[Federal Register Volume 61, Number 27 (Thursday, February 8, 1996)]
[Rules and Regulations]
[Pages 4748-4752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2433]
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DEPARTMENT OF THE INTERIOR
Bureau of Land Management
43 CFR Part 3100
[WO-310-00-1310-2411]
RIN 1004-AC26
Promotion of Development, Reduction of Royalty on Heavy Oil
AGENCY: Bureau of Land Management, Interior.
ACTION: Final rule.
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SUMMARY: The Bureau of Land Management is issuing this final rule to
amend the regulations relating to the waiver, suspension, or reduction
of rental, royalty, or minimum royalty. This action is being taken to
promote the production of heavy oil. The amendment establishes the
conditions under which the operators of properties that produce ``heavy
oil'' (crude oil with a gravity of less than 20 degrees) can obtain a
reduction in the royalty rate. The amendment should encourage the
operators of Federal heavy oil leases to place marginal or uneconomical
shut-in oil wells back in production, provide an economic incentive to
implement enhanced oil recovery projects, and delay the plugging of
these wells until the maximum amount of economically recoverable oil
can be obtained from the reservoir or field.
DATES: This rule will be effective March 11, 1996.
ADDRESSES: Inquiries should be sent to: Director (140), Bureau of Land
Management, Room 5558, Main Interior Building, 1849 C Street, N.W.,
Washington, D.C. 20240.
FOR FURTHER INFORMATION CONTACT: Dr. John W. Bebout, Bureau of Land
Management, (202) 452-0340.
SUPPLEMENTARY INFORMATION:
I. Introduction
II. Summary of Rule Adopted
III. Responses to Public Comments
IV. Procedural Matters
V. Regulatory Text
I. Introduction
A proposed rule to provide royalty relief for producers of heavy
oil was published in the Federal Register notice of April 10, 1995 (60
FR 18081) with the comment period ending June 9, 1995. The comment
period was reopened June 16, 1995 (60 FR 31663) and closed July 17,
1995.
On March 30, 1995, an outdated version of this proposed rule was
published in the Federal Register (60 FR 16424) by mistake. That
proposed rule publication was withdrawn, and the Federal Register
notice of April 10, 1995 (60 FR 18081) was published in its place as
the proposed rule.
The following are questions and answers designed to provide an
introduction to this rule.
When does the Department of the Interior (Department) consider
granting royalty relief?
In order to encourage the greatest ultimate recovery of oil and in
the interest of conservation, the Secretary, upon a determination that
it is necessary to promote development, may reduce the royalty on an
entire leasehold or any portion thereof (Section 39 of the Mineral
Leasing Act, 30 U.S.C. 209).
Existing section 3103.4-1 of Title 43, Code of Federal Regulations,
provides two forms of Federal oil and gas royalty reduction--on a case-
by-case basis upon application and for stripper wells. The provision
concerning stripper well properties allows royalty reduction for
properties that produce an average of less than 15 barrels of oil per
eligible well per well-day.
The Bureau of Land Management (BLM) believes that royalty relief
for producers of heavy crude oil is needed to promote the development
of heavy oil.
Why is heavy oil royalty relief needed?
Above all, this royalty relief is needed to promote the development
of heavy oil. Eliminating all royalties would be the most effective way
to promote development, but that would jeopardize the Department's
efforts in securing a fair return for public land resources. Royalty
relief has to be considered in light of all the Department's
responsibilities and objectives. The balance this rule strikes is to
have a royalty rate that promotes development while ensuring the public
receives reasonable compensation.
Cyclical swings in the price for crude oil are common. BLM believes
that future price decreases are possible, or even likely. The effect of
this rule will provide a buffer against these decreases for heavy oil
produced from Federal land. As many as two-thirds of all marginal
properties (including non-heavy oil properties) could be lost during a
period of sustained low oil prices (Marginal Wells, A Report of the
National Petroleum Council, 1994, p. 3). The danger in losing the
marginal wells is that, although production from individual wells may
be small, their collective production is significant, accounting for
one-third of lower-48 State onshore domestic production. Heavy oil
production, from both Federal and non-Federal lands, makes up almost
one-half of this third (Marginal Wells, A Report of the National
Petroleum Council, 1994, p. 50). Heavy oil wells typically incur higher
production costs, thus increasing their vulnerability. Were these heavy
oil wells abandoned, the United States would lose this significant
portion of domestic production.
