IB
Union Calendar No. 341
104TH CONGRESS
2D SESSION
H. R. 1975
[Report No. 104–667]
To improve the management of royalties from Federal and Outer Continental
Shelf oil and gas leases, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 30, 1995
Mr. CALVERT (for himself, Mr. BREWSTER, Mr. DOOLEY, Mr. TAUZIN, and
Mr. LUCAS) introduced the following bill; which was referred to the Com-
mittee on Resources
JULY 11, 1996
Additional sponsors: Mr. CREMEANS, Mr. THORNBERRY, Mr. ORTIZ, Mr.
RADANOVICH, Mr. HAYES, and Mr. EHRLICH
JULY 11, 1996
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on June 30, 1995]
A BILL
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 Manage-
ment Act of 1982 (30 U.S.C. 1701 et seq.) is amended—
(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 as-
signed;’’; 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 ob-
ligation;
‘‘(18) ‘administrative proceeding’ means any De-
partment 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 ap-
pealed;
‘‘(19) ‘assessment’ means any fee or charge levied
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, crossclaim, or other pleading seeking af-
firmative relief or seeking credit or recoupment:
Provided, That if the Secretary commences a ju-
dicial 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 section
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 lessee
or its designee (with written notice to the lessee
who designated the designee) of the demand;
‘‘(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) ‘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 les-
see who designated the designee) that has a rea-
sonable 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 reason-
able basis to conclude that the obligation in the
amount of the demand is due and owing, but
does not mean any royalty or production report,
or any information contained therein, required
by the Secretary or a delegated State;
‘‘(23) ‘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 remain-
ing in effect until the Secretary receives notice in
writing that the designation is modified or termi-
nated;
‘‘(24) ‘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 provisions 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 ad-
ministered 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;
‘‘(25) ‘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 les-
see 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
of such obligation claimed to be due and ordered
to be paid, as well as the reason or reasons such
obligation is claimed to be due, but such term
does not include any other communication or ac-
tion by or on behalf of the Secretary or a dele-
gated State;
‘‘(26) ‘overpayment’ means any payment by a
lessee or its designee in excess of an amount legally
required to be paid on an obligation and includes the
portion of any estimated payment for a production
month that is in excess of the royalties due for that
month;
‘‘(27) ‘payment’ means satisfaction, in whole or
in part, of an obligation;
‘‘(28) ‘penalty’ means a statutorily authorized
civil fine levied or imposed for a violation of this Act,
any mineral leasing law, or a term or provision of
a lease administered by the Secretary;
‘‘(29) ‘refund’ means the return of an overpay-
ment by the drawing of funds from the United States
Treasury;
‘‘(30) ‘State concerned’ means, with respect to a
lease, a State which receives a portion of royalties or
other payments under the mineral leasing laws from
such lease;
‘‘(31) ‘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 ob-
ligation; and
‘‘(32) ‘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 Federal
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) STATE PROPOSAL.—A State may submit to the
Secretary a proposal to perform and enforce all or part of
the authorities and responsibilities of the Secretary under
this Act to conduct and enforce royalty collections and relat-
ed activities, including audits, inspections, investigations,
production and financial reports, correction of erroneous re-
port data, automated verification, demands, subpoenas, or-
ders to perform restructured accounting (as defined in this
Act), production accountability, with respect to all Federal
leases within that State.
‘‘(b) DEMONSTRATION
OF STATE ABILITY.—In the
proposal under subsection (a), the State shall demonstrate
the following:
‘‘(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 regu-
lations of the Secretary under this Act in accordance
with the requirements or subsection (c).
‘‘(3) Such delegation will not create an unrea-
sonable burden on the lessees within the State.
‘‘(4) The State agrees to adopt standardized re-
porting procedures prescribed by the Secretary, unless
the State and all affected parties otherwise agree.
‘‘(5) The State agrees to follow and adhere to
regulations issued pursuant to the mineral leasing
laws regarding valuation of production.
‘‘(6) The State has enacted laws and promul-
gated regulations consistent with relevant Federal
laws and regulations.
‘‘(7) The State has shown that delegation of the
authorities and responsibilities under this Act will re-
sult in a cost-savings to the United States.
