As Bankruptcy Bells Ring in the Outer Continental Shelf, BSEE May Toll for You

Sep 30, 2019

Reading Time : 4 min

Why Is This Happening?

In a perfect world, parties that own and operate offshore assets would be responsible to decommission them as the need arises. Increasingly, however, lessees and operators are finding themselves without the financial wherewithal to conduct the expensive decommissioning, and either declare bankruptcy or otherwise successfully abandon their interests in uneconomical wells and related infrastructure. BSEE then is left to find alternative funding, and looks to parties with less direct interests for decommissioning so taxpayers are not left footing the bill.

The Outer Continental Shelf Lands Act (OCSLA) gives BSEE broad authority to administer offshore oil and gas leasing and production.3 Pursuant to OCSLA, BSEE regulations impose decommissioning obligations on any party that:

  • Drills a well.
  • Installs a platform, pipeline or other facility.
  • Creates an obstruction to other users of the outer continental shelf.
  • Is or becomes a lessee or the owner of operating rights of a lease on which there is a well that has not been permanently plugged[,] a platform, a lease term pipeline, or other facility or an obstruction.
  • Is or becomes the holder of a pipeline right-of-way on which there is a pipeline, platform, other facility or an obstruction.
  • Re-enters a well that was previously plugged.4

OK, But Why Is This Happening More?

In the most recent years for which data is available, BSEE has overseen the removal of, on average, more than 200 structures per year from the Gulf of Mexico alone.5 BSEE estimates that approximately 3,000 active platforms exist under its jurisdiction, 40 percent of which are over 25 years old and in line to be removed in the near future.6 As oil and gas production declines, the number of oil and gas infrastructure removals continues to rise.

Compounding the shear increase in numbers, oil and gas companies are declaring bankruptcy at rising rates with no apparent end in sight.7 Twenty-six North American exploration and production companies have filed for bankruptcy in 2019 to date, following two consecutive years of more than 20 bankruptcies.8 BSEE, meanwhile, responds to these bankruptcies by exerting its authority under OCSLA to hold non-bankrupt predecessor parties responsible for decommissioning costs, including those who operated the facilities but also those who merely held leasehold or right-of-way interests.9 Because the decommissioning regulations impose joint and several liability, all parties who accrue decommissioning obligations can be forced to pay these costs, regardless of the remoteness of their link to a given structure.10

So What Do I Do After (or Better Yet Before) BSEE Comes Knocking?

Although the current administration’s general deregulatory stance may suggest otherwise, BSEE has given no indication that it intends to curtail its recent trend of enforcement.11 If anything, it may expand its authority to new parties and maybe even new places, like the Pacific Ocean.12 As such, any party with offshore interests in those areas should begin planning now for how to both prepare for and respond to a future Order to Decommission.

First, parties with offshore interests likely to face Orders to Decommission should assess their available legal defenses, including those based on statutes of limitations, divisibility and BSEE policy setting forth the appropriate order and priority of payees. Then, if and when an Order comes in, the party should determine the costs and benefits of an appeal. Time is of the essence in negotiating with BSEE during the highly regulated administrative appeal process. And, given the difficulty in defending these suits because of advantages the law gives to BSEE, the party should assess the availability of alternative funding sources. This may mean asserting claims for decommissioning costs in bankruptcy proceedings involving parties who hold or previously held interests in the relevant assets.

In a world with dwindling oil and gas prices and rising numbers of bankruptcies, it is critical that parties with offshore interests take commonsense steps now to protect their interests and minimize their future exposure before—and after—BSEE comes knocking.


1 Akin Gump, Check Your Mail: BSEE Inviting All of Its Friends to Pay for GOM Decommissioning, Akin Gump Speaking Energy Blog (May 15, 2014), https://www.akingump.com/en/experience/industries/energy/speaking-energy/check-your-mail-bsee-inviting-all-of-its-friends-to-pay-for-gom.html.

2 Id.

3 43 U.S.C. § 1334(a).

4 30 C.F.R. § 250.1702.

5 Bur. of Safety and Envtl. Enforcement, U.S. Dept. of the Interior, Statistics for Decommissioned Platforms on the OCS (Sept. 19, 2017), https://www.bsee.gov/what-we-do/environmental-focuses/decommissioning/decommissioning-statistics.

6 Bur. of Safety and Envtl. Enforcement, U.S. Dept. of the Interior, Decommissioning, https://www.bsee.gov/what-we-do/research/tap-categories/decommissioning.