What will happen as a result of this rule?
This rule should encourage the operators of Federal heavy oil
leases to place marginal or uneconomical shut-in oil wells back in
production, provide an economic incentive to implement enhanced oil
recovery projects, and delay the plugging of these wells until the
maximum amount of economically recoverable oil can be obtained from the
reservoir or field.
According to a Department of Energy (DOE) analysis of its TORIS
(Tertiary Oil Recovery Information System) data, the size of
economically recoverable reserves from Federal lands will be
significantly enhanced by this amendment. For instance, at a West Texas
Intermediate (WTI) crude oil price of $16 a barrel, DOE projects that
this rule will increase recoverable reserves of about 54 million
barrels to about 87 million barrels for the State of California. At $18
a barrel, DOE projects that this rule will increase recoverable
reserves of about 103 million barrels to about 130 million barrels for
the State of California. At $20 a barrel, DOE projects that this rule
will increase recoverable reserves of about 133 million barrels to
about 229 million barrels for the State of California. A
proportionately larger increase in recoverable reserves is anticipated
when oil prices range toward $20 a barrel because major recovery
projects may
[[Page 4749]]
become economically feasible. Were this rule not promulgated, DOE
projects these increases in recoverable reserves would most likely not
occur.
Since the State of California produces almost 91 percent of lower-
48 State onshore heavy oil production, the vast majority of recoverable
reserve increases stemming from this royalty relief will most likely
come from this State. Significant recoverable reserve increases are not
anticipated in the other States since fewer properties will qualify for
the relief.
When will this rule apply?
The rule will take effect March 11, 1996. However, the BLM may
suspend or terminate all royalty reductions granted under this rule and
terminate the availability of further relief under this rule--
(1) upon 6 month's notice in the Federal Register when BLM
determines that the average WTI oil price has remained above $24 per
barrel over a period of 6 consecutive months or
(2) after September 10, 1999, if the royalty rate reductions
authorized by this rule have not been effective in reducing the loss of
otherwise recoverable reserves.
How will this royalty relief affect royalties and revenues?
According to the DOE TORIS analysis, although oil royalties may
decline in some instances, the effects to overall Federal and State
revenues should be largely neutral except in the State of California.
(Revenues include all forms of income including royalties.) Slight
decreases in overall revenue could be possible at some oil prices for
States with moderate levels of heavy oil production. In California, the
DOE analysis projects small decreases or sizable increases in State
revenues depending on the price of oil (Letter Report from Department
of Energy dated July 29, 1994).
II. Summary of Rule Adopted
The final rule establishes a sliding scale royalty rate for
qualifying heavy-oil-producing properties. The sliding scale is
intended to somewhat offset the reduced prices paid for oil as oil
gravity decreases. The reduced royalty rate applies to qualifying heavy
oil properties rather than individual wells, because production is
normally not reported for individual oil wells, and is based on the
average gravity of the oil weighted by the production of heavy oil from
each well within the property. A weighted average gravity is used to
prevent gravity manipulation by selectively producing wells on a
property with heavier gravity crude. Using a weighted average of oil
gravity encourages maximum recovery from all wells within a property by
removing the economic advantage of selective production.
The rule provides that either the operator (as defined at 43 CFR
3100.0-5) or the payor (as defined at 30 CFR 208.2) must calculate the
weighted average gravity of the oil--measured on the American Petroleum
Institute (API) scale--produced from a property every 12 months to
determine the appropriate royalty rate. In no case, however, would the
royalty rate exceed the rate established by the terms of the lease.
The section amended by this rule also provides for royalty rate
reductions for stripper oil wells. Some provisions of this final rule
are similar to the provisions of the existing regulations that pertain
to stripper wells.
