Challenge boems September 29, 2016

Challenge BOEM’s assessment of your financial assurance program: You have options when it comes to the latest NTL

Recent regulatory changes from the Bureau of Ocean Energy Management (BOEM) have the oil and gas industry on edge. The publication of a long-awaited Notice to Lessees and Operators (NTL) in July 2016 has changed the liability and security requirements for companies with Outer Continental Shelf (OCS) leases, threatening many with dramatically higher financial burdens as a result. BOEM and its enforcement agency, the Bureau of Safety and Environmental Enforcement (BSEE), are requesting operators to provide financial assurance that they are able to satisfy their asset retirement obligations in the Gulf of Mexico.

There is a great deal of anxiety and uncertainty surrounding the application of these new regulations. In October 2016, lessees will be notified by BOEM of how much increased security they will be required to provide to fully cover their oil and gas asset retirement obligations under the new policies. The increased security will be based on the BSEE’s generalization of costs associated with the complete field abandonment. Operators will then have only 30 days to notify BOEM in writing of any plans to dispute some or all of the agency’s determination. But in order to successfully challenge BOEM and BSEE, companies will need proof of either inaccurate asset calculation or of inflated complete decommissioning cost estimates. The latter option represents the best opportunity for most companies to seek reductions.

In order to convince BSEE that its estimated cost to decommission the relevant properties should be reduced, operators need to provide a lower cost estimate from a reputable decommissioning contractor. The key here is “reputable” – BSEE is unlikely to be swayed by a low-ball estimate from an unknown contractor with no track record working in the Gulf. In order to prevail, the estimate must come from a company with a long history of successful work in the industry and area, with an outstanding safety record and in-house expertise. With a proven track record of effective work and innovative solutions, this is where Chet Morrison Contractors can help.

We’re currently working with a number of operators to help them establish a more accurate cost estimate to cover decommissioning of their offshore assets, providing them with the necessary supporting materials to convince BSEE to reduce the amount of security they must provide. In one recent case, we worked with the operator to comprehensively assess BSEE’s requirements to satisfy their existing obligations. We were able to provide a more accurate, lower estimate of the costs associated with the removal of pipelines and platforms in the Gulf of Mexico, reducing the operator’s liability by 40%.

Chet Morrison Contractors performs decommissioning work in onshore, offshore and subsea environments – using our own fleet of vessels and experienced in-house crews. We’re known for our efficiency, expertise and industry-leading safety record. Moreover, we can provide the supporting documentation to back up our estimates, including historical data from many comparable projects. Our reputation in the industry is an asset when our clients meet with BOEM to argue for lower liability obligations.

If you’re concerned about your increased asset retirement obligations under the new NTL, give me a call at 985-868-1950 to learn how Chet Morrison Contractors can help.

Jerome Shaw is the Vice President of the Marine Construction Division for Chet Morrison Contractors. His extensive background in the industry includes more than 20 years of experience, specifically in the oilfield marine service lines where he built operational excellence in decommissioning and complete field abandonment, specifically pipeline and diving operations, as well as marine fabrication and construction.