I 

112TH CONGRESS 

1ST SESSION H. R. 2260 

To provide for a study by the National Academy of Engineering regarding 

improving the accuracy of collection of royalties on production of oil, 

condensate, and natural gas under leases of Federal lands and Indian 

lands, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 21, 2011 

Mrs. MALONEY (for herself, Mr. HINCHEY, and Mr. GRIJALVA) introduced the 

following bill; which was referred to the Committee on Natural Resources 

A BILL 

To provide for a study by the National Academy of Engineering regarding improving the accuracy of collection of 

royalties on production of oil, condensate, and natural 

gas under leases of Federal lands and Indian lands, 

and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Study of Ways to Im5 prove the Accuracy of the Collection of Federal Oil, Con6 densate, and Natural Gas Royalties Act of 2011’’. 


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1 SEC. 2. STUDY OF ACTIONS TO IMPROVE THE ACCURACY 

2 OF COLLECTION OF FEDERAL OIL, CONDEN3 SATE, AND NATURAL GAS ROYALTIES. 

4 The Secretary of the Interior shall seek to enter into 

5 an arrangement with the National Academy of Engineer6 ing under which the Academy, by not later than six 

7 months after the date of the enactment of this Act, shall 

8 study and report to the Secretary regarding whether the 

9 accuracy of collection of royalties on production of oil, con10 densate, and natural gas under leases of Federal lands (in 

11 eluding submerged and deep water lands) and Indian 

12 lands would be improved by any of the following: 

13 (1) Requiring the installation of digital meters, 

14 calibrated at least monthly to an absolute zero value, 

15 for all lands from which natural gas (including con16 densate) is produced under such leases. 

17 (2) Requiring that— 

18 (A) the size of every orifice plate on each 

19 natural gas well operated under such leases be 

20 inspected at least quarterly by the Secretary; 

21 and 

22 (B) chipped orifice plates and wrong-sized 

23 orifice plates be replaced immediately after 

24 those inspections and reported to the Secretary 

25 for retroactive volume measurement corrections 


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1 and royalty payments with interest of 8 percent 

2 compounded monthly. 

3 (3) Requiring that any plug valves that are in 

4 natural gas gathering lines be removed and replaced 

5 with ball valves. 

6 (4) Requiring that— 

7 (A) all meter runs should be opened for in8 spection by the Secretary and the producer at 

9 all times; and 

10 (B) any welding or closing of the meter 

11 runs leading to the orifice plates should be pro12 hibited unless authorized by the Secretary. 

13 (5) Requiring the installation of straightening 

14 vanes approximately 10 feet before natural gas en15 ters each orifice meter, including each master meter 

16 and each sales meter. 

17 (6) Requiring that all master meters be in18 spected and the results of such inspections be made 

19 available to the Secretary and the producers imme20 diately. 

21 (7) Requiring that— 

22 (A) all sampling of natural gas for heating 

23 content analysis be performed monthly up24 stream of each natural gas meter, including up25 stream of each master meter; 


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1 (B) records of such sampling and heating 

2 content analysis be maintained by the pur3 chaser and made available to the Secretary and 

4 to the producer monthly; 

5 (C) probes for such upstream sampling be 

6 installed upstream within three feet of each 

7 natural gas meter; 

8 (D) any oil and natural gas lease for which 

9 heat content analysis is falsified shall be subject 

10 to cancellation; 

11 (E) natural gas sampling probes be lo12 cated— 

13 (i) upstream of the natural gas meter 

14 at all times; 

15 (ii) within a few feet of the natural 

16 gas meter; and 

17 (iii) after the natural gas goes 

18 through a Welker or Y–Z vanishing cham19 ber; and 

20 (F) temperature probes and testing probes 

21 be located between the natural gas sampling 

22 probe and the orifice of the natural gas meter. 

23 (8)(A) Reinstating the requirement to file Fed24 eral Energy Regulatory Commission (FERC) Form 

25 16 in April and September of each year for every 


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1 natural gas pipeline, including each intrastate pipe2 lines, in addition to the filing of FERC Form 2. 

