Excerpts from a good OC Register article on the ecological significance of the 27 platforms in State and Federal waters offshore California:
“All the (California) platforms having booming ecosystems underwater,” marine scientist Amber Sparks said at an Aquarium of the Pacific lecture in Long Beach on Wednesday, March 2.
“There’s a lot of real estate; a lot of nooks and crannies for marine life,” she said. “Scientists at the National Academy for the Sciences have found California’s platforms are some of the most productive marine habitat in the world.”
The Gulf of Mexico is the poster child for rigs-to-reefs, with more than 500 decommissioned oil platforms turned into full-time artificial reefs over the past 30 years. It’s bold testament to the habitat potential of the rigs, transforming the relatively sterile, sandy bottom ecosystem there into one with hundreds of prime locations for marine life.
BSEE has posted the slides and presentation video announcing their draft Request For Proposals (RFP) to contract for the decommissioning of facilities on five Gulf of Mexico leases. Phase 1 involves the plugging of 15 wells. Per the presentation, this work would be paid for using “orphan well” funds appropriated in the 2021 Infrastucture bill.
Per BSEE’s online borehole file, the wells in question were drilled by Matagorda Island Gas Operations, Anglo-Suisse Offshore Partners, and Bennu Oil and Gas. Matagorda and Bennu declared bankruptcy and are no longer in business. The status of Anglo-Suisse is not entirely clear, but presumably they are no longer financially accountable.
Looking at BOEM online data, these leases had other owners including two US super-majors. However, the wells identified by BSEE were drilled after these and other financially strong companies had assigned their interest. They are thus not legally accountable, which is presumably why these wells were chosen for the RFP.
The unprecedented use of Federal funds for decommissioning reflects poorly on the offshore industry and Federal lease management practices. The financial risks associated with decommissioning have been apparent for more than 30 years (see the July 1991 Forbes article below). Why have these issues not been effectively addressed? Some thoughts:
Operating companies showed little interest in private industry-wide solutions. Rod Pearcy, one of the most respected managers in the history of the Federal offshore program, advocated an industry funded and managed entity to ensure financial assurance and guarantee well and facility decommissioning. This concept never gained traction.
Industry factions disagreed strongly on the regulatory approach that the Federal government should take. Simply put, “majors” wanted to limit future liability for leases they assigned. “Independents” wanted the assigning companies to retain liability such that their financial assurance requirements were minimized. These divisions continue to this day and are the main reason financial assurance regulations are so difficult to update.
Decommissioning costs vary wildly depending on the particular circumstances, making it difficult to establish the amounts of financial assurance to be required. For example, storm damage typically increases well and structure decommissioning costs by a factor of at least 10. Requiring worst case financial assurance amounts would preclude many assignments and the associated increase in oil and gas recovery.
Realistic amounts of bonding and other forms of financial assurance are routinely challenged by lessees and their political representatives.
Poor lease assignment and financial management decisions have significantly increased the risk exposure of predecessor lease owners and taxpayers. The troubling case of Platforms Hogan and Houchin, Santa Barbara Channel, demonstrates the implications of questionable lease assignments and the irresponsible use of decommissioning funds.
Government funded decommissioning will likely be more expensive and will subject the public to unforeseen costs and future liabilities should the operations not go as planned.
The future decommissioning of wind turbines is already a major issue, and measures must be taken to ensure that liability is clearly established and operator funding is assured.
In the past, the regulators, operating companies, and insurers have found ways to ensure that decommissioning costs did not fall on the taxpayer. BSEE continues to be resourceful in that regard. Private solutions should always be the objective. The proposed RFP opens the door to the potential for far greater Federal liabilities down the road, particularly given the uncertainty about predecessor liability in some important cases.
Coastkeeper’s upcoming Retiring Offshore Rigs Summit, or ROR, comes roughly ten years after Coastkeeper’s Rigs to Reef Conference in 2010. While that conference succeeded in passing new decommissioning and artificial reef enhancement laws, the language was not workable. In the decade since that legislation, known as AB 2503, or the “California Marine Resources Legacy Act” was signed into law, it was never implemented by the state.
