CHAPTER 5 FINANCIAL ASSURANCE: BOEM'S REVISED NTL AND PROPOSED RULEMAKING
| Jurisdiction | United States |
(Jan 2016)
FINANCIAL ASSURANCE: BOEM'S REVISED NTL AND PROPOSED RULEMAKING
L. Poe Leggette
Moderator:
Partner
BakerHostetler
Denver, CO
Abigail Ross Hopper
Panelists:
Director
U.S. Bureau of Ocean Energy Management
Washington, DC
Kemper Howe
Business Development Director - Americas
BP Exploration & Production
Houston, TX
Tom Young
Vice President
Business Development and Land
Deep Gulf Energy
Carey R. Gagnon
Houston, TX
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L. POE LEGGETTE is a partner in the Denver office of Baker Hostetler. In the last two years, Leggette has won victories in three landmark cases: Entek GRB, LLC v. Stull Ranches, LLC; Tenth Circuit Court of Appeals (landmark case interpreting 100-year-old American laws on oil and gas operations on lands deeded under the Stock Raising Homestead Act); Rockies Express Pipeline LLC v. Department of the Interior (Fed. Cir. 2013) (first-of-its-kind victory for interstate pipeline company for breach of transportation contract issued under the Energy Policy Act of 2005); State of Wyoming, et al. v. U.S. Department of Interior, et al., (on behalf of oil and gas trade associations obtained stay of new Department of the Interior regulation governing hydraulic fracturing on 700 million acres of minerals in U.S.). Leggette maintains an active regulatory practice and is currently representing two large oil and gas producers in federal government investigations. He represents independent oil and gas producers on the highly contentious issue of federal bonding for platform abandonment in the Gulf of Mexico. At issue are billions of additional dollars in regulatory costs for offshore operators. He also represents several companies in litigation involving disputed royalty payments on oil and natural gas. These disputes cover operations in Louisiana, Texas, New Mexico, Utah, Colorado, Wyoming, Montana, North Dakota, and the Gulf of Mexico. Poe served the Department of the Interior in the Office of the Solicitor from May 1980 through January 1991, leaving at the rank of Assistant Solicitor. His duties included advising the Minerals Management Service, the Bureau of Land Management, and other agencies on energy development on federal lands, onshore and offshore. Poe is a 1977 graduate of the University of Virginia School of Law.
ABIGAIL ROSS HOPPER became Director of the Bureau of Ocean Energy Management (BOEM) in January 2015. She is the second Director in the history of the Bureau. She served formerly as the Director of the Maryland Energy Administration (MEA) and has broad experience in the energy sector, including working with a wide variety of stakeholders, as well as legal expertise. Hopper led the MEA from 2012, first as Acting Director and then as Director in June 2013. She also served concurrently as Energy Advisor to Maryland Gov. Martin O'Malley since 2010. As MEA Director, Hopper was pivotal in ensuring the passage of the Maryland Offshore Wind Energy Act of 2013. She was a lead negotiator representing the State's interests in both the Exelon/Constellation merger and the FirstEnergy/Allegheny Energy merger, securing millions in benefits for Maryland and its citizens. Hopper has also focused significant resources on improving the resiliency of the State's electric utilities in the face of major storms. Hopper previously spent over two years as Deputy General Counsel with the Maryland Public Service Commission, during which she advised commissioners on a broad range of legal matters arising from their duties as utility regulators. Before embarking on a career in public service, Hopper spent nine years in private practice where she specialized in complex merger and investment counseling and corporate law. Hopper graduated Cum Laude from the University of Maryland School of Law and earned a Bachelor of Arts Degree from Dartmouth College.
KEMPER HOWE is Business Development Director - Americas, with BP Exploration & Production, in Houston, Texas. Over the past 26 years, he has worked with ARCO, Vastar, and BP. Mr. Howe serves as Chairman of the OCS Advisory Board. He is also President of Sooner Foods, a chain of supermarkets located in southern Oklahoma. Mr. Howe graduated from the University of Oklahoma with degrees in law (JD) and Petroleum Land Management (PLM).
