[Federal Register Volume 59, Number 144 (Thursday, July 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18395]


[Federal Register: July 28, 1994]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 230

RIN 1010-AB90


Offsets, Recoupments and Refunds of Excess Payments of Royalties, 
Rentals, Bonuses, or Other Amounts Under Federal Offshore Mineral 
Leases

AGENCY: Minerals Management Service, Interior.

ACTION: Final rule.

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SUMMARY: The Royalty Management Program of the Minerals Management 
Service (MMS) is amending its regulations establishing procedures for 
obtaining refunds and credits of excess payments made under Federal 
mineral leases on the Outer Continental Shelf (OCS) which are subject 
to section 10 of the Outer Continental Shelf Lands Act of 1953 (OCSLA 
section 10). The rules also describe the circumstances in which a 
person may recover certain payments that are not subject to section 
10's requirements.

EFFECTIVE DATE: August 29, 1994.

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

SUPPLEMENTARY INFORMATION: The principal authors of this proposed rule 
are Paul A. Knueven, Technical Compliance Branch, Division of 
Verification, Royalty Management Program, MMS, Lakewood, Colorado, and 
Peter J. Schaumberg, Office of the Solicitor, Washington, DC.

I. Background

    Excess payments of royalties, rentals, bonuses, or other amounts 
made under OCS mineral leases result from a variety of reasons 
(discussed in detail in the preamble to the Notice of Proposed 
Rulemaking (NOPR) at 58 FR 53470-53471, October 15, 1993). Section 
10(a) requires that a request for refund or credit of an excess payment 
made in connection with any lease issued under that Act be filed with 
the Secretary of the Interior (Secretary) within 2 years after making 
the payment. Section 10(b) requires that all refunds or credits which 
the Secretary proposes to approve be reported to Congress, and that the 
Secretary wait at least 30 days while Congress is in continuous session 
before making a refund payment or authorizing a credit. Any repayment 
made pursuant to the Act must be without interest.
    The purpose of these regulations is to codify the Department's 
interpretation and application of section 10, incorporating the 
policies and decisions from the various legal opinions, administrative 
decisions, and administrative practice which are discussed in detail in 
the preamble to the NOPR.

II. Comments on Proposed Rule

    The proposed rulemaking (58 FR 53470, October 15, 1993) provided 
for a 60-day public comment period, which ended December 14, 1993. 
Eleven commenters submitted written comments during this period. The 
principal comments are addressed in this section.

General Comments

    (a) Several commenters requested that MMS revisit the reasoning and 
legal arguments contained in the 1981 M-opinion Refunds and Credits 
Under the Outer Continental Shelf Lands Act M-36942, 88 I.D. 1091 
(December 15, 1981) (``1981 M-Opinion''). One commenter proposed that 
MMS not permit offsetting as a means to recover an overpayment for one 
production month to the extent underpayments exist on the same lease 
for another month. Another commenter requested MMS to reconsider the 
operation of the 2-year period for requesting refund or credit, 
suggesting it could start later than the date of payment in specific 
circumstances. This same commenter also suggested that section 10 
should be construed to apply only to refunds, with credit adjustments 
not subject to section 10's limitation.
    Response: MMS disagrees with these comments. The 1981 M-Opinion, 
and a second M-Opinion, Applicability of section 10 of the Outer 
Continental Shelf Lands Act, M-36977 (Jan. 15, 1993) (``1993 M-
Opinion''), reflect the Department's interpretation of section 10's 
requirements. The Department is not convinced that its legal view is 
wrong. Therefore, the purpose of the rulemaking is to codify the 
Department's existing interpretation and application of section 10.
    (b) A commenter suggested that the regulations should require the 
Government to act on a refund request within 90 days. Absent such 
action the lessee should automatically be authorized to process a 
credit adjustment.
    Response: Section 10 is specific in the procedures that must be 
followed for approval of a refund or credit. Unless those preconditions 
are satisfied, MMS does not have the legal authority to allow a refund 
or credit to be processed. The MMS has recognized the obvious 
importance of approving refund requests quickly by changing procedures 
to expedite the process. For example, the purpose of approval subject 
to audit at Sec. 230.455 is to eliminate the audit time delay required 
for recoupment authorizations. Such audits will still be required for 
certain cash refunds.
    (c) Several commenters stated that MMS should make any new rules 
prospective, with an effective date on or after the date of 
publication.
    Response: With one exception, the rulemaking codifies the 
Department's current interpretation and application of section 10. That 
exception is Sec. 230.458(b), which imposes an assessment of $500 for 
each unauthorized credit adjustment. This assessment will apply only to 
transactions filed after the effective date of the regulations.

