A federal judge in Louisiana has rejected a bid by three US states to block a rule adopted in 2024 that strengthens the financial assurance requirementsfor offshore oil and gas companies to ensure they meet their decommissioning obligations.
The judge declined to issue a preliminary injunction sought by the Republican-led states of Louisiana, Mississippi and Texas along with the Gulf Energy Alliance, Independent Petroleum Association of America, Louisiana Oil & Gas Association, and U.S. Oil & Gas Association.
The 2024 rule was issued by the U.S. Bureau of Ocean Energy Management (BOEM), which noted that since 2009, more than 30 corporate bankruptcies had occurred involving offshore oil and gas companies that did not have sufficient financial assurance to cover their decommissioning obligations, which had highlighted a weakness in BOEM’s current supplemental financial assurance programme. BOEM noted that the new rule finalises amendments to existing provisions and increases regulatory clarity about financial obligations “to better protect the taxpayer from potentially bearing the cost of facility decommissioning and other financial risks associated with OCS development, such as environmental remediation.” The new rule includes the requirement that companies which cannot provide adequate financial assurance have to put up a surety bond.
The three states and industry groups argued that the rule if enforced would result in "potentially existential consequences" for small and medium-sized companies as they would be unable to obtain such bonds.
The judge said that issuing a preliminary injunction was not warranted on the grounds that the threatened harm is not imminent, given that the new requirements are being phased in over three years, and demands for supplemental financial assurance would not be issued until mid-2025 at the earliest.
"While these harms may be likely, a preliminary injunction can only be issued if the threatened harm is also imminent," the judge said.
However he said he would expedite the case so the court can reach a final decision on the merits before the demand letters are issued and plaintiffs incur any resulting costs.
Watch this space!