3 (B) Requiring— 

4 (i) use of such FERC Form 2 to create 

5 FERC Form 16 data for the years beginning 

6 April and September, respectively, 1992, and 

7 for each year thereafter; and 

8 (ii) filing with the Federal Energy Regu9 latory Commission a FERC Form 16 for April 

10 and September that is completed with such 

11 data back to April 1992. 

12 (9) Requiring that administrative jurisdiction 

13 over all natural gas gathering lines, interstate pipe14 lines, and intrastate piplines revert immediately to 

15 the Federal Energy Regulatory Commission. 

16 (10) Prohibiting the dilution of natural gas 

17 with inert nitrogen or inert carbon dioxide gas for 

18 royalty determination, sale, or resale at any point. 

19 (11) Requiring that both the measurement of 

20 the volume of natural gas and the heating content 

21 analyses be reported only on the basis of 14.73 PSI 

22 and 60 degrees Fahrenheit, regardless of the ele23 vation above sea level of such volume measurement 

24 and heating content analysis, for both purchases and 

25 sales of natural gas. 


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1 (12) Prohibiting the construction of bypass 

2 pipes that go around the natural gas meter, and im3 posing criminal penalties for any such construction 

4 or subsequent removal including, but not limited to, 

5 automatic cancellation of the lease. 

6 (13) Requiring that all natural gas sold to con7 sumers have a minimum BTU content of 960 at an 

8 atmospheric pressure of 14.73 PSI and be at a tem9 perature of 60 degrees Fahrenheit, as required by 

10 the State of Wyoming Public Utilities Commission. 

11 (14) Requiring that all natural gas sold in the 

12 USA will be on a MMBTU basis with the BTU con13 tent adjusted for elevation above sea level in higher 

14 altitudes. Thus all natural gas meters must correct 

15 for BTU content in higher elevations (altitudes). 

16 (15) Issuance by the Secretary of rules for the 

17 measurement at the wellhead of the standard volume 

18 of natural gas produced, based on independent in19 dustry standards such as those suggested by the 

20 American Society of Testing Materials (ASTM). 

21 (16) Requiring use of the fundamental orifice 

22 meter mass flow equation, as revised in 1990, for 

23 calculating the standard volume of natural gas pro24 duced. 


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1 (17) Requiring the use of Fpv in standard vol2 ume measurement computations as described in the 

3 1992 American Gas Association Report No. 8 enti4 tled Compressibility Factor of Natural Gas and 

5 Other Related Hydrocarbon Gases. 

6 (18) Requiring that gathering lines must be 

7 constructed so as to have as few angles and turns 

8 as possible, with a maximum of three angles, before 

9 they connect with the natural gas meter. 

10 (19) Requiring that for purposes of reporting 

11 the royalty value of natural gas, condensate, oil, and 

12 associated natural gases, such royalty value must be 

13 based upon the natural gas’s, condensate’s, oil’s, and 

14 associated natural gases’ arm’s length, independent 

15 market value, as reported in independent, respected 

16 market reports such as Platts or Bloombergs, and 

17 not based upon industry-controlled posted prices. 

18 (20) Requiring that royalties be paid on all the 

19 condensate recovered through purging gathering 

20 lines and pipelines with a cone-shaped device to push 

21 out condensate (popularly referred to as a pig) and 

22 on condensate recovered from separators, dehydra23 tors, and processing plants. 

24 (21) Requiring that all royalty deductions for 

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1 pression, transportation, marketing, removal of im2 purities such as carbon dioxide (CO2), nitrogen (N2), 

3 hydrogen sulphide (H2S), mercaptain (HS), helium 

4 (He), and other similar charges on natural gas, con5 densate, and oil produced under such leases that are 

6 now in existence be eliminated. 

7 (22) Requiring that at all times— 

8 (A) the quantity, quality, and value ob9 tained for natural gas liquids (condensate) be 

10 reported to the Secretary; and 

11 (B) such reported value be based on fair 

12 independent arm’s length market value. 

