[Federal Register Volume 62, Number 155 (Tuesday, August 12, 1997)]
[Rules and Regulations]
[Pages 43076-43091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21162]
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DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Parts 227, 228, and 229
RIN 1010-AC25
Delegation of Royalty Management Functions to States
AGENCY: Minerals Management Service, Interior.
ACTION: Final rulemaking.
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SUMMARY: The Minerals Management Service (MMS) is adding new rules
authorizing the delegation of several Federal royalty management
functions to States. These rules implement recently-enacted
legislation.
EFFECTIVE DATE: September 11, 1997.
FOR FURTHER INFORMATION CONTACT: David 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 final
rulemaking are Larry Cobb, Harry Corley, Jim Detlefs, Clare Onstad,
Robert Prael, Todd McCutcheon, Dave Steiber, Cecelia Williams, and Sam
Wilson, MMS; and Peter Schaumberg and Sarah Inderbitzin of the 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). The RSFA amends portions of the
Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA), 30 U.S.C.
1701 et seq. Prior to the RSFA enactment, section 205 of FOGRMA, 30
U.S.C. 1735, provided for the delegation of only audits, inspections,
and investigations to the States. The RSFA amendments to section 205
now provide that the Minerals Management Service (MMS) may delegate
other Federal royalty management functions to requesting States for
Federal oil and gas leases onshore.
The royalty management functions MMS may delegate under the RSFA
amendments are:
(1) Conducting audits and investigations;
(2) Receiving and processing production and royalty reports;
(3) Correcting erroneous report data;
(4) Performing automated verification; and
(5) Issuing demands, subpoenas, orders to perform restructured
accounting, and related tolling agreements and notices to lessees or
their designees.
The RSFA amendments to section 205(d) also provide that within 12
months after the date of enactment, after consultation with the States,
the Secretary must issue standards and regulations pertaining to
delegable functions and other relevant responsibilities, including:
(1) Audits to be performed;
(2) Records and accounts to be maintained;
(3) Reporting procedures to be required by the States under this
section;
(4) Receipt and processing of production and royalty reports;
(5) Correction of erroneous report data;
(6) Performance of automated verification;
(7) Issuance of standards and guidelines in order to avoid
duplication of effort;
(8) Transmission of report data to the Secretary; and
(9) Issuance of demands, subpoenas, and orders to perform
restructured accounting, for royalty accounting purposes.
In response to the section 205 RSFA amendments, MMS formed the 205
Consultation Team, comprised of MMS, interested States, representatives
from State associations, and a representative of the Bureau of Land
Management to discuss how to implement the delegation provisions of the
RSFA.
MMS proposed rules implementing the section 205 RSFA amendments (62
FR 19967 April 24, 1997. As part of that proposed rulemaking, MMS
explained that it would develop MMS Standards for Delegation
(Standards) which would contain further information States would need
to perform delegated functions. MMS held several outreach meetings in
June of 1997 at various locations to discuss the MMS Standards for
Delegation (Standards) document with States and industry attendees.
II. Indian Lands
In the proposed rule, MMS proposed to amend 30 CFR parts 228 and
229 to remove references to cooperative agreements and delegations for
Federal lands under those parts since delegation for Federal lands are
now covered under new part 227. MMS also proposed to amend those parts
to conform to the principles of ``Plain English.'' Because MMS is not
under a statutory deadline to publish parts 228 and 229 like it is for
part 227, MMS is not removing the references to Federal lands in, or
making the ``Plain English'' changes to
[[Page 43077]]
those parts at this time. However, MMS is making an interim change to
parts 228 and 229 by adding a sentence to those parts that will state
that, ``As of the effective date of this rule, this part does not apply
to Federal lands.'' This sentence will make clear that from this time
forward, those parts only apply to Indian cooperative agreements and
delegation agreements for audits, inspections, and investigations with
States for Indian lands within the State. We will amend the language in
parts 228 and 229 to ``Plain English,'' and make any other changes to
those parts at a future date.
III. Comments on Proposed Rule
The proposed rulemaking provided a 30-day public comment period,
which ended May 27, 1997. MMS received comments from thirteen
commenters during the comment period. One additional commenter
submitted late comments that MMS received on June 2, 1997. Thus, we
accepted a total of fourteen comments for review. Four of the comments
were from States, two were from mining associations, two were from oil
and gas trade associations, and six were from industry.
We reviewed and analyzed all of the comments, and in some instances
revised the language of the final rule based on these comments. The
following is a discussion of the comments received and our response.
First, we address five general concerns the comments raised. Second, we
respond to the specific comments referred to by regulation paragraph
number. Third, we address the questions and issues where we asked the
public for specific comment.
I. General Concerns
Delegation of Functions for Solid Mineral, Geothermal, and OCSLA 8(g)
Leases
One State, two mining associations, and two mining companies
commented on delegating royalty management functions to States for
solid mineral leases. The State supported the concept, but believed we
should not issue regulations until the Department provides a legal
opinion on this issue. The mining industry objected to the delegation
of functions for solid mineral leases because they believed we lack the
statutory authority. One company agreed that we should obtain a legal
opinion before issuing the final regulation. One trade association
stated that it did not oppose delegation for Outer Continental Shelf
Lands Act (OCSLA), section 8(g) leases, but that MMS should not split
the reporting for leases or units that contain both section 8(g) and
non-section 8(g) properties.
MMS Response--MMS has obtained a legal opinion from the Office of
the Solicitor, which concludes that Pub. L. 102-154 does not provide
authority to apply the section 205 RSFA amendments to solid mineral,
geothermal, and offshore leases subject to section 8(g) of OCSLA. Based
on that opinion and the comments, we omitted from the final rule
delegations of additional functions for solid mineral leases,
geothermal leases, and oil and gas leases subject to section 8(g) of
OCSLA, 43 U.S.C. 1337(g). However, States may continue to perform audit
functions for solid mineral, geothermal, and OCSLA section 8(g) leases
under the existing and successive delegation agreements. Because MMS is
not delegating the additional royalty management functions for OCSLA
section 8(g) leases, there is no issue regarding split reporting for
such leases.
Furthermore, we combined proposed Sec. 227.100 with proposed
Sec. 227.101 to conform with comments received from the mining industry
and the Departmental legal opinion. Thus, although MMS will not
delegate RSFA's additional royalty management functions for solid,
geothermal, or section 8(g) leases, when requesting the function of
audits and investigations, a State must still follow the procedures
under this part.
In addition, we added language to clarify that a State performing
delegated functions must perform those functions for all applicable
Federal leases within the State's boundaries.
For example, assume that there are 100 Federal oil and gas leases
within a State's boundaries. If that State requests delegation of the
royalty management functions of audit and receiving and processing
production and royalty reports, it cannot choose to perform audits and
receive and process production and royalty reports for only 25 of those
Federal oil and gas leases. Rather, it must accept delegation of audit
and receiving and processing production and royalty reports
responsibility for all 100 of those Federal leases.
Regulatory Flexibility--We received three comments from States
expressing concern that the regulations did not provide enough
flexibility. One of these commenters stated, ``An organization should
be allowed to adjust to a changing environment and apply a better
approach or technique without having the fear of the audit contract
being withdrawn or the audit findings negotiated.'' In particular, they
were opposed to the extensive use of the word ``must,'' because they
believe it would require their programs to operate in only one way. One
commenter indicated that the delegation proposal contained too many
detailed requirements. Conversely, one State commented that the
regulations ``* * * appear to be a reasonable interpretation * * *'' of
RSFA.
Industry commented that they would like to see the specific
standards that provided the details of how the States would perform the
delegated functions. One industry oil and gas trade association
maintained that ``* * * the standards should have been published along
with the proposed rule and included in the regulations.'' This industry
oil and gas trade association, another oil and gas association, plus
two industry representatives protested that they were forced to comment
on the proposed rule without the benefit of reviewing the standards.
Two of these commenters requested that MMS extend the comment period
until after it issues the standards.
MMS Response--On the issue of flexibility, RSFA section 3(a),
FOGRMA section 205(d) mandated that the Government and delegated States
maintain a consistent royalty management program. Moreover, RSFA
specifically stated that States must agree to adopt ``standardized
reporting procedures'' unless all affected parties agree otherwise,
RSFA section 3(a), FOGRMA section 205(b)(4), and that the delegations
``will not create an unreasonable burden on any lessee,'' RSFA section
3(a), FOGRMA section 205(b)(3). We believe that the rule allows for as
much flexibility as possible within the constraints that RSFA mandates,
while maintaining a consistent royalty management program and
minimizing any burden on lessees. Like RSFA section 3(a), FOGRMA
section 205(b)(4), the rule provides that States may use alternative
reporting procedures if all affected parties agree. See 30 CFR
227.106(d). In addition, we anticipate that States may achieve further
flexibility in performing delegated functions when they work with us to
develop their delegation agreements, as provided in 30 CFR 227.108.
Our intent in developing the rule and Standards was to provide the
basic framework necessary to maintain uniform royalty management
standards, not to inhibit any flexibility in complying with those
Standards. Thus, in describing the royalty management functions, we
used the word ``must'' for both MMS and the States for required
performance. Although we did not eliminate the word ``must,'' we
[[Page 43078]]
modified Sec. 227.300 to provide for flexibility in this function.
