The Price Tag For Offshore Oil & Gas Spills Is Going Up.

The Bureau of Ocean Energy Management (BOEM) wants to increase the dollar liability for an oil spill from an offshore facility by nearly 80 percent.   The proposal was published in the Federal Register this morning. Right now, an oil and gas company that is responsible for a spill must pay the clean up costs, but its liability is capped at $75 million, an amount that hasn’t changed since the oil spill laws were enacted in 1990.   The proposal would increase that limit to $133.65 million.   The agency says that reflects the increase in inflation over the last 24 years and part of the regulation would automatically increase the limits by the annual inflation rate.

What types of facilities does it apply to?  Under the regulations, the limits apply to offshore production platforms, wells and pipelines.  In the case of drilling operations, it applies to everything related to well control or risers leading to the well, but does not include the MODU (they fall under the vessel rules).

Who does this apply to?  The responsible party is defined as the leaseholder where the spill occurs, the owner of a pipeline or, in the case of an abandoned well, the last owner.

Does this really cap liability?  Not really. the existing regulations say “this section does not apply if the incident was proximately caused by—

(A) gross negligence or willful misconduct of, or

(B) the violation of an applicable Federal safety, construction, or operating regulation.”

That means a company that fails either of those standards faces unlimited liability, which is why the post-spill legal maneuvering that always follows an incident is so important.

The proposal claims that this change should not have much of an impact on insurance rates, but the explanation of why the government believes that is a little murky.  One suspects the insurance companies will have the final word on that claim.

It also contains a somewhat surprising statement: “The Department is limiting the rulemaking comment period to 30 days since it does not anticipate receiving adverse comments on this rulemaking.”   Surprising to say they don’t expect adverse comments since this dramatically increases the exposure for offshore operators on the one hand and may not be high enough to satisfy environmentalists on the other hand.   That may mean that the agency has already vetted the proposal with industry and environmental groups and has their buy-in.

And there may be good reason for both sides to agree.   According to one article, one bill in Congress would have increased liability to $10 billion, but it ran into strong opposition.  That means increasing the limits with the inflation rate may be the only way to change it without a bruising fight in Congress.   And by the way, in Canada, the conservative government recently introduced legislation to up the liability limits to $1 billion for oil and gas facilities and nuclear power plants.

The comment period closes on March 26th.

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