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BOEM Withdraws Financial Assurance Rules For Trump Administration Review

More stringent financial assurance requirements for offshore production facilities, roundly criticized by the oil and gas industry, were withdrawn late Friday to allow the Trump administration time to review them.

The Bureau of Ocean Energy Management (BOEM) in early January had extended a deadline by six months to implement the requirements, designed to ensure Outer Continental Shelf (OCS) lease and grant holders are able to pay for decommissioning and removing offshore production facilities. The rules cover sole liability properties, which are leases, rights-of-way or rights of use/easements for which the holder is the only liable party, i.e., there are no co-lessees, operating rights owners and/or other grant holders, and no prior interest holders liable to meet the lease and/or grant obligations.

The action, BOEM said, reflected its continued assessment "that sole liability properties represent the greatest programmatic risk to the American taxpayer."

However, late Friday, BOEM withdrew the orders altogether to give the new administration time "to review the complex financial assurance program." Implementation issues associated with the orders are to be discussed "as part of the ongoing, six-month interactive process BOEM has initiated to gather input on other components of the notice to lessees (NTL) 2016-N01."

BOEM said it could reissue the orders before the end of the six-month period if it determines there is a "substantial risk of nonperformance" by leaseholders regarding their decommissioning liabilities.

"While this administration reaffirms the program's goal that the taxpayer should never have to shoulder any liability for decommissioning existing or future facilities on the OCS, and places a high priority on ensuring an effective financial assurance program is in place, it also acknowledges that financial assurance is a complex issue and welcomes continued industry engagement on this important issue," BOEM said.

The Government Accountability Office in early 2016 had recommended the Department of Interior bureau improve its oversight of idled and terminated offshore oil and gas lease infrastructure.

BOEM spent several months overhauling the rules and engaging with industry before issuing the NTL last July. The rules detail improved procedures to determine a lessee's ability to carry out its lease obligations -- primarily decommissioning OCS facilities -- and to make informed decisions about whether a lessee should furnish additional security.

However, industry balked, claiming the costs to implement the rules were overly burdensome and could force smaller operators to sell their assets to companies better positioned to meet the significant costs of supplemental bonding. The rules, industry has claimed, also could influence investment decisions by larger producers, which might conclude that the U.S. regulatory system to work in the offshore is too costly.

Last November four trade groups filed Freedom of Information Act (FOIA) requests with Interior and BOEM seeking information about the liability changes. In filing the requests, the National Ocean Industries Association, the Independent Petroleum Association of America, the Louisiana Mid-Continent Oil and Gas Association and the Gulf Economic Survival Team said they "collectively represent the entirety of the offshore oil and gas industry in the Gulf of Mexico."

NOIA separately issued a FOIA request to Interior's Bureau of Safety and Environmental Enforcement (BSEE) 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."

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