Risk Management and Financial Assurance for OCS Lease and Grant Obligations, 31544-31599 [2024-08309]
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Federal Register / Vol. 89, No. 80 / Wednesday, April 24, 2024 / Rules and Regulations
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DEPARTMENT OF THE INTERIOR
Bureau of Ocean Energy Management
30 CFR Parts 550, 556, and 590
[Docket No. BOEM–2023–0027]
RIN 1010–AE14
Risk Management and Financial
Assurance for OCS Lease and Grant
Obligations
Bureau of Ocean Energy
Management, Interior.
ACTION: Final rule.
AGENCY:
The Department of the
Interior (the Department or DOI), acting
through the Bureau of Ocean Energy
Management (BOEM), is amending its
risk management and financial
assurance regulations. This final rule
revises criteria for determining whether
oil, gas, and sulfur lessees, right-of-use
and easement (RUE) grant holders, and
pipeline right-of-way (ROW) grant
holders are required to provide financial
assurance above the current minimum
bonding levels to ensure compliance
with their Outer Continental Shelf
Lands Act (OCSLA) obligations. This
final rule streamlines the criteria for
evaluating the financial health of lessees
and grantees, codifies the use of the
Bureau of Safety and Environmental
Enforcement’s (BSEE) probabilistic
estimates of decommissioning costs in
setting the level of demands for
supplemental financial assurance,
removes restrictive provisions for thirdparty guarantees and decommissioning
accounts, adds new criteria for
cancelling supplemental financial
assurance, and clarifies bonding
requirements for RUEs serving Federal
leases. BOEM estimates that a total of
$6.9 billion in new supplemental
financial assurance will be required
from lessees and grant holders under
this final rule to cover potential costs of
decommissioning activities. This final
rule significantly increases the amount
of financial assurance available to the
U.S. Government in the case of a lessee
default and meaningfully reduces the
risk to the government and
consequently to the U.S. taxpayer. This
final rulemaking does not apply to
renewable energy activities.
DATES: This final rule is effective on
June 24, 2024. You may make comments
on the information collection (IC)
burden in this rulemaking and the
Office of Management and Budget
(OMB) and BOEM must receive such
comments on or before May 24, 2024.
The IC burden comment opportunity
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SUMMARY:
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BOEM has established a
docket for this action under Docket No.
BOEM–2023–0027. All documents in
the docket are listed on the https://
www.regulations.gov website and can be
found by entering the Docket No. in the
‘‘Enter Keyword or ID’’ search box and
clicking ‘‘search’’.
You may submit comments on the IC
to OMB’s desk officer for the
Department of the Interior through
https://www.reginfo.gov/public/do/
PRAMain. From this main web page,
you can find and submit comments on
this particular information collection by
proceeding to the boldface heading
‘‘Currently under Review—Open for
Public Comments,’’ selecting
‘‘Department of the Interior’’ in the
‘‘Select Agency’’ pull down menu,
clicking ‘‘Submit,’’ then, checking the
box ‘‘Only Show ICR for Public
Comment’’ on the next web page,
scrolling to this final rule, and clicking
the ‘‘Comment’’ button at the right
margin. Additionally, you may use the
search function to locate the IC request
related to the rule on the main web
page. Please provide a copy of your
comments to the Information Collection
Clearance Officer, Office of Regulations,
BOEM, Attention: Anna Atkinson,
45600 Woodland Road, Sterling,
Virginia 20166; or by email to
anna.atkinson@boem.gov. Please
reference OMB Control Number 1010–
0006 in the subject line of your
comments.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Kelley Spence, Office of Regulations,
BOEM, 45600 Woodland Road, Sterling,
Virginia 20166, at email address
Kelley.Spence@boem.gov or at
telephone number (984) 298–7345; and
Karen Thundiyil, Chief, Office of
Regulations, BOEM, 1849 C Street NW,
Washington, DC 20240, at email address
Karen.Thundiyil@boem.gov or at
telephone number (202) 742–0970.
Individuals in the United States who are
deaf, deafblind, hard of hearing, or have
a speech disability may dial 711 (TTY,
TDD, or TeleBraille) to access
telecommunications relay services for
contacting the contacts listed in this
section. These services are available 24
hours a day, 7 days a week, to leave a
message or question with the above
individual. You will receive a reply
during normal business hours.
Individuals outside the United States
should use the relay services offered
within their country to make
international calls to the point-ofcontact in the United States.
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Preamble
acronyms and abbreviations. Multiple
acronyms are included in this preamble.
While this list may not be exhaustive, to
ease the reading of this preamble and for
reference purposes, BOEM explains the
following acronyms here:
SUPPLEMENTARY INFORMATION:
ANCSA Alaska Native Claims Settlement
Act
BOEM Bureau of Ocean Energy
Management
BSEE Bureau of Safety and Environmental
Enforcement
CFR Code of Federal Regulations
CRA Congressional Review Act
DOI Department of the Interior (or
Department)
E.O. Executive Order
FDIC Federal Deposit Insurance
Corporation
FR Federal Register
FSLIC Federal Savings and Loan Insurance
Corporation
GAO Government Accountability Office
GOMESA Gulf of Mexico Energy Security
Act of 2006
IBLA Interior Board of Land Appeals
IC Information Collection
INC Incident of Non-Compliance
IRFA Initial Regulatory Flexibility Analysis
mmboe Million barrels of oil equivalents
MMS Minerals Management Service
NAICS North American Industry
Classification System
NEPA National Environmental Policy Act
NPRM Notice of Proposed Rulemaking
NRSRO Nationally Recognized Statistical
Rating Organization
NTL Notice to Lessees
OCS Outer Continental Shelf
OCSLA Outer Continental Shelf Lands Act
OIRA Office of Information and Regulatory
Affairs (a component of OMB)
OMB Office of Management and Budget
ONRR Office of Natural Resources Revenue
PRA Paperwork Reduction Act
RIA Regulatory Impact Analysis
RFA Regulatory Flexibility Act
RUE Right-of-Use and Easement
ROW Right-of-Way
SBA Small Business Administration
SBREFA Small Business Regulatory
Enforcement Fairness Act
SEC Securities and Exchange Commission
S&P Standard and Poor’s
UMRA Unfunded Mandates Reform Act
U.S.C. United States Code
U.S. EPA United States Environmental
Protection Agency
Background information. On June 29,
2023, the Department proposed
revisions to the regulations for risk
management and financial assurance for
Outer Continental Shelf (OCS) lease and
grant obligations. The comments
received regarding the proposed rule,
some of which resulted in regulatory
changes, and their corresponding
responses are summarized in this
preamble. A detailed summary of all
public comments on the proposal and
their corresponding responses are
available in the memorandum titled,
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Risk Management and Financial
Assurance for OCS Lease and Grant
Obligations: Response to Public
Comments Received on the June 29,
2023, Notice of Proposed Rulemaking in
the docket for this rulemaking (Docket
No. BOEM–2023–0027). A ‘‘track
changes’’ version of the regulatory
language that identifies the changes in
this action compared to the current
regulations is also available in the
docket.
Organization of this document. The
information in this preamble is
organized as follows:
I. General Information
A. Executive Summary
1. Purpose of This Regulatory Action
2. Summary of Major Provisions
3. Costs and Benefits
B. Does this action apply to me?
C. Where can I get a copy of this document
and other related information?
II. Background
A. BOEM Statutory and Regulatory
Authority and Responsibilities
B. History of Bonding Regulations and
Guidance
C. Purpose of Rulemaking
D. Summary of the June 29, 2023, Proposed
Rulemaking
III. Summary of the Final Rule and Public
Comments
A. Revisions to BOEM Supplemental
Financial Assurance Requirements
1. Leases
a. Evaluation of Co-Lessees
b. Evaluation Criteria
2. Right-of-Use and Easement Grants
a. Base Financial Assurance
b. Area-Wide Financial Assurance
c. Supplemental Financial Assurance
3. Pipeline Right-of-Way Grants
B. Use of BSEE’s Probabilistic Estimates for
Determining Decommissioning Costs
C. Revisions to Other Types of
Supplemental Financial Assurance
1. Third-Party Guarantees
2. Decommissioning Accounts
3. Transfers of Lease Interests to Other
Lessees or Operating Rights Holders
D. Evaluation Methodology
1. Credit Ratings
a. Use of an ‘‘Issuer Credit Rating’’
b. Credit Rating Threshold
2. Proxy Credit Ratings
3. Valuing Proved Oil and Gas Reserves
E. Phased Compliance With Supplemental
Financial Assurance Orders
F. Appeal Bonds
G. Other Amendments
1. Revisions to Definitions
2. Changing of the Spelling of ‘‘Sulphur’’
to ‘‘Sulfur’’
IV. Summary of Cost, Economic Impacts, and
Additional Analyses Conducted
A. What are the affected entities?
B. What are the economic impacts?
C. What are the benefits?
D. What tribal outreach did BOEM
conduct?
V. Section-by-Section Analysis
VI. Statutory and Executive Order Reviews
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A. Executive Orders 12866: Regulatory
Planning and Review, as Amended by
Executive Order 14094: Modernizing
Regulatory Review, and Executive Order
13563: Improving Regulation and
Regulatory Review
B. Regulatory Flexibility Act (RFA)
C. Small Business Regulatory Enforcement
Fairness Act
D. Unfunded Mandates Reform Act
(UMRA)
E. Executive Order 12630: Governmental
Actions and Interference With
Constitutionally Protected Property
Rights
F. Executive Order 13132: Federalism
G. Executive Order 12988: Civil Justice
Reform
H. Executive Order 13175: Consultation
and Coordination With Indian Tribal
Governments
I. Paperwork Reduction Act (PRA)
J. National Environmental Policy Act
(NEPA)
K. Data Quality Act
L. Executive Order 13211: Actions
Concerning Regulations That
Significantly Affect Energy Supply,
Distribution, or Use
M. Congressional Review Act (CRA)
I. General Information
A. Executive Summary
1. Purpose of This Regulatory Action
The purpose of this final regulatory
action is to address concerns regarding
BOEM’s financial assurance program.
This rule finalizes amendments to the
existing provisions to better protect the
taxpayer from bearing the cost of facility
decommissioning and other financial
risks associated with OCS development,
such as environmental remediation.
Additionally, this final rule provides
regulatory clarity to OCS lessees
regarding their financial obligations by
codifying requirements in the Code of
Federal Regulations (CFR).
Since 2009, more than 30 corporate
bankruptcies have occurred involving
offshore oil and gas lessees that did not
have sufficient financial assurance to
cover their decommissioning liabilities.
These bankruptcies have highlighted a
weakness in BOEM’s current
supplemental financial assurance
program. BOEM’s existing program has,
at times, been unable to forecast
financial distress of these lessees and
grantees that have not previously
provided supplemental financial
assurance and, as a result, BOEM has
not had sufficient time to require and
receive supplemental financial
assurance prior to a declaration of
bankruptcy. Additionally, challenges
arising from bankruptcy proceedings,
including the inability to sell less
valuable assets that fail to generate new
buyers at auction, can result in
unplugged wells and orphaned
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infrastructure, potentially resulting in
the American taxpayer paying to plug
those wells and decommission that
abandoned infrastructure. The
amendments finalized in this
rulemaking under section 5 of OCSLA
(43 United States Code (U.S.C.) 1334)
and Secretary’s Order 3299 strengthen
BOEM’s financial assurance program to
better protect the taxpayer from bearing
the cost of facility decommissioning and
other financial risks associated with
OCS development.
2. Summary of Major Provisions
The following major provisions are
included in this final rule:
• streamlining the criteria used for
evaluating the financial health of lessees
and grantees,
• codifying the use of the BSEE
probabilistic estimates of
decommissioning cost for determining
the amount of supplemental financial
assurance required,
• removing restrictive provisions for
third-party guarantees and
decommissioning accounts,
• adding new criteria under which a
bond or third-party guarantee that was
provided as financial assurance may be
canceled, and
• clarifying financial assurance
requirements for RUEs serving Federal
leases.
With this rulemaking, the Department
is finalizing an amendment to revise the
criteria used to evaluate the need for
supplemental financial assurance from
the existing five criteria—financial
capacity, projected financial strength,
business stability, reliability in meeting
obligations based on credit rating or
trade references, and record of
compliance with laws, regulations, and
lease terms—to one of two criteria: (1)
credit rating and (2) the ratio of the
value of proved reserves to
decommissioning liability associated
with those reserves. Specifically, the
Department is finalizing the use of an
investment grade credit rating threshold
(or proxy credit rating equivalent) and a
minimum 3-to-1 ratio of the value of
proved reserves to decommissioning
liability associated with those reserves
to determine if a lessee is required to
provide supplemental financial
assurance. If a current lessee meets one
of these criteria, it will not be required
to provide supplemental financial
assurance. These amendments codify a
forward-looking analysis for
determining the need for supplemental
financial assurance and strengthen
BOEM’s financial assurance program by
providing a more accurate method for
analyzing a lessee’s financial health.
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The Department is also finalizing the
use of the BSEE probabilistic estimates
of decommissioning cost for
determining the amount of
supplemental financial assurance
required. The new estimates are based
on industry-reported decommissioning
costs pursuant to the notice-to-lessees
(NTL) requiring the submittal of such
data. Previously, BSEE provided a single
algorithm-based deterministic estimate
for OCS facilities for determining
decommissioning cost estimates. Based
on the reported data, BSEE has
developed three probabilistic estimates
(i.e., P-values) of decommissioning costs
for each OCS facility on any given lease.
These values represent the likelihood of
covering the full cost of
decommissioning a facility as a
percentage; for example, P70 represents
a 70 percent likelihood of covering the
full cost of decommissioning a facility.
The Department is finalizing, as
proposed, the use of the P70
decommissioning estimate value to
determine the amount of supplemental
financial assurance required from a
current lessee that does not meet the
financial waiver criteria. If probabilistic
estimates are not available, then BOEM
will use the available deterministic
values. BOEM also notes that the use of
the BSEE P70 value only reflects the
amount of supplemental financial
assurance that may be required to meet
decommissioning obligations and does
not reflect the total cost of corrective
action that may be required to bring a
lease or grant into compliance.
The Department’s goal for BOEM’s
financial assurance program continues
to be the protection of the American
taxpayers from exposure to financial
loss associated with OCS development,
while ensuring that the financial
assurance program does not
detrimentally affect offshore investment
or position American offshore
exploration and production at a
competitive disadvantage. The
Department acknowledges that the new
regulations could have a significant
financial impact on affected companies,
and for that reason, the Department is
finalizing the amendment, as proposed,
to phase in the new financial assurance
requirements over a 3-year period for
existing leaseholders.
3. Costs and Benefits
The regulatory amendments in this
rulemaking are expected to increase the
total amount of financial assurance
required from OCS lessees and grant
holders. Those lessees that do not meet
the updated criteria to avoid providing
financial assurance will realize an
increased compliance cost in the form of
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bonding premiums. BOEM has drafted a
Regulatory Impact Analysis (RIA)
detailing the estimated impacts of the
respective provisions of this final rule
and has included it in the docket. The
impacts reflect both monetized and nonmonetized impacts; the costs and
benefits of the non-monetized impacts
are discussed qualitatively in the
document. The table below summarizes
BOEM’s monetized estimate of the cost
of increased bonding premiums paid by
lessees over a 20-year period.
Additional information on the estimated
transfers, costs, and benefits can be
found in the RIA available in the docket
for this rulemaking (Docket No. BOEM–
2023–0027).
NET TOTAL ESTIMATED COMPLIANCE
COST OF THE RULE
[2024–2043, 2023, $ millions]
2024–2043
Net Total Compliance
Cost .............................
Annualized Compliance
Cost .............................
Discounted
at 3%
Discounted
at 7%
$8,525
$5,923
573.0
559.0
This final rule affects holders of oil,
gas, and sulfur leases, ROW grants, and
RUE grants on the OCS. The analysis
shows that this includes roughly 391
companies with ownership interests in
OCS leases and grants. Entities that
operate under this rule are classified
primarily under North American
Industry Classification System (NAICS)
codes 211120 (Crude Petroleum
Extraction), 211130 (Natural Gas
Extraction), and 486110 (Pipeline
Transportation of Crude Oil and Natural
Gas). For NAICS classifications 211120
and 211130, the Small Business
Administration (SBA) defines a small
business as one with fewer than 1,250
employees; for NAICS code 486110, it is
a business with fewer than 1,500
employees. Based on this criterion,
approximately 271 (69 percent) of the
businesses operating on the OCS subject
to this rule are considered small; the
remaining businesses are considered
large entities. All the operating
businesses meeting the SBA
classification are potentially impacted;
therefore, BOEM expects that the rule
will affect a substantial number of small
entities.
BOEM has estimated the annualized
increase in compliance costs to lessees
and RUE and ROW grant holders and
allocated those to small and large
entities based on their decommissioning
liabilities. BOEM’s analysis estimates
small companies could incur $421
million (7 percent discounting) in
annualized compliance costs from its
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changes. The Bureau recognizes that
there will be incremental cost burdens
to most affected small entities and has
included a 3-year, phased compliance
approach to reduce burden associated
with the transition to the requirements
of this rule. The changes are designed to
balance the risk of non-performance
with the compliance burdens that are
associated with the requirement to
provide supplemental financial
assurance. Additional information about
these conclusions can be found in the
RIA for this rule.
B. Does this action apply to me?
Entities potentially affected by this
final action are holders of oil, gas, and
sulfur leases, ROW grants, and RUE
grants on the OCS.
C. Where can I get a copy of this
document and other related
information?
In addition to being available in the
docket, BOEM will post an electronic
copy of the documents related to this
final action at: https://www.boem.gov/
regulations-and-guidance.
BOEM’s full response to comments on
the June 29, 2023, notice of proposed
rulemaking (NPRM), including any
comments not discussed in this
preamble, can be found in the
memorandum titled, Risk Management
and Financial Assurance for OCS Lease
and Grant Obligations: Response to
Public Comments Received on the June
29, 2023, Notice of Proposed
Rulemaking, available in the docket
(Docket No. BOEM–2023–0027).
II. Background
A. BOEM Statutory and Regulatory
Authority and Responsibilities
Section 5 of OCSLA (43 U.S.C. 1334),
authorizes the Secretary of the Interior
(Secretary) to issue regulations to
administer OCS leasing for mineral
development. Section 5(a) of OCSLA (43
U.S.C. 1334(a)) authorizes the Secretary
to ‘‘prescribe such rules and regulations
as may be necessary to carry out
[provisions of OCSLA]’’ related to
leasing on the OCS. Section 5(b) of
OCSLA (43 U.S.C. 1334(b)) provides
that ‘‘compliance with regulations
issued under’’ OCSLA must be a
condition of ‘‘[t]he issuance and
continuance in effect of any lease, or of
any assignment or other transfer of any
lease, under the provisions of’’ OCSLA.
Section 18 of OCSLA (43 U.S.C. 1344)
states that, ‘‘Management of the [OCS]
shall be conducted in a manner which
considers economic, social, and
environmental values of the renewable
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and nonrenewable resources contained
in the [OCS]. . .’’.
The Secretary, in Secretary’s Order
3299 (as amended), established BOEM
and delegated to it the authority to carry
out conventional energy- (e.g., oil and
gas) and renewable energy-related
functions on the OCS, including, but not
limited to, activities involving resource
evaluation, planning, and leasing under
the provisions of OCSLA. As such,
BOEM is responsible for managing
development of the Nation’s offshore
energy and mineral resources in an
environmentally and economically
responsible way. Secretary’s Order 3299
also established BSEE and delegated to
it the authority to, among other things,
enforce an oil and gas lessee’s obligation
to perform decommissioning. BSEE
provides estimates to BOEM to inform
the financial assurance needed to cover
the cost to perform decommissioning,
thereby protecting the American
taxpayer from incurring financial loss.
When a current lessee is unable to
perform its obligations, the
Department’s regulations at 30 CFR
556.604(d) and 556.605(e) hold current
co-lessees responsible for all
decommissioning obligations and
predecessor lessees responsible for
those decommissioning obligations that
had accrued before they assigned their
interests to others. See Section III.B for
more detail on joint and several liability
requirements. While BOEM also has
program oversight for the financial
assurance requirements set forth in 30
CFR parts 551, 581, 582, and 585, this
final rule pertains only to the financial
assurance requirements for oil and gas
or sulfur leases under part 556, RUE
grants and ROW grants under part 550,
and appeals of supplemental financial
assurance demands under part 590.
For more information on the statutory
authority for this rule, see the preamble
to the proposed rule at 88 FR 42138,
June 29, 2023.
B. History of Bonding Regulations and
Guidance
The Minerals Management Service
(MMS), BOEM’s predecessor, published
the existing financial assurance
requirements for oil, gas, and sulfur
leases and pipeline ROW grants on May
22, 1997 (62 FR 27948). These
regulations required lease-specific or
area-wide base bonds in prescribed
amounts, depending on the level of
activity on a lease, and provided the
authority to require additional
supplemental financial assurance for
leases above the base bonds depending
on the financial health of the lessee.
Additionally, MMS published the
existing financial assurance
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requirements for RUE grants on
December 28, 1999 (64 FR 72756). These
regulations did not dictate a specific
bond amount for a RUE but did provide
the authority to require bonding if
necessary. BOEM employs the same
criteria for RUE and ROW grants as it
does for leases to determine whether
supplemental financial assurance is
required, because specific criteria
pertaining to supplemental financial
assurance for grants do not exist in the
current regulations.
The current bonding regulations at 30
CFR 556.901(d) provide five criteria that
the Regional Director uses to determine
whether a lessee’s potential inability to
carry out present and future
decommissioning obligations warrants a
demand for supplemental financial
assurance; however, the current bonding
regulations do not specifically describe
how the criteria are weighted. To
provide guidance, MMS issued a Notice
to Lessees (NTL) effective December 28,
1998, which provided details on how it
would apply the five criteria (NTL No.
98–18N). This NTL was superseded by
NTL No. 2003–N06, effective June 17,
2003, and that NTL was later
superseded by NTL No. 2008–N07,
which was effective August 28, 2008.
Most recently, NTL No. 2008–N07 was
superseded on September 12, 2016, with
NTL No. 2016–N01, which was later
rescinded in February of 2020.
In December 2015, the Government
Accountability Office (GAO) reviewed
BOEM’s supplemental financial
assurance procedures and issued a
report titled ‘‘Offshore Oil and Gas
Resources: Actions Needed to Better
Protect Against Billions of Dollars in
Federal Exposure to Decommissioning
Liabilities.’’ (GAO Report). While
acknowledging BOEM’s ongoing efforts
to update its policies, the GAO Report
recommended, inter alia, that ‘‘BOEM
complete its plan to revise its
supplemental financial assurance
procedures, including the use of
alternative measures of financial
strength.’’ See https://www.gao.gov/
products/gao-16-40.
On October 16, 2020, DOI issued a
notice of proposed rulemaking (85 FR
65904) to revise certain BSEE policies
concerning decommissioning orders and
the Department’s financial assurance
regulations that are administered by
BOEM. In the joint proposed rule, the
Department proposed to adjust the
supplemental financial assurance
criteria to reflect the risk mitigation
already provided by the joint and
several liability of financially stable colessees and predecessor lessees. The
Department’s regulations hold
predecessors responsible for some or all
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31547
of the decommissioning when a current
lessee is unable to perform its
obligations. In the 2020 proposed rule,
the Department proposed to consider
the financial stability of predecessor
lessees by waiving supplemental
financial assurance requirements for a
current lessee when there is a
financially strong predecessor lessee.
The Department also proposed to
change the methodology for measuring
financial strength to focus on credit
rating and the value of proved oil and
gas reserves and to apply the credit
rating methodology to RUE grants and
ROW grants as well.
On April 18, 2023, DOI finalized the
BSEE-administered provisions of the
2020 proposal (88 FR 23569). The
Department’s 2023 final rule
implements provisions of the 2020
proposed rule to clarify
decommissioning responsibilities of
RUE grant holders and to formalize
BSEE’s policies regarding performance
by predecessors ordered to
decommission OCS facilities.
On June 29, 2023, the Department
proposed a new rule in lieu of finalizing
the BOEM provisions of the 2020 joint
proposal. The new proposed rule
provided recommended revisions to the
regulations concerning risk management
and financial assurance for OCS lease
and grant obligations. This final action
addresses the public comments received
on the June 29, 2023, proposal and
finalizes amendments to those
regulations. For more details on the
history of the bonding regulations, see
the preamble to the proposed rule at 88
FR 42138.
C. Purpose of Rulemaking
The purpose of this rulemaking is to
finalize amendments to address
concerns regarding BOEM’s financial
assurance program. This rule finalizes
amendments to the existing provisions
to better protect the taxpayer from
bearing the cost of facility
decommissioning and other financial
risks associated with OCS development,
such as environmental remediation.
This rule also provides regulatory
clarity to OCS lessees regarding their
financial obligations by codifying
requirements in the CFR.
As discussed in the preamble to the
proposed rule (88 FR 42140), the GAO
identified three main shortcomings in
the Department’s prior approach to
financial assurance: (1) the Department
faced challenges in determining actual
decommissioning liabilities due to data
system limitations and inaccurate data;
(2) the Department did not require
sufficient financial assurance to cover
liabilities, primarily due to the practice
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of waiving supplemental bonding
requirements, resulting in financial
assurance coverage (such as bonds) for
less than 8% of an estimated $38.2
billion in decommissioning liabilities;
and (3) the Department’s criteria for
assessing lessees’ financial strength did
not provide accurate and timely
information about their ability to cover
future decommissioning costs. As the
GAO report indicated, the existing
regulatory structure is inadequate,
introduces needless financial risk, and
is unsustainable.
Importantly, relatively few major
facilities have been decommissioned
(relative to the number installed)
because the vast majority of facilities are
or were recently actively producing. As
more facilities reach the end of their
useful life, however, decommissioning
will be required on a larger scale.
Accordingly, previously low losses to
the government are not a reliable
indicator for future losses. The GAO has
in fact asserted the opposite and has
notified Congress that the current
program must be revised to avoid
putting the government in an untenable
situation.
On February 20, 2024, the GAO
issued a new report titled Offshore Oil
and Gas: Interior Needs to Improve
Decommissioning Enforcement and
Mitigate Related Risks (GAO–24–
106229) that provided four
recommendations to DOI to strengthen
BSEE’s and BOEM’s decommissioning
oversight and enforcement.
Recommendation 3 specifically stated
the ‘‘Secretary of the Interior should
ensure the BOEM Director completes
planned actions to further develop,
finalize, and fully implement changes to
financial assurance regulations and
procedures that reduce financial risks,
including by (1) requiring higher levels
of supplemental bonding, and (2)
addressing other known weaknesses.’’
The measures BOEM described in the
proposed rule and finalized here will, as
a practical matter, address this GAO
recommendation.
Since 2009, more than 30 corporate
bankruptcies have occurred involving
offshore oil and gas lessees with
decommissioning liabilities that were
not covered by financial assurance. The
fact that bankruptcies have involved
decommissioning liabilities without
sufficient supplemental financial
assurance demonstrates that the waiver
criteria in NTL No. 2008–N07 were
inadequate to protect the public from
potential responsibility for OCS
decommissioning liabilities, especially
during periods of low oil and gas prices.
For example, ATP Oil & Gas was a midsized company with a supplemental
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financial assurance waiver when it filed
for bankruptcy in 2012. Similarly,
Bennu Oil & Gas LLC, had a waiver at
the time of its bankruptcy filing, and
Energy XXI, Ltd. and Stone Energy
Corporation obtained waivers less than
a year before filing for bankruptcy.
While most OCS leases affected by the
bankruptcies were ultimately sold or
retained by the companies reorganized
under chapter 11 of the U.S. Bankruptcy
Code, these bankruptcies highlighted
the weakness in BOEM’s supplemental
financial assurance program. BOEM’s
existing program has, at times, been
unable to forecast financial distress of
these lessees and grantees that have not
previously provided supplemental
financial assurance and, as a result,
BOEM has not had sufficient time to
require and receive supplemental
financial assurance prior to a
declaration of bankruptcy.
Additionally, challenges arising in
bankruptcy proceedings, including the
inability to sell less valuable assets that
fail to generate new buyers at auction,
can result in unplugged wells and
orphaned infrastructure. This could
result in the American taxpayer paying
the cost to plug those wells and
decommission that abandoned
infrastructure. The amendments
finalized in this rulemaking strengthen
BOEM’s financial assurance regulations
to better protect the taxpayer from
bearing the cost of facility
decommissioning and other financial
risks associated with OCS development.
D. Summary of the June 29, 2023,
Proposed Rulemaking
On June 29, 2023, DOI published an
NPRM in the Federal Register at 88 FR
42136, which proposed amendments to
30 CFR parts 550, 556, and 590. This
NPRM proposed to streamline the
criteria used for evaluating the financial
health of lessees, codify the use of the
BSEE probabilistic estimates of
decommissioning cost for determining
the amount of supplemental financial
assurance required, remove restrictive
provisions for third-party guarantees
and decommissioning accounts, add
criteria for which a bond or third-party
guarantee that was provided as
supplemental financial assurance may
be canceled, and clarify bonding
requirements for RUEs serving Federal
leases. Specifically, the Department
proposed to revise the criteria used to
evaluate the need for supplemental
financial assurance from lessees from
the existing five criteria—financial
capacity, projected financial strength,
business stability, reliability in meeting
obligations based on credit rating or
trade references, and record of
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compliance with laws, regulations, and
lease terms—to one of two criteria: (1)
credit rating and (2) the ratio of the
value of proved reserves to
decommissioning liability associated
with those reserves. The Department
proposed the use of an investment grade
credit rating threshold (or proxy credit
rating equivalent) and a minimum 3-to1 ratio of the value of proved reserves
to decommissioning liability associated
with those reserves to determine if a
lessee is required to provide
supplemental financial assurance.
After examining the financial
assurance costs in conjunction with risk
coverages derived from using different
P-values for decommissioning costs over
different time periods for the full
implementation of this rule, BOEM
proposed that an adequate balance
between OCS development and
financial risk level on the OCS is
achieved by the combination of a P70
value and a phase-in period of 3 years.
The proposed phased-in approach
allows the lessee, grant holder, or
operator to submit the amount due over
3 fiscal years, which is specifically
designed to mitigate the disruptive
impact of large, immediate financial
assurance demands. BOEM notes that
poorly-capitalized companies with endof-life assets may declare bankruptcy at
the P70 level, but that bankruptcy
would also be a risk under a P90 or a
P50 level threshold. It was BOEM’s
conclusion that a P70 threshold with a
3-year phase-in achieves an adequate
balance between the level of protection
against the risks that the proposed rule
intends to manage with a reasonable
period of time to fully implement the
costs derived from these policy changes.
Details regarding each of the specific
proposal provisions are discussed in
section III of this preamble.
III. Summary of the Final Rule and
Public Comments
For each topic, this section provides
a description of what the Department
proposed, what the Department is
finalizing, and a summary of key
comments and responses for each
proposal provision. BOEM’s full
response to comments on the June 29,
2023, NPRM, including any comments
not discussed in this preamble, can be
found in the memorandum titled, Risk
Management and Financial Assurance
for OCS Lease and Grant Obligations:
Response to Public Comments Received
on the June 29, 2023, Notice of Proposed
Rulemaking available in the docket
(Docket No. BOEM–2023–0027)
(hereinafter Response to Public
Comments).
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A. Revisions to BOEM Supplemental
Financial Assurance Requirements
The Department proposed and is
finalizing revisions to the supplemental
financial assurance requirements for oil,
gas, and sulfur leases, RUE grants, and
pipeline ROW grants, as discussed in
the subsections below.
1. Leases
In the June 29, 2023, NPRM, the
Department proposed changes to the
lease financial assurance requirements
to (1) modify the evaluation process for
requiring supplemental financial
assurance by clarifying and streamlining
the evaluation criteria, and (2) remove
restrictive provisions for third-party
guarantees and decommissioning
accounts. The proposed rule would
allow the Regional Director to require
supplemental financial assurance when
a lessee or grant holder poses a
substantial risk of becoming financially
unable to carry out its obligations under
its lease or grant, or when the property
may not have sufficient value to be sold
to another company that could assume
those obligations. In the former case, the
risk that the taxpayer might have to take
on the financial obligations of a lessee
or grant holder is mitigated when there
is a co-lessee or co-grant holder that has
sufficient financial capacity to carry out
the obligations. These proposed
provisions, the key public comments
received on the provisions, and the
Department’s final amendments are
discussed in the following subsections.
A summary of all comments received
regarding revisions to lease financial
assurance provisions and BOEM’s
corresponding responses can be found
in section 3 of the Response to Public
Comments.
Additionally, DOI also proposed to
use the costs of decommissioning
resulting from BSEE’s new
methodology, which provides
probabilistic costs using a database of
reported decommissioning costs on the
OCS, to determine the amount of
supplemental financial assurance
required, as discussed in section III.B of
this preamble.
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a. Evaluation of Co-Lessees
Lessees are jointly and severally liable
for the lease decommissioning
obligations that accrue during their
ownership, as well as those that accrued
prior to their ownership, which means
that each current co-lessee is liable for
the full obligation and BSEE may pursue
full performance from any individual
current lessee. See, e.g., 30 CFR
556.604(d). In addition, a lessee that
transfers its interest to another party
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continues to be liable for any
unperformed decommissioning
obligations that accrued prior to, or
during, the time that lessee owned an
interest in the lease. See, e.g., 30 CFR
556.710. This transferor liability
applies, however, only to those
obligations existing at the time of
transfer. New facilities, or additions to
existing facilities, that were not in
existence at the time of any lease
transfer are not obligations of a
predecessor company but are only
considered obligations of the party that
built such new facilities and its co- and
successor lessees.
BOEM’s existing supplemental
financial assurance evaluation process,
contained in 30 CFR 556.901(d), is not
clear to what extent co-lessee financial
capacity is to be considered. The
Department proposed to codify in 30
CFR 556.901(d)(3) that this process
includes an evaluation of the ability of
a co-lessee to carry out present and
future obligations. This proposed
amendment recognizes that all current
owners are benefiting from ongoing
operations and are jointly and severally
liable for compliance with DOI
requirements. All current co-lessees are
equally liable for present nonmonetary
obligations and such future obligations
that accrue while they are co-lessees. As
proposed, BOEM would not require
supplemental financial assurance for
properties where at least one co-lessee
meets the credit rating threshold. A
summary of the comments received is
provided here.
Comment: Several commenters
expressed support for DOI’s proposal to
not require supplemental financial
assurance on leases where at least one
co-lessee meets the credit rating
threshold.
Response: BOEM acknowledges the
commenters’ support, and the
Department is finalizing, as proposed in
30 CFR 556.901(d), that the evaluation
for determining whether supplemental
financial assurance is required includes
an evaluation of the ability of a co-lessee
to carry out present and future
obligations. This amendment recognizes
that all current owners are benefiting
from ongoing operations and are jointly
and severally liable for compliance with
DOI requirements. As proposed, the
Department is finalizing the provision
that it will not require supplemental
financial assurance from properties
where at least one co-lessee meets the
credit rating threshold.
Comment: Several commenters
expressed opposition to DOI’s proposal,
asserting that any co-lessee that does not
maintain an investment grade credit
rating (or equivalent proxy credit rating)
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should be required to provide
supplemental financial assurance.
Commenters recommended that the
Department require supplemental
financial assurance for their respective
working interest shares from all colessees that do not maintain an
investment grade credit rating for leases
that are not exempt based on the reserve
analysis. An additional commenter
recommended the financial assurance
evaluation be extended to sublessees
when a company can provide evidence
that the sublessee was one of the
original installers/owners of the lease
facilities.
Response: BOEM acknowledges the
commenters’ recommendations that the
Department should require financial
assurance from all co-lessees that do not
maintain an investment grade credit
rating for their respective working
interests but concludes that it is
impractical to evaluate co-lessees and
operating rights owners since each colessee is liable for the total obligation
and not their proportional share. DOI is
finalizing, as proposed in 30 CFR
556.901(d), to not require supplemental
financial assurance for leases where at
least one co-lessee meets the credit
rating threshold. This amendment
recognizes that all current owners are
benefiting from ongoing operations and
are jointly and severally liable for
compliance with DOI requirements. All
current co-lessees are equally liable for
present nonmonetary obligations and
such future obligations that accrue
while they are co-lessees.
b. Evaluation Criteria
The Department proposed to revise
the criteria in 30 CFR 556.901(d) used
to evaluate the need for supplemental
financial assurance from lessees from
the five criteria—financial capacity,
projected financial strength, business
stability, reliability in meeting
obligations based on credit rating or
trade references, and record of
compliance with laws, regulations, and
lease terms—to a simpler analysis of one
of two criteria: (1) credit rating or (2) the
ratio of the value of proved reserves to
decommissioning liability associated
with those reserves. As discussed in the
preamble to the proposed rule at 88 FR
42142–42144, the Department proposed
to eliminate the ‘‘business stability’’ and
the ‘‘record of compliance’’ criteria, to
replace the ‘‘financial capacity’’ and
‘‘reliability’’ criteria with issuer credit
rating or proxy credit rating, and to
replace the ‘‘projected financial
strength’’ criterion with a ratio of the
value of proved oil and gas reserves on
a lease to the decommissioning liability
associated with those reserves.
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Specifically, DOI proposed the
following in 30 CFR 556.901(d) to
determine whether supplemental
financial assurance on a lease may be
required: (1) a credit rating, either from
an Nationally Recognized Statistical
Rating Organization (NRSRO), as
identified by the United States
Securities and Exchange Commission
(SEC) pursuant to its grant of authority
under the Credit Rating Agency Reform
Act of 2006 and its implementing
regulations at 17 CFR parts 240 and 249,
or a proxy credit rating determined by
BOEM based on a company’s audited
financial statements; or (2) a minimum
ratio of the value of proved oil and gas
reserves on a lease to the
decommissioning liability associated
with those reserves. For discussion of
the justification of the credit rating
selected and the minimum reserves to
decommissioning liabilities ratio
selected, see section III.D of this
preamble.
These proposed criteria better align
BOEM’s evaluation process with
accepted financial risk evaluation
methods used by the banking and
finance industry. As discussed in the
preamble to the proposed rule (88 FR
42142), eliminating subjective or less
precise criteria—such as the length of
time in operation to determine business
stability or trade references to determine
reliability in meeting obligations—will
simplify the process and remove criteria
that often do not accurately or
consistently predict financial distress.
Additionally, the Department solicited
comments on any other appropriate
criteria for use in evaluating the need
for supplemental financial assurance
from OCS lessees.
Comment: Multiple commenters
generally supported the streamlining of
the evaluation criteria, particularly the
use of credit ratings as a more
appropriate criterion than financial
capacity, projected financial strength,
and business stability.
Response: BOEM acknowledges the
commenters’ support, and the
Department is finalizing, as proposed in
30 CFR 556.901(d), the replacement of
the prior five criteria with the two
criteria: (1) credit rating and (2) the ratio
of the value of proved reserves to
decommissioning liability associated
with those reserves. This amendment
codifies a forward-looking analysis for
determining the need for supplemental
financial assurance, which is simpler to
evaluate for both the Department and
lessees, in lieu of a backward-looking
analysis.
Comment: Several commenters
recommended that the Department
completely remove the evaluation to
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determine if supplemental financial
assurance is required. One commenter
specifically asked the Department to
eliminate this step entirely and to
simply require all OCS leaseholders,
regardless of financial strength, to
provide supplemental financial
assurance. An additional commenter
urged the Department to require every
lessee to post supplemental financial
assurance to ensure decommissioning
costs are covered and eliminate
consideration of proxy credit ratings
and the value of proved oil reserves
associated with a given lease.
Response: BOEM is the agency within
DOI responsible for managing
development of the nation’s offshore
resources in an environmentally and
economically responsible way. BOEM
must balance OCS development with
protection of both the taxpayer and the
environment and concludes that this
rule achieves an acceptable balance of
objectives. BOEM does not believe
requiring all entities to provide
supplemental financial assurance can be
justified by the potential risk to the
taxpayer, because financially strong
entities are highly unlikely to file for
bankruptcy and are highly likely to be
able to cover their decommissioning
obligations. Additionally, requiring
those entities with little likelihood of
default to provide supplemental
financial assurance would reduce funds
available for other capital expenditures.
Accordingly, the Department is
finalizing, as proposed in 30 CFR
556.901(d), the two evaluation criteria
for lessees: (1) credit rating and (2) the
ratio of the value of proved reserves to
decommissioning liability associated
with those reserves. The purpose of
financial assurance is not to prevent
problems; it is to ensure there is money
to fix them. As such, criteria that do not
relate to financial capacity do not target
the companies for which the financial
assurance is needed. Using the revised
criteria simplifies the evaluation
process, streamlining the Department’s
evaluation without compromising the
risk to taxpayers. Indeed, the two new
criteria are more protective than the
existing criteria, as evidenced by the
significant increase in the amount of
financial assurance that will be required
using the updated criteria.
Comment: Commenters who objected
to the removal of the record of
compliance criterion urged BOEM to be
more attentive to past safety
performance, deny waivers to any
company with idle iron, stipulate that
owners with decommissioning
obligations for abandoned or idle wells
would not be eligible for new leases,
and develop a scoring system to grade
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companies on various safety and
environmental metrics to incorporate
into the financial assurance analysis.
Response: While commenters offered
a conceptual argument to retain the
record of compliance criterion, they
provided no new data to suggest a
correlation between financial strength of
a company and its record of compliance.
As discussed in the preamble to the
proposed rule at 88 FR 42142, BOEM
examined the number of incidents of
non-compliance (INCs) issued by BSEE,
their severity, and the relationship
between INCs and financial health/
strength of companies and found that
the data was not a reliable indicator of
financial strength. The data show that
the number of incidents is correlated
with the number of structures a lessee
has on the OCS, and not necessarily to
the financial health of the lessee.
Additionally, BOEM’s financial
assurance program is not in and of itself
designed to promote safety or
compliance (there are other Department
regulations addressing these matters),
but to assure that a lessee can
financially bring a noncompliant lease
into compliance. The Department’s
forward-looking approach, which is
being finalized here, allows time for
BOEM to demand financial assurance,
rather than waiting for inspections and
corresponding incidents to occur and
then determining that supplemental
financial assurance is needed because of
the number of INCs.
The Department is finalizing the
replacement of the five criteria in 30
CFR 556.901(d) with two criteria for
lessees: (1) credit rating and (2) the ratio
of the value of proved reserves to
decommissioning liability associated
with those reserves. This amendment
codifies a forward-looking analysis for
determining the need for supplemental
financial assurance in lieu of the
backward-looking analysis that resulted
from the use of the five criteria or that
would result from using INCs as an
indicator. For a summary of all
comments received regarding the
streamlining of the evaluation criteria,
including the removal of the record of
compliance criterion, and BOEM’s
corresponding responses, see sections
3.1 through 3.6 of the Response to
Public Comments.
2. Right-of-Use and Easement Grants
In the June 29, 2023, NPRM, the
Department proposed changes to the
RUE financial assurance requirements to
clarify the financial assurance
requirement for RUEs serving Federal
leases, which is not explicitly addressed
in the existing regulations. These
proposed provisions, the public
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comments received on the provisions,
and DOI’s final amendments are
discussed in the following subsections.
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a. Base Financial Assurance
The Department proposed to revise 30
CFR 550.166 to provide that any RUE
grant holder must provide base financial
assurance in a specific amount,
regardless of whether the RUE serves a
State lease or a Federal OCS lease and
proposed a Federal RUE base financial
assurance requirement matching the
existing $500,000 base financial
assurance requirement for State RUEs.
For a summary of all comments received
regarding revisions to base financial
assurance provisions for RUEs and
BOEM’s corresponding responses, see
section 4 of the Response to Public
Comments.
Comment: Commenters supported the
proposal to require a RUE grant holder
to provide financial assurance in a
specific amount, regardless of whether
the RUE serves a State lease or Federal
OCS lease, but asserted that BOEM
should update the base financial
assurance value because it was
determined in 1993, was based on costs
in relatively shallow waters, and
significant inflation has occurred since
the last revision.
Response: BOEM agrees with the
commenters’ assertion that the initial
base bond amount was determined
many years ago and acknowledges that
this value should be reevaluated.
Because BOEM did not propose a new
value in the NPRM and, therefore,
cannot revise it in the final rule, BOEM
plans to evaluate the specific values of
the base supplemental financial
assurance for RUEs, ROWs, and leases
in a future rulemaking.
With this rulemaking, the Department
is finalizing 30 CFR 550.166, as
proposed, that provides that any RUE
grant holder must provide base financial
assurance of $500,000, regardless of
whether the RUE serves a State lease or
a Federal OCS lease, to match the
existing base financial assurance
requirements for State RUEs.
b. Area-Wide Financial Assurance
The Department proposed in 30 CFR
550.166(a) a $500,000 area-wide base
financial assurance for RUE grant
holders, which would satisfy the base
financial assurance requirement for any
RUE holder that owns one or more RUEs
within the same OCS area, regardless of
whether the RUE serves a State or
Federal lease. Additionally, the
Department proposed in 30 CFR
550.166(a)(1) to allow any lessee that
has previously posted area-wide lease
financial assurance (pursuant to 30 CFR
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556.900(a)(1) or 556.901(a)(2) or (b)(2)
for the areas specified in 30 CFR
556.900(a)(2)) to modify that lease
financial assurance to also cover any
RUE(s) in the area owned by that lessee.
The ability to use area-wide lease
financial assurance to cover the RUE
base financial assurance obligation
would be subject to the requirement that
the area-wide lease financial assurance
be in an amount equal to or greater than
the RUE base financial assurance
requirement (i.e., equal to or greater
than $500,000).
Comment: A commenter asserted that
there was no need for a new
requirement for area-wide financial
assurance for RUEs, as it would solely
cover RUE rentals. They suggested that
this aspect should already be
sufficiently covered under the existing
area-wide financial assurance for leases
provided by lessees. The commenter
also noted that, presently, ‘‘BSEE does
not permit transfers of RUEs.’’ To
address this, the commenter
recommended that both BOEM and
BSEE should mandate complete
ownership filings for all co-owners of
the respective ROW and RUE for the
Department’s approval. They asserted
that this approach would appropriately
distribute the risk among all co-owners.
Response: BOEM disagrees with the
commenter’s assertion that there ‘‘is no
need for’’ area-wide financial assurance
requirements for RUEs. RUE holders
have decommissioning responsibility
and not just that of paying rentals. Areawide coverage is not being required but
being offered as an alternative to
separately bonding each RUE. In
response to the suggestion that BOEM
and BSEE should mandate complete
ownership filings for ROW and RUEs,
we note that is outside the scope of this
rulemaking.
As discussed in the preamble to the
proposed rule at 88 FR 42144, the
proposed rule at 30 CFR 550.166(a)(1)
would allow any lessee that has already
posted area-wide lease financial
assurance to modify that lease surety
bond to also cover any RUE(s) in the
area owned by the same lessee. The
ability to use the area-wide lease
financial assurance to cover the RUE
base financial assurance would be
subject to the requirement that the areawide lease financial assurance would be
in an amount equal to or greater than
the RUE base financial assurance
requirement. For example, under the
proposal, a lessee with a $3 million
area-wide lease surety bond could
establish or acquire any number of
Federal or State RUEs in the area
without having to post any additional
financial assurance (other than,
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potentially, supplemental financial
assurance), provided the lessee agrees to
modify the terms of its area-wide lease
surety bond to also cover any State or
Federal RUEs that it owns or acquires.
If the existing area-wide financial
assurance is not modified, the lessee
may satisfy the requirement by
providing new financial assurance to
cover its RUE(s). In the example, BOEM
believes the $3 million area-wide lease
surety bond is sufficient to cover the
RUE $500,000 requirement. The
Department is finalizing this provision
as proposed, in addition to new
supplemental financial assurance
requirements for RUE grant-holders that
do not maintain an investment grade
credit rating. As discussed earlier in this
preamble, BOEM plans to evaluate the
specific values of the base supplemental
financial assurance for RUEs, ROWs,
and leases in a future rulemaking.
The Department is finalizing, as
proposed in 30 CFR 550.166(a), the
option to provide $500,000 area-wide
RUE financial assurance, which will
satisfy the base financial assurance
requirement for any RUE holder that
owns one or more RUEs within the same
OCS area, regardless of whether the RUE
serves a State or Federal lease. Lessees
that have previously posted area-wide
lease financial assurance will be able to
modify that lease surety bond to also
cover any RUE(s) in the area owned by
the same lessee. The ability to use areawide lease financial assurance to cover
the RUE base financial assurance
obligation will be subject to the
requirement that, in addition to
covering the lease financial assurance
requirement, the area-wide lease
financial assurance must include an
amount equal to or greater than the RUE
base financial assurance requirement
(i.e., equal to or greater than $500,000)
in order to cover the financial assurance
requirements for both the leases and
RUEs.
c. Supplemental Financial Assurance
The Department proposed to replace
the general statement in 30 CFR
550.160(c) that RUE grant holders ‘‘must
meet bonding requirements’’ with the
specific criteria governing financial
assurance requirements found in
proposed 30 CFR 556.900 through
556.902, and the applicable financial
assurance requirements in 30 CFR
550.166 and 30 CFR part 556, subpart I.
Similar to the proposed changes to the
evaluation criteria for lease holders, DOI
proposed in 30 CFR 550.166(b) to
consider the credit rating or proxy credit
rating of RUE co-grant holders to
determine if a grantee must provide
supplemental financial assurance. The
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value of proved oil and gas reserves was
not included in this evaluation because
a RUE grant does not entitle the holder
to any interest in oil and gas reserves.
For a summary of all comments received
regarding revisions to supplemental
financial assurance provisions for RUEs
and BOEM’s corresponding responses,
see section 4 of the Response to Public
Comments.
Comment: Commenters supported the
proposal to evaluate the financial health
of RUE grant holders using the same
criterion as was proposed for oil and gas
lessees (i.e., investment grade credit
rating of grant holders or co-holders).
Response: BOEM acknowledges the
commenters’ support, and the
Department is finalizing 30 CFR
550.160(c), as proposed, to replace the
general statement that RUE grant
holders ‘‘must meet bonding
requirements’’ with the evaluation of a
grant holder’s financial health using a
credit rating or a proxy credit rating to
determine supplemental financial
assurance demands.
Comment: A commenter suggested
that the Department should not require
supplemental bonding for RUEs that are
servicing and associated with high value
leases because some companies own
interest in the reserves associated with
a RUE granted to maintain a platform
operational on an expired lease for
servicing production on another lease.
Response: BOEM disagrees with the
commenter’s assertion that the
Department should not require
supplemental bonding for RUEs that are
servicing and associated with high value
leases. RUEs do not grant a holder an
interest in reserves. While the same
company may own reserves as a lessee,
DOI would not be able to compel the
grantee to sell the lease to cover the
costs of grant decommissioning.
The Department is finalizing, as
proposed, 30 CFR 550.160(c), which
provides that a RUE grant-holder may be
required to provide supplemental
financial assurance if they do not
maintain an investment grade issuer
credit rating or proxy credit rating
equivalent. This change is consistent
with the evaluation of oil and gas
lessees found in finalized 30 CFR
556.901(d). The Department is also
finalizing, as proposed, that the value of
proved oil and gas reserves will not be
considered in this evaluation because a
RUE grant does not entitle the holder to
any interest in the associated oil and gas
reserves.
3. Pipeline Right-of-Way Grants
Existing bonding requirements for
pipeline ROW grants, contained in 30
CFR 550.1011, prescribe a $300,000
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area-wide base surety bond that
guarantees compliance with all the
terms and conditions of the pipeline
ROW grants held by a company in an
OCS area. Additionally, existing 30 CFR
550.1011(a)(2) states that BOEM may
require a pipeline ROW grant holder to
provide supplemental financial
assurance if the Regional Director
determines that financial assurance in
excess of $300,000 is needed but, unlike
with leases, the regulation provides no
factors for the Regional Director’s
consideration when making this
determination. Similar to the proposed
changes to the evaluation criteria for
lease holders, DOI proposed in 30 CFR
550.1011(c) to consider the credit rating
or proxy credit rating of ROW co-grant
holders to determine if the grantee must
provide supplemental financial
assurance. The value of proved oil and
gas reserves was not included in this
evaluation because a ROW grant does
not entitle the holder to any interest in
the associated oil and gas reserves. For
a summary of all comments received
regarding revisions to ROWs and
BOEM’s corresponding responses, see
section 5 of the Response to Public
Comments.
Comment: Commenters supported the
proposal to evaluate the financial health
of pipeline ROW grant holders using the
same criterion as was proposed for oil
and gas lessees (i.e., investment grade
credit rating or proxy credit rating of
grant holders or co-holders).
Response: BOEM acknowledges the
commenters’ support, and the
Department is finalizing, as proposed in
30 CFR 550.1011(c), to evaluate pipeline
ROW grant-holders using the criterion
proposed for lessees (i.e., investment
grade credit rating or proxy credit rating
of grant holders or co-holders).
Comment: A commenter suggested
that the Department should not require
supplemental bonding for ROW
pipelines that are servicing and
associated with high value leases
because some companies own an
interest in the reserves that their ROW
pipeline services.
Response: BOEM disagrees with the
commenter’s assertion that the
Department should not require
supplemental bonding for ROW
pipelines that are servicing and
associated with high value leases. ROWs
do not grant a holder an interest in
reserves. While the same company may
own reserves as a lessee, DOI would not
be able to compel the grantee to sell the
lease to cover the costs of grant
decommissioning.
Comment: A commenter requested
that the Department rethink allowing oil
and gas operators to decommission
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pipelines in place and should ensure
that BSEE’s decommissioning costs
sufficiently meet the cost of removing
all pipeline from the seafloor.
Response: Changes to the regulations
allowing oil and gas operators to
decommission pipelines in place is
outside the scope of this rulemaking.
DOI is finalizing, as proposed, 30 CFR
550.1011, which provides for an
evaluation of pipeline ROW grantholders using the criterion proposed for
lessees (i.e., issuer credit rating or proxy
credit rating). This will ensure that
pipeline ROW grant-holders can
demonstrate that they have the financial
ability to meet their obligations of the
ROW.
The Department is finalizing the use
of an investment grade credit rating or
proxy credit rating for pipeline ROW cogrant holders to determine if a grant
holder must provide supplemental
financial assurance, consistent with the
evaluation of oil and gas lessees in 30
CFR 550.1011(a)(2). The value of proved
oil and gas reserves will not be
considered in this evaluation because a
ROW grant does not entitle the holder
to any interest in oil and gas reserves.
B. Use of BSEE’s Probabilistic Estimates
for Determining Decommissioning Costs
When determining the necessary
amount of supplemental financial
assurance, BSEE previously provided to
BOEM a single, algorithm-based
deterministic estimate for
decommissioning costs of OCS facilities.
In 30 CFR 556.901, the Department
proposed to replace BSEE’s former
single, algorithm-based deterministic
estimates for OCS facility
decommissioning costs with the new
BSEE methodology that provides
probabilistic estimates (i.e., P-values)
based on decommissioning costs
reported by industry pursuant to NTL
2016–N03—Reporting Requirements for
Decommissioning Expenditures on the
OCS, later superseded by NTL 2017–
N02. These values represent the
likelihood of covering the full cost of
decommissioning a facility as a
percentage; for example, P70 represents
a 70 percent likelihood of covering the
full cost of decommissioning a facility.
Specifically, the Department proposed
to use the P70 value to determine the
amount of any required supplemental
financial assurance and solicited
comments on the use of other values
(i.e., P50 and P90) and the associated
impacts. Additionally, if probabilistic
estimates are not available, BOEM will
use the available deterministic value.
BOEM received a wide range of
comments on the use of the P70 value
that are discussed generally below. A
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summary of all comments received
regarding the use of BSEE’s
decommissioning estimates and BOEM’s
corresponding responses can be found
in section 3.7 of the Response to Public
Comments.
Comment: Multiple commenters
supported the use of the P70 value and
recommended that BOEM adopt the P70
value in the final rule for consistency
with the stated purpose of the proposed
rule: to ensure that current lessees are
financially able to perform their
decommissioning obligations.
Response: BOEM acknowledges the
commenters’ support for the proposal of
P70. The Department is finalizing in 30
CFR 556.901, as proposed, the use of
P70 to determine the financial assurance
required for properties where the
current lessee does not have an
investment grade credit rating or the
ratio of the value of the proved reserves
to decommissioning liabilities
associated with those reserves is not
greater than or equal to 3-to-1. This
approach holds all current lessees that
do not meet the credit rating or reserve
criteria responsible for providing
supplemental financial assurance unless
there is an investment grade co-lessee
associated with the same
decommissioning obligations.
Comment: Conversely, several
commenters asserted that the P70 value
was not sufficiently conservative to
protect other parties and the public in
the event of default. They asserted that
BOEM should use the P90 value to
increase the probability of ensuring that
all decommissioning obligations are
covered by those operating on the OCS.
Response: BOEM disagrees with the
commenters’ assertion that the P70
estimate is not sufficiently conservative
to protect other parties and the public
in the event of a default. The P70 value
should not be confused with a figure
representing 70 percent of the cost of
decommissioning of a particular facility.
The statistical P-value relies on the
quality and size of the data inputs, as
well as the uncertainty existing in these
costs.
BOEM’s goal for its financial
assurance program continues to be the
protection of the American taxpayers
from exposure to financial loss
associated with OCS development,
while ensuring that the financial
assurance program does not
detrimentally affect offshore investment
or position American offshore
exploration and production at a
competitive disadvantage. A P70
financial assurance level will reduce
offshore decommissioning risk to
taxpayers relative to previous BSEE
deterministic decommissioning
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estimates, while attempting to reduce
the burden on available capital for
continued OCS investment that would
be imposed by using P90. BOEM’s use
of the P70 decommissioning value
balances the risk of being underfunded
at lower financial assurance levels
against the risk of setting a financial
assurance level at higher P-values that
would overstate the costs in a
significant number of cases.
BOEM considered bonding at P90,
which would result in the lowest risk of
the proposed options to the taxpayer
from underfunded offshore
decommissioning liabilities. However,
P90 would result in an approximately
40 percent chance of being over bonded.
In addition, BOEM considered the cost
of financing, which would generally
(particularly in high interest rate
environments) increase the risks of
burdensome over bonding. BOEM’s
analysis concluded that the increased
cost to lessees resulting from adopting
P90 rather than P70 would be too high
when compared to the additional risk
reduction. As a result, BOEM concluded
that P70 reflects a risk tolerance that is
neither too aggressive nor too
conservative, striking an appropriate
balance between the risk of default to
the taxpayer and the burden to the
regulated community.
Comment: Other commenters asserted
that the proposed rule did not include
sufficient information and transparency
about how the probabilistic estimates
are derived.
Response: In response to commenters
asserting that BOEM did not explain the
development of the P-values, BOEM
notes that the development of BSEE’s
probabilistic estimates was discussed in
the preamble to the proposed rule at 88
FR 42143. The decommissioning cost
estimates are developed as a
distribution (i.e., P50, P70, and P90)
based on actual decommissioning
expenditure data received from OCS
operators since mid-2016. The data is
available based on a lease, ROW, or RUE
basis and also contains details on a well,
platform, pipeline, and site clearance
level. It does not consider which
companies are jointly and severally
liable for meeting decommissioning
obligations. The new probabilistic
estimates were developed using
industry-reported decommissioning
costs pursuant to NTL–2016–N03,
Reporting Requirements for
Decommissioning Expenditures on the
OCS, later superseded by NTL–2017–
N02. Based on this reported data, BSEE
developed three probabilistic estimates
of decommissioning costs for each OCS
facility on a given lease. The lowest cost
estimate would have a 50 percent
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likelihood of covering the full cost of
decommissioning a facility and is thus
referred to as ‘‘P50.’’ The second lowest
cost estimate, P70, would have a 70
percent likelihood of covering the full
cost of decommissioning a facility. The
third and highest cost estimate
considered, P90, would have a 90
percent likelihood of covering the full
cost of decommissioning a facility.
These estimates are based on what the
government would expect to pay if an
operator failed to perform
decommissioning. The current estimates
can be found here: https://
www.data.bsee.gov/Leasing/
DecomCostEst/Default.aspx.
Comment: Some commenters asserted
that the P70 values, and sometimes even
the P50 values, exceed their internal
estimates for their decommissioning
costs and that BOEM should allow the
use of company-provided estimates.
These commenters noted that these
internal estimates were based on
contractor bids and experience.
Response: BOEM acknowledges the
commenters’ concerns that the P70
estimates may be higher than the actual
cost of decommissioning for specific
platforms. In general, it can be more
expensive for the government to
decommission a facility than it is for an
OCS operator to do so. Therefore, even
if the P70 value is higher than companyderived values, it may be more aligned
with the costs that the government
would incur to perform the
decommissioning, which is the relevant
consideration when determining the
cost to decommission a facility if the
company fails to do so. The final rule
establishes a procedure for submitting
these issues for the consideration of the
Regional Director for a reduction in the
supplemental financial assurance
demand.
Comment: Multiple commenters
asserted that BOEM should focus on
sole liability properties (i.e., properties
with no predecessors or co-lessees),
claiming that those properties pose the
most risk to the U.S. taxpayer.
Response: BOEM disagrees with the
commenters’ assertion that it should
focus only on sole liability properties,
an approach that would not sufficiently
protect the taxpayer. As discussed in the
RIA, there are approximately $14.6
billion in decommissioning liabilities
associated with leases without an
investment grade predecessor in the
chain of title, of which only $460
million is associated with sole liability
properties. Thus, the Department is
finalizing an approach that holds all
current lessees responsible for providing
supplemental financial assurance unless
they meet the waiver criteria or are
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associated with an investment grade colessee. The Department is finalizing, as
proposed, the use of P70 to determine
the amount of supplemental financial
assurance required for properties where
the current lessee or co-lessee does not
have an investment grade credit rating
or the ratio of the value of the proved
reserves to decommissioning liabilities
associated with those reserves is not
greater than or equal to 3-to-1.
Comment: Commenters also asserted
that the proposed rule ignored joint and
several liability, and that by creating a
system that does not account for the
financial strength of liable predecessors,
the proposed rule insulates predecessor
lessees from their liabilities and relieves
them of the need to perform due
diligence when selling their lease(s) to
a subsequent lessee.
Response: Omitting the existence of
predecessor lessees from the analysis of
whether to waive the requirement of
supplemental financial assurance for a
current lessee—the approach being
finalized here—addresses several
associated issues. It ensures that the
current lessees have the financial
capability to fulfill their
decommissioning obligations. It also
eliminates the incentive to use joint and
several liability as an excuse to delay
setting aside funds to pay for
predictable decommissioning costs.
This approach does not change or
undermine joint and several liability; it
retains BOEM’s and BSEE’s authority to
pursue predecessor lessees for the
performance of decommissioning.
Comment: Other commenters asserted
that BOEM must consider the
obligations of the predecessors in the
chain-of-title before seeking additional
financial assurance from current lessees,
otherwise the result is requiring ‘‘double
bonding.’’
Response: Commenters appear to be
claiming that private arrangements
between assignors (predecessors) and
assignees (successors) are sufficient to
protect the government without a
requirement for providing supplemental
bonds to the government. That is only
partially the case. In most cases, the
government cannot call the bonds in
question. Any duplication can be
avoided by the private parties cancelling
any private arrangements that are not
needed in light of government
requirements. It is DOI’s obligation to
set bottom line, public, and uniform
thresholds to protect the U.S. and its
taxpayers; private agreements are
unrelated to the Department’s
obligations under OCSLA.
Comment: One commenter provided
an updated analysis of burden,
including a comparison of the three
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proposed decommissioning estimate
values, which was referenced by
multiple commenters in their comment
submissions. The commenter’s analysis
asserted that the results across the
liability levels ‘‘are largely dependent
on each company’s ‘portfolio’ of
decommissioning liabilities’’ and stated
that in any portfolio of uncertain results,
some cost estimates will exceed their
expected value, while some cost
estimates will be less. Accordingly, the
commenter asserted, percentile values
are not additive, as actual variances
from estimates would offset each other
so that the P70 of the combined
outcomes of the portfolio would
approach the sum of the mean. The
commenter stated that a better approach
would be to sum the mean values or to
conduct a portfolio analysis for each
operator. According to the commenter,
P50 is more representative of a lognormal distribution’s statistical average.
Additionally, the commenter provided a
cost comparison for P70 to P90 that
included the following estimates:
decrease in capital expenditures over 10
years ($4.7 billion vs $5.565 billion),
decrease in OCS production (55 million
barrels of oil equivalents (mmboe) vs 64
mmboe), and decrease in industry jobs
across the Gulf coast region (36,200 vs
43,300).
Response: BSEE is responsible for
providing BOEM (and the public)
estimated costs to perform
decommissioning. Since BOEM
conducts the company financial risk
evaluation to determine the appropriate
financial assurance amount required,
BSEE provides BOEM a range of
estimates associated with analyses of
data collected under the authority found
at 30 CFR 250.1704 (subpart Q) and
guidance under NTL No. 2017–N02.
These costs are considered a proxy for
‘‘fair value’’, i.e., how much it would
cost BSEE to cause near immediate
decommissioning by contracting with a
third-party services provider.
Actual expenditure data has been
collected by regulation since April 2016
for wells and facilities, and since May
2017 for pipelines. To date, BSEE has
collected about 2,050 data points for
wells, 1,235 for facilities (including
removal and site clearance and
verification), and 1,020 for pipelines.
This actual expenditure data collected
shows a wide range of costs for similarly
situated infrastructure, making a
probabilistic approach preferred over a
single deterministic estimate. When
sufficient data exists for a particular
subset of the sample (e.g., dry trees on
fixed structures in 400 feet of water),
BSEE performs multivariate regression
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analyses to create distributions of cost
outcomes.
Based on these distributions, BSEE
posts P50, P70, and P90 estimates for
each well, platform, or pipeline, and
aggregated for each lease, ROW, or
RUE.1 When sufficient data does not
exist (e.g., dry trees on floating
structures) a single deterministic (or
point) estimate is provided. Note that
the point estimate contains no
information about its potential
variability. Contrast this with
probabilistic estimates where a P50
estimate implies that half of the
reported values should be less than and
half should be more than the P50
estimate. Likewise, the P70 and P90
estimates imply that that there is 30
percent and 10 percent chance,
respectively, that the decommissioning
cost will be higher than the estimate.
Said another way, P70 and P90 values
imply there is a 70 percent and a 90
percent chance, respectively, that the
estimated cost will not be exceeded. The
data does not take into consideration
which companies are jointly and
severally liable for meeting
decommissioning obligations.
It would be inappropriate for BOEM
to consider the liability distribution
across a company’s entire portfolio, as
financial assurance for one lease cannot
be used to cover an unassociated lease.
Financial assurance provided to BOEM
is generally structured to provide
coverage at the lease level; even for
companies with multiple leases, policy
coverage is typically limited to only
those associated facilities on the
specified lease. For example, financial
assurance at BSEE’s P70 level provides
risk mitigation in the event of a default
of that lessee where any excess financial
assurance resulting from facilities on the
same lease whose decommissioning
costs were below the P70-estimate
would be available to cover associated
lease facilities whose decommissioning
costs exceed the P70 value. For lessees
or grant-holders that can demonstrate
decommissioning costs below BSEE’s
estimates, the Department has included
in the final rule a provision in 30 CFR
556.901(g) allowing for the submission
of decommissioning cost data for
consideration by the Regional Director
in potentially reducing the
supplemental financial assurance
demand. Such information could
include, for example, an existing
contract for decommissioning activities.
BOEM will consult with BSEE on the
1 There is not a technical support document in
support of these calculations; the data used for
these estimates is available at https://
www.data.bsee.gov/Leasing/DecomCostEst/
Default.aspx.
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information received prior to deciding
to reduce the required amount of
supplemental financial assurance.
BOEM did not select the P90 level
because of the expected burdens it
would place on the industry, such as the
examples highlighted by the
commenter.
BOEM’s goal for its financial
assurance program continues to be the
protection of the American taxpayer
from exposure to financial loss
associated with OCS development,
while ensuring that the financial
assurance program does not
detrimentally affect offshore investment
or position American offshore
exploration and production companies
at a competitive disadvantage.
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C. Revisions to Other Types of
Supplemental Financial Assurance
The Department proposed and is
finalizing revisions to the supplemental
financial assurance requirements for
third-party guarantees and
decommissioning accounts, and
prerequisites for transfers, as discussed
in the subsections below.
1. Third-Party Guarantees
The Department proposed in 30 CFR
556.905(a) to evaluate a potential
guarantor using the same credit rating or
proxy credit rating criterion as was
proposed for lessees. The value of
proved oil and gas reserves of an
associated lease would not be
considered because that value is a
characteristic of the lease belonging to
the guaranteed lessee and not an asset
belonging to the guarantor, and because
liquid assets are needed to finance
compliance or decommissioning. As
discussed in the preamble to the
proposed rule (88 FR 42145), the criteria
to evaluate a guarantor provided in the
existing regulations have proved
difficult to apply. Using the same
financial evaluation criterion, i.e., issuer
credit rating or proxy credit rating, to
assess both guarantors and lessees as the
most relevant measure of future capacity
would provide consistency in
evaluations and avoid overreliance on
net worth. Using the same criterion also
simplifies the evaluation process,
making it more efficient without
compromising the risk to taxpayers.
Additionally, to allow more flexibility
in the use of third-party guarantees, the
final rule allows a third-party guarantee
to be used as supplemental financial
assurance for a RUE or ROW grant as
well as a lease. Most significantly, the
amendment proposed in § 556.902(a)(3)
would remove the requirement for a
third-party guarantee to ensure
compliance with the obligations of all
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lessees, operating rights owners, and
operators on the lease, and, as agreed to
by BOEM, would allow a guarantee
limited to a specific amount or limited
one or more specific lease obligations.
A summary of all comments received
regarding third-party guarantees and
BOEM’s corresponding responses
regarding the provisions to evaluate
third-party guarantors can be found in
section 6.1 of the Response to Public
Comments.
Comment: Commenters generally
supported the proposal to evaluate a
potential guarantor using the same
credit rating or proxy credit rating
criterion as proposed for lessees.
Response: BOEM acknowledges the
commenters’ support for the proposal to
evaluate a potential guarantor using the
same credit rating or proxy credit rating
criterion as proposed for lessees, and
the Department is finalizing this
provision in 30 CFR 556.905(a) as
proposed.
Comment: Multiple commenters
generally supported the proposal to
allow limiting third-party guarantees to
a specific amount.
Response: BOEM acknowledges the
commenters’ support, and the
Department is finalizing the ability to
limit third-party guarantees to a specific
amount or one or more specific lease
obligations in 30 CFR 556.902(a)(3).
Comment: One commenter suggested
that DOI modify its regulations to allow
guarantors to limit their guarantees to
specific obligations. They asserted this
modification is consistent with the
proposed rule and would ease pressure
on the security market by removing any
additional and unstated obligations
from guarantees that are not included in
a financial assurance demand order.
Response: The Department is
finalizing the proposed amendment to
§ 556.902(a)(3), which will remove the
requirement for a third-party guarantee
to ensure compliance with the
obligations of all lessees, operating
rights owners, and operators on the
lease, and will allow, as agreed to by
BOEM, a guarantee limited to a specific
amount or to one or more specific lease
obligations. This change, to replace a
requirement to cover all costs, parties,
and obligations with permission to limit
any of them, part of which BOEM is
adding in response to public comments,
allows a guarantor to limit its guarantee
to a specific amount of the total
financial assurance requirement. By
allowing a third-party guarantor to
guarantee only the obligations it wishes
to cover, BOEM provides industry with
the flexibility to use the guarantee to
satisfy supplemental financial assurance
requirements without forcing the
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guarantor to cover the risks associated
with all parties on the lease or grant or
operations in which the party they wish
to guarantee has no interest and over
which the guarantor may have limited
influence. Moreover, BOEM’s capacity
to accept a third-party guarantee that is
limited to the obligations of a specific
party does not reduce BOEM’s
protection because if a limited guarantee
is approved, the guaranteed party will
be required to provide other
supplemental financial assurance with
respect to any of its liabilities left
uncovered by the limited guarantee.
Comment: Other commenters opposed
the proposal and asserted that thirdparty guarantors should not be excused
from the requirement that guarantees
cover all obligations of lessees,
operating rights owners, and operators
on the lease, but did not provide
supporting reasoning for their
assertions.
Response: BOEM believes that
allowing third-party guarantors to limit
their guaranteed obligations will ease
the burden for entities required to
provide additional supplemental
financial assurance, while continuing to
reduce the risk to taxpayers. DOI has
added regulatory language in the final
rule in 30 CFR 556.905(b) specifically
allowing a third-party to limit its
cumulative obligations to a fixed dollar
amount or to covering the costs to
perform one or more specific lease
obligations (with no fixed dollar
amount). In both scenarios, the value or
the obligations to be covered must be
agreed to by BOEM at the time the thirdparty guarantee is provided.
Additionally, to allow more flexibility
in the use of third-party guarantees, the
final rule will allow a third-party
guarantee to be used as supplemental
financial assurance for a RUE or ROW
grant, as well as a lease.
BOEM acknowledges the commenters’
opposition to allowing third-party
guarantors to limit their guarantee and
BOEM assumes the concern flows from
a belief that the third-party guarantee
may be insufficient. Contrary to this
understanding, however, the lessee
must still provide the total amount of
the supplemental financial assurance
demand through other financial
assurance methods, even if a third-party
guarantor limits the guarantee.
The proposed rule included
amendments to allow BOEM to cancel a
third-party guarantee under the same
terms and conditions that apply to
cancellation of other types of financial
assurance, as provided in proposed
§ 556.906(d)(2). No comments were
received on this provision. Therefore,
the Department is finalizing, as
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proposed, amendments to allow BOEM
to cancel a third-party guarantee under
the same terms and conditions that
apply to cancellation of other types of
financial assurance, as provided in
proposed § 556.906(d)(2).
Finally, the existing regulation refers
to both a ‘‘guarantee’’ and an
‘‘indemnity agreement’’ (which BOEM
intended to mean the same thing), and
the proposed rule clarified that the
regulations contemplate only one
agreement: the guarantee agreement. No
comments were received on this
proposed amendment; therefore, the
Department is also finalizing the
clarification that both a ‘‘guarantee’’ and
an ‘‘indemnity agreement’’ contemplate
the same guarantee agreement by
removing all references to ‘‘indemnity
agreement’’ in the regulatory text. This
terminology is changed to clarify that
the government is not required to incur
the expenses of decommissioning before
demanding compensation from the
guarantor.
2. Decommissioning Accounts
The Department proposed to rename
the lease-specific abandonment
accounts in 30 CFR 556.904 as
‘‘Decommissioning Accounts,’’ the
terminology used by the industry. This
name change is intended to remove any
perceived limitation that this type of
account can apply to only a single lease,
and to signify that these accounts may
be used to ensure compliance with
supplemental financial assurance
requirements for a RUE and ROW grant,
as well as a lease. To make these
accounts more attractive to parties who
may desire to use this method of
providing supplemental financial
assurance, the Department also
proposed to remove the requirement in
30 CFR 556.904(d) to pledge Treasury
securities to fund the account once the
funds equal the maximum amount
insurable by the Federal Deposit
Insurance Corporation (FDIC)/Federal
Savings and Loan Insurance Corporation
(FSLIC), for which insurance is
currently capped at $250,000.
No comments were received
specifically on the proposed
amendment to rename the lease-specific
abandonment accounts in 30 CFR
556.904 as ‘‘Decommissioning
Accounts’’ or the proposed amendment
to remove the requirement to pledge
Treasury securities to fund the account
before the funds equal the maximum
amount insurable by the FDIC/FSLIC.
Therefore, the Department is finalizing
30 CFR 556.904, as proposed, to rename
the lease-specific abandonment
accounts as ‘‘Decommissioning
Accounts.’’ The Department is also
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finalizing the removal of the
requirement to pledge Treasury
securities to fund the account before the
funds equal the maximum amount
insurable by the FDIC/FSLIC.
3. Transfers of Lease Interests to Other
Lessees or Operating Rights Holders
The Department proposed
amendments to update subparts G (30
CFR 556.704) and H (30 CFR 556.802)
of the Department’s existing part 556
regulations to clarify that BOEM will
not approve the transfer of a lease
interest, whether a record title interest
or an operating rights interest, until the
transferee complies with all applicable
regulations and orders, including
financial assurance requirements. As
discussed in the preamble to the
proposed rule (88 FR 42146), many of
the facilities currently on the OCS have
decommissioning obligations where the
cost of performance greatly exceeds the
amount of financial assurance currently
available to DOI. To address this
problem, the Department proposed to
clarify that it may withhold approval of
any transfer or assignment of any lease
interest unless and until the financial
assurance requirements have been
satisfied.