‘‘(c) REGULATIONS.—After consultation with the
States concerned, the Secretary shall by rule promulgate
standards within 18 months after the date of enactment of
this section pertaining to authorities and responsibilities
under subsection (a), including standards pertaining to the
royalty collections and related activities enumerated in sub-
section (a). Such standards shall be designed to provide rea-
sonable assurance that uniformity and effectiveness will
prevail among the States, that State participation will
ensue in the development of procedures and policies affect-
ing the delegated activity, and that reasonable flexibility
will be provided to a State to perform any delegated author-
ity or responsibility in a more efficient and cost-effective
manner. The records and accounts maintained pursuant to
such regulations shall be sufficient to allow the Secretary
to monitor the performance of any State under this section.
Such standards shall, to the maximum extent possible, pre-
vent duplication by the Secretary of any activity delegated
to a State for all Federal land within a State.
‘‘(d) DELEGATION.—
‘‘(1) PRELIMINARY APPROVAL OR DISAPPROVAL
BY SECRETARY.—
‘‘(A) REVIEW.—The Secretary shall review
a State’s proposal as to the consistency of such
proposal with subsections (b) and (c) and regula-
tions under subsection (c).
‘‘(B) DECISION.—The Secretary shall issue
a preliminary approval or disapproval as to the
consistency of a State’s proposal with subsections
(b) and (c) and regulations under subsection (c)
within six months after submission of such pro-
posal. If the Secretary disapproves any State
proposal in whole or in part, he shall notify the
State in writing of his decision and set forth in
detail the reasons therefore and state whether he
will agree to delegate to the State if the State
meets the conditions set forth in the disapproval.
‘‘(C) RESUBMISSION.—The State shall have
60 days in which to resubmit a revised State
proposal or portion thereof. The Secretary shall
approve or disapprove the resubmitted State pro-
posal or portion thereof within 60 days from the
date of resubmission.
‘‘(2) DELEGATION.—After notice and oppor-
tunity for a public hearing, if the Secretary deter-
mines that a State has satisfied the conditions con-
tained in a preliminary ruling and approves the
State’s proposal, the State shall assume and perform
such activities and responsibilities pursuant to such
approval. The provisions for delegation shall be set
forth in a delegation agreement between the Secretary
and the State within 90 days after the notice and
hearing. The agreement may be amended from time
to time to take into account new standards and proce-
dures affecting the delegated activity. Under any such
agreement, the Secretary and the State shall share oil
or gas information.
‘‘(3) FEDERAL INTERVENTION; WITHDRAWAL OF
AUTHORITY.—
‘‘(A) SECRETARIAL INTERVENTION.—If after
providing written notice to a delegated State
(with a copy to the lessee or its designee) and a
reasonable opportunity to take corrective action
requested by the Secretary, the Secretary deter-
mines that the State has failed to issue a de-
mand or order to a Federal lessee within the
State, that such failure will result in an under-
payment of an obligation due the United States
by such lessee, and that such underpayment will
be uncollected without 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 the delegated ac-
tivity.
‘‘(B) WITHDRAWAL OF DELEGATED ACTIV-
ITY.—Whenever the Secretary determines after
public hearing that a State is not performing the
delegated activity authorized under this section
in accordance with requirements of this section,
the Secretary shall provide written notice, to-
gether with the reasons therefor, to the State and,
if corrective action is not taken within a reason-
able time, not to exceed 90 days, the Secretary
shall withdraw authorization of such delegated
activity and take the necessary actions to admin-
ister and enforce such withdrawn activity.
‘‘(4) COURT ACTION.—The State may bring an
action in the Federal district court in a judicial dis-
trict in which a portion of the State is located if—
‘‘(A) the Secretary does not agree to delegate
the requested activities, or
‘‘(B) the Secretary withdraws an activity
under paragraph (3)(B).
‘‘(e) SAVINGS PROVISION.—Any State operating pur-
suant to a delegation existing on the date of enactment of
this Act may continue to operate under the terms and con-
ditions of the delegation, subject to the requirements of sub-
section (i), except to the extent that a revision of the existing
agreement is adopted pursuant to this section.
‘‘(f) STATE ACTION.—With respect to enforcement of
an obligation under this Act, a State bringing an action
under this section shall enjoy no greater rights than the Sec-
retary enjoys under this Act.
‘‘(g) RECEIPTS.—The Secretary shall compensate any
State for those costs which may be necessary to carry out
the delegated activities under this section. Payment shall
be made no less than every quarter during the fiscal year.
