PUBLIC LAW 104–185—AUG. 13, 1996

FEDERAL OIL AND GAS ROYALTY

SIMPLIFICATION AND FAIRNESS ACT OF 1996
110 STAT. 1700 PUBLIC LAW 104–185—AUG. 13, 1996

Public Law 104–185

104th Congress

An Act

To improve the management of royalties from Federal and Outer Continental Shelf

oil and gas leases, and for other purposes.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Federal Oil and Gas Royalty

Simplification and Fairness Act of 1996’’.

SEC. 2. DEFINITIONS.

Section 3 of the Federal Oil and Gas Royalty Management

Act of 1982 (30 U.S.C. 1701 et seq.) is amended—

(1) by amending paragraph (7) to read as follows:

‘‘(7) ‘lessee’ means any person to whom the United States

issues an oil and gas lease or any person to whom operating

rights in a lease have been assigned;’’; and

(2) by striking ‘‘and’’ at the end of paragraph (15), by

striking the period at the end of paragraph (16) and inserting

a semicolon, and by adding at the end the following:

‘‘(17) ‘adjustment’ means an amendment to a previously

filed report on an obligation, and any additional payment or

credit, if any, applicable thereto, to rectify an underpayment

or overpayment on an obligation;

‘‘(18) ‘administrative proceeding’ means any Department

of the Interior agency process in which a demand, decision

or order issued by the Secretary or a delegated State is subject

to appeal or has been appealed;

‘‘(19) ‘assessment’ means any fee or charge levied or

imposed by the Secretary or a delegated State other than—

‘‘(A) the principal amount of any royalty, minimum

royalty, rental bonus, net profit share or proceed of sale;

‘‘(B) any interest; or

‘‘(C) any civil or criminal penalty;

‘‘(20) ‘commence’ means—

‘‘(A) with respect to a judicial proceeding, the service

of a complaint, petition, counterclaim, cross claim, or other

pleading seeking affirmative relief or seeking credit or

recoupment: Provided, That if the Secretary commences

a judicial proceeding against a designee, the Secretary

shall give notice of that commencement to the lessee who

designated the designee, but the Secretary is not required

to give notice to other lessees who may be liable pursuant

to section 102(a) of this Act, for the obligation that is

the subject of the judicial proceeding; or

30 USC 1702.

30 USC 1701

note.

Federal Oil and

Gas Royalty

Simplification

and Fairness Act

of 1996.

Aug. 13, 1996

[H.R. 1975]
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1701

‘‘(B) with respect to a demand, the receipt by the

Secretary or a delegated State or a lessee or its designee

(with written notice to the lessee who designated the designee) of the demand;

‘‘(21) ‘credit’ means the application of an overpayment (in

whole or in part) against an obligation which has become due

to discharge, cancel or reduce the obligation;

‘‘(22) ‘delegated State’ means a State which, pursuant to

an agreement or agreements under section 205 of this Act,

performs authorities, duties, responsibilities, or activities of

the Secretary;

‘‘(23) ‘demand’ means—

‘‘(A) an order to pay issued by the Secretary or the

applicable delegated State to a lessee or its designee (with

written notice to the lessee who designated the designee)

that has a reasonable basis to conclude that the obligation

in the amount of the demand is due and owing; or

‘‘(B) a separate written request by a lessee or its designee which asserts an obligation due the lessee or its

designee that provides a reasonable basis to conclude that

the obligation in the amount of the demand is due and

owing, but does not mean any royalty or production report,

or any information contained therein, required by the Secretary or a delegated State;

‘‘(24) ‘designee’ means the person designated by a lessee

pursuant to section 102(a) of this Act, with such written designation effective on the date such designation is received by

the Secretary and remaining in effect until the Secretary

receives notice in writing that the designation is modified or

terminated;

‘‘(25) ‘obligation’ means—

‘‘(A) any duty of the Secretary or, if applicable, a delegated State—

‘‘(i) to take oil or gas royalty in kind; or

‘‘(ii) to pay, refund, offset, or credit monies including (but not limited to)—

‘‘(I) the principal amount of any royalty, minimum royalty, rental, bonus, net profit share or

proceed of sale; or

‘‘(II) any interest; and

‘‘(B) any duty of a lessee or its designee (subject to

the provision of section 102(a) of this Act)—

‘‘(i) to deliver oil or gas royalty in kind; or

‘‘(ii) to pay, offset or credit monies including (but

not limited to)—

‘‘(I) the principal amount of any royalty, minimum royalty, rental, bonus, net profit share or

proceed of sale;

‘‘(II) any interest;

‘‘(III) any penalty; or

‘‘(IV) any assessment,

which arises from or relates to any lease administered

by the Secretary for, or any mineral leasing law related

to, the exploration, production and development of oil

or gas on Federal lands or the Outer Continental Shelf;

‘‘(26) ‘order to pay’ means a written order issued by the

Secretary or the applicable delegated State to a lessee or its
110 STAT. 1702 PUBLIC LAW 104–185—AUG. 13, 1996

designee (with notice to the lessee who designated the designee)

which—

‘‘(A) asserts a specific, definite, and quantified obligation claimed to be due, and

‘‘(B) specifically identifies the obligation by lease,

production month and monetary amount of such obligation

claimed to be due and ordered to be paid, as well as

the reason or reasons such obligation is claimed to be

due, but such term does not include any other communication or action by or on behalf of the Secretary or a delegated

State;

‘‘(27) ‘overpayment’ means any payment by a lessee or

its designee in excess of an amount legally required to be

paid on an obligation and includes the portion of any estimated

payment for a production month that is in excess of the royalties

due for that month;

‘‘(28) ‘payment’ means satisfaction, in whole or in part,

of an obligation;

‘‘(29) ‘penalty’ means a statutorily authorized civil fine

levied or imposed for a violation of this Act, any mineral leasing

law, or a term or provision of a lease administered by the

Secretary;

‘‘(30) ‘refund’ means the return of an overpayment;

‘‘(31) ‘State concerned’ means, with respect to a lease, a

State which receives a portion of royalties or other payments

under the mineral leasing laws from such lease;

‘‘(32) ‘underpayment’ means any payment or nonpayment

by a lessee or its designee that is less than the amount legally

required to be paid on an obligation; and

‘‘(33) ‘United States’ means the United States Government

and any department, agency, or instrumentality thereof, the

several States, the District of Columbia, and the territories

of the United States.’’.

