Illustration; Source: BOEM

U.S. steps up limit of liability cap for oil spills from offshore facilities

The Department of the Interior’s Bureau of Ocean Energy Management (BOEM) has made adjustments to the limit of liability for oil spills in the federal waters from offshore facilities, as an increase is needed to keep pace with the ongoing inflation.

Illustration; Source: BOEM

The Bureau of Ocean Energy Management recently explained that it would administratively increase the limit of liability for oil spill-related damages from $137.66 million to $167.8 million for offshore oil and gas facilities. According to BOEM, the inflation adjustment is mandated by the Oil Pollution Act of 1990 (OPA) and is based on the increase in the Consumer Price Index (CPI) that has occurred over the six years between 2016 and 2022.

Furthermore, the increase, which will go into effect 30 days after publication in the Federal Register, applies to facilities handling oil and gas in federal and state waters seaward of the coastline. BOEM also points out that the limit of liability cap applies to damages that result from oil spills, however, it does not apply to other liabilities such as oil spill removal costs, which remain unlimited. 

BOEM calculates inflation by comparing the cumulative per cent change in the Annual Consumer Price Index for All Urban Consumers (CPI–U) since the last adjustment, making changes to the liability limits when inflation reaches a significance threshold of 3 per cent or greater.

As the liability cap is set by statute and may only be adjusted to address significant increases in the CPI, the Bureau of Ocean Energy Management outlines that the increase to $167.8 million represents the maximum increase that may be implemented absent new legislation. 

As regulation stipulates, BOEM needs to regularly update – at least every three years – the limit of liability cap in the future to reflect changes in inflation over time based on the CPI. The last adjustment for inflation of the OPA offshore facility limit of liability for damages was in 2016. 

This comes after BOEM made adjustments to monetary penalties in February 2023 for oil and gas companies, implementing the 2023 inflation adjustments for the maximum daily civil monetary penalties contained in accordance with Federal law.