Royalty management: Royalty payment and production reporting requirements; temporary relief for Federal oil and gas leases affected by Hurricanes Katrina and Rita,

[Federal Register: September 29, 2005 (Volume 70, Number 188)]

[Rules and Regulations]

[Page 56849-56853]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr29se05-9]

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Parts 216 and 218

RIN 1010-AD28

Royalty Payment and Royalty and Production Reporting Requirements Relief for Federal Oil and Gas Lessees Affected by Hurricane Katrina or Hurricane Rita

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

SUMMARY: The Minerals Management Service (MMS) is publishing a final rule to provide immediate temporary relief to reporters in the aftermath of Hurricanes Katrina and Rita. The final rule provides an extension to pay royalties owed on Federal oil and gas leases and report corresponding royalty and production reports. On August 29, 2005, Hurricane Katrina struck the Gulf of Mexico coast of the United States. Subsequently, in late September 2005, Hurricane Rita struck the Gulf Coast. Both hurricanes caused extensive damage to areas in which a number of Federal oil and gas lessees, particularly lessees of offshore leases, have their offices and principal operations. This final rule extends the due date for monthly royalty payments and reports and monthly operations reports for Federal oil and gas lessees, royalty payors, and operators whose operations have been disrupted by one or both of the hurricanes to the extent that the lessee, payor, or operator is prevented from submitting accurate payments or accurate reports. Extending the due date for royalty payments means that late payment interest will not accrue for the period between the original due date and the new due date established by this rule.

DATES: Effective date: September 29, 2005.

FOR FURTHER INFORMATION CONTACT: Sharron L. Gebhardt, Lead Regulatory Specialist, Minerals Revenue Management (MRM), Minerals Management Service, P.O. Box 25165, MS 302B2, Denver, Colorado 80225; telephone (303) 231-3211; FAX (303) 231-3781; e-mail sharron.gebhardt@mms.gov. The principal authors of this final rule are Geoffrey Heath of the Office of the Solicitor and Robert Prael of MRM, MMS, U.S. Department of the Interior.

SUPPLEMENTARY INFORMATION:

1. Background

   1. Lease Royalty Reporting, Royalty Payment and Production Reporting Obligations

      Applicable regulations and the terms of Federal oil and gas leases prescribe the dates by which lessees must pay royalty and by which they must submit required royalty reports. Specifically, 30 CFR 218.50(a) requires:

      Royalty payments are due at the end of the month following the month during which the oil and gas is produced and sold except when the last day of the month falls on a weekend or holiday. In such cases, payments are due on the first business day of the succeeding month. * * *

      The terms of almost all onshore and offshore Federal oil and gas leases likewise provide that royalty is due at the end of the month following the month of production.

      Section 111(a) of the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA), 30 U.S.C. 1721(a), prescribes that lessees must pay interest on royalty payments received after the due date. Section 1721(a) provides in relevant part:

      (a) In the case of oil and gas leases where royalty payments are not received by the Secretary on the date that such payments are due, or are less than the amount due, the Secretary shall charge interest on such late payments or underpayments at the rate applicable under section 6621 of the Internal Revenue Code * * *. (Emphasis added.)

      Implementing MMS regulations at 30 CFR 218.54 prescribe in relevant part:

      (a) An interest charge shall be assessed on unpaid and underpaid amounts from the date the amounts are due. * * * * *

      (c) Interest will be charged only on the amount of the payment not received. Interest will be charged only for the number of days a payment is late. (Emphasis added.)

      Title 30 CFR 210.52 prescribes similar requirements for the reports that accompany royalty payments. It provides in relevant part:

      (a) You must submit a completed Form MMS-2014 (Report of Sales and Royalty Remittance) to MMS with:

      (1) All royalty payments * * * * * * * *

      (c) Completed Forms MMS-2014 for royalty payments are due by the end of the month following the production month. Thus, for all Federal oil and gas leases onshore and on the Outer Continental Shelf, both royalty payments and royalty reports are due at the end of the month following the month of production.