SEC. 3. DELEGATION OF ROYALTY COLLECTIONS AND RELATED

ACTIVITIES.

(a) GENERAL AUTHORITY.—Section 205 of the Federal Oil and

Gas Royalty Management Act of 1982 (30 U.S.C. 1735) is amended

to read as follows:

‘‘SEC. 205. DELEGATION OF ROYALTY COLLECTIONS AND RELATED

ACTIVITIES.

‘‘(a) Upon written request of any State, the Secretary is

authorized to delegate, in accordance with the provisions of

this section, all or part of the authorities and responsibilities

of the Secretary under this Act to:

‘‘(1) conduct inspections, audits, and investigations;

‘‘(2) receive and process production and financial reports;

‘‘(3) correct erroneous report data;

‘‘(4) perform automated verification; and

‘‘(5) issue demands, subpoenas, and orders to perform

restructured accounting, for royalty management enforcement

purposes,

to any State with respect to all Federal land within the State.

‘‘(b) After notice and opportunity for a hearing, the Secretary

is authorized to delegate such authorities and responsibilities

granted under this section as the State has requested, if the Secretary finds that—

30 USC 1735.
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1703

‘‘(1) it is likely that the State will provide adequate

resources to achieve the purposes of this Act;

‘‘(2) the State has demonstrated that it will effectively

and faithfully administer the rules and regulations of the Secretary under this Act in accordance with the requirements

of subsections (c) and (d) of this section;

‘‘(3) such delegation will not create an unreasonable burden

on any lessee;

‘‘(4) the State agrees to adopt standardized reporting procedures prescribed by the Secretary for royalty and production

accounting purposes, unless the State and all affected parties

(including the Secretary) otherwise agree;

‘‘(5) the State agrees to follow and adhere to regulations

and guidelines issued by the Secretary pursuant to the mineral

leasing laws regarding valuation of production; and

‘‘(6) where necessary for a State to have authority 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

with respect to the Federal lands within the State.

‘‘(c) After notice and opportunity for hearing, the Secretary

shall issue a ruling as to the consistency of a State’s proposal

with the provisions of this section and regulations under subsection

(d) within 90 days after submission of such proposal. In any unfavorable ruling, the Secretary shall set forth the reasons therefor and

state whether the Secretary will agree to delegate to the State

if the State meets the conditions set forth in such ruling.

‘‘(d) After consultation with State authorities, the Secretary

shall by rule promulgate, within 12 months after the date of enactment of this section, standards and regulations pertaining to the

authorities and responsibilities to be delegated under subsection

(a), including standards and regulations pertaining to—

‘‘(1) audits to be performed;

‘‘(2) records and accounts to be maintained;

‘‘(3) reporting procedures to be required by States under

this section;

‘‘(4) receipt and processing of production and financial

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 management enforcement

purposes.

Such standards and regulations shall be designed to provide reasonable assurance that a uniform and effective royalty management

system will prevail among the States. The records and accounts

under paragraph (2) shall be sufficient to allow the Secretary to

monitor the performance of any State under this section.

‘‘(e) If, after notice and opportunity for a hearing, the Secretary

finds that any State to which any authority or responsibility of

the Secretary has been delegated under this section is in violation

of any requirement of this section or any rule thereunder, or that

an affirmative finding by the Secretary under subsection (b) can

no longer be made, the Secretary may revoke such delegation.

Regulations.
110 STAT. 1704 PUBLIC LAW 104–185—AUG. 13, 1996

If, after providing written notice to a delegated State and a reasonable opportunity to take corrective action requested by the Secretary, the Secretary determines that the State has failed to issue

a demand or order to a Federal lessee within the State, that

such failure may result in an underpayment of an obligation due

the United States by such lessee, and that such underpayment

may be uncollected without Secretarial intervention, the Secretary

may issue such demand or order in accordance with the provisions

of this Act prior to or absent the withdrawal of delegated authority.

‘‘(f) Subject to appropriations, the Secretary shall compensate

any State for those costs which may be necessary to carry out

the delegated activities under this Section. Payment shall be made

no less than every quarter during the fiscal year. Compensation

to a State may not exceed the Secretary’s reasonably anticipated

expenditure for performance of such delegated activities by the

Secretary. Such costs shall be allocable for the purposes of section

35(b) of the Act entitled ‘An act to promote the mining of coal,

phosphate, oil, oil shale, gas and sodium on the public domain’,

approved February 25, 1920 (commonly known as the Mineral Leasing Act) (30 U.S.C. 191 (b)) to the administration and enforcement

of laws providing for the leasing of any onshore lands or interests

in land owned by the United States. Any further allocation of

costs under section 35(b) made by the Secretary for oil and gas

activities, other than those costs to compensate States for delegated

activities under this Act, shall be only those costs associated with

onshore oil and gas activities and may not include any duplication

of costs allocated pursuant to the previous sentence. Nothing in

this section affects the Secretary’s authority to make allocations

under section 35(b) for non-oil and gas mineral activities. All moneys

received from sales, bonuses, rentals, royalties, assessments and

interest, including money claimed to be due and owing pursuant

to a delegation under this section, shall be payable and paid to

the Treasury of the United States.

‘‘(g) Any action of the Secretary to approve or disapprove a

proposal submitted by a State under this section shall be subject

to judicial review in the United States district court which includes

the capital of the State submitting the proposal.

‘‘(h) Any State operating pursuant to a delegation existing

on the date of enactment of this Act may continue to operate

under the terms and conditions of the delegation, except to the

extent that a revision of the existing agreement is adopted pursuant

to this section.’’.

