BOEM extends decommissioning requirements rule deadline

Jan. 16, 2017
The Bureau of Ocean Energy Management has extended a deadline to implement more stringent financial assurance and risk management requirements related to decommissioning procedures.

Offshore staff

WASHINGTON, D.C. – The Bureau of Ocean Energy Management (BOEM) has extended a deadline to implement more stringent financial assurance and risk management requirements to ensure that operators are able to pay for decommissioning procedures and the removal of offshore production facilities.

In an update issued on Jan. 6, BOEM agreed to delay implementation, originally set for last September, by another six months to provide the agency and the industry with an “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.”

Last July, the BOEM 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.

However, representatives of the US offshore oil and gas industryobjected to the new rule, claiming the reforms were overly burdensome. The rule, 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 US regulatory system to work offshore is too burdensome.

Industry trade groups representing US GoM producers and operators asked the 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 was to oppose the risk management regulations.

In its Jan. 6 announcement, the agency said that through its “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.” The agency recognized that 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.”

The BOEM said that exceptions would be made if the agency 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.

At the conclusion of its announcement, the agency said that: “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.”