Risk Management, Financial Assurance and Loss Prevention
| Published date | 16 October 2020 |
| Citation | 85 FR 65904 |
| Record Number | 2020-20827 |
| Section | Proposed rules |
| Court | Ocean Energy Management Bureau,Safety And Environmental Enforcement Bureau |
Federal Register, Volume 85 Issue 201 (Friday, October 16, 2020)
[Federal Register Volume 85, Number 201 (Friday, October 16, 2020)]
[Proposed Rules]
[Pages 65904-65937]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20827]
[[Page 65903]]
Vol. 85
Friday,
No. 201
October 16, 2020
Part IIDepartment of the Interior----------------------------------------------------------------------- Bureau of Safety and Environmental Enforcement Bureau of Ocean Energy Management-----------------------------------------------------------------------30 CFR Parts 250, 290, 550 et al.Risk Management, Financial Assurance and Loss Prevention; Proposed Rule
Federal Register / Vol. 85 , No. 201 / Friday, October 16, 2020 /
Proposed Rules
[[Page 65904]]
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DEPARTMENT OF THE INTERIOR
Bureau of Safety and Environmental Enforcement
30 CFR Parts 250 and 290
Bureau of Ocean Energy Management
30 CFR Parts 550 and 556
[Docket ID: BOEM-2018-0033]
RIN 1082-AA02
Risk Management, Financial Assurance and Loss Prevention
AGENCY: Bureau of Ocean Energy Management (BOEM), Bureau of Safety and
Environmental Enforcement (BSEE), Interior.
ACTION: Notice of proposed rulemaking and request for comment.
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SUMMARY: The Department of the Interior (the Department), acting
through BOEM and BSEE, proposes to streamline its evaluation criteria
for determining whether oil, gas and sulfur lessees, right-of-use and
easement (RUE) grant holders, and pipeline right-of-way grant holders
may be required to provide bonds or other security above the prescribed
amounts for base bonds to ensure compliance with their Outer
Continental Shelf (OCS) obligations. BOEM's portion of the proposed
rule would also remove restrictive provisions for third-party
guarantees and decommissioning accounts, and would add new criteria
under which additional bonds and third-party guarantees may be
cancelled. Based on the proposed framework, BOEM estimates its amount
of financial assurance would decrease from $3.3 billion to $3.1
billion, although it would provide greater protection as the financial
assurance would be focused on the riskiest properties. BSEE's portion
of this proposed rule would establish the order in which BSEE could
order predecessor lessees, owners of operating rights, or grant
holders, who have accrued decommissioning obligations, to perform those
obligations when the current owners of a lease or grant fail to do so.
BSEE's proposed provisions would also clarify decommissioning
responsibilities for RUE grant holders and require that any party
appealing any final decommissioning order provide a surety bond to
ensure that funding for decommissioning is available if the order is
affirmed on appeal and the liable party subsequently defaults.
DATES: Submit comments on the substance of this rulemaking on or before
December 15, 2020. BOEM and BSEE may not consider comments received
after this date. You may submit comments to the Office of Management
and Budget (OMB) on the information collection (IC) burden in this
rulemaking on or before November 16, 2020. This does not affect the
deadline for the public to comment to BOEM and BSEE on the proposed
regulations.
ADDRESSES: You may submit comments on the rulemaking by any of the
following methods. Please reference ``Risk Management, Financial
Assurance and Loss Prevention, RIN 1082-AA02.'' Please include your
name, return address, and phone number or email address, so we can
contact you if we have questions regarding your submission.
Federal rulemaking portal: http://www.regulations.gov. In
the entry entitled, ``Enter Keyword or ID,'' enter BOEM-2018-0033 then
click search. Follow the instructions to submit public comments and
view supporting and related materials available for this rulemaking.
BOEM and BSEE may post all submitted comments.
Mail or delivery service: Send comments on the BOEM
portions of the proposed rule to the Department of the Interior, Bureau
of Ocean Energy Management, Office of Policy, Regulation and Analysis,
Attention: Peter Meffert, 1849 C Street NW, Mailstop DM5238,
Washington, DC 20240. Send comments on the BSEE portions of the
proposed rule to Department of the Interior, BSEE, Office of Offshore
Regulatory Programs (OORP), Regulations and Standards Branch,
Attention--Kelly Odom, 45600 Woodland Rd, (Mail code VAE-ORP),
Sterling, VA 20166.
Send comments on the IC in this proposed rule to: Interior
Desk Officer, Office of Management and Budget; 202-395-5806 (fax); or
via the www.reginfo.gov/public/do/PRAMain. Find the information
collection by selecting ``Currently under 30-day Review--Open for
Public Comments or by using the search function. Please also send a
copy of comments on the BOEM IC to BOEM, Office of Policy, Regulation
and Analysis, Attention: Anna Atkinson, 45600 Woodland Road, Sterling,
VA 20166. Please send a copy of any comments on the BSEE IC to BSEE,
OORP, Regulations and Standards Branch, Attention: Nicole Mason, 45600
Woodland Road, (Mail code VAE-ORP), Sterling, VA 20166.
Public Availability of Comments: Before including your name, return
address, phone number, email address, or other personally identifiable
information in your comment, you should be aware that your entire
comment--including your personally identifiable information--may be
made publicly available at any time. In order for BOEM or BSEE to
withhold from disclosure your personally identifiable information, you
must identify any information contained in the submittal of your
comments that, if released, would constitute a clearly unwarranted
invasion of your personal privacy. You must also briefly describe any
possible harmful consequences of the disclosure of information, such as
embarrassment, injury, or other harm. While you can ask us in your
comment to withhold your personally identifiable information from
public review, we cannot guarantee that we will be able to do so.
FOR FURTHER INFORMATION CONTACT: For questions on any BOEM issues,
contact Deanna Meyer-Pietruszka, Chief, Office of Policy, Regulation
and Analysis, Bureau of Ocean Energy Management (BOEM), at
[email protected] or at (202) 208-6352. For questions on
any BSEE issues, contact Amy White, Bureau of Safety and Environmental
Enforcement (BSEE), at [email protected] or at (703) 787-1665.
To see a copy of either IC request submitted to OMB, go to http://www.reginfo.gov (select Information Collection Review, Currently Under
Review). You may obtain a copy of the supporting statement for BOEM's
new collection of information by contacting BOEM, Office of Policy,
Regulation and Analysis, Attention: Anna Atkinson, at 45600 Woodland
Road, Sterling, VA 20166. You may obtain a copy of the supporting
statement for BSEE's new collection of information by contacting BSEE,
OORP, Regulations and Standards Branch, Attention: Nicole Mason, 45600
Woodland Road, (Mail code VAE-ORP), Sterling, VA 20166.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background of BOEM Regulations
A. BOEM Statutory and Regulatory Authority and Responsibilities
B. History of Bonding Regulations and Guidance
C. Regulatory Reform--New Executive and Secretary's Orders
D. Purpose of BOEM's Portion of the Proposed Rulemaking
II. Background of BSEE Regulations
A. BSEE Statutory and Regulatory Authority and Responsibilities
B. BSEE's Decommissioning Regulations and Guidance
C. Regulatory Reform
D. Stakeholder Engagement
E. Purpose of BSEE's Portion of the Proposed Rulemaking
[[Page 65905]]
III. Proposed Revisions to BOEM Bond and Other Security Requirements
A. Leases
B. Right-of-Use and Easement Grants
C. Pipeline Right-of-Way Grants
IV. Proposed Revisions to Other BOEM Security Requirements
A. Third-party Guarantees
B. Lease-specific Abandonment Accounts
C. Cancellation of Additional Bonds
V. BOEM Evaluation Methodology
A. Credit Ratings
B. Valuing Proved Oil and Gas Reserves
VI. Proposed Revisions to BOEM Definitions
VII. Proposed Revisions to BSEE Decommissioning Regulations
A. Decommissioning by Predecessors
B. Decommissioning of Rights-of-Use and Easement
C. Bonding Requirement for Appeals of Decommissioning Decisions
and Orders
VIII. Section-by-Section Analysis
A. Regulations Proposed by BSEE
B. Regulations Proposed by BOEM
IX. Additional Comments Solicited by BOEM and BSEE
X. Procedural Matters
A. Regulatory Planning and Review (E.O. 12866, 13563 and 113771)
B. Regulatory Flexibility Act
C. Small Business Regulatory Enforcement Fairness Act
D. Unfunded Mandates Reform Act of 1995
E. Takings Implication Assessment (E.O. 112630)
F. Federalism (E.O. 113132)
G. Civil Justice Reform (E.O. 112988)
H. Consultation With Indian Tribes (E.O. 13175 and Departmental
Policy)
I. Paperwork Reduction Act
J. National Environmental Policy Act
K. Data Quality Act
L. Effects on the Nation's Energy Supply (E.O. 113211)
M. Clarity of This Regulation
I. Background of BOEM Regulations
A. BOEM Statutory and Regulatory Authority and Responsibilities
BOEM derives its authority primarily from the Outer Continental
Shelf Lands Act (OCSLA), 43 U.S.C. 1331-1356b, which authorizes the
Secretary of the Interior (Secretary) to lease the OCS for mineral
development, and to regulate oil and gas exploration, development, and
production operations on the OCS. 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'' the ``provisions of
[OCSLA] relating to the leasing of the'' OCS and ``to provide for the
prevention of waste and conservation of the natural resources of the
[OCS] and the protection of correlative rights therein,'' and provides
that ``such rules and regulations shall, as of their effective date,
apply to all operations conducted under a lease issued or maintained
under'' OCSLA. Section 5(b) of OCSLA provides that ``compliance with
regulations issued under'' OCSLA shall 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.
BOEM is responsible for managing development of the nation's
offshore resources in an environmentally and economically responsible
way. The Secretary, in Secretary's Order 3299, delegated the authority
to BOEM to carry out conventional (e.g., oil and gas) and renewable
energy-related functions including, but not limited to, activities
involving resource evaluation, planning, and leasing. Secretary's Order
3299 also assigned authority to BSEE, including, but not limited to,
enforcement of the obligation to perform decommissioning. BSEE provides
estimates of decommissioning costs to BOEM so that the financial
assurance required by BOEM will be sufficient to cover the cost to
perform decommissioning, thereby protecting the government from
incurring financial loss to the maximum extent practicable. While BOEM
has program oversight for the financial assurance requirements set
forth in 30 CFR parts 550, 551, 556, 581, 582 and 585, this proposed
rule pertains only to the financial assurance requirements for oil and
gas or sulfur leases under Part 556, and associated right-of-use and
easement grants and pipeline right-of-way grants under Part 550.
B. History of Bonding Regulations and Guidance
BOEM's existing bonding regulations for leases (30 CFR 556.900-907)
and pipeline right-of-way grants (30 CFR 550.1011) published by BOEM's
predecessor, the Minerals Management Service (MMS) on May 22, 1997 (62
FR 27948), provide the authority for the Regional Director to require
bonding for leases and pipeline right-of-way grants. Section 556.900(a)
and Sec. 556.901(a) and (b) require lease-specific base bonds or
areawide base bonds in prescribed amounts, depending on the level of
activity on a lease or leases. Section 556.901(d) authorizes the
Regional Director to require additional security for leases above the
prescribed amounts for lease and areawide base bonds. Similarly, Sec.
550.1011 authorizes the Regional Director to require an areawide base
bond in a prescribed amount and additional security above the
prescribed amount for pipeline right-of-way grants.
BOEM's existing bonding regulations for right-of-use and easement
grants (30 CFR 550.160 and 550.166), published by the MMS on December
28, 1999 (64 FR 72756), provide the authority for the Regional Director
to require bonds or other security for right-of-use and easement
grants. Section 550.160, which applies only to an applicant for a
right-of-use and easement that serves an OCS lease, provides that the
applicant ``must meet bonding requirements.'' While there is no
requirement for an applicant for a right-of-use and easement that
serves an OCS lease to provide a base bond in a prescribed amount,
Sec. 550.160 authorizes the Regional Director to require bonding if
the Regional Director determines it is necessary.
Section 550.166 requires an applicant for a right-of-use and
easement that serves a State lease to provide a base bond of $500,000.
Section 550.166 also provides that BOEM may require additional security
above the prescribed $500,000 base bond from the holder of a right-of-
use and easement that serves a State lease to cover additional costs
and liabilities.
MMS, and now BOEM, has employed the criteria for determining
whether additional security should be required for leases to also
determine whether additional security should be required for right-of-
use and easement grants or pipeline right-of-way grants, since there
are no criteria specified in the existing Part 550 for these purposes.
The existing lease bonding regulations under Sec. 556.901(d) provide
five criteria the bureau uses to determine whether a lessee's potential
inability to carry out present and future financial obligations
warrants a demand for additional security. However, these regulations
do not specifically describe how the agency weighs those criteria. To
provide guidance, MMS issued Notice to Lessees (NTL) No. 98-18N,
effective December 28, 1998, which provided details on how it would
apply these regulations and the five criteria. This NTL was replaced by
NTL No. 2003-N06, effective June 17, 2003, which was later replaced by
NTL No. 2008-N07, effective August 28, 2008.
Pursuant to BOEM's standard, historical practice under NTL No.
2008-N07, a lessee or grant holder that passed established financial
thresholds was waived from providing additional security to cover its
decommissioning liabilities. Additionally, co-lessees (regardless of
their own financial strength), were not required to provide additional
security for the decommissioning liability for that lease if one lessee
was waived. The decommissioning liability on a lease, on which there
were two waived lessees, was not attributed to either lessee in
calculating whether a lessee's cumulative potential decommissioning
liability was less than 50% of the lessee's net worth, which was the
standard for a lessee to qualify for a
[[Page 65906]]
supplemental bonding waiver. The policy was based on the assumption
that the chances were very remote that both lessees would become
financially distressed and not be able to meet their obligations. While
NTL No. 2008-N07 was the most recent, fully implemented NTL, BOEM did
not fully enforce it during the oil price collapse of 2014-2016. BOEM
was concerned that fully enforcing NTL No. 2008-N07 would have led to
an increase of bond demands that, in turn, would have contributed to an
increase in bankruptcy filings.
Since 2009, there have been 30 corporate bankruptcies of offshore
oil and gas lessees involving owned or partially owned offshore
decommissioning liability of approximately $7.5 billion in total. This
figure includes properties with co-lessees and predecessors, and
properties held by companies that successfully emerged from a Chapter
11 reorganization bankruptcy. While BOEM cannot predict the outcomes of
bankruptcy proceedings, the actual financial risk is significantly less
than the total offshore decommissioning liability associated with
offshore corporate bankruptcies. Several of these companies experienced
financial distress when oil prices fell sharply at the end of 2014.
Further, the fact that a company entered bankruptcy does not
necessarily suggest that there would be no private party responsible
for decommissioning costs, as company assets may be sold, and
predecessors would retain their pre-existing obligation to fund or
perform the decommissioning.
The fact that recent bankruptcies and reorganizations have involved
un-bonded decommissioning liabilities demonstrates that BOEM's
regulations and 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
hydrocarbon prices. Specifically, ATP Oil & Gas was a mid-sized company
with a financial assurance waiver when it filed for bankruptcy in 2012.
Similarly, Bennu Oil & Gas was waived at the time of its bankruptcy
filing, and Energy XXI and Stone Energy did not lose their waivers
until less than 12 months prior to filing bankruptcy. While most
affected OCS properties were ultimately sold or the companies
reorganized under Chapter 11 of the U.S. Bankruptcy Code, several
bankruptcies, including those of ATP and Bennu, demonstrated the
weaknesses in BOEM's financial assurance program. These weaknesses were
apparent because the unsecured decommissioning liabilities exceeded the
value of the leases to potential purchasers or investors. BOEM cannot
forecast the outcome of bankruptcy proceedings, which may lead to the
restructuring or liquidation of an insolvent company, in addition to
other potential outcomes. If BOEM has insufficient financial assurance
at the time of bankruptcy, BOEM may seek legal avenues for obtaining
funds in bankruptcy proceedings, but outcomes are not assured and there
may be no recourse for obtaining additional funds, resulting in the
Department of the Interior's needing to perform the decommissioning
with the cost coming from the American taxpayer.
In 2009, MMS issued a proposed rule (74 FR 25177) to rewrite the
entirety of the leasing provisions of Part 256 (now designated as Part
556). However, because of uncertainty associated with revising the
bonding requirements, BOEM deferred revision of the bonding regulations
to a separate rulemaking. This separate rulemaking commenced August 14,
2014, with an advance notice of proposed rulemaking (79 FR 49027) to
solicit ideas for improving the bonding regulations.
In December 2015, the Government Accountability Office (GAO)
reviewed BOEM's financial assurance procedures (see GAO-16-40, https://www.gao.gov/products/GAO-16-40) (the 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
financial assurance procedures, including the use of alternative
measures of financial strength.'' GAO-16-40 at 34. Following further
analysis and a series of stakeholder meetings in 2015 and 2016 to
solicit industry input, BOEM attempted to remedy the weaknesses in its
financial assurance program as administered under NTL No. 2008-N07 with
new NTL No. 2016-N01, Requiring Additional Security, which became
effective September 12, 2016. NTL No. 2016-N01 sought to clarify the
procedures and explain how BOEM would use the regulatory criteria to
determine if, and when, additional security may be required for OCS
leases, right-of-use and easement grants, and pipeline right-of-way
grants. The NTL continued to use net worth of a lessee as a measure of
financial strength because this measure was required by the
regulations. The NTL also detailed several changes in policy and
refined the criteria used to determine a lessee's or grant holder's
financial ability to carry out its obligations. On August 29, 2016,
BOEM requested GAO to close the above stated recommendation in the GAO
Report, stating that BOEM had implemented the recommendation by
issuance of the NTL. GAO found that the recommendation had been
implemented and closed the audit recommendation later in fiscal year
2016. BOEM acknowledges that NTL No. 2016-N01 was never fully
implemented. This proposed rulemaking is another effort (in addition to
the partially implemented NTL) to revise BOEM's financial assurance
procedures, including the proposal to use alternative measures to
evaluate financial strength.
In December 2016, BOEM began implementing the NTL and issued
numerous orders to lessees and grant holders to provide additional
security for ``sole liability properties,'' i.e., leases, right-of-use
and easement grants, and pipeline right-of-way grants for which the
lessee or grant holder is the only party liable for meeting the lease
or grant obligations.
On January 6, 2017, BOEM issued a Note to Stakeholders extending
implementation of NTL No. 2016-N01 for six months. The extension
applied to leases, right-of-use and easement grants, and pipeline
right-of-way grants for which there were co-lessees, predecessors in
interest, or both, except where BOEM determined there was a substantial
risk of nonperformance of the interest holder's decommissioning
obligation. The extension of the implementation timeline allowed BOEM
an opportunity to evaluate whether certain leases and grants were
considered to be sole liability properties. Upon closer examination and
upon receiving feedback from notified stakeholders regarding
inaccuracies in BOEM's assessment of sole liabilities, BOEM issued a
second Note to Stakeholders on February 17, 2017, announcing that it
would withdraw the December 2016 orders issued on sole liability
properties to allow time for the new Administration to review BOEM's
financial assurance program.
C. Regulatory Reform--New Executive and Secretary's Orders
On March 28, 2017, the President issued Executive Order (E.O.)
13783--Promoting Energy Independence and Economic Growth. Section 2 of
the E.O. directed Federal agencies to: Review all existing regulations
and other agency actions that potentially burden the development of
domestic energy resources; provide recommendations that, to the extent
permitted by law, could alleviate or eliminate aspects of agency
actions that burden domestic
[[Page 65907]]
energy production; and pursue processes for implementing such
recommendations, as appropriate and consistent with law. While section
2 of the E.O. directed Federal agencies to review regulations, section
2 did not direct any particular changes or outcomes.
On April 28, 2017, the President issued E.O. 13795, Implementing an
America-First Offshore Energy Strategy, which ordered the Secretary of
the Interior to direct the BOEM Director to take all necessary steps
consistent with law to review BOEM's NTL No. 2016-N01 and determine
whether modifications are necessary, and if so, to what extent, to
ensure operator compliance with lease terms while minimizing
unnecessary regulatory burdens. This E.O. also required the Secretary
of the Interior to review BOEM's financial assurance regulatory policy
to determine the extent to which additional regulation is necessary.
Secretary's Order No. 3350 of May 1, 2017, America-First Offshore
Energy Strategy, followed on E.O. 13795 and directed BOEM to promptly
complete its previously announced review of NTL No. 2016-N01 and to
``provide to the Assistant Secretary--Land and Minerals Management
(ASLM), the Deputy Secretary, and the Counselor to the Secretary for
Energy Policy, a report describing the results of the review and
options for revising or rescinding NTL No. 2016-N01.'' Secretary's
Order No. 3350 further specified that BOEM's previously announced
extension of the implementation timelines for NTL No. 2016-N01 would
remain in effect pending completion of the review.
On June 22, 2017, BOEM issued a third Note to Stakeholders
announcing that it was in the final stages of its review of NTL No.
2016-N01, but had determined that ``more time was necessary to work
with industry and other interested parties,'' and therefore, that it
would be appropriate to extend the implementation timeline beyond June
30, ``except in circumstances where there would be a substantial risk
of nonperformance of the interest holder's decommissioning
liabilities.''
BOEM continued to review the provisions of NTL No. 2016-N01 and
examine options for revising or rescinding the NTL. BOEM also continued
to review its financial assurance regulatory policy to determine the
extent to which regulatory revision is necessary. As a result, BOEM
recognized the need to develop a comprehensive program to assist in
identifying, prioritizing, and managing the risks associated with
industry activities on the OCS.
In October 2019, the President issued E.O. 13891, Promoting the
Rule of Law Through Improved Agency Guidance Documents, which, in
recognition that Americans deserve an open and fair regulatory process,
defines ``significant guidance documents'' as having an effect of $100
million or more, sets a policy that guidance documents should be non-
binding, and encourages legally binding requirements to be enacted
through notice and comment rulemaking under the Administrative
Procedure Act. Because the NTL was issued rather than moving forward
with the 2014 ANPRM, BOEM believes that compliance with E.O. 13981 is
best achieved by rulemaking, which provides for notice and comment.
D. Purpose of BOEM's Portion of the Proposed Rulemaking
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 companies at a
competitive disadvantage. After carefully considering the
recommendations of the GAO report, as well as feedback received during
the review of NTL No. 2016-N01 indicating that the policy changes
identified in the NTL could result in significant economic hardships
for companies operating on the OCS, particularly during times of low
oil prices, BOEM reconsidered its approach for identifying,
prioritizing, and managing the risks associated with industry
activities on the OCS.
The proposed rule would implement the recommendation of the GAO
report that BOEM look to alternative measures of financial strength.
Under the proposed rule, instead of relying primarily on net worth to
determine whether a lessee must provide additional security, BOEM would
primarily consider a lessee's or its predecessor's credit rating.
Credit rating agencies take many factors into account when evaluating a
company, particularly those that emphasize cash flow, such as debt-to-
earnings ratios and debt-to-funds from operations. A credit rating
would consider forward-looking factors, including the income statement
and cash flow statement, which provide a broader picture of how well a
company can meet its future liabilities. On the other hand, a net worth
analysis tends to be backward-looking, because it is calculated from a
company's balance sheet, which shows the current amount of its assets
and liabilities. A lessee's financial deterioration can occur quickly.
