[Federal Register Volume 89, Number 80 (Wednesday, April 24, 2024)]
[Rules and Regulations]
[Pages 31544-31599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08309]



[[Page 31543]]

Vol. 89

Wednesday,

No. 80

April 24, 2024

Part V





 Department of the Interior





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Bureau of Ocean Energy Management





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30 CFR Parts 550, 556, and 590





Risk Management and Financial Assurance for OCS Lease and Grant 
Obligations; Final Rule

  Federal Register / Vol. 89 , No. 80 / Wednesday, April 24, 2024 / 
Rules and Regulations  

[[Page 31544]]


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DEPARTMENT OF THE INTERIOR

Bureau of Ocean Energy Management

30 CFR Parts 550, 556, and 590

[Docket No. BOEM-2023-0027]
RIN 1010-AE14


Risk Management and Financial Assurance for OCS Lease and Grant 
Obligations

AGENCY: Bureau of Ocean Energy Management, Interior.

ACTION: Final rule.

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SUMMARY: The Department of the Interior (the Department or DOI), acting 
through the Bureau of Ocean Energy Management (BOEM), is amending its 
risk management and financial assurance regulations. This final rule 
revises criteria for determining whether oil, gas, and sulfur lessees, 
right-of-use and easement (RUE) grant holders, and pipeline right-of-
way (ROW) grant holders are required to provide financial assurance 
above the current minimum bonding levels to ensure compliance with 
their Outer Continental Shelf Lands Act (OCSLA) obligations. This final 
rule streamlines the criteria for evaluating the financial health of 
lessees and grantees, codifies the use of the Bureau of Safety and 
Environmental Enforcement's (BSEE) probabilistic estimates of 
decommissioning costs in setting the level of demands for supplemental 
financial assurance, removes restrictive provisions for third-party 
guarantees and decommissioning accounts, adds new criteria for 
cancelling supplemental financial assurance, and clarifies bonding 
requirements for RUEs serving Federal leases. BOEM estimates that a 
total of $6.9 billion in new supplemental financial assurance will be 
required from lessees and grant holders under this final rule to cover 
potential costs of decommissioning activities. This final rule 
significantly increases the amount of financial assurance available to 
the U.S. Government in the case of a lessee default and meaningfully 
reduces the risk to the government and consequently to the U.S. 
taxpayer. This final rulemaking does not apply to renewable energy 
activities.

DATES: This final rule is effective on June 24, 2024. You may make 
comments on the information collection (IC) burden in this rulemaking 
and the Office of Management and Budget (OMB) and BOEM must receive 
such comments on or before May 24, 2024. The IC burden comment 
opportunity does not affect the final rule effective date.

ADDRESSES: BOEM has established a docket for this action under Docket 
No. BOEM-2023-0027. All documents in the docket are listed on the 
https://www.regulations.gov website and can be found by entering the 
Docket No. in the ``Enter Keyword or ID'' search box and clicking 
``search''.
    You may submit comments on the IC to OMB's desk officer for the 
Department of the Interior through https://www.reginfo.gov/public/do/PRAMain. From this main web page, you can find and submit comments on 
this particular information collection by proceeding to the boldface 
heading ``Currently under Review--Open for Public Comments,'' selecting 
``Department of the Interior'' in the ``Select Agency'' pull down menu, 
clicking ``Submit,'' then, checking the box ``Only Show ICR for Public 
Comment'' on the next web page, scrolling to this final rule, and 
clicking the ``Comment'' button at the right margin. Additionally, you 
may use the search function to locate the IC request related to the 
rule on the main web page. Please provide a copy of your comments to 
the Information Collection Clearance Officer, Office of Regulations, 
BOEM, Attention: Anna Atkinson, 45600 Woodland Road, Sterling, Virginia 
20166; or by email to [email protected]. Please reference OMB 
Control Number 1010-0006 in the subject line of your comments.

FOR FURTHER INFORMATION CONTACT: Kelley Spence, Office of Regulations, 
BOEM, 45600 Woodland Road, Sterling, Virginia 20166, at email address 
[email protected] or at telephone number (984) 298-7345; and Karen 
Thundiyil, Chief, Office of Regulations, BOEM, 1849 C Street NW, 
Washington, DC 20240, at email address [email protected] or at 
telephone number (202) 742-0970. Individuals in the United States who 
are deaf, deafblind, hard of hearing, or have a speech disability may 
dial 711 (TTY, TDD, or TeleBraille) to access telecommunications relay 
services for contacting the contacts listed in this section. These 
services are available 24 hours a day, 7 days a week, to leave a 
message or question with the above individual. You will receive a reply 
during normal business hours. Individuals outside the United States 
should use the relay services offered within their country to make 
international calls to the point-of-contact in the United States.

SUPPLEMENTARY INFORMATION: Preamble acronyms and abbreviations. 
Multiple acronyms are included in this preamble. While this list may 
not be exhaustive, to ease the reading of this preamble and for 
reference purposes, BOEM explains the following acronyms here:

ANCSA Alaska Native Claims Settlement Act
BOEM Bureau of Ocean Energy Management
BSEE Bureau of Safety and Environmental Enforcement
CFR Code of Federal Regulations
CRA Congressional Review Act
DOI Department of the Interior (or Department)
E.O. Executive Order
FDIC Federal Deposit Insurance Corporation
FR Federal Register
FSLIC Federal Savings and Loan Insurance Corporation
GAO Government Accountability Office
GOMESA Gulf of Mexico Energy Security Act of 2006
IBLA Interior Board of Land Appeals
IC Information Collection
INC Incident of Non-Compliance
IRFA Initial Regulatory Flexibility Analysis
mmboe Million barrels of oil equivalents
MMS Minerals Management Service
NAICS North American Industry Classification System
NEPA National Environmental Policy Act
NPRM Notice of Proposed Rulemaking
NRSRO Nationally Recognized Statistical Rating Organization
NTL Notice to Lessees
OCS Outer Continental Shelf
OCSLA Outer Continental Shelf Lands Act
OIRA Office of Information and Regulatory Affairs (a component of 
OMB)
OMB Office of Management and Budget
ONRR Office of Natural Resources Revenue
PRA Paperwork Reduction Act
RIA Regulatory Impact Analysis
RFA Regulatory Flexibility Act
RUE Right-of-Use and Easement
ROW Right-of-Way
SBA Small Business Administration
SBREFA Small Business Regulatory Enforcement Fairness Act
SEC Securities and Exchange Commission
S&P Standard and Poor's
UMRA Unfunded Mandates Reform Act
U.S.C. United States Code
U.S. EPA United States Environmental Protection Agency

    Background information. On June 29, 2023, the Department proposed 
revisions to the regulations for risk management and financial 
assurance for Outer Continental Shelf (OCS) lease and grant 
obligations. The comments received regarding the proposed rule, some of 
which resulted in regulatory changes, and their corresponding responses 
are summarized in this preamble. A detailed summary of all public 
comments on the proposal and their corresponding responses are 
available in the memorandum titled,

[[Page 31545]]

Risk Management and Financial Assurance for OCS Lease and Grant 
Obligations: Response to Public Comments Received on the June 29, 2023, 
Notice of Proposed Rulemaking in the docket for this rulemaking (Docket 
No. BOEM-2023-0027). A ``track changes'' version of the regulatory 
language that identifies the changes in this action compared to the 
current regulations is also available in the docket.
    Organization of this document. The information in this preamble is 
organized as follows:

I. General Information

    A. Executive Summary
    1. Purpose of This Regulatory Action
    2. Summary of Major Provisions
    3. Costs and Benefits
    B. Does this action apply to me?
    C. Where can I get a copy of this document and other related 
information?
II. Background
    A. BOEM Statutory and Regulatory Authority and Responsibilities
    B. History of Bonding Regulations and Guidance
    C. Purpose of Rulemaking
    D. Summary of the June 29, 2023, Proposed Rulemaking
III. Summary of the Final Rule and Public Comments
    A. Revisions to BOEM Supplemental Financial Assurance 
Requirements
    1. Leases
    a. Evaluation of Co-Lessees
    b. Evaluation Criteria
    2. Right-of-Use and Easement Grants
    a. Base Financial Assurance
    b. Area-Wide Financial Assurance
    c. Supplemental Financial Assurance
    3. Pipeline Right-of-Way Grants
    B. Use of BSEE's Probabilistic Estimates for Determining 
Decommissioning Costs
    C. Revisions to Other Types of Supplemental Financial Assurance
    1. Third-Party Guarantees
    2. Decommissioning Accounts
    3. Transfers of Lease Interests to Other Lessees or Operating 
Rights Holders
    D. Evaluation Methodology
    1. Credit Ratings
    a. Use of an ``Issuer Credit Rating''
    b. Credit Rating Threshold
    2. Proxy Credit Ratings
    3. Valuing Proved Oil and Gas Reserves
    E. Phased Compliance With Supplemental Financial Assurance 
Orders
    F. Appeal Bonds
    G. Other Amendments
    1. Revisions to Definitions
    2. Changing of the Spelling of ``Sulphur'' to ``Sulfur''
IV. Summary of Cost, Economic Impacts, and Additional Analyses 
Conducted
    A. What are the affected entities?
    B. What are the economic impacts?
    C. What are the benefits?
    D. What tribal outreach did BOEM conduct?
V. Section-by-Section Analysis
VI. Statutory and Executive Order Reviews
    A. Executive Orders 12866: Regulatory Planning and Review, as 
Amended by Executive Order 14094: Modernizing Regulatory Review, and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Regulatory Flexibility Act (RFA)
    C. Small Business Regulatory Enforcement Fairness Act
    D. Unfunded Mandates Reform Act (UMRA)
    E. Executive Order 12630: Governmental Actions and Interference 
With Constitutionally Protected Property Rights
    F. Executive Order 13132: Federalism
    G. Executive Order 12988: Civil Justice Reform
    H. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    I. Paperwork Reduction Act (PRA)
    J. National Environmental Policy Act (NEPA)
    K. Data Quality Act
    L. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    M. Congressional Review Act (CRA)

I. General Information

A. Executive Summary

1. Purpose of This Regulatory Action
    The purpose of this final regulatory action is to address concerns 
regarding BOEM's financial assurance program. This rule finalizes 
amendments to the existing provisions to better protect the taxpayer 
from bearing the cost of facility decommissioning and other financial 
risks associated with OCS development, such as environmental 
remediation. Additionally, this final rule provides regulatory clarity 
to OCS lessees regarding their financial obligations by codifying 
requirements in the Code of Federal Regulations (CFR).
    Since 2009, more than 30 corporate bankruptcies have occurred 
involving offshore oil and gas lessees that did not have sufficient 
financial assurance to cover their decommissioning liabilities. These 
bankruptcies have highlighted a weakness in BOEM's current supplemental 
financial assurance program. BOEM's existing program has, at times, 
been unable to forecast financial distress of these lessees and 
grantees that have not previously provided supplemental financial 
assurance and, as a result, BOEM has not had sufficient time to require 
and receive supplemental financial assurance prior to a declaration of 
bankruptcy. Additionally, challenges arising from bankruptcy 
proceedings, including the inability to sell less valuable assets that 
fail to generate new buyers at auction, can result in unplugged wells 
and orphaned infrastructure, potentially resulting in the American 
taxpayer paying to plug those wells and decommission that abandoned 
infrastructure. The amendments finalized in this rulemaking under 
section 5 of OCSLA (43 United States Code (U.S.C.) 1334) and 
Secretary's Order 3299 strengthen BOEM's financial assurance program to 
better protect the taxpayer from bearing the cost of facility 
decommissioning and other financial risks associated with OCS 
development.
2. Summary of Major Provisions
    The following major provisions are included in this final rule:
     streamlining the criteria used for evaluating the 
financial health of lessees and grantees,
     codifying the use of the BSEE probabilistic estimates of 
decommissioning cost for determining the amount of supplemental 
financial assurance required,
     removing restrictive provisions for third-party guarantees 
and decommissioning accounts,
     adding new criteria under which a bond or third-party 
guarantee that was provided as financial assurance may be canceled, and
     clarifying financial assurance requirements for RUEs 
serving Federal leases.
    With this rulemaking, the Department is finalizing an amendment to 
revise the criteria used to evaluate the need for supplemental 
financial assurance from the existing five criteria--financial 
capacity, projected financial strength, business stability, reliability 
in meeting obligations based on credit rating or trade references, and 
record of compliance with laws, regulations, and lease terms--to one of 
two criteria: (1) credit rating and (2) the ratio of the value of 
proved reserves to decommissioning liability associated with those 
reserves. Specifically, the Department is finalizing the use of an 
investment grade credit rating threshold (or proxy credit rating 
equivalent) and a minimum 3-to-1 ratio of the value of proved reserves 
to decommissioning liability associated with those reserves to 
determine if a lessee is required to provide supplemental financial 
assurance. If a current lessee meets one of these criteria, it will not 
be required to provide supplemental financial assurance. These 
amendments codify a forward-looking analysis for determining the need 
for supplemental financial assurance and strengthen BOEM's financial 
assurance program by providing a more accurate method for analyzing a 
lessee's financial health.

[[Page 31546]]

    The Department is also finalizing the use of the BSEE probabilistic 
estimates of decommissioning cost for determining the amount of 
supplemental financial assurance required. The new estimates are based 
on industry-reported decommissioning costs pursuant to the notice-to-
lessees (NTL) requiring the submittal of such data. Previously, BSEE 
provided a single algorithm-based deterministic estimate for OCS 
facilities for determining decommissioning cost estimates. Based on the 
reported data, BSEE has developed three probabilistic estimates (i.e., 
P-values) of decommissioning costs for each OCS facility on any given 
lease. These values represent the likelihood of covering the full cost 
of decommissioning a facility as a percentage; for example, P70 
represents a 70 percent likelihood of covering the full cost of 
decommissioning a facility. The Department is finalizing, as proposed, 
the use of the P70 decommissioning estimate value to determine the 
amount of supplemental financial assurance required from a current 
lessee that does not meet the financial waiver criteria. If 
probabilistic estimates are not available, then BOEM will use the 
available deterministic values. BOEM also notes that the use of the 
BSEE P70 value only reflects the amount of supplemental financial 
assurance that may be required to meet decommissioning obligations and 
does not reflect the total cost of corrective action that may be 
required to bring a lease or grant into compliance.
    The Department's goal for BOEM's financial assurance program 
continues to be the protection of the American taxpayers from exposure 
to financial loss associated with OCS development, while ensuring that 
the financial assurance program does not detrimentally affect offshore 
investment or position American offshore exploration and production at 
a competitive disadvantage. The Department acknowledges that the new 
regulations could have a significant financial impact on affected 
companies, and for that reason, the Department is finalizing the 
amendment, as proposed, to phase in the new financial assurance 
requirements over a 3-year period for existing leaseholders.
3. Costs and Benefits
    The regulatory amendments in this rulemaking are expected to 
increase the total amount of financial assurance required from OCS 
lessees and grant holders. Those lessees that do not meet the updated 
criteria to avoid providing financial assurance will realize an 
increased compliance cost in the form of bonding premiums. BOEM has 
drafted a Regulatory Impact Analysis (RIA) detailing the estimated 
impacts of the respective provisions of this final rule and has 
included it in the docket. The impacts reflect both monetized and non-
monetized impacts; the costs and benefits of the non-monetized impacts 
are discussed qualitatively in the document. The table below summarizes 
BOEM's monetized estimate of the cost of increased bonding premiums 
paid by lessees over a 20-year period. Additional information on the 
estimated transfers, costs, and benefits can be found in the RIA 
available in the docket for this rulemaking (Docket No. BOEM-2023-
0027).

             Net Total Estimated Compliance Cost of the Rule
                      [2024-2043, 2023, $ millions]
------------------------------------------------------------------------
                                                  Discounted  Discounted
                    2024-2043                        at 3%       at 7%
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Net Total Compliance Cost.......................      $8,525      $5,923
Annualized Compliance Cost......................       573.0       559.0
------------------------------------------------------------------------

    This final rule affects holders of oil, gas, and sulfur leases, ROW 
grants, and RUE grants on the OCS. The analysis shows that this 
includes roughly 391 companies with ownership interests in OCS leases 
and grants. Entities that operate under this rule are classified 
primarily under North American Industry Classification System (NAICS) 
codes 211120 (Crude Petroleum Extraction), 211130 (Natural Gas 
Extraction), and 486110 (Pipeline Transportation of Crude Oil and 
Natural Gas). For NAICS classifications 211120 and 211130, the Small 
Business Administration (SBA) defines a small business as one with 
fewer than 1,250 employees; for NAICS code 486110, it is a business 
with fewer than 1,500 employees. Based on this criterion, approximately 
271 (69 percent) of the businesses operating on the OCS subject to this 
rule are considered small; the remaining businesses are considered 
large entities. All the operating businesses meeting the SBA 
classification are potentially impacted; therefore, BOEM expects that 
the rule will affect a substantial number of small entities.
    BOEM has estimated the annualized increase in compliance costs to 
lessees and RUE and ROW grant holders and allocated those to small and 
large entities based on their decommissioning liabilities. BOEM's 
analysis estimates small companies could incur $421 million (7 percent 
discounting) in annualized compliance costs from its changes. The 
Bureau recognizes that there will be incremental cost burdens to most 
affected small entities and has included a 3-year, phased compliance 
approach to reduce burden associated with the transition to the 
requirements of this rule. The changes are designed to balance the risk 
of non-performance with the compliance burdens that are associated with 
the requirement to provide supplemental financial assurance. Additional 
information about these conclusions can be found in the RIA for this 
rule.

B. Does this action apply to me?

    Entities potentially affected by this final action are holders of 
oil, gas, and sulfur leases, ROW grants, and RUE grants on the OCS.

C. Where can I get a copy of this document and other related 
information?

    In addition to being available in the docket, BOEM will post an 
electronic copy of the documents related to this final action at: 
https://www.boem.gov/regulations-and-guidance.
    BOEM's full response to comments on the June 29, 2023, notice of 
proposed rulemaking (NPRM), including any comments not discussed in 
this preamble, can be found in the memorandum titled, Risk Management 
and Financial Assurance for OCS Lease and Grant Obligations: Response 
to Public Comments Received on the June 29, 2023, Notice of Proposed 
Rulemaking, available in the docket (Docket No. BOEM-2023-0027).

II. Background

A. BOEM Statutory and Regulatory Authority and Responsibilities

    Section 5 of OCSLA (43 U.S.C. 1334), authorizes the Secretary of 
the Interior (Secretary) to issue regulations to administer OCS leasing 
for mineral development. Section 5(a) of OCSLA (43 U.S.C. 1334(a)) 
authorizes the Secretary to ``prescribe such rules and regulations as 
may be necessary to carry out [provisions of OCSLA]'' related to 
leasing on the OCS. Section 5(b) of OCSLA (43 U.S.C. 1334(b)) provides 
that ``compliance with regulations issued under'' OCSLA must be a 
condition of ``[t]he issuance and continuance in effect of any lease, 
or of any assignment or other transfer of any lease, under the 
provisions of'' OCSLA. Section 18 of OCSLA (43 U.S.C. 1344) states 
that, ``Management of the [OCS] shall be conducted in a manner which 
considers economic, social, and environmental values of the renewable

[[Page 31547]]

and nonrenewable resources contained in the [OCS]. . .''.
    The Secretary, in Secretary's Order 3299 (as amended), established 
BOEM and delegated to it the authority to carry out conventional 
energy- (e.g., oil and gas) and renewable energy-related functions on 
the OCS, including, but not limited to, activities involving resource 
evaluation, planning, and leasing under the provisions of OCSLA. As 
such, BOEM is responsible for managing development of the Nation's 
offshore energy and mineral resources in an environmentally and 
economically responsible way. Secretary's Order 3299 also established 
BSEE and delegated to it the authority to, among other things, enforce 
an oil and gas lessee's obligation to perform decommissioning. BSEE 
provides estimates to BOEM to inform the financial assurance needed to 
cover the cost to perform decommissioning, thereby protecting the 
American taxpayer from incurring financial loss. When a current lessee 
is unable to perform its obligations, the Department's regulations at 
30 CFR 556.604(d) and 556.605(e) hold current co-lessees responsible 
for all decommissioning obligations and predecessor lessees responsible 
for those decommissioning obligations that had accrued before they 
assigned their interests to others. See Section III.B for more detail 
on joint and several liability requirements. While BOEM also has 
program oversight for the financial assurance requirements set forth in 
30 CFR parts 551, 581, 582, and 585, this final rule pertains only to 
the financial assurance requirements for oil and gas or sulfur leases 
under part 556, RUE grants and ROW grants under part 550, and appeals 
of supplemental financial assurance demands under part 590.
    For more information on the statutory authority for this rule, see 
the preamble to the proposed rule at 88 FR 42138, June 29, 2023.

B. History of Bonding Regulations and Guidance

    The Minerals Management Service (MMS), BOEM's predecessor, 
published the existing financial assurance requirements for oil, gas, 
and sulfur leases and pipeline ROW grants on May 22, 1997 (62 FR 
27948). These regulations required lease-specific or area-wide base 
bonds in prescribed amounts, depending on the level of activity on a 
lease, and provided the authority to require additional supplemental 
financial assurance for leases above the base bonds depending on the 
financial health of the lessee. Additionally, MMS published the 
existing financial assurance requirements for RUE grants on December 
28, 1999 (64 FR 72756). These regulations did not dictate a specific 
bond amount for a RUE but did provide the authority to require bonding 
if necessary. BOEM employs the same criteria for RUE and ROW grants as 
it does for leases to determine whether supplemental financial 
assurance is required, because specific criteria pertaining to 
supplemental financial assurance for grants do not exist in the current 
regulations.
    The current bonding regulations at 30 CFR 556.901(d) provide five 
criteria that the Regional Director uses to determine whether a 
lessee's potential inability to carry out present and future 
decommissioning obligations warrants a demand for supplemental 
financial assurance; however, the current bonding regulations do not 
specifically describe how the criteria are weighted. To provide 
guidance, MMS issued a Notice to Lessees (NTL) effective December 28, 
1998, which provided details on how it would apply the five criteria 
(NTL No. 98-18N). This NTL was superseded by NTL No. 2003-N06, 
effective June 17, 2003, and that NTL was later superseded by NTL No. 
2008-N07, which was effective August 28, 2008. Most recently, NTL No. 
2008-N07 was superseded on September 12, 2016, with NTL No. 2016-N01, 
which was later rescinded in February of 2020.
    In December 2015, the Government Accountability Office (GAO) 
reviewed BOEM's supplemental financial assurance procedures and issued 
a report titled ``Offshore Oil and Gas Resources: Actions Needed to 
Better Protect Against Billions of Dollars in Federal Exposure to 
Decommissioning Liabilities.'' (GAO Report). While acknowledging BOEM's 
ongoing efforts to update its policies, the GAO Report recommended, 
inter alia, that ``BOEM complete its plan to revise its supplemental 
financial assurance procedures, including the use of alternative 
measures of financial strength.'' See https://www.gao.gov/products/gao-16-40.
    On October 16, 2020, DOI issued a notice of proposed rulemaking (85 
FR 65904) to revise certain BSEE policies concerning decommissioning 
orders and the Department's financial assurance regulations that are 
administered by BOEM. In the joint proposed rule, the Department 
proposed to adjust the supplemental financial assurance criteria to 
reflect the risk mitigation already provided by the joint and several 
liability of financially stable co-lessees and predecessor lessees. The 
Department's regulations hold predecessors responsible for some or all 
of the decommissioning when a current lessee is unable to perform its 
obligations. In the 2020 proposed rule, the Department proposed to 
consider the financial stability of predecessor lessees by waiving 
supplemental financial assurance requirements for a current lessee when 
there is a financially strong predecessor lessee. The Department also 
proposed to change the methodology for measuring financial strength to 
focus on credit rating and the value of proved oil and gas reserves and 
to apply the credit rating methodology to RUE grants and ROW grants as 
well.
    On April 18, 2023, DOI finalized the BSEE-administered provisions 
of the 2020 proposal (88 FR 23569). The Department's 2023 final rule 
implements provisions of the 2020 proposed rule to clarify 
decommissioning responsibilities of RUE grant holders and to formalize 
BSEE's policies regarding performance by predecessors ordered to 
decommission OCS facilities.
    On June 29, 2023, the Department proposed a new rule in lieu of 
finalizing the BOEM provisions of the 2020 joint proposal. The new 
proposed rule provided recommended revisions to the regulations 
concerning risk management and financial assurance for OCS lease and 
grant obligations. This final action addresses the public comments 
received on the June 29, 2023, proposal and finalizes amendments to 
those regulations. For more details on the history of the bonding 
regulations, see the preamble to the proposed rule at 88 FR 42138.

C. Purpose of Rulemaking

    The purpose of this rulemaking is to finalize amendments to address 
concerns regarding BOEM's financial assurance program. This rule 
finalizes amendments to the existing provisions to better protect the 
taxpayer from bearing the cost of facility decommissioning and other 
financial risks associated with OCS development, such as environmental 
remediation. This rule also provides regulatory clarity to OCS lessees 
regarding their financial obligations by codifying requirements in the 
CFR.
    As discussed in the preamble to the proposed rule (88 FR 42140), 
the GAO identified three main shortcomings in the Department's prior 
approach to financial assurance: (1) the Department faced challenges in 
determining actual decommissioning liabilities due to data system 
limitations and inaccurate data; (2) the Department did not require 
sufficient financial assurance to cover liabilities, primarily due to 
the practice

[[Page 31548]]

of waiving supplemental bonding requirements, resulting in financial 
assurance coverage (such as bonds) for less than 8% of an estimated 
$38.2 billion in decommissioning liabilities; and (3) the Department's 
criteria for assessing lessees' financial strength did not provide 
accurate and timely information about their ability to cover future 
decommissioning costs. As the GAO report indicated, the existing 
regulatory structure is inadequate, introduces needless financial risk, 
and is unsustainable.
    Importantly, relatively few major facilities have been 
decommissioned (relative to the number installed) because the vast 
majority of facilities are or were recently actively producing. As more 
facilities reach the end of their useful life, however, decommissioning 
will be required on a larger scale. Accordingly, previously low losses 
to the government are not a reliable indicator for future losses. The 
GAO has in fact asserted the opposite and has notified Congress that 
the current program must be revised to avoid putting the government in 
an untenable situation.
    On February 20, 2024, the GAO issued a new report titled Offshore 
Oil and Gas: Interior Needs to Improve Decommissioning Enforcement and 
Mitigate Related Risks (GAO-24-106229) that provided four 
recommendations to DOI to strengthen BSEE's and BOEM's decommissioning 
oversight and enforcement. Recommendation 3 specifically stated the 
``Secretary of the Interior should ensure the BOEM Director completes 
planned actions to further develop, finalize, and fully implement 
changes to financial assurance regulations and procedures that reduce 
financial risks, including by (1) requiring higher levels of 
supplemental bonding, and (2) addressing other known weaknesses.'' The 
measures BOEM described in the proposed rule and finalized here will, 
as a practical matter, address this GAO recommendation.
    Since 2009, more than 30 corporate bankruptcies have occurred 
involving offshore oil and gas lessees with decommissioning liabilities 
that were not covered by financial assurance. The fact that 
bankruptcies have involved decommissioning liabilities without 
sufficient supplemental financial assurance demonstrates that the 
waiver criteria in NTL No. 2008-N07 were inadequate to protect the 
public from potential responsibility for OCS decommissioning 
liabilities, especially during periods of low oil and gas prices. For 
example, ATP Oil & Gas was a mid-sized company with a supplemental 
financial assurance waiver when it filed for bankruptcy in 2012. 
Similarly, Bennu Oil & Gas LLC, had a waiver at the time of its 
bankruptcy filing, and Energy XXI, Ltd. and Stone Energy Corporation 
obtained waivers less than a year before filing for bankruptcy. While 
most OCS leases affected by the bankruptcies were ultimately sold or 
retained by the companies reorganized under chapter 11 of the U.S. 
Bankruptcy Code, these bankruptcies highlighted the weakness in BOEM's 
supplemental financial assurance program. BOEM's existing program has, 
at times, been unable to forecast financial distress of these lessees 
and grantees that have not previously provided supplemental financial 
assurance and, as a result, BOEM has not had sufficient time to require 
and receive supplemental financial assurance prior to a declaration of 
bankruptcy.
    Additionally, challenges arising in bankruptcy proceedings, 
including the inability to sell less valuable assets that fail to 
generate new buyers at auction, can result in unplugged wells and 
orphaned infrastructure. This could result in the American taxpayer 
paying the cost to plug those wells and decommission that abandoned 
infrastructure. The amendments finalized in this rulemaking strengthen 
BOEM's financial assurance regulations to better protect the taxpayer 
from bearing the cost of facility decommissioning and other financial 
risks associated with OCS development.

D. Summary of the June 29, 2023, Proposed Rulemaking

    On June 29, 2023, DOI published an NPRM in the Federal Register at 
88 FR 42136, which proposed amendments to 30 CFR parts 550, 556, and 
590. This NPRM proposed to streamline the criteria used for evaluating 
the financial health of lessees, codify the use of the BSEE 
probabilistic estimates of decommissioning cost for determining the 
amount of supplemental financial assurance required, remove restrictive 
provisions for third-party guarantees and decommissioning accounts, add 
criteria for which a bond or third-party guarantee that was provided as 
supplemental financial assurance may be canceled, and clarify bonding 
requirements for RUEs serving Federal leases. Specifically, the 
Department proposed to revise the criteria used to evaluate the need 
for supplemental financial assurance from lessees from the existing 
five criteria--financial capacity, projected financial strength, 
business stability, reliability in meeting obligations based on credit 
rating or trade references, and record of compliance with laws, 
regulations, and lease terms--to one of two criteria: (1) credit rating 
and (2) the ratio of the value of proved reserves to decommissioning 
liability associated with those reserves. The Department proposed the 
use of an investment grade credit rating threshold (or proxy credit 
rating equivalent) and a minimum 3-to-1 ratio of the value of proved 
reserves to decommissioning liability associated with those reserves to 
determine if a lessee is required to provide supplemental financial 
assurance.
    After examining the financial assurance costs in conjunction with 
risk coverages derived from using different P-values for 
decommissioning costs over different time periods for the full 
implementation of this rule, BOEM proposed that an adequate balance 
between OCS development and financial risk level on the OCS is achieved 
by the combination of a P70 value and a phase-in period of 3 years. The 
proposed phased-in approach allows the lessee, grant holder, or 
operator to submit the amount due over 3 fiscal years, which is 
specifically designed to mitigate the disruptive impact of large, 
immediate financial assurance demands. BOEM notes that poorly-
capitalized companies with end-of-life assets may declare bankruptcy at 
the P70 level, but that bankruptcy would also be a risk under a P90 or 
a P50 level threshold. It was BOEM's conclusion that a P70 threshold 
with a 3-year phase-in achieves an adequate balance between the level 
of protection against the risks that the proposed rule intends to 
manage with a reasonable period of time to fully implement the costs 
derived from these policy changes. Details regarding each of the 
specific proposal provisions are discussed in section III of this 
preamble.

III. Summary of the Final Rule and Public Comments

    For each topic, this section provides a description of what the 
Department proposed, what the Department is finalizing, and a summary 
of key comments and responses for each proposal provision. BOEM's full 
response to comments on the June 29, 2023, NPRM, including any comments 
not discussed in this preamble, can be found in the memorandum titled, 
Risk Management and Financial Assurance for OCS Lease and Grant 
Obligations: Response to Public Comments Received on the June 29, 2023, 
Notice of Proposed Rulemaking available in the docket (Docket No. BOEM-
2023-0027) (hereinafter Response to Public Comments).

[[Page 31549]]

A. Revisions to BOEM Supplemental Financial Assurance Requirements

    The Department proposed and is finalizing revisions to the 
supplemental financial assurance requirements for oil, gas, and sulfur 
leases, RUE grants, and pipeline ROW grants, as discussed in the 
subsections below.
1. Leases
    In the June 29, 2023, NPRM, the Department proposed changes to the 
lease financial assurance requirements to (1) modify the evaluation 
process for requiring supplemental financial assurance by clarifying 
and streamlining the evaluation criteria, and (2) remove restrictive 
provisions for third-party guarantees and decommissioning accounts. The 
proposed rule would allow the Regional Director to require supplemental 
financial assurance when a lessee or grant holder poses a substantial 
risk of becoming financially unable to carry out its obligations under 
its lease or grant, or when the property may not have sufficient value 
to be sold to another company that could assume those obligations. In 
the former case, the risk that the taxpayer might have to take on the 
financial obligations of a lessee or grant holder is mitigated when 
there is a co-lessee or co-grant holder that has sufficient financial 
capacity to carry out the obligations. These proposed provisions, the 
key public comments received on the provisions, and the Department's 
final amendments are discussed in the following subsections. A summary 
of all comments received regarding revisions to lease financial 
assurance provisions and BOEM's corresponding responses can be found in 
section 3 of the Response to Public Comments.
    Additionally, DOI also proposed to use the costs of decommissioning 
resulting from BSEE's new methodology, which provides probabilistic 
costs using a database of reported decommissioning costs on the OCS, to 
determine the amount of supplemental financial assurance required, as 
discussed in section III.B of this preamble.
a. Evaluation of Co-Lessees
    Lessees are jointly and severally liable for the lease 
decommissioning obligations that accrue during their ownership, as well 
as those that accrued prior to their ownership, which means that each 
current co-lessee is liable for the full obligation and BSEE may pursue 
full performance from any individual current lessee. See, e.g., 30 CFR 
556.604(d). In addition, a lessee that transfers its interest to 
another party continues to be liable for any unperformed 
decommissioning obligations that accrued prior to, or during, the time 
that lessee owned an interest in the lease. See, e.g., 30 CFR 556.710. 
This transferor liability applies, however, only to those obligations 
existing at the time of transfer. New facilities, or additions to 
existing facilities, that were not in existence at the time of any 
lease transfer are not obligations of a predecessor company but are 
only considered obligations of the party that built such new facilities 
and its co- and successor lessees.
    BOEM's existing supplemental financial assurance evaluation 
process, contained in 30 CFR 556.901(d), is not clear to what extent 
co-lessee financial capacity is to be considered. The Department 
proposed to codify in 30 CFR 556.901(d)(3) that this process includes 
an evaluation of the ability of a co-lessee to carry out present and 
future obligations. This proposed amendment recognizes that all current 
owners are benefiting from ongoing operations and are jointly and 
severally liable for compliance with DOI requirements. All current co-
lessees are equally liable for present nonmonetary obligations and such 
future obligations that accrue while they are co-lessees. As proposed, 
BOEM would not require supplemental financial assurance for properties 
where at least one co-lessee meets the credit rating threshold. A 
summary of the comments received is provided here.
    Comment: Several commenters expressed support for DOI's proposal to 
not require supplemental financial assurance on leases where at least 
one co-lessee meets the credit rating threshold.
    Response: BOEM acknowledges the commenters' support, and the 
Department is finalizing, as proposed in 30 CFR 556.901(d), that the 
evaluation for determining whether supplemental financial assurance is 
required includes an evaluation of the ability of a co-lessee to carry 
out present and future obligations. This amendment recognizes that all 
current owners are benefiting from ongoing operations and are jointly 
and severally liable for compliance with DOI requirements. As proposed, 
the Department is finalizing the provision that it will not require 
supplemental financial assurance from properties where at least one co-
lessee meets the credit rating threshold.
    Comment: Several commenters expressed opposition to DOI's proposal, 
asserting that any co-lessee that does not maintain an investment grade 
credit rating (or equivalent proxy credit rating) should be required to 
provide supplemental financial assurance. Commenters recommended that 
the Department require supplemental financial assurance for their 
respective working interest shares from all co-lessees that do not 
maintain an investment grade credit rating for leases that are not 
exempt based on the reserve analysis. An additional commenter 
recommended the financial assurance evaluation be extended to 
sublessees when a company can provide evidence that the sublessee was 
one of the original installers/owners of the lease facilities.
    Response: BOEM acknowledges the commenters' recommendations that 
the Department should require financial assurance from all co-lessees 
that do not maintain an investment grade credit rating for their 
respective working interests but concludes that it is impractical to 
evaluate co-lessees and operating rights owners since each co-lessee is 
liable for the total obligation and not their proportional share. DOI 
is finalizing, as proposed in 30 CFR 556.901(d), to not require 
supplemental financial assurance for leases where at least one co-
lessee meets the credit rating threshold. This amendment recognizes 
that all current owners are benefiting from ongoing operations and are 
jointly and severally liable for compliance with DOI requirements. All 
current co-lessees are equally liable for present nonmonetary 
obligations and such future obligations that accrue while they are co-
lessees.
b. Evaluation Criteria
    The Department proposed to revise the criteria in 30 CFR 556.901(d) 
used to evaluate the need for supplemental financial assurance from 
lessees from the five criteria--financial capacity, projected financial 
strength, business stability, reliability in meeting obligations based 
on credit rating or trade references, and record of compliance with 
laws, regulations, and lease terms--to a simpler analysis of one of two 
criteria: (1) credit rating or (2) the ratio of the value of proved 
reserves to decommissioning liability associated with those reserves. 
As discussed in the preamble to the proposed rule at 88 FR 42142-42144, 
the Department proposed to eliminate the ``business stability'' and the 
``record of compliance'' criteria, to replace the ``financial 
capacity'' and ``reliability'' criteria with issuer credit rating or 
proxy credit rating, and to replace the ``projected financial 
strength'' criterion with a ratio of the value of proved oil and gas 
reserves on a lease to the decommissioning liability associated with 
those reserves.