      Title 30 CFR 216.53 prescribes similar requirements for production reporting. It provides in relevant part:

      (a) You must file an Oil and Gas Operations Report [OGOR], Form MMS-4054, if you operate one of the following that contains one or more wells that are not permanently plugged or abandoned:

      (1) An OCS lease or federally-approved agreement; or

      (2) An onshore Federal or Indian lease or federally-approved agreement for which you elected to report on a Form MMS-4054 instead of a Form MMS-3160. * * * * *

      (c) * * *

      [[Page 56850]]

      If you submit your form

      We must receive it by

      (1) Electronically..................... The 25th day of the second month following the month for which you are reporting. (2) Other than electronically.......... The 15th day of the second month following the month for which you are reporting.

      For operators of Federal onshore leases who do not report on the Form MMS-4054, section 216.50(c) contains filing deadlines for the Form MMS-3160 (Monthly Report of Operations) that are identical for the OGOR under section 216.53(c).

      The mineral leasing laws grant the Secretary broad authority to promulgate rules and regulations. See the Outer Continental Shelf Lands Act, at 43 U.S.C. 1334(a) (offshore leases); the Mineral Leasing Act, at 30 U.S.C. 189 (onshore public domain leases); and the Mineral Leasing Act for Acquired Lands, at 30 U.S.C. 359 (onshore acquired lands leases).

   2. The Impact of Hurricane Katrina and Hurricane Rita

      Hurricane Katrina came ashore on the coast of the Gulf of Mexico on August 29, 2005. The resulting floods had a devastating impact on the area of New Orleans, Louisiana, among other areas. The entire City of New Orleans and some of the surrounding area have been evacuated, and most of the city is still without power, water, and essential services. The business district of the city and many other areas of the metropolis have been rendered uninhabitable for the present.

      Subsequently, Hurricane Rita came ashore on the Gulf Coast in late September 2005. This hurricane resulted in further serious damage to areas of the United States where Federal oil and gas lessees maintain offices from which the reports and payments described above are produced.

      Several reporters for Federal oil and gas leases (particularly for Federal offshore leases), had their principal offices, from which they generated and sent royalty reports and payments, located in areas affected by one or both hurricanes. Based on current information and conversations with the personnel of a number of oil and gas lessees and operators, MMS's understanding is that several oil and gas lessees and operators have completely lost use of their offices and associated facilities and records. Until access to buildings, records, data, and communications lines are restored, these parties are simply unable to generate or transmit royalty reports and royalty payments or monthly operations reports.

2. Explanation of the Provisions of This Final Rule

   Under the circumstances described above, MMS believes it is equitable to provide temporary relief from royalty payment and report due dates for lessees of Federal oil and gas leases whose payment and reporting operations have been disrupted by either or both of these hurricanes. This relief does not extend to reporting or payments due on Indian leases or to Federal leases for minerals other than oil and gas. (In addition, this rule does not address annual rental payments.) The relief is intended to give payors a reasonable period of time to restore normal operations. Postponing the royalty payment due date means that late payment interest will not accrue during the period between the due date that would have applied in the absence of this rule and the new due date established under this rule.

   For lessees who make the required certification discussed below, the new due date for royalties and corresponding royalty reports (Form MMS-2104) for the production months of July, August, September, and October 2005 will be January 3, 2006 (because December 31, 2005, falls on a weekend). (In the absence of this rule, the due dates for royalty payments and reports for the production months of July, August, September, and October 2005 would have been August 31, September 30, October 31, and November 30, respectively.) The new due date for the production reports (the OGOR, Form MMS-4054) or the Monthly Report of Operations for onshore leases (Form MMS-3160) for the production months of July, August, and September 2005 will be December 15, 2005 (if you do not file electronically) or December 27, 2005 (if you file electronically, in view of the fact that December 25 falls on a weekend and December 26 is a holiday for agency personnel). (In the absence of this rule, the due dates for OGORs or monthly operations reports for the production months of July, August, and September 2005 would have been September 15 or 26, October 17 or 25, and November 15 or 25, respectively.)

