Regulatory Tracker

Financial Assurance for Offshore Oil & Gas Development

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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new criteria for determining a lessee, owner, or operator’s financial ability to carry out their obligations, replacing outdated formulas for determining financial strength and reliability.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.

Timeline of Events

Obama Administration

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 Administration

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.

Sep. 17, 2020 BOEM and BSEE propose a rule describing when oil, gas and sulfur lessees, right-of-use and easement (RUE) grant holders, and pipeline right-of-way grant holders are required to provide bonds or other additional financial security. It removes certain provisions for third-party guarantees and decommissioning accounts and provides criteria for canceling bonds and third-party guarantees. Overall, the agencies expect the rule to reduce the total amount of financial assurance required.

Oct. 16, 2020 BSEE and BOEM publish the proposed financial assurance rule in the Federal Register, initiating a 60 day public comment period. Comments can be submitted through Dec. 15, 2020.

Biden Administration

Jan. 20, 2021 President Biden signs EO 13990 that revokes Trump’s EO 13795 and directs all agencies to review and consider revising rules issued during the Trump administration. The White House also orders a freeze on all new regulations while this review is conducted.

Jan. 27, 2021 President Biden’s EO 14008 orders a review of the permitting and leasing practices for offshore oil and gas and pauses all new leasing during this time.

August 18, 2021 BOEM announces it is expanding its program to require supplemental financial assurance for property owners who are not financially strong. In addition to sole liability properties where the owner is not financially strong, BOEM will require supplemental financial assurance for “certain high-risk, non-sole liability properties.”