[Federal Register Volume 59, Number 78 (Friday, April 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9721]


[[Page Unknown]]

[Federal Register: April 22, 1994]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF INTERIOR

Minerals Management Service

 

Royalty-in-Kind (RIK) Program

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Notice of availability of royalty oil to small refiners and 
notice to sell government royalty oil.

-----------------------------------------------------------------------

SUMMARY: The Secretary of the Interior (Secretary) has determined that 
sufficient supplies of crude oil at equitable prices are not available 
in the Gulf of Mexico and Pacific offshore regions of the United States 
to refiners that do not have their own sources of supply for crude oil. 
The Gulf of Mexico region consists of the states of Texas and 
Louisiana. The Pacific offshore region consists of the state of 
California.
    The determination of unavailability is based on the following 
facts:
    (1) Small refiners who purchase crude oil in the Pacific and Gulf 
of Mexico regions have indicated to Minerals Management Service (MMS) 
that they are experiencing difficulties obtaining long-term contracts 
for supplies of crude oil at equitable prices.
    (2) The inability to enter into long-term contracts caused these 
refiners to either cut back refining operations or resort to buying 
crude oil stocks on the open market at prices that make it difficult 
for them to remain competitive in the refined products marketplace.
    Accordingly, the Secretary has elected to take royalty oil in kind 
from certain Federal leases in the Gulf of Mexico and Pacific regions 
and offer such oil for sale to eligible refiners. There will be a 
separate offering for each region at the sale.
    The MMS also gives notice that it will conduct a sale on June 30 
and July 1, 1994, of royalty oil from the Pacific and Gulf of Mexico 
regions under the Government's RIK Program. The sale offerings will 
include approximately 16,000 barrels per day for the Pacific region and 
75,000 barrels per day for the Gulf of Mexico region. This Notice 
provides procedures that applicants must follow to permit MMS to 
determine the applicants' eligibility to participate in the sale and 
general terms under which the contracts will be awarded.

DEADLINE: MMS must receive completed applications by the close of 
business on May 27, 1994. Applications received after May 27, 1994, 
will be rejected. You can request blank applications by calling (303) 
231-3605 or writing to MMS at the address below.

SEND APPLICATIONS TO: Applications may be obtained from the Minerals 
Management Service, Royalty Management Program, Attention: James E. 
Alexander, MS 3132, P.O. Box 5760, Denver, Colorado 80217-5760. 
Completed applications must be returned to the same address or sent by 
overnight mail to Minerals Management Service, Royalty Management 
Program, Attention: James E. Alexander, MS 3132, Building 85, Denver 
Federal Center, Denver, Colorado 80225.

TIME AND PLACE OF SALE: The sale will be held on June 30 and July 1, 
1994, at the Denver Federal Center, Building 85, Auditorium, Lakewood, 
Colorado, and will commence at 8:00 a.m. local time.

FOR FURTHER INFORMATION CONTACT:
Mr. James E. Alexander, Chief, Billing and RIK Section, at the above 
address or call (303) 231-3605.

SUPPLEMENTARY INFORMATION:

Sale Offering

    Approximately 16,000 barrels per day for the Pacific region and 
75,000 barrels per day for the Gulf of Mexico region of royalty oil 
from selected Federal leases will be offered for sale to qualified 
applicants. An information package will be provided to each applicant 
that has filed a timely application with MMS. This package will 
contain: (1) Sale arrangements and procedures, (2) the lease locations 
and approximate quantity and quality of royalty oil to be offered from 
each lease, (3) a statement on the contract award processes and billing 
procedures, and (4) a copy of the Federal royalty oil contract.