Section 227.300(a) shows the activities that must be performed under an
audit, while Sec. 227.300(b) lists additional activities that would be
appropriate to perform only in certain situations.
In our attempt to try to achieve further flexibility, we also
reviewed our use of the word ``all.'' Upon review, we believe that it
was correctly used in describing the activities performed in the
various functions. We, therefore, did not make any changes to the word
``all.'' However, we acknowledge that additional flexibility can be
attained in certain areas, such as the delegation proposal in
Sec. 227.103(e). Therefore, we modified the final rule by deleting the
requirements of Secs. 227.103(e)(2)(ii) and (iv) from the proposed
rule.
With respect to the comment that we extend the comment period until
MMS issues the Standards, RSFA's requirement that MMS issue a final
rule within 12 months of enactment makes it extremely difficult for us
to extend the comment period. Accordingly, we will not extend the
comment period. We believe that we are complying with the statutory
mandates of RSFA. We also believe we made a sufficient effort to share
the Standards with industry as soon as they were developed. While we
did not consult with industry during the initial phase of development,
we did conduct outreach meetings with industry in June 1997 to share a
first draft of the Standards and receive their input.
Further, while we published the proposed regulation for notice and
comment, we do not intend to formally publish the Standards document in
the Federal Register for notice and comment because it merely offers
additional clarification on the basic standards contained in the rule
detailing, for example, day-to-day operational information States need
to perform delegated functions. We will publish a notice in the Federal
Register advising when the Standards are available and will post the
Standards on the MMS Website. Moreover, while we understand industry's
concerns, we believe the proposed rule provides sufficient standards
information for commenters to be knowledgeable of the process and
requirements. Finally, we consider the Standards to be a living
document that will change, as we reengineer and as States, in
coordination with MMS, develop their procedures with industry
involvement.
Industry Participation--One oil and gas trade association and two
industry representatives requested more industry participation in the
entire delegation process, including the proposed regulation, the
Standards, and the delegation proposal. One industry commenter believed
that because industry is vitally affected by the process, they must be
allowed an opportunity to provide input. This commenter also stated
that the Federal Advisory Committee Act (FACA) requires that industry
be included in the development of the standards and procedures for
delegation. Another industry commenter pointed out that industry
participation would ``* * * minimize the lessee's burden, ensure
uniformity, eliminate duplication and protect confidential data.'' Two
commenters suggested making the delegation agreement a public document.
MMS Response--We believe we have included industry in the process
to the maximum extent possible given the limited time available. RSFA
only requires that MMS consult with States in developing these rules
and Standards. Nonetheless, MMS included industry through outreach
meetings and consideration of their comments to the proposed rule. In
addition, MMS has incorporated industry's feedback in both the rule and
Standards.
With respect to the comments on the applicability of FACA, in the
preamble to the proposed rule, 62 FR 19967, April 24, 1997, MMS
suggested formation of an advisory committee consisting of States
receiving delegations and MMS to help develop the standards and
procedures for performing delegable functions. Such meetings are
specifically exempted from FACA, 5 U.S.C. App., under section 204(b) of
the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (UMRA). Section
204(b) of the UMRA provides that:
(b) Meetings Between State * * * and Federal Officers: [FACA]
shall not apply to actions in support of intergovernmental
communications where--
(1) Meetings are held exclusively between Federal officials and
elected officers of State * * * governments (or their designated
employees with authority to act on their behalf) acting in their
official capacities; and
(2) Such meetings are solely for the purposes of exchanging
views, information, or advice relating to the management or
implementation of Federal programs established pursuant to public
law that explicitly or inherently share intergovernmental activities
or administration.
Clearly, meetings MMS officials, or their delegates, have with
delegated State officials, or their delegates, to develop the standards
and procedures necessary for States to assume delegated functions ``are
solely for the purposes of exchanging views, information, or advice
relating to the management or implementation of Federal programs
established pursuant to public law that explicitly or inherently share
intergovernmental activities or administration.'' Thus, any State-MMS
advisory committee meetings regarding delegations would be exempt from
FACA under section 204(b) of UMRA.
Finally, the delegation agreements are public documents evidencing
an agreement between MMS and the State. Because industry is not a party
to the agreement, we believe that only the States and MMS should be
involved in the negotiating process. However, MMS and States will
consult with industry when it is specifically impacted by the
agreement. For example, if a State wants to initiate an innovative
reporting procedure, we would seek industry concurrence with the
procedure before its implementation.
Plain English--One industry commenter expressed concern that
rewriting regulations for parts 228 and 229 in ``Plain English'' would
change their meaning and interpretation.
MMS Response--The Federal Government endorses the use of ``Plain
English'' writing for all Government documents. E.O. 12866, 58 FR
51735, October 4, 1993. As stated above, we will amend parts 228 and
229 at a future date to remove references to cooperative agreements and
delegations for Federal lands under those parts and to conform to
``Plain English'' principles.
Simplify and Streamline Royalty Management Practices and the
Relationship to Costs--Two industry commenters stated that the
regulations at part 227 should simplify and streamline royalty
management requirements and practices. These commenters were concerned
about the additional costs that industry would incur under the new
regulations such as the increase in information collection
requirements.
MMS Response--RSFA mandates promulgation of these regulations.
However, the decentralization of functions authorized under RSFA and
these implementing regulations does not necessarily guarantee
streamlining, nor a reduction in costs. Although we have minimized the
burden to lessees in this rulemaking, the impact of RSFA's mandates may
result in some additional cost to industry. We identified the potential
additional costs as stemming primarily from an increase in coordination
between industry and multiple royalty management entities. But, the
cost figure was an estimate and may not actually be realized by
industry.
[[Page 43079]]
II. Specific Comments
Section 227.102--One State commented that impacted States must be
allowed to participate in settlement negotiations, even though they do
not have a delegation agreement. In particular, the commenter stated
``(MMS) * * * must depart from its current settlement procedures in
order to comply with RSFA. RSFA expands the authority of all States
concerned, not just those with delegations of authority, granting them
the ability to veto compromises of royalty obligations. Under RSFA,
each State will need to represent itself.''
MMS Response--MMS agrees that under RSFA section 4(a), FOGRMA
section 115(i), the ``State concerned'' (defined as a State which
statutorily receives royalties and other payments under mineral leasing
laws, RSFA section 2(2), FOGRMA section 3(31)) may participate in the
negotiation process. RSFA section 4(a), FOGRMA section 115(i), provides
that for royalties due on production after September 1, 1996, ``the
parties shall hold not less than one settlement consultation and the
Secretary and the State concerned may take such action as is
appropriate to compromise and settle a disputed obligation. * * *''
However, this language does not expressly grant States authority to
settle a dispute or prevent the Secretary from settling a dispute over
a State objection or ``veto.'' Rather, the Secretary must determine
what is the appropriate action and has done so in this rulemaking
through the retention of ultimate settlement authority. This is
consistent with the entire structure of RSFA because: (1) Under RSFA
section 4(a), FOGRMA section 115(h), the Secretary retains authority to
decide appeals, even appeals of orders that a delegated State issues;
(2) RSFA section 12 provides that ``(n)othing in this Act shall be
construed to give a state a property right or interest in any Federal
lease or land,'' and the power to settle a dispute is at least an
inchoate property right which Congress has specifically stated it did
not grant to any State; and (3) as a practical matter, many settlements
involve more than one State, and we do not believe it was Congress'
intent to allow one State to frustrate the settlement process in such
instances when it enacted RSFA section 4(a), FOGRMA section 115(i).
Thus, we believe, as we always have, that the appropriate action
involves consultation with the States. Accordingly, while all concerned
States may participate in negotiations or other alternative dispute
resolution, MMS must retain settlement authority over Federal
royalties.
Section 227.102(d)--Two industry commenters expressed concern about
possible duplication that might result from the splitting of
enforcement procedures between the States and MMS.
One oil and gas trade association supported MMS retaining
enforcement actions. This commenter recommended that MMS continue to
apply its current tolerances for error rates, compliance, and other
applications at the payor code level for all Federal leases instead of
by State.
MMS Response--We do not believe that there will be any duplication
regarding enforcement procedures. RSFA does not allow for the splitting
of enforcement procedures. Rather, the only enforcement procedures that
RSFA allows the States are issuing demands, subpoenas, and orders to
perform restructured accounting. MMS will retain all other enforcement
activities. See 30 CFR 227.102(c).
Importantly, as stated in the proposed rule, MMS will continue to
process and decide all appeals, including appeals from demands or
orders a delegated State issues, 30 CFR 227.102(d), and will continue
to decide all valuation policies. 30 CFR 227.102(f). Accordingly,
although a State may issue a demand, MMS will retain ultimate authority
for its enforcement. This process will prevent ``duplicative'' or
``split'' enforcement procedures.
We agree that we must retain enforcement actions not specifically
delegated by RSFA. We will address how we will apply tolerances to
payors in various States in the regulations relevant to the particular
type of application, such as error rates.