Relying on the more forward-looking credit rating analysis, both to
determine whether additional security may be necessary and to determine
whether a company can be a guarantor on the OCS, would allow BOEM to
foresee a lessee's possible financial distress sufficiently ahead of
time to take appropriate action.
Further, the proposed rule's new approach would be rooted in the
joint and several liability of all lessees, co-lessees, and predecessor
lessees for all non-monetary obligations on a lease. In most cases of
default by a current lessee, a predecessor lessee can be called upon to
perform decommissioning. This proposed rule would rely on the combined
responsibility of all current and predecessor lessees to perform
required decommissioning. Regardless of the proposed rule, even in
cases where a predecessor divested its full interest in a lease to
another company by assignment after accruing an obligation to
decommission certain infrastructure (i.e., well, platform, pipeline),
the predecessor remains jointly and severally liable for
decommissioning that infrastructure. The proposed rule would
acknowledge the larger universe of companies to whom BSEE can look for
performance under the law, and so would reduce the circumstances under
which BOEM would need to require additional security.
BOEM's proposed regulatory changes would allow the bureau to more
effectively address a number of complex financial and legal issues
(e.g., joint and several liability and economic viability of offshore
assets) associated with decommissioning liability on the OCS. By
addressing the issues through rulemaking, BOEM will afford all
interested and potentially affected parties the opportunity to provide
additional substantive comments to the agency. This rulemaking need not
be concerned with general bond amounts, nor is BOEM requesting comments
on the general bond amounts, because any potential shortfall could be
addressed using the flexibility of the additional security provisions.
In summary, BOEM is proposing this rulemaking to clarify and
simplify its financial assurance requirements with the ultimate goal of
providing regulatory changes that would continue to protect taxpayers
while providing certainty and needed flexibility for OCS operators.
[[Page 65908]]
II. Background of BSEE Regulations
A. BSEE Statutory and Regulatory Authority and Responsibilities
Like BOEM, BSEE derives its authority primarily from OCSLA, which
authorizes the Secretary, as discussed in part I.A, to regulate oil and
gas exploration, development, and production operations on the OCS. As
previously stated, Secretary's Order 3299 delegated authority to
perform certain of these regulatory functions to BSEE. To carry out its
responsibilities, BSEE regulates offshore oil and gas operations to
enhance the safety of exploration for and development of oil and gas on
the OCS, to ensure that those operations protect the environment, to
conserve the natural resources of the OCS, and to implement
advancements in technology. BSEE's regulatory program covers a wide
range of facilities and activities, including decommissioning
requirements, which are the primary focus of this rulemaking. Detailed
information concerning BSEE's regulations and guidance to the offshore
oil and gas industry may be found on BSEE's website at: http://www.bsee.gov/Regulations-and-Guidance/index.
B. BSEE's Decommissioning Regulations and Guidance
On May 17, 2002, MMS issued regulations that amended requirements
for plugging wells, decommissioning platforms and pipelines, and
clearing sites. (See 67 FR 35398.) In 2011, Secretary's Order 3299
assigned responsibility for certain MMS programs and regulations,
including the decommissioning regulations, to BSEE. On October 18,
2011, BSEE revised the decommissioning regulations to reflect BSEE's
role. (See 76 FR 64432.) On August 22, 2012, BSEE amended the
decommissioning regulations to implement certain safety recommendations
arising out of various Deepwater Horizon reports and moved the
regulations to 30 CFR part 250 subpart Q. (See 77 FR 50856.)
The Subpart Q regulations generally require that lessees and owners
of operating rights and pipeline right-of-way (ROW) grant holders
decommission wells, platforms and other facilities, and pipelines when
they are no longer useful for operations, but no later than one year
after a lease or ROW terminates.\1\ Failure to do so within this one-
year period, absent BSEE's approval, will typically result in the
issuance of a Notice of Incident of Noncompliance (INC)--the initial
stage of enforcement. Subpart Q also provides BSEE with the authority
to require the decommissioning of wells, platforms and other
facilities, and pipelines when no longer useful for operations on
active leases.
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\1\ Existing Sec. 250.1703 generally requires lessees and ROW
grant holders to permanently plug all wells, remove platforms and
other facilities, and decommission all pipelines when they are no
longer useful for operations and to clear the seafloor of all
obstructions created by the lease or a pipeline right-of-way.
Existing Sec. 250.1710 requires that wells be permanently plugged
within one year after a lease terminates, while Sec. 250.1725
requires that platforms and other facilities be removed within one
year after the lease or a pipeline right-of-way terminates (unless
BSEE approves maintaining the structure for other uses). Sections
250.1750 and 250.1751 allow lessees and ROW grant holders to
decommission pipelines in place (i.e., without removal) under
certain conditions.
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BSEE's regulation, at 30 CFR 250.1701, also provides that lessees
and owners of operating rights are jointly and severally liable for
meeting decommissioning obligations for facilities on leases, including
the obligations related to lease term pipelines, as the obligations
accrue and until each obligation is met.\2\ Likewise, all holders of a
ROW grant are jointly and severally liable for meeting decommissioning
obligations for facilities on their right-of-way, including ROW
pipelines, as the obligations accrue and until each obligation is met.
(See id. at 250.1701(b)). Section 250.1702 explains when lessees,
operating rights owners, and pipeline ROW grant holders accrue
decommissioning obligations. Section 250.1703 describes general
requirements for decommissioning of wells, platforms and other
facilities, and pipelines. In particular, paragraph (g) of Sec.
250.1703 requires that responsible parties conduct all decommissioning
activities ``in a manner that is safe, does not unreasonably interfere
with other uses of the OCS, and does not cause undue or serious harm or
damage to the . . . environment.''
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\2\ A similar requirement is imposed under existing Sec.
250.146.
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BOEM regulations at 30 CFR 556.710 and 556.805 provide that lessees
and owners of operating rights, who assign their interests, remain
liable post-assignment for all obligations they accrued during the
period in which they owned their interest. Those regulations also
provide that BOEM and BSEE can require such assignor predecessors to
perform those obligations if a subsequent assignee fails to perform.
Id.
In accordance with the joint and several liability provisions of 30
CFR part 250: Subpart Q and the residual liability provisions of part
556, when current lessees, operating rights owners, or ROW holders fail
to perform decommissioning obligations, BSEE typically orders all
predecessors that have accrued the defaulted obligation to perform any
required decommissioning. If a right-of-use and easement (RUE) grant
holder fails to perform (when obligated by the terms of the grant),
BSEE typically orders any lessees or owners of operating rights that
accrued the relevant obligation prior to issuance of the RUE to perform
required decommissioning. BSEE may issue such orders without regard to
whether a predecessor's ownership of interests in a lease or grant was
in recent years or several decades before. For example, if a
predecessor divests its full interest in a lease to another company by
assignment after accruing the obligation, BSEE would still have the
authority to order the predecessor to perform accrued obligations upon
default by a subsequent assignee, regardless of the regulatory
revisions in this proposed rulemaking.
To provide guidance and additional detail on the decommissioning
requirements, MMS issued NTL No. 2004-G06, Structure Removal Operations
(effective April 5, 2004). MMS replaced this NTL in 2010 with NTL No.
2010-G05, Decommissioning Guidance for Wells and Platforms, which BSEE
in turn replaced in December 2018 with NTL No. 2018-G03, Idle Iron
Decommissioning Guidance for Wells and Platforms. The 2018 NTL states
that BSEE may issue orders to lessees and ROW grant holders who fail to
meet deadlines to decommission, as specified in the NTL, for wells and
facilities on active leases that are no longer useful for operations.
It also states that BSEE will typically issue INCs if decommissioning
does not occur within one year after a lease or ROW grant expires,
terminates, or is relinquished, to prompt the owners and their operator
to address problems that occur when decommissioning is not carried out
in a timely manner. The 2018 NTL also states that, pursuant to 30 CFR
250.1711(a), BSEE will issue orders to permanently plug any wells that
pose hazards to safety or the environment.
C. Regulatory Reform
On February 24, 2017, the President issued E.O. 13777, Enforcing
the Regulatory Reform Agenda, which establishes two main goals for
Federal agencies in alleviating unnecessary burdens placed on the
American people:
(1) To improve implementation of the regulatory reform initiatives
and policies specified in E.O. 13771 (Reducing Regulation and
Controlling Regulatory Costs), E.O. 12866, and E.O.
[[Page 65909]]
13563 (Improving Regulation and Regulatory Review); and
(2) To identify regulations for repeal, replacement, or
modification, that, among other things, are outdated, unnecessary, or
ineffective; impose costs that exceed benefits; or create a serious
inconsistency or otherwise interfere with regulatory reform initiatives
and policies.
D. Stakeholder Engagement
On June 22, 2017, the Office of the Secretary issued a Request for
Comments to solicit public input on how the Department can improve
implementation of regulatory reform initiatives and policies and
identify regulations for repeal, replacement, or modification (see 82
FR 28429). As a result, the Department received several written
comments, some of which pertained to BOEM's financial assurance
regulatory requirements, including financial assurance for
decommissioning, and some of which addressed BSEE's procedures for
requiring performance of decommissioning obligations by predecessors
when the current lessees or grant holders fail to do so. The commenters
that addressed BSEE's procedures urged BSEE to focus responsibility for
decommissioning liabilities on current lessees, regardless of
predecessors in title, inasmuch as predecessors are not held
responsible for liabilities created after their ownership terminates;
and, in cases of a default by current owners, to pursue performance by
predecessors in reverse chronological order starting with the most
recent predecessor.
BSEE has considered the comments from stakeholders and determined
that BSEE's decommissioning regulations could be revised to support the
goals of the Administration's regulatory reform initiatives, while also
ensuring safety and environmental protection. Accordingly, BSEE
proposes to revise existing 30 CFR part 250: Subpart Q regulations to
address the order in which predecessors will be ordered to perform
decommissioning if the current lessees or grant holders fail to do so.
In addition, BSEE proposes to revise the decommissioning regulations to
expressly include holders of RUE grants among the parties who can
accrue obligations for decommissioning. Finally, BSEE proposes to
require parties who file administrative appeals of decommissioning
decisions or orders to post a surety bond in order to seek to obtain a
stay of that decision or order pending the appeal, and thus minimize
any possibility that resources for the performance of decommissioning
will be unavailable following exhaustion of appeals, such as if no
other predecessors exist to perform the decommissioning activities.
E. Purpose of BSEE's Portion of the Proposed Rulemaking
Timely decommissioning of oil and gas wells, platforms and other
facilities, and pipelines and related infrastructure is a critical
requirement for OCS operators to adhere to, and when necessary, for
BSEE to enforce. If not properly decommissioned, such infrastructure
could cause safety hazards or environmental harm, or become
obstructions by interfering with navigation or other uses of the OCS
(such as fishing and future resource development). Under some
conditions, however, lessees or grant holders may transfer platforms to
artificial reef sites maintained by coastal states, or ROW grant
holders may decommission pipelines in place, in lieu of removal. This
proposed rule would not change regulations governing the operational
aspects of decommissioning.
Under existing regulations, BSEE can require a predecessor to bring
a lease into compliance if its assignee or any subsequent assignee has
failed to perform an obligation that accrued prior to assignment.
BSEE's proposed rule would create a new procedure under Subpart Q for
establishing the sequence in which BSEE will order predecessors to
carry out their accrued decommissioning obligations when current
lessees or grant holders (or other predecessors) fail to do so.
Specifically, after the current lessees or grant holders have
defaulted, BSEE would pursue liable predecessors in reverse
chronological order through the chain-of-title to perform their accrued
decommissioning obligations. Under this approach, the most recent
predecessors would receive orders to conduct decommissioning first,
before BSEE turns to predecessors more remote in time.
This proposed change may provide additional transparency and
clarity for BSEE and BOEM, as well as for the public and the oil and
gas industry, in ensuring that decommissioning requirements will be
met. In light of the proposed approach, lessees and grant holders
wanting to sell their leases or grants may choose to consider
financially stronger companies as potential purchasers or assignees.
Under the proposal, both parties to such transactions would know in
advance that BSEE would turn first to the most recent assignor to
perform decommissioning if the current lessee or grant holder fails to
perform its decommissioning obligation; in that case, the seller may
well want some assurance that the purchasing company has the means to
perform. Accordingly, this additional transparency may result in
limiting the universe of potential purchasers to more financially
capable companies that present a reduced risk of default or are able to
provide financial assurances to the seller, thus assuring that
decommissioning can be performed.
In addition, since the more recent owners are more familiar with
the current state of the facilities than previous owners, the proposed
approach would further ensure safer and more efficient decommissioning.
Also, the more recent prior owners often accrue liabilities for wells,
pipelines, or platform improvements for which earlier owners have no
liability because these wells, pipelines, or platform improvements were
added after the earlier owners had assigned their interests. The more
recent prior owners are, therefore, the most likely predecessor(s) who
can be required to fully decommission all facilities. In summary, as
proposed, it is reasonable and efficient for BSEE to turn first to the
most recent owners when the current owners do not perform all the
decommissioning obligations.
BSEE's proposal would not exempt any current lessees or grant
holders, or predecessors, from liability; each party remains liable for
its own accrued obligations. The proposal would simply establish a
procedure through which BSEE would prioritize its efforts toward the
groups of jointly and severally liable predecessors by looking first to
the most recent in time, rather than looking initially to all jointly
and severally liable predecessors. Details of the proposal are found in
part VII.A of this proposed rule.
The proposed rule, if adopted, could increase confidence that the
cost of decommissioning will be borne by the more recent owners while
still ensuring that decommissioning is carried out in a safe and
environmentally responsible manner. While there is no amount of time
which reduces or eliminates joint and several liability of predecessors
for their accrued liabilities, defining an order of recourse among
predecessors would eliminate some of the unpredictability perceived in
the past. In addition, the proposed rule would help BSEE to better
address maintenance and monitoring of facilities in cases where all
current owners' default.
The proposed rule would also address the decommissioning of OCS
facilities located on RUE grants. These grants
[[Page 65910]]
authorize a RUE holder to use a portion of the seabed at an OCS site
not leased by the RUE holder, in order to construct, modify, or
maintain platforms, artificial islands, facilities, installations, and
other devices that support the exploration, development, or production
of oil and gas from a RUE holder's nearby lease. BOEM's financial
assurance regulations encompass RUEs as a defined category of interest
in OCS lands, and provide that RUE grant holders must comply with the
same bonding obligations as other lessees. However, as a result of
numerous revisions of the regulations specific to decommissioning,
those regulations no longer clearly address decommissioning by RUE
grant holders, so BSEE now proposes to add RUE holders to the parties
that accrue obligations for decommissioning. This is consistent with
BOEM's existing process of including the decommissioning obligation in
the terms of the RUE grant, as well as the general understanding
typically captured in agreements between RUE holders and facility
owners by which RUE holders secure title to or rights to use existing
facilities originally installed when the tract was subject to a lease.
This proposed amendment to the existing BSEE regulations is discussed
more completely at part VII.B.
In addition, BSEE's existing regulations (at 30 CFR part 290) allow
parties adversely affected by a final BSEE order or decision--including
a decommissioning-related decision or order--to administratively appeal
that decision to the Interior Board of Land Appeals (IBLA). Existing
Sec. 290.7(a)(2) requires a party appealing a civil penalty order
issued by BSEE to post a surety bond, in accordance with 30 CFR
250.1409, pending the appeal. There has previously been no such bonding
requirement for appeals of decommissioning orders.
Inasmuch as income generation from a lease typically ceases well
before decommissioning orders are issued, an appeal poses a risk to
BSEE that, where financial assurance was not already in place, a lessee
appealing a decommissioning order may not have the wherewithal to
decommission after a lengthy appeal has run its course and the Board
affirms BSEE's order. Moreover, the delay occasioned by the appeal
process may create a risk that some or all other predecessors may have
deteriorated financial health by the time BSEE turns to them for
performance.
Thus, in order to avoid the possibility of undue delays, and to
ensure that funds are available to meet the decommissioning
requirements in a safe and environmentally sound manner when an
unsuccessful appellant subsequently defaults, BSEE proposes to amend
the 30 CFR part 250: Subpart Q and Part 290 regulations as described in
part VII.C. Specifically, BSEE proposes to require any party appealing
a decommissioning decision or order to post a surety bond in order to
seek to obtain a stay of that decision or order pending the appeal to
ensure that the necessary decommissioning activities can be performed
in a timely manner if the appeal is denied and the appellant(s)
subsequently fail to perform the required decommissioning activities.
III. Proposed Revisions to BOEM Bonds and Other Security Requirements
BOEM's existing bonding and other security regulatory framework has
two main components: (1) Base bonds, generally required in amounts
prescribed by regulation, and (2) bonds or other security above the
prescribed amounts that may be required by order of the Regional
Director upon determination that an increased amount is necessary to
ensure compliance with OCS obligations. BOEM's objective is to ensure
that taxpayers never have to bear the cost of meeting the obligations
of lessees and grant holders on the OCS. At the same time, BOEM must
balance this objective against the costs and disincentives to
additional exploration, development and production that are imposed on
lessees and grant holders by increased amounts of surety bonds and
other security requirements. To maintain a balanced framework, BOEM
proposes to: (1) Modify the evaluation process for requiring additional
security; (2) streamline the evaluation criteria; and (3) remove
restrictive provisions for third-party guarantees and decommissioning
accounts. The proposed rule would allow the Regional Director to
require additional security only when: (1) A lessee or grant holder
poses a substantial risk of becoming financially unable to carry out
its obligations under the lease or grant; (2) there is no co-lessee,
co-grant holder, or predecessor that is liable for those obligations
and that has sufficient financial capacity to carry out the
obligations; and (3) the property is at or near the end of its
productive life, and thus, may not have sufficient value to be sold to
another company that would assume these obligations.
A. Leases
Each current lessee is jointly and severally liable for the lease
decommissioning obligations, which means that each lessee is liable up
to the full amount of the relevant obligation and that BOEM may pursue
compliance with the obligations from any one lessee. As such, each
lessee is liable for all decommissioning obligations that accrue during
its ownership, as well as those that accrued prior to its ownership. 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.
BOEM's additional security evaluation process, contained in 30 CFR
556.901(d), is based on the current lessee's ability to carry out
present and future obligations. BOEM proposes to expand this evaluation
process to include an evaluation of the ability of a co-lessee, or a
predecessor lessee, to carry out present and future obligations. This
change recognizes the mitigation of the risk occasioned by the joint
and several liability of all current and predecessor lessees, which
allows BSEE to require co-lessees or predecessor lessees, or both, to
perform decommissioning when a current lessee is unable to perform.
While the liability for obligations between current and predecessor
lessees has always been joint and several, this would be the first time
BOEM has explicitly considered the ability of predecessor lessees to
carry out the present and future obligations of current lessees when
determining the additional security requirements for current lessees.
Under BOEM's existing regulations, the Regional Director's
evaluation of a lessee's potential need for additional security for a
lease is based on the following five criteria: Financial capacity;
projected financial strength; business stability; reliability in
meeting obligations based upon credit rating or trade references; and
record of compliance with laws, regulations, and lease terms. BOEM is
proposing to streamline its evaluation process by using only two
criteria to determine whether additional security on a lease may be
required: (1) A credit rating, either a credit rating from a 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(b),
or a proxy credit rating determined by BOEM using audited financial
statements; and (2) the value of proved oil and gas reserves. These two
criteria better align BOEM's evaluation process with accepted
[[Page 65911]]
financial risk evaluation methods used by the banking and finance
industry. Eliminating reliance on less relevant information, such as
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 may not accurately or
consistently predict potential financial distress.
BOEM proposes to eliminate the ``business stability'' criterion
found in existing Sec. 556.901(d)(1)(iii). The existing regulation
bases business stability on five years of continuous operation and
production of oil and gas, but BOEM determined that there is little
correlation between being in business for five or more years and a
company's ability to carry out its present and future obligations. BOEM
met with S&P credit analysts about their process for considering
business stability. S&P credit analysts confirmed that business
stability is a factor in credit ratings, however, S&P does not measure
a company's business stability by merely noting how long it has been
since the company was incorporated. BOEM conducted an analysis of
offshore bankruptcies, including an assessment of the number of years
incorporated prior to bankruptcy, and determined that whether a company
was in business for five or more years had no relationship to its
likelihood to declare bankruptcy.
BOEM also proposes to eliminate the existing ``record of
compliance'' criterion found in existing Sec. 556.901(d)(1)(v). BOEM
reviewed BSEE's INCs and Increased Oversight List. BOEM's review of
these lists confirmed the feedback BOEM received in response to the
NTL, which was that companies with a large number of properties and
components tended to receive a large number of INCs and had a larger
number of individual properties on the Increased Oversight List.\3\
BOEM has determined that the primary predictor of the number of INCs a
company receives is not its financial health, but the number of OCS
properties that it owns. BOEM determined that a company's record of
compliance did not correlate to its overall financial health and,
therefore, is not an accurate indicator of the need for financial
assurance to assure that the company carries out its present and future
OCS obligations. Offshore companies with a large portfolio of offshore
assets inspected by BSEE accumulated a far greater number of BSEE-
issued Incidents of Non-Compliance than offshore companies with fewer
offshore assets inspected by BSEE, irrespective of the company's
overall financial health. The ``record of compliance'' criterion was
also difficult to fairly apply since not all noncompliance is
considered equal evidence of a lack of commitment to observe regulatory
requirements.
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\3\ Most recent data available at https://www.data.bsee.gov/Company/INCs/Default.aspx
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BOEM proposes to replace the existing ``financial capacity'' and
``reliability'' criteria in Sec. 556.901(d)(1) with issuer credit
rating or proxy credit rating. BOEM has found credit rating, which had
been a part of the reliability criterion, to be the most reliable
indicator of financial ability. Credit ratings provided by a NRSRO
incorporate a broad range of qualitative and quantitative factors, and
a business entity's credit rating represents its overall credit risk,
or its ability to meet its financial commitments.
If a lessee does not have a credit rating from a NRSRO, the lessee
may instead submit audited financial statements, and BOEM will
determine a proxy credit rating using the S&P Credit Analytics Credit
Model, or a similar widely accepted credit rating model. Such audited
financial information is currently the basis of one of the five
criteria--the ``financial capacity'' criterion. In the proposed rule,
this information will be just one of the considerations used for proxy
credit ratings, following credit rating agency models.''
BOEM has concluded that audited financial statements, prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and
accompanied by an auditor's certificate, provide a level of certainty
that the financial statements accurately represent the company's
economic position and operational performance. Using this audited
financial information to generate a proxy credit rating would allow
BOEM to accurately determine if additional security is needed.
The proposed rule would allow the Regional Director to require a
lessee to provide additional security if the lessee does not have a
credit rating from a NRSRO that is greater than or equal to either BB-
from S&P Global Ratings (S&P) or Ba3 from Moody's Investor Service
(Moody's); or a proxy credit rating greater than or equal to either BB-
or Ba3 as determined by the Regional Director based on audited
financial information including an income statement, balance sheet, and
statement of cash flows, with an accompanying auditor's certificate.
