[Federal Register Volume 60, Number 163 (Wednesday, August 23, 1995)]
[Proposed Rules]
[Pages 43735-43737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20873]
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Parts 206 and 260
RIN 1010-AB93
Bidding Systems for Leases in the Outer Continental Shelf
AGENCY: Minerals Management Service, Interior.
ACTION: Proposed rule.
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SUMMARY: The Minerals Management Service (MMS) proposes an amendment to
change the bidding systems for newly issued leases under the Outer
Continental Shelf Lands Act (OCSLA). Four modifications of the existing
alternative bidding systems are proposed that could lower the minimum
prescribed royalty rate charged on newly issued Federal offshore leases
from 12\1/2\ per centum to a rate greater than zero per centum; allow
operating allowances in determining receipts subject to royalty rate;
suspend or defer royalty for periods, volumes, or values of production;
and extend the functional forms for calculating royalty rates under
variable rate systems to include product prices as well as value and
amount of production with the ability to apply different functional
forms across time periods. The proposed rule does not affect existing
leases.
This proposed rulemaking results from a review of alternative
leasing policies conducted by MMS with constituent input, consistent
with the Vice-President's Reinventing Government initiative. In
particular, this change will grant the Secretary of the Interior
(Secretary) the flexibility to improve the way MMS provides service to
its customers and its ability to manage OCS oil and gas resources for
the benefit of the public.
DATES: Comments must be received or postmarked no later than October
23, 1995 to be considered in this rulemaking.
ADDRESSES: Comments should be mailed or hand-carried to the Department
of the Interior; Minerals Management Service; 381 Elden Street; Mail
Stop 4700; Herndon, Virginia 22070-4817; Attention: Chief, Engineering
and Standards Branch.
FOR FURTHER INFORMATION CONTACT:
Dr. Marshall Rose, Chief, Economic Evaluation Branch, telephone (703)
787-1536.
SUPPLEMENTARY INFORMATION: Under the OCSLA, in section 8(a)(1), several
bidding systems are authorized for new leases. The Secretary may grant
a modification in the royalty rate to less than 12\1/2\ per centum upon
application for existing leases. However, new leases are currently
offered at a lease-specified royalty rate of no less than 12\1/2\ per
centum, and it is for this class of leases that the proposed rule is
applicable.
The OCSLA also provides authority to modify any bidding system
currently authorized by the act if the Secretary determines the
modification to be useful to accomplish the purposes and policies of
the act (section 8(a)(1)).
MMS will consider using this more flexible royalty rate policy on
specific types of new leases, including, but not limited to, those
characterized by high development costs (deepwater leases in water
depths of 200 meters or greater), relinquished tracts with qualifying
wells but uneconomic reserves, or relinquished tracts that received
high bonus bids but no exploration activity. Bidding systems that
reflect a lower royalty than 12\1/2\ per centum are expected to
increase competition for these tracts and, if discoveries are made,
result in greater production in the future.
The proposed regulatory change would initiate actions to allow
modification of the minimum royalty rate from 12\1/2\ per centum of the
production amount or value to an effectively lower rate for all or a
part of the tract's productive life as described in the lease terms
portion of a sale's final notice. This lower rate could be designated
over the life of the lease as a constant or variable measure or emerge
as a result of fulfilling specified conditions (e.g., no royalties due
until production reaches a designated level or a predetermined capital
cost allowance is recovered). Further, the basis for determining the
royalty rate under variable terms is expanded to include resource price
as a potential variable. Thus, a smaller royalty rate could apply
during periods of lower average product prices, and the precise
relationship could vary between periods. This expansion will allow use
of a simple price-royalty rate formula when unit operating costs are
constant and can be estimated with some precision.
This proposed rule is the result of a review of alternate leasing
policies conducted within MMS. MMS published a Federal Register Notice
presenting possible alternate policies and received input from
constituents, consistent with the Vice-President's Reinventing
Government initiative.
