E8-7448. Agency Information Collection Activities: Proposed Collection, Comment Request

AGENCY:

Minerals Management Service (MMS), Interior.

ACTION:

Notice of a revision of a currently approved information collection (OMB Control Number 1010-0119).

SUMMARY:

To comply with the Paperwork Reduction Act of 1995 (PRA), we are inviting comments on a collection of information that we will submit to the Office of Management and Budget (OMB) for review and approval. The previous title of this information collection request (ICR) was “30 CFR Part 208—Sale of Federal Royalty Oil; Sale of Federal Royalty Gas; and Commercial Contracts (Forms MMS-4070, Application for the Purchase of Royalty Oil; MMS-4071, Letter of Credit; and MMS-4072, Royalty-in-Kind Contract Surety Bond).” The new title of this ICR is “30 CFR Part 208, RIK Oil and Gas.”

DATES:

Submit written comments on or before June 9, 2008.

ADDRESSES:

You may submit comments by the following methods:

• Electronically go to http://www.regulations.gov. In the “Comment or Submission” column, enter “MMS-2008-MRM-0010” to view supporting and related materials for this ICR. Click on “Send a comment or submission” link to submit public comments. Information on using Regulations.gov, including instructions for accessing documents, submitting comments, and viewing the docket after the close of the comment period, is available through the site's “User Tips” link. All comments submitted will be posted to the docket.
• Mail comments to Armand Southall, Regulatory Specialist, Minerals Management Service, Minerals Revenue Management, P.O. Box 25165, MS 302B2, Denver, Colorado 80225. Please reference ICR 1010-0119 in your comments.
• Hand-carry comments or use an overnight courier service. Our courier address is Building 85, Room A-614, Denver Federal Center, West 6th Ave. and Kipling Blvd., Denver, Colorado 80225. Please reference ICR 1010-0119 in your comments.

FOR FURTHER INFORMATION CONTACT:

Armand Southall, telephone [phone], or e-mail [e-mail]. You may also contact Armand Southall to obtain copies, at no cost, of (1) The ICR, (2) any associated forms, and (3) the regulations that require the subject collection of information.

SUPPLEMENTARY INFORMATION:

Title: 30 CFR Part 208, RIK Oil and Gas.

OMB Control Number: 1010-0119.

Bureau Form Number: Forms MMS-4070, MMS-4071, and MMS-4072.

Abstract: The Secretary of the U.S. Department of the Interior is responsible for matters relevant to mineral resource development on Federal and Indian lands and the Outer Continental Shelf (OCS). The Secretary, under the Mineral Leasing Act of 1920 (30 U.S.C. 1923), the Indian Mineral Development Act of 1982 (25 U.S.C. 2103), and the Outer Continental Shelf Lands Act (43 U.S.C. 1353), is responsible for managing the production of minerals from Federal and Indian lands and the OCS, collecting royalties and other mineral revenues from lessees who produce minerals, and distributing the funds collected in accordance with applicable laws. The MMS performs the mineral revenue management functions for the Secretary.

Public laws pertaining to mineral revenues are on our Web site at http://www.mrm.mms.gov/​Laws_​R_​D/​PublicLawsAMR.htm. These public laws and 30 CFR part 208, as well as specific language in the actual lease documents, authorize the Secretary to sell royalty oil and gas accruing to the United States. The standard lease terms state that royalties are due in amount or in value. In addition, these citations authorize the Secretary to prescribe proper rules and regulations and to do any and all things necessary to accomplish the purpose of applicable laws. The MMS directs communications between MMS operators and RIK purchasers through commercial contracts, situation-specific “Dear Operator” letters, or, in the case of eligible refiners, through regulations at 30 CFR part 208.

General Information

The MMS is responsible for ensuring that all revenues from Federal and Indian mineral leases are accurately collected and accounted for and appropriately disbursed to recipients. Historically, most of these revenues have been received in the form of cash royalty payments, i.e., royalty in-value payments. These payments are paid by mineral development interests. Beginning in the late nineties, MMS conducted pilots to test the approach of taking RIK.