Specific Comments

    (a) Most of the commenters objected to the inclusion of the 
definition of audit in Sec. 230.452. These comments questioned the need 
to define a term that is used so little in the body of the regulations. 
One commenter pointed out that the word ``audit'' appears only three 
times in the rule (except in a section heading), and then only in 
conjunction with the word ``review.'' Accordingly, it is suggested that 
the definition adds nothing to the comprehension of the regulations.
    Response: MMS agrees with the comments and the definition of audit 
has been removed from the final regulations.
    (b) Several commenters objected to the provisions of 
Sec. 230.453(a)(3) which require MMS notification to the lessee that 
its request for refund or credit is authorized before a recoupment can 
be filed. Once MMS reviews the request, transmits it to Congress and 
the Congressional review period is satisfied, these commenters argue 
that they should be permitted to recoup. These commenters claim MMS is 
exceeding its authority by conditioning the lessee's right to a timely 
filed legitimate credit or refund on the receipt of a notice from the 
MMS.
    Response: MMS disagrees with these comments. First, it is the 
Government's responsibility to assure that the technical requirements 
of section 10, including the 30-day congressional review period, have 
been satisfied before a recoupment is effected. Second, the requirement 
for MMS to give final approval allows for proper control. After MMS 
approves a recoupment, then it will know that when a credit adjustment 
appears on a Form MMS-2014, that credit adjustment is authorized. 
Further, there may be circumstances where a request for refund or 
credit is approved, but MMS may not allow the recoupment to be 
effected. MMS recently proposed rules related to administrative offset 
and to credit adjustments generally (58 FR 43582, August 17, 1993). 
There may be circumstances where a lessee owes money to MMS and MMS 
would want to retain the otherwise approved request for refund or 
credit as an offset. Thus, recoupments will not be permitted until MMS 
provides approval.
    (c) Several commenters objected to the requirements of 
Sec. 230.453(b)(5) that lessees certify the accuracy of the data 
submitted in the refund request. One commenter noted that there is no 
necessity for the certification since the provisions of the Federal Oil 
and Gas Royalty Management Act of 1982 (FOGRMA) already contain 
adequate protection of the Federal lessor. According to this commenter, 
the certification adds nothing but additional paperwork to the process.
    Response: MMS disagrees with these comments. It has been a long 
standing practice of MMS to require the certification as a condition of 
processing the refund. This is not a new requirement. Most lessees have 
long made the certification part of their refund request form letter, 
so no additional burden will be imposed by this requirement.
    (d) The provisions of Sec. 230.453(c) specifically state that the 
submission of a credit adjustment on a Report of Sales and Royalty 
Remittance, Form MMS-2014, will not constitute a refund request, or a 
partially completed refund request as discussed in Sec. 230.453(c). 
Additionally, Sec. 230.459 does not include the filing of a Form MMS-
2014 as a reason the 2-year period of section 10 will be tolled. MMS 
requested comment on this issue.
    Eight responders offered comments on the status of a Form MMS-2014 
as a section 10 refund request and if such filing should toll the 2-
year limit. Four commenters stated that the Form MMS-2014 should toll 
the 2-year period since it includes nearly all elements of a properly 
completed refund request. Another commenter proposed that the Form MMS-
2014 should serve as a conditional refund request. If during later 
audit it was judged valid, MMS should process the request for 
congressional review. If invalid, the lessee would be required to repay 
the amount of the credit with interest and apply for a refund. When 
more than 2 years had passed since making payment, the lessee would be 
time-barred from recovering the funds. It was urged that these 
procedures would serve as an incentive for lessees to only file credits 
in which they had a high level of confidence in their validity.
    While noting that tolling the 2-year period by filing a Form MMS-
2014 would not benefit them, the sixth commenter observed that it would 
encourage lessees to file unauthorized recoupments on questionable 
properties ``just in case.''
    The last two commenters noted that most of the unauthorized 
recoupments filed in the past resulted from MMS' failure to issue 
formal guidance on the application of section 10. They recognized that 
this rulemaking resolves that problem, and they see no value to lessees 
in the future to toll the 2-year period by filing an unauthorized 
credit adjustment. With the publication of these rules, the commenters 
stated that lessees will know what adjustments are and are not subject 
to section 10.
    Response: MMS disagrees with the first four commenters. While Form 
MMS-2014 filings contain most of the information required for a refund 
request, they do not include the information necessary to constitute a 
proper request for refund or credit. Moreover, these credit adjustments 
do not request recoupments, instead they effect recoupments and thereby 
reduce Government receipts. Section 10 requires MMS and congressional 
review before the funds are recovered. The conditional refund request 
suggestion also would not meet this requirement.
    MMS agrees with the last three commenters. Accepting Form MMS-2014 
