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 Department of the Interior Minerals Management Service 30 CFR Part 206
RIN 1010-AC72
 AGENCY: Minerals Management Service, Interior.
 ACTION: Proposed rule.
 SUMMARY: The Minerals Management Service (MMS) is proposing to remove the special timing requirements for adjustments and audits of royalties on gas produced from Indian leases in Montana and North Dakota. These timing requirements may force tribal and MMS auditors to expend additional time and money or postpone ongoing audits to meet the restricted time periods. Removing these timing restrictions should increase royalties collected for Indian leases in these States.
 DATES: Comments regarding this proposed rulemaking must be received on or before July 17, 2000.
 ADDRESSES: If you wish to comment, you may submit your comments by any one of several methods. You may mail comments to David S. Guzy, Chief, Rules and Publications Staff, Minerals Management Service, Royalty Management Program, P.O. Box 25165, MS 3021, Denver, CO 80225-0165. Courier or overnight delivery address is Building 85, Room A-613, Denver Federal Center, Denver, CO 80225. You may also comment via the Internet to RMP.comments@mms.gov. Please submit Internet comments as an ASCII file avoiding the use of special characters and any form of encryption. Please also include “Attn: RIN 1010-ACT72” and your name and return address in your Internet message. If you do not receive a confirmation from the system that we have received your Internet message, contact David S. Guzy directly at (303) 231-3432.
 FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and Publications Staff, telephone (303) 231-3432, FAX (303) 231-3385, e-Mail David.Guzy@mms.gov.


SUPPLEMENTARY INFORMATION: The principal author of this proposed rulemaking is Mr. Richard Adamski, Royalty Valuation Division, Royalty Management Program (RMP), MMS. I. General On August 10, 1999, MMS published a final rule titled “Amendments to Gas Valuation Regulations for Indian Leases,” (64 FR 43506) with an effective date of January 1, 2000. These regulations apply to all gas production from Indian (tribal or allotted) oil and gas leases (except leases on the Osage Indian Reservation). The new regulations resulted from a negotiated rulemaking among Indian tribes and allottees, the oil and gas industry, and MMS. MMS's stated purposes for those amendments to the valuation of gas production were: (1) To ensure that Indian mineral lessors receive the maximum revenues from mineral resources on their land consistent with the Secretary of the Interior's (Secretary) trust responsibility and lease terms; and (2) To improve the regulatory framework so that information is available which would permit lessees to comply with the regulatory requirements at the time that royalties are due. Among the newly adopted regulations was a provision at 30 CFR 206.174(1) requiring that for Indian leases in Montana and North Dakota, lessees must make adjustments to reported royalty values sooner, and MMS must complete its audits sooner, than either has done historically. This provision does not apply to Indian leases in other States. Under § 2096.174(1), the timing of adjustments and audits depends on whether allowances are arm's-length or non-arm's-length. If the lessee's royalty value has arm's-length transportation or processing allowances, or no allowances, then: (1) The lessee must make all adjustments to value within 13 months of the production month; and (2) MMS must conclude any audit and order any adjustments to royalty value within 12 months after the lessee's adjustment reporting date. If the lessee's royalty value has non-arm's-length transportation or processing allowances, then: (1) the lessee must make all adjustments to value within 9 months of the date the lessee submits the actual cost allowance report to MMS; and (2) MMS must conclude any audit and order any adjustments to royalty  value within 12 months after the lessee's adjustment reporting date. The final rule limited the adjustment and audit period to Indian leases in Montana and North Dakota because, unlike most other producing regions, there are no acceptable published indexes applicable to that area (64 FR 43510). In areas where this occurs, valuation must be based on other criteria which are most difficult to determine than index prices. Industry was concerned that if audits were not to occur until several years after the production month, any underpayments would include substantial late payment charges. The purpose of § 206.174(1) was to accelerate the audit schedule to provide more valuation certainly for both the lessee and the Indian lessor at an earlier date. Representatives of Montana and North Dakota tribal and allotted lessors strongly oppose these time limits. They believe that the 1-year audit period is unreasonable and may compromise MMS's efforts to maximize revenues for gas produced from Indian leases consistent with its trust responsibility and lease terms. MMS shares the concern that in areas that do not have published indexes, auditors must be afforded adequate time to take the necessary steps to do quality audits. This may be difficult to accomplish under time limits that are absolute. MMS and tribal auditors also must retain the discretion to allocate audit resources to obtain the best data when that data becomes available. Indian representatives from Montana and North Dakota believe that time restrictions will force the tribes (especially those tribes 
                    ( print page 37505)
