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.
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.”
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.
JL Daeschler informs that UK offshore wind energy is 82% foreign-owned. Foreign companies are thus the primary beneficiaries of the UK’s generous renewable energy subsidies (chart below).
“We have been warning for some time that it is crazy for a developed economy to try and run its electricity generation system using technologies that are dependent on the weather. Even though there has been only a relatively modest decline in wind output this year, the operators and owners of wind farms are learning the hard way that it is very difficult to run a business that is at the mercy of the vagaries of the weather. Many of these companies are up to their eyeballs in debt. They better hope the wind blows hard this Autumn and Winter so they can collect higher subsidies, or they will be in real trouble.“
We have consistently raised concerns about decommissioning financial assurance for offshore wind facilities. Turner echoes those concerns noting that the wind industry’s “perilous finances are an even bigger reason to insist that proper funds are set aside to fund decommissioning or the long-suffering taxpayer will be on the hook for another hidden cost of renewables.“
Attached is the Dept. of the Interior’s Semiannual Regulatory Agenda (9/22/2025). BSEE and BOEM decommissioning rules are excerpted below.
Of particular concern is the revised BOEM regulation (107) that “would reduce the amount of supplemental financial assurance required from oil gas, and sulfur lessees operating on the OCS.” See our previous post on this regulatory action. Note that a proposed rule is expected to be published by year end.
REVISIONS TO DECOMMISSIONING REQUIREMENTS ON THE OCS [1014–AA53] Legal Authority: Outer Continental Shelf Lands Act, 43 U.S.C. 1331 to 1356a Abstract: This proposed rule would address issues relating to (1) idle iron by adding a definition of this term to clarify that it applies to idle wells and structures on active leases; (2) abandonment in place of subsea infrastructure by adding regulations addressing when BSEE may approve decommissioning-in-place instead of removal of certain subsea equipment; and (3) other operational considerations. Timetable: NPRM ……………… 07/00/26 NPRM Comment Period End: 10/00/26
RISK MANAGEMENT AND FINANCIAL ASSURANCE FOR OUTER CONTINENTAL SHELF LEASE AND GRANT OBLIGATIONS [1010–AE26] Legal Authority: 43 U.S.C. 1331, OCS Lands Act; E.O. 14154, Unleashing American Energy Abstract: This proposed rule would rescind BOEM’s final rule ‘‘Risk Management and Financial Assurance for OCS Lease and Grant Obligations.’’ The proposed rule would revise the criteria for determining whether oil, gas, and sulfur lessees, right-of-use and easement grant holders, and pipeline right-of-way grant holders are required to provide financial assurance above the current minimum bonding levels to ensure compliance with their Outer Continental Shelf (OCS) Lands Act obligations. This rule, if finalized, would reduce the amount of supplemental financial assurance required from oil gas, and sulfur lessees operating on the OCS and would support the goals of E.O. 14154; Timetable: NPRM ……………… 01/00/26
Following the announced $9 billion rights offering to shore up its finances, Orsted’s long-term issuer credit rating has been downgraded to BBB- by S&P, just one step above junk.
Ørsted’s stock price plummeted on Monday following the announcement of a $9.4 billion rights issue to fund the Sunrise Wind project. The share price has remained depressed (chart below).
Also, although Ørsted attributes its financial woes to the change in US policies, it’s apparent in the second chart (5 year trend) that the decline in Ørsted’s valuation has been ongoing since 2021.
In March, Fitch downgraded Ørsted’s rating to BBB from BBB+, and its subordinated rating to BB+ from BBB-. Further downgrades would seem to be a distinct possibility.
Meanwhile, decommissioning financing for the 3 Ørsted projects under construction in the US Atlantic is far from assured:
Revolution Wind:As they did for Vineyard Wind, BOEM approved Ørsted’s request to defer full decommissioning financial assurance until 15 years after the beginning of construction (see attached letter). This approval was prior to the Renewable Energy Modernization Rule (effective June 29, 2024), which eliminated the need for such waivers.
Sunrise Wind: Ørsted is now solely responsible for funding and constructing this project given the company’s failure to find investment partners. Presumably, decommissioning financial assurance was not required given BOEM’s latitude under the so-called “Modernization Rule.”
