**Minerals Management Service**

**Interim Policy Document**

**Effective Date: August 15, 2007 IPD No.** **07-05**

**Program:** Offshore Minerals Management

**Title:** Financial Accountability and Risk Management (FARM) Program

**Originating Office:** Office of Offshore Regulatory Programs, Offshore
Minerals Management

**1. Purpose.** This Interim Policy Document (IPD) establishes policy
and responsibilities for the Minerals Management Service (MMS) Financial
Accountability and Risk Management (FARM) Program. It sets overall
national policy and establishes the responsibility for program
implementation and management.

**2. Objectives.** The MMS FARM Program is intended to:

A. Protect the U.S. Government from incurring financial losses when a
company fails to meet its lease, grant (e.g., right-of-way) or permit
(e.g., application for permit to drill) obligations on the OCS.

B. Confirm that companies conducting activities on the Outer Continental
Shelf (OCS) have the financial strength or financial security to meet
their lease, grant and permit obligations, and implement procedures, so
that any companies without the necessary financial strength or financial
security expeditiously achieve the necessary financial security levels.

C. Ensure that procedures followed in determining company financial
strength and in assessing financial security provide for fair,
consistent, and appropriate treatment of companies conducting activities
on the OCS.

**3. Authority.**

A. OCS Lands Act, as amended (43 U.S.C. 1331-1356)

B. Federal Oil and Gas Royalty Management Act of 1982, as amended (30
U.S.C. 1701 et seq.)

C. Federal Oil and Gas Royalty Simplification and Fairness Act of 1996
(110 Stat. 1700, as corrected by 110 Stat. 2421)

**4. References.**

A. Regulations: Leasing of Sulphur or Oil and Gas in the Outer
Continental Shelf (30 CFR 256).

B. Regulations: Oil and Gas and Sulphur Operations in the Outer
Continental Shelf (30 CFR 250).

C. Notice to Lessees and Operators (NTL) titled "Supplemental Bond
Procedures."

D. Gulf of Mexico OCS Region (GOMR) NTL titled "Guidelines for General
Lease Surety Bonds."

**5.** **Definitions.**

A. The Financial Accountability and Risk Management (FARM) Program is
the MMS program that seeks to ensure companies conducting activities on
the OCS have the financial strength or financial security to meet their
lease, grant and permit obligations and to protect the U.S. Government
from incurring financial losses, if companies fail to meet their
obligations. These obligations include payments, such as rents and
royalties, as well as operational obligations, such as decommissioning
and site clearance. Security in the event of an oil spill is covered by
a separate MMS program, the Oil Spill Financial Responsibility (OSFR)
Program.

B. General Bond is the initial financial instrument, required by MMS of
all companies, to help guarantee companies will meet their lease, permit
and grant obligations. The level of these bonds is prescribed in MMS
regulations and the bond must be secured before such milestones as the
issuance of a lease, approval of a right-of-way assignment, or approval
of an operational activity plan.

C. Supplemental Bond is an additional financial instrument required by
MMS of an individual company when MMS has determined that the General
Bond or the company's financial strength does not sufficiently guarantee
compliance with the obligations of its lease, grant or permit.
Supplemental Bonds are often used to ensure financial resources are
available to carry out decommissioning activities.

**6. Policy.** It is the policy of MMS that:

A. Companies operating on the OCS are required to meet all of their
obligations. These obligations include payments, such as rents and
royalties, as well as operational obligations, such as decommissioning
and site clearance.

B. The FARM Program will be administered in a way that maximizes the
U.S. Government's protection from incurring financial losses, should
companies fail to meet their obligations.

C. Companies will post a General Bond, per MMS requirements, for each
lease, grant and permit as a minimum guarantee to MMS that the companies
will meet their obligations.

D. Companies will post a Supplemental Bond, per MMS requirements, when
MMS determines that the companies holding a lease, grant or permit do
not have sufficient financial strength or financial security to meet all
of their obligations.

E. Once developed; a National Guidebook for the FARM Program (Guidebook)
will describe the operating controls and standard operating procedures
for the FARM Program. To protect the U.S. Government from financial
losses and to ensure fair, consistent, and appropriate treatment of
companies conducting activities on the OCS, these procedures will be
adhered to by each Region and program area and at all levels of the
organization. Where there is a compelling need to establish new or
different standards, within a Region or program area, the need will be
documented in the Guidebook or an addendum to the Guidebook.