                    with audit programs) and MMS auditors to expend additional time and funds to complete audits and take other necessary actions within the restricted time period. For the most part, the tribes in Montana and North Dakota are the least able to bear the costs of such burdens. In some cases, this will force the tribes to postpone or abandon on-going audits of earlier periods to meet the new deadlines. Moreover, upon further consideration, MMS believes the reason for placing time limits only on Indian leases in Montana and North Dakota (because there are no acceptable published indexes applicable to that area) is not compelling. The final Indian gas rule (§ 206.172(f) and (g)) permits MMS to exclude Indian tribal leases (upon request of the tribe) or Indian allotted leases (after consultation with the Bureau of Indian Affairs) in any State from valuation under the index-based methodology. To Date, MMS has excluded two tribes and two allotted groups from valuation under this method. Under § 206.172(f)(1)(i) and (g)(1)(ii) of the new regulations, lessees of those tribes and allotted groups therefore must value gas produced from those excluded Indian leases under 30 CFR 206.174, the same section that governs the valuation of gas produced from Indian leases in Montana and North Dakota. Yet,the adjustment and audit time limits in § 206174(l) do not apply to those excluded leases—they apply only to those Indian leases in Montana and North Dakota (64 FR 43510). For this reason, representatives of Montana and North Dakota Indian lessors believe that to the extent time restrictions and additional burdens were placed on the Montana and North Dakota leases alone, they are unfair and represent unwarranted disparate treatment. Therefore, MMS is proposing to remove § 206.174(1) from the regulation. MMS specifically seeks comment on whether there is a valid reason for differentiating between leases located in other States and leases in Montana and North Dakota when they both may be required to use the same valuation standards. MMS also seeks comments on whether the time limitations on adjustment and audit could have a negative revenue impact on royalties collected from gas produced from Indian lands in Montana and North Dakota. II. Procedural Matters 1. Public Comment Policy MMS is limiting the comment period for this proposed rule to 30 days after the date of publication in the 
                    **Federal Register**
                     rather than the standard 60 days. MMS believes a 30-day comment period is adequate because the language we propose to remove was recently the subject of an extensive comment period. Because this provision did not receive extensive comments during that period, and the change we are proposing is limited, we believe a 30-day comment period is sufficient. Our practice is to make comments, including names and home addresses of respondents, available for public review during regular business hours and on our Internet site at www.rmp.mms.gov. Individual respondents may request that we withhold their home address from the rulemaking record, which we will honor to the extent allowable by law. There also may be circumstances in which we would withhold from the rulemaking record a respondent's identity, as allowable by law. If you wish us to withhold your name and/or address, you must state this prominently at the beginning of your comments. However, we will not consider anonymous comments. We will make all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, available for public inspection in their entirety. 2. Summary Cost and Benefit Data The objective of this proposed rule is to remove the special timing requirements for adjustments and audits of royalties on gas produced from Indian leases in Montana and North Dakota. We have summarized below the estimated costs and benefits of this rule to the three affected groups: Indian lessors in Montana and North Dakota, industry, and the Federal Government. The cost and benefit information in this Item 2 of Procedural Matters is used as the basis for the Departmental certifications in Items 3-11. A. Indian Lessors in Montana and North Dakota In 1997, we estimate that auditors collected additional revenues amounting to 2 percent of the total royalties paid for gas production on certain Indian leases located in Montana. In 1999, payors submitted about $420,000 in royalties from gas produced from Indian leases in Montana and $49,000 in royalties from gas produced from Indian leases in North Dakota. Using 2 percent to calculate the additional audit revenues that may be expected for the 1999 sales year, MMS should collect an additional $8,400 from leases in Montana and $980 from leases in North Dakota. We conclude that if audits cannot be completed within 1 year of the royalty line adjustments timeframes, Indian lessors could potentially lose these additional revenues, plus applicable late payment interest, annually. B. Industry This proposed rule will impose no new reporting burdens on industry. Industry will benefit from the proposed rule by being able to make adjustments to royalty lines beyond the current 1-year period. However, industry will pay an undetermined amount of additional interest on any underpayments discovered during audits that take longer than 1 year to complete. *Small Business Issues.*
                     Approximately 17 entities in Montana and 5 entities in North Dakota—most of which are small businesses because they employ 500 or less employees—pay royalties to MMS on gas produced from Indian leases. As discussed above, these 22 entities will pay less than $10,000 in additional royalties annually as a result of an extended adjustment and audit period. This proposed rule benefits small tribes that would otherwise have to hire additional audit staff to handle the burden of performing both past and present audits concurrently. From this information, we conclude that this rule will not have a significant economic impact on a substantial number of small entities. C. Federal Government Removing the time limits on audit will help to ensure that Indian mineral lessors receive the maximum revenues from mineral resources on their land consistent with the Secretary's trust responsibility and lease terms. D. Summary of Costs and Benefits to Affected Groups Description
                             (see corresponding narrative above)
<Cost>/Benefit amountFirst year
Subsequent yearsIndian Lessors in Montana and North Dakota
$9,380 plus interest
$9,380 plus interest.( print page 37506)Industry
<$9,380 plus interest>
<$9,380 plus interest>.Federal Government
<0>
<0.>.Net <Cost> or Benefit
<0>
<0.>.