filing as tolling the 2-year period could increase the submission of 
unauthorized credit adjustments and increase review costs. 
Additionally, there is no logical reason to toll the section 10 2-year 
period by filing a Form MMS-2014 credit adjustment after the rules have 
been published.
    (e) One commenter questioned the limited refund amendment rights 
provided by Sec. 230.453(e)(1). This commenter stated that inadvertent 
errors of notation related to the lease or any particular month should 
be amendable.
    Response: MMS disagrees with this commenter. Permitting exceptions 
to the rule in an effort to be fair usually has the opposite effect. In 
this case, MMS would be required to judge an ``inadvertent error'' 
exactly the same in every case, an impossible task. To assure clear 
understanding and equal application to all lessees, the rule provides 
for no exceptions and will be strictly applied.
    (f) Several commenters questioned the approval of refund requests 
subject to later audit contained in Sec. 230.455.
    Reponse: The purpose of this section is to eliminate the time delay 
required to complete an audit prior to the lessee's recovery of the 
overpayment (see discussion of general comment (b) above). Without an 
analysis of the lessee's records, MMS cannot determine the validity of 
the refund request. Accepting refund requests as valid subject to audit 
provides the lessees more timely use of funds, and provides for MMS' 
recovery in the event the requests were improper.
    (g) One commenter stated that MMS should clearly indicate that the 
2-year requirement of section 10 does not apply to offsets described at 
Sec. 230.456.
    Response: Since section 10 does not apply to offsets, the 2-year 
requirement of section 10 does not apply.
    (h) One commenter stated that MMS should clearly define the word 
``intentional'' within the meaning of Sec. 230.456, to protect lessees. 
This commenter expressed concern that if this determination were based 
upon the subjective judgment of the auditor, offsets would almost 
certainly be applied inequitably.
    Response: MMS disagrees with this comment. To develop a finding of 
intentional underpayment for the purpose of Sec. 230.456, an auditor 
would have to demonstrate that the lessee's policy is to recover 
overpayments by filing subsequent underpayments. This finding would not 
be a subjective audit determination.
    (i) Three commenters objected to the provisions of Sec. 230.458(b) 
which impose an assessment of $500 for each unauthorized credit 
adjustment. Because MMS often discovers the unauthorized recoupment 
more than 2 years after payment, one commenter stated that the recovery 
of the improperly taken credit with interest already exceeds the actual 
amounts required by lease terms. An additional penalty appears harsh to 
this commenter. Another commenter argued that if it costs MMS $500 to 
research and approve refunds, then all amounts less than that should be 
allowed without following Sec. 230.453 procedures. The third commenter 
stated that the amount is arbitrary and excessive because unauthorized 
recoupments are generally unintentional and are incurred when 
attempting to make internal accounting adjustments. Since proposed Form 
MMS-2014 line entries must be submitted with a refund request, it is 
often necessary and more expedient to process accounting corrections, 
allow the MMS-2014 credit lines to be generated, and then eliminate 
those credit entries prior to the normal monthly royalty payment. If 
the adjustments are numerous or complex, a credit entry may fail to be 
pulled, resulting in an inadvertent unauthorized adjustment. This 
commenter further argued that the time delays in the process, both 
before the overpayment is discovered and after the refund request is 
filed and authorization issued, result in the Government receiving the 
time value of the funds at the expense of the lessees.
    Response: MMS disagrees with these comments. First, the review of 
unauthorized recoupments within MMS is now an automated process. Once 
these regulations are effective MMS will begin reviewing for such 
recoupments on a current basis. The MMS plans to discover unauthorized 
recoupments in time for the lessee to file a refund request before the 
2-year period after payment has expired. Without the penalty, lessees 
will incur no material costs as a consequence of filing an unauthorized 
recoupment. In such an environment, some lessees may decide not to 
establish internal controls to prevent unauthorized recoupments, but 
rely instead on the Government. This reliance would shift the costs 
from the lessees and provide protection from the effects of missing the 
2-year limit. The MMS would not be properly enforcing section 10 if it 
allowed such a result. Moreover, even with the penalty, many lessees 
will incur less costs than with the less timely Government review that 
has occurred in the past.
    The penalty is not established to recover the costs of refund 
request processing. Rather, MMS is recovering the costs of review 
recoupments and comparing them with approved refunds. Since MMS cannot 
determine the effect publishing these rules will have on the rate of 
unauthorized recoupments, the cost per incident is not quantifiable.
    The concerns of the third commenter related to production and 
filing of proposed Forms MMS-2014 being eliminated when the regulations 
are effective, since the forms are not required by Sec. 230.453.
    (j) One commenter noted that the purpose of Sec. 230.459(a)(3) as 
explained in the section-by-section analysis would be better served by 
changing the date of tolling from the date of ``application'' for 
