Proposed Rule2026-04517
Risk Management and Financial Assurance for OCS Lease and Grant Obligations
Primary source
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Published
March 9, 2026
Issuing agencies
Interior DepartmentOcean Energy Management Bureau
Abstract
The Department of the Interior (the Department or DOI), acting through the Bureau of Ocean Energy Management (BOEM), in response to Executive Order (E.O.) 14154 of January 20, 2025, Unleashing American Energy, as well as Secretarial Order No. 3418 of February 3, 2025, has reviewed market conditions of supply and demand in the crude oil and gas markets, and, as a result, is proposing to amend its existing risk management and financial assurance regulations. BOEM is tasked with managing the development of U.S. Outer Continental Shelf (OCS) energy, mineral, and geological resources in an environmentally and economically responsible way. As such, BOEM is proposing to maintain certain provisions of the existing regulations and modify only those elements that, under new market conditions, merit updating. The major proposed amendments in this rule include returning to the previous BOEM practice of considering the financial strength of jointly liable predecessor lessees, revising the credit rating threshold for determining whether oil, gas, and sulfur lessees, right-of-use and easement (RUE) grant holders, and pipeline right-of-way (ROW) grant holders on the OCS are required to provide supplemental financial assurance above the required general financial assurance amount to ensure compliance with their Outer Continental Shelf Lands Act (OCSLA) obligations, revising the decommissioning estimate used to determine the amount of supplemental financial assurance required, and revising the appeals bond provision related to the Interior Board of Land Appeals (IBLA) appeal procedures. Each of these proposed amendments will be discussed in its corresponding section of this preamble. This proposed rule, if finalized, would significantly reduce the amount of supplemental financial assurance required from oil, gas, and sulfur lessees operating on the OCS, thereby supporting the goals of E.O. 14154 Unleashing American Energy. BOEM estimates that a total of approximately $6.2 billion of financial burden to the regulated community will be reduced. This reduction of the financial burden increases the amount of capital available for oil and gas exploration and production on the OCS.
Full Text
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<title>Federal Register, Volume 91 Issue 45 (Monday, March 9, 2026)</title>
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[Federal Register Volume 91, Number 45 (Monday, March 9, 2026)]
[Proposed Rules]
[Pages 11212-11240]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-04517]
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DEPARTMENT OF THE INTERIOR
Bureau of Ocean Energy Management
30 CFR Parts 550, 556, and 590
[Docket No. BOEM-2025-0042]
RIN 1010-AE26
Risk Management and Financial Assurance for OCS Lease and Grant
Obligations
AGENCY: Bureau of Ocean Energy Management, Interior.
ACTION: Notice of proposed rulemaking and request for comment.
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SUMMARY: The Department of the Interior (the Department or DOI), acting
[[Page 11213]]
through the Bureau of Ocean Energy Management (BOEM), in response to
Executive Order (E.O.) 14154 of January 20, 2025, Unleashing American
Energy, as well as Secretarial Order No. 3418 of February 3, 2025, has
reviewed market conditions of supply and demand in the crude oil and
gas markets, and, as a result, is proposing to amend its existing risk
management and financial assurance regulations. BOEM is tasked with
managing the development of U.S. Outer Continental Shelf (OCS) energy,
mineral, and geological resources in an environmentally and
economically responsible way. As such, BOEM is proposing to maintain
certain provisions of the existing regulations and modify only those
elements that, under new market conditions, merit updating. The major
proposed amendments in this rule include returning to the previous BOEM
practice of considering the financial strength of jointly liable
predecessor lessees, revising the credit rating threshold for
determining whether oil, gas, and sulfur lessees, right-of-use and
easement (RUE) grant holders, and pipeline right-of-way (ROW) grant
holders on the OCS are required to provide supplemental financial
assurance above the required general financial assurance amount to
ensure compliance with their Outer Continental Shelf Lands Act (OCSLA)
obligations, revising the decommissioning estimate used to determine
the amount of supplemental financial assurance required, and revising
the appeals bond provision related to the Interior Board of Land
Appeals (IBLA) appeal procedures. Each of these proposed amendments
will be discussed in its corresponding section of this preamble. This
proposed rule, if finalized, would significantly reduce the amount of
supplemental financial assurance required from oil, gas, and sulfur
lessees operating on the OCS, thereby supporting the goals of E.O.
14154 Unleashing American Energy. BOEM estimates that a total of
approximately $6.2 billion of financial burden to the regulated
community will be reduced. This reduction of the financial burden
increases the amount of capital available for oil and gas exploration
and production on the OCS.
DATES: BOEM must receive your comments on or before May 8, 2026. BOEM
has the discretion not to consider comments received after this date.
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 April 8, 2026. The IC burden comment
opportunity does not affect the deadline for the public to comment to
BOEM on the proposed regulations.
ADDRESSES: You may submit comments on the rulemaking by any of the
following methods. In your comments, please reference ``Risk Management
and Financial Assurance for OCS Lease and Grant Obligations, RIN 1010-
AE26.'' See the SUPPLEMENTARY INFORMATION section of this document for
more details on submitting comments.
<bullet> Federal rulemaking portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>
(BOEM preferred method). Follow the online instructions for submitting
comments.
<bullet> Mail or delivery service: Send comments on the proposed
rule to the Department of the Interior, Bureau of Ocean Energy
Management, Office of Regulatory Affairs, Attention: Karen Thundiyil,
Office Director, Office of Regulatory Affairs, BOEM, 1849 C Street NW,
Washington, DC 20240.
You may submit comments on the IC to OMB's desk officer for the
Department of the Interior through <a href="https://www.reginfo.gov/public/do/PRAMain">https://www.reginfo.gov/public/do/PRAMain</a>. 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 proposed 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 Regulatory
Affairs, BOEM, Attention: Anna Atkinson, 45600 Woodland Road, Sterling,
Virginia 20166; or by email to <a href="/cdn-cgi/l/email-protection#8aebe4e4eba4ebfee1e3e4f9e5e4cae8e5efe7a4ede5fc"><span class="__cf_email__" data-cfemail="3a5b54545b145b4e5153544955547a58555f57145d554c">[email protected]</span></a>. Please reference
OMB Control Number 1010-0006 in the subject line of your comments.
FOR FURTHER INFORMATION CONTACT: Karen Thundiyil, Office Director,
Office of Regulatory Affairs, BOEM, 1849 C Street NW, Washington, DC
20240, at email address <a href="/cdn-cgi/l/email-protection#3f4d5a584a535e4b504d46115e59595e564d4c7f5d505a5211585049"><span class="__cf_email__" data-cfemail="196b7c7e6c75786d766b6037787f7f78706b6a597b767c74377e766f">[email protected]</span></a>, 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:
Docket: For access to the docket to read background documents or
comments received, go to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. In the entry
titled, ``Enter Keyword or ID,'' enter BOEM-2025-0042 then click
search. Here you can view supporting and related materials available
for this rulemaking, as well as posted publicly submitted comments. In
accordance with 5 U.S.C. 553(b)(4), a summary of this rule may be found
at <a href="https://www.regulations.gov/docket/BOEM-2025-0042">https://www.regulations.gov/docket/BOEM-2025-0042</a>.
Instructions for submitting comments: In the entry titled, ``Enter
Keyword or ID,'' enter BOEM-2025-0042 then click search. Follow the
instructions to submit public comments. All submissions received must
include the agency name and docket number or Regulatory Information
Number (RIN) for this rulemaking (1010-AE26). Please include your name,
and phone number or email address in the <a href="https://www.regulations.gov">https://www.regulations.gov</a>
submission portal so we can contact you if we have questions regarding
your submission.
BOEM may post all comments to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Before
including your name, return address, phone number, email address, or
other personally identifiable information in the body of your comment,
you should be aware that your entire comment--including your personally
identifiable information--may be made publicly available. In order for
BOEM to withhold from disclosure your personally identifiable
information, you must identify, in a cover letter, any information
contained in the submittal of your comments that, if released, would
constitute a clearly unwarranted invasion of your personal privacy. You
must also briefly describe in such cover letter any possible harmful
consequences of the disclosure of information, such as embarrassment,
injury, or other harm. While you can ask us in your comment to withhold
your personally identifiable information from public review, we cannot
guarantee that we will be able to do so. Even if BOEM withholds your
information in the context of this rulemaking, your submission is
subject to the Freedom of Information Act (FOIA) and any relevant court
orders, and if your
[[Page 11214]]
submission is requested under the FOIA or such court order, your
information will only be withheld if a determination is made that one
of the FOIA's exemptions to disclosure applies or if such court order
is challenged. Such a determination will be made in accordance with the
Department's FOIA regulations and applicable law.
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
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
GOA Gulf of America
IBLA Interior Board of Land Appeals
IC Information Collection
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
Background information. On April 24, 2024, the Department published
the Risk Management and Financial Assurance for OCS Lease and Grant
Obligations final rule (89 FR 31544, ``2024 Final Rule''). The 2024
Final Rule finalized criteria for determining whether oil, gas, and
sulfur lessees, RUE grant holders, and pipeline ROW grant holders on
the OCS are required to provide financial assurance above the general
financial assurance amount to ensure compliance with their OCSLA
obligations. The 2024 Final Rule also streamlined the criteria for
evaluating the financial health of lessees and grantees, codified 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, removed restrictive
provisions for third-party guarantees and decommissioning accounts,
added new criteria for cancelling supplemental financial assurance, and
clarified financial assurance requirements for RUEs serving Federal OCS
oil, gas, and sulfur leases. In response to E.O. 14154 Unleashing
American Energy, the Department is proposing this action to revise the
provisions that were finalized in the 2024 Final Rule.
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. Overview of BOEM's Financial Assurance Program
D. Risk Management
E. Purpose of This Rulemaking
III. Summary of the Proposed Rule
A. Revisions to BOEM Supplemental Financial Assurance
Requirements
1. OCS Leases
a. Evaluation Criteria
b. Evaluation of Predecessors
2. Right-of-Use and Easement (RUE) Grants
3. Pipeline Right-of-Way (ROW) Grants
B. Revisions to Third-Party Guarantees
C. Use of BSEE's Probabilistic Estimates for Determining the
Amount of Supplemental Financial Assurance Required
D. Evaluation Methodology
1. Credit Ratings
a. Use of an ``Issuer Credit Rating''
b. Credit Rating Threshold
2. Proxy Credit Ratings
3. Proved Oil and Gas Reserves
a. Use of a Minimum Ratio
b. Minimum Ratio Value
E. Phased Compliance With Supplemental Financial Assurance
Orders
F. Short-Term Decommissioning Obligations
G. Appeal Bonds
H. Other Amendments
1. Revisions to Definitions
a. Delete Term: ``Investment Grade Credit Rating''
b. Add Term: ``Issuer Credit Rating''
c. Add Term: ``Predecessor''
d. Add Term ``Dual-Obligee Financial Assurance Instrument''
2. Clarification on the Use of Dual-Obligee Financial Assurance
Instrument
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. Request for Comments
VII. Statutory Order Review
A. Regulatory Flexibility Act (RFA)
B. Small Business Regulatory Enforcement Fairness Act (SBREFA)
C. Unfunded Mandates Reform Act (UMRA)
D. Paperwork Reduction Act (PRA)
E. National Environmental Policy Act (NEPA)
VIII. Executive Order Review
A. Executive Order 12630: Governmental Actions and Interference
With Constitutionally Protected Property Rights
B. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
C. Executive Order 12988: Civil Justice Reform
D. Executive Order 13132: Federalism
E. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
F. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
G. Executive Order 14154: Unleashing American Energy
H. Executive Order 14156: Declaring a National Energy Emergency
I. Executive Order 14192: Unleashing Prosperity Through
Deregulation
I. General Information
A. Executive Summary
1. Purpose of This Regulatory Action
The purpose of this proposed regulatory action is to address
concerns regarding recent changes in BOEM's financial assurance
program. Specifically, on April 24, 2024, the Department published the
Risk Management and Financial Assurance for OCS Lease and Grant
Obligations final rule (89 FR 31544, ``2024 Final Rule''), which
finalized criteria for determining whether oil, gas, and sulfur
lessees, RUE grant holders, and pipeline ROW grant holders on the OCS
are required to provide supplemental financial assurance above the
general financial assurance amount required by regulation to ensure
compliance with their OCSLA obligations. The 2024
[[Page 11215]]
Final Rule also streamlined the criteria for evaluating the financial
health of lessees and grantees, codified the use of the BSEE
probabilistic estimates of decommissioning costs in setting the level
of demands for supplemental financial assurance, removed restrictive
provisions for third-party guarantees and decommissioning accounts,
added new criteria for cancelling supplemental financial assurance, and
clarified financial assurance requirements for RUEs serving Federal OCS
oil, gas, and sulfur leases. At the time of publication, BOEM estimated
that the 2024 Final Rule would require a total of $6.9 billion in new
supplemental financial assurance from lessees and grant holders to
cover potential costs of decommissioning activities. The Department is
proposing this action to revise regulatory provisions that were
finalized in the 2024 Final Rule, in response to E.O. 14154 Unleashing
American Energy, and to reduce the economic burden on OCS lessees and
grant holders.
2. Summary of Major Provisions
The following amendments are included in this proposed rule:
<bullet> consideration of the financial strength of jointly and
severally liable predecessors when determining the need to provide
supplemental financial assurance;
<bullet> revising the credit rating threshold used for evaluating
the financial health of lessees and grantees from BBB- to BB- from S&P
Global Ratings (S&P) or Baa3 to Ba3 from Moody's Investor Service Inc.
