[Federal Register Volume 59, Number 78 (Friday, April 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9721]
[[Page Unknown]]
[Federal Register: April 22, 1994]
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DEPARTMENT OF INTERIOR
Minerals Management Service
Royalty-in-Kind (RIK) Program
AGENCY: Minerals Management Service (MMS), Interior.
ACTION: Notice of availability of royalty oil to small refiners and
notice to sell government royalty oil.
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SUMMARY: The Secretary of the Interior (Secretary) has determined that
sufficient supplies of crude oil at equitable prices are not available
in the Gulf of Mexico and Pacific offshore regions of the United States
to refiners that do not have their own sources of supply for crude oil.
The Gulf of Mexico region consists of the states of Texas and
Louisiana. The Pacific offshore region consists of the state of
California.
The determination of unavailability is based on the following
facts:
(1) Small refiners who purchase crude oil in the Pacific and Gulf
of Mexico regions have indicated to Minerals Management Service (MMS)
that they are experiencing difficulties obtaining long-term contracts
for supplies of crude oil at equitable prices.
(2) The inability to enter into long-term contracts caused these
refiners to either cut back refining operations or resort to buying
crude oil stocks on the open market at prices that make it difficult
for them to remain competitive in the refined products marketplace.
Accordingly, the Secretary has elected to take royalty oil in kind
from certain Federal leases in the Gulf of Mexico and Pacific regions
and offer such oil for sale to eligible refiners. There will be a
separate offering for each region at the sale.
The MMS also gives notice that it will conduct a sale on June 30
and July 1, 1994, of royalty oil from the Pacific and Gulf of Mexico
regions under the Government's RIK Program. The sale offerings will
include approximately 16,000 barrels per day for the Pacific region and
75,000 barrels per day for the Gulf of Mexico region. This Notice
provides procedures that applicants must follow to permit MMS to
determine the applicants' eligibility to participate in the sale and
general terms under which the contracts will be awarded.
DEADLINE: MMS must receive completed applications by the close of
business on May 27, 1994. Applications received after May 27, 1994,
will be rejected. You can request blank applications by calling (303)
231-3605 or writing to MMS at the address below.
SEND APPLICATIONS TO: Applications may be obtained from the Minerals
Management Service, Royalty Management Program, Attention: James E.
Alexander, MS 3132, P.O. Box 5760, Denver, Colorado 80217-5760.
Completed applications must be returned to the same address or sent by
overnight mail to Minerals Management Service, Royalty Management
Program, Attention: James E. Alexander, MS 3132, Building 85, Denver
Federal Center, Denver, Colorado 80225.
TIME AND PLACE OF SALE: The sale will be held on June 30 and July 1,
1994, at the Denver Federal Center, Building 85, Auditorium, Lakewood,
Colorado, and will commence at 8:00 a.m. local time.
FOR FURTHER INFORMATION CONTACT:
Mr. James E. Alexander, Chief, Billing and RIK Section, at the above
address or call (303) 231-3605.
SUPPLEMENTARY INFORMATION:
Sale Offering
Approximately 16,000 barrels per day for the Pacific region and
75,000 barrels per day for the Gulf of Mexico region of royalty oil
from selected Federal leases will be offered for sale to qualified
applicants. An information package will be provided to each applicant
that has filed a timely application with MMS. This package will
contain: (1) Sale arrangements and procedures, (2) the lease locations
and approximate quantity and quality of royalty oil to be offered from
each lease, (3) a statement on the contract award processes and billing
procedures, and (4) a copy of the Federal royalty oil contract.
Eligibility Requirements
For purposes of this sale ``eligible refiners'' will be those
refiners that meet the criteria for small refiners as defined in the
Small Business Administration regulations 13 CFR 121.601. An eligible
refiner may not sell royalty oil that it purchases under an RIK
contract except for purposes of an exchange for other crude oil on a
volume or equivalent value basis. Crude oil purchased under an RIK
contract or received in exchange for such royalty oil must be processed
into refined petroleum products in the eligible refiner's refinery.
An application will not be accepted from an applicant whose
refinery is not in operation during the 60-day period before the date
of the royalty oil sale, unless such applicant self-certifies and
proves to the satisfaction of MMS that it will begin operations by the
first month in which oil becomes available under a royalty oil
contract. MMS will terminate the royalty oil contract if operations do
not begin by that month. In addition, MMS will disallow multiple
applications from two or more related refiners. Such refiners will be
limited to one allotment in the allocation of royalty oil.
An otherwise eligible refiner will not be permitted to participate
in the sale if, at the time of the sale, that refiner is in arrears on
payments owed to MMS.
Applicants for royalty oil will be required to submit a Letter of
Intent from a qualified financial institution stating that it would be
granted an MMS-specified: bond, irrevocable letter of credit, or
financial institution book-entry certificate of deposit for the royalty
oil for which it is applying. The Letter of Intent must be submitted
with the application. Financial institutions that propose to furnish
bonds must be listed in the Department of the Treasury's Circular 570.
Those institutions that propose to furnish letters of credit and
certificates of deposit must be chartered in the United States and must
be acceptable to MMS.
Application Procedures
Applications must be filed on Form MMS-4070, ``Application for the
Purchase of Royalty Oil'' which may be obtained from MMS at the above
address. The application must be complete and filed timely. Improperly
completed or late applications will be rejected. The MMS will reject
any application from a refiner that does not meet eligibility criteria
established in this Notice.
Applicants are advised that the Federal Oil and Gas Royalty
Management Act of 1982, 30 U.S.C. 1701, provides civil and criminal
penalties for false or inaccurate reporting. Applicants are also
cautioned to provide adequate detail on each item in the application to
preclude rejection of the application from further consideration.
