Oil and Gas Bonds: Bonding Requirements and BLM Expenditures to Reclaim Orphaned Wells
Published: 2010-01-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Federal Land Policy and Management Act of 1976 directs the Department of the Interior (Interior) to manage lands for multiple uses while also taking any action to prevent "unnecessary or undue degradation" of the land. To do this, Interior's Bureau of Land Management (BLM), among other things, requires oil and gas operators to reclaim the land they disturb and post a bond to help ensure they do so. Despite these requirements, not all operators perform reclamation. If the bond is not sufficient to cover well plugging and surface reclamation and there are no responsible or liable parties, the well is considered "orphaned," and BLM uses federal dollars to fund reclamation. The 12 western states where most oil and gas production occurs and other Interior agencies also require bonds to ensure reclamation. GAO was asked to (1) determine the number, value, and coverage of bonds held by BLM for oil and gas operations; (2) determine the amount that BLM has paid to reclaim orphaned wells over the past 20 years and the number of orphaned wells BLM has identified but has not yet reclaimed; and (3) compare BLM's bonding requirements for oil and gas operations with those the 12 western states use for oil and gas operations on state and private lands and other Interior agencies' bonding requirements for other resources. Among other things, GAO analyzed BLM data on wells and BLM-held bonds, and interviewed BLM officials.
section_title: What GAO Found
paragraphs: According to GAO's analysis of BLM data, as of December 2008, oil and gas operators had provided 3,879 bonds, valued at $162 million, to ensure compliance with lease terms and conditions for 88,357 wells. BLM regulations establish minimum bond amounts: $10,000 for an individual lease, $25,000 to cover all leases of a single operator in a state, and $150,000 to cover all leases of a single operator nationwide. The bond amount for individual leases was set in 1960, while the statewide and nationwide bond amounts were set in 1951. For fiscal years 1988 through 2009, BLM spent about $3.8 million to reclaim 295 orphaned wells in 10 states and has identified an additional 144 orphaned wells in 7 states that need to be reclaimed, according to BLM. The amount spent per reclamation project varied greatly, from a high of $582,829 for a single well in Wyoming in fiscal year 2008 to a low of $300 for 3 wells in Wyoming in fiscal year 1994. BLM reclamation cost estimates were not available for all of the wells it has yet to reclaim, but BLM field office officials have completed reclamation cost estimates of approximately $1.7 million for 102 of the 144 orphaned wells. The 12 western states (Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming) and other Interior agencies and offices have bonding approaches that differ from BLM's oil and gas bonding requirements. The states generally require higher bond amounts than the minimum amounts established by BLM regulations for individual and statewide oil and gas leases. Regulations governing the extraction or use of other federally owned resources generally require bond amounts based on the cost of reclamation or use minimum amounts that were established more recently than the bond amounts for oil and gas. GAO provided a draft of this report to the Department of Interior for review and comment. The Department provided technical comments, which were incorporated as appropriate.

section_title: Letter
paragraphs: The Federal Land Policy and Management Act of 1976 (FLPMA), as  amended, directs the Secretary of the Interior to manage federal lands for  multiple uses, including recreation and mineral extraction, while also  taking any action required to prevent the “unnecessary or undue  degradation” of public land, including federal land that has been leased for  oil and gas operations. Over the past decade, the total number of new  wells drilled more than doubled, which has raised concerns about the  impact of these operations on federal land. Operators are required to  reclaim the leased land in the interest of conservation of surface  resources. Reclamation is intended to return land disturbed by oil and gas  operations to as close to its original condition as is reasonably practical,  including reshaping and revegetating, removing structures, and plugging  wells.
The Department of the Interior’s (Interior) Bureau of Land Management  (BLM) is responsible for implementing FLPMA on BLM land. To carry out  this responsibility, BLM, among other things, requires oil and gas  operators to provide a bond to the agency before beginning certain drilling  operations under an oil and gas lease. These bonds are intended to ensure  that operators perform the required reclamation, as well as the lease’s  other terms and conditions, such as the payment of federal royalties.  These bonds may be surety bonds, a third-party guarantee that an operator  purchases from a private insurance company; or personal bonds  accompanied by a financial instrument, such as a cashier’s check or  negotiable Treasury security. Having operators post bonds to help ensure  reclamation after mineral production has ceased is a common practice.  The 12 western states where most oil and gas production occurs also  require bonds for oil and gas wells on their lands. In addition, BLM and  other Interior agencies require bonds for the extraction of other resources,  such as gold and coal, which are located on federal land or owned by the  federal government.
Although all operators are required to complete reclamation, they do not  always do so. In these circumstances, BLM may use the bond to help  defray some of the cost of completing reclamation. If the bond is not  sufficient to cover well plugging and surface reclamation and there are no  responsible or liable parties, the well is considered “orphaned.” In these  cases, BLM uses appropriated funds to complete the reclamation.
In this context, you asked us to study a range of issues concerning BLM’s  bonding requirements and efforts to ensure that operators reclaim their oil  and gas operations. This report provides the results of the first phase of  our work. For this phase, we (1) determined the number, value, and  coverage of bonds held by BLM for oil and gas operations; (2) determined  the amount that BLM has paid to reclaim orphaned wells over the past 20  years and the number of orphaned wells BLM has identified but has not  yet reclaimed; and (3) compared BLM’s bonding requirements for oil and  gas operations with the bonding requirements the 12 western states use  for oil and gas operations on state and private lands and other Interior  agencies’ bonding requirements for other resources.
To address these objectives, we reviewed federal regulations and BLM  guidance on bonding for oil and gas leases. We discussed this guidance  and a broad range of issues related to how BLM oversees bonding for oil  and gas leases with bonding officials at BLM state offices and field offices  in Colorado and Wyoming, which have a large number of oil and gas wells  and administer bonds that account for a significant amount of the value of  BLM-held bonds. To determine the number of bonds, their value, and  coverage as of December 2008, we analyzed data from BLM’s Bonding and  Surety System—an electronic system containing bond information for oil  and gas operations, as well as for other BLM resource extraction  programs. We also analyzed data from BLM’s Automated Fluid Minerals  Support System (AFMSS)—a database that BLM uses to track oil and gas  information on public and Indian land. It contains data on, among other  things, lease ownership, and well identification, location, and production.  To assess the reliability of the data we used from these systems, among  other things, we electronically tested all fields related to our analysis and  met with agency officials who administer the systems. We found that these  data were sufficiently reliable for the purpose of this report. For orphaned  wells, we obtained information from BLM for fiscal years 1998 through  2009 on the federal dollars paid to reclaim orphaned wells, and the number  of orphaned wells and estimated reclamation costs by state. We also  analyzed state oil and gas bonding regulations, as well as federal bonding  regulations for the extraction of other resources, such as gold and coal, to  compare these bonding regulations with BLM’s bonding regulations for  onshore oil and gas operations. Appendix I describes our scope and  methodology in more detail.
We performed our work from January 2009 to January 2010 in accordance  with all sections of GAO’s Quality Assurance Framework that are relevant  to our objectives. The framework requires that we plan and perform the  engagement to obtain sufficient and appropriate evidence to meet our  stated objectives and to discuss any limitations in our work. We believe  that the information and data obtained, and the analysis conducted,  provide a reasonable basis for our findings.
subsections: section_title: Background
paragraphs: BLM is responsible for managing, as of July 2008, approximately 700  million acres of subsurface mineral resources: 655.5 million of these acres  are not affected by oil and gas production and 44.5 million acres are leased  for oil and gas operations. Of these 44.5 million acres, 11.7 million acres  are in oil and gas producing status and 472,000 acres have surface  disturbance related to oil and gas production. To manage BLM programs  and land, the agency maintains a network of state offices, which generally  conforms to the boundary of one or more states. The state offices are  Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New  Mexico, Oregon, Utah, Wyoming, and Eastern States. BLM has little land in  the eastern half of the United States, consequently, the Eastern States  state office, in Springfield, Virginia, is responsible for managing land in 31  states. Figure 1 shows the boundaries of the 12 BLM state offices.
