II

105TH CONGRESS

2D SESSION S. 1930

To provide certainty for, reduce administrative and compliance burdens associated with, and streamline and improve the collection of royalties from

Federal and outer continental shelf oil and gas leases, and for other

purposes.

IN THE SENATE OF THE UNITED STATES

APRIL 2, 1998

Mr. NICKLES (for himself, Mr. DOMENICI, Mr. MURKOWSKI, Mrs.

HUTCHISON, Mr. BREAUX, and Mr. CRAIG) introduced the following bill;

which was read twice and referred to the Committee on Energy and Natural Resources

A BILL

To provide certainty for, reduce administrative and compliance burdens associated with, and streamline and improve the collection of royalties from Federal and outer

continental shelf oil and gas leases, 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; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Royalty Enhancement Act of 1998’’.
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1 (b) TABLE OF CONTENTS.—The table of contents for

2 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.

Sec. 3. Rights, obligations and responsibilities.

Sec. 4. Costs responsibility.

Sec. 5. Transporter charges.

Sec. 6. Imbalances.

Sec. 7. Royalty-in-kind for trucked, tankered, or barged oil or gas.

Sec. 8. Limitations on application.

Sec. 9. Reporting.

Sec. 10. Audit.

Sec. 11. Lease terms not affected.

Sec. 12. Eligible and small refiners.

Sec. 13. Applicable laws.

Sec. 14. Indian lands.

Sec. 15. Effective date; regulations.

3 SEC. 2. DEFINITIONS.

4 In this Act:

5 (1) AFFILIATE; AFFILIATED.—

6 (A) The term ‘‘affiliate’’ or ‘‘affiliated’’

7 means that a person controls, is controlled by,

8 or is under common control with another per9 son. Affiliation shall be determined on a lease10 by-lease and asset-by-asset basis.

11 (B) For purposes of this Act, based on the

12 instruments of ownership:

13 (i) Ownership in excess of 50 percent

14 constitutes control.

15 (ii) Ownership of at least 10 percent

16 and not more than 50 percent creates a re17 buttable presumption of control only if

18 each owner has a separate and independ-
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1 ent right to control or utilize the capacity

2 of the asset.

3 (iii) Ownership of less than 10 per4 cent does not constitute control.

5 (2) COMPENSATORY ROYALTY.—The term

6 ‘‘compensatory royalty’’ means a payment made to

7 a royalty owner as compensation for loss of income

8 that it may suffer due to a lease being drained of

9 oil and gas by wells drilled on lands adjacent to the

10 lands subject to the lease.

11 (3) COMPRESSION.—The term ‘‘compression’’

12 means the process of raising the pressure of gas.

13 (4) CONDENSATE.—The term ‘‘condensate’’

14 means liquid hydrocarbons (normally exceeding 40

15 degrees of API gravity) recovered at the surface

16 without resorting to processing. Condensate is that

17 stabilized mixture of liquid hydrocarbons at atmos18 pheric pressure that results from condensation of pe19 troleum hydrocarbons existing initially in a gaseous

20 phase in an underground reservoir.

21 (5) DELIVERY POINT.—The term ‘‘delivery

22 point’’ means—

23 (A) for a lease premise for which a produc24 tion measurement meter is approved in accord-
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1 ance with applicable laws before the date of en2 actment of this Act—

3 (i) subject to clause (ii), the existing

4 approved meter location, or

5 (ii) a delivery point requested by a les6 see and approved in accordance with sub7 paragraph (B); or

8 (B) for a lease premise for which no pro9 duction measurement meter is approved before

10 the date of the enactment of this Act, that

11 point on or near the lease premises, approved

12 by the appropriate agency in accordance with

13 applicable laws and regulations, where lease

14 production can be measured and reported in a

15 manner that is practical, economical, and verifi16 able, except that such point may be at a loca17 tion off the lease premises where, if necessary,

18 production can be allocated back to the lease

19 premises.

20 (6) ELIGIBLE SMALL REFINER.—The term ‘‘eli21 gible small refiner’’ means a refiner that—

22 (A) has applied to the Secretary for certifi23 cation as an eligible small refiner;

24 (B) has a total crude oil and condensate

25 refining capacity (including the refining capac-
5

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1 ity of any person who controls, is controlled by,

2 or is under common control with such refiner)

3 not exceeding 100,000 barrels per day;

4 (C) is a corporation, company, partnership,

5 trust or estate organized under the laws of the

6 United States or of any State, territory, or mu7 nicipality thereof, or is a person who is a

8 United States citizen; and

9 (D) has continuously operated a refinery in

10 the United States for no less than 6 months im11 mediately preceding the date of application for

12 certification as an eligible small refiner.

13 (7) ELIGIBLE SMALL REFINER PORTION.—The

14 term ‘‘eligible small refiner portion’’ means the por15 tion of all royalty oil volumes required to be offered

16 for sale to eligible small refiners. The eligible small

17 refiner portion shall be 40 percent of all royalty oil

18 volumes, unless the Secretary determines that a

19 greater share is in the public interest.

20 (8) FERC.—The term ‘‘FERC’’ means the

21 Federal Energy Regulatory Commission.

22 (9) FIELD.—The term ‘‘field’’ means a geo23 graphic region situated over one or more subsurface

24 oil or gas reservoirs that encompasses at least the

25 outermost boundaries of all oil and gas accumula-
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1 tions known to be within those reservoirs vertically

2 projected to the land surface.

3 (10) FORCE MAJEURE.—The term ‘‘force

4 majeure’’ means foreseen and unforeseen acts of

5 God, strikes, lockouts, or other industrial disturb6 ances, acts of the public enemy, wars, blockades, in7 surrections, riots, epidemics, landslides, lightning,

8 hurricanes or storms, hurricane or storm warnings

9 which, in the judgment of the party affected by such

10 event, require the precautionary shutdown or evacu11 ation of production facilities, earthquakes, fires,

12 floods, washouts, disturbances, explosions, accidental

13 breakage to lines of pipe, machine breakage, freezing

14 of wells or lines of pipe, partial or entire failure of

15 wells, and any other cause of a similar nature be16 yond the reasonable control of the party affected

17 which renders that party unable to carry out its obli18 gations under this Act. Force majeure as used in

19 this Act shall not include market conditions.

20 (11) GAS.—The term ‘‘gas’’ means any fluid,

21 whether combustible, noncombustible, hydrocarbon,

22 or nonhydrocarbon, that—

23 (A) is extracted from a reservoir;

24 (B) has neither independent shape nor vol25 ume;
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1 (C) tends to expand indefinitely; and

2 (D) exists in a gaseous or rarefied state

3 under standard temperature and pressure con4 ditions.

5 (12) GATHERING.—The term ‘‘gathering’’

6 means the movement of unseparated, unidentifiable

7 lease production upstream of the delivery point to a

8 central accumulation point on or immediately adja9 cent to the lease premises, unit, or communitized

10 area.

