[Federal Register Volume 60, Number 111 (Friday, June 9, 1995)]
[Proposed Rules]
[Pages 30492-30505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13856]
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Part 211
RIN 1010-AB45
Amendments of Regulations to Establish Liability for Royalty Due
on Federal and Indian Leases, and To Establish Responsibility to Pay
and Report Royalty and Other Payments
AGENCY: Minerals Management Service, Interior.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Minerals Management Service (MMS), Royalty Management
[[Page 30493]] Program (RMP) proposes to amend its regulations to
establish and clarify which persons may be held liable for unpaid or
underpaid royalties, compensatory royalties, or other payments on
Federal and Indian minerals leases. The proposed rules also would
establish who is required to report and pay royalties on production
from leases not in approved Federal or Indian agreements or leases in
approved Federal or Indian agreements containing 100 percent Federal or
Indian Tribal leases with the same lessor, the same royalty rate, and
the same fund code for royalty distribution (hereinafter referred to as
100 percent Federal or Indian agreements). In the near future, MMS
intends to issue a further notice of proposed rulemaking regarding who
is required to report and pay royalties on production from leases in
all other approved Federal or Indian Agreements.
DATES: Comments must be submitted on or before August 8, 1995.
ADDRESSES: Mail written comments, suggestions or objections regarding
the proposed amendment to: Minerals Management Service, Royalty
Management Program, Rules and Procedures Staff, P.O. Box 25165, MS
3101, Mail Stop 3101, Denver, Colorado 80225-0165.
FOR FURTHER INFORMATION CONTACT:
David S. Guzy, Chief, Rules and Procedures Staff, telephone (303) 231-
3432, FAX (303) 231-3194. Minerals Management Service, Royalty
Management Program, building 85, P.O. Box 25165, Mail Stop 3101,
Denver, Colorado 80225-0165.
SUPPLEMENTARY INFORMATION: The principal authors of this rule are
members of a team of Minerals Management Service employees led by
Cecelia Williams of the Office of Enforcement, Lakewood, Colorado, and
attorneys from the Office of the Solicitor in Washington, D.C.
I. General
Since its formation in 1982, and following the mandate of the
Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA), 30 U.S.C.
1701 et seq., MMS improved substantially the process of accounting for
and collecting royalties on mineral production from Federal and Indian
leases. MMS implemented automated procedures to detect potentially
unpaid and underpaid royalties after payors file their monthly royalty
reports, and developed an effective audit program in conjunction with
states and Indian tribes.
When MMS determines that royalties are underpaid for a Federal or
Indian lease, MMS generally bills the person who filed a Payor
Information Form (PIF) (Form MMS-4025 for oil and gas and Form MMS-4030
for solid minerals) for that lease, and that payor usually resolves the
matter with MMS. However, sometimes that royalty payor no longer is
able to pay (e.g., it is bankrupt or otherwise out of business), or it
asserts that someone else is responsible for the royalty payment. In
other situations, an interest in the lease is assigned between the time
the royalty obligation accrued and the time MMS discovers and orders
payment. In such events, the current payor often does not agree to pay
the deficiency, requiring MMS to determine who is liable for the
royalty or other payment deficiency.
The purpose of these proposed rules is to establish and clarify
which persons are liable, either individually or in conjunction with
others, if royalties, compensatory royalties, or other payments due for
a Federal or Indian lease are unpaid or underpaid. As explained in more
detail below, this includes record title owners of a lease and
operating rights owners other than record title owners. In addition,
MMS would amend the Payor Information Form (PIF) (Form MMS-4025 for oil
and gas and MMS-4030 for solid minerals), required under 30 CFR 210.10,
to expressly provide that the payor agrees to pay any additional
royalties owed on the production for which it reported royalties
originally. Operators and other persons could be liable for the
underpayments in certain circumstances. The rules further would clarify
how liability attaches, and terminates, when a record title interest is
assigned or operating rights are transferred. For the most part, these
proposed rules are consistent with current MMS practice and procedures.
MMS also proposes to amend its rules to provide who is required to
report and pay royalties on production from, or attributable to, leases
not in approved Federal or Indian agreements or leases in 100 percent
Federal or Indian agreements (all leases in the agreement have the same
lessor, the same royalty rate, and the same fund code for distribution,
e.g. same state or county). MMS is reserving for a further notice of
proposed rulemaking rules regarding who is required to report and pay
royalties on production from leases in all other approved Federal or
Indian agreements.
Commenters must recognize that the standards for who is required to
report and pay could be different from the standards for determining
liability for underpayments. For example, as explained in more detail
below, if you hold half of the record title interest in a Federal lease
(that is not in an approved Federal or Indian agreement), you would be
liable ultimately for 50 percent of the royalties due on production
from that lease. However, under the proposed rules, the person who
actually takes and sells the production from a lease that is not in an
approved Federal or Indian agreement is required to report and pay each
month, so you may not be the person required initially to report that
production and remit the royalties. If that payor underpaid royalties,
MMS may seek to collect additional monies from you, and then only for
50 percent of the production.
II. Section-by-Section Analysis
Subpart A--General Provisions
Section 211.10 Purpose
This section would explain that this part of the MMS rule is
intended to address two principal issues. The first is to establish
which persons are liable for royalty, compensatory royalty, and other
payments on a lease by virtue of ownership of a lease interest or other
connection to lease production. The second issue addressed in this part
concerns which persons would be required to report and pay royalties on
lease production each month or as otherwise required. However, as
explained above, at this time MMS is proposing new rules addressing
reporting and paying requirements only for leases not in approved
Federal or Indian agreements or leases in 100 percent Federal or Indian
agreements.
Section 211.11 Scope
This section would explain the general content of Subparts A, B,
and C. Subpart A explains which leases the rules on liability and
reporting and paying would apply to, and the definitions you would need
to know. Subpart B establishes who would be liable under the leases set
out in Subpart A and the extent of that liability. Subpart C explains
who would be responsible for reporting and paying royalties on the
leases set out in Subpart A, and would describe the obligations to
report and pay properly.
Section 211.12 Leases to Which This Part Applies
This section would explain that the rules on liability contained in
this part apply to all Federal and Indian mineral leases. This
includes, but is not limited to, Indian oil and gas leases, onshore
Federal oil and gas leases (whether on public domain or acquired lands,
and regardless of the statute under which the lease was issued), oil
and gas leases [[Page 30494]] on the Outer Continental Shelf (OCS),
Federal and Indian coal leases, and Federal geothermal leases. Leases
or other agreements under the Indian Mineral Development Act of 1982
also would be included.
As explained in more detail below, there will be situations where
Federal or Indian leases are part of an approved Federal or Indian
agreement (e.g., a unit or communitization agreement) that includes
state or fee leases. When the proposed rules refer to a lease, this
includes only the Federal and Indian leases in that agreement.
Leases issued by private predecessors in interest to the Federal
government, under which the Federal government subsequently became the
lessor when it acquired land subject to such a lease, would not be
included within the scope of these rules.
Section 211.13 Definitions
This section would include definitions of certain terms that are
relevant to the regulations in this part.
Approved Federal or Indian agreement would be defined as
an agreement for exploration or development of mineral resources as
described by 25 CFR Subchapter I, 30 CFR Subchapter B--Offshore, and 43
CFR Part 3000. This definition basically would incorporate existing
descriptions of unit agreements and communitization agreements for
Federal and Indian leases.
Compensatory Royalty would be defined as the amounts the
Bureau of Land Management (BLM) or Offshore Minerals Management
assesses to compensate for failure to prevent drainage. This definition
would basically summarize the BLM's regulations at 43 CFR 3100.2 (1993)
and 43 CFR 3162.2(a) (1993). This term is separate and distinct from
``other payments'' defined below.
