05/14/2020 - Regulatory Rollback

BOEM NTL 2016-N01 Requiring Additional Financial Assurance

Why it Matters

Following the Deepwater Horizon explosion and oil spill, the Department of the Interior (DOI) underwent a significant reorganization and issued rules and guidance to fill regulatory gaps in emergency response and operational oversight (for more on these changes, see our post on the 10 year anniversary here). President Obama also removed certain areas of the outer continental shelf from oil and gas development. (The outer continental shelf or OCS consists of “all submerged lands lying seaward of state coastal waters…under U.S. jurisdiction.”) Rolling back these rules and designations increases risks to offshore oil worker safety and, the non-oil and gas related economic value of oceans and coastal areas, and the ecological well-being of those areas.

Among these reforms was a September 12, 2016, BOEM Notice to Lessees and Operators (NTL No. 2016-N01) that provided new guidance for when BOEM would require additional financial assurance for leases, pipeline rights-of-way, and rights-of-use and easements. Financial security is required by BOEM to ensure operators can meet decommissioning costs. The NTL revised guidance around when additional security should be required so that BOEM would consider 100 percent of decommissioning costs and other liabilities when deciding whether to require assurance. BOEM still allowed self-insurance for some or all of the additional security obligations but the new NTL replaced prior guidance allowing for the exclusion of certain liabilities from the calculation of financial assurance. NTL 2016-N01 also established new criteria for determining a lessee, owner, or operator’s financial ability to carry out their obligations, replacing outdated formulas for determining financial strength and reliability.

Click here to view our page on the EO 13795: Implementing an America-First Offshore Energy Strategy and the other changes that have followed the EO. For more information on the reforms that followed the Deepwater Horizon disaster, view our 10-year anniversary post here.

Current Status

Trump’s April 28, 2017 Executive Order 13795 directed the Department of Interior to reconsider efforts to limit or regulate offshore oil and gas development, specifically requesting that Interior review NTL 2016-N01. Interior Secretary Zinke’s May 1, 2017 Secretarial Order 3350 instructed its sub-agencies on how to implement the Executive Order, including ordering a review of NTL No. 2016-N01 and a report with options for revising or rescinding it. NTL 2016-N01 is listed as rescinded on BOEM’s website but it is not apparent whether the agency has completed its review and intends to replace it.

History

Sep. 12, 2016 BOEM / DOI issues a Notice to Lessees and Operators (NTL No. 2016-N01) on the Outer Continental Shelf (OCS), to consider increasing financial security to meet decommissioning costs.

Trump Era

May 1, 2017 Zinke’s Secretarial Order instructs BOEM to promptly complete its review of the NTL and provide a report with options for revising or rescinding it.

Feb. 17, 2017 BOEM withdrew the sole liability orders issued under the NTL pending its review of the financial assurance system.

June 22, 2017 BOEM extends the timeline for implementation of NTL 2016-N01.

NTL 2016-N01 is listed as rescinded on BOEM’s website but it is not apparent whether the agency intends to replace it.