(b) CLERICAL AMENDMENT.—The item relating to section 205

in the table of contents in section 1 of the Federal Oil and Gas

Royalty Management Act of 1982 (30 U.S.C. 1701) is amended

to read as follows:

‘‘Sec. 205. Delegation of royalty collections and related activities.’’.

SEC. 4. SECRETARIAL AND DELEGATED STATES’ ACTIONS AND LIMITATION PERIODS.

(a) IN GENERAL.—The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.) is amended by adding

after section 114 the following new section:
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1705

‘‘SEC. 115. SECRETARIAL AND DELEGATED STATES’ ACTIONS AND

LIMITATION PERIODS.

‘‘(a) IN GENERAL.—The respective duties, responsibilities, and

activities with respect to a lease shall be performed by the Secretary, delegated States, and lessees or their designees in a timely

manner.

‘‘(b) LIMITATION PERIOD.—

‘‘(1) IN GENERAL.—A judicial proceeding or demand which

arises from, or relates to an obligation, shall be commenced

within seven years from the date on which the obligation

becomes due and if not so commenced shall be barred. If

commencement of a judicial proceeding or demand for an obligation is barred by this section, the Secretary, a delegated State,

or a lessee or its designee (A) shall not take any other or

further action regarding that obligation, including (but not

limited to) the issuance of any order, request, demand or other

communication seeking any document, accounting, determination, calculation, recalculation, payment, principal, interest,

assessment, or penalty or the initiation, pursuit or completion

of an audit with respect to that obligation; and (B) shall not

pursue any other equitable or legal remedy, whether under

statute or common law, with respect to an action on or an

enforcement of said obligation.

‘‘(2) RULE OF CONSTRUCTION.—A judicial proceeding or

demand that is timely commenced under paragraph (1) against

a designee shall be considered timely commenced as to any

lessee who is liable pursuant to section 102(a) of this Act

for the obligation that is the subject of the judicial proceeding

or demand.

‘‘(3) APPLICATION OF CERTAIN LIMITATIONS.—The limitations

set forth in sections 2401, 2415, 2416, and 2462 of title 28,

United States Code, and section 42 of the Mineral Leasing

Act (30 U.S.C. 226–2) shall not apply to any obligation to

which this Act applies. Section 3716 of title 31, United States

Code, may be applied to an obligation the enforcement of which

is not barred by this Act, but may not be applied to any

obligation the enforcement of which is barred by this Act.

‘‘(c) OBLIGATION BECOMES DUE.—

‘‘(1) IN GENERAL.—For purposes of this Act, an obligation

becomes due when the right to enforce the obligation is fixed.

‘‘(2) ROYALTY OBLIGATIONS.—The right to enforce any royalty obligation for any given production month for a lease

is fixed for purposes of this Act on the last day of the calendar

month following the month in which oil or gas is produced.

‘‘(d) TOLLING OF LIMITATION PERIOD.—The running of the

limitation period under subsection (b) shall not be suspended, tolled,

extended, or enlarged for any obligation for any reason by any

action, including an action by the Secretary or a delegated State,

other than the following:

‘‘(1) TOLLING AGREEMENT.—A written agreement executed

during the limitation period between the Secretary or a delegated State and a lessee or its designee (with notice to the

lessee who designated the designee) shall toll the limitation

period for the amount of time during which the agreement

is in effect.

‘‘(2) SUBPOENA.—

30 USC 1724.
110 STAT. 1706 PUBLIC LAW 104–185—AUG. 13, 1996

‘‘(A) The issuance of a subpoena to a lessee or its

designee (with notice to the lessee who designated the

designee, which notice shall not constitute a subpoena to

the lessee) in accordance with the provisions of subparagraph (B)(i) shall toll the limitation period with respect

to the obligation which is the subject of a subpoena only

for the period beginning on the date the lessee or its

designee receives the subpoena and ending on the date

on which (i) the lessee or its designee has produced such

subpoenaed records for the subject obligation, (ii) the Secretary or a delegated State receives written notice that

the subpoenaed records for the subject obligation are not

in existence or are not in the lessee’s or its designee’s

possession or control, or (iii) a court has determined in

a final decision that such records are not required to be

produced, whichever occurs first.

‘‘(B)(i) A subpoena for the purposes of this section

which requires a lessee or its designee to produce records

necessary to determine the proper reporting and payment

of an obligation due the Secretary may be issued only

by an Assistant Secretary of the Interior or an Acting

Assistant Secretary of the Interior who is a schedule C

employee (as defined by section 213.3301 of title 5, Code

of Federal Regulations), or the Director or Acting Director

of the respective bureau or agency, and may not be delegated to any other person. If a State has been delegated

authority pursuant to section 205, the State, acting through

the highest State official having ultimate authority over

the collection of royalties from leases on Federal lands

within the State, may issue such subpoena, but may not

delegate such authority to any other person.

‘‘(ii) A subpoena described in clause (i) may only be

issued against a lessee or its designee during the limitation

period provided in this section and only after the Secretary

or a delegated State has in writing requested the records

from the lessee or its designee related to the obligation

which is the subject of the subpoena and has determined

that—

‘‘(I) the lessee or its designee has failed to respond

within a reasonable period of time to the Secretary’s

or the applicable delegated State’s written request for

such records necessary for an audit, investigation or

other inquiry made in accordance with the Secretary’s

or such delegated State’s responsibilities under this

Act; or

‘‘(II) the lessee or its designee has in writing denied

the Secretary’s or the applicable delegated State’s written request to produce such records in the lessee’s

or its designee’s possession or control necessary for

an audit, investigation or other inquiry made in accordance with the Secretary’s or such delegated State’s

responsibilities under this Act; or

‘‘(III) the lessee or its designee has unreasonably

delayed in producing records necessary for an audit,

investigation or other inquiry made in accordance with

the Secretary’s or the applicable delegated State’s
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1707

responsibilities under this Act after the Secretary’s

or delegated State’s written request.

