[Federal Register Volume 64, Number 48 (Friday, March 12, 1999)]
[Proposed Rules]
[Pages 12267-12269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6147]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 64, No. 48 / Friday, March 12, 1999 /
Proposed Rules
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Part 206
RIN 1010-AC09
Reopening Public Comment Period and Establishing Workshops on
Proposed Rule--Establishing Oil Value for Royalty Due on Federal Leases
AGENCY: Minerals Management Service, Interior.
ACTION: Notice of reopening of public comment period and notice of
workshops.
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SUMMARY: The Minerals Management Service (MMS) is reopening the public
comment period on a further supplementary proposed rule amending the
royalty valuation regulations for crude oil produced from Federal
leases.
During the comment period, MMS will hold three workshops. The
primary purpose of these workshops is to receive new comments not
previously submitted in this rulemaking record. MMS also seeks written
comments focusing on new comments.
We are particularly interested in ideas that would help move the
rulemaking process forward while still ensuring that the public
receives fair value for its resources. There is no need to resubmit
previously submitted comments since comments on previous proposals
already are included in the rulemaking record.
Interested parties are invited to attend and participate in these
workshops. MMS would welcome written comments submitted prior to the
workshops to help identify the most important issues for discussion.
DATES: Comments must be submitted on or before April 12, 1999. The
workshops will be held as follows:
Workshop 1--Houston, Texas, on March 24, 1999, beginning at 9 a.m. and
ending at 5 p.m., Central time
Workshop 2--Albuquerque, New Mexico, on March 25, 1999, beginning at 9
a.m. and ending at 5 p.m., Mountain time
Workshop 3--Washington, D.C., on April 6, 1999, beginning at 9 a.m. and
ending at 5 p.m., Eastern time
ADDRESSES: Workshop 1 will be held at the Houston Compliance Division
Office, Minerals Management Service, 4141 North Sam Houston Parkway
East, Houston, Texas 77032. Phone: (281) 987-6802.
Workshop 2 will be held at the Bureau of Land Management District
Office, 435 Montano Road, NE, Albuquerque, New Mexico 87107. Phone:
(505) 761-8700.
Workshop 3 will be held at the Main Interior Building, 1849 C Street,
NW, Washington, D.C. 20240 (large buffet room adjacent to the cafeteria
in the basement). Phone: (202) 208-3512.
FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and
Publications Staff, Minerals Management Service, Royalty Management
Program, P.O. Box 25165, MS 3021, Denver, Colorado 80225-0165,
telephone (303) 231-3432, fax number (303) 231-3385, e-Mail
David__G[email protected].
SUPPLEMENTARY INFORMATION: MMS published an advance notice of its
intent to amend the current Federal oil valuation regulations in 30 CFR
parts 202 and 206 on December 20, 1995 (60 FR 65610). The purpose of
that notice was to solicit comments on new methodologies to establish
the royalty value of Federal (and Indian) crude oil production in view
of the changes in the domestic petroleum market, particularly the
market's move away from posted prices as an indicator of market value.
Based on comments received on the advance notice, together with
information gained from a number of presentations by experts in the oil
marketing business, MMS published its initial notice of proposed
rulemaking on January 24, 1997 (62 FR 3742), applicable to Federal
leases only. MMS held public meetings in Lakewood, Colorado, and
Houston, Texas, to hear comments on the proposal.
In response to the variety of comments received on the initial
proposal, MMS published a supplementary proposed rule on July 3, 1997
(62 FR 36030). This proposal expanded the eligibility requirements for
valuing oil disposed of under arm's-length transactions.
Because of the substantial comments received on both proposals, MMS
reopened the rulemaking to public comment on September 22, 1997 (62 FR
49460). MMS specifically requested comments on five valuation
alternatives arising from the public comments. MMS held seven public
workshops to discuss valuation alternatives.
