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DOI proposes financial assurance changes
New regulations would apply to financial responsibility for the removal of obsolete offshore oil and gas infrastructure & equipment Alan Bailey for Petroleum News
The U.S. Department of the Interior has announced proposed changes to regulations for financial assurance for decommissioning and removing infrastructure and equipment used for oil and gas exploration and production on the federal outer continental shelf. The agency says that the changes, which apply to the regulations of the Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement, would clarify, streamline and provide greater transparency for financial assurance requirements such as bonding for the offshore oil and gas industry. The purpose of the regulations is to protect U.S. taxpayers from having to incur the cost of the facility decommissioning.
Too much latitude Interior says that the application of the existing regulations provides the government agencies with too much latitude, a factor that increases financial uncertainty for companies operating in the offshore.
“While BOEM’s existing regulations provide great latitude to the regional director to request additional financial assurance from operators, the last administration attempted to inflict significant changes to implementation without notice and comment,” said Deputy Secretary of the Interior Kate MacGregor. “Companies require certainty to operate effectively in the Outer Continental Shelf, and we welcome public comment on this proposal to ensure companies are able to meet their decommissioning liabilities.”
BOEM estimates that the changes to its regulations would reduce the total amount of assurance required from $3.3 billion to $3.1 billion, while also providing greater financial assurance by focusing the assurance requirements on the riskiest properties.
Financial security One of the proposed changes involves switching the evaluation of whether a lessee needs to provide additional financial security from an evaluation of the lessee’s financial capacity to the use of the lessee’s credit rating, coupled with the value of the proven oil and gas reserves in the lease.
Other changes include the elimination of an operator’s record of regulatory compliance as a criterion in assessing financial security requirements - BOEM says that it has found no correlation between a company’s compliance record and its overall financial health.
The proposed regulations would also enable BOEM to use an offshore pipeline right-of-way holder’s credit rating in assessing whether to require a surety bonding requirement higher than the normal areawide level of $300,000.
In addition, the revised regulations would enable a lessee to establish a decommissioning account, in lieu of a surety bond, without, as at present, being required to pledge U.S. Treasury securities in the account for any amount in excess of the Federal Deposit Insurance Corp. insured limit, currently set at $250,000.
BSEE regulations The BSEE regulatory changes relate to BSEE’s role in the oversight of the decommissioning of offshore facilities. One key component of the BSEE regulations relate to what are referred to as “predecessors,” companies that had previously held a lease and that have some continuing liability for decommissioning costs. BSEE says that the new regulations would clarify the definition of a predecessor. The regulations would also enable the agency to deviate from addressing the liabilities of predecessors in strict reverse ownership chronology, depending on the circumstances in a particular situation.
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