[House Report 104-667]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-667
_______________________________________________________________________


 
  FEDERAL OIL AND GAS ROYALTY SIMPLIFICATION AND FAIRNESS ACT OF 1996

                                _______
                                

 July 11, 1996.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Young of Alaska, from the Committee on Resources, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 1975]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Resources, to whom was referred the bill 
(H.R. 1975) to improve the management of royalties from Federal 
and Outer Continental Shelf oil and gas leases, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Federal Oil and Gas Royalty 
Simplification and Fairness Act of 1996''.

SEC. 2. DEFINITIONS.

  Section 3 of the Federal Oil and Gas Royalty Management Act of 1982 
(30 U.S.C. 1701 et seq.) is amended--
          (1) by amending paragraph (7) to read as follows:
          ``(7) `lessee' means any person to whom the United States 
        issues an oil and gas lease or any person to whom operating 
        rights in a lease have been assigned;''; and
          (2) by striking ``and'' at the end of paragraph (15), by 
        striking the period at the end of paragraph (16) and inserting 
        a semicolon, and by adding at the end the following:
          ``(17) `adjustment' means an amendment to a previously filed 
        report on an obligation, and any additional payment or credit, 
        if any, applicable thereto, to rectify an underpayment or 
        overpayment on an obligation;
          ``(18) `administrative proceeding' means any Department of 
        the Interior agency process in which a demand, decision or 
        order issued by the Secretary or a delegated State is subject 
        to appeal or has been appealed;
          ``(19) `assessment' means any fee or charge levied or imposed 
        by the Secretary or a delegated State other than--
                  ``(A) the principal amount of any royalty, minimum 
                royalty, rental, bonus, net profit share or proceed of 
                sale;
                  ``(B) any interest; or
                  ``(C) any civil or criminal penalty;
          ``(20) `commence' means--
                  ``(A) with respect to a judicial proceeding, the 
                service of a complaint, petition, counterclaim, 
                crossclaim, or other pleading seeking affirmative 
                relief or seeking credit or recoupment: Provided, That 
                if the Secretary commences a judicial proceeding 
                against a designee, the Secretary shall give notice of 
                that commencement to the lessee who designated the 
                designee, but the Secretary is not required to give 
                notice to other lessees who may be liable pursuant to 
                section 102(a) of this Act, for the obligation that is 
                the subject of the judicial proceeding; or
                  ``(B) with respect to a demand, the receipt by the 
                Secretary or a delegated State or a lessee or its 
                designee (with written notice to the lessee who 
                designated the designee) of the demand;
          ``(21) `credit' means the application of an overpayment (in 
        whole or in part) against an obligation which has become due to 
        discharge, cancel or reduce the obligation;
          ``(22) `demand' means--
                  ``(A) an order to pay issued by the Secretary or the 
                applicable delegated State to a lessee or its designee 
                (with written notice to the lessee who designated the 
                designee) that has a reasonable basis to conclude that 
                the obligation in the amount of the demand is due and 
                owing; or
                  ``(B) a separate written request by a lessee or its 
                designee which asserts an obligation due the lessee or 
                its designee that provides a reasonable basis to 
                conclude that the obligation in the amount of the 
                demand is due and owing, but does not mean any royalty 
                or production report, or any information contained 
                therein, required by the Secretary or a delegated 
                State;
          ``(23) `designee' means the person designated by a lessee 
        pursuant to section 102(a) of this Act, with such written 
        designation effective on the date such designation is received 
        by the Secretary and remaining in effect until the Secretary 
        receives notice in writing that the designation is modified or 
        terminated;
          ``(24) `obligation' means--
                  ``(A) any duty of the Secretary or, if applicable, a 
                delegated State--
                          ``(i) to take oil or gas royalty in kind; or
                          ``(ii) to pay, refund, offset, or credit 
                        monies including (but not limited to)--
                                  ``(I) the principal amount of any 
                                royalty, minimum royalty, rental, 
                                bonus, net profit share or proceed of 
                                sale; or
                                  ``(II) any interest; and
                  ``(B) any duty of a lessee or its designee (subject 
                to the provisions of section 102(a) of this Act)--
                          ``(i) to deliver oil or gas royalty in kind; 
                        or
                          ``(ii) to pay, offset or credit monies 
                        including (but not limited to)--
                                  ``(I) the principal amount of any 
                                royalty, minimum royalty, rental, 
                                bonus, net profit share or proceed of 
                                sale;
                                  ``(II) any interest;
                                  ``(III) any penalty; or
                                  ``(IV) any assessment,
                        which arises from or relates to any lease 
                        administered by the Secretary for, or any 
                        mineral leasing law related to, the 
                        exploration, production and development of oil 
                        or gas on Federal lands or the Outer 
                        Continental Shelf;
          ``(25) `order to pay' means a written order issued by the 
        Secretary or the applicable delegated State to a lessee or its 
        designee (with notice to the lessee who designated the 
        designee) which--
                  ``(A) asserts a specific, definite, and quantified 
                obligation claimed to be due, and
                  ``(B) specifically identifies the obligation by 
                lease, production month and monetary amount of such 
                obligation claimed to be due and ordered to be paid, as 
                well as the reason or reasons such obligation is 
                claimed to be due, but such term does not include any 
                other communication or action by or on behalf of the 
                Secretary or a delegated State;
          ``(26) `overpayment' means any payment by a lessee or its 
        designee in excess of an amount legally required to be paid on 
        an obligation and includes the portion of any estimated payment 
        for a production month that is in excess of the royalties due 
        for that month;
          ``(27) `payment' means satisfaction, in whole or in part, of 
        an obligation;
          ``(28) `penalty' means a statutorily authorized civil fine 
        levied or imposed for a violation of this Act, any mineral 
        leasing law, or a term or provision of a lease administered by 
        the Secretary;
          ``(29) `refund' means the return of an overpayment by the 
        drawing of funds from the United States Treasury;
          ``(30) `State concerned' means, with respect to a lease, a 
        State which receives a portion of royalties or other payments 
        under the mineral leasing laws from such lease;
          ``(31) `underpayment' means any payment or nonpayment by a 
        lessee or its designee that is less than the amount legally 
        required to be paid on an obligation; and
          ``(32) `United States' means the United States Government and 
        any department, agency, or instrumentality thereof, the several 
        States, the District of Columbia, and the territories of the 
        United States.''.

SEC. 3. DELEGATION OF ROYALTY COLLECTIONS AND RELATED ACTIVITIES.

  (a) General Authority.--Section 205 of the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C. 1735) is amended to read as 
follows:

``SEC. 205. DELEGATION OF ROYALTY COLLECTIONS AND RELATED ACTIVITIES.

  ``(a) State Proposal.--A State may submit to the Secretary a proposal 
to perform and enforce all or part of the authorities and 
responsibilities of the Secretary under this Act to conduct and enforce 
royalty collections and related activities, including audits, 
inspections, investigations, production and financial reports, 
correction of erroneous report data, automated verification, demands, 
subpoenas, orders to perform restructured accounting (as defined in 
this Act), production accountability, with respect to all Federal 
leases within that State.
  ``(b) Demonstration of State Ability.--In the proposal under 
subsection (a), the State shall demonstrate the following:
          ``(1) It is likely that the State will provide adequate 
        resources to achieve the purposes of this Act.
          ``(2) The State has demonstrated that it will effectively and 
        faithfully administer the rules and regulations of the 
        Secretary under this Act in accordance with the requirements or 
        subsection (c).
          ``(3) Such delegation will not create an unreasonable burden 
        on the lessees within the State.
          ``(4) The State agrees to adopt standardized reporting 
        procedures prescribed by the Secretary, unless the State and 
        all affected parties otherwise agree.
          ``(5) The State agrees to follow and adhere to regulations 
        issued pursuant to the mineral leasing laws regarding valuation 
        of production.
          ``(6) The State has enacted laws and promulgated regulations 
        consistent with relevant Federal laws and regulations.
          ``(7) The State has shown that delegation of the authorities 
        and responsibilities under this Act will result in a cost-
        savings to the United States.
  ``(c) Regulations.--After consultation with the States concerned, the 
Secretary shall by rule promulgate standards within 18 months after the 
date of enactment of this section pertaining to authorities and 
responsibilities under subsection (a), including standards pertaining 
to the royalty collections and related activities enumerated in 
subsection (a). Such standards shall be designed to provide reasonable 
assurance that uniformity and effectiveness will prevail among the 
States, that State participation will ensue in the development of 
procedures and policies affecting the delegated activity, and that 
reasonable flexibility will be provided to a State to perform any 
delegated authority or responsibility in a more efficient and cost-
effective manner. The records and accounts maintained pursuant to such 
regulations shall be sufficient to allow the Secretary to monitor the 
performance of any State under this section. Such standards shall, to 
the maximum extent possible, prevent duplication by the Secretary of 
any activity delegated to a State for all Federal land within a State.
  ``(d) Delegation.--
          ``(1) Preliminary approval or disapproval by secretary.--
                  ``(A) Review.--The Secretary shall review a State's 
                proposal as to the consistency of such proposal with 
                subsections (b) and (c) and regulations under 
                subsection (c).
                  ``(B) Decision.--The Secretary shall issue a 
                preliminary approval or disapproval as to the 
                consistency of a State's proposal with subsections (b) 
                and (c) and regulations under subsection (c) within six 
                months after submission of such proposal. If the 
                Secretary disapproves any State proposal in whole or in 
                part, he shall notify the State in writing of his 
                decision and set forth in detail the reasons therefore 
                and state whether he will agree to delegate to the 
                State if the State meets the conditions set forth in 
                the disapproval.
                  ``(C) Resubmission.--The State shall have 60 days in 
                which to resubmit a revised State proposal or portion 
                thereof. The Secretary shall approve or disapprove the 
                resubmitted State proposal or portion thereof within 60 
                days from the date of resubmission.
          ``(2) Delegation.--After notice and opportunity for a public 
        hearing, if the Secretary determines that a State has satisfied 
        the conditions contained in a preliminary ruling and approves 
        the State's proposal, the State shall assume and perform such 
        activities and responsibilities pursuant to such approval. The 
        provisions for delegation shall be set forth in a delegation 
        agreement between the Secretary and the State within 90 days 
        after the notice and hearing. The agreement may be amended from 
        time to time to take into account new standards and procedures 
        affecting the delegated activity. Under any such agreement, the 
        Secretary and the State shall share oil or gas information.
          ``(3) Federal intervention; withdrawal of authority.--
                  ``(A) Secretarial intervention.--If after providing 
                written notice to a delegated State (with a copy to the 
                lessee or its designee) and a reasonable opportunity to 
                take corrective action requested by the Secretary, the 
                Secretary determines that the State has failed to issue 
                a demand or order to a Federal lessee within the State, 
                that such failure will result in an underpayment of an 
                obligation due the United States by such lessee, and 
                that such underpayment will be uncollected without 
                Secretarial intervention, the Secretary may issue such 
                demand or order in accordance with the provisions of 
                this Act prior to or absent the withdrawal of the 
                delegated activity.
                  ``(B) Withdrawal of delegated activity.--Whenever the 
                Secretary determines after public hearing that a State 
                is not performing the delegated activity authorized 
                under this section in accordance with requirements of 
                this section, the Secretary shall provide written 
                notice, together with the reasons therefor, to the 
                State and, if corrective action is not taken within a 
                reasonable time, not to exceed 90 days, the Secretary 
                shall withdraw authorization of such delegated activity 
                and take the necessary actions to administer and 
                enforce such withdrawn activity.
          ``(4) Court action.--The State may bring an action in the 
        Federal district court in a judicial district in which a 
        portion of the State is located if--
                  ``(A) the Secretary does not agree to delegate the 
                requested activities, or
                  ``(B) the Secretary withdraws an activity under 
                paragraph (3)(B).
  ``(e) Savings Provision.--Any State operating pursuant to a 
delegation existing on the date of enactment of this Act may continue 
to operate under the terms and conditions of the delegation, subject to 
the requirements of subsection (i), except to the extent that a 
revision of the existing agreement is adopted pursuant to this section.
  ``(f) State Action.--With respect to enforcement of an obligation 
under this Act, a State bringing an action under this section shall 
enjoy no greater rights than the Secretary enjoys under this Act.
  ``(g) Receipts.--The Secretary shall compensate any State for those 
costs which may be necessary to carry out the delegated activities 
under this section. Payment shall be made no less than every quarter 
during the fiscal year. Compensation to a State shall not exceed the 
Secretary's reasonably anticipated expenditure for performance of such 
delegated activities by the Secretary. Such costs shall be allocable 
for the purposes of section 35(b) of the Act entitled `An act to 
promote the mining of coal, phosphate, oil, oil shale, gas and sodium 
on the public domain', approved February 25, 1920 (commonly known as 
the Mineral Leasing Act) (30 U.S.C. 191 (b)) to the administration and 
enforcement of laws providing for the leasing of any onshore lands or 
interests in land owned by the United States. The Secretary shall 
compensate any State in the next succeeding fiscal year for the 
aggregate amount of such costs incurred but not compensated due to such 
allocation for the current fiscal year. All moneys received from sales, 
bonuses, rentals, royalties, assessments and interest, including money 
claimed to be due and owing pursuant to a delegation under this 
section, shall be payable and paid to the Treasury of the United 
States. If a State's cost for actions taken under a delegated activity 
is subject to such section 35(b), the Secretary shall not charge the 
State under such section 35(b) for the Secretary's costs for taking the 
same actions under such activity.''.
  (b) Clerical Amendment.--The item relating to section 205 in the 
table of contents in section 1 of the Federal Oil and Gas Royalty 
Management Act of 1982 (30 U.S.C. 1701) is amended to read as follows:

``Sec. 205. Delegation of royalty collections and related 
activities.''.

SEC. 4. SECRETARIAL AND DELEGATED STATES' ACTIONS AND LIMITATION 
                    PERIODS.

  (a) In General.--The Federal Oil and Gas Royalty Management Act of 
1982 (30 U.S.C. 1701 et seq.) is amended by adding after section 114 
the following new section:

``SEC. 115. SECRETARIAL AND DELEGATED STATES' ACTIONS AND LIMITATION 
                    PERIODS.