   To avail itself of this relief, a lessee, royalty payor, or operator will have to certify that a hurricane that struck the Gulf of Mexico coast of the United States in either August 2005 or September 2005 (i.e., either Hurricane Katrina or Hurricane Rita) disrupted the lessee or payor's operations to the extent that it prevented the lessee or payor from making an accurate royalty payment or submitting an accurate royalty report, or prevented the lessee or operator from submitting an accurate operations report.

   While MMS anticipates that virtually all oil and gas lessees generate royalty reports and transmit payments at one location, a lessee's or payor's certification that it is unable to generate and submit either an accurate royalty report or an accurate royalty payment will allow the lessee or payor to claim relief from both the royalty reporting and royalty payment deadlines. The reason for this is twofold. First, if a lessee can pay but cannot report, it serves no purpose to require the lessee to pay. Without the accompanying report, MMS does not know the leases and production months for which the payment is made. The MMS therefore is unable to account for and disburse the payment properly. Second, if the lessee can generate the report but cannot pay, there is no purpose for requiring the lessee to submit the report. The MMS could process the report, but it cannot move money that it has not received. It would then require manual intervention to prevent the automated system from generating a late payment interest bill when MMS receives the payment later.

   If MMS believes that a lessee's, royalty payor's, or operator's certification is not justified under the lessee's or payor's or operator's circumstances, MMS may reject the certification. If MMS notifies the lessee, royalty payor, or operator that MMS does not accept the certification, then the lessee must report or pay, as applicable, by the date MMS specifies in the notice. Failure to report or pay by the prescribed date could subject the lessee or payor to civil penalties under 30 U.S.C. 1719 or 43 U.S.C. 1350, as applicable.

   Under the Administrative Procedure Act, 5 U.S.C. 553(b)(B), publication of a proposed rule and an opportunity for public comment are required before an agency promulgates a rule, except:

   (B) When the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules

   [[Page 56851]]

   issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.

   Under the regulations and lease terms discussed above, royalty payments for the production month of July 2005 were due on August 31, 2005, two days after Hurricane Katrina hit the Gulf Coast. Royalty payments and reports for the production month of August 2005 are due on September 30, 2005. The need to provide relief from the royalty payment and reporting deadlines is immediate, and the very short time involved will not permit solicitation, receipt, and evaluation of comments before promulgating a final rule. The MMS therefore for good cause finds that notice and public comment on this rulemaking is impracticable and contrary to the public interest.

   The Administrative Procedure Act, at 5 U.S.C. 553(d) further provides:

   (d) The required publication or service of a substantive rule shall be made not less than 30 days before its effective date, except--

   (1) a substantive rule which grants or recognizes an exemption or relieves a restriction;

   (2) interpretative rules and statements of policy; or

   (3) as otherwise provided by the agency for good cause found and published with the rule. As explained above, the need for relief for payors who qualify for relief under this rule is immediate and arises in much less than 30 days. Payors would be unnecessarily harmed if MMS were not to make this rule effective immediately. Therefore, MMS for good cause finds that this rule should take effect immediately.

3. Procedural Matters

   1. Summary Cost and Royalty Impact Data

      We summarize below the estimated costs and benefits of this final rule to all potentially affected groups: industry, State and local governments, Indian tribes and individual Indian mineral owners, and the Federal Government. A. Industry

      Small Business Issues. Approximately 2,500 companies report and pay bonuses, rents, and royalties to MMS. We estimate that over 97 percent of these companies are small businesses, as defined by the U.S. Small Business Administration, because they have 500 or fewer employees. The MMS estimates that this final rule will not impose any additional burden on small businesses. B. State and Local Governments

      The MMS estimates that this final rule may cause a potential delay in royalty disbursements to a few states. The MMS has been notified by several companies that Hurricane Katrina and Hurricane Rita mainly impacted their ability to report and pay on offshore and onshore Federal oil and gas leases. C. Indian Tribes and Individual Indian Mineral Owners

      This final rule will not impose any additional burden on Indian tribes and individual Indian mineral owners. The relief provided in this rule does not extend to reporting or payments due on Indian leases. D. Federal Government

      The MMS estimates that there will not be a significant annual revenue loss due to this final rule. The MMS estimates there will be minimal impacts to manually prevent inappropriate interest billings.