A summary of all comments received
regarding transfers and BOEM’s
corresponding responses regarding
revisions to transfers can be found in
section 6.2 of the Response to Public
Comments.
Comment: Commenters generally
supported the proposal to allow BOEM
to withhold approval of any new
transfer or assignment of any lease
interest until financial assurance
obligations are satisfied.
Response: BOEM acknowledges the
commenters’ support, and the
Department is finalizing, as proposed,
amendments to update subparts G (30
CFR 556.704) and H (30 CFR 556.802)
of the Department’s existing part 556
regulations to clarify that BOEM may
withhold approval of the transfer of a
lease interest, whether a record title
interest or an operating rights interest,
until the transferee complies with all
applicable regulations and orders,
including financial assurance
requirements. As a result of these final
amendments, BOEM may withhold
approval of any new transfer or
assignment of any lease interest unless
and until financial assurance demands
have been satisfied.
D. Evaluation Methodology
The Department proposed and is
finalizing revisions to the financial
evaluation criteria that will be used for
determining supplemental financial
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assurance requirements for oil, gas, and
sulfur leases, RUE grants, and pipeline
ROW grants. The proposed evaluation
methodology for the revised criteria, the
public comments received, and DOI’s
final amendments are discussed in the
subsections below. Summaries of all
comments received regarding credit
ratings, proxy credit ratings, and valuing
proved oil and gas reserves and BOEM’s
corresponding responses can be found
in section 7 of the Response to Public
Comments.
1. Credit Ratings
a. Use of an ‘‘Issuer Credit Rating’’
The Department proposed to use an
‘‘issuer credit rating’’ to evaluate the
financial health of OCS lessees, grant
holders, and guarantors, and proposed
to include the new term and
corresponding definition in 30 CFR
550.105 and 556.105. As discussed in
the preamble to the proposed rule (88
FR 42146), an issuer credit rating
provides the rating agencies’ opinions of
the entity’s ability to honor senior
unsecured debt and debt-like
obligations. The Department proposed
to accept only issuer credit ratings from
a Nationally Recognized Statistical
Rating Organization (NRSRO), such as
Standard and Poor’s (S&P) Rating
Services and Moody’s Investors Service
Incorporated (or any of their
subsidiaries). General comments on
issuer credit ratings are as follows:
Comment: Commenters generally
supported the use of an issuer credit
rating. Several commenters
recommended that BOEM include Fitch
Ratings in the definition as it is an
NRSRO equivalent to S&P’s and
Moody’s.
Response: BOEM acknowledges the
commenters’ support and agrees with
the commenters’ assertion that the
intent of the proposed rule was to allow
credit ratings from Fitch Ratings. The
Department has included Fitch Ratings
and its subsidiaries in the final rule in
30 CFR 556.105.
Comment: An additional commenter
noted that BOEM should remove the
term and definition of issuer credit
rating from part 550 because it is not
used in the part.
Response: The commenters’ assertion
is correct, and the Department is not
finalizing the proposed addition of
‘‘Issuer credit rating’’ to 30 CFR part
550. In part 550, the existing regulatory
text references 30 CFR part 556 to
discuss the use of the issuer credit
rating.
b. Credit Rating Threshold
As discussed in the proposed RIA,
BOEM reviewed historical default rates
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across the entire credit rating spectrum,
as well as the credit profile of oil and
gas sector bankruptcies arising from the
commodity price downturn in 2014, to
determine an appropriate level of risk.
As would be expected, the average S&P
historical 1-year default rates increase
significantly with lower ratings. The
average S&P 1-year default rate for BBBrated companies from 1981 to 2020 was
0.24 percent. Comparatively, the average
1-year default rate for BB- rated
companies was 1.21 percent, for B- rated
companies, 8.73 percent, and for C rated
companies, 24.92 percent. In the
proposal, BOEM asserted that 1-year
default rates are an appropriate measure
of risk, given BOEM’s policy of
reviewing the financial status of lessees,
ROW holders, and RUE holders,
typically on an annual basis (the review
typically corresponding with the release
of audited annual financial statements).
In addition, throughout the year, BOEM
monitors company credit rating
changes, market reports, trade press,
articles in major news media, and
quarterly financial reports to review the
financial status of lessees, ROW holders,
and RUE holders. The amended
regulation, as proposed, would not
preclude a demand for supplemental
financial assurance through the
Regional Director’s regulatory authority
at any time.
The Department proposed to use an
investment grade credit rating threshold
for determining if supplemental
financial assurance may be required by
a lessee. The Department proposed the
term and associated definition of
‘‘Investment grade credit rating’’ in 30
CFR 550.105 and 556.105. BOEM
explained in the preamble to the
proposed rule (88 FR 42159) that the use
of an investment grade credit rating
standard for waiving supplemental
financial assurance was an appropriate
threshold because it minimizes credit
default risk to the taxpayer without
overburdening offshore companies with
the cost of providing financial assurance
in low credit risk scenarios. BOEM
received a wide range of comments on
the proposal to use an investment grade
credit rating threshold for determining
supplemental financial assurance
requirements, as summarized below.
Comment: Multiple commenters
asserted that the proposal would result
in significant hardship to small
businesses that did not meet this
criterion and hence would have to
provide supplemental financial
assurance. Commenters argued that a
requirement to provide supplemental
financial assurance would increase the
risks of defaulting, not investing in
maintenance of existing operations,
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laying off employees, delaying
performance of current
decommissioning obligations, and
diverting capital funds needed for future
OCS energy development.
Response: BOEM acknowledges the
commenters’ concern and considered
the effects on small entities; however,
BOEM is not targeting the size of
companies. BOEM is evaluating the
financial strength of all companies in
order to ensure that the development of
energy in the OCS is safe and protects
both the taxpayer and the environment.
The Department has included numerous
provisions in this rulemaking to reduce
the burden on small entities. BOEM
acknowledged in the proposed rule (88
FR 42146) that small businesses may not
have issuer credit ratings and, to
address this issue, proposed to allow
entities without a rating to request that
the BOEM Regional Director assess a
proxy credit rating. Additionally, these
small businesses can be evaluated on
the proved reserves of their lease to
determine whether they may be waived
from the requirement to provide
additional supplemental financial
assurance, also potentially reducing
their financial burden. Furthermore, on
a lease where the lessee has an
investment grade credit rating, BOEM
will waive co-lessees from having to
provide supplemental financial
assurance. The Department also
included phased-in implementation,
and increased the flexibility of
decommissioning accounts and third
party guarantees to reduce the financial
burden on all lessees, including small
businesses.
Comment: Multiple commenters
supported the use of an investment
grade threshold.
Response: BOEM acknowledges the
commenters’ support and agrees that
using a credit rating threshold of
investment grade strikes the appropriate
balance between both DOI’s and the
conventional energy sector’s goal to
protect the American taxpayers from
exposure to financial loss associated
with OCS development and the burden
of providing financial assurance because
of the low default risk associated with
companies that maintain an investment
grade credit rating. The Department is
finalizing, as proposed in 30 CFR
556.105, the use of an investment grade
credit rating threshold.
Comment: Other commenters
supported an even higher credit rating
threshold.
Response: BOEM acknowledges the
commenters’ support for the change in
the proposed rule that changed the
credit rating threshold for waiver of
supplemental financial assurance from
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BB- to BBB- but disagrees with the
commenters’ assertion that BOEM
should further raise the threshold to a
higher rating. As discussed in the
preamble to the proposed rule, BOEM
believes that 1-year default rates are an
appropriate measure of risk, given
BOEM’s policy of reviewing the
financial status of lessees, ROW holders,
and RUE holders at least on an annual
basis (the review typically corresponds
with the release of audited annual
financial statements). As would be
expected, the average S&P historical 1year default rates increase significantly
with lower ratings. The average S&P 1year default rate for BBB- rated
companies from 1981 to 2020 was 0.24
percent. Comparatively, the average 1year default rate for BB- rated
companies was 1.21 percent, for B- rated
companies, 8.73 percent, and for C rated
companies, 24.92 percent. Raising the
threshold criteria would only reduce the
rate to 0.12 percent for a credit rating of
BBB+ or to 0.07 percent for a credit
rating of A-. BOEM believes that the 1year default rate for BBB- rated
companies of 0.24 percent balances the
need for ensuring lessee obligations in
the OCS are met while ensuring that the
development of the nation’s offshore
resources is not unreasonably hindered.
Raising the threshold to a higher value
would reduce capital available to
companies for investment, with little
additional protection from the effects of
bankruptcy. Additionally, financial
assurance can only be used for the
obligations of the specific lease for
which it is provided. Having more
financial assurance from low-risk
companies will not provide meaningful
protection against the default of highrisk companies and thus would have an
insignificant effect on aggregate risk.
Comment: One commenter asserted
that the proposal is a ‘‘form of adverse
selection against financial assurance
providers because only entities with an
elevated risk of default will remain in
the market for financial assurance
instruments such as surety bonds.’’
Response: BOEM disagrees with the
commenter’s assertion that the proposal
is a ‘‘form of adverse selection.’’
‘‘Adverse selection’’ describes the
phenomenon whereby one party to a
transaction has better information than
the other and therefore prices are
adjusted to accommodate this
discrepancy in information. The
commenters do not explain how that
concept applies to the rulemaking. They
assert that it amounts to ‘‘adverse
selection’’ against financial assurance
providers because ‘‘only entities with an
elevated risk of default will remain in
the market for financial assurance
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instruments such as surety bonds.’’
There is no assertion of any discrepancy
in the information available to lessees
vs. assurance providers or any effect on
the price of that transaction and BOEM
does not see any. To the extent the
commenters are asserting that the risk
pool is too small to make underwriting
feasible, their comment conflicts with
other comments received claiming that
the rule requires supplemental
assurance from relatively low risk
lessees. The Department continues, as
proposed, to allow other types of
financial assurance instruments in
addition to bonds in the final rule.
Under BOEM’s past practice, many
companies were waived from providing
supplemental financial assurance, and it
is likely that only companies with an
elevated risk of default sought to obtain
bonds to comply with the existing
regulations. Additionally, the number of
companies requesting bonds for use as
supplemental financial assurance and
their corresponding risk profile does not
preclude a viable bond market as the
market can set the fees and collateral
required to obtain the bonds.
Comment: Several commenters
expressed concerns that the preamble to
the proposed rule alluded to monitoring
of credit ratings, but the regulatory text
did not mention the monitoring. They
asserted that, to ensure these
commitments are kept, the Department
must include specific requirements for
reviewing credit ratings regularly, with
a requirement for BOEM to reassess
credit ratings at least once per year.
Response: With respect to monitoring
credit ratings, BOEM stated in the
preamble to the proposed rule at 88 FR
42147 (and has repeated in this final
rulemaking) that BOEM’s general
practice is to review ‘‘the financial
status of lessees, ROW holders, and RUE
holders at least on an annual basis (the
review typically corresponding with the
release of audited financial
statements).’’ BOEM’s financial
assurance program is intended to ensure
that private companies have the
capacity to meet their financial and nonfinancial obligations. BOEM seeks to
balance the financial risk to the
government and the taxpayer with the
regulatory burden on lessees and
grantees. BOEM did not add additional
regulatory text in this final rule to
address this comment because it is
unnecessary; BOEM maintains the
general practice of evaluating lessees,
RUE grant-holders, and pipeline ROW
grant-holders for financial risk on at
least an annual basis. The amended
regulation would not preclude a
demand for supplemental financial
assurance through the Regional
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Director’s regulatory authority at any
time.
As discussed in the proposed RIA, of
the 276 companies analyzed, none were
rated at or above BBB- at the time of
bankruptcy or within 10 years prior to
bankruptcy. As such, BOEM has
selected BBB- as the credit rating
threshold for providing additional
financial assurance. The Department is
finalizing, as proposed in 30 CFR
556.901(d), an issuer credit rating
threshold of BBB- (S&P and Fitch) or
Baa3 (Moody’s), an equivalent credit
rating provided by another SECrecognized NRSRO, or an equivalent
proxy credit rating, to ensure that
lessees and grant holders have the
capacity to meet their financial and nonfinancial obligations. In order to both
ensure that companies do not ‘‘cause
[unmitigated] damage to the
environment or to property, or endanger
life or health,’’ 43 U.S.C. 1332(6), and to
promote ‘‘expeditious and orderly
development,’’ 43 U.S.C. 1332(3), BOEM
seeks to balance the financial risk to the
government and the taxpayer while
minimizing unreasonable regulatory
burdens. If different NRSROs provide
different ratings for the same lessee,
BOEM will use the higher of the lessee’s
ratings. Additionally, as BOEM
monitors company rating changes
throughout the year, use of this
threshold will ensure that BOEM has
adequate time to demand needed
financial assurance before a company
drops further below the investment
grade rating.
2. Proxy Credit Ratings
The Department proposed in 30 CFR
556.901(d) to allow entities that do not
have a NRSRO-issued credit rating to
request that the Regional Director
determine a proxy credit rating based on
audited financial information for the
most recent fiscal year, including an
income statement, a balance sheet, a
statement of cash flows, and the
auditor’s certificate. As proposed, DOI
intended the ‘‘most recent fiscal year’’ to
mean a continuous 12-month period
within the 24-months prior to the
Regional Director’s determination that
supplemental financial assurance is
required. General comments on proxy
credit ratings are as follows:
Comment: Commenters expressed
concerns regarding BOEM’s proposal to
use a proxy credit rating for entities
without an issuer credit rating.
Commenters asserted that BOEM is not
a financial rating agency and does not
have the capacity or expertise to
institute a program to develop proxy
credit ratings.
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Response: BOEM is not developing
the credit rating; it is using S&P Global
Inc.’s Credit Analytics credit model, in
conjunction with company-provided
financial information for the most recent
fiscal year to obtain a proxy rating. As
discussed in the preamble to the
proposed rule at 88 FR 42146, the
Regional Director would use the model
and company-provided audited
financial information for the most recent
fiscal year, including an income
statement, a balance sheet, a statement
of cash flows, and the auditor’s
certificate. The use of S&P Global Inc.’s
Credit Analytics credit model provides
an accurate and objective method to
assess any given company’s probability
of default on its financial obligations
based on its audited financial
statements. The vast majority of
companies operating on the OCS are
private companies that do not have an
issuer credit rating; therefore, without
an option for a proxy credit rating, these
companies would be required to provide
supplemental financial assurance unless
they met the reserves criterion. The
Department proposed, and is finalizing
in 30 CFR 556.901(d), the use of a proxy
credit rating to benefit those companies
without an issuer credit rating,
particularly small businesses, and to
therefore reduce their burden by
allowing them the opportunity to
demonstrate that they should not be
required to provide supplemental
financial assurance.
Comment: Commenters asserted that
companies would need to establish a
proxy credit rating using the ‘‘intricate
financial models of S&P and Moody’s’’,
which would be time consuming, and
that providing the information that
BOEM proposed to require in order to
perform a proxy rating would represent
a burden for small companies.
Response: BOEM disagrees with the
commenter’s assertion that the
companies would need to establish a
proxy credit rating using the ‘‘intricate
financial models of S&P and Moody’s’’
and that the development would be
time-consuming. Companies without a
credit rating can provide BOEM with
audited financials and BOEM will
perform the modeling to determine the
proxy credit rating. BOEM does not
believe this option creates an undue
burden on small businesses, as those
small businesses would be required to
provide supplemental financial
assurance if they could not obtain an
issuer credit rating; the proxy credit
rating provides an alternative for these
businesses to qualify for the financial
waiver. Additionally, if a company finds
this alternative more burdensome than
the benefit of avoiding posting
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supplemental financial assurance,
nothing in the regulations requires them
to select this alternative. Providing
audited financials in exchange for
possible supplemental financial
assurance avoidance is consistent with
practice under the current regulations
and thus not an additional burden.
The Department proposed to use S&P
Global Inc.’s Credit Analytics credit
model to calculate proxy credit ratings,
but retained the right to use a different
model if it determines that a different
model more accurately reflects those
factors relevant to the financial
evaluation of companies operating on
the OCS. BOEM specifically solicited
comment on the use of S&P Global Inc.’s
Credit Analytics credit model for
developing proxy credit ratings. General
comments on the use of the S&P model
are as follows:
Comment: Commenters were
generally supportive of the use of S&P
Global Inc.’s Credit Analytics credit
model.
Response: BOEM acknowledges the
commenters’ support, and the
Department is finalizing, as proposed in
30 CFR 556.901(d), the option for
companies without issuer credit ratings
to request the Regional Director to
determine a proxy credit rating based on
audited financial information for the
most recent fiscal year and the S&P
credit model.
3. Valuing Proved Oil and Gas Reserves
The Department proposed in 30 CFR
556.901(d) to consider the proved
reserves on a particular lease when
determining whether supplemental
financial assurance is required. As
discussed in the preamble to the
proposed rule (88 FR 42147), BOEM
would require the lessee to submit a
reserve report for the proved oil and gas
reserves (as defined by the SEC
regulations at 17 CFR 210.4–10(a)(22))
located on a given lease. DOI proposed
that companies should report the value
of their reserves using the methodology
pursuant to the SEC’s regulations on
reserve reporting, and the presentation
should be by the lease, or leases, for
which the exemption is being requested.
These regulations are commonly used
and understood by offshore oil and gas
companies and such reserve reports are
already produced by publicly traded
companies. This also allows BOEM to
rely on the established SEC regulations
on the definitions, qualifications, and
requirements for proved reserves, rather
than attempting to recreate these
regulations. BOEM would use the value
of proved oil and gas reserves per-lease
when determining whether the
discounted value of the reserves on any
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given lease exceeds three times the cost
of the proposed P70 decommissioning
estimate associated with the production
of those reserves.
Additionally, the Department
proposed the use of a ratio of the value
of proved reserves to decommissioning
liability associated with those reserves
that meets or exceeds a value of 3-to-1.
As discussed in the preamble to the
proposed rule (88 FR 42148), BOEM
believes that a property with a sufficient
‘‘reserves-to-decommissioning cost’’
ratio would likely be purchased by
another company if a current lessee
defaults on its obligations, thereby
reducing the risk that decommissioning
costs for that property would be borne
by the government, and consequently
reducing the need for supplemental
financial assurance. In BOEM’s
judgment, a ratio of 3-to-1 provides
sufficient risk reduction to justify a
Regional Director determination that the
lessee is not required to provide
supplemental financial assurance for
that lease. Bankruptcy data show that
the most valuable properties of the
bankrupt company (with at least a 3-to1 ratio of the value of reserves to
decommissioning costs) are acquired by
another entity. That result accords with
BOEM’s experience and with common
sense because the value of these
properties is economically viable even
after including the decommissioning
cost. Additionally, no commenters
provided a different value than 3-to-1 in
response to BOEM’s solicitation for
comment on other appropriate values.
Comment: Multiple commenters
generally supported the use of a
minimum 3-to-1 ratio of the value of
proved reserves to decommissioning
liability associated with those reserves.
Response: BOEM acknowledges the
commenters’ support, and the
Department is finalizing, as proposed in
30 CFR 556.901(d), the use of a
minimum 3-to-1 ratio.
Comment: Several commenters
opposed the use of the ratio, asserting
that normal fluctuations in the demand
and price of oil and gas, coupled with
the imminent global shift away from
fossil fuels to renewable energy, make it
likely that the value of proved oil
reserves in all leases will decline over
time. As a result, lessees may earn less
over the life of the lease and in turn,
have less capital to cover
decommissioning costs.
Response: There are many external
factors that can impact the value of
reserves. BOEM’s use of this metric is
only to determine the likelihood that a
lease would be acquired, due to the
value of the reserves left on the lease, by
a financially healthy company that
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would then be liable for lease
obligations.
Comment: Several commenters
asserted that the value of
decommissioning liability should be
added back to the reserve value to avoid
double counting. Additional
commenters asserted that comparing
undiscounted decommissioning liability
to the present value of underlying
reserves was an incorrect analysis.
Response: BOEM agrees with the
commenters that the decommissioning
liability should not be double counted;
it is not the Bureau’s intent to double
count the decommissioning liability.
The regulations are clear that BOEM is
asking for the discounted value of the
reserves (e.g., realized sale price minus
uplift costs) without factoring in
decommissioning. BOEM requires
lessees to provide supplemental
financial assurance against
undiscounted BSEE decommissioning
estimates to protect from financial
default events that may occur before
scheduled end of life and the full
accounting recognition of the asset
retirement obligation, therefore BOEM
concludes that using a discounted asset
retirement obligation insufficiently
protects the taxpayer. BOEM believes
the regulations are sufficiently defined
to ensure the reserve analysis is based
on the ratio on the discounted value of
proved reserves (excluding
decommissioning costs) to the
undiscounted BSEE decommissioning
estimate. The Department is finalizing,
as proposed in 30 CFR 556.901(d)(4),
the use of a ratio of the value of proved
reserves to decommissioning liability
associated with those reserves that
meets or exceeds 3-to-1.
E. Phased Compliance With
Supplemental Financial Assurance
Orders
In the preamble to the proposed rule,
BOEM acknowledged that the proposed
regulations could have a significant
financial impact on affected companies
(88 FR 42148). For that reason, BOEM
proposed to phase in the new
supplemental financial assurance
requirements over a 3-year period for
existing leaseholders in 30 CFR
556.901(h). As proposed, BOEM would
require that any company receiving a
supplemental financial assurance
demand (within 3 years of the rule
becoming effective) post one-third of the
total amount by the deadline listed on
the demand letter. A second one-third
would be required within 24 months of
the receipt of the demand letter. The
final one-third payment would be due
within 36 months of the receipt of the
demand letter. BOEM specifically
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solicited comments regarding this
approach from potentially affected
parties, and requested comment on how
the new supplemental financial
assurance demands could be most
effectively implemented to minimize
any unnecessarily adverse effects.
A summary of all comments received
regarding the phased compliance
approach and BOEM’s corresponding
responses can be found in section 8 of
the Response to Public Comments.
Comment: In general, industry
commenters supported the phased
approach and several commenters
recommended that it be extended to 5
years to ‘‘mitigate potential significant
risk to companies and to provide
adequate time for the bonding market to
adjust.’’
Response: BOEM disagrees with the
commenters’ recommendation that the
phased approach should be extended to
5 years. BOEM has concluded that the
period of 3 years reduces exposure to
risk of non-performance and hence
addresses the need at issue in this
rulemaking, requiring supplemental
financial assurance where appropriate
to protect the taxpayer while
simultaneously providing adequate time
for the bonding market to adjust to the
new requirements. The bond market
adjustment is basically a price
adjustment and not so much a volume
adjustment, and hence a 3-year period is
sufficient to make these adjustments. On
the other hand, lessees have a sufficient
period of time to finance the cost of the
required financial assurance. If the bond
market does not provide bonding to a
lessee, it is not due to market
conditions, but rather to the high levels
of risk, and hence the implication in
this case is that the lessee is such a high
risk that no bonding company wants to
add this risk to its portfolio. The
Department is finalizing in 30 CFR
556.901(h) a 3-year phased compliance
period.
Comment: Additional commenters
requested that BOEM include a phased
provision for parties that were exempt
but then later could not meet the
exemption criteria because of changed
circumstances and that BOEM include
such provisions for parties that obtain
OCS lease or grant interests in the first
3 years after implementation of the final
rule.
Response: In response to commenters’
suggestions that BOEM add clarification
that this option is available for changed
circumstances or for obtaining new
lease interests, BOEM believes that the
proposed text in 30 CFR 556.901(h) was
broad enough to encompass these
circumstances. If a party is exempt but
then later cannot meet the exemption
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criteria because of changed
circumstances (e.g., change in credit
rating), or if a party obtains an OCS
lease or grant interest within the phased
compliance time frame after
implementation of the final rule, they
would be allowed to use the phased
compliance approach. BOEM has
retained the language to establish a 3year compliance window broad enough
to encompass these circumstances.
BOEM intends for any party who,
within the 3-year compliance window,
incurs new decommissioning liability or
experiences changed circumstances
resulting in a financial assurance
demand from BOEM, to be allowed, at
the Regional Director’s discretion, to use
the 3-year phased in approach to
providing supplemental financial
assurance. This compliance window
will end on the date 3 years after the
effective date of this final rule and any
party receiving a supplemental financial
assurance demand after that date will be
required to provide the supplemental
financial assurance in full as required
by the demand, with no phase-in.
F. Appeal Bonds
As discussed in the preamble to the
proposed rule (88 FR 42148), the
Department proposed a new
requirement in 30 CFR 556.902(h)
whereby any company seeking to stay a
supplemental financial assurance
demand pending appeal must, as a
condition of obtaining a stay of the
order, post an appeal bond in the
amount of supplemental financial
assurance required. If the appeal is
successful, the amount of the appeal
bond in excess of the amount of any
supplemental financial assurance
determined to be required would be
returned to the appropriate party. If the
appeal is unsuccessful, the appeal bond
could be replaced with, or converted
into, bonds or other forms of financial
assurance to cover the supplemental
financial assurance demand.
Comments received regarding appeals
and BOEM’s corresponding responses
can be found in section 9 of the
Response to Public Comments.
Comment: Multiple commenters
expressed opposition to BOEM’s
proposal, asserting that it raises due
process concerns, specifically because
the proposal inhibits the recipient’s first
opportunity to have an adjudication of
BOEM’s determination. They noted that
the current process provides an
opportunity for each party to express
concerns at an early stage, while, under
the proposal, a lessee could be forced
into posting a bond that could be held
for years, which is disproportionate to
the perceived risk to the U.S. taxpayer.
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An additional commenter equated the
appeal bond requirement to ‘‘an
automatic denial of stays,’’ which, they
claimed, could render most
supplemental financial assurance
demands subject to immediate judicial
review, citing 5 U.S.C. 704 and 43 CFR
4.21(c). The same commenter also
suggested that the appeal bond
provision would contradict existing
§ 590.107 (sic) (should be ‘‘§ 590.7’’).
Response: BOEM disagrees that the
appeal bond provision raises due
process concerns. It does not prevent
the recipient of a BOEM order from
appealing, or from requesting a stay of
that order. An appeal bond no more
deprives an appellant of due process
here than it does in the case of a judicial
appeal. No court has held that due
process requires that agencies assure the
availability of stays without appeal
bond requirements, nor is it the case
that the Interior Board of Land Appeals’
(IBLA’s) decision on a stay request
constitutes an adjudication of the
decision appealed. Further, the appeal
bond provision does not prevent the
parties from being able to express
concerns at an early stage. The recipient
of a financial assurance demand has 60
days within which to file a notice of
appeal with the IBLA, during which
time it is free to meet with BOEM and
attempt to resolve any issues with
respect to the demand. See 30 CFR
590.3. In fact, the regulations
specifically provide for early, informal
resolution of issues. See 30 CFR 590.6.
Moreover, whether an appeal bond is
required has no effect on the IBLA’s
adjudication of the merits of an appeal.
The requirement to post an appeal bond
would, however, add a procedural step
before a stay of a BOEM demand could
be put in place. This step is necessary
to ensure that financial assurance is
available to cover an appellant’s
obligations if, during the pendency of
the appeal, the appellant undergoes
financial distress.
As noted above, if an appellant wins
its appeal, and no financial assurance is
required, the appeal bond will be
cancelled, or the amount of the appeal
bond in excess of the amount of
financial security determined to be
required will be returned to the
appropriate party. Thus, an appellant is
not ‘‘forced’’ to post an appeal bond that
may be held for years, as claimed by the
commenter. This is different from not
appealing and posting a bond for lease
compliance that will be held until
decommissioning is performed. Nor did
the proposed rule prescribe that an
appeal bond must ‘‘convert’’ to a
different type of bond to cover a
required financial assurance obligation.
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BOEM also disagrees that the appeal
bond provision will result in ‘‘automatic
denials of stays,’’ leading to more
judicial litigation. The statutory and
regulatory provisions cited by the
commenter stand for the proposition
that the unavailability of a stay excuses
parties from the requirement to exhaust
administrative remedies before seeking
judicial review. But this outcome will
occur only if the IBLA denies a stay
request, and such a denial would be
made independent of the appeal bond
requirement. The IBLA must grant or
deny a stay based on the factors set forth
at 43 CFR 4.21(b)(1), and not on whether
an appeal bond has been, or must be,
posted. See 43 CFR 4.21(b)(4).
Therefore, the requirement that an
appeal bond be posted should not result
in the IBLA granting fewer stay requests.
Nor does the appeal bond provision
contradict § 590.7. The latter provision,
at paragraph (c), states that the IBLA
may grant a stay of a BOEM decision,
but that the decision remains in effect
until the stay is granted. That is true
regardless of the new appeal bond
provision. Under the new provision, the
IBLA may still grant a stay of a decision,
and until a stay is granted, the decision
remains in effect, but in order for the
stay to take effect, the appellant must
post the required appeal bond.
Comment: One commenter expressed
concern that the proposed rule specifies
that an appeal bond will
‘‘automatically’’ convert to a financial
assurance obligation should the lease
operator lose its appeal and noted that
bonds do not operate in this manner. If
finalized, the commenter asserted that
the appeal bond should provide a
certain number of days for the lease
operator to post its financial assurance
obligation to allow the surety to
underwrite the operator at the time the
bond is determined to be justified.
Additionally, the commenter stated that
BOEM did not offer support for this
proposed requirement and requested
data on the number of financial
assurance appeals, the number of stays
granted in those appeals, and the total
historical decommissioning liability that
has gone uncovered due to appellate
stays.
Response: The proposed rule did not
require that an appeal bond ‘‘convert’’ to
a financial assurance obligation and
BOEM is not finalizing the rule to
require conversion. If an appellant lost
its appeal, the appeal bond could be
‘‘converted’’ to financial assurance if
that is a viable approach, or the lessee
who lost the appeal would have to
provide some other acceptable form of
financial assurance. Neither the
proposed nor final rule specify a
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timeline for this provision of financial
assurance.
In response to the request for data, of
the 1,449 appeals the IBLA received
during the last 5 fiscal years, only 5
were from BOEM decisions concerning
financial assurance. The appellant(s)
filed a petition for a stay in 4 of those
5 appeals, and the IBLA granted one of
them. Additional data regarding the
current number of appeals is available at
the following website: https://
www.doi.gov/oha/organization/ibla/
IBLA-Pending-Appeals.
Comment: A commenter also
highlighted that BSEE, in its recent final
rule arising from the Department’s 2020
proposed rule, declined to retain an
appeal bond provision that would have
required the posting of an appeal bond
to obtain a stay of a BSEE
decommissioning order. This
commenter suggested that it would be
unreasonable for BOEM and BSEE to
take two different approaches.
Response: There is no inconsistency
with BSEE deciding not to require
appeal bonds at the stage of an order to
decommission and BOEM deciding to
require them at the stage of financial
assurance demands. The BSEE decision
is based in large part on the assumption
that financial assurance is already in
place by the time it issues
decommissioning orders and thus it
does not face the risks that BOEM does
at the time of demanding financial
assurance. See 88 FR 23569, 23579
(April 18, 2023) (noting BSEE’s reliance
on the financial assurance regulations
for determining an appeal bond is not
necessary for the BSEE program).
BOEM’s retention of the appeal bond
provision means that, in the event of a
stay of a financial assurance order, there
will be an appeal bond, ensuring that,
even if the appellant becomes insolvent
during the appeal, there will be
sufficient funds to perform
decommissioning when it is ordered by
BSEE. This fact supports, rather than
contradicts, BSEE’s decision not to
retain its own appeal bond provision in
the BSEE rule, as duplicative and
unnecessary.
Additionally, after the publication of
the NPRM, which included BOEM’s
proposed provision to require the
appeal bond, on December 13, 2023,
BSEE published a proposed rule titled
Bonding Requirements When Filing an
Appeal of a Bureau of Safety and
Environmental Enforcement Civil
Penalty (88 FR 86285), which would
amend the bonding requirements when
filing an appeal of a BSEE civil penalty.
The proposed regulations would require
that entities appealing a BSEE civil
penalty decision to the IBLA must have
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a bond covering the civil penalty
assessment amount for the IBLA to have
jurisdiction over the appeal.
Further, an appeal bond requirement
already applies to appeals of civil
penalties assessed by BOEM and orders
of the Office of Natural Resources
Revenue (ONRR). Such a requirement is
equally appropriate when the effect of a
change in circumstances of the
appellant, such as bankruptcy or
insolvency, could leave DOI without the
means of performing decommissioning.
Companies can, and have, filed for
bankruptcy while waiting for a decision
from the IBLA on an appeal, leaving the
government with no financial assurance
to address decommissioning obligations.
As such, the Department is finalizing, as
proposed, the inclusion of the
requirement whereby any company
seeking to stay a supplemental financial
assurance demand pending appeal
must, as a condition of obtaining a stay
of the order, post an appeal bond in the
amount of supplemental financial
assurance required.
G. Other Amendments
1. Revisions to Definitions
The Department proposed to revise
definitions, remove terms and
associated definitions, and add new
definitions in 30 CFR 550.105
(Definitions) and 30 CFR 556.105
(Acronyms and definitions) as discussed
in the following subsections. A
summary of all comments received
regarding revisions to definitions and
BOEM’s corresponding responses can be
found in section 10 of the Response to
Public Comments.
a. New Terms: ‘‘Assign’’ and ‘‘Transfer’’
The Department proposed to add new
definitions for the terms ‘‘Assign’’ and
‘‘Transfer’’ to clarify that these terms are
used interchangeably throughout 30
CFR parts 550 and 556. This change
would also serve to clarify that the
related terms ‘‘transferee’’ and
‘‘transferor’’ are interchangeable with
‘‘assignee’’ and ‘‘assignor’’ respectively.
The definition of the new term ‘‘Assign’’
was proposed to mean conveying an
ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant.
For purposes of this part, ‘‘assign’’ is
synonymous with ‘‘transfer’’ and the
two terms are used interchangeably. The
definition of the new term ‘‘Transfer’’
was proposed to mean ‘‘conveying an
ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant.
For the purposes of this part, ‘‘transfer’’
is synonymous with ‘‘assign’’ and the
two terms are used interchangeably.
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General comments received are as
follows:
Comment: Commenters suggested that
BOEM clarify for the purposes of part
550 that ‘‘transfer’’ in both the new term
and in the definition of ‘‘Assign’’ should
be defined to exclude informal transfers.
Examples of informal transfers were
corporate name changes that are not
technically a conveyance of an interest
to a new entity. They provided
suggested regulatory text edits as
follows: ‘‘Transfer means to convey an
ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant.
For the purposes of this part, ‘‘transfer’’
is synonymous with ‘‘assign’’ and the
two terms are used interchangeably,
[Underline: except that a transfer
excludes transactions subject to 30 CFR
556.715 or changes only in the corporate
name of an interest owner that do not
require BOEM approval]’’ where the
underline represents the commenter’s
proposed additional language.
Response: BOEM disagrees with the
commenters’ assertion that BOEM
should clarify that ‘‘Transfer’’ excludes
transactions subject to 30 CFR 556.715
or changes only in the corporate name
of an interest owner that do not require
BOEM approval. The referenced section,
30 CFR 556.715, addresses transactions
of economic interests that should and
will be included in the definition of
transfer, although that section makes
clear such transfers do not require
BOEM approval. Additionally, BOEM
does not consider a corporate name
change to be an ‘‘assignment’’ and
therefore, the suggested edit is
unnecessary.
The Department is finalizing, as
proposed, the new terms ‘‘Assign’’ and
‘‘Transfer’’ and their corresponding
definitions.
b. Replacement: ‘‘Right-of-Use’’ and
‘‘Easement’’ With ‘‘Right-of-Use and
Easement’’
The Department proposed to remove
the terms ‘‘Easement’’ and ‘‘Right-ofuse’’ from 30 CFR part 550 because
neither are used separately in the
regulations. In lieu of these two terms,
and to define the term used in part 550,
DOI proposed the addition of the new
term ‘‘Right-of-Use and Easement’’ and
its associated definition as ‘‘a right to
use a portion of the seabed, at an OCS
site other than on a lease you own, to
construct, secure to the seafloor, use,
modify, or maintain platforms, seafloor
production equipment, artificial islands,
facilities, installations, or other devices
to support the exploration,
development, or production of oil, gas,
or sulfur resources from an OCS lease or
a lease on State submerged lands.’’
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Additionally, the Department proposed
to amend the definition of ‘‘Right-of-Use
and Easement’’ in 30 CFR 556.105 to
match the proposed definition in 30
CFR 550.105.
No public comments were received on
the proposal to delete ‘‘Easement’’ and
‘‘Right-of-use’’ and replace with the new
term ‘‘Right-of-use and Easement’’ in 30
CFR 550.105 or on the amendments to
the existing definition in 30 CFR
556.105. As such, the Department is
finalizing, as proposed, BOEM’s
amendments to remove the terms
‘‘Easement’’ and ‘‘Right-of-use’’ from 30
CFR part 550 because neither are used
separately in the regulations. In lieu of
these two terms, and to define the term
used in part 550, the Department is
finalizing the addition of the new term
‘‘Right-of-Use and Easement’’ and its
associated definition. In the final rule,
BOEM has removed ‘‘adjacent to or
accessible from the OCS’’ from the
proposed RUE definition, as it is not
helpful. This is a technical correction
and does not change any meaning or
intent of the definition. Additionally,
the Department is finalizing the edits to
the same definition, in 30 CFR 556.105.
the process of furnishing security rather
than the security itself.
Response: BOEM does not believe the
term ‘‘financial assurance’’ is ever used
as a ‘‘process for furnishing security’’ in
this rulemaking and, instead, is used to
describe any of a number of different
types of securities that BOEM will
accept to guarantee performance of
obligations. As such, BOEM believes the
term and associated definition is
appropriate. BOEM has elected to
simplify the rule by consistently using
the term financial assurance instead of
referring to the various types of
financial securities. The Department is
finalizing, as proposed, the removal of
the term and definition of ‘‘Security or
securities’’ in part 556, as these terms
have been replaced with ‘‘financial
assurance’’ throughout part 556 and 550
for regulatory consistency.
The Department is finalizing, as
proposed, the new term and definition
for ‘‘Financial assurance’’ in 30 CFR
550.105 and 556.105(b) to list the
various methods that may be used to
ensure compliance with the relevant
OCS obligations in 30 CFR parts 550
and 556.
c. New Term: ‘‘Financial Assurance’’
d. New Term: ‘‘Investment Grade Credit
Rating’’
The Department proposed to add a
new term and definition for ‘‘Financial
assurance’’ in 30 CFR 550.105 and
556.105(b) to list the various methods
that may be used to ensure compliance
with OCS obligations in 30 CFR parts
550 and 556. DOI proposed to define the
term as ‘‘a surety bond, a pledge of
Treasury securities, a decommissioning
account, a third-party guarantee, or
another form of security acceptable to
the BOEM Regional Director, that is
used to ensure compliance with
obligations under the regulations in this
part and under the terms of a lease, a
RUE grant, or a pipeline ROW grant.’’
General comments received are as
follows:
Comment: One commenter expressed
support for the new ‘‘Financial
assurance’’ term and noted that it
supported ‘‘the breadth and optionality
in the proposed’’ definition.
Response: BOEM acknowledges the
commenter’s support, and the
Department is finalizing the new term as
proposed.
Comment: Commenters recommended
that BOEM should be consistent and
intentional in its use of ‘‘financial
assurance,’’ ‘‘security,’’ and ‘‘bond’’
within the final rule. Specifically, they
asked BOEM to consider using the
global term ‘‘security’’ as in the 2020
Proposed Rule in lieu of ‘‘financial
assurance,’’ which instead can refer to
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The Department proposed to add the
new term and associated definition for
‘‘Investment grade credit rating’’ in 30
CFR 550.105 and 556.105(b). The
associated definition was proposed as
‘‘an issuer credit rating of BBB¥ or
higher, or its equivalent, assigned to an
issuer of corporate debt by a nationally
recognized statistical rating organization
(NRSRO) as that term is defined by the
United States Securities and Exchange
Commission (SEC).’’ This definition was
proposed as the threshold above which
BOEM would typically not require
supplemental financial assurance.
General comments received are as
follows:
Comment: As discussed in section
III.D of this preamble, commenters both
supported and opposed the addition of
the ‘‘Investment grade credit rating’’
definition. Several commenters
suggested that BOEM not add the term
to 30 CFR 550.105 because the term is
not used in part 550.
Response: As discussed in section
III.D of this preamble, the Department is
not finalizing the proposed addition of
‘‘Investment grade credit rating’’ to 30
CFR part 550, as the commenters’
assertion that the term is not used in
part 550 is correct. In part 550, the
regulatory text references 30 CFR part
556 to discuss the use of the issuer
credit rating.
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The Department has revised the
definition of ‘‘Investment grade credit
rating’’ in 30 CFR 556.105(b) with this
final rule to clarify which rating agency
corresponded with the proposed BBB¥
rating. The final definition is ‘‘an issuer
credit rating of BBB¥ or higher (S&P
Global Ratings and Fitch Ratings, Inc.),
Baa3 or higher (Moody’s Investors
Service Inc.), or its equivalent, assigned
to an issuer of corporate debt by a
nationally recognized statistical rating
organization as that term is defined in
section 3(a)(62) of the Securities
Exchange Act of 1934.’’
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e. New Term: ‘‘Issuer Credit Rating’’
The Department proposed to add the
new term and associated definition for
‘‘Issuer credit rating’’ in 30 CFR 550.105
and 556.105(b). The associated
definition was proposed as ‘‘a credit
rating assigned to an issuer of corporate
debt by Standard and Poor’s (S&P)
Rating Services (or any of its
subsidiaries), by Moody’s Investors
Service Incorporated (or any of its
subsidiaries), or by another NRSRO as
that term is defined by the United States
SEC.’’ General comments received are as
follows:
Comment: Multiple commenters
suggested that BOEM not add the term
‘‘Issuer credit rating’’ and associated
definition to 30 CFR 550.105 because
the term is not used in part 550. Other
commenters recommended that BOEM
include Fitch Ratings as one of the
listed NRSROs in the new definition in
30 CFR 556.105.
Response: The Department is not
finalizing the proposed addition of
‘‘Issuer credit rating’’ to 30 CFR part
550, as the commenters’ assertion that it
is not used in part 550 is correct. In part
550, the existing regulatory text
references 30 CFR part 556 to discuss
the use of the issuer credit rating. BOEM
agrees with the commenters’ assertion
that Fitch Ratings is also an appropriate
NRSRO and is adding it to the definition
in 30 CFR 556.105.
f. Removal: ‘‘Security or Securities’’
The Department proposed to delete
the term and associated definition of
‘‘Security or securities’’ in 30 CFR
556.105(b) since the term ‘‘security’’
was proposed to be replaced with
‘‘financial assurance’’ throughout the
subpart. This term, i.e., ‘‘security,’’ did
not exist in 30 CFR part 550 and
therefore was not proposed to be
removed therefrom. General comments
received are as follows:
Comment: Commenters recommended
that BOEM be consistent and intentional
in its use of ‘‘financial assurance,’’
‘‘security,’’ and ‘‘bond’’ within the final
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rule. Specifically, they asked BOEM to
consider utilizing the global term
‘‘security’’ as in the 2020 Proposed Rule
in lieu of ‘‘financial assurance,’’ which
instead can refer to the process of
furnishing security rather than the
security itself.
Response: BOEM does not believe the
term ‘‘financial assurance’’ is ever used
as a ‘‘process for furnishing security’’ in
this rulemaking and, instead, is used to
describe any of a number of different
types of securities which BOEM accepts
to guarantee performance of obligations.
As such, BOEM believes the term and
associated definition is appropriate.
BOEM has elected to simplify the rule
by consistently using the term financial
assurance instead of the various types of
financial securities. The Department is
finalizing, as proposed, the removal of
the term and definition of ‘‘Security or
securities’’ from part 556, as these terms
have been replaced with ‘‘financial
assurance’’ throughout parts 556 and
550 for regulatory consistency.
g. Revision: ‘‘You’’
The Department proposed to revise
the definition for ‘‘You’’ in 30 CFR parts
550 and 556 as, depending on the
context of the part: ‘‘a bidder, a lessee
(record title owner), a sublessee
(operating rights owner), a Federal or
State RUE grant holder, a pipeline ROW
grant holder, an assignor or transferor, a
designated operator or agent of the
lessee or grant holder, or an applicant
seeking to become one of the
individuals listed in this definition.’’
This change to the definition of ‘‘You’’
would, in concert with changes
proposed in § 550.166, make explicit
that any financial assurance provisions
applicable to either a State or Federal
RUE would apply to the other. General
comments received are as follows:
Comment: Commenters expressed
concerns with BOEM’s proposed
definition of ‘‘You’’ and asserted that
BOEM was imposing on the regulated
community the duty to ascertain which
persons covered by the definition are
subject to the specific regulatory
requirements of each section. For
example, a commenter asserted that the
inclusion of ‘‘an assignor or transferor’’
in the definition is problematic in the
context of part 556 because the scope
‘‘is financial assurance that is solely the
responsibility of current interest
holders.’’
Response: The Department did not
revise the proposed definition of ‘‘you’’
in the final rule. BOEM retained
‘‘assignor or transferor’’ in the definition
as it is appropriate in the context of
some subsections across the broad scope
of parts 550 and 556. The intent of the
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definition of ‘‘you’’ was always to be
totally encompassing and to rely on
context for its meaning in any particular
situation.
The Department is finalizing, as
proposed, the revisions to the definition
of ‘‘You.’’ The definition of the term has
traditionally been all-encompassing in
both parts 550 and 556 and BOEM
believes the context provided by the
individual subsections is sufficient for
determining which entity covered by
the term is the appropriate entity to
which a particular subsection applies.
2. Changing of the Spelling of
‘‘Sulphur’’ to ‘‘Sulfur’’
The Department proposed to replace
the word ‘‘sulphur’’ with the more
contemporary spelling of ‘‘sulfur’’
throughout the regulatory text where it
has not been previously changed. BOEM
noted that this edit was a technical
correction and did not change any
meaning or intent of the regulatory
provisions. The Department proposed to
update the word ‘‘sulphur’’ in the
heading of part 550 and in §§ 550.101,
550.102, 550.105, and 550.199.
No comments were received on
changing the spelling of ‘‘sulphur’’ to
‘‘sulfur.’’ Therefore, the Department is
finalizing, as proposed, its plans to
replace the word ‘‘sulphur’’ with the
more contemporary spelling of ‘‘sulfur’’
in §§ 550.101, 550.102, and 550.105 in
this final action.
IV. Summary of Cost, Economic
Impacts, and Additional Analyses
Conducted
A. What are the affected entities?
This final rule will affect current and
future lessees, sublessees, RUE grant
holders, and pipeline ROW grant
holders. BOEM’s analysis shows that
this includes roughly 391 companies
with record title ownership or operating
rights in leases, and with interests in
RUE grants and pipeline ROW grants.
These lessees and grant holders are
responsible for complying with the
regulations and therefore would bear the
compliance costs and realize the cost
savings associated with the provisions
in this final rule.
B. What are the economic impacts?
The amendments in this final rule are
expected to increase the total amount of
financial assurance required from OCS
lessees and grant holders. Those lessees
that do not meet the updated criteria to
avoid providing supplemental financial
assurance will have an increased
compliance cost in the form of bond
premiums. BOEM has drafted an RIA
detailing the estimated impacts of the
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respective provisions of this final rule.
These impacts reflect both monetized
and non-monetized impacts; the costs
and benefits of the non-monetized
impacts are discussed qualitatively in
the RIA and in the following
paragraphs. The table below
summarizes BOEM’s monetized
estimate of the cost of increased
bonding premiums paid by lessees over
a 20-year period. This timeframe is
expected to adequately capture the
aging shallow-water OCS infrastructure
removal while providing BOEM with
time to monitor the efficacy of its new
program. Due to technological advances
and the changing nature of the OCS’s
role in the energy transition, estimates
beyond 20-years are too speculative to
be reliable at this stage. Regulatory
certainty for OCS lessees is valuable,
however; as the Statement of Energy
Effects notes, higher compliance costs
could make the U.S. OCS less
competitive in a global oil market.
Additional information on the estimated
transfers, costs, and benefits can be
found in the RIA posted in the public
docket for this rule.
ESTIMATED COMPLIANCE COSTS FOR
NON-INVESTMENT GRADE SMALL ENTITIES
[2024–2043, 2023, $ millions]
NET TOTAL ESTIMATED COMPLIANCE
COST OF THE RULE
2024–2043
[2024–2043, 2023, $ millions]
Total Compliance Cost ....
Annualized Compliance
Cost .............................
2024–2043
Net Total Compliance
Cost .............................
Annualized Compliance
Cost .............................
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BOEM has estimated the annualized
increase in compliance costs to lessees
and allocated those to small and large
entities based on their decommissioning
liabilities. In the table below, BOEM’s
analysis estimates small companies
could incur $421 million (7 percent
discounting) in annualized compliance
costs from changes in the final rule. The
Bureau recognizes that there will be
incremental cost burdens to most
affected small entities and has included
a 3-year phased compliance approach to
provide flexibility for entities required
to provide financial assurance under the
new requirements. The changes are
designed to balance the risk of nonperformance with the compliance
burdens that are associated with the
requirement to provide supplemental
financial assurance. Additional
information about these conclusions can
be found in the regulatory flexibility
analysis for this rule.
Discounted
at 3%
Discounted
at 7%
$8,525
$5,923
573.0
559.0
Discounted
at 7%
$6,362
$4,455
I
428
I
421
C. What are the benefits?
The rule affects holders of oil, gas,
and sulfur leases, ROW grants, and RUE
grants on the OCS. The analysis shows
that this includes roughly 391
companies with ownership interests in
OCS leases and grants. Entities that
operate under this rule are classified
primarily under NAICS codes 211120
(Crude Petroleum Extraction), 211130
(Natural Gas Extraction), and 486110
(Pipeline Transportation of Crude Oil
and Natural Gas). For NAICS
classifications 211120 and 211130, the
SBA defines a small business as one
with fewer than 1,250 employees; for
NAICS code 486110, it is a business
with fewer than 1,500 employees. Based
on this criterion, approximately 271 (69
percent) of the businesses operating on
the OCS subject to this rule are
considered small; the remaining
businesses are considered large entities.
All the operating businesses meeting the
SBA classification are potentially
impacted; therefore, BOEM expects that
the rule will affect a substantial number
of small entities.
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OCSLA regulations and lease
provisions require lessees to
decommission facilities, including
plugging and abandoning OCS wells
and removing facilities when their
useful life has concluded. If the current
lessee fails to perform decommissioning
of its OCS facilities, the burden to
decommission OCS facilities may fall to
other obligated parties, such as colessees or predecessor lessees, and
failing that, the Federal Government and
U.S. taxpayers. Some of the corporate
bankruptcies involving offshore oil and
gas lessees since 2009 have involved
decommissioning liabilities not covered
by bonds or other forms of financial
assurance. As such, these bankruptcies
demonstrate that BOEM’s regulations
have been inadequate to protect the
public from potential responsibility for
OCS decommissioning, especially
during periods of low hydrocarbon
prices. The final rule is intended to
correct these shortcomings with an
approach that promotes internalization
of costs of decommissioning by lessees
and grant holders by adhering to the
general principle that each current
owner should bear the costs for its own
obligations. This final rule is expected
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to significantly increase the amount of
financial assurance coverage that
protects the Federal Government and
taxpayer by requiring that every lessee,
ROW grant holder, and RUE grant
holder assume full responsibility for
providing assurance for performance of
its own obligations unless there is a
financially strong co-lessee (i.e., one
that meets the credit rating threshold).
Finally, the final rule is expected to
reduce the decommissioning activity
lead-time that can result in
environmental harms arising out of
orphaned, unmaintained, or minimally
maintained facilities, which could result
in additional environmental damage or
increased obstacles to navigation, while
awaiting the uncertain outcomes of
bankruptcy proceedings or
Congressional appropriations. A
reduction in decommissioning activity
lead-time could reduce environmental
damage, but BOEM cannot quantify this
benefit in this rulemaking.
Bonding of OCS liabilities by a surety
company greatly reduces the risk that
those liabilities will revert to a
predecessor lessee or grant holder
because DOI could, but is not required
to, turn to the surety for performance
before turning to a predecessor. Further,
because this final rule is designed to
secure the taxpayer against the riskiest
subset of liability—i.e., OCS obligations
that belong to speculatively rated
companies without marketable
reserves—it will require more
supplemental financial assurance than
the Department currently holds from
such companies and will decrease the
likelihood that these liabilities become
the responsibility of the government.
These reductions in risk are dependent
on the initial level of risk specific to
each OCS lease and lessee, and as such,
BOEM is not able to quantify them in
aggregate, as discussed in the RIA. This
rule will not affect the Department’s
regulatory authority to issue
decommissioning orders to predecessor
lessees or to intervene as necessary to
address an imminent environmental or
safety risk. However, without this final
rule (i.e., without the new supplemental
financial assurance procedures fully in
place), it could take longer to arrange for
decommissioning. Orphaned,
unmaintained, or minimally maintained
facilities, which currently exist on the
OCS, could result in additional
environmental damage or increased
obstacles to navigation, while awaiting
the uncertain outcomes of bankruptcy
proceedings or Congressional
appropriations.
Additionally, this final rule provides
lessees and grant holders with clarity
and regulatory certainty regarding the
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way in which BOEM will conduct its
financial assurance program. The
financial assurance it requires will
provide accountability to the taxpayer
that a current lessee’s or grant holder’s
obligations to decommission will not go
unfulfilled, or that an associated cost of
business is not transferred to another
party at the culmination of the life of the
facility when the productive value is
gone and only liabilities remain.
D. What tribal outreach did BOEM
conduct?
On March 31, 2023, BOEM sent letters
to all federally recognized Tribal
Nations and Alaska Native Claims
Settlement Act (ANCSA) Corporations
to ensure they are aware of the proposed
rulemaking, to answer any immediate
questions they may have had, and to
invite formal consultation if desired.
Only one Tribe requested consultation,
which was held on June 28, 2023;
meeting notes for this consultation are
available in the docket (Docket No.
BOEM–2023–0027).
V. Section-by-Section Analysis
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Severability
BOEM proposed in the preamble to
the proposed rule at 88 FR 42156 that
the provisions of the rule be severable.
No public comments were received on
severability. Should any court hold
unlawful and/or set aside portions of
this rule, the remaining portions are
severable and therefore should not be
remanded to the Department. The final
rule contains three main components:
(1) streamlining criteria warranting a
demand for supplemental financial
assurance; (2) establishing the amount
of any supplemental financial
assurance; and (3) making several, less
significant changes to, among other
things, transferring interests in RUE
grants and requiring appeals bonds for
a stay of an IBLA appeal. See section III
of this preamble.
It is impracticable, if not impossible,
for BOEM to anticipate and address
every conceivable adverse court remedy
order. For purposes of this rule, it
suffices to substantiate BOEM’s intent
that the rule’s three components operate
largely independently of each other: the
first component considers whether a
lessee is at risk of default based on the
lessee’s credit rating or the proved
reserves on the lease; the second
component considers the appropriate
level of financial assurance required in
light of that risk; and the third
component addresses several
longstanding and technical matters that
do not bear directly on the first two
components. Indeed, these three
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components are sufficiently distinct that
their utility does not depend on the
specifics of this final rule. For example,
if a court were to vacate BOEM’s
selection of the level of supplemental
financial assurance required (P-value),
that decision would remain severable
from the threshold determination
regarding whether to collect
supplemental financial assurance and
from the other separate technical
changes included in this rule. In this
scenario, BOEM could still collect
supplemental financial assurance using
the previously accepted BSEE
deterministic estimate for
decommissioning costs.
BOEM is amending the following
regulations as follows:
Part 550—Oil and Gas and Sulfur
Operations in the Outer Continental
Shelf
The terms ‘‘bond,’’ ‘‘bonding,’’
‘‘surety bond,’’ ‘‘security,’’ and
‘‘securities’’ are replaced throughout
this part with the new term ‘‘financial
assurance’’, as proposed.
The term ‘‘sulphur’’ is replaced
throughout this part with ‘‘sulfur’’, as
proposed. This edit is a technical
correction and does not change any
meaning or intent of the regulatory
provisions.
Subpart A—General
Section 550.101
Applicability
Authority and
The Department is finalizing the
revision of ‘‘sulphur’’ to ‘‘sulfur’’ in the
introductory text and is clarifying that
the BOEM Director is the one granted
authority by the Secretary to regulate
oil, gas, and sulfur exploration,
development, and production
operations on the OCS.
Section 550.102
do?
What does this part
The Department is finalizing the
revision of ‘‘sulphur’’ to ‘‘sulfur’’ in the
paragraphs (a) and (b).
Section 550.103 Where can I find more
information about the requirements in
this part?
The Department is removing the term
‘‘supplement’’ from this section as a
technical correction. The existing
regulatory text needs improvement
because NTLs do not supplement
regulatory requirements, but instead
clarify, provide voluntary
recommendations, or provide additional
information concerning how to comply
with requirements in the regulations
(e.g., addresses for submissions).
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Section 550.105
31565
Definitions
The Department is finalizing as
proposed, and as discussed in section
III.G of this preamble, new definitions
for the terms ‘‘Assign’’ and ‘‘Transfer’’
to clarify that these terms are used
interchangeably throughout the part.
This change also serves to clarify that
the related terms ‘‘assignee’’ and
‘‘assignor’’ are interchangeable with
‘‘transferee’’ and ‘‘transferor,’’
respectively.
The Department is finalizing, as
proposed, revisions to the definition of
‘‘Criteria air pollutant’’ and
‘‘Nonattainment area’’ to explain the
acronyms U.S. EPA and NAAQS. This is
a technical correction and does not
change any meaning or intent of the
definitions.
The Department is finalizing as
proposed, and as discussed in section
III.G of this preamble, removal of the
terms ‘‘Easement’’ and ‘‘Right-of-use’’
because neither are used separately in
the regulations. In lieu of these two
terms, and to define the term used in
part 550, The Department is finalizing
the addition of the new term ‘‘Right-ofUse and Easement’’ and its associated
definition. Since proposal, BOEM has
removed ‘‘adjacent to or accessible from
the OCS’’ from the RUE definition, as it
is not helpful. This is a technical
correction and does not change any
meaning or intent of the definition. This
definition is consistent with the final
amendments to the definition of RUE in
30 CFR 556.105.
The Department is finalizing as
proposed, and as discussed in section
III.G of this preamble, the addition of
the new term and definition for
‘‘Financial assurance’’ to list the various
methods that may be used to ensure
compliance with OCS obligations.
Additionally, the Department is
finalizing, as proposed, and discussed
in section III.G of this preamble,
revisions to the definition of ‘‘You.’’
Section 550.160 When will BOEM
grant me a right-of-use and easement
(RUE), and what requirements must I
meet?
The paragraph (a) introductory text is
expanded, as in the proposed rule, to
include additional functions and
devices associated with a RUE by
adding ‘‘secure to the seafloor, use,
modify’’ after ‘‘construct;’’ by
substituting ‘‘or’’ for ‘‘and’’ before the
word ‘‘maintain;’’ and by adding
references to ‘‘seafloor production
equipment’’ and ‘‘facilities.’’ These edits
create consistency between this section
and the definition of RUE in § 550.105.
A commenter suggested edits to
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paragraph (a) because the commenter
found the paragraph difficult to read. In
response to this comment, DOI has
replaced the proposed clause ‘‘You must
require the RUE’’ with ‘‘A RUE is
required’’ in this final rule. That change,
in turn, could be confusing when read
in conjunction with the existing
introductory text of § 550.160.
Accordingly, DOI is deleting the
introductory text in this final rule. This
deletion does not change any meaning
or intent of any part of § 550.160.
The Department is finalizing, as
proposed, revisions to paragraph (b) to
provide that a RUE grant holder must
exercise the grant according to the terms
of the grant and the applicable
regulations of part 550.
The Department is finalizing, as
proposed, revisions to paragraph (c) to
update the cross-reference to BOEM’s
lessee qualification requirements,
§§ 556.400 through 556.402, and to
replace the language in this paragraph
referencing ‘‘bonding requirements’’
with a cross reference to § 550.166,
which BOEM has amended to add
specific criteria for financial assurance
demands, as discussed in section III.A
of this preamble. The Department is also
revising paragraph (d) to replace ‘‘rightof-use and easement’’ with ‘‘RUE.’’
The Department is revising
paragraphs (e) and (f)(2) to update the
list therein to be consistent with the
finalized revisions in paragraph (a).
BOEM identified the need for these
revisions after publication of the
proposed rule and is making them in the
final rule for consistency with the new
definition of RUE.
Section 550.166 If BOEM grants me a
RUE, what financial assurance must I
provide?
As proposed, the Department is
finalizing amendments to the section
heading by removing the reference to ‘‘a
State lease’’ and replacing ‘‘surety
bond’’ with ‘‘financial assurance.’’ This
reflects the change in the text of this
section that provides that the financial
assurance requirements of this section
would apply to both a RUE granted to
serve a State lease and one serving an
OCS lease, as discussed in section III.A
of this preamble. The term ‘‘surety
bond’’ is replaced with ‘‘financial
assurance’’ throughout the section.
The Department is finalizing revisions
to paragraph (a) to require $500,000 in
financial assurance that guarantees
compliance with the terms and
conditions of any OCS RUEs an entity
holds, as discussed in section III.A of
this preamble. Previously, paragraph (a)
required $500,000 in financial assurance
only for RUEs associated with State
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leases. Additionally, the Department is
finalizing the addition of paragraph
(a)(1), as proposed, to allow area-wide
lease financial assurance to satisfy the
requirements of paragraph (a) provided
that assurance is in excess of the
$500,000 base RUE financial assurance
requirement and also guarantees
compliance with all the terms and
conditions of the RUE(s) it covers. The
Department is also finalizing the
addition of paragraph (a)(2) as proposed
to allow the Regional Director to lower
the required financial assurance amount
for research and other similar types of
RUEs, which reflects BOEM’s
experience that the total liability
exposure for such RUEs can be well
below $500,000. Lastly, the Department
is finalizing the addition of paragraph
(a)(3) as proposed to provide that the
financial assurance requirements of
section 556.900(d) through (g) and
§ 556.902 apply to the financial
assurance required in paragraph (a).
The Department is finalizing, as
proposed, the revision of paragraph (b)
in this section to provide that, if BOEM
grants a RUE that serves either an OCS
lease or a State lease, the Regional
Director may require the grant holder to
provide supplemental financial
assurance to ensure compliance with
the obligations under the RUE grant.
BOEM will use the issuer credit rating
or proxy credit rating criterion found in
§ 556.901(d)(1) and (2) to evaluate a
RUE grant holder, as discussed in
section III.A of this preamble; i.e., the
Regional Director may require
supplemental financial assurance if the
grant holder does not have an issuer
credit rating or a proxy credit rating that
meets the criterion set forth in amended
§ 556.901(d)(1). Like lessees, most RUE
holders are oil and gas companies, and
BOEM will therefore, as discussed in
section III.A of this preamble, use the
same financial criterion to determine
the need for additional financial
assurance from RUE holders and lessees
to provide consistency.
The Department is finalizing the
revision to paragraph (b)(1) as proposed
to update the regulatory citation in
existing § 550.166(b)(1) to provide that
the supplemental financial assurance
must meet the requirements for lease
surety bonds or other financial
assurance provided in §§ 556.900 (d)
through (g) and 556.902. This rule also
finalizes the revision to § 550.166(b)(2)
to include ‘‘applicable BOEM and BSEE
orders’’ in the list of what RUE
supplemental financial assurance must
cover. The Department is not finalizing
the proposed language that clarified that
RUE holders must also comply with the
decommissioning regulations at part
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250, subpart Q of this title as it is no
longer needed. BSEE adopted changes to
their regulations in subpart Q to
expressly state that RUE holders must
comply with the BSEE
decommissioning regulations. 88 FR
23569 (Apr. 18, 2023). As such, BOEM
is not finalizing this reference to the
BSEE regulations, as it is now
redundant. The Department is finalizing
the addition of new paragraph (c), as
proposed, to provide that if a RUE grant
holder fails to replace any deficient
financial assurance upon demand, or
fails to provide supplemental financial
assurance upon demand, BOEM may
assess penalties, request BSEE to
suspend operations on the RUE, and/or
initiate action for cancellation of the
RUE grant.
Section 550.167 How may I assign my
interest in a RUE?
The Department is finalizing the
addition of a new § 550.167 to establish
the ability to assign a RUE interest.
Paragraph (a) establishes that those who
want to obtain a RUE or are requesting
assignment of an interest in a RUE must
provide the information contained
§ 550.161 and must obtain BOEM’s
approval. In response to comment, the
Department is finalizing the addition of
a new paragraph (b) that parallels the
provisions for ROW assignments in
BSEE’s regulations at 30 CFR 250.1018.
New paragraphs (c)(1) through (4)
establish, as proposed, the
circumstances in which BOEM may
disapprove an assignment. These
circumstances are intended to prevent
the assignment of a RUE when, for
example, the assignment would result in
inadequate financial assurance.
Section 550.199 Paperwork Reduction
Act Statements—Information Collection
The Department is finalizing the
revision of ‘‘sulphur’’ to ‘‘sulfur’’ in
paragraph (b) and clarification that
‘‘parts 551, 552’’ refer to 30 CFR parts
551 and 552.
Subpart J—Pipelines and Pipeline
Rights-of-Way
Section 550.1011 Financial Assurance
Requirements for Pipeline Right-of-Way
(ROW) Grant Holders
The Department is finalizing the
revision of this section in its entirety.
The section heading is revised to read,
‘‘Financial assurance requirements for
pipeline right-of-way (ROW) grant
holders,’’ to clarify that a pipeline ROW
grant holder may meet the requirements
of this section by providing bonds or
other types of financial assurance.
The Department is finalizing, as
proposed, revisions to paragraph (a) to
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add ‘‘, attempt to assign,’’ after ‘‘apply
for’’ so that it is clear the financial
assurance requirements of this section
apply to an assignment of a right-of-way
grant. The revisions subsume paragraph
(a)(1) into paragraph (a) and revise it to
remove the reference to 30 CFR part
256, which has no bonding
requirements for pipelines, and to add
the word ‘‘pipeline’’ before ‘‘right-ofway.’’ The revisions add ‘‘grant’’ after
‘‘right-of-way (ROW)’’ for clarification,
and to clarify that the purpose of the
area-wide financial assurance, which is
required in paragraph (a), is to guarantee
compliance with the terms and
conditions of all the pipeline ROW
grants held in an OCS area, as defined
in § 556.900(b). These amendments
clarify that the requirement to provide
area-wide financial assurance for a
pipeline ROW grant is separate and
distinct from the financial assurance
coverage provided for leases and RUEs.
Existing paragraph (a)(2) is removed
because supplemental financial
assurance requirements would be
covered by new paragraph (d).
The Department is finalizing, as
proposed, the removal of existing
paragraph (b), which defines the three
recognized OCS areas, because it is
made redundant by the reference to
§ 556.900(b) in revised paragraph (a).
The Department is finalizing, as
proposed, the replacement of the
removed paragraph (b) with a new
paragraph (b) to provide that the
requirement under paragraph (a) to
furnish and maintain area-wide
financial assurance may be satisfied if
the operator or a co-grant holder
provides area-wide pipeline right-ofway financial assurance in the required
amount that guarantees compliance
with the regulations and the terms and
conditions of the grant.
The Department is finalizing the
replacement of paragraph (c), as
proposed, with a provision stating that
the requirements for lease financial
assurance in §§ 556.900(d) through (g)
and 556.902 apply to the area-wide
financial assurance required in
paragraph (a) of this section. The
Department is finalizing the removal of
existing paragraph (d), which is now
made redundant by new paragraph (f).
The Department is finalizing, as
proposed, the addition of a new
paragraph (d) to provide that the
Regional Director may determine that
supplemental financial assurance is
necessary to ensure compliance with the
obligations under a pipeline ROW grant
based on an evaluation of the grant
holder’s ability to carry out present and
future obligations on the pipeline ROW.
As discussed in section III.A of this
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preamble, the Department is finalizing
the use of the same issuer credit rating
or proxy credit rating criterion to
evaluate a pipeline ROW grant holder,
or co-grant holder, as the Department is
finalizing to apply to lessees in
§ 556.901(d)(1). BOEM, as discussed in
section III.A of this preamble, has found
that reliance on credit ratings better
evaluates financial stability than net
worth, and is thus applying the same
financial criterion in evaluating the
financial stability of grant holders.
The Department is finalizing, as
proposed in new paragraph (e)(1), a
provision that the supplemental
financial assurance must meet the
general requirements for lease surety
bonds or other financial assurance, as
provided in §§ 556.900(d) through (g)
and 556.902. The Department is not
finalizing the proposed language in new
paragraph (e)(2) that stated that any
supplemental financial assurance for a
pipeline ROW is required to cover costs
and liabilities for regulatory compliance
and compliance with applicable BOEM
and BSEE orders, decommissioning of
all pipelines or other facilities, and
clearance from the seafloor of all
obstructions created by the pipeline
ROW operations, in accordance with the
regulations set forth in 30 CFR part 250,
subpart Q, because it is no longer
needed and redundant. BSEE adopted
changes to their regulations in subpart
Q to expressly state that all ROW
holders must comply with the BSEE
decommissioning regulations. 88 FR
23569 (Apr. 18, 2023). As such, BOEM
is not finalizing this reference to the
BSEE regulations, as it is now
redundant. New paragraph (e)(2) now
states that any supplemental financial
assurance for a pipeline ROW is
required to cover the costs and
liabilities for compliance with
obligations of your ROW grants and
with applicable BOEM and BSEE orders.
The Department is also finalizing the
addition of new paragraph (f) to provide
that if a pipeline ROW grant holder fails
to replace any deficient financial
assurance upon demand or fails to
provide supplemental financial
assurance upon demand, the Regional
Director may assess penalties, request
BSEE to suspend operations on the
pipeline ROW, and/or initiate action for
forfeiture of the pipeline ROW grant in
accordance with 30 CFR 250.1013.
Part 556—Leasing of Sulfur or Oil and
Gas and Bonding Requirements in the
Outer Continental Shelf
The Department is finalizing, as
proposed, a technical correction to the
authority citation for part 556 by
removing the citation to 43 U.S.C. 1801–
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1802, because neither of these two
sections contain authority allowing
BOEM to issue or amend regulations.
The final rule also removes, as
proposed, the citation to 43 U.S.C. 1331
note which is where the Gulf of Mexico
Energy Security Act of 2006 (GOMESA)
is set forth. While this statute required
BOEM to issue regulations concerning
the availability of bonus or royalty
credits for exchanging eligible leases,
the deadline for applying for such a
bonus or royalty credit was October 14,
2010; therefore, lessees may no longer
apply for such credits. BOEM no longer
needs the authority to issue regulations
under that statute and has removed all
regulations on this topic from part 556,
except section 556.1000, which
provides that lessees may no longer
apply for such credits.
Additionally, the terms ‘‘bond,’’
‘‘bonding,’’ and ‘‘surety bond’’ are
replaced throughout this part with the
new term ‘‘financial assurance.’’ The
Department is finalizing, as proposed,
the revision to the part 556 heading to
update the spelling of sulfur and to
replace ‘‘bonding’’ with ‘‘financial
assurance.’’
Subpart A—General Provisions
Section 556.104 Information
Collection and Proprietary Information
The Department is finalizing the
removal of an incorrect phone number
and email address in paragraph (a)(4).
This is a technical correction, consistent
with the content of other subparts, that
was discovered after publication of the
proposed rule and does not change the
intent of the paragraph.
Section 556.105
Definitions
Acronyms and
The Department is finalizing, as
proposed, and as discussed in section
III.G of this preamble, the new terms
‘‘Assign’’ and ‘‘Transfer’’ and associated
definitions to clarify that these terms are
used interchangeably throughout the
part. This change also serves to clarify
that the related terms ‘‘assignee’’ and
‘‘assignor’’ are interchangeable with
‘‘transferee’’ and ‘‘transferor’’
respectively.
The Department is finalizing the
removal of ‘‘GOMESA’’ from the
acronym list in paragraph (a) as
discussed above. The final rule removes
the citation to 43 U.S.C. 1331 note
which is the only reference to GOMESA
in part 556.
The Department is finalizing, as
proposed, and as discussed in section
III.G of this preamble, amendments to
the definition of ‘‘Right-of-Use and
Easement (RUE)’’ to include the words
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‘‘to construct, secure to the seafloor, use,
modify, or maintain platforms, seafloor
production equipment.’’ This amended
definition is the same as the definition
of ‘‘Right-of-Use and Easement’’
finalized in § 550.105.
The Department is finalizing revisions
to the definition of ‘‘Eastern Planning
Area’’ as proposed to remove the
acronym ‘‘EPA’’ which can be confused
with the United States Environmental
Protection Agency (U.S. EPA). The
Department is not finalizing the
proposed removal of the rest of the first
sentence in the existing definition to
retain consistency with the definitions
for ‘‘Central Planning Area’’ and
‘‘Western Planning Area,’’ which were
not changed in the proposed
rulemaking.
The Department is finalizing, as
proposed, and as discussed in section
III.G of this preamble, the addition of a
new term and definition for ‘‘Financial
assurance’’ to clarify that various
methods can be used to ensure
compliance with OCS obligations. This
definition is the same as the definition
of ‘‘Financial assurance’’ finalized in
§ 550.105.
The Department is finalizing, as
proposed, and as discussed in sections
III.D and III.G of this preamble, the
addition of a new term and definition
for ‘‘Investment grade credit rating’’ to
30 CFR part 556.
The Department is finalizing, as
discussed in section III.G of this
preamble, the addition of the new term
‘‘Issuer credit rating’’ and its
corresponding definition, as revised
based on public comment as: ‘‘a credit
rating assigned to an issuer of corporate
debt by S&P Global Ratings, by Moody’s
Investors Service Inc., by Fitch Ratings,
Inc., or by another nationally recognized
statistical rating organization, as that
term is defined in section 3(a)(62) of the
Securities Exchange Act of 1934.’’
The Department is adding the
definition of ‘‘Predecessor,’’ as proposed
in the 2020 proposed rule and as
discussed in section III.B of this
preamble, to describe the prior owners
who share liability with the current
owners.
The Department is finalizing, as
proposed, the removal of the term and
definition of ‘‘Security or securities,’’ as
these terms have been replaced with
‘‘financial assurance’’ throughout parts
556 and 550 for regulatory consistency.
Additionally, the Department is
finalizing, as proposed, and discussed
in section III.G of this preamble, the
revisions to the definition of ‘‘You.’’
This definition is the same as the
definition of ‘‘You’’ finalized in
§ 550.105.
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Subpart G—Transferring All or Part of
the Record Title Interest in a Lease
Section 556.703 What is the effect of
the approval of the assignment of 100
percent of the record title in a particular
aliquot(s) of my lease and of the
resulting lease segregation?
The Department is removing
‘‘bonding’’ from paragraph (a) as a nonsubstantive change identified after
proposal to be consistent with its
replacement by the term ‘‘financial
assurance’’ throughout the subpart.
Section 556.704 When may BOEM
disapprove an assignment or sublease of
an interest in my lease?
The Department is finalizing, as
proposed, revisions to paragraph (a)(1)
to clearly state that BOEM may
disapprove an assignment or sublease
when the transferor, transferee, or
sublessee is not in compliance with all
applicable regulations and orders,
including financial assurance
requirements. Similarly, this rule
replaces the word ‘‘would’’ in the
section heading with ‘‘may’’ to better
reflect this discretion. Additionally,
BOEM is non-substantively revising
paragraph (a)(2) to remove the ‘‘etc.’’ in
the parenthetical as it is not necessary
since the parenthetical is a list of
examples.
Subpart H—Transferring All or Part of
the Operating Rights in a Lease
Section 556.802 When may BOEM
disapprove the transfer of all or part of
my operating rights interest?
The final rule revises paragraph (a) to
clearly state that BOEM may disapprove
a transfer of operating rights in a lease
if the transferee is not in compliance
with all applicable regulations and
orders, including financial assurance
requirements. This final rule also
replaces the word ‘‘would’’ in the
section heading with ‘‘may’’ to better
reflect this discretion. Additionally,
BOEM is non-substantively revising
paragraph (b) to remove the ‘‘etc.’’ in the
parenthetical as it is not necessary since
the parenthetical is a list of examples.
