IBLA Upholds Decommissioning Order Against OCS Lease Assignor

The Department of Interior continues to flex its muscle against prior OCS lessees to require them to complete decommissioning left unfulfilled by later parties. On February 2, 2016, the United States Department of the Interior, Office of Hearings and Appeals, Interior Board of Land Appeals (the “IBLA”) affirmed BSEE’s order directing Anadarko Petroleum Corporation to perform decommissioning and to immediately undertake maintenance pending completion of decommissioning on an OCS lease Anadarko had assigned in 1984. Anadarko Petroleum Corporation, 187 IBLA 77 (2016).  The decision highlights the extent to which liabilities accrued under an OCS lease remain with an assignor, as well as BSEE’s willingness to order any assignor of an OCS lease to perform decommissioning activities (no matter how many later parties or co-lessees may be in the chain of title).

Facts of the Case

Anadarko was one of four initial co-lessees of lease OCS-G 04827, which was granted in 1981 covering South Timbalier Block 77 in the Gulf of Mexico. During the time Anadarko held an interest in the lease, at least two platforms were constructed on the leased premises.  With MMS approval, Anadarko then assigned all of its interest in the lease to one of its co-lessees in 1984.

Under the terms of the lease itself, the lessee was required to remove all devices, works and structures from the premises within one year after termination of the lease. In addition, the lease stated that the lessee was subject to all existing regulations as well as “all regulations issued pursuant to [OCSLA] in the future which provide for the prevention of waste and the conservation of the natural resources of the [OCS], and the protection of correlative rights therein….”  During the entire time Anadarko had an interest in the lease, the applicable regulations for the assignment of an OCS lease stated that (i) the assignor of a lease was liable for all obligations accruing before the approval of the assignment and (ii) the assignee was liable for all obligations after the effective date of an assignment.

Thereafter, numerous further assignments of record title and operating rights interests in the lease were approved, leading to ATP Oil & Gas Corporation holding 100% record title interest in the lease when the lease terminated for lack of production on June 30, 2011. ATP declared bankruptcy on August 17, 2012 and the bankruptcy court later authorized ATP to abandon its obligations relating to the lease, leaving incomplete the decommissioning that ATP had earlier started.

BSEE issued decommissioning orders in 2014 to Anadarko and two other former co-lessees. BSEE’s order to Anadarko stated that Anadarko was “responsible for decommissioning all wells, pipelines, platforms and other facilities for which it accrued decommissioning obligations for the Lease” and, as a former co-lessee, Anadarko’s “decommissioning obligations include the safe and orderly winding down of all functions associated with all facilities and infrastructure for which [Anadarko] is responsible from the date of the Order until decommissioning is complete.” Anadarko appealed BSEE’s order to the IBLA.

IBLA Ruling

  1. An assignor of an OCS lease can be held responsible for decommissioning obligations that accrued under the lease before assignment

The IBLA ruled that Anadarko was liable under the lease provision makes a lessee subject to future regulations “which provide for the prevention of waste and the conservation of natural resources.” The IBLA followed its existing case law broadly interpreting “prevention of waste and conservation of natural resources” to conclude that decommissioning regulations exist for such prevention and conservation.  The IBLA thus held that, under the lease terms, the current regulations apply for accrual of decommissioning obligations, joint and several liability for decommissioning obligations, and assignment (“at least to the extent it concerns decommissioning obligations”).

Current regulations state that (i) decommissioning obligations accrue when one is or becomes a lessee or the owner of operating rights of a lease on which there is a well that has not been permanently plugged, a platform, a lease term pipeline, or other facility, or an obstruction and (ii) if an assignee (or subsequent assignee) does not perform its obligations under a lease or applicable regulations, the assignor may be required to bring the lease into compliance “to the extent that the obligation accrued before the Regional Director approved the assignment of [the assignor’s] interest in the lease.” 30 C.F.R. §§ 250.1702(d), 256.62.

Under the lease, Anadarko agreed to decommissioning activities (i.e., the removal of all devices, works and structures) within one year after termination of the lease. The IBLA determined that those decommissioning obligations accrued to Anadarko before the assignment was approved and, as a result, remained with Anadarko.  In addition, the IBLA highlighted that Anadarko specifically committed to “carrying out decommissioning obligations even after termination of the Lease.”  Because the terms of the lease itself imposed decommissioning obligations on Anadarko after the lease terminated, Anadarko remained liable for these lease obligations even if the regulations in effect in 1984 were to be applied.  In so holding, the IBLA rejected Anadarko’s argument that the regulations in effect in 1984 did not  impose “residual contingent decommissioning liability” on assignors.

  1. After the default of any assignee, BSEE can enforce
    decommissioning obligations against any and all other assignors
    of an OCS lease for obligations that accrued to such assignor
    before the assignment

The IBLA rejected Anadarko’s argument that all previous assignees in the lease chain of title must default before Anadarko would be subject to a decommissioning order, stating that “the regulatory condition required before an assignor’s liability is triggered is the failure of at least one assignee.” Because one assignee (ATP) failed to perform its decommissioning obligations under the lease, BSEE’s order to Anadarko was not premature or in error.

Anadarko also argued that BSEE should not have ordered it to perform decommissioning until each assignee after Anadarko in the chain of title was so ordered and failed to do so. The IBLA rejected this argument and interpreted the joint and several liability regulations to hold all assignees, assignors and co-lessees in the chain of title jointly and severally (or, to use Louisiana terminology, solidarily) responsible as the obligations accrue and until each obligation is met.  The IBLA stated that “[t]he regulations do not command that BSEE issue decommissioning orders in sequential order, waiting for each most recent assignee to fail to carry out its obligations, before finally ordering an original lessee/assignor, such as [Anadarko].”

The IBLA’s decision has significant implications for all OCS assignors, assignees, and co-lessees. Essentially, any assignor could be on the hook for lease maintenance and decommissioning obligations accrued to such assignor if any assignee of the lease defaults in its obligations.

At this time, it is not known if Anadarko will seek reconsideration by the IBLA or seek judicial review of the IBLA’s decision.

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