unitization to the effective date of the unit. The commenter also noted 
that unit revisions should be added as covered by this section.
    Response: MMS disagrees that the date of tolling should be changed 
to the effective date of the unit. As noted in the discussion of this 
commenter, the effective date is subject to the judgment of the 
Regional Supervisor. In contrast, the date of application is a fixed 
event. Unit revisions are included in the operation of 
Sec. 230.459(a)(3), as discussed in the proposed rule preamble.
    (k) One commenter expressed concern that it may be impossible to 
comply with the requirements of Sec. 230.459(a)(4). This section 
provides that to toll the 2-year period, lessees must specifically 
identify an action or proceeding that could result in payments becoming 
excess, the lease(s) and sales months affected, and an estimated of the 
amount that could be subject to refund or credit.
    Response: When a person becomes aware of a pending administrative 
or judicial action, or other action that may affect its royalty 
obligation, prudence would require a complete analysis. While MMS 
realizes the exact impact may not be determinable, a list of all leases 
and sales months within those lease accounts which could possibly be 
affected can be compiled. Paragraph (a)(4) of Sec. 230.459 requires 
only an estimated dollar impact. The 2-year period for leases and/or 
sales months not included in the tolling request will not be tolled. 
The purpose of this strict construction is to minimize subjective 
judgments in applying section 10 requirements.
    (l) Two commenters objected to the provisions of Sec. 230.460 which 
repeal the special treatment of advanced rental payments when leases 
are later subject to suspensions.
    Response: The IBLA rulings discussed with the preamble (58 FR 
53474) were issued prior to any regulations governing section 10. These 
cases concluded that under the unique fact situations presented, excess 
rental payments which otherwise were not subject to refund or credit 
under section 10 could be credited against future rentals. Upon review, 
MMS still concludes that IBLA's conclusion is not consistent with the 
Department's interpretation of section 10. Thus, after this rule is 
effective, the IBLA decision will not be followed. However, these cases 
are exactly the type of situation envisioned for tolling the 2-year 
limit by filing a request pursuant to Sec. 230.459(a)(4).
    (m) One commenter questioned the requirement of Sec. 230.461(d) 
which disallows the recoupment of a payment amount that exceeds the 
reported amount. This commenter stated that if the overpayment is not 
subject to section 10, then the payor should not be required to file a 
refund request.
    Response: In those cases to which Sec. 230.461(d) applies, the 
payor may recover its funds without a section 10 refund request. A 
payment amount exceeding the total reported for more than one lease is 
not a payment ``in connection with any lease.'' (See the detailed 
discussion in the 1993 M-Opinion). Such an amount cannot be recouped by 
reporting a credit entry for a specific lease since the funds were not 
applied to any lease. After the Form MMS-2014 lines are processed, 
amounts in excess of the total reported remain as an unapplied credit 
in the payor's account. The MMS accountants would then contact the 
payor for direction as to how the funds should be applied. In most 
cases, the payor could reduce the next payment by an equal amount to 
balance its payor account. In other situations, the funds could be 
applied to an underpaid invoice or other Forms MMS-2014. If these 
situations did not apply, the payor could request a non-section 10 cash 
refund as outlined in the MMS ``Oil and Gas Payor Handbook'' (1986), 
Volume II, page 4-25.
    (n) One commenter stated that the provisions of Sec. 230.461(g), 
which would not require a section 10 refund request after a successful 
challenge of an MMS order to pay, would be more useful if MMS specifies 
how such funds would be recovered.
    Response: The overpayments may be recovered as explained in the 
response to comment (m).
    (o) Seven commenters submitted responses to the proposed de minimis 
exception of Sec. 230.461(h). One commenter stated that MMS does not 
have authority under the interpretations contained in the 1981 M-
Opinion to establish such a provision. Another commenter stated that 
the amount should be set at \1/2\ percent of the normal monthly payment 
to be meaningful. No support was received for the alternative of 
limiting section 10 refund requests to $100 or more.
    The other five commenters supported the de minimis idea, but 
suggested the limit be increased from $25 to $100 per payor code per 
month.
    Response: After considering the comments, MMS has concluded that 
instead of a fixed amount for the de minimis exception, MMS will 
periodically review the matter and establish a de minimis amount. 
Accordingly, the final regulations provide that a limit will be 
published periodically in the Federal Register. This limit will be 
based on the cost incurred to process a section 10 refund request. 
Based on the cost experience for fiscal year 1993, the initial limit is 
established at $250. Under these procedures, payors will be able to 
file credits for OCS leases totalling less than $250 for each reporting 
month, provided the payments subject to adjustment were made within 2 
years of the date of the adjustments. Thus, even if a payor used this 
exception to avoid section 10's reporting requirements, the most it 
could recover for any lease is $6,000 (24 months  x  $250).

