Source: https://www.federalregister.gov/documents/2008/10/07/E8-23290/royalty-relief-for-deepwater-outer-continental-shelf-oil-and-gas-leases-conforming-regulations-to
Timestamp: 2018-07-20 19:10:40
Document Index: 257334093

Matched Legal Cases: ['art 203', 'art 260', '§\u2009203', '§\u2009203', '§\u2009260', '§\u2009260', '§\u2009260', 'arts 203', '§\u2009203', '§\u2009203', '§\u2009260', '§\u2009260', '§\u2009260', 'art 203', '§\u2009203', '§\u2009203', 'art 260', '§\u2009260', '§\u2009260', '§\u2009260', 'art 203', '§\u2009260', 'art 260', '§\u2009260', '§\u2009203', '§\u2009203', '§\u2009203', '§\u2009260', '§\u2009260', '§\u2009203', '§\u2009260', '§\u2009203', '§\u2009203', '§\u2009260', '§\u2009260', '§\u2009260', 'art 260', 'arts 203', '§\u2009260', '§\u2009260', '§\u2009260', '§\u2009260', '§\u2009260']

A Rule by the Minerals Management Service on 10/07/2008
58467-58473 (7 pages)
E8-23290
https://www.federalregister.gov/d/E8-23290 https://www.federalregister.gov/d/E8-23290
The MMS published a proposed rule (PR) in the Federal Register on December 21, 2007 (72 FR 72652), to inform the public of our intent to revise 30 CFR part 203, which pertains to royalty relief and 30 CFR part 260, which pertains to Outer Continental Shelf (OCS) leasing, in a manner consistent with the Santa Fe Snyder ruling. The PR invited comments, recommendations, and specific remarks on our regulatory changes consistent with the Santa Fe Snyder decision. The regulatory changes in this final rule are exactly the same as those published in the PR with three clarifying exceptions. In § 203.71(a)(3) we add the expression of “newly constituted” field to distinguish between the field which was the subject of the original application and the new field which becomes the subject of the revised application. In § 203.71(a)(5) we label as field A the field to which the well was originally assigned and from which it is removed by re-assigning the well to a second field, which we label as field B. That step avoids an ambiguity in the old wording. Also, we re-word the new language in the last cell of the table to distinguish between the kind of lease referred to in § 260.114 and the kind of lease referred to in § 260.124. In § 260.114 we add language that each Final Notice of Sale Package, which contains the official information on a lease's water depth category, is announced in the Federal Register.
All four commenters submitting germane comments on the PR were Start Printed Page 58469supportive of amending the regulations at 30 CFR parts 203 and 260 to conform to the Santa Fe Snyder Corp., et al. v. Norton decision. The respondents were appreciative of the regulatory change that would bring clarity and avoid confusion to readers of the regulations. No suggestions or proposals were received to change or clarify our proposed regulatory changes to implement the court's decision and its interpretation of section 304 of the DWRRA.
The regulatory changes in this final rule are exactly the same as those published in the PR with three clarifying exceptions. In § 203.71(a)(3), we add the expression of “newly constituted” field to distinguish between the field which was the subject of the original application and the new field which becomes the subject of the revised application. In § 203.71(a)(5), we label as field A the field to which the well was originally assigned and from which it is removed by re-assigning the well to a second field, which we label as field B. That step avoids an ambiguity in the old wording. Also, we re-word the new language in the last cell of the table to distinguish between the kind of lease referred to in § 260.114 and the kind of lease referred to in § 260.124. In § 260.114, we add language that each Final Notice of Sale Package, which contains the official information on a lease's water depth category, is announced in the Federal Register.
Changes in 30 CFR part 203 delete references to “eligible leases” in § 203.69 and change the sharing rule in § 203.71 for purposes of consistency. It removes the eligible leases from the section that discusses how to allocate RSVs on a field. These changes mean that regardless of the outcome of an application for royalty relief for leases issued either before or after the 5-year period covered by section 304, which may affect the field to which they are assigned, both eligible leases and leases issued in sales held after November 25, 2000 (referred to in the regulation as “Royalty Suspension” (RS) leases), receive the full RSVs stated in the lease instrument. Further, as with a RS lease, production from an eligible lease counts against any RSVs available to pre-Act leases on a field to which the eligible lease or RS lease has been assigned. However, unlike RS leases, lessees of eligible leases may not initiate an application seeking, or requesting a share in, an additional RSV granted to an RS lease. This is because there would now be more than enough financial incentive for any single lease.
The revisions to the regulations in part 260 modify § 260.3 relating to MMS's authority to collect information and remove references in § 260.113(a) to prior production on the field to which a lease is assigned. Deletions in § 260.114 remove paragraphs on procedures for notification, determination of RSVs, and having more than one RSV on a lease because they are no longer required. Section 260.114(b) is also revised to change the reference from “fields” to “each eligible lease.” Section 260.124 is revised to remove a reference to eligible leases establishing an RSV for a field, which is not valid under section 304 of the Act, as interpreted in Santa Fe Snyder. Thus, royalty-free production from an RS lease only counts against the RSV of a field if that volume was established as a result of an approved application for royalty relief for a pre-Act lease under part 203. Finally, all of § 260.117 is eliminated, because provisions for allocation of RSVs among multiple leases on a field are no longer needed.