As a result of comments received on the proposed alternatives and
comments made at the public workshops, MMS published a second
supplementary proposed rule on February 6, 1998 (63 FR 6113). The
comment period for this second supplementary proposed rule was to close
on March 23, 1998, but was extended to April 7, 1998 (63 FR 14057). MMS
held five public workshops (63 FR 6887) on this second supplementary
proposed rule: in Houston, Texas, on February 18, 1998; Washington,
D.C., on February 25, 1998; Lakewood, Colorado, on March 2, 1998;
Bakersfield, California, on March 11, 1998; and Casper, Wyoming, on
March 12, 1998.
By Federal Register notice dated July 8, 1998 (63 FR 36868), MMS
reopened the comment period for the February 6, 1998, second
supplementary proposed rule from July 9, 1998, until July 24, 1998, to
receive further comment on the proposed rule. Meetings involving MMS,
industry representatives, and Members of Congress were held in
Washington, D.C., on July 9 and July 22, 1998. Another meeting
involving Members of Congress and various other interested groups was
held in Washington, D.C., on July 21, 1998. By Federal Register notice
dated July 27, 1998 (63 FR 40073), MMS extended the comment period
until July 31, 1998.
On August 31, 1998, the Assistant Secretary, Land and Minerals
Management, sent to Members of Congress a letter outlining the
direction the Department of the Interior might take on the major issues
in the final rulemaking. This letter can be accessed at http://
www.rmp.mms.gov/library/readroom/pubcomm/FCCont.htm. A copy of the
letter also is attached as an appendix to the notice, and MMS would
like comments on the matters addressed in the letter that relate to the
proposed rule.
MMS is reopening the comment period on the second supplementary
proposed rule in response to many requests from Members of Congress and
other parties interested in moving the
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process forward to publish a final rule. MMS is seeking new, not-
previously-considered ideas that will help move the process forward
while still ensuring that the public receives fair value for production
of its resources. MMS would prefer written comments submitted prior to
the workshops to help identify the most important issues for
discussion. Commenters will be able to supplement these written
comments, if necessary, after the workshops.
It is not necessary to resubmit comments already provided. MMS will
consider comments submitted during previous comment periods as well as
comments submitted during this new comment period when it prepares a
final rule.
The workshops will be open to the public without advance
registration. Public attendance may be limited to the space available.
We encourage a workshop atmosphere; members of the public are
encouraged to participate in a discussion of the alternatives. For
building security measures, each person may be required to present a
picture identification to gain entry to the meetings.
Dated: March 9, 1999.
Harold Corley,
Acting Associate Director for Royalty Management.
United States Department of the Interior
August 31, 1998.
Honorable John Breaux,
United States Senate,
Washington, DC 20510
Dear Senator Breaux: In accordance with the commitment contained
in my August 11, 1998, letter to you, enclosed is an outline of the
direction the Department of the Interior plans to take on the major
issues in the final Federal oil valuation rule. The purpose of this
outline is to advise you of the progress on the final rule. An
identical letter has been sent to Senators Hutchison, Murkowski,
Nickles, and Domenici.
After thoroughly reviewing and considering all of the comments
received on the several proposed rules, including the July 16, 1998,
further supplementary proposed rule, we are in the process of
developing a final rulemaking consistent with the enclosed outline.
I believe that you will see that we intend to make changes in
response to comments from the oil and gas industry and other
commenters while at the same time assure that we achieve fair market
value for the public's mineral resources. This outline reflects our
current state of decisions, but there may be changes as the final
rule proceeds through the review process in the Department and at
the Office of Management and Budget.
Recognizing that each company has individual marketing
circumstances and accounting capabilities, in the final rule, we
would allow companies a number of options. For example, if the
lessee sells its oil at arm's length after one or more arm's-length
exchanges, we would allow the lessee the option of either tracing
the production to the arm's length sale after the exchanges or
paying on an index price. For the Rocky Mountain Region, lessees
would use a series of benchmarks instead of the index price if they
choose not to trace the production to the arm's-length sale. We
would offer the same option if the lessee sells or transfers its oil
to an affiliate that resells the oil under an arm's length contract.
