H. R. 1975—12
‘‘SEC. 111A. ADJUSTMENTS AND REFUNDS.
‘‘(a) ADJUSTMENTS TO ROYALTIES PAID TO THE SECRETARY OR
A DELEGATED STATE.—
‘‘(1) If, during the adjustment period, a lessee or its des-
ignee determines that an adjustment or refund request is nec-
essary to correct an underpayment or overpayment of an obliga-
tion, the lessee or its designee shall make such adjustment
or request a refund within a reasonable period of time and
only during the adjustment period. The filing of a royalty
report which reflects the underpayment or overpayment of an
obligation shall constitute prior written notice to the Secretary
or the applicable delegated State of an adjustment.
‘‘(2)(A) For any adjustment, the lessee or its designee shall
calculate and report the interest due attributable to such adjust-
ment at the same time the lessee or its designee adjusts the
principle amount of the subject obligation, except as provided
by subparagraph (B).
‘‘(B) In the case of a lessee or its designee who determines
that subparagraph (A) would impose a hardship, the Secretary
or such delegated State shall calculate the interest due and
notify the lessee or its designee within a reasonable time of
the amount of interest due, unless such lessee or its designee
elects to calculate and report interest in accordance with
subparagraph (A).
‘‘(3) An adjustment or a request for a refund for an obliga-
tion may be made after the adjustment period only upon written
notice to and approval by the Secretary or the applicable dele-
gated State, as appropriate, during an audit of the period
which includes the production month for which the adjustment
is being made. If an overpayment is identified during an audit,
then the Secretary or the applicable delegated State, as appro-
priate, shall allow a credit or refund in the amount of the
overpayment.
‘‘(4) For purposes of this section, the adjustment period
for any obligation shall be the six-year period following the
date on which an obligation became due. The adjustment period
shall be suspended, tolled, extended, enlarged, or terminated
by the same actions as the limitation period in section 115.
‘‘(b) REFUNDS.—
‘‘(1) IN GENERAL.—A request for refund is sufficient if it—
‘‘(A) is made in writing to the Secretary and, for pur-
poses of section 115, is specifically identified as a demand;
‘‘(B) identifies the person entitled to such refund;
‘‘(C) provides the Secretary information that reasonably
enables the Secretary to identify the overpayment for which
such refund is sought; and
‘‘(D) provides the reasons why the payment was an
overpayment.
‘‘(2) PAYMENT BY SECRETARY OF THE TREASURY.—The Sec-
retary shall certify the amount of the refund to be paid under
paragraph (1) to the Secretary of the Treasury who shall make
such refund. Such refund shall be paid from amounts received
as current receipts from sales, bonuses, royalties (including
interest charges collected under this section) and rentals of
the public lands and the Outer Continental Shelf under the
provisions of the Mineral Leasing Act and the Outer Continen-
tal Shelf Lands Act, which are not payable to a State or
H. R. 1975—13
the Reclamation Fund. The portion of any such refund attrib-
utable to any amounts previously disbursed to a State, the
Reclamation Fund, or any recipient prescribed by law shall
be deducted from the next disbursements to that recipient
made under the applicable law. Such amounts deducted from
subsequent disbursements shall be credited to miscellaneous
receipts in the Treasury.
‘‘(3) PAYMENT
PERIOD.—A refund under this subsection
shall be paid or denied (with an explanation of the reasons
for the denial) within 120 days of the date on which the request
for refund is received by the Secretary. Such refund shall
be subject to later audit by the Secretary or the applicable
delegated State and subject to the provisions of this Act.
‘‘(4) PROHIBITION AGAINST REDUCTION OF REFUNDS OR CRED-
ITS.—In no event shall the Secretary or any delegated State
directly or indirectly claim or offset any amount or amounts
against, or reduce any refund or credit (or interest accrued
thereon) by the amount of any obligation the enforcement of
which is barred by section 115 of this Act.’’.
(b) CLERICAL AMENDMENT.—The table of contents in section
1 of the Federal Oil and Gas Royalty Management Act of 1982
(30 U.S.C. 1701) is amended by inserting after the item relating
to section 111 the following new item:
‘‘Sec. 111A. Adjustments and refunds.’’.
SEC. 
6. 
ROYALTY 
TERMS 
AND 
CONDITIONS, 
INTEREST, 
AND
PENALTIES.
(a) LESSEE OR DESIGNEE INTEREST.—Section 111 of the Federal
Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721)
is amended by adding after subsection (g) the following:
‘‘(h) Interest shall be allowed and paid or credited on any
overpayment, with such interest to accrue from the date such over-
payment was made, at the rate obtained by applying the provisions
of subparagraphs (A) and (B) of section 6621(a)(1) of the Internal
Revenue Code of 1986, but determined without regard to the sen-
tence following subparagraph (B) of section 6621(a)(1). Interest
which has accrued on any overpayment may be applied to reduce
an underpayment. This subsection applies to overpayments made
later than six months after the date of enactment of this subsection
or September 1, 1996, whichever is later. Such interest shall be
paid from amounts received as current receipts from sales, bonuses,
royalties (including interest charges collected under this section)
and rentals of the public lands and the Outer Continental Shelf
under the provisions of the Mineral Leasing Act, and the Outer
Continental Shelf Lands Act, which are not payable to a State
or the Reclamation Fund. The portion of any such interest payment
attributable to any amounts previously disbursed to a State, the
Reclamation Fund, or any other recipient designated by law shall
be deducted from the next disbursements to that recipient made
under the applicable law. Such amounts deducted from subsequent
disbursements shall be credited to miscellaneous receipts in the
Treasury.’’.