Compensation to a State shall not exceed the Secretary’s
reasonably anticipated expenditure for performance of such
delegated activities by the Secretary. Such costs shall be al-
locable 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 Feb-
ruary 25, 1920 (commonly known as the Mineral Leasing
Act) (30 U.S.C. 191 (b)) to the administration and enforce-
ment of laws providing for the leasing of any onshore lands
or interests in land owned by the United States. The Sec-
retary shall compensate any State in the next succeeding
fiscal year for the aggregate amount of such costs incurred
but not compensated due to such allocation for the current
fiscal year. All moneys received from sales, bonuses, rentals,
royalties, assessments 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. If a State’s cost for actions taken under
a delegated activity is subject to such section 35(b), the Sec-
retary shall not charge the State under such section 35(b)
for the Secretary’s costs for taking the same actions under
such activity.’’.
(b) CLERICAL AMENDMENT.—The item relating to sec-
tion 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 amend-
ed 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, responsibil-
ities, 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 ju-
dicial 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 obligation,
including (but not limited to) the issuance of any
order, request, demand or other communication seek-
ing any document, accounting, determination, cal-
culation, recalculation, payment, principal, interest,
assessment, or penalty or the initiation, pursuit or
completion of an audit with respect to that obligation;
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 obli-
gation.
‘‘(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 enforcement of
which is not barred by this Act, but may not be ap-
plied to any obligation the enforcement 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 running
of the limitation period under subsection (b) shall not be
suspended, tolled, extended, or enlarged for any obligation
for any reason by any action, other than the following:
‘‘(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 lessee
or its designee (with notice to the lessee who des-
ignated the designee, which notice shall not con-
stitute a subpoena to the lessee) in accordance
with the provisions of subparagraph (B)(i) shall
toll the limitation period with respect to the obli-
gation which is the subject of a subpoena only
for the period beginning on the date the lessee
or its designee receives the subpoena and ending
on the date on which (i) the lessee or its designee
has produced such subpoenaed records for the
subject obligation, (ii) the Secretary or a dele-
gated State receives written notice that the sub-
poenaed records for the subject obligation are not
in existence or are not in the lessee’s or its des-
ignee’s possession or control, 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 designee to
produce records necessary to determine the prop-
er reporting and payment of an obligation 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 em-
ployee (as defined by section 213.3301 of title 5,
Code of Federal Regulations), or the Director or
Acting Director of the respective bureau or agen-
cy, and may not be delegated to any other per-
son. If a State has been delegated authority pur-
suant to section 205, the State, acting through
the highest elected State official having ultimate
authority over the collection 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 del-
egated State has in writing requested the records
from the lessee or its designee related to the obli-
gation which is the subject of the subpoena and
has determined that—
‘‘(I) the lessee or its designee has failed
to respond within a reasonable period of
time to the Secretary’s or the applicable del-
egated State’s written request for such
records necessary for an audit, investigation
or other inquiry made in accordance with
the Secretary’s or such delegated State’s re-
sponsibilities 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 un-
reasonably 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 such 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 dele-
gated State in which to provide such records
prior to the issuance of any subpoena.
‘‘(3) MISREPRESENTATION OR CONCEALMENT.—
The intentional misrepresentation or concealment of a
material fact for the purpose of evading 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 A 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 beginning
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 the accounting or other requirement
has been performed, or (II) a court has determined in
a final decision that the lessee is not required to per-
form the accounting, whichever occurs first.
‘‘(ii) If the lessee or its designee initiates an ad-
ministrative appeal or judicial proceeding to contest
an order to perform a restructured accounting issued
under subparagraph (B)(i), the limitation period in
subsection (b) shall be tolled from the date the lessee
or its designee received the order until a final, non-
appealable decision is issued in any such proceeding.
‘‘(B)(i) The Secretary or the applicable delegated
State may issue an order to perform a restructured
accounting to a lessee or its designee when the Sec-
retary or such delegated State determines during an
audit of a lessee or its designee that the lessee or its
designee should recalculate royalty due on an obliga-
tion based upon the Secretary’s or the delegated
State’s finding that the lessee or its designee has made
identified underpayments or overpayments which are
demonstrated by the Secretary or the delegated State
to be based upon repeated, systemic reporting errors
for a significant number of leases or a single lease for
a significant number of reporting months with the
same type of error which constitutes a pattern of vio-
lations and which are likely to result in either signifi-
cant underpayments or overpayments.
