§ 556.905 - Third-party guarantees.

§ 556.905 Using a thirdThird-party guarantee instead of a bond.

Cross Reference

Link to an amendment published at 89 FR 31596, Apr. 24, 2024.

guarantees.

(a)When the The Regional Director may accept a third-party guarantee . The Regional Director may accept a third-party guarantee instead of an additional bond under to satisfy a supplemental financial assurance demand made pursuant to § 556.901(d) if:

(1) The guarantee meets the criteria in paragraph (c) of this section;

(2) The guarantee includes the terms specified in paragraph (d) of this section;

(3) The guarantor's total outstanding and proposed guarantees do not exceed 25 percent of its unencumbered net worth in the United States; and

(4) The guarantor submits an indemnity agreement meeting the criteria in paragraph (e

, § 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.

(b) What to do if your guarantor becomes unqualified. If, during the life of your third-party guarantee, your guarantor no longer meets the criteria of paragraphs Notwithstanding § 556.902(a)(3) and (c)(3) of this section, you must:

(1) Notify the Regional Director immediately; and

(2) Cease production until you comply with the bond coverage requirements of this subpart.

(c) Criteria for acceptable guarantees. If you propose to furnish a third party's guarantee, that guarantee must ensure compliance with all lessees' lease obligations, the obligations of all operating rights owners, and the obligations of all operators on the lease. The Regional Director will base acceptance of your third-party guarantee on the following criteria:

(1) The period of time that your third-party guarantor (guarantor) has been in continuous operation as a business entity where:

(i) Continuous operation is the time that your guarantor conducts business immediately before you post the guarantee; and

(ii) Continuous operation excludes periods of interruption in operations that are beyond your guarantor's control and that do not affect your guarantor's likelihood of remaining in business during exploration, development, production, and decommissioning.

(2) Financial information available in the public record or submitted by your guarantor, on your guarantor's own initiative, in sufficient detail to show to the Regional Director's satisfaction that your guarantor is qualified based on:

(i) Your guarantor's current rating for its most recent bond issuance by either Moody's Investor Service or Standard and Poor's Corporation;

(ii) Your guarantor's net worth, taking into account liabilities under its guarantee of compliance with all the terms and conditions of your lease, the regulations in this chapter and 30 CFR chapters II and XII, and your guarantor's other guarantees;

(iii) Your guarantor's ratio of current assets to current liabilities, taking into account liabilities under its guarantee of compliance with all the terms and conditions of your lease, the regulations in this chapter and 30 CFR chapters II and XII, and your guarantor's other guarantees; and

(iv) Your guarantor's unencumbered fixed assets in the United States.

(3) When the information required by paragraph (c) of this section is not publicly available, your guarantor may submit the information in the following table. Your guarantor must update the information annually within 90 days of the end of the fiscal year or by the date prescribed by the Regional Director.

The guarantor should submit	That
(i) Financial statements for the most recently completed fiscal year,	Include a report by an independent certified public accountant containing the accountant's audit opinion or review opinion of the statements. The report must be prepared in conformance with generally accepted accounting principles and contain no adverse opinion.
(ii) Financial statements for completed quarters in the current fiscal year, and	Your guarantor's financial officer certifies to be correct.
(iii) Additional information as requested by the Regional Director.	Your guarantor's financial officer certifies to be correct.

(d) Provisions required in all third-party guarantees.

a third-party guarantor may, as agreed to by BOEM at the time the third-party guarantee is provided, limit its cumulative obligations to a fixed dollar amount or limit its obligations so as to cover the performance of one or more specific lease obligations (with no fixed dollar amount).

(c) If, during the life of your third-party guarantee, your guarantor no longer meets the criterion referred to in paragraph (a)(1) of this section, you must, within 72 hours of so learning:

(1) Notify the Regional Director; and

(2) Submit, and subsequently maintain, a surety bond or other financial assurance covering those obligations previously secured by the third-party guarantee.