When operators drill oil and gas wells, they typically remove topsoil from  the well site and lay a well pad, where the drilling rig is located. Other  equipment on site can include generators and fuel tanks. In addition,  reserve pits are often constructed to store or dispose of water, mud, and  other materials that are generated during drilling operations, and roads  and access ways are often built to move equipment to and from the wells.  Generally, these activities can degrade the environment in three ways:    Air quality. Newly graded roads can produce dust, impairing air quality  and visibility in the immediate area and downwind. Nitrogen oxides from  diesel engines and compressors used at drilling sites can also degrade air  quality.
Water quality. Water draining off newly graded surfaces and roads or oil  or water accidentally discharged during oil and gas production can  increase the amount of sediment, salt, and pollutants discharged into  rivers and streams, thereby degrading them. In addition, shallow aquifers  can be polluted if required protective measures are not in place, and the  production of methane gas from coal beds can deplete shallow aquifers  that serve as domestic water sources.
Habitat. A high density of drilling and production equipment can, in  extreme situations, change the appearance of the landscape from a natural  setting to an industrial zone. In addition, the noises, smells, and lights from  trucks, drilling and construction equipment, and production facilities can  disturb wildlife and people living nearby.
Under FLPMA, BLM must manage federal lands for multiple uses,  including recreation and mineral extraction, as well as for sustained yield.  To that end, FLPMA requires BLM to develop resource management plans,  known as land use plans. In developing its land use plans, BLM  determines, among other things, which parcels of land will be available for  oil and gas development. According to BLM officials, parties interested in  leasing federal minerals submit an Expression of Interest or pre-sale offer  on those lands they are interested in leasing. These are then reviewed and  if the lands are eligible to be leased, are placed up for competitive oil and  gas lease sale. Leases can vary in size reaching 2,560 acres for lands in the  lower 48 states and 5,760 acres for lands in Alaska.
Operators that have obtained a lease must submit an application for a  permit to drill to BLM before beginning to prepare land or drilling any new  oil or gas wells. The complete permit application package is a lengthy and  detailed set of forms and documents, which, among other things, must  include proof of bond coverage and a surface use plan of operations; this  surface use plan must include a reclamation plan that details the steps  operators propose to take to reclaim the site. However, operators  generally do not have to submit cost estimates for completing the  reclamation.
The Mineral Leasing Act of 1920, as amended, requires that federal  regulations ensure that an adequate bond or surety is established before  operators begin to prepare land for drilling. The bond is intended to ensure  complete and timely reclamation. Accordingly, federal regulations require  the operator to submit a surety or personal bond to BLM, which is  intended to ensure compliance with all of the lease’s terms and conditions,  including reclamation requirements. Surety bonds are a third-party  guarantee that an operator purchases from a private insurance company  approved by the Department of the Treasury, and personal bonds must be  accompanied by one of the following five financial instruments:    certificates of deposit issued by a financial institution whose deposits are    cashier’s checks;    negotiable Treasury securities, including U.S. Treasury notes or bonds,  with conveyance to the Secretary of the Interior to sell the security in case  of default in the performance of the lease’s terms and conditions; and  irrevocable letters of credit that are issued for a specific term by a  financial institution whose deposits are federally insured, and meet certain  conditions.
In reviewing the application for a permit to drill, BLM (1) evaluates the  operator’s proposal to ensure that the proposed drilling plan conforms to  the land use plan and applicable laws and regulations and (2) inspects the  proposed drilling site to determine if additional site-specific conditions  must be addressed before the operator can begin drilling. After BLM  approves a drilling permit, the operator can drill the well and commence  production.
After drilling the well, the operator may perform interim reclamation—the  practice of reclaiming surfaces that were disturbed to prepare a well for  drilling but that are no longer needed. For example, operators may need a  10-acre drill pad to safely drill a series of wells. However, once the wells  are drilled, operators may only need 4 acres to safely service the wells  over their lifetime. In this case, the operator could reseed and regrade the  6 acres of the initial pad that are no longer needed. While BLM does not  generally require interim reclamation in all permits it issues, it may decide  to add interim reclamation as a requirement in drilling permits for specific  oil and gas developments.
Final reclamation occurs when an operator determines, and BLM agrees,  that a well has no economic value. The terms of final reclamation are  included in the lease and the drilling permit. The operator must follow the  agreed-upon final reclamation plan, including plugging the wells, removing  all visual evidence of the well and drill pad, recontouring the affected land,  and revegetating the site with native plant species. In general, the goal is to  reclaim the well site so that it matches the surrounding natural  environment to the extent possible. BLM then inspects the site to monitor  the success of the reclamation, a process that typically takes several years.  Once BLM determines that reclamation efforts have been successful, it  approves a Final Abandonment Notice.
However, in some circumstances, the operator may delay performing  reclamation and instead allow the well to remain idle for various reasons.  For example, expected higher oil and gas prices may once again make the  well economically viable to operate, or the operator may decide to use the  well for enhanced recovery operations, for example using the well to  inject water into the oil reservoir and push any remaining oil to operating  wells.
Under BLM policy, the agency must periodically review the status of these  idle wells to ensure that the operator has legitimate reasons for allowing  the wells to remain idle. According to BLM officials, the primary purpose  of idle-well reviews is to ensure that these wells do not become  orphaned—that is, they lack a bond sufficient to cover reclamation costs  and there are no responsible or liable parties to perform reclamation.
States have adopted laws and regulations governing oil and gas  development on state and private lands, including bond and reclamation  requirements. In addition, other Interior programs and offices that are  responsible for managing the extraction of other federally owned  resources have bond and reclamation requirements. Specifically, those  programs and offices are:    BLM Geothermal Resource Leasing. BLM issues leases for the  development of geothermal resources on federal lands; these resources  are used to develop electricity by capturing the geothermal heat generated  in the earth’s core.
BLM Hardrock Minerals Claims. BLM oversees the process for staking  claims and extracting hardrock minerals on the lands it manages. These  minerals are also referred to as locatable minerals and include gold, silver,  and copper, among others.
BLM Mineral Materials Sales. BLM oversees the sale of these minerals,  such as sand and gravel, from federal lands. These minerals are also  sometimes referred to as salable minerals.
BLM Solid Minerals Leasing. BLM issues leases for the extraction of  these minerals on federal lands; solid minerals are minerals other than  coal and oil shale, and include silicates, potash, and phosphate. Solid  minerals are also sometimes referred to as leasable minerals.
Minerals Management Service (MMS) Offshore Oil and Gas Leasing.
MMS issues leases to develop offshore oil and gas resources in the Gulf of  Mexico, off the Atlantic coast, and off the Pacific coast states of California,  Oregon, Washington, and Hawaii.