Further, the final rule would provide that the Assistant Secretary
for Land and Mineral's Management or his/her delegate may issue
binding valuation determinations.
I again call upon you and your colleagues to remove the rider,
currently in the Interior Appropriations Bill, that would prohibit
finalizing the rule for another year. As I indicated in my earlier
letter, we have worked very hard over the past 3 years to
accommodate the interests of all affected stakeholders in this
rulemaking. We believe that we have developed the very best
rulemaking possible, recognizing that the industry that pays the
royalties and the Federal Government and States that receives the
royalties, are simply never going to agree on certain issues.
Delaying the rule for a year will not resolve these differences but
rather assure continued disputes over the existing regulations and
the loss of millions of dollars to Federal and State treasuries
because such regulations are outdated.
As you may know, the comment period on the rulemaking is closed.
Therefore, we are not accepting any comments in response to the
decision reflected in the enclosed outline.
Thank you again for your continued involvement in this issue.
Sincerely,
Bob Armstrong,
Assistant Secretary, Land and Minerals Management
Enclosure:
Outline for Federal Oil Valuation Final Rulemaking
Note: The following outline reflects the direction in which the
Minerals Management Service (MMS) and the Department of the Interior
(Department) are headed in developing a final oil rule after
reviewing all of the comments received on the several proposed
rulemakings, including the July 16, 1998, further supplementary
proposed rulemaking. The decisions reflected in this outline are
subject to modification when the draft final rule proceeds through
review in the Department and the Office of Management and Budget.
Because the comment period on the rulemaking is closed, we are not
accepting any comments in response to the decisions reflected in
this outline.
Definitions
Affiliate
We would define the term ``affiliate'' separately from the term
``arm's length,'' as suggested by many commenters. The term
``affiliate'' will use the same criteria for determining control as the
existing regulations (less than 10 percent ownership representing non-
control, 10-50 percent representing a presumption of control, and
greater than 50 percent representing control). Following publication of
the final rule, MMS intends to develop specific guidelines for lessees
to follow when attempting to rebut the presumption of control when
ownership is between 10 and 50 percent.
Gross Proceeds
We would maintain the definition of the term ``gross proceeds''
proposed in the February 6, 1998, second supplementary proposed rule.
That is, the term ``gross proceeds'' would include payments for
marketing services which the lessee must perform at no cost to the
Federal Government and for payments made to reduce or buy down the
purchase price of oil to be produced in later periods.
Valuation of Oil Sold by the Lessee at Arm's Length
We would provide that value is the gross proceeds received by the
lessees under an arm's-length sales contract with three exceptions, the
first two of which are contained in the existing regulations:
1. The sales contract does not reflect total consideration actually
transferred either directly or indirectly from the buyer to the seller.
2. The value is not reasonable due to either:
a. Misconduct by or between the parties to the arm's-length
contract; or
b. Breach of the lessee's duty to market the oil for the mutual
benefit of the lessee and the lessor. In response to comments received
from industry and others about the revised language in the July 16,
1998, proposal being ambiguous, in the final rule MMS is moving in the
direction of not including the July 16 language in the rule, but
stating in the preamble that MMS will not second-guess a company's
marketing decisions.
3. The oil is disposed of under a non-competitive call that is
exercise by the purchaser.
If any one of these exceptions applies, then the lessee must value
its oil based on the method used to value oil not sold at arm's-length
(Alaska North Slope (ANS) spot price in California and Alaska,
benchmarks in the Rocky Mountains, and applicable spot prices for the
rest of the country).
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Valuation of Oil Sold After Arm's-length Exchange Agreements or Sold by
an Affiliate at Arm's Length
If the lessees sells its oil at arm's length after one or more
arm's-length exchanges, we would allow the lessee the option of valuing
its production on either the sale after the exchange(s) or index
prices. For the Rocky Mountain Region, lessees would use a series of
benchmarks instead of index prices if they choose not to trace the
production to the arm's-length sale.
