Outer Continental Shelf Supplemental Financial Assurance Program: Are We in Kansas Yet?

Transcription

1 Shreveport New Orleans Baton Rouge Outer Continental Shelf Supplemental Financial Assurance Program: Are We in Kansas Yet? Nadège Assalé Bradley Murchison Kelly & Shea, Special Counsel Mike Celata U.S. Department of the Interior, Bureau of Ocean Energy Management, Regional Director 2/15/2018

2 I. Introduction The Outer Continental Shelf Lands Act ( OCSLA ) (43 U.S.C et seq.) passed by the U.S. Congress on August 7, 1953, and severally amended thereafter, provides that the subsoil and seabed of the outer continental shelf ( OCS ) belong to the United States and are subject to its jurisdiction, control, and power of disposition.... (43 U.S.C. 1332(1)). Outer continental shelf is defined under OCSLA as all submerged lands lying seaward and outside of the area of lands beneath navigable waters... and of which the subsoil and seabed appertain to the United States.... (43 U.S.C. 1331(a)). The U.S. Congress has granted the Secretary of the Interior the authority to administer the mineral exploration and development of the OCS, and to promulgate rules and regulations as necessary to carry out the provisions of OCSLA, including establishing policies and procedures for managing the oil and natural gas resources of the OCS through a leasing program that would expedite its exploration and development. Within the U.S. Department of the Interior ( DOI ), the Secretary of the Interior has delegated its authority to administer an OCS leasing program for oil, gas, and Sulphur to the Bureau of Ocean Energy Management ( BOEM ) and the Bureau of Safety and Environmental Enforcement ( BSEE), 1 and adopted regulations implementing the statutory directives of OCSLA in Title 30 of the Code of Federal Regulation, Volume 2. BOEM and BSEE also regularly provide guidance on their own interpretation of regulations that affect the agencies (e.g. the scopes and meanings thereof), and clarifications as to how they intend to apply those regulations, through publications such as Notices to Lessees and Operators ( NTLs ). II. OCS Financial Assurance Requirements OCSLA vests with the Secretary of the Interior the authority to require bonds or other forms of financial assurance for oil and gas exploration, development, and production activities 1 BOEM and BSEE were formerly known as the Mineral Management Service ( MMS ). By Secretarial Order 3299 signed by the Secretary of the Interior on May 19, 2010, the MMS was split into the Bureau of Ocean Energy Management, Regulation and Enforcement ( BOEMRE ) and the Office of Natural Resources Revenue following the Deepwater Horizon oil spill. See 75 Fed. Reg. 61,051 (Oct. 4, 2010). In 2011, BOEMRE was again reorganized and divided into two separate bureaus: BOEM and BSEE. Pursuant to that reorganization, BOEM is responsible for managing the leasing program and development of offshore resources while BSEE is responsible for enforcing safety and environmental regulations on the OCS. 1

3 on the OCS. The Secretary of the Interior has delegated its authority over the financial assurance process to the Regional Director of BOEM. A. General Financial Assurance Requirements BOEM s regulations require holders of all types of OCS obligations - including leases, rights of use and easements ( RUEs ), and rights-of-way ( ROWs ) - to post a general surety bond in an amount based on the level of activity on the lease 2 as specified in the table below. The purpose of the general financial assurance is to ensure compliance with all financial and performance obligations arising from leases, grants or permits, and applicable regulation (e.g. royalty payments and civil penalties payments). Type of Interest/Level of Activity Lease Specific General Bonding Obligation Amount Areawide General Bonding Obligation Amounts Lease with no activity/operation $50,000 $300,000 Lease at the Exploration Stage $200,000 $1,000,000 Lease at the Development Stage $500,000 $3,000,000 Pipeline n/a $300,000 Lessees 3 or their designated operators 4 are required to provide a general lease surety bond or ROW/pipeline surety bond before the DOI will issue a new lease, or approve a lease or ROW assignment, or an operational activity plan. Specifically, BOEM reviews general bonding coverages when lessees or designated operators file a request for a change of designated operator of a lease; an initial Exploration Plan ( EP ); an initial Development and Production Plan 2 30 CFR (a); (a); and (a) and (b). For RUE amounts, see 30 CFR (c) and 166(a CFR CFR (c) 2