Office of Surface Mining Reclamation and Enforcement (OSM) Coal  Leasing. OSM regulates the surface mining of coal. States can choose to  develop their own programs to regulate surface mining if that program is  in accordance with federal law and approved by OSM. OSM is charged  with enforcing states’ adherence to their approved programs or  implementing a federal program if the state fails to submit, implement, or  enforce its program.
section_title: BLM Holds Nearly 4,000 Bonds, Valued at $162 Million, but Amounts Are Based on Regulatory Minimums and Not on Full Reclamation Costs
paragraphs: As of December 2008, oil and gas operators had provided 3,879 surety and  personal bonds, valued at approximately $162 million, to ensure  compliance with all lease terms and conditions for 88,357 wells, according  to our analysis of BLM data. BLM officials told us that the bond amounts  are generally not based on the full reclamation costs for a site that would  be incurred by the government if an operator were to fail to complete the  required reclamation. Rather, the bond amounts are based on regulatory  minimums intended to ensure that the operator complies with all the  terms of the lease, including paying royalties and conducting reclamation.
subsections: section_title: BLM Holds $162 Million in Surety and Personal Bonds for 88,357 Wells
paragraphs: As of December 1, 2008, the 88,357 oil and gas wells were covered by  16,809 leases, with 70 percent of all wells located in New Mexico and  Wyoming. Cumulatively, Wyoming and New Mexico have more than four  times as many wells as the total number of wells in Utah and California,  which are the states with the third and fourth most wells at 7,388 and  7,215, respectively. Table 1 shows the number of oil and gas wells and  leases located in the nine BLM state offices.
According to our analysis of BLM’s data, as of December 1, 2008, oil and  gas operators had 3,879 bonds valued at approximately $162 million to  ensure compliance with lease terms and conditions for 88,357 wells on  federal land. Fifty-two percent of these bonds—2,086—were surety bonds  valued at approximately $84 million, and 48 percent—1,793—were  personal bonds valued at almost $78 million.
The number of wells and the value of bonds held by BLM have increased  over the past 20 years. The value of bonds increased from approximately  $69 million as of September 30, 1988, to approximately $164 million as of  September 30, 2008, as the number of wells increased from almost 50,000  to more than 85,000. As figure 2 shows, this increase in the number of  wells occurred primarily in the last decade.
section_title: Minimum Bond Amounts Were Last Set in the 1950s and 1960s to Ensure Operators Meet Legal Requirements, including Reclamation
paragraphs: The Mineral Leasing Act of 1920, as amended, requires that federal  regulations ensure that an adequate bond or surety is established that  ensures complete and timely reclamation. Under BLM regulations, bonds  are conditioned upon compliance with all of the terms and conditions of  the lease, including but not limited to, paying royalties, plugging wells,  reclaiming disturbed land, and cleaning up abandoned operations. To  ensure operators meet legal requirements, including reclamation, BLM  regulations require them to have one of the following types of coverage:  individual lease bonds, which are to cover all wells an operator drills  under one lease;    statewide bonds, which are to cover all of an operator’s leases in one    nationwide bonds, which are to cover all of an operator’s leases in the    other bonds, which include both unit operator bonds that cover all  operations conducted on leases within a specific unit agreement, and  bonds for leases in the National Petroleum Reserve in Alaska (NPR-A).
BLM regulations establish a minimum bond amount in order to ensure  compliance with all legal requirements and also authorize or require BLM  to increase the bond amount in certain circumstances. These minimum  bond amounts were set in the 1950s and 1960s and have not been updated.  Specifically, the bond minimum of $10,000 for individual bonds was last  set in 1960, and the bond minimums for statewide bonds—$25,000—and  for nationwide bonds—$150,000—were last set in 1951. If adjusted to 2009  dollars, these amounts would be $59,360 for an individual bond, $176,727  for a statewide bond, and $1,060,364 for a nationwide bond. Figure 3  shows the current amounts set in 1951 and 1960 and what these amounts  would be if adjusted to 2009 dollars.
Of the three primary bond categories—individual, statewide, and  nationwide—statewide bonds accounted for most of the bonds covering  oil and gas wells. Figure 4 shows the value and percentage distribution of  the bonds by type.
Appendix II provides more detailed information on the number and value  of BLM-held bonds by state.
While BLM regulations set minimum amounts for bonds, they also require  bonds in an increased amount in certain circumstances and authorize BLM  to require an increased bond amount when the operator poses a risk due  to certain factors. First, when an operator who has failed to plug a well or  reclaim lands in a timely manner that resulted in BLM making a demand  on a bond in the prior 5 years applies for a new permit to drill, BLM must  require a bond in an amount equal to the BLM cost estimate for plugging  the well and reclaiming the disturbed area if the cost estimate is higher  than the regulatory minimum. Second, BLM officials may require an  increase in the amount of any bond when the operator poses a risk due to  factors that include, but are not limited to, a history of previous violations,  a notice from MMS that there are uncollected royalties due, or the fact that  the total cost of plugging existing wells and reclaiming lands exceeds the  present bond amount based on BLM estimates.
section_title: BLM Spent Nearly $4 Million to Reclaim 295 Orphaned Wells since Fiscal Year 1988 and Has Identified Another 144 Orphaned Wells to Be Reclaimed
paragraphs: According to BLM data, the agency spent about $3.8 million to reclaim 295  orphaned wells in 10 states from fiscal years 1988 through 2009. The 10  states where orphaned wells were reclaimed include California, Colorado,  Montana, New Mexico, North Dakota, Oklahoma, Ohio, Utah, West  Virginia, and Wyoming. Some of these states, such as Ohio and West  Virginia, do not currently produce high volumes of oil and gas compared  with other states in the West, although they did in the late 1800s and early  1900s. Although reclamation costs averaged $12,788 per well, the amount  spent to reclaim wells varied by reclamation project, state, and fiscal year.  For example:    Cost per project. The amount spent per reclamation project varied from a  high of $582,829 for a single well in Wyoming in fiscal year 2008, to a low  of $300 for three wells in Wyoming in fiscal year 1994. These variations are  due to differences in the amount of surface and subsurface disturbance  and the amount of effort required to reclaim these wells.
Number of wells and spending by state. The number of wells reclaimed  and the amount spent in each state also varied considerably. California  had the most orphaned wells reclaimed—140 of the 295 wells reclaimed,  or about 47 percent—while Colorado and West Virginia had the fewest,  each with 1 reclaimed well. However, over one-third of the amount spent  to reclaim orphaned wells—about $1.3 million—went toward reclaiming  44 wells in Wyoming.
Amount spent per year. In the fiscal years that BLM spent funds to  reclaim orphaned wells, the amount spent in each fiscal year varied from a  high of $632,829 to reclaim two wells in 2008, to a low of $24,962 to  reclaim a single well in Ohio in fiscal year 2001. BLM had no expenditures  to reclaim orphaned wells in fiscal years 1989 through 1991, 1996 through  1998, or in 2005. BLM officials explained that orphaned wells were not  reclaimed in those years because the decision to do so is left to the  discretion of BLM state office officials. Further, there is no dedicated  budget line item to fund orphaned well reclamation; instead, it is  dependent on whatever funds are available from BLM state offices and the  BLM Washington office.
Table 2 provides a summary of the number of wells reclaimed, the  expenditures per year, and the states where reclamation occurred by year;  table 3 shows the number of wells reclaimed and expenditures by state.
BLM has identified an additional 144 orphaned wells on BLM and other  federal land that need to be reclaimed in seven states. Although BLM  reclamation estimates were not available for all of these wells, officials in  BLM field offices have completed reclamation cost estimates for 102 of the  144 wells, for a total estimated cost of $1,683,490. More than half of these  wells for which BLM has estimated costs are in Oklahoma—the state with  the highest concentration of orphaned wells. The estimated reclamation  costs in each state differ substantially—from an average cost per well in  Wyoming of $93,641 to a low of $9,100 in Arizona. These differences are  due to such factors as well age, well depth, the amount of surface  disturbance, and costs for materials and labor. Table 4 shows the  orphaned wells and the estimated reclamation costs by state; table 5  shows the wells by surface management agency.
