I
105TH CONGRESS
2D SESSION
H. R. 3932
To assure that the public receives the full amount of royalties owed on
oil production from Federal public lands and the Outer Continental Shelf.
IN THE HOUSE OF REPRESENTATIVES
MAY 21, 1998
Mrs. MALONEY of New York (for herself, Mr. MILLER of California, Mr.
MENENDEZ, Mr. VENTO, Mr. HINCHEY, Mr. GUTIERREZ, Mr. LUTHER,
Mr. KLECZKA, Mr. SANDERS, and Mr. SCHUMER) introduced the follow-
ing bill; which was referred to the Committee on Resources
A BILL
To assure that the public receives the full amount of royalties
owed on oil production from Federal public lands and
the Outer Continental Shelf.
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 Royalty
Protection Act of 1998’’.
SEC. 2. DEFINITIONS.
In this Act:
(1) 
INDEPENDENT
PRODUCER.—The 
term
‘‘independent producer’’ means a producer that to-
gether with any of its affiliates produces 80 percent
or more of its oil production domestically and that
is not affiliated with a refinery.
(2) INTEGRATED PRODUCER.—The term ‘‘inte-
grated producer’’ means a producer other than an
independent producer.
(3) 
COMMODITY-BASED
PRICE.—The 
term
‘‘commodity-based price’’ means the price obtained
under contracts to buy or sell oil in a domestic fu-
tures market.
(4) MARKER CRUDE PRICE.—The term ‘‘marker
crude price’’ means the price obtained in a market
for a specific crude oil, if that crude oil can be used
as a standard for assessing the true value of other
oil.
(5) AFFILIATE.—The term ‘‘affiliate’’ means a
person that owns, is owned by, or is under common
ownership with another person, and includes cor-
porate subsidiaries, partnerships, joint ventures, and
other forms of ownership.
(6) GROSS PROCEEDS.—The term ‘‘gross pro-
ceeds’’—
(A) means the total moneys, reimburse-
ments, and other consideration accruing under
a contract for the disposition of oil produced,
including all consideration received or paid by a
lessee for services that the lessee must perform
at no cost to the Federal Government or that
is otherwise normally performed by a producer;
and
(B) includes any payments made to reduce,
buy down, or buy out of a contract for the dis-
position of oil produced.
(7) TRANSPORTATION.—The term ‘‘transpor-
tation’’ means the movement of oil or gas from a
central accumulation or treatment point to a point
of sale or delivery.
(8) CONCERNED STATE.—The term ‘‘concerned
State’’ means any State that shares in the revenues
received under Federal onshore or Outer Continental
Shelf leases.
SEC. 3. OIL VALUATION RULES.
(a) SEPARATE RULES.—
(1) IN GENERAL.—Subject to the requirements
in this section, the Secretary may establish separate
rules to govern the calculation of the value for Fed-
eral royalty purposes of crude oil produced by inde-
pendent producers and integrated producers from
any Federal onshore or Outer Continental Shelf
lease.
(2) INTEGRATED PRODUCERS.—Any rule estab-
lished under this subsection for integrated producers
shall comply with the provisions of subsection (b).
(3) INDEPENDENT
PRODUCERS: GROSS
PRO-
CEEDS.—(A) Any rule under this subsection for
independent producers may allow payment of royal-
ties based on the total gross proceeds accruing to an
independent producer or its affiliate under an arm’s-
length contract for a true sale of the crude oil.
(B) Rules under this subsection may allow any
lessee, in valuing crude oil on the basis of its gross
proceeds, to deduct its reasonable, necessary, and
actual costs of transportation. No other deductions,
allowances, or adjustments to a royalty payment
may be made.
(C)(i) Rules under this subsection shall require
that a lessee, in valuing crude oil on the basis of
gross proceeds, shall certify annually to the Sec-
retary that it will comply with its duty to market the
production.
(ii) If the Secretary finds that any lessee has
breached its duty to market the production, the les-
see shall be liable for additional royalties as deter-
mined under subsection (b) and for the total admin-
istrative and legal costs incurred by the Federal gov-
ernment in investigating and prosecuting the breach.
(iii) Violations of the certification required
under this subparagraph shall be subject to a pen-
alty that shall be not less than an amount equal to
the underpayment amount determined by the Sec-
retary under paragraph (3)(C)(i).
