ONRR 2020 Valuation Reform and Civil Penalty Rule: Notification of Proposed Withdrawal
| Published date | 11 June 2021 |
| Citation | 86 FR 31196 |
| Record Number | 2021-12318 |
| Section | Proposed rules |
| Court | Natural Resources Revenue Office |
Federal Register, Volume 86 Issue 111 (Friday, June 11, 2021)
[Federal Register Volume 86, Number 111 (Friday, June 11, 2021)]
[Proposed Rules]
[Pages 31196-31218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12318]
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DEPARTMENT OF THE INTERIOR
Office of Natural Resources Revenue
30 CFR Parts 1206 and 1241
[Docket No. ONRR-2020-0001; DS63644000 DRT000000.CH7000 212D1113RT]
RIN 1012-AA27
ONRR 2020 Valuation Reform and Civil Penalty Rule: Notification
of Proposed Withdrawal
AGENCY: Office of Natural Resources Revenue (``ONRR''), Interior.
ACTION: Proposed rule; request for comments.
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SUMMARY: ONRR is proposing to withdraw the final rule entitled ``ONRR
2020 Valuation Reform and Civil Penalty Rule'' (``2020 Rule''). This
action opens a 60-day comment period to allow interested parties to
comment on ONRR's proposed withdrawal of the 2020 Rule.
DATES: The final rule published on January 15, 2021, at 86 FR 4612,
which was delayed at 86 FR 9286 on February 12, 2021, and 86 FR 20032
on April 16, 2021, is proposed to be withdrawn. To be assured
consideration, comments must be received at one of the addresses
provided below by 11:59 p.m. EST on August 10, 2021.
ADDRESSES: You may submit comments to ONRR using one of the following
two methods. Please reference the Regulation Identifier Number
(``RIN'') for this action, ``RIN 1012-AA27,'' in your comment:
Electronically via the Federal eRulemaking Portal: Please
visit https://www.regulations.gov. In the Search Box, enter Docket ID
``ONRR-2020-0001'' and click ``search'' to view the publications
associated with the docket folder. Locate the document with an open
comment period and then click ``Comment.'' Follow the instructions to
submit your public comments prior to the close of the comment period.
Email Submissions: Please submit your comments via email
at [email protected] with ``RIN 1012-AA27'' listed in
the subject line of your message. Email submissions must be postmarked
on or before the close of the comment period.
Instructions: All comments must include the agency name and docket
number or RIN for this rulemaking. All comments, including any personal
identifying information or confidential business information contained
in a comment, will be posted without change to https://www.regulations.gov.
Docket: For access to the docket to read background documents or
comments received, go to https://www.regulations.gov and locate the
docket folder by searching the Docket ID (ONRR-2020-0001) or RIN number
(RIN 1012-AA27).
FOR FURTHER INFORMATION CONTACT: For questions, contact Luis Aguilar,
Regulatory Specialist, at (303) 231-3418 or by email at
[email protected].
SUPPLEMENTARY INFORMATION:
Table of Abbreviations and Commonly Used Acronyms in This Proposed Rule
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Abbreviation What it means
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2016 Valuation Rule.......... ONRR's Consolidated Federal Oil and Gas
and Federal and Indian Coal Valuation
Reform Rule, 81 FR 43338 (July 1, 2016).
2016 Civil Penalty Rule...... ONRR's Amendments to Civil Penalty
Regulations, 81 FR 50306 (August 1,
2016).
2017 Repeal Rule............. ONRR's Repeal of the 2016 Valuation Rule,
82 FR 36934 (August 7, 2017).
ALJ.......................... Administrative Law Judge.
APA.......................... Administrative Procedure Act of 1946, as
amended.
API.......................... American Petroleum Institute.
BLM.......................... Bureau of Land Management.
BLS.......................... Bureau of Labor Statistics.
BOEM......................... Bureau of Ocean Energy Management.
BSEE......................... Bureau of Safety and Environmental
Enforcement.
Deepwater Policy............. MMS's May 20, 1999, memorandum entitled
``Guidance for Determining
Transportation Allowances for Production
from Leases in Water Depths Greater Than
200 Meters''.
[[Page 31197]]
DOI.......................... U.S. Department of the Interior.
E.O.......................... Executive Order.
FERC......................... Federal Energy Regulatory Commission.
2020 Rule.................... ONRR 2020 Valuation Reform and Civil
Penalty Rule, 86 FR 4612 (January 15,
2021).
First Delay Rule............. ONRR 2020 Valuation Reform and Civil
Penalty Rule: Delay of Effective Date
and Request for Public Comment, 86 FR
9286 (February 12, 2021).
FOGRMA....................... Federal Oil and Gas Royalty Management
Act of 1982, 30 U.S.C. 1701, et seq..
GOM.......................... Gulf of Mexico.
MLA.......................... Mineral Leasing Act of 1920, 30 U.S.C.
181, et seq..
MMS.......................... Minerals Management Service.
NEPA......................... National Environmental Policy Act of
1970.
NGL.......................... Natural Gas Liquids.
OCS.......................... Outer Continental Shelf.
OCSLA........................ Outer Continental Shelf Lands Act of
1953, 43 U.S.C. 1331, et seq.
ONRR......................... Office of Natural Resources Revenue.
Proposed 2020 Rule........... ONRR 2020 Valuation Reform and Civil
Penalty Rule, Proposed Rule, 85 FR 62054
(October 1, 2020).
Second Delay Rule............ ONRR 2020 Valuation Reform and Civil
Penalty Rule: Delay of Effective Date,
86 FR 20032 (April 16, 2021).
Secretary.................... Secretary of the U.S. Department of the
Interior.
S.O.......................... Secretarial Order.
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I. Introduction
A. Statutory Authority
Through the enactment of various mineral leasing laws, Congress
authorized the Secretary to issue and administer leases to allow for
the exploration, development, and production of mineral resources from
Federal and Indian lands and the OCS. These laws include, for onshore
lands, the MLA, for offshore lands, the OCSLA, and for Indian and
allotted lands, 25 U.S.C. 396, et seq. The Secretary has delegated the
statutory authority to lease, permit, and inspect mineral extraction
activities on those lands to several bureaus and offices.
The Secretary is also responsible for collecting, accounting for,
and disbursing royalties and other financial obligations related to the
leasing, production, and sale of minerals from Federal and Indian
lands. Mineral leasing laws, regulations, and lease terms establish
royalty rates and other obligations that a lessee must pay to the
United States or Indian lessor. Relevant to this rulemaking, see, e.g.,
25 U.S.C. 396a-g, 400a; 30 U.S.C. 207(a), 226(b)(1) (MLA); 43 U.S.C.
1337(a)(1) (OCSLA); 25 CFR 211.43; 43 CFR 3103.3-1, 43 CFR 3473.3-2.
Congress enacted FOGRMA to further clarify and establish the
Secretary's responsibilities with respect to royalty management.
Through FOGRMA, Congress directed the Secretary ``to improve methods of
accounting for such royalties and payments'' and required ``the
development of enforcement practices that ensure the prompt and proper
collection and disbursement of oil and gas revenues owed to the United
States and Indian lessors and those inuring to the benefit of States.''
30 U.S.C. 1701(a)(3) and (b)(3).
Over the years, royalty management responsibilities have been
transferred within DOI and in 2010, following the reorganization of
MMS, ONRR was created. The Secretary delegated authority to ONRR to
carry out its responsibilities specific to ``royalty and revenue
collection, distribution, auditing and compliance, investigation and
enforcement, and asset management for both onshore and offshore
activities.'' S.O. 3299, Sec. 5 (August 29, 2011); see also S.O. 3306
(September 30, 2010). Pursuant to FOGRMA, the mineral leasing acts, and
the authority delegated by the Secretary, ONRR has adopted regulations
specifying the methods to be used to determine the value of Federal and
Indian mineral production for royalty purposes.
ONRR's responsibilities are distinct from other DOI offices and
bureaus and pertain specifically to the collection, verification, and
disbursement of royalty revenue realized from production of natural
resources on Federal and Indian lands and the OCS. See 30 CFR 1201.100.
FOGRMA and the mineral leasing laws grant the Secretary broad
rulemaking authority to carry out and accomplish the purposes set forth
in the governing statutes. See 30 U.S.C. 189 (MLA); 30 U.S.C. 1751
(FOGRMA); and 43 U.S.C. 1334 (OCSLA). In turn, the Secretary delegated
rulemaking authority specific to ONRR's portfolio of responsibilities
to ONRR. See S.O. 3299, sec. 5 and S.O. 3306, sec. 3-4.
B. Rulemaking History
1. The 2020 Proposed Rule
On October 1, 2020, ONRR published the Proposed 2020 Rule. The
Proposed 2020 Rule proposed to amend certain regulations that inform
the manner in which ONRR values oil and gas produced from Federal
leases for royalty purposes; values coal produced from Federal and
Indian leases for royalty purposes; and assesses civil penalties for
violations of certain statutes, regulations, lease terms, and orders
associated with mineral leases. The Proposed 2020 Rule stated its
purposes were to: Align the 2016 Valuation Rule with certain E.O.s
issued after the 2016 Valuation Rule's publication date; address some
of the amendments in the 2016 Valuation Rule asserted to be
controversial and problematic; simplify processes and provide early
clarity regarding royalties owed; better explain ONRR's civil penalty
practices; and return certain provisions to the framework that had
existed for decades prior to the 2016 Valuation Rule and 2016 Civil
Penalties Rule.
The 60-day comment period for the Proposed 2020 Rule closed on
November 30, 2020. ONRR received comments from numerous industry
members, trade associations, public interest groups, members of
Congress, members of the public, and State and local entities. ONRR
received 36 unique comment submissions totaling to 40,456 pages of
comment materials, of which 38,150 pages were a one-page form comment.
[[Page 31198]]
2. The 2020 Rule
On January 15, 2021, 46 days after the close of the comment period,
ONRR published the 2020 Rule. The 2020 Rule adopted amendments on 15
topics, generally summarized as:
1. Deepwater gathering--allowing certain gathering costs to be
deducted as part of a lessee's transportation allowance for Federal oil
and gas produced on the OCS at water depths greater than 200 meters.
2. Extraordinary processing allowances--allowing a lessee to apply
for approval to claim an extraordinary processing allowance for Federal
gas in situations where the gas stream, plant design, and/or unit costs
are extraordinary, unusual, or unconventional relative to standard
industry conditions and practice.
3. Default provision--removed the default provision and references
thereto from the Federal oil and gas and Federal and Indian coal
regulations. The default provision established criteria limiting how
ONRR will exercise the Secretary's authority to establish royalty value
when typical valuation methods are unavailable, unreliable, or
unworkable.
4. Misconduct--removed the misconduct definition from 30 CFR
1206.20.
5. Signed contracts--removed the requirement that a lessee have
contracts signed by all parties.
6. Citation to legal precedent--eliminated the requirement for a
lessee to cite legal precedent when seeking a valuation determination.
7. Arm's-length valuation option--adopted an index-based valuation
option for arm's-length Federal gas sales.
8. Change in indices to be used in index-based valuation options--
changed from the high index price to the average index pprice.
9. Standard deduction for transportation allowance--amended the
standard deduction included in the index-based valuation method to
reflect more recent average transportation cost data.
10. Valuation of coal based on electricity sales--removed the
requirement to value certain Federal and Indian coal based on the sales
price of electricity.
11. Coal cooperative--removed the definition of ``coal
cooperative'' and the method to value sales between members of a ``coal
cooperative'' for Federal and Indian coal.
12. Facts considered in penalizing payment violations--modified
ONRR's civil penalty regulations to specify that ONRR considers unpaid,
underpaid, or late payment amounts in the severity analysis for payment
violations only.
13. Consideration of aggravating and mitigating circumstances--
modified ONRR's civil penalty regulations to specify that ONRR may
consider aggravating and mitigating circumstances when calculating the
amount of a civil penalty.
14. Conforming civil penalty regulations to court decision--removed
a provision permitting an ALJ to vacate a previously-granted stay of an
accrual of penalties if the ALJ later determines that a violator's
defense to a notice of noncompliance was frivolous.
15. Non-substantive corrections--amended various regulations by
making non-substantive corrections.
The 2020 Rule did not adopt amendments on three topics discussed in
the Proposed 2020 Rule:
1. Regulatory caps on transportation allowances for Federal oil and
gas. See 86 FR 4613.
2. Regulatory caps on processing allowances for Federal gas. See 86
FR 4614.
3. Shallow water gathering. See 86 FR 4614.
The effective date of the 2020 Rule was originally February 16,
2021. For amendments to 30 CFR part 1206 only, the 2020 Rule
established a compliance date of May 1, 2021.
3. The First Delay Rule
On January 20, 2021, the Assistant to the President and Chief of
Staff issued a memorandum entitled ``Regulatory Freeze Pending Review''
which, along with the Office of Management and Budget (``OMB'') January
20, 2021, Memorandum M-21-14, directed agencies to consider a delay of
the effective date of rules published in the Federal Register that had
not yet become effective and to invite public comment on issues of
fact, law, and policy raised by those rules (86 FR 7424, January 28,
2021).
On February 12, 2021, ONRR published the First Delay Rule which
initially delayed by 60 days the effective date of the 2020 Rule,
opened a 30-day comment period on the facts, law, and policy
underpinning the 2020 Rule, as well as on the impact of a delay in the
effective date of the 2020 Rule. In response, ONRR received 13 comment
submissions totaling to 1,339 pages of comment materials, many of which
were submitted by the same organizations that had commented on the
Proposed 2020 Rule.
4. The Second Delay Rule
After the close of the First Delay Rule's comment period, ONRR
determined that an additional delay of the 2020 Rule's effective date
was needed. Thus, on April 16, 2021, ONRR published a second final rule
which further delayed the effective date until November 1, 2021 (the
``Second Delay Rule'').
The Second Delay Rule listed 15 potential defects or shortcomings
identified by ONRR in its initial reexamination of the 2020 Rule and in
comments received in response to the First Delay Rule. 86 FR 20032. It
also addressed public comments received on the impacts of delay of the
effective date of the 2020 Rule.
II. Basis for Proposed Action
ONRR is proposing to withdraw the 2020 Rule because the process
used for its adoption arguably was without observance of procedure
required by law, as well as in excess of ONRR's statutory authority.
See 5 U.S.C. 706(2)(C), (D). While a complete withdrawal of the 2020
Rule may be warranted, ONRR requests public comment on potential
alternatives in Section IV of this rule. For example, alternative
outcomes following this proposed rule's notice could include: Allowing
the 2020 Rule to go into effect, a withdrawal limited to some or all of
the 2020 Rule's amendments to 30 CFR part 1206, a withdrawal limited to
some or all of the 2020 Rule's revenue-impacting amendments, a
withdrawal limited to some or all of the 2020 Rule's amendments to part
1241, or some combination thereof. ONRR acknowledges the importance of
public participation as part of the rulemaking process. As such, this
rule explains potential deficiencies in the 2020 Rule and invites
public comment on the proposed withdrawal and new findings considered
as part of this reevaluation. Following the close of this rule's
comment period, ONRR will consider all relevant information submitted
through public comment and determine the appropriate course of action.
A. APA Defects That Go to the Entirety of the 2020 Rule
The 2020 Rule may be deficient under the APA for the following
reasons.
1. Adequacy of the Comment Period
Though the 2016 Valuation Rule included a public comment period of
120 days, the 2020 Rule included a public comment period of just 60
days. In litigation construing ONRR's reversal of major policies
adopted in the 2016 Valuation Rule, the District Court found that ONRR
failed to provide meaningful opportunity for comment when it enacted
the reversal without a comment
[[Page 31199]]
period of commensurate length. Specifically, the District Court found
that the 30-day comment period used for the 2017 repeal of the 2016
Valuation Rule was too brief when ONRR had a much longer comment period
for the 2016 Valuation Rule--approximately 120 days.\1\ Here, though
ONRR did allow for more than 30 days of comment on the 2020 Rule, as
with the repeal of the 2016 Valuation Rule, ONRR may still have
deprived the public of an adequate period within which to comment.
