[Federal Register Volume 62, Number 150 (Tuesday, August 5, 1997)] [Rules and Regulations] [Pages 42062-42067] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 97-20592] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE INTERIOR Minerals Management Service 30 CFR Parts 210 and 218 RIN 1010-AC38 Designation of Payor Recordkeeping AGENCY: Minerals Management Service, Interior. ACTION: Interim final rulemaking. ----------------------------------------------------------------------- SUMMARY: The Minerals Management Service (MMS) Royalty Management Program (RMP) is amending its regulations to authorize the collection of information from lessees and payors concerning designations by lessees of other persons to make royalty and other payments on their behalf. DATES: This rule is effective August 5, 1997. Comments regarding this interim final rulemaking and the information collection must be received on or before October 6, 1997. ADDRESSES: Comments should be sent to: David S. Guzy, Chief, Rules and Publications Staff, Royalty Management [[Page 42063]] Program, Minerals Management Service, P.O. Box 25165, MS 3021, Denver, Colorado 80225-0165; courier delivery to Building 85, Denver Federal Center, Denver, Colorado 80225; or e-Mail David--G[email protected]. FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and Publications Staff, Royalty Management Program, Minerals Management Service, telephone (303) 231-3432, Fax (303) 231-3385, e-Mail David__G[email protected]. SUPPLEMENTARY INFORMATION: The principal authors of this rulemaking are Kenneth R. Vogel, of the Minerals Management Service Office of Enforcement and Sarah Inderbitzin of the Department of the Interior Office of the Solicitor. I. General On August 13, 1996, Congress enacted the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996, Pub. L. 104-185, as corrected by Pub. L. 104-200 (RSFA). RSFA amends portions of the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA), 30 U.S.C. 1701 et seq., to provide that an owner of operating rights in a Federal oil and gas lease onshore or on the Outer Continental Shelf (OCS) is primarily liable for royalty payments owed on its portion of its lease, and that the owners of record title for such lease are secondarily liable, 30 U.S.C. 1712(a). It also allows lessees, which include both operating rights and record title owners, 30 U.S.C. 1701(7), to designate another person to pay royalties on their behalf by written notice to MMS, 30 U.S.C. 1712(a). Finally, it provides that the persons so designated are not liable for any payment obligations under such leases. Id. This rule provides a mechanism to make the match between lessees and the persons they designate to make royalty and other payments on their behalf consistent with RSFA and existing royalty collection practices. Prior to the enactment of RSFA, MMS would allow any person to report and pay royalties and other payments on a Federal oil and gas lease onshore or on the OCS simply by declaring itself a ``payor'' for the lease and filing a Form MMS-4025, Payor Information Form (PIF) (OMB 1010-0033). 30 CFR 210.10(c)(3). MMS's Auditing and Financial System (AFS) requires that a royalty payor file a PIF for oil and gas or Form MMS-4030, Solid Minerals Payor Information Form, and be assigned a payor code before the system will accept the monthly Form MMS-2014, Report of Sales and Royalty Remittance. See the MMS ``Oil and Gas Payor Handbook,'' Volume 1, at Chapter 2; and the MMS ``Solid Minerals Payor Handbook'' at Chapter 2. A key to this reporting system is the MMS Accounting Identification Number (AID). The AID is a 13-digit number in two parts. The first 10 digits are an MMS assigned lease number, which is converted from the Bureau of Land Management (BLM) or MMS Offshore Minerals Management (OMM) lease number. It consists of a three-digit prefix, a six-digit body, and a one or 2-digit suffix. The last three digits of the AID are the MMS assigned revenue source number. A revenue source generally is one of the following as specified in MMS's Oil and Gas Payor Handbook:Lease production--one or more wells on the lease where the lease is not committed to a unit or communitization agreement (CA); Unitized production allocation--the participating area (PA) of a unit under which a lease receives production allocation, or a secondary recovery unit; Communitized production allocation--the CA under which a lease receives a production allocation; or Compensatory royalty--a compensatory royalty assessment or agreement. These distinctions are not readily discoverable from the legal descriptions contained in lease assignments and other legal documents. Currently, when MMS determines either through its automated compliance procedures or an audit that royalties are underpaid, MMS will bill or order payment from the payor for the deficiency. The payor is billed because that is the person for whom MMS has information