The final rule was modified in response to comments and for
clarification. Section 3103.4 was redesigned to aid the reader in
distinguishing the various forms of royalty reduction and accompanying
provisions. Separate sections were established for the stripper oil and
heavy oil royalty reduction provisions. The discussion of royalty rate
determinations in Sec. 3103.4-3(b)(5) was modified by adding two
examples and clarifying the text. Section 3103.4-3(b)(6) was modified
to extend the review period until 1999. Cross references were modified
where appropriate throughout Part 3100 to reflect the redesign of
Sec. 3103.4.
III. Responses to Public Comments
A total of 209 comments were received on the proposed rule. An
overwhelming majority supported the proposed rule. A few commenters
recommended changes.
Comments suggested that the review period be extended for a period
of 4 or 5 years rather than the 2 years stated in the proposed rule. It
was always the BLM's intention that the rule be in place at least 4
years before it was evaluated. Unanticipated delays in the rulemaking
process, however, have rendered the original 1997 deadline unreasonably
short. Therefore, the BLM concurs with this suggestion and the rule has
been modified to extend the review period until 1999.
A comment stated that the $24 trigger for rule suspension was too
high while another comment stated that $24 was too low. Based on data
developed from DOE's TORIS database, the BLM believes that $24 is an
appropriate trigger to suspend the rule. The data indicate that State
and Federal Royalty reductions are offset by increased recoverable
reserves up until the point that WTI crude oil prices reach
approximately $24/bbl. Past that point, recoverable reserve increases
appear to taper off. In addition, the TORIS data show that when WTI
prices climb above $24/bbl the royalty reduction is no longer a
determining factor for decisions regarding investments in enhanced oil
recovery techniques.
Comments suggested that the CFR 3103.4-1 regulations be revised for
clarity and simplicity. The BLM agrees and has revised the section for
clarity.
A comment suggested that the qualifying period for a heavy oil
royalty rate reduction coincide with the one established for a stripper
oil property royalty reduction. While the BLM agrees that there is
value in making the stripper and heavy oil royalty rate reduction
processes as similar as possible, this is not always practicable. The
heavy oil rule qualifying period was made flexible in order to
acknowledge the fact that many qualifying, low-production properties
may not remove or sell oil every month even if their production is
continuous. Thus, many properties may require even more than a calendar
year (the stripper property qualifying period) to accumulate 3 months
of sales or oil removal.
One comment requested that the notification period for requesting a
reduced royalty rate be extended beyond the proposed 60 days. The BLM
believes that 60 days is sufficient time for an operator to notify the
BLM of a new royalty rate. The stripper property royalty reduction
program has a similar notification period which appears to be working
well.
Some comments stated that a greater royalty rate reduction was
necessary. They suggested that this be accomplished by using a power
curve rather than a straight line to calculate royalty rates. The BLM
considered calculating royalty rates by both power curves and straight-
line methods. The DOE's TORIS data, however, indicated that neither
method was clearly advantageous over the other in terms of increasing
recoverable reserves except within a narrow range of WTI crude oil
prices. Because it is not possible to predict future oil prices, the
BLM has chosen to remain with a straight-line royalty reduction for
purposes of simplicity as well as to parallel the stripper property
royalty reduction rule.
Some comments stated that the rule should use 25 degrees as a
``heavy oil'' cutoff (rather than the 20 degrees proposed) in order to
maximize the rule's effects and to provide the rule's benefits to as
many operators as possible. Although there is no single accepted
definition for ``heavy oil,''
[[Page 4750]]
standard academic and industry practice is to reserve the term for
crude oils of less than 20 degrees API. The U.S. tax code also uses a
20 degree definition.
One comment stated that BLM should evaluate the stripper oil
royalty reduction before granting heavy oil royalty relief. The BLM is
in the process of evaluating the stripper well provisions. The stripper
well provisions have not been in place long enough to make a
substantive assessment.