11 (13) GISB.—The term ‘‘GISB’’ means the Gas

12 Industry Standards Board, as incorporated in the

13 State of Delaware on September 26, 1994.

14 (14) LEASE OPERATOR; OPERATOR.—Each of

15 the terms ‘‘lease operator’’ and ‘‘operator’’ means

16 any person, including a lessee, who has control of or

17 who manages operations on lease premises, accord18 ing to the terms of the joint operating agreement or

19 any other agreement or method by which an opera20 tor is designated, or Federal onshore lands or who

21 has been designated as an operator on the outer con22 tinental shelf by applicable law.

23 (15) LEASE PREMISES.—The term ‘‘lease prem24 ises’’ means all land and interests in land owned by

25 the United States that are subject to an oil and gas
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1 lease issued under the mineral leasing laws, includ2 ing mineral resources of mineral estates reserved to

3 the United States in the conveyance of a surface or

4 non-mineral estate.

5 (16) LEASE PRODUCTION.—The term ‘‘lease

6 production’’ means any produced oil or gas that is

7 attributable to, originating from, or allocated to a

8 Federal onshore or an outer continental shelf lease

9 premises.

10 (17) LESSEE.—The term ‘‘lessee’’ means any

11 person to whom the United States issues an oil and

12 gas lease, or any person to whom operating rights

13 under an oil and gas lease have been assigned.

14 (18) MERCHANTABLE CONDITION; MARKET15 ABLE CONDITION.—Each of the terms ‘‘merchant16 able condition’’ and ‘‘marketable condition’’ means

17 the condition of oil or gas that is sufficiently free of

18 impurities to meet the requirements of or is accepted

19 by the first transporter of royalty oil and royalty gas

20 from that lease premises either prior to or at the de21 livery point. Whether or not lease production is in

22 merchantable condition shall not affect the respon23 sibility for the bearing of costs of gathering or trans24 portation, as provided by this Act.
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1 (19) MINIMUM ROYALTY.—The term ‘‘minimum

2 royalty’’ means that minimum amount of annual

3 royalty that a lessee must pay, as specified in the

4 lease or in applicable leasing regulations.

5 (20) NET PROFIT SHARE LEASE ROYALTY

6 PRIOR TO PAYOUT.—The term ‘‘net profit share

7 lease royalty prior to payout’’ means the specified

8 share of the net profit from production of oil and

9 gas as provided in the lease.

10 (21) OIL.—The term ‘‘oil’’—

11 (A) means a mixture of hydrocarbons that

12 exists in the liquid phase in natural under13 ground reservoirs and remains liquid at atmos14 pheric pressure after passing through surface

15 separating facilities; and

16 (B) includes condensate.

17 (22) OIL AND GAS LEASE; LEASE.—Each of the

18 terms ‘‘oil and gas lease’’ and ‘‘lease’’ means any

19 contract, profit-share arrangement, or other agree20 ment issued or maintained in accordance with the

21 Outer Continental Shelf Lands Act (43 U.S.C. 1301

22 et seq.) or the Mineral Lands Leasing Act (30

23 U.S.C. 181 et seq.) and issued or approved by the

24 United States that authorizes exploration for, ex25 traction of, or removal of oil or gas.
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1 (23) OPERATING RIGHTS.—The term ‘‘operat2 ing rights’’ means the interest created by a lease or

3 derived therefrom authorizing the holder of that in4 terest to enter upon the lease premises to conduct

5 drilling and related operations, including production

6 of oil or gas from such lands in accordance with the

7 terms of the lease. A record title owner is the owner

8 of operating rights under a lease except to the extent

9 that the operating rights or a portion thereof have

10 been transferred from record title.

11 (24) PERSON.—The term ‘‘person’’ means an

12 individual natural person, proprietorship, firm (pri13 vate or public), corporation, business, limited liabil14 ity company, unincorporated association, association,

15 partnership, trust, consortium, joint venture, joint

16 stock company.

17 (25) PROCESSING; PROCESS.—Each of the

18 terms ‘‘processing’’ and ‘‘process’’—

19 (A) means any process designed to remove

20 elements or compounds (hydrocarbon and non21 hydrocarbon) from oil or gas;

22 (B) includes absorption, adsorption, or re23 frigeration; and

24 (C) does not include lease or field proc25 esses, such as natural pressure reduction, me-
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1 chanical separation, heating, cooling, dehydra2 tion, and compression on the upstream side of

3 the delivery point.

4 (26) PRODUCING, PRODUCED; PRODUCTION.—

5 The term ‘‘producing’’, ‘‘produced’’, or ‘‘production’’

6 means the act of bringing hydrocarbons to the sur7 face.

8 (27) QUALIFIED MARKETING AGENT.—The

9 term ‘‘qualified marketing agent’’ means a person

10 with whom the Secretary has contracted to receive,

11 handle, transport, deliver, market, process, dispose

12 of, broker, or sell, or any combination thereof, roy13 alty oil or royalty gas taken in kind by the United

14 States from, or that is attributable to, an oil and gas

15 lease.

16 (28) REGULATED PIPELINE; REGULATED FA17 CILITY.—Each of the terms ‘‘regulated pipeline’’ and

18 ‘‘regulated facility’’—

19 (A) means a pipeline, truck, tanker, barge,

20 or other modality of carriage for oil or gas, the

21 operation of which is subject to regulation by a

22 State government authority or Federal govern23 ment authority (or both) with respect to the

24 rates that may be charged shippers for trans25 portation service; and
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1 (B) includes, but is not limited to—

2 (i) a pipeline performing the inter3 state movement of gas subject to regula4 tion by the Federal Energy Regulatory

5 Commission under the Natural Gas Act

6 (15 U.S.C. 717 et seq.);

7 (ii) a pipeline whose movements of oil

8 are subject to regulation by the Federal

9 Energy Regulatory Commission under the

10 Interstate Commerce Act (49 U.S.C. 1 et

11 seq.); and

12 (iii) any pipeline, truck, tanker, barge

13 or other modality of carriage for Oil or

14 Gas whose rates for carriage are regulated

15 by a governmental authority under State

16 law.

17 (29) ROYALTY GAS.—The term ‘‘royalty gas’’

18 means that fraction or percentage of gas produced

19 from or attributable to lease premises, that the

20 United States as lessor is entitled to take in kind

21 under the terms of an oil and gas lease.

22 (30) ROYALTY OIL.—The term ‘‘royalty oil’’

23 means that fraction or percentage of oil produced

24 from or attributable to lease premises, that the
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1 United States as lessor is entitled to take in kind

2 under the terms of an oil and gas lease.

3 (31) ROYALTY SHARE.—The term ‘‘royalty

4 share’’ means that fraction or percentage of royalty

5 oil or royalty gas (or both) produced from or attrib6 utable to lease premises, that the United States as

7 lessor is entitled to take in kind under the terms of

8 an oil and gas lease.

9 (32) SECRETARY.—The term ‘‘Secretary’’

10 means the Secretary of the Interior.

11 (33) TENDER.—The term ‘‘tender’’ means the

12 act by which a lessee makes royalty oil or royalty

13 gas produced from lease premises available to the

14 United States for receipt.

15 (34) TRANSPORTATION; TRANSPORT.—Each of

16 the terms ‘‘transportation’’ and ‘‘transporting’’

17 means any movement (including associated or relat18 ed activities to facilitate movement such as compres19 sion and dehydration), upstream or downstream of

20 the delivery point of royalty oil or royalty gas that

21 is not gathering as defined herein including move22 ment described as transportation in this paragraph.