Subpart I—Financial Assurance
Section 556.900 Financial Assurance
Requirements for an Oil and Gas or
Sulfur Lease
The Department is finalizing, as
proposed, revisions to the section
heading to read, ‘‘Financial assurance
requirements for an oil and gas or sulfur
lease’’ to ensure that the term ‘‘bonding’’
has been consistently replaced with
‘‘financial assurance’’ and to clarify that
a number of forms of financial assurance
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can be provided, not just surety bonds.
The Department is also finalizing the
heading of subpart I to remove
‘‘Bonding or Other’’ consistent with the
replacement of ‘‘bonding’’ with
‘‘financial assurance.’’
The Department is finalizing the
addition of what was proposed as
paragraph (a)(4) to make clear that any
supplemental financial assurance
required by the Regional Director must
be provided before a new lease will be
issued or an assignment of a lease
approved. However, to avoid confusion
in how to apply existing paragraphs
(a)(1) through (3), BOEM has moved this
language to the introduction of
paragraph (a) to note that it is required
in addition to any one of paragraphs
(a)(1) through (3). BOEM’s modified
language in paragraph (a) also addresses
a concern by a commenter that asserted
‘‘the proposed provision makes no sense
at the lease issuance stage because
supplemental financial assurance can
only be required after approved lease
exploration or production activities
commence.’’
The Department is finalizing, as
proposed, revisions to the introductory
text in paragraph (g) to replace the word
‘‘security’’ with ‘‘financial assurance,’’
and to add the word ‘‘surety’’ before
‘‘bond’’ in two places to clarify that in
those cases the regulation is referring to
a ‘‘surety bond.’’
The Department is finalizing, as
proposed, revisions to the introductory
text in paragraph (h) to replace the
words ‘‘additional bond coverage’’ with
‘‘supplemental financial assurance’’ to
clarify that surety bonds are not the only
means of meeting the requirement. The
final rule also revises paragraph (h)(2) in
recognition that BSEE, rather than
BOEM, is the agency with authority to
suspend production or other operations
on a lease.
Finally, the Department is finalizing,
as proposed, the addition of paragraph
(i) to ensure consistency with the RUE
financial assurance requirements by
providing that area-wide lease surety
bonds pledged to satisfy the financial
assurance requirements for RUEs under
§ 550.166 may be called for performance
of obligations arising from a RUE on
which the holder of a RUE defaults.
Section 556.901 Base and
Supplemental Financial Assurance
The Department is finalizing, as
proposed, revisions to the section
heading to read, ‘‘Base and
Supplemental Financial Assurance,’’
because this section covers both base
financial assurance and supplemental
financial assurance requirements.
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The Department is finalizing, as
proposed, revisions to the introductory
text of paragraph (a) to replace the word
‘‘bonds’’ with ‘‘financial assurance’’ for
consistency with the terminology
amendments in this subpart. The
Department is also revising paragraph
(a)(1)(i) introductory text to replace the
word ‘‘bond’’ with ‘‘lease exploration
financial assurance’’ for consistency
with the terminology used in existing
paragraph (a)(1)(ii) (lease exploration
bond).
The Department is finalizing, as
proposed, the elimination of the
parenthetical ‘‘(the lessee)’’ from the
paragraph (b) introductory text as it is
made redundant by the definition of
‘‘You.’’ The Department is also
finalizing, as proposed, revisions to the
paragraph (b)(1)(i) introductory text to
replace the word ‘‘bond’’ with ‘‘lease
development financial assurance’’ for
consistency with the terminology used
in existing paragraph (b)(1)(ii), which is
not being changed.
The Department is finalizing, as
proposed, revisions to paragraph (c) to
remove the words ‘‘authorized officer’’
and replace them with ‘‘Regional
Director,’’ and to remove the words
‘‘lease bond coverage’’ and ‘‘a lease
surety bond’’ and replace them in each
instance with ‘‘financial assurance’’ to
clarify that the Regional Director can
review whether BOEM would be
adequately secured by a surety bond, or
another type of financial assurance, for
an amount less than the amount
prescribed in paragraph (a)(1) or (b)(1),
but not less than the amount of the cost
for decommissioning.
The Department in the final rule is, as
proposed, combining the provisions of
the existing paragraph (d) introductory
text and the existing paragraph (d)(1) to
provide that the Regional Director may
determine that supplemental financial
assurance is required to ensure
compliance with the obligations,
including decommissioning obligations,
under a lease and the applicable
regulations if the lessee does not meet
at least one of the criteria provided in
new paragraphs (d)(1) through (4).
The Department is finalizing, as
proposed, the addition of a new
paragraph (d)(1) to set forth the criterion
BOEM would use to evaluate the ability
of a lessee to carry out present and
future obligations. Under this
paragraph, BOEM will use an
investment grade issuer credit rating
from a NRSRO, as defined by the SEC,
greater than or equal to either BBB¥
from S&P Global Ratings or Fitch
Ratings Inc., or Baa3 from Moody’s
Investor Service Inc., or the equivalent
rating from another NRSRO. If different
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SEC-recognized NRSROs provide
different ratings for the same company,
BOEM will apply the highest rating.
As discussed in section III of this
preamble, the Department is finalizing
the addition of a new paragraph (d)(2)
that states that BOEM can also use a
proxy credit rating calculated by BOEM
based on audited financial information
from the most recent fiscal year
(including an income statement, balance
sheet, statement of cash flows, and the
auditor’s certificate) greater than or
equal to either BBB¥ from S&Ps Global
Ratings or Fitch Ratings Inc., or Baa3
from Moody’s Investor Service Inc., or
their equivalent from another NRSRO.
The proxy credit ratings that BOEM will
calculate on behalf of lessees will be
structured in the same scale as the
standard ratings (i.e., AAA to D). The
audited financial information from the
most recent fiscal year that BOEM uses
to determine the proxy credit rating
must be from a continuous 12-month
period within the 24-month period prior
to the lessee’s receipt of the Regional
Director’s determination that the lessee
must provide supplemental financial
assurance. When determining a proxy
credit rating, the Regional Director will
consider all liabilities that may
encumber a lessee’s ability to carry out
future obligations. Under the final rule
in § 556.901(d)(2)(ii), the lessee is
obligated to provide the Regional
Director with information regarding its
joint-ownership interests and other
liabilities associated with OCS leases,
which might not otherwise be
accounted for in the audited financial
information provided to BOEM.
The Department is finalizing revisions
to paragraph (d)(3) to address the
situation where the lessee does not meet
the criterion in paragraph (d)(1) or (2),
but one or more co-lessees or co-grant
holders meet the criterion. The Regional
Director may require a lessee to provide
supplemental financial assurance for
decommissioning obligations if no colessee or co-grant holder has an issuer
credit rating or proxy credit rating that
meets the threshold set forth in
paragraph (d)(1) or (2). In response to
comments, BOEM has revised new
paragraph (d)(3) to make clear that the
presence of such co-lessee or co-grant
holder will allow the Regional Director
to not require financial assurance from
a current lessee only to the extent that
the current lessee and that co-lessee or
co-grant holder shares accrued
liabilities.
The Department is finalizing the
addition of a new paragraph (d)(4) to set
forth the methodology the Regional
Director would use to determine proved
reserves if the lessee does not meet the
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criteria in paragraph (d)(1), (2), or (3). In
this instance, the Regional Director will
assess each lease, unit, or field to
determine whether the value of the
discounted proved oil and gas reserves
on the lease exceeds three times the
undiscounted estimated cost of the
decommissioning associated with the
production of those reserves. Under
paragraph (d)(4), the Regional Director’s
assessment will be based on the
evaluation of proved oil and gas
reserves following the methodology set
forth in SEC Regulation S–X at 17 CFR
210.4–10 and SEC Regulation S–K at 17
CFR 229.1200. BOEM received multiple
comments requesting BOEM allow the
proved oil and gas reserve analysis to be
based on a unit or field basis, and to
clarify when values are discounted and
when they are undiscounted in the
calculation; BOEM has added
clarifications in paragraph (d)(4) to
address these comments (e.g., including
the field or unit basis, and stating that
undiscounted cost estimates will be
used).
The Department is also finalizing the
addition of new paragraphs (d)(4)(i) and
(ii), which state that, when
implementing this reserves criterion,
BOEM will use decommissioning cost
estimates, including a BSEE-generated
probabilistic estimate at the P70 level
when available, or, if such estimate is
not available, BOEM will use the BSEEgenerated deterministic estimate.
The Department is finalizing, as
proposed, redesignation of existing
paragraph (d)(2) as paragraph (e) and
revisions to provide that a lessee may
satisfy the Regional Director’s demand
for supplemental financial assurance
either by increasing the amount of its
existing financial assurance or by
providing additional surety bonds or
other types of acceptable financial
assurance.
The Department is finalizing
redesignation of existing paragraph (e)
as paragraph (f) and revisions to remove
the word ‘‘bond’’ and replace it with
‘‘supplemental financial assurance,’’ a
term that includes a surety bond or
another type of financial assurance. As
discussed in section III.B of this
preamble, the Department is finalizing
the use of the BSEE P70
decommissioning probabilistic estimate
to determine the amount of
supplemental financial assurance
required to guarantee compliance when
there are insufficient reserves or no
current lessee or co-lessee that meets the
criterion in § 556.901(d)(1) or (2). The
Department is finalizing, as proposed,
the inclusion of the language from
existing paragraph (e) in new paragraph
(f) to establish that, in determining the
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amount of supplemental financial
assurance, the Regional Director will
consider the lessee’s potential
underpayment of royalty and
cumulative decommissioning
obligations.
The Department is finalizing, as
proposed, redesignation of existing
paragraph (f) as paragraph (g) and
revisions to replace the words ‘‘bond’’
and ‘‘surety’’ with ‘‘financial assurance’’
throughout. Existing regulation 30 CFR
556.901(f)(2) includes a statement to the
effect that, if a company requests a
reduction of the amount of the original
bond required, the Regional Director
may agree to such a reduction provided
that he or she finds that ‘‘the evidence
you submit is convincing.’’ The
Department is finalizing, as proposed,
the replacement of this less prescriptive
regulatory text with new paragraph
(g)(2) that states an entity must submit
evidence to the Regional Director that
demonstrates that the projected amount
of royalties due to the United States
Government and the estimated costs of
decommissioning are less than the
required financial assurance amount.
Additionally, through the same process,
BOEM will allow an entity to request a
reduction if it opposes the amount of a
proposed increase in the amount of
financial assurance required.
The Department is finalizing the
addition of new paragraph (h) to
describe the limited opportunity lessees
will have to provide the required
supplemental financial assurance in
phased installments during the first 3
years after the effective date of this
regulation, subject to the conditions of
paragraphs (h)(1) and (2). The
Department proposed and is finalizing a
3-year approach, as discussed in section
III.E of this preamble, which is
appropriate to mitigate potentially
significant risk to companies and to
provide adequate time for the bonding
market to adjust. Additionally, this
approach reduces the immediate
regulatory burden on lessees and grant
holders that are required to provide
financial assurance as a result of this
rule, which are likely to mainly be small
businesses.
The Department is finalizing the
addition of new paragraphs (h)(1)(i)
through (iii) to establish the timing and
amounts of phased supplemental
financial assurance that would need to
be provided. Submissions would be
required in three installments of onethird of the demand each, the first of
which would be required within the
timeframe specified in the demand
letter, or within 60 calendar days of
receiving the demand letter if no
timeframe is specified. The second one-
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third would be required within 24
months from the date of receipt of the
original demand letter, and the final
installment would be due within 36
months from the date of the receipt of
the original demand letter.
Additionally, the Department is
finalizing, as proposed, the addition of
new paragraph (h)(2) to establish a
procedure in case a demand that has
been approved for phased compliance is
not met within the timeframes
established by paragraphs (h)(1)(i)
through (iii). If a phased compliance
deadline under paragraphs (h)(1)(i)
through (iii) is missed, the Regional
Director will notify the party of the
failure to meet the timeframe and that
it will no longer be eligible to meet the
supplemental financial assurance
demand by using the phased
compliance option set forth in
paragraph (h). Moreover, the remaining
balance of the demand will become due
ten calendar days after the Regional
Director’s notification is received.
Section 556.902 General Requirements
for Bonds or Other Financial Assurance
The Department is finalizing, as
proposed, revisions to the section
heading to read, ‘‘General requirements
for bonds or other financial assurance,’’
to recognize that other types of financial
assurance, such as a dual-obligee bond
or a pledge of Treasury securities, may
be provided under part 556. These
amendments clarify that the same
general requirements for financial
assurance provided by lessees, operating
rights owners, or operators of leases also
apply to financial assurance provided
by RUE grant and pipeline ROW grant
holders. The final rule also revises
paragraph (a), as proposed, to include
‘‘grant holder’’ and ‘‘record title holder’’
and to cover financial assurance
provided under 30 CFR part 550. The
requirements of this section are those
that apply broadly to all types of
financial assurance provided to BOEM
for oil and gas activities on a lease or
grant. Additional requirements
applicable specifically to RUEs and
ROWs are described in §§ 550.166 and
550.1011, respectively.
The Department is finalizing, as
proposed, the addition of ‘‘or grant’’
after ‘‘lease’’ to clarify the change to
include grant holders in paragraph
(a)(2). The rule also adds compliance
with ‘‘all BOEM and BSEE orders’’ as a
requirement. Additionally, the final rule
revises proposed paragraph (a)(3) to
include the obligations of all record title
owners, operating rights owners, and
operators on the lease, except as stated
in § 556.905(b) and to add ‘‘all grantholders on a grant.’’
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The Department is finalizing, as
proposed, a revision to paragraph (e)(2)
to clarify that the use of Treasury
securities as financial assurance
requires a pledge of Treasury securities,
as provided in § 556.900(f).
The Department is finalizing, as
proposed, the addition of new
paragraph (g) to recognize the option to
seek an informal resolution of a surety
bond demand pursuant to § 590.6. This
paragraph further provides that a
request for an informal resolution of a
dispute concerning the Regional
Director’s decision to require
supplemental financial assurance will
not affect the applicant’s ability to
request a phased payment of its
supplemental financial assurance
demand under § 556.901(h).
The Department is finalizing, as
proposed, the addition of a new
paragraph (h) to address risks arising in
connection with the lessee’s and grant
holder’s ability to stay the demand
during an appeal of a demand for
supplemental financial assurance to the
IBLA pursuant to the regulations in 30
CFR part 590. The rule adds an
additional requirement to the IBLA
appeals process whereby if an appellant
requests that the IBLA stay the
supplemental financial assurance
demand, the appellant will be required
to post an appeals surety bond equal to
the amount of supplemental financial
assurance that the appellant seeks to
stay before any stay can go into effect.
Because IBLA appeals may continue for
several years, it is important that BOEM
ensure that the government’s and
taxpayers’ interests are protected during
the appeal. The appeal surety bond
requirement will prevent the
government from being left with
inadequate security if the appellant files
bankruptcy before the appeal process
ends.
Section 556.903 Lapse of Financial
Assurance
The Department is finalizing, as
proposed, the replacement of the word
‘‘bond’’ in the section heading with
‘‘financial assurance’’ for consistency
with the terminology change made
throughout the subpart. The final rule
revises paragraph (a) to add after the
word ‘‘surety,’’ ‘‘guarantor, or the
financial institution holding or
providing your financial assurance’’ and
to include references to the financial
assurance requirements for RUE grants
(§ 550.166) and pipeline ROW grants
(§ 550.1011). The final rule also revises,
as proposed, paragraph (a) by removing
the words ‘‘terminates immediately’’
and substituting the words ‘‘must be
replaced.’’ The final rule, in paragraph
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(a), replaces the word ‘‘promptly’’ with
a specific timeline of within 72 hours of
learning of a negative event for the
financial assurance provider and also
adds a 30-calendar day timeframe in
which the party must provide other
financial assurance from a different
financial assurance provider.
The Department is also finalizing, as
proposed, a revision to the first sentence
of paragraph (b) by inserting ‘‘or
financial institution’’ after ‘‘guarantor,’’
to make the provision apply to all types
of financial assurance providers,
including those offering
decommissioning accounts. BOEM is
revising the second sentence of
paragraph (b) for consistency in
terminology by inserting the words ‘‘or
other financial assurance’’ after the
word ‘‘bonds’’ and inserting the words
‘‘guarantor, or financial institution’’
after the word ‘‘surety,’’ so that all
surety bonds or other financial
assurance instruments must require all
financial assurance providers to notify
the Regional Director within 72 hours of
learning of an action filed alleging that
the lessee or grant holder, or their
financial assurance provider, is
insolvent or bankrupt.
Section 556.904 Decommissioning
Accounts
The Department is finalizing, as
proposed, the revision of both the
section heading and the term
‘‘abandonment accounts’’ throughout
the section to read ‘‘decommissioning
accounts,’’ in accordance with BOEM
policy and accepted terminology used
in the industry. The words ‘‘leasespecific’’ are removed throughout this
section to make clear that a
decommissioning account can be used
for a lease or several leases, a RUE grant,
or a pipeline ROW grant, or a
combination thereof.
The Department is finalizing, as
proposed, revisions to paragraph (a) to
remove the term ‘‘lease-specific’’ and
replace ‘‘abandonment’’ with
‘‘decommissioning,’’ and the addition of
references to the lease base and
supplemental financial assurance
regulation (§ 556.901(d)), as well as the
financial assurance regulations for RUE
grants (§ 550.166(b)) and pipeline ROW
grants (§ 550.1011(d)), consistent with
the changes mentioned in the preceding
paragraph. Although the paragraph (a)
introductory text continues to allow a
lessee or grant holder to establish a
decommissioning account at a federally
insured financial institution, this final
rule eliminates the existing restriction
that such deposits not exceed the FDIC/
FSLIC insurance limits and the
reference to paragraph (a)(3), which is
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being revised and is no longer relevant
to withdrawal of funds from a
decommissioning account.
The final rule, as proposed, rearranges the existing sentence
constituting § 556.904(a)(1). The rule
also revises paragraph (a)(2) to remove
the words ‘‘as estimated by BOEM’’ to
clarify that BOEM does not estimate
decommissioning costs, but rather uses
the estimates of decommissioning costs
determined by BSEE. The final rule also
revises paragraph (a)(2) to require
funding of a decommissioning account
‘‘pursuant to a schedule that the
Regional Director prescribes,’’ as
opposed to ‘‘within the timeframe the
Regional Director prescribes’’ as existing
§ 556.904(a)(2) now states.
The Department is finalizing revisions
to paragraph (a)(3) as proposed to
remove the requirement to provide
binding instructions to purchase
Treasury securities for a
decommissioning account under certain
circumstances. The final rule replaces
the existing language with a new
provision providing that if you fail to
make the initial payment or any
scheduled payment into the
decommissioning account, or if you fail
to correct a missed payment within 30
days, you must immediately submit,
and subsequently maintain, a surety
bond or other financial assurance in an
amount equal to the remaining
unsecured portion of your estimated
decommissioning liability. This change
reflects BOEM’s current policy to order
a surety bond or other financial
assurance in the event the payments
into the decommissioning account are
not timely made.
The Department is finalizing, as
proposed, revisions to paragraph (b) by
removing ‘‘lease-specific’’ and
substituting ‘‘decommissioning’’ and to
clarify that the interest paid on funds in
the account will become part of the
principal funds in the account unless
the Regional Director authorizes, in
writing, the payment of the interest to
the party who deposits the funds.
The Department is finalizing, as
proposed, the removal of existing
paragraphs (c) and (d), which discuss
the use of pledged Treasury securities to
fund a decommissioning account.
Existing paragraph (e) is redesignated as
paragraph (c) except that the word
‘‘pledged’’ is removed, and ‘‘other
revenue stream’’ is added to the list of
optional sources for funding the
account. In response to comments
asserting that parties may elect to
dedicate production to fund
decommissioning accounts even if the
Regional Director does not ‘‘require’’
them, the Department is adding to new
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paragraph (c) that the Regional Director
may ‘‘authorize,’’ in addition to
‘‘require,’’ the optional funding sources.
The Department is finalizing the
addition of new paragraph (d) with
minor edits from the proposal, which
describes the Regional Director’s
discretion to authorize BOEM to provide
funds from a decommissioning account
to a party that performs the
decommissioning in response to a
BOEM or BSEE order.
Section 556.905 Third-Party
Guarantees
The Department is finalizing, as
proposed, revisions to the section
heading to read, ‘‘Third-party
guarantees.’’ The final rule also revises
the section throughout to remove the
introductory titles of each paragraph to
provide consistency in the format of the
final regulatory text.
The Department is finalizing, as
proposed, revisions to paragraph (a) to
reference § 556.901(d) (related to lease
financial assurance), and to crossreference § 550.166(b) (related to RUEs)
and 550.1011(d) (related to pipeline
ROWs), to clarify that a third-party
guarantee may be used as a type of
supplemental financial assurance for
not only leases, but RUE grants and
pipeline ROW grants as well.
The Department is also finalizing, as
proposed, revisions to paragraph (a)(1)
to clarify that the guarantor, not the
guarantee, as provided in the existing
regulation, must meet the criteria in
§ 556.901(d)(1) or (2), as applicable.
BOEM retains existing paragraph (a)(2),
but revises it to include a requirement,
which is found in existing paragraph
(a)(4), that the guarantor or guaranteed
party must submit a third-party
guarantee agreement containing each of
the provisions in proposed paragraph
(d). As discussed below, paragraph (d)
is revised to no longer use the term
‘‘indemnity agreement’’ and to provide
instead that the provisions that BOEM
previously required a lessee or grant
holder to include in indemnity
agreements must be included in a thirdparty guarantee agreement. This
terminology is changed to clarify that
the government is not required to incur
the expenses of decommissioning before
demanding compensation from the
guarantor. The rule also removes
existing paragraphs (a)(3) and (4), which
are superseded by other revisions to this
section.
The Department is finalizing the
proposed new paragraph (b) with edits
to allow guarantors to limit their
guarantees to a fixed dollar amount, as
agreed to by BOEM at the time the thirdparty guarantee is provided. In response
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to comments, the Department is also
finalizing additional regulatory text in
new paragraph (b) to allow a guarantor,
as agreed to by BOEM at the time the
third-party guarantee is provided, to
limit a guarantee’s coverage to one or
more specific lease obligations with no
fixed dollar amount, notwithstanding
§ 556.902(a)(3).
The Department is finalizing, as
proposed, redesignation of existing
paragraph (b) as paragraph (c) and
revisions to the introductory text to
remove the reference to existing
paragraph (c)(3) because the
requirements in that paragraph have
been superseded in this rule. The final
rule replaces this reference with a
reference to paragraph (a)(1) as revised.
Because the cessation of production is
neither desirable nor easily
accomplished by an operator, this rule
also revises existing paragraph (b)(2) to
remove the requirement that, when a
guarantor becomes unqualified, you
must ‘‘cease production until you
comply with the surety bond coverage
requirements of this subpart.’’ Instead,
the language in revised redesignated
paragraph (c) provides that you must,
within 72 hours, ‘‘[s]ubmit, and
subsequently maintain a surety bond or
other financial assurance covering those
obligations previously secured by the
third-party guarantee.’’ Additionally,
the final rule removes existing
paragraph (c) as the language has been
superseded by the new language in
§ 556.905(a).
The Department is finalizing, as
proposed, revisions to the paragraph
(d)(1) introductory text to read ‘‘If you
fail to comply with the terms of any
lease or grant covered by the guarantee,
or any applicable regulation, your
guarantor must either:’’ This revision is
made for consistency with the revision
of paragraph (a) to allow the use of a
third-party guarantee for a RUE grant or
a pipeline ROW grant.
Additionally, the rule revises, as
proposed, paragraph (d)(1)(i) to clarify
that the corrective action required is to
bring the lease or grant into compliance
with its terms, or any applicable
regulation, to the extent covered by the
guarantee. The rule also revises
paragraph (d)(1)(ii) to clarify that the
liability only extends to that covered by
the guarantee and that payment of some
amount less than the whole of the
guarantee does not result in the
cancellation of the guarantee, but rather
a reduction in the remaining value of
the guarantee equal to the payment
made.
The rule removes existing paragraph
(d)(2) for consistency with the revision
to remove existing paragraph (c), as
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proposed. As a result, existing
paragraph (d)(3) is redesignated as
paragraphs (d)(2) and (4) is redesignated
as paragraph (d)(3). The rule revises, as
proposed, the redesignated paragraphs
(d)(2)(ii) and (iii) to remove the words
‘‘your guarantor’s’’ and replace them
with the word ‘‘the’’ to clarify that
redesignated paragraph (d)(2) applies to
the guarantee itself. Lastly, as proposed,
the rule revises redesignated paragraph
(d)(3) to replace the term ‘‘a suitable
replacement financial assurance’’ with
‘‘acceptable replacement financial
assurance’’ for clarity. The rule revises
the paragraph so that it is clear that any
replacement financial assurance must be
provided before the termination of the
period of liability of the third-party
guarantee.
The Department is finalizing, as
proposed, a new paragraph (e) to
provide that BOEM will cancel a thirdparty guarantee under the same terms
and conditions as those in revised
§ 556.906(b) and/or (d)(3).
The Department is finalizing the
addition, as proposed, of new
paragraphs (f) through (k) to replace the
provisions of existing paragraph (e). The
new paragraphs mirror the provisions of
existing paragraph (e), while making
minor adjustments to accommodate the
new format and add clarification. The
term ‘‘indemnity agreement’’ would be
replaced with ‘‘third-party guarantee
agreement’’ throughout.
Section 556.906 Termination of the
Period of Liability and Cancellation of
Financial Assurance
The Department is finalizing, as
proposed, the replacement of the words
‘‘security’’ and ‘‘surety bond’’ with
‘‘financial assurance’’ and ‘‘surety’’ with
‘‘financial assurance provider’’ for
consistency with the changes
throughout the subpart. The section
heading is also revised so that ‘‘a bond’’
is replaced with ‘‘financial assurance.’’
This final rule revises existing
paragraph (b)(1) to remove the word
‘‘terminated’’ in two instances and
replace it with ‘‘cancelled’’ to be
consistent with the existing paragraph
(b) introductory text, which provides
that the Regional Director will cancel
your previous financial assurance when
you provide a replacement, subject to
the conditions provided in paragraphs
(b)(1) through (3). BOEM is also
removing the word ‘‘for’’ before ‘‘by the
bond’’ in paragraph (b)(1) for
grammatical reasons.
The Department is finalizing, as
proposed, revisions to existing
paragraph (b)(2) to add cross-references
to § 550.166(a), which is the financial
assurance regulation for RUE grants, and
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§ 550.1011(a), which is the financial
assurance regulation for pipeline ROW
grants, and revising existing paragraph
(b)(3) to also reference supplemental
financial assurance regulations for RUE
grants (§ 550.166(b)) and pipeline ROW
grants (§ 550.1011(d)). The Department
is finalizing the deletion of the word
‘‘base’’ in front of financial assurance to
clarify that the new financial assurance
would replace whatever financial
assurance previously existed, whether
that financial assurance consisted of
base financial assurance alone or
together with any prior supplemental
financial assurance.
The Department is finalizing, as
proposed, revisions to the introductory
text of paragraph (d) to cover financial
assurance cancellations and return of
pledged security and, in the table, is
removing the middle column titled,
‘‘The period of liability will end,’’
because it was redundant with the
provisions in proposed paragraphs (a)
through (c).
In table 1 to paragraph (d), the
Department is finalizing revisions to the
column headers. In the existing column
in the table titled, ‘‘For the following
type of bond,’’ BOEM is removing the
words ‘‘type of bond’’ and replacing
those words with a colon at the top of
the table so that this paragraph would
apply to surety bonds or other financial
assurance, as applicable. The existing
column in the table titled, ‘‘Your bond
will be cancelled,’’ is revised to read,
‘‘Your financial assurance will be
reduced or cancelled, or your pledged
financial assurance will be returned,’’ to
clarify that financial assurance may be
reduced or cancelled and pledged
financial assurance, or a portion thereof,
may be returned, and to specify other
circumstances under which the
Regional Director may cancel
supplemental financial assurance or
return pledged financial assurance.
While the existing criteria identify most
instances when cancellation of financial
assurance is appropriate, occasionally
there are other circumstances where
cancellation would be warranted, as
discussed in the paragraphs below.
Paragraph (d)(1) in the table 1 to
paragraph (d) is revised to include a
cross-reference to base financial
assurance submitted under
§§ 550.166(a) (for RUE grants) and
550.1011(a) (for pipeline ROW grants).
The Department is finalizing revisions
to paragraph (d)(2) in the same column
to include a reference to supplemental
financial assurance submitted under
§§ 550.166(b) and 550.1011(d). The rule
allows cancellation when BOEM
determines, using the criteria set forth
in § 556.901(d), § 550.166(b), or
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§ 550.1011(d), as applicable, that a
lessee or grant holder no longer needs
to provide supplemental financial
assurance for its lease, RUE grant, or
pipeline ROW grant; when the
operations for which the supplemental
financial assurance was provided ceased
prior to accrual of any decommissioning
obligation; or when cancellation of the
financial assurance is appropriate
because BOEM determines such
financial assurance never should have
been required under the regulations.
Additionally, DOI is finalizing, as
proposed, the addition of a new
paragraph (d)(3) in table 1 to paragraph
(d) to address the cancellation of a thirdparty guarantee.
The Department is finalizing, as
proposed, revisions to the introductory
text in paragraph (e) to remove the
words ‘‘or release’’ because the term
‘‘release’’ is undefined and not used in
practice. Likewise, the rule removes the
words ‘‘or released’’ from paragraph
(e)(2). No substantive change is
intended; rather BOEM seeks to clarify
the meaning of the existing provision.
Additionally, the Department is
finalizing the revisions of paragraph (e)
to reference RUE grants and pipeline
ROW grants to provide that the Regional
Director may reinstate the financial
assurance on the same grounds as
currently provided for reinstatement of
lease financial assurance.
Section 556.907 Forfeiture of Bonds or
Other Financial Assurance
The rule revises the section heading
to read, ‘‘Forfeiture of bonds or other
financial assurance’’ because the use of
‘‘or’’ is sufficient in this instance. The
rule revises paragraph (a)(1) to include
surety bonds or other financial
assurance for RUE grants and pipeline
ROW grants, in addition to leases, in the
forfeiture provisions of this section. The
Department is finalizing, as proposed,
the clarification in paragraph (a)(2) that
the Regional Director may pursue
forfeiture of a surety bond or other
financial assurance if you default on one
of the conditions under which the
Regional Director accepts your bond,
third-party guarantee, and/or other form
of financial assurance. Throughout this
section, BOEM adds references to a
grant, a grant holder, and grant
obligations to implement the revisions
in paragraph (a)(1). BOEM is revising
paragraph (a)(2) to replace ‘‘other form
of security’’ with ‘‘other form of
financial assurance’’ for consistent
terminology.
The Department is finalizing, as
proposed, revisions to paragraph (b) to
include surety bonds ‘‘or other financial
assurance’’ so that BOEM may pursue
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forfeiture of a surety bond or other
financial assurance. The word ‘‘lessee’’
is replaced with ‘‘record title holder’’ to
clarify that the term includes record title
holders in those situations where
operating rights are subleased.
The Department is finalizing, as
proposed, revisions to paragraph (c)(1)
to include ‘‘financial institution holding
or providing your financial assurance’’
as one of the parties the Regional
Director would notify of a determination
to call for forfeiture because a bank or
other financial institution may hold
funds subject to forfeiture. This rule
revises paragraph (c)(1)(ii) to
acknowledge limitations authorized by
§ 556.905(b) by more precisely stating
that the Regional Director will use an
estimate of the cost of the corrective
action needed to bring a lease into
compliance when determining the
amount to be forfeited, subject, in the
case of a guarantee, to any limitation
authorized by § 556.905(b).
Additionally, BOEM is replacing
existing paragraphs (c)(2)(ii) and (iii)
with a new paragraph (c)(2)(ii) that
specifies that to avoid forfeiture by
promising to take corrective action, any
financial assurance provider would
have to agree to, and demonstrate that
it will, complete the required corrective
action to bring the relevant lease into
compliance within the timeframe
specified by the Regional Director, even
if the cost of such compliance exceeds
the amount of the financial assurance.
The amendments clarify that existing
paragraphs (c)(2)(ii) and (iii) apply to all
forms of financial assurance, including
the caveat that corrective action must be
completed even if the cost of
compliance exceeds the limit of the
financial assurance.
The Department is finalizing, as
proposed, revisions to existing
paragraphs (d) and (e)(2) by replacing
‘‘leases’’ with ‘‘lease or grant’’ to extend
the applicability of these provisions to
include RUE and ROW grants.
Similarly, the Department is
finalizing, as proposed, revisions to
paragraph (f)(1) to include ‘‘grant’’ as
well as lease. The Department is
revising paragraph (f)(2) to clarify that
BOEM may recover additional costs
from a third-party guarantor only to the
extent covered by the guarantee. This is
consistent with the change made at
§ 556.905(b) to allow the use of limited
third-party guarantees. This rule also
rewords paragraph (g) for clarity.
In some circumstances, predecessor
lessees that have been notified about the
failure of their successor lessees to
fulfill their decommissioning
obligations will initiate the requisite
decommissioning activities. In these
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cases, predecessor lessees or grantees
are likely to incur costs that could be
funded from financial assurance posted
with BOEM on behalf of the current
lessee. BOEM has finalized new
paragraph (h), as proposed, to make
clear that BOEM may provide funds
collected from forfeited financial
assurance to predecessor lessees or grant
holders or to third parties taking
corrective actions on the lease or grant.
Part 590—Appeal Procedures
Subpart A—Bureau of Ocean Energy
Management Appeal Procedures
The Department is revising the
heading of subpart A to remove the
outdated reference to ‘‘Offshore
Minerals Management.’’ The heading
now reads ‘‘Bureau of Ocean Energy
Management Appeals Procedures’’ to
reflect the current organization of the
DOI more accurately. This outdated
reference was identified after the
proposed rule was published. This edit
is not substantive and therefore was
included in this final rule.
Section 590.1
this subpart?
What is the purpose of
The Department is revising the
introductory text to remove the outdated
references to ‘‘Offshore Minerals
Management (OMM) decisions’’ and to
correct prior erroneous text that stated
the decisions and orders which are
being appealed under part 590 are
issued under subchapter C. The
outdated reference and erroneous text
were identified after the proposed rule
was published. This edit is not
substantive and therefore was included
in this final rule.
Section 590.2
Who may appeal?
The Department is revising the
introductory text to remove the outdated
reference to ‘‘OMM officials’’ and to
correct that the decisions and orders
which are being appealed under part
590 are not issued under subchapter C.
The outdated reference and erroneous
text were identified after the proposed
rule was published. This edit is not
substantive and therefore was included
in this final rule.
Section 590.3 What is the time limit
for filing an appeal?
The Department is revising the
introductory text to remove the outdated
reference to ‘‘OMM official’s final
decision’’ and replacing it with the
correct reference to ‘‘BOEM.’’ This
outdated reference was identified after
the proposed rule was published. This
edit is not substantive and therefore was
included in this final rule.
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Section 590.4 How do I file an appeal?
The Department is revising paragraph
(a) to remove the outdated reference to
‘‘OEMM officer’’ and replacing it with
the correct reference to ‘‘BOEM.’’ This
outdated reference was identified after
the proposed rule was published. This
edit is not substantive and therefore was
included in this final rule.
The Department is finalizing, as
proposed, the addition of paragraph (c)
to specify that, while a demand for
supplemental financial assurance may
be appealed to the IBLA, a stay can only
be granted if an appeal surety bond for
an amount equal to the demand is
posted. This is intended to mitigate the
risk to the government that, after the
appeal is decided, a company will be
unable to perform its obligations
because of its financial deterioration
during pendency of the appeal.
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Section 590.7 Do I have to comply
with the decision or order while my
appeal is pending?
The Department is revising
paragraphs (a)(1) and (b) to remove the
outdated reference to ‘‘OMM’’ and
replacing it with the correct reference to
‘‘BOEM.’’ This outdated reference was
identified after the proposed rule was
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published. This edit is not substantive
and therefore was included in this final
rule.
Section 590.8 How do I exhaust my
administrative remedies?
The Department is revising paragraph
(a) to remove an erroneous reference
that previously stated that the decisions
and orders, which are being appealed
under part 590, are issued under
subchapter C.
VI. Statutory and Executive Order
Reviews
A. Executive Order 12866: Regulatory
Planning and Review, as Amended by
Executive Order 14094: Modernizing
Regulatory Review, and Executive Order
13563: Improving Regulation and
Regulatory Review
E.O. 12866, as amended by E.O.
14094, provides that the Office of
Information and Regulatory Affairs
(OIRA) in the Office of Management and
Budget (OMB) will review all significant
rules. OIRA has determined that this
rule is a significant action under E.O.
12866, as amended by E.O. 14094, sec.
3(f)(1). This rulemaking will result in an
annual effect on the economy of $200
million or more (adjusted every 3 years
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by the Administrator of OIRA for
changes in gross domestic product).
E.O. 13563 reaffirms the principles of
E.O. 12866, as amended by E.O. 14094,
while calling for improvements in the
Nation’s regulatory system to promote
predictability and reduce uncertainty,
and to use the best, most innovative,
and least burdensome tools for
achieving regulatory ends. E.O. 13563
directs agencies to consider regulatory
approaches that reduce burdens and
maintain flexibility and freedom of
choice for the public where these
approaches are relevant, feasible, and
consistent with regulatory objectives.
BOEM has developed this rule in a
manner consistent with these
requirements.
BOEM prepared an analysis of the
potential costs and benefits associated
with this action, which are described in
the following OMB Circular A–4
Accounting Statement. For further
discussion, this analysis, Risk
Management and Financial Assurance
for OCS Lease and Grant Obligations
Regulatory Impact Analysis, is available
in the docket and is summarized in
sections IV.B and IV.C of this preamble.
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0MB Circular A-4 Accounting Statement; Estimates, Annualized over 2024-2043
($2023)
Annualized
monetized benefits
(discount rate in
arentheses
NIA
NIA
NIA
NIA
RIA
This rule provides consistent, clear regulations which
will provide clarity to the industry on how the
Department's financial assurance program will be
administered on the OCS.
This rule is designed to decrease the risk to the
taxpayer of assuming financial responsibility for
defaulted decommissioning liabilities while providing
the industry flexibility to avoid financial assurance if
an entity can demonstrate it poses minimal risk. The
rule may also reduce environmental damage by
decreasin decommissionin activi lead time.
Unquantified
benefits
RIA
Costs ($ millions)
20-year annualized
monetized costs
$573.0
$559.0
NIA
NIA
RIATable 1
(20 year)
Annualized
quantified, but
unmonetized, costs
NIA
NIA
NIA
NIA
RIA
Qualitative costs
(unquantified)
Impacts to secondary markets may result in foregone
production and royalties
RIA Section
VIII. (E.O.
13211
Net Monetized Benefits ($ millions)
20-year annualized
monetized benefits
-$573.0
-$559.0
NIA
NIA
$0
$0
Annualized
monetized
transfers: "on
bud et"
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$0
$0
From whom to
whom?
Effects on State,
local, and/or Tribal
governments
Effects on small
businesses
Effects on wages
Effects on growth
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B. Regulatory Flexibility Act (RFA)
The RFA, 5 U.S.C. 601–612, requires
agencies to analyze the economic
impact of regulations when a significant
economic impact on a substantial
number of small entities is likely and to
consider regulatory alternatives that will
achieve the agency’s goals while
minimizing the burden on small
entities. Pursuant to sections 603 and
609(b) of the RFA, BOEM prepared an
initial regulatory flexibility analysis
(IRFA) for the proposed rule that
examined the impacts of the proposed
rule on small entities, along with
regulatory alternatives that could
minimize that impact. A summary of the
IRFA is presented in the proposed rule
at 88 FR 42157 and was included in the
docket for public comment (Risk
Management, Financial Assurance and
Loss Prevention Initial Regulatory
Impact Analysis, Docket ID No. BOEM–
2023–0027–0002).
As required by section 604 of the
RFA, BOEM prepared a final regulatory
flexibility analysis for this action. The
analysis addresses the issues raised by
public comments on the IRFA for the
proposed rule. The complete analysis is
available for review in the docket
(Docket No. BOEM–2023–0027) and is
summarized here.
The final rule affects OCS lessees and
RUE and pipeline ROW grant holders;
this includes approximately 391
companies with ownership interests in
OCS leases and grants, of which
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RIA
No material adverse effects.
RIA
E.O. 12866
approximately 271 (69 percent) are
considered small. Because all 391
companies are subject to this final rule,
BOEM expects the rule will affect a
substantial number of small entities.
Under this final rule, BOEM will
consider the financial capacity of all coowners when determining the need for
current lessees and grant holders to
provide supplemental financial
assurance. If one of these entities meets
the issuer credit or BOEM proxy credit
rating criteria, BOEM will not require
the current lessee or grant holder to
provide supplemental financial
assurance. This will benefit financially
strong lessees or grant holders that meet
the investment grade credit rating
criteria and lessees and grant holders
that do not meet the credit rating criteria
but are co-owners with investment
grade co-lessees or co-grant holders.
Certain lessees or grant holders with
less-than-investment-grade credit
ratings that are solely responsible for
their OCS liability (sole liability leases
or grants) are already bonded under the
current regulations and these lessees
will not be impacted. BOEM’s analysis
assumes that such non-investment-grade
lessees and grant holders with noninvestment-grade co-lessees or co-grant
holders that have avoided financial
assurance under the current regulations
will be expected to provide financial
assurance under this final rule. BOEM’s
estimates indicate that small entities are
responsible for $11.6 billion, or
approximately 80 percent, of the current
$14.6 billion liability of non-
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Small entities are responsible for most of the Tier 2
liability. BOEM estimates the annualized compliance
costs for Tier 2 small entities to be $421 million in
bond premiums.
None
Increased compliance costs for oil and gas lessees
could negatively impact the competitiveness of the
OCS against other opportunities for investment and
development.
BILLING CODE 4310–MR–C
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RFA(RIA
Section VII.)
None
RIA Section
VIII. (E.O.
13211)
investment-grade owners. Noninvestment-grade small entities holding
joint and several liabilities with other
such companies will incur increased
compliance burdens under the rule,
assuming they do not meet the
minimum 3-to-1 ratio of the value of
proved reserves to decommissioning
liability associated with those reserves.
This increased compliance burden will
vary substantially by entity; the burden
is a function of the small entity’s
decommissioning liability, reserves, and
the price of the premiums paid for its
financial assurance. Based on the
estimates in Table 7 of the RIA, these
premiums could exceed $258 per $1,000
of bond coverage for highly speculative
small entities.
The regulatory alternatives evaluated
for the rule are discussed in section VI
(Analysis of Regulatory Alternatives) in
the RIA and in section XII.B of the
preamble to the proposed rule (88 FR
42157). The regulatory alternatives
included both more stringent and less
stringent regulatory options, as well as
a no action alternative for the proposed
rule. For the no action regulatory
alternative, BOEM would continue the
current regulatory policies and partial
implementation of NTL No. 2016–N01.
For the more stringent regulatory
alternative, BOEM would fully
implement NTL No. 2016–N01, which
would require supplemental financial
assurance from all lessees and grant
holders with a credit rating less than
AA- without a financially strong coowner or co-grant holder. For the less
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stringent regulatory alternative, BOEM
would require supplemental financial
assurance for lessees with a credit rating
less than BB- and would waive
requirements for those lessees if there
was a financially strong predecessor
lessee.
Under BOEM’s less stringent
regulatory alternative, small entities
with a credit rating lower than BBcurrently responsible for a liability that
has at least one investment-grade
predecessor lessee would benefit by
avoiding the need to provide any
supplemental financial assurance.
However, a regulatory framework
permitting financially weaker
companies to forgo or delay the posting
of supplemental financial assurance
may create a private cost advantage for
certain entities. This could distort
competition and incentivize financially
weaker companies to incur investment
risks for activities they would otherwise
not undertake.
BOEM has elected to maintain the
proposed rule credit threshold of
investment grade (i.e., BBB-) rather than
that of the less stringent alternative (i.e.,
BB-) to reduce the potential risk
imposed on taxpayers from uncovered
decommissioning liabilities.
Under the more stringent regulatory
alternative in the proposed rule, BOEM
evaluated the full implementation of
BOEM’s 2016 NTL. In this alternative
(‘‘Alternative 1’’), more small businesses
would be required to provide
supplemental financial assurance
because all companies rated A+ and
below (S&P) would be required to
provide financial assurance to secure
their OCS liabilities. BOEM determined
that this alternative would not
meaningfully reduce risk in comparison
with the proposal and would result in
significant new costs to industry. Aside
from the prior implementation issues
with the NTL, the 2016 NTL did not
consider risk reduction provided by
reserves. As a result, it would cost
approximately $1 billion more in annual
premiums, and the additional coverage
over the final rule would come from
investment grade companies that pose a
much lower risk of default. Because A+,
A, and A- companies have very low
default rates, and any co-lessee or
predecessor lessee would have
responsibilities of covering
decommissioning, the small reduction
in risk beyond what is provided in the
rule would not justify the cost of this
regulatory alternative.
Under BOEM’s proposed rule, all
lessees without an investment-grade colessee were required to provide
financial assurance at the P70 level if
they did not meet the investment-grade
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credit rating threshold or have a
minimum value of proved reserves to
decommissioning liability ratio of 3-to1. The Department is finalizing
provisions that require non-investmentgrade lessees responsible for properties
to provide financial assurance at the P70
level (unless they qualify for the 3-to-1
ratio of the value of proved reserves to
decommissioning liability associated
with those reserves exemption).
BOEM has designed its financial
assurance program to accommodate
small entities, while still fulfilling the
goals of minimizing the risk of
noncompliance with regulations.
BOEM’s use of lessee and grant holder
issuer or proxy credit ratings and lease
reserves for determining whether
financial assurance would be required
creates a performance standard rather
than a prescriptive design standard for
all companies operating on the OCS.
Decommissioning obligations and the
joint and several liability framework for
those obligations are not being changed
with this rule. BOEM will not
categorically exempt or provide
differing compliance requirements for
small entities. Categorically exempting
small entities from the provisions of this
rule based on size would place the
taxpayer at unacceptable risk for
assuming the decommissioning
obligations of small entities. BOEM will
use a 3-year, phased compliance
approach for all lessees and grant
holders to allow additional time to come
into compliance in the early years of the
rule. This could include arranging to
secure financial assurance or suitable
partnerships with stronger parties to
avoid the necessity of providing
financial assurance. Categorically
providing small entities with more
favorable compliance timetables before
requiring financial assurance
unreasonably increases risk due to the
possible financial deterioration of a
given company during that time.
BOEM’s financial assurance criteria are
designed, in part, to provide BOEM
ample time to intervene should a
company’s financial position begin to
deteriorate. It is foreseeable that a
company not meeting those criteria, but
categorically granted additional time to
provide financial assurance, could
deteriorate more quickly than its
compliance timetable and thus not be
covered and able to satisfactorily
perform its obligations to the public.
C. Small Business Regulatory
Enforcement Fairness Act
The Small Business Regulatory
Enforcement Fairness Act (SBREFA), 5
U.S.C. 804(2), requires BOEM to
perform a regulatory flexibility analysis,
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31577
provide guidance, and help small
businesses comply with statutes and
regulations for major rulemakings. This
action is subject to the SBREFA because
it has an annual effect on the economy
of $100 million or more.
Small businesses are expected to face
increased compliance costs from this
action, unless they have a financially
strong co-lessee. BOEM estimates that
the annual compliance cost for small
businesses is $421 million (discounted
at 7 percent). BOEM must apply the
same requirements to all weak
companies, regardless of size, in order
to ensure that the development of
energy in the OCS is safe and protects
both the taxpayer and the environment.
BOEM acknowledged that small
businesses may not have issuer credit
ratings in the proposed rule (88 FR
42146) and proposed, and is finalizing,
provisions allowing entities without a
credit rating to have the BOEM Regional
Director assess a proxy credit rating to
address this issue. Additionally, these
small businesses can be evaluated on
the proved reserves of their lease to
determine if they may be required to
provide additional supplemental
financial assurance, also potentially
reducing their financial burden.
Furthermore, a strong co-lessee will
obviate the need for financial assurance
from the rest of the co-lessees on the
lease. BOEM is also including a phasedin implementation and removal of
impediments to the use of
decommissioning accounts and third
party guarantees to provide flexibility
and reduce the financial burden. BOEM
is tasked with ensuring that all lessee
obligations in the OCS are met and
believes this rulemaking is necessary to
address insufficient financial resources
available in the case of default.
For more information on the small
business impacts, see the RFA analysis
and the discussion in section IV of this
preamble. Small businesses may send
comments on the actions of Federal
employees who enforce or otherwise
determine compliance with Federal
regulations to the Small Business and
Agriculture Regulatory Enforcement
Ombudsman, and to the Regional Small
Business Regulatory Fairness Board.
The Ombudsman evaluates these
actions annually and rates each agency’s
responsiveness to small business. If you
wish to comment on actions by
employees of BOEM, call 1–888–REG–
FAIR (1–888–734–3247).
D. Unfunded Mandates Reform Act
(UMRA)
The UMRA, 2 U.S.C. 1531–1538,
requires BOEM, unless otherwise
prohibited by law, to assess the effects
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of regulatory actions on State, local, and
Tribal governments, and the private
sector. Section 202 of UMRA generally
requires BOEM to prepare a written
statement, including a cost-benefit
analysis, for each proposed and final
rule with ‘‘federal mandates’’ that may
result in expenditures by State, local,
and Tribal governments, in the
aggregate, or to the private sector, of
$100 million or more in any one year.
This action contains a Federal mandate
under UMRA, 2 U.S.C. 1531–1538, that
may result in expenditures of $100
million or more for State, local and
Tribal governments, in the aggregate, or
the private sector in any one year.
Accordingly, BOEM has prepared a
written statement required under
section 202 of UMRA. The statement is
included in the RIA for this action and
briefly summarized here.
Because all anticipated private sector
expenditures that may result from the
proposed rule are analyzed in the
proposed rule RIA and in the RIA for
this final rule (i.e., expenditures of the
offshore oil and gas industry), these
documents satisfy the UMRA
requirement to estimate any
disproportionate budgetary effects of the
rule on a particular segment of the
private sector. As explained in the final
RIA, this final rule is anticipated to have
annualized net estimated compliance
costs of $559 million annually (7
percent discounting), but provides
strengthened financial assurance to
protect taxpayers from the costs of
decommissioning offshore
infrastructure. No comments on the
UMRA statement were received during
the public comment period.
This action is not subject to the
requirements of section 203 of UMRA
because it contains no regulatory
requirements that might significantly or
uniquely affect small governments.
E. Executive Order 12630
Governmental Actions and Interference
With Constitutionally Protected Property
Rights
Executive Order 12630, Governmental
Actions and Interference with
Constitutionally Protected Property
Rights, ensures that government actions
affecting the use of private property are
undertaken on a well-reasoned basis
with due regard for the potential
financial impacts imposed by the
government. This action does not affect
a taking of private property or otherwise
have taking implications under E.O.
12630, and therefore, a takings
implication assessment is not required.
Additionally, no comments were
received on E.O. 12630 during the
public comment period.
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F. Executive Order 13132
Federalism
Regulatory actions that have
substantial direct effects on the States,
on the relationship between the
National Government and the States, or
on the distribution of power and
responsibilities among the various
levels of government are subject to E.O.
13132. Under the criteria in section 1 of
E.O. 13132, this final rule does not have
sufficient federalism implications to
warrant the preparation of a federalism
summary impact statement. It will not
have substantial direct effects on the
States, on the relationship between the
National Government and the States, or
on the distribution of power and
responsibilities among the various
levels of government. No comments
were received on E.O. 13132 during the
public comment period.
G. Executive Order 12988
Reform
Civil Justice
This rule complies with the
requirements of E.O. 12988.
Specifically, this rule:
(1) Meets the criteria of section 3(a)
requiring that all regulations be
reviewed to eliminate errors and
ambiguity and be written to minimize
litigation; and
(2) Meets the criteria of section 3(b)(2)
requiring that all regulations be written
in clear language and contain clear legal
standards.
No comments were received on E.O.
12988 during the public comment
period.
H. Executive Order 13175
Consultation and Coordination With
Indian Tribal Governments
Executive Order 13175 defines polices
that have Tribal implications as
regulations, legislative comments or
proposed legislation, and other policy
statements or actions that will or may
have a substantial direct effect on one or
more Indian Tribes, or on the
relationship between the Federal
Government and one or more Indian
Tribes. Additionally, the DOI’s
consultation policy for Tribal Nations
and ANCSA Corporations, as described
in Departmental Manual part 512
chapter 4, expands on the above
definition from E.O. 13175 and requires
that BOEM invite Indian Tribes and
ANCSA Corporations ‘‘early in the
planning process to consult whenever a
Departmental plan or action with Tribal
Implications arises.’’ BOEM strives to
strengthen its government-togovernment relationships with Tribal
Nations through a commitment to
consultation with Tribes, recognition of
their right to self-governance and Tribal
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sovereignty, and honoring BOEM’s trust
responsibilities for Tribal Nations.
As discussed in the proposal (88 FR
42161), BOEM evaluated the proposed
rule under DOI’s consultation policy
and under the criteria in E.O. 13175 and
determined that, while the proposed
rule would likely not cause any
substantial direct effects on
environmental or cultural resources,
there may be resource or economic
impacts to one or more federally
recognized Indian Tribes or ANCSA
Corporations as a result of the proposed
rule. BOEM sent letters to all Tribes and
ANCSA Corporations on March 31,
2023, to ensure they were aware of the
proposed rulemaking, to answer any
immediate questions they may have,
and to invite formal consultation if they
would like to consult. Only one request
for consultation was received, and
consultation was held with the Red
Willow (Southern Ute Tribe) on June 28,
2023, and meeting notes are included in
the docket (memorandum titled Tribal
Outreach: Red Willow). For more details
on E.O. 13175, the DOI’s consultation
policy for Tribal Nations and ANCSA
Corporations, and the consultations
conducted regarding this rulemaking,
see the memo in the docket titled Tribal
Outreach: Summary of Engagement
Activities. BOEM can consult at any
time with federally recognized Tribes as
sovereign nations.
I. Paperwork Reduction Act (PRA)
The PRA of 1995 (44 U.S.C. 3501–
3521) provides that an agency may not
conduct or sponsor, and a person is not
required to respond to, a ‘‘collection of
information’’ unless it displays a
currently valid OMB control number.
Collections of information include
requests and requirements that an
individual, partnership, or corporation
obtain information and report it to a
Federal agency (44 U.S.C. 3502(3); 5
CFR 1320.3(c) and (k)). This final rule
contains collections of information that
were submitted to the OMB for review
and approval under 44 U.S.C. 3507(d).
A proposed rule, soliciting comments
on this collection of information for 30
days, was published on June 29, 2023
(88 FR 42136). No comments on the
collections of information were
received.
This final rule references existing
information collections (ICs) previously
approved by OMB and adds new IC
requirements for these Department
regulations that have been submitted to
OMB for review and approval under the
Paperwork Reduction Act of 1995 (44
U.S.C. 3501 et seq.). With this final rule
BOEM updates the IC requirements
under 30 CFR parts 550 and 556. The
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updates associated with the risk
management and financial assurance for
OCS lease and grant obligations are in
the ICs bearing the following OMB
control numbers:
• 1010–0006 (BOEM), Leasing of
Sulfur or Oil and Gas in the Outer
Continental Shelf (30 CFR parts 550,
556, and 560) (expires 03/31/2026), and
• 1010–0114 (BOEM), 30 CFR part
550, subpart A, General, and Subpart K,
Oil and Gas Production Requirements
(expires 05/31/2026).
This final rule modifies collections of
information under 30 CFR part 550,
subparts A and J, and 30 CFR part 556,
subpart I, concerning financial
assurance requirements (such as
bonding) for leases, pipeline ROW
grants, and RUE grants. OMB has
reviewed and approved the existing
information collection requirements
associated with financial assurance
regulations for leases (30 CFR 556.900
through 556.907), pipeline ROW grants
(30 CFR 550.1011), and RUE grants (30
CFR 550.160 and 550.166).
BOEM estimates that the number of
information collection burden hours for
the final rule overall is close to the same
as that for the existing regulatory
framework. When the rule becomes
effective, the new and changed
provisions will increase the overall
annual burden hours for OMB Control
Number 1010–0006 by 77 hours
(totaling 22,012 annual burden hours)
and 264 responses (totaling 22,090
responses) as justified below. The
changed provisions for OMB Control
Number 1010–0114 add new and
revised requirements in 30 CFR part
550, subpart A, but do not impact the
overall burden hours for this control
number because the burdens for these
provisions are counted under OMB
Control Number 1010–0006. However,
the regulatory descriptions of new and
modified requirements are extensive
enough to require an update of the IC
bearing that OMB control number.
When needed, BOEM will submit
future burden changes (either increases
or decreases) of the OMB control
numbers with reasoning to OMB for
review and approval. Every 3 years,
BOEM will also review the burden
numbers for changes, seek public
comment, and submit any request for
changes to OMB for approval.
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Title of Collection: 30 CFR part 550,
‘‘Oil and Gas and Sulfur Operations in
the Outer Continental Shelf,’’ and 30
CFR part 556, ‘‘Leasing of Sulfur or Oil
and Gas and Bonding Requirements in
the Outer Continental Shelf.’’
OMB Control Numbers: 1010–0006
and 1010–0114.
Form Number: None.
Type of Review: Revision of currently
approved collections.
Respondents/Affected Public: Federal
OCS oil, gas, and sulfur operators and
lessees, and RUE grant and pipeline
ROW grant holders.
Total Estimated Number of Annual
Responses: 22,090 responses for 1010–
0006, and 5,621 responses for 1010–
0114.
Total Estimated Number of Annual
Burden Hours: 22,012 hours for 1010–
0006, and 27,849 hours for 1010–0114.
Respondent’s Obligation: Responses
to these collections of information are
mandatory or are required to obtain or
retain a benefit.
Frequency of Collection: The
frequency of response varies but is
primarily on the occasion or as per the
requirement.
Total Estimated Annual Non-Hour
Burden Cost: No additional non-hour
costs. Non-hour costs remain at
$766,053 for OMB Control Number
1010–0006, and $165,492 for OMB
Control Number 1010–0114.
The following is a brief explanation of
how the regulatory changes in this
rulemaking affect the various subparts’
hour and non-hour cost burdens for
OMB Control Number 1010–0114:
Right-of-Use and Easement
BOEM’s existing regulations
concerning RUE grants supporting an
OCS lease and a State lease are found at
30 CFR 550.160 through 550.166. The
burdens related to 30 CFR 550.160 and
550.166 are identified in OMB Control
Number 1010–0114 but accounted for in
OMB Control Number 1010–0006.
Existing § 550.160 provides that an
applicant for a RUE that serves an OCS
lease must meet bonding requirements,
but the regulation does not prescribe a
base amount. This rule replaces this
requirement with a cross-reference to
the specific criteria governing financial
assurance demands in § 550.166.
Therefore, BOEM is establishing a
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Federal RUE base financial assurance
requirement matching the existing base
surety bond requirement for State RUEs.
The annual burden hour does not
change since RUEs that serve OCS
leases are currently already meeting
financial assurance requirements under
BOEM’s agreement-specific conditions
of approval.
In § 550.166, BOEM is establishing a
$500,000 area-wide RUE financial
assurance requirement that guarantees
compliance with the regulations and the
terms and conditions of any RUE grants
an entity holds. Previously, $500,000 in
financial assurance for RUEs was only
required for RUEs associated with State
leases. BOEM is also allowing any lessee
that has posted area-wide lease financial
assurance to modify that financial
assurance to also cover any RUE(s) held
by the same entity.
BOEM is also revising the RUE
regulations to clarify that any RUE grant
holder, whether the RUE serves a State
or Federal lease, may be required to
provide supplemental financial
assurance for the RUE if the grant
holders do not meet the credit rating or
proxy credit rating criterion. The
existing regulations authorized demands
for supplemental financial assurance
but specified no criteria. The annual
burden hour would not change based on
these clarifications.
BOEM added § 550.167 to explain the
requirements for obtaining and
assigning an interest in a RUE. To obtain
a RUE or assignment of a RUE, the
applicant or assignee must apply for and
receive approval from BOEM. Some of
the new requirements parallel those for
ROW assignments in BSEE’s regulations
at 30 CFR 250.1018. BOEM is expanding
the burden estimate for RUE application
requirements to include the application
to obtain a RUE or assign a RUE interest
in § 550.167. BOEM estimates 9 hours
per respondent for requirements related
to RUE applications or requests to
assign a RUE interest.
The following is the revised burden
table and a brief explanation of how the
regulatory changes affect the various
subparts’ hour and non-hour cost
burdens for OMB Control Number
1010–0006:
BILLING CODE 4310–MR–P
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Burden Table
[Italics show expansion of existing requirements; bold indicates new requirements;
regular font shows current requirements. Where applicable, updated estimates from the
current collection are being used.]
30CFR
part 550,
subpart
J
Reporting Requirement*
IOll(a)
Provide area-wide financial assurance (form BOEM-2030) and ifrequired,
supplemental financial assurance, and required information.
Hour
Burden
Demonstrate financial worth/ability to carry out present and future financial
obligations, request approval of another form offinancial assurance, request
reduction in amount of supplemental financial assurance required on BOEMapproved forms, or request phased financial assurance. Submit required
information.
1011(d)
GOM
0.25
Pacific
3.5
Alaska
Annual
Burden
Hours
52
13
3
11
1
1
Burden included in 30 CFR
556.901(d).
56
Resoonses
30 CFR part 550, subpart J, TOTAL
30CFR
part 556
and
NTLs
Average
No. of
Annual
Responses
25 Hours
Average
Annual
No. of
Burden
Annual
Hours
Responses
Non-Hour Cost Burdens
Hour
Burden
Reporting Requirement*
Subpart A
104(b)
Submit confidentiality agreement.
106
Cost recovery/service fees; confirmation receipt.
0.25
500
Cost recovery/service fees
and associated
documentation are covered
under individual reqts.
throughout this part.
Submit required documentation electronically through BO EM-approved system;
comply with filing specifications, as directed by notice in the Federal Register in
accordance with 6 560.500.
File seals, documents, statements, signatures, etc., to establish legal status of all
future submissions (paper and/or electronic).
107
107
125
0
Burden covered in §
560.500.
0
0.17 (10
min.)
400
67
900
192
Subtotal
Subpart B
Submit nominations, suggestions, comments, and information in response to Request
for Information/Comments, draft and/or proposed 5-year leasing program, etc.,
including information from States/local governments, Federal agencies, industry, and
others.
Submit nominations & specific information requested in draft proposed 5-year
leasing program, from States/local governments.
201-204
201-204
Not considered IC as
defined in 5 CFR
1320.3(h)(4).
0
4
69
276
69
276
Subtotal
Subpart C
Submit response & specific information requested in Requests for Industry Interest
and Calls for Information and Nominations, etc., on areas proposed for leasing;
including information from States/local governments.
Request summary of interest (non-proprietary information) for Calls for
Information/Requests for Interest, etc.
States or local governments submit comments, recommendations, other responses on
size, timing, or location of proposed lease sale. Request extension; enter agreement.
301;302
302(d)
305;306
Not considered IC as
defined in 5 CFR
1320.3(h)1 4)
0
1
5
5
4
25
100
30
105
107
214
SubpartD
400-402;
405
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403(c)
Requirement not
considered IC uuder 5 CFR
Request hearing on disqualification.
31581
0
1320.3(h)(8).
403; 404
Notify BOEM if you or your principals are excluded, disqualified, or convicted of a
crime---Federal non-procurement debarment and suspension requirements; request
exception; enter transaction.
405
Notify BOEM of all mergers, name changes, or change of business.
1.5
50
Requirement uot
considered IC uuder 5 CFR
75
0
1320.3(h)/l l.
Subtotal
157
289
2,000
10,000
Subpart E
500;501
Submit bids, deposits, and required information, including GDIS & maps; in manner
specified. Make data available to BOEM.
5
Requirement not
considered JC under 5 CFR
500(e);
517
Request reconsideration of bid decision.
50l(e)
Apply for reimbursement.
511(b);
517
Submit appeal due to restricted joint bidders list; request reconsideration of bid
decision.
513; 514
File statement and detailed report of production. Make documents available to
BOEM.
0
1320.3(h)(9).
515
Request exemption from bidding restrictions; submit appropriate information.
Burden covered in IO 100048, 30 CFR oart 551.
Requirement not
considered IC under 5 CFR
0
0
1320.3(h)(9).
2
100
Requirement not
considered IC under 5 CFR
200
0
1320.3(h)(9).
516
520; 521;
600(c)
520(b)
Notify BOEM of tie bid agreement; file agreement on determination oflessee.
Execute lease (includes submission of evidence of authorized agent/completion and
request effective date of lease); submit required data and rental.
Provide acceptable bond for payment of a deferred bonus.
3.5
2
7
I
852
852
1
1
2,955
11,060
0.25
Subtotal
Subparts F, G, H
Subparts
F,G,H
Requests of approval for various operations or submit plans or applications. Burden included with other
approved collections for BOEM 30 CFR part 550 (subpart A 1010-0114; subpart B 1010-0151) and for BSEE 30
CFR part 250 ( subpart A 1014-0022; subpart D 1014-0018).
701(c);
716(b);
801(b);
810(b)
Submit new designation of operator (BOEM-1123).
700-716
800-810
File application and required information for assignment/transfer ofrecord title/lease
interest (form BOEM-0150; form is 30 min.) (includes sell, exchange, transfer);
request effective date/confidentiality; provide notifications.
File application and required information for assignment/transfer of operating interest
(Form BOEM-0151) (includes sale, sublease, segregation exchange, severance,
transfer); request effective date; provide notifications.
715(a);
808(a)
File required instruments creating or transferring economic interests, etc., for record
purposes.
715(b);
808(b)
Submit "non-required" documents, for record purposes that respondents want BOEM
to file with the lease document. (Accepted on behalf of lessees as a service; BOEM
does not require or need them.)
0
Burden covered in
1010-0114.
0
1
1,414
1,414
$198 fee x 1,414 forms= $279,972
1
421
421
$198 fee x 421 forms= $83,358
1
2,369
2,369
$29 fee x 2,369 filings= $68,701
.25
11,518
2,880
$29 fee x 11,518 filings = $334,022
15,722
7,084
Subtotal
Subpart I
900(a)
through
(e); 901;
902;
903(a);
905
900(c),
(d), (f),
(g);
901(c),
VerDate Sep<11>2014
Submit OCS Mineral Lessee's and Operator's Bond (Form BOEM-2028) or other
financial assurance and, if required, provide supplemental financial assurance; execute 0.33
forms.
Demonstrate financial ability to carry out present and future financial obligations,
request approval of another form of financial assurance, request reduction in amount
of supplemental financial assurance required on BOEM-approved forms, or request
17:52 Apr 23, 2024
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160
24APR5
135
560
ER24AP24.155</GPH>
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$766,053
31582
(h),
901(d),
(f); 902;
904
900(e);
901; 902;
903(a)
900(±),
(z), (i)
Federal Register / Vol. 89, No. 80 / Wednesday, April 24, 2024 / Rules and Regulations
phased provision offinancial assurance. Monitor and submit required information.
Submit OCS Mineral Lessee's and Operator's Supplemental Plugging &
Abandonment Bond (Form BOEM-2028A); execute bond.
0.25
141
35
Submit authority for Regional Director to sell Treasury or alternate type offinancial
assurance.
2
12
24
901
Submit EP, DPP, DOCDs.
901(g)
Submit oral/written comment on adjustedfinancial assurance amount and
information.
902 (g),
(h)NEW
Request informal resolution or file an appeal of supplemental financial
assurance demand.
903 (a),
(b); 905
(c)
904
Notify BOEM of any lapse in financial assurance coverage/action filed alleging
lessee, surety, guarantor, or financial institution is insolvent or bankrupt or had its
charter or license suspended or revoked.
Establish decommissioning account for estimated decommissioning obligation.
Provide third-party guarantee, agreement, financial and required information, related
notices, reports, and annual update; notifv BOEM if guarantor becomes unqualified.
Provide notice of and request approval to terminate period ofliability, cancel
financial assurance; provide required information.
Provide information to demonstrate lease will be brought into compliance.
905
905(d);
906
907(c)(2)
IC burden covered in
1010-0151, 30 CFR part
550, subpart B.
Requirement not
considered IC under 5
CFR 1320.3(h)(9).
Requirement not
considered IC under 5
CFR 1320.3(h)(9).
0
3
4
12
12
2
24
19
46
874
0.5
378
189
16
5
1153
80
1,933
247
1
247
1
Subtotal
0
0
SubpartK
1101
1102
Request relinquishment of lease (form BOEM-0152); submit required information.
Request additional time to bring lease into compliance.
1
1
1102(c)
Comment on cancellation.
Requirement not
considered IC under 5 CFR
1320.3(h)(9).
Subtotal
30 CFR part 556 TOTAL
248
248
21,234
21,187
Responses
Hours
$766,053 Non-Hour
Cost Burdens
Average
Annual
No. of
Burden
Annual
Hours
Responses
30CFR
part 560
Reporting Requirement*
Hour
Burden
560.224(a)
Request BOEM to reconsider field assignment of a lease.
Requirement not
considered IC under 5 CFR
1320.3(h)(9)
0
560.500
Submit required documentation electronically through BOEM-approved system;
comply with filing specifications, as directed by notice in the Federal Register (e.g.,
financial assurance info.).
1
800
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17:52 Apr 23, 2024
Pipelines and Pipeline Right-of-Way
Grants
Section 550.1011(d) relates to BOEM’s
determination of whether supplemental
financial assurance is necessary to
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Fmt 4701
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ensure compliance with the obligations
under a pipeline ROW grant. This
determination will be based on whether
pipeline ROW grant holders have the
ability to carry out present and future
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ER24AP24.156</GPH>
TOTAL REPORTING FOR COLLECTION
BILLING CODE 4310–MR–C
800
800
800
Responses
Hours
22,090
22,012
Responses
Hours
$766,053 Non-Hour
Cost Burdens
30 CFR part 560 TOTAL
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0
Federal Register / Vol. 89, No. 80 / Wednesday, April 24, 2024 / Rules and Regulations
obligations. The new criterion for the
determination is an issuer credit rating
or a proxy credit rating. The issuer
credit rating and the audited financial
information on which BOEM
determines a proxy credit rating already
exist. The burden of determining a
proxy credit rating, based on the
submitted audited financial
information, falls on BOEM. The annual
burdens placed on the grant holder are
minimal (providing to BOEM
information the grant holder already
has) and is included in the burden
estimates for 30 CFR 556.901(d).
30 CFR part 556, subpart I (OMB
Control Number 1010–0006):
Bond or Other Financial Assurance
Requirements for Leases
A new provision at 556.900(a)
clarifies that supplemental financial
assurance required by the Regional
Director must be provided before an
assignment of a lease is approved. The
burden increase for this requirement is
included in OMB Control Number
1010–0006. Supplemental financial
assurance required by this provision
does not significantly impact the
burdens due to low occurrence, but
BOEM is accounting for the change in
the burden table.
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Base Bonds and Supplemental Financial
Assurance
Section 556.901(d) relates to BOEM’s
determination of whether supplemental
financial assurance is necessary to
ensure compliance with the obligations
under a lease. The lessee will be
required to provide supplemental
financial assurance if it does not meet
at least one of the criteria outlined in
the final regulations in this section.
Section 556.901(d)(1) bases this
determination on an investment grade
issuer credit rating.
Section 556.901(d)(2) provides that,
alternatively, BOEM will consider a
proxy credit rating, which must be
based on audited financial information
for the most recent fiscal year.
Section 556.901(d)(3) provides that
BOEM will consider whether the colessee or co-grant holder has an issuer
credit rating or proxy credit rating that
meets the investment-grade threshold.
The presence of such co-lessee or cogrant holder will allow the Regional
Director to not require financial
assurance only to the extent that the
lessee or grant-holder and that co-lessee
or co-grant holder share accrued
liabilities, and the Regional Director
may require the lessee or grant holder to
provide supplemental financial
assurance for decommissioning
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17:52 Apr 23, 2024
Jkt 262001
obligations for which such co-lessee or
co-grant holder is not liable.
Section 556.901(d)(4) provides that
BOEM will also consider the net present
value of proved oil and gas reserves on
the lease. Lessees’ submission of
information on proved reserves would
account for additional annual burden
hours. The lessee would not need to
submit proved reserve information if
supplemental financial assurance is not
required based on its issuer credit rating
or proxy credit rating, or those of its colessees.
The existing OMB-approved hour
burden for each respondent to prepare
and submit the information for the
existing evaluation criteria requirements
is 3.5 hours. In this rule, the revision of
the evaluation criteria results in
requiring less time for the respondents
to prepare and submit the information,
particularly for issuer credit rating. If
companies choose to demonstrate that
the net present value of proved oil and
gas reserves on the lease exceeds three
times the undiscounted cost of
decommissioning associated with
production of those reserves, then the
time necessary for companies to prepare
and submit information on the proved
oil and gas reserves is likely greater than
3.5 hours. Therefore, BOEM is retaining
the average 3.5-hour burden to reflect
the decrease in time required to prepare
and submit issuer credit ratings and
audited financials and the increase in
time required for preparing and
submitting information on proved
reserves. When the final rule becomes
effective, the related burden hours for
all respondents (lessee, co-lessee, grant
holder, and co-grant holder) will be
included in OMB Control Number
1010–0006.
The OMB-approved number of
respondents who currently submit
financial information under the existing
provision is 166 respondents. Recently,
BOEM has seen the number of leases
decrease in the Gulf of Mexico. BOEM
estimates the new number of
respondents will be between 150 and
160 respondents. For this request,
BOEM is using the higher number of
160 respondents (minus 6 respondents).
This number will be reviewed during
the next IC renewal process. When the
final rule becomes effective, BOEM will
include the new number of respondents
in OMB Control Number 1010–0006.
The existing OMB-approved annual
burden hours for § 556.901 related to
demonstrating financial worth/ability to
carry out present and future financial
obligations are 581 hours (166
respondents × 3.5 hours). With the
changes provided in this rule and
described above, BOEM estimates that
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31583
the annual hour burden will decrease by
approximately 21 annual burden hours,
and total annual burden hours will
equal 560 hours (160 respondents × 3.5
hours). This decrease in annual burden
hours will be reflected in OMB Control
Number 1010–0006 when the final rule
becomes effective.
BOEM is adding paragraph (h) to
§ 556.901 to establish the limited
opportunity to provide the required
supplemental financial assurance in
installments during the first 3 years after
the effective date of this regulation. This
provision establishes the timing and
proportions of phased supplemental
financial assurance that will be required
in each installment. The lessee will
have the option to submit the
supplemental financial assurance once
or in installments. If the lessee chooses
to provide supplemental financial
assurance in installments, the number of
submissions of supplemental financial
assurance will likely increase, but only
in response to demands made during
the first 3 years after the effective date
of this regulation. OMB has currently
approved 45 annual burden hours for
supplemental financial assurance
submissions (135 submissions which
take 20 minutes each to submit). BOEM
estimates the burden hours for the
proposed installment submissions
provision to be 135 annual burden
hours (405 submissions × 20 minutes),
which is an increase of 90 hours over
the existing OMB approval.
General Requirements for Bonds and
Other Financial Assurance
The scope of § 556.902(a) has been
clarified to include ‘‘grant holder’’ and
financial assurance posted under the
requirements of 30 CFR part 550. This
change would clarify that the same
general requirements for financial
assurance provided by lessees, operating
rights owners, or operators also apply to
financial assurance provided by RUE
and pipeline ROW grant holders. BOEM
proposes to keep the burdens the same
as the existing OMB burdens.
Decommissioning Accounts
Revisions to § 556.904 allow the
Regional Director to authorize a RUE
grant holder and a pipeline ROW grant
holder, as well as a lessee, to establish
a decommissioning account as
supplemental financial assurance
required under § 556.901(d),
§ 550.166(b), or § 550.1011(d). Because
this change represents a new option for
grant holders, there are no existing
burdens related to this provision under
the current OMB approval. BOEM is
capturing the increased opportunity to
establish decommissioning accounts in
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the burden table. BOEM estimates 24
annual burden hours for grant holders
and/or lessees to establish their
decommissioning account.
The rule contains a new provision
under § 556.904(a)(3), which would
require immediate submission of a
surety bond or other financial assurance
in the amount equal to the remaining
unsecured portion of the supplemental
financial assurance demand if the initial
payment or any scheduled payment into
the decommissioning account is not
timely made. In the context of
paperwork-burden, this provision
replaces the existing provision that
requires submission of binding
instructions. The annual burden hours
will remain the same but will shift to
the new requirement and will be
reflected in OMB Control Number 1010–
0006 when the final rule is effective.