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\1\ California v. U.S. Dep't of the Interior, 381 F. Supp. 3d
1153, 1177-78 (N.D. Cal. 2019) (``ONRR's failure to provide a
meaningful opportunity to comment is underscored by the brevity of
the comment period. While there is no bright-line test for the
minimum amount of time allotted for the comment period, at least one
circuit has recognized that 90 days is the `usual' amount of time
allotted for a comment period. In cases involving the repeal of
regulations, courts have considered the length of the comment period
utilized in the prior rulemaking process as [ ] well as the number
of comments received during that time-period. In the instant case, a
comparison between the ONRR's rulemaking process leading to the
Valuation Rule and the process used to repeal it exemplifies the
ONRR's failure to provide for a meaningful rulemaking process. . . .
In contrast to the years of consideration leading to the
promulgation of the Valuation Rule, the ONRR's actions to repeal it
took place in a matter of months. Whereas the ONRR provided a 120-
day comment period for the draft Valuation Rule, the ONRR allowed
only a 30-day comment period to consider its repeal. . . . Based on
the record presented, the Court finds that the ONRR failed to
provide meaningful opportunity for comment.'' (citations omitted)).
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2. Consideration of Alternatives
The Proposed 2020 Rule does not demonstrate that ONRR considered
alternatives to the repeal of select regulations adopted in the 2016
Valuation Rule and, to a lesser extent, its 2016 Civil Penalty Rule.
For example, the 2020 Rule did not discuss alternatives to the repeal
of the definition of misconduct or the requirement of signed contracts,
among other less controversial changes. This again resembles ONRR's
2017 attempt to repeal the 2016 Valuation Rule, where the District
Court found that ONRR did not discuss alternatives to a full repeal of
the 2016 Valuation Rule and explained that an agency must discuss
alternatives even if the agency is repealing less than an entire
rulemaking.\2\
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\2\ Id. at 1168-69 (``When considering revoking a rule, an
agency must consider alternatives in lieu of a complete repeal, such
as by addressing the deficiencies individually. In response to the
Proposed Repeal, the ONRR received comments suggesting that in lieu
of complete repeal of the Valuation Rule, the ONRR should address
specific problems `separately and not entirely abandon the rule in
its entirety.' The ONRR responded that `[t]he cost of implementing
the rule and subsequently trying to fix the defects in one or more
separate rulemakings would far exceed the cost of repealing and
replacing the rule.' That conclusory statement--unsupported by
facts, reasoning or analysis--is legally insufficient.'').
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3. Lack of ``Reasoned Explanation'' for Proposed Rule Denies the Public
an Opportunity To Comment
In the Proposed 2020 Rule, ONRR may not have fully explained why it
was proposing certain substantive amendments.\3\ The District Court
noted a similar flaw in ONRR's 2017 proposal to repeal the 2016
Valuation Rule, finding that ONRR did not identify the reasons
supporting its proposed repeal.\4\
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\3\ Even if ONRR's failure to fully explain its proposed action
only affected the validity of certain amendments, a court may vacate
an entire rule if it is not feasible to keep only the valid
sections. See High Country Conservation Advocates v. U.S. Forest
Serv., 951 F.3d 1217, 1228-29 (10th Cir. 2020) (holding that a court
may only partially set aside a regulation if the invalid portion is
severable, that is if the severed parts operate entirely
independently of one another, and the circumstances indicate the
agency would have adopted the regulations even without the faulty
provision); see also Wyoming v. U.S. Dep't of the Interior, 493 F.
Supp. 3d 1046 (D. Wyo. 2020) (holding that the remainder of the
BLM's rule provisions could not function independently and vacating
the entire rule.).
\4\ California, 381 F. Supp. 3d at 1173-74 (``The Court
concludes that, by failing to provide the requisite information to
adequately apprise the public regarding the reasons the ONRR was
seeking to repeal the Valuation Rule in favor of the former
regulations it had just replaced, the ONRR effectively precluded
interested parties from meaningfully commenting on the proposed
repeal. The Court therefore concludes that Federal Defendants
violated the APA by failing to comply with the notice and comment
requirement.'' (citations omitted)).
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Specifically, ONRR's Proposed 2020 Rule may not have fully
described the reasons why it was proposing to return to some of the
``historical practices'' or adopting other changes, including: (1) When
production is completed offshore in waters 200 meters and deeper,
allowing a lessee to report and claim certain gathering costs in its
transportation allowances; (2) extension of index-based valuation to
arm's-length sales of Federal gas; and (3) lowering of the index, from
the highest bidweek price to an average bidweek price, for valuation of
non-arm's-length sales of Federal gas. While the Proposed 2020 Rule
identified the proposed changes, discussed the anticipated economic
impact of the changes, and set forth the language of the proposed
amendments, ONRR could have more fully discussed why the changes were
being proposed. Moreover, for the changes that were reverting to
``historical practices'' (i.e., those existing before the 2016
Valuation Rule was adopted), ONRR did not fully explain why it was
reverting to practices it had rejected in its last substantive
rulemaking. Thus, the Proposed 2020 Rule may not have provided
sufficient notice of the reasons for the substantive proposed changes
to be adopted through the 2020 Rule such that the public was not
provided with a meaningful opportunity to comment.
4. Failure to Adequately Justify Change in Recently Adopted Policy
At the time the Proposed 2020 Rule was published, the 2016
Valuation Rule had been in force for only seventeen months (from March
29, 2019 when the repeal of the 2016 Valuation Rule was overturned to
October 1, 2020) and full compliance with that rule had been delayed by
the series of Dear Reporter letters to October 1, 2020. Given that the
Proposed 2020 Rule was, in many instances, an attempt to return to the
valuation rules that existed prior to the 2016 Valuation Rule, ONRR
should have included justifications for the proposed changes in the
Proposed 2020 Rule. In addition, ONRR should have explained the
inconsistencies between the 2016 Valuation Rule and the amendments
described in the Proposed 2020 Rule and, in addition, adequately
explained its potential rejection of the position under which the
agency and the regulated public had been operating for only a brief
period of time.\5\
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\5\ See footnote 4.
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In considering ONRR's 2017 attempt to repeal its 2016 Valuation
Rule, the District Court similarly concluded that ONRR did not provide
``a reasoned explanation . . . for disregarding facts and circumstances
that underlay or were engendered by the prior policy.'' \6\ Here too,
the APA may have been violated by ONRR's failure to offer a reasoned
explanation for the proposed amendments and its failure to describe why
it was disregarding the findings in the 2016 Valuation Rule in favor of
[[Page 31200]]
reverting to prior policy after only a brief period of time operating
under the 2016 Valuation Rule.
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\6\ California, 381 F. Supp 3d at 1168 (citing Encino Motorcars,
LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016)). The District Court
further found that, in its 2017 repeal, ONRR completely
contradict[ed] its prior findings. Despite its previous, detailed
conclusions in support of the Valuation Rule's approach to valuing
non-arm's-length coal transactions--and dismissing the industry's
criticisms thereof--the ONRR now finds the approach prescribed in
the Valuation Rule to be ``unnecessarily complicated and burdensome
to implement and enforce.'' Likewise, in contrast to its prior
criticisms of the benchmarks, the ONRR now lauds the benchmark
system as ``proven and time-tested,'' as well as ``reasonable,
reliable, and consistent.'' Although the ONRR is entitled to change
its position, it must provide ``a reasoned explanation . . . for
disregarding facts and circumstances that underlay or were
engendered by the prior policy'' . . . . The Court finds that the
ONRR's conclusory explanation in the Final Repeal fails to satisfy
its obligation to explain the inconsistencies between its prior
findings in enacting the Valuation Rule and its decision to repeal
such Rule. The ONRR's repeal of the Valuation Rule is therefore
arbitrary and capricious.
Id. at 1167-68 (citations omitted).
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Moreover, the justification offered in the 2020 Rule, in some
instances, could be interpreted as relying on matters outside of ONRR's
primary area of expertise--matters that were not signaled in the
proposed rule. Since the explanation for its action was offered only in
the 2020 Rule, and not in the Proposed 2020 Rule, members of the public
may have been deprived of an opportunity to comment, as they were
unlikely to anticipate that ONRR would cite external justification for
the 2020 Rule.
B. APA and Other Defects That Go to Portions of the 2020 Rule
Part A above explains four potential defects in the 2020 Rule. In
addition to these defects, ONRR also believes it may have promulgated
certain amendments in excess of the authority delegated to it, as
explained below.\7\ The sum of these defects may warrant withdrawal of
the entire 2020 Rule.
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\7\ Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)
(``It is axiomatic that an administrative agency's power to
promulgate legislative regulations is limited to the authority
delegated by Congress.''); Food & Drug Admin. v. Brown & Williamson
Tobacco Corp., 529 U.S. 120, 125 (2000) (``Regardless of how serious
the problem an administrative agency seeks to address, . . . it may
not exercise its authority 'in a manner that is inconsistent with
the administrative structure that Congress enacted into law.' '').
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Because ONRR is considering alternatives to complete withdrawal of
the 2020 Rule, this section provides information regarding additional,
amendment-specific problems which may warrant the withdrawal of some
but not all of the 2020 Rule. The amendments covered in this Part B
are: (1) Deepwater gathering allowances; (2) extraordinary processing
allowances; (3) index-based valuation for arm's-length sales; (4)
modification of the index price used in index-based valuation; and (5)
increasing the reduction to the index price used in index-based
valuation to account for transportation expenses. Collectively, these
five are referred to as the revenue-impacting provisions of the 2020
Rule.
1. ONRR's Role in Incentivizing Production
Since the 2020 Rule adopted each of these five revenue-impacting
amendments to, in part, incentivize production by reducing royalties an
oil and gas lessee would otherwise owe the United States, this section
begins by discussing incentivization of production before turning to
matters specific to individual revenue-impacting amendments.
a. Secretarial Authorities Delegated to ONRR Do Not Include
Incentivizing Production
In response to the Proposed 2020 Rule, some commenters noted that
ONRR based the proposed rule on incentivizing or increasing Federal
production despite the fact that ONRR has no explicit mandate to
increase production. In the 2020 Rule, ONRR disagreed with the
commenter and responded by stating that it shared in DOI's goal of
managing Federal resources on the OCS. See 86 FR 4623. It is true that
Congress has established official policy that ``the Outer Continental
Shelf is a vital national resource reserve held by the Federal
Government for the public, which should be made available for
expeditious and orderly development, subject to environmental
safeguards, in a manner which is consistent with the maintenance of
competition and other national needs.'' 43 U.S.C. 1332(3). This broad
directive, framed primarily by the overarching requirement that DOI
conduct leasing activities ``to assure receipt of fair market value for
the lands leased and the rights conveyed by the Federal Government,''
43 U.S.C. 1344(a)(4), provides the Secretary with broad discretion to
emphasize varying components of OCLSA's objectives. Similarly, with
respect to the royalty management program specifically, the Secretary
has the authority to ``prescribe such rules and regulations as he deems
reasonably necessary to carry out this chapter'' under FOGRMA, 30
U.S.C. 1751(a).
Notably, however, ONRR has reconsidered its responsibilities and
determined that they are much narrower than the 2020 Rule suggested.
ONRR was established, together with BOEM and BSEE, to purposefully
separate and reassign the responsibilities of the former MMS in order
to improve management, oversight, and accountability of activities on
the OCS, ensure a fair return to the public from royalty and revenue
collection and disbursement activities, and provide independent safety
and environmental oversight and enforcement of offshore activities. See
S.O. 3299 (May 19, 2010) and S.O. 3306 (Sept. 30, 2010). Under these
S.O.s, ONRR is specifically responsible for managing royalty and
revenue collection, distribution, auditing and compliance,
investigation and enforcement, and asset management for both onshore
and offshore activities. Id. Consistent with the S.O.s, ONRR is
primarily responsible for carrying out the Secretary's duty to
``establish a comprehensive inspection, collection and fiscal and
production accounting and auditing system to provide the capability to
accurately determine oil and gas royalties, interest, fines, penalties,
fees, deposits, and other payments owed, and to collect and account for
such amounts in a timely manner'' under 30 U.S.C. 1711(a). Unlike most
agencies within DOI, ONRR has no organic statute and the role of ONRR
under S.O. 3299 and S.O. 3306 is narrowly focused on the accounting and
auditing activities that form the bedrock of ONRR's responsibilities.
Thus, questions exist regarding the scope of ONRR's authority and the
range of activities that have been assigned or delegated to it.
The need to separate the auditing and accounting responsibilities
from the planning and leasing activities was one of the primary stated
purposes for the dissolution of the former MMS and the creation of
BOEM, BSEE, and ONRR. MMS was divided into the three separate bureaus
and offices to separate conflicting missions. See https://www.doi.gov/news/pressreleases/Salazar-Divides-MMSs-Three-Conflicting-Missions.
Among other things, the establishment of ONRR in the Office of the
Assistant Secretary for Policy Management and Budget, ``centralize[d]
the collection and management of revenues from energy development on
our public lands and oceans, which strengthens the ability of employees
to independently and rigorously carry out their revenue management
responsibilities, and ensures better protection of American taxpayer
interests.'' See July 15, 2011 Statement of the Director of the Office
of Natural Resources Revenue, to the Committee on Natural Resources,
House of Representatives, doi.gov/ocl/hearings/112/OffshoreEnergyAgenciesGould_071511. Tasking ONRR with incentivizing
energy production would seem to be inconsistent with the current
delegation of responsibilities between BOEM, BSEE, and ONRR.
Finally, it should be remembered that ONRR's primary functions
include ensuring fair return (i.e., fair value) for the public from
royalty and revenue collection and disbursement activities. As a
result, any decision by ONRR to incentivize or disincentivize
production that compromises the attainment of a fair return for the
United States would be outside ONRR's primary function.
[[Page 31201]]
b. The 2020 Rule Failed To Show How It Incentivized Production
In response to the First Delay Rule, one commenter wrote that ONRR
revealed for the first time in the 2020 Rule that it evaluated the
issue of production impacts using its economic models. The commenter
referred to the following language: The ``margin of error for
estimating this rule's negligible or marginal impact on actual
production is beyond the capability of the Department's existing
models, and the Department does not know of other economic models that
are sufficiently sensitive to accurately measure these changes.'' 86 FR
4616. The commenter described this language as convoluted.
The commenter interpreted this statement to mean that, using the
estimating models available to it, ONRR ultimately determined that the
rule would have a ``negligible or marginal impact on production''
within the margin of error of its models. According to the commenter,
ONRR's statement means the premise for adopting the 2020 Rule--that it
would increase production--was false. The commenter also stated that
ONRR failed to provide this finding to the public in the Proposed 2020
Rule to allow the public the opportunity to comment on this new
information. The commenter asserted that ONRR instead proceeded to
adopt the 2020 Rule despite knowing the premise for its rulemaking had
been withheld and, moreover, was materially false. The commenter
claimed that on this basis alone, the 2020 Rule should be withdrawn.
ONRR rejects the commenter's assertions that information was
withheld in the Proposed 2020 Rule to undermine the public's
opportunity to comment. Agencies routinely add, expand, and revise
explanations between proposed and final rules based on public comments
and their own continued analysis and search for information. However,
ONRR agrees with the commenter that the 2020 Rule ultimately failed to
explain or substantiate how it accomplished its stated purpose to
incentivize production--regardless of whether, as discussed above, it
is within ONRR's authority to adopt rules for that purpose.
c. The 2020 Rule Failed To Consider Existing Methods DOI Uses To
Incentivize Production
ONRR's sister bureaus have regulations in place to incentivize
production through royalty relief in certain situations. This section
briefly describes some of these bureaus' royalty-relief programs, which
ONRR failed to consider when adopting the 2020 Rule. Immediately below
we discuss BSEE's offshore royalty relief programs, and then BLM's
onshore royalty relief programs.
