Wednesday, January 22, 2025

US offshore driller requests judge block insurers' demand for $250 million collateral

December 12, 2024

W&T Offshore is an independent driller in the U.S. Gulf of Mexico. It has asked a federal court to block the insurance companies' demand for $250 million additional collateral in exchange for tearing down old oil infrastructure.

Offshore drilling companies are under increasing pressure to issue bonds for the decommissioning of oil and gas infrastructure within federal waters. In June, the Federal Bureau of Ocean Energy Management enforced its final rule amending financial assurance regulations to ensure that the industry pays for decommissioning and not taxpayers.

In an interview, W&T Offshore's CEO Tracy Krohn said: "You are at the mercy both of the federal agency as well as the surety companies. There is not much control."

"The regulatory agency does not have a real basis to require a lot more bonding that what they currently do," Krohn said.

BOEM estimates that offshore drillers will collectively pay under $7 billion in new financial assurances as a result the final rule. These are to cover potential costs for decommissioning.

According to the U.S. Government Accountability Office, by June 2023 more than 2,700 oil wells and 500 platform were due for decommissioning.

W&T Offshore filed a lawsuit on Wednesday at the U.S. District Court of the Southern District of Texas asking Judge Keith Ellison for a declaration that the insurers colluded with each other to harm the company, by demanding more collateral and higher premiums.

The company says that insurers have used BOEM's latest rule to request additional collateral as surety for which it has already paid premiums.

W&T Offshore, based in Houston, did not provide an immediate comment.

Endurance Assurance Corp. and Lexon Insurance Co., the two companies named in the lawsuit, did not respond immediately to requests for comments.

The opponents said that the final rule of BOEM would adversely affect smaller firms who lack sufficient oil reserves or investment grade ratings. Oil majors have larger reserves or meet the credit criteria that exempts them from having to put up additional money to cover future decommissioning.

Texas, Louisiana, and Mississippi filed a lawsuit against the government days before the BOEM final rule came into effect in an attempt to stop it.

According to last government statistics, the U.S. Gulf of Mexico produced roughly 1,74 million barrels of oil per day, or about 13% of U.S. total output.

(source: Reuters)

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