[Federal Register Volume 62, Number 79 (Thursday, April 24, 1997)]
[Proposed Rules]
[Pages 19967-19985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10387]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Parts 227, 228, and 229

RIN 1010-AC25


Delegation of Royalty Management Functions to States

AGENCY: Minerals Management Service, Interior.

ACTION: Proposed rulemaking.

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SUMMARY: The Minerals Management Service (MMS) proposes to add part 227 
which authorizes the delegation of several Federal royalty management 
functions to States.
    Also, MMS proposes to amend its regulations at parts 228 and 229 to 
remove references to cooperative agreements and delegations for Federal 
lands under those parts. As a result, those parts would apply only to 
Indian cooperative agreements and delegation agreements with States for 
Indian lands within the State.

DATES: MMS will consider all comments received by May 27, 1997. We will 
begin reviewing comments at that time and may not fully consider 
comments we receive after May 27, 1997.

ADDRESSES: Comments should be sent to: David S. Guzy, Chief, Rules and 
Procedures Staff, Royalty Management Program, Minerals Management 
Service, PO Box 25165, MS 3101, Denver, Colorado 80225-0165, courier 
delivery to Building 85, Denver Federal Center, Denver, Colorado 80225, 
or e-Mail David__G[email protected].

FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and 
Procedures Staff, Royalty Management Program, Minerals Management 
Service, telephone (303) 231-3432, Fax (303) 231-3194, e-Mail 
David__G[email protected].

SUPPLEMENTARY INFORMATION: The principal authors of this proposed 
rulemaking are Larry Cobb, Jim Detlefs, Clare Onstad, Robert Prael, 
Todd McCutcheon, John Russo, Dave Steiber, Cecelia Williams, and Sam 
Wilson, MMS; and Peter Schaumberg and Sarah Inderbitzin of the Office 
of the Solicitor.
    Because section 3(d) of the Federal Oil and Gas Royalty 
Simplification and Fairness Act of 1996 requires the Secretary to 
promulgate standards and regulations ``pertaining to authorities and 
responsibilities to be delegated [to States] * * *'' within 12 months 
of its enactment, i.e. by August 13, 1997, MMS is specifying a deadline 
for comments that is less than the 60 days recommended in Executive 
Order 12866. MMS has determined that it is not feasible to allow the 
60-day comment period referred to in section 6(a)(1) of Executive Order 
12866 because a comment period of that length would make it very 
difficult to comply with the 12 month statutory deadline. MMS also 
believes that a 30-day comment period is appropriate in this instance 
because it previously provided both States and industry with the 
opportunity to comment during the numerous outreach meetings discussed 
above. Although MMS will consider late-filed comments to the greatest 
extent practicable, RSFA's requirement that a final rule be issued 
within 12 months of enactment will make it extremely difficult for MMS 
to consider comments received after the 30-day period. Thus, MMS 
believes that for these reasons, a 30-day comment period is 
sufficiently long to allow the public a meaningful opportunity to 
comment on the proposed rule in accordance with Executive Order 12866.

I. General

    On August 13, 1996, Congress enacted the Federal Oil and Gas 
Royalty Simplification and Fairness Act of 1996, Pub. L. 104-185, as 
corrected by Pub. L. 104-200 (RSFA). The RSFA amends portions of the 
Federal Oil and Gas Royalty 33 Management Act of 1982 (FOGRMA), 30 
U.S.C. 1701 et seq. Prior to the RSFA enactment, section 205 of FOGRMA, 
30 U.S.C. 1735, provided for the delegation of only audits, 
inspections, and investigations to the States. The RSFA amendments to 
section 205 now provide that the MMS may delegate other Federal royalty 
management functions to requesting States.
    The royalty management functions MMS may delegate under the RSFA 
amendments are:
    (1) Conducting audits and investigations;
    (2) Receiving and processing production and royalty reports;
    (3) Correcting erroneous report data;
    (4) Performing automated verification; and
    (5) Issuing demands, subpoenas (except for solid mineral and 
geothermal leases), orders to perform restructured accounting, and 
related tolling agreements and notices to lessees or their designees.
    The RSFA amendments to section 205(d) also provide that within 12 
months after the date of enactment, after consultation with the States, 
the Secretary must issue standards and regulations pertaining to 
delegable functions and other relevant responsibilities, including:
    (1) Audits to be performed;
    (2) Records and accounts to be maintained;
    (3) Reporting procedures to be required by the States under this 
section;
    (4) Receipt and processing of production and royalty reports;
    (5) Correction of erroneous report data;
    (6) Performance of automated verification;
    (7) Issuance of standards and guidelines in order to avoid 
duplication of effort;
    (8) Transmission of report data to the Secretary; and
    (9) Issuance of demands, subpoenas, and orders to perform 
restructured accounting, for royalty accounting purposes.
    In response to the section 205 RSFA amendments, MMS formed the 205 
Consultation Team, comprised of MMS, interested States, representatives 
from State associations, and a representative of the Bureau of Land 
Management (BLM) to discuss how to implement the delegation provisions 
of the RSFA. In 1996, the 205 Consultation Team met on October 2, 
October 10-11, and October 23-24. The result was the development of an 
initial regulatory framework that MMS used to discuss the regulation at 
three outreach meetings with States and to write the proposed 
regulation. The 205 Consultation Team members agreed to the regulatory 
framework in a teleconference held on December 2, 1996.
    During the initial meetings with the 205 Consultation Team, State 
representatives sought delegated functions in addition to those 
provided in RSFA. These additional functions included collecting and 
disbursing funds, processing and deciding appeals, and issuing civil 
penalties. However, the Act does not allow MMS to delegate these 
functions. Thus, MMS has reserved such functions because they are 
necessary for uniform administration of the applicable statutes, 
regulations, and policies and therefore are reserved, among other

[[Page 19968]]

reasons, to ``assure[] that a uniform and effective royalty management 
system will prevail among the States.'' 30 U.S.C. 1735(d).
    At the initial meeting with the 205 Consultation Team, State 
representatives also asked MMS to delegate royalty management functions 
for solid mineral leases, geothermal leases, and offshore leases 
subject to section 8(g) of the Outer Continental Shelf Lands Act, 43 
U.S.C. 1337(g). In this rulemaking, the MMS Director proposes to 
delegate royalty management functions to States for such leases under 
Pub. L. 102-154. This 1991 law provides authority for MMS to delegate 
its royalty management functions to States for these leases. However, 
because MMS does not have statutory authority to issue subpoenas for 
solid mineral or geothermal leases, it cannot delegate to the States 
the authority to issue subpoenas for such leases.
    After its meetings with the 205 Consultation Team, MMS held 
outreach meetings for the States in 1996 on December 11 in New Orleans, 
LA., on December 12 in Denver, CO., and on December 13 in Oakland, CA. 
At those meetings, MMS representatives explained the delegation 
regulatory framework, discussed the concepts of the proposed regulation 
with the State attendees, answered questions, and received feedback.
    MMS also held outreach meetings for industry in early 1997, in 
Houston, TX on January 7, in Albuquerque, NM on January 8, in Denver, 
CO on January 9, and in Casper, WY on January 10. MMS again explained 
the delegation regulatory framework, discussed the concepts of the 
proposed regulation with the industry attendees, responded to 
questions, and received feedback.
    In addition, MMS will hold several outreach meetings in the spring 
of 1997 at various locations to discuss the MMS Standards for 
Delegation (Standards) document which will contain the detailed 
standards that States must follow when performing delegated functions.

II. Indian Lands

    MMS proposes to amend 30 CFR parts 228 and 229 to remove references 
to cooperative agreements and delegations for Federal lands under those 
parts. As a result, those parts would apply only to Indian cooperative 
agreements and delegation agreements for audits, inspections, and 
investigations with States for Indian lands within the State.
    Section 8 of the Act provides that as of the Act's effective date, 
Sec. 202 of FOGRMA, 30 U.S.C. 1732, which authorizes cooperative 
agreements with Indian tribes and States to carry out audits and 
related investigation and enforcement activities, no longer applies to 
Federal lands. Thus, the proposed new section would limit the rules in 
30 CFR part 228 to cooperative agreements with Indian tribes and States 
to perform audits, inspections, and investigations for Indian lands. 
Under those rules, any cooperative agreement with a State requires the 
consent of the responsible Indian tribe or allottee.
    Section 9 provides that the amendments made in Sec. 205 of the Act, 
30 U.S.C. 1735, do not apply to Indian lands. For those lands, the 
original FOGRMA Sec. 205 provisions for delegating audits, inspections, 
and investigations will continue to apply. Therefore, MMS proposes to 
keep the existing part 229 delegation rules but limit their 
applicability to Indian lands. Under those rules, any delegation to a 
State to perform audit and related investigative activities for Indian 
lands within the State requires the consent of the affected Indian 
tribe or allottee, and that provision is unaffected.
    In a final rule, MMS may make some changes to parts 228 and 229 to 
conform the language to principles of ``plain English'' that MMS is 
implementing for all rules. These changes would not be substantive 
except to remove any unnecessary references to Federal lands.
    As an alternative proposal, MMS would like comment on whether it 
should remove part 229 completely and incorporate delegations to States 
for audits, inspections, and investigations on Indian lands into new 
part 227.
    Under this approach, only the new procedural provisions for that 
delegation process would apply for Indian lands to the same extent as 
for Federal lands. However, the additional delegable activities for 
Federal lands added in the Act, such as issuing demands and subpoenas 
and performing error correction, would not apply for Indian lands. In 
addition, MMS would continue to require the concurrence of the affected 
Indian tribe or allottee before any delegation would occur.
    To aid public participation in this rulemaking, MMS will post 
comments received on this proposed rule on the Internet at http://
www.rmp.mms.gov.

III. Section-by-Section Analysis

Section 229.1  What is the purpose of this part?

    This section would explain that the purpose of this rule is to 
provide procedures to delegate Federal royalty management functions to 
States under section 205 of the Federal Oil and Gas Royalty Management 
Act of 1982 (the Act), 30 U.S.C. 1735, as amended by the Federal Oil 
and Gas Royalty Simplification and Fairness Act of 1996, Pub. L. 104-
185, August 13, 1996, as corrected by Pub. L. 104-200. Further, it 
would explain that this part also provides procedures to delegate 
similar functions to States for solid mineral leases, geothermal 
leases, and leases subject to section 8(g) of the Outer Continental 
Shelf Lands Act, 43 U.S.C. 1337(g), under Pub. L. 102-154. This section 
also would explain that this part does not apply to any inspection or 
enforcement responsibilities of BLM for onshore leases or the MMS 
Offshore Minerals Management office for leases on the Outer Continental 
Shelf. The respective agencies will issue any regulations for those 
activities separately.

Section 227.100    What States may request delegation?

    This section would explain which States may request a delegation of 
royalty management functions under this rule.
    Paragraph (a) would provide that States may request a delegation of 
royalty management functions under this rule if the State has oil and 
gas leases subject to the Act on Federal lands within that State.
    Paragraph (b) would provide that States may request a delegation of 
royalty management functions under this rule if the State has oil and 
gas leases offshore of that State subject to section 8(g) of the Outer 
Continental Shelf Lands Act, 43 U.S.C. 1337(g).
    Paragraph (c) would provide that States may request a delegation of 
royalty management functions under this rule if the State has solid 
mineral leases or geothermal leases on Federal lands within that State.

Section 227.101    What royalty management functions may MMS delegate 
to a State?

    This section would list the functions that, under the Act, MMS may 
delegate to States eligible to receive delegations as provided under 
section 227.100 of this rule.
    Paragraph (a) would provide that States may request to conduct 
audits and investigations. For purposes of this rulemaking, this 
paragraph would pertain only to audits and investigations related to 
royalty management functions. However, MMS is interested in knowing 
whether States having oil and gas leases subject to section 8g of the 
Outer Continental Lands Act, 43 U.S.C. 1337(g) would be interested in

[[Page 19969]]

performing inspection functions on those leases.
    Paragraph (b) would provide that States may request to receive and 
process either production reports or royalty reports, or both as a 
delegable function. RSFA added these functions to section 205(a)(2) of 
the Act, 30 U.S.C. 1735(a)(2), which refers to ``financial reports.'' 
However, ``financial reports'' are royalty reports or other reports 
lessees or their designees file in association with the payment of 
royalties. Therefore, MMS would use the term ``royalty reports'' in 
this rulemaking to encompass all financial reports.
    Paragraph (c) would provide that States may request to correct 
erroneous report data as a delegable function for either production 
reports or royalty reports, or both. This is a new function which RSFA 
added to section 205. States to which MMS has delegated this function 
must assure that reporters correct reporting errors. States must 
perform this function to allow MMS to enter correct production or 
royalty data into the applicable MMS production or royalty database.
    Paragraph (d) would provide that States may request to perform 
automated verification activities as a delegable function. RSFA also 
added this function to section 205. States to which MMS has delegated 
this function must perform verification processes to resolve various 
identified exceptions. Examples of exceptions include volume and 
royalty rate discrepancies. The verification process would require the 
State to perform manual research. If the State's manual research 
identified exceptions, the State would require reporters to submit 
corrected reports or pay additional royalties.
    Paragraph (e) would provide that States may request to issue 
demands, subpoenas (except for solid mineral and geothermal leases), 
and orders to perform restructured accounting, including related 
notices to lessees or their designees. This delegation would not 
include any further enforcement authority. Thus, if a lessee or its 
designee appeals a demand or order to perform restructured accounting, 
that appeal would go to MMS. Further, any judicial action to enforce a 
demand, order to perform restructured accounting or subpoena would be 
MMS's responsibility together with the U.S. Department of Justice.
    Paragraph (e) also would provide that States may request to enter 
into tolling agreements with lessees or their designees in order to 
toll the running of the 7-year statute of limitations on demands under 
the Act. This paragraph would exclude issuing subpoenas for solid 
mineral and geothermal leases for the reasons discussed above.

