[Federal Register Volume 62, Number 16 (Friday, January 24, 1997)]
[Proposed Rules]
[Pages 3742-3763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1573]



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Part II





Department of the Interior





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Minerals Management Service



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30 CFR Parts 206 and 208



Oil Value Establishment; Federal Royalty and Federal Leases Royalty Oil 
Sales; Proposed Rule

  Federal Register / Vol. 62, No. 16 / Friday, January 24, 1997 / 
Proposed Rules  

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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Parts 206 and 208

RIN 1010-AC09


Establishing Oil Value for Royalty Due on Federal Leases, and on 
Sale of Federal Royalty Oil

AGENCY: Minerals Management Service, Interior.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This rule will modify the valuation procedures for both arm's-
length and non-arm's-length crude oil transactions, establish a new MMS 
form for collecting value differential data, and amend the valuation 
procedure for the sale of Federal royalty oil. These changes will 
decrease reliance on oil posted prices and assign a value to crude oil 
that better reflects market value.

DATES: Comments must be submitted on or before March 25, 1997.

ADDRESSES: Mail written comments, suggestions, or objections regarding 
the proposed rule to: Minerals Management Service, Royalty Management 
Program, Rules and Procedures Staff, P.O. Box 25165, MS 3101, Denver, 
Colorado, 80225-0165, courier address is Building 85, Denver Federal 
Center, Denver, Colorado 80225, or e:Mail David__ G[email protected]. 
MMS will publish a separate notice in the Federal Register indicating 
dates and locations of public hearings regarding this proposed 
rulemaking.

FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and 
Procedures Staff, telephone (303) 231-3432, FAX (303) 231-3194, e:Mail 
David__ G[email protected], Minerals Management Service, Royalty 
Management Program, Rules and Procedures Staff, P.O. Box 25165, MS 
3101, Denver, Colorado, 80225-0165.

SUPPLEMENTARY INFORMATION: The principal authors of this proposed rule 
are David A. Hubbard of RMP and Peter Schaumberg of the Office of the 
Solicitor in Washington, D.C.

I. Introduction

    On December 20, 1995, MMS published an Advance Notice of Proposed 
Rulemaking about possible changes to the rules for royalty valuation of 
oil from Federal and Indian leases (60 FR 65610). The intent was to 
decrease reliance on oil posted prices and to develop valuation rules 
that better reflect market value.
    MMS used various sources of information to develop the proposed 
rule. In addition to comments received on the Advance Notice of 
Proposed Rulemaking, MMS attended a number of presentations by: crude 
oil brokers and refiners, commercial oil price reporting services, 
companies that market oil directly, and private consultants 
knowledgeable in crude oil marketing. MMS' deliberations were aided 
greatly by a wide range of expert advice.
    The Department of the Interior's (Department) practice is to give 
the public an opportunity to participate in the rulemaking process. 
Anyone interested may send written comments, suggestions, or objections 
regarding this proposed rule to the location cited in the ADDRESSES 
section of this preamble. We will post public comments after the 
comment period closes on the Internet at http://www.rmp.mms.gov or 
contact David S. Guzy, Chief, Rules and Procedures Staff, telephone 
(303) 231-3432, FAX (303) 231-3194.
    Because of the different terms of Indian leases and the Federal 
government's Indian trust responsibility, MMS decided to develop 
separate rules for Indian oil valuation. MMS will publish those 
proposed regulations separately.
    Finally, the Department's Royalty Policy Committee (RPC) 
recommended that RMP ``establish a study group to review the Federal 
oil RIK program and explore all options for improving the reporting, 
billing, and MMS administration of the program.'' The proposed 
amendment to 30 CFR Part 208 is responsive to this recommendation.

II. General Description of the Proposed Rule

    The proposed rulemaking would add more certainty to valuation of 
oil produced from Federal lands and eliminate any direct reliance on 
posted prices. It retains the concept that for arm's-length sales, 
gross proceeds generally would be royalty value, but its application 
would be limited. Because of the frequency of oil exchange agreements, 
reciprocal deals between crude oil buyers and sellers, and other 
factors where the real consideration for the transaction could be 
hidden, arm's-length contract prices would be used as royalty value 
only by producers who do not also purchase crude oil.
    MMS expects a large portion of Federal oil production to be valued 
as if not sold under an arm's-length contract because most Federal oil 
is disposed of under exchange agreements or sales to affiliated 
refiners. For oil the lessee does not sell under an arm's-length 
contract, but sells or transfers oil to an affiliate who later sells it 
at arm's-length, this proposal provides the lessee the following 
options to value the oil for a 2 year period:
    (1) the arm's-length resale price (provided that, as described 
above, neither the lessee nor its affiliate also purchases oil), or
    (2) depending on location of production, the monthly average of the 
New York Mercantile Exchange (NYMEX) or Alaska North Slope (ANS) prices 
with appropriate adjustments for location and/or quality (hereafter 
location/quality) differentials.
    For all other non-California or non-Alaska oil production, if the 
lessee or its affiliate refines or otherwise disposes of the oil non-
arm's-length, the lessee would apply a monthly average NYMEX price 
adjusted for location and/or quality. For oil production, in California 
and Alaska, if the lessee or its affiliate refines or otherwise 
disposes of the oil non-arm's-length, the lessee would apply a monthly 
average of spot prices for Alaska North Slope oil delivered in 
California, adjusted for location quality (For purposes of the preamble 
and the proposed regulatory changes, oil produced from Federal leases 
in California refers to oil produced from Federal leases either onshore 
or offshore California. Oil produced from Federal leases in Alaska 
refers to oil produced from Federal leases either onshore or offshore 
Alaska).
    Adjustments for location quality against the index values are 
limited to these components:
    (1) A location and/or quality differential between the index 
pricing point (for example, West Texas Intermediate at Cushing, 
Oklahoma) and the appropriate market center (for example, Light 
Louisiana Sweet at St. James, Louisiana, or Wyoming Sweet at Guernsey, 
Wyoming), calculated as the difference between the average monthly spot 
prices published in an MMS-approved publication for the respective 
locations;
    (2) A rate either published by MMS or contained in the lessee's 
arm's-length exchange agreement representing location quality 
differentials between the market center and major aggregation points 
for oil from various sources; and
    (3) As determined under the existing allowance rules, the actual 
transportation costs from the aggregation point to the lease. However, 
if oil flows to the market center, the actual transportation costs from 
the market center to the lease.
    Calculation of differentials could vary if the lessee takes its 
production directly to its own refinery and the movement in no way 
approximates movement

[[Page 3743]]

through an aggregation point to a market center.
     MMS would calculate and publish the rate from the market center to 
major aggregation points based on specific information it would collect 
on a new form: Form MMS-4415, Oil Location Differential Report. This 
form is attached to this notice of proposed rulemaking as Appendix A. 
MMS requests commenters to provide comments on this form according to 
the information under the Paperwork Reduction Act in part IV, 
Procedural Matters, of this notice.
     MMS may publish an Interim Final Rule while it further evaluates 
the methodology in this proposed rule. This approach would provide the 
flexibility to do a revision after the first year without a new 
rulemaking. We are asking for your comments on this approach to 
implementing the new oil valuation regulations. MMS will also during 
the first six months after the effective date of this rule verify that 
the values determined by this rule are replicating actual market 
prices. Comments on how best to perform this analysis are also 
requested.
     In the next section, we describe the major regulatory changes 
proposed in this rulemaking. The proposed changes for valuing 
production are substantive. But some sections, particularly those 
involving transportation allowances, remain mostly the same. Also, to 
clarify and simplify the rules, MMS is incorporating many changes that 
are not substantive but are an effort to implement concepts of plain 
English.

III. Section-by-Section Analysis

30 CFR Part 206

    MMS proposes to amend part 206, Subpart C--Federal Oil as described 
below. Some of the provisions would be largely the same as in the 
existing rules, but would be rewritten for clarity.
Section 206.100  Purpose and Scope
    This section's contents would remain the same except for 
clarifications. MMS rewrote it in plain English to improve clarity.
Section 206.101  Definitions
     MMS would retain most of the definitions in Sec. 206.101, many of 
those retained were rewritten to reflect plain English. New definitions 
to support the revised valuation procedures are proposed for: 
Aggregation point, Crude oil call, Designee, Exchange agreement, Index 
pricing, Index pricing point, Location differential, Market center, 
MMS-approved publication, NYMEX, Quality differential, and Sale. The 
definition of Allowance would be amended. We will discuss the new and 
amended definitions below where they appear in the regulatory text.
     The proposed rule would remove the definitions of Marketing 
affiliate, Net-back method, Oil shale, Posted price, Processing, 
Selling arrangement and Tar sands because they no longer relate to how 
most crude oil is marketed and to the structure of the proposed rules. 
The definition of Lessee would be revised to reflect the new definition 
in the Federal Oil and Gas Royalty Simplification and Fairness Act of 
1996 (RSFA), H.R. 1975, Public Law No. 104-185, 110 Stat. 1700. The new 
definition of Lessee is: any person to whom the United States issues an 
oil and gas lease or any person to whom operating rights in a lease 
have been assigned. The definition of Like-quality lease products also 
would be revised under a new definition of Like-quality oil to support 
the new valuation procedures. We will discuss this definition below 
where it appears in the regulatory text.
Section 206.102  How do I calculate royalty value for oil?
    This section would explain how lessees must calculate the value of 
oil production for royalty purposes. It is the principal valuation 
section of the proposed rules.
    The proposal states that lessees and designees, defined terms, must 
use these valuation provisions. Under the Federal Oil and Gas Royalty 
Management Act of 1982, 30 U.S.C. 1701 et seq., as recently amended by 
the Federal Oil and Gas Royalty Simplification and Fairness Act of 
1996, Pub L. 104-185, only lessees are liable to MMS for royalties. 
Lessee includes record title owners and operating rights owners. The 
Royalty Simplification and Fairness Act also provides that lessees may 
designate a designee to report and pay royalties on their behalf. 
Therefore, these proposed valuation rules apply to lessees and 
designees.
     We propose to revise this section to reflect major changes in 
valuing oil not sold under an arm's-length contract. Valuation of 
production sold under arm's-length contracts would essentially stay the 
same, but the number of transactions considered to be actual sales at 
arm's-length would be limited, as explained further below.
    Paragraph (a) How do I value oil sold under an arm's-length sales 
contract? Proposed paragraph (a) would replace existing paragraph (b) 
and retain the concept that if you sell oil under an arm's-length 
contract, the royalty value is the gross proceeds accruing to you. But 
several limitations would apply:
    First, if the oil sales contract doesn't reflect all actual 
consideration you receive directly or indirectly, MMS could require 
royalty valuation under the non-arm's-length index pricing provisions 
discussed below, or the total consideration you received, whichever is 
greater.
    Second, if MMS finds that your gross proceeds under the arm's-
length contract don't reflect the reasonable value of production 
because of misconduct by or between the contracting parties, or because 
you otherwise breached your duty to market to the mutual benefit of 
yourself and the lessor, MMS would require you to value your oil under 
the index pricing provisions discussed below.
    However, MMS is proposing to limit applicability of the provision 
allowing you to pay royalty based on your gross proceeds from an arm's-
length sale. Even if you sell at arm's-length, MMS would require you to 
value your oil production under the index pricing provisions discussed 
below if you or your affiliate also purchased any crude oil from an 
unaffiliated third party in the United States during the two years 
preceding the production month. If your only oil purchases were from 
your affiliate, this provision is not triggered. However, such 
purchases are not at arm's-length, thus they cannot be valued under 
this section.
    MMS is proposing this limitation because of concerns that multiple 
dealings between the same participants, while apparently at arm's-
length, may be suspect concerning the contractual price terms. Just as 
with exchange agreements (discussed later), a producer may have less 
incentive to capture full market value in its sales contracts if it 
knows it will have reciprocal dealings where it may be able to buy oil 
at less than market value. Several MMS consultants reinforced the 
notion that as long as the two parties maintain relative parity in 
value of oil production traded, the absolute contract price in any 
particular transaction has little meaning.
    MMS would also like comments on an alternative proposal. Under this 
alternative, MMS would accept your arm's-length contract price paid by 
your purchaser or its affiliates as value unless during the two years 
preceding the production month you or your affiliate bought oil, gas, 
or any other goods or services from that same purchaser. MMS did not 
make this the principal proposal because there was a concern that it 
would be too difficult for a company to determine whether it bought 
from the same party (or its affiliates) during the two years preceding 
the production month. Commenters should address the

