Oil Spill Financial Responsibility for Offshore Facilities

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 253

RIN 1010-AC33

Oil Spill Financial Responsibility for Offshore Facilities

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

[[Page 14053]]

SUMMARY: MMS is proposing new requirements for demonstrating oil spill

financial responsibility (OSFR) for cleanup and damages from oil

discharges due to oil exploration, production, and associated pipeline

facilities. This rule will apply to operations located in: the Outer

Continental Shelf (OCS); State waters seaward of the line of ordinary

low water along that portion of the coast that is in direct contact

with the open sea; and in coastal inland waters, such as bays and

estuaries, seaward of the line of ordinary low water along that portion

of the coast that is not in direct contact with the open sea. This rule

implements the authority of the Oil Pollution Act of 1990 (OPA).

DATES: MMS will consider all comments received by June 23, 1997. We may

not fully consider comments received after June 23, 1997.

ADDRESSES: Mail or hand-carry comments to the Department of the

Interior, Minerals Management Service, Mail Stop 4700, 381 Elden

Street, Herndon, Virginia 20170-4817; Attention: Rules Processing Team.

FOR FURTHER INFORMATION CONTACT: Ray Beittel, Performance and Safety

Branch, at (703) 787-1591.

SUPPLEMENTARY INFORMATION: Title I of OPA (33 U.S.C. 2701 et seq.), as

amended by the Coast Guard Authorization Act of 1996 (Pub. L. 104-324),

provides at section 1016 that parties responsible for offshore

facilities establish and maintain OSFR for those facilities according

to methods determined acceptable to the President. Section 1016

supersedes the offshore facility OSFR provisions of the Outer

Continental Shelf Lands Act Amendments (OCSLAA) of 1978. The

Presidential Executive Order (E.O.) implementing OPA (E.O. 12777;

October 18, 1991) assigned the offshore facility OSFR certification

function to the Department of the Interior (DOI). The Secretary of the

Interior, in turn, delegated this function to MMS.

The regulation proposed today replaces the current offshore

facility OSFR regulation written pursuant to the OCSLAA. The OCSLAA

regulation is limited to facilities located in the OCS and sets the

amount of OSFR that must be demonstrated by responsible parties at $35

million. The regulation proposed today covers both the OCS and State

waters lying seaward of the line of ordinary low water. Today's

proposal also requires responsible parties to demonstrate as much as

$150 million in OSFR if MMS believes it is justified by the risks from

potential oil spills from covered offshore facilities.

The minimum amount of OSFR that must be demonstrated under the

proposed regulation is $35 million for covered facilities located in

the OCS and $10 million for covered facilities located in State waters.

The proposed regulation provides a conditional exemption for persons

responsible for facilities having a potential worst case oil-spill

discharge of 1,000 barrels or less.

Background

The initial OSFR program for offshore facilities was developed

under Title III of the OCSLAA and administered by the U.S. Coast Guard

(USCG). OPA replaced and rescinded the Title III OSFR requirements.

However, section 1016(h) of OPA provides that any regulation relating

to OSFR remain in force until superseded by a new regulation issued

under OPA. Therefore, the existing USCG OSFR regulations for offshore

facilities in the OCS (33 CFR part 135) remain in effect until this

proposed rule becomes final.

The Secretary of Transportation has authority for vessel oil

pollution financial responsibility, and the USCG regulates the

financial responsibility program for vessels. However, a well drilled

from a mobile offshore drilling unit (MODU), which is a type of vessel,

is an offshore facility under the proposed rule.

Upon request from the USCG, MMS will provide available information

for any covered offshore facility (COF) involved in an oil pollution

incident including:

(1) The lease, permit, or right of use and easement (RUE) for the

area in which the COF is located;

(2) The designated applicant and guarantors and their contacts for

claims;

(3) Agents for service of process; and

(4) Amounts guaranteed.

Section-by-Section Discussion

Subpart A

Sec. 253.1 What is the purpose of this regulation? This is an

introductory section explaining that this part establishes the

requirements for OSFR for COF's under Title I of OPA, 33 U.S.C. 2701 et

seq.

Sec. 253.3 How are the terms used in this regulation defined? This

section contains definitions of terms used in this part. Some of these

definitions are based on terms in OPA and differ from how MMS normally

uses them. The principal definitions will be addressed later in this

preamble in the context in which they are used.

Sec. 253.5 What is the authority for collecting OSFR information?

This section explains that the information collected under this part is

used to ensure compliance with the OSFR requirements in OPA.

Subpart B

Sec. 253.10 What facilities does this regulation cover? This

introductory section provides a general statement of applicability. It

states that this part applies to any ``COF'' or any ``lease'' or

``permit'' issued under, or a ``RUE'' granted under the Outer

Continental Shelf Lands Act (OCSLA) or applicable State law. This

applicability concept incorporates many defined terms.

An important term in these rules is COF which is based on

requirements in OPA. There are three tests to determine whether your

facility is a COF. First, it must be a structure, group of structures,

a well (including a well drilled from an MODU), equipment, pipeline, or

device used for exploring for, drilling for, or producing oil. This

includes platforms, gathering lines, subsea completions, and other

equipment common to oil production activities. Facilities that are used

to store, handle, transfer, or process oil and that are related to the

oil production process also are included. Thus, a platform with

equipment to initially treat oil (dewatering, desanding, etc.) is

covered.

OPA excludes from the COF definition vessels and pipelines licensed

under the Deepwater Port Act of 1974 (33 U.S.C. 1501 et seq.). Also

within the coverage of this first test are facilities used to transport

oil, which includes transportation pipelines (gathering lines are part

of production facilities) and pipeline appurtenances. If a well is

drilled from a MODU, the well could be a COF under the proposed

regulation, but the MODU could not. However, the MODU owner or operator

is required to demonstrate OSFR for the MODU according to USCG

regulations at 33 CFR part 138.

Under the proposed rule, for a facility to be a COF, it must pass

two other tests. First, it must be located seaward of the line of

ordinary low water along that portion of the coast that is in direct

contact with the open sea, or located in coastal inland waters, such as

bays and estuaries, seaward of the line of ordinary low water along

that portion of the coast that is not in direct contact with the open

sea. This concept comes directly from the 1996 amendments to OPA (see

section 1016(c)(1)). It clearly includes the Federal OCS and each

State's territorial sea.

The line of ordinary low water along that portion of the coast that

is in direct contact with the open sea was defined by the courts for

each coastal State

[[Page 14054]]

where there might be a COF. This adjudicated line, known as the

``coastline,'' represents both the seaward limit of inland waters and

the base for establishing a State's seaward boundary that separates

State waters from the Federal OCS.

It is clear that OSFR regulations should apply to areas seaward of

the coastline. It also seems clear that ``coastal inland waters, such

as bays and estuaries, seaward of the line of ordinary low water along

that portion of the coast that is not in direct contact with the open

sea'' lie landward of the coastline. However, OPA does not define the

extent of these coastal inland waters, and the record of Congress for

the 1996 amendments to OPA offers no clarification or statement of

intent. Thus, MMS is afforded some discretion in determining the extent

to which areas lying landward of the coastline should be covered by

this proposed regulation.

We considered two options for defining the phrase ``coastal inland

waters, such as bays and estuaries, seaward of the line of ordinary low

water along that portion of the coast that is not in direct contact

with the open sea.'' In developing these options, we focused on the

three relevant statutory phrases: line of ordinary low water, coastal

inland waters, and bays and estuaries.

The first option for defining places landward of the coastline that

are covered by the rule includes the submerged coastal areas subject to

tidal influence. That is, if an area affected by the tide is normally

submerged, even at low tide, it is seaward of the line of ordinary low

water. As such, it is covered by the rule. Given the dynamic nature of

coastal geologic processes, especially in places like the Mississippi

River Delta, the area covered by this option could change with time. As

a result, a person responsible for a facility currently located on dry

land is not subject to the proposed rule today. However, if that

facility is later inundated as a result of shoreline erosion, the

facility might become a COF.

The area covered by this option does not include large inland water

bodies affected by the tides (e.g., the Great Salt Lake) because none

lie along the coast. Likewise, smaller landlocked water bodies located

along the coast are not included because they are not affected by the

tides. The area that is covered by this option includes coastal bays,

river mouths to the extent there is a tidal influence, and coastal

wetlands that are submerged at low tide.

A second option for defining places landward of the coastline that

are covered by the rule includes the area affected by the tides lying

between the coastline and a parallel line that is a fixed distance from

the coastline. This band of coastal inland waters does not change

unless the adjudicated coastline changes. The band should be wide

enough to cover the prominent coastal bays and estuaries. We believe an

appropriate width is 50 to 100 miles, although some may not consider

locations 100 miles inland to be ``along the coast.'' Conversely, if

the band is narrow, some bays and estuaries along the coast might not

be covered completely. For example, a 50-mile band excludes the

furthest reaches of San Francisco Bay and all of the Lake Pontchartrain

estuary.

