II
Calendar No. 500
104TH CONGRESS
2D SESSION
H. R. 1975
IN THE SENATE OF THE UNITED STATES
JULY 17, 1996
Received; read twice and placed on the calendar
AN ACT
To improve the management of royalties from Federal and
Outer Continental Shelf oil and gas leases, and for other
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Federal Oil and Gas
Royalty Simplification and Fairness Act of 1996’’.
SEC. 2. DEFINITIONS.
Section 3 of the Federal Oil and Gas Royalty Man-
agement Act of 1982 (30 U.S.C. 1701 et seq.) is amend-
ed—
(1) by amending paragraph (7) to read as fol-
lows:
‘‘(7) ‘lessee’ means any person to whom the
United States issues an oil and gas lease or any per-
son to whom operating rights in a lease have been
assigned;’’; and
(2) by striking ‘‘and’’ at the end of paragraph
(15), by striking the period at the end of paragraph
(16) and inserting a semicolon, and by adding at the
end the following:
‘‘(17) ‘adjustment’ means an amendment to a
previously filed report on an obligation, and any ad-
ditional payment or credit, if any, applicable thereto,
to rectify an underpayment or overpayment on an
obligation;
‘‘(18) ‘administrative proceeding’ means any
Department of the Interior agency process in which
a demand, decision or order issued by the Secretary
or a delegated State is subject to appeal or has been
appealed;
‘‘(19) ‘assessment’ means any fee or charge lev-
ied or imposed by the Secretary or a delegated State
other than—
‘‘(A) the principal amount of any royalty,
minimum royalty, rental bonus, net profit share
or proceed of sale;
‘‘(B) any interest; or
‘‘(C) any civil or criminal penalty;
‘‘(20) ‘commence’ means—
‘‘(A) with respect to a judicial proceeding,
the service of a complaint, petition, counter-
claim, cross claim, or other pleading seeking af-
firmative relief or seeking credit or recoupment:
Provided, That if the Secretary commences a
judicial proceeding against a designee, the Sec-
retary shall give notice of that commencement
to the lessee who designated the designee, but
the Secretary is not required to give notice to
other lessees who may be liable pursuant to sec-
tion 102(a) of this Act, for the obligation that
is the subject of the judicial proceeding; or
‘‘(B) with respect to a demand, the receipt
by the Secretary or a delegated State or a les-
see or its designee (with written notice to the
lessee who designated the designee) of the de-
mand;
‘‘(21) ‘credit’ means the application of an over-
payment (in whole or in part) against an obligation
which has become due to discharge, cancel or reduce
the obligation;
‘‘(22) ‘delegated State’ means a State which,
pursuant to an agreement or agreements under sec-
tion 205 of this Act, performs authorities, duties, re-
sponsibilities, or activities of the Secretary;
‘‘(23) ‘demand’ means—
‘‘(A) an order to pay issued by the Sec-
retary or the applicable delegated State to a les-
see or its designee (with written notice to the
lessee who designated the designee) that has a
reasonable basis to conclude that the obligation
in the amount of the demand is due and owing;
or
‘‘(B) a separate written request by a lessee
or its designee which asserts an obligation due
the lessee or its designee that provides a rea-
sonable basis to conclude that the obligation in
the amount of the demand is due and owing,
but does not mean any royalty or production re-
port, or any information contained therein, re-
quired by the Secretary or a delegated State;
‘‘(24) ‘designee’ means the person designated
by a lessee pursuant to section 102(a) of this Act,
with such written designation effective on the date
such designation is received by the Secretary and re-
maining in effect until the Secretary receives notice
in writing that the designation is modified or termi-
nated;
‘‘(25) ‘obligation’ means—
‘‘(A) any duty of the Secretary or, if appli-
cable, a delegated State—
‘‘(i) to take oil or gas royalty in kind;
or
‘‘(ii) to pay, refund, offset, or credit
monies including (but not limited to)—
‘‘(I) the principal amount of any
royalty, 
minimum 
royalty, 
rental,
bonus, net profit share or proceed of
sale; or
‘‘(II) any interest; and
‘‘(B) any duty of a lessee or its designee
(subject to the provision of section 102(a) of
this Act)—
‘‘(i) to deliver oil or gas royalty in
kind; or
‘‘(ii) to pay, offset or credit monies in-
cluding (but not limited to)—
‘‘(I) the principal amount of any
royalty, 
minimum 
royalty, 
rental,
bonus, net profit share or proceed of
sale;
‘‘(II) any interest;
‘‘(III) any penalty; or
‘‘(IV) any assessment,
which arises from or relates to any lease
administered by the Secretary for, or any
mineral leasing law related to, the explo-
ration, production and development of oil
or gas on Federal lands or the Outer Con-
tinental Shelf;
‘‘(26) ‘order to pay’ means a written order is-
sued by the Secretary or the applicable delegated
State to a lessee or its designee (with notice to the
lessee who designated the designee) which—
‘‘(A) asserts a specific, definite, and quan-
tified obligation claimed to be due, and
‘‘(B) specifically identifies the obligation by
lease, production month and monetary amount
‘‘(32) ‘underpayment’ means any payment or
nonpayment by a lessee or its designee that is less
than the amount legally required to be paid on an
obligation; and
‘‘(33) ‘United States’ means the United States
Government and any department, agency, or instru-
mentality thereof, the several States, the District of
Columbia, and the territories of the United States.’’.
