Document headings vary by document type but may contain
                    the following: the agency or agencies that issued and signed a document
the number of the CFR title and the number of each part
                      the document amends, proposes to amend, or is directly
                      related to
the agency docket number / agency internal file number
the RIN which identifies each regulatory action listed in
                      the Unified Agenda of Federal Regulatory and Deregulatory
                      Actions See the
                    Document Drafting Handbook
                    for more details.
 Department of the Interior Minerals Management Service
 AGENCY: Minerals Management Service (MMS), Interior.
 ACTION: Notice of annual price threshold determination and annual average oil and gas market price calculations, along with their effects for the Gulf of Mexico royalty relief programs.
 SUMMARY: This notice provides the official MMS determination of which Gulf of Mexico price thresholds have been exceeded by annual market prices for oil or gas, by lease vintage, for calendar year 2008. This notice also explains in detail how MMS calculates the annual oil and gas prices and applicable price thresholds used to determine whether royalty relief applies in calendar year 2008 for our various deepwater and deep depth royalty relief programs.
 FOR FURTHER INFORMATION CONTACT: Marshall Rose, Chief, Economics Division at (703) 787-1536.


SUPPLEMENTARY INFORMATION: By various laws (Outer Continental Shelf Lands Act, Deep Water Royalty Relief Act, Energy Policy Act) and regulations (30 CFR 203.48, 203.54, 203.78, 260.110, and 260.122), MMS has authority to impose price thresholds at which otherwise applicable royalty relief is suspended. As prescribed in applicable regulations or lease terms, notwithstanding any provisions for royalty relief, companies are required to pay royalties for those calendar years when annual average New York Mercantile Exchange (NYMEX) market prices for oil or gas exceed the adjusted price thresholds levels. Production generated royalty-free counts against the remaining royalty suspension volume, with one exception. That exception involves deep-gas production from March 1, 2004, through May 2, 2004, from deep wells that qualified for royalty suspension under 30 CFR 203.40 through 203.48 (see 69 FR 24055). As a courtesy, MMS tracks, calculates, and posts on its Web site a variety of relevant information about applicable oil and gas prices and the price threshold levels to be used in determining whether a particular lease continues to be eligible for deep gas, deep water, or other royalty relief. The information contained in this published 
                    ( print page 26880)
                    notice was previously posted on the MMS Web site. Beginning in the second quarter of each year, the MMS will estimate the average market price at which oil or gas would have to sell during the remainder of the calendar year for the estimated price threshold to be exceeded for that year. The following table represents the official MMS price threshold and market price calculation determinations made for calendar year 2008. Any subsequent inflation adjustments or market price adjustments will not affect these official results or their implication for royalty relief on the designated categories of leases. Applicable Price Thresholds and Market Prices for Calendar Year 2008
Product
Lease vintage
                             (sale held in)
Annual average NYMEX price 
                             ($/bbl or $/MMBtu)
Adjusted price threshold level 
                             ($/bbl or $/MMBtu)
Royalty relief suspendedDeepwater oil
Before 1996; 1996-1997 1
                            ; 20001; 2002-3/2004; 2007-2008
99.74
37.18
Yes.Deepwater oil
2001
99.74
33.33
Yes.Deepwater oil
8/2004-2006
99.74
43.28
Yes.Deepwater gas
Before 1996; 1996-1997 1
                            ; 20001; 2002-3/2004; 2007-2008
8.89
4.65
Yes.Deepwater gas
2001
8.89
4.17
Yes.Deepwater gas
8/2004-2006
8.89
7.21
Yes.Deep gas
3/2001 2
8.89
4.17
Yes.Deep gas
8/2001-2003 2
8.89
5.95
Yes.Deep gas 3
Before 2001, 2001-2003 2, 2004-2008
8.89
10.37
No.Deep gas 4
Before 2001, 2001-2003 2, 2004-2008
8.89
10.37 and 4.65
No 4
                            .Deep gas 5
All years
8.89
4.65
Yes.bbl = barrel, MMBtu = million British Thermal Units, bcf = billion cubic feet.1
                         Price thresholds do not apply to leases issued in deepwater during the years 1998-1999 due to an administrative oversight. If the Kerr-McGee v. DOI, Fifth Circuit Court Decision (1/12/09) is upheld, price thresholds will not apply to deepwater leases issued during the years 1996-2000.2