MMS incorporated the first coastal inland waters option into the

proposed rule because we believe it is more consistent with the word

and spirit of OPA. However, we have neither finally determined this

option to be the best one, nor have we decided that the two options

considered are the only suitable ones. As such, we invite your comments

on both options and your recommendations for others that might be

appropriate. In particular, we would like your opinion on how wide the

coastal band should be if the second option is adopted. Given the known

locations of existing coastal oil facilities, we found little

difference between the options regarding who is subject to the proposed

rule. If you have evidence that this finding may be inaccurate, please

submit it to us with your comments on the proposed rule.

The last test to be a COF is that a facility must have a worst case

oil-spill discharge potential of more than 1,000 barrels. MMS could

require a facility with a lesser spill potential to be covered if we

determine in writing that OSFR must be demonstrated. Also, a person may

agree to cover a facility with OSFR even if it does not exceed the

worst case oil-spill threshold. As explained in more detail below, this

would occur if a person is providing maximum blanket coverage for all

its facilities under the blanket.

For this proposed rule to apply, the COF must be on a lease, permit

(defined as a permit for geological exploration), or RUE issued under

OCSLA or applicable State law.

MMS recognizes the possibility that a transportation pipeline could

begin offshore and move production onshore. In that event, under

Sec. 253.10(b), the pipeline is covered to the point it reaches the

first accessible flow shutoff device landward of the line of ordinary

low water.

Sec. 253.11 Who must demonstrate OSFR? MMS's proposal is that

every lease, permit, or RUE with a COF would have only one person who

demonstrates OSFR. This person is the designated applicant.

The designated applicant is required to submit Form MMS 1016 and

agree to demonstrate OSFR on behalf of all the responsible parties for

the lease, permit, or RUE. If the designated applicant is not a

responsible party, it must agree to be liable for oil pollution

damages, cleanup costs, and other claims under OPA jointly and

severally with the responsible parties. MMS's intent is that the

responsible parties agree who the one designated applicant should be on

their behalf. MMS also wants that person to be liable for any damages

or other claims so a claimant or the Oil Spill Liability Trust Fund

(the Fund) does not have to pursue anyone other than the person who

agreed to be the designated applicant. Of course, the other responsible

parties still remain liable if the designated applicant does not

satisfy the liability.

Under paragraph (b), if the land within a lease with a COF also is

subject to a permit or RUE with a COF, there must be a designated

applicant for the lease and a designated applicant for each permit or

RUE. They may be the same person, but a Form MMS 1017 designating the

applicants for the different COF's must be filed with MMS.

Paragraph (c) requires the designated applicant for a lease with a

COF to be either a lessee (who is a responsible party under these rules

and OPA) or the designated operator (who, if not a lessee, does not

meet the definition of responsible party). However, the designated

operator for an OCS lease or unit must be the same party that is the

designated operator under 30 CFR 250.8. That rule requires the

designated operator to fulfill the lessee's obligations under the OCSLA

and MMS regulations. Therefore, it makes sense for that person to

demonstrate OSFR and to accept liability on behalf of the lessees. For

leases not in the OCS, to ensure that any nonlessee designated

applicant is a person with similar responsibilities for spill

prevention and cleanup to those of a Federal OCS operator, paragraph

(c)(2) requires that such applicant be an operator under a lease or

unit operating agreement that provides the operator is responsible for

compliance with all the laws and regulations applicable to the lease or

unit. Otherwise, that operator could not be a designated applicant

under the proposed rules, and a lessee

[[Page 14055]]

is required to demonstrate OSFR for the lease.

Paragraph (d) provides that only the permittee may be a designated

applicant for a permit with a COF. Under paragraph (e), for a RUE with

a COF, who the designated applicant may be depends on whether the COF

is a pipeline. If it is, then an owner or operator of each pipeline

segment on the RUE must be a designated applicant. For a RUE with a COF

that is not a pipeline segment, the holder of the RUE is the designated

applicant. If there also is a pipeline segment on the RUE, both the

owner or operator of the pipeline segment and the holder of the RUE

must be designated applicants. Again, the designated applicant for each

of these situations could be the same person, but the designation is

required to be separately denominated on the Form MMS 1017.

Paragraph (f) is a catchall provision allowing MMS to require a

different designated applicant if MMS determines that the circumstances

warrant a different person than the rules otherwise prescribe.

Sec. 253.12 Who determines whether I must demonstrate OSFR? As a

general matter, it is the obligation of those persons who could be

responsible parties to determine if there is a COF on their lease,

permit, or RUE. MMS recognizes that this rule is unusual since it

regulates persons who do not operate in the Federal OCS and are not

otherwise subject to MMS jurisdiction. These persons may need help in

interpreting their obligation under the rules, especially in marginal

situations. In other words, the person may not be sure whether the

lease, permit, or RUE is geographically covered or whether its facility

has a sufficient worst case oil-spill potential to warrant a

demonstration of OSFR. In this circumstance, you could ask MMS whether

the rule applies to you. You are required to submit sufficient

information for MMS to make the determination.

Sec. 253.13 How much OSFR must I demonstrate? This section

explains the amount of OSFR a designated applicant must demonstrate. If

you have only one COF for your lease, permit, or RUE, paragraph (b) of

the section has a table with different amounts of OSFR depending on the

worst case oil-spill discharge volume for your COF. For a COF in the

Federal OCS, the amount of OSFR ranges from $35 million to $150

million. For a COF not in the Federal OCS, it ranges from $10 million

to $150 million.

If you have two or more COF's on the lease, permit, or RUE, then

you must demonstrate the highest amount of OSFR that applies to any of

the COF's. Thus, if you had three production platforms on a lease, then

you must demonstrate the amount of OSFR based on the one with the

highest worst case oil-spill potential.

If you are the designated applicant for more than one lease,

permit, or RUE with a COF, you are required to demonstrate the highest

amount of OSFR that applies to any of them. By way of illustration,

assume you had one lease with two production platforms requiring $10

million of OSFR and the other requiring $35 million, and you had a

second lease with a platform requiring $10 million of OSFR. You are

required to demonstrate $35 million in OSFR which covers all the COF's

on both leases.

The table in paragraph (a) of this section clarifies that if you

have leases, permits, and RUE's located in the Federal OCS and State

waters, you must demonstrate the highest amount of OSFR that applies to

any of the COF's on those leases, permits, or RUE's regardless of which

jurisdiction they are located in.

In addition to setting out the amount of OSFR for a COF based on

whether it is located in the Federal OCS and its worst case oil-spill

discharge volume, paragraph (b) allows MMS to increase the OSFR amount

to a maximum of $150 million based on the relative operational,

environmental, human health, and other risks posed by the quality or

quantity of oil handled. The dollar amounts in the table are based on

estimates of the per-barrel costs of oil-spill removal and damages as

generated by the ``Spillcalc'' element of MMS General Purpose

Environmental Cost Model (GPECM).

The GPECM was developed to support the MMS 5-Year OCS Oil and Gas

Leasing Program. The average of the calculated high-range oil-spill

removal and damages costs for the offshore regions analyzed in the

GPECM (Atlantic, Gulf of Mexico, California, Washington-Oregon, Alaska)

is about $900 per barrel in 1993 dollars. For simplicity, the table

uses a cost factor of $1,000 and the largest volume covered by a spill

discharge bracket to establish the required OSFR amount for any COF

that fits into the bracket.

Under paragraph (b)(3), MMS could require an OSFR demonstration in

excess of the table amounts based on the relative operational, human

health, and other risks your COF poses. As noted above, the maximum

still is $150 million.

Sec. 253.14 How do I determine the worst case oil-spill discharge

volume? Designated applicants are instructed to use the same method of

calculating worst case discharges they use in preparing oil spill

response plans for MMS or another Federal agency administering section

311 of the Federal Water Pollution Control Act.

Sec. 253.15 What are my general OSFR compliance responsibilities?

This section spells out the designated applicant's obligation to

maintain continuous coverage for all leases, permits, and RUE's with

COF's.

Subpart C

Sec. 253.20 What are the methods for evidencing OSFR? This section

authorizes the use of self-insurance, insurance, guarantees or surety

bonds to evidence OSFR. In addition, the Director may approve

alternative methods under Sec. 253.32.

Secs. 253.21 through 253.28 How can I use self-insurance as OSFR

evidence? These sections establish two methods for qualifying as a

self-insurer: a net-worth test and a test involving the pledge of

unencumbered assets. The self-insurance application must be supported

by audited financial statements.

The section contains formulae for calculating the level of self-

insurance for which you qualify under each self-insurance method. These

formulae are different from those MMS currently uses to determine

whether a person qualifies as a self-insurer under 33 CFR part 135. The

revised formulae are intended to provide a more realistic assessment of

net worth by better reflecting current business practices and economic

conditions.

An independent certified public accounting firm has reviewed the

proposed formulae and has recommended certain changes to ensure their

suitability for making self-insurance determinations. You are

encouraged to request a copy of this report from the address listed at

the beginning of this notice and provide MMS comments on the formulae

and the contractor's recommendations. We will consider your comments

and the contractor's recommendations in developing the formulae that

will be included in the final rule.