13 (23) Issuance by the Secretary of regulations 

14 that prohibit venting or flaring (or both) of natural 

15 gas in cases for which technology exists to reason16 ably prevent it, strict enforcement of such prohibi17 tions, and cancellation of leases for violations. 

18 (24) Requiring lessees to pay full royalties on 

19 any natural gas that is vented, flared, or otherwise 

20 avoidably lost. 

21 (25)(A) Requiring payment of royalties on car22 bon dioxide at the wellhead used for tertiary oil re23 covery from depleted oil fields on the basis of 5 per24 cent of the West Texas Intermediate crude oil fair 


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1 market price to be used for one MCF (1,000 cubic 

2 feet) of carbon dioxide gas. 

3 (B) Requiring that— 

4 (i) carbon dioxide used for edible purposes 

5 should be subjected to a royalty per thousand 

6 cubic feet (MCF) on the basis of the sales price 

7 at the downstream delivery point without de8 ducting for removal of impurities, processing, 

9 transportation, and marketing costs; 

10 (ii) such price to apply with respect to gas11 eous forms, liquid forms, and solid (dry ice) 

12 forms of carbon dioxide converted to equivalent 

13 MCF; and 

14 (iii) such royalty to apply with respect to 

15 both a direct producer of carbon dioxide and 

16 purchases of carbon dioxide from another per17 son that is either affiliated or not affiliated with 

18 the purchaser. 

19 (26) Requiring that— 

20 (A) all carbon dioxide produced from Fed21 eral and Indian leases be analyzed for carcino22 genic benzene; and 

23 (B) benzene produced with such carbon di24 oxide must be filtered out and removed safely 

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1 ment subjected to such benzene content, in 

2 order to create a maximum permissible level 

3 (MPL) of 5 parts per billion. 

4 (27) Requiring that— 

5 (A) royalties be paid on the fair market 

6 value of nitrogen extracted from such leases 

7 that is used industrially for well stimulation, 

8 helium recovery, or other uses; and 

9 (B) royalties be paid on the fair market 

10 value of ultimately processed helium recovered 

11 from such leases. 

12 (28) Allowing only 5 percent of the value of the 

13 elemental sulfur recovered during processing of hy14 drogen sulfide gas from such leases to be deducted 

15 for processing costs in determining royalty pay16 ments. 

17 (29) Requiring that all heating content analysis 

18 of natural gas be conducted to a minimum level of 

19 C15. 

20 (30) Eliminating artificial conversion from dry 

21 BTU to wet BTU, and requiring that natural gas be 

22 analyzed and royalties paid for at all times on the 

23 basis of dry BTU only. 

24 (31) Requiring that natural gas sampling be 

25 performed at all times with a floating piston cylinder 


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1 container at the same pressure intake as the pres2 sure of the natural gas gathering line. 

3 (32) Requiring use of natural gas filters with a 

4 minimum of 10 microns, and preferably 15 microns, 

5 both in the intake to natural gas sampling con6 tainers and in the exit from the natural gas sam7 pling containers into the chromatograph. 

8 (33) Mandate the use of a Quad Unit for both 

9 portable and stationary chromatographs in order to 

10 correct for the presence of nitrogen and oxygen, if 

11 any, in certain natural gas streams. 

12 (34) Require the calibration of all chro13 matograph equipment every three months and the 

14 use of only American Gas Association-approved 

15 standard comparison containers for such calibration. 

16 (35) Requiring that natural gas stored during 

17 the summer period and marketed during the winter 

18 period— 

19 (A) be sold on the basis of the purchase 

20 price minus a maximum of $0.50 per MMBTU 

21 storage charges; or 

22 (B) be subject to payment of royalties on 

23 the basis of winter sales price minus $0.50 per 

24 MMBTU. 


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1 (36) Requiring payment of royalties on any 

2 such natural gas stored on Federal or Indian lands 

3 on the basis of corresponding storage charges for the 

4 use of Federal or Indian lands, respectively, for such 

5 storage service. 

