�any. aMm ar ua DM corouamn LMponq'rM�rmlaMtld�lnb/�M MWelmaMalrawflkminm'"ry'my: eJMCei@5 Ikeapn kreN pnWsmµym .gym gnu"pip°o;umrNaeadmaNwm a°� pa�mromara a��'m LprranrmrMil�amaMMwNMa ,NaM�aM,„a..amm� pmNmMrmp +vwaMlamvMlwem:mlml o-Mc""ikek r" W ^nde"ntlevn ro uw amn rc ap uNmanM m pwaE;N".r'^" Apr mMpaN. rnAiril v p m noomrar S° So p y' p m innM io w iMMTagNemnYRpysMlprgprppytl°n tM Min pl NepryayeaAbn J� S��stlrpegeWym — Wa�rpq ^M Utvrl eNNe fl Nb: L[b[ar1L' A18 W5p1 ORDER CERTIFYING THE CHANGES TO REGULATIONS OF THE ALASKA OIL AND GAS CONSERVATION COMMISSION The attached 3 pages of the regulations, dealing with bonding are certified to be a correct copy of the regulation changes that the Alaska Oil and Gas Conservation Commission adopted at its December 5, 2018 meeting under the authority of AS 31.05. This action is not expected to require an increased appropriation. On the record, in considering public comments, the Alaska Oil and Gas Conservation Commission paid special attention to the cost to private persons of the regulatory action being taken. The regulation changes described in this order take effect on the 30th day after they have been filed by the lieutenant governor as provided in AS 44.62.180. Date: /'�' -'5. /,V Hollis S. French, Chair, Commissioner, AOGCC FILING CERTIFICATION I, Kevin Meyer, Lieutenant Governor for the State of Alaska, certify that on 2019, at _.m., I filed the attached regulation. Lieutenant Governor Effective: Register: AFFIDAVIT OF NOTICE OF PROPOSED REGULATION AND FURNISHING OF ADDITIONAL INFORMATION I, Jody J. Colombie, Special Assistant, of the Alaska Oil and Gas Conservation Commission, being sworn, state the following: As required by AS 44.62.190, notice of the proposed adoption of changes to 20 AAC 25-280(f) has been given by being (1) published in a newspaper or trade publication; (2) furnished to interested persons; (3) furnished to appropriate state officials; (4) furnished to the Department of Law, along with a copy of the proposed regulation; (5) furnished electronically to incumbent State of Alaska legislators; (6) furnished to the Legislative Affairs Agency, Division of Legal and Research Services; (7) posted on the Alaska Online Public Notice System as required by AS 44.62.175(x)(1) and (b) and 44.62.190(a)(1); (8) furnished electronically, along with a copy of the proposed regulation, to the Legislative Affairs Agency, the chair of the Resources Committee of the Alaska Senate and House of Representatives, the Administrative Regulation Review Committee, and the legislative council. As required by AS 44.62.190, additional regulation notice information regarding the proposed adoption of the regulation changes described above has been furnished to interested persons and those in (5) and (6) of the list above. The additional regulation notice information also has been posted on the Alaska Online Public Notice System. Date: December 5, 2018 D % J J. e, Special Assistant, AOGCC Subscribed and sworn to before me at Anchorage, Alaska December 5, 2018. Notary Public in and for the Sta Alaska AFFIDAVIT OF ORAL HEARING I, Hollis S. French, Chair of the Alaska Oil and Gas Conservation Commission, being sworn, state the following: On October 16, 2018 and November 27, 2018, at 10:00 a.m., 333 West 7m Avenue, Anchorage, Alaska 99501, I presided over a public hearing held under AS 44.62.210 for the purpose of taking testimony in connection with the adoption of changes to 20 AAC 25.025. Date: December 5, 2018 L Hollis S. French, Commissioner, AOGCC Subscribed and sworn to before me at Anchorage, Alaska on December 5, 2018. and for the State of Alaska ALASKA OIL AND GAS CONSERVATION COMMISSION HEARING December 5, 2018 Excerpt From Unapproved Minutes Commissioner Daniel T. Seamount, Jr. moved and Commissioner. Hollis S. French seconded the following motion: "I move to adopt 20 AAC 25.025 as written in the November 27, 2018, draft regulation." The motion carried unanimously. AFFIDAVIT OF COMMISSION ACTION I, Jody J. Colombie, Special Assistant, for the Alaska Oil and Gas Conservation Commission, being duly sworn, state the following: The attached motion dealing with bonding was passed by the Alaska Oil and Gas Conservation Commission during its December 5, 2018 meeting. Date: December 5, 2018 G Jo J. Co6mbio AOGCC Special Assistant Subscribed and sworn to before me at Anchorage, Alaska on December 5, 2018. Notary Public in and for the Sta e Alaska AFFIDAVIT OF NOTICE OF PROPOSED REGULATION AND FURNISHING OF ADDITIONAL INFORMATION I, Jody J. Colombie, Special Assistant, of the Alaska Oil and Gas Conservation Commission, being sworn, state the following: As required by AS 44.62.190, notice of the proposed adoption of changes to 20 AAC 25.025, bonding, has been given by being (1) published in a newspaper or trade publication; (2) furnished to every person who has filed a request for notice of proposed action with the state agency; (3) furnished to appropriate state officials; (4) furnished to interested persons; (5) furnished to the Department of Law, along with a copy of the proposed regulation; (6) furnished electronically to incumbent State of Alaska legislators; (7) posted on the Alaska Online Public Notice System as required by AS 44.62.175(a)(1) and (b) and 44.62.190(a)(1). As required by AS 44.62.190, additional regulation notice information regarding the proposed adoption of the regulation changes described above has been furnished to interested persons and those in (2), (4) and (6) of the list above. The additional regulation notice information also has been posted on the Alaska Online Public Notice System. Date: March 20, 2019 1 Jo;'J Colo, bid', �pecial assistant i Subscribed and sworn to before me at Anchorage, Alaska on March 20, 2019. Notary Public in and for the State r C:� Colombie, Jody J (DOA) From: Foerster, Catherine P (DOA) Sent: Tuesday, March 12, 2019 11:19 AM To: Colombie, Jody 1 (DOA) Subject: FW: AOGCC Reg Change to Bond Amounts From: Foerster, Catherine P (DOA) Sent: Monday, March 11, 2019 3:59 PM To: Bryan, Adam M (DOA) <adam.bryan@alaska.gov> Subject: FW: AOGCC Reg Change to Bond Amounts Bryan, There is a step between our commissioners voting to enact the regulations and the Lt Governor signing them into force. It's a legal process internal to the Department of Law. That's where the bonding regs are right now. From: Paladijczuk, Tracie L (DOA) Sent: Monday, March 11, 2019 3:53 PM To: Foerster, Catherine P (DOA) <cathy.foerster@alaska.eov> Subject: FW: AOGCC Reg Change to Bond Amounts From: Bryan, Adam M (DOA) Sent: Monday, March 11, 2019 3:50 PM To: Paladijczuk, Tracie L (DOA) <tracie.paladi!czuk@alaska.gov> Cc: Lowenstein, Cheryl A (GOV) <cheryl.lowenstein@alaska.gov>; O'Brien, Shannen L (DOA) <Shannen.Obrien Ca@alaska.gov> Subject: AOGCC Reg Change to Bond Amounts Hello Tracie, We received an inquiry from our House Finance Subcommittee on the status of AOGCC's regulation change to bond amounts. Can you tell us where this is in the process? Thank you, Adam Bryan Budget Manager Department of Administration 907-465-5693 Tell us how we are doing! take our customer feedback survey 5 SECOND NOTICE OF PROPOSED CHANGES ON BONDING IN THE REGULATIONS OF ALASKA OIL AND GAS CONSERVATION COMMISSION The Alaska Oil and Gas Conservation Commission proposes to adopt regulation changes in 20 AAC 25.025 of the Alaska Administrative Code, dealing with Bonding, including the following: (1) 20 AAC 25.025 is proposed to be repealed and rewritten as follows: Increasing the minimum bonding amount to more accurately reflect the costs of abandoning wells by establishing a multi -tiered bonding schedule based on the number of wells an operator has. You may comment on the proposed regulation changes, including the potential costs to private persons of complying with the proposed changes, by submitting written comments to Jody Colombie at 333 West 7`h Avenue, Anchorage, Alaska 99501. Additionally, the Alaska Oil and Gas Conservation Commission will accept comments by facsimile at (907) 276-7542 and by electronic mail at aoacc.customer.svc(a,alaska.gov. Comments may also be submitted through the Alaska Online Public Notice System, by accessing this notice on the system and using the comment link. The comments must be received not later than 4:30 p.m. on November 27, 2018. Written comments also may be submitted at a hearing to be held on November 27, 2018, at 333 West 7`h Avenue, Anchorage, Alaska 99501. The hearing will be held from 10:00 a.m. to 2:00 p.m. and might be extended to accommodate those present before 10:30 a.m. who did not have an opportunity to comment. If you are a person with a disability who needs a special accommodation in order to participate in this process, please contact Jody Colombie at jody.colombie@alaska.gov or mailing 333 West 7'h Avenue, Anchorage, Alaska 99501 or calling (907) 793-1221 not later than November 23, 2018 to ensure that any necessary accommodation can be provided. For a copy of the proposed regulation changes, contact Jody Colombie at the Alaska Oil and Gas Conservation Commission at West 7`h Avenue, Anchorage, Alaska 99501 or calling (907) 793- 1221, or go to hup://doa.alaska.gov/og_c/. After the public comment period ends, the Alaska Oil and Gas Conservation Commission may either adopt the proposed regulation changes or other provisions dealing with the same subject, without further notice, or decide to take no action. The language of the final regulation may be different from that of the proposed regulation. You should comment during the time allowed if your interests could be affected. Statutory authority: AS 31.05.030 Statutes being implemented, interpreted, or made specific: AS 31.05.030 Fiscal information: The proposed regulation changes are not expected to require an increased appropriation Date: October 22, 2018 //signature on file// Hollis S. French, Chair, Commissioner Alaska Oil and Gas Conservation Commission 2. 3. 4. 51 A SECOND ADDITIONAL REGULATION NOTICE INFORMATION (AS 44.62.190(g)) Adopting agency: Alaska Oil and Gas Conservation Commission General subject of regulation: Bonding Citation of regulation (may be grouped): 20 AAC.25.025 Department of Law file number, if any: Reason for the proposed action: ( ) Compliance with federal law ( ) Compliance with new or changed state statute ( ) Compliance with court order ( ) Development of program standards (X) Other (identify): Current bonding requirements are insufficient to ensure a well can be properly plugged and abandoned. Appropriation/Allocation: 2010/21 Cost of implementation to the state agency and available funding (in thousands of dollars): Operating Cost Capital Cost 1002 Federal receipts 1003 General fund match 1004 General fund 1005 General fund/ Initial Year Subsequent FY2020 Years $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 program $0 $0 Other (identify) $0 $0 The name of the contact person for the regulation: Name: Jodv Colombie Title: Special Assistant to the Commission Address: 333 West Ph Avenue, Anchorage, AK 99501 Telephone: (907) 793-1221 E-mail address: iody.colombie@alaska.eov 9. The origin of the proposed action: X Staff of state agency Federal government General public Petition for regulation change Other (identify) 10. Date: October 22, 2018 Prepared by://signature on file Name: Jody Colombie Title: Special Assistant to the Commission Telephone: (907) 793-1221 STATE OF ALASKA ADVERTISING ORDER NOTICE TO PUBLISHER SUBMIT INVOICE SHOWING ADVERTISA'G ORDER NO., CERTIFIED AFFIDAVIT OF PUBLICATION WITH ATTACHED COPY OFADVERTISMENT. ADVERTISING ORDER NUMBER 1f AO-19-012 FROM: AGENCY CONTACT: Jody Colombie/Samantha Carlisle Alaska Oil and Gas Conservation Commission DATE OF A.O.AGENCY PHONE: 333 West 7th Avenue 10/22/2018 907 179-1433 Anchorage, Alaska 99501 DATES ADVERTISEMENT REQUIRED: COMPANY CONTACT NAME: PHONE NUMBER: ASAP FAX NUMBER: 907 276-7542 TO PUBLISHER: Anchorage Daily News, LLC SPECIAL INSTRUCTIONS: PO Box 140147 Anchorage, Alaska 99514-0174 TYPE OF ADVERTISEMENT: 9 LEGAL F— DISPLAY R CLASSIFIED r- OTHER (Specify below) DESCRIPTION PRICE R-17-002 Initials of who prepared AO: Alaska Non -Taxable 92-600185 :5UHMIT UIVOICE SRONTNO:ADVERTISING :b'RDER:Nf1;;CER7rF)FI:APF>ifAVffOp:�:� PUBLICAM",WYTH AnAeft5b COPY bK AbV.ERTLYMF.NT`To; AOGCC 333 West 7th Avenue Anchora e, Alaska 99501 Pae 1 of I Total of AIL Lges S REF Type Number Amount Date Comments I PVN VCO21795 2 AO AO-19-012 3 4 FIN AMOUNT SY Act. Template PGM LGR Object FY I DIST LIQ I 19 A14100 3046 19 2 3 4 urchasin th ' T'le: Purchasing Authority's Signature Telephone Number 1. an receiving agency name must appea4--m;;ces and documents relating to this purchase. 2. he ate is registered for tax free transactiorus under ,IRS code. Regisfrelion number 92-73-0006 K. Items are for the exdusive use of the state and not for r al . .:..UTiON .. AivlBwDa F15epUOngloal,rl0oples. .... ... .. .. Pali)islier (faxelh Division Fiscal, Recelvadg Form: 02-901 Revised: 10/22/2018 Register , 2018 MISCELLANEOUS BOARDS 20 AAC 25.025 is repealed: 20 AAC 25.025. Bonding. Repealed. (Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; am _/ /� Register 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, plugged and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) A surety bond issued on Form 10-402A in favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) A personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. (b) A bond, and if required, security must be in the amount specified in the following table: Number of Permitted Wellheads Bond Amount 1-10 wells $400,000 per well 11-40 wells $6,000,000 41-100 wells $10,000,000 Register 1 2018 MISCELLANEOUS BOARDS 101-1000 wells $20,000,000 Over 1000 wells $30,000,000 (1) For the purposes of this section, a wellhead is considered any well (excepting lateral well branches drilled from an existing well) for which the commission has issued a permit to drill that has not been permanently plugged and abandoned. (2) Upon request of an operator, or on its own motion, the commission may increase or decrease the amounts set forth in subsection (b) based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts. c) An operator with a bond and, if required, security in place at the time these regulations become effective will be allowed to increase the amount of its bond and, if required, security to the amount required under (b) of this section in four installments. The installments shall be made as follows (1) The first installment shall be due «inert date 90 days after the effective date of these regulations>> and shall be a minimum of $500,000 or one quarter of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, (2) The second installment shall be due <<insert date one year after date specified in subsection (1)» and shall be a minimum of $500,000 or one third of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, Register , 2018 MISCELLANEOUS BOARDS (3) The third installment shall be due «insert date two years after date specified in subsection (1)» and shall be a minimum of $500,000 or one half of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, and (4) The final installment shall be due «inert date three years after date specified in subsection (1)» and shall be in the amount of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part. d) A bond and, if required, security must remain in effect until the operator's wells have been permanently plugged and abandoned in accordance with 20 AAC 25.105 and the commission approves final clearance of the locations. The commission may then, at the operator's request and depending upon the count of active permitted wellheads for the operator, release all or a portion of the bond and security upon written request of the operator. e) The operator must provide written proof that the company that provides its bond or security in accordance with subsection (a) of this section has agreed to provide the commission with written notification at least 90 days prior to the expiration or termination of any bond or security. f) Payment under a surety bond or security does not relieve an operator from any other legal requirements. g) The commission will not approve a permit to drill application from as operator that is out of compliance with this section. (Eff. am / / , Register .) Authority: AS 31.05.030 Bernie Karl K&K Recycling Inc. P.O. Box 58055 Fairbanks, AK 99711 Gordon Severson 3201 Westmar Cir. Anchorage, AK 99508-4336 Penny Vadla 399 W. Riverview Ave. Soldotna, AK 99669-7714 George Vaught, Jr. Darwin Waldsmith Richard Wagner P.O. Box 13557 P.O. Box 39309 P.O. Box 60868 Denver, CO 80201-3557 Ninilchik, AK 99639 Fairbanks, AK 99706 SECOND NOTICE OF PROPOSED CHANGES ON BONDING IN THE REGULATIONS OF ALASKA OIL AND GAS CONSERVATION COMMISSION The Alaska Oil and Gas Conservation Commission proposes to adopt regulation changes in 20 AAC 25.025 of the Alaska Administrative Code, dealing with Bonding, including the following: (1) 20 AAC 25.025 is proposed to be repealed and rewritten as follows: Increasing the minimum bonding amount to more accurately reflect the costs of abandoning wells by establishing a multi -tiered bonding schedule based on the number of wells an operator has. You may comment on the proposed regulation changes, including the potential costs to private persons of complying with the proposed changes, by submitting written comments to Jody Colombie at 333 West 70' Avenue, Anchorage, Alaska 99501. Additionally, the Alaska Oil and Gas Conservation Commission will accept comments by facsimile at (907) 276-7542 and by electronic mail at aogcc.customer.svcAalaska.gov. Comments may also be submitted through the Alaska Online Public Notice System, by accessing this notice on the system and using the comment link. The comments must be received not later than 4:30 p.m. on November 27, 2018. Written comments also may be submitted at a hearing to be held on November 27, 2018, at 333 West 7fl' Avenue, Anchorage, Alaska 99501. The hearing will be held from 10:00 a.m. to 2:00 p.m. and might be extended to accommodate those present before 10:30 a.m. who did not have an opportunity to comment. If you are a person with a disability who needs a special accommodation in order to participate in this process, please contact Jody Colombie at jody.colombie@alaska.gov or mailing 333 West 7' Avenue, Anchorage, Alaska 99501 or calling (907) 793-1221 not later than November 23, 2018 to ensure that any necessary accommodation can be provided. For a copy of the proposed regulation changes, contact Jody Colombie at the Alaska Oil and Gas Conservation Commission at West 7a' Avenue, Anchorage, Alaska 99501 or calling (907) 793- 1221, or go to http://doa.alaska.gov/ogc/. After the public comment period ends, the Alaska Oil. and Gas Conservation Commission may either adopt the proposed regulation changes or other provisions dealing with the same subject, without further notice, or decide to take no action. The language of the final regulation may be different from that of the proposed regulation. You should comment during the time allowed if your interests could be affected. Statutory authority: AS 31.05.030 Statutes being implemented, interpreted, or made specific: AS 31.05.030 Fiscal information: The proposed regulation changes are not expected to require an increased appropriation Date: October 22, 2018 Hollis S. French, Chair, Commissioner Alaska Oil and Gas Conservation Commission SECOND ADDITIONAL REGULATION NOTICE INFORMATION (AS 44.62.190(g)) 1. Adopting agency: Alaska Oil and Gas Conservation Commission 2. General subject of regulation: Bonding 3. Citation of regulation (may be grouped): 20 AAC.25.025 4. Department of Law file number, if any: 5. Reason for the proposed action: ( ) Compliance with federal law ( ) Compliance with new or changed state statute ( ) Compliance with court order ( ) Development of program standards (X) Other (identify): Current bonding requirements are insufficient to ensure a well can be properly plugged and abandoned. 6. Appropriation/Allocation:2010/21 7. Cost of implementation to the state agency and available funding (in thousands of dollars): Initial Year Subsequent FY2020 Years Operating Cost $0 $0 Capital Cost $0 $0 1002 Federal receipts $0 $0 1003 General fund match $0 $0 1004 General fund $0 $0 1005 General fund/ program $0 $0 Other (identify) $0 $0 8. The name of the contact person for the regulation Name: Jodv Colombie Title: Special Assistant to the Commission Address: 333 West 7s' Avenue, Anchorage, AK 99501 Telephone: (907) 793-1221 E-mail address: iody.colombie &alaska.eov 9. The origin of the proposed action: X Staff of state agency Federal government General public Petition for regulation change Other (identify) 10. Date: October 22, 2018 Prepared by: Name: Jody C nbie Title: Special Assistant to the Commission Telephone: (907) 793-1221 ANCHORAGE DAux \1?WS S AMOFALA31(F THING JIIDICUL DISTRICT sere, Janne, mlre fiM ales, assom on cam segue, aM Wife instant s'.k e repnr®n.f. or m¢.findo, Deur Mews'. a.defy notes r. 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Alee.. am ..We am Ms men punasnm in ma Ell tattles, aer@nue, as a dell, rewspepxm Ancel aanxe, am on; now a. Wine, all nH a— Ma all In an oRm internal at We aiereaale pIs. or µnaatim of aae newspWr. Tnel Use anfNwl' is a nay m an aMmasa'naM oa I Wassies in rral—a, (ane nes an supple nnal!mm i at and nairepapar on IXanal ]%a ....U. nuwapaperwas repute" ,,WWW` to assuesuimre dung all of uq panne. Tna ma wt all of me fae thenal It the fo o,vae puoualion ie noon es—of marare am prlvaN imiweans. it an Jnro sum sne avnm m all m. mss der n46448c1vT+@ olery PUOIIc/In rte br T M of Ai aW. mmnlr Mrllmate8e. Nvu MYCIXAMISSItE%PI F. �f• �l/J2 LIaYYFUM[ IIIRYL1MWp1 IYIMNeY A�MMMYt01fi mems", uprXy: as]ins an, n . CSID .,.,a MFoewnntn mn09p°"`tlmlreio�¢"w`"�B al am ws cpnsewem. wio�am"'o�,Ralance den aenmmn`i m'�w nkn ome¢.x', rte'. on.,,'. mason or ere woametl arnn. ccempMWI¢nmrnnnotes W nenu wrm nn or wrrae start amnre mmpgllpao¢ewwmenwmr Mev I�mntifajr dl�iE�y Mmm�'� ans"WasdN esess afaRf nHbYkiNgnrereesdbgoRy em IryQn MmNMsolaNlmJ: nlmlYnr xSuo�¢pu¢nt ~,a p Wen p b t¢I (untl b f0 and nal m Sp ,nye s«m of me.'s a owes¢ fa me regnkno'. �ecauwamm¢ammwn rW1N4vnuE.UW[rQ /S plat a. 1m arMn a me pmpewe arta,. _ anernxnaria}iOtlpi¢I""fi' a fail national STATE OF ALASKA ADVERTISING ORDER NOTICE TO PUBLISHER SUBMIT INVOICE SHOWING ADVERTISING ORDER NO., CERTIFIED AFFIDAVIT OF PUBLICATION WITH ATTACHED COPY OF ADVERIISMENT. ADV13RTISWG ORDER MJ MER p AO -I9-007 FROM: AGENCY CONTACT: Jody Colombie/Samantha Carlisle Alaska Oil and Gas Conservation Commission DATE OF A.O. AGENCY PHONE: 333 West 7th Avenue 8/14/2018 (907) 279-1433 Anchorage, Alaska 99501 DATES ADVERTISEMENT REQUIRED: COMPANY CONTACT NAME: PHONE NUMBER: ASAP FAX NUMBER: (907)276-7542 TO PUBLISHER: Anchorage Daily News, LLC SPECIAL INSTRUCTIONS: PO Box 140147 Anchorage, Alaska 99514-0174 TYPE OF ADVERTISEMENT: yfr LEGA4?DISPLAY "� CLASSIFIED F OTHER (Specifybelow) DESCRIPTION PRICE R-17.002 Initials of who prepared AO: Alaska Non -Taxable 92-600185 :3UBM1TAN4bICE9HOWBH6AD.VERir ISO . 1:OR11114 ;C7A7D?IEl}AFFIDkVfPDF.': ....... ... ... ............ ...... ... <eueElEsxiDNmTx:Arrkeluspcorxoe: ADY,EPTISMEN7 i0;' AGGCC 333 West 7th Avenue Anchorage, Alaska 99501 Pae 1 of 1 of LAes $ REF Type Number Amount Date Comments I PVN VCO21795 2 AD AO -19-007 3 4 FTN AMOUNT I SY Act. Template PGM LGR Object FY DIST LIQ 1 1 19 A14100 3046 19 2 3 4 n n Purchii u try Title Purchasing Authority's Signature Telephone Number 1. A.6. 4 and receiNng agency name mus appear on all invoices and documents relating to this purchase. 2. Th; a tate tered for tax free tr is regisansactions under Chapter 32, IRS code. Registration number 92-73-0006 K. Items are for the exclusive use of the stale and not for resat' DISTR...... 111nsiun:FlseallOrlgirial Adl . :,:Copies..Putilrsller (fsxed),'Dlvis.on Fiscal Recefyftig Form: 02-901 Revised: 8/14/2018 Register 2019 MISCELLANEOUS BOARDS ✓�� 20 AAC 25.025 is repealed: 20 AAC 25.025. Bonding. Repealed. (Ef£ 4/13/80, Register 74; am 4/2/86, Register 97; am 11 /7/99, Register 152; am—/—/—, Register 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, plugged and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) A surety bond issued on Form 10-402A in favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) A personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. (b) A bond, and if required, security must be in the amount specified in the following table: Number of Permitted Wellheads Bond Amount 1-10 wells $400,000 per well 11-40 wells $6,000,000 41-100 wells $10,000,000 Register 2019 MISCELLANEOUS BOARDS 101-1000 wells $20,000,000 Over 1000 wells $30,000,000 (1) For the purposes of this section, a wellhead is considered any well (excepting lateral well branches drilled from an existing well) for which the commission has issued a permit to drill that has not been permanently plugged and abandoned. (2) Upon request of an operator, or on its own motion, the commission may increase or decrease the amounts set forth in subsection (b) based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts. c) An operator with a bond and, if required, security in place at the time these regulations become effective will be allowed to increase the amount of its bond and, if required, security to the amount required under (b) of this section in four installments. The installments shall be made as follows (1) The first installment shall be due «inert date 90 days after the effective date of these regulation» and shall be a minimum of $500,000 or one quarter of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, (2) The second installment shall be due <<insert date one year after date specified in subsection (1)» and shall be a minimum of $500,000 or one third of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, Register 2019 MISCELLANEOUS BOARDS (3) The third installment shall be due «inert date two years after date specified in subsection (1)» and shall be a minimum of $500,000 or one half of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, and (4) The final installment shall be due <<insert date three years after date specified in subsection (1)» and shall be in the amount of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part. d) A bond and, if required, security must remain in effect until the operator's wells have been permanently plugged and abandoned in accordance with 20 AAC 25.105 and the commission approves final clearance of the locations. The commission may then, at the operator's request and depending upon the count of active permitted wellheads for the operator, release all or a portion of the bond and security upon written request of the operator. e) The operator must provide written proof that the company that provides its bond or security in accordance with subsection (a) of this section has agreed to provide the commission with written notification at least 90 days prior to the expiration or termination of any bond or security. f) Payment under a surety bond or security does not relieve an operator from any other legal requirements. g) The commission will not approve a permit to drill application from as operator that is out of compliance with this section. (Eff. am /_/_, Register .) Authority: AS 31.05.030 Colombie, Jody J (DOA) From: Dan Donkel <donkeloil@gmail.com> Sent: Tuesday, November 27, 2018 10:43 AM To: AOGCC_Public_Notices; Pollard, Susan R (LAW); sahile@gci.net; nate@armstrongoilandgas.com; Ridle, Leslie D (DOA); Bell, Abby E (DOA); Bixby, Brian D (DOA); Boyer, David L (DOA); Brooks, Phoebe L (DOA); Carlisle, Samantha J (DOA); Colombie, Jody J (DOA); Cook, Guy D (DOA); Davies, Stephen F (DOA); Earl, Adam G (DOA); Erickson, Tamara K (DOA); Foerster, Catherine P (DOA); French, Hollis (DOA); Frystacky, Michal (DOA); Guhl, Meredith D (DOA); Herrera, Matthew F (DOA); Jones, Jeffery B (DOA); Kair, Michael N (DOA); Laubenstein, Lou (DOA); Loepp, Victoria T (DOA); Martin, Teddy 1 (DOT); McLeod, Austin (DOA); McPhee, Megan S (DOA); Mumm, Joseph (DOA sponsored); Noble, Robert C (DOA); Paladijczuk, Tracie L (DOA); Pasqual, Maria (DOA); Regg, James B (DOA); Rixse, Melvin G (DOA); Roby, David S (DOA); Schwartz, Guy L (DOA); Seamount, Dan T (DOA); Wallace, Chris D (DOA); AK, GWO Projects Well Integrity; AKDCWelllntegrityCoordinator, Alan Bailey; Alex Demarban; Alicia Showalter, Allen Huckabay; Andrew Vanderlack, Ann Danielson; Anna Raff; Barbara Fulmer; bkruk@glacieroil.com; bbritch bbritch; bbohrer@ap.org; Ben Boettger; Bill Bredar; Bob Shavelson; Bonnie Bailey, Brandon Viator, Brian Havelock, b.webb@furiealaska.com; Caleb Conrad; Candi English; Cody Gauer; Cody Terrell; Colleen Miller; Connie Downing; Crandall, Krissell; D Lawrence; Dale Hoffman; Danielle Mercurio; Darci Horner, Dave Harbour; David Boelens; David Duffy; David House; David McCaleb; David Pascal; Dan I Phone 5; Diemer, Kenneth J (DNR); DNROG Units (DNR sponsored); Donna Ambruz; EdtYP Jones; Elizabeth Harball; Elowe, Kristin; Elwood Brehmer, Evan Osborne; Evans, John R (LDZX); Brown, Garrett A (DNR); gmorris@glacieroil.com; George Pollock; Gordon Pospisil; Greeley, Destin M (DOR); Greg Kvokov; Gretchen Stoddard; G. Scott Pfoff; Hurst, Rona D (DNR); Hyun, James 1 (DNR); Jacki Rose; Jason Brune; Jim Arlington; Jeanne McPherren; Jerry Hodgden; Jill Simek; Jim Shine; Jim Watt; Jim White Oim4thgn@gmail.com); Young, Jim P (DNR); Joe Lastufka; Radio Kenai; Burdick, John D (DNR); Easton, John R (DNR); Larsen, John M (DOR); Jon Goltz; Joshua Stephen; Juanita Lovett; Judy Stanek; Kari Moriarty; Kasper Kowalewski; Kazeem Adegbola; Keith Torrance; Keith Wiles; Kelly Sperback; Frank, Kevin J (DNR); Kruse, Rebecca D (DNR); Kyla Choquette; Gregersen, Laura S (DNR); Leslie Smith; Lori Nelson; Luke Keller, Marc Kovak; Dalton, Mark (DOT sponsored); Mark Hanley (mark.hanley@anadarko.com); landtman4 @yahoo.com; Mark Wedman; Michael Bill; Michael Calkins; Michael Moora; Michael Quick; Michael Schoetz; Mike Morgan; MJ Loveland; Motteram, Luke A; Mueller, Marta R (DNR); Nathaniel Herz; knelson@petroleumnews.com; Nichole Saunders; Nick Ostrovsky; NSK Problem Well Supv; Patty Alfaro; Paul Craig; Decker, Paul L (DNR); Paul Mazzolini; Pike, Kevin W (DNR); Randall Kanady; Renan Yanish; Richard Cool; Robert Brelsford; Robert Tirpack; Bob Warthen; Ryan Gross; Sara Leverette; Scott Griffith; Shahla Farzan; Shannon Donnelly; Sharon Yarawsky; Skutca, Joseph E (DNR); Smith, Kyle S (DNR); Spuhler, Jes J (DNR); Stephanie Klemmer; Stephen Hennigan; Stephen Ratcliff; Sternicki, Oliver R; Moothart, Steve R (DNR); Steve Quinn; Suzanne Gibson; sheffield@aoga.org; Tanisha Gleason; Ted Kramer; Teresa Imm; Terry Caetano; Tim Mayers; Todd Durkee; Tom Maloney, Tyler Senden; Umekwe, Maduabuchi P (DNR); Vern Johnson; Vinnie Catalano; Well Integrity; Well Integrity, Weston Nash; Whitney Pettus; Aaron Gluzman; Aaron Sorrell; Ajibola Adeyeye; Alan Dennis; Andy Bond; Bajsarowicz, Caroline J; Bruce Williams; Casey Sullivan; Corey Munk; Don Shaw, Eppie Hogan; Eric Lidji; Garrett Haag; Smith, Graham 0 (DNR); Heusser, Heather A (DNR); Fair, Holly S (DNR); Jamie M. Long; Jason Bergerson; Jesse Chielowski; Jim Magill; Joe Longo; John Martineck; Josh Kindred; Keith Lopez; Laney Vazquez; Lois Epstein; Longan, Sara W (DNR); Marc Kuck; Marcia Hobson; Matt Armstrong; Melonnie Amundson; Franger, To: James M (DNR); Morgan, Kirk A (DNR); Pat Galvin; Pete Dickinson; Peter Contreras; Rachel Davis; Richard Garrard; Richmond, Diane M; Robert Province; Ryan Daniel; Sandra Lemke; Scott Pins; Talib Syed; Tina Grovier (tmgrovier@stoel.com); William Van Dyke; Zachary Shulman; Begich, Thomas S (LEG); Birch, Christopher (LEG); Bishop, Click (LEG); Chenault, Mike (LEG); Claman, Matt (LEG); Coghill, John (LEG); Costello, Mia C (LEG); Drummond, Harriet A (LEG); Eastman, David C (LEG); Edgmon, Bryce E (LEG); Egan, Dennis W (LEG); Foster, Neal W (LEG); Gara, Les (LEG); Gardner, Berta (LEG); Giessel, Cathy (LEG); Grenn, Jason S (LEG); Guttenberg, David (LEG); Hoffman, Lyman F (LEG); senator.shelley.highes@akleg.gov, Johnston, Jennifer (LEG); Representativejohn.lincoln@akleg.gov; Johnson, Delena (LEG); Josephson, Andrew L (LEG); Kawasaki, Scott Jw (LEG); Kelly, Pete (LEG); Kito, Sam (LEG); Knopp, Gary A (LEG); Kopp, Charles M (LEG); Kreiss-Tomkins, Jonathan S (LEG); Ledoux, Gabrielle R (LEG); MacKinnon, Anna (LEG); Meyer, Kevin G (LEG); Micciche, Peter A (LEG); senator.mike.showers@akleg.gov; Millett, Charisse E D (LEG); Von Imhof, Natasha A (LEG); Neuman, Mark A (LEG); Olson, Donny (LEG); Ortiz, Dan (LEG); Parish, Justin V (LEG); Pruitt, Lance (LEG); Rauscher, George (LEG); Reinbold, Lora (LEG); Saddler, Dan (LEG); Seaton, Paul (LEG); Spohnholz, Ivy A (LEG); Stedman, Bert K (LEG); Stevens, Gary L (LEG); Stutes, Louise B (LEG); Sullivan -Leonard, Colleen (LEG); Talerico, David M (LEG); Tarr, Geran L (LEG); Thompson, Steve (LEG); representative.tiffany.zulkosky@akleg.gov; Tilton, Cathy (LEG); Tuck, Christopher (LEG); Wielechowski, Bill (LEG); Wilson, David S (LEG); Wilson, Tammie (LEG); Dan Gilbertson; Daniel Donkel Subject: Re: PROPOSED REVISIONS TO 20 AAC 25 AAC 25.025 -BONDING REGULATIONS COMMISSIONER HOLLIS FRENCH, CHAIR ALASKA OIL & GAS CONSERVATION COMMISSION 333 W. 7TH AVENUE ANCHORAGE, AK 99501 Dear Hollis French, Chair I am glad the AOGCC will recieve meaningful comments on this massive cost increase on smaller oil and gas competitors in Alaska, this "proposed Revision to 20 AAC 25.025" could be the single straw that will break the Camel's back for the smaller oil and gas investors, clearly it most likely will put Alaskans out of work and cause less oil and gas production income for Alaska. Even if Alaska had a robust Camel ( oil and gas Industry) this proposed cost increase is still the wrong direction so I ask the AOGCC why add more red tape and higher cost when Alaska is in bad shape due to the oil price crash and is ranked the last as a place to invest in oil and gas year after year in the Frazier Institute report on ranking oil and gas areas? Please incorporate the last 10 years of the Fraser Institute annual reports as new information to STOP this idea or Proposal of pricing Alaskan investors and smaller companies out of the oil and gas business in Alaska. The oil and gas industry will continue its decline in oil an gas production with things like this proposal! My comment to the AOGCC is to look at the fact that Alaska has around 50 million acres not leased to a oil and gas company just wasting away because no one wants a state that has so much unnecessary red and bonding cost, may I propose the following, ask the AOGCC member to stop referring to smaller oil and gas companies as "maggots" as seem on Gravel to Gavel 360 North and make Alaska finally open for business. I propose Alaska leasers to think about and try to use the 470 fund to self insure the state or use the $50 million and income to pay for Loyd of London to insure Alaska and do away with all bonding and the red tape like the C Plan letting the DEC get it's funding to hire Clean Seas and eliminate the 11 month C Plan, few smaller oil companies can wait 11 month for approve when the well cost $50 million dollars. see htti)s://www.aoqa.org/sites/default/files/news/02 26 15 aoga 470 fund white paper final pdf htti)s: //dec.alaska.gov/spar/rfa/history. htm Smaller oil companies can not sit on $50 million to drill a well for 11 months waiting on a C Plan. Alaskan and smaller oil companies can not sit on this size of money for 11 months or more till some one approves the C- P - plan and pay higher bonding cost to drill and explore Alaska. I ask for a new hearing since we have a new Governor and new hope with the new legislature, the Governor elect Mike Dunleavy has asked to put stuff like this on hold, please respect his new office and stop or deffer this proposal now. Respectfully submitted, Daniel K. Donkel donkeloil@gmail.com donkeloilgasalaska.com Main and Fax: 407-601-3302 Cell: 407 375 8500 3 Alaska Oil and Gas Association 121 W. Fireweed Lane, Suite 207 NM Anchorage, Alaska 99503-2035 Phone: (907) 272-1481 Fax: (907) 279-8114 Email: moriarty@aoga.org Kara Moriarty, President & CEO November 27, 2018 Nov 2 6 2018 Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission AOGCC 333 W. 7th Avenue Anchorage, AK 99501 Submitted by E -Mail to: jody.colombie@alaska.¢ov Re: Second Set of Proposed Revisions to 20 AAC 25.025 — Bonding Regulations Dear Commissioner French: Thank you for the continued opportunity to comment on the Alaska Oil and Gas Conservation Commission's ("AOGCC" or "Commission") proposed revisions to the bonding requirements contained in 20 AAC 25.025 (the "Regulation"). The Alaska Oil and Gas Association ("AOGA") is the professional trade association for the oil and gas industry, representing the majority of oil and gas exploration, production, refining and transportation companies in Alaska. AOGA adopts, by reference, the comments it submitted on behalf of its members in response to the first set of proposed revisions to the Regulation on October 16, 2018. Those comments are attached to this document as "Exhibit A." AOGA's Request for An Agency and Stakeholder Process to Participate in Revising The Regulation Should be Adopted by AOGCC. AOGA respectfully reiterates its conclusory paragraph from Exhibit A: AOGA would like to participate in a holistic approach to modifying current bonding requirements that also takes into account the requirements of other state agencies. AOGA encourages an approach that requires more communication among State agencies than currently exists. Any effort by AOGCC to modify current regulations should be done in conjunction with DNR, private landowners, large and small producers and other stake holders. These modifications should strike an appropriate balance between addressing the concerns of the land owners while at the same time encouraging new and continued investment in our State. Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission November 27, 2018 Page 2 AOGCC's release of the second set of proposed revisions to the Regulation shortly after the close of the first public comment period has not addressed AOGA's substantive concerns with the revisions, nor were other State agencies, AOGA or other stakeholders invited to work with AOGCC to develop a holistic solution. Rather, the second set of proposed revisions are identical to first set with one exception: AOGCC now suggests 5 tiers instead of 23, which results in even higher bonding amounts per well compared to the first set. The Second Set's Reduced Tiers Further Exacerbate the Unfair Burdens on Small Companies and Newcomers. The combination of reduced bonding tiers and higher costs of bonding per well adds to the burden on smaller companies operating in Alaska along with the barriers to entry for new producers seeking to invest in our State. This structure exacerbates the added burdens on small companies and newcomers detailed in Exhibit A. Companies Should Be Allowed Flexibility in Forms of Financial Assurances to Satisfy the Regulation. Exhibit A also compared Alaska's bonding requirements to other states. As noted in those comments, some states allow flexibility in the form of financial instruments accepted in addition to conventional sureties and personal bonds. If AOGCC persists in its higher bonding requirements, AOGA believes it is appropriate for the Commission to provide for additional flexibility in the form of financial instruments which might be used to meet the new requirements. Other instruments may offer equal or greater assurance, while in some cases potentially imposing less financial burden on operators. The costs of large bonds are a disincentive for investment which benefit neither operators nor the State. Flexibility in the form of the instruments provides additional opportunities both to meet the new requirements and potentially to reduce the costs. This flexibility is already allowed under Alaska law. For example, AOGCCs current regulation allows a "personal bond" to be accompanied by security in the form of a certificate of deposit; irrevocable letter of credit, or "another form that the [C]ommission determines to be adequate to ensure payment."' AOGCC should also allow these forms of security in lieu of a personal bond or surety. Alaska Department of Environmental Conservation in its regulations governing financial responsibility requirements for oil shipping and facilities has recognized a number of forms in addition to bonds and insurance, including self-insurance, contracts of guaranty, letters of credit, and statements of indemnity issued by protection and indemnity clubs.2 These securities cover substantial liabilities for spills which may exceed the proposed well bonding and security amounts here. AOGCC should consider adopting these forms of financial responsibility as well. Under the proposed Regulation, the Commission will already have discretion to increase or decrease the amount of bonds. Broadening the scope of instruments which could be proposed would afford operators greater flexibility in the financial instruments to meet the greatly increased amounts of bonding and the Commission similar discretion to approve them. ' 20 AAC 25.025(a)(2). 