871
the United States derived from royalties in-kind
to amounts likely to have been received had roy-
alties been taken in-value;
(B) an explanation of the evaluation that
led the Secretary to take royalties in-kind from
a lease or group of leases, including the ex-
pected revenue effect of taking royalties in-kind;
(C) actual amounts received by the United
States derived from taking royalties in-kind and
costs and savings incurred by the United States
associated with taking royalties in-kind, includ-
ing, but not limited to, administrative savings
and any new or increased administrative costs;
and
(D) an evaluation of other relevant public
benefits or detriments associated with taking
royalties in-kind.
(f) DEDUCTION OF EXPENSES.—
(1) IN
GENERAL.—Before making payments
under section 35 of the Mineral Leasing Act (30
U.S.C. 191) or section 8(g) of the Outer Continental
Shelf Lands Act (43 U.S.C. 1337(g)) of revenues
derived from the sale of royalty production taken in-
kind from a lease, the Secretary shall deduct
amounts paid or deducted under subsections (b)(4)
872
and (c) and deposit the amount of the deductions in
the miscellaneous receipts of the United States
Treasury.
(2) ACCOUNTING FOR DEDUCTIONS.—When the
Secretary allows the lessee to deduct transportation
or processing costs under subsection (c), the Sec-
retary may not reduce any payments to recipients of
revenues derived from any other Federal oil and gas
lease as a consequence of that deduction.
(g) 
CONSULTATION
WITH
STATES.—The
Secretary—
(1) shall consult with a State before conducting
a royalty in-kind program under this subtitle within
the State, and may delegate management of any
portion of the Federal royalty in-kind program to
the State except as otherwise prohibited by Federal
law; and
(2) shall consult annually with any State from
which Federal oil or gas royalty is being taken in-
kind to ensure, to the maximum extent practicable,
that the royalty in-kind program provides revenues
to the State greater than or equal to those likely to
have been received had royalties been taken in-value.
(h) SMALL REFINERIES.—
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(1) PREFERENCE.—If the Secretary finds that
sufficient supplies of crude oil are not available in
the open market to refineries that do not have their
own source of supply for crude oil, the Secretary
may grant preference to such refineries in the sale
of any royalty oil accruing or reserved to the United
States under Federal oil and gas leases issued under
any mineral leasing law, for processing or use in
such refineries at private sale at not less than the
market price.
(2) PRORATION
AMONG
REFINERIES
IN
PRO-
DUCTION AREA.—In disposing of oil under this sub-
section, the Secretary of Energy may, at the discre-
tion of the Secretary, prorate the oil among refin-
eries described in paragraph (1) in the area in which
the oil is produced.
(i) DISPOSITION TO FEDERAL AGENCIES.—
(1) ONSHORE ROYALTY.—Any royalty oil or gas
taken by the Secretary in-kind from onshore oil and
gas leases may be sold at not less than the market
price to any Federal agency.
(2) OFFSHORE ROYALTY.—Any royalty oil or
gas taken in-kind from a Federal oil or gas lease on
the outer Continental Shelf may be disposed of only
874
under section 27 of the Outer Continental Shelf
Lands Act (43 U.S.C. 1353).
(j) FEDERAL LOW-INCOME ENERGY ASSISTANCE
PROGRAMS.—
(1) PREFERENCE.—In disposing of royalty oil
or gas taken in-kind under this section, the Sec-
retary may grant a preference to any person, includ-
ing any Federal or State agency, for the purpose of
providing additional resources to any Federal low-in-
come energy assistance program.
(2) REPORT.—Not later than 3 years after the
date of enactment of this Act, the Secretary shall
transmit a report to Congress, assessing the effec-
tiveness of granting preferences specified in para-
graph (1) and providing a specific recommendation
on the continuation of authority to grant pref-
erences.
SEC. 2003. MARGINAL PROPERTY PRODUCTION INCEN-
TIVES.
(a) DEFINITION OF MARGINAL PROPERTY.—Until
such time as the Secretary issues regulations under sub-
section (e) that prescribe a different definition, in this sec-
tion the term ‘‘marginal property’’ means an onshore unit,
communitization agreement, or lease not within a unit or
communitization agreement, that produces on average the
875
combined equivalent of less than 15 barrels of oil per well
per day or 90 million British thermal units of gas per well
per day calculated based on the average over the 3 most
recent production months, including only wells that
produce on more than half of the days during those 3 pro-
duction months.
(b) CONDITIONS
FOR
REDUCTION
OF
ROYALTY
RATE.—Until such time as the Secretary issues regula-
tions under subsection (e) that prescribe different thresh-
olds or standards, the Secretary shall reduce the royalty
rate on—
(1) oil production from marginal properties as
prescribed in subsection (c) when the spot price of
West Texas Intermediate crude oil at Cushing, Okla-
homa, is, on average, less than $15 per barrel for 90
consecutive trading days; and
(2) gas production from marginal properties as
prescribed in subsection (c) when the spot price of
natural gas delivered at Henry Hub, Louisiana, is,
on average, less than $2.00 per million British ther-
mal units for 90 consecutive trading days.
(c) REDUCED ROYALTY RATE.—
(1) IN GENERAL.—When a marginal property
meets the conditions specified in subsection (b), the
royalty rate shall be the lesser of—
876
(A) 5 percent; or
(B) the applicable rate under any other
statutory or regulatory royalty relief provision
that applies to the affected production.
(2) PERIOD OF EFFECTIVENESS.—The reduced
royalty rate under this subsection shall be effective
beginning on the first day of the production month
following the date on which the applicable condition
specified in subsection (b) is met.
(d) TERMINATION OF REDUCED ROYALTY RATE.—
A royalty rate prescribed in subsection (d)(1)(A) shall
terminate—
(1) with respect to oil production from a mar-
ginal property, on the first day of the production
month following the date on which—
(A) the spot price of West Texas Inter-
mediate crude oil at Cushing, Oklahoma, on av-
erage, exceeds $15 per barrel for 90 consecutive
trading days; or
(B) the property no longer qualifies as a
marginal property; and
(2) with respect to gas production from a mar-
ginal property, on the first day of the production
month following the date on which—
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(A) the spot price of natural gas delivered
at Henry Hub, Louisiana, on average, exceeds
$2.00 per million British thermal units for 90
consecutive trading days; or
(B) the property no longer qualifies as a
marginal property.
(e) REGULATIONS PRESCRIBING DIFFERENT RE-
LIEF.—
(1) DISCRETIONARY REGULATIONS.—The Sec-
retary may by regulation prescribe different param-
eters, standards, and requirements for, and a dif-
ferent degree or extent of, royalty relief for marginal
properties in lieu of those prescribed in subsections
(a) through (d).
(2) MANDATORY
REGULATIONS.—Not later
than 18 months after the date of enactment of this
Act, the Secretary shall by regulation—
(A) prescribe standards and requirements
for, and the extent of royalty relief for, mar-
ginal properties for oil and gas leases on the
outer Continental Shelf; and
(B) define what constitutes a marginal
property on the outer Continental Shelf for pur-
poses of this section.