One comment strongly opposed heavy oil royalty relief, stating that
the BLM has no data which demonstrate that the leases eligible for the
relief cannot be operated successfully under the lease terms or that
the continued operation of each heavy crude lease is in serious,
unavoidable jeopardy. Although this is an important consideration, this
is not the criterion for relief that is serving as the basis of this
determination. The Secretary, acting through the Assistant Secretary--
Land and Minerals Management, concludes, based on the DOE analysis
cited in the introduction, that this rule is necessary to promote the
development of heavy oil. Recoverable reserves are projected to be
significantly less in the absence of the royalty relief provided by
this rule.
One comment stated that this rule will provide insufficient relief
on leases in true jeopardy and windfalls for those without need. The
BLM believes that there are enough similarities in terms of the
economic pressures on producers of heavy oil that any such relative
disparities in levels of relief should be inconsequential. Furthermore,
the rule is sensitive to the particular gravity of the heavy oil being
produced, so that producers of less valuable heavy oil receive a higher
proportion of royalty relief.
One comment stated that even if State revenues increase, royalty
reductions will hurt State services. (Revenues include all forms of
income including royalties.) According to the DOE analysis, the effects
to Federal and State revenues should be largely neutral. Slight royalty
decreases could be possible at some oil prices for States with moderate
levels of heavy oil production.
In California, where almost 91 percent of the heavy oil production
takes place, the DOE analysis generally projects small to moderate
decreases in royalties. For instance, at $16 a barrel (WTI), DOE
projects that this rule will decrease California royalties by about
$3.5 million, while increasing California public sector revenue by
about $15 million. At $18 a barrel (WTI), DOE projects that this rule
will decrease California royalties by about $24 million, while
decreasing California public sector revenue by about $1 million. At $20
a barrel (WTI), DOE projects that this rule will increase California
royalties by about $1 million, while increasing California public
sector revenue by about $104 million. The wide variations in
sensitivity to the price of oil are due to numerous variables,
including the propensity for oil companies to invest in major recovery
projects at certain oil prices. (Letter Report from Department of
Energy dated July 29, 1994.)
IV. Procedural Matters
This rule is not a major Federal action significantly affecting the
quality of the human environment and that no detailed statement
pursuant to Section 102 (2)(C) of the National Environmental Policy Act
of 1969 (42 U.S.C. 4332(2)(C)) is required.
This rule has been reviewed under Executive Order 12866.
The BLM has determined that this final rule will not have a
significant economic impact on a substantial number of small entities
under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The BLM
has prepared a regulatory flexibility analysis. It is available upon
request from the address listed at the beginning of this rule.
Additionally the BLM has determined, under Executive Order 12630, that
the rulemaking will not cause a taking of private property.
The BLM has certified that these regulations meet the applicable
standards provided in sections 2(a) and 2(b)(2) of Executive Order
12778.
The information collection requirements of this rule have been
approved by the Office of Management and Budget under 44 U.S.C. 3501 et
seq. and assigned clearance numbers 1010-0090 and 1004-0145.
The principal author of this final rule is Dr. John W. Bebout,
Senior Technical Specialist, Fluids Group, assisted by Charles Hunt of
the Regulatory Management Team, Bureau of Land Management.
List of Subjects for 43 CFR Part 3100
Land Management Bureau, Public Lands--mineral resources, Oil and
gas production, Mineral royalties.
For the reasons stated in the preamble, and under the authorities
cited below, Part 3100, Group 3100, Subchapter C, Chapter II of Title
43 of the Code of Federal Regulations is amended as set forth below:
V. Regulatory Text
PART 3100--OIL AND GAS LEASING
1. The authority citation for part 3100 continues to read as
follows:
Authority: 30 U.S.C. 181, et seq., 30 U.S.C. 351-359.
Subpart 3103--Fees, Rentals and Royalty
Sec. 3103.2-2 [Amended]
2.-3. Section Sec. 3103.2-2 is amended by removing the cross
reference ``Sec. 3103.4-2(d)'' in the introductory text and adding in
its place the cross reference ``Sec. 3103.4-4(d).''
4. Sec. 3103.4 is amended by revising the heading to read as
follows:
Sec. 3103.4 Production incentives.