Similarly, if the lessee sells or transfers its oil to an affiliate
that resells the oil under an arm's-length contract, we would allow the
lessee the option of valuing the production on either the gross
proceeds received by the affiliate under the arm's-length resale
contract, subject to the above stated exceptions for oil sold by the
lessee at arm's length, or index prices. Again, for the Rocky Mountain
Region, a series of prescribed benchmarks would be used instead of
index prices.
The lessee could make separate elections for oil that it exchanges
at arm's length and oil that it transfers to an affiliate that resells
the oil. However, each of these elections must be for a 2-year period,
and the lessee would value all oil in each of these categories in the
same manner.
Valuation of Oil Not Sold at Arm's Length
For California and Alaska: ANS spot price less a location/quality
differential would apply.
For the Rocky Mountain Region: (Utah, Colorado, Wyoming, Montana,
North Dakota, and South Dakota): The first applicable of the following
benchmarks would apply:
1. The highest bid under an MMS-approved tendering program in which
the lessee:
a. Offers and sells at least 30 percent of its production from both
Federal and non-Federal leases in the area, and
b. Receives at least three bids for the tendered volumes from
bidders who do not have their own tendering programs that cover some or
all of the same area.
2. The volume-weighted average of the lessee's and its affiliate's
arm's-length contract prices for the purchase or sale of oil from the
field or area. The total volume purchased or sold under those contracts
must exceed 50 percent of the lessee's and its affiliate's production
from both Federal and non-Federal leases in the same field or area.
3. The spot price for West Texas Intermediate crude at Cushing,
Oklahoma, adjusted for location and quality.
4. If all of the first three benchmarks result in an unreasonable
value, the MMS Director could establish an alternative valuation
method.
For the OCS and Mid-Continent (other than California, Alaska, and
the six-State Rocky Mountain Region): A market center spot price less a
location/quality differential from the market center to the lease would
apply.
Location/Quality Adjustments to Index Prices
If the lessee used index pricing to value its production, it would
adjust the index price for location/quality differentials using:
1. A location/quality differential contained in the lessee's own
arm's-length exchange agreement, or
2. An MMS-calculated location/quality differential. MMS would
publish annually a series of differentials based on data MMS would
collect on Form MMS-4415.
The lessee could also claim a transportation allowance when valuing
oil based on either index or arm's-length gross proceeds as discussed
below. Quality bank adjustments based on applicable pipeline quality
bank specifications could also be taken if they did not duplicate the
differentials above.
Transportation Allowances
Arm's-length transportation contracts
If the lessee or its affiliate transports its oil under an arm's-
length transportation contract, the lessee could claim a transportation
allowance for the actual costs incurred under that contract.
Non-arm's-length transportation contracts
If the lessee or its affiliate transports its oil under a non-
arm's-length transportation contract, the lessee could claim a
transportation allowance based on its reasonable, actual costs
including operating and maintenance expenses, overhead, depreciation,
and a return on investment using a rate of return equal to the
industrial bond yield index for Standard and Poor's BBB rating. We
would not allow Federal Energy Regulatory Commission tariffs as an
exception to computing actual costs.
Subsea Gathering
We would include language in the preamble stating that MMS will
review movement of bulk production from subsea completions to a
platform on the ocean surface on a case-by-case basis to determine
whether it is gathering or qualifies as transportation. Recognizing
that this issue is primarily a gas issue, MMS intends to resolve it by
issuing separate regulations or policy guidance.
Non-Binding Valuation Guidance
We would provide that the Assistant Secretary for Land and Minerals
Management or his/her delegate may issue binding valuation
determinations.
[FR Doc. 99-6147 Filed 3-11-99; 8:45 am]
BILLING CODE 4310-MR-P