Under existing BOEM regulations, co-lessees and predecessors are
jointly and severally liable for accrued decommissioning obligations,
and the risk that the government will be responsible for the
decommissioning cost is reduced when those entities are financially
viable. Hence, BOEM may determine not to require additional security
for properties with financially viable co-lessees and predecessors. To
be considered financially viable, the co-lessee or predecessor would
have to meet the same credit rating or proxy credit rating criteria as
a lessee.
If the lessee does not meet the credit rating or proxy credit
rating criteria, BOEM would review the lessee's obligations at the
lease level and determine whether to require additional security for
each lease owned by that lessee. BOEM may require the lessee to provide
additional security on a lease-by-lease basis if a co-lessee does not
meet the credit rating or proxy credit rating criteria.
If the co-lessee does not meet the credit rating or proxy credit
rating criteria, BOEM would review the proved oil and gas reserves on
the lease. The Regional Director may require the lessee to provide
additional security for that lease if the net present value of those
proved reserves is less than or equal to three times the cost of the
decommissioning (as estimated by BSEE) associated with the production
of the reserves. As described in more detail below, BOEM determined
that properties with a net present value of proved oil and gas reserves
exceeding three times the decommissioning costs associated with
production of those reserves pose minimal risk that the government will
be required to bear the cost of decommissioning, because these
properties are more likely than other properties to be purchased by
another company. That company would then become liable for existing
decommissioning obligations, reducing the risk that those costs would
be borne by the government. Consequently, BOEM is proposing to use (and
is requesting comments on) this test--net present value of proved oil
and gas reserves on the lease exceeding three times the decommissioning
costs (decommissioning costs as estimated by BSEE) associated with
production of those reserves--as the criterion to replace the existing
generalized ``projected financial strength'' criterion, which
considered whether the estimated value of a lessee's existing lease
production and proven reserves was significantly in excess of the
lessee's existing and future lease obligations.
If neither the lessee nor any co-lessee meets the credit rating or
proxy credit
[[Page 65912]]
rating criteria and there are not sufficient oil and gas reserves on
the lease, BOEM would look to the credit ratings of prior lessees. If
no predecessor lessee liable for decommissioning any facilities on the
lease meets the credit rating or proxy credit rating criteria, the
Regional Director may require the lessee to provide additional
security. Moreover, even if a predecessor meets the credit rating or
proxy credit rating criteria, the Regional Director may require the
lessee to provide additional security for decommissioning obligations
for which such a predecessor is not liable.
B. Right-of-Use and Easement Grants
BOEM's regulations concerning right-of-use and easement grants for
an OCS lessee and a State lessee are found in 30 CFR 550.160 through
550.166. Section 550.160 provides that an applicant for a right-of-use
and easement that serves an OCS lease ``must meet bonding
requirements,'' but the regulation does not prescribe a base bond
amount. The proposed rule would replace this vague requirement with a
cross-reference to the specific criteria governing bond demands in
Sec. 550.166(d).
BOEM is proposing to revise the bonding regulations to clarify that
any right-of-use and easement grant holder, whether the right-of-use
and easement serves a State lease or serves an OCS lease, may be
required to provide additional security for the right-of-use and
easement if the grant holder does not meet the credit rating or proxy
credit rating criteria proposed to be used for lessees. The value of
proved oil and gas reserves will not be considered because a right-of-
use and easement grant does not entitle the holder to any interest in
oil and gas reserves. However, this proposal would allow consideration
of the credit rating of a predecessor right-of-use and easement grant
holder and a predecessor lessee, i.e., a lessee that held interests in
the lease on which the right-of-use and easement is now located and is
liable for accrued obligations for the facilities thereon, which better
aligns BOEM's evaluation process with accepted financial risk
evaluation methods used by the banking and finance industry.
C. Pipeline Right-of-Way Grants
BOEM's bonding requirements for pipeline right-of-way grants,
contained in 30 CFR 550.1011, prescribe a $300,000 area-wide base bond
that guarantees compliance with all the terms and conditions of the
pipeline right-of-way grants held by a company in an OCS area. BOEM may
require a pipeline right-of-way grant holder to provide additional
security if the Regional Director determines that a bond in excess of
$300,000 is needed. BOEM is proposing to revise the bonding regulations
to provide the criteria under which the Regional Director could demand
a pipeline right-of-way grant holder to provide additional security and
that criteria is similar to that proposed for lessees, i.e., when the
grant holder does not meet the credit rating or proxy credit rating
criteria proposed to be used for lessees. BOEM would not consider
proved reserves because right-of-way grants do not authorize holders to
produce hydrocarbon reserves. Another change proposed by the rule--to
allow consideration of the credit rating or proxy credit rating of a
co-grant holder--would better align BOEM's evaluation process with
accepted financial risk evaluation methods used by the banking and
finance industry. BOEM also proposes to expand this evaluation to
include consideration of the credit rating or proxy credit rating of
predecessor right-of-way grant holders because they remain liable for
accrued decommissioning obligations for facilities and pipelines on
their right-of-way until each obligation is met.
IV. Proposed Revisions to Other BOEM Security Requirements
A. Third-party Guarantees
BOEM is proposing to evaluate a potential guarantor using the same
credit rating or proxy credit rating criteria proposed for lessees. The
value of proved oil and gas reserves will not be considered because the
value of proved reserves quantify only the marketability of the lease
interest being covered by the guarantee, in which the guarantor would
not have an interest, and is not used to describe the guarantor's
overall financial strength.
The criteria to evaluate a guarantor provided in the existing
regulations have proven difficult to apply. For example, Sec.
556.905(a)(3) provides that the guarantor's total outstanding and
proposed guarantees are not allowed to exceed 25 percent of its
unencumbered net worth in the United States. A company's total
outstanding and proposed guarantees depends on accurate information
provided by the guarantor, and BOEM has no way to confirm whether the
25 percent threshold has been exceeded at the time of the application
or afterward. The same provision requires BOEM to consider the
unencumbered net worth of the company in the United States, while
another provision, Sec. 556.905(c)(2)(iv), requires BOEM to consider
the guarantor's unencumbered fixed assets in the United States. Both of
these criteria are difficult to apply when the company being evaluated
has domestic and international assets that must be separated. Utilizing
the same financial evaluation criteria, 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, which was GAO's
concern.
To allow more flexibility in the use of third-party guarantees,
this proposed rule 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. Additionally, the
proposed rule would allow a third-party guarantee to be used as
additional security for a right-of-use and easement grant and/or a
right-of-way grant, as well as a lease. Potential guarantors are
reluctant to provide a guarantee if they cannot choose the entity for
which they are guaranteeing compliance or limit the amount of their
guarantee. This change would allow a guarantor to limit its guarantee
to a subset of lease or grant obligations, e.g., an amount sufficient
to cover a percentage of the decommissioning liability in proportion to
the ownership percentage of a particular lessee or grant holder, a
specific dollar amount, or a specific facility.
By allowing a third-party guarantor to guarantee only the
obligations it wishes to cover, BOEM would provide industry with the
flexibility to use the guarantee to satisfy financial assurance
requirements without the burden of forcing the guarantor to cover all
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 this party may have no control. Moreover, the proposal
to allow BOEM to accept a third-party guarantee that is limited to
specific obligations does not reduce BOEM's protection because the
combination of all bonds and guarantees still would have to ensure that
all lease and grant obligations are fully secured.
The proposed rule would also allow BOEM to cancel a third-party
guarantee under the same terms and conditions that apply to
cancellation of additional bonds and return of pledged security, as
provided in proposed Sec. 556.906(d)(2).
Lastly, the existing regulation somewhat confusedly refers to both
a ``guarantee'' and an ``indemnity agreement'' (which meant the same
thing), and the proposed rule clarifies
[[Page 65913]]
that there is only one agreement contemplated--the guarantee agreement.
B. Lease-specific Abandonment Accounts
Section 556.904 currently allows lessees to establish a lease-
specific abandonment account in lieu of the bond required in Sec.
556.901(d). BOEM proposes to rename these accounts ``Decommissioning
Accounts,'' which is the current terminology used in industry, to
remove any perceived limitation to a single lease, and to allow these
accounts to be used to ensure compliance with additional security
requirements for a right-of-use and easement grant or a pipeline right-
of-way grant as well as a lease. To make these accounts more attractive
to lessees who may need to use this method, BOEM also proposes to
remove the requirements to pledge Treasury securities to fund the
account before the amount of funds in the account equals the maximum
amount insurable by the Federal Deposit Insurance Corporation (FDIC),
which is currently $250,000. BOEM notes that due to this current
requirement, lessees may have been unwilling to use decommissioning
accounts since the vast majority of decommissioning moneys would be in
the form of low-yield Treasury securities. BOEM has determined that the
risk of loss through a bank failure is minimal, so, as a practical
matter, the government's security does not depend on FDIC insurance.
C. Cancellation of Additional Bonds
BOEM proposes to revise Sec. 556.906(d) to add three additional
circumstances when BOEM may cancel an additional bond, as discussed
below in the analysis of Sec. 556.906.
V. BOEM Evaluation Methodology
A. Credit Ratings
In this rulemaking, BOEM proposes to use an ``issuer credit
rating'' when referring to ``credit rating'' to evaluate the financial
health of lessees and grant holders doing business or offering
guarantees on the OCS. An evaluation of S&P's and Moody's rating
methodologies revealed that the analyses they perform to determine an
issuer credit rating are wide-ranging and include factors beyond
corporate financials (such as history, senior management, and commodity
price outlook). An issuer credit rating provides the rating agencies'
opinions of the entity's ability to honor senior unsecured debt and
debt-like obligations. It is common for lessees to have both an issuer
credit rating and a bond issuance rating. However, bond issuance
ratings are opinions of the credit quality of a specific debt
obligation only, which can vary based on the priority of a creditor's
claim in bankruptcy or the extent to which assets are pledged as
collateral. Due to the priority of claims associated with debt and the
limited purpose of bond issuance ratings, BOEM proposes to accept only
issuer credit ratings from a NRSRO, and references to credit rating in
this rulemaking refer only to an issuer credit rating. BOEM proposes to
add ``Issuer credit rating,'' as defined by S&P, as a newly defined
term in Parts 550 and 556.
If an entity does not have an issuer credit rating, BOEM proposes
to determine a proxy credit rating based on audited financial
information, including an income statement, balance sheet, statement of
cash flows, and the auditor's certificate.
BOEM proposes to use S&P's Credit Analytics Credit Model to
calculate proxy credit ratings. This model would allow BOEM to compare
the company with similar public companies in the same industry segment.
BOEM invites comments on the appropriateness of relying on this model,
or other similar, widely accepted credit rating models, to generate
proxy credit ratings.
In establishing the issuer credit rating threshold of BB- (S&P) or
Ba3 (Moody's), an equivalent credit rating provided by an SEC-
recognized NRSRO, or a proxy credit rating determined by the Regional
Director, BOEM seeks to balance the financial risk to the government
and the taxpayer with minimizing unnecessary regulatory burdens as
directed by Executive Order 13795. BOEM compared the historical default
rates for Moody's credit ratings and found the Ba3 credit rating was
equivalent to the S&P BB- credit rating. BOEM reviewed historical
default rates 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. The average S&P one-year default rate for BB- rated companies
from 1981 to 2017 was 1.00%. The average S&P historical one-year
default rates of BB- rated companies are significantly better than
average default rates for B rated companies (ranging from 2.08% to
7.15%) and C rated companies (26.82%). On the higher end of BB ratings
at BB+, the average one-year default rate (0.34%) is similar to the
average one-year default rate (0.25%) for the lowest investment-grade
rating of BBB-.
BOEM believes that one-year default rates are an appropriate
measure of risk, given BOEM's policy of reviewing the financial status
of lessees/ROW holders/RUE holders at a minimum on an annual basis, the
review typically corresponding with the release of audited annual
financial statements. In addition, BOEM continually monitors company
credit rating changes, market reports, trade press, articles in major
news outlets, and quarterly financial reports to review the financial
status of lessees/ROW holders/RUE holders throughout the year and can
demand supplemental financial assurance through the Regional Director's
regulatory authority as a result of mid-year changes in financial
status.
BOEM invites comments on the appropriateness of this approach of
relying on lessee and grant holder credit ratings, including whether
BOEM has proposed an appropriate credit rating threshold, and if not,
what threshold or set of thresholds would best protect taxpayer
interests while minimizing unnecessary industry burdens. BOEM also
invites comments on the IRIA generally, including the analytical
assumptions and the regulatory alternatives analyzed. Specifically, the
IRIA analyzed a BBB- credit rating alternative threshold and a no-
action alternative.
B. Valuing Proved Oil and Gas Reserves
Under the proposed rule, if a lessee requests BOEM to take into
account the proved reserves on a particular lease to determine whether
additional security is required, 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)) for the lease
associated with the asset to be decommissioned. The reserve report
should contain the projected future production quantities of proved oil
and gas reserves, the production cost for those reserves, and the
discounted future cash flows from production. The reserve report would
be required to provide the net present value of the proved oil and gas
reserves determined in accordance with the accounting and reporting
standards set forth in SEC Regulation S-X at 17 CFR 210.4-10 and SEC
Regulation S-K at 17 CFR 229.1200. BOEM would use the net present value
when determining whether the value of the reserves exceeds three times
the cost of the decommissioning (as estimated by BSEE) associated with
the production of those reserves.
BOEM believes that a property with a high enough ``reserves-to-
decommissioning cost'' ratio would
[[Page 65914]]
likely be purchased by another lessee if a current lessee defaults on
its obligations, thereby reducing the risk that decommissioning costs
would be borne by the government, and consequently reducing the need
for additional security.
A reserves-to-decommissioning cost ratio of one-to-one would mean
that the estimated value of remaining oil and gas reserves on a lease
is equal to the cost of decommissioning. BOEM does not expect any new
lessee to purchase a property with a ratio of one-to-one as the new
lessee would not receive any return on its investment once it bears the
cost of decommissioning. A reserves-to-decommissioning cost ratio below
three-to-one might be considered adequate to compensate a new lessee
for the cost of purchasing the lease and assuming liability for all of
the existing decommissioning obligations. Based on past experience,
BOEM, however, considers that a lease with a ratio below three-to-one
is often too risky to find a new lessee that is willing to purchase it.
BOEM believes that a reserves-to-decommissioning cost ratio that
exceeds three-to-one may provide enough risk reduction that the
Regional Director may determine the lessee is not required to provide
additional security for that lease. Three-to-one may be considered an
adequate ratio to provide time for the lessee to provide bonds or
another form of financial assurance prior to the property falling into
a range where it may not attract a purchaser.
Establishing an appropriate reserves-to-decommissioning cost ratio
is one approach toward protecting the taxpayer during periods of
commodity price volatility. Should commodity prices decline in a manner
similar to late 2014 through early 2016, BOEM believes a 3-to-1 ratio
means the property would most likely retain its economic viability and
financial attractiveness to potential buyers. BOEM requests comment on
whether this is in fact an appropriate threshold, or if there are
better approaches and/or data sets available for analysis that would
allow BOEM to provide better certainty that taxpayer interests will
ultimately be protected.
VI. Proposed Revisions to BOEM Definitions
To implement the changes proposed above, BOEM proposes to add or
revise several definitions in 30 CFR part 550 and Part 556. For
proposed Part 550, BOEM proposes to add new terms and definitions for
``Issuer credit rating,'' ``Predecessor,'' and ``Security,'' and to
revise the definition of ``You.'' BOEM proposes to add a new term and
definition for ``Right-of-Use and Easement'' and remove the separate
definitions of ``Right-of-use'' and ``Easement'' in Part 550 because
those terms are not used in the existing regulatory text. Similarly,
for Part 556, BOEM proposes to add new terms and definitions for
``Issuer credit rating'' and ``Predecessor,'' remove the existing term
and definition of ``Security or securities'' and add a new term and
definition for ``Security,'' and revise the definitions of ``Right-of-
Use and Easement (RUE)'' and ``You,'' all of which will match those in
proposed Part 550.
VII. Proposed Revisions to BSEE Decommissioning Regulations
A. Decommissioning by Predecessors
Most of the decommissioning provisions now located in 30 CFR part
250: Subpart Q became effective in 2002. Since that time, BSEE has
become aware that some industry stakeholders believe that certain
provisions can cause uncertainty--and thus create planning problems and
potentially unnecessary financial burdens--for lessees or grant holders
that long ago assigned their interests. Specifically, some industry
stakeholders have expressed concern that, when current lessees or grant
holders default or otherwise fail to perform their decommissioning
obligations, simultaneous pursuit by BSEE of any or all predecessors
(consistent with their joint and several liability), without focusing
first on the most recent predecessors, may result in confusion and
inefficiency among the parties. Those stakeholders also assert that the
current process may reduce incentives for current and recent lessees or
grant holders to prepare to finance decommissioning. Such outcomes,
according to those stakeholders, could make it harder for BSEE to
achieve the safety and environmental goals of the decommissioning
regulations.
In particular, some stakeholders have asserted that--since many
leases have been owned or operated by numerous entities over many
years--the immediate predecessors of the current lessees or grant
holders are more likely to be familiar with all of the facilities and
equipment on that lease that require decommissioning than the earlier
predecessors whose connections with operations are more remote. Thus,
those stakeholders suggested that the closer in time predecessors are
to current operational conditions (e.g., status of repair, maintenance
and monitoring of equipment), the more those predecessors will know
about any existing or potential safety, environmental, or other risks
related to the decommissioning operations, and the better able they
will be to address those risks.
Similarly, some stakeholders have suggested that the most immediate
predecessors in the chain-of-title are in a better position to
understand the financial security necessary for decommissioning at a
particular site, and are more likely to have maintained or obtained
such security (e.g., through private security arrangements with later
lessees or grant holders), in the event that the current lessee or
grant holder defaults.
Accordingly, these stakeholders recommended that, when the current
lessee or grant holder defaults, BSEE should enforce predecessor
decommissioning obligations in a reverse chronological sequence. Under
this approach, after a default, BSEE would issue decommissioning orders
to the most recent predecessor(s) first before turning to predecessors
more remote in time. The stakeholders suggest that such an approach
would better ensure safety and environmental protection, as well as
provide greater predictability and transparency as to how BSEE enforces
decommissioning obligations, compared to the current approach.
Although BSEE does not necessarily agree with all of those
stakeholders' assertions, following such a reverse chronological
sequence among predecessors may be a reasonable approach to ensuring
that the goals of the decommissioning regulations are met in a
transparent manner--provided that the regulations include appropriate
exceptions, under certain scenarios, in order to ensure timely
decommissioning in a safe and environmentally responsible manner.
Accordingly, without affecting the existing requirement for joint and
several liability, proposed new Sec. 250.1708, How will BSEE enforce
accrued decommissioning obligations against predecessors?, would create
a reverse chronological order of recourse among predecessors, organized
according to periods of time during which a particular designated
operator(s) \4\ approved by BOEM was in control of operations. Under
the proposed rule, BSEE would identify the predecessor lessees or grant
holders who held their interests during the designated operator(s)'
tenure. After default by the current lessees or grant holders (or a
prior group of predecessors), BSEE
[[Page 65915]]
would issue orders to a `group' of temporally related predecessors to
perform their remaining accrued decommissioning obligations. In
addition to the predecessors in the relevant designated operator-based
time period, proposed Sec. 250.1708 would make clear that BSEE will
issue orders to other predecessors who assigned interests to a
defaulted lessee. The proposed rule would also add a new definition of
``predecessor'' to existing Sec. 250.1700 to clarify the meaning of
that term as used in the other proposed revisions to Subpart Q.
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\4\ By definition, the term ``operator'' means the person ``the
lessee(s) designates as having control or management of operations
on the leased area or a portion thereof during a given time
period.'' (See 30 CFR 250.105.)
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However, the proposed rule also would provide that BSEE may deviate
from the reverse chronological order (i.e., may issue decommissioning
orders to any or all other liable predecessors) where previously
ordered parties fail to obtain approval of a decommissioning plan, or
fail to timely execute the decommissioning according to the approved
decommissioning plan, as required under proposed Sec. Sec. 250.1704(b)
and 250.1708. When predecessors fail to perform, unacceptable delays in
decommissioning are likely to occur. Such delays could, in some cases,
lead to leaking wells or corrosion-laden structures that may pose
safety or environmental risks, or other concerns (as determined by a
Regional Supervisor), making it essential that BSEE be able to deviate
from a strict chronological sequence.
Under the proposed rule, BSEE would also be able to deviate from a
strict reverse chronological framework when emergency conditions \5\ or
safety or environmental threats arise (e.g., when facilities are not
properly maintained or monitored) or when BSEE determines that an
unreasonable delay would otherwise occur. The ability to address
exigent circumstances posed by facilities and equipment awaiting
decommissioning is critical to the accomplishment of the purposes of
Subpart Q. The exceptions proposed in Sec. 250.1708(d) would confirm
that BSEE retains the authority to make demands on the most capable
predecessors when risks associated with delay raise concern about
safety and environmental protection or unobstructed use of the OCS,
while in the majority of situations focusing demands on current owners
and the most recent predecessors.
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\5\ BSEE has noted that the cost and time to permanently plug
wells and remove infrastructure damaged by storms is significantly
higher than the cost and time to decommission assets that have not
been damaged. (See NTL No. 2018-G03 at p. 1.)
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Finally, proposed Sec. 250.1708(b) would require predecessors to
identify an entity to begin maintaining and monitoring any facility
identified in the BSEE decommissioning order within 30 days of
receiving the order. The proposed rule would also require predecessors
to identify a designated operator for decommissioning within 60 days of
receiving an order, and to submit a decommissioning plan that includes
the scope of work and projected decommissioning schedule for all wells,
platforms, other facilities within 90 days of receiving an order. These
proposed provisions would ensure that the ordered decommissioning
proceeds in a timely and structured fashion that ensures safety and
environmental protection.
B. Decommissioning of Rights-of-Use and Easement
BSEE also proposes to revise the decommissioning regulations with
respect to OCS facilities used under RUE grants. These grants are
similar to ROW grants for pipelines, but allow the holder to construct,
modify, or maintain platforms, artificial islands, facilities,
installations, and other devices on parcels for which it does not hold
a lease authorizing development of that parcel's minerals. BOEM's
existing regulations, at 30 CFR 550.105, recognize ``State lessees
granted a right-of-use and easement'' within BOEM's definition of
``You'' and provide that RUE grant holders must comply with bonding
obligations (see Sec. 550.160(c)).\6\ BSEE's existing Subpart Q
definition of ``You'' (see proposed Sec. 250.1701 paragraph (d)) does
not expressly reference RUE grant holders. BSEE proposes to add such
language to that definition and to expressly include RUE grant holders
as parties that can accrue decommissioning obligations.
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\6\ BOEM is also proposing to replace its existing definitions
of ``easement'' and ``right of use'' in Sec. 550.105 with a single
definition of ``right-of-use and easement.''
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These proposed changes to BSEE's regulations would be consistent
with BOEM's current practice of requiring applicants to accept
decommissioning obligations as a term of RUE grants. RUE grant holders
are familiar with the facilities and equipment on their RUEs; and
should be able to decommission such infrastructure in a safe and
environmentally sound manner. Most have expressly agreed to accept
those responsibilities in the RUE grant and in agreements with those
who owned the infrastructure when the location was leased. While the
proposed revisions would expressly extend decommissioning obligations
to RUE grant holders, lessees that have also accrued such obligations
for facilities and equipment on the RUE would retain their joint and
several liability for satisfying those obligations under Sec.