(Moody's) or other equivalent credit rating from a Nationally
Recognized Statistical Rating Organization (NRSRO) as defined in
section 3(a)(62) of the Securities Exchange Act of 1934;
<bullet> revising the level of BSEE probabilistic estimates of
decommissioning cost used for determining the amount of supplemental
financial assurance required from P70 to P50, as described in section
II.C of this preamble;
<bullet> revising the list of acceptable supplemental financial
assurance instruments for leases to explicitly include dual-obligee
financial assurance instruments;
<bullet> adding an alternative option to allow the Regional
Director to consider the use of the 3-to-1 proved reserves to
decommissioning liabilities ratio for ROW grant holders (when they also
have lease rights to the proved reserves) when determining supplemental
financial assurance requirements;
<bullet> adding an alternative option for addressing supplemental
financial assurance demands for short-term decommissioning activities;
and
<bullet> removing the requirement that a lessee provide an appeal
bond in the amount of the demand as a condition of staying the demand
during the IBLA appeal process.
With this rulemaking, the Department is proposing to consider
jointly and severally liable predecessors and revise the credit rating
threshold used for evaluating the financial health of lessees and
grantees when determining if supplemental financial assurance is
required. The current regulations require the use of an investment
grade credit rating (BBB- from S&P, or Baa3 from Moody's, or other
equivalent credit rating from an NRSRO.) threshold (or proxy credit
rating equivalent) or a minimum 3-to-1 ratio of the value of proved
reserves to decommissioning liability associated with those reserves to
determine if a current lessee is required to provide supplemental
financial assurance. The current regulations do not consider
predecessors in this determination. With this rule, the Department is
proposing to revise this credit rating threshold to BB- (S&P), or Ba3
from Moody's, or other equivalent credit rating from an NRSRO, and to
consider the credit rating of predecessors when determining if a
current lessee is required to provide supplemental financial assurance.
If a current lessee or a predecessor meets the credit rating threshold
of BB-(S&P), or Ba3 from Moody's, or other equivalent rating from an
NRSRO, or the ratio of the current lessee's value of proved reserves to
decommissioning liability associated with those reserves is at least 3-
to-1 (as under current regulations), the current lessee will not be
required to provide supplemental financial assurance. These proposed
amendments will significantly reduce the regulatory financial burden on
companies, allowing them additional capital for current and future oil
and gas operations, and acknowledge the protection provided by joint
and several liability. The impacts of the financial burden and capital
constraints on offshore companies is illustrated by previously received
public comments on the 2023 NPRM, with Talos Energy Inc., stating that
the financial burden ``would significantly reduce the capital available
to the affected small businesses that they would otherwise be able to
deploy in their lease operations and decommissioning operations,'' and
Beacon Offshore Energy stating that the financial burden would
``decrease oil and gas production in the [GOA].''
The Department is also proposing to revise the probabilistic value
that would be used (i.e., P-value) from among the available BSEE
probabilistic estimates of decommissioning cost for determining the
amount of supplemental financial assurance required. Probabilistic
estimation involves determining the likelihood of certain outcomes or
parameters based on observed data. BSEE decommissioning cost estimates
are based on industry-reported decommissioning costs required by
regulations at 30 CFR 250.1704 and clarified by guidance.\1\ Based on
the reported data, BSEE has developed three publicly available
probabilistic estimates (i.e., P-values) of decommissioning costs for
each OCS facility on any given lease.\2\ These probabilistic estimates
represent the likelihood of covering the full cost of decommissioning a
facility as a percentage. For example, P70 represents a 70 percent
likelihood that the amount will cover the full cost of decommissioning
a facility. The current regulations require the use of the P70 estimate
when determining the amount of supplemental financial assurance that
must be provided to cover future decommissioning activities. The
Department is proposing to revise the probabilistic value used for
determining the amount of supplemental financial assurance required
from P70 to P50. BOEM also notes that the regulation only stipulates
that the BSEE P-value be used to determine the amount of supplemental
financial assurance that may be required to meet decommissioning
obligations and does not limit the total cost of corrective action that
may be required to bring a lease or grant into compliance.
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\1\ <a href="https://www.bsee.gov/notices-to-lessees-ntl/ntl-2017-n02-reporting-requirements-for-decommissioning-expenditures-on-the">https://www.bsee.gov/notices-to-lessees-ntl/ntl-2017-n02-reporting-requirements-for-decommissioning-expenditures-on-the</a>.
\2\ BSEE, <a href="https://www.bsee.gov/research-record/tap-738-decommissioning-methodology-and-cost-evaluation">https://www.bsee.gov/research-record/tap-738-decommissioning-methodology-and-cost-evaluation</a>.
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In instances where decommissioning activities will be performed
within 1 year of receiving a new supplemental financial assurance
demand from BOEM, the Department is proposing to allow the Regional
Director the discretion to accept third-party decommissioning contracts
and decommissioning schedules from those entities in lieu of providing
new supplemental financial assurance for that activity. This reduces
the burden on the regulated community that may have difficulty
acquiring new supplemental financial assurance for platforms scheduled
for decommissioning. BOEM's review and approval of the decommissioning
contracts and schedules for use in lieu of supplemental financial
assurance is not
[[Page 11216]]
an approval for decommissioning activities, which remains in BSEE's
purview; BOEM's approval is only an acceptance of those documents in
lieu of supplemental financial assurance.
As amended in 2024, the current appeals process requires that a
lessee provide an appeal bond equivalent to the amount of the
supplemental financial assurance demand if they seek to stay the
supplemental financial assurance demand pending a decision from the
IBLA. If the appeal is successful, the appeal bond would be returned to
the appropriate party, and any required supplemental financial
assurance would need to be posted in the form of bonds or other
financial instruments. 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. The Department is proposing to remove this requirement because
of the undue burden it places on industry, as raised by commenters
during the public comment period for that rulemaking.
The Department's goal for BOEM's financial assurance program
continues to be the protection of the American taxpayers from exposure
to 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, even
though these proposed revisions will reduce the total amount of
supplemental financial assurance required of offshore lessees and
operators, there may still be some financial impact on affected
companies because BOEM has not yet required them to provide
supplemental financial assurance as directed by the 2024 Final Rule.
For this reason, the Department is proposing to revise the current 3-
year phase-in provision for existing leaseholders to start a new phase-
in period with the effective date of the new supplemental financial
assurance requirements.
3. Costs and Benefits
The regulatory amendments in this proposed rule, if finalized, are
expected to decrease the total amount of supplemental financial
assurance required from OCS lessees and grant holders. BOEM has
developed a Regulatory Impact Analysis (RIA) detailing the estimated
impacts of the respective provisions of this proposed rule and has
included it in the docket. The table below summarizes BOEM's monetized
estimate of the savings incurred 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 proposed
rulemaking (Docket No. BOEM-2025-0042).
Estimated Regulatory Savings of the Proposed Rule
[2026-2045, 2025$ millions]
------------------------------------------------------------------------
Discounted at 3% Discounted at 7%
------------------------------------------------------------------------
Total Regulatory Savings........ $7,207.60 $5,161.55
Annualized Regulatory Savings... 484.46 487.21
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This proposed rule is designed to minimize the amount of
supplemental financial assurance required for financially strong
companies while protecting the taxpayer from assuming responsibility
for decommissioning liabilities. The regulatory amendments proposed
with this action, if finalized, would help to reduce financial
compliance burdens on the oil and gas industry that may hinder the
continued development or use of domestically produced energy resources.
B. Does this action apply to me?
Entities potentially affected by this action are holders of oil,
gas, and sulfur leases, ROW grants, and RUE grants on the OCS, as shown
in the following table by North American Industry Classification System
(NAICS) code.
Entities Potentially Affected by This Proposed Action
------------------------------------------------------------------------
NAICS code * Category description
------------------------------------------------------------------------
211120................................. Crude Petroleum Extraction.
211130................................. Natural Gas Extraction.
486110................................. Pipeline Transportation of
Crude Oil and Natural Gas.
------------------------------------------------------------------------
\*\ Some holders of OCS properties may be categorized under other NAICS
codes. For example, a venture capital fund with only an economic
interest in an OCS property may be categorized under another NAICS
code, but BOEM believes the three presented here capture the large
majority of OCS entities.
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 action at: <a href="https://www.boem.gov/regulations-and-guidance">https://www.boem.gov/regulations-and-guidance</a>.
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.
The Secretary, in Secretary's Order 3299 (as amended), established
BOEM and delegated to it the authority to carry out conventional
energy- (i.e., oil and gas) functions on the OCS, including,
[[Page 11217]]
but not limited to, activities involving resource evaluation, planning,
and leasing under the provisions of OCSLA. As such, BOEM is responsible
for managing the development of the Nation's offshore energy, mineral,
and geologic 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.
While BOEM also has program oversight for the financial assurance
requirements set forth in 30 CFR parts 551, 581, 582, and 585, this
proposed rule pertains only to the financial assurance requirements for
oil and gas or sulfur leases and grants under parts 550 and 556 and
appeals of supplemental financial assurance demands under part 590.
B. History of Bonding Regulations and Guidance
The Minerals Management Service (MMS), BOEM's predecessor,
published the 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 initial 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. To
implement these regulations, BOEM employed 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 were not stated in those
regulations.
The bonding regulations at 30 CFR 556.901(d) established in 1997
provided five criteria that the Regional Director considered when
determining whether a lessee's potential inability to carry out present
and future decommissioning obligations warrants a demand for
supplemental financial assurance; however, the bonding regulations did
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. NTL No. 2008-N07 was
superseded on September 12, 2016, with NTL No. 2016-N01, which was
later rescinded in February of 2020.
On August 19, 2014, DOI issued an advance notice of proposed
rulemaking (79 FR 49027) seeking comments and information on its effort
to update the risk management regulations and program oversight. BOEM
was specifically interested in comments regarding financial risks and
liabilities associated with aging offshore infrastructure, deepwater
decommissioning, subsea decommissioning, pipeline abandonment, Arctic
operations, and new technologies designed to address deepwater
development or exploration and/or development of energy or mineral
resources in locations with unusually adverse conditions. BOEM also
requested information on business risk associated with the changing
characteristics of entities operating on the OCS, underperformance,
non-performance or default on financial or legal obligations, and
underpayment or non-payment of rentals and royalties. Additionally,
BOEM requested comments on the necessary elements of a comprehensive
operational risk management, financial assurance, and loss prevention
program, and how to monitor business risks. BOEM received 25 comments
from affected entities on the advance notice.
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.'' (``2015 GAO Report''). 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 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 2015 GAO Report indicated, the
then existing regulatory structure was inadequate, introduced needless
financial risk, and was unsustainable. While acknowledging BOEM's
ongoing efforts to update its policies, the 2015 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 <a href="https://www.gao.gov/products/gao-16-40">https://www.gao.gov/products/gao-16-40</a>.
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 the following based on comments received on the 2014 advanced
notice for proposed rulemaking:
<bullet> adjustment of the supplemental financial assurance
evaluation criteria to streamline implementation;
<bullet> consideration of the financial stability of predecessor
lessees by waiving supplemental financial assurance requirements for a
current lessee when there is a financially strong predecessor lessee;
<bullet> amendment of the methodology for measuring financial
strength to focus on credit rating and the value of proved oil and gas
reserves; and
<bullet> application of 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) without the BOEM-administered
provisions. The Department's 2023 final rule implements provisions of
the 2020 proposed rule to clarify decommissioning responsibilities of
RUE grant holders and formalizes BSEE's policies regarding performance
[[Page 11218]]
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. The DOI published the proposed rule in the Federal
Register at 88 FR 42136, which proposed amendments to 30 CFR parts 550,
556, and 590. This rule 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 OCS 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. The Department also proposed the use of the P70 value for
determining the amount of supplemental financial assurance required.
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.''
After review of the public comments received, the Department
published the Risk Management and Financial Assurance for OCS Lease and
Grant Obligations final rule (89 FR 31544, ``2024 Final Rule'') on
April 24, 2024. This final regulatory action finalized criteria for
determining whether oil, gas, and sulfur lessees, RUE grant holders,
and pipeline ROW grant holders are required to provide financial
assurance above the general financial assurance amount to ensure
compliance with their OCSLA obligations. The 2024 Final Rule
streamlined the criteria for evaluating the financial health of lessees
and grantees, codified the use of the BSEE probabilistic estimates of
decommissioning costs in setting the level of demands for supplemental
financial assurance, removed restrictive provisions for third-party
guarantees and decommissioning accounts, added new criteria for
cancelling supplemental financial assurance, and clarified bonding
requirements for RUEs serving Federal OCS leases. The Department
finalized 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. The Department also finalized the use of the P70
value for determining the amount of supplemental financial assurance
required. BOEM estimated that the final regulatory action, with an
effective date of June 29, 2024, would require a total of $6.9 billion
in new supplemental financial assurance from lessees and grant holders
to cover potential costs of decommissioning activities.
After publication of the 2024 Final Rule but prior to its effective
date on June 17, 2024, several oil and gas industry associations and
states sued DOI in the U.S. District Court for the Western District of
Louisiana to stay or enjoin the 2024 financial assurance rule.
Louisiana v. Burgum, No. 2:24-cv-00820 (W.D. La. 2024). On April 7,
2025, DOI and plaintiffs filed a joint motion to stay the case to allow
time for DOI to review and consider suspending, revising, or rescinding
the 2024 Final Rule in line with Secretary's Order No. 3418, and for
the parties to file periodic status reports on the progress. On the
same date, the court granted the joint motion staying the case.
C. Overview of BOEM's Financial Assurance Program
BOEM's existing financial assurance regulatory framework has two
main components: (1) base financial assurance, generally required in
amounts prescribed by regulation, and (2) supplemental financial
assurance above the prescribed amounts that may be required by order of
the Regional Director upon determination that an increased amount is
necessary to ensure compliance with OCS obligations. BOEM's goal for
its financial assurance program continues to be the protection of the
American taxpayers from exposure to financial loss associated with OCS
development, while ensuring that the financial assurance program does
not detrimentally affect offshore investment or position American
offshore exploration and production companies at a competitive
disadvantage.
