Enforcing Legacy Environmental Liabilities for Offshore Oil and Gas Infrastructure – Climate Law Blog

The Sabin Center’s newest publication, Enforcing Legacy Environmental Liabilities on the Outer Continental Shelf, examines legal strategies to hold the former owners of offshore oil and gas infrastructure, like rigs, wells, and pipelines, liable for the costs of “decommissioning” their facilities—plugging wells, removing offshore installations, and generally making the site safe for abandonment or future use.

Background

For more than a century, American fossil fuel companies have extended their operations offshore to exploit the vast oil and gas reserves that lie under the seafloor. The Outer Continental Shelf Lands Act of 1953 (“OCSLA”) gives the U.S. Department of the Interior (“DOI”) the authority to issue and regulate mineral leases on the Outer Continental Shelf (“OCS”), an area of submerged land typically extending 3 to 200 nautical miles from the U.S. coast. Operating under DOI leases, private oil and gas companies have “drilled more than 55,000 wells and installed more than 7,000 platforms in federally managed waters on the [OCS], nearly all of which have been in the Gulf of Mexico.”

DOI’s leasing regime requires companies to plug wells, remove offshore platforms, and generally return their operation sites to a safe and stable condition when their leases end. This process, known as “decommissioning,” can cost tens or hundreds of millions of dollars for each offshore platform. If offshore oil and gas facilities are not promptly and properly decommissioned, they present serious ongoing environmental risks—metal rusts, concrete decays, and storms and natural disasters threaten to release oil and natural gas into sensitive ocean environments. Offshore wells with temporary plugs or “faulty, damaged, or corroded well casings” can release methane and other hydrocarbons into the water, polluting the ocean and contributing to global climate change.

The long life of, and complex ownership structure for, oil and gas assets can complicate the process of enforcing decommissioning obligations. Oil and gas production facilities may operate for many decades, changing hands between multiple owners along the way. However, DOI’s decommissioning regulations contain a broad set of liability rules that allow regulators to hold prior owners and operators of offshore leases responsible for decommissioning obligations. These rules, known as “joint and several trailing liability,” give regulators the authority to pursue predecessor companies for the costs of decommissioning if the current owner defaults on its obligations.

Legal Pathways to Enforce Legacy Liabilities on the Outer Continental Shelf

The Sabin Center’s new white paper, Enforcing Legacy Environmental Liabilities on the Outer Continental Shelf, examines these legacy decommissioning liabilities. First, this white paper reviews the sources and scope of DOI’s authority to hold predecessor oil and gas companies liable for decommissioning obligations. In doing so, the authors examine the statutory framework for offshore decommission liability, the regulatory history of the liability standards, and the way that these liabilities have been interpreted by the courts. This review is crucial, because the Supreme Court has recently subjected agency regulations to increasing levels of scrutiny that threaten the stability of even long-standing regulatory regimes like the OCS regulations governing decommissioning liability.

Next, the white paper assesses the impact of these legacy liabilities on the parent companies of predecessor oil and gas operators, and identifies strategies to hold these companies liable for decommissioning obligations if their subsidiaries are unable to pay them. DOI’s offshore regulations create clear paths to pursue lessees, owners of operating rights, and their predecessors for decommissioning expenses. However, they do not explicitly extend liability to the owners of liable parties. This is important because offshore oil and gas companies often have fairly complex ownership structures that often isolate parent companies from the debts of their operating subsidiaries. In response, the authors review two possible avenues for holding offshore oil and gas companies liable for the environmental repair debts of their subsidiaries: third-party guarantees and “veil-piercing” litigation.

The full white paper, Enforcing Legacy Environmental Liabilities on the Outer Continental Shelf, is available here. Information about the Sabin Center’s other work on offshore oil and gas decommissioning is available here.

This white paper was authored by:

Martin Lockman, Climate Law Fellow at the Sabin Center, Associate Research Scholar at Columbia Law School, and Adjunct Professor of Environmental Law at Pepperdine Caruso School of Law.

Romany M. Webb, Deputy Director of the Sabin Center, Research Scholar at Columbia Law School, Adjunct Associate Professor of Climate at the Columbia Climate School, and Senior Advisor on Climate Science at the Columbia Graduate School of Journalism.

Preparation of this white paper was generously supported by The Ocean Conservancy. The Sabin Center, and the authors, are solely responsible for its content.