Section 227.103(i)--One State commenter and one oil and gas trade
association pointed out that Sec. 227.103(i) was incomplete. Another
commenter ``urge(d) that MMS strictly enforce confidentiality
obligations * * * where the same state auditors are conducting federal
and state royalty audits simultaneously, along with state tax audits.''
MMS Response--We agree that there is a typographical error in the
last sentence of Sec. 227.103(i). Thus, we have deleted the semicolon
and the word ``and.'' In addition, to clarify what we mean by the
phrase in Sec. 227.103(i) that ``persons who have access to information
received under delegated functions are subject to the same provisions
of law regarding confidentiality and disclosure as that of Federal
employees'' we are adding the following language to that paragraph:
Therefore, persons who have access to information received under
delegation agreements may not use such information or provide such
information to any other person, including State personnel, for
purposes other than performing delegated functions. However, this
limitation does not apply if the person submitting the information
consents in writing to its use for other State purposes.
We are adding the additional language because under existing laws,
Federal employees are prohibited from disseminating confidential
commercial information to a State, except for delegation situations
where certain restrictions exist. For example, MMS cannot provide
information it obtains in a royalty audit to a State for the State to
use in a tax audit. Likewise, a State employee acting as the Federal
Government's delegatee is prohibited from disseminating information to
other State personnel for purposes other than delegated functions,
unless the person providing the information agrees to the further
dissemination. Moreover, some State employees will perform delegated
functions and also other State functions such as State severance tax
audits. If that person receives information from a company under an MMS
delegation, the person cannot use the information gathered under the
delegation for State enforcement purposes without obtaining written
consent from the company.
Section 227.103(c)(1)--Two State commenters recommended making the
word ``entity'' plural because more than one State agency may perform
delegated functions.
MMS Response--We agree and have made this change in this rule. We
also added language to clarify that if more than one entity is
delegated responsibility for performing delegated functions, the State
must include in its proposal the position of the highest ranking State
official having ultimate authority over the collection of royalties
from leases on Federal lands within the State.
Section 227.105--Two State commenters questioned whether MMS would
require a hearing in all cases, even if a State requested only to make
minor changes to an existing delegation. These commenters suggested
holding a hearing only if necessary or appropriate and using language
to that effect.
MMS Response--We agree that we will hold a hearing only if
necessary and have changed the final rule to state that we will require
a hearing when MMS determines it is appropriate.
Section 227.106(d)--One oil and gas trade association supported
maintaining uniformity in the delegation program.
MMS Response--We agree.
[[Page 43080]]
Section 227.107--One oil and gas industry commenter expressed
concern about industry having enough time to modify their systems to
comply with any new reporting requirements. This commenter suggested
allowing a 6-month grace period before the effective date of the
delegation.
MMS Response--This section does not address the effective date of
delegation agreements or ``grace periods.'' Rather, it informs States
that submit a delegation proposal that the MMS Director will decide
whether to approve the proposal within 90 days after the proposal is
complete. The 90-day period is mandated under RSFA section 3(a), FOGRMA
section 205(c) and cannot be changed. However, we agree that a
transition time is necessary between the date a delegation agreement
becomes effective and the date industry must comply with any new
requirements under such agreements. Although not raised by this
comment, during its review of this comment MMS realized that it had not
included an effective date for delegation agreements in its proposed
rule. Therefore, we will modify Sec. 227.110(a) as follows:
(a) Delegation agreements are effective for 3 years from the first
day of the month following the date the MMS Director signs the
delegation agreement. However, during the development of the State's
delegation proposal under Sec. 227.108 of this part, MMS, the delegated
State and any other affected person will determine an appropriate
transition period for industry to modify their systems to comply with
any new requirements under a delegation agreement. Thus, the MMS
Director will not sign any delegation agreement until after the agreed
to transition period. MMS will publish notice of the effective date of
a State's delegation agreement in the Federal Register and that notice
will inform industry of any transition period.
Thus, MMS, the delegated State, and affected industry will
determine the amount of transition time necessary on a case-by-case
basis depending on the type and number of functions that we agree to
delegate to a given State. We will ensure that sufficient time is
provided to all affected parties to allow for a successful transition.
Section 227.108--One State commenter suggested cross-referencing
the standards in this section to the standards in Secs. 227.200 and
227.201.
MMS Response--We disagree. We do not see any benefit in cross-
referencing to only those sections in the rule. Although this rule and
the Standards provide the basic framework for uniform performance of
the delegated functions, we believe further flexibility can be achieved
through development of the delegation agreement under this section.
Section 227.109--One State commenter pointed out that this section
does not address a State's ability to appeal if it is denied a
delegation. This commenter indicated that a review of the decision at
the administrative level is a logical first step.
MMS Response--We disagree. RSFA section 3(a), FOGRMA section 205(g)
expressly provides that disapproval of a delegation proposal is
reviewable in Federal district court. Thus, consistent with RSFA
section 3(a), FOGRMA section 205(g), the MMS Director's decision to
deny a delegation with the concurrence of the Secretary is final agency
action that a State may appeal in Federal district court.
Section 227.110--Two oil and gas trade associations recommended, at
a minimum, that we publish notice of a State's request for delegation
in addition to its request to renew a delegation. Further, they
recommended that upon such notice, any affected or interested party,
including industry, could request a hearing. One of these commenters
requested that a hearing be held in all renewal cases.
MMS Response--We agree that we should publish notice of a State's
proposal for delegation, renewal of an existing delegation, and any
successive delegation agreement. Therefore, we will publish such
notices and notice of the effective date of a State's delegation
agreement in the Federal Register. We will post the proposals on the
MMS Website and also will send a copy of delegation proposals to trade
associations or anyone else upon request. The trade associations may
make further distribution to their members, as necessary. MMS has added
a new paragraph at Sec. 227.105(d) in response to this comment. See
also Sec. 227.110(g).
In addition, MMS agrees that affected parties should be able to
request a hearing when States request a renewal or a successive
delegation agreement under this section. Accordingly, we are modifying
the final rulemaking by adding a new paragraph (e) to this section as
follows:
(e) If a State does not request a hearing under paragraphs
(b)(1) or (d) of this section, any other affected person may submit
a written request for a hearing under those paragraphs to the MMS
Associate Director for Royalty Management.
Section 227.112--We received several comments on costs from three
States. One State commenter was concerned about the adequacy of our
cost accounting system and how States would be compensated under it.
The other two State commenters protested the requirement to submit
vouchers with a level of detail above current delegation agreements.
They did support, however, making cost and voucher information
available for review. One State commenter was concerned that we would
determine costs on a micro-level of activity. This commenter believed
that costs related to the audit function should be consistent with
current funding for delegated audit work. Another State commenter
believed that we must make any cost comparisons by looking at the whole
picture rather than a single part.
MMS Response--Through the net receipt sharing process, MMS has
refined the costs regarding the program's royalty management functions.
Although the process is not based on a detailed cost accounting system,
the Office of the Inspector General concurred in our methodology for
allocating costs to States. However, we appreciate the State's concerns
and will contract with an independent accounting firm to review MMS
costs related to all delegable functions and recommend a methodology
for determining what funds should be made available to States
requesting a delegation agreement for one or more functions. This issue
is important because of RSFA's requirement that compensation to a State
may not exceed the Secretary's reasonably anticipated expenditure for
performance of such delegated activities by the Secretary.
The vouchers referred to in the proposed rule need only show the
level of cost categories that are presently required under existing
delegated audit agreements, not each individual expenditure. The States
will not need to provide the detailed supporting documentation with the
vouchers, for example, an employee's travel voucher. States will need
only to make the detailed supporting documentation available, if we
request it. We confirm that we will focus on the overall costs under
the agreement.
Section 227.200--Two State commenters objected to the requirement
that States obtain MMS guidance on any applicable Federal requirement,
such as valuation interpretation or policy. One State commenter was
concerned about repercussions for not following our interpretation or
guidance. This State commenter stated that, ``A delegation may decide
not to follow the guidance due to discovery of new pertinent facts and
may elect, for purposes of effective use of resources, to not have MMS
issue new guidance.'' This State also
[[Page 43081]]
suggested that MMS can convey guidance orally, without a formal written
procedure. Therefore, this commenter recommended that we delete the
requirement for a written request. Conversely, one oil and gas trade
association strongly supported the requirement for a State to submit a
written request for interpretation of applicable Federal requirements
and for MMS to respond in writing. This commenter believed that,
``Besides ensuring uniform and consistent application of Federal
requirements, it will also provide lessees with greater certainty that
they are properly reporting and paying their royalties.'' One State
commenter requested that the States be held to no higher standard than
MMS in performing delegated functions.
MMS Response--The Department of the Interior (DOI) has the final
responsibility for deciding appeals and must maintain a uniform
valuation policy. In particular, for unique questions and complex
situations, such as valuation issues, we believe it is more efficient
for us to provide written guidance to all impacted parties early in a
developing situation than to provide it late in the process. Further,
this encourages consistency in the application of laws and regulations
because it eliminates confusion during the administrative process. We
concur that for routine or procedural matters States could obtain
guidance orally. We have clarified our position in the final
regulation.
We will not hold States to standards higher than those we perform.
However, we encourage States to improve the efficiency and
effectiveness of the Federal royalty management program they are
delegated.
