[Federal Register Volume 59, Number 71 (Wednesday, April 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8810]


[[Page Unknown]]

[Federal Register: April 13, 1994]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 220

RIN 1010-AB46

 

Extension of Time Period for Maintaining Records on Outer 
Continental Shelf Net Profit Share Oil and Gas Leases

AGENCY: Minerals Management Service, Interior.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Minerals Management Service (MMS) previously published a 
Notice of Proposed Rulemaking to amend its offshore Net Profit Share 
Lease (NPSL) regulations relating to record maintenance requirements 
and certain audit requirements. The MMS now is issuing a further notice 
of proposed rulemaking on this proposed change.

DATES: Written comments must be received on or before June 13, 1994.

ADDRESSES: Mail your written comments to the Minerals Management 
Service, Royalty Management Program, Rules and Procedures Staff, P.O. 
Box 25165, Mail Stop 3901, Denver, Colorado 80225-0165, Attention: 
David S. Guzy.

FOR FURTHER INFORMATION CONTACT:
David S. Guzy, Chief, Rules and Procedures Staff at (303) 231-3432.

SUPPLEMENTARY INFORMATION: The principal author of this proposed rule 
is David A. Hubbard of the MMS Royalty Management Program, Valuation 
and Standards Division, Lakewood, Colorado.

I. Background

(a) History of NPSL Accounting Rules

    A chronology of the NPSL rules follows:
     May 30, 1980--before Congress passes the Federal Oil and 
Gas Royalty Management Act of 1982 (FOGRMA), 30 U.S.C., 1701 et seq.--
the Department of Energy (DOE) publishes regulations on accounting 
procedures for offshore NPSL's (10 CFR part 390).
     December 1981--the Secretary of the Interior receives 
authority to administer the NPSL rules (Pub. L. 97-100).
     January 11, 1983 (48 FR 1182)--NPSL rules transferred to 
the Department of the Interior (Department), MMS, and redesignated 30 
CFR part 261.
     August 5, 1983--30 CFR part 261 is redesignated 30 CFR 
part 220 (48 FR 35642).

(b) Current and Original Rules Compared

    Other than minor administrative changes, MMS' version of the NPSL 
accounting rules in 30 CFR part 220 duplicates DOE's original rules in 
10 CFR part 390. Both provide that:
     Ledger cards showing charges and credits to the NPSL 
capital account must be maintained for 36 months after the lessee 
ceases NPSL operations;
     All other documents, journals, and records must be 
maintained for 36 months from the due date or date of mailing of the 
statement of account on an NPSL, whichever comes later;
     The Department has the right to start an audit any time 
within 36 months of the due date of the statement to be audited or the 
date it was mailed, whichever is later.

(c) NPSL vs. FOGRMA Recordkeeping Requirements

    The record maintenance periods in the NPSL rules conflict with 
current statutory record maintenance requirements on all Federal and 
Indian oil and gas leases, including leases on the OCS. Section 103 of 
FOGRMA, 30 U.S.C. 1713, ``Required Recordkeeping,'' states, in part 
that a lessee, operator, or other person * * * shall establish and 
maintain any records, make any reports, and provide any information 
that the Secretary may, by rule, reasonably require * * *. Upon the 
request of any officer or employee duly designated by the Secretary or 
any State or Indian tribe * * * the appropriate records, reports, or 
information * * * shall be made available for inspection and 
duplication by such officer or employee, State, or Indian tribe. 
Records * * * shall be maintained for 6 years * * * unless the 
Secretary notifies the record holder that he has initiated an audit * * 
* and that such records must be maintained for a longer period. In any 
case when an audit or investigation is underway, records shall be 
maintained until the Secretary releases the record holder of the 
obligation to maintain such records.
    Section 3(5) of FOGRMA, 30 U.S.C. 1702, defines the term ``lease'' 
to include ``any * * * profit share arrangement * * * issued or 
approved by the United States under a mineral leasing law that 
authorizes exploration for, extraction of, or removal of oil or gas.'' 
So, FOGRMA applies to NPSL records.