In addition, BLM is responsible for reclaiming 67 wells in Alaska that are  commonly referred to as legacy wells. Unlike orphaned wells, which were  drilled by private-sector operators, legacy wells were drilled by the U.S.  Navy and the U.S. Geological Survey from the early 1900s to 1981 on what  was then the Naval Petroleum Reserve No. 4—a 23-million-acre roadless  area 200 miles north of the Arctic Circle. The wells were drilled to evaluate  the mineral potential of the area and to test arctic oil and gas exploration  and engineering practices. In 1976, the reserve was renamed the National  Petroleum Reserve-Alaska (NPR-A) and its administration was transferred  to BLM—including responsibility for reclaiming those wells drilled prior to  the transfer. Because of the remote location and difficult weather conditions  in the NPR-A, mobilizing equipment and personnel to perform reclamation  can be unusually expensive. For example, BLM estimates that reclaiming  one well—known as Drew Point #1—will cost $23.6 million, owing in part to  the well’s close proximity—less than 500 feet—to the Arctic Ocean, which is  eroding the shore nearby. Although estimates are not available for  reclaiming all 67 of these legacy wells, BLM estimated in 2004 that  reclaiming 37 high-priority legacy wells would exceed $40 million.
section_title: BLM Oil and Gas Bonding Requirements Differ from States’ Requirements and from Federal Bonding Requirements for Other Resources
paragraphs: Like BLM, states have bonding requirements for oil and gas operations.  However, in most states, bond amounts reflect some of the well’s  characteristics and are generally higher than BLM’s minimum amounts.  The states with regulatory minimum bond amounts not based on well  characteristics generally have minimum amounts higher than BLM’s  minimum amounts. In addition, federal regulations for other resources  generally require the bonds to reflect the cost of reclamation or have  minimum bond amounts that have been more recently established.
subsections: section_title: States Have Different Approaches for Determining Bonding Amounts and Generally Require Bond Amounts Equal to or Higher Than Those of BLM
paragraphs: The 12 western states have bonding requirements for oil and gas  operations that differ in their approach from BLM’s onshore oil and gas  bonding requirements. The states use bonds that cover either all wells in  the state (similar to BLM’s statewide bond but referred to as statewide  blanket bonds), multiple wells in the states (referred to as blanket bonds),  or an individual well. Regarding the amount of bond required, the 12  western states generally either use a minimum bond amount established  by regulation regardless of the well’s characteristics or determine bond  amounts based either on the depth of the well(s) or on the total number of  wells covered by the bond. The latter approach is often more complex  than the regulatory minimum requirements and triggers increases in bond  amounts when certain additional factors come into play. For example:    For individual wells, Wyoming determines bond amounts based on well  depth. If the well is less than 2,000 feet deep, the state requires a bond of  at least $10,000, and if the well is 2,000 feet or deeper, the state requires a  bond of at least $20,000. For statewide bonds, the minimum bond amount  is $75,000. However, Wyoming may require an additional bond, currently  in the amount of $10 per foot of well depth, when a well is not producing,  injecting, or disposing after an operator’s total footage of idle wells  reaches a certain threshold. Finally, the amount of this additional bond  will increase every 3 years in accordance with the percentage change in  Wyoming consumer price index.
For statewide bonds, California uses an approach that considers the  number of wells and imposes an additional requirement on operators with  idle wells. If an operator has 50 or fewer wells, then the bond amount is  set at $100,000; if an operator has more than 50 wells exclusive of properly  abandoned wells, the bond amount is set at $250,000. In addition to these  bond amounts, operators must either (1) pay an annual fee for each idle  well, (2) establish an escrow account of $5,000 for each idle well, (3)  provide a $5,000 bond per idle well, or (4) have filed a management and  elimination plan for all long-term idle wells. In lieu of complying with this  requirement for idle wells, operators can post a $1 million statewide bond.
In contrast, BLM’s method for deciding when and how much to increase  the minimum bond amount is not automatic, unless the operator has  previously failed to plug a well or reclaim lands; rather, it is based on the  judgment of field and state office officials.
Table 6 shows the 12 western states’ bonding requirements.
The 12 western states generally require bond amounts that are at least  equal to or higher than the minimum amount BLM requires for its  individual lease and statewide bonds, or determine the bond amount based  on well depth or number of wells covered by the bond. For example:    The 4 states that require minimum bond amounts for individual wells  regardless of well depth—Alaska, Idaho, Nevada, and Washington—set  minimum bond amounts at $100,000, $10,000, $10,000, and $50,000 per  well, respectively. Because these bond amounts are required for each well,  in most circumstances they are generally higher than BLM’s minimum  amount of $10,000 for individual lease bonds since most BLM leases have  more than one well.
The 7 states whose regulations establish a bond amount or minimum bond  amount for statewide or blanket bonds regardless of a well’s  characteristics—Alaska, Idaho, Montana, Nevada, New Mexico,  Washington, and Wyoming—have amounts that range from a high of  $250,000 in Washington to low of $25,000 in Idaho.
All states except Alaska, Idaho, Nevada, and Washington determine the  amount of individual well bonds based, at least in part, on well depth.  Three of the 9 states whose regulations provide for statewide bonds— California, Colorado, Utah—also determine the amount based on well  depth or the number of wells covered by the bond. Because of the nature  of these approaches, it is difficult to compare them with BLM’s bonding  requirements to determine which would result in the higher bond amount.  However, these approaches are generally more sophisticated than  minimum requirements in that they associate the bond amount with the  amount of drilling, which may reduce the potential liability to the states in  cases where the operator fails to perform the necessary reclamation.
See appendix III for detailed information on the bonding requirements in  each of the 12 western states.
section_title: Federal Regulations for Other Resources Generally Require Bond Amounts That Cover Reclamation Costs or the Minimum Bond Amounts Have Been More Recently Set
paragraphs: Regulations governing the extraction of other resources owned by the  federal government generally require (1) bond amounts that consider the  cost of reclamation, which reduces the government’s potential liability for  reclamation costs; or (2) use minimum amounts that were established  more recently than the amounts for BLM oil and gas bonds.
First, bonding requirements for the extraction of coal and hardrock  minerals—such as gold, silver, and copper—require operators to post  bonds that cover the full estimated cost of reclamation. These  requirements reduce the potential reclamation liability to the federal  government should the operations fail to perform the necessary  reclamation.
Second, for the remaining types of federally owned resources, minimum  bond amounts are established by regulation. These regulations are similar to  BLM’s regulations; however, these regulatory minimum amounts generally  have all been established or updated since BLM established its current  regulatory minimums for oil and gas leases in 1951 for statewide and  nationwide bonds, and in 1960 for individual lease bonds. Table 7 provides a  summary of the type and amount of bonds required for the extraction or use  of federally owned resources. Additional detail on the structure, amount,  and types of bonds permitted is contained in appendix IV.
section_title: Agency Comments and Our Evaluation
paragraphs: GAO provided Interior with a draft of this report for its review and  comment. Interior provided technical comments, which we incorporated  as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to interested congressional  committees; the Secretary of the Interior; and the Director of the Bureau  of Land Management. The report also is available at no charge on the GAO  Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-3841 or mittala@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This appendix details the methods we used to examine three aspects of  the Department of the Interior’s (Interior) Bureau of Land Management  (BLM) bonding requirements for BLM oil and gas leases and reclamation  of oil and gas wells. Specifically, we were asked to (1) determine the types,  value, and coverage of bonds held by BLM for oil and gas operations; (2)  determine the amount that BLM has paid to reclaim orphaned wells over  the past 20 years, and the number of orphaned wells BLM has identified  but has not yet reclaimed; and (3) compare BLM’s bonding requirements  for oil and gas operations with the bonding requirements the 12 western  states use for oil and gas operations on state and private lands and other  Interior agencies’ bonding requirements for other resources.
