Supplemental bonding in the Gulf of Mexico: the potential effects of increasing bond requirements
by Mark J. Kaiser, Brian Snyder
International Journal of Oil, Gas and Coal Technology (IJOGCT), Vol. 2, No. 3, 2009

Abstract: The Minerals Management Service (MMS) requires offshore oil and gas operators to procure surety bonds to ensure that they meet their decommissioning obligations. According to recent estimates developed by the authors, the total undiscounted cost of decommissioning structures and wells in the Gulf of Mexico in less than 500 ft. water depth is estimated to range between $18-63 billion. The MMS is currently reviewing and updating their supplemental bonding requirements, and in this paper, we discuss the potential impacts of an increase in the bond levels required. While the size of the increase will depend on the amount of risk MMS will assume, the average cost of plugging and abandonment and structure removal operations are between two and eight times greater than the current bond formula. We analyse the surety market, the companies involved in writing bonds and the approximate market share of organisations. This information is neither widely known nor well understood outside a few individuals specialising in the area. We conclude that the largest impacts of increased supplemental bonding requirements would be for exploration and production companies with approximately $10 to $20 million in current liabilities. [Received: April 08, 2009; Accepted: May 26, 2009]

Online publication date: Fri, 18-Sep-2009

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