Section 227.300--Two States commented that the list of delegable
audit functions was too detailed and restrictive. These commenters
pointed out that not all functions would apply in every audit
situation, such as site visits, close-out conferences, and records
releases. One of these commenters further contended that MMS should
compensate the States for the costs of conducting any special audit
initiatives. Another State commenter recommended deleting the reference
in this section to MMS deciding all appeals because it may adopt the
recommendation of the Royalty Policy Committee.
MMS Response--We agree with the idea of increased flexibility. We
have modified the rule to only require performance of the specific
audit functions as appropriate.
Compensation for special audit initiatives is subject to
Congressional funding. Thus, when audit initiatives arise and
additional funds are not available, the audit work plans of affected
States and MMS would have to be modified in response to the higher
priority work. This could result in lower priority work not being
accomplished with existing resources, unless Congress provides
additional funding.
We are retaining the language in the final rules that the
Department will decide all appeals as provided in RSFA. We are
reviewing the recommendations by the Royalty Policy Committee on
appeals and will issue an amended rule on this matter if necessary.
Section 227.301--Three State commenters stated that the
responsibilities for performing audits were too restrictive, and that
MMS should allow them to develop their own audit strategies. They
pointed out that, for example, the annual work plan is subject to
frequent change and that the regulations need to allow for that kind of
flexibility.
MMS Response--Although, we understand the need for flexibility in
developing audit strategies, we stress the need for a coordinated audit
program. Thus, we agree that the annual audit work plans can be changed
to reprioritize work with our approval and have modified
Sec. 227.301(e) accordingly.
Section 227.400--One State commenter advocated State collection of
royalty payments, similar to Indian lockboxes, to minimize the
complications resulting from erroneous reports. A second State
commenter raised the issue that RSFA's term ``State concerned'' (in the
context of granting exceptions from reporting and payment requirements
under 30 U.S.C. 1726(c)) applies to a broader universe than the term
``delegated State'' used in this rule, and requested that its meaning
not be changed. An oil and gas industry representative questioned
whether a lessee could appeal a State's denial of an exception request.
MMS Response--As we stated in the preamble to the proposed rule,
RSFA does not authorize MMS to delegate collection functions. Thus, MMS
has reserved this function because it is necessary for uniform
administration of the royalty management system among the States.
Further, we believe that no complication results from a centralized
collection function.
The commenter has misinterpreted the application of
Secs. 227.400(b)(1) and (2) in this rulemaking. With respect to
Sec. 227.400(b)(1), RSFA provides, in the section applicable to
allocation of production to leases within a unit or communitization
agreement, that ``[t]he Secretary or the delegated State shall grant an
exception from the reporting and payment requirements for marginal
properties.'' 30 U.S.C. 1721(k)(4) (emphasis added). That is the
applicable section of RSFA that was addressed in Sec. 227.400(b)(1) of
this rulemaking and does not require consent of the ``state
concerned.'' However, RSFA also provides in the section applicable to
marginal properties in general that the State concerned must consent to
alternative accounting and auditing procedures for marginal properties.
30 U.S.C. 1726(c). We are in the process of separately promulgating
rules implementing section 1726(c) of RSFA that do require consent of
the State concerned before it will grant alternative accounting and
auditing procedures for marginal properties.
With respect to Sec. 227.400(b)(2), RSFA also provides, in the
section applicable to allocation of production to leases within a unit
or communitization agreement, that ``(f)or any unit or communitization
agreement if all lessees contractually agree to an alternative method
of royalty reporting and payment, the lessees may submit such
alternative method to the Secretary or the delegated State for
approval. * * *'' 30 U.S.C. 1721(k)(3) (emphasis added). That is the
applicable section of RSFA that was addressed in Sec. 227.400(b)(2) of
this rulemaking and does not require consent of the ``state
concerned.''
Section 227.401--One oil and gas industry commenter suggested that
States accept all forms of electronic media as currently done by MMS.
MMS Response--We agree. We intend to continue this policy in our
delegation program.
Section 227.500--One oil and gas trade association and one oil and
gas industry commenter recommended that we assess interest and
erroneous reporting at the payor code level for all Federal leases and
not at the individual State level.
MMS Response--We will address how we will assess for interest and
erroneous reporting in other appropriate rulemakings.
Section 227.600--A State commenter opposed the requirement to
verify ``unit prices for reasonable product valuation,'' because MMS
does not perform that function. Two other State commenters suggested
that cost effectiveness be taken into account to optimize the return on
the resources spent when performing automated verification. An oil and
gas industry trade association stated that it `` * * * does not object
to a State calculating
[[Page 43082]]
interest, but we have concerns on how the excessive overpayment
provision of FOGRSFA will be interpreted. (It) believes that this
provision must be viewed on a Payor Code level for all federal leases.
We do not believe that this provision should be made on a state-by-
state basis. What if a reporter had only one lease within a delegated
state, but hundreds of federal leases in other states?''
MMS Response--We do perform a limited product value verification
within certain broad parameters and have left the provision unchanged
in the final rule. We would not require the States to perform under a
more stringent standard than we do. Further, we support flexibility and
will work with States to develop customized approaches to automated
verification that are cost effective and meet their needs. We will
address the issue of calculating interest on excessive overpayments in
another separate rulemaking.
Section 227.601--One oil and gas industry representative was
concerned about States' abilities to verify the proper volume of gas
plant products as currently done by MMS. This commenter suggested that
States have the same capability to avoid extraneous reporting by
industry. Two State commenters objected to their having to perform
verification under a higher standard than MMS. One oil and gas trade
association commented that the word ``update'' in Sec. 227.601(d)
should be ``updated.''
MMS Response--If States request this function, we will assure that
they have the capability to verify plant production volumes. We will
not require a State to perform verification at a higher standard than
we do; however, we will work with States to develop verification
tolerances that best suit each State's needs. We agree that the word in
Sec. 227.601(d) should be ``updated'' and corrected this section.
Section 227.800--Two oil and gas industry trade associations
supported establishment of a MMS monitoring team. They further
suggested that the team consult industry on a regular basis.
MMS Response--We agree that the monitoring team should serve as a
point of contact with industry to address their concerns. Upon review
of this section, we modified it to clarify the annual and periodic
reviews performed by the monitoring team.
Section 227.801--Two State commenters believed that States should
have the ability to appeal a finding by MMS that it is not performing a
delegated function adequately. Two oil and gas trade associations
asserted that we must take corrective actions if a State has not
performed its delegated function satisfactorily, so the word ``may''
must be changed to ``will.'' One of these commenters also recommended
that we put any notices of a State's noncompliance in writing.
MMS Response--The process we proposed provides appropriate
administrative due process for the delegated State. If a State's
performance problem is not corrected through informal discussion, we
may then begin to terminate the delegation. Any termination of a
delegated function will be decided by the MMS Director, with
concurrence by the Secretary. This decision would be appealable to
Federal district court.
In situations involving corrective actions, we wish to retain the
latitude to work with States in improving their performance of the
delegated functions. Some situations may not require us to take a
formal corrective action, for example, where problems can be resolved
verbally. Further, MMS wishes to assure that before it terminates an
agreement, a State will have ample opportunity to correct any harmful
or significant deficiencies. Therefore, MMS is retaining the word
``may'' in the sections involving corrective actions.
Although the rule provides that MMS will notify a State in writing
of the State's failure to adequately perform delegated functions, MMS
will not inform industry of a State's noncompliance. Industry may
request information on a State's performance under its delegation
agreement under the Freedom of Information Act. If industry has
concerns regarding a State's performance of delegated functions,
industry may contact the monitoring team described under Sec. 227.800
of this part.
Section 227.804--Two oil and gas trade associations requested that
we provide industry with 180 days for systems changes, if a State
elects to terminate its delegation. One of these commenters also asked
that industry be notified of such terminations.
MMS Response--This section does not explicitly address the
effective date of terminations of delegation agreements or time periods
for industry to make systems changes once a termination becomes
effective. Rather, it informs States that they must provide MMS with a
90-day written notice of their intent to terminate a delegation
agreement. However, MMS agrees that a transition time is warranted and
is modifying Sec. 227.804 to address this concern. Although not raised
by this comment, during its review of this comment, MMS realized that
it had not included an effective date for termination of delegation
agreements in its proposed rule. Accordingly, we have modified
Sec. 227.804 to provide that MMS will determine a termination date
based on the number and type of delegation function(s) and the number
of affected parties. Therefore, in attempting to provide flexibility,
we will work with each State and industry, as appropriate, to determine
the appropriate amount of time for termination of their particular
delegated function(s).
III. Comments That MMS Specifically Requested
We specifically asked for comment on the following issues:
Removal of Part 229 ``As an alternative proposal, MMS would like
comment on whether it should remove part 229 completely and incorporate
delegations to States for audits, inspections, and investigations on
Indian lands into new Part 227.''
Comment--One industry commenter recommended that MMS retain
separate delegation regulations for audits, inspections and
investigations for Indian leases in part 229. Another industry
commenter pointed out that FOGRSFA did not affect leases on Indian
lands.
MMS Response--We agree and we are retaining this authority in part
229.
Delegation Proposal
``MMS specifically requested comments on additional information
that you believe would be important to include in a State's delegation
proposal.''
