01.20.16

Ranking Members Grijalva, DeFazio Call for Stronger Oil and Gas Company Bonding Requirements as GAO Shows Potential Shortfall

Washington, D.C. – Reps. Raúl M. Grijalva (D-Ariz.) and Peter DeFazio (D-Oregon) – the ranking members of the House Natural Resources Committee and House Transportation and Infrastructure Committee, respectively – are calling on the Interior Department (DOI) to finalize new financial bonding standards for oil and gas companies in light of a new Government Accountability Office (GAO) report showing that taxpayers are potentially at risk for billions of dollars in costs for decommissioning offshore oil and gas platforms.

Under state and federal law, oil, gas, and coal companies must post reclamation bonds before extracting resources to prove they can remediate the affected property when operations end. Some states allow companies to “self-bond” – a practice that does not require the company to get actual cleanup insurance. When companies haven’t posted large enough bonds, taxpayers are potentially on the hook for closing down and cleaning up sites.

DOI released an advance notice of proposed rulemaking in April 2015 that mentioned the potential for new bonding standards. Grijalva and DeFazio today encouraged Interior officials to propose such standards and finalize them as quickly as possible.

As GAO’s summary of the new report notes:

Until Interior improves its ability to obtain valid data from its data system and revises and implements its financial assurance procedures, the federal government remains at increased risk of incurring costs should lessees fail to decommission oil and gas infrastructure. [. . .] When oil and gas infrastructure is no longer in use, Interior requires lessees to decommission it so that it does not pose safety and environmental hazards. Decommissioning can include plugging wells and removing platforms, which can cost millions of dollars. Interior requires lessees to provide bonds or other financial assurances to demonstrate that they can pay these costs; however, if lessees do not fulfill their decommissioning obligations, the federal government could be liable for these costs.

“Right now taxpayers have no choice but to wonder how much every oil and gas site in the country could end up costing them out of their own pocket,” Grijalva said. “A company can promise it’ll have enough money to clean up its mess and then pass on the costs to the public when the site stops being profitable. It’s a broken system, everyone knows it, and the Interior Department shouldn’t have to wait for another GAO report to step in and fix this.”

“Implementing the GAO’s recommendations will be a smart step in the right direction for the Department of the Interior, the environment, and the taxpayers,” DeFazio said. “As it stands now, taxpayers are potentially on the hook for millions of dollars to support oil and gas decommissioning efforts. Environmental safety ought to come at the cost of the oil and gas companies – not the American taxpayer.”

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