Section 227.102  What royalty management functions will MMS not 
delegate?

    This section would explain the principal royalty management 
functions that MMS will not delegate. These functions are specifically 
reserved to MMS and are not delegable under this rule.
    Paragraph (a) would provide that MMS must collect all monies 
received from sales, bonuses, rentals, royalties, civil penalties, 
assessments and interest. This paragraph also would provide that MMS 
must collect any monies a lessee or its designee pays because of audits 
or other actions of a delegated State.
    Paragraph (b) would provide that MMS must compare all cash and 
other payments it receives with payments shown on royalty reports or 
other documents, such as bills, to reconcile payor accounts. For 
example, if a lessee or its designee pays MMS $100 but reports a $110 
payment on its royalty report or other document, MMS must reconcile the 
discrepancy. This paragraph also would provide that MMS must disburse 
all appropriate monies to States and other revenue recipients, 
including refunds and interest owed to lessees and their designees.
    Paragraph (c) would provide that MMS will receive, process and 
decide all administrative appeals from demands or other orders issued 
to lessees and their designees including demands or orders a delegated 
State issues. Thus, even if a State performs the audit and issues the 
demand or order, lessees or their designees must continue to send the 
notice of appeal to MMS, and MMS will process and decide those appeals. 
A centralized appeals process is necessary for uniform administration 
of the applicable statutes, regulations, and policies. Therefore, this 
authority would be reserved, among other reasons, to ``assure[] that a 
uniform and effective royalty management system will prevail among the 
States.'' 30 U.S.C. 1735(d).
    Paragraph (d) would provide that MMS will take all enforcement 
actions other than issuing demands, subpoenas and orders to perform 
restructured accounting. This paragraph also would provide that MMS 
will issue notices of noncompliance and civil penalties, collect debts, 
write off delinquent debts, pursue litigation, enforce subpoenas, and 
manage alternative dispute resolution. Furthermore, this paragraph 
explains that MMS will conduct, coordinate and approve all settlements 
or other compromises of an obligation that a lessee or its designee 
owes. Therefore, if a State receives a settlement request from a lessee 
or its designee, the State must refer that request to MMS. However, MMS 
will include States in settlement discussions as it currently does. As 
with appeals, centralizing the decision of whether to issue a civil 
penalty is necessary for uniform administration of the applicable 
statutes, regulations, and policies. Therefore, the authority would be 
reserved, among other reasons, to ``assure[] that a uniform and 
effective royalty management system will prevail among the States.'' 30 
U.S.C. 1735(d).
    Paragraph (e) would explain that MMS will decide all valuation 
policies, including issuing valuation regulations, determinations, and 
guidelines, and interpreting valuation regulations. For example, MMS 
must respond to industry requests for valuation determinations in 
specific situations. Such valuation determinations have the effect of 
an order and are appealable. MMS also must decide requests for 
exceptions to the limitations on allowances and the exceptions for non-
arm's-length transportation and processing allowances. However, in the 
course of audits, States may apply any MMS valuation policy, make 
findings consistent with such policies, and issue orders in accordance 
with such policies. The purpose of this paragraph is to maintain 
uniform and consistent enforcement of applicable statutes and 
regulations.
    Paragraph (f) is a catch-all provision that would allow MMS to 
reserve additional authorities and responsibilities not included in 
paragraphs (a) through (e) of this section.

Section 227.103  What must a State's delegation proposal contain?

    This section would provide that if a State wants MMS to delegate 
royalty management functions to it, the State must submit a delegation 
proposal to the MMS Associate Director for Royalty Management. This 
section also would explain that a State's delegation proposal must 
contain specific minimum information to help MMS assess its potential 
to receive and perform delegated functions. Such information would 
include a description of what facilities, personnel, and equipment the 
State will need to perform delegated functions. It also would include 
what facilities, personnel, and equipment the State currently has and 
what it will need to obtain, and its resources to obtain such elements. 
To assist States in preparing

[[Page 19970]]

their delegation proposals, this section also would provide that MMS 
will help States with any technical assistance and information they may 
need.
    MMS specifically requests comments on additional information that 
you believe would be important to include in a State's delegation 
proposal.
    Paragraph (a) would require the State to provide the name and title 
of the State government official authorized to submit the delegation 
proposal and execute the delegation agreement.
    Paragraph (b) would require the State to provide the name, address, 
and telephone number of the State contact for the delegation proposal.
    Paragraph (c) would require the State to provide a copy of the 
legislation, State Attorney General opinion or other document 
demonstrating the State's authority to accept a delegation from MMS, 
and receive State or Federal appropriations to perform delegated 
functions. This documentation is necessary because States must show 
that State laws and regulations allow the State to perform the 
delegated functions it seeks.
    Paragraph (d) would require States to provide the date they propose 
to begin performing delegated functions.
    Paragraph (e) would require States to provide a detailed statement 
of the delegable functions that they propose to perform. In addition, 
for each delegable function a State proposes to assume, the State must 
describe the resources available in that State to perform each 
function, the procedures the State will use to perform each function, 
and how the State will assure that all Federal laws, lease terms, 
regulations and relevant performance standards will be met.
    Paragraph (e) also would require States to provide evidence that 
the State has or will have the resources to perform each delegable 
function. Thus, States would have to submit a description of the 
personnel they have available to perform delegated functions, the 
facilities the State will use to perform delegated functions, and the 
equipment, including hardware and software, the State has available for 
any of the delegable functions for which it is requesting delegation. 
If a State did not currently have the personnel, facilities or 
equipment necessary to perform delegated functions, it would have to 
provide information on when it expects to have such resources 
available.
    Paragraph (f) would require a State to estimate the costs to fund 
the personnel, facilities and equipment necessary to perform each 
delegable function that the State proposes to perform.
    Paragraph (g) would require States to submit their plans to fund 
the costs of the resources described under paragraph (f), including any 
items the State will ask MMS to fund under the delegation agreement. 
Thus, this paragraph would require a State to describe the resources 
available in the State to perform each delegable function.
    Paragraph (h) would require States to provide a statement 
identifying any areas where State law may limit its ability to perform 
delegated functions. In addition, a State would have to explain what 
actions it proposes to remove any such limitation.
    Paragraph (i) would require States to provide a statement that in 
accordance with section 203 of the Act, 30 USC 1733, persons who have 
access to information received under delegated functions are subject to 
the same provisions of law regarding confidentiality and disclosure of 
that information as Federal employees. Applicable laws include the 
Freedom of Information Act (FOIA), the Trade Secrets Act, and relevant 
Executive Orders. In addition, your statement must acknowledge that all 
documents produced, received, and maintained as part of any delegation 
functions are agency records for purposes of FOIA. All requests for 
records or other information under the applicable laws would be subject 
to MMS's review and approval.

Section 227.104  What will MMS do when it receives a State's delegation 
proposal?

    This section would explain that MMS will record the date it 
receives a State's delegation proposal. This section also would explain 
that MMS will notify the State in writing whether its delegation 
proposal is complete within 15 business days of the recorded date. When 
MMS notifies a State that its delegation proposal is not complete, MMS 
will identify any missing items section 227.103 requires. Once a State 
submits all required information, MMS will notify the State in writing 
the date its delegation proposal is complete. The date the delegation 
request is ``complete'' is important because under proposed section 
227.107, MMS would decide whether to approve a delegation proposal 
within 90 days after it is complete.

Section 227.105  What are the hearing procedures?

    This section would explain the public hearing procedure that will 
occur after MMS notifies a State that its delegation proposal is 
complete. The hearing procedures would assure that the State has 
demonstrated it has adequate resources to carry out the requested 
delegation, that it will carry out the requested delegation upon 
receipt of its delegation agreement, that it will effectively and 
faithfully administer all applicable statutes and regulations, that it 
will not impose any additional burdens on lessees or their designees, 
and that it will cooperate with any MMS, General Accounting Office or 
Office of the Inspector General reviews. The hearing also is to allow 
other persons to present their views regarding the State's delegation 
proposal.
    Paragraph (a) explains that the MMS Director will appoint a hearing 
official to conduct one or more public hearings for fact finding 
regarding a State's ability to assume the delegated functions it 
requested. Because the public hearing is purely a fact finding 
procedure, this paragraph makes clear that the hearing official is not 
responsible for deciding whether to approve a State's delegation 
request. The remaining paragraphs of this proposed section are self-
explanatory.

Section 227.106  What statutory requirements must a State meet to 
receive a delegation?

    This section would make clear that the MMS Director will decide 
whether to approve a State's delegation request and will ask the 
Secretary of the Interior to concur in the decision. This section would 
provide that the MMS Director's decision is solely within the MMS 
Director's and the Secretary's discretion. This section also would 
provide that the MMS Director's decision in which the Secretary concurs 
in is the final decision for the Department of the Interior. Thus, the 
decision is not subject to appeal to the Interior Board of Land Appeals 
under 43 CFR part 4.
    In addition, this section would provide that the MMS Director may 
approve a State's request for delegation only if, based upon the 
State's delegation proposal and the hearing record, the MMS Director 
finds that the State meets the statutory requirements under section 
205.
    Under paragraph (a), the MMS Director would have to find that it is 
likely that the State will provide adequate resources to achieve the 
purposes of the Act. Thus, States must show a commitment of State 
resources adequate to perform the requested delegable functions. This 
would include evidence that the State has the proper appropriation from 
the State legislature.
    Under paragraph (b), the MMS Director would have to find that the 
State has demonstrated that it will effectively and faithfully 
administer the

[[Page 19971]]

rules and regulations of the Secretary under the Act in accordance with 
the requirements of subsections (c) and (d) of section 205 of the Act. 
The purpose of this proposed paragraph is for States to demonstrate 
their ability to effectively administer a royalty management system 
that will be uniform among the States. The purpose of this requirement 
also is to allow a smooth, efficient transition of delegable functions 
to States.
    Under paragraph (c), the MMS Director would have to find that a 
State's delegation will not create an unreasonable burden on any 
lessee. The purpose of this section is to ensure that lessees are not 
subject to duplicate requirements from MMS and one or more delegated 
States. While lessees may have some increased reporting burdens because 
of multiple reporting entities, MMS does not consider that an 
unreasonable burden given the Act's intent.
    Under paragraph (d), the MMS Director would have to find that the 
State agrees to adopt standardized reporting procedures MMS prescribes 
for royalty and production accounting purposes, unless the State and 
all affected parties (including the Secretary and lessees and their 
designees) otherwise agree. For example, a State would have to adopt 
the MMS Report of Sales and Royalty Remittance (Form MMS-2014) and the 
MMS Monthly Report of Operations (Form MMS-3160) reporting formats, 
unless all affected parties and the Secretary agree to an alternate 
procedure that fulfills MMS's reporting requirements.
    Under paragraph (e), the MMS Director would have to find that the 
State agrees to follow and adhere to regulations and guidelines MMS 
issues under the mineral leasing laws regarding valuation of 
production. Thus, a State requesting delegation must agree to follow 
all Federal laws, regulations, and Secretarial and agency 
determinations and orders relating to the calculation, reporting and 
payment of mineral revenues. The purpose of this paragraph is to ensure 
uniform application of the royalty management program among the 
delegated States.
    Under paragraph (f), the MMS Director would have to find that where 
necessary for a State to carry out and enforce a delegated activity, 
the State agrees to enact such laws and promulgate such regulations as 
are consistent with relevant Federal laws and regulations. Thus, a 
State applying for delegation would be required to provide evidence 
that the State is authorized under State laws to perform delegable 
functions. If a State is not so authorized, then it may be required to 
enact laws authorizing performance of those functions before the MMS 
Director will approve the State's delegation proposal.

Section 227.107  When will the MMS Director decide whether to approve a 
State's delegation proposal?