‘‘(ii) The power of the Secretary to issue an
order to perform a restructured accounting may not
be delegated below the most senior career professional
position having responsibility for the royalty manage-
ment program, which position is currently designated
as the ‘Associate Director for Royalty Management’,
and may not be delegated to any other person. If a
State has been delegated authority pursuant to section
205 of this Act, the State, acting through the highest
ranking State official having ultimate authority over
the collection of royalties from leases on Federal lands
within the State, may issue such order to perform,
which may not be delegated to any other person. An
order to perform a restructured accounting shall—
‘‘(I) be issued within a reasonable period of
time from when the audit identifies the systemic,
reporting errors;
‘‘(II) specify the reasons and factual bases
for such order;
‘‘(III) be specifically identified as an ‘order
to perform a restructured accounting’;
‘‘(IV) provide the lessee or its designee a
reasonable period of time (but not less than 60
days) within which to perform the restructured
accounting; and
‘‘(V) provide the lessee or its designee 60
days within which to file an administrative ap-
peal of the order to perform a restructured ac-
counting.
‘‘(C) An order to perform a restructured account-
ing shall not mean or be construed to include any
other communication or action by or on behalf of the
Secretary or a delegated State.
‘‘(D) If a lessee or its designee fails to substan-
tially comply with the requirement to perform a re-
structured accounting pursuant to this subsection, a
notice shall be issued to the lessee or its designee that
the lessee or its designee has not substantially com-
plied with the requirements to perform a restructured
accounting. A lessee or its designee shall be given a
reasonable time within which to perform the restruc-
tured accounting. Such notice may be issued under
this section only by an Assistant Secretary of the In-
terior 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 Regulations) 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 elected State offi-
cial having ultimate authority over the collection of
royalties from leases on Federal lands within the
State, may issue such notice, which may not be dele-
gated to any other person.
‘‘(e) TERMINATION OF LIMITATIONS PERIOD.—An ac-
tion or an enforcement of an obligation by the Secretary
or delegated State or a lessee or its designee shall be barred
under this section prior to the running of the seven-year
period provided in subsection (b) in the event—
‘‘(1) the Secretary or a delegated State has noti-
fied the lessee or its designee in writing that a time
period is closed to further audit; or
‘‘(2) the Secretary or a delegated State and a les-
see or its designee have so agreed in writing.
For purposes of this subsection, notice to, or an agreement
by, the designee shall be binding on any lessee who is liable
pursuant to section 102(a) for obligations that are the sub-
ject of the notice or agreement.
‘‘(f) RECORDS REQUIRED FOR DETERMINING COLLEC-
TIONS.—Records required pursuant to section 103 of this
Act by the Secretary or any delegated State for the purpose
of determining obligations due and compliance with any
applicable mineral leasing law, lease provision, regulation
or order with respect to oil and gas leases from Federal
lands or the Outer Continental Shelf shall be maintained
for the same period of time during which a judicial proceed-
ing or demand may be commenced under subsection (b).
If a judicial proceeding or demand is timely commenced,
the record holder shall maintain such records until the final
nonappealable decision in such judicial proceeding is made,
or with respect to that demand is rendered, unless the Sec-
retary or the applicable delegated State authorizes in writ-
ing an earlier release of the requirement to maintain such
records. Notwithstanding anything herein to the contrary,
under no circumstance shall a record holder be required to
maintain or produce any record relating to an obligation
for any time period which is barred by the applicable limi-
tation in this section. In connection with any hearing, ad-
ministrative proceeding, inquiry, investigation, or audit by
the Secretary or a delegated State under this Act, the Sec-
retary or the delegated State shall minimize the submission
of multiple or redundant information and make a good
faith effort to locate records previously submitted by a lessee
or a designee to the Secretary or the delegated State, prior
to requiring the lessee or the designee to provide such
records.
‘‘(g) TIMELY COLLECTIONS.—In order to most effec-
tively utilize resources available to the Secretary to maxi-
mize the collection of oil and gas receipts from lease obliga-
tions to the Treasury within the seven-year period of limita-
tions, and consequently to maximize the State share of such
receipts, the Secretary may not perform or require account-
ing, reporting, or audit activities if the Secretary and the
State concerned determines that the cost of conducting or
requiring the activity exceeds the expected amount to be col-
lected by the activity, based on the most current 12 months
of activity. This subsection shall not provide a defense to
a demand or an order to perform a restructured accounting.
