65610 Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Proposed Rules

Commenters are encouraged to submit

comments on a computer disk along

with a hard copy.

FOR FURTHER INFORMATION CONTACT:

Patricia W. Silvey, Director, Office of

Standards, Regulations, and Variances,

703–235–1910.

SUPPLEMENTARY INFORMATION: On

October 31, 1995, MSHA published a

document in the Federal Register (60

FR 55353) announcing the reopening of

the rulemaking record on its proposed

standard for flame-resistant conveyor

belts used in underground mines.

Comment period was scheduled to close

on December 15, 1995. By this

document, the Agency is extending the

comment period to February 5, 1996.

All interested parties are encouraged to

submit comments prior to that date.

Dated: December 15, 1995.

J. Davitt McAteer,

Assistant Secretary for Mine Safety and

Health.

[FR Doc. 95–30990 Filed 12–15–95; 4:08 pm]

BILLING CODE 4510–43–P

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 206

RIN 1010–AC09

Valuation of Oil From Federal and

Indian Leases

AGENCY: Minerals Management Service

(MMS), Interior.

ACTION: Advance notice of proposed

rulemaking.

SUMMARY: In response to changes in the

oil and gas industry and the

marketplace, the Minerals Management

Service (MMS) is considering amending

its regulations regarding the valuation of

crude oil produced from or allocated to

Federal and Indian leases.

Most Federal and Indian leases

provide that the value of production for

royalty purposes be determined by the

Secretary. This notice is intended to

solicit comments on new methodologies

to establish the royalty value of oil

produced from Federal and Indian

leases. MMS specifically seeks

comments on the use of crude oil posted

prices as a means to value oil not sold

under arm’s-length conditions, and the

meaning and application of the term

‘‘significant quantities’’.

DATES: Comments must be received on

or before March 19, 1996.

ADDRESSES: Written comments,

suggestions, or objections regarding

valuation issues should be mailed to the

Minerals Management Service, Royalty

Management Program, Rules and

Procedures Staff, Denver Federal Center,

Building 85, P.O. Box 25165, Mail Stop

3101, Denver, Colorado 80225–0165,

Attention: David S. Guzy, telephone

(303) 231–3432, fax (303) 231–3194.

FOR FURTHER INFORMATION CONTACT:

David S. Guzy, Chief, Rules and

Procedures Staff, MMS Royalty

Management Program, at telephone

(303) 231–3432, fax (303) 231–3491, email DavidlGuzy@smtp.mms.gov.

SUPPLEMENTARY INFORMATION:

I. Background

All Federal and Indian oil and gas

leases contain provisions for the

determination of royalty obligations.

Most of these Federal and Indian

leases reserve to the Secretary

considerable discretion in determining

value for royalty purposes. This

Advance Notice of Proposed

Rulemaking is intended to solicit

comments on new methodologies to

establish value for crude oil production

from Federal and Indian leases.

Comments received in response to this

Advance Notice will be considered in

the development of a proposed

rulemaking that MMS will publish in

the Federal Register.

In conjunction with the lease terms,

the valuation of oil production from

Federal and Indian leases is subject to

the regulations at 30 CFR Part 206,

Subpart C—Federal and Indian Oil. The

present regulations govern the valuation

of production from both Federal and

Indian (Tribal and allotted) leases

(except leases on the Osage Indian

Reservation, Oklahoma). MMS believes

it could provide an improved regulatory

framework in which lease terms could

be strictly enforced while requiring little

or no extra information from lessees.

MMS may issue separate regulations

to value oil from Indian leases because

of the Secretary’s trust obligation in the

administration of Indian oil and gas

leases. In view of this obligation, the

Secretary must ensure that Indians

receive the maximum benefits from

mineral resources on their lands. Thus,

the value of production for royalty

purposes from an Indian lease should be

determined considering the higher

reasonable values provided by the terms

of the standard lease. MMS believes this

goal is consistent with: the terms of

these Indian oil and gas leases, the

statutes governing Indian oil and gas

leases, and court decisions providing

judicial guidance in the interpretation

and administration of Indian oil and gas

leases. Specific comments are requested

on issuing separate regulations for

valuing oil from Indian leases.