250.1701.
Accordingly, BSEE proposes to amend Sec. Sec. 250.1700 and
250.1701 in Subpart Q to state that RUE grant holders will accrue
decommissioning obligations in the same way as lessees, operating
rights holders, and ROW grant holders. The proposed amendments would
enhance the completeness and transparency of Subpart Q and would better
ensure that decommissioning of facilities located on a RUE actually
takes place in a timely manner.
C. Bonding Requirement for Appeals of Decommissioning Decisions and
Orders
Part 290 of BSEE's regulations allows parties adversely affected by
a final BSEE order or decision, including a decommissioning order or
decision, to administratively appeal that decision to the IBLA. Part
290 also lays out certain procedures for filing and pursuing such
appeals. While existing Sec. 250.1409(b)(1) requires a party filing an
appeal of a civil penalty order issued by BSEE to post a surety bond
pending the appeal, there is currently no such bonding requirement for
appeals of decommissioning orders. In the past, the absence of an
express bonding requirement for decommissioning appeals was of little
or no practical consequence because, when a current lessee or grant
holder failed to perform its decommissioning obligations, BSEE usually
issued decommissioning orders to all jointly and severally liable
predecessors at the same time. Thus, even if one or more of the
predecessors appealed such an order, it was probable that other
predecessors would perform the decommissioning on a timely basis.
However, under the proposed reverse chronological approach toward
predecessors, it is likely that each temporally related group of
lessees or grant holders ordered to perform decommissioning at any
given point will be smaller in number than the entire set of ``any or
all predecessors'' ordered to decommission under BSEE's current
approach. The smaller number of entities in any chronological group
could increase the probability that performance of decommissioning
could be delayed by appeals from a predecessor or predecessors in that
group, or by a succession of appeals by later groups of predecessors
(assuming that the IBLA grants a requested stay of the decommissioning
order pending the appeal).\7\ The reduced pool of lessees or
[[Page 65916]]
grant holders in the designated group of predecessors, and the
potential for such resulting delays, could exacerbate the possibility
that the ultimately responsible party(ies) might default or otherwise
be unavailable or unable to perform decommissioning if the appeal is
ultimately unsuccessful. In such a case, BSEE might have difficulty
ensuring that decommissioning will actually be performed on a timely
basis, and without reliance on taxpayer funds, absent the additional
financial assurance provided by the proposed requirement to post a
surety bond in order to obtain a stay of a decision or order pending
appeal.
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\7\ Under existing Sec. 290.7, a challenged order remains in
effect pending the appeal, unless the IBLA, in its discretion,
grants a stay, or BSEE agrees to a stay.
---------------------------------------------------------------------------
For example, by the time an appeal has been filed and heard, and
the decommissioning order subsequently affirmed by the IBLA (and
potentially thereafter by a Federal court), several years may have
passed. During this time the appealing party may have lost its
financial capacity to fund or perform decommissioning. The proposed
bond, however, would provide up-front assurance that the appealing
party will nevertheless meet its financial decommissioning obligations
if the appeal is denied. In the event that the appeal is denied and the
appealing party defaults, and no other viable predecessors exist at
that point, BSEE could use the proceeds of the forfeited bond to
arrange for decommissioning without shifting that financial burden to
the public.
Further, even in cases where other predecessors do exist, the
passage of time during the appeal may create circumstances (e.g.,
deteriorating infrastructure) that require decommissioning on an
expedited basis to prevent adverse environmental or safety impacts or
to avoid interference with other uses of the OCS. The immediate
availability of a forfeited bond from an appellant that defaults after
its appeal is denied would facilitate BSEE's ability to ensure the
timely performance of decommissioning activities. In this manner, the
proposed rule would allow BSEE to use funds from forfeited bonds to
arrange for immediate decommissioning without having to re-start the
process for holding additional parties responsible, which potentially
could be subject to similar risks of additional defaults and delays. In
addition, the proposed bonding requirement could deter a predecessor
from filing an appeal that is frivolous, or designed solely to delay
performance.
Accordingly, to ensure that the decommissioning regulations fulfill
all goals related to Subpart Q without unnecessary cost to taxpayers,
and to reduce the risks of deteriorating financial capacity during the
pendency of the appeal together with potential delays associated with
postponing pursuit of predecessors, BSEE proposes to amend its
regulations to require any predecessor who appeals a decommissioning
order or decision to post a surety bond in order to obtain a stay of
that decision or order pending the appeal. The bond would be in an
amount deemed sufficient by BSEE to ensure that necessary
decommissioning activities can be timely performed if the appellant
loses the appeal and defaults on its obligations.
VIII. Section-by-Section Analysis
A. Regulations Proposed by BSEE
BSEE proposes to revise the following regulations:
Part 250--Oil and Gas and Sulfur Operations in the Outer Continental
Shelf
Sec. 250.105 Definitions
This proposed rule would amend Sec. 250.105 by removing the terms
and definitions for ``Easement'' and ``Right-of-use'' and replacing
them with a new term and definition for ``Right-of-Use and Easement.''
The revision would make BSEE's regulations consistent with BOEM's,
providing a clear definition for the regulatory concept of a RUE as an
authorization to use a portion of the seabed not encompassed by the
holder's lease site in order to construct, modify, or maintain
platforms, artificial islands, facilities, installations, and other
devices established to support the exploration, development, or
production of oil and gas, mineral, or energy resources on the OCS or a
State submerged lands lease.
Sec. 250.1700 What do the terms ``decommissioning,'' ``obstructions,''
and ``facility'' mean?
This proposed rule would revise the title of this section to
include the term ``predecessor,'' and would revise paragraph (a)(2) to
include the area of an RUE, in addition to areas of a lease and a
pipeline ROW, among the areas that must be returned through
decommissioning to a condition that meets the requirements of BSEE and
other agencies that have jurisdiction over decommissioning activities.
This revision aligns with the other proposed revisions to the
decommissioning obligations associated with RUEs. The proposed rule
would also add a new paragraph (d) defining the term ``predecessor'' to
mean a prior lessee or owner of operating rights, or a prior holder of
a RUE grant or a pipeline ROW grant, that is liable for accrued
obligations on that lease or grant. This definition is designed to
capture those entities, including assignees, that remain liable for the
decommissioning obligations that accrued during their prior ownership
of an interest in a lease, an RUE grant, or a pipeline ROW grant for
purposes of the proposed provisions establishing BSEE's modified
approach toward enforcement of such obligations.
Sec. 250.1701 Who must meet the decommissioning obligations in this
subpart?
This proposed rule would add a new paragraph (c) to this section
and re-designate the existing paragraph (c) as paragraph (d). The new
paragraph (c) would clarify that all holders of a RUE grant are jointly
and severally liable, along with other liable parties, for meeting
decommissioning obligations on their RUE, including those pertaining to
a well, pipeline, platform, or other facility, or an obstruction, as
the obligations accrue and until each obligation is met. BSEE would
also revise the current definition of the term ``you'' in existing
paragraph (c), which would become paragraph (d) under the proposed
rule, to include RUE grant holders and predecessors among the list of
parties categorized as ``you'' or ``I'' for purposes of the Subpart Q
decommissioning regulations. These revisions are designed to ensure
alignment between Sec. 250.1701 and the other proposed revisions to
Subpart Q.
Sec. 250.1702 When do I accrue decommissioning obligations?
This proposed rule would revise paragraph (e) to clarify that all
holders of a ROW accrue the obligation to decommission; re-designate
paragraph (f) as paragraph (g); and add a new paragraph (f) to provide
that an entity accrues decommissioning obligations when it is or
becomes the holder of a RUE grant on which there is a well, pipeline,
platform or other facility, or an obstruction. These proposed changes
are designed to implement the RUE decommissioning principles discussed
previously and to reflect BSEE practice related to multiple ROW
holders.
Sec. 250.1703 What are the general requirements for decommissioning?
This proposed rule would revise paragraph (e) to expand the current
provision for clearing obstructions to require that a RUE grant holder
clear the seafloor of all obstructions created by its RUE grant
operations. This revision is designed to ensure alignment between
[[Page 65917]]
Sec. 250.1703 and the other proposed revisions to Subpart Q, including
the RUE decommissioning principles discussed previously.
Sec. 250.1704 What decommissioning applications and reports must I
submit and when must I submit them?
This proposed rule would add a new paragraph (b) in the Table to
provide that predecessors must submit for BSEE approval, within 90 days
of receiving a decommissioning order under proposed Sec. 250.1708, a
decommissioning plan with a scope of work and schedule to address
wells, pipelines, and platforms. This proposed revision is designed to
reflect the proposed changes to Sec. 250.1708 regarding
decommissioning plans, discussed further below.
Sec. 250.1708 How will BSEE enforce accrued decommissioning
obligations against predecessors?
The proposed rule would add a new Sec. 250.1708 (in place of the
currently reserved Sec. 250.1708). Paragraph (a) of this section would
provide that, when holding predecessors responsible for performing
accrued decommissioning obligations, BSEE will issue decommissioning
orders to such predecessors in reverse chronological order through the
chain-of-title. BSEE would issue such orders to groups of predecessors
organized according to changes in the designated operator over time, as
well as to any predecessor who assigned interests to a party that has
defaulted.
Proposed paragraph (b) would require predecessors to identify a
single entity to begin maintaining and monitoring any facility
identified in the BSEE decommissioning order within 30 days of
receiving the order. It would also require predecessors, within 60 days
of receiving the order, to designate a single entity as the operator
for decommissioning operations. Further, within 90 days of receiving
the order, the predecessors must submit a decommissioning plan that
includes the scope of work and projected decommissioning schedule for
all wells, platforms and other facilities, pipelines, and site
clearance, as identified in the order. Finally, proposed paragraph (b)
would require the predecessor to perform the required decommissioning
in the time and manner specified by BSEE in its decommissioning plan
approval.
Proposed paragraph (c) would specify that failure by a predecessor
to comply with an order to maintain and monitor a facility or to submit
a decommissioning plan, as required in paragraph (b), may result in
various enforcement actions, including civil penalties and
disqualification as an operator.
Proposed paragraph (d) would allow BSEE to depart from the reverse
chronological order sequence, and to issue orders to any or all other
predecessors for the performance of their respective accrued
decommissioning obligations, when: (1) None of the predecessors who had
been ordered to perform obtains approval of the decommissioning plan or
executes the decommissioning according to the approved decommissioning
plan; (2) the Regional Supervisor determines that there is an emergency
condition, safety concern, or environmental threat, such as improperly
maintained and monitored facilities, leaking wells or vessels,
sustained casing pressure on wells, or lack of required valve testing;
or (3) the Regional Supervisor determines that applying the reverse
chronological sequence would unreasonably delay decommissioning.
Proposed paragraph (e) would clarify that BSEE's issuance of orders
to additional predecessors will not relieve any current lessee or grant
holder, or any other predecessor, of its obligations to comply with any
prior decommissioning order or to satisfy its accrued decommissioning
obligations. Proposed paragraph (f) would provide that the appeal of
any decommissioning order does not prevent BSEE from proceeding against
other predecessors pursuant to proposed paragraph (d).
Sec. 250.1709 What must I do to appeal a BSEE final decommissioning
decision or order issued under this subpart?
BSEE's proposed rule would replace existing Sec. 250.1709 of
Subpart Q (which is currently reserved) with a new section that
confirms the right of a lessee or grant holder to appeal a final
decommissioning order or decision issued under Subpart Q to the IBLA,
in accordance with the appeal procedures in existing part 290 of BSEE's
regulations. Proposed Sec. 250.1709 would require, in combination with
proposed revisions to existing Sec. 290.7(a)(2), that a lessee or
grant holder appealing a decommissioning decision or order must post a
surety bond in an amount deemed by BSEE to be adequate to ensure
completion of decommissioning if the lessee or grant holder loses its
appeal and subsequently defaults on its obligation.
Sec. 250.1725 When do I have to remove platforms and other facilities?
This proposed rule would expand the first sentence of paragraph (a)
to provide that a RUE grant holder must remove all platforms and other
facilities within 1 year after the RUE grant terminates, unless the
grant holder receives approval to maintain the structure to conduct
other activities. This proposed revision is designed to ensure
alignment between Sec. 250.1725 and the other proposed revisions to
Subpart Q regarding the RUE decommissioning principles discussed
previously.
Part 290--Appeal Procedures
Sec. 290.7 Do I have to comply with the decision or order while my
appeal is pending?
The proposed rule would amend paragraph (a)(2) to provide that any
person that appeals a decommissioning decision or order must post a
surety bond in order to seek to obtain a stay of that decision or
order, in accordance with proposed Sec. 250.1709. This proposed
revision is designed to ensure alignment between Sec. 290.7 and the
proposed revision adding new Sec. 250.1709 to Subpart Q.
B. Regulations Proposed by BOEM
BOEM is proposing to revise the following regulations:
Part 550--Oil and Gas and Sulfur Operations in the Outer Continental
Shelf
Subpart A--General
Sec. 550.105 Definitions
The proposed rule would add a definition of ``Issuer credit
rating,'' which is a newly defined term in this part, for the reasons
set forth above.
The proposed rule would also add a definition of ``Predecessor,''
which is another newly defined term in this part. The definition would
include those entities, including assignees, that remain liable for the
obligations that accrued during their prior ownership of an interest in
a lease (including the area now subject to a right-of-use and easement
grant), a right-of-use and easement grant, or a pipeline right-of-way
grant. Those entities will be considered in BOEM's evaluation of a
current grant holder's ability to carry out accrued obligations.
BOEM would remove the terms ``Easement,'' and ``Right-of-use,''
neither of which is used separately or applies to any approved
activities on the OCS. In lieu of these two terms, and consistent with
the terms used in Part 550, BOEM would add the term and a corresponding
definition for ``Right-of-Use and Easement.''
This proposed rule would also add a new term and definition for
``Security'' to list the various methods that may be
[[Page 65918]]
used to ensure compliance with OCS obligations.
BOEM would also revise the definition of the term ``You'' to
include, depending on the context of the regulations, a bidder, a
lessee (record title owner), a sublessee (operating rights owner), a
right-of-use and easement grant holder, a pipeline right-of-way grant
holder, a predecessor, a designated operator or agent of the lessee or
grant holder, or an applicant seeking to become one of the above.
Sec. 550.160 When will BOEM grant me a right-of-use and easement, and
what requirements must I meet?
The proposed rule would revise the introductory text of this
section to clarify that a right-of-use and easement does not have to
cover both leased and unleased lands, but rather, BOEM may grant a
right-of-use and easement on leased or unleased lands, or both. The
paragraph (a) introductory text would also be revised by substituting
``or'' for ``and'' to clarify that the right-of-use and easement may be
needed to construct or maintain facilities, but not necessarily both,
because the grant holder often uses a facility constructed by another,
including either a predecessor lessee or a predecessor grant holder.
BOEM also proposes to revise paragraph (b) to provide that a right-
of-use and easement grant holder must exercise the grant according to
the terms of the grant and the applicable regulations of part 550, as
well as the requirements of Part 250, subpart Q of this title.
BOEM also proposes to revise paragraph (c) to update the citation
to BOEM's lessee qualification requirements, Sec. Sec. 556.400 through
556.402, and to replace the authority that is cited in this paragraph
for requiring a bond with a cross reference to Sec. 550.166(d), which
BOEM also proposes to revise to add specific criteria for such demands,
as provided below.
Sec. 550.166 If BOEM grants me a right-of-use and easement, what
surety bond or other security must I provide?
The proposed rule would revise the section heading to read, ``If
BOEM grants me a right-of-use and easement, what surety bond or other
security must I provide?'' so that the bonding and additional security
requirements of this section would apply, where specified, to both a
right-of-use and easement granted to serve a State lease and one
serving an OCS lease.
Notwithstanding the change in the section heading to cover all
rights-of-use and easement, the requirement to furnish a $500,000 bond
still applies only to right-of-use and easement grants that serve State
leases. Therefore, BOEM proposes to revise paragraph (a) of this
section to make clear it applies only to those grants.
BOEM also proposes to revise paragraph (b) of this section to add
that the requirement to provide a $500,000 surety bond may be satisfied
if the operator of the right-of-use and easement provides a surety bond
in the required amount.
BOEM proposes to add paragraph (c) of this section to ensure that
the general administrative requirements for lease bonds also apply to
the $500,000 surety bond required in paragraph (a) of this section.
BOEM would also add paragraph (d) introductory text in this section
to provide that, if BOEM grants a right-of-use and easement that serves
either an OCS lease or a State lease, BOEM may require the grant holder
to provide additional security to ensure compliance with the
obligations under any right-of-use and easement. For a right-of-use and
easement grant that serves a State lease, the required additional
security would be any amount required above the $500,000 base bond.
Since BOEM does not require a standard base bond for a right-of-use and
easement grant that serves an OCS lease, the proposed additional
security provisions would authorize BOEM to require security.
BOEM proposes to add paragraph (d)(1) in this section to set forth
the criteria BOEM would use to evaluate the ability of a right-of-use
and easement grant holder to carry out present and future obligations
and to determine whether BOEM should require additional security. BOEM
would use the same issuer credit rating or proxy credit rating criteria
to evaluate a right-of-use and easement grant holder as BOEM proposes
to apply to lessees, i.e., that the Regional Director may require a
grant holder to provide additional security if the right-of-use and
easement grant holder does not have an issuer credit rating or a proxy
credit rating that meets the criteria set forth in Sec. 556.901(d)(1).
Similar to lessees, the vast majority of right-of-use and easement
holders are oil and gas companies and, therefore, BOEM would use the
same financial criteria to provide consistency in its analysis.
If the right-of-use and easement grant holder does not meet the
criteria set forth in proposed (d)(1) of this section, BOEM would
review the obligations on each right-of-use and easement grant held by
that grant holder and determine whether to require additional security
for each grant. BOEM proposes to add paragraph (d)(2) to this section
to provide that the Regional Director may require a grant holder to
provide additional security on a grant-by-grant basis if a predecessor
right-of-use and easement grant holder or a predecessor lessee liable
for decommissioning any facilities on the right-of-use and easement
does not meet the issuer credit rating or proxy credit rating criteria
described above. Moreover, even if a predecessor meets the credit
rating or proxy credit rating criteria, the Regional Director may
require the grant holder to provide additional security for
decommissioning obligations for which such a predecessor is not liable.
BOEM also proposes to update the regulatory citation in existing
Sec. 550.166 (b)(1) and incorporate that paragraph and citation into
new paragraph (e)(1) to provide that the additional security must meet
the requirements for lease bonds or other security provided for in
Sec. 556.900(d) through (g) and Sec. 556.902.
The proposed rule would also revise the provisions of existing
550.166 (b)(2) and incorporate them into a new paragraph (e)(2) to
ensure that any additional security would cover costs and liabilities
for decommissioning the facilities on the right-of-use and easement in
accordance with the regulations set forth in part 250, subpart Q of
this title that apply to leases.
The proposed rule would also add new paragraph (f) to provide that
if a right-of-use and easement grant holder fails to replace a
deficient bond or fails to provide additional security upon demand,
BOEM may assess penalties, request BSEE to suspend operations on the
right-of-use and easement, and initiate action for cancellation of the
right-of-use and easement grant.
Subpart J--Pipelines and Pipeline Rights-of-Way
Sec. 550.1011 Bond or Other Security Requirements for Pipeline Right-
of-Way Grant Holders
The proposed rule would revise this section in its entirety. The
section heading would be revised to read, ``Bond or other security
requirements for pipeline right-of-way grant holders,'' to clarify that
a pipeline right-of-way grant holder may meet the requirements of this
section by providing either a bond, mentioned in the existing
regulation, or another form of security.
The proposed rule would also revise paragraph (a) to remove the
reference to 30 CFR part 256, which has no bonding requirements, to add
the word ``pipeline'' before ``right-of-way,'' and add ``grant'' after
``right-of-way'' for
[[Page 65919]]
clarification, and to provide that the areawide bond required in
paragraph (a) is to guarantee compliance with all the terms and
conditions of all of the pipeline right-of-way grants held in an OCS
area, as defined in Sec. 556.900(b). The proposed rule would also
remove the language, which states that the requirement to provide an
areawide bond for a pipeline right-of-way grant would be in addition to
the bond coverage required in 30 CFR part 556, as unnecessary because
it is clear that an areawide bond provided for under Part 556 applies
only to leases, not pipeline right-of-way grants. The provisions in
Part 550 are freestanding provisions that must be satisfied by a bond
furnished under Part 550 instead of by a bond furnished under Part 556.
Existing paragraph (a)(2) would be removed because additional security
requirements would be covered by new paragraph (d). BOEM would also
remove 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).
BOEM also proposes to add new paragraph (b) to provide that the
requirement under paragraph (a) to furnish and maintain an areawide
bond may be satisfied if the operator or a co-grant holder provides an
areawide bond in the required amount.
BOEM also proposes to replace paragraph (c) with a provision
stating that the requirements for lease bonds in Sec. 556.900(d)
through (g) and Sec. 556.902 apply to the areawide bond required in
paragraph (a) of this section. BOEM would remove existing paragraph
(d), which would be made redundant by this new paragraph (c).
BOEM would add paragraph (d) introductory text to provide that BOEM
may determine that additional security is necessary to ensure
compliance with the obligations under a pipeline right-of-way grant.
BOEM would also add new paragraph (d)(1) to set forth the criteria BOEM
would use to evaluate the ability of a pipeline right-of-way grant
holder to carry out present and future obligations in order to
determine whether BOEM should require additional security. No criteria
are specified in the existing regulations. Pursuant to this proposed
rule, BOEM would use the same issuer credit rating or proxy credit
rating criteria to evaluate a pipeline right-of-way grant holder as
BOEM proposes to apply to lessees in 556.901(d). BOEM would use the
same financial criteria to provide consistency in its analysis.
Paragraphs (d)(2)(i) and (ii) would provide that, if the pipeline
right-of-way grant holder does not meet the criteria in paragraph
(d)(1), the Regional Director may require the grant holder to provide
additional security on a grant-by-grant basis if there is no co-grant
holder with an issuer credit rating or a proxy credit rating that meets
the criteria set forth in Sec. 556.901(d)(1) nor predecessor pipeline
right-of-way grant holder liable for decommissioning any facilities on
the pipeline right-of-way that has an issuer credit rating or a proxy
credit rating that meets the criteria set forth in Sec. 556.901(d)(1).
Moreover, even if a predecessor meets the credit rating or proxy credit
rating criteria, the Regional Director may require the grant holder to
provide additional security for decommissioning obligations for which
such a predecessor is not liable.
BOEM also proposes to provide, in new paragraph (e)(1), that the
additional security must meet the general requirements for lease bonds
or other security provided in Sec. 556.900(d) through (g) and Sec.
556.902.
The proposed rule would also provide, in new paragraph (e)(2), that
any additional security for a pipeline right-of-way would cover
liabilities for regulatory compliance and decommissioning, in
accordance with the regulations set forth in part 250, subpart Q of
this title.
