Decommissioning financial assurance regulations are “instrumental in ensuring both environmental and fiscal responsibility.“- .natural resource management students
Increased environmental risks. (Accidents, hurricanes, and other events may introduce decommissioning risks that require both immediate and longer term attention and financial resources. Such incidents typically increase decommissioning costs by orders of magnitude, and can even bankrupt financially sound companies. See “Sad End for Taylor Energy.”)
Firms with lower credit ratings would no longer have to hold as much capital in reserve and would have a lower bar of entry into projects. (See comments by John Smith.)
The possibility of cascading economic impacts in the event that bankruptcy does occur. (Which predecessors will be affected and how? What about contractors? How long will bankruptcy litigation delay resolution of claims? Will bankruptcy court asset sales increase public financial, safety, and environmental risks?)
Taxpayers would be facing a portion of the risk. (Predecessors are only accountable for the facilities they installed, so holding predecessors liable doesn’t free the taxpayers from all financial risks.)
The entire energy sector faces increased risks when operating companies fail. (Prominent failures damage the reputation of the industry and the OCS program, with implications for the economy and national security.)
Before relaxing financial assurance requirements, BOEM should consider the role that lax lease assignment and financial assurance policies had in the growth of Fieldwood, Cox, Signal Hill, Black Elk, and other failed companies.
The Case for Reefing California Platforms by John Smith
Environmental groups like the Environmental Defense Center and Get Oil Out continue to oppose converting the jackets of California oil and gas platforms to artificial reefs despite scientific studies (Claisse et al. 2014) showing “oil and gas platforms off the coast of California have the highest secondary fish production per unit area of seafloor of any marine habitat that has been studied.”
Another important factor environmental groups and the 2023 BOEM Programmatic EIS for Decommissioning failed to consider and acknowledge is the huge amount of air emissions that would be released by world-class heavy lift vessels like the Thialf or Balder Semi-submersible Crane Vessels (SSCVs) that would be required to safely and efficiently remove the large federal OCS platforms like Harvest, Hermosa, and Hidalgo (HHH). The HHH platforms are in waters depths ranging from 430-675 feet and have combined deck and jacket weights ranging from 20,000 – 25,000 tons. In comparison, the wrought iron structure of the Eiffel Tower weighs about 8,000 tons.
The SSCVs and accompanying Anchor Handling Tugs (AHTs) used to remove the HHH platforms will likely to be mobilized from distant locations like the North Sea or Gulf of America where they typically operate. Because SSCVs like the Thialf and Balder are too large to enter the Panama Canal, this would involve a 20,000 nautical mile roundtrip voyage around the tip of South America.
Three to four campaigns, and separate SSCV and AHT mobilizations and demobilizations, are projected to be required to fully remove the HHH platforms because the challenging oceanographic conditions offshore Point Arguello restrict heavy lift operations to a 150-day period between May and October.
Four campaigns by the SSCV and AHT would consume about 300,000 metric tons (mt) of marine diesel oil and release approximately 470,000 mt of CO2 and 11,000 mt of NOX emissions. To put these numbers into context, 470,000 mt of CO2 and 11,000 mt of NOX are:
the amount of CO2 emissions released by providing electrical power to 97,600 homes annually (the city of Santa Barbara has about 38,000 housing units).
the amount of CO2 emissions released by burning 1.1 million barrels of oil.
the amount of CO2 emissions released by 102,000 gasoline burning cars annually.
the amount of NOX emissions released by four large oil or coal-fired power plants annually.
the total annual NOX emissions in Santa Barbara County.
And this is only the emissions released during mobilization and demobilization of the SSCV and AHT. If full removal is required, an additional 50 days of operational time by the SSCV and AHT is estimated to be required to remove the topside and jacket of each HHH platform. This could be reduced to about 15 days per platform if the jackets are converted to artificial reefs. Only one SSCV and AHT campaign may be required if the HHH jackets are reefed, compared to the four campaigns required for the full removal scenario. This would result in a 75 percent reduction in CO2 and NOX emissions.
It’s clear the proposed rules have been designed to reduce financial burdens on OCS oil and gas operators, especially small independents. The proposed rules do this by:
Waiving the requirement of the operator/lessees to obtain supplemental financial assurance to cover decommissioning obligations if jointly and severally liable predecessors are determined to have the financial capability to cover the obligations.
Lowering the credit rating threshold BOEM uses for evaluating the financial health lessees and grantees from BBB- to BB- from S&P Global Ratings (S&P) or Baa3 to Ba3 from Moody’s Investor Service Inc.
Revising the level of BSEE probabilistic estimates of decommissioning cost used for determining the amount of supplemental financial assurance required from P70 to P50.
I don’t see any rationale for lowering the credit rating threshold, which would apply to both current and predecessor lessees. A BB- and a Ba3 rating is considered “non-investment grade” or “junk,” meaning the company is more vulnerable to adverse economic conditions, such as a downturn in oil and gas prices. Current market estimates place the 3-year probability of default for a BB- rating at approximately 12.5% to 13%. Lowering the credit rating significantly increases the risks of default by lessees and transfers the risk to the federal government and taxpayers.