Operator would be defined by referencing several existing
definitions in 30 CFR and 43 CFR to maintain consistency between the
proposed definition and existing definitions in departmental rules.
Operating rights owner (working interest owner) would be defined as
a person who owns or has been transferred operating rights in a lease
subject to the regulations in this proposed new part. The operating
rights owner could be the record title owner. However, the record title
owner may transfer some or all of its operating rights to another
person who may further transfer those rights. The operating rights
owner has the right to take and sell production from a Federal or
Indian lease, and is often referred to as the working interest owner.
(See BLM rules at 43 CFR 3100.0-5(d)).
Other payments would be defined to include, but not be limited to,
rentals minimum royalties, bonuses, net profit share payments, gas
storage agreement payments, late and erroneous reporting assessments,
and late payment interest charges. The term is intended to include all
payments due to MMS's Royalty Management Program (including payments
directly to Indian lessors and other royalty recipients), except for
compensatory royalty payments assessed for drainage. It would not
include the cost of plugging and abandonment of wells, or other lease
reclamation obligations.
Payor would be defined by referencing several existing
sections in 30 CFR to maintain consistency between the proposed
definition and existing departmental rules. MMS proposes to combine the
definition of payor at 30 CFR 208.2 with the payor rule at 30 CFR
210.51 which further defines payor. By combining the existent
regulations, it is MMS' intent to make clear that a payor is the person
who is responsible for reporting and paying royalties consistent with
the liability provisions of this proposed rule in sections 211.14,
211.15, 211.16, 211.17, and 211.18.
Payor code would be defined as the five-character code
that MMS assigns to the persons required to report and pay royalties.
The payor code uniquely identifies the persons responsible for
reporting and paying royalties and other payments. The payor code is
used on royalty reports, payments, and correspondence to MMS. Persons
required to report and pay must obtain a payor code from MMS.
Payor Information Form (PIF) would be defined as the Form
MMS-4025 for oil and gas and geothermal resources, and Form MMS-4030
for solid minerals, as described in 30 CFR 210.10(c)(3) and (4). The
PIF is a document that informs MMS who will report and pay royalties
and other payments to the Federal or Indian mineral lessor. As
explained below, the present PIF would be revised to provide expressly
that the payor agrees to pay any additional royalties and other
payments owed on production for which it reported, or should have
reported, originally.
Person would be defined basically the same as in FOGRMA at
30 U.S.C. Sec. 1702(12). It would include, but not be limited to, any
and all entities that report and make royalty and other payments to MMS
or the Indian lessor.
Record title owner would be defined as the person who has
entered into a lease subject to this part or a person to whom the
responsible leasing agency has approved assignment of all or part of
the record title interest. This term also means the same as record
title holder, record title interest owner, or lessee of record. The
record title owner may transfer all or a part of the operating rights
to another person and in fact may have no involvement in lease
operations or the sale of production. After the record title owner
transfers its operating rights, it usually maintains an overriding
royalty interest, but the record title owner has no right to the
production from or allocated to the operating rights it transferred.
Royalty would be defined as any payment based on the
volume or value of production from a lease subject to this part. This
is basically the same definition as in FOGRMA, expanded to include
other minerals.
Take would be defined as occurring when the operating
rights owner sells or removes production from or allocated to a lease,
or when such sale occurs for the benefit of an operating rights owner.
Production would be ``taken'' when it is removed from the lease or
agreement. Production would not be ``taken'' if it is used on or for
the benefit of the lease or agreement (and not subject to royalty under
MMS rules), except for lease use gas for leases issued under section 6
of the Outer Continental Shelf Lands Act, 43 U.S.C. 1335 (because that
gas is subject to royalty under the lease terms). Also, for purposes of
these rules, a purchaser who receives production would not be
considered to have ``taken'' the production.
Subpart B--Liability
Section 211.14 Who is Liable for Royalties and Other Payments Due on a
Lease?
The purpose of this section is to provide a comprehensive
explanation regarding which persons are liable to the MMS for royalties
or other payments due on a lease. It does not apply to compensatory
royalties which are addressed in the next section. It also does not
apply to, or affect, other lease obligations such as plugging and
abandonment.
Unless you are subject to one of the paragraphs in this part of the
rule, you would have no liability. However, you may be liable under
more than one paragraph. For example, as explained further below, you
may be liable for royalty on half the production on the lease under
paragraph (a) of this section because you own 50 percent of the record
title. In addition, you could be liable for all the royalty on
production under paragraph (b) of this section if [[Page 30495]] you
own operating rights in that lease and ``take'' 100 percent of that
production.
a. Record title owners. Paragraph (a) of this section applies to
record title owners. As explained in the definitions section, the
record title owner is the person to whom the lease originally was
issued, or the assignee of that person. You may be the record title
owner for a whole lease or a portion of a lease. As a record title
owner, you would be liable for royalties on the percentage of
production from the lease that equals the percentage of your record
title ownership in the lease. Therefore, if you are a 50 percent record
title owner, and the MMS determines that the person who reported and
paid royalties on the total production from the lease for a particular
month undervalued that production, then you are responsible to MMS for
50 percent of the resulting underpayment plus any interest owed
thereon. The amount of underpaid royalties or other payments would be
determined through application of statutes, regulations (e.g., royalty
valuation rules in 30 CFR Part 206), lease terms and orders.
It also is possible that you may be liable for royalties on
production for a month that exceeds your percentage ownership of the
lease. (Some leases may prescribe a royalty reporting period other than
monthly. Because most leases are monthly, we will refer to the
reporting ``month'' in this preamble. However, for your lease, a
different period may be applicable). If you also own operating rights
in the lease and for a month take production in an amount that exceeds
your percentage of record title ownership, you are liable for the
royalties due on that additional amount. Thus, if you are a 50 percent
record title interest owner, but for a month you take 75 percent of the
production, you are liable for the royalties due on 75 percent of the
production. If MMS determines that the royalties on that production
should be higher than what was paid, you are liable for those
additional royalties plus interest.
When a lease is issued, the holders of record title also own
operating rights in the lease. The liability of operating rights owners
for royalties is addressed in the next section. It is important to
understand, however, that under these proposed rules, even if you
transfer a portion or all of your operating rights, you still are
liable for royalties as the record title owner.
It also is important to remember that Subpart B of the proposed
rules addresses only liability for royalty and other payments. It is
Subpart C that establishes who must report and pay the royalties to MMS
each month. Thus, even though you may have liability for unpaid or
underpaid royalties for a production month, you may not be the person
who is required initially to report and pay the royalties to MMS. For
example, if you own 50 percent of the record title for the lease, but
transferred all your operating rights to another person, you have no
right to take production from the lease. However, if the person
required to report and pay the royalties on the total lease production
fails to pay, or underpays, MMS still would hold you liable for 50
percent of what was owed for that production.
As will be explained below, the record title owner is not the only
person who is liable for royalty. In fact, several different persons
may be liable, and the extent of each such person's responsibility is
addressed in later sections of the rule. Section 211.14(a) would
clearly provide that as a record title owner you are jointly and
severally liable for the royalty and other payments (to the extent of
your liability described above) with these other responsible persons
including:
(1) Any person transferred some or all of the operating rights
severed from your record title interest. This would include the
original transferee and subsequent transferees. Note, however, the
responsibility is limited to the extent of the transfer. Therefore, if
you are the 100 percent record title owner, but transfer only 30
percent of your operating rights to another person, you and that person
have joint and several liability for the 30 percent interest.