Comment--We did not receive any specific comments on this issue.
However, one oil and gas trade association requested timely access to
delegation proposals.
MMS Response--We addressed this issue under Sec. 227.110.
Formation of an Advisory Committee
``MMS would suggest formation of an advisory committee comprised of
States receiving delegations and MMS representatives. The committee
would be responsible for providing advice and recommendations about the
standards and procedures required for the performance of delegable
functions. MMS would like comments on this suggestion.''
Comment--One oil and gas industry trade association advocated that
industry also be included in the advisory committee.
MMS Response--RSFA requires that MMS and the States consult in the
development of procedures and standards for States to perform royalty
[[Page 43083]]
management functions. We believe that it may be helpful for States with
delegations and MMS to work informally together through a State-
initiated advisory group on the continuing development and coordination
of the delegation program. The discussions would involve mostly the
day-to-day coordination of activities between MMS and States and would
have little, if any, effect on industry's activities. Once standards,
procedures, and coordination techniques are developed, industry will
have the opportunity for review.
Monitoring Team--``Please provide comment to MMS if you have
suggestions on how MMS should form the monitoring team.''
Comment--One oil and gas trade association stated that the
monitoring team should consist of MMS subject matter experts. Further,
this commenter suggested that the team consult with affected payors on
a regular basis.
MMS Response--We agree that the monitoring team members should be
subject matter experts and that the team will consult with affected
payors on a regular basis.
Reporting Burden--``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.''
Comment--One oil and gas trade association emphasized that
reporting burdens could exist when payors report in more than one
State. Further, this commenter stated that industry participation is
essential to eliminate duplication and provide a uniform reporting
format.
MMS Response--While we agree that under RSFA there may be an
additional reporting burden for those payors reporting to multiple
States, we are committed to coordinating with States and industry to
minimize this burden.
Paperwork Reduction Act Requirements--``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 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.''
Comment--We did not receive any comments on this issue.
Section-by-Section Analysis
Section 227.100 What States may request delegation?
We removed this section and combined the information with
Sec. 227.101 to conform with comments received from the mining industry
and the Departmental legal opinion.
Section 227.101 What royalty management functions may MMS delegate to
a State?
We combined the proposed Sec. 227.100 with this section for clarity
purposes.
At Sec. 227.101(a), we added language to clarify that a State
performing delegated royalty management functions must perform those
functions for all Federal oil and gas leases within the State
boundaries.
At Sec. 227.101(b), we added language to clarify that a State
performing delegated audits and investigations must perform those
functions for all federal leases subject to OCSLA section 8(g) and
solid mineral leases and geothermal leases on Federal lands within the
State boundaries.
Section 227.103 What must a State's delegation proposal contain?
We modified Sec. 227.103(c)(1) to include the word ``entities'' in
response to comments and added language to clarify that if more than
one entity is delegated responsibility for performing delegated
functions, the State must provide in its proposal the position of the
highest ranking State official having ultimate authority over the
collection of royalties from leases on Federal lands within the State.
At Sec. 227.103(e)(2), we deleted paragraphs (ii) and (iv) in
response to comments.
At Sec. 227.103(i), we added language to clarify the
responsibilities of handling confidential information.
Section 227.105 What are the hearing procedures?
At Sec. 227.105, we added the words ``if appropriate'' in response
to comments. We inserted a new paragraph at Sec. 227.105(d) also in
response to comments.
Section 227.110 When and for how long are delegation agreements
effective?
We changed the section title to add clarity. We added information
at Sec. 227.110(a) to clarify our language regarding the effective date
for delegation agreements. We added new language at Sec. 227.110(d) to
clarify our original proposal.
In response to comments, we added Sec. 227.110(e) to further
explain the hearing process.
Section 227.111 Do existing delegation agreements remain in effect?
We added language at Sec. 227.111(a) to further explain our
requirements in this section.
Section 227.112 What compensation will a State receive to perform
delegated functions?
We added language at Sec. 227.112(d) to provide an option to the
States for voucher submittal.
Section 227.200 What are a State's general responsibilities if it
accepts a delegation?
We modified Sec. 227.200(a) to provide flexibility to States in
response to their comments.
We deleted the phrase ``and the MMS Standards for Delegation
(Standards)'' from Sec. 227.200(e) for clarity purposes.
We added the phrase ``and the delegation agreement;'' to 227.200(f)
for clarity purposes.
Section 227.300 What audit functions may a State perform?
We modified Sec. 227.300 to provide greater flexibility to the
States in response to their comments.
Section 227.301 What are a State's responsibilities if it performs
audits?
We modified the language at Sec. 227.301(e) of the proposed rule to
provide flexibility to States regarding their audit plans, as expressed
in their comments.
We also modified the language at Sec. 227.301(f) of the proposed
rule to clarify our requirements regarding the appeals process.
Section 227.400 What functions may a State perform in processing
production reports or royalty reports?
We modified Sec. 227.400(a)(7) to clarify our requirements
regarding the appeals process.
Section 227.401 What are a State's responsibilities if it processes
production reports or royalty reports?
We modified Sec. 227.401(b) to clarify our requirements for
processing fatal
[[Page 43084]]
errors. At Sec. 227.401(h), we modified the language to clarify our
requirements regarding the appeals process.
Section 227.500 What functions may a State perform to ensure that
reporters correct erroneous report data?
We modified Sec. 227.500(b) for further clarity.
Section 227.501 What are a State's responsibilities to ensure that
reporters correct erroneous data?
We changed Sec. 227.501(b) for simplicity. We modified
Sec. 227.501(d) to clarify our requirements regarding the appeals
process.
Section 227.600 What automated verification functions may a State
perform?
We modified Sec. 227.600(b)(4) as a result of mining industry
comments regarding the delegation of additional royalty management
functions for solid, geothermal, and Sec. 8(g) leases.
We deleted Sec. 227.600(b)(7) to correct this final rulemaking
because this item is not a separate, identifiable automated
verification function. We modified Sec. 227.600(d) to clarify our
requirements regarding the appeals process.
Section 227.601 What are a State's responsibilities if it performs
automated verification?
We changed Sec. 227.601(d) to correct a typographical error. We
modified Sec. 227.601(e) to provide further clarity regarding the
appeals requirements.
Section 227.700 What enforcement documents may a State issue in
support of its delegated function?
We deleted language from Sec. 227.700(a) as a result of mining
industry comments regarding the delegation of additional royalty
management functions for solid, geothermal, and Sec. 8(g) leases.
Section 227.800 How will MMS monitor a State's performance of
delegated functions?
We modified Sec. 227.800 in response to comments and to further
specify our review process.
Section 227.802 How will MMS terminate a State's delegation agreement?
We added further information about the termination of delegation
agreement process at Sec. 227.802 for clarity purposes.
Section 227.804 How else may a State's delegation agreement terminate?
We modified Sec. 227.804 as a result of industry comments.
V. Procedural Matters
The Regulatory Flexibility Act
The Department certifies that this rule will not have a significant
economic effect on a substantial number of small entities under the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). This rule provides
guidance to States about the delegation of royalty management
functions.
Approximately 4,500 reporters provide royalty and production
reports on mineral production from Federal and Indian lands to MMS.
However, many of these companies report both royalty and production
information to MMS. The total number of companies reporting to MMS is
about 2,500. The majority of these are considered small businesses
under the criteria of the Small Business Administration.
Some small entities might have activities in more than one State.
While these companies could be required to report to several States
instead of only the Federal Government under this rulemaking, they
would file the same reports that they do now, but to a greater number
of regulatory agencies. For the small entity, this will require further
communication and coordination between the States and MMS. If the
entity has several leases in more than one State, we estimate an
additional burden of 50 hours for coordination between the several
States and MMS. Under this scenario, the annual cost burden estimate to
a small entity is $1,750.
If a payor reports for Federal mineral leases located in only one
State, we estimate no additional burden hours or costs imposed by this
rule because the payor is already required to send in the same
production reports and royalty payments but to a different address. A
$1,750 annual cost for a small business to comply with this rule is not
considered a significant impact on a typical small entity in the oil
and gas extraction industry.
This rulemaking will not have a significant economic impact on a
substantial number of small entities.
Executive Order 12630
The Department certifies that the rule does not represent a
governmental action capable of interference with constitutionally
protected property rights. Thus, there is no need to prepare a Takings
Implication Assessment under Executive Order 12630, ``Governmental
Actions and Interference with Constitutionally Protected Property
Rights.''
Executive Order 12866
This rule was determined to be significant by the Office of
Management and Budget (OMB). Although this rule will result in an
increased reporting burden, there will be an offsetting benefit of
incentives to States to participate in Federal activities. MMS
estimates the economic impact of this rule to be about $7 million.
Executive Order 12988
The Department has certified to OMB that this proposed regulation
meets the applicable standards provided in sections 3(a) and 3(b)(2) of
E.O. 12988.
Paperwork Reduction Act
The Office of Management and Budget approved the information
collection requirements contained in this rule under 44 U.S.C. 3501 et
seq., and assigned OMB Control Number 1010-0088, titled: Delegation of
Authority to States. This OMB approval has an expiration date of June
30, 2000.
