[Federal Register Volume 66, Number 5 (Monday, January 8, 2001)]
[Proposed Rules]
[Pages 1277-1280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-120]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 256

RIN 1010-AC-68


Revision of Requirements Governing Surety Bonds for Outer 
Continental Shelf Leases.

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Proposed rule.

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SUMMARY: The MMS is proposing to modify requirements governing surety 
bonds for activities on the Outer Continental Shelf (OCS). These 
changes will codify the terms and conditions under which a surety will 
be relieved of responsibility when MMS terminates the period of 
liability of a bond. Codifying these terms and conditions is necessary 
to clarify the responsibilities of the lessee and the surety after the 
lease expires.

DATES: We will consider all comments we receive by March 9, 2001. We 
will begin reviewing comments then and may not fully consider comments 
we receive after March 9, 2001.

ADDRESSES: If you wish to comment, you may submit your comments by any 
one of several methods. You may mail or hand-carry comments (three 
copies) to the Department of the Interior; Minerals Management Service; 
Mail Stop 4024; 381 Elden Street; Herndon, Virginia 20170-4817; 
Attention: Rules Processing Team (RPT). You may also send your comments 
by e-mail or e-mail attachment. The RPT's e-mail address is: 
[email protected].

FOR FURTHER INFORMATION CONTACT: John Mirabella, Engineering and 
Operations Division, (703) 787-1607.

SUPPLEMENTARY INFORMATION: OCS lessees must comply with regulations 
governing operations, payments of rents and royalties, and end-of-lease 
obligations. To ensure that the lessee will be financially able to meet 
all requirements, including end-of-lease requirements, MMS requires the 
lessee to post a bond. This rule would amend the provisions of 30 CFR 
256.58 concerning the cancellation of a bond.
    When the lessee has met all end-of-lease obligations, MMS 
terminates the liability period of the bond. This amendment addresses 
situations when the lessee appears to meet all end-of-lease 
requirements and we later discover that obligations still exist. For 
example, an audit may reveal that the lessee owes us additional 
royalty. As another example, a plugged well may start to leak. In 
either case, the lessee must correct the problem.
    In the case of royalties, the liability would be discovered when 
the audit is conducted after the end of the surety's liability period. 
By statute, any demand for performance of a monetary obligation must be 
made within 7 years. In the example of the leaking well, there is not a 
stipulated time period. Problems associated with plugged wells in the 
OCS are rare; when they do occur, they are generally discovered within 
a few years of the plugging activity.
    Should the lessee fail to perform a lease obligation, MMS turns to 
the surety for performance. This rule addresses how long a bond will be 
held before cancellation to assure availability to cover a problem that 
is discovered after the liability period on a bond has ended. The 
current regulation does not set a limit on the period that MMS may 
continue to hold the bond company responsible for a problem that occurs 
during the liability period.
    OCS wells rarely start to leak following plugging operations. 
Therefore, we have difficulty predicting when a leak might occur. This 
notice proposes a period of 7 years (plus such additional time taken 
for appeals or litigation) during which MMS may hold the bond for 
claims based upon obligations that accrued during the period of 
liability. During this period, we will retain security or collateral 
pledged to MMS in lieu of a surety. The bond will be canceled after 7 
years and

[[Page 1278]]

any other forms of security will be returned. We believe that a 7-year 
period will provide adequate protection to the Government and will 
provide a measure of certainty to bond companies.
    The 7-year provision applies to all base bonds, unless we find that 
less security needs to be retained. The rule would release supplemental 
bond providers, upon completion of the bonded work, from liability for 
obligations that accrued before acceptance of the reclamation work, 
unless we find that potential liability is greater than the amount of 
the base bond. We will normally release the supplemental bond upon 
completion of the bonded work because in most cases, we anticipate that 
the general bond will be sufficient to cover our estimate of potential 
residual liabilities.
    The proposal would not change the provision in 30 CFR 256.58(c) 
that allows MMS to reinstate your bond. That provision allows us to 
reinstate your bond as if no cancellation or release had occurred if:
    (1) You make a payment under the lease and the payment is rescinded 
or must be repaid by the recipient because you are insolvent, bankrupt, 
subject to reorganization, or placed in receivership; or
    (2) You represent to us that you have discharged your obligations 
under the lease and your representation was materially false.

Procedural Matters

    Public Comment Procedure: Our practice is to make comments, 
including names and home addresses of respondents, available for public 
review during regular business hours. Individual respondents may 
request that we withhold their home address from the rulemaking record, 
which we will honor to the extent allowable by law. There may be 
circumstances in which we would withhold from the rulemaking record a 
respondent's identity, to the extent allowable by law. If you wish us 
to withhold your name and/or address, you must state this prominently 
at the beginning of your comment. However, we will not consider 
anonymous comments. We will make all submissions from organizations or 
businesses, and from individuals identifying themselves as 
representatives or officials of organizations or businesses, available 
for public inspection in their entirety.

