The federal government’s system for assuring that oil and gas companies operating offshore have enough capital to remove structures is badly broken, the Independent Petroleum Association of America said in comments submitted to the US Bureau of Ocean Energy Management.
“The federal government (and therefore the American taxpayer) has never yet had to spend a penny to plug old offshore wells or remove production facilities,” IPAA said. “But BOEM and its sister agency, the Bureau of Safety and Environmental Enforcement, have acted in the last 4 years to tie up more and more company capital in bonds the government does not need or use.”
Current bonding requirements are not just duplicative, but multiplicative, requiring for example that operators provide $80 million in assurance to cover the same $20 million removal operation, IPAA said. “The effect of this action has fallen disproportionately on independent producers,” IPAA said.
“Independent oil and gas producers play a unique and critical function in the Outer Continental Shelf, developing 95% of America’s oil and gas wells and reinvesting billions of dollars back into the American economy,” IPAA Pres. Barry Russell said as the association filed its comments on Nov. 17.
“We encourage BOEM to work with independent producers to rationalize its approach to security, avoid disincentives to offshore investment, and protect the role of independent producers in the OCS,” Russell said.
To bring this issue of what IPAA called “over-bonding” to an end, the trade association recommended eight steps to assure that offshore bonds cover actual and imminent structural removal costs, instead of those that are speculative and multiplicative.
Contact Nick Snow at [email protected].
About the Author
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.