BOEM Prioritizes Implementation of Risk Management and Financial Assurance Program
Provides Additional Time and Welcomes Stakeholder Engagement
Contacts: Connie Gillette
After months of careful consideration and industry engagement, in July 2016, the Bureau of Ocean Energy Management (BOEM) issued Notice to Lessees (NTL) 2016-N01, with a 60-day grace period before implementation on September 12th, 2016. In this guidance document the agency detailed improved procedures to determine a lessee’s ability to carry out its lease obligations - primarily the decommissioning of Outer Continental Shelf (OCS) facilities – and to make informed decisions about whether lessees should furnish additional security.
BOEM has continued to engage with industry since the issuance and subsequent implementation of the NTL. BOEM conducted presentations on the NTL at two industry trade group forums in August 2016. In October 2016, BOEM sent out proposal letters covering all decommissioning liability and allowing offshore companies to analyze and respond to their proposed assessments. During the fall, BOEM determined the amount of self-insurance for those companies that requested the ability to use self-insurance. BOEM has also been working with companies on an individual basis.
Most recently in December 2016, BOEM issued Orders to Provide Additional Security for sole liability properties. Sole liability properties are leases, rights-of-way, or rights of use and easements for which the holder is the only liable party, i.e., there are no co-lessees, operating rights owners and/or other grant holders, and no prior interest holders liable to meet the lease and/or grant obligations. This most recent action reflects BOEM’s continued assessment that sole liability properties represent the greatest programmatic risk to the American taxpayer.
Additionally, through BOEM’s continued engagement with industry, it has become apparent that navigating the multi-party business relationships that exist between co-lessees and predecessors-in-interest can prove challenging and time-consuming. Further, because the non-sole liability properties may include several co-lessees and prior interest owners, their existing financial arrangement may require assessing the extent to which these existing financial arrangements can be considered in determining whether BOEM needs additional security.
Therefore, in order to provide BOEM and industry the opportunity to focus on providing additional security for sole liability properties, and to allow an opportunity for additional time and conversation, including with interested stakeholders, regarding issues that arise in the context of non-sole liability properties, BOEM will extend the implementation timeline for NTL 2016-01 by an additional six months as to leases, rights-of-way and rights of use and easement for which there are co-lessees and/or predecessors in interest, except in circumstances in which BOEM determines there is a substantial risk of nonperformance of the interest holder’s decommissioning liabilities. Interest holders of non-sole liability properties are encouraged, however, to propose and negotiate tailored plans during this period.
BOEM will continue its interactive process to gather additional input from all interested parties. Our goal is to ensure industry’s continued engagement in developing and implementing a risk management program that enables industry to meet its legal obligations and protects the American taxpayers from shouldering any liability for decommissioning the existing or future facilities on the OCS, while recognizing the industry’s current economic realities and concerns.
More information about the NTL can be found at: http://www.boem.gov/Risk-Management/.