Federal Oil Royalty Protection Act of 1998

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 together 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 ``integrated 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 futures 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 corporate subsidiaries, partnerships, 
        joint ventures, and other forms of ownership.
            (6) Gross proceeds.--The term ``gross proceeds''--
                    (A) means the total moneys, reimbursements, 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 disposition of oil 
                produced.
            (7) Transportation.--The term ``transportation'' 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 Federal royalty purposes of 
        crude oil produced by independent producers and integrated 
        producers from any Federal onshore or Outer Continental Shelf 
        lease.
            (2) Integrated producers.--Any rule established under this 
        subsection for integrated producers shall comply with the 
        provisions of subsection (b).
            (3) Independent producers: gross proceeds.--(A) Any rule 
        under this subsection for independent producers may allow 
        payment of royalties 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 Secretary 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 lessee shall be liable 
        for additional royalties as determined under subsection (b) and 
        for the total administrative and legal costs incurred by the 
        Federal government in investigating and prosecuting the breach.
            (iii) Violations of the certification required under this 
        subparagraph shall be subject to a penalty that shall be not 
        less than an amount equal to the underpayment amount determined 
        by the Secretary 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 different 
                geographic regions, if the Secretary finds that the use 
                of a different method in a region is necessary to 
                reflect the unique market characteristics 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 producers 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 section may provide 
        for reasonable and necessary location- and quality-based 
        adjustments to any commodity-based price or marker crude price. 
        No other deductions, allowances, or adjustments to a royalty 
        payment may be made.

SEC. 4. ROYALTY RATE REDUCTIONS FOR STRIPPER AND HEAVY OIL.

    (a) In General.--Except as otherwise provided in this section, all 
royalty rate reductions for stripper and heavy oil granted by the 
Secretary on or before the date of enactment of this Act for oil 
produced from any Federal onshore lease are canceled beginning on the 
first day of the first production month following the date of enactment 
of this Act. For all such oil produced in the first full month after 
the date of enactment of this Act, a lessee shall remit royalties at 
the rate established under its lease.
    (b) Independent Producer Leases.--
            (1) Existing royalty rate reductions.--All royalty rate 
        reductions for stripper and heavy oil granted by the Secretary 
        on or before the date of enactment of this Act and applicable 
        to leases held or operated by independent producers shall 
        remain in effect until the earlier of--
                    (A) September 10, 1999, or
                    (B) cancellation by the Secretary.
            (2) New royalty rate reductions.--After cancellation of a 
        royalty rate reduction for a lease under paragraph (1), the 
        Secretary may grant royalty 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 required 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 concerned 
                State; and
                    (C) the rate reduction is effective for a period 
                not greater than 3 years.

SEC. 5. TRANSPORTATION CHARGE FOR OUTER CONTINENTAL 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 thereunder, has complied with the requirements of the right-
of-way or permit and that section in the construction, operation, 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 reasonable 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 subsection (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 Appropriations 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.

Summary: Federal Oil Royalty Protection Act of 1998 - Authorizes the Secretary of the Interior to establish separate rules to govern the calculation of the value for Federal royalty purposes of crude oil produced by independent and integrated producers from any Federal onshore or Outer Continental Shelf lease.  Prescribes requirements and optional features of such rules with respect to:  (1) integrated producers; (2) independent producers' gross proceeds; or (3) independent producers' market-based methods. 
(Sec. 3) Directs the Secretary to establish a single set of rules to govern such calculations if it is determined not to establish separate rules. 
(Sec. 4) Declares all royalty rate reductions for stripper and heavy oil granted by the Secretary for oil produced from any Federal onshore lease cancelled as of the first day of the first production month following enactment of this Act.  Requires a lessee to remit royalties at the rate established under its lease as of the first full production month following enactment of this Act. 
Retains existing royalty rate reductions for stripper and heavy oil applicable to independent producers' leases until September 1999 or (if earlier) cancellation by the Secretary.  Authorizes the Secretary to grant royalty rate reductions under specified circumstances. 
(Sec. 5) Prohibits the rate charged to any Outer Continental Shelf lessee or lease operator for oil or gas transportation on any pipeline from the lease to an onshore sales or delivery point from exceeding actual oil pipeline transportation costs as determined by the Secretary, plus a reasonable rate of return not to exceed the prime rate. 
(Sec. 6) Directs the Secretary to:  (1) promptly review and determine the extent to which each Mineral Leasing Act holder of a right-of-way or permit, and each pipeline operator, has complied with specified statutory requirements; and (2) revoke such right-of-way or permit for non-compliance with such Act. 
(Sec. 7) Amends the 1998 Supplemental Appropriations and Rescissions Act to repeal the prohibition on the use of appropriations to issue a notice of final rulemaking before October 1, 1998, with respect to crude oil valuation for royalty purposes.