                         Leases issued in water 0-200 meters deep during 2001-2003 had the option to convert from lower price thresholds under lease terms to higher price thresholds set forth in the regulations.3
                         Applies to qualified deep wells on leases in water 0-200 meters deep that spudded after 3/26/2003 and produced before 5/3/2009, and to qualified ultra-deep wells on leases in water 0-200 meters deep that spudded between 3/26/2003 and 5/17/2007 and produced before 5/3/2009.4
                         Applies to qualified ultra-deep wells on leases in water 0-200 meters deep that spudded on or after 5/18/2007 and produced before 5/03/09. The higher price threshold applies to the first 25 bcf of royalty relief; the lower price threshold applies to the next 10 bcf of royalty relief. For qualified ultra-deep wells on leases in water 0-200 meters deep that spudded on or after 5/3/2009, the lower price threshold applies to the entire 35 bcf of royalty relief.5
                         Applies to qualified deep wells on leases in water 200-400 meters deep that spudded on or after 5/18/2007 and produced before 5/3/2013, and to qualified ultra-deep wells on leases in water 200-400 meters deep that spudded on or after 5/18/2007.
 Technical Documentation The data and methodology used for making the 2008 calculations and determinations are discussed below. This same information for all years since 1996 is available at the Economics Division Web site 
                    *http://www.mms.gov/​econ/​econpt.htm.*
                     Additional information and notes about understanding this Web site are included at the end of this notice. Methodology for Calculation of the Actual Annual Average NYMEX Nearby Delivery Price 1. We use the price for the nearby delivery month or front month. That is, the price for the first contract or earliest month that you can get the delivery/ inventory for buying and selling today's product. For example, on October 1, 2007, the nearby delivery month was November 2007. There are prices for other delivery months that can be bought and sold on October 1, 2007, such as December 2007, January 2008, etc., but the “nearby delivery month” would be November 2007. However, the nearby delivery month is not always the next month because the last trading day of the month differs for oil and gas futures. For example, on March 27, 2008, the nearby delivery month for light sweet crude oil is May 2008 while for natural gas it is still April 2008. 2. The daily NYMEX closing price is listed as the settle price at the end of business trading hours for each commodity. These are listed at 
                    *http://www.nymex.com*
                     and also summarized at 
                    *http://www.oilnergy.com.* 3. The daily closing average is used to calculate the monthly average. For holidays and weekends, we use the previous business day's closing average. For example, Table A illustrates the calculation of the average NYMEX oil price for the month of December 2008 (
                    *Note*
                    —this methodology is different from the Minerals Revenue Management's Royalty In-Kind Program that excludes weekends and holidays). Our analysis indicates that inclusion or exclusion of weekends and holidays does not bias the annual average price calculation in either direction. We chose to include the weekends and holidays, as highlighted in Table A, to avoid the necessity to keep track of actual trading days each month all year, and because our source summarizes the monthly price data with the inclusion. Table A—Example of Monthly Average Price Calculation
Day
Date
Daily closing price
                             ($/bbl)Monday
12/1/2008
$49.28Tuesday
12/2/2008
46.96Wednesday
12/3/2008
46.79Thursday
12/4/2008
43.67( print page 26881)Friday
12/5/2008
40.81Saturday
12/6/2008
40.81Sunday
12/7/2008
40.81Monday
12/8/2008
43.71Tuesday
12/9/2008
42.07Wednesday
12/10/2008
43.52Thursday
12/11/2008
47.98Friday
12/12/2008
46.28Saturday
12/13/2008
46.28Sunday
12/14/2008
46.28Monday
12/15/2008
44.51Tuesday
12/16/2008
43.60Wednesday
12/17/2008
40.06Thursday
12/18/2008
36.22Friday
12/19/2008
33.87Saturday
12/20/2008
33.87Sunday
12/21/2008
33.87Monday
12/22/2008
39.91Tuesday
12/23/2008
38.98Wednesday
12/24/2008
35.35Thursday (Holiday)
12/25/2008
35.35Friday
12/26/2008
37.71Saturday
12/27/2008
37.71Sunday
12/28/2008
37.71Monday
12/29/2008
40.02Tuesday
12/30/2008
39.03Wednesday
12/31/2008
44.60Average