Sec. 253.29 How can I use insurance as OSFR evidence? This section

establishes minimum qualifications of insurers and the documentation

required to support insurance as OSFR evidence. An insurer must be a

syndicate of Lloyds of London, a member of the Institute of London

Underwriters, or rated ``secure'' or better by A.M. Best, Standard and

Poor's, or an equivalent rating service. While you may obtain insurance

[[Page 14056]]

coverage in layers, the rule limits the number of layers in relation to

the amount of coverage provided.

Sec. 253.30 How can I use a guarantee as OSFR evidence? This

section allows a designated applicant to use a single guarantee to meet

all or part of its OSFR obligation. A guarantee is a promise of

indemnification by a single indemnitor who meets the qualifications for

self-insurance under Secs. 253.21 through 253.28.

Sec. 253.31 How can I use a surety bond as OSFR evidence? This

section allows a designated applicant to use a surety bond as OSFR

evidence if the bond is issued by a surety acceptable to the Department

of the Treasury and licensed in the State (or the State adjacent to

that portion of the OCS) where at least one COF is located.

Sec. 253.32 Are there alternative methods to evidence OSFR? This

section authorizes the MMS Director, within his/her sole discretion, to

accept letters of credit, pooling arrangements, or other alternative

methods of evidencing OSFR that provide equivalent assurance of the

prompt satisfaction of claims that is equivalent to the methods

authorized in the proposed regulations.

Subpart D

Sec. 253.40 What OSFR evidence must I submit to MMS? This section

describes the forms that must be submitted as part of the OSFR

evidence. Designated applicants are directed to submit a single

demonstration for all leases, permits, and RUE's for which they are

designated applicants.

Sec. 253.41 What terms must I include in my OSFR evidence? The

rule specifies the terms and conditions under which OSFR instruments

can be terminated. Notice to MMS of intent to cancel and replacement of

the terminated instruments is required unless the COF is permanently

abandoned. Requirements for including in each OSFR instrument

information about direct action for claims and service of process also

is covered in this section.

Sec. 253.42 How can I amend my OSFR demonstration? This section

describes how to add or delete COF's from an existing OSFR

demonstration. You must submit information on additional leases,

permits, or RUE's at least 30 days before they are added or deleted.

Sec. 253.43 When is my OSFR demonstration effective? This section

provides that MMS notify designated applicants when it determines

whether the evidence submitted is adequate to demonstrate OSFR. It also

states how long an OSFR demonstration is effective.

Sec. 253.44 When must I comply with this regulation? This section

establishes a schedule for complying with this rule. You are allowed

not more than 60 days after the effective date of the final regulation

to submit to MMS your evidence of OSFR for all the COF's on all the

leases, permits, and RUE's for which you are the designated applicant.

Sec. 253.45 To whom do I submit my OSFR evidence? Submissions are

made to the listed address of MMS Oil Spill Financial Responsibility

Program.

Subpart E

Sec. 253.50 How can my OSFR evidence be refused or invalidated?

Generally, MMS would give a 15-day notice of its intent to invalidate

an OSFR demonstration. However, we could immediately invalidate an OSFR

demonstration if a person is no longer the designated applicant or

permits the cancellation or termination of the insurance policy, surety

bond, or guarantee on which your demonstration is based.

Sec. 253.51 What are the penalties for not complying with this

part? Failure to comply with these regulations could result in

penalties of up to $25,000 per COF per day. The maximum civil penalties

are stated along with a reference to the appeals process of 30 CFR part

250. MMS has considered the civil penalty amounts that should be

applied to this part, and the amounts may be those shown in the

following table.

Amounts of Civil Penalties Per COF for Noncompliance with Oil Spill Financial Responsibility Requirements (OSFR)

\1\

----------------------------------------------------------------------------------------------------------------

Period of noncompliance

Category of noncompliance -------------------------------------------------------------------------------

First week Second and third weeks After 3 weeks

----------------------------------------------------------------------------------------------------------------

Failure to submit OSFR evidence. $500 $750 per week................... $250 per day.

Lapse in OSFR coverage.......... $750 $1,000 per week................. $300 per day.

Cancellation of OSFR without $2,500 $5,000 per week................. $1,000 per day.

alternative coverage.

Failure to correct an erroneous $100 $250 per week................... $1,000 per week.

or inadequate submission within

30 Days of MMS request \2\.

----------------------------------------------------------------------------------------------------------------

Notes:

\1\ Penalties will be doubled each time there is an additional violation within 1 calendar year of the first

violation, up to a maximum of $25,000 per day. The penalty amounts in this table will be updated periodically

as needed to ensure compliance.

\2\ Includes under-subscribed insurance slips, use of insurers not rated ``secure'' or better, errors in lease,

permit, or RUE identification and similar problems with the OSFR evidence submitted.

This section also provides for penalties that are greater or less

than the amounts shown in the table, depending on specific factors

listed in OPA.

Subpart F

Sec. 253.60 How must a claim be presented? This section prescribes

the process a claimant follows to recover the costs of oil-spill

removal and damages from the designated applicant, its guarantor, or

the Fund. The general approach is to present claims first to the

designated applicant and then, if necessary, to the designated

applicant's guarantor or the Fund.

Sec. 253.61 When is a guarantor subject to direct action for

claims? This section specifies the situations in which a designated

applicant's guarantor is subject to suit on claims for oil spill

removal and damage costs directly by a claimant. It also states the

protections from direct action a guarantor is allowed under OPA.

The 1996 amendments to OPA limit the assertion of a claim against a

guarantor to three circumstances: (1) The United States makes a claim

for removal costs and damages for compensation paid by the Fund; (2)

the responsible party denies or fails to pay a claim on grounds of

insolvency; and (3) the responsible party has filed for bankruptcy. OPA

does not expressly address the common circumstance of numerous

responsible parties for a single offshore facility and whether all

[[Page 14057]]

responsible parties must be insolvent before the claimant may pursue

the guarantor. MMS believes that it should be sufficient for the

claimant to demonstrate only that the designated applicant is insolvent

before it could pursue the guarantor. The claimant should not be

required to pursue multiple responsible parties in that circumstance

because, for some COF's, there could be over 20 responsible parties.

Thus, the proposed rule allows recourse to a guarantor if the

designated applicant is insolvent or in bankruptcy. MMS does not

believe it would serve OPA's objective of prompt payment to force a

claimant to determine whether each and every responsible party is

insolvent or in bankruptcy before a claim could be asserted against a

guarantor.

MMS specifically invites comments on this issue. We specifically

invite comments on whether the final rule should instead adopt the

alternative of limiting action against a guarantor by private claimants

to cases where every responsible party has denied or failed to pay on

grounds of insolvency, or where every single responsible party has

petitioned for bankruptcy.

Sec. 253.62 What are the designated applicant's obligations

regarding a claim? This section specifies whom the designated applicant

must notify upon receipt of a claim for oil discharge removal and

damages.

Appendix

This section presents the nine MMS forms and a cover sheet the

designated applicant is required to use to submit OSFR information to

MMS. These forms are referenced throughout the OSFR regulations. You

must submit to MMS only those forms that apply to your OSFR

demonstration. You are not allowed to alter a form in any way.

Author

Ray L. Beittel, Performance and Standards Branch, MMS, prepared

this document.

E.O. 12886

This proposed rule does not meet the criteria for a significant

rule requiring review by the Office of Management and Budget (OMB)

under E.O. 12866.

All of the oil and gas companies currently operating in the OCS,

including those considered to be small businesses, comply with the

existing OSFR regulations (i.e., 33 CFR part 135). MMS does not expect

that these companies will incur any significant operating cost

increases from complying with the proposed rule. Also, of the estimated

20 oil and gas companies operating in State coastal waters that would

be affected by the proposed rule, all but three hold, have applied for,

or have held a Certificate of Financial Responsibility under 30 CFR

part 135. If these three companies use insurance to demonstrate OSFR

under the proposed rule, the estimated annual cost of the insurance is

$35,000 per company, which represents an industry-wide cost of

$105,000.

The proposed rule should not generate any adverse effects on

competition, investment, productivity, innovation, or the ability of

U.S.-based enterprises to compete with foreign-based enterprises in

domestic or export markets. Therefore, OMB review of this proposed

regulation under E.O. 12866 is unnecessary.

Regulatory Flexibility Act

The Small Business Administration defines small business as a

company employing 500 or fewer people. There are many small oil and gas

exploration, production, and transportation businesses operating in the

Federal OCS and in State coastal waters. MMS estimates that

approximately 20 of the oil and gas businesses operating in State

coastal waters are subject to this proposed regulation. We consider 8

of those 20 to be large businesses because they each employ more than

500 people. All but 3 of the 12 small businesses in this group

currently demonstrate or have demonstrated $35 million in OSFR under

current regulation. We expect that under the proposed regulation those

three businesses will be required to demonstrate $10 million in OSFR.

It is reasonable to assume that each company would use insurance as the

means for demonstrating OSFR, and the annual premium for such insurance

will be about $35,000 per company. Thus, the total annual economic

impact on small businesses under this proposed regulation is estimated

to be $105,000.