(d) Your third-party guarantee must contain each of the following provisions.:

(1) If you , your operator, or an operating rights owner fails fail to comply with the terms of any lease term or or grant covered by the guarantee, or any applicable regulation, your guarantor must either:

(i) Take corrective action to bring the lease or grant into compliance with its terms or any applicable regulation, to the extent covered by the guarantee; or,

(ii) Be liable under the indemnity third-party guarantee agreement to provide, within 7 calendar days, sufficient funds for the Regional Director to complete such corrective action .

(2) If your guarantor complies with paragraph (d)(1) of this section, this compliance will not reduce its liability.

(3

to the extent covered by the guarantee. Such payment does not result in the cancellation of the guarantee, but instead reduces the remaining value of the guarantee in an amount equal to the payment.

(2) If your guarantor wishes to terminate the period of liability under its guarantee, it must:

(i) Notify you and the Regional Director at least 90 calendar days before the proposed termination date;

(ii) Obtain the Regional Director's approval for the termination of the period of liability for all or a specified portion of

your guarantor's

the guarantee; and

(iii) Remain liable for all liabilities that accrued or began accruing prior to the termination and responsible for all work and workmanship performed during the period

that your guarantor's guarantee is in effect

of liability.

(

4) You must provide a suitable replacement security instrument before

3) Before the termination of the period of liability

under your

of the third-party guarantee, you must provide acceptable replacement financial assurance.

(e) Required criteria for indemnity agreements. If the Regional Director approves your If you or your guarantor request BOEM to cancel your third-party guarantee, BOEM will cancel the guarantee under the same terms and conditions provided for cancellation of supplemental financial assurance and return of pledged financial assurance in § 556.906(b) and/or (d)(3).

(f) The guarantor or guaranteed party must submit

an indemnity agreement.

a third-party guarantee agreement that meets the following criteria:

(1) The

indemnity

third-party guarantee agreement must be executed by your guarantor and all persons and parties bound by the agreement.

(2) The

indemnity

third-party guarantee agreement must bind, jointly and severally, each person and party executing the agreement

jointly and severally

.

(3) When

a person or party bound by the indemnity agreement

your guarantor is a corporate entity, two corporate officers who are authorized to bind the corporation must sign the

indemnity

third-party guarantee agreement.

(

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g) Your corporate guarantor and

the

any other corporate entities bound by the

indemnity

third-party guarantee agreement must provide the Regional Director copies of:

(

i

1) The authorization of the signatory corporate officials to bind their respective corporations;

(

ii

2) An affidavit certifying that the agreement is valid under all applicable laws; and

(

iii

3) Each corporation's corporate authorization to

execute the indemnity

enter into the third-party guarantee agreement.

(

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h) If your third-party guarantor or another party bound by the

indemnity

third-party guarantee agreement is a partnership, joint venture, or syndicate, the

indemnity

third-party guarantee agreement must:

(

i

1) Bind each partner or party who has a beneficial interest in your guarantor; and

(

ii

2) Provide that

, upon demand by the Regional Director under your third-party guarantee, each partner

each member of the partnership, joint venture, or syndicate is jointly and severally liable for

compliance with all terms and conditions of your lease.(6) When

the obligations secured by the guarantee.

(i) The third-party guarantee agreement must provide that, in the event forfeiture is called for under § 556.907,

the indemnity agreement must provide that

your guarantor will either:

(

i) Bring

1) Take corrective action to bring your lease or grant into compliance with its terms, and the regulations, to the extent covered by the guarantee; or

(

ii

2) Provide

,

sufficient funds within 7 calendar days

, sufficient funds

to permit the Regional Director to complete such corrective action to the extent covered by the guarantee.

(

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j) The

indemnity

third-party guarantee agreement must contain a confession of judgment. It must provide that, if the Regional Director determines that you

, your operator, or an operating rights owner is

are in default of the lease or grant covered by the guarantee or not in compliance with any regulation applicable to such lease or grant, the guarantor:

(

i

1) Will not challenge the determination; and

(

ii

2) Will remedy the default to the extent covered by the guarantee.

(

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k) Each

indemnity paragraph

third-party guarantee agreement is deemed to contain all terms and conditions contained in

this

paragraphs (

e

d), (i), and (j) of this section, even if the guarantor has omitted

them.

these terms from the third-party guarantee agreement.

[89 FR 31596, Apr. 24, 2024]