DOI's statutory authority allows it to reduce or eliminate a
lessee's OCS royalty obligation in order to promote development,
increase production, or encourage production of marginal resources. See
43 U.S.C. 1337(a)(3). BSEE's royalty relief regulations, including
those found at 30 CFR part 203, may provide a more appropriate
incentive than the 2020 Rule's revenue-impacting amendments, including
the deepwater gathering allowance, which is limited to the OCS.
The Secretary implements 43 U.S.C. 1337(a)(3)(A)-(C) by offering
royalty relief under two general categories, ``automatic'' and
``discretionary.'' ``Automatic'' refers to deepwater and deep gas
royalty relief that is specified in an OCS lease issued by BOEM. See 30
CFR 560.220. ``Discretionary'' refers to royalty relief that a lessee
may apply for under certain scenarios and includes end-of-life and
special case royalty relief. See 30 CFR 203.50 through 203.56 and
203.80, respectively. For more information, see https://www.boem.gov/oil-gas-energy/energy-economics/royalty-relief.
In order to receive discretionary royalty relief, a lessee must
demonstrate and BSEE must verify that a project would be uneconomic
without royalty relief and would become economic with royalty relief.
See 30 CFR 203.2. The lessee must submit an application to BSEE
outlining the estimated economics of the project, which BSEE then
reviews. See id. (stating that for different types of royalty relief,
the applicant must propose and demonstrate that their project or
further development is uneconomic without relief); see also https://www.boem.gov/oil-gas-energy/energy-economics/deepwater-royalty-relief-economic-model. BSEE employs this process to balance the promotion of
production with other considerations, including protection of royalty
revenue. In contrast, some of the 2020 Rule's revenue-impacting
amendments, including the deepwater gathering allowance and amendments
related to the index-based valuation option, may be claimed by all
lessees producing from deepwater and are in no manner targeted to
incentivize operations that otherwise would be uneconomic. Instead,
these revenue-impacting amendments are an across-the-board benefit for
any lessee that meets the criteria set out in the amendment--regardless
of economic need.
Specific to the deepwater gathering allowance, experience gained in
numerous audits and other compliance activities has shown that many
lessees commissioned deepwater projects without knowledge of the
Deepwater Policy. Rather than having made investment decisions based on
the Deepwater Policy, these lessees began to calculate allowances under
that policy long after learning of the Deepwater Policy and, typically,
long after a project began producing. Some companies, prior to the 2016
Valuation Rule's rescission of the Deepwater Policy, applied the
Deepwater Policy retroactively after selling the assets. Moreover, for
production between 1999 and 2016, ONRR found that many lessees
misapplied the Deepwater Policy (for example, claiming disallowed costs
or claiming gathering in situations that did not meet the Deepwater
Policy's criteria). While the Deepwater Policy (between 1999 and 2016)
reduced royalty value, ONRR has seen no evidence that the Deepwater
Policy impacted a lessee's decision-making to invest or not in a
deepwater project.
BSEE's royalty relief practices include safeguards for the public,
including the application and approval process, volume thresholds,
pricing thresholds, time limits, capital expenditure thresholds, and
periodic reviews of approved royalty relief. 30 CFR 203.4
(discretionary end-of-life and deep-water relief programs) and 30 CFR
203.47 (deep gas relief program); see also https://www.bsee.gov/sites/bsee.gov/files/special-case-royalty-relief-overview-1.pdf (describing
the special case relief program's application process). Each
application for discretionary royalty relief is reviewed by BSEE,
allowing BSEE to grant relief only where needed and appropriate while
still protecting public interests. 30 CFR 203.1 and 203.2 (providing
that BSEE may grant a ``royalty suspension for a minimum production
volume plus any additional volume needed to make your project
economic'').
In contrast, four of the five revenue-impacting amendments adopted
in the 2020 Rule do not include an economic needs test or an
application and approval process. There was and is no safeguard to
prevent a lessee with a highly lucrative operation from taking
advantage of these revenue-impacting amendments.
Because the 2020 Rule did not consider existing BSEE regulations
and practices which provide more targeted, structured methods to
incentivize new or continuing OCS operations, it appears ONRR's 2020
rulemaking process was inadequate to support
[[Page 31202]]
adoption of its revenue-impacting amendments, including, on the basis
of incentivizing production.
See also the ``Memorandum of Understanding between BOEM, BSEE, and
ONRR for the Collaboration on Processes, Policies and Systems Relating
to the Management of [OCS] Energy and Marine Mineral Development,''
signed in March of 2014 (``2014 MOU''), which outlines BOEM, BSEE, and
ONRR's respective duties for and involvement in various aspects of OCS
production. ONRR's role, with respect to these programs, is limited to
the maintenance of royalty information in ONRR's royalty management
system. See 2014 MOU, Attachment A, Information Sharing and Bureau
Responsibilities; Offshore Federal Oil, Gas, Sulphur and Marine
Minerals at page A-21 to A-22 (noting BSEE and BOEM duties to track
production and assess price forecasting, among other tasks, with ONRR's
responsibility with respect to royalty relief limited to ensuring
volume and royalty data remain up-to-date, and ensuring the collection
of any royalty payments). 2014 MOU located at https://www.boem.gov/sites/default/files/documents//MOU%20BOEM-BSEE-ONRR%20Collaboration%202014-04-16.pdf.
Onshore, BLM may reduce the royalty on a lease ``to encourage the
greatest ultimate recovery of the resource and in the interest of
conservation of natural resources.'' See 43 CFR 3103.4-1(a). Prior to
reducing a royalty rate, BLM must conduct an analysis to determine that
the royalty reduction ``is necessary to promote development of the
lease or the BLM determines that the lease cannot be successfully
operated under [the royalty rate agreed to in] the terms of the
lease.'' 43 CFR 3133.3(a)(2). The regulations also specify the process
by which companies must apply for a royalty reduction and the required
contents of an application. See 43 CFR 3103.4-1(b)(1)-(3).
ONRR invites public comment on whether the targeted royalty-relief
authorities delegated to and administered by BSEE and BLM serve as more
appropriate mechanisms to evaluate a lessee's economic or production
hardship and to appropriately respond thereto than do the 2020 Rule's
revenue-impacting provisions.
2. Deepwater Gathering Allowances (Sec. Sec. 1206.110(a) and
1206.152(a))
a. The Regulation Text Adopted in the 2020 Rule Was Not in the Proposed
2020 Rule
Following the Proposed 2020 Rule's publication, ONRR discovered
that some of the regulatory text intended for Sec. Sec. 1206.110(a)
and 1206.152(a) was missing. In the 2020 Rule, at 86 FR 4622, ONRR
explained that the proposed regulatory text failed to include certain
requirements that a lessee must meet to be eligible for a deepwater
gathering allowance, as several commenters had noted. ONRR corrected
for its prior error and revised the regulatory text in the 2020 Rule.
It made the oil and gas sections consistent, and added language in both
Sec. Sec. 1206.110 and 1206.152 to incorporate the two previously
missing components from the Deepwater Policy--the adjacency limitation
and requirement for a lessee to identify a central accumulation point
at or near the subsea wellhead. See also 86 FR 4654, 4656 (amendatory
instructions for Sec. Sec. 1206.110 and 1206.152 in the 2020 Rule).
While the preamble included in the Proposed 2020 Rule had explained
ONRR's intention to adopt a deepwater gathering allowance consistent
with the former Deepwater Policy, the revisions to regulation text made
with publication of the 2020 Rule, which incorporated key aspects of
the former Deepwater Policy into Sec. Sec. 1206.110 and 1206.152, can
be seen as substantive changes that should have triggered a reopening
of the comment period.
With respect to Sec. Sec. 1206.110 and 1206.152, the public was
not adequately apprised of and afforded an opportunity to read and
comment on the proposed amendments to regulation text as those changes
first appeared in the final rule. Accordingly, commenters focused on
the Proposed 2020 Rule's regulation text would have been misled as to
the availability of and criteria for a deepwater gathering allowance.
ONRR believes that its failure to provide an opportunity for meaningful
public comment on the regulation text of Sec. Sec. 1206.110 and
1206.152 may constitute a procedural defect under 5 U.S.C. 553(b) and
justify withdrawal of the deepwater gathering allowance provisions.
b. Deepwater Gathering Allowances Lack Statutory and Policy Support
A Federal oil and gas lessee must pay a royalty of not less than
12.5 percent in amount or value of the production removed or sold from
the lease. See 43 U.S.C. 1337(a). Notwithstanding this statutory
requirement, the 2020 Rule adopted the deepwater gathering allowance
because doing so ``may reduce a lessee's total royalty burden resulting
in a lower total cost to operate on the OCS, and thereby potentially
encouraging continued production and conservation of a resource.'' 86
FR 4622. As its basis for incentivizing offshore production, the 2020
Rule stated that ``Recent Executive and Secretarial Orders call on
Federal agencies to appropriately promote and unburden domestic energy
production, especially OCS resources.'' Id. (citing E.O. 13783,
``Promoting Energy Independence and Economic Growth,'' E.O. 13795,
``Implementing an America-First Offshore Energy Strategy,'' and S.O.
3350, which promotes the America-First Offshore Energy Strategy).
The 2020 Rule's stated goal of promoting offshore oil and gas
production through deepwater gathering allowances appears to be in
conflict with the statutory requirement that royalties be paid based on
the ``amount or value'' of the oil and gas produced. Value for royalty
purposes is the value of the oil and gas in marketable condition. See
California Co. v. Udall, 296 F.2d 384, 388 (D.C. Cir. 1961). Gathering
costs, which include costs to measure and condition oil and gas for
market, have long been considered a cost incurred by the lessee to
place gas in marketable condition. Thus, gathering costs are the sole
responsibility of the lessee. See 30 CFR 1206.20 and 1206.171; 53 FR
1184 at 1190-1191 (January 15, 1988); DCOR, ONRR-17-0074-OCS (FE), 2019
WL 6127405 (Aug. 26, 2019).
Also, the deepwater gathering allowance appears to lack policy
support. E.O. 13783 and E.O. 13795 (prior to withdrawal) provided that
the E.O.s ``shall be implemented consistent with applicable law.''
Applicable law requires that royalties be paid based on the ``amount or
value'' of the production. See 43 U.S.C. 1337(a)(1)(A). Thus, it is not
clear that these E.O.s authorized DOI to incentivize offshore oil and
gas production through reduction of the lessee's royalty burden.
Further, even if these E.O.s could be construed to provide such policy
support, the E.O.s were revoked within days of the publication of the
2020 Rule and prior to the 2020 Rule's effective date.
c. The 2020 Rule Added Extensive Justification on Which the Public Was
Unable To Comment
While the Proposed 2020 Rule provided a lengthy background of the
history of the Deepwater Policy, it
[[Page 31203]]
provided little justification for its codification, citing only that
ONRR was ``reevaluating its rules in light of E.O. 13783 and E.O.
13795, which call on Federal agencies to promote and unburden domestic
energy production, and the Secretarial Orders encouraging robust and
responsible exploration and development of [OCS] resources.'' 85 FR
62060. In the 2020 Rule, however, ONRR explained its reasoning in far
greater detail. See 86 FR 4622-4625. Thus, the Proposed 2020 Rule's
lack of a fully-reasoned explanation for codifying a deepwater
gathering allowance may have limited the public's opportunity to
meaningfully comment on ONRR's intended regulatory change. See Section
II.A.3. above and further discussion below.
The 2020 Rule listed several new factors that warranted a deepwater
gathering allowance in the GOM. First, it explained that the GOM is now
a mature hydrocarbon province--most of the large fields have been
discovered and developed and the remaining fields are smaller and more
likely to be developed with subsea tiebacks, the costs of which would
likely be allowed as a transportation allowance under the deepwater
gathering allowance. See 86 FR 4623. Second, the 2020 Rule noted the
drop in commodity prices since the development and publication the 2016
Rule, which seemingly makes deepwater investment less economic. See 86
FR 4623-4624. Third, the 2020 Rule compared the decrease in
applications for drilling permits in the GOM to an increase in onshore
drilling permits. See 86 FR 4624. Fourth, it referenced BOEM's current
National Assessment of Undiscovered Oil and Gas Resources of the U.S.
OCS, which shows declines in the GOM's economically recoverable oil and
gas resources. Id. Finally, it explained the increased risk, cost, and
national importance of producing oil and gas from the deepwater OCS. 86
FR 4622-4625. Since this information was not provided in the Proposed
2020 Rule, the public did not have an opportunity to comment on these
reasons for adopting a deepwater gathering allowance.
3. Reinstated Extraordinary Processing Allowances for Federal Oil and
Gas (Sec. 1206.159(c)(4))
a. Extraordinary Processing Allowances Lack Statutory and Policy
Support
Please see the discussion above at Section II.B.2.b.
b. Final Rule Included Inconsistent Language on Incentivizing
Production
ONRR addressed extraordinary processing allowances and hard caps on
transportation and processing allowances in the same section of the
Proposed 2020 Rule. 85 FR 62058. ONRR asserted in the Proposed 2020
Rule that reinstating a lessee's ability to request approval to claim
an extraordinary processing allowance and removing hard caps on
transportation and processing allowances would incentivize production
or remove a disincentive to produce. See 86 FR 4615. Those assertions
conflict with other statements in the 2020 Rule that indicate the
incentives, if any exist, are negligible. See 86 FR 4616-4617.
Moreover, the Proposed 2020 Rule and 2020 Rule did not show any
measurable connection between extraordinary processing allowances and
increased production despite relying on an assertion that reinstating
the allowance would incentivize production. The 2020 Rule adopted the
amendment on extraordinary processing allowances but, based on a new
economic analysis, did not adopt the hard caps on transportation and
processing allowances.
The Proposed 2020 Rule stated that allowing a lessee to request
approval for an extraordinary processing allowance and to request to
exceed the transportation and allowance hard caps would incentivize
production. 85 FR 62058. The 2020 Rule referenced various statutes,
E.O.s, and S.O.s to ``emphasize the importance of reducing regulatory
burdens so that energy producers, and particularly oil, natural gas,
and coal producers, are incentivized to produce more energy.'' 86 FR
4615. However, in response to public comments, the 2020 Rule also
provided that it was ``not premised on increasing the production of
oil, gas, or coal by some measured amount'' and was, instead, ``meant
to incentivize both the conservation of natural resources (by extending
the life of current operations) and domestic energy production over
foreign energy production.'' 86 FR 4616.
Later, the 2020 Rule presents a conflicting position--that the
monetary impact of the rule's amendments is insufficient to incentivize
new production or to incentivize a lessee to continue producing from a
Federal lease when the lessee otherwise would not. In response to
comments that suggest the allowances provide a disincentive for a
lessee to reduce their costs for transportation and processing, ONRR
generally referred to the Federal Government's royalty share of
production, which is typically 12 1/2 or 16 2/3 percent and a lessee's
retention of the remaining 87 1/2 or 83 1/3 percent, respectively. The
2020 Rule concluded that the lessee's interest provided a significant
incentive in minimizing transportation and processing costs. See 86 FR
4620-4621. Thus, the 2020 Rule assumed the Federal Government benefits
from a lessee's motivation to be cost-conscious on its greater share.
86 FR 4646. Accordingly, ONRR stated it did not expect the regulatory
limits on transportation and processing allowances on the government's
smaller share to affect a lessee's decision making with respect to
transportation and processing expenses proportionately applied to the
lessee's greater share. See 86 FR 4626.
