States sue BOEM over “egregious” $7 billion decommissioning rule targeting small oil and gas companies

June 17, 2024

(WO) – Texas, Louisiana, and Mississippi have sued the U.S. government to block a proposed rule by the Biden administration that would require offshore oil and gas companies to provide nearly $7 billion in financial assurances for decommissioning old infrastructure.

source: bp

The decommissioning rule, targeting smaller companies lacking investment-grade ratings or sufficient proven reserves, supposedly “protects” taxpayers from covering decommissioning costs. The U.S. Bureau of Ocean Energy Management (BOEM) estimates the rule could affect about three-quarters of operators offshore the Gulf of Mexico.

Critics, including Louisiana Attorney General Liz Murrill and industry representatives, argue the rule imposes undue financial burdens, potentially putting smaller operators out of business. They also highlight past bankruptcies among offshore operators and the significant decommissioning costs that could fall on taxpayers.

"This is a really egregious direct assault on intermediate level producers of oil and gas, and that affects a lot of business in our state," Murrill told Reuters.

The BOEM, holding $3.5 billion in bonds to cover estimated costs between $40 billion and $70 billion, will allow phased payments over three years under the new decommissioning rule. Still, there is concern about potential production shut-ins if companies cannot secure the required bonds.

This story was originally reported by Reuters.

Connect with World Oil
Connect with World Oil, the upstream industry's most trusted source of forecast data, industry trends, and insights into operational and technological advances.