‘‘(C) In seeking records, the Secretary or the applicable

delegated State shall afford the lessee or its designee a

reasonable period of time after a written request by the

Secretary or such delegated State in which to provide such

records prior to the issuance of any subpoena.

‘‘(3) MISREPRESENTATION OR CONCEALMENT.—The intentional misrepresentation or concealment of a material fact for

the purpose of evading the payment of an obligation in which

case the limitation period shall be tolled for the period of

such misrepresentation or such concealment.

‘‘(4) ORDER TO PERFORM RESTRUCTURED ACCOUNTING.—A)(i)

The issuance of a notice under subparagraph (D) that the

lessee or its designee has not substantially complied with the

requirement to perform a restructured accounting shall toll

the limitation period with respect to the obligation which is

the subject of the notice only for the period beginning on the

date the lessee or its designee receives the notice and ending

120 days after the date on which (I) the Secretary or the

applicable delegated State receives written notice that the

accounting or other requirement has been performed, or (II)

a court has determined in a final decision that the lessee

is not required to perform the accounting, whichever occurs

first.

‘‘(ii) If the lessee or its designee initiates an administrative

appeal or judicial proceeding to contest an order to perform

a restructured accounting issued under subparagraph (B)(i),

the limitation period in subsection (b) shall be tolled from

the date the lessee or its designee received the order until

a final, nonappealable decision is issued in any such proceeding.

‘‘(B)(i) The Secretary or the applicable delegated State may

issue an order to perform a restructured accounting to a lessee

or its designee when the Secretary or such delegated State

determines during an audit of a lessee or its designee that

the lessee or its designee should recalculate royalty due on

an obligation based upon the Secretary’s or the delegated State’s

finding that the lessee or its designee has made identified

underpayments or overpayments which are demonstrated by

the Secretary or the delegated State to be based upon repeated,

systemic reporting errors for a significant number of leases

or a single lease for a significant number of reporting months

with the same type of error which constitutes a pattern of

violations and which are likely to result in either significant

underpayments or overpayments.

‘‘(ii) The power of the Secretary to issue an order to perform

a restructured accounting may not be delegated below the most

senior career professional position having responsibility for the

royalty management program, which position is currently designated as the ‘Associate Director for Royalty Management’,

and may not be delegated to any other person. If a State

has been delegated authority pursuant to section 205 of this

Act, the State, acting through the highest ranking State official

having ultimate authority over the collection of royalties from

leases on Federal lands within the State, may issue such order

to perform, which may not be delegated to any other person.

An order to perform a restructured accounting shall—
110 STAT. 1708 PUBLIC LAW 104–185—AUG. 13, 1996

‘‘(I) be issued within a reasonable period of time from

when the audit identifies the systemic, reporting errors;

‘‘(II) specify the reasons and factual bases for such

order;

‘‘(III) be specifically identified as an ‘order to perform

a restructured accounting’;

‘‘(IV) provide the lessee or its designee a reasonable

period of time (but not less than 60 days) within which

to perform the restructured accounting; and

‘‘(V) provide the lessee or its designee 60 days within

which to file an administrative appeal of the order to

perform a restructured accounting.

‘‘(C) An order to perform a restructured accounting shall

not mean or be construed to include any other action by or

on behalf of the Secretary or a delegated State.

‘‘(D) If a lessee or its designee fails to substantially comply

with the requirement to perform a restructured accounting

pursuant to this subsection, a notice shall be issued to the

lessee or its designee that the lessee or its designee has not

substantially complied with the requirements to perform a

restructured accounting. A lessee or its designee shall be given

a reasonable time within which to perform the restructured

accounting. Such notice may be issued under this section only

by an Assistant Secretary of the Interior or an acting Assistant

Secretary of the Interior who is a schedule C employee (as

defined by section 213.3301 of title 5, Code of Federal Regulations) and may not be delegated to any other person. If a

State has been delegated authority pursuant to section 205,

the State, acting through the highest State official having ultimate authority over the collection of royalties from leases on

Federal lands within the State, may issue such notice, which

may not be delegated to any other person.

‘‘(e) TERMINATION OF LIMITATIONS PERIOD.—An action or an

enforcement of an obligation by the Secretary or delegated State

or a lessee or its designee shall be barred under this section prior

to the running of the seven-year period provided in subsection

(b) in the event—

‘‘(1) the Secretary or a delegated State has notified the

lessee or its designee in writing that a time period is closed

to further audit; or

‘‘(2) the Secretary or a delegated State and a lessee or

its designee have so agreed in writing.

For purposes of this subsection, notice to, or an agreement by,

the designee shall be binding on any lessee who is liable pursuant

to section 102(a) for obligations that are the subject of the notice

or agreement.

‘‘(f) RECORDS REQUIRED FOR DETERMINING COLLECTIONS.—

Records required pursuant to section 103 of this Act by the Secretary or any delegated State for the purpose of determining obligations due and compliance with any applicable mineral leasing law,

lease provision, regulation or order with respect to oil and gas

leases from Federal lands or the Outer Continental Shelf shall

be maintained for the same period of time during which a judicial

proceeding or demand may be commenced under subsection (b).

If a judicial proceeding or demand is timely commenced, the record

holder shall maintain such records until the final nonappealable

decision in such judicial proceeding is made, or with respect to

Notice.
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1709

that demand is rendered, unless the Secretary or the applicable

delegated State authorizes in writing an earlier release of the

requirement to maintain such records. Notwithstanding anything

herein to the contrary, under no circumstance shall a record holder

be required to maintain or produce any record relating to an obligation for any time period which is barred by the applicable limitation

in this section. In connection with any hearing, administrative

proceeding, inquiry, investigation, or audit by the Secretary or

a delegated State under this Act, the Secretary or the delegated

State shall minimize the submission of multiple or redundant

information and make a good faith effort to locate records previously

submitted by a lessee or a designee to the Secretary or the delegated

State, prior to requiring the lessee or the designee to provide

such records.