23 Such transportation shall include but not limited

24 to—
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1 (A) the movement of unseparated, uniden2 tifiable lease production to a point not on or

3 immediately adjacent to the lease premises,

4 unit, or communitized area; and

5 (B) any movement of separated, identifi6 able lease production regardless of whether such

7 movement is on or off the lease premises, unit

8 or communitized area.

9 (35) TRANSPORTER.—The term ‘‘transporter’’

10 means a person or entity who is transporting or pro11 viding transportation.

12 (36) UNITED STATES.—The term ‘‘United

13 States’’ means the United States of America and

14 any agency, department, or instrumentality thereof.

15 SEC. 3. RIGHTS, OBLIGATIONS, AND RESPONSIBILITIES.

16 (a) RIGHTS, OBLIGATIONS, AND RESPONSIBILITIES

17 OF THE UNITED STATES.—

18 (1) GENERAL RULE.—Except as otherwise pro19 vided in section 8 of this Act, all royalty oil and roy20 alty gas accruing to the United States under any oil

21 or gas lease shall be taken in kind by the United

22 States at the applicable delivery point for each lease

23 premises.

24 (2) OWNERSHIP AND RECEIPT BY UNITED

25 STATES.—Ownership of all right, title and interest
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1 in royalty oil and royalty gas produced from oil and

2 gas lease premises governed by this Act shall remain

3 in the United States until sale or other disposition

4 by the United States. Nothing in this Act shall limit

5 the right of the United States to have royalty oil or

6 royalty gas stored after its production in such tanks

7 or other surface facilities as the lessee may be ex8 pressly obligated to furnish under any applicable

9 lease term. The United States shall not delay or

10 defer the receipt of lease production, delay receipt of

11 new production, or physically segregate the royalty

12 share prior to receipt by the United States. The

13 United States shall have custody, possession, and re14 sponsibility attendant thereto for royalty oil and roy15 alty gas at and beyond the delivery point.

16 (3) SELECTION OF AND CONTRACTS WITH A

17 QUALIFIED MARKETING AGENT.—(A) Except as pro18 vided in subsection (b), the Secretary shall, for each

19 lease premises, contract with a person to act as a

20 qualified marketing agent to market and dispose of

21 royalty oil and royalty gas. Each qualified marketing

22 agent shall be authorized to advise and consult with

23 the Secretary on the sale and disposition of the roy24 alty oil and royalty gas and to directly sell and

25 broker the royalty oil and royalty gas.
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1 (B) To be eligible for a contract under this

2 paragraph to act as a qualified marketing agent, a

3 person must have the expertise necessary to receive,

4 handle, transport, deliver, market, process, dispose,

5 broker, or sell royalty oil and royalty gas in accord6 ance with this Act. Under rules promulgated by the

7 Secretary, the Secretary may designate any person

8 as ineligible or place other requirements on a person

9 to act as a qualified marketing agent for a particu10 lar lease premises under this paragraph by reason of

11 such person being affiliated with persons engaged in

12 the, transporting, processing, or purchasing of oil or

13 gas for that lease premises.

14 (C) The Secretary shall contract with not more

15 than one qualified marketing agent for each lease

16 premises for royalty oil and not more than one quali17 fied marketing agent for each lease premises for roy18 alty gas.

19 (D) The Secretary shall solicit competitive bids

20 for contracts for qualified marketing agents. The

21 Secretary shall promulgate final rules within 12

22 months after the date of the enactment of this Act

23 regarding the competitive manner in which qualified

24 marketing agents shall be selected.
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1 (E) The compensation of each qualified market2 ing agent—

3 (i) shall be determined and made by the

4 Secretary without further appropriation based

5 on the services to be performed by the qualified

6 marketing agent; and

7 (ii) shall be established in the contract be8 tween the qualified marketing agent and the

9 United States.

10 (F) Except as otherwise provided in subsection

11 (b), the Secretary shall be solely responsible for ob12 taining and contracting with qualified marketing

13 agents and shall be authorized to pay qualified mar14 keting agents from proceeds derived from the sale of

15 royalty oil and royalty gas without further appro16 priation.

17 (G) Each contract shall—

18 (i) require the qualified marketing agent to

19 dispose of and sell royalty oil and royalty gas

20 in an open, nondiscriminatory, and competitive

21 manner; and

22 (ii) prohibit the qualified marketing agent

23 from precluding any person from competing for

24 the handling, gathering, transporting, market25 ing, processing, or purchasing of royalty oil and
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1 royalty gas solely by reason of the person being

2 a lessee or person affiliated with a lessee, quali3 fied marketing agent, gatherer, royalty payor,

4 transporter, processor, or purchaser.

5 (H) To further the purposes of this Act the

6 Secretary shall be provided the greatest latitude in

7 contracting with qualified marketing agents to mar8 ket and dispose of royalty oil or royalty gas, con9 tracts with qualified marketing agents under this

10 Act shall be exempted from otherwise applicable fed11 eral procurement and property disposition laws, in12 cluding but not limited to the Armed Services Pro13 curement Act of 1947, 10 U.S.C. 2304, et seq. or

14 the Federal Property Administration Services Act,

15 41 U.S.C. 253, et seq., or their implementing regu16 lations.

17 (4) TRANSPORTATION COSTS.—Each contract

18 under paragraph (3) shall require the Secretary to

19 bear the costs of any transportation of royalty oil

20 and royalty gas without further appropriation as

21 specified by this Act incurred prior to the sale or

22 other disposition of the royalty oil and royalty gas

23 by the qualified marketing agent.

24 (5) PROCESSING.—The qualified marketing

25 agent under paragraph (3) shall—
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1 (A) have the right to process royalty oil

2 and royalty gas, after receipt at the delivery

3 point, for the recovery and sale of valuable

4 products; and

5 (B) require the Secretary to bear any ap6 plicable costs of exercising such right without

7 further appropriation.

8 (6) COMPLIANCE WITH STANDARDS.—In taking

9 in kind, processing, and shipping royalty oil and roy10 alty gas, the United States and its qualified market11 ing agent shall comply with all procedures which are

12 customary or required of processors and shippers,

13 including but not limited to the applicable FERC14 approved GISB standards, nominations of volumes,

15 scheduling of deliveries, and the movement of oil or

16 gas in or through the facilities of the initial trans17 porter and any subsequent transporter. The United

18 States and its qualified marketing agent shall sepa19 rately contract with transporters, purchasers, and

20 processors. The Secretary and his qualified market21 ing agent shall assume responsibility and any liabil22 ity associated with such duties.

23 (7) FAIR MARKET VALUE REQUIREMENTS.—

24 The net proceeds received by the United States from

25 the sale of royalty oil and royalty gas shall satisfy
20

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1 in full the Secretary’s responsibility to receive fair

2 market value as defined by an applicable statute or

3 lease provision.

