The Bureau of Ocean Energy Management (BOEM) recently issued an Information to Lessees (ITL) regarding the potential applicability of new regulations issued by the Committee on Foreign Investment in the United States (CFIUS) to bids at the upcoming March 18th federal offshore lease sale (Lease Sale 254), which will offer for lease all available, unleased acreage in the Gulf of Mexico region.
New, expanded CFIUS regulations went into effect on February 13, 2020. The regulations, dealing with foreign acquisition of control of U.S. businesses or certain foreign investments in U.S. businesses, in some cases require mandatory national security review of transactions. In addition to addressing acquisitions of U.S. businesses and investing in U.S. businesses, CFIUS now includes the review of certain U.S. real estate transactions, which could encompass federal offshore leasing. Even if CFIUS review is not mandatory under the regulations, voluntary review or a disclosure may be advisable in order to avoid post-closing consequences such as CFIUS later imposing conditions, unwinding the transaction in whole or in part, or imposing civil penalties on companies.
Among other things, CFIUS applies to “covered real estate transactions” involving the purchase or lease by, or concession to, a foreign person of certain real estate in the U.S. As the BOEM ITL states, “[c]overed real estate transactions include some transactions involving real estate located within the territorial sea of the U.S., as identified in the new rule, and may apply to certain lease blocks offered in Lease Sale 254.” Bidders will want to consider whether blocks in which they are interested fall within certain ports or in proximity to certain military installations as described in the regulations. Bidders should also be aware that in determining foreign person status, CFIUS looks not only at the entities that are lessees, but also to any person with the ability to exercise control over the lessee.
Potential bidders and joint bidders should review the new CFIUS regulations. The BOEM ITL is available at http://www.boem.gov/newsroom/notes-stakeholders/information-lessees-provisions-pertaining-certain-transactions-foreign. The CFIUS final rule regarding real estate transactions is published at 85 Fed. Reg. 3158 and is codified at 31 CFR Part 802. The CFIUS final rule regarding acquisition of control of, or investment in, US businesses is published at 85 Fed.Reg.3112 and is codified at 31 CFR Parts 800 and 801. It is unclear from the ITL how BOEM will administer any CFIUS issues or handle the interplay between BOEM bid analysis and acceptance procedures and CFIUS disclosures or review.
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