‘‘(g) TIMELY COLLECTIONS.—In order to most effectively utilize

resources available to the Secretary to maximize the collection

of oil and gas receipts from lease obligations to the Treasury within

the seven-year period of limitations, and consequently to maximize

the State share of such receipts, the Secretary should not perform

or require accounting, reporting, or audit activities if the Secretary

and the State concerned determine that the cost of conducting

or requiring the activity exceeds the expected amount to be collected

by the activity, based on the most current 12 months of activity.

This subsection shall not provide a defense to a demand or an

order to perform a restructured accounting. To the maximum extent

possible, the Secretary and delegated States shall reduce costs

to the United States Treasury and the States by discontinuing

requirements for unnecessary or duplicative data and other information, such as separate allowances and payor information, relating

to obligations due. If the Secretary and the State concerned determine that collection will result sooner, the Secretary or the

applicable delegated State may waive or forego interest in whole

or in part.

‘‘(h) APPEALS AND FINAL AGENCY ACTION.—

‘‘(1) 33-MONTH PERIOD.—Demands or orders issued by the

Secretary or a delegated State are subject to administrative

appeal in accordance with the regulations of the Secretary.

No State shall impose any conditions which would hinder a

lessee’s or its designee’s immediate appeal of an order to the

Secretary or the Secretary’s designee. The Secretary shall issue

a final decision in any administrative proceeding, including

any administrative proceedings pending on the date of enactment of this section, within 33 months from the date such

proceeding was commenced or 33 months from the date of

such enactment, whichever is later. The 33-month period may

be extended by any period of time agreed upon in writing

by the Secretary and the appellant.

‘‘(2) EFFECT OF FAILURE TO ISSUE DECISION.—If no such

decision has been issued by the Secretary within the 33-month

period referred to in paragraph (1)—

‘‘(A) the Secretary shall be deemed to have issued

and granted a decision in favor of the appellant as to

any nonmonetary obligation and any monetary obligation

the principal amount of which is less than $10,000; and

‘‘(B) the Secretary shall be deemed to have issued

a final decision in favor of the Secretary, which decision

shall be deemed to affirm those issues for which the agency
110 STAT. 1710 PUBLIC LAW 104–185—AUG. 13, 1996

rendered a decision prior to the end of such period, as

to any monetary obligation the principal amount of which

is $10,000 or more, and the appellant shall have a right

to judicial review of such deemed final decision in accordance with title 5 of the United States Code.

‘‘(i) COLLECTIONS OF DISPUTED AMOUNTS DUE.—To expedite

collections relating to disputed obligations due within the sevenyear period beginning on the date the obligation became due, the

parties shall hold not less than one settlement consultation and

the Secretary and the State concerned may take such action as

is appropriate to compromise and settle a disputed obligation,

including waiving or reducing interest and allowing offsetting of

obligations among leases.

‘‘(j) ENFORCEMENT OF A CLAIM FOR JUDICIAL REVIEW.—In the

event a demand subject to this section is properly and timely

commenced, the obligation which is the subject of the demand

may be enforced beyond the seven-year limitations period without

being barred by this statute of limitations. In the event a demand

subject to this section is properly and timely commenced, a judicial

proceeding challenging the final agency action with respect to such

demand shall be deemed timely so long as such judicial proceeding

is commenced within 180 days from receipt of notice by the lessee

or its designee of the final agency action.

‘‘(k) IMPLEMENTATION OF FINAL DECISION.—In the event a

judicial proceeding or demand subject to this section is timely

commenced and thereafter the limitation period in this section

lapses during the pendency of such proceeding, any party to such

proceeding shall not be barred from taking such action as is required

or necessary to implement a final unappealable judicial or administrative decision, including any action required or necessary to implement such decision by the recovery or recoupment of an underpayment or overpayment by means of refund or credit.

‘‘(l) STAY OF PAYMENT OBLIGATION PENDING REVIEW.—Any person ordered by the Secretary or a delegated State to pay any

obligation (other than an assessment) shall be entitled to a stay

of such payment without bond or other surety instrument pending

an administrative or judicial proceeding if the person periodically

demonstrates to the satisfaction of the Secretary that such person

is financially solvent or otherwise able to pay the obligation. In

the event the person is not able to demonstrate, the Secretary

may require a bond or other surety instrument satisfactory to

cover the obligation. Any person ordered by the Secretary or a

delegated State to pay an assessment shall be entitled to a stay

without bond or other surety instrument.’’.

(b) CLERICAL AMENDMENT.—The table of contents in section

1 of the Federal Oil and Gas Royalty Management Act of 1982

(30 U.S.C. 1701) is amended by inserting after the item relating

to section 114 the following new item:

‘‘Sec. 115. Secretarial and delegated States’ actions and limitation periods.’’.

SEC. 5. ADJUSTMENT AND REFUNDS.

(a) IN GENERAL.—The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.) is amended by inserting

after section 111 the following:
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1711

‘‘SEC. 111A. ADJUSTMENTS AND REFUNDS.

‘‘(a) ADJUSTMENTS TO ROYALTIES PAID TO THE SECRETARY OR

A DELEGATED STATE.— ‘‘(1) If, during the adjustment period, a lessee or its designee determines that an adjustment or refund request is necessary to correct an underpayment or overpayment of an obligation, the lessee or its designee shall make such adjustment

or request a refund within a reasonable period of time and

only during the adjustment period. The filing of a royalty

report which reflects the underpayment or overpayment of an

obligation shall constitute prior written notice to the Secretary

or the applicable delegated State of an adjustment.

‘‘(2)(A) For any adjustment, the lessee or its designee shall

calculate and report the interest due attributable to such adjustment at the same time the lessee or its designee adjusts the

principle amount of the subject obligation, except as provided

by subparagraph (B).