    This section would state that the MMS Director will decide whether 
to approve a State's delegation proposal within 90 days after its 
delegation proposal is complete. Under the Act, 30 U.S.C. 1735(c), MMS 
has 90 days after a State submits its delegation proposal to decide 
whether to approve the delegation proposal. However, the Act does not 
explain what constitutes a delegation proposal sufficient to start the 
90-day period running. Therefore, as part of the Secretary's rulemaking 
authority under the Act, 30 U.S.C. 1751(a), MMS interprets the 90-day 
period to run from the date a State's delegation proposal is complete. 
This interpretation would avoid MMS unnecessarily rejecting a State's 
proposal merely because some portion of it is incomplete. This section 
would also provide that MMS may extend the 90-day period with a State's 
written consent.

Section 227.108  How will MMS notify a State of its decision?

    This section would provide that MMS will notify the State in 
writing of its decision on the State's delegation proposal. In 
addition, this section would explain that after MMS approves a State's 
delegation proposal, MMS will hold discussions with the State to 
develop a delegation agreement detailing the delegable functions which 
the State will perform and the standards and requirements the State 
must comply with to perform those functions.

Section 227.109  What if the MMS Director denies a State's delegation 
proposal?

    Under this proposed section, if the MMS Director denies a State's 
proposal, MMS will state the reasons for denial. MMS also will inform 
the State in writing of the conditions it must meet to receive 
approval. In addition, this section would provide that a State may 
submit a new delegation proposal at any time following a denial.

Section 227.110  How long are delegation agreements effective?

    This section would explain how long delegation agreements issued 
under this part remain in effect as well as procedures for renewal of 
delegation agreements.
    Paragraph (a) would provide that delegation agreements are 
effective for 3 years.
    Paragraph (b) would explain that after 3 years a State may ask MMS 
to renew its delegation for an additional 3 years. This section also 
would explain that States must submit their renewal request to the MMS 
Associate Director for Royalty Management within 6 months prior to the 
expiration of the 3-year delegation agreement. Paragraph (b)(1) would 
provide that if a State does not want to change the terms of its 
delegation agreement, it need only ask MMS to extend its existing 
agreement for the 3-year renewal period. In such instances, MMS will 
not schedule a hearing unless the State requests one. Paragraph (b)(2) 
would explain that if a State wants to change the terms of its 
delegation agreement for the renewal period, full review is required. 
Therefore, in this situation, the State must submit a new delegation 
proposal under this part.
    Paragraph (c) would explain that the MMS Director would approve a 
State's renewal request only if MMS determines that the State is 
meeting the requirements of the applicable standards and regulations. 
Further, it would explain that if the MMS Director denies a State's 
renewal request, MMS will state the reasons for denial. In addition, 
MMS would inform a State in writing of the conditions it must meet to 
receive approval. This section also would provide that a State may 
submit a new renewal request at any time following a denial, but not 
after your current agreement expires.
    Paragraph (d) would provide that after the 3-year renewal period 
for a State's delegation agreement ends, the State must request a new 
delegation agreement from MMS under this part. It also would explain 
that MMS will not hold a hearing on the State's new delegation 
agreement unless the State requests one or it wants to change the terms 
of its delegation agreement. Further, it would explain that as part of 
the MMS Director's decision whether to approve a State's request for a 
new delegation, the MMS Director will consider whether the State is 
meeting the requirements of the applicable standards and regulations 
under its existing delegation agreement.

Existing Delegations

Section 227.111  Do existing delegation agreements remain in effect?

    This section would explain a State's options if it is operating 
under a delegation in effect on the date these regulations become 
final.

[[Page 19972]]

    Paragraph (a) would explain that a State not wanting to perform any 
new royalty management functions in addition to those authorized under 
its existing delegation agreement may continue under that agreement 
until it expires. After the delegation agreement expires, a State would 
have to receive a new delegation agreement meeting the requirements of 
these regulations and the applicable standards.
    Paragraph (b) would explain that a State wanting to perform royalty 
management functions in addition to those authorized under its existing 
agreement must submit a delegation proposal under this part. Thus, any 
State wanting to perform the delegable functions under this part in 
addition to those provided for under its existing delegation agreement 
must submit a delegation proposal under this part for all delegable 
functions it wishes to perform, including those under its existing 
agreement.
    Paragraph (c) would provide that MMS may extend any delegation 
agreement in effect on the date these regulations become final for up 
to 3 years beyond the date it is due to expire. The purpose of this 
paragraph is to provide States whose existing delegation agreements are 
due to expire shortly after these rules become final with enough time 
to prepare a delegation proposal under this part and to receive 
authority to accept a delegation from MMS and receive State or Federal 
appropriations to perform delegated functions as required under section 
227.103(c)(2) of this part.

Compensation

Section 227.112  What compensation will a State receive to perform 
delegated functions?

    This section would provide that a State would receive compensation 
for its costs to perform each delegation function. This section also 
would provide the conditions for a State to receive compensation.
    Paragraph (a) would provide that compensation for costs would be 
subject to agency fiscal appropriations. Thus, if Congress does not 
pass a budget or continuing resolution, MMS will not have the funds 
available to pay the States.
    Paragraph (b) would provide that compensation could not exceed the 
reasonable anticipated expenditures that MMS would incur to perform the 
same function. Thus, a State's compensation would be limited to the 
amount it would cost the MMS to perform the same function. For example, 
if it costs MMS $1,000 to perform error correction on a State's leases, 
then $1,000 is the maximum amount a State could receive to perform its 
own error correction.
    Paragraph (c) would provide that the cost for which a State 
requests compensation must be directly related to its performance of a 
delegated function and necessary for performance of that delegated 
function. For example, MMS will not compensate a State for employees 
who perform delegated royalty management functions to attend an 
environmental conference because environmental studies are not a 
delegated function. An additional example is that MMS will not 
compensate a State for performing audits of State leases even though 
the same audit may cover Federal leases.
    Generally, MMS will compensate for items related to performing 
royalty management delegations, such as, rent or lease of office space, 
salary, employee benefits, supplies, equipment, and travel. For 
example, MMS would compensate for reasonable purchase of office 
personal computers, but would not compensate for purchase of a 
mainframe computer.
    Paragraph (d) would provide that States would be required to 
provide vouchers detailing their expenditures quarterly or monthly 
during the fiscal year as stated in their delegation agreement.
    Paragraph (e) would provide that States would be required to 
maintain adequate books and records to support their vouchers.
    Paragraph (f) would provide that MMS would pay a State quarterly or 
monthly during the fiscal year as stated in the State's delegation 
agreement.
    Paragraph (g) would provide that MMS could withhold compensation 
for a State's failure to properly perform a delegated function whether 
or not MMS takes any action under sections 227.801 or 227.802 of this 
part.

States' Responsibilities To Perform Delegated Functions

Section 227.200  What are a State's general responsibilities if it 
accepts a delegation?

    This section would explain what general responsibilities a State 
must perform for each delegated function. Specific requirements would 
be explained in sections 227.300, 227.301, 227.400, 227.401, 227.500, 
227.501, 227.600, and 227.601 of this part, the State's delegation 
agreement, and the Standards.
    Paragraph (a) would provide that States must operate in compliance 
with all Federal laws, regulations, and Secretarial and agency 
determinations and orders relating to the calculation, reporting, and 
payment of mineral royalties and other revenues. Under this paragraph, 
States also would be required to submit a written request for 
interpretation of any applicable Federal requirement to the appropriate 
MMS official. The purpose of this requirement is to maintain uniform 
and consistent application of Federal requirements in order to minimize 
the burden on lessees. MMS will respond to a State's request for 
guidance in writing, and States must follow the interpretation or 
guidance given.
    Paragraph (b) would provide that States must comply with Generally 
Accepted Accounting Principles (GAAP). Paragraphs (b) (1)-(5) explain 
what GAAP requirements would pertain to performing royalty management 
functions.
    Paragraph (c) would require States to assist MMS in meeting the 
requirements of the Government Performance and Results Act (GPRA) as 
well as assisting in developing and endeavoring to comply with the MMS 
Strategic Plan and Performance Measurements.
    Paragraph (d) would require a State to maintain all records it 
obtains or creates under its delegated functions, such as royalty 
reports, production reports, and other related information. States 
would be required to maintain such records in a safe, secure manner, 
including taking appropriate measures for protecting confidential and 
proprietary information and assisting MMS in responding to Freedom of 
Information Act requests when necessary. This paragraph also would 
require States to maintain such records for at least 7 years.
    Paragraph (e) would require States to provide reports to MMS about 
any activities it performs under its delegated functions. MMS will 
specify in a State's delegation agreement and the Standards what 
reports a State must submit and how often it must submit them. The rule 
would provide that at a minimum, a State must provide periodic 
statistical reports to MMS summarizing the activities it carried out, 
such as:
    (1) Production and royalty reports processed;
    (2) Erroneous reports corrected;
    (3) Results of automated verification resolution efforts;
    (4) Number of audits performed; and
    (5) Enforcement documents issued.
    Paragraph (f) would require States to assist MMS in maintaining 
adequate reference, royalty, and production databases as provided in 
the Standards. Thus, States would provide corrected reference data to 
MMS such as: lease acreage, lease ownership, royalty rates,

[[Page 19973]]

unit and communitization agreement allocation factors, and payor 
information. States will have access to the reference database for use 
in various delegated functions. However, MMS will update reference data 
and maintain the reference database.
    Paragraph (g) would require States to develop annual work plans 
that:
    (1) Specify the work the State will perform for each delegated 
function; and
    (2) Identify the resources the State will commit to perform each 
delegated function. This would include the personnel, facilities, and 
equipment the State will commit to perform each delegated function.
    Paragraph (h) would require States to help MMS respond to requests 
for information from other Federal agencies, Congress, and the public. 
Thus, MMS would be responsible for responding to such requests with the 
State's assistance.
    Paragraph (i) would require that States cooperate with MMS's 
monitoring of their delegated functions. For example, States must make 
financial records available to MMS to facilitate the fiscal examination 
MMS performs as part of monitoring the State's delegated functions 
under Sec. 227.800(b)(2).
    Paragraph (j) would require States to comply with the Standards as 
required under Sec. 227.201.

Section 227.201  What standards must a State comply with for performing 
delegated functions?

    This section would explain a State's requirements to comply with 
standards for performing delegated functions. In addition to the 
requirements for performing royalty management functions under this 
part and a State's delegation agreement, MMS will set out additional 
requirements in the Standards. MMS will provide each delegated State 
with the Standards.
    Paragraph (a) would provide that if MMS delegates royalty 
management functions to a State, it must comply with the Standards. The 
Standards would provide guidelines for States to carry out specific 
delegable functions. For example, the Standards will explain the 
appropriate standards of accuracy, timeliness, and efficiency for 
States to carry out each delegated function.
    Paragraph (b) would provide that a State's delegation agreement may 
include standards in addition to those in the Standards which 
specifically apply to the functions delegated to that State.
    Paragraph (c) would provide that if a State fails to comply with 
its delegation agreement, the Standards, or any of the specific 
standards and requirements in the delegation agreement, that would be 
grounds for termination of all or part of its delegation agreement, or 
other actions as provided under Secs. 227.801 and 227.802.
    Paragraph (d) would provide that MMS may revise the Standards and 
will provide notice of those changes in the Federal Register. This 
paragraph also would provide that States must comply with any changes 
to the Standards.
    MMS would suggest formation of an advisory committee comprised of 
States receiving delegations and MMS representatives. The committee 
would be responsible for providing advice and recommendations about the 
standards and procedures required for the performance of delegable 
functions. MMS would like comments on this suggestion.

Section 227.300  What audit functions may a State perform?

    This section would explain generally that an audit consists of an 
examination of records to verify that royalty reports and payments 
accurately reflect actual production, sales, revenues and costs, and 
compliance with Federal statutes, regulations, lease terms, and MMS 
policy determinations. This section would then provide the minimum 
functions a State must perform if it requests delegation of audit 
functions. Thus, a State must perform all of the functions in this 
section if it requests delegation of audit functions.
    Paragraph (a) would require States to issue engagement letters 
informing the lessee that the State has begun an audit. This would 
ensure that lessees receive maximum advance notification of scheduled 
audits and have adequate time to furnish requested information.
    Paragraph (b) would require States to arrange for entrance 
conferences to facilitate the lessees' understanding of the audit 
process, enhance the effectiveness of the initial site visit, designate 
audit coordinators, and clarify policies regarding confidentiality.
    Paragraph (c) would require States to submit requests for records 
to lessees requesting information necessary to perform the audit.
    Paragraph (d) would require States to schedule site visits to 
examine the information the State has requested. States would be 
required to schedule site visits sufficiently in advance to allow 
lessees ample time to arrange space for the auditors and to have the 
requested information available.
    Paragraph (e) would require States to examine royalty and 
production reports to determine whether royalties and production 
volumes were properly reported and paid.
    Paragraph (f) would require States to examine lessee production and 
sales records, including contracts, payments, invoices, and 
transportation and processing costs to substantiate that production 
volumes and royalties were correctly reported and paid.
    Paragraph (g) would require States to hold closeout conferences to 
inform lessees that site visits are complete and to summarize audit 
findings to date.
    Paragraph (h) would require States to issue records releases and 
audit closure letters to lessees upon completion of an audit, as 
necessary.
    Paragraph (i) would require States to provide assistance to MMS 
regarding appealed demands or orders, including preparing field 
reports, performing remanded actions, modifying orders, and providing 
oral and written briefing and testimony as expert witnesses. Thus, 
although MMS would decide all appeals, it would rely on States to 
provide any information or assistance necessary for deciding appeals 
and developing the administrative record.