Overall, we reviewed federal regulations and BLM guidance on bonding for  oil and gas leases, and discussed this guidance and a broad range of issues  related to how BLM oversees bonding for oil and gas leases during  interviews with bonding officials at BLM state offices and field offices in  Colorado and Wyoming—two states that have a large number of oil and  gas wells and administer bonds that account for a significant amount of  the value of BLM-held bonds.
For objective one—to determine the number, value, and coverage of  bonds, as of December 2008—we analyzed data from BLM’s bond and  surety system, and Automated Fluid Minerals Support System (AFMSS),  and met with agency officials who administer the systems. From the bond  and surety system, we received 13 tables from BLM containing 747,926  records on bonds from June 19, 1925, to December 17, 2008. We also  received 9 tables containing 106,705 records on wells from January 7, 1930,  to August 20, 2009 from BLM’s AFMSS. Because the bond and surety  system contains records on bonds that have been terminated and do not  have any well liability attached, we first determined which records  contained active bonds. Because bond data were limited to records before  December 17, 2008, we selected the first day of the final month for which  we had data, December 1, 2008. We corroborated the number of active  bonds using a range of different methodologies that uses other data in the  bond and surety system and confirmed that the list of active bonds was  sufficiently complete for the purposes of our analysis.
To determine the number of bonds, we selected all active bonds as of  December 1, 2008, in the bond and surety system and grouped them by  bond type into surety or personal bonds. BLM’s data further identified  personal bonds as letter of credit, time deposit, Treasury security, and  guaranteed remittance. We analyzed 43 C.F.R. § 3104.1, which addresses  bond types, and spoke to BLM officials, before deciding to group the  various types of personal bonds into a single personal bond category.
To determine the value of bonds, we selected all active bonds as of  December 1, 2008, in the bond and surety system and grouped them by  unique bond file number. To calculate the total value of all active bonds,  we summed the bond amount for all unique bonds. We also grouped bonds  by bond type and bond coverage type to calculate the value for each  group. Finally, we grouped all bonds by BLM state office using the  administrative state field in the bond and surety system and summed the  amount of all bonds for each BLM state office, as well as categorizing  bonds by bond type and bond coverage type.
For bond coverage, we selected active bonds as of December 1, 2008, from  the bond and surety system and grouped them by the following categories:  individual, statewide, nationwide, and other. The other category included  collective (unit), blanket bonds, and bonds for the National Petroleum  Reserve in Alaska. We analyzed 43 C.F.R. §§ 3104.2-3104.4 and spoke with  BLM officials to determine the appropriate bond coverage type categories,  creating the other category for the 6 percent of bonds not typically used  for current wells.
To determine the number of wells, we received and analyzed data BLM  generated from the AFMSS database that included records current as of  August 20, 2009. The set of data received from BLM excluded all wells that  had been reclaimed prior to this date and whose bonds had been released,  helping to ensure that our data only included wells that required a bond.  To have the well data match the bonding data, we selected all well records  in AFMSS that were drilled before December 1, 2008. We identified wells  using the well’s unique American Petroleum Institute number, which is  assigned when the well is drilled. In addition to information on producing  wells, the data also included information on wells that were shut in (i.e.,  could return to production) and temporarily abandoned (i.e., could be  used for a purpose other than producing oil or gas). We also grouped these  wells by their BLM state office using a location field in AFMSS. To  determine the number of leases, we grouped the number of wells listed  before December 1, 2008, by unique lease number, and analyzed these  leases by state using the location field of the lease within AFMSS. Because  the AFMSS system can generate current data only, our analysis excludes  those wells that were reclaimed between December 1, 2008, and August  20, 2009. Although these wells were not included in our totals, we  concluded the data were sufficiently reliable for the purpose of our  analysis, as data published in BLM’s Public Land Statistics show that only  231 wells were plugged and abandoned in all of fiscal year 2008. We also  compared our total number of wells with the total number of wells in the  fiscal year 2008 BLM Public Land Statistics. We determined that the  difference between our total for December 1, 2008, and BLM’s total for  September 30, 2008—a difference of about 3 percent—did not significantly  affect our analysis.
For figure 2 in the report—the number of wells and value of bonds, from  September 30, 1988, to September 30, 2008 (the most current date for  which BLM data were available)—we selected five dates at 5-year intervals  for the past 20 years, and calculated the total value of all bonds using data  in the bond and surety system and the number of wells from BLM Public  Land Statistics. We used the following dates to assess coverage:  September 30, 2008; September 30, 2003; September 30, 1998; September  30, 1993; and September 30, 1988. For each of these dates, we selected all  active bonds, providing us with those bonds that were accepted, but not  terminated, before each of the five dates. To calculate the total value of  these bonds, we grouped unique bonds for each of the five dates, and  summed the bond amount field in the bond and surety system. To  calculate well totals, we were limited by the dynamic nature of AFMSS,  which restricted us from calculating the number of active wells for  specific dates in the past. Due to this limitation, we relied on BLM’s Public  Land Statistics for the well totals for our specified dates.
For figure 3 in the report—individual, statewide, and nationwide current  bond minimums adjusted to 2009 dollars—we used the bond minimums  established in 43 C.F.R. §§ 3104.2, 3104.3 and searched the Federal  Register to determine the dates the bond minimums were established. We  then calculated the amount of each bond minimum in 2009 dollars.
We reviewed the reliability of the data we used from the bond and surety  system and AFMSS and found these data sufficiently reliable for the  purpose of our review, including: total number of bonds, total number of  wells, number and value of bonds by bond type, number and value of  bonds by coverage type, number of wells by state, number of leases by  state, number and value of bonds by state, average value of bonds by state  office, number and value of bond types by state office, and number and  value of coverage types by state office. To test the sufficiency of the bond  and surety system and AFMSS data used to calculate the number, types,  values, and coverage of bonds, we electronically tested the database and  conducted interviews with BLM staff responsible for the integrity of the  data. We also electronically tested all fields related to our analysis,  including tests for null values, duplicate records, accurate relationships  between code and text fields, and outliers. We also conducted 20  interviews with BLM staff between December 12, 2008, and November 13,  2009, on the following topics: data entry, use of data, completeness of  data, accuracy of data, edit checks, supervisory oversight, internal  reviews, different data fields, and data limitations. We determined that  there were no significant issues with the bond and surety system and  AFMSS data we used to calculate the number, types, value, and coverage  of bonds.
To address our second objective—determine how much BLM has paid to  reclaim orphaned wells over the past 20 years, and how many wells BLM  has yet to reclaim—we obtained data collected by BLM officials from BLM  field and state offices. To determine the expenditures for reclaiming  orphaned wells, we obtained data for fiscal years 1988 through November  30, 1994, from a 1995 BLM report. We obtained data through fiscal year  2009 from BLM officials. These data included federal dollars paid to  reclaim orphaned wells, the number of wells reclaimed, and their location.  To determine the number of orphaned wells yet to be reclaimed, we  reviewed BLM’s Instructional Memorandum No. 2007-192, which directs  BLM field office staff to report data on orphaned wells to BLM’s  Washington Office. The Instructional Memorandum directs field office  staff to complete an “Orphaned Well Scoring Checklist” for each orphaned  well identified. This checklist asks for such information as the well’s  location; well name; and other factors relating to reclamation, such as the  well depth or estimated reclamation cost. We reviewed these checklists  and analyzed all available estimated reclamation amounts. We then  calculated and summarized estimated reclamation cost data by state and  surface management agency.
To address our third objective—compare BLM’s bonding methods with  those used by the 12 western states and other Interior agencies—we  analyzed state oil and gas bonding laws and regulations, as well as federal  bonding regulations for the extraction or use of other federally owned  resources. These federal agencies and resources included BLM  Geothermal Energy, BLM Hardrock Minerals, BLM Mineral Materials, BLM  Solid Minerals, Mineral Management Service Offshore Oil and Gas Leasing,  and Office of Surface Mining Reclamation and Enforcement Coal Leasing.  We summarized the bonding requirements, including scope, structure,  amount, and method for determining bond amounts.