III. Summary of Final Rule

    The MMS is adding new regulations at 30 CFR 230.451 through 
230.461, which codify MMS' policy regarding the requirements of OCSLA 
section 10, 43 U.S.C. 1339. Except for the changes to the rules 
discussed above in response to the comments, MMS is adopting the rule 
as proposed with some minor working changes. A detailed discussion of 
each section is included in the preamble to the proposed rules, 58 FR 
53470, explaining the purpose and effect of each section.

Procedural Matters

The Regulatory Flexibility Act

    The Department certifies that this rule 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.). There are not many 
small entities involved in offshore oil and gas operations.

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.''

Excutive Order 12778

    The Department has certified to the Office of Management and Budget 
that the rule meets the applicable standards provided in sections 2(a) 
and 2(b)(2) of Executive Oder 12778.

Executive Order 12866

    This document has been reviewed under Executive Order 12866 and is 
not a significant regulatory action.

Paperwork Reduction Act of 1980

    This rule does contain information collection requirements which 
have been approved by the Office of Management and Budget as required 
by 44 U.S.C. 3501 et seq., and assigned approval number 1010-0094.

National Environment Policy Act of 1969

    It is hereby determined that this rulemaking does not constitute a 
major Federal action significantly affecting the quality of the human 
environment and a detailed statement pursuant to paragraph (2)(C) of 
section 102 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 230

    Coal, Continental shelf, Electronic Funds transfers, Geothermal 
energy, Government contracts, Indian lands, Mineral royalties, Natural 
gas, Penalties, Petroleum, Public land--mineral resources, Reporting 
and recordkeeping requirements.

    Dated: June 24, 1994.
Bob Armstrong,
Assistant Secretary--Land and Minerals Management.

    For the reasons set out in the preamble, 30 CFR part 230 is amended 
as follows:

PART 230--ROYALTY REFUNDS

    1. The authority citation for part 230 is revised to read as 
follows:

    Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq.; 25 
U.S.C. 396a et seq.; 25 U.S.C. 2101 et seq.; 30 U.S.C. 181 et seq.; 
30 U.S.C. 351 et seq.; 30 U.S.C. 1001 et seq.; 30 U.S.C. 1701 et 
seq.; 31 U.S.C. 3716; 31 U.S.C. 3720A; 31 U.S.C. 9701; 43 U.S.C. 
1301 et seq.; 43 U.S.C. 1331 et seq.; and 43 U.S.C. 1801 et seq.

    2. A new subpart J is added under part 230 to read as follows:
Subpart J--Refunds and Recoupments of Overpayments Under Federal Leases 
on the Outer Continental Shelf; Impementation of Section 10 of the 
Outer Continental Shelf Lands Act
Sec.
230.451  Scope.
230.452  Definitions.
230.453  Request for refund or credit.
230.454  Interest on excess payments.
230.455  Authorization of refund or credit and subsequent audit.
230.456  Offsets of overpayment and underpayments on the lease (or 
unit) by the same person.
230.457  Offsets among different persons who reported and paid 
royalties on a lease for the same prior sales month.
450.458  Unauthorized credit adjustments.
230.549  Stopping or tolling of the section 10(a) 2-year period.
230.460  Lease suspension.
230.461  Transactions not subject to section 10.

Subpart J--Refunds and Recoupments of Overpayments Under Federal 
Leases on the Outer Continental Shelf; Implementation of Section 10 
of the Outer Continental Shelf Lands Act


Sec. 230.451  Scope.

    This subpart establishes the procedures that lessees and other 
persons who make royalty and other payments on Federal oil and gas 
leases on the Outer Continental Shelf (OCS) must follow to recover 
certain excess payments made in connection with their leases in 
accordance with section 10 of the Outer Continental Shelf Lands Act 
(section 10), 43 U.S.C. 1339. The requirements of this subpart apply to 
both requests for refund from the Treasury of excess payments and 
requests to recover excess payments by recouping the amount through a 
credit adjustment. This subpart applies only to Federal leases on the 
OCS.


Sec. 230.452  Definitions.

    Terms used in this subpart shall have the same meaning as in 30 
U.S.C. 1702. In addition, the following definitions apply to this 
subpart:
    Credit or crediting means reduction of a current or future royalty 
or other payment made in connection with a lease as a result of 
reporting a credit adjustment.
    Credit Adjustment means any adjustment reported on a Report of 
Sales and Royalty Remittance (Form MMS-2014) or any other royalty 
report form which reduces any royalty or other payment made in 
connection with a lease which was reported and paid in any previous 
period.
    Offset means to net or cancel previous overpayments against 
previous underpayments on the same OCS lease or across lease boundaries 
if all the individual leases are part of an approved unit agreement.
    Overpayment means any payment made in excess of the amount that the 
lessee was lawfully required to pay.
    Payment means money MMS receives in satisfaction of a lessee's 
royalty, rental, bonus, net profit share, or late payment interest 
obligation as established by statute, regulation, or the terms of a 
lease.
    Recoup or recoupment means to recover a previous overpayment 
through a credit against a current or future royalty or other payment 
or liability under an OCS lease. A recoupment occurs whenever a payor 
reports a credit adjustment on a Form MMS-2014 or other royalty report 
form resulting in a net negative dollar value for the transaction and 
the credit is taken against the royalty or other payment or liability 
shown in the balance of the report.
    Refund means a repayment by the United States Treasury to a person 
of any overpayment.
    Unit means an area of 2 or more leases subject to an agreement for 
the consolidated development and recovery of oil and gas contained on 
the leases which are part of the agreement approved by MMS.