The 2020 Rule again contradicted earlier statements in that rule in
its discussion on helium-bearing gas streams. See 86 FR 4628. Although
ONRR acknowledges that helium production from Federal leases is managed
by BLM, helium royalties are not affected by the extraordinary
processing allowance provision. See Exxon Corp., 118 IBLA 221, 229 n.9
(1991) (noting that MMS does not consider helium in valuing a gas
stream for royalty purposes because ``it is not considered a leasable
mineral.''); see also https://www.blm.gov/programs/energy-and-minerals/helium/division-of-helium-resources (noting that the BLM's Division of
Helium Resources ``adjudicates, collects, and audits monies for helium
extracted from Federal lands''). Further, only one of the prior
extraordinary processing allowance approvals involved a helium-bearing
gas stream. See 86 FR 4628. Yet, the 2020 Rule maintained that
reinstating extraordinary processing allowances is necessary because
``the U.S. has important economic and national security interests in
ensuring the continuation of a reliable supply of helium, including
that recovered from unique gas streams requiring costly equipment to
remove carbon dioxide and hydrogen sulfide before helium can be
extracted.'' 86 FR 4628.
c. ONRR's Authority To Incentivize Production
Please see discussion at Section II.B.1., above.
d. The 2020 Rule Included Extensive Justification not Made Available
for Public Comment
The reasons stated in the Proposed 2020 Rule for changes to the
2016 Valuation Rule's amendments to allowance limits (removing the
[[Page 31204]]
regulatory hard caps on transportation and processing allowances and
reinstituting extraordinary processing allowances) were premised on
promoting domestic production by reducing administrative burdens and
incentivizing production by increasing transportation and processing
allowances and thereby decreasing the royalties due. See 85 FR 62058.
While the 2020 Rule did not adopt the proposed amendments to remove
regulatory hard caps on transportation and processing allowances, it
did reinstitute extraordinary processing allowances. In doing so, the
2020 Rule cited additional reasons from commenters that harken back to
those submitted by commenters--and rejected by ONRR--during
promulgation of the 2016 Valuation Rule. See https://www.onrr.gov/Laws_R_D/FRNotices/AA13.htm. Specifically, the 2020 Rule identified the
following reasons in support of reinstituting a lessee's ability to
request an extraordinary processing allowance:
(1) The technology to process two Wyoming unique gas streams has
not changed, ``despite technological advances in processing relevant to
many other areas and types of gas streams.'' 86 FR 4628.
(2) Extraordinary processing allowances are essential for two major
gas processing facilities in Wyoming that treat challenging gas
streams, and without an extraordinary processing allowance approval,
these two plants are at a competitive disadvantage and may be
prematurely retired. 86 FR 4627.
(3) One of Wyoming's unique gas streams, which previously had been
approved for an extraordinary processing allowance, contains
recoverable quantities of helium, an element that is vital to the
Nation's security and economic prosperity. 86 FR 4628.
(4) In instances where a lessee might not otherwise choose to
produce a gas stream containing helium, the opportunity to apply for an
extraordinary processing allowance approval could incentivize the
lessee to either continue producing or to initiate production. 86 FR
4628.
(5) The overall positive economic impact to Wyoming of continuing
operation of the Federal leases that historically benefitted from
extraordinary processing allowances outweighs any reduction in
royalties Wyoming receives. 86 FR 4628.
As discussed above, although the Proposed 2020 Rule's proposed
amendment to reinstitute extraordinary processing allowances was
premised on incentivizing production, ONRR concluded that in most
cases, providing an extraordinary processing allowance is not
sufficient to incentivize production. See 86 FR 4627-4629. Apart from
an unpersuasive argument about incentivizing production, ONRR relied
entirely on reasons submitted by commenters in response to the Proposed
2020 Rule to support reinstating a lessee's ability to request an
extraordinary processing allowance. See 86 FR 4627-4629. Therefore, the
public did not have a meaningful opportunity to comment on most of the
reasons that ONRR relied on in the 2020 Rule to reinstitute
extraordinary processing allowances in the final rule.
4. Expansion of the Federal Gas Index Pricing Valuation Option to
Federal Gas Sold Under Arm's-Length Contracts (Sec. Sec. 1206.141(c)
and 1206.142(d))
Prior to the 2016 Rule, ONRR regulations did not include an index-
based valuation option for Federal gas or natural gas liquids. The 2016
Rule included such an option. It allowed Federal oil and gas lessees a
choice of methods in calculating royalties due on gas and on natural
gas liquids. One option, which a lessee could elect for a two-year
period of time (or longer), was to calculate royalty value for gas
using a formula based on the high of certain published index prices,
reduced by either 5% for onshore production or 10% for offshore
production (subject to certain limits), with the reduction designed to
account for a conservative estimate of average transportation costs as
adjusted by average, non-deductible costs of placing gas in marketable
condition. This option was only available for gas a lessee disposed of
in non-arm's-length transactions--transactions which are most
frequently between affiliates, and therefore may not be at market
value, but rather at prices influenced by the affiliate relationship.
Since index prices are published prices derived from reported arm's-
length transactions, ONRR considered the index-based valuation formula
included in the 2016 Rule a simpler, acceptable, and potentially
preferrable method to value gas disposed of in non-arm's-length (or
affiliate) transactions. 81 FR 43338, 43346-43348.
a. New Analysis Shows a Decrease in Royalties Collected
Several commenters on the Proposed 2020 Rule expressed concern that
ONRR's assumption that 50 percent of lessees would elect the index-
based valuation option was flawed and failed to represent logical
business decision making processes. As commenters suggested, a lessee
might apply an internal, business-driven threshold to decide if the
index-based valuation method would be of economic benefit or harm.
Within a single lessee's portfolio of properties, the lessee might
choose to use the index-based valuation method for some properties but
not others.
As described in this Economic Analysis below, ONRR has performed a
new analysis to identify a more accurate estimate of the potential
annual impact to royalty collections associated with the expansion of
the index-based valuation method to arm's-length sales of natural gas
and NGLs. This new analysis--based on the assumption that a lessee will
act in its own financial best interest when deciding whether to use the
index-based valuation option for its arm's-length sales--resulted in a
projected net decrease in royalty collections of over $7 million per
year as compared to collections made without the use of an index-based
valuation option for arm's-length sales (i.e., as would occur under
ONRR's regulations prior to the 2020 Rule, which only allow index-based
valuation for non-arm's-length dispositions). This estimate sharply
contrasts with the estimated $28.9 million per year increase in
royalties stated in the 2020 Rule.
b. Arm's-Length Transaction Data Is a Better Measure of Value
Arm's-length contracts are those negotiated between independent
parties with opposing economic interests. See 30 CFR 1206.20. ONRR has
long concluded that the gross proceeds accruing under an arm's-length
contract is, in most cases, the best indicator of fair market value.
See, e.g., 53 FR 1186 (Jan. 15, 1988); 81 FR 43338 (July 1, 2016).
The 2020 Rule amended the 2016 Valuation Rule to introduce an
index-based valuation option for Federal gas sold in arm's-length
sales. The Economic Analysis in the 2020 Rule explained that, due to
those amendments, royalty payments were expected to increase. ONRR
relied on that analysis to deviate from its long-held position of
relying exclusively on gross proceeds valuation (or a proxy where gross
proceeds could not be reliably determined) to value arm's-length sales
of Federal gas for royalty purposes. ONRR found that it had protected
the Federal lessor's interest based on the conclusion that royalties
were expected to meet or exceed values based on gross proceeds. But as
explained in the Economic Analysis of this rule, the analysis in the
2020 Rule was flawed because it did not consider
[[Page 31205]]
that economic factors will influence a lessee's decision to elect to
use the index-based valuation method. ONRR has now reviewed historical
data and can now show that electing the index-based valuation option
would likely result in collecting less royalties for arm's-length
sales.
5. Change of Index-Based Value to the Published Average Bidweek Price
The 2020 Rule amended regulations at Sec. Sec. 1206.141(c)(1)(i)
and (ii) and 1206.142(d)(1)(i) and (ii) to change references to the
``highest monthly bidweek price'' for the index pricing points to which
a lessee's gas could flow, to the ``highest of the monthly bidweek
average prices'' for the index pricing points to which a lessee's gas
could flow. The use of average index prices was considered during the
2016 valuation rulemaking process and rejected. However, the 2020 Rule
sought to reverse ONRR's earlier decision on that point so as to
incentivize production. But, as discussed above, ONRR's authority to
amend its valuation regulations to incentivize production is
questionable; its 2020 Rule did not prove that it would incentivize
production; and the same rule was internally inconsistent on whether it
would, in fact, incentivize production.
6. Further Reduction to Index in Index-Based Valuation To Account for
Transportation
The 2020 Rule amended regulations at Sec. Sec. 1206.141(c)(1)(iv)
and 1206.142(d)(1)(iv) to increase the amount of a reduction to index
to account for the average costs of deductible transportation, after
adjustment for the non-deductible costs of placing gas into marketable
condition. This amendment was justified, in part, on an economic
analysis of more recent royalty data, which showed higher average
transportation costs than ONRR had relied on in adopting the 2016
Valuation Rule. However, the amendment also was justified on an intent
to incentivize production. But, as discussed above, ONRR's authority to
amend its valuation regulations to incentivize production is
questionable; its 2020 Rule did not prove that it would incentivize
production; and the same rule was internally inconsistent on whether it
would, in fact, incentivize production.
C. Comments in Response to the First Delay Rule
ONRR received numerous comments in response to the First Delay
Rule. Most commenters stated that a complete withdrawal of the 2020
Rule is warranted. Several commenters presented material and arguments
that were distinguishable from earlier comments. The new materials
provided by commenters, along with ONRR's most recent findings and
updated economic analysis, led ONRR to change its position with respect
to several considerations that were thought to support the 2020 Rule.
ONRR addresses below many of the public comments that ONRR received in
response to specific questions posed in the First Delay Rule.
1. Reliance on E.O.s and Scope of Secretarial Authorities Delegated to
ONRR
ONRR relied on E.O.s in effect during the time it promulgated the
2020 Proposed Rule and the 2020 Rule. See 86 FR 4612 and 85 FR 62056-
62057 (citing E.O. 13783, E.O. 13795, and E.O. 13892).
Public Comment: Multiple commenters opined that the change in
policy requires ONRR to reconsider all or certain provisions of the
2020 Rule. Other commenters suggested the opposite, asserting that the
prior E.O.s were not the sole justification for the 2020 Rule, and that
ONRR provided sufficient detail in the 2020 Proposed and Final Rules to
justify the amendments independent of the E.O.s. The commenters stated
that the 2020 Rule sought to improve certainty and accuracy in royalty
reporting and accounting consistent with FOGRMA and other mineral
leasing laws. Commenters contended that ONRR relied on appropriate
legal mandates to promulgate the 2020 Rule and asserted that policy
changes cannot outweigh ONRR's governing legal authority under FOGRMA
and the mineral leasing laws when it conducts rulemaking. One commenter
asserted that changing policy where there is a new Administration or
shift in E.O.s would ultimately create regulatory instability with
respect to valuation and reporting requirements, thereby directly
contradicting 30 U.S.C. 1711(a), which requires ONRR ``to establish a
comprehensive . . . production accounting and . . . auditing system to
provide the capability to accurately determine . . . royalties . . .
and other payments owed and to collect and account for such amounts in
a timely manner.''
ONRR Response: ONRR proposed the 2020 Rule ``because policy
directives issued after [the 2016 Valuation Rule's publication] give
different weight to the factual findings, and also dictate that a
different policy-based outcome be pursued.'' 85 FR 62056. The Proposed
2020 Rule also explained that an agency's reconsideration of
regulations in light of a new Administration's policy objectives is
acceptable and within the agency's discretion. Id. As such, ONRR's
discussions for the regulatory changes largely focused on reducing
regulatory burden or uncertainty and incentivizing production. See 85
FR 62054, 62056-62057. The Proposed 2020 Rule generally sought to
further the objectives of E.O. 13783, E.O. 13795, E.O. 13892, S.O.
3350, and S.O. 3360 in two ways, providing mechanisms that promote new
and continued domestic energy production and simplify reporting. See 85
FR 62057. However, ONRR did not (a) articulate how the 2020 Rule's
proposed amendments furthered ONRR's delegated revenue management
responsibilities, (b) explain the source of the delegation to ONRR to
incentivize production, or (c) describe how the amendments would
incentivize production or simplify reporting. In part, ONRR proposes to
withdraw the 2020 Rule due to the revocation of these E.O.s and the
uncertainty as to whether ONRR's authority and responsibilities permit
it to adopt valuation rules for the purpose of incentivizing production
and whether the amendments adopted would, in fact, incentivize
production. Additional discussion of ONRR's reliance on incentivizing
production as a rulemaking consideration is addressed in Section
II.B.1.
2. Deepwater Gathering Costs
MMS issued the Deepwater Policy on May 20, 1999, authorizing a
lessee to include certain deepwater gathering costs in its
transportation allowance. Although the Deepwater Policy conflicted with
30 CFR 1206.110(a) and 1206.152(a), neither MMS nor ONRR adopted
regulations resolving this conflict. The 2016 Valuation Rule ended the
practice that had existed under the Deepwater Policy since 1999. See 30
CFR 1206.110(a) and 1206.152(a) (2019). The 2020 Rule sought to return
to the practice permitted by the Deepwater Policy by codifying the
policy in ONRR's regulations. See 86 FR 4612. The justification for the
deepwater gathering amendments was based, in part, on declining oil and
gas production in and revenues from the Gulf of Mexico. See 86 FR 4623-
4624.
Public Comment: Some commenters stated that the deepwater gathering
allowance is not consistent with the current law and policy of the
United States. Some commenters emphasized that the deepwater gathering
allowance evidenced that ONRR was prioritizing increased oil and gas
production over
[[Page 31206]]
other considerations, including proper management of royalty revenues
and protecting the public interest. One commenter emphasized that the
deepwater gathering allowance reduces Federal royalties without
adequate justification. This commenter also noted that, while DOI must
make the OCS available for development, OCSLA does not require ONRR to
incentivize production for a lessee's benefit. A commenter asserted
that ONRR provided no support for the assertion that a deepwater
gathering allowance would incentivize production.
Some commenters supported the deepwater gathering allowance and
emphasized that industry relied on the Deepwater Policy between 1999
and 2016 when making financial investments and leasing and development
decisions. These commenters suggest that retroactively eliminating such
allowances would present legal vulnerabilities (stating that it was
unlawful for ONRR to eliminate the deepwater gathering allowance
considering that a lessee relied on it to make leasing and development
decisions) and may disincentivize future investment and development on
the OCS. Commenters described the deepwater production environment as
very different from typical onshore or shallow water environments.
Another commenter disagreed with the premise of the question posed in
the First Delay Rule because, according to the commenter, subsea
movement of oil and gas is not gathering. That commenter asserted that
ONRR has not construed the subsea movement of oil and gas as gathering
for many years. A commenter that supported the 2020 Rule's deepwater
gathering allowance explained that the Deepwater Policy was originally
created and implemented in 1999 and that the elimination of the
Deepwater Policy in 2016 violated contract law and the APA.
ONRR Response: Reliance on the Deepwater Policy as part of long-
term decision making is questionable since that guidance was, from the
time of its issuance in 1999 up to its rescission in the 2016 Valuation
Rule (see 81 FR 43340, 43343, and 43352), not in conformity with the
express language of MMS' regulations that governed gathering and
transportation allowances. See 30 CFR 1206.20 (defining gathering and
transportation); 30 CFR 1206.110 (governing oil transportation
allowance); 30 CFR 1206.152 (governing gas transportation allowance);
see also Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 386 (1947)
(holding that reliance on an agency's advice that Federal crop
insurance would cover a loss was unwarranted where such advice
conflicted with a Federal regulation, noting that ``not even the
temptations of a hard case can elude the clear meaning of the
regulation'').
Additionally, ONRR acknowledges that the 2020 Rule may have
contained inconsistent language on incentivizing production and may not
have demonstrated how and to what extent the amendments would impact
production. In Sections II.A. II.B.1., and II.B.2., this proposed rule
discusses these possible deficiencies in the 2020 Rule's justifications
and other possible procedural errors specific to deepwater gathering
costs.
3. Extraordinary Processing Allowances
Public Comment: Some commenters asserted that ONRR failed to
provide a reasoned or detailed justification in the 2020 Rule for its
decision to reinstate extraordinary processing allowances. Some
commenters said reinstatement of the allowances would not incentivize
production, opining that, instead, producers will produce when they are
likely to receive enough proceeds to conduct economic operations. Other
commenters generally characterized the allowances as a benefit extended
to industry at cost borne by the public in the form of environmental
harms and loss of royalty revenue.