To the maximum extent possible, the Secretary and dele-
gated States shall reduce costs to the United States Treas-
ury and the States by discontinuing requirements for un-
necessary or duplicative data and other information, such
as separate allowances and payor information, relating to
obligations due. If the Secretary and the State concerned
determine that collection will result sooner, the Secretary
or the applicable delegated State may waive or forego inter-
est in whole or in part.
‘‘(h) APPEALS AND FINAL AGENCY ACTION.—
‘‘(1) 33-MONTH PERIOD.—Demands or orders is-
sued by the Secretary or a delegated State are subject
to administrative appeal in accordance with the regu-
lations of the Secretary. The Secretary shall issue a
final decision in any administrative proceeding, in-
cluding any administrative proceedings pending on
the date of enactment of this section, within 33
months from the date such proceeding was commenced
or 33 months from the date of such enactment, which-
ever is later. The 33-month period may be extended
by any period of time agreed upon in writing by the
Secretary and the appellant.
‘‘(2) EFFECT OF FAILURE TO ISSUE DECISION.—
If no such decision has been issued by the Secretary
within the 33-month period referred to in paragraph
(1)—
‘‘(A) the Secretary shall be deemed to have
issued and granted a decision in favor of the ap-
pellant as to any nonmonetary obligation and
any monetary obligation the principal amount
of which is less than $10,000; and
‘‘(B) the Secretary shall be deemed to have
issued a final decision in favor of the Secretary,
which decision shall be deemed to affirm those is-
sues for which the agency rendered a decision
prior to the end of such period, as to any mone-
tary obligation the principal amount of which is
$10,000 or more, and the appellant shall have a
right to judicial review of such deemed final de-
cision in accordance with title 5 of the United
States Code.
‘‘(i) COLLECTIONS OF DISPUTED AMOUNTS DUE.—To
expedite collections relating to disputed obligations due
within the seven-year period beginning on the date the obli-
gation became due, the parties shall hold not less than one
settlement consultation and the Secretary and the State
concerned may take such action as is appropriate to com-
promise and settle a disputed obligation, including waiving
or reducing interest and allowing offsetting of obligations
among leases.
‘‘(j) ENFORCEMENT OF A CLAIM FOR JUDICIAL RE-
VIEW.—In the event a demand subject to this section is
properly and timely commenced, the obligation which is the
subject of the demand may be enforced beyond the seven-
year limitations period without being barred by this statute
of limitations. In the event a demand subject to this section
is properly and timely commenced, a judicial proceeding
challenging the final agency action with respect to such de-
mand shall be deemed timely so long as such judicial pro-
ceeding is commenced within 180 days from receipt of no-
tice by the lessee or its designee of the final agency action.
‘‘(k) IMPLEMENTATION OF FINAL DECISION.—In the
event a judicial proceeding or demand subject to this section
is timely commenced and thereafter the limitation period
in this section lapses during the pendency of such proceed-
ing, any party to such proceeding shall not be barred from
taking such action as is required or necessary to implement
a final unappealable judicial or administrative decision,
including any action required or necessary to implement
such decision by the recovery or recoupment of an under-
payment or overpayment by means of refund or credit.
‘‘(l) STAY OF PAYMENT OBLIGATION PENDING RE-
VIEW.—Any person ordered by the Secretary or a delegated
State to pay any obligation (other than an assessment)
shall be entitled to a stay of such payment without bond
or other surety instrument pending an administrative or
judicial proceeding if the person periodically demonstrates
to the satisfaction of the Secretary that such person is fi-
nancially solvent or otherwise able to pay the obligation.
In the event the person is not able to so demonstrate, the
Secretary may require a bond or other surety instrument
satisfactory to cover the obligation. Any person ordered by
the Secretary or a delegated State to pay an assessment
shall be entitled to a stay without bond or other surety in-
strument.’’.
(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 114 the following new item:
‘‘Sec. 115. Secretarial and delegated States’ actions and limitation periods.’’.
SEC. 5. ADJUSTMENT AND REFUNDS.