Sec. 230.453  Request for refund or credit.

    (a) Except as otherwise provided in this subpart, no person may 
recover an excess payment it has made in connection with an OCS lease 
unless:
    (1) That person has made a request for refund or credit in 
accordance with the provisions of this subpart;
    (2) MMS has transmitted a report on the request for refund or 
credit to the President of the Senate and the Speaker of the House of 
Representatives and 30 days have expired since the submission in 
accordance with section 10(b), 43 U.S.C. 1339(b); and
    (3) MMS notifies the person that its request for refund or credit 
is authorized and that the person may receive its refund for, or may 
report a credit adjustment to recoup, the excess payment.
    (b) A request for refund or credit must:
    (1) Be in writing;
    (2) Provide the person's MMS-established payor code;
    (3) Identify the leases and sales months with respect to which the 
excess payments occurred;
    (4) Identify the amount of the excess payment or, with specificity, 
describe a class of payments that are, or as a result of an 
administrative or judicial decision or other identified contingency, 
may become, excess payments;
    (5) Provide the reasons why a refund or credit is due;
    (6) Include a certification that, to the best of the person's 
knowledge or belief, the information provided in response to paragraphs 
(b)(2) through (b)(5) of this section is accurate and complete.
    (c) If MMS determines that a request for refund or credit is 
incomplete, the person who submitted the request will have 30 days, or 
such time as MMS may specify, following notice from MMS, to supplement 
the request for refund or credit.
    (d) A credit adjustment reported on a Form MMS-2014 does not 
constitute a request for refund or credit for purposes of this section, 
and does not constitute an incomplete request for refund or credit for 
purposes of paragraph (c) of this section.
    (e) A person who has filed a request for refund or credit pursuant 
to this section may amend that request to add an additional amount if:
    (1) The additional amount is for the same lease and sales month; 
and
    (2) The reason for the excess payment for the additional amount is 
the same as for the originally requested amount.
    (f) Except as otherwise provided in this subpart, no request for a 
refund or credit will be approved unless the request is received at MMS 
at the address provided below within 2 years of the date that MMS 
received the excess payment.
    (1) The request for refund or credit must be received at the 
following address:
    (i) By mail: Minerals Management Service, Section 10 Refund 
Requests, P.O. Box 173702, Denver, CO 80217-3702.
    (ii) By express delivery or courier: Minerals Management Service, 
Section 10 Refund Requests, Building 85, Denver Federal Center, Room A-
212, Denver, CO 80225.
    (2) If the last day of the 2-year period from the date MMS received 
the excess payment falls on a Saturday, Sunday, holiday or any other 
day that MMS is not open for business at the address specified in 
paragraph (f)(1) of this section, then the last day of the 2-year 
period will be the next regular business day. Requests received at the 
specified MMS address after 4 p.m. Mountain Time are considered 
received the following business day.


Sec. 230.454  Interest on excess payments.

    No person is entitled to interest on any excess payment made in 
connection with a lease that is refunded or recouped pursuant to this 
subpart.


Sec. 230.455  Authorization of refund or credit and subsequent audit.

    MMS may grant a refund or authorize a credit based upon 
satisfactory evidence that the payment for which a refund or credit is 
requested was made, and upon a determination that the payment was 
excess. An approved request for refund or credit may be subject to 
later review or audit by MMS. If, based upon later review or audit, MMS 
determines that the refund or credit should not have been granted or 
authorized, the person who requested the refund or credit must repay 
the amount refunded or recouped plus interest determined pursuant to 30 
U.S.C. 1721(a) and 30 CFR 218.150 from the date the refund was made or 
the recoupment taken until the date it is repaid.


Sec. 230.456  Offsets of overpayments and underpayments on the same 
lease (or unit) by the same person.

    If a person makes an overpayment on any OCS lease or unit in a 
prior month, it may offset that overpayment against an underpayment 
that same person made in any prior month on that same lease or unit for 
the same or a different product without submitting a request for refund 
or credit. This offset is permitted only if the underpayment was not 
created as a result of a credit adjustment to recoup the amount of the 
overpayment or was not otherwise created intentionally to provide an 
underpayment against which to offset the overpayment. This offset also 
is subject to any limitations imposed by other applicable law or 
regulations.