A few commenters were in favor of reinstating extraordinary
processing allowances, emphasizing that the allowances incentivize
ongoing investment, as well as mutually beneficial development and
production in atypical areas. These commenters noted that, due to the
application and approval process, these allowances exist in limited
circumstances. Commenters stated that industry relied on the allowances
when making investment decisions and argued that the allowance is one
of the tools that can be used to extend the life of existing wells and
maximize the value of the associated leases.
ONRR Response: ONRR acknowledges that the 2020 Rule contained
inconsistent language on incentivizing production. See discussion in
Section II.B.1., infra.
4. Considering the Impacts of Climate Change
Public Comment: Multiple commenters urged ONRR to consider science
on the source and impacts of climate change in setting royalty and
revenue management policy. One commenter stated that ONRR should
incorporate climate damages when setting royalties from fossil fuel
extraction on public lands and waters, and the best way to do that is
to include a carbon adder in the royalty rate that reflects the social
cost of carbon and social cost of methane.
Other commenters disagreed. One commenter explained that this topic
falls outside the scope of the 2020 Rule because ONRR's role within DOI
is the collection and disbursement of Federal and Indian royalties owed
on leases that have already been issued, which constitute binding
contracts. This commenter further stated that the matters relating to
the issuance of new leases and potential impacts on climate change
arising from leasing activity fall outside of the authority delegated
to ONRR and, accordingly, are irrelevant to an evaluation of the 2020
Rule.
Another commenter stated that, for purposes of determining the
value for royalty purposes of coal production from Federal leases,
consideration of climate change factors is unlawful as it contravenes
DOI's statutory mandate under the MLA.
One commenter stated that ONRR appropriately addressed climate
change in the 2020 Rule. See 86 FR 4612, 4617. This commenter urged
that further environmental review of leases in the context of ONRR's
royalty valuation rulemaking is inappropriate.
ONRR Response: Addressing climate change is a priority to the
Federal Government. See, e.g., E.O. 13990, ``Protecting Public Health
and the Environment and Restoring Science to Tackle the Climate
Crisis'' and E.O. 14008, ``Tackling the Climate Crisis at Home and
Abroad.'' However, as described in Section I.A., ONRR is to collect,
verify, and then disburse the revenues associated with the production
of natural resources on Federal and Indian lands and the OCS. 30 U.S.C.
1711; 30 CFR 1201.100. Moreover, the evaluation of environmental
impacts is typically addressed by bureaus and agencies performing
leasing and permitting functions. 86 FR 4612, 4617.
5. Assumptions Regarding the Index-Based Valuation Option
In the 2020 Rule, ONRR assumed that 50 percent of reported
royalties would come from eligible lessees that elected to use the
index-based valuation option, while the remaining 50 percent would not
(86 FR 4643-4645) and, as a result, the lessees that elected the index-
based valuation option were estimated to pay an additional $28.9
million per year in royalties while saving $1.35 million in
administrative costs. 86 FR 4648-4650. ONRR posited these assumptions
even though the result is that a lessee would pay additional royalties
far in excess of
[[Page 31207]]
the administrative cost savings they would realize. In the First Delay
Rule, ONRR requested public comment on whether the assumption was
flawed, and whether the resulting conclusion is appropriate and
supported by current law and policy. See 86 FR 9288.
Public Comment: Multiple commenters disagreed with the assumption
that 50 percent of lessees would elect to use the index-based valuation
option. One commenter described the assumption as baseless and urged
ONRR to refrain from making conclusions based on the assumption. One
commenter concluded that a lessee will value gas by the option that
minimizes the royalty burden, explaining, for example, if the royalty
payment resulting from a first arm's-length sale is less than the
royalty payment that would be due using an index-based valuation
methodology, then the lessee will elect to use the first arm's-length
sale.
A few commenters agreed the estimate was appropriate, noting that
industry values early certainty and may elect to use the index-based
valuation option even if the price is slightly higher than gross
proceeds to avoid audits and other compliance reviews that lead to the
issuance of an order directing payment of additional royalties and late
payment interest. One commenter suggested that ONRR designed the index-
based valuation option solely to collect a greater royalty payment than
what a lessee historically paid. The commenter opined that ONRR
correctly assumed that some companies would elect to use the index-
based valuation method for the certainty alone.
ONRR Response: ONRR recently revised the method of its economic
analysis (provided in the Section III) to more accurately value the
potential annual impact to royalty collections resulting from the
expansion of the index-based valuation method to arm's-length sales of
Federal gas and NGLs. The new analysis estimates that this provision of
the 2020 Rule would decrease royalty collections by $7 million per
year, rather than the $28.9 million per year increase previously
estimated. Please refer to Sections II.B.4. through II.B.6. for further
discussion of the amendments to the index-based valuation method.
6. Transparency in Royalty Administration in Index-Based Valuation
Public Comment: A commenter stated that the index-based option
provides clarity and early certainty for the producer but not for the
public, asserting there is insufficient transparency in royalty
administration for the public.
ONRR Response: ONRR appreciates the public's interest in bringing
greater clarity, certainty, and transparency to royalty valuation in a
manner that fits the needs of all stakeholders. The scope of this
rulemaking is limited to the methods used to determine value for
royalty purposes and does not consider topics related to how ONRR
shares royalty information with the public. For additional information
on production, collection, and disbursement activities, please visit
https://revenuedata.doi.gov/
7. Substitution of Index-Based Value for Arm's-Length Sales
Public Comment: A commenter stated that it was premature for ONRR
to extend the index-based valuation option to arm's-length gas sales
without evaluating the impact of the index-based option on non-arm's-
length gas dispositions.
Another commenter reiterated that royalty payments are not expected
to be reduced under the index-based option. The commenter added that
ONRR retains the ability to access sales information from a lessee that
elects an index-based valuation methodology and concluded that ONRR
will be able to use the sales information to monitor the royalty
implications of the index-based method and, if appropriate, revisit the
index-based valuation options.
Another commenter stated that, while they agree that arm's-length
negotiated contracts are the best indicator of value, the index-based
valuation option may better serve both ONRR and lessees because of the
estimated $28.9 million per year increase in royalty payments while
permitting a lessee to avoid the complex reporting required by a gross
proceeds valuation method. The commenter added that the two-year
election period will prevent a lessee from manipulating reporting based
on what method might be more economically beneficial each month. One
commenter explained that industry values early certainty and assurance
it will not face a burdensome audit years after the initial royalty
payment.
ONRR Response: ONRR, and previously MMS, has long viewed the gross
proceeds received under an arm's-length contract between independent
persons who are not affiliates and who have opposing economic interests
to be the best indicator of value in most circumstances. See 53 FR 1186
(Jan. 15, 1988); 81 FR 43338 (July 1, 2016). A lessee that sells gas
for a price higher than the index-based price will have a financial
incentive to use the index-based price because valuation based on gross
proceeds will result in the payment of more royalties. A lessee that
sells the gas for a price lower than the index-based price has a
financial incentive to use its gross proceeds for valuation. A lessee
knows its gross proceeds and lessees have long used this amount to
report and pay royalties for arm's-length sales. An index-based option
for arm's-length sales may provide minimal value to industry since they
have long used their gross proceeds to report and pay royalties. ONRR
is proposing to withdraw the 2020 Rule in part because there are
significant questions about whether the index-based option adds to
early certainty and whether it will adequately ensure a fair return for
the public.
In Section III, this proposed rule provides a revised economic
analysis that estimates royalties impacts when a lessee bases its
decision regarding whether to use index-based valuation on its
financial interest. That analysis shows that this provision of the 2020
Rule would decrease royalty collections by over $7 million per year.
Please refer to Sections II.B.4. through II.B.6. and III for further
discussion of the amendments to the index-based valuation method and
the solicitation of comments on ONRR's revised analysis and
assumptions.
8. Procedural Adequacy of the 2020 Rulemaking Process
Public Comment: Several commenters stated the 2020 Rule was
procedurally inadequate, asserting that interested parties did not have
a fair opportunity to comment. One commenter stated that the 2020 Rule
failed to provide a ``reasoned explanation'' for rescinding key
portions of ONRR's 2016 rulemaking. The commenter explained that when
an agency rescinds a prior policy, it must provide ``a reasoned
analysis for the change beyond that which may be required when an
agency does not act in the first instance.'' Another commenter stated
that ONRR failed to respond to several public comments or responded in
an incomplete or inaccurate manner. This commenter explained that the
proposed rule failed to provide the general public, outside of the oil
and gas industry, with sufficient information regarding the impacts of
the proposals to enable the public to effectively participate in the
rulemaking process. Another commenter noted that during the 2020
rulemaking, ONRR did not have public meetings and evidently accepted
only the suggestions it received from industry.
[[Page 31208]]
Other commenters disagreed. One commenter stated that the 2020 Rule
is sound law based on policy deliberations that span almost a decade of
thorough public process properly conducted under the APA. Another
commenter concluded that the 2020 Rule appropriately complied with the
APA. This commenter explained that a proposed rule was issued that
described in detail each change that the agency was considering,
interested persons were given an opportunity to comment, and the final
rule responds to those comments.
ONRR Response: ONRR agrees that procedural flaws exist in the 2020
Rule. Those flaws are explained in Sections II.A. and II.B. Further,
ONRR notes that the 2020 Rule was not part of a rulemaking process that
spanned a decade, as implied by the commenter.
III. Economic Analysis
ONRR's delay rules have afforded ONRR more time to reexamine the
methods and analyses it used to estimate economic impacts of the 2020
Rule. ONRR recognizes that estimated changes to royalty obligations and
regulatory costs in the 2020 Rule impact many groups, including the
Federal Government, State and local governments, and industry. These
potential changes to royalty obligations can have broader impacts
beyond the amount of royalties. Royalty collections are used by these
governments in a variety of ways that include funding projects,
developing infrastructure, and fueling economic growth.
Further, changes to royalties are transfers that are
distinguishable from regulatory costs or cost savings. The estimated
changes in royalties would affect both the private cost to the lessee
and the amount of revenue collected by the Federal Government and
disbursed to State and local governments. Based on an updated analysis,
the net impact of the withdrawal of the 2020 Rule is an estimated $64.6
million annual increase in royalty collections.
Please note that, unless otherwise indicated, numbers in the tables
in this section are rounded to the nearest thousand, and that the
totals may not match due to rounding.
Estimated Changes to Royalty Collections Resulting From Withdrawal of
the 2020 Rule (Annual)
------------------------------------------------------------------------
Net change in
Rule provision royalties paid
by lessees
------------------------------------------------------------------------
Index-Based Valuation Method Extended to Arm's-Length $6,800,000
Gas Sales..............................................
Index-Based Valuation Method Extended to Arm's-Length 660,000
NGL Sales..............................................
High to Midpoint Index Price for Non-Arm's-Length Gas 5,062,000
Sales..................................................
Transportation Deduction Non-Arm's-Length Index-Based 8,033,000
Valuation Method.......................................
Extraordinary Processing Allowances..................... 11,131,000
Allowances for Certain OCS Gathering Costs.............. 32,900,000
---------------
Total............................................... 64,600,000
------------------------------------------------------------------------
ONRR also estimated that the oil and gas industry would face
increased annual administrative costs of $2.8 million under the 2020
Rule. As discussed below, this is the net impact of various cost
increasing and cost saving measures. Withdrawal of the 2020 Rule will
result in an estimated net cost savings for industry.
Summary of Annual Administrative Impacts to Industry From Withdrawal of
the 2020 Rule
------------------------------------------------------------------------
Cost (cost
Rule provision savings)
------------------------------------------------------------------------
Administrative Cost for Index-Based Valuation Method for $1,077,000
Gas & NGLs.............................................
Administrative Cost Savings for Allowances for Certain (3,931,000)
OCS Gathering..........................................
---------------
Total............................................... (2,850,000)
------------------------------------------------------------------------
Following the publication of the delay rules and after
consideration of comments received in response to the First Delay Rule,
ONRR assessed which parts of the previous economic analysis warrant
revision. To provide a more complete analysis, this rule presents the
estimated royalty impacts of the withdrawal of the 2020 Rule using
updated analyses. Changes are measured relative to a baseline that
includes the royalty changes finalized in the 2020 Rule.
As shown in the tables, an updated analysis of the impact to
royalty under the 2020 Rule results in a total decrease in royalties of
$64.6 million per year, which translates to an increase of $64.6
million per year under this proposed withdrawal. This amount stands in
contrast to the annual decrease of $28.9 million per year in royalties
previously estimated in the 2020 Rule. The change in amounts is largely
attributable to the new assumption and method used to estimate the
impact from extending the index-based valuation method to arm's-length
natural gas and NGL sales. A more detailed explanation of the new
method is described below. All amounts other than those related to the
index-based valuation option remain unchanged from those published in
the 2020 Rule.
The administrative costs and potential administrative cost savings
attributable to the 2020 Rule should also be updated using the new
assumptions for the extension of index-based valuation method to arm's-
length sales. The administrative cost to industry for deepwater
gathering allowances would remain unchanged from the value published in
the 2020 Rule.
ONRR also recalculated the estimated one-time administrative cost
associated with the optional use of the index-based valuation method.
These costs are only calculated by a lessee once to distinguish allowed
and disallowed costs in reported processing and transportation
allowances. Unless there is a significant change in processing and
transportation costs, the ratio of allowed
[[Page 31209]]
to disallowed costs should not substantially change from year to year.
One-Time Administrative Impacts to Industry From Withdrawal of 2020 Rule
------------------------------------------------------------------------
Rule provision Cost
------------------------------------------------------------------------
Administrative Cost of Unbundling Related to Index-Based $4,520,000
Valuation Method for Gas & NGLs........................
------------------------------------------------------------------------
If the 2020 Rule is withdrawn, there will be an increase in
administrative costs when compared to the current status quo.
ONRR used the same base dataset for this proposed rule's economic
analysis as it used in the 2020 Rule for consistency and comparability.
The description of the data was provided in the Economic Analysis of
the 2020 Rule and is repeated here. ONRR reviewed royalty data for
Federal oil, condensate, residue gas, unprocessed gas, fuel gas, gas
lost (flared or vented), carbon dioxide, sulfur, coalbed methane, and
natural gas products (product codes 03, 04, 15, 16, 17, 19, 39, 07, 01,
02, 61, 62, 63, 64, and 65) from five calendar years, 2014-2018. ONRR
used five calendar years of royalty data to reduce volatility caused by
fluctuations in commodity pricing and volume swings. ONRR adjusted the
historical data in this analysis to calendar year 2018 dollars using
the Consumer Price Index (all items in U.S. city average, all urban
consumers) published by the BLS. ONRR found that some companies
aggregate their natural gas volumes from multiple leases into pools and
sell that gas under multiple contracts. A lessee reports those sales
and dispositions using the ``POOL'' sales type code. Only a small
portion of these gas sales are non-arm's-length. ONRR used estimates of
10 percent of the POOL volumes in the economic analysis of non-arm's-
length sales and 90 percent of the POOL volumes in the economic
analysis of arm's-length sales.
