U.S. Offshore Industry Steps Up Transparency Call


Published Nov 7, 2016 4:59 PM by The Maritime Executive

Four U.S. industry trade groups have submitted Freedom of Information Act (FOIA) requests to both the Bureau of Ocean Energy Management (BOEM) and the Department of the Interior (DOI) seeking information related to the recent “drastic” changes to the financial assurances and bonding required of offshore oil and gas producers.

BOEM enacted a modified user pay scheme in July to ensure that U.S. taxpayers never have to pay for offshore oil and gas platform decommissioning. All outer continental shelf leases require that decommissioning companies must remove all facilities and restore the site to its pre-lease state. However, due in part to the industry’s move into deepwater areas in the Gulf of Mexico, decommissioning costs have risen significantly, says BOEM. Moreover, as existing infrastructure ages, larger companies are transferring older facilities to smaller or less experienced companies. 

Current estimated routine decommissioning liabilities in the outer continental shelf are approximately $40 billion.

BOEM plans to reference the Bureau of Safety and Environmental Enforcement (BSEE) estimates to examine the financial insurance required by offshore operators. The BSEE estimates, particularly for facilities in the shallow water Gulf, appear to vary wildly from current decommissioning costs, says the National Ocean Industries Association (NOIA).

BSEE released the revised estimates with little explanation regarding the assumptions and data it relied upon, despite the fact the agency’s own projections for decommissioning liability in the shallow water Gulf are over 100 percent higher than previous recent estimates.

The four groups, which collectively represent the entirety of the offshore oil and gas industry in the Gulf of Mexico, are NOIA, the Independent Petroleum Association of America (IPAA), the Louisiana Mid-Continent Oil and Gas Association (LMOGA) and the Gulf Economic Survival Team (GEST). They have joined together to press for immediate consideration of these FOIA requests and continue to urge BOEM, BSEE and DOI to be responsive to industry concerns regarding its Notice to Lessees No. 2016-N01. 

This comes on the heels of NOIA’s recent FOIA request to BSEE seeking information related to the agency’s revised estimates for future well plugging and abandonment and platform decommissioning costs in the Gulf of Mexico, which varied wildly from actual and current decommissioning costs and BSEE’s own previous cost projections.

The FOIA requests augment continued industry efforts to gain greater clarity into how BOEM and DOI determined that new financial assurance requirements were necessary and the considerations underpinning and informing their decision-making process.

The industry groups say they are committed to understanding how DOI and BOEM determined that changing the rules via the Notice to Lessees guidance was appropriate rather than undertaking a formal rulemaking process, a much more transparent and equitable process.

Information central to the rationale of NTL No. 2016-N01 has not been released to the public or to companies attempting to meet the new financial assurance and bonding requirements.

“The new rules are a solution in search of a problem, as the existing framework has protected taxpayers for decades,” say the four groups in a statement. “Moreover, offshore operators made significant investments based on the existing regulatory framework, and BOEM has now changed the rules in a manner that threatens to trigger the very risk it is trying to protect against, as these new burdensome bonding requirements will tie up capital that would otherwise be available for exploration, development, jobs, revenues to states and the federal government – and most ironically – for actual plugging and abandonment work.”