Third-Party Guarantees
New § 556.905(a) relates to the
guarantor’s ability to carry out present
and future obligations. New § 556.905
replaces the term indemnity agreement
with a third-party guarantee agreement
with comparable provisions. This
change would not impact annual burden
hours. Section 556.905(a)(2) requires the
guarantor to submit a third-party
guarantee agreement. Paragraph (d)
provides that the terms that the existing
regulation requires for indemnity
agreements must be included in a thirdparty guarantee agreement. This change
is to avoid any inference that the
government must incur the expenses of
decommissioning before being
indemnified by the guarantor. It is a
change of the name of the agreement
and does not change the associated
burden.
New § 556.905(e) provides that a
lessee or grant holder and the guarantor
under a third-party guarantee may
request BOEM to cancel a third-party
guarantee. BOEM will cancel a thirdparty guarantee under the same terms
and conditions provided for
cancellation of other forms of financial
assurance in § 556.906(d)(2). The
current OMB-approved burden under
§ 556.905(d) and § 556.906 is 189 annual
burden hours. BOEM will keep the
burdens the same as the current OMB
approved burdens at 189 annual burden
hours.
New § 556.905(c)(2) eliminates the
requirement that a lessee must cease
production until supplemental financial
assurance coverage requirements are
met when a guarantor becomes
unqualified. The regulatory provision is
replaced with a requirement to
immediately submit and maintain a
substitute surety bond or other financial
VerDate Sep<11>2014
17:52 Apr 23, 2024
Jkt 262001
assurance. Both the existing and new
provisions require the lessee to provide
replacement surety bond coverage;
however, BOEM’s current OMB Control
Number 1010–0006 does not quantify
the burdens. Therefore, BOEM is adding
approximately 8 annual burden hours to
OMB Control Number 1010–0006 for
any lessee whose guarantor becomes
unqualified.
New § 56.905 removes the
requirement that a guarantee must
ensure compliance with all lessees’ or
grant holders’ obligations and the
obligations of all operators on the lease
or grant. This revision allows a thirdparty guarantor, with BOEM’s
agreement, to limit the obligations
covered by the third-party guarantee. In
some situations, this change could
result in additional paperwork burden
due to additional surety bonds or other
financial assurance that must be
provided to BOEM to cover obligations
previously covered by a third-party
guarantee. BOEM estimates the number
of additional financial assurance
demands resulting from this revision to
be low and the annual burdens are
included in the existing burden
estimates for OMB Control Number
1010–0006, and will be revised in future
IC requests, if needed.
Termination of the Period of Liability
and Cancellation of Financial Assurance
Section 556.906(d)(2) is revised to add
additional circumstances when BOEM
may cancel supplemental financial
assurance. Section 556.906(d)(2)
requires a cancellation request from the
lessee or grant holder, or the surety,
based on assertions that one of the
stated circumstances is present. BOEM
already receives these types of requests
and has approved the requests, where
warranted, as a departure from the
regulations. These burdens are already
counted in the existing OMB burden
estimate for OMB Control Number
1010–0006.
Once this rule becomes effective and
OMB approves the information
collection requests, BOEM would revise
the existing OMB control numbers to
reflect the changes. The IC does not
include questions of a sensitive nature.
BOEM will protect proprietary
information according to the Freedom of
Information Act (5 U.S.C. 552) and DOI
implementing regulations (43 CFR part
2), 30 CFR 556.104, Information
collection and proprietary information,
and 30 CFR 550.197, Data and
information to be made available to the
public or for limited inspection.
The PRA requires agencies to estimate
the total annual reporting and
recordkeeping non-hour cost burden
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resulting from the collection of
information, and we solicit your
comments on this item. For reporting
and recordkeeping only, your response
should split the cost estimate into two
components: (1) total capital and startup
cost component; and (2) annual
operation, maintenance, and purchase
of service component. Your estimates
should consider the cost to generate,
maintain, and disclose or provide the
information. You should describe the
methods you use to estimate major cost
factors, including system and
technology acquisition, expected useful
life of capital equipment, discount
rate(s), and the period over which you
incur costs. Generally, your estimates
should not include equipment or
services purchased: (1) before October 1,
1995; (2) to comply with requirements
not associated with the information
collection; (3) for reasons other than to
provide information or keep records for
the Government; or (4) as part of
customary and usual business or private
practices.
As part of our continuing effort to
reduce paperwork and respondent
burdens, we invite the public and other
Federal agencies to comment on any
aspect of this information collection,
including:
(1) Is the proposed information
collection necessary or useful for BOEM
to properly perform its functions?
(2) Are the estimated annual burden
hour increases and decreases resulting
from the proposed rule reasonable?
(3) Is the estimated annual non-hour
cost burden resulting from this
information collection reasonable?
(4) Do you have any suggestions that
would enhance the quality, clarity, or
usefulness of the information to be
collected?
(5) Is there a way to minimize the
information collection burden on those
who must respond, such as by using
appropriate automated digital,
electronic, mechanical, or other forms of
information technology?
Send your comments and suggestions
on this information collection by the
date indicated in the DATES section to
the Desk Officer for the Department of
the Interior at OMB—OIRA at (202)
395–5806 (fax) or via the online portal
at https://www.reginfo.gov. You may
view the information collection
request(s) at https://www.reginfo.gov/
public/do/PRAMain. Please provide a
copy of your comments to the BOEM
Information Collection Clearance Officer
(see the ADDRESSES section). You may
contact Anna Atkinson, BOEM
Information Collection Clearance Officer
at (703) 787–1025 with any questions.
Please reference Risk Management,
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Financial Assurance and Loss
Prevention (OMB Control No. 1010–
0006), in your comments.
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J. National Environmental Policy Act
(NEPA)
This rule does not constitute a major
Federal action significantly affecting the
quality of the human environment. A
detailed environmental analysis under
NEPA is not required because this final
rule is covered by a categorical
exclusion (see 43 CFR 46.205). This
final rule meets the criteria set forth at
43 CFR 46.210(i) for a Departmental
categorical exclusion in that this action
is ‘‘of an administrative, financial, legal,
technical, or procedural nature.’’ BOEM
has also determined that the final rule
does not involve any of the
extraordinary circumstances listed in 43
CFR 46.215 that would require further
analysis under NEPA.
One comment was received on NEPA
for the proposed rule. A commenter
asserted that a NEPA review of the
proposed rule is required. According to
the commenter, the rule is highly likely
to cause environmental effects because
the lack of financial assurance could
cause decommissioning to take longer to
arrange, resulting in additional damage
to the environment and obstacles to
navigation.
BOEM disagrees with the
commenter’s assertion that a NEPA
review of the proposed rule is required.
BOEM conducted an initial NEPA
analysis for the proposed rulemaking
and determined that the proposed rule
met the criteria for categorical exclusion
under 43 CFR 46.210(i) of DOI
regulations implementing NEPA. The
regulations set forth in this rule are ‘‘of
an administrative, financial, legal,
technical, or procedural nature.’’ The
final rule also meets these criteria. The
final rule does not authorize any
activities and does not alleviate BOEM’s
responsibility to conduct the
appropriate environmental reviews
throughout the OCS development
process. This rulemaking does not
reduce or eliminate BOEM’s
environmental review of conventional
energy activities.
K. Data Quality Act
In promulgating this rule, BOEM did
not conduct or use a study, experiment,
or survey requiring peer review under
the Data Quality Act (Pub. L. 106–554,
app. C, sec. 515, 114 Stat. 2763, 2763A–
153–154). In accordance with the Data
Quality Act, the Department has issued
guidance regarding the quality of
information that it relies upon for
regulatory decisions. This guidance is
available at the Department’s website at:
VerDate Sep<11>2014
17:52 Apr 23, 2024
Jkt 262001
https://www.doi.gov/ocio/policy-mgmtsupport/information-and-recordsmanagement/iq. No comments were
received on the Data Quality Act during
the public comment period.
L. Executive Order 13211 Actions
Concerning Regulations That
Significantly Affect Energy Supply,
Distribution, or Use
Under Executive Order 13211, BOEM
is required to prepare and submit to
OMB a ‘‘Statement of Energy Effects’’ for
‘‘significant energy actions.’’ This
should include a detailed statement of
any adverse effects on energy supply,
distribution, or use (including a
shortfall in supply, price increases, and
increased use of foreign supplies)
expected to result from the action and
a discussion of reasonable alternatives
and their effects. BOEM has prepared
the required statement and has
concluded, for the reason described
below, that this action, which is a
significant regulatory action under
Executive Order 12866, may have a
significant adverse effect on the supply,
distribution, or use of energy. BOEM has
prepared a Statement of Energy Effects
for this final rule, which is available in
section VIII of the RIA.
BOEM estimates that stronger
supplemental financial assurance
requirements will increase compliance
costs for non-investment grade
companies operating on the OCS by
approximately $559 million annually (7
percent discounting). Pursuant to
OMB’s memorandum M–01–27, BOEM
recognizes that this action may
‘‘adversely affect in a material way the
productivity, competition, or prices in
the energy sector.’’ By increasing
industry compliance costs, the
regulation could make the U.S. offshore
oil and gas sector less attractive than
regions with lower operating costs.
Additionally, increased costs may
depress the value of offshore assets or
cause continuing production to become
uneconomic sooner, leading to shorterthan-otherwise useful life and
potentially a loss of production.
For additional discussion on the
energy effects and regulatory
alternatives, please see the RIA for this
final rulemaking, available in the docket
(Docket No. BOEM–2023–0027).
M. Congressional Review Act (CRA)
This action is subject to the CRA, and
BOEM will submit a rule report to each
chamber of Congress and to the
Comptroller General of the United
States. This action meets the criteria in
5 U.S.C. 804(2).
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31585
List of Subjects
30 CFR Part 550
Administrative practice and
procedure, Continental shelf,
Government contracts, Investigations,
Mineral resources, Oil and gas
exploration, Oil pollution, Outer
continental shelf, Penalties, Pipelines,
Reporting and recordkeeping
requirements, Rights-of-way, Sulfur.
30 CFR Part 556
Administrative practice and
procedure, Continental shelf,
Environmental protection, Government
contracts, Intergovernmental relations,
Oil and gas exploration, Outer
continental shelf, Mineral resources,
Reporting and recordkeeping
requirements, Rights-of-way.
30 CFR Part 590
Administrative practice and
procedure.
This action by the Deputy Assistant
Secretary is taken herein pursuant to an
existing delegation of authority.
Steven H. Feldgus,
Principal Deputy Assistant Secretary, Land
and Minerals Management.
For the reasons stated in the
preamble, BOEM amends 30 CFR
chapter V as follows:
PART 550—OIL AND GAS AND
SULFUR OPERATIONS IN THE OUTER
CONTINENTAL SHELF
1. The authority citation for part 550
continues to read as follows:
■
Authority: 30 U.S.C. 1751; 31 U.S.C. 9701;
43 U.S.C. 1334.
2. Revise the heading to part 550 to
read as set forth above.
■
Subpart A—General
3. Amend § 550.101 by revising the
introductory text to read as follows:
■
§ 550.101
Authority and applicability.
The Secretary of the Interior
(Secretary) authorized the Bureau of
Ocean Energy Management (BOEM) to
regulate oil, gas, and sulfur exploration,
development, and production
operations on the Outer Continental
Shelf (OCS). Under the Secretary’s
authority, the BOEM Director requires
that all operations:
*
*
*
*
*
■ 4. Amend § 550.102 by revising
paragraphs (a) and (b)(16) to read as
follows:
§ 550.102
What does this part do?
(a) This part contains the regulations
of the BOEM Offshore program that
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Federal Register / Vol. 89, No. 80 / Wednesday, April 24, 2024 / Rules and Regulations
govern oil, gas, and sulfur exploration,
development, and production
operations on the OCS. When you
conduct operations on the OCS, you
must submit requests, applications, and
notices, or provide supplemental
information for BOEM approval.
(b) * * *
TABLE—WHERE TO FIND INFORMATION
FOR CONDUCTING OPERATIONS
For information about
Refer to
*
*
*
*
*
(16) Sulfur operations 30 CFR 250, subpart
P.
*
■
*
*
*
*
5. Revise § 550.103 to read as follows:
§ 550.103 Where can I find more
information about the requirements in this
part?
BOEM may issue Notices to Lessees
and Operators (NTLs) that clarify or
provide more detail about certain
regulatory requirements. NTLs may also
outline what information you must
provide, as required by regulation, in
your various submissions to BOEM.
■ 6. Revise and republish § 550.105 to
read as follows:
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§ 550.105
Definitions.
Terms used in this part will have the
meanings given in the Act and as
defined in this section:
Act means the OCS Lands Act, as
amended (43 U.S.C. 1331 et seq.)
Affected State means with respect to
any program, plan, lease sale, or other
activity proposed, conducted, or
approved under the provisions of the
Act, any State:
(1) The laws of which are declared,
under section 4(a)(2) of the Act, to be
the law of the United States for the
portion of the OCS on which such
activity is, or is proposed to be,
conducted;
(2) Which is, or is proposed to be,
directly connected by transportation
facilities to any artificial island or
installation or other device permanently
or temporarily attached to the seabed;
(3) Which is receiving, or according to
the proposed activity, will receive oil
for processing, refining, or
transshipment that was extracted from
the OCS and transported directly to
such State by means of vessels or by a
combination of means including vessels;
(4) Which is designated by the
Secretary as a State in which there is a
substantial probability of significant
impact on or damage to the coastal,
marine, or human environment, or a
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State in which there will be significant
changes in the social, governmental, or
economic infrastructure, resulting from
the exploration, development, and
production of oil and gas anywhere on
the OCS; or
(5) In which the Secretary finds that
because of such activity there is, or will
be, a significant risk of serious damage,
due to factors such as prevailing winds
and currents to the marine or coastal
environment in the event of any oil
spill, blowout, or release of oil or gas
from vessels, pipelines, or other
transshipment facilities.
Analyzed geological information
means data collected under a permit or
a lease that have been analyzed.
Analysis may include, but is not limited
to, identification of lithologic and fossil
content, core analysis, laboratory
analyses of physical and chemical
properties, well logs or charts, results
from formation fluid tests, and
descriptions of hydrocarbon
occurrences or hazardous conditions.
Ancillary activities mean those
activities on your lease or unit that you:
(1) Conduct to obtain data and
information to ensure proper
exploration or development of your
lease or unit; and
(2) Can conduct without BOEM
approval of an application or permit.
Archaeological interest means capable
of providing scientific or humanistic
understanding of past human behavior,
cultural adaptation, and related topics
through the application of scientific or
scholarly techniques, such as controlled
observation, contextual measurement,
controlled collection, analysis,
interpretation, and explanation.
Archaeological resource means any
material remains of human life or
activities that are at least 50 years of age
and that are of archaeological interest.
Arctic OCS means the Beaufort Sea
and Chukchi Sea Planning Areas (for
more information on these areas, see the
Proposed Final OCS Oil and Gas
Leasing Program for 2012–2017 (June
2012) at https://www.boem.gov/Oil-andGas-Energy-Program/Leasing/Five-YearProgram/2012-2017/Program-AreaMaps/index.aspx).
Arctic OCS conditions means, for the
purposes of this part, the conditions
operators can reasonably expect during
operations on the Arctic OCS. Such
conditions, depending on the time of
year, include, but are not limited to:
extreme cold, freezing spray, snow,
extended periods of low light, strong
winds, dense fog, sea ice, strong
currents, and dangerous sea states.
Remote location, relative lack of
infrastructure, and the existence of
subsistence hunting and fishing areas
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are also characteristic of the Arctic
region.
Assign means to convey an ownership
interest in an oil, gas, or sulfur lease,
ROW grant or RUE grant. For the
purposes of this part, ‘‘assign’’ is
synonymous with ‘‘transfer’’ and the
two terms are used interchangeably.
Attainment area means, for any
criteria air pollutant, an area which is
shown by monitored data or which is
calculated by air quality modeling (or
other methods determined by the
Administrator of the Environmental
Protection Agency (EPA) to be reliable)
not to exceed any primary or secondary
ambient air quality standards
established by EPA.
Best available and safest technology
(BAST) means the best available and
safest technologies that the Director
determines to be economically feasible
wherever failure of equipment would
have a significant effect on safety,
health, or the environment.
Best available control technology
(BACT) means an emission limitation
based on the maximum degree of
reduction for each criteria air pollutant
and VOC subject to regulation, taking
into account energy, environmental and
economic impacts, and other costs. The
Regional Director will verify the BACT
on a case-by-case basis, and it may
include reductions achieved through the
application of processes, systems, and
techniques for the control of each
criteria air pollutant and VOC.
Coastal environment means the
physical, atmospheric, and biological
components, conditions, and factors
that interactively determine the
productivity, state, condition, and
quality of the terrestrial ecosystem from
the shoreline inward to the boundaries
of the coastal zone.
Coastal zone means the coastal waters
(including the lands therein and
thereunder) and the adjacent shorelands
(including the waters therein and
thereunder) strongly influenced by each
other and in proximity to the shorelands
of the several coastal States. The coastal
zone includes islands, transition and
intertidal areas, salt marshes, wetlands,
and beaches. The coastal zone extends
seaward to the outer limit of the U.S.
territorial sea and extends inland from
the shorelines to the extent necessary to
control shorelands, the uses of which
have a direct and significant impact on
the coastal waters, and the inward
boundaries of which may be identified
by the several coastal States, under the
authority in section 305(b)(1) of the
Coastal Zone Management Act (CZMA)
of 1972.
Competitive reservoir means a
reservoir in which there are one or more
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producible or producing well
completions on each of two or more
leases or portions of leases, with
different lease operating interests, from
which the lessees plan future
production.
Correlative rights when used with
respect to lessees of adjacent leases,
means the right of each lessee to be
afforded an equal opportunity to explore
for, develop, and produce, without
waste, minerals from a common source.
Criteria air pollutant means any air
pollutant for which the United States
Environmental Protection Agency (U.S.
EPA) has established a primary or
secondary National Ambient Air Quality
Standard (NAAQS) pursuant to section
109 of the Clean Air Act.
Data means facts and statistics,
measurements, or samples that have not
been analyzed, processed, or
interpreted.
Departures mean approvals granted
by the appropriate BSEE or BOEM
representative for operating
requirements/procedures other than
those specified in the regulations found
in this part. These requirements/
procedures may be necessary to control
a well; properly develop a lease;
conserve natural resources, or protect
life, property, or the marine, coastal, or
human environment.
Development means those activities
that take place following discovery of
minerals in paying quantities, including
but not limited to geophysical activity,
drilling, platform construction, and
operation of all directly related onshore
support facilities, and which are for the
purpose of producing the minerals
discovered.
Development geological and
geophysical (G&G) activities means
those G&G and related data-gathering
activities on your lease or unit that you
conduct following discovery of oil, gas,
or sulfur in paying quantities to detect
or imply the presence of oil, gas, or
sulfur in commercial quantities.
Director means the Director of BOEM
of the U.S. Department of the Interior,
or an official authorized to act on the
Director’s behalf.
District Manager means the BSEE
officer with authority and responsibility
for operations or other designated
program functions for a district within
a BSEE Region.
Eastern Gulf of Mexico means all OCS
areas of the Gulf of Mexico the BOEM
Director decides are adjacent to the
State of Florida. The Eastern Gulf of
Mexico is not the same as the Eastern
Planning Area, an area established for
OCS lease sales.
Emission offsets mean emission
reductions obtained from facilities,
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either onshore or offshore, other than
the facility or facilities covered by the
proposed Exploration Plan (EP),
Development and Production Plan
(DPP), or Development Operations
Coordination Document (DOCD).
Enhanced recovery operations mean
pressure maintenance operations,
secondary and tertiary recovery, cycling,
and similar recovery operations that
alter the natural forces in a reservoir to
increase the ultimate recovery of oil or
gas.
Existing facility, as used in § 550.303,
means an Outer Continental Shelf (OCS)
facility described in an Exploration
Plan, a Development and Production
Plan, or a Development Operations
Coordination Document, approved
before June 2, 1980.
Exploration means the commercial
search for oil, gas, or sulfur. Activities
classified as exploration include but are
not limited to:
(1) Geophysical and geological (G&G)
surveys using magnetic, gravity, seismic
reflection, seismic refraction, gas
sniffers, coring, or other systems to
detect or imply the presence of oil, gas,
or sulfur; and
(2) Any drilling conducted for the
purpose of searching for commercial
quantities of oil, gas, and sulfur,
including the drilling of any additional
well needed to delineate any reservoir
to enable the lessee to decide whether
to proceed with development and
production.
Facility, as used in § 550.303, means
all installations or devices permanently
or temporarily attached to the seabed.
They include mobile offshore drilling
units (MODUs), even while operating in
the ‘‘tender assist’’ mode (i.e., with skidoff drilling units) or other vessels
engaged in drilling or downhole
operations. They are used for
exploration, development, and
production activities for oil, gas, or
sulfur and emit or have the potential to
emit any air pollutant from one or more
sources. They include all floating
production systems (FPSs), including
column-stabilized-units (CSUs); floating
production, storage and offloading
facilities (FPSOs); tension-leg platforms
(TLPs); spars, etc. During production,
multiple installations or devices are a
single facility if the installations or
devices are at a single site. Any vessel
used to transfer production from an
offshore facility is part of the facility
while it is physically attached to the
facility.
Financial assurance means a surety
bond, a pledge of Treasury securities, a
decommissioning account, a third-party
guarantee, or another form of security
acceptable to the BOEM Regional
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31587
Director, that is used to ensure
compliance with obligations under the
regulations in this part and under the
terms of a lease, a RUE grant, or a
pipeline ROW grant.
Flaring means the burning of natural
gas as it is released into the atmosphere.
Gas reservoir means a reservoir that
contains hydrocarbons predominantly
in a gaseous (single-phase) state.
Gas-well completion means a well
completed in a gas reservoir or in the
associated gas-cap of an oil reservoir.
Geological and geophysical (G&G)
explorations mean those G&G surveys
on your lease or unit that use seismic
reflection, seismic refraction, magnetic,
gravity, gas sniffers, coring, or other
systems to detect or imply the presence
of oil, gas, or sulfur in commercial
quantities.
Governor means the Governor of a
State, or the person or entity designated
by, or under, State law to exercise the
powers granted to such Governor under
the Act.
H2S absent means:
(1) Drilling, logging, coring, testing, or
producing operations have confirmed
the absence of H2S in concentrations
that could potentially result in
atmospheric concentrations of 20 ppm
or more of H2S; or
(2) Drilling in the surrounding areas
and correlation of geological and
seismic data with equivalent
stratigraphic units have confirmed an
absence of H2S throughout the area to
be drilled.
H2S present means drilling, logging,
coring, testing, or producing operations
have confirmed the presence of H2S in
concentrations and volumes that could
potentially result in atmospheric
concentrations of 20 ppm or more of
H2S.
H2S unknown means the designation
of a zone or geologic formation where
neither the presence nor absence of H2S
has been confirmed.
Human environment means the
physical, social, and economic
components, conditions, and factors
that interactively determine the state,
condition, and quality of living
conditions, employment, and health of
those affected, directly or indirectly, by
activities occurring on the OCS.
Interpreted geological information
means geological knowledge, often in
the form of schematic cross sections, 3dimensional representations, and maps,
developed by determining the geological
significance of data and analyzed
geological information.
Interpreted geophysical information
means geophysical knowledge, often in
the form of schematic cross sections, 3dimensional representations, and maps,
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developed by determining the geological
significance of geophysical data and
analyzed geophysical information.
Lease means an agreement that is
issued under section 8 or maintained
under section 6 of the Act and that
authorizes exploration for, and
development and production of,
minerals. The term also means the area
covered by that authorization,
whichever the context requires.
Lease term pipelines mean those
pipelines owned and operated by a
lessee or operator that are completely
contained within the boundaries of a
single lease, unit, or contiguous (not
cornering) leases of that lessee or
operator.
Lessee means a person who has
entered into a lease with the United
States to explore for, develop, and
produce the leased minerals. The term
lessee also includes the BOEMapproved assignee of the lease, and the
owner or the BOEM-approved assignee
of operating rights for the lease.
Major Federal action means any
action or proposal by the Secretary that
is subject to the provisions of section
102(2)(C) of the National Environmental
Policy Act of 1969, 42 U.S.C. (2)(C) (i.e.,
an action that will have a significant
impact on the quality of the human
environment requiring preparation of an
environmental impact statement under
section 102(2)(C) of the National
Environmental Policy Act).
Marine environment means the
physical, atmospheric, and biological
components, conditions, and factors
that interactively determine the
productivity, state, condition, and
quality of the marine ecosystem. These
include the waters of the high seas, the
contiguous zone, transitional and
intertidal areas, salt marshes, and
wetlands within the coastal zone and on
the OCS.
Material remains means physical
evidence of human habitation,
occupation, use, or activity, including
the site, location, or context in which
such evidence is situated.
Maximum efficient rate (MER) means
the maximum sustainable daily oil or
gas withdrawal rate from a reservoir that
will permit economic development and
depletion of that reservoir without
detriment to ultimate recovery.
Maximum production rate (MPR)
means the approved maximum daily
rate at which oil or gas may be produced
from a specified oil-well or gas-well
completion.
Minerals include oil, gas, sulfur,
geopressured-geothermal and associated
resources, and all other minerals that
are authorized by an Act of Congress to
be produced.
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Natural resources include, without
limiting the generality thereof, oil, gas,
and all other minerals, and fish, shrimp,
oysters, clams, crabs, lobsters, sponges,
kelp, and other marine animal and plant
life but does not include water power or
the use of water for the production of
power.
Nonattainment area means, for any
criteria air pollutant, an area which is
shown by monitored data or which is
calculated by air quality modeling (or
other methods determined by the
Administrator of the U.S. EPA to be
reliable) to exceed any primary or
secondary NAAQS established by the
U.S. EPA.
Nonsensitive reservoir means a
reservoir in which ultimate recovery is
not decreased by high reservoir
production rates.
Oil reservoir means a reservoir that
contains hydrocarbons predominantly
in a liquid (single-phase) state.
Oil reservoir with an associated gas
cap means a reservoir that contains
hydrocarbons in both a liquid and
gaseous (two-phase) state.
Oil-well completion means a well
completed in an oil reservoir or in the
oil accumulation of an oil reservoir with
an associated gas cap.
Operating rights mean any interest
held in a lease with the right to explore
for, develop, and produce leased
substances.
Operator means the person the
lessee(s) designates as having control or
management of operations on the leased
area or a portion thereof. An operator
may be a lessee, the BOEM-approved or
BSEE-approved designated agent of the
lessee(s), or the holder of operating
rights under a BOEM-approved
operating rights assignment.
Outer Continental Shelf (OCS) means
all submerged lands lying seaward and
outside of the area of lands beneath
navigable waters as defined in section 2
of the Submerged Lands Act (43 U.S.C.
1301) whose subsoil and seabed
appertain to the United States and are
subject to its jurisdiction and control.
Person includes a natural person, an
association (including partnerships,
joint ventures, and trusts), a State, a
political subdivision of a State, or a
private, public, or municipal
corporation.
Pipelines are the piping, risers, and
appurtenances installed for transporting
oil, gas, sulfur, and produced waters.
Processed geological or geophysical
information means data collected under
a permit or a lease that have been
processed or reprocessed. Processing
involves changing the form of data to
facilitate interpretation. Processing
operations may include, but are not
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limited to, applying corrections for
known perturbing causes, rearranging or
filtering data, and combining or
transforming data elements.
Reprocessing is the additional
processing other than ordinary
processing used in the general course of
evaluation. Reprocessing operations
may include varying identified
parameters for the detailed study of a
specific problem area.
Production means those activities that
take place after the successful
completion of any means for the
removal of minerals, including such
removal, field operations, transfer of
minerals to shore, operation monitoring,
maintenance, and workover operations.
Production areas are those areas
where flammable petroleum gas, volatile
liquids or sulfur are produced,
processed (e.g., compressed), stored,
transferred (e.g., pumped), or otherwise
handled before entering the
transportation process.
Projected emissions mean emissions,
either controlled or uncontrolled, from
a source or sources.
Prospect means a geologic feature
having the potential for mineral
deposits.
Regional Director means the BOEM
officer with responsibility and authority
for a Region within BOEM.
Regional Supervisor means the BOEM
officer with responsibility and authority
for operations or other designated
program functions within a BOEM
Region.
Right-of-Use and Easement (RUE)
means a right to use a portion of the
seabed, at an OCS site other than on a
lease you own, to construct, secure to
the seafloor, use, modify, or maintain
platforms, seafloor production
equipment, artificial islands, facilities,
installations, and/or other devices to
support the exploration, development,
or production of oil, gas, or sulfur
resources from an OCS lease or a lease
on State submerged lands.
Right-of-way (ROW) pipelines are
those pipelines that are contained
within:
(1) The boundaries of a single lease or
unit, but are not owned and operated by
a lessee or operator of that lease or unit;
(2) The boundaries of contiguous (not
cornering) leases that do not have a
common lessee or operator;
(3) The boundaries of contiguous (not
cornering) leases that have a common
lessee or operator but are not owned and
operated by that common lessee or
operator; or
(4) An unleased block(s).
Sensitive reservoir means a reservoir
in which the production rate will affect
ultimate recovery.
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Significant archaeological resource
means those archaeological resources
that meet the criteria of significance for
eligibility to the National Register of
Historic Places as defined in 36 CFR
60.4, or its successor.
Suspension means a granted or
directed deferral of the requirement to
produce (Suspension of Production
(SOP)) or to conduct leaseholding
operations (Suspension of Operations
(SOO)).
Transfer means to convey an
ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant.
For the purposes of this part, ‘‘transfer’’
is synonymous with ‘‘assign’’ and the
two terms are used interchangeably.
Venting means the release of gas into
the atmosphere without igniting it. This
includes gas that is released underwater
and bubbles to the atmosphere.
Volatile organic compound (VOC)
means any organic compound that is
emitted to the atmosphere as a vapor.
Unreactive compounds are excluded
from the preceding sentence of this
definition.
Waste of oil, gas, or sulfur means:
(1) The physical waste of oil, gas, or
sulfur;
(2) The inefficient, excessive, or
improper use, or the unnecessary
dissipation of reservoir energy;
(3) The locating, spacing, drilling,
equipping, operating, or producing of
any oil, gas, or sulfur well(s) in a
manner that causes or tends to cause a
reduction in the quantity of oil, gas, or
sulfur ultimately recoverable under
prudent and proper operations or that
causes or tends to cause unnecessary or
excessive surface loss or destruction of
oil or gas; or
(4) The inefficient storage of oil.
Welding means all activities
connected with welding, including hot
tapping and burning.
Wellbay is the area on a facility within
the perimeter of the outermost
wellheads.
Well-completion operations mean the
work conducted to establish production
from a well after the production-casing
string has been set, cemented, and
pressure-tested.
Well-control fluid means drilling
mud, completion fluid, or workover
fluid as appropriate to the particular
operation being conducted.
Western Gulf of Mexico means all
OCS areas of the Gulf of Mexico except
those the BOEM Director decides are
adjacent to the State of Florida. The
Western Gulf of Mexico is not the same
as the Western Planning Area, an area
established for OCS lease sales.
Workover operations mean the work
conducted on wells after the initial
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well-completion operation for the
purpose of maintaining or restoring the
productivity of a well.
You, depending on the context of this
part, means a bidder, a lessee (record
title owner), a sublessee (operating
rights owner), a Federal or State RUE
grant holder, a pipeline ROW grant
holder, an assignor or transferor, a
designated operator or agent of the
lessee or grant holder, or an applicant
seeking to become one of the
individuals listed in this definition.
■ 7.Amend § 550.160 by:
■ a. Revising the section heading;
■ b. Removing the introductory text;
and
■ c. Revising paragraphs (a)
introductory text, (b) through (e), and
(f)(1) and (2).
The revisions read as follows:
§ 550.160 When will BOEM grant me a
right-of-use and easement (RUE), and what
requirements must I meet?
(a) A RUE is required to construct,
secure to the seafloor, use, modify, or
maintain platforms, seafloor production
equipment, artificial islands, facilities,
installations, and/or other devices at an
OCS site other than an OCS lease you
own, that are:
*
*
*
*
*
(b) You must exercise the RUE
according to the terms of the grant and
the regulations in this part.
(c) You must meet the qualification
requirements at §§ 556.400 through
556.402 of this subchapter and the
applicable financial assurance
requirements in this section and part
556, subpart I of this subchapter.
(d) If you apply for a RUE on a leased
area, you must notify the lessee and give
her/him an opportunity to comment on
your application; and
(e) You must receive BOEM approval
for all platforms, seafloor production
equipment, artificial islands, facilities,
installations, and/or other devices
permanently or temporarily attached to
the seabed.
(f) * * *
(1) You obtain a RUE after January 12,
2004; or
(2) You ask BOEM to modify your
RUE to change the footprint of the
associated platform, seafloor production
equipment, artificial island, facility,
installation, and/or device.
*
*
*
*
*
■ 8. Revise § 550.166 to read as follows:
§ 50.166 If BOEM grants me a RUE, what
financial assurance must I provide?
(a) Before BOEM grants you a RUE on
the OCS, you must submit or maintain
financial assurance of $500,000, which
will guarantee compliance with the
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31589
regulations and the terms and
conditions of all RUEs you hold.
(1) You are not required to submit and
maintain the financial assurance of
$500,000 pursuant to this paragraph (a)
if you furnish and maintain area-wide
lease financial assurance in excess of
$500,000 pursuant to § 556.901(a) of this
subchapter, provided that the area-wide
lease financial assurance also guarantees
compliance with all the terms and
conditions of all RUEs you hold in the
area.
(2) The Regional Director may reduce
the amount required in this paragraph
(a) upon a determination that the
reduced amount is sufficient to
guarantee compliance with the
regulations and the terms and
conditions of all RUE grant(s) you hold.
(3) The requirements for financial
assurance in §§ 556.900(d) through (g)
556.902 of this subchapter apply to the
financial assurance required under
paragraph (a) of this section.
(b) If BOEM grants you a RUE that
serves either an OCS lease or a State
lease, the Regional Director may require
supplemental financial assurance above
the amount required by paragraph (a) of
this section, to ensure compliance with
the obligations under your RUE grant,
based on an evaluation of your ability to
carry out present and future obligations
on the RUE using the criteria set forth
in § 556.901(d)(1) through (3) of this
subchapter. This supplemental financial
assurance must:
(1) Meet the requirements of
§§ 556.900(d) through (g) and 556.902 of
this subchapter; and
(2) Cover costs and liabilities for
compliance with the obligations of your
RUE grants and with applicable BOEM
and Bureau of Safety and Environmental
Enforcement (BSEE) orders.
(c) If you fail to replace any deficient
financial assurance upon demand or fail
to provide supplemental financial
assurance upon demand, the Regional
Director may:
(1) Assess penalties under subpart N
of this part;
(2) Request BSEE to suspend
operations on your RUE; and/or
(3) Initiate action for cancellation of
your RUE grant.
■ 9. Add § 550.167 to read as follows:
§ 550.167 How may I obtain or assign my
interest in a RUE?
(a) To obtain a RUE or request an
assignment of an interest in a RUE, the
applicant or assignee must file an
application and provide the information
contained in § 550.161 if a change in
uses is planned and must obtain
BOEM’s approval.
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(b) An application for approval of an
assignment of an interest in a RUE, in
whole or in part, must be filed in
triplicate with the Regional Director.
Such application must be supported by
a statement that the assignee agrees to
comply with and to be bound by the
terms and conditions of the RUE grant.
The assignee must satisfy the bonding
requirements in § 550.166. No RUE
assignment will be recognized unless
and until it is first approved, in writing,
by the Regional Director. The assignee
of an interest in a RUE must pay the
same service fee as that listed in
§ 550.106(a)(1) for a lease record title
assignment request.
(c) BOEM may disapprove an
assignment in the following
circumstances:
(1) When the assignee has unsatisfied
obligations under the regulations in this
chapter or in chapters II or XII of this
title, or under any applicable BOEM or
BSEE order;
(2) When an assignment is not
acceptable as to form or content (e.g.,
containing incorrect legal description,
not executed by a person authorized to
bind the corporation, assignee does not
meet the requirements of §§ 556.401
through 556.405 of this subchapter);
(3) When the assignment does not
comply with or would conflict with this
part, or any other applicable laws or
regulations (e.g., Departmental
debarment rules); or
(4) When the assignee does not meet
the applicable financial assurance
requirements in § 550.166 and part 556,
subpart I of this subchapter, or has not
complied with a BOEM or BSEE order.
10. Amend § 550.199 by revising
paragraph (b) to read as follows:
■
§ 550.199 Paperwork Reduction Act
statements—information collection.
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*
*
*
*
*
(b) Respondents are OCS oil, gas, and
sulfur lessees and operators. The
requirement to respond to the
information collections in this part is
mandated under the Act (43 U.S.C. 1331
et seq.) and the Act’s Amendments of
1978 (43 U.S.C. 1801 et seq.). Some
responses are also required to obtain or
retain a benefit or may be voluntary.
Proprietary information will be
protected under § 550.197; parts 551
and 552 of this subchapter; and the
Freedom of Information Act (5 U.S.C.
552) and its implementing regulations at
43 CFR part 2.
*
*
*
*
*
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Subpart J—Pipelines and Pipeline
Rights-of-Way
11. Revise § 550.1011 to read as
follows:
■
§ 550.1011 Financial assurance
requirements for pipeline right-of-way
(ROW) grant holders.
(a) Except as provided in paragraph
(b) of this section, when you apply for,
attempt to assign, or are the holder of a
pipeline right-of-way (ROW) grant, you
must furnish and maintain $300,000 of
area-wide financial assurance that
guarantees compliance with the
regulations and the terms and
conditions of all the pipeline ROW
grants you hold in an OCS area as
defined in § 556.900(b) of this
subchapter. The requirement to furnish
and maintain area-wide financial
assurance for a pipeline ROW grant is
separate and distinct from the
requirement to provide financial
assurance for a lease or right-of-use and
easement (RUE).
(b) The requirement to furnish and
maintain area-wide pipeline ROW
financial assurance under paragraph (a)
of this section may be satisfied if your
operator or a co-grant holder provides
such financial assurance in the required
amount that guarantees compliance
with the regulations and the terms and
conditions of the grant.
(c) The requirements for lease
financial assurance in §§ 556.900(d)
through (g) and 556.902 of this
subchapter apply to the area-wide
financial assurance required in
paragraph (a) of this section.
(d) The Regional Director, using the
criteria set forth in § 556.901(d)(1)
through (3) of this subchapter, will
evaluate your financial ability to carry
out present and future obligations, and
as a result, may require supplemental
financial assurance (i.e., above the
amount required by paragraph (a) of this
section) to ensure compliance with the
obligations under your pipeline right-ofway grant.
(e) The supplemental financial
assurance required under paragraph (d)
of this section must:
(1) Meet the requirements of
§§ 556.900(d) through (g) and 556.902 of
this subchapter, and
(2) Cover costs and liabilities for
compliance with the obligations of your
ROW grants and with applicable BOEM
and BSEE orders.
(f) If you fail to replace any deficient
financial assurance upon demand or fail
to provide supplemental financial
assurance upon demand, the Regional
Director may:
(1) Assess penalties under subpart N
of this part;
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(2) Request BSEE to suspend
operations on your pipeline ROW; and/
or
(3) Initiate action for forfeiture of your
pipeline ROW grant in accordance with
§ 250.1013 of this title.
PART 556—LEASING OF SULFUR OR
OIL AND GAS AND FINANCIAL
ASSURANCE REQUIREMENTS IN THE
OUTER CONTINENTAL SHELF
12. The authority citation for part 556
is revised to read as follows:
■
Authority: 31 U.S.C. 9701; 42 U.S.C. 6213;
43 U.S.C. 1334.
13. Revise the heading to part 556 to
read as set forth above.
■
Subpart A—General Provisions
14. Amend § 556.104 by revising
paragraph (a)(4) to read as follows:
■
§ 556.104 Information collection and
proprietary information.
(a) * * *
(4) Send comments regarding any
aspect of the collection of information
under this part, including suggestions
for reducing the burden, by mail to the
Information Collection Clearance
Officer, Bureau of Ocean Energy
Management, 45600 Woodland Road,
Sterling, VA 20166.
*
*
*
*
*
■ 15. Amend § 556.105 by:
■ a. In paragraph (a), removing the
acronyms ‘‘EPA’’ and ‘‘GOMESA’’; and
■ b. Revising and republishing
paragraph (b).
The revision read as follows:
§ 556.105
Acronyms and definitions.
*
*
*
*
*
(b) As used in this part, each of the
terms and phrases listed below has the
meaning given in the Act or as defined
in this section.
Act means the Outer Continental
Shelf Lands Act, as amended (OCSLA)
(43 U.S.C. 1331–1356a).
Affected State means, with respect to
any program, plan, lease sale, or other
activity proposed, conducted, or
approved pursuant to the provisions of
OCSLA, any State:
(i) The laws of which are declared,
pursuant to section 4(a)(2) of OCSLA (43
U.S.C. 1333(a)(2)), to be the law of the
United States for the portion of the OCS
on which such activity is, or is proposed
to be, conducted;
(ii) Which is, or is proposed to be,
directly connected by transportation
facilities to any artificial island or
structure referred to in section 4(a)(1) of
OCSLA (43 U.S.C. 1333(a)(1));
(iii) Which is receiving, or in
accordance with the proposed activity
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will receive, oil for processing, refining,
or transshipment that was extracted
from the OCS and transported directly
to that State by means of one or more
vessels or by a combination of means,
including a vessel;
(iv) Which is designated by the
Secretary as a State in which there is a
substantial probability of significant
impact on or damage to the coastal,
marine, or human environment; or a
State in which there will be significant
changes in the social, governmental, or
economic infrastructure resulting from
the exploration, development, and
production of oil and gas anywhere on
the OCS; or
(v) In which the Secretary finds that
because of such activity, there is, or will
be, a significant risk of serious damage,
due to factors such as prevailing winds
and currents, to the marine or coastal
environment in the event of any oil
spill, blowout, or release of oil or gas
from one or more vessels, pipelines, or
other transshipment facilities.
Aliquot or Aliquot part means an
officially designated subdivision of a
lease’s area, which can be a half of a
lease (1/2), a quarter of a lease (1/4), a
quarter of a quarter of a lease (1/4 1/4),
or a quarter of a quarter of a quarter of
a lease (1/4 1/4 1/4).
Assign means to convey an ownership
interest in an oil, gas, or sulfur lease,
ROW grant or RUE grant. For the
purposes of this part, ‘‘assign’’ is
synonymous with ‘‘transfer’’ and the
two terms are used interchangeably.
Authorized officer means any person
authorized by law or by delegation of
authority to or within BOEM to perform
the duties described in this part.
Average daily production means the
total of all production in an applicable
production period that is chargeable
under § 556.514 divided by the exact
number of calendar days in the
applicable production period.
Barrel means 42 U.S. gallons. All
measurements of crude oil and natural
gas liquids under this section must be
at 60 °F.
(i) For purposes of computing
production and reporting of natural gas,
5,626 cubic feet of natural gas at 14.73
pounds per square inch equals one
barrel.
(ii) For purposes of computing
production and reporting of natural gas
liquids, 1.454 barrels of natural gas
liquids at 60 °F equals one barrel of
crude oil.
Bidding unit means one or more OCS
blocks, or any portion thereof, that may
be bid upon as a single administrative
unit and will become a single lease. The
term ‘tract,’’ as defined in this section,
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may be used interchangeably with the
term ‘‘bidding unit.’’
BOEM means Bureau of Ocean Energy
Management of the U.S. Department of
the Interior.
Bonus or royalty credit means a legal
instrument or other written
documentation approved by BOEM, or
an entry in an account managed by the
Secretary, that a bidder or lessee may
use in lieu of any other monetary
payment for a bonus or a royalty due on
oil or gas production from certain
leases, as specified in, and permitted by,
the Gulf of Mexico Energy Security Act
of 2006, Pub. L. 109–432 (Div. C, Title
1), 120 Stat. 3000 (2006), codified at 43
U.S.C. 1331, note.
BSEE means Bureau of Safety and
Environmental Enforcement of the U.S.
Department of the Interior.
Central Planning Area (CPA) means
that portion of the Gulf of Mexico that
lies southerly of Louisiana, Mississippi,
and Alabama. Precise boundary
information is available from the BOEM
Leasing Division, Mapping and
Boundary Branch (MBB).
Coastal environment means the
physical, atmospheric, and biological
components, conditions, and factors
that interactively determine the
productivity, state, condition, and
quality of the terrestrial ecosystem from
the shoreline inland to the boundaries
of the coastal zone.
Coastal zone means the coastal waters
(including the lands therein and
thereunder) and the adjacent shorelands
(including the water therein and
thereunder), strongly influenced by each
other and in proximity to the shorelines
of one or more of the several coastal
States, and includes islands, transition
and intertidal areas, salt marshes,
wetlands, and beaches, whose zone
extends seaward to the outer limit of the
United States territorial sea and extends
inland from the shore lines to the extent
necessary to control shorelands, the
uses of which have a direct and
significant impact on the coastal waters,
and the inland boundaries of which may
be identified by the several coastal
States, under section 305(b)(1) of the
Coastal Zone Management Act (CZMA)
of 1972, 16 U.S.C. 1454(b)(1).
Coastline means the line of mean
ordinary low water along that portion of
the coast in direct contact with the open
sea and the line marking the seaward
limit of inland waters.
Crude oil means a mixture of liquid
hydrocarbons, including condensate
that exists in natural underground
reservoirs and remains liquid at
atmospheric pressure after passing
through surface separating facilities, but
does not include liquid hydrocarbons
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produced from tar sand, gilsonite, oil
shale, or coal.
Designated operator means a person
authorized to act on your behalf and
fulfill your obligations under the Act,
the lease, and the regulations, who has
been designated as an operator by all
record title holders and all operating
rights owners that own an operating
rights interest in the aliquot/depths in
which the designated operator, to which
the Designation of Operator form
applies, will be operating, and who has
been approved by BOEM to act as
designated operator.
Desoto Canyon OPD means the
Official Protraction Diagram (OPD)
designated as Desoto Canyon that has a
western edge located at the universal
transverse mercator (UTM) X coordinate
1,346,400 in the North American Datum
of 1927 (NAD27).
Destin Dome OPD means the Official
Protraction Diagram (OPD) designated
as Destin Dome that has a western edge
located at the Universal Transverse
Mercator (UTM) X coordinate 1,393,920
in the NAD27.
Development block means a block,
including a block susceptible to
drainage, which is located on the same
general geologic structure as an existing
lease having a well with indicated
hydrocarbons; a reservoir may or may
not be interpreted to extend on to the
block.
Director means the Director of the
BOEM of the U.S. Department of the
Interior, or an official authorized to act
on the Director’s behalf.
Eastern Planning Area means that
portion of the Gulf of Mexico that lies
southerly and westerly of Florida.
Precise boundary information is
available from the BOEM Leasing
Division, Mapping and Boundary
Branch (MBB).
Economic interest means any right to,
or any right dependent upon,
production of crude oil, natural gas, or
natural gas liquids and includes, but is
not limited to: a royalty interest; an
overriding royalty interest, whether
payable in cash or kind; a working
interest that does not include a record
title interest or an operating rights
interest; a carried working interest; a net
profits interest; or a production
payment.
Financial assurance means a surety
bond, a pledge of Treasury securities, a
decommissioning account, a third-party
guarantee, or another form of security
acceptable to the BOEM Regional
Director, that is used to ensure
compliance with obligations under the
regulations in this part and under the
terms of a lease, a RUE grant, or a
pipeline ROW grant.
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Human environment means the
physical, social, and economic
components, conditions, and factors
that interactively determine the state,
condition, and quality of living
conditions, employment, and health of
those affected, directly or indirectly, by
activities occurring on the OCS.
Initial period or primary term means
the initial period referred to in 43 U.S.C.
1337(b)(2).
Investment grade credit rating means
an issuer credit rating of BBB- or higher
(S&P Global Ratings and Fitch Ratings,
Inc.), Baa3 or higher (Moody’s Investors
Service Inc.), or its equivalent, assigned
to an issuer of corporate debt by a
nationally recognized statistical rating
organization as that term is defined in
section 3(a)(62) of the Securities
Exchange Act of 1934.
Issuer credit rating means a credit
rating assigned to an issuer of corporate
debt by S&P Global Ratings, by Moody’s
Investors Service Inc., by Fitch Ratings,
Inc., or by another nationally recognized
statistical rating organization, as that
term is defined in section 3(a)(62) of the
Securities Exchange Act of 1934.
Joint bid means a bid submitted by
two or more persons for an oil and gas
lease under section 8(a) of the Act.
Lease means an agreement that is
issued under section 8 or maintained
under section 6 of the Act and that
authorizes exploration for, and
development and production of,
minerals on the OCS. The term also
means the area covered by that
agreement, whichever the context
requires.
Lease interest means one or more of
the following ownership interests in an
OCS oil and gas or sulfur lease: a record
title interest, an operating rights
interest, or an economic interest.
Lessee means a person who has
entered into a lease with the United
States to explore for, develop, and
produce the leased minerals and is
therefore a record title owner of the
lease, or the BOEM-approved assigneeowner of a record title interest. The term
lessee also includes the BOEMapproved sublessee- or assignee-owner
of an operating rights interest in a lease.
Marine environment means the
physical, atmospheric, and biological
components, conditions, and factors
that interactively determine the
productivity, state, conditions, and
quality of the marine ecosystem,
including the waters of the high seas,
the contiguous zone, transitional and
intertidal areas, salt marshes, and
wetlands within the coastal zone and on
the OCS.
Mineral means oil, gas, and sulfur; it
also includes sand, gravel, and salt used
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to facilitate the development and
production of oil, gas, and sulfur.
Natural gas means a mixture of
hydrocarbons and varying quantities of
non-hydrocarbons that exist in the
gaseous phase.
Natural gas liquids means liquefied
petroleum products produced from
reservoir gas and liquefied at surface
separators, field facilities, or gas
processing plants worldwide, including
any of the following:
(i) Condensate—natural gas liquids
recovered from gas well gas (associated
and non-associated) in separators or
field facilities; or
(ii) Gas plant products—natural gas
liquids recovered from natural gas in gas
processing plants and from field
facilities. Gas plant products include the
following, as classified according to the
standards of the Natural Gas Processors
Association (NGPA) or the American
Society for Testing and Materials
(ASTM):
(A) Ethane—C2H6;
(B) Propane—C3H8;
(C) Butane—C4H10, including all
products covered by NGPA
specifications for commercial butane,
including isobutane, normal butane, and
other butanes—all butanes not included
as isobutane or normal butane;
(D) Butane-Propane Mixtures—All
products covered by NGPA
specifications for butane-propane
mixtures;
(E) Natural Gasoline—A mixture of
hydrocarbons extracted from natural
gas, that meets vapor pressure, end
point, and other specifications for
natural gasoline set by NGPA;
(F) Plant Condensate—A natural gas
plant product recovered and separated
as a liquid at gas inlet separators or
scrubbers in processing plants or field
facilities; and
(G) Other Natural Gas plant products
meeting refined product standards (i.e.,
gasoline, kerosene, distillate, etc.).
Operating rights means an interest
created by sublease out of the record
title interest in an oil and gas lease,
authorizing the owner to explore for,
develop, and/or produce the oil and gas
contained within a specified area and
depth of the lease (i.e., operating rights
tract).
Operating rights owner means the
holder of operating rights.
Operating rights tract means the area
within the lease from which the
operating rights have been severed on
an aliquot basis from the record title
interest, defined by a beginning and
ending depth.
Operator means the person designated
as having control or management of
operations on the leased area or a
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portion thereof. An operator may be a
lessee, the operating rights owner, or a
designated agent of the lessee or the
operating rights owner.
Outer Continental Shelf (OCS) means
all submerged lands lying seaward and
outside of the area of lands beneath
navigable waters as defined in the
Submerged Lands Act (43 U.S.C. 1301–
1315) and of which the subsoil and
seabed appertain to the United States
and are subject to its jurisdiction and
control.
Outer Continental Shelf Lands Act
(OCSLA) means the Outer Continental
Shelf Lands Act (43 U.S.C. 1331–1356a),
as amended.
Owned, as used in the context of
restricted joint bidding or a statement of
production, means:
(i) With respect to crude oil—having
either an economic interest in or a
power of disposition over the
production of crude oil;
(ii) With respect to natural gas—
having either an economic interest in or
a power of disposition over the
production of natural gas; and
(iii) With respect to natural gas
liquids—having either an economic
interest in or a power of disposition
over any natural gas liquids at the time
of completion of the liquefaction
process.
Pensacola OPD means the Official
Protraction Diagram (OPD) designated
as Pensacola that has a western edge
located at the UTM X coordinate
1,393,920 in the NAD27.
Person means a natural person, where
so designated, or an entity, such as a
partnership, association, State, political
subdivision of a State or territory, or a
private, public, or municipal
corporation.
Planning area means a large portion
of the OCS, consisting of contiguous
OCS blocks, defined for administrative
planning purposes.
Predecessor means a prior lessee or
owner of operating rights, or a prior
holder of a right-of-use and easement
grant or a pipeline right-of-way grant. A
predecessor is liable for obligations that
accrued or began accruing while it held
an ownership interest in that lease or
grant.
Primary term or initial period means
the initial period referred to in 43 U.S.C.
1337(b)(2).
Regional Director means the BOEM
officer with responsibility and authority
for a Region within BOEM.
Regional Supervisor means the BOEM
officer with responsibility and authority
for leasing or other designated program
functions within a BOEM Region.
Right-of-Use and Easement (RUE)
means a right to use a portion of the
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seabed at an OCS site other than on a
lease you own, to construct, secure to
the seafloor, use, modify, or maintain
platforms, seafloor production
equipment, artificial islands, facilities,
installations, and/or other devices to
support the exploration, development,
or production of oil, gas, or sulfur
resources from an OCS lease or a lease
on State submerged lands.
Right-of-Way (ROW) means an
authorization issued by BSEE under the
authority of section 5(e) of the OCSLA
(43 U.S.C. 1334(e)) for the use of
submerged lands of the Outer
Continental Shelf for pipeline purposes.
Secretary means the Secretary of the
Interior or an official or a designated
employee authorized to act on the
Secretary’s behalf.
Single bid means a bid submitted by
one person for an oil and gas lease
under section 8(a) of the Act.
Six-month bidding period means the
6-month period of time:
(i) From May 1 through October 31; or
(ii) from November 1 through April
30.
Statement of production means, in the
context of joint restricted bidders, the
following production during the
applicable prior production period:
(i) The average daily production in
barrels of crude oil, natural gas, and
natural gas liquids which it owned
worldwide;
(ii) The average daily production in
barrels of crude oil, natural gas, and
natural gas liquids owned worldwide by
every subsidiary of the reporting person;
(iii) The average daily production in
barrels of crude oil, natural gas, and
natural gas liquids owned worldwide by
any person or persons of which the
reporting person is a subsidiary; and
(iv) The average daily production in
barrels of crude oil, natural gas, and
natural gas liquids owned worldwide by
any subsidiary, other than the reporting
person, of any person or persons of
which the reporting person is a
subsidiary.
Tract means one or more OCS blocks,
or any leasable portion thereof, that will
be part of a single oil and gas lease. The
term tract may be used interchangeably
with the term ‘‘bidding unit.’’
Transfer means to convey an
ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant.
For the purposes of this part, ‘‘transfer’’
is synonymous with ‘‘assign’’ and the
two terms are used interchangeably.
We, us, and our mean BOEM or the
Department of the Interior, depending
on the context in which the word is
used.
Western Planning Area (WPA) means
that portion of the Gulf of Mexico that
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lies south and east of Texas. Precise
boundary information is available from
the Leasing Division, Mapping and
Boundary Branch.
You, depending on the context of this
part, means a bidder, a lessee (record
title owner), a sublessee (operating
rights owner), a Federal or State RUE
grant holder, a pipeline ROW grant
holder, an assignor or transferor, a
designated operator or agent of the
lessee or grant holder, or an applicant
seeking to become one of the
individuals listed in this definition.
Subpart G—Transferring All or Part of
the Record Title Interest in a Lease
16. Amend § 556.703 by revising
paragraph (a) to read as follows:
■
§ 556.703 What is the effect of the
approval of the assignment of 100 percent
of the record title in a particular aliquot(s)
of my lease and of the resulting lease
segregation?
(a) The financial assurance
requirements of subpart I of this part
apply separately to each segregated
lease.
*
*
*
*
*
■ 17. Amend § 556.704 by revising the
section heading and paragraphs (a)
introductory text, and (a)(1) and (2) to
read as follows:
§ 556.704 When may BOEM disapprove an
assignment or sublease of an interest in my
lease?
(a) BOEM may disapprove an
assignment or sublease of all or part of
your lease interest(s):
(1) When the transferor, transferee, or
sublessee is not in compliance with all
applicable regulations and orders,
including financial assurance
requirements;
(2) When a transferor attempts a
transfer that is not acceptable as to form
or content (e.g., not on standard form,
containing incorrect legal description,
not executed by a person authorized to
bind the corporation, transferee does not
meet the requirements of § 556.401); or
*
*
*
*
*
Subpart H—Transferring All or Part of
the Operating Rights in a Lease
18. Amend § 556.802 by revising the
section heading, introductory text, and
paragraphs (a) and (b) to read as follows:
■
§ 556.802 When may BOEM disapprove the
transfer of all or part of my operating rights
interest?
BOEM may disapprove a transfer of
all or part of your operating rights
interest:
(a) When the transferor or transferee
is not in compliance with all applicable
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regulations and orders, including
financial assurance requirements;
(b) When a transferor attempts a
transfer that is not acceptable as to form
or content (e.g., not on standard form,
containing incorrect legal description,
not executed in accordance with
corporate governance, transferee does
not meet the requirements of § 556.401);
or
*
*
*
*
*
■ 19. Revise the heading to subpart I to
read as follows:
Subpart I—Financial Assurance
20. Amend § 556.900 by:
a. Revising the section heading and
introductory text;
■ b. Revising paragraphs (a)
introductory text, (g) introductory text,
and (h); and
■ c. Adding paragraph (i).
The revisions and addition read as
follows:
■
■
§ 556.900 Financial assurance
requirements for an oil and gas or sulfur
lease.
This section establishes financial
assurance requirements for the lessee of
an OCS oil and gas or sulfur lease.
(a) Before BOEM will issue a new
lease to you as the lessee, you or another
lessee for the lease must comply with
one of the options in paragraphs (a)(1)
through (3) of this section. Before BOEM
will approve the assignment of a record
title interest in an existing lease to you
as the lessee, you or another lessee for
the lease must provide any
supplemental financial assurance
required by the Regional Director and
also comply with one of the options in
paragraphs (a)(1) through (3).
*
*
*
*
*
(g) You may provide alternative types
of financial assurance instead of
providing a surety bond if the Regional
Director determines that the alternative
financial assurance protects the interests
of the United States to the same extent
as a surety bond.
*
*
*
*
*
(h) If you fail to replace deficient
financial assurance or to provide
supplemental financial assurance upon
demand, the Regional Director may:
(1) Assess penalties under part 550,
subpart N of this subchapter;
(2) Request BSEE to suspend
production and other operations on
your lease in accordance with § 250.173
of this title; and/or
(3) Initiate action to cancel your lease.
(i) In the event you amend your areawide surety bond covering lease
obligations, or obtain a new area-wide
lease surety bond, to cover the financial
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assurance requirements for any RUE(s),
your area-wide lease surety bond may
be called in whole or in part to cover
any or all the obligations on which you
default that are associated with your
RUE(s) located in the area covered by
such area-wide lease surety bond.
■ 21. Amend § 556.901 by:
■ a. Revising the section heading;
■ b. Revising paragraphs (a)
introductory text and (a)(1)(i);
■ c. Revising paragraphs (b)
introductory text and (b)(1)(i);
■ d. Revising paragraphs (c) through (f);
and
■ e. Adding paragraphs (g) and (h).
The revisions and additions read as
follows:
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§ 556.901 Base and supplemental financial
assurance.
(a) You must provide the following
financial assurance before commencing
any lease exploration activities.
(1) * * *
(i) You must furnish the Regional
Director $200,000 in lease exploration
financial assurance that guarantees
compliance with all the terms and
conditions of the lease by the earliest of:
*
*
*
*
*
(b) This paragraph (b) explains what
financial assurance you must provide
before lease development and
production activities commence.
(1) * * *
(i) You must furnish the Regional
Director $500,000 in lease development
financial assurance that guarantees
compliance with all the terms and
conditions of the lease by the earliest of:
*
*
*
*
*
(c) If you can demonstrate to the
satisfaction of the Regional Director that
you can satisfy your decommissioning
and other lease obligations for less than
the amount of financial assurance
required under paragraph (a)(1) or (b)(1)
of this section, the Regional Director
may accept financial assurance in an
amount less than the prescribed amount
but not less than the amount of the cost
for decommissioning.
(d) The Regional Director may
determine that supplemental financial
assurance (i.e., financial assurance
above the amounts prescribed in
§§ 550.166(a) and 550.1011(a) of this
subchapter, § 556.900(a), or paragraphs
(a) and (b) of this section) is required to
ensure compliance with your lease
obligations, including decommissioning
obligations; the regulations in this
chapter; and the regulations in chapters
II and XII of this title. The Regional
Director may require you to provide
supplemental financial assurance if you
do not meet at least one of the following
criteria:
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(1) You have an investment grade
credit rating. If any nationally
recognized statistical rating
organization, as that term is defined in
section 3(a)(62) of the Securities
Exchange Act of 1934, provides a credit
rating for you that differs from that of
any other nationally recognized
statistical rating organization, BOEM
will apply the highest rating for
purposes of determining your financial
assurance requirements.
(2) You have a proxy credit rating
determined by the Regional Director
that they determine reflects
creditworthiness equivalent to an
investment grade credit rating, which
must be based on audited financial
information for the most recent fiscal
year (which must include an income
statement, balance sheet, statement of
cash flows, and the auditor’s certificate).
(i) The audited financial information
for your most recent fiscal year must
cover a continuous twelve-month period
within the twenty-four-month period
prior to your receipt of the Regional
Director’s determination that you must
provide supplemental financial
assurance.
(ii) In determining your proxy credit
rating, the Regional Director may
include the total value of the offshore
decommissioning liabilities associated
with any lease(s) or grants in which you
have an ownership interest. Upon the
request of the Regional Director, you
must provide the information that the
Regional Director determines is
necessary to properly evaluate the total
value of your offshore decommissioning
liabilities, including joint ownership
interests and liabilities associated with
your OCS leases and grants.
(3) Your co-lessee or co-grant holder
has an issuer credit rating or proxy
credit rating that meets the criterion set
forth in paragraph (d)(1) or (2) of this
section, as applicable. However, the
presence of such co-lessee or co-grant
holder will allow the Regional Director
to not require financial assurance from
you only to the extent that you and that
co-lessee or co-grant holder share
accrued liabilities, and the Regional
Director may require you to provide
supplemental financial assurance for
decommissioning obligations for which
such co-lessee or co-grant holder is not
liable.
(4) There are proved oil and gas
reserves on the lease, unit, or field, as
defined by the SEC Regulation S–X at 17
CFR 210.4–10 and SEC Regulation S–K
at 17 CFR 229.1200, the discounted
value of which exceeds three times the
estimated undiscounted cost of the
decommissioning associated with the
production of those reserves, and that
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value must be based on proved reserve
reports submitted to the Regional
Director and reported on a per-lease,
unit, or field basis. BOEM will
determine the decommissioning costs
associated with the production of your
reserves, and will use the following
undiscounted decommissioning cost
estimates:
(i) Where BSEE-generated
probabilistic estimates are available,
BOEM will use the estimate at the level
at which there is a 70 percent
probability that the actual cost of
decommissioning will be less than the
estimate (P70).
(ii) If there is no BSEE probabilistic
estimate available, BOEM will use the
BSEE-generated deterministic estimate.
(e) You may satisfy the Regional
Director’s demand for supplemental
financial assurance by increasing the
amount of your existing financial
assurance or providing additional surety
bonds or other types of acceptable
financial assurance.
(f) The Regional Director will use the
BSEE P70 decommissioning
probabilistic estimate to determine the
amount of supplemental financial
assurance required to guarantee
compliance when there is no lessee or
co-lessee that meets the criterion in
paragraph (d)(1) or (2) of this section. In
making this determination, the Regional
Director will also consider your
potential underpayment of royalty and
cumulative decommissioning
obligations. Note that BOEM will use
these P-values only in the context of
determining how much financial
assurance is required, and not in the
context of bond forfeiture. Regardless of
whether you are required to provide
supplemental financial assurance at the
P70 level, you remain liable for the full
costs of decommissioning, and your
surety remains liable for the full amount
of decommissioning up to the limit of
assurance provided.
(g) If your cumulative potential
obligations and liabilities either increase
or decrease, the Regional Director may
adjust the amount of supplemental
financial assurance required.
(1) If the Regional Director proposes
an adjustment, the Regional Director
will:
(i) Notify you and your financial
assurance provider of any proposed
adjustment to the amount of financial
assurance required; and
(ii) Give you an opportunity to submit
written or oral comment on the
adjustment.
(2) If you request a reduction of the
amount of supplemental financial
assurance required, or oppose the
amount of a proposed adjustment, you
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must submit evidence to the Regional
Director demonstrating that the
projected amount of royalties due to the
United States Government and the
estimated costs of decommissioning are
less than the required financial
assurance amount. Upon review of your
submission, the Regional Director may
reduce the amount of financial
assurance required.
(h) During the first 3 years from June
24, 2024, you may, upon receipt of a
demand letter for supplemental
financial assurance under this section,
request that the Regional Director allow
you to provide, in three equal
installments payable according to the
schedule provided under this paragraph
(h), the full amount of supplemental
financial assurance required.
(1) If the Regional Director allows you
to provide the amount required on such
a phased basis, you must comply with
the following:
(i) You must provide the initial onethird of the total supplemental financial
assurance required within the timeframe
specified in the demand letter or, if no
timeframe is specified, within 60
calendar days of the date of receipt of
the demand letter.
(ii) You must provide the second onethird of the required supplemental
financial assurance to BOEM within 24
months of the date of receipt of the
demand letter.
(iii) You must provide the final onethird of the required supplemental
financial assurance to BOEM within 36
months of the date of receipt of the
demand letter.
(2) If the Regional Director allows you
to meet your supplemental financial
assurance requirement in a phased
manner, as set forth in this section, and
you fail to timely provide the required
supplemental financial assurance to
BOEM, the Regional Director will notify
you of such failure. You will no longer
be eligible to meet your supplemental
financial assurance requirement in the
manner prescribed in this paragraph (h),
and the remaining amount due will
become due 10 calendar days after such
notification is received.
■ 22. Amend § 556.902 by revising the
section heading, paragraphs (a) and
(e)(2), and adding paragraphs (g) and (h)
to read as follows:
§ 556.902 General requirements for bonds
or other financial assurance.
(a) Any surety bond or other financial
assurance that you, as record title
owner, operating rights owner, grant
holder, or operator, provide under this
part, or under part 550 of this
subchapter, must:
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(1) Be payable upon demand to the
Regional Director;
(2) Guarantee compliance with all
your obligations under the lease or
grant, the regulations in chapters II and
XII of this title, and all BOEM and BSEE
orders; and
(3) Except as stated in § 556.905(b),
guarantee compliance with the
obligations of all record title owners,
operating rights owners, and operators
on the lease, and all grant-holders on a
grant.
*
*
*
*
*
(e) * * *
(2) A pledge of Treasury securities, as
provided in § 556.900(f);
*
*
*
*
*
(g) If you believe that BOEM’s
supplemental financial assurance
demand is unjustified, you may request
an informal resolution of your dispute
in accordance with the requirements of
§ 590.6 of this chapter. Your request for
an informal resolution will not affect
your right to request to meet your
supplemental financial assurance
requirement in a phased manner under
§ 556.901(h).
(h) You may file an appeal of a
supplemental financial assurance
demand with the Interior Board of Land
Appeals (IBLA) pursuant to the
regulations in part 590 of this chapter.
However, if you request that the IBLA
stay the demand pending a final ruling
on your appeal, you must post an appeal
surety bond equal to the amount of the
demand that you seek to stay before any
such stay is effective.
■ 23. Revise § 556.903 to read as
follows:
§ 556.903
Lapse of financial assurance.
(a) If your surety, guarantor, or the
financial institution holding or
providing your financial assurance
becomes bankrupt or insolvent, or has
its charter or license suspended or
revoked, any financial assurance
coverage from such surety, guarantor, or
financial institution must be replaced.
You must notify the Regional Director
within 72 hours of learning of such
event, and, within 30 calendar days of
learning of such event, you must
provide other financial assurance from a
different financial assurance provider in
the amount required under §§ 556.900
and 556.901, or § 550.166 of this
subchapter, or § 550.1011 of this
subchapter.
(b) You must notify the Regional
Director within 72 hours of learning of
any action filed alleging that you are
insolvent or bankrupt or that your
surety, guarantor, or financial
institution is insolvent or bankrupt or
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has had its charter or license suspended
or revoked.
All surety bonds or other financial
assurance instruments must require the
surety, guarantor, or financial
institution to timely provide this
required notification both to you and
directly to BOEM.
■ 24. Revise § 556.904 to read as
follows:
§ 556.904
Decommissioning accounts.
(a) The Regional Director may
authorize you to establish a
decommissioning account(s) in a
federally insured financial institution to
satisfy a supplemental financial
assurance demand made pursuant to
§ 556.901(d), § 550.166(b) of this
subchapter, or § 550.1011(d) of this
subchapter. The decommissioning
account must be set up in such a
manner that funds may not be
withdrawn without the written approval
of the Regional Director.
(1) Funds in the account must be used
only to meet your decommissioning
obligations and must be payable upon
demand to BOEM.
(2) You must fully fund the account
to cover all decommissioning costs as
estimated by BSEE, to the amount, and
pursuant to the schedule, that the
Regional Director prescribes.
(3) If you fail to make the initial
payment or any scheduled payment into
the decommissioning account and you
fail to correct a missed payment within
30 days, you must immediately submit,
and subsequently maintain, a surety
bond or other financial assurance in an
amount equal to the remaining
unfulfilled portion of the supplemental
financial assurance demand.
(b) Any interest paid on funds in a
decommissioning account will become
part of the principal funds in the
account unless the Regional Director
authorizes in writing the payment of the
interest to the party who deposits the
funds.
(c) The Regional Director may
authorize or require you to create an
overriding royalty, production payment
obligation, or other revenue stream for
the benefit of an account established as
financial assurance for the
decommissioning of your lease(s) or
RUE or pipeline ROW grant(s). The
obligation may be associated with oil
and gas or sulfur production from a
lease other than a lease or grant secured
through the decommissioning account.
(d) BOEM may provide funds from the
decommissioning account to the party
that performs the decommissioning in
response to a BOEM or BSEE order to
perform such decommissioning or to
cover the costs thereof. BOEM will
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distribute the funds from the
decommissioning account upon
presentation of paid invoices for
reasonable and necessary costs incurred
by the party performing the
decommissioning.
■ 25. Revise § 556.905 to read as
follows:
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§ 556.905
Third-party guarantees.
(a) The Regional Director may accept
a third-party guarantee to satisfy a
supplemental financial assurance
demand made pursuant to § 556.901(d),
§ 550.166(b) of this subchapter, or
§ 550.1011(d) of this subchapter, if:
(1) The guarantor meets the credit
rating or proxy credit rating criterion set
forth in § 556.901(d)(1) or (2), as
applicable; and
(2) The guarantor or guaranteed party
submits a third-party guarantee
agreement containing each of the
provisions in paragraph (d) of this
section.
(b) Notwithstanding § 556.902(a)(3), a
third-party guarantor may, as agreed to
by BOEM at the time the third-party
guarantee is provided, limit its
cumulative obligations to a fixed dollar
amount or limit its obligations so as to
cover the performance of one or more
specific lease obligations (with no fixed
dollar amount).
(c) If, during the life of your thirdparty guarantee, your guarantor no
longer meets the criterion referred to in
paragraph (a)(1) of this section, you
must, within 72 hours of so learning:
(1) Notify the Regional Director; and
(2) Submit, and subsequently
maintain, a surety bond or other
financial assurance covering those
obligations previously secured by the
third-party guarantee.
(d) Your third-party guarantee must
contain each of the following
provisions:
(1) If you fail to comply with the
terms of any lease or grant covered by
the guarantee, or any applicable
regulation, your guarantor must either:
(i) Take corrective action to bring the
lease or grant into compliance with its
terms or any applicable regulation, to
the extent covered by the guarantee; or
(ii) Be liable under the third-party
guarantee agreement to provide, within
7 calendar days, sufficient funds for the
Regional Director to complete such
corrective action to the extent covered
by the guarantee. Such payment does
not result in the cancellation of the
guarantee, but instead reduces the
remaining value of the guarantee in an
amount equal to the payment.
(2) If your guarantor wishes to
terminate the period of liability under
its guarantee, it must:
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(i) Notify you and the Regional
Director at least 90 calendar days before
the proposed termination date;
(ii) Obtain the Regional Director’s
approval for the termination of the
period of liability for all or a specified
portion of the guarantee; and
(iii) Remain liable for all liabilities
that accrued or began accruing prior to
the termination and responsible for all
work and workmanship performed
during the period of liability.
(3) Before the termination of the
period of liability of the third-party
guarantee, you must provide acceptable
replacement financial assurance.
(e) If you or your guarantor request
BOEM to cancel your third-party
guarantee, BOEM will cancel the
guarantee under the same terms and
conditions provided for cancellation of
supplemental financial assurance and
return of pledged financial assurance in
§ 556.906(b) and/or (d)(3).
(f) The guarantor or guaranteed party
must submit a third-party guarantee
agreement that meets the following
criteria:
(1) The third-party guarantee
agreement must be executed by your
guarantor and all persons and parties
bound by the agreement.
(2) The third-party guarantee
agreement must bind, jointly and
severally, each person and party
executing the agreement.
(3) When your guarantor is a
corporate entity, two corporate officers
who are authorized to bind the
corporation must sign the third-party
guarantee agreement.
(g) Your corporate guarantor and any
other corporate entities bound by the
third-party guarantee agreement must
provide the Regional Director copies of:
(1) The authorization of the signatory
corporate officials to bind their
respective corporations;
(2) An affidavit certifying that the
agreement is valid under all applicable
laws; and
(3) Each corporation’s corporate
authorization to enter into the thirdparty guarantee agreement.
(h) If your third-party guarantor or
another party bound by the third-party
guarantee agreement is a partnership,
joint venture, or syndicate, the thirdparty guarantee agreement must:
(1) Bind each partner or party who
has a beneficial interest in your
guarantor; and
(2) Provide that each member of the
partnership, joint venture, or syndicate
is jointly and severally liable for the
obligations secured by the guarantee.
(i) The third-party guarantee
agreement must provide that, in the
event forfeiture is called for under
§ 556.907, your guarantor will either:
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(1) Take corrective action to bring
your lease or grant into compliance with
its terms, and the regulations, to the
extent covered by the guarantee; or
(2) Provide sufficient funds within 7
calendar days to permit the Regional
Director to complete such corrective
action to the extent covered by the
guarantee.
(j) The third-party guarantee
agreement must contain a confession of
judgment. It must provide that, if the
Regional Director determines that you
are in default of the lease or grant
covered by the guarantee or not in
compliance with any regulation
applicable to such lease or grant, the
guarantor:
(1) Will not challenge the
determination; and
(2) Will remedy the default to the
extent covered by the guarantee.
(k) Each third-party guarantee
agreement is deemed to contain all
terms and conditions contained in
paragraphs (d), (i), and (j) of this section,
even if the guarantor has omitted these
terms from the third-party guarantee
agreement.
■ 26. Revise § 556.906 to read as
follows:
§ 556.906 Termination of the period of
liability and cancellation of financial
assurance.
This section defines the terms and
conditions under which BOEM will
terminate the period of liability of, or
cancel, financial assurance. Terminating
the period of liability ends the period
during which obligations continue to
accrue, but does not relieve the financial
assurance provider of the responsibility
for obligations that accrued during the
period of liability. Canceling a financial
assurance instrument relieves the
financial assurance provider of all
liability. The liabilities that accrue
during a period of liability include
obligations that started to accrue prior to
the beginning of the period of liability
and had not been met, and obligations
that begin accruing during the period of
liability.