Section 227.301  What are a State's responsibilities if it performs 
audits?

    This section would explain a State's general responsibilities if it 
accepts delegation of the audit functions required under section 
227.300. The Standards and a State's delegation agreement would contain 
more specific responsibilities a State must perform if it accepts 
delegation of audit functions.
    Paragraph (a) would require States performing audits to comply with 
the MMS Audit Procedures Manual and the Government Auditing Standards 
the Comptroller General of the United States issues.
    Paragraph (b) would require States to follow the MMS Annual Audit 
Work Plan and 5-year Audit Strategy, which MMS will develop in 
consultation with States having delegated audit authority.
    Paragraph (c) would require States to agree to undertake special 
audit initiatives MMS identifies which target specific valuation or 
volume issues such as gas contract settlements and crude oil valuation.
    Paragraph (d) would require States to prepare, construct, or 
compile audit work papers under the appropriate procedures, manuals, 
and guidelines.
    Paragraph (e) would require States to prepare and submit any audit 
reports required in MMS Audit Work Plans and the Standards.
    Paragraph (f) would require States to comply with procedures for 
appealed demands or orders, including using

[[Page 19974]]

appropriate format and content for field reports and meeting 
timeframes.

Section 227.400  What functions may a State perform in processing 
production reports or royalty reports?

    This section would explain that production reporters or royalty 
reporters provide production, sales, and royalty information on mineral 
production from leases which must be collected, analyzed, and 
corrected. States may receive and process production reports or royalty 
reports, or both. This section would provide the minimum functions a 
State must perform if it requests delegation of authority to process 
production reports or royalty reports, or both.
    Paragraph (a) would provide that if a State requests delegation of 
either production report or royalty report processing functions, it 
must perform certain minimum functions. Thus, a State must perform all 
of the functions in paragraph (a) if it requests delegation of either 
production or royalty report processing functions, or both. The minimum 
functions States must perform are:
    (i) Receiving, identifying, and date stamping production reports or 
royalty reports;
    (ii) Processing production or royalty data to allow entry into a 
data base. MMS uses such data to disburse money to the proper entities 
and to provide data to States and other affected Federal agencies;
    (iii) Creating copies of reports by means such as electronic 
imaging. This requirement creates an audit record and allows for use of 
the copies in other functions such as automated verification and 
audits;
    (iv) Timely transmitting production report or royalty report data 
to MMS and other affected Federal agencies as provided in the State's 
delegation agreement and the Standards. For example, MMS transmits a 
biweekly tape of production data to BLM and monthly production data to 
the Bureau of Indian Affairs (BIA), States, and Indian tribes;
    (v) Providing training and assistance to production reporters or 
royalty reporters. For example, MMS holds periodic training meetings. 
MMS also would expect delegated States to hold these meetings. States 
processing reports also must provide telephone or written assistance to 
reporters who have questions on how to report certain transactions;
    (vi) Providing production data or royalty data to appropriate 
Federal agencies upon request. For example, States would be required to 
provide production data to BLM upon request; and
    (vii) Providing assistance to MMS for appealed demands or orders, 
including preparing field reports, performing remanded actions, 
modifying orders, and providing oral and written briefing and testimony 
as expert witnesses.
    Paragraph (b) would explain that if a State requests delegation of 
either production report or royalty report processing functions, or 
both, it may perform certain additional functions authorized under the 
Act. Unlike the functions required under paragraph (a) of this section, 
performance of the functions in this paragraph would not be mandatory. 
The optional functions would include:
    (i) Granting exceptions from reporting and payment requirements for 
marginal properties; and
    (ii) Approving alternative royalty and payment requirements for 
unit agreements and communitization agreements.

Section 227.401  What are a State's responsibilities if it processes 
production reports or royalty reports?

    This section would explain what general responsibilities a State 
must perform if it accepts delegation of the processing functions 
required under section 227.400 for production reports or royalty 
reports or both. The Standards and a State's delegation agreement would 
contain more specific responsibilities a State must perform if it 
accepts delegation of report processing functions. States must perform 
the following minimum report processing functions:
    (a) Process reports accurately and timely as provided in the 
Standards and the State's delegation agreement;
    (b) Identify fatal errors for subsequent error correction that the 
State or MMS performs;
    (c) Accept multiple forms of electronic media from reporters, as 
MMS specifies. For example, States must be able to accept electronic 
data interchange, magnetic or cartridge tapes, diskettes reporters 
prepare, e-mail, model diskettes, and template diskettes;
    (d) Timely transmit required production or royalty data to MMS and 
other affected Federal agencies. For example, MMS transmits a biweekly 
tape of production data to BLM and a monthly tape to BIA and States. A 
State delegated the function of performing processing of report 
functions would be required to timely transmit the required data to the 
appropriate agency;
    (e) Access well, lease, agreement, and reporter reference data from 
MMS and provide updated information to MMS. BLM uses this information 
for field inspections. MMS uses it in performing other royalty 
management functions such as automated verification and audits;
    (f) For production reports, maintain adequate system software edits 
to ensure compliance with the provisions of 30 CFR part 216, the PAAS 
Onshore Oil and Gas Reporter Handbook, the PAAS Reporter Handbook-
Lease, Facility/Measurement Point, and Gas Plant Operators, the PAAS 
Solid Minerals Reporter Handbook, any interagency memorandums of 
understanding to which MMS is a party, and the Standards. For example, 
when a reporter submits a production report, the lease number reported 
must match the lease number in the database;
    (g) For royalty reports, maintain adequate system software edits to 
ensure compliance with the provisions of 30 CFR part 218, the Oil and 
Gas Payor Handbook, Volume II, the Solid Minerals Payor Handbook, 
``Dear Payor'' letters, and the Standards. For example, the lease must 
be a valid lease in the system and the correct payor must pay on the 
lease; and
    (h) Comply with the procedures for appealed demands or orders, 
including using appropriate format and content for field reports and 
supplementals and meeting timeframes.

Section 227.500  What functions may a State perform to assure that 
reporters correct erroneous report data?

    This section would explain that production data and royalty data 
are subjected to numerous edits for errors which ensure that what is 
reported is correct, that disbursement is made to the proper recipient, 
and that correct data are used for other functions such as automated 
verification and audits. States may perform error correction functions 
for production reports or royalty reports, or both. This section would 
provide the minimum functions a State must perform if it requests 
delegation of authority to correct erroneous report data for production 
reports or royalty reports, or both. The minimum error correction 
functions a State must perform are:
    (a) Correcting all fatal errors and assigning appropriate 
confirmation indicators. Confirmation indicators are used for tracking 
purposes and for generating confirmation reports to operators;
    (b) Verifying missing production reports to ensure that all reports 
are received to assist BLM in field inspections and MMS in other 
functions such as automated verification and audits;

[[Page 19975]]

    (c) Contacting production reporters or royalty reporters about 
missing reports and resolving exceptions. States would be required to 
contact reporters by phone and request that they submit additional data 
and amended reports. If phone contact does not resolve the issue, the 
State would be required to send a letter or issue an order to the 
reporter;
    (d) Documenting all corrections made, including providing 
production reporters or royalty reporters with confirmation reports of 
any changes;
    (e) Providing training and assistance to production reporters or 
royalty reporters. For example, MMS routinely advises reporters on how 
to prepare their production and royalty reports. In addition, MMS holds 
reporter training sessions throughout the country several times a year. 
MMS also would expect delegated States to advise reporters on preparing 
their reports and to hold such training sessions.
    (f) Issuing notices and bills as needed, including but not limited 
to, imposing assessments on a person who chronically submits erroneous 
reports; and
    (g) Providing assistance to MMS for appealed demands or orders, 
including preparing field reports, performing remanded actions, 
modifying orders, and providing oral and written briefing and testimony 
as expert witnesses.

Section 227.501  What are a State's responsibilities to assure that 
reporters correct erroneous data?

    This section would explain what general responsibilities a State 
must perform if it accepts delegation of the error correction functions 
required under section 227.500 for production reports or royalty 
reports, or both. The Standards and a State's delegation agreement 
would contain more specific responsibilities a State must perform if it 
accepts delegation of error correction functions. States must perform 
the following minimum error correction functions:
    (a) Ensure compliance with the provisions of 30 CFR parts 216 and 
218, any applicable handbook specified under 30 CFR 401 (f) and (g), 
inter-agency memorandums of understanding to which MMS is a party, and 
the Standards;
    (b) Assure that reporters accurately and timely correct all fatal 
errors as designated in the Standards. These errors include, for 
example, invalid or incorrect reporter/payor codes, incorrect lease/
agreement numbers, and missing data fields. The Standards would list 
fatal edits for both production reports and royalty reports;
    (c) Submit accepted and corrected lines to MMS to allow processing 
into the Auditing and Financial System (AFS) and the Production 
Accounting and Auditing System (PAAS) in a timely manner as provided in 
the Standards and 30 CFR 219; and
    (d) Comply with the procedures for appealed demands or orders, 
including using appropriate format and content for field reports and 
meeting timeframes.

Section 227.600  What automated verification functions may a State 
perform?

    This section would explain that automated verification involves 
systematic monitoring of production and royalty reports to identify and 
resolve reporting or payment discrepancies. This section would provide 
the minimum functions a State must perform if it requests delegation of 
automated verification functions.
    Paragraph (a) would provide that States may perform automated 
comparison of sales volumes reported by royalty reporters to sales and 
transfer volumes reported by production reporters. Paragraph (a) also 
would provide that if a State requests delegation of automated 
comparison of sales and production volumes, it must perform at least 
the following functions:
    (1) Performing an initial sales volume comparison between royalty 
and production reports;
    (2) Performing subsequent comparisons when reporters adjust royalty 
or production reports;
    (3) Checking unit prices for reasonable product valuation based on 
reference price ranges MMS provides;
    (4) Resolving volume variances using written correspondence, 
telephone inquiries, or other media;
    (5) Maintaining appropriate file documentation to support case 
resolution; and
    (6) Issuing orders to correct reports or payments.
    Paragraph (b) would provide that a State requesting delegation of 
authority to perform automated comparison of sales and production 
volumes also may perform functions in addition to those it must perform 
under paragraph (a) of this section. States may perform any one or more 
of the following additional automated verification functions:
    (1) Verifying compliance with lease financial terms, such as 
payment of rent, minimum royalty, and advance royalty;
    (2) Identifying and resolving improper adjustments. This involves 
trying to adjust a previously reported line with a line that does not 
match;
    (3) Identifying late payments and insufficient estimates, including 
calculating interest owed to MMS and verifying payor-calculated 
interest owed to MMS;
    (4) Calculating interest due to a lessee or its designee for an 
adjustment or refund, including identifying overpayments and excessive 
estimates, except for solid mineral and geothermal leases. MMS cannot 
delegate authority to calculate interest due a lessee or its designee 
for solid mineral and geothermal leases because MMS is not authorized 
under the Act to pay interest to such lessees or their designees. MMS 
cannot delegate authority it does not have.
    (5) Verifying royalty rates;
    (6) Verifying compliance with transportation and processing 
allowance limitations; and
    (7) Manually checking and confirming corrected reports or payments.
    Paragraph (c) would require States to issue any notices and bills 
associated with any of the functions under paragraphs (a) and (b) of 
this section.
    Paragraph (d) would require States to provide assistance to MMS for 
appealed demands or orders, including preparing field reports, taking 
remanded actions, modifying orders, and providing oral and written 
briefing and testimony as expert witnesses.

Section 227.601  What are my responsibilities if I perform automated 
verification?

    This section would explain what general responsibilities a State 
must perform if it accepts delegation of the automated verification of 
production reports or royalty reports functions required under section 
227.600 for production reports or royalty reports, or both. The 
Standards and a State's delegation agreement would contain more 
specific responsibilities a State must perform if it accepts delegation 
of automated verification of production report or royalty report 
functions. States must perform the following minimum automated 
verification functions:
    (a) Verify through research and analysis all identified exceptions, 
and prepare the appropriate billings, assessment letters, warning 
letters, notification letters, Lease Problem Reports, other internal 
forms required, and correspondence required to perform any required 
follow-up action for each function, as specified in the Standards or 
the State's delegation agreement;
    (b) Resolve and respond to all production reporter or royalty 
reporter inquiries;
    (c) Maintain all documentation and logging procedures as specified 
in the Standards or the State's delegation agreement;

[[Page 19976]]

    (d) Access well, lease, agreement, and production reporter or 
royalty reporter reference data from MMS and provide update information 
to MMS. Thus, States will have access to the reference database but MMS 
will update reference data and maintain and update the reference 
database; and
    (e) Comply with procedures for appealed demands and orders, 
including using appropriate format and content for field reports and 
meeting timeframes.