4 (b) RIGHTS, OBLIGATIONS AND RESPONSIBILITIES

5 OF STATES.—

6 (1) SELECTION OF QUALIFIED MARKETING

7 AGENTS.—At its option and for the mutual benefit

8 of the United States and the State, a State entitled

9 to revenues under the provisions of section 35 of the

10 Mineral Leasing Act (30 U.S.C. 191) or section 8(g)

11 of the Outer Continental Shelf Lands Act (43

12 U.S.C. 1353) may elect to act on behalf of the Sec13 retary in selecting qualified marketing agents to sell

14 or dispose of royalty oil or royalty gas produced

15 from lease premises within the State or from section

16 8(g) lease premises adjacent to the State, whichever

17 is applicable. If it makes such an election, the State

18 shall enjoy all the rights and assume all obligations

19 that the United States would otherwise have under

20 this Act. If a State selects a qualified marketing

21 agent that has contracted to market production from

22 State leases, the contract with the qualified market23 ing agent shall be on terms no less favorable to the

24 interests of the United States than the contract with
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1 the State. A State may make such an election from

2 time to time in accordance with paragraph (4).

3 (2) COMPLIANCE WITH REQUIREMENTS.—A

4 State that elects to act under this section shall—

5 (A) exercise such rights in accordance with

6 the requirements established by this Act gov7 erning royalty in kind; and

8 (B) be subject to the rights, responsibil9 ities, and obligations of the United States under

10 this Act, as may be applicable, including those

11 set forth in subsection (a) and in no event shall

12 regulations be applicable to a State which do

13 not apply in substance to the United States to

14 the extent required by applicable law.

15 (3) NOTICE; EFFECTIVE PERIOD OF ELEC16 TION.—A State may elect to act under this section

17 after giving the Secretary 90 days notice. The elec18 tion is effective 90 days after the date the Secretary

19 receives notice of the election. The election shall re20 main in effect for a period of not less than 3 years.

21 After the initial term, a State must give sufficient

22 notice to the United States, but in no event less

23 than 180 days, to terminate an election period.

24 (4) COVERED OIL AND GAS.—A State’s election

25 under this subsection shall apply to all royalty oil
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1 and royalty gas within the State and section 8(g)

2 lands adjacent to the State, as applicable.

3 (5) EXISTING CONTRACTS.—If a contract be4 tween a qualified marketing agent and the United

5 States exists that has not expired, the State’s elec6 tion shall be subject to that existing contract.

7 (6) LIMITATION ON DEDUCTIONS FROM STATE

8 SHARE OF RECEIPTS.—If a State makes an election

9 under this section, payment of the State’s share of

10 receipts for the sale of royalty oil and royalty gas

11 shall be made without deductions for costs applicable

12 to the services provided by the State under the net

13 receipts sharing provisions of the Mineral Leasing

14 Act.

15 (c) RIGHTS, OBLIGATIONS, AND RESPONSIBILITIES

16 OF THE LESSEE.—

17 (1) EFFECT OF TENDER BY LESSEE.—A lessee

18 shall tender royalty oil and royalty gas to the United

19 States at the delivery point for each lease premises,

20 except as provided in section 6. Upon such tender

21 for any lease premises, all royalty obligations of the

22 lessee shall be considered fulfilled and fully satisfied

23 for the amount tendered, including any express or

24 implied obligation or duty to market, except as pro25 vided in section 6. If the United States fails to take
23

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1 in kind the entire volume tendered, the lessee’s obli2 gation or duty shall nonetheless be fully satisfied.

3 (2) MEASUREMENT OF LEASED PRODUCTION.—

4 A lessee shall measure or cause to be measured lease

5 production, including royalty oil and royalty gas, at

6 the delivery point in accordance with any applicable

7 laws and lease terms.

8 (3) TERMINATION OF RESPONSIBILITIES OF

9 LESSEE.—A lessee shall have no responsibility or ob10 ligation for royalty oil or royalty gas after tendering

11 it in accordance with paragraph (1) and shall not be

12 liable for any costs or liability downstraem of the de13 livery point associated with the royalty oil or royalty

14 gas.

15 (4) REPORTING AND RECORD KEEPING.—With

16 respect to royalty oil and royalty gas taken in kind

17 by the United States, a lessee shall not be subject

18 to the reporting and record keeping requirements of

19 the Federal Oil and Gas Royalty Management Act

20 (30 U.S.C. 1701 et seq.) or other applicable laws for

21 any lease, other than records or reports necessary to

22 verify the quantity of royalty oil or royalty gas pro23 duced from a lease premises.

24 (d) RIGHTS, OBLIGATIONS, AND RESPONSIBILITIES

25 OF QUALIFIED MARKETING AGENTS.—
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1 (1) IN GENERAL.—In accordance with the

2 terms of its contract with the United States, a quali3 fied marketing agent shall—

4 (A) advise and consult with the United

5 States regarding the terms and conditions of

6 sales to purchasers;

7 (B) arrange for the receipt, handling,

8 transporting, delivery, marketing, processing,

9 disposition, brokering and sale of royalty oil

10 and royalty gas; and

11 (C) be authorized to enter into sales con12 tracts on behalf of the United States.

13 (2) MOVEMENT OF ROYALTY OIL AND ROYALTY

14 GAS.—A qualified marketing agent shall be author15 ized to make any arrangements necessary to move

16 royalty oil and royalty gas downstream of the appli17 cable delivery point, and shall be authorized to enter

18 into transportation and processing contracts on be19 half of the United States.

20 (3) REQUIREMENT TO TAKE.—A qualified mar21 keting agent shall be required to take 100 percent

22 of the royalty share tendered by the lessee from each

23 lease premises on a daily basis.

24 (4) ENHANCEMENT OF REVENUES TO UNITED

25 STATES.—In handling, marketing, and disposing of
25

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1 royalty oil and royalty gas, a qualified marketing

2 agent shall utilize its experience and expertise to

3 seek opportunities to enhance revenues to the United

4 States, including opportunities for the sale of royalty

5 oil and royalty gas at or away from the lease prem6 ises, depending on the facts and circumstances rel7 evant to receiving, handling, transporting, delivering,

8 marketing, processing, disposition, brokering, and

9 sale of the royalty oil or royalty gas.

10 (5) AFFILIATE TRANSACTIONS.—Qualified mar11 keting agent sales to itself or an affiliate shall be

12 made in accordance with the following standards:

13 (A) When selling royalty oil and royalty

14 gas to an affiliate, a qualified marketing agent

15 shall not give preference to an affiliate, includ16 ing but not limited to, favoring the affiliate

17 with lower sales prices, rights of first refusal or

18 more favorable terms than those offered to non19 affiliated purchasers of royalty oil and royalty

20 gas.

21 (B) The managing employee of the quali22 fied marketing agent shall periodically certify

23 that it has complied with these provisions. The

24 civil penalty provisions of section 109(d) of the

25 Federal Oil and Gas Royalty Management Act
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1 of 1982 (30 U.S.C. 1719(d)) shall apply to any

2 qualified marketing agent who violates subpara3 graph (A).

4 SEC. 4. COSTS RESPONSIBILITY.

5 (a) MERCHANTABLE CONDITION.—The lessee shall

6 bear the costs of placing royalty oil and royalty gas in

7 merchantable condition at the delivery point, if not pro8 duced in such condition at the well: Provided, however,

9 That gathering and transportation costs under this Act

10 shall be governed solely by section 4(b) and section 5, and

11 responsibility for such costs shall not be dependent upon

12 whether the royalty oil or royalty gas is in merchantable

13 condition at the time of gathering or transportation.

