A Review and Update of Supplemental Bonding Requirements in the Gulf of Mexico

Mark Kaiser and Allan Pulsipher. Funded by the U.S. Department of the Interior, Minerals

The Minerals Management Service (MMS) requires a lessee to submit a supplemental bond when the MMS estimate of cumulative potential end-of-lease liability is greater than 25% of the lessee's net worth. The MMS computes the end-of-lease liability by estimating the cost to plug and abandon all boreholes, dismantle and remove all structures, and clear a lease.

The MMS approach to computing end-of-lease liability is well defined, easy to understand and implement, and has worked successfully in the past, but because the bonding formula was developed in the early 1990s and based upon a limited data set, it is suggested that the algorithm be reviewed and updated. As part of the review of the supplemental bond requirements, it is proposed that the bonding formula be updated using a more recent and comprehensive data set, that the bonding formula be refined to include structure types in the removal and site clearance categories, and that a risk-adjusted assessment be considered in setting bonding levels.

The purpose of this study is to update and refine the MMS bonding algorithm; describe the purpose, requirements, constraints and limitations of bonding mechanisms; and to develop alternative risk-adjusted bonding formulas for MMS review.

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