Section 227.700  What enforcement documents may a State issue in 
support of its delegated function?

    This section would explain what enforcement actions a State may 
take as part of its delegated functions.
    Paragraph (a) would provide that States may issue demands, 
subpoenas (except for solid minerals and geothermal leases), and orders 
to perform restructured accounting, including related notices to 
lessees and their designees. Unlike Federal oil and gas leases, under 
the Act MMS does not have statutory authority to issue subpoenas for 
solid mineral and geothermal leases. Thus, MMS cannot delegate this 
authority to States.
    Paragraph (a) also would provide that States may enter into tolling 
agreements under section 15(d)(1) of the Act, 30 U.S.C. 1725(d)(1).
    Paragraph (b) would provide that, when a State issues any 
enforcement document, it must comply with the requirements of section 
115 of the Act, 30 U.S.C. 1725.
    Paragraph (c) would explain the requirements a State must comply 
with when it issues a demand or enters into a tolling agreement under 
section 15(d)(1) of the Act, 30 U.S.C. 1725(d)(1). When a State issues 
a demand or enters into a tolling agreement, the highest State official 
having ultimate authority over the collection of royalties or the State 
official to whom that authority has been delegated must sign the demand 
or tolling agreement.
    Paragraph (d) would explain what requirements a State must meet 
when issuing subpoenas or orders to perform restructured accounting. 
When a State issues a subpoena or order to perform a restructured 
accounting, it must:
    (1) Coordinate with MMS to assure identification of issues that may 
concern more than one State before it issues subpoenas and orders to 
perform restructured accounting. The purpose of this paragraph is to 
ensure that issues of national importance are pursued in a uniform and 
coordinated manner; and
    (2) Assure that the highest State official having ultimate 
authority over the collection of royalties signs any subpoenas and 
orders to perform restructured accounting, as required under section 
115 of the Act, 30 U.S.C. 1725. Unlike demands and tolling agreements, 
such officials may not delegate signature authority for subpoenas and 
orders to perform restructured accounting to any other person.

Performance Review

Section 227.800  How will MMS monitor a State's performance of 
delegated functions?

    This section would provide procedures that MMS would use to monitor 
a State's performance of its delegated functions.
    Paragraph (a) would provide that a monitoring team comprised of MMS 
officials would monitor a State's performance of the delegated 
functions under its delegation agreement. The team would be comprised 
of MMS experts from each of the delegated function areas. Please 
provide comment to MMS if you have suggestions on how MMS should form 
this team.
    Paragraph (b) would provide that the Standards will specify the 
frequency of monitoring for each delegated function.
    Paragraph (c) would specify how the monitoring team would monitor a 
State's performance of each delegated function. The monitoring team 
would:
    (1) Perform reviews to verify that the State is complying with the 
Standards and 30 U.S.C. Sec. 1735;
    (2) Conduct fiscal examinations to verify that the State's costs 
are eligible for reimbursement;
    (3) Periodically review the State's statistical reports required 
under Sec. 227.200(e) to verify the State's accuracy, timeliness, and 
efficiency;
    (4) Check for timely transmittal of production report or royalty 
report information to MMS and other affected agencies, as applicable, 
to allow for proper disbursement of funds and processing of 
information;
    (5) Schedule on site visits and Office of The Inspector General, 
General Accounting Office, and MMS audits of the State's performance of 
its delegated functions; and
    (6) Maintain reports of its monitoring activities.

Section 227.801  What if a State does not adequately perform a 
delegated function?

    This section would explain the steps MMS may take if a State's 
performance of a delegated function does not comply with its delegation 
agreement, or the Standards, or if MMS finds that the State can no 
longer meet the statutory requirements under Sec. 227.106.
    Paragraph (a) would provide that MMS would notify a State in 
writing of its noncompliance or inability to comply with its delegation 
agreement, or the Standards, or the statutory requirements under 
Sec. 227.106. The notice would prescribe corrective actions a State 
must take, and how long it would have to comply. A State could ask MMS 
for an extension of time to comply with the notice and would be 
required to explain why it needs more time to comply.
    Paragraph (b) would provide that if a State did not take the 
prescribed corrective actions within the time that MMS allows in a 
notice issued under paragraph (a) of this section, then MMS may:
    (1) Initiate proceedings under Sec. 227.802 to terminate all or a 
part of the State's delegation agreement;
    (2) Withhold compensation provided to the State under Sec. 227.112; 
and
    (3) Perform the delegated function, prior to terminating or without 
terminating the State's delegation agreement, including, but not 
limited to, issuing a demand or order to a Federal lessee, or its 
designee, or any other person when:
    (i) The State's failure to issue the demand or order would result 
in an underpayment of an obligation due MMS; and
    (ii) Such underpayment would go uncollected without MMS 
intervention.

Section 227.802  How may MMS terminate a State's delegation agreement?

    This section would explain the procedures MMS would use to 
terminate either a State's entire delegation agreement or a part of a 
State's delegation agreement.
    Paragraph (a) would provide that MMS will notify a State in writing 
that it is initiating procedures to terminate the State's delegation 
agreement.
    Paragraph (b) would state that MMS will provide a State with notice 
and opportunity for a hearing under Sec. 227.803.
    Paragraph (c) would provide that after the hearing, MMS may:
    (1) Terminate a State's delegation agreement; or
    (2) Allow the State 30 days to correct any remaining deficiencies. 
If the State did not correct the deficiency within 30 days, MMS would 
terminate all or a part of the State's delegation agreement.

[[Page 19977]]

Section 227.803  What are the hearing procedures for terminating a 
State's delegation agreement?

    This section would explain the hearing procedures MMS would 
establish to assist it in determining whether to terminate all or a 
part of a State's delegation agreement.
    Paragraph (a) would provide that the MMS Director would appoint a 
hearing official to conduct one or more public hearings for fact 
finding and to determine any actions a State must take to correct the 
noncompliance identified in Sec. 227.801(c). The hearing official would 
act solely as a fact finder and would not decide whether to terminate a 
State's delegation agreement.
    Paragraphs (b) through (g) of this proposed section are self-
explanatory.
    Paragraph (h) would provide that information presented at each 
public hearing will help MMS to determine whether:
    (1) The State has complied with the terms and conditions of its 
delegation agreement; or
    (2) The State has the capability to comply with the requirements 
under Sec. 227.106.

Section 227.804  How else may a State's delegation agreement terminate?

    This section would explain that a State may terminate its 
delegation at any time by giving MMS a 90-day written notice of intent 
to terminate. MMS would require 90 days notice to allow it to prepare 
to reassume the functions it had delegated to the State. In addition, 
industry would require the 90 days to readjust its systems to reflect 
any change.

Section 227.805  How may a State obtain a new delegation agreement 
after termination?

    This section would explain that a State may apply again for 
delegation by beginning with the proposal process under this part after 
its delegation agreement terminates.
    The MMS's Royalty Management Program will post the comments 
received on the Internet homepage at www.rmp.mms.gov.

IV. Procedural Matters

The Regulatory Flexibility Act

    The Department certifies that this rule will not have significant 
economic effect on a substantial number of small entities as that term 
is defined under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
Some small entities might have activities in more than one State. While 
these companies could be required to report to several States instead 
of only the Federal Government under the proposed rule, they would not 
have to file different reports. Instead, they would file the same 
reports that they do now, but to a greater number of regulatory 
authorities. The proposed rule will provide procedures and standards 
for States interested in developing and maintaining an efficient and 
effective Federal royalty management system for those functions 
delegable to States under the Federal Oil and Gas Royalty 
Simplification and Fairness Act of 1996, Pub. L. 104-185, August 13, 
1996, as corrected by Pub. L. 104-200.

Executive Order 12630

    The Department certifies that the rule does not represent a 
governmental action capable of interference with constitutionally 
protected rights. Thus, a Takings Implication Assessment need not be 
prepared under Executive Order 12630, ``Governmental Actions and 
Interference with Constitutionally Protected Property Rights.''

Executive Order 12866

    This proposed rule is significant under the Executive Order 12866. 
The Office of Management and Budget (OMB) has reviewed the rule. 
Although this rule will result in an increased reporting burden, there 
will be several offsetting benefits which include: incentives to States 
and increased State participation in Federal activities; agency 
compliance with the statute.

Executive Order 12988

    The Department has certified to OMB that this rule meets the 
applicable reform standards provided in section 3(a) and (b)(2) of 
Executive Order 12988.

Paperwork Reduction Act

    This proposed rule contains a collection of information which has 
been submitted to the Office of Management and Budget (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, Washington, DC 20503. Send 
copies of your comments to Minerals Management Service, Royalty 
Management Program, Rules and Procedures Staff, P.O. Box 25165, MS 
3101, Denver, Colorado 80225-0165; courier address is Building 85, 
Denver Federal Center, Denver, Colorado 80225; e:Mail address is 
David____G[email protected].
    OMB has up to 60 days to approve or disapprove this collection of 
information but may respond after 30 days. Therefore, public comments 
should be submitted to OMB within 30 days in order to assure their 
maximum consideration. However, MMS will consider all comments received 
during the comment period for this notice of proposed rulemaking.
    The information collection is titled Delegation of Authority to 
States (OMB Control Number 1010-0088). Recently enacted legislation 
expands the scope of royalty management functions that the Secretary 
may delegate to States. See the Federal Oil and Gas Royalty 
Simplification and Fairness Act of 1996, Pub. L. 104-185, as corrected 
by Pub. L. 104-200 (RSFA). The functions that MMS may delegate under 
RSFA are:
    (1) Conducting audits and investigations;
    (2) Receiving and processing production and royalty reports;
    (3) Correcting erroneous report data;
    (4) Performing automated verification; and
    (5) Issuing demands, subpoenas (except for solid mineral and 
geothermal leases), orders to perform restructured accounting, and 
related tolling agreements and notices to lessees or their designees.
    With the increase in the number of delegable functions, the 
paperwork burden upon those States assuming additional delegable 
functions and upon industry which will now be interacting with several 
States as well as with MMS will increase.
    For example, a State requesting a delegation of any of these 
functions must prepare and submit information to MMS including an 
application to perform the delegable functions, evidence and testimony 
for the hearing process, expense vouchers for cost reimbursement, and 
annual workplans for MMS review. A delegated State must also maintain 
records in accordance with applicable Federal recordkeeping 
requirements. This information is necessary for tracking purposes, for 
an audit trail, and to document that the State can perform the 
delegated royalty management functions effectively and efficiently. MMS 
will use this information to evaluate applications for delegation and 
to monitor and review a State's performance of its delegated functions.
    Currently 38 States receiving royalties from MMS could request a 
delegation. MMS assumes that four of the larger producing States may 
request a delegation of expanded functions

[[Page 19978]]