7 Jamison Cocklin, E&P Bankruptcies on the Rise as Operators Again Confront Low Oil, NatGas Prices, Natural Gas Intelligence (Aug. 15, 2019), https://www.naturalgasintel.com/articles/119296-ep-bankruptcies-on-the-rise-as-operators-again-confront-low-oil-natgas-prices.

8 Id.

9 30 C.F.R. § 250.1701.

10 Id.

11 Oil and Gas and Sulfur Operations in the Outer Continental Shelf-Request for Information Regarding Potential Impacts of Decommissioning-in-Place of Pipeline-Related Infrastructure in Deepwater, 83 Fed. Reg. 67343 (Dec. 28, 2018).

12 Memorandum regarding The Bureau of Safety and Environmental Enforcement’s Decommissioning Program Assignment No. 2016-EAU-062, Office of Inspector General, U.S. Dept. of the Interior (March 26, 2019), https://www.doioig.gov/sites/doioig.gov/files/CloseoutMemo_BSEEDecomissioning_040119.pdf.

Share This Insight

Previous Entries

Speaking Energy

March 10, 2025

On March 5, 2025, the United States Department of Energy (DOE) approved Golden Pass LNG Terminal LLC’s (GPLNG) request to extend a deadline to begin exporting liquefied natural gas (LNG) from its terminal facility currently under construction in Sabine Pass, Texas for 18 months, from September 30, 2025, to March 31, 2027 (the Order). The Order amends GPLNG’s two existing long-term orders authorizing the export of domestically produced LNG to countries with which the United States does and does not have free trade agreements (FTA).1  The Order does not amend the authorizations’ end date, which remains December 31, 2050. Under section 3 of the Natural Gas Act (NGA), the DOE may authorize exports to non-FTA countries following completion of a “public interest” review, whereas exports to FTA countries are deemed to be in the public interest and the DOE is directed to issue authorizations without modification or delay.

...

Read More

Speaking Energy

March 4, 2025

Join projects & energy transition partner Shariff Barakat at Infocast’s Solar & Wind, where he will moderate the “Tax Equity Market Dynamics” panel.

...

Read More

Speaking Energy

February 13, 2025

Oil & gas companies continue to identify and capitalize on opportunities related to the deployment of new energy technologies, with their approaches broadly maturing and coalescing around maximizing synergies, leveraging available subsidies and responding to regulatory drivers.

...

Read More

Speaking Energy

February 11, 2025

On January 30, 2025, the Federal Energy Regulatory Commission (FERC or the Commission) approved a Stipulation and Consent Agreement (Agreement) between the Office of Enforcement (OE) and Stronghold Digital Mining Inc. (Stronghold) resolving an investigation into whether Stronghold had violated the PJM Interconnection, L.L.C. (PJM) tariff and Commission regulations by limiting the quantity of energy made available to the market to serve a co-located Bitcoin mining operation.1 This order appears to be the first instance of a public enforcement action involving co-located load and generation and comes at a time when both FERC and market operators2 are scrutinizing the treatment of co-located load due to the rapid increase in demand associated with data center development.

...

Read More

Speaking Energy

February 5, 2025

2024 was about post-consolidation deal flow and a steady uptick in activity across the oil & gas market. This year, mergers & acquisitions (M&A) activity looks set to take on a different tone as major consolidation plays bed down.

...

Read More

Speaking Energy

January 30, 2025

The oil & gas industry is experiencing a capital resurgence, driven by stabilizing interest rates and renewed attention from institutional investors. Private equity is leading the charge with private credit filling the void in traditional energy finance and hybrid capital instruments gaining in popularity. Family offices are also playing a crucial role, providing long-term, flexible investments.

...

Read More

Speaking Energy

January 23, 2025

Under a second Trump presidency, the U.S. is expected to consider reversal of many of the Biden administration’s climate and environmental policies, in addition to a markedly different approach to trade policy and oil & gas regulation. This includes expanding oil & gas development on public lands and offshore, lifting the pause on liquified natural gas (LNG) exports to non-Free Trade Agreement countries and repealing the methane fee.

...

Read More

Speaking Energy

January 15, 2025

We are pleased to share a recording of Akin’s recently presented webinar, “Drilling Down: What Oil & Gas Companies Can Expect from Federal Agencies During Trump’s Second Administration.”

...

Read More

© 2025 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.