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 to cover the cost of the dismantling of old infrastructure.
The rule, which will come into effect later this year, will mainly affect smaller companies that do not have an investment grade rating or do not have sufficient proven oil reserves. Oil giants are more likely to meet credit criteria or have large reserves.
The lawsuit was filed against the U.S. Bureau of Ocean Energy Management (BOEM), which says 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 “to protect taxpayers from the costs that would have to be borne by the oil and gas industry when offshore platforms have to be dismantled.”
Decommissioning old wells could cost billions of dollars, and those costs could fall on taxpayers if companies default on their obligations due to bankruptcies or the transfer of assets from large 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 attorneys general from Texas and Mississippi.
“This is a really blatant direct attack on mid-level oil and gas producers, and it affects a lot of things 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 to 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 battle against BOEM.
Some 37 offshore oil and gas operators have filed for bankruptcy since 2009, according to a U.S. government agency.
“This is a significant cost to our industry that would put a lot of people out of business,” said Mike Minarovic, CEO of Arena Energy, which operates more than 100 platforms in the Gulf of Mexico producing about 50,000 barrels a day. oil equivalent
The new rule could cost Arena Energy about $800 million to $850 million in bonds, plus the cost of the bonds themselves, Minarovic said, citing government estimates of decommissioning costs.
Minarovic pointed to an outflow of money from the security markets over the past five years and said securing the bonds needed to guarantee fiduciary and contractual obligations “will only be a government requirement that cannot be met.”
According to the U.S. Government Accountability Office, more than 2,700 wells and 500 platforms had been overdue decommissioned in the Gulf of Mexico by June 2023, prompting the government to require operators to provide additional sureties in an effort to protect taxpayers from paying the bill. .
BOEM held approximately $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 holders to request phased payments over three years to meet the new additional financial security requirements required by the rule.
It was still unclear whether the ruling would put pressure on offshore production. Minarovic said closures could occur if companies are unable to provide the bonds on time.
According to the latest government figures, the US Gulf of Mexico produces about 1.8 million barrels of oil per day, about 14% of total US production.
“These (oil) companies need to pay their fair share and clean up the mess they leave behind, and that starts with guarantees like these,” Mike Scott, national oil and gas campaign director for the Sierra Club, told Reuters.
(Reporting by Georgina McCartney in Houston; Editing by Liz Hampton and David Gregorio)