[[Page 31550]]

    Specifically, DOI proposed the following in 30 CFR 556.901(d) to 
determine whether supplemental financial assurance on a lease may be 
required: (1) a credit rating, either from an Nationally Recognized 
Statistical Rating Organization (NRSRO), as identified by the United 
States Securities and Exchange Commission (SEC) pursuant to its grant 
of authority under the Credit Rating Agency Reform Act of 2006 and its 
implementing regulations at 17 CFR parts 240 and 249, or a proxy credit 
rating determined by BOEM based on a company's audited financial 
statements; or (2) a minimum ratio of the value of proved oil and gas 
reserves on a lease to the decommissioning liability associated with 
those reserves. For discussion of the justification of the credit 
rating selected and the minimum reserves to decommissioning liabilities 
ratio selected, see section III.D of this preamble.
    These proposed criteria better align BOEM's evaluation process with 
accepted financial risk evaluation methods used by the banking and 
finance industry. As discussed in the preamble to the proposed rule (88 
FR 42142), eliminating subjective or less precise criteria--such as the 
length of time in operation to determine business stability or trade 
references to determine reliability in meeting obligations--will 
simplify the process and remove criteria that often do not accurately 
or consistently predict financial distress. Additionally, the 
Department solicited comments on any other appropriate criteria for use 
in evaluating the need for supplemental financial assurance from OCS 
lessees.
    Comment: Multiple commenters generally supported the streamlining 
of the evaluation criteria, particularly the use of credit ratings as a 
more appropriate criterion than financial capacity, projected financial 
strength, and business stability.
    Response: BOEM acknowledges the commenters' support, and the 
Department is finalizing, as proposed in 30 CFR 556.901(d), the 
replacement of the prior five criteria with the two criteria: (1) 
credit rating and (2) the ratio of the value of proved reserves to 
decommissioning liability associated with those reserves. This 
amendment codifies a forward-looking analysis for determining the need 
for supplemental financial assurance, which is simpler to evaluate for 
both the Department and lessees, in lieu of a backward-looking 
analysis.
    Comment: Several commenters recommended that the Department 
completely remove the evaluation to determine if supplemental financial 
assurance is required. One commenter specifically asked the Department 
to eliminate this step entirely and to simply require all OCS 
leaseholders, regardless of financial strength, to provide supplemental 
financial assurance. An additional commenter urged the Department to 
require every lessee to post supplemental financial assurance to ensure 
decommissioning costs are covered and eliminate consideration of proxy 
credit ratings and the value of proved oil reserves associated with a 
given lease.
    Response: BOEM is the agency within DOI responsible for managing 
development of the nation's offshore resources in an environmentally 
and economically responsible way. BOEM must balance OCS development 
with protection of both the taxpayer and the environment and concludes 
that this rule achieves an acceptable balance of objectives. BOEM does 
not believe requiring all entities to provide supplemental financial 
assurance can be justified by the potential risk to the taxpayer, 
because financially strong entities are highly unlikely to file for 
bankruptcy and are highly likely to be able to cover their 
decommissioning obligations. Additionally, requiring those entities 
with little likelihood of default to provide supplemental financial 
assurance would reduce funds available for other capital expenditures. 
Accordingly, the Department is finalizing, as proposed in 30 CFR 
556.901(d), the two evaluation criteria for lessees: (1) credit rating 
and (2) the ratio of the value of proved reserves to decommissioning 
liability associated with those reserves. The purpose of financial 
assurance is not to prevent problems; it is to ensure there is money to 
fix them. As such, criteria that do not relate to financial capacity do 
not target the companies for which the financial assurance is needed. 
Using the revised criteria simplifies the evaluation process, 
streamlining the Department's evaluation without compromising the risk 
to taxpayers. Indeed, the two new criteria are more protective than the 
existing criteria, as evidenced by the significant increase in the 
amount of financial assurance that will be required using the updated 
criteria.
    Comment: Commenters who objected to the removal of the record of 
compliance criterion urged BOEM to be more attentive to past safety 
performance, deny waivers to any company with idle iron, stipulate that 
owners with decommissioning obligations for abandoned or idle wells 
would not be eligible for new leases, and develop a scoring system to 
grade companies on various safety and environmental metrics to 
incorporate into the financial assurance analysis.
    Response: While commenters offered a conceptual argument to retain 
the record of compliance criterion, they provided no new data to 
suggest a correlation between financial strength of a company and its 
record of compliance. As discussed in the preamble to the proposed rule 
at 88 FR 42142, BOEM examined the number of incidents of non-compliance 
(INCs) issued by BSEE, their severity, and the relationship between 
INCs and financial health/strength of companies and found that the data 
was not a reliable indicator of financial strength. The data show that 
the number of incidents is correlated with the number of structures a 
lessee has on the OCS, and not necessarily to the financial health of 
the lessee. Additionally, BOEM's financial assurance program is not in 
and of itself designed to promote safety or compliance (there are other 
Department regulations addressing these matters), but to assure that a 
lessee can financially bring a noncompliant lease into compliance. The 
Department's forward-looking approach, which is being finalized here, 
allows time for BOEM to demand financial assurance, rather than waiting 
for inspections and corresponding incidents to occur and then 
determining that supplemental financial assurance is needed because of 
the number of INCs.
    The Department is finalizing the replacement of the five criteria 
in 30 CFR 556.901(d) with two criteria for lessees: (1) credit rating 
and (2) the ratio of the value of proved reserves to decommissioning 
liability associated with those reserves. This amendment codifies a 
forward-looking analysis for determining the need for supplemental 
financial assurance in lieu of the backward-looking analysis that 
resulted from the use of the five criteria or that would result from 
using INCs as an indicator. For a summary of all comments received 
regarding the streamlining of the evaluation criteria, including the 
removal of the record of compliance criterion, and BOEM's corresponding 
responses, see sections 3.1 through 3.6 of the Response to Public 
Comments.
2. Right-of-Use and Easement Grants
    In the June 29, 2023, NPRM, the Department proposed changes to the 
RUE financial assurance requirements to clarify the financial assurance 
requirement for RUEs serving Federal leases, which is not explicitly 
addressed in the existing regulations. These proposed provisions, the 
public

[[Page 31551]]

comments received on the provisions, and DOI's final amendments are 
discussed in the following subsections.
a. Base Financial Assurance
    The Department proposed to revise 30 CFR 550.166 to provide that 
any RUE grant holder must provide base financial assurance in a 
specific amount, regardless of whether the RUE serves a State lease or 
a Federal OCS lease and proposed a Federal RUE base financial assurance 
requirement matching the existing $500,000 base financial assurance 
requirement for State RUEs. For a summary of all comments received 
regarding revisions to base financial assurance provisions for RUEs and 
BOEM's corresponding responses, see section 4 of the Response to Public 
Comments.
    Comment: Commenters supported the proposal to require a RUE grant 
holder to provide financial assurance in a specific amount, regardless 
of whether the RUE serves a State lease or Federal OCS lease, but 
asserted that BOEM should update the base financial assurance value 
because it was determined in 1993, was based on costs in relatively 
shallow waters, and significant inflation has occurred since the last 
revision.
    Response: BOEM agrees with the commenters' assertion that the 
initial base bond amount was determined many years ago and acknowledges 
that this value should be reevaluated. Because BOEM did not propose a 
new value in the NPRM and, therefore, cannot revise it in the final 
rule, BOEM plans to evaluate the specific values of the base 
supplemental financial assurance for RUEs, ROWs, and leases in a future 
rulemaking.
    With this rulemaking, the Department is finalizing 30 CFR 550.166, 
as proposed, that provides that any RUE grant holder must provide base 
financial assurance of $500,000, regardless of whether the RUE serves a 
State lease or a Federal OCS lease, to match the existing base 
financial assurance requirements for State RUEs.
b. Area-Wide Financial Assurance
    The Department proposed in 30 CFR 550.166(a) a $500,000 area-wide 
base financial assurance for RUE grant holders, which would satisfy the 
base financial assurance requirement for any RUE holder that owns one 
or more RUEs within the same OCS area, regardless of whether the RUE 
serves a State or Federal lease. Additionally, the Department proposed 
in 30 CFR 550.166(a)(1) to allow any lessee that has previously posted 
area-wide lease financial assurance (pursuant to 30 CFR 556.900(a)(1) 
or 556.901(a)(2) or (b)(2) for the areas specified in 30 CFR 
556.900(a)(2)) to modify that lease financial assurance to also cover 
any RUE(s) in the area owned by that lessee. The ability to use area-
wide lease financial assurance to cover the RUE base financial 
assurance obligation would be subject to the requirement that the area-
wide lease financial assurance be in an amount equal to or greater than 
the RUE base financial assurance requirement (i.e., equal to or greater 
than $500,000).
    Comment: A commenter asserted that there was no need for a new 
requirement for area-wide financial assurance for RUEs, as it would 
solely cover RUE rentals. They suggested that this aspect should 
already be sufficiently covered under the existing area-wide financial 
assurance for leases provided by lessees. The commenter also noted 
that, presently, ``BSEE does not permit transfers of RUEs.'' To address 
this, the commenter recommended that both BOEM and BSEE should mandate 
complete ownership filings for all co-owners of the respective ROW and 
RUE for the Department's approval. They asserted that this approach 
would appropriately distribute the risk among all co-owners.
    Response: BOEM disagrees with the commenter's assertion that there 
``is no need for'' area-wide financial assurance requirements for RUEs. 
RUE holders have decommissioning responsibility and not just that of 
paying rentals. Area-wide coverage is not being required but being 
offered as an alternative to separately bonding each RUE. In response 
to the suggestion that BOEM and BSEE should mandate complete ownership 
filings for ROW and RUEs, we note that is outside the scope of this 
rulemaking.
    As discussed in the preamble to the proposed rule at 88 FR 42144, 
the proposed rule at 30 CFR 550.166(a)(1) would allow any lessee that 
has already posted area-wide lease financial assurance to modify that 
lease surety bond to also cover any RUE(s) in the area owned by the 
same lessee. The ability to use the area-wide lease financial assurance 
to cover the RUE base financial assurance would be subject to the 
requirement that the area-wide lease financial assurance would be in an 
amount equal to or greater than the RUE base financial assurance 
requirement. For example, under the proposal, a lessee with a $3 
million area-wide lease surety bond could establish or acquire any 
number of Federal or State RUEs in the area without having to post any 
additional financial assurance (other than, potentially, supplemental 
financial assurance), provided the lessee agrees to modify the terms of 
its area-wide lease surety bond to also cover any State or Federal RUEs 
that it owns or acquires. If the existing area-wide financial assurance 
is not modified, the lessee may satisfy the requirement by providing 
new financial assurance to cover its RUE(s). In the example, BOEM 
believes the $3 million area-wide lease surety bond is sufficient to 
cover the RUE $500,000 requirement. The Department is finalizing this 
provision as proposed, in addition to new supplemental financial 
assurance requirements for RUE grant-holders that do not maintain an 
investment grade credit rating. As discussed earlier in this preamble, 
BOEM plans to evaluate the specific values of the base supplemental 
financial assurance for RUEs, ROWs, and leases in a future rulemaking.
    The Department is finalizing, as proposed in 30 CFR 550.166(a), the 
option to provide $500,000 area-wide RUE financial assurance, which 
will satisfy the base financial assurance requirement for any RUE 
holder that owns one or more RUEs within the same OCS area, regardless 
of whether the RUE serves a State or Federal lease. Lessees that have 
previously posted area-wide lease financial assurance will be able to 
modify that lease surety bond to also cover any RUE(s) in the area 
owned by the same lessee. The ability to use area-wide lease financial 
assurance to cover the RUE base financial assurance obligation will be 
subject to the requirement that, in addition to covering the lease 
financial assurance requirement, the area-wide lease financial 
assurance must include an amount equal to or greater than the RUE base 
financial assurance requirement (i.e., equal to or greater than 
$500,000) in order to cover the financial assurance requirements for 
both the leases and RUEs.
c. Supplemental Financial Assurance
    The Department proposed to replace the general statement in 30 CFR 
550.160(c) that RUE grant holders ``must meet bonding requirements'' 
with the specific criteria governing financial assurance requirements 
found in proposed 30 CFR 556.900 through 556.902, and the applicable 
financial assurance requirements in 30 CFR 550.166 and 30 CFR part 556, 
subpart I. Similar to the proposed changes to the evaluation criteria 
for lease holders, DOI proposed in 30 CFR 550.166(b) to consider the 
credit rating or proxy credit rating of RUE co-grant holders to 
determine if a grantee must provide supplemental financial assurance. 
The

[[Page 31552]]

value of proved oil and gas reserves was not included in this 
evaluation because a RUE grant does not entitle the holder to any 
interest in oil and gas reserves. For a summary of all comments 
received regarding revisions to supplemental financial assurance 
provisions for RUEs and BOEM's corresponding responses, see section 4 
of the Response to Public Comments.
    Comment: Commenters supported the proposal to evaluate the 
financial health of RUE grant holders using the same criterion as was 
proposed for oil and gas lessees (i.e., investment grade credit rating 
of grant holders or co-holders).
    Response: BOEM acknowledges the commenters' support, and the 
Department is finalizing 30 CFR 550.160(c), as proposed, to replace the 
general statement that RUE grant holders ``must meet bonding 
requirements'' with the evaluation of a grant holder's financial health 
using a credit rating or a proxy credit rating to determine 
supplemental financial assurance demands.
    Comment: A commenter suggested that the Department should not 
require supplemental bonding for RUEs that are servicing and associated 
with high value leases because some companies own interest in the 
reserves associated with a RUE granted to maintain a platform 
operational on an expired lease for servicing production on another 
lease.
    Response: BOEM disagrees with the commenter's assertion that the 
Department should not require supplemental bonding for RUEs that are 
servicing and associated with high value leases. RUEs do not grant a 
holder an interest in reserves. While the same company may own reserves 
as a lessee, DOI would not be able to compel the grantee to sell the 
lease to cover the costs of grant decommissioning.
    The Department is finalizing, as proposed, 30 CFR 550.160(c), which 
provides that a RUE grant-holder may be required to provide 
supplemental financial assurance if they do not maintain an investment 
grade issuer credit rating or proxy credit rating equivalent. This 
change is consistent with the evaluation of oil and gas lessees found 
in finalized 30 CFR 556.901(d). The Department is also finalizing, as 
proposed, that the value of proved oil and gas reserves will not be 
considered in this evaluation because a RUE grant does not entitle the 
holder to any interest in the associated oil and gas reserves.
3. Pipeline Right-of-Way Grants
    Existing bonding requirements for pipeline ROW grants, contained in 
30 CFR 550.1011, prescribe a $300,000 area-wide base surety bond that 
guarantees compliance with all the terms and conditions of the pipeline 
ROW grants held by a company in an OCS area. Additionally, existing 30 
CFR 550.1011(a)(2) states that BOEM may require a pipeline ROW grant 
holder to provide supplemental financial assurance if the Regional 
Director determines that financial assurance in excess of $300,000 is 
needed but, unlike with leases, the regulation provides no factors for 
the Regional Director's consideration when making this determination. 
Similar to the proposed changes to the evaluation criteria for lease 
holders, DOI proposed in 30 CFR 550.1011(c) to consider the credit 
rating or proxy credit rating of ROW co-grant holders to determine if 
the grantee must provide supplemental financial assurance. The value of 
proved oil and gas reserves was not included in this evaluation because 
a ROW grant does not entitle the holder to any interest in the 
associated oil and gas reserves. For a summary of all comments received 
regarding revisions to ROWs and BOEM's corresponding responses, see 
section 5 of the Response to Public Comments.
    Comment: Commenters supported the proposal to evaluate the 
financial health of pipeline ROW grant holders using the same criterion 
as was proposed for oil and gas lessees (i.e., investment grade credit 
rating or proxy credit rating of grant holders or co-holders).
    Response: BOEM acknowledges the commenters' support, and the 
Department is finalizing, as proposed in 30 CFR 550.1011(c), to 
evaluate pipeline ROW grant-holders using the criterion proposed for 
lessees (i.e., investment grade credit rating or proxy credit rating of 
grant holders or co-holders).
    Comment: A commenter suggested that the Department should not 
require supplemental bonding for ROW pipelines that are servicing and 
associated with high value leases because some companies own an 
interest in the reserves that their ROW pipeline services.
    Response: BOEM disagrees with the commenter's assertion that the 
Department should not require supplemental bonding for ROW pipelines 
that are servicing and associated with high value leases. ROWs do not 
grant a holder an interest in reserves. While the same company may own 
reserves as a lessee, DOI would not be able to compel the grantee to 
sell the lease to cover the costs of grant decommissioning.
    Comment: A commenter requested that the Department rethink allowing 
oil and gas operators to decommission pipelines in place and should 
ensure that BSEE's decommissioning costs sufficiently meet the cost of 
removing all pipeline from the seafloor.
    Response: Changes to the regulations allowing oil and gas operators 
to decommission pipelines in place is outside the scope of this 
rulemaking.
    DOI is finalizing, as proposed, 30 CFR 550.1011, which provides for 
an evaluation of pipeline ROW grant-holders using the criterion 
proposed for lessees (i.e., issuer credit rating or proxy credit 
rating). This will ensure that pipeline ROW grant-holders can 
demonstrate that they have the financial ability to meet their 
obligations of the ROW.
    The Department is finalizing the use of an investment grade credit 
rating or proxy credit rating for pipeline ROW co-grant holders to 
determine if a grant holder must provide supplemental financial 
assurance, consistent with the evaluation of oil and gas lessees in 30 
CFR 550.1011(a)(2). The value of proved oil and gas reserves will not 
be considered in this evaluation because a ROW grant does not entitle 
the holder to any interest in oil and gas reserves.

B. Use of BSEE's Probabilistic Estimates for Determining 
Decommissioning Costs

    When determining the necessary amount of supplemental financial 
assurance, BSEE previously provided to BOEM a single, algorithm-based 
deterministic estimate for decommissioning costs of OCS facilities. In 
30 CFR 556.901, the Department proposed to replace BSEE's former 
single, algorithm-based deterministic estimates for OCS facility 
decommissioning costs with the new BSEE methodology that provides 
probabilistic estimates (i.e., P-values) based on decommissioning costs 
reported by industry pursuant to NTL 2016-N03--Reporting Requirements 
for Decommissioning Expenditures on the OCS, later superseded by NTL 
2017-N02. These values represent the likelihood of covering the full 
cost of decommissioning a facility as a percentage; for example, P70 
represents a 70 percent likelihood of covering the full cost of 
decommissioning a facility. Specifically, the Department proposed to 
use the P70 value to determine the amount of any required supplemental 
financial assurance and solicited comments on the use of other values 
(i.e., P50 and P90) and the associated impacts. Additionally, if 
probabilistic estimates are not available, BOEM will use the available 
deterministic value.
    BOEM received a wide range of comments on the use of the P70 value 
that are discussed generally below. A

[[Page 31553]]

summary of all comments received regarding the use of BSEE's 
decommissioning estimates and BOEM's corresponding responses can be 
found in section 3.7 of the Response to Public Comments.
    Comment: Multiple commenters supported the use of the P70 value and 
recommended that BOEM adopt the P70 value in the final rule for 
consistency with the stated purpose of the proposed rule: to ensure 
that current lessees are financially able to perform their 
decommissioning obligations.
    Response: BOEM acknowledges the commenters' support for the 
proposal of P70. The Department is finalizing in 30 CFR 556.901, as 
proposed, the use of P70 to determine the financial assurance required 
for properties where the current lessee does not have an investment 
grade credit rating or the ratio of the value of the proved reserves to 
decommissioning liabilities associated with those reserves is not 
greater than or equal to 3-to-1. This approach holds all current 
lessees that do not meet the credit rating or reserve criteria 
responsible for providing supplemental financial assurance unless there 
is an investment grade co-lessee associated with the same 
decommissioning obligations.
    Comment: Conversely, several commenters asserted that the P70 value 
was not sufficiently conservative to protect other parties and the 
public in the event of default. They asserted that BOEM should use the 
P90 value to increase the probability of ensuring that all 
decommissioning obligations are covered by those operating on the OCS.
    Response: BOEM disagrees with the commenters' assertion that the 
P70 estimate is not sufficiently conservative to protect other parties 
and the public in the event of a default. The P70 value should not be 
confused with a figure representing 70 percent of the cost of 
decommissioning of a particular facility. The statistical P-value 
relies on the quality and size of the data inputs, as well as the 
uncertainty existing in these costs.
    BOEM's goal for its financial assurance program continues to be the 
protection of the American taxpayers from exposure to financial loss 
associated with OCS development, while ensuring that the financial 
assurance program does not detrimentally affect offshore investment or 
position American offshore exploration and production at a competitive 
disadvantage. A P70 financial assurance level will reduce offshore 
decommissioning risk to taxpayers relative to previous BSEE 
deterministic decommissioning estimates, while attempting to reduce the 
burden on available capital for continued OCS investment that would be 
imposed by using P90. BOEM's use of the P70 decommissioning value 
balances the risk of being underfunded at lower financial assurance 
levels against the risk of setting a financial assurance level at 
higher P-values that would overstate the costs in a significant number 
of cases.
    BOEM considered bonding at P90, which would result in the lowest 
risk of the proposed options to the taxpayer from underfunded offshore 
decommissioning liabilities. However, P90 would result in an 
approximately 40 percent chance of being over bonded. In addition, BOEM 
considered the cost of financing, which would generally (particularly 
in high interest rate environments) increase the risks of burdensome 
over bonding. BOEM's analysis concluded that the increased cost to 
lessees resulting from adopting P90 rather than P70 would be too high 
when compared to the additional risk reduction. As a result, BOEM 
concluded that P70 reflects a risk tolerance that is neither too 
aggressive nor too conservative, striking an appropriate balance 
between the risk of default to the taxpayer and the burden to the 
regulated community.
    Comment: Other commenters asserted that the proposed rule did not 
include sufficient information and transparency about how the 
probabilistic estimates are derived.
    Response: In response to commenters asserting that BOEM did not 
explain the development of the P-values, BOEM notes that the 
development of BSEE's probabilistic estimates was discussed in the 
preamble to the proposed rule at 88 FR 42143. The decommissioning cost 
estimates are developed as a distribution (i.e., P50, P70, and P90) 
based on actual decommissioning expenditure data received from OCS 
operators since mid-2016. The data is available based on a lease, ROW, 
or RUE basis and also contains details on a well, platform, pipeline, 
and site clearance level. It does not consider which companies are 
jointly and severally liable for meeting decommissioning obligations. 
The new probabilistic estimates were developed using industry-reported 
decommissioning costs pursuant to NTL-2016-N03, Reporting Requirements 
for Decommissioning Expenditures on the OCS, later superseded by NTL-
2017-N02. Based on this reported data, BSEE developed three 
probabilistic estimates of decommissioning costs for each OCS facility 
on a given lease. The lowest cost estimate would have a 50 percent 
likelihood of covering the full cost of decommissioning a facility and 
is thus referred to as ``P50.'' The second lowest cost estimate, P70, 
would have a 70 percent likelihood of covering the full cost of 
decommissioning a facility. The third and highest cost estimate 
considered, P90, would have a 90 percent likelihood of covering the 
full cost of decommissioning a facility. These estimates are based on 
what the government would expect to pay if an operator failed to 
perform decommissioning. The current estimates can be found here: 
https://www.data.bsee.gov/Leasing/DecomCostEst/Default.aspx.
    Comment: Some commenters asserted that the P70 values, and 
sometimes even the P50 values, exceed their internal estimates for 
their decommissioning costs and that BOEM should allow the use of 
company-provided estimates. These commenters noted that these internal 
estimates were based on contractor bids and experience.
    Response: BOEM acknowledges the commenters' concerns that the P70 
estimates may be higher than the actual cost of decommissioning for 
specific platforms. In general, it can be more expensive for the 
government to decommission a facility than it is for an OCS operator to 
do so. Therefore, even if the P70 value is higher than company-derived 
values, it may be more aligned with the costs that the government would 
incur to perform the decommissioning, which is the relevant 
consideration when determining the cost to decommission a facility if 
the company fails to do so. The final rule establishes a procedure for 
submitting these issues for the consideration of the Regional Director 
for a reduction in the supplemental financial assurance demand.
    Comment: Multiple commenters asserted that BOEM should focus on 
sole liability properties (i.e., properties with no predecessors or co-
lessees), claiming that those properties pose the most risk to the U.S. 
taxpayer.
    Response: BOEM disagrees with the commenters' assertion that it 
should focus only on sole liability properties, an approach that would 
not sufficiently protect the taxpayer. As discussed in the RIA, there 
are approximately $14.6 billion in decommissioning liabilities 
associated with leases without an investment grade predecessor in the 
chain of title, of which only $460 million is associated with sole 
liability properties. Thus, the Department is finalizing an approach 
that holds all current lessees responsible for providing supplemental 
financial assurance unless they meet the waiver criteria or are

[[Page 31554]]

associated with an investment grade co-lessee. The Department is 
finalizing, as proposed, the use of P70 to determine the amount of 
supplemental financial assurance required for properties where the 
current lessee or co-lessee does not have an investment grade credit 
rating or the ratio of the value of the proved reserves to 
decommissioning liabilities associated with those reserves is not 
greater than or equal to 3-to-1.
    Comment: Commenters also asserted that the proposed rule ignored 
joint and several liability, and that by creating a system that does 
not account for the financial strength of liable predecessors, the 
proposed rule insulates predecessor lessees from their liabilities and 
relieves them of the need to perform due diligence when selling their 
lease(s) to a subsequent lessee.
    Response: Omitting the existence of predecessor lessees from the 
analysis of whether to waive the requirement of supplemental financial 
assurance for a current lessee--the approach being finalized here--
addresses several associated issues. It ensures that the current 
lessees have the financial capability to fulfill their decommissioning 
obligations. It also eliminates the incentive to use joint and several 
liability as an excuse to delay setting aside funds to pay for 
predictable decommissioning costs. This approach does not change or 
undermine joint and several liability; it retains BOEM's and BSEE's 
authority to pursue predecessor lessees for the performance of 
decommissioning.
    Comment: Other commenters asserted that BOEM must consider the 
obligations of the predecessors in the chain-of-title before seeking 
additional financial assurance from current lessees, otherwise the 
result is requiring ``double bonding.''
    Response: Commenters appear to be claiming that private 
arrangements between assignors (predecessors) and assignees 
(successors) are sufficient to protect the government without a 
requirement for providing supplemental bonds to the government. That is 
only partially the case. In most cases, the government cannot call the 
bonds in question. Any duplication can be avoided by the private 
parties cancelling any private arrangements that are not needed in 
light of government requirements. It is DOI's obligation to set bottom 
line, public, and uniform thresholds to protect the U.S. and its 
taxpayers; private agreements are unrelated to the Department's 
obligations under OCSLA.
    Comment: One commenter provided an updated analysis of burden, 
including a comparison of the three proposed decommissioning estimate 
values, which was referenced by multiple commenters in their comment 
submissions. The commenter's analysis asserted that the results across 
the liability levels ``are largely dependent on each company's 
`portfolio' of decommissioning liabilities'' and stated that in any 
portfolio of uncertain results, some cost estimates will exceed their 
expected value, while some cost estimates will be less. Accordingly, 
the commenter asserted, percentile values are not additive, as actual 
variances from estimates would offset each other so that the P70 of the 
combined outcomes of the portfolio would approach the sum of the mean. 
The commenter stated that a better approach would be to sum the mean 
values or to conduct a portfolio analysis for each operator. According 
to the commenter, P50 is more representative of a log-normal 
distribution's statistical average. Additionally, the commenter 
provided a cost comparison for P70 to P90 that included the following 
estimates: decrease in capital expenditures over 10 years ($4.7 billion 
vs $5.565 billion), decrease in OCS production (55 million barrels of 
oil equivalents (mmboe) vs 64 mmboe), and decrease in industry jobs 
across the Gulf coast region (36,200 vs 43,300).
    Response: BSEE is responsible for providing BOEM (and the public) 
estimated costs to perform decommissioning. Since BOEM conducts the 
company financial risk evaluation to determine the appropriate 
financial assurance amount required, BSEE provides BOEM a range of 
estimates associated with analyses of data collected under the 
authority found at 30 CFR 250.1704 (subpart Q) and guidance under NTL 
No. 2017-N02. These costs are considered a proxy for ``fair value'', 
i.e., how much it would cost BSEE to cause near immediate 
decommissioning by contracting with a third-party services provider.
    Actual expenditure data has been collected by regulation since 
April 2016 for wells and facilities, and since May 2017 for pipelines. 
To date, BSEE has collected about 2,050 data points for wells, 1,235 
for facilities (including removal and site clearance and verification), 
and 1,020 for pipelines. This actual expenditure data collected shows a 
wide range of costs for similarly situated infrastructure, making a 
probabilistic approach preferred over a single deterministic estimate. 
When sufficient data exists for a particular subset of the sample 
(e.g., dry trees on fixed structures in 400 feet of water), BSEE 
performs multivariate regression analyses to create distributions of 
cost outcomes.
    Based on these distributions, BSEE posts P50, P70, and P90 
estimates for each well, platform, or pipeline, and aggregated for each 
lease, ROW, or RUE.\1\ When sufficient data does not exist (e.g., dry 
trees on floating structures) a single deterministic (or point) 
estimate is provided. Note that the point estimate contains no 
information about its potential variability. Contrast this with 
probabilistic estimates where a P50 estimate implies that half of the 
reported values should be less than and half should be more than the 
P50 estimate. Likewise, the P70 and P90 estimates imply that that there 
is 30 percent and 10 percent chance, respectively, that the 
decommissioning cost will be higher than the estimate. Said another 
way, P70 and P90 values imply there is a 70 percent and a 90 percent 
chance, respectively, that the estimated cost will not be exceeded. The 
data does not take into consideration which companies are jointly and 
severally liable for meeting decommissioning obligations.
---------------------------------------------------------------------------

    \1\ There is not a technical support document in support of 
these calculations; the data used for these estimates is available 
at https://www.data.bsee.gov/Leasing/DecomCostEst/Default.aspx.
---------------------------------------------------------------------------

    It would be inappropriate for BOEM to consider the liability 
distribution across a company's entire portfolio, as financial 
assurance for one lease cannot be used to cover an unassociated lease. 
Financial assurance provided to BOEM is generally structured to provide 
coverage at the lease level; even for companies with multiple leases, 
policy coverage is typically limited to only those associated 
facilities on the specified lease. For example, financial assurance at 
BSEE's P70 level provides risk mitigation in the event of a default of 
that lessee where any excess financial assurance resulting from 
facilities on the same lease whose decommissioning costs were below the 
P70-estimate would be available to cover associated lease facilities 
whose decommissioning costs exceed the P70 value. For lessees or grant-
holders that can demonstrate decommissioning costs below BSEE's 
estimates, the Department has included in the final rule a provision in 
30 CFR 556.901(g) allowing for the submission of decommissioning cost 
data for consideration by the Regional Director in potentially reducing 
the supplemental financial assurance demand. Such information could 
include, for example, an existing contract for decommissioning 
activities. BOEM will consult with BSEE on the

[[Page 31555]]

information received prior to deciding to reduce the required amount of 
supplemental financial assurance. BOEM did not select the P90 level 
because of the expected burdens it would place on the industry, such as 
the examples highlighted by the commenter.
    BOEM's goal for its financial assurance program continues to be the 
protection of the American taxpayer from exposure to financial loss 
associated with OCS development, while ensuring that the financial 
assurance program does not detrimentally affect offshore investment or 
position American offshore exploration and production companies at a 
competitive disadvantage.

C. Revisions to Other Types of Supplemental Financial Assurance

    The Department proposed and is finalizing revisions to the 
supplemental financial assurance requirements for third-party 
guarantees and decommissioning accounts, and prerequisites for 
transfers, as discussed in the subsections below.
1. Third-Party Guarantees
    The Department proposed in 30 CFR 556.905(a) to evaluate a 
potential guarantor using the same credit rating or proxy credit rating 
criterion as was proposed for lessees. The value of proved oil and gas 
reserves of an associated lease would not be considered because that 
value is a characteristic of the lease belonging to the guaranteed 
lessee and not an asset belonging to the guarantor, and because liquid 
assets are needed to finance compliance or decommissioning. As 
discussed in the preamble to the proposed rule (88 FR 42145), the 
criteria to evaluate a guarantor provided in the existing regulations 
have proved difficult to apply. Using the same financial evaluation 
criterion, i.e., issuer credit rating or proxy credit rating, to assess 
both guarantors and lessees as the most relevant measure of future 
capacity would provide consistency in evaluations and avoid 
overreliance on net worth. Using the same criterion also simplifies the 
evaluation process, making it more efficient without compromising the 
risk to taxpayers.
    Additionally, to allow more flexibility in the use of third-party 
guarantees, the final rule allows a third-party guarantee to be used as 
supplemental financial assurance for a RUE or ROW grant as well as a 
lease. Most significantly, the amendment proposed in Sec.  
556.902(a)(3) would remove the requirement for a third-party guarantee 
to ensure compliance with the obligations of all lessees, operating 
rights owners, and operators on the lease, and, as agreed to by BOEM, 
would allow a guarantee limited to a specific amount or limited one or 
more specific lease obligations.
    A summary of all comments received regarding third-party guarantees 
and BOEM's corresponding responses regarding the provisions to evaluate 
third-party guarantors can be found in section 6.1 of the Response to 
Public Comments.
    Comment: Commenters generally supported the proposal to evaluate a 
potential guarantor using the same credit rating or proxy credit rating 
criterion as proposed for lessees.
    Response: BOEM acknowledges the commenters' support for the 
proposal to evaluate a potential guarantor using the same credit rating 
or proxy credit rating criterion as proposed for lessees, and the 
Department is finalizing this provision in 30 CFR 556.905(a) as 
proposed.
    Comment: Multiple commenters generally supported the proposal to 
allow limiting third-party guarantees to a specific amount.
    Response: BOEM acknowledges the commenters' support, and the 
Department is finalizing the ability to limit third-party guarantees to 
a specific amount or one or more specific lease obligations in 30 CFR 
556.902(a)(3).
    Comment: One commenter suggested that DOI modify its regulations to 
allow guarantors to limit their guarantees to specific obligations. 
They asserted this modification is consistent with the proposed rule 
and would ease pressure on the security market by removing any 
additional and unstated obligations from guarantees that are not 
included in a financial assurance demand order.
    Response: The Department is finalizing the proposed amendment to 
Sec.  556.902(a)(3), which will remove the requirement for a third-
party guarantee to ensure compliance with the obligations of all 
lessees, operating rights owners, and operators on the lease, and will 
allow, as agreed to by BOEM, a guarantee limited to a specific amount 
or to one or more specific lease obligations. This change, to replace a 
requirement to cover all costs, parties, and obligations with 
permission to limit any of them, part of which BOEM is adding in 
response to public comments, allows a guarantor to limit its guarantee 
to a specific amount of the total financial assurance requirement. By 
allowing a third-party guarantor to guarantee only the obligations it 
wishes to cover, BOEM provides industry with the flexibility to use the 
guarantee to satisfy supplemental financial assurance requirements 
without forcing the guarantor to cover the risks associated with all 
parties on the lease or grant or operations in which the party they 
wish to guarantee has no interest and over which the guarantor may have 
limited influence. Moreover, BOEM's capacity to accept a third-party 
guarantee that is limited to the obligations of a specific party does 
not reduce BOEM's protection because if a limited guarantee is 
approved, the guaranteed party will be required to provide other 
supplemental financial assurance with respect to any of its liabilities 
left uncovered by the limited guarantee.
    Comment: Other commenters opposed the proposal and asserted that 
third-party guarantors should not be excused from the requirement that 
guarantees cover all obligations of lessees, operating rights owners, 
and operators on the lease, but did not provide supporting reasoning 
for their assertions.
    Response: BOEM believes that allowing third-party guarantors to 
limit their guaranteed obligations will ease the burden for entities 
required to provide additional supplemental financial assurance, while 
continuing to reduce the risk to taxpayers. DOI has added regulatory 
language in the final rule in 30 CFR 556.905(b) specifically allowing a 
third-party to limit its cumulative obligations to a fixed dollar 
amount or to covering the costs to perform one or more specific lease 
obligations (with no fixed dollar amount). In both scenarios, the value 
or the obligations to be covered must be agreed to by BOEM at the time 
the third-party guarantee is provided.
    Additionally, to allow more flexibility in the use of third-party 
guarantees, the final rule will allow a third-party guarantee to be 
used as supplemental financial assurance for a RUE or ROW grant, as 
well as a lease.
    BOEM acknowledges the commenters' opposition to allowing third-
party guarantors to limit their guarantee and BOEM assumes the concern 
flows from a belief that the third-party guarantee may be insufficient. 
Contrary to this understanding, however, the lessee must still provide 
the total amount of the supplemental financial assurance demand through 
other financial assurance methods, even if a third-party guarantor 
limits the guarantee.
    The proposed rule included amendments to allow BOEM to cancel a 
third-party guarantee under the same terms and conditions that apply to 
cancellation of other types of financial assurance, as provided in 
proposed Sec.  556.906(d)(2). No comments were received on this 
provision. Therefore, the Department is finalizing, as

[[Page 31556]]

proposed, amendments to allow BOEM to cancel a third-party guarantee 
under the same terms and conditions that apply to cancellation of other 
types of financial assurance, as provided in proposed Sec.  
556.906(d)(2).
    Finally, the existing regulation refers to both a ``guarantee'' and 
an ``indemnity agreement'' (which BOEM intended to mean the same 
thing), and the proposed rule clarified that the regulations 
contemplate only one agreement: the guarantee agreement. No comments 
were received on this proposed amendment; therefore, the Department is 
also finalizing the clarification that both a ``guarantee'' and an 
``indemnity agreement'' contemplate the same guarantee agreement by 
removing all references to ``indemnity agreement'' in the regulatory 
text. This terminology is changed to clarify that the government is not 
required to incur the expenses of decommissioning before demanding 
compensation from the guarantor.
2. Decommissioning Accounts
    The Department proposed to rename the lease-specific abandonment 
accounts in 30 CFR 556.904 as ``Decommissioning Accounts,'' the 
terminology used by the industry. This name change is intended to 
remove any perceived limitation that this type of account can apply to 
only a single lease, and to signify that these accounts may be used to 
ensure compliance with supplemental financial assurance requirements 
for a RUE and ROW grant, as well as a lease. To make these accounts 
more attractive to parties who may desire to use this method of 
providing supplemental financial assurance, the Department also 
proposed to remove the requirement in 30 CFR 556.904(d) to pledge 
Treasury securities to fund the account once the funds equal the 
maximum amount insurable by the Federal Deposit Insurance Corporation 
(FDIC)/Federal Savings and Loan Insurance Corporation (FSLIC), for 
which insurance is currently capped at $250,000.
    No comments were received specifically on the proposed amendment to 
rename the lease-specific abandonment accounts in 30 CFR 556.904 as 
``Decommissioning Accounts'' or the proposed amendment to remove the 
requirement to pledge Treasury securities to fund the account before 
the funds equal the maximum amount insurable by the FDIC/FSLIC. 
Therefore, the Department is finalizing 30 CFR 556.904, as proposed, to 
rename the lease-specific abandonment accounts as ``Decommissioning 
Accounts.'' The Department is also finalizing the removal of the 
requirement to pledge Treasury securities to fund the account before 
the funds equal the maximum amount insurable by the FDIC/FSLIC.
3. Transfers of Lease Interests to Other Lessees or Operating Rights 
Holders
    The Department proposed amendments to update subparts G (30 CFR 
556.704) and H (30 CFR 556.802) of the Department's existing part 556 
regulations to clarify that BOEM will not approve the transfer of a 
lease interest, whether a record title interest or an operating rights 
interest, until the transferee complies with all applicable regulations 
and orders, including financial assurance requirements. As discussed in 
the preamble to the proposed rule (88 FR 42146), many of the facilities 
currently on the OCS have decommissioning obligations where the cost of 
performance greatly exceeds the amount of financial assurance currently 
available to DOI. To address this problem, the Department proposed to 
clarify that it may withhold approval of any transfer or assignment of 
any lease interest unless and until the financial assurance 
requirements have been satisfied.
    A summary of all comments received regarding transfers and BOEM's 
corresponding responses regarding revisions to transfers can be found 
in section 6.2 of the Response to Public Comments.
    Comment: Commenters generally supported the proposal to allow BOEM 
to withhold approval of any new transfer or assignment of any lease 
interest until financial assurance obligations are satisfied.
    Response: BOEM acknowledges the commenters' support, and the 
Department is finalizing, as proposed, amendments to update subparts G 
(30 CFR 556.704) and H (30 CFR 556.802) of the Department's existing 
part 556 regulations to clarify that BOEM may withhold approval of the 
transfer of a lease interest, whether a record title interest or an 
operating rights interest, until the transferee complies with all 
applicable regulations and orders, including financial assurance 
requirements. As a result of these final amendments, BOEM may withhold 
approval of any new transfer or assignment of any lease interest unless 
and until financial assurance demands have been satisfied.