in its system regarding that production; RMP does not maintain data on the record title owner(s) or operating rights owner(s) for which the payor is making payments. Therefore, while other persons may be liable for some or all of the royalty deficiency (such as the record title owner or an operating rights owner), MMS has historically considered that the person who filed the PIF would be liable for underpaid royalties. In Mesa Operating Limited Partnership, 125 IBLA 28(1992) (Modified on Reconsideration), 128 IBLA 174 (1994), Mesa filed PIFs and paid MMS royalties on production it purchased from several Indian oil and gas leases. Mesa did not own any interest in those leases. MMS ordered Mesa to pay additional royalties found to be owed on those leases. Mesa administratively appealed MMS's order and the Interior Board of Land Appeals held that a payor does not become liable simply by filing a PIF with the MMS, but rather some other evidence of assignment of liability must be presented. Although IBLA found Mesa liable for other reasons, thereafter MMS published a Federal Register notice of proposed rulemaking titled ``Amendments of Regulations to Establish Liability for Royalty Due on Federal and Indian Leases, and to Establish Responsibility to Pay and Report Royalty and Other Payments (60 FR 30492, 06/09/97). In that rulemaking, MMS proposed to make payors, owners of working interests and lessees of record, among others, all potentially liable for unpaid or underpaid royalties and other payments. RSFA resolved statutorily which parties are liable for royalty and other payments on Federal oil and gas leases onshore and on the OCS for production after September 1, 1996. Under RSFA, the person owning operating rights in a lease is primarily liable for its pro rata share of payment obligations under a lease, and the person owning record title is secondarily liable for its pro rata share of payment obligations under the lease. 30 U.S.C. 1712(a). RSFA also provides that the lessee may designate a person (Designee) to make all or part of the payments due under a lease on the lessee's behalf. Id. Under RSFA, lessees must notify MMS (or a delegated State, if applicable) in writing of such designation. Id. The Designee may then make payments, file reports, offset and credit monies, make adjustments to reports and request and receive refunds, all in its own name on the lessee's behalf. However, RSFA mandates that the Designee is not liable for the obligations of the lessee for which it is paying and reporting. Id. RSFA is applicable to all royalties and other payments due on production from Federal oil and gas leases after September 1, 1996. Thus, for royalty payments made for September 1996, which were due by the end of October 1996, RSFA required all lessees either to pay on their own behalf or to designate another person to make payments on their behalf. As stated above, MMS does not maintain information on the lessee for which a payor is paying royalties or other payments. Although BLM is responsible for maintaining record title and operating rights ownership records for Federal oil and gas leases onshore, and MMS has the same responsibility for such leases on the OCS, neither BLM nor MMS Offshore have information matching lessees to their payors. Accordingly, in an attempt to decide how to best collect payment responsibility information to implement [[Page 42064]] RSFA, MMS met with the representatives of several oil and gas trade associations and several States that share in oil and gas royalties under the Mineral Leasing Act of 1920, 30 U.S.C. 191, and the Outer Continental Shelf Lands Act of 1953, 43 U.S.C. 1339. In those meetings, the participants generally agreed that many lessees would not be able to tell MMS how they may have assigned royalty payment responsibility for each portion of their lease in terms that are readily translatable into the MMS accounting system. Therefore, lessees will require assistance from MMS to comply with RSFA's mandate that they designate a payor. The participants, many of whom were royalty payors as well as lessees, recommended that MMS get an initial listing of supposed Designees, by inquiring of the current payors whether they were paying on their own behalf (as lessee) or on behalf of someone else. The participants generally agreed that MMS should then send a notification to all lessees, listing the leases they owned by AID, and the person or persons who were paying on each lease on the lessee's behalf, for each product on the lease for which the person was paying, when that was appropriate. Lessees would then use that list to designate the person(s) responsible for making lease payments on the lessee's behalf. The term payor includes both Designees, who are reporting and paying royalties on behalf of lessees other than themselves, and lessees who are reporting and paying their own royalty. In many cases, a payor may be