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BSEE Streamlined Guidance on Idle Iron Requirements

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The federal government has issued new guidance designed to streamline the process for decommissioning wells and platforms in the Gulf of Mexico that are no longer useful for operations. On December 11, 2018, the federal Bureau of Safety and Environmental Enforcement (“BSEE”) issued a Notice to Lessees and Operators and Pipeline Right-Of-Way Holders (“NTL”) for the Outer Continental Shelf (“OCS”) Gulf of Mexico Region on Idle Iron Decommissioning Guidance for Wells and Platforms (the “2018 NTL”). “Idle Iron” refers to infrastructure, including but not limited to wells and platforms, on the OCS that is no longer useful for operations. The 2018 NTL, designated NTL No. 2018-G03, replaces a 2010 NTL (the “2010 NTL”) on the same subject,1 NTL No. 2010-G05. The intent of the 2018 NTL was to streamline the 2010 NTL, mainly via removing language that summarized applicable regulations; therefore, much of the substance from the earlier guidance is incorporated in the 2018 NTL. The 2018 NTL provides guidance on the decommissioning rules set forth in 30 CFR 250 Subpart Q. After a brief reaffirmation of the decommissioning guidance in the 2010 NTL, the 2018 NTL (1) reiterates definitions for certain terms used in the decommissioning regulations and (2) establishes time frames for performance of decommissioning operations, while emphasizing BSEE’s discretion in implementing the final decommissioning schedules.

I. Definition of Certain Terms from the Decommissioning Rules

The 2018 NTL carries forward definitions of certain terms from the 2010 NTL that are critical to BSEE’s earlier guidance and regulations on decommissioning, including: (1) “no longer useful for operations”; (2) “toppled platform”; (3) “capable of production in paying quantities”; and (4) “downhole zonal isolation.”

A. No Longer Useful for Operations

Pursuant to 30 CFR 250.1703, wells and platforms must be decommissioned if “no longer useful for operations.” The 2018 NTL defines the phrase separately for wells and platforms.

  1. For a well:
    1. The well has not been used in the past 5 years for either (i) operations associated with the exploration for or development and production of oil, gas, sulphur, or other mineral resources (collectively, “Exploration and Production”) or (ii) as infrastructure in support of such operations (“Infrastructure”); and
    2. The lessee or operator has no plans to use the wells for Exploration and Production or Infrastructure.
  2. For a platform:
    1. The platform has been toppled or otherwise destroyed; and
    2. The platform has not been used in the past 5 years for (i) Exploration and Production, (ii) Infrastructure, or (iii) “other energy- or marine- related purposes as authorized by BSEE or the Bureau of Ocean Energy Management.”

If a well meets the criteria for sub-section 1(a) of the above but the lessee or operator plans for future use of the well, BSEE will require certain documentation to demonstrate such plans for future use. The 2018 NTL lists ten items of supporting documentation that should be provided, although more may be necessary depending on the circumstances of the facility in question:

  1. Detailed discussion of plans for the well
  2. Log section identifying the zone(s) to be produced
  3. Recoverable reserve estimate
  4. Reservoir parameters (e.g. porosity, acre-feet, water saturation, etc.) including recovery factor
  5. List of all wells penetrating the reservoir
  6. Structure map showing penetration points and depth for each well penetrating the reservoir, fluid contacts, and reserve boundaries
  7. Isopach map showing net feet of pay for each well, identified at penetration point
  8. Any well test information acquired
  9. Detailed economic analysis
  10. A schedule of the well work

This list of required supporting documents has previously been appended to the list of idle wells and platforms BSEE provides annually as a courtesy to lessees and operators, instead of appearing in the 2010 NTL.

B. Toppled Platform

The 2018 NTL defines a “toppled platform” as any platform or structure that has collapsed, fallen, or been displaced by a storm or other external force and, as a result of such event, been partially or completely destroyed.

C. Capable of Production in Paying Quantities; Downhole Zonal Isolation

BSEE also defines “capable of production in paying quantities” and “downhole zonal isolation” in the 2018 NTL, as these terms are important to the second major section of the 2018 NTL.

The guidance states that a well is “capable of production in paying quantities” if it “can produce enough oil, gas, and sulphur to yield a positive stream of income after subtracting normal expenses.” Such expenses may include direct royalty payments as well as direct lease operating costs allocated to the well.

Downhole zonal isolation” is defined as “isolating all hydrocarbons and sulphur zones by adhering to the plugging and testing requirements promulgated in 30 CFR 250.[1712–1715]” and includes satisfying the casing pressure management requirements of 30 CFR 250.198 and 250.519–530.

II. Updated Timeframes and Prioritization Criteria

The 2018 NTL also provides timelines for decommissioning idle iron, as well as criteria for assessing the order of priority for decommissioning structures on the Gulf Coast Outer Continental Shelf. BSEE expects lessees and operators to usually prioritize the decommissioning of structures on terminated, expired, or relinquished leases (collectively “Terminated Leases”) over Idle Iron structures on active leases. However, BSEE recommends the prioritization of any such work based on relative risk conditions, listing 5 factors relevant to assessing such risk:

  1. Structures with the highest risk of toppling
  2. Wells that were producing oil
  3. Wells capable of natural flow
  4. Wells that have casing pressure
  5. Wells located close to shoreline, environmentally sensitive areas, or other infrastructure

Ultimately, consideration of these factors results in a removal priority sequence of: (1) high-risk structures; (2) structures on Terminated Leases, and only then (3) Idle Iron, with urgency in all cases being directed at higher-risk structures within any subset.

A. Terminated Leases

For Terminated Leases, BSEE reiterates that entities have 1 year from that termination to decommission all facilities in the lease area. Failure to meet this deadline will, in most circumstances, result in the issuance of an Incident of Non-Compliance (“INC”).

B. Active Leases

For active leases, the guidance distinguishes between wells and other facilities.

  1. For a well:
    1. That is no longer useful for operations and no longer capable of production in paying quantities should as soon as possible, but no later than 3 years after it is no longer useful for operations, undergo one of the following:
      1. Permanent plugging and abandonment of the well in accordance with 30 CFR 250.1712–1716; or
      2. Plugging the well in accordance with 30 CFR 250.1712–1715 (wellhead and casing removal would still be required but not necessarily within the 3 year period).
    2. An entity may also provide a well with downhole well isolation; however, within 2 years of said isolation, the entity must complete one of the two options above.
  2. For a platform, including a toppled platform, or other facility:
    1. That is no longer useful for operations should as soon as possible, but no later than 5 years, after it is no longer useful for operations be removed.

C. Documentation and Timing associated with Performance of Decommissioning Activities

Finally, the 2018 NTL emphasizes BSEE’s discretion to be flexible on the timing for the requirements discussed above on a case-by-case basis where justified to the satisfaction of the Regional Supervisor. Any failure to comply with the timelines described in the 2018 NTL, without an extension, may result in BSEE’s issuance of decommissioning orders.

In any event, lessees and operators subject to the BSEE decommissioning rules must adhere to and comply with the 1-year time limit for performing decommissioning on any infrastructure found on Terminated Leases, in accordance with the rules. Any failure to comply with the 1-year time limit, absent BSEE approval, will typically result in the issuance of an INC.

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1 Although the 2010 NTL was issued with an expiration date, NTL 2014-N01 revoked the expiration dates for NTLs issues during a certain time period, including the 2010 NTL.

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.