‘‘(B) In the case of a lessee or its designee who determines

that subparagraph (A) would impose a hardship, the Secretary

or such delegated State shall calculate the interest due and

notify the lessee or its designee within a reasonable time of

the amount of interest due, unless such lessee or its designee

elects to calculate and report interest in accordance with

subparagraph (A).

‘‘(3) An adjustment or a request for a refund for an obligation may be made after the adjustment period only upon written

notice to and approval by the Secretary or the applicable delegated State, as appropriate, during an audit of the period

which includes the production month for which the adjustment

is being made. If an overpayment is identified during an audit,

then the Secretary or the applicable delegated State, as appropriate, shall allow a credit or refund in the amount of the

overpayment.

‘‘(4) For purposes of this section, the adjustment period

for any obligation shall be the six-year period following the

date on which an obligation became due. The adjustment period

shall be suspended, tolled, extended, enlarged, or terminated

by the same actions as the limitation period in section 115.

‘‘(b) REFUNDS.—

‘‘(1) IN GENERAL.—A request for refund is sufficient if it—

‘‘(A) is made in writing to the Secretary and, for purposes of section 115, is specifically identified as a demand;

‘‘(B) identifies the person entitled to such refund;

‘‘(C) provides the Secretary information that reasonably

enables the Secretary to identify the overpayment for which

such refund is sought; and

‘‘(D) provides the reasons why the payment was an

overpayment.

‘‘(2) PAYMENT BY SECRETARY OF THE TREASURY.—The Secretary shall certify the amount of the refund to be paid under

paragraph (1) to the Secretary of the Treasury who shall make

such refund. Such refund shall be paid from amounts received

as current receipts from sales, bonuses, royalties (including

interest charges collected under this section) and rentals of

the public lands and the Outer Continental Shelf under the

provisions of the Mineral Leasing Act and the Outer Continental Shelf Lands Act, which are not payable to a State or

30 USC 1721a.
110 STAT. 1712 PUBLIC LAW 104–185—AUG. 13, 1996

the Reclamation Fund. The portion of any such refund attributable to any amounts previously disbursed to a State, the

Reclamation Fund, or any recipient prescribed by law shall

be deducted from the next disbursements to that recipient

made under the applicable law. Such amounts deducted from

subsequent disbursements shall be credited to miscellaneous

receipts in the Treasury.

‘‘(3) PAYMENT PERIOD.—A refund under this subsection

shall be paid or denied (with an explanation of the reasons

for the denial) within 120 days of the date on which the request

for refund is received by the Secretary. Such refund shall

be subject to later audit by the Secretary or the applicable

delegated State and subject to the provisions of this Act.

‘‘(4) PROHIBITION AGAINST REDUCTION OF REFUNDS OR CREDITS.—In no event shall the Secretary or any delegated State

directly or indirectly claim or offset any amount or amounts

against, or reduce any refund or credit (or interest accrued

thereon) by the amount of any obligation the enforcement of

which is barred by section 115 of this Act.’’.

(b) CLERICAL AMENDMENT.—The table of contents in section

1 of the Federal Oil and Gas Royalty Management Act of 1982

(30 U.S.C. 1701) is amended by inserting after the item relating

to section 111 the following new item:

‘‘Sec. 111A. Adjustments and refunds.’’.

SEC. 6. ROYALTY TERMS AND CONDITIONS, INTEREST, AND

PENALTIES.

(a) LESSEE OR DESIGNEE INTEREST.—Section 111 of the Federal

Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721)

is amended by adding after subsection (g) the following:

‘‘(h) Interest shall be allowed and paid or credited on any

overpayment, with such interest to accrue from the date such overpayment was made, at the rate obtained by applying the provisions

of subparagraphs (A) and (B) of section 6621(a)(1) of the Internal

Revenue Code of 1986, but determined without regard to the sentence following subparagraph (B) of section 6621(a)(1). Interest

which has accrued on any overpayment may be applied to reduce

an underpayment. This subsection applies to overpayments made

later than six months after the date of enactment of this subsection

or September 1, 1996, whichever is later. Such interest shall be

paid from amounts received as current receipts from sales, bonuses,

royalties (including interest charges collected under this section)

and rentals of the public lands and the Outer Continental Shelf

under the provisions of the Mineral Leasing Act, and the Outer

Continental Shelf Lands Act, which are not payable to a State

or the Reclamation Fund. The portion of any such interest payment

attributable to any amounts previously disbursed to a State, the

Reclamation Fund, or any other recipient designated by law shall

be deducted from the next disbursements to that recipient made

under the applicable law. Such amounts deducted from subsequent

disbursements shall be credited to miscellaneous receipts in the

Treasury.’’.

(b) LIMITATION ON INTEREST.—Section 111 of the Federal Oil

and Gas Royalty Management Act of 1982, as amended by subsection (a), is further amended by adding at the end the following:

‘‘(i) Upon a determination by the Secretary that an excessive

overpayment (based upon all obligations of a lessee or its designee
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1713

for a given reporting month) was made for the sole purpose of

receiving interest, interest shall be paid on the excessive amount

of such overpayment. For purposes of this Act, an ‘excessive overpayment’ shall be the amount that any overpayment a lessee or

its designee pays for a given reporting month (excluding payments

for demands for obligations determined to be due as a result of

judicial or administrative proceedings or agreed to be paid pursuant

to settlement agreements) for the aggregate of all of its Federal

leases exceeds 10 percent of the total royalties paid that month

for those leases.’’.

(c) ESTIMATED PAYMENT.—Section 111 of the Federal Oil and

Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as amended

by subsections (a) and (b), is further amended by adding at the

end the following:

‘‘(j) A lessee or its designee may make a payment for the

approximate amount of royalties (hereinafter in this subsection

‘estimated payment’) that would otherwise be due for such lease

by the rate royalties are due for that lease. When an estimated

payment is made, actual royalties are payable at the end of the

month following the month in which the estimated payment is

made. If the estimated payment was less than the amount of

actual royalties due, interest is owned on the underpaid amount.