'See 18 AAC 75.245, .260, .265, and .270. Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission November 27. 2018 Thank you again for this opportunity and we look forward to working with the agency. Respectfully submitted, KARA MORIARTY President & CEO Attachment Page 3 Exhibit A Alaska Oil and Gas Association 121 W. Fireweed Lane, Suite 207 A Anchorage, Alaska 99503-2035 Phone: (907) 272-1481 Fax: (907) 279-8114 Email: moriarty@aoga.org Kara Monarty, President & CEO October 16, 2018 Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission 333 W. 7th Avenue Anchorage, AK 99501 Submitted by E -Mail to: lody.colombiegalaska.gov Re: Proposed Revisions to 20 AAC 25.025 — Bonding Regulations Dear Commissioner French: Thank you for the opportunity to comment on the Alaska Oil and Gas Conservation Commission's ("AOGCC" or "Commission") proposed revisions to the bonding requirements contained in 20 AAC 25.025, The Alaska Oil and Gas Association (AOGA) is the professional trade association for the oil and gas industry, representing the majority of oil and gas exploration, production, refining and transportation companies in Alaska. AOGA's members recognize their obligations to Alaskans and the environment for responsible resource development, part of which includes the necessity for bonding to ensure the safe and sufficient plugging and abandonment of a well when it is no longer in use. Although AOGA believes the combination of current Department of Natural Resources ("DNR"), AOGCC and Federal bonding requirements are sufficient, our member companies would consider modifications to current bonding requirements. The bonding thresholds in the proposed revisions are, however, too high. AOGA respectfully opposes these proposed revisions for the following reasons. The Proposed Bonding Requirements Are Too High and Could Discourage New Investment Currently producers with more than one well on non-federal lands, are required to have statewide bonds up to $700,000; $200,000 for AOGCC' and $500,000 for DNR. While, facially, those are the regulatory requirements, many producers are required to provide the State additional bonding or other financial assurances well beyond those amounts. These assurances often reach well into the millions. The proposed regulations represent a graduated schedule of bonding that creates significant increases from the current scheme. For example, a small producer with two wells would see an increase of 150%, a mid-size producer with 100 wells sees an increase of 4,900% while a large producer with 500 wells sees a 6,900% increase. Increases of this order of magnitude are both unprecedented and unreasonable. ' 20 AAC 25.025. 11 AAC 83.160(c). Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission October 16, 2018 Page 2 Current Alaska Bonding Requirements Already Parallel or Exceed Other States Alaska's current bonding requirements either parallel or exceed other states. For example, New Mexico's counterpart to AOGCC has a law similar to Alaska's which allows producers to provide a "blanket plugging financial assurance" not to exceed $250,000.3 Texas is also similar to Alaska. It has a three -tiered bonding schedule which is capped at $250,000 for producers with more than 100 wells.° Texas is also flexible in the form of assurances it accepts, allowing for letters of credit, cash deposits, escrow, insurance, etc...' North Dakota allows a blanket bond for all wells of $100,000.1 Oklahoma requires either a bond, letter of credit, certificate of deposit, cashier's check or other negotiable instrument in the amount of $25,000, combined with a binding agreement between the producer and the State to plug all wells in accordance with State law.' The proposed bonding requirements are not in line, and in fact far exceed, those of other states. The Immediate Vesting Schedule for New Wells Unduly Burdens Small Companies The costs of oil production in Alaska already far exceed those of Alaska's competitor states in the Lower 48. Perhaps recognizing the burden these proposed bonding requirements would place on existing producers, AOGCC proposes a three-year vesting schedule for current producers to come into compliance. No such courtesy is given to incoming producers bringing new investment to our State. As written, the proposed changes could discourage new investment in Alaska and add to the already high barriers to entry to doing business in our State. The Proposed Regulation Creates Uncertainty Under the current regulation, the AOGCC Commissioner must release the surety bond if the wells are plugged and abandoned in accordance with 20 AAC 25.105. The proposed revision transforms a requirement of AOGCC, specifically that it "will" release the bond when plugging and abandonment is completed, into something discretionary; AOGCC "may" release the bond in the proposed regulation. This creates an added level of uncertainty as to what is expected of AOGA's members before a bond is released. Additionally, the proposed revision would allow AOGCC to, on its own initiative, increase or decrease the bonding requirements based on "evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts." The ability of the Commissioner to increase the bond required is not based on clearly defined conditions and standards. AOGCC Should Consider A Producer's Agreements with DNR Many of our member companies are required by the DNR Commissioner to address the estimated cost of dismantlement, removal and restoration ("DR&R") through Financial Assurance Agreements or DR&R Agreements (collectively, "Agreements"). These Agreements address the anticipated DR&R costs for not only wells in operation, but also anticipated future wells. The proposed revisions neither acknowledge nor require AOGCC to take these Agreements into account. If AOGCC is to have discretion in setting different bonding requirements from what is set forth in the proposed regulation, AOGCC should also consider the Agreements a producer may have with DNR. 3 NMSA 70-2-14 (A). 4 Texas Admin Code, Title 16, Part 1, Chapter 3, Rule 3.78. s Id. 6 N.D. Admin. Code Section 43-02-03-15. ' 52 O.S. 318.1 'Oklahoma Admin. Code Section 165:10-1-10, et. seq. Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission October 16, 2018 Page 3 AOGA Would Like to Participate in a Collaborative Approach to Revising Bonding Requirements AOGA would like to participate in a holistic approach to modifying current bonding requirements that also takes into account the requirements of other state agencies. AOGA encourages an approach that requires more communication among State agencies than currently exists. Any effort by AOGCC to modify current regulations should be done in conjunction with DNR, private landowners, large and small producers and other stake holders. These modifications should strike an appropriate balance between addressing the concerns of the land owners while at the same time encouraging new and continued investment in our State. Thank you again for this opportunity and we look forward to working with the agency. Respectfully submitted, AiIGL KARA MORIARTY President & CEO Colombie, Jody J (DOA) From: Paul Craig <drpaulcraig@gmail.com> Sent: Tuesday, November 27, 2018 3:57 PM To: AOGCC—Public—Notices Cc: Dan Donkel Subject: AOGCC's proposed revisions of 20 AAC 25.025 Bonding regulations Dear Commissioner French: I am writing this email as a 38 year Alaskan and as a 26 year participant in the Alaska oil patch. My participation in the "Patch" has been as an individual lessee, a private mineral rights owner in Alaska, and as the owner and manager of Trading Bay Oil & Gas, LLC. I am in receipt of Daniel K. Donkel's comments to you regarding the AOGCC's proposed revisions of 20 AAC 25.025 Bonding regulations. I generally agree with Mr. Donkel's comments. In 1996 1 completed all aspects of State and Federal permitting to drill three Cook Inlet gas wells with the exception of the final step - obtaining the permit to drill from the AOGCC. Forcenergy, Inc. bought out my company's leases in April 1997 as well as the permits I had acquired. At that time I went through the permitting process, I was amazed at the inordinate bonding and financial responsibility requirements imposed by various State agencies to drill these shallow gas wells on State leases. Between DEC, DNR and the AOGCC I needed to have more than $1M dollars idly parked in financial instruments to secure the required financial responsibility documents including but not limited to the AGOCC bonds. Once I had sequestered more than $1M of my working capital for this purpose I would then be allowed by the State to spend $5 million on field operations thereby creating jobs while proving up on reserves to the benefit of Alaskans who use gas to heat their homes and light their bulbs. Conservative economic analyses suggested that the drilling of these wells would have resulted in bookable reserves of —$60M+ (NPV -10). This relatively tiny oil and gas development project was going to be executed by an Alaska -owned and operated company (then called Trading Bay Energy Corporation) with substantial economic benefits enjoyed therefrom by the State including its 12.5% royalty interest and the additional taxes on the produced reserves - not to mention job creation and other spinoff economic benefits.. Again, these wells were not drilled by my company insofar as Forcenergy purchased the leases and other assets from my company in 1997. For purposes of a presentation I was asked to give during 1996 to Governor Knowles Blue Ribbon Panel on Oil and Gas issues, I completed research regarding bonding and financial responsibility requirements for a 10,000 foot oil or gas well drilled on State lands in each oil and gas jurisdiction in the USA and Canada. In 1996, Alaska's financial responsibility requirements were more than 76 standard deviations (SD) above the mean for the rest of the country and Canada. Three SD above the mean would have placed Alaska in the 99+ percentile compared with other areas of the USA and Canada - a stratospheric difference even at 3 SDs. 76 SD above the mean is almost incomprehensible, placing Alaska so far above the average in all other jurisdictions that it essentially placed Alaska in some distant galaxy along the Y-axis of my financial responsibility chart. Yes, things have changed since 1996 but Alaska continues to be ranked by various entitities as the worst place to do business in the USA. The AOGCC's bonding proposal will only exacerbate this problem. The increase in bonding requirements proposed by the AOGCC will also serve to create an even deeper moat preventing entry to the Alaska oil patch by smaller companies who are considering exploring in Alaska. Large companies like BP and Exxon serve as the "banks" to finance the exploitation of oil and gas discoveries made by much smaller explorationists. ARCO was a very small company when it discovered the Swanson River Oil Field (note: ARCO was the Richfield Oil Company at that time) and was still a relatively small company when it discovered the Sadlerochit Formation containing the Prudhoe Bay Oil Field in 1968. Small companies discover (to wit, Armstrong's Nanushuk discovery). Big companies develop these discoveries. Richfield's oil discovered at Swanson River was the catalyst that gave Congress confidence that Alaska could support itself as a State. The royalty and taxes on the oil produced on the North Slope and the Cook Inlet since the 1950s has created untold wealth for the State and for the foreign (non -Alaskan) corporations that have exploited these resources. In short, creating economically unnecessary barriers to entry for small explorationists by way of requiring inordinate levels of bonding on oil and gas wells is poor public policy. Structuring the bonding requirements such that small operators are burdened to a greater degree on a proportionate basis per well is even worse public policy. The very first clause of the Alaska Constitution unequivocally states: This constitution is dedicated to the principles that all persons have a natural right to life, liberty, the pursuit of happiness, and the enjoyment of the rewards of their own industry; that all persons are equal and entitled to equal rights, opportunities, and protection under the law; and that all persons have corresponding obligations to the people and to the State. Deviating from equal protection for all companies (legal persons) in Alaska is contrary to the most important principle voiced by Alaska's founding mothers and fathers at the time of statehood. The AOGCC undoubtedly has rationales and justifications it can articulate regarding why it would structure bonding requirements differentially (when considered on a per well basis) for very large companies with hundreds of wells as contrasted with small companies with one or two wells. But as the owner of a tiny company - Trading Bay Oil & Gas - I must tell you that I found it repulsive when I listened to your predecessor telling a Legislative Committee her "joke" that classified small independents as "maggots." You and everybody else in the room sat by quietly - some even giggled - as this extraordinarily pejorative joke about small companies was told to a group of Alaska legislators who purport to represent me and every other Alaskan. Behind every joke is a bit of truth, and the truth behind that joke was that Alaska is not open for business with respect to small independents who want to participate in the Alaska oil patch. If a Commissioner from any quasi-judicial body were to testify before a legislative body and were to tell an anti-Semitic joke, would that be ok because it was only a "joke." Obviously not. Telling a joke using a company of the size I own as the brunt of the joke by way of equating what I have done and what I am trying to do to "maggots" feasting on a carcass in the desert is beyond offensive to me and and to my Independent oil and gas colleagues. In closing, I would like to request that a hearing be held to review the most recent iteration of bonding requirements that the AOGCC is considering imposing on oil and gas operators in Alaska. At that hearing, I will have more information about the extraordinary levels of bonding proposed by the AOGCC as contrasted with all other jurisdictions. Likewise, I will then have an opportunity to present to the AOGCC why the current proposal is discriminatory in relation to small companies proposing to explore in Alaska. Thank you for your consideration. Sincerely, Paul L. Craig, Manager Trading Bay Oil & Gas, LLC I am in general concurrence with Mr. Donkel's position that On Nov 27, 2018, at 10:43 AM, Dan Donkel <donkeloil(agmail.com> wrote: COMMISSIONER HOLLIS FRENCH, CHAIR ALASKA OIL & GAS CONSERVATION COMMISSION 333 W. 7TH AVENUE ANCHORAGE, AK 99501 Dear Hollis French, Chair I am glad the AOGCC will recieve meaningful comments on this massive cost increase on smaller oil and gas competitors in Alaska, this "proposed Revision to 20 AAC 25.025" could be the single straw that will break the Camel's back for the smaller oil and gas investors, clearly it most likely will put Alaskans out of work and cause less oil and gas production income for Alaska. Even if Alaska had a robust Camel ( oil and gas Industry) this proposed cost increase is still the wrong direction so I ask the AOGCC why add more red tape and higher cost when Alaska is in bad shape due to the oil price crash and is ranked the last as a place to invest in oil and gas year after year in the Frazier Institute report on ranking oil and gas areas? Please incorporate the last 10 years of the Fraser Institute annual reports as new information to STOP this idea or Proposal of pricing Alaskan investors and smaller companies out of the oil and gas business in Alaska. The oil and gas industry will continue its decline in oil an gas production with things like this proposal! My comment to the AOGCC is to look at the fact that Alaska has around 50 million acres not leased to a oil and gas company just wasting away because no one wants a state that has so much unnecessary red and bonding cost, may I propose the following, ask the AOGCC member to stop referring to smaller oil and gas companies as "maggots" as seem on Gravel to Gavel 360 North and make Alaska finally open for business. I propose Alaska leasers to think about and try to use the 470 fund to self insure the state or use the $50 million and income to pay for Loyd of London to insure Alaska and do away with all bonding and the red tape like the C Plan letting the DEC get it's funding to hire Clean Seas and eliminate the 11 month C Plan, few smaller oil companies can wait 11 month for approve when the well cost $50 million dollars. see https://www.aoga.org/sites/default/files/news/02 26 15 aoga 470 fund white paper fina I.pdf https://dec.alaska.gov/spar/rfa/`history.htm Smaller oil companies can not sit on $50 million to drill a well for 11 months waiting on a C Plan. Alaskan and smaller oil companies can not sit on this size of money for 11 months or more till some one approves the C- P -plan and pay higher bonding cost to drill and explore Alaska. I ask for a new hearing since we have a new Governor and new hope with the new legislature, the Governor elect Mike Dunleavy has asked to put stuff like this on hold, please respect his new office and stop or deffer this proposal now. Respectfully submitted, Daniel K. Donkel donkeloil@gmail.com donkeloilgasalaska. com Main and Fax: 407-601-3302 Cell: 407 375 8500 AIX Energy LLC November 27, 2018 Commission Hollis French, Chair Alaska Oil and Gas Conservation Commission 333 West 7th Avenue, Suite 100 Anchorage, AK 99501 Re: Proposed Revisions to 20 AAC 25.025 Dear Commissioner French: VIA ELECTRONIC MAIL AIX Energy LLC ("AIX") appreciates this opportunity to provide the following comment to the Commission regarding the October 22, 2018, Notice of Proposed Changes in 20 AAC 25.025. AOGCC should take into consideration a producer's bonding/financial security requirements of other agencies of the State of Alaska such as the Department of Natural Resources ("DNR") and the Mental Health Trust Land Office ("TLO") to eliminate duplicate bonding requirements. AIX, as the owner and operator of four gas wells at the Kenai Loop Gas Field ("KLGF"), respectfully requests an exemption from the AOGCC from additional bonding due to financial security currently pledged at 100% of DR&R and P&A for the four KLGF wells (based on an independent third party estimate) as required by the TLO. The current TLO financial security obligation coupled with a $500,000 DNR bond and a $200,000 AOGCC bond provides the State of Alaska with financial security/bonding at approximately twice the cost to DR&R and P&A the four KLGF wells. If the current proposed regulation is enacted increasing bonding to $400,000 per well, AIX would be providing the State of Alaska approximately four times the cost to P&A the four KLGF wells and DR&R. Therefore, AIX asks the Commission to review a producer's existing bonding/financial security obligations with other state agencies. To require additional bonding/financial security of AIX would be onerous. AIX understands the Commission's need to ensure that each producer in the state has sufficient bonding/financial security in place to guarantee that wells are properly plugged and abandoned. However, the proposed changes to 20 AAC 25.025 do not take into consideration bonding/financial security obligations of other state agencies resulting in a duplication of bonding efforts. Thank you for your review and consideration of the above comments. Since ly, 4 Wen M. Sheasby, CFO 2441 High Timbers Drive, Suite 120 ° The Woodlands, TX 77380 ° Phone: 832.813.0900 ° Fax: 832-585-0133 aroq Resources, LLC 4f 1; 1 t.vutcr 8,vO $WCC 200 TX 1/419 November 26, 2018 Alaska Oil and Gas Conservation Commission 333 West 7th Avenue Anchorage, Alaska 99501 RE: Proposed Adoption of Regulation Changes in 20 AAC 25.025 Increasing Minimum Bonding Requirements Amaroq Resources, LLC ("Amaroq") respectfully submits the following comments in response to the AOGCC's proposed changes in 20 AAC 25.025: 1. Amaroq reiterates all written comments submitted on October 16t'1, 2018 with greater urgency. The proposed changes, which now double the previous proposed bonding levels and force Amaroq to increase bonding from $200,000 to $2.4 million: a. are unfair to smaller operators, b. will create economic hardship for smaller operators, possibly forcing some out of business and resulting in orphaned wells, c. create additional economic hardship by virtue of the unreasonably short implementation timeframe of 90 days, and d. far exceed levels required in other oil and gas producing states which will negatively impact oil and gas investment in Alaska (see graph attached). 2. Based upon initial feedback from Amaroq's insurance broker it is highly unlikely that Amaroq will be able to secure bonding at the proposed levels; especially in the short time frame that would be allowed (90 days). 3. As the Commission is aware, plugging and abandonment of wells formerly operated by Aurora Gas, LLC is currently underway on the west side of Cook Inlet. These wells are similar, and in proximity, to Amaroq's six wells which were acquired out of the Aurora Gas bankruptcy. When certain logistical costs, along with the negative impact of current adverse weather conditions are factored in, the cost for plugging these wells is expected to be under $200,000 per well. Amaroq believes it will be able to improve on these costs with more favorable logistics and a summer program which will avoid the adverse 4645 Sweetwater Blvd., Suite 200 0 Sugar Land, Texas 77479 0 (832) 999-6603 0 Fax (281) 495-1473 weather problems. Accordingly, we suggest that the Commission study the final costs of this program, along with any other similar recent abandonments (such as Stump Lake) before implementation of potentially excessive bonding requirements. 4. Amaroq strongly supports AOGA's suggestion for a holistic approach to modification of current regulations in conjunction with other State agencies, private landowners, large and small producers and all other stake holders. Amaroq would be willing to participate in any such effort. 5. Finally, Amaroq agrees with the Governor elect's strategy to avoid new regulations that would restrict resource development and his desire to reform regulations in a way to help grow the economy. The proposed modifications contradict such a strategy. Your consideration of Amaroq's comments is respectfully requested. Sincerely, sL.-+. G. Scott Pfoff— President Amaroq Resources, LLC 4645 Sweetwater Blvd., Suite 200 0 Sugar Land, Texas 774790(832)999-4603 • Fax (281) 495-1473 11/26/2018 To: Alaska Oil and Gas Conservation Commission (AOGCC) Re: Comments on Second Notice on Proposed Changes on Bonding in the Regulations Via electronic mail ao¢cc,customer.svcgalaska.gov I am commenting as a resident of the 76,000 square mile Southcentral Regional Exploration Unit which is part of an Alaska Department of Natural Resources exploratory incentives program. Licensed explorations within this unit are outside of known hydrocarbon basins and far from infrastructure. There is a high risk to the operator. Thus, these bonding changes would provide financial surety to cover abandoned and inadequately plugged wells. Prevention of a possible long term environmental problem is the goal of these upfront costs that would eliminate the lag time that occurs when government agencies have to take over the clean up and restoration if that is even possible fiscally. The state lands in this exploration unit are dotted with innumerable remote private properties with structures. There is considerable multi -use by the public. I trust the way the AOGCC has bracketed the number of wells and the bond costs. I support this amended proposal. Commenters have said that this might make it difficult for the smaller companies. That may be so. But if the operator can't afford the appropriate bonds, then they probably don't have the resources to successfully manage their infrastructure and end their wells' life in an environmentally sound way. This AOGCC proposal also contains flexibility. Included in the proposal is AOGCC discretion to reduce the required amounts for a bond if the operator can demonstrate engineering or other circumstances that would reduce the risks. Oil and gas development must be done responsibly so that human health and the environment are protected and to prevent pollutants that leak into water systems and possibly trigger explosions. Becky Long Talkeetna Alaska Colombie, Jody J (DOA) From: AOGCC Cust Svc (DOA sponsored) Sent: Tuesday, November 13, 2018 8:16 AM To: Colombie, Jody J (DOA) Subject: FW: 470 Fund Attachments: fy05 5 -year rf report.pdf From: James B. Gottstein <james.b.gottstein@gottsteinlaw.com> Sent: Friday, November 9, 2018 10:36 AM To: AOGCC Cust Svc (DOA sponsored) <aogcc.customer.svc@alaska.gov> Cc: james.b.gottstein@gottsteinlaw.com; Jim White <jim5thgn@gmail.com> Subject: 470 Fund Dear Chairman French: At the October 16th hearing on the proposed changes to the Commission's bonding regulations you asked me to follow-up on my client, Jim White's suggestion that the "470 Fund" is a good model for how to deal with the issue of insufficient bonding for plugging and abandoning wells. In connection with that, please find attached the 1995-2005 DEC report, which explains the history and use of the Oil and Hazardous Substance Release Response Fund, which is sometimes called the "470 Fund" named for HB 470 in 1986. Perhaps, plugging and abandoning wells could even be added to the existing fund. Mr. White believes the 470 Fund approach is a much better one than the proposed increase in bonding requirements. The proposed increased bonding requirements will essentially prevent Alaskan homesteaders from developing themselves the oil and gas deposits under their land as promised by the federal government. Yours truly, James B. Gottstein Law Offices of James B. Gottstein 406 G Street, Suite 206 Anchorage, AK 99501 Tel: (907) 274-7686 Fax: (907) 274-9493 e-mail: James.B. Gottstein@ GottsteinLaw.Com Alaska Department of Environmental Conservation Spill Prevention and Response Division Oil and Hazardous Substance Release Response Fund Report The purpose, background, structure and administration of Alaska's Response Fund Fiscal Years 1995 to 2005 16 )7 [Intentionally blank] `Ec Oil and Hazardous Substance Release Response Fund Report The purpose, background, structure and administration of Alaska's Response Fund Fiscal Years 1995 to 2005 Alaska Department of Environmental Conservation, Division of Spill Prevention and Response, Contaminated Sites Program www.state.ak.us/dec/spar May 2007, Juneau Alaska 0 Sarah Palin, Governor 0 Larry Hartig, Commissioner For information on where to obtain copies of this report, contact: Spill Prevention and Response Division Alaska Department of Environmental Conservation 410 Willoughby Avenue, Suite 303 PO Box 111800 Juneau, AK 99811-1800 (907)465-5250 The State of Alaska, Department of Environmental Conservation complies with Title II of the Americans with Disabilities Act of 1990. If you are a person with a disability who needs a special accommodation in order to access this publication, please contact the Spill Prevention and Response Division receptionist in Juneau through the Alaska Relay Service, TDD 1-800-770-8973/TTY or dial 711, or www.akrelay.com Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 Summary.......................................................................iii I. Fund Overview.................................................................1 A. Purpose of the Fund.........................................................1 B. Background and Legislative History.............................................2 C. Structure of the Response Fund in 2005 .........................................13 D. Administration of the Fund...................................................16 II. Response Account..............................................................18 A. Revenue ..................................................................18 B. Expenditures..............................................................20 III. Prevention Account............................................................21 A. Revenue ..................................................................21 B. Appropriations .............................................................25 IV. References ...................................................................27 Figures Figure 1: Oil and Hazardous Substance Release Prevention and Response Fund — 2005 .........12 Figure 2: Number of Times the Response Account Has Been Accessed by Fiscal Year ...........19 Figure 3: Response Account Revenue.................................................19 Figure 4: Expenditures from the Response Account.......................................20 Figure S: Prevention Account All Revenues.............................................21 Figure 6: Three -Cent Surcharge......................................................22 Figure 7: Cost Recovery, Settlements, Fines, Penalties and Miscellaneous Revenue .............23 Figure 8: Investment Income........................................................24 Figure 9: SPAR Division Operating Appropriations.......................................25 Figure 10: Other Operating Appropriations.............................................26 Tables Table 1: Splitting of the Response Fund.................................................7 Table 2: Summary of Alaska's Oil Legislation............................................9 Table 3: Summary of Funding Mechanisms for Response Account ...........................14 Table 4: Summary of Funding Mechanisms for Prevention Account ..........................15 [Intentionally blank] Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 This report provides an overview of the purpose, background, structure and administration of the State of Alaska's Oil and Hazardous Substance Release Prevention and Response Fund (OHSRPRF) commonly known as the "Response Fund." Included in the Response Fund are a Response Account and a Prevention Account. The report also includes an analysis of the revenue and appropriations for each of these accounts. The Fund's Prevention Account is used to pay the expenses of the State's spill prevention and response programs. The Response Account, which maintains a balance of $50 million, is available for response to a release of oil or a hazardous substance that poses an imminent and substantial threat to the public health or welfare or to the environment. It can also be used when a release is declared a disaster emergency. The precursor to today's Response Fund was the Coastal Protection Fund, first created in 1976, five years after the Department of Environmental Conservation came into being. The Fund has been changed and renamed several times by the Alaska Legislature. This report documents the evolution of the original Coastal Protection Fund to the current Oil and Hazardous Substance Release Prevention and Response Fund. There have been several milestones during this evolution: • In 1976 the "Tanker Safety Law" passed, establishing the Coastal Protection Fund for spill cleanup and imposing the payment of annual risk charges on oil shipping companies, determined by the safety features of their oil tankers. • An Oil Spill Mitigation Account was established in 1977 to collect civil penalties for discharges of oil. The funds could be used to restore and enhance environments affected by oil pollution. In 1980 the Oil Spill Reserve Account replaced the Coastal Protection Fund after a U.S. Supreme Court decision in 1978 invalidated the Fund, declaring it pre-empted by the federal Ports and Waterways Safety Act, which precluded the collection of risk charges from oil companies. The Oil Spill Reserve Account maintained a cleanup fund through General Fund capital appropriation, and it also received deposits of costs recovered from responsible parties or from the federal government. In 1986 the Oil and Hazardous Substance Release Response Fund replaced the Oil Spill Reserve Account. This action broadened allowable uses to include cleanup of hazardous substance spills. • In the wake of the Exxon Valdez disaster in 1989, the Alaska Legislature passed a number of bills increasing the funding sources and uses of the Response Fund. Most significant was a bill to levy a five -cent -per -barrel oil production severance tax, known as the "conservation surcharge." Legislation also established a $50 million reserve account within the Fund to be used Alaska Department of Environmental Conservation for responses to oil and hazardous substance releases. The Fund's monies could also be used to review oil discharge prevention and contingency plans, conduct drills and training, and verify financial responsibility. 1994 legislation divided the Response Fund into two accounts, and split the "nickel a barrel" surcharge. Two cents would go to the new Response Account and three cents to a Prevention Account. The Fund was renamed the Oil and Hazardous Substance Release Prevention and Response Fund. In this report, financial data for the Response and Prevention accounts begins with Fiscal Year (FY) 95, starting July 1, 1994, and ends June 30, 2005. FY 95 was the first state fiscal year after the Alaska Legislature made significant changes in 1994 through Senate Bill 215. The Response Fund has remained unchanged since the 1994 amendments, except for revising the annual reporting requirement to a biennial report. The 1994 changes, which established both accounts and divided the five -cent conservation surcharge between the accounts, effectively reduced operating revenue for state spill prevention and response programs by 40%. This reduction meant that the operational funding for the Division of Spill Prevention and Response would no longer be sustainable. iv Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 A. Purpose of the Fund The Legislature established the Response Fund to pay for the cost of responding to a release or threatened release of oil or hazardous substances and to pay the expenses of establishing and maintaining spill prevention and response programs that would mitigate oil and hazardous substance spills. In 1976, a year before "'-_ the startup of the ._S Trans -Alaska pipeline, ab— the state established DEC review of spill contingency plans. its first fund for oil spill response, the Coastal T Protection Fund. 1999 when Alaska Alaska law requires the oil industry to conduct periodic drills Railroad freight train to demonstrate readiness to respond to a spill. The above 2004 drill in Valdez included tabletop exercises and tested equipment to use dispersants. The Response Fund ._S in part pays for y ._ DEC review of spill contingency plans. These plans were not required of railroads in T 1999 when Alaska Railroad freight train derailed, spilling about V, f t 120,000 gallons of jet fuel. After 2000, railroads, cruise ships, �- and similar carders of fuel were brought under _ the oil spill safety net. Response Action Contractors are registered and approved ,:. by DEC. The contractors hire spill response workers like this one at the Kuroshima spill, Dutch Harbor, 1997, Alaska Department of Environmental Conservation B. Background and Legislative History In 1968, Atlantic Richfield completed its discovery well in the Prudhoe Bay oil field and Alaska was forever changed. By 1969, three major oil companies had applied to build a forty- eight inch pipeline to transport the newly found oil to an ice - free port in Southcentral Alaska. Also, in 1969 the National Environmental Policy Act (NEPA) became law. The U.S. Environmental Protection Agency was created in 1970, bringing a national policy and focus on environmental issues, including oil transportation. The Trans -Alaska Pipeline generated more concern over the environment than any other single project in a time when the importance of environmental review was emerging with the advent of complex Environmental Impact Statements (EIS). Environmental issues became intertwined with Alaska's economic and social future. Governmental approval of the pipeline was a long time coming. Preliminary stipulations for construction were issued, followed by an EIS. Passage of the Alaska Native Claims Settlement Act in 1971 removed one legal hurdle, and objections over the EIS were settled not by the courts but by the U.S. Congress, with passage of the Trans -Alaska Pipeline Act in 1973. In 1971, through passage of Senate Bill 75, Governor William Egan elevated the responsibility for protecting Alaska's natural environment from a program within the Department of Health . and Social Services to a new Department of Environmental Conservation. SB 75 also prohibited oil pollution and discharges of oil contaminated ballast water. It established pollution penalties, restoration damages, criminal violations, and enforcement authorities. In part, this significant change in state government was made in recognition of changes taking place in Alaska's economy and environmental issues associated with the production of North Slope crude oil, construction of the Trans -Alaska Pipeline System, and tanker transportation through Prince William Sound. The department's prevention and response programs for oil and hazardous substances were first funded by water quality and coastal zone management programs and carried out under the federal Clean Water Act program. In the early years, the Alaska Legislature provided funding for the state's oversight of the oil and gas industry from the general fund. Significant Response Fund Events 1968 Atlantic Richfield discovers oil in the Prudhoe Bay field. 1969 Three oil companies apply to build Trans - Alaska Pipeline. 1971 DEC created, with oil pollution statutes. 1976 Alaska enacts the 'Tanker Safety Law" with the Coastal Protection Fund. 1977 June 22, operation of the trans -Alaska pipeline begins. Oil Spill Mitigation Account established to hold penalties paid to the state. 1978 Federal courts strike down the Coastal Protection Fund and tanker risk charges. 1980 Oil Spill Reserve Account established, replacing Coastal Protection Fund for spill cleanup. Preparedness requirements expanded to include offshore facilities and oil barges. 1985 Abandoned barrels found at Nikiski highlight need for hazardous substance spill response. (Continued next page) Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 Coastal Protection Fund — 19 76 In 1976, the Alaska Legislature passed Senate Bill 406, the (Significant Response Fund "Tanker Safety Law," requiring large oil terminals and tank Events, Continued) vessels operating in the state to provide DEC with adequate spill contingency plans and proof of financial responsibility to 1985 Legislation creates the oil and Hazardous compensate for damages in the event of a spill. The law also Substance Release Response Fund, established the Coastal Protection Fund, to be used for oil spill making funds available for contaminated cleanup and fueled by an annual risk charge imposed on oil sites cleanup. shipping companies. The charge was to be determined by the 1987 CERCLA funds used to begin degree of spill risk posed by their equipment and operations, contaminated sites cleanup program.based for Other federal funding soon came for on the safety design features of their oil tankers. The Department of Defense sites cleanup and annual risk charge provisions were challenged and ultimately leaking underground fuel storage tanks. struck down in 1978. 1989 March 24, grounding of the Exxon -Valdez. 