[Congressional Record Volume 142, Number 117 (Friday, August 2, 1996)]
[Senate]
[Pages S9675-S9678]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  FEDERAL OIL AND GAS ROYALTY SIMPLIFICATION AND FAIRNESS ACT OF 1995

  Mr. STEVENS. I ask unanimous consent that the Senate proceed to the 
immediate consideration of Calendar No. 500, which is House bill H.R. 
1975.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       A bill (H.R. 1975) to improve the management of royalties 
     from Federal and Outer Continental Shelf oil and gas leases, 
     and for other purposes.

  The PRESIDING OFFICER. Is there objection to the immediate 
consideration of the bill?
  There being no objection, the Senate proceeded to consider the bill.
  Mr. MURKOWSKI. Mr. President, I rise to urge my Senate colleagues to 
support H.R. 1975, the Federal Oil and Gas Royalty Fairness and 
Simplification Act, also known as the ``royalty fairness'' bill, which 
passed the House of Representatives on July 16, 1996. H.R. 1975 is 
identical in every respect to S. 1014, reported to the Senate by the 
Committee on Energy and Natural Resources on May 1 by a unanimous voice 
vote, with one exception: It makes a technical amendment in the 
effective date section that was not made in S. 1014. The technical 
amendment was included at the urging of the administration and, as a 
result, the Clinton administration strongly supports H.R. 1975. The 
bill also is supported by the governors of fourteen States.
  This is historic legislation, Mr. President. It is the only 
legislative initiative taken in the last 14 years to cost effectively 
increase the Nation's third largest source of revenue--mineral 
royalties from Federal lands, more specifically, oil and gas royalties. 
This legislation would establish a comprehensive statutory plan to 
increase the collection of royalty receipts due the United States. 
Those receipts will help reduce our budget deficit. Without this 
legislation, an ineffective and costly royalty collection system will 
continue, perpetuating long delays and uncollected royalties.
  Let me make clear, Mr. President: This legislation does not apply to 
Indian lands. It applies only to royalties from oil and gas production 
on Federal lands.
  Let me also make absolutely clear that this bill does not--repeat, 
does not--provide royalty relief or lower royalty rates for oil and gas 
producers who operate on Federal onshore lands or the Outer Continental 
Shelf. H.R. 1975 is about royalty collection, not royalty rates. This 
bill is about improving government efficiency, not about increasing 
government bureaucracy. And this bill is about increasing

[[Page S9676]]