If the estimated payment exceeds the actual royalties due, interest

is owned on the overpayment. If the lessee or its designee makes

a payment for such actual royalties, the lessee or its designee

may apply the estimated payment to future royalties. Any estimated

payment may be adjusted, recouped, or reinstated at any time

by the lessee or its designee.’’.

(d) VOLUME ALLOCATION OF OIL AND GAS PRODUCTION.—Section

111 of the Federal Oil and Gas Royalty Management Act of 1982

(30 U.S.C. 1721), as amended by subsections (a) through (c), is

amended by adding at the end the following:

‘‘(k)(1) Except as otherwise provided by this subsection—

‘‘(A) a lessee or its designee of a lease in a unit or

communitization agreement which contains only Federal leases

with the same royalty rate and funds distribution shall report

and pay royalties on oil and gas production for each production

month based on the actual volume of production sold by or

on behalf of that lessee;

‘‘(B) a lessee or its designee of a lease in any other unit

or communitization agreement shall report and pay royalties

on oil and gas production for each production month based

on the volume of oil and gas produced from such agreement

and allocated to the lease in accordance with the terms of

the agreement; and

‘‘(C) a lessee or its designee of a lease that is not contained

in a unit or communitization agreement shall report and pay

royalties on oil and gas production for each production month

based on the actual volume of production sold by or on behalf

of that lessee.

‘‘(2) This subsection applies only to requirements for reporting

and paying royalties. Nothing in this subsection is intended to

alter a lessee’s liability for royalties on oil or gas production based

on the share of production allocated to the lease in accordance

with the terms of the lease, a unit or communitization agreement,

or any other agreement.
110 STAT. 1714 PUBLIC LAW 104–185—AUG. 13, 1996

‘‘(3) For any unit or communitization agreement if all lessees

contractually agree to an alternative method of royalty reporting

and payment, the lessees may submit such alternative method

to the Secretary or the delegated State for approval and make

payments in accordance with such approved alternative method

so long as such alternative method does not reduce the amount

of the royalty obligation.

‘‘(4) The Secretary or the delegated State shall grant an exception from the reporting and payment requirements for marginal

properties by allowing for any calendar year or portion thereof

royalties to be paid each month based on the volume of production

sold. Interest shall not accrue on the difference for the entire

calendar year or portion thereof between the amount of oil and

gas actually sold and the share of production allocated to the

lease until the beginning of the month following such calendar

year or portion thereof. Any additional royalties dues or overpaid

royalties and associated interest shall be paid, refunded, or credited

within six months after the end of each calendar year in which

royalties are paid based on volumes of production sold. For the

purpose of this subsection, the term ‘marginal property’ means

a lease that produces on average the combined equivalent of less

than 15 barrels of oil per well per day or 90 thousand cubic feet

of gas per well per day, or a combination thereof, determined

by dividing the average daily production of crude oil and natural

gas from producing wells on such lease by the number of such

wells, unless the Secretary, together with the State concerned,

determines that a different production is more appropriate.

‘‘(5) Not later than two years after the date of the enactment

of this subsection, the Secretary shall issue any appropriate demand

for all outstanding royalty payment disputes regarding who is

required to report and pay royalties on production from units and

communitization agreements outstanding on the date of the enactment of this subsection, and collect royalty amounts owed on such

production.’’.

(e) PRODUCTION ALLOCATION.—Section 111 of the Federal Oil

and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as

amended by subsections (a) through (d), is amended by adding

at the end the following:

‘‘(l) The Secretary shall issue all determinations of allocations

of production for units and communitization agreements within

120 days of a request for determination. If the Secretary fails

to issue a determination within such 120-day period, the Secretary

shall waive interest due on obligations subject to the determination

until the end of the month following the month in which the

determination is made.’’.

(f) NEW ASSESSMENT TO ENCOURAGE PROPER ROYALTY PAYMENTS.—

(1) IN GENERAL.—The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as amended by section

4(a), is further amended by adding at the end the following:

‘‘SEC. 116. ASSESSMENTS.

‘‘Beginning eighteen months after the date of enactment of

this section, to encourage proper royalty payment the Secretary

or the delegated State shall impose assessments on a person who

chronically submits erroneous reports under this Act. Assessments

under this Act may only be issued as provided for in this section.’’.

30 USC 1725.
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1715

(2) CLERICAL AMENDMENT.—The table of contents in section

1 of such Act (30 U.S.C. 1701) is amended by adding after

the item relating to section 115 the following new item:

‘‘Sec. 116. Assessments.’’.

(g) LIABILITY FOR ROYALTY PAYMENTS.—Section 102(a) of the

Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C.

1712(a)) is amended to read as follows:

‘‘(a) In order to increase receipts and achieve effective collections

of royalty and other payments, a lessee who is required to make

any royalty or other payment under a lease or under the mineral

leasing laws, shall make such payments in the time and manner

as may be specified by the Secretary or the applicable delegated

State. A lessee may designate a person to make all or part of

the payments due under a lease on the lessee’s behalf and shall

notify the Secretary or the applicable delegated State in writing

of such designation, in which event said designated person may,

in its own name, pay, offset or credit monies, make adjustments,

request and receive refunds and submit reports with respect to

payments required by the lessee. Notwithstanding any other provision of this Act to the contrary, a designee shall not be liable

for any payment obligation under the lease. The person owning

operating rights in a lease shall be primarily liable for its pro

rata share of payment obligations under the lease. If the person

owning the legal record title in a lease is other than the operating

rights owner, the person owning the legal record title shall be

secondarily liable for its pro rata share of such payment obligations

under the lease.’’.

(h) CLERICAL AMENDMENTS.—(1) The heading of section 111

of the Federal Oil and Gas Royalty management Act of 1982 (30

U.S.C. 1721) is amended to read as follows:

‘‘ROYALTY TERMS AND CONDITIONS, INTEREST, AND PENALTIES’’.