II. Discussion of Alternatives

The Secretary’s responsibility to

determine the royalty value of oil

produced from Federal and Indian lands

has not changed, although the industry

and marketplace have changed

dramatically over the years.

Specifically, oil posted prices may no

longer represent the price a purchaser is

willing to pay for a particular crude oil.

MMS plans to develop a set of

regulations to permit the Secretary to

discharge the Department’s royalty

valuation responsibility in an

environment of continuing and

accelerating change in the industry and

the marketplace. Given the everchanging marketplace, the Secretary’s

responsibilities regarding oil production

from Federal and Indian leases require

development of flexible valuation

methodologies that lessees can comply

with accurately and timely. MMS

specifically seeks to improve oil

valuation regarding the use of oil posted

prices, including methods of

determining ‘‘significant quantities.’’ A

discussion of these areas follows:

(a) Oil Posted Prices, Including Effects

on Existing Valuation Benchmarks for

Oil Not Sold Under Arm’s-Length

Contract

MMS is considering modifying or

replacing the current benchmark system

at 30 CFR 206.102(c) used to value oil

not sold under arm’s-length contracts.

MMS believes that the current

regulations may place too much

emphasis on posted prices—the lessee’s

and others’. The first two of the five

benchmarks rely on postings if a

significant quantity of like-quality crude

is purchased or sold at such postings in

a field or area. Likewise, the third

benchmark relies at least partly on

postings because it applies the average

of arm’s-length contract prices, which

often are tied to postings, for purchases

or sales of significant quantities of oil in

the area. (The fourth benchmark relies

on spot sales and other relevant matters,

and the fifth relies on a net-back or any

other reasonable method to determine

value.)

MMS recently has received

information indicating that oil posted

prices don’t always reflect market value

and in fact may often be no more than

a beginning point for negotiation.

MMS has found numerous examples

where crude oil purchasers pay

premiums over the posted price.

Further, consultation with private

consultants, various State government

personnel, and other non-Federal
Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Proposed Rules 65611

royalty-owners indicates a consistent

belief that oil posted prices may not

represent market value. And, while

posted prices historically were

presumed to represent actual prices

offered for a particular crude oil,

postings no longer necessarily represent

an offer to buy at that price.

Revising the benchmark system in the

regulations could remove some of the

current heavy reliance on posted oil

prices and provide MMS more

flexibility in determining proper royalty

value.

MMS is soliciting comments on the

continued applicability of oil posted

prices as a fair and reasonable indicator

of royalty value. Specifically, MMS

seeks input on how oil marketing takes

place today and whether and how oil

posted prices typically factor into oil

sales/purchases/exchanges.

MMS invites specific comments on

various aspects of posted prices as

applied to crude oil sales and royalty

value for Federal and Indian leases,

including the option of separate oil

valuation regulations for Indian leases.

MMS would like examples

demonstrating whether crude oil price

postings form the true basis for oil

values in given fields or areas—and, to

the extent possible, nationwide. And, if

the commenter feels postings don’t

reflect market value for the field or area,

MMS would like specific suggested

alternative royalty valuation

methodologies for oil not sold under

arm’s-length conditions. That is, if

postings don’t reflect market value and

because the existing benchmarks for oil

not sold under arm’s-length conditions

rely heavily on posted prices, what are

some suggested alternative valuation

benchmarks? For example:

• Are there indices or other published

prices that better reflect actual market

value than oil postings?

• Where prices posted by individual

companies differ considerably within

the same field or area, how are these

differences best reconciled?

• Are there fixed ‘‘reference’’ prices

against which quality, transportation,

and other adjustments can be made to

develop reasonable royalty values (e.g.,

West Texas Intermediate)?

• Are spot prices of sufficient

reliability and do they cover wide

enough geographic areas to use as value

bases?

• Do oil ‘‘futures’’ prices provide

meaningful bases for royalty valuation?