  ``(a) In General.--The respective duties, responsibilities, and 
activities with respect to a lease shall be performed by the Secretary, 
delegated States, and lessees or their designees in a timely manner.
  ``(b) Limitation Period.--
          ``(1) In general.--A judicial proceeding or demand which 
        arises from, or relates to an obligation, shall be commenced 
        within seven years from the date on which the obligation 
        becomes due and if not so commenced shall be barred. If 
        commencement of a judicial proceeding or demand for an 
        obligation is barred by this section, the Secretary, a 
        delegated State, or a lessee or its designee (A) shall not take 
        any other or further action regarding that obligation, 
        including (but not limited to) the issuance of any order, 
        request, demand or other communication seeking any document, 
        accounting, determination, calculation, recalculation, payment, 
        principal, interest, assessment, or penalty or the initiation, 
        pursuit or completion of an audit with respect to that 
        obligation; and (B) shall not pursue any other equitable or 
        legal remedy, whether under statute or common law, with respect 
        to an action on or an enforcement of said obligation.
          ``(2) Rule of construction.--A judicial proceeding or demand 
        that is timely commenced under paragraph (1) against a designee 
        shall be considered timely commenced as to any lessee who is 
        liable pursuant to section 102(a) of this Act for the 
        obligation that is the subject of the judicial proceeding or 
        demand.
          ``(3) Application of certain limitations.--The limitations 
        set forth in sections 2401, 2415, 2416, and 2462 of title 28, 
        United States Code, and section 42 of the Mineral Leasing Act 
        (30 U.S.C. 226-2) shall not apply to any obligation to which 
        this Act applies. Section 3716 of title 31, United States Code, 
        may be applied to an obligation the enforcement of which is not 
        barred by this Act, but may not be applied to any obligation 
        the enforcement of which is barred by this Act.
  ``(c) Obligation Becomes Due.--
          ``(1) In general.--For purposes of this Act, an obligation 
        becomes due when the right to enforce the obligation is fixed.
          ``(2) Royalty obligations.--The right to enforce any royalty 
        obligation for any given production month for a lease is fixed 
        for purposes of this Act on the last day of the calendar month 
        following the month in which oil or gas is produced.
  ``(d) Tolling of Limitation Period.--The running of the limitation 
period under subsection (b) shall not be suspended, tolled, extended, 
or enlarged for any obligation for any reason by any action, other than 
the following:
          ``(1) Tolling agreement.--A written agreement executed during 
        the limitation period between the Secretary or a delegated 
        State and a lessee or its designee (with notice to the lessee 
        who designated the designee) shall toll the limitation period 
        for the amount of time during which the agreement is in effect.
          ``(2) Subpoena.--
                  ``(A) The issuance of a subpoena to a lessee or its 
                designee (with notice to the lessee who designated the 
                designee, which notice shall not constitute a subpoena 
                to the lessee) in accordance with the provisions of 
                subparagraph (B)(i) shall toll the limitation period 
                with respect to the obligation which is the subject of 
                a subpoena only for the period beginning on the date 
                the lessee or its designee receives the subpoena and 
                ending on the date on which (i) the lessee or its 
                designee has produced such subpoenaed records for the 
                subject obligation, (ii) the Secretary or a delegated 
                State receives written notice that the subpoenaed 
                records for the subject obligation are not in existence 
                or are not in the lessee's or its designee's possession 
                or control, or (iii) a court has determined in a final 
                decision that such records are not required to be 
                produced, whichever occurs first.
                  ``(B)(i) A subpoena for the purposes of this section 
                which requires a lessee or its designee to produce 
                records necessary to determine the proper reporting and 
                payment of an obligation due the Secretary may be 
                issued only by an Assistant Secretary of the Interior 
                or an Acting Assistant Secretary of the Interior who is 
                a schedule C employee (as defined by section 213.3301 
                of title 5, Code of Federal Regulations), or the 
                Director or Acting Director of the respective bureau or 
                agency, and may not be delegated to any other person. 
                If a State has been delegated authority pursuant to 
                section 205, the State, acting through the highest 
                elected State official having ultimate authority over 
                the collection of royalties from leases on Federal 
                lands within the State, may issue such subpoena, but 
                may not delegate such authority to any other person.
                  ``(ii) A subpoena described in clause (i) may only be 
                issued against a lessee or its designee during the 
                limitation period provided in this section and only 
                after the Secretary or a delegated State has in writing 
                requested the records from the lessee or its designee 
                related to the obligation which is the subject of the 
                subpoena and has determined that--
                          ``(I) the lessee or its designee has failed 
                        to respond within a reasonable period of time 
                        to the Secretary's or the applicable delegated 
                        State's written request for such records 
                        necessary for an audit, investigation or other 
                        inquiry made in accordance with the Secretary's 
                        or such delegated State's responsibilities 
                        under this Act; or
                          ``(II) the lessee or its designee has in 
                        writing denied the Secretary's or the 
                        applicable delegated State's written request to 
                        produce such records in the lessee's or its 
                        designee's possession or control necessary for 
                        an audit, investigation or other inquiry made 
                        in accordance with the Secretary's or such 
                        delegated State's responsibilities under this 
                        Act; or
                          ``(III) the lessee or its designee has 
                        unreasonably delayed in producing records 
                        necessary for an audit, investigation or other 
                        inquiry made in accordance with the Secretary's 
                        or the applicable delegated State's 
                        responsibilities under this Act after the 
                        Secretary's or such delegated State's written 
                        request.
                  ``(C) In seeking records, the Secretary or the 
                applicable delegated State shall afford the lessee or 
                its designee a reasonable period of time after a 
                written request by the Secretary or such delegated 
                State in which to provide such records prior to the 
                issuance of any subpoena.
          ``(3) Misrepresentation or concealment.--The intentional 
        misrepresentation or concealment of a material fact for the 
        purpose of evading the payment of an obligation in which case 
        the limitation period shall be tolled for the period of such 
        misrepresentation or such concealment.
          ``(4) Order to perform a restructured accounting.--(A)(i) The 
        issuance of a notice under subparagraph (D) that the lessee or 
        its designee has not substantially complied with the 
        requirement to perform a restructured accounting shall toll the 
        limitation period with respect to the obligation which is the 
        subject of the notice only for the period beginning on the date 
        the lessee or its designee receives the notice and ending 120 
        days after the date on which (I) the Secretary or the 
        applicable delegated State receives written notice the 
        accounting or other requirement has been performed, or (II) a 
        court has determined in a final decision that the lessee is not 
        required to perform the accounting, whichever occurs first.
          ``(ii) If the lessee or its designee initiates an 
        administrative appeal or judicial proceeding to contest an 
        order to perform a restructured accounting issued under 
        subparagraph (B)(i), the limitation period in subsection (b) 
        shall be tolled from the date the lessee or its designee 
        received the order until a final, nonappealable decision is 
        issued in any such proceeding.
          ``(B)(i) The Secretary or the applicable delegated State may 
        issue an order to perform a restructured accounting to a lessee 
        or its designee when the Secretary or such delegated State 
        determines during an audit of a lessee or its designee that the 
        lessee or its designee should recalculate royalty due on an 
        obligation based upon the Secretary's or the delegated State's 
        finding that the lessee or its designee has made identified 
        underpayments or overpayments which are demonstrated by the 
        Secretary or the delegated State to be based upon repeated, 
        systemic reporting errors for a significant number of leases or 
        a single lease for a significant number of reporting months 
        with the same type of error which constitutes a pattern of 
        violations and which are likely to result in either significant 
        underpayments or overpayments.
          ``(ii) The power of the Secretary to issue an order to 
        perform a restructured accounting may not be delegated below 
        the most senior career professional position having 
        responsibility for the royalty management program, which 
        position is currently designated as the `Associate Director for 
        Royalty Management', and may not be delegated to any other 
        person. If a State has been delegated authority pursuant to 
        section 205 of this Act, the State, acting through the highest 
        ranking State official having ultimate authority over the 
        collection of royalties from leases on Federal lands within the 
        State, may issue such order to perform, which may not be 
        delegated to any other person. An order to perform a 
        restructured accounting shall--
                  ``(I) be issued within a reasonable period of time 
                from when the audit identifies the systemic, reporting 
                errors;
                  ``(II) specify the reasons and factual bases for such 
                order;
                  ``(III) be specifically identified as an `order to 
                perform a restructured accounting';
                  ``(IV) provide the lessee or its designee a 
                reasonable period of time (but not less than 60 days) 
                within which to perform the restructured accounting; 
                and
                  ``(V) provide the lessee or its designee 60 days 
                within which to file an administrative appeal of the 
                order to perform a restructured accounting.
          ``(C) An order to perform a restructured accounting shall not 
        mean or be construed to include any other communication or 
        action by or on behalf of the Secretary or a delegated State.
          ``(D) If a lessee or its designee fails to substantially 
        comply with the requirement to perform a restructured 
        accounting pursuant to this subsection, a notice shall be 
        issued to the lessee or its designee that the lessee or its 
        designee has not substantially complied with the requirements 
        to perform a restructured accounting. A lessee or its designee 
        shall be given a reasonable time within which to perform the 
        restructured accounting. Such notice may be issued under this 
        section only by an Assistant Secretary of the Interior or an 
        acting Assistant Secretary of the Interior who is a schedule C 
        employee (as defined by section 213.3301 of title 5, Code of 
        Federal Regulations) and may not be delegated to any other 
        person. If a State has been delegated authority pursuant to 
        section 205, the State, acting through the highest elected 
        State official having ultimate authority over the collection of 
        royalties from leases on Federal lands within the State, may 
        issue such notice, which may not be delegated to any other 
        person.
  ``(e) Termination of Limitations Period.--An action or an enforcement 
of an obligation by the Secretary or delegated State or a lessee or its 
designee shall be barred under this section prior to the running of the 
seven-year period provided in subsection (b) in the event--
          ``(1) the Secretary or a delegated State has notified the 
        lessee or its designee in writing that a time period is closed 
        to further audit; or
          ``(2) the Secretary or a delegated State and a lessee or its 
        designee have so agreed in writing.
For purposes of this subsection, notice to, or an agreement by, the 
designee shall be binding on any lessee who is liable pursuant to 
section 102(a) for obligations that are the subject of the notice or 
agreement.
  ``(f) Records Required for Determining Collections.--Records required 
pursuant to section 103 of this Act by the Secretary or any delegated 
State for the purpose of determining obligations due and compliance 
with any applicable mineral leasing law, lease provision, regulation or 
order with respect to oil and gas leases from Federal lands or the 
Outer Continental Shelf shall be maintained for the same period of time 
during which a judicial proceeding or demand may be commenced under 
subsection (b). If a judicial proceeding or demand is timely commenced, 
the record holder shall maintain such records until the final 
nonappealable decision in such judicial proceeding is made, or with 
respect to that demand is rendered, unless the Secretary or the 
applicable delegated State authorizes in writing an earlier release of 
the requirement to maintain such records. Notwithstanding anything 
herein to the contrary, under no circumstance shall a record holder be 
required to maintain or produce any record relating to an obligation 
for any time period which is barred by the applicable limitation in 
this section. In connection with any hearing, administrative 
proceeding, inquiry, investigation, or audit by the Secretary or a 
delegated State under this Act, the Secretary or the delegated State 
shall minimize the submission of multiple or redundant information and 
make a good faith effort to locate records previously submitted by a 
lessee or a designee to the Secretary or the delegated State, prior to 
requiring the lessee or the designee to provide such records.
  ``(g) Timely Collections.--In order to most effectively utilize 
resources available to the Secretary to maximize the collection of oil 
and gas receipts from lease obligations to the Treasury within the 
seven-year period of limitations, and consequently to maximize the 
State share of such receipts, the Secretary may not perform or require 
accounting, reporting, or audit activities if the Secretary and the 
State concerned determines that the cost of conducting or requiring the 
activity exceeds the expected amount to be collected by the activity, 
based on the most current 12 months of activity. This subsection shall 
not provide a defense to a demand or an order to perform a restructured 
accounting. To the maximum extent possible, the Secretary and delegated 
States shall reduce costs to the United States Treasury and the States 
by discontinuing requirements for unnecessary or duplicative data and 
other information, such as separate allowances and payor information, 
relating to obligations due. If the Secretary and the State concerned 
determine that collection will result sooner, the Secretary or the 
applicable delegated State may waive or forego interest in whole or in 
part.
  ``(h) Appeals and Final Agency Action.--
          ``(1) 33-month period.--Demands or orders issued by the 
        Secretary or a delegated State are subject to administrative 
        appeal in accordance with the regulations of the Secretary. The 
        Secretary shall issue a final decision in any administrative 
        proceeding, including any administrative proceedings pending on 
        the date of enactment of this section, within 33 months from 
        the date such proceeding was commenced or 33 months from the 
        date of such enactment, whichever is later. The 33-month period 
        may be extended by any period of time agreed upon in writing by 
        the Secretary and the appellant.
          ``(2) Effect of failure to issue decision.--If no such 
        decision has been issued by the Secretary within the 33-month 
        period referred to in paragraph (1)--
                  ``(A) the Secretary shall be deemed to have issued 
                and granted a decision in favor of the appellant as to 
                any nonmonetary obligation and any monetary obligation 
                the principal amount of which is less than $10,000; and
                  ``(B) the Secretary shall be deemed to have issued a 
                final decision in favor of the Secretary, which 
                decision shall be deemed to affirm those issues for 
                which the agency rendered a decision prior to the end 
                of such period, as to any monetary obligation the 
                principal amount of which is $10,000 or more, and the 
                appellant shall have a right to judicial review of such 
                deemed final decision in accordance with title 5 of the 
                United States Code.
  ``(i) Collections of Disputed Amounts Due.--To expedite collections 
relating to disputed obligations due within the seven-year period 
beginning on the date the obligation became due, the parties shall hold 
not less than one settlement consultation and the Secretary and the 
State concerned may take such action as is appropriate to compromise 
and settle a disputed obligation, including waiving or reducing 
interest and allowing offsetting of obligations among leases.
  ``(j) Enforcement of a Claim for Judicial Review.--In the event a 
demand subject to this section is properly and timely commenced, the 
obligation which is the subject of the demand may be enforced beyond 
the seven-year limitations period without being barred by this statute 
of limitations. In the event a demand subject to this section is 
properly and timely commenced, a judicial proceeding challenging the 
final agency action with respect to such demand shall be deemed timely 
so long as such judicial proceeding is commenced within 180 days from 
receipt of notice by the lessee or its designee of the final agency 
action.
  ``(k) Implementation of Final Decision.--In the event a judicial 
proceeding or demand subject to this section is timely commenced and 
thereafter the limitation period in this section lapses during the 
pendency of such proceeding, any party to such proceeding shall not be 
barred from taking such action as is required or necessary to implement 
a final unappealable judicial or administrative decision, including any 
action required or necessary to implement such decision by the recovery 
or recoupment of an underpayment or overpayment by means of refund or 
credit.
  ``(l) Stay of Payment Obligation Pending Review.--Any person ordered 
by the Secretary or a delegated State to pay any obligation (other than 
an assessment) shall be entitled to a stay of such payment without bond 
or other surety instrument pending an administrative or judicial 
proceeding if the person periodically demonstrates to the satisfaction 
of the Secretary that such person is financially solvent or otherwise 
able to pay the obligation. In the event the person is not able to so 
demonstrate, the Secretary may require a bond or other surety 
instrument satisfactory to cover the obligation. Any person ordered by 
the Secretary or a delegated State to pay an assessment shall be 
entitled to a stay without bond or other surety instrument.''.
  (b) Clerical Amendment.--The table of contents in section 1 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701) is 
amended by inserting after the item relating to section 114 the 
following new item:

``Sec. 115. Secretarial and delegated States' actions and limitation 
periods.''.

SEC. 5. ADJUSTMENT AND REFUNDS.

  (a) In General.--The Federal Oil and Gas Royalty Management Act of 
1982 (30 U.S.C. 1701 et seq.) is amended by inserting after section 111 
the following:

``SEC. 111A. ADJUSTMENTS AND REFUNDS.

  (a) Adjustments.--
          ``(1) If, during the adjustment period, a lessee or its 
        designee determines that an adjustment or refund request is 
        necessary to correct an underpayment or overpayment of an 
        obligation, the lessee or its designee shall make such 
        adjustment or request a refund within a reasonable period of 
        time and only during the adjustment period. The filing of a 
        royalty report which reflects the underpayment or overpayment 
        of an obligation shall constitute prior written notice to the 
        Secretary or the applicable delegated State of an adjustment.
          ``(2)(A) For any adjustment, the lessee or its designee shall 
        calculate and report the interest due attributable to such 
        adjustment at the same time the lessee or its designee adjusts 
        the principal amount of the subject obligation, except as 
        provided by subparagraph (B).
          ``(B) In the case of a lessee or its designee who determines 
        that subparagraph (A) would impose a hardship, the Secretary or 
        such delegated State shall calculate the interest due and 
        notify the lessee or its designee within a reasonable time of 
        the amount of interest due, unless such lessee or its designee 
        elects to calculate and report interest in accordance with 
        subparagraph (A).
          ``(3) An adjustment or a request for a refund for an 
        obligation may be made after the adjustment period only upon 
        written notice to and approval by the Secretary or the 
        applicable delegated State, as appropriate, during an audit of 
        the period which includes the production month for which the 
        adjustment is being made. If an overpayment is identified 
        during an audit, then the Secretary or the applicable delegated 
        State, as appropriate, shall allow a credit or refund in the 
        amount of the overpayment.
          ``(4) For purposes of this section, the adjustment period for 
        any obligation shall be the six-year period following the date 
        on which an obligation became due. The adjustment period shall 
        be suspended, tolled, extended, enlarged, or terminated by the 
        same actions as the limitation period in section 115.
  ``(b) Refunds.--
          ``(1) In general.--A request for refund is sufficient if it--
                  ``(A) is made in writing to the Secretary and, for 
                purposes of section 115, is specifically identified as 
                a demand;
                  ``(B) identifies the person entitled to such refund;
                  ``(C) provides the Secretary information that 
                reasonably enables the Secretary to identify the 
                overpayment for which such refund is sought; and
                  ``(D) provides the reasons why the payment was an 
                overpayment.
          ``(2) Payment by secretary of the treasury.--The Secretary 
        shall certify the amount of the refund to be paid under 
        paragraph (1) to the Secretary of the Treasury who shall make 
        such refund. Such refund shall be paid from amounts received as 
        current receipts from sales, bonuses, royalties (including 
        interest charges collected under this section) and rentals of 
        the public lands and the Outer Continental Shelf under the 
        provisions of the Mineral Leasing Act and the Outer Continental 
        Shelf Lands Act, which are not payable to a State or the 
        Reclamation Fund. The portion of any such refund attributable 
        to any amounts previously disbursed to a State, the Reclamation 
        Fund, or any recipient prescribed by law shall be deducted from 
        the next disbursements to that recipient made under the 
        applicable law. Such amounts deducted from subsequent 
        disbursements shall be credited to miscellaneous receipts in 
        the Treasury.
          ``(3) Payment period.--A refund under this subsection shall 
        be paid or denied (with an explanation of the reasons for the 
        denial) within 120 days of the date on which the request for 
        refund is received by the Secretary. Such refund shall be 
        subject to later audit by the Secretary or the applicable 
        delegated State and subject to the provisions of this Act.
          ``(4) Prohibition against reduction of refunds or credits.--
        In no event shall the Secretary or any delegated State directly 
        or indirectly claim or offset any amount or amounts against, or 
        reduce any refund or credit (or interest accrued thereon) by 
        the amount of any obligation the enforcement of which is barred 
        by section 115 of this Act.''.
  (b) Clerical Amendment.--The table of contents in section 1 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701) is 
amended by inserting after the item relating to section 111 the 
following new item:

``Sec. 111A. Adjustments and refunds.''.

SEC. 6. ROYALTY TERMS AND CONDITIONS, INTEREST, AND PENALTIES.