**7. Responsibilities.**

A.  [Associate Director for Offshore Minerals Management
    (OMM)]{.underline} is responsible for ensuring that appropriate
    resources are made available to meet the objectives of the MMS FARM
    Program.

B.  [Chief, Office of Offshore Regulatory Programs]{.underline} is
    responsible for ensuring the objectives of the FARM Program are met;
    advocating the interests of the FARM Program before bureau
    management; coordinating with Headquarters and regional management
    to ensure MMS policies are carried out; coordinating with Minerals
    Revenue Management on matters regarding bonding for royalties, rents
    and other payment obligations; and appointing one employee to serve
    as the National FARM Program Coordinator.

C.  [National FARM Program Coordinator]{.underline} is responsible for
    coordinating with Chief, Office of Offshore Regulatory Programs and
    the Regional FARM Program Coordinators to ensure proper
    administration of the FARM Program; keeping Headquarters management
    and the Regions informed of policies, procedures, and issues that
    may affect the FARM Program; and alerting management and seeking
    timely resolution of problems and issues that may arise at
    Headquarters or in the Regions.

D.  [Regional Directors/Manager]{.underline} are responsible for
    ensuring the implementation of the FARM Program in their respective
    Regions is consistent with the objectives of the program and MMS
    policies; ensuring that proper priorities and emphasis are placed on
    the various elements of the program; approving bonds and termination
    of bond liability, as authorized in the MMS delegations of
    authority, including approving the replacement, termination, and
    cancellation of bonds; ensuring that appropriate resources are made
    available to support the program; and appointing the Regional
    Supervisor/Program Office Chief responsible for administering the
    Regional FARM Program.

E.  [Regional Supervisors/Program Office Chiefs]{.underline} appointed
    to administer the Regional FARM Program are responsible for ensuring
    proper administration of the FARM Program in their respective
    Region; ensuring that proper priorities and emphasis are placed on
    the various elements of the program to meet the objectives of the
    program; approving bonds and termination of bond liability, as
    authorized in the MMS delegations of authority, including approving
    the replacement, termination, and cancellation of bonds; ensuring an
    effective process is in place to obtain General Bonds for all
    leases, grants and permits; ensuring an effective process is in
    place to identify when Supplemental Bonds are warranted; ensuring
    the proper establishment and monitoring of Treasury pledge accounts
    held by the Federal Reserve, and other lease specific abandonment
    accounts; and appointing one employee to serve as the Regional FARM
    Program Coordinator, after obtaining concurrence from the
    Coordinator's immediate supervisor. This position is also
    responsible for working with regional management to ensure one
    employee is appointed to serve as Regional Decommissioning
    Assessment Coordinator.

F.  [Regional FARM Program Coordinators]{.underline} are responsible for
    ensuring that the FARM Program, in their respective Region, is
    implemented and conducted in accordance with the objectives of the
    program and the procedures in the Guidebook; coordinating with
    regional management, the Regional Decommissioning Assessment
    Coordinator, adjudication staff and the National FARM Program
    Coordinator, to keep them informed of policies, procedures, and
    issues that may affect the FARM Program; coordinating the evaluation
    of the financial strength of companies to meet their obligations;
    recommending a supplemental bond to regional management, if it is
    determined that a company's financial strength is not sufficient to
    guarantee it can meet all of its obligations; coordinating the
    approval, replacement, termination, and cancellation of supplemental
    bonds; monitoring the status of lease specific abandonment accounts
    including phased accounts; and alerting management and seeking
    timely resolution of problems and issues that may arise.

G.  [Regional Decommissioning Assessment Coordinators]{.underline} are
    responsible for coordinating the calculation of decommissioning and
    site clearance costs in their respective Region for all OCS
    facilities, including platforms, wells, pipelines, power cables and
    offshore support facilities; coordinating with experts inside and
    outside MMS to obtain the latest cost information; and alerting
    management and seeking timely resolution of problems and issues that
    may arise.

**8. Guidelines.** The operational controls for the FARM Program will be
contained in a Guidebook, available from the Office of Offshore
Regulatory Programs. The Guidebook is currently under development.

**9. Cancellation.** This IPD will remain in effect until incorporated
into the MMS Manual, canceled, or superseded with another IPD.

Chris C. Oynes

Associate Director for

Offshore Minerals Management