1990 Legislature expands sources and uses of The first challenge was brought by five oil companies in Chevron Response Fund, enacting a five -cent per U.S.A. v. Hammond, and the U.S. District Court in 1978 found barrel surcharge on oil produced. the Fund to be preempted by the federal Ports and Waterways Storage rank Assistance Fund Safety Act.' Prior to the District Court decision, the 1978 United established to help owners/operators States Supreme Court decision in Ray v. Atlantic Richfield Co. of underground storage tanks meet a federal deadline for spill prevention found parts of Washington state's tanker laws as preempted measures or tank closure by 1998. by federal law. The Coastal Protection Fund was also found to 1991 DEC signs Memorandum of Agreement be invalid under the dedicated fund prohibition in the Alaska with Department of Defense for Constitution because the risk charges collected by the state were cooperative cleanup efforts for current dedicated to the fund. The provisions for contingency plans and and former military activities. proof of financial responsibility were left intact. 1993 Audit of DEC's policy issues concerning the Response Fund. Conducted by Legislative Budget and Audit while Fund changes were being considered. Oil Spill Mitigation Account — 19 77 1994 SB 215 divides Response Fund into two Before these decisions were made, the Oil Spill Mitigation accounts: Response and Prevention. The Account was established in 1977 to serve as a repository for three five -cent surcharge is split, with three cents per barrel going to the Prevention civil penalties paid to the state for oil discharges. The paragraph, Account, and the two -cent surcharge located in the section entitled, "Civil penalties for discharge of going to the Response account. oil," provides that "penalties received by the state under this SB 215 also renames the fund as the section shall be deposited in the General Fund and credited to "Oil and Hazardous Substance Release a special account called the `oil spill mitigation account." It Prevention and Response Fund allowed the legislature to annually appropriate money from the A second legislative audit conducted of oil spill mitigation account in a sum equivalent to the amount accounting procedures and use of the Fund by other state agencies. of these penalties received for the calendar year preceding the legislative session in which the appropriation is made. The appropriated funds were to be used to restore and enhance environments affected by oil pollution, including aquaculture projects. 'Chevron U.S.A. a Hammond, 1978 AMC 1697 (U.S. Dist. of Alaska). Alaska Department of Environmental Conservation Oil Spill Reserve Account —1980 In response to the Chevron v. Hammond decision, the Alaska Legislature passed House Bill 205 in 1980 to replace the Coastal Protection Fund with an 011 Spill Reserve Account. HB 205 corrected the defects of the law creating the Coastal Protection Fund and maintained the legal integrity of the state's program. The law recommended a cleanup fund be maintained through General Fund capital appropriations. The fiscal note for HB 205 stated that "It is recommended that the cleanup reserve be maintained by capital appropriation at the $1 million level ... balance of the reserve should cavy over from year to year ... costs recovered from spillers or from federal funds will be deposited in the General Fund..."' That same year the Legislature enacted a comprehensive re -write of the Alaska oil pollution statutes in AS 46.04. This 1980 legislation expanded the contingency plan and financial responsibility requirements to offshore exploration and production facilities, and oil barges. The "470 Fund" —1986 In 1985 DEC discovered high levels of trichloroethane released from 100 barrels abandoned near the Kenai Spur Highway at Nikiski. Legislation in 1986 replaced the Oil Spill Reserve Account with the Oil and Hazardous Substance Release Response Fund (OHSRRF, commonly known as the "470 Fund" after its enacting legislation, House Bill 470). This legislation made significant changes to the previous account by authorizing DEC to use the Fund for response to unpermitted releases of hazardous substances (i.e., hazardous waste sites). It also paved the way for the beginning of the state's program to address historic contamination caused by oil and hazardous substances. In 1987, EPA provided funding to Alaska through the federal Comprehensive Environmental Response Compensation and Liability Act (CERCLA) that allowed DEC to establish a permanent contaminated sites cleanup program. The fledgling program continued to mature with the addition of the Defense Environmental Restoration program in the late 1980s to address contaminated military sites, and the federal leaking underground storage tank program. Even though DEC's contaminated sites program was funded by federal grants and general funds initially, Response Funds would be used in later years to help pay the state's contribution. Five -cent -per -barrel Surcharge, $50 Million Reserve —1989 After the Exxon Valdez oil spill disaster in March of 1989, the Alaska Legislature passed numerous bills concerning oil and hazardous substances and expanded both the sources of revenue for the Response Fund and the permissible uses of the Fund (See Table 2 for a summary of oil spill legislation.). Specifically, in Senate Bill 260 in 1989, the Legislature enacted a five -cent per barrel oil production severance tax known as the "conservation surcharge" to provide an independent state containment and cleanup capability for oil and hazardous substance releases of a magnitude that presents a grave and substantial threat to the economy and environment of the state. SB 260 provided the funding mechanism to establish and maintain a $50 million reserve for responses to spills. The Fund prior to passage of the bill had not held much more than one million. 2 SCS CSHB 205, 1980 (approved by the Governor: June 27, 1980) Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 House Bill 567 was enacted in 1990 to strengthen DEC's authority to require compliance with oil discharge contingency plans. Of particular significance was the requirement that contingency plan holders maintain sufficient resources to contain and remove, within the shortest possible time, a realistic maximum oil discharge.' HB 567 required industry contingency plans to include prevention measures and added certification requirements for approved contingency plans. This legislation also clarified proof of financial responsibility, liability limits for tank vessels and oil barge operations, and DEC inspections of regulated industries. HB 567 established DEC participation in structural integrity of vessels, barges, pipelines, and facilities and expanded uses of the Response Fund to include: • Review of oil discharge prevention and contingency plans. • Training, response exercises, inspections and tests to verify inventories and ability of state, municipal, or parties required to have approved contingency plans. • Verification of financial responsibility. Also in 1990, House Bill 566 became law, mandating an "incident command system" requiring spill response to be directed cooperatively by the spiller, DEC and the appropriate federal agency. It also established the State Emergency Response Commission (SERC) in statute under DEC. The new commission had responsibility for establishing Local Emergency Planning Committees and for coordination, planning and oversight of local community contingency plans and other tasks related to oil and hazardous substance response planning. The law established response corps of trained volunteers and response depots of pre -staged equipment for oil and hazardous substance releases. Responsibility for these local resources was placed within the Department of Military and Veterans Affairs. That same year the Legislature passed House Bill 220 to provide a proactive technical and educational assistance program to help owners and operators of underground storage tanks (UST) meet changing federal requirements. In 1984, amendments had been made to the federal Resource Conservation and Recovery Act (RCRA) to regulate certain underground storage tanks (primarily at gas stations) containing petroleum and hazardous substances. EPA established requirements for spill protection tank upgrades and closures with a 1998 deadline for compliance. HB 220 set up the Storage Tank Assistance Fund (STAF) to provide grants and loans to underground storage tank (UST) owners and operators for assessments, containment, corrective actions, and cleanup costs. HB 220 also included funding to cover the costs of administering the STAF and the tank cleanup loan program, including the costs of a Board of Storage Tank Assistance. In 2002, Senate Bill 153 placed an end date on the grant program of June 30, 2004, and created a revolving loan fund for UST cleanups. From 1991 through 2005, $43.1 million of Response Funds were appropriated to the UST grant/revolving loan program to fund this work. In July 1991, the Department of Environmental Conservation established the Spill Prevention and Response (SPAR) Division in order to streamline and focus state responsibility and authority for developing and managing the state's oil and hazardous substance release prevention and response programs. Many stakeholders of the Fund have been monitoring its use since the surcharge on each taxable barrel of oil produced in the state went into effect. During the early -to -mid 1990s, some objected to the expanded use of the Fund and direct appropriations for specific projects because they were not consistent 3 Govemor Steve Cowper letter of February 21, 1990 to Speaker of the House. Alaska Department of Environmental Conservation with statutory intent. Others were concerned that these expanded uses would jeopardize the Fund's future ability to provide readily available funding to adequately protect public health and welfare and the environment from the release or threatened release of oil or a hazardous substance. Oil and Hazardous Substance Release Prevention and Response Fund - 1994 In 1993, SB 215 was introduced by the Legislature to remove certain uses of the Response Fund, restrict the types of cleanups that the Response Fund could be used for, divide the Fund into two accounts, and divide the five -cent per barrel conservation surcharge between the two accounts.' The original proposal for the so-called "split -of -the -nickel" was for three cents of the surcharge being deposited into a Response Account and two cents being deposited into a Prevention Account. Governor Walter Hickel's administration and the Department of Environmental Conservation opposed these changes in the Fund because it failed to provide for a ready source of cleanup funds for all types of spills and failed to provide adequate ongoing funding for core spill prevention and response activities.' Eventually, SB 215 was amended to: (1) Allow cleanup of all types of oil and hazardous substance spills from both the Response and Prevention Accounts, (2) Provide funding of ongoing prevention and response activities through the Prevention Account funded by a three -cent per barrel conservation surcharge, and (3) Create a $50 million Response Account funded by a two -cent per barrel conservation surcharge. This split of the nickel essentially reduced available funding to operate spill prevention and response programs by 40%. The Legislature also divided the existing balance of the Response Fund ($42,081,378) as well as the balance of the five -cent Surcharge Account between the Prevention and Response Accounts (see Table 1). The Department had misgivings about the ability to maintain the Prevention Account as a long-term, viable funding source, given the Department of Revenue's estimates of the decline in the volume of oil production and the termination of the Exxon Valdez cost recovery settlement payments due to end in Fiscal Year (FY) 2003. In particular, the Department was concerned that the allowable uses of the Prevention Account were increased in the final House version of SB 215 by allowing funding for the Underground Storage Tank Assistance Fund to come from the Prevention Account. The final version of SB 215 renamed the Response Fund to the "Oil and Hazardous Substance Release Prevention and Response Fund" (OHSRPRF) and provided for use of both the Response and Prevention Accounts for oil and hazardous substance cleanups. Use of the Response Account for spill cleanup without a legislative appropriation is authorized by AS 46.08.045. As was the case under prior law, if a release or threatened release poses an imminent and substantial threat to public health, or welfare, or the environment, DEC can access the Response Account. SB 215 required that when DEC accessed the SB 215, Senator Miller introduced May 8, 1993. ' Letter from Commissioner John Sandor to Sen. Mike Miller and Rep. Bill Williams, dated January 19, 1994; March 2, 1994, Testimony of Commissioner Sandor before the House Resource Committee Hearing on CS HB 238(RES); Letter to Sen. Dme Pearce and Sen. Steve Frank, Co -Chairs of Sen. Finance Committee from Bob Poe, Director of DEC's Division. of Administrative Services, dated March 24, 1994. N Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 Response Account, it must provide notification to the governor and the Legislative Budget and Audit Committee of the use of those funds. The Response Account can also be used for cleanup activities if the governor declares a disaster emergency under AS 26.23.020(c). SB 215 became law without Governor Hickel's signature on October 2, 1994. Although Governor Hickel supported the so- called "3-2 split concept," he was concerned about two aspects of SB 215: (1) it allowed use of the prevention account for upgrading above -ground storage tanks without identifying other funding Table 1: Splitting of the Response Fund - Two accounts created in 1994 - The net results of the passage of SB 215 and the initial funding of the two accounts effective during Fiscal Year 1995 were: Prevention Account $ 5,000,000 from the Response Fund balance $15.540.000 from the Surcharge Account $20,540,000 Total Response Account $37,081,378 from the Response Fund balance $10.360.000 from the Surcharge Account $47,441,378 Total alternatives, such as the private sector and federal government, and (2) it cast doubt on the state's ability to restore and enhance the environment in the aftermath of a spill.6 The changes effectively reduced the operating revenue for spill prevention and response programs by 40%. This reduction ensured that operational funds for the Division of Spill Prevention and Response would not be sustainable. Also during the 1994 Session, the Alaska Legislature formalized the Alaska State Emergency Response Commission (SERC) as an "all hazards" Commission and transferred it from DEC to the Department of Military and Veterans' Affairs (DMVA) in Senate Bill 33. It also vested responsibility in DMVA to oversee the performance of local emergency planning committees (LEPCs) and to designate local emergency planning districts. The SERC and LEPC support staff were transferred from DEC to DMVA. Up to this point, the SERC and LEPCs had been under the purview of DEC, with funding provided from the Response Fund. SB 33 authorized DMVA's use of the Response Fund to pay for activities that were authorized uses of the Fund. SB 215, however, limited the amount of funds for LEPCs to not more than 3% of the estimated annual balance of the Prevention Account. Table 2, page 9, is a chronological listing of significant legislation that has affected the Response Fund and state programs for prevention and response to oil and hazardous substance releases. The Legislative Budget and Audit Division conducted two audits of the Response Fund during the 1993 and 1994 legislative sessions while SB 215 was under consideration, The objective of the 1993 audit' was to review Department of Environmental Conservation policy issues relating to the Response Fund. The audit report noted concerns expressed by the oil industry that language in SB 260 (1989), which 6 Senate Journal Text for SB 215 in the 186 Legislature, dated 07-15-1994. ' January 10, 1994 Audit (Audit Control Number 184463-94) Alaska Department of Environmental Conservation established the five -cent -per -barrel surcharge, indicated that the purpose of the surcharge was to have an independent spill containment capability in the event of future discharges (emphasis added). The audit ultimately determined that Alaska Statutes 46.08.040, "Purposes of the Fund", is the overriding authority, and therefore, using the Fund for cleanup of historical contamination was appropriate. The audit also noted that although these uses were legal under the uses of the Fund set out in statute, a dichotomy existed between uses of the Fund and the origin of the major funding source (surcharge on taxable oil produced). The objective of the 1994 audit' was to review the accounting procedures and expenditures incurred against the Response Fund by agencies outside of DEC. This audit looked closely at the use of the Response Fund by other state agencies, the reimbursable services agreement (RSA) process to transfer those funds by DEC, and accountability by agencies for their uses of the Fund. The second audit also noted concerns about the trend of using the Response Fund for a majority of funding for the State Emergency Response Committee (SERC) and Local Emergency Planning Committees (LEPCs) under their "all hazards" function. The audit report indicated that the Response Fund should be used to fund those activities only to the extent they address oil and hazardous substance issues. There were no legislative changes made to Response Fund uses, revenue, or management from 1994 to 2005, although the annual Response Fund Report to the Legislature was changed to a biennial report in 1998 with the passage of HB 265. The structure of the Fund has remained unchanged since 1994 through 2005. s February 6, 1995 Audit (Audit Control Number 18-4499-95). Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 Table 2: Summary of Alaska's Oil Legislation 1971 Senate Bill Created DEC; prohibited oil pollution and discharge of oil -contaminated ballast (SB) 75 water; and established pollution penalties, restoration damages, criminal violations, and enforcement authorities. 1973 SB 374 Established strict liability for the discharge of hazardous substances, including oil. 1976 SB 267 Established oil and hazardous substances discharge reporting requirements, provided for injunctive relief, and amended civil assessment and compliance order authorities. SB 406 Created the Coastal Protection Fund and provided for regulation of tank vessel traffic, oil terminal facilities, and marine carriers; issuance of certificates of risk avoidance, proof of financial responsibility; governor's emergency powers; removal of prohibited oil discharges; and enforcement authorities. 1980 House Bill Enacted new oil pollution control statutes to replace provisions in SB 406 which (HB) 205 were declared by the federal court to be preempted by federal laws. 1984 SB 503 Enacted new hazardous waste requirements, including regulation, permitting, transportation, site selection, and penalty provisions. 1986 HB 470 Established the Oil and Hazardous Substance Release Response Fund to provide a funding source for both oil and hazardous substance release responses. 1988 HB 548 Made it a violation to fail to have the resources identified in a contingency plan and to fail to respond immediately with those resources in the event of a spill. HB 553 Made a $900,000 appropriation to DEC to inventory, inspect, assess, and clean up contaminated sites located within the Kenai Peninsula Borough. Additional appropriations ensued. 1989 SB 256 Provided for the Department of Law to seek cost recovery at request of DEC; clarified municipal reimbursements from the Fund. HB 68 Authorized DEC to use liens against property as security for state expenditures. SB 260 Established nickel -per -barrel surcharge on regulated industry production and a $50 million reserve for paying the costs of responses to oil and hazardous substance releases. SB 261 Provided for DEC to prepare an annual State Master Plan and Regional Plans. SB 264 Established (1) Response Office in DEC for catastrophic or declared emergency spills, (2) emergency response equipment depots in DEC's Response Office, and (3) emergency response volunteer corps in DEC's Response Office. Expanded uses of Response Fund to pay for Response Office, depots and corps. SB 271 Clarified civil penalty for the unpenmitted discharge of oil and the failure to implement an oil discharge contingency plan. Alaska Department of Environmental Conservation (Table 2, continued: Summary of Alaska's Oil Legislation) 1990 HB 220 Established the Board of Storage Tank Assistance to develop underground storage tank program regulations, tank cleanup program regulations and storage tank workers certification regulations. HB 315 Categorized environmental crimes and determined appropriate level of criminal behavior for each. HB 316 Established the level of criminal damages to be assessed in fines against organizations for damages caused by environmental crimes. 11131566 Established the oil and hazardous substance response corps and response depots in the Department of Military and Veterans Affairs, the State Emergency Response Commission (SERC) in DEC; and oil spill response planning responsibility and the Oil & Hazardous Substance Spill Technology Review Council (under the SERC) in DEC. SERC was required to establish Local Emergency Planning Committees. HB 566 also established the incident command system (ICS) for response to spills. HB 567 Required industry contingency plans to include prevention measures. Added certification requirements for approved contingency plans. Clarified proof of financial responsibility and liability limits for tank vessels and oil barge operations. Clarified DEC inspections of regulated industries. Established DEC participation in structural integrity of vessels, barges, pipelines, and facilities. Expanded uses of Response Fund to include: • Review of oil discharge prevention and contingency plans. • Conduct training, response exercises, inspections and tests to verify inventories and ability of state, municipal, or parties required to have approved contingency plans. • Verification of financial responsibility. HB 578 Established Citizens Oversight Council and expanded uses of Response Fund to include Citizens Oversight Council costs. 1991 SB 165 Expanded uses of Response Fund to include refurbishment or construction of marine response vessels. SB 25 Expanded uses of Response Fund to municipal grants. HB 194 Required the Board of Marine Pilots to cooperate with DEC in the review and approval of training programs for pilots of tankers. HB 196 Required the Citizens Oversight Council to submit a report on whether state laws for response action contractor civil liability and vessel contingency plan requirements should be amended. SB 263 Provided a one-year delay to June 1, 1992 for compliance of non -crude oil operations with the financial responsibilities in AS 46.04.040. Authorized DEC to issue interim approval for contingency plan amendments that substantially comply with the requirements of Chapter 191, SLA 90. 1992 SB 540 Required DEC to (1) develop regulations governing the registration and approval of oil spill primary action contractors, and (2) collect fees in the amount necessary to cover costs of this program. In Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 (Table 2, continued: Summary of Alaska's Oil Legislation) 1994 SB 215 Divided the Response Fund into two accounts and restricted uses of the Fund. Transferred SERC responsibility to the Department of Military and Veterans Affairs. Provided that not more than 3% of the estimated annual balance of the Prevention Account may be used to pay for costs incurred by local emergency planning committees. The Response Fund is renamed the "Oil and Hazardous Substance Release Prevention and Response Fund." SB 33 Established the Alaska State Emergency Response Commission as "all - hazards" and transferred it to the Department of Military and Veterans' Affairs, along with its associated duties with local emergency planning districts and local emergency planning committees. 1998 HEI 265 Changed the Response Fund Annual Report to the Governor and Legislature to a biennial report. 2000 HB 273 Established contingency plan and proof of financial responsibility requirements for non -tank vessels over 400 gross tons and railroads. Created a Task Force on Motorized Transportation to develop regulations. 2002 SB 16 Modified statutes based on recommendations of the Task Force on Motorized Transportation concerning requirements for non -tank vessels and railroads. SB 343 Clarified best available technology requirements for oil discharge and prevention contingency plans. 2003 HB 59 Provided for regulation of drug labs. SB 74 Provided for contingency plan renewal extension. 200$ HB 197 Exempted certain natural gas exploration and production facilities for oil discharge prevention and contingency plans and proof of financial responsibility. Alaska Department of Environmental Conservation Figure 1: Oil & Hazardous Substance Release Prevention & Response Fund — 2005 2¢ SURCHARGE ACCOUNT AS 43 55,301 (Suspended @ $50 million) RESPONSE MITIGATION ACCOUNT AS 46.0&025 (b) Cost Recovery, funding received from state, federal or private sources. 3¢ SURCHARGEACCOUNT AS 43.55 300 PREVENTION MITIGATION ACCOUNT AS 46.08.020 (b) Cost recovery, fines, penalties, settlements. funding from state, federal or private sources. RESPONSE ACCOUNT AS 46 08.025 i i I USES • Investigate, evaluate, contain, clean up, monitor and assess a release or threatened release of oil or hazardous substance that poses an imminent and substantial threat to public health or welfare or the environment. • Match federal funds for release. • Recover cost to the state or a municipality, village or school district for cleanup. • Recover state costs. As of June 30, 2005 12 PREVENTION ACCOUNT AS 4608 020 bum Legislative Appropriation USES • Investigate, evaluate, contain, and clean up a release or threatened release of oil or hazardous substance. • Establish and maintain spill response capability. • Review oil discharge prevention and contingency plans. • Maintain spill response contracts and agreements. • Conduct training, response exercises, inspections, and tests. • Verify or establish preparedness of the state. • Verify proof of responsibility. • Acquire, repair and improve spill response equipment caches. • Prepare, review and revise regional and state spill plans and local hazmat plans. • Participate in federal oil discharge cleanup activities. • Assess effects of a release. • Recover state costs. • Restore the environment. Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 C. Structure of the Response Fund in 2005 The Fund consists of two accounts from which spill response activities are financed: (1) the Response Account and (2) the Prevention Account. As revenues are collected for deposit into the Response and Prevention Accounts, they are held in sub -accounts within the general fund. These sub -accounts include the two -cent and three -cent Surcharge Accounts, the Response Mitigation Account, and the Prevention Mitigation Account. Each fiscal year, through the legislative budget process, revenues held in the various sub -accounts are appropriated to the Response and Prevention Accounts. Interest earned on the various accounts is deposited as outlined in statute. Figure 1 on page 12 shows the sources of funding, the flow of revenue among the accounts, and the uses of each account. The Response Account This account is a $50 million reserve that is readily available to the DEC Commissioner to pay for expenses incurred by DEC during a response to a release or threatened release of oil or hazardous substances when the governor declares a disaster. Money from the Response Account may also be used without a disaster declaration to address a release or threatened release of oil or a hazardous substance that poses an imminent and substantial threat to the public health or welfare, or to the environment. However, since money spent from the Response Account has not been appropriated through the legislative process, DEC must notify the Governor's Office and the Legislative Budget and Audit Committee within 120 hours of accessing the account for emergency responses to spills that have not been declared a disaster. Authorized uses of the Response Account are described in the caption under Response Account in Figure 1, previous page. The Response Account is funded by: • Two cents per barrel conservation surcharge on crude oil production. • Cost Recovery. • State, federal or private sources. Table 3, next page, summarizes the funding mechanisms for the Response Account. 13 Alaska Department of Environmental Conservation Table 3: Summary of Funding Mechanisms for Response Account Revenue Source Explanation Categories Annual estimated balance of deposits into the General Fund of the Surcharge $.02 per barrel conservation proceeds of the oil conservation surcharge levied by AS 43.55.201. surcharge on crude oil produced The surcharge is suspended when the Account reaches $50 million in Alaska. and is reinstated if the balance falls below that threshold. Money recovered or otherwise received from parties responsible Cost Recovery for the containment and cleanup of oil or a hazardous substance (State costs, and All direct and indirect state costs. at a site for which the state expended money from the Response other funds) Account. Funds from state, federal or Money received from other state sources, from federal or other private sources. sources, or from a private donor. The Prevention Account This account, under AS 46.08.040 (a)(2), is used to pay the operating expenses associated with maintaining a spill prevention and response office. Prevention and preparedness activities include review of oil spill contingency plans, verifying proof of financial responsibility, conducting training and response exercises, and inspections. It is also used for cleanup of contaminated sites, and for all oil and hazardous substance releases not covered by the Response Account. The Prevention Account is funded by • Surcharge of three cents per barrel conservation surcharge on crude oil production. • Cost Recovery. • Interest earned income • Fines, penalties, and settlements. Money appropriated for operating and capital expenses, and not spent, lapses back into the Prevention Account and remains available for appropriation in successive fiscal years. A complete list of the authorized uses of the Prevention Account are described in Figure 1, page 12. Appropriations to DEC and other state agencies by the Legislature come from the Prevention Account to fund the operating and capital expenses of the state's oil and hazardous substance spill prevention and response programs. Table 4 summarizes all funding mechanisms for the Prevention Account. 14 Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 Table 4: Summary of Funding Mechanisms for Prevention Account Revenue Source Explanation Categories Three -cent -per -barrel Annual estimated balance of deposits into the General Surcharge conservation surcharge on Fund of the proceeds of the oil conservation levied by AS crude oil produced in Alaska. 43.55.300. All direct and indirect state Recovery of all costs incurred by the state in the cleanup or Costs. containment of released oil or hazardous substances. Civil Penalties for discharges Recovery of penalties under AS 46.03.758 (dollar per gallon of non -crude oil. fines for non -crude oil). Civil Penalties for discharges Recovery of penalties under AS 46.03.759. of crude oil. Recovery of fines underAS 46.03.759, costs associated with abatement, containment or removal, restoration of the Civil action for pollution environment, costs for emergency first response, incidental damages. administrative costs, economic savings, reasonable costs incurred by the state in detection, investigation and attempted Cost Recovery correction, and liquidated damages for environmental effects. Attorney fees and costs. Recovery of full reasonable attorney fees and costs (State costs, and other funds) Restoration. Recovery of costs for restoration of the environment to its condition before injury. Criminal penalties. Recovery of costs under AS 46.03.790. Recovery of costs in an amount equal to injury to or loss of Damages. persons or property, loss of income, loss of the means to produce an income, or loss of an economic benefit. Including federal cost recovery from the Oil Spill Liability Trust Fund, deposits made for specific projects such as the reserve Funds from state, federal, pit closeout funded by industry, funds from private sources, private, or other sources. such as the Charter Agreement, which reimburses the state for specific projects or funds from other state agencies, such as the receipt of TAPL funds to conduct specific cleanups. Prevention Account interest. Interest earned from the balance in the Prevention Account. Prevention Mitigation Account Interest earned from the balance in the Prevention Mitigation interest. Account. Response Account interest. Interest earned from the balance in the Response Account. Response Mitigation Account Interest earned from the balance in the Response Mitigation Interest Earned interest. Account. Two -cent Surcharge Account Interest earned on the balance of the program receipts interest. account (AS 37.05.1421 maintained from the proceeds of the two -cent -per -barrel surcharge. Three -cent Surcharge Interest earned on the balance of program receipts account Account interest. (AS 37.05.142) maintained from the proceeds of the three - cent -per -barrel surcharge. Is Alaska Department of Environmental Conservation D. Administration of the Fund Administration of the Response Fund is the responsibility of the DEC Commissioner. The Fund requires oversight to ensure monies used by DEC are appropriately spent and documented using accepted accounting practices, that cost recovery is pursued, that recovered money is appropriately accounted for, and that reporting requirements are met. Oversight is performed under the direction of the Director of the Spill Prevention and Response (SPAR) Division and governed by the authorized uses of the Fund (AS 46.08.040). HB 470, passed in 1986, addressed administration of the Fund. By providing DEC the responsibility to administer the Fund, the Legislature intended to meet the need for DEC to have "readily available funding necessary to contain and cleanup releases" of oil and hazardous substances that pose a direct threat to the public health, environment, and economy of the state.9 DEC was required to follow administrative requirements, issue regulations for administering the Fund, and make fiscal reports to the governor and legislature. The Commissioner of the Department of Administration is assigned responsibility for tracking and reporting on the Response Account balance, and suspending or activating the two -cent surcharge. The Department of Revenue is responsible for investing the money held in the various accounts within the Fund for purposes of earning interest income. Each year, prior to developing the annual budget request to fund essential state core spill prevention and response priorities, DEC estimates both the near and long-term Prevention Account balance. Projecting the Prevention Account balance is a critical step in monitoring the long term health of the Fund and the programs it supports. It has also been used to calculate the amount of available funding (3% of the Prevention Account balance) eligible for appropriation to Local Emergency Planning Commissions for specific regional spill prevention and response planning activities. At the beginning of each fiscal year, DEC calculates the following year's Prevention Account balance using the current Account balance, adding projected income, and subtracting the current year's appropriations. This provides all parties a balance upon which to plan the next year's budget request, using the most current information available. DEC must maintain accounting records that show the income and expenses of the Fund. Since the 1994 changes in SB 215, DEC's role as Response Fund administrator changed from strict accountability for how all state agencies receiving Response Funds use those funds, to those agencies being responsible for accounting for their uses and reporting to DEC. A biennial report must be made available to the Legislature following the convening of each first regular session by the DEC Commissioner.10 The report must include the following information, as well as other information considered significant by the DEC Commissioner: • Amount of money expended for the preceding two fiscal years. • Amount and source of money received and recovered for the preceding two fiscal years. 9 Representative Mike Davis November 12, 1985 Sponsor letter to the Legislature 10 The last annual report was submitted to the first session of the 21 ° Legislature in January 2000 for Fiscal Year 1999. Subsequent reports were changed to biennial by the Legislature. IL Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 • Summary of municipal participation in DEC's responses that were paid by the Fund. • Detailed summary of DEC response activities paid for by the Fund during the proceeding two fiscal years. • Projected cost to DEC for the next two fiscal years of monitoring, operating, and maintaining sites where response has been completed or is expected to be continued for the next two fiscal years. • Number of sites that are included in DEC's contaminated sites database. • A prioritized listing of those sites, both statewide and by community, based on immediate and long-term threats to the public health or welfare or to the environment. 17 Alaska Department of Environmental Conservation A. Revenue At the time of the creation of the Response Account (SB 215, 1994), the Legislature divided the existing balance of the Response Fund ($42,081,378) between the two accounts, depositing $37,081,378 into the Response Account. In addition, the "nickel -per -barrel' surcharge account balance ($25,900,000) was split, with 40% ($10,360,000) deposited into the Response Account. The starting balance of the Response Account on July 1, 1994, was $47,441,378. The two -cent surcharge is suspended when the combined balances of the following accounts equal or exceed $50 million: the Surcharge Account, the Response Mitigation Account", and the unreserved and unobligated balance of the Response Account. Within 30 days of the end of each calendar quarter, the Commissioner of the Department of Administration determines the Response Account balance and files a report. Suspension of the surcharge begins on the first day of the calendar quarter following the determination that the balance equals or exceeds $50 million. The $50 million balance was exceeded in December 1994 and the surcharge has been suspended since April 1995. The Response Account has remained above $50 million since the two -cent surcharge was suspended in 1995. The Account has been accessed several times since 1995, causing fluctuations in the balance, however, cost recovery efforts have generally been successful and always timely enough to prevent the account from dipping below the $50 million cap. Revenue collected during a fiscal year is held in either the surcharge account or the response mitigation account and transferred to the Response Account through legislative appropriation language the following fiscal year (FY). In other words, revenue collected and held in FY 94 would not be in the Response Account, and available for use, until FY 95. Revenues reflected in Figure 3 are shown for the fiscal year the money was available for use, rather than the fiscal year that the money was collected. " See Figure 1, page 12. fE Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 Figure 2: Number of Times the Response Account Has Been Accessed by Fiscal Year Figure 3: Response Account Revenue ($Thousands) 12.000.0 T--- -- --.- _ --------..-.. .- - - - - - -. 