both a lessee and a Designee on the same lease. In fact, they may (and commonly do) report both their own payment and the payments of lessees who (will) designate them on the same royalty line. If that line is either underpaid or paid late, MMS will send a demand to the payor, and for production subject to RSFA, MMS will send a notice to those lessees who have designated the payor to pay for them with respect to that line. This rule gives MMS the authority to collect the information necessary to match a lessee to that underpaid (or untimely paid) royalty line. Since enactment of RSFA, MMS designed a database that will allow it to match lessees with their Designees. To gather the initial information matching payors to lessees, on January 9, 1997, MMS sent a letter to approximately 2,500 oil and gas payors. Attached to that letter was a listing of all leases for which MMS data showed that the payor was reporting and making payments to MMS. The payors were requested to voluntarily fill in missing information, listing the lessees for which they were reporting, and making payments to MMS by AID and product code, if appropriate. The January 9, 1997, letter was not in accordance with the Paperwork Reduction Act (PRA), 44 U.S.C. 3512, because, due to an unintentional oversight, MMS did not properly send the Information Collection Request (ICR) to the Office of Management and Budget (OMB) for its review, as the PRA mandates. MMS apologizes for that oversight. The purpose of this rule is to make MMS's requests to payors for information missing in its database mandatory, because, as stated above, neither MMS, BLM, nor most lessees have the information necessary to make the match between lessees and their payors. For this reason, MMS will request data from time to time from those parties who are payors in MMS's accounting system, and MMS will use that data to send reports to lessees for their confirmation of the designation of payment responsibility to the payor. Payors who voluntarily responded to the January 9, 1997, letter requesting similar information do not need to provide the same information under the rule that would duplicate information already provided. However, the rule does provide MMS with authority to request clarification of information submitted in response to the January 9, 1997, letter or the rule. Because the information MMS requests is critical to implementation of RSFA, and because RSFA's provisions relevant to this information collection became effective September 1, 1996, MMS is requesting that OMB authorize emergency processing and approval of this ICR. This ICR and any requests in the future will be mandatory under the provisions of this regulation. Respondents may respond to the information requests required under this rule electronically or in writing. MMS prefers that respondents respond electronically. MMS has created a Comma Separated Value (CSV) file structure, which is available as an output type in most spreadsheet and data base applications. MMS will offer respondents a lease listing in computer readable form (electronically) and also will offer the telephone assistance of our computer specialists. III. Indian Lands and Non-Oil and Gas Leases RSFA is not applicable to Indian leases and leases of minerals other than oil and gas. MMS does not currently need data in order to match lessees and payors for such leases. However, MMS may need the information for those leases in the future. Therefore, this rule also gives MMS the authority to collect the data necessary to match the lessee with the payor for each AID for Indian leases and leases of minerals other than oil and gas. IV. Administrative Procedure Act MMS has determined that the notice and comment that the Administrative Procedure Act (APA), 5 U.S.C. 553(b), ordinarily mandates, are not required in this interim final rulemaking. APA authorizes agencies to waive notice and comment procedures when the agency ``for good cause finds * * * that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.'' 5 U.S.C. 553(b)(B). MMS for good cause finds that notice and comment procedures for this rulemaking are impracticable and contrary to the public interest because they would delay implementation of RSFA's liability scheme which became effective for production after September 1, 1996. In addition, advance public notice and comment are unnecessary and contrary to public interest because the interim rule substantially restates the information collection provisions in the January 9, 1997, letter sent to all payors, and implements the request from lessees at the meetings discussed above that MMS assist them to comply with RSFA's mandate that they designate a Designee. MMS also has determined that the 30-day delay of effectiveness provisions of the APA may be waived in this rulemaking. Section 553(d) of the APA permits waiver of the 30-day delayed effective date requirement for, inter alia, good