41.21
 4. The monthly average is used to calculate the annual average. For example, Table B illustrates the calculation of the NYMEX oil price for 2008. The calculation for the year-to-date average consists of the monthly averages so far in the year. The dollar amount of the result is rounded to the nearest hundredth decimal point (
                    *i.e.*, cents). We do not weight the average each month by the number of days in that month, again to avoid adding superfluous complexity. Table B—Example of Annual Average Price Calculation
Month
Average closing price
                             ($/bbl)January
92.94February
94.92March
105.15April
112.58May
125.61June
134.60July
134.42August
116.73September
104.41October
76.77November
57.54December
41.21Average
99.74
 Methodology for Calculation of the Applicable Oil and Natural Gas Price Thresholds 1. The price thresholds are estimates until they are locked-in for a calendar year based on the most current inflation data available after the close of the year. In conjunction with the calculation of the annual market prices for oil and gas above, once the price thresholds are locked in, MMS makes an official determination regarding whether these market prices have exceeded the applicable price thresholds for the calendar year for a given vintage of lease and royalty relief program. After this official MMS determination is made, any subsequent revisions in the underlying source of the inflation figures will not affect the locked-in price thresholds or the determination of eligibility for royalty relief for that calendar year. 2. The source for inflation data is the Department of Commerce, Bureau of Economic Analysis (BEA) 
                    *http://www.bea.gov:*
                     The U.S. Economic Accounts—Gross Domestic Product (GDP), National Income and Products Account (NIPA) Table 1.1.9. The 4th quarter implicit price deflator is not available from BEA until late March of the subsequent calendar year. 3. The implicit price deflator for GDP is used to calculate the applicable annual inflation rate, as illustrated in Table C. The deflator from the applicable year is divided by the deflator from the previous year and subtracted by one. For example, the inflation rate used to set the 2008 price threshold is calculated as {(122.42/119.82) − 1 = 2.2%}. 
                    ( print page 26882) Table C—Inflation Rates (Current and Locked-In)
[Derived from BEA data]
Calendar year
Implicit price deflator for GDP 
                             (base = 1996)
Implicit price deflator for GDP 
                             (base = 2000)
Current annual inflation rate
Locked-in
                             annual 
                             inflation rate1994
96.011995
98.101996
100.001997
101.951998
103.201999
104.652000
107.04
100.002001

102.40
2.4
2.22002

104.19
1.7
1.12003

106.40
2.1
1.72004

109.46
2.9
2.12005

113.03
3.3
2.82006

116.68
3.2
2.92007

119.82
2.7
2.72008

122.42
2.2
2.2
 4.  Because price thresholds are fixed for previous years, the current inflation rate displayed on the BEA Web site (
                    *see*
                     Table C above) may not correspond precisely to the rate MMS employed to calculate previous price thresholds.  For example, the GDP deflator posted on the BEA Web site in March 2008 shows an inflation rate for 2004 of 2.9 percent.  However, back in March 2005, when the 2004 price threshold was locked in, the BEA Web site showed an inflation rate of 2.1 percent, which MMS used in a change for the deepwater oil price threshold for most leases, as shown in the first column of the Deepwater Table on the Web site, from $32.81/bbl in 2003 to $33.50/bbl in 2004.  The figures that were shown on the BEA Web site in March of each year were used to make the adjustments in the price thresholds from year to year.  Rounding explains any remaining small differences between calculated locked-in inflation rates and those rates depicted on the MMS Web site.  Therefore, to replicate the calculation for previous price thresholds, use the locked-in inflation rate.  To replicate the calculation for the estimated price threshold, prior to March of the subsequent year, use the current inflation rate. Dated: April 20, 2009. Chris C. Oynes, Associate Director for Offshore Energy and Minerals Management.


[FR Doc. E9-13094 Filed 6-3-09; 8:45 am] BILLING CODE 4310-MR-P