What Does the Future Hold for BOEM’s Financial Assurance Requirements?

As we have reported in previous blog posts (for example, BOEM Issues NTL Implementing Major Changes to its Financial Security Requirements for the OCS), the Bureau of Ocean Management (BOEM) published a long-awaited Notice to Lessees and Operators (NTL) implementing new financial security requirements (NTL No. 2016-N01 dated July 12, 2016).  This NTL was issued to “clarify the procedures and criteria that BOEM Regional Directors use to determine if and when additional security … may be required for Outer Continental Shelf (OCS) leases, pipeline rights-of-way (ROW), and rights-of-use and easement (RUE).”  The NTL became effective on September 12, 2016.

Since the issuance of the NTL, OCS lessees and operators have taken steps to comply with the procedures and criteria set forth in the NTL.  However, these lessees and operators, especially independent producers, have expressed to us frustrations with the new requirements.  In particular, the NTL procedures often create a logistical nightmare for designated operators, who are required to coordinate with all co-lessees in providing additional security.  Further, BOEM utilizes decommissioning cost figures determined by the Bureau of Safety and Environmental Enforcement (BSEE), even though those cost figures are often significantly higher than estimates obtained from actual contractors for the same work.

In December 2016, fourteen sitting United States Senators sent a letter to the Secretary of the Interior, Sally Jewell, requesting that BOEM suspend implementation of the NTL and stating that there is “broad consensus that the NTL poses a very serious threat to the sustainability and viability of independent producers in the offshore oil and gas industry.”  The Senators also expressed their concern with “BOEM’s lack of transparency in developing this new policy” and with BOEM’s reliance on estimates from BSEE, which the Senators remarked “significantly inflate actual decommissioning costs, particularly for facilities in the shallow water of the Gulf of Mexico.”

We are also aware that some concerned operators and lessees have submitted letters to both BOEM and BSEE relating to the decommissioning cost risk management procedures referenced in NTL No. 2016-N01 and NTL No. 2015-N04.  Operators and lessees have also expressed concern about the accuracy of the lease decommissioning costs figures contained in the BOEM/BSEE’s online database.

As the 115th Congress gets to work in Washington, D.C., we expect significant engagement from members of both the House of Representatives and the Senate around BOEM’s financial assurance requirements.  President-elect Donald Trump has yet to publicly comment on the topic.  Although we doubt that BOEM’s new financial assurance regime will remain unchanged, the timing of any suspension of or changes to the program remains unknown.

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