BOEM/BSEE.
The United States Bureau of Ocean Energy Management, or BOEM, and the
Bureau of Safety and Environmental Enforcement, or BSEE, (together the BOEM/BSEE) were
established on October 1, 2011 as agencies of the Department of Interior that were previously one
agency known as the Bureau of Ocean Energy Management, Regulation and Enforcement, or
BOEMRE. These two newly formed bureaus have broad authority to regulate our oil and gas
operations on offshore leases in federal waters. They must approve and grant permits in connection
with our exploration, drilling, development and production plans in federal waters. Additionally, BOEM/
BSEE will implement regulations and “Notices to Lessees” already issued by BOEMRE requiring
offshore production facilities to meet stringent engineering, construction, safety and environmental
specifications, including regulations restricting the flaring or venting of gas, governing the plugging and
abandonment of wells, regulating workplace safety, and controlling the removal of production facilities.
Under certain circumstances, the BOEM/BSEE may suspend or terminate any of our operations on
federal leases, as discussed in Item 1A – Risk Factors –
We are subject to certain regulations, some of
which require permits and other approvals
.
These regulations could increase our costs and may
terminate, delay or suspend our operations.
The BOEM/BSEE have adopted regulations providing for
enforcement actions, including civil penalties, and lease forfeiture or cancellation for failure to comply
with regulatory requirements for offshore operations. The Department of the Interior’s Office of Natural
Resources Revenue has also established rules governing the calculation of royalties and the valuation
of oil produced from federal offshore leases and regulations regarding transportation allowances for
offshore production. Delays in the approval or refusal of plans and issuance of permits by the BOEM/
BSEE because of staffing, economic, environmental or other reasons (or other actions taken by the
BOEM/BSEE under its regulatory authority) could adversely affect our operations.
Surety and Oil Spill Financial Responsibility Requirements.
Historically, we have complied
with the BOEM/BSEE regulations and held any bonds, or provided the financial assurances, required
for our leases in federal waters. However, upon our contribution of the properties to Plains Offshore, as
a lessee in the deepwater U.S. Gulf of Mexico, Plains Offshore must also comply with the regulations.
To cover the various obligations of lessees in federal waters, the BOEM/BSEE generally requires that
lessees have substantial U.S. assets and net worth or post bonds or other acceptable assurances that
such obligations will be met. We are subject to the following types of surety requirements with BOEM:
(i) supplemental bonding, which is required to be provided by all lessees and specifically covers the
plugging and abandonment obligations associated with a lease, and (ii) oil spill financial responsibility,
generally provided by operators pursuant to the Oil Pollution Act of 1990 as amended, or OPA. The
OPA imposes a variety of requirements related to the prevention of and response to oil spills into
waters of the United States, including the Outer Continental Shelf, which includes the U.S. Gulf of
Mexico. The OPA subjects operators of offshore leases and owners and operators of oil handling
facilities to strict joint and several liability for all containment and cleanup costs and certain other
damages arising from a spill, including, but not limited to, the costs of responding to a release of oil,
natural resource damages, and economic damages suffered by persons adversely affected by an oil
spill. The OPA also requires owners and operators of offshore oil production facilities to establish and
maintain evidence of financial responsibility to cover costs that could be incurred in responding to an oil
spill. The OPA currently requires a minimum financial responsibility demonstration of $35 million for
companies operating oil production facilities on the Outer Continental Shelf, although the Secretary of
Interior may increase this amount up to $150 million in certain situations. The cost of these bonds or
other surety could be substantial and there is no assurance that bonds or other surety could be
obtained in all cases.
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