D. Evaluation Methodology

    The Department proposed and is finalizing revisions to the 
financial evaluation criteria that will be used for determining 
supplemental financial assurance requirements for oil, gas, and sulfur 
leases, RUE grants, and pipeline ROW grants. The proposed evaluation 
methodology for the revised criteria, the public comments received, and 
DOI's final amendments are discussed in the subsections below. 
Summaries of all comments received regarding credit ratings, proxy 
credit ratings, and valuing proved oil and gas reserves and BOEM's 
corresponding responses can be found in section 7 of the Response to 
Public Comments.
1. Credit Ratings
a. Use of an ``Issuer Credit Rating''
    The Department proposed to use an ``issuer credit rating'' to 
evaluate the financial health of OCS lessees, grant holders, and 
guarantors, and proposed to include the new term and corresponding 
definition in 30 CFR 550.105 and 556.105. As discussed in the preamble 
to the proposed rule (88 FR 42146), an issuer credit rating provides 
the rating agencies' opinions of the entity's ability to honor senior 
unsecured debt and debt-like obligations. The Department proposed to 
accept only issuer credit ratings from a Nationally Recognized 
Statistical Rating Organization (NRSRO), such as Standard and Poor's 
(S&P) Rating Services and Moody's Investors Service Incorporated (or 
any of their subsidiaries). General comments on issuer credit ratings 
are as follows:
    Comment: Commenters generally supported the use of an issuer credit 
rating. Several commenters recommended that BOEM include Fitch Ratings 
in the definition as it is an NRSRO equivalent to S&P's and Moody's.
    Response: BOEM acknowledges the commenters' support and agrees with 
the commenters' assertion that the intent of the proposed rule was to 
allow credit ratings from Fitch Ratings. The Department has included 
Fitch Ratings and its subsidiaries in the final rule in 30 CFR 556.105.
    Comment: An additional commenter noted that BOEM should remove the 
term and definition of issuer credit rating from part 550 because it is 
not used in the part.
    Response: The commenters' assertion is correct, and the Department 
is not finalizing the proposed addition of ``Issuer credit rating'' to 
30 CFR part 550. In part 550, the existing regulatory text references 
30 CFR part 556 to discuss the use of the issuer credit rating.
b. Credit Rating Threshold
    As discussed in the proposed RIA, BOEM reviewed historical default 
rates

[[Page 31557]]

across the entire credit rating spectrum, as well as the credit profile 
of oil and gas sector bankruptcies arising from the commodity price 
downturn in 2014, to determine an appropriate level of risk. As would 
be expected, the average S&P historical 1-year default rates increase 
significantly with lower ratings. The average S&P 1-year default rate 
for BBB- rated companies from 1981 to 2020 was 0.24 percent. 
Comparatively, the average 1-year default rate for BB- rated companies 
was 1.21 percent, for B- rated companies, 8.73 percent, and for C rated 
companies, 24.92 percent. In the proposal, BOEM asserted that 1-year 
default rates are an appropriate measure of risk, given BOEM's policy 
of reviewing the financial status of lessees, ROW holders, and RUE 
holders, typically on an annual basis (the review typically 
corresponding with the release of audited annual financial statements). 
In addition, throughout the year, BOEM monitors company credit rating 
changes, market reports, trade press, articles in major news media, and 
quarterly financial reports to review the financial status of lessees, 
ROW holders, and RUE holders. The amended regulation, as proposed, 
would not preclude a demand for supplemental financial assurance 
through the Regional Director's regulatory authority at any time.
    The Department proposed to use an investment grade credit rating 
threshold for determining if supplemental financial assurance may be 
required by a lessee. The Department proposed the term and associated 
definition of ``Investment grade credit rating'' in 30 CFR 550.105 and 
556.105. BOEM explained in the preamble to the proposed rule (88 FR 
42159) that the use of an investment grade credit rating standard for 
waiving supplemental financial assurance was an appropriate threshold 
because it minimizes credit default risk to the taxpayer without 
overburdening offshore companies with the cost of providing financial 
assurance in low credit risk scenarios. BOEM received a wide range of 
comments on the proposal to use an investment grade credit rating 
threshold for determining supplemental financial assurance 
requirements, as summarized below.
    Comment: Multiple commenters asserted that the proposal would 
result in significant hardship to small businesses that did not meet 
this criterion and hence would have to provide supplemental financial 
assurance. Commenters argued that a requirement to provide supplemental 
financial assurance would increase the risks of defaulting, not 
investing in maintenance of existing operations, laying off employees, 
delaying performance of current decommissioning obligations, and 
diverting capital funds needed for future OCS energy development.
    Response: BOEM acknowledges the commenters' concern and considered 
the effects on small entities; however, BOEM is not targeting the size 
of companies. BOEM is evaluating the financial strength of all 
companies in order to ensure that the development of energy in the OCS 
is safe and protects both the taxpayer and the environment. The 
Department has included numerous provisions in this rulemaking to 
reduce the burden on small entities. BOEM acknowledged in the proposed 
rule (88 FR 42146) that small businesses may not have issuer credit 
ratings and, to address this issue, proposed to allow entities without 
a rating to request that the BOEM Regional Director assess a proxy 
credit rating. Additionally, these small businesses can be evaluated on 
the proved reserves of their lease to determine whether they may be 
waived from the requirement to provide additional supplemental 
financial assurance, also potentially reducing their financial burden. 
Furthermore, on a lease where the lessee has an investment grade credit 
rating, BOEM will waive co-lessees from having to provide supplemental 
financial assurance. The Department also included phased-in 
implementation, and increased the flexibility of decommissioning 
accounts and third party guarantees to reduce the financial burden on 
all lessees, including small businesses.
    Comment: Multiple commenters supported the use of an investment 
grade threshold.
    Response: BOEM acknowledges the commenters' support and agrees that 
using a credit rating threshold of investment grade strikes the 
appropriate balance between both DOI's and the conventional energy 
sector's goal to protect the American taxpayers from exposure to 
financial loss associated with OCS development and the burden of 
providing financial assurance because of the low default risk 
associated with companies that maintain an investment grade credit 
rating. The Department is finalizing, as proposed in 30 CFR 556.105, 
the use of an investment grade credit rating threshold.
    Comment: Other commenters supported an even higher credit rating 
threshold.
    Response: BOEM acknowledges the commenters' support for the change 
in the proposed rule that changed the credit rating threshold for 
waiver of supplemental financial assurance from BB- to BBB- but 
disagrees with the commenters' assertion that BOEM should further raise 
the threshold to a higher rating. As discussed in the preamble to the 
proposed rule, BOEM believes that 1-year default rates are an 
appropriate measure of risk, given BOEM's policy of reviewing the 
financial status of lessees, ROW holders, and RUE holders at least on 
an annual basis (the review typically corresponds with the release of 
audited annual financial statements). As would be expected, the average 
S&P historical 1-year default rates increase significantly with lower 
ratings. The average S&P 1-year default rate for BBB- rated companies 
from 1981 to 2020 was 0.24 percent. Comparatively, the average 1-year 
default rate for BB- rated companies was 1.21 percent, for B- rated 
companies, 8.73 percent, and for C rated companies, 24.92 percent. 
Raising the threshold criteria would only reduce the rate to 0.12 
percent for a credit rating of BBB+ or to 0.07 percent for a credit 
rating of A-. BOEM believes that the 1-year default rate for BBB- rated 
companies of 0.24 percent balances the need for ensuring lessee 
obligations in the OCS are met while ensuring that the development of 
the nation's offshore resources is not unreasonably hindered. Raising 
the threshold to a higher value would reduce capital available to 
companies for investment, with little additional protection from the 
effects of bankruptcy. Additionally, financial assurance can only be 
used for the obligations of the specific lease for which it is 
provided. Having more financial assurance from low-risk companies will 
not provide meaningful protection against the default of high-risk 
companies and thus would have an insignificant effect on aggregate 
risk.
    Comment: One commenter asserted that the proposal is a ``form of 
adverse selection against financial assurance providers because only 
entities with an elevated risk of default will remain in the market for 
financial assurance instruments such as surety bonds.''
    Response: BOEM disagrees with the commenter's assertion that the 
proposal is a ``form of adverse selection.'' ``Adverse selection'' 
describes the phenomenon whereby one party to a transaction has better 
information than the other and therefore prices are adjusted to 
accommodate this discrepancy in information. The commenters do not 
explain how that concept applies to the rulemaking. They assert that it 
amounts to ``adverse selection'' against financial assurance providers 
because ``only entities with an elevated risk of default will remain in 
the market for financial assurance

[[Page 31558]]

instruments such as surety bonds.'' There is no assertion of any 
discrepancy in the information available to lessees vs. assurance 
providers or any effect on the price of that transaction and BOEM does 
not see any. To the extent the commenters are asserting that the risk 
pool is too small to make underwriting feasible, their comment 
conflicts with other comments received claiming that the rule requires 
supplemental assurance from relatively low risk lessees. The Department 
continues, as proposed, to allow other types of financial assurance 
instruments in addition to bonds in the final rule. Under BOEM's past 
practice, many companies were waived from providing supplemental 
financial assurance, and it is likely that only companies with an 
elevated risk of default sought to obtain bonds to comply with the 
existing regulations. Additionally, the number of companies requesting 
bonds for use as supplemental financial assurance and their 
corresponding risk profile does not preclude a viable bond market as 
the market can set the fees and collateral required to obtain the 
bonds.
    Comment: Several commenters expressed concerns that the preamble to 
the proposed rule alluded to monitoring of credit ratings, but the 
regulatory text did not mention the monitoring. They asserted that, to 
ensure these commitments are kept, the Department must include specific 
requirements for reviewing credit ratings regularly, with a requirement 
for BOEM to reassess credit ratings at least once per year.
    Response: With respect to monitoring credit ratings, BOEM stated in 
the preamble to the proposed rule at 88 FR 42147 (and has repeated in 
this final rulemaking) that BOEM's general practice is to review ``the 
financial status of lessees, ROW holders, and RUE holders at least on 
an annual basis (the review typically corresponding with the release of 
audited financial statements).'' BOEM's financial assurance program is 
intended to ensure that private companies have the capacity to meet 
their financial and non-financial obligations. BOEM seeks to balance 
the financial risk to the government and the taxpayer with the 
regulatory burden on lessees and grantees. BOEM did not add additional 
regulatory text in this final rule to address this comment because it 
is unnecessary; BOEM maintains the general practice of evaluating 
lessees, RUE grant-holders, and pipeline ROW grant-holders for 
financial risk on at least an annual basis. The amended regulation 
would not preclude a demand for supplemental financial assurance 
through the Regional Director's regulatory authority at any time.
    As discussed in the proposed RIA, of the 276 companies analyzed, 
none were rated at or above BBB- at the time of bankruptcy or within 10 
years prior to bankruptcy. As such, BOEM has selected BBB- as the 
credit rating threshold for providing additional financial assurance. 
The Department is finalizing, as proposed in 30 CFR 556.901(d), an 
issuer credit rating threshold of BBB- (S&P and Fitch) or Baa3 
(Moody's), an equivalent credit rating provided by another SEC-
recognized NRSRO, or an equivalent proxy credit rating, to ensure that 
lessees and grant holders have the capacity to meet their financial and 
non-financial obligations. In order to both ensure that companies do 
not ``cause [unmitigated] damage to the environment or to property, or 
endanger life or health,'' 43 U.S.C. 1332(6), and to promote 
``expeditious and orderly development,'' 43 U.S.C. 1332(3), BOEM seeks 
to balance the financial risk to the government and the taxpayer while 
minimizing unreasonable regulatory burdens. If different NRSROs provide 
different ratings for the same lessee, BOEM will use the higher of the 
lessee's ratings. Additionally, as BOEM monitors company rating changes 
throughout the year, use of this threshold will ensure that BOEM has 
adequate time to demand needed financial assurance before a company 
drops further below the investment grade rating.
2. Proxy Credit Ratings
    The Department proposed in 30 CFR 556.901(d) to allow entities that 
do not have a NRSRO-issued credit rating to request that the Regional 
Director determine a proxy credit rating based on audited financial 
information for the most recent fiscal year, including an income 
statement, a balance sheet, a statement of cash flows, and the 
auditor's certificate. As proposed, DOI intended the ``most recent 
fiscal year'' to mean a continuous 12-month period within the 24-months 
prior to the Regional Director's determination that supplemental 
financial assurance is required. General comments on proxy credit 
ratings are as follows:
    Comment: Commenters expressed concerns regarding BOEM's proposal to 
use a proxy credit rating for entities without an issuer credit rating. 
Commenters asserted that BOEM is not a financial rating agency and does 
not have the capacity or expertise to institute a program to develop 
proxy credit ratings.
    Response: BOEM is not developing the credit rating; it is using S&P 
Global Inc.'s Credit Analytics credit model, in conjunction with 
company-provided financial information for the most recent fiscal year 
to obtain a proxy rating. As discussed in the preamble to the proposed 
rule at 88 FR 42146, the Regional Director would use the model and 
company-provided audited financial information for the most recent 
fiscal year, including an income statement, a balance sheet, a 
statement of cash flows, and the auditor's certificate. The use of S&P 
Global Inc.'s Credit Analytics credit model provides an accurate and 
objective method to assess any given company's probability of default 
on its financial obligations based on its audited financial statements. 
The vast majority of companies operating on the OCS are private 
companies that do not have an issuer credit rating; therefore, without 
an option for a proxy credit rating, these companies would be required 
to provide supplemental financial assurance unless they met the 
reserves criterion. The Department proposed, and is finalizing in 30 
CFR 556.901(d), the use of a proxy credit rating to benefit those 
companies without an issuer credit rating, particularly small 
businesses, and to therefore reduce their burden by allowing them the 
opportunity to demonstrate that they should not be required to provide 
supplemental financial assurance.
    Comment: Commenters asserted that companies would need to establish 
a proxy credit rating using the ``intricate financial models of S&P and 
Moody's'', which would be time consuming, and that providing the 
information that BOEM proposed to require in order to perform a proxy 
rating would represent a burden for small companies.
    Response: BOEM disagrees with the commenter's assertion that the 
companies would need to establish a proxy credit rating using the 
``intricate financial models of S&P and Moody's'' and that the 
development would be time-consuming. Companies without a credit rating 
can provide BOEM with audited financials and BOEM will perform the 
modeling to determine the proxy credit rating. BOEM does not believe 
this option creates an undue burden on small businesses, as those small 
businesses would be required to provide supplemental financial 
assurance if they could not obtain an issuer credit rating; the proxy 
credit rating provides an alternative for these businesses to qualify 
for the financial waiver. Additionally, if a company finds this 
alternative more burdensome than the benefit of avoiding posting

[[Page 31559]]

supplemental financial assurance, nothing in the regulations requires 
them to select this alternative. Providing audited financials in 
exchange for possible supplemental financial assurance avoidance is 
consistent with practice under the current regulations and thus not an 
additional burden.
    The Department proposed to use S&P Global Inc.'s Credit Analytics 
credit model to calculate proxy credit ratings, but retained the right 
to use a different model if it determines that a different model more 
accurately reflects those factors relevant to the financial evaluation 
of companies operating on the OCS. BOEM specifically solicited comment 
on the use of S&P Global Inc.'s Credit Analytics credit model for 
developing proxy credit ratings. General comments on the use of the S&P 
model are as follows:
    Comment: Commenters were generally supportive of the use of S&P 
Global Inc.'s Credit Analytics credit model.
    Response: BOEM acknowledges the commenters' support, and the 
Department is finalizing, as proposed in 30 CFR 556.901(d), the option 
for companies without issuer credit ratings to request the Regional 
Director to determine a proxy credit rating based on audited financial 
information for the most recent fiscal year and the S&P credit model.
3. Valuing Proved Oil and Gas Reserves
    The Department proposed in 30 CFR 556.901(d) to consider the proved 
reserves on a particular lease when determining whether supplemental 
financial assurance is required. As discussed in the preamble to the 
proposed rule (88 FR 42147), BOEM would require the lessee to submit a 
reserve report for the proved oil and gas reserves (as defined by the 
SEC regulations at 17 CFR 210.4-10(a)(22)) located on a given lease. 
DOI proposed that companies should report the value of their reserves 
using the methodology pursuant to the SEC's regulations on reserve 
reporting, and the presentation should be by the lease, or leases, for 
which the exemption is being requested. These regulations are commonly 
used and understood by offshore oil and gas companies and such reserve 
reports are already produced by publicly traded companies. This also 
allows BOEM to rely on the established SEC regulations on the 
definitions, qualifications, and requirements for proved reserves, 
rather than attempting to recreate these regulations. BOEM would use 
the value of proved oil and gas reserves per-lease when determining 
whether the discounted value of the reserves on any given lease exceeds 
three times the cost of the proposed P70 decommissioning estimate 
associated with the production of those reserves.
    Additionally, the Department proposed the use of a ratio of the 
value of proved reserves to decommissioning liability associated with 
those reserves that meets or exceeds a value of 3-to-1. As discussed in 
the preamble to the proposed rule (88 FR 42148), BOEM believes that a 
property with a sufficient ``reserves-to-decommissioning cost'' ratio 
would likely be purchased by another company if a current lessee 
defaults on its obligations, thereby reducing the risk that 
decommissioning costs for that property would be borne by the 
government, and consequently reducing the need for supplemental 
financial assurance. In BOEM's judgment, a ratio of 3-to-1 provides 
sufficient risk reduction to justify a Regional Director determination 
that the lessee is not required to provide supplemental financial 
assurance for that lease. Bankruptcy data show that the most valuable 
properties of the bankrupt company (with at least a 3-to-1 ratio of the 
value of reserves to decommissioning costs) are acquired by another 
entity. That result accords with BOEM's experience and with common 
sense because the value of these properties is economically viable even 
after including the decommissioning cost. Additionally, no commenters 
provided a different value than 3-to-1 in response to BOEM's 
solicitation for comment on other appropriate values.
    Comment: Multiple commenters generally supported the use of a 
minimum 3-to-1 ratio of the value of proved reserves to decommissioning 
liability associated with those reserves.
    Response: BOEM acknowledges the commenters' support, and the 
Department is finalizing, as proposed in 30 CFR 556.901(d), the use of 
a minimum 3-to-1 ratio.
    Comment: Several commenters opposed the use of the ratio, asserting 
that normal fluctuations in the demand and price of oil and gas, 
coupled with the imminent global shift away from fossil fuels to 
renewable energy, make it likely that the value of proved oil reserves 
in all leases will decline over time. As a result, lessees may earn 
less over the life of the lease and in turn, have less capital to cover 
decommissioning costs.
    Response: There are many external factors that can impact the value 
of reserves. BOEM's use of this metric is only to determine the 
likelihood that a lease would be acquired, due to the value of the 
reserves left on the lease, by a financially healthy company that would 
then be liable for lease obligations.
    Comment: Several commenters asserted that the value of 
decommissioning liability should be added back to the reserve value to 
avoid double counting. Additional commenters asserted that comparing 
undiscounted decommissioning liability to the present value of 
underlying reserves was an incorrect analysis.
    Response: BOEM agrees with the commenters that the decommissioning 
liability should not be double counted; it is not the Bureau's intent 
to double count the decommissioning liability. The regulations are 
clear that BOEM is asking for the discounted value of the reserves 
(e.g., realized sale price minus uplift costs) without factoring in 
decommissioning. BOEM requires lessees to provide supplemental 
financial assurance against undiscounted BSEE decommissioning estimates 
to protect from financial default events that may occur before 
scheduled end of life and the full accounting recognition of the asset 
retirement obligation, therefore BOEM concludes that using a discounted 
asset retirement obligation insufficiently protects the taxpayer. BOEM 
believes the regulations are sufficiently defined to ensure the reserve 
analysis is based on the ratio on the discounted value of proved 
reserves (excluding decommissioning costs) to the undiscounted BSEE 
decommissioning estimate. The Department is finalizing, as proposed in 
30 CFR 556.901(d)(4), the use of a ratio of the value of proved 
reserves to decommissioning liability associated with those reserves 
that meets or exceeds 3-to-1.

E. Phased Compliance With Supplemental Financial Assurance Orders

    In the preamble to the proposed rule, BOEM acknowledged that the 
proposed regulations could have a significant financial impact on 
affected companies (88 FR 42148). For that reason, BOEM proposed to 
phase in the new supplemental financial assurance requirements over a 
3-year period for existing leaseholders in 30 CFR 556.901(h). As 
proposed, BOEM would require that any company receiving a supplemental 
financial assurance demand (within 3 years of the rule becoming 
effective) post one-third of the total amount by the deadline listed on 
the demand letter. A second one-third would be required within 24 
months of the receipt of the demand letter. The final one-third payment 
would be due within 36 months of the receipt of the demand letter. BOEM 
specifically

[[Page 31560]]

solicited comments regarding this approach from potentially affected 
parties, and requested comment on how the new supplemental financial 
assurance demands could be most effectively implemented to minimize any 
unnecessarily adverse effects.
    A summary of all comments received regarding the phased compliance 
approach and BOEM's corresponding responses can be found in section 8 
of the Response to Public Comments.
    Comment: In general, industry commenters supported the phased 
approach and several commenters recommended that it be extended to 5 
years to ``mitigate potential significant risk to companies and to 
provide adequate time for the bonding market to adjust.''
    Response: BOEM disagrees with the commenters' recommendation that 
the phased approach should be extended to 5 years. BOEM has concluded 
that the period of 3 years reduces exposure to risk of non-performance 
and hence addresses the need at issue in this rulemaking, requiring 
supplemental financial assurance where appropriate to protect the 
taxpayer while simultaneously providing adequate time for the bonding 
market to adjust to the new requirements. The bond market adjustment is 
basically a price adjustment and not so much a volume adjustment, and 
hence a 3-year period is sufficient to make these adjustments. On the 
other hand, lessees have a sufficient period of time to finance the 
cost of the required financial assurance. If the bond market does not 
provide bonding to a lessee, it is not due to market conditions, but 
rather to the high levels of risk, and hence the implication in this 
case is that the lessee is such a high risk that no bonding company 
wants to add this risk to its portfolio. The Department is finalizing 
in 30 CFR 556.901(h) a 3-year phased compliance period.
    Comment: Additional commenters requested that BOEM include a phased 
provision for parties that were exempt but then later could not meet 
the exemption criteria because of changed circumstances and that BOEM 
include such provisions for parties that obtain OCS lease or grant 
interests in the first 3 years after implementation of the final rule.
    Response: In response to commenters' suggestions that BOEM add 
clarification that this option is available for changed circumstances 
or for obtaining new lease interests, BOEM believes that the proposed 
text in 30 CFR 556.901(h) was broad enough to encompass these 
circumstances. If a party is exempt but then later cannot meet the 
exemption criteria because of changed circumstances (e.g., change in 
credit rating), or if a party obtains an OCS lease or grant interest 
within the phased compliance time frame after implementation of the 
final rule, they would be allowed to use the phased compliance 
approach. BOEM has retained the language to establish a 3-year 
compliance window broad enough to encompass these circumstances. BOEM 
intends for any party who, within the 3-year compliance window, incurs 
new decommissioning liability or experiences changed circumstances 
resulting in a financial assurance demand from BOEM, to be allowed, at 
the Regional Director's discretion, to use the 3-year phased in 
approach to providing supplemental financial assurance. This compliance 
window will end on the date 3 years after the effective date of this 
final rule and any party receiving a supplemental financial assurance 
demand after that date will be required to provide the supplemental 
financial assurance in full as required by the demand, with no phase-
in.

F. Appeal Bonds

    As discussed in the preamble to the proposed rule (88 FR 42148), 
the Department proposed a new requirement in 30 CFR 556.902(h) whereby 
any company seeking to stay a supplemental financial assurance demand 
pending appeal must, as a condition of obtaining a stay of the order, 
post an appeal bond in the amount of supplemental financial assurance 
required. If the appeal is successful, the amount of the appeal bond in 
excess of the amount of any supplemental financial assurance determined 
to be required would be returned to the appropriate party. If the 
appeal is unsuccessful, the appeal bond could be replaced with, or 
converted into, bonds or other forms of financial assurance to cover 
the supplemental financial assurance demand.
    Comments received regarding appeals and BOEM's corresponding 
responses can be found in section 9 of the Response to Public Comments.
    Comment: Multiple commenters expressed opposition to BOEM's 
proposal, asserting that it raises due process concerns, specifically 
because the proposal inhibits the recipient's first opportunity to have 
an adjudication of BOEM's determination. They noted that the current 
process provides an opportunity for each party to express concerns at 
an early stage, while, under the proposal, a lessee could be forced 
into posting a bond that could be held for years, which is 
disproportionate to the perceived risk to the U.S. taxpayer. An 
additional commenter equated the appeal bond requirement to ``an 
automatic denial of stays,'' which, they claimed, could render most 
supplemental financial assurance demands subject to immediate judicial 
review, citing 5 U.S.C. 704 and 43 CFR 4.21(c). The same commenter also 
suggested that the appeal bond provision would contradict existing 
Sec.  590.107 (sic) (should be ``Sec.  590.7'').
    Response: BOEM disagrees that the appeal bond provision raises due 
process concerns. It does not prevent the recipient of a BOEM order 
from appealing, or from requesting a stay of that order. An appeal bond 
no more deprives an appellant of due process here than it does in the 
case of a judicial appeal. No court has held that due process requires 
that agencies assure the availability of stays without appeal bond 
requirements, nor is it the case that the Interior Board of Land 
Appeals' (IBLA's) decision on a stay request constitutes an 
adjudication of the decision appealed. Further, the appeal bond 
provision does not prevent the parties from being able to express 
concerns at an early stage. The recipient of a financial assurance 
demand has 60 days within which to file a notice of appeal with the 
IBLA, during which time it is free to meet with BOEM and attempt to 
resolve any issues with respect to the demand. See 30 CFR 590.3. In 
fact, the regulations specifically provide for early, informal 
resolution of issues. See 30 CFR 590.6. Moreover, whether an appeal 
bond is required has no effect on the IBLA's adjudication of the merits 
of an appeal. The requirement to post an appeal bond would, however, 
add a procedural step before a stay of a BOEM demand could be put in 
place. This step is necessary to ensure that financial assurance is 
available to cover an appellant's obligations if, during the pendency 
of the appeal, the appellant undergoes financial distress.
    As noted above, if an appellant wins its appeal, and no financial 
assurance is required, the appeal bond will be cancelled, or the amount 
of the appeal bond in excess of the amount of financial security 
determined to be required will be returned to the appropriate party. 
Thus, an appellant is not ``forced'' to post an appeal bond that may be 
held for years, as claimed by the commenter. This is different from not 
appealing and posting a bond for lease compliance that will be held 
until decommissioning is performed. Nor did the proposed rule prescribe 
that an appeal bond must ``convert'' to a different type of bond to 
cover a required financial assurance obligation.

[[Page 31561]]

    BOEM also disagrees that the appeal bond provision will result in 
``automatic denials of stays,'' leading to more judicial litigation. 
The statutory and regulatory provisions cited by the commenter stand 
for the proposition that the unavailability of a stay excuses parties 
from the requirement to exhaust administrative remedies before seeking 
judicial review. But this outcome will occur only if the IBLA denies a 
stay request, and such a denial would be made independent of the appeal 
bond requirement. The IBLA must grant or deny a stay based on the 
factors set forth at 43 CFR 4.21(b)(1), and not on whether an appeal 
bond has been, or must be, posted. See 43 CFR 4.21(b)(4). Therefore, 
the requirement that an appeal bond be posted should not result in the 
IBLA granting fewer stay requests. Nor does the appeal bond provision 
contradict Sec.  590.7. The latter provision, at paragraph (c), states 
that the IBLA may grant a stay of a BOEM decision, but that the 
decision remains in effect until the stay is granted. That is true 
regardless of the new appeal bond provision. Under the new provision, 
the IBLA may still grant a stay of a decision, and until a stay is 
granted, the decision remains in effect, but in order for the stay to 
take effect, the appellant must post the required appeal bond.
    Comment: One commenter expressed concern that the proposed rule 
specifies that an appeal bond will ``automatically'' convert to a 
financial assurance obligation should the lease operator lose its 
appeal and noted that bonds do not operate in this manner. If 
finalized, the commenter asserted that the appeal bond should provide a 
certain number of days for the lease operator to post its financial 
assurance obligation to allow the surety to underwrite the operator at 
the time the bond is determined to be justified. Additionally, the 
commenter stated that BOEM did not offer support for this proposed 
requirement and requested data on the number of financial assurance 
appeals, the number of stays granted in those appeals, and the total 
historical decommissioning liability that has gone uncovered due to 
appellate stays.
    Response: The proposed rule did not require that an appeal bond 
``convert'' to a financial assurance obligation and BOEM is not 
finalizing the rule to require conversion. If an appellant lost its 
appeal, the appeal bond could be ``converted'' to financial assurance 
if that is a viable approach, or the lessee who lost the appeal would 
have to provide some other acceptable form of financial assurance. 
Neither the proposed nor final rule specify a timeline for this 
provision of financial assurance.
    In response to the request for data, of the 1,449 appeals the IBLA 
received during the last 5 fiscal years, only 5 were from BOEM 
decisions concerning financial assurance. The appellant(s) filed a 
petition for a stay in 4 of those 5 appeals, and the IBLA granted one 
of them. Additional data regarding the current number of appeals is 
available at the following website: https://www.doi.gov/oha/organization/ibla/IBLA-Pending-Appeals.
    Comment: A commenter also highlighted that BSEE, in its recent 
final rule arising from the Department's 2020 proposed rule, declined 
to retain an appeal bond provision that would have required the posting 
of an appeal bond to obtain a stay of a BSEE decommissioning order. 
This commenter suggested that it would be unreasonable for BOEM and 
BSEE to take two different approaches.
    Response: There is no inconsistency with BSEE deciding not to 
require appeal bonds at the stage of an order to decommission and BOEM 
deciding to require them at the stage of financial assurance demands. 
The BSEE decision is based in large part on the assumption that 
financial assurance is already in place by the time it issues 
decommissioning orders and thus it does not face the risks that BOEM 
does at the time of demanding financial assurance. See 88 FR 23569, 
23579 (April 18, 2023) (noting BSEE's reliance on the financial 
assurance regulations for determining an appeal bond is not necessary 
for the BSEE program).
    BOEM's retention of the appeal bond provision means that, in the 
event of a stay of a financial assurance order, there will be an appeal 
bond, ensuring that, even if the appellant becomes insolvent during the 
appeal, there will be sufficient funds to perform decommissioning when 
it is ordered by BSEE. This fact supports, rather than contradicts, 
BSEE's decision not to retain its own appeal bond provision in the BSEE 
rule, as duplicative and unnecessary.
    Additionally, after the publication of the NPRM, which included 
BOEM's proposed provision to require the appeal bond, on December 13, 
2023, BSEE published a proposed rule titled Bonding Requirements When 
Filing an Appeal of a Bureau of Safety and Environmental Enforcement 
Civil Penalty (88 FR 86285), which would amend the bonding requirements 
when filing an appeal of a BSEE civil penalty. The proposed regulations 
would require that entities appealing a BSEE civil penalty decision to 
the IBLA must have a bond covering the civil penalty assessment amount 
for the IBLA to have jurisdiction over the appeal.
    Further, an appeal bond requirement already applies to appeals of 
civil penalties assessed by BOEM and orders of the Office of Natural 
Resources Revenue (ONRR). Such a requirement is equally appropriate 
when the effect of a change in circumstances of the appellant, such as 
bankruptcy or insolvency, could leave DOI without the means of 
performing decommissioning. Companies can, and have, filed for 
bankruptcy while waiting for a decision from the IBLA on an appeal, 
leaving the government with no financial assurance to address 
decommissioning obligations. As such, the Department is finalizing, as 
proposed, the inclusion of the requirement whereby any company seeking 
to stay a supplemental financial assurance demand pending appeal must, 
as a condition of obtaining a stay of the order, post an appeal bond in 
the amount of supplemental financial assurance required.

G. Other Amendments

1. Revisions to Definitions
    The Department proposed to revise definitions, remove terms and 
associated definitions, and add new definitions in 30 CFR 550.105 
(Definitions) and 30 CFR 556.105 (Acronyms and definitions) as 
discussed in the following subsections. A summary of all comments 
received regarding revisions to definitions and BOEM's corresponding 
responses can be found in section 10 of the Response to Public 
Comments.
a. New Terms: ``Assign'' and ``Transfer''
    The Department proposed to add new definitions for the terms 
``Assign'' and ``Transfer'' to clarify that these terms are used 
interchangeably throughout 30 CFR parts 550 and 556. This change would 
also serve to clarify that the related terms ``transferee'' and 
``transferor'' are interchangeable with ``assignee'' and ``assignor'' 
respectively. The definition of the new term ``Assign'' was proposed to 
mean conveying an ownership interest in an oil, gas, or sulfur lease, 
ROW grant or RUE grant. For purposes of this part, ``assign'' is 
synonymous with ``transfer'' and the two terms are used 
interchangeably. The definition of the new term ``Transfer'' was 
proposed to mean ``conveying an ownership interest in an oil, gas, or 
sulfur lease, ROW grant or RUE grant. For the purposes of this part, 
``transfer'' is synonymous with ``assign'' and the two terms are used 
interchangeably.

[[Page 31562]]

General comments received are as follows:
    Comment: Commenters suggested that BOEM clarify for the purposes of 
part 550 that ``transfer'' in both the new term and in the definition 
of ``Assign'' should be defined to exclude informal transfers. Examples 
of informal transfers were corporate name changes that are not 
technically a conveyance of an interest to a new entity. They provided 
suggested regulatory text edits as follows: ``Transfer means to convey 
an ownership interest in an oil, gas, or sulfur lease, ROW grant or RUE 
grant. For the purposes of this part, ``transfer'' is synonymous with 
``assign'' and the two terms are used interchangeably, [Underline: 
except that a transfer excludes transactions subject to 30 CFR 556.715 
or changes only in the corporate name of an interest owner that do not 
require BOEM approval]'' where the underline represents the commenter's 
proposed additional language.
    Response: BOEM disagrees with the commenters' assertion that BOEM 
should clarify that ``Transfer'' excludes transactions subject to 30 
CFR 556.715 or changes only in the corporate name of an interest owner 
that do not require BOEM approval. The referenced section, 30 CFR 
556.715, addresses transactions of economic interests that should and 
will be included in the definition of transfer, although that section 
makes clear such transfers do not require BOEM approval. Additionally, 
BOEM does not consider a corporate name change to be an ``assignment'' 
and therefore, the suggested edit is unnecessary.
    The Department is finalizing, as proposed, the new terms ``Assign'' 
and ``Transfer'' and their corresponding definitions.
b. Replacement: ``Right-of-Use'' and ``Easement'' With ``Right-of-Use 
and Easement''
    The Department proposed to remove the terms ``Easement'' and 
``Right-of-use'' from 30 CFR part 550 because neither are used 
separately in the regulations. In lieu of these two terms, and to 
define the term used in part 550, DOI proposed the addition of the new 
term ``Right-of-Use and Easement'' and its associated definition as ``a 
right to use a portion of the seabed, at an OCS site other than on a 
lease you own, to construct, secure to the seafloor, use, modify, or 
maintain platforms, seafloor production equipment, artificial islands, 
facilities, installations, or other devices to support the exploration, 
development, or production of oil, gas, or sulfur resources from an OCS 
lease or a lease on State submerged lands.'' Additionally, the 
Department proposed to amend the definition of ``Right-of-Use and 
Easement'' in 30 CFR 556.105 to match the proposed definition in 30 CFR 
550.105.
    No public comments were received on the proposal to delete 
``Easement'' and ``Right-of-use'' and replace with the new term 
``Right-of-use and Easement'' in 30 CFR 550.105 or on the amendments to 
the existing definition in 30 CFR 556.105. As such, the Department is 
finalizing, as proposed, BOEM's amendments to remove the terms 
``Easement'' and ``Right-of-use'' from 30 CFR part 550 because neither 
are used separately in the regulations. In lieu of these two terms, and 
to define the term used in part 550, the Department is finalizing the 
addition of the new term ``Right-of-Use and Easement'' and its 
associated definition. In the final rule, BOEM has removed ``adjacent 
to or accessible from the OCS'' from the proposed RUE definition, as it 
is not helpful. This is a technical correction and does not change any 
meaning or intent of the definition. Additionally, the Department is 
finalizing the edits to the same definition, in 30 CFR 556.105.
c. New Term: ``Financial Assurance''
    The Department proposed to add a new term and definition for 
``Financial assurance'' in 30 CFR 550.105 and 556.105(b) to list the 
various methods that may be used to ensure compliance with OCS 
obligations in 30 CFR parts 550 and 556. DOI proposed to define the 
term as ``a surety bond, a pledge of Treasury securities, a 
decommissioning account, a third-party guarantee, or another form of 
security acceptable to the BOEM Regional Director, that is used to 
ensure compliance with obligations under the regulations in this part 
and under the terms of a lease, a RUE grant, or a pipeline ROW grant.'' 
General comments received are as follows:
    Comment: One commenter expressed support for the new ``Financial 
assurance'' term and noted that it supported ``the breadth and 
optionality in the proposed'' definition.
    Response: BOEM acknowledges the commenter's support, and the 
Department is finalizing the new term as proposed.
    Comment: Commenters recommended that BOEM should be consistent and 
intentional in its use of ``financial assurance,'' ``security,'' and 
``bond'' within the final rule. Specifically, they asked BOEM to 
consider using the global term ``security'' as in the 2020 Proposed 
Rule in lieu of ``financial assurance,'' which instead can refer to the 
process of furnishing security rather than the security itself.
    Response: BOEM does not believe the term ``financial assurance'' is 
ever used as a ``process for furnishing security'' in this rulemaking 
and, instead, is used to describe any of a number of different types of 
securities that BOEM will accept to guarantee performance of 
obligations. As such, BOEM believes the term and associated definition 
is appropriate. BOEM has elected to simplify the rule by consistently 
using the term financial assurance instead of referring to the various 
types of financial securities. The Department is finalizing, as 
proposed, the removal of the term and definition of ``Security or 
securities'' in part 556, as these terms have been replaced with 
``financial assurance'' throughout part 556 and 550 for regulatory 
consistency.
    The Department is finalizing, as proposed, the new term and 
definition for ``Financial assurance'' in 30 CFR 550.105 and 556.105(b) 
to list the various methods that may be used to ensure compliance with 
the relevant OCS obligations in 30 CFR parts 550 and 556.
d. New Term: ``Investment Grade Credit Rating''
    The Department proposed to add the new term and associated 
definition for ``Investment grade credit rating'' in 30 CFR 550.105 and 
556.105(b). The associated definition was proposed as ``an issuer 
credit rating of BBB- or higher, or its equivalent, assigned to an 
issuer of corporate debt by a nationally recognized statistical rating 
organization (NRSRO) as that term is defined by the United States 
Securities and Exchange Commission (SEC).'' This definition was 
proposed as the threshold above which BOEM would typically not require 
supplemental financial assurance. General comments received are as 
follows:
    Comment: As discussed in section III.D of this preamble, commenters 
both supported and opposed the addition of the ``Investment grade 
credit rating'' definition. Several commenters suggested that BOEM not 
add the term to 30 CFR 550.105 because the term is not used in part 
550.
    Response: As discussed in section III.D of this preamble, the 
Department is not finalizing the proposed addition of ``Investment 
grade credit rating'' to 30 CFR part 550, as the commenters' assertion 
that the term is not used in part 550 is correct. In part 550, the 
regulatory text references 30 CFR part 556 to discuss the use of the 
issuer credit rating.