   2. Regulatory Planning and Review, Executive Order 12866

      In accordance with the criteria in Executive Order 12866, this final rule is not a significant regulatory action as it does not exceed the $100 million threshold. The Office of Management and Budget makes the final determination under Executive Order 12866.

   1. This final rule does not have an annual economic effect of $100 million or adversely affect an economic sector, productivity, jobs, the environment, or other units of government. A cost-benefit and economic analysis is not required.

   2. This final rule does not create inconsistencies with other agencies' actions.

   3. This final rule does not materially affect entitlements, grants, user fees, loan programs, or the right and obligations of their recipients.

   4. This final rule does not raise novel legal or policy issues.

   3. Regulatory Flexibility Act

      I certify that this final rule does not have a significant economic effect on a substantial number of small entities as defined under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). An initial Regulatory Flexibility Analysis is not required. Accordingly, a Small Entity Compliance Guide is not required.

      Your comments are important. The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small businesses about Federal agency enforcement actions. The Ombudsman will annually evaluate the enforcement activities and rate each agency's responsiveness to small business. You may comment to the Small Business Administration without fear of retaliation. Disciplinary action for retaliation by an MMS employee may include suspension or termination from employment with the Department of the Interior.

   4. Small Business Regulatory Enforcement Fairness Act (SBREFA)

      This final rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This final rule:

   1. Does not have an annual effect on the economy of $100 million or more. See the above analysis titled ``Summary of Costs and Royalty Impacts.''

   2. Does not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions.

   3. Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

   5. Unfunded Mandates Reform Act

      In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 et seq.):

   1. This final rule does not ``significantly or uniquely'' affect small governments. Therefore a Small Government Agency Plan is not required.

   2. This final rule does not produce a Federal mandate of $100 million or greater in any year, i.e., it is not a ``significant regulatory action'' under the Unfunded Mandates Reform Act.

   6. Government Actions and Interference With Constitutionality Protected Property Rights (Takings), Executive Order 12630

      In accordance with Executive Order 12630, this final rule does not have significant takings implications. A takings implication assessment is not required.

   7. Federalism, Executive Order 13132

      In accordance with Executive Order 13132, this final rule does not have federalism implications. A federalism summary impact statement is not required. It will not substantially and directly affect the relationship between Federal and State Governments. The management of Federal leases is the responsibility of the Secretary of the Department of the Interior. Royalties

      [[Page 56852]]

      collected from Federal leases are shared with state governments on a percentage basis as prescribed by law. This final rule does not alter any lease management or royalty sharing provisions. This final rule does not impose costs on states or localities.

   8. Civil Justice Reform, Executive Order 12988

      In accordance with Executive Order 12988, the Office of the Solicitor has determined that this final rule does not unduly burden the judicial system and does meet the requirements of Sec. 3(a) and 3(b)(2) of the Order.

   9. Paperwork Reduction Act of 1995

      The certifications contained in Sec. Sec. 216.50 (i)(2) and 218.50(d)(2) do not require approval under the Paperwork Reduction Act because they do not meet the definition of information collection contained in 5 CFR 1320.3 (h)(1). Under this definition, solicitations of names, addresses and basic certifications do not require approval. Parts 210, 216, and 218 contain the following information collections, as defined by the Paperwork Reduction Act of 1995 (PRA):

      1010-0139, 30 CFR Part 216, Production Accounting, Subparts A and B; and Part 210, Forms and Reports, expires August 31, 2006.

