BOEM proposes changes to offshore oil and gas bond requirements

In support of President Trump’s Executive Order 13795, implementing an America-first offshore energy strategy, the Department of the Interior’s Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement (BSEE) announced proposed changes to clarify, streamline and provide greater transparency to financial assurance requirements (e.g. bonding) for the offshore oil and gas industry, while protecting American taxpayers against high-risk decommissioning liabilities.

Under current regulations, the BOEM regional director may determine that additional security is necessary to ensure compliance with the terms and conditions of a lease, including decommissioning liabilities, which refer to costs and obligations associated with removing the infrastructure and equipment used in the exploration and production of offshore oil and gas. Using the broad discretionary criteria under the current regulations, BOEM has previously sought to implement broad changes to its financial assurance regime through guidance documents issued without prior notice and comment.

With this rule, BOEM proposes to clarify and streamline the evaluation criteria BOEM would use to determine whether Outer Continental Shelf (OCS) lessees, right-of-use and easement grant holders, and pipeline right-of-way grant holders must provide additional security above the prescribed amount of base bonds to ensure compliance with their lease and grant obligations. BOEM also proposes to remove restrictive provisions for third-party guarantees and decommissioning accounts and allow the regional director to cancel bonds and third-party guarantees in certain circumstances not covered by the existing regulations.

“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 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 also seeks to protect the taxpayer against high-risk decommissioning liabilities, while reducing financial burdens on low-risk decommissioning liabilities, by recognizing the risk mitigation provided by liability requirements on the OCS.

“Proposing changes to BOEM’s financial assurance program through a rulemaking will allow the bureau to more effectively address a number of complex financial issues, while affording all interested parties the opportunity to provide substantive feedback to the agency,” said Dr. Walter Cruickshank, BOEM’s acting director, in a prepared statement.

BSEE proposes to revise the process for issuing decommissioning orders to predecessor lessees and grant holders when current lessees and grant holders fail to fulfill their decommissioning obligations for facilities on the OCS. BSEE would issue orders to predecessors in a reverse chronological order unless certain circumstances warrant pursuing all predecessors simultaneously. The proposed rule would also codify existing decommissioning practices for right-of-use and easement grant holders and require that a party appealing any final decommissioning decision or order provide a surety bond to ensure that funding for decommissioning is available if the order is affirmed and the liable party then defaults.

Once the rule is published in the Federal Register (date to be announced), the public will have 60 days to provide comments.

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