The transferee has no liability for the remaining 70 percent
interest by virtue of holding operating rights--there may be liability
for other reasons, discussed further below, such as a situation where
that holder of 30 percent of the operating rights actually takes a
greater percentage of the production.
(2) Any other person assigned or who has assumed the obligation to
pay royalty due. By way of illustration, if the purchaser of production
from your lease agrees in the sales contract to be responsible for the
payment of all royalties, and if MMS determines royalties were
underpaid, that purchaser would be liable for the royalties. However,
you too would be liable up to the percentage of your record title
interest or your takes if they are greater.
(3) Any person who filed a PIF with MMS for the production for
which you are liable. As explained later in this preamble, if a person
files a PIF for a lease and reports royalties for that lease, that
person is liable for proper payment of royalties due on the production.
Thus, if MMS determines that royalties were underpaid on that
production, the filer of the PIF is responsible for the additional
royalties. As a record title owner, you would be jointly and severally
liable for those additional royalties up to the percentage of your
record title interest or your takes if they are greater.
(4) Any other person liable under Part 211 for the royalty due for
which you are responsible. This would be a general provision to cover
an operator (but only in certain limited circumstances, discussed
below), a person who takes production from your lease (under the
limited circumstances discussed below), or any other person that is
liable for royalty under the regulations in this subpart.
It is important to note that the joint and several liability
described above is vertical, not horizontal. Therefore, if you are a 50
percent record title owner, you are not automatically liable for the
debts of the other record title owners for the same lease (although
liability may accrue by operation of other provisions of these
regulations). However, if you are a 50 percent record title owner and
transfer half of your operating rights, you would be jointly and
severally liable with the transferee for the royalties and other
payments due for the transferred operating rights interest.
Although this preamble has referred primarily to liability,
including joint and several liability, for royalties, the rules also
would apply to other payment obligations on the lease, including late
payment charges, reporting assessment, and rentals. The proposed
liability rules addressed above are intended to apply only to such
payment obligations payable to MMS's Royalty Management Program or
royalty recipients.
In these rules, MMS proposes that the record title owner's
liability for payment of royalty and other payments be proportionate to
its interest in a lease, because royalty and other payment obligations
are divisible according to that interest. There are, however, other
lease obligations of the several record title owners of a lease that
are not divisible, including plugging and abandonment of wells, and
other reclamation obligations. BLM enforces these and other lease
obligations for onshore leases and MMS's Offshore Minerals Management
program enforces lease obligations for offshore leases. These lease
obligations are not subject to this rulemaking.
Liability for compensatory royalty payments, addressed in
Sec. 211.15, is also a lease obligation that is not divisible.
Compensatory royalties are amounts assessed to compensate the Federal
[[Page 30496]] Government when a lessee breaches its operational
obligation to diligently protect the lease from drainage. See Benson-
Montin-Greer, 123 IBLA 341 (1992); See 43 CFR 3100.2 and 3162.2(a).
Just as the other means of satisfying the requirement to protect from
drainage (drilling of an offset well or communitization) are
indivisible, and thus joint and several, so is the alternative of
compensatory royalty payments. It is proposed that the liability of a
record title owner or operating rights owner for payment of
compensatory royalty would not be proportionate to the share owned. In
other words, each record title owner and operating rights owner would
be jointly and severally liable for the total amount of compensatory
royalty due.
As explained above, it is MMS's principal proposal in this rule
that the liability of a record title owner for royalties and other
payments is limited to its proportionate ownership interest in the
lease, or takes if greater. However, MMS would like comment on whether
MMS should hold each record title owner liable for the royalties and
other payments due on all the production from the lease. In other
words, under this alternative, all record title owners would be jointly
and severally liable for all the royalties and other payments, like
they are proposed to be for compensatory royalties. Commenters are
requested to provide legal authority and citations to support their
comments either in support of, or opposed to, this alternative
proposal.
b. Operating rights owners. When a lease is issued, the record
title owner owns operating rights for the lease equal to its percentage
of record title. The operating rights owner is the person who has the
right to take production from the lease equal to its percentage of
operating rights ownership. The record title owner may sever some or
all of its operating rights and transfer them to another person. In
such event, under Sec. 211.14.(b), if you are the transferee of the
operating rights, you would incur liability for royalty due on
production from, or allocated to, the lease, and for other payments, in
the amount MMS determines to be owed. The liability would be determined
essentially the same as for record title owners. Therefore, at a
minimum, you would be liable for royalty and other payments based on a
percentage equal to your percentage of operation rights ownership in
the lease. To illustrate, assume a Lease is issued to Record Title
Owner A and Record Title Owner B, each owning 50 percent. Record Title
Owner A then transfers half of its operating rights to you. In this
example, you would be liable for royalty due on 25 percent of the lease
production. However, under proposed Sec. 211.14(b)(1)(ii), if you
actually take 40 percent of the production from the Lease and sell it,
your liability extends to 40 percent of the production. Like record
title owners, your liability exists even if you assigned the obligation
to make the royalty payments to another person, such as the purchaser
of the production.
Under proposed Sec. 211.14(b)(2), if you own operating rights that
were not transferred from your record title interest, paragraph (a)
determines your liability. This is because your record title interest
would be equal to or greater than your operating rights interest and
would govern your liability. If you own operating rights that were
transferred from the record title interest, you are jointly and
severally liable for royalty and other payments with the person who
holds the record title interest from which your operating rights were
transferred. However, you are still only liable for your percentage
interest. You are not jointly and severally liable for the percentage
of the operating rights interest that the record title owner either
retained or transferred to another person. But, if you take more than
your percentage entitlement, then you expand your joint and several
liability. Thus, if in the above-described example you take 40 percent
of the production, Record Title Owner A takes 10 percent and Record
Title Owner B takes 50 percent, you and Record Title Owner A are
jointly and severally liable for 40 percent of the production. If the
example is changed and you take 10 percent of the production and Record
Title Owner A takes 40 percent, then you are jointly and severally
liable with Record Title Owner A for royalty on 25 percent of the
production (equal to your percentage of operating rights ownership).
(Remember: this section addresses liability only. The responsibility to
report and pay may be different and is addressed later.)
As an operating rights owner, you also would be jointly and
severally liable with the same other persons as the record title owner
described under proposed Sec. 211.14(a), including:
any other person assigned or who has assumed the
obligation to pay royalty or make other payments,
any person who filed a PIF for the production or other
payments for which you are liable, and
any other person who is liable for the payments under this
part.
For operating rights owners, like for record title owners, MMS's
principal proposal in these rules is to determine liability based on
percentage of ownership, or takes if greater. MMS would like commenters
to address whether it should provide instead that all operating rights
owners are jointly and severally liable for all royalties and other
payments due from the lease. Comments should include legal authority
and citations in support of the comment.
c. Persons who file PIFs with MMS. Under MMS's current royalty
accounting and collection procedures, any person may report and pay the
royalties and other payments owed on lease production. It may be the
record title owner, an operating rights owner, an operator or even a
purchaser. However, the MMS's Automated Financial System (AFS) requires
that a royalty payor file a Payor Information Form (PIF) (Form MMS-4025
for oil and gas and Form MMS-4030 for solid minerals) and be assigned a
payor code before the system will accept the monthly Report of Sales
and Royalty Remittance (Form MMs-2014). See the MMS ``Oil and Gas Payor
Handbook,'' Volume 1, at Chapter 2; and the MMS ``Solid Minerals Payor
Handbook'' at Chapter 2.
When MMS determines either through its automated compliance
procedures or an audit that royalties are underpaid, MMS will bill or
order payment from the payor for that deficiency. The payor is billed
because that is the person on whom MMS has information in its system
regarding that production; MMS's Royalty Management Program does not
maintain data on record title owners or operating rights owners.