The proposed rule would also add new paragraph (f) to provide that
if a pipeline right-of-way grant holder fails to replace a deficient
bond or fails to provide additional security upon demand, BOEM may
assess penalties, request BSEE to suspend operations on the pipeline,
and initiate action for forfeiture of the pipeline right-of-way 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 proposed rule would make a technical correction to the
authority citation for part 556 by removing the citation of 43 U.S.C.
1801-1802, which is erroneous because neither of these two sections
contains authority allowing BOEM to issue or amend regulations.
The proposed rule would also remove the citation to 43 U.S.C. 1331
note, which is where the Gulf of Mexico Energy Security Act of 2006 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 this statute and has removed all regulations on this topic from
Part 556, except for Sec. 556.1000, which provides that lessees may no
longer apply for such credits.
Subpart A--General Provisions
Sec. 556.105 Acronyms and Definitions
The proposed rule would add a definition of ``Issuer credit
rating,'' which is a newly defined term in this part, for the reasons
set forth above.
This proposed rule would add a new term and definition for
``Predecessor.'' This definition would include those entities,
including assignees, that, because of their prior ownership of an
interest in a lease, including record title and operating rights
interests, remain liable for obligations that accrued during their
ownership. Those entities would be considered in BOEM's evaluation of a
current lessee's ability to carry out accrued obligations. This
definition would be the same as the definition of ``Predecessor''
proposed for Sec. 550.105.
The proposed rule would also revise the definition of ``Right-of-
Use and Easement (RUE)'' to remove the acronym ``(RUE)'' and to include
the words ``to construct, modify or maintain platforms.'' This
definition would be the same as the definition of ``Right-of-Use and
Easement'' proposed for Sec. 550.105.
The proposed rule would also replace the definition for ``Security
or securities'' with a definition for ``Security'' to clarify the
various methods that can be used to ensure compliance with OCS
obligations. This definition would be the same as the definition of
``Security'' proposed for Sec. 550.105.
The proposed rule would also revise the definition of the term
``You'' to include, depending on the context of the regulations, a
bidder, a lessee (record title owner), a sublessee (operating rights
owner), a right-of-use and easement grant holder, a pipeline right-of-
way grant holder, a predecessor, a designated operator or agent of the
lessee or grant holder, or an applicant seeking to become one of the
above.
Subpart I--Bonding or Other Financial Assurance
Sec. 556.900 Bond or Other Security Requirements for an Oil and Gas or
Sulfur Lease
The proposed rule would revise the section heading to read, ``Bond
or other security requirements for an oil and gas or sulfur lease.''
The proposed rule would revise paragraph (a) introductory text to
add the words ``or sublease'' after the word
[[Page 65920]]
``assignment'' to reflect that the transfer of operating rights from a
record title owner creates a sublease. The proposed rule would also add
the words ``interest in an'' before the words ``existing lease''
because an assignment or transfer under Subparts G and H of this part
may include less than the entire lease. The proposed rule would also
revise paragraph (a) introductory text to clarify that record title
owners and operating rights owners for the lease are equally obligated
to maintain a bond in the required amount.
BOEM also proposes to revise paragraphs (a)(2) and (3) to change
the spelling of ``area-wide'' to ``areawide'' for consistency with the
spelling of this word in other sections of this part.
The proposed rule would also revise paragraph (g) introductory text
to add the word ``surety'' before ``bond'' in two places to clarify
that the regulation is referring to a ``surety bond.''
The proposed rule would revise paragraph (h) introductory text to
replace the words ``bond coverage'' with ``security'' for consistency
in terminology. The proposed rule would also revise paragraph (h)(2) to
clarify that BSEE, rather than BOEM, is the agency with authority to
suspend production or other operations on a lease.
Sec. 556.901 Bonds and Additional Security
The proposed rule would revise the section heading to read, ``Bonds
and additional security,'' because this section covers both base bond
and additional security requirements.
The proposed rule would also revise paragraph (a)(1)(i)
introductory text to insert the words ``lease exploration'' before
``bond'' for consistency with the terminology used in paragraph
(a)(1)(ii).
The proposed rule would also revise paragraph (c) to remove the
words ``authorized officer'' and replace them with ``Regional
Director,'' and remove the words ``lease bond coverage'' and ``a lease
surety bond'' and replace them in each instance with ``security'' to
clarify that the Regional Director can review whether BOEM would be
adequately secured by a surety bond, or another type of security, for
an amount less than the amount prescribed in paragraph (b)(1), but not
less than the estimated cost for decommissioning.
BOEM proposes to revise paragraph (d) introductory text to combine
the provisions of the existing paragraph (d) introductory text and the
existing introductory paragraph (d)(1) to provide that the Regional
Director may determine that additional security is necessary to ensure
compliance with the obligations under a lease based on an evaluation of
the lessee's ability to carry out present and future obligations on the
lease and that the Regional Director may require a lessee to provide
additional security if the lessee does not meet at least one of the
criteria provided below.
BOEM proposes to add new paragraph (d)(1) to set forth the criteria
BOEM would use to evaluate the ability of a lessee to carry out present
and future obligations. BOEM would use an issuer credit rating from a
nationally recognized statistical rating organization (NRSRO), as
defined by the United States Securities and Exchange Commission (SEC),
greater than or equal to either BB- from Standard & Poor's Ratings
Service or Ba3 from Moody's Investor Service, or a proxy credit rating
determined by the Regional Director based on audited financial
information (including an income statement, balance sheet, statement of
cash flows, and the auditor's certificate) greater than or equal to
either BB- from Standard & Poor's Ratings Service or Ba3 from Moody's
Investor Service.
BOEM proposes to add new paragraph (d)(2) to set forth the criteria
BOEM would use if the lessee does not meet the criteria in paragraph
(d)(1). The Regional Director may require a lessee to provide
additional security on a lease-by-lease basis if no co-lessee has an
issuer credit rating or proxy credit rating criteria that meets the
criteria set forth in paragraph (d)(1); there are no proved oil and gas
reserves on the lease, as defined by the SEC at 17 CFR 210.4-10(a)(22),
the net present value of which exceeds three times the cost of the
decommissioning (as estimated by BSEE) associated with the production
of those reserves; and no predecessor lessee liable for decommissioning
any facilities on the lease has an issuer credit rating or a proxy
credit rating that meets the criteria set forth in paragraph (d)(1).
Moreover, even if a predecessor meets the credit rating or proxy credit
rating criteria, the Regional Director may require the lessee to
provide additional security for decommissioning obligations for which
such a predecessor is not liable.
BOEM proposes to redesignate existing paragraph (d)(2) as paragraph
(e) and revise it to provide that a lessee may satisfy the Regional
Director's demand for additional security either by increasing the
amount of its existing bond or by providing additional bonds or other
security.
BOEM proposes to redesignate existing paragraphs (e) and (f) as
paragraphs (f) and (g), respectively, and revise them to remove the
word ``bond'' and replace it with ``security,'' a term that includes a
surety bond or another type of security.
Sec. 556.902 General Requirements for Bonds or Other Security
The proposed rule would revise the section heading to read,
``General requirements for bonds or other security,'' to recognize that
other types of security, such as a pledge of Treasury securities, may
be provided under part 556.
The proposed rule would also revise paragraph (a) to include
``grant holder'' and to include bonds provided under 30 CFR part 550.
These revisions clarify that the same general requirements for bonds
provided by lessees, operating rights owners, or operators of leases,
also apply to bonds provided by right-of-use and easement grant and
pipeline right-of-way grant holders.
The proposed rule would also revise paragraph (e)(2) to clarify
that the use of Treasury securities, instead of a bond, requires a
pledge of Treasury securities, as provided in Sec. 556.900(f).
Sec. 556.903 Lapse of Bond
The proposed rule would revise paragraph (a) to reference a new
bond ``or other security'' consistent with the terminology used
throughout this subpart and to include references to the bond and other
security regulations for right-of-use and easement grants and pipeline
right-of-way grants to ensure that these grants are covered by the
provisions of this section. The proposed rule would also revise
paragraph (a) by removing the words ``terminates immediately'' and
substituting ``must be replaced.''
BOEM also proposes to revise the first sentence of paragraph (b) by
inserting ``or financial institution'' after ``guarantor.'' BOEM also
proposes to revise the third sentence of paragraph (b) for consistency
in terminology by inserting the words ``or other security'' after the
word ``bonds'' and inserting the words ``guarantor or financial
institution'' after the word ``surety'' so that this section would
apply to a third-party guarantor and a financial institution where a
decommissioning account is held.
Sec. 556.904 Decommissioning Accounts
The proposed rule would revise the section heading to read,
``Decommissioning accounts,'' in accordance with BOEM policy and
accepted terminology used in the industry. The words ``lease-specific''
would be removed throughout this section so that a decommissioning
account could be used in lieu of a bond
[[Page 65921]]
for a lease or several leases, a right-of-use and easement grant or a
pipeline right-of-way grant, or a combination thereof.
BOEM proposes to revise paragraph (a) to remove the term ``lease-
specific'' and replace it with ``decommissioning,'' and to add
references to the bonding and other security regulations for right-of-
use and easement grants and pipeline right-of-way grants, consistent
with the changes above. The paragraph (a) introductory text would also
be revised to provide that BOEM would authorize a lessee or grant
holder to establish a decommissioning account at a federally insured
financial institution. The proposed rule would also delete the
reference to paragraph (a)(3), which is being revised and is no longer
relevant to withdrawal of funds from a decommissioning account.
The proposed rule would revise paragraph (a)(1) to remove the words
``and pledged'' and to provide that funds in the account must be
payable to BOEM if BOEM determines the lessee or grant holder has
failed to meet its decommissioning obligations.
The proposed rule would also revise 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 proposed rule would also revise paragraph
(a)(2) to require funding of a decommissioning account pursuant to the
schedule that the Regional Director prescribes.
The proposed rule would revise paragraph (a)(3) to remove the
requirement to provide binding instructions to purchase Treasury
securities for a decommissioning account, which is currently BOEM's
policy. The proposed rule would replace 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, you must
immediately submit, and subsequently maintain, a bond or other security
in an amount equal to the remaining unsecured portion of your estimated
decommissioning liability. This change reflects BOEM's current policy
to order bond or other security in the event the payments into the
decommissioning account are not timely made.
The proposed rule would revise paragraph (b) by removing ``lease-
specific'' and substituting ``decommissioning.''
The proposed rule would also remove paragraphs (c) and (d), which
concern the use of pledged Treasury securities to fund a
decommissioning account. Because of this revision, existing paragraph
(e) would be redesignated as paragraph (c), which BOEM proposes to
revise to remove the word ``pledged'' and to provide that BOEM may
require a lessee to create an overriding royalty or production payment
obligation for the benefit of an account established as security for
the decommissioning of a lease.
Sec. 556.905 Third-Party Guarantees
The proposed rule would revise the section heading to read,
``Third-party guarantees.'' BOEM also proposes to revise paragraph (a)
to add the words ``or other security'' after the words ``additional
bond'' and to reference Sec. Sec. 550.166(d) and 550.1011(d) to
clarify that a third-party guarantee may be used instead of an
additional bond or other security required under Sec. 550.166(d) for
right-of-use and easement grants, Sec. 550.1011(d) for pipeline right-
of-way grants, or Sec. 556.901(d) for leases.
BOEM would also revise paragraph (a)(1) to clarify that the
guarantor, not the guarantee, must meet the criteria in paragraph (c)
and would revise paragraph (a)(2) to require the guarantor to submit a
third-party guarantee agreement containing each of the provisions in
paragraph (d) of this section. As discussed below, paragraph (d) is
being revised to provide that the terms previously required for
indemnity agreements must be included in a third-party guarantee
agreement. This terminology is changed to avoid any inference that the
government must incur the expenses of decommissioning before being
indemnified by the guarantor. The proposed rule would also remove
paragraphs (a)(3) and (4), which have been superseded by other
revisions to this section.
The proposed rule would revise paragraph (b) introductory text to
remove references to paragraphs (a)(3) and (c)(3) of this section
because the criteria in these two paragraphs have been superseded. The
proposed rule would replace these references with a reference to
paragraph (c) as proposed to be revised. Because the cessation of
production is neither desirable nor easily accomplished by an operator,
the proposed rule would also revise paragraph (b)(2) to remove the
requirement that, when a guarantor becomes unqualified, you must
``cease production until you comply with the bond coverage requirements
of this subpart.'' Instead, the language would be revised to provide
that you must ``immediately submit and maintain a bond or other
security covering those obligations previously secured by the third-
party guarantee.''
The proposed rule would revise paragraph (c) to clarify that BOEM
will use an issuer credit rating or proxy credit rating to evaluate a
third-party guarantor, and would remove the requirement that a third-
party guarantee ensure compliance with all the obligations of all
lessees, all operating rights owners, and operators on the lease.
The proposed rule would revise 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:'' To be consistent with the revision of paragraph (a) to
allow the use of a third-party guarantee for a right-of-use and
easement grant or a pipeline right-of-way grant and to be consistent
with the revision to remove language from paragraph (c) to allow a
guarantor to limit the obligations covered by a guarantee.
The proposed rule would remove subparagraph (d)(2) to be consistent
with the revision to remove language from paragraph (c) to allow a
guarantor to limit the obligations covered by a guarantee. As a result,
existing paragraph (d)(3) would be redesignated as paragraph (d)(2) and
paragraph (d)(4) would be redesignated as paragraph (d)(3).
The proposed rule would revise redesignated subparagraphs
(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.
The proposed rule would revise new paragraph (d)(3) to replace the
term ``a suitable replacement security'' with ``acceptable replacement
security'' for clarity.
The proposed rule would also add a new paragraph (d)(4) to provide
that BOEM may cancel a third-party guarantee under the same terms and
conditions as those proposed for cancellation of additional bonds and
return of pledged security in Sec. 556.906(d)(2) and (e).
BOEM also proposes to add new paragraphs (d)(5) through (10) to
revise and incorporate all of the provisions of existing paragraph (e),
which would be removed.
Sec. 556.906 Termination of the Period of Liability and Cancellation
of a Bond
The proposed rule would revise the wording in paragraphs (b) and
(d) of this section to cite the bonding regulations for right-of-use
and easement grants and pipeline right-of-way grants to ensure
[[Page 65922]]
that they are covered under the terms of this section.
The proposed rule would revise paragraph (b)(1) to remove the word
``terminated'' in two instances and replace it with ``cancelled'' to be
consistent with paragraph (b) introductory text, which provides that
the Regional Director will cancel your previous bond when you provide a
replacement bond, subject to the conditions provided in paragraphs
(b)(1) through (3). BOEM would also remove the word ``for'' before ``by
the bond'' in paragraph (b)(1) for grammatical reasons.
The proposed rule would revise paragraph (b)(2) to reference
Sec. Sec. 550.166(a) and 550.1011(a) and would revise paragraph (b)(3)
to reference Sec. Sec. 550.166(d) and 556.1011(d). BOEM also proposes
to revise paragraph (b)(3) to clarify that the notification required
under this section is to the surety providing the new additional bond.
The proposed rule would revise the paragraph (d) introductory text
to cover bond cancellations and return of pledged security, and would
remove the middle column of the table entitled, ``The period of
liability will end,'' because it is redundant with provisions of
paragraphs (a), (b) and (c).
In paragraph (d)(1), in the column in the table entitled, ``For the
following type of bond,'' BOEM proposes to remove the words ``type of
bond'' at the top of the table so that this paragraph would apply to
bonds or other security, as applicable. Paragraph (d)(1) would also be
revised to include a reference to base bonds submitted under Sec. Sec.
550.166(a) and 550.1011(a). BOEM would also revise paragraph (d)(2) in
the same column to include a reference to bonds submitted under
Sec. Sec. 550.166(d) and 550.1011(d).
The proposed rule would revise paragraph (d)(2) in the column
entitled, ``Your bond will be cancelled,'' to read, ``Your bond will be
reduced or cancelled or your pledged security will be returned,'' to
clarify that the bonds may be reduced or cancelled and a pledged
security, or a portion thereof, may be returned, and to specify other
circumstances under which the Regional Director may cancel additional
bonds or return a pledged security. While the existing criteria
identify most instances when cancellation of a bond is appropriate,
occasionally there are other circumstances where cancellation would be
warranted. The proposed rule would allow bond cancellation, at any
time, when BOEM determines, using the criteria set forth in Sec.
556.901(d), or Sec. 550.166(d) or Sec. 550.1011(d), as applicable,
that a lessee or grant holder no longer needs to provide the additional
bond for its lease, right-of-use and easement grant, or pipeline right-
of-way grant; when the operations for which the bond was provided
ceased prior to accrual of any decommissioning obligation; and when
cancellation of the bond is appropriate because BOEM determines such
bond never should have been required under the regulations.
The proposed rule would revise introductory paragraph (e) to remove
the words ``or release'' because the term ``release'' is undefined and
not used in practice. Likewise, the proposed rule would remove the
words ``or released'' from paragraph (e)(2).
The proposed rule would also revise paragraph (e) to reference
right-of-use and easement grants and pipeline right-of-way grants to
provide that the Regional Director may reinstate the bonds on the same
grounds as currently provided for reinstatement of lease bonds.
Sec. 556.907 Forfeiture of Bonds or Other Securities
The proposed rule would revise the section heading to read,
``Forfeiture of bonds or other securities'' because the use of ``and/
or'' may be ambiguous. The proposed rule would revise paragraph (a)(1)
to include bonds or other security for right-of-use and easement grants
and pipeline right-of-way grants, in addition to leases, in the
forfeiture provisions of this section. BOEM also proposes to clarify
that the Regional Director may call for forfeiture of all or part of a
bond or other form of security, or demand performance from a guarantor,
if the party who provided the bond refuses or is unable to comply with
any term or condition of a lease, a right-of-use and easement grant, or
a pipeline right-of-way grant, as well as ``any applicable
regulation.'' Throughout this section, BOEM proposes to add references
to a grant, a grant holder, and grant obligations to implement the
revisions in paragraph (a)(1).
BOEM proposes to revise paragraph (b) to include bonds or other
security so that BOEM may pursue forfeiture of a bond or other
security.
BOEM proposes to revise paragraph (c)(1) to include ``financial
institution holding your decommissioning account'' as one of the
parties the Regional Director would notify of a determination to call
for forfeiture of a bond, security, or guarantee because a bank or
other financial institution may hold funds subject to forfeiture.
The proposed rule would revise the wording of paragraph (c)(1)(ii)
and paragraph (d) for clarity.
BOEM proposes to revise paragraph (c)(2)(ii) to add the words
``even if the cost of compliance exceeds the limit of the guarantee''
after the word ``prescribes'' to be consistent with the revisions to
Sec. 556.905, which would allow a guarantor to guarantee less than all
obligations of all lessees, grant holders or operators.
BOEM proposes to revise paragraph (f)(1) to include ``grant'' as
well as lease. BOEM also proposes to revise 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 would be consistent
with the changes made to Sec. 556.905 to allow the use of limited
third-party guarantees.
This rulemaking would also reword paragraph (g) for clarity.
IX. Additional Comments Solicited by BOEM and BSEE
BOEM requests comments on how the proposed rule would affect
existing contracts and agreements with respect to responsibility for
decommissioning liabilities and other lease obligations.
BSEE requests comments on whether, as some stakeholders have
asserted, issuing decommissioning orders first to the predecessors
nearest in time to the current lessees or grant holders would have
positive safety and environmental impacts because the most recent
predecessors should be more familiar with the current circumstances at
a decommissioning site than more remote predecessors. BSEE also
requests comments on any other potential effects of the proposed
changes on the timely and effective completion of decommissioning.
X. Procedural Matters
A. Regulatory Planning and Review (E.O. 12866, 13563 and 13771)
E.O. 12866 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 reviewed this proposed rule and
determined that it is a significant action E.O. 12866.
E.O. 13563 reaffirms the principles of E.O. 12866 while calling for
improvements in the Nation's regulatory system to promote
predictability, to reduce uncertainty, and to use the best, most
innovative, and least burdensome tools for achieving regulatory ends.
The E.O. directs agencies to consider regulatory approaches that reduce
burdens and maintain flexibility and
[[Page 65923]]
freedom of choice for the public where these approaches are relevant,
feasible, and consistent with regulatory objectives. E.O. 13563
emphasizes that regulations must be based on the best available science
and that the rulemaking process must allow for public participation and
an open exchange of ideas. BOEM has developed this rule in a manner
consistent with these requirements.
E.O. 13771 requires Federal agencies to take proactive measures to
reduce the costs associated with complying with Federal regulations.
BOEM and BSEE have evaluated this rulemaking based on the requirements
of E.O. 13771. BOEM's proposed changes are estimated to reduce the
private cost to lessees in the form of bonding premiums. BSEE's
proposed cost changes are not estimated; but are expected to provide
regular and continuous benefits and infrequent costs. Each agency has
drafted an Initial Regulatory Impact Analysis (IRIA) detailing the
estimated impacts of its respective provisions of this joint proposed
rule. These reflect both monetized and non-monetized impacts, the costs
and benefits of which are discussed qualitatively in each document.
Both BOEM and BSEE's IRIAs are available in the public docket for this
rulemaking. Overall, important aspects of this rule (e.g., regulatory
clarifications, refined procedures and reduced bonding requirements)
make this rulemaking an E.O. 13771 deregulatory action.
BOEM expects this proposed rule to reduce the private cost to
lessees through lower bonding premiums. The table below summarizes
BOEM's estimate of the decrease in bonding premiums paid by lessees
over a 10-year and 20-year time horizon. Additional information on the
estimated transfers, costs, and benefits can be found in the IRIA
posted in the public docket for this proposed rule.
Total Estimated Decrease in Bonding Premiums Associated With BOEM's
Proposed Amendments
[2018$]
------------------------------------------------------------------------
Year Discounted at 3% Discounted at 7%
------------------------------------------------------------------------
10 Year Annualized.............. $16,584,362 $16,473,168
10 Year NPV..................... 141,467,969 115,700,639
20 Year Annualized.............. 17,191,929 16,988,417
20 Year NPV..................... 255,772,485 179,975,527
------------------------------------------------------------------------
B. Regulatory Flexibility Act
The Regulatory Flexibility Act, 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. BOEM and BSEE each
provide an Initial Regulatory Flexibility Analysis (IRFA), which
assesses the impact of this proposed rule on small entities. Each of
these are in their respective IRIAs available in the public docket for
this rule.
As defined by the Small Business Administration (SBA), a small
entity is one that is ``independently owned and operated and which is
not dominant in its field of operation.'' What characterizes a small
business varies from industry to industry. The proposed rule would
affect OCS lessees and right-of-use and easement grant and pipeline
right-of-way grant holders on the OCS. The analysis shows that this
includes roughly 555 companies with ownership interests in OCS leases
and grants. Entities that would operate under this proposed 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 386 (70 percent) of the businesses operating on the OCS,
subject to this proposed rule, are considered small; the remaining
businesses are considered large entities.
The analysis shows that there are about 386 small companies with
active operations or ownership interests on the OCS. All of the
operating businesses meeting the SBA classification are potentially
impacted; therefore, BOEM and BSEE expect that the proposed rule would
affect a substantial number of small entities.