A significant component of BOEM's financial assurance program has
traditionally been the joint and several liability shared between co-
lessees and co-grant holders with joint ownership and the predecessor
liability retained by lessees and grant holders after asset
divestiture. The 2024 Final Rule failed to recognize the risk reduction
afforded by predecessors in the decommissioning liability chain of
title. As a result of failing to recognize the risk reduction of
predecessors, if implemented, the 2024 Final Rule would have resulted
in significant capital burdens on the current lessees and grant holders
who have financially strong predecessors in the chain of title for the
lease or grant, as evidenced by public comments received on the
proposal in 2023. This proposed rule recognizes the financial strength
of the jointly and severally liable predecessor lessees and grant
holders when determining the financial contribution required from
current lessees and grant holders based on the risk reduction afforded
by the presence of creditworthy predecessors in interest, thereby
reducing the imposed capital burden.
D. Risk Management
Since 2009, more than 30 corporate bankruptcies have occurred
involving offshore oil and gas lessees. The volume of bankruptcies has
decreased since 2019, however the financial losses from bankruptcy have
increased recently as a result of orphaned liability (i.e., those
properties without a predecessor in the chain of title).
Decommissioning liabilities on the OCS are large and increasing as more
deepwater facilities are being constructed. Additionally,
[[Page 11219]]
decommissioning costs generally increase over time with inflation. The
current estimate for routine decommissioning-related liabilities
offshore ranges from approximately $35 to $41 billion, using the P50
and P70 BSEE decommissioning estimates, respectively.
Additionally, the characteristics of the types of companies
operating on the OCS have changed. Larger companies often transfer
sunset properties to typically smaller, less experienced companies,
including non-strategic players (i.e., those who participate in oil and
gas activities but do not necessarily aim to control significant market
share or influence global prices and supply trends) and private equity
firms. BOEM has gained experience with these various corporate
structures and arrangements governing transactions on the OCS.
It is also noted that BOEM and BSEE continue to pursue
decommissioning of older infrastructure, however older infrastructure
is not necessarily an indicator of current or future financial risk.
BSEE continues to monitor for ``idle iron'' in accordance with criteria
in Bureau of Safety and Environmental Enforcement (BSEE) NTL no. 2018-
G03 and can order remedial measures or decommissioning to address
safety and environmental concerns.
In its mission to manage the development of OCS energy, mineral,
and geological resources in an environmentally and economically
responsible way, BOEM must balance OCS energy development with
protection for both the taxpayer and the environment considering these
factors.
E. Purpose of This Rulemaking
As directed by E.O. 14154 and Secretary's Order 3418, BOEM reviewed
the Risk Management and Financial Assurance for OCS Lease and Grant
Obligations final rule (89 FR 31544; April 24, 2024) to consider
whether it should be suspended, revised, or rescinded. With this
rulemaking, DOI proposes to revise the regulations associated with the
2024 Final Rule as it unnecessarily burdens the development of domestic
energy resources under current market conditions of high volatility and
depressed prices. Additionally, BOEM is seeking public comment on the
proposed amendments discussed in this preamble, as summarized in
section VI.
III. Summary of the Proposed Rule
For each topic, this section provides a description of what the
Department is proposing with this action.
A. Revisions to BOEM Supplemental Financial Assurance Requirements
The Department is proposing revisions to the supplemental financial
assurance requirements for OCS oil, gas, and sulfur leases, RUE grants,
and pipeline ROW grants, as discussed in the subsections below.
1. OCS Leases
The 2024 Final Rule finalized amendments to the financial assurance
requirements to modify the evaluation process for requiring
supplemental financial assurance by clarifying and streamlining the
evaluation criteria. The 2024 Final Rule allows the BOEM Regional
Director to require supplemental financial assurance when a lessee
poses a substantial risk of becoming financially unable to carry out
its obligations under its lease, 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 is mitigated when
there is a co-lessee holder that has sufficient financial capacity to
carry out the obligations. This proposed rule reevaluates the 2024
Final Rule amendments and proposes new amendments to reduce the
regulatory burden on the regulated community associated with the 2024
Final Rule.
a. Evaluation Criteria
As discussed in the preamble to the 2020 joint proposed rule, the
Department proposed to use credit rating instead of relying primarily
on net worth to determine whether a lessee must provide additional
security (85 FR 65907). Credit rating agencies take many factors into
account when evaluating a company, particularly those that emphasize
cash flow, such as debt-to-earnings ratios and debt-to-funds from
operations. A credit rating considers forward-looking factors,
including the income statement and cash flow statement, which provide a
broader picture of how well a company can meet its future liabilities.
At the time of the 2020 joint proposed rule, the regulations relied on
a backward-looking net worth analysis based on a company's balance
sheet, which shows the current amount of its assets and liabilities. A
lessee's or grant holder's financial deterioration can occur quickly,
and relying on the proposed more forward-looking credit rating analysis
would allow BOEM to foresee a lessee's or grant holder's possible
financial distress sufficiently ahead of time to take appropriate
action.
The Department continued to support the stance of the 2020 joint
proposed rule with the 2023 proposed rule, which again proposed to
replace the five criteria (i.e., financial capacity, projected
financial strength, business stability, reliability, and record of
compliance) with the credit rating criteria and proved reserves
alternate criteria. As discussed in the preamble (88 FR 42142), DOI
proposed to streamline the evaluation process by reducing the number of
criteria from five to two and by better aligning BOEM's evaluation
process with accepted financial risk evaluation methods used by the
banking and finance industry. Corporate credit ratings are broadly
intended to evaluate the potential for a company to default on its
financial obligations and are designed so that the higher the credit
rating, the lower the risk of default. Credit ratings and proved oil
reserves are good indicators of the likelihood that a company will be
able to meet its financial obligations. 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 \3\--would simplify the process and remove criteria
that may not accurately or consistently predict financial distress. As
a specific example, corporate parents may spin-off subsidiaries,
resulting in a relatively well-financed new entity and no indications
of immediate financial risk. While the spin-off has zero years of
operation offshore as a new corporate entity, the personnel may have
decades of experience working offshore and in the oil and gas markets.
---------------------------------------------------------------------------
\3\ Review of many years of data on length of operation and
references showed no correlation to financial stability or business
stability.
---------------------------------------------------------------------------
The 2024 Final Rule amended the criteria in 30 CFR 556.901(d) that
were used to evaluate the need for supplemental financial assurance
from lessees from the previously used 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. Specifically, the Department finalized
amendments in 30 CFR 556.901(d) to determine whether supplemental
financial assurance on a lease may be required using: (1) a credit
rating, either from an NRSRO, as
[[Page 11220]]
defined in section 3(a)(62) of the Securities Exchange Act of 1934, or
a proxy credit rating determined by BOEM based on a company's audited
financial statements; or (2) a minimum ratio for the value of proved
oil and gas reserves on a lease to the decommissioning liability
associated with those reserves.
With this proposed rulemaking, DOI has reviewed the 2024 Final Rule
evaluation criteria and is proposing to continue the use of the credit
rating criterion, including a proxy credit rating, and the ratio of the
value of proved oil and gas reserves on a lease to the decommissioning
liability associated with those reserves criterion as the evaluation
criteria for lessees.\4\ The Department is not proposing any amendments
to the use of the evaluation criteria with this proposed rule, however
amendments to the evaluation criteria thresholds are discussed in
section III.D of this preamble.
---------------------------------------------------------------------------
\4\ These criteria align closely with standard financial
practice, evaluating financials, and/or value of assets to
liabilities.
---------------------------------------------------------------------------
b. Evaluation of Predecessors
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 the 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 considered obligations of the party that built such new
facilities and its co- and successor lessees.
The existing supplemental financial assurance evaluation process,
as amended by the 2024 Final Rule and contained in 30 CFR 556.901(d),
does not allow for consideration of predecessor financial capacity when
determining if supplemental financial assurance is required by the
current lessee. The 2024 Final Rule failed to recognize the risk
reduction afforded by the presence of financially strong predecessors
in the chain of title; this proposed rule recognizes the reduced risk
to the taxpayer by having multiple parties in the chain of title. The
Department is proposing to add new paragraph 30 CFR 556.901(d)(4) to
include an evaluation of the ability of a predecessor to carry out
present and future obligations. This approach is rooted in the joint
and several liability of all current lessees, co-lessees, and
predecessor lessees for all non-monetary obligations on a lease. Except
in cases of sole liability, when a default by a current lessee occurs,
a predecessor lessee can be called to perform decommissioning, up to
the amount of the decommissioning obligations that accrued during the
predecessor lessee's interest in the lease. BOEM defines sole liability
properties as those where only one owner is liable for the lease or
grant obligations. BOEM defines non-sole liability properties as those
that have more than one owner. This proposed amendment relies on the
combined responsibility of all current and predecessor lessees to
perform required decommissioning. Under current regulations, even in
cases where a predecessor divested its full interest in a lease to
another company by assignment after accruing an obligation to
decommission certain infrastructure (i.e., well, platform, pipeline),
the predecessor remains jointly and severally liable for
decommissioning that infrastructure. This proposed rule acknowledges
the larger universe of companies to whom BSEE can look for performance
under the law and so would reduce the circumstances under which BOEM
would need to require additional security and, by extension, prevent
tying up a current lessee's financial resources that are better used to
foster ongoing operations and production. While the goal of BOEM's
financial assurance program is to protect the taxpayer, financial
assurance required by the Department, where there are viable
predecessors, serves to protect the predecessors. There is evidence
that sellers on the secondary OCS oil and gas market are now accounting
for their contingent and retained decommissioning liabilities through
different mechanisms in the structure of their sales, such as by
requiring their own surety bonds or requiring funding of a trust
account at the time of sale. This proposed deregulatory effort would
allow market participants to arrange and price these OCS liabilities
without unnecessary government interference, while still affording
adequate protection to the taxpayer.
The Department is proposing that, if neither the lessee nor any co-
lessee meets the issuer credit rating or proxy credit rating threshold
and there are not sufficient oil and gas reserves on the lease, BOEM
would look to the credit ratings of prior lessees. Under the proposed
rule, the Regional Director may require a lessee to provide
supplemental financial assurance if no predecessor lessee on that lease
liable for decommissioning meets the issuer credit rating or proxy
credit rating criteria. Moreover, even if a predecessor meets the
issuer credit rating or proxy credit rating criteria, the Regional
Director may require the lessee to provide supplemental financial
assurance for decommissioning obligations for which such a predecessor
is not liable.
2. Right-of-Use and Easement (RUE) Grants
The 2024 Final Rule amended the RUE financial assurance
requirements to clarify the financial assurance requirement for RUEs
serving Federal leases. The Department replaced 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 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 amendments to the evaluation
criteria for lease holders, DOI finalized in 30 CFR 550.166(b) a
provision to consider the issuer credit rating or proxy credit rating
of RUE co-grant holders to determine if a grantee must provide
supplemental financial assurance. The 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.
BOEM has evaluated the 2024 Final Rule evaluation criteria and is
proposing to continue the use of the credit rating criterion, including
a proxy credit rating, as the evaluation criteria for determining if a
RUE grant holder must provide supplemental financial assurance. The
Department proposes to use the same credit rating or proxy credit
rating for RUE grant holders as lessees, as modified by this proposed
rule to the new proposed credit rating threshold of BB- (S&P), or Ba3
from Moody's, or other equivalent rating from an NRSRO, instead of the
finalized credit rating threshold of the 2024 Final Rule of BBB-, as
further discussed in section III.D of this preamble. Similar to leases,
the Department is proposing to clarify that BOEM can consider the
[[Page 11221]]
issuer credit rating or proxy credit rating of a predecessor RUE grant
holder and a predecessor lessee (i.e., a lessee that held interests in
the lease on which the RUE is now located and is liable for accrued
obligations for the facilities thereon), when determining if
supplemental financial assurance is required.
3. Pipeline Right-of-Way (ROW) Grants
Similar to the final amendments to the evaluation criteria for
lease holders, DOI finalized in the 2024 Final Rule at 30 CFR
550.1011(c) a provision 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 preamble to the 2024 Final Rule
stated that 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.
BOEM has evaluated the 2024 Final Rule evaluation criteria and is
proposing the continued use of the credit rating criterion, including a
proxy credit rating, as an evaluation criterion for determining if a
ROW grant holder must provide supplemental financial assurance. As for
OCS leases, with this proposed rule, the ROW grant holder and
predecessors would be evaluated based on the new proposed credit rating
threshold of BB- (S&P) instead of the finalized credit rating threshold
of the 2024 Final Rule of BBB-, as further discussed in section III.D
of this preamble. Similar to its proposal for leases, the Department is
proposing to clarify that BOEM can consider the credit rating or proxy
credit rating of a predecessor ROW grant holder when determining if
supplemental financial assurance is required because they remain liable
for accrued decommissioning obligations for facilities and pipelines on
their right-of-way until each obligation is met.
Additionally, BOEM has evaluated if the ratio of proved oil and gas
reserves to the decommissioning liability associated with those
reserves should be considered in its evaluation for ROWs and determined
that it may be appropriate to consider when a ROW grant-holder can
demonstrate that the grant holder also holds a lease or leases with
associated reserves that meet the minimum ratio for decommissioning
liabilities. The Department is proposing in 30 CFR 550.1011 to allow
the Regional Director's discretion to consider the combined
decommissioning liability of the ROW and the lease or leases that the
ROW grant holder holds to determine if the total decommissioning
liability meets the minimum ratio to waive supplemental financial
assurance.
B. Revisions to Third-Party Guarantees
In the 2024 Final Rule, the Department amended 30 CFR 556.905(a) to
evaluate a potential guarantor using the same issuer credit rating or
proxy credit rating criterion as was finalized 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. Additionally, to allow more flexibility in the use
of third-party guarantees, the final rule allowed 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
finalized in section 556.902(a)(3) removed 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 to one or more specific lease obligations.
BOEM has evaluated the 2024 Final Rule revisions to third-party
guarantees and is proposing that the amendments are still appropriate.
