**GAO-04-543R**                      Mar 16, 2004                  

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## Highlights

GAO reviewed the Department of the Interior, Minerals Management Service's (MMS) new rule on oil and gas and sulphur operations in the Outer Continental Shelf. GAO found that (1) the rule would provide temporary incentives in the form of royalty suspension volumes for producing gas from certain deep wells, provide a royalty suspension supplement for drilling certain unsuccessful deep wells, and provide price thresholds that may result in discontinuation of the royalty relief; and (2) MMS complied with all applicable requirements in promulgating the rule with the exception of the delay in the effective date.

## Department of the Interior, Minerals Management Service: Oil and Gas and Sulphur Operations in the Outer Continental Shelf--Relief or Reduction in Royalty Rates--Deep Gas Provisions,GAO-04-543R, March 16, 2004

B-293773March 16, 2004The Honorable Pete V. Domenici     Chairman     The Honorable Jeff Bingaman     Ranking Minority Member     Committee on Energy and Natural Resources     United States SenateThe Honorable Richard W. Pombo     Chairman     The Honorable Nick J. Rahall II     Ranking Minority Member     Committee on Resources     House of Representatives     Subject: Department of the Interior, Minerals Management Service: Oil and Gas and Sulphur Operations in the Outer Continental Shelf--Relief or    Reduction in Royalty Rates--Deep Gas Provisions **

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major rule promulgated by the Department of the    Interior, Minerals Management Service (MMS), entitled Oil and Gas and Sulphur Operations in the Outer Continental Shelf--Relief or Reduction in Royalty Rates--Deep Gas Provisions    (RIN: 1010-AD01). We received the rule on March 3, 2004. It was published in the Federal Register as a final rule on January 26, 2004. 69 Fed. Reg. 3492.      The final rule provides temporary incentives in the form of royalty suspension volumes for producing gas from certain deep wells (at least 15,000 feet below sea level).  The rule also    provides a royalty suspension supplement for drilling certain unsuccessful deep wells.  The rule also provides price thresholds that may result in discontinuation of the royalty    relief.     The final rule has an announced effective date of March 1, 2004.  The Congressional Review Act requires a 60-day delay in the effective date of a major rule from the date of publication in    the Federal Register or receipt of the rule by Congress, whichever is later.  5 U.S.C. 801(a)(3)(A).  The rule was published in the Federal Register on January 26, 2004, and was    received by Congress on March 4, 2004.  Therefore, the rule does not have the required 60-day delay in its effective date.     Enclosed is our assessment of the MMSs compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.  Our review    indicates that the MMS, with the exception of the delay in the effective date discussed above, complied with the applicable requirements.     If you have any questions about this report, please contact James W. Vickers, Assistant General Counsel, at (202) 512-8210.  The official responsible for GAO evaluation work relating to the    subject matter of the rule is Robert Robinson, Managing Director, Natural Resources and Environment.  Mr. Robinson can be reached at (202) 512-3841.                 signed     Kathleen E. Wannisky     Managing Associate General Counsel     Enclosurecc: Rebecca W. Watson     Assistant Secretary, Land and        Minerals Management     Department of the Interior            ENCLOSURE     ANALYSIS UNDER 5 U.S.C.  801(a)(1)(B)(i)-(iv) OF A MAJOR RULE     ISSUED BY THE     DEPARTMENT OF THE INTERIOR,     MINERALS MANAGEMENT SERVICE     ENTITLED     "OIL AND GAS AND SULPHUR OPERATIONS     IN THE OUTER CONTINENTAL SHELF--     RELIEF OR REDUCTION IN ROYALTY RATES--     DEEP GAS PROVISIONS"     (RIN: 1010-AD01)(i) Cost-benefit analysis     MMS performed a cost-benefit analysis of the final rule and found that it will reduce consumer expenditures on natural gas by about $500 million each year.  The deep gas royalty    suspensions are likely to reduce net federal royalty collections.  MMSs best estimate of this reduction is from $150 million to $220 million in net present value over a 16-year    period, depending on gas price volatility.(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C.  603-605, 607 and 609     MMS prepared a Final Regulatory Flexibility Analysis in connection with the final rule and found that the rule is likely to provide at least a proportionate share of its benefits to small    entities.(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.  1532-1535     The final rule does not contain either an intergovernmental or private sector mandate, as defined in title II, of more than $100 million in any one year.(iv) Other relevant information or requirements under acts and executive orders     Administrative Procedure Act, 5 U.S.C.  551 etseq.     The final rule was issued using the notice and comment procedures found at 5 U.S.C. 553.  On March 26, 2003, MMS published a Notice of Proposed Rulemaking in the Federal Register.  68    Fed. Reg. 14868.  In response, MMS received 14 comments and discusses them in the preamble to the final rule.     Paperwork Reduction Act, 44 U.S.C.  3501-3520     The final rule contains information collections that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act.  OMB has approved the collections    and assigned OMB control number 1010-0153 with an expiration date of April 30, 2006.  MMS estimates the cost burden of the collections to be $18,050.     Statutory authorization for the rule     The final rule is promulgated under the authority found at 43 U.S.C. 1337(a)(3).     Executive Order No. 12866     The final rule was reviewed by OMB and found to be an economically significant regulatory action under the order.     Executive Order No. 13132 (Federalism)     MMS has determined that the final rule does not have sufficient federalism implications to warrant the preparation of a federalism impact summary statement.

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