The Federal Government's MMS RIK pilot program became a permanent operational program after several years of pilot project testing. The MMS RIK operational program takes payment from mineral lessees “in kind” in the form of produced crude oil and natural gas volumes, rather than in cash payments. The lessee transfers the title of the crude oil or natural gas to the Federal Government, and MMS sells the received product (crude oil or natural gas) to agents in the marketplace and disburses revenues as prescribed by law. The MMS sells some product competitively in the unrestricted marketplace, and the other RIK product MMS sells competitively to eligible refiners (a small and independent refiner, as defined in 30 CFR 208.2). Additionally, when directed, MMS delivers the RIK product to other Federal agencies, as has been the case during the fill of the Strategic Petroleum Reserve (SPR), directed by the President in 2007, with scheduled completion upon reaching a capacity of 727 million barrels. Specifically, within the MMS RIK operational program, MMS conducts the eligible small refiner, SPR, offshore, and Wyoming natural gas programs.

Recently, MMS consolidated and revised existing procedures and policies guiding the sale of onshore and offshore royalty crude oil and natural gas (1) To establish uniformity within the regulatory and operational framework; (2) to provide industry with a more efficient and responsive MMS RIK operational program; and (3) to improve the Federal Government's administration of this program. For example, several of the reporting requirements for eligible refiners under 30 CFR part 208 have been combined with reporting requirements for other RIK purchasers. However, due to the unique nature of the sale of crude oil to eligible refiners, certain requirements pertain only to that eligible refiner program.

Eligible Refiner Information—Determination of Need

As stated earlier, royalties may be paid “in value” or “in kind.” The regulations at 30 CFR part 208, Sale of Federal Royalty Oil, govern the RIK program of Federal oil for eligible refiners. Under § 208.4(a) and (b), MMS, on behalf of the Secretary, performs a Determination of Need prior to issuing a Notice of Availability of Royalty Oil for sale. The MMS uses the feedback from the Determination of Need respondents (eligible refiners or other interested parties, i.e., lessees, operators) to assess current marketplace conditions. If MMS determines the program should continue, MMS may dispose of any royalty oil taken in kind by conducting a sale of such oil, through an allocation process, to eligible refiners. The most recent Determination of Need assessment, requesting specific information from interested parties, was published in the Federal Register on January 16, 2008.

In order to qualify for RIK sales, eligible refiners must prequalify by (1) signing the MMS base contract, “RIK Crude Oil General Terms and Conditions,” which is located at http://www.mrm.mms.gov/​rikweb/​PDFDocs/​gtcexh.pdf,, and (2) providing detailed financial information. Upon prequalification, MMS will issue an amount of unsecured credit, based on the creditability of the offeror.

Notice of Availability of Royalty Oil—Federal Register Notice

Under § 208.5, if MMS finds from the Determination of Need process that the program should continue, MMS would then publish a Notice of Availability of Royalty Oil for sale in the Federal Register and other printed media, when appropriate. This notice advises industry of a forthcoming RIK crude oil sale for eligible refiners and includes administrative details concerning the application, the allocation process, and the contract award process for the royalty oil. It also details specific information about the crude oil types offered for sale and the location of delivery points.

Under § 208.10(e), eligible refiners who purchase royalty oil cannot transfer, assign, or sell their rights or interest in a royalty oil contract without written approval of the MMS Director. This provision is intended to ensure that only qualified eligible refiners benefit from these sales of royalty oil.

Form MMS-4070—Application for the Purchase of Royalty Oil

Under § 208.6, eligible refiners interested in purchasing royalty oil must submit Form MMS-4070, which is located at http://www.mrm.mms.gov/​ReportingServices/​PDFDocs/​4070.pdf. This form serves as certification that the company qualifies under the Small Refiner Program as defined under § 208.2. On Form MMS-4070, MMS requests specific information, i.e., the location of their refinery; number of persons employed by the refinery; type of crude desired (e.g., Light Louisiana Sweet); the specific area in which the applicant is interested and documentation supporting an established history in the requested area; and the percentage of total refining capacity attributable to Federal oil versus other sources.

The Federal Government's administration of the eligible refiner program is aided significantly by the collection of information requested on Form MMS-4070. The MMS uses the information collected to determine the eligibility of refiners wanting to enter into contracts to purchase royalty oil and to provide a basis for the allocation of available royalty oil among eligible refiners, when necessary; that is, they meet the small refiner eligibility requirements issued by the Small Business Administration, as explained under § 208.6.

Directed Communications by Operators of Federal Oil and Gas Leases

Collection of RIK crude oil and natural gas for eligible refiners and other RIK purchasers requires communication between MMS and the operators of a lease to ensure accurate and timely delivery of MMS's royalty share of production volumes. In order to take MMS's crude oil or natural gas in kind, MMS, as the responsible steward of oil and gas royalties, must direct operators of affected MMS leases to provide three types of communication:

(1) Report information about the projected volumes and qualities of RIK crude oil or natural gas production the operator expects to make available for delivery in the following month, and report corrections to those projected volumes and qualities for previous months, submitted monthly no later than 10 days before the first day of following month;

(2) Report cost/invoicing information about transportation charges incurred for delivering the RIK product to the delivery point, when applicable; and

(3) Report month-end summary information (lease imbalance statement) regarding total RIK crude oil or natural gas volumes and qualities needed to carry over to the next month to resolve aggregated imbalances that have occurred in prior months of RIK deliveries.

