By Georgina McCartney
HOUSTON (Reuters) – Texas, Louisiana and Mississippi sued the U.S. government on Monday to block the Biden administration’s proposed rule that would require the offshore oil and gas industry to provide nearly $7 billion in financial guarantees for cover the costs of dismantling old infrastructure.
The rule, which would take effect later this year, will primarily affect smaller companies that do not have investment-grade ratings or sufficient proven oil reserves. Oil majors are more likely to meet credit criteria or have significant reserves.
The suit was filed against the U.S. Bureau of Ocean Energy Management (BOEM), which said the rule could affect about three-quarters of operators in the Gulf of Mexico.
BOEM declined to comment on the lawsuit. When the rule was announced in April, the Interior Department said it was intended to “prevent taxpayers from covering the costs that should be borne by the oil and gas industry when offshore platforms must be dismantled “.
Decommissioning old wells can cost billions of dollars and that expense could fall on taxpayers if companies fail to meet their obligations due to bankruptcies or the transfer of assets from larger companies to smaller companies with fewer resources.
Louisiana Attorney General Liz Murrill filed the lawsuit in a federal district court in Louisiana and was joined by the attorneys general of Texas and Mississippi.
“This is a really blatant direct attack on midstream oil and gas producers, and it affects many businesses in our state,” Murrill told Reuters in an interview.
“The new regulations are a solution in search of a problem, imposing unnecessary financial burdens that will have far-reaching consequences for many small and medium-sized energy producers and all Americans,” said Kevin Bruce, executive director of the Gulf Alliance. coalition of leading independent offshore oil and natural gas producers joining the legal challenge against BOEM.
Some 37 offshore oil and gas operators have filed for bankruptcy since 2009, according to a US government agency.
“This is a significant cost to our industry that would put many people out of business,” said Mike Minarovic, CEO of Arena Energy, which operates more than 100 rigs in the Gulf of Mexico that produce some 50 000 barrels per day. oil equivalent
The new rule could cost Arena Energy between $800 million and $850 million in bonds, plus the cost of the bonds themselves, Minarovic said, citing government estimates of the cost of decommissioning.
Minarovic pointed to an outflow of money from bail markets over the past five years and said obtaining the bonds necessary to secure fiduciary and contractual obligations “will only be a government requirement that cannot be met “.
As of June 2023, more than 2,700 wells and 500 platforms were scheduled for decommissioning in the Gulf of Mexico, according to the U.S. Government Accountability Office, prompting the government to require operators to offer additional bonds in an effort to to prevent taxpayers from paying the bill. .
BOEM held about $3.5 billion in additional bonds to cover between $40 billion and $70 billion in total estimated decommissioning costs.
Under the new rule, BOEM will allow current tenants and grant recipients to request payments over three years to meet the new additional financial assurance requirements required by the rule.
It was not yet clear whether the decision would put pressure on offshore production. Minarovic said there could be closures if businesses are unable to deliver the bonds on time.
The U.S. Gulf of Mexico produces about 1.8 million barrels of oil per day, according to the latest government figures, or about 14 percent of total U.S. production.
“These (oil) companies should pay their fair share and clean up the mess they leave behind, and that starts with assurances like this,” Mike Scott, director of the National Oil and Gas Campaign, told Reuters. Sierra Club.
(Reporting by Georgina McCartney in Houston; editing by Liz Hampton and David Gregorio)
