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BOEM Issues NTL Imposing More Stringent Financial Assurance Requirements on OCS Lessees for Decommissioning Liabilities

On July 14, 2016, the federal Bureau of Ocean Energy Management (BOEM) issued a Notice to Lessees and Operators (NTL) conducting oil, natural gas, and sulfur activities on the Outer Continental Shelf (OCS) that overhauls the federal government’s offshore financial assurance program relating to the performance of decommissioning obligations on the OCS.

Greatly anticipated since first being conceptually proposed in September 2015, the new NTL, which is designated as NTL No. 2016-N01, completely revamps the manner in which energy companies operating on the OCS provide financial assurance to satisfy their obligations to decommission wells, platforms and other facilities located on the OCS. Critically, the exclusion process that historically was a key part of the financial assurance program and relied upon by qualifying energy companies to “waive” their provision of financial assurance for all or a portion of their decommissioning obligations has been eliminated by BOEM and replaced by a down-sized “self-insurance” mechanism. Moreover, co-lessees and co-owners will have to work cooperatively to provide financial assurance coverage for their leases and right-of-way (ROW) and right-of-use and easement (RUE) grants, as BOEM will now impose 100 percent liability upon each co-lessee and co-owner to decommission the entirety of each lease, ROW and RUE in which such parties hold an ownership interest or have provided a guarantee. If the responsible parties fail to agree on an allocation system for their financial assurance obligations, then each party will be responsible for 100 percent of the total decommissioning liabilities. Read the entire article here.

For further information on this topic, or if there is a need to discuss additional security issues, please contact Vinson & Elkins lawyers Larry Nettles, George Wilkinson, Larry Pechacek, or Brandon Tuck

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.