World Oil
(WO) – The Gulf Energy Alliance (GEA) joined the States of Louisiana, Texas, and Mississippi in a legal challenge to the Department of Interior’s (DOI) Bureau of Ocean Energy Management’s (BOEM) decommissioning rule imposing unnecessary and burdensome financial requirements targeting independent offshore oil and natural gas producers.
The new regulation is a solution in search of a problem, imposing unnecessary financial burdens that will have far-reaching impacts to many small to mid-size energy producers and all Americans.
If implemented, the Biden administration’s regulation will put thousands of good-paying jobs at risk and reduce competition in the industry, investment in local communities, state and local tax revenues generated through offshore operations, and ultimately weaken U.S. energy security.
The GEA is joined by the Independent Petroleum Association of America (IPAA), the Louisiana Oil & Gas Association (LOGA), and the US Oil & Gas Association (USOGA) in supporting this petition.
In federal offshore oil and gas development, all companies in the chain of a title are jointly and severally liable for decommissioning obligations. This system has worked to protect the U.S. taxpayer for over 70 years and continues to work to this day.
Of the more than 7,000 platforms installed offshore, over 5,300, or approximately 75%, have been removed, almost entirely by independent oil & gas companies.
U.S. taxpayers have paid less than $73 million in decommissioning costs over the 75+ year history of offshore oil and gas production, while benefiting from over $208 billion in revenue to the federal government through taxes, royalties and rentals over the past 40 years.
BOEM estimates that 76% of businesses in the Gulf of Mexico subjected to the rule are small businesses. This unnecessary financial burden is an existential threat to many of these small businesses.
According to an independent expert analysis, the rule threatens an estimated 36,000 jobs, more than $570 million in federal government royalties, and $9.9 billion from U.S. GDP.
Critically, the surety market has stated it cannot meet the $6.9 billion of newly required supplemental financial assurance imposed by the new rule.
The GEA and multiple allies released the following statements about this challenge to the Biden Administration’s regulatory overreach,
“Today, we’re taking steps to challenge the DOI’s unjustified actions to further restrict American energy access in the Gulf of Mexico,” said GEA Executive Director Kevin Bruce.
“Despite Congress’ clear intentions set out by the Outer Continental Shelf Lands Act of 1953, the Biden Administration is making a clear attack on the offshore oil and gas industry with this rule. Together with the States of Louisiana, Texas, and Mississippi, we intend to use every legal tool at our disposal to challenge these actions. This rule is completely unnecessary to protect the American taxpayer despite the Administration claims, and it is nothing more than a pretext to prevent small and mid-size independent oil and gas companies from operating in the Gulf.”
Further, Mr. Bruce stated, “It is critical that financial assurance requirements – or any regulation for that matter – is workable, achievable and does not create unnecessary burdens for continued investment in the Gulf of Mexico. Implementation of the new rule is impossible. The new rule relies on the surety market to provide an additional $7 billion in new supplemental bonds.”
“But throughout the rulemaking process the surety market has been clear: the surety market will not and cannot supply the newly required bonds. Even if the surety market could, it would be prohibitively expensive for producers, ultimately pushing out the small to mid-size companies that employ thousands of hardworking Americans, and decreasing competition across the Gulf’s offshore industry.”
“Once again, Joe Biden is unlawfully attempting to kill Louisiana jobs and American energy security by making the financial burden required of offshore producers so exorbitant it is no longer feasible to operate,” said Louisiana Attorney General Liz Murrill.
“Further, it is extremely concerning that BOEM, Interior, and the Office of Management and Budget completely ignored the over two thousand comments submitted in response to the rulemaking pointing out that this rule—as written—is simply unimplementable. This includes serious concerns raised by the State of Louisiana, President Biden’s own Small Business Administration, and the surety industry, in addition to service companies and vendors across the supply chain which support offshore oil and gas production.”
“To put it simply, this rule fixes a problem that does not exist,” said USOGA President Tim Stewart. “And in this case, the ‘solution’ will be devastating to independent producers, discourage new investment, and threaten our energy and natural security. Over the last 70 years, our members have made critical business decisions relying on the system of joint and several liability – a legal system well-established and well-known by all parties involved. The implications of this rule fundamentally change the basis upon which these business decisions were made, duplicates financial assurances already made by the industry and potentially puts taxpayers at greater risk. Importantly, the true cost of this rule extends far beyond a mere dollar figure. It puts well-paying jobs, federal revenues, community support and our national security at risk.”
