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Interior's BSEE Wants Assurance Offshore Operators Can Finance Oil, NatGas Pipe Decommissioning

In an effort to ensure oil and natural gas operators working on the Outer Continental Shelf (OCS) have enough financial resources, the Department of Interior's Bureau of Safety and Environmental Enforcement (BSEE) is proposing that entities holding rights-of-way (ROW) report actual costs incurred when their pipes are decommissioned.

The Government Accountability Office (GAO) in January had recommended the Department of Interior, which oversees BSEE and the Bureau of Ocean Energy Management (BOEM), take steps to improve oversight of idled and terminated offshore infrastructure to better protect against decommissioning liabilities (see Daily GPI,Jan. 20).

BSEE's proposed rule refines how Interior would manage oil and gas development on the OCS, in concert with BOEM's updated policy issued last month that governs supplemental financial assurance (see Daily GPI,July 19).

BSEE's proposed rule would allow BOEM to determine more accurately the appropriate amount of supplemental bonding that a lessee operator or pipeline ROW holder needs to carry to ensure there is enough financial assurance to cover decommissioning obligations.

"Collectively, BOEM and BSEE have struggled to settle upon a consistent, reliable approach to estimate decommissioning costs," said Van Ness Feldman LLP attorneys Michael Farber, Paul Korman and R. Scott Nuzum. "BSEE's cost estimates have been -- and will continue to be until sufficient cost data is collected -- derived using algorithms based upon a series of assumptions made after a review of available sources of information."

The proposed rule "should not come as a huge surprise to industry," as BSEE already requires OCS lessees and operators to submit cost information when platforms, wells and other facilities are decommissioned. However, "the proposed rule does represent yet another potential cost and reporting requirement that the government seeks to impose on an industry struggling to adapt in an era of low oil and gas prices and enhanced regulatory scrutiny."

BSEE's proposal "almost certainly will lead to incrementally higher costs and reporting burdens for those engaged in OCS activities," but industry should be more concerned by the cumulative impacts resulting from changes to Interior's broader financial assurance policies, said the Van Ness attorneys.

The BSEE late last year finalized an amendment requiring lessees and owners of operating rights on the OCS to submit summaries of actual decommissioning expenditures incurred after completing OCS decommissioning activities for oil and gas, as well as sulfur operations. The information is designed to help BSEE better estimate future decommissioning costs related to OCS leases, ROW, and rights of use and easement.

"Approximately 2,996 active production platforms exist on the OCS with more than 40% of these facilities more than 25 years old," BSEE noted. "Platforms are facilities which facilitate the extraction and processing of oil and natural gas, different from drilling rigs which 'drill' a well to discover hydrocarbons and bring them to the surface for processing. Over the past decade, the offshore energy industry has averaged 130 platform removals per year."

Platforms generally consist of two parts for decommissioning purposes: the topside, which includes structures visible above the waterline, and the substructure, which is between the surface and the seabed, or mudline. In most cases the topsides that contain the operational components are taken to shore for recycling or reuse. The substructure usually is severed 15 feet below the mudline, then removed and brought to shore to sell as scrap for recycling or refurbished for installation at another location.

Comments on the proposed rule are due by Sept. 12.

The BSEE on Wednesday also issued four oil spill response calculators, which may bedownloaded, in an ongoing effort to improve future clean-up efforts. According to BSEE oil spill response coordinator John Caplis, using the calculators is viewed as a "best practice" and their use would be "strongly encouraged when operators prepare oil spill response plans for offshore facilities."

The new calculators, he said, focus on methods to identify optimum system arrangements for three oil spill clean-up approaches: mechanical recovery equipment, dispersants and in situ burn. The calculators allow spill responders to better assess the oil removal capabilities of different equipment, and assist them in selecting the most effective approaches for responding to the potential spill scenarios contained within a response plan.

"Use of the response planning calculators translates into better preparedness by industry," Caplis said. "Ultimately their use should result in more effective responses to spills, and an overall benefit to the environment by improved mitigation of the impacts of oil spills, should they occur."

BSEE provided funding for, and collaborated with, Genwest Inc. to create the four calculators. The Estimated Recovery System Potential Calculator addresses the entire system's ability to encounter, collect, contain, remove, store and offload recovered oil and water. The Recovery System Evaluation Tool allows organizations to explore changes to their mechanical recovery systems and consider options to improve the system's oil removal potential.

The third tool, an Estimated Dispersant System Potential Calculator, provides a technology update to the Dispersant Mission Planner 2 used by the U.S. Coast Guard to estimate the ability of different aircraft to spray dispersants and treat oil on the water's surface. And the Estimated Burn System Potential Calculator is a countermeasure planning tool to estimate the potential for a towed fire boom system to encounter, contain and burn oil.

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