• What alternative valuation

method(s) best balance the needs to (a)

reflect the market value of the oil as

sold, exchanged, or otherwise disposed

of; and (b) maximize administrative

efficiency for all concerned? (Please

consider the amount of information

needed by the lessee and MMS, and the

overall administrative costs of all

parties.)

For royalty valuation involving arm’slength transactions, MMS generally

accepts the contractual terms, which

may include postings. MMS further

requests comments on whether the use

of alternative methods for valuing oil

not sold under arm’s-length conditions

would impact the acceptability of

posted prices for valuing oil sold at

arm’s-length.

(b) Quantifying ‘‘Significant Quantities’’

of Oil

The current MMS royalty valuation

benchmarks for oil not sold under

arm’s-length contract rely on

‘‘significant quantity’’ determinations.

Under the benchmarks, the lessee’s or

others’ posted or contract prices used in

arm’s-length purchases or sales of

‘‘significant quantities’’ of like-quality

oil from the same field or area establish

royalty value. The first applicable of the

five benchmarks is to be used, and the

first four rely on ‘‘significant quantity’’

determinations. For example, if the

lessee sells ‘‘significant quantities’’ of its

field production at arm’s-length, the

arm’s-length contract sales price may

apply to the lessee’s other, internallytransferred crude oil from the same

field. But the existing regulations

contain no fixed definition of

‘‘significant quantities,’’ either on an

absolute or relative basis. Thus, MMS

would like comments on the best ways

to determine what constitutes

‘‘significant quantities.’’ For example:

• Is there an absolute volume

measure (barrels per day/month/year,

etc.) that would allow MMS to

determine whether specific arm’s-length

sales involve ‘‘significant quantities’’? If

so, should this volume vary by field or

area?

• Is there a fixed percentage of field

or area production that MMS can use as

a comparison basis to determine

whether specific arm’s-length sales

represent ‘‘significant quantities’’?

• What should be the comparative

basis for ‘‘significant quantity’’

determinations? Should individual

arm’s-length transactions be related to

all field production, or should some

volumes such as internal company

transfers of production or exchanges or

buy/sell exchanges with other oil

companies first be excluded from field

production?

• Are there measures other than

‘‘significant quantities’’ that may better

apply given alternative valuation

scenarios?

In providing comments on (a) and (b)

above, please consider not only current

oil marketing practices, but also any

changes that may be foreseen. MMS

intends for any oil valuation rule

changes to be flexible enough to

accommodate future oil marketing

changes as much as possible to avoid

ongoing rule modification.

In addition to comments on (a) and (b)

above, MMS would like comments on

the process to use and make potential

changes to the oil valuation rules.

Specifically, MMS would like

comments on whether any oil valuation

regulatory changes should be subject to

negotiated rulemaking procedures or

other consensual mechanisms for

developing regulations.

Dated: December 8, 1995.

Bob Armstrong,

Assistant Secretary for Land and Minerals

Management.

[FR Doc. 95–30767 Filed 12–19–95; 8:45 am]

BILLING CODE 4310–MR–P

Office of Surface Mining Reclamation

and Enforcement

30 CFR Part 914

[IN–110, Amendment Number 93–7, Part II]

Indiana Permanent Regulatory

Program Amendment

AGENCY: Office of Surface Mining

Reclamation and Enforcement (OSM),

Interior.

ACTION: Proposed rule; reopening of

public comment period.

SUMMARY: OSM is announcing receipt of

additional changes to an amendment

previously submitted by Indiana as a

modification to the State’s permanent

regulatory program (hereinafter referred

to as the Indiana program) under the

Surface Mining Control and

Reclamation Act of 1977 (SMCRA). The

changes add new language concerning

minor field revisions to the second of

three subparts of the original

amendment. The changes are intended

to incorporate language desired by the

State.

This notice sets forth the times and

locations that the Indiana program and

the proposed amendment to that

program will be available for public

inspection, the comment period during

which interested persons may submit

written comments on the proposed

amendment, and the procedures that

will be followed for a public hearing, if

one is requested.

DATES: Written comments must be

received on or before 4:00 p.m. on