Change in Royalty 1: Using Index-Based Valuation Method To Value Arm's-
Length Federal Unprocessed Gas, Residue Gas, Fuel Gas, and Coalbed
Methane
ONRR analyzed this provision similarly to the 2020 Rule, assuming
that half of lessees would elect to use the index-based valuation
method. ONRR received many comments stating that this assumption was
flawed, because a lessee will typically act in a manner that maximizes,
not harms, financial benefits to the lessee. ONRR stated in the 2020
Rule that the assumption that half of lessees would elect to use the
index-based valuation option was an attempt to simplify the royalty
impact estimation. Due to the delay rules, ONRR was able to apply a
more sophisticated set of assumptions to accurately identify the
lessees that would likely benefit from the 2020 Rule's amendments to
the index-based valuation option and those that would not. ONRR began
the analysis with a similar rationale on the same data that it used in
the 2020 Rule's calculation. ONRR reviewed the reported royalty data
for all Federal gas sales except for non-arm's-length transactions
(discussed below), future valuation agreements, and percentage of
proceeds (``POP'') contracts. ONRR also adjusted the POOL sales down to
90 percent (as described above), which were spread across 10 major
geographic areas with active index prices. The 10 areas account for
over 95 percent of all Federal gas produced. ONRR assumed the remaining
five percent of lessees producing Federal gas will not elect the index-
based method because areas outside of major producing basins may have
infrastructure limitations or limited access to index pricing. The 10
geographic areas are:
1. Offshore Gulf of Mexico
2. Big Horn Basin
3. Green River Basin
4. Permian Basin
5. Piceance Basin
6. Powder River Basin
7. San Juan Basin
8. Uinta Basin
9. Williston Basin
10. Wind River Basin
To calculate the estimated royalty impact, ONRR:
(1) Identified the monthly bidweek price index, published by Platts
Inside FERC, for each applicable area--Northwest Pipeline Rockies for
Green River, Piceance and Uinta basins; El Paso San Juan for San Juan
basin; Colorado Interstate Gas for Big Horn, Powder River, Williston,
and Wind River basins; El Paso Permian for Permian basin; and Henry Hub
for the GOM. ONRR determined the applicability of a price index based
on proximity to the producing area and the frequency with which ONRR's
audit and compliance staff verify these index prices in sales
contracts;
(2) subtracted the appropriate transportation deduction as
described in the 2020 Rule from the midpoint index price identified in
step (1);
(3) compared the reported monthly price for each property inclusive
of any reported transportation allowances to the applicable index price
for the property calculated in step (2) for all months in the first
year of reported royalty data in the dataset;
(4) identified all properties in step (3) where the reported price
exceeded the price calculated in step (2) for seven or more months in
the time period;
(5) used the property list created in step (4) as the base universe
of properties that would elect to use the index-based valuation method
available;
(6) compared the actual reported price for each month for each
property in the universe identified in step (5), inclusive of
transportation allowances reported, to the calculated price in step (2)
to identify the difference between what was reported as actual
royalties and what would have been reported as royalties under the
terms of the index-based valuation method;
(7) performed this calculation and comparison for the next two sets
of two-year time periods in the remaining four years of royalty
reporting in the dataset; and
(8) Calculated the total difference in the four years between the
original reported royalty prices and royalties of the identified
property universe that elected the index-based valuation method, then
divided that total by four to get an annual estimated royalty impact.
This new method of identification of the property universe that
would elect the index-based valuation method if given the opportunity
is the basis for the differences between the estimated royalty impact
published in the 2020 Rule and the estimated royalty impact included in
this proposed rule. Also, this identification of the properties that
stand to benefit is similar to how a lessee will make its decisions and
is a better method to estimate the royalty impact.
ONRR estimates the index-based valuation method in the 2020 Rule
will decrease royalty payments on arm's-length natural gas by
approximately $6.8 million per year when compared to ONRR regulations
in effect prior to the
[[Page 31210]]
2020 Rule. ONRR requests comments on the assumptions in the method
described above.
Annual Change in Royalties Paid Using Index-Based Method for Arm's-Length Gas Sales if 2020 Rule Is Withdrawn
----------------------------------------------------------------------------------------------------------------
Gulf of Mexico Onshore basins Total
----------------------------------------------------------------------------------------------------------------
Annualized Reported Royalties from Identified Lease Universe.... $51,720,000 $168,850,000 $220,570,000
Royalties Estimated using Index-Based Valuation Method for Lease 53,940,000 159,790,000 213,730,000
Universe.......................................................
-----------------------------------------------
Difference.................................................. (2,220,000) 9,060,000 6,840,000
----------------------------------------------------------------------------------------------------------------
Change in Royalties 2: Using the Index-Based Valuation Method To Value
Arm's-Length Sales of Federal NGLs
ONRR used similar changes to the assumptions when calculating the
royalty impact from extending the index-based valuation option to
arm's-length sales of NGLs. As in the previous section, ONRR's goal was
to identify a universe of properties that would benefit financially
from electing the index-based valuation method. In the 2020 Rule, ONRR
assumed that half of the lessees would elect the method without regard
to financial benefit or harm.
ONRR used the same dataset for this analysis that was used in the
2020 Rule. It included all NGL sales except for non-arm's-length
transactions and future valuation agreements. ONRR also adjusted the
POOL sales down to 90 percent (as described above). These sales were
spread across the same 10 major geographic areas with active index
prices for this analysis. To calculate the estimated royalty impact of
the index-based valuation method on NGLs from Federal properties, ONRR:
(1) Identified the Platts Oilgram Price Report Price Average
Supplement (Platts Conway) or OPIS LP Gas Spot Prices Monthly (OPIS
Mont Belvieu) for published monthly midpoint NGL prices per component
applicable to each area: Platts Conway for Williston and Wind River
basins; and OPIS Mont Belvieu non-TET for the Gulf of Mexico, Big Horn,
Green River, Permian, Piceance, Powder River, San Juan, and Uinta
basins. In ONRR's audit experience, OPIS' prices are used to value NGLs
in contracts more frequently at Mont Belvieu, and Platts' prices are
used more frequently at Conway;
(2) calculated an NGL basket prices (weighted average prices to
group the individual NGL components), which compared to the imputed
price from the monthly royalty report. The baskets illustrate the
difference in the gas composition between Conway, Kansas and Mont
Belvieu, Texas. The NGL basket hydrocarbon allocations are:
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Platts Conway Basket OPIS Mont Belvieu Basket
----------------------------------------------------------------------------------------------------------------
Ethane-propane (EP mix)....................... 40% Ethane.......................... 42%
Propane....................................... 28 Non-TET Propane................. 28
Isobutane..................................... 10 Non-TET Isobutane............... 6
Normal Butane................................. 7 Normal Butane................... 11
Natural Gasoline.............................. 15 Natural Gasoline................ 13
----------------------------------------------------------------------------------------------------------------
(3) subtracted the current processing deductions, as well as
fractionation costs and transportation costs referenced in ONRR
regulations without amendment by the 2020 Rule and published online at
https://www.onrr.gov, as shown in the table below from the NGL basket
price calculated in step (2):
----------------------------------------------------------------------------------------------------------------
NGL Deduction ($/gal)
-----------------------------------------------------------------------------------------------------------------
Gulf of Mexico New Mexico Other areas
----------------------------------------------------------------------------------------------------------------
Processing...................................................... $0.10 $0.15 $0.15
Transportation and Fractionation................................ 0.05 0.07 0.12
-----------------------------------------------
Total ($/gal)............................................... 0.15 0.22 0.27
----------------------------------------------------------------------------------------------------------------
(4) compared the reported monthly price for each property inclusive
of any reported transportation or processing allowances to the
applicable index price for the property calculated in step (3) for all
months in the first year of reported royalty data in the dataset;
(5) identified all properties in step (4) where the reported price
exceeded the price calculated in step (3) for seven or more months in
the time period;
(6) used the property list created in step (5) as the base universe
of properties that would elect to use the index-based valuation method
if available;
(7) compared the actual reported price for each month for each
property in the universe identified in step (6), inclusive of
transportation and processing allowances reported, to the calculated
price in step (3) to identify the difference between what was reported
as actual royalties and what would have been reported as royalties
under the terms of the index-based valuation method;
(8) performed this calculation and comparison for the next two sets
of two-
[[Page 31211]]
year time periods in the remaining four years of royalty reporting in
the dataset; and
(9) calculated the total difference in the four years between the
original reported royalty prices and the royalties if the identified
property universe elected the index-based valuation method, then
divided that total by four to get an annual estimated royalty impact.
This new method of identification of the property universe that
would elect the index-based valuation method is the basis for the
difference between the estimated royalty impact published in the 2020
Rule and the estimated royalty impact included in this proposed rule.
ONRR estimates the index-based valuation method in the 2020 Rule
will decrease royalty payments on arm's-length NGLs by approximately
$660,000 per year, and that withdrawing the rule will increase royalty
payments by $660,000 annually. ONRR requests comments on the
assumptions in the method described above.
Annual Change in Royalties Paid Using Index-Based Valuation Method for Arm's-Length NGL Sales if 2020 Rule Is
Withdrawn
----------------------------------------------------------------------------------------------------------------
Gulf of Mexico New Mexico Other Areas Total
----------------------------------------------------------------------------------------------------------------
Annualized Reported Royalties from Identified $4,990,000 $350,000 $9,100,000 $14,440,000
Lease Universe.................................
Royalties Estimated Using Index-Based Valuation 3,470,000 290,000 10,020,000 13,780,000
Method for Lease Universe......................
---------------------------------------------------------------
Annual Net Change in Royalties Paid Using 1,520,000 60,000 (920,000) 660,000
Index-Based Valuation Method for NGLs......
----------------------------------------------------------------------------------------------------------------
Change in Royalties 3: Using the Average Index Price Versus the Highest
Published Index Price To Value Non-Arm's-Length Federal Unprocessed
Gas, Residue Gas, Coalbed Methane, and NGLs
In the 2020 Rule, ONRR amended the index-based valuation method to
use the average published bidweek price, rather than the highest
published bidweek price, for the appropriate index-pricing point. ONRR
accounted for the impacts to royalty collections attributable to arm's-
length natural gas transactions in the earlier section. This section
will focus on the impact to royalty collections only attributable to
non-arm's-length natural gas transactions.
The method for calculation in this proposed rule is similar to the
method used in the 2020 Rule with adjustments made related to the
universe of properties that would elect the index-based valuation
method. ONRR compared the monthly prices reported to it in the first
year of the data period, inclusive of transportation allowances, to the
index prices for the appropriate producing areas, inclusive of
transportation deductions. ONRR then identified the properties with
reported prices higher than the index price in seven or more months of
the year. For non-arm's-length natural gas sales, this equates to 56.4
percent of the entire list of properties, and represents a percentage
that is higher than the 50 percent assumption made by ONRR in the 2020
Rule's estimated impacts on royalty collections of this same provision.
This new percentage incorporates a more logical identification of the
properties taking into account a lessee's potential financial benefit.
ONRR used reported royalty data using non-arm's-length (``NARM'')
sales and 10 percent of the POOL sales type codes based on the
assumption above in the same 10 major geographic areas with active
index-pricing points, also listed above.
To calculate the estimated impact, ONRR:
(1) Identified the Platts Inside FERC published monthly midpoint
and high prices for the index applicable to each area--Northwest
Pipeline Rockies for Green River, Piceance and Uinta basins; El Paso
San Juan for San Juan basin; Colorado Interstate Gas for Big Horn,
Powder River, Williston, and Wind River basins; El Paso Permian for
Permian basin; and Henry Hub for the Gulf of Mexico;
(2) multiplied the royalty volume by the published index prices
identified for each region;
(3) totaled the estimated royalties using the published index
prices calculated in step (2);
(4) calculated the annual average index-based royalties for both
the high and volume-weighted-average prices calculated in step (3) by
dividing by five (number of years in this analysis); and
(5) subtracted the difference between the totals calculated in step
(4).
Because ONRR identified that 56.4 percent of properties fall in the
universe of properties that would elect the index-based valuation
method, ONRR reduced the total estimate by 43.6 percent in the
following table. ONRR estimated that the result of this change is that
the 2020 Rule, if it went into effect, would result in a decrease in
annual royalty payments of approximately $5 million, and a withdrawal
of that rule would result in an increase in annual royalty payments by
a like amount, as reflected in the table below.
Estimated Impact to Royalty Collections Due to Withdrawal of 2020 Rule's High to Midpoint Modification for Non-
Arm's-Length Sales of Natural Gas Using Index-Based Valuation Method
----------------------------------------------------------------------------------------------------------------
Onshore
Gulf of Mexico basins Total
----------------------------------------------------------------------------------------------------------------
Royalties Estimated Using High Index Price...................... $107,736,000 $198,170,000 $305,907,000
Royalties Estimated Using Published Average Bidweek Price....... 107,448,000 189,483,000 296,931,000
-----------------------------------------------
Annual Change in Royalties Paid due to High to Midpoint 288,000 8,687,000 8,975,000
Change.....................................................
56.4% of applicable properties.................................. .............. .............. 5,062,000
----------------------------------------------------------------------------------------------------------------
[[Page 31212]]
Change in Royalties 4: Modifying the Index-Based Valuation Method To
Account for Transportation in Valuing Non-Arm's-Length Federal
Unprocessed Gas, Residue Gas, and Coalbed Methane
The 2020 Rule increased the reductions to index price to account
for transportation of production valued under the non-arm's-length
index-based valuation method. ONRR used the new method described
previously in this Economic Analysis to identify the likely lease
universe of non-arm's-length natural gas sales. ONRR identified the
same 56.4 percent of non-arm's-length natural gas properties as the
universe that would elect the method.
To estimate the royalty impact of the change in amount intended to
account for transportation, ONRR used reported royalty data using NARM
and 10 percent of the POOL sales type codes from the same 10 major
geographic areas with active index-pricing points listed above.
To calculate the estimated impact, ONRR:
(1) Identified appropriate areas using Platts Inside FERC index
prices (see list above);
(2) calculated the transportation-related adjustment as published
in the current regulations and the adjustment outlined in the table
below for each area identified in step (1);
Transportation Deduction of Index-Based Valuation Method for Non-Arm's-
Length Gas
[$/MMBtu]
------------------------------------------------------------------------
2016
Element Valuation 2020 Rule
Rule
------------------------------------------------------------------------
Gulf of Mexico %........................ 5% 10%
Gulf of Mexico Low Limit................ $0.10 $0.10
Gulf of Mexico High Limit............... $0.30 $0.40
Other Areas %........................... 10% 15%
Other Areas Low Limit................... $0.10 $0.10
Other Areas High Limit.................. $0.30 $0.50
------------------------------------------------------------------------
(3) multiplied the royalty volume by the applicable transportation
deduction identified for each area calculated in step (2);
(4) totaled the estimated royalty impact based off both
transportation deductions calculated in step (3);
(5) calculated the annual average royalty impact for both methods
calculated in step (4) by dividing by five (number of years in this
analysis); and
(6) subtracted the difference between the totals calculated in step
(5).
Because ONRR identified the universe of 56.4 percent of lessees
that will likely elect this method, ONRR reduced the total estimated
impact to royalty collections by 43.6 percent. ONRR estimated the
change will result in a decrease in royalty collections of
approximately $8 million per year if the 2020 Rule goes into effect,
and an increase in royalty collections of like amount if the 2020 Rule
is withdrawn, as reflected in the table below.
Annual Royalty Impact Due to Transportation Deduction Modification for Non-Arm's-Length Sales of Natural Gas if
2020 Rule Is Withdrawn
----------------------------------------------------------------------------------------------------------------
Gulf of
Mexico Other areas Total
----------------------------------------------------------------------------------------------------------------
Current Regulations Transport Deduction......................... ($5,387,000) ($16,375,000) ($21,762,000)
Estimate using 2020 Rule Transport Deduction.................... (10,346,000 (25,659,000) (36,005,000)
-----------------------------------------------
Change...................................................... 4,959,000 9,284,000 14,243,000
56.4% universe of properties.................................... .............. .............. 8,033,000
----------------------------------------------------------------------------------------------------------------
Change in Royalties 5: Extraordinary Gas Processing Cost Allowances for
Federal Gas
The 2020 Rule allows a lessee to request an extraordinary
processing cost allowance. ONRR adopted the same calculation method for
these royalty impacts as it did in the 2020 Rule. Using the approvals
ONRR granted prior to the 2016 Valuation Rule, ONRR identified the 127
leases claiming an extraordinary processing allowance for residue gas,
sulfur, and carbon dioxide (CO2) for calendar years 2014-
2018. The total processing costs are reported across all three products
for these unique situations. For these leases, ONRR retrieved all form
ONRR-2014 royalty lines with a processing allowance reported by
lessees. For CO2 and sulfur produced from these leases, ONRR
then calculated the annual average processing allowances which exceeded
the 66\2/3\ percent limit and found that only two years exceeded the
66\2/3\ percent limit. Under these unique approved exceptions, the
processing allowances are also reported against residue gas. To account
for this, ONRR added the average annual processing allowances taken
from those same leases for residue gas. Based on these calculations,
ONRR estimates the royalty impact of withdrawing this provision of the
2020 rule would be an increase in royalties of $11.1 million per year.