10,000.0 8,000.0 6,000.0 4,000.0 2.000.0 Cost recovery 0.0F Y95 I FY96 FY97 1 FY98 I FY99 I FYN FM i FY02 FY03 i FY04 1 405 IN Cost Recovery 1 487.3 1 91.3 1 79.4 1 548.7 1 663.7 1 347.3 1416.6 1 67.7 1 98.7 1 82.0 1 505.5 9, Alaska Department of Environmental Conservation B. Expenditures Expenditures vary according to spill incident circumstances (e.g., product and amount spilled, contaminated resources, restoration). Since 1995, DEC has carefully considered each funding request for its appropriateness for emergency funding prior to accessing the Response Account for an incident. The Response Account has been accessed primarily for imminent and substantial spills. In addition to accessing the account for emergency spills, the Response Account was used during the mid to late 1990s to fund several CIP budget appropriations to agencies other than DEC for various cleanup projects around the state. By law, the account balance is to be maintained at $50 million. This amount provides adequate funds for the initial cost of a state response to a major oil spill until more money is provided. Figure 4 illustrates the appropriations for CIP budgets and expenditures for emergency response to spills. The spike that occurred in FY 1998 was due to the grounding of the freighter Kuroshima, and the spike in FY 2005 is due to the grounding of the cargo ship Selendang Ayu. Figure 4: Expenditures from the Response Account ($Thousands) 2,500.0 2,000.0 .acmimau Lf n u spill 1,500.0 1,000.0 500.0 0.0 Kuroshima FY95 I FY96 I FY97 I FY98 I FY99 I FY00 I FY01 I FY02 I FY03 I FY04 I FY05 ❑Resp Acct Access 1 526.6 1 735.2 1 792.4 11,500.1 1 387.0 1459.0 1 55.0 1227.0 134.0 1 74.0 11,947.0 ■CIPAppropriations 1243.0 11,026.8 11,530.0 1 0.0 1 36.7 1 0.0 1 0.0 1 0.0 0.0 1 0.0 1 0,0 20 Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 A. Revenue The Prevention Account is funded by: 1)the three -cent per barrel conservation surcharge, 2) cost recovery (including fines and penalties imposed on persons as the result of a release or threatened release of oil or a hazardous substance), and 3) interest earned income (interest earned on the balance of the Response Fund and prevention account cost recoveries). At the time of the creation of the Prevention Account (SB 215, 1994), the Legislature divided the existing balance of the Response Fund ($42,081,378) between the two accounts, depositing $5,000,000 into the Prevention Account. In addition, the surcharge account balance ($25,900,000 )was split, with 60% ($15,540,000) deposited into the Prevention Account. The starting balance of the Prevention Account on July 1, 1994, was $20,540,000. This split of the nickel essentially reduced available funding to operate spill prevention and response programs by 40%. Figure 5: Prevention Account All Revenues ($Thousands) $30,000.0 $25,000.0 $20,000.0 $15,000.0 $10,000.0 Cost cove , tine , etc. $5,000.0 $0.0 FY95 FY96 FY97 FY98 FY99 FY00 I FY01 FY02 FY03 FY04 FY05 0 3 -cent Surcharge 15,540. 17,529. 13,698. 12,931. 11,781. 11,075. 9,536.0 9,295.5 9,597.0 9,232.9 9,052.5 Ocost Recovery, Fines, Settlements, Mise 2,768.5 1,422.4 1,351.7 4,048.3 5,799.0 4,559.3 7,082.8 5,835.0 6,372.9 2,680.8 1,274.8 110 Interest 14,919.013,721.914,949.913,228.115,445.215,554.617,523.14,859.1 4,678.4 791.9 2,428.4 21 Alaska Department of Environmental Conservation L Three -Cent Surcharge The largest source of recurring revenue to the prevention account has been the three -cent surcharge per barrel of crude oil produced. As shown in the graph below, the amount of revenue received from the surcharge peaked in FY 1996 at over $13 million and has been gradually declining ever since. In FY 2005 the amount of revenue was the lowest ever received, at just over $9 million, and is projected to decline further in future years as the level of oil production decreases. Figure 6: Three -Cent Surcharge ($Thousands) $20,000.0 $18,000.0 $16,000.0 $14,000.0 $12,000.0 $10,000.0 $8,000.0 $6,000.0 $4,000.0 $2,000.0 $0.0 FY95 I FY96 I FY97 I FY98 I FY99 I FY00 I FY01 FY02 FY03 I FY04 I FY05 03 -cent Surcharge 115,540.0117,529.5113,241.6112,931.9111,781.1111,075.519,536.0 19,295.5 19,597.0 19,232.9 19,052.5 22 Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 2. Cost Recovery (state costs, fines, penalties, damages and other funds) Parties responsible for the release of oil and hazardous substances are liable for costs associated with response and/or cleanup. The state attempts to recover all its oversight costs from all responsible parties when one or more can be identified. Revenue is also received from fines, penalties, and settlements. In 1998 the Prevention Account received its first of six installments of the settlement payment resulting from the Exxon Valdez oil spill. The average annual payment of $3.9 million ended in 2003, causing a significant decline in settlement income. Other funds can come from a variety of places including fees, and federal and private sources. These revenue sources are non-recurring in nature, and the amounts tend to fluctuate greatly from year to year, making it difficult to make reliable, long-term revenue projections. Figure 7: Cost Recovery, Settlements, Fines, Penalties and Miscellaneous Revenue ($Thousands) $8,000.0 $7,000.0 $6,000.0 tta $5,000.0 $4,000.0 $3,000.0 Set Yemen , Fines, Penal ies $2,000.0 $1,000.0 $0.0 FY95 FY96 FY97 FY98 FY99 FY00 I FY01 I FY02 FY03 FY04 FY05 ■MISC. Revenue 12,563.8 342.1 1,756.0 533.0 403.7 10 Settlements, Fines, Penalties 3,291.4 1 5,000.0 3,750.0 13,750.0 4,719.8 14,155.7 827.6 366.6 10 Cost Recovery 2,768.5 1,422.4 1,351.7 756.9 1 799.0 809.3 1 769.0 773.1 1 461.2 1,320.2 504.5 Note: Revenue amounts derived from cost recovery, fines, penalties, settlements, and miscellaneous are not available by those specific categories for Fiscal Years 1995 through 1997. All revenue collected for those years is shown as Cost Recovery. 23 Alaska Department of Environmental Conservation 3. Interest Earned All monies held in the various accounts that make up the Response Fund are invested, with returns being deposited into the Prevention Account. Historically, investment income has been a substantial contributor to the balance of the prevention account, averaging roughly $5.3 million per year between 1995 and 2003. Investment income peaked in 2001 at $7.5 million, but in 2004 investments only earned just under $800 thousand. In Fiscal Year 2005, investment income rebounded slightly, to earn about $2.4 million; however, a return to the previous average of $5.3 million is not expected. The Department of Revenue serves as the Fund's investment manager. Figure 8: Investment Income ($Thousands) $6,000 Note: Response $7,000 - mitigation account interest is too small $6,000 to show up. $5,000 - $4,000 $3,000 Resp nse a t. inte at $2,000 Prev. acct. interest $1,000 $0 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 ' FY05 ■ Response Account Interest 4,919.0 3,721.9 4,949.9 3,000.0 3,000.0 3,000.0 4,303.8 2,519.5 2,505.5 470.6 1,475.5 133 -Cent Surcharge Interest 228.1 176.9 145.1 237.1 271.5 123.7 135.8 46.3 ■ Prevention Account Interest 2,268.3 2,409.5 2,490.5 1,758.6 1,880.7 172.4 877.8 ■ Prevention Mitigation 467.9 289.9 166.3 13.5 23.1 Account Interest ■ Response Mitigation 23.8 19.6 2.2 0.0 5.7 Account Interest Note: Revenue amounts derived from interest income is not available by specific categories for Fiscal Years 1995 through 1997. All interest income revenue collected for those years is shown as Response Account interest. 24 Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 B. Appropriations Under AS 46.08.040, the prevention account may used for: 1) various general operating expenses such as maintaining a response office; 2) activities associated with investigating, evaluating, and responding to spills of oil and hazardous substances; 3) prevention activities; 4) match for federal grants; and 5) other purposes. The Response Fund portion of the SPAR Division's annual Operating budget, portions of other divisions' Operating budgets, and Capital Improvement Project budgets are appropriated by the legislature from the prevention account balance. SPAR Operating Appropriations Although SPAR Operating appropriations from the prevention account have fluctuated some since 1995, they have always stayed within the total revenue available in the account. In FY 1995, SPAR's Response Fund appropriation was $11,620.4 million. Ten years later, in FY 2005, SPAR's Response Fund appropriation was $11,821.8 million, an increase of 1.7% over a decade. Figure 9: SPAR Division Operating Appropriations ($Thousands) $14,00M $12,000.0 $10,000.0 $8,000.0 $6,000.0 $4,000.0 - $2,000.0 - $ FY95 FV96 FY97 FY98 FY89 FY00 FY01 FY02 FY03 J0.4F Total Operating Butlget $11,620.4 $10,958.7 $9,333.1 $9,975.6 $10,603.9 $9,833.7 $10,438.1 $11,118.4 $11,426.6 $11,571.2 $11,821.8 No. 01 Full Time Positions 145 155 125 129 144 133 135 1 141 142 1 142 1 141 25 Alaska Department of Environmental Conservation Other Operating Appropriations Other divisions within DEC and other departments also receive appropriations of the Response Fund in their Operating budgets. In FY 1995, the total amount of money appropriated to divisions other than SPAR and other state agencies was $1,487.0 million. In FY 2005, the amount of the Response Fund appropriated to non -SPAR entities totaled $2,784.7 million, an increase of 87.3% over a decade. Those other agencies, as listed in Figure 10 below, include: • Local Emergency Planning Commissions (LEPCs). • Alaska Department of Transportation and Public Facilities (DOTPF). • DEC's Year 2000 (Y2K) effort. • other state -supported services. Other units within the department have included: • Division of Information and Administrative Services (DIAS). • Division of Environmental Health (DEH). • Commissioner's Office. • Division of Statewide Public Services (DSPS), in existence from 1996 to 2003. FIGURE 10: Other Operating Appropriations ($Thousands) $3,500.0 - $3,000.0 LEPCs $2,500.0 $2,000.0 DSPS $1,500.0 - $1,000.0 0 0 $500.0 $0.0 1:Y95 FY96 FY97 FY98 FY99 FY00 FV01 FY02 FY03 FY04 FY05 OLEPCs 355.9 311.7 311.7 351.4 543.4 543.4 401.7 423.4 326.1 326.1 300.0 ■DOTPF 0.0 0.0 0.0 0.0 0.0 700.0 700.0 700.0 700.0 700.0 825.0 ■DECY2K 0.0 0.0 0.0 0.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0 ■State -supported 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 180.6 Services ■SPS 0.0 $45.50 $1,069.10 $1,057.30 $568.00 $572.60 $572.60 $583.90 $594.00 $0.00 $0.00 ■DIAS 684.6 684.7 1,146.4 1,137.2 1,070.3 1,070.3 1,221.5 996.3 1,018.6 1,590.0 1,465.8 ■EH 196.5 186.5 174.0 173.0 173.6 173.6 175.5 175.5 177.0 12.8 13.3 ❑ Office of the 250.0 106.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Commissioner PTV Oil and Hazardous Substance Release Response Fund Report, Fiscal Years 1995 to 2005 A. Alaska Statutes: 46.08 and Related Provisions B. Bibliography Alaska Department of Environmental Conservation, 1991. Management of the Oil and Hazardous Substance Release Response Fund Needs Improvement (Juneau). Alaska Department of Environmental Conservation, 1992. A Strategic Plan for the Oil and Hazardous Substance Release Response Fund (Juneau). Alaska Department of Environmental Conservation, January 2005. Oil & Hazardous Substance Release Prevention & Response Fund Biennial Report, Fiscal Year 2003-2004 (Juneau). BCSB Research & Marketing, 1992. Alaska's Oil and Hazardous Substance Release Response Fund (Legislative History, Operational Policies, Program Management and Use) (Anchorage). Cole, Charles E., Attorney General, Letter to Governor Walter Hickel, June 20, 1994. Re: HCS CSSB 215(FIN) am H— relating to the Oil and Hazardous Substance Release Response Fund (Juneau). Cowper, Steve, Governor, February 21, 1990 letter to The Honorable Sam Cotton, Speaker of the House. Cox, III, H.L. Memo to ADEC Commissioner J.H. Sandor, 1991. FY 1992 ADECIADES RSA (Juneau). Davis, Mike, Representative 12 November 1985 letter to Alaska State Legislators proposing legislation on the Oil and Hazardous Substance Response Fund. Division of Legislative Audit, 1992. Alaska Department of Environmental Conservation; Alaska Department of Military and Veterans Affairs, Implementation of the Oil and Hazardous Substance Response Corps and Emergency Response Depots Program (Juneau). Division of Legislative Audit, 1994. Alaska Department of Environmental Conservation Oil and Hazardous Substance Release Response Fund (Juneau). Division of Legislative Audit, Audit Report, 1995. Alaska Department of Environmental Conservation Board of Storage Tank Assistance (Juneau). Division of Legislative Audit, Audit Report, 1995. Alaska Department of Environmental Conservation Oil and Hazardous Substance Release Response Fund (Juneau) Division of Legislative Audit, Audit Report, 1996. Alaska Department of Military and Veterans Affairs Koyukuk Flood Response and Recovery (Juneau). Division of Legislative Audit, Audit Report, 2000. Alaska Department of Environmental Conservation Board of Storage Tank Assistance Sunset Review (Juneau). 27 Alaska Department of Environmental Conservation Division of Legislative Audit, Audit Report, 2002. Alaska Department of Environmental Conservation Board of Storage Tank Assistance Sunset Review (Juneau). Eco -Systems Economic and Ecological Consulting Services, 1994. The Nickel -Per -Barrel Conservation Surcharge: A Review of Legislative History and Intent (Juneau) Gladziszewski, Maria, Memo to Senator R. Halford, 1992. Alaska State Legislature, Alaska's Oil and Hazardous Substance Release Response Fund: History, Expenditures and Reimbursements (Research Request 93.062) (Juneau). Hultberg, Becky, Memo to Commissioners. State of Alaska, Office of the Governor, 2003. Interim Review of Boards & Commissions, (Juneau). Miller, Mike, Senator. SB 215, introduced May 8, 1993. North Coast Research Group, 1993. (Appendices) Evaluation of Alaska Spill Response Depots and Corps: A Review of Legislative Intent and Activities (Anchorage). North Coast Research Group, 1993. Evaluation of Alaska Spill Response Depots and Corps: A Review of Legislative Intent and Activities (Anchorage). North Coast Research Group, 1993. (Executive Summary) Evaluation of Alaska Spill Response Depots and Corps: A Review of Legislative Intent and Activities (Anchorage). Poe, Bob, Director of DEC's Division of Administrative Services, Letter to Senators Drue Pearce and Sen. Steve Frank, Co -Chairs of Sen. Finance Committee, March 24, 1994. Robertson, T. L., 1997. Proposed Model for Community -Based Nearshore Strike Teams (Seldovia). Ryan, C., Letter to ADEC Commissioner J. A. Sandor, 1992. Alaska State Legislature, Management Letter No. 1, FY 1992 Financial/Compliance Audit, Department of Environmental Conservation (Juneau). Sandor, John. ADEC Commissioner Letter to Senator Mike Miller and Representative Bill Williams, January 19, 1994. Sandor, John, ADEC Commissioner, March 2, 1994. Testimony of Commissioner Sandor before the House Resource Committee Hearing on CS HB 238(RES) (Juneau). Senate Finance Committee HB 470 Hearing, May 11, 1986 (Tape #86-64) Senate Journal, Message from Governor Walter Hickel, July 15, 1994. Re: SB 215 at pages 4840-4843. "The First Ten Years," Alaska Department of Environmental Conservation, November 1981. "20 Years, The Alaska Department of Environmental Conservation 1971 — 1991" (DRAFT), 1992. Vogt, D., Memo to Michele Brown, 1995. State of Alaska, Alaska Department of Revenue, Citizens Oversight Council Report (Juneau). 28 AOGCC 11/27/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC25.025 DOCKET No. R 17-002 ALASKA OIL AND GAS CONSERVATION COMMISSION In the Matter of Proposed Changes to ) Regulation 20 AAC 25.025. ) Docket No.: R 17-002 ALASKA OIL and GAS CONSERVATION COMMISSION Anchorage, Alaska November 27, 2018 10:00 o'clock a.m. PUBLIC HEARING BEFORE: Hollis French, Chair Cathy Foerster, Commissioner Daniel T. Seamount, Commissioner Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., AacE AK99501 Fax: 907-243-1473 Email: sahile@,gci.net AOGCC 11/27/2018 ITMO: PROPOSEDCHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 2 1 TABLE OF CONTENTS 2 Opening remarks by Chair French 03 3 Testimony by Peter Caltagirone 07 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., SM. 2., Awk AK99501 Fax: 907-243-1473 Email: sahileftomet AOGCC 11/27/2018 PPMO: PROPOSED CHANGES 9'O REGULATION 20 AAC25.025 DOCKET No, R 17-002 Page 3 1 P R O C E E D I N G S 2 (On record - 10:00 a.m.) 3 CHAIRMAN FRENCH: Good morning. I'll call the 4 hearing to order. It's 10:00 o'clock on November 27, 5 2018. The location, we're here at the Alaska Oil and 6 Gas Conservation Commission offices at 333 West Seventh 7 Avenue, Anchorage, Alaska. To my left is Commissioner 8 Dan Seamount, to my right is Commissioner Cathy 9 Foerster. I'm Hollis French, the Chair of the 10 Commission. 11 We're here today to consider bonding 12 regulations -- proposed bonding regulations. 13 If any persons here need special accommodations 14 to participate in these proceedings, please see the 15 special assistant, Jody Colombie. She will do her best 16 to accommodate you. 17 Computer Matrix will be recording the 18 proceeding. Upon completion and preparation of the 19 transcript persons desiring a copy will be able to 20 obtain it by contacting Computer Matrix. 21 Specifically today the Alaska Oil and Gas 22 Conservation Commission proposes to adopt changes in 23 Title 20, Chapter 25 of the Alaska Administrative Code. 24 The hearing is being held in accordance with AS 44.62 25 and 20 AAC 25.540 of the Alaska Administrative Code. Computer Matrix. LLC Phone: 907-243-0668 1350hrimenseu Dr_ Ste, 2. Ancil AK99501 Fax:907-243-1473 Einail: >ahilefrugcinel AOGCC 11/27/2018 ITMO: PROPOSEDCHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 4 1 These are regulations governing public hearings. The 2 hearing of course will be recorded. 3 Just a couple of housekeeping topics before we 4 start. If you have submitted written comments you may, 5 but there is no need to reiterate your testimony. Oral 6 testimony must have relevance to the topic of these 7 draft regulations. The sign in sheet will be used to 8 help format hearing testimony. If you plan to testify 9 make sure you have signed in and indicated that you 10 will be testifying. I just see so far one person 11 signed up to testify so I guess I'm just speaking to 12 one of you. Pay attention carefully. 13 I'd like to remind those of you who do testify 14 to speak into the microphones so that persons in the 15 rear of the room can hear and so the court reporter can 16 get a clear recording. 17 Participants will be expected to identify 18 themselves as an expert or an ordinary witness. If 19 you're testifying as an expert you must have the 20 credentials for the Commission to accept your testimony 21 as an expert. 22 This is a public hearing, not a debate. Please 23 be courteous to other speakers. If you have a question 24 directed to someone testifying we ask that you provide 25 your question in writing along with your name and that Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile@gcinet AOGCC 11/27/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC25.025 DOCKET No. R 17-002 Page 5 1 of the witness to Jody Colombie before the end of the 2 hearing. The Commission will review those questions 3 and ask those it believes will be helpful in eliciting 4 relevant information. 5 The notice of this hearing was published in the 6 Anchorage Daily News on October 23, 2018. It was also 7 posted on the state of Alaska online notices website as 8 well as the AOGCC's own website. If you want a copy of 9 the proposed regulations please see Jody Colombie. If 10 you would like to submit written comments today please 11 see Jody Colombie. 12 When considering the factual, substantive and 13 other relevant matters pertaining to these regulations 14 the agency will pay special attention to the cost to 15 private persons of the proposed regulatory action. 16 We're here today on docket number R 17-002. 17 The AOGCC proposes to adopt regulation changes in 20 18 AAC 25.025 of the Alaska Administrative Code dealing 19 with bonding, including the following. 20 AAC 25.025 20 is proposed to be repealed and rewritten as follows. 21 Increasing the minimum bonding amount to more 22 accurately reflect the costs of abandoning wells by 23 establishing a multi tiered bonding schedule based on 24 the number of wells an operator has. 25 Back in May of 2017, May 3rd exactly, the AOGCC Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile@gcinet AOGCC' 1 E27/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKEI'N.. R 17-002 Page 6 1 held a public workshop on the proposed regulations and 2 received written comments. They also had a first 3 public hearing held about a month ago on October 16, 4 2018 5 That brings me to the end of my prepared 6 remarks. Anything the Commissioners want to add before 7 we begin the hearing? 8 (No comments) 9 CHAIRMAN FRENCH: I don't see any hands. Let's 10 go ahead and take testimony then from those of you here 11 who may wish to testify. If you've signed up to 12 testify please come forward. 13 Good morning. 14 MR. CALTAGIRONE: Good morning. Mr. Chair and 15 members of the Commission, thank you again for the 16 opportunity to be here today and for holding this 17 hearing. 18 CHAIRMAN FRENCH: If you would do two things, 19 one raise your right hand. 20 MR. CALTAGIRONE: Sure. 21 CHAIRMAN FRENCH: Use your other hand to touch 22 the green button on your microphone. 23 (Off record comments - microphone) 24 CHAIRMAN FRENCH: Now raise your right hand. 25 (Oath administered) Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2.. Anch. AK99501 Fax 907-243-1473 Email: sahileuigei.net AOGCIC 11/272018 ITMO: PROPOSED CHANGES TO REGULAI ION 20 AAC 25.025 DOCKET No. R 17-002 Page 7 1 MR. CALTAGIRONE: I do. 2 CHAIRMAN FRENCH: Thank you. Please state your 3 name and affiliation. 4 MR. CALTAGIRONE: My name is Peter Caltagirone. 5 I'm the regulatory and legal affairs manager for the 6 Alaska Oil and Gas Association. I represent -- or not 7 me personally, but my company represents 13 member 8 companies that are oil and gas producers in Alaska. 9 CHAIRMAN FRENCH: And I'm just going to 10 practice one more time to say, Mr. Caltagirone, please 11 begin. 12 MR. CALTAGIRONE: All right. Thank you. 13 CHAIRMAN FRENCH: Is that close? 14 MR. CALTAGIRONE: Pretty -- closer than most 15 actually. 16 CHAIRMAN FRENCH: I'm getting better. Please, 17 sir, begin. 18 MR. CALTAGIRONE: All right. 19 PETER CALTAGIRONE 20 called as a witness on behalf of AOGA, testified as 21 follows on: 22 DIRECT EXAMINATION 23 MR. CALTAGIRONE: I'll keep my comments brief 24 today. I -- AOGA submitted written comments, I'll 25 mostly rely upon those and incorporate by reference the Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK99501 Fax: 907-243-1473 Email: sahile(,Onci.nel AOGCC 11/27/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC25.025 DOCKET No. R 17-002 Page 8 1 comments that we filed on October 16, 2018 during the 2 first hearing related to the first set of revisions 3 proposed by AOGCC to this regulation. Those are 4 Exhibit A to our written comments submitted today. But 5 I'd just like to reiterate a couple points and I won't 6 take up too much of anyone's time. 7 AOGA offered on October 16th and we offer again 8 today to be part of a holistic approach to addressing 9 AOGCC concerns. We respectfully submit that that 10 approach needs to account for the obligations that 11 producers in Alaska already have in place with DNR's 12 DR&R agreements. There's a lot of financial assurances 13 associated with that. 14 We also respectfully submit that other 15 stakeholders need to be brought into this discussion 16 and be part of the solution as well, for example 17 private landowners. DNR as I mentioned earlier, small 18 and large producers' input with an eye toward 19 encouraging new investment in our state instead of 20 discouraging it which we submit these proposed 21 regulations do. 22 On that point, the second set of revisions 23 proposed by AOGCC further discourages new investment in 24 our state and disproportionately affects small 25 producers. The cost of bonding per well has increased Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK99501 Fax: 907-243-1473 Email: sahile@gei.net AOGCC 11'27;2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 9 1 significantly from the first set of proposed revisions 2 to the second set. I elaborate on that a little more 3 fully in the written comments submitted. 4 And finally another point that we raise in our 5 written comments is we respectfully suggest additional 6 flexibility in the types of financial assurances that 7 can be provided as part of these new bonding 8 regulations. we provide some detailed examples of what 9 those would look like in the comments we submitted. 10 That concludes my testimony. Thank you for the 11 opportunity. 12 CHAIRMAN FRENCH: Questions? 13 COMMISSIONER FOERSTER: No. 14 CHAIRMAN FRENCH: I don't think I have any 15 questions. Commissioner Seamount. 16 COMMISSIONER SEAMOUNT: I won't have questions 17 at this time. I'd like to read through this, but if I 18 do have questions we'll get back to you. 19 MR. CALTAGIRONE: Thank you. 20 CHAIRMAN FRENCH: So thank you. Is there 21 anyone else here today who wants to testify? 22 (No comments) 23 CHAIRMAN FRENCH: I know there's some inclement 24 weather out there and so we -- and in our public notice 25 we set out that we would hold the public comment period Computer Matrix, LLC Phone: 907-243-0668 135Chn.,lensen Dr., Ste, 2.-Arc1,. AK99501 Fax:907-243-1473 Email: sahile,4pg .w AOGCC 1127/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC25.025 DOCKET No. R 17-002 Page 10 1 open until 4:30 today. So if there's someone 2 listening, and I think Mr. -- maybe we have someone 3 from the Mental Health Trust listening in. Mr. 4 Franger, did you want to testify or are you just 5 listening in? 6 MR. FRANGER: No, I submitted comments 7 previously. I don't want to testify today. 8 CHAIRMAN FRENCH: Yes, you did and thank you so 9 much. 10 If there's anyone else listening or anyone else 11 who learns about this or, you know, develops the desire 12 to comment on these regulations before we close the 13 public comment period at 4:30 today, please do so. 14 And I think that's the end of our business. I 15 don't see anyone else coming forward to testify. I'm 16 going to go ahead and conclude this hearing on the 17 proposed regulations at 10:12. 18 Thanks so much. We are adjourned. 19 (Hearing adjourned 10:12 a.m.) 20 (END OF REQUESTED PORTION) 21 22 23 24 25 Computer Matrix. LLC Phone: 907 243-0668 135 Christensen Dr., Ste, 2 -Arch. AK 99501 Fax: 907-243-1473 Email: sahilefu18e1.nel AOGCC 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 11127/2018 ITMO: PROPOSEDCHANGES TO REGULATION 20 AAC25.025 DOCKET No. R 17-002 Page 11 TRANSCRIBER'S CERTIFICATE I, Salena A. Hile, hereby certify that the foregoing pages numbered 02 through 11 are a true, accurate, and complete transcript of proceedings in Docket No.: R 17-002, transcribed under my direction from a copy of an electronic sound recording to the best of our knowledge and ability. DATE SALENA A. HILE, (Transcriber) Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK99501 Fax: 907-243-1473 Email: sahile&d.net STATE OF ALASKA OIL AND GAS CONSERVATION COMMISSION Docket Number: R-17-002 Bonding Regulations November 27, 2018 at 10:00am. NAME AFFILIATION TES r y/N E I NOTICE OF PROPOSED CHANGES ON BON SING IN THE REGULATIONS OF ALASKA OIL AND GAS CONSERVATION COMMISSION The Alaska Oil and Gas Conservation Commission proposes to adopt regulation changes in 20 AAC 25.025 of the Alaska Administrative Code, dealing with Bonding, including the following: (1) 20 AAC 25.025 is proposed to be repealed and rewritten as follows: Increasing the minimum bonding amount to more accurately reflect the costs of abandoning wells by establishing a multi -tiered bonding schedule based on the number of wells an operator has. You may comment on the proposed regulation changes, including the potential costs to private persons of complying with the proposed changes, by submitting written comments to Jody Colombie at 333 West Ph Avenue, Anchorage, Alaska 99501. Additionally, the Alaska Oil and Gas Conservation Commission will accept comments by facsimile at (907) 276-7542 and by electronic mail at aogcc.customer.svcna,alaska.gov. Comments may also be submitted through the Alaska Online Public Notice System, by accessing this notice on the system and using the comment link. The comments must be received not later than 4:30 p.m. on October 16, 2018. Written comments also may be submitted at a hearing to be held on October 16, 2018, at 333 West 7`h Avenue, Anchorage, Alaska 99501. The hearing will be held from 10:00 a.m. to 2:00 p.m. and might be extended to accommodate those present before 10:30 a.m. who did not have an opportunity to comment. If you are a person with a disability who needs a special accommodation in order to participate in this process, please contact Jody Colombie at jody.colombie@alaska.gov or mailing 333 West 7`h Avenue, Anchorage, Alaska 99501 or calling (907) 793-1221 not later than October 10, 2018 to ensure that any necessary accommodation can be provided. For a copy of the proposed regulation changes, contact Jody Colombie at the Alaska Oil and Gas Conservation Commission at West 71h Avenue, Anchorage, Alaska 99501 or calling (907) 793- 1221, or go to httu://doa.alaska.gov/ogc/. After the public comment period ends, the Alaska Oil and Gas Conservation Commission may either adopt the proposed regulation changes or other provisions dealing with the same subject, without further notice, or decide to take no action. The language of the final regulation may be different from that of the proposed regulation. You should comment during the time allowed if your interests could be affected. Statutory authority: AS 31.05.030 Statutes being implemented, interpreted, or made specific: AS 31.05.030 Fiscal information: The proposed regulation changes are not expected to require an increased appropriation Date: August 14, 2018 Hollis S. French, Chair, Commissioner Alaska Oil and Gas Conservation Commission ADDITIONAL REGULATION NOTICE INFORMATION (AS 44.62.190(g)) 1. Adopting agency: Alaska Oil and Gas Conservation Commission 2. General subject of regulation: Bonding 3. Citation of regulation (may be grouped): 20 AAC.25.025 4. Department of Law file number, if any: 5 21 I] Reason for the proposed action: ( ) Compliance with federal law ( ) Compliance with new or changed state statute ( ) Compliance with court order ( ) Development of program standards (X) Other (identify): Current bonding requirements are insufficient to ensure a well can be properly plugged and abandoned. Appropriation/Al location: 2010/21 Cost of implementation to the state agency and available funding (in thousands of dollars): Operating Cost Capital Cost 1002 Federal receipts 1003 General fund match 1004 General fund 1005 General fund/ program Other (identify) Initial Year Subsequent FY2020 Years $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8. The name of the contact person for the regulation: Name: Jodv Colombie Title: Special Assistant to the Commission Address: 333 West 7th Avenue, Anchorage, AK 99501 Telephone: (907) 793-1221 E-mail address: iody.colombie@alaska.gov 9. The origin of the proposed action: X Staff of state agency Federal government General public Petition for regulation change Other (identify) 10. Date: August 14, 2018 Prepared by: Name: Jody CmomMe Title: Special Assistant to the Commission Telephone: (907)793-1221 FISCAL NOTE Agency: Department of Administration, Alaska Oil and Gas Conservation Commission Appropriation/Allocation: 2010/21 General subject of regulation: Bonding Citation of regulation: 20 AAC 25.025 Estimated appropriations required (in thousands of dollars) $0.00 Expenditures/Revenues FY 2020 Appropriation Requested OPERATING EXPENDITURES I FY 2020 1 FY 2021 1 FY 2022 1 Personal Services Travel Services Commodities Capital Outlay Grants & Benefits Miscellaneous I TOTAL OPERATING 1 0.00 1 0.00 1 0.00 1 POSITIONS Full-time Part-time CHANGE IN REVENUES n I i Date August 14, 2018 Prepared by:�— J4 CoWnbie, Special Assistant DOA/Alaska Oil and Gas Conservation Commission Phone No.: (907) 793-1221 ANCHORAGE D in, \7:j19CEiVED Mtlal Yev RN30 nus 13 2018 AFFIDAVIT OF PUBLICATION AOGCC wAnn .1 9J Bi OFNJPt(OILPHOQ9 OMare YWtA.,pAnAnggpN.Mtliorage 0e%Hers OCKBCRVPTIga CON n W, P'aal fWIW p9W 9]]N£Bf TfX.WE BIE tW n °901 SThTE Di AIA$IU1' XpiE6PIlOPoSFDCXPX0E50N pNpMm MtlEpfiiGUnOMCFMfSIA d�N10 W4LpKdvAiron — THIRD JUDICI DISTRICT JagnN $ppapn ix0 MesOa a epo Ws cmurvNan Wmm'ulAn An.., m tloµ rguletl°n l.%. in xo E ohuue m sxe pan CMa. 8 m Wxsdag a W 9 NM AUN awm On . 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TAY qe NII mount MCe M 0,AW MNs1w09grgpA Ilumn'nmAMevm00pl Ne rp�atlia pE pnval6 �ryyyYua6. I SUOacrCm mC f wwn to More ma mu 1�slBtlrym[ypyD. $p.1j �hb�m�,oyl Tna sero e]Alaexa. TNN mvuion Mtlrwa9a.FbaW ]AY COMA11 .3%ae Q _ j xoury am 1 Bfll]NEYT {ry0NP50X ��� 6lale ntuaskx 111 nycmm�YSOon Ewlns Ev40], 3013 'sem^�lwsave'.R.� iAA aNmmwn:.0 mmeo. ]1. . A tma MNp lmwI�mmrewo, w mare aarnp: u m f l.IMmmapm'. Tv pmp repwOWn rRrp°B arc nm M8ue014.. M18 AoomoxuuGXlAnpxxo9lGEMFwwAllwE vsmm.faw� Arno mw° A. @ &4 4V CttNM4A Genmisu°emttalr¢p�IOxpn B?M 0 pNRMHOI UwMBknu tt®II:`m PAC.35N8 Beaconnxnei,.. tlallon 4NnpdWNNIwdM:xpIM1 Cat 41mpM1V �°MmidN`... CVy remeatlnmunpnswllwtlwreguwtlon xre1CKSWMmps cwnmlssbr ,___,aexNAWnu6.M[Aorg4.V Amt nB onal. w Ne monaep wam: B I.AAAAAX aener.l pm upm rn.lm pM.,4LL'u,Ku.3Gm P..W Mtlal Yev RN30 Sutupumt YmR p t lxt m 9J erel(WnmiMph 9 p IBrtlluntl arel(unN p ro CVy remeatlnmunpnswllwtlwreguwtlon xre1CKSWMmps cwnmlssbr ,___,aexNAWnu6.M[Aorg4.V Amt nB onal. w Ne monaep wam: B I.AAAAAX aener.l pm upm rn.lm pM.,4LL'u,Ku.3Gm P..W Colombie, Jody J (DOA) From: Colombie, Jody J (DOA) Sent: Tuesday, August 14, 2018 10:44 AM To: AOGCC_Public_Notices; Pollard, Susan R (LAW); 'Salena'; Nate Lowe; Ridle, Leslie D (DOA); Bell, Abby E (DOA); Bixby, Brian D (DOA); Boyer, David L (DOA); Brooks, Phoebe L (DOA); Carlisle, Samantha J (DOA); Colombie, Jody J (DOA); Cook, Guy D (DOA); Davies, Stephen F (DOA); Earl, Adam G (DOA); Erickson, Tamara K (DOA); Foerster, Catherine P (DOA); French, Hollis (DOA); Frystacky, Michal (DOA); Guhl, Meredith D (DOA); Herrera, Matthew F (DOA); Jones, Jeffery B (DOA); Kair, Michael N (DOA); Laubenstein, Lou (DOA); Loepp, Victoria T (DOA); Martin, Teddy J (DOA); McLeod, Austin (DOA); Mcphee, Megan S (DOA); Mumm, Joseph (DOA sponsored); Noble, Robert C (DOA); Paladijczuk, Tracie L (DOA); Pasqual, Maria (DOA); Regg, James B (DOA); Rixse, Melvin G (DOA); Roby, David S (DOA); Schwartz, Guy L (DOA); Seamount, Dan T (DOA); Wallace, Chris D (DOA); AK, GWO Projects Well Integrity; AKDCWellIntegrityCoordinator; Alan Bailey; Alex Demarban; Alicia Showalter; Allen Huckabay; Andrew VanderJack, Ann Danielson; Anna Raff; Barbara F Fullmer; Barbara Kruk; bbritch; bbohrer@ap.org; Ben Boettger; Bill Bredar; Bob Shavelson; Bonnie Bailey, Brandon Viator; Brian Havelock, Bruce Webb; Caleb Conrad; Candi English; Cody Gauer; Cody Terrell; Colleen Miller; Connie Downing; Crandall, Krissell; D Lawrence; Dale Hoffman; Danielle Mercurio; Dard Horner; Dave Harbour, David Boelens; David Duffy; David House; David McCaleb; David Pascal; ddonkel@cfl.rr.com; Diemer, Kenneth 1 (DNR); DNROG Units (DNR sponsored); Donna Ambruz; Ed Jones; Elizabeth Harball; Elowe, Kristin; Elwood Brehmer; Evan Osborne; Evans, John R (LDZX); Brown, Garrett A (DNR); George Morris; George Pollock; Gordon Pospisil; Greeley, Destin M (DOR); Greg Kvokov; Gretchen Stoddard; gspfoff; Hurst, Rona D (DNR); Hyun, James J (DNR); Jacki Rose; Jason Brune; Jdarlington Oarlington@gmail.com); Jeanne McPherren; Jerry Hodgden; Jill Simek; Jim Shine; Jim Watt; Jim White Oim4thgn@gmail.com); Young, Jim P (DNR); Joe Lastufka; Radio Kenai; Burdick, John D (DNR); Easton, John R (DNR); Larsen, John M (DOR); Jon Goltz; Joshua Stephen; Juanita Lovett; Judy Stanek, Kari Moriarty, Kasper Kowalewski; Kazeem Adegbola; Keith Torrance; Keith Wiles; Kelly Sperback; Frank, Kevin J (DNR); Kruse, Rebecca D (DNR); Kyla Choquette; Gregersen, Laura S (DNR); Leslie Smith; Lori Nelson; Luke Keller, Marc Kovak; Dalton, Mark (DOT sponsored); Mark Hanley (mark.hanley@anadarko.com); Mark Landt; Mark Wedman; Michael Bill; Michael Calkins; Michael Moora; Michael Quick, Michael Schoetz; Mike Morgan; MJ Loveland; Motteram, Luke A; Mueller, Marta R (DNR); Nathaniel Herz, knelson@petroleumnews.com; Nichole Saunders; Nick Ostrovsky; NSK Problem Well Supv; Patty Alfaro; Paul Craig; Decker, Paul L (DNR); Paul Mazzolini; Pike, Kevin W (DNR); Randall Kanady; Renan Yanish; Richard Cool; Robert Brelsford; Robert Tirpack; Robert Warthen; Ryan Gross; Sara Leverette; Scott Griffith; Shahla Farzan; Shannon Donnelly, Sharon Yarawsky; Skutca, Joseph E (DNR); Smith, Kyle S (DNR); Spuhler, Jes J (DNR); Stephanie Klemmer, Stephen Hennigan; Stephen Ratcliff; Sternicki, Oliver R; Moothart, Steve R (DNR); Steve Quinn; Suzanne Gibson; sheffield@aoga.org; Tanisha Gleason; Ted Kramer; Teresa Imm; Terry Caetano; Tim Mayers; Todd Durkee; Tom Maloney, Tyler Senden; Umekwe, Maduabuchi P (DNR); Vern Johnson; Vinnie Catalano; Well Integrity; Well Integrity; Weston Nash; Whitney Pettus; Aaron Gluzman; Aaron Sorrell; Ajibola Adeyeye; Alan Dennis; Andy Bond; Bajsarowicz, Caroline J; Bruce Williams; Casey Sullivan; Corey Munk, Don Shaw; Eppie Hogan; Eric Lidji; Garrett Haag; Smith, Graham O (DNR); Heusser, Heather A (DNR); Fair, Holly S (DNR); Jamie M. Long; Jason Bergerson; Jesse Chielowski; Jim Magill; Joe Longo; John Martineck; Josh Kindred; Keith Lopez; Laney Vazquez; Lois Epstein; Longan, Sara W (DNR); Marc Kuck, Marcia Hobson; Matt Armstrong; Melonnie Amundson; Franger, James M (DNR); Morgan, Kirk A (DNR); Umekwe, Maduabuchi P (DNR); Pat Galvin; Pete Dickinson; Peter Contreras; Rachel Davis; Richard Garrard; Richmond, Diane M; Robert Province; Ryan Daniel; Sandra Lemke; Scott Pins; Pollard, Susan R (LAW); Talib Syed; Tina Grovier (tmgrovier@stoel.com); William Van Dyke; Zachary Shulman; Begich, Thomas S (LEG); Birch, Christopher (LEG); Bishop, Click (LEG); Chenault, Mike (LEG); Claman, Matt (LEG); Coghill, John (LEG); Costello, Mia C (LEG); Drummond, Harriet A To: (LEG); Eastman, David C (LEG); Edgmon, Bryce E (LEG); Egan, Dennis W (LEG); Foster, Neal W (LEG); Gara, Les (LEG); Gardner, Berta (LEG); Giessel, Cathy (LEG); Grenn, Jason S (LEG); Guttenberg, David (LEG); Hoffman, Lyman F (LEG); Hughes, Shelley; Johnston, Jennifer (LEG); John Lincoln; Johnson, Delena (LEG); Josephson, Andrew L (LEG); Kawasaki, Scott Jw (LEG); Kelly, Pete (LEG); Kito, Sam (LEG); Knopp, Gary A (LEG); Kopp, Charles M (LEG); Kreiss-Tomkins, Jonathan S (LEG); Ledoux, Gabrielle R (LEG); MacKinnon, Anna (LEG); Meyer, Kevin G (LEG); Micciche, Peter A (LEG); Mike Showers; Millett, Charisse E D (LEG); Von Imhof, Natasha A (LEG); Neuman, Mark A (LEG); Olson, Donny (LEG); Ortiz, Dan (LEG); Parish, Justin V (LEG); Pruitt, Lance (LEG); Rauscher, George (LEG); Reinbold, Lora (LEG); Saddler, Dan (LEG); Seaton, Paul (LEG); Spohnholz, Ivy A (LEG); Stedman, Bert K (LEG); Stevens, Gary L (LEG); Stutes, Louise B (LEG); Sullivan -Leonard, Colleen (LEG); Talerico, David M (LEG); Tarr, Geran L (LEG); Thompson, Steve (LEG); Tiffany Zulkosky; Tilton, Cathy (LEG); Tuck, Christopher (LEG); Wielechowski, Bill (LEG); Wilson, David S (LEG); Wilson, Tammie (LEG); Wool, Adam L (LEG) Subject: Bonding Draft Regulations Attachments: Draft Bonding Regulations and accompanying additional information and fiscal note.pdf Please see attached. The Alaska Oil and Gas Conservation Commission proposes to adopt regulation changes in 20 AAC 25.025 of the Alaska Administrative Code, dealing with Bonding, including the following: 20 AAC 25.025 is proposed to be repealed and rewritten as follows: Increasing the minimum bonding amount to more accurately reflect the costs of abandoning wells by establishing a multi -tiered bonding schedule based on the number of wells an operator has. Jody J. Cotombie AOCGCC Syecia(Assistant Alaska Oi(andgas Conservation Commission 333 West 716 .Avenue .anchorage, Alaska 99501 Office: (907) 793-1221 Fax: (907) 276-7542 CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, contains information from the Alaska Oil and Gas Conservation Commission (AOGCC), State of Alaska and is for the sole use of the intended recipient(s). It may contain confidential and/or privileged information. The unauthorized review, use or disclosure of such information may violate state or federal law. If you are