The proposed actions will enable MMS to set royalty terms at time
of sale for new leases that will adjust dynamically to changing market
conditions prevalent in the oil and gas industry during exploration,
development, and production. These actions are expected to result in
increased competition for newly offered Federal offshore tracts,
thereby contributing to the assurance of receipt of fair market value
on leased tracts. These actions are also expected to increase the
likelihood that a newly leased tract will be explored and developed. In
sum, this change will grant the Secretary the flexibility to improve
the way MMS provides service to its customers and its ability to manage
OCS oil and gas resources for the benefit of the public.
Author: This document was prepared by Dr. Marshall Rose, Chief,
Economic Revaluation Branch, MMS.
Executive Order (E.O.) 12866
This rule was reviewed under E.O. 12866. The rule was determined to
not be significant under the criteria of E.O. 12866.
Regulatory Flexibility Act
The Department of the Interior (DOI) has determined that this
proposed rule will not have a significant economic effect on a
substantial number of small entities. Any direct effects of this
rulemaking will primarily affect the Outer Continental Shelf (OCS)
lessees and operators--entities that are not, by definition, small due
to the technical complexities and financial resources necessary to
conduct OCS activities. The indirect effect of this rulemaking on small
entities that provide support for
[[Page 43736]]
offshore activities have also been determined to be small.
Paperwork Reduction Act
The information collection requirements contained in those parts of
MMS's regulatory program affected by this rule by this rule have been
approved by OMB under (44 U.S.C. 3501 et seq.). The forms, filing date,
and approved OMB clearance numbers are identified in 30 CFR 210.10 and
30 CFR 216.10.
Takings Implication Assessment
The DOI certifies that this proposed rule does not represent a
governmental action capable of interference with constitutionally
protected property rights. A Takings Implication Assessment prepared
pursuant to E.O. 12630, Government Action and Interference with
Constitutionally Protected Property Rights, is not required.
E.O. 12778
The DOI has certified to OMB that this proposed rule meets the
applicable civil justice reform standards provided in Sections 2(a) and
2(b)(2) of E.O. 12778.
National Environmental Policy Act
The National Environmental Policy Act (NEPA) compliance for the
proposed rule is covered by DOI procedures for implementing NEPA (516
DM2, Appendix 1.10). In accordance with those procedures, MMS will
examine the potential environmental effects of the proposed rule during
NEPA review for each lease sale. This is appropriate because the
potential environmental effects of the rule depend largely on how it is
applied, and decisions on application would be made on a sale-by-sale
basis.
List of Subjects
30 CFR Part 206
Coal, Continental shelf, Geothermal energy, Government contracts,
Indian lands, Mineral royalties, Natural gas, Petroleum, Public lands--
mineral resources, Reporting and recordkeeping requirements.
30 CFR Part 260
Continental shelf, Government contracts, Mineral royalties, Oil and
gas exploration, Public lands--mineral resources.
Dated: May 12, 1995.
Bob Armstrong,
Assistant Secretary, Land and Minerals Management.
For the reasons set forth in the preamble, 30 CFR parts 206 and 260
are proposed to be amended as follows:
PART 206--PRODUCT VALUATION
1. The authority citation for part 206 is revised to read as
follows:
Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 396a et
seq., 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1001 et
seq., 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 se seq., 1331 et
seq., and 1801 et seq.
2. Section 206.106 of subpart C is added to read as follows:
Sec. 206.106 Operating allowances.
Notwithstanding any other provisions in these regulations, an
operating allowance may be used for the purpose of computing royalty
obligations when provided for in the notice of an Outer Continental
Shelf (OCS) lease sale. The allowance amount or formula shall be as
specified in the notice of an OCS lease sale and in the lease
agreement.
3. Section 206.160 of subpart D is added to read as follows:
Sec. 206.160 Operating allowances.
Notwithstanding any other provisions in these regulations, an
operating allowance may be used for the purpose of computing royalty
obligations when provided for in the notice of an OCS lease sale. The
allowance amount or formula shall be as specified in the notice of an
OCS lease sale and in the lease agreement.
PART 260--OUTER CONTINENTAL SHELF OIL AND GAS LEASING
1. The authority citation for part 260 is revised to read as
follows:
Authority: 43 U.S.C. 1331 and 1337.
