Industry Concerned that Decommissioning Estimates "Vary Wildly"


By MarEx 2016-10-04 19:18:43

The U.S. National Ocean Industries Association (NOIA) has sent a Freedom of Information Act (FOIA) request to the Bureau of Safety and Environmental Enforcement (BSEE) seeking information related to the agency’s recently revised estimates for future well plugging and abandonment and platform decommissioning costs in the Gulf of Mexico.

The U.S. Bureau of Ocean Energy Management (BOEM) enacted a modified user pay scheme in July to ensure that U.S. taxpayers never have to pay for offshore oil and gas platform decommissioning. BOEM plans to reference the BSEE estimates to examine the financial insurance required by offshore operators.

The BSEE estimates, particularly for facilities in the shallow water Gulf, appear to vary wildly from current decommissioning costs, says NOIA. BSEE released the revised estimates with little explanation regarding the assumptions and data it relied upon, despite the fact the agency’s own projections for decommissioning liability in the shallow water Gulf are over 100 percent higher than previous estimates from as recently as four months ago.  

In stark contrast, actual costs to perform decommissioning projects have decreased dramatically due to depressed commodity prices, better equipment and execution by operators, and a reduction of overall service costs in the Gulf.

The FOIA request reinforces industry efforts to obtain information being used by BSEE to determine estimates of decommissioning costs. To date, that information has not been released to the public or to companies attempting to meet new financial assurance/bonding requirements being issued by the BOEM. 

The FOIA request seeks to assure transparency regarding the methodologies used to calculate BSEE’s revised estimates, the accuracy of which cannot be verified by industry without the supporting documentation. 

BOEM may be incorporating BSEE’s revised decommissioning estimates into its new financial assurance/bonding requirements for offshore operators. Thus, BSEE’s decommissioning assessments must provide realistic liability estimates for use by BOEM to establish bonding limits for each lease, says NOIA. It is vital that underpinning formulas and information being used by BSEE are thoroughly vetted and verified.

NOIA member companies say that they remain willing to work in a collaborative manner to develop an accurate and reliable method for determining decommissioning liability for offshore operators. 

All outer continental shelf leases require that decommissioning companies must remove all facilities and restore the site to its pre-lease state. However, due in part to the industry’s move into deepwater areas in the Gulf of Mexico, decommissioning costs have risen significantly, says BOEM. Moreover, as existing infrastructure ages, larger companies are transferring older facilities to smaller or less experienced companies. 

Current estimated routine decommissioning liabilities in the outer continental shelf are approximately $40 billion.