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.
Unfunded Mandates 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.
List of Subjects in 30 CFR Parts 227, 228 and 229
Coal, Continental shelf, Geothermal energy, Government contracts,
Mineral royalties, Natural gas, Petroleum, Public lands--mineral
resources, Reporting and recordkeeping requirements.
Dated: July 26, 1997.
Bob Armstrong,
Assistant Secretary, Land and Minerals Management.
For the reasons set out in the preamble, Title 30, Chapter II of
the Code of Federal Regulations is amended as follows:
1. Part 227 is added to read as follows:
PART 227--DELEGATION TO STATES
Sec.
[[Page 43085]]
Delegation of MMS Royalty Functions
227.1 What is the purpose of this part?
227.10 What is the authority for information collection?
227.101 What royalty management functions may MMS delegate to a
State?
227.102 What royalty management functions will MMS not delegate?
Delegation Proposals
227.103 What must a State's delegation proposal contain?
227.104 What will MMS do when it receives a State's delegation
proposal?
Hearing Process
227.105 What are the hearing procedures?
Delegation Process
227.106 What statutory requirements must a State meet to receive a
delegation?
227.107 When will the MMS Director decide whether to approve a
State's delegation proposal?
227.108 How will MMS notify a State of its decision?
227.109 What if the MMS Director denies a State's delegation
proposal?
227.110 When and for how long are delegation agreements effective?
Existing Delegations
227.111 Do existing delegation agreements remain in effect?
Compensation
227.112 What compensation will a State receive to perform delegated
functions?
States' Responsibilities to Perform Delegated Functions
227.200 What are a State's general responsibilities if it accepts a
delegation?
227.201 What standards must a State comply with for performing
delegated functions?
227.300 What audit functions may a State perform?
227.301 What are a State's responsibilities if it performs audits?
227.400 What functions may a State perform in processing production
reports and royalty reports?
227.401 What are a State's responsibilities if it processes
production reports or royalty reports?
227.500 What functions may a State perform to ensure that reporters
correct erroneous report data?
227.501 What are a State's responsibilities to ensure that
reporters correct erroneous data?
227.600 What automated verification functions may a State perform?
227.601 What are a State's responsibilities if it performs
automated verification?
227.700 What enforcement documents may a State issue in support of
its delegated function?
Performance Review
227.800 How will MMS monitor a State's performance of delegated
functions?
227.801 What if a State does not adequately perform a delegated
function?
227.802 How will MMS terminate a State's delegation agreement?
227.803 What are the hearing procedures for terminating a State's
delegation agreement?
227.804 How else may a State's delegation agreement terminate?
227.805 How may a State obtain a new delegation agreement after
termination?
Authority: 30 U.S.C. 1735; 30 U.S.C. 196; Pub L. 102-154.
Delegation of MMS Royalty Functions
Sec. 227.1 What is the purpose of this part?
This part provides procedures to delegate Federal royalty
management functions to States under section 205 of the Federal Oil and
Gas Royalty Management Act of 1982 (the Act), 30 U.S.C. 1735, as
amended by 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. This part also provides procedures to delegate only audit and
investigation functions to States under Pub. L. 102-154 for solid
mineral leases, geothermal leases and leases subject to section 8(g) of
the Outer Continental Shelf Lands Act, 43 U.S.C. 1337(g). This part
does not apply to any inspection or enforcement responsibilities of the
Bureau of Land Management for onshore leases or the MMS Offshore
Minerals Management program for leases on the Outer Continental Shelf.
Sec. 227.10 What is the authority for information collection?
(a) The information collection requirements contained in this part
have been approved by Office of Management and Budget (OMB) under 44
U.S.C. 3501 et seq. and assigned OMB Control Number 1010-0088. We will
use the information collected to review and approve delegation
proposals from States wishing to perform royalty management functions.
(b) Public reporting burden is estimated as follows. MMS estimates
400 annual burden hours per function for each State performing the
delegated functions. The Federal Government will reimburse some of
these costs as provided by statute. However, States could incur
additional start-up costs, such as purchasing equipment necessary to
perform a delegated function, that may not be reimbursable. MMS
estimates that, if applicable, each payor or reporter would spend 50
burden hours annually coordinating their interactions and
communications among the several States and with MMS. Send comments
regarding this burden estimate or any other aspect of this collection
of information, including suggestions for reducing burden, to the
Information Collection Clearance Officer, Minerals Management Service,
1849 C Street, NW, Washington, DC 20240; and to the Office of
Information and Regulatory Affairs, Office of Management and Budget,
Attention: Desk Officer for the Interior Department, OMB Control Number
1010-0088, 725 17th Street, NW, Washington, DC 20503.
Sec. 227.101 What royalty management functions may MMS delegate to a
State?
(a) If there are oil and gas leases subject to the Act on Federal
lands within your State, MMS may delegate the following royalty
management functions for all such Federal oil and gas leases to you
under this part:
(1) Conducting audits and investigations;
(2) Receiving and processing production or royalty reports;
(3) Correcting erroneous report data;
(4) Performing automated verification; and
(5) Issuing demands, subpoenas, and orders to perform restructured
accounting, including related notices to lessees or their designees,
and entering into tolling agreements under section 115(d)(1) of the
Act, 30 U.S.C. 1725(d)(1).
(b) If there are oil and gas leases offshore of your State subject
to section 8(g) of the Outer Continental Shelf Lands Act, 43 U.S.C.
1337(g), or solid mineral leases or geothermal leases on Federal lands
within your State, MMS only may delegate authority to conduct audits
and investigations for all such Federal leases to you under this part.
MMS will not delegate other functions that may be delegated for oil and
gas leases on Federal lands.
Sec. 227.102 What royalty management functions will MMS not delegate?
This section lists the principal royalty management functions that
MMS will not delegate to a State. MMS will not delegate to a State the
following functions:
(a) MMS must collect all moneys received from sales, bonuses,
rentals, royalties, civil penalties, assessments and interest. MMS also
must collect any moneys a lessee or its designee pays because of audits
or other actions of a delegated State;
(b) MMS must compare all cash and other payments it receives with
payments shown on royalty reports or other documents, such as bills, to
reconcile payor accounts. MMS also must disburse all appropriate moneys
to States and other revenue recipients, including refunds and interest
owed to lessees and their designees;
(c) The Department of the Interior will receive, process, and
decide all administrative appeals from demands or
[[Page 43086]]
other orders issued to lessees, their designees, or any other person,
including demands or orders a delegated State issues;
(d) Only MMS may take enforcement actions other than issuing
demands, subpoenas and orders to perform restructured accounting. MMS
or the appropriate Federal agency will issue notices of non-compliance
and civil penalties, collect debts, write off delinquent debts, pursue
litigation, enforce subpoenas, and manage any alternative dispute
resolution. MMS will conduct, coordinate and approve any settlement or
other compromise of an obligation that a lessee or its designee owes;
(e) MMS will decide all valuation policies, including issuing
valuation regulations, determinations, and guidelines, and interpreting
valuation regulations; and
(f) MMS may reserve additional authorities and responsibilities not
included in paragraphs (a) through (f) of this section.
Delegation Proposals
Sec. 227.103 What must a State's delegation proposal contain?
If you want MMS to delegate royalty management functions to you,
then you must submit a delegation proposal to the MMS Associate
Director for Royalty Management. MMS will provide you with technical
assistance and information to help you prepare your delegation
proposal. Your proposal must contain the following minimum information:
(a) The name and title of the State official authorized to submit
the delegation proposal and execute the delegation agreement;
(b) The name, address, and telephone number of the State contact
for the proposal;
(c) A copy of the legislation, State Attorney General opinion or
other document that:
(1) States which State entity or entities are responsible for
performing delegated functions, and if more than one entity is
delegated such responsibility, the position of the highest ranking
State official having ultimate authority over the collection of
royalties from leases on Federal lands within the State;
(2) Demonstrates the State's authority to:
(i) Accept a delegation from MMS; and
(ii) Receive State or Federal appropriations to perform delegated
functions;
(d) The date you propose to begin performing delegated functions;
(e) A detailed statement of the delegable functions that you
propose to perform. For each function, describe the resources available
in your State to perform each function, the procedures you will use to
perform each function, and how you will assure that you will meet all
Federal laws, lease terms, regulations and relevant performance
standards. As evidence that you have or will have the resources to
perform each delegable function, provide the following information:
(1) A description of the personnel you have available to perform
delegated functions, including:
(i) How many persons you will assign full-time and part-time to
each delegated function;
(ii) The technical qualifications of the key personnel you will
assign to each function, including academic field and degree,
professional credentials, and quality and amount of experience with
similar functions; and
(iii) Whether these persons are currently State employees. If not,
explain how you propose to hire these persons or obtain their services,
and when you expect to have those persons available to perform
delegated functions;
(2) A description of the facilities you will use to perform
delegated functions, including:
(i) Whether you currently have the facilities in which you will
physically locate the personnel and equipment you will need to perform
the functions you propose to assume. If not, how you propose to acquire
such facilities, and when you expect to have such facilities available;
and
(ii) How much office space is available;
(3) Describe the equipment you will use to perform delegated
functions, including:
(i) Hardware and software you will use to perform each delegated
function, including equipment for:
(A) Document processing, including compatibility with MMS automated
systems, electronic commerce capabilities, and data storage
capabilities;
(B) Accessing reference data;
(C) Contacting production or royalty reporters;
(D) Issuing demands;
(E) Maintaining accounting records;
(F) Performing automated verification;
(G) Maintaining security of confidential and proprietary
information; and
(H) Providing data to other Federal agencies;
(ii) Whether you currently have the equipment you will need to
perform the functions you propose to assume. If not, how you propose to
acquire such equipment and when you expect to have such equipment
available;
(f) Your estimates of the costs to fund the following resources
necessary to perform the delegation:
(1) Personnel, including hiring, employee salaries and benefits,
travel and training;
(2) Facilities, including acquisition, upgrades, operation, and
maintenance; and
(3) Equipment, including acquisition, operation, and maintenance;
(g) Your plans to fund the resources under paragraph (f) of this
section, including any items you will ask MMS to fund under the
delegation agreement;
(h) A statement identifying any areas where State law, including
State appropriation law, may limit your ability to perform delegated
functions, and an explanation of how you propose to remove any such
limitation;
(i) A statement that in accordance with section 203 of the Act (30
U.S.C. 1733) persons who have access to information received under
delegated functions are subject to the same provisions of law regarding
confidentiality and disclosure of that information as Federal
employees. Applicable laws include the Freedom of Information Act
(FOIA), the Trade Secrets Act, and relevant Executive Orders. In
addition, your statement must acknowledge that all documents produced,
received, and maintained as part of any delegation functions are agency
records for purposes of FOIA. Therefore, persons who have access to
information received under delegated functions may not use such
information or provide such information to any other person, including
State personnel, for purposes other than performing delegated
functions. However, this limitation does not apply if the person
submitting the information consents in writing to its use for other
State purposes.
