[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: 94-8817]


[[Page Unknown]]

[Federal Register: April 13, 1994]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 206

 

Allowances for Extraordinary Gas Processing Costs

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Notice of intent to retain extraordinary cost provisions.

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SUMMARY: The Royalty Management Program of the Minerals Management 
Service (MMS) has regulatory provisions for gas processing cost 
allowances that exceed normal industry standards. The MMS had intended 
to develop criteria for the conditions and practices in the gas 
processing industry and for technologies that are unusual, 
extraordinary, or unconventional. However, after careful analysis of 
the comments received on the gas valuation regulations, as well as 
comments concerning whether extraordinary cost allowance provisions 
should be developed for its oil, coal, and geothermal product value 
regulations, MMS has decided to determine on a case-by-case basis 
whether an operation is outside of normal industry operational 
standards.

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

SUPPLEMENTARY INFORMATION:

Background

(a) History of Regulation for Extraordinary Cost Allowances

    The MMS gas valuation regulations at 30 CFR 206.158(d)(2)(i) (1993) 
state that MMS may grant an allowance for extraordinary costs of 
processing if the lessee can demonstrate that the costs are, by 
reference to standard industry conditions and practice, extraordinary, 
unusual, or unconventional. The MMS intended to apply this provision to 
advanced processing technologies or unusual conditions that are outside 
of normal industry operational standards.
    The MMS published a Notice in the Federal Register on November 28, 
1988 (53 FR 47829), entitled ``Allowances for Extraordinary Costs, 
Transportation, and Gas Processing'' and solicited comments on what 
factors would comprise criteria for standard practices and conditions 
and for assessing when a project would qualify for an extraordinary 
cost allowance. The comment period was originally due to close on 
January 27, 1989, but MMS, by Federal Register Notice dated January 25, 
1989 (54 FR 3623), extended the due date for public comments to March 
15, 1989.

(b) Summary of Comments

    In response to the above referenced Notice, MMS received comments 
from the following entities:

 Industry,
 Industry trade groups or associations,
 State representatives,
 An Indian tribe,
 State/Indian associations,
 A royalty-interest group, and
 Members of Congress.

    Many commenters did not provide the data or information requested 
by MMS necessary to define standard conditions and practices. Numerous 
industry, State, and State/Indian association commenters stated that 
the standard conditions and practices for the gas processing industry 
could not be defined since the technology is dynamic. They also stated 
that what constitutes extraordinary costs today may become standard in 
a few years and too many factors influence the economic and operating 
characteristics of a processing plant (for example, the location, size, 
age of a plant, gas stream composition, and environmental constraints).
    One industry commenter commissioned a study on extraordinary gas 
processing costs and the underlying causes for such costs. The MMS 
could not compare the results of this study against other data since 
few commenters actually offered their definition of standard conditions 
for the gas processing industry. Although most industry commenters 
recommended criteria for determining whether a gas processing operation 
is extraordinary, many commenters believed that all projects should be 
granted allowances for extraordinary costs on a case-by-case basis 
rather than by a standard.
    State and Indian respondents generally opposed allowances for 
extraordinary costs, and only a few commented on what standards would 
be used to classify a processing technology as extraordinary. Some 
State commenters reasoned that the extraordinary cost allowances should 
focus on high unanticipated costs above normal standards and not on low 
revenues generated by the plant.
    For oil, coal, and geothermal production, State and Indian 
respondents unanimously opposed provisions for extraordinary cost 
allowances. Many industry commenters supported the extraordinary cost 
allowances for other minerals. However, the information provided was 
not relative for developing extraordinary-cost criteria.
    Following the comment process, MMS evaluated all suggestions and 
submitted a summary to the Royalty Management Advisory Committee (RMAC) 
in June 1989 for its review and recommendations. On June 22, 1989, RMAC 
held a meeting with MMS in Denver, Colorado, to discuss issues and 
comments regarding extraordinary cost allowance provisions. The MMS 
presented its analysis to RMAC; however, RMAC took no action regarding 
this issue.

(c) Review of Applications Submitted to MMS

    In addition to analyzing the comments received as a result of the 
Notices in the Federal Register, MMS reviewed the industry applications 
submitted in the past 6 years requesting extraordinary processing cost 
allowances. This review revealed that MMS has received nine requests 
for extraordinary cost allowances involving five gas processing plants. 
Most of the requests involved gas processing situations where 
processing costs were high due to the removal of hydrogen sulfide 
(H2S). The MMS determined that gas with a high sulfur content 
(sour gas) is present throughout various locations around the 
continental United States as well as offshore. The H2S from many 
of these areas is further refined to elemental sulfur and sold. The MMS 
concluded that production of sour gas is not extraordinary, unusual, or 
unconventional within the United States, either onshore or offshore.

(d) Approval Granted for Extraordinary Processing Allowances

    Since the effective date of the gas valuation regulations (March 1, 
1988), MMS has granted one extraordinary processing cost allowance for 
the LaBarge Project in Wyoming. As the Interior Board of Land Appeals 
(IBLA 86-626) observed, the LaBarge gas stream is atypical in a methane 
recovery project because only about 22 percent of the feed gas stream 
is methane and no liquefiable hydrocarbons are present. The MMS 
recognized the nature of gas from projects such as LaBarge and 
indicated in the preamble to the March 1, 1988, gas valuation 
regulations (53 FR 1240) that extraordinary cost allowances be granted 
for processing such atypical gas streams.
    To contend with the unusual composition of the LaBarge Project feed 
gas stream, the plant design is complex when compared to typical 
methane recovery plants. Due to the atypical composition of the LaBarge 
Project feed gas stream and the complex nature of the plant, the cost 
to process the principal product, methane, is extraordinary compared 
with traditional methane recovery plants.

MMS Intent

    After a review of the comments, as well as the requests for 
extraordinary cost allowances, MMS has decided to retain the current 
extraordinary cost provisions at 30 CFR 206.158(d)(2)(i) and not 
further define the criteria for assessing when a project qualifies for 
an extraordinary cost allowance. This decision will enable lessees to 
continue applying for an allowance on a case-by-case basis for advanced 
processing technologies.

    Dated: April 6, 1994.
James W. Shaw,
Associate Director for Royalty Management.
[FR Doc. 94-8817 Filed 4-12-94; 8:45 am]
BILLING CODE 4310-MR-M