A new rule could speed up unused oil well decommissioning. Gulf States are suing to stop it

As of 2023, there are almost 3,000 wells and 500 platforms that are overdue for decommissioning in the Gulf, according to a report from the Government Accountability Office. That same GAO report also says the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) aren’t doing enough to make sure this infrastructure is getting cleaned up.

Abandoned oil and gas wells can pollute the water by leaking methane, releasing corroded metal into the water or even causing oil spills. They could also pose a problem for navigation for the fishing industry and even the oil and gas industry itself.

“Almost half of the remaining active wells in the Gulf of Mexico are either approaching or are already past the end of their useful life,” said Andrew Hartsig, an expert on offshore oil and gas policy and senior director of Arctic Conservation at Ocean Conservancy. “Problems there are expected to increase, and that's especially true for the older shallow water wells as those continue to decline in productivity and profitability.”

The BOEM finalized a rule last year to help ensure old wells are cleaned up. The rule also protects taxpayers from shouldering the cost, but a few Gulf States sued the office saying stricter criteria for cleanup would crush independent oil companies

When an oil company goes bankrupt, it leaves that infrastructure in the water for BOEM to clean up. Between 2015 and 2021, 148 oil and gas producers in Louisiana, Mississippi, Alabama and Texas, filed for bankruptcy. To prevent taxpayers footing the bill for cleanup, a 20-year-old BOEM rule says a company has to provide financial assurance to prove it can clean up the infrastructure afterward before it can get a lease to drill.

BOEM’s new rule updates the ways companies can provide financial assurance, including slightly stricter criteria to prove they can meet those financial obligations for clean up. Those who can’t provide that financial assurance in other ways have to put up a surety bond.

The GAO report recommended this change, estimating that BOEM needs between $40 and $70 billion for clean up. It currently only has $3.5 billion in bonds to pay for it.

The new criteria is harder for smaller oil companies to meet and they say they can’t afford to get those bonds.

Louisiana, Mississippi and Texas are suing against the new rule.

The lawsuit says it will “crush” their independent small and mid-sized oil companies and spare the major companies, such as Chevron and Shell. According to the lawsuit, independent companies produce about half of U.S. oil, and this rule will cause the loss of more than 30,000 jobs.

For these smaller companies, it’s a struggle to get the bonds needed.

“There's not that many companies out there that do these kinds of bonds the government is requiring,” said Mike Moncla, president of the Louisiana Oil and Gas Association, one of the plaintiffs in the lawsuit.

Moncla said the bonds are too high to impose on leases that already exist and many of the association’s companies would go bankrupt trying to get them.

“We don't mind the increase in the bonds going up for future stuff,” he added. “It's changing the rules of the game and trying to change contractual agreements that we have the issue with.”

Tracy Krohn, CEO of W&T Offshore, said one of the bonding companies he works with asked for $250 million in collateral, which his company cannot afford.

“We employ about 390 people. We employ probably another couple of hundred of contractors, so for us, having to post all this collateral would cause the company to go bankrupt,” said Kohn.

The lawsuit argues that going up the “chain of title,” another method that BOEM can use to get the infrastructure cleaned up, was working fine. Often, oil companies sell the leases to each other, so if a company goes bankrupt and cannot decommission the infrastructure, BOEM can ask the previous owner to clean it up.

“Honestly, I don't see that there's a problem,” Moncla said. “I think that the Biden administration invented a problem that wasn't necessary to fix in the last 20 years.”

Going up the chain of title, however, takes time and using bonds instead speeds up decommissioning, said Ava Ibanez Amador, an attorney for Earthjustice.

The nonprofit filed an amicus brief on behalf of environmental groups supporting the rule.

“The longer that you leave an infrastructure in the water, the harder it becomes to decommission,” said Ibanez Amador, “because it becomes more hazardous to have someone go in there and see what needs to be done.”

Ibanez Amador added faster cleanup protects coastal communities from the safety and environmental risks of leaving that infrastructure in the water, especially at a time when current administration encourages more offshore drilling.

“The more infrastructure that goes in the water, the more infrastructure that will be left in the water to the detriment of mostly coastal communities,” said Ibanez Amador. “If we don't have strong rules that make sure that (the oil and gas industry) is able to pay the price of doing business in the Gulf of Mexico.”

Larger oil companies are actually aligned with environmental groups on this issue. The American Petroleum Institute (API), the largest trade association for the oil and gas industry supports the rule. The organization sued to try to stop the other lawsuit and will be filing an amicus brief in support of the rule.

Larger oil companies likely do not face the struggles the smaller companies face in providing financial assurance, and if BOEM has the bonds in hand, it’s less likely to go up the chain of title to the previous owners which tend to be major oil companies.

API did not respond to requests for comment.

But Amador said this rule is just a first step to enforcing clean up. The GAO report also made other recommendations for BOEM and BSEE to handle the decommissioning problem. For example, it suggested BOEM start evaluating a company’s history of compliance for decommissioning and start using that too to determine if they are allowed to operate in the Gulf.

It also recommended BSEE improve and clarify its regulations and guidance to companies on how to properly decommission.

James Caine Jr., district judge for the Western District of Louisiana will decide whether or not to approve an injunction, which will pause the rule while arguments are heard. In the meantime, the rule is still in effect.

BOEM said it is reviewing the financial information of the companies who have leases, but Doug Burgum, President Donald Trump’s new appointee for Secretary of the Interior, has ordered BOEM to review the rule.

“We're excited about the new president, and he's already made executive orders, changed a bunch of things, and maybe this will be one of them, too,” said Moncla.

But Hartsig is hopeful that decommissioning is something everyone can agree on.

“I hope that even as much as the Trump administration supports the offshore oil and gas industry and wants to promote American energy, that they can also ensure that those operators clean up after themselves in a responsible way,” he said.