Eligibility Requirements

    For purposes of this sale ``eligible refiners'' will be those 
refiners that meet the criteria for small refiners as defined in the 
Small Business Administration regulations 13 CFR 121.601. An eligible 
refiner may not sell royalty oil that it purchases under an RIK 
contract except for purposes of an exchange for other crude oil on a 
volume or equivalent value basis. Crude oil purchased under an RIK 
contract or received in exchange for such royalty oil must be processed 
into refined petroleum products in the eligible refiner's refinery.
    An application will not be accepted from an applicant whose 
refinery is not in operation during the 60-day period before the date 
of the royalty oil sale, unless such applicant self-certifies and 
proves to the satisfaction of MMS that it will begin operations by the 
first month in which oil becomes available under a royalty oil 
contract. MMS will terminate the royalty oil contract if operations do 
not begin by that month. In addition, MMS will disallow multiple 
applications from two or more related refiners. Such refiners will be 
limited to one allotment in the allocation of royalty oil.
    An otherwise eligible refiner will not be permitted to participate 
in the sale if, at the time of the sale, that refiner is in arrears on 
payments owed to MMS.
    Applicants for royalty oil will be required to submit a Letter of 
Intent from a qualified financial institution stating that it would be 
granted an MMS-specified: bond, irrevocable letter of credit, or 
financial institution book-entry certificate of deposit for the royalty 
oil for which it is applying. The Letter of Intent must be submitted 
with the application. Financial institutions that propose to furnish 
bonds must be listed in the Department of the Treasury's Circular 570. 
Those institutions that propose to furnish letters of credit and 
certificates of deposit must be chartered in the United States and must 
be acceptable to MMS.

Application Procedures

    Applications must be filed on Form MMS-4070, ``Application for the 
Purchase of Royalty Oil'' which may be obtained from MMS at the above 
address. The application must be complete and filed timely. Improperly 
completed or late applications will be rejected. The MMS will reject 
any application from a refiner that does not meet eligibility criteria 
established in this Notice.
    Applicants are advised that the Federal Oil and Gas Royalty 
Management Act of 1982, 30 U.S.C. 1701, provides civil and criminal 
penalties for false or inaccurate reporting. Applicants are also 
cautioned to provide adequate detail on each item in the application to 
preclude rejection of the application from further consideration. 
Accordingly, any questions concerning the application should be 
directed to MMS at the above address or phone number.

Sale Procedures

    At the discretion of the Secretary, preference in selection of 
royalty oil to be offered for sale for the Gulf of Mexico region will 
be granted to eligible applicants that (1) operate their refinery(ies) 
in the state(s) of Texas or Louisiana, or (2) prove that they have 
established a history of purchasing crude oil produced from the Gulf of 
Mexico during the past 12 months that they either refined themselves or 
exchanged for oil that they refined. At the discretion of the 
Secretary, preference in selection of royalty oil to be offered for 
sale for the Pacific region will be given to those eligible refiners 
that (1) operate their refinery(ies) in the state of California, or (2) 
prove that they have established a history of purchasing crude oil 
produced from the Pacific offshore during the past 12 months that they 
either refined themselves or exchanged for oil that they refined.
    Refiners who wish to be granted preference eligibility based on 
purchasing Gulf of Mexico or Pacific offshore crude during the previous 
12 months must submit a written request with data to substantiate their 
request. This information must be submitted with the ``Application for 
the Purchase of Royalty Oil'' (Form MMS-4070) and must at a minimum 
include the refinery's exact location and its crude oil acquisition 
history for the last 12 calendar months. Preference eligibility will 
not be granted to otherwise eligible refiners that do not submit a 
written request and provide adequate documentation by May 27, 1994.
    Refiners who are granted preference eligibility in this sale will 
to be granted preference eligibility in subsequent sales held for other 
regions prior to 1997. However, this provision may be waived if a 
refiner operates a refinery in the region specified in the subsequent 
sale other than the refinery used to obtain preference eligibility in 
this sale.
    Two lotteries may be held for each offshore region to determine the 
order of selection of available oil. The first lottery will be limited 
to preference eligible applicants as defined above. After the 
preference eligible applicants have made their selections, a second 
lottery may be held for all other eligible refiners for any remaining 
royalty oil. The volume of Federal royalty oil that will be allocated 
to a refiner cannot exceed 60 percent of the combined refinery capacity 
of that refiner.
    Royalty oil will be sold on a lease basis. Eligible refiners will 
be required to select the entire lease quantity.
    In the event an applicant that has participated in the allocation 
process does not execute its contract, or in the event substantial 
quantities of royalty oil sold in this sale are subsequently turned 
back to MMS, MMS may reallocate such oil. However, only those refiners 
that hold ongoing contracts from this sale will be allowed to 
participate in any reallocation, and then only if they continue to meet 
eligibility requirements as set forth in this Notice and 30 CFR part 
208.
    Additional information on the allocation and reallocation 
procedures will be provided upon request.