      1010-0140, 30 CFR Part 210--Forms and Reports (Form MMS- 2014, Report of Sales and Royalty Remittance), expires October 31, 2006.

   10. National Environmental Policy Act (NEPA)

       We have analyzed this final rule in accordance with the criteria of the National Environmental Policy Act and 516 DM. We determined this final rule does not constitute a major Federal action significantly affecting the quality of the human environment. An environmental impact statement is not required.

   11. Government-to-Government Relationship With Tribes

       In accordance with the President's memorandum of April 29, 1994, ``Government-to-Government Relations with Native American Tribal Governments'' (59 FR 22951) and 512 DM 2, we have evaluated potential effects on federally recognized Indian tribes and have determined that the effects of this final rule will have no impact on Indian tribes. This relief does not extend to reporting or payments due on Indian leases.

   12. Consultation and Coordination With Indian Tribal Governments, Executive Order 13175

       In accordance with Executive Order 13175, this final rule does not have tribal implications that impose changes in the delegations between the MMS and the tribes. In addition, this final rule has no implications on individual Indian mineral owners. This relief does not extend to reporting or payments due on Indian leases.

   13. Effects on the Nation's Energy Supply, Distribution, or Use, Executive Order 13211

       In accordance with Executive Order 13211, this regulation does not have a significant adverse effect on the Nation's energy supply, distribution, or use.

   14. Clarity of This Regulation

       Executive Order 12866 requires each agency to write regulations that are easy to understand. We invite your comments on how to make this rule easier to understand, including answers to questions such as the following: (1) Are the requirements in the rule clearly stated? (2) Does the rule contain technical language or jargon that interferes with its clarity? (3) Does the format of the rule (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce its clarity? (4) Would the rule be easier to understand if it were divided into more (but shorter) sections? A ``section'' appears in bold type and is preceded by the symbol ``Sec. '' and a numbered heading; for example, Sec. 204.200. (5) What is the purpose of this part? (6) Is the description of the rule in the SUPPLEMENTARY INFORMATION section of the preamble helpful in understanding the rule?

       (7) What else could we do to make the rule easier to understand?

       Send a copy of any comments that concern how we could make this rule easier to understand to: Office of Regulatory Affairs, Department of the Interior, Room 7229, 1849 C Street NW., Washington, DC 20240. You may also e-mail the comments to this address: Exsec@ios.doi.gov.

       List of Subjects in 30 CFR Parts 216 and 218

       Hurricane Katrina, Hurricane Rita, relief, payor, reporter, report, royalty, production.

       Dated: September 23, 2005. Chad Calvert, Acting Assistant Secretary for Land and Minerals Management.

       0 For the reasons explained in the preamble, MMS amends parts 216 and 218 of title 30 of Code of Federal Regulations as set forth below.

       PART 216--PRODUCTION ACCOUNTING

       0 1. The authority for part 216 continues to read as follows:

       Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 2107; 30 U.S.C. 189, 190, 359, 1023, 1751(a); 31 U.S.C. 3716, 9701; 43 U.S.C. 1334, 1801 et seq.; and 44 U.S.C. 3506(a).

       0 2. In Sec. 216.53, paragraphs (e) and (f) are added as follows:

       Sec. 216.53 Oil and gas operations report.

       * * * * *

       (e)(1) Notwithstanding the provisions of paragraph (c) of this section and Sec. 216.50, the due date for submittal of the Oil and Gas Operations Report (Form MMS-4054) or Monthly Report of Operations (Form MMS-3160) for the production months of July, August, and September 2005 for Federal offshore and onshore oil and gas leases by oil and gas lessees or operators who make the certification required under paragraph (e)(2) of this section is extended to December 15, 2005 (if you do not file electronically) or December 27, 2005 (if you file electronically).

       (2) The extended due dates in paragraph (e)(1) of this section will apply to Oil and Gas Operations Reports (Form MMS-4054) and Monthly Reports of Operations (Form MMS-3160) by any lessee or operator who certifies that a hurricane that struck the Gulf of Mexico coast of the United States in August or September 2005 disrupted the lessee's or operator's operations to the extent that it prevented the lessee or operator from submitting an accurate Form MMS-4054 or MMS-3160.