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alternative proposal and MMS's concerns about the difficulty of 
application.
    Due to the widespread use of exchange agreements and frequent 
reciprocal sales among companies--particularly major integrated firms--
MMS expects that a relatively small volume of Federal oil production 
would be valued using the arm's-length gross proceeds method. In fact, 
MMS considered requiring all production to be valued as if not sold at 
arm's length. But the presence of true arm's-length sales, especially 
by independent producers with no reciprocal purchases or trades, 
convinced MMS to propose that the gross proceeds provision be kept for 
such circumstances.
    Also, MMS would state clearly that you may not use gross proceeds 
to value oil you dispose of under an exchange agreement. The limitation 
applies even if the exchange otherwise is arm's-length. Therefore, you 
must use the index pricing provisions to value the oil.
    An Exchange agreement is defined in the proposed rules as an 
agreement by one person to deliver oil to another person at a specified 
location in exchange for reciprocal oil deliveries at another location. 
Such agreements may be made because each party has crude oil production 
closer to the other's refinery or transportation facilities than to its 
own, so each may gain locational advantages. Exchange agreements may or 
may not specify prices for the oil involved and frequently specify 
dollar amounts reflecting location, quality, or other differentials. 
Buy/sell agreements, which specify prices to be paid at each exchange 
point and may appear to be two separate sales within the same 
agreement, are considered exchange agreements. Transportation 
agreements are purely to accomplish transportation. They specify a 
location differential for moving oil from one point to the other, with 
redelivery to the first party at the second exchange point. They are 
not considered exchange agreements.
    The reason MMS would not accept the contract price for oil subject 
to an exchange agreement is that the prices stated in an exchange 
agreement may not reflect actual value. For example, if the market 
value of oil were $20 per barrel (bbl), the two parties to the exchange 
each could price their oil at $18 bbl. The parties can insure that each 
remains whole by using a location/quality differential in the 
agreement. MMS' consultants also supported this view.
    Also, this paragraph would provide that if your oil production is 
subject to a crude oil call, even if you sell it under an arm's-length 
sales contract, you must value it under the index pricing provisions.
    A Crude oil call is defined as the right of one person to buy all 
or part of a second person's oil production from an oil and gas 
property, where that right is a condition of sale or farmout of that 
property from the first person to the second, or results from other 
transactions between them. The price basis may be specified in advance. 
As with multiple dealings between two parties, MMS would presume that 
the price of oil sold under arm's-length contracts subject to crude oil 
calls is suspect. This is because the sale terms may be liberal to the 
property buyer in return for a favorable product purchase price by the 
property seller.
    MMS also is proposing to add a paragraph (5) to clarify how pre-
payments made to reduce or buy down the purchase price of oil to be 
produced in later periods would be treated under the gross proceeds 
provisions. In such a circumstance, you must allocate the pre-payment 
over the production whose price the payment reduces and account for the 
payment as part of the proceeds for that production when the production 
occurs.
    By way of illustration, assume that purchaser and seller agree to 
renegotiate a sales contract and reduce the price for future production 
of one million bbl. As part of the renegotiation, Purchaser makes a 
payment of $1 million. Seller would be required to attribute one dollar 
to each barrel produced thereafter and include the additional dollar in 
the gross proceeds at the time each bbl is produced until the one 
million bbl. threshold is reached.
    Paragraph (b) What else must I do if I value oil under an arm's-
length contract? Proposed paragraph (b) includes several of the 
provisions of the existing rules, but rewritten and reordered for 
clarity. These provisions replace part or all of current paragraphs 
(b)(1)(i), (b)(2), and (j), and state that:
    (1) You must be able to show that your contract is at arm's length, 
and is a Sale (defined term);
    (2) MMS may require certification that the arm's-length contract 
provisions include all consideration to be paid by the buyer; and
    (3) Value determined by contract terms will be based on the highest 
price a prudent lessee may legally receive. If you don't take proper or 
timely action to get your entitled prices/benefits, you must pay 
royalties on the entitled amounts. But if you make timely, reasonably 
documented application for a price increase or benefit allowed under 
your contract and the purchaser refuses, you will not owe additional 
royalties until or unless you receive the additional monies or 
consideration. This provision would not permit you to avoid royalty 
obligations where a purchaser doesn't pay, or pay timely, for a 
quantity of oil.
    Paragraph (c) How do I value oil not sold under an arm's-length 
contract? Proposed paragraph (c) would replace the ordered benchmarks 
under existing paragraph (c). The current benchmarks rely heavily on 
posted and contract prices. Since many contract prices are tied to 
postings, the influence of posted prices is magnified. MMS is proposing 
a different valuation approach because market conditions have changed. 
Moreover, the widespread use of exchange agreements and reciprocal 
sales as well as difficulties with relying on posted price, cast 
additional doubt on the usefulness of many apparent arm's-length sales 
prices as a good measure of market value. Given the mounting evidence 
that posted prices frequently do not reflect value in today's 
marketplace, the proposed valuation standards do not rely at all on 
postings. Instead, after consulting various crude oil pricing experts 
and considerable deliberation, MMS proposes the following procedures:
    Under paragraph (c)(1), if you sell or transfer your oil to an 
affiliate and either the affiliate or another affiliate disposes of oil 
under an arm's-length sales contract, you have a choice of valuation 
methods. The first choice would be to value it like an arm's-lengths 
sale under paragraph (a) and use gross proceeds for your affiliate's 
arms-length sales. However, the limitations in paragraph (a) apply as 
well. For example, if you or your affiliate purchased oil from an 
unaffiliated third party in the United States during the two year 
period preceding the production month, you cannot use the gross 
proceeds valuation method.
    The second choice would be to use the index pricing method in 
paragraph (c)(2), which is the method that applies to all other non-
arm's-length transactions. We explain the details of that method below.
    When you make your election to use either the gross proceeds 
methods or the index pricing method, you would be required to apply the 
same election to value all oil that is produced from all your Federal 
leases that is subject to paragraph (c)(1) (i.e. where your affiliate 
sells the oil at arm's length). You may not use gross proceeds for some 
leases and index pricing for others. This is intended to prevent 
lessees and designees from choosing the method

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that would be to their advantage on a lease-by-lease basis.
    The election to use gross proceeds or index pricing could be 
changed. You may change your election on January 1 of the second year 
after the rule is effective and on January 1 of each second year 
thereafter. If new sales arrangements are made during the election 
period that would come under paragraph (c)(1) for valuation purposes, 
your existing election would apply. If you had not previously made an 
election, because you did not have any production subject to valuation 
under paragraph (c)(1), you could make the election when you start 
reporting the new sales arrangement.
    If neither you nor your affiliate disposes of the oil under an 
arm's-length sales contract, then you would be required to value your 
oil under paragraph (c)(2). This would include situations where you or 
your affiliate refines or otherwise disposes of the oil. It also would 
include all exchange transactions, even if the exchange is arm's 
length.
    The index pricing method you would use under paragraph (c)(2) would 
depend upon whether your leases are in California or Alaska. For leases 
not in California or Alaska, the royalty value would be the average of 
the daily NYMEX futures settle prices for the Domestic Sweet Crude Oil 
contract for the prompt month. The prompt month is the earliest month 
for which futures are traded on the first day of the production month. 
You would adjust the NYMEX price for location/quality differentials and 
transportation costs, which are addressed later in Sec. 206.105(c).
    Attached Appendix B is an example of the NYMEX-based index pricing 
method. Assume that the production month is September 1996. The prompt 
month would then be October 1996, the prompt month in effect on 
September 1. In this instance, October 1996 oil futures are traded on 
the NYMEX from August 21, 1996, through September 20, 1996. The average 
of the daily NYMEX futures settle prices for the October 1996 prompt 
month (determined by averaging the daily prices for 8/21 to 9/20) is 
$23.13 per bbl. This price would be adjusted for location/quality 
differentials and transportation (discussed later) to determine the 
proper oil value for September production.
    MMS searched for indicators to best reflect current market prices 
and settled on NYMEX for several reasons. It represents the price for a 
widely traded domestic crude oil (West Texas Intermediate at Cushing 
Oklahoma), and there is little likelihood that any particular 
participant in NYMEX trading could impact the price. Also, NYMEX prices 
were regarded by many of the experts MMS consulted to be the best 
available measure of oil market value. The most difficult problem, as 
will be discussed in more detail below, would be to make appropriate 
location and quality adjustments when comparing the NYMEX crude with 
the crude produced. Other indicators MMS considered included spot 
prices as tabulated by various publications and the P-plus market. The 
P-plus assesses premiums over posted prices to reflect oil market value 
on any given day. Spot prices offer the advantage that they are 
published for several different locations and might involve somewhat 
less difficult location and quality adjustments. MMS is proposing NYMEX 
prices primarily because they are perceived to best reflect current 
domestic crude market value on any given day and the minimal likelihood 
that any one party could influence them.
    MMS also considered timing of NYMEX application. Since the prompt 
month changes around the 21st of any given production month, two 
different prompt months exist during the production month. MMS decided 
to use the prompt month in effect on the first day of the production 
month. This would result in the current month's production being valued 
at the nearest month's futures price. Although it is a futures price, 
it would reflect the market's assessment of value during the production 
month. MMS found this preferable to using a one-month-earlier futures 
price, where the price would apply to deliveries in the production 
month but would be determined in an earlier time period. The daily 
closing NYMEX prices are widely available in most major newspapers and 
various other publications.
    MMS requests comments on each of the following, and any other 
related issues you may want to address:
     Use of market indicators (indices) to determine royalty 
value under paragraph (c)(2),
     Use of NYMEX as the index value, and possible 
alternatives, and
     Selection of the proper prompt month.
    MMS is proposing a different procedure for California and Alaska 
production largely because of the geographical isolation of these 
markets. The distance from the mid-continent markets would lead to 
great difficulties in making meaningful adjustments from the NYMEX 
price. MMS believes that a more localized market indicator would better 
represent royalty value. Several spot prices are published for 
different types of California crude oil at different locations, as well 
as P-plus prices. But none of these prices attaches to large enough 
volumes for MMS to recommend that they apply as royalty value. The ANS 
spot prices, on the other hand, represent large volumes of oil 
delivered into the California market and used as refinery feedstock. 
Also, several of the experts who gave presentations to MMS recommended 
use of adjusted ANS spot prices as the best indicator of value for 
California and Alaska production. You would adjust these ANS prices for 
location/quality differentials or transportation costs under 
Sec. 206.105(c).
    Attached as Appendix C is an example of the index pricing method 
utilizing ANS spot prices for California production. Assume that the 
production month is September 1996 and that Platt's Oilgram is an MMS-
approved publication. For the October 1996 spot sales delivery month, 
spot sales prices are assessed from August 26, 1996, through September 
25, 1996. The daily mean spot price assessments for the month are 
averaged to arrive at the ANS price basis, in this case $21.25 per bbl. 
This price would be adjusted for location/quality differentials and 
transportation (discussed later) to determine the proper value for your 
oil.
    MMS requests comments on each of the following, and any other 
related issues you may want to address:
     Use of a different market indicator for California and 
Alaska than for the rest of the country,
     Use of ANS spot prices as the indicator of oil market 
value, and
     Possible alternative market indicators for California and 
Alaska.
    MMS recognizes that markets change and that the NYMEX prices or the 
ANS spot prices may either become unavailable or no longer represent a 
reasonable basis for royalty value. For example, the lifting of export 
restrictions on ANS production and the decline of that production may 
substantially reduce the impact of ANS crude on the California market.
    Under paragraph (c)(3), if MMS determines that an index no longer 
is available or that it no longer represents a reasonable value, MMS 
will, by rule, amend paragraph (c)(2) to establish a substitute method.
    Proposed paragraph (c)(4) states that MMS periodically would 
publish in the Federal Register a listing of MMS-approved publications 
for determining the appropriate NYMEX or ANS prices. MMS-approved 
publication is a defined term that would mean any publication on this 
list (or those on the list

[[Page 3746]]

discussed later for determining location differentials). The criteria 
MMS would consider in determining acceptability would include, but not 
be limited to, whether the publications:
     are frequently used by buyers and sellers,
     are frequently referenced in purchase or sales contracts,
     use adequate survey techniques, including development of 
spot price estimates based on daily surveys of buyers and sellers of 
ANS crude oil, and
     are independent from MMS, other lessors, and lessees.
    The first two criteria reflect the importance of publications used 
in ongoing oil marketing. The third reflects the importance of the 
publication's survey procedures in assessing spot price levels, because 
the proposed California and Alaska valuation procedure depends on ANS 
spot prices. The last factor requires that the publication be unbiased 
by the interests of anyone involved. MMS requests comments on specific 
publications that should be approved for use in applying these rules.
    Proposed paragraph (c)(5) would provide that publications could 
petition MMS to become an acceptable publication.
    Proposed paragraph (c)(6) would provide that MMS will specify which 
tables in the publications must be used to determine index prices.
    In addition to comments on the index-based valuation procedures 
discussed above, MMS requests specific comments on alternative 
valuation techniques based on local market indicators. MMS believes 
that today's oil marketing is driven largely by the NYMEX market. Also, 
the proposed rules should promote certainty for all involved. But the 
location/quality adjustments needed to derive lease value using NYMEX 
would involve considerable administrative effort for all involved. MMS 
requests suggestions on ways to value Federal oil production based on 
market indicators in the vicinity of the lease, with the following in 
mind:
    (1) The methods should not rely on posted prices unless they 
account for the difference between postings and market value.
    (2) The methods must account for value differences related to 
quality and location.
    (3) The methods must be widely applicable and flexible enough to 
apply nationwide.
    (4) Most importantly, the methods must reflect the general concepts 
of fair market value--the agreed-upon cash price between willing and 
knowledgeable buyers and sellers if neither were under undue pressure.
    Paragraph (d)--What else must I do if I value oil under paragraph 
(c)? Proposed paragraph (d) includes the same content as existing 
paragraph (e)(1), but rewritten for clarity. We did modify the 
paragraph on your obligation to place oil in marketable condition at no 
cost to the Federal Government to clarify that it includes a duty to 
market the oil. This is consistent with several Interior Board of Land 
Appeals decisions construing this rule. See Walter Oil and Gas 
Corporation, 111 IBLA 260 (1989).
    Paragraph (e)--What other general responsibilities do I have under 
this section? Proposed paragraphs (e)(1), (e)(2), and (e)(3) include 
the same content as existing paragraphs (i), (d), and (f), 
respectively, but are rewritten for clarity and rearranged for a more 
logical grouping.
    Paragraph (f) May I ask MMS to determine value? Proposed paragraph 
(f) includes the same content as existing paragraph (g), but is 
rewritten for clarity.
    Paragraph (g) How do value redeterminations relate to audit 
periods? Proposed paragraph (g) includes the content of existing 
paragraph (k), but is rewritten for clarity.
    Paragraph (h) Does MMS protect information I provide? Proposed 
paragraph (h) includes the content of existing paragraph (l), but is 
rewritten for clarity.
    Deletion of existing paragraphs (e)(2) and (h). MMS proposes to 
delete existing paragraph (e)(2), which requires lessees to notify MMS 
if they determine value under existing paragraphs (c)(4) or (c)(5). 
Since MMS proposes to delete those paragraphs, paragraph (e)(2) no 
longer would apply.
    MMS also proposes to delete paragraph (h), which says royalty value 
will not be less than the lessee's gross proceeds, less applicable 
allowances. This clause would have little meaning given the proposed 
royalty valuation revisions. For those arm's-length situations where 
the lessee is not required to value its production at an index price, 
value would already be the lessee's gross proceeds. And under either 
proposed index valuation procedure--California/Alaska or rest-of-
country--the derived value would be a proxy for gross proceeds. MMS 
requests specific comments on deletion of paragraph (h).
Section 206.103  Point of royalty settlement
    This section would not be changed.
Section 206.104  Transportation allowances and other adjustments--
general
    Paragraph (a) What transportation allowances are permitted when I 
value production based on my gross proceeds? Proposed paragraph (a) is 
similar to paragraph (a) of the present rule, but would apply only when 
you value your production based on gross proceeds. The proposed 
paragraph would be rewritten to reflect clarity.
    Paragraph (b) What transportation allowances and other adjustments 
apply when I value production based on index pricing? Proposed new 
paragraph (b) would state that if you value oil based on index pricing 
(NYMEX or ANS spot pricing) under Section 206.102(c)(2), MMS will allow 
certain transportation costs and other adjustments to value. We discuss 
those costs and adjustments below under Sec. 206.105(c).
    Paragraph (c) Are there limits on my transportation allowance? 
Proposed paragraphs (c)(1) and (c)(2) include the substance of existing 
paragraphs (b)(1) and (b)(2) respectively, but rewritten for clarity 
and to reflect plain English. The proposed paragraphs also would 
specify the point where the 50-percent-of-value limitation would be 
calculated if you value oil based on index pricing.
    Paragraph (d) How must I allocate transportation costs? Proposed 
paragraph (d) is essentially the same as existing paragraph (c).
    Paragraph (e) What additional payments may I be liable for? 
Proposed paragraph (e) is existing paragraph (d) rewritten for clarity.
Section 206.105  Determination of transportation allowances
    Paragraph (a) would not be changed.
    Paragraph (b) would be changed by deleting paragraph (b)(5). The 
existing paragraph (b)(5) allows a lessee to apply for an exception 
from the requirements that it compute actual costs of transportation 
and use a Federal Energy Regulatory Commission (FERC) or State approved 
tariffs. MMS believes that the use of actual costs is fair to lessees 
and that the existing requirement to use a FERC approved tariff is no 
longer a viable alternative since FERC ruled that it lacks jurisdiction 
to enforce the Interstate Commerce Act with respect to oil pipelines 
located wholly on the Offshore Continental Shelf. See Oxy Pipeline, 
Inc., 61 FERC para. 61,051 (1992) and Bonito Pipe Line Company, 61 FERC 
para. 61,050 (1992).
    Paragraph (c) What adjustments and transportation allowances apply 
when I use index pricing? Proposed paragraph (c)(1) describes allowable 
transportation