cause. MMS finds that good cause exists for the same reasons stated above. Accordingly, the interim final rule will be immediately effective upon publication in the Federal Register. Nevertheless, MMS seeks the benefit of public comment. Accordingly, MMS invites interested persons to submit comments during the 60-day comment period. MMS may revise the interim final rule later in a final rule as appropriate based on those comments. While this is an interim final rule, MMS intends to publish a notice of proposed rulemaking by the end of 1997 making more permanent the process for collecting designations from lessees. To aid public participation in that rulemaking, MMS will post comments received on this rule on the Internet at http://www.rmp.mms.gov. [[Page 42065]] V. Section-by-Section Analysis 30 CFR Part 210 Section 210.55 Special Forms or Reports. This section's contents are amended to give MMS the authority to require special reports by lessees and other persons who report and pay royalties. In particular, MMS may require such persons to submit information necessary for MMS to assure that lessees properly designate their Designees in a form that MMS can use in its database. The information will document the relationship between lessees, their lease(s), or portion(s) thereof, and the person(s) they designate to make payments to MMS on their behalf. As payors already are familiar with the MMS accounting system, MMS may require them to submit the information connecting the AID on which they are paying and the lessees for whom they are paying. In addition to the name of the lessee, MMS may also require payors to tell MMS the address of that person and, if they have the information, the taxpayer identification number (TIN) of the lessee. MMS requires the current address in order to communicate with the lessee so that lessees are informed of the requirements of RSFA to designate a Designee, if they are not making payments to MMS on their own. MMS will also need the lessee's address to send notices to the lessee when demands are sent to payors, who are paying on their behalf. MMS requires the TIN to inform the Internal Revenue Service when MMS pays interest on overpayments under the requirements of RSFA, section 6. This section would also require persons whom a payor identifies it is making payments for to provide information to MMS. 30 CFR Part 218 Section 30 CFR 218.52 How does a lessee designate a Designee? This section would be revised to explain how lessees make designations under RSFA section 6(g) and what information must be in such designations. MMS will need the name and address of each Designee, as well as the necessary accounting information to identify the payments made on your behalf as lessee. MMS will also need to know the start and end dates of the Designee's responsibility and whether the designation is limited to certain payments, for instance, just minimum royalty, or certain products, for instance, if you choose to designate your gas purchaser as the Designee for gas royalty only. VI. Procedural Matters The Regulatory Flexibility Act MMS has calculated a reporting burden of $840 for a typical small entity that reports and pays oil and gas royalties on Federal leases. About 2,400 small entities in the oil and gas industry will be affected by this rule. Accordingly, this rule will not have a significant economic impact on a substantial number of small entities. This rule provides for the format in which information needed to comply with the requirements of the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996, Pub. L. 104-185, August 13, 1996, as corrected by Pub. L. 104-200. Executive Order 12630 The Department certifies that the rule does not represent a governmental action capable of interference with constitutionally protected rights. Thus, a Takings Implication Assessment need not be prepared under Executive Order 12630, ``Governmental Actions and Interference with Constitutionally Protected Property Rights.'' Executive Order 12866 This rule is a significant rule under executive Order 12866 and has been reviewed by the Office of Management and Budget. MMS' analysis indicates the rule will have a total reporting cost of $3.1 million. Since the rule will have an annual effect on the economy of less than $100 million, the rule does not have a significant economic effect as defined by Executive Order 12866. Executive Order 12988 The Department has certified to OMB that this rule meets the applicable reform standards provided in Section 3(a) and 3(b)(2) of Executive Order 12988. Paperwork Reduction Act of 1995 The MMS submitted the information collection contained in this interim final rulemaking to the Office of Management and Budget (OMB) with a request for emergency processing. It was approved by OMB and assigned OMB Control Number 1010-0107. With this notice, we are starting the 60-day comment period. As part of our continuing effort to reduce paperwork and respondent burdens, we invite the public and other Federal agencies to comment on any aspect of the reporting burden imposed by this interim final rulemaking. Submit your comments to David, S. Guzy, Chief, Rules and Publications Staff, Royalty Management Program, Minerals Management Service, P.O. Box 25165; courier delivery to Building 85, Denver Federal Center, Denver, Colorado 80225; or e-mail David__G[email protected]. 