Notice to Lessees No. 5 Gas Royalty Act of 1987
PL 100-234 (H.R.3479), enacted 01/06/1988

PUBLIC LAW 100-234—JAN. 6, 1988 
101 STAT. 1719 
Public Law 100-
100th Congress 
234 
An Act 
To provide for adjustments of royalty payments under certain Federal onshore and 
Indian oil and gas leases, and for other purposes. 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
(a) That this Act may be referred to as the "Notice to Lessees 
Numbered 5 Gas Royalty Act of 1987". 
(b) FINDINGS.—The Congress finds that— 
(1) effective on June 1, 1977, in Notice to Lessees and Opera-
tors of Federal and Indian Onshore Oil and Gas Leases Num-
bered 5 (NTL-5) (42 Fed. Reg. 22,610), the Secretary of the 
Interior established the method of calculating the amount of 
royalties to be paid to the United States on natural gas produc-
tion from Federal and Indian oil and gas leases. 
(2) NTL-5 was a duly promulgated rule of the Department of 
the Interior within the meaning of the Administrative Proce-
dure Act; 
(3) under the NTL-5 method of calculation, the base value for 
royalty purposes of certain gas production was the greater of 
the price received under the gas sales contract or the highest 
applicable ceiling rate then established by the Federal Power 
Commission. The applicable ceiling rate was subsequently inter-
preted to be the maximum lawful price established under the 
Natural Gas Policy Act of 1978 (15 U.S.C. 3301 et seq.); 
(4) although between 1982 and 1986 gas prices in many areas 
declined below the maximum lawful prices established under 
the Natural Gas Policy Act of 1978, the continued application of 
NTL-5 required some royalties to be paid on the basis of a 
ceiling rate higher than the market value for the gas; 
(5) effective August 1, 1986, the Secretary of the Interior 
modified the method of calculating certain future Federal and 
Indian gas royalty payments. This modification, published in 
the Federal Register on July 25, 1986 (51 Fed. Reg. 26,759) was a 
duly promulgated regulation of the Department of the Interior. 
The modification left the original provisions of NTL-5 in effect 
for gas sales prior to August 1, 1986, since the Secretary found 
that retroactive modification of NTL-5 would have resulted in 
inconsistent royalty enforcement and would have undermined 
the policy of strict compliance with lawful Federal royalty 
valuation rules and the need to ensure that Federal lessees and 
other payors rely upon rules until such time as the rules are 
lawfully changed (51 Fed. Reg. 26,759); 
(6) in January 1987, the Department of the Interior proposed 
to reconsider its position and proposed to modify NTL-5 
retroactively; 
(7) there is a trust responsibility of the United States for the 
administration of Indian oil and gas resources as reaffirmed in 
Jan. 6, 1988 
[H.R. 3479] 
Notice to Lessees 
Numbered 5 Gas 
Royalty Act of 
1987. 
Contracts. 
101 STAT. 1720 
PUBLIC LAW 100-234—JAN. 6, 1988 
sections 2 (a)(4) and (b)(4) of the Federal Oil and Gas Royalty' 
Management Act of 1982 (30 U.S.C. 1701 (a)(4) and (b)(4)); and 
(8) the failure to adjust the method of calculating royalty 
payments resulting from changes in the gas market created 
various problems in valuation, produced inequitable situations 
for many lessees and payors whose gas market price was well 
below the National Gas Policy Act ceiling prices, and created 
uncertainty associated with the collection of royalty revenues. 
Uniform application of National Gas Policy Act ceiling prices 
was inequitable given market conditions during this period. For 
these reasons, it is necessary and appropriate for the Congress 
• 
to provide for certain adjustments through legislation. 
SEC. 2. DEFINITIONS. 
For purposes of this Act: 
(a) SECRETARY.—The term "Secretary" means the Secretary of the 
Interior or his designee. 
(b) NTL-5.—The term "NTL-5" means the Notice to Lessees and 
Operators of Federal and Indian Onshore Oil and Gas Leases pub-
lished May 4, 1977 (42 Fed. Reg. 22,610). 
(c) OTHER TERMS.—All other terms carry the same meanings as 
provided in section 3 of the Federal Oil and Gas Royalty Manage-
ment Act of 1982 (30 U.S.C. Sec. 1702). 
SEC. 3. VALUATION FOR ROYALTY PURPOSES OF CERTAIN GAS PRODUC-
TION FROM FEDERAL AND INDIAN LANDS. 
(a) APPLICABILITY.—The provisions of this section shall be used in 
determining the value for royalty purposes of any gas production 
from Federal onshore or Indian oil and gas leases during the period 
from January 1, 1982, through July 31, 1986, which is within the 
coverage of section I.A.2, section II.A.2 or section VI of NTL-5. 