(a) When you or your financial
assurance provider request termination:
(1) The Regional Director will
terminate the period of liability under
your financial assurance within 90
calendar days after BOEM receives the
request; and
(2) If you intend to continue
operations, or have not met all
decommissioning obligations, within 90
calendar days after BOEM receives your
termination request, you must provide
replacement financial assurance of an
equivalent amount.
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(b) If you provide replacement
financial assurance, the Regional
Director will cancel your previous
financial assurance and the previous
financial assurance provider will not
retain any liability, provided that:
(1) The amount of the new financial
assurance is equal to or greater than that
of the financial assurance that was
cancelled, or you provide an alternative
form of financial assurance, and the
Regional Director determines that the
alternative form of financial assurance
provides a level of security equal to or
greater than that provided by the
financial assurance that is proposed to
be cancelled;
(2) For financial assurance submitted
under § 556.900(a), § 556.901(a) or (b),
§ 550.166(a) of this subchapter, or
§ 550.1011(a) of this subchapter, the
new financial assurance provider agrees
to assume all outstanding obligations
that accrued during the period of
liability that was terminated; and
(3) For supplemental financial
assurance submitted under § 556.901(d),
§ 550.166(b) of this subchapter, or
§ 550.1011(d) of this subchapter, the
new financial assurance provider agrees
to assume that portion of the
outstanding obligations that accrued
during the period of liability that was
terminated and that the Regional
Director determines may exceed the
coverage of the financial assurance
submitted under § 556.900(a),
§ 556.901(a) or (b), § 550.166(a) of this
subchapter, or § 550.1011(a) of this
subchapter. The Regional Director will
notify the provider of the new financial
assurance of the amount required.
(c) This paragraph (c) applies if the
period of liability is terminated, but the
financial assurance is not replaced with
financial assurance of an equivalent
amount pursuant to paragraph (b) of this
section. The financial assurance
provider will continue to be responsible
for obligations that accrued prior to the
termination of the period of liability:
(1) Until the obligations are satisfied;
and
(2) For additional periods of time in
accordance with paragraph (d) of this
section.
(d) BOEM will cancel the financial
assurance for your lease or grant, and
the Regional Director will return any
pledged financial assurance, as shown
in the following table:
For the following:
Your financial assurance will be reduced or cancelled, or your pledged financial assurance will be returned:
(1) Financial assurance submitted under § 556.900(a),
§ 556.901(a) or (b), § 550.166(a) of this subchapter, or
§ 550.1011(a) of this subchapter..
(i) 7 years after the lease or grant expires or is terminated, 6 years after the Regional Director determines that you have completed all covered obligations, or at
the conclusion of any appeals or litigation related to your covered obligations,
whichever is the latest. The Regional Director will reduce the amount of your financial assurance or return a portion of your pledged financial assurance if the Regional Director determines that less than the full amount of the financial assurance
or pledged financial assurance is required to cover any potential obligations.
(ii) [Reserved]
(i) When the lease or grant expires or is terminated and the Regional Director determines you have met your covered obligations, unless the Regional Director:
(A) Determines that the future potential liability resulting from any undetected problem is greater than the amount of the financial assurance submitted under
§ 556.900(a), § 556.901(a) or (b), § 550.166(a) of this subchapter, or § 550.1011(a)
of this subchapter; and
(B) Notifies the provider of financial assurance submitted under § 556.901(d),
§ 550.166(b) of this subchapter, or 550.1011(d) of this subchapter that the Regional Director will wait 7 years before cancelling all or a part of such financial assurance (or longer period as necessary to complete any appeals or judicial litigation related to your secured obligations).
(ii) At any time when:
(A) BOEM has determined, using the criteria set forth in § 556.901(d)(1), as applicable, that you no longer need to provide the supplemental financial assurance for
your lease, RUE grant, or pipeline ROW grant.
(B) The operations for which the supplemental financial assurance was provided
ceased prior to accrual of any decommissioning obligation; or,
(C) Cancellation of the financial assurance is appropriate because, under the regulations, BOEM determines such financial assurance never should have been required.
(i) When the Regional Director determines you have met your obligations secured by
the guarantee (or longer period as necessary to complete any appeals or judicial
litigation related to your obligations secured by the guarantee).
(ii) [Reserved]
(2) Financial assurance submitted under § 556.901(d),
§ 550.166(b) of this subchapter, or § 550.1011(d) of
this subchapter..
(3)
Third-party
Guarantee
under
§ 556.901(d),
§ 550.166(b) of this subchapter, or § 550.1011(d) of
this subchapter..
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(e) For all financial assurance, the
Regional Director may reinstate your
financial assurance as if no cancellation
had occurred if:
(1) A person makes a payment under
the lease, RUE grant, or pipeline ROW
grant, and the payment is rescinded or
must be returned by the recipient
because the person making the payment
is insolvent, bankrupt, subject to
reorganization, or placed in
receivership; or
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(2) The responsible party represents to
BOEM that it has discharged its
obligations under the lease, RUE grant,
or pipeline ROW grant and the
representation was materially false
when the financial assurance was
cancelled.
27. Revise § 556.907 to read as
follows:
■
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§ 556.907 Forfeiture of bonds or other
financial assurance.
This section explains how a bond or
other financial assurance may be
forfeited.
(a) The Regional Director will call for
forfeiture of all or part of the bond, or
other form of financial assurance,
including a guarantee you provide
under this part, if:
(1) You, or any party with the
obligation to comply, refuse to comply
with any term or condition of your
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lease, RUE grant, pipeline ROW grant,
or any BOEM or BSEE order, or any
applicable regulation, or the Regional
Director determines that you are unable
to so comply; or
(2) You default on one of the
conditions under which the Regional
Director accepts your bond, third-party
guarantee, and/or other form of financial
assurance.
(b) The Regional Director may pursue
forfeiture of your surety bond or other
financial assurance without first making
demands for performance against any
other record title owner, operating rights
owner, grant holder, or other person
authorized to perform lease or grant
obligations.
(c) The Regional Director will:
(1) Notify you, your surety, guarantor,
or the financial institution holding or
providing your financial assurance, of a
determination to call for forfeiture of
your financial assurance, whether it
takes the form of a surety bond,
guarantee, funds, or other type of
financial assurance.
(i) This notice will be in writing and
will provide the reason for the forfeiture
and the amount to be forfeited.
(ii) The Regional Director will
determine the amount to be forfeited
based upon an estimate of the total cost
of corrective action to bring your lease
or grant into compliance, subject, in the
case of a guarantee, to any limitation in
the guarantee authorized by
§ 556.905(b).
(2) Advise you and your financial
assurance provider that forfeiture may
be avoided if, within five business days:
(i) You agree to and demonstrate that
you will bring your lease or grant into
compliance within the timeframe the
Regional Director prescribes; or
(ii) The provider of your financial
assurance agrees to and demonstrates
that it will complete the corrective
action to bring your lease or grant into
compliance within the timeframe the
Regional Director prescribes, even if the
cost of compliance exceeds the amount
of that financial assurance.
(d) If the Regional Director finds you
are in default under paragraph (a)(1) or
(2) of this section, the Regional Director
may cause the forfeiture of any financial
assurance provided to ensure your
compliance with BOEM and BSEE
orders, the terms and conditions of your
lease or grant, and the regulations in
this chapter and chapters II and XII of
this title.
(e) If the Regional Director determines
that your financial assurance is
forfeited, the Regional Director will:
(1) Collect the forfeited amount; and
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17:52 Apr 23, 2024
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(2) Use the funds collected to bring
your lease or grant into compliance and
to correct any default.
(f) If the amount the Regional Director
collects under your financial assurance
is insufficient to pay the full cost of
corrective action, the Regional Director
may:
(1) Take or direct action to obtain full
compliance with your lease or grant and
the regulations in this chapter; and
(2) Recover from you, any other
record title owner, operating rights
owner, co-grant holder or, to the extent
covered by the guarantee, any thirdparty guarantor responsible under this
subpart, all costs in excess of the
amount the Regional Director collects
under your forfeited financial assurance.
(g) If the amount that the Regional
Director collects under your forfeited
financial assurance exceeds the costs of
taking the corrective action required to
bring your lease or grant into
compliance with its terms and the
regulations in this chapter, BOEM and
BSEE orders, and chapters II and XII of
this title, the Regional Director will
return the excess funds to the party from
whom they were collected.
(h) The Regional Director may pay the
funds from the forfeited financial
assurance to a co- or predecessor lessee
or third party who is taking the
corrective action required to obtain
partial or full compliance with the
regulations, BOEM or BSEE orders, and/
or the terms of your lease or grant.
Subchapter C—Appeals
PART 590—APPEAL PROCEDURES
28. The authority citation for part 590
continues to read as follows:
■
Authority: 5 U.S.C. 301 et seq.; 31 U.S.C.
9701; 43 U.S.C. 1334.
29. Revise the heading to subpart A to
read as follows:
■
Subpart A—Bureau of Ocean Energy
Management Appeal Procedures
■
30. Revise § 590.1 to read as follows:
§ 590.1 What is the purpose of this
subpart?
The purpose of this subpart is to
explain the procedures for appeals of
Bureau of Ocean Energy Management
(BOEM) decisions and orders.
■ 31. Revise § 590.2 to read as follows:
§ 590.2
Who may appeal?
If you are adversely affected by a
BOEM official’s final decision or order
issued under chapter V of this title, you
may appeal that decision or order to the
Interior Board of Land Appeals (IBLA).
Your appeal must conform with the
PO 00000
Frm 00056
Fmt 4701
Sfmt 4700
procedures found in this subpart and 43
CFR part 4, subpart E. A request for
reconsideration of a BOEM decision
concerning a lease bid, authorized in
§ 556.517(b), § 581.21(a)(2), or
§ 585.118(c)(1) of this chapter, is not
subject to the procedures found in this
part.
■
32. Revise § 590.3 to read as follows:
§ 590.3 What is the time limit for filing an
appeal?
You must file your appeal within 60
days after you receive BOEM’s final
decision or order. The 60-day time
period applies rather than the time
period provided in 43 CFR 4.411(a). A
decision or order is received on the date
you sign a receipt confirming delivery
or, if there is no receipt, the date
otherwise documented.
33. Amend § 590.4 by revising
paragraph (a) and adding paragraph (c)
to read as follows:
■
§ 590.4
How do I file an appeal?
*
*
*
*
*
(a) A written Notice of Appeal,
together with a copy of the decision or
order you are appealing, in the office of
the BOEM officer that issued the
decision or order. You cannot extend
the 60-day period for that office to
receive your Notice of Appeal; and
*
*
*
*
*
(c) You may file an appeal of a BOEM
supplemental financial assurance
demand with the IBLA. However, if you
request that the IBLA stay the demand
pending a final ruling on your appeal,
you must post an appeal surety bond
equal to the amount of the demand that
you seek to stay before any such stay is
effective.
34. Amend § 590.7 by revising
paragraphs (a)(1) and (b) to read as
follows:
■
§ 590.7 Do I have to comply with the
decision or order while my appeal is
pending?
(a) * * *
(1) BOEM notifies you that the
decision or order, or some portion of it,
is suspended during this period because
there is no likelihood of immediate and
irreparable harm to human life, the
environment, any mineral deposit, or
property; or
*
*
*
*
*
(b) This section applies rather than 43
CFR 4.21(a) for appeals of BOEM orders.
*
*
*
*
*
35. Amend § 590.8 by revising
paragraph (a) to read as follows:
■
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§ 590.8 How do I exhaust my
administrative remedies?
appeal that decision or order to the
(a) If you receive a decision or order
issued under this chapter, you must
IBLA under 43 CFR part 4, subpart E, to
exhaust administrative remedies.
*
*
*
*
*
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]]>Agencies
[Federal Register Volume 89, Number 80 (Wednesday, April 24, 2024)]
[Rules and Regulations]
[Pages 31544-31599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08309]
[[Page 31543]]
Vol. 89
Wednesday,
No. 80
April 24, 2024
Part V
Department of the Interior
-----------------------------------------------------------------------
Bureau of Ocean Energy Management
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30 CFR Parts 550, 556, and 590
Risk Management and Financial Assurance for OCS Lease and Grant
Obligations; Final Rule
Federal Register / Vol. 89 , No. 80 / Wednesday, April 24, 2024 /
Rules and Regulations
[[Page 31544]]
-----------------------------------------------------------------------
DEPARTMENT OF THE INTERIOR
Bureau of Ocean Energy Management
30 CFR Parts 550, 556, and 590
[Docket No. BOEM-2023-0027]
RIN 1010-AE14
Risk Management and Financial Assurance for OCS Lease and Grant
Obligations
AGENCY: Bureau of Ocean Energy Management, Interior.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Department of the Interior (the Department or DOI), acting
through the Bureau of Ocean Energy Management (BOEM), is amending its
risk management and financial assurance regulations. This final rule
revises criteria for determining whether oil, gas, and sulfur lessees,
right-of-use and easement (RUE) grant holders, and pipeline right-of-
way (ROW) grant holders are required to provide financial assurance
above the current minimum bonding levels to ensure compliance with
their Outer Continental Shelf Lands Act (OCSLA) obligations. This final
rule streamlines the criteria for evaluating the financial health of
lessees and grantees, codifies the use of the Bureau of Safety and
Environmental Enforcement's (BSEE) probabilistic estimates of
decommissioning costs in setting the level of demands for supplemental
financial assurance, removes restrictive provisions for third-party
guarantees and decommissioning accounts, adds new criteria for
cancelling supplemental financial assurance, and clarifies bonding
requirements for RUEs serving Federal leases. BOEM estimates that a
total of $6.9 billion in new supplemental financial assurance will be
required from lessees and grant holders under this final rule to cover
potential costs of decommissioning activities. This final rule
significantly increases the amount of financial assurance available to
the U.S. Government in the case of a lessee default and meaningfully
reduces the risk to the government and consequently to the U.S.
taxpayer. This final rulemaking does not apply to renewable energy
activities.
DATES: This final rule is effective on June 24, 2024. You may make
comments on the information collection (IC) burden in this rulemaking
and the Office of Management and Budget (OMB) and BOEM must receive
such comments on or before May 24, 2024. The IC burden comment
opportunity does not affect the final rule effective date.
ADDRESSES: BOEM has established a docket for this action under Docket
No. BOEM-2023-0027. All documents in the docket are listed on the
https://www.regulations.gov website and can be found by entering the
Docket No. in the ``Enter Keyword or ID'' search box and clicking
``search''.
You may submit comments on the IC to OMB's desk officer for the
Department of the Interior through https://www.reginfo.gov/public/do/PRAMain. From this main web page, you can find and submit comments on
this particular information collection by proceeding to the boldface
heading ``Currently under Review--Open for Public Comments,'' selecting
``Department of the Interior'' in the ``Select Agency'' pull down menu,
clicking ``Submit,'' then, checking the box ``Only Show ICR for Public
Comment'' on the next web page, scrolling to this final rule, and
clicking the ``Comment'' button at the right margin. Additionally, you
may use the search function to locate the IC request related to the
rule on the main web page. Please provide a copy of your comments to
the Information Collection Clearance Officer, Office of Regulations,
BOEM, Attention: Anna Atkinson, 45600 Woodland Road, Sterling, Virginia
20166; or by email to [email protected]. Please reference OMB
Control Number 1010-0006 in the subject line of your comments.
FOR FURTHER INFORMATION CONTACT: Kelley Spence, Office of Regulations,
BOEM, 45600 Woodland Road, Sterling, Virginia 20166, at email address
[email protected] or at telephone number (984) 298-7345; and Karen
Thundiyil, Chief, Office of Regulations, BOEM, 1849 C Street NW,
Washington, DC 20240, at email address [email protected] or at
telephone number (202) 742-0970. Individuals in the United States who
are deaf, deafblind, hard of hearing, or have a speech disability may
dial 711 (TTY, TDD, or TeleBraille) to access telecommunications relay
services for contacting the contacts listed in this section. These
services are available 24 hours a day, 7 days a week, to leave a
message or question with the above individual. You will receive a reply
during normal business hours. Individuals outside the United States
should use the relay services offered within their country to make
international calls to the point-of-contact in the United States.
SUPPLEMENTARY INFORMATION: Preamble acronyms and abbreviations.
Multiple acronyms are included in this preamble. While this list may
not be exhaustive, to ease the reading of this preamble and for
reference purposes, BOEM explains the following acronyms here:
ANCSA Alaska Native Claims Settlement Act
BOEM Bureau of Ocean Energy Management
BSEE Bureau of Safety and Environmental Enforcement
CFR Code of Federal Regulations
CRA Congressional Review Act
DOI Department of the Interior (or Department)
E.O. Executive Order
FDIC Federal Deposit Insurance Corporation
FR Federal Register
FSLIC Federal Savings and Loan Insurance Corporation
GAO Government Accountability Office
GOMESA Gulf of Mexico Energy Security Act of 2006
IBLA Interior Board of Land Appeals
IC Information Collection
INC Incident of Non-Compliance
IRFA Initial Regulatory Flexibility Analysis
mmboe Million barrels of oil equivalents
MMS Minerals Management Service
NAICS North American Industry Classification System
NEPA National Environmental Policy Act
NPRM Notice of Proposed Rulemaking
NRSRO Nationally Recognized Statistical Rating Organization
NTL Notice to Lessees
OCS Outer Continental Shelf
OCSLA Outer Continental Shelf Lands Act
OIRA Office of Information and Regulatory Affairs (a component of
OMB)
OMB Office of Management and Budget
ONRR Office of Natural Resources Revenue
PRA Paperwork Reduction Act
RIA Regulatory Impact Analysis
RFA Regulatory Flexibility Act
RUE Right-of-Use and Easement
ROW Right-of-Way
SBA Small Business Administration
SBREFA Small Business Regulatory Enforcement Fairness Act
SEC Securities and Exchange Commission
S&P Standard and Poor's
UMRA Unfunded Mandates Reform Act
U.S.C. United States Code
U.S. EPA United States Environmental Protection Agency
Background information. On June 29, 2023, the Department proposed
revisions to the regulations for risk management and financial
assurance for Outer Continental Shelf (OCS) lease and grant
obligations. The comments received regarding the proposed rule, some of
which resulted in regulatory changes, and their corresponding responses
are summarized in this preamble. A detailed summary of all public
comments on the proposal and their corresponding responses are
available in the memorandum titled,
[[Page 31545]]
Risk Management and Financial Assurance for OCS Lease and Grant
Obligations: Response to Public Comments Received on the June 29, 2023,
Notice of Proposed Rulemaking in the docket for this rulemaking (Docket
No. BOEM-2023-0027). A ``track changes'' version of the regulatory
language that identifies the changes in this action compared to the
current regulations is also available in the docket.
Organization of this document. The information in this preamble is
organized as follows:
I. General Information
A. Executive Summary
1. Purpose of This Regulatory Action
2. Summary of Major Provisions
3. Costs and Benefits
B. Does this action apply to me?
C. Where can I get a copy of this document and other related
information?
II. Background
A. BOEM Statutory and Regulatory Authority and Responsibilities
B. History of Bonding Regulations and Guidance
C. Purpose of Rulemaking
D. Summary of the June 29, 2023, Proposed Rulemaking
III. Summary of the Final Rule and Public Comments
A. Revisions to BOEM Supplemental Financial Assurance
Requirements
1. Leases
a. Evaluation of Co-Lessees
b. Evaluation Criteria
2. Right-of-Use and Easement Grants
a. Base Financial Assurance
b. Area-Wide Financial Assurance
c. Supplemental Financial Assurance
3. Pipeline Right-of-Way Grants
B. Use of BSEE's Probabilistic Estimates for Determining
Decommissioning Costs
C. Revisions to Other Types of Supplemental Financial Assurance
1. Third-Party Guarantees
2. Decommissioning Accounts
3. Transfers of Lease Interests to Other Lessees or Operating
Rights Holders
D. Evaluation Methodology
1. Credit Ratings
a. Use of an ``Issuer Credit Rating''
b. Credit Rating Threshold
2. Proxy Credit Ratings
3. Valuing Proved Oil and Gas Reserves
E. Phased Compliance With Supplemental Financial Assurance
Orders
F. Appeal Bonds
G. Other Amendments
1. Revisions to Definitions
2. Changing of the Spelling of ``Sulphur'' to ``Sulfur''
IV. Summary of Cost, Economic Impacts, and Additional Analyses
Conducted
A. What are the affected entities?
B. What are the economic impacts?
C. What are the benefits?
D. What tribal outreach did BOEM conduct?
V. Section-by-Section Analysis
VI. Statutory and Executive Order Reviews
A. Executive Orders 12866: Regulatory Planning and Review, as
Amended by Executive Order 14094: Modernizing Regulatory Review, and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Regulatory Flexibility Act (RFA)
C. Small Business Regulatory Enforcement Fairness Act
D. Unfunded Mandates Reform Act (UMRA)
E. Executive Order 12630: Governmental Actions and Interference
With Constitutionally Protected Property Rights
F. Executive Order 13132: Federalism
G. Executive Order 12988: Civil Justice Reform
H. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
I. Paperwork Reduction Act (PRA)
J. National Environmental Policy Act (NEPA)
K. Data Quality Act
L. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
M. Congressional Review Act (CRA)
I. General Information
A. Executive Summary
1. Purpose of This Regulatory Action
The purpose of this final regulatory action is to address concerns
regarding BOEM's financial assurance program. This rule finalizes
amendments to the existing provisions to better protect the taxpayer
from bearing the cost of facility decommissioning and other financial
risks associated with OCS development, such as environmental
remediation. Additionally, this final rule provides regulatory clarity
to OCS lessees regarding their financial obligations by codifying
requirements in the Code of Federal Regulations (CFR).
Since 2009, more than 30 corporate bankruptcies have occurred
involving offshore oil and gas lessees that did not have sufficient
financial assurance to cover their decommissioning liabilities. These
bankruptcies have highlighted a weakness in BOEM's current supplemental
financial assurance program. BOEM's existing program has, at times,
been unable to forecast financial distress of these lessees and
grantees that have not previously provided supplemental financial
assurance and, as a result, BOEM has not had sufficient time to require
and receive supplemental financial assurance prior to a declaration of
bankruptcy. Additionally, challenges arising from bankruptcy
proceedings, including the inability to sell less valuable assets that
fail to generate new buyers at auction, can result in unplugged wells
and orphaned infrastructure, potentially resulting in the American
taxpayer paying to plug those wells and decommission that abandoned
infrastructure. The amendments finalized in this rulemaking under
section 5 of OCSLA (43 United States Code (U.S.C.) 1334) and
Secretary's Order 3299 strengthen BOEM's financial assurance program to
better protect the taxpayer from bearing the cost of facility
decommissioning and other financial risks associated with OCS
development.
2. Summary of Major Provisions
The following major provisions are included in this final rule:
streamlining the criteria used for evaluating the
financial health of lessees and grantees,
codifying the use of the BSEE probabilistic estimates of
decommissioning cost for determining the amount of supplemental
financial assurance required,
removing restrictive provisions for third-party guarantees
and decommissioning accounts,
adding new criteria under which a bond or third-party
guarantee that was provided as financial assurance may be canceled, and
clarifying financial assurance requirements for RUEs
serving Federal leases.
With this rulemaking, the Department is finalizing an amendment to
revise the criteria used to evaluate the need for supplemental
financial assurance from the existing five criteria--financial
capacity, projected financial strength, business stability, reliability
in meeting obligations based on credit rating or trade references, and
record of compliance with laws, regulations, and lease terms--to one of
two criteria: (1) credit rating and (2) the ratio of the value of
proved reserves to decommissioning liability associated with those
reserves. Specifically, the Department is finalizing the use of an
investment grade credit rating threshold (or proxy credit rating
equivalent) and a minimum 3-to-1 ratio of the value of proved reserves
to decommissioning liability associated with those reserves to
determine if a lessee is required to provide supplemental financial
assurance. If a current lessee meets one of these criteria, it will not
be required to provide supplemental financial assurance. These
amendments codify a forward-looking analysis for determining the need
for supplemental financial assurance and strengthen BOEM's financial
assurance program by providing a more accurate method for analyzing a
lessee's financial health.
[[Page 31546]]
The Department is also finalizing the use of the BSEE probabilistic
estimates of decommissioning cost for determining the amount of
supplemental financial assurance required. The new estimates are based
on industry-reported decommissioning costs pursuant to the notice-to-
lessees (NTL) requiring the submittal of such data. Previously, BSEE
provided a single algorithm-based deterministic estimate for OCS
facilities for determining decommissioning cost estimates. Based on the
reported data, BSEE has developed three probabilistic estimates (i.e.,
P-values) of decommissioning costs for each OCS facility on any given
lease. These values represent the likelihood of covering the full cost
of decommissioning a facility as a percentage; for example, P70
represents a 70 percent likelihood of covering the full cost of
decommissioning a facility. The Department is finalizing, as proposed,
the use of the P70 decommissioning estimate value to determine the
amount of supplemental financial assurance required from a current
lessee that does not meet the financial waiver criteria. If
probabilistic estimates are not available, then BOEM will use the
available deterministic values. BOEM also notes that the use of the
BSEE P70 value only reflects the amount of supplemental financial
assurance that may be required to meet decommissioning obligations and
does not reflect the total cost of corrective action that may be
required to bring a lease or grant into compliance.
The Department's goal for BOEM's financial assurance program
continues to be the protection of the American taxpayers from exposure
to financial loss associated with OCS development, while ensuring that
the financial assurance program does not detrimentally affect offshore
investment or position American offshore exploration and production at
a competitive disadvantage. The Department acknowledges that the new
regulations could have a significant financial impact on affected
companies, and for that reason, the Department is finalizing the
amendment, as proposed, to phase in the new financial assurance
requirements over a 3-year period for existing leaseholders.
3. Costs and Benefits
The regulatory amendments in this rulemaking are expected to
increase the total amount of financial assurance required from OCS
lessees and grant holders. Those lessees that do not meet the updated
criteria to avoid providing financial assurance will realize an
increased compliance cost in the form of bonding premiums. BOEM has
drafted a Regulatory Impact Analysis (RIA) detailing the estimated
impacts of the respective provisions of this final rule and has
included it in the docket. The impacts reflect both monetized and non-
monetized impacts; the costs and benefits of the non-monetized impacts
are discussed qualitatively in the document. The table below summarizes
BOEM's monetized estimate of the cost of increased bonding premiums
paid by lessees over a 20-year period. Additional information on the
estimated transfers, costs, and benefits can be found in the RIA
available in the docket for this rulemaking (Docket No. BOEM-2023-
0027).
Net Total Estimated Compliance Cost of the Rule
[2024-2043, 2023, $ millions]
------------------------------------------------------------------------
Discounted Discounted
2024-2043 at 3% at 7%
------------------------------------------------------------------------
Net Total Compliance Cost....................... $8,525 $5,923
Annualized Compliance Cost...................... 573.0 559.0
------------------------------------------------------------------------
This final rule affects holders of oil, gas, and sulfur leases, ROW
grants, and RUE grants on the OCS. The analysis shows that this
includes roughly 391 companies with ownership interests in OCS leases
and grants. Entities that operate under this rule are classified
primarily under North American Industry Classification System (NAICS)
codes 211120 (Crude Petroleum Extraction), 211130 (Natural Gas
Extraction), and 486110 (Pipeline Transportation of Crude Oil and
Natural Gas). For NAICS classifications 211120 and 211130, the Small
Business Administration (SBA) defines a small business as one with
fewer than 1,250 employees; for NAICS code 486110, it is a business
with fewer than 1,500 employees. Based on this criterion, approximately
271 (69 percent) of the businesses operating on the OCS subject to this
rule are considered small; the remaining businesses are considered
large entities. All the operating businesses meeting the SBA
classification are potentially impacted; therefore, BOEM expects that
the rule will affect a substantial number of small entities.
BOEM has estimated the annualized increase in compliance costs to
lessees and RUE and ROW grant holders and allocated those to small and
large entities based on their decommissioning liabilities. BOEM's
analysis estimates small companies could incur $421 million (7 percent
discounting) in annualized compliance costs from its changes. The
Bureau recognizes that there will be incremental cost burdens to most
affected small entities and has included a 3-year, phased compliance
approach to reduce burden associated with the transition to the
requirements of this rule. The changes are designed to balance the risk
of non-performance with the compliance burdens that are associated with
the requirement to provide supplemental financial assurance. Additional
information about these conclusions can be found in the RIA for this
rule.
B. Does this action apply to me?
Entities potentially affected by this final action are holders of
oil, gas, and sulfur leases, ROW grants, and RUE grants on the OCS.
C. Where can I get a copy of this document and other related
information?
In addition to being available in the docket, BOEM will post an
electronic copy of the documents related to this final action at:
https://www.boem.gov/regulations-and-guidance.
BOEM's full response to comments on the June 29, 2023, notice of
proposed rulemaking (NPRM), including any comments not discussed in
this preamble, can be found in the memorandum titled, Risk Management
and Financial Assurance for OCS Lease and Grant Obligations: Response
to Public Comments Received on the June 29, 2023, Notice of Proposed
Rulemaking, available in the docket (Docket No. BOEM-2023-0027).
II. Background
A. BOEM Statutory and Regulatory Authority and Responsibilities
Section 5 of OCSLA (43 U.S.C. 1334), authorizes the Secretary of
the Interior (Secretary) to issue regulations to administer OCS leasing
for mineral development. Section 5(a) of OCSLA (43 U.S.C. 1334(a))
authorizes the Secretary to ``prescribe such rules and regulations as
may be necessary to carry out [provisions of OCSLA]'' related to
leasing on the OCS. Section 5(b) of OCSLA (43 U.S.C. 1334(b)) provides
that ``compliance with regulations issued under'' OCSLA must be a
condition of ``[t]he issuance and continuance in effect of any lease,
or of any assignment or other transfer of any lease, under the
provisions of'' OCSLA. Section 18 of OCSLA (43 U.S.C. 1344) states
that, ``Management of the [OCS] shall be conducted in a manner which
considers economic, social, and environmental values of the renewable
[[Page 31547]]
and nonrenewable resources contained in the [OCS]. . .''.
The Secretary, in Secretary's Order 3299 (as amended), established
BOEM and delegated to it the authority to carry out conventional
energy- (e.g., oil and gas) and renewable energy-related functions on
the OCS, including, but not limited to, activities involving resource
evaluation, planning, and leasing under the provisions of OCSLA. As
such, BOEM is responsible for managing development of the Nation's
offshore energy and mineral resources in an environmentally and
economically responsible way. Secretary's Order 3299 also established
BSEE and delegated to it the authority to, among other things, enforce
an oil and gas lessee's obligation to perform decommissioning. BSEE
provides estimates to BOEM to inform the financial assurance needed to
cover the cost to perform decommissioning, thereby protecting the
American taxpayer from incurring financial loss. When a current lessee
is unable to perform its obligations, the Department's regulations at
30 CFR 556.604(d) and 556.605(e) hold current co-lessees responsible
for all decommissioning obligations and predecessor lessees responsible
for those decommissioning obligations that had accrued before they
assigned their interests to others. See Section III.B for more detail
on joint and several liability requirements. While BOEM also has
program oversight for the financial assurance requirements set forth in
30 CFR parts 551, 581, 582, and 585, this final rule pertains only to
the financial assurance requirements for oil and gas or sulfur leases
under part 556, RUE grants and ROW grants under part 550, and appeals
of supplemental financial assurance demands under part 590.
For more information on the statutory authority for this rule, see
the preamble to the proposed rule at 88 FR 42138, June 29, 2023.
B. History of Bonding Regulations and Guidance
The Minerals Management Service (MMS), BOEM's predecessor,
published the existing financial assurance requirements for oil, gas,
and sulfur leases and pipeline ROW grants on May 22, 1997 (62 FR
27948). These regulations required lease-specific or area-wide base
bonds in prescribed amounts, depending on the level of activity on a
lease, and provided the authority to require additional supplemental
financial assurance for leases above the base bonds depending on the
financial health of the lessee. Additionally, MMS published the
existing financial assurance requirements for RUE grants on December
28, 1999 (64 FR 72756). These regulations did not dictate a specific
bond amount for a RUE but did provide the authority to require bonding
if necessary. BOEM employs the same criteria for RUE and ROW grants as
it does for leases to determine whether supplemental financial
assurance is required, because specific criteria pertaining to
supplemental financial assurance for grants do not exist in the current
regulations.
The current bonding regulations at 30 CFR 556.901(d) provide five
criteria that the Regional Director uses to determine whether a
lessee's potential inability to carry out present and future
decommissioning obligations warrants a demand for supplemental
financial assurance; however, the current bonding regulations do not
specifically describe how the criteria are weighted. To provide
guidance, MMS issued a Notice to Lessees (NTL) effective December 28,
1998, which provided details on how it would apply the five criteria
(NTL No. 98-18N). This NTL was superseded by NTL No. 2003-N06,
effective June 17, 2003, and that NTL was later superseded by NTL No.
2008-N07, which was effective August 28, 2008. Most recently, NTL No.
2008-N07 was superseded on September 12, 2016, with NTL No. 2016-N01,
which was later rescinded in February of 2020.
In December 2015, the Government Accountability Office (GAO)
reviewed BOEM's supplemental financial assurance procedures and issued
a report titled ``Offshore Oil and Gas Resources: Actions Needed to
Better Protect Against Billions of Dollars in Federal Exposure to
Decommissioning Liabilities.'' (GAO Report). While acknowledging BOEM's
ongoing efforts to update its policies, the GAO Report recommended,
inter alia, that ``BOEM complete its plan to revise its supplemental
financial assurance procedures, including the use of alternative
measures of financial strength.'' See https://www.gao.gov/products/gao-16-40.
On October 16, 2020, DOI issued a notice of proposed rulemaking (85
FR 65904) to revise certain BSEE policies concerning decommissioning
orders and the Department's financial assurance regulations that are
administered by BOEM. In the joint proposed rule, the Department
proposed to adjust the supplemental financial assurance criteria to
reflect the risk mitigation already provided by the joint and several
liability of financially stable co-lessees and predecessor lessees. The
Department's regulations hold predecessors responsible for some or all
of the decommissioning when a current lessee is unable to perform its
obligations. In the 2020 proposed rule, the Department proposed to
consider the financial stability of predecessor lessees by waiving
supplemental financial assurance requirements for a current lessee when
there is a financially strong predecessor lessee. The Department also
proposed to change the methodology for measuring financial strength to
focus on credit rating and the value of proved oil and gas reserves and
to apply the credit rating methodology to RUE grants and ROW grants as
well.
On April 18, 2023, DOI finalized the BSEE-administered provisions
of the 2020 proposal (88 FR 23569). The Department's 2023 final rule
implements provisions of the 2020 proposed rule to clarify
decommissioning responsibilities of RUE grant holders and to formalize
BSEE's policies regarding performance by predecessors ordered to
decommission OCS facilities.
On June 29, 2023, the Department proposed a new rule in lieu of
finalizing the BOEM provisions of the 2020 joint proposal. The new
proposed rule provided recommended revisions to the regulations
concerning risk management and financial assurance for OCS lease and
grant obligations. This final action addresses the public comments
received on the June 29, 2023, proposal and finalizes amendments to
those regulations. For more details on the history of the bonding
regulations, see the preamble to the proposed rule at 88 FR 42138.
C. Purpose of Rulemaking
The purpose of this rulemaking is to finalize amendments to address
concerns regarding BOEM's financial assurance program. This rule
finalizes amendments to the existing provisions to better protect the
taxpayer from bearing the cost of facility decommissioning and other
financial risks associated with OCS development, such as environmental
remediation. This rule also provides regulatory clarity to OCS lessees
regarding their financial obligations by codifying requirements in the
CFR.
As discussed in the preamble to the proposed rule (88 FR 42140),
the GAO identified three main shortcomings in the Department's prior
approach to financial assurance: (1) the Department faced challenges in
determining actual decommissioning liabilities due to data system
limitations and inaccurate data; (2) the Department did not require
sufficient financial assurance to cover liabilities, primarily due to
the practice
[[Page 31548]]
of waiving supplemental bonding requirements, resulting in financial
assurance coverage (such as bonds) for less than 8% of an estimated
$38.2 billion in decommissioning liabilities; and (3) the Department's
criteria for assessing lessees' financial strength did not provide
accurate and timely information about their ability to cover future
decommissioning costs. As the GAO report indicated, the existing
regulatory structure is inadequate, introduces needless financial risk,
and is unsustainable.
Importantly, relatively few major facilities have been
decommissioned (relative to the number installed) because the vast
majority of facilities are or were recently actively producing. As more
facilities reach the end of their useful life, however, decommissioning
will be required on a larger scale. Accordingly, previously low losses
to the government are not a reliable indicator for future losses. The
GAO has in fact asserted the opposite and has notified Congress that
the current program must be revised to avoid putting the government in
an untenable situation.
On February 20, 2024, the GAO issued a new report titled Offshore
Oil and Gas: Interior Needs to Improve Decommissioning Enforcement and
Mitigate Related Risks (GAO-24-106229) that provided four
recommendations to DOI to strengthen BSEE's and BOEM's decommissioning
oversight and enforcement. Recommendation 3 specifically stated the
``Secretary of the Interior should ensure the BOEM Director completes
planned actions to further develop, finalize, and fully implement
changes to financial assurance regulations and procedures that reduce
financial risks, including by (1) requiring higher levels of
supplemental bonding, and (2) addressing other known weaknesses.'' The
measures BOEM described in the proposed rule and finalized here will,
as a practical matter, address this GAO recommendation.
Since 2009, more than 30 corporate bankruptcies have occurred
involving offshore oil and gas lessees with decommissioning liabilities
that were not covered by financial assurance. The fact that
bankruptcies have involved decommissioning liabilities without
sufficient supplemental financial assurance demonstrates that the
waiver criteria in NTL No. 2008-N07 were inadequate to protect the
public from potential responsibility for OCS decommissioning
liabilities, especially during periods of low oil and gas prices. For
example, ATP Oil & Gas was a mid-sized company with a supplemental
financial assurance waiver when it filed for bankruptcy in 2012.
Similarly, Bennu Oil & Gas LLC, had a waiver at the time of its
bankruptcy filing, and Energy XXI, Ltd. and Stone Energy Corporation
obtained waivers less than a year before filing for bankruptcy. While
most OCS leases affected by the bankruptcies were ultimately sold or
retained by the companies reorganized under chapter 11 of the U.S.
Bankruptcy Code, these bankruptcies highlighted the weakness in BOEM's
supplemental financial assurance program. BOEM's existing program has,
at times, been unable to forecast financial distress of these lessees
and grantees that have not previously provided supplemental financial
assurance and, as a result, BOEM has not had sufficient time to require
and receive supplemental financial assurance prior to a declaration of
bankruptcy.
Additionally, challenges arising in bankruptcy proceedings,
including the inability to sell less valuable assets that fail to
generate new buyers at auction, can result in unplugged wells and
orphaned infrastructure. This could result in the American taxpayer
paying the cost to plug those wells and decommission that abandoned
infrastructure. The amendments finalized in this rulemaking strengthen
BOEM's financial assurance regulations to better protect the taxpayer
from bearing the cost of facility decommissioning and other financial
risks associated with OCS development.
D. Summary of the June 29, 2023, Proposed Rulemaking
On June 29, 2023, DOI published an NPRM in the Federal Register at
88 FR 42136, which proposed amendments to 30 CFR parts 550, 556, and
590. This NPRM proposed to streamline the criteria used for evaluating
the financial health of lessees, codify the use of the BSEE
probabilistic estimates of decommissioning cost for determining the
amount of supplemental financial assurance required, remove restrictive
provisions for third-party guarantees and decommissioning accounts, add
criteria for which a bond or third-party guarantee that was provided as
supplemental financial assurance may be canceled, and clarify bonding
requirements for RUEs serving Federal leases. Specifically, the
Department proposed to revise the criteria used to evaluate the need
for supplemental financial assurance from lessees from the existing
five criteria--financial capacity, projected financial strength,
business stability, reliability in meeting obligations based on credit
rating or trade references, and record of compliance with laws,
regulations, and lease terms--to one of two criteria: (1) credit rating
and (2) the ratio of the value of proved reserves to decommissioning
liability associated with those reserves. The Department proposed the
use of an investment grade credit rating threshold (or proxy credit
rating equivalent) and a minimum 3-to-1 ratio of the value of proved
reserves to decommissioning liability associated with those reserves to
determine if a lessee is required to provide supplemental financial
assurance.
After examining the financial assurance costs in conjunction with
risk coverages derived from using different P-values for
decommissioning costs over different time periods for the full
implementation of this rule, BOEM proposed that an adequate balance
between OCS development and financial risk level on the OCS is achieved
by the combination of a P70 value and a phase-in period of 3 years. The
proposed phased-in approach allows the lessee, grant holder, or
operator to submit the amount due over 3 fiscal years, which is
specifically designed to mitigate the disruptive impact of large,
immediate financial assurance demands. BOEM notes that poorly-
capitalized companies with end-of-life assets may declare bankruptcy at
the P70 level, but that bankruptcy would also be a risk under a P90 or
a P50 level threshold. It was BOEM's conclusion that a P70 threshold
with a 3-year phase-in achieves an adequate balance between the level
of protection against the risks that the proposed rule intends to
manage with a reasonable period of time to fully implement the costs
derived from these policy changes. Details regarding each of the
specific proposal provisions are discussed in section III of this
preamble.
III. Summary of the Final Rule and Public Comments
For each topic, this section provides a description of what the
Department proposed, what the Department is finalizing, and a summary
of key comments and responses for each proposal provision. BOEM's full
response to comments on the June 29, 2023, NPRM, including any comments
not discussed in this preamble, can be found in the memorandum titled,
Risk Management and Financial Assurance for OCS Lease and Grant
Obligations: Response to Public Comments Received on the June 29, 2023,
Notice of Proposed Rulemaking available in the docket (Docket No. BOEM-
2023-0027) (hereinafter Response to Public Comments).
[[Page 31549]]
A. Revisions to BOEM Supplemental Financial Assurance Requirements
The Department proposed and is finalizing revisions to the
supplemental financial assurance requirements for oil, gas, and sulfur
leases, RUE grants, and pipeline ROW grants, as discussed in the
subsections below.
1. Leases
In the June 29, 2023, NPRM, the Department proposed changes to the
lease financial assurance requirements to (1) modify the evaluation
process for requiring supplemental financial assurance by clarifying
and streamlining the evaluation criteria, and (2) remove restrictive
provisions for third-party guarantees and decommissioning accounts. The
proposed rule would allow the Regional Director to require supplemental
financial assurance when a lessee or grant holder poses a substantial
risk of becoming financially unable to carry out its obligations under
its lease or grant, or when the property may not have sufficient value
to be sold to another company that could assume those obligations. In
the former case, the risk that the taxpayer might have to take on the
financial obligations of a lessee or grant holder is mitigated when
there is a co-lessee or co-grant holder that has sufficient financial
capacity to carry out the obligations. These proposed provisions, the
key public comments received on the provisions, and the Department's
final amendments are discussed in the following subsections. A summary
of all comments received regarding revisions to lease financial
assurance provisions and BOEM's corresponding responses can be found in
section 3 of the Response to Public Comments.
Additionally, DOI also proposed to use the costs of decommissioning
resulting from BSEE's new methodology, which provides probabilistic
costs using a database of reported decommissioning costs on the OCS, to
determine the amount of supplemental financial assurance required, as
discussed in section III.B of this preamble.
a. Evaluation of Co-Lessees
Lessees are jointly and severally liable for the lease
decommissioning obligations that accrue during their ownership, as well
as those that accrued prior to their ownership, which means that each
current co-lessee is liable for the full obligation and BSEE may pursue
full performance from any individual current lessee. See, e.g., 30 CFR
556.604(d). In addition, a lessee that transfers its interest to
another party continues to be liable for any unperformed
decommissioning obligations that accrued prior to, or during, the time
that lessee owned an interest in the lease. See, e.g., 30 CFR 556.710.
This transferor liability applies, however, only to those obligations
existing at the time of transfer. New facilities, or additions to
existing facilities, that were not in existence at the time of any
lease transfer are not obligations of a predecessor company but are
only considered obligations of the party that built such new facilities
and its co- and successor lessees.
BOEM's existing supplemental financial assurance evaluation
process, contained in 30 CFR 556.901(d), is not clear to what extent
co-lessee financial capacity is to be considered. The Department
proposed to codify in 30 CFR 556.901(d)(3) that this process includes
an evaluation of the ability of a co-lessee to carry out present and
future obligations. This proposed amendment recognizes that all current
owners are benefiting from ongoing operations and are jointly and
severally liable for compliance with DOI requirements. All current co-
lessees are equally liable for present nonmonetary obligations and such
future obligations that accrue while they are co-lessees. As proposed,
BOEM would not require supplemental financial assurance for properties
where at least one co-lessee meets the credit rating threshold. A
summary of the comments received is provided here.
Comment: Several commenters expressed support for DOI's proposal to
not require supplemental financial assurance on leases where at least
one co-lessee meets the credit rating threshold.
Response: BOEM acknowledges the commenters' support, and the
Department is finalizing, as proposed in 30 CFR 556.901(d), that the
evaluation for determining whether supplemental financial assurance is
required includes an evaluation of the ability of a co-lessee to carry
out present and future obligations. This amendment recognizes that all
current owners are benefiting from ongoing operations and are jointly
and severally liable for compliance with DOI requirements. As proposed,
the Department is finalizing the provision that it will not require
supplemental financial assurance from properties where at least one co-
lessee meets the credit rating threshold.
Comment: Several commenters expressed opposition to DOI's proposal,
asserting that any co-lessee that does not maintain an investment grade
credit rating (or equivalent proxy credit rating) should be required to
provide supplemental financial assurance. Commenters recommended that
the Department require supplemental financial assurance for their
respective working interest shares from all co-lessees that do not
maintain an investment grade credit rating for leases that are not
exempt based on the reserve analysis. An additional commenter
recommended the financial assurance evaluation be extended to
sublessees when a company can provide evidence that the sublessee was
one of the original installers/owners of the lease facilities.
Response: BOEM acknowledges the commenters' recommendations that
the Department should require financial assurance from all co-lessees
that do not maintain an investment grade credit rating for their
respective working interests but concludes that it is impractical to
evaluate co-lessees and operating rights owners since each co-lessee is
liable for the total obligation and not their proportional share. DOI
is finalizing, as proposed in 30 CFR 556.901(d), to not require
supplemental financial assurance for leases where at least one co-
lessee meets the credit rating threshold. This amendment recognizes
that all current owners are benefiting from ongoing operations and are
jointly and severally liable for compliance with DOI requirements. All
current co-lessees are equally liable for present nonmonetary
obligations and such future obligations that accrue while they are co-
lessees.
b. Evaluation Criteria
The Department proposed to revise the criteria in 30 CFR 556.901(d)
used to evaluate the need for supplemental financial assurance from
lessees from the five criteria--financial capacity, projected financial
strength, business stability, reliability in meeting obligations based
on credit rating or trade references, and record of compliance with
laws, regulations, and lease terms--to a simpler analysis of one of two
criteria: (1) credit rating or (2) the ratio of the value of proved
reserves to decommissioning liability associated with those reserves.
As discussed in the preamble to the proposed rule at 88 FR 42142-42144,
the Department proposed to eliminate the ``business stability'' and the
``record of compliance'' criteria, to replace the ``financial
capacity'' and ``reliability'' criteria with issuer credit rating or
proxy credit rating, and to replace the ``projected financial
strength'' criterion with a ratio of the value of proved oil and gas
reserves on a lease to the decommissioning liability associated with
those reserves.
[[Page 31550]]
Specifically, DOI proposed the following in 30 CFR 556.901(d) to
determine whether supplemental financial assurance on a lease may be
required: (1) a credit rating, either from an Nationally Recognized
Statistical Rating Organization (NRSRO), as identified by the United
States Securities and Exchange Commission (SEC) pursuant to its grant
of authority under the Credit Rating Agency Reform Act of 2006 and its
implementing regulations at 17 CFR parts 240 and 249, or a proxy credit
rating determined by BOEM based on a company's audited financial
statements; or (2) a minimum ratio of the value of proved oil and gas
reserves on a lease to the decommissioning liability associated with
those reserves. For discussion of the justification of the credit
rating selected and the minimum reserves to decommissioning liabilities
ratio selected, see section III.D of this preamble.
These proposed criteria better align BOEM's evaluation process with
accepted financial risk evaluation methods used by the banking and
finance industry. As discussed in the preamble to the proposed rule (88
FR 42142), eliminating subjective or less precise criteria--such as the
length of time in operation to determine business stability or trade
references to determine reliability in meeting obligations--will
simplify the process and remove criteria that often do not accurately
or consistently predict financial distress. Additionally, the
Department solicited comments on any other appropriate criteria for use
in evaluating the need for supplemental financial assurance from OCS
lessees.
Comment: Multiple commenters generally supported the streamlining
of the evaluation criteria, particularly the use of credit ratings as a
more appropriate criterion than financial capacity, projected financial
strength, and business stability.
Response: BOEM acknowledges the commenters' support, and the
Department is finalizing, as proposed in 30 CFR 556.901(d), the
replacement of the prior five criteria with the two criteria: (1)
credit rating and (2) the ratio of the value of proved reserves to
decommissioning liability associated with those reserves. This
amendment codifies a forward-looking analysis for determining the need
for supplemental financial assurance, which is simpler to evaluate for
both the Department and lessees, in lieu of a backward-looking
analysis.
Comment: Several commenters recommended that the Department
completely remove the evaluation to determine if supplemental financial
assurance is required. One commenter specifically asked the Department
to eliminate this step entirely and to simply require all OCS
leaseholders, regardless of financial strength, to provide supplemental
financial assurance. An additional commenter urged the Department to
require every lessee to post supplemental financial assurance to ensure
decommissioning costs are covered and eliminate consideration of proxy
credit ratings and the value of proved oil reserves associated with a
given lease.
Response: BOEM is the agency within DOI responsible for managing
development of the nation's offshore resources in an environmentally
and economically responsible way. BOEM must balance OCS development
with protection of both the taxpayer and the environment and concludes
that this rule achieves an acceptable balance of objectives. BOEM does
not believe requiring all entities to provide supplemental financial
assurance can be justified by the potential risk to the taxpayer,
because financially strong entities are highly unlikely to file for
bankruptcy and are highly likely to be able to cover their
decommissioning obligations. Additionally, requiring those entities
with little likelihood of default to provide supplemental financial
assurance would reduce funds available for other capital expenditures.
Accordingly, the Department is finalizing, as proposed in 30 CFR
556.901(d), the two evaluation criteria for lessees: (1) credit rating
and (2) the ratio of the value of proved reserves to decommissioning
liability associated with those reserves. The purpose of financial
assurance is not to prevent problems; it is to ensure there is money to
fix them. As such, criteria that do not relate to financial capacity do
not target the companies for which the financial assurance is needed.
Using the revised criteria simplifies the evaluation process,
streamlining the Department's evaluation without compromising the risk
to taxpayers. Indeed, the two new criteria are more protective than the
existing criteria, as evidenced by the significant increase in the
amount of financial assurance that will be required using the updated
criteria.
Comment: Commenters who objected to the removal of the record of
compliance criterion urged BOEM to be more attentive to past safety
performance, deny waivers to any company with idle iron, stipulate that
owners with decommissioning obligations for abandoned or idle wells
would not be eligible for new leases, and develop a scoring system to
grade companies on various safety and environmental metrics to
incorporate into the financial assurance analysis.
Response: While commenters offered a conceptual argument to retain
the record of compliance criterion, they provided no new data to
suggest a correlation between financial strength of a company and its
record of compliance. As discussed in the preamble to the proposed rule
at 88 FR 42142, BOEM examined the number of incidents of non-compliance
(INCs) issued by BSEE, their severity, and the relationship between
INCs and financial health/strength of companies and found that the data
was not a reliable indicator of financial strength. The data show that
the number of incidents is correlated with the number of structures a
lessee has on the OCS, and not necessarily to the financial health of
the lessee. Additionally, BOEM's financial assurance program is not in
and of itself designed to promote safety or compliance (there are other
Department regulations addressing these matters), but to assure that a
lessee can financially bring a noncompliant lease into compliance. The
Department's forward-looking approach, which is being finalized here,
allows time for BOEM to demand financial assurance, rather than waiting
for inspections and corresponding incidents to occur and then
determining that supplemental financial assurance is needed because of
the number of INCs.
The Department is finalizing the replacement of the five criteria
in 30 CFR 556.901(d) with two criteria for lessees: (1) credit rating
and (2) the ratio of the value of proved reserves to decommissioning
liability associated with those reserves. This amendment codifies a
forward-looking analysis for determining the need for supplemental
financial assurance in lieu of the backward-looking analysis that
resulted from the use of the five criteria or that would result from
using INCs as an indicator. For a summary of all comments received
regarding the streamlining of the evaluation criteria, including the
removal of the record of compliance criterion, and BOEM's corresponding
responses, see sections 3.1 through 3.6 of the Response to Public
Comments.
2. Right-of-Use and Easement Grants
In the June 29, 2023, NPRM, the Department proposed changes to the
RUE financial assurance requirements to clarify the financial assurance
requirement for RUEs serving Federal leases, which is not explicitly
addressed in the existing regulations. These proposed provisions, the
public
[[Page 31551]]
comments received on the provisions, and DOI's final amendments are
discussed in the following subsections.
a. Base Financial Assurance
The Department proposed to revise 30 CFR 550.166 to provide that
any RUE grant holder must provide base financial assurance in a
specific amount, regardless of whether the RUE serves a State lease or
a Federal OCS lease and proposed a Federal RUE base financial assurance
requirement matching the existing $500,000 base financial assurance
requirement for State RUEs. For a summary of all comments received
regarding revisions to base financial assurance provisions for RUEs and
BOEM's corresponding responses, see section 4 of the Response to Public
Comments.
Comment: Commenters supported the proposal to require a RUE grant
holder to provide financial assurance in a specific amount, regardless
of whether the RUE serves a State lease or Federal OCS lease, but
asserted that BOEM should update the base financial assurance value
because it was determined in 1993, was based on costs in relatively
shallow waters, and significant inflation has occurred since the last
revision.
Response: BOEM agrees with the commenters' assertion that the
initial base bond amount was determined many years ago and acknowledges
that this value should be reevaluated. Because BOEM did not propose a
new value in the NPRM and, therefore, cannot revise it in the final
rule, BOEM plans to evaluate the specific values of the base
supplemental financial assurance for RUEs, ROWs, and leases in a future
rulemaking.
With this rulemaking, the Department is finalizing 30 CFR 550.166,
as proposed, that provides that any RUE grant holder must provide base
financial assurance of $500,000, regardless of whether the RUE serves a
State lease or a Federal OCS lease, to match the existing base
financial assurance requirements for State RUEs.
b. Area-Wide Financial Assurance
The Department proposed in 30 CFR 550.166(a) a $500,000 area-wide
base financial assurance for RUE grant holders, which would satisfy the
base financial assurance requirement for any RUE holder that owns one
or more RUEs within the same OCS area, regardless of whether the RUE
serves a State or Federal lease. Additionally, the Department proposed
in 30 CFR 550.166(a)(1) to allow any lessee that has previously posted
area-wide lease financial assurance (pursuant to 30 CFR 556.900(a)(1)
or 556.901(a)(2) or (b)(2) for the areas specified in 30 CFR
556.900(a)(2)) to modify that lease financial assurance to also cover
any RUE(s) in the area owned by that lessee. The ability to use area-
wide lease financial assurance to cover the RUE base financial
assurance obligation would be subject to the requirement that the area-
wide lease financial assurance be in an amount equal to or greater than
the RUE base financial assurance requirement (i.e., equal to or greater
than $500,000).
Comment: A commenter asserted that there was no need for a new
requirement for area-wide financial assurance for RUEs, as it would
solely cover RUE rentals. They suggested that this aspect should
already be sufficiently covered under the existing area-wide financial
assurance for leases provided by lessees. The commenter also noted
that, presently, ``BSEE does not permit transfers of RUEs.'' To address
this, the commenter recommended that both BOEM and BSEE should mandate
complete ownership filings for all co-owners of the respective ROW and
RUE for the Department's approval. They asserted that this approach
would appropriately distribute the risk among all co-owners.
Response: BOEM disagrees with the commenter's assertion that there
``is no need for'' area-wide financial assurance requirements for RUEs.
RUE holders have decommissioning responsibility and not just that of
paying rentals. Area-wide coverage is not being required but being
offered as an alternative to separately bonding each RUE. In response
to the suggestion that BOEM and BSEE should mandate complete ownership
filings for ROW and RUEs, we note that is outside the scope of this
rulemaking.
As discussed in the preamble to the proposed rule at 88 FR 42144,
the proposed rule at 30 CFR 550.166(a)(1) would allow any lessee that
has already posted area-wide lease financial assurance to modify that
lease surety bond to also cover any RUE(s) in the area owned by the
same lessee. The ability to use the area-wide lease financial assurance
to cover the RUE base financial assurance would be subject to the
requirement that the area-wide lease financial assurance would be in an
amount equal to or greater than the RUE base financial assurance
requirement. For example, under the proposal, a lessee with a $3
million area-wide lease surety bond could establish or acquire any
number of Federal or State RUEs in the area without having to post any
additional financial assurance (other than, potentially, supplemental
financial assurance), provided the lessee agrees to modify the terms of
its area-wide lease surety bond to also cover any State or Federal RUEs
that it owns or acquires. If the existing area-wide financial assurance
is not modified, the lessee may satisfy the requirement by providing
new financial assurance to cover its RUE(s). In the example, BOEM
believes the $3 million area-wide lease surety bond is sufficient to
cover the RUE $500,000 requirement. The Department is finalizing this
provision as proposed, in addition to new supplemental financial
assurance requirements for RUE grant-holders that do not maintain an
investment grade credit rating. As discussed earlier in this preamble,
BOEM plans to evaluate the specific values of the base supplemental
financial assurance for RUEs, ROWs, and leases in a future rulemaking.
The Department is finalizing, as proposed in 30 CFR 550.166(a), the
option to provide $500,000 area-wide RUE financial assurance, which
will satisfy the base financial assurance requirement for any RUE
holder that owns one or more RUEs within the same OCS area, regardless
of whether the RUE serves a State or Federal lease. Lessees that have
previously posted area-wide lease financial assurance will be able to
modify that lease surety bond to also cover any RUE(s) in the area
owned by the same lessee. The ability to use area-wide lease financial
assurance to cover the RUE base financial assurance obligation will be
subject to the requirement that, in addition to covering the lease
financial assurance requirement, the area-wide lease financial
assurance must include an amount equal to or greater than the RUE base
financial assurance requirement (i.e., equal to or greater than
$500,000) in order to cover the financial assurance requirements for
both the leases and RUEs.
c. Supplemental Financial Assurance
The Department proposed to replace the general statement in 30 CFR
550.160(c) that RUE grant holders ``must meet bonding requirements''
with the specific criteria governing financial assurance requirements
found in proposed 30 CFR 556.900 through 556.902, and the applicable
financial assurance requirements in 30 CFR 550.166 and 30 CFR part 556,
subpart I. Similar to the proposed changes to the evaluation criteria
for lease holders, DOI proposed in 30 CFR 550.166(b) to consider the
credit rating or proxy credit rating of RUE co-grant holders to
determine if a grantee must provide supplemental financial assurance.
The
[[Page 31552]]
value of proved oil and gas reserves was not included in this
evaluation because a RUE grant does not entitle the holder to any
interest in oil and gas reserves. For a summary of all comments
received regarding revisions to supplemental financial assurance
provisions for RUEs and BOEM's corresponding responses, see section 4
of the Response to Public Comments.
Comment: Commenters supported the proposal to evaluate the
financial health of RUE grant holders using the same criterion as was
proposed for oil and gas lessees (i.e., investment grade credit rating
of grant holders or co-holders).
Response: BOEM acknowledges the commenters' support, and the
Department is finalizing 30 CFR 550.160(c), as proposed, to replace the
general statement that RUE grant holders ``must meet bonding
requirements'' with the evaluation of a grant holder's financial health
using a credit rating or a proxy credit rating to determine
supplemental financial assurance demands.
Comment: A commenter suggested that the Department should not
require supplemental bonding for RUEs that are servicing and associated
with high value leases because some companies own interest in the
reserves associated with a RUE granted to maintain a platform
operational on an expired lease for servicing production on another
lease.
Response: BOEM disagrees with the commenter's assertion that the
Department should not require supplemental bonding for RUEs that are
servicing and associated with high value leases. RUEs do not grant a
holder an interest in reserves. While the same company may own reserves
as a lessee, DOI would not be able to compel the grantee to sell the
lease to cover the costs of grant decommissioning.
The Department is finalizing, as proposed, 30 CFR 550.160(c), which
provides that a RUE grant-holder may be required to provide
supplemental financial assurance if they do not maintain an investment
grade issuer credit rating or proxy credit rating equivalent. This
change is consistent with the evaluation of oil and gas lessees found
in finalized 30 CFR 556.901(d). The Department is also finalizing, as
proposed, that the value of proved oil and gas reserves will not be
considered in this evaluation because a RUE grant does not entitle the
holder to any interest in the associated oil and gas reserves.
3. Pipeline Right-of-Way Grants
Existing bonding requirements for pipeline ROW grants, contained in
30 CFR 550.1011, prescribe a $300,000 area-wide base surety bond that
guarantees compliance with all the terms and conditions of the pipeline
ROW grants held by a company in an OCS area. Additionally, existing 30
CFR 550.1011(a)(2) states that BOEM may require a pipeline ROW grant
holder to provide supplemental financial assurance if the Regional
Director determines that financial assurance in excess of $300,000 is
needed but, unlike with leases, the regulation provides no factors for
the Regional Director's consideration when making this determination.
Similar to the proposed changes to the evaluation criteria for lease
holders, DOI proposed in 30 CFR 550.1011(c) to consider the credit
rating or proxy credit rating of ROW co-grant holders to determine if
the grantee must provide supplemental financial assurance. The value of
proved oil and gas reserves was not included in this evaluation because
a ROW grant does not entitle the holder to any interest in the
associated oil and gas reserves. For a summary of all comments received
regarding revisions to ROWs and BOEM's corresponding responses, see
section 5 of the Response to Public Comments.
Comment: Commenters supported the proposal to evaluate the
financial health of pipeline ROW grant holders using the same criterion
as was proposed for oil and gas lessees (i.e., investment grade credit
rating or proxy credit rating of grant holders or co-holders).
Response: BOEM acknowledges the commenters' support, and the
Department is finalizing, as proposed in 30 CFR 550.1011(c), to
evaluate pipeline ROW grant-holders using the criterion proposed for
lessees (i.e., investment grade credit rating or proxy credit rating of
grant holders or co-holders).
Comment: A commenter suggested that the Department should not
require supplemental bonding for ROW pipelines that are servicing and
associated with high value leases because some companies own an
interest in the reserves that their ROW pipeline services.
Response: BOEM disagrees with the commenter's assertion that the
Department should not require supplemental bonding for ROW pipelines
that are servicing and associated with high value leases. ROWs do not
grant a holder an interest in reserves. While the same company may own
reserves as a lessee, DOI would not be able to compel the grantee to
sell the lease to cover the costs of grant decommissioning.
Comment: A commenter requested that the Department rethink allowing
oil and gas operators to decommission pipelines in place and should
ensure that BSEE's decommissioning costs sufficiently meet the cost of
removing all pipeline from the seafloor.
Response: Changes to the regulations allowing oil and gas operators
to decommission pipelines in place is outside the scope of this
rulemaking.
DOI is finalizing, as proposed, 30 CFR 550.1011, which provides for
an evaluation of pipeline ROW grant-holders using the criterion
proposed for lessees (i.e., issuer credit rating or proxy credit
rating). This will ensure that pipeline ROW grant-holders can
demonstrate that they have the financial ability to meet their
obligations of the ROW.
The Department is finalizing the use of an investment grade credit
rating or proxy credit rating for pipeline ROW co-grant holders to
determine if a grant holder must provide supplemental financial
assurance, consistent with the evaluation of oil and gas lessees in 30
CFR 550.1011(a)(2). The value of proved oil and gas reserves will not
be considered in this evaluation because a ROW grant does not entitle
the holder to any interest in oil and gas reserves.
B. Use of BSEE's Probabilistic Estimates for Determining
Decommissioning Costs
When determining the necessary amount of supplemental financial
assurance, BSEE previously provided to BOEM a single, algorithm-based
deterministic estimate for decommissioning costs of OCS facilities. In
30 CFR 556.901, the Department proposed to replace BSEE's former
single, algorithm-based deterministic estimates for OCS facility
decommissioning costs with the new BSEE methodology that provides
probabilistic estimates (i.e., P-values) based on decommissioning costs
reported by industry pursuant to NTL 2016-N03--Reporting Requirements
for Decommissioning Expenditures on the OCS, later superseded by NTL
2017-N02. These values represent the likelihood of covering the full
cost of decommissioning a facility as a percentage; for example, P70
represents a 70 percent likelihood of covering the full cost of
decommissioning a facility. Specifically, the Department proposed to
use the P70 value to determine the amount of any required supplemental
financial assurance and solicited comments on the use of other values
(i.e., P50 and P90) and the associated impacts. Additionally, if
probabilistic estimates are not available, BOEM will use the available
deterministic value.
BOEM received a wide range of comments on the use of the P70 value
that are discussed generally below. A
[[Page 31553]]
summary of all comments received regarding the use of BSEE's
decommissioning estimates and BOEM's corresponding responses can be
found in section 3.7 of the Response to Public Comments.
Comment: Multiple commenters supported the use of the P70 value and
recommended that BOEM adopt the P70 value in the final rule for
consistency with the stated purpose of the proposed rule: to ensure
that current lessees are financially able to perform their
decommissioning obligations.
Response: BOEM acknowledges the commenters' support for the
proposal of P70. The Department is finalizing in 30 CFR 556.901, as
proposed, the use of P70 to determine the financial assurance required
for properties where the current lessee does not have an investment
grade credit rating or the ratio of the value of the proved reserves to
decommissioning liabilities associated with those reserves is not
greater than or equal to 3-to-1. This approach holds all current
lessees that do not meet the credit rating or reserve criteria
responsible for providing supplemental financial assurance unless there
is an investment grade co-lessee associated with the same
decommissioning obligations.
Comment: Conversely, several commenters asserted that the P70 value
was not sufficiently conservative to protect other parties and the
public in the event of default. They asserted that BOEM should use the
P90 value to increase the probability of ensuring that all
decommissioning obligations are covered by those operating on the OCS.
Response: BOEM disagrees with the commenters' assertion that the
P70 estimate is not sufficiently conservative to protect other parties
and the public in the event of a default. The P70 value should not be
confused with a figure representing 70 percent of the cost of
decommissioning of a particular facility. The statistical P-value
relies on the quality and size of the data inputs, as well as the
uncertainty existing in these costs.
BOEM's goal for its financial assurance program continues to be the
protection of the American taxpayers from exposure to financial loss
associated with OCS development, while ensuring that the financial
assurance program does not detrimentally affect offshore investment or
position American offshore exploration and production at a competitive
disadvantage. A P70 financial assurance level will reduce offshore
decommissioning risk to taxpayers relative to previous BSEE
deterministic decommissioning estimates, while attempting to reduce the
burden on available capital for continued OCS investment that would be
imposed by using P90. BOEM's use of the P70 decommissioning value
balances the risk of being underfunded at lower financial assurance
levels against the risk of setting a financial assurance level at
higher P-values that would overstate the costs in a significant number
of cases.
BOEM considered bonding at P90, which would result in the lowest
risk of the proposed options to the taxpayer from underfunded offshore
decommissioning liabilities. However, P90 would result in an
approximately 40 percent chance of being over bonded. In addition, BOEM
considered the cost of financing, which would generally (particularly
in high interest rate environments) increase the risks of burdensome
over bonding. BOEM's analysis concluded that the increased cost to
lessees resulting from adopting P90 rather than P70 would be too high
when compared to the additional risk reduction. As a result, BOEM
concluded that P70 reflects a risk tolerance that is neither too
aggressive nor too conservative, striking an appropriate balance
between the risk of default to the taxpayer and the burden to the
regulated community.
Comment: Other commenters asserted that the proposed rule did not
include sufficient information and transparency about how the
probabilistic estimates are derived.
Response: In response to commenters asserting that BOEM did not
explain the development of the P-values, BOEM notes that the
development of BSEE's probabilistic estimates was discussed in the
preamble to the proposed rule at 88 FR 42143. The decommissioning cost
estimates are developed as a distribution (i.e., P50, P70, and P90)
based on actual decommissioning expenditure data received from OCS
operators since mid-2016. The data is available based on a lease, ROW,
or RUE basis and also contains details on a well, platform, pipeline,
and site clearance level. It does not consider which companies are
jointly and severally liable for meeting decommissioning obligations.
The new probabilistic estimates were developed using industry-reported
decommissioning costs pursuant to NTL-2016-N03, Reporting Requirements
for Decommissioning Expenditures on the OCS, later superseded by NTL-
2017-N02. Based on this reported data, BSEE developed three
probabilistic estimates of decommissioning costs for each OCS facility
on a given lease. The lowest cost estimate would have a 50 percent
likelihood of covering the full cost of decommissioning a facility and
is thus referred to as ``P50.'' The second lowest cost estimate, P70,
would have a 70 percent likelihood of covering the full cost of
decommissioning a facility. The third and highest cost estimate
considered, P90, would have a 90 percent likelihood of covering the
full cost of decommissioning a facility. These estimates are based on
what the government would expect to pay if an operator failed to
perform decommissioning. The current estimates can be found here:
https://www.data.bsee.gov/Leasing/DecomCostEst/Default.aspx.
Comment: Some commenters asserted that the P70 values, and
sometimes even the P50 values, exceed their internal estimates for
their decommissioning costs and that BOEM should allow the use of
company-provided estimates. These commenters noted that these internal
estimates were based on contractor bids and experience.
Response: BOEM acknowledges the commenters' concerns that the P70
estimates may be higher than the actual cost of decommissioning for
specific platforms. In general, it can be more expensive for the
government to decommission a facility than it is for an OCS operator to
do so. Therefore, even if the P70 value is higher than company-derived
values, it may be more aligned with the costs that the government would
incur to perform the decommissioning, which is the relevant
consideration when determining the cost to decommission a facility if
the company fails to do so. The final rule establishes a procedure for
submitting these issues for the consideration of the Regional Director
for a reduction in the supplemental financial assurance demand.
Comment: Multiple commenters asserted that BOEM should focus on
sole liability properties (i.e., properties with no predecessors or co-
lessees), claiming that those properties pose the most risk to the U.S.
taxpayer.
Response: BOEM disagrees with the commenters' assertion that it
should focus only on sole liability properties, an approach that would
not sufficiently protect the taxpayer. As discussed in the RIA, there
are approximately $14.6 billion in decommissioning liabilities
associated with leases without an investment grade predecessor in the
chain of title, of which only $460 million is associated with sole
liability properties. Thus, the Department is finalizing an approach
that holds all current lessees responsible for providing supplemental
financial assurance unless they meet the waiver criteria or are
[[Page 31554]]
associated with an investment grade co-lessee. The Department is
finalizing, as proposed, the use of P70 to determine the amount of
supplemental financial assurance required for properties where the
current lessee or co-lessee does not have an investment grade credit
rating or the ratio of the value of the proved reserves to
decommissioning liabilities associated with those reserves is not
greater than or equal to 3-to-1.
Comment: Commenters also asserted that the proposed rule ignored
joint and several liability, and that by creating a system that does
not account for the financial strength of liable predecessors, the
proposed rule insulates predecessor lessees from their liabilities and
relieves them of the need to perform due diligence when selling their
lease(s) to a subsequent lessee.
Response: Omitting the existence of predecessor lessees from the
analysis of whether to waive the requirement of supplemental financial
assurance for a current lessee--the approach being finalized here--
addresses several associated issues. It ensures that the current
lessees have the financial capability to fulfill their decommissioning
obligations. It also eliminates the incentive to use joint and several
liability as an excuse to delay setting aside funds to pay for
predictable decommissioning costs. This approach does not change or
undermine joint and several liability; it retains BOEM's and BSEE's
authority to pursue predecessor lessees for the performance of
decommissioning.
Comment: Other commenters asserted that BOEM must consider the
obligations of the predecessors in the chain-of-title before seeking
additional financial assurance from current lessees, otherwise the
result is requiring ``double bonding.''
Response: Commenters appear to be claiming that private
arrangements between assignors (predecessors) and assignees
(successors) are sufficient to protect the government without a
requirement for providing supplemental bonds to the government. That is
only partially the case. In most cases, the government cannot call the
bonds in question. Any duplication can be avoided by the private
parties cancelling any private arrangements that are not needed in
light of government requirements. It is DOI's obligation to set bottom
line, public, and uniform thresholds to protect the U.S. and its
taxpayers; private agreements are unrelated to the Department's
obligations under OCSLA.
Comment: One commenter provided an updated analysis of burden,
including a comparison of the three proposed decommissioning estimate
values, which was referenced by multiple commenters in their comment
submissions. The commenter's analysis asserted that the results across
the liability levels ``are largely dependent on each company's
`portfolio' of decommissioning liabilities'' and stated that in any
portfolio of uncertain results, some cost estimates will exceed their
expected value, while some cost estimates will be less. Accordingly,
the commenter asserted, percentile values are not additive, as actual
variances from estimates would offset each other so that the P70 of the
combined outcomes of the portfolio would approach the sum of the mean.
The commenter stated that a better approach would be to sum the mean
values or to conduct a portfolio analysis for each operator. According
to the commenter, P50 is more representative of a log-normal
distribution's statistical average. Additionally, the commenter
provided a cost comparison for P70 to P90 that included the following
estimates: decrease in capital expenditures over 10 years ($4.7 billion
vs $5.565 billion), decrease in OCS production (55 million barrels of
oil equivalents (mmboe) vs 64 mmboe), and decrease in industry jobs
across the Gulf coast region (36,200 vs 43,300).
Response: BSEE is responsible for providing BOEM (and the public)
estimated costs to perform decommissioning. Since BOEM conducts the
company financial risk evaluation to determine the appropriate
financial assurance amount required, BSEE provides BOEM a range of
estimates associated with analyses of data collected under the
authority found at 30 CFR 250.1704 (subpart Q) and guidance under NTL
No. 2017-N02. These costs are considered a proxy for ``fair value'',
i.e., how much it would cost BSEE to cause near immediate
decommissioning by contracting with a third-party services provider.
Actual expenditure data has been collected by regulation since
April 2016 for wells and facilities, and since May 2017 for pipelines.
To date, BSEE has collected about 2,050 data points for wells, 1,235
for facilities (including removal and site clearance and verification),
and 1,020 for pipelines. This actual expenditure data collected shows a
wide range of costs for similarly situated infrastructure, making a
probabilistic approach preferred over a single deterministic estimate.
When sufficient data exists for a particular subset of the sample
(e.g., dry trees on fixed structures in 400 feet of water), BSEE
performs multivariate regression analyses to create distributions of
cost outcomes.
Based on these distributions, BSEE posts P50, P70, and P90
estimates for each well, platform, or pipeline, and aggregated for each
lease, ROW, or RUE.\1\ When sufficient data does not exist (e.g., dry
trees on floating structures) a single deterministic (or point)
estimate is provided. Note that the point estimate contains no
information about its potential variability. Contrast this with
probabilistic estimates where a P50 estimate implies that half of the
reported values should be less than and half should be more than the
P50 estimate. Likewise, the P70 and P90 estimates imply that that there
is 30 percent and 10 percent chance, respectively, that the
decommissioning cost will be higher than the estimate. Said another
way, P70 and P90 values imply there is a 70 percent and a 90 percent
chance, respectively, that the estimated cost will not be exceeded. The
data does not take into consideration which companies are jointly and
severally liable for meeting decommissioning obligations.
---------------------------------------------------------------------------
\1\ There is not a technical support document in support of
these calculations; the data used for these estimates is available
at https://www.data.bsee.gov/Leasing/DecomCostEst/Default.aspx.
---------------------------------------------------------------------------
It would be inappropriate for BOEM to consider the liability
distribution across a company's entire portfolio, as financial
assurance for one lease cannot be used to cover an unassociated lease.