Sec. 227.104 What will MMS do when it receives a State's delegation
proposal?
When MMS receives your delegation proposal, it will record the
receipt date. MMS will notify you in writing within 15 business days
whether your proposal is complete. If it is not complete, MMS will
identify any missing items Sec. 227.103 requires. Once you submit all
required information, MMS will notify you of the date your application
is complete.
[[Page 43087]]
Hearing Process
Sec. 227.105 What are the hearing procedures?
After MMS notifies you that your delegation proposal is complete,
MMS will schedule a hearing on your proposal, if MMS determines a
hearing is appropriate, as follows:
(a) The MMS Director will appoint a hearing official to conduct one
or more public hearings for fact finding regarding your ability to
assume the delegated functions requested. The hearing official will not
decide whether to approve your delegation request;
(b) The hearing official will contact you about scheduling a
hearing date and location;
(c) The MMS will publish notice of the hearing in the Federal
Register and other appropriate media within your State;
(d) MMS will publish notice of the proposal in the Federal
Register. MMS will also post the proposal on the MMS Website, and upon
request, MMS will send a copy of the delegation proposal to the trade
associations to distribute to their members, as necessary;
(e) At the hearing, you will have an opportunity to present
testimony and written information in support of your proposal;
(f) Other persons may attend the hearing and may present testimony
and written information for the record;
(g) MMS will record the hearing;
(h) MMS will maintain a record of all documents related to the
proposal process;
(i) After the hearing, MMS may require you to submit additional
information in support of your delegation proposal.
Delegation Process
Sec. 227.106 What statutory requirements must a State meet to receive
a delegation?
The MMS Director will decide whether to approve your delegation
request and will ask the Secretary of the Interior to concur in the
decision. That decision is solely within the MMS Director's and the
Secretary's discretion. The MMS Director's decision, which the
Secretary concurs in, is the final decision for the Department of the
Interior. The MMS Director may approve a State's request for delegation
only if, based upon the State's delegation proposal and the hearing
record, the MMS Director finds that:
(a) It is likely that the State will provide adequate resources to
achieve the purposes of the Act;
(b) The State has demonstrated that it will effectively and
faithfully administer the MMS regulations under the Act in accordance
with subsections (c) and (d) of section 205 of the Act;
(c) Such delegation will not create an unreasonable burden on any
lessee;
(d) The State agrees to adopt standardized reporting procedures MMS
prescribes for royalty and production accounting purposes, unless the
State and all affected parties (including MMS) otherwise agree;
(e) The State agrees to follow and adhere to regulations and
guidelines MMS issues under the mineral leasing laws regarding
valuation of production; and
(f) Where necessary for a State to carry out and enforce a
delegated activity, the State agrees to enact such laws and promulgate
such regulations as are consistent with relevant Federal laws and
regulations.
Sec. 227.107 When will the MMS Director decide whether to approve a
State's delegation proposal?
The MMS Director will decide whether to approve your delegation
proposal within 90 days after your delegation proposal is considered
complete under Sec. 227.104. MMS may extend the 90-day period with your
written consent.
Sec. 227.108 How will MMS notify a State of its decision?
MMS will notify you in writing of its decision on your delegation
proposal. If MMS approves your delegation proposal, then MMS will hold
discussions with you to develop a delegation agreement detailing the
functions that you will perform, the standards and requirements you
must comply with to perform those functions, and any required
transition period.
Sec. 227.109 What if the MMS Director denies a State's delegation
proposal?
If the MMS Director denies your delegation proposal, MMS will state
the reasons for denial. MMS also will inform you in writing of the
conditions you must meet to receive approval. You may submit a new
delegation proposal at any time following a denial.
Sec. 227.110 When and for how long are delegation agreements
effective?
(a) Delegation agreements are effective for 3 years from the date
the MMS Director signs the delegation agreement. However, during the
development of the State's delegation proposal under Sec. 227.108 of
this part, MMS, the delegated State, and any other affected person will
determine an appropriate transition period for lessees and their
designees to modify their systems to comply with any new requirements
under a delegation agreement. MMS will publish notice of the effective
date of a State's delegation agreement in the Federal Register and that
notice will inform lessees and their designees of any transition
period. MMS also will post the proposals on the MMS Website at
www.mms.gov, and upon request, will send a copy of the delegation
proposals to trade associations to distribute to their members.
(b) You may ask MMS to renew the delegation for an additional 3
years no less than 6 months before your 3-year delegation agreement
expires. You must submit your renewal request to the MMS Associate
Director for Royalty Management as follows:
(1) If you do not want to change the terms of your delegation
agreement for the renewal period, you need only ask to extend your
existing agreement for the 3-year renewal period. MMS will not schedule
a hearing unless you request one;
(2) If you want to change the terms of your delegation agreement
for the renewal period, you must submit a new delegation proposal under
this part.
(c) The MMS Director may approve your renewal request only if MMS
determines that you are meeting the requirements of the applicable
standards and regulations. If the MMS Director denies your renewal
request, MMS will state the reasons for denial. MMS also will inform
you in writing of the conditions you must meet to receive approval. You
may submit a new renewal request any time after denial.
(d) After the 3-year renewal period for your delegation agreement
ends, if you wish to continue performing one or more delegated
functions, you must request a new delegation agreement from MMS under
this part. MMS will schedule a hearing on your request, if MMS
determines a hearing is appropriate. As part of the decision whether to
approve your request for a new delegation, the MMS Director will
consider whether you are meeting the requirements of the applicable
standards and regulations under your existing delegation agreement.
(e) If you do not request a hearing under paragraphs (b)(1) or (d)
of this section, any other affected person may submit a written request
for a hearing under those paragraphs to the MMS Associate Director for
Royalty Management.
Existing Delegations
Sec. 227.111 Do existing delegation agreements remain in effect?
This section explains your options if you have a delegation
agreement in effect on the effective date of this regulation.
[[Page 43088]]
(a) If you do not want to perform any royalty management functions
in addition to those authorized under your existing agreement, you may
continue your existing agreement until its expiration date. Before the
agreement expires, if you wish to continue to perform one or more of
the delegated functions you performed under the expired agreement, you
must request a new delegation agreement meeting the requirements of
this part and the applicable standards.
(b) If you want to perform royalty management functions in addition
to those authorized under your existing agreement, you must request a
new delegation agreement under this part.
(c) MMS may extend any delegation agreement in effect on the
effective date of this regulation for up to 3 years beyond the date it
is due to expire.
Compensation
Sec. 227.112 What compensation will a State receive to perform
delegated functions?
You will receive compensation for your costs to perform each
delegated function subject to the following conditions:
(a) Compensation for costs is subject to Congressional
appropriations;
(b) Compensation may not exceed the reasonably anticipated
expenditures that MMS would incur to perform the same function;
(c) The cost for which you request compensation must be directly
related to your performance of a delegated function and necessary for
your performance of that delegated function;
(d) At a minimum, you must provide vouchers detailing your
expenditures quarterly during the fiscal year. However, you may agree
to provide vouchers on a monthly basis in your delegation agreement;
(e) You must maintain adequate books and records to support your
vouchers;
(f) MMS will pay you quarterly or monthly during the fiscal year as
stated in your delegation agreement; and
(g) MMS may withhold compensation to you for your failure to
properly perform any delegated function as provided in section 227.801
of this part.