(b) ROYALTY CALCULATION FOR CERTAIN FEDERAL ONSHORE AND 
INDIAN OIL AND GAS LEASES.—If the gas referred to in subsection (a) 
of this section was produced from a Federal onshore or Indian lease, 
the value of production, for the purpose of computing royalty, shall 
be the reasonable value of the product as determined consistent 
with the lease terms and the regulations codified at part 206 of title 
30, Code of Federal Regulations, in effect at the time of production. 
In establishing the reasonable value, due consideration shall be 
given to the highest price paid for a part or for a majority of 
production of like quality in the same field, to the price received by 
the lessee, to posted prices, and to other relevant matters. Under no 
circumstances shall the value of production of any of said substances 
for the purposes of computing royalty be deemed to be less than the 
gross proceeds accruing to the lessee from the sale thereof or less 
than the value computed on such reasonable unit value as shall 
have been determined by the Secretary. In the absence of good 
reason to the contrary, value computed on the basis of the highest 
price per thousand cubic feet or gallon paid or offered at the time of 
production in a fair and open market for the major portion of like-
quality gas, or other products produced and sold from the field or 
areas where the leased lands are situated will be considered to be a 
reasonable value. In addition, if the gas was produced from an 
Indian lease, the reasonable value shall be determined consistent 
with the Secretary's trust responsibility, the lease terms, and the 
regulations codified at section 211.13 or section 212.16 of title 25, 
PUBLIC LAW 100-234—JAN. 6, 1988 
101 STAT. 1721 
Code of Federal Regulations, as applicable, in effect at the time of 
production. 
(c) WRITTEN DOCUMENTATION.—In order for the Secretary to make 
royalty value determinations under this section, there must be 
written documentation which (1) has been determined to be ade-
quate by the Secretary, (2) was in existence at or near the time of 
sale, (3) shows the actual price received, and (4) may include, but is 
not limited to, a gas sales contract, purchase statement, receipt, 
minerals management service oil and gas records, or other written 
documentation. 
(d) EXCEPTION.—This section shall not apply to any gas for which, 
in the Secretary's judgment, the lessee or royalty payor received less 
than the highest applicable price under the Natural Gas Policy Act 
due to a failure by the lessee or payor to collect amounts which the 
purchaser would have been required to pay under a gas sales 
contract providing for that price and not as a result of market 
conditions or considerations. 
SEC. 
4
. 
PROCEDURES. 
(a) CASE-BY-CASE AUDIT FOR CERTAIN FEDERAL ONSHORE OIL AND 
GAS LEASES.—The Secretary shall publish in the Federal Register 
and send to each lessee or royalty payor of record for any Federal 
onshore oil and gas lease a notice of enactment of this Act informing 
such lessees and royalty payors of the provisions of this Act. Such 
notice shall include a description of the process whereby underpay-
ments, if any, by lessees will be sought and the terms and conditions 
for lessees to obtaining refunds, if any, based on royalty calculations 
under this Act. Any lessee that has reason to believe that it is 
entitled to a refund under this Act shall provide written notice to 
the Secretary in a form prescribed by the Secretary specifying the 
Federal onshore oil and gas lease or leases involved. The Secretary, 
and any State in accordance with delegations of authority under 
section 205 or cooperative agreements under section 202 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 
1732, 1735), shall conduct a case-by-case audit of royalties for such 
leases and any other Federal onshore lease which is examined under 
existing law to determine the amount of royalties due and payable 
under this Act and other applicable law and the amount of any 
refund due a lessee. In addition to those leases for which the lessee 
has provided written notice to the Secretary pursuant to this subsec-
tion, priority shall be given to auditing those leases for which there 
is the greatest likelihood of underpayment of royalties. 
(b) CASE-BY-CASE AUDIT ON INDIAN LEASES.—The Secretary shall 
publish in the Federal Register and send to each lessee or royalty 
payor of record for any Indian oil and gas lease a notice of enact-
ment of this Act informing such lessees and royalty payors of the 
provisions of this Act. Such notice shall include a description of the 
process whereby underpayments, if any, by lessees will be sought 
and the terms and conditions for lessees to obtain refunds, if any, 
based on royalty calculations under this Act. Any lessee that has 
reason to believe that it is entitled to a refund under this Act shall 
provide written notice to the Secretary in a form prescribed by the 
Secretary specifying the Indian oil and gas lease or leases involved. 
The Secretary, and any Tribe in accordance with cooperative agree-
ments under section 202 of the Federal Oil and Gas Royalty 
Management Act of 1982 (30 U.S.C. 1732), shall conduct a case-
by-case audit of royalties for such leases and other Indian oil and gas 
Federal 
Register, 
publication. 
Federal 
Register, 
publication. 
101 STAT. 1722 
PUBLIC LAW 100-234—JAN. 6, 1988 
leases on which gas was produced at any time during the period 
from January 1, 1982, through July 31, 1986, which is within the 
coverage of section I.A.2, section II.A.2, or section VI of NTL-5 to 
determine the amount of royalties due and payable under this Act 
and other applicable law and the amount of any refund due a lessee. 
In addition to those leases for which the lessee has provided written 
notice to the Secretary pursuant to this subsection, priority shall be 
given to auditing those leases for which there is the greatest like-
lihood of underpayment of royalties. 