[[Page 3747]]

cost deductions and mandatory adjustments to index prices where you 
value your oil based on index pricing under Sec. 206.102(c)(2). The 
allowable adjustments and deductions would reflect the location/quality 
differentials and transportation costs associated with value 
differences between oil produced at the lease and oil at the index 
pricing point. Although location differentials would reflect 
differences in value of oil at different locations, they are not 
transportation cost allowances. In fact they may increase a value 
rather than decreasing it as do transportation allowances. Quality 
differentials would reflect differences in the value of oil due to 
different API gravities, sulfur content, etc. Location differentials 
generally also encompass quality differentials. Proposed paragraph 
(c)(1) identifies the specific adjustments and allowances that may 
apply to your production. Proposed paragraphs (c)(2) and (c)(3) 
identify which of those adjustments and allowances would apply to you 
in different circumstances. The possible adjustments and allowances 
are:
    (1) A location/quality differential to reflect the difference in 
value between crude oils at the index pricing point (for example, West 
Texas Intermediate at Cushing, Oklahoma) and the appropriate market 
center (for example, Light Louisiana Sweet at St. James, Louisiana) 
(proposed paragraph (c)(1)(i)). Index pricing point is the physical 
location where a given price index such as NYMEX or ANS spot prices is 
established. For NYMEX, that location is Cushing, Oklahoma. For ANS, 
that location is either Los Angeles or San Francisco. Market center 
would be defined as a major destination point for crude oil sales, 
refining, or transshipment. As used here, market centers are locations 
where trade publications provide crude oil spot price estimates. The 
market center that you would use is the point where oil produced from 
your lease or unit ordinarily would flow if not disposed of at an 
earlier point.
    For any given production month, the market center-index pricing 
point location/quality differential would be the difference between the 
average spot prices for the respective locations as published in an 
MMS-approved publication. (MMS-approved publications as used here are 
discussed below.) The purpose of this differential is to derive a NYMEX 
price at the market center by adjusting the NYMEX price at the index 
pricing point to the general quality of crude typically traded at the 
market center, and otherwise to reflect location/quality value 
differences at the appropriate market center.
    Attached as Appendices D and E are examples of how the average of 
the daily spot prices are calculated for the index pricing point 
(Cushing, OK) and an OCS market center (St. James, LA), respectively. 
The value difference between the two spot price averages is the 
location differential between the index pricing point and the market 
center.
    Assume that Platt's Oilgram is an MMS-approved publication. For the 
October 1996 delivery month, spot sales prices are assessed from August 
26, 1996, through September 25, 1996. The average of the daily (mean) 
spot price assessments for the month is utilized to calculate the 
location differential. In this instance, the average price for Cushing 
is $23.46 per bbl. and the average price for St. James is $23.68 per 
bbl. Since the St. James price is $.22 per bbl. higher than the Cushing 
price, the $.22 per bbl. would be added to the NYMEX-based price (or a 
deduction would be made if the St. James price were lower than the 
Cushing price).
    (2) An express location/quality differential under your arm's-
length exchange agreement that includes a clearly identifiable 
location/quality differential for the crude oil value difference 
between the market center and the aggregation point (proposed paragraph 
(c)(1)(ii)).
    Aggregation point would mean a central point where production from 
various leases or fields is aggregated for shipment to market centers 
or refineries--including, but not limited to, blending and storage 
facilities and connections where pipelines join. The aggregation point 
to which oil produced from your lease or unit ordinarily flows would be 
the aggregation point involved in this differential. In the many cases 
that MMS expects will involve such agreements, the differential stated 
in the agreement should reflect actual value differences resulting from 
differences in location and quality between crude oils at the 
aggregation point and the associated market center.
    (3) A location/quality differential that MMS would publish annually 
that you would use if you do not dispose of production under an arm's-
length exchange agreement that contains an express differential as 
described above (proposed paragraph (c)(1)(iii)). MMS would publish 
this differential for each aggregation point and an associated market 
center. MMS would also classify pipeline terminations at refining 
centers as aggregation points. An aggregation point may be associated 
with more than one market center. As discussed in more detail below, 
MMS periodically will publish in the Federal Register a list of market 
centers and associated aggregation points. The differential would 
represent crude oil value differences due to location and quality 
factors. MMS would acquire the information needed to calculate these 
differentials specific from exchange agreement data provided by lessees 
and their affiliates on a new reporting form (Form MMS-4415) discussed 
below. You would apply the differential on a calendar production year 
basis. This means you would apply it for the reporting months of 
February through the following January.
    (4) Either your actual transportation costs from the lease to the 
aggregation point as determined under Sec. 206.105 (proposed paragraph 
(c)(1)(iv)) or actual transportation costs from the lease to the market 
center (proposed paragraph (c)(1)(v)). MMS is not proposing to change 
the existing methods to calculate transportation allowances. The 
allowance would terminate at the aggregation or market center point 
whichever is applicable to your situation as part of the total 
adjustment to derive an index price based value at the lease.
    The purpose of these adjustments and allowances is to reflect value 
differences for crude oil production of different qualities and at 
different locations to derive value at the lease. The location 
differentials between the index pricing point and the market center, 
and between the market center and the aggregation point, would not 
necessarily reflect transportation alone. They would represent the 
overall market assessment of the different relative values of similar 
crude oil delivered at different locations. Only the actual 
transportation costs from the lease to the aggregation point or market 
center would represent pure transportation costs.
    Alternatives for methods other than location/quality differentials 
include using index values with no location adjustments to picking a 
specific percentage deduction from the index value to generically 
reflect location differentials. A variation of the latter would be to 
develop percentage or absolute dollar deductions for different 
geographical zones. In addition to specific comments on the proposed 
method of adjusting index values, MMS requests suggestions on 
alternative methods.
    Proposed paragraph (c)(2) specifies which of the adjustments and 
allowances described above apply to you in various situations if your 
lease is not located in California or Alaska. If you dispose of your 
production under an arm's-length exchange agreement and the agreement 
has an express location/

[[Page 3748]]

quality differential to reflect the difference in value between the 
aggregation point for your lease and an associated market center, then 
you would use three of the four possible adjustments and allowances. 
Specifically, you would use the market center-index pricing point 
location/quality differential under paragraph (c)(1)(i), the 
aggregation point-market center differential specified in your exchange 
agreement under paragraph (c)(1)(ii), and the actual transportation 
costs from the lease to the aggregation point under paragraph 
(c)(1)(iv).
    Attached as Appendix F is an example of a NYMEX-based royalty 
computation for OCS Louisiana production. The procedures for 
calculating the NYMEX price and index pricing point/market center 
location differential have been discussed above and are illustrated at 
Appendices B, D, and E.
    The deduction to the NYMEX-based price for the location/quality 
differential between the market center and aggregation point will be 
the actual exchange agreement differential or an MMS-published 
differential. (For the purposes of this example, (Appendix F) we used 
$.40 per bbl.)
    The transportation allowance deduction from the NYMEX-based price 
will be the cost of transport between the lease and aggregation point. 
(For the purposes of this example, (Appendix F) we used $.90 per bbl.).
    If you do not move lease production through a MMS-identified 
aggregation point to a MMS-identified market center, but instead move 
it directly to an alternate disposal point (for example, your own 
refinery), then you would use only two of the adjustments and 
allowances. You would use the market center-index pricing point 
location/quality differential under paragraph (c)(1)(i) and the actual 
transportation costs from the lease to the alternate disposals point 
under paragraph (c)(1)(iv). In this event, the alternate disposal point 
is the aggregation point for purposes of that paragraph. The market 
center for purposes of paragraph (c)(1)(iv) is the market center 
nearest the lease where there is a published spot price for crude oil 
of like quality to your oil. Like-quality oil would mean oil with 
similar chemical, physical, and legal characteristics. For example, 
West Texas Sour and Wyoming Sour would be like-quality, as would West 
Texas Intermediate and Light Louisiana Sweet.
    For example, a Wyoming Sour crude producer might transport its oil 
directly to a refinery in Salt Lake City without accessing any defined 
aggregation points or market centers. In this case West Texas Sour 
crude at Midland, Texas, might represent the crude oil/market center 
combination nearest to the oil produced. The market center-index 
pricing point location/quality differential under paragraph (c)(1)(i) 
would then be the difference in the spot price between West Texas 
Intermediate at Cushing, Oklahoma, and West Texas Sour at Midland, 
Texas as published in an MMS-approved publication. In addition to that 
adjustment, the producer would be entitled to an allowance for the 
actual transportation costs from the lease in Wyoming to Salt Lake 
City. MMS has determined that this method is the best way to calculate 
the differences in value between the lease and the index pricing point 
due to location, quality, and transportation when the production is not 
actually moved to a market center.
    In all other situations, you would use the market center-index 
pricing point location/quality differential (paragraph (c)(1)(i)), the 
MMS-published aggregation point-market center location/quality 
differential under paragraph (c)(1)(iii), and the actual transportation 
costs from the lease to the aggregation point (paragraph (c)(1)(iv)). 
These adjustments and allowances cover all location, quality, and 
transportation differences in value between the lease and the index 
pricing point.
    Proposed paragraph (c)(3) specifies which of the adjustments and 
allowances apply to you in various situations if your lease is located 
in California or Alaska. In this context, the index pricing point 
(where ANS crude is delivered in Los Angeles or San Francisco) would be 
synonymous with the market center. The allowable adjustments would 
still be the reasonable location/quality differentials and 
transportation allowances associated with value differences between 
production at the lease and the index pricing point. But since the 
index pricing point and market center would coincide, there would be no 
differential applicable between those two points. Thus, if you dispose 
of your production under an arm's-length exchange agreement and the 
agreement has an express location/quality differential to reflect the 
difference in value between the aggregation point for your lease and an 
associated market center, then you would use the aggregation point-
market center differential specified in your exchange agreement under 
paragraph (c)(1)(ii), and the actual transportation costs from the 
lease to the aggregation point under paragraph (c)(1)(iv). If you move 
your oil directly to a market center then you would use the actual 
transportation costs from the lease to the market center under 
paragraph (c)(1)(v).
    Attached as Appendix G is an example of an ANS-based royalty 
computation for onshore California production. The procedure for 
calculating the ANS price has been discussed above and is illustrated 
at Appendix C.
    The deduction to the ANS-based price for the location/quality 
differential between the market center (Los Angeles using ANS spot 
prices) and aggregation point will be the actual exchange agreement 
differential or an MMS-published differential. (For the purposes of 
this example, (Appendix G) we used $4.78 per bbl.)
    The transportation allowance deduction from the ANS-based price 
will be the cost of transport between the lease and aggregation point. 
(For the purposes of this example (Appendix G) we used $.20 per bbl.)
    If you do not move lease production through a MMS-identified 
aggregation point to a MMS-identified market center, but instead move 
it directly to an alternate disposal point (for example, your own 
refinery), then you would use the actual transportation costs from the 
lease to the alternate disposal point under paragraph (c)(1)(iv). 
(Again, the alternate disposal point is the aggregation point for 
purposes of that paragraph.) In addition, you would use a location/
quality differential calculated as the difference between the average 
spot prices for the production month in a MMS-approved publication at 
the aggregation point nearest the lease for which spot prices for like-
quality crude oil are published and the published spot prices or ANS 
crude oil at the associated market center/index pricing point. For 
example, for Midway-Sunset production, the nearest location/quality 
combination might be Kern River crude. Then the difference between the 
ANS and Kern River spot prices as published in an MMS-approved 
publication would be the differential. For leases in California or 
Alaska, this represents the most accurate calculation of the 
differences in value between the lease and the index pricing point due 
to location, quality, and transportation when the production is not 
actually moved to a market center/index pricing point.
    In all other situations in California or Alaska, you would use the 
MMS-published aggregation point-market center/index pricing point 
location/quality differential under paragraph (c)(1)(iii), and the 
actual transportation costs from the lease to the aggregation point 
(paragraph (c)(1)(iv)). These adjustments and allowances cover all