4 ( DPP ); an initial Development Operations Coordination Document ( DOCD ), or a significant revision (i.e., a supplemental plan) to an approved EP, DPP, or DOCD; a request for assignment of a lease with an approved EP, DPP, or DOCD; or ROW plan. While BOEM considered changing the amounts of the general bonding requirements that it views as too low, BOEM ultimately left them unchanged. Nevertheless, on August 28, 2015, BOEM issued NTL No N04, General Financial Assurance, that addresses some key policy changes that include expanding the general bonding requirements to geological and geophysical permit holders, ROW holders, and RUE holders, in addition to OCS lessees and operators which were historically the only entities to which the general bonding policy applied. Moreover, the revised general bonding policy now requires that lessees or operators furnish the general bonds prior to the approval of a lease assignment, or prior to the approval of an operational activity plan. Traditionally, BOEM permitted certain operators or lessees upon request to provide the required general bonds after submitting an assignment or filing an operational activity plan but prior to the approval of the activity under the filed plan. The Oil and Gas Industry ( Industry ), in general, has not challenged that change of policy. B. Supplemental Financial Assurance Requirements BOEM states that the purpose of its Supplemental Financial Assurance Program is to protect the U.S. Government from incurring any costs related to the abandonment of oil and gas leases, pipelines, platforms and other facilities, including any site clearance on the OCS. The Code of Federal Regulations provides in 30 CFR (c) that the Regional Director of BOEM has the authority to require additional security from lessees and owners and/or operators of leases, ROWs, and RUEs (i.e. security above the general bond amounts discussed hereinabove) based upon a determination that security in excess of the general bond limits is necessary to ensure compliance with lease and regulatory obligations. The BOEM Regional Director makes such a determination by relying on its sister agency, BSEE, to review and assess the decommissioning costs associated with each lease, ROW, and RUE, in relation to each OCS operator or owner s financial strength. Whereas the BOEM Regional Director is bound by a regulatory framework to inform its determination of when supplemental financial assurance would be required, much is left to its 3

5 discretion because the regulations that address supplemental financial assurance requirements are not as specific and as set as the general financial assurance regulations. Therefore, the Regional Director is afforded greater flexibility to establish a policy through interpretation of the regulations, which BOEM has traditionally communicated to the public through the issuance of NTLs. As a result of the Deepwater Horizon disaster, 5 the Taylor Energy Company incident, 6 and the ATP Oil & Gas Corporation ( ATP ) bankruptcy in particular 7 when BSEE undertook a comprehensive review of all of ATP s decommissioning liabilities and determined, in its view, that the assessments were inadequate and ATP s financials insufficient to cover the revised decommissioning assessments, the bonding and decommissioning landscape began to change drastically. (i) Overview of BOEM s Former Supplemental Financial Assurance Programs BOEM s supplemental financial assurance policy has changed through the years, getting more and more complex, and more sophisticated or cumbersome depending on the person to whom the question is asked (Government or Industry). It appears that the DOI has required supplemental bonds to secure offshore lessees compliance with lease requirements since at least In October 1993 for instance, lessees and operators on the OCS were exempt from providing supplemental financial security unless their decommissioning liabilities were over 25% of their net worth, they had fewer than 500 employees, and did not meet the minimum net worth requirement of $35 million or gross oil and gas sales of $45 million. By December 1998, the DOI amplified its requirements and would exempt companies from providing supplemental financial assurance unless their decommissioning liabilities were over 25% of their net worth, their hydrocarbon production was below an average of 20,000 5 The blowout of the Macondo well in the U.S. Gulf of Mexico officially began on April 20, The incident relates to a Taylor Energy- owned well that is alleged to have been leaking oil into the U.S. Gulf of Mexico due to underwater mudslide during Hurricane Ivan in 2004, and since then. 7 ATP filed for Chapter 11 bankruptcy protection on August 17, 2012 in the Southern District of Texas. ATP's case was later converted to a Chapter 7 proceeding on June 26,