Therefore, while there are other persons who may be liable for some or
all of the royalty deficiency (such as the record title owner or an
operating rights owner), it is essential that MMS be able to look first
to the payor for the underpayment. It would be the payor's
responsibility to then seek appropriate contribution from other
parties.
Under existing procedures, MMS has always considered that the
person who filed the PIF would be liable for underpaid royalties.
However, in Mesa Operating Limited Partnership, 125 IBLA 29 (Dec. 31,
1992), Mesa filed Payor Information Forms and paid MMS royalties on
production it purchased from several Indian oil and gas leases. Mesa
did not own any interest in these leases. MMS ordered Mesa to pay
additional royalties found to be owed on these leases. Mesa
administratively appealed MMS's order and the Interior Board of Land
Appeals (IBLA) held that when Mesa filed the Payor Information Forms
and made royalty payments, that [[Page 30497]] did not demonstrate that
Mesa had been assigned and accepted the royalty payment responsibility.
Although the IBLA held Mesa to be liable for other reasons, MMS is
proposing Sec. 211.14(c) to clarify the liability for the person who
files the PIF. Under this subsection, if you file a PIF, you would be
liable in the amount MMS determines for any unpaid or underpaid
royalties on the volumes for which you reported or should have
reported. Thus, if you are a purchaser of lease production and file a
PIF for that lease, you would be liable for the royalties and other
payments owed on the volume of production you received in a month. If
you file a PIF and arrange a sale or other disposition of lease
production for the benefit of an operating rights owner on the lease,
you would be liable for that volume. This would occur in situations
where you are the lease operator or a marketer. Finally, under
Sec. 211.14(c)(1)(iii), you would be liable for the amounts due on the
volume reported to MMS on the Report of Sales and Royalty Remittance
(Form MMS-2014) with your payor code. You would be allowed to correct
reporting errors and adjust those volumes accordingly.
Concurrently with this proposed rulemaking, MMS proposes to modify
the PIF. The new PIF would include a statement that the person
executing the PIF agrees to be liable for all the royalties owed on the
production for which it reports, or should report, each month. The new
PIF would provide for the payor to include its Taxpayer Identification
Number. A draft of the new PIF is attached to this notice of proposed
rulemaking as Appendix A (oil and gas, page 1) and Appendix B (solid
minerals). Commenters are requested to provide comments on the draft
PIF.
Under proposed Sec. 211.14(c)(2), if you are liable for royalties
and other payments because you filed a PIF, you would be jointly and
severally liable with:
All record title owners who are liable for that
production;
All operating rights owners who are liable for that
production; and
Any other person liable under the proposed rules for the
royalties and other payments due on that production.
The MMS is aware that companies have been set up to perform the
service of reporting and paying royalty to MMS. These companies
complete and submit monthly reports and payments to MMS using their
clients' MMS-assigned payor code. If you use one of these service
companies to report and pay royalties, under the proposed rules, the
service company does not incur any additional liability by virtue of
submitting a Form MMS-2014 and payments on your behalf. You would be
liable for any unpaid or underpaid royalties and other payments because
the service company acted as an agent on your behalf.
d. Operators. Under proposed Sec. 211.14(d), if you are a lease
operator, you would not be liable for royalty or other payments due on
a lease simply because you are the operator. You only would be liable
to the extent that you also may be a record title owner or an operating
rights owner under Sec. 211.14 (a) or (b).
Also, you assume liability if you file a PIF under Sec. 211.14(c),
or if you otherwise agree to be liable for royalty and other payments,
as discussed in the next paragraph. You also may be liable if a
regulation of the Department of the Interior provides that the operator
is liable for royalty or other payment. See 30 CFR 250.8 (1993); 43 CFR
3162.1 (1993).
e. Other liable persons. Proposed Sec. 211.14(e) is intended to be
a general provision to establish the liability of any person who agrees
to be liable. For example, a purchaser or a marketer may agree by
contract to pay royalties on behalf of an operating rights owner. In
that event, that purchaser or marketer would be liable to the same
extent as the person on whose behalf it agreed to pay.
While this rule proposes generally to hold co-tenants responsible
only for their entitled share of the production from a Federal or
Indian lease, or their takes if they are greater, the rule recognizes
that co-tenants or working interest owners may have other contractual
relationships which may increase their liability. For example, co-
tenants may decide to develop a property as partners or joint
venturers. In addition, a less formal organizational structure, known
as a ``mining partnership,'' also may result in expanded liability. The
general rule of liability for all such joint venturers or partners is
that each member is personally liable for all partnership obligations
arising out of contract or tort. Misco-United Supply, Inc. v. Petroleum
Corp., 462 F.2d 75 (5th Cir. 1972).
f. Operating rights owners of a lease in an approved Federal or
Indian agreement. The proposed liability rules in Sec. 211.14(a)-(e)
addressed thus far apply to all Federal or Indian leases, whether an
individual lease or a lease that is included in an approved Federal or
Indian agreement. However, for those Federal or Indian leases that are
included in an approved Federal or Indian agreement, there are
additional rules that would apply. Under proposed Sec. 211.14(f), if
you own operating rights in any Federal or Indian lease in the
agreement, and you take production that is allocable to a Federal or
Indian lease in that agreement, then you are liable for the royalties
or other payments due on the production. What this means is that if you
take production allocable to a Federal or Indian lease in your
agreement, and you own operating rights in that lease or any other
Federal or Indian lease in the agreement, MMS would hold you liable for
royalties and other payments for that production. This would be the
only section of the liability portion of these rules that could involve
an interest owner with an interest in a lease other than the lease the
production was from or attributable to.
For example, assume there is a unit that consists of four leases of
equal acreage, two Federal leases (Federal A and Federal B), one state
lease and one fee lease. Each lease is entitled to one-fourth of the
unit production and each lease has only one operating rights owner.
Assume that for the month of January 1994, the operating rights owner
for the Federal A lease actually takes no production. Assume further
that the operating rights owners for the Federal B and the state lease
each take half of the production that was allocable to the Federal A
lease. Under the proposed rule, the operating rights owner of the
Federal B lease would be liable to MMS for royalty and other payments
on the one-fourth of unit production allocable to the Federal B lease
plus the portion of production it took that was allocable to the
Federal A lease. The operating rights owner of the state lease would
not be liable to MMS for royalty and other payments for the volume of
production that it took that was allocable to the Federal A lease.
Under proposed Sec. 211.14(f)(2), liability would be joint and
several with the persons liable under the other subsections of the
rule. Thus, in the above example, for the volumes allocable to the
Federal A lease they took, the operating rights owners for the Federal
B lease would be jointly and severally liable with the operating rights
owners and record title owners for the Federal A lease (and, if
applicable, any other liable party such as an operator or the filer of
the PIF).
For this section MMS specifically would like comment on whether a
Federal or Indian lessee, in an agreement should be held liable if it
takes production from a Federal or Indian lease other than its own in
an agreement situation. Commenters are requested to provide legal
authority and citations in support of their comments. [[Page 30498]]
g. Other liability issues. As explained earlier, the purpose of
these rules is to address the legal issue of who is liable to MMS for
royalty or other payments due on a lease. These rules do not address
against whom MMS will take enforcement action if MMS discovers
underpaid royalties. MMS is retaining the discretion to determine which
person to pursue. However, since the liability of the person who files
the PIF would be clearly established under these rules and the amended
Forms, MMS-4025 and MMS-4030, in most cases MMS would issue a payment
order to that person. That person could then seek contribution from
other liable persons. While these proposed rules should make it easier
to determine who all the liable parties are, it is not MMS's intention
that these rules govern the relationship or liabilities between and
among the affected parties other than MMS.