Sec. 230.457  Offsets among different persons who reported and paid 
royalties on a lease for the same prior sales month.

    (a) This section applies to any reallocation of production for a 
prior sales month among different persons who reported and paid royalty 
for that month on a lease or unit, except for reallocations of 
production that result from the approval or amendment of a unit 
agreement subject to Sec. 230.461(b).
    (b) In the event of a reallocation of production as described in 
paragraph (a) of this section, the respective persons who reported and 
paid royalty may reconcile any resulting differences in royalty payment 
obligations between themselves without submitting revised royalty 
reports or requests for refund or credit to MMS under this subpart, 
except that:
    (1) Any person who paid any amount which remains as a net 
overpayment after such reconciliation must file a request for refund or 
credit in accordance with the requirements of this subpart to recover 
the excess payment;
    (2) Any person whose royalty obligation remains underpaid after 
such reconciliation must report the additional royalties due for the 
prior sales month on a Form MMS-2014 and pay interest on the 
underpayment from the last day of the month following the sales month 
until the date the additional royalties are paid; and
    (3) All persons involved in such reconciliation must retain all 
documents pertaining to the reallocation of production, calculation of 
royalties due, and the subsequent reconciliation among the persons 
involved together with other records pertaining to production from that 
lease during the prior sales month and the royalty due and paid 
thereon, and make such documents available for review and audit in the 
same manner as other records pertaining to the lease.
    (c) If persons who reported and paid royalty do not reconcile 
between themselves any differences in royalty payment obligations 
arising as a result of a reallocation as provided in paragraph (b) of 
this section, each person who pays royalties for the lease must report 
and pay any additional royalties due, or file a request for refund or 
credit in accordance with the requirements of this subpart to recover 
the excess payment, as applicable. Any person who reports additional 
royalties due for the prior sales month must pay interest pursuant to 
30 CFR 218.54 on the underpayment from the last day of the month 
following the sales month until the date the additional royalties are 
paid.


Sec. 230.458  Unauthorized credit adjustments.

    (a) If a person reports a credit adjustment on Form MMS-2014 that 
results in a credit before MMS approves the recoupment pursuant to 
Sec. 230.455, and if the credit adjustment does not qualify as one of 
the transactions not subject to section 10 as provided in Sec. 230.461, 
then that person has taken an unauthorized credit adjustment.
    (1) If the unauthorized credit adjustment recouped a payment that 
MMS received more than 2 years before the date MMS received the Form 
MMS-2014 which includes the unauthorized credit adjustment, the person 
must repay the amount recouped plus late payment interest determined 
pursuant to 30 U.S.C. 1721(a) and 30 CFR 218.150 from the date the 
unauthorized recoupment was taken until the date it is repaid. Unless 
the person filed a request for refund or credit pursuant to 
Sec. 230.453 within 2 years of the making of the excess payment for 
which the unauthorized credit adjustment was reported, the excess 
payment is not subject to refund or recoupment.
    (2) If the unauthorized credit adjustment recouped a payment that 
MMS received less than 2 years before the date MMS received the Form 
MMS-2014 with the unauthorized credit adjustment, the person must repay 
the amount recouped plus late payment interest determined pursuant to 
30 U.S.C. 1721(a) and 30 CFR 218.150 from the date the unauthorized 
recoupment was taken until the date it is repaid. The report of the 
unauthorized credit adjustment on the Form MMS-2014 does not constitute 
a request for refund or credit that tolls the 2-year period in section 
10(a), 43 U.S.C. 1339(a). The person may file a request for refund or 
credit pursuant to section 230.453 for the payment for which the 
unauthorized credit adjustment was reported. MMS will review the 
request pursuant to the requirements of this subpart only if the 
request for refund or credit is received within 2 years of the making 
of the original payment for which the unauthorized credit adjustment 
was reported.
    (b) A person who reports an unauthorized credit adjustment to MMS 
on a Form MMS-2014 will be assessed $500 for each unauthorized credit 
adjustment reported.


Sec. 230.459  Stopping or tolling of the section 10(a) 2-year period.