revenues to the Federal Treasury, not about giving money away.
  This legislation is historic for another reason, Mr. President: It 
would empower States to perform oil and gas royalty management 
functions, such as auditing and collecting, that are essential to 
bringing additional receipts to the Treasury and the States within a 7-
year limitation period established by this legislation. By expanding 
the States' role in performing Federal oil and gas royalty management 
and collection functions consistent with Federal law and regulation, 
States will be given a great economic incentive that will benefit the 
Federal Treasury. The more aggressive States are in performing 
delegated functions, the greater their share of net receipts under the 
Mineral Leasing Act. That act requires 50 percent of all royalties from 
Federal onshore oil and gas production to be shared with the States 
from which that production comes.
  H.R. 1975 establishes a framework for the federal oil and gas royalty 
collection program that will accelerate the collection of offsetting 
receipts to the Treasury by $80 million in the 1997-2002 period, half 
of which moneys would be shared with the States. These receipts result 
primarily from: (1) requiring the Secretary of the Interior and 
delegated States to timely collect all claims within 7 years rather 
than allow the claims to become stale and uncollectible; (2) requiring 
early resolution and collection of disputed claims before their value 
diminishes; (3) requiring federal and State resources to be used in a 
manner that maximizes receipts through more aggressive collection 
activities; and (4) increasing production on federal lands by creating 
economic and regulatory incentives. Without the statutory framework of 
this legislation, the Nation's third largest revenue source (the 
Interior Department's Minerals Management Service is the third largest 
source of revenue behind the IRS and Customs Service) will continue to 
be subject to greatly delayed collections and the risk of reduced 
receipts due to non-collection over time.
  To achieve the goal of maximizing collections through more timely and 
aggressive collection efforts, this legislation would do the following 
specific things. It would require the Secretary, delegated States, and 
lessees to take action respecting a royalty obligation within seven 
years from the date that obligation became due. The provisions require 
that judicial proceedings or demands (e.g., orders to pay) be commenced 
or issued within seven years of the date when the obligation became due 
or be barred. Lessees would be required to maintain their records 
during the 7-year period in order to verify production volumes.
  H.R. 1975 would expedite the administrative appeals process at the 
Interior Department by establishing a 33-month limitation on appeals. 
Presently, over $450 million in disputed claims languish in a 
bureaucratic appeals process and continue to lose value. By speeding up 
the appeals process, the Secretary would increase the value of those 
obligations and collections to the Treasury.
  The legislation also would level the playing field for royalty payors 
by authorizing the payment of interest on overpayments. Present law 
requires lessees to pay interest on late payments and underpayments as 
a disincentive for being tardy or underpaying royalties, but does not 
compensate lessees who overpay royalties and who lose the time value of 
that money through some legitimate error.
  And finally, Mr. President, the legislation would authorize the 
Secretary to allow prepayment of royalties and to provide other 
regulatory relief for ``marginal properties,'' and require that 
adjustments or requests for refunds for underpayments or overpayments 
be pursued within a 6-year window coinciding with the 7-year limitation 
period.
  Mr. President, I want to thank my colleague, Senator Nickles, for 
introducing the Senate companion to H.R. 1975, S. 1014, last June. 
Senator Domenici and I joined Senator Nickles as sponsors of this 
historic bill, and Senator Thomas has been deeply involved as well. I 
want to thank Senators Nickles, Domenici, and Thomas for their efforts 
in regard to the royalty fairness legislation.
  Mr. President, the fact that S. 1014 was reported from the Committee 
on Energy and Natural Resources on May 1 by a unanimous voice vote and 
subsequently drew the support of the Clinton administration, and the 
fact that the House swiftly passed H.R. 1975, speaks to the merits of 
this legislation, the lengths to which we have gone to resolve 
differences with the administration over the language of the bill, and 
the fact that this legislation is not partisan legislation.
  This is good-government legislation, and no mater what criticism we 
may hear of it, it will be good for the taxpayers, good for the States, 
and good for the energy producing sector of our economy.
  Importantly, Mr. President, H.R. 1975 will empower States to join in 
partnership with the Federal Government in assuming certain royalty 
management functions pursuant to a delegation of authority. By 
providing States with a role in performing oil and gas royalty 
management functions, we will be giving States the economic incentive 
to perform those functions in a more cost effective manner. Aggressive 
pursuit of royalty obligations by States will be rewarded by higher net 
receipts shares for the States, because 50 percent of oil and gas 
receipts are shared with the States, and it will result in higher 
receipts to the federal treasury.
  This is a fiscal ``win-win'' no matter how you view it. This is good 
public policy. I urge my colleagues to join me in supporting the 
Federal Oil and Gas Royalty Simplification and Fairness Act.
  Mr. President, I ask unanimous consent that a letter dated June 6, 
1996, from the Department of the Interior; a statement of 
administration policy, dated July 16, 1996, from OMB; a letter dated 
May 30, 1996, from Leon Panetta; and a DOE news release dated July 16, 
1996, be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

