[Federal Register Volume 59, Number 71 (Wednesday, April 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8817]
[[Page Unknown]]
[Federal Register: April 13, 1994]
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Part 206
Allowances for Extraordinary Gas Processing Costs
AGENCY: Minerals Management Service (MMS), Interior.
ACTION: Notice of intent to retain extraordinary cost provisions.
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SUMMARY: The Royalty Management Program of the Minerals Management
Service (MMS) has regulatory provisions for gas processing cost
allowances that exceed normal industry standards. The MMS had intended
to develop criteria for the conditions and practices in the gas
processing industry and for technologies that are unusual,
extraordinary, or unconventional. However, after careful analysis of
the comments received on the gas valuation regulations, as well as
comments concerning whether extraordinary cost allowance provisions
should be developed for its oil, coal, and geothermal product value
regulations, MMS has decided to determine on a case-by-case basis
whether an operation is outside of normal industry operational
standards.
FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and
Procedures Staff, MMS, Royalty Management Program, at (303) 231-3432.
SUPPLEMENTARY INFORMATION:
Background
(a) History of Regulation for Extraordinary Cost Allowances
The MMS gas valuation regulations at 30 CFR 206.158(d)(2)(i) (1993)
state that MMS may grant an allowance for extraordinary costs of
processing if the lessee can demonstrate that the costs are, by
reference to standard industry conditions and practice, extraordinary,
unusual, or unconventional. The MMS intended to apply this provision to
advanced processing technologies or unusual conditions that are outside
of normal industry operational standards.
The MMS published a Notice in the Federal Register on November 28,
1988 (53 FR 47829), entitled ``Allowances for Extraordinary Costs,
Transportation, and Gas Processing'' and solicited comments on what
factors would comprise criteria for standard practices and conditions
and for assessing when a project would qualify for an extraordinary
cost allowance. The comment period was originally due to close on
January 27, 1989, but MMS, by Federal Register Notice dated January 25,
1989 (54 FR 3623), extended the due date for public comments to March
15, 1989.
(b) Summary of Comments
In response to the above referenced Notice, MMS received comments
from the following entities:
Industry,
Industry trade groups or associations,
State representatives,
An Indian tribe,
State/Indian associations,
A royalty-interest group, and
Members of Congress.
Many commenters did not provide the data or information requested
by MMS necessary to define standard conditions and practices. Numerous
industry, State, and State/Indian association commenters stated that
the standard conditions and practices for the gas processing industry
could not be defined since the technology is dynamic. They also stated
that what constitutes extraordinary costs today may become standard in
a few years and too many factors influence the economic and operating
characteristics of a processing plant (for example, the location, size,
age of a plant, gas stream composition, and environmental constraints).
One industry commenter commissioned a study on extraordinary gas
processing costs and the underlying causes for such costs. The MMS
could not compare the results of this study against other data since
few commenters actually offered their definition of standard conditions
for the gas processing industry. Although most industry commenters
recommended criteria for determining whether a gas processing operation
is extraordinary, many commenters believed that all projects should be
granted allowances for extraordinary costs on a case-by-case basis
rather than by a standard.
State and Indian respondents generally opposed allowances for
extraordinary costs, and only a few commented on what standards would
be used to classify a processing technology as extraordinary. Some
State commenters reasoned that the extraordinary cost allowances should
focus on high unanticipated costs above normal standards and not on low
revenues generated by the plant.
For oil, coal, and geothermal production, State and Indian
respondents unanimously opposed provisions for extraordinary cost
allowances. Many industry commenters supported the extraordinary cost
allowances for other minerals. However, the information provided was
not relative for developing extraordinary-cost criteria.
Following the comment process, MMS evaluated all suggestions and
submitted a summary to the Royalty Management Advisory Committee (RMAC)
in June 1989 for its review and recommendations. On June 22, 1989, RMAC
held a meeting with MMS in Denver, Colorado, to discuss issues and
comments regarding extraordinary cost allowance provisions. The MMS
presented its analysis to RMAC; however, RMAC took no action regarding
this issue.
(c) Review of Applications Submitted to MMS
In addition to analyzing the comments received as a result of the
Notices in the Federal Register, MMS reviewed the industry applications
submitted in the past 6 years requesting extraordinary processing cost
allowances. This review revealed that MMS has received nine requests
for extraordinary cost allowances involving five gas processing plants.
Most of the requests involved gas processing situations where
processing costs were high due to the removal of hydrogen sulfide
(H2S). The MMS determined that gas with a high sulfur content
(sour gas) is present throughout various locations around the
continental United States as well as offshore. The H2S from many
of these areas is further refined to elemental sulfur and sold. The MMS
concluded that production of sour gas is not extraordinary, unusual, or
unconventional within the United States, either onshore or offshore.
(d) Approval Granted for Extraordinary Processing Allowances
Since the effective date of the gas valuation regulations (March 1,
1988), MMS has granted one extraordinary processing cost allowance for
the LaBarge Project in Wyoming. As the Interior Board of Land Appeals
(IBLA 86-626) observed, the LaBarge gas stream is atypical in a methane
recovery project because only about 22 percent of the feed gas stream
is methane and no liquefiable hydrocarbons are present. The MMS
recognized the nature of gas from projects such as LaBarge and
indicated in the preamble to the March 1, 1988, gas valuation
regulations (53 FR 1240) that extraordinary cost allowances be granted
for processing such atypical gas streams.
To contend with the unusual composition of the LaBarge Project feed
gas stream, the plant design is complex when compared to typical
methane recovery plants. Due to the atypical composition of the LaBarge
Project feed gas stream and the complex nature of the plant, the cost
to process the principal product, methane, is extraordinary compared
with traditional methane recovery plants.
MMS Intent
After a review of the comments, as well as the requests for
extraordinary cost allowances, MMS has decided to retain the current
extraordinary cost provisions at 30 CFR 206.158(d)(2)(i) and not
further define the criteria for assessing when a project qualifies for
an extraordinary cost allowance. This decision will enable lessees to
continue applying for an allowance on a case-by-case basis for advanced
processing technologies.
Dated: April 6, 1994.
James W. Shaw,
Associate Director for Royalty Management.
[FR Doc. 94-8817 Filed 4-12-94; 8:45 am]
BILLING CODE 4310-MR-M