6 barrel of oil equivalent per day, they were relatively recent players on the OCS, and they could not demonstrate financial strength for present and future financial obligations. By and large, many companies at that time passed the test and were exempt from providing security to the Government above the general bond requirements. Effective August 28, 2008, the DOI further revised its supplemental financial assurance program and issued NTL No N07, Supplemental Bond Procedures (the 2008 NTL ) to implement new procedures and criteria for determining a company s financial ability to fulfill decommissioning obligations and when supplemental financial assurance would be required. Pursuant to the 2008 NTL, supplemental bonds and other acceptable forms of financial security were required of owners of certain OCS interests unless they qualified for a waiver of the requirements by passing a test that evaluated their potential decommissioning liability in relation to their ability to carry out present and future financial obligations. BOEM looked at five (5) factors to determine whether a company would be required to post supplemental financial assurance or not (and if so, to what extent and in what manner it would be required to do so). The first factor of the 2008 NTL, financial capacity, required that the lessee provided an independent audited calculation of its net worth (including independent auditor s report of financials over the last 12 months and a balance sheet) equal to or greater than $65 million. The second factor of the 2008 NTL, projected strength, required that the lessee s cumulative decommissioning liability be less than or equal to 50% of the most recent and independently audited calculation of its net worth (the estimated value of existing production and proven reserves for future production), using a calculation of the cumulative decommissioning liability for each of its OCS lease, RUE and/or ROW, as outlined in the 2008 NTL. The third factor of the 2008 NTL test, business stability, required that the lessee demonstrates its reliability as evidenced by its number of years of successful operations and production of oil and gas (minimum of 5 years of continuous operations); its credit ratings, trade references, and verified published sources; its record of compliance with current and previous governing laws, regulations and lease terms; and other factors that indicate strength and reliability. The fourth and fifth factors of the 2008 NTL test were set forth in the alternative: the lessee could either show that 1) it produces fluid hydrocarbon in excess of an average of 20,000 barrels of oil equivalent per day from its OCS leases for which it owns record title interests; or that 2) it meets 5

7 the debt to equity ratio set forth in a table therein (e.g. a debt to equity ratio equal to or less than 2.5). The two particularly important advantages of BOEM s former supplemental financial assurance program under the 2008 NTL, from an operator or lessee s perspective, were (i) the ability of companies to be exempt from providing BOEM with any supplemental financial assurance so long as their financials showed the revised minimum net worth of $65 Million that is at least twice their total decommissioning liability on the OCS, and (ii) the ability of companies to remove from the calculation of their total decommissioning liability, the assessed decommissioning liability of leases they owned jointly with at least 2 companies that were exempt from providing supplemental financial assurance (i.e. the liability was zeroed out entirely). ATP, for instance, owned several oil and gas leases, ROWs and RUEs on the OCS, and had been exempt by BOEM from providing supplemental financial assurance to the Government based on its financials and operational profile that passed the 2008 NTL test. However, when ATP advised the DOI in 2011 that it did not have the financial resources to provide the supplemental financial security required to cover the decommissioning liability of its assets that had been subject to a BOEM Order for supplemental financial assurance, and therefore, leaving millions of dollars of uncovered liability, the DOI undertook an overall review of its supplemental financial assurance program. The DOI determined, in its view, that its program was inadequate, not only from the standpoint of the decommissioning assessment of each property on the OCS, but also from the standpoint of exempting companies from providing supplemental financial assurance. (ii) Overview of BOEM s Revised Supplemental Financial Assurance Program Starting in May 2013, the DOI indicated to the Oil and Gas Industry its intent to revise its approach to decommissioning assessments and supplemental financial assurance related to decommissioning liability, and its plan to issue a new NTL on supplemental financial assurance. For instance, BOEM determined that it would require supplemental financial assurance for ROWs which traditionally had not been required. It also announced that BSEE was in the process of reassessing leases and increasing, sometimes significantly, the decommissioning 6

8 assessments for several leases (e.g. the assessments of the decommissioning for certain wells increased from approximately $150,000 or $500,000 to $20,560,000 for completed subsea wells; $2,055,900 for dry tree wells; $13,250,000 to permanently decommission temporarily abandoned subsea wells; and $1,325,000 for temporarily abandoned dry tree wells). From May 2013 through September 2016 when the new NTL on supplemental financial assurance requirements became effective, the DOI already started implementing several policy changes that were further revised incrementally based on Industry s comments or other restrictions and limitations proper to the agencies themselves. BOEM issued NTL No N01 (the 2016 NTL ) on July 14, 2016 with a 60-day grace period before implementation, effective on September 12, 2016, concerning its revised procedures and criteria when determining an energy company s financial ability to carry out its offshore decommissioning obligations for wells, platforms, pipelines and other facilities located on the OCS. The 2016 NTL has replaced the 2008 NTL. The 2016 NTL together with the other policy changes enacted by the DOI between the 2008 NTL and the issuance of the 2016 NTL, are hereinafter collectively referred to as the New Guidelines. Notably, the general criteria set forth in the 2008 NTL has remained unchanged under the New Guidelines. That is, the 2016 NTL is still based on the same five (5) factors when determining whether a company is required to post supplemental financial assurance: (i) financial capacity (i.e., audited financials over the last 12 months), (ii) projected strength (the estimated value of existing production and proven reserves for future production), (iii) business stability (5 years of continuous operations), (iv) reliability-based ratings, and (v) record of compliance. However, Industry has challenged BOEM s New Guidelines from their inception as creating a complex, cumbersome and arbitrary method to assess each of these 5 factors. For instance, the financial capacity assessment under the New Guidelines does not rely on any single financial metric, but rather on a set of metrics such as liquidity, leverage and performance ratios (e.g. Quick ratio, Earnings Before Interest and Taxes/Interest ratio, Debt/Capital ratio, Return on Assets, etc.). Industry has countered, however, that financial ratios vary across different industries and sectors and comparisons between completely different types of companies are often not valid, and that the minimum number of benchmarks a company needs to pass for selfinsurance was capriciously, arbitrarily and unreasonably set by BOEM. 7