  (a) Lessee or Designee Interest.--Section 111 of the Federal Oil and 
Gas Royalty Management Act of 1982 (30 U.S.C. 1721) is amended by 
adding after subsection (g) the following:
  ``(h) Interest shall be allowed and paid or credited on any 
overpayment, with such interest to accrue from the date such 
overpayment was made, at the rate obtained by applying the provisions 
of subparagraphs (A) and (B) of section 6621(a)(1) of the Internal 
Revenue Code of 1986, but determined without regard to the sentence 
following subparagraph (B) of section 6621(a)(1). Interest which has 
accrued on an overpayment may be applied to reduce an underpayment 
(including any interest thereon). This subsection applies to 
overpayments made later than six months after the date of enactment of 
this subsection or September 1, 1996, whichever is later. Such interest 
shall be paid from amounts received as current receipts from sales, 
bonuses, royalties (including interest charges collected under this 
section) and rentals of the public lands and the Outer Continental 
Shelf under the provisions of the Mineral Leasing Act, and the Outer 
Continental Shelf Lands Act, which are not payable to a State or the 
Reclamation Fund. The portion of any such interest payment attributable 
to any amounts previously disbursed to a State, the Reclamation Fund, 
or any other recipient designated by law shall be deducted from the 
next disbursements to that recipient made under the applicable law. 
Such amounts deducted from subsequent disbursements shall be credited 
to miscellaneous receipts in the Treasury.''.
  (b) Limitation on Interest.--Section 111 of the Federal Oil and Gas 
Royalty Management Act of 1982, as amended by subsection (a), is 
further amended by adding at the end the following:
  ``(i) Upon a determination by the Secretary that an excessive 
overpayment (based upon all obligations of a lessee or its designee for 
a given reporting month) was made for the sole purpose of receiving 
interest, interest shall not be paid on the excessive amount of such 
overpayment. For purposes of this Act, an `excessive overpayment' shall 
be the amount that any overpayment a lessee or its designee pays for a 
given reporting month (excluding payments for demands for obligations 
determined to be due as a result of judicial or administrative 
proceedings or agreed to be paid pursuant to settlement agreements) for 
the aggregate of all of its Federal leases exceeds 10 percent of the 
total royalties paid that month for those leases.''.
  (c) Estimated Payment.--Section 111 of the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C. 1721), as amended by 
subsections (a) and (b), is further amended by adding at the end the 
following:
  ``(j) A lessee or its designee may make a payment for the approximate 
amount of royalties (hereinafter in this subsection `estimated 
payment') that would otherwise be due for such lease by the date 
royalties are due for that lease. When an estimated payment is made, 
actual royalties are payable at the end of the month following the 
month in which the estimated payment is made. If the estimated payment 
was less than the amount of actual royalties due, interest is owed on 
the underpaid amount. If the estimated payment exceeds the actual 
royalties due, interest is owed on the overpayment. If the lessee or 
its designee makes a payment for such actual royalties, the lessee or 
its designee may apply the estimated payment to future royalties. Any 
estimated payment may be adjusted, recouped, or reinstated at any time 
by the lessee or its designee.''.
  (d) Volume Allocation of Oil and Gas Production.--Section 111 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as 
amended by subsections (a) through (c), is amended by adding at the end 
the following:
  ``(k)(1) Except as otherwise provided by this subsection--
          ``(A) a lessee (or its designee) of a lease in a unit or 
        communitization agreement which contains only Federal leases 
        with the same royalty rate and funds distribution shall report 
        and pay royalties on oil and gas production for each production 
        month based on the actual volume of production sold by or on 
        behalf of that lessee;
          ``(B) a lessee (or its designee) of a lease in any other unit 
        or communitization agreement shall report and pay royalties on 
        oil and gas production for each production month based on the 
        volume of oil and gas produced from such agreement and 
        allocated to the lease in accordance with the terms of the 
        agreement; and
          ``(C) a lessee (or its designee) of a lease that is not 
        contained in a unit or communitization agreement shall report 
        and pay royalties on oil and gas production for each production 
        month based on the actual volume of production sold by or on 
        behalf of that lessee.
  ``(2) This subsection applies only to requirements for reporting and 
paying royalties. Nothing in this subsection is intended to alter a 
lessee's liability for royalties on oil or gas production based on the 
share of production allocated to the lease in accordance with the terms 
of the lease, a unit or communitization agreement, or any other 
agreement.
  ``(3) For any unit or communitization agreement, if all lessees 
contractually agree to an alternative method of royalty reporting and 
payment, the lessees may submit such alternative method to the 
Secretary or the delegated State for approval and make payments in 
accordance with such approved alternative method so long as such 
alternative method does not reduce the amount of the royalty 
obligation.
  ``(4) The Secretary or the delegated State shall grant an exception 
from the reporting and payment requirements for marginal properties by 
allowing for any calendar year or portion thereof royalties to be paid 
each month based on the volume of production sold. Interest shall not 
accrue on the difference for the entire calendar year or portion 
thereof between the amount of oil and gas actually sold and the share 
of production allocated to the lease until the beginning of the month 
following such calendar year or portion thereof. Any additional 
royalties due or overpaid royalties and associated interest shall be 
paid, refunded, or credited within six months after the end of each 
calendar year in which royalties are paid based on volumes of 
production sold. For the purpose of this subsection, the term `marginal 
property' means a lease that produces on average the combined 
equivalent of less than 15 barrels of oil per well per day or 90 
thousand cubic feet of gas per well per day, or a combination thereof, 
determined by dividing the average daily production of crude oil and 
natural gas from producing wells on such lease by the number of such 
wells, unless the Secretary, together with the State concerned, 
determines that a different production is more appropriate.
  ``(5) Not later than two years after the date of the enactment of 
this subsection, the Secretary shall issue any appropriate demand for 
all outstanding royalty payment disputes regarding who is required to 
report and pay royalties on production from units and communitization 
agreements outstanding on the date of the enactment of this subsection, 
and collect royalty amounts owed on such production.''.
  (e) Production Allocation.--Section 111 of the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C. 1721), as amended by 
subsections (a) through (d), is amended by adding at the end the 
following:
  ``(l) The Secretary shall expeditiously issue all determinations of 
allocations of production for units and communitization agreements of a 
request for determination. If the Secretary or the delegated State 
fails to issue a determination within a reasonable period, the 
Secretary shall waive interest due on obligations subject to the 
determination from the date the request was received until the end of 
the month following the month in which the determination is made.''.
  (f) New Assessment To Encourage Proper Royalty Payments.--
          (1) In general.--The Federal Oil and Gas Royalty Management 
        Act of 1982 (30 U.S.C. 1721), as amended by section 4(a), is 
        further amended by adding at the end the following:

``SEC. 116. ASSESSMENTS.

  ``Upon the date of enactment of this section, to encourage proper 
royalty payment the Secretary or the delegated State shall impose 
assessments on a person who chronically submits erroneous reports under 
this Act. Assessments under this Act may only be issued as provided for 
in this section.''.
          (2) Clerical amendment.--The table of contents in section 1 
        of such Act (30 U.S.C. 1701) is amended by adding after the 
        item relating to section 115 the following new item:

``Sec. 116. Assessments.''.

  (g) Liability for Royalty Payments.--Section 102(a) of the Federal 
Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1712(a)) is 
amended to read as follows:
  ``(a) In order to increase receipts and achieve effective collections 
of royalty and other payments, a lessee who is required to make any 
royalty or other payment under a lease or under the mineral leasing 
laws, shall make such payments in the time and manner as may be 
specified by the Secretary or the applicable delegated State. A lessee 
may designate a person to make all or part of the payments due under a 
lease on the lessee's behalf and shall notify the Secretary or the 
applicable delegated State in writing of such designation, in which 
event said designated person may, in its own name, pay, offset or 
credit monies, make adjustments, request and receive refunds and submit 
reports with respect to payments required by the lessee. 
Notwithstanding any other provision of this Act to the contrary, a 
designee shall not be liable for any payment obligation under the 
lease. The person owning operating rights in a lease shall be primarily 
liable for its pro rata share of payment obligations under the lease. 
If the person owning the legal record title in a lease is other than 
the operating rights owner, the person owning the legal record title 
shall be secondarily liable for its pro rata share of such payment 
obligations under the lease.''.
  (h) Clerical Amendments.--(1) The heading of section 111 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721) is 
amended to read as follows:
       ``royalty terms and conditions, interest, and penalties''.
  (2) The item relating to section 111 in the table of contents in 
section 1 of such Act (30 U.S.C. 1701) is amended to read as follows:

``Sec. 111. Royalty terms and conditions, interest, and penalties.''.

SEC. 7. ALTERNATIVES FOR MARGINAL PROPERTIES.

  (a) In General.--The Federal Oil and Gas Royalty Management Act of 
1982 (30 U.S.C. 1701 et seq.), as amended by section 6 of this Act, is 
further amended by adding at the end the following:

``SEC. 117. ALTERNATIVES FOR MARGINAL PROPERTIES.

  ``(a) Determination of Best Interests of State Concerned and the 
United States.--The Secretary and the State concerned, acting in the 
best interests of the United States and the State concerned to promote 
production, reduce administrative costs, and increase net receipts to 
the United States and the States, shall jointly determine, on a case by 
case basis, the amount of what marginal production from a lease or 
leases or well or wells, or parts thereof, shall be subject to a 
prepayment under subsection (b) or regulatory relief under subsection 
(c). If the State concerned does not consent, such prepayments or 
regulatory relief shall not be made available under this section for 
such marginal production: Provided, That if royalty payments from a 
lease or leases, or well or wells is not shared with any State, such 
determination shall be made solely by the Secretary.
  ``(b) Prepayment of Royalty.--
          ``(1) In general.--Notwithstanding the provisions of any 
        lease to the contrary, for any lease or leases or well or wells 
        identified by the Secretary and the State concerned pursuant to 
        subsection (a), the Secretary is authorized to accept a 
        prepayment for royalties in lieu of monthly royalty payments 
        under the lease for the remainder of the lease term if the 
        affected lessee so agrees. Any prepayment agreed to by the 
        Secretary, State concerned and lessee which is less than an 
        average $500 per month in total royalties shall be effectuated 
        under this section not earlier than two years after the date of 
        enactment of this section and, any prepayment which is greater 
        than an average $500 per month in total royalties shall be 
        effectuated under this section not earlier than three years 
        after the date of enactment of this section. The Secretary and 
        the State concerned may condition their acceptance of the 
        prepayment authorized under this section on the lessee's 
        agreeing to such terms and conditions as the Secretary and the 
        State concerned deem appropriate and consistent with the 
        purposes of this Act. Such terms may--
                  ``(A) provide for prepayment that does not result in 
                a loss of revenue to the United States in present value 
                terms;
                  ``(B) include provisions for receiving additional 
                prepayments or royalties for developments in the lease 
                or leases or well or wells that deviate significantly 
                from the assumptions and facts on which the valuation 
                is determined; and
                  ``(C) require the lessee or its designee to provide 
                such periodic production reports as may be necessary to 
                allow the Secretary and the State concerned to monitor 
                production for the purposes of subparagraph (B).
          ``(2) State share.--A prepayment under this section shall be 
        shared by the Secretary with any State or other recipient to 
        the same extent as any royalty payment for such lease.
          ``(3) Satisfaction of obligation.--Except as may be provided 
        in the terms and conditions established by the Secretary under 
        subsection (b), a lessee or its designee who makes a prepayment 
        under this section shall have satisfied in full the lessee's 
        obligation to pay royalty on the production stream sold from 
        the lease or leases or well or wells.
  ``(c) Alternative Accounting and Auditing Requirements.--Within one 
year after the date of the enactment of this section, the Secretary or 
the delegated State shall provide accounting, reporting, and auditing 
relief that will encourage lessees to continue to produce and develop 
properties subject to subsection (a): Provided, That such relief will 
only be available to lessees in a State that concurs, which concurrence 
is not required if royalty from the lease or leases or well or wells is 
not shared with any State. Prior to granting such relief, the Secretary 
and, if appropriate, the State concerned shall agree that the type of 
marginal wells and relief provided under this paragraph is in the best 
interest of the United States and, if appropriate, the State 
concerned.''.
  (b) Clerical Amendment.--The table of contents in section 1 of such 
Act (30 U.S.C. 1701) is amended by adding after the item relating to 
section 116 the following new item:

``Sec. 117. Alternatives for marginal properties.''.

SEC. 8. REPEALS.

  (a) FOGRMA.--With respect to Federal lands, sections 202 and 307 of 
the Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1732 
and 1755), are no longer applicable. Such inapplicability shall not 
affect cooperative agreements involving Indian tribes or Indian lands.
  (b) OCSLA.--Effective on the date of the enactment of this Act, 
section 10 of the Outer Continental Shelf Lands Act (43 U.S.C. 1339) is 
repealed.

SEC. 9. INDIAN LANDS.

  The amendments and repeals made by this Act shall not apply with 
respect to Indian lands, and the provisions of the Federal Oil and Gas 
Royalty Management Act of 1982 as in effect on the day before the date 
of enactment of this Act shall continue to apply after such date with 
respect to Indian lands.

SEC. 10. PRIVATE LANDS.

  This Act shall not apply to any privately owned minerals.

SEC. 11. EFFECTIVE DATE.

  Except as provided by section 115(f), section 111(h), section 
111(k)(5), and section 117 of the Federal Oil and Gas Royalty 
Management Act of 1982 (as added by this Act), this Act, and the 
amendments made by this Act, shall apply with respect to the production 
of oil and gas after the first day of the month following the date of 
the enactment of this Act.

                          Purpose of the Bill

    The purpose of H.R. 1975 is to improve the management of 
royalties from Federal and Outer Continental Shelf (OCS) oil 
and gas leases. The bill would establish clear and equitable 
provisions for the effective and efficient administration of 
leases by the Secretary of the Interior to further exploration 
and development of oil and gas resources. This Act in no way 
affects Indian lands or alters how the Federal Oil and Gas 
Royalty Management Act of 1982 applies to Indian lands.

                  Background and Need for Legislation

    The existing mineral leasing laws, regulations, policies 
and procedures related to obligations arising from leases 
administered by the Secretary of the Interior are lacking in 
clarity, consistency and reciprocity, and contain inequities 
which impose unnecessary and unreasonable costs and burdens on 
lessees and Federal Government alike. Because the Federal 
royalty program is overly complex, burdensome and unfair for 
oil and gas exploration and development companies who seek to 
do business with the Department of the Interior, competition 
for both onshore and offshore leases is diminished.
    This complexity is largely an outgrowth of the reforms 
mandated by conditions in the late 1970s and early 1980s when 
the Federal agency charged with collecting mineral royalties 
(the Conservation Division of the U.S. Geological Survey) could 
not adequately track payments against lease obligations. A 
Commission on Fiscal Accountability of the Nation's Energy 
Resources (known as the Linnowes Commission) was chartered to 
study possible reforms, and 60 recommendations were offered. In 
response to these recommendations, in December 1982, Congress 
passed the Federal Oil and Gas Royalty Management Act (FOGRMA) 
to require the Secretary of the Interior to ``establish 
comprehensive inspection, collection and fiscal and production 
accounting and auditing system to provide the capability to 
accurately determine oil and gas royalties.'' FOGRMA's 
implementation has clearly improved Federal royalty management 
with increased revenues to the U.S. Treasury, and to the States 
via the receipts sharing formula for onshore leases and certain 
OCS leases, as well.
    However, after 13 years of operation, revisions to FOGRMA 
are now necessary if leasing is to be simplified and made more 
fair. For example, multiple conflicting statutes of limitation 
for suits to collect royalty payments and recent court 
decisions [see Phillips v. Babbitt, No. 93-1377 5th Cir. (Sept. 
7, 1994) and IPAA v. Samedan, U.S. Dist. Ct., D.C. (May 1995)] 
holding that no statute of limitations applies for royalty 
purposes] have created uncertainty and unfairness for lessees 
and operators subject to indefinite audit collection. This is 
particularly true with respect to the Debt Collection Act for 
obligations identified after the expiration of a limitations 
period. The burden of never being free of audit exposure by the 
Federal Government is grossly unfair as well as the antithesis 
of simplicity. In addition, current law severely restricts OCS 
Lands Act lessees' access to overpayments made to the Federal 
Government, and does not provide for the time value of lessees' 
overpayments. Furthermore, administrative case law concerning 
who is liable for royalty payments associated with Federal 
mineral leases is unsettled and needs statutory direction. For 
example, see the conflicting Interior Board of Land Appeals 
decisions on Mesa Operating Limited Partnership, 125 IBLA 28 
(1992); 128 IBLA 174 (1994).
    Lastly, the Linnowes Commission recognized the need for 
greater involvement of States in the Federal royalty management 
program. While Section 205 of FOGRMA allows delegation of 
Secretarial authorities to States with respect to royalty 
collections, these duties are limited to audits and 
investigations. Authority to enforce the results of audits has 
never been delegated to States, with the result that States (as 
well as the U.S. Treasury) are losing revenue which they have 
identified as due and owing but for which the Secretary has not 
taken action to demand payment. H.R. 1975 is in large measure a 
response to the demands of those States in which the vast 
preponderance of onshore Federal oil and gas production occurs 
to require the Secretary to further delegate enforcement 
responsibility so that royalty obligations are paid promptly. 
Given that public domain lease revenues are shared 50/50 with 
the States, it is simply unfair to not allow them a more active 
role in securing monies owed in a timely manner. Accordingly, 
14 Governors of States cumulatively accounting for 99 percent 
of onshore oil and gas lease revenues are in affirmative 
support of the bill.
    In sum, H.R. 1975 changes procedures and obligations 
related to the collection of onshore and offshore oil and gas 
royalty payments from Federal lands to improve efficiency and 
the collection of payments. These reforms include: expanded 
delegation of authorities to States, setting a seven-year 
statute of limitations for commencing a judicial proceeding or 
demand relating to a royalty payment; placing a time limit on 
administrative appeals; establishing a six-year adjustment 
period to correct overpayments and underpayments; requiring the 
payment of interest on royalty payments in accordance with 
similar Internal Revenue Service procedures; revising methods 
for reporting allocation of oil and gas production among 
lessees for Federal leases within unit or communitization 
agreements; and authorizing the Secretary of the Interior to 
accept prepayments of royalties for marginal leases.

                            Committee Action

    The Subcommittee on Energy and Mineral Resources held an 
oversight hearing on June 8, 1995, to investigate an 
Administration ``Reinvent Government II'' proposal issued on 
March 29, 1995, concerning the Department of the Interior. 
Although this proposal was withdrawn in July 1995, citing the 
need for further discussion, the proposal contained a section 
to devolve the royalty collection functions of the Minerals 
Management Service to the respective States, and further, for 
the States to perform the Bureau of Land Management's 
inspection and enforcement functions on oil and gas leases.
    H.R. 1975 was introduced on June 30, 1995, by Congressman 
Ken Calvert (R-CA). The bill was referred to the Committee on 
Resources, and within the Committee to the Subcommittee on 
Energy and Mineral Resources.
    On July 18, 1995, the Subcommittee held a legislative 
hearing on H.R. 1975 where the Administration testified in 
support of many of the goals of the legislation, but with 
reservations (H. Hrg. 104-27). In August 1995, Subcommittee 
Chairman Calvert and Ranking Member Neil Abercrombie (D-HI) met 
with representatives of the Administration, States, and 
industry and requested the parties to work together to narrow 
the differences evidenced by testimony from the hearing.
    On February 28, 1996, the Subcommittee on Energy and 
Minerals met to mark up H.R. 1975. Congressman Calvert offered 
an amendment in the nature of a substitute reflecting 
negotiated agreements with the Administration, except for the 
provisions regarding the manner and degree to which the 
Secretary of the Interior is to delegate authorities to States. 
The amendment was adopted by voice vote. No other amendments 
were offered and the Subcommittee favorably reported the bill, 
as amended, by voice vote.
    On March 28, 1996, the Committee on Resources met to mark 
up H.R. 1975. Congressman Abercrombie raised a point of order 
on germaneness against the Subcommittee-reported text. The 
point of order was not sustained.
    Congressman Abercrombie then offered an amendment en bloc 
of 20 technical and minor changes, which passed by voice vote. 
These amendments included such changes as deletion of the 
definition of the United States; clarification that refunds 
will require a debit from the Federal Treasury; limitation of 
possible activities which could be delegated to those which are 
directly and strictly related to the collection of the 
royalties; and a provision to lengthen the time-period for the 
Secretary of the Interior to promulgate regulations for 
delegation of authority to States.
    Congressman Calvert offered an amendment to Section 3 of 
the bill that revised the language for State delegation modeled 
directly from the State programs provisions of the Surface 
Mining Control and Reclamation Act of 1977. The amendment was 
adopted by voice vote.
    Congressman Abercrombie offered an amendment to Section 3 
of the bill to make royalty collection authority delegation to 
States discretionary with the Secretary. The amendment failed 
by voice vote.
    Congressman Abercrombie offered an amendment to Section 6 
of the bill to limit the circumstances in which a lessee would 
be allowed to take interest on overpayments to those instances 
where it can be demonstrated that the overpayment is directly 
attributable to error by the Federal Government, such as when 
the Secretary loses an appeal or issues an incorrect bill. The 
amendment failed by voice vote.
    Congressman Sam Gejdenson (D-CT) offered an amendment to 
repeal the Deep Water Royalty Relief Act (Public Law 104-58). A 
point of order of germaneness was sustained against the 
amendment.
    The Committee then ordered the bill as amended favorably 
reported to the House of Representatives by a roll call vote of 
20-7, as follows:

                 committee on resources--104th congress

                          rollcall vote no. 1

    Bill: H.R. 1975, Federal Oil and Gas Royalty.