         U.S. Department of the Interior, Office of the Secretary,
                                     Washington, DC, June 6, 1996.
     Hon. Frank Murkowski,
     Chairman, Committee on Energy and Natural Resources, U.S. 
         Senate, Washington, DC.
       Dear Mr. Chairman: I am writing to express the views of the 
     Department of the Interior on S. 1014, the ``Federal Oil and 
     Gas Royalty Simplification and Fairness Act of 1996.'' As you 
     are aware, we have conducted extensive discussions with the 
     staff of the Senate Energy and Natural Resources Committee in 
     an effort to address concerns and resolve differences raised 
     by both parties.
       S. 1014, as marked up and passed by the full Committee on 
     May 1, incorporated negotiated language that is acceptable to 
     the Department. After marking up the bill, the Committee 
     staff and the Minerals Management Service identified a 
     technical error, and the Committee has developed an amendment 
     for Senate floor consideration. The amendment would correct 
     an error in section 11, so that the effective date exception 
     will apply to the appeals provision in section 115(h) and not 
     to the records retention provision in section 115(f). The 
     Department supports S. 1014 as reported out of the Committee, 
     with the adoption of the pending technical amendment.
       In general, S. 1014 would amend the Federal Oil and Gas 
     Royalty Management Act, the Outer Continental Shelf Lands 
     Act, and the Mineral Leasing Act. The amendments change the 
     requirements that govern how the Secretary of the Interior 
     manages royalty payments from Federal oil and gas leases 
     onshore and on the OCS. The bill would limit the persons that 
     can be held liable for royalty payments; establish a 7-year 
     statute of limitations and detail the circumstances under 
     which the statute of limitations can be tolled; establish 
     time limits for administrative appeals decisions; require the 
     Secretary to pay interest on all overpayments; process OCS 
     refunds and credits in the same manner as onshore leases; 
     undertake measures to encourage efficiency and reduce 
     duplicate reporting; and relax reporting and payment 
     requirements on marginal producing leases, including 
     accepting prepayments of future royalties. Lastly, S. 1014 
     would change existing statutory authority for the Secretary 
     to delegate royalty management activities to States.
       This delegation issue has been of particular interest to 
     the Department. Our priority has been to ensure that the 
     delegation provision does not contain unacceptable bars to 
     the exercise of Secretarial discretion. We believe that the 
     language contained in the current version of S. 1014 provides 
     new benefits for states by expanding the list of delegable 
     authorities which a state may seek and requiring the 
     Secretary, to make a decision regarding any pending state 
     application for delegation within 90 days of its submission. 
     At the same time, however, the bill preserves the Secretary's 
     discretion regarding important decisions affecting public 
     lands, unlike similar language in the companion House

[[Page S9677]]

     bill (H.R. 1975) which unacceptably diminishes the 
     Secretary's discretionary authority. Certainly, we could not 
     accept any amendments that would weaken the Secretary's 
     authority as currently provided in S. 1014.
       The Office of Management and Budget has advised that there 
     is no objection to the presentation of this report from the 
     standpoint of the Administration's program.
           Sincerely,

                                               Sylvia V. Baca,

                                    Acting Assistant Secretary for
     Land and Minerals Management.
                                                                    ____

         Executive Office of the President, Office of Management 
           and Budget,
                                    Washington, DC, July 16, 1996.

                   Statement of Administration Policy

    (This statement has been coordinated by OMB with the concerned 
                               agencies.)


     h.r. 1975--Federal Oil and Gas Royalty Simplification/Fairness

                  (Calvert (R) CA) and 10 cosponsors)

       The Administration is committed to ensuring the efficient 
     management of the Federal oil and gas program and to finding 
     new ways for the States to work cooperatively and creatively 
     with the Federal Government. Accordingly, the Administration 
     strongly supports enactment of H.R. 1975 if amended to adopt 
     the language of S. 1014, as reported by the Senate, with the 
     technical amendment agreed upon by the Administration and the 
     Senate Energy and Natural Resources Committee. The Senate 
     reported bill maintains Federal discretion in delegating 
     royalty collection and other duties to States while expanding 
     the list of delegable authorities that a State may seek.
                                                                    ____