In marketing the product, information received through MMS's directed communication is essential for MMS to ensure the delivery and acceptance of verifiable quantities and qualities of crude oil and natural gas. In cases when MMS is directed to deliver the product to other Federal agencies, these types of directed communication are necessary so that exchange contractors can arrange to timely accept accurate amounts and qualities of royalty oil that will be delivered by MMS's exchange partner and for MMS to verify timely fulfillment of operators' and lessees' royalty obligations to the Federal Government.

The types of directed communication and the supporting data, which MMS requires operators to use in setting up the monthly delivery of RIK to the purchaser, are standard business practices in the oil and gas industry. Sample “Dear Operator” letters are posted on RIK's Web site at http://www.mrm.mms.gov/​rikweb/​RIKOperLts.htm.

Third-Party Agreements

Section 208.9 requires that eligible refiners who purchase royalty oil must submit to MMS two copies of any written third-party agreements, or two copies of a complete written explanation of any oral third-party agreements, relating to the method and costs of delivery of royalty oil, or crude oil exchanged for the royalty oil, from the point of delivery under the contract to the purchaser's refinery. Also, this section requires that the purchaser must submit copies of agreements pertaining to quality differentials that may occur between the lease(s) and the delivery point(s). However, in practice MMS does not currently require eligible refiners to submit these written third-party and quality differential agreements. The MMS reserves the right upon request to require the agreement from the eligible refiners.

Offers, Financial Statements, and Surety Instruments for Sales of Royalty Oil and Gas

Offers. The Secretary is obligated to hold competition when selling to the public; to protect actual RIK production before, during, and after any sale; and to obtain a fair return on royalty production sold. The MMS must fulfill those obligations for the Secretary. The reporting requirements are (1) Actual pricing offers that potential purchasers will submit when MMS offers production for competitive sale; (2) offerors' statements of financial qualification (audited financial statements or 10K report/statement); and (3) surety instruments, such as a Letter of Credit (LOC), bond, prepayment, or parent guaranty when financial qualification is not sufficient. All LOCs are irrevocable.

The MMS typically offers royalty oil and gas production for sale by Invitation for Offers (IFOs) to those offerors who have previously established their qualifications. The MMS evaluates all offers to determine which combination of price and other terms comprises the best return to the U.S. Department of the Treasury and to any affected state.

Financial Statements. The MMS may request that a bidder submit its publicly available statements of its financial condition (brought briefly up to date, if needed) or other related qualification information. The MMS evaluates the qualification information to determine whether bidders are reliable to follow through on payment of the dollar amount (or delivery of exchange production) offered, as they bid, and to determine their ability to timely perform activities attendant to the taking of crude oil and/or natural gas. The MMS performs this step to reduce the risk to the Federal Government in these transactions.

Surety Instruments. Under MMS current practice, eligible refiners are subject to the same requirements as other RIK purchasers regarding MMS-acceptable surety instruments and qualification information. Reporting requirements in § 208.11 discuss surety instruments for eligible refiners. Surety instruments include the broad field of financial instruments that may be collected, i.e., bonds, prepayments, and parent guaranties. When required, eligible refiners and other RIK purchasers must provide surety documents, i.e., Form MMS-4071, LOC; Form MMS-4072, Royalty-In-Kind Contract Surety Bond; other acceptable commercial surety, within 5 business days prior to the first delivery under the contract to protect the Federal Government's interest. For bonds, MMS requires a specific MMS-approved format. All parent guaranties must specify a dollar amount of the guaranty and the effective term.

For awards exceeding the amount of unsecured credit issued by MMS, successful offerors will be required to provide secured financial assurance in the form of an LOC, bond, or other MMS-acceptable surety instrument within 5 business days prior to the first delivery under the contract.

In cases of high-risk counterparties, or large awards of RIK crude oil or natural gas, MMS will require a surety instrument to guarantee performance under RIK sales or exchange agreement. Surety instruments are commonly used in the commercial oil and gas industry as a standard course of business where risk is encountered from counterparties.