 3. Regulatory Planning and Review (E.O. 12866) This document is not a significant rule and is not subject to review by the Office of Management and Budget under Executive Order 12866. (1) This proposed rule will not have an effect of $100 million or more on the economy. It will not adversely affect in a material way the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities. (2) This proposed rule will not create a serious inconsistency or otherwise interfere with an action taken or planned by another agency. (3) This proposed rule will not alter the budgetary effects or entitlements, grants, user fees, or loan programs or the rights or obligations of their recipients. (4) This proposed rule does not raise novel legal or policy issues. 4. The Regulatory Flexibility Act The Department of the Interior certifies that this rule will not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 
                    *et seq*.). See Small Business Issues in Item #2.B. above. *Your comments are important*. The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small businesses about Federal agency enforcement actions. The Ombudsman will annually evaluate the enforcement activities and rate each agency's responsiveness to small business. If you wish to comment on the enforcement actions in this rule, call 1-888-734-3247. 5. Small Business Regulatory Enforcement Act (SBREFA) This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule: a. Will not have an annual effect on the economy of $100 million or more. b. Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. c. Will not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. 6. Unfunded Mandates Reform Act This rule will not impose an unfunded mandate on State, local or tribal governments or the private sector of more than $100 million per year. The rule will not have a significant or unique effect on State, local, or tribal, governments or the private sector. A statement containing the information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531 
                    *et seq*.) is not required. 7. Takings (E.O. 12630) In accordance with Executive Order 12630, this proposed rule does not have significant takings implications. This rule does not impose conditions or limitations on the use of any private property; consequently, a takings implication assessment is not required. 8. Federalism (E.O. 13132) In accordance with Executive Order 13132, this proposed rule does not have Federalism implications. This rule does not substantially or directly affect the relationship between Federal and State governments or impose costs on States or localities. 9. Civil Justice Reform (E.O. 12988) In accordance with Executive Order 12988, the Office of the Solicitor has determined that this proposed rule will not unduly burden the judicial system and does meet the requirements of sections 3(a) and 3(b)(2) of the Order. 10. Paperwork Reduction Act of 1995 This proposed rule does not contain an information collection, as defined by the Paperwork Reduction Act, and the submission of Office of Management and Budget Form 83-I is not required. 11. National Environmental Policy Act This proposed rule does not constitute a major Federal action significantly affecting the quality of the human environment. A detailed statement under the National Environmental Policy Act of 1969 is not required. 12. Clarity of This Regulation Executive Order 12866 requires each agency to write regulations that are easy to understand. We invite your comments on how to make this rule easier to understand, including answers to questions such as the following: (1) Are the requirements in the rule clearly stated? (2) does the rule contain technical language or jargon that interferes with its clarity? (3) Does the format of the rule (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce its clarity? (4) Would the rule be easier to understand if it were divided into more (but shorter) sections? (A “section” appears in bold type and is preceded by the symbol “§” and a numbered heading; for example, § 206.174 How do I value gas production when an index-based method cannot be used?) (5) Is the description of the rule in the 
                    **Supplementary Information**
                     section of the preamble helpful in understanding the proposed rule? What else could we do to make the rule easier to understand. Send a copy of any comments that concern how we could make this rule easier to understand to: Office of Regulatory Affairs, Department of the Interior, Room 7229, 1849 C Street NW, Washington, DC 20240. You may also e-mail the comments to this address: Exsec@ios.doi.gov. List of Subjects in 30 CFR Part 206 Coal
Continental shelf
Geothermal energy
Government contracts
Indians—lands
Mineral royalties
Natural gas
Petroleum
Public lands—mineral resources
Reporting and recordkeeping requirements
 Dated: June 7, 2000. Sylvia. V. Baca, Assistant Secretary—Land and Minerals Management.
 For reasons stated in the preamble, MMS proposes to amend 30 CFR part 206 as follows: PART 206—PRODUCT VALUATION 1. The authority citation for part 206 continues to read as follows: Authority:
                        5 U.S.C. 301 
                            *et seq.*; 25 U.S.C. 396 
                            *et seq.*, 396a 
                            *et seq.*, 2102 
                            *et seq.*; 30 U.S.C. 181 
                            *et seq.*, 351 
                            *et seq.*, 1001 
                            *et seq.*, 
                            ( print page 37507)
                            1701 
                            *et seq.*; 31 U.S.C. 9701; 43 U.S.C. 1301 
                            *et seq.*, 1331 
                            *et seq.*, 1801 
                            *et seq.* § 206.174
  2. In § 206.174, remove paragraph (1).


[FR Doc. 00-15201  Filed 6-14-00; 8:45 am] BILLING CODE 4310-MR-M