The amount of oil a company produces is generally proportional to

its size. We do not expect smaller companies to operate any individual

facilities that produce, store, or transport more than 35,000 barrels

of oil per day. If a smaller company undertakes a project with higher

production levels, such as the deep-water ventures in the Gulf of

Mexico, we expect it to do so in partnership with a larger company that

can demonstrate OSFR by qualifying as a self-insurer. We further expect

that the larger company will be selected as the designated applicant

under the proposed regulations and demonstrate OSFR on behalf of the

smaller partner. Therefore, we do not expect that implementing the

proposed regulations will require small businesses to demonstrate OSFR

for amounts greater than $35 million.

MMS expects the proposed regulations will have no adverse effect on

oil company service industries, such as the supply vessel and service

vessel industries. The persons responsible for such vessels already

comply with separate OSFR requirements under 33 CFR part 135.

Paperwork Reduction Act

This proposed rule contains a collection of information which has

been submitted to OMB for review and approval under section 3507(d) of

the Paperwork Reduction Act of 1995. As part of our continuing effort

to reduce paperwork and respondent burden, MMS invites the public and

other Federal agencies to comment on any aspect of the reporting

burden. Submit your comments to the Office of Information and

Regulatory Affairs, OMB, Attention Desk Officer for the Department of

the Interior (OMB control number 1010-XXXX), 725 17th Street, NW.,

Washington, DC 20503. Send a copy of your comments to the Minerals

Management Service; Attention: Rules Processing Team; Mail Stop 4700;

381 Elden Street; Herndon, Virginia 20170-4817.

You may obtain a copy of the proposed collection of information and

supporting statement by contacting the Bureau's Information Collection

Clearance Officer at (703) 787-1242. The Paperwork Reduction Act of

1995 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.

OMB may make a decision to approve or disapprove this collection of

information after 30 days from receipt of our request. Therefore, your

comments are best assured of being considered if OMB receives them

within that time period. However, MMS will consider all comments

received during the comment period for this notice of proposed

rulemaking.

The title of this collection of information is ``30 CFR Part 253,

Oil Spill Financial Responsibility for Offshore Facilities.'' The

information collected consists of the following, and the estimated

burden for each is shown in parentheses:

Form MMS 1016, Designated Applicant Information

Certification (1 hour)

Form MMS 1017, Designation of Applicant (9 hours)

Form MMS 1018, Self-insurance or Guarantee Information (1

hour)

[[Page 14058]]

Form MMS 1019, Insurance Certificate (120 hours)

Form MMS 1020, Surety Bond (24 hours)

Forms MMS 1021, Lease Listing (3 hours)

Form MMS 1022, Permit or Right of Use and Easement Listing

(3 hours)

Form MMS 1023, Lease Changes (1 hour)

Form MMS 1024, Permit or Right of Use and Easement Changes

(1 hour)

Letter requesting a determination of applicability of the

regulation (2 hours)

Proposal to accept an alternative method to demonstrate

OSFR (no burden--we anticipate no requests but have provided the option

in the rule)

Written notice to MMS of change in ability to comply (1

hour)

Claims (no burden-MMS will not be involved in the claims

process; the regulations only provide procedures for claimants to

follow; MMS will not be advised of claims activity, and we will have no

way of estimating the numbers).

MMS will use the information to verify compliance with OPA, to

confirm that applicants possess the required amounts of OSFR for a

potential worst case oil spill discharge of more than 1,000 barrels (or

a lesser amount if MMS determines the risk justifies it), and to

establish a reference source of names, addresses, and telephone numbers

of parties responsible for COF's and their designated agents and

guarantors for claims associated with oil pollution.

Respondents will be approximately 600 holders of leases, permits,

and RUE's in the OCS and in State coastal waters who appoint

approximately 200 designated applicants. Other respondents will be the

designated applicants' insurance agents and brokers, bonding companies,

and indemnitors. MMS receives approximately 2,631 responses each year.

The frequency of submission will vary, but most will respond at least

once per year. We estimate the total annual burden of this collection

of information to be 20,381 reporting hours and zero recordkeeping

hours. Based on $35 per hour, the total burden hour cost to respondents

is estimated to be $713,335. The public reporting burden for this

information will vary by form and collection (as shown above). The

burden per response is averaged to be 8 hours, including the time for

reviewing instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

information collection.

In addition to the hour burden, some respondents will bear the cost

of demonstrating OSFR. The amount of OSFR currently required in the OCS

under the OCSLA is $35 million, the same as the minimum level of OSFR

required in the OCS under OPA. The estimated annual cost to OCS

operators of providing evidence of OSFR for that amount is $21.6

million. This cost is already borne by all operators in the OCS under

the OCSLA provisions. No additional costs to OCS operators are

attributable to the proposed rule. New annual costs of approximately

$850,000 will be imposed on persons operating in State coastal waters.

There is currently no Federal requirement for demonstrating OSFR in

State coastal waters, and the entire $850,000 is a new cost imposed by

the proposed rule. Therefore, MMS estimates the total annual cost for

OSFR demonstrations to be $22.5 million.

MMS will summarize written responses to this notice and address

them in the final rule. All comments will become a matter of public

record.

1. MMS specifically solicits comments on the following questions:

(a) Is the proposed collection of information necessary for the

proper performance of MMS's functions, and will it be useful?

(b) Are the estimates of the burden hours of the proposed

collection reasonable?

(c) Do you have any suggestions that enhance the quality, clarity,

or usefulness of the information to be collected?

(d) Is there a way to minimize the information collection burden on

those who are to respond, including through the use of appropriate

automated electronic, mechanical, or other forms of information

technology?

2. In addition, the Paperwork Reduction Act of 1995 requires

agencies to estimate the total annual cost burden to respondents or

recordkeepers resulting from the collection of information. MMS needs

your comments on this item. Your response should split the cost

estimate into two components: (a) Total capital and startup cost and

(b) annual operation, maintenance, and purchase of services. Your

estimates should consider the costs 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. Capital and startup

costs include, among other items, computers and software you purchase

to prepare for collecting information; monitoring, sampling, drilling,

and testing equipment; and record storage facilities. Generally, your

estimates should not include equipment or services purchased: before

October 1, 1995; to comply with requirements not associated with the

information collection; for reasons other than to provide information

or keep records for the Government; or as part of customary and usual

business or private practices.

Takings Implication Assessment

DOI has determined that this proposed rule does not represent a

governmental action capable of interfering with constitutionally

protected property rights. Thus, DOI does not need to prepare a Takings

Implication Assessment under E.O. 12630, Governmental Actions and

Interference with Constitutionally Protected Property Rights.

E.O. 12988

DOI has certified to OMB that the proposed rule meets the

applicable reform standards provided in section 3(a) and 3(b)(2) of

E.O. 12988.

Unfunded Mandates Reform Act of 1995

DOI has determined and certifies under the Unfunded Mandates Reform

Act, 2 U.S.C. 1502 et seq., that this rule will not impose a cost of

$100 million or more in any given year on State, local, and tribal

governments or the private sector.

National Environmental Policy Act

DOI has determined that this action does not constitute a major

Federal action significantly affecting the quality of the human

environment; therefore, an environmental impact statement is not

required.

List of Subjects in 30 CFR Part 253

Continental shelf, Environmental protection, Insurance, Oil and gas

exploration, Oil pollution, Penalties, Pipelines, Public lands--mineral

resources, Public lands--rights-of-way, Reporting and recordkeeping

requirements, and Surety bonds.

Dated: March 13, 1997.

Bob Armstrong,

Assistant Secretary, Land and Minerals Management.

For the reasons stated above, MMS proposes to add a new part 253 to

Chapter II of Title 30 of the CFR as follows:

[[Page 14059]]

PART 253--OIL SPILL FINANCIAL RESPONSIBILITY FOR OFFSHORE

FACILITIES

Subpart A--General

Sec.

253.1 What is the purpose of this regulation?

253.3 How are the terms used in this regulation defined?

253.5 What is the authority for collecting Oil Spill Financial

Responsibility (OSFR) information?

Subpart B--Applicability And Amount of OSFR

253.10 What facilities does this regulation cover?

253.11 Who must demonstrate OSFR?

253.12 Who determines whether I must demonstrate OSFR?

253.13 How much OSFR must I demonstrate?

253.14 How do I determine the worst case oil-spill discharge

volume?

253.15 What are my general OSFR compliance responsibilities?

Subpart C--Methods for Evidencing OSFR

253.20 What are the methods for evidencing OSFR?

253.21 How can I use self-insurance as OSFR evidence?

253.22 How do I establish the amount of self-insurance allowed as

OSFR evidence?

253.23 What information must I submit to support my net worth

qualifications?

253.24 When I submit audited financial statements in connection

with my net worth, what standards must they meet?

253.25 What financial test procedures must I use to evaluate the

amount of self-insurance allowed as OSFR evidence based on net

worth?

253.26 What information must I submit to support my net assets

qualifications?

253.27 When I submit audited financial statements in connection

with my net assets, what standards must they meet?

253.28 What financial test procedures must I use to evaluate the

amount of self-insurance allowed as OSFR evidence based on net

assets?