The surety instruments provide the Federal Government with a means to collect money if refiners do not report and pay for the Federal oil they have received.

The MMS will request OMB's approval to continue to collect this information. Not collecting this information would limit the Secretary's ability to discharge his/her duties and may also result in loss of royalty payments. Proprietary information submitted to MMS under this collection is protected, and there are no questions of a sensitive nature included in this information collection.

Frequency of Response: On occasion, weekly, monthly, annually, frequency varies within monthly reporting cycle, or as necessary.

Estimated Number and Description of Respond ents: 227 Federal lessees and/or operators; and 80 commercial oil and gas purchasers and/or refiners.

Estimated Annual Reporting and Recordkeeping “Hour” Burden: 1,969 hours.

We have not included in our estimates certain requirements performed in the normal course of business, which are considered usual and customary. The following chart shows the estimated annual burden hours by CFR section and paragraph:

Respondents' Estimated Annual Burden Hours

Citation 30 CFR	Reporting and recordkeeping requirement	Hour burden	Average number of annual responses	Annual burden hours
PART 208—SALE OF FEDERAL ROYALTY OIL
Subpart A—General Provisions
§ 208.4  Royalty oil sales to eligible refiners
208.4(a)	(a) Determination to take royalty oil in kind. The Secretary may evaluate crude oil market conditions from time to time. * * * 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. * * *	4	4	16
208.4(b)	(b) Sale to eligible refiners. (1) * * * The Secretary may authorize MMS to offer royalty oil for sale to eligible refiners only for use in their refineries. * * *	Hour burden covered under § 208.4(a).
208.4(c)	(c) Upon a determination by the Secretary * * * that eligible refiners do have access to adequate supplies of crude oil at equitable prices, MMS will not take royalties in kind from oil and gas leases for exclusive sale to such refiners. * * *	Hour burden covered under § 208.4(a).
208.4(d)	(d) Interim sales. * * * The potentially eligible refiners, individually or collectively, must submit documentation demonstrating that adequate supplies of crude oil at equitable prices are not available for purchase. * * *	Hour burden covered under § 208.4(a).
§ 208.6 General application procedures
208.6(a) and (b)	(a) To apply for the purchase of royalty oil, an applicant must file a Form MMS-4070 with MMS in accordance with instructions provided in the “Notice of Availability of Royalty Oil” and in accordance with any instructions issued by MMS for completion of Form MMS-4070. The applicant will be required to submit a letter of intent from a qualified financial institution stating that it would be granted surety coverage for the royalty oil for which it is applying, or other such proof of surety coverage, as deemed acceptable by MMS. The letter of intent must be submitted with a completed Form MMS-4070. (b) In addition to any other application requirements specified in the Notice, the following information is required on Form MMS-4070 at the time of application: * * *	1.25	4	5
§ 208.7 Determination of eligibility
208.7(a)	(a) The MMS will examine each application and may request additional information if the information in the application is inadequate. * * *	0.25	1	*1
§ 208.8 Transportation and delivery
208.8(a)	(a) * * * The purchaser must have physical access to the oil at the alternate delivery point and such point must be approved by MMS.	1	1	1
208.8(b)	(b) * * * If the delivery point is on or immediately adjacent to the lease, the royalty oil will be delivered without cost to the Federal Government as an undivided portion of production in marketable condition at pipeline connections or other facilities provided by the lessee, unless other arrangements are approved by MMS. If the delivery point is not on or immediately adjacent to the lease, MMS will reimburse the lessee for the reasonable cost of transportation to such point in an amount not to exceed the transportation allowance determined pursuant to 30 CFR part 206. * * *	Hour burden covered by OMB Control Number 1010-0140. This provision is no different than the transportation allowances allowed in 30 CFR part 206 for royalties paid in value. The lessee enters allowance amount on Form MMS-2014.
§ 208.9 Agreements
208.9(a)	(a) A purchaser must submit to MMS two copies of any written third-party agreements, or two copies of a full written explanation of any oral third-party agreements, relating to the method and costs of delivery of royalty oil, or crude oil exchanged for the royalty oil, from the point of delivery under the contract to the purchaser's refinery. In addition, the purchaser must submit copies of agreements pertaining to quality differentials which may occur between leases and delivery points.	1	1	1
§ 208.10 Notices
208.10(d)	(d) After MMS notification that royalty oil will be taken in kind, the operator shall be responsible for notifying each working interest on the Federal lease. * * *	2	20	40
208.10(e)	(e) A purchaser cannot transfer, assign, or sell its rights or interest in a royalty oil contract without written approval of the Director, MMS. * * * Without express written consent from MMS for a change in ownership, the royalty oil contract shall be terminated. * * *	1	1	1
§ 208.11  Surety requirements [for eligible refiners]
208.11 (a), (b), (d), and (e)	(a) The eligible purchaser, prior to execution of the contract, shall furnish an “MMS-specified surety instrument,” 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. * * * (b) * * * 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 prior to the anniversary date. * * * (d) The “MMS-specified surety instrument” shall be in the form specified by MMS instructions or approved by MMS. * * * (e) All surety instruments must be in a form acceptable to MMS and must include such other specific requirements as MMS may require adequately to protect the Government's interests.	Hour burden covered under “Offers, Financial Statements, and Surety Instruments for Sales of Royalty Oil and Gas” section. (Forms MMS-4071, Letter of Credit, and MMS-4072, Royalty-In-Kind Contract Surety Bond)
§ 208.15  Audits
208.15	Audits of the accounts and books of lessees, operators, payors, and/or purchasers of royalty oil taken in kind may be made annually or at other such times as may be directed by MMS. * * *	Audit process. See note.
Directed Communications by Operators of Federal Oil and Gas Leases
Contract-Directed	Wyoming Gas	3	3	9
	Natural Gas [Texas 8G and Gulf of Mexico (GOM)]	3	108	324
	GOM Oil	3	64	192
	SPR Fill Initiative In January 2008, 70,000 barrels of oil per day were directed toward the SPR. This initiative will continue through the Fall of 2008; at which point, these oil volumes will be redirected back to commercial GOM RIK oil sales. Thus, information collection responses will continue at the same level during and after the SPR initiative, the only difference will be under which program the collection falls.)	3	17	51
	Eligible Refiners	3	35	105
Offers, Financial Statements, and Surety Instruments for Sales of Royalty Oil and Gas
Contract-Directed	Offers	1	903	903
	Financial Statements	1	20	20
	Surety Instruments	10	30	300
Total Burden			1,212	1,969
Note: The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions.
* Rounded up from 0.25.

