The Bureau of Ocean Energy Management (BOEM) issued an advanced notice of proposed rulemaking (ANPR) on Risk Management, Financial Assurance, and Loss Prevention in an effort to update its financial assurance regulations for industrial operations on the Outer Continental Shelf (OCS). BOEM intends to develop more robust financial assurance requirements to address what the agency perceives as increasingly complex financial, commercial, functional, and business risks involving leases, Rights-of-Use and Easements (RUEs), Pipeline Rights-of-Way (ROWs) and facilities on the OCS.

BOEM is soliciting stakeholders’ opinions on risk management and monitoring activities that relate to offshore energy development on the OCS, as well as how to address presumably inadequate and outdated financial assurance. Comments are being requested on:

  • Identification of pertinent risks/liabilities;
  • Risk monitoring and risk management;
  • Demonstrating financial assurance over project lifecycles (of 40 to 50 years);
  • Financial assurance, bonding levels and requirements; and
  • Which forms of financial assurance are appropriate.

While BOEM’s current regulations focus on surety bonds as the primary financial assurance mechanism, other alternative mechanisms are also allowed. According to the ANPR, BOEM is taking a deep dive into alternatives – other types of bonds, such as performance and payment bonds, captive and third-party insurance, trusts, treasury notes, and third-party indemnity agreements – and seeks information from industry on costs and how to structure such mechanisms. The relative strength and function of financial assurance mechanisms is often misunderstood by regulators, especially regarding alternate, or less familiar, mechanisms. In response to this ANPR, industry should advocate for its preferred mechanisms and clearly explain the mechanisms. Not only will this help BOEM update its regulations, it will create a robust public record, which can be referenced in the future, should a need for clarity arise.

Comments may be submitted through October 20, 2014. While this ANPR does not address oil spill financial responsibility (OSFR), it hints that a proposed rulemaking is also forthcoming on those BOEM regulations, which should provide industry with another opportunity to provided need clarity and direction on financial assurance mechanisms.