New BOEM Financial Assurance Requirements Will Drive Independent Producers Out of the Offshore

New BOEM Financial Assurance Requirements Will Drive Independent Producers Out of the Offshore

WASHINGTON, D.C. – On behalf of thousands of America’s independent oil and natural gas companies and the service and supply companies that support their efforts, Independent Petroleum Association of America (IPAA) Senior Vice President of Government Relations and Political Affairs Dan Naatz released the following statement regarding the Notice to Lessees on new financial assurance requirements issued today by the Bureau of Ocean Energy Management (BOEM):

“Today’s Notice to Lessees will change how the oil and gas industry provides financial security for its offshore operations. It’s widely known that offshore development is an economically challenging business. The Bureau’s new mandatory financial requirements will force each lease owner to fully insure upfront all of its exploration wells, despite the fact that these wells may never be drilled. This mandate unfairly places the burden on independent offshore producers, removing operators’ flexibility and making it as difficult as possible for these smaller, independent companies to remain in business. The new financial requirements will double the cost of insurance premiums for offshore companies and will tie up much-needed capital that would otherwise be available for development, American jobs, and revenues to states and the federal government.

“To date, industry has absorbed 100 percent of its liability with zero cost to U.S. taxpayers, proving that the current financial assurance system works. One thing is clear, today’s directive is not a ‘balanced’ solution for America’s independent producers and unfortunately, their voice has been ignored throughout the process of this rulemaking.

“What’s more, for an Administration that has prided itself on being the ‘most transparent administration’ in history, it’s extremely disappointing to witness a federal bureau initially move forward with a formal rulemaking process, only to change course halfway and instead issue an executive memorandum with no recourse, no appellate process, and no corresponding change to the Code of Federal Regulations. Not only is this new regulatory scheme the opposite of transparent, it’s disingenuous and simply bad policymaking.”

Background:

America’s independent producers contribute significantly to offshore oil and gas production and directly employ over 10,000 people in the Gulf Coast region alone. In November 2014, IPAA submitted formal comments to the BOEM regarding its request for public input on the “risk management, financial assurance, and loss prevention” for the Outer Continental Shelf. In its comments, IPAA recommended eight practical steps to assure that bonds cover actual imminent removal costs and that the regulation not be based solely on speculative costs. IPAA later learned that BOEM chose to forego the formal rulemaking process and instead issued a “proposed guidance” signaling its intent to create new regulations by issuing a directive by way of a Notice to Lessees, eliminating accountability within the federal government and removing the need for any changes to the Code of Federal Regulations. In November 2015, IPAA submitted supplemental comments to BOEM reiterating its previous recommendations and outlining the serious concerns IPAA has with this new regulatory approach.

About the Independent Petroleum Association of America
The Independent Petroleum Association of America (IPAA) is a national upstream trade association representing thousands of independent oil and natural gas producers and service companies across the United States. Independent producers develop 90 percent of the nation’s oil and natural gas wells. These companies account for 54 percent of America’s oil production, 85 percent of its natural gas production, and support over 2.1 million American jobs. Learn more about IPAA by visiting www.ipaa.org and following @IPAAaccess on Twitter.

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