an unintended recipient of this e-mail, please delete it, without first saving or forwarding it, and, so that the AOGCC is aware of the mistake in sending it to you, contact Jody Colombie at 907.793.1221 or iodv.colombie@alaska.aov. Bernie Karl M Recycling Inc. P.O. Box 58055 Fairbanks, AK 99711 Gordon Severson 3201 Westmar Cir. Anchorage, AK 99508-4336 Penny Vadla 399 W. Riverview Ave. Soldotna, AK 99669-7714 George Vaught, Jr. Darwin Waldsmith Richard Wagner P.O. Box 13557 P.O. Box 39309 P.O. Box 60868 Denver, CO 80201-3557 Ninilchik, AK 99639 Fairbanks, AK 99706 WIM Register 2018 MISCELLANEOUS BOARDS 20 AAC 25.025 is repealed: 20 AAC 25.025. Bonding. Repealed. (Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; am _/_/ Register ) 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) A surety bond issued on Form 10-402A in favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) A personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. (b) A bond, and if required, security must be at least in the amount specified in the following table: Number of Permitted Wellheads Minimum Bond Amount 1-2 $500,000 3-4 $800,000 5-6 $1,100,000 Register 2018 MISCELLANEOUS BOARDS 7-8 $1,400,000 9-10 $1,700,000 11-19 $2,000,000 20-29 $3,000,000 30-39 $4,000,000 40-49 $5,000,000 50-74 $6,500,000 75-99 $8,000,000 100-199 $10,000,000 200-299 $11,000,000 300-399 $12,000,000 400-499 $13,000,000 500-749 $14,000,000 750-999 $15,000,000 1000-1499 $17,500,000 1500-1999 $20,000,000 2000-2499 $22,500,000 2500-2999 $25,000,000 3000-3499 $27,500,000 3500-3999 $30,000,000 (1) For the purposes of this section, a wellhead is considered any well (excepting lateral well branches drilled from an existing well) for which the commission has issued a permit to drill that has not been permanently plugged and abandoned. Register 2018 MISCELLANEOUS BOARDS (2) Upon request of an operator, or on its own motion, the commission may increase or decrease the amounts set forth in subsection (b) based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts. c) Operators with bonds and, if required, security in place at the time these regulations become effective will be allowed to increase the amount of its bond and, if required, security to the amount required under (b) of this section in four installments. The installments shall be made as follows (1) The first installment shall be due «inert date 90 days after the effective date of these regulations>> and shall be a minimum of $500,000 or one quarter of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, (2) The second installment shall be due <<insert date one year after date specified in subsection (1)» and shall be a minimum of $500,000 or one third of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, (3) The third installment shall be due «inert date two years after date specified in subsection (1)» and shall be a minimum of $500,000 or one half of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part, whichever is greater, and (4) The final installment shall be due «inert date three years after date specified in subsection (1)» and shall be in the amount of the difference between the operator's existing level of bonding and, if required, security and the level required under section (b) of this part. Register 2018 MISCELLANEOUS BOARDS d) A bond and, if required, security must remain in effect until the operator's wells have been permanently plugged and abandoned in accordance with 20 AAC 25.105 and the commission approves final clearance of the locations. The commission may then, at the operator's request and depending upon the count of active permitted wellheads for the operator, release all or a portion of the bond and security upon written request of the operator. e) The operator must provide written proof that the company that provides its bond or security in accordance with subsection (a) of this section has agreed to provide the commission with written notification at least 90 days prior to the expiration or termination of any bond or security. f) Payment under a surety bond or security does not relieve an operator from any other legal requirements. g) The commission will not approve a permit to drill application from as operator that is out of compliance with this section. (Eff. am _/_/_, Register .) Authority: AS 31.05.030 The Surety & Fidelity Association of America 1140 10 STREET, NW, SUITE 500, WASHINGTON, DC 20036 TEL: (2021463-0600 -FAX: (202)463-0606 website: http://www.surety.org E-mail: information@surety.org August 27, 2018 Via Electronic Mail Jody Colombie Alaska Oil and Gas Conservation Commission 333 West 7th Avenue Anchorage, AK 99501 Re: Proposed Changes on Bonding/20 AAC 25.025 Dear Ms. Colombie: The Surety & Fidelity Association of America ("SFAA") is a non-profit corporation whose member companies collectively write the majority of surety and fidelity bonds in the United States. SFAA is a licensed rating or advisory organization in all states and is designated by state insurance departments as a statistical agent for the reporting of fidelity and surety experience. The vast majority of bonds that secure regulatory obligations are provided by SFAA members. We appreciate the opportunity to provide comments regarding the captioned proposed regulation, which revises the bond requirements applicable to well operators. In particular, the proposed regulation significantly increases the required bond amounts. Although we do not take a position regarding the specific amounts, we provide guidance regarding the relationship between the bond amount and the bond's availability in the market. Unlike other forms of insurance, in the event the surety must pay a loss, it has the right to seek indemnity from the principal (the well operator, in this case). Therefore, part of the surety's underwriting involves a financial assessment of the principal. The surety will require a certain threshold of financial strength relative to the bond amount — the higher the bond amount, the higher the threshold. An operator with limited net worth and working capital might find it difficult to obtain a bond required for multiple wells. We ask that the Commission consider the effect of the bond amount on availability. We thank you for your consideration of our comments. . Duke Counsel 9/18/18 Becky Long POB 1088, Talkeetna AK 99676 To: Alaska Oil and Gas Conservation Commission (AOGCC)I�C I G� i$ Re: Comments on Proposed Changes on Bonding in the Regulations Via electronic mail: aogcc.customer.svcna alaska.gov A0 { � � U I am commenting on this because my interests could be affected by being within the boundaries of the state program Southcentral Regional Exploration. The proposed changes to the bonding regulations are in the best interests of the state. Their approval is important in order for the AOGCC to carry out its statutory mandates. "Orphaned" wells, i.e. improperly or no plugged wells, have the potential in this state to be a multi -billion dollar problem for the state. We are a relatively young oil and gas industrial state. The potential from aging infrastructure and increased drilling activities means without a solution the problem could and will get worse. Just one example from the North Slope exemplifies that. BLM estimates that there are 26 more abandoned wells that need cleanup at a cost of $90-100 million. BLM has no money to do that nor does it have plans to do anything. Thus, there is no money to clean up that and other legacy wells. As Commissioner Foerster has stated we don't want the state to become a legacy well collection site. The state has about 5300 wells, approximately 4,000 on the North Slope and 1,000 in the Cook Inlet area. 900 of these wells are idle. The current bonding to cover plugging and abandonment activity is blatantly inadequate. A $200,000 bond to cover all of BP's Prudhoe Bay wells is totally ineffectual and verges on the irresponsible. This is especially true if a large company like BP sells its interests to smaller companies with less financial sureties to be able to plug wells when leases are relinquished. We are seeing the trend of larger companies selling assets to smaller companies when production dips. Along with that trend, is the state's Division of Oil and Gas exploratory incentives program that encourages smaller companies to lease. These are licensed explorations on state lands outside of known hydrocarbon basins in areas far from existing infrastructure with relatively low or unknown hydrocarbon potential. And where there is a higher risk to the operator. On 5/9/16, the Director created the Southcentral Regional Exploration area of 76,000 square miles. This includes all state-owned acreage subject to the provisions of AS 38.05.132. Small companies can and probably will participate. It is important that there is the financial surety to cover plugging and abandonment costs. An increase in operator bankruptcies increases landowner liabilities for plugging and abandonment costs. And in many cases the landowner is the state of Alaska. Smaller companies are also more vulnerable to market swings. An example from the lower 48 western states shows this. In 2008, gas prices plunged which caused bankruptcies of small companies producing marginal amounts of methane from coal seas. Thousands of these coal bed methane wells were orphaned. Orphaned wells are more likely than plugged wells to leak pollutants. The pollutant methane gas can trigger explosions and contaminate groundwater on state and private land. I support the proposed bonding proposals. kp � r,76Lola �,M %j , Com - P� lad RECEIVED ANUG 2 4 2018 ACuCC Aj 9L966 XV eulaaN,, 8901 XOO Od ;Iuoi eooaqoH kV Colombie, Jody J (DOA) From: Roby, David S (DOA) Sent: Monday, October 8, 2018 3:13 PM To: Wendy Sheasby Cc: Colombie, Jody J (DOA) Subject: RE: Bonding question Glad to help. Dave Roby (907)793-1232 CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, contains information from the Alaska Oil and Gas Conservation Commission (AOGCC), State of Alaska and is for the sole use of the intended recipient(s). It may contain confidential and/or privileged information. The unauthorized review, use or disclosure of such information may violate state or federal law. If you are an unintended recipient of this e-mail, please delete it, without first saving or forwarding it, and, so that the AOGCC is aware of the mistake in sending it to you, contact Dave Roby at (907)793-1232 or dave.robv@alaska.gov. From: Wendy Sheasby <wsheasby@brantaep.com> Sent: Monday, October 08, 2018 3:08 PM To: Roby, David S (DOA) <dave.roby@alaska.gov> Cc: Colombie, Jody J (DOA) <jody.colombie@alaska.gov> Subject: Re: Bonding question Good afternoon Dave, Yes, this does answer my question. Thank you and have a nice evening. Regards, Wendy Wendy Sheasby, CPA CFO AIX Energy LLC 2441 High Timbers, Suite 120 The Woodlands, TX 77380 wsheasbv(n,brantaeD.com Direct: 281-863-9920 Main: 832-813-0900 E-MAIL CONFIDENTIALITY NOTICE: The contents of this e-mail message and any attachments are intended solely for the intended recipient and may contain confidential and/or legally privileged information. If you are not the intended recipient of this message or if this message has been addressed to you in error, please immediately alert the sender by reply e-mail and then delete this message and any attachments. If you are not the intended recipient, you are notified that any use, dissemination, distribution, copying, or storage of this message or any attachment is strictly prohibited. On Oct 8, 2018, at 5:50 PM, Roby, David S (DOA) <dave.robv@alaska.gov> wrote: Hi Wendy, As I understood the question from your voicemail what you're looking for is if there's some sort of hierarchy that we'd use to determine whether or not to go after a bond that was submitted in accordance with our regulations or another form of financial security that another party had, such as a bond or financial assurance requirement that the lessor required a lessee to have. Is my understanding correct? If so, the AOGCC does not have authority to go after a bond or financial surety that was established to meet entities requirements, so if we ever make the determination that we need to go after a bond to repair a well causing waste or properly plug and abandon a well, the only operations that by statute we're allowed to use a bond for, then we'd go after the bond that was issued in accordance with our bonding regulations found in 20 AAC 25.025 regardless of what other bonds/sureties might be out there. I hope this answers your question, if not let me know and I'll try to help. Regards, Dave Roby Sr. Reservoir Engineer Alaska Oil and Gas Conservation Commission (907)793-1232 CONFIDENTIALITY NOTICE., This e-mail message, including any attachments, contains information from the Alaska Oil and Gas Conservation Commission (AOGCC), State of Alaska and is for the sole use of the intended recipient(s). It may contain confidential and/or privileged information. The unauthorized review, use or disclosure of such information may Violate state or federal law. If you are an unintended recipient of this e-mail, please delete it, without first saving or forwarding it, and, so that the AOGCC is aware of the mistake in sending if to you, contact Dave Roby at (907)793-1232 or dave.robv@alaska.aov. Law offices of JAMES A GOTTSTEIN 406 G STREET, surrE 206 ANCHORAGE, ALASKA 99501 (907)274-7686 nLECOPIER 19013214.9493 October 15, 2018 Jody Colombie Alaska Oil & Gas Conservation Commission 333 West 7th Ave Anchorage, AK 99501 Re: Comments on Proposed Bonding Changes Dear Ms. Colombie: via e-mail I have been asked by Mr. James White to review the proposed regulations noticed on August 14, 2018, regarding changes in 20 AAC 25.025 (Notice). My review has found two fatal flaws in the proposed regulations. First, the ex post facto application to existing permit holders is illegal. It is simply not legal to increase the bonding/security requirements for existing permit holders. Second, the proposed regulations go beyond the scope of the referenced authorizing statute. AS 31.05.030, the statute cited in the Notice as authorizing the proposed regulations, provides in pertinent part: (d) The commission may require ... (4) the furnishing of a reasonable bond with sufficient surety conditions for the performance of the duty to plugeach ch dry or abandoned well or the repair of wells causing waste; (Emphasis added). The proposed regulations, however, go far beyond that allowed by the statute, providing that an operator proposing to drill a well provide, "security to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter." (emphasis added). It is apparent the proposed regulations go far beyond the statutory authority of allowing bonds be required to "plug each dry or abandoned well or the repair of wells causing waste." Simply put, the regulations as proposed are not proper and should not be adopted. Your rule v Ja es B. Gottstein Comment on Notice of Proposed Changes on Bonding In the Regulations of AOGCC As a property owner in the Southcentral Regional Exploration Area established by the State, I am concerned about abandoned orphaned exploratory wells in the future that would be dangerous and polluting, if not cleaned up. I support this bonding proposal and hope that AOGCC adopts it in order to prevent future problems. State exploratory incentives will encourage smaller companies with less financial resources to get licenses to lease and drill wells. I have read about legacy well problems on the North Slope and orphaned wells in lower 48 western states. These wells, not properly plugged and abandoned, can emit pollutants like methane with the potential to contaminate groundwater. I don't want to see that happen in Cook Inlet or Southcentral. There needs to be an adequate security deposit in the form of a surety bond that would cover costs. Thank you for pursuing this. Denis Ransy QAAkL Box 344, Talkeetna AK 99676 denisinak@gmail via electronic mail to AOGCC \oW.-O-1 �% October 15, 2018 Jody Colombia 333 West 7th Avenue, Anchorage, Alaska 99501 via email: aogcc.customer.svc@alaska.gov RE: 20 AAC 25.025 Dear Commission members, As a 41 -year resident of Alaska, I am writing regarding proposed regulatory changes that would increase the bond amount a private operator must file in the event it abandons a well, as well as establish, for the operator, a multi -tiered bonding schedule for multiple wells. The proposed changes are more than reasonable. Indeed, per your agency's mission—"to protect the public interest in exploration and development ... (etc.)"— perhaps the bond amounts should be larger. Considering that the cost to the state of 26 abandoned wells in the North Slope alone, according to BLM, could total $100 million, the minimum bond requirement the Commission should consider should start at $4 million for 1-2 wells and increase accordingly. Expecting the State of Alaska to cover the costs of well clean up is like expecting a homeowner to remove trees, slash and garbage left over by a hired landscaping contractor. As you know, there are thousands of wells in our state, many that are and will be abandoned or "orphaned". Leaking wells could create a legacy of toxic pollution harmful to the environment and people, requiring, at this point, exorbitant amounts of state funding for clean-up and remediation (if that is even possible at these sites). Needless to say—though, weirdly, it must be said—you need to also consider the impacts of climate change. To keep planetary warming under 2 degrees celsius, the target set by the Paris Climate Agreement, significant changes will have to be made in the way we manage oil production. Wells will inevitably have to be abandoned and methane prevented from leaking. We will have to begin keeping oil in the ground to prevent catastrophic climate crisis. While you may see your duty as protecting the financial interests of the oil industry, you are also bound by a mandate to protect the Public interest of the people of Alaska. I am one of the those people, one of a tiny few who even know about this public hearing. Please have the courage to support this reasonable regulatory change. Sincerely, Soren Wuerth PO Box 1582 Girdwood, AK 99587 sorenwuerth@gmaii.com µ wpTEA' HFA1T!{y,q EEEP 4.f'p+v • mmmF"max" . . i INZETKEE��g October 16, 2018 Submitted via email Ms. Jody Colombie Alaska Oil and Gas Conservation Commission 333 West 7s' Avenue Anchorage, Alaska 99501 aogcc.customer.svc@alaska.gov Re. Proposal to Change 20 AAC 25.025 on Well Bonding Dear Ms. Colombie: The Wilderness Society On behalf of our organizations and representing our thousands of members in Alaska, we are writing in support of the Alaska Oil and Gas Conservation Commission's (AOGCC's) proposed changes to 20 AAC 25.025 of the Alaska Administrative Code. The proposed requirements will help ensure that companies causing actual or potential oil spills or other forms of contamination from operating or abandoned wells have the resources needed to address those concerns. These changes greatly improve the likelihood that state government will not have to pay the high costs of problematic well operations or abandonment throughout Alaska, including in remote parts of the state where it is very expensive to conduct industrial activities such as plugging and abandoning wells. Structure of the Proposed Changes Bonding is required "to ensure that each well is drilled, operated, maintained, repaired, and abandoned... in accordance with this chapter."' The new proposal makes three important improvements over the existing bonding regulations in Alaska2: 1. It establishes a tiered bonding schedule that increases the bond amounts required based on the number of wells an operator has, 2. It removes "blanket" bonding where a single bond of $200,000 would cover all of an operator's wells throughout Alaska, and 3. It provides minimum bonding amounts that more accurately reflect the costs of plugging and abandoning wells in Alaska. ' 20 AAC 25.025. Bonding. (a). Language from both the existing and the proposed regulations. 'Note that the National Petroleum Reserve Alaska has its own bonding requirements established in 43 CFR 3134.1 - Bonding. According to the Government Accountability Office, "the minimum amount of a NPR -A bond is set in regulation—not less than $100,000 for a single lease or not less than $300,000 for a reservewide bond (submitted separately or as a rider to an already existing nationwide bond)." (Government Accountability Office. (2010, January) Oil and Gas Bonds: Bonding Requirements and BLM Expenditures to Reclaim Orphaned Wells, p. 13. Retrieved from hos://www.gao.gov/new.items/d10245.pdD. 705 Christensen Drive, Anchorage AK 995ot I ph 907 272-9453 1 wilderness.org Audubon ALASKA ' Each of these improvements is discussed below. 'a The Wilderness Society Tiered bonding schedule: Very sensibly, AOGCC has established a bonding schedule where operators must hold higher bond amounts if they operate more wells. Since each well has the potential for considerable plugging and abandonment costs, we support this tiered approach. Notably the bonding schedule includes a lower per well cost as the number of wells operated increases as there may be some economies of scale. Removing blanket bonding: Blanket bonding covers all of an operator's wells throughout the state, regardless of the number. This approach does not make sense from an economic standpoint, in contrast to a tiered bonding schedule which comes closer to reflecting actual costs. New minimum bonding amounts: While AOGCC's notice of proposed changes on bonding does not provide background information on how the required bonding amounts were developed, we assume that AOGCC is trying to reflect the high costs of plugging and abandoning wells in remote areas where there often are no roads to wells. The cost of mobilizing equipment to Alaska's remote areas of the Arctic and Cook Inlet often is very high, necessitating air transportation, temporary camps, and possibly barging, as well as removal of wastes following well abandonment. As an example, in the National Petroleum Reserve — Alaska, the Bureau of Land Management reported in 2016 that it was spending $40 million to plug and abandon 18 wells, including surface cleanup.3 This cost of over $2 million to plug and abandon and provide surface cleanup for each well may be at the high end for Alaska, but it nevertheless shows that costs for remote operations in Alaska are very high, especially compared to other states that may have lower bonding requirements. While the plugging and abandonment costs for wells throughout Alaska will be variable, it is important for AOGCC to ensure that the state has sufficient funds to address the most expensive situations, especially since the state currently has yearly deficits of hundreds of millions of dollars in unrestricted funds for its annual budget. Thank you very much for your consideration of these comments. If you have any questions, please contact Lois Epstein, P.E., of The Wilderness Society at the number below. 3 Bureau of Land Management. (2016, February 17). BLMAnnounces Major Clean-up Effort of Legacy Wells in the National Petroleum Reserve in Alaska. Retrieved from https://www.bim.gov/press- release/blm-announces-mai or -c lean-effort-legacy-wells-national-petroleum-reserve-alaska 705 Christensen Drive, Anchorage AK 995oi I Ph 907 272-9453 1 wilderness.org Audubon ALASKA Sincerely, Lois Epstein, P.E. Arctic Program Director The Wilderness Society Susan Culliney Policy Director Audubon Alaska Bob Shavelson Advocacy Director Cook Inletkeeper Ep*„yOf R' HEA(T"'SA(M INZ�' KEEPElZ The 1►'�� Wilderness Society 705 Christensen Drive, Anchorage AK 995011 ph 907 272-9453 1 wilderness.org "The mission of the Council is to represent the citizens of Cook Intel in promoting environmentally safe marine transperlation and oil facilit , operations in Cook Inlet " R C A C October 16, 2018 Members Jody Colombie Tourism Alaska Oil and Gas Conservation Commission Organizations 33 West 7th Avenue Anchorage, AK 99501 Submitted via email: ogcc.customer.svc@alaska.gov Alaska Native Groups RE: Comments on Proposed Changes on Bonding in the Regulations of Alaska Oil and Gas Conservation Commission Environmental Dear Ms. Colombie: Groups me if you have any questions. The mission of the Cook Inlet Regional Citizens Advisory Council (CIRCAC) is to represent Recreational the citizens of Cook Inlet in promoting environmentally safe marine transportation Groups and crude oil facility operations in Cook Inlet. We appreciate the opportunity to review and comment on the proposed changes to bonding regulations that were released on August Aquaculture 14, 2018. Associations CIRCAC supports the proposed rule change, which serves the dual purpose of increasing the amount required for bonding (and surety, if required) from the amounts written in Commercial regulation almost 20 years ago. The proposed regulatory change will also more Fishing appropriately scale the amount required based on the number of wells owned by a Organizations company. (Previously a company drilling dozens of wells would not be required to provide a bond or surety in an amount any greater than a company drilling two wells.) Ch)- of Kodiak While we appreciate that the new amounts may make it difficult for smaller companies to access the necessary bonds, at the same time we are concerned that a company unable to access a bond may also be one that is unable to properly manage the end -of -life of their Cio, of Kenai wells and other infrastructure, which could negatively impact the lands and waters of the Cook Inlet area and have the same negative impact on the State's economy. We note that the proposed regulations allow some regulator discretion to reduce the required amounts Ciro ofSeldovia if the operator can demonstrate that engineering or other circumstances significantly reduce the risk to the state. Mwdcipalip, of Anchorage Conk Inlet Regional Citizens Advisory Council* 8195 Kenai Spur My, Kenai, AK 99611-8033 Phone: (907) 283-7122 * Fax(907) 283-6102 wa,mcircar.ore Thank you for your attention to this important matter. Please do not hesitate to contact Ciro of Homer me if you have any questions. Sincerely, Kodiak Island Borough MichaeV � Executive Director Kenai Peninsula Borough Mwdcipalip, of Anchorage Conk Inlet Regional Citizens Advisory Council* 8195 Kenai Spur My, Kenai, AK 99611-8033 Phone: (907) 283-7122 * Fax(907) 283-6102 wa,mcircar.ore THE STATE Department of Natural Resources °fALASI-A GOVERNOR BILI. WALKER October 16, 2018 Hollis French, Chair Alaska Oil and Gas Conservation Commission 333 West 7' Ave Anchorage, AK 99501 Re: Proposed Well Operator Bonding — DOG Comments Dear Chairman French: DIVISION OF OIL & GAS 550 WEST 71.. AVENUE, SUITE 1100 ANCHORAGE, ALASKA 99501-3563 Main: 907.269-8800 Fav 907.269-8939 The Department of Natural Resources (DNR), Division of Oil and Gas (Division) is providing comments in response to the Notice of Proposed Changes on Bonding in the Regulations of Alaska Oil and Gas Conservation Commission. The DNR manages nearly 100 million acres of State-owned subsurface of which nearly five million acres are currently leased for oil and gas exploration and development. The Division is charged with protecting the state's interest and abiding by the terms of lease and unit agreements on state lands in Alaska. The Division manages state oil and gas resources from the initial lease stage to the end of field life. Thus, the Division is responsible for ensuring the public is protected throughout the life of an oil and gas field. The DNR works with oil and gas companies as operations are winding down to return state lands to a condition satisfactory to the Commissioner. Companies who are conducting operations on a state oil and gas lease must provide DNR with a bond. When companies satisfactorily complete the plugging and abandoning (P&A) of wells and surface rehabilitation work, their bonds will be returned. The AOGCC and DNR collect bonds as security against lessees or operators breaching their contractual duty to dismantlement, removal, and restoration (DR&R) a lease site. Currently, oil and gas companies conducting exploration or development operations in Alaska are subject to a maximum $500,000 statewide bond to cover DR&R responsibilities and $200,000 to cover P&A responsibilities. These bond amounts have proven to be grossly inadequate in most cases where the DNR is faced with handling DR&R and P&A duties. For example, in cases where companies abandon leases through bankruptcy or otherwise fail to fulfill obligations to plug and abandon wells, the AOGCC holds the subsurface landowner responsible for plugging and abandoning wells. In most cases, the AOGCC would order the DNR to plug and abandon wells. The DNR would also have to manage and fund DR&R of surface facilities and pipelines in these cases. Funding for such operations will come through the Alaska legislature, which means every Alaskan will help fund the clean-up of oil and gas sites. The Division and the AOGCC must promote the interest of promoting exploration and development activities while protecting against financial liability and harm to state lands. In recent years, the Division has been addressing financial assurance of DR&R activities after negative experiences from bankruptcies of oil and gas companies operating in the state. These experiences, teamed with the authority provided through current statutes and regulations, have shaped the actions of the Division. The Division has an opportunity to evaluate financial stability of companies being assigned interest in oil and gas leases. In making these evaluations, an assignee of an oil and gas lease makes a showing of financial health to the Division. The Division will determine whether a parental guarantee or financial assurance agreement is appropriate prior to approving a lease assignment. The guarantee or financial assurance agreement sets forth the terms and conditions for funding obligations to cover DR&R responsibilities of the assignee. The agreements are intended to ensure the DR&R obligations are met and a lessee has the financial capacity to meet DR&R commitments while having capital available for advancing exploration and development activities. Current financial assurance agreements contemplate financial coverage for DR&R of facilities, on -lease pipelines, and other surface equipment and improvements. The agreements also incorporate funding for wells that are not plugged and abandoned because the responsibility is transferred to the subsurface landowner when the lessee or operator is unable to fully comply with their obligation to return the land to a condition acceptable to the DNR Commissioner. The AOGCC issues a notice of violation to the offending landowner with an order to plug and abandon the well. While entities like the DNR, Mental Health Trust, Arctic Slope Regional Corporation, and Cook Inlet Regional hic. are subsurface owners of oil and gas lands, these entities are not equipped in the practice of plugging and abandoning wells. Legal action can be taken against the lessees or operators to compel compliance with leases and unit agreements; however, legal action may be complicated by bankruptcy and corporate law protections. The potential end result is the landowner expending millions of dollars to clean up sites in the absence of a lessee or operator. Thus, the AOGCC and DNR are devising ways, through establishing bonds and trust accounts, to ensure the State and its citizens are not paying to rehabilitate abandoned oil and gas fields. The Division holds DR&R bonds in trust; the bonds are returned to lessees and operators after their operations in Alaska have ceased and all lands are returned to a condition acceptable to the Commissioner. We would expect the well operator bonds would operate similarly; essentially securing against a party unable or unwilling to perform under its lease contract. The proposed regulations should serve as an opportunity to set forth some guidance on circumstances for which a bond may be utilized by or returned to a lessee or landowner upon commencing P&A operations. The DNR anticipates restructuring some of its current financial assurances agreements in light of the AOGCC's increased bonding level. The DNR understands the AOGCC's interest in increasing bond amounts, and we will work with lessees to modify current DR&R agreements where necessary. Well operator bonds have been a consideration in determining the DNR financial assurances agreement structure and obligations. Thank you for the opportunity to comment on these proposed regulations. October 16, 2018 Hollis French, Chair Alaska Oil and Gas Conservation Commission 333 West 71h Avenue Anchorage, AK 99501 Aogcc.customer.svc@alaska.gov Re: Public Comment — Proposed Changes to 20 AAC 25.025 Dear Commissioner French, (A Oil Search VIA ELECTRONIC MAIL Thank you for the opportunity to comment on the Alaska Oil and Gas Conservation Commission's ("AOGCC') proposed changes to the Bonding regulations. Please let this letter serve as a comment for the record on behalf of Oil Search (Alaska), LLC ("OSA"). OSA's parent company, Papuan Oil Search Ltd. ("Oil Search"), is a Papua New Guinea -based corporation based in Port Moresby, Papua New Guinea (or PNG). Established in 1929, Oil Search is traded on the Australian and Port Moresby stock exchanges. Oil Search, through its subsidiary OSA, recently purchased Interest In oil and gas leases on the North Slope from Armstrong Energy, LLC and GMT Exploration, I.I.C. OSA is a recent entrant into Alaska and is in the process of establishing operations, including the establishment of Bonds and Letters of Credit to meet statutory and regulatory requirements of various state agencies, including the AOGCC. Most notably, OSA has a bonding agreement with the Alaska Department of Natural Resources' Division of Oil and Gas ("DOG"), which agreement addresses surface impacts as a result of activity under the leases. The agreement is comprehensive and is based on OSA's financial strength, operational capability and commercial consideration of the leasehold, while protecting the State's interests. As the Commission evaluates possible changes to its Bonding regulations, OSA suggests that the Commission consider developing an Inter -agency unified bonding program in cooperation with the other agencies of the State that have similar Bonding requirements related to oil and gas exploration and development activities in Alaska. Development and implementation of such a unified Bonding program could become an effective way to meet statutory obligations and provide several benefits, both to the State and the lessee. These benefits would include: • Clarity of the State's expectations of operating companies regarding required financial assurances. • Flexibility to negotiate a bonding structure for individual companies, including consideration of such factors as financial strength, demonstrated operational capability, and location of assets relative to the cost of doing business (e.g., wells and infrastructure are less expensive to dismantle, remove and remediate when they are located closer to areas with existing infrastructure). • Elimination of duplicative Bonding requirements where agencies have overlapping regulatory mandates. Oil Search is enthusiastic about the many opportunities it sees for additional investment in Alaska. However, the uncertainty and duplication of the overall State bonding program creates unnecessary complications for companies considering such investments. A unified State Bonding program, as suggested above, would enhance the State's ability to attract new investment while preserving its authority and regulatory mandate. 0il Search Alaska, LLC Anchorage office Tel: +1907 275 69M 510 L Street, Suite 310 Fax: +1907 275 6930 Anchorage, www.ollseamh.com AK 99501 Oil Search OSA would also like to point out a possible typographic issue. In section (g), the draft regulation states -rhe commission will not approve a permit to drill application from as operator that is out of compliance with this section." OSA believes that perhaps the commission intended the pertinent section to read "from an operator." We appreciate the opportunity to engage in the public process and comment on the proposed regulation. If you have any questions or concerns, please do not hesitate to contact me at 907-375-4624, or by email at aroq Resources, LLC 4645 SwcetwaLCr ©,vd.• Suite 200 SnGur l nna, l x 7!479 October 16, 2018 Alaska Oil and Gas Conservation Commission 333 West 711 Avenue Anchorage, Alaska 99501 RE: Proposed Adoption of Regulation Changes in 20 AAC 25.025 Increasing Minimum Bonding Requirements Amaroq Resources, LLC ("Amaroq") respectfully submits the following comments in response to the AOGCC's proposed changes in 20 AAC 25.025: 1. The proposed changes are unfair to smaller operators. Amaroq currently operates 6 wells in the Cook Inlet and under the proposed changes would be required to post a $1.1 million bond, or almost $200,000 per well. Whereas a hypothetical operator with 399 wells on the North Slope would be required to post a $12.0 million bond, orjust over $30,000 per well. This difference is especially perplexing in that plugging and abandonment costs for wells on the North Slope will be much more costly. 2. The proposed increased bonding requirements will create at minimum, an economic hardship for smaller operators and in the worst case could trigger the situation the commission seeks to avoid, namely wells orphaned by the operator. Amaroq's ability to secure this level of bonding is questionable. Absent the new statutory required level of bonding and the resulting inability to operate our wells, Amaroq would be unable to plug and abandon the six wells. 3. The proposed rapid implementation of the higher bonding levels ($500,000 within 90 days) will create an economic hardship for Amaroq and presumably other smaller operators. Implementation of the proposed bonding requirements could literally put Amaroq out of business and result in the plugging of wells that would otherwise remain on production and generate the associated benefits (employment, state royalty, prevention of resource waste, etc). 