|
GAO reports on offshore infrastructure Analyzes risk, potential cost to federal government of more than 7,000 Gulf of Mexico structures installed from 1947 through 2014 Kristen Nelson Petroleum News
The United States Government Accountability Office has analyzed bonding requirements of the Department of the Interior for Gulf of Mexico oil and gas facilities and concluded that of a potential $38.2 billion in decommissioning liabilities as of October 2015, Interior held or required only some $2.9 billion in bonds and other financial assurances. Following the 2015 GAO report, Interior issued revised financial assurance liabilities, but delayed implementing them in 2017 pending a six-month review process.
The recent GAO report, dated May 17, was presented to the U.S. House of Representatives Subcommittee on Energy and Mineral Resources of the House Committee on Natural Resources.
From 1947 through 2014, GAO said, lessees drilled more than 50,000 wells and installed more than 7,000 structures in the Gulf of Mexico, plugging almost 30,000 of those wells over the same period and removing some 5,000 structures.
Decommissioning required “According to Interior regulations, lessees must permanently plug all wells, remove all platforms and other structures, decommission all pipelines, and clear the seafloor of all obstructions created by the lease and pipeline operations when the lessee’s facility is no longer useful for operations,” GAO said. Wells must be permanently plugged and platforms removed within a year after lease termination.
Financial assurances are required to cover decommissioning but GAO said its 2015 report “found that Interior’s financial assurance procedures in place at that time posed risks to the federal government,” with lessees required to have a bond in place to cover decommissioning liability “unless Interior determined that a lessee had the financial ability to fulfill its decommissioning obligations.”
GAO said of $38.2 billion in decommissioning obligations in October 2015, “Interior held or required about $2.9 billion in bonds and other financial assurances, and had foregone requiring about $33.0 billion in bonds for most of the remaining liabilities.”
GAO said its prior work had found that “use of financial strength tests in lieu of bonds poses risks to the federal government,” and recommended that Interior address the issue.
Costs vary widely The cost of decommissioning in shallow water, less than 400 feet, can cost tens of millions per lease, depending on the number of wells and types of structures, GAO said, while in deep water decommissioning can cost hundreds of millions per lease. “In addition, infrastructure damaged by hurricanes is significantly more expensive to decommission than undamaged infrastructure.”
From the late 1940s through the early 1960s, lessees only drilled in shallow water, GAO said.
From 1966 through 2014, lessees drilled 6,468 wells - exploratory and development - and plugged 2,489 wells in deep water. In that same period, 112 structures were installed in deep water and 19 structures removed.
GAO said Interior officials estimated the cost to plug a dry tree well attached to a fixed structure in shallow water was $150,000, while the estimated cost to plug a subsea well in deep water was a minimum of $21 million.
Costs to remove fixed platforms in shallow water ranged from $85,000 to $4.6 million, while the cost to remove a floating structure and associated equipment in deep water was a minimum of $30 million.
Risk to federal government GAO said Bureau of Ocean Energy Management financial procedures covered less than 8 percent of estimated decommissioning costs in the Gulf with financial assurance mechanisms such as bonds, with BOEM waiving 47 lessees from the requirement to provide supplemental bonds for $33 billion in decommissioning liabilities based on BOEM’s reviews of the lessees’ financial strength.
BOEM has revised its financial assurance procedures, GAO said, but in January it delayed implementation of the revised financial assurance procedures for six months and in February, withdrew its December 2016 orders to sole liability lessees.
GAO said it had not evaluated the extent to which the changes, if fully implemented, would address concerns about financial risks to the federal government and said it would continue to monitor Interior’s actions.
|
