Posts Tagged ‘decommissioning’
Proposed financial assurance decommissioning rule
Posted in California, decommissioning, Gulf of Mexico, Offshore Energy - General, tagged BOEM, decommissioning, financial assurance, proposed rule on June 29, 2023| Leave a Comment »
Another proposed decommissioning financial assurance rule is about to be published
Posted in California, decommissioning, Gulf of Mexico, Offshore Energy - General, tagged BOEM, decommissioning, financial assurance, predecessor liability on June 27, 2023| Leave a Comment »
The Bureau of Ocean Energy Management (BOEM) today announced proposed changes to modernize financial assurance requirements for the offshore oil and gas industry, in order to better protect American taxpayers from incurring the costs associated with the oil and gas industry’s responsibility to decommission offshore wells and infrastructure, once they are no longer in use. The proposed changes will publish in the Federal Register on June 29, which will open a 60-day public comment period that ends on August 28.
It looks like BOEM punted on the contentious issue of considering predecessors when determining financial assurance requirements:
The proposed regulatory changes would provide additional clarity and reinforce that current grant holders and lessees bear the cost of ensuring compliance with lease obligations, rather than relying on prior owners to cover those costs. BOEM is interested in public comments on the costs and benefits of considering predecessors when determining how much financial assurance a company must provide.
On that point, comments will differ 😉.
Excellent Smith, Byrd update on California OCS decommissioning
Posted in California, decommissioning, Offshore Energy - General, tagged California, decommissioning, Smith and Byrd on June 5, 2023| Leave a Comment »
In the attached paper, John Smith and Robert Byrd summarize the daunting decommissioning challenges facing California offshore operators:
- Large, deep-water structures.
- Lack of decommissioning infrastructure and services locally.
- High HLV mobilization costs.
- Jones Act restrictions.
- Limited onshore processing and disposal options.
- Air quality compliance costs.
- Site clearance and debris removal requirements.
- Environmental and space use operating constraints.
- A complex regulatory framework and risk of litigation.
- An unworkable reefing law and lack of a State approved artificial reefing program.
Does the regulatory framework prevent you from doing what the regulations require? Catch-22?
Update on Platforms Hogan and Houchin, Santa Barbara Channel
Posted in California, decommissioning, Offshore Energy - General, tagged decommissioning, Platform Hogan, Platform Houchin, Santa Barbara Channel on May 31, 2023| Leave a Comment »
For those who have been following the saga of Platforms Hogan and Houchin, decommissioning specialist John B. Smith brought this update to my attention:
Platforms Hogan and Houchin: These platforms are currently being manned, monitored and maintained as part of an agreement between BSEE, BOEM, DOI Solicitors Office, and the three predecessor lessees as they await a decision on the predecessors’ appeal to the IBLA. BSEE estimates an approximately $5 million deficit in financial assurance to decommission 21 orphaned sidetrack wells associated with these platforms.
BSEE
Comments:
- Although the status of the decommissioning account for these platforms has not been disclosed, permanently abandoning these 21 wells will be costly. if the over/under is an additional $5 million, bet on the over.
- After the wells are plugged, the platforms have to be removed at great cost to someone (hopefully not the taxpayer), and when will the matter of who pays finally be resolved?
- BSEE estimated decommissioning costs of $74.3 million in 2014. What are the current estimates?
- When will the 9/20/2020 Inspector General report that found significant irregularities in the use of the decommissioning escrow funds be made publicly available?
“Financial liabilities and environmental implications of unplugged wells for the Gulf of Mexico and coastal waters”
Posted in California, climate, decommissioning, Gulf of Mexico, Offshore Energy - General, tagged California, decommissioning, financial responsibility, Gulf of Mexico, macondo, Nature Energy, well plugging and abandonment on May 11, 2023| Leave a Comment »
The subject Nature Energy paper is helpful in that it contributes to the important dialogue on the financial aspects of offshore decommissioning. There have been numerous posts on that topic on this blog. The use of Federal funds to cover well abandonment expenses for OCS wells, although rather limited to date, is a major disappointment for those of us who have worked hard to prevent such an outcome.
The data in the paper appear to be reasonably accurate. However, there is one glaring error regarding Pacific operations, and the reference to the Macondo blowout in the environmental discussion is rather provocative and misleading.
Per the authors:
California wells are drilled in relatively shallow water—mostly less than 100 feet—while GoM wells can be in up to 10,000 feet of water.
California’s fault block shelf drops off very quickly, and deepwater drilling activity has been common for decades. Of the 23 platforms in Federal waters, only Platform Gina is in <100′ of water (95′). The other platforms are in water depths of 154 to 1178′. Six of the platforms are in >600′ of water and 2 are in >1000′. Platform Harmony (jacket pictured below) is one of the world’s largest and heaviest steel tower platforms. Relative to the numbers of facilities, the decommissioning challenges offshore California are more daunting and complex than those in the Gulf. This includes the financial liability aspects.
With regard to the environmental risks, the Nature Energy paper’s reference to the Macondo blowout, while muted, is what some media outlets embraced. Per the authors:
Releases from improperly abandoned wells will probably be chronic and small compared with Macondo, but the underlying biochemical and ecological processes that influence the ecological impacts have many similarities.
The Macondo well blew out while it was being suspended in preparation for subsequent completion operations. Ill advised changes to the well suspension plan were among the primary contributing factors to the blowout (see diagram below). The Macondo well was entirely different from the depleted end-of-life wells that are the subject of the paper.