The BOEM portion of this proposed rule is a deregulatory action.
BOEM has estimated the annualized decrease in private cost to lessees
and allocated those savings to small and large entities based on their
decommissioning liabilities. BOEM's analysis concludes small companies
would realize 23 percent ($3.3 million) of the decrease in private
costs to lessees from its proposed changes and large companies 77
percent ($10.7 million). The agencies recognize that there may be
incremental cost burdens to some affected small entities, but the
proprietary data is not available for the agencies to estimate those
costs. The agencies are seeking specific comment and feedback from
affected small entities on the costs associated with this rulemaking.
BSEE concludes its proposed changes would not result in any
incremental change to the existing burdens of small entities because,
if they accrued decommissioning liability, they remain liable for
decommissioning under both current regulations and these proposed
regulations, given that the joint and several liability would remain
the same. Additional information about these conclusions can be found
in each bureau's respective IRFA for this proposed rule.
Estimated Annual Decrease in Private Cost for Small and Large Lessees
[2018, $thousands]
----------------------------------------------------------------------------------------------------------------
Credit rating Large co. Small co. Grand total
----------------------------------------------------------------------------------------------------------------
BB- and above................................................... $10,665 $1,631 $12,296
B+ and below.................................................... 40 1,652 1,691
-----------------------------------------------
Grand Total:................................................ 10,705 3,283 13,987
----------------------------------------------------------------------------------------------------------------
[[Page 65924]]
The proposed changes are designed to balance the risk of non-
performance with the costs and disincentives to production that are
associated with the requirement to provide additional security. BOEM
and BSEE believe the proposed action would strongly protect the public
from incurring decommissioning costs and minimize the financial
assurance burden on small entities.
C. Small Business Regulatory Enforcement Fairness Act
This proposed rule would revise the financial assurance
requirements for OCS lessees and grant holders, and would reduce the
number of circumstances in which financial assurance will be required.
The changes would not have any negative impact on the economy or any
economic sector, productivity, jobs, the environment, or other units of
government. BOEM's proposed changes would (1) modify the evaluation
process for requiring additional security, (2) streamline the
evaluation criteria, and (3) remove restrictive provisions for third-
party guarantees and decommissioning accounts. BSEE's proposed changes
would (1) clarify interested parties' decommissioning liabilities, and
(2) provide industry with more explicit decommissioning compliance
expectations. These changes reflect the risk mitigation provided by
BOEM's and BSEE's joint and several liability regulation, better align
the evaluation criteria with industry practices, reduce bonding cost
for industry, and provide greater certainty to industry on fulfilling
accrued decommissioning obligations while continuing to protect the
public from exposure to financial obligations and liabilities arising
from noncompliant OCS exploration and development.
Accordingly, this proposed rule is not a major rule under 5 U.S.C.
804(2), the Small Business Regulatory Enforcement Fairness Act, because
implementation of this rule will not:
(a) Have an annual effect on the economy of $100 million or more;
(b) cause a major increase in costs or prices for consumers,
individual industries, Federal, State, or local government agencies, or
geographic regions; or
(c) result in significant adverse effects on competition,
employment, investment, productivity, innovation, or the ability of
U.S.-based enterprises to compete with foreign-based enterprises.
D. Unfunded Mandates Reform Act of 1995
This proposed rule does not impose an unfunded mandate on State,
local, or tribal governments, or the private sector of more than $100
million per year. This rule does not have a significant or unique
effect on State, local, or tribal governments or the private sector.
Moreover, the proposed rule would not have disproportionate budgetary
effects on these governments. BOEM and BSEE have also determined that
this proposed rule would not impose costs on the private sector of more
than $100 million in a single year. A statement containing the
information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531
et seq.) is not required and BOEM and BSEE have chosen not to prepare
such a statement.
E. Takings Implication Assessment (E.O. 12630)
This proposed rule does not affect a taking of private property or
otherwise have takings implications under E.O. 12630. Therefore, a
takings implication assessment is not required.
F. Federalism (E.O. 13132)
Under the criteria in section 1 of E.O. 13132, this proposed rule
does not have sufficient federalism implications to warrant the
preparation of a federalism summary impact statement. Therefore, a
federalism summary impact statement is not required.
G. Civil Justice Reform (E.O. 12988)
This proposed rule complies with the requirements of E.O. 12988.
Specifically, this rule:
(a) 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
(b) Meets the criteria of section 3(b)(2) requiring that all
regulations be written in clear language and contain clear legal
standards.
H. Consultation With Indian Tribes (E.O. 13175 and Departmental Policy)
(OEP To Advise)
BOEM and BSEE strive to strengthen their government-to-government
relationships with American Indian and Alaska Native Tribes through a
commitment to consultation with the tribes and recognition of their
right to self-governance and tribal sovereignty. We are also respectful
of our responsibilities for consultation with Alaska Native Claims
Settlement Act (ANCSA) Corporations. We have evaluated the proposed
rule under the Department of the Interior's consultation policy, under
Departmental Manual Part 512, Chapters 4 and 5, and under the criteria
in E.O. 13175 and determined that, while there are no substantial
direct effects on environmental or cultural resources, there may be
economic impacts to one Indian tribe and one ANCSA Corporation. BOEM
has invited consultation with the Indian tribe and the ANCSA
Corporation to discuss possible impacts and to solicit and fully
consider their views on the proposed rulemaking.
I. Paperwork Reduction Act (PRA)
This proposed rule contains existing and new information collection
(IC) requirements for both BSEE and BOEM regulations, and a submission
to the OMB for review under the Paperwork Reduction Act of 1995 (44
U.S.C. 3501 et seq.) is required. Therefore, an IC request for each
Bureau is being submitted to OMB for review and approval. BSEE and BOEM
are seeking to renew and extend IC requests for each OMB control number
listed below for three years from approved date. We may not conduct or
sponsor and you are not required to respond to a collection of
information unless it displays a currently valid Office of Management
and Budget (OMB) control number. The OMB has reviewed and approved the
information collection requirements associated with risk management,
financial assurances, and loss prevention and assigned the following
OMB control numbers:
1014-0010 (BSEE), ``30 CFR 250, Subpart Q--Decommissioning
Activities'' (expires 04/30/2023, and in accordance with 5 CFR 1320.10,
an agency may continue to conduct or sponsor this collection of
information while the submission is pending at OMB),
1010-0006 (BOEM), ``Leasing of Sulfur or Oil and Gas in
the Outer Continental Shelf (30 CFR parts 550, Subpart J; 556, Subparts
A through I, and K; and 560, Subparts B and E) (expires 01/31/2023),
and
1010-0114 (BOEM), ``30 CFR 550, Subpart A, General, and
Subpart K, Oil and Gas Production Requirements (expires 02/28/2023).
The IC aspects affecting each Bureau are discussed separately.
Instructions on how to comment follow those discussions.
BSEE Information Collection--30 CFR Parts 250 and 290
This proposed rule would add new collections of information under
regulations at 30 CFR part 250, subpart Q, concerning the
decommissioning
[[Page 65925]]
regulatory requirements related to oil, gas, and sulphur operations in
the OCS. These regulatory requirements are the subject of this
collection.
The new information collection requirements identified below
require approval by OMB. BSEE uses the information collected under the
Subpart Q regulations to ensure that operations on the OCS are carried
out in a safe and environmentally protective manner, do not interfere
with the rights of other users on the OCS, and balance the conservation
and development of OCS resources. The following proposed regulatory
changes would affect the annual burden hours; however, they would not
impact non-hour cost burdens.
The proposed rule would clarify decommissioning responsibilities,
including those requirements for RUE grants, and would establish an
order in which predecessor lessees or grant holders would be ordered to
decommission OCS facilities when the current owner of the lease or
grant fails to do so. When holding predecessors responsible for the
performance of accrued decommissioning obligations, BSEE proposes to
issue decommissioning orders to predecessors in reverse chronological
order through the chain-of-title, organized in groups by designated
operator(s).
This proposed rule would require predecessors to submit a work plan
and schedule as directed under proposed Sec. Sec. 250.1704(b) and
250.1708. Given the potentially lengthy process of holding predecessors
responsible, BSEE would establish a step early in the process for the
predecessors to submit decommissioning plans. BSEE considers this
necessary to protect the public from incurring future decommissioning
costs and to prevent safety and environmental risks posed by delayed
performance of decommissioning. Within 90 days of receiving an order to
perform decommissioning under proposed Sec. 250.1708(a), the
predecessor would be required to submit a work plan and projected
decommissioning schedule that addresses all wells, platforms and other
facilities, pipelines, and site clearance. This proposed requirement
would add an estimated 4,320 annual burden hours to the existing OMB
control number (+4,320 annual burden hours).
Title of Collection: Revisions to Regulations under 30 CFR part
250, subpart Q--Decommissioning.
OMB Control Number: 1014-0010.
Form Number: None.
Type of Review: Revision of a currently approved collection of
information.
Respondents/Affected Public: Currently there are approximately 60
Oil and Gas Drilling and Production Operators in the OCS. Not all the
potential respondents would submit information at any given time, and
some may submit multiple times.
Total Estimated Number of Annual Respondents: Not all of the
potential respondents will submit information in any given year and
some may submit multiple times.
Total Estimated Number of Annual Responses: 3,248 responses.
Total Estimated Number of Annual Burden Hours: 15,997 hours.
Respondent's Obligation: Mandatory.
Frequency of Collection: Submissions are generally on occasion.
Total Estimated Annual Nonhour Burden Cost: $1,143,556.
Burden Table--Burden Breakdown
[New requirements due to the proposed rule shown in bold; Changes to existing requirements due to the proposed
rule are italicized.]
----------------------------------------------------------------------------------------------------------------
Average number Annual burden
Citation 30 CFR part 250 Reporting requirement Hour burden of annual hours
subpart Q * responses (rounded)
----------------------------------------------------------------------------------------------------------------
Non-hour cost burdens
----------------------------------------------------------------------------------------------------------------
General
----------------------------------------------------------------------------------------------------------------
1704(h); 1706(a), (f); 1712; These sections contain APM burden covered under 1014-0026. ..............
1715; 1716; 1721(a),(d), (f)- references to
(g); 1722(a), (b), (d); information,
1723(b); 1743(a); Sub G. approvals, requests,
payments, etc., which
are submitted with an
APM, the burdens for
which are covered
under its own
information
collection.
----------------------------------------------------------------------------------------------------------------
1700 thru 1754................. General departure and Burden covered under Subpart A 1014- 0
alternative 0022.
compliance requests
not specifically
covered elsewhere in
Subpart Q regulations.
----------------------------------------------------------------------------------------------------------------
1703; 1704..................... Request approval for Burden included below. 0
decommissioning.
----------------------------------------------------------------------------------------------------------------
1704(b); 1708.................. Submit work plan & 1,440............... 3 submittals..... 4,320
schedule under Sec.
250.1708(b) that
addresses all wells,
platforms and other
facilities,
pipelines, and site
clearance upon
receiving an order to
perform
decommissioning;
additional
information as
requested by BSEE.
----------------------------------------------------------------------------------------------------------------
1704(j), (k)................... Submit to BSEE, within 1................... 1,320 summaries 1,320
120 days after (including
completion of each pipelines)/
decommissioning additional
activity (including information.
pipelines), a summary
of expenditures
incurred; any
additional
information that will
support and/or verify
the summary.
----------------------------------------------------------------------------------------------------------------
1704(j); NTL................... Request and obtain 15 min.............. 75 requests...... 19
approval for
extension of 120-day
reporting period;
including
justification.
----------------------------------------------------------------------------------------------------------------
1704(j)........................ Submit certified Exempt from the PRA under 5 CFR 0
statement attesting 1320.3(i)(1).
to accuracy of the
summary for
expenditures incurred.
----------------------------------------------------------------------------------------------------------------
[[Page 65926]]
1712........................... Required data if Requirement not considered Information 0
permanently plugging Collection under 5 CFR 1320.3(h)(9).
a well.
----------------------------------------------------------------------------------------------------------------
1713........................... Notify BSEE 48 hours 0.5................. 725 notices...... 363
before beginning
operations to
permanently plug a
well.
----------------------------------------------------------------------------------------------------------------
1721(f)........................ Install a protector Burden covered under Subpart I 1014- 0
structure designed 0011.
according to 30 CFR
part 250, Subpart I,
and equipped with
aids to navigation.
(These requests are
processed via the
appropriate Platform
Application, 30 CFR
part 250 Subpart I by
the OSTS.).
----------------------------------------------------------------------------------------------------------------
1721(e); 1722(e), (h)(1); Identify and report U.S. Coast Guard requirements. 0
1741(c). subsea wellheads,
casing stubs, or
other obstructions;
mark wells protected
by a dome; mark
location to be
cleared as navigation
hazard.
----------------------------------------------------------------------------------------------------------------
1722(c), (g)(2); 1704(i)....... Notify BSEE within 5 1................... 11 notices....... 11
days if trawl does
not pass over
protective device or
causes damages to it;
or if inspection
reveals casing stub
or mud line
suspension is no
longer protected.
----------------------------------------------------------------------------------------------------------------
1722(f), (g)(3)................ Submit annual report 2.5................. 98 reports....... 245
on plans for re-entry
to complete or
permanently abandon
the well and
inspection report.
----------------------------------------------------------------------------------------------------------------
1722(h)........................ Request waiver of 1.5................. 4 requests....... 6
trawling test.
----------------------------------------------------------------------------------------------------------------
1725(a)........................ Requests to maintain Burden covered under Subpart I 1014- 0
the structure to 0011.
conduct other
activities are
processed, evaluated
and permitted by the
OSTS via the
appropriate Platform
Application process,
30 CFR part 250
Subpart I. (Other
activities include
but are not limited
to activities
conducted under the
grants of right-of-
ways (ROWs), rights--
of-use and easement
(RUEs), and alternate
rights-of-use and
easement authority
issued under 30 CFR
part 250 Subpart J,
30 CFR 550.160, and/
or 30 CFR part 585,
etc.).
----------------------------------------------------------------------------------------------------------------
1725(e)........................ Notify BSEE 48 hours 0.5................. 133 notices...... 67
before beginning
removal of platform
and other facilities.
----------------------------------------------------------------------------------------------------------------
1726; 1704(a).................. Submit initial 20.................. 2 application.... 40
decommissioning
application in the
Pacific and Alaska
OCS Regions.
----------------------------------------------------------------------------------------------------------------
1727; 1728; 1730; 1703; Submit final 28.................. 153 applications. 4,284
1704(c); 1725(b). application and
appropriate data to
remove platform or
other subsea facility
structures (This
included alternate
depth departures and/
or approvals of
partial removal or
toppling for
conversion to an
artificial reef.).
--------------------------------------------------------
$4,684 fee x 153 = $716,652.
----------------------------------------------------------------------------------------------------------------
1729; 1704(d).................. Submit post platform 9.5................. 133 reports...... 1,264
or other facility
removal report;
supporting
documentation; signed
statements, etc.
----------------------------------------------------------------------------------------------------------------
1740; 1741(g).................. Request approval to 12.75............... 30 requests/ 383
use alternative contacts.
methods of well site,
platform, or other
facility clearance;
contact pipeline
owner/operator before
trawling to determine
its condition.
----------------------------------------------------------------------------------------------------------------
1743(b); 1704(g), (i).......... Verify permanently 5................... 117 585
plugged well, certifications.
platform, or other
facility removal site
cleared of
obstructions;
supporting
documentation; and
submit certification
letter.
----------------------------------------------------------------------------------------------------------------
1750; 1751; 1752; 1754; 1704(e) Submit application to 10.................. 142 L/T 1,420
decommission pipeline applications.
in place or remove
pipeline (L/T or ROW).
--------------------------------------------------------
[[Page 65927]]
$1,142 L/T decommission fee x 142 = $162,164.
--------------------------------------------------------
10.................. 122 ROW 1,220
applications.
--------------------------------------------------------
$2,170 ROW decommissioning fees x 122 = $264,740.
----------------------------------------------------------------------------------------------------------------
1753; 1704(f).................. Submit post pipeline 2.5................. 180 reports...... 450
decommissioning
report.
----------------------------------------------------------------------------------------------------------------
Total Burden............... ...................... .................... 3,248 responses.. 15,997
----------------------------------
$1,143,556 Non-Hour Cost Burdens.
----------------------------------------------------------------------------------------------------------------
L/T = Lease Term.
ROW = Right of Way.
In addition, 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) Whether or not the collection of information is necessary,
including whether or not the information will have practical utility;
(2) The accuracy of our estimate of the burden for this collection
of information;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the collection of information on
respondents.
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
at the www.reginfo.gov portal (online). You may view the information
collection request(s) at http://www.reginfo.gov/public/do/PRAMain.
Please provide a copy of your comments to the BSEE Information
Collection Clearance Officer (see the ADDRESSES section). You may
contact Kye Mason, BSEE Information Collection Clearance Officer at
(703) 787-1607 with any questions. Please reference Risk Management,
Financial Assurance and Loss Prevention (OMB Control No. 1014-0010), in
your comments.
BOEM Information Collection--Parts 550 and 556
This proposed rule would modify collections of information under 30
CFR part 550, subparts A and J, and 30 CFR part 556, subpart I,
concerning bonding and security requirements for leases, pipeline
right-of-way grants, and right-of-use easement grants. OMB has reviewed
and approved the information collection requirements associated with
bonding and additional security regulations for leases (30 CFR 556.900-
907), pipeline right-of-way grants (30 CFR 550.1011), and right-of-use
easement grants (30 CFR 550.160 and 550.166).
BOEM recognized the need to develop a comprehensive program to help
identify, prioritize, and manage the financial risks associated with
oil and gas activities on the OCS. BOEM's goal for this program is to
protect American taxpayers from exposure to financial or environmental
risks from nonperformance of obligations associated with OCS leases and
grants while also assuring that its financial assurance program does
not negatively impact offshore investment or operations.
By moving forward with the proposed regulations for the financial
assurance program, BOEM would be able to more effectively address a
number of complex financial issues. The proposed regulations would
establish new criteria that will reduce regulatory burdens and
compliance costs on Federal OCS oil, gas, and sulfur lessees, grant
holders and operators. New criteria would help determine whether OCS
oil, gas and sulfur lessees, and right-of-use and easement grant and
pipeline right-of-way grant holders would be required to provide
additional bonds or other security (above prescribed amounts) to ensure
compliance with their contractual and regulatory obligations to BOEM.
The proposed regulations would streamline the evaluation criteria and
would allow BOEM to consider the financial strength and reliability of
a lessee, a co-lessee, a co-holder of a grant, and/or a predecessor, to
determine whether a lessee or grant holder must provide additional
security. The regulations would also remove overly restrictive
provisions for third-party guarantees and decommissioning accounts.
[[Page 65928]]
BOEM intends to modify OMB Control Number 1010-0006 (expiration
January 31, 2023; 19,054 hours; $766,053 non-hour costs), Leasing of
Sulfur or Oil and Gas in the Outer Continental Shelf (30 CFR part 550,
subpart J; 556, Subparts A through I, and K; and 560, Subparts B and
E)); and OMB Control Number 1010-0114 (expiration February 28, 2023;
18,323 hours; $165,492 non-hour costs), 30 CFR part 550, subpart A,
General, and Subpart K, Oil and Gas Production Requirements. If this
proposed rule becomes final and effective, the new and changed
provisions would reduce the overall annual burden hours for OMB Control
Number 1010-0006 by 13 hours. The changed provisions for OMB Control
Number 1010-0114 would add new and revise requirements in 30 CFR part
550, subpart A, but would not impact the overall burden hours for this
control number. However, the new and modified requirements would be
significant enough to update the OMB control number.
Title of Collection: 30 CFR parts 550 and 556, Risk Management,
Financial Assurance and Loss Prevention.
OMB Control Number: 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 right-of-use and easement grant and pipeline
right-of-way grant holders.
Total Estimated Number of Annual Responses: 10,305 responses for
1010-0006, and 5,302 responses for 1010-0114.
Total Estimated Number of Annual Burden Hours: 19,041 hours for
1010-0006, and 18,323 hours for 1010-0114.
Respondent's Obligation: Responses to this collection 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 Nonhour Burden Cost: $766,053 for 1010-0006,
and $165,492 for 1010-0114.
The following is a brief explanation of how the proposed regulatory
changes would affect the various subparts' hour and non-hour cost
burdens:
30 CFR Part 550, Subpart A (OMB Control Number 1010-0114)
Proposed Sec. 550.160(b) would be revised to clarify that a right-
of-use and easement grant holder must exercise the grant according to
the terms of the grant and the applicable regulations of part 550, as
well as the requirements of part 250, subpart Q. The annual burden hour
would not change based on this clarification.
Proposed Sec. 550.160(c) would be revised to update the lessee
qualification requirements previously provided in Sec. 556.35 (now
obsolete), with associated burden hours ``to establish a regional
Company File as required by BOEM,'' to reflect the requirements in
BOEM's existing regulations at Sec. Sec. 556.400 through 556.402,
which requires a lessee to demonstrate qualifications to hold a lease
on the OCS and to obtain a BOEM qualification number. The burden is
currently identified in OMB Control Number 1010-0114, and although the
description of the lessee qualification requirements has changed
slightly, the annual burden would not change.
Proposed Sec. 550.160(c) would also clarify that the criteria to
determine when the holder of a right-of-use and easement grant that
serves an OCS lease may be required to provide security by replacing a
vague reference to ``bonding requirements'' with a cross-reference to
Sec. 550.166(d) and its criteria. The annual burden hour would not
change based on this clarification.
Proposed Sec. 550.166 (d)(1) relates to BOEM's determination of
whether additional security is necessary to ensure compliance with the
obligations under a right-of-use and easement grant. This determination
will be based on whether a right-of-use and easement grant holder has
the ability to carry out present and future financial obligations. The
criteria proposed for the financial determination include an issuer
credit rating, or a proxy credit rating based on audited financial
information. 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 falls on BOEM.
The annual burdens placed on the grant holder would be minimal and
would be included in the burden estimates for 30 CFR 556.901(d) found
in OMB Control Number 1010-0006.
New Sec. 550.166(d)(2) would allow BOEM to consider the issuer
credit rating or proxy credit rating of a predecessor right-of-use and
easement grant holder or a predecessor lessee. This is a new provision
that may slightly increase annual burden hours. Burden change would be
reflected in the burden estimate for 30 CFR 556.901(d)(2) found in OMB
Control Number 1010-0006.
30 CFR Part 550, Subpart J (OMB Control Number 1010-0006)
Proposed Sec. 550.1011(d)(1) relates to BOEM's determination of
whether additional security is necessary to ensure compliance with the
obligations under a pipeline right-of-way grant. This determination
would be based on whether a pipeline right-of-way grant holder has the
ability to carry out present and future financial obligations. The
criteria proposed for the financial determination include 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 falls on BOEM. The annual burdens placed on the grant holder
would be minimal and would be included in the burden estimates for 30
CFR 556.901(d).
Proposed Sec. 550.1011(d)(2)(i) would allow BOEM to consider the
issuer credit rating or proxy credit rating of a co-grant holder. This
is a new provision that may slightly increase annual burden hours.