[[Page 3749]]

location, quality, and transportation differences in value between the 
lease and the index pricing point for leases in California.
    Proposed paragraph (c)(4) states that if a MMS calculated 
differential does not apply to a lessee's oil due to location and 
quality differentials, the lessee must request MMS in writing to 
calculate a location and quality differential that applies to its oil. 
Conditions for an exception would include:
    (1) The lessee must deliver to MMS its written request for an MMS 
calculated differential within 30 days after MMS publishes its annual 
listing of location differentials;
    (2) The lessee must provide clear evidence demonstrating why the 
published differential(s) does not adequately reflect its 
circumstances;
    (3) If the lessee does not request an exception within 30 days 
after MMS publishes its annual listing of location differentials, MMS 
will calculate such a differential when it receives the lessee request 
or when it determines that the MMS-calculated differential does not 
apply to the lessee's oil. MMS will then bill for additional royalties 
and interest due. MMS will not refund any overpayments made due to 
failure to timely request MMS to calculate a differential; and
    (4) MMS cannot unilaterally change any of its calculated 
differentials after it has published them in the Federal Register.
    MMS would insert paragraph (c)(5) to note that it would 
periodically publish a list of MMS-acceptable publications in the 
Federal Register. This paragraph would also specify the criteria for 
acceptability; they are very similar to the criteria listed at 
206.102(c)(5) for publications used in index pricing.
    Proposed paragraph (c)(6) would allow any publication to petition 
MMS to add them to the list of acceptable publications.
    Proposed paragraph (c)(7) would state that MMS would reference the 
specific tables in individual publications that lessees must use to 
determine location differentials.
    Proposed paragraph (c)(8) states that MMS would periodically 
publish in the Federal Register a list of aggregation points and market 
centers. MMS would monitor market activity and, if necessary, add or 
modify market centers or aggregation points. MMS would consider the 
following factors and conditions in specifying market centers and 
aggregation points:
    (i) Points where MMS-approved publications publish prices useful 
for index purposes;
    (ii) Markets served;
    (iii) Pipeline and other transportation linkage;
    (iv) Input from industry and others knowledgeable in crude oil 
marketing and transportation;
    (v) Simplification; and
    (vi) Other relevant matters.
    MMS would initially consider the following as Market Centers:

Cushing, OK
Empire, LA
Guernsey, WY
Los Angeles/San Francisco, CA
Midland, TX
St. James, LA

    Where Cushing, Oklahoma is used as a market center, the index 
pricing point and market center would coincide. Los Angeles and San 
Francisco are two other market centers that also represent index 
pricing points. In those two cases, there would be no differential 
between the index pricing point and market center. Los Angeles and San 
Francisco are listed together because MMS believes the ANS spot price 
generally is identical at both locations.
    Appendix H is a list of aggregation points MMS has initially 
selected to publish differentials under (3) above. MMS requests 
specific comments on the initial list of market centers and aggregation 
points, including suggested additions, deletions and other 
modifications.
    (d) Reporting requirements. MMS would redesignate existing 
paragraph (c) as (d). Existing paragraphs (c)(1) and (c)(2) (i), (ii), 
and (iii) would otherwise remain the same. MMS would delete paragraph 
(d)(2)(iv) consistent with the previous change to delete the use of 
FERC or State approved tariffs.
    (3) What information must I provide to support index pricing 
deductions, and how are they used? Proposed paragraph (d)(3) would be 
added to require lessees and their affiliates to submit a new form to 
MMS annually. Proposed Form MMS-4415, Oil Location Differential Report, 
would capture location differentials in all exchange agreements or 
other oil disposal contracts. MMS would use these data to calculate 
location differentials between market centers and aggregation points. 
MMS would publish these differentials annually for lessees to use in 
royalty reporting. MMS has included a copy of proposed Form MMS-4415 as 
Attachment A to these proposed regulations.
    Information submitted on the new form would cover all of the 
lessee's and its affiliate's crude oil production, and not just 
information related to Federal or Indian lease production. Reporting 
duplicate information would not be required (e.g. identical locational/
quality differential between the same point). All Federal and Indian 
lessees (or their affiliates as appropriate) would initially submit 
Form MMS-4415 no later than two months after the effective date of this 
reporting requirement, and then by October 31 of the year this 
regulation takes effect and by October 31 of each succeeding year. 
However, if October 31 of the year this regulation takes effect is less 
than six months after the effective date of this reporting requirement, 
the second submission of the Form MMS-4415 would be by October 31 of 
the succeeding year. The reporting requirement would take effect before 
the effective date of the rule. Early submittal of this information 
would allow MMS to publish the representative market center-aggregation 
point location differentials in the Federal Register by the effective 
date of the final regulation. Then MMS would publish location 
differentials by January 31 of all subsequent years. MMS would publish 
differentials for different qualities/grades of crude oil if the data 
are sufficient and if multiple differentials are appropriate for the 
area. Each year following the year this regulation became effective, 
lessees would use the new published differentials beginning with 
January production royalties reported in February.
    MMS requests comments on Form MMS-4415 (See Appendix A), including:
     Its layout and information requested,
     Frequency and timing of submittal, frequency and timing of 
MMS's calculations and publication of differentials, and
     All other relevant comments.
Remainder of Section 206.105
    MMS proposes no changes to existing paragraphs (d) and (e) except 
to redesignate them as paragraphs (e) and (f).
    In addition to redesignating paragraph (f) as (g), MMS proposes to 
remove the reference to FERC or State approved tariffs to be consistent 
with the proposed deletion of paragraph 206.105(b). MMS proposes no 
change to existing paragraph (g) except to redesignate it as paragraph 
(h).
Section 206.106 Operating allowances.
    MMS proposes no changes to Section 206.106.
Proposed change to 30 CFR 208.4(b)(2).
    MMS currently sells RIK crude oil to small refiners under the 
provisions of 30 CFR 208. The RIK program is popular,

[[Page 3750]]

but has been criticized for several of its procedures. Much of the 
criticism stems from the fact that MMS prices the crude oil sold to 
small refiners at the values reported by the entities providing the in-
kind crude oil (producers). These values are reported on Form MMS-2014, 
and are subject to later adjustments. This method is onerous to the 
producers and creates risk for the small refiners.
    The Royalty Policy Committee (RPC) provided three possible 
improvement options for the oil RIK program, as follows:
     Eliminate reporting on the Form MMS-2014;
     Establish product value in the RIK contract; and
     Bill entitled volumes from the Form MMS-3160, Monthly 
Report of Operations.
    The RPC gave the following reason for its recommendations: The 
current method of administering the Federal oil RIK program is time-
consuming and burdensome on producers, small refiners, and MMS. The 
administrative burden includes reconciling what volumes the small 
refiner actually took, what value to assign the small refiner volumes, 
who is to pay for what volumes, and who owes for what volumes.
    MMS' proposal would tie RIK valuation to the index pricing 
provisions of 30 CFR 206.102(c)(2). MMS believes that changing the oil 
RIK valuation procedure as proposed would provide a cornerstone for a 
revised oil RIK program. In particular, the changes would provide 
certainty in pricing and would simplify reporting for producers. 
However, MMS realizes that the proposed change is significant, and 
requests comments on the proposal. In particular, MMS requests comments 
from crude oil producers and small refiners as to the impacts of the 
proposal on them. In addition, MMS requests comments from interested 
parties as to whether this proposed method of valuation would meet the 
fair market value definition of the Outer Continental Shelf (OCS) Lands 
Act.

IV. Procedural Matters

The Regulatory Flexibility Act

    The Department certifies that this rule will not have significant 
economic effect on a substantial number of small entities under the 
Regulatory Flexibility Act (5 U.S.C. Sec. 601 et seq.). This proposed 
rule would amend regulations governing the valuation for royalty 
purposes of crude oil produced from Federal leases. These changes would 
modify the valuation methods in the existing regulations. Small 
entities are encouraged to comment on this proposed rule.

Unfunded Mandates Reform Act of 1995

    The Department of the Interior has determined and certifies 
according to the Unfunded Mandates Reform Act, 2 U.S.C. Sec. 1502 et 
seq., that this rule will not impose a cost of $100 million or more in 
any given year on local, Tribal, or State governments, or the private 
sector.

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 12988

    The Department has certified to the Office of Management and Budget 
that this proposed rule meets the applicable civil justice reform 
standards provided in Sections 3(a) and 3(b)(2) of this Executive 
Order.

Executive Order 12866

    The Office of Management and Budget has determined this rule is a 
significant rule under this Executive Order 12866 Section 3(f)(4). 
Which states: ``Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
this Executive Order.'' The Department's analysis of these proposed 
revisions to the oil valuation regulations indicate these changes will 
not have a significant economic effect, as defined by Section 3(f)(4) 
of this Executive Order.

Paperwork Reduction Act

    This proposed rule contains a collection of information which has 
been submitted to the Office of Management and Budget (OMB) for review 
and approval under section 3507(d) of the Paperwork Reduction Act of 
1995. As part of our continuing effort to reduce paperwork and 
respondent burden, MMS invites the public and other Federal agencies to 
comment on any aspect of the reporting burden. Submit your comments to 
the Office of Information and Regulatory Affairs, OMB, Attention Desk 
Officer for the Department of the Interior, Washington, D.C. 20503. 
Send copies of your comments to: Minerals Management Service, Royalty 
Management Program, Rules and Procedures Staff, P.O. Box 25165, MS 
3101, Denver, Colorado, 80225-0165; courier address is: Building 85, 
Denver Federal Center, Denver, Colorado 80225; e:Mail address is: 
David__G[email protected].
    OMB may make a decision to approve or disapprove this collection of 
information after 30 days from receipt of our request. Therefore, your 
comments are best assured of being considered by OMB if OMB receives 
them within that time period. However, MMS will consider all comments 
received during the comment period for this notice of proposed 
rulemaking.
    The information collection is titled Oil Location Differential 
Report. Part of the valuation of oil not sold under arm's-length 
contracts rely on price indices that lessees may adjust for location 
differences between the index pricing point and the lease. Federal 
lessees and their affiliates would be required to give MMS information 
on the location differentials included in their various oil exchange 
agreements and sales contracts. From these data MMS would calculate and 
publish representative location differentials for lessees use in 
reporting royalties in different areas. This process would introduce 
certainty into royalty reporting.
    Rules establishing the use of Form MMS-4415 to report oil location 
differentials are at proposed 30 CFR 206.105(d)(3). Information 
provided on the forms may be used by MMS auditors and the Valuation and 
Standards Division (VSD).
    MMS estimates the annual reporting burden to be approximately 
32,000 hours. There are approximately 2,000 royalty payors on Federal 
and Indian leases. The MMS subject matter experts estimate that on 
average, these payors would have about 64 exchange agreements and sales 
contracts from which data would need to be extracted. This annual 
filing as required by 30 CFR 206.105(d)(3) could require about one-
quarter hour per report to extract the data from individual exchange 
agreements and sales contracts. Only a minimal recordkeeping burden 
would be imposed by this collection of information. Based on $25 per 
hour, the annual industry cost is estimated to be $800,000.
    In compliance with the requirement of Section 3506(c)(2)(A) of the 
Paperwork Reduction Act of 1995, MMS is providing notice and otherwise 
consulting with members of the public and affected agencies concerning 
collection of information in order to solicit comment to: (a) evaluate 
whether the proposed collection of information is necessary for the 
proper performance

[[Page 3751]]

of the functions of the agency, including whether the information shall 
have practical utility; (b) evaluate the accuracy of the agency's 
estimate of the burden of the proposed collection of information; (c) 
enhance the quality, utility, and clarity of the information to be 
collected; and (d) minimize the burden of the collection of information 
on those who are to respond, including through the use of automated 
collection techniques or other forms of information technology.
    The Paperwork Reduction Act of 1995 provides that an agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid OMB 
control number.

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. Sec. 4332(2)(C)) is not 
required.

List of Subjects in 30 CFR Parts 206 and 208

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

    Dated: December 30, 1996.
Bob Armstrong,
Assistant Secretary--Land, Minerals Management.

    For the reasons set out in the preamble, 30 CFR parts 206 and 208 
are proposed to be amended as follows:

PART 206--PRODUCT VALUATION

    1. The authority citation for Part 206 continues to read as 
follows:

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

Subpart C--Federal Oil

    2. Sections 206.100 through 206.102 are revised to read as follows:


Sec. 206.100  What is the purpose of this subpart?

    (a) This subpart applies to all oil produced from Federal oil and 
gas leases onshore and on the Outer Continental Shelf (OCS). It 
explains how lessees and designees must calculate the value of 
production for royalty purposes consistent with the mineral leasing 
laws, other applicable laws, and lease terms.
    (b) This subpart does not apply in three situations. The statute, 
settlement agreement, or lease provision will govern, if the 
regulations in this subpart are inconsistent with:
    (1) A Federal statute;
    (2) A settlement agreement between the United States and a lessee 
resulting from administrative or judicial litigation; or
    (3) An express provision of an oil and gas lease subject to this 
subpart.
    (c) MMS may audit and adjust all royalty payments.


Sec. 206.101  Definitions.