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. OMB has up to 60 days to approve or disapprove this collection of information but may respond after 30 days from receipt of our request. Therefore, your comments are best assured of being considered by OMB if they are received by OMB within 30 days of publication of this notice. However, MMS will consider all comments received during the comment period for this notice of interim final rulemaking. In compliance with the Paperwork Reduction Act of 1995, Section 3506 (c)(2)(A), we are notifying you, members of the public and affected agencies, of this collection of information, and are inviting your comments. Is this information collection necessary for us to properly do our job? Have we accurately estimated the industry burden for responding to this collection? Can we enhance the quality, utility, and clarity of the information we collect? Can we lessen the burden of this information collection on the respondents by using automated collection techniques or other forms of information technology? This information collection is titled Designation of Royalty Payment Responsibility. RSFA provides that owners of operating rights are primarily liable for royalty payments on their portions of their leases, and that owners of record title are secondarily liable. The Act allows lessees, operating rights owners and/or record title owners, to designate another person to pay royalties on their behalf by a written instrument filed with the Secretary. Finally, RSFA provides that the designated persons, designees, are not liable. This collection of information provides a mechanism for identifying lessees and their designees. Currently, it is common for a payor rather than a lessee to make royalty and related payments on a Federal lease. When a payor pays royalties on a Federal lease on behalf of a lessee, RSFA requires that the lessee designate the payor as its designee. We are requiring each payor to provide us information regarding the lessee on whose behalf they are paying because we need to know who all the lessees are in order to inform them of their obligation to designate a payor to be [[Page 42066]] their lawful designee by a written instrument filed with the Secretary. RSFA made this payor designation requirement effective for lease production beginning September 1, 1996. We are asking payors and lessees to provide data required under RSFA so that we can fully implement the Act. The hour burden for approximately 2,500 payors to respond to this collection of information is estimated at 60,000 hours. Payors have told us that to gather, collate, and enter required MMS data, line-by- line on a report or computer generated file, takes them approximately 1/2 hour per data line; an average payor will have approximately 48 original data lines (one original line of data will result in multiple lines of data when the payor is the designee and is reporting for multiple lessees). We estimate that we will receive 120,000 original data lines. 2,500 payors x 48 original data lines x \1/2\ hour per data line = 60,000 burden hours The hour burden to lessees is estimated at 30,000 hours. The MMS will develop reports that consolidate the payor-provided data for all leases for which the lessees are presumed to have designees. The lessee may confirm the information on these reports and/or modify the reports by amending and/or correcting the report information. We estimate that a lessee will take approximately 3/4 hour per confirmation request. 20,000 lessees x 2 confirmation requests x 3/4 hour per request = 30,000 burden hours Unfunded Mandate Reform Act of 1995 The Department has determined and certifies according to the Unfunded Mandates Reform Act, 2 U.S.C. 1502 et seq., that this rule will not impose a cost of $100 million or more in any given year on local, Tribal, State governments or the private sector. National Environmental Policy Act of 1969 We have determined that this rulemaking is not a major Federal action significantly affecting the quality of the human environment, and a detailed statement under section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C) is not required. List of Subjects 30 CFR Part 210 Coal, Continental shelf, Geothermal energy, Government contracts, Indian lands, Mineral royalties, Natural gas, Petroleum, Public lands-- mineral resources, Reporting and recordkeeping requirements. 