A new Biden administration plan to ensure oil companies have enough money set aside to clean up old offshore rigs is being touted as a potential blow to domestic energy production, as well as dozens of independent companies that they extract crude oil from the Gulf of Mexico.
The proposed rule advanced by the Interior Department’s Office of Ocean Energy Management marks the latest attempt to ensure taxpayers aren’t stuck paying more than $40 billion in estimated decommissioning costs, until all if current and past owners file for bankruptcy protection. The federal government has struggled for years to establish financial assurance requirements for aging offshore oil and gas infrastructure that can date back to the 1950s and has passed through many hands since then.
The new plan would help insulate major oil companies from dismantling costs tied to the leases they once held, a potential boon for BP Plc, Shell Plc and other companies that have sold long-drilled assets in the Gulf from Mexico
Overall, the measure would require companies to post an additional $9.2 billion in financial collateral to cover decommissioning costs, up from about $3.3 billion currently. These requirements would be tied to companies’ credit ratings and reserve values, with most of the burden expected to fall on non-integrated developers who collectively produce more than a third of the world’s oil and gas. gulf of mexico Companies potentially affected include smaller companies such as Kosmos Energy Ltd. and Talos Energy Inc., as well as larger producers such as Murphy Oil Corp. and Hess Corp.
It is not clear that there is a large enough market for an additional $9.2 billion in additional bonds. Opponents of the approach also argue that the requirements would divert capital from new drilling and development.
“Financial guarantee requirements are not a major issue like canceling lease sales, but they achieve the same results in that they could create a de facto moratorium on continued development in the Gulf of Mexico by all but major oil and gas companies,” said Kevin Bruce. , executive director of the Gulf Energy Alliance, which represents independent producers. If it ends, it “will discourage new investment, decrease production of the planet’s least carbon-intensive barrels, destroy American jobs, and ultimately harm the environment by increasing our dependence on dirtier foreign barrels.”
Independent producers have argued that the changes may do more to protect large integrated oil companies than taxpayers, since the federal government can already climb the chain of title in an attempt to recoup decommissioning costs even if an owner current fails Under the Chapter 11 plan approved for Fieldwood Energy LLC in 2021, none of the burden fell on taxpayers, although major oil companies that previously owned the bankrupt company’s assets were ordered to pay about $7 billion in decommissioning liabilities.
Liz Klein, director of the Office of Ocean Energy Management, said the proposed requirements “will help ensure that energy companies operating in publicly owned federal waters can meet their cleanup and decommissioning responsibilities without taxpayers must step in to pay the bill.”
A government estimate of the effects on oil production was not available Wednesday morning.
The issue has been the subject of years of industry lobbying, with potentially billions of dollars at stake for smaller companies working to collect the remaining oil and gas from old near-shore wells and offshore giants. ‘energy that sold most of their assets in shallow water. focus on deeper terrain. Big oil companies that transferred their aging assets have argued against changes that would increase their potential liability and, in some cases, encouraged tougher requirements on current owners to reduce the odds of being asked to pay.
The Biden administration’s plan would state that liability should fall on current homeowners and do away with a Trump-era approach to assessing financial guarantee requirements based in part on previous homeowners’ ability to pay.
The American Petroleum Institute was still reviewing the proposal Wednesday. Holly Hopkins, the group’s vice president of upstream policy, said she supported a framework that promotes “safe and responsible development of the outer continental shelf while protecting taxpayers from paying for decommissioning obligations.”