9 A key change that the New Guidelines have stressed is that companies can no longer be waived or exempt from posting supplemental financial assurance. Whereas the 2008 NTL allowed larger companies to rely on their net worth and essentially self-insure against their future decommissioning liabilities associated with their entire leasehold by setting aside funds on their balance sheets as opposed to maintaining supplemental bonds/securities with BOEM, the New Guidelines impose limitations with respect to self-insurance. Under the New Guidelines, waivers are no longer granted and, instead, eligible lessees and operators are limited in their ability to self-insure (i.e., limited to a maximum of 10% of their tangible net worth - measured by total assets less total liabilities and intangible assets, and referred to by BOEM as a line of credit ). Consequently, decommissioning obligations above that line of credit are required by BOEM to be covered by some forms of financial assurance. Additionally, under the New Guidelines, companies are required to either (i) provide 100% of the BSEE decommissioning estimates associated with their leases, ROWs and RUEs, as applicable, or (ii) submit a tailored plan identifying one or more types of financial assurance to meet their supplemental security requirements (again, the criteria for determining such requirements have not change). Moreover, under the New Guidelines, BOEM measures the supplemental financial assurance needs of each lease/row/rue based on the Government s risk of having to shoulder the decommissioning burden for that property. In BOEM s view, such risk is reflected in the following factors: (1) whether the lease/row/rue is active or expired; (2) the existence of co-lessees and their financial strength, (3) the existence of predecessors-in-title and their financial strength, (4) any indemnity obligations owed by predecessors/co-lessees, and (5) the exploitation status of the lease and projected timing of decommissioning work associated with each lease/row/rue. BOEM created a process that integrated a time allowance to post any required supplemental security based on categories BOEM identified depending on the confluence of these risk factors. Accordingly, BOEM has required under the New Guidelines that supplemental financial assurance be promptly provided for sole liability properties defined as leases, ROWs, or RUEs for which the company is the only liable party (i.e., there are no co-lessees and/or other grant 8

10 holders, and no prior interest holders who would be liable to BOEM to meet the obligations arising from such properties should the current owner or holder default). BOEM views those properties as being particularly risky to the Government because the Government may not rely on co-lessees or prior owners to help shoulder the costs of eventually having to decommission the properties if the lease owners or ROW or RUE holders fail to fulfill their decommissioning obligations. In such a case, the Government presumably would have to use tax payer money to cover the costs of permanently abandoning such properties. To date, however, the Government can only point to only one case, the Alliance Operating Company bankruptcy in 1989 (almost 30 years ago), where the Government had to relinquish its royalty payments to cover the cost of decommissioning the asset because the only liability on that lease had accrued during the tenure of the original and only lessee which was financially insolvent. BOEM, however, states that there are other more recent bankruptcies that are still ongoing and where the Government estimates a potential exposure due to outstanding questions of underpayment of royalties or sufficiency of supplemental financial assurance to cover impending decommissioning obligations. For these sole liability properties therefore, the 2016 NTL required that additional security such as a surety bond be posted with BOEM within 60 days of the date of receipt of BOEM s orders to provide supplemental financial assurance. BOEM started to issue such orders to affected companies in October After requiring the posting of supplemental financial security for those sole liability properties, BOEM envisioned a phased-in approach to the requirement to provide supplemental financial assurance for other properties which included a time allowance for companies to meet with the agency to ascertain the universe of their OCS interests, to evaluate the decommissioning estimates associated with their interests, and to submit drafts of a tailored financial plan for BOEM s preliminary review. Tailored plans were to allow companies to pursue alternative forms of financial assurance, including abandonment accounts, third-party/parent guarantees, or other forms of financial security approved by BOEM over a timeline agreeable to BOEM. The 2016 NTL, however, set a timeline for compliance whereby one third of the additional security would be due within 120 days from the date of approval of a company s timetable; two-thirds would be due within 240 days of approval; and the full amount would be due within 360 days of approval. 9