beyond those they already perform. Approved delegations will last for 3 
years but can be extended for another 3 years. States may submit 
vouchers for cost reimbursement monthly or quarterly. States must 
submit delegable function workplans annually. MMS will specify the 
frequency of monitoring and reviewing a State's performance in the 
delegation agreement.
    In the current Delegation of Authority to States information 
collection, MMS estimated the annual burden hours to the States to be 
800 hours. This was based on 10 States conducting delegated audits 
spending 40 hours preparing workplans and 40 hours preparing vouchers: 
[40 hours (workplans) + 40 hours (vouchers)]  x  10 States = 800 annual 
burden hours. In retrospect, our estimate of 80 annual burden hours per 
State was low. Additional responsibilities that a State must assume 
under the new legislation when they elect to perform a delegable 
function include application and hearing preparation--40 annual burden 
hours, voucher preparation--120 annual burden hours, annual workplan 
preparation--40 annual burden hours, and recordkeeping--200 annual 
burden hours. Experience gained over the last several years indicates 
that each State that is conducting delegated audits is spending 
approximately 400 annual burden hours, not 80, and that MMS's original 
estimate of 800 annual burden hours for 10 States should be revised to 
4,000 annual burden hours: [40 annual burden hours + 120 + 40 + 200] 
x  10 States = 4,000 annual burden hours.
    MMS estimates 8,000 burden hours for the four States to perform all 
five delegable functions: 400 annual burden hours per function  x  4 
States  x  5 functions = 8,000 annual burden hours. If six other States 
continued conducting delegated audits, MMS estimates that burden at 
2,400 burden hours: 400 annual burden hours  x  6 States = 2,400 annual 
burden hours. With the additional delegated functions, the total annual 
burden hour estimate for this information collection will increase to 
10,400. Using a cost of $25 an hour, the annual cost burden estimate is 
$260,000. The Federal Government will reimburse some of these costs out 
of current appropriations. However, States could incur additional start 
up costs, such as purchasing equipment necessary to perform a delegated 
function, that may not be reimbursable.
    The MMS expects that the annual burden for industry will increase 
by a total of 200,000 burden hours for approximately 4,500 payors and 
reporters providing royalty and production reports to MMS. If four 
States perform delegable functions and each State affects approximately 
1,000 payors and reporters, MMS estimates that each payor or reporter 
would spend 50 burden hours annually coordinating their interactions 
and communications among the several States and with MMS. For example, 
if a payor sends reports to the State but sends payments to MMS, the 
payor must coordinate not only with MMS, as is currently done, but also 
with the State. This will result in an annual burden on industry of 
200,000 hours: 1,000 reporters or payors  x  4 States  x  50 annual 
burden hours = 200,000 annual burden hours. Using a cost of $25 an 
hour, the annual cost burden estimate is $5,000,000.
    Based on our current experience with administering the delegated 
audit function 10 States conduct, MMS's annual burden estimate is 900 
hours per State for admninistering the delegated audit function and an 
additional 300 hours per State for issuing related demand letters. 
Since MMS will no longer issue demand letters, the 300 burden hour 
estimate will decrease to an estiamte of 50 annual burden hours for 
monitoring purposes. MMS's total burden for the six States continuing 
to perform delegated audits plus assuming the responsibility of issuing 
demand letters would be 5,700 annual burden hours: [900 hours  x  1 
function (delegated audits)  x  6 States] + [50 hours  x  1 function 
(issue demand letters)  x  6 States] = 5,700 annual burden hours. The 
annual burden hours to the Federal Government for four States assuming 
all five functions would be 14,600 hours: [900 annual burden hours per 
function  x  4 functions (all except issue demands)  x  4 States] + [50 
annual burden hours  x  1 function (demand letter monitoring)  x  4 
States)] = 14,600 annual burden hours. MMS estimates the annual burden 
hours to the Federal Government for this information collection at 
20,300. Using a cost of $25 an hour, the annual cost burden estimate is 
$507,500.
    In compliance with the requirement of Section 3506(c)(2)(A) of the 
Paperwork Reduction Act of 1995, MMS is providing notice and otherwise 
consulting with members of the public and affected agencies concerning 
collection of information in order to solicit comment to: (a) evaluate 
whether the proposed collection of information is necessary for the 
proper performance of the functions of the agency, including whether 
the information is useful; (b) evaluate the accuracy of the agency's 
estimate of the burden of the proposed collection of information; (c) 
enhance the quality, utility, and clarity of the information to be 
collected; and (d) minimize the burden of the collection of information 
on those who are to respond, including using automated collection 
techniques or other forms of information technology.
    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.

Unfunded Mandates Reform Act of 1995

    The Department has determined and certifies according to 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 
local, tribal, State governments or the private sector.

National Environmental Policy Act of 1969

    We have determined that this rulemaking is not a major Federal 
action significantly affecting the quality of the human environment, 
and a detailed statement under section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) is not 
required.

List of Subjects in 30 CFR Parts 227, 228 and 229

    Coal, Continental shelf, Geothermal energy, Government contracts, 
Mineral royalties, Natural gas, Petroleum, Public lands--mineral 
resources, Reporting and recordkeeping requirements.

    Dated: March 28, 1997.
Bob Armstrong,
Assistant Secretary for Land and Minerals Management.

    For the reasons set out in the preamble, 30 CFR part 227 is 
proposed to be added and parts 228 and 229 are proposed to be amended 
to read as follows:
    1. Part 227 is added to read as follows:

PART 227--DELEGATION TO STATES

Delegation of MMS Royalty Functions

Sec.
227.1  What is the purpose of this part?
227.100  What States may request delegation?
227.101  What royalty management functions may MMS delegate to a 
State?
227.102  What royalty management functions will MMS not delegate?

Delegation Proposals

227.103  What must a State's delegation proposal contain?
227.104  What will MMS do when it receives a State's delegation 
proposal?
227.105  What are the hearing procedures?
227.106  What statutory requirements must a State meet to receive a 
delegation?

[[Page 19979]]

227.107  When will the MMS Director decide whether to approve a 
State's delegation proposal?
227.108  How will MMS notify a State of its decision?
227.109  What if the MMS Director denies a State's delegation 
proposal?
227.110  How long are delegation agreements effective?

Existing Delegations

227.111  Do existing delegation agreements remain in effect?

Compensation

227.112  What compensation will a State receive to perform delegated 
functions?

States' Responsibilities to Perform Delegated Functions

227.200  What are a State's general responsibilities if it accepts a 
delegation?
227.201  What standards must a State comply with for performing 
delegated functions?
227.300  What audit functions may a State perform?
227.301  What are a State's responsibilities if it performs audits?
227.400  What functions may a State perform in processing production 
reports and royalty reports?
227.401  What are a State's responsibilities if it processes 
production reports or royalty reports?
227.500  What functions may a State perform to ensure that reporters 
correct erroneous report data?
227.501  What are a State's responsibilities to ensure that 
reporters correct erroneous data?
227.600  What automated verification functions may a State perform?
227.601  What are a State's responsibilities if it performs 
automated verification?
227.700  What enforcement documents may a State issue in support of 
its delegated function?

Performance Review

227.800  How will MMS monitor a State's performance of delegated 
functions?
227.801  What if a State does not adequately perform a delegated 
function?
227.802  How will MMS terminate a State's delegation agreement?
227.803  What are the hearing procedures for termination of a 
State's delegation agreement?
227.804  How else may a State's delegation agreement terminate?
227.805  How may a State obtain a new delegation agreement after 
termination?

    Authority: 30 U.S.C. 1735; 30 U.S.C. 196.

Delegation of MMS Royalty Functions


Sec. 227.1  What is the purpose of this part?

    This part provides procedures to delegate Federal royalty 
management functions to States under Section 205 of the Federal Oil and 
Gas Royalty Management Act of 1982 (the Act), 30 U.S.C. 1735, as 
amended by the Federal Oil and Gas Royalty Simplification and Fairness 
Act of 1996 Pub. L. 104-185, August 13, 1996, as corrected by Pub. L. 
104-200. This part also provides procedures to delegate similar 
functions to States under Pub. L. 102-154 for solid mineral leases, 
geothermal leases, and leases subject to section 8(g) of the Outer 
Continental Shelf Lands Act, 43 U.S.C. 1337(g). This part does not 
apply to any inspection or enforcement responsibilities of BLM for 
onshore leases or the MMS Offshore Minerals Management program for 
leases on the Outer Continental Shelf.


Sec. 227.100  What States may request delegation?

    You may request a delegation of royalty management functions under 
this part if:
    (a) You have oil and gas leases subject to the Act on Federal lands 
within your State;
    (b) You have oil and gas leases offshore of your State subject to 
section 8(g) of the Outer Continental Shelf Lands Act, 43 U.S.C. 
1337(g);
    (c) You have solid mineral leases or geothermal leases on Federal 
lands within your State.


Sec. 227.101  What royalty management functions may MMS delegate to a 
State?

    MMS may delegate the following royalty management functions under 
this part:
    (a) Conducting audits and investigations;
    (b) Receiving and processing production or royalty reports;
    (c) Correcting erroneous report data;
    (d) Performing automated verification; and
    (e) Issuing demands, subpoenas (except for solid mineral and 
geothermal leases), and orders to perform restructured accounting, 
including related notices to lessees or their designees, and entering 
into tolling agreements under section 115(d)(1) of the Act, 30 U.S.C. 
1725(d)(1).


Sec. 227.102  What royalty management functions will MMS not delegate?

    This section lists the principal royalty management functions that 
MMS will not delegate to a State. MMS will not delegate to a State the 
following functions:
    (a) MMS must collect all moneys received from sales, bonuses, 
rentals, royalties, civil penalties, assessments and interest. MMS also 
must collect any moneys a lessee or its designee pays because of audits 
or other actions of a delegated State;
    (b) MMS must compare all cash and other payments it receives with 
payments shown on royalty reports or other documents, such as bills, to 
reconcile payor accounts. MMS also must disburse all appropriate moneys 
to States and other revenue recipients, including refunds and interest 
owed to lessees and their designees;
    (c) The Department of the Interior will receive, process, and 
decide all administrative appeals from demands or other orders issued 
to lessees, their designees, or any other person, including demands or 
orders a delegated State issues;
    (d) Only MMS may take enforcement actions other than issuing 
demands, subpoenas and orders to perform restructured accounting. MMS 
will issue notices of non-compliance and civil penalties, collect 
debts, write-off delinquent debts, pursue litigation, enforce 
subpoenas, and manage alternative dispute resolution. MMS will conduct, 
coordinate, and approve any settlement or other compromise of an 
obligation that a lessee or its designee owes;
    (e) MMS will decide all valuation policies, including issuing 
valuation regulations, determinations, and guidelines, and interpreting 
valuation regulations; and
    (f) MMS may reserve additional authorities and responsibilities not 
included in paragraphs (a) through (e) of this section.

Delegation Programs


Sec. 227.103  What must a State's delegation proposal contain?

    If you want MMS to delegate royalty management functions to you, 
then you must submit a delegation proposal to the MMS Associate 
Director for Royalty Management. MMS will provide you with technical 
assistance and information to help you prepare your delegation 
proposal. Your proposal must contain the following minimum information:
    (a) The name and title of the State official authorized to submit 
the delegation proposal and execute the delegation agreement;
    (b) The name, address, and telephone number of the State contact 
for the proposal;
    (c) A copy of the legislation, State Attorney General opinion, or 
other document that:
    (1) States which State entity is responsible for performing 
delegated functions; and
    (2) Demonstrates the State's authority to:
    (i) Accept a delegation from MMS; and
    (ii) Receive State or Federal appropriations to perform delegated 
functions;
    (d) The date you propose to begin performing delegated functions;

[[Page 19980]]

    (e) A detailed statement of the delegable functions that you 
propose to perform. For each function, describe the resources available 
in your State to perform each function, the procedures you will use to 
perform each function, and how you will ensure that you will meet all 
Federal laws, lease terms, regulations, and relevant performance 
standards. As evidence that you have or will have the resources to 
perform each delegable function, you must provide the following 
information:
    (1) A description of the personnel you have available to perform 
delegated functions, including:
    (i) How many persons you will assign full-time and part-time to 
each delegated function;
    (ii) The technical qualifications of the key personnel you will 
assign to each function, including academic field and degree, 
professional credentials, and quality and amount of experience with 
similar functions; and
    (iii) Whether these persons are currently State employees. If not, 
how you propose to hire these persons or obtain their services, and 
when you expect to have those persons available to perform delegated 
functions.
    (2) A description of the facilities you will use to perform 
delegated functions, including:
    (i) Whether you currently have the facilities in which you will 
physically locate the personnel and equipment you will need to perform 
the functions you propose to assume. If not, how you propose to acquire 
these facilities, and when you expect to have the facilities available;
    (ii) How convenient the location is for travel to and communication 
with lessees and Federal regulatory officials;
    (iii) How much office space is available; and
    (iv) How you currently are using those facilities.
    (3) Describe the equipment you will use to perform delegated 
functions, including:
    (i) Hardware and software you will use to perform each delegated 
function, including equipment for:
    (A) Document processing, including compatibility with MMS automated 
systems, electronic commerce capabilities, and data storage 
capabilities;
    (B) Accessing reference data;
    (C) Contacting production or royalty reporters;
    (D) Issuing demands;
    (E) Maintaining accounting records;
    (F) Performing automated verification;
    (G) Maintaining security of confidential and proprietary 
information; and
    (H) Providing data to other Federal agencies.
    (ii) Whether you currently have the equipment you will need to 
perform the functions you propose to assume. If not, how you propose to 
acquire the equipment and when you expect to have such equipment 
available.
    (f) Your estimates of the costs to fund the following resources 
necessary to perform the delegation:
    (1) Personnel, including hiring, employee salaries and benefits, 
travel, and training;
    (2) Facilities, including acquisition, upgrades, operation, and 
maintenance;
    (3) Equipment, including acquisition, operation, and maintenance;
    (g) Your plans to fund the resources under paragraph (f) of this 
section, including any items you will ask MMS to fund under the 
delegation agreement;
    (h) A statement identifying any areas where State law may limit 
your ability to perform delegated functions. Explain what actions you 
propose to remove any such limitation;
    (i) A statement that, in accordance with section 203 of the Act (30 
U.S.C. 1733), persons who have access to information received under 
delegated functions are subject to the same provisions of law regarding 
confidentiality and disclosure of that information as Federal 
employees. Applicable laws include the Freedom of Information Act, the 
Trade Secrets Act, and relevant Executive Orders (FOIA). In addition, 
your statement must acknowledge that all documents produced, received, 
and maintained as part of any delegation functions are agency records 
for purposes of FOIA; and


Sec. 227.104  What will MMS do when it receives a State's delegation 
proposal?