Regulatory Planning and Review (Executive Order 12866)

    This document is not a significant rule and is not subject to 
review by the Office of Management and Budget (OMB) under Executive 
Order 12866.
    (1) This rule will not have an effect of $100 million or more on 
the economy. It will not adversely affect in a material way the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities. This rule, in many important ways, follows aspects of 
current policy included in the bond form. The rule will also extend 
that policy to other forms of security such as escrow accounts which 
are not currently used for base bonds. Since this rule normally will 
not apply to supplemental bonds without specific action by the Regional 
Supervisor, the impact of this change is minimal.
    (2) This rule will not create a serious inconsistency or otherwise 
interfere with an action taken or planned by another agency. Other 
agencies are not affected by the bonds and other forms of surety that 
protect the government's interests.
    (3) This rule does not alter the budgetary effects of entitlements, 
grants, user fees, or loan programs or the rights or obligations of 
their recipients. This rule will have no effect on the rights of the 
recipients of entitlements, grants, user fees, or loan programs.
    (4) This rule does not raise novel legal or policy issues. The rule 
more clearly conforms MMS practice to that of the private sector and 
provides certainty with respect to the cancellation of surety bonds and 
other lease security.

Regulatory Flexibility (RF) Act

    The Department certifies that this rule will not have a significant 
economic effect on a substantial number of small entities under the RF 
Act (5 U.S.C. 601 et seq.).
    This rule will affect lessees and operators of leases on the OCS. 
This includes about 130 different companies. These companies are 
generally classified under the North American Industry Classification 
System (NAICS) code 211111, Crude Petroleum and Natural Gas Extraction, 
which includes companies that extract crude petroleum and natural gas. 
For this NAICS code, a small company is one with fewer than 500 
employees. Based on these criteria, we estimate that about 54 percent 
of the companies are considered small. This rule, therefore, affects a 
substantial number of small entities.
    The companies that are considered small have an average of about 15 
offshore facilities. We estimate that these small companies have annual 
sales between $1 million and $380 million.
    As discussed in the Regulatory Planning and Review section, we 
expect this rule to have only minimal effects and, accordingly, we do 
not expect this rule to have a significant effect on any company, large 
or small. Under current regulations, when a lessee meets all of the 
lease requirements, the period of liability ends. If MMS later 
discovers a problem with the way the work was performed, we will hold 
the lessee responsible. If the lessee is not able to meet the 
obligation, we hold the bond company responsible. This regulation 
establishes a time period during which MMS will hold the bond before 
cancellation. The codification of a policy on bond cancellation is new. 
The other change for current practice is that MMS retains pledged 
securities for the same length of time we have been waiting before 
canceling surety bonds. While this new provision is needed to ensure 
consistency of agency practice, the provision will not have a 
significant effect since companies currently do not use instruments 
other than surety bonds to meet the basic bond requirement.
    This rule will also affect companies that sell surety bonds or 
provide other types of security to OCS lessees. For those companies, 
this rule will provide certainty with regard to residual liabilities. 
Since the provisions in this rule are generally the same as current 
practice, any effects on bonding companies will be minor. Those minor 
effects will be reflected in costs charged to oil and gas lessees and 
will ultimately be borne by oil and gas lessees. These effects are 
included in the estimates addressing the oil and gas lessees. Your 
comments are important. The Small Business and Agriculture Regulatory 
Enforcement Ombudsman and 10 Regional Fairness Boards were established 
to receive comments from small business about Federal agency 
enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to small 
business. If you wish to comment on the enforcement actions of MMS, 
call toll-free (888) 734-3247.

Paperwork Reduction Act (PRA) of 1995

    The information collection aspects of this rule remain unchanged. 
The proposed revisions contain no additional information collection or 
recordkeeping requirements, and a submission to OMB under the PRA is 
not required. The OMB has approved the information collection 
requirements in the current regulations and assigned OMB control number 
1010-0006, with a

[[Page 1279]]

current expiration date of March 31, 2000.

Federalism (Executive Order 13132)

    With respect to Executive Order 13132, the rule does not have 
Federalism implications. This rule does not substantially and directly 
affect the relationship between the Federal and State governments. The 
bonding program is between the Federal Government and the lessees of 
Federal leases. The bond does not affect obligations between the lessee 
and any State or local government. This rule does not impose costs on 
States or localities. State or local governments do not provide bonds 
and do not need to comply with bonding requirements.

Takings (Executive Order 12630)

    With respect to Executive Order 12630, the proposed rule does not 
have significant Takings implications. A Takings Implication Assessment 
is not required. The proposed rulemaking is not a governmental action 
capable of interfering with constitutionally protected property rights.

Civil Justice Reform (Executive Order 12988)

    With respect to Executive Order 12988, the Office of the Solicitor 
has determined that this rule does not unduly burden the judicial 
system and meets the requirements of sections 3(a) and 3(b)(2) of the 
Executive Order.