Sec. 3103.4-2 [Redesignated as Sec. 3103.4-4]
5. Section 3103.4-2 is redesignated as Sec. 3103.4-4.
6. Section 3103.4-1 is amended by redesignating paragraphs (c) and
(d) as paragraphs (a) and (b) of a new Sec. 3103.4-2, ``Stripper well
royalty reductions.'' Section 3103.4-1 is further amended by
redesignating paragraph (e) as (c), and revising the section heading
and paragraph (b)(1) to read as follows:
Sec. 3103.4-1 Royalty reductions.
* * * * *
(b)(1) An application for the benefits under paragraph (a) of this
section on other than stripper oil well leases or heavy oil properties
must be filed by the operator/payor in the proper BLM office. (Royalty
reductions specifically for stripper oil well leases or heavy oil
properties are discussed in Sec. 3103.4-2 and Sec. 3103.4-3
respectively.) The application must contain the serial number of the
leases, the names of the record title holders, operating rights owners
(sublessees), and operators for each lease, the description of lands by
legal subdivision and a description of the relief requested.
7. Newly designated Sec. 3103.4-2, paragraph (b)(3)(iii)(A) is
amended by removing the cross reference ``(d)(3)(ii)'' and adding in
its place the cross reference ``(b)(3)(ii).''
8. A new Sec. 3103.4-3 is added to read as follows:
Sec. 3103.4-3 Heavy oil royalty reductions.
(a)(1) A heavy oil well property is any Federal lease or portion
thereof segregated for royalty purposes, a communitization area, or a
unit participating area, operated by the same operator, that produces
crude oil with a weighted average gravity of less than 20 degrees as
measured on the American Petroleum Institute (API) scale.
[[Page 4751]]
(2) An oil completion is a completion from which the energy
equivalent of the oil produced exceeds the energy equivalent of the gas
produced (including the entrained liquefiable hydrocarbons) or any
completion producing oil and less than 60 MCF of gas per day.
(b) Heavy oil well property royalty rate reductions will be
administered according to the following requirements and procedures:
(1) The Bureau of Land Management requires no specific application
form for the benefits under paragraph (a) of this section for heavy oil
well properties. However, the operator/payor must notify, in writing,
the proper BLM office that it is seeking a heavy oil royalty rate
reduction. The letter must contain the serial number of the affected
leases (or, as appropriate, the communitization agreement number or the
unit agreement name); the names of the operators for each lease; the
calculated new royalty rate as determined under paragraph (b)(2) of
this section; and copies of the Purchaser's Statements (sales receipts)
to document the weighted average API gravity for a property.
(2) The operator must determine the weighted average API gravity
for a property by averaging (adjusted to rate of production) the API
gravities reported on the operator's Purchaser's Statement for the last
3 calendar months preceding the operator's written notice of intent to
seek a royalty rate reduction, during each of which at least one sale
was held. This is shown in the following 3 illustrations:
(i) If a property has oil sales every month prior to requesting the
royalty rate reduction in October of 1996, the operator must submit
Purchaser's Statements for July, August, and September of 1996;
(ii) If a property has sales only every 6 months, during the months
of March and September, prior to requesting the rate reduction in
October of 1996, the operator must submit Purchaser's Statements for
the months of September 1995, and March and September 1996; and
(iii) If a property has multiple sales each month, the operator
must submit Purchaser's Statements for every sale for the 3 entire
calendar months immediately preceding the request for a rate reduction.
