[House Report 118-562]
[From the U.S. Government Publishing Office]


118th Congress   }                                     {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session      }                                     {       118-562

======================================================================



 
                         ROYALTY RESILIENCY ACT

                                _______
                                

 June 27, 2024.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Westerman, from the Committee on Natural Resources, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 7377]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Natural Resources, to whom was referred 
the bill (H.R. 7377) to amend the Federal Oil and Gas Royalty 
Management Act of 1982 to improve the management of royalties 
from oil and gas leases, and for other purposes, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Royalty Resiliency Act''.

SEC. 2. DETERMINATION OF ALLOCATIONS OF PRODUCTION FOR UNITS AND 
                    COMMUNITIZATION AGREEMENTS.

  Section 111(j) of the Federal Oil and Gas Royalty Management Act of 
1982 (30 U.S.C. 1721(j)), as amended by the Federal Oil and Gas Royalty 
Simplification and Fairness Act of 1996 (Public Law 104-185), is 
amended to read as follows:
  ``(j) The Secretary shall issue all determinations of allocations of 
production for units and communitization agreements within 120 days of 
a request for determination. Until the Secretary issues the 
determination, the lessee or its designee of a lease in a unit or 
communitization agreement shall report and pay royalties on oil and gas 
production for each production month in accordance with the terms of 
the proposed allocation of production for the unit or communitization 
agreement. After the Secretary issues the determination, the lessee or 
its designee shall, as necessary, correct such reports and the amount 
of royalties paid on oil and gas production under the unit or 
communitization agreement by not later than the end of the third month 
following the month in which the lessee or its designee receives the 
determination from the Secretary. Subject to the full and timely 
monthly payment of royalties to all parties in accordance with the 
terms of the proposed allocation of production for the unit or 
communitization agreement, the Secretary shall waive interest due on 
obligations subject to the determination until the end of the third 
month following the month in which the lessee or its designee receives 
the determination from the Secretary. This subsection shall not apply 
to unit or communization agreements containing Indian lands.''.

                       Purpose of the Legislation

    The purpose of H.R. 7377 is to amend the Federal Oil and 
Gas Royalty Management Act of 1982 to improve the management of 
royalties from oil and gas leases, and for other purposes.

                  Background and Need for Legislation

    The Federal Oil and Gas Royalty Management Act of 1982 
(FOGRMA) grants the Secretary of the Interior authority to 
manage and collect oil and gas royalties from leases on federal 
and Indian lands. This includes the establishment of a 
comprehensive inspection, collection, and production auditing 
system for accurately determining royalties, interests, fines, 
penalties, fees, deposits, and other payments owed on 
leases.\1\ FOGRMA also sets forth the duties of operators on 
oil and gas leases. For example, lessees are required to make 
royalty payments on time and notify the Secretary of the 
Interior of any assignments of interest on a lease or 
production on new wells.
---------------------------------------------------------------------------
    \1\BOEM, Federal Oil and Gas Royalty Management Act, https://
www.boem.gov/sites/default/files/documents/about-boem/regulations-
guidance/Federal%20Oil%20and%20Gas%20Royalty%20Management%20Act.pdf
---------------------------------------------------------------------------
    The Department of the Interior's Office of Natural 
Resources Revenue (ONRR) is responsible for accounting for, 
verifying, and collecting mineral leasing revenues from all 
federal onshore areas, including oil and gas royalties. When an 
oil and gas project involving a federal lease cannot be 
independently developed because of other state or private 
assets, the Bureau of Land Management (BLM) may approve a 
communitization agreement (CA) upon a determination that it is 
in the public interest. CAs are essentially revenue-sharing 
agreements for oil and gas projects that involve federal, 
state, and private property. Under current law, BLM is 
responsible for approving CAs within 120 days and determining 
allocations of production for royalty payments between 
lessees.\2\ Despite the statutory timeline, operators have 
experienced wait times of up to three years for CAs.
---------------------------------------------------------------------------
    \2\30 U.S.C. Sec. 1721(j).
---------------------------------------------------------------------------
    ONRR currently requires operators to pay a 100% royalty to 
the federal government until the BLM approves the CA, meaning 
operators are forced to pay excess royalties for years while 
they wait for BLM approval. For example, if the mineral 
ownership for a project is 50% state, 25% private, and 25% 
federal, the operator would be required to pay a royalty of 
175% until the BLM approves the CA (50% state, 25% private, and 
100% federal). H.R. 7377 would solve this issue by allowing 
lessees to pay a royalty to ONRR that is based on the 
apportionment in their proposed CA rather than a blanket 100%. 
If the apportionment is found to be incorrect when the CA is 
approved (which is rare), the lessee must pay the government 
back within three months.