Section 211.15 Who is Liable for Payment of Compensatory Royalty?
The purpose of this section is to provide an explanation regarding
which persons are liable to MMS for compensatory royalties due on a
lease. If you are not subject to one of the paragraphs in this section,
you would not be liable.
This section applies to record title owners. As explained in the
definitions section, the record title owner is the person to whom the
lease originally was issued, or the assignee of that person. You may be
the record title owner for a whole lease or a portion of a lease. As a
record title owner, no matter what your percentage interest, you are
jointly and severally liable for the full amount of compensatory
royalty owned with all other record title owners on that lease, all
operating rights owners on that lease, and any other persons obligated
to pay compensatory royalties under departmental rules.
This section also applies to operating rights owners. As explained
in the definitions section, the operating rights owner is the person
who has the right to take production from the lease equal to its
percentage of operating rights ownership in the lease, or the
transferee of that person. You may be the operating rights owner for a
whole lease or a portion of a lease. As an operating rights owner, you
are jointly and severally liable with all other operating rights owners
on that lease, all record title owners on that lease, and any other
person obligated to pay compensatory royalty under the regulations of
the Department of the Interior, for payment of all compensatory royalty
due on that lease, regardless of the percentage of your operating
rights ownership interest in the lease. For example, if you are a 50
percent operating rights owner, and MMS determines compensatory
royalties due on the lease equals $100,000, you are liable for the
entire $100,000, not 50 percent of the $100,000.
It is important to note that, unlike liability for payment of
royalties, liability for compensatory royalty is not proportionate to
the ownership interest. In addition, unlike liability for payment of
royalties, liability for compensatory royalty is joint and several
among each liable group, i.e. horizontally as well as vertically.
Therefore, if you are a 50 percent record title owner you are liable
for payment of compensatory royalties with all other record title
owners as well persons to whom you or another record title owner
transferred operating rights.
Section 211.15 How Does Assignment of Record Title Interests or
Transfer of Operating Rights Interests Affect Liability?
One of the other principal purposes of these proposed rules is to
clarify how assignment of record title or transfer of operating rights
affects the liability established in proposed Sec. 211.14 or
Sec. 211.15. It is important to state at the outset that the rules
proposed in this section, like the rules in the previous sections,
relate only to liability for royalties and other payments, such as
interest or assessments, or compensatory royalties, that are the
responsibility of MMS's Royalty Management Program. They do not address
responsibility for plugging and abandonment of wells, or other lease
reclamation requirements. Under applicable law, a record title owner's
responsibility for these other types of obligations may be different
than what would be prescribed in these rules for royalty, compensatory
royalty, or other payments.
Under paragraph (a) of this section of the proposed rule, if you
are a record title owner and you assign some or all of your record
title interest to another person, you would not be liable for royalties
and other payments for the interest you assigned that accrue on or
after the date of the assignment (unless you agree with the assignee to
remain liable for those payments). However, under Sec. 211.15 all
record title owners are jointly and severally liable for compensatory
royalties. Therefore, you would continue to be liable for compensatory
royalties that accrue after the effective date of the assignment unless
you assigned all of your record title interest in the lease.
Thus, for example, if you assign your record title and the
effective date is January 1, you are liable for all obligations through
December 31. If you assign only a part of your record title, your
liability for royalties and other payments would extinguish only for
the percentage assigned, but your liability for compensatory royalties
would not end. Note, however, that the termination provision in this
example relates only to liability under Sec. 211.14(a) by virtue of
record title ownership. You may continue to be liable for royalties or
other payments if you retain operating rights, if you file a PIF for
the production, or if you meet any of the other liability criteria in
Sec. 211.14 other than record title ownership. Your liability also may
not end on the assignment date if a departmental regulation provides
that your liability continues. In such event, that regulation would
control.
Under Sec. 211.16(a)(2), the person to whom you assign some or all
of your record title interest would not be liable for royalties,
compensatory royalties, or other payments for the percentage of the
interest assigned that accrued prior to the effective date of the
assignment (unless the assignee agrees to be liable for those
payments). Therefore, if the effective date of the assignment is
January 1, 1994, and in March 1994 MMS were to issue a payment demand
for underpaid royalties that occurred for production in July 1993, the
assignee would not be liable. This liability that accrued prior to the
assignment would be the responsibility of the assignor. You should be
aware, however, that a regulation of the leasing bureau could expand
this liability to an earlier date.
The concepts embodied in the proposed rules for assignor/assignee
liability are consistent with MMS administrative decisions. See Branch
Oil and Gas, MMS-88-0079-O&G (June 29, 1989).
The limitations on liability just described apply only to royalty,
compensatory royalty, and other payments. It may not apply to other
lease obligations such as plugging and abandonment of wells under
statutes, lease terms, or the regulations in Title 25, Title 30, or
Title 43.
Under section 211.16(b), which is applicable to transfer of
operating rights, the effects of that transfer are exactly the same as
those described for assignment of record title. This section would
apply to both a record title owner's transfer of operating rights and
an operating rights owner's (who is not a record title owner) transfer
of operating rights. [[Page 30499]]
Section 211.17 How Does Liability Affect the Requirement to Report and
Pay Royalties?
As stated earlier in this preamble, Subpart B of the proposed rules
relates to liability, not to the requirement to report and pay
royalties. Liability for royalties does not automatically mean that you
are required to report and pay--it means that if the person required to
report underpays, and if MMS does not resolve the underpayment with
that person, then you are responsible for some or all of the
deficiency.
The proposed rules on liability in Sec. 211.14 rely in part on a
person's ``entitled share'' of production, determined by its percentage
of owned interest of record title or operating rights, to establish
liability. However, as will be explained below regarding Subpart C,
this would not mean that MMS is requiring reporting on what has been
called an ``entitlement'' basis. In fact, it should be clear from these
proposed rules that in actual situations where the lease is committed
to an agreement in an approved Federal/Indian agreement, MMS proposes
to rely on a ``takes'' system to establish who is obligated to report
and pay royalties each month.
Subpart C--Reporting and Paying Royalties.
Subpart C would establish requirements for who is required to
report and pay royalties each month on lease production. As explained
above, all persons who are liable for royalties under Subpart B would
not be required to report and pay. They would be responsible only if
the person required to report and pay fails to pay or underpays.
Section 211.18 Who Is Required to Report and Pay Royalties?
Persons Who Take Production From Leases not in an Approved Federal or
Indian Agreement
The basic requirement under the proposed rules is that if you are
an operating rights owner who takes production from an individual lease
that is not part of an approved Federal or Indian agreement, you must
report and pay royalties for that production. If you own 40 percent of
the operating rights for a lease, but you actually take 70 percent of
the production for a month, you are required to report and pay on the
70 percent of the production you take.
As explained earlier, only the operating rights owners may take
production from a lease. An operator or purchaser who is not an
operating rights owner may be involved in the sales transaction, but
they do not take production for purposes of these rules.
Under Sec. 211.18(a)(1) of the proposed rule, if you take
production and are required to report and pay, you must:
1. File a PIF with MMS as specified in 30 CFR Part 210 and the MMS
Payor Handbook.
2. Report the volume and value of production and royalties owed on
a Form MMS-2014.
3. Pay the royalties owed as specified in 30 CFR Part 218 and the
MMS Payor Handbook.
However, as described below, under section 211.18(d), another
person may agree to report and pay on your behalf.