South Fork Wind: As is the case with Sunrise Wind, BOEM presumably allowed Ørsted to defer financial assurance for decommissioning as permitted by the “Modernization Rule.”
According to Ørsted, almost 70% of the turbines are installed at Revolution Wind and the first foundations have been installed at Sunrise Wind. South Fork Wind, 12 turbines and an offshore substation, is complete.
Given Ørsted’s strained finances, will BOEM now opt to require decommissioning assurance as provided for in 30 CFR § 585.517?
Ørsted’s situation is atypical in that the Danish government owns a majority (50.1%) stake in the company and Equinor, which is 2/3 Norwegian govt owned, holds a 9.8% stake. How will government ownership factor into BOEM decisions regarding decommissioning assurance? Note that Norwegian govt lobbying may have been one of the factors influencing the decision to allow the resumption of construction on Equinor’s Empire Wind project.
BOEM’s streamlining rule codified the deferred financial assurance option. The rule authorizes the transfer of decommissioning risks from developers to taxpayers and consumers by (1) not requiring any additional supplemental financial assurance at the Construction and Operations Plan (COP) approval stage, (2) not requiring supplemental assurance at the installation stage, and (3) providing for incremental supplemental assurance post-installation (e.g. for Vineyard Wind, the full amount is not due until 15 years after installation). See the rule’s previous and current language in the table below (emphasis added).
30 CFR 585.516 – What are the financial assurance requirements for each stage of my commercial lease?
financial assurance required before BOEM will:
language prior to 4/24/2024 “modernization” rule
current language
Approve your COP
A supplemental bond or other financial assurance, in an amount determined by BOEM based on the complexity, number, and location of all facilities involved in your planned activities and commercial operation. The supplemental financial assurance requirement is in addition to your lease-specific bond and, if applicable, the previous supplement associated with SAP approval.
There is no supplemental bond requirement at the COP approval stage.
Allow you to install facilities approved in your COP
A decommissioning bond or other financial assurance, in an amount determined by BOEM based on anticipated decommissioning costs. BOEM will allow you to provide your financial assurance for decommissioning in accordance with the number of facilities installed or being installed. BOEM must approve the schedule for providing the appropriate financial assurance coverage.
A supplemental bond or other authorized financial assurance in an amount determined by BOEM based on anticipated decommissioning costs of the proposed facilities. If you propose to incrementally fund your financial assurance instrument, BOEM must approve the schedule for providing the appropriate financial assurance.
The current financial assurance language is fuzzy enough that BOEM could deny deferred funding requests and require full financial assurance at the time facilities are installed. However, revising the language to clearly require that assurance be fully demonstrated prior to installation would provide clarity and eliminate the deferral option going forward.
The more difficult challenge may be adjusting financial assurance requirements for the projects already under construction. It’s also important to ensure that parent corporations are not shielded from decommissioning and other liability risks.
MV Times: “The recent site visit raised questions on the production of the wind farm. The Times has been able to neither verify the report independently nor confirm disparities between visuals on the ground and the Iberdrola report.”
Avangrid, an Iberdrola subsidiary and one of Vineyard Wind’s developers, reported that 17 out of 62 turbines were currently sending power to the Massachusetts grid.
The MV Times counted between five and nine turbines spinning at different points, and for different intervals, in their two hour visit.
BOE comment: Although there are many possible reasons for this discrepancy, it’s reasonable to question the absence of turbine output data. Developers assert that generator specific data are sensitive and could have market implications. However, these turbines are operating on public lands and were in part publicly funded. Output data and other performance metrics clearly have policy implications.
Note that Iberdrola “expect[s] no impact from new federal budget legislation, as it doesn’t impact 1,000 megawatts under construction.”
An MV Times photo of a Vineyard Wind substation is pasted below. These substations are large structures. Per the Construction and Operations Plan (COP) for Vineyard Wind, the topsides for a conventional electrical service platform (ESP) (also known as an offshore substation or OSS) are 45 x 70 x 38 m, which is larger in surface area than a typical 6-pile oil and gas platform (~30 x 30 m), and is comparable in size to a large jackup drilling rig.
Bud's Offshore Energy (BOE) 