    When MMS receives your delegation proposal, it will record the 
receipt date. MMS will notify you in writing within 15 business days 
whether your proposal is complete. If it is not complete, MMS will 
identify any missing items that Sec. 227.103 of this part requires. 
Once you submit all required information, MMS will notify you of the 
date your application is complete.


Sec. 227.105  What are the hearing procedures?

    After MMS notifies you that your delegation proposal is complete, 
MMS will schedule a hearing on your proposal as follows:
    (a) The MMS Director will appoint a hearing official to conduct one 
or more public hearings for fact-finding regarding your ability to 
assume the delegated functions requested. The hearing official will not 
decide whether to approve your delegation request;
    (b) The hearing official will contact you about scheduling a 
hearing date and location;
    (c) The hearing official will publish notice of the hearing in the 
Federal Register and other appropriate media within your State;
    (d) At the hearing, you will have an opportunity to present 
testimony and written information in support of your proposal;
    (e) Other persons may attend the hearing and may present testimony 
and written information for the record;
    (f) MMS will record the hearing;
    (g) MMS will maintain a record of all documents related to the 
proposal process;
    (h) After the hearing, MMS may require you to submit additional 
information in support of your delegation proposal.


Sec. 227.106  What statutory requirements must a State meet to receive 
a delegation?

    The MMS Director will decide whether to approve your delegation 
request and will ask the Secretary of the Interior to concur in the 
decision. That decision is solely within the MMS Director's and the 
Secretary's discretion. The MMS Director's decision in which the 
Secretary concurs in is the final decision for the Department. The MMS 
Director may approve a State's request for delegation only if, based 
upon the State's delegation proposal and the hearing record, the MMS 
Director finds that:
    (a) It is likely that the State will provide adequate resources to 
achieve the purposes of the Act;
    (b) The State has demonstrated that it will effectively and 
faithfully administer MMS rules under the Act in accordance with the 
requirements of subsections (c) and (d) of section 205 of the Act;
    (c) The delegation will not create an unreasonable burden on any 
lessee;
    (d) The State agrees to adopt standardized reporting procedures 
prescribed by MMS for royalty and production accounting purposes, 
unless the State and all affected parties (including MMS and lessees 
and their designees) agree otherwise;
    (e) The State agrees to follow and adhere to regulations and 
guidelines issued by MMS under the mineral leasing laws regarding 
valuation of production; and
    (f) Where necessary for a State to carry out and enforce a 
delegated activity, the State agrees to enact laws and rules consistent 
with relevant Federal laws and regulations.

[[Page 19981]]

Sec. 227.107  When will the MMS Director decide whether to approve a 
State's delegation proposal?

    The MMS Director will decide whether to approve your delegation 
proposal within 90 days after your delegation proposal is complete. MMS 
may extend the 90-day period with your written consent.


Sec. 227.108  How will MMS notify a State of its decision?

    MMS will notify you in writing of its decision on your delegation 
proposal. If MMS approves your delegation proposal, then MMS will hold 
discussions with you to develop a delegation agreement detailing the 
functions that you will perform and the standards and requirements you 
must comply with to perform those functions.


Sec. 227.109  What if the MMS Director denies a State's delegation 
proposal?

    If the MMS Director denies your delegation proposal, MMS will state 
the reasons for denial. MMS also will inform you in writing of the 
conditions you must meet to receive approval. You may submit a new 
delegation proposal at any time following a denial.


Sec. 227.110  How long are delegation agreements effective?

    (a) Delegation agreements are effective for 3 years.
    (b) After 3 years, you may ask MMS to renew the delegation for an 
additional 3 years. No later than 6 months prior to the expiration of 
your 3-year delegation agreement, you must submit your renewal request 
to the MMS Associate Director for Royalty Management as follows:
    (1) If you do not want to change the terms of your delegation 
agreement for the renewal period, you need only ask to extend your 
existing agreement for the 3-year renewal period. MMS will not schedule 
a hearing unless you request one;
    (2) If you want to change the terms of your delegation agreement 
for the renewal period, you must submit a new delegation proposal under 
this part.
    (c) The MMS Director may approve your renewal request only if MMS 
determines that you are meeting the requirements of the applicable 
standards and regulations. If the MMS Director denies your renewal 
request, MMS will state the reasons for denial. MMS also will inform 
you in writing of the conditions you must meet to receive approval. You 
may submit a new renewal request at any time following a denial, but 
not after your current agreement expires.
    (d) After the 3-year renewal period for your delegation agreement 
ends, you must request a new delegation agreement from MMS under this 
part. No hearing will be held unless you request one or you want to 
change the terms of your delegation agreement. As part of the decision 
whether to approve your request for a new delegation, the MMS Director 
will consider whether you are meeting the requirements of the 
applicable standards and regulations under your existing delegation 
agreement.

Existing Delegations


Sec. 227.111  Do existing delegation agreements remain in effect?

    This section explains your options if you have a delegation 
agreement in effect on [the effective date of the final rule].
    (a) If you do not want to perform any royalty management functions 
in addition to those authorized under your existing agreement, you may 
continue your existing agreement until its expiration date. After the 
agreement expires, you must receive a new delegation agreement meeting 
the requirements of this part and the applicable standards.
    (b) If you want to perform royalty management functions in addition 
to those authorized under your existing agreement, you must request a 
new delegation agreement under this part.
    (c) MMS may extend any delegation agreement in effect on [the 
effective date of the final rule] for up to 3 years beyond the date it 
is due to expire.

Compensation


Sec. 227.112  What compensation will a State receive to perform 
delegated functions?

    You will receive compensation for your costs to perform each 
delegated function subject to the following conditions:
    (a) Compensation for costs is subject to Congressional 
appropriations;
    (b) Compensation may not exceed the reasonably anticipated 
expenditures that MMS would incur to perform the same function;
    (c) The cost for which you request compensation must be directly 
related to your performance of a delegated function and necessary for 
your performance of that delegated function;
    (d) You must provide vouchers detailing your expenditures quarterly 
or monthly during the fiscal year as stated in your delegation 
agreement;
    (e) You must maintain adequate books and records to support your 
vouchers;
    (f) MMS will pay you quarterly or monthly during the fiscal year as 
stated in your delegation agreement; and
    (g) MMS may withhold compensation to you for your failure to 
properly perform any delegated function under section 227.801 of this 
part.

States' Responsibilities To Perform Delegated Functions


Sec. 227.200  What are a States' general responsibilities if it accepts 
a delegation?

    For each delegated function you perform, you must:
    (a) Operate in compliance with all Federal laws, regulations, and 
Secretarial and MMS determinations and orders relating to calculating, 
reporting, and paying mineral royalties and other revenues. If you need 
guidance on or interpretation of any applicable Federal requirement, 
you must submit a written request for guidance or interpretation to the 
appropriate MMS official. MMS will respond to your request in writing, 
and you must follow the interpretation or guidance given;
    (b) Comply with Generally Accepted Accounting Principles (GAAP). 
You must:
    (1) Provide complete disclosure of financial results of activities;
    (2) Maintain correct and accurate records of all mineral-related 
transactions and accounts;
    (3) Maintain effective controls and accountability;
    (4) Maintain a system of accounts that includes a comprehensive 
audit trail so that all entries may be traced to one or more source 
documents; and
    (5) Maintain adequate royalty and production information for 
royalty management purposes.
    (c) Assist MMS in meeting the requirements of the Government 
Performance and Results Act (GPRA) as well as assisting in developing 
and endeavoring to comply with the MMS Strategic Plan and Performance 
Measurements;
    (d) Maintain all records you obtain or create under your delegated 
function, such as royalty reports, production reports, and other 
related information. You must maintain records in a safe, secure 
manner, including taking appropriate measures for protecting 
confidential and proprietary information and assisting MMS in 
responding to Freedom of Information Act requests when necessary. You 
must maintain records for at least 7 years;
    (e) Provide reports to MMS about your activities under your 
delegated functions. MMS will specify in your delegation agreement and 
the MMS Standards for Delegation (Standards) what reports you must 
submit and how often you must submit them. At a minimum, you must 
provide periodic statistical reports to MMS summarizing the activities 
you carried out, such as:

[[Page 19982]]

    (1) Production and royalty reports processed;
    (2) Erroneous reports corrected;
    (3) Results of automated verification findings;
    (4) Number of audits performed; and
    (5) Enforcement documents issued.
    (f) Assist MMS in maintaining adequate reference, royalty, and 
production databases as provided in the Standards;
    (g) Develop annual work plans that:
    (1) Specify the work you will perform for each delegated function; 
and
    (2) Identify the resources you will commit to perform each 
delegated function;
    (h) Help MMS respond to requests for information from other Federal 
agencies, Congress, and the public;
    (i) Cooperate with MMS' monitoring of your delegated functions; and
    (j) Comply with the Standards as required under Sec. 227.201 of 
this part.


Sec. 227.201  What standards must a State comply with for performing 
delegated functions?

    (a) If MMS delegates royalty management functions to you, you must 
comply with the Standards. The Standards explain how you must carry out 
the activities under each of the delegable functions. The Standards 
will explain, for example, the appropriate standards of accuracy, 
timeliness, and efficiency for you to carry out each delegated 
function.
    (b) Your delegation agreement may include additional standards 
specifically applicable to the functions delegated to you.
    (c) Failure to comply with your delegation agreement, the 
Standards, or any of the specific standards and requirements in the 
delegation agreement, is grounds for termination of all or part of your 
delegation agreement, or other actions as provided under Secs. 227.801 
and 227.802.
    (d) MMS may revise the Standards and will provide notice of those 
changes in the Federal Register. You must comply with any changes to 
the Standards.


Sec. 227.300  What audit functions may a State perform?

    An audit consists of an examination of records to verify that 
royalty reports and payments accurately reflect actual production, 
sales, revenues and costs, and compliance with Federal statutes, 
regulations, lease terms, and MMS policy determinations. If you request 
delegation of audit functions, you must perform at least the following 
functions:
    (a) Issuing engagement letters;
    (b) Arranging for entrance conferences;
    (c) Submitting requests for records;
    (d) Scheduling site visits;
    (e) Examining royalty and production reports;
    (f) Examining lessee production and sales records, including 
contracts, payments, invoices, and transportation and processing costs 
to substantiate production and royalty reporting;
    (g) Holding closeout conferences;
    (h) Issuing records releases and audit closure letters, as 
necessary; and
    (i) Providing assistance to MMS for appealed demands or orders, 
including preparing field reports, performing remanded actions, 
modifying orders, and providing oral and written briefing and testimony 
as expert witnesses.


Sec. 227.301  What are a State's responsibilities if it performs 
audits?

    If you perform audits you must:
    (a) Comply with the MMS Audit Procedures Manual and the Government 
Auditing Standards issued by the Comptroller General of the United 
States;
    (b) Follow the MMS Annual Audit Work Plan and 5-year Audit 
Strategy, which MMS will develop in consultation with States having 
delegated audit authority;
    (c) Agree to undertake special audit initiatives MMS identifies 
targeting specific royalty issues, such as valuation or volume 
determinations;
    (d) Prepare, construct, or compile audit work papers under the 
appropriate procedures, manuals, and guidelines;
    (e) Prepare and submit audit reports, MMS Audit Work Plans, the 
Standards require; and
    (f) Comply with procedures for appealed demands or orders, 
including using appropriate format and content for field reports and 
meeting time frames.


Sec. 227.400  What functions may a State perform in processing 
production reports or royalty reports?

    Production reporters or royalty reporters provide production, 
sales, and royalty information on mineral production from leases that 
must be collected, analyzed, and corrected.
    (a) If you request delegation of either production report or 
royalty report processing functions, you must perform at least the 
following functions:
    (1) Receiving, identifying, and date stamping production reports or 
royalty reports;
    (2) Processing production or royalty data to allow entry into a 
data base;
    (3) Creating copies of reports by means such as electronic imaging;
    (4) Timely transmitting production report or royalty report data to 
MMS and other affected Federal agencies as provided in your delegation 
agreement and the Standards;
    (5) Providing training and assistance to production reporters or 
royalty reporters;
    (6) Providing production data or royalty data to appropriate 
Federal agencies upon request; and
    (7) Providing assistance to MMS for appealed demands or orders, 
including preparing field reports, performing remanded actions, 
modifying orders, and providing oral and written briefing and testimony 
as expert witnesses.
    (b) If you request delegation of either production report or 
royalty report processing functions, or both, you may perform the 
following functions:
    (1) Granting exceptions from reporting and payment requirements for 
marginal properties; and
    (2) Approving alternative royalty and payment requirements for unit 
agreements and communitization agreements.


Sec. 227.401  What are a State's responsibilities if it processes 
production reports or royalty reports?

