BLM is responsible for issuing leases for oil and gas resources on and underneath BLM land, underneath other federal agencies’ land, and underneath private land where the federal government owns the mineral rights—amounting to roughly 700 million subsurface acres. Approximately 44.5 million of these acres are leased for oil and gas operations, of which about 11.7 million acres have active oil and gas production. In addition, BLM manages about 250 million federal surface acres, of which 472,000 acres have surface disturbance related to oil and gas production. To manage its responsibilities, BLM administers its programs through its headquarters office in Washington, D.C.; 12 state offices; 38 district offices; and 127 field offices. BLM headquarters develops guidance and regulations for the agency, while the state, district, and field offices manage and implement the agency’s programs. Because BLM has few acres of land in the eastern half of the United States, the Eastern States State Office, in Springfield, Virginia, is responsible for managing land in 31 states, while the remaining state offices generally conform to the boundaries of one or more states. Figure 1 shows the boundaries of the 12 BLM state offices. BLM has 48 field offices with an oil and gas program managed by 33 of its field offices that fall under the jurisdiction of 10 BLM state offices. The Idaho and Oregon BLM state offices do not contain a field office with an oil and gas program. Table 1 shows the number of wells managed by the 33 field offices and their associated BLM state office, as of May 26, 2010. The Federal Land Policy and Management Act of 1976 requires BLM to develop resource management plans, known as land use plans, which identify parcels of land that will be available for oil and gas development. BLM then offers for lease parcels of land nominated by industry and the public as well as some the agency identifies. The number of acres covered by a lease varies: the maximum number covered is 2,560 acres for leases in the lower 48 states and 5,760 acres for leases in Alaska. Similarly, the number of wells on a lease can also vary from 1 to more than 1,000, and well depths can range from a few hundred feet to more than 26,000 feet deep. Operators who have obtained a lease must submit an application for a permit to drill (APD) 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. This surface use plan must include a reclamation plan that details the steps operators propose to take to reclaim the site, including redistribution of topsoil, configuring the reshaped topography, and seeding or other steps to re-establish vegetation. However, operators generally do not have to submit cost estimates for completing the reclamation. In reviewing the APD, 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 begin production. The Mineral Leasing Act of 1920, as amended, requires that federal regulations ensure that an adequate bond is established before operators begin to prepare land for drilling to ensure complete and timely reclamation. Accordingly, BLM regulations require the operator to submit a bond in order to ensure compliance with all of the terms and conditions of the lease, including, but not limited to, paying royalties, plugging wells, and reclaiming disturbed land. To ensure operators meet legal requirements, including reclamation, BLM regulations require them to have one of the following types of bond coverage: individual lease bonds, which cover all the wells an operator drills under one lease; statewide bonds, which cover all of an operator’s leases in one state; nationwide bonds, which cover all of an operator’s leases in the United States; or 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.12 13 BLM accepts two types of bonds: surety bonds and personal bonds. A surety bond is a third-party guarantee that an operator purchases from a private insurance company approved by the Department of Treasury. The operator must pay a premium to the surety company to maintain the bond. These premiums can vary depending on various factors, including the amount of the bond and the assets and financial resources of the operator, among other factors. If the operator fails to reclaim the land they disturb, the surety company either pays the amount of the bond to BLM to help offset reclamation costs, or in some circumstances, BLM may allow the surety company to perform the required reclamation. A personal bond must be accompanied by one of the following financial instruments: certificates of deposit issued by a financial institution whose deposits are federally insured, granting the Secretary of the Interior authority to redeem it in case of default in the performance of the terms and conditions of the lease; 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; or irrevocable letters of credit that are issued for a specific term by a financial institution whose deposits are federally insured and meet certain conditions. Unit agreements refer to multiple lessees who unite to adopt and operate under a single plan for the development of any oil or gas pool, field, or like area. The amount of a unit operator bond is determined on a case-by-case basis by BLM officials, and the minimum amount of a National Petroleum Reserve in Alaska 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). If the operator fails to reclaim the land they disturb, BLM redeems the certificate of deposit, cashes the check, sells the security, or makes a demand on the letter of credit in order to pay the reclamation costs. The regulations establish a minimum bond amount in order to ensure compliance with all legal requirements. As we reported in 2010, 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. BLM regulations require BLM to increase the bond amount when an operator applies for a new drilling permit who had previously failed to plug a well or reclaim land in a timely manner, resulting in BLM having to make a demand on a bond in the prior 5 years. For such an operator, BLM must require a bond in an amount equal to its cost estimate for plugging the well and reclaiming the disturbed area if BLM’s cost estimate is higher than the regulatory minimum amount. BLM regulations state that BLM officials may require an increase in the amount of any bond when the operator poses a risk because of factors that include, but are not limited to, a history of previous violations, a notice from ONRR of uncollected royalties due, or the total cost of plugging existing wells and reclaiming land exceeds the present bond amount according to BLM’s estimates. When a BLM field office determines that an increase in the bond amount is warranted, it forwards its recommendation to the BLM state office, which decides whether and how much to increase the bond amount. After production has ceased, 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 in the future, or the operator may decide to use the well for enhanced recovery operations. Enhanced recovery operations involve, for example, using the well to inject water into the oil reservoir and push any remaining oil to operating wells. Idle wells include: Temporarily abandoned wells. These are wells that are physically or mechanically incapable of producing oil or gas of sufficient value to exceed direct operating costs but may have value for a future use. Operators must receive BLM approval prior to placing a well in temporarily abandoned status for more than 30 days. This approval, which lasts for up to 12 months, can be renewed annually at BLM’s discretion. All temporarily abandoned wells must have current approval after the initial 30 days. Shut-in wells. These wells are physically and mechanically capable of producing oil or gas in quantities that are economically viable but that have not produced for 30 days. According to BLM officials, operators do not have to obtain BLM approval to place wells in shut-in status. Wells become orphaned if an operator does not perform the required reclamation and if the bond is not sufficient to cover well plugging and surface reclamation and there are no other responsible or liable parties to do so. This situation may occur, for example, when an operator has declared bankruptcy. For orphan wells, BLM uses the bond and appropriated funds as necessary to complete the reclamation. As we reported in 2010, according to BLM data, the agency spent a total of about $3.8 million to reclaim 295 orphan wells in 10 states from fiscal years 1988 through 2009. BLM also estimated that there were an additional 144 orphan wells in seven states that needed to be reclaimed, with an estimated cost of approximately $1.7 million for 102 of these wells.