11 Even though Industry started complying with the New Guidelines, especially because of the aggressive timeline the 2016 NTL imposed and the hefty potential penalties for failing to comply with a BOEM order to provide supplemental financial assurance, 8 it never ceased to denounce the New Guidelines as being superfluous, arbitrary, flawed, and possibly illegal rulemaking. Industry has also criticized the New Guidelines for, inter alia, fixing a non-existing problem because the Industry, thus far, has been able to absorb the decommissioning liabilities and costs of financially insolvent companies and protect the U.S. tax payers. The Industry has pointed that the costs to implement the new rules are overly burdensome and could force smaller operators to sell their assets to companies better positioned to meet the significant costs of supplemental financial assurance, and influence investment decisions by larger producers that might conclude that the U.S. regulatory system in the offshore is too costly to invest in. Consequently, Industry welcomed BOEM s halting of its implementation of the 2016 NTL in late 2016 when the United States was undergoing a new presidential election, even though it also recognized that the trailing uncertainty concerning the future of BOEM s supplemental financial assurance policy would continue to exacerbate the challenging times caused by the depressed oil and gas commodity prices. (iii) Overview of BOEM s current Supplemental Financial Assurance Program On January 6, 2017, BOEM announced a six-month delay for the deadlines on tailored plans and non-sole liability properties that it had imposed in the NTL BOEM followed thereafter, on February 17, 2017, with an official withdrawal of the orders it had issued to sole liability lessees, and ROW and RUE holders. BOEM asserted that the new U.S. administration, ushered in by the election of Mr. Donald Trump as U.S. President, needed more time to review the complex financial assurance program intended to be implemented under the New Guidelines. One should note that the agency s January 6, 2017 and February 17, 2017 announcements are not reversal of the New Guidelines. They are merely a pause of the implementation of the 2016 NTL which for all intents and purposes, is still effective. To illustrate, BOEM has stated that it retains 8 Those penalties include the issuance of incidents of non-compliance, civil penalties, shut-in orders and termination of ownership rights. See 30 CFR et seq. 10

12 the right to reissue the orders at any time if it determines there is a "substantial risk of nonperformance" by leaseholders regarding their decommissioning liabilities such as in bankruptcy cases. As of the time of publication of this paper, BOEM has not yet lifted the pause on the implementation of the 2016 NTL, nor issued any revised or new guidance on its supplemental financial assurance policy. Nevertheless, BOEM has indicated the following as being the main focus of the revisions it intends to implement in a new NTL or revised 2016 NTL: To incorporate a front end risk management assessment that provides a fair, equitable and transparent approach to financial assurance and loss prevention, To monitor companies financial data and develop criteria to detect declining performance, To develop and implement comprehensive financial assurance practices that mitigate exposure to liabilities, and To continue to consider additional forms of financial assurance. BOEM is currently engaging with Industry to collect feedback on the 2016 NTL. To that effect, it has received two Industry organizations proposals and other feedback from other oil and gas companies in their individual capacities. We will refer to one of the Industry organizations proposals as the Majors Proposal" and the other as the Independents Proposal. The Majors Proposal principally aims to identify and monitor lessees who operate mature fields and/or have accrued isolated liabilities whereas the Independents Proposal emphasizes an improved valuation process of decommissioning liabilities and a better title transfer process that limits Government over-reach. Both proposals address common concerns about (i) the DOI s assessments of lessees, ROW and RUE holders financial wherewithal; (ii) BOEM s evaluation of the risk associated with each property on the OCS; (iii) BSEE s decommissioning cost estimates associated with each OCS property, and (iv) BOEM s treatment of co-lessees and predecessors-in-interest for uncovered supplemental financial assurance liabilities and actual decommissioning obligations. 11

