E8-624. Royalty-in-Kind (RIK) Eligible Refiner, Determination of Need

AGENCY:

Minerals Management Service, Interior.

ACTION:

Solicitation of comments.

SUMMARY:

The Minerals Management Service (MMS), an agency of the U.S. Department of the Interior, is requesting written comments from interested parties, particularly refiners who qualify under the RIK eligible refiner program, regarding their experiences in the crude oil marketplace. Specifically, we are interested in eligible refiners' experiences in gaining access to adequate supplies of crude oil at equitable prices. This Determination of Need process will assist the Secretary of the Interior in deciding whether or not to continue with sales of Federal Government royalty crude oil under the RIK eligible refiner program.

DATES:

Submit written comments on or before March 3, 2008.

ADDRESSES:

Submit written comments to Colin Bosworth, Minerals Management Service, Minerals Revenue Management, P.O. Box 25165, MS 330B2, Denver, Colorado 80225. If you use an overnight courier service or wish to hand-carry your comments, our courier address is Building 85, Room A-614, Denver Federal Center, West 6th Ave. and Kipling Blvd., Denver, Colorado 80225. You may also e-mail your comments to us at [e-mail]. Include the title of this Federal Register notice in the “Attention” line of your comment. Also include your name and return address. If you do not receive a confirmation that we have received your e-mail, contact Mr. Bosworth at [phone].

FOR FURTHER INFORMATION CONTACT:

Armand Southall, telephone [phone], FAX [phone], or e-mail [e-mail].

SUPPLEMENTARY INFORMATION:

Introduction: Under the provisions of the Mineral Leasing Act of 1920 (MLA), as amended (30 U.S.C. 192), and the Outer Continental Shelf Lands Act (OCSLA) of August 7, 1953, as amended (43 U.S.C. 1334, 1353), the Secretary of the Interior can take Federal royalty crude oil in kind, in lieu of royalty payment, and sell it to eligible refiners for use in their refineries. The sale of royalty crude oil from Federal leases by the United States to eligible refiners is governed by the regulations at 30 CFR part 208, effective December 1, 1987, published in the Federal Register on October 30, 1987 (52 FR 41908).

To purchase royalty crude oil under the eligible refiner program, an eligible refiner, as defined at 30 CFR 208.2, means a crude oil refiner meets the following criteria:

(1) For the purchase of royalty oil from onshore leases, it means a refiner that qualifies as a small and independent refiner as those terms are defined in sections 3(3) and 3(4) of the Emergency Petroleum Allocation Act, 15 U.S.C. 751 et seq., except that the time period for determination contained in section 3(3)(A) would be the calendar quarter immediately preceding the date of the applicable ”Notice of Availability of Royalty Oil.”

The Emergency Petroleum Allocation Act of 1973 (Public Law No. 93-159; 87 Stat. 627) defines a small refiner as a refiner who:

(a) Obtained directly or indirectly more than 70 percent of its refinery input of domestic crude oil, or 70 percent of its refinery input of domestic and imported crude oil, from producers who do not control, are not controlled by, and are not under common control with, such refiner; and

(b) marketed or distributed in such quarter and continues to market or distribute a substantial volume of gasoline refined by it through branded independent marketers or non-branded independent marketers.

Additionally, the term “small refiner” means a refiner whose total refinery capacity, including the refinery capacity of any person who controls, is controlled by, or is under common control with such refiner, does not exceed 175,000 barrels per day. Crude oil received in exchange for the refiner's own production is considered to be part of the refiner's own production for purposes of this section.

In addition, 30 CFR 208.2 defines eligible refiner for the purchase of royalty oil from offshore leases as follows:

(2) For the purchase of royalty oil from leases on the Outer Continental Shelf, it means a refiner that qualifies as a small business enterprise under the rules of the Small Business Administration (13 CFR part 121).

The Small Business Administration (SBA), as updated and published in the Federal Register on March 28, 2003 (68 FR 15047), states the following:

The SBA standard for a small business within the Petroleum Refining Industry is a concern with a total Operable Atmospheric Crude Oil Distillation Capacity of less than or equal to 125,000 barrels per calendar day, and that has no more than 1,500 employees. Capacity includes owned or leased facilities as well as facilities under a processing agreement or an arrangement such as an exchange agreement or throughput.

The regulation at 30 CFR 208.4(a) governs the Determination of Need process and states that:

The Secretary may evaluate crude oil market conditions from time to time. The evaluation will include, among other things, the availability of crude oil and the crude oil requirements of the Federal Government, primarily those requirements concerning matters of national interest and defense. The Secretary will review these items and will determine whether eligible refiners have access to adequate supplies of crude oil and whether such oil is available to eligible refiners at equitable prices. Such determinations may be made on a regional basis * * *.

Under its rules, the SBA draws no distinction between offshore and onshore oil purchases; thus, for a refiner to qualify as an eligible refiner, the refiner must have no more than 1,500 employees regardless of onshore or offshore oil purchases.