The flexibilities provided by the 2024 amendments do not reduce the
taxpayers' protection against paying for decommissioning of offshore
facilities and they provide industry additional options for securing
supplemental financial assurance. It is noted, however, that with this
proposed rule, the guarantor would be evaluated based on the new
proposed credit rating threshold of BB- (S&P) instead of the finalized
credit rating threshold of the 2024 Final Rule of BBB-, as further
discussed in section III.D of this preamble.
C. Use of BSEE's Probabilistic Estimates for Determining the Amount of
Supplemental Financial Assurance Required
If BOEM determines that supplemental financial assurance is
required, BOEM bases the amount required on a BSEE decommissioning cost
estimate. Prior to 2020, BSEE provided a single algorithm-based
deterministic estimate for OCS facilities in the GOA to BOEM for use in
determining the amount of supplemental financial assurance required. In
2020, BSEE updated decommissioning costs in the Technical Information
Management System (<a href="https://www.data.bsee.gov/Leasing/DecomCostEst/Default.aspx">https://www.data.bsee.gov/Leasing/DecomCostEst/Default.aspx</a>) to reflect new estimates based on industry-reported
decommissioning costs pursuant to the regulations at 30 CFR 250.1704
and clarified by NTL 2016-N03--Reporting Requirements for
Decommissioning Expenditures on the OCS, later superseded by NTL 2017-
N02.
Instead of the methodology used prior to 2020 for OCS facilities,
where a deterministic estimate specifying that the cost to decommission
an OCS facility was a specific dollar amount, BSEE's current
methodology provides multiple decommissioning expenditure levels
associated with a cumulative likelihood of not being exceeded. They do
not represent a percentage of the cost to decommission any given
facility; they represent the statistical likelihood that the specified
value will be equal to or greater than the amount ultimately required
(i.e., there is an X percent chance that the cost will be equal to or
less than Y).
Based on the industry-reported data, BSEE has developed three
publicly available probabilistic estimates (i.e., P-values) of
decommissioning costs for each OCS facility on any given lease
(available here: <a href="https://www.bsee.gov/research-record/tap-738-decommissioning-methodology-and-cost-evaluation">https://www.bsee.gov/research-record/tap-738-decommissioning-methodology-and-cost-evaluation</a>). The range of facility
decommissioning estimates provided in the Technical Information
Management System are at the P50, P70, and P90 levels. These values
represent the likelihood of covering the full cost of decommissioning a
facility as a percentage. 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, P90, would have a 90 percent likelihood of covering the full
decommissioning cost of a facility. These BSEE-generated estimates are
based on actual decommissioning expenditures reported by offshore
companies.
In the 2024 Final Rule, at 30 CFR 556.901, the Department finalized
an amendment 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, later superseded by NTL
[[Page 11222]]
2017-N02. In the 2024 Final Rule, the Department amended 30 CFR
556.901(f) to use the P70 value to determine the amount of any required
supplemental financial assurance and stated that if probabilistic
estimates are not available, BOEM will use the deterministic value, if
available.
BOEM has reevaluated the 2024 Final Rule use of the P70 value and
is proposing that the P50 value is more appropriate for determining the
amount of supplemental financial assurance an entity must provide. BOEM
received numerous comments on the 2023 proposed rule, the majority from
small independent operators, that asserted that P50 was the closest to
their own internal asset retirement obligation estimates. BOEM's goal
for its financial assurance program continues to be the protection of
the American taxpayers from exposure to financial loss associated with
OCS development, while ensuring that the financial assurance program
does not detrimentally affect offshore investment or position American
offshore exploration and production companies at a competitive
disadvantage. The Department's proposal to use P50 would reduce
financial burden on available capital for offshore investment by oil
and gas operators as compared to the existing requirement to use P70.
Reducing the financial burden on offshore investment would increase
available capital for exploration and production of oil and gas
resources on the OCS, and in return, generate more capital for the
companies, reducing their likelihood of bankruptcy.
BOEM also notes that the regulation only stipulates that the BSEE
P-value will be used to determine the amount of supplemental financial
assurance that may be required to meet decommissioning obligations and
does not limit the total cost of corrective action that may be required
to bring a lease or grant into compliance with decommissioning
regulations found in 30 CFR 250 subpart Q.
D. Evaluation Methodology
The 2024 Final Rule amended the financial assurance regulations 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 a leased property may
not have sufficient value to be sold to another company that could
assume those obligations. Specifically, the amendments required the use
of an issuer credit rating with a threshold of investment grade, and,
for leases, a ratio of 3-to-1 for the value of proved reserves to the
value of decommissioning liabilities associated with those reserves.
This proposed rule reevaluates the 2024 Final Rule amendments and
proposes new amendments to address the regulatory burden on the
regulated community associated with the 2024 Final Rule.
1. Credit Ratings
a. Use of an ``Issuer Credit Rating''
The Department finalized an amendment in the 2024 Final Rule to use
an ``issuer credit rating'' to evaluate the financial health of OCS
lessees, grant holders, and guarantors, and included the new term and
corresponding definition in 30 CFR 556.105. 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 will
currently only use issuer credit ratings from an NRSRO, such as S&P
Global Ratings and Moody's Investors Service Incorporated.
As discussed in the preamble to the 2020 joint rule (85 FR 65913),
an evaluation of S&P's and Moody's rating methodologies revealed that
the analyses they perform to determine an issuer credit rating are
wide-ranging and include factors beyond corporate financials (such as
history, senior management, and commodity price outlook). An issuer
credit rating provides the rating agencies' opinions of the entity's
ability to honor senior unsecured debt and debt-like obligations. It is
common for lessees to have both an issuer credit rating and a bond
issuance rating. However, bond issuance ratings are opinions of the
credit quality of a specific debt obligation only, which can vary based
on the priority of a creditor's claim in bankruptcy or the extent to
which assets are pledged as collateral. Due to the priority of claims
associated with debt and the limited purpose of bond issuance ratings,
BOEM proposed in the 2020 joint rule and finalized in the 2024 Final
Rule to accept only issuer credit ratings from a NRSRO. As such, BOEM
has evaluated the 2024 Final Rule amendment to require the use of an
issuer credit rating and is proposing that this requirement is still
appropriate. As noted below, however, the Department is reevaluating
the threshold credit rating above which supplemental financial
assurance may not be required of a lessee or grant holder.
b. Credit Rating Threshold
The Department finalized amendments with the 2024 Final Rule to use
an investment grade credit rating threshold for determining if
supplemental financial assurance may be required of a lessee or grant
holder. The Department added the term and associated definition of
``Investment grade credit rating'' in 30 CFR 556.105. BOEM has
evaluated the 2024 Final Rule amendments requiring an investment grade
credit rating and has determined that this requirement should be
revised.
As discussed in the 2023 proposed rule, BOEM reviewed historical
default rates across the entire credit rating spectrum, as well as the
credit profile of oil and gas sector bankruptcies arising from the
commodity price downturn in 2014, to determine an appropriate level of
risk. For this analysis, BOEM evaluated the S&P data, but it
acknowledges that performance may vary across NRSROs. As expected, the
average S&P historical 1-year default rates increase significantly with
lower ratings. The 1-year default rate represents the percentage of
companies having any given credit rating that have failed to meet their
financial obligations during any given 12-month period. For example,
for companies having had BBB- rating in 2020, 0.24 percent defaulted on
their financial obligations in the subsequent 12-month period. 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 was
8.73 percent, and for C rated companies was 24.92 percent. 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 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 regulations do not
preclude a demand for supplemental financial assurance through the
Regional Director's regulatory authority at any time (e.g., if an
article about a company in a major news media indicates they may be
having financial troubles, the Regional Director can issue a demand for
supplemental financial assurance
[[Page 11223]]
without having to wait for an NRSRO to lower the company's credit
rating).
BOEM has reviewed the use of the BBB- threshold and is proposing to
establish the issuer credit rating threshold of BB- (S&P) or Ba3
(Moody's), an equivalent credit rating provided by another NRSRO, or a
proxy credit rating determined by the Regional Director. BOEM seeks to
balance the financial risk to the government and the taxpayer with
minimizing unnecessary regulatory burdens that could stifle offshore
energy development and reducing the threshold from BBB- to BB- would
achieve this goal, and determined that the increase in the current
(i.e., the revised 1981 to 2024 average) 1-year default rate from 0.21
percent at BBB(-) to 0.87 percent at BB(-) presented an acceptable
increase in risk. Previous analysis of oil and gas bankruptcies (as
evidenced in the 2020 initial RIA and the 2024 RIA) indicated only two
instances of BB rated companies declaring bankruptcy within a 1-year
window of losing their BB rating. However, both companies successfully
reorganized in Chapter 11 without relinquishing decommissioning
liability. BOEM anticipates that, due to the stronger financial
position of companies in the BB rating category, the odds of a
successful Chapter 11 reorganization with no financial impact on
decommissioning liability is high enough to outweigh the relatively
small increase in credit default risk.
In the case of a split-rating circumstance (e.g., if S&P and
Moody's credit ratings are different), BOEM will continue to consider
the higher credit rating in making any financial assurance
determination, as provided by 30 CFR 556.901(d)(1). This provision only
impacts companies with split ratings at the credit risk threshold
(i.e., S&P BB-/B+ and Moody's Baa3/Ba1), thereby posing minimal
additional risk and minimizing the possibility of requiring/releasing
financial assurance unnecessarily due to split rating upgrades or
downgrades along the credit risk threshold.
2. Proxy Credit Ratings
In the 2024 Final Rule, at 30 CFR 556.901(d), the Department
allowed 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. The Department 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. BOEM has evaluated the
2024 Final Rule amendment to allow the use of a proxy credit rating in
instances where an issuer credit rating is unavailable and is proposing
that this requirement is still appropriate as it allows small entities
that may not have an issuer credit rating to demonstrate that they are
financially stable. The Department is therefore not proposing any
amendments to the use of proxy credit ratings under these
circumstances.
3. Proved Oil and Gas Reserves
a. Use of a Minimum Ratio
The 2024 Final Rule included 30 CFR 556.901(d) to allow BOEM to
consider the proved reserves on a particular lease when determining
whether supplemental financial assurance is required. To be exempted,
BOEM requires 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. The 2024 Final Rule provides 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 has evaluated the 2024
Final Rule amendment to allow the use of the minimum ratio for
companies without a credit rating meeting the threshold and is
proposing that this alternative is still appropriate. BOEM continues to
believe that a property with a high enough ratio would likely be
purchased by another lessee if a current lessee defaults on its
obligations, thereby reducing the risk that decommissioning costs would
be borne by the government, consequently reducing the need for
supplemental financial assurance. The Department is therefore not
proposing any amendments to this provision.
b. Minimum Ratio Value
Additionally, the Department finalized 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 in the 2024
Final Rule. Establishing an appropriate reserves-to-decommissioning
cost ratio is one approach toward protecting the taxpayer during
periods of commodity price volatility. While generally stable, oil and
gas commodity markets can enter into periods of high price volatility.
From an oil and gas financial risk perspective, this is only of concern
when the volatility results in dramatic price decreases. Should
commodity prices decline in a manner similar to late 2014 through early
2016, BOEM believes a 3-to-1 ratio means the property would most likely
retain its economic viability, protect the taxpayer, and financial
attractiveness to potential buyers. BOEM is soliciting comments on
whether the 3-to-1 ratio remains the appropriate threshold.
E. Phased Compliance With Supplemental Financial Assurance Orders
In the preamble to the 2024 Final Rule, BOEM acknowledged that the
new regulations could have a significant financial impact (over $6
billion of additional financial assurance would be required) on
affected companies, reducing their financial capacity to produce oil
and gas (89 FR 31560). For that reason, BOEM finalized a provision to
phase in the new supplemental financial assurance requirements over a
3-year period for existing leaseholders in 30 CFR 556.901(h). As
finalized, BOEM would allow any company receiving a supplemental
financial assurance demand (within 3 years of the rule becoming
effective) to request the phase-in option and 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 receipt of the demand
letter. The final one-third payment would be due within 36 months of
receipt of the demand letter.
While this proposed rulemaking reduces the amount of supplemental
financial assurance required by lessees, the Department continues to
acknowledge that providing the supplemental financial assurance could
have a significant financial impact on affected companies because BOEM
has not yet required them to provide the supplemental financial
assurance as dictated by the 2024 Final Rule. As such, the Department
is proposing to retain the available 3-year phase-in period for
implementation of new requirements in 30 CFR 556.901(h), but starting
on the date this rulemaking is finalized. BOEM specifically solicits
comments regarding this approach from potentially affected parties, and
requests
[[Page 11224]]
comments on how the new supplemental financial assurance demands could
be most effectively implemented to minimize any unnecessarily adverse
effects.
Additionally, the Department is proposing to allow entities to
provide the Regional Director with a proposed payment schedule for
their potential supplemental financial assurance demands prior to
receipt of an official demand letter. If the proposed payment schedule
is accepted by the Regional Director, BOEM will forgo an official
demand letter. Companies may be interested in resolving financial
assurance before receiving an official demand letter, as the letter may
trigger, unknown to BOEM, debt/surety/other financial covenants that
may have financial implications on the companies.
F. Short-Term Decommissioning Obligations
In instances where decommissioning will be completed within a short
period of time (i.e., within 1 year) from the date of a new
supplemental financial assurance demand, lessees and grant holders may
have difficulty obtaining financial instruments to cover their
decommissioning obligations. The Department is proposing a new section
in 30 CFR 556.908 to allow the Regional Director's discretion to accept
a third-party decommissioning contract or a decommissioning schedule in
lieu of supplemental financial assurance.
The third-party decommissioning contract provided to BOEM for
review and approval to be used in lieu of supplemental financial
assurance should clearly define the responsibilities, expectations, and
protections for all parties involved in the plugging, abandonment, and
site restoration of oil and gas infrastructure. The decommissioning
schedule provided to BOEM for review and approval to be used in lieu of
supplemental financial assurance must include a detailed timeline that
outlines the sequence, duration, and key milestones for decommissioning
oil and gas infrastructure such as wells, facilities, and pipelines.