National Environmental Policy Act (NEPA) of 1969

    This rule does not constitute a major Federal action significantly 
affecting the quality of the human environment. A detailed statement 
under the NEPA is not required.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

    This rule is not a major rule under (5 U.S.C. 804(2)) the SBREFA. 
This rule:
    (a) Does not have an annual effect on the economy of $100 million 
or more.
    (b) Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions.
    (c) Does not have significant adverse effects on competition, 
employment, investment, productivity, innovation, or the ability of 
U.S.-based enterprises to compete with foreign-based enterprises.
    We do not expect this rule to have a significant effect because, as 
discussed earlier, this rule would, generally, codify policies already 
in use. The substantive change for securities other than surety bonds 
will not have a significant effect because the rule applies to the 
general bond requirement, and surety bonds are used by almost all MMS 
lessees to satisfy the base bond requirement.

Unfunded Mandate Reform Act (UMRA) of 1995 (Executive Order 12866)

    This rule does not impose an unfunded mandate on State, local, or 
tribal governments or the private sector of more than $100 million per 
year. The rule does not have a significant or unique effect on State, 
local, or tribal governments or the private sector. A statement 
containing the information required by the UMRA (2 U.S.C. 1531 et seq.) 
is not required. This is because the rule does not affect State, local, 
or tribal governments, and the effect on the private sector is small.

List of Subjects in 30 CFR Part 256

    Administrative practice and procedure, Continental shelf, 
Government contracts, Oil and gas exploration, Public lands--mineral 
resources, Reporting and recordkeeping requirements, Surety bonds.

    Dated: December 20, 2000.
Sylvia V. Baca,
Assistant Secretary, Land and Minerals Management.
    For the reasons stated in the preamble, the Minerals Management 
Service (MMS) proposes to amend 30 CFR part 256 as follows:
    1. The authority citation for part 256 continues to read as 
follows:


    Authority: 43 U.S.C. 1331 et seq.; 42 U.S.C. 6213.

    2. Section 256.58 is revised to read as follows:


Sec. 256.58  Termination of the period of liability and cancellation of 
a bond.

    This section defines the terms and conditions under which MMS will 
terminate the period of liability of a bond or cancel a bond. 
Terminating the period of liability of a bond ends the period during 
which obligations continue to accrue but does not relieve the surety of 
the responsibility for obligations that accrued during the period of 
liability. Canceling a bond relieves the surety of all liability.
    (a) When the surety under your bond requests termination:
    (1) The Regional Director will terminate the period of liability 
under your bond within 90 days after MMS receives the request; and
    (2) If you intend to continue operations, or have not completed 
abandonment, you must provide a replacement bond of an equivalent 
amount.
    (b) If, following the termination of the period of liability of a 
bond, you provide a replacement bond according to this paragraph, the 
Regional Director will cancel your terminated bond and the surety that 
provided your terminated bond will not retain any liability. The 
Regional Director will cancel your bond if:
    (1) The surety issuing the new bond agrees to assume all 
outstanding liabilities that accrued during the period of liability 
that was terminated; and
    (2) The new bond is equal to or greater than the bond that is to be 
canceled.
    (c) If the period of liability is terminated for a bond but the 
bond is not replaced by a bond of an equivalent amount, the surety that 
provided your terminated bond will continue to be responsible for 
accrued obligations until the obligations are satisfied and for 
additional periods of time according to paragraph (d) of this section.
    (d) At the time your lease expires or is terminated, the surety or 
sureties that issued the bond(s) covering accrued obligations will 
continue to be responsible, and the Regional Director will retain other 
forms of security for the period of time and under the terms shown in 
the following table:

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                                       The period of liability
     For the type of bond below                will end                     Your bond will be cancelled
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(1) Base Bonds submitted under Sec.  When the Regional Director   Seven years after the completion of all bonded
  256.52(a), Sec.  256.53(a), or      determines that you have     obligations, or at the conclusion of any
 (b).                                 met all of your              appeals or litigation related to your bonded
                                      obligations under the        obligations, whichever is later. The Regional
                                      lease.                       Director may:
                                                                  (i) determine that you need less than the full
                                                                   amount of the base bond to meet any possible
                                                                   future problems; and
                                                                  (ii) reduce the amount of your bond or return
                                                                   a portion of your security.

[[Page 1280]]

 
(2) Supplemental bonds submitted     When the Regional Director   When you meet your bonded obligations, unless
 under Sec.  256.53(d).               determines that you have     the Regional Director:
                                      met all your obligations
                                      covered by the
                                      supplemental bond.
                                                                  (i) determines that the future potential
                                                                   liability resulting from any undetected
                                                                   problems is greater than the amount of the
                                                                   base bond; and
                                                                  (ii) notifies the provider of the bond that
                                                                   the Regional Director will wait up to 7 years
                                                                   before canceling all or a part of the bond
                                                                   (or longer period as necessary to complete
                                                                   any appeals or judicial litigation related to
                                                                   your bonded obligations).
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    (e) For all bonds, the Regional Director may reinstate your bond as 
if no cancellation or release had occurred if:
    (1) A person makes a payment under the lease 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 MMS that it has discharged 
its obligations under the lease, and the representation was materially 
false when the bond was canceled or released.

[FR Doc. 01-120 Filed 1-5-01; 8:45 am]
BILLING CODE 4310-MR-P