Biden Seeks to Shield Taxpayers From Costs of Cleaning Up Aging Offshore Oil Wells

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(Bloomberg) — The Biden administration on Tuesday outlined its plan for ensuring oil companies have enough money set aside to clean up old offshore platforms, as costs mount for decommissioning decades-old infrastructure in the Gulf of Mexico. 

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The proposed rule advanced by Interior Department’s Bureau of Ocean Energy Management marks the agency’s latest attempt to ensure taxpayers aren’t on the hook to pay for those expenses, even if current and past owners file for bankruptcy protection. Routine decommissioning liabilities for oil and gas infrastructure in coastal US waters are estimated at more than $40 billion. But the federal government has struggled for years to set new financial assurance requirements for aging offshore assets that may date back to the 1950s and have passed through many hands since. 

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The proposed changes “will help ensure that energy companies that are operating in publicly-owned federal waters are able to fulfill their clean-up and decommissioning responsibilities without taxpayers having to step in to foot the bill,” said Liz Klein, director of the Bureau of Ocean Energy Management. 

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The measure, set to be published in the government’s Federal Register on Thursday, would govern all manner of offshore oil and gas infrastructure, from small, unmanned platforms to multibillion-dollar production facilities. The regulation would force more companies to seek additional financial assurance for their decommissioning responsibilities based on the Bureau of Ocean Energy Management’s analysis of their credit ratings and the current value of proved oil and gas resources on the affected leases. Companies without an investment-grade credit rating generally would be required to provide more financial assurance, though those with higher-value oil and gas reserves likely to be sold in any bankruptcy proceeding might have to set less aside. 

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The bureau estimates that the proposal would force companies to earmark an extra $9.2 billion in financial assurance, raising the total to $12.5 billion. The assurance could take the form of surety bonds, third-party guarantees and possibly other tools. 

The issue has been the subject of years of industry lobbying, with potentially billions of dollars at stake for smaller companies that work to glean remaining oil and gas from old wells close to shore and energy giants that sold off most of their shallow-water assets to focus on deeper terrain.  Although the federal government historically can move up the chain of title in a bid to recover decommissioning costs if a current owner falters, large oil companies who sold off aging, end-of-life assets have argued against changes that would increase their potential liability. 

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