On Friday, May 2, 2025, the U.S. Department of the Interior (DOI) announced its intent to revise the Bureau of Ocean Energy Management's (BOEM) 2024 Risk Management and Financial Assurance of OCS Lease and Grant Obligations Rule (2024 Rule). The 2024 Rule, which became effective on June 29, 2024, revised the criteria for determining whether OCS oil and gas lessees and grant holders are required to provide supplemental financial assurance to backstop their decommissioning obligations. BOEM is still in the process of implementing the 2024 Rule. Based on DOI's recent announcement, DOI will develop "a new rule that is consistent with the Trump administrations 2020 proposed regulatory framework" (2020 Proposed Rule) in furtherance of its commitment "to supporting domestic energy production, protecting American jobs, and reducing regulatory burdens on oil and gas producers."
The 2020 Proposed Rule was a prior effort to revise BOEM's financial assurance regulations. Although the 2020 Proposed Rule was published in the Federal Register in October 2020, near the end of the first Trump administration, it was never finalized. DOI instead proceeded with a new rulemaking under the Biden administration that resulted in the current BOEM financial assurance regulations promulgated by the 2024 Rule, with some similarities, but also significant differences from the 2020 Proposed Rule.
What might DOI leverage from the 2020 Proposed Rule to include in revisions to the financial assurance regulations? Similar to the 2020 Proposed Rule, the 2024 Rule adopted the use of credit ratings and oil and gas reserves to determine whether lessees and grant holders are required to post supplemental financial assurance. However, in contrast to the 2024 Rule, the 2020 Proposed Rule imposed significant limits on when BOEM could request supplemental financial assurance for a lease, right-of-way, or right-of-use and easement on which wells, platforms, pipelines, and other facilities are located.
For example, the 2020 Proposed Rule included limits on BOEM's ability to require additional financial security beyond base bonds to those situations "when: (1) a lessee or grant holder poses a substantial risk of becoming financially unable to carry out its obligations under the lease or grant; (2) there is no co-lessee, co-grant holder, or predecessor that is liable for those obligations and that has sufficient financial capacity to carry out the obligations; and (3) the property is at or near the end of its productive life, and thus, may not have sufficient value to be sold to another company that would assume these obligations." BOEM's consideration of predecessors in connection with its evaluation of financial capacity is not part of the 2024 Rule and would be a first for BOEM if included in the contemplated revisions of the financial assurance regulations. In addition, the 2020 Proposed Rule provided that if a lessee/grant holder failed to meet the specified credit rating or proxy credit rating, and, with respect to a lessee, oil and gas reserves were insufficient, BOEM (a) would then look to the credit ratings or proxy credit ratings of prior lessees/grant holders and (b) would only require additional financial security in the event that no predecessor with decommissioning liability could meet the credit rating or proxy credit rating criteria. Specific to rights-of-use and easements (RUE), the 2020 Proposed Rule expanded the credit rating or proxy credit rating consideration to prior RUE holders and prior lessees (applicable if the RUE is for a platform or other facilities that were previously associated with a lease) such that BOEM could only request additional financial security in the event no RUE holder or "predecessor" has the requisite credit rating or proxy credit rating. Revision of the 2024 Rule to include these types of provisions from the 2020 Proposed Rule would be consistent with DOI's stated goals.
It is also worth noting that the 2020 Proposed Rule was a proposed joint rulemaking of BOEM and the Bureau of Safety and Environmental Enforcement (BSEE). It included a reverse chronological order process to be used by BSEE in enforcing decommissioning obligations. BSEE was to issue decommissioning orders by "group" of predecessors (all predecessors who held their interest during the tenure of a designated operator), beginning with the group before the defaulting group and also including other predecessors who assigned their interest to the defaulting lessee or grant holder. BSEE retained authority under the 2020 Proposed Rule to deviate from the reverse chronological framework in limited circumstances, including the presence of safety or environmental threats and in the event BSEE determined that following the process would create unreasonable delay in the performance of decommissioning. DOI's announcement appears to be limited to financial assurance regulations and BOEM's 2024 Rule. However, it is within the realm of possibility that, consistent with "the Trump administrations 2020 proposed regulatory framework," DOI potentially could decide to revise BSEE's decommissioning regulations as well.
DOI's new rule could substantially impact BOEM's financial assurance regulations promulgated by the 2024 Rule by requiring far less supplemental financial assurance be provided by lessees and grant holders than the current $6.9 billion contemplated by the 2024 Rule. DOI plans to finalize the new rule in 2025.
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