E&E: Interior to update decades-old bonding regs

Phil Taylor, E&E reporter
Published: Monday, August 18, 2014

The Interior Department late last week announced plans to update 20-
year-old regulations that ensure taxpayers are not left on the hook for
the cost of tearing down abandoned offshore oil and gas facilities.

Interior’s Bureau of Ocean Energy Management said its existing bonding
regulations for oil and gas development have not kept pace with new
facilities designed to drill in deeper waters and the growing cost to
decommission them.

The agency is giving the public until Oct. 20 to comment on best
practices for mitigating financial risks and whether current bonding
requirements are adequate.

“We would like to work with industry and others to determine how to
improve our regulatory regime to better align with the realities of
aging offshore infrastructure, hazard risks and increasing costs of
decommissioning,” BOEM acting Director Walter Cruickshank said in a

BOEM said the costs of decommissioning offshore rigs have “dramatically
increased” since the last bonding regulations were developed nearly a
quarter-century ago.

At that time, the biggest financial risk the government faced in
selling oil and gas leases was nonpayment of rents and royalties,
noncompliance with laws and regulations, and potential problems due to
bankruptcy, BOEM said.

Currently, operators must pay a base bond of $50,000 per lease prior to
development. Bonds rise to $200,000 per lease for exploration and
$500,000 for production. Operators also can post bonds for an area of
leases, which start at $1 million for exploration and $3 million for

While BOEM may require additional financial assurances for
decommissioning, the agency exercises this authority about 10 percent
of the time.

Reducing financial risks is complicated by the 40- to 50-year life span
of many offshore drilling projects, BOEM said. New and unexpected
technological or financial challenges may necessitate new financial
assurances as projects evolve, it said.

“BOEM is specifically interested in comments regarding the financial
risks and liabilities associated with aging offshore infrastructure,
deepwater decommissioning, subsea decommissioning, pipeline
abandonment, Arctic operations, and new technologies designed to
address deepwater development or exploration and/or development of
energy or mineral resources in locations with unusually adverse
conditions,” the agency said in a Federal Register notice today.

The new rulemaking will not address the costs and damages associated
with oil spill financial responsibility, which are covered elsewhere in
BOEM’s regulations.

As of the beginning of this year, Interior’s Bureau of Safety and
Environmental Enforcement counted 1,583 abandoned wells and 374 idle
platforms waiting for decommissioning, a major drop from the 3,233
abandoned wells and 617 unused structures BOEM found in need of removal
in late 2010 (EnergyWire, March 12).

Federal regulations require offshore energy companies to remove all
material used for oil and gas extraction in the Gulf as soon as their
activities are completed at lease sites.

Interior last summer announced a new policy that will make it easier
for oil and gas companies to allow obsolete rigs in the Gulf of Mexico
to be used as habitat for fish. It drew support from operators that
stand to save on the cost of decommissioning the hulking steel
structures as well as recreational fishing groups that argue the rigs
provide important hiding and hunting grounds for fish in the Gulf,
whose muddy bottom is generally inhospitable to reefs (Greenwire, June
27, 2013).

But some environmentalists and scientists argue companies have abused
Interior’s “rigs to reefs” program to avoid the cost of
decommissioning, threatening to turn the Gulf into an oil and gas

“junkyard” (Greenwire, July 31).
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