§550.166. If BOEM grants me a RUE, what financial assurance must I provide? — Inbound Citations

You may not store gas on unleased lands unless the Regional Supervisor approves a right-of-use and easement for that purpose, under §§ 550.160 through 550.166 of this subpart.

(b) An application for approval of an assignment of an interest in a RUE, in whole or in part, must be filed in triplicate with the Regional Director. Such application must be supported by a statement that the assignee agrees to comply with and to be bound by the terms and conditions of the RUE grant. The assignee must satisfy the bonding requirements in § 550.166. No RUE assignment will be recognized unless and until it is first approved, in writing, by the Regional Director. The assignee of an interest in a RUE must pay the same service fee as that listed in § 550.106(a)(1) for a lease record title assignment request.

(a) If your surety, guarantor, or the financial institution holding or providing your financial assurance becomes bankrupt or insolvent, or has its charter or license suspended or revoked, any financial assurance coverage from such surety, guarantor, or financial institution must be replaced. You must notify the Regional Director within 72 hours of learning of such event, and, within 30 calendar days of learning of such event, you must provide other financial assurance from a different financial assurance provider in the amount required under §§ 556.900 and 556.901, or § 550.166 of this subchapter, or § 550.1011 of this subchapter.

(d) The Regional Director may determine that supplemental financial assurance (i.e., financial assurance above the amounts prescribed in §§ 550.166(a) and 550.1011(a) of this subchapter, § 556.900(a), or paragraphs (a) and (b) of this section) is required to ensure compliance with your lease obligations, including decommissioning obligations; the regulations in this chapter; and the regulations in chapters II and XII of this title. The Regional Director may require you to provide supplemental financial assurance if you do not meet at least one of the following criteria:

(1) If any nationally recognized statistical rating organization, as that term is defined in section 3(a)(62) of the Securities Exchange Act of 1934, provides a credit rating for you that differs from that of any other nationally recognized statistical rating organization, BOEM will apply the highest rating for purposes of determining your financial assurance requirements.

(2) You have a proxy credit rating determined by the Regional Director that they determine reflects creditworthiness equivalent to an investment grade credit rating, which must be based on audited financial information for the most recent fiscal year (which must include an income statement, balance sheet, statement of cash flows, and the auditor's certificate).

(i) The audited financial information for your most recent fiscal year must cover a continuous twelve-month period within the twenty-four-month period prior to your receipt of the Regional Director's determination that you must provide supplemental financial assurance.

(ii) In determining your proxy credit rating, the Regional Director may include the total value of the offshore decommissioning liabilities associated with any lease(s) or grants in which you have an ownership interest. Upon the request of the Regional Director, you must provide the information that the Regional Director determines is necessary to properly evaluate the total value of your offshore decommissioning liabilities, including joint ownership interests and liabilities associated with your OCS leases and grants.

(3) Your co-lessee or co-grant holder has an issuer credit rating or proxy credit rating that meets the criterion set forth in paragraph (d)(1) or (2) of this section, as applicable. However, the presence of such co-lessee or co-grant holder will allow the Regional Director to not require financial assurance from you only to the extent that you and that co-lessee or co-grant holder share accrued liabilities, and the Regional Director may require you to provide supplemental financial assurance for decommissioning obligations for which such co-lessee or co-grant holder is not liable.

(4) There are proved oil and gas reserves on the lease, unit, or field, as defined by the SEC Regulation S-X at 17 CFR 210.4-10 and SEC Regulation S-K at 17 CFR 229.1200, the discounted value of which exceeds three times the estimated undiscounted cost of the decommissioning associated with the production of those reserves, and that value must be based on proved reserve reports submitted to the Regional Director and reported on a per-lease, unit, or field basis. BOEM will determine the decommissioning costs associated with the production of your reserves, and will use the following undiscounted decommissioning cost estimates:

(i) Where BSEE-generated probabilistic estimates are available, BOEM will use the estimate at the level at which there is a 70 percent probability that the actual cost of decommissioning will be less than the estimate (P70).

(ii) If there is no BSEE probabilistic estimate available, BOEM will use the BSEE-generated deterministic estimate.

(2) For financial assurance submitted under § 556.900(a), § 556.901(a) or (b), § 550.166(a) of this subchapter, or § 550.1011(a) of this subchapter, the new financial assurance provider agrees to assume all outstanding obligations that accrued during the period of liability that was terminated; and

(a) The Regional Director may authorize you to establish a decommissioning account(s) in a federally insured financial institution to satisfy a supplemental financial assurance demand made pursuant to § 556.901(d), § 550.166(b) of this subchapter, or § 550.1011(d) of this subchapter. The decommissioning account must be set up in such a manner that funds may not be withdrawn without the written approval of the Regional Director.

(1) Funds in the account must be used only to meet your decommissioning obligations and must be payable upon demand to BOEM.

(2) You must fully fund the account to cover all decommissioning costs as estimated by BSEE, to the amount, and pursuant to the schedule, that the Regional Director prescribes.

(3) If you fail to make the initial payment or any scheduled payment into the decommissioning account and you fail to correct a missed payment within 30 days, you must immediately submit, and subsequently maintain, a surety bond or other financial assurance in an amount equal to the remaining unfulfilled portion of the supplemental financial assurance demand.

(a) The Regional Director may accept a third-party guarantee to satisfy a supplemental financial assurance demand made pursuant to § 556.901(d), § 550.166(b) of this subchapter, or § 550.1011(d) of this subchapter, if:

(1) The guarantor meets the credit rating or proxy credit rating criterion set forth in § 556.901(d)(1) or (2), as applicable; and

(2) The guarantor or guaranteed party submits a third-party guarantee agreement containing each of the provisions in paragraph (d) of this section.

(3) For supplemental financial assurance submitted under § 556.901(d), § 550.166(b) of this subchapter, or § 550.1011(d) of this subchapter, the new financial assurance provider agrees to assume that portion of the outstanding obligations that accrued during the period of liability that was terminated and that the Regional Director determines may exceed the coverage of the financial assurance submitted under § 556.900(a), § 556.901(a) or (b), § 550.166(a) of this subchapter, or § 550.1011(a) of this subchapter. The Regional Director will notify the provider of the new financial assurance of the amount required.