Additionally, the decommissioning schedule must be signed by an officer
of the company as designated in the BOEM qualification card.
To ensure that the decommissioning can and will be undertaken and
completed, evidence of sufficient funding set aside for the
decommissioning contract or schedule must also be provided to BOEM. If
decommissioning is not complete within one year from the date of the
original supplemental financial assurance demand, the entity must meet
the original supplemental financial assurance demand within 10-calendar
days of receipt of notification by the Regional Director.
BOEM's review and approval of the decommissioning contracts and
schedules for use in lieu of supplemental financial assurance is not an
approval for decommissioning activities, which remains in BSEE's
purview; BOEM's approval is only an acceptance of those documents in
lieu of an entity providing supplemental financial assurance.
G. Appeal Bonds
In the 2024 Final Rule, the Department added a new requirement at
30 CFR 556.902(h) and 590.4(c) whereby any company seeking to stay a
supplemental financial assurance demand pending appeal at the IBLA
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 appeal bond would be returned to the
appropriate party, and any remaining required supplemental financial
assurance would need to be posted in the form of bonds or other
financial instruments. 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.
During the public comment period for the 2024 rulemaking, multiple
commenters expressed opposition to this proposal, asserting that it
raises due process concerns, specifically because the requirement would
inhibit the recipient's first opportunity to have an adjudication of
BOEM's determination. The commenters asserted that the requirement of
posting an appeal bond is disproportionate to the perceived risk
because a lessee could be forced into posting a bond that could be held
for years, depriving them of the operating capital diverted to the
bonds, even if the appeal succeeds. Commenters highlighted that the
process without the appeals bond requirement provides an opportunity
for the parties to negotiate. Other commenters equated the requirement
to ``an automatic denial of stays'' which, they asserted, could render
most supplemental financial assurance demands subject to immediate
judicial review, citing 5 U.S.C. 704 and 43 CFR 4.21(c). See 89 FR
31560; see also section 9 of the Response to Public Comments Received
on the June 29, 2023, Notice of Proposed Rulemaking memorandum for
detailed comment summaries at Docket ID: BOEM-2023-0027-2187. Even
though the Department disagreed with the commenters that the appeal
bond provision raised due process concerns and finalized the provision
in the 2024 Final Rule, the Department has reviewed the provision in
light of E.O. 14154 and is proposing in this action to remove the
requirement in 30 CFR 556.902(h) and 590.4(c) that a company must
provide an appeal bond in order to seek a stay of a supplemental
financial assurance decision while an appeal of that decision is
pending at the IBLA.
Removing this requirement allows offshore entities to retain the
capital that they would have otherwise posted during an appeal to
continue exploration and production on the OCS while posing minimal
risk to the taxpayer and meeting the goals of E.O. 14154.
Similarly, the Department is retaining the provision in 30 CFR
556.902(g) that allows offshore lessees and grant holders to request an
informal resolution if they believe that BOEM's supplemental financial
assurance demand is unjustified, without losing the ability to provide
supplemental financial assurance in a phased-in manner. The informal
resolution provides an opportunity for all parties to achieve a
successful financial assurance outcome before resorting to the longer
IBLA process.
H. Other Amendments
1. Revisions to Definitions
a. Delete Term: ``Investment Grade Credit Rating''
The Department is proposing to delete the term and associated
definition for ``Investment grade credit rating'' in 30 CFR 556.105(b).
The associated definition is currently the following: ``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.'' This definition is currently the
threshold above which BOEM would typically not require supplemental
financial assurance per the financial assurance regulations. This
proposed rule deletes the term and associated definition because it is
no longer referenced in part 556, and the proposed threshold is
specified in part 556, subpart I.
[[Page 11225]]
b. Add Term: ``Issuer Credit Rating''
The Department is proposing to add the term and associated
definition for ``Issuer credit rating'' in 30 CFR 550.105 because it is
proposed to be used in 550.166. The associated definition is proposed
as the following: ``Issuer credit rating means a credit rating 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.'' This definition is consistent with
the same term and definition in 30 CFR 556.105(b).
c. Add Term: ``Predecessor''
The Department is proposing to add the term and associated
definition for ``Predecessor'' in 30 CFR 550.105. The associated
definition is proposed as the following: ``Predecessor means a prior
lessee or owner of operating rights, or a prior holder of a right-of-
use and easement grant or pipeline right-of-way grant, that is liable
for accrued obligations on that lease or grant.'' This definition is
consistent with the existing term and definition in 30 CFR 556.105(b).
d. Add Term: ``Dual-Obligee Financial Assurance Instrument''
The Department is proposing to add the term and associated
definition for ``Dual-obligee financial assurance instrument'' in 30
CFR 556.105. The associated definition is proposed as the following:
``Dual-obligee financial assurance instrument means a type of financial
instrument that names a second obligee in addition to the original
obligee.''
2. Clarification on the Use of Dual-Obligee Financial Assurance
Instrument
While always available for use as an ``other approved form of
supplemental financial assurance,'' the Department is proposing to
explicitly include dual-obligee financial assurance instruments as an
acceptable financial instrument for financial assurance in 30 CFR
556.902(e).
IV. Summary of Cost, Economic Impacts, and Additional Analyses
Conducted
A. What are the affected entities?
This proposed rule will affect current and future lessees,
sublessees, RUE grant holders, and pipeline ROW grant holders. BOEM's
analysis shows that this includes approximately 185 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 proposed rule, if finalized.
B. What are the economic impacts?
BOEM estimates the overall decommissioning costs for OCS facilities
to be between $35 billion and $41 billion as of May 2025 using the P50
and P70 estimates, respectively. This decommissioning cost estimate
represents the full cost of decommissioning all facilities on the OCS,
including those facilities that are currently operating. It is noted
that these costs would occur over many decades as the facilities reach
the end of their useful life.
In the absence of this proposed rulemaking, BOEM assumes the 2024
Final Rule would be fully implemented as published. Pursuant to this
baseline and given current decommissioning estimates, BOEM identified
$9.67 billion in total liabilities that do not meet the current credit
rating threshold of BBB- and above. Additionally, the 2024 Final Rule
included a provision at 30 CFR 556.901(d) to allow BOEM to consider the
proved reserves on a particular lease when determining whether
supplemental financial assurance is required. BOEM estimates that $2.66
billion in additional liabilities would meet the 3-to-1 value of proved
reserves to liabilities associated with those reserves. Therefore, BOEM
estimates that, given the full implementation of the current
regulations, it would expect to hold $7.02 billion in its financial
assurance portfolio, costing approximately $566.65 million in estimated
annual premiums associated with that financial assurance.
As discussed earlier in this preamble, the Department is proposing
three major deregulatory changes that would have impacts on this
regulatory baseline. These three major amendments are: (1) lowering the
credit rating threshold; (2) consideration of predecessor strength; and
(3) use of the P50 decommissioning estimate instead of P70. The
proposed amendments are generally independent, allowing for individual
or combined implementation, however the impacts of each provision are
interrelated, with the effect of any single provision depending on the
others that are present. The Department is not proposing any amendments
to the provision allowing the use of the 3-to-1 minimum ratio of value
of proved reserves to liabilities associated with those reserves
provision, and thus does not by itself, have any impacts on the costs
and benefits of this proposed rule; however, it is highlighted that
changing the P-value from P50 to P70 impacts the calculation of the
ratio.
For the first major amendment, lowering the credit rating threshold
from BBB- to BB-, BOEM estimates the financial liabilities that would
be held by companies with BB+, BB, and BB- credit ratings for full
implementation of the 2024 Final Rule at $54.2, $205.4, and $67.4
million, respectively. The average one-year default rate for companies
in these categories are 0.27 percent, 0.44 percent, and 0.87 percent
respectively using the S&P default statistics. For this analysis, BOEM
evaluated the S&P data, but notes that performance may vary across
NRSROs. Using these values, BOEM estimates that the increased risk of
default from this group of lessees is approximately $1.6 million. This
increased risk of default is offset by an annual decrease of $13.7
million in supplemental financial assurance premiums, an unjustifiable
burden on offshore energy development for a limited reduction in the
risk of default.
For the second major amendment, consideration of predecessor
strength when determining if the current lessee must provide
supplemental financial assurance, BOEM evaluated the credit rating of
predecessor lessees. If BOEM were to implement this proposed amendment
independently of the other amendments, this provision would result in a
reduction of $5.8 billion in BOEM's financial assurance portfolio and
an annual premium savings for lessees of $483.6 million. Though
predecessor companies have always been held responsible for
decommissioning liabilities if the current owner is incapable of
meeting those obligations, the proposed rule explicitly incorporates
predecessor companies' financial strength when determining supplemental
financial assurance requirements for current lessees. This proposed
change reduces the need for additional bonding or other forms of
supplemental financial assurance on properties while only minimally
increasing risk to the taxpayers.
The final major amendment, use of P50 instead of P70 when
determining decommissioning liability cost estimates, impacts both the
amount of liability that needs to be covered through financial
assurance and the calculation of the 3-to-1 reserves ratio. If BOEM
were to implement this amendment independently of the other amendments,
this provision would result in a reduction of BOEM's financial
assurance portfolio by $2.1
[[Page 11226]]
billion and would provide an annual regulatory compliance savings of
$175.2 million. This proposed change reduces the amount of supplemental
financial assurance required to cover decommissioning obligations by a
lessee without a significant increase in risk to the taxpayers because
many companies asserted that P50 was the closest to their own internal
asset retirement obligation estimates during the 2024 rulemaking.
As discussed in the RIA, this proposed rule includes changes that
cannot be quantitatively modeled in this analysis. BOEM makes
clarifications regarding its acceptance of dual-obligee financial
assurance instruments, removes the requirement for an appeals bond, and
makes changes for short-term decommissioning obligations and pipeline
ROW Grants. Given the uncertainty in the frequency and the scale of
impacts resulting from these changes, compared to the remaining
proposed changes, BOEM does not quantitatively analyze these changes,
but does not anticipate the impacts to be of any significance.
When considering all three amendments jointly, BOEM estimates a
reduction of $6.2 billion of the $7.0 billion in baseline financial
assurance, leaving $798 million in remaining financial assurance
requirements. BOEM estimated that in the baseline, lessees would face
annual premiums of $567 million, but with the reduction in financial
assurance requirements per the proposed rule, that estimate is reduced
to $59 million, for a savings of $508 million annually. The 20-year
discounted and annualized values at 3 percent are $7.21 billion and
$484.46 million, respectively. The 20-year discounted and annualized
values at 7 percent are $5.16 billion and $498.21 million,
respectively.
C. What are the benefits?
Of the $7 billion in baseline required supplemental financial
assurance, 89 percent ($6.2 billion) would no longer be required under
the proposed rule, if finalized. Of the baseline financial assurance
requirements, 81 percent would no longer be required given the
predecessor consideration, 5 percent would no longer be required given
the change in credit rating, and 3 percent would no longer be required
given the change in P-value. The proposed rule, if finalized, achieves
significant cost savings from the consideration of predecessors in
determining supplemental financial assurance requirements. The risk
that the government would be responsible for the costs associated with
decommissioning is minimal because financially viable co-lessees and
predecessors remain jointly and severally liable for accrued
decommissioning obligations. The proposed rule results in a 20-year
annualized savings of more than $480 million in financial assurance
premiums. The majority of these savings originate from BOEM's
consideration of predecessors when evaluating whether a company needs
to provide supplemental financial assurance. In this way, predecessor
lessees serve the same purpose as surety companies as new lessees are
not required to post financial assurance.
BOEM is not quantifying benefits other than the cost savings for
this rule. However, BOEM expects that less capital will be tied up in
financial assurance and that could lead to more development on the OCS,
which could lead to more job creation, and higher production of oil and
gas from the OCS. BOEM will work to estimate the risk change in the
final rule and welcomes public comments on methods to quantify
benefits, costs, cost savings, and other methods of quantification
beyond bond premium cost savings.
D. What Tribal outreach did BOEM conduct?
On September 4, 2025, 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.
V. Section-by-Section Analysis
The Department is proposing to amend the regulations as follows:
Part 550--Oil and Gas and Sulfur Operations In The Outer Continental
Shelf
Subpart A--General
Section 550.105: Definitions
As discussed in section III.H of this preamble, the Department is
proposing to add the terms ``Issuer credit rating'' and ``Predecessor''
to 30 CFR 550.105. The proposed definitions are consistent with the
existing definition in 30 CFR 556.105(b).
Section 550.166: If BOEM grants me a RUE, what financial assurance must
I provide?
While reviewing this section for potential revisions, a grammatical
error was found in paragraph (a)(3). The Department is proposing to
revise paragraph (a)(3) to clarify that it should reference sections
556.900(d) through (g) and section 556.902. The paragraph is currently
missing the ``and'' between the 556.900(g) and 556.902 references. This
proposed amendment does not change the intent of paragraph (a)(3).
As discussed in section III.A.1.a of this preamble, the Department
is proposing to consider predecessors when determining if supplemental
financial assurance is required from a RUE grant holder. Specifically,
the Department is revising paragraph (b) to include the consideration
of predecessors' issuer credit rating or proxy credit rating when
determining if the current RUE grant holder must provide supplemental
financial assurance. The predecessor must meet the criteria in 30 CFR
556.901(d)(1) through (d)(3) (i.e., the predecessor must have a minimum
issuer credit rating or proxy credit rating of BB- (S&P) or its
equivalent). The predecessor interest may have been that of a
predecessor lessee, if the entity was responsible for decommissioning
the facility now associated with an RUE. The Department is also
including in paragraph (b) that the BOEM Regional Director can require
supplemental financial assurance for decommissioning obligations for
which there is not a liable predecessor.