(d) General MMS Recordkeeping Rules

    The MMS issued regulations at 30 CFR 212.50, ``Required 
recordkeeping and reports,'' after FOGRMA's enactment. They state in 
part that all records * * * shall be maintained * * * for 6 years * * * 
unless the recordholder is notified, in writing, that records must be 
maintained for a longer period. When an audit or investigation is 
underway, records shall be maintained until the recordholder is 
released by written notice of the obligation to maintain records.
    Paragraphs (a) and (b) of MMS regulations at 30 CFR 212.51, 
``Records and files maintenance,'' state in part that each lessee * * * 
shall make and retain accurate and complete records necessary to 
demonstrate that payments of rentals, royalties, net profit shares, and 
other payments related to offshore and onshore Federal and Indian oil 
and gas leases are in compliance with lease terms, regulations, and 
orders * * *. Lessees * * * required to keep records under this section 
shall maintain and preserve them for 6 years * * * unless the Secretary 
notifies the recordholder of an audit * * * and that they must be 
maintained for a longer period. When an audit or investigation is 
underway, records shall be maintained until the recordholder is 
released in writing from the obligation to maintain the records * * *.
    Thus, part 212 specifically requires that NPSL records be 
maintained at least 6 years after generation. Under Sec. 212.50, this 
period may be longer if the recordholder is notified in writing.

(e) Who Is Responsible for NPSL Reporting?

    The June 11, 1981, Notice to Lessees for Implementation of Net 
Profit Share Accounting for OCS Oil and Gas Leases, 46 FR 30897, 
clarifies NPSL reporting responsibilities. It states:
     The designated NPSL operator must meet the reporting 
requirements of 30 CFR 390.031 (1980) (now 30 CFR 220.031 (1992)) for 
all lease interest holders.
     Until production starts, each operator must file an annual 
report by 60 days after the lease anniversary date.
     After production starts, a monthly report must be filed 
and payments made.
     Each operator is responsible for making NPSL payments.
    Further, the MMS Oil and Gas Payor Handbook, vol. II, section 
3.3.8, states that NPSL operators must file a Report of Sales and 
Royalty Remittance (Form MMS-2014) monthly.

(f) First Proposed Rule

    On June 7, 1990, MMS published a Notice of Proposed Rulemaking in 
the Federal Register (55 FR 23248). The MMS proposed to amend the 
FOGRMA implementation requirement at 30 CFR 220.030 to make its 
recordkeeping requirements the same as FOGRMA's and those of 30 CFR 
212.50 and 212.51. The MMS proposed the changes because the NPSL 
accounting procedures predate and conflict with FOGRMA and MMS' general 
recordkeeping rules.
    The MMS also proposed to delete 30 CFR 220.033 because 30 CFR 
217.50 already applies to all oil and gas audits, including NPSL's. The 
MMS is preparing separately a proposed rulemaking to revise 30 CFR part 
217, Audits and Inspections; NPSL audit requirements will be included 
in that rulemaking.

(g) Agreements With Operators

    After MMS published the proposed rule, it signed agreements with 
over half of the existing NPSL operators. Under these agreements 
operators can either supply NPSL records directly to MMS or maintain 
them until MMS completes a lease audit. All who signed the agreement 
opted to maintain the records themselves rather than send them to MMS.

II. Further Notice of Proposed Rulemaking

    The June 1990 proposed rule would have assured consistency between 
the NPSL rules and FOGRMA by putting the FOGRMA 6-year recordkeeping 
requirements in the NPSL rules. But, given the audit needs described in 
paragraph IV below, MMS concluded that a modified approach was needed.
    The main thrust of this revised proposed rule parallels the 
recordkeeping agreements now in place between MMS and a majority of 
NPSL operators. Because of this substantial change from the June 1990 
proposed rule, MMS is publishing this revised proposed rule in the 
Federal Register for public review and comment.
    The MMS received comments from one industry respondent on the June 
1990 proposed rulemaking. Those comments were considered in this 
revised proposed rulemaking; they are discussed in paragraph III below. 
The revised proposed rule is summarized and discussed in paragraph IV 
below.