[[Page 31563]]

    The Department has revised the definition of ``Investment grade 
credit rating'' in 30 CFR 556.105(b) with this final rule to clarify 
which rating agency corresponded with the proposed BBB- rating. The 
final definition is ``an issuer credit rating of BBB- or higher (S&P 
Global Ratings and Fitch Ratings, Inc.), Baa3 or higher (Moody's 
Investors Service Inc.), or its equivalent, assigned to an issuer of 
corporate debt by a nationally recognized statistical rating 
organization as that term is defined in section 3(a)(62) of the 
Securities Exchange Act of 1934.''
e. New Term: ``Issuer Credit Rating''
    The Department proposed to add the new term and associated 
definition for ``Issuer credit rating'' in 30 CFR 550.105 and 
556.105(b). The associated definition was proposed as ``a credit rating 
assigned to an issuer of corporate debt by Standard and Poor's (S&P) 
Rating Services (or any of its subsidiaries), by Moody's Investors 
Service Incorporated (or any of its subsidiaries), or by another NRSRO 
as that term is defined by the United States SEC.'' General comments 
received are as follows:
    Comment: Multiple commenters suggested that BOEM not add the term 
``Issuer credit rating'' and associated definition to 30 CFR 550.105 
because the term is not used in part 550. Other commenters recommended 
that BOEM include Fitch Ratings as one of the listed NRSROs in the new 
definition in 30 CFR 556.105.
    Response: The Department is not finalizing the proposed addition of 
``Issuer credit rating'' to 30 CFR part 550, as the commenters' 
assertion that it is not used in part 550 is correct. In part 550, the 
existing regulatory text references 30 CFR part 556 to discuss the use 
of the issuer credit rating. BOEM agrees with the commenters' assertion 
that Fitch Ratings is also an appropriate NRSRO and is adding it to the 
definition in 30 CFR 556.105.
f. Removal: ``Security or Securities''
    The Department proposed to delete the term and associated 
definition of ``Security or securities'' in 30 CFR 556.105(b) since the 
term ``security'' was proposed to be replaced with ``financial 
assurance'' throughout the subpart. This term, i.e., ``security,'' did 
not exist in 30 CFR part 550 and therefore was not proposed to be 
removed therefrom. General comments received are as follows:
    Comment: Commenters recommended that BOEM be consistent and 
intentional in its use of ``financial assurance,'' ``security,'' and 
``bond'' within the final rule. Specifically, they asked BOEM to 
consider utilizing the global term ``security'' as in the 2020 Proposed 
Rule in lieu of ``financial assurance,'' which instead can refer to the 
process of furnishing security rather than the security itself.
    Response: BOEM does not believe the term ``financial assurance'' is 
ever used as a ``process for furnishing security'' in this rulemaking 
and, instead, is used to describe any of a number of different types of 
securities which BOEM accepts to guarantee performance of obligations. 
As such, BOEM believes the term and associated definition is 
appropriate. BOEM has elected to simplify the rule by consistently 
using the term financial assurance instead of the various types of 
financial securities. The Department is finalizing, as proposed, the 
removal of the term and definition of ``Security or securities'' from 
part 556, as these terms have been replaced with ``financial 
assurance'' throughout parts 556 and 550 for regulatory consistency.
g. Revision: ``You''
    The Department proposed to revise the definition for ``You'' in 30 
CFR parts 550 and 556 as, depending on the context of the part: ``a 
bidder, a lessee (record title owner), a sublessee (operating rights 
owner), a Federal or State RUE grant holder, a pipeline ROW grant 
holder, an assignor or transferor, a designated operator or agent of 
the lessee or grant holder, or an applicant seeking to become one of 
the individuals listed in this definition.'' This change to the 
definition of ``You'' would, in concert with changes proposed in Sec.  
550.166, make explicit that any financial assurance provisions 
applicable to either a State or Federal RUE would apply to the other. 
General comments received are as follows:
    Comment: Commenters expressed concerns with BOEM's proposed 
definition of ``You'' and asserted that BOEM was imposing on the 
regulated community the duty to ascertain which persons covered by the 
definition are subject to the specific regulatory requirements of each 
section. For example, a commenter asserted that the inclusion of ``an 
assignor or transferor'' in the definition is problematic in the 
context of part 556 because the scope ``is financial assurance that is 
solely the responsibility of current interest holders.''
    Response: The Department did not revise the proposed definition of 
``you'' in the final rule. BOEM retained ``assignor or transferor'' in 
the definition as it is appropriate in the context of some subsections 
across the broad scope of parts 550 and 556. The intent of the 
definition of ``you'' was always to be totally encompassing and to rely 
on context for its meaning in any particular situation.
    The Department is finalizing, as proposed, the revisions to the 
definition of ``You.'' The definition of the term has traditionally 
been all-encompassing in both parts 550 and 556 and BOEM believes the 
context provided by the individual subsections is sufficient for 
determining which entity covered by the term is the appropriate entity 
to which a particular subsection applies.
2. Changing of the Spelling of ``Sulphur'' to ``Sulfur''
    The Department proposed to replace the word ``sulphur'' with the 
more contemporary spelling of ``sulfur'' throughout the regulatory text 
where it has not been previously changed. BOEM noted that this edit was 
a technical correction and did not change any meaning or intent of the 
regulatory provisions. The Department proposed to update the word 
``sulphur'' in the heading of part 550 and in Sec. Sec.  550.101, 
550.102, 550.105, and 550.199.
    No comments were received on changing the spelling of ``sulphur'' 
to ``sulfur.'' Therefore, the Department is finalizing, as proposed, 
its plans to replace the word ``sulphur'' with the more contemporary 
spelling of ``sulfur'' in Sec. Sec.  550.101, 550.102, and 550.105 in 
this final action.

IV. Summary of Cost, Economic Impacts, and Additional Analyses 
Conducted

A. What are the affected entities?

    This final rule will affect current and future lessees, sublessees, 
RUE grant holders, and pipeline ROW grant holders. BOEM's analysis 
shows that this includes roughly 391 companies with record title 
ownership or operating rights in leases, and with interests in RUE 
grants and pipeline ROW grants. These lessees and grant holders are 
responsible for complying with the regulations and therefore would bear 
the compliance costs and realize the cost savings associated with the 
provisions in this final rule.

B. What are the economic impacts?

    The amendments in this final rule are expected to increase the 
total amount of financial assurance required from OCS lessees and grant 
holders. Those lessees that do not meet the updated criteria to avoid 
providing supplemental financial assurance will have an increased 
compliance cost in the form of bond premiums. BOEM has drafted an RIA 
detailing the estimated impacts of the

[[Page 31564]]

respective provisions of this final rule. These impacts reflect both 
monetized and non-monetized impacts; the costs and benefits of the non-
monetized impacts are discussed qualitatively in the RIA and in the 
following paragraphs. The table below summarizes BOEM's monetized 
estimate of the cost of increased bonding premiums paid by lessees over 
a 20-year period. This timeframe is expected to adequately capture the 
aging shallow-water OCS infrastructure removal while providing BOEM 
with time to monitor the efficacy of its new program. Due to 
technological advances and the changing nature of the OCS's role in the 
energy transition, estimates beyond 20-years are too speculative to be 
reliable at this stage. Regulatory certainty for OCS lessees is 
valuable, however; as the Statement of Energy Effects notes, higher 
compliance costs could make the U.S. OCS less competitive in a global 
oil market. Additional information on the estimated transfers, costs, 
and benefits can be found in the RIA posted in the public docket for 
this rule.

             Net Total Estimated Compliance Cost of the Rule
                      [2024-2043, 2023, $ millions]
------------------------------------------------------------------------
                                                  Discounted  Discounted
                    2024-2043                        at 3%       at 7%
------------------------------------------------------------------------
Net Total Compliance Cost.......................      $8,525      $5,923
Annualized Compliance Cost......................       573.0       559.0
------------------------------------------------------------------------

    The rule affects holders of oil, gas, and sulfur leases, ROW 
grants, and RUE grants on the OCS. The analysis shows that this 
includes roughly 391 companies with ownership interests in OCS leases 
and grants. Entities that operate under this rule are classified 
primarily under NAICS codes 211120 (Crude Petroleum Extraction), 211130 
(Natural Gas Extraction), and 486110 (Pipeline Transportation of Crude 
Oil and Natural Gas). For NAICS classifications 211120 and 211130, the 
SBA defines a small business as one with fewer than 1,250 employees; 
for NAICS code 486110, it is a business with fewer than 1,500 
employees. Based on this criterion, approximately 271 (69 percent) of 
the businesses operating on the OCS subject to this rule are considered 
small; the remaining businesses are considered large entities. All the 
operating businesses meeting the SBA classification are potentially 
impacted; therefore, BOEM expects that the rule will affect a 
substantial number of small entities.
    BOEM has estimated the annualized increase in compliance costs to 
lessees and allocated those to small and large entities based on their 
decommissioning liabilities. In the table below, BOEM's analysis 
estimates small companies could incur $421 million (7 percent 
discounting) in annualized compliance costs from changes in the final 
rule. The Bureau recognizes that there will be incremental cost burdens 
to most affected small entities and has included a 3-year phased 
compliance approach to provide flexibility for entities required to 
provide financial assurance under the new requirements. The changes are 
designed to balance the risk of non-performance with the compliance 
burdens that are associated with the requirement to provide 
supplemental financial assurance. Additional information about these 
conclusions can be found in the regulatory flexibility analysis for 
this rule.

   Estimated Compliance Costs for Non-Investment Grade Small Entities
                      [2024-2043, 2023, $ millions]
------------------------------------------------------------------------
                                                  Discounted  Discounted
                    2024-2043                        at 3%       at 7%
------------------------------------------------------------------------
Total Compliance Cost...........................      $6,362      $4,455
Annualized Compliance Cost......................         428         421
------------------------------------------------------------------------

C. What are the benefits?

    OCSLA regulations and lease provisions require lessees to 
decommission facilities, including plugging and abandoning OCS wells 
and removing facilities when their useful life has concluded. If the 
current lessee fails to perform decommissioning of its OCS facilities, 
the burden to decommission OCS facilities may fall to other obligated 
parties, such as co-lessees or predecessor lessees, and failing that, 
the Federal Government and U.S. taxpayers. Some of the corporate 
bankruptcies involving offshore oil and gas lessees since 2009 have 
involved decommissioning liabilities not covered by bonds or other 
forms of financial assurance. As such, these bankruptcies demonstrate 
that BOEM's regulations have been inadequate to protect the public from 
potential responsibility for OCS decommissioning, especially during 
periods of low hydrocarbon prices. The final rule is intended to 
correct these shortcomings with an approach that promotes 
internalization of costs of decommissioning by lessees and grant 
holders by adhering to the general principle that each current owner 
should bear the costs for its own obligations. This final rule is 
expected to significantly increase the amount of financial assurance 
coverage that protects the Federal Government and taxpayer by requiring 
that every lessee, ROW grant holder, and RUE grant holder assume full 
responsibility for providing assurance for performance of its own 
obligations unless there is a financially strong co-lessee (i.e., one 
that meets the credit rating threshold). Finally, the final rule is 
expected to reduce the decommissioning activity lead-time that can 
result in environmental harms arising out of orphaned, unmaintained, or 
minimally maintained facilities, which could result in additional 
environmental damage or increased obstacles to navigation, while 
awaiting the uncertain outcomes of bankruptcy proceedings or 
Congressional appropriations. A reduction in decommissioning activity 
lead-time could reduce environmental damage, but BOEM cannot quantify 
this benefit in this rulemaking.
    Bonding of OCS liabilities by a surety company greatly reduces the 
risk that those liabilities will revert to a predecessor lessee or 
grant holder because DOI could, but is not required to, turn to the 
surety for performance before turning to a predecessor. Further, 
because this final rule is designed to secure the taxpayer against the 
riskiest subset of liability--i.e., OCS obligations that belong to 
speculatively rated companies without marketable reserves--it will 
require more supplemental financial assurance than the Department 
currently holds from such companies and will decrease the likelihood 
that these liabilities become the responsibility of the government. 
These reductions in risk are dependent on the initial level of risk 
specific to each OCS lease and lessee, and as such, BOEM is not able to 
quantify them in aggregate, as discussed in the RIA. This rule will not 
affect the Department's regulatory authority to issue decommissioning 
orders to predecessor lessees or to intervene as necessary to address 
an imminent environmental or safety risk. However, without this final 
rule (i.e., without the new supplemental financial assurance procedures 
fully in place), it could take longer to arrange for decommissioning. 
Orphaned, unmaintained, or minimally maintained facilities, which 
currently exist on the OCS, could result in additional environmental 
damage or increased obstacles to navigation, while awaiting the 
uncertain outcomes of bankruptcy proceedings or Congressional 
appropriations.
    Additionally, this final rule provides lessees and grant holders 
with clarity and regulatory certainty regarding the

[[Page 31565]]

way in which BOEM will conduct its financial assurance program. The 
financial assurance it requires will provide accountability to the 
taxpayer that a current lessee's or grant holder's obligations to 
decommission will not go unfulfilled, or that an associated cost of 
business is not transferred to another party at the culmination of the 
life of the facility when the productive value is gone and only 
liabilities remain.

D. What tribal outreach did BOEM conduct?

    On March 31, 2023, BOEM sent letters to all federally recognized 
Tribal Nations and Alaska Native Claims Settlement Act (ANCSA) 
Corporations to ensure they are aware of the proposed rulemaking, to 
answer any immediate questions they may have had, and to invite formal 
consultation if desired. Only one Tribe requested consultation, which 
was held on June 28, 2023; meeting notes for this consultation are 
available in the docket (Docket No. BOEM-2023-0027).

V. Section-by-Section Analysis

Severability

    BOEM proposed in the preamble to the proposed rule at 88 FR 42156 
that the provisions of the rule be severable. No public comments were 
received on severability. Should any court hold unlawful and/or set 
aside portions of this rule, the remaining portions are severable and 
therefore should not be remanded to the Department. The final rule 
contains three main components: (1) streamlining criteria warranting a 
demand for supplemental financial assurance; (2) establishing the 
amount of any supplemental financial assurance; and (3) making several, 
less significant changes to, among other things, transferring interests 
in RUE grants and requiring appeals bonds for a stay of an IBLA appeal. 
See section III of this preamble.
    It is impracticable, if not impossible, for BOEM to anticipate and 
address every conceivable adverse court remedy order. For purposes of 
this rule, it suffices to substantiate BOEM's intent that the rule's 
three components operate largely independently of each other: the first 
component considers whether a lessee is at risk of default based on the 
lessee's credit rating or the proved reserves on the lease; the second 
component considers the appropriate level of financial assurance 
required in light of that risk; and the third component addresses 
several longstanding and technical matters that do not bear directly on 
the first two components. Indeed, these three components are 
sufficiently distinct that their utility does not depend on the 
specifics of this final rule. For example, if a court were to vacate 
BOEM's selection of the level of supplemental financial assurance 
required (P-value), that decision would remain severable from the 
threshold determination regarding whether to collect supplemental 
financial assurance and from the other separate technical changes 
included in this rule. In this scenario, BOEM could still collect 
supplemental financial assurance using the previously accepted BSEE 
deterministic estimate for decommissioning costs.
    BOEM is amending the following regulations as follows:

Part 550--Oil and Gas and Sulfur Operations in the Outer Continental 
Shelf

    The terms ``bond,'' ``bonding,'' ``surety bond,'' ``security,'' and 
``securities'' are replaced throughout this part with the new term 
``financial assurance'', as proposed.
    The term ``sulphur'' is replaced throughout this part with 
``sulfur'', as proposed. This edit is a technical correction and does 
not change any meaning or intent of the regulatory provisions.
Subpart A--General
Section 550.101 Authority and Applicability
    The Department is finalizing the revision of ``sulphur'' to 
``sulfur'' in the introductory text and is clarifying that the BOEM 
Director is the one granted authority by the Secretary to regulate oil, 
gas, and sulfur exploration, development, and production operations on 
the OCS.
Section 550.102 What does this part do?
    The Department is finalizing the revision of ``sulphur'' to 
``sulfur'' in the paragraphs (a) and (b).
Section 550.103 Where can I find more information about the 
requirements in this part?
    The Department is removing the term ``supplement'' from this 
section as a technical correction. The existing regulatory text needs 
improvement because NTLs do not supplement regulatory requirements, but 
instead clarify, provide voluntary recommendations, or provide 
additional information concerning how to comply with requirements in 
the regulations (e.g., addresses for submissions).
Section 550.105 Definitions
    The Department is finalizing as proposed, and as discussed in 
section III.G of this preamble, new definitions for the terms 
``Assign'' and ``Transfer'' to clarify that these terms are used 
interchangeably throughout the part. This change also serves to clarify 
that the related terms ``assignee'' and ``assignor'' are 
interchangeable with ``transferee'' and ``transferor,'' respectively.
    The Department is finalizing, as proposed, revisions to the 
definition of ``Criteria air pollutant'' and ``Nonattainment area'' to 
explain the acronyms U.S. EPA and NAAQS. This is a technical correction 
and does not change any meaning or intent of the definitions.
    The Department is finalizing as proposed, and as discussed in 
section III.G of this preamble, removal of the terms ``Easement'' and 
``Right-of-use'' because neither are used separately in the 
regulations. In lieu of these two terms, and to define the term used in 
part 550, The Department is finalizing the addition of the new term 
``Right-of-Use and Easement'' and its associated definition. Since 
proposal, BOEM has removed ``adjacent to or accessible from the OCS'' 
from the RUE definition, as it is not helpful. This is a technical 
correction and does not change any meaning or intent of the definition. 
This definition is consistent with the final amendments to the 
definition of RUE in 30 CFR 556.105.
    The Department is finalizing as proposed, and as discussed in 
section III.G of this preamble, the addition of the new term and 
definition for ``Financial assurance'' to list the various methods that 
may be used to ensure compliance with OCS obligations. Additionally, 
the Department is finalizing, as proposed, and discussed in section 
III.G of this preamble, revisions to the definition of ``You.''
Section 550.160 When will BOEM grant me a right-of-use and easement 
(RUE), and what requirements must I meet?
    The paragraph (a) introductory text is expanded, as in the proposed 
rule, to include additional functions and devices associated with a RUE 
by adding ``secure to the seafloor, use, modify'' after ``construct;'' 
by substituting ``or'' for ``and'' before the word ``maintain;'' and by 
adding references to ``seafloor production equipment'' and 
``facilities.'' These edits create consistency between this section and 
the definition of RUE in Sec.  550.105. A commenter suggested edits to

[[Page 31566]]

paragraph (a) because the commenter found the paragraph difficult to 
read. In response to this comment, DOI has replaced the proposed clause 
``You must require the RUE'' with ``A RUE is required'' in this final 
rule. That change, in turn, could be confusing when read in conjunction 
with the existing introductory text of Sec.  550.160. Accordingly, DOI 
is deleting the introductory text in this final rule. This deletion 
does not change any meaning or intent of any part of Sec.  550.160.
    The Department is finalizing, as proposed, revisions to paragraph 
(b) to provide that a RUE grant holder must exercise the grant 
according to the terms of the grant and the applicable regulations of 
part 550.
    The Department is finalizing, as proposed, revisions to paragraph 
(c) to update the cross-reference to BOEM's lessee qualification 
requirements, Sec. Sec.  556.400 through 556.402, and to replace the 
language in this paragraph referencing ``bonding requirements'' with a 
cross reference to Sec.  550.166, which BOEM has amended to add 
specific criteria for financial assurance demands, as discussed in 
section III.A of this preamble. The Department is also revising 
paragraph (d) to replace ``right-of-use and easement'' with ``RUE.''
    The Department is revising paragraphs (e) and (f)(2) to update the 
list therein to be consistent with the finalized revisions in paragraph 
(a). BOEM identified the need for these revisions after publication of 
the proposed rule and is making them in the final rule for consistency 
with the new definition of RUE.
Section 550.166 If BOEM grants me a RUE, what financial assurance must 
I provide?
    As proposed, the Department is finalizing amendments to the section 
heading by removing the reference to ``a State lease'' and replacing 
``surety bond'' with ``financial assurance.'' This reflects the change 
in the text of this section that provides that the financial assurance 
requirements of this section would apply to both a RUE granted to serve 
a State lease and one serving an OCS lease, as discussed in section 
III.A of this preamble. The term ``surety bond'' is replaced with 
``financial assurance'' throughout the section.
    The Department is finalizing revisions to paragraph (a) to require 
$500,000 in financial assurance that guarantees compliance with the 
terms and conditions of any OCS RUEs an entity holds, as discussed in 
section III.A of this preamble. Previously, paragraph (a) required 
$500,000 in financial assurance only for RUEs associated with State 
leases. Additionally, the Department is finalizing the addition of 
paragraph (a)(1), as proposed, to allow area-wide lease financial 
assurance to satisfy the requirements of paragraph (a) provided that 
assurance is in excess of the $500,000 base RUE financial assurance 
requirement and also guarantees compliance with all the terms and 
conditions of the RUE(s) it covers. The Department is also finalizing 
the addition of paragraph (a)(2) as proposed to allow the Regional 
Director to lower the required financial assurance amount for research 
and other similar types of RUEs, which reflects BOEM's experience that 
the total liability exposure for such RUEs can be well below $500,000. 
Lastly, the Department is finalizing the addition of paragraph (a)(3) 
as proposed to provide that the financial assurance requirements of 
section 556.900(d) through (g) and Sec.  556.902 apply to the financial 
assurance required in paragraph (a).
    The Department is finalizing, as proposed, the revision of 
paragraph (b) in this section to provide that, if BOEM grants a RUE 
that serves either an OCS lease or a State lease, the Regional Director 
may require the grant holder to provide supplemental financial 
assurance to ensure compliance with the obligations under the RUE 
grant. BOEM will use the issuer credit rating or proxy credit rating 
criterion found in Sec.  556.901(d)(1) and (2) to evaluate a RUE grant 
holder, as discussed in section III.A of this preamble; i.e., the 
Regional Director may require supplemental financial assurance if the 
grant holder does not have an issuer credit rating or a proxy credit 
rating that meets the criterion set forth in amended Sec.  
556.901(d)(1). Like lessees, most RUE holders are oil and gas 
companies, and BOEM will therefore, as discussed in section III.A of 
this preamble, use the same financial criterion to determine the need 
for additional financial assurance from RUE holders and lessees to 
provide consistency.
    The Department is finalizing the revision to paragraph (b)(1) as 
proposed to update the regulatory citation in existing Sec.  
550.166(b)(1) to provide that the supplemental financial assurance must 
meet the requirements for lease surety bonds or other financial 
assurance provided in Sec. Sec.  556.900 (d) through (g) and 556.902. 
This rule also finalizes the revision to Sec.  550.166(b)(2) to include 
``applicable BOEM and BSEE orders'' in the list of what RUE 
supplemental financial assurance must cover. The Department is not 
finalizing the proposed language that clarified that RUE holders must 
also comply with the decommissioning regulations at part 250, subpart Q 
of this title as it is no longer needed. BSEE adopted changes to their 
regulations in subpart Q to expressly state that RUE holders must 
comply with the BSEE decommissioning regulations. 88 FR 23569 (Apr. 18, 
2023). As such, BOEM is not finalizing this reference to the BSEE 
regulations, as it is now redundant. The Department is finalizing the 
addition of new paragraph (c), as proposed, to provide that if a RUE 
grant holder fails to replace any deficient financial assurance upon 
demand, or fails to provide supplemental financial assurance upon 
demand, BOEM may assess penalties, request BSEE to suspend operations 
on the RUE, and/or initiate action for cancellation of the RUE grant.
Section 550.167 How may I assign my interest in a RUE?
    The Department is finalizing the addition of a new Sec.  550.167 to 
establish the ability to assign a RUE interest. Paragraph (a) 
establishes that those who want to obtain a RUE or are requesting 
assignment of an interest in a RUE must provide the information 
contained Sec.  550.161 and must obtain BOEM's approval. In response to 
comment, the Department is finalizing the addition of a new paragraph 
(b) that parallels the provisions for ROW assignments in BSEE's 
regulations at 30 CFR 250.1018. New paragraphs (c)(1) through (4) 
establish, as proposed, the circumstances in which BOEM may disapprove 
an assignment. These circumstances are intended to prevent the 
assignment of a RUE when, for example, the assignment would result in 
inadequate financial assurance.
Section 550.199 Paperwork Reduction Act Statements--Information 
Collection
    The Department is finalizing the revision of ``sulphur'' to 
``sulfur'' in paragraph (b) and clarification that ``parts 551, 552'' 
refer to 30 CFR parts 551 and 552.
Subpart J--Pipelines and Pipeline Rights-of-Way
Section 550.1011 Financial Assurance Requirements for Pipeline Right-
of-Way (ROW) Grant Holders
    The Department is finalizing the revision of this section in its 
entirety. The section heading is revised to read, ``Financial assurance 
requirements for pipeline right-of-way (ROW) grant holders,'' to 
clarify that a pipeline ROW grant holder may meet the requirements of 
this section by providing bonds or other types of financial assurance.
    The Department is finalizing, as proposed, revisions to paragraph 
(a) to

[[Page 31567]]

add ``, attempt to assign,'' after ``apply for'' so that it is clear 
the financial assurance requirements of this section apply to an 
assignment of a right-of-way grant. The revisions subsume paragraph 
(a)(1) into paragraph (a) and revise it to remove the reference to 30 
CFR part 256, which has no bonding requirements for pipelines, and to 
add the word ``pipeline'' before ``right-of-way.'' The revisions add 
``grant'' after ``right-of-way (ROW)'' for clarification, and to 
clarify that the purpose of the area-wide financial assurance, which is 
required in paragraph (a), is to guarantee compliance with the terms 
and conditions of all the pipeline ROW grants held in an OCS area, as 
defined in Sec.  556.900(b). These amendments clarify that the 
requirement to provide area-wide financial assurance for a pipeline ROW 
grant is separate and distinct from the financial assurance coverage 
provided for leases and RUEs. Existing paragraph (a)(2) is removed 
because supplemental financial assurance requirements would be covered 
by new paragraph (d).
    The Department is finalizing, as proposed, the removal of existing 
paragraph (b), which defines the three recognized OCS areas, because it 
is made redundant by the reference to Sec.  556.900(b) in revised 
paragraph (a). The Department is finalizing, as proposed, the 
replacement of the removed paragraph (b) with a new paragraph (b) to 
provide that the requirement under paragraph (a) to furnish and 
maintain area-wide financial assurance may be satisfied if the operator 
or a co-grant holder provides area-wide pipeline right-of-way financial 
assurance in the required amount that guarantees compliance with the 
regulations and the terms and conditions of the grant.
    The Department is finalizing the replacement of paragraph (c), as 
proposed, with a provision stating that the requirements for lease 
financial assurance in Sec. Sec.  556.900(d) through (g) and 556.902 
apply to the area-wide financial assurance required in paragraph (a) of 
this section. The Department is finalizing the removal of existing 
paragraph (d), which is now made redundant by new paragraph (f).
    The Department is finalizing, as proposed, the addition of a new 
paragraph (d) to provide that the Regional Director may determine that 
supplemental financial assurance is necessary to ensure compliance with 
the obligations under a pipeline ROW grant based on an evaluation of 
the grant holder's ability to carry out present and future obligations 
on the pipeline ROW. As discussed in section III.A of this preamble, 
the Department is finalizing the use of the same issuer credit rating 
or proxy credit rating criterion to evaluate a pipeline ROW grant 
holder, or co-grant holder, as the Department is finalizing to apply to 
lessees in Sec.  556.901(d)(1). BOEM, as discussed in section III.A of 
this preamble, has found that reliance on credit ratings better 
evaluates financial stability than net worth, and is thus applying the 
same financial criterion in evaluating the financial stability of grant 
holders.
    The Department is finalizing, as proposed in new paragraph (e)(1), 
a provision that the supplemental financial assurance must meet the 
general requirements for lease surety bonds or other financial 
assurance, as provided in Sec. Sec.  556.900(d) through (g) and 
556.902. The Department is not finalizing the proposed language in new 
paragraph (e)(2) that stated that any supplemental financial assurance 
for a pipeline ROW is required to cover costs and liabilities for 
regulatory compliance and compliance with applicable BOEM and BSEE 
orders, decommissioning of all pipelines or other facilities, and 
clearance from the seafloor of all obstructions created by the pipeline 
ROW operations, in accordance with the regulations set forth in 30 CFR 
part 250, subpart Q, because it is no longer needed and redundant. BSEE 
adopted changes to their regulations in subpart Q to expressly state 
that all ROW holders must comply with the BSEE decommissioning 
regulations. 88 FR 23569 (Apr. 18, 2023). As such, BOEM is not 
finalizing this reference to the BSEE regulations, as it is now 
redundant. New paragraph (e)(2) now states that any supplemental 
financial assurance for a pipeline ROW is required to cover the costs 
and liabilities for compliance with obligations of your ROW grants and 
with applicable BOEM and BSEE orders.
    The Department is also finalizing the addition of new paragraph (f) 
to provide that if a pipeline ROW grant holder fails to replace any 
deficient financial assurance upon demand or fails to provide 
supplemental financial assurance upon demand, the Regional Director may 
assess penalties, request BSEE to suspend operations on the pipeline 
ROW, and/or initiate action for forfeiture of the pipeline ROW grant in 
accordance with 30 CFR 250.1013.

Part 556--Leasing of Sulfur or Oil and Gas and Bonding Requirements in 
the Outer Continental Shelf

    The Department is finalizing, as proposed, a technical correction 
to the authority citation for part 556 by removing the citation to 43 
U.S.C. 1801-1802, because neither of these two sections contain 
authority allowing BOEM to issue or amend regulations.
    The final rule also removes, as proposed, the citation to 43 U.S.C. 
1331 note which is where the Gulf of Mexico Energy Security Act of 2006 
(GOMESA) is set forth. While this statute required BOEM to issue 
regulations concerning the availability of bonus or royalty credits for 
exchanging eligible leases, the deadline for applying for such a bonus 
or royalty credit was October 14, 2010; therefore, lessees may no 
longer apply for such credits. BOEM no longer needs the authority to 
issue regulations under that statute and has removed all regulations on 
this topic from part 556, except section 556.1000, which provides that 
lessees may no longer apply for such credits.
    Additionally, the terms ``bond,'' ``bonding,'' and ``surety bond'' 
are replaced throughout this part with the new term ``financial 
assurance.'' The Department is finalizing, as proposed, the revision to 
the part 556 heading to update the spelling of sulfur and to replace 
``bonding'' with ``financial assurance.''
Subpart A--General Provisions
Section 556.104 Information Collection and Proprietary Information
    The Department is finalizing the removal of an incorrect phone 
number and email address in paragraph (a)(4). This is a technical 
correction, consistent with the content of other subparts, that was 
discovered after publication of the proposed rule and does not change 
the intent of the paragraph.
Section 556.105 Acronyms and Definitions
    The Department is finalizing, as proposed, and as discussed in 
section III.G of this preamble, the new terms ``Assign'' and 
``Transfer'' and associated definitions to clarify that these terms are 
used interchangeably throughout the part. This change also serves to 
clarify that the related terms ``assignee'' and ``assignor'' are 
interchangeable with ``transferee'' and ``transferor'' respectively.
    The Department is finalizing the removal of ``GOMESA'' from the 
acronym list in paragraph (a) as discussed above. The final rule 
removes the citation to 43 U.S.C. 1331 note which is the only reference 
to GOMESA in part 556.
    The Department is finalizing, as proposed, and as discussed in 
section III.G of this preamble, amendments to the definition of 
``Right-of-Use and Easement (RUE)'' to include the words

[[Page 31568]]

``to construct, secure to the seafloor, use, modify, or maintain 
platforms, seafloor production equipment.'' This amended definition is 
the same as the definition of ``Right-of-Use and Easement'' finalized 
in Sec.  550.105.
    The Department is finalizing revisions to the definition of 
``Eastern Planning Area'' as proposed to remove the acronym ``EPA'' 
which can be confused with the United States Environmental Protection 
Agency (U.S. EPA). The Department is not finalizing the proposed 
removal of the rest of the first sentence in the existing definition to 
retain consistency with the definitions for ``Central Planning Area'' 
and ``Western Planning Area,'' which were not changed in the proposed 
rulemaking.
    The Department is finalizing, as proposed, and as discussed in 
section III.G of this preamble, the addition of a new term and 
definition for ``Financial assurance'' to clarify that various methods 
can be used to ensure compliance with OCS obligations. This definition 
is the same as the definition of ``Financial assurance'' finalized in 
Sec.  550.105.
    The Department is finalizing, as proposed, and as discussed in 
sections III.D and III.G of this preamble, the addition of a new term 
and definition for ``Investment grade credit rating'' to 30 CFR part 
556.
    The Department is finalizing, as discussed in section III.G of this 
preamble, the addition of the new term ``Issuer credit rating'' and its 
corresponding definition, as revised based on public comment as: ``a 
credit rating assigned to an issuer of corporate debt by S&P Global 
Ratings, by Moody's Investors Service Inc., by Fitch Ratings, Inc., or 
by another nationally recognized statistical rating organization, as 
that term is defined in section 3(a)(62) of the Securities Exchange Act 
of 1934.''
    The Department is adding the definition of ``Predecessor,'' as 
proposed in the 2020 proposed rule and as discussed in section III.B of 
this preamble, to describe the prior owners who share liability with 
the current owners.
    The Department is finalizing, as proposed, the removal of the term 
and definition of ``Security or securities,'' as these terms have been 
replaced with ``financial assurance'' throughout parts 556 and 550 for 
regulatory consistency. Additionally, the Department is finalizing, as 
proposed, and discussed in section III.G of this preamble, the 
revisions to the definition of ``You.'' This definition is the same as 
the definition of ``You'' finalized in Sec.  550.105.
Subpart G--Transferring All or Part of the Record Title Interest in a 
Lease
Section 556.703 What is the effect of the approval of the assignment of 
100 percent of the record title in a particular aliquot(s) of my lease 
and of the resulting lease segregation?
    The Department is removing ``bonding'' from paragraph (a) as a non-
substantive change identified after proposal to be consistent with its 
replacement by the term ``financial assurance'' throughout the subpart.
Section 556.704 When may BOEM disapprove an assignment or sublease of 
an interest in my lease?
    The Department is finalizing, as proposed, revisions to paragraph 
(a)(1) to clearly state that BOEM may disapprove an assignment or 
sublease when the transferor, transferee, or sublessee is not in 
compliance with all applicable regulations and orders, including 
financial assurance requirements. Similarly, this rule replaces the 
word ``would'' in the section heading with ``may'' to better reflect 
this discretion. Additionally, BOEM is non-substantively revising 
paragraph (a)(2) to remove the ``etc.'' in the parenthetical as it is 
not necessary since the parenthetical is a list of examples.
Subpart H--Transferring All or Part of the Operating Rights in a Lease
Section 556.802 When may BOEM disapprove the transfer of all or part of 
my operating rights interest?
    The final rule revises paragraph (a) to clearly state that BOEM may 
disapprove a transfer of operating rights in a lease if the transferee 
is not in compliance with all applicable regulations and orders, 
including financial assurance requirements. This final rule also 
replaces the word ``would'' in the section heading with ``may'' to 
better reflect this discretion. Additionally, BOEM is non-substantively 
revising paragraph (b) to remove the ``etc.'' in the parenthetical as 
it is not necessary since the parenthetical is a list of examples.
Subpart I--Financial Assurance
Section 556.900 Financial Assurance Requirements for an Oil and Gas or 
Sulfur Lease
    The Department is finalizing, as proposed, revisions to the section 
heading to read, ``Financial assurance requirements for an oil and gas 
or sulfur lease'' to ensure that the term ``bonding'' has been 
consistently replaced with ``financial assurance'' and to clarify that 
a number of forms of financial assurance can be provided, not just 
surety bonds. The Department is also finalizing the heading of subpart 
I to remove ``Bonding or Other'' consistent with the replacement of 
``bonding'' with ``financial assurance.''
    The Department is finalizing the addition of what was proposed as 
paragraph (a)(4) to make clear that any supplemental financial 
assurance required by the Regional Director must be provided before a 
new lease will be issued or an assignment of a lease approved. However, 
to avoid confusion in how to apply existing paragraphs (a)(1) through 
(3), BOEM has moved this language to the introduction of paragraph (a) 
to note that it is required in addition to any one of paragraphs (a)(1) 
through (3). BOEM's modified language in paragraph (a) also addresses a 
concern by a commenter that asserted ``the proposed provision makes no 
sense at the lease issuance stage because supplemental financial 
assurance can only be required after approved lease exploration or 
production activities commence.''
    The Department is finalizing, as proposed, revisions to the 
introductory text in paragraph (g) to replace the word ``security'' 
with ``financial assurance,'' and to add the word ``surety'' before 
``bond'' in two places to clarify that in those cases the regulation is 
referring to a ``surety bond.''
    The Department is finalizing, as proposed, revisions to the 
introductory text in paragraph (h) to replace the words ``additional 
bond coverage'' with ``supplemental financial assurance'' to clarify 
that surety bonds are not the only means of meeting the requirement. 
The final rule also revises paragraph (h)(2) in recognition that BSEE, 
rather than BOEM, is the agency with authority to suspend production or 
other operations on a lease.
    Finally, the Department is finalizing, as proposed, the addition of 
paragraph (i) to ensure consistency with the RUE financial assurance 
requirements by providing that area-wide lease surety bonds pledged to 
satisfy the financial assurance requirements for RUEs under Sec.  
550.166 may be called for performance of obligations arising from a RUE 
on which the holder of a RUE defaults.
Section 556.901 Base and Supplemental Financial Assurance
    The Department is finalizing, as proposed, revisions to the section 
heading to read, ``Base and Supplemental Financial Assurance,'' because 
this section covers both base financial assurance and supplemental 
financial assurance requirements.