There are two basic categories of section 304 leases affected by the Fifth Circuit Court's decision. For section 304 leases placed on fields by MMS that consist of one or more leases which produced prior to the DWRRA, we projected that from 2000 through 2024, production of oil and gas could range from 4 million BOE in the low case to 27 million BOE in the high case. The total royalty losses using OMB economic assumptions for the 2009 Budget (oil and gas prices) during this 25-year period are estimated to range Start Printed Page 58470from $16 million in the low case to almost $205 million in the high case (expressed in current-year dollars). Applying discount rates of 3 and 7 percent to the potential cash flows, the present value range of fiscal losses becomes $17 to $192 million at 3 percent and $20 to $189 million at 7 percent (the lower bound figures increase slightly as the discount rate rises because all of the losses in this case, associated with leases issued in 1998 and 1999, represent historical royalties that must be paid back, with interest, to the lessees). Essentially all production and royalties from this category of section 304 leases, up to the prescribed royalty suspension volumes for each lease, contribute to the fiscal cost to the Federal Government. This is because, in previous DWRRA regulations, such section 304 leases that were placed on fields that produced prior to the DWRRA were not considered eligible for royalty relief.
This change affects lessees and operators of deepwater leases in the OCS. This includes about 40 different companies. These companies are generally classified under the North American Industry Classification System (NAICS) Code 211111, which includes companies that extract crude petroleum and natural gas. For this NAICS code classification, a small company is one with fewer than 500 Start Printed Page 58471employees. Based on these criteria, only 10 of these companies are considered small. This final rule, therefore, will not affect a substantial number of small entities.
The revisions do not contain any information collection subject to the Paperwork Reduction Act (PRA) and do not require a submission to OMB for review and approval under section 3507(d) of the PRA. The one remaining requirement in Part 260 (§ 260.124(a)(l)) is exempt from the PRA under 5 CFR 1320.4(a)(2), (c).
Start List of Subjects Start Printed Page 58472
Authority: 25 U.S.C. 396; 25 U.S.C. 2107; 30 U.S.C. 189, 241; 30 U.S.C. 359; 30 U.S.C. 1023; 30 U.S.C. 175; 31 U.S.C. 9701; 43 U.S.C. 1334.
2. Revise § 203.69(c) to read as follows:
3. Amend § 203.71 as set forth below:
(1) We assign an eligible lease to your authorized field after we approve relief We will not change your authorized field's royalty suspension volume determined under § 203.69 Production from the assigned eligible lease(s) counts toward the royalty suspension volume for the authorized field, but the eligible lease will not share any remaining royalty suspension volume for the authorized field after the eligible lease has produced the volume applicable under § 260.114 of this chapter.
(3) We assign another lease that you operate to your field while we are evaluating your application In our evaluation of your authorized field, we will take into account the value of any royalty relief the added lease already has under § 260.114 or its lease document. If we find your authorized field still needs additional royalty suspension volume, that volume will be at least the combined royalty suspension volume to which all added leases on the field are entitled, or the minimum suspension volume of the authorized field, whichever is greater (i) You toll the time period for evaluation until you modify your application to be consistent with the newly constituted field; (ii) We have an additional 60 days to review the new information; and (iii) The assigned pre-Act lease or royalty suspension lease shares the royalty suspension we grant to the newly constituted field. An eligible lease does not share the royalty suspension we grant to the new field. If you do not agree to toll, we will have to reject your application due to incomplete information. Production from an assigned eligible lease counts toward the royalty suspension volume that we grant under § 203.69 for your authorized field, but you will not owe royalty on production from the eligible lease until it has produced the volume applicable under § 260.114 of this chapter.
(5) We reassign a well on a pre-Act, eligible, or royalty suspension lease from field A to field B The past production from the well counts toward the royalty suspension volume that we grant under § 203.69 to field B For any field based relief, the past production for that well will not count toward any royalty suspension volume that we grant under § 203.69 to field A. Moreover, past production from that well will count toward the royalty suspension volume applicable for the lease under § 260.114 if the well is on an eligible lease or under § 260.124 if the well is on a royalty suspension lease.
5. Revise § 260.3 to read as follows:
(a) The Paperwork Reduction Act of 1995 (PRA) requires us to inform you that we may not conduct or sponsor, and you are not required to respond to, a collection of information unless it Start Printed Page 58473displays a currently valid OMB control number. The information collection under 30 CFR part 260 is either exempt from the PRA (5 CFR 1320.4(a)(2), (c)) or refers to requirements covered under 30 CFR parts 203 and 256.
6. Revise § 260.113 to read as follows:
(a) Your eligible lease will receive a royalty suspension volume as specified in the Act. The bidding system in § 260.110(g) applies.
7. Revise § 260.114 to read as follows:
(1) 200 to less than 400 meters 17.5 MMBOE.
(2) 400 to less than 800 meters 52.5 MMBOE.
8. Remove § 260.117.
9. Revise the heading of § 260.124 and the introductory text of paragraph (b) to read as follows:
How will royalty suspension apply if MMS assigns a lease issued in a sale held after November 2000 to a field that has a pre-Act lease?