(4) INDEPENDENT PRODUCERS: MARKET-BASED
METHOD.—(A) Any rule established by the Secretary
for independent producers that is not based on gross
proceeds as provided in paragraph (3) or that will
apply to crude oil sold or transferred under non-
arm’s-length circumstances shall be based on an
independent, market-based method. In promulgating
such a rule, the Secretary shall consider application
of a commodity-based price or marker crude price.
(B) Rules under this paragraph shall establish
a single method for valuing crude oil, except that
such rules—
(i) may apply a different method in dif-
ferent geographic regions, if the Secretary finds
that the use of a different method in a region
is necessary to reflect the unique market char-
acteristics of that region; and
(ii) may provide for any reasonable and
necessary adjustments or deductions, subject to
the 
limitations 
set 
forth 
in 
subsections
(a)(3)(B) and (b)(3).
(b) SINGLE SET OF RULES.—
(1) IN GENERAL.—If the Secretary determines
not to establish separate rules as authorized under
subsection (a), the Secretary shall establish a single
set of rules to govern the calculations referred to in
subsection (a) that apply to both independent pro-
ducers and integrated producers. Such rules shall
use a method for determining the value of all crude
oil that is based on a commodity-based price or a
marker crude price.
(2) GEOGRAPHIC VARIATION.—Rules under this
subsection may apply different commodity-based
prices or marker crude prices in different geographic
regions, if the Secretary finds that the application of
a different price in a particular region is necessary
to reflect the unique market characteristics of the
region.
(3) OTHER VARIATION.—Rules under this sec-
tion may provide for reasonable and necessary
location- and quality-based adjustments to any com-
modity-based price or marker crude price. No other
alty rate reductions for oil production under a lease,
except that such a rate reduction may be granted for
the lease only if—
(A) the Secretary makes the findings re-
quired under section 39 of the Mineral Leasing
Act of 1920 (30 U.S.C. 209) on a lease-by-lease
basis;
(B) the reduction is approved by the con-
cerned State; and
(C) the rate reduction is effective for a pe-
riod not greater than 3 years.
SEC. 5. TRANSPORTATION CHARGE FOR OUTER CONTINEN-
TAL SHELF PRODUCTION.
The rate to be charged to any lessee or operator of
a lease on the Outer Continental Shelf for transportation
of oil or gas produced under the lease on any pipeline from
the lease to an onshore sales or delivery point shall not
exceed the actual costs of transporting the oil on such
pipeline, as determined by the Secretary, plus a reasonable
rate of return not to exceed the prime rate.
SEC. 6. REVIEW OF COMPLIANCE REGARDING PIPELINE
RIGHT-OF-WAY PERMITTEES.
(a) REVIEW.—The Secretary shall promptly review
and determine the extent to which each holder of a right-
of-way or permit under section 28 of the Mineral Leasing
Act (30 U.S.C. 185), and each pipeline operator there-
under, has complied with the requirements of the right-
of-way or permit and that section in the construction, op-
eration, and maintenance of pipelines under the right-of-
way or permit.
(b) MATTERS TO BE REVIEWED.—In carrying out
subsection (a), the Secretary shall determine, among other
matters, whether the holder of a right-of-way or permit
and each pipeline operator thereunder has complied with
requirements regarding publication of tariffs, provision of
access to unaffiliated shippers, maintenance of convenient
facilities for unaffiliated shippers to deliver and take off
oil or gas (as applicable), and charging of just and reason-
able tariffs for unaffiliated shippers.
(c) REVOCATION OF RIGHT-OF-WAY OR PERMIT.—
If the Secretary determines that a holder of a right-of-
way or permit, or any pipeline operator thereunder, has
failed to comply with any requirement referred to in sub-
section (a), the Secretary shall revoke the right-of-way or
permit.
SEC. 7. REPEAL OF LIMITATION ON ISSUANCE OF RULES
REGARDING VALUATION OF CRUDE OIL FOR
ROYALTY PURPOSES.
Section 3009 of the 1998 Supplemental Appropria-
tions and Rescissions Act, relating to a limitation on use
of appropriations to issue a notice of final rulemaking with
respect to the valuation of crude oil for royalty purposes,
is repealed.
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