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July 14, 2016

BOEM tells offshore firms to comply with new financial and risk management requirements

The US Bureau of Ocean Energy Management (BOEM) has notified oil and gas companies with leases in the Gulf of Mexico to comply with new financial assurance and risk management requirements designed to protect taxpayers from the costs of decommissioning old production facilities.

By Srivani Venna

The US Bureau of Ocean Energy Management (BOEM) has notified oil and gas companies with leases in the Gulf of Mexico to comply with new financial assurance and risk management requirements designed to protect taxpayers from the costs of decommissioning old production facilities.

The Notice to Lessees and Operators (NTL) provides details relating to improved procedures to determine the ability of a lessee to perform its obligations.

BOEM director Abigail Ross Hopper said: “BOEM’s goal is to modernise its approach to risk management in a way that better aligns with the realities of the industry and protects the US Government and taxpayers from risk in a manner that isn’t overly burdensome to the oil and gas industry. 

“By implementing these changes, we will create comprehensive procedures to decrease risks to taxpayers, while providing industry flexibility to negotiate adaptive solutions and use tailored financial plans to meet their financial assurance requirements.”

All Outer Continental Shelf (OCS) leases require companies to remove all facilities and restore the site to its pre-lease state at the time of decommissioning. 

"We will create comprehensive procedures to decrease risks to taxpayers, while providing industry flexibility."

Routine decommissioning liabilities in the OCS currently are expected to be around $40bn.

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The NTL provides updated procedures for requiring additional financial security for oil and gas or sulphur leases, in addition to updated criteria for determining a lessee's ability to self-insure its OCS liabilities.

Further, it provides new methods and additional flexibility for lessees to meet their additional financial security requirements through a tailored plan.

Hopper further added: “We must ensure the US taxpayer never pays to decommission an OCS facility and that the environment is protected. Managing risk in the early stages of a lease will provide lessees negotiated solutions that improve business certainty and leverage existing company strengths.” 

By working with large and smaller individual lessees, BOEM will develop an approach that works for the government and for each company.

The agency’s aim is to examine each company individually and assess its total financial assurance needs and later work to determine the suitable financial assurance instrument for its individual needs.

Prior to implementation of the NTL, BOEM is providing a grace period of 60 days and will initially focus on properties that pose the highest risk to the government.

For all other holdings, lessees will have 120 days from the date they receive an order to provide additional security.

They can also provide a tailored financial plan to the agency, which will permit the use of forms of financial security other than surety bonds and pledges of treasury securities and allow companies to phase in funding of the additional security.

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