A helping hand from the government?

The nine most terrifying words according to then-presidential candidate Ronald Reagan are “I’m from the government and I’m here to help.” Seldom do industry executives — from any industry — welcome help from government bureaucrats. It may be different this time. 

The Department of the Interior’s Bureau of Safety and Environmental Enforcement may help increase business for the offshore oil service industry. How? The Bureau of Ocean Energy Management announced a substantial strengthening of financial assurance rules offshore operators must meet in advance of activity. 

The action came in response to a report from last January by the General Accountability Office following its review of bonding practices for offshore wells and platforms. The bonds provide guarantees operators will have sufficient funds to pay to remove these facilities at their life’s end. If there are insufficient funds, American taxpayers are at risk for financing the removal costs. 

According to the GAO’s analysis, “Over 75 percent of end-of-lease and idle infrastructure in the Gulf was overdue under BSEE’s deadlines as of June 2023 — over 2,700 wells and 500 platforms.” At the same time, the GAO noted that “BOEM held about $3.5 billion in supplemental bonds to cover between $40 billion and $70 billion in total estimated decommissioning costs as of June 2023.” That defined the potential risk for American taxpayers. 

Under the new BOEM rules, current grant holders and offshore lessees must hold financial assurance to meet compliance with lease obligations. That means an updated financial strength rating must be secured from a nationally recognized credit rating organization. Additionally, an evaluation must be made of the current remaining proved oil and gas reserves compared to the estimated cost of meeting decommissioning obligations. Current operators cannot rely on the financial strength ratings of prior leaseholders, although BOEM retains the ability to pursue prior lessees to meet these costs. 

BOEM estimates that $6.9 billion in new financial assurances will be required from the industry to comply with the new rules. Operators can request up to a three-year phase-in for payments. 

How would this stimulate GOM decommissioning activity? The sooner work is scheduled and conducted, the greater the ability to reduce the financial assurance payment needed. Based on the GAO’s estimates, substantial decommissioning work needs to be done.