On September 15, the Interior Department issued a Notice to Lessees 2010-G05 that idle platforms, wells and pipelines in the Gulf of Mexico will need a removal plan, independent of previous obligation to remove equipment within a year of the lease-end date. This notice explicitly stated that the Bureau of Energy Management, Regulation and Enforcement (BOEMRE) expects higher removal costs for hurricane-damaged idle iron, when compared to undamaged equipment: “The cost and time to permanently plug wells and remove storm-damaged infrastructure (including pipelines) is significantly higher than decommissioning assets that are not damaged when decommissioned. These increased costs have potential ramifications on financial security requirements and may even impact the future viability of your company.”
This notice reduces the circumstances where “no action/deferral” is the expected and near-term outcome, and by accelerating decommissioning timetables, leaseholders can undergo financial stress by restating their higher-NPV liabilities and then monetizing them through financial assurance instruments.