(2) The item relating to section 111 in the table of contents

in section 1 of such Act (30 U.S.C. 1701) is amended to read

as follows:

‘‘Sec. 111. Royalty terms and conditions, interest, and penalties.’’.

SEC. 7. ALTERNATIVES FOR MARGINAL PROPERTIES.

(a) IN GENERAL.—The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.), as amended by section

6 of this Act, is further amended by adding at the end the following:

‘‘SEC. 117. ALTERNATIVES FOR MARGINAL PROPERTIES.

‘‘(a) DETERMINATION OF BEST INTERESTS OF STATE CONCERNED

AND THE UNITED STATES.—The Secretary and the State concerned,

acting in the best interests of the United States and the State

concerned to promote production, reduce administrative costs, and

increase net receipts to the United States and the States, shall

jointly determine, on a case by case basis, the amount of what

marginal production from a lease or leases or well or wells, or

parts thereof, shall be subject to a prepayment under subsection

(b) or regulatory relief under subsection (c). If the State concerned

does not consent, such prepayments or regulatory relief shall not

be made available under this section for such marginal production:

Provided, That if royalty payments from a lease or leases, or well

or wells are not shared with any State, such determination shall

be made solely by the Secretary.

30 USC 1726.
110 STAT. 1716 PUBLIC LAW 104–185—AUG. 13, 1996

‘‘(b) PREPAYMENT OF ROYALTY.—

‘‘(1) IN GENERAL.—Notwithstanding the provisions of any

lease to the contrary, for any lease or leases or well or wells

identified by the Secretary and the State concerned pursuant

to subsection (a), the Secretary is authorized to accept a prepayment for royalties in lieu of monthly royalty payments under

the lease for the remainder of the lease term if the affected

lessee so agrees. Any prepayment agreed to by the Secretary,

State concerned and lessee which is less than an average $500

per month in total royalties shall be effectuated under this

section not earlier than two years after the date of enactment

of this section and, any prepayment which is greater than

an average $500 per month in total royalties shall be effectuated under this section not earlier than three years after

the date of enactment of this section. The Secretary and the

State concerned may condition their acceptance of the prepayment authorized under this section on the lessee’s agreeing

to such terms and conditions as the Secretary and the State

concerned deem appropriate and consistent with the purposes

of this Act. Such terms may—

‘‘(A) provide for prepayment that does not result in

a loss of revenue to the United States in present value

terms;

‘‘(B) include provisions for receiving additional prepayments or royalties for developments in the lease or leases

or well or wells that deviate significantly from the assumptions and facts on which the valuation is determined; and

‘‘(C) require the lessee or it designee to provide such

periodic production reports as may be necessary to allow

the Secretary and the State concerned to monitor production for the purposes of subparagraph (B).

‘‘(2) STATE SHARE.—A prepayment under this section shall

be shared by the Secretary with any State or other recipient

to the same extent as any royalty payment for such lease.

‘‘(3) SATISFACTION OF OBLIGATION.—Except as may be provided in the terms and conditions established by the Secretary

under subsection (b), a lessee or its designee who makes a

prepayment under this section shall have satisfied in full the

lessee’s obligation to pay royalty on the production stream

sold from the lease or leases or well or wells.

‘‘(c) ALTERNATIVE ACCOUNTING AND AUDITING REQUIREMENTS.—

Within one year after the date of the enactment of this section,

the Secretary or the delegated State shall provide accounting,

reporting, and auditing relief that will encourage lessees to continue

to produce and develop properties subject to subsection (a): Provided, That such relief will only be available to lessees in a State

that concurs, which concurrence is not required if royalty payments

from the lease or leases or well or wells are not shared with

any State. Prior to granting such relief, the Secretary and, if appropriate, the State concerned shall agree that the type of marginal

wells and relief provided under this paragraph is in the best interest

of the United States and, if appropriate, the State concerned.’’.
PUBLIC LAW 104–185—AUG. 13, 1996 110 STAT. 1717

LEGISLATIVE HISTORY—H.R. 1975:

HOUSE REPORTS: No. 104–667 (Comm. on Resources).

CONGRESSIONAL RECORD, Vol. 142 (1996):

July 16, considered and passed House.

Aug. 2, considered and passed Senate.

WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):

Aug. 13, Presidential remarks and statement.

Æ

(b) CLERICAL AMENDMENT.—The table of contents in section

1 of such Act (30 U.S.C. 1701) is amended by adding after the

item relating to section 116 the following new item:

‘‘Sec. 117. Alternatives for marginal properties.’’.

SEC. 8. APPLICABILITY.

(a) FOGRMA.—With respect to Federal lands, sections 202

and 307 of the Federal Oil and Gas Royalty Management Act

of 1982 (30 U.S.C. 1732 and 1755), are no longer applicable. The

applicability of those sections to Indian leases is not affected.

(b) OCSLA.—Effective on the date of the enactment of this

Act, section 10 of the Outer Continental Shelf Lands Act (43 U.S.C.

1339) is repealed.

SEC. 9. INDIAN LANDS.

The amendments made by this Act shall not apply with respect

to Indian lands, and the provisions of the Federal Oil and Gas

Royalty Management Act of 1982 as in effect on the day before

the date of enactment of this Act shall continue to apply after

such date with respect to Indian lands.

SEC. 10. PRIVATE LANDS.

This Act shall not apply to any privately owned minerals.

SEC. 11. EFFECTIVE DATE.

Except as provided by section 115(h), section 111(h), section

111(k)(5), and section 117 of the Federal Oil and Gas Royalty

Management Act of 1982 (as added by this Act), this Act, and

the amendments made by this Act, shall apply with respect to

the production of oil and gas after the first day of the month

following the date of the enactment of this Act.

SEC. 12. SAVINGS CLAUSE.

Nothing in this Act shall be construed to give a State a property

right or interest in any Federal lease or land.

Approved August 13, 1996.

30 USC 1701

note.

30 USC 1701

note.

30 USC 1701

note.

30 USC 1701

note.

30 USC 1732

note.