[[Page 31569]]

    The Department is finalizing, as proposed, revisions to the 
introductory text of paragraph (a) to replace the word ``bonds'' with 
``financial assurance'' for consistency with the terminology amendments 
in this subpart. The Department is also revising paragraph (a)(1)(i) 
introductory text to replace the word ``bond'' with ``lease exploration 
financial assurance'' for consistency with the terminology used in 
existing paragraph (a)(1)(ii) (lease exploration bond).
    The Department is finalizing, as proposed, the elimination of the 
parenthetical ``(the lessee)'' from the paragraph (b) introductory text 
as it is made redundant by the definition of ``You.'' The Department is 
also finalizing, as proposed, revisions to the paragraph (b)(1)(i) 
introductory text to replace the word ``bond'' with ``lease development 
financial assurance'' for consistency with the terminology used in 
existing paragraph (b)(1)(ii), which is not being changed.
    The Department is finalizing, as proposed, revisions to paragraph 
(c) to remove the words ``authorized officer'' and replace them with 
``Regional Director,'' and to remove the words ``lease bond coverage'' 
and ``a lease surety bond'' and replace them in each instance with 
``financial assurance'' to clarify that the Regional Director can 
review whether BOEM would be adequately secured by a surety bond, or 
another type of financial assurance, for an amount less than the amount 
prescribed in paragraph (a)(1) or (b)(1), but not less than the amount 
of the cost for decommissioning.
    The Department in the final rule is, as proposed, combining the 
provisions of the existing paragraph (d) introductory text and the 
existing paragraph (d)(1) to provide that the Regional Director may 
determine that supplemental financial assurance is required to ensure 
compliance with the obligations, including decommissioning obligations, 
under a lease and the applicable regulations if the lessee does not 
meet at least one of the criteria provided in new paragraphs (d)(1) 
through (4).
    The Department is finalizing, as proposed, the addition of a new 
paragraph (d)(1) to set forth the criterion BOEM would use to evaluate 
the ability of a lessee to carry out present and future obligations. 
Under this paragraph, BOEM will use an investment grade issuer credit 
rating from a NRSRO, as defined by the SEC, greater than or equal to 
either BBB- from S&P Global Ratings or Fitch Ratings Inc., or Baa3 from 
Moody's Investor Service Inc., or the equivalent rating from another 
NRSRO. If different SEC-recognized NRSROs provide different ratings for 
the same company, BOEM will apply the highest rating.
    As discussed in section III of this preamble, the Department is 
finalizing the addition of a new paragraph (d)(2) that states that BOEM 
can also use a proxy credit rating calculated by BOEM based on audited 
financial information from the most recent fiscal year (including an 
income statement, balance sheet, statement of cash flows, and the 
auditor's certificate) greater than or equal to either BBB- from S&Ps 
Global Ratings or Fitch Ratings Inc., or Baa3 from Moody's Investor 
Service Inc., or their equivalent from another NRSRO. The proxy credit 
ratings that BOEM will calculate on behalf of lessees will be 
structured in the same scale as the standard ratings (i.e., AAA to D). 
The audited financial information from the most recent fiscal year that 
BOEM uses to determine the proxy credit rating must be from a 
continuous 12-month period within the 24-month period prior to the 
lessee's receipt of the Regional Director's determination that the 
lessee must provide supplemental financial assurance. When determining 
a proxy credit rating, the Regional Director will consider all 
liabilities that may encumber a lessee's ability to carry out future 
obligations. Under the final rule in Sec.  556.901(d)(2)(ii), the 
lessee is obligated to provide the Regional Director with information 
regarding its joint-ownership interests and other liabilities 
associated with OCS leases, which might not otherwise be accounted for 
in the audited financial information provided to BOEM.
    The Department is finalizing revisions to paragraph (d)(3) to 
address the situation where the lessee does not meet the criterion in 
paragraph (d)(1) or (2), but one or more co-lessees or co-grant holders 
meet the criterion. The Regional Director may require a lessee to 
provide supplemental financial assurance for decommissioning 
obligations if no co-lessee or co-grant holder has an issuer credit 
rating or proxy credit rating that meets the threshold set forth in 
paragraph (d)(1) or (2). In response to comments, BOEM has revised new 
paragraph (d)(3) to make clear that the presence of such co-lessee or 
co-grant holder will allow the Regional Director to not require 
financial assurance from a current lessee only to the extent that the 
current lessee and that co-lessee or co-grant holder shares accrued 
liabilities.
    The Department is finalizing the addition of a new paragraph (d)(4) 
to set forth the methodology the Regional Director would use to 
determine proved reserves if the lessee does not meet the criteria in 
paragraph (d)(1), (2), or (3). In this instance, the Regional Director 
will assess each lease, unit, or field to determine whether the value 
of the discounted proved oil and gas reserves on the lease exceeds 
three times the undiscounted estimated cost of the decommissioning 
associated with the production of those reserves. Under paragraph 
(d)(4), the Regional Director's assessment will be based on the 
evaluation of proved oil and gas reserves following the methodology set 
forth in SEC Regulation S-X at 17 CFR 210.4-10 and SEC Regulation S-K 
at 17 CFR 229.1200. BOEM received multiple comments requesting BOEM 
allow the proved oil and gas reserve analysis to be based on a unit or 
field basis, and to clarify when values are discounted and when they 
are undiscounted in the calculation; BOEM has added clarifications in 
paragraph (d)(4) to address these comments (e.g., including the field 
or unit basis, and stating that undiscounted cost estimates will be 
used).
    The Department is also finalizing the addition of new paragraphs 
(d)(4)(i) and (ii), which state that, when implementing this reserves 
criterion, BOEM will use decommissioning cost estimates, including a 
BSEE-generated probabilistic estimate at the P70 level when available, 
or, if such estimate is not available, BOEM will use the BSEE-generated 
deterministic estimate.
    The Department is finalizing, as proposed, redesignation of 
existing paragraph (d)(2) as paragraph (e) and revisions to provide 
that a lessee may satisfy the Regional Director's demand for 
supplemental financial assurance either by increasing the amount of its 
existing financial assurance or by providing additional surety bonds or 
other types of acceptable financial assurance.
    The Department is finalizing redesignation of existing paragraph 
(e) as paragraph (f) and revisions to remove the word ``bond'' and 
replace it with ``supplemental financial assurance,'' a term that 
includes a surety bond or another type of financial assurance. As 
discussed in section III.B of this preamble, the Department is 
finalizing the use of the BSEE P70 decommissioning probabilistic 
estimate to determine the amount of supplemental financial assurance 
required to guarantee compliance when there are insufficient reserves 
or no current lessee or co-lessee that meets the criterion in Sec.  
556.901(d)(1) or (2). The Department is finalizing, as proposed, the 
inclusion of the language from existing paragraph (e) in new paragraph 
(f) to establish that, in determining the

[[Page 31570]]

amount of supplemental financial assurance, the Regional Director will 
consider the lessee's potential underpayment of royalty and cumulative 
decommissioning obligations.
    The Department is finalizing, as proposed, redesignation of 
existing paragraph (f) as paragraph (g) and revisions to replace the 
words ``bond'' and ``surety'' with ``financial assurance'' throughout. 
Existing regulation 30 CFR 556.901(f)(2) includes a statement to the 
effect that, if a company requests a reduction of the amount of the 
original bond required, the Regional Director may agree to such a 
reduction provided that he or she finds that ``the evidence you submit 
is convincing.'' The Department is finalizing, as proposed, the 
replacement of this less prescriptive regulatory text with new 
paragraph (g)(2) that states an entity must submit evidence to the 
Regional Director that demonstrates that the projected amount of 
royalties due to the United States Government and the estimated costs 
of decommissioning are less than the required financial assurance 
amount. Additionally, through the same process, BOEM will allow an 
entity to request a reduction if it opposes the amount of a proposed 
increase in the amount of financial assurance required.
    The Department is finalizing the addition of new paragraph (h) to 
describe the limited opportunity lessees will have to provide the 
required supplemental financial assurance in phased installments during 
the first 3 years after the effective date of this regulation, subject 
to the conditions of paragraphs (h)(1) and (2). The Department proposed 
and is finalizing a 3-year approach, as discussed in section III.E of 
this preamble, which is appropriate to mitigate potentially significant 
risk to companies and to provide adequate time for the bonding market 
to adjust. Additionally, this approach reduces the immediate regulatory 
burden on lessees and grant holders that are required to provide 
financial assurance as a result of this rule, which are likely to 
mainly be small businesses.
    The Department is finalizing the addition of new paragraphs 
(h)(1)(i) through (iii) to establish the timing and amounts of phased 
supplemental financial assurance that would need to be provided. 
Submissions would be required in three installments of one-third of the 
demand each, the first of which would be required within the timeframe 
specified in the demand letter, or within 60 calendar days of receiving 
the demand letter if no timeframe is specified. The second one-third 
would be required within 24 months from the date of receipt of the 
original demand letter, and the final installment would be due within 
36 months from the date of the receipt of the original demand letter.
    Additionally, the Department is finalizing, as proposed, the 
addition of new paragraph (h)(2) to establish a procedure in case a 
demand that has been approved for phased compliance is not met within 
the timeframes established by paragraphs (h)(1)(i) through (iii). If a 
phased compliance deadline under paragraphs (h)(1)(i) through (iii) is 
missed, the Regional Director will notify the party of the failure to 
meet the timeframe and that it will no longer be eligible to meet the 
supplemental financial assurance demand by using the phased compliance 
option set forth in paragraph (h). Moreover, the remaining balance of 
the demand will become due ten calendar days after the Regional 
Director's notification is received.
Section 556.902 General Requirements for Bonds or Other Financial 
Assurance
    The Department is finalizing, as proposed, revisions to the section 
heading to read, ``General requirements for bonds or other financial 
assurance,'' to recognize that other types of financial assurance, such 
as a dual-obligee bond or a pledge of Treasury securities, may be 
provided under part 556. These amendments clarify that the same general 
requirements for financial assurance provided by lessees, operating 
rights owners, or operators of leases also apply to financial assurance 
provided by RUE grant and pipeline ROW grant holders. The final rule 
also revises paragraph (a), as proposed, to include ``grant holder'' 
and ``record title holder'' and to cover financial assurance provided 
under 30 CFR part 550. The requirements of this section are those that 
apply broadly to all types of financial assurance provided to BOEM for 
oil and gas activities on a lease or grant. Additional requirements 
applicable specifically to RUEs and ROWs are described in Sec. Sec.  
550.166 and 550.1011, respectively.
    The Department is finalizing, as proposed, the addition of ``or 
grant'' after ``lease'' to clarify the change to include grant holders 
in paragraph (a)(2). The rule also adds compliance with ``all BOEM and 
BSEE orders'' as a requirement. Additionally, the final rule revises 
proposed paragraph (a)(3) to include the obligations of all record 
title owners, operating rights owners, and operators on the lease, 
except as stated in Sec.  556.905(b) and to add ``all grant-holders on 
a grant.''
    The Department is finalizing, as proposed, a revision to paragraph 
(e)(2) to clarify that the use of Treasury securities as financial 
assurance requires a pledge of Treasury securities, as provided in 
Sec.  556.900(f).
    The Department is finalizing, as proposed, the addition of new 
paragraph (g) to recognize the option to seek an informal resolution of 
a surety bond demand pursuant to Sec.  590.6. This paragraph further 
provides that a request for an informal resolution of a dispute 
concerning the Regional Director's decision to require supplemental 
financial assurance will not affect the applicant's ability to request 
a phased payment of its supplemental financial assurance demand under 
Sec.  556.901(h).
    The Department is finalizing, as proposed, the addition of a new 
paragraph (h) to address risks arising in connection with the lessee's 
and grant holder's ability to stay the demand during an appeal of a 
demand for supplemental financial assurance to the IBLA pursuant to the 
regulations in 30 CFR part 590. The rule adds an additional requirement 
to the IBLA appeals process whereby if an appellant requests that the 
IBLA stay the supplemental financial assurance demand, the appellant 
will be required to post an appeals surety bond equal to the amount of 
supplemental financial assurance that the appellant seeks to stay 
before any stay can go into effect. Because IBLA appeals may continue 
for several years, it is important that BOEM ensure that the 
government's and taxpayers' interests are protected during the appeal. 
The appeal surety bond requirement will prevent the government from 
being left with inadequate security if the appellant files bankruptcy 
before the appeal process ends.
Section 556.903 Lapse of Financial Assurance
    The Department is finalizing, as proposed, the replacement of the 
word ``bond'' in the section heading with ``financial assurance'' for 
consistency with the terminology change made throughout the subpart. 
The final rule revises paragraph (a) to add after the word ``surety,'' 
``guarantor, or the financial institution holding or providing your 
financial assurance'' and to include references to the financial 
assurance requirements for RUE grants (Sec.  550.166) and pipeline ROW 
grants (Sec.  550.1011). The final rule also revises, as proposed, 
paragraph (a) by removing the words ``terminates immediately'' and 
substituting the words ``must be replaced.'' The final rule, in 
paragraph

[[Page 31571]]

(a), replaces the word ``promptly'' with a specific timeline of within 
72 hours of learning of a negative event for the financial assurance 
provider and also adds a 30-calendar day timeframe in which the party 
must provide other financial assurance from a different financial 
assurance provider.
    The Department is also finalizing, as proposed, a revision to the 
first sentence of paragraph (b) by inserting ``or financial 
institution'' after ``guarantor,'' to make the provision apply to all 
types of financial assurance providers, including those offering 
decommissioning accounts. BOEM is revising the second sentence of 
paragraph (b) for consistency in terminology by inserting the words 
``or other financial assurance'' after the word ``bonds'' and inserting 
the words ``guarantor, or financial institution'' after the word 
``surety,'' so that all surety bonds or other financial assurance 
instruments must require all financial assurance providers to notify 
the Regional Director within 72 hours of learning of an action filed 
alleging that the lessee or grant holder, or their financial assurance 
provider, is insolvent or bankrupt.
Section 556.904 Decommissioning Accounts
    The Department is finalizing, as proposed, the revision of both the 
section heading and the term ``abandonment accounts'' throughout the 
section to read ``decommissioning accounts,'' in accordance with BOEM 
policy and accepted terminology used in the industry. The words 
``lease-specific'' are removed throughout this section to make clear 
that a decommissioning account can be used for a lease or several 
leases, a RUE grant, or a pipeline ROW grant, or a combination thereof.
    The Department is finalizing, as proposed, revisions to paragraph 
(a) to remove the term ``lease-specific'' and replace ``abandonment'' 
with ``decommissioning,'' and the addition of references to the lease 
base and supplemental financial assurance regulation (Sec.  
556.901(d)), as well as the financial assurance regulations for RUE 
grants (Sec.  550.166(b)) and pipeline ROW grants (Sec.  550.1011(d)), 
consistent with the changes mentioned in the preceding paragraph. 
Although the paragraph (a) introductory text continues to allow a 
lessee or grant holder to establish a decommissioning account at a 
federally insured financial institution, this final rule eliminates the 
existing restriction that such deposits not exceed the FDIC/FSLIC 
insurance limits and the reference to paragraph (a)(3), which is being 
revised and is no longer relevant to withdrawal of funds from a 
decommissioning account.
    The final rule, as proposed, re-arranges the existing sentence 
constituting Sec.  556.904(a)(1). The rule also revises paragraph 
(a)(2) to remove the words ``as estimated by BOEM'' to clarify that 
BOEM does not estimate decommissioning costs, but rather uses the 
estimates of decommissioning costs determined by BSEE. The final rule 
also revises paragraph (a)(2) to require funding of a decommissioning 
account ``pursuant to a schedule that the Regional Director 
prescribes,'' as opposed to ``within the timeframe the Regional 
Director prescribes'' as existing Sec.  556.904(a)(2) now states.
    The Department is finalizing revisions to paragraph (a)(3) as 
proposed to remove the requirement to provide binding instructions to 
purchase Treasury securities for a decommissioning account under 
certain circumstances. The final rule replaces the existing language 
with a new provision providing that if you fail to make the initial 
payment or any scheduled payment into the decommissioning account, or 
if you fail to correct a missed payment within 30 days, you must 
immediately submit, and subsequently maintain, a surety bond or other 
financial assurance in an amount equal to the remaining unsecured 
portion of your estimated decommissioning liability. This change 
reflects BOEM's current policy to order a surety bond or other 
financial assurance in the event the payments into the decommissioning 
account are not timely made.
    The Department is finalizing, as proposed, revisions to paragraph 
(b) by removing ``lease-specific'' and substituting ``decommissioning'' 
and to clarify that the interest paid on funds in the account will 
become part of the principal funds in the account unless the Regional 
Director authorizes, in writing, the payment of the interest to the 
party who deposits the funds.
    The Department is finalizing, as proposed, the removal of existing 
paragraphs (c) and (d), which discuss the use of pledged Treasury 
securities to fund a decommissioning account. Existing paragraph (e) is 
redesignated as paragraph (c) except that the word ``pledged'' is 
removed, and ``other revenue stream'' is added to the list of optional 
sources for funding the account. In response to comments asserting that 
parties may elect to dedicate production to fund decommissioning 
accounts even if the Regional Director does not ``require'' them, the 
Department is adding to new paragraph (c) that the Regional Director 
may ``authorize,'' in addition to ``require,'' the optional funding 
sources.
    The Department is finalizing the addition of new paragraph (d) with 
minor edits from the proposal, which describes the Regional Director's 
discretion to authorize BOEM to provide funds from a decommissioning 
account to a party that performs the decommissioning in response to a 
BOEM or BSEE order.
Section 556.905 Third-Party Guarantees
    The Department is finalizing, as proposed, revisions to the section 
heading to read, ``Third-party guarantees.'' The final rule also 
revises the section throughout to remove the introductory titles of 
each paragraph to provide consistency in the format of the final 
regulatory text.
    The Department is finalizing, as proposed, revisions to paragraph 
(a) to reference Sec.  556.901(d) (related to lease financial 
assurance), and to cross-reference Sec.  550.166(b) (related to RUEs) 
and 550.1011(d) (related to pipeline ROWs), to clarify that a third-
party guarantee may be used as a type of supplemental financial 
assurance for not only leases, but RUE grants and pipeline ROW grants 
as well.
    The Department is also finalizing, as proposed, revisions to 
paragraph (a)(1) to clarify that the guarantor, not the guarantee, as 
provided in the existing regulation, must meet the criteria in Sec.  
556.901(d)(1) or (2), as applicable. BOEM retains existing paragraph 
(a)(2), but revises it to include a requirement, which is found in 
existing paragraph (a)(4), that the guarantor or guaranteed party must 
submit a third-party guarantee agreement containing each of the 
provisions in proposed paragraph (d). As discussed below, paragraph (d) 
is revised to no longer use the term ``indemnity agreement'' and to 
provide instead that the provisions that BOEM previously required a 
lessee or grant holder to include in indemnity agreements must be 
included in a third-party guarantee agreement. This terminology is 
changed to clarify that the government is not required to incur the 
expenses of decommissioning before demanding compensation from the 
guarantor. The rule also removes existing paragraphs (a)(3) and (4), 
which are superseded by other revisions to this section.
    The Department is finalizing the proposed new paragraph (b) with 
edits to allow guarantors to limit their guarantees to a fixed dollar 
amount, as agreed to by BOEM at the time the third-party guarantee is 
provided. In response

[[Page 31572]]

to comments, the Department is also finalizing additional regulatory 
text in new paragraph (b) to allow a guarantor, as agreed to by BOEM at 
the time the third-party guarantee is provided, to limit a guarantee's 
coverage to one or more specific lease obligations with no fixed dollar 
amount, notwithstanding Sec.  556.902(a)(3).
    The Department is finalizing, as proposed, redesignation of 
existing paragraph (b) as paragraph (c) and revisions to the 
introductory text to remove the reference to existing paragraph (c)(3) 
because the requirements in that paragraph have been superseded in this 
rule. The final rule replaces this reference with a reference to 
paragraph (a)(1) as revised. Because the cessation of production is 
neither desirable nor easily accomplished by an operator, this rule 
also revises existing paragraph (b)(2) to remove the requirement that, 
when a guarantor becomes unqualified, you must ``cease production until 
you comply with the surety bond coverage requirements of this 
subpart.'' Instead, the language in revised redesignated paragraph (c) 
provides that you must, within 72 hours, ``[s]ubmit, and subsequently 
maintain a surety bond or other financial assurance covering those 
obligations previously secured by the third-party guarantee.'' 
Additionally, the final rule removes existing paragraph (c) as the 
language has been superseded by the new language in Sec.  556.905(a).
    The Department is finalizing, as proposed, revisions to the 
paragraph (d)(1) introductory text to read ``If you fail to comply with 
the terms of any lease or grant covered by the guarantee, or any 
applicable regulation, your guarantor must either:'' This revision is 
made for consistency with the revision of paragraph (a) to allow the 
use of a third-party guarantee for a RUE grant or a pipeline ROW grant.
    Additionally, the rule revises, as proposed, paragraph (d)(1)(i) to 
clarify that the corrective action required is to bring the lease or 
grant into compliance with its terms, or any applicable regulation, to 
the extent covered by the guarantee. The rule also revises paragraph 
(d)(1)(ii) to clarify that the liability only extends to that covered 
by the guarantee and that payment of some amount less than the whole of 
the guarantee does not result in the cancellation of the guarantee, but 
rather a reduction in the remaining value of the guarantee equal to the 
payment made.
    The rule removes existing paragraph (d)(2) for consistency with the 
revision to remove existing paragraph (c), as proposed. As a result, 
existing paragraph (d)(3) is redesignated as paragraphs (d)(2) and (4) 
is redesignated as paragraph (d)(3). The rule revises, as proposed, the 
redesignated paragraphs (d)(2)(ii) and (iii) to remove the words ``your 
guarantor's'' and replace them with the word ``the'' to clarify that 
redesignated paragraph (d)(2) applies to the guarantee itself. Lastly, 
as proposed, the rule revises redesignated paragraph (d)(3) to replace 
the term ``a suitable replacement financial assurance'' with 
``acceptable replacement financial assurance'' for clarity. The rule 
revises the paragraph so that it is clear that any replacement 
financial assurance must be provided before the termination of the 
period of liability of the third-party guarantee.
    The Department is finalizing, as proposed, a new paragraph (e) to 
provide that BOEM will cancel a third-party guarantee under the same 
terms and conditions as those in revised Sec.  556.906(b) and/or 
(d)(3).
    The Department is finalizing the addition, as proposed, of new 
paragraphs (f) through (k) to replace the provisions of existing 
paragraph (e). The new paragraphs mirror the provisions of existing 
paragraph (e), while making minor adjustments to accommodate the new 
format and add clarification. The term ``indemnity agreement'' would be 
replaced with ``third-party guarantee agreement'' throughout.
Section 556.906 Termination of the Period of Liability and Cancellation 
of Financial Assurance
    The Department is finalizing, as proposed, the replacement of the 
words ``security'' and ``surety bond'' with ``financial assurance'' and 
``surety'' with ``financial assurance provider'' for consistency with 
the changes throughout the subpart. The section heading is also revised 
so that ``a bond'' is replaced with ``financial assurance.''
    This final rule revises existing paragraph (b)(1) to remove the 
word ``terminated'' in two instances and replace it with ``cancelled'' 
to be consistent with the existing paragraph (b) introductory text, 
which provides that the Regional Director will cancel your previous 
financial assurance when you provide a replacement, subject to the 
conditions provided in paragraphs (b)(1) through (3). BOEM is also 
removing the word ``for'' before ``by the bond'' in paragraph (b)(1) 
for grammatical reasons.
    The Department is finalizing, as proposed, revisions to existing 
paragraph (b)(2) to add cross-references to Sec.  550.166(a), which is 
the financial assurance regulation for RUE grants, and Sec.  
550.1011(a), which is the financial assurance regulation for pipeline 
ROW grants, and revising existing paragraph (b)(3) to also reference 
supplemental financial assurance regulations for RUE grants (Sec.  
550.166(b)) and pipeline ROW grants (Sec.  550.1011(d)). The Department 
is finalizing the deletion of the word ``base'' in front of financial 
assurance to clarify that the new financial assurance would replace 
whatever financial assurance previously existed, whether that financial 
assurance consisted of base financial assurance alone or together with 
any prior supplemental financial assurance.
    The Department is finalizing, as proposed, revisions to the 
introductory text of paragraph (d) to cover financial assurance 
cancellations and return of pledged security and, in the table, is 
removing the middle column titled, ``The period of liability will 
end,'' because it was redundant with the provisions in proposed 
paragraphs (a) through (c).
    In table 1 to paragraph (d), the Department is finalizing revisions 
to the column headers. In the existing column in the table titled, 
``For the following type of bond,'' BOEM is removing the words ``type 
of bond'' and replacing those words with a colon at the top of the 
table so that this paragraph would apply to surety bonds or other 
financial assurance, as applicable. The existing column in the table 
titled, ``Your bond will be cancelled,'' is revised to read, ``Your 
financial assurance will be reduced or cancelled, or your pledged 
financial assurance will be returned,'' to clarify that financial 
assurance may be reduced or cancelled and pledged financial assurance, 
or a portion thereof, may be returned, and to specify other 
circumstances under which the Regional Director may cancel supplemental 
financial assurance or return pledged financial assurance. While the 
existing criteria identify most instances when cancellation of 
financial assurance is appropriate, occasionally there are other 
circumstances where cancellation would be warranted, as discussed in 
the paragraphs below.
    Paragraph (d)(1) in the table 1 to paragraph (d) is revised to 
include a cross-reference to base financial assurance submitted under 
Sec. Sec.  550.166(a) (for RUE grants) and 550.1011(a) (for pipeline 
ROW grants). The Department is finalizing revisions to paragraph (d)(2) 
in the same column to include a reference to supplemental financial 
assurance submitted under Sec. Sec.  550.166(b) and 550.1011(d). The 
rule allows cancellation when BOEM determines, using the criteria set 
forth in Sec.  556.901(d), Sec.  550.166(b), or

[[Page 31573]]

Sec.  550.1011(d), as applicable, that a lessee or grant holder no 
longer needs to provide supplemental financial assurance for its lease, 
RUE grant, or pipeline ROW grant; when the operations for which the 
supplemental financial assurance was provided ceased prior to accrual 
of any decommissioning obligation; or when cancellation of the 
financial assurance is appropriate because BOEM determines such 
financial assurance never should have been required under the 
regulations. Additionally, DOI is finalizing, as proposed, the addition 
of a new paragraph (d)(3) in table 1 to paragraph (d) to address the 
cancellation of a third-party guarantee.
    The Department is finalizing, as proposed, revisions to the 
introductory text in paragraph (e) to remove the words ``or release'' 
because the term ``release'' is undefined and not used in practice. 
Likewise, the rule removes the words ``or released'' from paragraph 
(e)(2). No substantive change is intended; rather BOEM seeks to clarify 
the meaning of the existing provision. Additionally, the Department is 
finalizing the revisions of paragraph (e) to reference RUE grants and 
pipeline ROW grants to provide that the Regional Director may reinstate 
the financial assurance on the same grounds as currently provided for 
reinstatement of lease financial assurance.
Section 556.907 Forfeiture of Bonds or Other Financial Assurance
    The rule revises the section heading to read, ``Forfeiture of bonds 
or other financial assurance'' because the use of ``or'' is sufficient 
in this instance. The rule revises paragraph (a)(1) to include surety 
bonds or other financial assurance for RUE grants and pipeline ROW 
grants, in addition to leases, in the forfeiture provisions of this 
section. The Department is finalizing, as proposed, the clarification 
in paragraph (a)(2) that the Regional Director may pursue forfeiture of 
a surety bond or other financial assurance if you default on one of the 
conditions under which the Regional Director accepts your bond, third-
party guarantee, and/or other form of financial assurance. Throughout 
this section, BOEM adds references to a grant, a grant holder, and 
grant obligations to implement the revisions in paragraph (a)(1). BOEM 
is revising paragraph (a)(2) to replace ``other form of security'' with 
``other form of financial assurance'' for consistent terminology.
    The Department is finalizing, as proposed, revisions to paragraph 
(b) to include surety bonds ``or other financial assurance'' so that 
BOEM may pursue forfeiture of a surety bond or other financial 
assurance. The word ``lessee'' is replaced with ``record title holder'' 
to clarify that the term includes record title holders in those 
situations where operating rights are subleased.
    The Department is finalizing, as proposed, revisions to paragraph 
(c)(1) to include ``financial institution holding or providing your 
financial assurance'' as one of the parties the Regional Director would 
notify of a determination to call for forfeiture because a bank or 
other financial institution may hold funds subject to forfeiture. This 
rule revises paragraph (c)(1)(ii) to acknowledge limitations authorized 
by Sec.  556.905(b) by more precisely stating that the Regional 
Director will use an estimate of the cost of the corrective action 
needed to bring a lease into compliance when determining the amount to 
be forfeited, subject, in the case of a guarantee, to any limitation 
authorized by Sec.  556.905(b). Additionally, BOEM is replacing 
existing paragraphs (c)(2)(ii) and (iii) with a new paragraph 
(c)(2)(ii) that specifies that to avoid forfeiture by promising to take 
corrective action, any financial assurance provider would have to agree 
to, and demonstrate that it will, complete the required corrective 
action to bring the relevant lease into compliance within the timeframe 
specified by the Regional Director, even if the cost of such compliance 
exceeds the amount of the financial assurance. The amendments clarify 
that existing paragraphs (c)(2)(ii) and (iii) apply to all forms of 
financial assurance, including the caveat that corrective action must 
be completed even if the cost of compliance exceeds the limit of the 
financial assurance.
    The Department is finalizing, as proposed, revisions to existing 
paragraphs (d) and (e)(2) by replacing ``leases'' with ``lease or 
grant'' to extend the applicability of these provisions to include RUE 
and ROW grants.
    Similarly, the Department is finalizing, as proposed, revisions to 
paragraph (f)(1) to include ``grant'' as well as lease. The Department 
is revising paragraph (f)(2) to clarify that BOEM may recover 
additional costs from a third-party guarantor only to the extent 
covered by the guarantee. This is consistent with the change made at 
Sec.  556.905(b) to allow the use of limited third-party guarantees. 
This rule also rewords paragraph (g) for clarity.
    In some circumstances, predecessor lessees that have been notified 
about the failure of their successor lessees to fulfill their 
decommissioning obligations will initiate the requisite decommissioning 
activities. In these cases, predecessor lessees or grantees are likely 
to incur costs that could be funded from financial assurance posted 
with BOEM on behalf of the current lessee. BOEM has finalized new 
paragraph (h), as proposed, to make clear that BOEM may provide funds 
collected from forfeited financial assurance to predecessor lessees or 
grant holders or to third parties taking corrective actions on the 
lease or grant.

Part 590--Appeal Procedures

Subpart A--Bureau of Ocean Energy Management Appeal Procedures
    The Department is revising the heading of subpart A to remove the 
outdated reference to ``Offshore Minerals Management.'' The heading now 
reads ``Bureau of Ocean Energy Management Appeals Procedures'' to 
reflect the current organization of the DOI more accurately. This 
outdated reference was identified after the proposed rule was 
published. This edit is not substantive and therefore was included in 
this final rule.
Section 590.1 What is the purpose of this subpart?
    The Department is revising the introductory text to remove the 
outdated references to ``Offshore Minerals Management (OMM) decisions'' 
and to correct prior erroneous text that stated the decisions and 
orders which are being appealed under part 590 are issued under 
subchapter C. The outdated reference and erroneous text were identified 
after the proposed rule was published. This edit is not substantive and 
therefore was included in this final rule.
Section 590.2 Who may appeal?
    The Department is revising the introductory text to remove the 
outdated reference to ``OMM officials'' and to correct that the 
decisions and orders which are being appealed under part 590 are not 
issued under subchapter C. The outdated reference and erroneous text 
were identified after the proposed rule was published. This edit is not 
substantive and therefore was included in this final rule.
Section 590.3 What is the time limit for filing an appeal?
    The Department is revising the introductory text to remove the 
outdated reference to ``OMM official's final decision'' and replacing 
it with the correct reference to ``BOEM.'' This outdated reference was 
identified after the proposed rule was published. This edit is not 
substantive and therefore was included in this final rule.

[[Page 31574]]

Section 590.4 How do I file an appeal?
    The Department is revising paragraph (a) to remove the outdated 
reference to ``OEMM officer'' and replacing it with the correct 
reference to ``BOEM.'' This outdated reference was identified after the 
proposed rule was published. This edit is not substantive and therefore 
was included in this final rule.
    The Department is finalizing, as proposed, the addition of 
paragraph (c) to specify that, while a demand for supplemental 
financial assurance may be appealed to the IBLA, a stay can only be 
granted if an appeal surety bond for an amount equal to the demand is 
posted. This is intended to mitigate the risk to the government that, 
after the appeal is decided, a company will be unable to perform its 
obligations because of its financial deterioration during pendency of 
the appeal.
Section 590.7 Do I have to comply with the decision or order while my 
appeal is pending?
    The Department is revising paragraphs (a)(1) and (b) to remove the 
outdated reference to ``OMM'' and replacing it with the correct 
reference to ``BOEM.'' This outdated reference was identified after the 
proposed rule was published. This edit is not substantive and therefore 
was included in this final rule.
Section 590.8 How do I exhaust my administrative remedies?
    The Department is revising paragraph (a) to remove an erroneous 
reference that previously stated that the decisions and orders, which 
are being appealed under part 590, are issued under subchapter C.

