U.S. Interior Department Takes Action to Protect Taxpayers from Offshore Oil & Gas Decommissioning Costs

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Up to date rules for the offshore oil and gasoline trade will strengthen danger administration and monetary assurance necessities

WASHINGTON — The Division of the Inside immediately introduced a closing rule from the Bureau of Ocean Power Administration (BOEM) to guard taxpayers from overlaying prices that needs to be borne by the oil and gasoline trade when offshore platforms require decommissioning. With this motion — which updates 20-year-old rules — BOEM has considerably strengthened monetary assurance necessities for the offshore oil and gasoline trade working on the U.S. Outer Continental Shelf (OCS).

The prices to decommission oil and gasoline services on the OCS are substantial, and if corporations fail to satisfy their decommissioning obligations these prices fall to American taxpayers. The Government Accountability Office (GAO) discovered that earlier practices didn’t successfully be certain that trade operators meet decommissioning deadlines for offshore wells and platforms on the finish of their helpful lives, doubtlessly leaving the prices to be borne by American taxpayers. The ultimate Risk Management and Financial Assurance for OCS Lease and Grant Obligations rule amends present rules to reply to these issues and scale back monetary dangers related to OCS growth by considerably rising the extent of monetary assurances that operators should present prematurely.

“The American taxpayer should not be held responsible when oil and gas companies are unable to clean up after their own operations. The Interior Department is committed to ensuring that the federal oil and gas leasing program is implemented fairly, with accountability and transparency,” mentioned Secretary Deb Haaland. “This final rule updates, simplifies and strengthens outdated requirements to ensure that taxpayers are protected and current operators are held responsible for their end-of-lease cleanup obligations on the Outer Continental Shelf.”

“For far too long, the federal government has failed to follow through on measures to ensure accountability for oil and gas companies operating offshore,” mentioned Principal Deputy Assistant Secretary for Land and Minerals Administration Dr. Steve Feldgus. “Coupled with our recent announcement from the Bureau of Land Managementthe Department is ensuring that we have a modern oil and gas leasing program that protects taxpayers’ interests.”

“The offshore oil and gas industry has evolved significantly over the last 20 years, and our financial assurance regulations need to keep pace,” mentioned BOEM Director Elizabeth Klein. “Today’s action addresses the outdated and insufficient approach to supplemental bonding that does not always accurately capture the risks that industry may pose for the American taxpayer — like financial health of a company or the value of the assets that the lessee holds.”

Present rules haven’t stored tempo with trade modifications, similar to growing old OCS infrastructure, the switch of close to end-of-life properties from massive corporations to smaller corporations with fewer monetary sources, or the complicated monetary safety preparations between and inside corporations. The brand new rule establishes two metrics by which BOEM will assess the chance that an organization poses for American taxpayers:

• Monetary well being of an organization. The rule streamlines the variety of elements BOEM makes use of to find out the monetary energy of an organization by utilizing a credit standing from a Nationally Acknowledged Statistical Ranking Group, or a proxy credit standing equal.
• Reserve worth. BOEM will contemplate the present worth of the remaining proved oil and gasoline reserves on the lease in comparison with the estimated price of assembly decommissioning obligations. If the lease has important reserves nonetheless obtainable, then within the occasion of a chapter, the lease will seemingly be acquired by one other operator who will assume the plugging and abandonment liabilities.

Firms with out an investment-grade credit standing or ample proved reserves might want to present supplemental monetary assurance to adjust to the brand new rule.

Moreover, the rule clarifies that present grant holders and lessees should maintain monetary assurance to make sure compliance with lease obligations and can’t depend on the monetary energy of prior house owners. BOEM continues to keep up its capability to pursue prior lessees to satisfy decommissioning obligations.

Underneath the brand new rule, BOEM estimates trade will probably be required to supply $6.9 billion in new monetary assurances to guard American taxpayers from assuming trade decommissioning prices. To offer trade with flexibility to satisfy the brand new monetary assurance necessities, BOEM will enable present lessees and grant holders to request phased-in funds over three years to satisfy the brand new supplemental monetary assurance calls for required by the rule.

Right now’s closing rule follows a proposed rule issued by BOEM in June 2023, which acquired over 2,000 public feedback that knowledgeable its growth.

For extra info, please see BOEM’s website.

Information from U.S. Department of the Interior.