Despite scientific support, California’s “rigs to reefs” program has made little progress. Comments in yesterday’s LA Times article help explain why:
Fed by concerns from some environmental advocates and a skepticism about the motives of California’s billion-dollar oil industry, the Rigs to Reefs program that passed in 2010 was so complicated by political compromise that the permitting process became almost unworkable, (State Sen.) Hertzberg said.
Not a single oil company has applied in the history of the program, according to the State Lands Commission, which has jurisdiction over state waters.
“Oil companies want a clear path to compliance,” he said. “They’re operating in many cases at a loss, but it’s cheaper to operate at a loss than it is to face millions for decommissioning.”
Veteran marine science advocate Jerry Schubel, former president of Long Beach’s Aquarium of the Pacific, is among those pushing for offshore oil platforms to be transformed for new ocean uses. He points out that the underwater portion of the structures already are a boon to marine life.
“They have enormous value as ecosystems because of the life that has grown on and around them,” he said.
He points out that other states have rigs-to-reefs programs — and California does as well, though it needs funding before it can function. Once the ball gets rolling, oil companies could be tapped to cover costs with fees drawn from the money they would save by not having to haul dismantled rigs ashore. Schubel estimated that turning platforms into reefs could cut decommissioning costs in half.
But Schubel says artificial reefs should be just the beginning. How about fish farms? Research labs? Windmills? Hotels for divers?
“The uses,” he said, “are limited only by our imagination.”
Overall Conclusion Currently, there are no regulations that require removal of subsea pipelines if they are not an obstruction to navigation. Based on the high costs for removing the pipelines, the personnel risk involved in the removal operations, the negative effect on overall emissions to air and the very limited reduction in discharges to sea, the overall conclusion is that it is better to leave the pipelines in place. If possible, re-use of the pipelines is the optimal solution.
Environmental Impacts The impacts on the environment and the marine environment from pipelines and cables left in place were found to be very minor. Conversely recovery operations will have a negative impact on the environment. The number of vessels required for removal operations and long operating hours will result in considerably more releases and emissions than leaving the pipelines in place. In addition the energy savings benefit from recycling the pipeline materials will be exceeded by the energy required to remove the pipelines and separate the materials.
The “Habitat” impacts row seems questionable. Pipeline removal certainly has a greater impact on habitat than abandonment in place, particularly for buried pipelines.
For those interested in California offshore decommissioning, attached is an excellent update presented at a 2020 forum by my former colleague John Smith.
Platforms Hogan and Houchin were installed 52 and 53 years ago respectively on Lease OCS P-0166 in the Santa Barbara Channel. The lease, which had initially been issued to Phillips Petroleum, Cities Service Oil Co., and Continental Oil Co., was assigned to Signal Hill Service effective 2/19/1991. The assignment was approved despite concerns within the Minerals Management Service (MMS) about the financial strength of Signal Hill and the technical competence of Pacific Operators Offshore Inc (POOI), the affiliate that would operate the facilities.
Three decades of frustration followed for MMS, BOEM, and BSEE regulators in the Pacific Region. Per the terms of the assignment, Signal Hill was required to establish an Abandonment Escrow Account, funded from oil production revenue, with a “target balance” equal to the abandonment cost, plus 25 percent. These payments were seldom made in a timely and consistent manner.
Compliance with safety regulations was also poor. In that regard, violations data are consistent with anecdotal reports from inspectors. POOI accounted for a high percentage of the regional Incidents of Noncompliance (INCs), and Platforms Hogan and Houchin had INC/inspection ratios that were far higher than Pacific or Gulf of Mexico platform averages (see inspection data below).
INC’s
Warnings
Component Shut-ins
Facility Shut-ins
POOI
485
562
46
All companies (Pacific Region)
1965
3103
281
POOI % of total
24.6
18.1
16.4
A 9/20/2020 Inspector General report found significant irregularities in the use of funds from an offshore production company’s escrow account. While the IG’s summary (pasted below in its entirety) doesn’t say so, the company is assumed to be Signal Hill.