    The following definitions apply to this subpart:
    Aggregation point means a central point where production is 
aggregated for shipment to market centers or refineries. It includes, 
but is not limited to, blending and storage facilities and connections 
where pipelines join. Pipeline terminations at refining centers also 
are classified as aggregation points. MMS periodically will publish in 
the Federal Register a list of aggregation points and associated market 
centers.
    Area means a geographic region at least as large as the limits of 
an oil and/or gas field in which oil and/or gas lease products have 
similar quality, economic, and legal characteristics.
    Arm's-length contract means a contract or agreement between 
independent, nonaffiliated persons with opposing economic interests 
regarding that contract. Two persons are affiliated if one person 
controls, is controlled by, or is under common control with another 
person. Based on the instruments of ownership of the voting securities 
of an entity, or based on other forms of ownership: ownership over 50 
percent constitutes control; ownership of 10 through 50 percent creates 
a presumption of control; and ownership of less than 10 percent creates 
a presumption of noncontrol. MMS may rebut this presumption if it 
demonstrates actual or legal control, as through interlocking 
directorates. MMS may require the lessee to certify the percentage of 
ownership or control. Aside from the percentage ownership criteria, 
contracts between relatives, either by blood or by marriage, are not 
arm's-length contracts. To be considered arm's-length for any 
production month, a contract must satisfy this definition for that 
month, as well as when the contract was executed.
    Audit means a review, conducted under generally accepted accounting 
and auditing standards, of royalty payment compliance activities of 
lessees, designees or other persons who pay royalties, rents, or 
bonuses on Federal leases.
    BLM means the Bureau of Land Management of the Department of the 
Interior.
    Condensate means liquid hydrocarbons (normally exceeding 40 degrees 
of API gravity) recovered at the surface without processing. Condensate 
is the mixture of liquid hydrocarbons resulting from condensation of 
petroleum hydrocarbons existing initially in a gaseous phase in an 
underground reservoir.
    Contract means any oral or written agreement, including amendments 
or revisions, between two or more persons, that is enforceable by law 
and that with due consideration creates an obligation.
    Crude oil call means the right of one person to buy, at its option, 
all or a part of the second person's oil production from an oil and gas 
property. This right generally arises as a condition of the sale or 
farmout of that property from the first person to the second, or as a 
result of other transactions between them. The price basis may be 
specified when the property is sold or farmed out.
    Designee means the person the lessee designates to report and pay 
the lessee's royalties for a lease.
    Exchange agreement means an agreement where one person agrees to 
deliver oil to another person at a specified location in exchange for 
oil deliveries at another location. Exchange agreements may or may not 
specify prices for the oil involved. They frequently specify dollar 
amounts reflecting location, quality, or other differentials. Exchange 
agreements include ``buy/sell'' agreements, which specify prices to be 
paid at each exchange point and may appear to be two separate sales 
within the same agreement. Exchange agreements do not include 
``transportation'' agreements, whose principal purpose is 
transportation.
    Field means a geographic region situated over one or more 
subsurface oil and gas reservoirs and encompassing at least the 
outermost boundaries of all oil and gas accumulations known within 
those reservoirs, vertically projected to the land surface. State oil 
and gas regulatory agencies usually name onshore fields and designate 
their official boundaries. MMS names and designates boundaries of OCS 
fields.
    Gathering means the movement of lease production to a central 
accumulation or treatment point on the lease, unit, or communitized 
area, or to a central accumulation or treatment point off the lease, 
unit, or

[[Page 3752]]

communitized area that BLM or MMS approves for onshore and offshore 
leases, respectively.
    Gross proceeds means the total monies and other consideration 
accruing for the disposition of oil produced. Gross proceeds includes, 
but is not limited to the examples discussed in this definition. Gross 
proceeds include payments for services such as dehydration, 
measurement, and/or gathering which the lessee must perform at no cost 
to the Federal Government. It also includes the value of services, such 
as salt water disposal, that the producer normally performs but that 
the buyer performs on the producer's behalf. Gross proceeds also 
includes, but is not limited to, reimbursements for harboring or 
terminaling fees. Tax reimbursements are part of the gross proceeds 
even though the Federal royalty interest may be exempt from taxation. 
Monies and all other consideration a seller is contractually or legally 
entitled to, but does not seek to collect through reasonable efforts, 
are also part of gross proceeds.
    Index pricing means using NYMEX futures prices or Alaska North 
Slope (ANS) crude oil spot prices for royalty valuation.
    Index pricing point means the physical location where an index 
price is established in an MMS-approved publication.
    Lease means any contract, profit-share arrangement, joint venture, 
or other agreement issued or approved by the United States under a 
mineral leasing law that authorizes exploration for, development or 
extraction of, or removal of oil or gas products--or the land area 
covered by that authorization, whichever the context requires.
    Lessee means any person to whom the United States issues an oil and 
gas lease, an assignee of all or a part of the record title interest, 
or any person to whom operating rights in a lease have been assigned.
    Like-quality oil means oil with similar chemical, physical, and 
legal characteristics.
    Load oil means any oil used in the operation of oil or gas wells 
for wellbore stimulation, workover, chemical treatment, or production 
purposes. It does not include oil used at the surface to place lease 
production in marketable condition.
    Location differential means the value difference for oil at two 
different points.
    Market center means a major point MMS recognizes for oil sales, 
refining, or transshipment. Market centers generally are locations 
where MMS-approved publications publish oil spot prices.
    Marketable condition means oil sufficiently free from impurities 
and otherwise in a condition a purchaser will accept under a sales 
contract typical for the field or area.
    Minimum royalty means that minimum amount of annual royalty the 
lessee must pay as specified in the lease or in applicable leasing 
regulations.
    MMS-approved publication means a publication MMS approves for 
determining NYMEX or ANS prices, or determining location differentials.
    Net profit share (for applicable Federal leases) means the 
specified share of the net profit from production of oil and gas as 
provided in the agreement.
    Netting means reducing the reported sales value to account for 
transportation instead of reporting a transportation allowance as a 
separate line on Form MMS-2014.
    NYMEX means the New York Mercantile Exchange.
    Oil means a mixture of hydrocarbons that existed in the liquid 
phase in natural underground reservoirs, remains liquid at atmospheric 
pressure after passing through surface separating facilities, and is 
marketed or used as a liquid. Condensate recovered in lease separators 
or field facilities is considered oil.
    Outer Continental Shelf (OCS) means all submerged lands lying 
seaward and outside of the area of lands beneath navigable waters as 
defined in Section 2 of the Submerged Lands Act (43 U.S.C. 1301) and of 
which the subsoil and seabed appertain to the United States and are 
subject to its jurisdiction and control.
    Person means any individual, firm, corporation, association, 
partnership, consortium, or joint venture (when established as a 
separate entity).
    Quality differential means the value difference between two oils 
due to differences in their API gravity, sulfur content, viscosity, 
metals content, and other quality factors.
    Sale means a contract between two persons where:
    (1) The seller unconditionally transfers title to the oil to the 
buyer. The seller may not retain any related rights such as the right 
to buy back similar quantities of oil from the buyer elsewhere;
    (2) The buyer pays money or other consideration for the oil; and
    (3) The parties' intent is for a sale of the oil to occur.
    Section 6 lease means an OCS lease subject to section 6 of the 
Outer Continental Shelf Lands Act, as amended, 43 U.S.C. 1335.
    Spot price means the price under a spot sales contract where:
    (1) A seller agrees to sell to a buyer a specified amount of oil at 
a specified price over a specified period of short duration;
    (2) No cancellation notice is required to terminate the sales 
agreement; and
    (3) There is no obligation or implied intent to continue to sell in 
subsequent periods.
    Transportation allowance means a deduction in determining royalty 
value for the reasonable, actual costs of moving oil to a point of sale 
or delivery off the lease, unit area, or communitized area. The 
transportation allowance does not include gathering costs.


Sec. 206.102  How do I calculate royalty value for oil?

    This section explains how lessees and designees must calculate the 
value of oil production for royalty purposes. The value of oil produced 
from leases subject to this subpart is the value calculated under this 
section less applicable allowances determined under this subpart.
    (a) How do I value oil sold under an arm's-length sales contract? 
If you have an arm's-length contract for the sale of your oil, the 
value is the gross proceeds accruing to you.
    (1) Paragraphs (a)(2), (a)(3), (a)(4), (a)(5) and (a)(6) of this 
section contain exceptions to this section.
    (2) The royalty value you report is subject to MMS' monitoring, 
review, and audit. MMS may examine whether your oil sales contract 
reflects the total consideration actually transferred either directly 
or indirectly from the buyer to you. If it does not, then MMS may 
require that you value the oil sold under that contract under paragraph 
(c)(2) of this section or the total consideration, whichever is 
greater.
    (3)(i) MMS will provide you an opportunity to submit written 
information justifying the royalty value, if MMS determines that the 
value under this paragraph (a) does not reflect the reasonable value of 
the production due to either:
    (A) Misconduct by or between you and the other contracting party; 
or
    (B) Breach of your duty to market the oil for the mutual benefit of 
yourself and the lessor.
    (ii) If you cannot justify the value to MMS' satisfaction, MMS will 
require that you value the oil under paragraph (c)(2) of this section.
    (4) You may not use this paragraph (a) to value oil disposed of 
under an exchange agreement or for production that is subject to crude 
oil calls. Use paragraph (c)(2) of this section to value this oil 
production.

[[Page 3753]]

    (5) Your gross proceeds include payments made to reduce or buy down 
the purchase price of oil to be produced in later periods. You must 
allocate such payments over the production whose price the payment 
reduces and account for the payment as proceeds for the production as 
it occurs.
    (6) Even if you have an arm's-length contract for the sale of your 
oil, you must value your oil under paragraph (c)(2) of this section 
instead of this paragraph if you or any of your affiliates purchased 
crude oil from an unaffiliated third party in the United States in the 
2-year period preceding the production month.
    (b) What else must I do if I value oil under an arm's-length sales 
contract? (1) You must be able to demonstrate that your contract is an 
arm's-length sales contract.
    (2) MMS may require you to certify that your arm's-length contract 
provisions include all of the consideration the buyer must pay, either 
directly or indirectly, for the oil.
    (3) You must base value on the highest price you can receive 
through legally enforceable claims under your contract. If you fail to 
take proper or timely action to receive prices or benefits you are 
entitled to, you must pay royalty at a value based upon that obtainable 
price or benefit. If you make timely application for a price increase 
or benefit allowed under your contract but the purchaser refuses, and 
you take reasonable documented measures to force purchaser compliance, 
you will owe no additional royalties unless or until you receive monies 
or consideration resulting from the price increase or additional 
benefits. This paragraph (b) will not permit you to avoid your royalty 
payment obligation where a purchaser fails to pay, pays only in part, 
or pays late. Any contract revisions or amendments that reduce prices 
or benefits to which you are entitled must be in writing and signed by 
all parties to your arm's-length contract.
    (c) How do I value oil not sold under an arm's-length sales 
contract? This paragraph (c) explains how to value oil not sold under 
an arm's-length sales contract, or any other oil production you may not 
value under paragraph (a) of this section. Use the first of paragraphs 
(c)(1), (c)(2), or (c)(3) of this section that applies to you:
    (1) If you sell or transfer your oil production to an affiliate and 
either that affiliate or another affiliate disposes of the oil under an 
arm's-length sales contract, value is either:
    (i) The gross proceeds accruing to your affiliate under its arm's-
length sales contract using the same rules as paragraph (a) of this 
section; or
    (ii) The value according to paragraph (c)(2) of this section. If 
you elect to use this paragraph (c)(1)(ii) to value your oil, you must 
make the same election to value all oil that is produced from all your 
leases and is subject to this paragraph (c)(1). You may not use 
paragraph (c)(1)(i) of this section for some leases and this paragraph 
(c)(1)(ii) for other leases. However, you may change your election on 
January 1 the second year after the effective date of the final rule 
and January 1 every 2 years after that.
    (2) If neither you nor your affiliate disposes of the oil under an 
arm's-length sales contract, use this paragraph (c)(2) to value the 
oil:
    (i) For production from leases not in California or Alaska, value 
is the average of the daily NYMEX futures settle prices (Cushing, 
Oklahoma) for the Domestic Sweet crude oil contract for the prompt 
month. The prompt month is the earliest month for which futures are 
traded on the first day of the month of production. You must adjust the 
NYMEX prices for applicable location and quality differentials and you 
may adjust it for transportation costs under Sec. 206.105(c) of this 
subpart.
    (ii) For production from leases in California or Alaska, value is 
the average of the daily mean Alaska North Slope (ANS) spot prices for 
the month of production published in an MMS-approved publication (see 
paragraph (c)(4) of this section). You must adjust the spot prices for 
applicable location and quality differentials and you may adjust it for 
transportation costs under Sec. 206.105(c) of this subpart.
    (3) MMS will monitor the index prices in paragraph (c)(2) of this 
section. If MMS determines that NYMEX or ANS spot prices are 
unavailable or no longer represent reasonable royalty value, MMS will, 
by rule, amend paragraph (c)(2) of this section to establish a 
substitute valuation method.
    (4) MMS periodically will publish in the Federal Register a list of 
acceptable publications based on certain criteria, including but not 
limited to:
    (i) Publications buyers and sellers frequently use;
    (ii) Publications frequently mentioned in purchase or sales 
contracts;
    (iii) Publications which use adequate survey techniques, including 
development of spot price estimates based on daily surveys of buyers 
and sellers of ANS crude oil; or
    (iv) Publications independent from MMS, other lessors, and lessees.
    (5) Any publication may petition MMS to be added to the list of 
acceptable publications.
    (6) MMS will reference the tables you must use in the publications 
to determine the associated index prices.
    (d) What else must I do if I value oil under paragraph (c) of this 
section? If you determine the value of your oil production under 
paragraph (c) of this section, you must retain all data relevant to the 
determination of royalty value. Recordkeeping requirements are found at 
30 CFR 207.5. MMS may review and audit such data, and MMS will direct 
you to use a different value if it determines that the reported value 
is inconsistent with the requirements of this section.
    (e) What other general responsibilities do I have under this 
section? (1) You must place oil in marketable condition and market the 
oil for the mutual benefit of the lessee and the lessor at no cost to 
the Federal Government unless otherwise provided in the lease agreement 
or this section. If you establish value under this section as your 
gross proceeds, then you must increase value to the extent your gross 
proceeds are reduced because the purchaser, or any other person, 
provides certain services you normally would be responsible to perform 
to place the oil in marketable condition or to market the oil.
    (2) If MMS determines that you have not properly determined value, 
you must pay the difference, if any, between the royalty payments you 
made and those that are due based upon the value MMS establishes. You 
must also pay interest on the difference computed under 30 CFR 218.54. 
If you are entitled to a credit, MMS will provide instructions for 
taking that credit.
    (f) May I ask MMS to determine value? You may ask MMS to determine 
value. Propose a value determination method to MMS and use that value 
for royalty payments until MMS issues a value determination. You must 
submit all available data relevant to your proposal. MMS will promptly 
determine the proper procedure based upon your proposal and any 
additional information MMS deems necessary. In making a value 
determination, MMS may use any of the valuation criteria this subpart 
authorizes. In its determination letter, MMS will tell you the period 
for which the determination applies. After MMS issues its 
determination, you must make any needed adjustments under paragraph 
(e)(2) of this section.
    (g) How do value redeterminations relate to audit periods? No 
review, reconciliation, monitoring, or other like process that results 
in MMS

[[Page 3754]]

redetermining your oil royalty value will be considered final or 
binding on the Federal Government until MMS formally closes the audit 
period. However, if MMS directs you to compute royalties in a manner 
inconsistent with applicable lease terms or regulations, closing of the 
audit period does not forclose MMS from correcting the error and 
collecting any royalties due.
    (h) Does MMS protect information I provide? Certain information you 
submit to MMS to support valuation proposals, including transportation 
allowances, is exempt from disclosure under Federal law. MMS will keep 
confidential, under applicable laws and regulations, any data you 
submit that is privileged, confidential, or otherwise exempt. All 
requests for information about determinations made under this part must 
be submitted under the Freedom of Information Act regulation of the 
Department of the Interior, 43 CFR part 2.
    3. Section 206.104 is revised to read as follows:


Sec. 206.104  Transportation allowances and other adjustments--general.