253.29 How can I use insurance as OSFR evidence?

253.30 How can I use a guarantee as OSFR evidence?

253.31 How can I use a surety bond as OSFR evidence?

253.32 Are there alternative methods to demonstrate OSFR?

Subpart D--Requirements for Submitting OSFR Information

253.40 What OSFR evidence must I submit to MMS?

253.41 What terms must I include in my OSFR evidence?

253.42 How can I amend my OSFR demonstration?

253.43 When is my OSFR demonstration effective?

253.44 When must I comply with this regulation?

253.45 To whom do I submit my OSFR evidence?

Subpart E--Revocation and Penalties

253.50 How can my OSFR evidence be refused or invalidated?

253.51 What are the penalties for not complying with this part?

Subpart F--Claims for Oil-Spill Removal Costs and Damages

253.60 How must a claim be presented?

253.61 When is a guarantor subject to direct action for claims?

253.62 What are the designated applicant's obligations regarding a

claim?

Appendix--Forms for Submitting OSFR Information

Authority: 33 U.S.C. 2701 et seq.

Subpart A--General

Sec. 253.1 What is the purpose of this regulation?

This part establishes the requirements for demonstrating OSFR for

covered offshore facilities under Title I of the Oil Pollution Act of

1990 (OPA), as amended, 33 U.S.C. 2701 et seq.

Sec. 253.3 How are the terms used in this regulation defined?

Claim means a request, made in writing for a sum certain, for

compensation for damages or removal costs resulting from an incident.

Claimant means any person or government who presents a claim for

compensation under OPA.

Covered offshore facility (COF) means a facility:

(1) Including any structure, group of structures (including wells),

mobile offshore drilling unit, equipment, pipeline, or device (other

than a vessel or other than a pipeline or deep water port licensed

under the Deepwater Port Act of 1974 (33 U.S.C. 1501 et seq.)) used for

exploring for, drilling for, or producing oil (including storing,

handling, transferring, or processing oil associated with such

production activities) or used for transporting oil from such

facilities. This includes a well drilled by a MODU, but it does not

include the MODU;

(2) That is located in the area along the coast that is affected by

the tides and is submerged when free from disturbing influences or in

the area offshore therefrom; and

(3) That has a worst case oil-spill discharge potential of more

than 1,000 barrels of oil, or that has a worst case oil-spill discharge

potential of less than 1,000 barrels of oil if MMS determines in

writing that OSFR must be demonstrated for the facility.

Designated applicant means a person designated by the responsible

parties to demonstrate OSFR for COF's on a lease, permit, or right of

use and easement.

Director means the Director of the Minerals Management Service.

Fund means the Oil Spill Liability Trust Fund established by

section 9509 of the Internal Revenue Service Code of 1986 (26 U.S.C.

9509).

Guarantee means an agreement to indemnify a designated applicant

upon its satisfaction of a claim.

Guarantor means a person other than the designated applicant who

provides a guaranty.

Guaranty means any acceptable form of OSFR evidence provided by a

guarantor including a guarantee, insurance, or surety bond.

Incident means any occurrence or series of occurrences having the

same origin resulting in the discharge or substantial threat of

discharge of oil.

Indemnitor means a person providing a guarantee for a designated

applicant using self-insurance.

Independent accountant means a certified public accountant who is

certified by one of the States or a chartered accountant certified by

the country of incorporation.

Insolvent has the meaning set forth in 11 U.S.C. 101 and generally

refers to a financial condition in which the sum of a person's debts is

greater than the value of the person's property.

Lease means any form of authorization issued under the Outer

Continental Shelf Lands Act or State law which allows oil and gas

exploration or production in the area covered by the authorization.

Lessee means a person holding a leasehold interest in an oil or gas

lease including an owner of record title or a holder of operating

rights (working interest owner).

Oil means oil of any kind or in any form, including but not limited

to, petroleum, fuel oil, sludge, oil refuse, and oil mixed with wastes

other than dredged spoil but does not include petroleum, including

crude oil or any fraction thereof, which is specifically listed or

designated as a hazardous substance under subparagraphs (A) through (F)

of section 101(14) of the Comprehensive Environmental Response,

Compensation, and Liability Act (CERCLA) (42 U.S.C. 9601) and which is

subject to the provisions of CERCLA. Oil includes hydrocarbons produced

at the wellhead in liquid form. Condensate is oil, including condensate

that has been separated from gas before pipeline injection.

Outer Continental Shelf (OCS) means the term ``Outer Continental

Shelf'' as defined in section 2(a) of the OCS Lands Act (OCSLA) (43

U.S.C. 1331(a)).

[[Page 14060]]

Permit means an authorization, license, or permit for geological

exploration issued under section 11 of the OCSLA (43 U.S.C. 1340) or

applicable State law.

Person means an individual, corporation, partnership, association,

State, municipality, commission, or political subdivision of a State or

any interstate body.

Pipeline means all the pipeline segments and any associated

equipment and appurtenances used or intended for use in the

transportation of oil or natural gas. A pipeline segment is any portion

of a pipeline connecting two COF's, any COF to shore, a COF and a

subsea tie-in, or two subsea tie-ins.

Responsible party means for a COF:

(1) Other than a pipeline, the lessee or permittee of the area in

which the COF is located, or the holder of a right of use and easement

granted under applicable State law or the OCSLA (43 U.S.C. 1301-1356)

for the area in which the COF is located (if the holder is a different

person than the lessee or permittee). A responsible party is not a

Federal agency, State, municipality, commission, or political

subdivision of a State, or any interstate body that as owner transfers

possession and right to use the property to another person by lease,

assignment, or permit;

(2) That is a pipeline, any person owning or operating the

pipeline; and

(3) That is abandoned, the persons who would have been the

responsible parties for the COF immediately prior to abandonment.

Right of use and easement (RUE) means any authorization other than

a lease or permit to use the OCS or State land seaward of the line of

ordinary low water along the coast. It includes pipeline rights-of-way.

State means the several States of the United States, the District

of Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the

United States Virgin Islands, the Commonwealth of the Northern

Marianas, and any other territory or possession of the United States.

Sec. 253.5 What is the authority for collecting Oil Spill Financial

Responsibility (OSFR) information?

(a) The Office of Management and Budget (OMB) has approved the

information collection requirements in this part 253 under 44 U.S.C.

3501 et seq. and assigned OMB control number 1010-XXXX.

(b) MMS collects the information to ensure that a party responsible

for a COF has the financial resources necessary to pay for cleanup and

damages that could be caused by oil discharges from the COF. MMS uses

the information to ensure compliance of offshore lessees, owners, and

operators of offshore facilities with OPA; to establish eligibility of

designated applicants for OSFR certification; and to establish a

reference source of names, addresses, and telephone numbers of

responsible parties for offshore facilities and their designated agents

and guarantors for claims associated with oil pollution from designated

offshore facilities. The requirement to provide the information is

mandatory. No confidential or proprietary information must be

submitted. All information collected will be treated according to the

requirements of the Freedom of Information Act (5 U.S.C. 552).

(c) 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.

(d) Send comments regarding any aspect of the collection of

information under this part, including suggestions for reducing the

burden, to the Information Collection Clearance Officer, Minerals

Management Service, Mail Stop 2200, 381 Elden Street, Herndon, Virginia

20170-4817; and to the Office of Information and Regulatory Affairs,

Office of Management and Budget, Attention: Desk Officer for the

Department of the Interior (1010-XXXX), 725 17th Street NW.,

Washington, DC 20503.

Subpart B--Applicability and Amount of OSFR

Sec. 253.10 What facilities does this regulation cover?

(a) This part applies to any COF on any lease or permit issued or

on any RUE granted under the OCSLA or applicable State law.

(b) For a pipeline flowing landward across the line of ordinary low

water, this part applies seaward of the point the pipeline reaches the

first accessible flow shutoff device landward of the line of ordinary

low water.

Sec. 253.11 Who must demonstrate OSFR?

(a) A designated applicant must show OSFR. A designated applicant

may be a responsible party or another person authorized under this

section. Every lease, permit, or RUE with a COF must have a single

designated applicant.

(1) If there is more than one responsible party, those responsible

parties must use Form MMS 1017 to select a designated applicant. The

designated applicant must submit Form MMS 1016 and agree to demonstrate

OSFR on behalf of all the responsible parties.

(2) If you are a designated applicant who is not a responsible

party, you must agree to be liable for claims under OPA jointly and

severally with the responsible parties.

(b) If the land within a lease with a COF includes a permit or RUE

with a COF, there must be a designated applicant for:

(1) The lease;

(2) Each permit with a COF; and

(3) Each RUE with a COF.

(c) The designated applicant for a lease with a COF must be either:

(1) A lessee; or

(2) The designated operator for the OCS lease under 30 CFR 250.8;

the unit operator designated under a federally approved unit including

the OCS lease. For a lease or unit not in the OCS, the operator

designated under the lease or unit operating agreement for the lease

may be the designated applicant only if the operating agreement

provides that the operator is responsible for compliance with all the

laws and regulations applicable to the lease or unit.