Background: The MMS established the eligible refiner program to ensure fair and equitable prices for eligible refiners as defined at 30 CFR 208.2. Historically, these eligible refiners have supplied U.S. military functions with jet fuel and other energy needs on military and naval bases. In the past, the MMS found that the eligible refiner program provided the following benefits to eligible refiners:

• Stability of supply;
• Access to domestic oil streams;
• Ease of hardship on obtaining capital.

The RIK eligible refiner program has been an important source of crude oil for eligible refiners in the past. In September 2007, there were three eligible refiners participating in the eligible refiner program. However, beginning in October 2007, the number of participating refiners was two. This decline in participation can be partially attributed to a number of eligible refiners merging, thus becoming ineligible, along with the removal of Pacific and onshore properties from the eligible refiner program.

In 1997, MMS undertook an examination of the RIK eligible refiner program and determined that it should use a “proactive, structured, and documented methodology” to conduct future RIK Determinations of Need. The MMS performed a full analysis in 1999; an update of that analysis in 2001; another full analysis in 2003; and an update to that previous analysis in 2005. These analyses supported MMS's continuation of the program, and each was followed by subsequent RIK sales to eligible refiners. The intent of the current analysis is for MMS to determine the need for the program in the market's current state and to make a recommendation concerning the program's continuation.

Information Requested: To assist MMS in completing this Determination of Need, please respond in writing to the following questions:

(1) Indicate your position as it relates to the domestic crude oil market:

(a) Small/Independent Refiner

(b) Large Refiner

(c) Oil Producer

(d) Oil Transporter

(e) Oil Marketer

(f) Other (please specify)

(2) Describe your experience with the domestic crude oil market and your perception of the need for the eligible refiner program.

(3) What is your perception of whether a benefit exists in conducting separate sales for onshore and offshore Federal lease crude oil?

(4) Under the definition criteria outlined above, are you an eligible refiner of offshore lease crude oil, onshore lease crude oil, or both?

If you answered yes to any of the categories in question (4), please address all the questions that follow. If you have multiple refineries, please respond to questions (a) through (i) for each refinery:

(a) For your immediate region or geographic area of operation, how would you characterize the general availability of crude oil?

(b) Is your refinery operating at full or near-full capacity in both summer and winter? If not, why not?

(c) What is the slate of refined products and their volumes from your refinery over each of the past 12 months?

(d) What percentage of onshore versus offshore crude oil volumes do you currently run through your refinery?

(e) What type of crude oil do you need to sustain your mix of refined products (e.g., Wyoming Sour, Heavy Louisiana Sweet, Light Louisiana Sweet, etc.)?

(f) Have you been denied access to crude oil supplies in the past 18 months? If yes, what was the basis for the denial? For example, was the denial attributable to unavailability of desired crude oil, a lack of access to the transportation pipeline, or other reasons? Please provide documentation supporting any claim of denial.

(g) Do you use exchange agreements? Why?

(h) Are the feeder stocks you purchase priced above market value for your geographic area? In other words, do you pay a bonus or premium because of your status as an eligible refiner? Please identify, by crude oil type, what you pay on the average barrel of crude oil.

(i) Have you previously participated in the Federal royalty oil program? If you left the program, why did you leave? How would you now benefit from receiving Federal royalty oil? If you have never participated in the program, what has deterred you from participating?

(j) Do you currently provide refined products (e.g., heating oil, jet fuel, etc.) to a U.S. military base or Federal installation? If yes, identify the recipient facility and how long you have been supplying refined products.

(k) Do you anticipate any near term developments that would change your access to necessary supplies of crude oil at equitable prices?

Potential respondents should note that MMS's decision to conduct a Determination of Need in no way presupposes that there will or will not be subsequent eligible refiner RIK sales. A Determination of Need is a logical first step in identifying general marketplace conditions. However, any MMS decision to conduct additional RIK eligible refiner sales will necessarily be predicated on the regulatory criteria of “access” and “equity,” i.e., whether a significant number of refiners have limited or no access to the marketplace and/or have experienced difficulty in negotiating a fair price for feeder stocks.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) requires us to inform you that this information is being collected by MMS under an approved information collection, OMB Control Number 1010-0119, titled “30 CFR Part 208—Sale of Federal Royalty Oil; Sale of Federal Royalty Gas; and Commercial Contracts.” All correspondence, records, or information received, in response to this Notice and specifically in response to the questions listed above, are subject to disclosure under the Freedom of Information Act (FOIA). All information provided will be made public unless the respondent identifies which portions are proprietary. Please highlight the proprietary portions, including any supporting documentation, or mark the page(s) that contain proprietary data. Proprietary information is protected by the Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1733), FOIA (5 U.S.C. 552 (b)(4), the Indian Minerals Development Act of 1982 (25 U.S.C. 2103), and Department regulations (43 CFR 2). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB Control Number. Public reporting burden is estimated to be 4 hours per response. Comments on the accuracy of this burden estimate, or suggestions on reducing this burden, should be directed to the Information Collection Clearance Officer, MMS, MS-4230, 1849 C Street, NW., Washington, DC 20240.

Dated: January 10, 2008.

Lucy Querques Denett,

Associate Director for Minerals Revenue Management.