(b) LIMITATION ON INTEREST.—Section 111 of the Federal Oil
and Gas Royalty Management Act of 1982, as amended by sub-
section (a), is further amended by adding at the end the following:
‘‘(i) Upon a determination by the Secretary that an excessive
overpayment (based upon all obligations of a lessee or its designee
H. R. 1975—14
for a given reporting month) was made for the sole purpose of
receiving interest, interest shall be paid on the excessive amount
of such overpayment. For purposes of this Act, an ‘excessive over-
payment’ shall be the amount that any overpayment a lessee or
its designee pays for a given reporting month (excluding payments
for demands for obligations determined to be due as a result of
judicial or administrative proceedings or agreed to be paid pursuant
to settlement agreements) for the aggregate of all of its Federal
leases exceeds 10 percent of the total royalties paid that month
for those leases.’’.
(c) ESTIMATED PAYMENT.—Section 111 of the Federal Oil and
Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as amended
by subsections (a) and (b), is further amended by adding at the
end the following:
‘‘(j) A lessee or its designee may make a payment for the
approximate amount of royalties (hereinafter in this subsection
‘estimated payment’) that would otherwise be due for such lease
by the rate royalties are due for that lease. When an estimated
payment is made, actual royalties are payable at the end of the
month following the month in which the estimated payment is
made. If the estimated payment was less than the amount of
actual royalties due, interest is owned on the underpaid amount.
If the estimated payment exceeds the actual royalties due, interest
is owned on the overpayment. If the lessee or its designee makes
a payment for such actual royalties, the lessee or its designee
may apply the estimated payment to future royalties. Any estimated
payment may be adjusted, recouped, or reinstated at any time
by the lessee or its designee.’’.
(d) VOLUME ALLOCATION OF OIL AND GAS PRODUCTION.—Section
111 of the Federal Oil and Gas Royalty Management Act of 1982
(30 U.S.C. 1721), as amended by subsections (a) through (c), is
amended by adding at the end the following:
‘‘(k)(1) Except as otherwise provided by this subsection—
‘‘(A) a lessee or its designee of a lease in a unit or
communitization agreement which contains only Federal leases
with the same royalty rate and funds distribution shall report
and pay royalties on oil and gas production for each production
month based on the actual volume of production sold by or
on behalf of that lessee;
‘‘(B) a lessee or its designee of a lease in any other unit
or communitization agreement shall report and pay royalties
on oil and gas production for each production month based
on the volume of oil and gas produced from such agreement
and allocated to the lease in accordance with the terms of
the agreement; and
‘‘(C) a lessee or its designee of a lease that is not contained
in a unit or communitization agreement shall report and pay
royalties on oil and gas production for each production month
based on the actual volume of production sold by or on behalf
of that lessee.
‘‘(2) This subsection applies only to requirements for reporting
and paying royalties. Nothing in this subsection is intended to
alter a lessee’s liability for royalties on oil or gas production based
on the share of production allocated to the lease in accordance
with the terms of the lease, a unit or communitization agreement,
or any other agreement.
H. R. 1975—15
‘‘(3) For any unit or communitization agreement if all lessees
contractually agree to an alternative method of royalty reporting
and payment, the lessees may submit such alternative method
to the Secretary or the delegated State for approval and make
payments in accordance with such approved alternative method
so long as such alternative method does not reduce the amount
of the royalty obligation.
‘‘(4) The Secretary or the delegated State shall grant an excep-
tion from the reporting and payment requirements for marginal
properties by allowing for any calendar year or portion thereof
royalties to be paid each month based on the volume of production
sold. Interest shall not accrue on the difference for the entire
calendar year or portion thereof between the amount of oil and
gas actually sold and the share of production allocated to the
lease until the beginning of the month following such calendar
year or portion thereof. Any additional royalties dues or overpaid
royalties and associated interest shall be paid, refunded, or credited
within six months after the end of each calendar year in which
royalties are paid based on volumes of production sold. For the
purpose of this subsection, the term ‘marginal property’ means
a lease that produces on average the combined equivalent of less
than 15 barrels of oil per well per day or 90 thousand cubic feet
of gas per well per day, or a combination thereof, determined
by dividing the average daily production of crude oil and natural
gas from producing wells on such lease by the number of such
wells, unless the Secretary, together with the State concerned,
determines that a different production is more appropriate.
‘‘(5) Not later than two years after the date of the enactment
of this subsection, the Secretary shall issue any appropriate demand
for all outstanding royalty payment disputes regarding who is
required to report and pay royalties on production from units and
communitization agreements outstanding on the date of the enact-
ment of this subsection, and collect royalty amounts owed on such
production.’’.
(e) PRODUCTION ALLOCATION.—Section 111 of the Federal Oil
and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as
amended by subsections (a) through (d), is amended by adding
at the end the following:
‘‘(l) The Secretary shall issue all determinations of allocations
of production for units and communitization agreements within
120 days of a request for determination. If the Secretary fails
to issue a determination within such 120-day period, the Secretary
shall waive interest due on obligations subject to the determination
until the end of the month following the month in which the
determination is made.’’.
(f) NEW ASSESSMENT TO ENCOURAGE PROPER ROYALTY PAY-
MENTS.—
(1) IN GENERAL.—The Federal Oil and Gas Royalty Manage-
ment Act of 1982 (30 U.S.C. 1721), as amended by section
4(a), is further amended by adding at the end the following:
‘‘SEC. 116. ASSESSMENTS.
‘‘Beginning eighteen months after the date of enactment of
this section, to encourage proper royalty payment the Secretary
or the delegated State shall impose assessments on a person who
chronically submits erroneous reports under this Act. Assessments
under this Act may only be issued as provided for in this section.’’.