Subpart J--Pipelines and Pipeline Rights-of-Way
Section 550.1011: Financial Assurance Requirements for Pipeline Right-
of-Way (ROW) Grant Holders
As discussed in section III.A.1.a of this preamble, the Department
is proposing to consider predecessors when determining if supplemental
financial assurance is required from a ROW grant holder. Specifically,
the Department is revising paragraph (d) to include the consideration
of predecessors' issuer credit ratings or proxy credit ratings when
determining if the current ROW grant holder must provide supplemental
financial assurance. The predecessor must meet the criteria in 30 CFR
556.901(d)(1) through (d)(3) (i.e., the predecessor must have a minimum
issuer credit rating or proxy credit rating of BB- (S&P) or its
equivalent). The Department is also including in paragraph (d) that the
BOEM Regional Director can require supplemental financial assurance for
decommissioning obligations for which there is not a liable
predecessor.
Additionally, as discussed in section III.A.2 of this preamble, the
Department is proposing to allow the Regional Director to consider a
ROW grant holder's OCS leases that they may hold, if any, to evaluate
whether the value of
[[Page 11227]]
proved reserves for such leases exceed 3 times the combined
decommissioning liability for those leases and ROWs when determining if
a ROW grant holder must provide supplemental financial assurance.
Part 556--Leasing of Sulfur or Oil and Gas and Financial Assurance
Requirements in the Outer Continental Shelf
Subpart A--General Provisions
Section 556.105: Acronyms and Definitions
The Department is proposing, and as discussed in section III.G of
this preamble, to remove the term ``Investment Grade Credit Rating''
and the associated definition as it is no longer the threshold used to
determine if supplemental financial assurance is required. The
Department is also proposing, as discussed in section III.G of this
preamble, to add the new term and associated definition of ``Dual-
obligee financial assurance instrument.''
Subpart I--Financial Assurance
Section 556.901: Base and Supplemental Financial Assurance
The Department is proposing, as discussed in section III.A.1.b of
this preamble, to consider predecessors when determining if
supplemental financial assurance is required. The Department is
proposing to renumber existing paragraph (d)(4) as (d)(5) and create a
new paragraph (d)(4) that states if a predecessor has an issuer credit
rating or proxy credit rating meeting the threshold, you may not have
to provide supplemental financial assurance. Additionally, it
acknowledges that the Regional Director may require additional security
for those decommissioning obligations for which there is no predecessor
meeting the criteria of paragraphs (d)(1) or (2).
The Department is proposing to revise the BSEE probabilistic
estimate value used when determining the amount of supplemental
financial assurance required, as discussed in section III.C of this
preamble. Specifically, the Department is proposing to replace the
references to the P70 value with reference to the P50. These references
are found in newly designated paragraph (d)(5)(i) and paragraph (f).
As discussed in section III.E of this preamble, the Department
continues to acknowledge that providing the supplemental financial
assurance could have a significant financial impact on affected
companies and, as such, is retaining the option in 30 CFR 556.901(h) to
phase in the new requirements over a 3-year period, but amended to
start with the effective date of the new final rule. Specifically, the
Department is proposing to replace ``June 24, 2024'' with the effective
date of the new final rule which effectively starts a new timeline for
impacted entities to provide supplemental financial assurance in
phases.
Also as discussed in section III.E. of this preamble, the
Department is proposing in new paragraph (i) to allow entities to
provide the Regional Director with a proposed schedule for fulfilling
their potential supplemental financial assurance demands. If the
proposed installment schedule is accepted by the Regional Director,
BOEM will forgo an official demand letter.
Section 556.902: General Requirements for Bonds or Other Financial
Assurance
As discussed in section III.H.2 of this preamble, the Department is
proposing to explicitly include dual-obligee financial assurance
instruments as an acceptable financial instrument for financial
assurance in paragraph 556.902(e).
As discussed in section III.G of this preamble, the Department is
proposing to remove the portion of the provision in 556.902(h) that
requires a company seeking a stay of a supplemental financial assurance
demand to provide an appeal bond (i.e., ``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.'').
Section 556.908: Short-Term Decommissioning Obligations
As discussed in section III.F of this preamble, the Department is
proposing this new section at 30 CFR 556.908 to allow the Regional
Director discretion to accept a third-party decommissioning contract or
a decommissioning schedule in lieu of supplemental financial assurance
in cases where decommissioning will occur within 1-year of receiving
the supplemental financial assurance demand. The third-party
decommissioning contract provided to BOEM for review and approval for
use in lieu of supplemental financial assurance should clearly define
the responsibilities, expectations, and protections for all parties
involved in the plugging, abandonment, and site restoration of oil and
gas infrastructure. The decommissioning schedule provided to BOEM for
review and approval for use in lieu of supplemental financial assurance
must include a detailed timeline that outlines the sequence, duration,
and key milestones for decommissioning oil and gas infrastructure such
as wells, facilities, and pipelines. Additionally, the decommissioning
schedule must be signed by an officer of the company as designated in
the BOEM qualification card. To ensure that the decommissioning can and
will be undertaken and completed, evidence of sufficient funding set
aside for the decommissioning contract or schedule must be also
provided to BOEM per this section.
Part 590--Appeal Procedures
Subpart A--Bureau of Ocean Energy Management Appeal Procedures
Section 590.4: How do I file an appeal?
As discussed in section III.F of this preamble, the Department is
proposing to completely remove the provision in subsection 590.4(c)
that requires a company seeking a stay of a supplemental financial
assurance demand to provide an appeal bond when appealing the demand to
the IBLA.
Severability
BOEM proposes to include in the final rule that, should any court
hold unlawful and/or set aside portions of this rulemaking, the
remaining portions are severable and therefore should not be remanded
to the agency. The proposed rule contains four major components: (1)
return to the previous BOEM practice of considering the financial
strength of jointly and severally liable predecessor lessees and grant
holders; (2) revising the credit rating threshold when determining
whether oil, gas, and sulfur lessees, RUE grant holders, and pipeline
ROW grant holders on the OCS are required to provide supplemental
financial assurance above the required general financial assurance
amount to ensure compliance with their OCSLA obligations; (3) revising
the decommissioning estimate used to determine the amount of
supplemental financial assurance required; and (4) revising the appeals
bond provision related to the IBLA appeal procedures.
These four major components operate largely independent of each
other; the Department believes they are sufficiently distinct and that
their severability does not depend on the specifics of this proposed
rule. For example, BOEM is amending the regulations to consider the
financial strength of predecessors when determining if financial
assurance is required from a current OCS lessee if that lessee does not
have a credit rating above BB- (S&P); BOEM is also
[[Page 11228]]
amending to the regulations to change the BSEE decommissioning estimate
used to determine the amount of supplemental financial assurance a
current OCS lessee must provide. Whether or not a lessee or grant
holder must provide supplemental financial assurance is largely
independent of the amount they are required to provide.
VI. Request for Comments
BOEM invites public comments on all aspects of this proposed rule
using the procedures described earlier in this preamble. In summary,
BOEM specifically requests comments on the following provisions:
<bullet> consideration of the financial strength of predecessors
when determining if a current lessee or grant holder must provide
supplemental financial assurance;
<bullet> allowing the Regional Director's discretion to consider
the combined decommissioning liability of the ROW and the lease or
leases that the ROW grant holder holds to determine if the total
decommissioning liability meets the minimum ratio to waive supplemental
financial assurance;
<bullet> revising the credit rating threshold from BBB- to BB-
(S&P) when determining the financial strength of current lessees and
grant holders, and predecessor lessees and grant holders;
<bullet> appropriateness of utilizing the 3-to-1 minimum ratio of
the value of proved reserves to the decommissioning liabilities
associated with those reserves;
<bullet> including a 3-year phased approach to providing new
supplemental financial assurance in response to a demand;
<bullet> allowing entities to provide a proposed payment schedule
for their potential supplemental financial assurance demands prior to
receipt of an official demand letter and BOEM forgoing the official
demand letter;
<bullet> allowing the Regional Director discretion to accept a
third-party decommissioning contract or a decommissioning schedule in
lieu of supplemental financial assurance for short-term decommissioning
obligations;
<bullet> removal of the appeal bond requirement;
<bullet> alternatives in a regulatory design where BOEM could
incorporate a risk-diversified total portfolio approach or other
innovative de-regulatory approaches; and
<bullet> explicitly allowing dual-obligee financial assurance
instruments.
Additionally, BOEM requests comments on the following topics
associated with regulatory impacts:
<bullet> if the reliance of Tier 1 predecessors increases the moral
hazard risk of current Tier 2 lessees and grant holders diverting
capital to activities other than pending decommissioning obligations;
<bullet> methods to quantify benefits other than bon premium cost
savings;
<bullet> how companies would deploy capital that would have
previously been spent on financial assurance premiums that may become
available as a result of the rule, if finalized;
<bullet> additional impacts and unintended consequences BOEM did
not consider, including any impacts to existing predecessors who may be
in strong financial positions;
<bullet> potential deregulatory cost savings not quantified under
E.O. 14154 and E.O. 14192;
<bullet> analytical assumptions underlying the regulatory impact
analysis, and we request that entities provide relevant data that BOEM
could use to improve our analysis;
<bullet> potential impacts to the energy supply (both positive and
negative) in light of E.O. 13211; and
<bullet> small business or small operator impacts.
VII. Statutory Order Review
A. Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (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 has prepared an initial
regulatory flexibility analysis (IRFA) for this proposed rule that
examines the impacts of the rule on small entities, along with
regulatory alternatives that could minimize that impact. The complete
analysis is available for review in the docket, Risk Management and
Financial Assurance for OCS Lease and Grant Obligations Regulatory
Impact Analysis, Docket ID No. BOEM-2025-0042, and is summarized here.
This proposed rule would apply to all OCS lessees and right-of-use
and easement and pipeline right-of-way grant holders and affect many
predecessor lessees or grant holders with accrued decommissioning
liabilities. Most entities would fall primarily under the following
Small Business Administration's (SBA) 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, SBA defines a small business as one with fewer than
1,251 employees. For NAICS code 486110, it is a business with fewer
than 1,501 employees. Of the 185 companies with active facility, well,
or pipeline ownership, BOEM estimates that approximately 92 (49.7
percent) of the businesses operating on the OCS are considered small.
BOEM reviewed its current financial assurance portfolio and
considered the difference in required financial assurance amounts from
small and large companies. The 2024 Rule baseline financial assurance
portfolio is $7.0 billion, and the breakdown by small and large
entities is approximately $6.7 billion and $301 million, respectively.
BOEM estimates that small companies are responsible for approximately
96 percent of the total financial assurance required by the 2024 Rule.
As this proposed rule would apply to all OCS lessees and grant holders
and given the correlation between small entities and those required to
provide supplemental financial assurance under the existing
regulations, BOEM finds that it will affect a substantial number of
small entities.
As discussed in section IV of this preamble, the Department is
proposing three major deregulatory changes that would impact the
regulatory baseline. These three major amendments are: (1) lowering the
credit rating threshold; (2) consideration of predecessor strength; and
(3) use of the P50 decommissioning estimates instead of P70. The
proposed amendments are generally independent, allowing for individual
or combined implementation, however the impacts of each provision are
interrelated, with the effect of any single provision depending on what
others are present.
For the first major amendment, lowering the credit rating threshold
from BBB- to BB-, results in 15 companies that would meet the credit
rating threshold and would not be required to provide supplemental
financial assurance as compared to the baseline. Of these 15 companies,
12 are small companies and 3 are large companies. This change in credit
rating threshold impacts more than 23 percent of the baseline small
companies that do not meet the existing threshold of BBB-. These 15
companies would not be required to provide supplemental financial
assurance under the proposed rule and would realize savings by avoiding
the associated premiums. Small entities would largely be beneficiaries
of this proposed rule provision, if finalized.
[[Page 11229]]
For the second major amendment, consideration of predecessor
strength when determining if the current lessee or grant holder must
provide supplemental financial assurance, BOEM, where information was
available, evaluated the credit rating of predecessor lessees and grant
holders. BOEM estimated that 88 percent of the proposed Tier 2
liabilities held by small entities have a financially strong
predecessor that would allow them to be exempt from the supplemental
financial assurance requirements, for a total savings of $5.6 billion.
In comparison, there is only $93.5 million in similar predecessor-
backed liability held by large companies with credit ratings below the
BBB- threshold, demonstrating that the bulk of the regulatory benefits
of this provision would be realized by small entities.
While small entities will generally benefit from this proposed
rulemaking, BOEM acknowledges that higher credit rated-small entities
holding joint and several liabilities with other lower credit-rated
small entities may realize increased compliance burdens. BOEM estimates
that there is approximately $259 million of OCS liability at the P50
level that is currently held by Tier 2 lessees that would be exempt
from supplemental financial assurance based on the strength of Tier 1
small entities. These Tier 1 small entities could face increased risk
of being called on to perform decommissioning obligations if the
current lessee fails to perform.
The final major amendment, use of P50 instead of P70 when
determining decommissioning liability cost estimates, impacts the
amount of liability that needs to be covered through supplemental
financial assurance. When financial assurance is required, or when
entities are seeking forbearance based on their reserves value, the
rulemaking proposes to use decommissioning cost estimates using BSEE's
P50 values, rather than the higher P70 estimates. This would reduce the
amount of supplemental financial assurance small entities are required
to provide and would lead to reduced premiums.
When considering all three major proposed provisions collectively,
the proposed rule reduces the amount of supplemental financial
assurance by 90 percent for small businesses, from $6.7 billion in the
baseline to $699 million in liabilities that require supplemental
financial assurance. Additionally, BOEM estimated that under the
liabilities requiring financial assurance in the baseline, small
entities would face annual premiums of $546.9 million. With the
reduction in financial assurance requirements, BOEM estimates that the
proposed rule would result in annual premiums of $48.9 million,
yielding savings of $498 million annually.
B. Small Business Regulatory Enforcement Fairness Act (SBREFA)
This proposed rule, if finalized, would revise the financial
assurance requirements for OCS lessees and grant holders and would
require supplemental financial assurance where the risk of default is
the highest. For more information on the small business impacts, see
the IRFA analysis in Risk Management and Financial Assurance for OCS
Lease and Grant Obligations Regulatory Impact Analysis, Docket ID No.