Financial assurance provided to BOEM is generally structured to provide
coverage at the lease level; even for companies with multiple leases,
policy coverage is typically limited to only those associated
facilities on the specified lease. For example, financial assurance at
BSEE's P70 level provides risk mitigation in the event of a default of
that lessee where any excess financial assurance resulting from
facilities on the same lease whose decommissioning costs were below the
P70-estimate would be available to cover associated lease facilities
whose decommissioning costs exceed the P70 value. For lessees or grant-
holders that can demonstrate decommissioning costs below BSEE's
estimates, the Department has included in the final rule a provision in
30 CFR 556.901(g) allowing for the submission of decommissioning cost
data for consideration by the Regional Director in potentially reducing
the supplemental financial assurance demand. Such information could
include, for example, an existing contract for decommissioning
activities. BOEM will consult with BSEE on the
[[Page 31555]]
information received prior to deciding to reduce the required amount of
supplemental financial assurance. BOEM did not select the P90 level
because of the expected burdens it would place on the industry, such as
the examples highlighted by the commenter.
BOEM's goal for its financial assurance program continues to be the
protection of the American taxpayer from exposure to financial loss
associated with OCS development, while ensuring that the financial
assurance program does not detrimentally affect offshore investment or
position American offshore exploration and production companies at a
competitive disadvantage.
C. Revisions to Other Types of Supplemental Financial Assurance
The Department proposed and is finalizing revisions to the
supplemental financial assurance requirements for third-party
guarantees and decommissioning accounts, and prerequisites for
transfers, as discussed in the subsections below.
1. Third-Party Guarantees
The Department proposed in 30 CFR 556.905(a) to evaluate a
potential guarantor using the same credit rating or proxy credit rating
criterion as was proposed for lessees. The value of proved oil and gas
reserves of an associated lease would not be considered because that
value is a characteristic of the lease belonging to the guaranteed
lessee and not an asset belonging to the guarantor, and because liquid
assets are needed to finance compliance or decommissioning. As
discussed in the preamble to the proposed rule (88 FR 42145), the
criteria to evaluate a guarantor provided in the existing regulations
have proved difficult to apply. Using the same financial evaluation
criterion, i.e., issuer credit rating or proxy credit rating, to assess
both guarantors and lessees as the most relevant measure of future
capacity would provide consistency in evaluations and avoid
overreliance on net worth. Using the same criterion also simplifies the
evaluation process, making it more efficient without compromising the
risk to taxpayers.
Additionally, to allow more flexibility in the use of third-party
guarantees, the final rule allows a third-party guarantee to be used as
supplemental financial assurance for a RUE or ROW grant as well as a
lease. Most significantly, the amendment proposed in Sec.
556.902(a)(3) would remove the requirement for a third-party guarantee
to ensure compliance with the obligations of all lessees, operating
rights owners, and operators on the lease, and, as agreed to by BOEM,
would allow a guarantee limited to a specific amount or limited one or
more specific lease obligations.
A summary of all comments received regarding third-party guarantees
and BOEM's corresponding responses regarding the provisions to evaluate
third-party guarantors can be found in section 6.1 of the Response to
Public Comments.
Comment: Commenters generally supported the proposal to evaluate a
potential guarantor using the same credit rating or proxy credit rating
criterion as proposed for lessees.
Response: BOEM acknowledges the commenters' support for the
proposal to evaluate a potential guarantor using the same credit rating
or proxy credit rating criterion as proposed for lessees, and the
Department is finalizing this provision in 30 CFR 556.905(a) as
proposed.
Comment: Multiple commenters generally supported the proposal to
allow limiting third-party guarantees to a specific amount.
Response: BOEM acknowledges the commenters' support, and the
Department is finalizing the ability to limit third-party guarantees to
a specific amount or one or more specific lease obligations in 30 CFR
556.902(a)(3).
Comment: One commenter suggested that DOI modify its regulations to
allow guarantors to limit their guarantees to specific obligations.
They asserted this modification is consistent with the proposed rule
and would ease pressure on the security market by removing any
additional and unstated obligations from guarantees that are not
included in a financial assurance demand order.
Response: The Department is finalizing the proposed amendment to
Sec. 556.902(a)(3), which will remove the requirement for a third-
party guarantee to ensure compliance with the obligations of all
lessees, operating rights owners, and operators on the lease, and will
allow, as agreed to by BOEM, a guarantee limited to a specific amount
or to one or more specific lease obligations. This change, to replace a
requirement to cover all costs, parties, and obligations with
permission to limit any of them, part of which BOEM is adding in
response to public comments, allows a guarantor to limit its guarantee
to a specific amount of the total financial assurance requirement. By
allowing a third-party guarantor to guarantee only the obligations it
wishes to cover, BOEM provides industry with the flexibility to use the
guarantee to satisfy supplemental financial assurance requirements
without forcing the guarantor to cover the risks associated with all
parties on the lease or grant or operations in which the party they
wish to guarantee has no interest and over which the guarantor may have
limited influence. Moreover, BOEM's capacity to accept a third-party
guarantee that is limited to the obligations of a specific party does
not reduce BOEM's protection because if a limited guarantee is
approved, the guaranteed party will be required to provide other
supplemental financial assurance with respect to any of its liabilities
left uncovered by the limited guarantee.
Comment: Other commenters opposed the proposal and asserted that
third-party guarantors should not be excused from the requirement that
guarantees cover all obligations of lessees, operating rights owners,
and operators on the lease, but did not provide supporting reasoning
for their assertions.
Response: BOEM believes that allowing third-party guarantors to
limit their guaranteed obligations will ease the burden for entities
required to provide additional supplemental financial assurance, while
continuing to reduce the risk to taxpayers. DOI has added regulatory
language in the final rule in 30 CFR 556.905(b) specifically allowing a
third-party to limit its cumulative obligations to a fixed dollar
amount or to covering the costs to perform one or more specific lease
obligations (with no fixed dollar amount). In both scenarios, the value
or the obligations to be covered must be agreed to by BOEM at the time
the third-party guarantee is provided.
Additionally, to allow more flexibility in the use of third-party
guarantees, the final rule will allow a third-party guarantee to be
used as supplemental financial assurance for a RUE or ROW grant, as
well as a lease.
BOEM acknowledges the commenters' opposition to allowing third-
party guarantors to limit their guarantee and BOEM assumes the concern
flows from a belief that the third-party guarantee may be insufficient.
Contrary to this understanding, however, the lessee must still provide
the total amount of the supplemental financial assurance demand through
other financial assurance methods, even if a third-party guarantor
limits the guarantee.
The proposed rule included amendments to allow BOEM to cancel a
third-party guarantee under the same terms and conditions that apply to
cancellation of other types of financial assurance, as provided in
proposed Sec. 556.906(d)(2). No comments were received on this
provision. Therefore, the Department is finalizing, as
[[Page 31556]]
proposed, amendments to allow BOEM to cancel a third-party guarantee
under the same terms and conditions that apply to cancellation of other
types of financial assurance, as provided in proposed Sec.
556.906(d)(2).
Finally, the existing regulation refers to both a ``guarantee'' and
an ``indemnity agreement'' (which BOEM intended to mean the same
thing), and the proposed rule clarified that the regulations
contemplate only one agreement: the guarantee agreement. No comments
were received on this proposed amendment; therefore, the Department is
also finalizing the clarification that both a ``guarantee'' and an
``indemnity agreement'' contemplate the same guarantee agreement by
removing all references to ``indemnity agreement'' in the regulatory
text. This terminology is changed to clarify that the government is not
required to incur the expenses of decommissioning before demanding
compensation from the guarantor.
2. Decommissioning Accounts
The Department proposed to rename the lease-specific abandonment
accounts in 30 CFR 556.904 as ``Decommissioning Accounts,'' the
terminology used by the industry. This name change is intended to
remove any perceived limitation that this type of account can apply to
only a single lease, and to signify that these accounts may be used to
ensure compliance with supplemental financial assurance requirements
for a RUE and ROW grant, as well as a lease. To make these accounts
more attractive to parties who may desire to use this method of
providing supplemental financial assurance, the Department also
proposed to remove the requirement in 30 CFR 556.904(d) to pledge
Treasury securities to fund the account once the funds equal the
maximum amount insurable by the Federal Deposit Insurance Corporation
(FDIC)/Federal Savings and Loan Insurance Corporation (FSLIC), for
which insurance is currently capped at $250,000.
No comments were received specifically on the proposed amendment to
rename the lease-specific abandonment accounts in 30 CFR 556.904 as
``Decommissioning Accounts'' or the proposed amendment to remove the
requirement to pledge Treasury securities to fund the account before
the funds equal the maximum amount insurable by the FDIC/FSLIC.
Therefore, the Department is finalizing 30 CFR 556.904, as proposed, to
rename the lease-specific abandonment accounts as ``Decommissioning
Accounts.'' The Department is also finalizing the removal of the
requirement to pledge Treasury securities to fund the account before
the funds equal the maximum amount insurable by the FDIC/FSLIC.
3. Transfers of Lease Interests to Other Lessees or Operating Rights
Holders
The Department proposed amendments to update subparts G (30 CFR
556.704) and H (30 CFR 556.802) of the Department's existing part 556
regulations to clarify that BOEM will not approve the transfer of a
lease interest, whether a record title interest or an operating rights
interest, until the transferee complies with all applicable regulations
and orders, including financial assurance requirements. As discussed in
the preamble to the proposed rule (88 FR 42146), many of the facilities
currently on the OCS have decommissioning obligations where the cost of
performance greatly exceeds the amount of financial assurance currently
available to DOI. To address this problem, the Department proposed to
clarify that it may withhold approval of any transfer or assignment of
any lease interest unless and until the financial assurance
requirements have been satisfied.
A summary of all comments received regarding transfers and BOEM's
corresponding responses regarding revisions to transfers can be found
in section 6.2 of the Response to Public Comments.
Comment: Commenters generally supported the proposal to allow BOEM
to withhold approval of any new transfer or assignment of any lease
interest until financial assurance obligations are satisfied.
Response: BOEM acknowledges the commenters' support, and the
Department is finalizing, as proposed, amendments to update subparts G
(30 CFR 556.704) and H (30 CFR 556.802) of the Department's existing
part 556 regulations to clarify that BOEM may withhold approval of the
transfer of a lease interest, whether a record title interest or an
operating rights interest, until the transferee complies with all
applicable regulations and orders, including financial assurance
requirements. As a result of these final amendments, BOEM may withhold
approval of any new transfer or assignment of any lease interest unless
and until financial assurance demands have been satisfied.
D. Evaluation Methodology
The Department proposed and is finalizing revisions to the
financial evaluation criteria that will be used for determining
supplemental financial assurance requirements for oil, gas, and sulfur
leases, RUE grants, and pipeline ROW grants. The proposed evaluation
methodology for the revised criteria, the public comments received, and
DOI's final amendments are discussed in the subsections below.
Summaries of all comments received regarding credit ratings, proxy
credit ratings, and valuing proved oil and gas reserves and BOEM's
corresponding responses can be found in section 7 of the Response to
Public Comments.
1. Credit Ratings
a. Use of an ``Issuer Credit Rating''
The Department proposed to use an ``issuer credit rating'' to
evaluate the financial health of OCS lessees, grant holders, and
guarantors, and proposed to include the new term and corresponding
definition in 30 CFR 550.105 and 556.105. As discussed in the preamble
to the proposed rule (88 FR 42146), an issuer credit rating provides
the rating agencies' opinions of the entity's ability to honor senior
unsecured debt and debt-like obligations. The Department proposed to
accept only issuer credit ratings from a Nationally Recognized
Statistical Rating Organization (NRSRO), such as Standard and Poor's
(S&P) Rating Services and Moody's Investors Service Incorporated (or
any of their subsidiaries). General comments on issuer credit ratings
are as follows:
Comment: Commenters generally supported the use of an issuer credit
rating. Several commenters recommended that BOEM include Fitch Ratings
in the definition as it is an NRSRO equivalent to S&P's and Moody's.
Response: BOEM acknowledges the commenters' support and agrees with
the commenters' assertion that the intent of the proposed rule was to
allow credit ratings from Fitch Ratings. The Department has included
Fitch Ratings and its subsidiaries in the final rule in 30 CFR 556.105.
Comment: An additional commenter noted that BOEM should remove the
term and definition of issuer credit rating from part 550 because it is
not used in the part.
Response: The commenters' assertion is correct, and the Department
is not finalizing the proposed addition of ``Issuer credit rating'' to
30 CFR part 550. In part 550, the existing regulatory text references
30 CFR part 556 to discuss the use of the issuer credit rating.
b. Credit Rating Threshold
As discussed in the proposed RIA, BOEM reviewed historical default
rates
[[Page 31557]]
across the entire credit rating spectrum, as well as the credit profile
of oil and gas sector bankruptcies arising from the commodity price
downturn in 2014, to determine an appropriate level of risk. As would
be expected, the average S&P historical 1-year default rates increase
significantly with lower ratings. The average S&P 1-year default rate
for BBB- rated companies from 1981 to 2020 was 0.24 percent.
Comparatively, the average 1-year default rate for BB- rated companies
was 1.21 percent, for B- rated companies, 8.73 percent, and for C rated
companies, 24.92 percent. In the proposal, BOEM asserted that 1-year
default rates are an appropriate measure of risk, given BOEM's policy
of reviewing the financial status of lessees, ROW holders, and RUE
holders, typically on an annual basis (the review typically
corresponding with the release of audited annual financial statements).
In addition, throughout the year, BOEM monitors company credit rating
changes, market reports, trade press, articles in major news media, and
quarterly financial reports to review the financial status of lessees,
ROW holders, and RUE holders. The amended regulation, as proposed,
would not preclude a demand for supplemental financial assurance
through the Regional Director's regulatory authority at any time.
The Department proposed to use an investment grade credit rating
threshold for determining if supplemental financial assurance may be
required by a lessee. The Department proposed the term and associated
definition of ``Investment grade credit rating'' in 30 CFR 550.105 and
556.105. BOEM explained in the preamble to the proposed rule (88 FR
42159) that the use of an investment grade credit rating standard for
waiving supplemental financial assurance was an appropriate threshold
because it minimizes credit default risk to the taxpayer without
overburdening offshore companies with the cost of providing financial
assurance in low credit risk scenarios. BOEM received a wide range of
comments on the proposal to use an investment grade credit rating
threshold for determining supplemental financial assurance
requirements, as summarized below.
Comment: Multiple commenters asserted that the proposal would
result in significant hardship to small businesses that did not meet
this criterion and hence would have to provide supplemental financial
assurance. Commenters argued that a requirement to provide supplemental
financial assurance would increase the risks of defaulting, not
investing in maintenance of existing operations, laying off employees,
delaying performance of current decommissioning obligations, and
diverting capital funds needed for future OCS energy development.
Response: BOEM acknowledges the commenters' concern and considered
the effects on small entities; however, BOEM is not targeting the size
of companies. BOEM is evaluating the financial strength of all
companies in order to ensure that the development of energy in the OCS
is safe and protects both the taxpayer and the environment. The
Department has included numerous provisions in this rulemaking to
reduce the burden on small entities. BOEM acknowledged in the proposed
rule (88 FR 42146) that small businesses may not have issuer credit
ratings and, to address this issue, proposed to allow entities without
a rating to request that the BOEM Regional Director assess a proxy
credit rating. Additionally, these small businesses can be evaluated on
the proved reserves of their lease to determine whether they may be
waived from the requirement to provide additional supplemental
financial assurance, also potentially reducing their financial burden.
Furthermore, on a lease where the lessee has an investment grade credit
rating, BOEM will waive co-lessees from having to provide supplemental
financial assurance. The Department also included phased-in
implementation, and increased the flexibility of decommissioning
accounts and third party guarantees to reduce the financial burden on
all lessees, including small businesses.
Comment: Multiple commenters supported the use of an investment
grade threshold.
Response: BOEM acknowledges the commenters' support and agrees that
using a credit rating threshold of investment grade strikes the
appropriate balance between both DOI's and the conventional energy
sector's goal to protect the American taxpayers from exposure to
financial loss associated with OCS development and the burden of
providing financial assurance because of the low default risk
associated with companies that maintain an investment grade credit
rating. The Department is finalizing, as proposed in 30 CFR 556.105,
the use of an investment grade credit rating threshold.
Comment: Other commenters supported an even higher credit rating
threshold.
Response: BOEM acknowledges the commenters' support for the change
in the proposed rule that changed the credit rating threshold for
waiver of supplemental financial assurance from BB- to BBB- but
disagrees with the commenters' assertion that BOEM should further raise
the threshold to a higher rating. As discussed in the preamble to the
proposed rule, BOEM believes that 1-year default rates are an
appropriate measure of risk, given BOEM's policy of reviewing the
financial status of lessees, ROW holders, and RUE holders at least on
an annual basis (the review typically corresponds with the release of
audited annual financial statements). As would be expected, the average
S&P historical 1-year default rates increase significantly with lower
ratings. The average S&P 1-year default rate for BBB- rated companies
from 1981 to 2020 was 0.24 percent. Comparatively, the average 1-year
default rate for BB- rated companies was 1.21 percent, for B- rated
companies, 8.73 percent, and for C rated companies, 24.92 percent.
Raising the threshold criteria would only reduce the rate to 0.12
percent for a credit rating of BBB+ or to 0.07 percent for a credit
rating of A-. BOEM believes that the 1-year default rate for BBB- rated
companies of 0.24 percent balances the need for ensuring lessee
obligations in the OCS are met while ensuring that the development of
the nation's offshore resources is not unreasonably hindered. Raising
the threshold to a higher value would reduce capital available to
companies for investment, with little additional protection from the
effects of bankruptcy. Additionally, financial assurance can only be
used for the obligations of the specific lease for which it is
provided. Having more financial assurance from low-risk companies will
not provide meaningful protection against the default of high-risk
companies and thus would have an insignificant effect on aggregate
risk.
Comment: One commenter asserted that the proposal is a ``form of
adverse selection against financial assurance providers because only
entities with an elevated risk of default will remain in the market for
financial assurance instruments such as surety bonds.''
Response: BOEM disagrees with the commenter's assertion that the
proposal is a ``form of adverse selection.'' ``Adverse selection''
describes the phenomenon whereby one party to a transaction has better
information than the other and therefore prices are adjusted to
accommodate this discrepancy in information. The commenters do not
explain how that concept applies to the rulemaking. They assert that it
amounts to ``adverse selection'' against financial assurance providers
because ``only entities with an elevated risk of default will remain in
the market for financial assurance
[[Page 31558]]
instruments such as surety bonds.'' There is no assertion of any
discrepancy in the information available to lessees vs. assurance
providers or any effect on the price of that transaction and BOEM does
not see any. To the extent the commenters are asserting that the risk
pool is too small to make underwriting feasible, their comment
conflicts with other comments received claiming that the rule requires
supplemental assurance from relatively low risk lessees. The Department
continues, as proposed, to allow other types of financial assurance
instruments in addition to bonds in the final rule. Under BOEM's past
practice, many companies were waived from providing supplemental
financial assurance, and it is likely that only companies with an
elevated risk of default sought to obtain bonds to comply with the
existing regulations. Additionally, the number of companies requesting
bonds for use as supplemental financial assurance and their
corresponding risk profile does not preclude a viable bond market as
the market can set the fees and collateral required to obtain the
bonds.
Comment: Several commenters expressed concerns that the preamble to
the proposed rule alluded to monitoring of credit ratings, but the
regulatory text did not mention the monitoring. They asserted that, to
ensure these commitments are kept, the Department must include specific
requirements for reviewing credit ratings regularly, with a requirement
for BOEM to reassess credit ratings at least once per year.
Response: With respect to monitoring credit ratings, BOEM stated in
the preamble to the proposed rule at 88 FR 42147 (and has repeated in
this final rulemaking) that BOEM's general practice is to review ``the
financial status of lessees, ROW holders, and RUE holders at least on
an annual basis (the review typically corresponding with the release of
audited financial statements).'' BOEM's financial assurance program is
intended to ensure that private companies have the capacity to meet
their financial and non-financial obligations. BOEM seeks to balance
the financial risk to the government and the taxpayer with the
regulatory burden on lessees and grantees. BOEM did not add additional
regulatory text in this final rule to address this comment because it
is unnecessary; BOEM maintains the general practice of evaluating
lessees, RUE grant-holders, and pipeline ROW grant-holders for
financial risk on at least an annual basis. The amended regulation
would not preclude a demand for supplemental financial assurance
through the Regional Director's regulatory authority at any time.
As discussed in the proposed RIA, of the 276 companies analyzed,
none were rated at or above BBB- at the time of bankruptcy or within 10
years prior to bankruptcy. As such, BOEM has selected BBB- as the
credit rating threshold for providing additional financial assurance.
The Department is finalizing, as proposed in 30 CFR 556.901(d), an
issuer credit rating threshold of BBB- (S&P and Fitch) or Baa3
(Moody's), an equivalent credit rating provided by another SEC-
recognized NRSRO, or an equivalent proxy credit rating, to ensure that
lessees and grant holders have the capacity to meet their financial and
non-financial obligations. In order to both ensure that companies do
not ``cause [unmitigated] damage to the environment or to property, or
endanger life or health,'' 43 U.S.C. 1332(6), and to promote
``expeditious and orderly development,'' 43 U.S.C. 1332(3), BOEM seeks
to balance the financial risk to the government and the taxpayer while
minimizing unreasonable regulatory burdens. If different NRSROs provide
different ratings for the same lessee, BOEM will use the higher of the
lessee's ratings. Additionally, as BOEM monitors company rating changes
throughout the year, use of this threshold will ensure that BOEM has
adequate time to demand needed financial assurance before a company
drops further below the investment grade rating.
2. Proxy Credit Ratings
The Department proposed in 30 CFR 556.901(d) to allow entities that
do not have a NRSRO-issued credit rating to request that the Regional
Director determine a proxy credit rating based on audited financial
information for the most recent fiscal year, including an income
statement, a balance sheet, a statement of cash flows, and the
auditor's certificate. As proposed, DOI intended the ``most recent
fiscal year'' to mean a continuous 12-month period within the 24-months
prior to the Regional Director's determination that supplemental
financial assurance is required. General comments on proxy credit
ratings are as follows:
Comment: Commenters expressed concerns regarding BOEM's proposal to
use a proxy credit rating for entities without an issuer credit rating.
Commenters asserted that BOEM is not a financial rating agency and does
not have the capacity or expertise to institute a program to develop
proxy credit ratings.
Response: BOEM is not developing the credit rating; it is using S&P
Global Inc.'s Credit Analytics credit model, in conjunction with
company-provided financial information for the most recent fiscal year
to obtain a proxy rating. As discussed in the preamble to the proposed
rule at 88 FR 42146, the Regional Director would use the model and
company-provided audited financial information for the most recent
fiscal year, including an income statement, a balance sheet, a
statement of cash flows, and the auditor's certificate. The use of S&P
Global Inc.'s Credit Analytics credit model provides an accurate and
objective method to assess any given company's probability of default
on its financial obligations based on its audited financial statements.
The vast majority of companies operating on the OCS are private
companies that do not have an issuer credit rating; therefore, without
an option for a proxy credit rating, these companies would be required
to provide supplemental financial assurance unless they met the
reserves criterion. The Department proposed, and is finalizing in 30
CFR 556.901(d), the use of a proxy credit rating to benefit those
companies without an issuer credit rating, particularly small
businesses, and to therefore reduce their burden by allowing them the
opportunity to demonstrate that they should not be required to provide
supplemental financial assurance.
Comment: Commenters asserted that companies would need to establish
a proxy credit rating using the ``intricate financial models of S&P and
Moody's'', which would be time consuming, and that providing the
information that BOEM proposed to require in order to perform a proxy
rating would represent a burden for small companies.
Response: BOEM disagrees with the commenter's assertion that the
companies would need to establish a proxy credit rating using the
``intricate financial models of S&P and Moody's'' and that the
development would be time-consuming. Companies without a credit rating
can provide BOEM with audited financials and BOEM will perform the
modeling to determine the proxy credit rating. BOEM does not believe
this option creates an undue burden on small businesses, as those small
businesses would be required to provide supplemental financial
assurance if they could not obtain an issuer credit rating; the proxy
credit rating provides an alternative for these businesses to qualify
for the financial waiver. Additionally, if a company finds this
alternative more burdensome than the benefit of avoiding posting
[[Page 31559]]
supplemental financial assurance, nothing in the regulations requires
them to select this alternative. Providing audited financials in
exchange for possible supplemental financial assurance avoidance is
consistent with practice under the current regulations and thus not an
additional burden.
The Department proposed to use S&P Global Inc.'s Credit Analytics
credit model to calculate proxy credit ratings, but retained the right
to use a different model if it determines that a different model more
accurately reflects those factors relevant to the financial evaluation
of companies operating on the OCS. BOEM specifically solicited comment
on the use of S&P Global Inc.'s Credit Analytics credit model for
developing proxy credit ratings. General comments on the use of the S&P
model are as follows:
Comment: Commenters were generally supportive of the use of S&P
Global Inc.'s Credit Analytics credit model.
Response: BOEM acknowledges the commenters' support, and the
Department is finalizing, as proposed in 30 CFR 556.901(d), the option
for companies without issuer credit ratings to request the Regional
Director to determine a proxy credit rating based on audited financial
information for the most recent fiscal year and the S&P credit model.
3. Valuing Proved Oil and Gas Reserves
The Department proposed in 30 CFR 556.901(d) to consider the proved
reserves on a particular lease when determining whether supplemental
financial assurance is required. As discussed in the preamble to the
proposed rule (88 FR 42147), BOEM would require the lessee to submit a
reserve report for the proved oil and gas reserves (as defined by the
SEC regulations at 17 CFR 210.4-10(a)(22)) located on a given lease.
DOI proposed that companies should report the value of their reserves
using the methodology pursuant to the SEC's regulations on reserve
reporting, and the presentation should be by the lease, or leases, for
which the exemption is being requested. These regulations are commonly
used and understood by offshore oil and gas companies and such reserve
reports are already produced by publicly traded companies. This also
allows BOEM to rely on the established SEC regulations on the
definitions, qualifications, and requirements for proved reserves,
rather than attempting to recreate these regulations. BOEM would use
the value of proved oil and gas reserves per-lease when determining
whether the discounted value of the reserves on any given lease exceeds
three times the cost of the proposed P70 decommissioning estimate
associated with the production of those reserves.
Additionally, the Department proposed the use of a ratio of the
value of proved reserves to decommissioning liability associated with
those reserves that meets or exceeds a value of 3-to-1. As discussed in
the preamble to the proposed rule (88 FR 42148), BOEM believes that a
property with a sufficient ``reserves-to-decommissioning cost'' ratio
would likely be purchased by another company if a current lessee
defaults on its obligations, thereby reducing the risk that
decommissioning costs for that property would be borne by the
government, and consequently reducing the need for supplemental
financial assurance. In BOEM's judgment, a ratio of 3-to-1 provides
sufficient risk reduction to justify a Regional Director determination
that the lessee is not required to provide supplemental financial
assurance for that lease. Bankruptcy data show that the most valuable
properties of the bankrupt company (with at least a 3-to-1 ratio of the
value of reserves to decommissioning costs) are acquired by another
entity. That result accords with BOEM's experience and with common
sense because the value of these properties is economically viable even
after including the decommissioning cost. Additionally, no commenters
provided a different value than 3-to-1 in response to BOEM's
solicitation for comment on other appropriate values.
Comment: Multiple commenters generally supported the use of a
minimum 3-to-1 ratio of the value of proved reserves to decommissioning
liability associated with those reserves.
Response: BOEM acknowledges the commenters' support, and the
Department is finalizing, as proposed in 30 CFR 556.901(d), the use of
a minimum 3-to-1 ratio.
Comment: Several commenters opposed the use of the ratio, asserting
that normal fluctuations in the demand and price of oil and gas,
coupled with the imminent global shift away from fossil fuels to
renewable energy, make it likely that the value of proved oil reserves
in all leases will decline over time. As a result, lessees may earn
less over the life of the lease and in turn, have less capital to cover
decommissioning costs.
Response: There are many external factors that can impact the value
of reserves. BOEM's use of this metric is only to determine the
likelihood that a lease would be acquired, due to the value of the
reserves left on the lease, by a financially healthy company that would
then be liable for lease obligations.
Comment: Several commenters asserted that the value of
decommissioning liability should be added back to the reserve value to
avoid double counting. Additional commenters asserted that comparing
undiscounted decommissioning liability to the present value of
underlying reserves was an incorrect analysis.
Response: BOEM agrees with the commenters that the decommissioning
liability should not be double counted; it is not the Bureau's intent
to double count the decommissioning liability. The regulations are
clear that BOEM is asking for the discounted value of the reserves
(e.g., realized sale price minus uplift costs) without factoring in
decommissioning. BOEM requires lessees to provide supplemental
financial assurance against undiscounted BSEE decommissioning estimates
to protect from financial default events that may occur before
scheduled end of life and the full accounting recognition of the asset
retirement obligation, therefore BOEM concludes that using a discounted
asset retirement obligation insufficiently protects the taxpayer. BOEM
believes the regulations are sufficiently defined to ensure the reserve
analysis is based on the ratio on the discounted value of proved
reserves (excluding decommissioning costs) to the undiscounted BSEE
decommissioning estimate. The Department is finalizing, as proposed in
30 CFR 556.901(d)(4), the use of a ratio of the value of proved
reserves to decommissioning liability associated with those reserves
that meets or exceeds 3-to-1.
E. Phased Compliance With Supplemental Financial Assurance Orders
In the preamble to the proposed rule, BOEM acknowledged that the
proposed regulations could have a significant financial impact on
affected companies (88 FR 42148). For that reason, BOEM proposed to
phase in the new supplemental financial assurance requirements over a
3-year period for existing leaseholders in 30 CFR 556.901(h). As
proposed, BOEM would require that any company receiving a supplemental
financial assurance demand (within 3 years of the rule becoming
effective) post one-third of the total amount by the deadline listed on
the demand letter. A second one-third would be required within 24
months of the receipt of the demand letter. The final one-third payment
would be due within 36 months of the receipt of the demand letter. BOEM
specifically
[[Page 31560]]
solicited comments regarding this approach from potentially affected
parties, and requested comment on how the new supplemental financial
assurance demands could be most effectively implemented to minimize any
unnecessarily adverse effects.
A summary of all comments received regarding the phased compliance
approach and BOEM's corresponding responses can be found in section 8
of the Response to Public Comments.
Comment: In general, industry commenters supported the phased
approach and several commenters recommended that it be extended to 5
years to ``mitigate potential significant risk to companies and to
provide adequate time for the bonding market to adjust.''
Response: BOEM disagrees with the commenters' recommendation that
the phased approach should be extended to 5 years. BOEM has concluded
that the period of 3 years reduces exposure to risk of non-performance
and hence addresses the need at issue in this rulemaking, requiring
supplemental financial assurance where appropriate to protect the
taxpayer while simultaneously providing adequate time for the bonding
market to adjust to the new requirements. The bond market adjustment is
basically a price adjustment and not so much a volume adjustment, and
hence a 3-year period is sufficient to make these adjustments. On the
other hand, lessees have a sufficient period of time to finance the
cost of the required financial assurance. If the bond market does not
provide bonding to a lessee, it is not due to market conditions, but
rather to the high levels of risk, and hence the implication in this
case is that the lessee is such a high risk that no bonding company
wants to add this risk to its portfolio. The Department is finalizing
in 30 CFR 556.901(h) a 3-year phased compliance period.
Comment: Additional commenters requested that BOEM include a phased
provision for parties that were exempt but then later could not meet
the exemption criteria because of changed circumstances and that BOEM
include such provisions for parties that obtain OCS lease or grant
interests in the first 3 years after implementation of the final rule.
Response: In response to commenters' suggestions that BOEM add
clarification that this option is available for changed circumstances
or for obtaining new lease interests, BOEM believes that the proposed
text in 30 CFR 556.901(h) was broad enough to encompass these
circumstances. If a party is exempt but then later cannot meet the
exemption criteria because of changed circumstances (e.g., change in
credit rating), or if a party obtains an OCS lease or grant interest
within the phased compliance time frame after implementation of the
final rule, they would be allowed to use the phased compliance
approach. BOEM has retained the language to establish a 3-year
compliance window broad enough to encompass these circumstances. BOEM
intends for any party who, within the 3-year compliance window, incurs
new decommissioning liability or experiences changed circumstances
resulting in a financial assurance demand from BOEM, to be allowed, at
the Regional Director's discretion, to use the 3-year phased in
approach to providing supplemental financial assurance. This compliance
window will end on the date 3 years after the effective date of this
final rule and any party receiving a supplemental financial assurance
demand after that date will be required to provide the supplemental
financial assurance in full as required by the demand, with no phase-
in.
F. Appeal Bonds
As discussed in the preamble to the proposed rule (88 FR 42148),
the Department proposed a new requirement in 30 CFR 556.902(h) whereby
any company seeking to stay a supplemental financial assurance demand
pending appeal must, as a condition of obtaining a stay of the order,
post an appeal bond in the amount of supplemental financial assurance
required. If the appeal is successful, the amount of the appeal bond in
excess of the amount of any supplemental financial assurance determined
to be required would be returned to the appropriate party. If the
appeal is unsuccessful, the appeal bond could be replaced with, or
converted into, bonds or other forms of financial assurance to cover
the supplemental financial assurance demand.
Comments received regarding appeals and BOEM's corresponding
responses can be found in section 9 of the Response to Public Comments.
Comment: Multiple commenters expressed opposition to BOEM's
proposal, asserting that it raises due process concerns, specifically
because the proposal inhibits the recipient's first opportunity to have
an adjudication of BOEM's determination. They noted that the current
process provides an opportunity for each party to express concerns at
an early stage, while, under the proposal, a lessee could be forced
into posting a bond that could be held for years, which is
disproportionate to the perceived risk to the U.S. taxpayer. An
additional commenter equated the appeal bond requirement to ``an
automatic denial of stays,'' which, they claimed, could render most
supplemental financial assurance demands subject to immediate judicial
review, citing 5 U.S.C. 704 and 43 CFR 4.21(c). The same commenter also
suggested that the appeal bond provision would contradict existing
Sec. 590.107 (sic) (should be ``Sec. 590.7'').
Response: BOEM disagrees that the appeal bond provision raises due
process concerns. It does not prevent the recipient of a BOEM order
from appealing, or from requesting a stay of that order. An appeal bond
no more deprives an appellant of due process here than it does in the
case of a judicial appeal. No court has held that due process requires
that agencies assure the availability of stays without appeal bond
requirements, nor is it the case that the Interior Board of Land
Appeals' (IBLA's) decision on a stay request constitutes an
adjudication of the decision appealed. Further, the appeal bond
provision does not prevent the parties from being able to express
concerns at an early stage. The recipient of a financial assurance
demand has 60 days within which to file a notice of appeal with the
IBLA, during which time it is free to meet with BOEM and attempt to
resolve any issues with respect to the demand. See 30 CFR 590.3. In
fact, the regulations specifically provide for early, informal
resolution of issues. See 30 CFR 590.6. Moreover, whether an appeal
bond is required has no effect on the IBLA's adjudication of the merits
of an appeal. The requirement to post an appeal bond would, however,
add a procedural step before a stay of a BOEM demand could be put in
place. This step is necessary to ensure that financial assurance is
available to cover an appellant's obligations if, during the pendency
of the appeal, the appellant undergoes financial distress.
As noted above, if an appellant wins its appeal, and no financial
assurance is required, the appeal bond will be cancelled, or the amount
of the appeal bond in excess of the amount of financial security
determined to be required will be returned to the appropriate party.
Thus, an appellant is not ``forced'' to post an appeal bond that may be
held for years, as claimed by the commenter. This is different from not
appealing and posting a bond for lease compliance that will be held
until decommissioning is performed. Nor did the proposed rule prescribe
that an appeal bond must ``convert'' to a different type of bond to
cover a required financial assurance obligation.
[[Page 31561]]
BOEM also disagrees that the appeal bond provision will result in
``automatic denials of stays,'' leading to more judicial litigation.
The statutory and regulatory provisions cited by the commenter stand
for the proposition that the unavailability of a stay excuses parties
from the requirement to exhaust administrative remedies before seeking
judicial review. But this outcome will occur only if the IBLA denies a
stay request, and such a denial would be made independent of the appeal
bond requirement. The IBLA must grant or deny a stay based on the
factors set forth at 43 CFR 4.21(b)(1), and not on whether an appeal
bond has been, or must be, posted. See 43 CFR 4.21(b)(4). Therefore,
the requirement that an appeal bond be posted should not result in the
IBLA granting fewer stay requests. Nor does the appeal bond provision
contradict Sec. 590.7. The latter provision, at paragraph (c), states
that the IBLA may grant a stay of a BOEM decision, but that the
decision remains in effect until the stay is granted. That is true
regardless of the new appeal bond provision. Under the new provision,
the IBLA may still grant a stay of a decision, and until a stay is
granted, the decision remains in effect, but in order for the stay to
take effect, the appellant must post the required appeal bond.
Comment: One commenter expressed concern that the proposed rule
specifies that an appeal bond will ``automatically'' convert to a
financial assurance obligation should the lease operator lose its
appeal and noted that bonds do not operate in this manner. If
finalized, the commenter asserted that the appeal bond should provide a
certain number of days for the lease operator to post its financial
assurance obligation to allow the surety to underwrite the operator at
the time the bond is determined to be justified. Additionally, the
commenter stated that BOEM did not offer support for this proposed
requirement and requested data on the number of financial assurance
appeals, the number of stays granted in those appeals, and the total
historical decommissioning liability that has gone uncovered due to
appellate stays.
Response: The proposed rule did not require that an appeal bond
``convert'' to a financial assurance obligation and BOEM is not
finalizing the rule to require conversion. If an appellant lost its
appeal, the appeal bond could be ``converted'' to financial assurance
if that is a viable approach, or the lessee who lost the appeal would
have to provide some other acceptable form of financial assurance.
Neither the proposed nor final rule specify a timeline for this
provision of financial assurance.
In response to the request for data, of the 1,449 appeals the IBLA
received during the last 5 fiscal years, only 5 were from BOEM
decisions concerning financial assurance. The appellant(s) filed a
petition for a stay in 4 of those 5 appeals, and the IBLA granted one
of them. Additional data regarding the current number of appeals is
available at the following website: https://www.doi.gov/oha/organization/ibla/IBLA-Pending-Appeals.
Comment: A commenter also highlighted that BSEE, in its recent
final rule arising from the Department's 2020 proposed rule, declined
to retain an appeal bond provision that would have required the posting
of an appeal bond to obtain a stay of a BSEE decommissioning order.
This commenter suggested that it would be unreasonable for BOEM and
BSEE to take two different approaches.
Response: There is no inconsistency with BSEE deciding not to
require appeal bonds at the stage of an order to decommission and BOEM
deciding to require them at the stage of financial assurance demands.
The BSEE decision is based in large part on the assumption that
financial assurance is already in place by the time it issues
decommissioning orders and thus it does not face the risks that BOEM
does at the time of demanding financial assurance. See 88 FR 23569,
23579 (April 18, 2023) (noting BSEE's reliance on the financial
assurance regulations for determining an appeal bond is not necessary
for the BSEE program).
BOEM's retention of the appeal bond provision means that, in the
event of a stay of a financial assurance order, there will be an appeal
bond, ensuring that, even if the appellant becomes insolvent during the
appeal, there will be sufficient funds to perform decommissioning when
it is ordered by BSEE. This fact supports, rather than contradicts,
BSEE's decision not to retain its own appeal bond provision in the BSEE
rule, as duplicative and unnecessary.
Additionally, after the publication of the NPRM, which included
BOEM's proposed provision to require the appeal bond, on December 13,
2023, BSEE published a proposed rule titled Bonding Requirements When
Filing an Appeal of a Bureau of Safety and Environmental Enforcement
Civil Penalty (88 FR 86285), which would amend the bonding requirements
when filing an appeal of a BSEE civil penalty. The proposed regulations
would require that entities appealing a BSEE civil penalty decision to
the IBLA must have a bond covering the civil penalty assessment amount
for the IBLA to have jurisdiction over the appeal.
Further, an appeal bond requirement already applies to appeals of
civil penalties assessed by BOEM and orders of the Office of Natural
Resources Revenue (ONRR). Such a requirement is equally appropriate
when the effect of a change in circumstances of the appellant, such as
bankruptcy or insolvency, could leave DOI without the means of
performing decommissioning. Companies can, and have, filed for
bankruptcy while waiting for a decision from the IBLA on an appeal,
leaving the government with no financial assurance to address
decommissioning obligations. As such, the Department is finalizing, as
proposed, the inclusion of the requirement whereby any company seeking
to stay a supplemental financial assurance demand pending appeal must,
as a condition of obtaining a stay of the order, post an appeal bond in
the amount of supplemental financial assurance required.
G. Other Amendments
1. Revisions to Definitions
The Department proposed to revise definitions, remove terms and
associated definitions, and add new definitions in 30 CFR 550.105
(Definitions) and 30 CFR 556.105 (Acronyms and definitions) as
discussed in the following subsections. A summary of all comments
received regarding revisions to definitions and BOEM's corresponding
responses can be found in section 10 of the Response to Public
Comments.
a. New Terms: ``Assign'' and ``Transfer''
The Department proposed to add new definitions for the terms
``Assign'' and ``Transfer'' to clarify that these terms are used
interchangeably throughout 30 CFR parts 550 and 556. This change would
also serve to clarify that the related terms ``transferee'' and
``transferor'' are interchangeable with ``assignee'' and ``assignor''
respectively. The definition of the new term ``Assign'' was proposed to
mean conveying an ownership interest in an oil, gas, or sulfur lease,
ROW grant or RUE grant. For purposes of this part, ``assign'' is
synonymous with ``transfer'' and the two terms are used
interchangeably. The definition of the new term ``Transfer'' was
proposed to mean ``conveying an ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant. For the purposes of this part,
``transfer'' is synonymous with ``assign'' and the two terms are used
interchangeably.
[[Page 31562]]
General comments received are as follows:
Comment: Commenters suggested that BOEM clarify for the purposes of
part 550 that ``transfer'' in both the new term and in the definition
of ``Assign'' should be defined to exclude informal transfers. Examples
of informal transfers were corporate name changes that are not
technically a conveyance of an interest to a new entity. They provided
suggested regulatory text edits as follows: ``Transfer means to convey
an ownership interest in an oil, gas, or sulfur lease, ROW grant or RUE
grant. For the purposes of this part, ``transfer'' is synonymous with
``assign'' and the two terms are used interchangeably, [Underline:
except that a transfer excludes transactions subject to 30 CFR 556.715
or changes only in the corporate name of an interest owner that do not
require BOEM approval]'' where the underline represents the commenter's
proposed additional language.
Response: BOEM disagrees with the commenters' assertion that BOEM
should clarify that ``Transfer'' excludes transactions subject to 30
CFR 556.715 or changes only in the corporate name of an interest owner
that do not require BOEM approval. The referenced section, 30 CFR
556.715, addresses transactions of economic interests that should and
will be included in the definition of transfer, although that section
makes clear such transfers do not require BOEM approval. Additionally,
BOEM does not consider a corporate name change to be an ``assignment''
and therefore, the suggested edit is unnecessary.
The Department is finalizing, as proposed, the new terms ``Assign''
and ``Transfer'' and their corresponding definitions.
b. Replacement: ``Right-of-Use'' and ``Easement'' With ``Right-of-Use
and Easement''
The Department proposed to remove the terms ``Easement'' and
``Right-of-use'' from 30 CFR part 550 because neither are used
separately in the regulations. In lieu of these two terms, and to
define the term used in part 550, DOI proposed the addition of the new
term ``Right-of-Use and Easement'' and its associated definition as ``a
right to use a portion of the seabed, at an OCS site other than on a
lease you own, to construct, secure to the seafloor, use, modify, or
maintain platforms, seafloor production equipment, artificial islands,
facilities, installations, or other devices to support the exploration,
development, or production of oil, gas, or sulfur resources from an OCS
lease or a lease on State submerged lands.'' Additionally, the
Department proposed to amend the definition of ``Right-of-Use and
Easement'' in 30 CFR 556.105 to match the proposed definition in 30 CFR
550.105.
No public comments were received on the proposal to delete
``Easement'' and ``Right-of-use'' and replace with the new term
``Right-of-use and Easement'' in 30 CFR 550.105 or on the amendments to
the existing definition in 30 CFR 556.105. As such, the Department is
finalizing, as proposed, BOEM's amendments to remove the terms
``Easement'' and ``Right-of-use'' from 30 CFR part 550 because neither
are used separately in the regulations. In lieu of these two terms, and
to define the term used in part 550, the Department is finalizing the
addition of the new term ``Right-of-Use and Easement'' and its
associated definition. In the final rule, BOEM has removed ``adjacent
to or accessible from the OCS'' from the proposed RUE definition, as it
is not helpful. This is a technical correction and does not change any
meaning or intent of the definition. Additionally, the Department is
finalizing the edits to the same definition, in 30 CFR 556.105.
c. New Term: ``Financial Assurance''
The Department proposed to add a new term and definition for
``Financial assurance'' in 30 CFR 550.105 and 556.105(b) to list the
various methods that may be used to ensure compliance with OCS
obligations in 30 CFR parts 550 and 556. DOI proposed to define the
term as ``a surety bond, a pledge of Treasury securities, a
decommissioning account, a third-party guarantee, or another form of
security acceptable to the BOEM Regional Director, that is used to
ensure compliance with obligations under the regulations in this part
and under the terms of a lease, a RUE grant, or a pipeline ROW grant.''
General comments received are as follows:
Comment: One commenter expressed support for the new ``Financial
assurance'' term and noted that it supported ``the breadth and
optionality in the proposed'' definition.
Response: BOEM acknowledges the commenter's support, and the
Department is finalizing the new term as proposed.
Comment: Commenters recommended that BOEM should be consistent and
intentional in its use of ``financial assurance,'' ``security,'' and
``bond'' within the final rule. Specifically, they asked BOEM to
consider using the global term ``security'' as in the 2020 Proposed
Rule in lieu of ``financial assurance,'' which instead can refer to the
process of furnishing security rather than the security itself.
Response: BOEM does not believe the term ``financial assurance'' is
ever used as a ``process for furnishing security'' in this rulemaking
and, instead, is used to describe any of a number of different types of
securities that BOEM will accept to guarantee performance of
obligations. As such, BOEM believes the term and associated definition
is appropriate. BOEM has elected to simplify the rule by consistently
using the term financial assurance instead of referring to the various
types of financial securities. The Department is finalizing, as
proposed, the removal of the term and definition of ``Security or
securities'' in part 556, as these terms have been replaced with
``financial assurance'' throughout part 556 and 550 for regulatory
consistency.
The Department is finalizing, as proposed, the new term and
definition for ``Financial assurance'' in 30 CFR 550.105 and 556.105(b)
to list the various methods that may be used to ensure compliance with
the relevant OCS obligations in 30 CFR parts 550 and 556.
d. New Term: ``Investment Grade Credit Rating''
The Department proposed to add the new term and associated
definition for ``Investment grade credit rating'' in 30 CFR 550.105 and
556.105(b). The associated definition was proposed as ``an issuer
credit rating of BBB- or higher, or its equivalent, assigned to an
issuer of corporate debt by a nationally recognized statistical rating
organization (NRSRO) as that term is defined by the United States
Securities and Exchange Commission (SEC).'' This definition was
proposed as the threshold above which BOEM would typically not require
supplemental financial assurance. General comments received are as
follows:
Comment: As discussed in section III.D of this preamble, commenters
both supported and opposed the addition of the ``Investment grade
credit rating'' definition. Several commenters suggested that BOEM not
add the term to 30 CFR 550.105 because the term is not used in part
550.
Response: As discussed in section III.D of this preamble, the
Department is not finalizing the proposed addition of ``Investment
grade credit rating'' to 30 CFR part 550, as the commenters' assertion
that the term is not used in part 550 is correct. In part 550, the
regulatory text references 30 CFR part 556 to discuss the use of the
issuer credit rating.
[[Page 31563]]
The Department has revised the definition of ``Investment grade
credit rating'' in 30 CFR 556.105(b) with this final rule to clarify
which rating agency corresponded with the proposed BBB- rating. The
final definition is ``an issuer credit rating of BBB- or higher (S&P
Global Ratings and Fitch Ratings, Inc.), Baa3 or higher (Moody's
Investors Service Inc.), or its equivalent, assigned to an issuer of
corporate debt by a nationally recognized statistical rating
organization as that term is defined in section 3(a)(62) of the
Securities Exchange Act of 1934.''
e. New Term: ``Issuer Credit Rating''
The Department proposed to add the new term and associated
definition for ``Issuer credit rating'' in 30 CFR 550.105 and
556.105(b). The associated definition was proposed as ``a credit rating
assigned to an issuer of corporate debt by Standard and Poor's (S&P)
Rating Services (or any of its subsidiaries), by Moody's Investors
Service Incorporated (or any of its subsidiaries), or by another NRSRO
as that term is defined by the United States SEC.'' General comments
received are as follows:
Comment: Multiple commenters suggested that BOEM not add the term
``Issuer credit rating'' and associated definition to 30 CFR 550.105
because the term is not used in part 550. Other commenters recommended
that BOEM include Fitch Ratings as one of the listed NRSROs in the new
definition in 30 CFR 556.105.
Response: The Department is not finalizing the proposed addition of
``Issuer credit rating'' to 30 CFR part 550, as the commenters'
assertion that it is not used in part 550 is correct. In part 550, the
existing regulatory text references 30 CFR part 556 to discuss the use
of the issuer credit rating. BOEM agrees with the commenters' assertion
that Fitch Ratings is also an appropriate NRSRO and is adding it to the
definition in 30 CFR 556.105.
f. Removal: ``Security or Securities''
The Department proposed to delete the term and associated
definition of ``Security or securities'' in 30 CFR 556.105(b) since the
term ``security'' was proposed to be replaced with ``financial
assurance'' throughout the subpart. This term, i.e., ``security,'' did
not exist in 30 CFR part 550 and therefore was not proposed to be
removed therefrom. General comments received are as follows:
Comment: Commenters recommended that BOEM be consistent and
intentional in its use of ``financial assurance,'' ``security,'' and
``bond'' within the final rule. Specifically, they asked BOEM to
consider utilizing the global term ``security'' as in the 2020 Proposed
Rule in lieu of ``financial assurance,'' which instead can refer to the
process of furnishing security rather than the security itself.
Response: BOEM does not believe the term ``financial assurance'' is
ever used as a ``process for furnishing security'' in this rulemaking
and, instead, is used to describe any of a number of different types of
securities which BOEM accepts to guarantee performance of obligations.
As such, BOEM believes the term and associated definition is
appropriate. BOEM has elected to simplify the rule by consistently
using the term financial assurance instead of the various types of
financial securities. The Department is finalizing, as proposed, the
removal of the term and definition of ``Security or securities'' from
part 556, as these terms have been replaced with ``financial
assurance'' throughout parts 556 and 550 for regulatory consistency.
g. Revision: ``You''
The Department proposed to revise the definition for ``You'' in 30
CFR parts 550 and 556 as, depending on the context of the part: ``a
bidder, a lessee (record title owner), a sublessee (operating rights
owner), a Federal or State RUE grant holder, a pipeline ROW grant
holder, an assignor or transferor, a designated operator or agent of
the lessee or grant holder, or an applicant seeking to become one of
the individuals listed in this definition.'' This change to the
definition of ``You'' would, in concert with changes proposed in Sec.
550.166, make explicit that any financial assurance provisions
applicable to either a State or Federal RUE would apply to the other.
General comments received are as follows:
Comment: Commenters expressed concerns with BOEM's proposed
definition of ``You'' and asserted that BOEM was imposing on the
regulated community the duty to ascertain which persons covered by the
definition are subject to the specific regulatory requirements of each
section. For example, a commenter asserted that the inclusion of ``an
assignor or transferor'' in the definition is problematic in the
context of part 556 because the scope ``is financial assurance that is
solely the responsibility of current interest holders.''
Response: The Department did not revise the proposed definition of
``you'' in the final rule. BOEM retained ``assignor or transferor'' in
the definition as it is appropriate in the context of some subsections
across the broad scope of parts 550 and 556. The intent of the
definition of ``you'' was always to be totally encompassing and to rely
on context for its meaning in any particular situation.
The Department is finalizing, as proposed, the revisions to the
definition of ``You.'' The definition of the term has traditionally
been all-encompassing in both parts 550 and 556 and BOEM believes the
context provided by the individual subsections is sufficient for
determining which entity covered by the term is the appropriate entity
to which a particular subsection applies.
2. Changing of the Spelling of ``Sulphur'' to ``Sulfur''
The Department proposed to replace the word ``sulphur'' with the
more contemporary spelling of ``sulfur'' throughout the regulatory text
where it has not been previously changed. BOEM noted that this edit was
a technical correction and did not change any meaning or intent of the
regulatory provisions. The Department proposed to update the word
``sulphur'' in the heading of part 550 and in Sec. Sec. 550.101,
550.102, 550.105, and 550.199.
No comments were received on changing the spelling of ``sulphur''
to ``sulfur.'' Therefore, the Department is finalizing, as proposed,
its plans to replace the word ``sulphur'' with the more contemporary
spelling of ``sulfur'' in Sec. Sec. 550.101, 550.102, and 550.105 in
this final action.
IV. Summary of Cost, Economic Impacts, and Additional Analyses
Conducted
A. What are the affected entities?
This final rule will affect current and future lessees, sublessees,
RUE grant holders, and pipeline ROW grant holders. BOEM's analysis
shows that this includes roughly 391 companies with record title
ownership or operating rights in leases, and with interests in RUE
grants and pipeline ROW grants. These lessees and grant holders are
responsible for complying with the regulations and therefore would bear
the compliance costs and realize the cost savings associated with the
provisions in this final rule.
B. What are the economic impacts?
The amendments in this final rule are expected to increase the
total amount of financial assurance required from OCS lessees and grant
holders. Those lessees that do not meet the updated criteria to avoid
providing supplemental financial assurance will have an increased
compliance cost in the form of bond premiums. BOEM has drafted an RIA
detailing the estimated impacts of the
[[Page 31564]]
respective provisions of this final rule. These impacts reflect both
monetized and non-monetized impacts; the costs and benefits of the non-
monetized impacts are discussed qualitatively in the RIA and in the
following paragraphs. The table below summarizes BOEM's monetized
estimate of the cost of increased bonding premiums paid by lessees over
a 20-year period. This timeframe is expected to adequately capture the
aging shallow-water OCS infrastructure removal while providing BOEM
with time to monitor the efficacy of its new program. Due to
technological advances and the changing nature of the OCS's role in the
energy transition, estimates beyond 20-years are too speculative to be
reliable at this stage. Regulatory certainty for OCS lessees is
valuable, however; as the Statement of Energy Effects notes, higher
compliance costs could make the U.S. OCS less competitive in a global
oil market. Additional information on the estimated transfers, costs,
and benefits can be found in the RIA posted in the public docket for
this rule.
Net Total Estimated Compliance Cost of the Rule
[2024-2043, 2023, $ millions]
------------------------------------------------------------------------
Discounted Discounted
2024-2043 at 3% at 7%
------------------------------------------------------------------------
Net Total Compliance Cost....................... $8,525 $5,923
Annualized Compliance Cost...................... 573.0 559.0
------------------------------------------------------------------------
The rule affects holders of oil, gas, and sulfur leases, ROW
grants, and RUE grants on the OCS. The analysis shows that this
includes roughly 391 companies with ownership interests in OCS leases
and grants. Entities that operate under this rule are classified
primarily under NAICS codes 211120 (Crude Petroleum Extraction), 211130
(Natural Gas Extraction), and 486110 (Pipeline Transportation of Crude
Oil and Natural Gas). For NAICS classifications 211120 and 211130, the
SBA defines a small business as one with fewer than 1,250 employees;
for NAICS code 486110, it is a business with fewer than 1,500
employees. Based on this criterion, approximately 271 (69 percent) of
the businesses operating on the OCS subject to this rule are considered
small; the remaining businesses are considered large entities. All the
operating businesses meeting the SBA classification are potentially
impacted; therefore, BOEM expects that the rule will affect a
substantial number of small entities.
BOEM has estimated the annualized increase in compliance costs to
lessees and allocated those to small and large entities based on their
decommissioning liabilities. In the table below, BOEM's analysis
estimates small companies could incur $421 million (7 percent
discounting) in annualized compliance costs from changes in the final
rule. The Bureau recognizes that there will be incremental cost burdens
to most affected small entities and has included a 3-year phased
compliance approach to provide flexibility for entities required to
provide financial assurance under the new requirements. The changes are
designed to balance the risk of non-performance with the compliance
burdens that are associated with the requirement to provide
supplemental financial assurance. Additional information about these
conclusions can be found in the regulatory flexibility analysis for
this rule.
Estimated Compliance Costs for Non-Investment Grade Small Entities
[2024-2043, 2023, $ millions]
------------------------------------------------------------------------
Discounted Discounted
2024-2043 at 3% at 7%
------------------------------------------------------------------------
Total Compliance Cost........................... $6,362 $4,455
Annualized Compliance Cost...................... 428 421
------------------------------------------------------------------------
C. What are the benefits?
OCSLA regulations and lease provisions require lessees to
decommission facilities, including plugging and abandoning OCS wells
and removing facilities when their useful life has concluded. If the
current lessee fails to perform decommissioning of its OCS facilities,
the burden to decommission OCS facilities may fall to other obligated
parties, such as co-lessees or predecessor lessees, and failing that,
the Federal Government and U.S. taxpayers. Some of the corporate
bankruptcies involving offshore oil and gas lessees since 2009 have
involved decommissioning liabilities not covered by bonds or other
forms of financial assurance. As such, these bankruptcies demonstrate
that BOEM's regulations have been inadequate to protect the public from
potential responsibility for OCS decommissioning, especially during
periods of low hydrocarbon prices. The final rule is intended to
correct these shortcomings with an approach that promotes
internalization of costs of decommissioning by lessees and grant
holders by adhering to the general principle that each current owner
should bear the costs for its own obligations. This final rule is
expected to significantly increase the amount of financial assurance
coverage that protects the Federal Government and taxpayer by requiring
that every lessee, ROW grant holder, and RUE grant holder assume full
responsibility for providing assurance for performance of its own
obligations unless there is a financially strong co-lessee (i.e., one
that meets the credit rating threshold). Finally, the final rule is
expected to reduce the decommissioning activity lead-time that can
result in environmental harms arising out of orphaned, unmaintained, or
minimally maintained facilities, which could result in additional
environmental damage or increased obstacles to navigation, while
awaiting the uncertain outcomes of bankruptcy proceedings or
Congressional appropriations. A reduction in decommissioning activity
lead-time could reduce environmental damage, but BOEM cannot quantify
this benefit in this rulemaking.
Bonding of OCS liabilities by a surety company greatly reduces the
risk that those liabilities will revert to a predecessor lessee or
grant holder because DOI could, but is not required to, turn to the
surety for performance before turning to a predecessor. Further,
because this final rule is designed to secure the taxpayer against the
riskiest subset of liability--i.e., OCS obligations that belong to
speculatively rated companies without marketable reserves--it will
require more supplemental financial assurance than the Department
currently holds from such companies and will decrease the likelihood
that these liabilities become the responsibility of the government.
These reductions in risk are dependent on the initial level of risk
specific to each OCS lease and lessee, and as such, BOEM is not able to
quantify them in aggregate, as discussed in the RIA. This rule will not
affect the Department's regulatory authority to issue decommissioning
orders to predecessor lessees or to intervene as necessary to address
an imminent environmental or safety risk. However, without this final
rule (i.e., without the new supplemental financial assurance procedures
fully in place), it could take longer to arrange for decommissioning.
Orphaned, unmaintained, or minimally maintained facilities, which
currently exist on the OCS, could result in additional environmental
damage or increased obstacles to navigation, while awaiting the
uncertain outcomes of bankruptcy proceedings or Congressional
appropriations.
Additionally, this final rule provides lessees and grant holders
with clarity and regulatory certainty regarding the
[[Page 31565]]
way in which BOEM will conduct its financial assurance program. The
financial assurance it requires will provide accountability to the
taxpayer that a current lessee's or grant holder's obligations to
decommission will not go unfulfilled, or that an associated cost of
business is not transferred to another party at the culmination of the
life of the facility when the productive value is gone and only
liabilities remain.
D. What tribal outreach did BOEM conduct?
On March 31, 2023, BOEM sent letters to all federally recognized
Tribal Nations and Alaska Native Claims Settlement Act (ANCSA)
Corporations to ensure they are aware of the proposed rulemaking, to
answer any immediate questions they may have had, and to invite formal
consultation if desired. Only one Tribe requested consultation, which
was held on June 28, 2023; meeting notes for this consultation are
available in the docket (Docket No. BOEM-2023-0027).
V. Section-by-Section Analysis
Severability
BOEM proposed in the preamble to the proposed rule at 88 FR 42156
that the provisions of the rule be severable. No public comments were
received on severability. Should any court hold unlawful and/or set
aside portions of this rule, the remaining portions are severable and
therefore should not be remanded to the Department. The final rule
contains three main components: (1) streamlining criteria warranting a
demand for supplemental financial assurance; (2) establishing the
amount of any supplemental financial assurance; and (3) making several,
less significant changes to, among other things, transferring interests
in RUE grants and requiring appeals bonds for a stay of an IBLA appeal.
See section III of this preamble.
It is impracticable, if not impossible, for BOEM to anticipate and
address every conceivable adverse court remedy order. For purposes of
this rule, it suffices to substantiate BOEM's intent that the rule's
three components operate largely independently of each other: the first
component considers whether a lessee is at risk of default based on the
lessee's credit rating or the proved reserves on the lease; the second
component considers the appropriate level of financial assurance
required in light of that risk; and the third component addresses
several longstanding and technical matters that do not bear directly on
the first two components. Indeed, these three components are
sufficiently distinct that their utility does not depend on the
specifics of this final rule. For example, if a court were to vacate
BOEM's selection of the level of supplemental financial assurance
required (P-value), that decision would remain severable from the
threshold determination regarding whether to collect supplemental
financial assurance and from the other separate technical changes
included in this rule. In this scenario, BOEM could still collect
supplemental financial assurance using the previously accepted BSEE
deterministic estimate for decommissioning costs.
BOEM is amending the following regulations as follows:
Part 550--Oil and Gas and Sulfur Operations in the Outer Continental
Shelf
The terms ``bond,'' ``bonding,'' ``surety bond,'' ``security,'' and
``securities'' are replaced throughout this part with the new term
``financial assurance'', as proposed.
The term ``sulphur'' is replaced throughout this part with
``sulfur'', as proposed. This edit is a technical correction and does
not change any meaning or intent of the regulatory provisions.
Subpart A--General
Section 550.101 Authority and Applicability
The Department is finalizing the revision of ``sulphur'' to
``sulfur'' in the introductory text and is clarifying that the BOEM
Director is the one granted authority by the Secretary to regulate oil,
gas, and sulfur exploration, development, and production operations on
the OCS.
Section 550.102 What does this part do?
The Department is finalizing the revision of ``sulphur'' to
``sulfur'' in the paragraphs (a) and (b).
Section 550.103 Where can I find more information about the
requirements in this part?
The Department is removing the term ``supplement'' from this
section as a technical correction. The existing regulatory text needs
improvement because NTLs do not supplement regulatory requirements, but
instead clarify, provide voluntary recommendations, or provide
additional information concerning how to comply with requirements in
the regulations (e.g., addresses for submissions).
Section 550.105 Definitions
The Department is finalizing as proposed, and as discussed in
section III.G of this preamble, new definitions for the terms
``Assign'' and ``Transfer'' to clarify that these terms are used
interchangeably throughout the part. This change also serves to clarify
that the related terms ``assignee'' and ``assignor'' are
interchangeable with ``transferee'' and ``transferor,'' respectively.
The Department is finalizing, as proposed, revisions to the
definition of ``Criteria air pollutant'' and ``Nonattainment area'' to
explain the acronyms U.S. EPA and NAAQS. This is a technical correction
and does not change any meaning or intent of the definitions.
The Department is finalizing as proposed, and as discussed in
section III.G of this preamble, removal of the terms ``Easement'' and
``Right-of-use'' because neither are used separately in the
regulations. In lieu of these two terms, and to define the term used in
part 550, The Department is finalizing the addition of the new term
``Right-of-Use and Easement'' and its associated definition. Since
proposal, BOEM has removed ``adjacent to or accessible from the OCS''
from the RUE definition, as it is not helpful. This is a technical
correction and does not change any meaning or intent of the definition.
This definition is consistent with the final amendments to the
definition of RUE in 30 CFR 556.105.
The Department is finalizing as proposed, and as discussed in
section III.G of this preamble, the addition of the new term and
definition for ``Financial assurance'' to list the various methods that
may be used to ensure compliance with OCS obligations. Additionally,
the Department is finalizing, as proposed, and discussed in section
III.G of this preamble, revisions to the definition of ``You.''
Section 550.160 When will BOEM grant me a right-of-use and easement
(RUE), and what requirements must I meet?
The paragraph (a) introductory text is expanded, as in the proposed
rule, to include additional functions and devices associated with a RUE
by adding ``secure to the seafloor, use, modify'' after ``construct;''
by substituting ``or'' for ``and'' before the word ``maintain;'' and by
adding references to ``seafloor production equipment'' and
``facilities.'' These edits create consistency between this section and
the definition of RUE in Sec. 550.105. A commenter suggested edits to
[[Page 31566]]
paragraph (a) because the commenter found the paragraph difficult to
read. In response to this comment, DOI has replaced the proposed clause
``You must require the RUE'' with ``A RUE is required'' in this final
rule. That change, in turn, could be confusing when read in conjunction
with the existing introductory text of Sec. 550.160. Accordingly, DOI
is deleting the introductory text in this final rule. This deletion
does not change any meaning or intent of any part of Sec. 550.160.
The Department is finalizing, as proposed, revisions to paragraph
(b) to provide that a RUE grant holder must exercise the grant
according to the terms of the grant and the applicable regulations of
part 550.
The Department is finalizing, as proposed, revisions to paragraph
(c) to update the cross-reference to BOEM's lessee qualification
requirements, Sec. Sec. 556.400 through 556.402, and to replace the
language in this paragraph referencing ``bonding requirements'' with a
cross reference to Sec. 550.166, which BOEM has amended to add
specific criteria for financial assurance demands, as discussed in
section III.A of this preamble. The Department is also revising
paragraph (d) to replace ``right-of-use and easement'' with ``RUE.''
The Department is revising paragraphs (e) and (f)(2) to update the
list therein to be consistent with the finalized revisions in paragraph
(a). BOEM identified the need for these revisions after publication of
the proposed rule and is making them in the final rule for consistency
with the new definition of RUE.
Section 550.166 If BOEM grants me a RUE, what financial assurance must
I provide?
As proposed, the Department is finalizing amendments to the section
heading by removing the reference to ``a State lease'' and replacing
``surety bond'' with ``financial assurance.'' This reflects the change
in the text of this section that provides that the financial assurance
requirements of this section would apply to both a RUE granted to serve
a State lease and one serving an OCS lease, as discussed in section
III.A of this preamble. The term ``surety bond'' is replaced with
``financial assurance'' throughout the section.
The Department is finalizing revisions to paragraph (a) to require
$500,000 in financial assurance that guarantees compliance with the
terms and conditions of any OCS RUEs an entity holds, as discussed in
section III.A of this preamble. Previously, paragraph (a) required
$500,000 in financial assurance only for RUEs associated with State
leases. Additionally, the Department is finalizing the addition of
paragraph (a)(1), as proposed, to allow area-wide lease financial
assurance to satisfy the requirements of paragraph (a) provided that
assurance is in excess of the $500,000 base RUE financial assurance
requirement and also guarantees compliance with all the terms and
conditions of the RUE(s) it covers. The Department is also finalizing
the addition of paragraph (a)(2) as proposed to allow the Regional
Director to lower the required financial assurance amount for research
and other similar types of RUEs, which reflects BOEM's experience that
the total liability exposure for such RUEs can be well below $500,000.
Lastly, the Department is finalizing the addition of paragraph (a)(3)
as proposed to provide that the financial assurance requirements of
section 556.900(d) through (g) and Sec. 556.902 apply to the financial
assurance required in paragraph (a).
The Department is finalizing, as proposed, the revision of
paragraph (b) in this section to provide that, if BOEM grants a RUE
that serves either an OCS lease or a State lease, the Regional Director
may require the grant holder to provide supplemental financial
assurance to ensure compliance with the obligations under the RUE
grant. BOEM will use the issuer credit rating or proxy credit rating
criterion found in Sec. 556.901(d)(1) and (2) to evaluate a RUE grant
holder, as discussed in section III.A of this preamble; i.e., the
Regional Director may require supplemental financial assurance if the
grant holder does not have an issuer credit rating or a proxy credit
rating that meets the criterion set forth in amended Sec.
556.901(d)(1). Like lessees, most RUE holders are oil and gas
companies, and BOEM will therefore, as discussed in section III.A of
this preamble, use the same financial criterion to determine the need
for additional financial assurance from RUE holders and lessees to
provide consistency.
The Department is finalizing the revision to paragraph (b)(1) as
proposed to update the regulatory citation in existing Sec.
550.166(b)(1) to provide that the supplemental financial assurance must
meet the requirements for lease surety bonds or other financial
assurance provided in Sec. Sec. 556.900 (d) through (g) and 556.902.
This rule also finalizes the revision to Sec. 550.166(b)(2) to include
``applicable BOEM and BSEE orders'' in the list of what RUE
supplemental financial assurance must cover. The Department is not
finalizing the proposed language that clarified that RUE holders must
also comply with the decommissioning regulations at part 250, subpart Q
of this title as it is no longer needed. BSEE adopted changes to their
regulations in subpart Q to expressly state that RUE holders must
comply with the BSEE decommissioning regulations. 88 FR 23569 (Apr. 18,
2023). As such, BOEM is not finalizing this reference to the BSEE
regulations, as it is now redundant. The Department is finalizing the
addition of new paragraph (c), as proposed, to provide that if a RUE
grant holder fails to replace any deficient financial assurance upon
demand, or fails to provide supplemental financial assurance upon
demand, BOEM may assess penalties, request BSEE to suspend operations
on the RUE, and/or initiate action for cancellation of the RUE grant.
Section 550.167 How may I assign my interest in a RUE?
The Department is finalizing the addition of a new Sec. 550.167 to
establish the ability to assign a RUE interest. Paragraph (a)
establishes that those who want to obtain a RUE or are requesting
assignment of an interest in a RUE must provide the information
contained Sec. 550.161 and must obtain BOEM's approval. In response to
comment, the Department is finalizing the addition of a new paragraph
(b) that parallels the provisions for ROW assignments in BSEE's
regulations at 30 CFR 250.1018. New paragraphs (c)(1) through (4)
establish, as proposed, the circumstances in which BOEM may disapprove
an assignment. These circumstances are intended to prevent the
assignment of a RUE when, for example, the assignment would result in
inadequate financial assurance.
Section 550.199 Paperwork Reduction Act Statements--Information
Collection
The Department is finalizing the revision of ``sulphur'' to
``sulfur'' in paragraph (b) and clarification that ``parts 551, 552''
refer to 30 CFR parts 551 and 552.
Subpart J--Pipelines and Pipeline Rights-of-Way
Section 550.1011 Financial Assurance Requirements for Pipeline Right-
of-Way (ROW) Grant Holders
The Department is finalizing the revision of this section in its
entirety. The section heading is revised to read, ``Financial assurance
requirements for pipeline right-of-way (ROW) grant holders,'' to
clarify that a pipeline ROW grant holder may meet the requirements of
this section by providing bonds or other types of financial assurance.
The Department is finalizing, as proposed, revisions to paragraph
(a) to
[[Page 31567]]
add ``, attempt to assign,'' after ``apply for'' so that it is clear
the financial assurance requirements of this section apply to an
assignment of a right-of-way grant. The revisions subsume paragraph
(a)(1) into paragraph (a) and revise it to remove the reference to 30
CFR part 256, which has no bonding requirements for pipelines, and to
add the word ``pipeline'' before ``right-of-way.'' The revisions add
``grant'' after ``right-of-way (ROW)'' for clarification, and to
clarify that the purpose of the area-wide financial assurance, which is
required in paragraph (a), is to guarantee compliance with the terms
and conditions of all the pipeline ROW grants held in an OCS area, as
defined in Sec. 556.900(b). These amendments clarify that the
requirement to provide area-wide financial assurance for a pipeline ROW
grant is separate and distinct from the financial assurance coverage
provided for leases and RUEs. Existing paragraph (a)(2) is removed
because supplemental financial assurance requirements would be covered
by new paragraph (d).
The Department is finalizing, as proposed, the removal of existing
paragraph (b), which defines the three recognized OCS areas, because it
is made redundant by the reference to Sec. 556.900(b) in revised
paragraph (a). The Department is finalizing, as proposed, the
replacement of the removed paragraph (b) with a new paragraph (b) to
provide that the requirement under paragraph (a) to furnish and
maintain area-wide financial assurance may be satisfied if the operator
or a co-grant holder provides area-wide pipeline right-of-way financial
assurance in the required amount that guarantees compliance with the
regulations and the terms and conditions of the grant.
The Department is finalizing the replacement of paragraph (c), as
proposed, with a provision stating that the requirements for lease
financial assurance in Sec. Sec. 556.900(d) through (g) and 556.902
apply to the area-wide financial assurance required in paragraph (a) of
this section. The Department is finalizing the removal of existing
paragraph (d), which is now made redundant by new paragraph (f).
The Department is finalizing, as proposed, the addition of a new
paragraph (d) to provide that the Regional Director may determine that
supplemental financial assurance is necessary to ensure compliance with
the obligations under a pipeline ROW grant based on an evaluation of
the grant holder's ability to carry out present and future obligations
on the pipeline ROW. As discussed in section III.A of this preamble,
the Department is finalizing the use of the same issuer credit rating
or proxy credit rating criterion to evaluate a pipeline ROW grant
holder, or co-grant holder, as the Department is finalizing to apply to
lessees in Sec. 556.901(d)(1). BOEM, as discussed in section III.A of
this preamble, has found that reliance on credit ratings better
evaluates financial stability than net worth, and is thus applying the
same financial criterion in evaluating the financial stability of grant
holders.
The Department is finalizing, as proposed in new paragraph (e)(1),
a provision that the supplemental financial assurance must meet the
general requirements for lease surety bonds or other financial
assurance, as provided in Sec. Sec. 556.900(d) through (g) and
556.902. The Department is not finalizing the proposed language in new
paragraph (e)(2) that stated that any supplemental financial assurance
for a pipeline ROW is required to cover costs and liabilities for
regulatory compliance and compliance with applicable BOEM and BSEE
orders, decommissioning of all pipelines or other facilities, and
clearance from the seafloor of all obstructions created by the pipeline
ROW operations, in accordance with the regulations set forth in 30 CFR
part 250, subpart Q, because it is no longer needed and redundant. BSEE
adopted changes to their regulations in subpart Q to expressly state
that all ROW holders must comply with the BSEE decommissioning
regulations. 88 FR 23569 (Apr. 18, 2023). As such, BOEM is not
finalizing this reference to the BSEE regulations, as it is now
redundant. New paragraph (e)(2) now states that any supplemental
financial assurance for a pipeline ROW is required to cover the costs
and liabilities for compliance with obligations of your ROW grants and
with applicable BOEM and BSEE orders.
The Department is also finalizing the addition of new paragraph (f)
to provide that if a pipeline ROW grant holder fails to replace any
deficient financial assurance upon demand or fails to provide
supplemental financial assurance upon demand, the Regional Director may
assess penalties, request BSEE to suspend operations on the pipeline
ROW, and/or initiate action for forfeiture of the pipeline ROW grant in
accordance with 30 CFR 250.1013.
Part 556--Leasing of Sulfur or Oil and Gas and Bonding Requirements in
the Outer Continental Shelf
The Department is finalizing, as proposed, a technical correction
to the authority citation for part 556 by removing the citation to 43
U.S.C. 1801-1802, because neither of these two sections contain
authority allowing BOEM to issue or amend regulations.
The final rule also removes, as proposed, the citation to 43 U.S.C.
1331 note which is where the Gulf of Mexico Energy Security Act of 2006
(GOMESA) is set forth. While this statute required BOEM to issue
regulations concerning the availability of bonus or royalty credits for
exchanging eligible leases, the deadline for applying for such a bonus
or royalty credit was October 14, 2010; therefore, lessees may no
longer apply for such credits. BOEM no longer needs the authority to
issue regulations under that statute and has removed all regulations on
this topic from part 556, except section 556.1000, which provides that
lessees may no longer apply for such credits.