VI. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review, as Amended by 
Executive Order 14094: Modernizing Regulatory Review, and Executive 
Order 13563: Improving Regulation and Regulatory Review

    E.O. 12866, as amended by E.O. 14094, provides that the Office of 
Information and Regulatory Affairs (OIRA) in the Office of Management 
and Budget (OMB) will review all significant rules. OIRA has determined 
that this rule is a significant action under E.O. 12866, as amended by 
E.O. 14094, sec. 3(f)(1). This rulemaking will result in an annual 
effect on the economy of $200 million or more (adjusted every 3 years 
by the Administrator of OIRA for changes in gross domestic product).
    E.O. 13563 reaffirms the principles of E.O. 12866, as amended by 
E.O. 14094, while calling for improvements in the Nation's regulatory 
system to promote predictability and reduce uncertainty, and to use the 
best, most innovative, and least burdensome tools for achieving 
regulatory ends. E.O. 13563 directs agencies to consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public where these approaches are relevant, feasible, 
and consistent with regulatory objectives. BOEM has developed this rule 
in a manner consistent with these requirements.
    BOEM prepared an analysis of the potential costs and benefits 
associated with this action, which are described in the following OMB 
Circular A-4 Accounting Statement. For further discussion, this 
analysis, Risk Management and Financial Assurance for OCS Lease and 
Grant Obligations Regulatory Impact Analysis, is available in the 
docket and is summarized in sections IV.B and IV.C of this preamble.
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BILLING CODE 4310-MR-C

B. Regulatory Flexibility Act (RFA)

    The RFA, 5 U.S.C. 601-612, requires agencies to analyze the 
economic impact of regulations when a significant economic impact on a 
substantial number of small entities is likely and to consider 
regulatory alternatives that will achieve the agency's goals while 
minimizing the burden on small entities. Pursuant to sections 603 and 
609(b) of the RFA, BOEM prepared an initial regulatory flexibility 
analysis (IRFA) for the proposed rule that examined the impacts of the 
proposed rule on small entities, along with regulatory alternatives 
that could minimize that impact. A summary of the IRFA is presented in 
the proposed rule at 88 FR 42157 and was included in the docket for 
public comment (Risk Management, Financial Assurance and Loss 
Prevention Initial Regulatory Impact Analysis, Docket ID No. BOEM-2023-
0027-0002).
    As required by section 604 of the RFA, BOEM prepared a final 
regulatory flexibility analysis for this action. The analysis addresses 
the issues raised by public comments on the IRFA for the proposed rule. 
The complete analysis is available for review in the docket (Docket No. 
BOEM-2023-0027) and is summarized here.
    The final rule affects OCS lessees and RUE and pipeline ROW grant 
holders; this includes approximately 391 companies with ownership 
interests in OCS leases and grants, of which approximately 271 (69 
percent) are considered small. Because all 391 companies are subject to 
this final rule, BOEM expects the rule will affect a substantial number 
of small entities.
    Under this final rule, BOEM will consider the financial capacity of 
all co-owners when determining the need for current lessees and grant 
holders to provide supplemental financial assurance. If one of these 
entities meets the issuer credit or BOEM proxy credit rating criteria, 
BOEM will not require the current lessee or grant holder to provide 
supplemental financial assurance. This will benefit financially strong 
lessees or grant holders that meet the investment grade credit rating 
criteria and lessees and grant holders that do not meet the credit 
rating criteria but are co-owners with investment grade co-lessees or 
co-grant holders. Certain lessees or grant holders with less-than-
investment-grade credit ratings that are solely responsible for their 
OCS liability (sole liability leases or grants) are already bonded 
under the current regulations and these lessees will not be impacted. 
BOEM's analysis assumes that such non-investment-grade lessees and 
grant holders with non-investment-grade co-lessees or co-grant holders 
that have avoided financial assurance under the current regulations 
will be expected to provide financial assurance under this final rule. 
BOEM's estimates indicate that small entities are responsible for $11.6 
billion, or approximately 80 percent, of the current $14.6 billion 
liability of non-investment-grade owners. Non-investment-grade small 
entities holding joint and several liabilities with other such 
companies will incur increased compliance burdens under the rule, 
assuming they do not meet the minimum 3-to-1 ratio of the value of 
proved reserves to decommissioning liability associated with those 
reserves. This increased compliance burden will vary substantially by 
entity; the burden is a function of the small entity's decommissioning 
liability, reserves, and the price of the premiums paid for its 
financial assurance. Based on the estimates in Table 7 of the RIA, 
these premiums could exceed $258 per $1,000 of bond coverage for highly 
speculative small entities.
    The regulatory alternatives evaluated for the rule are discussed in 
section VI (Analysis of Regulatory Alternatives) in the RIA and in 
section XII.B of the preamble to the proposed rule (88 FR 42157). The 
regulatory alternatives included both more stringent and less stringent 
regulatory options, as well as a no action alternative for the proposed 
rule. For the no action regulatory alternative, BOEM would continue the 
current regulatory policies and partial implementation of NTL No. 2016-
N01. For the more stringent regulatory alternative, BOEM would fully 
implement NTL No. 2016-N01, which would require supplemental financial 
assurance from all lessees and grant holders with a credit rating less 
than AA- without a financially strong co-owner or co-grant holder. For 
the less

[[Page 31577]]

stringent regulatory alternative, BOEM would require supplemental 
financial assurance for lessees with a credit rating less than BB- and 
would waive requirements for those lessees if there was a financially 
strong predecessor lessee.
    Under BOEM's less stringent regulatory alternative, small entities 
with a credit rating lower than BB- currently responsible for a 
liability that has at least one investment-grade predecessor lessee 
would benefit by avoiding the need to provide any supplemental 
financial assurance. However, a regulatory framework permitting 
financially weaker companies to forgo or delay the posting of 
supplemental financial assurance may create a private cost advantage 
for certain entities. This could distort competition and incentivize 
financially weaker companies to incur investment risks for activities 
they would otherwise not undertake.
    BOEM has elected to maintain the proposed rule credit threshold of 
investment grade (i.e., BBB-) rather than that of the less stringent 
alternative (i.e., BB-) to reduce the potential risk imposed on 
taxpayers from uncovered decommissioning liabilities.
    Under the more stringent regulatory alternative in the proposed 
rule, BOEM evaluated the full implementation of BOEM's 2016 NTL. In 
this alternative (``Alternative 1''), more small businesses would be 
required to provide supplemental financial assurance because all 
companies rated A+ and below (S&P) would be required to provide 
financial assurance to secure their OCS liabilities. BOEM determined 
that this alternative would not meaningfully reduce risk in comparison 
with the proposal and would result in significant new costs to 
industry. Aside from the prior implementation issues with the NTL, the 
2016 NTL did not consider risk reduction provided by reserves. As a 
result, it would cost approximately $1 billion more in annual premiums, 
and the additional coverage over the final rule would come from 
investment grade companies that pose a much lower risk of default. 
Because A+, A, and A- companies have very low default rates, and any 
co-lessee or predecessor lessee would have responsibilities of covering 
decommissioning, the small reduction in risk beyond what is provided in 
the rule would not justify the cost of this regulatory alternative.
    Under BOEM's proposed rule, all lessees without an investment-grade 
co-lessee were required to provide financial assurance at the P70 level 
if they did not meet the investment-grade credit rating threshold or 
have a minimum value of proved reserves to decommissioning liability 
ratio of 3-to-1. The Department is finalizing provisions that require 
non-investment-grade lessees responsible for properties to provide 
financial assurance at the P70 level (unless they qualify for the 3-to-
1 ratio of the value of proved reserves to decommissioning liability 
associated with those reserves exemption).
    BOEM has designed its financial assurance program to accommodate 
small entities, while still fulfilling the goals of minimizing the risk 
of noncompliance with regulations. BOEM's use of lessee and grant 
holder issuer or proxy credit ratings and lease reserves for 
determining whether financial assurance would be required creates a 
performance standard rather than a prescriptive design standard for all 
companies operating on the OCS.
    Decommissioning obligations and the joint and several liability 
framework for those obligations are not being changed with this rule. 
BOEM will not categorically exempt or provide differing compliance 
requirements for small entities. Categorically exempting small entities 
from the provisions of this rule based on size would place the taxpayer 
at unacceptable risk for assuming the decommissioning obligations of 
small entities. BOEM will use a 3-year, phased compliance approach for 
all lessees and grant holders to allow additional time to come into 
compliance in the early years of the rule. This could include arranging 
to secure financial assurance or suitable partnerships with stronger 
parties to avoid the necessity of providing financial assurance. 
Categorically providing small entities with more favorable compliance 
timetables before requiring financial assurance unreasonably increases 
risk due to the possible financial deterioration of a given company 
during that time. BOEM's financial assurance criteria are designed, in 
part, to provide BOEM ample time to intervene should a company's 
financial position begin to deteriorate. It is foreseeable that a 
company not meeting those criteria, but categorically granted 
additional time to provide financial assurance, could deteriorate more 
quickly than its compliance timetable and thus not be covered and able 
to satisfactorily perform its obligations to the public.

C. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act (SBREFA), 5 
U.S.C. 804(2), requires BOEM to perform a regulatory flexibility 
analysis, provide guidance, and help small businesses comply with 
statutes and regulations for major rulemakings. This action is subject 
to the SBREFA because it has an annual effect on the economy of $100 
million or more.
    Small businesses are expected to face increased compliance costs 
from this action, unless they have a financially strong co-lessee. BOEM 
estimates that the annual compliance cost for small businesses is $421 
million (discounted at 7 percent). BOEM must apply the same 
requirements to all weak companies, regardless of size, in order to 
ensure that the development of energy in the OCS is safe and protects 
both the taxpayer and the environment. BOEM acknowledged that small 
businesses may not have issuer credit ratings in the proposed rule (88 
FR 42146) and proposed, and is finalizing, provisions allowing entities 
without a credit rating to have the BOEM Regional Director assess a 
proxy credit rating to address this issue. Additionally, these small 
businesses can be evaluated on the proved reserves of their lease to 
determine if they may be required to provide additional supplemental 
financial assurance, also potentially reducing their financial burden. 
Furthermore, a strong co-lessee will obviate the need for financial 
assurance from the rest of the co-lessees on the lease. BOEM is also 
including a phased-in implementation and removal of impediments to the 
use of decommissioning accounts and third party guarantees to provide 
flexibility and reduce the financial burden. BOEM is tasked with 
ensuring that all lessee obligations in the OCS are met and believes 
this rulemaking is necessary to address insufficient financial 
resources available in the case of default.
    For more information on the small business impacts, see the RFA 
analysis and the discussion in section IV of this preamble. Small 
businesses may send comments on the actions of Federal employees who 
enforce or otherwise determine compliance with Federal regulations to 
the Small Business and Agriculture Regulatory Enforcement Ombudsman, 
and to the Regional Small Business Regulatory Fairness Board. The 
Ombudsman evaluates these actions annually and rates each agency's 
responsiveness to small business. If you wish to comment on actions by 
employees of BOEM, call 1-888-REG-FAIR (1-888-734-3247).

D. Unfunded Mandates Reform Act (UMRA)

    The UMRA, 2 U.S.C. 1531-1538, requires BOEM, unless otherwise 
prohibited by law, to assess the effects

[[Page 31578]]

of regulatory actions on State, local, and Tribal governments, and the 
private sector. Section 202 of UMRA generally requires BOEM to prepare 
a written statement, including a cost-benefit analysis, for each 
proposed and final rule with ``federal mandates'' that may result in 
expenditures by State, local, and Tribal governments, in the aggregate, 
or to the private sector, of $100 million or more in any one year. This 
action contains a Federal mandate under UMRA, 2 U.S.C. 1531-1538, that 
may result in expenditures of $100 million or more for State, local and 
Tribal governments, in the aggregate, or the private sector in any one 
year. Accordingly, BOEM has prepared a written statement required under 
section 202 of UMRA. The statement is included in the RIA for this 
action and briefly summarized here.
    Because all anticipated private sector expenditures that may result 
from the proposed rule are analyzed in the proposed rule RIA and in the 
RIA for this final rule (i.e., expenditures of the offshore oil and gas 
industry), these documents satisfy the UMRA requirement to estimate any 
disproportionate budgetary effects of the rule on a particular segment 
of the private sector. As explained in the final RIA, this final rule 
is anticipated to have annualized net estimated compliance costs of 
$559 million annually (7 percent discounting), but provides 
strengthened financial assurance to protect taxpayers from the costs of 
decommissioning offshore infrastructure. No comments on the UMRA 
statement were received during the public comment period.
    This action is not subject to the requirements of section 203 of 
UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

E. Executive Order 12630 Governmental Actions and Interference With 
Constitutionally Protected Property Rights

    Executive Order 12630, Governmental Actions and Interference with 
Constitutionally Protected Property Rights, ensures that government 
actions affecting the use of private property are undertaken on a well-
reasoned basis with due regard for the potential financial impacts 
imposed by the government. This action does not affect a taking of 
private property or otherwise have taking implications under E.O. 
12630, and therefore, a takings implication assessment is not required. 
Additionally, no comments were received on E.O. 12630 during the public 
comment period.

F. Executive Order 13132 Federalism

    Regulatory actions that have substantial direct effects on the 
States, on the relationship between the National Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government are subject to E.O. 13132. Under the 
criteria in section 1 of E.O. 13132, this final rule does not have 
sufficient federalism implications to warrant the preparation of a 
federalism summary impact statement. It will not have substantial 
direct effects on the States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. No comments 
were received on E.O. 13132 during the public comment period.

G. Executive Order 12988 Civil Justice Reform

    This rule complies with the requirements of E.O. 12988. 
Specifically, this rule:
    (1) Meets the criteria of section 3(a) requiring that all 
regulations be reviewed to eliminate errors and ambiguity and be 
written to minimize litigation; and
    (2) Meets the criteria of section 3(b)(2) requiring that all 
regulations be written in clear language and contain clear legal 
standards.
    No comments were received on E.O. 12988 during the public comment 
period.

H. Executive Order 13175 Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 defines polices that have Tribal implications 
as regulations, legislative comments or proposed legislation, and other 
policy statements or actions that will or may have a substantial direct 
effect on one or more Indian Tribes, or on the relationship between the 
Federal Government and one or more Indian Tribes. Additionally, the 
DOI's consultation policy for Tribal Nations and ANCSA Corporations, as 
described in Departmental Manual part 512 chapter 4, expands on the 
above definition from E.O. 13175 and requires that BOEM invite Indian 
Tribes and ANCSA Corporations ``early in the planning process to 
consult whenever a Departmental plan or action with Tribal Implications 
arises.'' BOEM strives to strengthen its government-to-government 
relationships with Tribal Nations through a commitment to consultation 
with Tribes, recognition of their right to self-governance and Tribal 
sovereignty, and honoring BOEM's trust responsibilities for Tribal 
Nations.
    As discussed in the proposal (88 FR 42161), BOEM evaluated the 
proposed rule under DOI's consultation policy and under the criteria in 
E.O. 13175 and determined that, while the proposed rule would likely 
not cause any substantial direct effects on environmental or cultural 
resources, there may be resource or economic impacts to one or more 
federally recognized Indian Tribes or ANCSA Corporations as a result of 
the proposed rule. BOEM sent letters to all Tribes and ANCSA 
Corporations on March 31, 2023, to ensure they were aware of the 
proposed rulemaking, to answer any immediate questions they may have, 
and to invite formal consultation if they would like to consult. Only 
one request for consultation was received, and consultation was held 
with the Red Willow (Southern Ute Tribe) on June 28, 2023, and meeting 
notes are included in the docket (memorandum titled Tribal Outreach: 
Red Willow). For more details on E.O. 13175, the DOI's consultation 
policy for Tribal Nations and ANCSA Corporations, and the consultations 
conducted regarding this rulemaking, see the memo in the docket titled 
Tribal Outreach: Summary of Engagement Activities. BOEM can consult at 
any time with federally recognized Tribes as sovereign nations.

I. Paperwork Reduction Act (PRA)

    The PRA of 1995 (44 U.S.C. 3501-3521) provides that an agency may 
not conduct or sponsor, and a person is not required to respond to, a 
``collection of information'' unless it displays a currently valid OMB 
control number. Collections of information include requests and 
requirements that an individual, partnership, or corporation obtain 
information and report it to a Federal agency (44 U.S.C. 3502(3); 5 CFR 
1320.3(c) and (k)). This final rule contains collections of information 
that were submitted to the OMB for review and approval under 44 U.S.C. 
3507(d).
    A proposed rule, soliciting comments on this collection of 
information for 30 days, was published on June 29, 2023 (88 FR 42136). 
No comments on the collections of information were received.
    This final rule references existing information collections (ICs) 
previously approved by OMB and adds new IC requirements for these 
Department regulations that have been submitted to OMB for review and 
approval under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). With this final rule BOEM updates the IC requirements under 30 
CFR parts 550 and 556. The

[[Page 31579]]

updates associated with the risk management and financial assurance for 
OCS lease and grant obligations are in the ICs bearing the following 
OMB control numbers:
     1010-0006 (BOEM), Leasing of Sulfur or Oil and Gas in the 
Outer Continental Shelf (30 CFR parts 550, 556, and 560) (expires 03/
31/2026), and
     1010-0114 (BOEM), 30 CFR part 550, subpart A, General, and 
Subpart K, Oil and Gas Production Requirements (expires 05/31/2026).
    This final rule modifies collections of information under 30 CFR 
part 550, subparts A and J, and 30 CFR part 556, subpart I, concerning 
financial assurance requirements (such as bonding) for leases, pipeline 
ROW grants, and RUE grants. OMB has reviewed and approved the existing 
information collection requirements associated with financial assurance 
regulations for leases (30 CFR 556.900 through 556.907), pipeline ROW 
grants (30 CFR 550.1011), and RUE grants (30 CFR 550.160 and 550.166).
    BOEM estimates that the number of information collection burden 
hours for the final rule overall is close to the same as that for the 
existing regulatory framework. When the rule becomes effective, the new 
and changed provisions will increase the overall annual burden hours 
for OMB Control Number 1010-0006 by 77 hours (totaling 22,012 annual 
burden hours) and 264 responses (totaling 22,090 responses) as 
justified below. The changed provisions for OMB Control Number 1010-
0114 add new and revised requirements in 30 CFR part 550, subpart A, 
but do not impact the overall burden hours for this control number 
because the burdens for these provisions are counted under OMB Control 
Number 1010-0006. However, the regulatory descriptions of new and 
modified requirements are extensive enough to require an update of the 
IC bearing that OMB control number.
    When needed, BOEM will submit future burden changes (either 
increases or decreases) of the OMB control numbers with reasoning to 
OMB for review and approval. Every 3 years, BOEM will also review the 
burden numbers for changes, seek public comment, and submit any request 
for changes to OMB for approval.
    Title of Collection: 30 CFR part 550, ``Oil and Gas and Sulfur 
Operations in the Outer Continental Shelf,'' and 30 CFR part 556, 
``Leasing of Sulfur or Oil and Gas and Bonding Requirements in the 
Outer Continental Shelf.''
    OMB Control Numbers: 1010-0006 and 1010-0114.
    Form Number: None.
    Type of Review: Revision of currently approved collections.
    Respondents/Affected Public: Federal OCS oil, gas, and sulfur 
operators and lessees, and RUE grant and pipeline ROW grant holders.
    Total Estimated Number of Annual Responses: 22,090 responses for 
1010-0006, and 5,621 responses for 1010-0114.
    Total Estimated Number of Annual Burden Hours: 22,012 hours for 
1010-0006, and 27,849 hours for 1010-0114.
    Respondent's Obligation: Responses to these collections of 
information are mandatory or are required to obtain or retain a 
benefit.
    Frequency of Collection: The frequency of response varies but is 
primarily on the occasion or as per the requirement.
    Total Estimated Annual Non-Hour Burden Cost: No additional non-hour 
costs. Non-hour costs remain at $766,053 for OMB Control Number 1010-
0006, and $165,492 for OMB Control Number 1010-0114.
    The following is a brief explanation of how the regulatory changes 
in this rulemaking affect the various subparts' hour and non-hour cost 
burdens for OMB Control Number 1010-0114:
Right-of-Use and Easement
    BOEM's existing regulations concerning RUE grants supporting an OCS 
lease and a State lease are found at 30 CFR 550.160 through 550.166. 
The burdens related to 30 CFR 550.160 and 550.166 are identified in OMB 
Control Number 1010-0114 but accounted for in OMB Control Number 1010-
0006.
    Existing Sec.  550.160 provides that an applicant for a RUE that 
serves an OCS lease must meet bonding requirements, but the regulation 
does not prescribe a base amount. This rule replaces this requirement 
with a cross-reference to the specific criteria governing financial 
assurance demands in Sec.  550.166. Therefore, BOEM is establishing a 
Federal RUE base financial assurance requirement matching the existing 
base surety bond requirement for State RUEs. The annual burden hour 
does not change since RUEs that serve OCS leases are currently already 
meeting financial assurance requirements under BOEM's agreement-
specific conditions of approval.
    In Sec.  550.166, BOEM is establishing a $500,000 area-wide RUE 
financial assurance requirement that guarantees compliance with the 
regulations and the terms and conditions of any RUE grants an entity 
holds. Previously, $500,000 in financial assurance for RUEs was only 
required for RUEs associated with State leases. BOEM is also allowing 
any lessee that has posted area-wide lease financial assurance to 
modify that financial assurance to also cover any RUE(s) held by the 
same entity.
    BOEM is also revising the RUE regulations to clarify that any RUE 
grant holder, whether the RUE serves a State or Federal lease, may be 
required to provide supplemental financial assurance for the RUE if the 
grant holders do not meet the credit rating or proxy credit rating 
criterion. The existing regulations authorized demands for supplemental 
financial assurance but specified no criteria. The annual burden hour 
would not change based on these clarifications.
    BOEM added Sec.  550.167 to explain the requirements for obtaining 
and assigning an interest in a RUE. To obtain a RUE or assignment of a 
RUE, the applicant or assignee must apply for and receive approval from 
BOEM. Some of the new requirements parallel those for ROW assignments 
in BSEE's regulations at 30 CFR 250.1018. BOEM is expanding the burden 
estimate for RUE application requirements to include the application to 
obtain a RUE or assign a RUE interest in Sec.  550.167. BOEM estimates 
9 hours per respondent for requirements related to RUE applications or 
requests to assign a RUE interest.
    The following is the revised burden table and a brief explanation 
of how the regulatory changes affect the various subparts' hour and 
non-hour cost burdens for OMB Control Number 1010-0006:
BILLING CODE 4310-MR-P

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[GRAPHIC] [TIFF OMITTED] TR24AP24.155


[[Page 31582]]


[GRAPHIC] [TIFF OMITTED] TR24AP24.156

BILLING CODE 4310-MR-C
Pipelines and Pipeline Right-of-Way Grants
    Section 550.1011(d) relates to BOEM's determination of whether 
supplemental financial assurance is necessary to ensure compliance with 
the obligations under a pipeline ROW grant. This determination will be 
based on whether pipeline ROW grant holders have the ability to carry 
out present and future

[[Page 31583]]

obligations. The new criterion for the determination is an issuer 
credit rating or a proxy credit rating. The issuer credit rating and 
the audited financial information on which BOEM determines a proxy 
credit rating already exist. The burden of determining a proxy credit 
rating, based on the submitted audited financial information, falls on 
BOEM. The annual burdens placed on the grant holder are minimal 
(providing to BOEM information the grant holder already has) and is 
included in the burden estimates for 30 CFR 556.901(d).
    30 CFR part 556, subpart I (OMB Control Number 1010-0006):
Bond or Other Financial Assurance Requirements for Leases
    A new provision at 556.900(a) clarifies that supplemental financial 
assurance required by the Regional Director must be provided before an 
assignment of a lease is approved. The burden increase for this 
requirement is included in OMB Control Number 1010-0006. Supplemental 
financial assurance required by this provision does not significantly 
impact the burdens due to low occurrence, but BOEM is accounting for 
the change in the burden table.
Base Bonds and Supplemental Financial Assurance
    Section 556.901(d) relates to BOEM's determination of whether 
supplemental financial assurance is necessary to ensure compliance with 
the obligations under a lease. The lessee will be required to provide 
supplemental financial assurance if it does not meet at least one of 
the criteria outlined in the final regulations in this section.
    Section 556.901(d)(1) bases this determination on an investment 
grade issuer credit rating.
    Section 556.901(d)(2) provides that, alternatively, BOEM will 
consider a proxy credit rating, which must be based on audited 
financial information for the most recent fiscal year.
    Section 556.901(d)(3) provides that BOEM will consider whether the 
co-lessee or co-grant holder has an issuer credit rating or proxy 
credit rating that meets the investment-grade threshold. The presence 
of such co-lessee or co-grant holder will allow the Regional Director 
to not require financial assurance only to the extent that the lessee 
or grant-holder and that co-lessee or co-grant holder share accrued 
liabilities, and the Regional Director may require the lessee or grant 
holder to provide supplemental financial assurance for decommissioning 
obligations for which such co-lessee or co-grant holder is not liable.
    Section 556.901(d)(4) provides that BOEM will also consider the net 
present value of proved oil and gas reserves on the lease. Lessees' 
submission of information on proved reserves would account for 
additional annual burden hours. The lessee would not need to submit 
proved reserve information if supplemental financial assurance is not 
required based on its issuer credit rating or proxy credit rating, or 
those of its co-lessees.
    The existing OMB-approved hour burden for each respondent to 
prepare and submit the information for the existing evaluation criteria 
requirements is 3.5 hours. In this rule, the revision of the evaluation 
criteria results in requiring less time for the respondents to prepare 
and submit the information, particularly for issuer credit rating. If 
companies choose to demonstrate that the net present value of proved 
oil and gas reserves on the lease exceeds three times the undiscounted 
cost of decommissioning associated with production of those reserves, 
then the time necessary for companies to prepare and submit information 
on the proved oil and gas reserves is likely greater than 3.5 hours. 
Therefore, BOEM is retaining the average 3.5-hour burden to reflect the 
decrease in time required to prepare and submit issuer credit ratings 
and audited financials and the increase in time required for preparing 
and submitting information on proved reserves. When the final rule 
becomes effective, the related burden hours for all respondents 
(lessee, co-lessee, grant holder, and co-grant holder) will be included 
in OMB Control Number 1010-0006.
    The OMB-approved number of respondents who currently submit 
financial information under the existing provision is 166 respondents. 
Recently, BOEM has seen the number of leases decrease in the Gulf of 
Mexico. BOEM estimates the new number of respondents will be between 
150 and 160 respondents. For this request, BOEM is using the higher 
number of 160 respondents (minus 6 respondents). This number will be 
reviewed during the next IC renewal process. When the final rule 
becomes effective, BOEM will include the new number of respondents in 
OMB Control Number 1010-0006.
    The existing OMB-approved annual burden hours for Sec.  556.901 
related to demonstrating financial worth/ability to carry out present 
and future financial obligations are 581 hours (166 respondents x 3.5 
hours). With the changes provided in this rule and described above, 
BOEM estimates that the annual hour burden will decrease by 
approximately 21 annual burden hours, and total annual burden hours 
will equal 560 hours (160 respondents x 3.5 hours). This decrease in 
annual burden hours will be reflected in OMB Control Number 1010-0006 
when the final rule becomes effective.
    BOEM is adding paragraph (h) to Sec.  556.901 to establish the 
limited opportunity to provide the required supplemental financial 
assurance in installments during the first 3 years after the effective 
date of this regulation. This provision establishes the timing and 
proportions of phased supplemental financial assurance that will be 
required in each installment. The lessee will have the option to submit 
the supplemental financial assurance once or in installments. If the 
lessee chooses to provide supplemental financial assurance in 
installments, the number of submissions of supplemental financial 
assurance will likely increase, but only in response to demands made 
during the first 3 years after the effective date of this regulation. 
OMB has currently approved 45 annual burden hours for supplemental 
financial assurance submissions (135 submissions which take 20 minutes 
each to submit). BOEM estimates the burden hours for the proposed 
installment submissions provision to be 135 annual burden hours (405 
submissions x 20 minutes), which is an increase of 90 hours over the 
existing OMB approval.
General Requirements for Bonds and Other Financial Assurance
    The scope of Sec.  556.902(a) has been clarified to include ``grant 
holder'' and financial assurance posted under the requirements of 30 
CFR part 550. This change would clarify that the same general 
requirements for financial assurance provided by lessees, operating 
rights owners, or operators also apply to financial assurance provided 
by RUE and pipeline ROW grant holders. BOEM proposes to keep the 
burdens the same as the existing OMB burdens.
Decommissioning Accounts
    Revisions to Sec.  556.904 allow the Regional Director to authorize 
a RUE grant holder and a pipeline ROW grant holder, as well as a 
lessee, to establish a decommissioning account as supplemental 
financial assurance required under Sec.  556.901(d), Sec.  550.166(b), 
or Sec.  550.1011(d). Because this change represents a new option for 
grant holders, there are no existing burdens related to this provision 
under the current OMB approval. BOEM is capturing the increased 
opportunity to establish decommissioning accounts in

[[Page 31584]]

the burden table. BOEM estimates 24 annual burden hours for grant 
holders and/or lessees to establish their decommissioning account.
    The rule contains a new provision under Sec.  556.904(a)(3), which 
would require immediate submission of a surety bond or other financial 
assurance in the amount equal to the remaining unsecured portion of the 
supplemental financial assurance demand if the initial payment or any 
scheduled payment into the decommissioning account is not timely made. 
In the context of paperwork-burden, this provision replaces the 
existing provision that requires submission of binding instructions. 
The annual burden hours will remain the same but will shift to the new 
requirement and will be reflected in OMB Control Number 1010-0006 when 
the final rule is effective.
Third-Party Guarantees
    New Sec.  556.905(a) relates to the guarantor's ability to carry 
out present and future obligations. New Sec.  556.905 replaces the term 
indemnity agreement with a third-party guarantee agreement with 
comparable provisions. This change would not impact annual burden 
hours. Section 556.905(a)(2) requires the guarantor to submit a third-
party guarantee agreement. Paragraph (d) provides that the terms that 
the existing regulation requires for indemnity agreements must be 
included in a third-party guarantee agreement. This change is to avoid 
any inference that the government must incur the expenses of 
decommissioning before being indemnified by the guarantor. It is a 
change of the name of the agreement and does not change the associated 
burden.
    New Sec.  556.905(e) provides that a lessee or grant holder and the 
guarantor under a third-party guarantee may request BOEM to cancel a 
third-party guarantee. BOEM will cancel a third-party guarantee under 
the same terms and conditions provided for cancellation of other forms 
of financial assurance in Sec.  556.906(d)(2). The current OMB-approved 
burden under Sec.  556.905(d) and Sec.  556.906 is 189 annual burden 
hours. BOEM will keep the burdens the same as the current OMB approved 
burdens at 189 annual burden hours.
    New Sec.  556.905(c)(2) eliminates the requirement that a lessee 
must cease production until supplemental financial assurance coverage 
requirements are met when a guarantor becomes unqualified. The 
regulatory provision is replaced with a requirement to immediately 
submit and maintain a substitute surety bond or other financial 
assurance. Both the existing and new provisions require the lessee to 
provide replacement surety bond coverage; however, BOEM's current OMB 
Control Number 1010-0006 does not quantify the burdens. Therefore, BOEM 
is adding approximately 8 annual burden hours to OMB Control Number 
1010-0006 for any lessee whose guarantor becomes unqualified.
    New Sec.  56.905 removes the requirement that a guarantee must 
ensure compliance with all lessees' or grant holders' obligations and 
the obligations of all operators on the lease or grant. This revision 
allows a third-party guarantor, with BOEM's agreement, to limit the 
obligations covered by the third-party guarantee. In some situations, 
this change could result in additional paperwork burden due to 
additional surety bonds or other financial assurance that must be 
provided to BOEM to cover obligations previously covered by a third-
party guarantee. BOEM estimates the number of additional financial 
assurance demands resulting from this revision to be low and the annual 
burdens are included in the existing burden estimates for OMB Control 
Number 1010-0006, and will be revised in future IC requests, if needed.
Termination of the Period of Liability and Cancellation of Financial 
Assurance
    Section 556.906(d)(2) is revised to add additional circumstances 
when BOEM may cancel supplemental financial assurance. Section 
556.906(d)(2) requires a cancellation request from the lessee or grant 
holder, or the surety, based on assertions that one of the stated 
circumstances is present. BOEM already receives these types of requests 
and has approved the requests, where warranted, as a departure from the 
regulations. These burdens are already counted in the existing OMB 
burden estimate for OMB Control Number 1010-0006.
    Once this rule becomes effective and OMB approves the information 
collection requests, BOEM would revise the existing OMB control numbers 
to reflect the changes. The IC does not include questions of a 
sensitive nature. BOEM will protect proprietary information according 
to the Freedom of Information Act (5 U.S.C. 552) and DOI implementing 
regulations (43 CFR part 2), 30 CFR 556.104, Information collection and 
proprietary information, and 30 CFR 550.197, Data and information to be 
made available to the public or for limited inspection.
    The PRA requires agencies to estimate the total annual reporting 
and recordkeeping non-hour cost burden resulting from the collection of 
information, and we solicit your comments on this item. For reporting 
and recordkeeping only, your response should split the cost estimate 
into two components: (1) total capital and startup cost component; and 
(2) annual operation, maintenance, and purchase of service component. 
Your estimates should consider the cost to generate, maintain, and 
disclose or provide the information. You should describe the methods 
you use to estimate major cost factors, including system and technology 
acquisition, expected useful life of capital equipment, discount 
rate(s), and the period over which you incur costs. Generally, your 
estimates should not include equipment or services purchased: (1) 
before October 1, 1995; (2) to comply with requirements not associated 
with the information collection; (3) for reasons other than to provide 
information or keep records for the Government; or (4) as part of 
customary and usual business or private practices.
    As part of our continuing effort to reduce paperwork and respondent 
burdens, we invite the public and other Federal agencies to comment on 
any aspect of this information collection, including:
    (1) Is the proposed information collection necessary or useful for 
BOEM to properly perform its functions?
    (2) Are the estimated annual burden hour increases and decreases 
resulting from the proposed rule reasonable?
    (3) Is the estimated annual non-hour cost burden resulting from 
this information collection reasonable?
    (4) Do you have any suggestions that would enhance the quality, 
clarity, or usefulness of the information to be collected?
    (5) Is there a way to minimize the information collection burden on 
those who must respond, such as by using appropriate automated digital, 
electronic, mechanical, or other forms of information technology?
    Send your comments and suggestions on this information collection 
by the date indicated in the DATES section to the Desk Officer for the 
Department of the Interior at OMB--OIRA at (202) 395-5806 (fax) or via 
the online portal at https://www.reginfo.gov. You may view the 
information collection request(s) at https://www.reginfo.gov/public/do/PRAMain. Please provide a copy of your comments to the BOEM Information 
Collection Clearance Officer (see the ADDRESSES section). You may 
contact Anna Atkinson, BOEM Information Collection Clearance Officer at 
(703) 787-1025 with any questions. Please reference Risk Management,

[[Page 31585]]

Financial Assurance and Loss Prevention (OMB Control No. 1010-0006), in 
your comments.

J. National Environmental Policy Act (NEPA)

    This rule does not constitute a major Federal action significantly 
affecting the quality of the human environment. A detailed 
environmental analysis under NEPA is not required because this final 
rule is covered by a categorical exclusion (see 43 CFR 46.205). This 
final rule meets the criteria set forth at 43 CFR 46.210(i) for a 
Departmental categorical exclusion in that this action is ``of an 
administrative, financial, legal, technical, or procedural nature.'' 
BOEM has also determined that the final rule does not involve any of 
the extraordinary circumstances listed in 43 CFR 46.215 that would 
require further analysis under NEPA.
    One comment was received on NEPA for the proposed rule. A commenter 
asserted that a NEPA review of the proposed rule is required. According 
to the commenter, the rule is highly likely to cause environmental 
effects because the lack of financial assurance could cause 
decommissioning to take longer to arrange, resulting in additional 
damage to the environment and obstacles to navigation.
    BOEM disagrees with the commenter's assertion that a NEPA review of 
the proposed rule is required. BOEM conducted an initial NEPA analysis 
for the proposed rulemaking and determined that the proposed rule met 
the criteria for categorical exclusion under 43 CFR 46.210(i) of DOI 
regulations implementing NEPA. The regulations set forth in this rule 
are ``of an administrative, financial, legal, technical, or procedural 
nature.'' The final rule also meets these criteria. The final rule does 
not authorize any activities and does not alleviate BOEM's 
responsibility to conduct the appropriate environmental reviews 
throughout the OCS development process. This rulemaking does not reduce 
or eliminate BOEM's environmental review of conventional energy 
activities.

K. Data Quality Act

    In promulgating this rule, BOEM did not conduct or use a study, 
experiment, or survey requiring peer review under the Data Quality Act 
(Pub. L. 106-554, app. C, sec. 515, 114 Stat. 2763, 2763A-153-154). In 
accordance with the Data Quality Act, the Department has issued 
guidance regarding the quality of information that it relies upon for 
regulatory decisions. This guidance is available at the Department's 
website at: https://www.doi.gov/ocio/policy-mgmt-support/information-and-records-management/iq. No comments were received on the Data 
Quality Act during the public comment period.

L. Executive Order 13211 Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    Under Executive Order 13211, BOEM is required to prepare and submit 
to OMB a ``Statement of Energy Effects'' for ``significant energy 
actions.'' This should include a detailed statement of any adverse 
effects on energy supply, distribution, or use (including a shortfall 
in supply, price increases, and increased use of foreign supplies) 
expected to result from the action and a discussion of reasonable 
alternatives and their effects. BOEM has prepared the required 
statement and has concluded, for the reason described below, that this 
action, which is a significant regulatory action under Executive Order 
12866, may have a significant adverse effect on the supply, 
distribution, or use of energy. BOEM has prepared a Statement of Energy 
Effects for this final rule, which is available in section VIII of the 
RIA.
    BOEM estimates that stronger supplemental financial assurance 
requirements will increase compliance costs for non-investment grade 
companies operating on the OCS by approximately $559 million annually 
(7 percent discounting). Pursuant to OMB's memorandum M-01-27, BOEM 
recognizes that this action may ``adversely affect in a material way 
the productivity, competition, or prices in the energy sector.'' By 
increasing industry compliance costs, the regulation could make the 
U.S. offshore oil and gas sector less attractive than regions with 
lower operating costs. Additionally, increased costs may depress the 
value of offshore assets or cause continuing production to become 
uneconomic sooner, leading to shorter-than-otherwise useful life and 
potentially a loss of production.
    For additional discussion on the energy effects and regulatory 
alternatives, please see the RIA for this final rulemaking, available 
in the docket (Docket No. BOEM-2023-0027).

M. Congressional Review Act (CRA)

    This action is subject to the CRA, and BOEM will submit a rule 
report to each chamber of Congress and to the Comptroller General of 
the United States. This action meets the criteria in 5 U.S.C. 804(2).

List of Subjects

30 CFR Part 550

    Administrative practice and procedure, Continental shelf, 
Government contracts, Investigations, Mineral resources, Oil and gas 
exploration, Oil pollution, Outer continental shelf, Penalties, 
Pipelines, Reporting and recordkeeping requirements, Rights-of-way, 
Sulfur.

30 CFR Part 556

    Administrative practice and procedure, Continental shelf, 
Environmental protection, Government contracts, Intergovernmental 
relations, Oil and gas exploration, Outer continental shelf, Mineral 
resources, Reporting and recordkeeping requirements, Rights-of-way.

30 CFR Part 590

    Administrative practice and procedure.

    This action by the Deputy Assistant Secretary is taken herein 
pursuant to an existing delegation of authority.

Steven H. Feldgus,
Principal Deputy Assistant Secretary, Land and Minerals Management.

    For the reasons stated in the preamble, BOEM amends 30 CFR chapter 
V as follows:

PART 550--OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER 
CONTINENTAL SHELF

0
1. The authority citation for part 550 continues to read as follows:

    Authority:  30 U.S.C. 1751; 31 U.S.C. 9701; 43 U.S.C. 1334.


0
2. Revise the heading to part 550 to read as set forth above.

Subpart A--General

0
3. Amend Sec.  550.101 by revising the introductory text to read as 
follows:


Sec.  550.101  Authority and applicability.

    The Secretary of the Interior (Secretary) authorized the Bureau of 
Ocean Energy Management (BOEM) to regulate oil, gas, and sulfur 
exploration, development, and production operations on the Outer 
Continental Shelf (OCS). Under the Secretary's authority, the BOEM 
Director requires that all operations:
* * * * *

0
4. Amend Sec.  550.102 by revising paragraphs (a) and (b)(16) to read 
as follows:


Sec.  550.102  What does this part do?

    (a) This part contains the regulations of the BOEM Offshore program 
that

[[Page 31586]]

govern oil, gas, and sulfur exploration, development, and production 
operations on the OCS. When you conduct operations on the OCS, you must 
submit requests, applications, and notices, or provide supplemental 
information for BOEM approval.
    (b) * * *

       Table--Where To Find Information for Conducting Operations
------------------------------------------------------------------------
           For information about                      Refer to
------------------------------------------------------------------------
 
                                * * * * *
(16) Sulfur operations....................  30 CFR 250, subpart P.
 
                                * * * * *
------------------------------------------------------------------------


0
5. Revise Sec.  550.103 to read as follows:


Sec.  550.103  Where can I find more information about the requirements 
in this part?

    BOEM may issue Notices to Lessees and Operators (NTLs) that clarify 
or provide more detail about certain regulatory requirements. NTLs may 
also outline what information you must provide, as required by 
regulation, in your various submissions to BOEM.

0
6. Revise and republish Sec.  550.105 to read as follows:


Sec.  550.105  Definitions.