(c) The Secretary shall demand payment of any underpayment 
which is determined to be owed to the Federal or Indian lessor as a 
result of the case-by-case review required in this section. 
(d) MMS NOTICE.—The Secretary shall provide a notice under this 
section to each lessee under a Federal onshore or Indian oil and gas 
lease on which an audit was performed in accordance with this 
section. The notice shall contain each of the following: 
(1) A statement of the amount of the royalty payments made 
in accordance with the provisions of NTL-5. 
(2) A statement of additional royalty payment, if any, to be 
made by a lessee or the amount of refund, if any, to which the 
lessee is entitled under this Act and a description of the means 
by which such refund will be provided. 
(e) REPORT TO INDIAN TRIBES.—The Secretary shall provide a 
report to each Indian Tribe holding an Indian oil and gas lease on 
which gas was produced at any time during the period from 
January 1,1982, through July 31, 1986, which is within the coverage 
of section I.A.2, section II.A.2, or section VI of NTL-5. The report to 
each Tribe shall contain information for each such lease held by the 
Tribe stating the difference between royalties computed in accord-
ance with NTL-5 and royalties computed in accordance with subsec-
tion 303) of this Act. 
SEC. 5. REFUND OF ROYALTIES PREVIOUSLY PAID. 
(a) REFUND FOR FEDERAL ONSHORE OIL AND GAS LEASES.— 
(1) If the Secretary or a court of competent jurisdiction deter-
mines that a lessee or royalty payor on a Federal onshore lease 
has paid, prior to October 1, 1987, more than the value deter-
mined under subsection 3(b) of this Act for any gas within the 
coverage of subsection 3(a) of this Act, the Secretary shall 
refund the Federal share of such overpayment from moneys 
received under section 35 of the Mineral Lands Leasing Act of 
1920, as amended (30 U.S.C. 191), which would otherwise be 
deposited to miscellaneous receipts in the Treasury, in accord-
ance with procedures established by the Secretary. 
State and local 
(2) The portion of any excess amount, as determined under 
governments. 
paragraph (1), previously paid to a State under applicable law 
from royalties paid under a Federal onshore oil and gas lease or 
group of leases subject to a unit agreement shall be recouped 
from the next subsequent disbursements to that State. If the 
total amount of such recoupments for any month exceeds ten 
per centum of the total disbursement to that State for that 
month from mineral lease revenues, the Secretary shall recoup 
amounts in excess of that level from disbursements to the State 
in the next month subject to the same limitation. The Secretary 
shall pay any difference between the amounts required to be 
paid to a State as a result of this paragraph and the amounts 
available to be paid to the State from current royalty revenues 
PUBLIC LAW 100-234—JAN. 6, 1988 
101 STAT. 1723 
from moneys received under section 85 of the Minerals Lands 
Leasing Act of 1920, as amended (30 U.S.C. 191), which would 
otherwise be deposited to miscellaneous receipts. 
Qa) REFUND FOR INDIAN LEASES.—If the Secretary or a court of 
competent jurisdiction determines that a lessee or royalty payor has 
paid, prior to October 1, 1987, more than the value determined 
under subsection 303) of this Act for any gas within the coverage of 
subsection 3(a) of this Act and produced from an Indian lease, the 
Secretary shall refund the amount paid in excess of the value 
determined under subsection 3(b) from monies received under sec-
tion 35 of the Mineral Lands Leasing Act of 1920, as amended (30 
U.S.C. 191) which would otherwise be deposited to miscellaneous 
receipts in the Treasury. The Secretary shall not recoup any portion 
of any such refund from the Indian lessor. 
(c) The total amount of refunds made under this section shall not 
exceed two million dollars ($2,000,000). 
SEC. 6. RECORDKEEPING REQUIREMENTS. 
Notwithstanding the requirements of section 103 of the Federal 
Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1713), and 
any regulations promulgated pursuant thereto, lessees and other 
payors are required to maintain records related to the value of gas 
production to which this Act applies for the period January 1, 1982 
through July 31, 1986, until the Secretary gives notice that mainte-
nance of such records no longer is required. 
SEC. 7. SAVINGS PROVISIONS. 
Nothing in this Act shall be construed to affect the right of any 
Indian, Indian Tribe, or lessee to bring any action in a court of 
competent jurisdiction. 
. Approved January 6, 1988. 
LEGISLATIVE HISTORY—H.R. 3479: 
HOUSE REPORTS: No. 100-377 (Comm. on Interior and Insular Affairs). 
SENATE REPORTS: No. 100-234 (Comm. on Energy and Natural Resources). 
CONGRESSIONAL RECORD, Vol. 133 (1987): 
Nov. 3, considered and passed House. 
Dec. 9, considered and passed Senate, amended. 
Dec. 18, House concurred in Senate amendment with an amendment and 
disagreed to another. 
Dec. 21, Senate receded and concurred in House amendment.