       (3) Paragraphs (e)(1) and (e)(2) of this section do not apply to Indian leases or to Federal leases for minerals other than oil and gas.

       (4) Certifications under paragraph (e)(2) of this section should be submitted either:

       (i) By mail to: Robert Prael, Financial Manager, Minerals Management Service, Minerals Revenue Management, P.O. Box 25165, MS 350B1, Denver, CO 80225-0165, or

       (ii) By e-mail to Robert.Prael@mms.gov.

       (f)(1) A lessee or operator who submits a certification required under paragraph (e)(2) of this section may rely on the extended due dates prescribed in paragraph (e)(1) of this section unless and until MMS notifies the lessee or operator that MMS does not accept the certification.

       [[Page 56853]]

       (2) If MMS notifies a lessee or operator that MMS does not accept the lessee's or operator's certification under paragraph (e)(2) of this section, the due date for the Oil and Gas Operations Report or Monthly Report of Operations will be the date specified in the notice.

       PART 218--COLLECTION OF ROYALTIES, RENTALS, BONUSES AND OTHER MONIES DUE THE FEDERAL GOVERNMENT

       0 3. The authority for part 218 continues to read as follows:

       Authority: 25 U.S.C. 396 et seq., 396a et seq., 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1001 et seq., 1701 et seq.; 31 U.S.C. 3335; 43 U.S.C. 1301 et seq., 1331 et seq., and 1801 et seq.

       0 4. In Sec. 218.50, paragraphs (d) and (e) are added to read as follows:

       Sec. 218.50 Timing of payment.

       * * * * *

       (d)(1) Notwithstanding the provisions of paragraph (a) of this section and corresponding lease terms and 30 CFR 210.52, the due date for submittal of royalty payments and Reports of Sales and Royalty Remittance (Form MMS-2014) for the production months of July, August, September, and October 2005 for Federal offshore and onshore oil and gas leases by oil and gas lessees or royalty payors who make the certification required under paragraph (d)(2) of this section is extended until January 3, 2006.

       (2) The extended due dates in paragraph (d)(1) of this section will apply to royalty payments and Reports of Sales and Royalty Remittance (Form MMS-2014) by any lessee or royalty payor who certifies that a hurricane that struck the Gulf of Mexico coast of the United States in August or September 2005 disrupted the lessee's or payor's operations to the extent that it prevented the lessee or royalty payor from making an accurate royalty payment or submitting an accurate Form MMS-2014.

       (3) A lessee's or royalty payor's certification under paragraph (d)(2) of this section that it is unable to generate and submit either an accurate royalty report or an accurate royalty payment will extend the due date for both royalty reporting and royalty payment.

       (4) Paragraphs (d)(1) through (d)(3) of this section do not apply to Indian leases or to Federal leases for minerals other than oil and gas.

       (5) Certifications under paragraph (d)(2) of this section should be submitted either:

       (i) By mail to: Robert Prael, Financial Manager, Minerals Management Service, Minerals Revenue Management, P.O. Box 25165, MS 350B1, Denver, CO 80225-0165, or

       (ii) By e-mail to Robert.Prael@mms.gov.

       (e)(1) A lessee or royalty payor who submits a certification required under paragraph (d)(2) of this section may rely on the extended due dates prescribed in paragraph (d)(1) of this section unless and until MMS notifies the lessee or royalty payor or operator that MMS does not accept the certification.

       (2) If MMS notifies the lessee or royalty payor that MMS does not accept the lessee's or royalty payor's certification under paragraph (d)(2) of this section, the due date for royalty payments and Reports of Sales and Royalty Remittance will be the date specified in the notice.

       [FR Doc. 05-19533 Filed 9-28-05; 8:45 am]

       BILLING CODE 4310-MR-P