14 (b) GATHERING AND TRANSPORTATION OF ROYALTY

15 OIL AND ROYALTY GAS.—

16 (1) GATHERING.—The lessee shall bear the

17 costs of gathering royalty oil and royalty gas.

18 (2) TRANSPORTATION.—The United States

19 shall bear the costs of transporting royalty oil and

20 royalty gas to and beyond the delivery point until

21 disposition or sale by the United States. Transpor22 tation costs shall include associated or related activi23 ties to facilitate movement, such as the costs of com24 pression and dehydration associated with transpor25 tation. The movement of unseparated, unidentifiable
27

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1 lease production to a point not on or immediately

2 adjacent to the lease premises, unit or communitized

3 area and the movement of separated, identifiable

4 lease production regardless of whether such move5 ment on or off the lease premises, unit or

6 communitized area shall be considered transpor7 tation. Transportation costs shall be governed solely

8 by the definitions and provisions in this Act relating

9 to transportation and responsibility for the payment

10 of such costs shall not be dependent upon whether

11 the royalty oil or royalty gas is in merchantable con12 dition at the time of transportation.

13 (c) LIMITATION ON LESSEE’S RESPONSIBILITY FOR

14 COSTS.—With respect to all royalty oil and royalty gas

15 taken in kind by the United States, the lessee shall bear

16 no costs other than those specifically identified in this sec17 tion. After the royalty share is taken in kind, the United

18 States shall dispose of and market its royalty oil and roy19 alty gas and the lessee shall have no obligation to dispose

20 of or market the United States royalty share of produc21 tion.

22 (d) REIMBURSEMENT OF COSTS.—In bearing the

23 cost of transporting royalty oil and royalty gas, the United

24 States shall reimburse the lessee for transportation costs
28

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1 without further appropriation in accordance with the pro2 visions of subsection (b) of this section and section 5.

3 SEC. 5. TRANSPORTER CHARGES.

4 (a) DETERMINATION.—The lessee or its affiliate shall

5 determine and calculate, where applicable, the transpor6 tation charges governed by this Act in accordance with

7 subsections (b) and (c).

8 (b) REIMBURSEMENT FOR TRANSPORTATION COSTS

9 PRIOR TO THE DELIVERY POINT.—

10 (1) TRANSPORT BY REGULATED PIPELINE OR

11 FACILITY.—Reimbursement to a lessee for costs of

12 transporting royalty oil and royalty gas produced by

13 the lessee and subsequently transported through a

14 regulated pipeline or facility before the delivery point

15 shall be—

16 (A) for nonaffiliated transactions, the ac17 tual rate paid under the tariff by the lessee; or

18 (B) for affiliated transactions, the lower of

19 the tariff rate or the actual rate paid under the

20 tariff.

21 (2) TRANSPORT BY SHIPMENT-BY-SHIPMENT

22 TARIFF JURISDICTION PIPELINE OR FACILITY.—Re23 imbursement to a lessee for transportation costs in24 curred to transport royalty oil through a pipeline or

25 facility for which jurisdiction for purposes of a tariff
29

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1 is determined on a shipment-by-shipment basis, shall

2 be the tariff rate for all shipments by the lessee

3 through the same pipeline or facility if there is a

4 shipment through the pipeline or facility to which a

5 tariff applies.

6 (3) TRANSPORT BY UNREGULATED PIPELINE

7 OR FACILITY.—(A) Reimbursement to a lessee for

8 transportation costs incurred to transport royalty oil

9 or royalty gas through an unregulated pipeline or fa10 cility before the delivery point shall be—

11 (i) for nonaffiliated transactions, the ac12 tual costs incurred by the lessee; or

13 (ii) for affiliated transactions—

14 (I) if third party oil or gas is being

15 transported through the pipeline or facility,

16 the weighted average (by volume) third

17 party charge; or

18 (II) if no third party oil or gas is

19 being transported through the pipeline or

20 facility, not to exceed the pipeline or facil21 ity owner’s or its affiliate’s costs of operat22 ing the pipeline or facility, including a re23 turn on undepreciated capital investment,

24 subject to paragraph (4).
30

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1 (B) For purposes of subparagraph (A)(ii)(II)

2 the term ‘‘costs of operating’’ means the sum of the

3 following:

4 (i) Direct operating, maintenance, and re5 pair costs and expenses.

6 (ii) Indirect costs (including but not lim7 ited to costs such as information systems, busi8 ness services and technical service) allocated to

9 the pipeline or facility, in an amount not ex10 ceeding 15 percent of the amount of direct

11 costs that applies under clause (I).

12 (iii) An allowance for capital investment

13 calculated on the basis of either of the follow14 ing, as may be, elected by the lessee:

15 (I) Depreciation, plus a return on the

16 undepreciated capital, or

17 (II) A return on depreciable capital

18 investment.

19 Return under subclauses (I) and (II) shall be a rate

20 equal to twice the rate payable for bonds with a

21 Standard and Poor’s industrial BBB bond rating.

22 (4) ALLOWANCE OF HIGHER TRANSPORTATION

23 COSTS.—If the amount specified in paragraph

24 (3)(A)(ii) does not adequately reflect the costs of the

25 transportation services provided by a lessee or its af-
31

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1 filiate, the lessee may request a different transpor2 tation reimbursement from the Secretary. For pipe3 lines in more than 200 meters of water, the Sec4 retary may allow a higher rate of return, sufficient

5 for an investment in the fabricating, installing, oper6 ating, and maintaining such pipelines as compared

7 to pipelines in waters of less than 200 meters.

8 (5) RESTRICTION ON DISCLOSURE.—The

9 United States and its qualified marketing agent

10 shall keep confidential and shall not disclose the

11 transportation charge or any facts or information re12 lated thereto used by a lessee or its affiliate for re13 imbursement under this subsection.

14 (c) CHARGES FOR TRANSPORTATION COSTS BEYOND

15 THE DELIVERY POINT.—

16 (1) IN GENERAL.—Charges by the lessee or its

17 affiliate for transportation of royalty oil or royalty

18 gas through an unregulated pipeline or facility be19 yond the delivery point shall be a negotiated rate,

20 that—

21 (A) shall not exceed the highest rate

22 charged for transportation provided to a third

23 party, if third party oil or gas is being trans24 ported through the pipeline or facility; or
32

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1 (B) shall be the fair commercial value of

2 the transportation services provided by the les3 see or its affiliate if no third party oil or gas

4 is being transported through the pipeline or fa5 cility.

6 (2) DETERMINATION OF COMMERCIAL

7 VALUE.—The standard to be used to determine the

8 commercial value for purposes of paragraph (1)(B)

9 shall be based upon the transportation services pro10 vided and not on the ownership of the pipeline or fa11 cility by the lessee or its affiliate.