6 (37) Imposing penalties for the intentional non7 payment of royalties for natural gas liquids recov8 ered— 

9 (A) from purging of natural gas gathering 

10 lines and natural gas pipelines; or 

11 (B) from field separators, dehydrators, and 

12 processing plants, 

13 including cancellation of oil and natural gas leases 

14 and criminal penalties. 

15 (38) Requiring that the separator, dehydrator, 

16 and natural gas meter be located within 100 feet of 

17 each natural gas wellhead. 

18 (39) Requiring that BTU heating content anal19 ysis be performed when the natural gas is at a tem20 perature of 140 to 150 degrees Fahrenheit at all 

21 times, as required by the American Gas Association 

22 (AGA) regulations. 

23 (40) Requiring that heating content analysis 

24 and volume measurements are identical at the sales 

25 point to what they are at the purchase point, after 


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1 allowing for a small volume for leakage in old pipes, 

2 but with no allowance for heating content discrep3 ancy. 

4 (41) Requiring that all natural gas produced 

5 under such leases be at all times sold to public, in6 dustrial, storage, and private customers only on a 

7 MMBTU basis of MCF (1000 CF) x MBTU (1000 

8 BTU). 

9 (42) Verification by the Secretary that the spe10 cific gravity of natural gas produced under such 

11 leases, as measured at the meter run, corresponds to 

12 the heating content analysis data for such natural 

13 gas, in accordance with the Natural Gas Processors 

14 Association Publication 2145–71(1), entitled ‘‘Phys15 ical Constants Of Paraffin Hydrocarbons And Other 

16 Components Of Natural Gas’’, and reporting of all 

17 discrepancies immediately. 

18 (43) Prohibiting all deductions on royalty pay19 ments for marketing of natural gas, condensate, and 

20 oil by an affiliate or agent. 

21 (44) Requiring that all standards of the Amer22 ican Petroleum Institute, the American Gas Associa23 tion, the Gas Processors Association, and the Amer24 ican Society of Testing Materials, Minerals Manage25 ment Service Order No. 5, and all other Minerals 


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1 Management Service orders be faithfully observed 

2 and applied, and willful misconduct of such stand3 ards and orders be subject to oil and gas lease can4 cellation. 

5 (45) Requiring that all oil and condensate pro6 duced from Federal and Indian lands must be stored 

7 and measured in cylindrical tanks, and prohibiting 

8 any distortion, such as squeezing or bending of a 

9 storage tank, that hinders the true and honest meas10 urement of volume of condensate and oil. 

11 SEC. 3. REVIEW OF ROYALTY PAYMENTS. 

12 The Secretary of the Interior, subject to the avail13 ability of appropriations, shall award a contract under 

14 which the contractor shall— 

15 (1) compare royalty payments made under Fed16 eral oil and gas lease provisions for covered lands 

17 against data supplied to the Federal Energy Regu18 latory Commission; 

19 (2) make such comparison retroactive to June 

20 1, 1974, by integrating existing natural gas analog 

21 charts or digital meter results (or both) for each 

22 natural gas meter and multiplying the corresponding 

23 standard volume results by heating content analysis 

24 obtained from corresponding specific gravity meas25 urement relationship; 


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1 (3) determine whether the correct production 

2 standard volume and total heating content analysis 

3 was used to calculate such payments; and 

4 (4) determine whether such payments were ade5 quate under the terms of such oil and gas leases, by 

6 among other procedures comparing the reported roy7 alty values with respected published market price re8 ports, such as Platts or Bloombergs. 

9 SEC. 4. DEFINITIONS. 

10 In this Act: 

11 (1) COVERED LANDS.—The term ‘‘covered 

12 lands’’ means— 

13 (A) all Federal onshore lands and offshore 

14 lands that are under the administrative jurisdic15 tion of the Department of the Interior for pur16 poses of oil and gas leasing; and 

17 (B) Indian onshore lands. 

18 (2) SECRETARY.—The term ‘‘Secretary’’ means 

19 the Secretary of the Interior. 

Æ 


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