BOEM-2025-0042.
BOEM did not propose to categorically exempt or provide differing
compliance requirements for small entities; however, given that
approximately half of OCS operators are small entities, the proposed
provisions provide disproportionate benefits to small businesses. Small
entities are welcome to provide comments on the NPRM. Additionally,
small entities 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 BSEE or BOEM, call 1-888-REG-FAIR (1-888-734-3247).
C. Unfunded Mandates Reform Act (UMRA)
The UMRA, 2 U.S.C. 1531-1538, requires BOEM, unless otherwise
prohibited by law, to assess the effects 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 proposed action
does not impose an unfunded Federal mandate or have a significant or
unique effect on State, local, or Tribal governments. Therefore, the
proposed rule does not have disproportionate budgetary effects on these
governments. BOEM has determined that this rule would not impose costs
on the private sector of more than $100 million in a single year. As
such, the rule does not trigger the requirement to prepare a written
statement under UMRA, and BOEM has chosen not to prepare such a written
statement.
D. 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 proposed rule references existing ICs
previously approved by OMB and revises IC requirements for BOEM
regulations that require OMB review and approval under the PRA. As
such, an information collection request for BOEM is being submitted to
OMB for review and approval. The ICs related to this rulemaking concern
certain requirements under 30 CFR parts 550 and 556.
The updates associated with this proposed risk management and
financial assurance for OCS lease and grant obligations rule are in the
ICs under OMB control number 1010-0006, Leasing of Sulfur or Oil and
Gas in the Outer Continental Shelf (30 CFR parts 550, 556, and 560)
(expires 07/31/2027).
This proposed rule would modify collections of information under 30
CFR part 550, subparts A and J, and 30 CFR part 556, subpart I,
concerning 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-
556.907), pipeline ROW grants (30 CFR 550.1011), and RUE grants (30 CFR
550.166).
BOEM estimates that the number of information collection burden
hours for the proposed rule overall is close to the same as that for
the existing regulatory framework. The existing approved annual burden
hours of OMB Control Number 1010-0006 are 22,012 hours and 22,090
annual responses. If this proposed rule becomes final and effective,
the new and changed provisions will increase the overall annual burden
hours for OMB Control Number 1010-0006 by 21 hours (totaling 22,033
annual burden hours)
[[Page 11230]]
and 22 responses (totaling 22,112 responses) as justified below.
When needed, BOEM would submit future burden changes (either
increases or decreases) of the OMB control number 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, 556, and 560, ``Leasing of
Sulfur or Oil and Gas in the Outer Continental Shelf.''
OMB Control Numbers: 1010-0006.
Form Number: No new forms.
Type of Review: Revision of currently approved collection.
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: 22,112 responses (+22
responses).
Total Estimated Number of Annual Burden Hours: 22,033 hours (+21
hours).
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.
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 1010-0006:
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 550.160-550.166.
BOEM is proposing to revise the 30 CFR 550.166 to add the
consideration of the issuer credit rating or proxy credit rating of a
predecessor RUE grant holder and a predecessor lessee (i.e., a lessee
that held interests in the lease on which the RUE is now located and is
liable for accrued obligations for the facilities thereon), when
determining if supplemental financial assurance is required. This new
provision will not increase annual burden hours since BOEM would
utilize credit ratings from nationally recognized statistical rating
organizations or would itself generate a proxy credit rating based on
existing audited financial statements.
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 obligations. Currently, the criterion for the
determination is an issuer credit rating or a proxy credit rating. The
Department is proposing to add the consideration of a predecessor
lessee liable for decommissioning and the consideration of the total
decommissioning liabilities of a ROW grant and a lease when determining
if supplemental financial assurance is required. The issuer credit
rating and the audited financial information on which BOEM determines a
proxy credit rating for the current ROW grant holder and the
predecessors already exist. The burden of determining a proxy credit
rating, based on the submitted audited financial information, falls on
BOEM.
This new provision will not increase annual burden hours since BOEM
would utilize credit ratings from nationally recognized statistical
rating organizations or would generate a proxy credit rating based on
audited financial statements.
Base 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 is required to provide
supplemental financial assurance if it does not meet at least one of
the criteria outlined in the proposed regulations in this section if
finalized. The proposed requirement has the following proposed changes:
<bullet> Section 556.901(d)(1) proposes to base this determination
on an issuer credit rating of greater than or equal to either BB- from
S&P Global Ratings or Ba3 from Moody's Investor Service or equivalent.
<bullet> 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. The Department
is proposing that the proxy credit rating must reflect a
creditworthiness equivalent to an issuer credit rating greater than or
equal to either BB- from S&P Global Ratings or Ba3 from Moody's
Investor Service or other equivalent rating from an NRSRO.
<bullet> The Department is proposing a new section 556.901(d)(4) to
consider the credit rating of predecessor lessees liable for
decommissioning obligations on a lease when determining if supplemental
financial assurance is required.
<bullet> The Department is proposing to redesignate existing
section 556.901(d)(4) to 556.901(d)(5). This section 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 is
accounted for in the OMB approved annual burden hours. The Department
is proposing to change the decommissioning estimate used to determine
the net present value of the decommissioning obligations from P70 to
P50. 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 or
predecessors. This change will not impact the information collection
burdens.
In this proposed rule, the revision of the criteria thresholds does
not change for the time required for the respondents to prepare and
submit the information.
The Department is proposing to update paragraph (h) in section
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 the final regulation. Currently, the
provision establishes a timeline from June 24, 2024. The proposed
update to the provision changes the start date for the 3-year
installment period. Because this provision is not being changed other
than the date on which the provision starts, BOEM is retaining the
current burden estimate.
The Department is proposing to add a new paragraph (i) in section
556.901 to allow a lessee to provide a proposed installment schedule
for supplemental financial assurance prior to the receipt of an
official demand letter. BOEM is adding additional burden for the
submission of this installment schedule. BOEM estimates an increase of
20 annual burden hours (20 responses x 1 hour burden).
General Requirements for Bonds and Other Financial Assurance
The Department is proposing in section 556.902(e) to explicitly
allow the use of a dual-obligee financial assurance instruments as a
type of financial assurance. Because dual-obligee financial assurance
instruments have been allowed as ``another form of security approved by
the Regional Director,'' BOEM proposes to keep the
[[Page 11231]]
burdens the same as the existing approved OMB burdens.
Short-Term Decommissioning Obligations
The Department is proposing a new section 556.908 to address
instances where decommissioning will occur within 1 year of a new
supplemental financial assurance demand. This provision will allow the
Regional Director the discretion to accept third-party decommissioning
contracts and/or decommissioning schedules from those entities in lieu
of supplemental financial assurance. This is a new provision that may
slightly increase annual burden hours. BOEM estimates an increase of 1
annual burden hours (2 responses x \1/2\ hour burden).
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 4340-98-P
[[Page 11232]]
[GRAPHIC] [TIFF OMITTED] TP09MR26.000
[[Page 11233]]
[GRAPHIC] [TIFF OMITTED] TP09MR26.001
[[Page 11234]]
[GRAPHIC] [TIFF OMITTED] TP09MR26.002
BILLING CODE 4340-98-C
If this proposed 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
[[Page 11235]]
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 <a href="https://www.reginfo.gov">https://www.reginfo.gov</a>. You may view the
information collection request(s) at <a href="https://www.reginfo.gov/public/do/PRAMain">https://www.reginfo.gov/public/do/PRAMain</a>. 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 and
Financial Assurance for OCS Lease and Grant Obligations (OMB Control
No. 1010-0006), in your comments.
E. 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 proposed
rule is covered by a categorical exclusion (see 43 CFR 46.205). This
proposed rule meets the criteria set forth at 43 CFR 46.210(i) for a
Departmental categorical exclusion in that this action is ``of an
administrative, financial, legal, technical, or procedural nature.''
BOEM has also determined that the proposed rule does not involve any of
the extraordinary circumstances listed in 43 CFR 46.215 that would
require further analysis under NEPA.
VIII. Executive Order Review
A. Executive Order 12630: Governmental Actions and Interference With
Constitutionally Protected Property Rights
E.O. 12630 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 effect a taking of private property or otherwise
have taking implications under E.O. 12630, and therefore, a takings
implication assessment is not required.
B. Executive Order 12866: Regulatory Planning and Review and Executive
Order 13563: Improving Regulation and Regulatory Review
E.O. 12866 provides that the Office of Information and Regulatory
Affairs (OIRA) in the OMB will review all significant rules. This
rulemaking will result in an annual effect on the economy of $100
million or more, therefore OIRA has determined that this rule is a
significant action under E.O. 12866. As such, this action was submitted
to OMB for interagency review.
E.O. 13563 reaffirms the principles of E.O. 12866, 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.
The amendments proposed in this action are expected to
significantly decrease the private costs to lessees in the form of
bonding or other financial assurance premiums. 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 (BOEM-2025-0042)
and is summarized in sections IV.B and IV.C of this preamble.
OMB Circular A-4 Accounting Statement; Estimates, Annualized Over 2026-2045
[$2025]
----------------------------------------------------------------------------------------------------------------
Primary estimate
--------------------------------
Category Annualized at Annualized at Minimum Maximum Source citation
3% discount 7% discount estimate estimate
rate rate
----------------------------------------------------------------------------------------------------------------
Net Regulatory Benefits ($ millions)
----------------------------------------------------------------------------------------------------------------
Annualized monetized benefits N/A N/A N/A N/A RIA.
(discount rate in
parentheses).
----------------------------------------------------------------------------------------------------------------
[[Page 11236]]
Qualitative benefits (non- This proposed rule is a modification of the current financial RIA.
quantified). regulations finalized in 2024. The proposed rule is designed
to minimize the amount of supplemental financial assurance
required for financially strong companies while protecting the
taxpayer from assuming responsibility for defaulted
decommissioning liabilities.
The regulatory changes would help to reduce compliance burdens
on the oil and gas industry that may hinder the continued
development or use of domestically produced energy resources.
----------------------------------------------------------------------------------------------------------------
Regulatory Costs ($ millions)
----------------------------------------------------------------------------------------------------------------
20-year annualized monetized -$484.46 -$487.21 N/A N/A RIA--Table 1 (20
costs. year).
Annualized quantified, but N/A N/A N/A N/A N/A.
unmonetized, costs.
----------------------------------------------------------------------------------------------------------------
Qualitative costs (non- BOEM is proposing to allow Tier 2 lessees and grant holders to Section VIII.
quantified). forgo providing supplemental financial assurance if there are Statement of
Tier 1 predecessor companies in the chain of title. These Tier Energy Effects.
1 companies, which would see an increased risk of being called
upon to perform, would theoretically internalize this risk
into their decision-making processes and may set aside or
otherwise idle capital to prepare for their contingent
liabilities.
----------------------------------------------------------------------------------------------------------------
Net Monetized Benefits ($ millions)
----------------------------------------------------------------------------------------------------------------
20-year annualized monetized N/A N/A N/A N/A
benefits.
----------------------------------------------------------------------------------------------------------------
Transfers ($ millions)
----------------------------------------------------------------------------------------------------------------
Annualized monetized 0 0 0 0 RIA.
transfers: ``on budget''.
Annualized monetized 0 0 0 0 RIA.
transfers: ``off budget''.
----------------------------------------------------------------------------------------------------------------
From whom to whom?............ BOEM does not monetize or quantify potential transfers under RIA.
the proposed rule. However, in the event of a lessee or
grantee default, there is an increased likelihood that a
predecessor lessee or the Federal Government would assume
decommissioning liability.
----------------------------------------------------------------------------------------------------------------
Effects on State, local, and/ No material adverse effects. RIA E.O. 12866.
or tribal governments.
----------------------------------------------------------------------------------------------------------------
Effects on small businesses... Although small entities are responsible for most of the Tier 2 RFA (Section
liability, BOEM estimates the proposed rule results in in VII).
annual premiums of $48.9 million, yielding a savings of $498
million.
----------------------------------------------------------------------------------------------------------------
Effects on wages.............. None. None.
----------------------------------------------------------------------------------------------------------------
Effects on growth............. OCS investment may be deterred by discouraging Tier 1 E.O. 13211
companies from farm-in/out deals with Tier 2 companies or (Section VIII).
prompting earlier infrastructure decommissioning when project
economics fall below their NPV thresholds. Tier 1 predecessors
may be required to set aside additional capital for
decommissioning obligations.
----------------------------------------------------------------------------------------------------------------
C. 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.
D. 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 proposed 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.
E. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
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. 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
[[Page 11237]]
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 has 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 is notifying
tribes and ANCSA Corporations with current and/or historical
connections to the Gulf of America and offshore Alaska 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. See section IV.D of this preamble for details on
consultations held for this proposed rule. BOEM can consult at any time
with federally recognized Tribes as sovereign nations.
F. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
Under E.O. 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. The OMB provides guidance for implementing this E.O.,
outlining outcomes that may constitute ``a significant adverse effect''
when compared with the regulatory action under consideration:
<bullet> Reductions in crude oil supply in excess of 10,000 barrels
per day (bbls);
<bullet> Reductions in fuel production in excess of 4,000 bbls;
<bullet> Reductions in coal production in excess of five million
tons per year;
<bullet> Reductions in natural gas production in excess of 25
million Mcf per year;
<bullet> Reductions in electricity production in excess of one
billion kilowatt-hours per year or in excess of 500 megawatts of
installed capacity;
<bullet> Increases in energy use required by the regulatory action
that exceed the thresholds above;
<bullet> Increases in the cost of energy production in excess of
one percent;
<bullet> Increases in the cost of energy distribution in excess of
one percent; or
<bullet> Other similarly adverse outcomes.