Persons who Take Production Allocable to Leases in Approved Federal or
Indian Agreements Containing 100 Percent Federal or Indian Tribal
Leases
If all of the leases in an agreement have the same lessor, the same
royalty rate, and the same fund code for royalty distribution (e.g.,
all the leases are on the OCS and not subject to 43 U.S.C. 1337(g), all
the leases are public domain leases in the same state, or all the
leases have the identical Tribal Indian lessor), it would appear to not
be necessary to specifically identify the individual leases in the
agreement to which the production is attributable. Royalties would be
reported and paid to the lessor on 100 percent of agreement production
each month. Therefore, MMS is considering a simplified reporting
procedure.
The current reporting requirements mandate that production be
treated and reported for the lease to which it is attributable. See 30
CFR 202.100(e). MMS is considering allowing the taking party to report
and pay royalties on the total volume taken on one or more of its AID
numbers associated with the agreement without concern about which lease
in the agreement the production actually is attributable to. However,
for those payors whose production is committed to a royalty-in-kind
contract, it would be necessary for them to continue to report volumes
for the specific AID number for the leases committed to that contract.
MMS proposes this option because specific lease identification is not
necessary in these circumstances since all leases have the same lessor,
royalty rate, and royalty distribution.
If this proposed rule is adopted, MMS would modify the Payor
Handbook to reflect this simplified reporting. In addition to this
method of simplified reporting, MMS also is considering simplified
reporting at the agreement level, similar to how production is now
reported. Under this option, MMS would establish a single AID number
for each participating area in the agreement. Each party taking
production from the agreement would report to MMS on this AID number.
MMS would report this information to the royalty recipient (States
or Bureau of Indian Affairs) and they would then make further
distribution to the actual owners or royalty recipients.
Each expansion or contraction of an existing unit would be reviewed
to determine if the new participating area qualifies to be reported in
this manner. If it does not meet the criteria for this type of
reporting, MMS would assign a new agreement AID number to the property.
(This option could be applied to all agreements, not just those that
meet the criteria).
Again, as discussed below, another person may agree to report and
pay royalties on your behalf.
Persons Who Take Production Allocable to Federal or Indian Leases in
all Other Approved Federal or Indian Agreements
For leases in agreements containing a mixture of Federal, Indian,
State, and/or fee leases or containing leases with varying royalty
rates or funds distributions (called mixed agreements), MMS is not
proposing any reporting or payment requirements under this rulemaking.
At this time, MMS has chartered a Federal negotiated rulemaking
committee Federal Register, 59 FR 32943, June 27, 1994) comprised of
Federal, industry, and State representatives to develop a negotiated
rulemaking that would address, among other matters, how to report and
pay royalties for these mixed agreements. Therefore, until this
committee completes its chartered task, MMS is not proposing rules for
this section. Once the committee is finished, MMS will issue a further
notice of proposed rulemaking with a recommendation for reporting and
paying royalties for these mixed agreements.
What if Another Person Agrees To Report and Pay for You?
You may be relieved of the requirement to report and pay royalties
under Secs. 211.18(a)-(c) if another person files a PIF under its name
and reports and pays the royalties for the production for which you are
required to report and pay under Secs. 211.18(a)-(c). For example, this
could be an operator or a purchaser who would follow the requirements
specified above. However, this relief relates only to the reporting and
payment obligation, therefore, you [[Page 30500]] still would be liable
for any unpaid or underpaid royalties under Sec. 211.14.
Liable Persons Who MMS Requires To Report and Pay
Under proposed Sec. 211.18(e), MMS may require any person liable
for royalty payments under subpart B to report and pay. This could be
necessary where the person principally required to report and pay under
Sec. 211.18 fails to do so.
Section 211.19 What Are the Obligations for Proper Reporting and
Paying?
How to report and pay. This paragraph would state that if you are
required to report and pay under Sec. 211.18, then you must do so
timely, accurately, and in the manner MMS specifies. This requires
following instructions in the MMS Payor Handbook and the valuation
regulations in 30 CFR Parts 202 and 206.
What you must do if you report or pay royalties incorrectly. Under
this proposed paragraph, if you do not report and pay royalties
properly, MMS may require you to submit amended reports and pay
additional royalties.
III. Procedural Matters
The Regulatory Flexibility Act
The Department certifies that this rule will not have significant
economic effect on a substantial number of small entities under the
Regulatory Flexibility Act (5 U.S.C. 611 et seq.). The proposed rule
will establish and clarify which persons are liable for unpaid or
underpaid royalties, compensatory royalties, or other payments on
Federal and Indian mineral leases. The proposed rule also clarifies who
is required to report and pay royalties on production from those
leases.
Executive Order 12630
The Department certifies that the rule does not represent a
governmental action capable of interference with constitutionally
protected property rights. Thus, a Takings Implication Assessment need
not be prepared under Executive Order 12630, ``Government Action and
Interference with Constitutionally Protected Property Rights.''
Executive Order 12778
The Department has certified to the Office of Management and Budget
that these final regulations meet the applicable standards provided in
Sections 2(a) and 2(b)(2) of Executive Order 12778.
Executive Order 12866
This document has been reviewed under Executive Order 12866 and is
not a significant regulatory action requiring Office of Management and
Budget review.
Paperwork Reduction Act of 1980
The rule contains revised Payor Information Forms, therefore this
rule will be submitted to the Office of Management and Budget under 44
U.S.C. 3501 et seq.
National Environmental Policy Act of 1969
We have determined that this rulemaking is not a major Federal
action significantly affecting the quality of the human environment,
and a detailed statement under section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) is not
required.
List of Subjects in 30 CFR Part 211
Coal, Continental shelf, Geothermal energy, Indians-lands, Mineral
resources, Mineral royalties, Natural gas, Oil, Public lands--mineral
resources, Reporting and recordkeeping requirements.
Dated: March 21, 1995.
Bob Armstrong,
Assistant Secretary--Land and Minerals Management.
For the reasons set up in the preamble, 30 CFR Part 211 is proposed
to be added as follows:
PART 211--LIABILITY FOR ROYALTY DUE ON FEDERAL AND INDIAN LEASES
AND RESPONSIBILITY TO REPORT ROYALTY AND OTHER PAYMENTS
Subpart A--General Provisions
Sec.
211.10 Purpose.
211.11 Scope.
211.12 Leases to which this part applies.
211.13 Definitions.
Subpart B--Liability
211.14 Who is liable for royalties and other payments due on a
lease.
211.15 Who is liable for payment of compensatory royalty?
211.16 How does assignment of record title interests or transfer of
operating rights interests affect liability?
211.17 How does liability affect the requirement to report and pay
royalties?
Subpart C--Reporting and Paying Royalties
211.18 Who is required to report and pay royalties?
211.19 What are the obligations for proper reporting and paying?
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.; 43 U.S.C. 1301 et seq., 1331 et seq.; 1801 et
seq..
Subpart A--General Provisions
Sec. 211.10 Purpose.
Part 211 establishes who is liable for royalty, compensatory
royalty, and other payments due on Federal and Indian leases. This part
also establishes who must report and pay those royalties.
Sec. 211.11 Scope.
(a) Subpart A explains which leases are subject to this part and
what definitions you need to know.
(b) Subpart B explains whether you are liable for royalties,
compensatory royalties, or other payments under those leases and the
extent of your liability. Nothing in this subpart applies to, or
affects, liability for other lease obligations.
(c) Subpart C explains whether you must report and pay royalties on
those leases and what your obligations are to report and pay properly.
(d) As explained under Subparts B and C, your liability may be
different from your obligation to report and pay royalties.
Sec. 211.12 Leases to which this part applies.
This part applies to the following leases:
(a) Oil and gas leases subject to 30 U.S.C. Sec. 1701 et seq. These
leases include Federal onshore leases, Indian leases, and leases on the
Outer Continental Shelf.