(d) The designated applicant for a permit with a COF must be the

permittee.

(e) The designated applicant for a RUE with a COF must be the

holder of the RUE or, if there is a pipeline on the RUE, the owner or

operator of the pipeline.

(f) MMS may require the designated applicant for a lease, permit,

or RUE to be a person other than a person identified in paragraphs (c)

through (e) of this section if MMS determines there is inadequate

demonstration of OSFR.

Sec. 253.12 Who determines whether I must demonstrate OSFR?

You may ask MMS whether this part applies to you. You must submit a

request for a determination of OSFR applicability according to

Sec. 253.45. You must include in your request any information that will

assist MMS in making the determination. MMS may require you to submit

other information before making a determination of OSFR applicability.

Sec. 253.13 How much OSFR must I demonstrate?

(a) The following general parameters apply to the amount of OSFR

that you must demonstrate:

[[Page 14061]]

------------------------------------------------------------------------

If you are the designated applicant for then you must demonstrate . . .

------------------------------------------------------------------------

A lease, permit, or RUE with only one The amount of OSFR that applies

COF. to the COF.

A lease, permit, or RUE with more than The highest amount of OSFR that

one COF. applies to any of the COF's.

More than one lease, permit, or RUE The highest amount of OSFR that

with one or more COF's. applies to any of the COF's on

any of the leases, permits, or

RUE's.

Leases, permits, and RUE's located in The highest amount of OSFR that

both OCS and State lands with one or applies to any of the COF's

more COF's. located on the leases,

permits, or RUE's.

------------------------------------------------------------------------

(b) The amount of OSFR applicable to a lease, permit, or RUE is as

follows:

(1) For a COF located wholly or partially in the OCS:

------------------------------------------------------------------------

Applicable

COF worst case oil-spill discharge volume amount of OSFR

------------------------------------------------------------------------

Up to 35,000 barrels.................................... $35,000,000

Over 35,000 but not more than 70,000 barrels............ 70,000,000

Over 70,000 but not more than 105,000 barrels........... 105,000,000

Over 105,000 barrels.................................... 150,000,000

------------------------------------------------------------------------

(2) For a COF not located in the OCS:

------------------------------------------------------------------------

Applicable

COF worst case oil-spill discharge volume amount of OSFR

------------------------------------------------------------------------

Up to 10,000 barrels.................................... $10,000,000

Over 10,000 but not more than 35,000 barrels............ 35,000,000

Over 35,000 but not more than 70,000 barrels............ 70,000,000

Over 70,000 but not more than 105,000 barrels........... 105,000,000

Over 105,000 barrels.................................... 150,000,000

------------------------------------------------------------------------

(3) The Director may determine that you must demonstrate an amount

of OSFR greater than the amount in paragraph (b)(1) and (2) of this

section based on the relative operational, environmental, human health,

and other risks your COF poses. The amount that the Director may

require will be one or more levels higher than the amount indicated in

paragraph (b)(1) or (2) of this section for your COF. The Director will

not require an OSFR demonstration that exceeds $150 million.

Sec. 253.14 How do I determine the worst case oil-spill discharge

volume?

(a) To calculate the amount of OSFR you must demonstrate for a

facility under Sec. 253.13(b), you must use the worst case oil-spill

discharge volume that you determined under whichever of the following

regulations applies:

(1) 30 CFR part 254-Response Plans for Facilities Located Seaward

of the Coast Line;

(2) 40 CFR part 112-Oil Pollution Prevention; or

(3) 49 CFR part 194-Response Plans for Onshore Oil Pipelines.

(b) If you are a designated applicant and you choose to demonstrate

$150 million in OSFR, you are not required to determine any worst case

oil-spill discharge volumes, since that is the maximum amount of OSFR

required by this part.

Sec. 253.15 What are my general OSFR compliance responsibilities?

(a) You must maintain continuous OSFR coverage for all your leases,

permits, and RUE's with COF's.

(b) You must ensure that new OSFR evidence is bound before your

current evidence lapses or is canceled and that coverage for a new COF

is bound before the COF goes into operation.

(c) You may use self-insurance to demonstrate OSFR and find that

you no longer qualify for that amount of self-insurance, based upon

your latest audited financial statements. If this happens, you must

demonstrate supplemental means of OSFR acceptable to MMS by whichever

of the following dates comes first:

(1) Sixty calendar days after you receive your latest financial

statement; or

(2) The first calendar day of the 5th month after the close of your

fiscal year.

(d) You must notify MMS in writing within 15 calendar days after a

change occurs (e.g., you or your indemnitor petitions for bankruptcy

under Title 11, U.S.C.) that would prevent you or your guarantors from

complying with requirements to accept direct action for claims or

meeting any other OSFR obligations. You must take any action MMS

directs to ensure an acceptable OSFR demonstration.

(e) If you deny payment of a claim presented to you under

Sec. 253.60(b) or (d), you must give the claimant a written explanation

for your denial.

Subpart C--Methods for evidencing OSFR

Sec. 253.20 What are the methods for evidencing OSFR?

You may satisfy your OSFR requirements by using one or a

combination of the following methods to demonstrate OSFR:

(a) Self-insurance under Secs. 253.21 through 253.28;

(b) Insurance under Sec. 253.29;

(c) A guarantee under Sec. 253.30;

(d) A surety bond under Sec. 253.31; or

(e) An alternative method the Director approves under Sec. 253.32.

Sec. 253.21 How can I use self-insurance as OSFR evidence?

(a) If you use self-insurance to satisfy all or part of your

obligation to demonstrate OSFR, you must annually pass either a net

worth test or an unencumbered net asset test.

[[Page 14062]]

(b) You must submit a complete and unaltered Form MMS 1018 with

each application to demonstrate OSFR using self-insurance.

(c) You may submit to MMS your initial application to demonstrate

OSFR using self-insurance at any time.

(d) You must submit your application to renew OSFR using self-

insurance by the first calendar day of the 5th month after the close of

your fiscal year.

Sec. 253.22 How do I establish the amount of self-insurance allowed as

OSFR evidence?

To establish the amount of self-insurance allowed, you must submit

evidence of your net worth (see Sec. 253.23) or your unencumbered

assets (see Sec. 253.26).

Sec. 253.23 What information must I submit to support my net worth

qualifications?

You must support your net worth qualifications with information

contained in your previous fiscal year's audited financial statements.

(a) Audited financial statements must be in the form of:

(1) An annual report, prepared in accordance with the generally

accepted accounting practices of the United States or other

international accounting practices determined to be equivalent by MMS;

or

(2) A Form 10-K, prepared in accordance with Securities and

Exchange Commission regulations.

(b) Audited financial statements must be submitted together with a

letter signed by your treasurer highlighting:

(1) The State or the country of incorporation;

(2) The total value of the stockholders' equity as shown on the

balance sheet;

(3) The net value of the plant, property, and equipment shown on

the balance sheet; and

(4) The net value of the identifiable U.S. assets and the

identifiable total assets in the auditor's notes to the financial

statements (i.e., a geographic segmented business note).

Sec. 253.24 When I submit audited financial statements in connection

with my net worth, what standards must they meet?

(a) Your audited financial statements must be bound.

(b) Your audited financial statements must include the unqualified

opinion by an independent accountant that:

(1) The financial statements are free from material misstatement,

and

(2) The audit was conducted in accordance with the generally

accepted auditing standards of the United States or other international

auditing standards MMS determines to be equivalent.

(c) The financial information you submit must be expressed in U.S.

dollars. If this information was originally reported in another form of

currency, you must provide a conversion factor to U.S. dollars that was

effective on the last day of the fiscal year pertinent to your

financial statements. You also must identify the market source of the

currency exchange rate.

Sec. 253.25 What financial test procedures must I use to evaluate the

amount of self-insurance allowed as OSFR evidence based on net worth?

(a) Divide the total value of the stockholder's/owners' equity

listed on the balance sheet by 10.

(b) Divide the net value of the identifiable U.S. assets by the net

value of the identifiable total assets.

(c) Multiply the net value of plant, property, and equipment shown

on the balance sheet by the number calculated under paragraph (b) of

this section and divide the resultant product by 10.

(d) The smaller of the numbers calculated under paragraphs (a) or

(c) of this section is the maximum allowable amount you may use to

demonstrate OSFR under this method.

Sec. 253.26 What information must I submit to support my net assets

qualifications?

You must support your net assets qualifications with the

information required by Sec. 253.23(a) and a list of pledged,

unencumbered, and unimpaired U.S. assets whose value will not be

affected by an oil discharge from a COF. The assets must be plant,

property, or equipment. You must submit a letter signed by you or your

treasurer:

(a) Identifying which assets are pledged;

(b) Certifying that the assets are unencumbered, including

contingent encumbrances;

(c) Promising that the identified assets will not be sold,

subjected to a security interest, or otherwise encumbered throughout

the specified fiscal year; and

(d) Specifying:

(1) The State of the country of incorporation;

(2) The total value of the stockholder's/owners' equity;

(3) The identification and location of the pledged U.S. assets; and

(4) The value of the pledged U.S. assets using the same valuation

method used in your audited financial statements.