Contract Terms

    The sale will be conducted as provided in 30 CFR part 208. The 
resultant royalty oil contracts will be effective November 1, 1994, and 
will have 36-month terms with expiration dates of November 1, 1997.
    Successful applicants who are awarded royalty oil contracts must 
process that royalty oil, or oil obtained in exchange for the royalty 
oil, in their refineries and may not resell it. If a refiner exchanges 
royalty oil for other crude oil to process in its refinery it must 
provide full information to MMS, including two copies of the exchange 
agreement within 30 days of the exchange agreement's effective date.
    Contracts awarded in this sale will contain a provision for the 
payment of administrative fees to MMS. These fees will be assessed to 
recover identifiable costs incurred by MMS for administering the RIK 
Program. The fees will consist of an initial nonrefundable contract fee 
and a monthly variable charge based on the number of leases under 
contract. The contract fee will be $20,000 per contract, payable in two 
$10,000 installments due at the end of the first and second months of 
the contract. The contract fee will be applied against costs incurred 
by MMS to administer the program. The remainder of the costs incurred 
by MMS will recovered through a monthly variable charge per lease. The 
rate per lease will be determined by dividing the remaining balance of 
administrative costs by 12 months divided by the total number of leases 
under contract. The rate could change depending upon whether total 
administrative costs change and/or whether the number of leases from 
which royalty oil is taken in kind changes from one month to another.

Surety Requirements

    An approved surety must be submitted to MMS at the above address by 
August 15, 1994, for the contract to be effective November 1, 1994. All 
sureties must be in a form acceptable to MMS and must include any MMS-
specified requirements to adequately protect the Government's 
interests. The surety must be in an amount equal to the estimated value 
of royalty oil that could be taken by the purchaser in a 99-day period, 
plus related administrative charges. The MMS will increase the surety 
requirement, if necessary. The MMS could decrease the amount of the 
surety, if warranted by significant historical data and requested by 
the refiner, provided that the interests of the Federal Government 
would be protected.
    If the refiner provides a bond or a certificate of deposit as the 
surety, it must be effective for the entire term of the contract and 
reconciliation period. If the refiner furnishes a letter of credit as 
the surety, it must be effective for a 9-month period beginning the 
first day the royalty oil contract is effective, with a clause 
providing for automatic renewal monthly for a new 9-month period. The 
purchaser or its surety company may elect not to renew the letter of 
credit at any monthly anniversary date, but must notify MMS of its 
intent not to renew at least 30 days before the anniversary date. The 
MMS may grant the purchaser 45 days to obtain a new surety.
    If no replacement surety is provided, MMS will terminate the 
contract effective at least six months before the expiration date of 
the letter of credit.
    These actions are taken according to the provisions of the Outer 
Continental Shelf lands Act, 43 U.S.C. 1331 to 1356 as amended, the 
Outer Continental Shelf Lands Act Amendments of 1978, 43 U.S.C. 1331 et 
seq., as amended, and part 208 of title 30 of the Code of Federal 
Regulations (30 CFR part 208).

    Dated: April 15, 1994.
James W. Shaw,
Associate Director for Royalty Management.
[FR Doc. 94-9721 Filed 4-21-94; 8:45 am]
BILLING CODE 4310-MR-M