Additionally, the terms ``bond,'' ``bonding,'' and ``surety bond''
are replaced throughout this part with the new term ``financial
assurance.'' The Department is finalizing, as proposed, the revision to
the part 556 heading to update the spelling of sulfur and to replace
``bonding'' with ``financial assurance.''
Subpart A--General Provisions
Section 556.104 Information Collection and Proprietary Information
The Department is finalizing the removal of an incorrect phone
number and email address in paragraph (a)(4). This is a technical
correction, consistent with the content of other subparts, that was
discovered after publication of the proposed rule and does not change
the intent of the paragraph.
Section 556.105 Acronyms and Definitions
The Department is finalizing, as proposed, and as discussed in
section III.G of this preamble, the new terms ``Assign'' and
``Transfer'' and associated definitions to clarify that these terms are
used interchangeably throughout the part. This change also serves to
clarify that the related terms ``assignee'' and ``assignor'' are
interchangeable with ``transferee'' and ``transferor'' respectively.
The Department is finalizing the removal of ``GOMESA'' from the
acronym list in paragraph (a) as discussed above. The final rule
removes the citation to 43 U.S.C. 1331 note which is the only reference
to GOMESA in part 556.
The Department is finalizing, as proposed, and as discussed in
section III.G of this preamble, amendments to the definition of
``Right-of-Use and Easement (RUE)'' to include the words
[[Page 31568]]
``to construct, secure to the seafloor, use, modify, or maintain
platforms, seafloor production equipment.'' This amended definition is
the same as the definition of ``Right-of-Use and Easement'' finalized
in Sec. 550.105.
The Department is finalizing revisions to the definition of
``Eastern Planning Area'' as proposed to remove the acronym ``EPA''
which can be confused with the United States Environmental Protection
Agency (U.S. EPA). The Department is not finalizing the proposed
removal of the rest of the first sentence in the existing definition to
retain consistency with the definitions for ``Central Planning Area''
and ``Western Planning Area,'' which were not changed in the proposed
rulemaking.
The Department is finalizing, as proposed, and as discussed in
section III.G of this preamble, the addition of a new term and
definition for ``Financial assurance'' to clarify that various methods
can be used to ensure compliance with OCS obligations. This definition
is the same as the definition of ``Financial assurance'' finalized in
Sec. 550.105.
The Department is finalizing, as proposed, and as discussed in
sections III.D and III.G of this preamble, the addition of a new term
and definition for ``Investment grade credit rating'' to 30 CFR part
556.
The Department is finalizing, as discussed in section III.G of this
preamble, the addition of the new term ``Issuer credit rating'' and its
corresponding definition, as revised based on public comment as: ``a
credit rating assigned to an issuer of corporate debt by S&P Global
Ratings, by Moody's Investors Service Inc., by Fitch Ratings, Inc., or
by another nationally recognized statistical rating organization, as
that term is defined in section 3(a)(62) of the Securities Exchange Act
of 1934.''
The Department is adding the definition of ``Predecessor,'' as
proposed in the 2020 proposed rule and as discussed in section III.B of
this preamble, to describe the prior owners who share liability with
the current owners.
The Department is finalizing, as proposed, the removal of the term
and definition of ``Security or securities,'' as these terms have been
replaced with ``financial assurance'' throughout parts 556 and 550 for
regulatory consistency. Additionally, the Department is finalizing, as
proposed, and discussed in section III.G of this preamble, the
revisions to the definition of ``You.'' This definition is the same as
the definition of ``You'' finalized in Sec. 550.105.
Subpart G--Transferring All or Part of the Record Title Interest in a
Lease
Section 556.703 What is the effect of the approval of the assignment of
100 percent of the record title in a particular aliquot(s) of my lease
and of the resulting lease segregation?
The Department is removing ``bonding'' from paragraph (a) as a non-
substantive change identified after proposal to be consistent with its
replacement by the term ``financial assurance'' throughout the subpart.
Section 556.704 When may BOEM disapprove an assignment or sublease of
an interest in my lease?
The Department is finalizing, as proposed, revisions to paragraph
(a)(1) to clearly state that BOEM may disapprove an assignment or
sublease when the transferor, transferee, or sublessee is not in
compliance with all applicable regulations and orders, including
financial assurance requirements. Similarly, this rule replaces the
word ``would'' in the section heading with ``may'' to better reflect
this discretion. Additionally, BOEM is non-substantively revising
paragraph (a)(2) to remove the ``etc.'' in the parenthetical as it is
not necessary since the parenthetical is a list of examples.
Subpart H--Transferring All or Part of the Operating Rights in a Lease
Section 556.802 When may BOEM disapprove the transfer of all or part of
my operating rights interest?
The final rule revises paragraph (a) to clearly state that BOEM may
disapprove a transfer of operating rights in a lease if the transferee
is not in compliance with all applicable regulations and orders,
including financial assurance requirements. This final rule also
replaces the word ``would'' in the section heading with ``may'' to
better reflect this discretion. Additionally, BOEM is non-substantively
revising paragraph (b) to remove the ``etc.'' in the parenthetical as
it is not necessary since the parenthetical is a list of examples.
Subpart I--Financial Assurance
Section 556.900 Financial Assurance Requirements for an Oil and Gas or
Sulfur Lease
The Department is finalizing, as proposed, revisions to the section
heading to read, ``Financial assurance requirements for an oil and gas
or sulfur lease'' to ensure that the term ``bonding'' has been
consistently replaced with ``financial assurance'' and to clarify that
a number of forms of financial assurance can be provided, not just
surety bonds. The Department is also finalizing the heading of subpart
I to remove ``Bonding or Other'' consistent with the replacement of
``bonding'' with ``financial assurance.''
The Department is finalizing the addition of what was proposed as
paragraph (a)(4) to make clear that any supplemental financial
assurance required by the Regional Director must be provided before a
new lease will be issued or an assignment of a lease approved. However,
to avoid confusion in how to apply existing paragraphs (a)(1) through
(3), BOEM has moved this language to the introduction of paragraph (a)
to note that it is required in addition to any one of paragraphs (a)(1)
through (3). BOEM's modified language in paragraph (a) also addresses a
concern by a commenter that asserted ``the proposed provision makes no
sense at the lease issuance stage because supplemental financial
assurance can only be required after approved lease exploration or
production activities commence.''
The Department is finalizing, as proposed, revisions to the
introductory text in paragraph (g) to replace the word ``security''
with ``financial assurance,'' and to add the word ``surety'' before
``bond'' in two places to clarify that in those cases the regulation is
referring to a ``surety bond.''
The Department is finalizing, as proposed, revisions to the
introductory text in paragraph (h) to replace the words ``additional
bond coverage'' with ``supplemental financial assurance'' to clarify
that surety bonds are not the only means of meeting the requirement.
The final rule also revises paragraph (h)(2) in recognition that BSEE,
rather than BOEM, is the agency with authority to suspend production or
other operations on a lease.
Finally, the Department is finalizing, as proposed, the addition of
paragraph (i) to ensure consistency with the RUE financial assurance
requirements by providing that area-wide lease surety bonds pledged to
satisfy the financial assurance requirements for RUEs under Sec.
550.166 may be called for performance of obligations arising from a RUE
on which the holder of a RUE defaults.
Section 556.901 Base and Supplemental Financial Assurance
The Department is finalizing, as proposed, revisions to the section
heading to read, ``Base and Supplemental Financial Assurance,'' because
this section covers both base financial assurance and supplemental
financial assurance requirements.
[[Page 31569]]
The Department is finalizing, as proposed, revisions to the
introductory text of paragraph (a) to replace the word ``bonds'' with
``financial assurance'' for consistency with the terminology amendments
in this subpart. The Department is also revising paragraph (a)(1)(i)
introductory text to replace the word ``bond'' with ``lease exploration
financial assurance'' for consistency with the terminology used in
existing paragraph (a)(1)(ii) (lease exploration bond).
The Department is finalizing, as proposed, the elimination of the
parenthetical ``(the lessee)'' from the paragraph (b) introductory text
as it is made redundant by the definition of ``You.'' The Department is
also finalizing, as proposed, revisions to the paragraph (b)(1)(i)
introductory text to replace the word ``bond'' with ``lease development
financial assurance'' for consistency with the terminology used in
existing paragraph (b)(1)(ii), which is not being changed.
The Department is finalizing, as proposed, revisions to paragraph
(c) to remove the words ``authorized officer'' and replace them with
``Regional Director,'' and to remove the words ``lease bond coverage''
and ``a lease surety bond'' and replace them in each instance with
``financial assurance'' to clarify that the Regional Director can
review whether BOEM would be adequately secured by a surety bond, or
another type of financial assurance, for an amount less than the amount
prescribed in paragraph (a)(1) or (b)(1), but not less than the amount
of the cost for decommissioning.
The Department in the final rule is, as proposed, combining the
provisions of the existing paragraph (d) introductory text and the
existing paragraph (d)(1) to provide that the Regional Director may
determine that supplemental financial assurance is required to ensure
compliance with the obligations, including decommissioning obligations,
under a lease and the applicable regulations if the lessee does not
meet at least one of the criteria provided in new paragraphs (d)(1)
through (4).
The Department is finalizing, as proposed, the addition of a new
paragraph (d)(1) to set forth the criterion BOEM would use to evaluate
the ability of a lessee to carry out present and future obligations.
Under this paragraph, BOEM will use an investment grade issuer credit
rating from a NRSRO, as defined by the SEC, greater than or equal to
either BBB- from S&P Global Ratings or Fitch Ratings Inc., or Baa3 from
Moody's Investor Service Inc., or the equivalent rating from another
NRSRO. If different SEC-recognized NRSROs provide different ratings for
the same company, BOEM will apply the highest rating.
As discussed in section III of this preamble, the Department is
finalizing the addition of a new paragraph (d)(2) that states that BOEM
can also use a proxy credit rating calculated by BOEM based on audited
financial information from the most recent fiscal year (including an
income statement, balance sheet, statement of cash flows, and the
auditor's certificate) greater than or equal to either BBB- from S&Ps
Global Ratings or Fitch Ratings Inc., or Baa3 from Moody's Investor
Service Inc., or their equivalent from another NRSRO. The proxy credit
ratings that BOEM will calculate on behalf of lessees will be
structured in the same scale as the standard ratings (i.e., AAA to D).
The audited financial information from the most recent fiscal year that
BOEM uses to determine the proxy credit rating must be from a
continuous 12-month period within the 24-month period prior to the
lessee's receipt of the Regional Director's determination that the
lessee must provide supplemental financial assurance. When determining
a proxy credit rating, the Regional Director will consider all
liabilities that may encumber a lessee's ability to carry out future
obligations. Under the final rule in Sec. 556.901(d)(2)(ii), the
lessee is obligated to provide the Regional Director with information
regarding its joint-ownership interests and other liabilities
associated with OCS leases, which might not otherwise be accounted for
in the audited financial information provided to BOEM.
The Department is finalizing revisions to paragraph (d)(3) to
address the situation where the lessee does not meet the criterion in
paragraph (d)(1) or (2), but one or more co-lessees or co-grant holders
meet the criterion. The Regional Director may require a lessee to
provide supplemental financial assurance for decommissioning
obligations if no co-lessee or co-grant holder has an issuer credit
rating or proxy credit rating that meets the threshold set forth in
paragraph (d)(1) or (2). In response to comments, BOEM has revised new
paragraph (d)(3) to make clear that the presence of such co-lessee or
co-grant holder will allow the Regional Director to not require
financial assurance from a current lessee only to the extent that the
current lessee and that co-lessee or co-grant holder shares accrued
liabilities.
The Department is finalizing the addition of a new paragraph (d)(4)
to set forth the methodology the Regional Director would use to
determine proved reserves if the lessee does not meet the criteria in
paragraph (d)(1), (2), or (3). In this instance, the Regional Director
will assess each lease, unit, or field to determine whether the value
of the discounted proved oil and gas reserves on the lease exceeds
three times the undiscounted estimated cost of the decommissioning
associated with the production of those reserves. Under paragraph
(d)(4), the Regional Director's assessment will be based on the
evaluation of proved oil and gas reserves following the methodology set
forth in SEC Regulation S-X at 17 CFR 210.4-10 and SEC Regulation S-K
at 17 CFR 229.1200. BOEM received multiple comments requesting BOEM
allow the proved oil and gas reserve analysis to be based on a unit or
field basis, and to clarify when values are discounted and when they
are undiscounted in the calculation; BOEM has added clarifications in
paragraph (d)(4) to address these comments (e.g., including the field
or unit basis, and stating that undiscounted cost estimates will be
used).
The Department is also finalizing the addition of new paragraphs
(d)(4)(i) and (ii), which state that, when implementing this reserves
criterion, BOEM will use decommissioning cost estimates, including a
BSEE-generated probabilistic estimate at the P70 level when available,
or, if such estimate is not available, BOEM will use the BSEE-generated
deterministic estimate.
The Department is finalizing, as proposed, redesignation of
existing paragraph (d)(2) as paragraph (e) and revisions to provide
that a lessee may satisfy the Regional Director's demand for
supplemental financial assurance either by increasing the amount of its
existing financial assurance or by providing additional surety bonds or
other types of acceptable financial assurance.
The Department is finalizing redesignation of existing paragraph
(e) as paragraph (f) and revisions to remove the word ``bond'' and
replace it with ``supplemental financial assurance,'' a term that
includes a surety bond or another type of financial assurance. As
discussed in section III.B of this preamble, the Department is
finalizing the use of the BSEE P70 decommissioning probabilistic
estimate to determine the amount of supplemental financial assurance
required to guarantee compliance when there are insufficient reserves
or no current lessee or co-lessee that meets the criterion in Sec.
556.901(d)(1) or (2). The Department is finalizing, as proposed, the
inclusion of the language from existing paragraph (e) in new paragraph
(f) to establish that, in determining the
[[Page 31570]]
amount of supplemental financial assurance, the Regional Director will
consider the lessee's potential underpayment of royalty and cumulative
decommissioning obligations.
The Department is finalizing, as proposed, redesignation of
existing paragraph (f) as paragraph (g) and revisions to replace the
words ``bond'' and ``surety'' with ``financial assurance'' throughout.
Existing regulation 30 CFR 556.901(f)(2) includes a statement to the
effect that, if a company requests a reduction of the amount of the
original bond required, the Regional Director may agree to such a
reduction provided that he or she finds that ``the evidence you submit
is convincing.'' The Department is finalizing, as proposed, the
replacement of this less prescriptive regulatory text with new
paragraph (g)(2) that states an entity must submit evidence to the
Regional Director that demonstrates that the projected amount of
royalties due to the United States Government and the estimated costs
of decommissioning are less than the required financial assurance
amount. Additionally, through the same process, BOEM will allow an
entity to request a reduction if it opposes the amount of a proposed
increase in the amount of financial assurance required.
The Department is finalizing the addition of new paragraph (h) to
describe the limited opportunity lessees will have to provide the
required supplemental financial assurance in phased installments during
the first 3 years after the effective date of this regulation, subject
to the conditions of paragraphs (h)(1) and (2). The Department proposed
and is finalizing a 3-year approach, as discussed in section III.E of
this preamble, which is appropriate to mitigate potentially significant
risk to companies and to provide adequate time for the bonding market
to adjust. Additionally, this approach reduces the immediate regulatory
burden on lessees and grant holders that are required to provide
financial assurance as a result of this rule, which are likely to
mainly be small businesses.
The Department is finalizing the addition of new paragraphs
(h)(1)(i) through (iii) to establish the timing and amounts of phased
supplemental financial assurance that would need to be provided.
Submissions would be required in three installments of one-third of the
demand each, the first of which would be required within the timeframe
specified in the demand letter, or within 60 calendar days of receiving
the demand letter if no timeframe is specified. The second one-third
would be required within 24 months from the date of receipt of the
original demand letter, and the final installment would be due within
36 months from the date of the receipt of the original demand letter.
Additionally, the Department is finalizing, as proposed, the
addition of new paragraph (h)(2) to establish a procedure in case a
demand that has been approved for phased compliance is not met within
the timeframes established by paragraphs (h)(1)(i) through (iii). If a
phased compliance deadline under paragraphs (h)(1)(i) through (iii) is
missed, the Regional Director will notify the party of the failure to
meet the timeframe and that it will no longer be eligible to meet the
supplemental financial assurance demand by using the phased compliance
option set forth in paragraph (h). Moreover, the remaining balance of
the demand will become due ten calendar days after the Regional
Director's notification is received.
Section 556.902 General Requirements for Bonds or Other Financial
Assurance
The Department is finalizing, as proposed, revisions to the section
heading to read, ``General requirements for bonds or other financial
assurance,'' to recognize that other types of financial assurance, such
as a dual-obligee bond or a pledge of Treasury securities, may be
provided under part 556. These amendments clarify that the same general
requirements for financial assurance provided by lessees, operating
rights owners, or operators of leases also apply to financial assurance
provided by RUE grant and pipeline ROW grant holders. The final rule
also revises paragraph (a), as proposed, to include ``grant holder''
and ``record title holder'' and to cover financial assurance provided
under 30 CFR part 550. The requirements of this section are those that
apply broadly to all types of financial assurance provided to BOEM for
oil and gas activities on a lease or grant. Additional requirements
applicable specifically to RUEs and ROWs are described in Sec. Sec.
550.166 and 550.1011, respectively.
The Department is finalizing, as proposed, the addition of ``or
grant'' after ``lease'' to clarify the change to include grant holders
in paragraph (a)(2). The rule also adds compliance with ``all BOEM and
BSEE orders'' as a requirement. Additionally, the final rule revises
proposed paragraph (a)(3) to include the obligations of all record
title owners, operating rights owners, and operators on the lease,
except as stated in Sec. 556.905(b) and to add ``all grant-holders on
a grant.''
The Department is finalizing, as proposed, a revision to paragraph
(e)(2) to clarify that the use of Treasury securities as financial
assurance requires a pledge of Treasury securities, as provided in
Sec. 556.900(f).
The Department is finalizing, as proposed, the addition of new
paragraph (g) to recognize the option to seek an informal resolution of
a surety bond demand pursuant to Sec. 590.6. This paragraph further
provides that a request for an informal resolution of a dispute
concerning the Regional Director's decision to require supplemental
financial assurance will not affect the applicant's ability to request
a phased payment of its supplemental financial assurance demand under
Sec. 556.901(h).
The Department is finalizing, as proposed, the addition of a new
paragraph (h) to address risks arising in connection with the lessee's
and grant holder's ability to stay the demand during an appeal of a
demand for supplemental financial assurance to the IBLA pursuant to the
regulations in 30 CFR part 590. The rule adds an additional requirement
to the IBLA appeals process whereby if an appellant requests that the
IBLA stay the supplemental financial assurance demand, the appellant
will be required to post an appeals surety bond equal to the amount of
supplemental financial assurance that the appellant seeks to stay
before any stay can go into effect. Because IBLA appeals may continue
for several years, it is important that BOEM ensure that the
government's and taxpayers' interests are protected during the appeal.
The appeal surety bond requirement will prevent the government from
being left with inadequate security if the appellant files bankruptcy
before the appeal process ends.
Section 556.903 Lapse of Financial Assurance
The Department is finalizing, as proposed, the replacement of the
word ``bond'' in the section heading with ``financial assurance'' for
consistency with the terminology change made throughout the subpart.
The final rule revises paragraph (a) to add after the word ``surety,''
``guarantor, or the financial institution holding or providing your
financial assurance'' and to include references to the financial
assurance requirements for RUE grants (Sec. 550.166) and pipeline ROW
grants (Sec. 550.1011). The final rule also revises, as proposed,
paragraph (a) by removing the words ``terminates immediately'' and
substituting the words ``must be replaced.'' The final rule, in
paragraph
[[Page 31571]]
(a), replaces the word ``promptly'' with a specific timeline of within
72 hours of learning of a negative event for the financial assurance
provider and also adds a 30-calendar day timeframe in which the party
must provide other financial assurance from a different financial
assurance provider.
The Department is also finalizing, as proposed, a revision to the
first sentence of paragraph (b) by inserting ``or financial
institution'' after ``guarantor,'' to make the provision apply to all
types of financial assurance providers, including those offering
decommissioning accounts. BOEM is revising the second sentence of
paragraph (b) for consistency in terminology by inserting the words
``or other financial assurance'' after the word ``bonds'' and inserting
the words ``guarantor, or financial institution'' after the word
``surety,'' so that all surety bonds or other financial assurance
instruments must require all financial assurance providers to notify
the Regional Director within 72 hours of learning of an action filed
alleging that the lessee or grant holder, or their financial assurance
provider, is insolvent or bankrupt.
Section 556.904 Decommissioning Accounts
The Department is finalizing, as proposed, the revision of both the
section heading and the term ``abandonment accounts'' throughout the
section to read ``decommissioning accounts,'' in accordance with BOEM
policy and accepted terminology used in the industry. The words
``lease-specific'' are removed throughout this section to make clear
that a decommissioning account can be used for a lease or several
leases, a RUE grant, or a pipeline ROW grant, or a combination thereof.
The Department is finalizing, as proposed, revisions to paragraph
(a) to remove the term ``lease-specific'' and replace ``abandonment''
with ``decommissioning,'' and the addition of references to the lease
base and supplemental financial assurance regulation (Sec.
556.901(d)), as well as the financial assurance regulations for RUE
grants (Sec. 550.166(b)) and pipeline ROW grants (Sec. 550.1011(d)),
consistent with the changes mentioned in the preceding paragraph.
Although the paragraph (a) introductory text continues to allow a
lessee or grant holder to establish a decommissioning account at a
federally insured financial institution, this final rule eliminates the
existing restriction that such deposits not exceed the FDIC/FSLIC
insurance limits and the reference to paragraph (a)(3), which is being
revised and is no longer relevant to withdrawal of funds from a
decommissioning account.
The final rule, as proposed, re-arranges the existing sentence
constituting Sec. 556.904(a)(1). The rule also revises paragraph
(a)(2) to remove the words ``as estimated by BOEM'' to clarify that
BOEM does not estimate decommissioning costs, but rather uses the
estimates of decommissioning costs determined by BSEE. The final rule
also revises paragraph (a)(2) to require funding of a decommissioning
account ``pursuant to a schedule that the Regional Director
prescribes,'' as opposed to ``within the timeframe the Regional
Director prescribes'' as existing Sec. 556.904(a)(2) now states.
The Department is finalizing revisions to paragraph (a)(3) as
proposed to remove the requirement to provide binding instructions to
purchase Treasury securities for a decommissioning account under
certain circumstances. The final rule replaces the existing language
with a new provision providing that if you fail to make the initial
payment or any scheduled payment into the decommissioning account, or
if you fail to correct a missed payment within 30 days, you must
immediately submit, and subsequently maintain, a surety bond or other
financial assurance in an amount equal to the remaining unsecured
portion of your estimated decommissioning liability. This change
reflects BOEM's current policy to order a surety bond or other
financial assurance in the event the payments into the decommissioning
account are not timely made.
The Department is finalizing, as proposed, revisions to paragraph
(b) by removing ``lease-specific'' and substituting ``decommissioning''
and to clarify that the interest paid on funds in the account will
become part of the principal funds in the account unless the Regional
Director authorizes, in writing, the payment of the interest to the
party who deposits the funds.
The Department is finalizing, as proposed, the removal of existing
paragraphs (c) and (d), which discuss the use of pledged Treasury
securities to fund a decommissioning account. Existing paragraph (e) is
redesignated as paragraph (c) except that the word ``pledged'' is
removed, and ``other revenue stream'' is added to the list of optional
sources for funding the account. In response to comments asserting that
parties may elect to dedicate production to fund decommissioning
accounts even if the Regional Director does not ``require'' them, the
Department is adding to new paragraph (c) that the Regional Director
may ``authorize,'' in addition to ``require,'' the optional funding
sources.
The Department is finalizing the addition of new paragraph (d) with
minor edits from the proposal, which describes the Regional Director's
discretion to authorize BOEM to provide funds from a decommissioning
account to a party that performs the decommissioning in response to a
BOEM or BSEE order.
Section 556.905 Third-Party Guarantees
The Department is finalizing, as proposed, revisions to the section
heading to read, ``Third-party guarantees.'' The final rule also
revises the section throughout to remove the introductory titles of
each paragraph to provide consistency in the format of the final
regulatory text.
The Department is finalizing, as proposed, revisions to paragraph
(a) to reference Sec. 556.901(d) (related to lease financial
assurance), and to cross-reference Sec. 550.166(b) (related to RUEs)
and 550.1011(d) (related to pipeline ROWs), to clarify that a third-
party guarantee may be used as a type of supplemental financial
assurance for not only leases, but RUE grants and pipeline ROW grants
as well.
The Department is also finalizing, as proposed, revisions to
paragraph (a)(1) to clarify that the guarantor, not the guarantee, as
provided in the existing regulation, must meet the criteria in Sec.
556.901(d)(1) or (2), as applicable. BOEM retains existing paragraph
(a)(2), but revises it to include a requirement, which is found in
existing paragraph (a)(4), that the guarantor or guaranteed party must
submit a third-party guarantee agreement containing each of the
provisions in proposed paragraph (d). As discussed below, paragraph (d)
is revised to no longer use the term ``indemnity agreement'' and to
provide instead that the provisions that BOEM previously required a
lessee or grant holder to include in indemnity agreements must be
included in a third-party guarantee agreement. This terminology is
changed to clarify that the government is not required to incur the
expenses of decommissioning before demanding compensation from the
guarantor. The rule also removes existing paragraphs (a)(3) and (4),
which are superseded by other revisions to this section.
The Department is finalizing the proposed new paragraph (b) with
edits to allow guarantors to limit their guarantees to a fixed dollar
amount, as agreed to by BOEM at the time the third-party guarantee is
provided. In response
[[Page 31572]]
to comments, the Department is also finalizing additional regulatory
text in new paragraph (b) to allow a guarantor, as agreed to by BOEM at
the time the third-party guarantee is provided, to limit a guarantee's
coverage to one or more specific lease obligations with no fixed dollar
amount, notwithstanding Sec. 556.902(a)(3).
The Department is finalizing, as proposed, redesignation of
existing paragraph (b) as paragraph (c) and revisions to the
introductory text to remove the reference to existing paragraph (c)(3)
because the requirements in that paragraph have been superseded in this
rule. The final rule replaces this reference with a reference to
paragraph (a)(1) as revised. Because the cessation of production is
neither desirable nor easily accomplished by an operator, this rule
also revises existing paragraph (b)(2) to remove the requirement that,
when a guarantor becomes unqualified, you must ``cease production until
you comply with the surety bond coverage requirements of this
subpart.'' Instead, the language in revised redesignated paragraph (c)
provides that you must, within 72 hours, ``[s]ubmit, and subsequently
maintain a surety bond or other financial assurance covering those
obligations previously secured by the third-party guarantee.''
Additionally, the final rule removes existing paragraph (c) as the
language has been superseded by the new language in Sec. 556.905(a).
The Department is finalizing, as proposed, revisions to the
paragraph (d)(1) introductory text to read ``If you fail to comply with
the terms of any lease or grant covered by the guarantee, or any
applicable regulation, your guarantor must either:'' This revision is
made for consistency with the revision of paragraph (a) to allow the
use of a third-party guarantee for a RUE grant or a pipeline ROW grant.
Additionally, the rule revises, as proposed, paragraph (d)(1)(i) to
clarify that the corrective action required is to bring the lease or
grant into compliance with its terms, or any applicable regulation, to
the extent covered by the guarantee. The rule also revises paragraph
(d)(1)(ii) to clarify that the liability only extends to that covered
by the guarantee and that payment of some amount less than the whole of
the guarantee does not result in the cancellation of the guarantee, but
rather a reduction in the remaining value of the guarantee equal to the
payment made.
The rule removes existing paragraph (d)(2) for consistency with the
revision to remove existing paragraph (c), as proposed. As a result,
existing paragraph (d)(3) is redesignated as paragraphs (d)(2) and (4)
is redesignated as paragraph (d)(3). The rule revises, as proposed, the
redesignated paragraphs (d)(2)(ii) and (iii) to remove the words ``your
guarantor's'' and replace them with the word ``the'' to clarify that
redesignated paragraph (d)(2) applies to the guarantee itself. Lastly,
as proposed, the rule revises redesignated paragraph (d)(3) to replace
the term ``a suitable replacement financial assurance'' with
``acceptable replacement financial assurance'' for clarity. The rule
revises the paragraph so that it is clear that any replacement
financial assurance must be provided before the termination of the
period of liability of the third-party guarantee.
The Department is finalizing, as proposed, a new paragraph (e) to
provide that BOEM will cancel a third-party guarantee under the same
terms and conditions as those in revised Sec. 556.906(b) and/or
(d)(3).
The Department is finalizing the addition, as proposed, of new
paragraphs (f) through (k) to replace the provisions of existing
paragraph (e). The new paragraphs mirror the provisions of existing
paragraph (e), while making minor adjustments to accommodate the new
format and add clarification. The term ``indemnity agreement'' would be
replaced with ``third-party guarantee agreement'' throughout.
Section 556.906 Termination of the Period of Liability and Cancellation
of Financial Assurance
The Department is finalizing, as proposed, the replacement of the
words ``security'' and ``surety bond'' with ``financial assurance'' and
``surety'' with ``financial assurance provider'' for consistency with
the changes throughout the subpart. The section heading is also revised
so that ``a bond'' is replaced with ``financial assurance.''
This final rule revises existing paragraph (b)(1) to remove the
word ``terminated'' in two instances and replace it with ``cancelled''
to be consistent with the existing paragraph (b) introductory text,
which provides that the Regional Director will cancel your previous
financial assurance when you provide a replacement, subject to the
conditions provided in paragraphs (b)(1) through (3). BOEM is also
removing the word ``for'' before ``by the bond'' in paragraph (b)(1)
for grammatical reasons.
The Department is finalizing, as proposed, revisions to existing
paragraph (b)(2) to add cross-references to Sec. 550.166(a), which is
the financial assurance regulation for RUE grants, and Sec.
550.1011(a), which is the financial assurance regulation for pipeline
ROW grants, and revising existing paragraph (b)(3) to also reference
supplemental financial assurance regulations for RUE grants (Sec.
550.166(b)) and pipeline ROW grants (Sec. 550.1011(d)). The Department
is finalizing the deletion of the word ``base'' in front of financial
assurance to clarify that the new financial assurance would replace
whatever financial assurance previously existed, whether that financial
assurance consisted of base financial assurance alone or together with
any prior supplemental financial assurance.
The Department is finalizing, as proposed, revisions to the
introductory text of paragraph (d) to cover financial assurance
cancellations and return of pledged security and, in the table, is
removing the middle column titled, ``The period of liability will
end,'' because it was redundant with the provisions in proposed
paragraphs (a) through (c).
In table 1 to paragraph (d), the Department is finalizing revisions
to the column headers. In the existing column in the table titled,
``For the following type of bond,'' BOEM is removing the words ``type
of bond'' and replacing those words with a colon at the top of the
table so that this paragraph would apply to surety bonds or other
financial assurance, as applicable. The existing column in the table
titled, ``Your bond will be cancelled,'' is revised to read, ``Your
financial assurance will be reduced or cancelled, or your pledged
financial assurance will be returned,'' to clarify that financial
assurance may be reduced or cancelled and pledged financial assurance,
or a portion thereof, may be returned, and to specify other
circumstances under which the Regional Director may cancel supplemental
financial assurance or return pledged financial assurance. While the
existing criteria identify most instances when cancellation of
financial assurance is appropriate, occasionally there are other
circumstances where cancellation would be warranted, as discussed in
the paragraphs below.
Paragraph (d)(1) in the table 1 to paragraph (d) is revised to
include a cross-reference to base financial assurance submitted under
Sec. Sec. 550.166(a) (for RUE grants) and 550.1011(a) (for pipeline
ROW grants). The Department is finalizing revisions to paragraph (d)(2)
in the same column to include a reference to supplemental financial
assurance submitted under Sec. Sec. 550.166(b) and 550.1011(d). The
rule allows cancellation when BOEM determines, using the criteria set
forth in Sec. 556.901(d), Sec. 550.166(b), or
[[Page 31573]]
Sec. 550.1011(d), as applicable, that a lessee or grant holder no
longer needs to provide supplemental financial assurance for its lease,
RUE grant, or pipeline ROW grant; when the operations for which the
supplemental financial assurance was provided ceased prior to accrual
of any decommissioning obligation; or when cancellation of the
financial assurance is appropriate because BOEM determines such
financial assurance never should have been required under the
regulations. Additionally, DOI is finalizing, as proposed, the addition
of a new paragraph (d)(3) in table 1 to paragraph (d) to address the
cancellation of a third-party guarantee.
The Department is finalizing, as proposed, revisions to the
introductory text in paragraph (e) to remove the words ``or release''
because the term ``release'' is undefined and not used in practice.
Likewise, the rule removes the words ``or released'' from paragraph
(e)(2). No substantive change is intended; rather BOEM seeks to clarify
the meaning of the existing provision. Additionally, the Department is
finalizing the revisions of paragraph (e) to reference RUE grants and
pipeline ROW grants to provide that the Regional Director may reinstate
the financial assurance on the same grounds as currently provided for
reinstatement of lease financial assurance.
Section 556.907 Forfeiture of Bonds or Other Financial Assurance
The rule revises the section heading to read, ``Forfeiture of bonds
or other financial assurance'' because the use of ``or'' is sufficient
in this instance. The rule revises paragraph (a)(1) to include surety
bonds or other financial assurance for RUE grants and pipeline ROW
grants, in addition to leases, in the forfeiture provisions of this
section. The Department is finalizing, as proposed, the clarification
in paragraph (a)(2) that the Regional Director may pursue forfeiture of
a surety bond or other financial assurance if you default on one of the
conditions under which the Regional Director accepts your bond, third-
party guarantee, and/or other form of financial assurance. Throughout
this section, BOEM adds references to a grant, a grant holder, and
grant obligations to implement the revisions in paragraph (a)(1). BOEM
is revising paragraph (a)(2) to replace ``other form of security'' with
``other form of financial assurance'' for consistent terminology.
The Department is finalizing, as proposed, revisions to paragraph
(b) to include surety bonds ``or other financial assurance'' so that
BOEM may pursue forfeiture of a surety bond or other financial
assurance. The word ``lessee'' is replaced with ``record title holder''
to clarify that the term includes record title holders in those
situations where operating rights are subleased.
The Department is finalizing, as proposed, revisions to paragraph
(c)(1) to include ``financial institution holding or providing your
financial assurance'' as one of the parties the Regional Director would
notify of a determination to call for forfeiture because a bank or
other financial institution may hold funds subject to forfeiture. This
rule revises paragraph (c)(1)(ii) to acknowledge limitations authorized
by Sec. 556.905(b) by more precisely stating that the Regional
Director will use an estimate of the cost of the corrective action
needed to bring a lease into compliance when determining the amount to
be forfeited, subject, in the case of a guarantee, to any limitation
authorized by Sec. 556.905(b). Additionally, BOEM is replacing
existing paragraphs (c)(2)(ii) and (iii) with a new paragraph
(c)(2)(ii) that specifies that to avoid forfeiture by promising to take
corrective action, any financial assurance provider would have to agree
to, and demonstrate that it will, complete the required corrective
action to bring the relevant lease into compliance within the timeframe
specified by the Regional Director, even if the cost of such compliance
exceeds the amount of the financial assurance. The amendments clarify
that existing paragraphs (c)(2)(ii) and (iii) apply to all forms of
financial assurance, including the caveat that corrective action must
be completed even if the cost of compliance exceeds the limit of the
financial assurance.
The Department is finalizing, as proposed, revisions to existing
paragraphs (d) and (e)(2) by replacing ``leases'' with ``lease or
grant'' to extend the applicability of these provisions to include RUE
and ROW grants.
Similarly, the Department is finalizing, as proposed, revisions to
paragraph (f)(1) to include ``grant'' as well as lease. The Department
is revising paragraph (f)(2) to clarify that BOEM may recover
additional costs from a third-party guarantor only to the extent
covered by the guarantee. This is consistent with the change made at
Sec. 556.905(b) to allow the use of limited third-party guarantees.
This rule also rewords paragraph (g) for clarity.
In some circumstances, predecessor lessees that have been notified
about the failure of their successor lessees to fulfill their
decommissioning obligations will initiate the requisite decommissioning
activities. In these cases, predecessor lessees or grantees are likely
to incur costs that could be funded from financial assurance posted
with BOEM on behalf of the current lessee. BOEM has finalized new
paragraph (h), as proposed, to make clear that BOEM may provide funds
collected from forfeited financial assurance to predecessor lessees or
grant holders or to third parties taking corrective actions on the
lease or grant.
Part 590--Appeal Procedures
Subpart A--Bureau of Ocean Energy Management Appeal Procedures
The Department is revising the heading of subpart A to remove the
outdated reference to ``Offshore Minerals Management.'' The heading now
reads ``Bureau of Ocean Energy Management Appeals Procedures'' to
reflect the current organization of the DOI more accurately. This
outdated reference was identified after the proposed rule was
published. This edit is not substantive and therefore was included in
this final rule.
Section 590.1 What is the purpose of this subpart?
The Department is revising the introductory text to remove the
outdated references to ``Offshore Minerals Management (OMM) decisions''
and to correct prior erroneous text that stated the decisions and
orders which are being appealed under part 590 are issued under
subchapter C. The outdated reference and erroneous text were identified
after the proposed rule was published. This edit is not substantive and
therefore was included in this final rule.
Section 590.2 Who may appeal?
The Department is revising the introductory text to remove the
outdated reference to ``OMM officials'' and to correct that the
decisions and orders which are being appealed under part 590 are not
issued under subchapter C. The outdated reference and erroneous text
were identified after the proposed rule was published. This edit is not
substantive and therefore was included in this final rule.
Section 590.3 What is the time limit for filing an appeal?
The Department is revising the introductory text to remove the
outdated reference to ``OMM official's final decision'' and replacing
it with the correct reference to ``BOEM.'' This outdated reference was
identified after the proposed rule was published. This edit is not
substantive and therefore was included in this final rule.
[[Page 31574]]
Section 590.4 How do I file an appeal?
The Department is revising paragraph (a) to remove the outdated
reference to ``OEMM officer'' and replacing it with the correct
reference to ``BOEM.'' This outdated reference was identified after the
proposed rule was published. This edit is not substantive and therefore
was included in this final rule.
The Department is finalizing, as proposed, the addition of
paragraph (c) to specify that, while a demand for supplemental
financial assurance may be appealed to the IBLA, a stay can only be
granted if an appeal surety bond for an amount equal to the demand is
posted. This is intended to mitigate the risk to the government that,
after the appeal is decided, a company will be unable to perform its
obligations because of its financial deterioration during pendency of
the appeal.
Section 590.7 Do I have to comply with the decision or order while my
appeal is pending?
The Department is revising paragraphs (a)(1) and (b) to remove the
outdated reference to ``OMM'' and replacing it with the correct
reference to ``BOEM.'' This outdated reference was identified after the
proposed rule was published. This edit is not substantive and therefore
was included in this final rule.
Section 590.8 How do I exhaust my administrative remedies?
The Department is revising paragraph (a) to remove an erroneous
reference that previously stated that the decisions and orders, which
are being appealed under part 590, are issued under subchapter C.
VI. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review, as Amended by
Executive Order 14094: Modernizing Regulatory Review, and Executive
Order 13563: Improving Regulation and Regulatory Review
E.O. 12866, as amended by E.O. 14094, provides that the Office of
Information and Regulatory Affairs (OIRA) in the Office of Management
and Budget (OMB) will review all significant rules. OIRA has determined
that this rule is a significant action under E.O. 12866, as amended by
E.O. 14094, sec. 3(f)(1). This rulemaking will result in an annual
effect on the economy of $200 million or more (adjusted every 3 years
by the Administrator of OIRA for changes in gross domestic product).
E.O. 13563 reaffirms the principles of E.O. 12866, as amended by
E.O. 14094, while calling for improvements in the Nation's regulatory
system to promote predictability and reduce uncertainty, and to use the
best, most innovative, and least burdensome tools for achieving
regulatory ends. E.O. 13563 directs agencies to consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public where these approaches are relevant, feasible,
and consistent with regulatory objectives. BOEM has developed this rule
in a manner consistent with these requirements.
BOEM prepared an analysis of the potential costs and benefits
associated with this action, which are described in the following OMB
Circular A-4 Accounting Statement. For further discussion, this
analysis, Risk Management and Financial Assurance for OCS Lease and
Grant Obligations Regulatory Impact Analysis, is available in the
docket and is summarized in sections IV.B and IV.C of this preamble.
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B. Regulatory Flexibility Act (RFA)
The RFA, 5 U.S.C. 601-612, requires agencies to analyze the
economic impact of regulations when a significant economic impact on a
substantial number of small entities is likely and to consider
regulatory alternatives that will achieve the agency's goals while
minimizing the burden on small entities. Pursuant to sections 603 and
609(b) of the RFA, BOEM prepared an initial regulatory flexibility
analysis (IRFA) for the proposed rule that examined the impacts of the
proposed rule on small entities, along with regulatory alternatives
that could minimize that impact. A summary of the IRFA is presented in
the proposed rule at 88 FR 42157 and was included in the docket for
public comment (Risk Management, Financial Assurance and Loss
Prevention Initial Regulatory Impact Analysis, Docket ID No. BOEM-2023-
0027-0002).
As required by section 604 of the RFA, BOEM prepared a final
regulatory flexibility analysis for this action. The analysis addresses
the issues raised by public comments on the IRFA for the proposed rule.
The complete analysis is available for review in the docket (Docket No.
BOEM-2023-0027) and is summarized here.
The final rule affects OCS lessees and RUE and pipeline ROW grant
holders; this includes approximately 391 companies with ownership
interests in OCS leases and grants, of which approximately 271 (69
percent) are considered small. Because all 391 companies are subject to
this final rule, BOEM expects the rule will affect a substantial number
of small entities.
Under this final rule, BOEM will consider the financial capacity of
all co-owners when determining the need for current lessees and grant
holders to provide supplemental financial assurance. If one of these
entities meets the issuer credit or BOEM proxy credit rating criteria,
BOEM will not require the current lessee or grant holder to provide
supplemental financial assurance. This will benefit financially strong
lessees or grant holders that meet the investment grade credit rating
criteria and lessees and grant holders that do not meet the credit
rating criteria but are co-owners with investment grade co-lessees or
co-grant holders. Certain lessees or grant holders with less-than-
investment-grade credit ratings that are solely responsible for their
OCS liability (sole liability leases or grants) are already bonded
under the current regulations and these lessees will not be impacted.
BOEM's analysis assumes that such non-investment-grade lessees and
grant holders with non-investment-grade co-lessees or co-grant holders
that have avoided financial assurance under the current regulations
will be expected to provide financial assurance under this final rule.
BOEM's estimates indicate that small entities are responsible for $11.6
billion, or approximately 80 percent, of the current $14.6 billion
liability of non-investment-grade owners. Non-investment-grade small
entities holding joint and several liabilities with other such
companies will incur increased compliance burdens under the rule,
assuming they do not meet the minimum 3-to-1 ratio of the value of
proved reserves to decommissioning liability associated with those
reserves. This increased compliance burden will vary substantially by
entity; the burden is a function of the small entity's decommissioning
liability, reserves, and the price of the premiums paid for its
financial assurance. Based on the estimates in Table 7 of the RIA,
these premiums could exceed $258 per $1,000 of bond coverage for highly
speculative small entities.
The regulatory alternatives evaluated for the rule are discussed in
section VI (Analysis of Regulatory Alternatives) in the RIA and in
section XII.B of the preamble to the proposed rule (88 FR 42157). The
regulatory alternatives included both more stringent and less stringent
regulatory options, as well as a no action alternative for the proposed
rule. For the no action regulatory alternative, BOEM would continue the
current regulatory policies and partial implementation of NTL No. 2016-
N01. For the more stringent regulatory alternative, BOEM would fully
implement NTL No. 2016-N01, which would require supplemental financial
assurance from all lessees and grant holders with a credit rating less
than AA- without a financially strong co-owner or co-grant holder. For
the less
[[Page 31577]]
stringent regulatory alternative, BOEM would require supplemental
financial assurance for lessees with a credit rating less than BB- and
would waive requirements for those lessees if there was a financially
strong predecessor lessee.
Under BOEM's less stringent regulatory alternative, small entities
with a credit rating lower than BB- currently responsible for a
liability that has at least one investment-grade predecessor lessee
would benefit by avoiding the need to provide any supplemental
financial assurance. However, a regulatory framework permitting
financially weaker companies to forgo or delay the posting of
supplemental financial assurance may create a private cost advantage
for certain entities. This could distort competition and incentivize
financially weaker companies to incur investment risks for activities
they would otherwise not undertake.
BOEM has elected to maintain the proposed rule credit threshold of
investment grade (i.e., BBB-) rather than that of the less stringent
alternative (i.e., BB-) to reduce the potential risk imposed on
taxpayers from uncovered decommissioning liabilities.
Under the more stringent regulatory alternative in the proposed
rule, BOEM evaluated the full implementation of BOEM's 2016 NTL. In
this alternative (``Alternative 1''), more small businesses would be
required to provide supplemental financial assurance because all
companies rated A+ and below (S&P) would be required to provide
financial assurance to secure their OCS liabilities. BOEM determined
that this alternative would not meaningfully reduce risk in comparison
with the proposal and would result in significant new costs to
industry. Aside from the prior implementation issues with the NTL, the
2016 NTL did not consider risk reduction provided by reserves. As a
result, it would cost approximately $1 billion more in annual premiums,
and the additional coverage over the final rule would come from
investment grade companies that pose a much lower risk of default.
Because A+, A, and A- companies have very low default rates, and any
co-lessee or predecessor lessee would have responsibilities of covering
decommissioning, the small reduction in risk beyond what is provided in
the rule would not justify the cost of this regulatory alternative.
Under BOEM's proposed rule, all lessees without an investment-grade
co-lessee were required to provide financial assurance at the P70 level
if they did not meet the investment-grade credit rating threshold or
have a minimum value of proved reserves to decommissioning liability
ratio of 3-to-1. The Department is finalizing provisions that require
non-investment-grade lessees responsible for properties to provide
financial assurance at the P70 level (unless they qualify for the 3-to-
1 ratio of the value of proved reserves to decommissioning liability
associated with those reserves exemption).
BOEM has designed its financial assurance program to accommodate
small entities, while still fulfilling the goals of minimizing the risk
of noncompliance with regulations. BOEM's use of lessee and grant
holder issuer or proxy credit ratings and lease reserves for
determining whether financial assurance would be required creates a
performance standard rather than a prescriptive design standard for all
companies operating on the OCS.
Decommissioning obligations and the joint and several liability
framework for those obligations are not being changed with this rule.
BOEM will not categorically exempt or provide differing compliance
requirements for small entities. Categorically exempting small entities
from the provisions of this rule based on size would place the taxpayer
at unacceptable risk for assuming the decommissioning obligations of
small entities. BOEM will use a 3-year, phased compliance approach for
all lessees and grant holders to allow additional time to come into
compliance in the early years of the rule. This could include arranging
to secure financial assurance or suitable partnerships with stronger
parties to avoid the necessity of providing financial assurance.
Categorically providing small entities with more favorable compliance
timetables before requiring financial assurance unreasonably increases
risk due to the possible financial deterioration of a given company
during that time. BOEM's financial assurance criteria are designed, in
part, to provide BOEM ample time to intervene should a company's
financial position begin to deteriorate. It is foreseeable that a
company not meeting those criteria, but categorically granted
additional time to provide financial assurance, could deteriorate more
quickly than its compliance timetable and thus not be covered and able
to satisfactorily perform its obligations to the public.
C. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act (SBREFA), 5
U.S.C. 804(2), requires BOEM to perform a regulatory flexibility
analysis, provide guidance, and help small businesses comply with
statutes and regulations for major rulemakings. This action is subject
to the SBREFA because it has an annual effect on the economy of $100
million or more.
Small businesses are expected to face increased compliance costs
from this action, unless they have a financially strong co-lessee. BOEM
estimates that the annual compliance cost for small businesses is $421
million (discounted at 7 percent). BOEM must apply the same
requirements to all weak companies, regardless of size, in order to
ensure that the development of energy in the OCS is safe and protects
both the taxpayer and the environment. BOEM acknowledged that small
businesses may not have issuer credit ratings in the proposed rule (88
FR 42146) and proposed, and is finalizing, provisions allowing entities
without a credit rating to have the BOEM Regional Director assess a
proxy credit rating to address this issue. Additionally, these small
businesses can be evaluated on the proved reserves of their lease to
determine if they may be required to provide additional supplemental
financial assurance, also potentially reducing their financial burden.
Furthermore, a strong co-lessee will obviate the need for financial
assurance from the rest of the co-lessees on the lease. BOEM is also
including a phased-in implementation and removal of impediments to the
use of decommissioning accounts and third party guarantees to provide
flexibility and reduce the financial burden. BOEM is tasked with
ensuring that all lessee obligations in the OCS are met and believes
this rulemaking is necessary to address insufficient financial
resources available in the case of default.
For more information on the small business impacts, see the RFA
analysis and the discussion in section IV of this preamble. Small
businesses may send comments on the actions of Federal employees who
enforce or otherwise determine compliance with Federal regulations to
the Small Business and Agriculture Regulatory Enforcement Ombudsman,
and to the Regional Small Business Regulatory Fairness Board. The
Ombudsman evaluates these actions annually and rates each agency's
responsiveness to small business. If you wish to comment on actions by
employees of BOEM, call 1-888-REG-FAIR (1-888-734-3247).
D. Unfunded Mandates Reform Act (UMRA)
The UMRA, 2 U.S.C. 1531-1538, requires BOEM, unless otherwise
prohibited by law, to assess the effects
[[Page 31578]]
of regulatory actions on State, local, and Tribal governments, and the
private sector. Section 202 of UMRA generally requires BOEM to prepare
a written statement, including a cost-benefit analysis, for each
proposed and final rule with ``federal mandates'' that may result in
expenditures by State, local, and Tribal governments, in the aggregate,
or to the private sector, of $100 million or more in any one year. This
action contains a Federal mandate under UMRA, 2 U.S.C. 1531-1538, that
may result in expenditures of $100 million or more for State, local and
Tribal governments, in the aggregate, or the private sector in any one
year. Accordingly, BOEM has prepared a written statement required under
section 202 of UMRA. The statement is included in the RIA for this
action and briefly summarized here.
Because all anticipated private sector expenditures that may result
from the proposed rule are analyzed in the proposed rule RIA and in the
RIA for this final rule (i.e., expenditures of the offshore oil and gas
industry), these documents satisfy the UMRA requirement to estimate any
disproportionate budgetary effects of the rule on a particular segment
of the private sector. As explained in the final RIA, this final rule
is anticipated to have annualized net estimated compliance costs of
$559 million annually (7 percent discounting), but provides
strengthened financial assurance to protect taxpayers from the costs of
decommissioning offshore infrastructure. No comments on the UMRA
statement were received during the public comment period.
This action is not subject to the requirements of section 203 of
UMRA because it contains no regulatory requirements that might
significantly or uniquely affect small governments.
E. Executive Order 12630 Governmental Actions and Interference With
Constitutionally Protected Property Rights
Executive Order 12630, Governmental Actions and Interference with
Constitutionally Protected Property Rights, ensures that government
actions affecting the use of private property are undertaken on a well-
reasoned basis with due regard for the potential financial impacts
imposed by the government. This action does not affect a taking of
private property or otherwise have taking implications under E.O.
12630, and therefore, a takings implication assessment is not required.
Additionally, no comments were received on E.O. 12630 during the public
comment period.
F. Executive Order 13132 Federalism
Regulatory actions that have substantial direct effects on the
States, on the relationship between the National Government and the
States, or on the distribution of power and responsibilities among the
various levels of government are subject to E.O. 13132. Under the
criteria in section 1 of E.O. 13132, this final rule does not have
sufficient federalism implications to warrant the preparation of a
federalism summary impact statement. It will not have substantial
direct effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various levels of government. No comments
were received on E.O. 13132 during the public comment period.
G. Executive Order 12988 Civil Justice Reform
This rule complies with the requirements of E.O. 12988.
Specifically, this rule:
(1) Meets the criteria of section 3(a) requiring that all
regulations be reviewed to eliminate errors and ambiguity and be
written to minimize litigation; and
(2) Meets the criteria of section 3(b)(2) requiring that all
regulations be written in clear language and contain clear legal
standards.
No comments were received on E.O. 12988 during the public comment
period.
H. Executive Order 13175 Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 defines polices that have Tribal implications
as regulations, legislative comments or proposed legislation, and other
policy statements or actions that will or may have a substantial direct
effect on one or more Indian Tribes, or on the relationship between the
Federal Government and one or more Indian Tribes. Additionally, the
DOI's consultation policy for Tribal Nations and ANCSA Corporations, as
described in Departmental Manual part 512 chapter 4, expands on the
above definition from E.O. 13175 and requires that BOEM invite Indian
Tribes and ANCSA Corporations ``early in the planning process to
consult whenever a Departmental plan or action with Tribal Implications
arises.'' BOEM strives to strengthen its government-to-government
relationships with Tribal Nations through a commitment to consultation
with Tribes, recognition of their right to self-governance and Tribal
sovereignty, and honoring BOEM's trust responsibilities for Tribal
Nations.
As discussed in the proposal (88 FR 42161), BOEM evaluated the
proposed rule under DOI's consultation policy and under the criteria in
E.O. 13175 and determined that, while the proposed rule would likely
not cause any substantial direct effects on environmental or cultural
resources, there may be resource or economic impacts to one or more
federally recognized Indian Tribes or ANCSA Corporations as a result of
the proposed rule. BOEM sent letters to all Tribes and ANCSA
Corporations on March 31, 2023, to ensure they were aware of the
proposed rulemaking, to answer any immediate questions they may have,
and to invite formal consultation if they would like to consult. Only
one request for consultation was received, and consultation was held
with the Red Willow (Southern Ute Tribe) on June 28, 2023, and meeting
notes are included in the docket (memorandum titled Tribal Outreach:
Red Willow). For more details on E.O. 13175, the DOI's consultation
policy for Tribal Nations and ANCSA Corporations, and the consultations
conducted regarding this rulemaking, see the memo in the docket titled
Tribal Outreach: Summary of Engagement Activities. BOEM can consult at
any time with federally recognized Tribes as sovereign nations.
I. Paperwork Reduction Act (PRA)
The PRA of 1995 (44 U.S.C. 3501-3521) provides that an agency may
not conduct or sponsor, and a person is not required to respond to, a
``collection of information'' unless it displays a currently valid OMB
control number. Collections of information include requests and
requirements that an individual, partnership, or corporation obtain
information and report it to a Federal agency (44 U.S.C. 3502(3); 5 CFR
1320.3(c) and (k)). This final rule contains collections of information
that were submitted to the OMB for review and approval under 44 U.S.C.
3507(d).
A proposed rule, soliciting comments on this collection of
information for 30 days, was published on June 29, 2023 (88 FR 42136).
No comments on the collections of information were received.
This final rule references existing information collections (ICs)
previously approved by OMB and adds new IC requirements for these
Department regulations that have been submitted to OMB for review and
approval under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et
seq.). With this final rule BOEM updates the IC requirements under 30
CFR parts 550 and 556. The
[[Page 31579]]
updates associated with the risk management and financial assurance for
OCS lease and grant obligations are in the ICs bearing the following
OMB control numbers:
1010-0006 (BOEM), Leasing of Sulfur or Oil and Gas in the
Outer Continental Shelf (30 CFR parts 550, 556, and 560) (expires 03/
31/2026), and
1010-0114 (BOEM), 30 CFR part 550, subpart A, General, and
Subpart K, Oil and Gas Production Requirements (expires 05/31/2026).
This final rule modifies collections of information under 30 CFR
part 550, subparts A and J, and 30 CFR part 556, subpart I, concerning
financial assurance requirements (such as bonding) for leases, pipeline
ROW grants, and RUE grants. OMB has reviewed and approved the existing
information collection requirements associated with financial assurance
regulations for leases (30 CFR 556.900 through 556.907), pipeline ROW
grants (30 CFR 550.1011), and RUE grants (30 CFR 550.160 and 550.166).
BOEM estimates that the number of information collection burden
hours for the final rule overall is close to the same as that for the
existing regulatory framework. When the rule becomes effective, the new
and changed provisions will increase the overall annual burden hours
for OMB Control Number 1010-0006 by 77 hours (totaling 22,012 annual
burden hours) and 264 responses (totaling 22,090 responses) as
justified below. The changed provisions for OMB Control Number 1010-
0114 add new and revised requirements in 30 CFR part 550, subpart A,
but do not impact the overall burden hours for this control number
because the burdens for these provisions are counted under OMB Control
Number 1010-0006. However, the regulatory descriptions of new and
modified requirements are extensive enough to require an update of the
IC bearing that OMB control number.
When needed, BOEM will submit future burden changes (either
increases or decreases) of the OMB control numbers with reasoning to
OMB for review and approval. Every 3 years, BOEM will also review the
burden numbers for changes, seek public comment, and submit any request
for changes to OMB for approval.
Title of Collection: 30 CFR part 550, ``Oil and Gas and Sulfur
Operations in the Outer Continental Shelf,'' and 30 CFR part 556,
``Leasing of Sulfur or Oil and Gas and Bonding Requirements in the
Outer Continental Shelf.''
OMB Control Numbers: 1010-0006 and 1010-0114.
Form Number: None.
Type of Review: Revision of currently approved collections.
Respondents/Affected Public: Federal OCS oil, gas, and sulfur
operators and lessees, and RUE grant and pipeline ROW grant holders.
Total Estimated Number of Annual Responses: 22,090 responses for
1010-0006, and 5,621 responses for 1010-0114.
Total Estimated Number of Annual Burden Hours: 22,012 hours for
1010-0006, and 27,849 hours for 1010-0114.
Respondent's Obligation: Responses to these collections of
information are mandatory or are required to obtain or retain a
benefit.
Frequency of Collection: The frequency of response varies but is
primarily on the occasion or as per the requirement.
Total Estimated Annual Non-Hour Burden Cost: No additional non-hour
costs. Non-hour costs remain at $766,053 for OMB Control Number 1010-
0006, and $165,492 for OMB Control Number 1010-0114.
The following is a brief explanation of how the regulatory changes
in this rulemaking affect the various subparts' hour and non-hour cost
burdens for OMB Control Number 1010-0114:
Right-of-Use and Easement
BOEM's existing regulations concerning RUE grants supporting an OCS
lease and a State lease are found at 30 CFR 550.160 through 550.166.
The burdens related to 30 CFR 550.160 and 550.166 are identified in OMB
Control Number 1010-0114 but accounted for in OMB Control Number 1010-
0006.
Existing Sec. 550.160 provides that an applicant for a RUE that
serves an OCS lease must meet bonding requirements, but the regulation
does not prescribe a base amount. This rule replaces this requirement
with a cross-reference to the specific criteria governing financial
assurance demands in Sec. 550.166. Therefore, BOEM is establishing a
Federal RUE base financial assurance requirement matching the existing
base surety bond requirement for State RUEs. The annual burden hour
does not change since RUEs that serve OCS leases are currently already
meeting financial assurance requirements under BOEM's agreement-
specific conditions of approval.
In Sec. 550.166, BOEM is establishing a $500,000 area-wide RUE
financial assurance requirement that guarantees compliance with the
regulations and the terms and conditions of any RUE grants an entity
holds. Previously, $500,000 in financial assurance for RUEs was only
required for RUEs associated with State leases. BOEM is also allowing
any lessee that has posted area-wide lease financial assurance to
modify that financial assurance to also cover any RUE(s) held by the
same entity.
BOEM is also revising the RUE regulations to clarify that any RUE
grant holder, whether the RUE serves a State or Federal lease, may be
required to provide supplemental financial assurance for the RUE if the
grant holders do not meet the credit rating or proxy credit rating
criterion. The existing regulations authorized demands for supplemental
financial assurance but specified no criteria. The annual burden hour
would not change based on these clarifications.
BOEM added Sec. 550.167 to explain the requirements for obtaining
and assigning an interest in a RUE. To obtain a RUE or assignment of a
RUE, the applicant or assignee must apply for and receive approval from
BOEM. Some of the new requirements parallel those for ROW assignments
in BSEE's regulations at 30 CFR 250.1018. BOEM is expanding the burden
estimate for RUE application requirements to include the application to
obtain a RUE or assign a RUE interest in Sec. 550.167. BOEM estimates
9 hours per respondent for requirements related to RUE applications or
requests to assign a RUE interest.
The following is the revised burden table and a brief explanation
of how the regulatory changes affect the various subparts' hour and
non-hour cost burdens for OMB Control Number 1010-0006:
BILLING CODE 4310-MR-P
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[GRAPHIC] [TIFF OMITTED] TR24AP24.154
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[GRAPHIC] [TIFF OMITTED] TR24AP24.155
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[GRAPHIC] [TIFF OMITTED] TR24AP24.156
BILLING CODE 4310-MR-C
Pipelines and Pipeline Right-of-Way Grants
Section 550.1011(d) relates to BOEM's determination of whether
supplemental financial assurance is necessary to ensure compliance with
the obligations under a pipeline ROW grant. This determination will be
based on whether pipeline ROW grant holders have the ability to carry
out present and future
[[Page 31583]]
obligations. The new criterion for the determination is an issuer
credit rating or a proxy credit rating. The issuer credit rating and
the audited financial information on which BOEM determines a proxy
credit rating already exist. The burden of determining a proxy credit
rating, based on the submitted audited financial information, falls on
BOEM. The annual burdens placed on the grant holder are minimal
(providing to BOEM information the grant holder already has) and is
included in the burden estimates for 30 CFR 556.901(d).
30 CFR part 556, subpart I (OMB Control Number 1010-0006):
Bond or Other Financial Assurance Requirements for Leases
A new provision at 556.900(a) clarifies that supplemental financial
assurance required by the Regional Director must be provided before an
assignment of a lease is approved. The burden increase for this
requirement is included in OMB Control Number 1010-0006. Supplemental
financial assurance required by this provision does not significantly
impact the burdens due to low occurrence, but BOEM is accounting for
the change in the burden table.
Base Bonds and Supplemental Financial Assurance
Section 556.901(d) relates to BOEM's determination of whether
supplemental financial assurance is necessary to ensure compliance with
the obligations under a lease. The lessee will be required to provide
supplemental financial assurance if it does not meet at least one of
the criteria outlined in the final regulations in this section.
Section 556.901(d)(1) bases this determination on an investment
grade issuer credit rating.
Section 556.901(d)(2) provides that, alternatively, BOEM will
consider a proxy credit rating, which must be based on audited
financial information for the most recent fiscal year.
Section 556.901(d)(3) provides that BOEM will consider whether the
co-lessee or co-grant holder has an issuer credit rating or proxy
credit rating that meets the investment-grade threshold. The presence
of such co-lessee or co-grant holder will allow the Regional Director
to not require financial assurance only to the extent that the lessee
or grant-holder and that co-lessee or co-grant holder share accrued
liabilities, and the Regional Director may require the lessee or grant
holder to provide supplemental financial assurance for decommissioning
obligations for which such co-lessee or co-grant holder is not liable.
Section 556.901(d)(4) provides that BOEM will also consider the net
present value of proved oil and gas reserves on the lease. Lessees'
submission of information on proved reserves would account for
additional annual burden hours. The lessee would not need to submit
proved reserve information if supplemental financial assurance is not
required based on its issuer credit rating or proxy credit rating, or
those of its co-lessees.
The existing OMB-approved hour burden for each respondent to
prepare and submit the information for the existing evaluation criteria
requirements is 3.5 hours. In this rule, the revision of the evaluation
criteria results in requiring less time for the respondents to prepare
and submit the information, particularly for issuer credit rating. If
companies choose to demonstrate that the net present value of proved
oil and gas reserves on the lease exceeds three times the undiscounted
cost of decommissioning associated with production of those reserves,
then the time necessary for companies to prepare and submit information
on the proved oil and gas reserves is likely greater than 3.5 hours.
Therefore, BOEM is retaining the average 3.5-hour burden to reflect the
decrease in time required to prepare and submit issuer credit ratings
and audited financials and the increase in time required for preparing
and submitting information on proved reserves. When the final rule
becomes effective, the related burden hours for all respondents
(lessee, co-lessee, grant holder, and co-grant holder) will be included
in OMB Control Number 1010-0006.
The OMB-approved number of respondents who currently submit
financial information under the existing provision is 166 respondents.
Recently, BOEM has seen the number of leases decrease in the Gulf of
Mexico. BOEM estimates the new number of respondents will be between
150 and 160 respondents. For this request, BOEM is using the higher
number of 160 respondents (minus 6 respondents). This number will be
reviewed during the next IC renewal process. When the final rule
becomes effective, BOEM will include the new number of respondents in
OMB Control Number 1010-0006.
The existing OMB-approved annual burden hours for Sec. 556.901
related to demonstrating financial worth/ability to carry out present
and future financial obligations are 581 hours (166 respondents x 3.5
hours). With the changes provided in this rule and described above,
BOEM estimates that the annual hour burden will decrease by
approximately 21 annual burden hours, and total annual burden hours
will equal 560 hours (160 respondents x 3.5 hours). This decrease in
annual burden hours will be reflected in OMB Control Number 1010-0006
when the final rule becomes effective.
BOEM is adding paragraph (h) to Sec. 556.901 to establish the
limited opportunity to provide the required supplemental financial
assurance in installments during the first 3 years after the effective
date of this regulation. This provision establishes the timing and
proportions of phased supplemental financial assurance that will be
required in each installment. The lessee will have the option to submit
the supplemental financial assurance once or in installments. If the
lessee chooses to provide supplemental financial assurance in
installments, the number of submissions of supplemental financial
assurance will likely increase, but only in response to demands made
during the first 3 years after the effective date of this regulation.
OMB has currently approved 45 annual burden hours for supplemental
financial assurance submissions (135 submissions which take 20 minutes
each to submit). BOEM estimates the burden hours for the proposed
installment submissions provision to be 135 annual burden hours (405
submissions x 20 minutes), which is an increase of 90 hours over the
existing OMB approval.
General Requirements for Bonds and Other Financial Assurance
The scope of Sec. 556.902(a) has been clarified to include ``grant
holder'' and financial assurance posted under the requirements of 30
CFR part 550. This change would clarify that the same general
requirements for financial assurance provided by lessees, operating
rights owners, or operators also apply to financial assurance provided
by RUE and pipeline ROW grant holders. BOEM proposes to keep the
burdens the same as the existing OMB burdens.
Decommissioning Accounts
Revisions to Sec. 556.904 allow the Regional Director to authorize
a RUE grant holder and a pipeline ROW grant holder, as well as a
lessee, to establish a decommissioning account as supplemental
financial assurance required under Sec. 556.901(d), Sec. 550.166(b),
or Sec. 550.1011(d). Because this change represents a new option for
grant holders, there are no existing burdens related to this provision
under the current OMB approval. BOEM is capturing the increased
opportunity to establish decommissioning accounts in
[[Page 31584]]
the burden table. BOEM estimates 24 annual burden hours for grant
holders and/or lessees to establish their decommissioning account.
The rule contains a new provision under Sec. 556.904(a)(3), which
would require immediate submission of a surety bond or other financial
assurance in the amount equal to the remaining unsecured portion of the
supplemental financial assurance demand if the initial payment or any
scheduled payment into the decommissioning account is not timely made.
In the context of paperwork-burden, this provision replaces the
existing provision that requires submission of binding instructions.
The annual burden hours will remain the same but will shift to the new
requirement and will be reflected in OMB Control Number 1010-0006 when
the final rule is effective.
Third-Party Guarantees
New Sec. 556.905(a) relates to the guarantor's ability to carry
out present and future obligations. New Sec. 556.905 replaces the term
indemnity agreement with a third-party guarantee agreement with
comparable provisions. This change would not impact annual burden
hours. Section 556.905(a)(2) requires the guarantor to submit a third-
party guarantee agreement. Paragraph (d) provides that the terms that
the existing regulation requires for indemnity agreements must be
included in a third-party guarantee agreement. This change is to avoid
any inference that the government must incur the expenses of
decommissioning before being indemnified by the guarantor. It is a
change of the name of the agreement and does not change the associated
burden.
New Sec. 556.905(e) provides that a lessee or grant holder and the
guarantor under a third-party guarantee may request BOEM to cancel a
third-party guarantee. BOEM will cancel a third-party guarantee under
the same terms and conditions provided for cancellation of other forms
of financial assurance in Sec. 556.906(d)(2). The current OMB-approved
burden under Sec. 556.905(d) and Sec. 556.906 is 189 annual burden
hours. BOEM will keep the burdens the same as the current OMB approved
burdens at 189 annual burden hours.
New Sec. 556.905(c)(2) eliminates the requirement that a lessee
must cease production until supplemental financial assurance coverage
requirements are met when a guarantor becomes unqualified. The
regulatory provision is replaced with a requirement to immediately
submit and maintain a substitute surety bond or other financial
assurance. Both the existing and new provisions require the lessee to
provide replacement surety bond coverage; however, BOEM's current OMB
Control Number 1010-0006 does not quantify the burdens. Therefore, BOEM
is adding approximately 8 annual burden hours to OMB Control Number
1010-0006 for any lessee whose guarantor becomes unqualified.
New Sec. 56.905 removes the requirement that a guarantee must
ensure compliance with all lessees' or grant holders' obligations and
the obligations of all operators on the lease or grant. This revision
allows a third-party guarantor, with BOEM's agreement, to limit the
obligations covered by the third-party guarantee. In some situations,
this change could result in additional paperwork burden due to
additional surety bonds or other financial assurance that must be
provided to BOEM to cover obligations previously covered by a third-
party guarantee. BOEM estimates the number of additional financial
assurance demands resulting from this revision to be low and the annual
burdens are included in the existing burden estimates for OMB Control
Number 1010-0006, and will be revised in future IC requests, if needed.
Termination of the Period of Liability and Cancellation of Financial
Assurance
Section 556.906(d)(2) is revised to add additional circumstances
when BOEM may cancel supplemental financial assurance. Section
556.906(d)(2) requires a cancellation request from the lessee or grant
holder, or the surety, based on assertions that one of the stated
circumstances is present. BOEM already receives these types of requests
and has approved the requests, where warranted, as a departure from the
regulations. These burdens are already counted in the existing OMB
burden estimate for OMB Control Number 1010-0006.
Once this rule becomes effective and OMB approves the information
collection requests, BOEM would revise the existing OMB control numbers
to reflect the changes. The IC does not include questions of a
sensitive nature. BOEM will protect proprietary information according
to the Freedom of Information Act (5 U.S.C. 552) and DOI implementing
regulations (43 CFR part 2), 30 CFR 556.104, Information collection and
proprietary information, and 30 CFR 550.197, Data and information to be
made available to the public or for limited inspection.
The PRA requires agencies to estimate the total annual reporting
and recordkeeping non-hour cost burden resulting from the collection of
information, and we solicit your comments on this item. For reporting
and recordkeeping only, your response should split the cost estimate
into two components: (1) total capital and startup cost component; and
(2) annual operation, maintenance, and purchase of service component.
Your estimates should consider the cost to generate, maintain, and
disclose or provide the information. You should describe the methods
you use to estimate major cost factors, including system and technology
acquisition, expected useful life of capital equipment, discount
rate(s), and the period over which you incur costs. Generally, your
estimates should not include equipment or services purchased: (1)
before October 1, 1995; (2) to comply with requirements not associated
with the information collection; (3) for reasons other than to provide
information or keep records for the Government; or (4) as part of
customary and usual business or private practices.
As part of our continuing effort to reduce paperwork and respondent
burdens, we invite the public and other Federal agencies to comment on
any aspect of this information collection, including:
(1) Is the proposed information collection necessary or useful for
BOEM to properly perform its functions?
(2) Are the estimated annual burden hour increases and decreases
resulting from the proposed rule reasonable?
(3) Is the estimated annual non-hour cost burden resulting from
this information collection reasonable?
(4) Do you have any suggestions that would enhance the quality,
clarity, or usefulness of the information to be collected?
(5) Is there a way to minimize the information collection burden on
those who must respond, such as by using appropriate automated digital,
electronic, mechanical, or other forms of information technology?
Send your comments and suggestions on this information collection
by the date indicated in the DATES section to the Desk Officer for the
Department of the Interior at OMB--OIRA at (202) 395-5806 (fax) or via
the online portal at https://www.reginfo.gov. You may view the
information collection request(s) at https://www.reginfo.gov/public/do/PRAMain. Please provide a copy of your comments to the BOEM Information
Collection Clearance Officer (see the ADDRESSES section). You may
contact Anna Atkinson, BOEM Information Collection Clearance Officer at
(703) 787-1025 with any questions. Please reference Risk Management,
[[Page 31585]]
Financial Assurance and Loss Prevention (OMB Control No. 1010-0006), in
your comments.
J. National Environmental Policy Act (NEPA)
This rule does not constitute a major Federal action significantly
affecting the quality of the human environment. A detailed
environmental analysis under NEPA is not required because this final
rule is covered by a categorical exclusion (see 43 CFR 46.205). This
final rule meets the criteria set forth at 43 CFR 46.210(i) for a
Departmental categorical exclusion in that this action is ``of an
administrative, financial, legal, technical, or procedural nature.''
BOEM has also determined that the final rule does not involve any of
the extraordinary circumstances listed in 43 CFR 46.215 that would
require further analysis under NEPA.
One comment was received on NEPA for the proposed rule. A commenter
asserted that a NEPA review of the proposed rule is required. According
to the commenter, the rule is highly likely to cause environmental
effects because the lack of financial assurance could cause
decommissioning to take longer to arrange, resulting in additional
damage to the environment and obstacles to navigation.
BOEM disagrees with the commenter's assertion that a NEPA review of
the proposed rule is required. BOEM conducted an initial NEPA analysis
for the proposed rulemaking and determined that the proposed rule met
the criteria for categorical exclusion under 43 CFR 46.210(i) of DOI
regulations implementing NEPA. The regulations set forth in this rule
are ``of an administrative, financial, legal, technical, or procedural
nature.'' The final rule also meets these criteria. The final rule does
not authorize any activities and does not alleviate BOEM's
responsibility to conduct the appropriate environmental reviews
throughout the OCS development process. This rulemaking does not reduce
or eliminate BOEM's environmental review of conventional energy
activities.
K. Data Quality Act
In promulgating this rule, BOEM did not conduct or use a study,
experiment, or survey requiring peer review under the Data Quality Act
(Pub. L. 106-554, app. C, sec. 515, 114 Stat. 2763, 2763A-153-154). In
accordance with the Data Quality Act, the Department has issued
guidance regarding the quality of information that it relies upon for
regulatory decisions. This guidance is available at the Department's
website at: https://www.doi.gov/ocio/policy-mgmt-support/information-and-records-management/iq. No comments were received on the Data
Quality Act during the public comment period.
L. Executive Order 13211 Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
Under Executive Order 13211, BOEM is required to prepare and submit
to OMB a ``Statement of Energy Effects'' for ``significant energy
actions.'' This should include a detailed statement of any adverse
effects on energy supply, distribution, or use (including a shortfall
in supply, price increases, and increased use of foreign supplies)
expected to result from the action and a discussion of reasonable
alternatives and their effects. BOEM has prepared the required
statement and has concluded, for the reason described below, that this
action, which is a significant regulatory action under Executive Order
12866, may have a significant adverse effect on the supply,
distribution, or use of energy. BOEM has prepared a Statement of Energy
Effects for this final rule, which is available in section VIII of the
RIA.
BOEM estimates that stronger supplemental financial assurance
requirements will increase compliance costs for non-investment grade
companies operating on the OCS by approximately $559 million annually
(7 percent discounting). Pursuant to OMB's memorandum M-01-27, BOEM
recognizes that this action may ``adversely affect in a material way
the productivity, competition, or prices in the energy sector.'' By
increasing industry compliance costs, the regulation could make the
U.S. offshore oil and gas sector less attractive than regions with
lower operating costs. Additionally, increased costs may depress the
value of offshore assets or cause continuing production to become
uneconomic sooner, leading to shorter-than-otherwise useful life and
potentially a loss of production.
For additional discussion on the energy effects and regulatory
alternatives, please see the RIA for this final rulemaking, available
in the docket (Docket No. BOEM-2023-0027).
M. Congressional Review Act (CRA)
This action is subject to the CRA, and BOEM will submit a rule
report to each chamber of Congress and to the Comptroller General of
the United States. This action meets the criteria in 5 U.S.C. 804(2).