(3) The following equation must be used by the operator/payor for
calculating the weighted average API gravity for a heavy oil well
property:
[GRAPHIC] [TIFF OMMITTED] TR08FE96.000
Where:
V1=Average Production (bbls) of Well #1 over the last 3
calendar months of sales
V2=Average Production (bbls) of Well #2 over the last 3
calendar months of sales
Vn=Average Production (bbls) of each additional well (V3,
V4, etc.) over the last 3 calendar months of sales
G1=Average Gravity (degrees) of oil produced from Well #1 over
the last 3 calendar months of sales
G2=Average Gravity (degrees) of oil produced from Well #2 over
the last 3 calendar months of sales
Gn=Average Gravity (degrees) of each additional well (G3,
G4, etc.) over the last 3 calendar months of sales
Example: Lease ``A'' has 3 wells producing at the following
average rates over 3 sales months with the following associated
average gravities: Well #1, 4,000 bbls, 13 deg. API; Well #2, 6000
bbls, 21 deg. API; Well #3, 2,000 bbls, 14 deg. API. Using the
equation above--
[GRAPHIC] [TIFF OMMITTED] TR08FE96.001
(4) For those properties subject to a communitization agreement
or a unit participating area, the weighted average API oil gravity
for the lands dedicated to that specific communitization agreement
or unit participating area must be determined in the manner
prescribed in paragraph (b)(3) of this section and assigned to all
property subject to Federal royalties in the communitization
agreement or unit participating area.
(5) The operator/payor must use the following procedures in
order to obtain a royalty rate reduction under this section:
(i) Qualifying royalty rate determination.
(A) The operator/payor must calculate the weighted average API
gravity for the property proposed for the royalty rate reduction in
order to verify that the property qualifies as a heavy oil well
property.
(B) Properties that have removed or sold oil less than 3 times
in their productive life may still qualify for this royalty rate
reduction. However, no additional royalty reductions will be granted
until the property has a sales history of at least 3 production
months (see paragraph (b)(2) of this section).
(ii) Calculating the qualifying royalty rate. If the Federal
leases or portions thereof (e.g., communitization or unit
agreements) qualify as heavy oil property, the operator/payor must
use the weighted average API gravity rounded down to the next whole
degree (e.g., 11.7 degrees API becomes 11 degrees), and determine
the appropriate royalty rate from the following table:
Royalty Rate Reduction for Heavy Oil
------------------------------------------------------------------------
Royalty Rate
Weighted average API gravity (degrees) (percent)
------------------------------------------------------------------------
6....................................................... 0.5
7....................................................... 1.4
8....................................................... 2.2
9....................................................... 3.1
10...................................................... 3.9
11...................................................... 4.8
12...................................................... 5.6
13...................................................... 6.5
14...................................................... 7.4
15...................................................... 8.2
16...................................................... 9.1
17...................................................... 9.9
18...................................................... 10.8
19...................................................... 11.6
20...................................................... 12.5
------------------------------------------------------------------------
(iii) New royalty rate effective date. The new royalty rate will be
effective on the first day of production 2 months after BLM receives
notification by the operator/payor. The rate will apply to all oil
production from the property for the next 12 months (plus the 2
calendar month grace period during which the next 12 months' royalty
rate is determined in the next year). If the API oil gravity is 20
degrees or greater, the royalty rate will be the rate in the lease
terms.
Example: BLM receives notification from an operator on June 8,
1996. There is a two month period before new royalty rate is
[[Page 4752]]
effective--July and August. New royalty rate is effective September 1,
1996.
(iv) Royalty rate determinations in subsequent years.
(A) At the end of each 12-month period, beginning on the first day
of the calendar month the royalty rate reduction went into effect, the
operator/payor must determine the weighted average API oil gravity for
the property for that period. The operator/payor must then determine
the royalty rate for the following year using the table in paragraph
(b)(5)(ii) of this section.
(B) The operator/payor must notify BLM of its determinations under
this paragraph and paragraph (b)(5)(iv)(A) of this section. The new
royalty rate (effective for the next 12 month period) will become
effective the first day of the third month after the prior 12 month
period comes to a close, and will remain effective for 12 calendar
months (plus the 2 calendar month grace period during which the next 12
months' royalty rate is determined in the next year). Notification must
include copies of the Purchaser's Statements (sales receipts) and be
mailed to the proper BLM office. If the operator does not notify the
BLM of the new royalty rate within 60 days after the end of the subject
12-month period, the royalty rate for the heavy oil well property will
return to the rate in the lease terms.