    In processing production reports or royalty reports you must:
    (a) Process reports accurately and timely as provided in the 
Standards and your delegation agreement;
    (b) Identify fatal errors for subsequent error correction that the 
State or MMS performs;
    (c) Accept multiple forms of electronic media from reporters, as 
MMS specifies;
    (d) Timely transmit required production or royalty data to MMS and 
other affected Federal agencies;
    (e) Access well, lease, agreement, and reporter reference data from 
MMS and provide updated information to MMS;
    (f) For production reports, maintain adequate system software edits 
to ensure compliance with the provisions of 30 CFR part 216, the PAAS 
Onshore Oil and Gas Reporter Handbook, the PAAS Reporter Handbook-
Lease, Facility/Measurement Point, and Gas Plant Operators, the PAAS 
Solid Minerals Reporter Handbook, any inter-agency memorandums of 
understanding to which MMS is a party, and the Standards;
    (g) For royalty reports, maintain adequate system software edits to 
ensure compliance with the provisions of 30 CFR part 218, the Oil and 
Gas Payor Handbook, Volume II, the Solid Minerals Payor Handbook, 
``Dear Payor'' letters, and the Standards; and
    (h) Comply with the procedures for appealed demands or orders, 
including using appropriate format and content for field reports and 
supplementals and meeting time frames.

[[Page 19983]]

Sec. 227.500  What functions may a State perform to ensure that 
reporters correct erroneous report data?

    Production and royalty data must be edited to ensure that what is 
reported is correct, that disbursement is made to the proper recipient, 
and that correct data are used for other functions, such as automated 
verification and audits. If you request delegation of error correction 
functions for production reports or royalty reports, or both, you must 
perform at least the following functions:
    (a) Correcting all fatal errors and assigning appropriate 
confirmation indicators;
    (b) Verifying missing production reports;
    (c) Contacting production reporters or royalty reporters about 
missing reports and resolving exceptions;
    (d) Documenting all corrections made, including providing 
production reporters or royalty reporters with confirmation reports of 
any changes;
    (e) Providing training and assistance to production reporters or 
royalty reporters;
    (f) Issuing notices, orders to report, and bills as needed, 
including, but not limited to, imposing assessments on a person who 
chronically submits erroneous reports; and
    (g) Providing assistance to MMS for appealed demands or orders, 
including preparing field reports, performing remanded actions, 
modifying orders, and providing oral and written briefing and testimony 
as expert witnesses.


Sec. 227.501  What are a State's responsibilities to ensure that 
reporters correct erroneous data?

    To ensure the correction of erroneous data, you must:
    (a) Ensure compliance with the provisions of 30 CFR Parts 216 and 
218, any applicable handbook specified under 30 CFR 401 (f) and (g), 
inter-agency memorandums of understanding to which MMS is a party, and 
the Standards;
    (b) Ensure that reporters accurately and timely correct all fatal 
errors as designated in the Standards. These errors include, for 
example, invalid or incorrect reporter/payor codes, incorrect lease/
agreement numbers, and missing data fields. The Standards will list 
fatal edits for both production reports and royalty reports;
    (c) Submit accepted and corrected lines to MMS to allow processing 
into the Auditing and Financial System (AFS) and the Production 
Accounting and Auditing System (PAAS) in a timely manner as provided in 
the Standards and 30 CFR part 219; and
    (d) Comply with the procedures for appealed demands or orders, 
including using appropriate format and content for field reports and 
meeting time frames.


Sec. 227.600  What automated verification functions may a State 
perform?

    Automated verification involves systematic monitoring of production 
and royalty reports to identify and resolve reporting or payment 
discrepancies. States may perform the following functions:
    (a) Automated comparison of sales volumes reported by royalty 
reporters to sales and transfer volumes reported by production 
reporters. If you request delegation of automated comparison of sales 
and production volumes, you must perform at least the following 
functions:
    (1) Performing an initial sales volume comparison between royalty 
and production reports;
    (2) Performing subsequent comparisons when reporters adjust royalty 
or production reports;
    (3) Checking unit prices for reasonable product valuation based on 
reference price ranges MMS provides;
    (4) Resolving volume variances using written correspondence, 
telephone inquiries, or other media;
    (5) Maintaining appropriate file documentation to support case 
resolution; and
    (6) Issuing orders to correct reports or payments;
    (b) Any one or more of the following additional automated 
verification functions:
    (1) Verifying compliance with lease financial terms, such as 
payment of rent, minimum royalty, and advance royalty;
    (2) Identifying and resolving improper adjustments;
    (3) Identifying late payments and insufficient estimates, including 
calculating interest owed to MMS and verifying payor-calculated 
interest owed to MMS;
    (4) Calculating interest due to a lessee or its designee for an 
adjustment or refund, including identifying overpayments and excessive 
estimates (except for solid mineral and geothermal leases);
    (5) Verifying royalty rates;
    (6) Verifying compliance with transportation and processing 
allowance limitations; and
    (7) Manually checking and confirming corrected reports or payments;
    (c) Issuing notices and bills associated with any of the functions 
under paragraphs (a) and (b) of this section; and
    (d) Providing assistance to MMS for appealed demands or orders, 
including preparing field reports, taking remanded actions, modifying 
orders, and providing oral and written briefing and testimony as expert 
witnesses.


Sec. 227.601  What are a State's responsibilities if it performs 
automated verification?

    To perform automated verification of production reports or royalty 
reports, you must:
    (a) Verify through research and analysis all identified exceptions 
and prepare the appropriate billings, assessment letters, warning 
letters, notification letters, Lease Problem Reports, other internal 
forms required, and correspondence required to perform any required 
follow-up action for each function, as specified in the Standards or 
your delegation agreement;
    (b) Resolve and respond to all production reporter or royalty 
reporter inquiries;
    (c) Maintain all documentation and logging procedures as specified 
in the Standards or your delegation agreement;
    (d) Access well, lease, agreement, and production reporter or 
royalty reporter reference data from MMS and provide update information 
to MMS; and
    (e) Comply with procedures for appealed demands and orders, 
including using appropriate format and content for field reports and 
meeting time frames.


Sec. 227.700  What enforcement documents may a State issue in support 
of its delegated function?

    This section explains what enforcement actions you may take as part 
of your delegated functions.
    (a) You may issue demands, subpoenas (except for solid minerals and 
geothermal leases), and orders to perform restructured accounting, 
including related notices to lessees and their designees. You also may 
enter into tolling agreements under section 15(d)(1) of the Act, 30 
U.S.C. 1725(d)(1).
    (b) When you issue any enforcement document you must comply with 
the requirements of section 115 of the Act, 30 U.S.C. 1725.
    (c) When you issue a demand or enter into a tolling agreement under 
section 15(d)(1) of the Act, 30 U.S.C. 1725(d)(1), the highest State 
official having ultimate authority over the collection of royalties or 
the State official to whom that authority has been delegated must sign 
the demand or tolling agreement.
    (d) When you issue a subpoena or order to perform a restructured 
accounting you must:
    (1) Coordinate with MMS to ensure identification of issues that may 
concern more than one State before you issue subpoenas and orders to 
perform restructured accounting; and

[[Page 19984]]

    (2) Ensure that the highest State official having ultimate 
authority over the collection of royalties signs any subpoenas and 
orders to perform restructured accounting, as required under section 
115 of the Act, 30 U.S.C. 1725. This official may not delegate 
signature authority to any other person.

Performance Review


Sec. 227.800  How will MMS monitor a State's performance of delegated 
functions?

    This section explains MMS's procedures for monitoring your 
performance of any of your delegated functions.
    (a) A monitoring team of MMS officials will review and monitor your 
performance of the delegated functions under the delegation agreement.
    (b) The Standards will specify the frequency of monitoring for each 
delegated function.
    (c) The monitoring team will:
    (1) Perform reviews to verify that you are complying with the 
Standards and 30 U.S.C. 1735;
    (2) Conduct fiscal examinations to verify that your costs are 
eligible for reimbursement;
    (3) Periodically review your statistical reports required under 
Sec. 227.200(e) to verify your accuracy, timeliness, and efficiency;
    (4) Check for timely transmittal of production report or royalty 
report information to MMS and other affected agencies, as applicable, 
to allow for proper disbursement of funds and processing of 
information;
    (5) Schedule onsite visits and Office of the Inspector General, 
General Accounting Office, and MMS audits of your performance of your 
delegated functions; and
    (6) Maintain reports of its monitoring activities.


Sec. 227.801  What if a State does not adequately perform a delegated 
function?

    If your performance of the delegated function does not comply with 
your delegation agreement, or the Standards, or if MMS finds that you 
can no longer meet the statutory requirements under Sec. 227.106 of 
this part, then MMS may:
    (a) Notify you in writing of your noncompliance or inability to 
comply. The notice will prescribe corrective actions you must take, and 
how long you have to comply. You may ask MMS for an extension of time 
to comply with the notice. In your request you must explain why you 
need more time; and
    (b) If you do not take the prescribed corrective actions within the 
time that MMS allows in a notice issued under paragraph (a) of this 
section, then MMS may:
    (1) Initiate proceedings under Sec. 227.802 of this part to 
terminate all or a part of your delegation agreement;
    (2) Withhold compensation provided to you under Sec. 227.112 of 
this part; and
    (3) Perform the delegated function, before terminating or without 
terminating your delegation agreement, including, but not limited to, 
issuing a demand or order to a Federal lessee, or its designee, or any 
other person when:
    (i) Your failure to issue the demand or order would result in an 
underpayment of an obligation due MMS; and
    (ii) The underpayment would go uncollected without MMS 
intervention.


Sec. 227.802  How will MMS terminate a State's delegation agreement?

    This section explains the procedures MMS will use to terminate all 
or a part of your delegation agreement:
    (a) MMS will notify you in writing that it is initiating procedures 
to terminate your delegation agreement;
    (b) MMS will provide you notice and opportunity for a hearing under 
Sec. 227.803 of this part;
    (c) After the hearing, MMS may:
    (1) Terminate your delegation agreement; or
    (2) Allow you 30 days to correct any remaining deficiencies. If you 
do not correct the deficiency within 30 days, MMS will terminate all or 
a part of your delegation agreement.


Sec. 227.803  What are the hearing procedures for terminating a State's 
delegation agreement?

    (a) The MMS Director will appoint a hearing official to conduct one 
or more public hearings for fact finding and to determine any actions 
you must take to correct the noncompliance. The hearing official will 
not decide whether to terminate your delegation agreement;
    (b) The hearing official will contact you about scheduling a 
hearing date and location;
    (c) The hearing official will publish notice of the hearing in the 
Federal Register and other appropriate media within your State;
    (d) At the hearing, you will have an opportunity to present 
testimony and written information on your ability to perform your 
delegated functions as required under this part, your delegation 
agreement, and the Standards;
    (e) Other persons may attend the hearing and may present testimony 
and written information for the record;
    (f) MMS will record the hearing;
    (g) After the hearing, MMS may require you to submit additional 
information; and
    (h) Information presented at each public hearing will help MMS to 
determine whether:
    (1) You have complied with the terms and conditions of your 
delegation agreement; or
    (2) You have the capability to comply with the requirements under 
Sec. 227.106 of this part.


Sec. 227.804  How else may a State's delegation agreement terminate?

    You may terminate your delegation at any time by giving MMS a 90-
day written notice of intent to terminate.


Sec. 227.805  How may a State obtain a new delegation agreement after 
termination?

    After your delegation agreement is terminated, you may apply again 
for delegation by beginning with the proposal process under this part.

PART 228--COOPERATIVE ACTIVITIES WITH STATES AND INDIAN TRIBES

    2. The authority citation for Part 228 is revised to read as 
follows:

    Authority: Section 202, Pub. L. 97-451, 96 Stat. 2457 (30 U.S.C. 
1732).

    3. Part 228 is amended by revising the title to read as follows:

PART 228--COOPERATIVE ACTIVITIES WITH INDIAN TRIBES

    4. A new section 228.3 is added to read as follows:


Sec. 228.3  Limitation on applicability.

    MMS will not enter into a cooperative agreement with a State under 
this part to carry out audit and related investigation and enforcement 
activities for leases on Federal lands within the State. This part 
applies only to cooperative agreements with Indian tribes and States to 
perform audits, inspections, and investigations for Indian lands. See 
part 227 of this title for delegation of authority to States for 
Federal lands.

PART 229--DELEGATION TO STATES

    5. The authority citation for Part 229 is revised to read as 
follows:

    Authority: 30 U.S.C. 1735.

    6. Part 229 is amended by revising the title to read as follows:

PART 229--DELEGATION TO STATES FOR INDIAN LANDS

    7. A new section 229.3 is added to read as follows:

[[Page 19985]]

Subpart A--General Provisions


Sec. 229.3  Limitation on applicability.

    MMS will not enter into a delegation agreement with a State under 
this part to carry out audit and related investigation activities for 
leases on Federal lands within the State. This part applies only to 
delegation agreements with States to perform audits, inspections, and 
investigations for Indian lands. See part 227 of this title for 
delegations of authority to States for Federal lands.

[FR Doc. 97-10387 Filed 4-23-97; 8:45 am]
BILLING CODE 4310-MR-P