                            Committee Action

    H.R. 7377 was introduced on February 15, 2024, by 
Representative Wesley Hunt (R-TX). The bill was referred to the 
Committee on Natural Resources, and within the Committee to the 
Subcommittee on Energy and Mineral Resources. On March 6, 2024, 
the Subcommittee on Energy and Mineral Resources held a hearing 
on the bill. On April 16, 2024, the Committee on Natural 
Resources met to consider the bill. The Subcommittee on Energy 
and Mineral Resources was discharged from further consideration 
of H.R. 7377 by unanimous consent. Rep. Hunt (R-TX) offered an 
Amendment in the Nature of a Substitute designated Hunt ANS_01. 
The Amendment in the Nature of a Substitute was agreed to by 
unanimous consent. The bill, as amended, was ordered favorably 
reported to the House of Representatives by unanimous consent.

                                Hearings

    For the purposes of clause 3(c)(6) of House rule XIII, the 
following hearing was used to develop or consider this measure: 
hearing by the Subcommittee on Energy and Mineral Resources 
held on March 6, 2024.

                      Section-by-Section Analysis


Section 1. Short title

    Designates the bill as the ``Royalty Resiliency Act''.

Section 2. Determination of allocations of production for units and 
        communitization agreements

    Section 2 amends Section 111(j) of the Federal Oil and Gas 
Royalty Management Act of 1982 by allowing lessees to pay a 
royalty to ONRR that is based on the apportionment in their 
proposed CA rather than a blanket 100%. If the apportionment is 
found to be incorrect when the CA is approved, the lessee would 
be required to pay the government back within three months. The 
bill would not apply to CAs that involve Indian lands.

            Committee Oversight Findings and Recommendations

    Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of 
rule XIII of the Rules of the House of Representatives, the 
Committee on Natural Resources' oversight findings and 
recommendations are reflected in the body of this report.

      Compliance With House Rule XIII and Congressional Budget Act

    1. Cost of Legislation and the Congressional Budget Act. 
With respect to the requirements of clause 3(c)(2) and (3) of 
rule XIII of the Rules of the House of Representatives and 
sections 308(a) and 402 of the Congressional Budget Act of 
1974, the Committee has received the following estimate for the 
bill from the Director of the Congressional Budget Office:

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    H.R. 7377 would amend the Federal Oil and Gas Royalty 
Management Act of 1982 to change how leaseholders that are 
applying to jointly develop federal land allocate royalty 
payments before the Department of the Interior (DOI) approves 
the final allocations.
    Oil and gas leaseholders can enter into joint agreements to 
develop leased land and drill wells in areas where they could 
not independently comply with certain regulations. Such a joint 
application includes the proposed apportionment of production 
and royalties to be paid by each producer.
    Under current law, until DOI approves the final royalty 
allocations, the first leaseholder to drill pays any royalties 
due to the federal government for all production on land 
subject to the proposed agreement. After DOI approves the final 
allocations, that leaseholder is reimbursed by the other 
participants in the agreement for their share of the payments.
    The bill would require oil and gas leaseholders that seek 
to form such agreements to make royalty payments based on the 
proposed production allocation under the agreement application 
until DOI approves the final allocations.
    Royalties paid on oil and gas produced on federal land are 
recorded in the budget as offsetting receipts, that is, as 
reductions in direct spending. A portion of those offsetting 
receipts are spent without further appropriation.
    CBO expects that enacting H.R. 7377 would not change the 
total amount of royalties owed to the federal government, but 
it could affect when those payments are received. Thus, CBO 
estimates that enacting the bill would have an insignificant 
effect on direct spending over the 2024-2034 period.
    The CBO staff contacts for this estimate are David Hughes 
(for offshore leasing) and Lilia Ledezma (for onshore leasing). 
The estimate was reviewed by H. Samuel Papenfuss, Deputy 
Director of Budget Analysis.
                                         Phillip L. Swagel,
                             Director, Congressional Budget Office.
    2. General Performance Goals and Objectives. As required by 
clause 3(c)(4) of rule XIII, the general performance goal or 
objective of this bill is to amend the Federal Oil and Gas 
Royalty Management Act of 1982 to improve the management of 
royalties from oil and gas leases, and for other purposes.

                           Earmark Statement

    This bill does not contain any Congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined 
under clause 9(e), 9(f), and 9(g) of rule XXI of the Rules of 
the House of Representatives.

                 Unfunded Mandates Reform Act Statement

    According to the Congressional Budget Office, H.R. 7377 
contains no unfunded mandates as defined by the Unfunded 
Mandates Reform Act.