Example: On September 30, 1997, at the end of a 12-month royalty
reduction period, the operator/payor determines what the weighted
average API oil gravity for the property for that period has been.
The operator/payor then determines the new royalty rate for the next
12 month using the table in paragraph (b)(5)(ii) of this section.
Given that there is a 2-month delay period for the operator/payor to
calculate the new royalty rate, the new royalty rate would be
effective December 1, 1997 through November 30, 1998 (plus the 2
calendar month grace period during which the next 12 months' royalty
rate is determined--December 1, 1998 through January 31, 1999).
(v) Prohibition. Any heavy oil property reporting an API average
oil gravity determined by BLM to have resulted from any manipulation of
normal production or adulteration of oil sold from the property will
not receive the benefit of a royalty rate reduction under this
paragraph (b).
(vi) Certification. The operator/payor must use the applicable
royalty rate when submitting the required royalty reports/payments to
the Minerals Management Service (MMS). In submitting royalty reports/
payments using a royalty rate reduction authorized by this paragraph
(b), the operator/payor must certify that the API oil gravity for the
initial and subsequent 12-month periods was not subject to manipulation
or adulteration and the royalty rate was determined in accordance with
the requirements and procedures of this paragraph (b).
(vii) Agency action. If an operator/payor incorrectly calculates
the royalty rate, the BLM will determine the correct rate and notify
the operator/payor in writing. Any additional royalties due are payable
to MMS immediately upon receipt of this notice. Late payment or
underpayment charges will be assessed in accordance with 30 CFR
218.102. The BLM will terminate a royalty rate reduction for a property
if BLM determines that the API oil gravity was manipulated or
adulterated by the operator/payor. Terminations of royalty rate
reductions for individual properties will be effective on the effective
date of the royalty rate reduction resulting from a manipulated or
adulterated API oil gravity so that the termination will be retroactive
to the effective date of the improper reduction. The operator/payor
must pay the difference in royalty resulting from the retroactive
application of the non-manipulated rate. The late payment or
underpayment charges will assessed in accordance with 30 CFR 218.102.
(6) The BLM may suspend or terminate all royalty reductions granted
under this paragraph (b) and terminate the availability of further
heavy oil royalty relief under this section--
(i) Upon 6 month's notice in the Federal Register when BLM
determines that the average oil price has remained above $24 per barrel
over a period of 6 consecutive months (based on the WTI Crude average
posted prices and adjusted for inflation using the implicit price
deflator for gross national product with 1991 as the base year), or
(ii) After September 10, 1999, if the Secretary determines the
royalty rate reductions authorized by this paragraph (b) have not been
effective in reducing the loss of otherwise recoverable reserves. This
will be determined by evaluating the expected versus the actual
abandonment rate, the number of enhanced recovery projects, and the
amount of operator reinvestment in heavy oil production that can be
attributed to this rule.
(7) The heavy oil well property royalty rate reduction applies to
all Federal oil produced from a heavy oil property.
(8) If the lease royalty rate is lower than the benefits provided
in this heavy oil well property royalty rate reduction program, the
lease rate prevails.
(9) If the property qualifies for a stripper well property royalty
rate reduction, as well as a heavy oil well property reduction, the
lower of the two rates applies.
(10) The operator/payor must separately calculate the royalty for
gas production (including condensate produced in association with gas)
from oil completions using the lease royalty rate.
(11) The minimum royalty provisions of Sec. 3103.3-2 will continue
to apply.
Sec. 3140.1-4 [Amended]
9. Section Sec. 3140.1-4(c)(3) is amended by removing the cross
reference ``Sec. 3103.4-1'' and adding in its place the cross reference
``Sec. 3103.4.''
Sec. 3165.1 [Amended]
10. Section Sec. 3165.1(b) is amended by removing the cross
reference ``Sec. 3103.4-2'' and adding in its place the cross reference
``Sec. 3103.4-4.''
Dated: November 8, 1995.
Bob Armstrong,
Assistant Secretary of the Interior.
[FR Doc. 96-2433 Filed 2-7-96; 8:45 am]
BILLING CODE 4310-84-P
