On March 9, 2026, in response to Executive Order 14154 of January 20, 2025, Unleashing American Energy, the Bureau of Ocean Energy Management (BOEM) issued a proposed rule adjusting the standards used to determine whether outer continental shelf (OCS) oil, gas and sulfur lessees, right-of-use and easement (RUE) grant holders and pipeline right-of-way (ROW) grant holders must provide supplemental financial assurance to cover offshore decommissioning obligations. 91 Fed. Reg. 11,212 (Mar. 9, 2026) (the Proposed Rule). The purpose of the Proposed Rule is to “significantly reduce the amount of supplemental financial assurance required from oil, gas, and sulfur lessees operating on the OCS,” and thereby, increase “the amount of capital available for oil and gas exploration and production on the OCS,” which would further the objective of Executive Order 14154.
The Proposed Rule is the latest pendulum swing in offshore regulation, following nearly a decade of back-and-forth by BOEM as to how offshore decommissioning obligations should be assured. The Proposed Rule intends to reverse many of the changes made by the Biden administration’s 2024 final rule, which revised the criteria used to determine whether regulated parties must provide supplemental financial assurance and increased the pool of companies required to post supplemental financial assurance. 89 Fed. Reg. 31,544 (Apr. 24, 2024) (the 2024 Rule).
Comments on the proposed rule are due May 8, 2026.
The History of BOEM’s Financial Assurance Regulations
BOEM’s current financial assurance regulations consist of two main parts: (1) base bonds, generally required in amounts prescribed in the regulations; and (2) supplemental financial assurance, which is an amount above the base bond that is required at the agency’s discretion to ensure a lessee or grant holder can fulfill its contractual and regulatory obligations. BOEM then promulgates regulations implementing standards for the lessees and grant holders that may be exempt from posting supplemental financial assurance.
Prior to 2024, BOEM considered five criteria to assess whether a lessee or grant holder must get supplemental financial assurance: (1) financial capacity; (2) projected financial strength; (3) business stability; (4) reliability in meeting obligations based upon credit rating or trade references; and (5) record of compliance with laws, regulations and lease terms. However, following several major oil and gas bankruptcies, increased idle iron offshore and concerns that inadequate bonding left taxpayers vulnerable to substantial financial exposure, BOEM and its sister agency, the Bureau of Safety and Environmental Enforcement (BSEE), began pursuing reforms to address the perceived insufficiency of existing financial assurance requirements.
The Obama administration, first Trump administration and Biden administration each implemented changes to BOEM’s financial assurance regulations. The Biden administration’s 2024 Rule sought to overhaul the supplemental financial assurance process and simplify the five-step criteria. Pursuant to the regulations finalized in the 2024 Rule, BOEM considers (1) credit rating; and (2) valuations of proved oil reserves:
- Credit Rating Threshold: BOEM does not require a company to secure supplemental financial assurance if it has an investment grade credit rating (i.e., a credit rating from an NRSRO that is greater than or equal to either BBB- from S&P or Baa3 from Moody’s, or the equivalent from another NRSRO).
- Ratio of Proven Reserves: BOEM does not require a company to secure supplemental financial assurance if it has proved reserves whose value exceeds three times BSEE’s P70 decommissioning cost estimate for the facilities associated with those reserves.
BOEM’s 2026 Proposed Rule
The Proposed Rule now sets out to revise the criteria in the 2024 Rule and lower standards used to determine whether a company must obtain supplemental financial assurance. Significant revisions include:
- Consideration of Predecessors: Reverting back to the reforms adopted by the first Trump administration (85 Fed. Reg. 65904 (October 16, 2020)), BOEM now proposes to consider the financial strength of predecessors when determining whether a current lessee must provide supplemental financial assurance, because predecessors remain jointly and severally liable for decommissioning obligations that accrued during their ownership. Accordingly, if at least one predecessor with liability for the relevant decommissioning obligations meets the requisite credit or proxy credit criteria, BOEM may not require the current lessee to post supplemental financial assurance for those obligations, even if the current lessee itself does not meet the criteria. However, BOEM expressly retains discretion to require supplemental financial assurance in such cases where appropriate, including, in particular, for any decommissioning obligations for which the predecessor is not liable. This predecessor-based consideration does not extend to decommissioning obligations that arose after the predecessor exited the chain of title (e.g., facilities or wells installed thereafter).
- Credit Rating Threshold: BOEM proposes to lower the credit rating required to avoid posting supplemental financial assurance to either BB- from S&P or Ba3 from Moody’s, or the equivalent from another NRSRO.
- Estimating Decommissioning Costs: BOEM proposes to alter its method for calculating decommissioning cost estimates to make it easier for lessees to meet the reserves to liability threshold and avoid posting supplemental financial assurance. BOEM previously relied on BSEE’s P70 probabilistic decommissioning estimate, which represents the amount that has a 70 percent likelihood of covering the full decommissioning cost. BOEM now proposes to lower the decommissioning cost estimate incorporated into the analysis, shifting from BSEE’s P70 value to the P50 value (50 percent confidence). BOEM proposes to retain the option for lessees to avoid supplemental financial assurance if the value of proved reserves on a given lease exceeds three times the decommissioning costs associated with the lease. If BOEM relies on BSEE’s P50 calculation, it will become easier for lessees to qualify for the 3-to-1 reserves exemption to supplemental financial assurance.
- Short-term Decommissioning: The 2024 Rule provides no exception to supplemental financial assurance requirements for near‑term decommissioning activities. Now, for decommissioning activities that will be performed within one year of receiving a supplemental assurance demand, BOEM proposes to allow the Regional Director the discretion to accept third-party decommissioning contracts and schedules in lieu of providing new supplemental assurance for that activity.
- Appeal Bond: BOEM proposes to remove altogether the 2024 Rule’s requirement that a company seeking to stay a supplemental financial assurance demand pending appeal must post an appeal bond in the amount of the supplemental financial assurance required. Under the 2024 Rule, if the appeal were unsuccessful, that appeal bond could be replaced with, or converted into, bonds or other forms of financial assurance to satisfy BOEM’s demand.
- Timing of Compliance: BOEM proposes to restart the compliance period set by the 2024 Rule. Lessees and grant holders required to post supplemental financial assurance under the new criteria would be permitted to satisfy their obligations in three equal installments over thirty‑six months — specifically, during the first three years from May 8, 2026. The Proposed Rule also allows companies to submit a proposed payment schedule in advance so that BOEM may forgo issuing a formal demand letter.