Sec. 253.27 When I submit audited financial statements in connection

with my net assets, what standards must they meet?

Any audited financial statements that you submit must:

(a) Meet the standards in Sec. 253.24; and

(b) Include a certification by the independent accountant who

audited the financial statements that:

(1) The value of the unencumbered assets is reasonable and

(2) There are no encumbrances on the asset.

Sec. 253.28 What financial test procedures must I use to evaluate the

amount of self-insurance allowed as OSFR evidence based on net assets?

(a) Divide the total value of the stockholders'/owners' equity

listed on the balance sheet by 4.

(b) Divide the value of the unencumbered U.S. assets by 2.

(c) The smaller number calculated under paragraphs (a) or (b) of

this section is the maximum allowable amount you may use to demonstrate

OSFR under this method.

Sec. 253.29 How can I use insurance as OSFR evidence?

(a) If you use insurance to satisfy all or part of your obligation

to demonstrate OSFR, you may use only insurance certificates issued by

insurers that are:

(1) Syndicates of Lloyds of London;

(2) Members of the Institute of London Underwriters; or

(3) Other foreign or domestic insurers that have achieved a

``Secure'' rating of claims paying ability in their latest review by

A.M. Best's Insurance Reports, Standard & Poor's Insurance Rating

Services, or other equivalent rating made by a rating service

acceptable to MMS.

(b) You must submit information about your insurers to MMS on a

completed and unaltered Form MMS 1019. The information you submit must:

(1) Include all the information required by Sec. 253.41 of this

part; and

(2) Be executed on one original insurance certificate showing all

participating insurers and their respective percentage of participation

in this risk. The certificate must bear the original signatures of each

insurer's underwriter or of their lead underwriters, underwriting

managers, or delegated brokers, depending on the underwriting

arrangement.

(3) For each insurance company on the insurance certificate,

indicate the insurer's rating of claims paying ability and the rating

service that issued the rating.

(c) The insurance you provide to MMS as OSFR evidence may be

divided into layers, subject to the following restrictions:

(1) The total amount of insurance must equal the total amount of

OSFR you must demonstrate as determined under Sec. 253.13 of this part;

[[Page 14063]]

(2) No more than four insurance layers may be used, including the

base layer;

(3) If the total amount of insurance is $35 million or less, it

must not be layered. Insurance for greater amounts may be layered in

multiples of $35 million. If the amount of insurance is $150 million,

one $45 million layer is allowed;

(4) Each insurer's participation in the covered insurance risk must

be expressed as a percentage of a whole layer with no intermediate,

horizontal layering permitted;

(5) You may use an insurance deductible. If your insurance is

layered, the deductible amount must apply only to the base layer. You

must use one or more of the other MMS-approved OSFR methods to

establish an insurance deductible; and

(6) Each insurance layer submitted as OSFR evidence must be

presented on a separate Form MMS 1019.

Sec. 253.30 How can I use a guarantee as OSFR evidence?

(a) You may use only one guarantee issued by only one indemnitor to

satisfy all or part of your obligation to demonstrate OSFR.

(b) Your indemnitor must complete an unaltered Form MMS 1018 and

provide a guarantee that:

(1) Includes all the information required by Sec. 253.41 of this

part; and

(2) Does not exceed the amounts calculated using the net worth and

net assets tests specified under Secs. 253.21 through 253.28 of this

part.

(c) You may submit to MMS your initial application to demonstrate

OSFR using a guarantee at any time. You must submit your application to

renew OSFR using a guarantee by the first calendar day of the 5th month

after the close of your indemnitor's fiscal year.

Sec. 253.31 How can I use a surety bond as OSFR evidence?

(a) Each bonding company that issues a surety bond that you submit

to MMS as OSFR evidence must:

(1) Be licensed to do business in the State in which the surety

bond is executed;

(2) Be certified by the U.S. Treasury Department as an acceptable

surety for Federal obligations and listed in the current Treasury

Circular No. 570; and

(3) Provide the surety bond on Form MMS 1020 without alteration

specifying the terms of your surety agreement for claims filed against

you under OPA; and

(4) Be in compliance with applicable statutes regulating surety

company participation in insurance-type risks.

(b) A surety bond that you submit as OSFR evidence must include all

the information required by Sec. 253.41 of this part.

Sec. 253.32 Are there alternative methods to demonstrate OSFR?

The Director may accept other methods to demonstrate OSFR that

provide equivalent assurance of timely satisfaction of claims. This may

include pools of guarantors, letters of credit, or other comparable

methods. Submit your proposal, together with all the supporting

documents, to the Director at the address in Sec. 253.45. The

Director's decision whether to approve your alternative method to

evidence OSFR is solely at the Director's discretion and is not subject

to administrative appeal under 30 CFR part 290 or 43 CFR part 4.

Subpart D--Requirements for Submitting OSFR Information

Sec. 253.40 What OSFR evidence must I submit to MMS?

(a) You must submit to MMS:

(1) A single demonstration of OSFR that covers all the COF's on all

the leases, permits, and RUE's for which you are the designated

applicant;

(2) A completed and unaltered Form MMS 1016;

(3) MMS forms that identify your leases (MMS 1021), permits (MMS

1022), and RUE's (MMS 1022), and the methods you used to demonstrate

OSFR for any COF's (forms are available from the address in

Sec. 253.45); and

(4) Any insurance certificates, guarantees, and surety bonds used

as OSFR evidence for the leases, permits, and RUE's for which you are

the designated applicant.

(b) You must sign each MMS form submitted to MMS as part of an OSFR

demonstration. You also must attach to Form MMS 1016 evidence of your

authority to sign if:

(1) You submit OSFR evidence on behalf of a designated applicant;

and

(2) You are not disclosed as an individual (sole proprietor),

designated applicant, or a managing partner of a partnership-designated

applicant.

Sec. 253.41 What terms must I include in my OSFR evidence?

Each instrument you submit as OSFR evidence must specify:

(a) The effective date, and except for a surety bond, the

expiration date;

(b) That termination of the instrument will not affect the

liability of the instrument issuer for claims arising from an incident

that occurred on or before the effective date of termination;

(c) That the instrument will remain in force until the termination

date or until:

(1) Thirty calendar days after MMS and the designated applicant

receive from the instrument issuer a notification of intent to cancel;

(2) MMS receives from the designated applicant other acceptable

OSFR evidence; or

(3) All the COF's to which the instrument applies are permanently

abandoned in compliance with 30 CFR part 250 or equivalent State

requirements;

(d) That the instrument issuer agrees to direct action for claims

made under OPA up to the guaranty amount, subject to the defenses in

paragraph (f) of this section and following the procedures in

Sec. 253.60 of this part;

(e) An agent in the United States for service of process; and

(f) That the instrument issuer will not use any defenses against a

claim made under OPA except:

(1) All the rights and defenses that would be available to a

designated applicant or responsible party for whom the guaranty was

provided; and

(2) The incident leading to the claim for removal costs or damages

was caused by willful misconduct of a responsible party for whom the

designated applicant demonstrated OSFR.

Sec. 253.42 How can I amend my OSFR demonstration?

(a) If you want to add lease, permit, or RUE areas not included in

your initial OSFR demonstration, you must submit to MMS a completed

Form MMS 1023 or Form MMS 1024. If applicable, you also must submit any

additional guarantees, surety bonds, insurance certificates, or other

instruments required to extend the coverage of your original OSFR

demonstration to the COF's on the areas to be added. You do not need to

resubmit previously accepted audited financial statements for the

current fiscal year. You must ensure that MMS receives this information

at least 30 days before the areas are to be added.

(b) If you want to drop lease, permit, or RUE areas included in

your initial OSFR demonstration, you must submit to MMS a completed

Form MMS 1023 or Form MMS 1024. You must ensure that MMS receives this

information at least 30 days before the leases, permits, or RUE's are

to be dropped.

Sec. 253.43 When is my OSFR demonstration effective?

(a) MMS will notify you in writing after we determine whether your

evidence is acceptable to demonstrate OSFR, and your demonstration is

effective upon MMS acceptance. If we

[[Page 14064]]

find that you have not submitted all the information needed to

demonstrate OSFR, we may require you to provide additional information

before we determine whether your OSFR evidence is acceptable.

(b) Except in the case of self-insurance or guarantee, MMS

acceptance of OSFR evidence is valid until the surety bond, insurance

certificate, or other accepted OSFR instrument expires. In the case of

self-insurance or guarantee, acceptance is valid until the first day of

the 5th month after the close of your or your indemnitor's current

fiscal year.

Sec. 253.44 When must I comply with this regulation?

You must submit to MMS your evidence of OSFR for all the COF's on

all the leases, permits, and RUE's for which you are the designated

applicant no later than 60 days after May 21, 1997.

Sec. 253.45 To whom do I submit my OSFR evidence?

All correspondence and required submissions relative to this part

must be addressed to: U.S. Department of the Interior, Minerals

Management Service, Gulf of Mexico Region, Oil Spill Financial

Responsibility Program, 1201 Elmwood Park Boulevard, New Orleans,

Louisiana 70123.