(a) IN GENERAL.—The Federal Oil and Gas Royalty
Management Act of 1982 (30 U.S.C. 1701 et seq.) is amend-
ed by inserting after section 111 the following:
‘‘SEC. 111A. ADJUSTMENTS AND REFUNDS.
(a) ADJUSTMENTS.—
‘‘(1) If, during the adjustment period, a lessee or
its designee determines that an adjustment or refund
request is necessary to correct an underpayment or
overpayment of an obligation, the lessee or its des-
ignee 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 des-
ignee shall calculate and report the interest due at-
tributable to such adjustment at the same time the les-
see or its designee adjusts the principal amount of the
subject obligation, except as provided by subpara-
graph (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
‘‘(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 TREAS-
URY.—The Secretary shall certify the amount of the
refund to be paid under paragraph (1) to the Sec-
retary of the Treasury who shall make such refund.
Such refund shall be paid from amounts received as
current receipts from sales, bonuses, royalties (includ-
ing 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 refund attributable to any
amounts previously disbursed to a State, the Rec-
lamation 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 expla-
nation 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 RE-
FUNDS OR CREDITS.—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 overpayment was made, at the rate obtained by apply-
ing the provisions of subparagraphs (A) and (B) of section
6621(a)(1) of the Internal Revenue Code of 1986, but deter-
mined without regard to the sentence following subpara-
graph (B) of section 6621(a)(1). Interest which has accrued
on an overpayment may be applied to reduce an underpay-
ment (including any interest thereon). This subsection ap-
plies 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 pre-
viously 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 ap-
plicable law. Such amounts deducted from subsequent dis-
bursements 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 subsection (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 for a given reporting month) was made for
the sole purpose of receiving interest, interest shall not be
paid on the excessive amount of such overpayment. For pur-
poses of this Act, an ‘excessive overpayment’ shall be the
amount that any overpayment a lessee or its designee pays
for a given reporting month (excluding payments for de-
mands 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 date 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 pay-
ment was less than the amount of actual royalties due, in-
terest is owed on the underpaid amount. If the estimated
payment exceeds the actual royalties due, interest is owed
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 PRODUC-
TION.—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 sub-
section—
‘‘(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 agree-
ment 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 agree-
ment.
‘‘(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 obliga-
tion.
‘‘(4) The Secretary or the delegated State shall grant
an exception 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 begin-
ning of the month following such calendar year or portion
thereof. Any additional royalties due 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 com-
bined 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 produc-
ing 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 en-
actment of this subsection, the Secretary shall issue any ap-
propriate demand for all outstanding royalty payment dis-
putes regarding who is required to report and pay royalties
on production from units and communitization agreements
outstanding on the date of the enactment 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 expeditiously issue all deter-
minations of allocations of production for units and
communitization agreements of a request for determination.
If the Secretary or the delegated State fails to issue a deter-
mination within a reasonable period, the Secretary shall
waive interest due on obligations subject to the determina-
tion from the date the request was received until the end
of the month following the month in which the determina-
tion is made.’’.
(f) NEW ASSESSMENT TO ENCOURAGE PROPER ROY-
ALTY PAYMENTS.—
(1) IN
GENERAL.—The Federal Oil and Gas
Royalty Management 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.
‘‘Upon the date of enactment of this section, to encour-
age 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.’’.
(2) CLERICAL AMENDMENT.—The table of con-
tents in section 1 of such Act (30 U.S.C. 1701) is
amended by adding after the item relating to section
115 the following new item:
‘‘Sec. 116. Assessments.’’.
(g) LIABILITY
FOR ROYALTY PAYMENTS.—Section
102(a) of the Federal Oil and Gas Royalty Management
Act of 1982 (30 U.S.C. 1712(a)) is amended to read as fol-
lows:
‘‘(a) In order to increase receipts and achieve effective
collections of royalty and other payments, a lessee who is
required to make any royalty or other payment under a
lease or under the mineral leasing laws, shall make such
payments in the time and manner as may be specified by
the Secretary or the applicable delegated State. A lessee may
designate a person to make all or part of the payments due
under a lease on the lessee’s behalf and shall notify the Sec-
retary or the applicable delegated State in writing of such
designation, in which event said designated person may,
in its own name, pay, offset or credit monies, make adjust-
ments, request and receive refunds and submit reports with
respect to payments required by the lessee. Notwithstanding
any other provision of this Act to the contrary, a designee
shall not be liable for any payment obligation under the
lease. The person owning operating rights in a lease shall
be primarily liable for its pro rata share of payment obliga-
tions under the lease. If the person owning the legal record
title in a lease is other than the operating rights owner,
the person owning the legal record title shall be secondarily
liable for its pro rata share of such payment obligations
under the lease.’’.