(b) Coal and other solid mineral leases and agreements that the
Secretary of the Interior administers under the mineral leasing laws.
These leases include Federal and Indian leases.
(c) Geothermal leases issued under the Geothermal Steam Act of
1970, 30 U.S.C. 1001 et seq.
(d) Leases or other agreements under the Indian Mineral Development
Act of 1982.
(e) Other mineral leases or agreements for which the Secretary of
the Interior collects royalty and other payments.
Sec. 211.13 Definitions.
In determining if you are liable or if you must report and pay
royalties, the following definitions apply:
Approved Federal or Indian agreement--means an agreement for
exploration or development of mineral resources as described at 25 CFR
Subchapter I, 30 CFR Subchapter B-Offshore, and 43 CFR Part 3000.
Compensatory royalty--means the amount the Bureau of Land
Management assesses to compensate for failure to prevent drainage under
43 CFR 3100.2 and 43 CFR 3162.2(a). [[Page 30501]]
Operator--means a person as defined by 30 CFR 208.3--Royalty in
kind; 30 CFR 216.6--Production accounting; 30 CFR 250.2--Offshore.
Persons defined as operators in the following sections are included
within the definition of operator in this section: 43 CFR 3100.0-5--
Onshore Leasing: General; 43 CFR 3200.0-5(v)--Geothermal Resources
Leasing: General; or 43 CFR 3400.0-5(cc)--Coal Management: General.
Operating rights owner (working interest owner)--means a person who
owns operating rights in a lease that is subject to this part. A record
title owner is the owner of operating rights under a lease except to
the extent that the operating rights or a portion thereof have been
transferred from record title.
Other payments--includes, but is not limited to, payments or
assessments such as rentals, minimum royalties, bonuses, net profit
share lease payments, gas storage agreement payments, late and
incorrect reporting assessments, and late payment interest charges.
Payor--means any person responsible for reporting and paying
royalties from a Federal or Indian lease or leases on Form MMS-2014, as
defined in 30 CFR Sec. 208.2 and as further defined in 30 CFR
Sec. 210.51.
Payor code--means the five-character MMS-assigned code that
uniquely identifies the company or individual responsible for reporting
and paying. It is used on royalty reports, payments, and correspondence
to MMS.
Payor Information Form (PIF)--means Form MMS-4025 for oil, gas, and
geothermal resources and Form MMS-4030 for solid materials, as
described in 30 CFR 210.10(c)(3)(4).
Person--means any individual, firm, corporation, association,
partnership, consortium, or joint venture (when established as a
separate entity). The term does not include Federal agencies.
Record title owner--means the person who has entered into a lease
subject to this Part or the person to whom the leasing agency has
approved the assignment of all or a portion of the record title
interest. For purposes of this Part, record title owner means the same
as record title holder, record title interest owner, and lessee of
record.
Royalty--means any payment based on the amount or value of
production of oil, gas, or other minerals from the Outer Continental
Shelf, Federal, or Indian lands, under any provision of a lease.
Take--occurs when the operating rights owner sells or removes
production from or allocated to a lease, or when such sale or removal
occurs for the benefit of an operating rights owner.
Subpart B--Liability
Sec. 211.14 Who is liable for royalties and other payments due on a
lease?
This section establishes which persons are liable for royalty or
other payments due on a lease. You are not liable for royalty or other
payments due on a lease except as provided in this section. However,
you may be liable under more than one paragraph of this section. The
limitation on liability established in this section applies only to
royalty and other payments. This limitation does not apply to
compensatory royalty and may not apply to other lease obligations
established under statute, lease terms, or regulations in Title 25,
Title 30, or Title 43.
(a) Record title owners.
(1) If you are a record title owner of a lease, you are liable for
royalty due on production from or allocated to the lease, and for other
payments, in the amount MMS determines under applicable statutes, lease
terms, regulations, or orders. You remain liable even if you transfer
some or all of your operating rights to another person or if you assign
to another person the obligation to report and pay royalty on some or
all of the production, or to make other payments. You are liable for
royalties or other payments owed on:
(i) The percentage of production equal to the percentage of your
record title ownership in the lease; and
(ii) The portion of production you take in a month that exceeds the
volume in paragraph (a)(1)(i) of this section.
(2) If you are a record title owner, you are jointly and severally
liable for the royalty or other payments due as described in paragraph
(a)(1) of this section with:
(i) Any person who owns some or all of the operating rights for the
lease that were transferred from the record title interest you
currently own, but only to the extent of the transfer;
(ii) Any other person assigned or who has assumed the obligation to
pay royalty due on the production or to make other payments for which
you are liable;
(iii) Any person who filed a PIF with MMS for the production or
other payments for which you are liable; and
(iv) Any other person liable under this part for the royalty due on
the production, or for the other payments, for which you are liable.
(b) Operating rights owners.
(1) If you own operating rights that were not transferred from the
record title interest, paragraph (a) determines your liability for
royalty and other payments due on a lease. If you own operating rights
that were transferred from the record title interest for a lease, you
are liable for royalty due on production from or allocated to the
lease, and for other payments, in the amount MMS determines under
applicable statutes, lease terms, regulations, or orders. You are
liable even if you assigned the obligation to pay royalty on some or
all of the production, or to make other payments, to another person.
You are liable for:
(i) The percentage of royalties or other payments owed that equals
the percentage of your operating rights ownership in the lease; and
(ii) The portion of production you take that exceeds the volume in
paragraph (b)(1)(i) of this section.
(2) If you own operating rights that were transferred from the
record title interest, you are jointly and severally liable for the
royalty or other payments due as described in paragraph (b)(1) of this
section with:
(i) The person who owns the record title interest from which your
operating rights were transferred;
(ii) Any other person assigned or who has assumed the obligation to
pay royalty due on the production or to make other payments for which
you are liable;
(iii) Any person who filed a PIF with MMS for the production or
other payments for which you are liable; and
(iv) Any other person liable under this part for the royalty due on
production or for the other payments for which you are liable.
(c) Persons who file PIFs with MMS.
(1) If you file a PIF with MMS, you are liable for royalty and
other payments due on the production from or allocated to the lease
specified on that PIF in the amount MMS determines under applicable
statutes, lease terms, regulations, or orders. You are liable under
this paragraph whether or not you own a record title interest or an
operating rights interest in the lease. You are liable for royalties
and other payments due on that production under one or more of the
following paragraphs:
(i) The volume received in a month if you purchase production from
or allocated to a lease.
(ii) The volume delivered in a month if you arrange a sale or other
disposition of production from or allocated to the lease for the
benefit of an operating rights owner on the lease.
(iii) The volume reported to MMS on the Report of Sales and Royalty
Remittance (Form MMS-2014) with your payor code.
(2) If you file a PIF with MMS, you are jointly and severally
liable for the royalty or other payments due as
[[Page 30502]] described in paragraph (c)(1) of this section with:
(i) All record title owners who are liable for the royalty due on
the production and for other payments;
(ii) All operating rights owners who are liable for the royalty due
on the production and for other payments; and
(iii) Any other person liable under this part for the royalty due
on production or for other payments for which you are liable.
(3) If another person uses your payor code to report royalties on
Form MMS-2014, that person is not liable for those royalties solely on
the basis of that reporting. However, that person may be liable under
paragraphs (a), (b), (d), or (e) of this section.
(d) Operators.
(1) If you are an operator, you are liable for royalty or other
payments due on a lease only if:
(i) You are subject to paragraph (a) or (b) of this section to the
extent you are a record title or operating rights owner; or
(ii) You are subject to paragraph (c) of this section by filing a
PIF; or
(iii) You are subject to paragraph (e) of this section by assuming
royalty or other payment liability by contract or agreement; or
(iv) You are liable under a regulation of the Department of the
Interior.