----------------------------------------------------------------------------------------------------------------
            Members                Yeas      Nays     Present        Members         Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Young (Chairman)...........        X   ........  .........  Mr. Miller.......  ........        X   .........
Mr. Tauzin.....................        X   ........  .........  Mr. Markey.......  ........  ........  .........
Mr. Hansen.....................        X   ........  .........  Mr. Rahall.......  ........  ........  .........
Mr. Saxton.....................        X   ........  .........  Mr. Vento........  ........        X   .........
Mr. Gallegly...................  ........  ........  .........  Mr. Kildee.......  ........        X   .........
Mr. Duncan.....................  ........  ........  .........  Mr. Williams.....  ........  ........  .........
Mr. Helfley....................  ........  ........  .........  Mr. Gejdenson....  ........        X   .........
Mr. Doolittle..................        X   ........  .........  Mr. Richardson...        X   ........  .........
Mr. Allard.....................        X   ........  .........  Mr. DeFazio......  ........  ........  .........
Mr. Gilchrest..................  ........  ........  .........  Mr. Faleomavaega.  ........  ........  .........
Mr. Calvert....................        X   ........  .........  Mr. Johnson......  ........  ........  .........
Mr. Pombo......................  ........  ........  .........  Mr. Abercrombie..  ........        X   .........
Mr. Torkildsen.................  ........  ........  .........  Mr. Studds.......  ........  ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Ortiz........        X   ........  .........
Mr. Cremeans...................        X   ........  .........  Mr. Pickett......  ........  ........  .........
Mrs. Cubin.....................        X   ........  .........  Mr. Pallone......  ........  ........  .........
Mr. Cooley.....................        X   ........  .........  Mr. Dooley.......        X   ........  .........
Mrs. Chenoweth.................  ........  ........  .........  Mr. Romero-        ........  ........  .........
                                                                 Barcelo.                                       
Mrs. Smith.....................  ........  ........  .........  Mr. Hinchey......  ........        X   .........
Mr. Radanovich.................  ........  ........  .........  Mr. Underwood....  ........  ........  .........
Mr. Jones......................  ........  ........  .........  Mr. Farr.........  ........        X   .........
Mr. Thornberry.................        X   ........  .........  Mr. Kennedy......  ........  ........  .........
Mr. Hastings...................        X   ........  .........                                                  
Mr. Metcalf....................        X   ........  .........                                                  
Mr. Longley....................        X   ........  .........                                                  
Mr. Shadegg....................        X   ........  .........                                                  
Mr. Ensign.....................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

     A provision similar to H.R. 1975 was included in the 
Committee on Resources input to the 1996 budget reconciliation 
bill (Title IX, H.R. 2517, the Seven-Year Balanced Budget 
Reconciliation Act of 1995) which was vetoed by the President.

                      Section-by-Section Analysis

                         section 1. short title

    The Act may be cited as the ``Federal Oil and Gas Royalty 
Simplification and Fairness Act of 1996''.

                         section 2. definitions

    This section amends Section 3 of FOGRMA to add new 
definitions and to amend the existing definition of ``lessee.'' 
The defined terms provide guidance and clarity and are critical 
to the underlying concepts throughout the bill. Under the 
provisions of the bill, the definitions apply to all Federal 
leases, but not to Indian lands.
    A ``lessee'' is the person having record title or operating 
right interest in the lease. A ``designee'' is the person 
allowed to act as a third party to pay royalties on behalf of 
the lessee. The term ``obligation'' includes all of the duties 
which arise under a lease issued by the Federal Government. The 
term ``order to pay'' has been expressly defined for the 
tolling of the seven year statute of limitations. The 
definition of ``United States'' is clarified to include any 
department, agency, or instrumentality, the several States, the 
District of Columbia and the territories.

   Section 3. Delegation of Royalty Collection and Related Activities

     This section amends Section 205 of FOGRMA to provide for 
broader delegation of royalty collection authority to those 
States which do seek to perform those duties and are able to 
demonstrate to the Secretary of the Interior that an adequate 
State program exists to effectively perform such duties.
     States currently may perform limited royalty audit 
activities if they enter into an agreement with the Secretary 
of the Interior. This section allows a State to enter into a 
cooperative agreement with the Secretary of the Interior to 
perform legally delegable royalty-related activities. If a 
royalty-related activity is not deemed to be inherently 
Federal, an interested State may pursue an agreement with the 
Secretary of the Interior to perform such activity and funding 
shall be consistent with current delegation of authority 
agreements. A State's compensation to perform delegated 
activities shall be subject to the net receipt sharing formula, 
and the State shall receive compensation for State costs 
allocated to a State's net receipts during the following fiscal 
year, subject to appropriations. This compensation shall not 
exceed the Secretary of the Interior's reasonable expectation 
of the Federal Government's cost to perform similar duties. All 
State actions must conform with the provisions of this bill. To 
be delegated duties under this section, a State must 
demonstrate that it can cost-effectively perform the 
activities. Additionally, the Secretary of the Interior shall 
not include in the net receipts sharing formula the Federal 
costs to perform redundant activities for which a State has 
been delegated authority.

  Section 4. Secretarial and Delegated States' Actions and Limitation 
                                Periods

     This section adds a new Section 115 to FOGRMA to establish 
limitations periods. New Section 115 requires the collection of 
royalties and enforcement of royalty claims, including judicial 
proceedings, within seven years of the month following the date 
of production of oil or gas upon which the obligation arises. 
To determine the amount owing, section 115 requires lessees or 
their designees to provide records related to an obligation 
during the seven-year period and provides the Secretary of the 
Interior and States a mechanism to toll the statute and protect 
collections if a lessee: (1) does not provide records; (2) does 
not substantially perform required accounting; (3) appeals a 
restructured accounting order; (4) intentionally misrepresents 
or conceals facts to evade payment; or (5) mutually agrees to 
toll the statute. To ensure timely collections, the Debt 
Collection Act applies only to obligations that are enforced 
prior to the expiration of the seven-year limitations period. 
The statute of limitations established here is prospective 
only, meaning that obligations arising from production of oil 
or gas from Federal leases prior to enactment of this bill are 
not affected.
     Moreover, new Section 115 requires the Secretary of the 
Interior (and the State concerned if delegation of authority 
has occurred) to perform cost-effective accounting, reporting 
and audit activities. The Committee intends that the Secretary 
or State should not conduct an activity if the cost of its 
performance is reasonably expected to exceed the amount to be 
collected by the action. However, this provision is expressly 
barred as a defense by a lessee to evade payment of a royalty 
obligation. Additionally, the Secretary of the Interior and the 
State concerned shall make good faith efforts to avoid 
requiring unnecessary or duplicative data from lessees, 
especially with regard to records for audit purposes.
     Furthermore, new Section 115 requires the Secretary of the 
Interior to take a final departmental action on appealed claims 
within 33 months and provides a framework for settling 
litigated cases. To accommodate this timeframe, the Secretary 
of the Interior may need to adopt a one-tier, third-party 
review process. All appeals decided by the Secretary of the 
Interior shall be binding on the State(s) concerned. The appeal 
and settlement timeframes are a necessary part of this 
section's purpose, which is to ensure timely collection of all 
disputed royalty amounts due the U.S. (and States through the 
net receipts sharing provisions of law with States) and 
eliminate losses associated with stale and uncollectible 
claims.

                   Section 5. Adjustment and Refunds

     This section adds a new Section 111A to FOGRMA to ensure 
all royalty obligations are identified within the seven-year 
limitations period, and all adjustments to royalty payments are 
required to be made by the lessee within six years. The six-
year period for lessee adjustments can be extended if the 
limitations period is tolled pursuant to the provisions of this 
bill. Each adjustment is to be made on a lease-by-lease basis 
on the royalty report and will serve as sufficient notice to 
the Secretary of the Interior. A key component of additional 
royalties being cost-effectively collected within the seven 
years is the requirement that interest be calculated and paid 
by the lessee at the time of any adjustment, subject to a 
determination that this requirement does not impose a hardship 
on small business oil and gas lessees.
     Pursuant to this Act, refunds are permitted where a lessee 
(or designee) may not be able to make an adjustment to their 
royalty report. In such instances, requests for refunds must 
provide enough detail for the Secretary of the Interior to 
identify the overpayment and reasons for the request. To 
expedite claims and to reduce interest costs to the Federal 
Government, requests for refunds must be paid or denied by the 
Secretary of the Interior within 120 days of receipt of the 
refund request. The request, if granted, will be subject to 
audit pursuant to other provisions of this Act.

    Section 6. Royalty Terms and Conditions, Interest and Penalties

     This section adds new subsections (h) through (l) to 
Section 111 of FOGRMA to establish a mechanism (analogous to 
that of the Internal Revenue Service of the Department of the 
Treasury) for payment of interest on overpaid and underpaid 
royalties, thereby encouraging royalties to be paid accurately 
the month following the month of production. The interest rate 
for underpayments will be the Federal short term rate plus 
three percentage points and for overpayments the interest rate 
will be the Federal short term rate plus two percentage points, 
regardless of the amounts of the under- or overpayment. 
Interest shall accrue on the date the underpayment became due 
or the date the overpayment was made. Increased receipts to the 
U.S. Treasury and the States are achieved by the establishment 
of a more efficient and cost-effective accounting system which 
is necessary so that royalties paid can be verified within the 
limitation period. If the Secretary of the Interior determines 
that a lessee has paid in excess of 10 percent of its total 
royalty obligation for all of its leases subject to this Act 
and further determines that such excessive payment was made for 
the purpose of receiving interest, the Secretary of the 
Interior shall not pay interest on the amounts paid in excess 
of 110 percent of the obligation.
     Lessees will be allowed to submit an approximate amount of 
royalties to allow additional time to determine the actual 
amount due and owing. When an estimated payment is made, the 
royalty payment becomes due at the end of the month following 
the period covered by the estimated payment.
     To provide clarity and establish simpler reporting on the 
most complex properties, royalty payment requirements are 
established for Federal leases contained in unit or 
communitization agreements. These requirements resolve the 
long-standing debate surrounding the proper volumetric basis 
for these properties for reporting and payment of royalties. In 
addition to providing clarity and simplicity, these 
requirements accelerate collections of royalties to the Federal 
Government. During a calendar year, for properties which have 
marginal production, royalties can be paid on actual sales 
volumes and compared at the end of the year to the entitled 
volumes to determine if the obligation due has been over or 
underpaid.
     Within two years of enactment of this Act, the Secretary 
of the Interior shall resolve and issue demands on all 
outstanding payment disputes resulting from unitization and 
communitization agreements. Pursuant to the terms of Federal 
unit and communitization agreements, the Secretary of the 
Interior receives requests for approval of allocation schedules 
for participating areas and communitization agreements. 
Delaying approval of this request delays determination of 
royalty value and results in costly retroactive adjustments. 
This section requires the Secretary of the Interior to approve 
such requests expeditiously. If the Secretary of the Interior 
does not approve the request within a reasonable time period, 
the Secretary shall waive interest on the obligation from the 
date the request was received until the request is approved.
    This section also adds a new Section 116 to FOGRMA to 
impose a statutory assessment on lessees who chronically submit 
erroneous reports, thereby encouraging proper payment and 
increasing revenues. These are the only type of assessments 
that may be imposed upon oil and gas lessees by the Secretary 
of the Interior.
     Furthermore, to eliminate delays in collecting royalties 
from liable parties, this section amends Section 102(a) of 
FOGRMA to clarify that lessees, defined as record title and/or 
operating rights owners, are liable for their pro rata share of 
a royalty obligation. The provision allows a lessee to 
designate a third party to report and pay royalties on its 
behalf (a codification of current practice), but does not 
establish liability for the designee, but rather the lessee who 
designated the third-party payor remains responsible for the 
obligation.

            Section 7. Alternatives for Marginal Properties

     This section adds a new Section 117 to FOGRMA to provide 
that the Secretary of the Interior and the State concerned, 
when in agreement and as applicable, shall offer to lessees of 
marginal properties (i.e., very low volume oil or gas wells) 
the opportunity to make a prepayment in lieu of royalties for 
the remainder of the lease term, based on the present value of 
projected royalty share of remaining production. The definition 
of marginal production shall be jointly determined by the 
Secretary of the Interior and the State concerned. This 
alternative for marginal wells will eliminate costly royalty 
accounting for marginal wells and provide the Secretary of the 
Interior and States additional resources to aggressively 
collect royalties from more prolific properties within the 
seven-year period. A subsequent payment may be required if the 
production volume of a well significantly increases above the 
projections used to determine the amount of the payment.
    Additionally, the Secretary of the Interior and the State 
concerned are required to enact other types of accounting, 
reporting, and auditing relief that will encourage lessees to 
continue to develop and produce oil and gas from marginal 
properties. For example, certain regulatory and payment 
obligations should be waived if it can be demonstrated such a 
waiver could aid in maintaining production that might otherwise 
be abandoned. However, if a State concerned does not consent, 
the prepayments or regulatory relief cannot be made. This 
reform for marginal properties results in additional receipts 
from oil and gas production that would otherwise be abandoned. 
This section increases oil and gas production on Federal lands 
by creating economic efficiencies to make Federal leases more 
competitive with private leases.

                           Section 8. Repeals

     This section repeals provisions in conflict with the Act. 
With respect to the repeal of section 10 of the Outer 
Continental Shelf Lands Act (OCSLA), the Committee intends the 
prospective elimination of the OCSLA-imposed bar to lessees 
seeking refunds of overpayments more than two years later and 
the establishment of the same limitations period for OCS leases 
as for onshore Federal leases. Therefore, royalties which may 
have been overpaid for OCSLA lease production prior to 
enactment of this Act are not affected by this section.

                        Section 9. Indian Lands

     This section clarifies that the Act does not apply to 
Indian lands. Upon enactment, there will essentially be two 
Federal Oil and Gas Royalty Management Acts. The 1982 version, 
unamended by this Act, will continue to apply to all Indian 
leases and production occurring on or before the date of 
enactment.

                       Section 10. Private Lands

     This section clarifies that the Act does not apply to 
private lands.

                       Section 11. Effective Date

     This section establishes the date upon which the 
provisions of the Act become effective. Generally, the Act will 
apply to production of oil and gas after the first day of the 
month following the date of enactment of the Act. The Committee 
does not intend the provisions of this Act to alter rights or 
obligations of the Secretary of the Interior for production 
occurring prior to the date of enactment, unless expressly 
noted otherwise in the Act.
     Following the Resources Committee mark up of H.R. 1975, a 
technical error in this section was identified which could lead 
to an ambiguous interpretation of the records retention 
provision of the statute of limitations section of the bill. 
The Committee intends to offer a technical amendment when H.R. 
1975 is considered by the House of Representatives to correct 
this ambiguity, as the Committee's intent has always been to 
make the newly established statute of limitations completely 
prospective only.

            Committee Oversight Findings and Recommendations

     With respect to the requirements of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives, and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee on Resources' oversight findings and 
recommendations are reflected in the body of this report.

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of Rule XI of the Rules of the 
House of Representatives, the Committee estimates that the 
enactment of H.R. 1975 will have no significant inflationary 
impact on prices and costs in the operation of the national 
economy.

                        Cost of the Legislation

    Clause 7(a) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs which would be incurred in carrying out 
H.R. 1975. However, clause 7(d) of that Rule provides that this 
requirement does not apply when the Committee has included in 
its report a timely submitted cost estimate of the bill 
prepared by the Director of the Congressional Budget Office 
under section 403 of the Congressional Budget Act of 1974.

                     Compliance with House Rule XI

    1. With respect to the requirement of clause 2(l)(3)(B) of 
rule XI of the Rules of the House of Representatives and 
section 308(a) of the Congressional Budget Act of 1974, H.R. 
1975 does not contain any new budget authority, spending 
authority, credit authority, or an increase or decrease in tax 
expenditures. Enactment of H.R. 1975 would accelerate the 
collection of offsetting receipts to the U.S. Treasury by $80 
million over the 1997-2002 time period, net of payments due 
States. Enactment of the bill would result in a new decrease in 
direct spending of approximately $36 million over 1997-2002. 
The bill could also result in additional appropriated spending 
of approximately $1 million per year starting in fiscal year 
1998, assuming appropriations of the estimated amounts.
    2. With respect to the requirement of clause 2(l)(3)(D) of 
rule XI of the Rules of the House of Representatives, the 
Committee has received no report of oversight findings and 
recommendations from the Committee on Government Reform and 
Oversight on the subject of H.R. 1975.
    3. With respect to the requirement of clause 2(l)(3)(C) of 
rule XI of the Rules of the House of Representatives and 
section 403 of the Congressional Budget Act of 1974, the 
Committee has received the following cost estimate for H.R. 
1975 from the Director of the Congressional Budget Office.