(h) CLERICAL AMENDMENTS.—(1) The heading of sec-
tion 111 of the Federal Oil and Gas Royalty Management
Act of 1982 (30 U.S.C. 1721) is amended to read as follows:
‘‘ROYALTY TERMS AND CONDITIONS, INTEREST, AND
PENALTIES’’.
(2) The item relating to section 111 in the table of
contents in section 1 of such Act (30 U.S.C. 1701) is amend-
ed to read as follows:
‘‘Sec. 111. Royalty terms and conditions, interest, and penalties.’’.
SEC. 7. ALTERNATIVES FOR MARGINAL PROPERTIES.
(a) IN GENERAL.—The Federal Oil and Gas Royalty
Management Act of 1982 (30 U.S.C. 1701 et seq.), as
amended by section 6 of this Act, is further amended by
adding at the end the following:
‘‘SEC. 117. ALTERNATIVES FOR MARGINAL PROPERTIES.
‘‘(a) DETERMINATION OF BEST INTERESTS OF STATE
CONCERNED AND THE UNITED STATES.—The Secretary
and the State concerned, acting in the best interests of the
United States and the State concerned to promote produc-
tion, reduce administrative costs, and increase net receipts
to the United States and the States, shall jointly determine,
on a case by case basis, the amount of what marginal pro-
duction from a lease or leases or well or wells, or parts
thereof, shall be subject to a prepayment under subsection
(b) or regulatory relief under subsection (c). If the State
concerned does not consent, such prepayments or regulatory
relief shall not be made available under this section for such
marginal production: Provided, That if royalty payments
from a lease or leases, or well or wells is not shared with
any State, such determination shall be made solely by the
Secretary.
‘‘(b) PREPAYMENT OF ROYALTY.—
‘‘(1) IN GENERAL.—Notwithstanding the provi-
sions of any lease to the contrary, for any lease or
leases or well or wells identified by the Secretary and
the State concerned pursuant to subsection (a), the
Secretary is authorized to accept a prepayment for
royalties in lieu of monthly royalty payments under
the lease for the remainder of the lease term if the af-
fected lessee so agrees. Any prepayment agreed to by
the Secretary, State concerned and lessee which is less
than an average $500 per month in total royalties
shall be effectuated under this section not earlier than
two years after the date of enactment of this section
and, any prepayment which is greater than an aver-
age $500 per month in total royalties shall be effec-
tuated under this section not earlier than three years
after the date of enactment of this section. The Sec-
retary and the State concerned may condition their
acceptance of the prepayment authorized under this
section on the lessee’s agreeing to such terms and con-
ditions as the Secretary and the State concerned deem
appropriate and consistent with the purposes of this
Act. Such terms may—
‘‘(A) provide for prepayment that does not
result in a loss of revenue to the United States
in present value terms;
‘‘(B) include provisions for receiving addi-
tional prepayments or royalties for developments
in the lease or leases or well or wells that deviate
significantly from the assumptions and facts on
which the valuation is determined; and
‘‘(C) require the lessee or its designee to pro-
vide such periodic production reports as may be
necessary to allow the Secretary and the State
concerned to monitor production for the purposes
of subparagraph (B).
‘‘(2) STATE SHARE.—A prepayment under this
section shall be shared by the Secretary with any
State or other recipient to the same extent as any
royalty payment for such lease.
‘‘(3) SATISFACTION OF OBLIGATION.—Except as
may be provided in the terms and conditions estab-
lished by the Secretary under subsection (b), a lessee
or its designee who makes a prepayment under this
section shall have satisfied in full the lessee’s obliga-
tion to pay royalty on the production stream sold
from the lease or leases or well or wells.
‘‘(c) ALTERNATIVE ACCOUNTING AND AUDITING RE-
QUIREMENTS.—Within one year after the date of the enact-
ment of this section, the Secretary or the delegated State
shall provide accounting, reporting, and auditing relief that
will encourage lessees to continue to produce and develop
properties subject to subsection (a): Provided, That such re-
lief will only be available to lessees in a State that concurs,