ONRR recognizes that there could be an increase in the number of
requests submitted to ONRR related to extraordinary cost processing
allowances under this provision. There is little data available to
identify the magnitude of these requests, and there is not enough
information to determine how many of these potential requests would be
approved or denied by ONRR. ONRR invites public comment on this issue
and solicits any data that would allow the agency to better quantify
these impacts.
[[Page 31213]]
Estimated Annual Change in Royalty Collections if 2020 Rule Is Withdrawn
------------------------------------------------------------------------
------------------------------------------------------------------------
Annual Average Sulfur Allowances in Excess of 66\2/3\%.. $348,000
Annual Average Residue Gas Allowance.................... 10,783,000
Estimated Annual Impact on Royalties.................... 11,131,000
------------------------------------------------------------------------
Change in Royalties 6: Transportation Allowances for Certain OCS
Gathering for Federal Oil and Gas
In the 2020 Rule, ONRR proposed regulatory changes that would allow
an OCS lessee to take certain gathering costs as transportation. ONRR
adjusted its method for calculating this royalty impact in response to
comments received on the Proposed 2020 Rule and published a corrected
method in the 2020 Rule. ONRR will continue to use the adjusted method
here to estimate the royalty impact if the 2020 Rule goes into effect.
As previously discussed, the Deepwater Policy was in effect from
1999 until January 1, 2017. Under the Deepwater Policy, ONRR allowed a
lessee to treat certain costs for subsea gathering as transportation
expenses and to deduct those costs in calculating its royalty
obligations. The 2016 Valuation Rule rescinded the Deepwater Policy,
but the 2020 Rule would codify a deepwater gathering allowance similar
to the Deepwater Policy. To analyze the impact to industry of 2020
Rule's deepwater gathering allowance, ONRR used data from BSEE's
Technical Information Management System database to identify 113 subsea
pipeline segments, and 169 potentially eligible leases, which might
have qualified for an allowance thereunder. ONRR assumed that all
segments were similar (in other words, no adjustments were made to
account for the size, length, or type of pipeline) and considered only
the pipeline segments that were active and supporting producing leases.
To determine the range (shown in the tables at the end of this section
as low, mid, and high estimates) of changes to royalties, ONRR
estimated a 15 percent error rate in the identification of the 113
eligible pipeline segments. This resulted in a range of 96 to 130
eligible pipeline segments. ONRR's audit data is available for 13
subsea gathering segments serving 15 leases covering time periods from
1999 through 2010. ONRR used the data to determine an average initial
capital investment in the pipeline segments. Then, ONRR used the
initial capital investment total to calculate depreciation and a return
on undepreciated capital investment (also known as the return on
investment or ``ROI'') for eligible pipeline segments and calculated
depreciation using a 20-year straight-line depreciation schedule.
ONRR calculated the return on investment using the average BBB Bond
rate for January 2018 (the BBB Bond rating is a credit rating used by
the Standard & Poor's credit agency to signify a certain risk level of
long-term bonds and other investments). ONRR based the calculations for
depreciation and ROI on the first year a pipeline was in service. From
the same audit information, ONRR calculated an average annual operating
and maintenance (``O&M'') cost. ONRR increased the O&M cost by 12
percent to account for overhead expenses. ONRR then decreased the total
annual O&M cost per pipeline segment by nine percent because, on
average, nine percent of wellhead production volume is water, which
must be excluded from any calculation of a permissible deduction. ONRR
chose these two percentages based on knowledge and information gathered
during audits of leases located in the GOM. Finally, ONRR used an
average royalty rate of 14 percent, which is the volume-weighted-
average royalty rate for the non-Section 6 leases in the GOM (See 43
U.S.C. 1335(a)(9)). Based on these calculations, the average annual
allowance per pipeline segment during the period that ONRR collected
data from was approximately $233,000. ONRR used this value to calculate
a per-lease cost based on the number of eligible leases during the same
period. ONRR then applied this value to the current number of eligible
leases. This represented the estimated amount per lease for gathering
that ONRR would allow a lessee to take as a transportation allowance
based on the 2020 Rule's deepwater gathering allowance. To calculate a
range for the total cost, ONRR multiplied the average annual allowance
by the low (96), mid (113), and high (130) number of potentially
eligible segments. The low, mid, and high annual allowance estimates
are $35 million, $41.1 million, and $47.3 million, respectively.
Of the eligible leases, 68 of 169, or about 40 percent, are
estimated to qualify for a deduction under the 2020 Rule's deepwater
gathering allowance. But due to varying lease terms, multiple royalty
relief programs, price thresholds, volume thresholds, and other
factors, ONRR estimated that half of the 68, or 34, leases eligible for
royalty relief (20 percent of 169) have received royalty relief, which
limits the value of a deepwater gathering allowance. ONRR chose to use
an estimate of half of the leases for consistency, and it decreased the
low, mid, and high annual cost-to-industry estimates by 20 percent. The
table below shows the estimated royalty impact of withdrawing this
provision of the 2020 Rule.
Annual Estimated Impact to Royalty Collections if 2020 Rule Is Withdrawn
----------------------------------------------------------------------------------------------------------------
Low Mid High
----------------------------------------------------------------------------------------------------------------
Royalty Impact.................................................. $28,000,000 $32,900,000 $37,900,000
----------------------------------------------------------------------------------------------------------------
Cost Savings 1: Transportation Allowances for Certain OCS Gathering
Costs for Offshore Federal Oil and Gas
The 2020 Rule, by authorizing transportation allowances for certain
OCS gathering, would result in an administrative cost to industry
because it requires qualified lessees to monitor their costs and
perform additional calculations. ONRR identified no need to adjust or
change the analysis performed in the 2020 Rule to estimate this cost to
industry. The cost to perform these calculations is significant because
industry often hires additional labor or outside consultants to
calculate subsea pipeline movement costs. ONRR estimates that each
lessee with leases eligible for transportation allowances for deepwater
gathering systems will allocate one full-time employee annually (or
incur the equivalent cost for an outside consultant) to perform the
calculation. ONRR used data from the
[[Page 31214]]
BLS to estimate the hourly cost for industry accountants in a
metropolitan area [$42.33 mean hourly wage] with a multiplier of 1.4
for industry benefits to equal approximately $59.26 per hour. Using
this fully burdened labor cost per hour, ONRR estimated that the annual
administrative cost savings to industry if the 2020 Rule is withdrawn
would be approximately $3.9 million.
Annual Administrative Cost Savings to Industry To Calculate Certain OCS Gathering Costs if 2020 Rule Is
Withdrawn
----------------------------------------------------------------------------------------------------------------
Companies
Annual burden Industry labor reporting Estimated cost
hours per cost/ hour eligible savings to
company leases industry
----------------------------------------------------------------------------------------------------------------
Allowance for Certain OCS Gathering Costs... 2,080 $59.26 32 $3,931,000
----------------------------------------------------------------------------------------------------------------
Cost 1: Administrative Cost From Using Index-Based Valuation Method To
Value Arm's-Length Federal Unprocessed Gas, Residue Gas, Fuel Gas,
Coalbed Methane, and NGLs
In the 2020 Rule, ONRR assumed that half of the lessees would elect
to use the index-based valuation method to value their arm's-length
natural gas and NGL transactions. As described earlier in this Economic
Analysis, ONRR identified that 39.8 percent of properties with arm's-
length sales would elect this option. This is more accurate than the
2020 Rule assumption, and ONRR will use it to estimate the potential
administrative cost savings for industry.
ONRR estimated the index-based valuation method will shorten the
time burden per line reported by 50 percent (to 1.5 minutes per
electronic line submission and 3.5 minutes per manual line submission).
As with Cost Savings 1, ONRR used tables from the BLS to estimate the
fully burdened hourly cost for an industry accountant in a metropolitan
area working in oil and gas extraction. The industry labor cost factor
for accountants would be approximately $59.26 per hour = [$42.33 (mean
hourly wage) x 1.4 (including employee benefits)]. Using a labor cost
factor of $59.26 per hour, ONRR estimates the annual administrative
cost to industry will be approximately $1.1 million if the 2020 Rule is
withdrawn.
Annual Administrative Costs to Industry if 2020 Rule Is Withdrawn
----------------------------------------------------------------------------------------------------------------
Estimated
Time burden lines
per line reported Annual burden
reported using index hours
option (50%)
----------------------------------------------------------------------------------------------------------------
Electronic Reporting (99%)...................................... 1.5 min 710,525 17,763
Manual Reporting (1%)........................................... 3.5 min 7,177 419
Industry Labor Cost/hour........................................ .............. .............. $59.26
-----------------------------------------------
Total Costs................................................. .............. .............. $1,077,000
----------------------------------------------------------------------------------------------------------------
Cost 2: Administrative Cost of Using Index-Based Valuation Method To
Value Residue Gas and NGLs Because of Simplified Processing and
Transportation Cost Calculations
In the 2020 Rule, ONRR calculated the potential one-time
administrative cost savings for industry if lessees elect to use the
index-based valuation method. ONRR believes this calculation and method
are still adequate and will use the same information again in this
rule. Use of the index-based valuation method eliminates the need to
segregate deductible costs of transportation and processing from non-
deductible costs of placing production in marketable condition. This
segregation or allocation of costs, is often referred to as
``unbundling.'' Industry would unbundle transportation systems and
processing plants one time in the absence of the 2020 Rule, and then
use those unbundled cost allocations for subsequent royalty
calculations. While industry is responsible for calculating these
costs, ONRR has published and calculated several unbundling cost
allocations. It takes approximately 100 hours of labor per gas plant.
ONRR calculated the average number of gas plants reported per payor to
be 3.4, across a total of 448 payors reporting residue gas and NGLs,
between 2014-2018. Using the BLS labor cost per hour of $59.26
(described above) and adjusting the assumption to half of lessees
choosing the index-based valuation method, ONRR believes the 2020 Rule
would have resulted in a one-time cost savings to industry of $4.5
million dollars. If the 2020 Rule is withdrawn, lessees will incur this
one-time administrative cost.
State and Local Governments
ONRR estimated that, as a result of the 2020 Rule, States and
certain local governments would receive an overall decrease in royalty
disbursements based on the category that properties fall under,
including OCSLA section 8(g) leases (See 43 U.S.C. 1337(g)), GOMESA
(See 43 U.S.C. 1331 et seq.), and onshore Federal lands. ONRR disburses
royalties based on where the royalty-bearing oil and gas was produced.
Except for production from Federal leases in Alaska (where Alaska
receives 90 percent of the distribution), Section 8(g) leases in the
OCS, and qualified leases under GOMESA in the OCS (more information on
distribution percentages at https://revenuedata.doi.gov/how-it-works/gomesa/), the following distribution table generally applies:
ONRR Disbursements by Area
------------------------------------------------------------------------
Onshore Offshore
------------------------------------------------------------------------
Federal....................................... 51% 95.2%
State......................................... 49% 4.8%
------------------------------------------------------------------------
[[Page 31215]]
Please visit https://revenuedata.doi.gov/explore/#federal-disbursements to find more information on ONRR's disbursements to any
specific State or local government. More specific details about
estimated royalty disbursement impacts can be found below.
Indian Lessors
The provisions in the 2020 Rule and this proposed withdrawal are
not expected to affect Indian lessors.
Federal Government
The impact of the 2020 Rule to the Federal Government will be a
decrease in royalty collections. ONRR estimates the impact to the
Federal Government (detailed in the next table of this section) would
be a reduction in royalties of $49.7 million per year. If the 2020 Rule
is withdrawn, this estimated impact to royalty collections relative to
the 2020 Rule would be an increase in royalties of $49.7 million per
year.
Summary of Royalty Impacts and Costs to Industry, State and Local
Governments, Indian Lessors, and the Federal Government
The table below shows the updated net change in royalties expected
under withdrawal of the 2020 Rule. The table breaks out the impacts to
Federal and State disbursements based on the typical distributions
noted in the table above and the appropriate product weightings and the
location of the affected properties.
Withdrawal of the 2020 Rule: Annual Impact to Royaly Collections, the Federal Government, and States
----------------------------------------------------------------------------------------------------------------
Impact to
Rule provision royalty Federal State portion
collections portion
----------------------------------------------------------------------------------------------------------------
Index-Based Valuation Method Extended to Arm's-Length Gas Sales. $6,800,000 $4,180,000 $2,620,000
Index-Based Valuation Method Extended to Arm's-Length NGL Sales. 660,000 430,000 230,000
High to Midpoint Index Price for Non-Arm's-Length Gas Sales..... 5,060,000 3,110,000 1,950,000
Transportation Deduction Non-Arm's-Length Index-Based Valuation 8,030,000 4,930,000 3,100,000
Method.........................................................
Extraordinary Processing Allowance.............................. 11,130,000 5,680,000 5,450,000
Allowance for Certain OCS Gathering Costs....................... 32,900,000 31,320,000 1,580,000
-----------------------------------------------
Total....................................................... 64,600,000 49,700,000 14,900,000
----------------------------------------------------------------------------------------------------------------
Note: totals may not add due to rounding.
Federal Oil and Gas Amendments With No Estimated Change to Royalty or
Regulatory Costs
Change 1: Eliminate Reference to Default Provision Requirements for
Federal Oil and Gas
The 2020 Rule removed the default provision from its regulations.
In instances of misconduct, breach of a lessee's duty to market, or
other situations where royalty value cannot be determined under the
rules, ONRR can use statutory authority to determine Federal oil and
gas royalty value under lease terms, FOGRMA, and other authorizing
legislation in the same manner--as ONRR would have prior to adoption of
the 2016 Valuation Rule. There is no impact to royalty collections on
account of the default provision regardless of whether the Final 2020
Rule goes into effect or is withdrawn in whole or part.
Federal and Indian Coal
In the 2020 Rule, ONRR estimated there will be no change to royalty
collections for the Federal Government, Tribes, individual Indian
mineral owners, States, or industry for Federal and Indian coal. ONRR
has not changed or adjusted this estimate in this proposed rule. There
is no impact to royalty collections on account of the coal provisions
in the 2020 Rule regardless of whether the 2020 Rule goes into effect
or is withdrawn in whole or part.
IV. Request for Public Comments
ONRR is proposing to withdraw the 2020 Rule. For ONRR's
consideration, before reaching a final decision on this action, ONRR
requests comments, without limitation, on this proposed action. ONRR is
also requesting any comments pertaining to the substance or merits of
the 2020 Rule, and the prior regulatory scheme it replaced.
Additionally, ONRR seeks public comment on the following:
1. Should ONRR withdraw only the deepwater gathering allowance,
extraordinary processing allowance, and/or index-based valuation
provisions of the 2020 Rule, all of which reduce royalties; withdraw
all royalty valuation provisions of the 2020 Rule; or allow all royalty
valuation provisions 2020 Rule to go into effect?
2. Should ONRR allow some or all of the 2020 Rule's civil penalty
amendments, at 30 CFR part 1241, to go into effect? Or should ONRR
withdraw those amendments, and, if so, should it initiate a new civil
penalty rulemaking on the same or different subjects?
3. What impacts, if any, or other information should ONRR consider
if it were to adopt a final rule to either withdraw the deepwater
gathering allowance, extraordinary processing allowance, and index-
based valuation amendments of the 2020 Rule, or withdraw the 2020 Rule
in its entirety, and make the withdrawal effective immediately upon
publication under 5 U.S.C. 553(d)(1) or (3)?