12 (d) ARBITRATION.—

13 (1) IN GENERAL.—If negotiations between a

14 qualified marketing agent and an entity owning the

15 pipeline or facility do not result in a mutually agree16 able negotiated charge for transportation under sub17 section (c), then the qualified marketing agent on

18 behalf of the Secretary or the entity owning the

19 pipeline or facility may, at any time during the nego20 tiation, require that such matter be submitted to ar21 bitration in accordance with this subsection.

22 (2) SELECTION OF ARBITRATORS.—Any dispute

23 regarding a charge for transportation that is not re24 solved by agreement shall be determined by a panel

25 of 3 arbitrators upon written notice given by either
33

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1 party to the other, which notice shall also name one

2 arbitrator. The party receiving such notice shall,

3 within 10 business days thereafter, by written notice

4 to the other party, name the second arbitrator, or

5 failing to do so, the first party who gave notice shall

6 name the second arbitrator. The two arbitrators so

7 appointed shall name the third, or failing to do so

8 within 5 business days then upon the request of ei9 ther party, the third arbitrator shall be a certified

10 arbitrator appointed by a professional arbitrator as11 sociation. Whether appointed by the two party12 named arbitrators or by a professional arbitrator as13 sociation, the third arbitrator shall be knowledgeable

14 about and experienced in the transportation of oil or

15 gas or both, as applicable.

16 (3) HEARING.—An arbitration hearing shall be

17 held within 20 calendar days following the selection

18 of the third arbitrator. At the hearing, each party

19 shall submit a proposed transportation rate and evi20 dence to support such rate as it sees fit.

21 (4) DECISION.—The panel of arbitrators shall

22 determine which of the rates submitted by the par23 ties shall be the transportation charge used. The ar24 bitrators shall render a written decision within 10

25 calendar days after the hearing under paragraph (3)
34

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1 based on a majority vote of the 3 arbitrators. Such

2 decision shall be final and binding on the United

3 States, the qualified marketing agent, and the lessee

4 and its affiliate, and shall be enforceable in any

5 court having jurisdiction.

6 (5) EXPENSES.—Each party shall bear its ex7 penses of prosecuting its own case in any arbitra8 tion, and the parties shall share equally any other

9 expenses of the arbitration, including compensation

10 for the third arbitrator at a rate that is fair and rea11 sonable to the United States.

12 (6) USE OF EMPLOYEE OF PARTY AS ARBITRA13 TOR.—(A) Any arbitrator named by the parties may

14 be a permanent or temporary officer or employee of

15 the Federal or a State Government, or an employee

16 of any party to the dispute, if all parties agree that

17 the person may serve.

18 (B) In implementing this paragraph, the quali19 fied marketing agent on behalf of the Secretary may

20 use the services of one or more employees of other

21 agencies to serve as arbitrators to be named by the

22 qualified marketing agent. The Secretary may enter

23 into an interagency agreement that provides for the

24 reimbursement by the user agency or the parties of
35

S 1930 IS

1 the full or partial costs of the services of such an

2 employee.

3 (7) LIMITATION ON DISCLOSURE.—Any party

4 (including the United States and its qualified mar5 keting agent) to an arbitration proceeding shall keep

6 confidential and shall not disclose the results of the

7 arbitration or any facts, evidence, or information re8 lated thereto provided in confidence to the arbitra9 tors.

10 (8) INTERIM RATE.—(A) The royalty oil and

11 royalty gas shall be transported at the disputed rate

12 during the interim period, subject to an obligation to

13 refund if the rate is later reduced as a result of arbi14 tration.

15 (B) Any refund under subparagraph (A) shall

16 be made with interest at the average short-term rate

17 as specified in section 6621 of the Internal Revenue

18 Code of 1986.

19 (9) DELAY OR CURTAILMENT OF PRODUCTION

20 PROHIBITED.—At no time during such arbitration or

21 dispute shall lease production be delayed or cur22 tailed.

23 SEC. 6. IMBALANCES.

24 (a) REQUIREMENT TO RESOLVE IMBALANCES.—
36

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1 (1) IN GENERAL.—If the amount of royalty oil

2 or royalty gas production taken by the United States

3 from a lease premises during a calendar month dif4 fers from the amount of royalty oil or royalty gas

5 production attributable to that lease premises for

6 that calendar month, and the difference results from

7 the circumstances described in paragraph (2), the

8 difference (in this section referred to as a ‘‘royalty

9 share imbalance’’) shall be resolved in accordance

10 with this section.

11 (2) CIRCUMSTANCES.—The circumstances re12 ferred to in paragraph (1) are the following:

13 (A) A force majeure event at the delivery

14 point that prevents the United States trans15 porter from receiving royalty oil or royalty gas;

16 (B) A failure by the United States or its

17 qualified marketing agent to receive, transport,

18 and market its royalty oil or royalty gas ten19 dered for a one-time occurrence of not more

20 than 3 consecutive days in any calendar quar21 ter; or

22 (C) A difference between the amount made

23 available to the United States at the delivery

24 point by the lease operator on behalf of the les-
37

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1 see and the United States royalty share of total

2 production.

3 (b) IMBALANCE ACCOUNTS.—

4 (1) MAINTENANCE OF INFORMATION.—Each

5 lease operator shall maintain information on the

6 quantity of royalty oil and royalty gas produced

7 from or attributable to each lease premises and the

8 amount of royalty oil or royalty gas production

9 taken by the United States from each lease prem10 ises. The information shall include—

11 (A) the quantities of royalty oil and royalty

12 gas taken in kind by the United States at the

13 delivery point;

14 (B) the quantities of royalty oil and roy15 alty gas produced from and attributed to the

16 lease premises; and

17 (C) the current month and cumulative roy18 alty share imbalances.

19 (2) REPORT.—(A) Each lease operator shall—

20 (i) submit a royalty share imbalance report

21 to the qualified marketing agent for the United

22 States with respect to the lease no later than

23 60 days after the expiration of each month of

24 production from the lease; or
38

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1 (ii) if all information for the report is not

2 available by such date, file or cause to be filed

3 with the qualified marketing agent a report that

4 contains estimated quantities, and file a revised

5 final report showing actual quantities no later

6 than 60 days after information on all actual

7 quantities is received.

8 (B) The royalty share imbalance report submit9 ted under subparagraph (A) to the qualified market10 ing agent shall constitute formal notice of a royalty

11 share imbalance, which shall be remedied in accord12 ance with subsection (c).

13 (c) MANAGING IMBALANCES.—

14 (1) IN GENERAL.—If a royalty share imbalance

15 occurs during any calendar month, the lease opera16 tor shall work with the United States (through its

17 qualified marketing agent) to settle the royalty share

18 imbalance in a manner consistent with the existing

19 production balancing agreements or practices among

20 operating rights owners.

21 (2) ROYALTY OIL IMBALANCE.—In the case of

22 a royalty share imbalance with respect to royalty oil,

23 and in the absence of multiple operating rights own24 ers, additional quantities of oil may be taken by ei25 ther a lessee or the United States through its quali-
39

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1 fied marketing agent to expeditiously settle such roy2 alty share imbalance as soon as is reasonably prac3 ticable, as determined by the lease operator.