Some media outlets ran with the Macondo angle, weak as it was. This ABC news piece featured numerous Macondo pictures. Other outlets noted that Macondo was a temporarily abandoned well, which it was not. The Macondo well never got to that point.
National Commission, Chief Counsel’s Report, p. 132
Decommissioning certainty? How so?
Posted in California, decommissioning, Gulf of Mexico, Offshore Energy - General, Offshore Wind, tagged BOEM, BSEE, decommissioning, regulations on April 25, 2023| Leave a Comment »
“BSEE will continue to evaluate the process for issuing decommissioning orders and will continue to issue decommissioning orders to jointly and severally liable parties on a case-by-case basis.“
Final decommissioning rule (preamble). 4/18/2023
Although the news release for BSEE’s final decommissioning rule asserts that the regulations “provide the certainty requested by industry,” that does not seem to be the case. The main change in the final rule was to delete the reverse chronological order (RCO) provision which called for issuing decommissioning orders to the most recent predecessor first. Instead, BSEE may continue to issue decommissioning orders arbitrarily.
While deleting the RCO provision may be advantageous for the regulator, and in some cases for the public, claiming that the decision provides certainty for industry is quite a stretch. BSEE may continue to issue a decommissioning order to anyone in the ownership chain, whether the company was a recent lessee or one that had owned the lease decades ago. Original or early lessees may be held liable for decommissioning old facilities regardless of subsequent damage, modifications, or neglected maintenance.
The absence of a defined procedure for issuing decommissioning orders may also expose BSEE to new legal challenges, particularly in cases where a company has not held the lease for decades. A 1988 letter from the Director of the Minerals Management Service to Amoco (attached below) explicitly relieves the assignor (predecessor) of decommissioning liability after the lease has been assigned. A revised bonding rule published on May 22, 1997 reversed that policy, but decommissioning liability for leases assigned prior to the 1997 rule may still be very much in question.
Another concern is the split jurisdiction for decommissioning between BSEE and BOEM. The financial, land management, operational, and environmental aspects of decommissioning are inextricably intertwined and attempts to divide these responsibilities between two bureaus with separate regulations is a prescription for gaps, overlap, inconsistency, inefficiency, disputes, and confusion. Decommissioning should be regulated holistically, not with separate “BOEM-only” and “BSEE-only” regulations.
Finally, wind facility decommissioning may prove to be even more challenging given the higher facility density and economic uncertainties. The regulatory regime needs to be clearly established early in the development phase.
Related posts:
- The troubling case of Platforms Hogan and Houchin
- Taxpayer funded decommissioning – troubling precedent for the US offshore program
- California decommissioning – the band plays on
- Programmatic EIS for Pacific OCS platform decommissioning presents 4 alternatives, none of which are workable
- Old disputes prevent common sense solutions
- Decommissioning update 😀
Production has ceased at Platform Irene, California OCS
Posted in California, decommissioning, tagged California platforms, decommissioning, John B. Smith, Platform Irene, production ceased on January 12, 2023| 3 Comments »
My former colleague John Smith, an expert on Pacific Region decommissioning, advises me that production has ceased at Platform Irene in the Santa Maria Basin offshore California. Irene, the first platform installed in the Santa Maria District in 1985, was a milestone in Pacific OCS development.
Only 7 of the 23 Pacific OCS platforms are still producing. Attached is an updated summary table that John prepared for an upcoming SPE event in Alaska.
More on California OCS decommissioning.
BSEE’s decommissioning notice has been posted
Posted in decommissioning, Gulf of Mexico, Offshore Energy - General, Regulation, tagged BSEE, contract solicitation, decommissioning, Gulf of Mexico on November 8, 2022| Leave a Comment »
BSEE’s temporary abandonment/decommissioning solicitation has been posted. Some details:
- 14 wells to be decommissioned
- 1 well to be checked to confirm temporary abandonment
- Well depths: 2359′ to 11934′
- Water depths: 70′ to 477′
- 11 gas wells, 3 oil wells
- Well completion dates: 2006-2008
- Last production: 2010-2013 (Presumably, the short productive life of these wells either contributed to or was because of the lessees’ bankruptcies.)
- $25,000😀 minimum to $100,000,000 maximum contract guarantee
If I was an offshore contractor, I wouldn’t touch this work without:
- Ironclad liability protection after the work is completed and inspected. A contractor should not inherit the perpetual liability that the lessees knowingly and willfully accepted when they purchased the leases and conducted operations; nor is the contractor responsible for the failure of industry and government to establish a financial assurance framework that protects the taxpayer from such liabilities.
- Protection against likely cost overruns related to the uncertain downhole condition of the wells.
Previous posts on this matter:
Taxpayer funded decommissioning – troubling precedent for the US offshore program
NOT a shining moment for the offshore industry
Posted in decommissioning, Gulf of Mexico, Offshore Energy - General, tagged decommissioning, Gulf of Mexico, liability, orphaned wells on October 21, 2022| Leave a Comment »
Where is the leadership? Offshore decommissioning costs should never fall on the taxpayer. See the attached notice (excerpt below) and a previous post on this topic.
BSEE intends to execute a multi-award IDIQ Quantity Contract inclusive of a Base Year and Four (4) Option Years; however, the government reserves the right to award the IDIQ contract to a single firm. Time & Material, Labor Hour, and/or firm-fixed price task orders will be awarded for Decommissioning Services necessary to take nine (9) orphaned facilities, located in the OCS of the Gulf of Mexico, to the point of Temporary Abandonment (TA). The estimated decommissioning cost for temporary abandonment is $10,000,000 to $20,000,000.
Bud's Offshore Energy (BOE) 