               Congressional Budget Office Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 30, 1996.
Hon. Don Young,
Chairman, Committee on Resources,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1975, the Federal 
Oil and Gas Royalty Simplification and Fairness Act of 1996.
    Enactment of H.R. 1975 would affect direct spending. 
Therefore, pay-as-you-go procedures would apply to the bill.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

               Congressional Budget Office Cost Estimate

    1. Bill number: H.R. 1975.
    2. Bill title: Federal Oil and Gas Royalty Simplification 
and Fairness Act of 1996.
    3. Bill status: As ordered reported by the House Committee 
on Resources on March 28, 1996.
    4. Bill purpose: H.R. 1975 would make a number of changes 
to procedures and obligations related to the collection of 
royalty payments on oil and gas extracted from federal lands, 
both onshore and offshore. The bill would:
          Expand the Secretary of the Interior's authority to 
        delegate to the states the collection of royalties and 
        related activities, and revise how the federal 
        government reimburses states for the costs of carrying 
        out royalty-related activities;
          Set a seven-year statute of limitations for 
        commencing a judicial proceeding or demand related to a 
        royalty obligation, starting from the date on which the 
        obligation becomes due;
          Require the Secretary to complete administrative 
        appeals, including those pending when the bill is 
        enacted, within 33 months, unless the Secretary and the 
        appellant agree to an extension;
          Establish a six-year adjustment period, beginning on 
        the date an obligation becomes due, within which 
        lessees may request correction of an overpayment or 
        underpayment;
          Require the federal government to pay lessees 
        interest on royalty overpayments at the rate specified 
        in the Internal Revenue Code;
          For federal leases within unit or communization 
        agreements, revise the method of reporting the 
        allocation of oil and gas production among lessees upon 
        which royalty payments are based; and
          For marginal properties, authorize the Secretary to 
        accept a prepayment for royalties instead of continued 
        monthly royalty payments on actual production.
    5. Estimated cost to the Federal Government: CBO estimates 
that enacting H.R. 1975 would result in a net decrease in 
direct spending of about $36 million over the 1997-2002 period. 
Most of that estimated change would result from accelerating 
payments to the government that would otherwise be made in 
later years. Additional appropriated spending of about $1 
million per year starting in fiscal year 1998 could also result 
from enacting the bill, assuming appropriations of the 
estimated amounts. The following table summarizes the estimated 
budgetary impact of H.R. 1975.

----------------------------------------------------------------------------------------------------------------
                                              1996      1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
Spending Under Current Law:                                                                                     
    Offsetting receipts:                                                                                        
        Estimated budget authority........    -3,758    -3,923    -3,665    -3,705    -3,556    -3,706    -3,934
        Estimated outlays.................    -3,758    -3,923    -3,665    -3,705    -3,556    -3,706    -3,934
    Spending: States' Share of receipts:                                                                        
        Estimated budget authority........       508       515       499       506       520       535       551
        Estimated outlays.................       508       515       499       506       520       535       551
    Net direct spending:                                                                                        
        Estimated budget authority........    -3,250    -3,408    -3,166    -3,199    -3,036    -3,171    -3,383
        Estimated outlays.................    -3,250    -3,408    -3,166    -3,199    -3,036    -3,171    -3,383
Proposed changes:                                                                                               
    Offset receipts:                                                                                            
        Estimated budget authority........  ........        -2        -4       -10       -11       -10        -8
        Estimated outlays.................  ........        -2        -4       -10       -11       -10        -8
    Spending: States' share of receipts:                                                                        
        Estimated budget authority........  ........         1         3         2         2         1     (\1\)
        Estimated outlays.................  ........         1         3         2         2         1     (\1\)
    Net direct spending:                                                                                        
        Estimated budget authority........  ........        -1        -1        -8        -9        -9        -8
        Estimated outlays.................  ........        -1        -1        -8        -9        -9        -8
Spending Under H.R. 1975:                                                                                       
    Offsetting receipts:                                                                                        
        Estimated budget authority........    -3,758    -3,925    -3,669    -3,715    -3,567    -3,716    -3,942
        Estimated outlays.................    -3,758    -3,925    -3,669    -3,715    -3,567    -3,716    -3,942
    Spending: States's share of receipts:                                                                       
        Estimated budget authority........       508       516       502       508       522       536       551
        Estimated outlays.................       508       516       502       508       522       536       551
    Net direct spending:                                                                                        
        Estimated budget authority........    -3,250    -3,409    -3,167    -3,207    -3,045    -3,180    -3,391
        Estimated outlays.................    -3,250    -3,409    -3,167    -3,207    -3,045    -3,180    -3,391
                                                                                                                
                                        CHANGES IN DISCRETIONARY SPENDING                                       
                                                                                                                
        Estimated authorization level.....  ........  ........         1         1         1         1         1
        Estimated outlays.................  ........  ........         1         1         1         1         1
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.                                                                                         


    The effects of this bill fall within budget functions 300, 
800, and 950.
    6. Basis of estimate:

Direct Spending (including offsetting receipts)

    CBO estimates that enacting H.R. 1975 would accelerate the 
collection of offsetting receipts to the Treasury by $80 
million over the 1997-2002 period, net of payments to states of 
50 percent of additional onshore collections. Lessees' royalty 
obligations would generally remain the same under this bill, 
but some payments would be shifted forward in time.
    We estimate that provisions in the bill that fix the 
statute of limitations at seven years, require appeals to be 
completed within 33 months, establish a six-year adjustment 
period, clarify the policy on allocating volumes of production 
among certain lessees, and allow for royalty prepayments on 
marginal properties, would shift the collection of about $72 
million in offsetting receipts from years after 2002 into the 
1997-2002 period. These amounts are net of payments to states 
of their portion of onshore collections. The bill also would 
allow the federal government to retain more royalty receipts by 
modifying the calculation of administrative costs to be borne 
by states. CBO estimates this change would increase the federal 
government's share of offsetting receipts by about $8 million 
over the 1997-2002 period.
    Section 6 of the bill would expand the obligations of the 
federal government to lessees. Beginning September 1, 1996, or 
six months after enactment (whichever is later), the federal 
government would be required to pay or credit interest on 
lessees' overpayments at the rate specified in the Internal 
Revenue Code. The bill would disallow payment of interest if a 
lessee's overpayments for a given month exceed 10 percent of 
the total royalties due on all its federal leases. Such 
interest payments would be deducted from receipts from bonuses, 
rents, and royalties, including interest charges collected on 
underpayments. (The share borne by states would be deducted 
from their receipts.) According to data provided by the 
Minerals Management Service, overpayments average about 3 
percent of the royalties paid each year. For the purposes of 
this estimate, we assume that the amount of overpayments would 
increase slightly (to nearly 5 percent) because any excess 
payments would now earn interest at a rate 2 percent above the 
Treasury's rate for short-term (90-day) borrowing. CBO 
estimates that this provision would increase direct spending, 
net of reduced payments to states, by about $44 million over 
the 1997-2002 period.

Discretionary Spending

    As part of the revised method of calculating the share of 
administrative costs borne by states, the bill appears to 
authorize the appropriation of funds to reimburse states for 
their costs for royalty-related activities in the year 
following the year in which costs were incurred. CBO estimates 
this would increase discretionary spending by about $1 million 
per year beginning in fiscal year 1998, assuming appropriation 
of the necessary amounts.
    7. Pay-as-you-go considerations: Section 252 of the 
Balanced Budget and Emergency Deficit Control Act of 1985 sets 
up pay-as-you-go procedures for legislation affecting direct 
spending and receipts through 1998. CBO estimates that enacting 
H.R. 1975 would affect direct spending by changing the amounts 
collected as offsetting receipts (which are recorded as 
negative outlays), and direct payments to states for their 
share of such collections. Therefore, pay-as-you-go procedures 
would apply to the bill. CBO estimates that enacting this bill 
would reduce direct spending by about $2 million over the 1996-
1998 period.

------------------------------------------------------------------------
                                            1996       1997       1998  
------------------------------------------------------------------------
Change in outlays......................  .........         -1         -1
Change in receipts.....................  .........      (\1\)  .........
------------------------------------------------------------------------
\1\ Not applicable.                                                     

    8. Estimated impact on State, local and tribal governments: 
H.R. 1975 contains no intergovernmental mandates as defined in 
Public Law 104-4 and would impose no direct costs on state, 
local, or tribal governments.
    CBO estimates that the net impact of this bill would be a 
$15 million increase in payments to state governments over the 
1997-2002 period, assuming appropriation of the amounts 
authorized for reimbursement of administrative costs. States 
share 50 percent of the royalties from oil and gas leases on 
federal lands within their borders. They would therefore 
benefit from provisions in this bill that shift the collection 
of federal oil and gas royalty receipts from years after 2002 
into the 1997-2002 period. At the same time, states would pay a 
larger portion of the administrative costs and would share in 
the federal government's expanded obligations to lessees as a 
result of the bill's provision requiring the payment of 
interest on lessees' overpayments.
    H.R. 1975 would expand the opportunities for states to seek 
delegation of responsibility for enforcing and collecting 
royalties. A state that seeks and accepts delegation would do 
so voluntarily. As under current law, the federal government 
would reimburse that state for the costs of carrying out these 
delegated responsibilities. By changing the procedure used to 
calculate states' share of royalty receipts, however, the bill 
would appear to shift some of these costs back to the states 
that accept delegation in the year they are incurred and 
authorize appropriations for payments to restore these funds to 
those states in the following year.
    9. Estimated impact on the private sector: The bill would 
impose no new private sector mandates, as defined in Public Law 
104-4.
    10. Previous CBO estimate: None.
    11. Estimate prepared by: Federal Cost Estimate: Victoria 
V. Heid. State and Local Government Impact: Marjorie Miller. 
Private Sector Impact: Amy Downs.
    12. Estimate approved by: Robert A. Sunshine, for Paul N. 
Van de Water, Assistant Director for Budget Analysis.

                    Compliance with Public Law 104-4

    H.R. 1975 contains no unfunded mandates.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

           FEDERAL OIL AND GAS ROYALTY MANAGEMENT ACT OF 1982

                   short title and table of contents

  Section 1. This Act may be cited as the ``Federal Oil and Gas 
Royalty Management Act of 1982''.

                            TABLE OF CONTENTS

Sec. 1. Short title and table of contents.
     * * * * * * *

           TITLE I--FEDERAL ROYALTY MANAGEMENT AND ENFORCEMENT

Sec. 101. Duties of the Secretary.
     * * * * * * *
[Sec. 111. Royalty interest, penalties and payments.]
Sec. 111. Royalty terms and conditions, interest, and penalties.
Sec. 111A. Adjustments and refunds.
     * * * * * * *
Sec. 115. Secretarial and delegated States' actions and limitation 
          periods.
Sec. 116. Assessments.
Sec. 117. Alternatives for marginal properties.

                   TITLE II--STATES AND INDIAN TRIBES

Sec. 201. Application of title.
     * * * * * * *
[Sec. 205. Delegation to States.]
Sec. 205. Delegation of royalty collections and related activities.
     * * * * * * *

                              definitions

  Sec. 3. For the purposes of this Act, the term--
          (1) * * *
          * * * * * * *
          [(7) ``lessee'' means any person to whom the United 
        States, an Indian tribe, or an Indian allottee, issues 
        a lease, or any person who has been assigned an 
        obligation to make royalty or other payments required 
        by the lease;]
          (7) ``lessee'' means any person to whom the United 
        States issues an oil and gas lease or any person to 
        whom operating rights in a lease have been assigned;
          * * * * * * *
          (15) ``Secretary'' means the Secretary of the 
        Interior or his designee; [and]
          (16) ``State'' means the several States of the Union, 
        the District of Columbia, Puerto Rico, the territories 
        and possessions of the United States, and the Trust 
        Territory of the Pacific Islands[.];
          (17) ``adjustment'' means an amendment to a 
        previously filed report on an obligation, and any 
        additional payment or credit, if any, applicable 
        thereto, to rectify an underpayment or overpayment on 
        an obligation;
          (18) ``administrative proceeding'' means any 
        Department of the Interior agency process in which a 
        demand, decision or order issued by the Secretary or a 
        delegated State is subject to appeal or has been 
        appealed;
          (19) ``assessment'' means any fee or charge levied or 
        imposed by the Secretary or a delegated State other 
        than--
                  (A) the principal amount of any royalty, 
                minimum royalty, rental, bonus, net profit 
                share or proceed of sale;
                  (B) any interest; or
                  (C) any civil or criminal penalty;
          (20) ``commence'' means--
                  (A) with respect to a judicial proceeding, 
                the service of a complaint, petition, 
                counterclaim, crossclaim, or other pleading 
                seeking affirmative relief or seeking credit or 
                recoupment: Provided, That if the Secretary 
                commences a judicial proceeding against a 
                designee, the Secretary shall give notice of 
                that commencement to the lessee who designated 
                the designee, but the Secretary is not required 
                to give notice to other lessees who may be 
                liable pursuant to section 102(a) of this Act, 
                for the obligation that is the subject of the 
                judicial proceeding; or
                  (B) with respect to a demand, the receipt by 
                the Secretary or a delegated State or a lessee 
                or its designee (with written notice to the 
                lessee who designated the designee) of the 
                demand;
          (21) ``credit'' means the application of an 
        overpayment (in whole or in part) against an obligation 
        which has become due to discharge, cancel or reduce the 
        obligation;
          (22) ``demand'' means--
                  (A) an order to pay issued by the Secretary 
                or the applicable delegated State to a lessee 
                or its designee (with written notice to the 
                lessee who designated the designee) that has a 
                reasonable basis to conclude that the 
                obligation in the amount of the demand is due 
                and owing; or
                  (B) a separate written request by a lessee or 
                its designee which asserts an obligation due 
                the lessee or its designee that provides a 
                reasonable basis to conclude that the 
                obligation in the amount of the demand is due 
                and owing, but does not mean any royalty or 
                production report, or any information contained 
                therein, required by the Secretary or a 
                delegated State;
          (23) ``designee'' means the person designated by a 
        lessee pursuant to section 102(a) of this Act, with 
        such written designation effective on the date such 
        designation is received by the Secretary and remaining 
        in effect until the Secretary receives notice in 
        writing that the designation is modified or terminated;
          (24) ``obligation'' means--
                  (A) any duty of the Secretary or, if 
                applicable, a delegated State--
                          (i) to take oil or gas royalty in 
                        kind; or
                          (ii) to pay, refund, offset, or 
                        credit monies including (but not 
                        limited to)--
                                  (I) the principal amount of 
                                any royalty, minimum royalty, 
                                rental, bonus, net profit share 
                                or proceed of sale; or
                                  (II) any interest; and
                  (B) any duty of a lessee or its designee 
                (subject to the provisions of section 102(a) of 
                this Act)--
                          (i) to deliver oil or gas royalty in 
                        kind; or
                          (ii) to pay, offset or credit monies 
                        including (but not limited to)--
                                  (I) the principal amount of 
                                any royalty, minimum royalty, 
                                rental, bonus, net profit share 
                                or proceed of sale;
                                  (II) any interest;
                                  (III) any penalty; or
                                  (IV) any assessment,
                        which arises from or relates to any 
                        lease administered by the Secretary 
                        for, or any mineral leasing law related 
                        to, the exploration, production and 
                        development of oil or gas on Federal 
                        lands or the Outer Continental Shelf;
          (25) ``order to pay'' means a written order issued by 
        the Secretary or the applicable delegated State to a 
        lessee or its designee (with notice to the lessee who 
        designated the designee) which--
                  (A) asserts a specific, definite, and 
                quantified obligation claimed to be due, and
                  (B) specifically identifies the obligation by 
                lease, production month and monetary amount of 
                such obligation claimed to be due and ordered 
                to be paid, as well as the reason or reasons 
                such obligation is claimed to be due, but such 
                term does not include any other communication 
                or action by or on behalf of the Secretary or a 
                delegated State;
          (26) ``overpayment'' means any payment by a lessee or 
        its designee in excess of an amount legally required to 
        be paid on an obligation and includes the portion of 
        any estimated payment for a production month that is in 
        excess of the royalties due for that month;
          (27) ``payment'' means satisfaction, in whole or in 
        part, of an obligation;
          (28) ``penalty'' means a statutorily authorized civil 
        fine levied or imposed for a violation of this Act, any 
        mineral leasing law, or a term or provision of a lease 
        administered by the Secretary;
          (29) ``refund'' means the return of an overpayment by 
        the draqing of funds from the United States Treasury;
          (30) ``State concerned'' means, with respect to a 
        lease, a State which receives a portion of royalties or 
        other payments under the mineral leasing laws from such 
        lease;
          (31) ``underpayment'' means any payment or nonpayment 
        by a lessee or its designee that is less than the 
        amount legally required to be paid on an obligation; 
        and
          (32) ``United States'' means the United States 
        Government and any department, agency, or 
        instrumentality thereof, the several States, the 
        District of Columbia, and the territories of the United 
        States.