4645 Sweetwater Blvd., Suite 200 0 Sugar Land, Texas 774790(832) 999-4603 *Fax (281)495-1473 4. The proposed bonding requirements far exceed levels required in othero Iland gas producing states and will discourage investment in Alaska. Several examples: California's bonding requirements effective January 1 of this year are as follows: a. $200,000 for 50 or fewer wells b. $400,000 for 51-500 wells c. $2,000,000 for 501— 10,000 wells d. $3,000,000 for more than 10,000 wells In Colorado, an operator needs a $60,000 state-wide blanket bond for less than 100 wells, or $100,000 state-wide blanket bond for more than 100 wells. In Texas, if you operate less than 10 wells, the required bond is $25,000. If you operate 10-100 wells, the required bond is $50,000 and more than 100 wells is $250,000. This discrepancy in bonding requirements cannot be ignored, it will have a significant detrimental impact on oil and gas exploration and production in Alaska. Your consideration of Amaroq's comments is respectfully requested. Sincerely, b� G. Scott Pfoff— President Amaroq Resources, LLC (formerly Aurora Exploration, LLC) 4645 Sweetwater Blvd., Suite 200 0 Sugar Land, Texas 77479 0 (832)999-4603 0 Fax (281)495-1473 AIX Energy LLC October 16, 2018 Alaska Oil and Gas Conservation Commission 333 West 7th Avenue, Suite 100 Anchorage, AK 99501 VIA ELECTRONIC MAIL AIX Energy LLC ("AIX") appreciates this opportunity to provide comments to the Commission regarding the August 14, 2018, Notice of Proposed Changes on Bonding in 20 AAC 25.025. AIX, as the owner and operator of four gas wells at the Kenai Loop Gas Field ("KLGF"), respectfully requests an exemption from the AOGCC from additional bonding/financial security due to financial security currently pledged at 100% of DR&R/P&A for the four KLGF gas wells as required by a lessor that is an agency of the State of Alaska coupled with $500,000 DNR bond and $200,000 AOGCC bond providing financial security/bonding at approximately twice the cost to DR&R/P&A the four KLGF gas wells. Other producers may have a similar requirement by a lessor(s). AIX asks the Commission to review a producer's existing bonding/financial security including bonding/financial security required by other state agencies when adopting new increased bonding requirements for current producers. To require additional bonding/financial security of AIX for P&A of the four KLGF gas wells would be onerous especially as a small producer. Furthermore, additional bonding is not necessary. The proposed regulation for smaller producers is particularly burdensome with securing additional bonding costing significant additional premiums each year as smaller producers do not have the same economies of scale as with larger producers. Wells are grouped into the same classification with no distinguishing between onshore and offshore wells as with other states, i.e. Texas and Louisiana. The cost to P&A could be considerably higher for offshore wells versus onshore wells. Proposed implementation within 90 days would be problematic and a hardship for small operators having limited resources. AIX understands the Commission's need to ensure that each operator in the state has sufficient bonding in place to guarantee that wells are properly P&A. However, the changes to 20 AAC 25.025 as proposed do not allow the Commission to adjust the required bonding amount for operators like AIX that already have in place sufficient bonding and financial security. Thank you for your review and consideration of these comments. Sincerely, *CF . Sheasby, 2441 High Timbers Drive, Suite 120 1 The Woodlands, TX 77380 , Phone: 832.813.0900 - Fax: 832-585-0133 ConocoPhillips Alaska October 16, 2018 Hollis S. French, Chair Alaska Oil and Gas Conservation Commission 333 West 7th Avenue, Anchorage, Alaska 99501 Re: Proposed Changes on Bonding in the AOGCC Regulations Dear Commissioner French: Shon D. Robinson Manager Drilling & Wells 700 G Street, ATO 1520 Anchorage, AK 99501 Phone 907 263 6306 shon.d.robinson@cop.com ConocoPhillips Alaska, Inc., ("ConocoPhillips") submits the following comments on revisions to the bonding regulation, 20 AAC 25.025, most recently proposed by the Alaska Oil and Gas Conservation Commission ("AOGCC"). The AOGCC appears to have considered comments submitted by operators during a prior comment period and developed a logical, tiered approach to bonding, under which the bonding requirements correlate to the number of well permits. We believe this can be a workable approach, although we have a targeted proposal for refinement. Our proposal is to reduce the number of tiers, or brackets. As currently proposed, the regulation has 23 different brackets, which means that operators will regularly change brackets and thereby change required bonding levels as they drill new wells or abandon old wells. In our view, this is an unnecessarily granular approach; it imposes a relatively high burden on operators and the AOGCC to keep bonding up to date. To achieve the intended purpose with a lower compliance burden, we propose a simplified approach with fewer, broader brackets that would roughly correlate to small operators that have primarily exploration wells; medium operators that have enough wells to have a pad on production; and large operators that have enough wells for multiple pads and a production facility. Under this approach, changes in bonding requirements are likely to occur only when an operator makes a step -change in operation levels. Our proposal is to replace the table in subsection (b) with the following table: Number of Permitted Wellheads Minimum Bond Amount 1-19 $ 1,250,000 20-200 $ 6,000,000 > 200 $ 12,000,000 Alaska Oil and Gas Conservation Commission October 16, 2018 Page 2 We combined the first six brackets, as proposed by AOGCC, into one bracket for small operators with 1 to 19 wells. We set the minimum bond amount for this bracket at the average of the amounts proposed by the AOGCC the first six brackets, which is $1.25MM. This ensures coverage to address a serious default and represents an increase of over six times the current bonding requirements. This approach would be easier to administer and comply with, and it adequately correlates the bonding requirements to risk. The risk presented by an operator with 10 wells is not materially different from the same operator with 11 wells. We combined the next six brackets into a medium bracket, for operators with 20 to 200 wells. We set the minimum bond amount at $6 million, which is the rounded average of the amounts proposed by AOGCC for these six middle brackets. We combined the last 11 brackets into one bracket for large operators. By the time operators reach this level of operations, in the absence of circumstances such as a history of noncompliance or financial insecurity, they pose the lowest risk of default. Where unique and adverse circumstances do exist, they can be addressed on a case- by-case basis. A $12,000,000 bonding requirement is less than the average proposed by AOGCC for the top 11 brackets, but it is double the amount required for medium operators and represents a sixty -fold increase from current bonding requirements for large operators, such as ConocoPhillips. The AOGCC's proposal already has a graduated correlation between the bonding level required and the number of wells. Our proposal represents a slightly steeper gradation, which we believe is justified by experience. At one end of the risk scale, smaller operators with fewer assets, less experience, and no producing fields to provide an Alaska revenue stream pose a higher per -well risk of noncompliance. At the other end of the scale, larger operators with more assets, more experience, and a steady stream of production revenue from producing fields in Alaska pose less risk of non-compliance. We are not aware of any instance in Alaska in which the operator of a producing oil field has defaulted on well abandonment obligations. Our proposed adjustment to the regulation, provided below, aligns the bonding level more closely with the risk level. It is important to emphasize that under the proposed regulation, the AOGCC retains the discretion to increase bonding required to address remote wells, offshore wells, problem wells, or other unique situations. The standard bonding requirements do not need to address all situations. It is also important to retain the flexibility under proposed paragraph (b)(2), which allows an operator to present security and a personal bond to serve instead of a surety bond. The regulation does not expressly allow for a parent company guarantee, but we believe that a guarantee from a company with adequate assets and a good credit rating should and would be acceptable to the AOGCC. To our knowledge, the AOGCC has not yet proposed revised forms 10-402A and 10- 4026. We conclude that the updated forms would be substantively similar to current Alaska Oil and Gas Conservation Commission October 16, 2018 Page 3 forms, revised only as necessary to conform to the new regulation. Any substantive changes to the forms should be noticed for public comment. Finally, please note that there appears to be a typographical error in subsection (g). The words "fro as o rator" should be "from an operator." ConocoPhillips recognizes the duty of the AOGCC to update regulations as necessary, and to protect the State and its agencies against the risk of operators that do not fulfill their obligations. We appreciate the patience the AOGCC has shown in undertaking this update in a manner that helps promote a workable and reasonable result. We believe the overall approach proposed by AOGCC is sensible, but we urge the AOGCC to adopt the simplified table set forth above. Sincerely, Shon D. Robinson Manager Drilling & Wells SDR:db Alaska Oil and Gas Association 121 W. Fireweed Lane, Suite 207 Anchorage, Alaska 99503-2035 Phone: (907) 272-1481 Fax: (907) 279-8114 Email: modarty@aoga.org Kara Moriarty, President & CEO October 16, 2018 Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission 333 W. 7th Avenue Anchorage, AK 99501 Submitted by E -Mail to: iody.colombie@alaska.gov Re: Proposed Revisions to 20 AAC 25.025 — Bonding Regulations Dear Commissioner French: Thank you for the opportunity to comment on the Alaska Oil and Gas Conservation Commission's ("AOGCC" or "Commission") proposed revisions to the bonding requirements contained in 20 AAC 25.025. The Alaska Oil and Gas Association (AOGA) is the professional trade association for the oil and gas industry, representing the majority of oil and gas exploration, production, refining and transportation companies in Alaska. AOGA's members recognize their obligations to Alaskans and the environment for responsible resource development, part of which includes the necessity for bonding to ensure the safe and sufficient plugging and abandonment of a well when it is no longer in use. Although AOGA believes the combination of current Department of Natural Resources ("DNR"), AOGCC and Federal bonding requirements are sufficient, our member companies would consider modifications to current bonding requirements. The bonding thresholds in the proposed revisions are, however, too high. AOGA respectfully opposes these proposed revisions for the following reasons. The Proposed Bonding Requirements Are Too High and Could Discourage New Investment Currently producers with more than one well on non-federal lands, are required to have statewide bonds up to $700,000; $200,000 for AOGCC' and $500,000 for DNR 2 While, facially, those are the regulatory requirements, many producers are required to provide the State additional bonding or other financial assurances well beyond those amounts. These assurances often reach well into the millions. The proposed regulations represent a graduated schedule of bonding that creates significant increases from the current scheme. For example, a small producer with two wells would see an increase of 150%, a mid-size producer with 100 wells sees an increase of 4,900% while a large producer with 500 wells sees a 6,900% increase. Increases of this order of magnitude are both unprecedented and unreasonable. '20 AAC 25.025. 2 11 AAC 83.160(c). Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission October 16, 2018 Page 2 Current Alaska Bonding Requirements Already Parallel or Exceed Other States Alaska's current bonding requirements either parallel or exceed other states. For example, New Mexico's counterpart to AOGCC has a law similar to Alaska's which allows producers to provide a "blanket plugging financial assurance" not to exceed $250,000.3 Texas is also similar to Alaska. It has a three -tiered bonding schedule which is capped at $250,000 for producers with more than 100 wells.° Texas is also flexible in the form of assurances it accepts, allowing for letters of credit, cash deposits, escrow, insurance, etc ... I North Dakota allows a blanket bond for all wells of $100,000.' Oklahoma requires either a bond, letter of credit, certificate of deposit, cashier's check or other negotiable instrument in the amount of $25,000,7 combined with a binding agreement between the producer and the State to plug all wells in accordance with State law.' The proposed bonding requirements are not in line, and in fact far exceed, those of other states. The Immediate Vesting Schedule for New Wells Unduly Burdens Small Companies The costs of oil production in Alaska already far exceed those of Alaska's competitor states in the Lower 48. Perhaps recognizing the burden these proposed bonding requirements would place on existing producers, AOGCC proposes a three-year vesting schedule for current producers to come into compliance. No such courtesy is given to incoming producers bringing new investment to our State. As written, the proposed changes could discourage new investment in Alaska and add to the already high barriers to entry to doing business in our State. The Proposed Regulation Creates Uncertainty Under the current regulation, the AOGCC Commissioner must release the surety bond if the wells are plugged and abandoned in accordance with 20 AAC 25.105. The proposed revision transforms a requirement of AOGCC, specifically that it "will" release the bond when plugging and abandonment is completed, into something discretionary; AOGCC "may" release the bond in the proposed regulation. This creates an added level of uncertainty as to what is expected of AOGA's members before a bond is released. Additionally, the proposed revision would allow AOGCC to, on its own initiative, increase or decrease the bonding requirements based on "evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts." The ability of the Commissioner to increase the bond required is not based on clearly defined conditions and standards. AOGCC Should Consider A Producer's Agreements with DNR Many of our member companies are required by the DNR Commissioner to address the estimated cost of dismantlement, removal and restoration ("DR&R") through Financial Assurance Agreements or DR&R Agreements (collectively, "Agreements"). These Agreements address the anticipated DR&R costs for not only wells in operation, but also anticipated future wells. The proposed revisions neither acknowledge nor require AOGCC to take these Agreements into account. If AOGCC is to have discretion in setting different bonding requirements from what is set forth in the proposed regulation, AOGCC should also consider the Agreements a producer may have with DNR. 3 NMSA 70-2-14 (A). Texas Admin Code, Title 16, Part 1, Chapter 3, Rule 3.78. Id. e N.D. Admin. Code Section 43-02-03-15. 52 O.S. 318.1 s Oklahoma Admin. Code Section 165:10-1-10, et. seq. Commissioner Hollis French, Chair Alaska Oil & Gas Conservation Commission October 16, 2018 Page 3 AOGA Would Like to Participate in a Collaborative Approach to Revising Bonding Requirements AOGA would like to participate in a holistic approach to modifying current bonding requirements that also takes into account the requirements of other state agencies. AOGA encourages an approach that requires more communication among State agencies than currently exists. Any effort by AOGCC to modify current regulations should be done in conjunction with DNR, private landowners, large and small producers and other stake holders. These modifications should strike an appropriate balance between addressing the concerns of the land owners while at the same time encouraging new and continued investment in our State. Thank you again for this opportunity and we look forward to working with the agency. Respectfully submitted, AiI�L KARA MORIARTY President & CEO STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Docket Number: R-17-002 Proposed Changes to 20 AAC 25.025 October 16, 2018 at 10:00 am NAME AFFILIATION Testifv (yes or no) ��� �IkI�LGrrJ iG16) f L `TJ-�-flt >s C�-�, ,-1 o NAME AFFILIATION Testify (ves or no) °2 r i l m NAME AFFILIATION Testify (yes or no) AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 ALASKA OIL AND GAS CONSERVATION COMMISSION In the Matter of Proposed Changes to ) Regulation 20 AAC 25.025. ) Docket No.: R 17-002 ALASKA OIL and GAS CONSERVATION COMMISSION Anchorage, Alaska October 16, 2018 10:00 o'clock a.m. PUBLIC HEARING BEFORE: Hollis French, Chair Cathy Foerster, Commissioner Daniel T. Seamount, Commissioner Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., AmIL AK 99501 Fax: 907-243-1473 Email: sahile@gci.net AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile(a)gci.net Page 2 1 TABLE OF CONTENTS 2 Opening remarks by Chairman French 03 3 Testimony by James White 09/28 4 Testimony by Jim Gottstein 12 5 Testimony by Becky Long 14 6 Testimony by Peter Caltagirone 17 7 Testimony by Randall Kanady 23 8 Testimony by Nick Moe 27 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile(a)gci.net AOGCC 10/16/2018 HMO: PROPOSED CHANGES TO REGULATION 20 AAC 25025 DOCKET No, R 17-002 Page 3 1 P R O C E E D I N G S 2 (On record) 3 CHAIRMAN FRENCH: Good morning. I'll call the 4 hearing to order. This is a public hearing to consider 5 proposed regulations. The hearing is being held on the 6 morning of October 16th, 2018 at 10:00 a.m. The 7 location is the Alaska Oil and Gas Conservation 8 Commission offices at 333 West Seventh Avenue, 9 Anchorage, Alaska. Before we begin I'll introduce the 10 Commissioners. To my left is Commissioner Dan Seamount 11 and to my right is Commissioner Cathy Foerster. I'm 12 Hollis French, the Chair of the Commission. 13 If any persons here need special accommodations 14 to participate in these proceedings, please see the 15 special assistant, Jody Colombie at the back of the 16 room. She will do her best to accommodate you. 17 Computer Matrix will be recording the 18 proceeding. Upon completion and preparation of the 19 transcript persons desiring a copy will be able to 20 obtain one by contacting Computer Matrix. 21 Specifically today the Alaska Oil and Gas 22 Conservation Commission proposes to adopt changes in 23 Title 20, Chapter 25 of the Alaska Administrative Code. 24 The hearing is being held in accordance with AS 44.62 25 and 20 AAC 25.540 of the Alaska Administrative Code. Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr- Ste. 2.. Aneh. AK 99501 Fax 907-243-1473 Email: sehikugci.net AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC25.025 DOCKET No. R 17-002 Page 4 1 Those are regulations and statutes governing public 2 hearings. The hearing of course will be recorded. 3 And just a few housekeeping topics before we 4 begin. There will be a time limit of 10 minutes for 5 oral testimony for each participant. If you have 6 submitted written comments you made there is no need to 7 reiterate your testimony. Oral testimony of course 8 must have relevance to the topic of these draft 9 regulations. The sign in sheet will be used to help 10 order the hearing testimony so if you plan to testify 11 make sure you have signed in and indicated that you 12 will be testifying. 13 I'd like to remind those who are testifying to 14 speak into the microphones so that persons in the rear 15 of the room can hear and so the court reporter can get 16 a clear recording. 17 Participants will be expected to identify 18 themselves as an expert or an ordinary witness. If 19 you're testifying as an expert you must have the 20 credentials necessary for us to judge you as such. 21 This is a public hearing, not a debate. Please 22 be courteous to other speakers. 23 If you are listening in by telephone this 24 morning and you plan to testify now is the time to 25 identify yourself so that we can put you into the Computer Matrix. LLC Phone: 907-243-0668 135 Chriateoseo Dr.. Ste. 2., Aneh. AK99501 Fax: 907-243-1473 Email: sahile(t6pi.aet AOGCC 10/1&201S ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKETNo- R 17-002 Page 5 1 queue. 2 MS. LONG: Yes. 3 CHAIRMAN FRENCH: Please identify..... 4 MR. WHITE: My name is James White. I'm a 5 property owner of oil and gas rights, some 4,600 6 acres..... 7 CHAIRMAN FRENCH: Thank you, Mr. White. 8 MR. WHITE: .....and I'd like to offer some 9 testimony in this proceeding. 10 CHAIRMAN FRENCH: We will -- you're in the 11 queue, Mr. White. Thank you. 12 Who else is online who wishes to testify? 13 MS. LONG: Becky Long just as a ordinary 14 witness. 15 CHAIRMAN FRENCH: Thank you, Becky. Anyone 16 else online who wishes to testify? 17 (No comments) 18 CHAIRMAN FRENCH: Hearing none. We'll use 19 those two names for now and if someone else joins us in 20 the future we'll deal with that when it comes up. 21 The notice of this hearing was published in the 22 Anchorage Daily News on August 15th, 2018. It was also 23 posted on the state of Alaska online notices website as 24 well as AOGCC's own website. If you want a copy of the 25 proposed regulations please see Jody Colombie. If you Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr.. Ste. 2.. Audi. AK 99501 Fax: 907-243-1473 Email: sahilerrr?get net AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 6 1 would like to submit written comments today also please 2 see Jody Colombie. 3 When considering the factual, substantive and 4 other relevant matter the agency, our agency, shall pay 5 special attention to the cost to private persons of the 6 proposed regulatory action. 7 Today's docket number if R 17-002 and under 8 which the AOGCC proposes to adopt regulation changes in 9 20 AAC 25.025 of the Alaska Administrative Code dealing 10 with bonding, including the following. 20 AAC 25.025 11 is proposed to be repealed and rewritten as follows. 12 Increasing the minimum bonding amount to more 13 accurately reflect the costs of abandoning wells by 14 establishing a multi tiered bonding schedule based on 15 the number of wells an operator has. 16 The AOGCC prior to this hearing has received 17 written comments from the following companies or 18 individuals. The Surety and Fidelity Association of 19 America; James White, Alaska Crude, via attorney James 20 Gottstein; ConocoPhillips Alaska; the Trust Land 21 Office; Dennis Ramsey, a member of the public; Becky 22 Long, a member of the public; Soren Worth, a member of 23 the public; AOGA; and then just this morning a letter 24 from -- jointly signed by the Audubon Society, Cook 25 Inlet Keeper and the Wilderness Society. Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile@gci.nel AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 7 1 Finally as a preface to the hearing I will note 2 that in 1991 an audit of this agency was conducted by 3 the Alaska State Legislature. On March 26 of 1991 the 4 Legislative Budget and Audit Committee published its 5 audit of the AOGCC. Recommendation number 5 stated the 6 AOGCC should amend its regulations to increase the 7 bonds it holds to ensure that wells are operated, 8 maintained, repaired and abandoned in accordance with 9 our policies. The statutory bonding amounts in place 10 at that time, $100,000 for a single well and $200,000 11 for a statewide blanket bond, have not been adjusted 12 since then, the amounts are exactly the same today. 13 The 1991 audit noted that there was even then 14 an operator in bankruptcy whose $200,000 bond was not 15 going to cover the costs of P&Aing his wells. The 16 concerns expressed in the audit about bankrupt 17 operators are still valid today. 18 In February of 2017 Commissioner Foerster and I 19 appeared before the House Resources Committee in 20 Juneau. We testified to the Committee that the bonding 21 situation must change and that the agency was going to 22 begin work on the issue. Quote, should a North Slope 23 operator leave without plugging all of their wells, 24 Commissioner Foerster testified, I'm not sure $200,000 25 would even pay for the engineering study needed to plan Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Emil: sahile(q)gci.nel AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 8 1 the plugging operations, must less any of the plugging 2 costs. Several months after that testimony the agency 3 conducted an open house type workshop, this was in June 4 of 2017, to allow agency staff and industry 5 participants to meet and discuss the topic of 6 increasing the agency's bonding amounts. In January of 7 2018 the agency began a process that would take several 8 months to survey each of the state's oil and gas 9 operators to get their estimate of what it would cost 10 to P&A their wells. Those estimates helped inform our 11 work on the subject. 12 The agency has expended many hours of effort to 13 get to this point. We now look forward to your 14 comments. 15 So let's begin and since we have a couple folks 16 online perhaps we'll go straight to them and let them 17 begin testifying. 18 So, Mr. White, are you still on the line? 19 MR. WHITE: Yes, I am. 20 CHAIRMAN FRENCH: Go ahead and state your first 21 name, your last name, your affiliation if any and then 22 the Commission will be happy to hear your testimony. 23 MR. WHITE: All right. My name is James White, 24 everyone refers to me as Jim White which I like. 25 CHAIRMAN FRENCH: Mr. White. Mr. White, if I Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr.. Ste. 2.. Anch AK 99501 Fax: 907-243-1473 Email: sahileftci.net AOGCC 10/162018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 9 CHAIRMAN FRENCH: Thank you, Mr. White. And 10 now again forgive me for interrupting you. Please 11 proceed. 12 JAMES WHITE 13 called as a witness on his own behalf, testified as 14 follows on: 15 DIRECT EXAMINATION 16 MR. WHITE: Okay. I should go ahead, right? 17 CHAIRMAN FRENCH: Yes. 18 MR. WHITE: Okay. Well, I have many concerns, 19 Mr. Jim Gottstein will address those. But I want to 20 reiterate that the proposed AOGCC action to raise 21 bonding cost deprives the Alaskan that receives a 22 permanent dividend check of his right to develop his 23 own oil and gas rights beneath his own property. This 24 trashes the property rights of the owner to have free 25 enterprise rights. Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dc, Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile@gci.net Page 9 1 could just -- Mr. White, I'm sorry to interrupt, but we 2 typically swear in witnesses and I forgot to do so. If 3 you wouldn't mind please just raise your right hand and 4 repeat after me or just answer the question. 5 (Oath administered) 6 MR. WHITE: I swear that the testimony I am 7 going to give is going to be the truth, nothing but the 8 truth. 9 CHAIRMAN FRENCH: Thank you, Mr. White. And 10 now again forgive me for interrupting you. Please 11 proceed. 12 JAMES WHITE 13 called as a witness on his own behalf, testified as 14 follows on: 15 DIRECT EXAMINATION 16 MR. WHITE: Okay. I should go ahead, right? 17 CHAIRMAN FRENCH: Yes. 18 MR. WHITE: Okay. Well, I have many concerns, 19 Mr. Jim Gottstein will address those. But I want to 20 reiterate that the proposed AOGCC action to raise 21 bonding cost deprives the Alaskan that receives a 22 permanent dividend check of his right to develop his 23 own oil and gas rights beneath his own property. This 24 trashes the property rights of the owner to have free 25 enterprise rights. Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dc, Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile@gci.net AOGCC 10/162018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 10 1 The -- the homesteader that homesteaded this 2 place here, he was before 1959, was guaranteed by the 3 U.S. government that when he received his homestead he 4 had the rights to the surface and he had the oil and 5 gas rights beneath it as a general rule. Raising this 6 bonding to a half million dollars for a homesteader to 7 develop the oil and gas rights beneath his property 8 clearly deprives him of his rights to -- his free 9 enterprise rights to develop his own property. There's 10 absolutely -- it's absolutely absurd to believe that 11 that homesteader will ever be able to come up with a 12 half million dollars to post as a bond to drill an 13 exploratory well on his own property. 14 There's not one Alaskan that receives a 15 permanent dividend check in the state of Alaska that is 16 producing and selling Alaska's oil. Not one, there's 17 not one Alaskan that's doing this. It's been 60 years 18 since statehood and I just don't believe that's the way 19 that it should be. I think Alaskans should be able to 20 at some point in the future to be the primary producers 21 and sellers of Alaska's oil and gas instead of those 22 companies that truly are not Alaskan. 23 Alaskans need to -- they're being deprived of 24 their right to profit from their own state's resource 25 and bonding is a primary reason. It's simply too high. Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK99501 Fax: 907-243-1473 Email: sahileftcimet AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC25.025 DOCKET No. R 17-002 Page 11 1 Now I think the agency should -- should expend all of 2 its resources that it can to enable an Alaskan to 3 freely develop his own state's resource. To continue 4 like you're doing, it probably will be another 60 years 5 before this issue comes up, you know. Alaskans to me 6 need to be enabled to be able to drill and produce 7 their own state's resource and they are not. And it's 8 up to you guys to try to fix that if you could. 9 That's the basis of my comment right and Mr. 10 Jim Gottstein will continue at his leisure. 11 CHAIRMAN FRENCH: Mr. White, thank you. And 12 maybe it does make sense now and Mr. Gottstein is 13 signed up, maybe it makes sense to turn to Mr. 14 Gottstein, have him come forward and listen to his 15 testimony. 16 Mr. Gottstein, welcome to the Commission. 17 MR. GOTTSTEIN: Thank you, Commissioner French. 18 (Oath administered) 19 MR. GOTTSTEIN: I do. 20 impassive 21 CHAIRMAN FRENCH: Please be seated. State your 22 full name, your affiliation if any and we'd be happy to 23 hear your testimony. 24 JIM GOTTSTEIN 25 called as a witness on behalf of Jim White, testified Computer Matrix. LLC Phone: 907-243-0668 135 Christensen Dr.. Ste. 2., Aneh. AN 99501 Fax 907-243-1473 Email: sahile¢pune AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17,002 Page 12 1 as follows on: 2 DIRECT EXAMINATION 3 MR. GOTTSTEIN: I'm Jim Gottstein, an attorney 4 here and I'm representing..... 5 CHAIRMAN FRENCH: Mic on, please, green light. 6 There you go. Start again. 7 MR. GOTTSTEIN: Sorry. Yes, I'm Jim Gottstein, 8 an attorney here in town and I'm representing Mr. 9 White. 10 Mr. white addressed some policy -- policy issue 11 and I'm here to address some legal issues. He asked me 12 to review the proposed regulation and I -- in looking 13 at them I see two pretty fundamental and fatal flaws in 14 it. One is that it basically -- well, I think could be 15 characterized as an ex post facto law, changing the 16 rights of the -- you know, existing rights of 17 somewhere, dramatically increasing them, and that's 18 basically unconstitutional. 19 The second one is that the regulations go far 20 beyond what the authorizing statute, at least the one 21 that you cited, allows. The statute allows the 22 Commission -- it says the Commission may require the 23 furnishing of a reasonable bond with sufficient surety 24 conditions for the performance of the duty to -- well, 25 plug, that's all I'll quote, but plug each -- to plug Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch AK 99501 Fax: 907-243-1473 Email: sahile@gci.net AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25,025 DOCKET No. R 17-002 Page 13 1 each dry or abandoned well or the repair of wells 2 causing waste. So that's the extent to which the 3 Commission may require bonding. 4 Now the proposed regulations provide that 5 they're to provide security to ensure that each well is 6 drilled, operated, maintained, repaired and abandoned 7 and each location is cleared in accordance with this 8 chapter. So it -- the Commission's not really allowed 9 to require a bond for drilling operation, maintenance 10 and repair. It's only to plug each dry or abandoned 11 well or the repair of wells causing waste. So that's 12 the second problem. And of course it would cost 13 significantly more to secure performance of those 14 additional duties than just to plug and abandon wells. 15 And then a final thing that your comment, your 16 initial comments brought to mind that I thought I would 17 bring up is that the cost of -- it seems apparent to me 18 that the cost of plugging and abandoning or all these 19 other requirements of North Slope wells is 20 substantially greater than those on the Kenai, you 21 know, where Mr. white's -- many of his holdings are for 22 example. And that to require the same bond when the 23 costs are so -- you know, so different I think is -- I 24 think could be characterized as arbitrary. 25 So those are my comments, Mr. Chair. Computer Matrix, LLCPhone: 907-243-0668 1350hristensen Dr. Ste. 2..Ard, AK99501 Fax907-243-1473 Email: sahilvug,iret AOGC'.0 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 14 1 CHAIRMAN FRENCH: Comments from members of the 2 Commission? 3 (No comments) 4 CHAIRMAN FRENCH: I don't see any. Mr. 5 Gottstein, thanks for being here today. 6 Let's go back to someone on the telephone, 7 Becky Long. Becky, if you'd raise your right hand 8 please and I'll swear you in. 9 (Oath administered) 10 MS. LONG: I do. 11 CHAIRMAN FRENCH: Please state your first and 12 last name, your affiliation, if any, and the Commission 13 will hear your testimony. 14 BECKY LONG 15 called as a witness on her own behalf, testified as 16 follows on: 17 DIRECT EXAMINATION 18 MS. LONG: Yes, my name is Becky Long, B -E -C -K- 19 Y L -0 -N -G, and I'm just an ordinary witness. I've been 20 following oil and gas issues and I just -- so if I make 21 mistakes in my testimony it's -- it's -- it's because 22 I'm dumb I guess is what I'm saying. 23 But I really want to reiterate that I believe 24 the proposed changing in the bonding regulations are in 25 the best interests of the state and I think it's also Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr.. Ste. 2.. A.1, AK 99501 Fax 907-243-1473 Email: sahile(iugcinet AOGCC 10/16'2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25 025 DOCKET No. R 17-002 Page 15 1 -- they are important in order for the AOGCC to carry 2 out its statutory mandates. Orphaned wells, improperly 3 or no plugged wells have the potential to be multi 4 billion dollar problem for the state. We -- we also 5 are a relatively young oil and gas industrial state, 6 but we're getting older and the potential from aging 7 infrastructure and increased drilling activities means 8 without a solution the problem could and will get 9 worse. 10 We are seeing the trend of larger companies 11 selling assets to smaller companies when production 12 dips. Along with that trend is the state's Division of 13 Oil and Gas Exploratory Incentives Program that 14 encourages smaller companies to lease. These are 15 licensed explorations on state lands outside of known 16 hydrocarbon basins in areas that are far from existing 17 infrastructure with relatively low or unknown 18 hydrocarbon potential and where there is a higher risk 19 to the operator and also to what happens to the land 20 afterwards if it's not properly plugged. And that -- 21 that -- those quotes are straight from the Division of 22 Oil and Gas program. 23 And I'm really speaking as a property owner in 24 the Southcentral Regional Exploration Area. It was 25 created in May 9th, 2016 by the director of the Computer Matrix, LLC Phone: 907-243-0668 135Christensen Dr.,Ste.2.,Anch.AK99501 Fax: 907-243-1473 Email sahile(Ngei.nct AOG(T 10/16/2018 ITMO: PROPOSED CHANGEST'O REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 16 1 Division of Oil and Gas. It's a area 76,000 square 2 miles. This includes all state owned acreage. Subject 3 to the provisions of AS 38.05.132 small companies can 4 and probably will participate. It is important that 5 there is the financial surety to cover plugging and 6 abandonment costs. An increase in operator 7 bankruptcies increases landowner liabilities for 8 plugging and abandonment costs. And in many case -- 9 and in this case in the exploration area the landowner 10 is the state of Alaska. Smaller companies are also 11 more vulnerable to market swings. An example from the 12 lower 48 in the western states does show this. In 2008 13 gas prices plunged which caused bankruptcies of small 14 companies producing marginal amounts of methane from 15 coal seams. Thousands of these coalbed methane wells 16 were orphaned. Orphaned wells are more likely than 17 plugged wells to leak pollutants. The pollutant 18 methane gas can trigger explosions and contaminate 19 ground water on state and private land. 20 I support the proposed bonding proposals and 21 really appreciate what the Commission done in starting 22 this process and going to the oil and gas companies 23 getting their feedback. So good luck. 24 Thank you. 25 CHAIRMAN FRENCH: Ms. Long, thank you. Computer M.ftm LLC Phone: 907-243-0668 135 Chrlslenseu Dc, Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email sahile(,0gci.nel AOGCC 10/1612018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 17 1 Let me ask did someone else just joint us 2 online? 3 MS. FIGI: Yes, This is Cori Figi, I'm just 4 listening, I don't intend to offer comment. 5 CHAIRMAN FRENCH: Welcome to the hearing, Ms. 6 Figi. 7 Let's turn now to a witness here in the room, 8 Peter Caltagirone. Please come forward. 9 (Oath administered) 10 MR. CALTAGIRONE: I do. 11 CHAIRMAN FRENCH: Please state your full name, 12 spelling your last name for us. 13 PETER CALTAGIRONE 14 called as a witness on behalf of AOGA, testified as 15 follows on: 16 DIRECT EXAMINATION 17 MR. CALTAGIRONE: Sure thing. Mr. Chair and 18 Commissioners, thank you. My name is Peter 19 Caltagirone, that's C -A -L -T -A -G -I -R -O -N -E. I'm the 20 regulatory and legal affairs manager for the Alaska Oil 21 and Gas Association. For those in the room that do not 22 know, AOGA is the trade association for most of the oil 23 and gas producers in the state of Alaska, we have 13 24 member companies and I'm authorized to speak on their 25 behalf today. Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Arch, AK 99501 Pax: 907-243-1473 Email: sahile(dgci.net AOGCC 10%16'2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC25.025 DOCKET No. R 17-002 Page 18 1 AOGA has submitted some written comments which 2 set forth what I'm about to say in much greater detail. 3 I'm only going to hit the high points today for those 4 in the room. And as I said before we appreciate the 5 opportunity to be heard on these..... 6 CHAIRMAN FRENCH: Of course. 7 MR. CALTAGIRONE: .....proposed regulation 8 changes. AOGA respectfully opposes the proposed 9 revisions to the regulation at issue for the following 10 reasons. 11 The bonding requirements set forth in the 12 proposed revisions are respectfully too high. Alaska 13 law currently parallels, but in many cases exceeds the 14 bonding requirements of other oil and gas producing 15 states and the increases set forth here are 16 unprecedented and increase the current requirements by 17 orders of magnitude. For example a producer with two 18 wells for example is facing an increase just on AOGCC's 19 end of 150 percent in their bonding requirements. When 20 you go up to a producer with a hundred wells that 21 increases by 4,900 percent and a producer with 500 22 wells for example is facing an increase of 6,900 23 percent. 24 The proposed changes also discourage new 25 investment at a time when Alaska could really use some Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr_ Ste. 2.. Anch. AK 99501 Fax: 907-243-1473 Email: sahile(n)geiret AOGCC 10A6'2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25L25 DOCKET No. R 17-002 Page 19 1 new investment. The barriers to entry into Alaska's 2 economy are already significantly higher than in the 3 oil and gas producing states that Alaska competes with 4 for investment and these proposed changes simply add to 5 that. For example in addition to the new costs these 6 proposed changes demand immediate compliance ,for new 7 producers whereas legacy producers in this state under 8 the proposed revisions have three years to come into 9 compliance. 10 The proposed changes also create uncertainty 11 not only for legacy producers in Alaska, but also for 12 new producers coming to Alaska. For example under the 13 current version of 20 AAC 25.025 it states in sub (c) 14 that once P&A on a well has been completed AOGCC will 15 release the bond and the proposed changes give the 16 Commission discretion to keep the bond in place after 17 P&A has occurred. 18 The proposed revisions also give AOGCC the 19 discretion to require bonding at levels much higher 20 than the schedule that's listed in the proposed 21 revisions. This discretion is not however based on any 22 clearly defined conditions and standards. So that's 23 the second source of uncertainty under the proposed 24 revisions. 25 The proposed revisions also give no Computer Matrix, LLC Phone- 907-243-0668 135 Christensen Dr, Ste, 2., Anch AK 99501 Fax 907-243-1473 6nail: sahile,19c, el AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 20 1 consideration to a producer's agreements that they have 2 with DNR and again this would be limited to a situation 3 where the state is the landowner, but although DNR's 4 regulations allow a producer to obtain a statewide bond 5 of 500,000 for dismantlement, removal and restoration, 6 commonly referred to as DR&R, producers often have 7 agreements, whether that's in the form of a financial 8 assurances agreement, personal guarantee or other DR&R 9 agreement, that often reaches into the millions beyond 10 -- beyond that statewide bond requirement. The 11 proposed reg before us today does not require the 12 Commission to take that into account on -- where the 13 state is the landowner. 