2. Section 260.110 of subpart B is amended to revise paragraphs
(a)(1)(iii), (2)(iii), (3)(i)(C)(4), and (iii) and to add new
paragraphs (a) (5) and (6) to read as follows:
Sec. 260.110 Bidding systems.
(a) * * *
(1) * * *
(iii) The annual rental to be paid by the highest responsible
qualified bidder and any amounts creditable against future royalties
shall be the amount specified in the notice of an OCS lease sale
published in the Federal Register.
* * * * *
(2) * * *
(iii) Payment amounts shall be as specified in paragraph
(a)(1)(iii) of this section.
* * * * *
(3) * * *
(i) * * *
(C) * * *
(4) The production period and inflation factor for purposes of
determining value or amount of production shall be stated in the notice
of an OCS lease sale that is published in the Federal Register. The
procedures for making the inflation adjustment shall be stated in the
notice of an OCS lease sale published in the Federal Register.
* * * * *
(iii) Payment amounts shall be as specified in paragraph
(a)(1)(iii) of this section.
* * * * *
(5) Cash bonus bid with a variable royalty rate or rates during one
or more production periods in amount or value of the production saved,
removed or sold, and an annual rental. The royalties may be suspended
or deferred for a period, volume, or value of production.
(i) The royalty rate or rates to be paid by the highest responsible
qualified bidder may be less than 12\1/2\ per centum, but greater than
zero percentum, at the beginning of the lease period in the amount or
value of production saved, removed or sold. The applicable royalty
rate(s) and suspension or deferral magnitudes or formulas shall be
specified in the notice of an OCS lease sale published in the Federal
Register.
(ii) Amount and payment of cash bonus under procedure shall be as
specified in paragraph (a)(1)(ii) of this section.
(iii) Payment amounts shall be as specified in paragraph
(a)(1)(iii) of this section.
(6) Cash bonus bid with a variable royalty rate or rates during one
or more production periods in amount or value of the production saved,
removed or sold, and an annual rental. The royalties may be suspended
or deferred for a period, volume, or value of production.
(i) The royalty rate or rates to be paid by the highest responsible
qualified bidder shall be a percentage of the amount or value of the
production saved, removed or sold. When the value of production is
used, by unit or in aggregate, the basis for the prices to be applied
shall be specified in the notice of an OCS lease sale published in the
Federal Register.
(A) The royalty rate shall be calculated by utilizing a formula or
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schedule, which relates the royalty rate established thereby to the
adjusted amount or indexed value of the oil and gas produced during
designated production periods. The description of the formula or
schedule shall include the relationship between adjusted or actual
amount, indexed value, or indexed price of production, and the royalty
rate, with a stipulation of the lowest royalty rate and highest royalty
rate. The royalty rate formula or schedule and the suspension or
deferral magnitudes or formulas shall be included in the lease document
as executed.
(B) The royalty rate formula or schedule and the suspension or
deferral magnitudes or formulas shall be specified in the notice of an
OCS lease sale published in the Federal Register.
(C) Royalty payment calculation.
(1) The royalty rate utilized in the calculation of royalty
payments is based on an adjusted or indexed value, amount, or indexed
price of production and is established through application of a formula
or schedule during one or more designated production periods.
(2) The adjusted indexed value or indexed price of production shall
be determined by applying an inflation factor to the actual indexed
value or indexed price of production.
(3) The established royalty rate is applied to the actual value of
production which results in the determination of amount in dollars to
be paid to the United States by the person awarded the lease, or the
amount of royalty oil and gas to be taken in kind by the United States.
(4) The production period, inflation factor for purposes of
determining value or amount of production, and procedures for making
the inflation adjustment shall be stated in the notice of an OCS lease
sale that is published in the Federal Register.
(ii) Amount and payment of cash bonus under procedure shall be as
specified in paragraph (a)(1)(ii) of this section.
(iii) Payment amounts shall be as specified in paragraph
(a)(1)(iii) of this section.
* * * * *
[FR Doc. 95-20873 Filed 8-22-95; 8:45 am]
BILLING CODE 4310-MR-M
