Opportune Study: New Storm Threatens Gulf Coast

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A new and potentially devastating storm is threatening the United States Gulf Coast. Unlike hurricanes and tropical storms, this is an economic storm that would result from proposed regulatory changes. Implementing these proposals could pose an existential threat to many independent oil and gas operators in the Gulf’s Outer Continental Shelf (“OCS”), as well as for the communities and families that rely on these operators for their livelihoods.

Specifically, the Bureau of Ocean Energy Management (“BOEM”) has released a new rule that will change the way the oil and gas industry (the “Industry”) funds the decommissioning costs of wells, pipelines and other facilities (commonly referred to as plugging and abandonment, or “P&A”) in the OCS.

BOEM’s new Notice to Lessees (the “NTL”) requires companies to post supplemental surety bonds or other collateral to guarantee 100% of the future decommissioning costs for OCS oil and gas properties in which they own a working interest.

BOEM states that the new NTL is meant to protect the U.S. taxpayer from ever having to pay decommissioning costs for an oil and gas company that falls into bankruptcy. To date, most companies have been exempt from supplemental bonding, provided that their tangible net worth exceeds $65 million and is at least two-times the amount of their estimated P&A liabilities.

Opportune LLP (“Opportune”), an international energy consulting firm, shows within this study (the “Opportune Study”) how the bonding requirements in the BOEM NTL are wholly disproportionate to any potential risk. If implemented, the requirements under the NTL will force operators out of business, achieving the opposite public policy objective than purportedly intended by BOEM.

This Opportune Study also explains how the current rule has adequately protected U.S. taxpayers for decades. In short, the NTL is a regulatory overreach that can accurately be characterized as a solution looking for a problem. In fact, as this study shows, Industry solutions have and will continue to protect the U.S. taxpayer from any perceived risk.

Opportune has conducted this Study to independently calculate the OCS P&A liability, assess the risk such liability poses to the U.S. taxpayer, and perform a cost-benefit analysis of the NTL’s economic effect on the Industry, the Gulf Coast and United States. This study was performed by Opportune’s valuation, petroleum engineering and financial reporting professionals through a series of interviews with Industry representatives, commercial banks and surety brokers, and includes an analysis of independently-obtained P&A cost data and market research.

The results of Opportune’s study and recommended solutions are presented within the report and appendices. Download the full study below.

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