Burden change would be reflected in the burden estimates for 30 CFR
556.901(d)(2).
Proposed Sec. 550.1011(d)(2)(ii) would allow BOEM to consider the
issuer credit rating or proxy credit rating of a predecessor pipeline
right-of-way grant holder. This is a new provision that may slightly
increase annual burden hours. Burden change would be reflected in the
burden estimates for 30 CFR 556.901(d)(2).
30 CFR Part 556, Subpart I (OMB Control Number 1010-0006)
Proposed Sec. 556.901(d)(1) relates to BOEM's determination of
whether additional security is necessary to ensure compliance with the
obligations under a lease. This determination would be based on the
lessee's ability to carry out present and future financial obligations
as demonstrated by an issuer credit rating or a proxy credit rating
determined by BOEM based on audited financial information.
New Sec. 556.901(d)(2)(i) would allow BOEM to consider the issuer
credit rating or proxy credit rating of a co-lessee, and new Sec.
556.901(d)(2)(ii) would allow BOEM to consider the net present value of
proved oil and gas reserves on the lease. There would be no need to
submit proved reserve information if the lessee is not required to
provide additional bonding based on its issuer credit rating, or proxy
credit rating, or those of its co-lessees or predecessors. Under the
existing regulations, the Regional Director was to
[[Page 65929]]
take this ``financial strength'' information into account in every case
when determining whether additional security is necessary.
New Sec. 556.901(d)(2)(iii) would allow BOEM to consider the
issuer credit rating or proxy credit rating of a predecessor lessee.
This would not change existing burden hour estimates. This proposed
requirement would likely increase the number of respondents due to
additional companies' preparing and submitting an issuer credit rating
or audited financials so that BOEM can determine proxy credit ratings.
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 proposed rule, the evaluation
criteria would be streamlined and would likely require less time for
the respondents to prepare and submit the information, particularly for
an issuer credit rating or audited financials. However, the time
necessary for companies to prepare and submit information on the proved
oil and gas reserves would likely be greater than 3.5 hours. Therefore,
BOEM proposes to retain the 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 (a lessee, co-
lessee, a co-grant holder, and/or a predecessor) would be included in
OMB Control Number 1010-0006.
The OMB approved number of respondents who currently submit
financial information under the existing provisions is 166 respondents.
Recently, BOEM has seen the number of leases decrease in the Gulf of
Mexico. Therefore, BOEM expects the overall number of respondents, even
with the increase of new respondents related to Sec. 556.901(d)(2), to
be less than the current 166 respondents. BOEM estimates the new number
of respondents would be approximately between 150 and 160 respondents.
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 is 581 hours. With the changes
provided in the proposed rule and described above, BOEM estimates that
the annual hour burden would decrease by approximately 21 annual burden
hours. This decrease in annual burden hours would be reflected in OMB
Control Number 1010-0006 when the final rule becomes effective.
Proposed revisions to Sec. 556.904 would allow the Regional
Director to authorize a right-of-use and easement grant holder and a
pipeline right-of-way grant holder, as well as a lessee, to establish a
decommissioning account as additional security required under Sec.
556.901(d), or Sec. 550.166(d) or Sec. 550.1011(d). BOEM also
proposes to remove the requirement to provide instructions for the
institution managing the account to purchase Treasury securities
pledged to BOEM and to actually use such Treasuries to fund the account
before the account equals the maximum insurable amount determined by
the Federal Deposit Insurance Corporation, currently $250,000. A new
provision is proposed under Sec. 556.904(a)(3), which would require
immediate submission of a bond or other security in the amount equal to
the remaining unsecured portion of the estimated decommissioning
liability amount if the initial payment or any scheduled payment into
the decommissioning account is not timely made. This provision may
increase the annual burden hours slightly, and would be reflected in
OMB Control Number 1010-0006.
Proposed Sec. 556.905(b)(2) would be revised to eliminate the
requirement that, when a guarantor becomes unqualified, a lessee must
cease production, until bond coverage requirements are met. The
regulatory provision would be replaced with a requirement to
immediately submit and maintain a substitute bond or other security.
Both the existing and proposed provisions require the lessee to provide
bond coverage; however, BOEM's current OMB Control Number 1010-0006
does not quantify the burdens associated with either situation.
Therefore, BOEM would add approximately 8 annual burden hours to OMB
Control Number 1010-0006 for any lessee whose guarantor became
unqualified.
Proposed Sec. 556.905(c) relates to the guarantor's ability to
carry out present and future financial obligations, which would be
evaluated using an issuer credit rating, or a proxy credit rating based
on audited financial information, both of which exist independent of
the requirement for submitting them to BOEM. Since BOEM would evaluate
the financial ability of the guarantor, the burden would fall on BOEM.
The annual burdens placed on the guarantor would be minimal and would
be included in the burden estimates for OMB Control Number 1010-0006.
Proposed Sec. 556.905(c) would remove the requirement that a
guarantee ensure compliance with all lessees' or grant holders'
obligations and the obligations of all operators on the lease or grant.
This revision would allow a third-party guarantor to limit the
obligations covered by the third-party guarantee. In some situations,
this change could result in additional paperwork burden due to
additional bonds or other security that must be provided to BOEM to
cover obligations previously covered by a third-party guarantee. BOEM
estimates these occurrences to be low and the annual burdens would be
included in the burden estimates for OMB Control Number 1010-0006.
Proposed Sec. 556.905(d) also replaces the indemnity agreement
with a third-party guarantee agreement with comparable provisions. This
change would not impact annual burden hours.
Proposed Sec. 556.905(d)(4) would provide that a lessee or grant
holder and the guarantor under a third-party guarantee may request BOEM
to cancel a third-party guarantee. BOEM would cancel a third-party
guarantee under the same terms and conditions provided for cancellation
of additional bonds in proposed Sec. 556.906(d)(2). The existing OMB
burden under Sec. 556.905 and Sec. 556.906 would be expanded to
include this new provision. The current burden for OMB Control Number
1010-0006 is overestimated at \1/2\ hour time by 378 responses.
Therefore, the burden added by the new provision for these types of
requests would be included in the existing burden.
Proposed Sec. 556.906(d)(2) would be revised to add three
additional circumstances when BOEM may cancel an additional bond or
other security. Proposed paragraphs 556.906(d)(2)(ii)(A) through (C)
would require a cancellation request from the lessee or grant holder,
or the surety, based on assertions that one of these three
circumstances is present. BOEM already receives these types of requests
and has approved the requests, where warranted, on the basis of a
departure from the regulations. Therefore, the existing OMB burden
estimate for OMB Control Number 1010-0006 includes these requests.
Overall, this proposed rule would result in the following
adjustments in hour burden, which would lead to an overall reduction of
13 annual burden hours:
The hours per response for all respondents (i.e., a
lessee, a co-lessee, a co-grant holder, and/or a predecessor) who
demonstrate financial worth/ability
[[Page 65930]]
to carry out present and future financial obligations, request approval
of another form of security, or request reduction in amount of
supplemental bond required, along with the monitoring and submission of
required information, will remain at 3.5 hours as approved by OMB in
OMB Control Number 1010-0006. The number of responses for the
provisions related to Sec. Sec. 550.160, 550.166, 550.1011, and
556.900 through 902 would decrease to 160 respondents from 166
respondents due to program changes as explained above. The related
existing and new provisions would result in a decrease of 21 burden
hours from 581 to 560 annual burden hours, which would be reflected in
OMB Control Number 1010-0006.
The hours per response for proposed Sec. 556.905(b)(2)
would be an increase from 0 to 2 hours. The number of responses for
this provision would increase from 0 to 4. Therefore, this new
provision would add 8 annual burden hours to OMB Control Number 1010-
0006.
If this proposed rule becomes effective, BOEM would use the
existing OMB control numbers for the affected subparts discussed above
and would adjust their IC burdens accordingly.
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.
In addition, 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) Whether or not the collection of information is necessary,
including whether or not the information will have practical utility;
(2) The accuracy of our estimate of the burden for this collection
of information;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the collection of information on
respondents.
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 www.reginfo.gov portal (online). You may view the information
collection request(s) at http://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,
Financial Assurance and Loss Prevention (OMB Control No. 1010-0006), in
your comments.
J. National Environmental Policy Act
A detailed environmental analysis under the National Environmental
Policy Act of 1969 (NEPA) is not required if the proposed rule is
covered by a categorical exclusion (see 43 CFR 46.205). This proposed
rule meets the criteria set forth at 43 CFR 46.210(i) for a
Departmental Categorical Exclusion in that this proposed rule is ``. .
. of an administrative, financial, legal, technical, or procedural
nature . . . .'' We have also determined that the proposed rule does
not involve any of the extraordinary circumstances listed in 43 CFR
46.215 that would require further analysis under NEPA.
K. Data Quality Act
In developing this proposed rule, we 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).
L. Effects on the Nation's Energy Supply (E.O. 13211)
Under E.O. 13211, agencies are 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.
The proposed rule is an E.O. 13771 deregulatory action and does not
add new regulatory compliance requirements that would lead to adverse
effects on the nation's energy supply, distribution, or use. Rather, in
accordance with E.O. 13783, the proposed regulatory changes will help
to reduce compliance burdens on the oil and gas industry that may
hinder the continued development or use of domestically produced energy
resources.
The BOEM regulatory changes are expected to provide the oil and gas
industry with direct annualized compliance cost savings of $17.0
million (7% discounting) over the proposed rule's 20-year analysis of
the rule's effects. The compliance cost savings experienced by the
offshore oil and gas industry under this proposed rule will reduce the
overall costs of OCS operating companies. BSEE's proposals result in no
cost impacts. Moreover, since BSEE's proposed regulatory changes apply
only to facilities that occur after exploration, development and
production activities have ended, those changes would not affect the
nation's energy supply, distribution and use. Reduced regulatory
burdens do not adversely affect productivity, competition, or prices
within the energy sector. This proposed rule is not a significant
energy action under the definition in E.O. 13211. Therefore, a
Statement of Energy Effects is not required.
M. Clarity of This Regulation
BOEM is required by E.O. 12866, E.O. 12988, and by the Presidential
Memorandum of June 1, 1998, to write all rules in plain language. This
means that each rule BOEM publishes must:
(1) Be logically organized;
(2) Use the active voice to address readers directly;
(3) Use clear language rather than jargon;
(4) Be divided into short sections and sentences; and
(5) Use lists and tables wherever possible.
[[Page 65931]]
If you feel that BOEM or BSEE have not met these requirements, send
comments by one of the methods listed in the ADDRESSES section. To
better help BOEM and BSEE revise the proposed rule, your comments
should be as specific as possible. For example, you should specify the
numbers of the sections or paragraphs that you find unclear, which
sections or sentences are too long, the sections where you feel lists
or tables would be useful, etc.
List of Subjects
30 CFR Part 250
Administrative practice and procedure, Continental shelf,
Environmental impact statements, Environmental protection, Government
contracts, Investigations, Oil and gas exploration, Penalties,
Pipelines, Public lands--mineral resources, Public lands--rights of-
way, Reporting and recordkeeping requirements, Sulfur.
30 CFR Part 290
Administrative practice and procedure.
30 CFR Part 550
Administrative practice and procedure, Continental shelf,
Environmental impact statements, Environmental protection, Federal
lands, Government contracts, Investigations, Mineral resources, Oil and
gas exploration, 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, Federal lands, Government contracts,
Intergovernmental relations, Oil and gas exploration, Outer continental
shelf, Mineral resources, Reporting and recordkeeping requirements.
Casey Hammond,
Principal Deputy Assistant Secretary, Exercising the Authority of the
Assistant Secretary, Land and Minerals Management.
For the reasons stated in the preamble, BOEM and BSEE propose to
amend 30 CFR parts 250, 290, 550, and 556 as follows:
TITLE 30--MINERAL RESOURCES
CHAPTER II--BUREAU OF SAFETY AND ENVIRONMENTAL ENFORCEMENT, DEPARTMENT
OF THE INTERIOR
SUBCHAPTER B--OFFSHORE
PART 250--OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER
CONTINENTAL SHELF
0
1. The authority citation for part 250 continues to read as follows:
Authority: 30 U.S.C. 1751; 31 U.S.C. 9701; 33 U.S.C.
1321(j)(1)(C); 43 U.S.C. 1334.
0
2. Amend Sec. 250.105 by removing the definitions of ``Easement'' and
``Right-of-use'' and adding in their place in alphabetical order the
definition for ``Right-of-Use and Easement'' to read as follows:
Sec. 250.105 Definitions.
* * * * *
Right-of-Use and Easement means a right to use a portion of the
seabed at an OCS site, other than on a lease you own, to construct,
modify, or maintain platforms, artificial islands, facilities,
installations, and other devices, established to support the
exploration, development, or production of oil and gas, mineral, or
energy resources from an OCS or State submerged lands lease.
* * * * *
0
3. Amend Sec. 250.1700 by revising the section heading and paragraph
(a)(2), and adding paragraph (d), to read as follows:
Sec. 250.1700 What do the terms ``decommissioning,''
``obstructions,'' ``facility,'' and ``predecessor'' mean?
(a) * * *
(2) Returning the lease, pipeline right-of-way, or the area of a
right-of-use and easement to a condition that meets the requirements of
BSEE and other agencies that have jurisdiction over decommissioning
activities.
* * * * *
(d) 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, that is liable for accrued obligations on that
lease or grant.
0
4. Revise Sec. 250.1701 to read as follows:
Sec. 250.1701 Who must meet the decommissioning obligations in this
subpart?
(a) Lessees, owners of operating rights, and their predecessors,
are jointly and severally liable for meeting decommissioning
obligations for facilities on leases, including the obligations related
to lease-term pipelines, as the obligations accrue and until each
obligation is met.
(b) All holders of a right-of-way grant and their predecessors are
jointly and severally liable for meeting decommissioning obligations
for facilities on their right-of-way, including right-of-way pipelines,
as the obligations accrue and until each obligation is met.
(c) All right-of-use and easement grant holders and prior lessees
of the parcel on whose leases there existed facilities or obstructions
that remain on the right-of-use and easement grant are jointly and
severally liable for meeting decommissioning obligations, including
obligations for any well, pipeline, platform or other facility, or an
obstruction, on their right-of-use and easement, as the obligations
accrue and until each obligation is met.
(d) In this subpart, the terms ``you'' or ``I'' refer to lessees
and owners of operating rights, including their predecessors, as to
facilities installed under the authority of a lease; to pipeline right-
of-way grant holders, including their predecessors, as to facilities
installed under the authority of a pipeline right-of-way grant; and to
right-of-use and easement grant holders, including their predecessors,
such as former lessees of the parcel, as to facilities constructed,
modified, or maintained under the authority of the right-of-use and
easement grant.
0
5. Amend Sec. 250.1702 by revising paragraph (e), re-designating
paragraph (f) as paragraph (g), and adding new paragraph (f), to read
as follows:
Sec. 250.1702 When do I accrue decommissioning obligations?
* * * * *
(e) Are or become a holder of a pipeline right-of-way on which
there is a pipeline, platform, or other facility, or an obstruction;
(f) Are or become the holder of a right-of-use and easement grant
on which there is a well, pipeline, platform, or other facility, or an
obstruction; or
* * * * *
0
6. Amend Sec. 250.1703 by revising paragraph (e) to read as follows:
Sec. 250.1703 What are the general requirements for decommissioning?
* * * * *
(e) Clear the seafloor of all obstructions created by your lease,
pipeline right-way, or right-of-use and easement operations;
* * * * *
0
7. Amend Sec. 250.1704 by redesignating paragraphs (b) through (j) as
paragraphs (c) through (k) respectively, and adding new paragraph (b)
to read as follows:
[[Page 65932]]
Sec. 250.1704 What decommissioning applications and reports must I
submit and when must I submit them?
* * * * *
Decommissioning Applications and Reports Table
------------------------------------------------------------------------
Decommissioning applications
and reports When to submit Instructions
------------------------------------------------------------------------
* * * * * * *
(b) Submit decommissioning Within 90 days of Include information
plan per Sec. receiving an order required under Sec.
250.1708(b)(3) that to perform 250.1708(b)(2)
addresses all wells, decommissioning and (3).
platforms and other under Sec.
facilities, pipelines, and 250.1708(a).
site clearance upon
receiving an order to
perform decommissioning.
* * * * * * *
------------------------------------------------------------------------
0
8. Add Sec. 250.1708 to read as follows:
Sec. 250.1708 How will BSEE enforce accrued decommissioning
obligations against predecessors?
(a) Except as provided in paragraph (d) of this section, when
holding predecessors responsible for performing accrued decommissioning
obligations, BSEE will issue decommissioning orders to groups of
predecessors who held interests in the lease or grant within the same
general timeframe in reverse chronological order. BSEE will issue such
orders to predecessors in groups organized by the following:
(1) Changes in designated operator(s) over time (i.e., all
predecessors who held relevant lease or grant interests during the
tenure of a particular designated operator or during the tenure of
contemporaneous designated operators); and
(2) Predecessors who assigned interests to a lessee, owner of
operating rights, or grant holder that subsequently defaulted.
(b) When BSEE issues an order to predecessors to perform accrued
decommissioning obligations, the predecessors must:
(1) Within 30 days of receiving the order, begin maintaining and
monitoring, through a single entity identified to BSEE, any facility,
including wells and pipelines as identified by BSEE in the order, in
accordance with applicable requirements under this part (including, but
not limited to, testing safety valves and sensors, draining vessels,
and performing pollution inspections); and
(2) Within 60 days of receiving the order, designate a single
entity to serve as operator for the decommissioning operations;
(3) Within 90 days of receiving the order, the entity identified in
paragraph (b)(2) of this section must submit a decommissioning plan for
approval by the Regional Supervisor that includes the scope of work and
a reasonable decommissioning schedule for all wells, platforms and
other facilities, pipelines, and site clearance, as identified in the
order; and
(4) Perform the required decommissioning in the time and manner
specified by BSEE in its decommissioning plan approval.
(c) Failure to comply with the obligations under paragraph (b) of
this section to maintain and monitor a facility or to submit a
decommissioning plan may result in a Notice of Incident of
Noncompliance and potentially other enforcement actions, including
civil penalties and disqualification as an operator.
(d) Under certain circumstances, BSEE may depart from the order of
recourse prescribed in paragraph (a) of this section and issue orders
to any or all predecessors for the performance of their respective
accrued decommissioning obligations. Those circumstances include, but
are not limited to:
(1) Failure to obtain approval of a decommissioning plan under
paragraph (b)(3) of this section or to execute decommissioning
according to the approved decommissioning plan;
(2) Determination by the Regional Supervisor that there is an
emergency condition, safety concern, or environmental threat, including
but not limited to facilities not being properly maintained and
monitored in accordance with applicable requirements under this part;
or
(3) Determination by the Regional Supervisor that proceeding
pursuant to paragraph (a) of this section would unreasonably delay
decommissioning.
(e) BSEE's issuance of orders to any predecessors will not relieve
any current lessee or grant holder, or any other predecessor, of its
obligations to comply with any prior decommissioning order or to
satisfy any accrued decommissioning obligations.
(f) A pending appeal, pursuant to 30 CFR part 290, of any
decommissioning order does not preclude BSEE from proceeding against
any or all predecessors other than the appellant in accordance with
paragraph (d) of this section.
0
9. Add Sec. 250.1709 to read as follows:
Sec. 250.1709 What must I do to appeal a BSEE final decommissioning
decision or order issued under this subpart?
If you file an appeal, pursuant to 30 CFR part 290, of a BSEE
decision or order to perform any decommissioning activity under subpart
Q of this part, in order to seek to obtain a stay of that decision or
order, you must post a surety bond in an amount that BSEE determines
will be adequate to ensure completion of the specified decommissioning
activities in the event that your appeal is denied and you thereafter
fail to perform any of your decommissioning obligations.
0
10. Amend Sec. 250.1725 by revising the first sentence of paragraph
(a) to read as follows:
Sec. 250.1725 When do I have to remove platforms and other
facilities?
(a) You must remove all platforms and other facilities within 1
year after the lease, pipeline right-of-way, or right-of-use and
easement terminates, unless you receive approval to maintain the
structure to conduct other activities. * * *
* * * * *
SUBCHAPTER C--APPEALS
PART 290--APPEAL PROCEDURES
0
11. The authority citation for part 290 continues to read as follows:
Authority: 5 U.S.C. 305; 43 U.S.C. 1334.
0
12. Amend Sec. 290.7 by revising paragraph (a)(2) to read as follows:
[[Page 65933]]
Sec. 290.7 Do I have to comply with the decision or order while my
appeal is pending?
(a) * * *
(2) You post a surety bond under 30 CFR 250.1409 pending the appeal
challenging an order to pay a civil penalty or under 30 CFR 250.1709
pending the appeal challenging a decommissioning decision or order.
* * * * *
CHAPTER V--BUREAU OF OCEAN ENERGY MANAGEMENT, DEPARTMENT OF THE
INTERIOR
SUBCHAPTER B--OFFSHORE
PART 550--OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER
CONTINENTAL SHELF
0
13. 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.
Subpart A--General
0
14. Amend Sec. 550.105 by:
0
a. Removing the definition of ``Easement'';
0
b. Adding definitions in alphabetical order for ``Issuer credit
rating'' and ``Predecessor'';
0
c. Removing the definition of ``Right-of-use'';
0
d. Adding definitions in alphabetical order for ``Right-of-Use and
Easement'' and ``Security''; and
0
e. Revising the definition of ``You''.
The additions and revision read as follows:
Sec. 550.105 Definitions.
* * * * *
Issuer credit rating means a forward-looking opinion about an
obligor's overall creditworthiness. This opinion focuses on the
obligor's capacity and willingness to meet its financial commitments as
they come due. It does not apply to any specific financial obligation,
as it does not take into account the nature of and provisions of the
obligation, its standing in bankruptcy or liquidation, statutory
preferences, or the legality and enforceability of the obligation.
* * * * *
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, that is liable for accrued obligations on that lease or
grant.
* * * * *
Right-of-Use and Easement means a right to use a portion of the
seabed at an OCS site other than on a lease you own, to construct,
modify or maintain platforms, artificial islands, facilities,
installations, and other devices, established to support the
exploration, development, or production of oil and gas, mineral, or
energy resources from an OCS or State submerged lands lease.
* * * * *
Security means a surety bond, a pledge of Treasury securities, a
decommissioning account, a third-party guarantee or any other form of
financial assurance provided to BOEM to ensure compliance with
obligations under a lease, a right-of-use and easement grant, or a
pipeline right-of-way grant.
* * * * *
You, depending on the context of the regulations, means a bidder, a
lessee (record title owner), a sublessee (operating rights owner), a
right-of-use and easement grant holder, a pipeline right-of-way grant
holder, a predecessor, a designated operator or agent of the lessee or
grant holder, or an applicant seeking to become one of the above.
0
15. Amend Sec. 550.160 by revising the introductory text and
paragraphs (a) introductory text, (b) and (c) to read as follows:
Sec. 550.160 When will BOEM grant me a right-of-use and easement,
and what requirements must I meet?