SEC. 3. DELEGATION OF ROYALTY COLLECTIONS AND RE-
LATED ACTIVITIES.
(a) GENERAL AUTHORITY.—Section 205 of the Fed-
eral Oil and Gas Royalty Management Act of 1982 (30
U.S.C. 1735) is amended to read as follows:
‘‘SEC. 205. DELEGATION OF ROYALTY COLLECTIONS AND
RELATED ACTIVITIES.
‘‘(a) Upon written request of any State, the
Secretary is authorized to delegate, in accordance
with the provisions of this section, all or part of the
authorities and responsibilities of the Secretary
under this Act to:
‘‘(1) conduct inspections, audits, and investiga-
tions;
‘‘(2) receive and process production and finan-
cial reports;
‘‘(3) correct erroneous report data;
‘‘(4) perform automated verification; and
‘‘(5) issue demands, subpoenas, and orders to
perform restructured accounting, for royalty man-
agement enforcement purposes,
to any State with respect to all Federal land within the
State.
‘‘(b) After notice and opportunity for a hearing, the
Secretary is authorized to delegate such authorities and
responsibilities granted under this section as the State has
requested, if the Secretary finds that—
‘‘(1) it is likely that the State will provide ade-
quate resources to achieve the purposes of this Act;
‘‘(2) the State has demonstrated that it will ef-
fectively and faithfully administer the rules and reg-
ulations of the Secretary under this Act in accord-
ance with the requirements of subsections (c) and
(d) of this section;
‘‘(3) such delegation will not create an unrea-
sonable burden on any lessee;
‘‘(4) the State agrees to adopt standardized re-
porting procedures prescribed by the Secretary for
royalty and production accounting purposes, unless
the State and all affected parties (including the Sec-
retary) otherwise agree;
‘‘(5) the State agrees to follow and adhere to
regulations and guidelines issued by the Secretary
pursuant to the mineral leasing laws regarding valu-
ation of production; and
‘‘(6) where necessary for a State to have au-
thority to carry out and enforce a delegated activity,
the State agrees to enact such laws and promulgate
such regulations as are consistent with relevant Fed-
eral laws and regulations
with respect to the Federal lands within the State.
‘‘(c) After notice and opportunity for hearing, the
Secretary shall issue a ruling as to the consistency of a
State’s proposal with the provisions of this section and
regulations under subsection (d) within 90 days after sub-
mission of such proposal. In any unfavorable ruling, the
Secretary shall set forth the reasons therefor and state
whether the Secretary will agree to delegate to the State
if the State meets the conditions set forth in such ruling.
‘‘(d) After consultation with State authorities, the
Secretary shall by rule promulgate, within 12 months after
the date of enactment of this section, standards and regu-
lations pertaining to the authorities and responsibilities to
be delegated under subsection (a), including standards
and regulations pertaining to—
‘‘(1) audits to be performed;
‘‘(2) records and accounts to be maintained;
‘‘(3) reporting procedures to be required by
States under this section;
‘‘(4) receipt and processing of production and
financial reports;
‘‘(5) correction of erroneous report data;
‘‘(6) performance of automated verification;
‘‘(7) issuance of standards and guidelines in
order to avoid duplication of effort;
‘‘(8) transmission of report data to the Sec-
retary; and
‘‘(9) issuance of demands, subpoenas, and or-
ders to perform restructured accounting, for royalty
management enforcement purposes.
Such standards and regulations shall be designed to pro-
vide reasonable assurance that a uniform and effective
royalty management system will prevail among the States.
The records and accounts under paragraph (2) shall be
sufficient to allow the Secretary to monitor the perform-
ance of any State under this section.