    (a) What transportation allowances are permitted when I value 
production based on my gross proceeds? Where you value oil under 
Sec. 206.102 of this subpart based on gross proceeds from a sale at a 
point off the lease, unit, or communitized area, and the movement of 
the oil is not gathering, MMS will allow a deduction for your 
reasonable, actual costs to:
    (1) Transport oil from an onshore lease to the point off the lease 
under Sec. 206.105 (a) or (b), as applicable. However, for onshore 
leases, you may not take a transportation allowance for transporting 
oil taken as Royalty-In-Kind (RIK); or
    (2) Transport oil from an offshore lease to the point off the lease 
under Sec. 206.105 (a) or (b), as applicable. For oil taken as RIK, you 
may take a transportation allowance for your reasonable, actual costs 
to transport that oil to the delivery point specified in the contract 
between the RIK oil purchaser and the Federal Government.
    (b) What transportation allowances and other adjustments apply when 
I value production based on index pricing? If you value oil under 
Sec. 206.102(c)(2) of this subpart, MMS will allow a deduction for 
certain costs associated with transporting oil as provided under 
Sec. 206.105(c).
    (c) Are there limits on my transportation allowance? (1) Except as 
provided in paragraph (c)(2) of this section, your transportation 
allowance deduction may not exceed 50 percent of the value of the oil 
at the point of sale or aggregation point, as applicable, as determined 
under Sec. 206.102 of this subpart. You may not use transportation 
costs incurred to move a particular volume of production to reduce 
royalties owed on production on which those costs were not incurred.
    (2) You may ask MMS to approve a transportation allowance deduction 
in excess of the limitation in paragraph (c)(1) of this section. You 
must demonstrate that the transportation costs incurred were 
reasonable, actual, and necessary. Your application for exception 
(using Form MMS-4393-Request to Exceed Regulatory Allowance Limitation) 
must contain all relevant and supporting documentation necessary for 
MMS to make a determination. You may never reduce the royalty value of 
any production to zero.
    (d) Must I allocate transportation costs? You must allocate 
transportation costs among all products produced and transported as 
provided in Sec. 206.105 of this subpart. You must express 
transportation allowances for oil as dollars per barrel.
    (e) What additional payments may I be liable for? If MMS determines 
that you underpaid royalties because you took an excessive 
transportation allowance, then you must pay any additional royalties, 
plus interest under 30 CFR 218.54. You also could be entitled to a 
credit with interest if you understated your transportation allowance. 
If you take a deduction for transportation on Form MMS-2014 by 
improperly netting the allowance against the sales value of the oil 
instead of reporting the allowance as a separate line item, MMS may 
assess you an amount under Sec. 206.105(d) of this subpart.
    4. Section 206.105 is amended by revising the section heading, 
removing paragraph (b)(5), by redesignating paragraphs (c) through (g) 
as paragraphs (d) through (h), adding a new paragraph (c), and by 
revising newly redesignated paragraphs (d)(3) and (g) to read as 
follows:


Sec. 206.105  Determination of transportation allowances and other 
adjustments.

* * * * *
    (c) What adjustments and transportation allowance apply when I use 
index pricing? (1) When you use index pricing to calculate the value of 
production, under Sec. 206.102(c)(2), you must adjust the index price 
for the reasonable location/quality differentials (mandatory) and 
transportation costs (optional) to reflect value differences between 
the lease and the index pricing point. The adjustments and 
transportation allowances that might apply to your production are 
listed in paragraphs (c)(1)(i) through (v) of this section. See 
paragraphs (c)(2) through (c)(3) of this section to determine which 
adjustments and transportation allowances you must use based on how you 
dispose of your production and where your leases are located. These 
adjustments and transportation allowances are:
    (i) A location differential to reflect the difference in value of 
crude oils at the index pricing point and the appropriate market 
center. For any production month, the location differential is the 
difference between the average spot prices for that month for the 
respective crude oils at the index pricing point and at the market 
center. Use MMS-approved publications to determine average spot prices.
    (ii) An express location/quality differential under your arm's-
length exchange agreement that reflects the difference in value of 
crude oil at the aggregation point and the market center.
    (iii) A location/quality differential that MMS will publish 
annually based on data MMS collects on Form MMS-4415. MMS will 
calculate that differential using a volume-weighted average of the 
differentials reported on Form MMS-4415 for the previous reporting 
year. MMS may publish separate rates for various crude oil qualities 
that are identified separately on Form MMS-4415 (e.g. sweet vs. sour or 
gravity ranges). MMS will publish differentials that reflect both a 
location differential based on the market center/aggregation point 
pairs and a quality differential based on the type of crude oil. MMS 
will publish these differentials in the Federal Register by the 
effective date of the final regulation and by January 31 of all 
subsequent years. You must use MMS-published rates on a calendar year 
basis--apply them to January through December production reported 
February through the following January.
    (iv) Actual transportation costs from the aggregation point to the 
lease determined under this section.
    (v) Actual transportation costs from the market center to the lease 
determined under this section.
    (2) If your lease is not located in California or Alaska, use the 
applicable paragraph of paragraphs (c)(2)(i) through (iv) of this 
section to determine which adjustments and transportation allowances 
apply to your production:
    (i) If you dispose of your production under an arm's-length 
exchange agreement and that exchange agreement

[[Page 3755]]

has an express location differential to reflect the difference in value 
between the aggregation point for your lease and the associated market 
center, use paragraphs (c)(1)(i), (ii), and (iv) of this section to 
determine your adjustments and transportation allowance.
    (ii) If you do not move lease production through a MMS-identified 
aggregation point to a MMS-identified market center, but move it 
directly to an alternate disposal point (for example, your own 
refinery), use paragraphs (c)(1) (i) and (iv) of this section. In this 
situation, the market center for purposes of paragraph (c)(1)(i) of 
this section is MMS-identified market center nearest the lease where 
there is a published spot price for crude oil of like quality to your 
oil. You must use the spot price for the like-quality oil. The 
aggregation point for purposes of paragraph (c)(1)(iv) of this section 
is the alternate disposal point.
    (iii) If you move your oil directly to a MMS-identified market 
center index pricing point, deduct the actual transportation costs to 
that market center under (c)(1)(v) of this section.
    (iv) In all other situations, use paragraphs (c)(1) (i), (iii), and 
(iv) of this section.
    (3) If your lease is located in California or Alaska, the index 
pricing point (Los Angeles or San Francisco) is the same as the market 
center. Use the applicable paragraphs of paragraphs (c)(3) (i) through 
(iv) of this section to determine which adjustments and transportation 
allowances apply to your production.
    (i) If you dispose of your production under an arm's-length 
exchange agreement and that agreement has an express location 
differential to reflect the difference in value between the aggregation 
point for your lease and the associated market center, use paragraphs 
(c)(1) (ii) and (iv) of this section to determine your adjustments and 
transportation allowances.
    (ii) If you do not move lease production through a MMS-identified 
aggregation point to a MMS-identified market center, but move it 
directly to an alternate disposal point (for example, your own 
refinery), use paragraph (c)(1)(iv) of this section. For purposes of 
paragraph (c)(1)(iv) of this section only, the aggregation point is the 
alternate disposal point. In addition, use a location/quality 
differential calculated as the difference between the average of the 
published spot price for the production month in a MMS-approved 
publication at the aggregation point nearest the lease for which spot 
prices for like-quality crude oil are published and the published spot 
prices for ANS crude oil at the associated market center/index pricing 
point.
    (iii) If you move your oil directly to a MMS-identified market 
center, deduct the actual transportation costs to that market center 
under paragraph (c)(1)(v) of this section.
    (iv) In all other situations, use paragraphs (c)(1) (iii) and (iv) 
of this section.
    (4) If an MMS-calculated differential under paragraph (c)(1)(iii) 
of this section does not apply to your oil, either due to location or 
quality differences, you must request MMS to calculate a differential 
for you.
    (i) After MMS publishes its annual listing of location/quality 
differentials, you must file your request in writing with MMS for an 
MMS-calculated differential.
    (ii) You must provide clear evidence demonstrating why the 
published differential does not adequately reflect your circumstances.
    (iii) If you do not file a request for an MMS-calculated 
differential within 30 days after MMS publishes its annual listing of 
location differentials, MMS will calculate such a differential when it 
receives your request or when it discovers that the MMS-calculated 
differential under paragraph (c)(1)(iii) of this section does not apply 
to your oil. MMS will bill you for any additional royalties and 
interest due. MMS will not refund any overpayments you made due to your 
failure to timely request MMS to calculate a differential for you.
    (iv) File your request at the following address: Minerals 
Management Service, Royalty Management Program, Valuation and Standards 
Division, P.O. Box 25165, Mail Stop 3150, Denver, CO 80225-0165.
    (5) For the differentials referenced in paragraphs (c)(1)(i) and 
(c)(3)(ii) of this section, periodically MMS will publish in the 
Federal Register a list of acceptable publications. MMS' acceptance 
decision will be based on criteria which include but are not limited 
to:
    (i) Publications buyers and sellers frequently use;
    (ii) Publications frequently mentioned in purchase or sales 
contracts;
    (iii) Publications which use adequate survey techniques, including 
development of spot price estimates based on daily surveys of buyers 
and sellers of crude oil; or
    (iv) Publications independent from MMS, other lessors, and lessees.
    (6) Any publication may petition MMS to be added to the list of 
acceptable publications.
    (7) MMS will specify the tables you must use in the publications to 
determine the associated location differentials.
    (8) Periodically, MMS will publish in the Federal Register a list 
of aggregation points and the associated market centers. MMS will 
monitor market activity and, if necessary, add to or modify the list of 
market centers and aggregation points and will publish such 
modifications in the Federal Register. MMS will consider the following 
factors and conditions in specifying market centers and aggregation 
points:
    (i) Points where MMS-approved publications publish prices useful 
for index purposes;
    (ii) Markets served;
    (iii) Pipeline and other transportation linkage;
    (iv) Input from industry and others knowledgeable in crude oil 
marketing and transportation;
    (v) Simplification; and
    (vi) Other relevant matters.
    (d) Reporting requirements--(1) Arm's-length contracts.
* * * * *
    (3) What information must I provide to support index pricing 
adjustments, and how are they used? You must submit information on Form 
MMS-4415 related to all your and your affiliates' crude oil production, 
and not just information related to Federal lease production. All 
Federal lessees (or their affiliates, as appropriate) must initially 
submit Form MMS-4415 no later than 2 months after the effective date of 
this reporting requirement, and then by October 31 of the year this 
regulation takes effect and by October 31 of each succeeding year.
* * * * *
    (g) Actual or theoretical losses. Notwithstanding any other 
provision of this subpart, for other than arm's-length contracts, no 
cost shall be allowed for oil transportation which results from 
payments (either volumetric or for value) for actual or theoretical 
losses.
* * * * *

PART 208--SALE OF FEDERAL ROYALTY OIL

    5. The authority citation for Part 208 is revised to read as 
follows:

    Authority: 5 U.S.C. 301 et seq.; 30 U.S.C. 181 et seq., 351 et 
seq., 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq., 1331 et 
seq., and 1801 et seq.

    6. Section 208.4(b)(2) is revised to read as follows:


Sec. 208.4  Royalty oil sales to eligible refiners.

* * * * *
    (b) * * *

[[Page 3756]]

    (2) Effective with sales of royalty oil for the first full 
production month after the effective date of this rule, the sales price 
of all royalty oil from onshore and OCS leases will be the value 
determined under 30 CFR 206.102 (c)(2), regardless of whether oil 
produced from the lease is or would be valued for royalty purposes on 
that basis. MMS will calculate and provide that value to the buyer. For 
royalty oil from OCS leases only, the price will include associated 
transportation costs to the designated delivery point, if applicable.
* * * * *
    Note: The following Appendices will not appear in the Code of 
Federal Regulations.

BILLING CODE 4310-MR-P

[[Page 3757]]

[GRAPHIC] [TIFF OMITTED] TP24JA97.000



BILLING CODE 4310-MR-C

[[Page 3758]]

Instructions for Completing Form MMS-4415 Oil Location Differential 
Report

    This form's purpose is to collect value differential data for 
exchanged oil, whether the exchange takes place at the lease or 
downstream of the lease. These differentials may be related to 
quality, volume, or location. MMS will use this information to value 
Federal oil--see 30 CFR 206.105(d)(3). For each contract where oil 
is exchanged between non-affiliated parties, fill out the requested 
information on a separate Form MMS-4415. Attach additional sheets if 
necessary. Do not include production subject to call rights where 
another party has the right to purchase oil at some redefined price 
basis or to match other purchase offers.