(e) Other liable persons.
(1) You are liable for royalty or other payments due in the amount
MMS determines under applicable statutes, lease terms, regulations, or
orders if:
(i) You have a contract or other agreement to assume that liability
on behalf of another person who is liable for those royalties or other
payments under this subpart; or
(ii) Liability is established under a regulation of the Department
of the Interior.
(f) Operating rights owners of a lease in an approved Federal or
Indian agreement.
(1) You are liable for the royalty and other payments due on
production allocated to a Federal or Indian lease in an approved
Federal or Indian agreement in the amount that MMS determines under
applicable statutes, lease terms, agreement terms, regulations, or
orders if:
(i) You own operating rights in that lease or in another Federal or
Indian lease in that agreement and
(ii) You take that production specified under paragraph (f)(1) of
this section.
(2) If you own operating rights and take production as provided in
paragraph (f)(1) of this section, you are jointly and severally liable
for the royalty and other payments with any other person who is liable
for the payments under this subpart.
Sec. 211.15 Who is liable for payment of compensatory royalty?
If you are a record title owner or operating rights owner of all or
a portion of a lease, you are jointly and severally liable for payment
of all compensatory royalty owed for that lease with:
(a) All other record title owners on that lease;
(b) All other operating rights owners on the lease; and
(c) Any other persons obligated to pay compensatory royalties under
regulations of the Department of the Interior.
Sec. 211.16 How does assignment of record title interests or transfer
of operating rights interests affect liability?
(a) If you assign some or all of your record title interest in a
lease to another person:
(1) You are not liable for royalties and other payments that accrue
on or after the effective date of the assignment for the percentage of
the interest you assign, except as provided in a regulation of the
Department of the Interior or unless you agree with the assignee to
remain liable for those payments. You will continue to be liable for
compensatory royalties that accrue for a lease after the effective date
of the assignment, unless you assigned all of your record title
interest in that lease.
(2) The person to whom you assign some or all of your record title
interest is not liable for royalties, compensatory royalties, or other
payments for the percentage of the interest assigned that accrued prior
to the effective date of the assignment, except as provided in a
regulation of the Department of the Interior or unless the assignee
agrees to be liable for those payments.
(3) The limitations on liability established in this section apply
only to royalty, compensatory royalty, and other payments. This
limitation may not apply to other lease obligations established under
statutes, lease terms, or regulations in Title 25, Title 30, or Title
43.
(b) If you transfer some or all of your operating rights interest
in a lease to another person:
(1) You are not liable for royalties and other payments that accrue
on or after the effective date of the transfer for the interest you
transfer, except as provided in a regulation of the Department of the
Interior or unless you agree with the transferee to remain liable for
those payments. You will continue to be liable for compensatory
royalties that accrue for a lease after the effective date of the
transfer, unless you transferred all of your operating rights interest
in that lease.
(2) The person to whom you transfer some or all of your operating
rights interest is not liable for royalties, compensatory royalties, or
other payments for the interest transferred that accrued prior to the
effective date of the transfer, except as provided in a regulation of
the Department of the Interior or unless the transferee agrees to be
liable for those payments.
(3) The limitations on liability established in this section apply
only to royalty, compensatory royalty, and other payments. This
limitation may not apply to other lease obligations established under
statutes, lease terms, or regulations in Title 25, Title 30, or Title
43.
Sec. 211.17 How does liability affect the requirement to report and
pay royalties?
Not all persons liable for royalty or other payments due on a lease
are required to report and pay those amounts to MMS. Subpart C
establishes the requirements for who reports and pays.
Subpart C--Reporting and Paying Royalties
Sec. 211.18 Who is required to report and pay royalties?
You must report and pay royalties for Federal and Indian leases in
accordance with this section. You also must report and pay royalties in
accordance with applicable statutes, lease terms, regulations, and
orders, and submit corrected reports or payments to MMS.
(a) Persons who take production from leases not in an approved
Federal or Indian agreement.
Except as provided in paragraph (d) of this section, if you are an
operating rights owner who takes production from a Federal or Indian
lease that is not included in an approved Federal or Indian agreement,
you must report and pay royalties and other payments on the production
you take. You must:
(1) File a PIF with MMS as specified in Part 210 of this chapter
and the MMS Payor Handbooks (see Secs. 210.54 and 210.204 for
availability)
(2) Report the royalties owed on a Form MMS-2014 as specified in
Part 210 of this chapter and the MMS Payor Handbooks; and
(3) Pay royalties as specified in Part 218 of this chapter and the
MMS Payor Handbooks.
(b) Persons who take production allocable to leases in approved
Federal or Indian agreements containing 100 percent Federal or Indian
tribal leases. [[Page 30503]]
(1) This paragraph provides requirements and instructions for
reporting and paying royalties and other payments for:
(i) Leases in an approved Federal agreement comprised only of
Federal leases that each have the same royalty rate and funds
distribution requirement; and
(ii) Approved Indian agreements comprised only of Indian tribal
leases that each have the same royalty rate and tribal lessor.
(2) Except as provided in paragraph (d) of this section, if you are
an operating rights owner who takes production allocated to a lease in
an agreement under this paragraph, you must report and pay royalties on
the production you take. You must:
(i) File a PIF with MMS as specified in Part 210 of this title and
the MMS Payor Handbooks;
(ii) Report the royalties owed for that production on a Form MMS-
2014. You must use one or more of your MMS-assigned lease accounting
identification numbers (AID). Also, you must follow the instructions
provided in Part 210 of this title and the MMS Payor Handbooks; and
(iii) Pay royalties on that production as specified in Part 218 of
this title and the MMS Payor Handbooks.
(c) Persons who take production allocable to Federal or Indian
leases in all other approved Federal or Indian agreements. [Reserved]
(d) What if another agrees to report and pay for you? If another
person files a PIF under its own name and reports and pays royalties
for the production for which you are required to report and pay under
paragraphs (a)-(c) of this section, then you are not required to report
and pay under paragraphs (a)-(c) of this section. However, you are not
relieved of any underlying liability you may have on the lease and you
may be required to report and pay under paragraph (e) of this section.
The person filing the PIF under its own name must follow the
requirements under paragraphs (a)-(c) of this section for the royalty
or other payments due.
(e) Liable persons who MMS requires to report and pay. MMS may
require any person liable for royalty or other payments under Subpart B
of this part to report and pay royalties as provided by this subpart.
Sec. 211.19 What are the obligations for proper reporting and paying?
(a) How to report and pay.
If you are required to report and pay royalties under Sec. 211.18,
you are obligated to report and pay those royalties timely, accurately,
and in the manner MMS specifies. Instructions for timely and proper
reporting are provided under Parts 210 and 218 of this title and in the
MMS Payor Handbooks. You also must report accurate volumes and values
of production on which royalties are due under applicable statutes,
lease terms, regulations, or orders. Parts 202 and 206 of this title
provide instructions for proper valuation and volume determinations.
(b) What you must do if you report or pay royalties incorrectly.
If you incorrectly report or pay royalties, you must submit
corrected reports or payments, or both, to MMS. Also, MMS may require
you to:
(1) Submit adjustments on Form MMS-2014;
(2) Correct production regarding sales exceptions;
(3) Comply with audit orders to perform;
(4) Pay bills;
(5) Pay applciable late-payment charges; and
(6) Pay civil penalties.
Note: The Following Appendices A and B will not appear in the
Code of Federal Regulations.
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[FR Doc. 95-13856 Filed 6-8-95; 8:45 am]
BILLING CODE 4310-MR-C