‘‘(e) If, after notice and opportunity for a hearing,
the Secretary finds that any State to which any authority
or responsibility of the Secretary has been delegated under
this section is in violation of any requirement of this sec-
tion or any rule thereunder, or that an affirmative finding
by the Secretary under subsection (b) can no longer be
made, the Secretary may revoke such delegation. If, after
providing written notice to a delegated State and a reason-
able opportunity to take corrective action requested by the
Secretary, the Secretary determines that the State has
failed to issue a demand or order to a Federal lessee with-
in the State, that such failure may result in an underpay-
ment of an obligation due the United States by such les-
see, and that such underpayment may be uncollected with-
out Secretarial intervention, the Secretary may issue such
demand or order in accordance with the provisions of this
Act prior to or absent the withdrawal of delegated author-
ity.
‘‘(f) Subject to appropriations, the Secretary shall
compensate any State for those costs which may be nec-
essary to carry out the delegated activities under this Sec-
tion. Payment shall be made no less than every quarter
during the fiscal year. Compensation to a State may not
exceed the Secretary’s reasonably anticipated expenditure
for performance of such delegated activities by the Sec-
retary. Such costs shall be allocable for the purposes of
section 35(b) of the Act entitled ‘An act to promote the
mining of coal, phosphate, oil, oil shale, gas and sodium
on the public domain’, approved February 25, 1920 (com-
monly known as the Mineral Leasing Act) (30 U.S.C. 191
(b)) to the administration and enforcement of laws provid-
ing for the leasing of any onshore lands or interests in
land owned by the United States. Any further allocation
of costs under section 35(b) made by the Secretary for
oil and gas activities, other than those costs to compensate
States for delegated activities under this Act, shall be only
those costs associated with onshore oil and gas activities
and may not include any duplication of costs allocated
pursuant to the previous sentence. Nothing in this section
affects the Secretary’s authority to make allocations under
section 35(b) for non-oil and gas mineral activities. All
moneys received from sales, bonuses, rentals, royalties, as-
sessments and interest, including money claimed to be due
and owing pursuant to a delegation under this section,
shall be payable and paid to the Treasury of the United
States.
‘‘(g) Any action of the Secretary to approve or dis-
approve a proposal submitted by a State under this section
shall be subject to judicial review in the United States dis-
trict court which includes the capital of the State submit-
ting the proposal.
‘‘(h) Any State operating pursuant to a delegation
existing on the date of enactment of this Act may continue
to operate under the terms and conditions of the delega-
tion, except to the extent that a revision of the existing
agreement is adopted pursuant to this section.’’.
(b) CLERICAL AMENDMENT.—The item relating to
section 205 in 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 to read as follows:
‘‘Sec. 205. Delegation of royalty collections and related activities.’’.
SEC. 4. SECRETARIAL AND DELEGATED STATES’ ACTIONS
AND LIMITATION PERIODS.
(a) IN GENERAL.—The Federal Oil and Gas Royalty
Management Act of 1982 (30 U.S.C. 1701 et seq.) is
amended by adding after section 114 the following new
section:
‘‘SEC. 115. SECRETARIAL AND DELEGATED STATES’ AC-
TIONS AND LIMITATION PERIODS.
‘‘(a) IN GENERAL.—The respective duties, respon-
sibilities, and activities with respect to a lease shall be per-
formed by the Secretary, delegated States, and lessees or
their designees in a timely manner.
‘‘(b) LIMITATION PERIOD.—
‘‘(1) IN GENERAL.—A judicial proceeding or de-
mand which arises from, or relates to an obligation,
shall be commenced within seven years from the
date on which the obligation becomes due and if not
so commenced shall be barred. If commencement of
a judicial proceeding or demand for an obligation is
barred by this section, the Secretary, a delegated
State, or a lessee or its designee (A) shall not take
any other or further action regarding that obliga-
tion, including (but not limited to) the issuance of
any order, request, demand or other communication
seeking any document, accounting, determination,
calculation, recalculation, payment, principal, inter-
est, assessment, or penalty or the initiation, pursuit
or completion of an audit with respect to that obliga-
tion; and (B) shall not pursue any other equitable or
legal remedy, whether under statute or common law,
with respect to an action on or an enforcement of
said obligation.
‘‘(2) RULE OF CONSTRUCTION.—A judicial pro-
ceeding or demand that is timely commenced under
paragraph (1) against a designee shall be considered
timely commenced as to any lessee who is liable pur-
suant to section 102(a) of this Act for the obligation
that is the subject of the judicial proceeding or de-
mand.
‘‘(3) APPLICATION OF CERTAIN LIMITATIONS.—
The limitations set forth in sections 2401, 2415,
2416, and 2462 of title 28, United States Code, and
section 42 of the Mineral Leasing Act (30 U.S.C.
226–2) shall not apply to any obligation to which
this Act applies. Section 3716 of title 31, United
States Code, may be applied to an obligation the en-
forcement of which is not barred by this Act, but
may not be applied to any obligation the enforce-
ment of which is barred by this Act.