III. Comments Received on June 1990 Proposed Rule

    The June 1990 proposed rule provided for a 30-day public comment 
period ending July 9, 1990. We received comments from one industry 
source.
    (a) The commenter felt a period longer than 30 days should be 
allowed for comments on the proposed rulemaking. They felt MMS had 
ample time since FOGRMA's enactment to make the proposed amendment, and 
to allow only a 30-day comment period was not justified.
    MMS Response: The MMS received comments from only one source, and 
no one else asked for more time. Thus, MMS believes the 30-day comment 
period was long enough for all interested parties to reply to the 
proposed rule.
    (b) The commenter said the amendments must be prospective from the 
effective date of the final rule.
    MMS Response: Section 305 of FOGRMA states that the provisions of 
this Act shall apply to oil and gas leases issued before, on, or after 
the date of the enactment of this Act, except that in the case of a 
lease issued before such date, no provision of this Act or any rule or 
regulation prescribed under this Act shall alter the express and 
specific provisions of such a lease.
    Since NPSL lease terms do not include time periods for keeping 
records, NPSL's have been subject to FOGRMA's requirements as a matter 
of law since its enactment in 1983. Thus, the proposed changes would 
not be ``retroactive.''
    (c) The commenter said there were a number of leases issued under 
the initial regulations--i.e., 10 CFR 390.030, 390.033, and 390.034, 
now unchanged at 30 CFR 220.030, 220.033, and 220.034--but after 
enactment of FOGRMA section 103, and these leases must be 
grandfathered.
    MMS Response: As discussed above, section 103 of FOGRMA applies to 
all NPSL's; section 305 is clear on this point. The fact that some 
NPSL's were issued while the initial regulations were in effect, but 
after FOGRMA's enactment, has no bearing on the applicability of 
section 305 or the section 103 recordkeeping requirements. Statutory 
requirements always supersede inconsistent regulatory obligations.
    (d) The commenter did not agree that Sec. 220.033, Audits, should 
be removed in favor of Sec. 217.50. The commenter gave no reasons for 
this objection.
    MMS Response: The MMS proposed to delete Sec. 220.033 to clarify 
that NPSL audits will be subject to procedures already described in 30 
CFR part 217. The MMS is preparing a proposed rulemaking to revise 30 
CFR part 217; it will address NPSL audits. There is no need to 
duplicate the NPSL audit requirements in Sec. 220.033.

IV. Summary of Revised Proposed Rule

(a) Need for Rule

    This revised proposed rulemaking amends Sec. 220.030 to clarify 
that the minimum period for maintaining records on NPSL's, like all 
other lease subject to FOGRMA, is 6 years after record creation. In 
some cases lessees create NPSL cost records, but production may not 
start for several more years; thus an MMS audit logically may not start 
for more than 6 years past first record creation. Although the audit 
may not begin before production starts or before long cost accrual 
periods pass, all costs accumulated in the NPSL capital account after 
lease issuance affect the account balance in later periods. Thus, 
unlike leases where production costs do not affect royalties, NPSL 
records need long-term maintenance so MMS can properly verify the 
capital account balance at the start of any period.

(b) MMS Proposal

    To preserve the required records until an audit begins, MMS 
proposes that the current NPSL operator furnish all records on the NPSL 
capital account to the Deputy Associate Director for Audit as they are 
created, on an annual basis. Or, the operator could sign an agreement 
to maintain the records for 6 years after cessation of operations and 
provide them for audit as needed. Then the operator would keep the 
records until notified by MMS that they are no longer needed. The MMS 
already has signed such agreements with a majority of the current NPSL 
operators.
    The proposed rule would require the operator to provide MMS all 
NPSL capital account records the operator now holds that are older than 
6 years--unless the operator agrees, in writing, to maintain them and 
furnish them to MMS on request. Also, Sec. 220.031(c) would be changed 
to clarify NPSL reporting and payment requirements. Lastly, the 
existing Sec. 220.033 would be removed and Sec. 220.034 revised and 
redesignated as a new Sec. 220.033.

(c) Public Comment

    The MMS's policy is to give the public a chance to take part in the 
rulemaking process whenever possible. So, you may send written comments 
or suggestions about this notice to the location shown in the ADDRESSES 
section of this preamble. Comments must be received by the date 
identified in the DATES section of this preamble.

V. Procedural Matters

The Regulatory Flexibility Act

    The rule is needed to conform regulations to existing statutory 
requirements. The Department has determined that this rulemaking will 
not have a significant economic effect on a substantial number of small 
entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

Executive Order 12630

    The Department certifies that the rule does not represent a 
governmental action capable of interference with constitutionally 
protected property rights. Thus, a Takings Implication Assessment need 
not be prepared under Executive Order 12630, ``Government Action and 
Interference with Constitutionally Protected Property Rights.''

Executive Order 12778

    The Department has certified to the Office of Management and Budget 
that these final regulations meet the applicable standards provided in 
sections 2(a) and 2(b)(2) of Executive Order 12778.