30 CFR Part 218 Coal, Continental shelf, Electronic funds transfers, Geothermal energy, Government contracts, Indian lands, Mineral royalties, Natural gas, Petroleum, Penalties, Public lands--mineral resources, Reporting and recordkeeping requirements. Dated: July 10, 1997. Sylvia V. Baca, Deputy Assistant Secretary for Land and Minerals Management. For the reasons stated in the preamble, MMS amends 30 CFR parts 210 and 218 as follows: PART 210--FORMS AND REPORTS 1. The authority citation for Part 210 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. 3716 et seq., 3720A et seq., 9701 et seq.; 43 U.S.C. 1301 et seq., 1331 et seq., and 1801 et seq. 2. Section 210.55 is revised to read as follows: Sec. 210.55 Special Forms or Reports. (a) MMS may require you to submit additional information, forms, or reports other than those specifically referred to in this subpart. MMS will give you instructions for providing such information or filing such reports or forms. MMS will make requests for additional information, forms, or reports under this section in conformity with the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, and other applicable laws. (b) If you file a Form MMS-4025, Payor Information Form (PIF) under Sec. 210.51, you must provide the following information to MMS upon request for each PIF: (1) The AID number for the lease; (2) The name, address, Taxpayer Identification Number (TIN), and phone number of the person for whom you are reporting and paying royalties or making other payments under the PIF; (3) Whether the person you named in paragraph (b)(2) of this section with respect to the lease for which you filed the PIF is a: (i) Lessee of record (record title owner); (ii) Operating rights owner (working interest owner); or (iii) Operator; (4) The name, address, and phone number of the individual to contact for the person you named in paragraph (b)(2) of this section; (5) Your TIN; and (6) Whether you are the Designee of the person you named in paragraph (b)(2) of this section under 30 U.S.C. 1712(a), and, if so: (i) The date your designation became effective; and (ii) The date your designation terminates, if applicable; and (iii) A copy of the written designation; (c) If you have been identified under paragraph (b)(2) of this section, you must provide the following information to MMS upon request: (1) Confirmation that you are the person identified under paragraph (b)(2) of this section; (2) Confirmation that the person identified in paragraph (b)(6) of this section is your designee; and (3) A designation under Sec. 218.52 of this title if the person identified in paragraph (b)(6) of this section is not your Designee, and if you are not reporting and paying royalties and making other payments to MMS. PART 218--COLLECTION OF ROYALTIES, RENTALS, BONUSES AND OTHER MONIES DUE THE FEDERAL GOVERNMENT 1. The authority citation for Part 218 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. 3716 et seq., 3720A et seq., 9701 et seq.; 43 U.S.C. 1301 et seq., 1331 et seq., and 1801 et seq. 2. Section 218.52 is revised to read as follows: Sec. 218.52 How does a lessee designate a Designee? (a) If you are a lessee under 30 U.S.C. 1701(7), and you want to designate a person to make all or part of the payments due under a lease on your behalf under 30 U.S.C. 1712(a), you must notify MMS or the applicable delegated State in writing of such designation. Your notification for each lease must include the following: (1) The AID number for the lease; (2) The type of products you make payments for e.g., oil, gas. (3) The type of payments you are responsible for e.g., royalty, minimum royalty, rental. (4) Whether you are: (i) A lessee of record (record title owner) in the lease, and the percentage of your record title ownership in the lease; or (ii) An operating rights owner (working interest owner) in the lease, and the percentage of your operating rights ownership in the lease; [[Page 42067]] (5) The name, address, Taxpayer Identification Number (TIN), and phone number of your Designee; (6) The name, address, and phone number of the individual to contact for the person you named in paragraph (a)(5) of this section; (7) Your TIN; (8) The date the designation is effective; (9) The date the designation terminates, if applicable, and (10) A copy of the written designation; (b) The person you designate under paragraph (a) of this section is your Designee under 30 U.S.C. 1701(24) and 30 U.S.C. 1712(a). (c) If you want to terminate a designation you made under paragraph (a) of this section, you must provide to MMS in writing before the termination: (1) The date the designation is due to terminate; and (2) If you are not reporting and paying royalties and making other payments to MMS, a new designation under paragraph (a) of this section. (d) MMS may require you to provide notice when there is a change in the percentage of your record title or operating rights ownership. [FR Doc. 97-20592 Filed 8-4-97; 8:45 am] BILLING CODE 4310-MR-P