                                              The White House,

                                     Washington, DC, May 30, 1996.
     Hon. Frank H. Murkowski,
     U.S. Senate,
     Washington, DC.
       Dear Mr. Murkowski: I am writing to inform you of the 
     Administration's position regarding the pending Oil and Gas 
     Royalty Simplification and Fairness legislation (S. 1014). 
     Let me assure you that the Administration remains committed 
     to ensuring the efficient management of Federal lands and 
     finding new ways for the States to work cooperatively and 
     creatively with the Federal Government. The President shares 
     your hope that an agreement can be reached on the State 
     delegation issue.
       In an effort to resolve this issue, Administration 
     representatives, working with the staff of the Senate Energy 
     Committee, were successful in reaching an agreement on 
     language that would expand the list of delegable royalty 
     management authorities, without reducing the Secretary of the 
     Interior's responsibility with respect to the management of 
     Federal lands. That language was included in S. 1014, which 
     was reported out of the Senate Energy Committee on May 1st. 
     The Administration supports S. 1014 as reported out of 
     Committee, but will seek a minor technical amendment. The 
     Administration believes this bill's State delegation language 
     is acceptable, unlike the language included in H.R. 1975, the 
     House Resources Committee bill on Royalty Simplification.
       The Administration will continue to work with Congress as 
     the legislative process moves forward, and stands ready to 
     work in support of the language included in the Senate Energy 
     Committee bill. I appreciate your interest and support in 
     this important legislation.
           Sincerely,
     Leon E. Panetta, Chief of Staff.
                                                                    ____


                                DOE News


 statement of charles b. curtis, deputy secretary, u.s. department of 
                                 energy

                          On Royalty Fairness

       ``The Clinton Administration is extremely pleased by 
     passage in the House today of H.R. 1975, the Federal Oil and 
     Gas Royalty Simplification and Fairness Act. This legislation 
     will improve the competitiveness of America's natural gas and 
     oil industry by reducing red tape and making the federal 
     regulatory structure more efficient and responsive.
       ``The Administration has worked hard to advance this 
     legislation because we believe that simplifying royalty 
     collection procedures will make it less costly for domestic 
     energy producers to find and produce more natural gas and oil 
     on federal lands. That, in turn, will reduce America's 
     reliance on foreign oil. Furthermore, the Congressional 
     Budget Office estimates that enactment of this measure will 
     contribute an additional $51 million in federal revenues and 
     $33 million in state revenues over seven years.
       ``The bipartisan support in the House for this bill is a 
     major step forward in making government work for the American 
     people. If the Senate also approves this legislation, it will 
     be good news for American workers, good news for the U.S. 
     Treasury and, most important, good news for our Nation's 
     energy and National security.''