13 Financial Evaluation of Companies: Both Majors Proposal and Independents Proposal suggest a concept of ranking companies in a tier system with varying supplemental financial assurance demands. Under that framework, the robustness of each tier would determine the level of security BOEM may require but the proposals differ as to the calibration of each tier and its attending potential supplemental financial assurance demand exposure. BOEM has indicated that lessees financial evaluation will still be based on the criteria specified in the Code of Federal Regulations, Section of Title 30, but it is considering incorporating the tier system advocated by each group. BOEM has yet to provide any detail, however, about how its tier system would be structured. Evaluation of Properties Risk Profiles: Both Majors Proposal and Independents Proposal advocate a valuation system for individual OCS properties designed to predict whether a property has realizable market value. The concept contemplates BOEM s requirement for supplemental financial assurance tied to the life cycle and profitability of individual assets on the OCS such that properties that are no longer profitable and/or close to their break-even points 9 would be considered for supplemental financial security demands if not already covered by some forms of financial assurance. 10 Although BOEM had been reluctant to consider discounted decommissioning assessments on account of reserve/production profiles, it has indicated that it is considering adopting a property risk matrix that incorporates the concept discussed in both proposals. BOEM has yet to provide any detail, however, about what its property risk matrix would entail. 9 That is, that time when the net present value of the property equates the current value of the decommissioning liability of such property. 10 Such as third party bonds, surety bonds and decommissioning trust accounts. The Majors and the Independents differ, however, concerning the presence of companies with deep pockets in the chain-of-title. Whereas the Independents view such predecessors-in-title with deep pockets as being a form of security that could potentially exempt the current lessee/row/rue holder from having to provide supplemental security on such properties, the Majors assert that BOEM should focus on the current lease owners/row and RUE holders only in its determination of the financial viability of the company without any regard to predecessors-in-interest in the chain-of-title. 12

14 Co-lessees and Predecessors Liability: Both Majors Proposal and Independents Proposal advocate a formalized process that establishes the manner in which BOEM will demand that predecessors-in-interest and co-lessees fulfill the decommissioning obligations of a current lessee or ROW or RUE holder that defaults on its decommissioning obligations. Both proposals enjoin BOEM to go up the chain-of-title chronologically, by first looking to the immediate predecessor(s)-in-interest to the defaulting company to fulfill the decommissioning obligations of such defaulting OCS interest holder. BOEM has been so far reluctant to relinquish its regulatory right to call on each and any colessee or predecessor-in-interest to fulfill the decommissioning liability of their co-lessees or successors-in-interest under the several and joint liability legal doctrine. Therefore, while BOEM has reaffirmed that current lessees and current co-lessees are principally responsible for decommissioning obligations (and their attendant supplemental financial assurance obligations), it has also indicated that co-lessees and predecessors will continue to be held jointly and severally liable with current lessees and co-lessees under the regulations. It is, however, uncertain at this time if BOEM is willing to entertain a priority of call when a current interest holder defaults. Additionally, BOEM has indicated that it would maintain its requirement that ROW owners provide supplemental financial assurance to cover the decommissioning liability associated with their pipelines. The DOI has, however, changed its policy of requiring only one recognized ROW owner, and has now provided Industry with a ROW assignment form developed with its sister agency, BSEE, that allows ROWs to be co-owned jointly and severally. Decommissioning Estimates: BOEM has indicated that it is willing to continue its policy of considering 3 rd party estimates to support challenges of BSEE s decommissioning estimates even though BOEM ultimately relies on such BSEE numbers (the onus is, therefore, on lessees and operators to address the adequacy and correctness of decommissioning cost estimates with BSEE rather than BOEM). It also indicated a willingness to consider the Asset Retirement 13

15 Obligations ( ARO ) reflected in companies audited financials when evaluating companies financial strength and decommissioning liabilities. The Independents Proposal argues that lease operators are currently required to carry decommissioning liabilities as undiscounted AROs on their balance sheet, and such AROs should be used in place of BSEE s decommissioning cost estimates because AROs reflect the best estimate of future decommissioning liabilities since those estimates reflect an operator s actual plugging and abandonment costs for wells, pipelines and offshore facilities; they appropriately account for continuous decommissioning operations in a given area rather than incorporating mobilization and demobilization costs into the estimates for every property as currently is BSEE s practice; and they take into consideration abandonment-inplace of pipelines, where appropriate, rather than cost of removal, also BSEE s current practice. III. Conclusion In summary, the oil and gas Industry is currently in a state of flux regarding the supplemental financial security it may be required to provide the U.S. Government to secure its right to operate on the OCS. BOEM has not yet been able to provide any clarity as to the Industry s regulatory burden going forward. It has, however, assured Industry of its willingness to work with all stakeholders, and particularly, the oil and gas Industry to develop a regulatory framework that protects both the U.S. tax payer and the environment while being, at the same time, reasonable, rational, clear and fair to Industry. Nevertheless, until BOEM releases a revised 2016 NTL or a new supplemental financial assurance guidelines, Toto, I have a feeling we are not in Kansas yet. 14