The OIG investigated allegations that an offshore oil and gas production company improperly paid operational expenses with money from an escrow account dedicated to paying expenses related to decommissioning offshore platforms in Federal waters. We found that the company routinely used funds from its decommissioning account to pay what appeared to be various operating expenses. We also found instances where the company appeared to claim reimbursement for duplicate expenses. Based on our findings, the company submitted credits and adjustments, totaling $1.9 million, to the decommissioning account to cover these expenses and other disbursements. In addition, we referred a number of unresolved expenses for non-decommissioning activities to the Bureau of Safety and Environmental Enforcement and the Bureau of Ocean Energy Management for resolution. We referred this matter to the U.S. Department of Justice, which declined to pursue it.
Why haven’t BOEM, BSEE, or the OIG released the full report? The public and the offshore industry certainly have a right to know given the potential costs to the taxpayer and the reputational damage to the industry.
Why was a company with such a poor payment and compliance record allowed to withdraw funds from their decommissioning account to cover operating expenses?
Decommissioning liability issues are not simply a matter of “companies trying to get out of that obligation.” Much of the complexity is associated with decades-long chains of lease ownership and the respective responsibilities of prior lessees. Pertinent questions include the following:
If a company sold a lease decades ago and there have since been multiple owners, to what extent is the original owner still liable for decommissioning lease facilities? (Note that guidance from the Federal government has not been entirely consistent over the decades.)
If current leaseholders fail to fulfill their obligations, who is next in line and why?
To what extent are prior lessees liable for wells and structures constructed subsequent to their ownership?
Knowing that decommissioning costs can vary significantly, what amounts of security should be required? How should these funds be protected or managed? Should an assigning company also collect funds to protect their interest?
How do inconsistent Federal policies and financial assurance requirements, and improper practices by subsequent owners, affect the liability of prior lessees? In that regard, the case of Platforms Hogan and Houchin in the Pacific OCS Region is interesting and pertinent.
Per the WP, “Federal regulations require the removal of offshore pipelines once they are decommissioned, but the rules are rarely enforced.” This statement is doubly incorrect.
30 CFR § 250.1750 provides for decommissioning pipelines in place when the Regional Supervisor (BSEE) determines that the pipeline does not constitute a hazard (obstruction) to navigation and commercial fishing operations, unduly interfere with other uses of the OCS, or have adverse environmental effects. The consensus opinion of the regulators’ engineers and scientists has been that the safety and environmental risks associated with pipeline removal were significantly greater than those for decommissioning in place in accordance with the procedures specified in 250.1751.
The comment about enforcement is unfounded. BSEE and its predecessors have strictly enforced decommissioning requirements despite the challenges related to inconsistent policy direction, industry downturns, and hurricane damage. BSEE has an effective program to ensure that idle wells are plugged and platforms are removed in a timely manner. For this reason, 3315 platforms have been removed since 2001; 1933 since 2010. Only about 1800 platforms remain. This very significant loss of habitat is a concern to fishing organizations, another factor that complicates decommissioning policy.
In situ decommissioning of buried or trenched offshore pipelines is the standard throughout the world. The seafloor disturbance and safety risks associated with the removal of such pipelines are universally viewed as unwarranted. The pipeline decommissioning procedures followed elsewhere are similar to those described in 30 CFR 250.1751. In the Gulf of Mexico, pipelines installed in less that 200′ of water are typically buried (30 CFR 250.1003) to minimize interference with commercial fishing and other activities.
The decommissioning of wind turbines, which are typically more densely located and closer to shore, and their attendant power cables and substructures, will also be challenging. In their 9/16/2019 Congressional testimony, the Responsible Offshore Development Alliance expressed concern about the practice of leaving structural foundations when turbines are abandoned.
In remarks to the WP, Syed Khalil, a coastal restoration geologist for the State of Louisiana, commented that they have enough sand to meet their short term needs, but future needs were a major concern. The Gulf of Mexico Offshore Sand Management Working Group would seem to be the best mechanism for timely action and a workable, long-term action plan. The minutes of their meetings are quite instructive. Rulemaking is not a solution unless the parties want to tie their fate to both the 25 year pipeline rule rewrite (draft published in 2007, another draft coming? final?) and the contentious and similarly interminable financial assurance rule.
Bud's Offshore Energy (BOE) 