  Mr. DOMENICI. Mr. President, I speak today about extremely important 
legislation that we will pass in the Senate: The Federal Oil and Gas 
Royalty Simplification and Fairness Act of 1996.
  This bill is a win-win solution for our beleaguered domestic oil and 
gas industry, oil and gas-producing States like my State of New Mexico, 
and the Federal Treasury.
  As one of the three cosponsors of this legislation, I wish to commend 
Senator Nickles for introducing the bill, Senator Murkowski for joining 
with me as a cosponsor, and Senator Thomas for fighting hard with us to 
move this bill through committee and past initial administration 
objections.
  The bill before us reflects solid bipartisan support and the hard 
work of the majority and the minority to narrow our differences and 
reach a good compromise.
  The Royalty Fairness bill will generate more revenue for the State 
and Federal Government, which means more funding will be available for 
New Mexico schools and for other vital State programs that depend on 
revenues from oil and gas royalties.
  According to CBO, the Royalty Fairness bill has the potential to save 
taxpayers more than $50 million over 7 years. States keep half of the 
oil and gas royalties, and because of our legislation will have the 
potential to receive over $30 million of additional royalty revenue 
into their State treasuries when this bill is enacted into law.
  Let me remind my colleagues that the Federal royalty collection 
system is our Nation's third largest source of revenue, and this bill 
makes long-needed improvements to that system.
  This bill will finally give the oil patch more consistency and less 
uncertainty in the royalty collection process, which will, in turn, 
give a much-needed boost to our domestic oil and gas industry and 
lessen our dependence on foreign imports.
  This is a good-government bill, a win-win bill, and I urge the 
President to sign this bill into law as soon as possible.
  Mr. NICKLES. Mr. President, today we have finally passed the Federal 
Oil and Gas Royalty Simplification and Fairness Act of 1996. I 
introduced this bill last year. It is a bipartisan bill that has the 
support of the administration as well as 14 State Governors who 
represent 99 percent of all Federal onshore production, the Interstate 
Oil and Gas Compact Commission and industry trade associations who 
represent virtually 100 percent of all Federal lessees.
  This bill amends the Federal Oil and Gas Royalty Management Act of 
1982 and applies to leases issued by the Secretary of the Interior on 
Federal onshore lands and the Outer Continental Shelf. The bill's 
objectives are to provide greater certainty, simplicity, fairness and 
administrative efficiencies in the laws that govern Federal royalties.
  Over time, serious problems have developed with the ways courts and 
consequently the Minerals Management Service [MMS] have interpreted the 
Federal statute of limitations governing royalty collection. Basically 
the issue is: At what time does the statute of limitations begin to run 
on the underpayment of royalties?
  Some courts claim that the statute of limitations does not begin to 
run until the MMS ``should have known about the deficiency'' in the 
amount the producer has paid [Mesa versus U.S. (10th Cir. 1994)]. Other 
courts have held that the current 6-year statute ``is tolled until such 
time as the government could reasonably have known about a fact 
material to its right of action.'' [Phillips versus Lujan (10th Cir. 
1993)].
  Either of the above interpretations subjects producers to unlimited 
liability--a period that well exceeds the statute of limitations on 
other agency actions regarding producers. This situation has created a 
climate of deep uncertainty in the payment of royalties that was not 
intended by Congress and that is not in the best interests of 
consumers, producers, or ultimately the U.S. Government.
  Oil and gas producers pay billions of dollars every year for the 
opportunity to drill on Federal land. The payment of royalties is a 
routine part of doing business with the Federal Government. There is no 
attempt here to alter that obligation to pay.
  However, as in all other businesses, oil and gas producers need 
certainty in their business relationships and in their business 
transactions with the Federal Government. That certainty is not now 
present in the MMS's regulations or in numerous court decisions 
interpreting the applicable statute of limitations. Certainty can be 
achieved

[[Page S9678]]

only through legislation. For that reason, I introduced the Royalty 
Fairness Act of 1995.
  The main objective of this legislation is to establish a clear 
statute of limitations and identify the time when the statute of 
limitations begins to run on royalty payments. This bill establishes a 
7-year statute of limitations and in most cases, the statute will begin 
to run when the obligation to pay the royalty begins.
  In addition, this bill permits the Secretary of the Interior to 
delegate royalty collections and related activities to the States, it 
provides for adjustments or refund requests to correct underpayments or 
overpayments of obligations, it authorizes the payment of interest to 
lessees who make overpayments, and it provides alternatives for 
marginal properties including prepayment of royalties or regulatory 
relief.
  In conclusion, the Congressional Budget Office estimates this bill 
would increase revenues to the U.S. Treasury by $36 million over 6 
years, and cumulatively to the States by $9 million during the same 
interval. I am confident that passage of this bill is much needed to 
create a climate of certainty in the oil and gas industry as well as 
being very much in the national economic interest.
  Mr. STEVENS. Mr. President, I ask unanimous consent that the bill be 
deemed read a third time and passed, the motion to reconsider be laid 
upon the table, and that any statements relating to the bill be placed 
at the appropriate place in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The bill (H.R. 1975) was deemed read the third time and passed.

                          ____________________