Executive Order 12866

    This document has been reviewed under Executive Order 12866 and is 
not a significant regulatory action requiring review by the Office of 
Management and Budget.

Paperwork Reduction Act of 1980

    This rule does not contain information collection requirements 
which require approval by the Office of Management and Budget under 44 
U.S.C. 3501 et seq.

National Environmental Policy Act of 1969

    We have determined that this rulemaking is not a major Federal 
action significantly affecting the quality of the human environment, 
and a detailed statement under section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) is not 
required.

List of Subjects in 30 CFR Part 220

    Coal, Continental shelf, Geothermal energy, Government contracts, 
Mineral royalties, Natural gas, Petroleum, Public lands--mineral 
resources, Reporting and recordkeeping requirements.


    Dated: February 25, 1994.
Bob Armstrong,
Assistant Secretary--Land and Minerals Management.

    For the reasons set out in the preamble, it is proposed to amend 30 
CFR part 220 as follows:

PART 200--ACCOUNTING PROCEDURES FOR DETERMINING NET PROFIT SHARE 
PAYMENT FOR OCS OIL AND GAS LEASES

    1. The authority citation for part 220 continues to read as 
follows:

    Authority: Sec. 205, Pub. L. 95-372, 92 Stat. 643 (43 U.S.C. 
1337).

    2. Paragraph (b) of Sec. 220.030 is revised to read as follows:


Sec. 220.030  Maintenance of records.

* * * * *
    (b) The Federal Oil and Gas Royalty Management Act, 30 U.S.C. 1713, 
requires that NPSL records be maintained for 6 years after they are 
generated unless the Secretary or designee notifies the record holder 
that an audit or investigation involving such records has begun, and 
that they must be kept longer. Because NPSL audits or investigations 
may not start within 6 years of lease record creation, the NPSL 
operator must provide records under either paragraph (b)(1) or (b)(2):
    (1) The current NPSL operator must provide MMS all the NPSL capital 
account records annually through the end of lease operations. The first 
records must be supplied within [60 days following the final rule's 
effective date], or, for new operators, within 60 days of the date they 
become the new operator; all NPSL records created up to that time, 
except any provided earlier, must be included. Following the initial 
submission the operator must submit records each calendar year through 
cessation of operations by January 31 of the year following the end of 
the calendar year. The records must be mailed to the Minerals 
Management Service, Royalty Management Program, Deputy Associate 
Director for Audit, P.O. Box 25165, Denver, Colorado 80225-0165; or
    (2) The current NPSL operator may sign an agreement with MMS to 
maintain records on the NPSL capital account for 6 years after 
cessation of operations and make them available to MMS for audit or 
investigation on request. This signed agreement must be received by MMS 
on or before the date the initial records must be supplied under 
paragraph (b)(1) of this section, and submitted to MMS at the address 
under paragraph (b)(1). Under the agreement, records must be kept until 
an audit or investigation is completed and the Director releases the 
recordholder from maintaining the records. But, if other sources later 
show evidence of possible fraud, collusion, or underpayments, MMS may 
further examine records and transactions of earlier audit periods.
    3. Paragraph (c) of Sec. 220.031 is revised to read as follows:


Sec. 220.031  Reporting and payment requirements.

* * * * *
    (c) Each lessee subject to this part shall submit with the required 
Form MMS-2014, which shall be due at the same time as the report 
required in paragraph (b) of this section, any net profit share payment 
due the United States for the period covered by the report.
* * * * *


220.032  [Amended]

    4. Paragraph (d) of Sec. 220.032 is amended by revising the 
reference to ``Sec. 220.033'' in the first sentence to read ``30 CFR 
part 217.''


Sec. 220.033  [Removed]

    5. Section 220.033 is removed.


Sec. 220.034  [Redesignated as Sec. 220.033]

    6. Section 220.034 is redesignated as Sec. 220.033.
    7. Paragraph (a) of redesignated Sec. 220.033 is revised to read as 
follows:


Sec. 220.033  Redetermination and appeals.

    (a) If an inspection of records or an audit causes the Director to 
find an error in the NPSL capital account or the net profit share 
payment--whether in favor of the Government or the lessee--the Director 
will redetermine the net profit share base, recalculate the net profit 
share payment due the United States, and notify the lessee of the 
recalculation.
* * * * *
[FR Doc. 94-8810 Filed 4-12-94; 8:45 am]
BILLING CODE 4310-MR-M