4 (3) ROYALTY GAS IMBALANCE.—(A) In the case

5 of a royalty share imbalance with respect to royalty

6 gas during any calendar month and in the absence

7 of multiple operating rights owners, the lease opera8 tor shall work with the United States (through its

9 qualified marketing agent) to arrange for increase or

10 decreased quantities of gas to be taken beginning

11 the month after receipt of such notice by the quali12 fied marketing agent, to expeditiously settle such

13 royalty share imbalances as soon as is reasonably

14 practicable.

15 (B) Additional quantities taken in a month by

16 either a lessee or the United States to reduce a roy17 alty share imbalance with respect to royalty gas

18 shall not exceed 25 percent of that month’s royalty

19 gas.

20 (C) Until final settlement pursuant to sub21 section (d), royalty share imbalances with respect to

22 royalty gas shall be reduced chronologically in the

23 order in which they were created.

24 (d) FINAL IMBALANCE REPORT AND FINAL SETTLE25 MENT.—
40

S 1930 IS

1 (1) FINAL IMBALANCE REPORT.—Upon perma2 nent cessation of production from a lease, the lease

3 operator shall file a final imbalance report that—

4 (A) contains the information described in

5 subsection (b); and

6 (B) states that the lease premises has per7 manently ceased production and that a royalty

8 share imbalance exists.

9 (2) FINAL SETTLEMENT.—The parties to a roy10 alty share imbalance shall settle such royalty share

11 imbalance using the same final settlement proce12 dures as set forth in the existing production bal13 ancing agreement between the operating rights own14 ers, if any. In the absence of such an agreement,

15 within 60 days of the final imbalance report, each

16 party that received excess quantities shall, at its op17 tion, make delivery of the excess quantities or make

18 a cash payment, to the parties who received insuffi19 cient quantities. The cash payment shall be based on

20 the net proceeds (in terms of actual value received)

21 from the sale of such excess quantities for value at

22 the lease premises or the lessee may make delivery

23 of the imbalance volume. No interest shall accrue,

24 prior to the date of any settlement, on any imbal25 ance.
41

S 1930 IS

1 SEC. 7. ROYALTY-IN-KIND FOR TRUCKED, TANKERED, OR

2 BARGED OIL OR GAS.

3 (a) APPLICATION.—This section shall apply to roy4 alty oil or royalty gas produced from onshore or offshore

5 lease premises for which there is no pipeline connection

6 at the well such that the royalty oil or royalty gas is trans7 ported by truck, tanker, or barge from the lease premises.

8 (b) SELECTION OF TRANSPORTER.—

9 (1) IN GENERAL.—To further the efficient and

10 cost-effective taking of royalty oil or royalty gas in

11 kind from such lease premises, the qualified market12 ing agent shall select and utilize a transporter who

13 is transporting oil or gas for a lessee from the lease

14 premises, or for the operator of the lease premises.

15 (2) EXCEPTION.—Royalty oil or royalty gas

16 taken in kind may be transported in any other man17 ner agreed to by the qualified marketing agent and

18 the lessee or lease operator.

19 (c) RELATIONSHIP TO OTHER LAWS.—

20 (1) LAWS REGARDING OIL OR GAS TRANSPOR21 TATION.—This section shall not alter or abridge any

22 State or Federal law regulating the transportation of

23 oil or gas by truck, tanker, or barge.

24 (2) FEDERAL ROYALTY PREPAYMENT PROVI25 SIONS.—Nothing in this Act shall modify, abridge,

26 or alter the provisions of section 7(b) of the Federal
42

S 1930 IS

1 Oil and Gas Royalty Simplification and Fairness Act

2 (30 U.S.C. 1726) with respect to the prepayment of

3 royalty.

4 SEC. 8. LIMITATIONS ON APPLICATION.

5 (a) LEASE ROYALTY CLAUSES AND ROYALTY PAY6 MENTS.—This Act does not apply to royalty payments of

7 the following types:

8 (1) Compensatory royalties.

9 (2) Minimum royalties.

10 (3) Net profit share lease royalties prior to pay11 out.

12 (b) PRIOR ROYALTY RATE REDUCTION DETERMINA13 TIONS.—This Act shall not modify or alter any royalty

14 rate reduction determination made by the Secretary before

15 or after the date of enactment of this Act. The amount

16 of royalty oil and royalty gas taken in kind by the Sec17 retary shall be the amount calculated by such reduced roy18 alty rate.

19 (c) AUDIT OF ELIGIBLE SMALL REFINER.—The Sec20 retary shall have the right to audit the reports of eligible

21 small refiners related to the volume of royalty oil received

22 as are required under the provisions of this Act during

23 normal business hours, at reasonable times, to verify the

24 accuracy of such reports.
43

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1 SEC. 9. REPORTING.

2 (a) REPORTING BY LEASE OPERATOR.—A lease oper3 ator on behalf of the lessee shall provide or cause to be

4 provided all volume reports required under the oil and gas

5 lease to the United States, but shall be relieved of the obli6 gation of providing any royalty related and all royalty-in7 value reports for any royalty oil or royalty gas taken in

8 kind by the United States required pursuant to the oil and

9 gas lease terms or applicable statutes. A lease operator

10 on behalf of the lessee shall make available or cause to

11 be made available such information as is customarily pro12 vided to third party sellers of lease production on a timely

13 basis.

14 (b) REPORTING BY QUALIFIED MARKETING

15 AGENT.—A qualified marketing agent shall provide or

16 cause to be provided to the United States any valuation

17 or related royalty reports required by the Secretary.

18 SEC. 10. AUDIT.

19 (a) AUDIT OF LEASE OPERATOR.—The Secretary

20 shall have the right to audit the reports the Lease Opera21 tor files on behalf of lessees related to the volume of oil

22 and gas produced as are required under this Act during

23 normal business hours, at reasonable times, to verify the

24 accuracy of such reports.

25 (b) AUDIT OF QUALIFIED MARKETING AGENT.—The

26 Secretary shall have the right to audit the reports of quali-
44

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1 fied marketing agents required under this Act during nor2 mal business hours, at reasonable times, to verify the ac3 curacy of such reports. Any information and records re4 garding sales of royalty oil and royalty gas shall be ob5 tained, where necessary, from a qualified marketing agent.

6 SEC. 11. LEASE TERMS NOT AFFECTED.

7 In accordance with the terms of oil and gas leases

8 issued by the Secretary, the Secretary shall exercise the

9 right to be paid oil and gas royalties in amount pursuant

10 to this Act and lessees shall pay such oil and gas royalties

11 in amount pursuant to provisions of this Act. Nothing in

12 this Act shall alter or abridge the rights of a lessee under

13 an oil and gas lease, including the right to explore for,

14 operate, drill for, or produce oil and gas or to otherwise

15 operate the lease. The rights, duties, or obligations that

16 exist between the United States and a lessee which arise

17 under an oil and gas lease with respect to oil or gas used

18 on the lease premises or gas unavoidably lost prior to the

19 delivery point shall not be affected, abridged, or altered

20 by this Act. When oil or gas is used on, or for the benefit

21 of, a lease premises at a facility handling production from

22 more than one lease premises, or at a facility handling

23 unitized or communitized production, the proportionate

24 share of each lease’s production (actual or allocated) nec25 essary to operate the facility may be used royalty-free.
45

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1 SEC. 12. ELIGIBLE AND SMALL REFINERS.