          TITLE I--FEDERAL ROYALTY MANAGEMENT AND ENFORCEMENT

          * * * * * * *

      duties of lessees, operators, and motor vehicle transporters

  Sec. 102. [(a) A lessee--
          [(1) who is required to make any royalty or other 
        payment under a lease or under the mineral leasing 
        laws, shall make such payments in the time and manner 
        as may be specified by the Secretary; and
          [(2) shall notify the Secretary, in the time and 
        manner as may be specified by the Secretary, of any 
        assignment the lessee may have made of the obligation 
        to make any royalty or other payment under a lease or 
        under the mineral leasing laws.]
  (a) In order to increase receipts and achieve effective 
collections of royalty and other payments, a lessee who is 
required to make any royalty or other payment under a lease or 
under the mineral leasing laws, shall make such payments in the 
time and manner as may be specified by the Secretary or the 
applicable delegated State. A lessee may designate a person to 
make all or part of the payments due under a lease on the 
lessee's behalf and shall notify the Secretary or the 
applicable delegated State in writing of such designation, in 
which event said designated person may, in its own name, pay, 
offset or credit monies, make adjustments, request and receive 
refunds and submit reports with respect to payments required by 
the lessee. Notwithstanding any other provision of this Act to 
the contrary, a designee shall not be liable for any payment 
obligation under the lease. The person owning operating rights 
in a lease shall be primarily liable for its pro rata share of 
payment obligations under the lease. If the person owning the 
legal record title in a lease is other than the operating 
rights owner, the person owning the legal record title shall be 
secondarily liable for its pro rata share of such payment 
obligations under the lease.
          * * * * * * *

               [royalty interest, penalties and payments]


         royalty terms and conditions, interest, and penalties


  Sec. 111. (a) * * *
          * * * * * * *
  (h) Interest shall be allowed and paid or credited on any 
overpayment, with such interest to accrue from the date such 
overpayment was made, at the rate obtained by applying the 
provisions of subparagraphs (A) and (B) of section 6621(a)(1) 
of the Internal Revenue Code of 1986, but determined without 
regard to the sentence following subparagraph (B) of section 
6621(a)(1). Interest which has accrued on an overpayment may be 
applied to reduce an underpayment (including any interest 
thereon). This subsection applies to overpayments made later 
than six months after the date of enactment of this subsection 
or September 1, 1996, whichever is later. Such interest shall 
be paid from amounts received as current receipts from sales, 
bonuses, royalties (including interest charges collected under 
this section) and rentals of the public lands and the Outer 
Continental Shelf under the provisions of the Mineral Leasing 
Act, and the Outer Continental Shelf Lands Act, which are not 
payable to a State or the Reclamation Fund. The portion of any 
such interest payment attributable to any amounts previously 
disbursed to a State, the Reclamation Fund, or any other 
recipient designated by law shall be deducted from the next 
disbursements to that recipient made under the applicable law. 
Such amounts deducted from subsequent disbursements shall be 
credited to miscellaneous receipts in the Treasury.
  (i) Upon a determination by the Secretary that an excessive 
overpayment (based upon all obligations of a lessee or its 
designee for a given reporting month) was made for the sole 
purpose of receiving interest, interest shall not be paid on 
the excessive amount of such overpayment. For purposes of this 
Act, an ``excessive overpayment'' shall be the amount that any 
overpayment a lessee or its designee pays for a given reporting 
month (excluding payments for demands for obligations 
determined to be due as a result of judicial or administrative 
proceedings or agreed to be paid pursuant to settlement 
agreements) for the aggregate of all of its Federal leases 
exceeds 10 percent of the total royalties paid that month for 
those leases.
  (j) A lessee or its designee may make a payment for the 
approximate amount of royalties (hereinafter in this subsection 
``estimated payment'') that would otherwise be due for such 
lease by the date royalties are due for that lease. When an 
estimated payment is made, actual royalties are payable at the 
end of the month following the month in which the estimated 
payment is made. If the estimated payment was less than the 
amount of actual royalties due, interest is owed on the 
underpaid amount. If the estimated payment exceeds the actual 
royalties due, interest is owed on the overpayment. If the 
lessee or its designee makes a payment for such actual 
royalties, the lessee or its designee may apply the estimated 
payment to future royalties. Any estimated payment may be 
adjusted, recouped, or reinstated at any time by the lessee or 
its designee.
  (k)(1) Except as otherwise provided by this subsection--
          (A) a lessee (or its designee) of a lease in a unit 
        or communitization agreement which contains only 
        Federal leases with the same royalty rate and funds 
        distribution shall report and pay royalties on oil and 
        gas production for each production month based on the 
        actual volume of production sold by or on behalf of 
        that lessee;
          (B) a lessee (or its designee) of a lease in any 
        other unit or communitization agreement shall report 
        and pay royalties on oil and gas production for each 
        production month based on the volume of oil and gas 
        produced from such agreement and allocated to the lease 
        in accordance with the terms of the agreement; and
          (C) a lessee (or its designee) of a lease that is not 
        contained in a unit or communitization agreement shall 
        report and pay royalties on oil and gas production for 
        each production month based on the actual volume of 
        production sold by or on behalf of that lessee.
  (2) This subsection applies only to requirements for 
reporting and paying royalties. Nothing in this subsection is 
intended to alter a lessee's liability for royalties on oil or 
gas production based on the share of production allocated to 
the lease in accordance with the terms of the lease, a unit or 
communitization agreement, or any other agreement.
  (3) For any unit or communitization agreement, if all lessees 
contractually agree to an alternative method of royalty 
reporting and payment, the lessees may submit such alternative 
method to the Secretary or the delegated State for approval and 
make payments in accordance with such approved alternative 
method so long as such alternative method does not reduce the 
amount of the royalty obligation.
  (4) The Secretary or the delegated State shall grant an 
exception from the reporting and payment requirements for 
marginal properties by allowing for any calendar year or 
portion thereof royalties to be paid each month based on the 
volume of production sold. Interest shall not accrue on the 
difference for the entire calendar year or portion thereof 
between the amount of oil and gas actually sold and the share 
of production allocated to the lease until the beginning of the 
month following such calendar year or portion thereof. Any 
additional royalties due or overpaid royalties and associated 
interest shall be paid, refunded, or credited within six months 
after the end of each calendar year in which royalties are paid 
based on volumes of production sold. For the purpose of this 
subsection, the term ``marginal property'' means a lease that 
produces on average the combined equivalent of less than 15 
barrels of oil per well per day or 90 thousand cubic feet of 
gas per well per day, or a combination thereof, determined by 
dividing the average daily production of crude oil and natural 
gas from producing wells on such lease by the number of such 
wells, unless the Secretary, together with the State concerned, 
determines that a different production is more appropriate.
  (5) Not later than two years after the date of the enactment 
of this subsection, the Secretary shall issue any appropriate 
demand for all outstanding royalty payment disputes regarding 
who is required to report and pay royalties on production from 
units and communitization agreements outstanding on the date of 
the enactment of this subsection, and collect royalty amounts 
owed on such production.
  (l) The Secretary shall expeditiously issue all 
determinations of allocations of production for units and 
communitization agreements of a request for determination. If 
the Secretary or the delegated State fails to issue a 
determination within a reasonable period, the Secretary shall 
waive interest due on obligations subject to the determination 
from the date the request was received until the end of the 
month following the month in which the determination is made.

SEC. 111A. ADJUSTMENTS AND REFUNDS.

  (a) Adjustments.--
          (1) If, during the adjustment period, a lessee or its 
        designee determines that an adjustment or refund 
        request is necessary to correct an underpayment or 
        overpayment of an obligation, the lessee or its 
        designee shall make such adjustment or request a refund 
        within a reasonable period of time and only during the 
        adjustment period. The filing of a royalty report which 
        reflects the underpayment or overpayment of an 
        obligation shall constitute prior written notice to the 
        Secretary or the applicable delegated State of an 
        adjustment.
          (2)(A) For any adjustment, the lessee or its designee 
        shall calculate and report the interest due 
        attributable to such adjustment at the same time the 
        lessee or its designee adjusts the principal amount of 
        the subject obligation, except as provided by 
        subparagraph (B).
          (B) In the case of a lessee or its designee who 
        determines that subparagraph (A) would impose a 
        hardship, the Secretary or such delegated State shall 
        calculate the interest due and notify the lessee or its 
        designee within a reasonable time of the amount of 
        interest due, unless such lessee or its designee elects 
        to calculate and report interest in accordance with 
        subparagraph (A).
          (3) An adjustment or a request for a refund for an 
        obligation may be made after the adjustment period only 
        upon written notice to and approval by the Secretary or 
        the applicable delegated State, as appropriate, during 
        an audit of the period which includes the production 
        month for which the adjustment is being made. If an 
        overpayment is identified during an audit, then the 
        Secretary or the applicable delegated State, as 
        appropriate, shall allow a credit or refund in the 
        amount of the overpayment.
          (4) For purposes of this section, the adjustment 
        period for any obligation shall be the six-year period 
        following the date on which an obligation became due. 
        The adjustment period shall be suspended, tolled, 
        extended, enlarged, or terminated by the same actions 
        as the limitation period in section 115.
  (b) Refunds.--
          (1) In general.--A request for refund is sufficient 
        if it--
                  (A) is made in writing to the Secretary and, 
                for purposes of section 115, is specifically 
                identified as a demand;
                  (B) identifies the person entitled to such 
                refund;
                  (C) provides the Secretary information that 
                reasonably enables the Secretary to identify 
                the overpayment for which such refund is 
                sought; and
                  (D) provides the reasons why the payment was 
                an overpayment.
          (2) Payment by secretary of the treasury.--The 
        Secretary shall certify the amount of the refund to be 
        paid under paragraph (1) to the Secretary of the 
        Treasury who shall make such refund. Such refund shall 
        be paid from amounts received as current receipts from 
        sales, bonuses, royalties (including interest charges 
        collected under this section) and rentals of the public 
        lands and the Outer Continental Shelf under the 
        provisions of the Mineral Leasing Act and the Outer 
        Continental Shelf Lands Act, which are not payable to a 
        State or the Reclamation Fund. The portion of any such 
        refund attributable to any amounts previously disbursed 
        to a State, the Reclamation Fund, or any recipient 
        prescribed by law shall be deducted from the next 
        disbursements to that recipient made under the 
        applicable law. Such amounts deducted from subsequent 
        disbursements shall be credited to miscellaneous 
        receipts in the Treasury.
          (3) Payment period.--A refund under this subsection 
        shall be paid or denied (with an explanation of the 
        reasons for the denial) within 120 days of the date on 
        which the request for refund is received by the 
        Secretary. Such refund shall be subject to later audit 
        by the Secretary or the applicable delegated State and 
        subject to the provisions of this Act.
          (4) Prohibition against reduction of refunds or 
        credits.--In no event shall the Secretary or any 
        delegated State directly or indirectly claim or offset 
        any amount or amounts against, or reduce any refund or 
        credit (or interest accrued thereon) by the amount of 
        any obligation the enforcement of which is barred by 
        section 115 of this Act.
          * * * * * * *

SEC. 115. SECRETARIAL AND DELEGATED STATES' ACTIONS AND LIMITATION 
                    PERIODS.

  (a) In General.--The respective duties, responsibilities, and 
activities with respect to a lease shall be performed by the 
Secretary, delegated States, and lessees or their designees in 
a timely manner.
  (b) Limitation Period.--
          (1) In general.--A judicial proceeding or demand 
        which arises from, or relates to an obligation, shall 
        be commenced within seven years from the date on which 
        the obligation becomes due and if not so commenced 
        shall be barred. If commencement of a judicial 
        proceeding or demand for an obligation is barred by 
        this section, the Secretary, a delegated State, or a 
        lessee or its designee (A) shall not take any other or 
        further action regarding that obligation, including 
        (but not limited to) the issuance of any order, 
        request, demand or other communication seeking any 
        document, accounting, determination, calculation, 
        recalculation, payment, principal, interest, 
        assessment, or penalty or the initiation, pursuit or 
        completion of an audit with respect to that obligation; 
        and (B) shall not pursue any other equitable or legal 
        remedy, whether under statute or common law, with 
        respect to an action on or an enforcement of said 
        obligation.
          (2) Rule of construction.--A judicial proceeding or 
        demand that is timely commenced under paragraph (1) 
        against a designee shall be considered timely commenced 
        as to any lessee who is liable pursuant to section 
        102(a) of this Act for the obligation that is the 
        subject of the judicial proceeding or demand.
          (3) Application of certain limitations.--The 
        limitations set forth in sections 2401, 2415, 2416, and 
        2462 of title 28, United States Code, and section 42 of 
        the Mineral Leasing Act (30 U.S.C. 226-2) shall not 
        apply to any obligation to which this Act applies. 
        Section 3716 of title 31, United States Code, may be 
        applied to an obligation the enforcement of which is 
        not barred by this Act, but may not be applied to any 
        obligation the enforcement of which is barred by this 
        Act.
  (c) Obligation Becomes Due.--
          (1) In general.--For purposes of this Act, an 
        obligation becomes due when the right to enforce the 
        obligation is fixed.
          (2) Royalty obligations.--The right to enforce any 
        royalty obligation for any given production month for a 
        lease is fixed for purposes of this Act on the last day 
        of the calendar month following the month in which oil 
        or gas is produced.
  (d) Tolling of Limitation Period.--The running of the 
limitation period under subsection (b) shall not be suspended, 
tolled, extended, or enlarged for any obligation for any reason 
by any action, other than the following:
          (1) Tolling agreement.--A written agreement executed 
        during the limitation period between the Secretary or a 
        delegated State and a lessee or its designee (with 
        notice to the lessee who designated the designee) shall 
        toll the limitation period for the amount of time 
        during which the agreement is in effect.
          (2) Subpoena.--
                  (A) The issuance of a subpoena to a lessee or 
                its designee (with notice to the lessee who 
                designated the designee, which notice shall not 
                constitute a subpoena to the lessee) in 
                accordance with the provisions of subparagraph 
                (B)(i) shall toll the limitation period with 
                respect to the obligation which is the subject 
                of a subpoena only for the period beginning on 
                the date the lessee or its designee receives 
                the subpoena and ending on the date on which 
                (i) the lessee or its designee has produced 
                such subpoenaed records for the subject 
                obligation, (ii) the Secretary or a delegated 
                State receives written notice that the 
                subpoenaed records for the subject obligation 
                are not in existence or are not in the lessee's 
                or its designee's possession or control, or 
                (iii) a court has determined in a final 
                decision that such records are not required to 
                be produced, whichever occurs first.
                  (B)(i) A subpoena for the purposes of this 
                section which requires a lessee or its designee 
                to produce records necessary to determine the 
                proper reporting and payment of an obligation 
                due the Secretary may be issued only by an 
                Assistant Secretary of the Interior or an 
                Acting Assistant Secretary of the Interior who 
                is a schedule C employee (as defined by section 
                213.3301 of title 5, Code of Federal 
                Regulations), or the Director or Acting 
                Director of the respective bureau or agency, 
                and may not be delegated to any other person. 
                If a State has been delegated authority 
                pursuant to section 205, the State, acting 
                through the highest elected State official 
                having ultimate authority over the collection 
                of royalties from leases on Federal lands 
                within the State, may issue such subpoena, but 
                may not delegate such authority to any other 
                person.
                  (ii) A subpoena described in clause (i) may 
                only be issued against a lessee or its designee 
                during the limitation period provided in this 
                section and only after the Secretary or a 
                delegated State has in writing requested the 
                records from the lessee or its designee related 
                to the obligation which is the subject of the 
                subpoena and has determined that--
                          (I) the lessee or its designee has 
                        failed to respond within a reasonable 
                        period of time to the Secretary's or 
                        the applicable delegated State's 
                        written request for such records 
                        necessary for an audit, investigation 
                        or other inquiry made in accordance 
                        with the Secretary's or such delegated 
                        State's responsibilities under this 
                        Act; or
                          (II) the lessee or its designee has 
                        in writing denied the Secretary's or 
                        the applicable delegated State's 
                        written request to produce such records 
                        in the lessee's or its designee's 
                        possession or control necessary for an 
                        audit, investigation or other inquiry 
                        made in accordance with the Secretary's 
                        or such delegated State's 
                        responsibilities under this Act; or
                          (III) the lessee or its designee has 
                        unreasonably delayed in producing 
                        records necessary for an audit, 
                        investigation or other inquiry made in 
                        accordance with the Secretary's or the 
                        applicable delegated State's 
                        responsibilities under this Act after 
                        the Secretary's or such delegated 
                        State's written request.
                  (C) In seeking records, the Secretary or the 
                applicable delegated State shall afford the 
                lessee or its designee a reasonable period of 
                time after a written request by the Secretary 
                or such delegated State in which to provide 
                such records prior to the issuance of any 
                subpoena.
          (3) Misrepresentation or concealment.--The 
        intentional misrepresentation or concealment of a 
        material fact for the purpose of evading the payment of 
        an obligation in which case the limitation period shall 
        be tolled for the period of such misrepresentation or 
        such concealment.
          (4) Order to perform a restructured accounting.--
        (A)(i) The issuance of a notice under subparagraph (D) 
        that the lessee or its designee has not substantially 
        complied with the requirement to perform a restructured 
        accounting shall toll the limitation period with 
        respect to the obligation which is the subject of the 
        notice only for the period beginning on the date the 
        lessee or its designee receives the notice and ending 
        120 days after the date on which (I) the Secretary or 
        the applicable delegated State receives written notice 
        the accounting or other requirement has been performed, 
        or (II) a court has determined in a final decision that 
        the lessee is not required to perform the accounting, 
        whichever occurs first.
          (ii) If the lessee or its designee initiates an 
        administrative appeal or judicial proceeding to contest 
        an order to perform a restructured accounting issued 
        under subparagraph (B)(i), the limitation period in 
        subsection (b) shall be tolled from the date the lessee 
        or its designee received the order until a final, 
        nonappealable decision is issued in any such 
        proceeding.
          (B)(i) The Secretary or the applicable delegated 
        State may issue an order to perform a restructured 
        accounting to a lessee or its designee when the 
        Secretary or such delegated State determines during an 
        audit of a lessee or its designee that the lessee or 
        its designee should recalculate royalty due on an 
        obligation based upon the Secretary's or the delegated 
        State's finding that the lessee or its designee has 
        made identified underpayments or overpayments which are 
        demonstrated by the Secretary or the delegated State to 
        be based upon repeated, systemic reporting errors for a 
        significant number of leases or a single lease for a 
        significant number of reporting months with the same 
        type of error which constitutes a pattern of violations 
        and which are likely to result in either significant 
        underpayments or overpayments.
          (ii) The power of the Secretary to issue an order to 
        perform a restructured accounting may not be delegated 
        below the most senior career professional position 
        having responsibility for the royalty management 
        program, which position is currently designated as the 
        ``Associate Director for Royalty Management'', and may 
        not be delegated to any other person. If a State has 
        been delegated authority pursuant to section 205 of 
        this Act, the State, acting through the highest ranking 
        State official having ultimate authority over the 
        collection of royalties from leases on Federal lands 
        within the State, may issue such order to perform, 
        which may not be delegated to any other person. An 
        order to perform a restructured accounting shall--
                  (I) be issued within a reasonable period of 
                time from when the audit identifies the 
                systemic, reporting errors;
                  (II) specify the reasons and factual bases 
                for such order;
                  (III) be specifically identified as an 
                ``order to perform a restructured accounting'';
                  (IV) provide the lessee or its designee a 
                reasonable period of time (but not less than 60 
                days) within which to perform the restructured 
                accounting; and
                  (V) provide the lessee or its designee 60 
                days within which to file an administrative 
                appeal of the order to perform a restructured 
                accounting.
          (C) An order to perform a restructured accounting 
        shall not mean or be construed to include any other 
        communication or action by or on behalf of the 
        Secretary or a delegated State.
          (D) If a lessee or its designee fails to 
        substantially comply with the requirement to perform a 
        restructured accounting pursuant to this subsection, a 
        notice shall be issued to the lessee or its designee 
        that the lessee or its designee has not substantially 
        complied with the requirements to perform a 
        restructured accounting. A lessee or its designee shall 
        be given a reasonable time within which to perform the 
        restructured accounting. Such notice may be issued 
        under this section only by an Assistant Secretary of 
        the Interior or an acting Assistant Secretary of the 
        Interior who is a schedule C employee (as defined by 
        section 213.3301 of title 5, Code of Federal 
        Regulations) and may not be delegated to any other 
        person. If a State has been delegated authority 
        pursuant to section 205, the State, acting through the 
        highest elected State official having ultimate 
        authority over the collection of royalties from leases 
        on Federal lands within the State, may issue such 
        notice, which may not be delegated to any other person.
  (e) Termination of Limitations Period.--An action or an 
enforcement of an obligation by the Secretary or delegated 
State or a lessee or its designee shall be barred under this 
section prior to the running of the seven-year period provided 
in subsection (b) in the event--
          (1) the Secretary or a delegated State has notified 
        the lessee or its designee in writing that a time 
        period is closed to further audit; or
          (2) the Secretary or a delegated State and a lessee 
        or its designee have so agreed in writing.
For purposes of this subsection, notice to, or an agreement by, 
the designee shall be binding on any lessee who is liable 
pursuant to section 102(a) for obligations that are the subject 
of the notice or agreement.
  (f) Records Required for Determining Collections.--Records 
required pursuant to section 103 of this Act by the Secretary 
or any delegated State for the purpose of determining 
obligations due and compliance with any applicable mineral 
leasing law, lease provision, regulation or order with respect 
to oil and gas leases from Federal lands or the Outer 
Continental Shelf shall be maintained for the same period of 
time during which a judicial proceeding or demand may be 
commenced under subsection (b). If a judicial proceeding or 
demand is timely commenced, the record holder shall maintain 
such records until the final nonappealable decision in such 
judicial proceeding is made, or with respect to that demand is 
rendered, unless the Secretary or the applicable delegated 
State authorizes in writing an earlier release of the 
requirement to maintain such records. Notwithstanding anything 
herein to the contrary, under no circumstance shall a record 
holder be required to maintain or produce any record relating 
to an obligation for any time period which is barred by the 
applicable limitation in this section. In connection with any 
hearing, administrative proceeding, inquiry, investigation, or 
audit by the Secretary or a delegated State under this Act, the 
Secretary or the delegated State shall minimize the submission 
of multiple or redundant information and make a good faith 
effort to locate records previously submitted by a lessee or a 
designee to the Secretary or the delegated State, prior to 
requiring the lessee or the designee to provide such records.
  (g) Timely Collections.--In order to most effectively utilize 
resources available to the Secretary to maximize the collection 
of oil and gas receipts from lease obligations to the Treasury 
within the seven-year period of limitations, and consequently 
to maximize the State share of such receipts, the Secretary may 
not perform or require accounting, reporting, or audit 
activities if the Secretary and the State concerned determines 
that the cost of conducting or requiring the activity exceeds 
the expected amount to be collected by the activity, based on 
the most current 12 months of activity. This subsection shall 
not provide a defense to a demand or an order to perform a 
restructured accounting. To the maximum extent possible, the 
Secretary and delegated States shall reduce costs to the United 
States Treasury and the States by discontinuing requirements 
for unnecessary or duplicative data and other information, such 
as separate allowances and payor information, relating to 
obligations due. If the Secretary and the State concerned 
determine that collection will result sooner, the Secretary or 
the applicable delegated State may waive or forego interest in 
whole or in part.
  (h) Appeals and Final Agency Action.--
          (1) 33-month period.--Demands or orders issued by the 
        Secretary or a delegated State are subject to 
        administrative appeal in accordance with the 
        regulations of the Secretary. The Secretary shall issue 
        a final decision in any administrative proceeding, 
        including any administrative proceedings pending on the 
        date of enactment of this section, within 33 months 
        from the date such proceeding was commenced or 33 
        months from the date of such enactment, whichever is 
        later. The 33-month period may be extended by any 
        period of time agreed upon in writing by the Secretary 
        and the appellant.
          (2) Effect of failure to issue decision.--If no such 
        decision has been issued by the Secretary within the 
        33-month period referred to in paragraph (1)--
                  (A) the Secretary shall be deemed to have 
                issued and granted a decision in favor of the 
                appellant as to any nonmonetary obligation and 
                any monetary obligation the principal amount of 
                which is less than $10,000; and
                  (B) the Secretary shall be deemed to have 
                issued a final decision in favor of the 
                Secretary, which decision shall be deemed to 
                affirm those issues for which the agency 
                rendered a decision prior to the end of such 
                period, as to any monetary obligation the 
                principal amount of which is $10,000 or more, 
                and the appellant shall have a right to 
                judicial review of such deemed final decision 
                in accordance with title 5 of the United States 
                Code.
  (i) Collections of Disputed Amounts Due.--To expedite 
collections relating to disputed obligations due within the 
seven-year period beginning on the date the obligation became 
due, the parties shall hold not less than one settlement 
consultation and the Secretary and the State concerned may take 
such action as is appropriate to compromise and settle a 
disputed obligation, including waiving or reducing interest and 
allowing offsetting of obligations among leases.
  (j) Enforcement of a Claim for Judicial Review.--In the event 
a demand subject to this section is properly and timely 
commenced, the obligation which is the subject of the demand 
may be enforced beyond the seven-year limitations period 
without being barred by this statute of limitations. In the 
event a demand subject to this section is properly and timely 
commenced, a judicial proceeding challenging the final agency 
action with respect to such demand shall be deemed timely so 
long as such judicial proceeding is commenced within 180 days 
from receipt of notice by the lessee or its designee of the 
final agency action.
  (k) Implementation of Final Decision.--In the event a 
judicial proceeding or demand subject to this section is timely 
commenced and thereafter the limitation period in this section 
lapses during the pendency of such proceeding, any party to 
such proceeding shall not be barred from taking such action as 
is required or necessary to implement a final unappealable 
judicial or administrative decision, including any action 
required or necessary to implement such decision by the 
recovery or recoupment of an underpayment or overpayment by 
means of refund or credit.
  (l) Stay of Payment Obligation Pending Review.--Any person 
ordered by the Secretary or a delegated State to pay any 
obligation (other than an assessment) shall be entitled to a 
stay of such payment without bond or other surety instrument 
pending an administrative or judicial proceeding if the person 
periodically demonstrates to the satisfaction of the Secretary 
that such person is financially solvent or otherwise able to 
pay the obligation. In the event the person is not able to so 
demonstrate, the Secretary may require a bond or other surety 
instrument satisfactory to cover the obligation. Any person 
ordered by the Secretary or a delegated State to pay an 
assessment shall be entitled to a stay without bond or other 
surety instrument.