Reducing the BSEE probabilistic criteria for determining the amount of supplemental financial insurance required from P70 to P50 means there is a 50% chance BSEE cost estimates for decommissioning are underestimated further increasing risks borne by the federal government and taxpayer.
BOEM should reverse course and maintain the current credit rating threshold (BBB- and Baa3) and the P70 criteria.
Three wind turbines, including one with a damaged blade, at the Vineyard Wind offshore site in November 2024. Credit: Eleonora Bianchi / The New Bedford Light.
New Bedford Light:Vineyard Wind on Wednesday sued its turbine supplier, GE Renewables, in civil court in Boston, alleging GE is breaching its contract and planning to abandon the project by April 28 — during the critical final stage of coming fully online.
According to the complaint, GE filed a termination notice with Vineyard Wind in late February for its contracts to supply wind turbines and service and maintain them, citing more than $300 million in claims unpaid by Vineyard Wind.
If GE exits, Vineyard Wind says, the project “will likely fail, leaving the windfarm stranded.”
The Rigs-to-Resistors category in our World Famous Rigs-to-Reefs +++ list has been expanded to include offshore data centers, a concept that is attracting investor interest (see attached brochure).
Advantages of offshore data centers include power availability (natural gas, hydro-kinetic, wind, solar), cooling water, sovereignty, and growth potential.
“use, for energy-related purposes or for other authorized mariner elated purposes, facilities currently or previously used for activities authorized under this Act,”
The attachment summarizes plans to install modular data centers on existing offshore platforms. The advocates see “using fixed platforms ready for decommissioning as a low-cost solution with simpler execution.” Are they a bit too optimistic? 😉
For 40 years, challenges associated with bankruptcies (or the threat thereof), a divided offshore industry, political pressure, hurricane damage, and unresolved legal issues have hindered initiatives to better protect the public from decommissioning liabilities. Nonetheless, regulators and industry were able to prevent taxpayers from incurring any decommissioning costs. Unfortunately that is no longer the case.
For the first time in history, the govt has funded decommissioning on the OCS (and bragged about it – photo below).
Federally funded decommissioning operation in the Matagorda Area of the Gulf.
BOEM’s proposed revisions to the decommissioning regulations (attached) would facilitate the transfer of aging structures to companies with limited assets, and in some cases, poor or undemonstrated safety records.
The proposal would reduce or eliminate the supplemental financial assurance requirement if a predecessor lessee has a strong credit rating. For that strategy to work, related decommissioning issues must be addressed. and clarifications and boundaries provided to ensure taxpayers are protected from decommissioning liabilities.
Predecessor liability, which is important because it helps prevent companies from assigning leases for the purpose of avoiding decommissioning obligations, was not established in the regulations until much of the OCS infrastructure was already installed. In a final rule that was effective on 8/20/1997,my office (thanks to the perseverance of Gerry Rhodes, John Mirabella, and Dennis Daugherty) codified the joint and several liability principle in 30 CFR 250.110 as follows:
(b) Lessees must plug and abandon all well bores, remove all platforms or other facilities, and clear the ocean of all obstructions to other users. This obligation: (1) Accrues to the lessee when the well is drilled, the platform or other facility is installed, or the obstruction is created; and (2) Is the joint and several responsibility of all lessees and owners of operating rights under the lease at the time the obligation accrues, and of each future lessee or owner of operating rights, until the obligation is satisfied under the requirements of this part.
Prior to the that rule, the official policy of the Dept. of the Interior, as expressed in a 1988 letter from the Director of the Minerals Management Service (see excerpt pasted below), was that lease assignors would NOT be held accountable should their successors fail to fulfill their decommissioning responsibilities.
A major unanswered question regarding decommissioning obligations is thus the extent to which predecessor liability applies to leases assigned prior to the 1997 regulation. According to BOEM data, 771 remaining platforms were installed at least 10 years before the rule change, and 504 were installed at least 20 years prior. For assets transferred prior to the rule change, do the predecessors retain liability? BOEM should explain its position on this issue.
Other predecessor liability questions that need to be answered:
Now that the reverse chronological guidance has been scrapped, what will be the process for determining which predecessors will be held responsible?
If the govt doesn’t ensure that the new lessees fulfill their performance obligations (e.g. funding escrow accounts, well plugging, insurance, etc.), are predecessors still liable?
What if the structures were poorly maintained by the new lessees, complicating decommissioning and increasing the costs
Should a predecessor several transfers removed from operating the facilities still be held responsible?
Two examples of what can happen (and has happened):
Example 1: Big AAA Oil assigns a lease to Proud Production, a reputable independent. After years of operations, Proud can no longer profitably produce from the lease. Proud assigns the lease to CCC Oil & Gas, a small and highly efficient operator. After the lease is no longer profitable, even for a company with a low cost structure, CCC assigns the lease to Elmer’s E&P, a sketchy, barely solvent operating company with a poor compliance record. Elmer rather predictably neglects maintenance and declares bankruptcy after a decline in oil prices. Should Big AAA Oil, which had no say in the last 2 transfers in the assignment chain, be financially responsible for decommissioning the facilities?