In addition, a regulation may have ``significant adverse effects''
if it:
<bullet> Adversely affects, in a material way, the productivity,
competition, or prices in the energy sector;
<bullet> Adversely affects, in a material way, productivity,
competition or prices within a region;
<bullet> Creates a serious inconsistency or otherwise interferes
with an action taken or planned by another agency regarding energy; or
<bullet> Raises novel legal or policy issues adversely affecting
the supply, distribution or use of energy arising out of legal
mandates, the President's priorities, or the principles set forth in
E.O.s 12866 and 13211.
The proposed rule is a deregulatory action and does not directly
add new regulatory compliance requirements that would lead to
significant adverse effects on the nation's energy supply,
distribution, or use. Rather, the regulatory changes would help to
reduce compliance burdens on the oil and gas industry that may hinder
the continued development or use of domestically produced energy
resources.
The proposed financial assurance changes could yield unintended
consequences to OCS asset investments, particularly in their later
years of viability. The proposed rule may deter OCS investment by
discouraging Tier 1 companies from pursuing farm-in or farm-out deals
with Tier 2 companies or prompting companies to decommission
infrastructure when project economics fall below their IRR or NPV
thresholds. Smaller Tier 2 companies, with lower operating costs and
return thresholds, may recover additional late-life OCS hydrocarbon
resources. While contractual financial security agreements could
mitigate these risks, net adverse effects on OCS energy production
remain possible. These Tier 1 predecessors may also decide they need to
set aside additional contingency funds should they be required to cover
potential decommissioning obligations from successor lessees exempted
from providing supplemental financial assurance. These are funds that
could otherwise be invested in new energy projects. BOEM does not
anticipate these effects will exceed the OMB E.O. 13211 guidance but
welcomes comments on additional potential impacts.
G. Executive Order 14154: Unleashing American Energy
Section 3 of E.O. 14154 requires immediate review of all agency
actions that potentially burden the development of domestic energy
resources. Secretary's Order 3418 directed BOEM to determine if the
Risk Management and Financial Assurance for OCS Lease and Grant
Obligations (89 FR 31544; April 24, 2024) should be suspended, revised,
or rescinded. With this rulemaking, DOI is proposing to revise the
regulations associated with the 2024 Final Rule as it potentially
burdens the development of domestic energy resources.
H. Executive Order 14156: Declaring a National Energy Emergency
Section 1 of E.O. 14156 declares a national emergency because
``[o]ur Nation's current inadequate development of domestic energy
resources leaves us vulnerable to hostile foreign actors and poses an
imminent and growing threat to the United States' prosperity and
national security.'' Section 2 instructs the heads of executive
departments and agencies to identify and exercise any lawful emergency
authorities available to them to facilitate the identification,
leasing, siting, production, transportation, refining, and generation
of domestic energy resources. This proposed rule does not address any
emergency actions related to facilitating the identification, leasing,
siting, production, transportation, refining, and generation of
domestic energy resources.
I. Executive Order 14192: Unleashing Prosperity Through Deregulation
Executive Order 14192 requires that for each new regulation issued,
at least 10 prior regulations be identified for elimination. Section
3(c) requires that any incremental costs associated with new
regulations shall be offset by the elimination of existing costs
associated with at least 10 prior regulations. This action proposes to
reduce existing regulatory burden to offshore oil and gas companies by
$6.2 billion. Therefore, there are no incremental costs to be offset.
Moreover, the proposal is not a ``new regulation'' but itself is the
elimination of burdensome features of existing regulations.
[[Page 11238]]
List of Subjects
30 CFR Part 550
Administrative practice and procedure, Oil and gas exploration,
Outer continental shelf, Pipelines, Reporting and recordkeeping
requirements, Rights-of-way, Sulfur.
30 CFR Part 556
Administrative practice and procedure, Oil and gas exploration,
Outer continental shelf, Reporting and recordkeeping requirements,
Rights-of-way.
30 CFR Part 590
Administrative practice and procedure.
This action by the Assistant Secretary for Land and Minerals
Management is taken herein pursuant to an existing delegation of
authority.
Lanny E. Erdos,
Director, Office of Surface Mining, Reclamation, and Enforcement,
Exercising Authority of the Assistant Secretary--Land and Mineral
Management.
For the reasons stated in the preamble, BOEM proposes to amend 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.
Subpart A--General
0
2. Amend Sec. 550.105 by adding the terms and corresponding
definitions for ``Issuer credit rating'' and ``Predecessor'' in
alphabetical order as follows:
Sec. 550.105 Definitions.
* * * * *
Issuer credit rating means a credit rating 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.
* * * * *
Predecessor means a prior lessee or owner of operating rights, or a
prior holder of a right-of-use and easement grant or pipeline right-of-
way grant, that is liable for accrued obligations on that lease or
grant.
* * * * *
0
3. Amend Sec. 550.166 by revising subparagraph (a)(3) and paragraph
(b) to read as follows:
Sec. 550.166 If BOEM grants me a RUE, what financial assurance must I
provide?
(a) * * *
(3) The requirements for financial assurance in Sec. Sec.
556.900(d) through (g) and 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 (4) of this subchapter. If supplemental financial
assurance is required by the Regional Director, it must meet the
requirements of Sec. Sec. 556.900(d) through (g) and 556.902 of this
subchapter and cover costs and liabilities for compliance with
obligations of your RUE grants and applicable BOEM and BSEE orders.
* * * * *
Subpart J--Pipelines and Pipeline Rights-of-Way
0
4. Amend Sec. 550.1011 by removing existing paragraph (e),
redesignating existing paragraph (f) to new paragraph (e), and revising
paragraph (d) to read as follows:
Sec. 550.1011 Financial assurance requirements for pipeline right-of-
way (ROW) grant holders.
* * * * *
(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. The
Regional Director may require you to provide additional supplemental
financial assurance if you do not meet at least one of the criteria in
subparagraphs (d)(1) and (2) of this section. If supplemental financial
assurance is required by the Regional Director, it must meet the
requirements of Sec. Sec. 556.900(d) through (g) and 556.902 of this
subchapter and cover costs and liabilities for compliance with
obligations of your ROW grants and applicable BOEM and BSEE orders.
(1) A predecessor lessee liable for decommissioning any facilities
on the ROW meets the issuer credit rating or proxy credit rating
criteria in Sec. 556.901(d)(1) or (d)(2), respectively; or
(2) The value of proved reserves of OCS lease(s) held by the ROW
grant holder servicing the ROW compared to the combined decommissioning
liability of those leases and ROWs meets the requirements of Sec.
556.901(d)(5).
* * * * *
PART 556--LEASING OF SULFUR OR OIL AND GAS AND FINANCIAL ASSURANCE
REQUIREMENTS IN THE OUTER CONTINENTAL SHELF
0
5. The authority citation for part 556 continues to read as follows:
Authority: 31 U.S.C. 9701; 42 U.S.C. 6213; 43 U.S.C. 1334.
Subpart A--General Provisions
0
6. Amend Sec. 556.105 by revising paragraph (b) to remove the term and
associated definition of ``Investment grade credit rating'' and to add
the term ``Dual-obligee financial assurance instrument'' and associated
definition to read as follows:
Sec. 556.105 Acronyms and definitions.
* * * * *
(b) * * *
Dual-obligee financial assurance instrument means a type of
financial instrument that names a second obligee in addition to the
original obligee.
* * * * *
Subpart I--Financial Assurance
0
7. Revise the table of contents for subpart I to part 556 to read as
follows:
Subpart I--Financial Assurance
Sec.
556.900 Bond requirements for an oil and gas or sulfur lease.
556.901 Additional bonds.
556.902 General requirements for bonds.
556.903 Lapse of bond.
556.904 Lease-specific abandonment accounts.
556.905 Using a third-party guarantee instead of a bond.
556.906 Termination of the period of liability and cancellation of a
bond.
556.907 Forfeiture of bonds and/or other securities.
556.908 Short-term decommissioning obligations.
0
8. Amend Sec. 556.901 by:
0
a. Revising existing paragraphs (d)(1) and (d)(2);
0
b. Redesignating existing paragraph (d)(4) as new paragraph (d)(5);
0
c. Adding new paragraph (d)(4);
0
d. Revising new paragraph (d)(5);
0
e. Revising paragraphs (f) and (h); and
0
f. Adding new paragraph (i).
The revisions and additions read as follows:
[[Page 11239]]
Sec. 556.901 Base and supplemental financial assurance.
* * * * *
(d) * * *
(1) You have an issuer credit rating from a nationally recognized
statistical rating organization, as that term is defined in section
3(a)(62) of the Securities Exchange Act of 1934, greater than or equal
to either BB- from S&P Global Ratings, Ba3 from Moody's Investor
Service, or the equivalent rating from another nationally recognized
statistical rating organization. If any nationally rated statistical
rating organization 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
issuer credit rating greater than or equal to either BB- from S&P
Global Ratings, Ba3 from Moody's Investor Service, or the equivalent
rating from another nationally recognized statistical rating
organization, 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) * * *
* * * * *
(4) A predecessor lessee liable for decommissioning any facility on
your lease has an issuer credit rating or proxy credit rating that
meets the criteria set forth in paragraph (d)(1) or (d)(2) of this
section. The Regional Director may require you to provide supplemental
financial assurance for decommissioning obligations for which such a
predecessor is not liable.
(5) 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 50 percent
probability that the actual cost of decommissioning will be less than
the estimate (P50).
(ii) If there is no BSEE probabilistic estimate available, BOEM
will use the BSEE-generated deterministic estimate.
* * * * *
(f) The Regional Director will use the BSEE P50 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 Sec. 556.901(d)(1) or
(2). 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 P50 level, you remain
liable for the full costs of decommissioning, and your surety remains
liable for the full cost of decommissioning up to the limit of
assurance provided. In determining the total amount of the supplemental
financial assurance demand, the Regional Director will also consider
your potential underpayment of royalty and cumulative decommissioning
obligations.
* * * * *
(h) During the first 3 years from May 8, 2026, 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) * * *
* * * * *
(i) Prior to receiving a demand for supplemental financial
assurance, you may provide the Regional Director with a proposed
schedule for providing potential supplemental financial assurance. If
accepted, BOEM will forgo an official demand letter. Failure to provide
the required supplemental financial assurance on the approved schedule
will result in an official demand letter for the remaining
decommissioning liability due within 10-calendar days after receipt.
0
9. Amend Sec. 556.902 by revising paragraphs (e) and (h) to read as
follows:
Sec. 556.902 General requirements for bonds or other financial
assurance.
* * * * *
(e) Lease financial assurance must be:
(1) A surety bond;
(2) A pledge of Treasury securities, as provided in Sec.
556.900(f);
(3) A dual-obligee financial assurance instrument;
(4) Another form of security approved by the Regional Director; or
(5) A combination of these security methods.
* * * * *
(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.
0
10. Add new section 556.908 to read as follows:
Sec. 556.908 Short-term decommissioning obligations.
(a) In instances where decommissioning is scheduled to occur within
one year of a new supplemental financial assurance demand, the Regional
Director has the discretion to accept a third-party decommissioning
contract and/or a decommissioning schedule from those entities in lieu
of supplemental financial assurance.
(b) The third-party decommissioning contract provided to BOEM for
review and approval for use as an alternative to providing supplemental
financial assurance should clearly define the responsibilities,
expectations, and protections for all parties involved in the plugging,
abandonment, and site restoration of oil and gas infrastructure.
(c) The decommissioning schedule provided to BOEM for review and
approval for use as an alternative to providing supplemental financial
assurance must include a detailed timeline that outlines the sequence,
duration, and key milestones for decommissioning oil and gas
infrastructure such as wells, facilities, and pipelines. The
decommissioning schedule must be signed by an officer of the company as
designated in the BOEM qualification card.
(d) When submitting the third-party decommissioning contract or
decommissioning schedule for BOEM approval for use in lieu of providing
supplemental financial assurance, you must provide evidence of
sufficient funding resources to complete the decommissioning within the
time specified in the contract or schedule.
(e) If you fail to comply with the third-party decommissioning
contract which was accepted by BOEM in lieu of supplemental financial
assurance, you must:
(1) Notify the Regional Director within 7-calendar days of
discovering the failure to comply with the contract or of the contract
being canceled; and
[[Page 11240]]
(2) Provide proof that you are taking corrective action to obtain a
new third-party decommissioning contract or revise the existing third-
party decommissioning contract within 15 days after notification to the
Regional Director.
(f) If you fail to comply with the decommissioning schedule, which
was accepted by BOEM in lieu of supplemental financial assurance, you
must:
(1) Notify the Regional Director within 7-calendar days of
discovering that any of the milestones in the schedule have been missed
or have become an impossibility; and
(2) Take corrective action to revise the schedule and provide a
revised schedule for review and approval for use in lieu of providing
supplemental financial assurance to the Regional Director within 15
days after notification to the Regional Director.
(g) If you fail to comply with paragraphs (e) and/or (f) of this
section, whichever was approved for use by BOEM as an alternative to
providing supplemental financial assurance, you must provide the
original supplemental financial assurance demand in full within 10-
calendar days of receiving notification from the Regional Director that
you have failed to meet your obligations and that you will be no longer
be eligible to meet your supplemental financial assurance requirement
in the manner prescribed in this section.
(h) If your decommissioning activities are not complete within one-
year from the date of the original supplemental financial assurance
demand, you must pay the original supplemental financial assurance
demand amount within 10-calendar days of receiving notification from
the Regional Director that you have failed to meet your obligations and
that you will be no longer be eligible to meet your supplemental
financial assurance requirement in the manner prescribed in this
section.
Subchapter C--Appeals
PART 590--APPEAL PROCEDURES
0
11. 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.
Subpart A--Bureau of Ocean Energy Management Appeal Procedures
Sec. 590.4 [Amended]
0
12. Amend Sec. 590.4 by removing and reserving paragraph (c).
[FR Doc. 2026-04517 Filed 3-6-26; 8:45 am]
BILLING CODE 4340-98-P
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</html>Indexed from Federal Register on March 9, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.