Estimated Annual Reporting and Recordkeeping “Non-hour” Cost Burden: We have identified no “non-hour” cost burdens.

Public Disclosure Statement: The PRA (44 U.S.C. 3501 et seq.) provides that 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.

Comments: Before submitting an ICR to OMB, PRA Section 3506(c)(2)(A) requires each agency “* * * to provide notice * * * and otherwise consult with members of the public and affected agencies concerning each proposed collection of information * * *.” Agencies must specifically solicit comments to: (a) Evaluate whether the proposed collection of information is necessary for the agency to perform its duties, including whether the information is useful; (b) evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) enhance the quality, usefulness, and clarity of the information to be collected; and (d) minimize the burden on the respondents, including the use of automated collection techniques or other forms of information technology.

The PRA also requires agencies to estimate the total annual reporting “non-hour cost” burden to respondents or recordkeepers resulting from the collection of information. If you have costs to generate, maintain, and disclose this information, you should comment and provide your total capital and startup cost components or annual operation, maintenance, and purchase of service components. You should describe the methods you use to estimate major cost factors, including system and technology acquisition, expected useful life of capital equipment, discount rate(s), and the period over which you incur costs. Capital and startup costs include, among other items, computers and software you purchase to prepare for collecting information; monitoring, sampling, and testing equipment; and record storage facilities. Generally, your estimates should not include equipment or services purchased: (i) Before October 1, 1995; (ii) to comply with requirements not associated with the information collection; (iii) for reasons other than to provide information or keep records for the Federal Government; or (iv) as part of customary and usual business or private practices.

We will summarize written responses to this notice and address them in our ICR submission for OMB approval, including appropriate adjustments to the estimated burden. We will provide a copy of the ICR to you without charge upon request. The ICR also will be posted on our Web site at http://www.mrm.mms.gov/​Laws_​R_​D/​FRNotices/​FRInfColl.htm.

Public Comment Policy: We will post all comments in response to this notice on our website at http://www.mrm.mms.gov/​Laws_​R_​D/​InfoColl/​InfoColCom.htm. We will also make copies of the comments available for public review, including names and addresses of respondents, during regular business hours at our offices in Lakewood, Colorado. Before including your address, phone number, e-mail address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public view, we cannot guarantee that we will be able to do so.

MMS Information Collection Clearance Of ficer: Arlene Bajusz [phone].

Dated: April 2, 2008.

Walter D. Cruickshank,

Acting Associate Director for Minerals Revenue Management.