Example 2: Big AAA Oil assigns a lease to DDD Development Company. Per the terms of the assignment, DDD establishes an Abandonment Escrow Account, as provided for in 30 CFR 556.904. BOEM allows DDD to withdraw funds from the account for purposes not authorized in the regulations. Should Big AAA Oil be liable for decommissioning costs after DDD is no longer solvent? (See “The troubling case of Platforms Hogan and Houchin.”)
For predecessor liability to be fairly and effectively implemented, and survive legal challenges, BOEM should:
Before approving lease assignments, verify that the assignors and assignees have contractually specified, to BOEM’s satisfaction, how the decommissioning of assigned assets will be funded.
Not approve subsequent lease assignments until the predecessor that is being held financially responsible has approved a funding agreement with the new lessees.
Updatedincident tables for OCS oil and gas operations. The most recent data are for 2023! Providing timely details on incidents is a fundamental responsibility of a safety regulator.
A summary of incidents associated with the OCS wind program. From press reports, we know about the fatality during Empire Wind construction. What other incidents have occurred to date?
Information on the mysterious sinking of the Aban Pearl semi-submersiblein May 2010. An investigation was conducted, but the report was never shared. In the interest of offshore safety, the new regime in Venezuela should release this report.
John comments that the project description, which calls for removing the jacket, seep tents and pipelines, and partially removing the upper 5 feet of the 23-foot-high shell mounds, does not make much sense given the abundant fish and invertebrates that reside on or around the platform jacket.Cutting the jacket off 85 feet below the water line and converting the remaining structure to an artificial reef would make more sense and should have been designated the proposed project.
The plan is to send the materials to the Ports of Long Beach, Los Angeles or Hueneme or possibly Ensenada, Mexico. The project involves complex logistics and is going to be a very long (3 years), ambitious and expensive project that will likely set a precedent for future platform decommissioning projects.
According to their agreement with the CSLC, Exxon is responsible for the decommissioning costs.
Scientific American: The steel “jackets” that support California’s offshore oil platforms are covered in millions of organisms and provide habitat for thousands of fishes. Joe Platko
John Smith, decommissioning specialist and BOE contributor, has shared his comments (attached) on the Marine Fisheries Habitat Protection Act. This legislation would expand the successful reefing programs on the OCS by facilitating the conversion of retired production platforms into artificial reefs.
SEC filing reveals Sable entered October about a month from potential bankruptcy. The company had $41.6 million as of September 30, with $39.7 million in average monthly burn in 3Q25.
When Sable announced its $250 million financing on November 10 at $5.50 per share, the company likely had single digit millions in the bank based on its reported burn, against over $163 million in accounts payable and accrued liabilities. Sable does not generate any revenue.
Sable needs to raise significantly more money: According to leaked audio of Sable’s CEO briefing for select investors, the company will require $2.3 billion to achieve commercial production of oil and gas from its three platforms off the coast of Santa Barbara.
That includes at least $900 million to buy out Exxon, to which Sable must pay 15% interest on debt due by March 31, 2027. By then, the loan would be about $1.1 billion, accruing $200 million in added debt.
One of Sable’s only known assets other than the oil and gas project is a private plane the company purchased from its CEO, Jim Flores. The plane recently flew round-trip from Houston, where Flores lives, to Louisiana, in time for a football game at the CEO’s alma mater.
Comments from Santa Barbara County Supervisor Steve Lavagnino, an oil industry supporter, that explain his opposition to the transfer of Exxon’s pipeline permit to Sable:
“The final straw for me was a Hunterbrook article, which was as disturbing as anything I’ve read. I have many friends in the oil industry and I will continue to support efforts to access our natural resources, but it has to be done responsibly by operators who put safety above profits.”
Sable’s limited response to the Hunterbrook report includes information on decommissioning financial assurance:
Sable’s original SYU Purchase and Sales Agreement (PSA) with Exxon required Sable to post a $350 million decommissioning bond “150 days following the resumption of production from the wells.”
According to Sable, production resumed on May 15, 2025. The bond would have thus been required in October. (SYU production was halted by court order on June 6, so that “resumption date” may be irrelevant. Regardless, the Oct. financial assurance deadline is immaterial given the recent update to the PSA.)
The PSA update extended the date for posting the decommissioning bond to three business days following the new Exxon Loan Maturity Date of March 31, 2027 or 90 days after first sales of hydrocarbons, whichever comes first. (Note the change in language from “resumption of production” to “first sales.” Brief well test production does not trigger posting of the decommissioning bond.)
Under certain circumstances after the bonding is in place Exxon may seek an increase in the bonding amount to $500 million.
The decommissioning obligations are moot if Sable runs out of funds or is unable to resume SYU production prior to the 3/31/2027 PSA deadline.Exxon would remain fully responsible for SYU decommissioning.
Is it time for a public statement from Exxon on the SYU and Sable?
Bud's Offshore Energy (BOE) 