The U.S. Department of the Interior announced a final rule from the Bureau of Ocean Energy Management (BOEM) on April 15 that updates offshore decommissioning regulations for the U.S. Outer Continental Shelf (OCS) — including new decommissioning assurances.

Under the new rule, BOEM estimates that the oil and gas industry will be required to provide $6.9 billion in new financial assurances to protect taxpayers from assuming industry decommissioning costs.

Previous approaches did not effectively ensure operators met decommissioning deadlines for offshore facilities at the end of their useful lives, according to the Government Accountability Office (GAO). 

The final rule amends existing regulations to respond to those concerns and reduce financial risks associated with OCS development by substantially increasing the level of financial assurances that operators must provide in advance, according to the Interior Department.

“This final rule updates, simplifies and strengthens outdated requirements to ensure that taxpayers are protected and current operators are held responsible for their end-of-lease cleanup obligations on the Outer Continental Shelf,” Interior Secretary Deb Haaland said in a press release.

Existing regulations have not kept pace with industry changes, such as aging OCS infrastructure, the transfer of near end-of-life properties from large companies to smaller companies with fewer financial resources, or the complex financial security arrangements between —and within— companies. The new rule establishes two metrics by which BOEM will assess financial risk: a company’s financial health and the remaining reserves value.

The rule streamlines the number of factors BOEM uses to determine the financial strength of a company by using a credit rating from a nationally recognized statistical rating organization, or a proxy credit rating equivalent.   

BOEM will consider the current value of the remaining proved oil and gas reserves on the lease compared to the estimated cost of meeting decommissioning obligations. If the lease has significant reserves still available, then in the event of a bankruptcy, the lease will likely be acquired by another operator who will assume the plugging and abandonment liabilities. 

Companies without an investment-grade credit rating or sufficient proved reserves will need to provide supplemental financial assurance to comply with the new rule. 

Additionally, the rule clarifies that current grant holders and lessees must hold financial assurance to ensure compliance with lease obligations and cannot rely on the financial strength of prior owners. BOEM continues to maintain its ability to pursue prior lessees to meet decommissioning obligations. 

To provide industry with flexibility to meet the new financial assurance requirements, BOEM will allow current lessees and grant holders to request phased-in payments over three years to meet the rule’s new financial requirements. 

The final rule follows a proposed rule issued by BOEM in June 2023, which received over 2,000 public comments that informed its development. 


 

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