After nearly three decades of considering the idea, the Alaska Oil and Gas Conservation Commission (AOGCC) has proposed raising bonding rates for oil and gas wells in the state.

Currently, Chapter 25, Section 25 of the Alaska Administrative Code requires an operator to pay at least a $100,000 bond for a single well or $200,000 to cover all wells. AOGCC has proposed enacting a sliding scale based on the number of wells the operator has, starting at a minimum of $500,000 for one or two wells and $30 million for more than 3,500 wells.

Commissioner Hollis French told NGI that increasing the bonding rates has been on AOGCC’s “do list” for a long time. The idea first surfaced in 1991, following an audit by the state’s Legislative Budget and Audit Committee. The committee subsequently recommended that the commission look into raising the bonding rates.

“That percolated for a long time,” French said Thursday. He said while ExxonMobil Corp., ConocoPhillips and BP plc dominate the North Slope, “there are more smaller operators doing business in Alaska now. But with more smaller operators, some of which are undercapitalized. We’ve had a few bankruptcies.”

One such filing was by Sugar Land, TX-based Aurora Gas LLC, which declared Chapter 11 in May 2016, according to Alaska Bankruptcy Court. At the time, Aurora operated 10 natural gas wells leased from Cook Inlet Region Inc., (CIRI) an Alaska Native corporation. It also leased nine wells from the state.

“Normally, in those bankruptcies you see somebody picking up the assets,” French said. “The wells have a new operator, the operator posts a bond and everything goes along fine.”

In Aurora’s case, however, “nobody was interested in the assets. By luck for the state, 10 of the wells were on land owned by CIRI, so the liability of those wells fell on CIRI. Turns out they’ve got a backstop from Kaiser-Francis Oil Co.”* Alaska, he said, “doesn’t have a backstop; it has a general fund that everything else competes for money from.

“I think that bankruptcy sharpened our awareness that we needed to step up on bonding.”

AOGCC is accepting public comments on the proposed rates until Oct. 16, the same day it also plans to hold a public hearing in Anchorage.

*Correction: In the original article the entity described as providing a financial backstop to Cook Inlet Region Inc. (CIRI), an Alaska Native corporation, was incorrectly stated. Court records show Tulsa-based Kaiser-Francis Oil Co. had provided equity capital to Aurora Gas LLC in 2002 and was responsible for plugging wells on CIRI land. NGI regrets the error.