4. This proposed rule provides a revised economic analysis of the
Final 2020 Rule's amendments to the index-based valuation method. The
updated analysis shows the net impact of the amendments is an estimated
decrease of $20.6M in royalty collection per year (from table above,
$6,800,000 + $660,000 + $5,062,000 + $8,033,000). Because the new
analysis is presented for the first time in this rule, the public has
not been given an opportunity to comment on the new analysis. ONRR
invites public comment on the new information, methods ONRR used to
perform its estimates, and whether it justifies withdrawal of some or
all of the Final 2020 Rule's amendments to index-based valuation.
V. Procedural Matters
A. Regulatory Planning and Review (E.O. 12866 and 13563)
E.O. 12866 provides that the Office of Information and Regulatory
Affairs (``OIRA'') of OMB will review all significant rulemakings. This
proposed rule is a significant regulatory action under E.O. 12866.
Because the primary effect is on royalty payments, ONRR expects that
withdrawal of the 2020 Rule will largely result in transfers, which are
described in the table below. ONRR also anticipates that withdrawal of
the 2020 Rule would result in annual administrative cost savings of
$2.85
[[Page 31216]]
million and a one-time administrative cost of $4.52 million.
Please note that, unless otherwise indicated, numbers in the tables
in this section are rounded to the nearest thousand, and that the
totals may not match due to rounding.
Summary of Estimated Changes to Royalty Collections From Withdrawal of
2020 Rule
[Annual]
------------------------------------------------------------------------
Net change in
Rule provision royalties paid
by lessees
------------------------------------------------------------------------
Index-Based Valuation Method Extended to Arm's-Length $6,800,000
Gas Sales..............................................
Index-Based Valuation Method Extended to Arm's-Length 660,000
NGL Sales..............................................
High to Midpoint Index Price for Non-Arm's-Length Gas 5,062,000
Sales..................................................
Transportation Deduction Non-Arm's-Length Index-Based 8,033,000
Valuation Method.......................................
Extraordinary Processing Allowances..................... 11,131,000
Allowances for Certain OCS Gathering Costs.............. 32,900,000
---------------
Total............................................... 64,600,000
------------------------------------------------------------------------
To estimate the present value of potential administrative costs/
savings to industry from withdrawal of the 2020 Rule, ONRR looked at
two potential time periods to represent various production lives of oil
and gas leases. ONRR applied three percent and seven percent discount
rates as described in OMB Circular A-4, using a base year of 2021 and
reported in 2020 dollars. As described above, ONRR estimates a cost to
industry in the first year the 2020 Rule is in effect and incursion of
administrative cost savings each year thereafter.
Summary of Annual Administrative Impacts to Industry From Withdrawal of
2020 Rule
------------------------------------------------------------------------
Cost (cost
Rule provision savings)
------------------------------------------------------------------------
Administrative Cost Savings for Index-Based Valuation $1,077,000
Method for Arm's-Length Gas & NGL Sales................
Administrative Cost for Allowances for Certain OCS (3,931,000)
Gathering..............................................
---------------
Total............................................... (2,850,000)
------------------------------------------------------------------------
Summary of One-Time Administrative Impacts to Industry From Withdrawal
of 2020 Rule
------------------------------------------------------------------------
Rule provision Cost
------------------------------------------------------------------------
Administrative Cost-Savings in lieu of Unbundling $4,520,000
related to Index-Based Valuation Method for ARMS Gas &
NGLs...................................................
------------------------------------------------------------------------
Net Present Value of Administrative Impacts to Industry From Withdrawal
of 2020 Rule
------------------------------------------------------------------------
3% Discount 7% Discount
Time horizon rate rate
------------------------------------------------------------------------
Administrative Costs over 10 years...... $19,920,000 $15,790,000
Administrative Costs over 20 years...... 38,010,000 25,970,000
------------------------------------------------------------------------
E.O. 13563 reaffirms the principles of E.O. 12866, while calling
for improvements in the nation's regulatory system to promote
predictability, to reduce uncertainty, and to use the most innovative
and least burdensome tools for achieving regulatory ends. E.O. 13563
directs agencies to consider regulatory approaches that reduce burdens
and maintain flexibility and freedom of choice for the public where
these approaches are relevant, feasible, and consistent with regulatory
objectives. E.O. 13563 further emphasizes that regulations must be
based on the best available science and that the rulemaking process
must allow for public participation and an open exchange of ideas. ONRR
developed this rule in a manner consistent with these requirements.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally
requires Federal agencies to prepare a regulatory flexibility analysis
for rules that are subject to the notice-and-comment rulemaking
requirements under the Administrative Procedure Act (5 U.S.C. 553), if
the rule would have a significant economic impact on a substantial
number of small entities. See 5 U.S.C. 601-612.
For the changes to 30 CFR part 1206, this rule would affect lessees
of Federal oil and gas leases. For the changes to 30 CFR part 1241,
this rule could affect alleged and actual violators of obligations
under Federal and Indian mineral leases. Federal and Indian mineral
lessees are, generally, companies classified under the North American
Industry Classification System (``NAICS''), as follows:
Code 2111, Oil and Gas Extraction; and
Code 21211, Coal Mining.
Under NAICS code classifications, a small company is one with fewer
than 500 employees. ONRR estimates that
[[Page 31217]]
approximately 1,208 different companies submit royalty reports for
Federal oil and gas leases and other Federal mineral leases to ONRR
each month. Of these, approximately 106 companies are not considered
small businesses because they exceed the employee count threshold for
small businesses. ONRR estimated that the remaining 1,102 companies
affected by this rule are small businesses. ONRR has not changed the
determination it made in the 2020 Rule. See 86 FR 4651.
As stated in the Summary of Royalty Impacts and Costs Table, shown
above, withdrawal of the 2020 Rule would impact industry through an
increase in royalties of approximately $64.6 million per year. Small
businesses account for approximately eight percent of those royalties.
Applying that percentage, ONRR estimates that withdrawal of the 2020
Rule would increase royalty payments made by small-business lessees by
approximately $5.2 million per year, or $4,690 per small business, on
average. The extent of any royalty impact would vary between companies
due to, for example, differences in the revenues generated by a small
business that is subject to royalties.
Also stated above, withdrawal of the 2020 Rule would impact
industry through a decrease in administrative costs of approximately
$2.9 million per year and a first-year increase of $4.5 million.
Applying the eight percent small-business share, ONRR estimates that
withdrawal of the 2020 Rule would decrease administrative costs to
small business lessees by approximately $211 per year and separately
increase costs by $327 in the first year.
In 2020, ONRR collected $6.3 billion in royalties from Federal oil
and gas leases. Applying the eight-percent share, ONRR estimates that
small-business lessees paid $504 million in royalties in 2020. Most
Federal oil and gas leases have a 12.5 percent royalty rate, which
calculates to an estimated $4 billion in total small-business lessee
revenue from the production and sale of Federal oil and gas ($504
million divided by .125). Thus, on average, ONRR estimates that small-
business lessees earn $3.6 million in revenue per year from the
production and sale of Federal oil and gas ($4 billion divided by
1,102).
The estimated increase in royalties ($4,690) and decrease in
administrative burden ($211) net to an increase in overall cost to
1,102 small businesses of $4,479 per year. As a percentage of average
small-business revenue, this proposed rule would increase costs to
those entities by 0.12 percent ($4,479 divided by $3.6 million).
According to the U.S. Census Bureau's 2017 Economic Census data,
oil and gas extractors with 20 employees or less collected $2.1 million
per year per entity. Taking the $4,479 discussed above, divided by $2.1
million equals an estimated maximum impact of 0.2 percent of total
revenue per year. Further, ONRR anticipates that the smallest entities
would realize less of an increase in royalties because, for example,
the changes to deepwater gathering and extraordinary processing
allowances are capital-intensive operations that small entities
typically do not participate in.
In accordance with 5 U.S.C. 605, the head of the agency certifies
that this proposed rule would have an impact on a substantial number of
small entities, but the economic impact on those small entities would
not be significant under the Regulatory Flexibility Act. Thus, ONRR did
not prepare a Regulatory Flexibility Act Analysis nor is a Small Entity
Compliance Guide required.
C. Small Business Regulatory Enforcement Fairness Act
The 2020 Rule was not a major rule under Subtitle E of the Small
Business Regulatory Enforcement Fairness Act of 1996. See 5 U.S.C.
804(2). ONRR therefore expects that the withdrawal of the 2020 rule
would likewise not be a major rule under that provision. Like the 2020
rule, ONRR anticipates that this rule, if finalized:
(1) Would not have an annual effect on the economy of $100 million
or more. ONRR estimates that the cumulative effect on all of industry
if the 2020 Rule goes into effect would be a reduction in private cost
of nearly $61.45 million per year, which is the sum of $64.6 million in
decreased royalty payments and $2.85 million in additional costs due to
increased administrative burdens. This net change in royalty payments
would be a transfer rather than a cost or cost savings. The Summary of
Royalty Impacts and Costs Table, as shown above, demonstrates that the
2020 Rule's cumulative economic impact on industry, State and local
governments, and the Federal Government would be well below the $100
million threshold that the Federal Government uses to define a rule as
having a significant impact on the economy;
(2) would not cause a major increase in costs or prices for
consumers, individual industries, Federal, State, or local government
agencies, or geographic regions. Please see the data tables in the
Regulatory Planning and Review (E.O. 12866 and E.O. 13563) section
above; and
(3) would not have significant adverse effects on competition,
employment, investment, productivity, innovation, or the ability of
United States-based enterprises to compete with foreign-based
enterprises. ONRR estimates no significant adverse impacts to small
business.
D. Unfunded Mandates Reform Act
Neither the 2020 Rule nor its withdrawal would impose an unfunded
mandate or have a significant effect on State, local, or Tribal
governments, or on the private sector, of more than $100 million per
year. Therefore, ONRR is not required to provide a statement containing
the information that the Unfunded Mandates Reform Act (2 U.S.C. 1501 et
seq.) requires because the 2020 Rule or its withdrawal is an unfunded
mandate.
E. Takings (E.O. 12630)
Under the criteria in section 2 of E.O. 12630, neither the 2020
Rule nor its withdrawal have any significant takings implications.
Neither rule imposes conditions or limitations on the use of any
private property because they apply to the valuation of Federal oil and
gas and Federal and Indian coal only. The 2020 Rule only makes minor
technical changes to ONRR's civil penalty regulations that have no
expected economic impact, and the withdrawal of the 2020 Rule would
have no economic impact. Neither rule requires a takings implication
assessment.
F. Federalism (E.O. 13132)
Under the criteria in section 1 of E.O. 13132, the 2020 Rule or its
withdrawal does not have sufficient federalism implications to warrant
the preparation of a federalism summary impact statement. The
management of Federal oil and gas is the responsibility of the
Secretary, and ONRR distributes all of the royalties that it collects
under Federal oil and gas leases as directed by the relevant
disbursement statutes. The 2020 Rule or its withdrawal would not impose
administrative costs on States or local governments or substantially
and directly affect the relationship between the Federal and State
governments. Thus, a federalism summary impact statement is not
required.
G. Civil Justice Reform (E.O. 12988)
The proposed withdrawal of the 2020 Rule complies with the
requirements of E.O. 12988. Specifically, the proposed withdrawal rule:
(1) Meets the criteria of Section 3(a), which requires that ONRR
review all regulations to eliminate errors and ambiguity to minimize
litigation; and
[[Page 31218]]
(2) meets the criteria of Section 3(b)(2), which requires that all
regulations be written in clear language using clear legal standards.
H. Consultation With Indian Tribal Governments (E.O. 13175)
ONRR strives to strengthen its government-to-government
relationship with Indian tribes through a commitment to consultation
with Indian tribes and recognition of their right to self-governance
and tribal sovereignty. ONRR evaluated the 2020 Rule and the proposed
withdrawal under the Department's consultation policy and the criteria
in E.O. 13175 and determined that neither have substantial direct
effects on Federally-recognized Indian tribes. Thus, consultation under
ONRR's tribal consultation policy is not required.
ONRR reached this conclusion, in part, based on the consultations
it conducted before the adoption of the 2016 Valuation Rule. At that
time, ONRR held six tribal consultations with the three tribes (Navajo
Nation, Crow Nation, and Hopi Tribe) for which ONRR collected and
disbursed Indian coal royalties. Upon the conclusion of each
consultation, ONRR and the tribal partners determined that the 2016
Valuation Rule would not have a substantial impact on any of the
potentially impacted tribes. With the exception of the Kayenta Mine
located in Navajo Nation, which ceased production in 2019, the
circumstances relevant to the Indian coal leases have not changed since
the prior consultations occurred. As with the 2016 Valuation Rule,
ONRR's review of the royalty impact to tribes from the 2020 Rule and
its proposed withdrawal concludes that neither would substantially
impact the three tribes. Further, neither rule is estimated to impact
the royalty value of Indian coal.
I. Paperwork Reduction Act (44 U.S.C. 3501 et seq.)
Certain collections of information require OMB's approval under the
Paperwork Reduction Act. The 2020 Rule and its proposed withdrawal do
not require any new or modify any existing information collections
subject to OMB's approval. Thus, ONRR did not submit any new
information collection requests to OMB related to the 2020 Rule or its
proposed withdrawal.
Both the 2020 Rule and its proposed withdrawal leave intact the
information collection requirements that OMB has already approved under
OMB Control Numbers 1012-0004, 1012-0005, and 1012-0010.
J. National Environmental Policy Act of 1969
The 2020 Rule and its proposed withdrawal do not constitute a major
Federal action significantly affecting the quality of the human
environment. ONRR is not required to provide a detailed statement under
the NEPA because both rules qualify for a categorical exclusion under
43 CFR 46.210(c) and (i), as well as the Departmental Manual, part 516,
section 15.4.D, which covers routine financial transactions including
such things as audits, fees, bonds, and royalties and policies,
directives, regulations, and guidelines that are of an administrative,
financial, legal, technical, or procedural nature. ONRR also determined
that both the 2020 Rule and its proposed withdrawal do not involve any
of the extraordinary circumstances listed in 43 CFR 46.215 that require
further analysis under NEPA.
K. Effects on the Energy Supply (E.O. 13211)
Both the 2020 Rule and its proposed withdrawal are not significant
energy actions under the definition in E.O. 13211. Neither is not
likely to have a significant adverse effect on the supply,
distribution, or use of energy. Moreover, the Administrator of OIRA has
not otherwise designated either action as a significant energy action.
A Statement of Energy Effects pursuant to E.O. 13211, therefore, is not
required.
L. Clarity of This Regulation
E.O. 12866 (section 1(b)(12)), 12988 (section 3(b)(1)(B)), E.O.
13563 (section 1(a)), and the Presidential Memorandum of June 1, 1998,
require ONRR to write all rules in plain language. This means that the
rules ONRR publishes must use:
(1) Logical organization.
(2) Active voice to address readers directly.
(3) Clear language rather than jargon.
(4) Short sections and sentences.
(5) Lists and tables wherever possible.
If you believe that ONRR has not met these requirements, send your
comments to [email protected]. To better help ONRR
understand your comments, please make your comments as specific as
possible. For example, you should tell ONRR the numbers of the sections
or paragraphs that you think were written unclearly, the sections or
sentences that you think are too long, and the sections for which you
believe lists or tables would be useful.
This action is taken pursuant to delegated authority.
List of Subjects
30 CFR Part 1206
Coal, Continental shelf, Geothermal energy, Government contracts,
Indians-lands, Mineral royalties, Oil and gas exploration, Public
lands-mineral resources, Reporting and recordkeeping requirements.
30 CFR Part 1241
Administrative practice and procedure, Coal, Geothermal energy,
Indians-lands, Mineral royalties, Natural gas, Oil and gas exploration,
Penalties, Public lands-mineral resources.
Rachael S. Taylor,
Principal Deputy Assistant Secretary--Policy, Management and Budget.
[FR Doc. 2021-12318 Filed 6-10-21; 8:45 am]
BILLING CODE 4335-30-P