Company (Payor) Information

    Fill out your company name (whether lessee or affiliate), 
address, and zip code. If additional forms are needed to provide the 
required information, the address may be omitted from subsequent 
forms provided that the cover form containing the address is 
attached.
    Write in your MMS payor code on each form submitted.
    Write in the reporting period this form covers.
    1. Contract Party Name: Write the name of the party you 
contracted with to transfer your oil. If that party has an MMS payor 
code, write it in the space provided (if known).
    2. Contract Type: Check the appropriate box to indicate the 
contract type. [Buy/Sell is an exchange where monetary value is 
assigned to settle both transactions in the exchange. Non-Cash 
Exchange is a transaction where no monetary value is assigned to 
either transaction in the exchange; instead, a dollar amount is 
assigned to the difference between the two values. Sales Subject to 
Balancing are transactions tied to an overall exchange agreement 
(either expressed or implied) where volumes purchased and sold by 
each party are in balance.] Also, fill in the Contract Number that 
would allow a third party to clearly identify the document.
    3. Contract Term: Fill in the date the contract started and its 
initial term in months. Check the expiration term that applies.
    4. Title Transfer Location: Check the appropriate box to 
indicate where you transferred title to your oil and where you took 
title to oil you received under the exchange. If title transferred 
at an MMS lease, write in the 10-digit MMS lease number. If the 
contract applies to production from multiple Federal leases, attach 
a separate sheet identifying them. Otherwise, check the appropriate 
box and enter the location that title transferred.
    Fill in the cost ($/barrel) of transporting oil you produced 
from the production location to the point where title transfers. If 
the contract so specifies (or this information is known to you) fill 
in this information for oil you receive or sell. Describe the terms 
(i.e. starting location, ending location) involved in the 
transportation of the oil. Use MMS aggregation points (if available) 
or State, Section/Township/Range if not an MMS aggregation point. 
Where oil traverses more than one aggregation point be sure to 
include all segments of the transportation route. Do not include the 
cost of gathering. Attach a separate sheet, if needed, to adequately 
describe the transportation.
    5. Volume Terms: Fill in the volume in barrels per day of oil 
sold or transferred. If the contract states that all available oil 
will be purchased, write in the estimated barrels per day of oil 
(sold/received). Otherwise, write in the fixed volume (sold/
received) specified in the contract.
    6. Crude Quality: Fill in the API Gravity of the oil you sold 
and the oil you received to the nearest tenth of a degree. Fill in 
the Sulfur Content of the oil you sold or transferred to the nearest 
tenth of a percent.
    7. Pricing Terms:
    Posted Price Basis: If the contract references a posted price, 
write in the name(s) of the company or companies posting(s) and the 
crude oil referenced in the posting(s). List any premium (+) or 
deduction (-) to the referenced price(s).
    Formula Price: If the contract uses a formula to determine 
price, completely describe the method used.
    Fixed Price: If the price is set through the duration of the 
contract, list the price per barrel.
    Other: Fully describe the method used if it is not covered under 
any of the above pricing provisions.
    8. Quality Adjustments:
    API Gravity: Check the appropriate box. If the gravity is 
deemed, write the deemed API gravity to the nearest tenth of a 
degree and any corresponding price adjustment from the contract. If 
an actual reference gravity is used to make an adjustment, write the 
gravity to the nearest tenth of a degree and the corresponding price 
adjustment from the contract.
    Sulfur or Other Adjustment: Write any other adjustment(s) 
specified in the contract and the $/barrel adjustment(s).
    The Paperwork Reduction Act of 1995 requires us to inform you of 
the following: (a) this information is being collected to aid the 
Minerals Management Service in its efforts at determining a fair 
value of oil for royalty calculation purposes from which location 
differentials can be calculated and published for lessees' use in 
reporting loyalties; (b) the burden to complete this report is 
estimated at one-quarter hour; (c) comments on the accuracy of this 
burden estimate or suggestions on reducing this burden should be 
directed to the ICCO, MS 2053, MMS, 381 Elden Street, Herndon, VA 
20170-4817; (d) this collection of information is mandatory and 
responses are considered proprietary (5 U.S.C. 552); and (e) an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a 
currently valid OMB control number.

Appendix B to Preamble of Oil Valuation Rule

    NYMEX Index Price Basis,
    Non-California Oil Production,
    September 1996 Production and Sale.

------------------------------------------------------------------------
                                                                 NYMEX  
           NYMEX trade date                NYMEX delivery        daily  
                                           (Prompt) month        close  
------------------------------------------------------------------------
Aug-21-96............................  Oct. 1996.............     $21.72
Aug-22-96............................  Oct. 1996.............      22.30
Aug-23-96............................  Oct. 1996.............      21.96
Aug-26-96............................  Oct. 1996.............      21.62
Aug-27-96............................  Oct. 1996.............      21.56
Aug-28-96............................  Oct. 1996.............      21.71
Aug-29-96............................  Oct. 1996.............      22.15
Aug-30-96............................  Oct. 1996.............      22.25
Sept-03-96...........................  Oct. 1996.............      23.40
Sept-04-96...........................  Oct. 1996.............      23.24
Sept-05-96...........................  Oct. 1996.............      23.44
Sept-06-96...........................  Oct. 1996.............      23.85
Sept-09-96...........................  Oct. 1996.............      23.73
Sept-10-96...........................  Oct. 1996.............      24.12
Sept-11-96...........................  Oct. 1996.............      24.75
Sept-12-96...........................  Oct. 1996.............      25.00
Sept-13-96...........................  Oct. 1996.............      24.51
Sept-16-96...........................  Oct. 1996.............      23.19
Sept-17-96...........................  Oct. 1996.............      23.31
Sept-18-96...........................  Oct. 1996.............      23.89
Sept-19-96...........................  Oct. 1996.............      23.54
Sept-20-96...........................  Oct. 1996.............      23.63
------------------------------------------------------------------------

    NYMEX Average Price for September 1996 Prod.--$23.13.

Appendix C to Preamble of Oil Valuation Rule

    ANS Spot Index Price Basis, California Oil Production, September 
1996 Production and Sale.

------------------------------------------------------------------------
                                                               Final ANS
                                          ANS spot delivery       spot  
         ANS spot trade date                    month           assess. 
                                                                 (mean) 
------------------------------------------------------------------------
Aug-26-96............................  Oct. 1996.............     $19.55
Aug-27-96............................  Oct. 1996.............      19.49
Aug-28-96............................  Oct. 1996.............      19.68
Aug-29-96............................  Oct. 1996.............      20.16
Aug-30-96............................  Oct. 1996.............      20.23
Sept-03-96...........................  Oct. 1996.............      21.43
Sept-04-96...........................  Oct. 1996.............      21.19
Sept-05-96...........................  Oct. 1996.............      21.39
Sept-06-96...........................  Oct. 1996.............      21.70
Sept-09-96...........................  Oct. 1996.............      21.57
Sept-10-96...........................  Oct. 1996.............      21.95
Sept-11-96...........................  Oct. 1996.............      22.45
Sept-12-96...........................  Oct. 1996.............      22.88
Sept-13-96...........................  Oct. 1996.............      22.21
Sept-16-96...........................  Oct. 1996.............      20.85
Sept-17-96...........................  Oct. 1996.............      20.99
Sept-18-96...........................  Oct. 1996.............      21.54
Sept-19-96...........................  Oct. 1996.............      21.24
Sept-20-96...........................  Oct. 1996.............      21.42
Sept-23-96...........................  Oct. 1996.............      21.55
Sept-24-96...........................  Oct. 1996.............      21.81
Sept-25-96...........................  Oct. 1996.............      22.16
------------------------------------------------------------------------

    ANS Average Spot Price for September 1996 Prod.--$21.25.

Appendix D to Preamble of Oil Valuation Rule

    WTI Spot Price, Market Center: Cushing, OK, September 1996 
Production and Sale.

[[Page 3759]]



------------------------------------------------------------------------
                                                                 Final  
                                                                cushing 
     Cushing WTI spot trade date          Cushing WTI spot      WTI spot
                                           delivery month       assess. 
                                                                 (mean) 
------------------------------------------------------------------------
Aug-26-96............................  Oct. 1996.............     $21.60
Aug-27-96............................  Oct. 1996.............      21.54
Aug-28-96............................  Oct. 1996.............      21.73
Aug-29-96............................  Oct. 1996.............      22.21
Aug-30-96............................  Oct. 1996.............      22.28
Sept-03-96...........................  Oct. 1996.............      23.48
Sept-04-96...........................  Oct. 1996.............      23.24
Sept-05-96...........................  Oct. 1996.............      23.44
Sept-06-96...........................  Oct. 1996.............      23.85
Sept-09-96...........................  Oct. 1996.............      23.72
Sept-10-96...........................  Oct. 1996.............      24.10
Sept-11-96...........................  Oct. 1996.............      24.70
Sept-12-96...........................  Oct. 1996.............      25.15
Sept-13-96...........................  Oct. 1996.............      24.51
Sept-16-96...........................  Oct. 1996.............      23.15
Sept-17-96...........................  Oct. 1996.............      23.29
Sept-18-96...........................  Oct. 1996.............      23.84
Sept-19-96...........................  Oct. 1996.............      23.54
Sept-20-96...........................  Oct. 1996.............      23.72
Sept-23-96...........................  Oct. 1996.............      23.85
Sept-24-96...........................  Oct. 1996.............      24.50
Sept-25-96...........................  Oct. 1996.............      24.71
------------------------------------------------------------------------

    Cushing WTI Avg Spot Price for September 1996--$23.46.

Appendix E to Preamble of Oil Valuation Rule

    Light Louisiana Sweet (LLS) Spot Price, Market Center: St. 
James, LA, September 1996 Production and Sale.

------------------------------------------------------------------------
                                                               Final LLS
                                          LLS spot delivery       spot  
         LLS spot trade date                    month           assess. 
                                                                 (mean) 
------------------------------------------------------------------------
Aug-26-96............................  Oct. 1996.............     $21.88
Aug-27-96............................  Oct. 1996.............      21.84
Aug-28-96............................  Oct. 1996.............      22.01
Aug-29-96............................  Oct. 1996.............      22.51
Aug-30-96............................  Oct. 1996.............      22.57
Sept-03-96...........................  Oct. 1996.............      23.82
Sept-04-96...........................  Oct. 1996.............      23.55
Sept-05-96...........................  Oct. 1996.............      23.79
Sept-06-96...........................  Oct. 1996.............      24.22
Sept-09-96...........................  Oct. 1996.............      24.10
Sept-10-96...........................  Oct. 1996.............      24.47
Sept-11-96...........................  Oct. 1996.............      25.06
Sept-12-96...........................  Oct. 1996.............      25.48
Sept-13-96...........................  Oct. 1996.............      24.82
Sept-16-96...........................  Oct. 1996.............      23.42
Sept-17-96...........................  Oct. 1996.............      23.57
Sept-18-96...........................  Oct. 1996.............      24.06
Sept-19-96...........................  Oct. 1996.............      23.50
Sept-20-96...........................  Oct. 1996.............      23.67
Sept-23-96...........................  Oct. 1996.............      23.66
Sept-24-96...........................  Oct. 1996.............      24.29
Sept-25-96...........................  Oct. 1996.............      24.61
------------------------------------------------------------------------

    St. James LLS Avg Spot Price for September 1996--$23.68.

Appendix F to Preamble of Oil Valuation Rule

    NYMEX-based Oil Royalty Computation, Non-California Oil 
Production, OCS-Louisiana, Market Center: St. James, LA, September 
1996 Production and Sale.

NYMEX Average Close Price....................                    $23.13 
Cushing/Market Center Location Differential:                            
    WTI Cushing Average Spot Price...........       $23.46              
    St. James Average Spot Price.............        23.68              
    St. James over (under) WTI Cushing.......                       .22 
Market Center/Aggregation Point Location and                            
 Quality Differential (Exchange Agreement):                             
    Transportation and Quality Differential                             
     from OCS Aggregation Point to St. James.                      (.40)
Transportation Allowance:                                               
    Transportation costs from OCS lease to                              
     Aggregation Point.......................                      (.90)
    Royalty Value per barrel.................                     22.05 
                                                                        

Appendix G to Preamble of Oil Valuation Rule

    ANS-based Oil Royalty Computation, California Oil Production, 
Onshore California: Midway-Sunset, Market Center: Los Angeles, CA, 
September 1996 Production and Sale.

ANS Average Spot Price....................................       $21.25 
ANS/Aggregation Point Location and Quality Differential                 
 (Exchange Agreement):                                                  
    Transportation and Quality Differential from Onshore                
     Aggregation Point--Midway-Sunset to Los Angeles......        (4.78)
Transportation Allowance:                                               
    Transportation costs from CA lease to Aggregation                   
     Point--Midway-Sunset.................................         (.20)
    Royalty Value per barrel..............................        16.27 
                                                                        

Appendix H to Preamble of Oil Valuation Rule

------------------------------------------------------------------------
                                                      County/Offshore   
         State               Station location            location       
------------------------------------------------------------------------
AL.....................  Marion Corp. Connection  Mobile.               
AL.....................  Mobile.................  Mobile.               
AL.....................  Saraland Terminal......  Mobile.               
AL.....................  Ten Mile Point Terminal  Mobile.               
CA.....................  Coalinga...............  Fresno.               
CA.....................  Belridge...............  Kern.                 
CA.....................  Fellows................  Kern.                 
CA.....................  Kelley.................  Kern.                 
CA.....................  Leutholtz Jct..........  Kern.                 
CA.....................  Pentland...............  Kern.                 
CA.....................  Midway.................  Kern.                 
CA.....................  Station 36-Kern River..  Kern.                 
CA.....................  Newhall................  Los Angeles.          
CA.....................  Sunset.................  Los Angeles.          
CA.....................  Cadiz..................  San Bernadino.        
CA.....................  Avila..................  San Luis Obispo.      
CA.....................  Gaviota Terminal.......  Santa Barbara.        
CA.....................  Lompoc.................  Santa Barbara.        

[[Page 3760]]