SEC. 116. ASSESSMENTS.

  Upon the date of enactment of this section, to encourage 
proper royalty payment the Secretary or the delegated State 
shall impose assessments on a person who chronically submits 
erroneous reports under this Act. Assessments under this Act 
may only be issued as provided for in this section.

SEC. 117. ALTERNATIVES FOR MARGINAL PROPERTIES.

  (a) Determination of Best Interests of State Concerned and 
the United States.--The Secretary and the State concerned, 
acting in the best interests of the United States and the State 
concerned to promote production, reduce administrative costs, 
and increase net receipts to the United States and the States, 
shall jointly determine, on a case by case basis, the amount of 
what marginal production from a lease or leases or well or 
wells, or parts thereof, shall be subject to a prepayment under 
subsection (b) or regulatory relief under subsection (c). If 
the State concerned does not consent, such prepayments or 
regulatory relief shall not be made available under this 
section for such marginal production: Provided, That if royalty 
payments from a lease or leases, or well or wells is not shared 
with any State, such determination shall be made solely by the 
Secretary.
  (b) Prepayment of Royalty.--
          (1) In general.--Notwithstanding the provisions of 
        any lease to the contrary, for any lease or leases or 
        well or wells identified by the Secretary and the State 
        concerned pursuant to subsection (a), the Secretary is 
        authorized to accept a prepayment for royalties in lieu 
        of monthly royalty payments under the lease for the 
        remainder of the lease term if the affected lessee so 
        agrees. Any prepayment agreed to by the Secretary, 
        State concerned and lessee which is less than an 
        average $500 per month in total royalties shall be 
        effectuated under this section not earlier than two 
        years after the date of enactment of this section and, 
        any prepayment which is greater than an average $500 
        per month in total royalties shall be effectuated under 
        this section not earlier than three years after the 
        date of enactment of this section. The Secretary and 
        the State concerned may condition their acceptance of 
        the prepayment authorized under this section on the 
        lessee's agreeing to such terms and conditions as the 
        Secretary and the State concerned deem appropriate and 
        consistent with the purposes of this Act. Such terms 
        may--
                  (A) provide for prepayment that does not 
                result in a loss of revenue to the United 
                States in present value terms;
                  (B) include provisions for receiving 
                additional prepayments or royalties for 
                developments in the lease or leases or well or 
                wells that deviate significantly from the 
                assumptions and facts on which the valuation is 
                determined; and
                  (C) require the lessee or its designee to 
                provide such periodic production reports as may 
                be necessary to allow the Secretary and the 
                State concerned to monitor production for the 
                purposes of subparagraph (B).
          (2) State share.--A prepayment under this section 
        shall be shared by the Secretary with any State or 
        other recipient to the same extent as any royalty 
        payment for such lease.
          (3) Satisfaction of obligation.--Except as may be 
        provided in the terms and conditions established by the 
        Secretary under subsection (b), a lessee or its 
        designee who makes a prepayment under this section 
        shall have satisfied in full the lessee's obligation to 
        pay royalty on the production stream sold from the 
        lease or leases or well or wells.
  (c) Alternative Accounting and Auditing Requirements.--Within 
one year after the date of the enactment of this section, the 
Secretary or the delegated State shall provide accounting, 
reporting, and auditing relief that will encourage lessees to 
continue to produce and develop properties subject to 
subsection (a): Provided, That such relief will only be 
available to lessees in a State that concurs, which concurrence 
is not required if royalty from the lease or leases or well or 
wells is not shared with any State. Prior to granting such 
relief, the Secretary and, if appropriate, the State concerned 
shall agree that the type of marginal wells and relief provided 
under this paragraph is in the best interest of the United 
States and, if appropriate, the State concerned.

                   TITLE II--STATES AND INDIAN TRIBES

          * * * * * * *

                         [delegation to states

  [Sec. 205. (a) Upon written request of any State, the 
Secretary is authorized to delegate, in accordance with the 
provisions of this section, all or part of the authorities and 
responsibilities of the Secretary under this Act to conduct 
inspection, audits, and investigations to any State with 
respect to all Federal lands or Indian lands within the State; 
except that the Secretary may not undertake such a delegation 
with respect to any Indian lands, except with the permission of 
the Indian tribe allottee involved.
  [(b) After notice and opportunity for a hearing, the 
Secretary is authorized to delegate such authorities and 
responsibilities granted under this section as the State has 
requested, if the Secretary finds that--
          [(1) it is likely that the State will provide 
        adequate resources to achieve the purposes of this Act;
          [(2) the State has demonstrated that it will 
        effectively and faithfully administer the rules and 
        regulations of the Secretary under this Act in 
        accordance with the requirements of subsections (c) and 
        (d) of this section; and
          [(3) such delegation will not create an unreasonable 
        burden on any lessee,
with respect to the Federal lands and Indian lands within the 
State.
  [(c) The Secretary shall promulgate regulations which define 
those functions, if any, which must be carried out jointly in 
order to avoid duplication of effort, and any delegation to any 
State must be made in accordance with those requirements.
  [(d) The Secretary shall by rule promulgate standards and 
regulations, pertaining to the authorities and responsibilities 
under subsection (a), including standards and regulations 
pertaining to:
          [(1) audits performed;
          [(2) records and accounts to be maintained; and
          [(3) reporting procedures to be required by States 
        under this section.
Such standards and regulations shall be designed to provide 
reasonable assurance that a uniform and effective royalty 
management system will prevail among the States. The records 
and accounts under paragraph (2) shall be sufficient to allow 
the Secretary to monitor the performance of any State under 
this section.
  [(e) If, after notice and opportunity for a hearing, the 
Secretary finds that any State to which any authority or 
responsibility of the Secretary has been delegated under this 
section is in violation of any requirement of this section or 
any rule thereunder, or that an affirmative finding by the 
Secretary under subsection (b) can no longer be made, the 
Secretary may revoke such delegation.
  [(f) The Secretary shall compensate any State for those costs 
which may be necessary to carry out the delegated activities 
under this section. Payment shall be made no less than every 
quarter during the fiscal year.]

SEC. 205. DELEGATION OF ROYALTY COLLECTIONS AND RELATED ACTIVITIES.

  (a) State Proposal.--A State may submit to the Secretary a 
proposal to perform and enforce all or part of the authorities 
and responsibilities of the Secretary under this Act to conduct 
and enforce royalty collections and related activities, 
including audits, inspections, investigations, production and 
financial reports, correction of erroneous report data, 
automated verification, demands, subpoenas, orders to perform 
restructured accounting (as defined in this Act), production 
accountability, with respect to all Federal leases within that 
State.
  (b) Demonstration of State Ability.--In the proposal under 
subsection (a), the State shall demonstrate the following:
          (1) It is likely that the State will provide adequate 
        resources to achieve the purposes of this Act.
          (2) The State has demonstrated that it will 
        effectively and faithfully administer the rules and 
        regulations of the Secretary under this Act in 
        accordance with the requirements or subsection (c).
          (3) Such delegation will not create an unreasonable 
        burden on the lessees within the State.
          (4) The State agrees to adopt standardized reporting 
        procedures prescribed by the Secretary, unless the 
        State and all affected parties otherwise agree.
          (5) The State agrees to follow and adhere to 
        regulations issued pursuant to the mineral leasing laws 
        regarding valuation of production.
          (6) The State has enacted laws and promulgated 
        regulations consistent with relevant federal laws and 
        regulations.
          (7) The State has shown that delegation of the 
        authorities and responsibilities under this Act will 
        result in a cost-savings to the United States.
  (c) Regulations.--After consultation with the States 
concerned, the Secretary shall by rule promulgate standards 
within 18 months after the date of enactment of this section 
pertaining to authorities and responsibilities under subsection 
(a), including standards pertaining to the royalty collections 
and related activities enumerated in subsection (a). Such 
standards shall be designed to provide reasonable assurance 
that uniformity and effectiveness will prevail among the 
States, that State participation will ensue in the development 
of procedures and policies affecting the delegated activity, 
and that reasonable flexibility will be provided to a State to 
perform any delegated authority or responsibility in a more 
efficient and cost-effective manner. The records and accounts 
maintained pursuant to such regulations shall be sufficient to 
allow the Secretary to monitor the performance of any State 
under this section. Such standards shall, to the maximum extent 
possible, prevent duplication by the Secretary of any activity 
delegated to a State for all Federal land within a State.
  (d) Delegation.--
          (1) Preliminary approval or disapproval by 
        secretary.--
                  (A) Review.--The Secretary shall review a 
                State's proposal as to the consistency of such 
                proposal with subsections (b) and (c) and 
                regulations under subsection (c).
                  (B) Decision.--The Secretary shall issue a 
                preliminary approval or disapproval as to the 
                consistency of a State's proposal with 
                subsections (b) and (c) and regulations under 
                subsection (c) within six months after 
                submission of such proposal. If the Secretary 
                disapproves any State proposal in whole or in 
                part, he shall notify the State in writing of 
                his decision and set forth in detail the 
                reasons therefore and state whether he will 
                agree to delegate to the State if the State 
                meets the conditions set forth in the 
                disapproval.
                  (C) Resubmission.--The State shall have 60 
                days in which to resubmit a revised State 
                proposal or portion thereof. The Secretary 
                shall approve or disapprove the resubmitted 
                State proposal or portion thereof within 60 
                days from the date of resubmission.
          (2) Delegation.--After notice and opportunity for a 
        public hearing, if the Secretary determines that a 
        State has satisfied the conditions contained in a 
        preliminary ruling and approves the State's proposal, 
        the State shall assume and perform such activities and 
        responsibilities pursuant to such approval. The 
        provisions for delegation shall be set forth in a 
        delegation agreement between the Secretary and the 
        State within 90 days after the notice and hearing. The 
        agreement may be amended from time to time to take into 
        account new standards and procedures affecting the 
        delegated activity. Under any such agreement, the 
        Secretary and the State shall share oil or gas 
        information.
          (3) Federal intervention; withdrawal of authority.--
                  (A) Secretarial intervention.--If after 
                providing written notice to a delegated State 
                (with a copy to the lessee or its designee) and 
                a reasonable opportunity to take corrective 
                action requested by the Secretary, the 
                Secretary determines that the State has failed 
                to issue a demand or order to a Federal lessee 
                within the State, that such failure will result 
                in an underpayment of an obligation due the 
                United States by such lessee, and that such 
                underpayment will be uncollected without 
                Secretarial intervention, the Secretary may 
                issue such demand or order in accordance with 
                the provisions of this Act prior to or absent 
                the withdrawal of the delegated activity.
                  (B) Withdrawal of delegated activity.--
                Whenever the Secretary determines after public 
                hearing that a State is not performing the 
                delegated activity authorized under this 
                section in accordance with requirements of this 
                section, the Secretary shall provide written 
                notice, together with the reasons therefor, to 
                the State and, if corrective action is not 
                taken within a reasonable time, not to exceed 
                90 days, the Secretary shall withdraw 
                authorization of such delegated activity and 
                take the necessary actions to administer and 
                enforce such withdrawn activity.
          (4) Court action.--The State may bring an action in 
        the Federal district court in a judicial district in 
        which a portion of the State is located if--
                  (A) the Secretary does not agree to delegate 
                the requested activities, or
                  (B) the Secretary withdraws an activity under 
                paragraph (3)(B).
  (e) Savings Provision.--Any State operating pursuant to a 
delegation existing on the date of enactment of this Act may 
continue to operate under the terms and conditions of the 
delegation, subject to the requirements of subsection (i), 
except to the extent that a revision of the existing agreement 
is adopted pursuant to this section.
  (f) State Action.--With respect to enforcement of an 
obligation under this Act, a State bringing an action under 
this section shall enjoy no greater rights than the Secretary 
enjoys under this Act.
  (g) Receipts.--The Secretary shall compensate any State for 
those costs which may be necessary to carry out the delegated 
activities under this section. Payment shall be made no less 
than every quarter during the fiscal year. Compensation to a 
State shall not exceed the Secretary's reasonably anticipated 
expenditure for performance of such delegated activities by the 
Secretary. Such costs shall be allocable for the purposes of 
section 35(b) of the Act entitled ``An act to promote the 
mining of coal, phosphate, oil, oil shale, gas and sodium on 
the public domain'', approved February 25, 1920 (commonly known 
as the Mineral Leasing Act) (30 U.S.C. 191 (b)) to the 
administration and enforcement of laws providing for the 
leasing of any onshore lands or interests in land owned by the 
United States. The Secretary shall compensate any State in the 
next succeeding fiscal year for the aggregate amount of such 
costs incurred but not compensated due to such allocation for 
the current fiscal year. All moneys received from sales, 
bonuses, rentals, royalties, assessments and interest, 
including money claimed to be due and owing pursuant to a 
delegation under this section, shall be payable and paid to the 
Treasury of the United States. If a State's cost for actions 
taken under a delegated activity is subject to such section 
35(b), the Secretary shall not charge the State under such 
section 35(b) for the Secretary's costs for taking the same 
actions under such activity.
          * * * * * * *
                              ----------                              


