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Interior Pressed on Rationale For Updating Offshore Financial Assurance Rules

Four industry trade groups on Monday submitted requests to the Department of Interior and its Bureau of Ocean Energy Management (BOEM) seeking information about why changes were made to financial assurances and bonding requirements for Gulf of Mexico oil and natural gas producers.

BOEM in July updated its notice to lessees and operators [NTL No. 2008-N07] to improve procedures to determine an operator's ability to carry out lease obligations (see Daily GPIJuly 19). The directive primarily updates facilities decommissioning procedures for Outer Continental Shelf (OCS) oil, gas or sulfur leases, and whether a lessee should pay additional financial assurance.BOEM's sister Bureau of Safety and Environmental Enforcement (BSEE) in August proposed that entities holding rights-of-way report actual costs incurred when their pipes were decommissioned (see Daily GPIAug. 18).

The updated NTLs followed a Government Accountability Office (GAO) report issued in January that had recommended that Interior, which oversees BSEE and the BOEM, take steps to improve oversight of idled and terminated offshore infrastructure to better protect against decommissioning liabilities (see Daily GPIJan. 20).

On Monday, Freedom of Information Act (FOIA) requests were made by the National Ocean Industries Association (NOIA), the Independent Petroleum Association of America, the Louisiana Mid-Continent Oil and Gas Association and the Gulf Economic Survival Team. The four trade groups said they "collectively represent the entirety of the offshore oil and gas industry in the Gulf of Mexico."

NOIA separately has issued an FOIA request to BSEE for information related to the revised estimates for future offshore well plugging/abandonment and platform decommissioning costs, claiming the estimates "varied wildly from actual and current decommissioning costs and BSEE's own previous cost projections."

The FOIA requests this week "augment continued industry efforts to gain greater clarity" into how regulators determined that new financial assurance requirements were necessary and the considerations underpinning and informing their decision-making," the groups said.

"Combined, these efforts represent our industry's commitment to understand how Interior and BOEM determined that changing the rules via the NTL guidance was appropriate rather than undertaking a formal rulemaking process, a much more transparent and equitable process. Remarkably, transparency typically afforded to companies under normal circumstances with NTLs has been at a premium with BOEM in this instance," as information central to the rationale of the NTL "has not been released to the public or to companies attempting to meet the new financial assurance and bonding requirements.

"The new rules are a solution in search of a problem, as the existing framework has protected taxpayers for decades," the groups said. "Moreover, offshore operators made significant investments based on the existing regulatory framework, and BOEM has now changed the rules in a manner that threatens to trigger the very risk it is trying to protect against, as these new burdensome bonding requirements will tie up capital that would otherwise be available for exploration, development, jobs, revenues to states and the federal government -- and most ironically -- for actual plugging and abandonment work."

The industry groups said they "stand ready and committed to work" with Interior "to ensure a robust future of responsible development in the Gulf of Mexico for the benefit of taxpayers in the form of royalties, severance tax revenues to the state and federal government, jobs and additional capital investment."

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