    Terms used in this part will have the meanings given in the Act and 
as defined in this section:
    Act means the OCS Lands Act, as amended (43 U.S.C. 1331 et seq.)
    Affected State means with respect to any program, plan, lease sale, 
or other activity proposed, conducted, or approved under the provisions 
of the Act, any State:
    (1) The laws of which are declared, under section 4(a)(2) of the 
Act, to be the law of the United States for the portion of the OCS on 
which such activity is, or is proposed to be, conducted;
    (2) Which is, or is proposed to be, directly connected by 
transportation facilities to any artificial island or installation or 
other device permanently or temporarily attached to the seabed;
    (3) Which is receiving, or according to the proposed activity, will 
receive oil for processing, refining, or transshipment that was 
extracted from the OCS and transported directly to such State by means 
of vessels or by a combination of means including vessels;
    (4) Which is designated by the Secretary as a State in which there 
is a substantial probability of significant impact on or damage to the 
coastal, marine, or human environment, or a State in which there will 
be significant changes in the social, governmental, or economic 
infrastructure, resulting from the exploration, development, and 
production of oil and gas anywhere on the OCS; or
    (5) In which the Secretary finds that because of such activity 
there is, or will be, a significant risk of serious damage, due to 
factors such as prevailing winds and currents to the marine or coastal 
environment in the event of any oil spill, blowout, or release of oil 
or gas from vessels, pipelines, or other transshipment facilities.
    Analyzed geological information means data collected under a permit 
or a lease that have been analyzed. Analysis may include, but is not 
limited to, identification of lithologic and fossil content, core 
analysis, laboratory analyses of physical and chemical properties, well 
logs or charts, results from formation fluid tests, and descriptions of 
hydrocarbon occurrences or hazardous conditions.
    Ancillary activities mean those activities on your lease or unit 
that you:
    (1) Conduct to obtain data and information to ensure proper 
exploration or development of your lease or unit; and
    (2) Can conduct without BOEM approval of an application or permit.
    Archaeological interest means capable of providing scientific or 
humanistic understanding of past human behavior, cultural adaptation, 
and related topics through the application of scientific or scholarly 
techniques, such as controlled observation, contextual measurement, 
controlled collection, analysis, interpretation, and explanation.
    Archaeological resource means any material remains of human life or 
activities that are at least 50 years of age and that are of 
archaeological interest.
    Arctic OCS means the Beaufort Sea and Chukchi Sea Planning Areas 
(for more information on these areas, see the Proposed Final OCS Oil 
and Gas Leasing Program for 2012-2017 (June 2012) at http://www.boem.gov/Oil-and-Gas-Energy-Program/Leasing/Five-Year-Program/2012-2017/Program-Area-Maps/index.aspx).
    Arctic OCS conditions means, for the purposes of this part, the 
conditions operators can reasonably expect during operations on the 
Arctic OCS. Such conditions, depending on the time of year, include, 
but are not limited to: extreme cold, freezing spray, snow, extended 
periods of low light, strong winds, dense fog, sea ice, strong 
currents, and dangerous sea states. Remote location, relative lack of 
infrastructure, and the existence of subsistence hunting and fishing 
areas are also characteristic of the Arctic region.
    Assign means to convey an ownership interest in an oil, gas, or 
sulfur lease, ROW grant or RUE grant. For the purposes of this part, 
``assign'' is synonymous with ``transfer'' and the two terms are used 
interchangeably.
    Attainment area means, for any criteria air pollutant, an area 
which is shown by monitored data or which is calculated by air quality 
modeling (or other methods determined by the Administrator of the 
Environmental Protection Agency (EPA) to be reliable) not to exceed any 
primary or secondary ambient air quality standards established by EPA.
    Best available and safest technology (BAST) means the best 
available and safest technologies that the Director determines to be 
economically feasible wherever failure of equipment would have a 
significant effect on safety, health, or the environment.
    Best available control technology (BACT) means an emission 
limitation based on the maximum degree of reduction for each criteria 
air pollutant and VOC subject to regulation, taking into account 
energy, environmental and economic impacts, and other costs. The 
Regional Director will verify the BACT on a case-by-case basis, and it 
may include reductions achieved through the application of processes, 
systems, and techniques for the control of each criteria air pollutant 
and VOC.
    Coastal environment means the physical, atmospheric, and biological 
components, conditions, and factors that interactively determine the 
productivity, state, condition, and quality of the terrestrial 
ecosystem from the shoreline inward to the boundaries of the coastal 
zone.
    Coastal zone means the coastal waters (including the lands therein 
and thereunder) and the adjacent shorelands (including the waters 
therein and thereunder) strongly influenced by each other and in 
proximity to the shorelands of the several coastal States. The coastal 
zone includes islands, transition and intertidal areas, salt marshes, 
wetlands, and beaches. The coastal zone extends seaward to the outer 
limit of the U.S. territorial sea and extends inland from the 
shorelines to the extent necessary to control shorelands, the uses of 
which have a direct and significant impact on the coastal waters, and 
the inward boundaries of which may be identified by the several coastal 
States, under the authority in section 305(b)(1) of the Coastal Zone 
Management Act (CZMA) of 1972.
    Competitive reservoir means a reservoir in which there are one or 
more

[[Page 31587]]

producible or producing well completions on each of two or more leases 
or portions of leases, with different lease operating interests, from 
which the lessees plan future production.
    Correlative rights when used with respect to lessees of adjacent 
leases, means the right of each lessee to be afforded an equal 
opportunity to explore for, develop, and produce, without waste, 
minerals from a common source.
    Criteria air pollutant means any air pollutant for which the United 
States Environmental Protection Agency (U.S. EPA) has established a 
primary or secondary National Ambient Air Quality Standard (NAAQS) 
pursuant to section 109 of the Clean Air Act.
    Data means facts and statistics, measurements, or samples that have 
not been analyzed, processed, or interpreted.
    Departures mean approvals granted by the appropriate BSEE or BOEM 
representative for operating requirements/procedures other than those 
specified in the regulations found in this part. These requirements/
procedures may be necessary to control a well; properly develop a 
lease; conserve natural resources, or protect life, property, or the 
marine, coastal, or human environment.
    Development means those activities that take place following 
discovery of minerals in paying quantities, including but not limited 
to geophysical activity, drilling, platform construction, and operation 
of all directly related onshore support facilities, and which are for 
the purpose of producing the minerals discovered.
    Development geological and geophysical (G&G) activities means those 
G&G and related data-gathering activities on your lease or unit that 
you conduct following discovery of oil, gas, or sulfur in paying 
quantities to detect or imply the presence of oil, gas, or sulfur in 
commercial quantities.
    Director means the Director of BOEM of the U.S. Department of the 
Interior, or an official authorized to act on the Director's behalf.
    District Manager means the BSEE officer with authority and 
responsibility for operations or other designated program functions for 
a district within a BSEE Region.
    Eastern Gulf of Mexico means all OCS areas of the Gulf of Mexico 
the BOEM Director decides are adjacent to the State of Florida. The 
Eastern Gulf of Mexico is not the same as the Eastern Planning Area, an 
area established for OCS lease sales.
    Emission offsets mean emission reductions obtained from facilities, 
either onshore or offshore, other than the facility or facilities 
covered by the proposed Exploration Plan (EP), Development and 
Production Plan (DPP), or Development Operations Coordination Document 
(DOCD).
    Enhanced recovery operations mean pressure maintenance operations, 
secondary and tertiary recovery, cycling, and similar recovery 
operations that alter the natural forces in a reservoir to increase the 
ultimate recovery of oil or gas.
    Existing facility, as used in Sec.  550.303, means an Outer 
Continental Shelf (OCS) facility described in an Exploration Plan, a 
Development and Production Plan, or a Development Operations 
Coordination Document, approved before June 2, 1980.
    Exploration means the commercial search for oil, gas, or sulfur. 
Activities classified as exploration include but are not limited to:
    (1) Geophysical and geological (G&G) surveys using magnetic, 
gravity, seismic reflection, seismic refraction, gas sniffers, coring, 
or other systems to detect or imply the presence of oil, gas, or 
sulfur; and
    (2) Any drilling conducted for the purpose of searching for 
commercial quantities of oil, gas, and sulfur, including the drilling 
of any additional well needed to delineate any reservoir to enable the 
lessee to decide whether to proceed with development and production.
    Facility, as used in Sec.  550.303, means all installations or 
devices permanently or temporarily attached to the seabed. They include 
mobile offshore drilling units (MODUs), even while operating in the 
``tender assist'' mode (i.e., with skid-off drilling units) or other 
vessels engaged in drilling or downhole operations. They are used for 
exploration, development, and production activities for oil, gas, or 
sulfur and emit or have the potential to emit any air pollutant from 
one or more sources. They include all floating production systems 
(FPSs), including column-stabilized-units (CSUs); floating production, 
storage and offloading facilities (FPSOs); tension-leg platforms 
(TLPs); spars, etc. During production, multiple installations or 
devices are a single facility if the installations or devices are at a 
single site. Any vessel used to transfer production from an offshore 
facility is part of the facility while it is physically attached to the 
facility.
    Financial assurance means a surety bond, a pledge of Treasury 
securities, a decommissioning account, a third-party guarantee, or 
another form of security acceptable to the BOEM Regional Director, that 
is used to ensure compliance with obligations under the regulations in 
this part and under the terms of a lease, a RUE grant, or a pipeline 
ROW grant.
    Flaring means the burning of natural gas as it is released into the 
atmosphere.
    Gas reservoir means a reservoir that contains hydrocarbons 
predominantly in a gaseous (single-phase) state.
    Gas-well completion means a well completed in a gas reservoir or in 
the associated gas-cap of an oil reservoir.
    Geological and geophysical (G&G) explorations mean those G&G 
surveys on your lease or unit that use seismic reflection, seismic 
refraction, magnetic, gravity, gas sniffers, coring, or other systems 
to detect or imply the presence of oil, gas, or sulfur in commercial 
quantities.
    Governor means the Governor of a State, or the person or entity 
designated by, or under, State law to exercise the powers granted to 
such Governor under the Act.
    H2S absent means:
    (1) Drilling, logging, coring, testing, or producing operations 
have confirmed the absence of H2S in concentrations that could 
potentially result in atmospheric concentrations of 20 ppm or more of 
H2S; or
    (2) Drilling in the surrounding areas and correlation of geological 
and seismic data with equivalent stratigraphic units have confirmed an 
absence of H2S throughout the area to be drilled.
    H2S present means drilling, logging, coring, testing, or producing 
operations have confirmed the presence of H2S in concentrations and 
volumes that could potentially result in atmospheric concentrations of 
20 ppm or more of H2S.
    H2S unknown means the designation of a zone or geologic formation 
where neither the presence nor absence of H2S has been confirmed.
    Human environment means the physical, social, and economic 
components, conditions, and factors that interactively determine the 
state, condition, and quality of living conditions, employment, and 
health of those affected, directly or indirectly, by activities 
occurring on the OCS.
    Interpreted geological information means geological knowledge, 
often in the form of schematic cross sections, 3-dimensional 
representations, and maps, developed by determining the geological 
significance of data and analyzed geological information.
    Interpreted geophysical information means geophysical knowledge, 
often in the form of schematic cross sections, 3-dimensional 
representations, and maps,

[[Page 31588]]

developed by determining the geological significance of geophysical 
data and analyzed geophysical information.
    Lease means an agreement that is issued under section 8 or 
maintained under section 6 of the Act and that authorizes exploration 
for, and development and production of, minerals. The term also means 
the area covered by that authorization, whichever the context requires.
    Lease term pipelines mean those pipelines owned and operated by a 
lessee or operator that are completely contained within the boundaries 
of a single lease, unit, or contiguous (not cornering) leases of that 
lessee or operator.
    Lessee means a person who has entered into a lease with the United 
States to explore for, develop, and produce the leased minerals. The 
term lessee also includes the BOEM-approved assignee of the lease, and 
the owner or the BOEM-approved assignee of operating rights for the 
lease.
    Major Federal action means any action or proposal by the Secretary 
that is subject to the provisions of section 102(2)(C) of the National 
Environmental Policy Act of 1969, 42 U.S.C. (2)(C) (i.e., an action 
that will have a significant impact on the quality of the human 
environment requiring preparation of an environmental impact statement 
under section 102(2)(C) of the National Environmental Policy Act).
    Marine environment means the physical, atmospheric, and biological 
components, conditions, and factors that interactively determine the 
productivity, state, condition, and quality of the marine ecosystem. 
These include the waters of the high seas, the contiguous zone, 
transitional and intertidal areas, salt marshes, and wetlands within 
the coastal zone and on the OCS.
    Material remains means physical evidence of human habitation, 
occupation, use, or activity, including the site, location, or context 
in which such evidence is situated.
    Maximum efficient rate (MER) means the maximum sustainable daily 
oil or gas withdrawal rate from a reservoir that will permit economic 
development and depletion of that reservoir without detriment to 
ultimate recovery.
    Maximum production rate (MPR) means the approved maximum daily rate 
at which oil or gas may be produced from a specified oil-well or gas-
well completion.
    Minerals include oil, gas, sulfur, geopressured-geothermal and 
associated resources, and all other minerals that are authorized by an 
Act of Congress to be produced.
    Natural resources include, without limiting the generality thereof, 
oil, gas, and all other minerals, and fish, shrimp, oysters, clams, 
crabs, lobsters, sponges, kelp, and other marine animal and plant life 
but does not include water power or the use of water for the production 
of power.
    Nonattainment area means, for any criteria air pollutant, an area 
which is shown by monitored data or which is calculated by air quality 
modeling (or other methods determined by the Administrator of the U.S. 
EPA to be reliable) to exceed any primary or secondary NAAQS 
established by the U.S. EPA.
    Nonsensitive reservoir means a reservoir in which ultimate recovery 
is not decreased by high reservoir production rates.
    Oil reservoir means a reservoir that contains hydrocarbons 
predominantly in a liquid (single-phase) state.
    Oil reservoir with an associated gas cap means a reservoir that 
contains hydrocarbons in both a liquid and gaseous (two-phase) state.
    Oil-well completion means a well completed in an oil reservoir or 
in the oil accumulation of an oil reservoir with an associated gas cap.
    Operating rights mean any interest held in a lease with the right 
to explore for, develop, and produce leased substances.
    Operator means the person the lessee(s) designates as having 
control or management of operations on the leased area or a portion 
thereof. An operator may be a lessee, the BOEM-approved or BSEE-
approved designated agent of the lessee(s), or the holder of operating 
rights under a BOEM-approved operating rights assignment.
    Outer Continental Shelf (OCS) means all submerged lands lying 
seaward and outside of the area of lands beneath navigable waters as 
defined in section 2 of the Submerged Lands Act (43 U.S.C. 1301) whose 
subsoil and seabed appertain to the United States and are subject to 
its jurisdiction and control.
    Person includes a natural person, an association (including 
partnerships, joint ventures, and trusts), a State, a political 
subdivision of a State, or a private, public, or municipal corporation.
    Pipelines are the piping, risers, and appurtenances installed for 
transporting oil, gas, sulfur, and produced waters.
    Processed geological or geophysical information means data 
collected under a permit or a lease that have been processed or 
reprocessed. Processing involves changing the form of data to 
facilitate interpretation. Processing operations may include, but are 
not limited to, applying corrections for known perturbing causes, 
rearranging or filtering data, and combining or transforming data 
elements. Reprocessing is the additional processing other than ordinary 
processing used in the general course of evaluation. Reprocessing 
operations may include varying identified parameters for the detailed 
study of a specific problem area.
    Production means those activities that take place after the 
successful completion of any means for the removal of minerals, 
including such removal, field operations, transfer of minerals to 
shore, operation monitoring, maintenance, and workover operations.
    Production areas are those areas where flammable petroleum gas, 
volatile liquids or sulfur are produced, processed (e.g., compressed), 
stored, transferred (e.g., pumped), or otherwise handled before 
entering the transportation process.
    Projected emissions mean emissions, either controlled or 
uncontrolled, from a source or sources.
    Prospect means a geologic feature having the potential for mineral 
deposits.
    Regional Director means the BOEM officer with responsibility and 
authority for a Region within BOEM.
    Regional Supervisor means the BOEM officer with responsibility and 
authority for operations or other designated program functions within a 
BOEM Region.
    Right-of-Use and Easement (RUE) means a right to use a portion of 
the seabed, at an OCS site other than on a lease you own, to construct, 
secure to the seafloor, use, modify, or maintain platforms, seafloor 
production equipment, artificial islands, facilities, installations, 
and/or other devices to support the exploration, development, or 
production of oil, gas, or sulfur resources from an OCS lease or a 
lease on State submerged lands.
    Right-of-way (ROW) pipelines are those pipelines that are contained 
within:
    (1) The boundaries of a single lease or unit, but are not owned and 
operated by a lessee or operator of that lease or unit;
    (2) The boundaries of contiguous (not cornering) leases that do not 
have a common lessee or operator;
    (3) The boundaries of contiguous (not cornering) leases that have a 
common lessee or operator but are not owned and operated by that common 
lessee or operator; or
    (4) An unleased block(s).
    Sensitive reservoir means a reservoir in which the production rate 
will affect ultimate recovery.

[[Page 31589]]

    Significant archaeological resource means those archaeological 
resources that meet the criteria of significance for eligibility to the 
National Register of Historic Places as defined in 36 CFR 60.4, or its 
successor.
    Suspension means a granted or directed deferral of the requirement 
to produce (Suspension of Production (SOP)) or to conduct leaseholding 
operations (Suspension of Operations (SOO)).
    Transfer means to convey an ownership interest in an oil, gas, or 
sulfur lease, ROW grant or RUE grant. For the purposes of this part, 
``transfer'' is synonymous with ``assign'' and the two terms are used 
interchangeably.
    Venting means the release of gas into the atmosphere without 
igniting it. This includes gas that is released underwater and bubbles 
to the atmosphere.
    Volatile organic compound (VOC) means any organic compound that is 
emitted to the atmosphere as a vapor. Unreactive compounds are excluded 
from the preceding sentence of this definition.
    Waste of oil, gas, or sulfur means:
    (1) The physical waste of oil, gas, or sulfur;
    (2) The inefficient, excessive, or improper use, or the unnecessary 
dissipation of reservoir energy;
    (3) The locating, spacing, drilling, equipping, operating, or 
producing of any oil, gas, or sulfur well(s) in a manner that causes or 
tends to cause a reduction in the quantity of oil, gas, or sulfur 
ultimately recoverable under prudent and proper operations or that 
causes or tends to cause unnecessary or excessive surface loss or 
destruction of oil or gas; or
    (4) The inefficient storage of oil.
    Welding means all activities connected with welding, including hot 
tapping and burning.
    Wellbay is the area on a facility within the perimeter of the 
outermost wellheads.
    Well-completion operations mean the work conducted to establish 
production from a well after the production-casing string has been set, 
cemented, and pressure-tested.
    Well-control fluid means drilling mud, completion fluid, or 
workover fluid as appropriate to the particular operation being 
conducted.
    Western Gulf of Mexico means all OCS areas of the Gulf of Mexico 
except those the BOEM Director decides are adjacent to the State of 
Florida. The Western Gulf of Mexico is not the same as the Western 
Planning Area, an area established for OCS lease sales.
    Workover operations mean the work conducted on wells after the 
initial well-completion operation for the purpose of maintaining or 
restoring the productivity of a well.
    You, depending on the context of this part, means a bidder, a 
lessee (record title owner), a sublessee (operating rights owner), a 
Federal or State RUE grant holder, a pipeline ROW grant holder, an 
assignor or transferor, a designated operator or agent of the lessee or 
grant holder, or an applicant seeking to become one of the individuals 
listed in this definition.

0
7.Amend Sec.  550.160 by:
0
a. Revising the section heading;
0
b. Removing the introductory text; and
0
c. Revising paragraphs (a) introductory text, (b) through (e), and 
(f)(1) and (2).
    The revisions read as follows:


Sec.  550.160  When will BOEM grant me a right-of-use and easement 
(RUE), and what requirements must I meet?

    (a) A RUE is required to construct, secure to the seafloor, use, 
modify, or maintain platforms, seafloor production equipment, 
artificial islands, facilities, installations, and/or other devices at 
an OCS site other than an OCS lease you own, that are:
* * * * *
    (b) You must exercise the RUE according to the terms of the grant 
and the regulations in this part.
    (c) You must meet the qualification requirements at Sec. Sec.  
556.400 through 556.402 of this subchapter and the applicable financial 
assurance requirements in this section and part 556, subpart I of this 
subchapter.
    (d) If you apply for a RUE on a leased area, you must notify the 
lessee and give her/him an opportunity to comment on your application; 
and
    (e) You must receive BOEM approval for all platforms, seafloor 
production equipment, artificial islands, facilities, installations, 
and/or other devices permanently or temporarily attached to the seabed.
    (f) * * *
    (1) You obtain a RUE after January 12, 2004; or
    (2) You ask BOEM to modify your RUE to change the footprint of the 
associated platform, seafloor production equipment, artificial island, 
facility, installation, and/or device.
* * * * *

0
8. Revise Sec.  550.166 to read as follows:


Sec.  50.166  If BOEM grants me a RUE, what financial assurance must I 
provide?

    (a) Before BOEM grants you a RUE on the OCS, you must submit or 
maintain financial assurance of $500,000, which will guarantee 
compliance with the regulations and the terms and conditions of all 
RUEs you hold.
    (1) You are not required to submit and maintain the financial 
assurance of $500,000 pursuant to this paragraph (a) if you furnish and 
maintain area-wide lease financial assurance in excess of $500,000 
pursuant to Sec.  556.901(a) of this subchapter, provided that the 
area-wide lease financial assurance also guarantees compliance with all 
the terms and conditions of all RUEs you hold in the area.
    (2) The Regional Director may reduce the amount required in this 
paragraph (a) upon a determination that the reduced amount is 
sufficient to guarantee compliance with the regulations and the terms 
and conditions of all RUE grant(s) you hold.
    (3) The requirements for financial assurance in Sec. Sec.  
556.900(d) through (g) 556.902 of this subchapter apply to the 
financial assurance required under paragraph (a) of this section.
    (b) If BOEM grants you a RUE that serves either an OCS lease or a 
State lease, the Regional Director may require supplemental financial 
assurance above the amount required by paragraph (a) of this section, 
to ensure compliance with the obligations under your RUE grant, based 
on an evaluation of your ability to carry out present and future 
obligations on the RUE using the criteria set forth in Sec.  
556.901(d)(1) through (3) of this subchapter. This supplemental 
financial assurance must:
    (1) Meet the requirements of Sec. Sec.  556.900(d) through (g) and 
556.902 of this subchapter; and
    (2) Cover costs and liabilities for compliance with the obligations 
of your RUE grants and with applicable BOEM and Bureau of Safety and 
Environmental Enforcement (BSEE) orders.
    (c) If you fail to replace any deficient financial assurance upon 
demand or fail to provide supplemental financial assurance upon demand, 
the Regional Director may:
    (1) Assess penalties under subpart N of this part;
    (2) Request BSEE to suspend operations on your RUE; and/or
    (3) Initiate action for cancellation of your RUE grant.

0
9. Add Sec.  550.167 to read as follows:


Sec.  550.167  How may I obtain or assign my interest in a RUE?

    (a) To obtain a RUE or request an assignment of an interest in a 
RUE, the applicant or assignee must file an application and provide the 
information contained in Sec.  550.161 if a change in uses is planned 
and must obtain BOEM's approval.

[[Page 31590]]

    (b) An application for approval of an assignment of an interest in 
a RUE, in whole or in part, must be filed in triplicate with the 
Regional Director. Such application must be supported by a statement 
that the assignee agrees to comply with and to be bound by the terms 
and conditions of the RUE grant. The assignee must satisfy the bonding 
requirements in Sec.  550.166. No RUE assignment will be recognized 
unless and until it is first approved, in writing, by the Regional 
Director. The assignee of an interest in a RUE must pay the same 
service fee as that listed in Sec.  550.106(a)(1) for a lease record 
title assignment request.
    (c) BOEM may disapprove an assignment in the following 
circumstances:
    (1) When the assignee has unsatisfied obligations under the 
regulations in this chapter or in chapters II or XII of this title, or 
under any applicable BOEM or BSEE order;
    (2) When an assignment is not acceptable as to form or content 
(e.g., containing incorrect legal description, not executed by a person 
authorized to bind the corporation, assignee does not meet the 
requirements of Sec. Sec.  556.401 through 556.405 of this subchapter);
    (3) When the assignment does not comply with or would conflict with 
this part, or any other applicable laws or regulations (e.g., 
Departmental debarment rules); or
    (4) When the assignee does not meet the applicable financial 
assurance requirements in Sec.  550.166 and part 556, subpart I of this 
subchapter, or has not complied with a BOEM or BSEE order.

0
10. Amend Sec.  550.199 by revising paragraph (b) to read as follows:


Sec.  550.199  Paperwork Reduction Act statements--information 
collection.

* * * * *
    (b) Respondents are OCS oil, gas, and sulfur lessees and operators. 
The requirement to respond to the information collections in this part 
is mandated under the Act (43 U.S.C. 1331 et seq.) and the Act's 
Amendments of 1978 (43 U.S.C. 1801 et seq.). Some responses are also 
required to obtain or retain a benefit or may be voluntary. Proprietary 
information will be protected under Sec.  550.197; parts 551 and 552 of 
this subchapter; and the Freedom of Information Act (5 U.S.C. 552) and 
its implementing regulations at 43 CFR part 2.
* * * * *

Subpart J--Pipelines and Pipeline Rights-of-Way

0
11. Revise Sec.  550.1011 to read as follows:


Sec.  550.1011  Financial assurance requirements for pipeline right-of-
way (ROW) grant holders.

    (a) Except as provided in paragraph (b) of this section, when you 
apply for, attempt to assign, or are the holder of a pipeline right-of-
way (ROW) grant, you must furnish and maintain $300,000 of area-wide 
financial assurance that guarantees compliance with the regulations and 
the terms and conditions of all the pipeline ROW grants you hold in an 
OCS area as defined in Sec.  556.900(b) of this subchapter. The 
requirement to furnish and maintain area-wide financial assurance for a 
pipeline ROW grant is separate and distinct from the requirement to 
provide financial assurance for a lease or right-of-use and easement 
(RUE).
    (b) The requirement to furnish and maintain area-wide pipeline ROW 
financial assurance under paragraph (a) of this section may be 
satisfied if your operator or a co-grant holder provides such financial 
assurance in the required amount that guarantees compliance with the 
regulations and the terms and conditions of the grant.
    (c) The requirements for lease financial assurance in Sec. Sec.  
556.900(d) through (g) and 556.902 of this subchapter apply to the 
area-wide financial assurance required in paragraph (a) of this 
section.
    (d) The Regional Director, using the criteria set forth in Sec.  
556.901(d)(1) through (3) of this subchapter, will evaluate your 
financial ability to carry out present and future obligations, and as a 
result, may require supplemental financial assurance (i.e., above the 
amount required by paragraph (a) of this section) to ensure compliance 
with the obligations under your pipeline right-of-way grant.
    (e) The supplemental financial assurance required under paragraph 
(d) of this section must:
    (1) Meet the requirements of Sec. Sec.  556.900(d) through (g) and 
556.902 of this subchapter, and
    (2) Cover costs and liabilities for compliance with the obligations 
of your ROW grants and with applicable BOEM and BSEE orders.
    (f) If you fail to replace any deficient financial assurance upon 
demand or fail to provide supplemental financial assurance upon demand, 
the Regional Director may:
    (1) Assess penalties under subpart N of this part;
    (2) Request BSEE to suspend operations on your pipeline ROW; and/or
    (3) Initiate action for forfeiture of your pipeline ROW grant in 
accordance with Sec.  250.1013 of this title.

PART 556--LEASING OF SULFUR OR OIL AND GAS AND FINANCIAL ASSURANCE 
REQUIREMENTS IN THE OUTER CONTINENTAL SHELF

0
12. The authority citation for part 556 is revised to read as follows:

    Authority: 31 U.S.C. 9701; 42 U.S.C. 6213; 43 U.S.C. 1334.


0
13. Revise the heading to part 556 to read as set forth above.

Subpart A--General Provisions

0
14. Amend Sec.  556.104 by revising paragraph (a)(4) to read as 
follows:


Sec.  556.104  Information collection and proprietary information.

    (a) * * *
    (4) Send comments regarding any aspect of the collection of 
information under this part, including suggestions for reducing the 
burden, by mail to the Information Collection Clearance Officer, Bureau 
of Ocean Energy Management, 45600 Woodland Road, Sterling, VA 20166.
* * * * *

0
15. Amend Sec.  556.105 by:
0
a. In paragraph (a), removing the acronyms ``EPA'' and ``GOMESA''; and
0
b. Revising and republishing paragraph (b).
    The revision read as follows:


Sec.  556.105  Acronyms and definitions.

* * * * *
    (b) As used in this part, each of the terms and phrases listed 
below has the meaning given in the Act or as defined in this section.
    Act means the Outer Continental Shelf Lands Act, as amended (OCSLA) 
(43 U.S.C. 1331-1356a).
    Affected State means, with respect to any program, plan, lease 
sale, or other activity proposed, conducted, or approved pursuant to 
the provisions of OCSLA, any State:
    (i) The laws of which are declared, pursuant to section 4(a)(2) of 
OCSLA (43 U.S.C. 1333(a)(2)), to be the law of the United States for 
the portion of the OCS on which such activity is, or is proposed to be, 
conducted;
    (ii) Which is, or is proposed to be, directly connected by 
transportation facilities to any artificial island or structure 
referred to in section 4(a)(1) of OCSLA (43 U.S.C. 1333(a)(1));
    (iii) Which is receiving, or in accordance with the proposed 
activity

[[Page 31591]]

will receive, oil for processing, refining, or transshipment that was 
extracted from the OCS and transported directly to that State by means 
of one or more vessels or by a combination of means, including a 
vessel;
    (iv) Which is designated by the Secretary as a State in which there 
is a substantial probability of significant impact on or damage to the 
coastal, marine, or human environment; or a State in which there will 
be significant changes in the social, governmental, or economic 
infrastructure resulting from the exploration, development, and 
production of oil and gas anywhere on the OCS; or
    (v) In which the Secretary finds that because of such activity, 
there is, or will be, a significant risk of serious damage, due to 
factors such as prevailing winds and currents, to the marine or coastal 
environment in the event of any oil spill, blowout, or release of oil 
or gas from one or more vessels, pipelines, or other transshipment 
facilities.
    Aliquot or Aliquot part means an officially designated subdivision 
of a lease's area, which can be a half of a lease (1/2), a quarter of a 
lease (1/4), a quarter of a quarter of a lease (1/4 1/4), or a quarter 
of a quarter of a quarter of a lease (1/4 1/4 1/4).
    Assign means to convey an ownership interest in an oil, gas, or 
sulfur lease, ROW grant or RUE grant. For the purposes of this part, 
``assign'' is synonymous with ``transfer'' and the two terms are used 
interchangeably.
    Authorized officer means any person authorized by law or by 
delegation of authority to or within BOEM to perform the duties 
described in this part.
    Average daily production means the total of all production in an 
applicable production period that is chargeable under Sec.  556.514 
divided by the exact number of calendar days in the applicable 
production period.
    Barrel means 42 U.S. gallons. All measurements of crude oil and 
natural gas liquids under this section must be at 60 [deg]F.
    (i) For purposes of computing production and reporting of natural 
gas, 5,626 cubic feet of natural gas at 14.73 pounds per square inch 
equals one barrel.
    (ii) For purposes of computing production and reporting of natural 
gas liquids, 1.454 barrels of natural gas liquids at 60 [deg]F equals 
one barrel of crude oil.
    Bidding unit means one or more OCS blocks, or any portion thereof, 
that may be bid upon as a single administrative unit and will become a 
single lease. The term `tract,'' as defined in this section, may be 
used interchangeably with the term ``bidding unit.''
    BOEM means Bureau of Ocean Energy Management of the U.S. Department 
of the Interior.
    Bonus or royalty credit means a legal instrument or other written 
documentation approved by BOEM, or an entry in an account managed by 
the Secretary, that a bidder or lessee may use in lieu of any other 
monetary payment for a bonus or a royalty due on oil or gas production 
from certain leases, as specified in, and permitted by, the Gulf of 
Mexico Energy Security Act of 2006, Pub. L. 109-432 (Div. C, Title 1), 
120 Stat. 3000 (2006), codified at 43 U.S.C. 1331, note.
    BSEE means Bureau of Safety and Environmental Enforcement of the 
U.S. Department of the Interior.
    Central Planning Area (CPA) means that portion of the Gulf of 
Mexico that lies southerly of Louisiana, Mississippi, and Alabama. 
Precise boundary information is available from the BOEM Leasing 
Division, Mapping and Boundary Branch (MBB).
    Coastal environment means the physical, atmospheric, and biological 
components, conditions, and factors that interactively determine the 
productivity, state, condition, and quality of the terrestrial 
ecosystem from the shoreline inland to the boundaries of the coastal 
zone.
    Coastal zone means the coastal waters (including the lands therein 
and thereunder) and the adjacent shorelands (including the water 
therein and thereunder), strongly influenced by each other and in 
proximity to the shorelines of one or more of the several coastal 
States, and includes islands, transition and intertidal areas, salt 
marshes, wetlands, and beaches, whose zone extends seaward to the outer 
limit of the United States territorial sea and extends inland from the 
shore lines to the extent necessary to control shorelands, the uses of 
which have a direct and significant impact on the coastal waters, and 
the inland boundaries of which may be identified by the several coastal 
States, under section 305(b)(1) of the Coastal Zone Management Act 
(CZMA) of 1972, 16 U.S.C. 1454(b)(1).
    Coastline means the line of mean ordinary low water along that 
portion of the coast in direct contact with the open sea and the line 
marking the seaward limit of inland waters.
    Crude oil means a mixture of liquid hydrocarbons, including 
condensate that exists in natural underground reservoirs and remains 
liquid at atmospheric pressure after passing through surface separating 
facilities, but does not include liquid hydrocarbons produced from tar 
sand, gilsonite, oil shale, or coal.
    Designated operator means a person authorized to act on your behalf 
and fulfill your obligations under the Act, the lease, and the 
regulations, who has been designated as an operator by all record title 
holders and all operating rights owners that own an operating rights 
interest in the aliquot/depths in which the designated operator, to 
which the Designation of Operator form applies, will be operating, and 
who has been approved by BOEM to act as designated operator.
    Desoto Canyon OPD means the Official Protraction Diagram (OPD) 
designated as Desoto Canyon that has a western edge located at the 
universal transverse mercator (UTM) X coordinate 1,346,400 in the North 
American Datum of 1927 (NAD27).
    Destin Dome OPD means the Official Protraction Diagram (OPD) 
designated as Destin Dome that has a western edge located at the 
Universal Transverse Mercator (UTM) X coordinate 1,393,920 in the 
NAD27.
    Development block means a block, including a block susceptible to 
drainage, which is located on the same general geologic structure as an 
existing lease having a well with indicated hydrocarbons; a reservoir 
may or may not be interpreted to extend on to the block.
    Director means the Director of the BOEM of the U.S. Department of 
the Interior, or an official authorized to act on the Director's 
behalf.
    Eastern Planning Area means that portion of the Gulf of Mexico that 
lies southerly and westerly of Florida. Precise boundary information is 
available from the BOEM Leasing Division, Mapping and Boundary Branch 
(MBB).
    Economic interest means any right to, or any right dependent upon, 
production of crude oil, natural gas, or natural gas liquids and 
includes, but is not limited to: a royalty interest; an overriding 
royalty interest, whether payable in cash or kind; a working interest 
that does not include a record title interest or an operating rights 
interest; a carried working interest; a net profits interest; or a 
production payment.
    Financial assurance means a surety bond, a pledge of Treasury 
securities, a decommissioning account, a third-party guarantee, or 
another form of security acceptable to the BOEM Regional Director, that 
is used to ensure compliance with obligations under the regulations in 
this part and under the terms of a lease, a RUE grant, or a pipeline 
ROW grant.

