Inderscience Publishers

Review and update of the supplemental bonding formula in the outer continental shelf Gulf of Mexico

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To ensure that the government is adequately protected from incurring costs associated with offshore lease abandonment, the Minerals Management Service requires operators to post a supplemental bond if at least one record title owner or holder on the lease does not satisfy a financial strength and reliability threshold. In this paper, we review the objectives of the supplemental bond program and provide a historical perspective of its development. The objectives of a formula-based mechanism are described along with trade-offs that occur in development. Factors that impact US Government decommissioning exposure are highlighted and we present a risk-adjusted bonding mechanism across the three main stages of decommissioning that updates a 20 year old legacy formula. We propose the selection of bonding levels that balance the need of the government to minimise its decommissioning exposure at an acceptable level of risk without incurring an excessive financial burden on owners. [Received: January 6, 2010; Accepted May 26, 2010]

Keywords: bonding, decommissioning, end-of-lease liability, offshore production, Gulf of Mexico, offshore lease abandonment, supplemental bonds, risk adjustment

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