14 AOGA as a whole and I'm -- again I'm speaking 15 on behalf of my member companies as well, is open to 16 some modifications to the bonding requirements, but as 17 proposed these changes are too high, create too much 18 uncertainty and discourage investment in our state. 19 AOGA would support and would like to participate in a 20 more holistic approach to revisions that do the 21 following. That first require more communication 22 between the state agencies than currently occurs, that 23 works in conjunction with not only DNR, but also 24 private landowners, producers both large and small and 25 other stakeholders in this process and, one that Computer Matrix, LLC Phone; 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile(dgci.net AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25,025 DOCKET No. R 17 002 Page 21 1 strikes an appropriate balance between addressing the 2 concerns of landowners which are -- which at the same 3 time encourages new and continued investment in this 4 state. 5 As I mentioned before I lay this out in much 6 greater detail in my comments, but that concludes my 7 oral comments today. g Thank you again for the opportunity. 9 CHAIRMAN FRENCH: Thank you. And I'm going to 10 try this one more time, Mr. Caltagirone. 11 MR. CALTAGIRONE: Caltagirone. Close enough. 12 CHAIRMAN FRENCH: Caltagirone. 13 MR. CALTAGIRONE: Yeah. 14 CHAIRMAN FRENCH: I'm -- I'll -- by your third 15 or fourth hearing we'll have you down pat. 16 MR. CALTAGIRONE: Fair enough. I appreciate 17 it. Thank you. 18 CHAIRMAN FRENCH: We hope to see you again. 19 Yeah, thank you for -- thanks for your..... 20 COMMISSIONER FOERSTER: I have a question. 21 CHAIRMAN FRENCH: Oh, I'm sorry. Commissioner 22 Foerster. 23 MR. CALTAGIRONE: Commissioner Foerster. 24 COMMISSIONER FOERSTER: You talked about 25 comparison of the proposed bonding costs to what they Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2..Anch.AK99501 Fax: 907-243-1473 Email: sahilelrtigm.ncl AOGCC 10/162018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 22 1 currently are and you gave percent increases, but could 2 you give -- could you address or have someone from your 3 represented companies address a comparison of the 4 proposed costs with the actual costs to P&A a well? 5 MR. CALTAGIRONE: In terms of the cost of 6 obtaining a surety or in terms of the costs of actually 7 plugging a well? 8 COMMISSIONER FOERSTER: In terms of the cost of 9 P&Aing a well. 10 MR. CALTAGIRONE: I -- I'm not privy to that 11 information, Commissioner. That's certainly something 12 we could..... 13 COMMISSIONER FOERSTER: Okay. 14 MR. CALTAGIRONE: .....look into and provide. 15 COMMISSIONER FOERSTER: That would be a 16 meaningful comparison and we are here to talk about 17 meaningful things. 18 MR. CALTAGIRONE: Very well. Anything else? 19 COMMISSIONER FOERSTER: That's it. 20 MR. CALTAGIRONE: Okay. Thank you very much. 21 CHAIRMAN FRENCH: Next up is Mr. Kanady. 22 Please come forward. 23 (Oath administered) 24 MR. KANADY: I do. 25 CHAIRMAN FRENCH: Please state your first and Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK99501 Fax: 907-243-1473 Email: chile@gci.net AOGCC 10/16'2018 ITMO: PROPOSED CHANGES T'O REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 23 1 last name and give us any affiliation you have today 2 and then we'll be happy to hear your testimony. 3 RANDALL KANADY 4 called as a witness on behalf of ConocoPhillips, 5 testified as follows on: 6 DIRECT EXAMINATION 7 MR. KANADY: Okay. My name's Randall Kanady, I 8 work for ConocoPhillips as a staff drilling engineer 9 and I manage our compliance and regulatory activities 10 for our drilling and wells group. 11 CHAIRMAN FRENCH: Excellent. Please proceed. 12 MR. KANADY: Thank you. Today I'd like to 13 briefly review ConocoPhillips comments on the proposed 14 AOGCC changes to 20 AAC 25.025 dealing with the bonding 15 regulations. 16 ConocoPhillips appreciates AOGCC's development 17 of a logical tiered approach to bonding under which the 18 bonding requirements correlate to the number of wells 19 permitted. We believe this can be a workable approach 20 although we have a targeted proposal for refinement. 21 Conoco is submitting to the AOGCC a written 22 proposal to reduce the number of tiers or brackets and 23 I believe the Commissioners have that in front of them. 24 CHAIRMAN FRENCH: I have it, yep, and I think 25 the other members do as well. Thank you. Computer Matrix, LLC Phone. 907-243-0668 135 Christensen Dr., Ste?., Arch. AK99501 Fax 907-243-1473 Email: sahilmg,ei.ret AOGCC 10/16/2018 ITMO: PROPOSED C1 ANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 24 1 MR. KANADY: Great. Wonderful. As currently 2 proposed regulations have 23 different brackets which 3 means operatives will regularly change brackets and 4 thereby change required bonding levels as they drill 5 new wells or abandon old wells. In our view this is a 6 granular approach, it imposes a relatively high burden 7 of -- on operators and the AOGCC to keep bonding up to 8 date. 9 ConocoPhillps is proposing a simplified 10 approach with fewer, broader brackets that would 11 roughly correlate to small operators that primarily 12 have exploration wells, medium operators that have 13 enough wells to have a pad on production and large 14 operators that have enough wells for multiple pads and 15 a production facility. Under this approach changes in 16 bonding requirements are likely to occur only when an 17 operator makes a step change in operation levels. 18 Our proposal is to replace the table in 19 subsection B with the table on page 1 in our written 20 proposal. Conoco's proposing combining the first six 21 brackets into one bracket for smaller operators and one 22 to 19 wells. The minimum bond amount for this bracket 23 is the average of the amounts proposed by the AOGCC for 24 the first six brackets which is $1.25 million. This 25 approach would be easier to administer and comply with Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK99501 Fax: 907-243-1473 Email: sahilc@gci.net AOGCC I � 10/16/2018 ITMO: PROPOSED CNANGPS TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 25 1 and it adequately correlates to the bonding 2 requirements to risk. 3 The second bracket would combine the next six 4 brackets into a medium bracket for operators with 20 to 5 200 wells with proposed minimum bond amount of $6 6 million which is a rounded average of the amounts 7 proposed by the AOGCC for these six middle brackets. 8 And the third and last bracket combines the 9 final 11 brackets into one bracket for large operators. 10 By the time the operator reaches this level of 11 operations and absence of circumstances such as a 12 history of noncompliance or financial insecurity, they 13 pose what we believe is a low level of default risk. 14 Where unique and adverse circumstance do exist, bonding 15 requirements can be addressed on a case by case basis. 16 The proposed $12 million bonding requirement is less 17 than the average proposed by the AOGCC for the top 11 18 brackets, but it is double the amount for the medium 19 operators and represents a 60 fold increase over the 20 current bonding requirements. 21 And we appreciate AOGCC, the patience that 22 AOGCC has shown in undertaking this update to the -- in 23 a manner that helps promote a workable and reasonable 24 result. Conoco is not set on the number of wells of 25 the three proposed brackets and we believe the AOGCC Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2.. Atrch. AK 99501 Fax: 907-243-1473 Email: sahile@gci.net AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 26 1 has a better perspective on what the limits should be. 2 And we believe the overall approach proposed by the 3 AOGCC is sensible, but we urge the AOGCC to adopt the 4 simplified table set forth in our written proposal. 5 And that concludes my oral comments. 6 CHAIRMAN FRENCH: Questions for Mr. Kanady. 7 (No comments) 8 CHAIRMAN FRENCH: I don't see any. Thank you 9 for your remarks. 10 MR. KANADY: You're welcome. 11 CHAIRMAN FRENCH: I have one more person signed 12 up to testify and that is either Jon or Jan Goltz. 13 MR. GOLTZ: It's Jon, but I..... 14 CHAIRMAN FRENCH: Oh, sorry, Jon. 15 MR. GOLTZ: .....I have no comments to give. 16 CHAIRMAN FRENCH: Nothing to add to that. 17 MR. GOLTZ: Nothing to that. 18 CHAIRMAN FRENCH: He pretty much swept the 19 field, didn't he. 20 Has anyone joined us online who wishes to 21 testify? 22 MR. MOE: Yes, this is Nick Moe, I'm on -- I'm 23 online. 24 CHAIRMAN FRENCH: Nick Moe, if you'd raise your 25 right hand, please. Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr.. Ste. 2., Anch. AK99501 Fax: 907-243-1473 Email: sahilougci.net AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKETNo. R 17-002 Page 271 1 (Oath administered) 2 MR. MOE: I do. 3 NICK MOE 4 called as a witness on his own behalf, testified as 5 follows on: 6 DIRECT EXAMINATION 7 CHAIRMAN FRENCH: Please state your first and 8 last name, your affiliation, if any, and the Commission 9 will be happy to hear your testimony. 10 MR. MOE: Thank you. My name is Nick Moe, N -I- 11 C -K M -O -E. I'm just an Alaskan citizen. And yeah, I 12 just wanted to pass on my testimony. I'm, you know, 13 five generations of my family have lived in this state. 14 We were here before oil was discovered, we'll be here 15 after a lot of these wells dry up. And so I just 16 wanted to generally voice my support for any efforts 17 that help make sure that these -- that the liability of 18 these wells and the cost associated with that is 19 covered by the industry and that burden doesn't fall on 20 Alaskan citizens. 21 You know, I think -- you know, we heard from 22 the Association that, you know, time and time again 23 they're doing their job, they're trying to reduce costs 24 and look after their bottom line, but as Alaskans we 25 need to look after our future as well and that's why I Cmnputer Matrix. LLC Phane: 907-243-0668 135Christensen Dc.Ste.2..Anch.AK99501 Fax: 907-243-1473 Eirail'. sahile(nlgcinel AOGCC 10116/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 28 1 think, you know, policies like this would help assume 2 more of the liability with industry is a good idea. 3 So I just want to pass that on and appreciate 4 the opportunity to testify. 5 CHAIRMAN FRENCH: I don't see any questions for 6 you, Mr. Moe. Thanks so much for testifying. 7 Is there anyone else online who's joined us 8 that wishes to testify in this hearing? 9 MR. WHITE: Yeah, I would. This is Jim White. 10 CHAIRMAN FRENCH: Mr. White, I think we heard 11 from you a few minutes ago. 12 MR. WHITE: Yeah, I wanted to address some of 13 the concerns that have been entered after I -- I 14 entered my comments. 15 CHAIRMAN FRENCH: Fair enough, Mr. White, I'll 16 give you a couple minutes. Please go ahead. 17 JAMES WHITE 18 previously sworn, called as a witness on his own 19 behalf, testified as follows on: 20 DIRECT EXAMINATION (CONTINUED) 21 MR. WHITE: Thank you very much. I'm -- I'm 22 familiar with all the ramifications of the rule, but 23 there's a thing out there called a 470 fund. It's my 24 understanding that in this fund there's some $50 25 million and this is reference to my understanding from Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste, 2., Arch AK 99501 Fax: 907-243-1473 Email: sahile@gci.net AOGCC 10/16/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 29 1 10 years ago, set aside to -- to rectify any of the 2 inequities that existed as far as plugging and 3 abandonment concerns. And as I understand that..... 4 COMMISSIONER FOERSTER: I'm sorry..... 5 MR. WHITE: .....that rule..... 6 COMMISSIONER FOERSTER: I'm sorry, Mr. White, 7 what's the name of the..... 8 MR. WHITE: .....that..... 9 CHAIRMAN FRENCH: Mr. White. Mr. White, I have 10 the same question. Commissioner Foerster and I just 11 want you to restate the name of the bond you're 12 alluding to. I heard you say Force 70; is that 13 correct? 14 MR. WHITE: 470. 15 CHAIRMAN FRENCH: Force 70. 16 MR. WHITE: 470, yeah, is the..... 17 COMMISSIONER FOERSTER: Is that like the number 18 4? 19 CHAIRMAN FRENCH: Hold on. 20 MR. WHITE: .....in fact, I can research that 21 and get the precise thing to you. But it's the 22 470..... 23 CHAIRMAN FRENCH: We'll let Mr. Gottstein..... 24 MR. WHITE: ......470..... 25 CHAIRMAN FRENCH: Mr. White, we'll let Mr. Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK99501 Pa.: 907-243-1473 Email sahile@gci.net AOGC( 10/16/2018 HMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 30 1 Gottstein send us that information along, but please go 2 ahead. 3 MR. WHITE: So, you know, and this fund is 4 replenished day by day at I believe a nickel a barrel. 5 So industry's contributing to this fund to take care of 6 these pending catastrophic event where wells are not 7 plugged -- properly bonded. 8 This issue of contamination to this state's 9 resource is a community effort between the explorers 10 and producers up there. They're -- but in essence it's 11 being -- that fund is being funded by the ongoing day 12 to day production. That is a fund that is designed to 13 take care of the very issue that we're talking about. 14 And it is industry shared and it does. It's there and 15 I don't hear this entered into this equation and 16 conversation in any shape or form. But please have 17 your guys to check out the amount of money that's in 18 that fund. Now I suspect it's far greater than $50 19 million today. And it is worthy for this agency to 20 take a look at to try to resolve this thing. 21 But anyway basically that's what I have to say. 22 In other words there are provisions already in place 23 that need to be looked at or probably amended a little 24 bit to cover this very issue. The industry should 25 support it in whole, not penalize that poor homesteader Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK 99501 Fax: 907-243-1473 Email: sahile@gci.nel AOGCC 10116'2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25 025 DOCKET No. R 17-002 Page 31 1 that the state guaranteed him that he would have the 2 rights to drill his land and then tell him, buddy, you 3 have the right to drill it, but you got to post 4 $500,000 so you can drill a thousand foot hole in your 5 back yard to see if you have gas. The Catella oil 6 field is producing oil from less than 700 feet. It -- 7 it's ludicrous to require a half million dollar bond 8 for such prospects. 9 You need to get Alaskans involved in this, it's 10 their right to be there. 11 That's about what I have to say. 12 CHAIRMAN FRENCH: Mr. White, thank you. 13 Commissioner Foerster has a comment. 14 COMMISSIONER FOERSTER: Yep. Mr. Gottstein, 15 could you give us the information about this fund that 16 none of us seems to know anything about. 17 MR. GOTTSTEIN: (Indiscernible - away from 18 microphone)..... 19 COMMISSIONER FOERSTER: Okay. Thank you. 20 Thank you. 21 CHAIRMAN FRENCH: And in all fairness to the 22 other participants and at the risk of starting a round 23 robin, is there anyone who wishes to supplement their 24 comments in light of the last comments we received? 25 (No comments) Compmcr Matrix, LLC Phone: 907-243-0668 135 Christensen Dr.. Ste. 2.. Anch AK 99501 Fax: 907-243-1473 Email: s.hile6mgcinet AOGCC 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 10/162018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 32 CHAIRMAN FRENCH: Hearing and seeing no takers, with that we're going to conclude this hearing at 10:37. Thanks so much for being here. (Hearing adjourned) (END OF PROCEEDINGS) Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dr., Ste. 2., Anch. AK99501 Pax: 907-243-1473 Email: while@gci.net AOGCC I I 10116/2018 ITMO: PROPOSED CHANGES TO REGULATION 20 AAC 25.025 DOCKET No. R 17-002 Page 331 1 C E R T I F I C A T E 2 UNITED STATES OF AMERICA ) )ss 3 STATE OF ALASKA ) 4 I, Salena A. Hile, Notary Public in and for the 5 State of Alaska, residing in Anchorage in said state, 6 do hereby certify that the foregoing matter in Docket 7 No. R 17-002 was transcribed to the best of our 8 ability; 9 IN WITNESS WHEREOF I have hereunto set my hand 10 and affixed my seal this 2nd day of November 2018. 11 12 Salena A. Hile 13 Notary Public, State of Alaska My Commission Expires: 09/16/2022 14 15 16 17 18 19 20 21 22 23 24 25 Computer Matrix, LLC Phone: 907-243-0668 135 Christensen Dc, Ste. 2., A=KAK99501 Fax: 907-243-1473 Email: saline@gci.net 3 Colombie Jody J (DOA) From: Burger-Pothier, Lillian E (LAW) Sent: Friday, August 17, 2018 1:33 PM To: French, Hollis (DOA) Cc: Ballantine, Tab A (LAW); Beausang, Seth M (LAW); Pollard, Susan R (LAW); Weaver, Steven C (LAW); Miller, Linda J (LAW); Meriwether, Scott C (GOV); Simpson, April L (GOV); Montalbo, Minta C (DOA); Colombie, Jody 1 (DOA) Subject Regulation file opened: 20 AAC 25.025: Alaska Oil and Gas Conservation Commission: Bonding: 2018200786 To: Hollis French, Chair Alaska Oil and Gas Conservation Commission Re: Regulation file opened: 20 AAC 25.025: Alaska Oil and Gas Conservation Commission: Bonding: 2018200786 Our office received a file opening request regarding the regulations project referenced above. We have opened and assigned the file to Assistant Attorney General Tab Ballantine, phone number (907) 269-5100. Susan R. Pollard, Chief Assistant Attorney General Legislation and Regulations Section Department of Law THE STATE 01ALASKA GOVERNOR BILL WALKER TO: Susan Pollard, Regulations Attorney DATE: Legislation and Regulations Section Department of Law FILE NO.: TEL. NO.: FROM: Jody Colombie, Regulations Contact Department of Administration, Alast Oil and Gas Conservation CommisSi Alaska Oil and Gas Conservation Commission 333 West Seventh Avenue Anchorage, Alaska 99501-3572 Main: 907.279.1433 Fax: 907.276.7542 www.aogcc.olaska.gov August 14, 2018 (907)793-1221 File -opening request for new regulation project regarding Bonding 20 AAC 25.025 We are requesting that you open a new file for a regulation project regarding Bonding 20 AAC 25.025 for Alaska Oil and Gas Conservation Commission. Attached is a draft of the regulation, public notice and additional information for your review. This department intends to make the regulation permanent. Please assign an assistant attorney general to this project. We have worked with Assistant Attorney General Thomas Ballantine on this topic. Our agency contact person for the project is Jody Colombie (907) 793-1221. Email address is jody colombiegalaska.gov. pj� Alaska Oil and Gas Association A/�1� 121 W. Fireweed Lane, Suite 207 Anchorage, Alaska 99503-2035 Phone: (907) 272-1481 Fax: (907) 279-8114 Email: kindred@aoga.org Joshua Kindred, Environmental Counsel July 25, 2017 Commissioner Hollis S. French, Chair Alaska Oil & Gas Conservation Commission 333 W. 7th Avenue, Suite 100 Anchorage, AK 99501 Submitted by E -Mail to: jodv.colombie(o)alaska.gov Re: Comments on Proposed Revisions to 20 AAC 25.025 Dear Commissioner French: Thank you for the opportunity to provide the Alaska Oil and Gas Conservation Commission ("AOGCC" or "Commission") with comments and suggestions regarding proposed regulation revisions related to 20 AAC 25.025 ("proposed modifications"). The members of the Alaska Oil and Gas Association ("AOGA") account for the majority of oil and gas exploration, development, production, transportation, refining, and marketing activities in Alaska. On June 6, 2017, the Commission conducted a public workshop, at which AOGA participated and both provided suggestions and articulated concerns. At the conclusion of that workshop, the AOGCC staff encouraged participants to submit written comments. What follows is an attempt to capture AOGA's concerns and suggestions. AOGA's High Level Concerns Before providing more detailed analysis of the specific modifications, AOGA does have some high level concerns regarding the scope and approach of the Commission. AOGA agrees that it is prudent to reevaluate the Commission's bonding regulations to determine whether its mandates offer sufficient risk protections to the State. However, AOGA is concerned that the Commission's draft bonding regulation represents a "solution" that far exceeds the risk. Risk of Harm is Low while Financial Burden on Operators is High. During the public workshop, the AOGCC Staff observed that the vast majority of Alaska operators are financially responsible, and that over the past three decades there were only a handful of Commissioner Hollis S. French Alaska Oil & Gas Conservation Commission July 25, 2017 Page 2 of 7 incidents where deficiencies in the Commission's bonding regulations resulted in tangible harm to the State. AOGA believes that it would be worthwhile to consider those incidents and determine whether a more narrowly tailored approach would have provided sufficient protection without adversely impacting the industry as a whole. Although the proposed approach is comprehensive and would offer greater protection, by requiring bonds in amounts sufficient to cover plugging and abandonment of "all wells" the corrunission would dramatically increase the costs associated with bonding. That would invariably chill investment, thus, decreasing recovery of Alaska's oil and gas resources. AOGA believes alternative approaches are available to the Commission that will offer sufficient protections, but that are sufficiently tailored in a manner that would not ultimately discourage operators from future investment. AOGCC Already Possesses Regulatory Authority to Set Higher Bonds. AOGCC's bonding regulation at 20 AAC 25.025(b) states that bonds will be set at "not less than" the stated amounts. This minimum bonding approach is consistent with the regulatory requirements of other states as well as regulations of the federal Bureau of Land Management ("BLM"), and gives the Commission the discretion to set higher amounts when needed. For example, BLM's bonding regulation at 43 CFR 3104.1 states: "The bond amounts shall be not less than the minimum amounts ... in order to ensure compliance with the act California and Texas set bonds according to the number of wells operated or the footage drilled (see: California - CCR 1722.8; Texas — RRC Rule 78). Similar to Alaska, these jurisdictions and others do not require that bonds be sufficient to cover plugging and abandonment of each and every well. AOGA asserts that the purpose of setting bonding amounts, as reflected in the regulatory regimes of Alaska and other jurisdictions, is to ensure that the regulator is dealing with a financially stable operator with the resources to obtain bonds and other forms of surety in amounts that will appropriately protect the state and motivate compliance, while at the same time not being so large as to be punitive and chill investment. A One -Size -Fits -All Approach is Unnecessary and Would Be Punitive. The risk to the State regarding plugging and abandonment liabilities is different for each and every operator. But the proposed regulations would treat all operators and wells the same, regardless of ownership and circumstance, as if they present substantially similar risks to the State. As already noted, Commission staff observed that the reality is that the vast majority of operators in the State are financially responsible. Their long-term presence in Alaska mitigates the risks that concern the AOGCC as it relates to the plugging and abandoning of wells. Commissioner Hollis S. French Alaska Oil & Gas Conservation Commission July 25, 2017 Page 3 of 7 A better approach would be to provide the Commission with the flexibility in its bonding regulations to review risks and deal with operators who are financially distressed or whose past actions indicate a risk of non-compliance. These factors could be financial, such as debt-to-equity ratio, total financial value of an operator, value of an operator's liabilities, Standards & Poor ratings, or other financial factors determined by the Commission. The Commission could also use nonfinancial factors, such as compliance history, timely payment of royalties, when reviewing an operator's risk profile. The BLM is a good example of a regulator who takes a risk based approach to reevaluating bonding amounts. BLM attempts to identify those wells or operators that display indications of greater risk, and their regulations allow a bonding review and tailoring of an increase in the bonding requirements when applicable. BLM's regulation at 43 CFR 3104.5(b) provides that: [an] authorized officer may require an increase in the amount of any bond whenever it is determined that the operator poses a risk due to factors, including, but not limited to, a history of previous violations, a notice from the Service that there are uncollected royalties due, or the total cost of plugging existing wells and reclaiming lands exceeds the present bond amount based on the estimates determined by the authorized officer. The increase in bond amount may be to any level specified by the authorized officer, but in no circumstances shall it exceed the total of the estimated costs of plugging and reclamation ... Although AOGA does not advocate setting bonds in the amounts covering the "total cost" of plugging and abandoning all wells, AOGA believes that the BLM approach would be a better course for the Commission to pursue. The BLM approach would give the Commission the discretion it needs to target bond increases to instances where real risk is presented to the state, while avoiding penalizing operators and wells where those risks are not present. AOGA encourages the AOGCC to hold a future public workshop where alternative approaches to bonding regulations could be discussed. Perhaps a solution could be achieved that satisfies the Commission that potential risks are addressed, but that doesn't unnecessarily burden operators that do not represent a risk to the State. From the Commission's perspective, concerns should be directly targeted at operators who pose a bankruptcy risk. Operators that are financially stable are likely to always comply with government regulations and obligations, given that failure to do so could both prohibit the operator from future resource development opportunities and subject the operator to litigation to recover decommission costs. AOGA believes it might be prudent to allow operators to petition for waivers of minimum bonding amounts, assuming that an operator Commissioner Hollis S. French Alaska Oil & Gas Conservation Commission July 25, 2017 Page 4 of 7 can provide persuasive information that provides adequate assurance to the Commission that the operator does not pose a threat to the State. Finally, it is also important to consider what effects a wide-ranging increase in bonding will have to the surety market. Increased bonding could result in small operators being forced to collateralize 100% of the increase. However, even if operators are not forced to collateralize their increased bonds, premiums will invariably increase dramatically, which will, in turn, result in a decrease in capital available for investment in exploration and development. AOGA Comments to Specific Sections Although AOGA believes that more prudent options are available for the Commission to pursue in its attempt to remedy perceived deficiencies in the current bonding mandates, AOGA does offer more discrete concerns related to the proposed bonding regulations. Section 25.025(b). The draft regulation in 20 AAC 25.025(b) appears to indicate that bonds would be set in amounts that an operator could demonstrate is sufficient to cover the plugging and abandonment costs of all an operator's wells. For the reasons noted above, AOGA asserts that this would be financially punitive, unfairly penalize responsible operators, and would chill oil and gas investment in the state. Section 25.025(b)(1). AOGCC proposes the following modification to 20 AAC 25.025(b)(1): [t]he operator must make a written application and receive the commission's concurrence on the bond amount within one year of the effective date of this regulation, at least every 5 years thereafter, when significant changes are made to the operator's existing development(s) (i.e. an existing drilling pad is expanded or a new one is constructed), when the Designated Operator for a well changes, or upon the request of the commission. As an initial matter, requiring every well in the state to adhere to the new bonding regulations within 12 months of adoption creates a severe administrative burden for operators across the State. AOGA would encourage a more tailored approach. Again, as indicated above, if the Commission has concerns regarding a certain operator or development, it could adopt regulations permitting a review and raising of bonds for operators who pose a risk to the state. This could include accelerating the timeline for adhering to the new bonding regulations by requiring compliance within one year. Commissioner Hollis S. French Alaska Oil & Gas Conservation Commission July 25, 2017 Page 5 of 7 However, if the Commission wishes to impose an increase in the minimum bonding amounts on operators, then affording operators a more reasonable period of time to transition to this new regulatory approach is necessary. The catch all provision of allowing the Commission to request a bonding evaluation as articulated in the last clause of the proposed 20 AAC 25.025(b)(1) would provide adequate protection to the State. In the alternative, the Commission should allow operators who are facing substantial increases in its bond amounts to gradually increase the bond annually until the requirements are met (e.g., requiring that the bond increase by 25% until the new bonding figure is met). Section 25.025(b)(2). AOGCC proposes the following modification to 20 AAC 25.025(b)(2): Operators proposing exploratory drilling shall include with the permit to drill applications, or as a separate item if they are proposing drilling multiple exploratory wells as part of a single exploratory drilling program, a written application with the estimated costs to properly plug and abandon the wells and properly clear the sites. The operator shall provide a revised written application of estimated bonding amounts every year until the wells are properly plugged and abandoned and the commission has approved the location clearance. There are several issues and concerns with proposed section 20 AAC 25.025(b)(2). First, as articulated during the public workshop, AOGA is concerned with the ambiguity associated with the mandate to "properly clear the sites". The phrase "properly clear the sites" is vague and does not provide an operator with sufficient understanding of the potential expectations of the Commission, which, in tum, creates difficulties for an operator to accurately provide bonding estimates. Moving past ambiguity concerns, AOGA also urges the Commission to be wary of potential redundancies that would be borne from the inclusion of "clear[ing] the sites". Such a mandate is likely to be already contemplated in the DRR of sister agencies such as Department of Natural Resources (DNR). In other words, left unaltered, it is likely that an operator would be forced to "bond" the site clearance twice, which would be unnecessary and financially punitive. An additional potential issue with the proposed section 20 AAC 25.025(b)(2) relates to the procedural aspects for the operator and the Commission. For example, it is not clear to AOGA what the Commission's process, manner, or level of overview would be for an operator's cost estimates related to plugging and abandoning an exploratory well. Nor is it clear whether there are any criteria that the Commission believes would prompt a different cost estimate warranting an annual reassessment. Commissioner Hollis S. French Page 6 of 7 Alaska Oil & Gas Conservation Commission July 25, 2017 Section 25.025(b)(1). AOGCC proposes the following modification to 20 AAC 25.025(b)(3): For applications under subparts (1) and (2) the amount of the bond shall be based on the estimated cost to abandon all existing and potential wells that could be drilled from the operator's developments and the cost to clear all of the operator's sites. The operator shall submit the proposed bonding amount with appropriately detailed supporting information so that the commission can determine if the amount is reasonable. AOGA has reservations relating to both scope and process. Again, the Commission uses the phrase "clear ... sites", which is both ambiguous and potentially duplicative for the reasons articulated in the previous section. Proposed section 20 AAC 25.025(b)(3) demands that an operator provide cost estimates associated with "potential wells", which AOGA believes is an unnecessary and potentially an impossible demand to satisfy. It is also unnecessary given that 20 AAC 25.025 (b)(1) would already mandate that an operator update its bonding package every five years, which should provide sufficient protection to the Commission as an operator's development plan evolves. Perhaps more importantly, it would be difficult for an operator to identify with sufficient certainty all potential wells in the manner the Commission envisions. First, there are logistical factors that evolve and, thus, an operator's long-term development is likely to be shaped by factors that may currently be unknown. Second, "potential wells" may or may not come online due to economic and regulatory factors that are unforeseeable at the current time. For example, this proposed regulatory change would result in increased costs and less development in the future, which would alter the viability of "potential wells" through no fault of the operator. The proposed 20 AAC 25.025(b)(3) would therefore result in an operator bonding wells that may never actually be drilled. It is in the best interest of the Commission and industry that such an inefficiency be avoided, particularly to ensure a greater ultimate recovery of Alaska's natural resources. Once again, AOGA would like to express its appreciation for affording us input into the Commission's process of modifying the existing approach to bonding. The workshop served as a prudent starting point in finding a solution that can hopefully address the Commission's desire to modernize its bonding regulations. AOGA hopes that the Commission will ultimately adopt a regulatory scheme that is narrowly tailored and does not result in decreased investment in Alaska. AOGA remains eager to continue this process and looks forward to the next opportunity to contribute. If the Commission has any questions, please feel free to contact me at kindredRaoga.org. Commissioner Hollis S. French Alaska Oil & Gas Conservation Commission July 25, 2017 Page 7 of 7 AIaSKa Un & vas Association Environmental Counsel Cc: Commissioner Cathy Foerster Commissioner Dan Seamount Colombie, Jody J (DOA) From: Franger, lames M (DNR) Sent: Friday, August 18, 2017 12:37 PM To: Colombie, Jody J (DOA) Cc: Menefee, Wyn (DNR); Eden, Karsten (DNR) Subject: Comments re: proposed changes in AOGCC bonding regulations Following are comments from the Trust Land Office (TLO) regarding the workshop held on June 6, 2017 at the AOGCC pertaining to changes to 20 AAC 25.025, which is the bonding regulation administered by the AOGCC for drilled wells. From the TLO's perspective, the most critical thing that needs to be clarified in any re -write of the current regulation is what the required bond is covering and when it will be utilized. This actually needs to be clarified in the application of the existing regulation as well. For example, the TLO has been told by personnel from the AOGCC, when faced with a bankrupt operator and a well that has not been properly abandoned, that the landowner (i.e., the Alaska Mental Health Trust Authority, as represented by the TLO) is the party responsible for properly abandoning the well, and that the bond held by the AOGCC is not available for use for abandonment procedures.. This despite the fact that the current regulation, at 20 AAC 25.025 (a), requires that a bond be filed... "to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter." Also, at 20 AAC 25.025 (c), a bond is required and "must remain in effect until the abandonment of all wells.... and until the commission approves the final clearance of the locations." This language also appears on the AOGCC Surety Bond form and Personal Bond form, and appears throughout the proposed re -write of 20 AAC 25.025. Is the use of the AOGCC bond discretionary by the commission? Should criteria be set out in regulation describing when and how the bond will be used? Will the bond be used for all aspects of the well, from drilling to abandonment, as well as removal of all improvements on the well pad, as the current regulation states? Does that include any reclamation of the well pad? It is critical for potential operators as well as the landowner (lessor) to know how the commission uses or intends to use the bonds it is requiring. As it is now, when the TLO leases land and a lessee wants to drill a well, the TLO will require a bond to plug and abandon the well and leave the drill pad in a condition acceptable to the TLO. This, along with the bonding required by the commission, will result in double bonding with the net result that the cost of the required bonding alone could be enough to prevent a well from being drilled. Mike Franger Senior Resource Manager Trust Land Office 2600 Cordova Street #100 Anchorage, Alaska 99503 (907)-269-8657 mike.franger@alaska.gov ConocoPhillips Alaska July 25, 2017 RM-C"EIVE! JUL ��y25 2200j117'7 AOGCC Commissioners Alaska Oil and Gas Conservation Commission 333 West 7th Avenue Anchorage, AK 99501-3572 Shon D. Robinson Manager Drilling and Wells P.O. Box 100360 Anchorage, Alaska 99510 ATO -1520 Phone 907.265.6306 Shon.D.Robinson@conocophillips.com Re: Comments on Proposed Changes to 20 AAC 25.025 on Bonding Dear Commissioners: ConocoPhillips Alaska, Inc. (CPAI) submits this letter in response to the Alaska Oil and Gas Conservation Commission (AOGCC) solicitation of written comments on proposed changes to the bonding regulation codified at 20 AAC 25.025. CPAI participated in the June 6, 2017 workshop to discuss the proposed changes, and we commend the AOGCC for proactively addressing these issues in cooperation with the regulated community of oil and gas operators. As addressed in more detail below, CPAI has no opposition to the general idea of updating the bonding requirements; however, we do oppose the particular regulatory language proposed by AOGCC prior to the workshop. It is important the AOGCC not adopt a program that unduly increases the administrative burdens borne by both the AOGCC and well operators in connection with bonding, such as the proposed requirement to estimate the abandonment costs for each particular well. Instead, the AOGCC should continue to allow for an appropriate blanket bond, while also allowing for adjustments to be made, in particular circumstances on a case-by-case basis. Current Regulations Allow for Increased Bond Amounts Without New Regulations At the workshop, AOGCC representatives explained that real dollar value of the bonding amounts stated in the existing regulation, which was first adopted in 1980 and last amended in 1999, have diminished over time and should be updated. This was the key reason articulated by the AOGCC for the proposed changes to the existing regulation. CPAI does not dispute the impact of inflation, but we see a substantial disconnect between that stated reason and the changes that have been proposed. The existing regulation provides in relevant part that a bond, if required by the AOGCC, must be "in the amount of not less than $100,000 to cover a single well or not less than $200,000 for a blanket bond covering all the operator's wells in the state." 