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BOEM Nearly Doubles Liability Limit For Offshore Spill-Related Damages

The liability limit for natural gas and oil spill-related damages has been boosted 79% to $134 million from the previous level of $75 million, consistent with recommendations from a federal commission that investigated the Macondo well blowout, the Bureau of Ocean Energy Management (BOEM) said Thursday.

The increase represents the maximum allowable under the Oil Pollution Act of 1990 and follows the recommendations of the National Commission on the BP Deepwater Horizon Oil Spill, created after BP plc's Macondo well experienced a blowout in the Gulf of Mexico deepwater in April 2010 (see Daily GPI, Jan. 12, 2011; Dec. 9, 2010).

"BOEM is taking an important step to better preserve the 'polluter pays' principle of the Oil Pollution Act and further promote safe and environmentally responsible operations," said Acting Director Walter Cruickshank. "This is the first administrative adjustment since the Oil Pollution Act was enacted in 1990 and is needed to keep pace with inflation, which has increased 78% since then."

The change to BOEM's regulations, proposed earlier this year, is to take effect in January.

The administrative adjustment to the 1990 liability cap for offshore facilities is based on the  increase in the Consumer Price Index (CPI) since the act was put in place. The liability cap is set by statute and may only be adjusted to address significant increases in the CPI. The increase to  represents the maximum that may be implemented absent new legislation.

The increase applies to facilities handling gas and oil in federal and state waters seaward of the coastline. The liability cap applies to damages that result from oil spills, but it does not apply to other liabilities such as oil spill removal costs, which remain unlimited.

The rule also contains a mechanism to regularly update the liability cap to reflect changes in inflation over time based on the CPI.

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