Following oil and gas industry pushback, the Bureau of Ocean Energy Management (BOEM) has extended a deadline to implement more stringent financial assurance and risk management requirements to ensure operators are able to pay for decommissioning and removing offshore production facilities.
The Interior Department agency in July issued a final notice to lessees (NTL), which detailed procedures to determine an operator's ability to carry out lease obligations in the offshore (NTL 2016-01). The directive updated decommissioning procedures for Outer Continental Shelf (OCS) oil, gas or sulfur leases, primarily in the Gulf of Mexico (GOM), and guided whether a lessee should be required to pay more to guarantee financial assurance.
In an update issued last Friday, BOEM agreed to delay implementation, originally set for last September, by another six months to provide "the opportunity to focus on providing additional security for sole liability properties, and to allow an opportunity for additional time and conversation, including with interested stakeholders, regarding issues that arise in the context of non-sole liability properties..." Exceptions would be made if BOEM determined there was a "substantial risk of nonperformance" for some decommissioning liabilities. Even with the delay, BOEM encouraged interest holders to continue to propose and negotiate "tailored plans" for financial assurance.
"Our goal is to ensure industry's continued engagement in developing and implementing a risk management program that enables industry to meet its legal obligations and protects the American taxpayers from shouldering any liability for decommissioning the existing or future facilities on the OCS, while recognizing the industry's current economic realities and concerns," BOEM stated.
The NTL followed a Government Accountability Office report in early 2016 that recommended improved oversight of idled and terminated offshore infrastructure. When an OCS lease is decommissioned, a company is required to remove all facilities and restore the site to its pre-lease state. For routine decommissioning, current liabilities in the OCS are estimated at around $40 billion. Because industry has moved increasingly into the deepwater, "decommissioning costs have risen significantly. Moreover, as existing infrastructure ages, larger companies are transferring older facilities to smaller or less experienced companies."
However, the oil and gas industry fought back, claiming the reforms are overly burdensome. The rules, according to industry experts, could force some smaller operators to sell their assets to companies better positioned to meet the significant costs of supplemental bonding. The rules also could influence investment decisions by larger producers, which might conclude that the U.S. regulatory system to work offshore is too burdensome.
Industry trade groups representing the GOM oil and gas industry asked BOEM in November for more clarity about why the financial assurance changes were made. A group of offshore producers also launched a coalition in November whose first order of business is to oppose the risk management regulations.
Throughout the process, BOEM officials have insisted they are listening and stand ready to work with stakeholders.
Through BOEM's "continued engagement with industry, it has become apparent that navigating the multi-party business relationships that exist between co-lessees and predecessors-in-interest can prove challenging and time-consuming," officials said. Because some properties may include several co-lessees and prior interest owners, "their existing financial arrangement may require assessing the extent to which these existing financial arrangements can be considered in determining whether BOEM needs additional security."
BOEM said it would continue an "interactive process to gather additional input from all interested parties. Our goal is to ensure industry's continued engagement in developing and implementing a risk management program that enables industry to meet its legal obligations and protects the American taxpayers from shouldering any liability for decommissioning the existing or future facilities on the OCS, while recognizing the industry's current economic realities and concerns."
Meanwhile, BOEM Director Abigail Ross Hopper was tapped Monday to lead the lobbying group for the Solar Energy Industries Association (SEIA). She is to take the reins in the next few days. Before she took over at BOEM in early 2015, Hopper led the Maryland Energy Administration and previously worked at the Maryland Public Service Commission.
"I have spent my career working with all sides of the political and ideological spectrum to arrive at pragmatic approaches to energy policy," Hopper said. "I look forward to utilizing that experience to serve our SEIA members."