Subpart E--Revocation and Penalties

Sec. 253.50 How can my OSFR evidence be refused or invalidated?

(a) If MMS determines that any OSFR evidence you submit fails to

comply with the requirements of this part, we may refuse to accept it.

If we refuse to accept your OSFR evidence, we will notify you in

writing. You must take any corrective action included with that

notification.

(b) MMS may immediately and without prior notice invalidate your

OSFR demonstration if you:

(1) Are no longer the designated applicant for the COF included in

your demonstration; or

(2) Permit the cancellation or termination of the insurance policy,

surety bond, or guarantee upon which the continued validity of the

demonstration is based.

(c) If MMS determines you are not complying with the requirements

of this part for any reason other than paragraph (b) of this section,

we may notify you of our intent to invalidate your OSFR demonstration.

Unless you take the corrective action MMS specifies within 15 calendar

days from the date you receive such a notice, we will invalidate your

OSFR demonstration.

Sec. 253.51 What are the penalties for not complying with this part?

(a) If you fail to comply with the requirements of OPA and this

part, you are subject to a civil penalty of up to $25,000 per COF per

day of violation (that is, each day you operate a COF without

acceptable evidence of OSFR). For any COF with more than one

responsible party, each responsible party is subject to a civil penalty

of up to $25,000 per COF per day of violation.

(b) MMS will determine the date of a noncompliance. MMS will assess

penalties in accordance with an OSFR penalty schedule using the

procedures found at 30 CFR part 250, subpart N. You may obtain a copy

of the penalty schedule from MMS at the address in Sec. 253.45 of this

part.

(c) MMS may assess a civil penalty against you that is greater or

less than the amount in the penalty schedule after taking into account

the factors in section 4303(a) of OPA (33 U.S.C. 2716a).

(d) If you fail to correct a deficiency in the OSFR evidence for a

COF, the Director may suspend operation of a COF in the OCS under 30

CFR 250.10 or seek judicial relief, including an order suspending the

operation of any COF.

Subpart F--Claims for Oil Spill Removal Costs and Damages

Sec. 253.60 How must a claim be presented?

(a) You must present your claim for removal costs and damages first

to the designated applicant for the COF that is the source of the

incident resulting in your claim.

(b) If the designated applicant denies your claim under paragraph

(a) of this section for a reason in Sec. 253.61(b), you may elect to

present your claim to:

(1) The designated applicant's guarantor if there is a guarantor;

(2) The Fund using the procedures at 33 CFR part 136; or

(3) Any of the responsible parties for the COF that is the source

of the incident resulting in your claim.

(c) If the designated applicant fails to pay your claim under

paragraph (a) of this section for a reason in Sec. 253.61(b), you may

elect to present your claim to:

(1) The designated applicant's guarantor if there is a guarantor;

(2) The Fund using the procedures at 33 CFR part 136 if at least 90

days have passed since you first presented your claim to the designated

applicant; or

(3) Any of the responsible parties for the COF that is the source

of the incident resulting in your claim.

(d) If the designated applicant denies your claim under paragraph

(a) of this section for a reason not in Sec. 253.61(b), you may elect

to:

(1) Start a court action against the designated applicant and/or

any of the parties responsible for the COF that is the source of the

incident resulting in your claim;

(2) Present your claim to the Fund using the procedures found at 33

CFR part 136; or

(3) Any of the responsible parties for the COF that is the source

of the incident resulting in your claim.

(e) If the designated applicant fails to pay your claim under

paragraph (a) of this section within 90 days for a reason not in

Sec. 253.61(b), you may elect to:

(1) Start a court action against the designated applicant and/or

any of the parties responsible for the COF that is the source of the

incident resulting in your claim;

(2) Present your claim to the Fund using the procedures at 33 CFR

part 136; or

(3) Any of the responsible parties for the COF that is the source

of the incident resulting in your claim.

(f) If the guarantor denies your claim under paragraph (b)(1) of

this section, you may elect to:

(1) Start a court action against the guarantor; or

(2) Present your claim to the Fund using the procedures at 33 CFR

part 136.

(g) If the guarantor fails to pay your claim under paragraph (c)(1)

of this section within 90 days after it was first presented to the

designated applicant, you may elect to:

(1) Start a court action against the guarantor; or

(2) Present your claim to the Fund using the procedures at 33 CFR

part 136.

(h) You may ask MMS for assistance if you are uncertain whether the

guarantor is subject to your claim under paragraphs (b)(1) or (c)(1) of

this section. Submit your request for assistance to the address in

Sec. 253.45. You must include with your request any information that

will assist MMS in determining whether you may present your claim to

the guarantor.

Sec. 253.61 When is a guarantor subject to direct action for claims?

You are subject to direct action for any claim asserted by:

(a) The United States or for any compensation paid by the Fund

under OPA, including compensation claim processing costs; and

(b) A claimant other than the United States if the designated

applicant has:

(1) Denied or failed to pay a claim because of being insolvent; or

(2) Filed a petition for bankruptcy under Title 11, U.S.C.

[[Page 14065]]

Sec. 253.62 What are the designated applicant's obligations regarding

a claim?

When you receive a claim for removal costs and damages, you must

notify within 15 calendar days of receipt of a claim:

(a) Your guarantor(s); and

(b) The responsible parties for whom you are acting as the

designated applicant.

Appendix--Forms for Submitting OSFR Information

Minerals Management Service Oil Pollution Act of 1990

Application for Certification of Oil Spill Financial Responsibility

OMB Control Number 1010-XXXX

Expiration Date: ________________

Paperwork Reduction Act Statement

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.)

requires us to inform you that the Minerals Management Service (MMS)

collects this information to:

1. Provide a standard method for establishing eligibility for

certification of oil spill financial responsibility (OSFR) for offshore

facilities;

2. Identify and maintain a record of those offshore facilities that

have a potential oil-spill liability;

3. Establish and maintain a continuous record, over the liability

term specified in Title I of the Oil Pollution Act of 1990, of

financial evidence and instruments established to pay claims for oil-

spill cleanup and damages resulting from operations conducted on

offshore facilities and the transportation of oil from offshore

platforms and wells;

4. Establish and maintain a continuous record of responsible

parties, as defined in Title I of the Oil Pollution Act of 1990, and

their agents for certification of OSFR for offshore facilities; and

5. Establish and maintain a continuous record, over the liability

term specified in Title I of the Oil Pollution Act of 1990, of persons

to contact and U.S. agents for service of process for claims associated

with oil spills from offshore facilities.

The MMS will routinely use the information to:

1. Ensure compliance of offshore lessees and owners and operators

of offshore facilities with Title I of the Oil Pollution Act of 1990;

2. Establish eligibility of applicants for certification of OSFR;

and

3. Establish a reference source of names, addresses, and telephone

numbers of responsible parties for offshore facilities and their

designated agents and guarantors for claims associated with oil

pollution from designated offshore facilities.

Response to this request is mandatory (33 U.S.C. 2716). No

confidential or proprietary information must be submitted. OSFR

demonstrations, including supporting audited financial statements, will

be subject to review under the Freedom of Information Act (5 U.S.C.

552).

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 Office of Management and Budget (OMB) Control Number.

The combined public reporting burden for an application for

certification of oil spill financial responsibility is estimated to

average 8 hours per response, including the time for reviewing

instructions, gathering and maintaining data, and completing and

reviewing the application. The average burden for each of the nine

forms that could comprise an application is:

Form MMS 1016, Designated Applicant Information..................1 hour

Form MMS 1017, Designation of Applicant.........................9 hours

Form MMS 1018, Self-insurance or Guarantee Information...........1 hour

Form MMS 1019, Insurance Certificate..........................120 hours

Form MMS 1020, Surety Bond.....................................24 hours

Form MMS 1021, Lease Listing....................................3 hours

Form MMS 1022, Permit or Right of Use and Easement Listing......3 hours

Form MMS 1023, Lease Changes.....................................1 hour

Form MMS 1024, Permit or Right of Use and Easement Changes.......1 hour

Direct comments regarding the burden estimate or any other aspect

of this collection to the Information Collection Clearance Officer,

Mail Stop 2200, Minerals Management Service, 381 Elden Street, Herndon,

VA 20170-4817; and to the Office of Management and Budget, Office of

Information and Regulatory Affairs, Desk Officer for the Department of

the Interior (OMB No. 1010-XXXX), 725 17th Street, NW, Washington, DC

20503.

BILLING CODE 4310-MR-P

[[Page 14066]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.003

[[Page 14067]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.004

[[Page 14068]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.005

[[Page 14069]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.006

[[Page 14070]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.007

[[Page 14071]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.008

[[Page 14072]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.009

[[Page 14073]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.010

[[Page 14074]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.011

[[Page 14075]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.012

[[Page 14076]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.013

[[Page 14077]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.014

[[Page 14078]]

[GRAPHIC] [TIFF OMITTED] TN25MR97.015

[[Page 14079]]

[FR Doc. 97-7270 Filed 3-24-97; 8:45 am]

BILLING CODE 4310-MR-C