Accordingly, any questions concerning the application should be
directed to MMS at the above address or phone number.
Sale Procedures
At the discretion of the Secretary, preference in selection of
royalty oil to be offered for sale for the Gulf of Mexico region will
be granted to eligible applicants that (1) operate their refinery(ies)
in the state(s) of Texas or Louisiana, or (2) prove that they have
established a history of purchasing crude oil produced from the Gulf of
Mexico during the past 12 months that they either refined themselves or
exchanged for oil that they refined. At the discretion of the
Secretary, preference in selection of royalty oil to be offered for
sale for the Pacific region will be given to those eligible refiners
that (1) operate their refinery(ies) in the state of California, or (2)
prove that they have established a history of purchasing crude oil
produced from the Pacific offshore during the past 12 months that they
either refined themselves or exchanged for oil that they refined.
Refiners who wish to be granted preference eligibility based on
purchasing Gulf of Mexico or Pacific offshore crude during the previous
12 months must submit a written request with data to substantiate their
request. This information must be submitted with the ``Application for
the Purchase of Royalty Oil'' (Form MMS-4070) and must at a minimum
include the refinery's exact location and its crude oil acquisition
history for the last 12 calendar months. Preference eligibility will
not be granted to otherwise eligible refiners that do not submit a
written request and provide adequate documentation by May 27, 1994.
Refiners who are granted preference eligibility in this sale will
to be granted preference eligibility in subsequent sales held for other
regions prior to 1997. However, this provision may be waived if a
refiner operates a refinery in the region specified in the subsequent
sale other than the refinery used to obtain preference eligibility in
this sale.
Two lotteries may be held for each offshore region to determine the
order of selection of available oil. The first lottery will be limited
to preference eligible applicants as defined above. After the
preference eligible applicants have made their selections, a second
lottery may be held for all other eligible refiners for any remaining
royalty oil. The volume of Federal royalty oil that will be allocated
to a refiner cannot exceed 60 percent of the combined refinery capacity
of that refiner.
Royalty oil will be sold on a lease basis. Eligible refiners will
be required to select the entire lease quantity.
In the event an applicant that has participated in the allocation
process does not execute its contract, or in the event substantial
quantities of royalty oil sold in this sale are subsequently turned
back to MMS, MMS may reallocate such oil. However, only those refiners
that hold ongoing contracts from this sale will be allowed to
participate in any reallocation, and then only if they continue to meet
eligibility requirements as set forth in this Notice and 30 CFR part
208.
Additional information on the allocation and reallocation
procedures will be provided upon request.
Contract Terms
The sale will be conducted as provided in 30 CFR part 208. The
resultant royalty oil contracts will be effective November 1, 1994, and
will have 36-month terms with expiration dates of November 1, 1997.
Successful applicants who are awarded royalty oil contracts must
process that royalty oil, or oil obtained in exchange for the royalty
oil, in their refineries and may not resell it. If a refiner exchanges
royalty oil for other crude oil to process in its refinery it must
provide full information to MMS, including two copies of the exchange
agreement within 30 days of the exchange agreement's effective date.
Contracts awarded in this sale will contain a provision for the
payment of administrative fees to MMS. These fees will be assessed to
recover identifiable costs incurred by MMS for administering the RIK
Program. The fees will consist of an initial nonrefundable contract fee
and a monthly variable charge based on the number of leases under
contract. The contract fee will be $20,000 per contract, payable in two
$10,000 installments due at the end of the first and second months of
the contract. The contract fee will be applied against costs incurred
by MMS to administer the program. The remainder of the costs incurred
by MMS will recovered through a monthly variable charge per lease. The
rate per lease will be determined by dividing the remaining balance of
administrative costs by 12 months divided by the total number of leases
under contract. The rate could change depending upon whether total
administrative costs change and/or whether the number of leases from
which royalty oil is taken in kind changes from one month to another.
Surety Requirements
An approved surety must be submitted to MMS at the above address by
August 15, 1994, for the contract to be effective November 1, 1994. All
sureties must be in a form acceptable to MMS and must include any MMS-
specified requirements to adequately protect the Government's
interests. The surety must be in an amount equal to the estimated value
of royalty oil that could be taken by the purchaser in a 99-day period,
plus related administrative charges. The MMS will increase the surety
requirement, if necessary. The MMS could decrease the amount of the
surety, if warranted by significant historical data and requested by
the refiner, provided that the interests of the Federal Government
would be protected.
If the refiner provides a bond or a certificate of deposit as the
surety, it must be effective for the entire term of the contract and
reconciliation period. If the refiner furnishes a letter of credit as
the surety, it must be effective for a 9-month period beginning the
first day the royalty oil contract is effective, with a clause
providing for automatic renewal monthly for a new 9-month period. The
purchaser or its surety company may elect not to renew the letter of
credit at any monthly anniversary date, but must notify MMS of its
intent not to renew at least 30 days before the anniversary date. The
MMS may grant the purchaser 45 days to obtain a new surety.
If no replacement surety is provided, MMS will terminate the
contract effective at least six months before the expiration date of
the letter of credit.
These actions are taken according to the provisions of the Outer
Continental Shelf lands Act, 43 U.S.C. 1331 to 1356 as amended, the
Outer Continental Shelf Lands Act Amendments of 1978, 43 U.S.C. 1331 et
seq., as amended, and part 208 of title 30 of the Code of Federal
Regulations (30 CFR part 208).
Dated: April 15, 1994.
James W. Shaw,
Associate Director for Royalty Management.
[FR Doc. 94-9721 Filed 4-21-94; 8:45 am]
BILLING CODE 4310-MR-M