                           Existing Programs

    Directed Rule Making. This bill does not contain any 
directed rule makings.
    Duplication of Existing Programs. This bill does not 
establish or reauthorize a program of the federal government 
known to be duplicative of another program. Such program was 
not included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-139 
or identified in the most recent Catalog of Federal Domestic 
Assistance published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169) as relating to other programs.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                Preemption of State, Local or Tribal Law

    Any preemptive effect of this bill over state, local, or 
tribal law is intended to be consistent with the bill's 
purposes and text and the Supremacy Clause of Article VI of the 
U.S. Constitution.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) 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 italics, and existing law in which no 
change is proposed is shown in roman):

           FEDERAL OIL AND GAS ROYALTY MANAGEMENT ACT OF 1982



           *       *       *       *       *       *       *
TITLE I--FEDERAL ROYALTY MANAGEMENT AND ENFORCEMENT

           *       *       *       *       *       *       *


         ROYALTY TERMS AND CONDITIONS, INTEREST, AND PENALTIES

  Sec. 111. (a) In the case of oil and gas leases where royalty 
payments are not received by the Secretary on the date that 
such payments are due, or are less than the amount due, the 
Secretary shall charge interest on such late payments or 
underpayments at the rate applicable under section 6621 of the 
Internal Revenue Code of 1954. In the case of an underpayment 
or partial payment, interest shall be computed and charged only 
on the amount of the deficiency and not on the total amount 
due.
  (b) Any payment made by the Secretary to a State under 
section 35 of the Mineral Leasing Act of 1920 (30 U.S.C. 191) 
and any other payment made by the Secretary to a State from any 
oil or gas royalty received by the Secretary which is not paid 
on the date required under section 35 shall include an interest 
charge computed at the rate applicable under section 6621 of 
the Internal Revenue Code of 1954.
  (c) All interest charges collected under this Act or under 
other applicable laws because of nonpayment, late payment or 
underpayment of royalties due and owing an Indian tribe or an 
Indian allottee shall be deposited to the same account as the 
royalty with respect to which such interest is paid.
  (d) Any deposit of royalty funds made by the Secretary to an 
Indian account which is not made by the date required under 
subsection 104(b) shall include an interest charge computed at 
the rate applicable under section 6621 of the Internal Revenue 
Code of 1954.
  (e) Notwithstanding any other provision of law, no State will 
be assessed for any interest or penalties found to be due 
against the Secretary for failure to comply with the Emergency 
Petroleum Allocation Act of 1973 or regulation of the Secretary 
of Energy thereunder concerning crude oil certification or 
pricing with respect to crude oil taken by the Secretary in 
kind as royalty. Any State share of an overcharge, resulting 
from such failure to comply, shall be assessed against moneys 
found to be due and owing to such State as a result of audits 
of royalty accounts for transactions which took place prior to 
the date of the enactment of this Act except that it after the 
completion of such audits, sufficient moneys have not been 
found due and owing to any State, the State shall be assessed 
the balance of that State's share of the overcharge.
  (f) Interest shall be charged under this section only for the 
number of days a payment is late.
  (g) The first sentence of section 35 of the Act of February 
25, 1920 is amended by inserting ``including interest charges 
collected under the Federal Oil and Gas Royalty Management Act 
of 1982'' between ``royalties'' and ``and''.
  (h) 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 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.
  (i)(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.
  [(j) The Secretary shall issue all determinations of 
allocations of production for units and communitization 
agreements within 120 days of a request for determination. If 
the Secretary fails to issue a determination within such 120-
day period, the Secretary shall waive interest due on 
obligations subject to the determination until the end of the 
month following the month in which the determination is made.]
  (j) The Secretary shall issue all determinations of 
allocations of production for units and communitization 
agreements within 120 days of a request for determination. 
Until the Secretary issues the determination, the lessee or its 
designee of a lease in a unit or communitization agreement 
shall report and pay royalties on oil and gas production for 
each production month in accordance with the terms of the 
proposed allocation of production for the unit or 
communitization agreement. After the Secretary issues the 
determination, the lessee or its designee shall, as necessary, 
correct such reports and the amount of royalties paid on oil 
and gas production under the unit or communitization agreement 
by not later than the end of the third month following the 
month in which the lessee or its designee receives the 
determination from the Secretary. Subject to the full and 
timely monthly payment of royalties to all parties in 
accordance with the terms of the proposed allocation of 
production for the unit or communitization agreement, the 
Secretary shall waive interest due on obligations subject to 
the determination until the end of the third month following 
the month in which the lessee or its designee receives the 
determination from the Secretary. This subsection shall not 
apply to unit or communization agreements containing Indian 
lands.

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