20 AAC 25.025. Thus, the existing AOGCC Commissioners July 25, 2017 Page 2 regulation sets a floor, but not a cap on bonding amounts. A regulatory change is not necessary for the AOGCC to update the bond requirements. As long as the AOGCC acts reasonably, it has the discretion to update the bond amounts without proceeding with a new rulemaking. CPAI recommends this approach to eliminate unnecessary work and to avoid the risks and uncertainties involved in new rulemaking. AOGCC Should Not Require an Abandonment Cost Estimate for Each Well The proposed regulations would require an operator to submit for each well an application that includes the estimated costs to plug and abandon that well. This approach would increase the work required by the agency staff and well operators, and would increase the costs and uncertainty associated with bonding. It may also lead to perceptions of inequitable treatment among operators. This proposed level of precision is not required to serve the purpose of bonding, especially in the absence of any experience showing that the current approach to bonding has been inadequate. A standardized bond amount, consistent with past practice and current regulations, best serves the balance between burden and benefit. If deemed necessary, standardized amounts could be grouped in categories, so that, for example, offshore wells are treated differently from onshore wells, or remote exploration wells are treated differently from development wells accessible from gravel. Standardized bonding levels would promote clarity, efficiency, and equity, and would not impair flexibility. The AOGCC could allow for case -specific deviation from standard bonding levels when circumstances of the well or the operator merit a different approach to bonding to address an atypical risk. AOGCC Should Continue to Allow Blanket Bonds For decades, AOGCC has allowed bonding requirements to be satisfied with a blanket bond rather than require a new bond to be provided for each well. CPAI is not aware of any problem caused by this approach, and none were presented at the workshop. Yet, the proposed regulations appear to require an individual bond tailored to each well. This would impose a significant increase in the administrative burden associated with bonding on the agency side, as the adequacy of each bond must be individually examined and evaluated. It would cause an even more significant increase in burden on well operators. We see no need for this change, and no public benefit that would result from it. CPAI urges the AOGCC to continue to allow for blanket bonds, particularly for operators that have a strong compliance record. Even with blanket bonds, AOGCC retains the discretion to require increased bonding, and potentially even bonding for individual wells, if fact -based circumstances warrant for a well or an operator. Such circumstances could potentially include (a) a history of regulatory non- compliance by an operator that signifies an increased risk of non-compliance with relevant well repair, plugging and abandoning obligations, (b) dissatisfaction by the commission with an operator's program for properly plugging and abandoning idle wells that are non -operational and have no future utility, or (c) evidence of financial insecurity that raises concerns about the AOGCC Commissioners July 25, 2017 Page 3 ability of an operator to perform relevant repair, or plugging and abandonment obligations in the future. The AOGCC should adopt an approach that serves the public purpose of ensuring proper well repair or abandonment without posing an undue obstacle to drilling new wells. Blanket bonds play an important role in achieving that balance and thus should not be eliminated from the bonding regulations. The AOGCC can, if it so chooses, adopt regulations or guidance to govern when it will allow the use of blanket bonds, and specify what circumstances might trigger an increase in bonding requirements or a reversion to individual well bonding. In any case, the AOGCC should not abandon blanket bonding altogether. AOGCC Should Clearly Limit Bonding to Wells, not Pads or Other Facilities The statute authorizing the AOGCC to impose bonding requirements is clearly limited to wells. As the statute reads, the AOGCC "may require ... (4) the furnishing of a reasonable bond with sufficient surety conditions for the performance of the duty to plug each dry or abandoned well or the repair of wells causing waste[.] AS 31.05.030(d). The proposed regulations, however, refers confusingly to the costs to "plug and abandon the wells and properly clear the sites." (Emphasis added.) Elsewhere, the proposed regulations refer to "the costs to clear all of the operator's sites." (Emphasis added.) The term "site" is not defined in the proposed regulations. This issue was discussed at the workshop, and we believe a consensus was reached that the AOGCC authority is limited to wells, and any new regulations should clearly refer to wells and avoid the term "sites." AOGCC Bonding Requirements Should Not Duplicate Bonding Requirements of Other Agencies Landowners and regulators other than the AOGCC sometimes impose bonding or other security requirements, including the Alaska Department of Natural Resources (DNR) and the federal Bureau of Land Management (BLM). The AOGCC should ensure that its effort to update bonding requirements and ensure appropriate bonding levels does not overreach. The AOGCC should not require bonding for obligations addressed by other agencies, such as pad remediation governed by DNR or well abandonment governed by BLM. AOGCC Should Propose Revised Regulations and Hold Another Workshop CPAI commends the AOGCC staff for the cooperative tone of the June 6 workshop on bonding, where a variety of oil and gas operators, representing a wide range of company sizes and a wide range of drilling programs and experiences, expressed concerns with the language proposed by the AOGCC. CPAI urges the AOGCC to re -consider its approach to the bonding updates in light of the comments received. CPAI believes that current regulations provide the AOGCC with adequate regulatory authority to impose fit -for -purpose bonding to fill any gaps that may exist. If, however, the AOGCC remains of the view that regulatory revisions are AOGCC Commissioners July 25, 2017 Page 4 necessary, CPAI requests that the Commission propose new language and hold another workshop to discuss the new language. The details and the particular words used in the regulation matter greatly, and a second workshop based on a revised, concrete proposal would be valuable in achieving a good result. Yours truly, Shon D. Robinson SDR:sb Colombie Jody J (DOA) From: Colombie, Jody J (DOA) Sent: Wednesday, July 12, 2017 2:27 PM To: Joshua Kindred Subject• RE: AOGCC Bonding Comments Your requested in GRANTED. Jody From: Joshua Kindred [mailto:kindred@aoga.org] Sent: Wednesday, July 12, 2017 2:00 PM To: Colombie, Jody 1 (DOA) <jody.colombie@alaska.gov> Subject: AOGCC Bonding Comments Jody, AOGA is in the process of finalizing our comments relating to the AOGCC proposed bonding regulations, but were hoping that the deadline for submission might be extended to July 25, 2017. Thank you for your consideration. Joshua M. Kindred Environmental Counsel Alaska Oil & Gas Association 121 West Fireweed Lane, #207 Anchorage, AK 99503 907-272-1481 (main) 907-222-9604 (direct) kindred(d)aoga.org 0 Notice of Public Hearing STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Re: Docket Number: R-17-002 The Alaska Oil and Gas Conservation (AOGCC) will host a Workshop to discuss changes to the bonding practices of the Commission. The AOGCC has scheduled this workshop for June 6, 2017, at 10:00 a.m. at 333 West 7`h Avenue, Anchorage, Alaska 99501. If, because of a disability, special accommodations may be needed to comment or attend the hearing, contact the AOGCC at (907) 279-1433, no later than June 5, 2017. Hollis S. French Commissioner Notice of Public Hearing STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Re: Docket Number: R-17-002 The Alaska Oil and Gas Conservation (AOGCC) will host a Workshop to discuss changes to the bonding practices of the Commission. The AOGCC has scheduled this workshop for June 6, 2017, at 10:00 a.m. at 333 West 7 1 Avenue, Anchorage, Alaska 99501. If, because of a disability, special accommodations may be needed to comment or attend the hearing, contact the AOGCC at (907) 279-1433, no later than June 5, 2017. //signature on file// Hollis S. French Commissioner STATE OF ALASKA ADVERTISING ORDER NOTICE TO PUBLISHER ORDERNO., CERTIFIED SUBMIT OF PUBLICATION AFFIDAVIT OFPUBLICATION WRH ATTACHED COPY OFADVERTiSMENT. ATIONGTH ATTACHED ADVERTISING ORDER NUNMER AO_17-030 !f FROM: Alaska Oil and Gas Conservation Commission AGENCY CONTACT: Jody Colombie/Samantha Carlisle DATE OF A.O. AGENCY PHONE,: 05/02/17 (907)279-1433 DATES ADVERTISEMENT REQUIRED: 333 West 7th Avenue Anchorage, Alaska 99501 COMPANY CONTACT NAME: PHONE NUMBER: ASAP FAX NUMBER: (907) 276-7542 TO PUBLISHER: Alaska Dispatch News PO Box 149001 Anchorage. Alaska 99514 SPECIAL INSTRUCTIONS: TYPE OF ADVERTISEMENT: Ti 'I LEGAL DISPLAY CLASSIFIED !. OTHER (Specify below) - - DESCRIPTION PRICE R-17-002 Bonding Workshop Initials of who re aced AO - 7.777777771 :-. sUEM1T:mvotex SHOWIN§ ADVERTIS,INO::: ORDERNO.; CERTIFIED:AFFIDAYIT OF:'' PUBLICATION.WIPN ATTACHER COPY OF.''. .-'.aDVERi'IslRBhii:io Alaska Non -Taxable 92-600185 Departmentof Administration Division of AOGCC 333 West 7th Avenue Total of Anchorage, Alaska 99501 Pa e I of 1 All Pa es $ - REF T e Number I PVN ADN89311 2 Ao AO -17-030 3 Amount Date Cm.ante 4 FIN AMOUNT SY 1 17 2 Ap rUnit PGM1'GR 3046[ FY DIST LIQ 021147717 4 Purcha i g r His: A Purchasing Authority's Signature Telephone Number I . A. d rso g agency name mustappear on all inwices and documents relating to this purchase. 2. T state is re stered for tax free transactions under Chapter 32, IRS code. Registration number 92-73-0006 K. Items are for the exdusive use of the state and not For res .. ..;. ... AI TRIBUT[GN: Division EiB6t/Original4>.O ...... Copies: PubhsheT (faxCB), DrifslonFiscahReceiiing Form: 02-901 Revised: 5/2/2017 270227 0001404407 $99.62 STATE OF ALASKA RECEIVED MAY 0 S 2017 AOGCC AFFIDAVIT OF PUBLICATION THIRD JUDICIAL DISTRICT Emma Dunlap being first duly sworn on oath deposes and says that he/she is a representative of the Alaska Dispatch News, a daily newspaper. That said newspaper has been approved by the Third Judicial Court, Anchorage, Alaska, and it now and has been published in the English language continually as a daily newspaper in Anchorage, Alaska, and it is now and during all said time was printed in an office maintained at the aforesaid place of publication of said newspaper. That the annexed is a copy of an advertisement as it was published in regular issues (and not in supplemental form) of said newspaper on May 03, 2017 and that such newspaper was regularly distributed to its subscribers during all of said period. That the full amount of the fee charged for the foregoing publication is not in excess of the rate charged private individuals. Signed Subscribed and sworn to before me t is 3rd day of May, 2017 Notary Pub' in and for The State of Alaska. Third Division Anchorage, Alaska MY COMMISSION EXVIRES aol9 Notice of Public Nearing STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Re: Docket Number: R-17-002 The Alaska oil and Gas Conservation (AOGCC) will host a Workshop to discuss changghhes to the bondin peduled this works pDractices of the Commission. The AOGCC has sc for June 3333 Wet 7th Avenue, Anchorage, Ala ka 99501.E 2017, at 10:00 a.m. at If, because of a disability special accommodations may be needed to comment or attend the Bearing, contact the AOGCC at (907) 279-1433, no later than June 5, 2017. //signature on file// Hollis S. French Commissioner Published: May 3, 2017 Notary Public BRITNEY L. THOMPSON State of Alaska My Commission Expires Feb 23, 2019 Register 2017 MISCELLANEOUS BOAR 20 AAC 25.025. is being repealed and redopted to read: 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) a surety bond issued on Form 10-402A in sole favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) a personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. Form 10-402B must also be accompanied by the commission's Assignment of Certificate of Deposit and Confirmation and Agreement of Issuing Bank Form. (b) A bond and, if required, security must be in the amount that the operator demonstrates to the commission's satisfaction is sufficient to ensure all wells can be properly plugged and abandoned in accordance with the requirements of 20 AAC 25 Article 2. (1) the operator must make a written application and receive the commission's concurrence on the bond amount within one year of the effective date of this regulation, at least every 5 years thereafter, when significant changes are made to the operator's existing Register 2017 MISCELLANEOUS BOAR development(s) (i.e. an existing drilling pad is expanded or a new one is constructed). when the Designated Operator for a well changes, or upon the request of the commission. (2) operators proposing exploratory drilling shall include with the permit to drill application, or as a separate item if they are proposing drilling multiple exploratory wells as part of a single exploratory drilling program, a written application with the estimated costs to properly plug and abandon the wells and properly clear the sites. The operator shall provide a revised written application of estimated bonding amounts every year until the wells are properly plugged and abandoned and the commission has approved the location clearance. (3) for applications under subparts (1) and (2) the amount of the bond shall be based on the estimated cost to abandon all existing and potential wells that could be drilled from the operator's developments and the cost to clear all of the operator's sites. The operator shall submit the proposed bonding amount with appropriately detailed supporting information so that the commission can determine if the amount is reasonable. (c) A bond and, if required, security must remain in effect until the abandonment of all wells covered by them and until the commission approves final clearance of the locations. The commission will then release the bond and security upon written request of the operator. (d) Payment under a surety bond or security does not relieve an operator from the requirements of AS 31.05 and this chapter except to the extent that a default is actually cured, or from any liability under AS 31.05.150 . Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; Eff. _/ / Register_.) Authority: AS 31.05.030 AS 31.05.150 Bernie Karl Gordon Severson Penny Vadla M Recycling Inc. 3201 Westmar Cir. 399 W. Riverview Ave. P.O. Box 58055 Fairbanks, AK 99711-0055 Anchorage, AK 99508.4336 Soldotna, AK 996647714 George Vaught, Jr. Darwin Waldsmith Richard Wagner P.O. Box 13557 P.O. Box 39309 P.O. Box 60868 Denver, CO 80201-3557 Ninilchik, AK 996340309 Fairbanks, AK 99706-0868 Colombie Jody J (DOA) From: Colombie, Jody 1 (DOA) Sent: Tuesday, May 02, 2017 10:31 AM DOA AOGCC Prudhoe Bay; Ballantine, Tab A (LAW); Bender, Makana K (DOA); Bettis, Patricia K To: (DOA); Brooks, Phoebe L (DOA); Carlisle, Samantha J (DOA); Colombie, Jody J (DOA); Davies, Stephen F (DOA); Eaton, Loraine E (DOA); Foerster, Catherine P (DOA); French, Hollis (DOA); Frystacky, Michal (DOA); Guhl, Meredith D (DOA); Kair, Michael N (DOA); Link, Liz M (DOA); Loepp, Victoria T (DOA); Mumm, Joseph (DOA sponsored); Paladijczuk, Tracie L (DOA); Pasqual, Maria (DOA); Quick, Michael J (DOA); Regg, James B (DOA); Roby, David S (DOA); Schwartz, Guy L (DOA); Seamount, Dan T (DOA); Singh, Angela K (DOA); Wallace, Chris D (DOA); AK, GWO Projects Well Integrity; AKDCWellIntegrityCoordinator; Alan Bailey; Alex Demarban; Alexander Bridge; Allen Huckabay; Andrew Vanderlack; Ann Danielson; Anna Raff; Barbara F Fullmer; bbritch; bbohrer@ap.org; Ben Boettger; Bill Bredar; Bob Shavelson; Brandon Viator; Brian Havelock; Bruce Webb; Caleb Conrad; Candi English; Cocklan-Vendl, Mary E; Colleen Miller; Connie Downing; Crandall, Krissell; D Lawrence; Dale Hoffman; Darci Horner; Dave Harbour, David Boelens; David Duffy; David House; David McCaleb; David McCraine; David Tetta; ddonkel@cfl.rr.com; DNROG Units (DNR sponsored); Donna Ambruz; Ed Jones; Elizabeth Harball; Elowe, Kristin; Elwood Brehmer; Evan Osborne; Evans, John R (LDZX); George Pollock; Gordon Pospisil; Greeley, Destin M (DOR); Gretchen Stoddard; gspfoff; Hunter Cox; Hurst, Rona D (DNR); Hyun, James J (DNR); Jacki Rose; Jdarlington (arlington@gmail.com); Jeanne McPherren; Jerry Hodgden; Jill Simek; Jim Watt; Jim White; Joe Lastufka; Radio Kenai; Burdick, John D (DNR); Easton, John R (DNR); Larsen, John M (DOR); John Stuart; Jon Goltz; Chmielowski, Josef (DNR); Juanita Lovett; Judy Stanek; Kari Moriarty; Kasper Kowalewski; Kazeem Adegbola; Keith Torrance; Keith Wiles; Kelly Sperback; Frank, Kevin J (DNR); Kruse, Rebecca D (DNR); Gregersen, Laura S (DNR); Leslie Smith; Lori Nelson; Louisiana Cutler; Luke Keller; Marc Kovak; Dalton, Mark (DOT sponsored); Mark Hanley (mark.hanley@anadarko.com); Mark Landt; Mark Wedman; Mealear Tauch; Michael Bill; Michael Calkins; Michael Moora; MJ Loveland; mkm7200; Motteram, Luke A; Mueller, Marta R (DNR); Munisteri, Islin W M (DNR); knelson@petroleumnews.com; Nichole Saunders; Nikki Martin; NSK Problem Well Supv, Patty Alfaro; Paul Craig; Decker, Paul L (DNR); Paul Mazzolini; Pike, Kevin W (DNR); Randall Kanady; Renan Yanish; Richard Cool; Robert Brelsford; Ryan Tunseth; Sara Leverette; Scott Griffith; Shahla Farzan; Shannon Donnelly; Sharon Yarawsky; Skutca, Joseph E (DNR); Smart Energy Universe; Smith, Kyle S (DNR); Stephanie Klemmer; Stephen Hennigan; Sternicki, Oliver R; Moothart, Steve R (DNR); Steve Quinn; Suzanne Gibson; sheffield@aoga.org; Ted Kramer; Teresa Imm; Thor Cutler, Tim Jones; Tim Mayers; Todd Durkee; trmjrl; Tyler Senden; Umekwe, Maduabuchi P (DNR); Vinnie Catalano; Well Integrity, Well Integrity; Weston Nash; Whitney Pettus; Aaron Gluzman; Aaron Sorrell; Ajibola Adeyeye; Alan Dennis; Bajsarowicz, Caroline J; Bruce Williams; Bruno, Jeff J (DNR); Casey Sullivan; Catie Quinn; Corey Munk; Don Shaw; Eppie Hogan; Eric Lidji; Garrett Haag; Smith, Graham O (DNR); Dickenson, Hak K (DNR); Heusser, Heather A (DNR); Fair, Holly S (DNR); Jamie M. Long; Jason Bergerson; Jesse Chielowski; Jim Magill; Joe Longo; John Martineck; Josh Kindred; Laney Vazquez•, Lois Epstein; Longan, Sara W (DNR); Marc Kuck, Marcia Hobson; Steele, Marie C (DNR); Matt Armstrong; Franger, James M (DNR); Morgan, Kirk A (DNR); Umekwe, Maduabuchi P (DNR); Pat Galvin; Pete Dickinson; Peter Contreras; Richard Garrard; Richmond, Diane M; Robert Province; Ryan Daniel; Sandra Lemke; Pollard, Susan R (LAW); Talib Syed; Tina Grovier (tmgrovier@stoel.com); Tostevin, Breck C (LAW); Wayne Wooster; William Van Dyke Subject: R-17-002 (Bonding Workshop) Attachments: R-17-002 Bonding Workshop Notice.pdf Re: Docket Number: R-17-002 The Alaska Oil and Gas Conservation (AOGCC) will host a Workshop to discuss changes to the bonding practices of the Commission. The AOGCC has scheduled this workshop for June 6, 2017, at 10:00 a.m. at 333 West 711 Avenue, Anchorage, Alaska 99501. Jody J. Co(ombie A06CC SyecfaCAssistant Ata.ska OiCandgas Conservation Commission 333 West 71" Avenue .anchorage, ACaska 995o1 Office: (907) 793-1221 fax: (907) 276-7542 CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, contains information from the Alaska Oil and Gas Conservation Commission (AOGCC), State of Alaska and is for the sole use of the intended recipient(s). It may contain confidential and/or privileged information. The unauthorized review, use or disclosure of such information may violate state or federal law. If you are an unintended recipient of this e-mail, please delete it, without first saving or forwarding it, and, so that the AOGCC is aware of the mistake in sending it to you, contact Jody Colombia at 907.793.1221 or iodv. colombie®alaska aov. Register 2017 MISCELLANEOUS BOAR 20 AAC 25.025. is being repealed and redopted to read: 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) a surety bond issued on Form 10-402A in sole favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) a personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. Form 10-402B must also be accompanied by the commission's Assignment of Certificate of Deposit and Confirmation and Agreement of Issuing Bank Form. (b) A bond and, if required, security must be in the amount that the operator demonstrates to the commission's satisfaction is sufficient to ensure all wells can be properly plugged and abandoned in accordance with the requirements of 20 AAC 25 Article 2. (1) the operator must make a written application and receive the commission's concurrence on the bond amount within one year of the effective date of this regulation, at least every 5 years thereafter, when significant changes are made to the operator's existing Register 2017 MISCELLANEOUS BOAR development(s) (i.e. an existing drilling pad is expanded or a new one is constructed), when the Designated Operator for a well changes, or upon the request of the commission. (2) operators proposing exploratory drilling shall include with the permit to drill application, or as a separate item if they are proposing drilling multiple exploratory wells as part of a single exploratory drilling program, a written application with the estimated costs to properly plug and abandon the wells and properly clear the sites. The operator shall provide a revised written application of estimated bonding amounts every year until the wells are properly plugged and abandoned and the commission has approved the location clearance. (3) for applications under subparts (1) and (2) the amount of the bond shall be based on the estimated cost to abandon all existing and potential wells that could be drilled from the operator's developments and the cost to clear all of the operator's sites. The operator shall submit the proposed bonding amount with appropriately detailed supporting information so that the commission can determine if the amount is reasonable. (c) A bond and, if required, security must remain in effect until the abandonment of all wells covered by them and until the commission approves final clearance of the locations. The commission will then release the bond and security upon written request of the operator. (d) Payment under a surety bond or security does not relieve an operator from the requirements of AS 31.05 and this chapter except to the extent that a default is actually cured, or from any liability under AS 31.05.150. Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; Eff. / / , Register .) Authority: AS 31.05.030 AS 31.05.150 Register 2017 MISCELLANEOUS BOAR 20 AAC 25.025. is being repealed and redopted to read: 20 AAC 25.025. Bonding. (a) An operator proposing to drill a well for which a permit is required under 20 AAC 25.005 shall file a bond and, if required under (2) of this subsection, security to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter. The bond must be (1) a surety bond issued on Form 10-402A in sole favor of the Alaska Oil and Gas Conservation Commission by an authorized insurer under AS 21.09 whose certificate of authority is in good standing; or (2) a personal bond of the operator on Form 10-402B accompanied by security guaranteeing the operator's performance; security must be in the form of a certificate of deposit or irrevocable letter of credit issued in the sole favor of the Alaska Oil and Gas Conservation Commission by a bank authorized to do business in the state, or must be in another form that the commission determines to be adequate to ensure payment. Form 10-402B must also be accompanied by the commission's Assignment of Certificate of Deposit and Confirmation and Agreement of Issuing Bank Form. (b) A bond and, if required, security must be in the amount that the operator demonstrates to the commission's satisfaction is sufficient to ensure all wells can be properly plugged and abandoned in accordance with the requirements of 20 AAC 25 Article 2. (1) the operator must make a written application and receive the commission's concurrence on the bond amount within one year of the effective date of this regulation, at least every 5 years thereafter, when significant changes are made to the operator's existing Register 2017 MISCELLANEOUS BOAR development(s) (i.e. an existing drilling pad is expanded or a new one is constructed), when the Designated Operator for a well changes, or upon the request of the commission. (2) operators proposing exploratory drilling shall include with the permit to drill application, or as a separate item if they are proposing drilling multiple exploratory wells as part of a single exploratory drilling program, a written application with the estimated costs to properly plug and abandon the wells and properly clear the sites. The operator shall provide a revised written application of estimated bonding amounts every year until the wells are properly plugged and abandoned and the commission has approved the location clearance. (3) for applications under subparts (1) and (2) the amount of the bond shall be based on the estimated cost to abandon all existing and potential wells that could be drilled from the operator's developments and the cost to clear all of the operator's sites. The operator shall submit the proposed bonding amount with appropriately detailed supporting information so that the commission can determine if the amount is reasonable. (c) A bond and, if required, security must remain in effect until the abandonment of all wells covered by them and until the commission approves final clearance of the locations. The commission will then release the bond and security upon written request of the operator. (d) Payment under a surety bond or security does not relieve an operator from the requirements of AS 31.05 and this chapter except to the extent that a default is actually cured, or from any liability under AS 31.05.150 . Eff. 4/13/80, Register 74; am 4/2/86, Register 97; am 11/7/99, Register 152; Eff. _/_/ Register .) Authority: AS 31.05.030 AS 31.05.150 STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Docket No. R-17-002 BONDING REGULATIONS June 6, 2017 at 10:00 am NAME AFFILIATION Testifv (ves or no) W. Gr+a-vo� So�t� �tNA cNPfl Na VWLIP OAYpw CDP Jo (5V 3vn/ Sawrre & M ZINC) STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Docket No. R-17-002 BONDING REGULATIONS June 6, 2017 at 10:00 am NAME AFFILIATION Testify (yes or no) �[Ss� CN.tS�(uri� �juvt i� h" �a>n s pr GLA �V(Z SdcP V�A�.�1,Lr C LA N� -- ikCs(xCC SkevC� �c1y @S 1-UC4 CC �C-, CC 'lo��c e..l.oay��t0 �c�C-ECC D2v�i �v ti4�czC C Cttir;S 1.Ja\�C P �4c� SCC V:Cknrg2 �-o(J�a �.GC�CC STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Docket No. R-17-002 BONDING REGULATIONS June 6, 2017 at 10:00 am NAME AFFILIATION Testify (yes or no) W. VitiAIi-f Ga-T+tAtiu C jf� C�-c Nv ,cif-.d-rcl i -06,q Gt-4: ej/dt- cNPfl Na �D�Lr. G1�C�NS WI /lb CVP ha 2 rN��ln�p� K)e6u,. rl)e2 NO �X��z MOP ! Aya zj COP iJv 5y VAI SAK/YlFQ 6' M �ND STATE OF ALASKA ALASKA OIL AND GAS CONSERVATION COMMISSION Docket No. R-17-002 BONDING REGULATIONS June 6, 2017 at 10:00 am NAME AFFILIATION Tcstifv (yes or no) >tss GN rr o+o,:�z )3U1 Imo (: r? (_ )�6cr- 4Lr�r- .c 's Ova C�c-:S W2\L2CP �UC�CC V�G�-ori2 ��Oa �GC-�c C 5 QNK I I .w, \� ddwzx GLA Ah) 6 L No C3 cit cc C�c-:S W2\L2CP �UC�CC V�G�-ori2 ��Oa �GC-�c C 5 Columbie, Jody J (DOA) From: mgstoddard <mgstoddard@gci.net> Sent: Tuesday, May 02, 2017 11:02 AM To: Colombie, Jody J (DOA) Subject: RE: R-17-002 (Bonding Workshop) I thank AOGCC for working on this important issue. I hope to attend the workshop, but if I am not able to do that, I do want you to know that I am happy you are reviewing the requirements. I hope the State of Alaska regulations address the reality and opportunities of limited liability corporations. Gretchen Stoddard Arboretum St Anchorage 99516 Sent from my Samsung Galaxy smartphone. -------- Original message -------- From: "Colombie, Jody J (DOA)" <jody.colombie@alaska.gov> Date: 5/2/17 10:30 AM (GMT -09:00) To: DOA AOGCC Prudhoe Bay <doa.aogcc.prudhoe.bay@alaska.gov>, "Ballantine, Tab A (LAW)" <tab.ballantine@alaska.gov>, "Bender, Makana K (DOA)" <makana.bender@alaska.gov>, "Bettis, Patricia K (DOA)" <patricia.bettis@alaska.gov>, "Brooks, Phoebe L (DOA)" <phoebe.brooks@alaska.gov>, "Carlisle, Samantha J (DOA)" <samantha.carlisle@alaska.gov>, "Colombie, Jody J (DOA)" <jody.colombie@alaska.gov>, "Davies, Stephen F (DOA)" <steve.davies@alaska.gov>, "Eaton, Loraine E (DOA)" <loraine.eaton@alaska.gov>, "Foerster, Catherine P (DOA)" <cathy.foerster@alaska.gov>, "French, Hollis (DOA)" <hollis.french@alaska.gov>, "Frystacky, Michal (DOA)" <michal.frystacky@alaska.gov>, "Guhl, Meredith D (DOA)" <meredith.guhl@alaska.gov>, "Kair, Michael N (DOA)" <michael.kair@alaska.gov>, "Link, Liz M (DOA)" <liz.link@alaska.gov>, "Loepp, Victoria T (DOA)" <victoria.loepp@alaska.gov>, "Mumm, Joseph (DOA sponsored)" <joseph.mumm@alaska.gov>, "Paladijczuk, Tracie L (DOA)" <tracie.paladijczuk@alaska.gov>, "Pasqual, Maria (DOA)" <maria.pasqual@alaska.gov>, "Quick, Michael J (DOA)" <michael.quick@alaska.gov>, "Regg, James B (DOA)" <jim.regg@alaska.gov>, "Roby, David S (DOA)" <dave.roby@alaska.gov>, "Schwartz, Guy L (DOA)" <guy.schwartz@alaska.gov>, "Seamount, Dan T (DOA)" <dan.seamount@alaska.gov>, "Singh, Angela K (DOA)" <angela.singh@alaska.gov>, "Wallace, Chris D (DOA)" <chris.wallace@alaska.gov>, "AK, GWO Projects Well Integrity"<AKDCProjectsWelllntegrityEngineer@bp.com>, AKDCWeIIlntegrityCoordinator <AKDCWelllntegrityCoordinator@bp.com>, Alan Bailey <abailey@petroleum news.com>, Alex Demarban <alex@alaskadispatch.com>, Alexander Bridge <Alexander_Bridge @xtoenergy.com>, Allen Huckabay <allenhuckabay@hotmail.com>, Andrew Vandedack <AMV@vnf.com>, Ann Danielson <Ann.Danielson@bp.com>, Anna Raff <anna.raff@dowjones.com>, Barbara F Fullmer <barbara.f.fulimer@conocophillips.com>, bbritch <bbritch@alaska.net>, bbohrer@ap.org, Ben Boettger <Benjamin. boettger@peninsulaclarion.com>, Bill Bredar <william.bredar@bp.com>, Bob Shavelson <bob@inletkeeper.org>, Brandon Viator <Brandon.S.Viator@conocophillips.com>, Brian Havelock <behavelock@gmail.com>, Bruce Webb <b.webb@furiealaska.com>, Caleb Conrad <caleb.conrad@bakerhughes.com>, Candi English <c.english@nsakllc.com>, "Cocklan-Vendl, Mary E" <mary.cocklan-vendl@bp.com>, Colleen Miller <cmiller@ciri.com>, Connie Downing <cdowning@tyonek.com>, "Crandall, Krissell" <Krissell.Crandall@bp.com>, D Lawrence <DLawrence4@slb.com>, Dale Hoffman <dale.hoffman@caelusenergy.com>, Dard Horner <dhorner@hilcorp.com>, Dave Harbour <harbour@gci.net>, David Boelens <dboelens@aurorapower.com>, David Duffy <dduffy@hilcorp.com>, David House <d house@ usgs.gov>, David McCaleb <david.mccaleb@ihs.com>, David McCraine <d.mccraine@furiealaska.com>, David Tetta <tetta.david@epa.gov>, ddonkel@cfl.rr.com, "DNROG Units (DNR sponsored)" <dog.units@alaska.gov>, Donna Ambruz <dambruz@hilcorp.com>, Ed Jones <jejones@aurorapower.com>, Elizabeth Harball <eharball@alaskapublic.org>, "Elowe, Kristin" <Kristin.Elowe@mms.gov>, Elwood Brehmer <elwood.brehmer@alaskajournal.com>, Evan Osborne <Osborne.Evan @epa.gov>, "Evans, John R (LDZX)" <John.R.Evans@conocophillips.com>, George Pollock <gpgllock@aurorapower.com>, Gordon Pospisil <PospisG@BP.com>, "Greeley, Destin M (DOR)" <destin.greeley@alaska.gov>, Gretchen Stoddard <mgstoddard@gci.net>, gspfoff <gspfoff@aurorapower.com>, Hunter Cox <hcox@vnf.com>, "Hurst, Rona D (DNR)" <rona.hurst@alaska.gov>, "Hyun, lames J (DNR)" <james.hyun@alaska.gov>, Jacki Rose <jrose@bluecrestenergy.com>, "Jdarlington (jarlington@gmail.com)" <jarlington@gmail.com>, Jeanne McPherren <jmcpherren@brenalaw.com>, Jerry Hodgden <geodogs@comcast.net>, Jill Simek <Jill.Simek@conocophillips.com>, Jim Watt <jwatt@strongenergyresources.com>, Jim White <jimwhite@satx.rr.com>, Joe Lastufka <lastufjn@bp.com>, Radio Kenai <news@radiokenai.com>, "Burdick, John D (DNR)" <john.burdick@alaska.gov>, "Easton, John R (DNR)" <john.easton@alaska.gov>, "Larsen, John M (DOR)' <john.larsen@alaska.gov>, John Stuart <j.stuart@furiealaska.com>, Jon Goltz <Jon.Goltz@conocophillips.com>, "Chmielowski, Josef (DNR) <josef.chmielowski@alaska.gov>, Juanita Lovett <jlovett@hilcorp.com>, Judy Stanek <jstanek@hilcorp.com>, Kari Moriarty <moriarty@aoga.org>, Kasper Kowalewski <kasper.kowalewski@cop.com>, Kazeem Adegbola <kazeem.a.adegbola@conocophillips.com>, Keith Torrance <keith.torrance@uicumiaq.com>, Keith Wiles <kwiles@marathonoil.com>, Kelly Sperback <ksperbeck@slb.com>, "Frank, Kevin J (DNR)' <kevin.frank@alaska.gov>, "Kruse, Rebecca D (DNR)' <rebecca.kruse@alaska.gov>, "Gregersen, Laura S (DNR)' <laura.gregersen@alaska.gov>, Leslie Smith <I.smith@furiealaska.com>, Lori Nelson <Inelson@hilcorp.com>, Louisiana Cutler <louisiana.cutler@klgates.com>, Luke Keller <Ikeller@hilcorp.com>, Marc Kovak <yesnoak@gmail.com>, "Dalton, Mark (DOT sponsored)' <Mark.Dalton@hdrinc.com>, "Mark Hanley (mark.hanley@anadarko.com) <mark.hanley@anadarko.com>, Mark Landt <landtman4@yahoo.com>, Mark Wedman <mark.wedman@pxd.com>, Mealear Tauch <mzt@vnf.com>, Michael Bill <billmk@acsalaska.net>, Michael Calkins <mcalkins117@yahoo.com>, Michael Moora <mmoora@anvilcorp.com>, MJ Loveland <N1878@conocophillips.com>, mkm7200 <mkm7200@aol.com>, "Motteram, Luke A" <luke.a.motteram@exxonmobil.com>, "Mueller, Marta R (DNR)' <marta.mueller@alaska.gov>, "Munisteri, Islin W M (DNR)' <islin.munisteri@alaska.gov>, knelson@petroleumnews.com, Nichole Saunders <nsaunders@edf.org>, Nikki Martin <martin@aoga.org>, NSK Problem Well Supv <n1617@conocophillips.com>, Patty Alfaro <palfaro@yahoo.com>, Paul Craig <drpaulcraig@gmail.com>, "Decker, Paul L (DNR)' <paul.decker@alaska.gov>, Paul Mazzolini <pmazzolini@hilcorp.com>, "Pike, Kevin W (DNR)' <kevin.pike@alaska.gov>, Randall Kanady <Randall.B.Kanady@conocophillips.com>, Renan Yanish <renan@astercanyon.com>, Richard Cool <cool.richard@epa.gov>, Robert Brelsford <robert.brelsford@argusmedia.com>, Ryan Tunseth <ryan_tunseth@xtoenergy.com>, Sara Leverette <saleverette@stoel.com>, Scott Griffith <scott_griffith@xtoenergy.com>, Shahla Farzan <shahla@kbbi.org>, Shannon Donnelly <shannon.donnelly@conocophillips.com>, Sharon Yarawsky <syarawsk@blm.gov>, "Skutca, Joseph E (DNR)' <joseph.skutca@alaska.gov>, Smart Energy Universe <admin@smartenergyuniverse.com>, "Smith, Kyle S (DNR)' <kyle.smith@alaska.gov>, Stephanie Klemmer <sklemmer@hilcorp.com>, Stephen Hennigan <shennigan@peiinc.com>, "Sternicki, Oliver R" <Oliver.Sternicki@bp.com>, "Moothart, Steve R (DNR)" <steve.moothart@alaska.gov>, Steve Quinn <smgwrite@gmail.com>, Suzanne Gibson <sgibson@ciri.com>, sheffield@aoga.org, Ted Kramer <tkramer@hilcorp.com>, Teresa Imm <timm@asrc.com>, Thor Cutler <Cutler.Thor@epamail.epa.gov>, Tim Jones <tjones@glacieroil.com>, Tim Mayers <mayers.timothy@epa.gov>, Todd Durkee <todd.durkee@anadarko.com>, trmjrl <trmjrl@aol.com>, Tyler Senden <r.tyler.senden@conocophillips.com>, "Umekwe, Maduabuchi P (DNR)' <pascal.umekwe@alaska.gov>, Vinnie Catalano <catalano@circac.org>, Well Integrity <n2549@conocophillips.com>, Well Integrity <n2550@conocophillips.com>, Weston Nash <Weston.Nash@bp.com>, Whitney Pettus <Whitney.Pettus@bp.com>, Aaron Gluzman <aaron.gluzman@gmail.com>, Aaron Sorrell <Aaron.Sorrell@BP.com>, Ajibola Adeyeye <Ajibola_Adeyeye@xtoenergy.com>, Alan Dennis <Alan.Dennis@bp.com>, "Bajsarowicz, Caroline J" <Caroline.Bajsarowicz@bp.com>, Bruce Williams <bruce.williams@bp.com>, "Bruno, Jeff 1 (DNR)' <jeff.bruno@alaska.gov>, Casey Sullivan <Casey.Sullivan@pxd.com>, Catie Quinn <catiequinn@radiokenai.com>, Corey Munk <Corey.Munk@BP.com>, Don Shaw <shawmanseafoods@yahoo.com>, Eppie Hogan <eppie.hogan@bp.com>, Eric Lidji <ericlidji@mac.com>, Garrett Haag <Garrett.B.Haag@conocophillips.com>, "Smith, Graham O (DNR)' <graham.smith@alaska.gov>, "Dickenson, Hak K (DNR)' <hak.dickenson@alaska.gov>, "Heusser, Heather A (DNR)' <heather.heusser@alaska.gov>, "Fair, Holly S (DNR)' <holly.fair@alaska.gov>, "Jamie M. Long" <jamie.m.long@esso.ca>, Jason Bergerson <Jason.Bergerson@north-slope.org>, Jesse Chielowski <jchmielowski@blm.gov>, Jim Magill <jim_magill@platts.com>, Joe Longo <Joe.Longo@hxrdrillingservices.com>, John Martineck <john@bluecrestenergy.com>, Josh Kindred <kindred@aoga.org>, Laney Vazquez <LVazquez@chevron.com>, Lois Epstein <lois_epstein@tws.org>, Longan, Sara W (DNR) <sara.longan@alaska.gov>, Marc Kuck <Marc.kuck@enipetroleum.com>, Marcia Hobson <mhobson@eenews.net>, "Steele, Marie C (DNR)' <marie.steele@alaska.gov>, Matt Armstrong <Matt.Armstrong@bakerhughes.com>, "Franger, James M (DNR)' <mike.franger@alaska.gov>, "Morgan, Kirk A (DNR)' <kirk.morgan@alaska.gov>, "Umekwe, Maduabuchi P (DNR)' <pascal.umekwe@alaska.gov>, Pat Galvin <pat@greatbearpetro.com>, Pete Dickinson <pdickinson@allamericanoilfield.com>, Peter Contreras <contreras.peter@epa.gov>, Richard Garrard <rgarrard@nordaqenergy.com>, "Richmond, Diane M" < Diane. Richmond@bp.com>, Robert Province <robert.province@enipetroleum.com>, Ryan Daniel <Ryan.Daniel@bp.com>, Sandra Lemke <Sandra.D.Lemke@conocophillips.com>, "Pollard, Susan R (LAW)" <susan.pollard@alaska.gov>, Talib Syed <talibs@ecentral.com>, "Tina Grovier (tmgrovier@stoel.com)" <tmgrovier@stoel.com>, "Tostevin, Breck C (LAW)" <breck.tostevin@alaska.gov>, Wayne Wooster <wwooster@asrcenergy.com>, William Van Dyke <bvandyke@petroak.com> Subject: R-17-002 (Bonding Workshop) Re: Docket Number: R-17-002 The Alaska Oil and Gas Conservation (AOGCC) will host a Workshop to discuss changes to the bonding practices of the Commission. The AOGCC has scheduled this workshop for June 6, 2017, at 10:00 a.m. at 333 West 7th Avenue, Anchorage, Alaska 99501. Jody J. Coi-ombie .AOGCC SpeciaC.Assistant .ACaska Oilandl5as Conservation Commission 333 West 7"' .Avenue Anchorage, .Alaska 99501 Office: (907) 793-1221 Fax: (907) 276-7542 CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, contains information from the Alaska Oil and Gas Conservation Commission (AOGCC), State of Alaska and is for the sole use of the intended recipient(s). It may contain confidential and/or privileged information. The unauthorized review, use or disclosure of such information may violate state or federal law. If you are an unintended recipient of this e-mail, please delete it, without first saving or forwarding it, and, so that the AOGCC is aware of the mistake in sending it to you, contact Jody Colombie at 907.793.1221 or iodv. colombieQalaska aov. Franger James M (DNR) From: Franger, James M (DNR) Sent: Friday, August 18, 2017 12:37 PM To: Colombie, Jody J (DOA) Cc: Menefee, Wyn (DNR); Eden, Karsten (DNR) Subject: Comments re: proposed changes in AOGCC bonding regulations Following are comments from the Trust Land Office (TLO) regarding the workshop held on June 6, 2017 at the AOGCC pertaining to changes to 20 AAC 25.025, which is the bonding regulation administered by the AOGCC for drilled wells. . From the TLO's perspective, the most critical thing that needs to be clarified in any re -write of the current regulation is what the required bond is covering and when it will be utilized. This actually needs to be clarified in the application of the existing regulation as well. For example, the TLO has been told by personnel from the AOGCC, when faced with a bankrupt operator and a well that has not been properly abandoned, that the landowner (i.e., the Alaska Mental Health Trust Authority, as represented by the TLO) is the party responsible for properly abandoning the well, and that the bond held by the AOGCC is not available for use for abandonment procedures.. This despite the fact that the current regulation, at 20 AAC 25.025 (a), requires that a bond be filed..."to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter." Also, at 20 AAC 25.025 (c), a bond is required and "must remain in effect until the abandonment of all wells.... and until the commission approves the final clearance of the locations." This language also appears on the AOGCC Surety Bond form and Personal Bond form, and appears throughout the proposed re -write of 20 AAC 25.025. Is the use of the AOGCC bond discretionary by the commission? Should criteria be set out in regulation describing when and how the bond will be used? Will the bond be used for all aspects of the well, from drilling to abandonment, as well as removal of all improvements on the well pad, as the current regulation states? Does that include any reclamation of the well pad? It is critical for potential operators as well as the landowner (lessor) to know how the commission uses or intends to use the bonds it is requiring. As it is now, when the TLO leases land and a lessee wants to drill a well, the TLO will require a bond to plug and abandon the well and leave the drill pad in a condition acceptable to the TLO. This, along with the bonding required by the commission, will result in double bonding with the net result that the cost of the required bonding alone could be enough to prevent a well from being drilled. Mike Franger Senior Resource Manager Trust Land Office 2600 Cordova Street #100 Anchorage, Alaska 99503 (907)-269-8657 m i ke. franger@alaska. gov