[[Page 31592]]

    Human environment means the physical, social, and economic 
components, conditions, and factors that interactively determine the 
state, condition, and quality of living conditions, employment, and 
health of those affected, directly or indirectly, by activities 
occurring on the OCS.
    Initial period or primary term means the initial period referred to 
in 43 U.S.C. 1337(b)(2).
    Investment grade credit rating means an issuer credit rating of 
BBB- or higher (S&P Global Ratings and Fitch Ratings, Inc.), Baa3 or 
higher (Moody's Investors Service Inc.), or its equivalent, assigned to 
an issuer of corporate debt by a nationally recognized statistical 
rating organization as that term is defined in section 3(a)(62) of the 
Securities Exchange Act of 1934.
    Issuer credit rating means a credit rating assigned to an issuer of 
corporate debt by S&P Global Ratings, by Moody's Investors Service 
Inc., by Fitch Ratings, Inc., or by another nationally recognized 
statistical rating organization, as that term is defined in section 
3(a)(62) of the Securities Exchange Act of 1934.
    Joint bid means a bid submitted by two or more persons for an oil 
and gas lease under section 8(a) of the Act.
    Lease means an agreement that is issued under section 8 or 
maintained under section 6 of the Act and that authorizes exploration 
for, and development and production of, minerals on the OCS. The term 
also means the area covered by that agreement, whichever the context 
requires.
    Lease interest means one or more of the following ownership 
interests in an OCS oil and gas or sulfur lease: a record title 
interest, an operating rights interest, or an economic interest.
    Lessee means a person who has entered into a lease with the United 
States to explore for, develop, and produce the leased minerals and is 
therefore a record title owner of the lease, or the BOEM-approved 
assignee-owner of a record title interest. The term lessee also 
includes the BOEM-approved sublessee- or assignee-owner of an operating 
rights interest in a lease.
    Marine environment means the physical, atmospheric, and biological 
components, conditions, and factors that interactively determine the 
productivity, state, conditions, and quality of the marine ecosystem, 
including the waters of the high seas, the contiguous zone, 
transitional and intertidal areas, salt marshes, and wetlands within 
the coastal zone and on the OCS.
    Mineral means oil, gas, and sulfur; it also includes sand, gravel, 
and salt used to facilitate the development and production of oil, gas, 
and sulfur.
    Natural gas means a mixture of hydrocarbons and varying quantities 
of non-hydrocarbons that exist in the gaseous phase.
    Natural gas liquids means liquefied petroleum products produced 
from reservoir gas and liquefied at surface separators, field 
facilities, or gas processing plants worldwide, including any of the 
following:
    (i) Condensate--natural gas liquids recovered from gas well gas 
(associated and non-associated) in separators or field facilities; or
    (ii) Gas plant products--natural gas liquids recovered from natural 
gas in gas processing plants and from field facilities. Gas plant 
products include the following, as classified according to the 
standards of the Natural Gas Processors Association (NGPA) or the 
American Society for Testing and Materials (ASTM):
    (A) Ethane--C2H6;
    (B) Propane--C3H8;
    (C) Butane--C4H10, including all products covered by NGPA 
specifications for commercial butane, including isobutane, normal 
butane, and other butanes--all butanes not included as isobutane or 
normal butane;
    (D) Butane-Propane Mixtures--All products covered by NGPA 
specifications for butane-propane mixtures;
    (E) Natural Gasoline--A mixture of hydrocarbons extracted from 
natural gas, that meets vapor pressure, end point, and other 
specifications for natural gasoline set by NGPA;
    (F) Plant Condensate--A natural gas plant product recovered and 
separated as a liquid at gas inlet separators or scrubbers in 
processing plants or field facilities; and
    (G) Other Natural Gas plant products meeting refined product 
standards (i.e., gasoline, kerosene, distillate, etc.).
    Operating rights means an interest created by sublease out of the 
record title interest in an oil and gas lease, authorizing the owner to 
explore for, develop, and/or produce the oil and gas contained within a 
specified area and depth of the lease (i.e., operating rights tract).
    Operating rights owner means the holder of operating rights.
    Operating rights tract means the area within the lease from which 
the operating rights have been severed on an aliquot basis from the 
record title interest, defined by a beginning and ending depth.
    Operator means the person designated as having control or 
management of operations on the leased area or a portion thereof. An 
operator may be a lessee, the operating rights owner, or a designated 
agent of the lessee or the operating rights owner.
    Outer Continental Shelf (OCS) means all submerged lands lying 
seaward and outside of the area of lands beneath navigable waters as 
defined in the Submerged Lands Act (43 U.S.C. 1301-1315) and of which 
the subsoil and seabed appertain to the United States and are subject 
to its jurisdiction and control.
    Outer Continental Shelf Lands Act (OCSLA) means the Outer 
Continental Shelf Lands Act (43 U.S.C. 1331-1356a), as amended.
    Owned, as used in the context of restricted joint bidding or a 
statement of production, means:
    (i) With respect to crude oil--having either an economic interest 
in or a power of disposition over the production of crude oil;
    (ii) With respect to natural gas--having either an economic 
interest in or a power of disposition over the production of natural 
gas; and
    (iii) With respect to natural gas liquids--having either an 
economic interest in or a power of disposition over any natural gas 
liquids at the time of completion of the liquefaction process.
    Pensacola OPD means the Official Protraction Diagram (OPD) 
designated as Pensacola that has a western edge located at the UTM X 
coordinate 1,393,920 in the NAD27.
    Person means a natural person, where so designated, or an entity, 
such as a partnership, association, State, political subdivision of a 
State or territory, or a private, public, or municipal corporation.
    Planning area means a large portion of the OCS, consisting of 
contiguous OCS blocks, defined for administrative planning purposes.
    Predecessor means a prior lessee or owner of operating rights, or a 
prior holder of a right-of-use and easement grant or a pipeline right-
of-way grant. A predecessor is liable for obligations that accrued or 
began accruing while it held an ownership interest in that lease or 
grant.
    Primary term or initial period means the initial period referred to 
in 43 U.S.C. 1337(b)(2).
    Regional Director means the BOEM officer with responsibility and 
authority for a Region within BOEM.
    Regional Supervisor means the BOEM officer with responsibility and 
authority for leasing or other designated program functions within a 
BOEM Region.
    Right-of-Use and Easement (RUE) means a right to use a portion of 
the

[[Page 31593]]

seabed at an OCS site other than on a lease you own, to construct, 
secure to the seafloor, use, modify, or maintain platforms, seafloor 
production equipment, artificial islands, facilities, installations, 
and/or other devices to support the exploration, development, or 
production of oil, gas, or sulfur resources from an OCS lease or a 
lease on State submerged lands.
    Right-of-Way (ROW) means an authorization issued by BSEE under the 
authority of section 5(e) of the OCSLA (43 U.S.C. 1334(e)) for the use 
of submerged lands of the Outer Continental Shelf for pipeline 
purposes.
    Secretary means the Secretary of the Interior or an official or a 
designated employee authorized to act on the Secretary's behalf.
    Single bid means a bid submitted by one person for an oil and gas 
lease under section 8(a) of the Act.
    Six-month bidding period means the 6-month period of time:
    (i) From May 1 through October 31; or
    (ii) from November 1 through April 30.
    Statement of production means, in the context of joint restricted 
bidders, the following production during the applicable prior 
production period:
    (i) The average daily production in barrels of crude oil, natural 
gas, and natural gas liquids which it owned worldwide;
    (ii) The average daily production in barrels of crude oil, natural 
gas, and natural gas liquids owned worldwide by every subsidiary of the 
reporting person;
    (iii) The average daily production in barrels of crude oil, natural 
gas, and natural gas liquids owned worldwide by any person or persons 
of which the reporting person is a subsidiary; and
    (iv) The average daily production in barrels of crude oil, natural 
gas, and natural gas liquids owned worldwide by any subsidiary, other 
than the reporting person, of any person or persons of which the 
reporting person is a subsidiary.
    Tract means one or more OCS blocks, or any leasable portion 
thereof, that will be part of a single oil and gas lease. The term 
tract may be used interchangeably with the term ``bidding unit.''
    Transfer means to convey an ownership interest in an oil, gas, or 
sulfur lease, ROW grant or RUE grant. For the purposes of this part, 
``transfer'' is synonymous with ``assign'' and the two terms are used 
interchangeably.
    We, us, and our mean BOEM or the Department of the Interior, 
depending on the context in which the word is used.
    Western Planning Area (WPA) means that portion of the Gulf of 
Mexico that lies south and east of Texas. Precise boundary information 
is available from the Leasing Division, Mapping and Boundary Branch.
    You, depending on the context of this part, means a bidder, a 
lessee (record title owner), a sublessee (operating rights owner), a 
Federal or State RUE grant holder, a pipeline ROW grant holder, an 
assignor or transferor, a designated operator or agent of the lessee or 
grant holder, or an applicant seeking to become one of the individuals 
listed in this definition.

Subpart G--Transferring All or Part of the Record Title Interest in 
a Lease

0
16. Amend Sec.  556.703 by revising paragraph (a) to read as follows:


Sec.  556.703  What is the effect of the approval of the assignment of 
100 percent of the record title in a particular aliquot(s) of my lease 
and of the resulting lease segregation?

    (a) The financial assurance requirements of subpart I of this part 
apply separately to each segregated lease.
* * * * *

0
17. Amend Sec.  556.704 by revising the section heading and paragraphs 
(a) introductory text, and (a)(1) and (2) to read as follows:


Sec.  556.704  When may BOEM disapprove an assignment or sublease of an 
interest in my lease?

    (a) BOEM may disapprove an assignment or sublease of all or part of 
your lease interest(s):
    (1) When the transferor, transferee, or sublessee is not in 
compliance with all applicable regulations and orders, including 
financial assurance requirements;
    (2) When a transferor attempts a transfer that is not acceptable as 
to form or content (e.g., not on standard form, containing incorrect 
legal description, not executed by a person authorized to bind the 
corporation, transferee does not meet the requirements of Sec.  
556.401); or
* * * * *

Subpart H--Transferring All or Part of the Operating Rights in a 
Lease

0
18. Amend Sec.  556.802 by revising the section heading, introductory 
text, and paragraphs (a) and (b) to read as follows:


Sec.  556.802  When may BOEM disapprove the transfer of all or part of 
my operating rights interest?

    BOEM may disapprove a transfer of all or part of your operating 
rights interest:
    (a) When the transferor or transferee is not in compliance with all 
applicable regulations and orders, including financial assurance 
requirements;
    (b) When a transferor attempts a transfer that is not acceptable as 
to form or content (e.g., not on standard form, containing incorrect 
legal description, not executed in accordance with corporate 
governance, transferee does not meet the requirements of Sec.  
556.401); or
* * * * *

0
19. Revise the heading to subpart I to read as follows:

Subpart I--Financial Assurance

0
20. Amend Sec.  556.900 by:
0
a. Revising the section heading and introductory text;
0
b. Revising paragraphs (a) introductory text, (g) introductory text, 
and (h); and
0
c. Adding paragraph (i).
    The revisions and addition read as follows:


Sec.  556.900  Financial assurance requirements for an oil and gas or 
sulfur lease.

    This section establishes financial assurance requirements for the 
lessee of an OCS oil and gas or sulfur lease.
    (a) Before BOEM will issue a new lease to you as the lessee, you or 
another lessee for the lease must comply with one of the options in 
paragraphs (a)(1) through (3) of this section. Before BOEM will approve 
the assignment of a record title interest in an existing lease to you 
as the lessee, you or another lessee for the lease must provide any 
supplemental financial assurance required by the Regional Director and 
also comply with one of the options in paragraphs (a)(1) through (3).
* * * * *
    (g) You may provide alternative types of financial assurance 
instead of providing a surety bond if the Regional Director determines 
that the alternative financial assurance protects the interests of the 
United States to the same extent as a surety bond.
* * * * *
    (h) If you fail to replace deficient financial assurance or to 
provide supplemental financial assurance upon demand, the Regional 
Director may:
    (1) Assess penalties under part 550, subpart N of this subchapter;
    (2) Request BSEE to suspend production and other operations on your 
lease in accordance with Sec.  250.173 of this title; and/or
    (3) Initiate action to cancel your lease.
    (i) In the event you amend your area-wide surety bond covering 
lease obligations, or obtain a new area-wide lease surety bond, to 
cover the financial

[[Page 31594]]

assurance requirements for any RUE(s), your area-wide lease surety bond 
may be called in whole or in part to cover any or all the obligations 
on which you default that are associated with your RUE(s) located in 
the area covered by such area-wide lease surety bond.

0
21. Amend Sec.  556.901 by:
0
a. Revising the section heading;
0
b. Revising paragraphs (a) introductory text and (a)(1)(i);
0
c. Revising paragraphs (b) introductory text and (b)(1)(i);
0
d. Revising paragraphs (c) through (f); and
0
e. Adding paragraphs (g) and (h).
    The revisions and additions read as follows:


Sec.  556.901  Base and supplemental financial assurance.

    (a) You must provide the following financial assurance before 
commencing any lease exploration activities.
    (1) * * *
    (i) You must furnish the Regional Director $200,000 in lease 
exploration financial assurance that guarantees compliance with all the 
terms and conditions of the lease by the earliest of:
* * * * *
    (b) This paragraph (b) explains what financial assurance you must 
provide before lease development and production activities commence.
    (1) * * *
    (i) You must furnish the Regional Director $500,000 in lease 
development financial assurance that guarantees compliance with all the 
terms and conditions of the lease by the earliest of:
* * * * *
    (c) If you can demonstrate to the satisfaction of the Regional 
Director that you can satisfy your decommissioning and other lease 
obligations for less than the amount of financial assurance required 
under paragraph (a)(1) or (b)(1) of this section, the Regional Director 
may accept financial assurance in an amount less than the prescribed 
amount but not less than the amount of the cost for decommissioning.
    (d) The Regional Director may determine that supplemental financial 
assurance (i.e., financial assurance above the amounts prescribed in 
Sec. Sec.  550.166(a) and 550.1011(a) of this subchapter, Sec.  
556.900(a), or paragraphs (a) and (b) of this section) is required to 
ensure compliance with your lease obligations, including 
decommissioning obligations; the regulations in this chapter; and the 
regulations in chapters II and XII of this title. The Regional Director 
may require you to provide supplemental financial assurance if you do 
not meet at least one of the following criteria:
    (1) You have an investment grade credit rating. If any nationally 
recognized statistical rating organization, as that term is defined in 
section 3(a)(62) of the Securities Exchange Act of 1934, provides a 
credit rating for you that differs from that of any other nationally 
recognized statistical rating organization, BOEM will apply the highest 
rating for purposes of determining your financial assurance 
requirements.
    (2) You have a proxy credit rating determined by the Regional 
Director that they determine reflects creditworthiness equivalent to an 
investment grade credit rating, which must be based on audited 
financial information for the most recent fiscal year (which must 
include an income statement, balance sheet, statement of cash flows, 
and the auditor's certificate).
    (i) The audited financial information for your most recent fiscal 
year must cover a continuous twelve-month period within the twenty-
four-month period prior to your receipt of the Regional Director's 
determination that you must provide supplemental financial assurance.
    (ii) In determining your proxy credit rating, the Regional Director 
may include the total value of the offshore decommissioning liabilities 
associated with any lease(s) or grants in which you have an ownership 
interest. Upon the request of the Regional Director, you must provide 
the information that the Regional Director determines is necessary to 
properly evaluate the total value of your offshore decommissioning 
liabilities, including joint ownership interests and liabilities 
associated with your OCS leases and grants.
    (3) Your co-lessee or co-grant holder has an issuer credit rating 
or proxy credit rating that meets the criterion set forth in paragraph 
(d)(1) or (2) of this section, as applicable. However, the presence of 
such co-lessee or co-grant holder will allow the Regional Director to 
not require financial assurance from you only to the extent that you 
and that co-lessee or co-grant holder share accrued liabilities, and 
the Regional Director may require you to provide supplemental financial 
assurance for decommissioning obligations for which such co-lessee or 
co-grant holder is not liable.
    (4) There are proved oil and gas reserves on the lease, unit, or 
field, as defined by the SEC Regulation S-X at 17 CFR 210.4-10 and SEC 
Regulation S-K at 17 CFR 229.1200, the discounted value of which 
exceeds three times the estimated undiscounted cost of the 
decommissioning associated with the production of those reserves, and 
that value must be based on proved reserve reports submitted to the 
Regional Director and reported on a per-lease, unit, or field basis. 
BOEM will determine the decommissioning costs associated with the 
production of your reserves, and will use the following undiscounted 
decommissioning cost estimates:
    (i) Where BSEE-generated probabilistic estimates are available, 
BOEM will use the estimate at the level at which there is a 70 percent 
probability that the actual cost of decommissioning will be less than 
the estimate (P70).
    (ii) If there is no BSEE probabilistic estimate available, BOEM 
will use the BSEE-generated deterministic estimate.
    (e) You may satisfy the Regional Director's demand for supplemental 
financial assurance by increasing the amount of your existing financial 
assurance or providing additional surety bonds or other types of 
acceptable financial assurance.
    (f) The Regional Director will use the BSEE P70 decommissioning 
probabilistic estimate to determine the amount of supplemental 
financial assurance required to guarantee compliance when there is no 
lessee or co-lessee that meets the criterion in paragraph (d)(1) or (2) 
of this section. In making this determination, the Regional Director 
will also consider your potential underpayment of royalty and 
cumulative decommissioning obligations. Note that BOEM will use these 
P-values only in the context of determining how much financial 
assurance is required, and not in the context of bond forfeiture. 
Regardless of whether you are required to provide supplemental 
financial assurance at the P70 level, you remain liable for the full 
costs of decommissioning, and your surety remains liable for the full 
amount of decommissioning up to the limit of assurance provided.
    (g) If your cumulative potential obligations and liabilities either 
increase or decrease, the Regional Director may adjust the amount of 
supplemental financial assurance required.
    (1) If the Regional Director proposes an adjustment, the Regional 
Director will:
    (i) Notify you and your financial assurance provider of any 
proposed adjustment to the amount of financial assurance required; and
    (ii) Give you an opportunity to submit written or oral comment on 
the adjustment.
    (2) If you request a reduction of the amount of supplemental 
financial assurance required, or oppose the amount of a proposed 
adjustment, you

[[Page 31595]]

must submit evidence to the Regional Director demonstrating that the 
projected amount of royalties due to the United States Government and 
the estimated costs of decommissioning are less than the required 
financial assurance amount. Upon review of your submission, the 
Regional Director may reduce the amount of financial assurance 
required.
    (h) During the first 3 years from June 24, 2024, you may, upon 
receipt of a demand letter for supplemental financial assurance under 
this section, request that the Regional Director allow you to provide, 
in three equal installments payable according to the schedule provided 
under this paragraph (h), the full amount of supplemental financial 
assurance required.
    (1) If the Regional Director allows you to provide the amount 
required on such a phased basis, you must comply with the following:
    (i) You must provide the initial one-third of the total 
supplemental financial assurance required within the timeframe 
specified in the demand letter or, if no timeframe is specified, within 
60 calendar days of the date of receipt of the demand letter.
    (ii) You must provide the second one-third of the required 
supplemental financial assurance to BOEM within 24 months of the date 
of receipt of the demand letter.
    (iii) You must provide the final one-third of the required 
supplemental financial assurance to BOEM within 36 months of the date 
of receipt of the demand letter.
    (2) If the Regional Director allows you to meet your supplemental 
financial assurance requirement in a phased manner, as set forth in 
this section, and you fail to timely provide the required supplemental 
financial assurance to BOEM, the Regional Director will notify you of 
such failure. You will no longer be eligible to meet your supplemental 
financial assurance requirement in the manner prescribed in this 
paragraph (h), and the remaining amount due will become due 10 calendar 
days after such notification is received.

0
22. Amend Sec.  556.902 by revising the section heading, paragraphs (a) 
and (e)(2), and adding paragraphs (g) and (h) to read as follows:


Sec.  556.902  General requirements for bonds or other financial 
assurance.

    (a) Any surety bond or other financial assurance that you, as 
record title owner, operating rights owner, grant holder, or operator, 
provide under this part, or under part 550 of this subchapter, must:
    (1) Be payable upon demand to the Regional Director;
    (2) Guarantee compliance with all your obligations under the lease 
or grant, the regulations in chapters II and XII of this title, and all 
BOEM and BSEE orders; and
    (3) Except as stated in Sec.  556.905(b), guarantee compliance with 
the obligations of all record title owners, operating rights owners, 
and operators on the lease, and all grant-holders on a grant.
* * * * *
    (e) * * *
    (2) A pledge of Treasury securities, as provided in Sec.  
556.900(f);
* * * * *
    (g) If you believe that BOEM's supplemental financial assurance 
demand is unjustified, you may request an informal resolution of your 
dispute in accordance with the requirements of Sec.  590.6 of this 
chapter. Your request for an informal resolution will not affect your 
right to request to meet your supplemental financial assurance 
requirement in a phased manner under Sec.  556.901(h).
    (h) You may file an appeal of a supplemental financial assurance 
demand with the Interior Board of Land Appeals (IBLA) pursuant to the 
regulations in part 590 of this chapter. However, if you request that 
the IBLA stay the demand pending a final ruling on your appeal, you 
must post an appeal surety bond equal to the amount of the demand that 
you seek to stay before any such stay is effective.

0
23. Revise Sec.  556.903 to read as follows:


Sec.  556.903  Lapse of financial assurance.

    (a) If your surety, guarantor, or the financial institution holding 
or providing your financial assurance becomes bankrupt or insolvent, or 
has its charter or license suspended or revoked, any financial 
assurance coverage from such surety, guarantor, or financial 
institution must be replaced. You must notify the Regional Director 
within 72 hours of learning of such event, and, within 30 calendar days 
of learning of such event, you must provide other financial assurance 
from a different financial assurance provider in the amount required 
under Sec. Sec.  556.900 and 556.901, or Sec.  550.166 of this 
subchapter, or Sec.  550.1011 of this subchapter.
    (b) You must notify the Regional Director within 72 hours of 
learning of any action filed alleging that you are insolvent or 
bankrupt or that your surety, guarantor, or financial institution is 
insolvent or bankrupt or has had its charter or license suspended or 
revoked.
    All surety bonds or other financial assurance instruments must 
require the surety, guarantor, or financial institution to timely 
provide this required notification both to you and directly to BOEM.

0
24. Revise Sec.  556.904 to read as follows:


Sec.  556.904  Decommissioning accounts.

    (a) The Regional Director may authorize you to establish a 
decommissioning account(s) in a federally insured financial institution 
to satisfy a supplemental financial assurance demand made pursuant to 
Sec.  556.901(d), Sec.  550.166(b) of this subchapter, or Sec.  
550.1011(d) of this subchapter. The decommissioning account must be set 
up in such a manner that funds may not be withdrawn without the written 
approval of the Regional Director.
    (1) Funds in the account must be used only to meet your 
decommissioning obligations and must be payable upon demand to BOEM.
    (2) You must fully fund the account to cover all decommissioning 
costs as estimated by BSEE, to the amount, and pursuant to the 
schedule, that the Regional Director prescribes.
    (3) If you fail to make the initial payment or any scheduled 
payment into the decommissioning account and you fail to correct a 
missed payment within 30 days, you must immediately submit, and 
subsequently maintain, a surety bond or other financial assurance in an 
amount equal to the remaining unfulfilled portion of the supplemental 
financial assurance demand.
    (b) Any interest paid on funds in a decommissioning account will 
become part of the principal funds in the account unless the Regional 
Director authorizes in writing the payment of the interest to the party 
who deposits the funds.
    (c) The Regional Director may authorize or require you to create an 
overriding royalty, production payment obligation, or other revenue 
stream for the benefit of an account established as financial assurance 
for the decommissioning of your lease(s) or RUE or pipeline ROW 
grant(s). The obligation may be associated with oil and gas or sulfur 
production from a lease other than a lease or grant secured through the 
decommissioning account.
    (d) BOEM may provide funds from the decommissioning account to the 
party that performs the decommissioning in response to a BOEM or BSEE 
order to perform such decommissioning or to cover the costs thereof. 
BOEM will

[[Page 31596]]

distribute the funds from the decommissioning account upon presentation 
of paid invoices for reasonable and necessary costs incurred by the 
party performing the decommissioning.

0
25. Revise Sec.  556.905 to read as follows:


Sec.  556.905  Third-party guarantees.

    (a) The Regional Director may accept a third-party guarantee to 
satisfy a supplemental financial assurance demand made pursuant to 
Sec.  556.901(d), Sec.  550.166(b) of this subchapter, or Sec.  
550.1011(d) of this subchapter, if:
    (1) The guarantor meets the credit rating or proxy credit rating 
criterion set forth in Sec.  556.901(d)(1) or (2), as applicable; and
    (2) The guarantor or guaranteed party submits a third-party 
guarantee agreement containing each of the provisions in paragraph (d) 
of this section.
    (b) Notwithstanding Sec.  556.902(a)(3), a third-party guarantor 
may, as agreed to by BOEM at the time the third-party guarantee is 
provided, limit its cumulative obligations to a fixed dollar amount or 
limit its obligations so as to cover the performance of one or more 
specific lease obligations (with no fixed dollar amount).
    (c) If, during the life of your third-party guarantee, your 
guarantor no longer meets the criterion referred to in paragraph (a)(1) 
of this section, you must, within 72 hours of so learning:
    (1) Notify the Regional Director; and
    (2) Submit, and subsequently maintain, a surety bond or other 
financial assurance covering those obligations previously secured by 
the third-party guarantee.
    (d) Your third-party guarantee must contain each of the following 
provisions:
    (1) If you fail to comply with the terms of any lease or grant 
covered by the guarantee, or any applicable regulation, your guarantor 
must either:
    (i) Take corrective action to bring the lease or grant into 
compliance with its terms or any applicable regulation, to the extent 
covered by the guarantee; or
    (ii) Be liable under the third-party guarantee agreement to 
provide, within 7 calendar days, sufficient funds for the Regional 
Director to complete such corrective action to the extent covered by 
the guarantee. Such payment does not result in the cancellation of the 
guarantee, but instead reduces the remaining value of the guarantee in 
an amount equal to the payment.
    (2) If your guarantor wishes to terminate the period of liability 
under its guarantee, it must:
    (i) Notify you and the Regional Director at least 90 calendar days 
before the proposed termination date;
    (ii) Obtain the Regional Director's approval for the termination of 
the period of liability for all or a specified portion of the 
guarantee; and
    (iii) Remain liable for all liabilities that accrued or began 
accruing prior to the termination and responsible for all work and 
workmanship performed during the period of liability.
    (3) Before the termination of the period of liability of the third-
party guarantee, you must provide acceptable replacement financial 
assurance.
    (e) If you or your guarantor request BOEM to cancel your third-
party guarantee, BOEM will cancel the guarantee under the same terms 
and conditions provided for cancellation of supplemental financial 
assurance and return of pledged financial assurance in Sec.  556.906(b) 
and/or (d)(3).
    (f) The guarantor or guaranteed party must submit a third-party 
guarantee agreement that meets the following criteria:
    (1) The third-party guarantee agreement must be executed by your 
guarantor and all persons and parties bound by the agreement.
    (2) The third-party guarantee agreement must bind, jointly and 
severally, each person and party executing the agreement.
    (3) When your guarantor is a corporate entity, two corporate 
officers who are authorized to bind the corporation must sign the 
third-party guarantee agreement.
    (g) Your corporate guarantor and any other corporate entities bound 
by the third-party guarantee agreement must provide the Regional 
Director copies of:
    (1) The authorization of the signatory corporate officials to bind 
their respective corporations;
    (2) An affidavit certifying that the agreement is valid under all 
applicable laws; and
    (3) Each corporation's corporate authorization to enter into the 
third-party guarantee agreement.
    (h) If your third-party guarantor or another party bound by the 
third-party guarantee agreement is a partnership, joint venture, or 
syndicate, the third-party guarantee agreement must:
    (1) Bind each partner or party who has a beneficial interest in 
your guarantor; and
    (2) Provide that each member of the partnership, joint venture, or 
syndicate is jointly and severally liable for the obligations secured 
by the guarantee.
    (i) The third-party guarantee agreement must provide that, in the 
event forfeiture is called for under Sec.  556.907, your guarantor will 
either:
    (1) Take corrective action to bring your lease or grant into 
compliance with its terms, and the regulations, to the extent covered 
by the guarantee; or
    (2) Provide sufficient funds within 7 calendar days to permit the 
Regional Director to complete such corrective action to the extent 
covered by the guarantee.
    (j) The third-party guarantee agreement must contain a confession 
of judgment. It must provide that, if the Regional Director determines 
that you are in default of the lease or grant covered by the guarantee 
or not in compliance with any regulation applicable to such lease or 
grant, the guarantor:
    (1) Will not challenge the determination; and
    (2) Will remedy the default to the extent covered by the guarantee.
    (k) Each third-party guarantee agreement is deemed to contain all 
terms and conditions contained in paragraphs (d), (i), and (j) of this 
section, even if the guarantor has omitted these terms from the third-
party guarantee agreement.

0
26. Revise Sec.  556.906 to read as follows:


Sec.  556.906  Termination of the period of liability and cancellation 
of financial assurance.

    This section defines the terms and conditions under which BOEM will 
terminate the period of liability of, or cancel, financial assurance. 
Terminating the period of liability ends the period during which 
obligations continue to accrue, but does not relieve the financial 
assurance provider of the responsibility for obligations that accrued 
during the period of liability. Canceling a financial assurance 
instrument relieves the financial assurance provider of all liability. 
The liabilities that accrue during a period of liability include 
obligations that started to accrue prior to the beginning of the period 
of liability and had not been met, and obligations that begin accruing 
during the period of liability.
    (a) When you or your financial assurance provider request 
termination:
    (1) The Regional Director will terminate the period of liability 
under your financial assurance within 90 calendar days after BOEM 
receives the request; and
    (2) If you intend to continue operations, or have not met all 
decommissioning obligations, within 90 calendar days after BOEM 
receives your termination request, you must provide replacement 
financial assurance of an equivalent amount.

[[Page 31597]]

    (b) If you provide replacement financial assurance, the Regional 
Director will cancel your previous financial assurance and the previous 
financial assurance provider will not retain any liability, provided 
that:
    (1) The amount of the new financial assurance is equal to or 
greater than that of the financial assurance that was cancelled, or you 
provide an alternative form of financial assurance, and the Regional 
Director determines that the alternative form of financial assurance 
provides a level of security equal to or greater than that provided by 
the financial assurance that is proposed to be cancelled;
    (2) For financial assurance submitted under Sec.  556.900(a), Sec.  
556.901(a) or (b), Sec.  550.166(a) of this subchapter, or Sec.  
550.1011(a) of this subchapter, the new financial assurance provider 
agrees to assume all outstanding obligations that accrued during the 
period of liability that was terminated; and
    (3) For supplemental financial assurance submitted under Sec.  
556.901(d), Sec.  550.166(b) of this subchapter, or Sec.  550.1011(d) 
of this subchapter, the new financial assurance provider agrees to 
assume that portion of the outstanding obligations that accrued during 
the period of liability that was terminated and that the Regional 
Director determines may exceed the coverage of the financial assurance 
submitted under Sec.  556.900(a), Sec.  556.901(a) or (b), Sec.  
550.166(a) of this subchapter, or Sec.  550.1011(a) of this subchapter. 
The Regional Director will notify the provider of the new financial 
assurance of the amount required.
    (c) This paragraph (c) applies if the period of liability is 
terminated, but the financial assurance is not replaced with financial 
assurance of an equivalent amount pursuant to paragraph (b) of this 
section. The financial assurance provider will continue to be 
responsible for obligations that accrued prior to the termination of 
the period of liability:
    (1) Until the obligations are satisfied; and
    (2) For additional periods of time in accordance with paragraph (d) 
of this section.
    (d) BOEM will cancel the financial assurance for your lease or 
grant, and the Regional Director will return any pledged financial 
assurance, as shown in the following table:

------------------------------------------------------------------------
                                      Your financial assurance will be
                                        reduced or cancelled, or your
        For the following:           pledged financial assurance will be
                                                  returned:
------------------------------------------------------------------------
(1) Financial assurance submitted   (i) 7 years after the lease or grant
 under Sec.   556.900(a), Sec.       expires or is terminated, 6 years
 556.901(a) or (b), Sec.             after the Regional Director
 550.166(a) of this subchapter, or   determines that you have completed
 Sec.   550.1011(a) of this          all covered obligations, or at the
 subchapter..                        conclusion of any appeals or
                                     litigation related to your covered
                                     obligations, whichever is the
                                     latest. The Regional Director will
                                     reduce the amount of your financial
                                     assurance or return a portion of
                                     your pledged financial assurance if
                                     the Regional Director determines
                                     that less than the full amount of
                                     the financial assurance or pledged
                                     financial assurance is required to
                                     cover any potential obligations.
                                    (ii) [Reserved]
(2) Financial assurance submitted   (i) When the lease or grant expires
 under Sec.   556.901(d), Sec.       or is terminated and the Regional
 550.166(b) of this subchapter, or   Director determines you have met
 Sec.   550.1011(d) of this          your covered obligations, unless
 subchapter..                        the Regional Director:
                                    (A) Determines that the future
                                     potential liability resulting from
                                     any undetected problem is greater
                                     than the amount of the financial
                                     assurance submitted under Sec.
                                     556.900(a), Sec.   556.901(a) or
                                     (b), Sec.   550.166(a) of this
                                     subchapter, or Sec.   550.1011(a)
                                     of this subchapter; and
                                    (B) Notifies the provider of
                                     financial assurance submitted under
                                     Sec.   556.901(d), Sec.
                                     550.166(b) of this subchapter, or
                                     550.1011(d) of this subchapter that
                                     the Regional Director will wait 7
                                     years before cancelling all or a
                                     part of such financial assurance
                                     (or longer period as necessary to
                                     complete any appeals or judicial
                                     litigation related to your secured
                                     obligations).
                                    (ii) At any time when:
                                    (A) BOEM has determined, using the
                                     criteria set forth in Sec.
                                     556.901(d)(1), as applicable, that
                                     you no longer need to provide the
                                     supplemental financial assurance
                                     for your lease, RUE grant, or
                                     pipeline ROW grant.
                                    (B) The operations for which the
                                     supplemental financial assurance
                                     was provided ceased prior to
                                     accrual of any decommissioning
                                     obligation; or,
                                    (C) Cancellation of the financial
                                     assurance is appropriate because,
                                     under the regulations, BOEM
                                     determines such financial assurance
                                     never should have been required.
(3) Third-party Guarantee under     (i) When the Regional Director
 Sec.   556.901(d), Sec.             determines you have met your
 550.166(b) of this subchapter, or   obligations secured by the
 Sec.   550.1011(d) of this          guarantee (or longer period as
 subchapter..                        necessary to complete any appeals
                                     or judicial litigation related to
                                     your obligations secured by the
                                     guarantee).
                                    (ii) [Reserved]
------------------------------------------------------------------------

    (e) For all financial assurance, the Regional Director may 
reinstate your financial assurance as if no cancellation had occurred 
if:
    (1) A person makes a payment under the lease, RUE grant, or 
pipeline ROW grant, and the payment is rescinded or must be returned by 
the recipient because the person making the payment is insolvent, 
bankrupt, subject to reorganization, or placed in receivership; or
    (2) The responsible party represents to BOEM that it has discharged 
its obligations under the lease, RUE grant, or pipeline ROW grant and 
the representation was materially false when the financial assurance 
was cancelled.

0
27. Revise Sec.  556.907 to read as follows:


Sec.  556.907  Forfeiture of bonds or other financial assurance.

    This section explains how a bond or other financial assurance may 
be forfeited.
    (a) The Regional Director will call for forfeiture of all or part 
of the bond, or other form of financial assurance, including a 
guarantee you provide under this part, if:
    (1) You, or any party with the obligation to comply, refuse to 
comply with any term or condition of your

[[Page 31598]]

lease, RUE grant, pipeline ROW grant, or any BOEM or BSEE order, or any 
applicable regulation, or the Regional Director determines that you are 
unable to so comply; or
    (2) You default on one of the conditions under which the Regional 
Director accepts your bond, third-party guarantee, and/or other form of 
financial assurance.
    (b) The Regional Director may pursue forfeiture of your surety bond 
or other financial assurance without first making demands for 
performance against any other record title owner, operating rights 
owner, grant holder, or other person authorized to perform lease or 
grant obligations.
    (c) The Regional Director will:
    (1) Notify you, your surety, guarantor, or the financial 
institution holding or providing your financial assurance, of a 
determination to call for forfeiture of your financial assurance, 
whether it takes the form of a surety bond, guarantee, funds, or other 
type of financial assurance.
    (i) This notice will be in writing and will provide the reason for 
the forfeiture and the amount to be forfeited.
    (ii) The Regional Director will determine the amount to be 
forfeited based upon an estimate of the total cost of corrective action 
to bring your lease or grant into compliance, subject, in the case of a 
guarantee, to any limitation in the guarantee authorized by Sec.  
556.905(b).
    (2) Advise you and your financial assurance provider that 
forfeiture may be avoided if, within five business days:
    (i) You agree to and demonstrate that you will bring your lease or 
grant into compliance within the timeframe the Regional Director 
prescribes; or
    (ii) The provider of your financial assurance agrees to and 
demonstrates that it will complete the corrective action to bring your 
lease or grant into compliance within the timeframe the Regional 
Director prescribes, even if the cost of compliance exceeds the amount 
of that financial assurance.
    (d) If the Regional Director finds you are in default under 
paragraph (a)(1) or (2) of this section, the Regional Director may 
cause the forfeiture of any financial assurance provided to ensure your 
compliance with BOEM and BSEE orders, the terms and conditions of your 
lease or grant, and the regulations in this chapter and chapters II and 
XII of this title.
    (e) If the Regional Director determines that your financial 
assurance is forfeited, the Regional Director will:
    (1) Collect the forfeited amount; and
    (2) Use the funds collected to bring your lease or grant into 
compliance and to correct any default.
    (f) If the amount the Regional Director collects under your 
financial assurance is insufficient to pay the full cost of corrective 
action, the Regional Director may:
    (1) Take or direct action to obtain full compliance with your lease 
or grant and the regulations in this chapter; and
    (2) Recover from you, any other record title owner, operating 
rights owner, co-grant holder or, to the extent covered by the 
guarantee, any third-party guarantor responsible under this subpart, 
all costs in excess of the amount the Regional Director collects under 
your forfeited financial assurance.
    (g) If the amount that the Regional Director collects under your 
forfeited financial assurance exceeds the costs of taking the 
corrective action required to bring your lease or grant into compliance 
with its terms and the regulations in this chapter, BOEM and BSEE 
orders, and chapters II and XII of this title, the Regional Director 
will return the excess funds to the party from whom they were 
collected.
    (h) The Regional Director may pay the funds from the forfeited 
financial assurance to a co- or predecessor lessee or third party who 
is taking the corrective action required to obtain partial or full 
compliance with the regulations, BOEM or BSEE orders, and/or the terms 
of your lease or grant.

Subchapter C--Appeals

PART 590--APPEAL PROCEDURES

0
28. The authority citation for part 590 continues to read as follows:

    Authority:  5 U.S.C. 301 et seq.; 31 U.S.C. 9701; 43 U.S.C. 
1334.

0
29. Revise the heading to subpart A to read as follows:

Subpart A--Bureau of Ocean Energy Management Appeal Procedures

0
30. Revise Sec.  590.1 to read as follows:


Sec.  590.1  What is the purpose of this subpart?

    The purpose of this subpart is to explain the procedures for 
appeals of Bureau of Ocean Energy Management (BOEM) decisions and 
orders.

0
31. Revise Sec.  590.2 to read as follows:


Sec.  590.2  Who may appeal?

    If you are adversely affected by a BOEM official's final decision 
or order issued under chapter V of this title, you may appeal that 
decision or order to the Interior Board of Land Appeals (IBLA). Your 
appeal must conform with the procedures found in this subpart and 43 
CFR part 4, subpart E. A request for reconsideration of a BOEM decision 
concerning a lease bid, authorized in Sec.  556.517(b), Sec.  
581.21(a)(2), or Sec.  585.118(c)(1) of this chapter, is not subject to 
the procedures found in this part.

0
32. Revise Sec.  590.3 to read as follows:


Sec.  590.3  What is the time limit for filing an appeal?

    You must file your appeal within 60 days after you receive BOEM's 
final decision or order. The 60-day time period applies rather than the 
time period provided in 43 CFR 4.411(a). A decision or order is 
received on the date you sign a receipt confirming delivery or, if 
there is no receipt, the date otherwise documented.

0
33. Amend Sec.  590.4 by revising paragraph (a) and adding paragraph 
(c) to read as follows:


Sec.  590.4  How do I file an appeal?

* * * * *
    (a) A written Notice of Appeal, together with a copy of the 
decision or order you are appealing, in the office of the BOEM officer 
that issued the decision or order. You cannot extend the 60-day period 
for that office to receive your Notice of Appeal; and
* * * * *
    (c) You may file an appeal of a BOEM supplemental financial 
assurance demand with the IBLA. However, if you request that the IBLA 
stay the demand pending a final ruling on your appeal, you must post an 
appeal surety bond equal to the amount of the demand that you seek to 
stay before any such stay is effective.

0
34. Amend Sec.  590.7 by revising paragraphs (a)(1) and (b) to read as 
follows:


Sec.  590.7  Do I have to comply with the decision or order while my 
appeal is pending?

    (a) * * *
    (1) BOEM notifies you that the decision or order, or some portion 
of it, is suspended during this period because there is no likelihood 
of immediate and irreparable harm to human life, the environment, any 
mineral deposit, or property; or
* * * * *
    (b) This section applies rather than 43 CFR 4.21(a) for appeals of 
BOEM orders.
* * * * *

0
35. Amend Sec.  590.8 by revising paragraph (a) to read as follows:

[[Page 31599]]

Sec.  590.8  How do I exhaust my administrative remedies?

    (a) If you receive a decision or order issued under this chapter, 
you must appeal that decision or order to the IBLA under 43 CFR part 4, 
subpart E, to exhaust administrative remedies.
* * * * *
[FR Doc. 2024-08309 Filed 4-23-24; 8:45 am]
BILLING CODE 4310-MR-P