‘‘(c) OBLIGATION BECOMES DUE.—
‘‘(1) IN GENERAL.—For purposes of this Act,
an obligation becomes due when the right to enforce
the obligation is fixed.
‘‘(2) ROYALTY OBLIGATIONS.—The right to en-
force any royalty obligation for any given production
month for a lease is fixed for purposes of this Act
on the last day of the calendar month following the
month in which oil or gas is produced.
‘‘(d) TOLLING OF LIMITATION PERIOD.—The run-
ning of the limitation period under subsection (b) shall
not be suspended, tolled, extended, or enlarged for any ob-
ligation for any reason by any action, including an action
by the Secretary or a delegated State, other than the fol-
lowing:
‘‘(1) TOLLING AGREEMENT.—A written agree-
ment executed during the limitation period between
the Secretary or a delegated State and a lessee or
its designee (with notice to the lessee who designated
the designee) shall toll the limitation period for the
amount of time during which the agreement is in ef-
fect.
‘‘(2) SUBPOENA.—
‘‘(A) The issuance of a subpoena to a les-
see or its designee (with notice to the lessee
who designated the designee, which notice shall
not constitute a subpoena to the lessee) in ac-
cordance with the provisions of subparagraph
(B)(i) shall toll the limitation period with re-
spect to the obligation which is the subject of
a subpoena only for the period beginning on the
date the lessee or its designee receives the sub-
poena and ending on the date on which (i) the
lessee or its designee has produced such subpoe-
naed records for the subject obligation, (ii) the
Secretary or a delegated State receives written
notice that the subpoenaed records for the sub-
ject obligation are not in existence or are not in
the lessee’s or its designee’s possession or con-
trol, or (iii) a court has determined in a final
decision that such records are not required to
be produced, whichever occurs first.
‘‘(B)(i) A subpoena for the purposes of
this section which requires a lessee or its des-
ignee to produce records necessary to determine
the proper reporting and payment of an obliga-
tion due the Secretary may be issued only by an
Assistant Secretary of the Interior or an Acting
Assistant Secretary of the Interior who is a
schedule C employee (as defined by section
213.3301 of title 5, Code of Federal Regula-
tions), or the Director or Acting Director of the
respective bureau or agency, and may not be
delegated to any other person. If a State has
been delegated authority pursuant to section
205, the State, acting through the highest State
official having ultimate authority over the col-
lection of royalties from leases on Federal lands
within the State, may issue such subpoena, but
may not delegate such authority to any other
person.
‘‘(ii) A subpoena described in clause (i)
may only be issued against a lessee or its des-
ignee during the limitation period provided in
this section and only after the Secretary or a
delegated State has in writing requested the
records from the lessee or its designee related
to the obligation which is the subject of the
subpoena and has determined that—
‘‘(I) the lessee or its designee has
failed to respond within a reasonable pe-
riod of time to the Secretary’s or the appli-
cable delegated State’s written request for
such records necessary for an audit, inves-
tigation or other inquiry made in accord-
ance with the Secretary’s or such delegated
State’s responsibilities under this Act; or
‘‘(II) the lessee or its designee has in
writing denied the Secretary’s or the appli-
cable delegated State’s written request to
produce such records in the lessee’s or its
designee’s possession or control necessary
for an audit, investigation or other inquiry
made in accordance with the Secretary’s or
such 
delegated 
State’s 
responsibilities
under this Act; or
‘‘(III) the lessee or its designee has
unreasonably delayed in producing records
necessary for an audit, investigation or
other inquiry made in accordance with the
Secretary’s or the applicable delegated
State’s responsibilities under this Act after
the Secretary’s or delegated State’s written
request.
‘‘(C) In seeking records, the Secretary or
the applicable delegated State shall afford the
lessee or its designee a reasonable period of
time after a written request by the Secretary or
such delegated State in which to provide such
records prior to the issuance of any subpoena.
‘‘(3) 
MISREPRESENTATION
OR
CONCEAL-
MENT.—The intentional misrepresentation or con-
cealment of a material fact for the purpose of evad-
ing the payment of an obligation in which case the
limitation period shall be tolled for the period of
such misrepresentation or such concealment.
‘‘(4) ORDER TO PERFORM RESTRUCTURED AC-
COUNTING.—A)(i) The issuance of a notice under
subparagraph (D) that the lessee or its designee has
not substantially complied with the requirement to
perform a restructured accounting shall toll the limi-
tation period with respect to the obligation which is
the subject of the notice only for the period begin-
ning on the date the lessee or its designee receives
the notice and ending 120 days after the date on
which (I) the Secretary or the applicable delegated
State receives written notice that the accounting or
other requirement has been performed, or (II) a
court has determined in a final decision that the les-