                                                                        
CA.....................  Sisquoc Jct............  Santa Barbara.        
CA.....................  Filmore................  Ventura.              
CA.....................  Rincon.................  Ventura.              
CA.....................  Ventura................  Ventura.              
CA.....................  Junction...............  (County Unknown).     
CA.....................  Lake...................  (County Unknown).     
CA.....................  Rio Bravo..............  (County Unknown).     
CA.....................  Santa Paula............  (County Unknown).     
CA.....................  Signa..................  (County Unknown).     
CA.....................  Stewart................  (County Unknown).     
CO.....................  Denver.................  Adams.                
CO.....................  Cheyenne Wells Station.  Cheyenne.             
CO.....................  Iles...................  (County Unknown).     
CO.....................  Sterling...............  Logan.                
CO.....................  Fruita.................  Mesa.                 
CO.....................  Rangley................  Rio Blanca.           
KS.....................  Humbolt-Williams P.L...  Allen.                
KS.....................  Augusta................  Butler.               
KS.....................  Eldorado...............  Butler.               
KS.....................  Harper's Ranch.........  Clark.                
KS.....................  Arkansas City..........  Cowley.               
KS.....................  McPherson Sta..........  McPherson.            
KS.....................  Caney..................  Montgomery.           
KS.....................  Laton Sta..............  Osborne.              
KS.....................  Herndon Station........  Rawlings.             
KS.....................  Rawlings Sta...........  Rice.                 
KS.....................  Lyons Station..........  Sedgwick.             
KS.....................  Valley Center..........  Thomas.               
KS.....................  Bemis St...............  (County Unknown).     
KS.....................  Broome St..............  (County Unknown).     
KS.....................  Towlanda...............  (County Unknown).     
LA.....................  Brown Sta..............  Caddo.                
LA.....................  Clifton Ridge..........  Calcasieu.            
LA.....................  Conoco Jct.............  Calcasieu.            
LA.....................  Lake Charles...........  Calcasieu.            
LA.....................  Pecan Grove............  Calcasieu.            
LA.....................  Rose Bluff.............  Calcasieu.            
LA.....................  Texaco Jct.............  Calcasieu.            
LA.....................  Grand Chenier Term.....  Cameron.              
LA.....................  Hainesville Sta........  Claiborne.            
LA.....................  Maryland...............  East Baton Rouge.     
LA.....................  Bayou Fifi.............  Jefferson.            
LA.....................  Grand Isle.............  Jefferson.            
LA.....................  Bay Marchand Term......  Lafourche.            
LA.....................  Bayou Fourchon.........  Lafourche.            
LA.....................  Clovelly...............  Lafourche.            
LA.....................  Clovelly Storage Dome..  Lafourche.            
LA.....................  Elmers Jct.............  Lafourche.            
LA.....................  Fourchon Terminal......  Lafourche.            
LA.....................  Golden Meadow..........  Lafourche.            
LA.....................  Larose Barge Terminal..  Lafourche.            
LA.....................  Pass Fourchon P.L......  Lafourche.            
LA.....................  Blk. 28 Tie-in.........  Offshore East Cameron.
LA.....................  Blk. 23................  Offshore Eugene       
                                                   Island.              
LA.....................  Blk. 51 B Platform.....  Offshore Eugene       
                                                   Island.              
LA.....................  Blk. 188 A Structure...  Offshore Eugene       
                                                   Island.              
LA.....................  Blk. 259...............  Offshore Eugene       
                                                   Island.              
LA.....................  Blk. 316...............  Offshore Eugene       
                                                   Island.              
LA.....................  Blk. 337 Subsea Tie-in.  Offshore Eugene       
                                                   Island.              
LA.....................  Blk. 361...............  Offshore Eugene       
                                                   Island.              
LA.....................  Texas P.L. Subsea Tie-   Offshore Eugene       
                          in.                      Island.              
LA.....................  Blk. 17................  Offshore Grand Isle.  
LA.....................  Blk. 42--Chevron P.L...  Offshore Main Pass.   
LA.....................  Blk. 42L...............  Offshore Main Pass.   
LA.....................  Blk. 69 B Plat.........  Offshore Main Pass.   
LA.....................  Blk. 77 (Pompano P.L.    Offshore Main Pass.   
                          Jct.).                                        
LA.....................  Blk. 144 Structure A...  Offshore Main Pass.   
LA.....................  Blk. 298 Plat. A.......  Offshore Main Pass.   
LA.....................  Blk. 299 Platform......  Offshore Main Pass.   
LA.....................  Blk. 28................  Offshore Ship Shoal.  
LA.....................  Blk. 154...............  Offshore Ship Shoal.  
LA.....................  Blk. 169...............  Offshore Ship Shoal.  
LA.....................  Blk. 203 Subsea Tie-in.  Offshore Ship Shoal.  
LA.....................  Blk. 208...............  Offshore Ship Shoal.  

[[Page 3761]]

                                                                        
LA.....................  Blk. 208 B Structure...  Offshore Ship Shoal.  
LA.....................  Blk. 208 F.............  Offshore Ship Shoal.  
LA.....................  Ship Shoal Area........  Offshore Ship Shoal.  
LA.....................  Blk. 6.................  Offshore South Marsh  
                                                   Island.              
LA.....................  Blk. 10--Structure A...  Offshore South Marsh  
                                                   Island.              
LA.....................  Blk. 58A...............  Offshore South Marsh  
                                                   Island.              
LA.....................  Blk. 139...............  Offshore South Marsh  
                                                   Island.              
LA.....................  Blk. 139 Subsea Tap      Offshore South Marsh  
                          Valve Connect.           Island.              
LA.....................  Blk. 207--Light House    Offshore South Marsh  
                          Point A.                 Island.              
LA.....................  Blk. 268--Platform A...  Offshore South Marsh  
                                                   Island.              
LA.....................  Blk. 55................  Offshore--South Pass. 
LA.....................  Blk. 13 (Wesco P.L.      Offshore--South Pelto.
                          Subsea Tie-in).                               
LA.....................  Blk. 35 Platform D.....  Offshore--S.          
                                                   Timbalier.           
LA.....................  Blk. 52 Plat. A........  Offshore--S.          
                                                   Timbalier.           
LA.....................  Blk. 172 Plat. D.......  Offshore--S.          
                                                   Timbalier.           
LA.....................  Blk. 196 Exxon P.L.      Offshore--S.          
                          System Tie-in.           Timbalier.           
LA.....................  Blk. 300...............  Offshore--S.          
                                                   Timbalier.           
LA.....................  Blk. 255...............  Offshore Vermilion.   
LA.....................  Blk. 265 Platform A....  Offshore Vermilion.   
LA.....................  Blk. 350...............  Offshore Vermilion.   
LA.....................  Blk. 30................  Offshore--West Delta. 
LA.....................  Blk. 53................  Offshore--West Delta. 
LA.....................  Blk. 53 Plat. B........  Offshore--West Delta. 
LA.....................  Blk. 53B--Chevron P.L..  Offshore--West Delta. 
LA.....................  Blk. 53B Plat. Gulf      Offshore--West Delta. 
                          Refining Co..                                 
LA.....................  Blk. 83................  Offshore--West Delta. 
LA.....................  Alliance Refinery......  Plaquemines.          
LA.....................  Empire Terminal........  Plaquemines.          
LA.....................  Main Pass..............  Plaquemines.          
LA.....................  Main Pass Blk. 69......  Plaquemines.          
LA.....................  Ostrica Term...........  Plaquemines.          
LA.....................  Pelican Island.........  Plaquemines.          
LA.....................  Pilottown..............  Plaquemines.          
LA.....................  Romere Pass............  Plaquemines.          
LA.....................  South Pass Blk. 60A....  Plaquemines.          
LA.....................  South Pass Blk. 27.....  Plaquemines.          
LA.....................  Onshore facil..........  Plaquemines.          
LA.....................  South Pass Blk. 24.....  Plaquemines.          
LA.....................  South Pass Blk. 24       Plaquemines.          
                          Onshore Plat..                                
LA.....................  Southwest Pass Sta.....  Plaquemines.          
LA.....................  West Delta Blk. 53.....  Plaquemines.          
LA.....................  West Delta Rec'vg Sta.-- Plaquemines.          
                          Onshore.                                      
LA.....................  Dehli..................  Richland.             
LA.....................  Chalmette..............  St. Bernard.          
LA.....................  Norco (Shell Refinery).  St. Charles.          
LA.....................  St. James..............  St. James.            
LA.....................  Bayou Sale.............  St. Mary.             
LA.....................  Burns Term.............  St. Mary.             
LA.....................  Charenton..............  St. Mary.             
LA.....................  South Bend.............  St. Mary.             
LA.....................  Caillou Island.........  Terrebonne.           
LA.....................  Caillou Island Fld.....  Terrebonne.           
LA.....................  Gibson Term............  Terrebonne.           
LA.....................  Erath..................  Vermilion.            
LA.....................  Forked Island..........  Vermilion.            
LA.....................  Mermentau River Station  Vermilion.            
LA.....................  Anchorage..............  West Baton Rouge.     
LA.....................  Grand Lake Terminal....  (County Unknown).     
LA.....................  Twin Island Terminal...  (County Unknown).     
LA.....................  Lakeside Terminal......  (County Unknown).     
LA.....................  Bayou Penchant Terminal  (County Unknown).     
LA.....................  Gibbstown Terminal.....  (County Unknown).     
LA.....................  Bluewater Terminal.....  (County Unknown).     
LA.....................  Cocodrie Terminal......  (County Unknown).     
MI.....................  Bay City...............  Bay.                  
MI.....................  Montcalm...............  Carson City.          
MI.....................  Lewiston...............  Crawford.             
MI.....................  Kalamazoo..............  Fulton Takeoff.       
MI.....................  Alma...................  Gratiot.              
MI.....................  St. Clair..............  Marysville.           
MI.....................  Monroe.................  Samaria Sta.          
MI.....................  Ingham.................  Stockbridge.          
MI.....................  Detroit................  Wayne.                
MI.....................  Ogemaw.................  West Branch.          

[[Page 3762]]

                                                                        
MS.....................  Liberty................  Amite.                
MS.....................  Mayersville............  Issaquena.            
MS.....................  Pascogoula.............  Jackson.              
MS.....................  Soso...................  Jones.                
MS.....................  Lumberton..............  Lamar.                
MS.....................  Purvis.................  Lamar.                
MS.....................  Collierville Station...  Marshall.             
MT.....................  Silver Tip Station.....  Carbon.               
MT.....................  Alzada.................  Carter.               
MT.....................  Richey Station.........  Dawson.               
MT.....................  Baker..................  Fallon.               
MT.....................  Cut Bank Station.......  Glacier.              
MT.....................  Bell Creek Station.....  Powder River.         
MT.....................  Poplar Station.........  Roosevelt.            
MT.....................  Billings...............  Yellowstone.          
MT.....................  Laurel.................  Yellowstone.          
MT.....................  Clear Lake Sta.........  (County Unknown).     
ND.....................  Fryburg Station........  Billings.             
ND.....................  Tree Top Station.......  Billings.             
ND.....................  Lignite................  Burke.                
ND.....................  Alexander..............  McKenzie.             
ND.....................  Keene..................  McKenzie.             
ND.....................  Killdear...............  Dunn.                 
ND.....................  Mandan.................  Morton.               
ND.....................  Tioga..................  Ramberg.              
ND.....................  Ramberg................  Williams.             
ND.....................  Thunderbird Refinery...  Williams.             
ND.....................  Tioga..................  Williams.             
ND.....................  Trenton................  Williams.             
NM.....................  Jal....................  Lea.                  
NM.....................  Lovington..............  Lea.                  
NM.....................  Ciniza.................  McKinley.             
NM.....................  Bisti Jct..............  San Juan.             
NM.....................  Navajo Jct.............  San Juan.             
TX.....................  Carson Station.........  Archer.               
TX.....................  Holliday...............  Archer.               
TX.....................  Fullerton..............  Andrews.              
TX.....................  Buccaneer Term.........  Brazoria.             
TX.....................  Sweeney Sta............  Brazoria.             
TX.....................  Mont Belvieu...........  Chambers.             
TX.....................  Crane..................  Crane.                
TX.....................  Ranger.................  Eastland.             
TX.....................  Caproch Jct............  Ector.                
TX.....................  Odessa.................  Ector.                
TX.....................  North Cowden...........  Ector.                
TX.....................  Wheeler................  Ector.                
TX.....................  El Paso................  El Paso.              
TX.....................  Missouri City Jct......  Fort Bend.            
TX.....................  Winnsboro..............  Franklin.             
TX.....................  Worthham...............  Freestone.            
TX.....................  Pearsall Sta...........  Frio.                 
TX.....................  Texas City.............  Galveston.            
TX.....................  Roberts................  Glasscock.            
TX.....................  Covey Station..........  Grayson.              
TX.....................  Bumpus Sta.............  Gregg.                
TX.....................  Kilgore St.............  Gregg.                
TX.....................  Longview...............  Gregg.                
TX.....................  Longview Mid-Valley....  Gregg.                
TX.....................  Sabine Sta. Amoco P.L..  Gregg.                
TX.....................  Mobil Jct..............  Hardin.               
TX.....................  Sour Lake..............  Hardin.               
TX.....................  Baytown................  Harris.               
TX.....................  Exxon Jct..............  Harris.               
TX.....................  Genoa Jct..............  Harris.               
TX.....................  Houston................  Harris.               
TX.....................  Pasadena...............  Harris.               
TX.....................  Webster................  Harris.               
TX.....................  Hillsboro..............  Hill.                 
TX.....................  Big Spring.............  Howard.               
TX.....................  Phillips Hutchinson....  Howard.               
TX.....................  Jacksboro Sta..........  Jack.                 
TX.....................  Beaumont...............  Jefferson.            
TX.....................  Lucas..................  Jefferson.            
TX.....................  Nederland..............  Jefferson.            

[[Page 3763]]

                                                                        
TX.....................  Port Arthur............  Jefferson.            
TX.....................  Port Neches............  Jefferson.            
TX.....................  Sabine Pass............  Jefferson.            
TX.....................  Mexia Jct..............  Limestone.            
TX.....................  Midland................  Midland.              
TX.....................  Colorado City Station..  Mitchell.             
TX.....................  McKee..................  Moore.                
TX.....................  Corsicanna.............  Navarro.              
TX.....................  American Petrofina.....  Nueces.               
TX.....................  Corpus Christi.........  Nueces.               
TX.....................  Harbor Island..........  Nueces.               
TX.....................  Beaver Station.........  Ochiltree             
TX.....................  Blk. 474--Inters. Seg.   Offshore--High Island.
                          III, III-7.                                   
TX.....................  Blk. A-571.............  Offshore--High Island.
TX.....................  End Segment II.........  Offshore--High Island.
TX.....................  End Segment III--10....  Offshore--High Island.
TX.....................  End Segment III--10      Offshore--High Island.
                          (Blk. 547).                                   
TX.....................  End Segment III--6.....  Offshore--High Island.
TX.....................  Irran Sta..............  Pecos.                
TX.....................  Kemper.................  Reagan.               
TX.....................  Mason Jct..............  Reeves.               
TX.....................  Rufugio Sta............  Rufugio.              
TX.....................  Midway.................  San Patricio.         
TX.....................  Eldorado...............  Scheicher.            
TX.....................  Basin Station..........  Scurry.               
TX.....................  Colorado City..........  Scurry.               
TX.....................  Ft. Worth..............  Tarrant.              
TX.....................  Merkel.................  Taylor.               
TX.....................  Tye....................  Taylor.               
TX.....................  McCamey................  Upton.                
TX.....................  Mesa Sta...............  Upton.                
TX.....................  Burkburnett............  Wichita.              
TX.....................  KMA--Total P.L.........  Wichita.              
TX.....................  Wichita Falls..........  Wichita.              
TX.....................  Halley.................  Winkler.              
TX.....................  Hendrick/Hendrick-Wink.  Winkler.              
TX.....................  Keystone...............  Winkler.              
TX.....................  Wink...................  Winkler.              
TX.....................  South Bend.............  Young.                
TX.....................  Channel View Jct.......  (County Unknown).     
TX.....................  Clear Creek Sta........  (County Unknown).     
TX.....................  Oyster Lake Term.......  (County Unknown).     
TX.....................  Queens Jct.............  (County Unknown).     
TX.....................  Spacek Sta.............  (County Unknown).     
TX.....................  Jolly Jct..............  (County Unknown).     
TX.....................  Nettleton Sta..........  (County Unknown).     
TX.....................  Trent Sta..............  (County Unknown).     
------------------------------------------------------------------------

[FR Doc. 97-1573 Filed 1-23-97; 8:45 am]
Billing Code 4310-MR-P