    (a) The period of 2 years from the making of the excess payment, 
within which a request for refund or credit must be filed under section 
10(a), 43 U.S.C. 1339(a), will be:
    (1) Tolled by MMS's receipt of a substantially complete request for 
refund or credit pursuant to Sec. 230.453; or
    (2) Tolled by a general tolling notice issued by MMS and published 
in the Federal Register in circumstances where MMS believes a 
substantial number of requests for refund or credit could result as a 
consequence of a pending administrative or judicial proceeding or other 
action. The running of the 2-year period will be tolled for the time 
period specified in the notice; or
    (3) Stopped by an application for unitization of OCS leases with 
respect to any excess payment that may result from the reallocation of 
production among leases after the unit or revision is approved; or
    (4) Tolled by a notice filed by a person at the address stated in 
Sec. 230.453(f) stating that a specifically identified action or 
proceeding may result in payments made on an OCS lease becoming excess 
payments. The notice must include:
    (i) A list of affected leases and sales months;
    (ii) The specific action or proceeding that could result in 
payments becoming excess;
    (iii) An estimate of the amount that could be subject to a request 
for refund or credit; and
    (iv) The person's MMS-established payor code.
    (b) A request for refund or credit that is filed timely by a person 
who made an excess payment on an OCS lease does not stop or toll the 
running of the 2-year period with respect to any excess payment made by 
any other person on that lease.


Sec. 230.460  Lease suspension.

    If MMS suspends an OCS lease pursuant to 30 CFR 250.10(b)(6), a 
person who has made excess rental payments for the period of suspension 
may request a refund or credit of any excess payments pursuant to this 
subpart. If the request for refund or credit is filed more than 2 years 
after MMS received the excess rentals, the excess payment will not be 
refunded, recouped, or credited against future rentals due on the same 
lease.


Sec. 230.461  Transactions not subject to section 10.

    (a) A request for refund of, or any other action to recover, excess 
payments made by a refiner/purchaser under a royalty-in-kind contract 
for royalty oil produced from an OCS lease is not subject to section 
10.
    (b) If MMS approves a unit agreement on the OCS, or a revision to a 
unit, a person may file amended Forms MMS-2014 within the time period 
MMS prescribes, reallocating production among its affected leases. A 
person must file a request for refund or credit pursuant to this 
subpart only if, and to the extent that, there is a net reduction in 
the royalty that person previously paid for the leases committed to the 
unit as a result of the amendments.
    (c) A person may amend Form MMS-2014 to adjust volume and royalty 
reports among OCS leases within a unit within the same sales month 
without filing a request for refund or credit pursuant to this subpart, 
except that a request for refund or credit must be filed to the extent 
that there is a net reduction in the royalty previously paid for the 
leases committed to the unit as a result of the amendments.
    (d) A person who pays more money than the total royalty due as 
reported on the Form MMS-2014 accompanying the payment, where all 
amounts reported on the Form MMS-2014 are correct, may submit a request 
for refund of the overpaid amounts. The request for refund is not 
subject to section 10's requirements unless the Form MMS-2014 includes 
reports for only one OCS lease. Any overpayment subject to this 
paragraph may not be recovered by recoupment.
    (e) A person may reduce an estimate balance, established for any 
lease product pursuant to MMS instructions, by submitting a credit 
adjustment on a Form MMS-2014, or a request for refund, for all or part 
of the established estimate balance. A credit adjustment or request for 
refund to recover all or part of an estimate balance authorized by this 
paragraph is not subject to the requirements of section 10.
    (f) (1) If adjustment of an estimated oil transportation allowance 
or estimated gas transportation allowance pursuant to 30 CFR 206.105(e) 
and 206.157(e), respectively, results in an overpayment for any sales 
month because the estimated transportation costs were less than the 
actual costs, a person may submit a credit adjustment on a Form MMS-
2014 to recoup, or may request a refund of, the overpayment. The credit 
adjustment or request for refund authorized by this paragraph is not 
subject to the requirements of section 10, and MMS approval is not 
required before reporting the credit adjustment.
    (2) If adjustment of an estimated gas processing allowance pursuant 
to 30 CFR 206.159(e) results in an overpayment for any sales month 
because the estimated processing costs were less than the actual costs, 
a person may submit a credit adjustment on a Form MMS-2014 to recoup, 
or may request a refund of, the overpayment. The credit adjustment or 
request for refund authorized by this paragraph is not subject to the 
requirements of section 10, and MMS approval is not required before 
reporting the credit adjustment.
    (3) If a person makes an error in the report of actual 
transportation or processing costs pursuant to paragraphs (f)(1) or 
(f)(2) of this section, any subsequent adjustment to the report that 
results in a credit is subject to section 10 and the requirements of 
this subpart.
    (g) If a person pays pursuant to an MMS order and challenges the 
obligation to pay in an administrative appeal or judicial action, and 
if the person is successful in a challenge to all or part of the MMS 
order to pay, section 10 does not apply to the refund or recoupment of 
the disputed payment or portion thereof.
    (h) MMS approval is not required for an adjustment by any person to 
the amount reported for a report month that results in a credit of not 
more than an amount established periodically by MMS and published in 
the Federal Register. However, no adjustment may be reported more than 
2 years after the date MMS received the Form MMS-2014 including the 
excess payment.

[FR Doc. 94-18395 Filed 7-27-94; 8:45 am]
BILLING CODE 4310-MR-M