We conducted our work from January 2009 to January 2010 in accordance  with all sections of GAO’s Quality Assurance Framework that are relevant  to our objectives. The framework requires that we plan and perform the  engagement to obtain sufficient and appropriate evidence to meet our  stated objectives and to discuss any limitations in our work. We believe  that the information and data obtained, and the analysis conducted,  provide a reasonable basis for any findings and conclusions.
section_title: Appendix II: Information on BLM Held Oil and Gas Bonds
paragraphs: This appendix provides information on BLM held oil and gas bonds from  BLM’s AFMSS and bond and surety systems, including the number, value,  and average value of all BLM held bonds (table 8); the number and value of  surety and personal bonds (tables 9 and 10); and the number and value of  individual, statewide, nationwide, and other bonds (tables 11 and 12).
section_title: Appendix III: Information on the Requirements the 12 Western States Use for Oil and Gas Bonds
subsections: section_title: To ensure that each well is drilled, operated, maintained, repaired, and abandoned (plugged) and each location is cleared in accordance with state laws and regulations.
paragraphs: Single well bond.
Blanket bond covering  all of the operator’s  wells in the state.
Surety bond by an  authorized insurer who  is in good standing. unless the applicant  demonstrates that the  cost of well  abandonment  (plugging) and location  clearance will be less  than $100,000.
Personal bond and  security in the form of  (1) a certificate of  deposit, (2) irrevocable  letter of credit, or (3) an  otherwise adequate  security.
Not less than $200,000.
Conditioned on drilling,  plugging dry or abandoned  wells, repairing wells  causing waste or pollution,  maintaining and restoring  well sites, and acting in  accordance with the  applicable laws and  regulations.
Individual well bond.
Blanket bond to cover  multiple wells. $10,000 for wells  10,000 feet or less  deep.
Surety bond by a  corporate surety  authorized to do  business in Arizona. $20,000 for wells  deeper than 10,000  feet.
Certified check. from a bank whose  deposits are federally  insured.
Although the state Oil and  Gas Conservation  Commission is authorized  to issue a rule requiring an  additional bond if the  surface landowner is not in  a contractual relationship  with drilling permittee, no  such rule has been issued. $25,000 for 10 or fewer  wells.  $50,000 for more than  10 but fewer than 50  wells.  $250,000 for 50 or  more wells.
Conditioned on compliance  with all statutory  requirements for drilling,  redrilling, deepening, or  permanently altering the  casing of the well.
Individual indemnity  bond.
Indemnity bond.
Blanket indemnity bond  covering all wells in the  state. $15,000 for wells less  than 5,000 feet deep.
Idle well indemnity  bond. $20,000 for wells at least  5,000 feet deep but less  than 10,000 feet deep.  $30,000 for each well  10,000 or more feet  deep. that (1) does not  exceed the federally  insured amount, (2) is  insured, and (3) is  issued by a bank or  savings association  authorized to do  business in California. $250,000 plus the idle  well bond. If a bond was  provided prior to Jan. 1,  1999, its amount must  be increased by a  minimum of $30,000 per  year beginning on Jan.  1, 2000, until the bond  reaches $250,000.
Savings accounts and  evidence of the deposit in  the account. The account  cannot exceed the  federally insured amount,  must be federally insured  and with a bank  authorized to do  business in California. $100,000 plus the idle  well bond for operators  having 50 or fewer wells,  exclusive of properly  abandoned wells.  $1 million dollars.
Investment certificates or  share accounts issued by  savings associations  authorized to do  business in California.  The account’s balance  cannot exceed the  federally insured amount  and must be insured. $5,000 per well, if the  operator chooses to post  a bond rather than pay  an annual fee, open an  escrow account, or have  filed a management plan  by July 1, 1999. share accounts issued  by credit unions whose  share deposits are  guaranteed. The  account’s balance  cannot exceed the  guaranteed amount.
Every operator must provide  assurance that it is financially  capable of fulfilling applicable  requirements (1) to protect the  health, safety, and welfare of  the general public in the  conduct of the oil and gas  operations; (2) to ensure  proper reclamation of the land  and soil affected by oil and  gas operations and to ensure  the protection of the topsoil of  said land during such  operations; and (3) associated  with terminating operations  and permanent closure. (1) Surface Owner  Protection Financial  Assurance: individual well  or statewide blanket bond.
The Oil and Gas  Conservation Commission  has the authority to increase  any of these amounts for an  operator under certain  circumstances. operator has sufficient  net worth to guarantee  performance, which the  Commission must  review annually.
To protect surface owners  who are not parties to a  lease or other agreement  with the operator from  unreasonable crop loss or  land damage. (1) Surface Owner  Protection  liability insurance.
Bond or other surety  instrument. (2) Soil Protection, Plugging,  Abandonment and Site  Reclamation Financial  Assurance: individual or  statewide blanket bond. $2,000 per well for non- irrigated land.
Letter of credit. $5,000 per well for  irrigated land.
Certificate of deposit.  instrument. $25,000.
Escrow account or  sinking fund. (2) Soil Protection,  Plugging, Abandonment  and Site Reclamation  $10,000 per well for  wells less than 3,000  feet deep.
Lien or other security  interest in real or  personal property of  the operator that is  acceptable to the  Commission and  reviewed annually. $20,000 per well for  wells greater than or  equal to 3,000 feet  deep.  $60,000 for less than  100 wells.  $100,000 for 100 or  more wells.
If the operator has excess  inactive wells, the financial  assurance amount  increases by  $10,000 for each  excess inactive well  less than 3,000 feet  deep.  $20,000 for each  excess inactive well  greater than or equal to  3,000 feet deep.
The Commission can  modify or waive this  increase if the operator  submits a plan for (1)  returning the wells to  production in a timely  manner or (2) plugging and  abandoning the wells on an  acceptable schedule.
Additional finance  assurances required for off- site, centralized   exploration and production  waste management   facility and seismic  operations.
Conditioned upon  compliance with the legal  and regulatory  requirements for drilling,  maintaining, operating, and  plugging of each oil and gas  well.
Individual well bond.
Statewide blanket  bond.
Individual bond of not less  than $10,000 per well.
Blanket bond of not less  than $25,000 for all wells in  the state.
Surety bond by a  corporate surety  authorized to do  business in Idaho.
Cash.
Separate bond  requirements govern   wells on state and school  lands.
Conditioned on properly  plugging each dry or  abandoned well and  restoring the surface of the  location.
Single well bond.
Multiple well bond. $1,500 if the well’s  depth is 2,000 feet or  less. The Board of Oil  and Gas Conservation  can increase the bond  requirement to $3,000  under certain  circumstances.
Surety bond issued  from a company  licensed to do business  in Montana.
Federally insured  certificate of deposit  held by a Montana  bank. $5,000 if the well’s  depth is greater than  2,000 feet and less  than 3,501 feet. The  Board can increase this  amount to $10,000  under certain  circumstances.
Letter of credit issued  by a Montana  commercial bank  whose deposits are  FDIC insured. $10,000 where the  well’s depth is 3,501  feet or more. The  Board can increase this  amount to $20,000  under certain  circumstances.  $50,000. The Board can  increase this amount to  $100,000 under certain  circumstances and/or  limit the number of  multiple wells that can be  covered by a multiple  bond. If existing wells  are covered by a bond  with an amount less than  $25,000, the owner or  operator must increase  coverage to $25,000.
Conditioned on (1) dry or  abandoned well being  plugged in accordance with  state regulations and (2)  operation and repair of well  in a manner that does not  cause waste.
Individual well bond.