          SECTION 10 OF THE OUTER CONTINENTAL SHELF LANDS ACT

  [Sec. 10. Refunds.--(a) Subject to the provisions of 
subsection (b) hereof, when it appears to the satisfaction of 
the Secretary that any person has made a payment to the United 
States in connection with any lease under this Act in excess of 
the amount he was lawfully required to pay, such excess shall 
be repaid without interest to such person or his legal 
representative, if a request for repayment of such excess is 
filed with the Secretary within two years after the making of 
the payment, or within ninety days after the effective date of 
this Act. The Secretary shall certify the amounts of all such 
repayments to the Secretary of the Treasury, who is authorized 
and directed to make such repayments out of any moneys in the 
special account established under section 9 of this Act and to 
issue his warrant in settlement thereof.
  [(b) No refund of or credit for such excess payment shall be 
made until after the expiration of thirty days from the date 
upon which a report giving the name of the person to whom the 
refund or credit is to be made, the amount of such refund or 
credit, and a summary of the facts upon which the determination 
of the Secretary was made is submitted to the President of the 
Senate and the Speaker of the House of Representatives for 
transmittal to the appropriate legislative committee of each 
body, respectively: Provided, That if the Congress shall not be 
in session on the date of such submission or shall adjourn 
prior to the expiration of thirty days from the date of such 
submission, then such payment or credit shall not be made until 
thirty days after the opening day of the next succeeding 
session of Congress.]
                     DISSENTING VIEWS ON H.R. 1975

    The decision by this Committee to favorably report H.R. 
1975, the ill-named royalty ``fairness'' bill, is yet another 
example of Republican corporate welfare, in this instance 
benefiting oil and gas producers operating on public lands. 
Obscured behind a screen of hypocrisy, such as creating ``a 
more aggressive framework'' for oil and gas royalty collection, 
and tortuously technical language, the bill contains many 
provisions that would enhance industry's position at the 
public's cost.
    According to the CBO cost estimate, pay-as-you-go 
procedures would apply to the bill. The CBO anticipates that 
the bill will increase receipts during the 1997 to 2002 period 
by $36 million. However, this would be accomplished only by 
accelerating the collection of royalties already due and 
payable to the United States. The bill creates no new receipts 
but does create new costs to the federal government. For 
instance, according to the CBO, requiring the federal 
government to pay interest on any overpayment made by a federal 
lessee would cost $44 million in direct spending during the 
1997-2002 period. In addition, the interest provision would 
cost an additional $10 million in direct spending every year 
thereafter--more than $200 million to be paid out over the next 
two decades! An outcome vigorously opposed by those who support 
deficit reduction and balanced budgets.
    H.R. 1975, as reported, will place unnecessary and costly 
burdens on MMS, and by extension, on the States which share in 
the revenues generated by onshore federal leases. Further, by 
requiring the Secretary of the Interior to delegate royalty 
functions to the States, the bill will significantly diminish 
the Secretary's authority over the management of the public 
lands and garner a Presidential veto. The bill will also 
require the Department of Interior (DOI) to reimburse the 
States for costs incurred through voluntary assumption of 
federal royalty functions without making such reimbursement 
subject to appropriations. This requirement violates House 
Rules as they apply to the jurisdictional scope of the 
Appropriations Committee. Yet, without violation of House Rule 
21, the bill would impose unfunded mandates upon the States.

                               background

    Congress, with the support of the Reagan Administration, 
enacted the Federal Oil and Gas Royalty Management Act of 1982 
(FOGRMA), a law that reformed the system for collecting 
royalties for oil and gas produced on federal lands, tightening 
the government's grip on hundreds of millions of dollars in 
revenue previously lost or stolen. According to the bipartisan 
Linowes Commission in its 1981 report, the program was losing 
between $200 million and $500 million annually due to theft and 
royalty underpayments by federal lessees. Today the program 
raises close to five billion dollars annually and has raised a 
total of $81 billion since 1982, including more than $1.5 
billion in underpayments. Only taxes and customs raise more 
revenues for the U.S. Treasury. In the case of federal onshore 
mineral revenues, 50 percent of the net revenue generated is 
paid back to the States in which the leased acreage is located 
(except for Alaska which receives 90 percent of the revenue 
generated by its leases.)

                           corporate welfare

    H.R. 1975 creates new spending obligations by requiring the 
federal government to pay interest on overpayments made by oil 
and gas companies. This new obligation will cost an estimated 
$44 million between 1997 and 2002 and more than $15 million in 
direct spending every year after that.
    Currently, the Minerals Management Service (MMS) refunds 
amounts overpaid by lessees but does not pay the additional 
interest costs. Further, in order to be even more responsive to 
industry concerns about the time value of money, MMS provides a 
grace period after the royalty payment due date when lessees 
can make adjustments without penalty (or interest charges) on 
the amount the lessees have underpaid their royalty 
obligations. This policy primarily accommodates natural gas 
producers who by necessity must pay estimated royalties before 
knowing the exact price garnered from the sale of the resource.
    The Reagan-Bush Administrations opposed legislative 
proposals to allow even a limited payment of interest on 
overpayments and for good reason. As CBO's cost estimate 
states, ``Section 6 of the bill would expand the obligations of 
the federal government to lessees.'' According to H.R. 1975, 
the federal government will be required to pay or credit 
interest on lessees' over payments at the rate specified by the 
Internal Revenue Code for overpayments on income tax. Contrary 
to the Majority's assertion, this provision is not 
``analogous'' to IRS practice. Rather, the IRS pays interest on 
overpayments only when the IRS is shown to be in error and only 
after the taxpayer notifies them of such error and the IRS 
fails to act within a specified period of time. H.R. 1975 will 
allow lessees to unilaterally deduct from a current or future 
payment, the interest owed on a past royalty obligation 
whenever the lessee discovers the overpayment without prior 
notice to or permission from the U.S. Also, the interest will 
accrue from the date the overpayment is made, rather than the 
IRS practice of accruing interest from the date the mistake is 
discovered. Clearly this will not simply royalty management nor 
will it contribute to ``increased receipts.''
    The bill will prohibit payment of interest only if a 
lessee's overpayments for a given month exceed 10 percent of 
the total royalties due on all its federal leases and only if 
the DOI subsequently determines that such payment was made for 
the purposes of receiving interest. Typically, a major oil and 
gas corporation's monthly obligations are about $25 million; a 
medium sized business pays about $4 million and a small 
business pays about $150,000. Therefore, as long as a major 
corporation, such as Exxon, keeps its overpayments under $2.5 
million per month, it will be able to collect 7 to 8 percent 
interest on the amount overpaid. Such interest payments will be 
deducted from receipts, including interest charges collected by 
MMS on underpayments made by lessees. The States will share in 
paying for this corporate benefit and their share of receipts 
will be adjusted downwards accordingly in the month following 
the payment or credit.
    Currently, with benefit to be gained, overpayments average 
about 3 percent of the royalties paid each year. For purposes 
of the cost estimate, CBO assumed that the amount of 
overpayments would increase at least 2 percentage points since 
any overpayment would earn interest at a rate 2 percent above 
the Treasury's rate for short-term (90-day) borrowing. CBO 
estimates that this provision will increase direct spending, 
net of reduced payments to States, by about $44 million over 
the 1997-2002 period and at least an additional $10 million 
every year after that. The States can expect similar losses. 
The bill as reported will inevitably add to the deficit--
especially in the long term--an outcome vigorously opposed by 
those advocating deficit reduction and balanced budgets.

                            state delegation

    The bill as introduced included no provision to delegate 
royalty functions to the States presumably because Section 205 
of the FOGRMA already allows the Secretary to enter into 
cooperative agreements with States that want to do such 
activities. During the past fourteen years, the DOI has 
successfully negotiated a cooperative agreement with every 
State that has sought delegation of royalty function. However, 
despite the lack of evidentiary need and over the objections of 
the Minority, the Majority added a section to H.R. 1975 that 
will require the Secretary to transfer royalty management 
activities when a State requests and qualifies for such 
delegation of duties on federal lands. This section will also 
expand the duties the Secretary may delegate to the States. 
Mandating the Secretary's approval is unnecessary and will 
garner a Presidential veto of the bill. The Minority 
unsuccessfully attempted during Committee consideration of the 
bill to negotiate an amendment to make the Secretary's decision 
to make delegation discretionary as requested by the 
Administration (amendment #3). On May 2, the Senate Energy 
Committee adopted this approach. The Administration has 
consequently withdrawn its veto-threat if the Senate language 
prevails. Nevertheless, the Resources Committee Majority has 
been unwilling to agree to this option.

                         statute of limitations

    The statute of limitations provision of H.R. 1975 responds 
to several lawsuits now underway between that DOI and several 
oil and gas companies. The dispute centers on the question of 
whether the general federal statute of limitations for contract 
claims applies to federal oil and gas leases. Last year, the 
Tenth Circuit Court of Appeals ruled against the companies' 
claims the DOI has only six years from the date of an 
underpayment to seek collection. Instead, the Court reasonably 
found that the 6-year period does not run until the MMS 
completes its audit and that the audit must be initiated within 
six years of the underpayment. The DOI also maintains that the 
statute of limitations does not apply at all in the context of 
oil and gas royalty collections. The industry claims that it 
does. The Fifth Circuit Court of Appeals recently ruled in the 
DOI's favor on this issue, but the plaintiffs plan to seek a 
rehearing before the court. Under other laws, oil and gas 
lessees are required to keep their records for six years. They 
may dispose of records after that if the DOI has not put them 
on notice to retain such records for an outgoing audit.
    In response to this problem, the MMS has set up a policy of 
completing all audits within six years of the obligation's due 
date. In addition, the Administration has been considering 
issuance of an Executive Order that would impose a ``statute of 
limitations.'' The Majority objects to an Executive Order since 
it would preempt H.R. 1975 and allow the President to resolve 
the issue. The Majority mistakenly argues that an Executive 
Order does not carry the same weight as a public law. However, 
Executive Branch agencies must follow an Executive Order in the 
same manner as a public law and Executive Orders are not easily 
overturned or revoked.
    Besides the litigation surrounding the question of whether 
a statute of limitations exists for federal oil and gas leases, 
there is also the issue of alleged underpayments by seven 
integrated oil companies operating in California. Indeed, the 
industry's desire for a statute of limitations stems from this 
specific case. The State of California and the City of Long 
Beach sued these companies in 1975 alleging that they had 
conspired to keep posted prices low and thus underpaid their 
royalty obligations. After many years of litigation, six of the 
companies (ARCO, Shell, Chevron, Mobil, Texaco and Unocal) 
reached settlements to end the litigation without acknowledging 
any quilt. Exxon the seventh company, went to trial and was 
exonerated. The DOI is currently reviewing the issue to decide 
whether to pursue claims by public interest groups that as much 
as $856 million is due MMS from oil and gas companies for 
production of crude oil on federal lands in California during 
the period of 1978 to 1993. A number of other States, including 
Texas and New Mexico, are currently engaged in similar 
litigation.
    Since MMS has collected underpayments worth more than $1.5 
billion since 1982, there is little question that underpayment 
by oil and gas lessees is a significant problem for the federal 
government. Had the statute of limitations been in effect, the 
DOI would have been unable to investigate the alleged 
conspiracy in California without a determination of fraud or 
intentional misrepresentation with the intent to avoid payment. 
H.R. 1975 requires that the MMS audit leases held oil companies 
within the specified seven-year period after the date the 
royalty payment is due, unless the MMS meets the very limited 
requirements for tolling the audit period provided in great 
detail by H.R. 1975.
    We believe the statute of limitations provision in H.R. 
1975 will serve to undermine the federal government's ability 
to collect monies owed and will result in endless and costly 
litigation.

                  specific response to majority views

    While the Majority is to be generally commended for a 
relatively factual and detailed report on this bill, there are 
a number of liberties taken with the truth that need to be 
addressed. One, while the Subcommittee did favorably report the 
bill to the full Committee without amendment on February 28, 
1996, Rep. Abercrombie noted at the time, that he would forego 
offering amendments that afternoon as the House was taking up 
the Farm bill (H.R. 2854, ``the Agriculture Market Transition 
Act'') that day. Further, he notified the Majority of his 
intent to offer a number of amendments and reserved the right 
to do so during full Committee consideration. In response, 
Chairman Calvert agreed to discuss such amendments during the 
interim period. As a result, 22 amendments were accepted and 
offered ``en bloc'' (amendment #1) during full Committee 
consideration of the bill on March 28, 1996.
    Two, the Majority states that the seven-year statute of 
limitations will accrue from the date on which the royalty 
payment is made. This, it should be noted, departs from 
precedent and existing practice in other federal statutes of 
limitation. The Majority further states that ``the seven-year 
period is a key component of this bill because it is a driving 
mechanism to increase revenues to the U.S. treasury and the 
States.'' This is simply not correct. According to the CBO, the 
seven-year period simply accelerates payments to the U.S. and 
will not actually ``increase'' revenues.
    Three, the Majority states that the 33-month appeal process 
specified in the bill also increase revenues to the U.S. 
treasury and the States. Again, this assertion is misleading at 
best. According to the CBO, the 33-month appeal process simply 
accelerates payments to the U.S. and will not actually 
``increase'' revenues.
    Four, as noted by the Majority, a lessee may take refunds 
or make adjustments on its obligations for a six-year period 
following the date the obligation is due. However, a lessee can 
also extend that period indefinitely. On the other hand, the 
U.S. is limited to auditing leases to seven-years.
    Five, the Majority report credits the bill with providing 
several benefits to lessees which are already current practice. 
For instance, the Majority boasts that the bill will allow 
lessees to makes estimated payments without penalty. And, the 
bill will allow refunds to be permitted where a lessee may not 
be able to make an adjustment to their report. The report 
indicates that the bill places a new statutory assessment (fee) 
on chronically tardy payers. Again this is current practice. 
Omitted from the Majority's explanation is the fact the bill 
actually limits the MMS from charging a cost-recovery fee to 
``bad apple'' lessees for any other purpose.

                               conclusion

    Should H.R. 1975 be enacted, it will be more difficult, not 
easier, for the MMS to more aggressively audit and collect 
federal oil and gas royalties and other monies owed the United 
States, as the Majority says is the goal of H.R. 1975. If the 
MMS is rife with mismanagement and is guilty of failing to 
collect up to $1 billion in unpaid royalties, as the majority 
has recently asserted during a Resources Committee hearing on 
the fiscal year 1997 budget, then enactment of H.R. 1975 would 
be counterproductive since it will weaken the framework 
Congress enacted in 1982.
    The bill as reported, while making it easier for oil and 
gas lessees to pay royalties, runs the risk of taking the 
federal royalty program ``back to the future'' and will 
replicate the conditions Congress encountered in 1982, when the 
bipartisan Linowes Commission found the program to be ``in 
disarray'' and ``a failure.'' Improvement is always in order. 
Yet H.R. 1975, if enacted, will dismantle an existing program 
that is working well. Such action does not serve the public 
interest. Simply put, H.R. 1975 goes too far in altering a 
program that, according to the fiscal year 1996 Appropriations 
Committee Report, ``is very well run and should not be 
dismantled simply for the sake of change.''

                                   George Miller,
                                           Ranking Democrat, Resources 
                                               Committee.
                                   Neil Abercrombie,
                                           Ranking Democrat, 
                                               Subcommittee on Energy 
                                               and Minerals.
                                   Sam Gejdenson.
                                   Maurice D. Hinchey.
                                   Edward J. Markey.
                                   Nick J. Rahall.
                                   Bruce F. Vento.
                                   Frank Pallone, Jr.