TOM YOUNG is one of the founding Partners of Deep Gulf Energy (DGE) in Houston, Texas. DGE was organized in 2005 and operates exclusively in the deepwater Gulf of Mexico. Prior to DGE, beginning in 1985, Mr. Young worked with Mariner Energy, Inc., and its predecessor companies, and was named Vice President - Business Development and Land in 1998. During his tenure, Mr. Young has been involved in the acquisition, exploration, production, and marketing of properties in the Gulf of Mexico, with emphasis in the Deepwater Gulf of Mexico. His responsibilities include business development, lease and project acquisitions, contract negotiations, planning, forecasting, and government affairs. Mr. Young holds a BBA in Petroleum Land Management from the University of Oklahoma (1981) and majored in geology at the University of Arkansas (1976-1979). He has also completed executive training courses at Harvard University, Southern Methodist University, and The University of St. Thomas. He is a Certified Professional Landman and a member of the American Association of Professional Landmen, American Petroleum Institute, Association of International Petroleum Negotiators, Houston Association of Professional Landmen, Houston Producers' Forum, Independent Petroleum Association of America, National Ocean Industries Association, OCS Advisory Board, Petroleum Landmen's Association of New Orleans, and Texas Alliance of Energy Producers. In 2006, Mr. Young was appointed by the Secretary of Interior to serve on the OCS Policy Committee representing the Independent Energy sector.
CAREY R. GAGNON joined Baker Hostetler's Energy Team in August of 2014, as Counsel in the Denver office. She previously worked as an Assistant and Acting County Attorney in Garfield County, Colorado--which is located on the western slope of the Rocky Mountains and is the second largest oil and gas producing county in the State. Because of this experience she has a particular interest in the interplay among federal, state, and local regulations. Carey graduated from the University of Denver College of Law in 2003. This year, on behalf of her producer client, she secured dismissal of a lawsuit for underpaid royalties by using a novel legal argument premised on the mineral lessor's failure to exhaust administrative remedies. Since joining Baker Hostetler Carey has also been working with Poe Leggette on matters related to oil and gas development in the Outer Continental Shelf, including preparing comments in response to the Bureau of Ocean Energy Management's Advance Notice of Proposed Rulemaking on Financial Assurance, and presenting on the same topic to various interest groups. She is also working with a group considering a legal challenge should the BOEM circumvent the rulemaking process and issue a new Notice-to-Lessees regarding supplemental financial security. Finally, although Colorado is a land-locked state far from the OCS, Carey is quick to point out that it was underwater during the Mississippian Period so her passion for the OCS has historical roots.
Offshore Financial Assurance Requirements Background Considerations1
The Bureau of Safety and Environmental Enforcement ("BSEE"), through Notice to Lessees ("NTL") No. 2010-G05, implemented its "Idle Iron" policy to accelerate the rate at which inactive facilities and structures are removed from the Gulf of Mexico. The push followed a 2008 Mineral Management Service Alternative Internal Control Review of idle structures and wells on active leases in the Gulf of Mexico Outer Continental Shelf, which found a significant number of idle platforms that had not been removed and idle wells that had not been permanently plugged. Beyond simply ensuring lessors are complying with their lease obligations to decommission infrastructure after wells in the leased area are plugged and abandoned, BSEE is also concerned about mitigating environmental and safety concerns resulting from toppled, damaged or destroyed structures. BSEE believes the cost associated with decommissioning damaged facilities and structures is much higher and so poses a greater financial liability to lessees and possibly also to the Federal government.2
Due to the Idle Iron policy, as well as a heightened sense of urgency to meet regulatory requirements for decommissioning on expired leases and Rights of Way, there has been a substantial amount of decommissioning activity occurring on the Outer Continental Shelf ("OCS"). This has led to regulatory issues concerning the timing of decommissioning, responsibility for decommissioning, and coordination (or lack of coordination) between different rights holders, i.e., lessees and holders of Rights of Way ("ROWs"). Recent bankruptcies and other events have only enhanced these issues, as well as focused the Bureau of Ocean Energy Management's attention on updating its general and supplemental bonding requirements, as well as the criteria for obtaining -- and indeed the very concept of -- a waiver from posting supplemental bonds or providing other financial assurance to cover estimated decommissioning costs. Significant change, in the form of a revised NTL to be followed by a rulemaking, is anticipated as the Bureau of Ocean Energy Management ("BOEM") tries to ensure that it is adequately protected against any potential uncovered liabilities in this area.
I. The Physical Decommissioning Process
The continental shelf of the United States contains world-class oil and gas resources. Since the United States first proclaimed rights over its continental shelf in 1945, holders of oil and gas lease rights have produced tens of billions of barrels of oil and condensate, and...
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