Blanket statewide  bond.
Individual well bond of not  less than $10,000.
Blanket statewide bond of  not less than $50,000.
Bond issued by a  corporate surety  authorized to do  business in Nevada   and approved by the  state regulatory   agency.
Cash deposit.
Savings certificate or  time certificate of  deposit issued by a  bank or savings or loan  association in   Nevada. being plugged and  abandoned and the location  restored and remediated in  compliance with applicable  rules. The financial  assurance is not to secure  payment for damages to  livestock, range, crops or  tangible improvements or  any other purpose. assurance.
Irrevocable letter of  credit that meets  certain conditions.
Blanket financial  assurance for all wells  statewide. $5,000 plus $1 per foot  of well depth in certain  counties.  $10,000 plus $1 per  foot of well depth in all  other counties. federally insured  account in New  Mexico.
Surety bond that meets  certain conditions. $50,000.
Insurance policy that  meets certain  requirements.
Wells that have been in  temporary abandonment for  more than 2 years must be  covered by a one-well  financial assurance, unless  the well is shut-in because  of the lack of a pipeline  connection.
Bond will not be released  unless well has been  properly abandoned,  including site reclamation.
Single well bond.
Surety bond.
Blanket bond for multi- well operations. $10,000 for wells less  than 2,000 feet deep.  $15,000 for wells  between 2,000 and  5,000 feet deep.  $25,000 for wells greater  than 5,000 feet deep.
The Department of  Geology and Mineral  Industries has the  discretion to accept an  irrevocable letter of  credit or other form of  financial security.
Amount equals the sum  of individual bonds  required for the wells,  although some wells  might be excluded from  this calculation.  $100,000.
Conditioned upon the  operator plugging each dry  or abandoned well,  repairing each well causing  waste or pollution, and  maintaining and restoring  the well site.
Individual well bond.
Statewide blanket  bond.
At least $1,500 for a  well less than 1,000  feet deep.
Surety bond with  performance guarantee  of a corporation that  meets certain  requirements.
At least $15,000 for a  well more than 1,000  feet deep but less than  3,000 feet deep.  $30,000 for a well more  than 3,000 feet deep  but less than 10,000  feet deep.
At least $60,000, for  wells more than 10,000  feet deep.
At least $15,000 for  wells less than 1,000  feet deep.
At least $120,000 for  wells more than 1,000  feet deep.
If the Division determines  that these amounts will be  insufficient to cover the  costs of well plugging and  site restoration, a change in  the form or amount of bond  coverage may be required.
The Board has the  discretion to allow bond  coverage in a lesser amount  for a specific well. (3) negotiable  certificates of deposit  issued by a federally  insured bank  authorized to do  business in Utah that  do not exceed FDIC  insurance limits; (4)  irrevocable letter of  credit that meets  certain requirements.  Since July 1, 2003,  operators who want to  establish a new blanket  bond that consists  either fully or partially  of a collateral bond  must be qualified by  the Division first.
If the Division finds that a  well is violating regulatory  requirements for shut-in and  temporarily abandoned  wells, the required bond  amount increases to the  cost of actual plugging and  site restoration costs.
A combination of a  surety and collateral  bond.
Individual well bond. each dry or abandoned  well, reclaiming and  cleaning up the well drilling  site, repairing wells that  cause waste, and  complying with all  applicable laws,  regulations, orders, and  permit conditions, including  regulations and guidelines  for reclamation of land  impacted by oil and gas  drilling and production  activities.
Surety bond that meets  certain requirements.
Statewide blanket  bond.
Not less than $50,000  for most wells.
Cash deposit. $20,000 for wells less  than 2,000 feet deep  drilled solely to obtain  subsurface geological  data.
Savings account  assigned to the state.
Not less than $250,000. a Washington bank and  guarantee of payment  of the principal in the  event penalties are  assessed for early  redemption.
Letter of credit from  bank acceptable to the  State Oil and Gas  Supervisor.
Conditioned on (1) the well  being operated and  maintained so as not to  cause waste or damage to  the environment;   (2) plugging each  permanently abandoned  well in accordance with  regulations; (3) reclamation  of area affected by the oil or  gas operations; and (4)  compliance with all  applicable laws,  regulations, and orders.
Individual well bond.
The state Oil and Gas  Conservation Commission  can increase the amounts  listed below after notice and  a hearing if good cause can  be shown.
Surety bond.
Statewide blanket  bond.
Cashier’s check and  binding, first-priority  pledge agreement.
To secure payment of  damages to the surface  owner. Instead of posting a  bond, the operator can  execute an agreement with  a surface owner (1)  addressing compensation  for damages to land and  improvements; or (2)  waiving the surface owner’s  right to seek damages. $10,000 for wells less  than 2,000 feet deep. for an initial term of not  less than 1 year that  renews automatically  and a binding, first- priority pledge  agreement. $20,000 for wells 2,000  feet or more deep.  $75,000.
Letter of credit issued  by an FDIC-insured  bank with an initial  expiration date of not  less than 1 year from  date of issuance and  that is automatically  renewed.
An increased bond level up  to $10 per foot may be  required for each idle well  once the operator’s total  footage of idle wells  exceeds a certain  threshold.
The level of additional  bonding will increase every  3 years in accordance with  the percentage change in  the Wyoming consumer  price index.
The operator can request a  different bonding level  based on evaluation of  specific well conditions and  circumstances.
In lieu of additional bonding,  the supervisor may accept a  detailed plan of operation  which includes a time  schedule to permanently  plug and abandon idle  wells.
Individual well bond of  not less than $2,000  per well on the land.
Blanket bond amount is  determined by the oil  and gas supervisor.
The state’s oil and gas  supervisor has discretion in  establishing the amount of  these bonds.
section_title: Appendix IV: Bonding Requirements for the Extraction of Federally Owned Resources, by Agency and Resource
subsections: section_title: Conditioned upon compliance with all applicable laws, regulations, the permit, and regulatory program, including the reclamation plan.
paragraphs: Performance bond  for the entire permit  area.
Cumulative bond  schedule and the  performance bond  required for full  reclamation of the  initial area to be  disturbed.
Incremental bond  schedule and the  performance bond  required for the first  increment in the  schedule.
Alternative bonding  system if it achieves  certain objectives  and purposes.
The amount of the bond  required for each bonded  area shall (1) be  determined by the  regulatory authority; (2)  depend upon the  requirements of the  approval permit and  reclamation plan; (3) reflect  the probable difficulty of  reclamation, given  consideration to such  factors as topography,  geology, hydrology, and  revegetation potential; and  (4) be based on, but not  limited to, the estimated  cost submitted by the  permit applicant.
Surety bond that  meets certain  requirements.
The amount of the bond  shall be sufficient to assure  the completion of the  reclamation plan if the work  has to be performed by the  regulatory authority in the  event of forfeiture.
Collateral bond  (including cash;  cash accounts that  do not exceed FDIC  insurable limits;  certificates of  deposit that do not  exceed FDIC  insurable limits and  meet other  requirements; a first  mortgage, first deed  of trust, or perfected  first-lien security  interest in real  property; and  irrevocable letters of  credit that meet  certain  requirements).
In no case shall the total  bond initially posted for the  entire area under one  permit be less than  $10,000.
Self-bond (indemnity  agreement executed  by the applicant or  the applicant and a  corporate guarantor  that meets certain  requirements).
The regulatory authority  must adjust the bond  amount from time to time  as the area requiring bond  coverage is increased or  decreased or where the  cost of future reclamation  changes.
A combination of  any of these types.
To guarantee  compliance with all terms  and conditions of the  lease, including structure  removal and site  clearance.
Lease specific  bond.  Areawide bond.