BOEM may grant you a right-of-use and easement on leased or
unleased lands or both on the OCS, if you meet these requirements:
(a) You must need the right-of-use and easement to construct or
maintain platforms, artificial islands, facilities, installations, and
other devices at an OCS site other than an OCS lease you own, that are:
* * * * *
(b) You must exercise the right-of-use and easement according to
the terms of the grant and the applicable regulations of this part, as
well as the requirements of part 250, subpart Q of this title.
(c) You must meet the qualification requirements at Sec. Sec.
556.400 through 556.402 of this chapter and the bonding requirements in
Sec. 550.166(d).
* * * * *
0
16. Revise Sec. 550.166 to read as follows:
Sec. 550.166 If BOEM grants me a right-of-use and easement, what
surety bond or other security must I provide?
(a) Before BOEM grants you a right-of-use and easement on the OCS
that serves your State lease, you must furnish the Regional Director a
surety bond for $500,000.
(b) The requirement to furnish a surety bond under paragraph (a) of
this section may be satisfied if your operator provides a surety bond
in the required amount that guarantees compliance with all the terms
and conditions of the right-of-use and easement grant.
(c) The requirements for lease bonds in Sec. 556.900(d) through
(g) and Sec. 556.902 of this chapter apply to the $500,000 surety bond
required if BOEM grants you a right-of-use and easement to serve your
State lease.
(d) If BOEM grants you a right-of-use and easement that serves
either an OCS lease or a State lease, the Regional Director may
determine that additional security (i.e., security above the amount
prescribed in paragraph (a) of this section) is necessary to ensure
compliance with the obligations under your right-of-use and easement
grant based on an evaluation of your ability to carry out present and
future obligations on the right-of-use and easement. The Regional
Director may require you to provide additional security if you do not
meet at least one of the criteria provided in paragraphs (d)(1) or (2)
of this section:
(1) You have an issuer credit rating or a proxy credit rating that
meets the criteria in Sec. 556.901(d)(1) of this chapter; or
(2) If you do not meet the criteria in paragraph (d)(1) of this
section, a predecessor right-of-use and easement grant holder or a
predecessor lessee liable for decommissioning any facilities on your
right-of-use and easement has an issuer credit rating or a proxy credit
rating that meets the criteria set forth in Sec. 556.901(d)(1) of this
chapter. However, the Regional Director may require you to provide
additional security for decommissioning obligations for which such a
predecessor is not liable.
(e) This additional security must:
(1) Meet the requirements of Sec. 556.900(d) through (g) and Sec.
556.902 of this chapter; and
(2) Cover costs and liabilities for regulatory compliance, well
abandonment, platform and structure removal, and site clearance of the
seafloor of the right-of-use and easement, in accordance with the
standards set forth in part 250, subpart Q of this title.
(f) If you fail to replace a deficient bond or fail to provide
additional security upon demand, the Regional Director may:
(1) Assess penalties under subpart N of this part;
(2) Request BSEE to suspend operations on your right-of-use and
easement; and
(3) Initiate action for cancellation of your right-of-use and
easement grant.
[[Page 65934]]
Subpart J--Pipelines and Pipeline Rights-of-Way
0
17. Revise Sec. 550.1011 to read as follows:
Sec. 550.1011 Bond or other security requirements for pipeline
right-of-way grant holders.
(a) When you apply for or are the holder of a pipeline right-of-way
grant, you must furnish and maintain a $300,000 areawide bond that
guarantees compliance with all the terms and conditions of all of the
pipeline right-of-way grants you hold in an OCS area as defined in
Sec. 556.900(b) of this chapter.
(b) The requirement to furnish and maintain an areawide pipeline
right-of-way bond under paragraph (a) of this section may be satisfied
if your operator or a co-grant holder provides an areawide pipeline
right-of-way bond in the required amount that guarantees compliance
with all the terms and conditions of the grant.
(c) The requirements for lease bonds in Sec. 556.900(d) through
(g) and Sec. 556.902 of this chapter apply to the areawide bond
required in paragraph (a) of this section.
(d) The Regional Director may determine that additional security
(i.e., security above the amount prescribed in paragraph (a) of this
section) is necessary to ensure compliance with the obligations under
your pipeline right-of-way grant based on an evaluation of your ability
to carry out present and future obligations on the pipeline right-of-
way. The Regional Director may require you to provide additional
security if you do not meet at least one of the criteria provided in
paragraphs (d)(1) or (2) of this section:
(1) You have an issuer credit rating or a proxy credit rating that
meets the criteria in Sec. 556.901(d)(1) of this chapter; or
(2) If you do not meet the criteria in paragraph (d)(1) of this
section:
(i) Your co-grant holder has an issuer credit rating or a proxy
credit rating that meets the criteria in Sec. 556.901(d)(1) of this
chapter; or
(ii) A predecessor pipeline right-of-way grant holder liable for
decommissioning any facilities on your pipeline right-of-way has an
issuer credit rating or a proxy credit rating that meets the criteria
in Sec. 556.901(d)(1) of this chapter. However, the Regional Director
may require you to provide additional security for decommissioning
obligations for which such a predecessor is not liable.
(e) This additional security must:
(1) Meet the requirements of Sec. 556.900(d) through (g) and Sec.
556.902 of this chapter, and
(2) Cover additional costs and liabilities for regulatory
compliance, decommissioning of all pipelines, and site clearance from
the seafloor of all obstructions created by your pipeline right-of-way
operations in accordance with the standards set forth in part 250,
subpart Q of this title.
(f) If you fail to replace a deficient bond or fail to provide
additional security upon demand, the Regional Director may:
(1) Assess penalties under subpart N of this part;
(2) Request BSEE to suspend operations on your pipeline; and
(3) Initiate action for forfeiture of your pipeline right-of-way
grant in accordance with Sec. 250.1013 of this title.
PART 556--LEASING OF SULFUR OR OIL AND GAS AND BONDING REQUIREMENTS
IN THE OUTER CONTINENTAL SHELF
0
18. Revise the authority citation for part 556 to read as follows:
Authority: 30 U.S.C. 1701 note; 30 U.S.C. 1711; 31 U.S.C. 9701;
42 U.S.C. 6213; 43 U.S.C. 1334.
Subpart A--General Provisions
0
19. Amend Sec. 556.105 paragraph (b) by:
0
a. Adding definitions in alphabetical order for ``Issuer credit
rating'' and ``Predecessor'';
0
b. Revising the definition of ``Right-of-Use and Easement (RUE)'';
0
c. Adding a definition in alphabetical order for ``Security'';
0
d. Removing the definition of ``Security or securities''; and
0
e. Revising the definition of ``You''.
The additions and revisions read as follows:
Sec. 556.105 Acronyms and definitions.
* * * * *
(b) * * *
* * * * *
Issuer credit rating means a forward-looking opinion about an
obligor's overall creditworthiness. This opinion focuses on the
obligor's capacity and willingness to meet its financial commitments as
they come due. It does not apply to any specific financial obligation,
as it does not take into account the nature of and provisions of the
obligation, its standing in bankruptcy or liquidation, statutory
preferences, or the legality and enforceability of the obligation.
* * * * *
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, that is liable for accrued obligations on that lease or
grant.
* * * * *
Right-of-Use and Easement means a right to use a portion of the
seabed at an OCS site other than on a lease you own, to construct,
modify or maintain platforms, artificial islands, facilities,
installations, and other devices, established to support the
exploration, development, or production of oil and gas, mineral, or
energy resources from an OCS or State submerged lands lease.
* * * * *
Security means a surety bond, a pledge of Treasury securities, a
decommissioning account, a third-party guarantee or any other form of
financial assurance provided to BOEM to ensure compliance with
obligations under a lease, a right-of-use and easement grant or a
pipeline right-of-way grant.
* * * * *
You, depending on the context of the regulations, means a bidder, a
lessee (record title owner), a sublessee (operating rights owner), a
right-of-use and easement grant holder, a pipeline right-of-way grant
holder, a predecessor, a designated operator or agent of the lessee or
grant holder, or an applicant seeking to become one of the above.
Subpart I--Bonding or Other Financial Assurance
0
20. Amend Sec. 556.900 by revising the section heading and paragraphs
(a) introductory text, (a)(2) and (3), (g) introductory text, and (h)
to read as follows:
Sec. 556.900 Bond or other security requirements for an oil and gas
or sulfur lease.
* * * * *
(a) Before BOEM will issue a new lease or approve the assignment or
sublease of an interest in an existing lease, you or another record
title or operating rights owner of the lease must:
* * * * *
(2) Maintain a $300,000 areawide bond that guarantees compliance
with all the terms and conditions of all your oil and gas and sulfur
leases in the area where the lease is located; or
(3) Maintain a lease or areawide bond in the amount required in
Sec. 556.901(a) or (b).
* * * * *
(g) You may pledge alternative types of security instruments
instead of providing a surety bond if the Regional Director determines
that the alternative security protects the interests of the United
States to the same extent as the required surety bond.
* * * * *
[[Page 65935]]
(h) If you fail to replace a deficient bond or to provide
additional security upon demand, the Regional Director may:
(1) Assess penalties under part 550, subpart N of this chapter;
(2) Request BSEE to suspend production and other operations on your
lease in accordance with Sec. 250.173 of this title; and
(3) Initiate action to cancel your lease.
0
21. Amend Sec. 556.901 by revising the section heading and paragraphs
(a)(1)(i) introductory text and (c) through (f), and adding paragraph
(g) to read as follows:
Sec. 556.901 Bonds and additional security.
(a) * * *
(1)(i) You must furnish the Regional Director a $200,000 lease
exploration bond 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 obligations for less
than the amount of security required under paragraph (a)(1) or (b)(1)
of this section, the Regional Director may accept security in an amount
less than the prescribed amount, but not less than the estimated cost
for decommissioning.
(d) The Regional Director may determine that additional security
(i.e., security above the amounts prescribed in Sec. 556.900(a) and
paragraphs (a) and (b) of this section) is necessary to ensure
compliance with the obligations under your lease, the regulations in
this chapter, and the regulations in 30 CFR chapters II and XII, based
on an evaluation of your ability to carry out present and future
obligations on the lease. The Regional Director may require you to
provide additional security if you do not meet at least one of the
criteria provided paragraphs (d)(1) or (2) of this section:
(1) You have an issuer credit rating from a nationally recognized
statistical rating organization (NRSRO), as defined by the United
States Securities and Exchange Commission (SEC), greater than or equal
to either BB- from S&P Global Ratings or Ba3 from Moody's Investor
Service, or an equivalent credit rating provided by an SEC-recognized
NRSRO, or a proxy credit rating determined by the Regional Director
based on audited financial information (including an income statement,
balance sheet, statement of cash flows, and the auditor's certificate)
greater than or equal to either BB- from S&P Global Ratings or Ba3 from
Moody's Investor Service or an equivalent credit rating provided by an
SEC-recognized NRSRO; or
(2) If you do not meet the criteria in paragraph (d)(1) of this
section:
(i) Your co-lessee has an issuer credit rating or a proxy credit
rating that meets the criteria set forth in paragraph (d)(1) of this
section;
(ii) There are proved oil and gas reserves on the lease, as defined
by the SEC at 17 CFR 210.4-10(a)(22), the net present value of which
exceeds three times the cost of the decommissioning associated with the
production of those reserves; or
(iii) A predecessor lessee liable for decommissioning any
facilities on your lease has an issuer credit rating or a proxy credit
rating that meets the criteria set forth in paragraph (d)(1) of this
section. However, the Regional Director may require you to provide
additional security for decommissioning obligations for which such a
predecessor is not liable.
(e) You may satisfy the Regional Director's demand for additional
security by increasing the amount of your existing bond or by providing
additional bonds or other security.
(f) The Regional Director will determine the amount of additional
security required to guarantee compliance. The Regional Director will
consider potential underpayment of royalty and cumulative
decommissioning obligations.
(g) If your cumulative potential obligations and liabilities either
increase or decrease, the Regional Director may adjust the amount of
additional security required.
(1) If the Regional Director proposes an adjustment, the Regional
Director will:
(i) Notify you and the surety of any proposed adjustment to the
amount of security 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 additional security
required, you must submit evidence to the Regional Director
demonstrating that the projected amount of royalties due the Government
and the estimated costs of decommissioning are less than the required
security amount. If the Regional Director finds that the evidence you
submit is convincing, the Regional Director will reduce the amount of
security required.
0
22. Amend Sec. 556.902 by revising the section heading and paragraphs
(a) introductory text and (e)(2) to read as follows:
Sec. 556.902 General requirements for bonds or other security.
(a) Any bond or other security that you, as lessee, operating
rights owner, grant holder, or operator, provide under this part, or
under part 550 of this chapter, must:
* * * * *
(e) * * *
(2) A pledge of Treasury securities as provided in Sec.
556.900(f);
* * * * *
0
23. Revise Sec. 556.903 to read as follows:
Sec. 556.903 Lapse of bond.
(a) If your surety becomes bankrupt, insolvent, or has its charter
or license suspended or revoked, any bond coverage from that surety
must be replaced. In that event, you must notify the Regional Director
of the lapse of your bond and promptly provide a new bond or other
security in the amount required under Sec. Sec. 556.900 and 556.901,
or Sec. 550.166 or Sec. 550.1011 of this chapter.
(b) You must notify the Regional Director of any action filed
alleging that you, your surety, guarantor or financial institution are
insolvent or bankrupt. You must notify the Regional Director within 72
hours of learning of such an action. All bonds or other security must
require the surety, guarantor or financial institution to provide this
information 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 in a federally insured financial institution in
lieu of the bond required under Sec. 556.901(d), or Sec. 550.166(d)
or Sec. 550.1011(d) of this chapter. The decommissioning account must
provide that funds may not be withdrawn without the written approval of
the Regional Director.
(1) Funds in the account must be payable upon demand to BOEM if
BOEM determines you have failed to meet your decommissioning
obligations.
(2) You must fully fund the account to cover all decommissioning
costs pursuant to the schedule the Regional Director prescribes.
(3) If you fail to make the initial payment or any scheduled
payment into the decommissioning account, you must immediately submit,
and subsequently maintain, a bond or other security in an amount equal
to the remaining unsecured portion of your estimated decommissioning
liability.
(b) Any interest paid on funds in a decommissioning account will be
[[Page 65936]]
treated as other funds in the account unless the Regional Director
authorizes in writing the payment of interest to the party who deposits
the funds.
(c) The Regional Director may require you to create an overriding
royalty or production payment obligation for the benefit of an account
established as security for the decommissioning of a lease. The
required obligation may be associated with oil and gas or sulfur
production from a lease other than the lease secured through the
decommissioning account.
0
25. Revise Sec. 556.905 to read as follows:
Sec. 556.905 Third-party guarantees.
(a) When the Regional Director may accept a third-party guarantee.
The Regional Director may accept a third-party guarantee instead of an
additional bond or other security under Sec. 556.901(d), or Sec.
550.166(d) or Sec. 550.1011(d) of this chapter, if:
(1) The guarantor meets the criteria in paragraph (c) of this
section; and
(2) The guarantor submits a third-party guarantee agreement
containing each of the provisions in paragraph (d) of this section.
(b) What to do if your guarantor becomes unqualified. If, during
the life of your third-party guarantee, your guarantor no longer meets
the criteria of paragraph (c) of this section, you must:
(1) Notify the Regional Director immediately; and
(2) Immediately submit, and subsequently maintain, a bond or other
security covering those obligations previously secured by the third-
party guarantee.
(c) Criteria for acceptable guarantees. The Regional Director will
accept your third-party guarantee if the guarantor has an issuer credit
rating or a proxy credit rating that meets the criteria in Sec.
556.901(d)(1).
(d) Provisions required in all third-party guarantees. 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 that complies with the terms of such
lease or grant, or any applicable regulation, to the extent covered by
the guarantee; or,
(ii) Be liable under the third-party guarantee agreement, to the
extent covered by the guarantee, to provide, within 7 calendar days,
sufficient funds for the Regional Director to complete such corrective
action.
(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 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 work and workmanship performed during
the period that the guarantee is in effect.
(3) You must provide acceptable replacement security before the
termination of the period of liability under your third-party
guarantee.
(4) 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 additional bonds and return
of pledged security in Sec. 556.906(d)(2) and (e).
(5) The guarantor must submit a third-party guarantee agreement
that meets the following criteria:
(i) The third-party guarantee agreement must be executed by your
guarantor and all persons and parties bound by the agreement.
(ii) The third-party guarantee agreement must bind, jointly and
severally, each person and party executing the agreement.
(iii) When your guarantor is a corporate entity, two corporate
officers who are authorized to bind the corporation must sign the
third-party guarantee agreement.
(6) Your guarantor and the other corporate entities bound by the
third-party guarantee agreement must provide the Regional Director
copies of:
(i) The authorization of the signatory corporate officials to bind
their respective corporations;
(ii) An affidavit certifying that the agreement is valid under all
applicable laws; and
(iii) Each corporation's corporate authorization to execute the
third-party guarantee agreement.
(7) 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:
(i) Bind each partner or party who has a beneficial interest in
your guarantor; and
(ii) Provide that, upon demand by the Regional Director under your
third-party guarantee, each partner is jointly and severally liable for
those obligations secured by the guarantee.
(8) When forfeiture is called for under Sec. 556.907, the third-
party guarantee agreement must provide that your guarantor will either:
(i) Bring your lease or grant into compliance; or
(ii) Provide sufficient funds within 7 calendar days, to the extent
covered by the guarantee, to permit the Regional Director to complete
corrective action.
(9) 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 any regulation applicable to such lease or grant, the guarantor:
(i) Will not challenge the determination; and
(ii) Will remedy the default to the extent covered by the
guarantee.
(10) Each third-party guarantee agreement is deemed to contain all
terms and conditions contained in this paragraph (d), even if the
guarantor has omitted these terms in the third-party guarantee
agreement.
0
26. Amend Sec. 556.906 by revising paragraphs (b)(1) through (3), (d)
and (e) to read as follows:
Sec. 556.906 Termination of the period of liability and cancellation
of a bond.
* * * * *
(b) * * *
(1) The new bond is equal to or greater than the bond that was
cancelled, or you provide an alternative form of security, and the
Regional Director determines that the alternative form of security
provides a level of security equal to or greater than that provided by
the bond that was cancelled;
(2) For a base bond submitted under Sec. 556.900(a) or Sec.
556.901(a) or (b), or Sec. 550.166(a) or Sec. 550.1011(a) of this
chapter, the surety issuing the new bond agrees to assume all
outstanding obligations that accrued during the period of liability
that was terminated; and
(3) For additional bonds submitted under Sec. 556.901(d), or Sec.
550.166(d) or Sec. 550.1011(d) of this chapter, the surety issuing the
new additional bond 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 base bond, and of which the Regional Director notifies
the surety providing the new additional bond.
* * * * *
(d) BOEM will cancel the bond for your lease or grant, the surety
that issued the bond will continue to be responsible, and the Regional
Director may return any pledged security, as shown in the following
table:
[[Page 65937]]
------------------------------------------------------------------------
Your bond will be reduced or cancelled or
For the following your pledged security will be returned
------------------------------------------------------------------------
(1) Base bonds submitted Seven years after the lease or grant
under Sec. 556.900(a) or expires or is terminated, six years
Sec. 556.901(a) or (b), or after the Regional Director determines
Sec. 550.166(a) or Sec. that you have completed all bonded
550.1011(a) of this chapter. obligations, or at the conclusion of any
appeals or litigation related to your
bonded obligations, whichever is the
latest. The Regional Director will
reduce the amount of your bond or return
a portion of your security if the
Regional Director determines that you
need less than the full amount of the
base bond to meet any potential
obligations.
(2) Additional bonds (i) When the lease or grant expires or is
submitted under Sec. terminated and the Regional Director
556.901(d), or Sec. determines you have met your bonded
550.166(d) or Sec. obligations, unless the Regional
550.1011(d) of this chapter. Director:
(A) Determines that the future potential
liability resulting from any undetected
problem is greater than the amount of
the base bond; and (B) Notifies the
provider of the bond that the Regional
Director will wait seven years before
canceling all or a part of the
additional bond (or longer period as
necessary to complete any appeals or
judicial litigation related to your
bonded obligations).
(ii) At any time when:
(A) BOEM has determined, using the
criteria set forth in Sec. 556.901(d),
or Sec. 550.166(d) or Sec.
550.1011(d) of this chapter, as
applicable, that you no longer need to
provide the additional bond for your
lease, right-of-use and easement grant,
or pipeline right-of-way grant.
(B) The operations for which the bond was
provided ceased prior to accrual of any
decommissioning obligation; or
(C) Cancellation of the bond is
appropriate because, under the
regulations, BOEM determines such bond
never should have been required.
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(e) For all bonds, the Regional Director may reinstate your bond as
if no cancellation had occurred if:
(1) A person makes a payment under the lease, right-of-use and
easement grant, or pipeline right-of-way grant, and the payment is
rescinded or must be repaid 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, right-of-use and easement grant, or
pipeline right-of-way grant and the representation was materially false
when the bond was cancelled.
0
27. Amend Sec. 556.907 by revising the section heading and paragraphs
(a)(1), (b), (c)(1), (c)(1)(ii), (c)(2)(i) through (iii), (d), (e)(2),
(f)(1) and (2), and (g) to read as follows:
Sec. 556.907 Forfeiture of bonds or other securities.
* * * * *
(a) * * *
(1) You (the party who provided the bond or other security) refuse,
or the Regional Director determines that you are unable, to comply with
any term or condition of your lease, right-of-use and easement grant,
pipeline right-of-way grant, or any applicable regulation; or
* * * * *
(b) The Regional Director may pursue forfeiture of your bond or
other security without first making demands for performance against any
lessee, operating rights owner, grant holder, or other person
authorized to perform lease or grant obligations.
(c) * * *
(1) Notify you, your surety, guarantor, or financial institution
holding your decommissioning account, of a determination to call for
forfeiture of the bond, security, guarantee, or funds.
* * * * *
(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.
(2) * * *
(i) You agree to and demonstrate that you will bring your lease or
grant into compliance within the timeframe that the Regional Director
prescribes;
(ii) Your third-party guarantor agrees to and demonstrates that it
will complete the corrective action to bring your lease or grant into
compliance within the timeframe that the Regional Director prescribes,
even if the cost of compliance exceeds the limit of the guarantee; or
(iii) Your surety agrees to and demonstrates that it will bring
your lease or grant into compliance within the timeframe that the
Regional Director prescribes, even if the cost of compliance exceeds
the face amount of the bond or other surety instrument.
(d) If the Regional Director finds you are in default, he/she may
cause the forfeiture of any bonds and other security provided to ensure
your compliance with the terms and conditions of your lease or grant
and the regulations in this chapter and 30 CFR chapters II and XII.
(e) * * *
(2) Use the funds collected to bring your lease or grant into
compliance and to correct any default.
(f) * * *
(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 co-lessee, operating rights owner, 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 bond and
other security.
(g) If the amount that the Regional Director collects under your
forfeited bond and other security exceeds the costs of taking the
corrective actions required to obtain full compliance with the terms
and conditions of your lease or grant and the regulations in this
chapter and 30 CFR chapters II and XII, the Regional Director will
return the excess funds to the party from whom they were collected.
[FR Doc. 2020-20827 Filed 10-15-20; 8:45 am]
BILLING CODE 4310-MR-P