List of Subjects
30 CFR Part 550
Administrative practice and procedure, Continental shelf,
Government contracts, Investigations, Mineral resources, Oil and gas
exploration, Oil pollution, Outer continental shelf, Penalties,
Pipelines, Reporting and recordkeeping requirements, Rights-of-way,
Sulfur.
30 CFR Part 556
Administrative practice and procedure, Continental shelf,
Environmental protection, Government contracts, Intergovernmental
relations, Oil and gas exploration, Outer continental shelf, Mineral
resources, Reporting and recordkeeping requirements, Rights-of-way.
30 CFR Part 590
Administrative practice and procedure.
This action by the Deputy Assistant Secretary is taken herein
pursuant to an existing delegation of authority.
Steven H. Feldgus,
Principal Deputy Assistant Secretary, Land and Minerals Management.
For the reasons stated in the preamble, BOEM amends 30 CFR chapter
V as follows:
PART 550--OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER
CONTINENTAL SHELF
0
1. The authority citation for part 550 continues to read as follows:
Authority: 30 U.S.C. 1751; 31 U.S.C. 9701; 43 U.S.C. 1334.
0
2. Revise the heading to part 550 to read as set forth above.
Subpart A--General
0
3. Amend Sec. 550.101 by revising the introductory text to read as
follows:
Sec. 550.101 Authority and applicability.
The Secretary of the Interior (Secretary) authorized the Bureau of
Ocean Energy Management (BOEM) to regulate oil, gas, and sulfur
exploration, development, and production operations on the Outer
Continental Shelf (OCS). Under the Secretary's authority, the BOEM
Director requires that all operations:
* * * * *
0
4. Amend Sec. 550.102 by revising paragraphs (a) and (b)(16) to read
as follows:
Sec. 550.102 What does this part do?
(a) This part contains the regulations of the BOEM Offshore program
that
[[Page 31586]]
govern oil, gas, and sulfur exploration, development, and production
operations on the OCS. When you conduct operations on the OCS, you must
submit requests, applications, and notices, or provide supplemental
information for BOEM approval.
(b) * * *
Table--Where To Find Information for Conducting Operations
------------------------------------------------------------------------
For information about Refer to
------------------------------------------------------------------------
* * * * *
(16) Sulfur operations.................... 30 CFR 250, subpart P.
* * * * *
------------------------------------------------------------------------
0
5. Revise Sec. 550.103 to read as follows:
Sec. 550.103 Where can I find more information about the requirements
in this part?
BOEM may issue Notices to Lessees and Operators (NTLs) that clarify
or provide more detail about certain regulatory requirements. NTLs may
also outline what information you must provide, as required by
regulation, in your various submissions to BOEM.
0
6. Revise and republish Sec. 550.105 to read as follows:
Sec. 550.105 Definitions.
Terms used in this part will have the meanings given in the Act and
as defined in this section:
Act means the OCS Lands Act, as amended (43 U.S.C. 1331 et seq.)
Affected State means with respect to any program, plan, lease sale,
or other activity proposed, conducted, or approved under the provisions
of the Act, any State:
(1) The laws of which are declared, under section 4(a)(2) of the
Act, to be the law of the United States for the portion of the OCS on
which such activity is, or is proposed to be, conducted;
(2) Which is, or is proposed to be, directly connected by
transportation facilities to any artificial island or installation or
other device permanently or temporarily attached to the seabed;
(3) Which is receiving, or according to the proposed activity, will
receive oil for processing, refining, or transshipment that was
extracted from the OCS and transported directly to such State by means
of vessels or by a combination of means including vessels;
(4) Which is designated by the Secretary as a State in which there
is a substantial probability of significant impact on or damage to the
coastal, marine, or human environment, or a State in which there will
be significant changes in the social, governmental, or economic
infrastructure, resulting from the exploration, development, and
production of oil and gas anywhere on the OCS; or
(5) In which the Secretary finds that because of such activity
there is, or will be, a significant risk of serious damage, due to
factors such as prevailing winds and currents to the marine or coastal
environment in the event of any oil spill, blowout, or release of oil
or gas from vessels, pipelines, or other transshipment facilities.
Analyzed geological information means data collected under a permit
or a lease that have been analyzed. Analysis may include, but is not
limited to, identification of lithologic and fossil content, core
analysis, laboratory analyses of physical and chemical properties, well
logs or charts, results from formation fluid tests, and descriptions of
hydrocarbon occurrences or hazardous conditions.
Ancillary activities mean those activities on your lease or unit
that you:
(1) Conduct to obtain data and information to ensure proper
exploration or development of your lease or unit; and
(2) Can conduct without BOEM approval of an application or permit.
Archaeological interest means capable of providing scientific or
humanistic understanding of past human behavior, cultural adaptation,
and related topics through the application of scientific or scholarly
techniques, such as controlled observation, contextual measurement,
controlled collection, analysis, interpretation, and explanation.
Archaeological resource means any material remains of human life or
activities that are at least 50 years of age and that are of
archaeological interest.
Arctic OCS means the Beaufort Sea and Chukchi Sea Planning Areas
(for more information on these areas, see the Proposed Final OCS Oil
and Gas Leasing Program for 2012-2017 (June 2012) at https://www.boem.gov/Oil-and-Gas-Energy-Program/Leasing/Five-Year-Program/2012-2017/Program-Area-Maps/index.aspx).
Arctic OCS conditions means, for the purposes of this part, the
conditions operators can reasonably expect during operations on the
Arctic OCS. Such conditions, depending on the time of year, include,
but are not limited to: extreme cold, freezing spray, snow, extended
periods of low light, strong winds, dense fog, sea ice, strong
currents, and dangerous sea states. Remote location, relative lack of
infrastructure, and the existence of subsistence hunting and fishing
areas are also characteristic of the Arctic region.
Assign means to convey an ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant. For the purposes of this part,
``assign'' is synonymous with ``transfer'' and the two terms are used
interchangeably.
Attainment area means, for any criteria air pollutant, an area
which is shown by monitored data or which is calculated by air quality
modeling (or other methods determined by the Administrator of the
Environmental Protection Agency (EPA) to be reliable) not to exceed any
primary or secondary ambient air quality standards established by EPA.
Best available and safest technology (BAST) means the best
available and safest technologies that the Director determines to be
economically feasible wherever failure of equipment would have a
significant effect on safety, health, or the environment.
Best available control technology (BACT) means an emission
limitation based on the maximum degree of reduction for each criteria
air pollutant and VOC subject to regulation, taking into account
energy, environmental and economic impacts, and other costs. The
Regional Director will verify the BACT on a case-by-case basis, and it
may include reductions achieved through the application of processes,
systems, and techniques for the control of each criteria air pollutant
and VOC.
Coastal environment means the physical, atmospheric, and biological
components, conditions, and factors that interactively determine the
productivity, state, condition, and quality of the terrestrial
ecosystem from the shoreline inward to the boundaries of the coastal
zone.
Coastal zone means the coastal waters (including the lands therein
and thereunder) and the adjacent shorelands (including the waters
therein and thereunder) strongly influenced by each other and in
proximity to the shorelands of the several coastal States. The coastal
zone includes islands, transition and intertidal areas, salt marshes,
wetlands, and beaches. The coastal zone extends seaward to the outer
limit of the U.S. territorial sea and extends inland from the
shorelines to the extent necessary to control shorelands, the uses of
which have a direct and significant impact on the coastal waters, and
the inward boundaries of which may be identified by the several coastal
States, under the authority in section 305(b)(1) of the Coastal Zone
Management Act (CZMA) of 1972.
Competitive reservoir means a reservoir in which there are one or
more
[[Page 31587]]
producible or producing well completions on each of two or more leases
or portions of leases, with different lease operating interests, from
which the lessees plan future production.
Correlative rights when used with respect to lessees of adjacent
leases, means the right of each lessee to be afforded an equal
opportunity to explore for, develop, and produce, without waste,
minerals from a common source.
Criteria air pollutant means any air pollutant for which the United
States Environmental Protection Agency (U.S. EPA) has established a
primary or secondary National Ambient Air Quality Standard (NAAQS)
pursuant to section 109 of the Clean Air Act.
Data means facts and statistics, measurements, or samples that have
not been analyzed, processed, or interpreted.
Departures mean approvals granted by the appropriate BSEE or BOEM
representative for operating requirements/procedures other than those
specified in the regulations found in this part. These requirements/
procedures may be necessary to control a well; properly develop a
lease; conserve natural resources, or protect life, property, or the
marine, coastal, or human environment.
Development means those activities that take place following
discovery of minerals in paying quantities, including but not limited
to geophysical activity, drilling, platform construction, and operation
of all directly related onshore support facilities, and which are for
the purpose of producing the minerals discovered.
Development geological and geophysical (G&G) activities means those
G&G and related data-gathering activities on your lease or unit that
you conduct following discovery of oil, gas, or sulfur in paying
quantities to detect or imply the presence of oil, gas, or sulfur in
commercial quantities.
Director means the Director of BOEM of the U.S. Department of the
Interior, or an official authorized to act on the Director's behalf.
District Manager means the BSEE officer with authority and
responsibility for operations or other designated program functions for
a district within a BSEE Region.
Eastern Gulf of Mexico means all OCS areas of the Gulf of Mexico
the BOEM Director decides are adjacent to the State of Florida. The
Eastern Gulf of Mexico is not the same as the Eastern Planning Area, an
area established for OCS lease sales.
Emission offsets mean emission reductions obtained from facilities,
either onshore or offshore, other than the facility or facilities
covered by the proposed Exploration Plan (EP), Development and
Production Plan (DPP), or Development Operations Coordination Document
(DOCD).
Enhanced recovery operations mean pressure maintenance operations,
secondary and tertiary recovery, cycling, and similar recovery
operations that alter the natural forces in a reservoir to increase the
ultimate recovery of oil or gas.
Existing facility, as used in Sec. 550.303, means an Outer
Continental Shelf (OCS) facility described in an Exploration Plan, a
Development and Production Plan, or a Development Operations
Coordination Document, approved before June 2, 1980.
Exploration means the commercial search for oil, gas, or sulfur.
Activities classified as exploration include but are not limited to:
(1) Geophysical and geological (G&G) surveys using magnetic,
gravity, seismic reflection, seismic refraction, gas sniffers, coring,
or other systems to detect or imply the presence of oil, gas, or
sulfur; and
(2) Any drilling conducted for the purpose of searching for
commercial quantities of oil, gas, and sulfur, including the drilling
of any additional well needed to delineate any reservoir to enable the
lessee to decide whether to proceed with development and production.
Facility, as used in Sec. 550.303, means all installations or
devices permanently or temporarily attached to the seabed. They include
mobile offshore drilling units (MODUs), even while operating in the
``tender assist'' mode (i.e., with skid-off drilling units) or other
vessels engaged in drilling or downhole operations. They are used for
exploration, development, and production activities for oil, gas, or
sulfur and emit or have the potential to emit any air pollutant from
one or more sources. They include all floating production systems
(FPSs), including column-stabilized-units (CSUs); floating production,
storage and offloading facilities (FPSOs); tension-leg platforms
(TLPs); spars, etc. During production, multiple installations or
devices are a single facility if the installations or devices are at a
single site. Any vessel used to transfer production from an offshore
facility is part of the facility while it is physically attached to the
facility.
Financial assurance means a surety bond, a pledge of Treasury
securities, a decommissioning account, a third-party guarantee, or
another form of security acceptable to the BOEM Regional Director, that
is used to ensure compliance with obligations under the regulations in
this part and under the terms of a lease, a RUE grant, or a pipeline
ROW grant.
Flaring means the burning of natural gas as it is released into the
atmosphere.
Gas reservoir means a reservoir that contains hydrocarbons
predominantly in a gaseous (single-phase) state.
Gas-well completion means a well completed in a gas reservoir or in
the associated gas-cap of an oil reservoir.
Geological and geophysical (G&G) explorations mean those G&G
surveys on your lease or unit that use seismic reflection, seismic
refraction, magnetic, gravity, gas sniffers, coring, or other systems
to detect or imply the presence of oil, gas, or sulfur in commercial
quantities.
Governor means the Governor of a State, or the person or entity
designated by, or under, State law to exercise the powers granted to
such Governor under the Act.
H2S absent means:
(1) Drilling, logging, coring, testing, or producing operations
have confirmed the absence of H2S in concentrations that could
potentially result in atmospheric concentrations of 20 ppm or more of
H2S; or
(2) Drilling in the surrounding areas and correlation of geological
and seismic data with equivalent stratigraphic units have confirmed an
absence of H2S throughout the area to be drilled.
H2S present means drilling, logging, coring, testing, or producing
operations have confirmed the presence of H2S in concentrations and
volumes that could potentially result in atmospheric concentrations of
20 ppm or more of H2S.
H2S unknown means the designation of a zone or geologic formation
where neither the presence nor absence of H2S has been confirmed.
Human environment means the physical, social, and economic
components, conditions, and factors that interactively determine the
state, condition, and quality of living conditions, employment, and
health of those affected, directly or indirectly, by activities
occurring on the OCS.
Interpreted geological information means geological knowledge,
often in the form of schematic cross sections, 3-dimensional
representations, and maps, developed by determining the geological
significance of data and analyzed geological information.
Interpreted geophysical information means geophysical knowledge,
often in the form of schematic cross sections, 3-dimensional
representations, and maps,
[[Page 31588]]
developed by determining the geological significance of geophysical
data and analyzed geophysical information.
Lease means an agreement that is issued under section 8 or
maintained under section 6 of the Act and that authorizes exploration
for, and development and production of, minerals. The term also means
the area covered by that authorization, whichever the context requires.
Lease term pipelines mean those pipelines owned and operated by a
lessee or operator that are completely contained within the boundaries
of a single lease, unit, or contiguous (not cornering) leases of that
lessee or operator.
Lessee means a person who has entered into a lease with the United
States to explore for, develop, and produce the leased minerals. The
term lessee also includes the BOEM-approved assignee of the lease, and
the owner or the BOEM-approved assignee of operating rights for the
lease.
Major Federal action means any action or proposal by the Secretary
that is subject to the provisions of section 102(2)(C) of the National
Environmental Policy Act of 1969, 42 U.S.C. (2)(C) (i.e., an action
that will have a significant impact on the quality of the human
environment requiring preparation of an environmental impact statement
under section 102(2)(C) of the National Environmental Policy Act).
Marine environment means the physical, atmospheric, and biological
components, conditions, and factors that interactively determine the
productivity, state, condition, and quality of the marine ecosystem.
These include the waters of the high seas, the contiguous zone,
transitional and intertidal areas, salt marshes, and wetlands within
the coastal zone and on the OCS.
Material remains means physical evidence of human habitation,
occupation, use, or activity, including the site, location, or context
in which such evidence is situated.
Maximum efficient rate (MER) means the maximum sustainable daily
oil or gas withdrawal rate from a reservoir that will permit economic
development and depletion of that reservoir without detriment to
ultimate recovery.
Maximum production rate (MPR) means the approved maximum daily rate
at which oil or gas may be produced from a specified oil-well or gas-
well completion.
Minerals include oil, gas, sulfur, geopressured-geothermal and
associated resources, and all other minerals that are authorized by an
Act of Congress to be produced.
Natural resources include, without limiting the generality thereof,
oil, gas, and all other minerals, and fish, shrimp, oysters, clams,
crabs, lobsters, sponges, kelp, and other marine animal and plant life
but does not include water power or the use of water for the production
of power.
Nonattainment area means, for any criteria air pollutant, an area
which is shown by monitored data or which is calculated by air quality
modeling (or other methods determined by the Administrator of the U.S.
EPA to be reliable) to exceed any primary or secondary NAAQS
established by the U.S. EPA.
Nonsensitive reservoir means a reservoir in which ultimate recovery
is not decreased by high reservoir production rates.
Oil reservoir means a reservoir that contains hydrocarbons
predominantly in a liquid (single-phase) state.
Oil reservoir with an associated gas cap means a reservoir that
contains hydrocarbons in both a liquid and gaseous (two-phase) state.
Oil-well completion means a well completed in an oil reservoir or
in the oil accumulation of an oil reservoir with an associated gas cap.
Operating rights mean any interest held in a lease with the right
to explore for, develop, and produce leased substances.
Operator means the person the lessee(s) designates as having
control or management of operations on the leased area or a portion
thereof. An operator may be a lessee, the BOEM-approved or BSEE-
approved designated agent of the lessee(s), or the holder of operating
rights under a BOEM-approved operating rights assignment.
Outer Continental Shelf (OCS) means all submerged lands lying
seaward and outside of the area of lands beneath navigable waters as
defined in section 2 of the Submerged Lands Act (43 U.S.C. 1301) whose
subsoil and seabed appertain to the United States and are subject to
its jurisdiction and control.
Person includes a natural person, an association (including
partnerships, joint ventures, and trusts), a State, a political
subdivision of a State, or a private, public, or municipal corporation.
Pipelines are the piping, risers, and appurtenances installed for
transporting oil, gas, sulfur, and produced waters.
Processed geological or geophysical information means data
collected under a permit or a lease that have been processed or
reprocessed. Processing involves changing the form of data to
facilitate interpretation. Processing operations may include, but are
not limited to, applying corrections for known perturbing causes,
rearranging or filtering data, and combining or transforming data
elements. Reprocessing is the additional processing other than ordinary
processing used in the general course of evaluation. Reprocessing
operations may include varying identified parameters for the detailed
study of a specific problem area.
Production means those activities that take place after the
successful completion of any means for the removal of minerals,
including such removal, field operations, transfer of minerals to
shore, operation monitoring, maintenance, and workover operations.
Production areas are those areas where flammable petroleum gas,
volatile liquids or sulfur are produced, processed (e.g., compressed),
stored, transferred (e.g., pumped), or otherwise handled before
entering the transportation process.
Projected emissions mean emissions, either controlled or
uncontrolled, from a source or sources.
Prospect means a geologic feature having the potential for mineral
deposits.
Regional Director means the BOEM officer with responsibility and
authority for a Region within BOEM.
Regional Supervisor means the BOEM officer with responsibility and
authority for operations or other designated program functions within a
BOEM Region.
Right-of-Use and Easement (RUE) means a right to use a portion of
the seabed, at an OCS site other than on a lease you own, to construct,
secure to the seafloor, use, modify, or maintain platforms, seafloor
production equipment, artificial islands, facilities, installations,
and/or other devices to support the exploration, development, or
production of oil, gas, or sulfur resources from an OCS lease or a
lease on State submerged lands.
Right-of-way (ROW) pipelines are those pipelines that are contained
within:
(1) The boundaries of a single lease or unit, but are not owned and
operated by a lessee or operator of that lease or unit;
(2) The boundaries of contiguous (not cornering) leases that do not
have a common lessee or operator;
(3) The boundaries of contiguous (not cornering) leases that have a
common lessee or operator but are not owned and operated by that common
lessee or operator; or
(4) An unleased block(s).
Sensitive reservoir means a reservoir in which the production rate
will affect ultimate recovery.
[[Page 31589]]
Significant archaeological resource means those archaeological
resources that meet the criteria of significance for eligibility to the
National Register of Historic Places as defined in 36 CFR 60.4, or its
successor.
Suspension means a granted or directed deferral of the requirement
to produce (Suspension of Production (SOP)) or to conduct leaseholding
operations (Suspension of Operations (SOO)).
Transfer means to convey an ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant. For the purposes of this part,
``transfer'' is synonymous with ``assign'' and the two terms are used
interchangeably.
Venting means the release of gas into the atmosphere without
igniting it. This includes gas that is released underwater and bubbles
to the atmosphere.
Volatile organic compound (VOC) means any organic compound that is
emitted to the atmosphere as a vapor. Unreactive compounds are excluded
from the preceding sentence of this definition.
Waste of oil, gas, or sulfur means:
(1) The physical waste of oil, gas, or sulfur;
(2) The inefficient, excessive, or improper use, or the unnecessary
dissipation of reservoir energy;
(3) The locating, spacing, drilling, equipping, operating, or
producing of any oil, gas, or sulfur well(s) in a manner that causes or
tends to cause a reduction in the quantity of oil, gas, or sulfur
ultimately recoverable under prudent and proper operations or that
causes or tends to cause unnecessary or excessive surface loss or
destruction of oil or gas; or
(4) The inefficient storage of oil.
Welding means all activities connected with welding, including hot
tapping and burning.
Wellbay is the area on a facility within the perimeter of the
outermost wellheads.
Well-completion operations mean the work conducted to establish
production from a well after the production-casing string has been set,
cemented, and pressure-tested.
Well-control fluid means drilling mud, completion fluid, or
workover fluid as appropriate to the particular operation being
conducted.
Western Gulf of Mexico means all OCS areas of the Gulf of Mexico
except those the BOEM Director decides are adjacent to the State of
Florida. The Western Gulf of Mexico is not the same as the Western
Planning Area, an area established for OCS lease sales.
Workover operations mean the work conducted on wells after the
initial well-completion operation for the purpose of maintaining or
restoring the productivity of a well.
You, depending on the context of this part, means a bidder, a
lessee (record title owner), a sublessee (operating rights owner), a
Federal or State RUE grant holder, a pipeline ROW grant holder, an
assignor or transferor, a designated operator or agent of the lessee or
grant holder, or an applicant seeking to become one of the individuals
listed in this definition.
0
7.Amend Sec. 550.160 by:
0
a. Revising the section heading;
0
b. Removing the introductory text; and
0
c. Revising paragraphs (a) introductory text, (b) through (e), and
(f)(1) and (2).
The revisions read as follows:
Sec. 550.160 When will BOEM grant me a right-of-use and easement
(RUE), and what requirements must I meet?
(a) A RUE is required to construct, secure to the seafloor, use,
modify, or maintain platforms, seafloor production equipment,
artificial islands, facilities, installations, and/or other devices at
an OCS site other than an OCS lease you own, that are:
* * * * *
(b) You must exercise the RUE according to the terms of the grant
and the regulations in this part.
(c) You must meet the qualification requirements at Sec. Sec.
556.400 through 556.402 of this subchapter and the applicable financial
assurance requirements in this section and part 556, subpart I of this
subchapter.
(d) If you apply for a RUE on a leased area, you must notify the
lessee and give her/him an opportunity to comment on your application;
and
(e) You must receive BOEM approval for all platforms, seafloor
production equipment, artificial islands, facilities, installations,
and/or other devices permanently or temporarily attached to the seabed.
(f) * * *
(1) You obtain a RUE after January 12, 2004; or
(2) You ask BOEM to modify your RUE to change the footprint of the
associated platform, seafloor production equipment, artificial island,
facility, installation, and/or device.
* * * * *
0
8. Revise Sec. 550.166 to read as follows:
Sec. 50.166 If BOEM grants me a RUE, what financial assurance must I
provide?
(a) Before BOEM grants you a RUE on the OCS, you must submit or
maintain financial assurance of $500,000, which will guarantee
compliance with the regulations and the terms and conditions of all
RUEs you hold.
(1) You are not required to submit and maintain the financial
assurance of $500,000 pursuant to this paragraph (a) if you furnish and
maintain area-wide lease financial assurance in excess of $500,000
pursuant to Sec. 556.901(a) of this subchapter, provided that the
area-wide lease financial assurance also guarantees compliance with all
the terms and conditions of all RUEs you hold in the area.
(2) The Regional Director may reduce the amount required in this
paragraph (a) upon a determination that the reduced amount is
sufficient to guarantee compliance with the regulations and the terms
and conditions of all RUE grant(s) you hold.
(3) The requirements for financial assurance in Sec. Sec.
556.900(d) through (g) 556.902 of this subchapter apply to the
financial assurance required under paragraph (a) of this section.
(b) If BOEM grants you a RUE that serves either an OCS lease or a
State lease, the Regional Director may require supplemental financial
assurance above the amount required by paragraph (a) of this section,
to ensure compliance with the obligations under your RUE grant, based
on an evaluation of your ability to carry out present and future
obligations on the RUE using the criteria set forth in Sec.
556.901(d)(1) through (3) of this subchapter. This supplemental
financial assurance must:
(1) Meet the requirements of Sec. Sec. 556.900(d) through (g) and
556.902 of this subchapter; and
(2) Cover costs and liabilities for compliance with the obligations
of your RUE grants and with applicable BOEM and Bureau of Safety and
Environmental Enforcement (BSEE) orders.
(c) If you fail to replace any deficient financial assurance upon
demand or fail to provide supplemental financial assurance upon demand,
the Regional Director may:
(1) Assess penalties under subpart N of this part;
(2) Request BSEE to suspend operations on your RUE; and/or
(3) Initiate action for cancellation of your RUE grant.
0
9. Add Sec. 550.167 to read as follows:
Sec. 550.167 How may I obtain or assign my interest in a RUE?
(a) To obtain a RUE or request an assignment of an interest in a
RUE, the applicant or assignee must file an application and provide the
information contained in Sec. 550.161 if a change in uses is planned
and must obtain BOEM's approval.
[[Page 31590]]
(b) An application for approval of an assignment of an interest in
a RUE, in whole or in part, must be filed in triplicate with the
Regional Director. Such application must be supported by a statement
that the assignee agrees to comply with and to be bound by the terms
and conditions of the RUE grant. The assignee must satisfy the bonding
requirements in Sec. 550.166. No RUE assignment will be recognized
unless and until it is first approved, in writing, by the Regional
Director. The assignee of an interest in a RUE must pay the same
service fee as that listed in Sec. 550.106(a)(1) for a lease record
title assignment request.
(c) BOEM may disapprove an assignment in the following
circumstances:
(1) When the assignee has unsatisfied obligations under the
regulations in this chapter or in chapters II or XII of this title, or
under any applicable BOEM or BSEE order;
(2) When an assignment is not acceptable as to form or content
(e.g., containing incorrect legal description, not executed by a person
authorized to bind the corporation, assignee does not meet the
requirements of Sec. Sec. 556.401 through 556.405 of this subchapter);
(3) When the assignment does not comply with or would conflict with
this part, or any other applicable laws or regulations (e.g.,
Departmental debarment rules); or
(4) When the assignee does not meet the applicable financial
assurance requirements in Sec. 550.166 and part 556, subpart I of this
subchapter, or has not complied with a BOEM or BSEE order.
0
10. Amend Sec. 550.199 by revising paragraph (b) to read as follows:
Sec. 550.199 Paperwork Reduction Act statements--information
collection.
* * * * *
(b) Respondents are OCS oil, gas, and sulfur lessees and operators.
The requirement to respond to the information collections in this part
is mandated under the Act (43 U.S.C. 1331 et seq.) and the Act's
Amendments of 1978 (43 U.S.C. 1801 et seq.). Some responses are also
required to obtain or retain a benefit or may be voluntary. Proprietary
information will be protected under Sec. 550.197; parts 551 and 552 of
this subchapter; and the Freedom of Information Act (5 U.S.C. 552) and
its implementing regulations at 43 CFR part 2.
* * * * *
Subpart J--Pipelines and Pipeline Rights-of-Way
0
11. Revise Sec. 550.1011 to read as follows:
Sec. 550.1011 Financial assurance requirements for pipeline right-of-
way (ROW) grant holders.
(a) Except as provided in paragraph (b) of this section, when you
apply for, attempt to assign, or are the holder of a pipeline right-of-
way (ROW) grant, you must furnish and maintain $300,000 of area-wide
financial assurance that guarantees compliance with the regulations and
the terms and conditions of all the pipeline ROW grants you hold in an
OCS area as defined in Sec. 556.900(b) of this subchapter. The
requirement to furnish and maintain area-wide financial assurance for a
pipeline ROW grant is separate and distinct from the requirement to
provide financial assurance for a lease or right-of-use and easement
(RUE).
(b) The requirement to furnish and maintain area-wide pipeline ROW
financial assurance under paragraph (a) of this section may be
satisfied if your operator or a co-grant holder provides such financial
assurance in the required amount that guarantees compliance with the
regulations and the terms and conditions of the grant.
(c) The requirements for lease financial assurance in Sec. Sec.
556.900(d) through (g) and 556.902 of this subchapter apply to the
area-wide financial assurance required in paragraph (a) of this
section.
(d) The Regional Director, using the criteria set forth in Sec.
556.901(d)(1) through (3) of this subchapter, will evaluate your
financial ability to carry out present and future obligations, and as a
result, may require supplemental financial assurance (i.e., above the
amount required by paragraph (a) of this section) to ensure compliance
with the obligations under your pipeline right-of-way grant.
(e) The supplemental financial assurance required under paragraph
(d) of this section must:
(1) Meet the requirements of Sec. Sec. 556.900(d) through (g) and
556.902 of this subchapter, and
(2) Cover costs and liabilities for compliance with the obligations
of your ROW grants and with applicable BOEM and BSEE orders.
(f) If you fail to replace any deficient financial assurance upon
demand or fail to provide supplemental financial assurance upon demand,
the Regional Director may:
(1) Assess penalties under subpart N of this part;
(2) Request BSEE to suspend operations on your pipeline ROW; and/or
(3) Initiate action for forfeiture of your pipeline ROW grant in
accordance with Sec. 250.1013 of this title.
PART 556--LEASING OF SULFUR OR OIL AND GAS AND FINANCIAL ASSURANCE
REQUIREMENTS IN THE OUTER CONTINENTAL SHELF
0
12. The authority citation for part 556 is revised to read as follows:
Authority: 31 U.S.C. 9701; 42 U.S.C. 6213; 43 U.S.C. 1334.
0
13. Revise the heading to part 556 to read as set forth above.
Subpart A--General Provisions
0
14. Amend Sec. 556.104 by revising paragraph (a)(4) to read as
follows:
Sec. 556.104 Information collection and proprietary information.
(a) * * *
(4) Send comments regarding any aspect of the collection of
information under this part, including suggestions for reducing the
burden, by mail to the Information Collection Clearance Officer, Bureau
of Ocean Energy Management, 45600 Woodland Road, Sterling, VA 20166.
* * * * *
0
15. Amend Sec. 556.105 by:
0
a. In paragraph (a), removing the acronyms ``EPA'' and ``GOMESA''; and
0
b. Revising and republishing paragraph (b).
The revision read as follows:
Sec. 556.105 Acronyms and definitions.
* * * * *
(b) As used in this part, each of the terms and phrases listed
below has the meaning given in the Act or as defined in this section.
Act means the Outer Continental Shelf Lands Act, as amended (OCSLA)
(43 U.S.C. 1331-1356a).
Affected State means, with respect to any program, plan, lease
sale, or other activity proposed, conducted, or approved pursuant to
the provisions of OCSLA, any State:
(i) The laws of which are declared, pursuant to section 4(a)(2) of
OCSLA (43 U.S.C. 1333(a)(2)), to be the law of the United States for
the portion of the OCS on which such activity is, or is proposed to be,
conducted;
(ii) Which is, or is proposed to be, directly connected by
transportation facilities to any artificial island or structure
referred to in section 4(a)(1) of OCSLA (43 U.S.C. 1333(a)(1));
(iii) Which is receiving, or in accordance with the proposed
activity
[[Page 31591]]
will receive, oil for processing, refining, or transshipment that was
extracted from the OCS and transported directly to that State by means
of one or more vessels or by a combination of means, including a
vessel;
(iv) Which is designated by the Secretary as a State in which there
is a substantial probability of significant impact on or damage to the
coastal, marine, or human environment; or a State in which there will
be significant changes in the social, governmental, or economic
infrastructure resulting from the exploration, development, and
production of oil and gas anywhere on the OCS; or
(v) In which the Secretary finds that because of such activity,
there is, or will be, a significant risk of serious damage, due to
factors such as prevailing winds and currents, to the marine or coastal
environment in the event of any oil spill, blowout, or release of oil
or gas from one or more vessels, pipelines, or other transshipment
facilities.
Aliquot or Aliquot part means an officially designated subdivision
of a lease's area, which can be a half of a lease (1/2), a quarter of a
lease (1/4), a quarter of a quarter of a lease (1/4 1/4), or a quarter
of a quarter of a quarter of a lease (1/4 1/4 1/4).
Assign means to convey an ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant. For the purposes of this part,
``assign'' is synonymous with ``transfer'' and the two terms are used
interchangeably.
Authorized officer means any person authorized by law or by
delegation of authority to or within BOEM to perform the duties
described in this part.
Average daily production means the total of all production in an
applicable production period that is chargeable under Sec. 556.514
divided by the exact number of calendar days in the applicable
production period.
Barrel means 42 U.S. gallons. All measurements of crude oil and
natural gas liquids under this section must be at 60 [deg]F.
(i) For purposes of computing production and reporting of natural
gas, 5,626 cubic feet of natural gas at 14.73 pounds per square inch
equals one barrel.
(ii) For purposes of computing production and reporting of natural
gas liquids, 1.454 barrels of natural gas liquids at 60 [deg]F equals
one barrel of crude oil.
Bidding unit means one or more OCS blocks, or any portion thereof,
that may be bid upon as a single administrative unit and will become a
single lease. The term `tract,'' as defined in this section, may be
used interchangeably with the term ``bidding unit.''
BOEM means Bureau of Ocean Energy Management of the U.S. Department
of the Interior.
Bonus or royalty credit means a legal instrument or other written
documentation approved by BOEM, or an entry in an account managed by
the Secretary, that a bidder or lessee may use in lieu of any other
monetary payment for a bonus or a royalty due on oil or gas production
from certain leases, as specified in, and permitted by, the Gulf of
Mexico Energy Security Act of 2006, Pub. L. 109-432 (Div. C, Title 1),
120 Stat. 3000 (2006), codified at 43 U.S.C. 1331, note.
BSEE means Bureau of Safety and Environmental Enforcement of the
U.S. Department of the Interior.
Central Planning Area (CPA) means that portion of the Gulf of
Mexico that lies southerly of Louisiana, Mississippi, and Alabama.
Precise boundary information is available from the BOEM Leasing
Division, Mapping and Boundary Branch (MBB).
Coastal environment means the physical, atmospheric, and biological
components, conditions, and factors that interactively determine the
productivity, state, condition, and quality of the terrestrial
ecosystem from the shoreline inland to the boundaries of the coastal
zone.
Coastal zone means the coastal waters (including the lands therein
and thereunder) and the adjacent shorelands (including the water
therein and thereunder), strongly influenced by each other and in
proximity to the shorelines of one or more of the several coastal
States, and includes islands, transition and intertidal areas, salt
marshes, wetlands, and beaches, whose zone extends seaward to the outer
limit of the United States territorial sea and extends inland from the
shore lines to the extent necessary to control shorelands, the uses of
which have a direct and significant impact on the coastal waters, and
the inland boundaries of which may be identified by the several coastal
States, under section 305(b)(1) of the Coastal Zone Management Act
(CZMA) of 1972, 16 U.S.C. 1454(b)(1).
Coastline means the line of mean ordinary low water along that
portion of the coast in direct contact with the open sea and the line
marking the seaward limit of inland waters.
Crude oil means a mixture of liquid hydrocarbons, including
condensate that exists in natural underground reservoirs and remains
liquid at atmospheric pressure after passing through surface separating
facilities, but does not include liquid hydrocarbons produced from tar
sand, gilsonite, oil shale, or coal.
Designated operator means a person authorized to act on your behalf
and fulfill your obligations under the Act, the lease, and the
regulations, who has been designated as an operator by all record title
holders and all operating rights owners that own an operating rights
interest in the aliquot/depths in which the designated operator, to
which the Designation of Operator form applies, will be operating, and
who has been approved by BOEM to act as designated operator.
Desoto Canyon OPD means the Official Protraction Diagram (OPD)
designated as Desoto Canyon that has a western edge located at the
universal transverse mercator (UTM) X coordinate 1,346,400 in the North
American Datum of 1927 (NAD27).
Destin Dome OPD means the Official Protraction Diagram (OPD)
designated as Destin Dome that has a western edge located at the
Universal Transverse Mercator (UTM) X coordinate 1,393,920 in the
NAD27.
Development block means a block, including a block susceptible to
drainage, which is located on the same general geologic structure as an
existing lease having a well with indicated hydrocarbons; a reservoir
may or may not be interpreted to extend on to the block.
Director means the Director of the BOEM of the U.S. Department of
the Interior, or an official authorized to act on the Director's
behalf.
Eastern Planning Area means that portion of the Gulf of Mexico that
lies southerly and westerly of Florida. Precise boundary information is
available from the BOEM Leasing Division, Mapping and Boundary Branch
(MBB).
Economic interest means any right to, or any right dependent upon,
production of crude oil, natural gas, or natural gas liquids and
includes, but is not limited to: a royalty interest; an overriding
royalty interest, whether payable in cash or kind; a working interest
that does not include a record title interest or an operating rights
interest; a carried working interest; a net profits interest; or a
production payment.
Financial assurance means a surety bond, a pledge of Treasury
securities, a decommissioning account, a third-party guarantee, or
another form of security acceptable to the BOEM Regional Director, that
is used to ensure compliance with obligations under the regulations in
this part and under the terms of a lease, a RUE grant, or a pipeline
ROW grant.
[[Page 31592]]
Human environment means the physical, social, and economic
components, conditions, and factors that interactively determine the
state, condition, and quality of living conditions, employment, and
health of those affected, directly or indirectly, by activities
occurring on the OCS.
Initial period or primary term means the initial period referred to
in 43 U.S.C. 1337(b)(2).
Investment grade credit rating means an issuer credit rating of
BBB- or higher (S&P Global Ratings and Fitch Ratings, Inc.), Baa3 or
higher (Moody's Investors Service Inc.), or its equivalent, assigned to
an issuer of corporate debt by a nationally recognized statistical
rating organization as that term is defined in section 3(a)(62) of the
Securities Exchange Act of 1934.
Issuer credit rating means a credit rating assigned to an issuer of
corporate debt by S&P Global Ratings, by Moody's Investors Service
Inc., by Fitch Ratings, Inc., or by another nationally recognized
statistical rating organization, as that term is defined in section
3(a)(62) of the Securities Exchange Act of 1934.
Joint bid means a bid submitted by two or more persons for an oil
and gas lease under section 8(a) of the Act.
Lease means an agreement that is issued under section 8 or
maintained under section 6 of the Act and that authorizes exploration
for, and development and production of, minerals on the OCS. The term
also means the area covered by that agreement, whichever the context
requires.
Lease interest means one or more of the following ownership
interests in an OCS oil and gas or sulfur lease: a record title
interest, an operating rights interest, or an economic interest.
Lessee means a person who has entered into a lease with the United
States to explore for, develop, and produce the leased minerals and is
therefore a record title owner of the lease, or the BOEM-approved
assignee-owner of a record title interest. The term lessee also
includes the BOEM-approved sublessee- or assignee-owner of an operating
rights interest in a lease.
Marine environment means the physical, atmospheric, and biological
components, conditions, and factors that interactively determine the
productivity, state, conditions, and quality of the marine ecosystem,
including the waters of the high seas, the contiguous zone,
transitional and intertidal areas, salt marshes, and wetlands within
the coastal zone and on the OCS.
Mineral means oil, gas, and sulfur; it also includes sand, gravel,
and salt used to facilitate the development and production of oil, gas,
and sulfur.
Natural gas means a mixture of hydrocarbons and varying quantities
of non-hydrocarbons that exist in the gaseous phase.
Natural gas liquids means liquefied petroleum products produced
from reservoir gas and liquefied at surface separators, field
facilities, or gas processing plants worldwide, including any of the
following:
(i) Condensate--natural gas liquids recovered from gas well gas
(associated and non-associated) in separators or field facilities; or
(ii) Gas plant products--natural gas liquids recovered from natural
gas in gas processing plants and from field facilities. Gas plant
products include the following, as classified according to the
standards of the Natural Gas Processors Association (NGPA) or the
American Society for Testing and Materials (ASTM):
(A) Ethane--C2H6;
(B) Propane--C3H8;
(C) Butane--C4H10, including all products covered by NGPA
specifications for commercial butane, including isobutane, normal
butane, and other butanes--all butanes not included as isobutane or
normal butane;
(D) Butane-Propane Mixtures--All products covered by NGPA
specifications for butane-propane mixtures;
(E) Natural Gasoline--A mixture of hydrocarbons extracted from
natural gas, that meets vapor pressure, end point, and other
specifications for natural gasoline set by NGPA;
(F) Plant Condensate--A natural gas plant product recovered and
separated as a liquid at gas inlet separators or scrubbers in
processing plants or field facilities; and
(G) Other Natural Gas plant products meeting refined product
standards (i.e., gasoline, kerosene, distillate, etc.).
Operating rights means an interest created by sublease out of the
record title interest in an oil and gas lease, authorizing the owner to
explore for, develop, and/or produce the oil and gas contained within a
specified area and depth of the lease (i.e., operating rights tract).
Operating rights owner means the holder of operating rights.
Operating rights tract means the area within the lease from which
the operating rights have been severed on an aliquot basis from the
record title interest, defined by a beginning and ending depth.
Operator means the person designated as having control or
management of operations on the leased area or a portion thereof. An
operator may be a lessee, the operating rights owner, or a designated
agent of the lessee or the operating rights owner.
Outer Continental Shelf (OCS) means all submerged lands lying
seaward and outside of the area of lands beneath navigable waters as
defined in the Submerged Lands Act (43 U.S.C. 1301-1315) and of which
the subsoil and seabed appertain to the United States and are subject
to its jurisdiction and control.
Outer Continental Shelf Lands Act (OCSLA) means the Outer
Continental Shelf Lands Act (43 U.S.C. 1331-1356a), as amended.
Owned, as used in the context of restricted joint bidding or a
statement of production, means:
(i) With respect to crude oil--having either an economic interest
in or a power of disposition over the production of crude oil;
(ii) With respect to natural gas--having either an economic
interest in or a power of disposition over the production of natural
gas; and
(iii) With respect to natural gas liquids--having either an
economic interest in or a power of disposition over any natural gas
liquids at the time of completion of the liquefaction process.
Pensacola OPD means the Official Protraction Diagram (OPD)
designated as Pensacola that has a western edge located at the UTM X
coordinate 1,393,920 in the NAD27.
Person means a natural person, where so designated, or an entity,
such as a partnership, association, State, political subdivision of a
State or territory, or a private, public, or municipal corporation.
Planning area means a large portion of the OCS, consisting of
contiguous OCS blocks, defined for administrative planning purposes.
Predecessor means a prior lessee or owner of operating rights, or a
prior holder of a right-of-use and easement grant or a pipeline right-
of-way grant. A predecessor is liable for obligations that accrued or
began accruing while it held an ownership interest in that lease or
grant.
Primary term or initial period means the initial period referred to
in 43 U.S.C. 1337(b)(2).
Regional Director means the BOEM officer with responsibility and
authority for a Region within BOEM.
Regional Supervisor means the BOEM officer with responsibility and
authority for leasing or other designated program functions within a
BOEM Region.
Right-of-Use and Easement (RUE) means a right to use a portion of
the
[[Page 31593]]
seabed at an OCS site other than on a lease you own, to construct,
secure to the seafloor, use, modify, or maintain platforms, seafloor
production equipment, artificial islands, facilities, installations,
and/or other devices to support the exploration, development, or
production of oil, gas, or sulfur resources from an OCS lease or a
lease on State submerged lands.
Right-of-Way (ROW) means an authorization issued by BSEE under the
authority of section 5(e) of the OCSLA (43 U.S.C. 1334(e)) for the use
of submerged lands of the Outer Continental Shelf for pipeline
purposes.
Secretary means the Secretary of the Interior or an official or a
designated employee authorized to act on the Secretary's behalf.
Single bid means a bid submitted by one person for an oil and gas
lease under section 8(a) of the Act.
Six-month bidding period means the 6-month period of time:
(i) From May 1 through October 31; or
(ii) from November 1 through April 30.
Statement of production means, in the context of joint restricted
bidders, the following production during the applicable prior
production period:
(i) The average daily production in barrels of crude oil, natural
gas, and natural gas liquids which it owned worldwide;
(ii) The average daily production in barrels of crude oil, natural
gas, and natural gas liquids owned worldwide by every subsidiary of the
reporting person;
(iii) The average daily production in barrels of crude oil, natural
gas, and natural gas liquids owned worldwide by any person or persons
of which the reporting person is a subsidiary; and
(iv) The average daily production in barrels of crude oil, natural
gas, and natural gas liquids owned worldwide by any subsidiary, other
than the reporting person, of any person or persons of which the
reporting person is a subsidiary.
Tract means one or more OCS blocks, or any leasable portion
thereof, that will be part of a single oil and gas lease. The term
tract may be used interchangeably with the term ``bidding unit.''
Transfer means to convey an ownership interest in an oil, gas, or
sulfur lease, ROW grant or RUE grant. For the purposes of this part,
``transfer'' is synonymous with ``assign'' and the two terms are used
interchangeably.
We, us, and our mean BOEM or the Department of the Interior,
depending on the context in which the word is used.
Western Planning Area (WPA) means that portion of the Gulf of
Mexico that lies south and east of Texas. Precise boundary information
is available from the Leasing Division, Mapping and Boundary Branch.
You, depending on the context of this part, means a bidder, a
lessee (record title owner), a sublessee (operating rights owner), a
Federal or State RUE grant holder, a pipeline ROW grant holder, an
assignor or transferor, a designated operator or agent of the lessee or
grant holder, or an applicant seeking to become one of the individuals
listed in this definition.
Subpart G--Transferring All or Part of the Record Title Interest in
a Lease
0
16. Amend Sec. 556.703 by revising paragraph (a) to read as follows:
Sec. 556.703 What is the effect of the approval of the assignment of
100 percent of the record title in a particular aliquot(s) of my lease
and of the resulting lease segregation?
(a) The financial assurance requirements of subpart I of this part
apply separately to each segregated lease.
* * * * *
0
17. Amend Sec. 556.704 by revising the section heading and paragraphs
(a) introductory text, and (a)(1) and (2) to read as follows:
Sec. 556.704 When may BOEM disapprove an assignment or sublease of an
interest in my lease?
(a) BOEM may disapprove an assignment or sublease of all or part of
your lease interest(s):
(1) When the transferor, transferee, or sublessee is not in
compliance with all applicable regulations and orders, including
financial assurance requirements;
(2) When a transferor attempts a transfer that is not acceptable as
to form or content (e.g., not on standard form, containing incorrect
legal description, not executed by a person authorized to bind the
corporation, transferee does not meet the requirements of Sec.
556.401); or
* * * * *
Subpart H--Transferring All or Part of the Operating Rights in a
Lease
0
18. Amend Sec. 556.802 by revising the section heading, introductory
text, and paragraphs (a) and (b) to read as follows:
Sec. 556.802 When may BOEM disapprove the transfer of all or part of
my operating rights interest?
BOEM may disapprove a transfer of all or part of your operating
rights interest:
(a) When the transferor or transferee is not in compliance with all
applicable regulations and orders, including financial assurance
requirements;
(b) When a transferor attempts a transfer that is not acceptable as
to form or content (e.g., not on standard form, containing incorrect
legal description, not executed in accordance with corporate
governance, transferee does not meet the requirements of Sec.
556.401); or
* * * * *
0
19. Revise the heading to subpart I to read as follows:
Subpart I--Financial Assurance
0
20. Amend Sec. 556.900 by:
0
a. Revising the section heading and introductory text;
0
b. Revising paragraphs (a) introductory text, (g) introductory text,
and (h); and
0
c. Adding paragraph (i).
The revisions and addition read as follows:
Sec. 556.900 Financial assurance requirements for an oil and gas or
sulfur lease.
This section establishes financial assurance requirements for the
lessee of an OCS oil and gas or sulfur lease.
(a) Before BOEM will issue a new lease to you as the lessee, you or
another lessee for the lease must comply with one of the options in
paragraphs (a)(1) through (3) of this section. Before BOEM will approve
the assignment of a record title interest in an existing lease to you
as the lessee, you or another lessee for the lease must provide any
supplemental financial assurance required by the Regional Director and
also comply with one of the options in paragraphs (a)(1) through (3).
* * * * *
(g) You may provide alternative types of financial assurance
instead of providing a surety bond if the Regional Director determines
that the alternative financial assurance protects the interests of the
United States to the same extent as a surety bond.
* * * * *
(h) If you fail to replace deficient financial assurance or to
provide supplemental financial assurance upon demand, the Regional
Director may:
(1) Assess penalties under part 550, subpart N of this subchapter;
(2) Request BSEE to suspend production and other operations on your
lease in accordance with Sec. 250.173 of this title; and/or
(3) Initiate action to cancel your lease.
(i) In the event you amend your area-wide surety bond covering
lease obligations, or obtain a new area-wide lease surety bond, to
cover the financial
[[Page 31594]]
assurance requirements for any RUE(s), your area-wide lease surety bond
may be called in whole or in part to cover any or all the obligations
on which you default that are associated with your RUE(s) located in
the area covered by such area-wide lease surety bond.
0
21. Amend Sec. 556.901 by:
0
a. Revising the section heading;
0
b. Revising paragraphs (a) introductory text and (a)(1)(i);
0
c. Revising paragraphs (b) introductory text and (b)(1)(i);
0
d. Revising paragraphs (c) through (f); and
0
e. Adding paragraphs (g) and (h).
The revisions and additions read as follows:
Sec. 556.901 Base and supplemental financial assurance.
(a) You must provide the following financial assurance before
commencing any lease exploration activities.
(1) * * *
(i) You must furnish the Regional Director $200,000 in lease
exploration financial assurance that guarantees compliance with all the
terms and conditions of the lease by the earliest of:
* * * * *
(b) This paragraph (b) explains what financial assurance you must
provide before lease development and production activities commence.
(1) * * *
(i) You must furnish the Regional Director $500,000 in lease
development financial assurance that guarantees compliance with all the
terms and conditions of the lease by the earliest of:
* * * * *
(c) If you can demonstrate to the satisfaction of the Regional
Director that you can satisfy your decommissioning and other lease
obligations for less than the amount of financial assurance required
under paragraph (a)(1) or (b)(1) of this section, the Regional Director
may accept financial assurance in an amount less than the prescribed
amount but not less than the amount of the cost for decommissioning.
(d) The Regional Director may determine that supplemental financial
assurance (i.e., financial assurance above the amounts prescribed in
Sec. Sec. 550.166(a) and 550.1011(a) of this subchapter, Sec.
556.900(a), or paragraphs (a) and (b) of this section) is required to
ensure compliance with your lease obligations, including
decommissioning obligations; the regulations in this chapter; and the
regulations in chapters II and XII of this title. The Regional Director
may require you to provide supplemental financial assurance if you do
not meet at least one of the following criteria:
(1) You have an investment grade credit rating. If any nationally
recognized statistical rating organization, as that term is defined in
section 3(a)(62) of the Securities Exchange Act of 1934, provides a
credit rating for you that differs from that of any other nationally
recognized statistical rating organization, BOEM will apply the highest
rating for purposes of determining your financial assurance
requirements.
(2) You have a proxy credit rating determined by the Regional
Director that they determine reflects creditworthiness equivalent to an
investment grade credit rating, which must be based on audited
financial information for the most recent fiscal year (which must
include an income statement, balance sheet, statement of cash flows,
and the auditor's certificate).
(i) The audited financial information for your most recent fiscal
year must cover a continuous twelve-month period within the twenty-
four-month period prior to your receipt of the Regional Director's
determination that you must provide supplemental financial assurance.
(ii) In determining your proxy credit rating, the Regional Director
may include the total value of the offshore decommissioning liabilities
associated with any lease(s) or grants in which you have an ownership
interest. Upon the request of the Regional Director, you must provide
the information that the Regional Director determines is necessary to
properly evaluate the total value of your offshore decommissioning
liabilities, including joint ownership interests and liabilities
associated with your OCS leases and grants.
(3) Your co-lessee or co-grant holder has an issuer credit rating
or proxy credit rating that meets the criterion set forth in paragraph
(d)(1) or (2) of this section, as applicable. However, the presence of
such co-lessee or co-grant holder will allow the Regional Director to
not require financial assurance from you only to the extent that you
and that co-lessee or co-grant holder share accrued liabilities, and
the Regional Director may require you to provide supplemental financial
assurance for decommissioning obligations for which such co-lessee or
co-grant holder is not liable.
(4) There are proved oil and gas reserves on the lease, unit, or
field, as defined by the SEC Regulation S-X at 17 CFR 210.4-10 and SEC
Regulation S-K at 17 CFR 229.1200, the discounted value of which
exceeds three times the estimated undiscounted cost of the
decommissioning associated with the production of those reserves, and
that value must be based on proved reserve reports submitted to the
Regional Director and reported on a per-lease, unit, or field basis.
BOEM will determine the decommissioning costs associated with the
production of your reserves, and will use the following undiscounted
decommissioning cost estimates:
(i) Where BSEE-generated probabilistic estimates are available,
BOEM will use the estimate at the level at which there is a 70 percent
probability that the actual cost of decommissioning will be less than
the estimate (P70).
(ii) If there is no BSEE probabilistic estimate available, BOEM
will use the BSEE-generated deterministic estimate.
(e) You may satisfy the Regional Director's demand for supplemental
financial assurance by increasing the amount of your existing financial
assurance or providing additional surety bonds or other types of
acceptable financial assurance.
(f) The Regional Director will use the BSEE P70 decommissioning
probabilistic estimate to determine the amount of supplemental
financial assurance required to guarantee compliance when there is no
lessee or co-lessee that meets the criterion in paragraph (d)(1) or (2)
of this section. In making this determination, the Regional Director
will also consider your potential underpayment of royalty and
cumulative decommissioning obligations. Note that BOEM will use these
P-values only in the context of determining how much financial
assurance is required, and not in the context of bond forfeiture.
Regardless of whether you are required to provide supplemental
financial assurance at the P70 level, you remain liable for the full
costs of decommissioning, and your surety remains liable for the full
amount of decommissioning up to the limit of assurance provided.
(g) If your cumulative potential obligations and liabilities either
increase or decrease, the Regional Director may adjust the amount of
supplemental financial assurance required.
(1) If the Regional Director proposes an adjustment, the Regional
Director will:
(i) Notify you and your financial assurance provider of any
proposed adjustment to the amount of financial assurance required; and
(ii) Give you an opportunity to submit written or oral comment on
the adjustment.
(2) If you request a reduction of the amount of supplemental
financial assurance required, or oppose the amount of a proposed
adjustment, you
[[Page 31595]]
must submit evidence to the Regional Director demonstrating that the
projected amount of royalties due to the United States Government and
the estimated costs of decommissioning are less than the required
financial assurance amount. Upon review of your submission, the
Regional Director may reduce the amount of financial assurance
required.
(h) During the first 3 years from June 24, 2024, you may, upon
receipt of a demand letter for supplemental financial assurance under
this section, request that the Regional Director allow you to provide,
in three equal installments payable according to the schedule provided
under this paragraph (h), the full amount of supplemental financial
assurance required.
(1) If the Regional Director allows you to provide the amount
required on such a phased basis, you must comply with the following:
(i) You must provide the initial one-third of the total
supplemental financial assurance required within the timeframe
specified in the demand letter or, if no timeframe is specified, within
60 calendar days of the date of receipt of the demand letter.
(ii) You must provide the second one-third of the required
supplemental financial assurance to BOEM within 24 months of the date
of receipt of the demand letter.
(iii) You must provide the final one-third of the required
supplemental financial assurance to BOEM within 36 months of the date
of receipt of the demand letter.
(2) If the Regional Director allows you to meet your supplemental
financial assurance requirement in a phased manner, as set forth in
this section, and you fail to timely provide the required supplemental
financial assurance to BOEM, the Regional Director will notify you of
such failure. You will no longer be eligible to meet your supplemental
financial assurance requirement in the manner prescribed in this
paragraph (h), and the remaining amount due will become due 10 calendar
days after such notification is received.
0
22. Amend Sec. 556.902 by revising the section heading, paragraphs (a)
and (e)(2), and adding paragraphs (g) and (h) to read as follows:
Sec. 556.902 General requirements for bonds or other financial
assurance.
(a) Any surety bond or other financial assurance that you, as
record title owner, operating rights owner, grant holder, or operator,
provide under this part, or under part 550 of this subchapter, must:
(1) Be payable upon demand to the Regional Director;
(2) Guarantee compliance with all your obligations under the lease
or grant, the regulations in chapters II and XII of this title, and all
BOEM and BSEE orders; and
(3) Except as stated in Sec. 556.905(b), guarantee compliance with
the obligations of all record title owners, operating rights owners,
and operators on the lease, and all grant-holders on a grant.
* * * * *
(e) * * *
(2) A pledge of Treasury securities, as provided in Sec.
556.900(f);
* * * * *
(g) If you believe that BOEM's supplemental financial assurance
demand is unjustified, you may request an informal resolution of your
dispute in accordance with the requirements of Sec. 590.6 of this
chapter. Your request for an informal resolution will not affect your
right to request to meet your supplemental financial assurance
requirement in a phased manner under Sec. 556.901(h).
(h) You may file an appeal of a supplemental financial assurance
demand with the Interior Board of Land Appeals (IBLA) pursuant to the
regulations in part 590 of this chapter. However, if you request that
the IBLA stay the demand pending a final ruling on your appeal, you
must post an appeal surety bond equal to the amount of the demand that
you seek to stay before any such stay is effective.
0
23. Revise Sec. 556.903 to read as follows:
Sec. 556.903 Lapse of financial assurance.
(a) If your surety, guarantor, or the financial institution holding
or providing your financial assurance becomes bankrupt or insolvent, or
has its charter or license suspended or revoked, any financial
assurance coverage from such surety, guarantor, or financial
institution must be replaced. You must notify the Regional Director
within 72 hours of learning of such event, and, within 30 calendar days
of learning of such event, you must provide other financial assurance
from a different financial assurance provider in the amount required
under Sec. Sec. 556.900 and 556.901, or Sec. 550.166 of this
subchapter, or Sec. 550.1011 of this subchapter.
(b) You must notify the Regional Director within 72 hours of
learning of any action filed alleging that you are insolvent or
bankrupt or that your surety, guarantor, or financial institution is
insolvent or bankrupt or has had its charter or license suspended or
revoked.
All surety bonds or other financial assurance instruments must
require the surety, guarantor, or financial institution to timely
provide this required notification both to you and directly to BOEM.
0
24. Revise Sec. 556.904 to read as follows:
Sec. 556.904 Decommissioning accounts.
(a) The Regional Director may authorize you to establish a
decommissioning account(s) in a federally insured financial institution
to satisfy a supplemental financial assurance demand made pursuant to
Sec. 556.901(d), Sec. 550.166(b) of this subchapter, or Sec.
550.1011(d) of this subchapter. The decommissioning account must be set
up in such a manner that funds may not be withdrawn without the written
approval of the Regional Director.
(1) Funds in the account must be used only to meet your
decommissioning obligations and must be payable upon demand to BOEM.
(2) You must fully fund the account to cover all decommissioning
costs as estimated by BSEE, to the amount, and pursuant to the
schedule, that the Regional Director prescribes.
(3) If you fail to make the initial payment or any scheduled
payment into the decommissioning account and you fail to correct a
missed payment within 30 days, you must immediately submit, and
subsequently maintain, a surety bond or other financial assurance in an
amount equal to the remaining unfulfilled portion of the supplemental
financial assurance demand.
(b) Any interest paid on funds in a decommissioning account will
become part of the principal funds in the account unless the Regional
Director authorizes in writing the payment of the interest to the party
who deposits the funds.
(c) The Regional Director may authorize or require you to create an
overriding royalty, production payment obligation, or other revenue
stream for the benefit of an account established as financial assurance
for the decommissioning of your lease(s) or RUE or pipeline ROW
grant(s). The obligation may be associated with oil and gas or sulfur
production from a lease other than a lease or grant secured through the
decommissioning account.
(d) BOEM may provide funds from the decommissioning account to the
party that performs the decommissioning in response to a BOEM or BSEE
order to perform such decommissioning or to cover the costs thereof.
BOEM will
[[Page 31596]]
distribute the funds from the decommissioning account upon presentation
of paid invoices for reasonable and necessary costs incurred by the
party performing the decommissioning.
0
25. Revise Sec. 556.905 to read as follows:
Sec. 556.905 Third-party guarantees.
(a) The Regional Director may accept a third-party guarantee to
satisfy a supplemental financial assurance demand made pursuant to
Sec. 556.901(d), Sec. 550.166(b) of this subchapter, or Sec.
550.1011(d) of this subchapter, if:
(1) The guarantor meets the credit rating or proxy credit rating
criterion set forth in Sec. 556.901(d)(1) or (2), as applicable; and
(2) The guarantor or guaranteed party submits a third-party
guarantee agreement containing each of the provisions in paragraph (d)
of this section.
(b) Notwithstanding Sec. 556.902(a)(3), a third-party guarantor
may, as agreed to by BOEM at the time the third-party guarantee is
provided, limit its cumulative obligations to a fixed dollar amount or
limit its obligations so as to cover the performance of one or more
specific lease obligations (with no fixed dollar amount).
(c) If, during the life of your third-party guarantee, your
guarantor no longer meets the criterion referred to in paragraph (a)(1)
of this section, you must, within 72 hours of so learning:
(1) Notify the Regional Director; and
(2) Submit, and subsequently maintain, a surety bond or other
financial assurance covering those obligations previously secured by
the third-party guarantee.
(d) Your third-party guarantee must contain each of the following
provisions:
(1) If you fail to comply with the terms of any lease or grant
covered by the guarantee, or any applicable regulation, your guarantor
must either:
(i) Take corrective action to bring the lease or grant into
compliance with its terms or any applicable regulation, to the extent
covered by the guarantee; or
(ii) Be liable under the third-party guarantee agreement to
provide, within 7 calendar days, sufficient funds for the Regional
Director to complete such corrective action to the extent covered by
the guarantee. Such payment does not result in the cancellation of the
guarantee, but instead reduces the remaining value of the guarantee in
an amount equal to the payment.
(2) If your guarantor wishes to terminate the period of liability
under its guarantee, it must:
(i) Notify you and the Regional Director at least 90 calendar days
before the proposed termination date;
(ii) Obtain the Regional Director's approval for the termination of
the period of liability for all or a specified portion of the
guarantee; and
(iii) Remain liable for all liabilities that accrued or began
accruing prior to the termination and responsible for all work and
workmanship performed during the period of liability.
(3) Before the termination of the period of liability of the third-
party guarantee, you must provide acceptable replacement financial
assurance.
(e) If you or your guarantor request BOEM to cancel your third-
party guarantee, BOEM will cancel the guarantee under the same terms
and conditions provided for cancellation of supplemental financial
assurance and return of pledged financial assurance in Sec. 556.906(b)
and/or (d)(3).
(f) The guarantor or guaranteed party must submit a third-party
guarantee agreement that meets the following criteria:
(1) The third-party guarantee agreement must be executed by your
guarantor and all persons and parties bound by the agreement.
(2) The third-party guarantee agreement must bind, jointly and
severally, each person and party executing the agreement.
(3) When your guarantor is a corporate entity, two corporate
officers who are authorized to bind the corporation must sign the
third-party guarantee agreement.
(g) Your corporate guarantor and any other corporate entities bound
by the third-party guarantee agreement must provide the Regional
Director copies of:
(1) The authorization of the signatory corporate officials to bind
their respective corporations;
(2) An affidavit certifying that the agreement is valid under all
applicable laws; and
(3) Each corporation's corporate authorization to enter into the
third-party guarantee agreement.
(h) If your third-party guarantor or another party bound by the
third-party guarantee agreement is a partnership, joint venture, or
syndicate, the third-party guarantee agreement must:
(1) Bind each partner or party who has a beneficial interest in
your guarantor; and
(2) Provide that each member of the partnership, joint venture, or
syndicate is jointly and severally liable for the obligations secured
by the guarantee.
(i) The third-party guarantee agreement must provide that, in the
event forfeiture is called for under Sec. 556.907, your guarantor will
either:
(1) Take corrective action to bring your lease or grant into
compliance with its terms, and the regulations, to the extent covered
by the guarantee; or
(2) Provide sufficient funds within 7 calendar days to permit the
Regional Director to complete such corrective action to the extent
covered by the guarantee.
(j) The third-party guarantee agreement must contain a confession
of judgment. It must provide that, if the Regional Director determines
that you are in default of the lease or grant covered by the guarantee
or not in compliance with any regulation applicable to such lease or
grant, the guarantor:
(1) Will not challenge the determination; and
(2) Will remedy the default to the extent covered by the guarantee.
(k) Each third-party guarantee agreement is deemed to contain all
terms and conditions contained in paragraphs (d), (i), and (j) of this
section, even if the guarantor has omitted these terms from the third-
party guarantee agreement.
0
26. Revise Sec. 556.906 to read as follows:
Sec. 556.906 Termination of the period of liability and cancellation
of financial assurance.
This section defines the terms and conditions under which BOEM will
terminate the period of liability of, or cancel, financial assurance.
Terminating the period of liability ends the period during which
obligations continue to accrue, but does not relieve the financial
assurance provider of the responsibility for obligations that accrued
during the period of liability. Canceling a financial assurance
instrument relieves the financial assurance provider of all liability.
The liabilities that accrue during a period of liability include
obligations that started to accrue prior to the beginning of the period
of liability and had not been met, and obligations that begin accruing
during the period of liability.
(a) When you or your financial assurance provider request
termination:
(1) The Regional Director will terminate the period of liability
under your financial assurance within 90 calendar days after BOEM
receives the request; and
(2) If you intend to continue operations, or have not met all
decommissioning obligations, within 90 calendar days after BOEM
receives your termination request, you must provide replacement
financial assurance of an equivalent amount.
[[Page 31597]]
(b) If you provide replacement financial assurance, the Regional
Director will cancel your previous financial assurance and the previous
financial assurance provider will not retain any liability, provided
that:
(1) The amount of the new financial assurance is equal to or
greater than that of the financial assurance that was cancelled, or you
provide an alternative form of financial assurance, and the Regional
Director determines that the alternative form of financial assurance
provides a level of security equal to or greater than that provided by
the financial assurance that is proposed to be cancelled;
(2) For financial assurance submitted under Sec. 556.900(a), Sec.
556.901(a) or (b), Sec. 550.166(a) of this subchapter, or Sec.
550.1011(a) of this subchapter, the new financial assurance provider
agrees to assume all outstanding obligations that accrued during the
period of liability that was terminated; and
(3) For supplemental financial assurance submitted under Sec.
556.901(d), Sec. 550.166(b) of this subchapter, or Sec. 550.1011(d)
of this subchapter, the new financial assurance provider agrees to
assume that portion of the outstanding obligations that accrued during
the period of liability that was terminated and that the Regional
Director determines may exceed the coverage of the financial assurance
submitted under Sec. 556.900(a), Sec. 556.901(a) or (b), Sec.
550.166(a) of this subchapter, or Sec. 550.1011(a) of this subchapter.
The Regional Director will notify the provider of the new financial
assurance of the amount required.
(c) This paragraph (c) applies if the period of liability is
terminated, but the financial assurance is not replaced with financial
assurance of an equivalent amount pursuant to paragraph (b) of this
section. The financial assurance provider will continue to be
responsible for obligations that accrued prior to the termination of
the period of liability:
(1) Until the obligations are satisfied; and
(2) For additional periods of time in accordance with paragraph (d)
of this section.
(d) BOEM will cancel the financial assurance for your lease or
grant, and the Regional Director will return any pledged financial
assurance, as shown in the following table:
------------------------------------------------------------------------
Your financial assurance will be
reduced or cancelled, or your
For the following: pledged financial assurance will be
returned:
------------------------------------------------------------------------
(1) Financial assurance submitted (i) 7 years after the lease or grant
under Sec. 556.900(a), Sec. expires or is terminated, 6 years
556.901(a) or (b), Sec. after the Regional Director
550.166(a) of this subchapter, or determines that you have completed
Sec. 550.1011(a) of this all covered obligations, or at the
subchapter.. conclusion of any appeals or
litigation related to your covered
obligations, whichever is the
latest. The Regional Director will
reduce the amount of your financial
assurance or return a portion of
your pledged financial assurance if
the Regional Director determines
that less than the full amount of
the financial assurance or pledged
financial assurance is required to
cover any potential obligations.
(ii) [Reserved]
(2) Financial assurance submitted (i) When the lease or grant expires
under Sec. 556.901(d), Sec. or is terminated and the Regional
550.166(b) of this subchapter, or Director determines you have met
Sec. 550.1011(d) of this your covered obligations, unless
subchapter.. the Regional Director:
(A) Determines that the future
potential liability resulting from
any undetected problem is greater
than the amount of the financial
assurance submitted under Sec.
556.900(a), Sec. 556.901(a) or
(b), Sec. 550.166(a) of this
subchapter, or Sec. 550.1011(a)
of this subchapter; and
(B) Notifies the provider of
financial assurance submitted under
Sec. 556.901(d), Sec.
550.166(b) of this subchapter, or
550.1011(d) of this subchapter that
the Regional Director will wait 7
years before cancelling all or a
part of such financial assurance
(or longer period as necessary to
complete any appeals or judicial
litigation related to your secured
obligations).
(ii) At any time when:
(A) BOEM has determined, using the
criteria set forth in Sec.
556.901(d)(1), as applicable, that
you no longer need to provide the
supplemental financial assurance
for your lease, RUE grant, or
pipeline ROW grant.
(B) The operations for which the
supplemental financial assurance
was provided ceased prior to
accrual of any decommissioning
obligation; or,
(C) Cancellation of the financial
assurance is appropriate because,
under the regulations, BOEM
determines such financial assurance
never should have been required.
(3) Third-party Guarantee under (i) When the Regional Director
Sec. 556.901(d), Sec. determines you have met your
550.166(b) of this subchapter, or obligations secured by the
Sec. 550.1011(d) of this guarantee (or longer period as
subchapter.. necessary to complete any appeals
or judicial litigation related to
your obligations secured by the
guarantee).
(ii) [Reserved]
------------------------------------------------------------------------
(e) For all financial assurance, the Regional Director may
reinstate your financial assurance as if no cancellation had occurred
if:
(1) A person makes a payment under the lease, RUE grant, or
pipeline ROW grant, and the payment is rescinded or must be returned by
the recipient because the person making the payment is insolvent,
bankrupt, subject to reorganization, or placed in receivership; or
(2) The responsible party represents to BOEM that it has discharged
its obligations under the lease, RUE grant, or pipeline ROW grant and
the representation was materially false when the financial assurance
was cancelled.
0
27. Revise Sec. 556.907 to read as follows:
Sec. 556.907 Forfeiture of bonds or other financial assurance.
This section explains how a bond or other financial assurance may
be forfeited.
(a) The Regional Director will call for forfeiture of all or part
of the bond, or other form of financial assurance, including a
guarantee you provide under this part, if:
(1) You, or any party with the obligation to comply, refuse to
comply with any term or condition of your
[[Page 31598]]
lease, RUE grant, pipeline ROW grant, or any BOEM or BSEE order, or any
applicable regulation, or the Regional Director determines that you are
unable to so comply; or
(2) You default on one of the conditions under which the Regional
Director accepts your bond, third-party guarantee, and/or other form of
financial assurance.
(b) The Regional Director may pursue forfeiture of your surety bond
or other financial assurance without first making demands for
performance against any other record title owner, operating rights
owner, grant holder, or other person authorized to perform lease or
grant obligations.
(c) The Regional Director will:
(1) Notify you, your surety, guarantor, or the financial
institution holding or providing your financial assurance, of a
determination to call for forfeiture of your financial assurance,
whether it takes the form of a surety bond, guarantee, funds, or other
type of financial assurance.
(i) This notice will be in writing and will provide the reason for
the forfeiture and the amount to be forfeited.
(ii) The Regional Director will determine the amount to be
forfeited based upon an estimate of the total cost of corrective action
to bring your lease or grant into compliance, subject, in the case of a
guarantee, to any limitation in the guarantee authorized by Sec.
556.905(b).
(2) Advise you and your financial assurance provider that
forfeiture may be avoided if, within five business days:
(i) You agree to and demonstrate that you will bring your lease or
grant into compliance within the timeframe the Regional Director
prescribes; or
(ii) The provider of your financial assurance agrees to and
demonstrates that it will complete the corrective action to bring your
lease or grant into compliance within the timeframe the Regional
Director prescribes, even if the cost of compliance exceeds the amount
of that financial assurance.
(d) If the Regional Director finds you are in default under
paragraph (a)(1) or (2) of this section, the Regional Director may
cause the forfeiture of any financial assurance provided to ensure your
compliance with BOEM and BSEE orders, the terms and conditions of your
lease or grant, and the regulations in this chapter and chapters II and
XII of this title.
(e) If the Regional Director determines that your financial
assurance is forfeited, the Regional Director will:
(1) Collect the forfeited amount; and
(2) Use the funds collected to bring your lease or grant into
compliance and to correct any default.
(f) If the amount the Regional Director collects under your
financial assurance is insufficient to pay the full cost of corrective
action, the Regional Director may:
(1) Take or direct action to obtain full compliance with your lease
or grant and the regulations in this chapter; and
(2) Recover from you, any other record title owner, operating
rights owner, co-grant holder or, to the extent covered by the
guarantee, any third-party guarantor responsible under this subpart,
all costs in excess of the amount the Regional Director collects under
your forfeited financial assurance.
(g) If the amount that the Regional Director collects under your
forfeited financial assurance exceeds the costs of taking the
corrective action required to bring your lease or grant into compliance
with its terms and the regulations in this chapter, BOEM and BSEE
orders, and chapters II and XII of this title, the Regional Director
will return the excess funds to the party from whom they were
collected.
(h) The Regional Director may pay the funds from the forfeited
financial assurance to a co- or predecessor lessee or third party who
is taking the corrective action required to obtain partial or full
compliance with the regulations, BOEM or BSEE orders, and/or the terms
of your lease or grant.
Subchapter C--Appeals
PART 590--APPEAL PROCEDURES
0
28. The authority citation for part 590 continues to read as follows:
Authority: 5 U.S.C. 301 et seq.; 31 U.S.C. 9701; 43 U.S.C.
1334.
0
29. Revise the heading to subpart A to read as follows:
Subpart A--Bureau of Ocean Energy Management Appeal Procedures
0
30. Revise Sec. 590.1 to read as follows:
Sec. 590.1 What is the purpose of this subpart?
The purpose of this subpart is to explain the procedures for
appeals of Bureau of Ocean Energy Management (BOEM) decisions and
orders.
0
31. Revise Sec. 590.2 to read as follows:
Sec. 590.2 Who may appeal?
If you are adversely affected by a BOEM official's final decision
or order issued under chapter V of this title, you may appeal that
decision or order to the Interior Board of Land Appeals (IBLA). Your
appeal must conform with the procedures found in this subpart and 43
CFR part 4, subpart E. A request for reconsideration of a BOEM decision
concerning a lease bid, authorized in Sec. 556.517(b), Sec.
581.21(a)(2), or Sec. 585.118(c)(1) of this chapter, is not subject to
the procedures found in this part.
0
32. Revise Sec. 590.3 to read as follows:
Sec. 590.3 What is the time limit for filing an appeal?
You must file your appeal within 60 days after you receive BOEM's
final decision or order. The 60-day time period applies rather than the
time period provided in 43 CFR 4.411(a). A decision or order is
received on the date you sign a receipt confirming delivery or, if
there is no receipt, the date otherwise documented.
0
33. Amend Sec. 590.4 by revising paragraph (a) and adding paragraph
(c) to read as follows:
Sec. 590.4 How do I file an appeal?
* * * * *
(a) A written Notice of Appeal, together with a copy of the
decision or order you are appealing, in the office of the BOEM officer
that issued the decision or order. You cannot extend the 60-day period
for that office to receive your Notice of Appeal; and
* * * * *
(c) You may file an appeal of a BOEM supplemental financial
assurance demand with the IBLA. However, if you request that the IBLA
stay the demand pending a final ruling on your appeal, you must post an
appeal surety bond equal to the amount of the demand that you seek to
stay before any such stay is effective.
0
34. Amend Sec. 590.7 by revising paragraphs (a)(1) and (b) to read as
follows:
Sec. 590.7 Do I have to comply with the decision or order while my
appeal is pending?
(a) * * *
(1) BOEM notifies you that the decision or order, or some portion
of it, is suspended during this period because there is no likelihood
of immediate and irreparable harm to human life, the environment, any
mineral deposit, or property; or
* * * * *
(b) This section applies rather than 43 CFR 4.21(a) for appeals of
BOEM orders.
* * * * *
0
35. Amend Sec. 590.8 by revising paragraph (a) to read as follows:
[[Page 31599]]
Sec. 590.8 How do I exhaust my administrative remedies?
(a) If you receive a decision or order issued under this chapter,
you must appeal that decision or order to the IBLA under 43 CFR part 4,
subpart E, to exhaust administrative remedies.
* * * * *
[FR Doc. 2024-08309 Filed 4-23-24; 8:45 am]
BILLING CODE 4310-MR-P