Amount of bond is determined  by stage of  development/activity. Posting a  lease exploration bond exempts  owner/operator from posting a  general lease bond. Posting a  development and activities  bond exempts the  owner/operator from posting a  general lease bond and lease  exploration bond.
Surety bond issued  by a surety company  approved by the  Department of the  Treasury (Treasury). Treasury securities. $50,000 lease specific  bond.  $300,000 areawide bond.
Alternative types of  securities provided  the MMS Regional  Director determines  that the alternative  protects the interest  of the United States  to the same extent  as the required  bond. $200,000 lease specific  bond.
A combination of  these types. $1 million areawide bond.
Development and production  activities bond  $500,000 lease specific  bond.  $3 million areawide bond.
MMS can require an additional  security if it determines that it is  necessary to ensure  compliance. Such a  determination is based on an  evaluation of the lessee’s ability  to carry out present and future  financial obligations.
In lieu of an additional bond,  MMS may authorize the lessee  to establish a lease-specific  abandonment account or third- party guarantee.
To ensure compliance  with the Mineral Leasing  Act of 1920 as amended,  including complete and  timely plugging of the  well(s), reclamation of  the lease area(s), and  the restoration of any  lands or surface waters  adversely affected by  lease operations.
Individual lease  bond.
Statewide bond.
Nationwide bond.
Surety bond issued  by a qualified surety  company approved  by Treasury.
Nationwide: not less than  If an operator has forfeited a  financial assurance in the previous  5 years because of failure to plug  a well or reclaim lands in a timely  manner, BLM must require a bond  in an amount equal to the  estimated costs of plugging the  well and reclaiming the disturbed  area before approving an  application for a permit to drill.
Personal bonds  accompanied by (1)  certificate of deposit  issued by an  institution whose  deposits are  federally insured; (2)  cashier’s check; (3)  certified check; (4)  negotiable Treasury  securities; or (5)  irrevocable letter of  credit that meets  certain conditions.
BLM has the authority to require  an increase in the bond amount  whenever it determines that the  operator poses a risk due to  factors including, but not limited to,  a history of previous violations, a  notice from MMS that there are  uncollected royalties due, or that  total cost of plugging existing wells  and reclaiming lands exceeds the  present bond amount.
To ensure compliance  with the all the lease  terms, including rentals  and royalties, conditions,  and stipulations.
Individual lease  bond.
Individual lease: $100,000.
Reserve-wide bond. (either as a rider to existing  nationwide bond or a  separate bond).
Surety bond issued  by a qualified surety  company approved  by Treasury.
Personal bonds  secured by (1)  certificate of deposit  issued by an  institution whose  deposits are  federally insured; (2)  cashier’s check; (3)  certified check; (4)  negotiable Treasury  securities; or (5)  irrevocable letter of  credit that meets  certain conditions.
To cover (1) any  activities related to  exploration, drilling,  utilization, or associated  operations on a federal  lease; (2) reclamation of  the surface and other  resources; (3) rental and  royalty payments; (4)  compliance with  applicable laws,  regulations, notices,  orders, and lease terms.
Individual lease  bond.
Statewide activity  bond.  bond.
BLM has the authority to  increase the following bond  amounts when (1) the operator  has a history of noncompliance;  (2) BLM previously made a  claim against a surety company  because someone covered by  the current bond failed to plug  and abandon a well and reclaim  the surface in a timely manner;  (3) a person covered by the  bond owes uncollected  royalties; or (4) the bond  amount will not cover the  estimated reclamation cost.
Corporate surety  bond issued by a  surety company  approved by  Treasury.
Individual: $10,000.
Statewide: $50,000.
Nationwide: $150,000.
Personal bonds  secured by (1)  certificate of deposit  issued by a federally  insured financial  institution authorized  to do business in the  United States; (2)  cashier’s check; (3)  certified check; (4)  negotiable  securities, such as  Treasury notes; and  (5) irrevocable letter  of credit that meet  certain conditions.
Electrical Generation  Facility: at least $100,000.
Direct Use Facility: BLM  will specify amount.
Released when (1) all  royalties, rentals, penalties,  and assessments are paid;  (2) all permit or lease  obligations are satisfied;  (3) site reclaimed; and (4)  effective measures are  taken to ensure that the  mineral prospecting or  development activities will  not adversely affect  surface or subsurface  resources.
Individual lease  bond.
Statewide bond (to  cover all leases of  the same mineral).
BLM determines bond amounts  considering the cost of  complying with all permit and  lease terms, including royalty  and reclamation requirements.
Surety bond issued  by a qualified  company approved  by Treasury. cover all leases of  the same mineral).
Individual lease: minimum  $5,000 (minimum $1,000  for prospecting permits).
Statewide: minimum  $25,000.
Personal bonds in  the form of a (1)  cashier’s check; (2)  certified check; (3)  or negotiable  Treasury bond. $75,000.
To meet the reclamation  standards specified in  the mineral materials  sales contract.
Performance bond  for contract.
No performance  bond required if  sales contract from  a community pit or  common use area  and party pays a  reclamation fee.
For contracts of $2,000 or  more, BLM will establish  bond amount to ensure it is  sufficient to meet the  contract’s reclamation  standards. However, the  amount must be at least  $500.
Corporate surety  bond issued by a  company approved  by Treasury.  that is issued by an  institution whose  deposits are insured  and does not exceed  the maximum FDIC  insurable amount.
For contracts of less than  $2,000, BLM may require a  bond. If BLM requires a  bond, it cannot exceed an  amount greater than 20  percent of the total contract  amount.
Cash bond.
Irrevocable letter of  credit from a bank or  financial institution  organized or  authorized to do  business in the  United States.
If party pays reclamation  fee, no performance bond  is required. bond of the United  States.
Individual financial  guarantee covering  a single notice or  plan of operations.
Blanket financial  guarantee covering  a statewide or  nationwide  operations.
Amount is based on the  estimated cost as if BLM  were to contract with a third  party to reclaim the  operations according to the  reclamation plan, including  construction and  maintenance costs for any  treatment facilities  necessary to meet federal  and state environmental  standards.
Surety bonds that  meet certain  requirements.  federal depository  account of the U.S.  Treasury.
Irrevocable letters of  credit from a  financial institution  organized or  authorized to do  business in the  infrastructure  maintenance costs  needed to maintain the  area of operations in  compliance with  applicable environmental  requirements while third- party contracts are  developed and executed. environmental damage or  the operator has an  excellent past record for  reclamation.
United States.
In addition to the financial  guarantee, BLM may  require the establishment  of a trust fund or other  funding mechanism to  ensure the continuation of  long-term treatment to  achieve water quality  standards and for other  long-term, post-mining  maintenance requirements.  The funding must be  adequate to provide for  construction, long-term  operation, maintenance, or  replacement of any  treatment facilities and  infrastructure, for as long  as the treatment and  facilities are needed after  mine closure. deposit or savings  accounts not in  excess of the FDIC  insurable amount.
Negotiable U.S.  government, state,  and municipal  securities or bonds  maintained in a  Securities Investors  Protection  Corporation-insured  trust account by a  licensed securities  brokerage firm.
Investment grade  securities having a  Standard and Poor’s  rating of AAA or AA  or an equivalent  rating from a  nationally  recognized  securities rating  service that are  maintained in a  Securities Investors  Protection  Corporation-insured  trust account by a  licensed securities  brokerage firm.  insurance that meet  regulatory  requirements.  financial assurances  under state law or  regulation.
Trust funds or other  funding  mechanisms.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact named above, Andrea Wamstad Brown  (Assistant Director), Jeffrey B. Barron, Casey L. Brown, Jerome Sandau,  Jeanette Soares, Anne Stevens, Carol Herrnstadt Shulman, and Walter  Vance made key contributions to this report.