2 (a) SALE OF ROYALTY OIL TO ELIGIBLE SMALL RE3 FINERS.—(1) The Secretary shall direct qualified market4 ing agents to offer for sale to eligible small refiners the

5 eligible small refiner portion in accordance with the provi6 sions set forth in this section.

7 (2) The sale of royalty oil from the eligible small re8 finer portion to an eligible small refiner is intended for

9 processing, or trading for equivalent barrels for process10 ing, in the eligible small refiner’s refineries located in the

11 United States and not for resale in-kind or value.

12 (3) The Secretary shall annually review and recertify

13 or withdraw the continuing eligibility of previously cer14 tified eligible small refiners.

15 (4) The eligible small refiner portion shall be offered

16 to eligible small refiners from royalty oil volumes to be

17 sold by each qualified marketing agent. The Secretary

18 shall maintain a current list of all Eligible Small Refiners.

19 Upon the selection of a Qualified Marketing Agent by the

20 Secretary, the Secretary shall promptly notify all Eligible

21 Small Refiners of the selection of the Qualified Marketing

22 Agent. The notification shall contain the name and ad23 dress of the Qualified Marketing Agent as well as a brief

24 description of the federal leases and lease products to be

25 marketed by that Qualified Marketing Agent. Within 15

26 days after notice by the Secretary, any Eligible Small Re-
46

S 1930 IS

1 finer who is interested in receiving Royalty Oil from the

2 leases of the Qualified Marketing Agent, shall submit a

3 Notice of Interest to the Qualified Marketing Agent. The

4 Notice shall generally state the volumes location and qual5 ity of Royalty Oil desired by the Small Refiner. When mar6 keting Royalty Oil, the Qualified Marketing Agent shall

7 contact the Small Refiner(s) who has (have) submitted a

8 Note of Interest and shall offer to sell the 40% portion

9 to the Small Refiner(s) who submitted a Notice. The

10 Small Refiner shall purchase such Royalty Oil at the

11 weighted average price for the remaining volumes of like

12 quality at the same location sold by the Qualified Market13 ing Agent.

14 (5) Nothing in this section shall preclude any eligible

15 small refiner from participating in any open and adver16 tised or negotiated sale by qualified marketing agents.

17 Royalty oil volumes obtained by any eligible small refiner

18 in any open and advertised or negotiated sale shall not

19 be included in calculating limitations on eligibility as de20 fined in subsection (b).

21 (b) LIMITATIONS ON ELIGIBILITY.—No eligible small

22 refiner may purchase royalty oil from the eligible small

23 refiner portion for delivery at a rate that exceeds 60 per24 cent of the combined crude oil and condensate distillation

25 capacity of that eligible small refiner’s currently operating
47

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1 refineries located in the United States unless the Sec2 retary determines that it is in the public interest to allow

3 all eligible small refiners to purchase royalty oil at a great4 er rate. The Secretary shall promulgate rules and regula5 tions to determine an eligible small refiner’s current oper6 ating capacity.

7 (c) FEES, CREDITWORTHINESS, AND SURETY RE8 QUIREMENTS.—(1) The purchase of royalty oil from the

9 eligible small refiner portion pursuant to this section shall

10 not be subject to any fees or charges not required of all

11 purchasers of royalty oil.

12 (2) The Secretary shall establish conditions for each

13 eligible small refiner’s creditworthiness at the time of de14 termining and reviewing eligibility.

15 (3) Creditworthiness requirements for eligible small

16 refiners shall not exceed standard industry requirements

17 governing non-Federal crude oil purchasers, and the Sec18 retary may not require surety in excess of the estimated

19 value of 60 days anticipated deliveries of royalty oil from

20 the eligible small refiner portion to individual small refin21 ers.

22 (d) ELIGIBLE SMALL REFINER ADVISORY PANEL.—

23 The Secretary shall convene an eligible small refiner advi24 sory panel to assist in developing policies and procedures

25 to implement the provisions of this Act. The eligible small
48

S 1930 IS

1 refiner advisory panel shall be comprised of representa2 tives from 3 small refiners, 3 qualified marketing agents

3 and 3 lessees who have participated in the small refiner

4 program established pursuant to section 36 of the Mineral

5 Leasing Act (30 U.S.C. 192) or section 1353 of the Outer

6 Continental Shelf Lands Act (43 U.S.C. 1353).

7 (e) Pursuant to the recommendations of the Small

8 Refiner’s Advisory Group, the Secretary shall develop and

9 implement procedures to ensure a fair and equitable op10 portunity for interested eligible small refiners to purchase

11 royalty oil from the eligible small refiner portion.

12 (f) REPORTS ON RIK.—The Secretary may require

13 any eligible small refiner to submit a report demonstrating

14 the eligible small refiner’s compliance with subsection

15 (a)(2).

16 (g) REPEAL OF EXISTING ROYALTY-IN-KIND AU17 THORITY.—Section 36 of the Mineral Leasing Act (30

18 U.S.C. 192) and section 1353 of the Outer Continental

19 Shelf Lands Act (43 U.S.C. 1353) are repealed.

20 SEC. 13. APPLICABLE LAWS.

21 (a) MOVEMENT, DISPOSITION, AND SALE OF ROY22 ALTY OIL AND ROYALTY GAS.—In arranging for the

23 movement, disposition and sale of royalty oil and royalty

24 gas, the United States and its qualified marketing agents
49

S 1930 IS

1 shall be subject to all laws that apply to the movement,

2 disposition, and sale of oil and gas.

3 (b) NO ADDITIONAL PRIORITY OF SERVICE OR

4 MOVEMENT.—In any pipeline, truck, barge, railroad, or

5 other carrier downstream of the delivery point, royalty oil

6 and royalty gas shall not be afforded a priority of service

7 or movement, nor assigned a capacity right which is supe8 rior to that identified in—

9 (1) the contract for carriage of royalty oil and

10 royalty gas entered into by the transporter with the

11 United States or the qualified marketing agent; or

12 (2) the tariff applicable to such carrier, if any.

13 (c) MEANING OF TERMS USED.—The meaning of the

14 terms used in this Act shall be supplemented by reference

15 to generally accepted accounting principles and prevailing

16 industry practices and procedures.

17 (d) LAWS APPLICABLE TO STRIPPER OR MARGINAL

18 PRODUCTION NOT AFFECTED.—Nothing in this Act shall

19 modify, abridge or alter the provisions of the Deep Water

20 Royalty Relief Act of 1995 (43 U.S.C. 1337), or any other

21 Federal law applicable to stripper or marginal production.

22 SEC. 14. INDIAN LANDS.

23 This act shall not apply with respect to Indian lands.
50

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1 SEC. 15. EFFECTIVE DATE; REGULATIONS.

2 (a) IN GENERAL.—Except as provided in subsection

3 (b), this Act shall become no later than effective 18

4 months after the date of enactment of this Act, and shall

5 apply with respect to the production of oil and gas on or

6 after the first day of the month following the effective date

7 of this Act.

8 (b) REGULATIONS.—The Secretary shall issue all

9 regulations required for implementation of this Act within

10 one year after the date of enactment of this Act.

Æ