Bud's Offshore Energy (BOE)

The final decommissioning financial assurance rule has been published and is largely unchanged from the proposed rule that we reviewed last summer.

Major concerns:

• Despite ample evidence regarding the importance of compliance and safety performance in determining the need for supplemental financial assurance, BOEM has dropped all consideration of these factors. Did BSEE field personnel concur with this decision?
• Proved reserves should not be a basis for reducing supplemental assurance. The uncertainty associated with reserve estimates and decommissioning costs can easily negate the assumed buffer in BOEM’s 3 to 1 reserves to decommissioning costs ratio. That approach failed completely at the Carpinteria Field in the Santa Barbara Channel (Platforms Hogan and Houchin). See other points on this issue.
• Given that the reverse chronological order process for determining predecessor liability was dropped from consideration last April, there is no defined procedure for issuing decommissioning orders to prior owners. The absence of such a procedure increases the likelihood of confusion, inequity, and challenges, particularly when orders are first issued to companies that owned the leases decades ago, in some cases prior to the establishment of transferor liability in the 1997 MMS “bonding rule.”

BOEM’s concern (below) about investment in US offshore exploration and production is interesting given that their 5 year leasing plan strongly implies otherwise.

BOEM’s goal for its financial assurance program continues to be the protection of the American taxpayers from exposure to financial loss associated with OCS development, while ensuring that the financial assurance program does not detrimentally affect offshore investment or position American offshore exploration and production at a competitive disadvantage

final decommissioning rule, p. 40

I’m just guessing here, but my sense is that BOEM was pressured to finalize this rule in a timely manner (<10 months is timely for such a complex rule) and was thus reluctant to make any significant changes to the proposal published last summer. A public workshop during the comment period would have been a good idea to facilitate informed discussion on the important issues addressed in this rule. Such workshops were once commonplace for major rules.

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