States' Responsibilities To Perform Delegated Functions
Sec. 227.200 What are a State's general responsibilities if it accepts
a delegation?
For each delegated function you perform, you must:
(a) Operate in compliance with all Federal laws, regulations, and
Secretarial and MMS determinations and orders relating to calculating,
reporting, and paying mineral royalties and other revenues. You must
seek information or guidance from MMS regarding new, complex, or unique
issues. If MMS determines that written guidance or interpretation is
appropriate, MMS will provide the guidance or interpretation in writing
to you and you must follow the interpretation or guidance given;
(b) Comply with Generally Accepted Accounting Principles (GAAP).
You must:
(1) Provide complete disclosure of financial results of activities;
(2) Maintain correct and accurate records of all mineral-related
transactions and accounts;
(3) Maintain effective controls and accountability;
(4) Maintain a system of accounts that includes a comprehensive
audit trail so that all entries may be traced to one or more source
documents; and
(5) Maintain adequate royalty and production information for
royalty management purposes;
(c) Assist MMS in meeting the requirements of the Government
Performance and Results Act (GPRA) as well as assisting in developing
and endeavoring to comply with the MMS Strategic Plan and Performance
Measurements;
(d) Maintain all records you obtain or create under your delegated
function, such as royalty reports, production reports, and other
related information. You must maintain such records in a safe, secure
manner, including taking appropriate measures for protecting
confidential and proprietary information and assisting MMS in
responding to Freedom of Information Act requests when necessary. You
must maintain such records for at least 7 years;
(e) Provide reports to MMS about your activities under your
delegated functions. MMS will specify in your delegation agreement what
reports you must submit and how often you must submit them. At a
minimum, you must provide periodic statistical reports to MMS
summarizing the activities you carried out, such as:
(1) Production and royalty reports processed;
(2) Erroneous reports corrected;
(3) Results of automated verification findings;
(4) Number of audits performed; and
(5) Enforcement documents issued.
(f) Assist MMS in maintaining adequate reference, royalty, and
production databases as provided in the Standards issued under
Sec. 227.201 of this part and the delegation agreement;
(g) Develop annual work plans that:
(1) Specify the work you will perform for each delegated function;
and
(2) Identify the resources you will commit to perform each
delegated function;
(h) Help MMS respond to requests for information from other Federal
agencies, Congress, and the public;
(i) Cooperate with MMS's monitoring of your delegated functions;
and
(j) Comply with the Standards as required under Sec. 227.201 of
this part.
Sec. 227.201 What standards must a State comply with for performing
delegated functions?
(a) If MMS delegates royalty management functions to you, you must
comply with the Standards. The Standards explain how you must carry out
the activities under each of the delegable functions.
(b) Your delegation agreement may include additional standards
specifically applicable to the functions delegated to you.
(c) Failure to comply with your delegation agreement, the
Standards, or any of the specific standards and requirements in the
delegation agreement, is grounds for termination of all or part of your
delegation agreement, or other actions as provided under Secs. 227.801
and 227.802.
(d) MMS may revise the Standards and will provide notice of those
changes in the Federal Register. You must comply with any changes to
the Standards.
Sec. 227.300 What audit functions may a State perform?
An audit consists of an examination of records to verify that
royalty reports and payments accurately reflect actual production,
sales, revenues and costs, and compliance with Federal statutes,
regulations, lease terms, and MMS policy determinations.
(a) If you request delegation of audit functions, you must perform
at least the following:
(1) Submitting requests for records;
(2) Examining royalty and production reports;
(3) Examining lessee production and sales records, including
contracts, payments, invoices, and transportation and processing costs
to substantiate production and royalty reporting;
(4) Providing assistance to MMS for appealed demands or orders,
including preparing field reports, performing remanded actions,
modifying orders, and providing oral and written briefing and testimony
as expert witnesses.
(b) If necessary for a particular audit, you may also perform any
of the following:
(1) Issuing engagement letters;
(2) Arranging for entrance conferences;
[[Page 43089]]
(3) Scheduling site visits; and
(4) Issuing record releases and audit closure letters; and
(5) Holding closeout conferences.
Sec. 227.301 What are a State's responsibilities if it performs
audits?
If you perform audits you must:
(a) Comply with the MMS Audit Procedures Manual and the Government
Auditing Standards issued by the Comptroller General of the United
States;
(b) Follow the MMS Annual Audit Work Plan and 5-year Audit
Strategy, which MMS will develop in consultation with States having
delegated audit authority;
(c) Agree to undertake special audit initiatives MMS identifies
targeting specific royalty issues, such as valuation or volume
determinations;
(d) Prepare, construct, or compile audit work papers under the
appropriate procedures, manuals, and guidelines;
(e) Prepare and submit MMS Audit Work Plans. You may modify your
Audit Work Plans with MMS approval; and
(f) Comply with procedures for appealed demands or orders,
including meeting timeframes, supplying information, and using the
appropriate format.
Sec. 227.400 What functions may a State perform in processing
production reports or royalty reports?
Production reporters or royalty reporters provide production,
sales, and royalty information on mineral production from leases that
must be collected, analyzed, and corrected.
(a) If you request delegation of either production report or
royalty report processing functions, you must perform at least the
following:
(1) Receiving, identifying, and date stamping production reports or
royalty reports;
(2) Processing production or royalty data to allow entry into a
data base;
(3) Creating copies of reports by means such as electronic imaging;
(4) Timely transmitting production report or royalty report data to
MMS and other affected Federal agencies as provided in your delegation
agreement and the Standards;
(5) Providing training and assistance to production reporters or
royalty reporters;
(6) Providing production data or royalty data to MMS and other
affected Federal agencies; and
(7) Providing assistance to MMS for appealed demands or orders,
including meeting timeframes, supplying information, using the
appropriate format, performing remanded actions, modifying orders, and
providing oral and written briefing and testimony as expert witnesses.
(b) If you request delegation of either production report or
royalty report processing functions, or both, you may perform the
following functions:
(1) Granting exceptions from reporting and payment requirements for
marginal properties; and
(2) Approving alternative royalty and payment requirements for unit
agreements and communitization agreements.
(c) You must provide MMS with a copy of any exceptions from
reporting and payment requirements for marginal properties and any
alternative royalty and payment requirements for unit agreements and
communitization agreements you approve.
Sec. 227.401 What are a State's responsibilities if it processes
production reports or royalty reports?
In processing production reports or royalty reports you must:
(a) Process reports accurately and timely as provided in the
Standards and your delegation agreement;
(b) Identify and resolve fatal errors to use in subsequent error
correction that the State or MMS performs;
(c) Accept multiple forms of electronic media from reporters, as
MMS specifies;
(d) Timely transmit required production or royalty data to MMS and
other affected Federal agencies;
(e) Access well, lease, agreement, and reporter reference data from
MMS and provide updated information to MMS;
(f) For production reports, maintain adequate system software edits
to ensure compliance with the provisions of 30 CFR part 216, the PAAS
Onshore Oil and Gas Reporter Handbook, the PAAS Reporter Handbook-
Lease, Facility/Measurement Point, and Gas Plant Operators, any
interagency memorandums of understanding to which MMS is a party, and
the Standards;
(g) For royalty reports, maintain adequate system software edits to
ensure compliance with the provisions of 30 CFR part 218, the Oil and
Gas Payor Handbook, Volume II, ``Dear Payor'' letters, and the
Standards; and
(h) Comply with the procedures for appealed demands or orders,
including meeting timeframes, supplying information, and using the
appropriate format.
Sec. 227.500 What functions may a State perform to ensure that
reporters correct erroneous report data?
Production data and royalty data must be edited to ensure that what
is reported is correct, that disbursement is made to the proper
recipient, and that correct data are used for other functions, such as
automated verification and audits. If you request delegation of error
correction functions for production reports or royalty reports, or
both, you must perform at least the following:
(a) Correcting all fatal errors and assigning appropriate
confirmation indicators;
(b) Verifying whether production reports are missing;
(c) Contacting production reporters or royalty reporters about
missing reports and resolving exceptions;
(d) Documenting all corrections made, including providing
production reporters or royalty reporters with confirmation reports of
any changes;
(e) Providing training and assistance to production reporters or
royalty reporters;
(f) Issuing notices, orders to report, and bills as needed,
including, but not limited to, imposing assessments on a person who
chronically submits erroneous reports; and
(g) Providing assistance to MMS for appealed demands or orders,
including preparing field reports, performing remanded actions,
modifying orders, and providing oral and written briefing and testimony
as expert witnesses.
Sec. 227.501 What are a State's responsibilities to ensure that
reporters correct erroneous data?
To ensure the correction of erroneous data, you must:
(a) Ensure compliance with the provisions of 30 CFR parts 216 and
218, any applicable handbook specified under 30 CFR 227.401 (f) and
(g), interagency memorandums of understanding to which MMS is a party,
and the Standards;
(b) Ensure that reporters accurately and timely correct all fatal
errors as designated in the Standards. These errors include, for
example, invalid or incorrect reporter/payor codes, incorrect lease/
agreement numbers, and missing data fields;
(c) Submit accepted and corrected lines to MMS to allow processing
into the Auditing and Financial System (AFS) and the Production
Accounting and Auditing System (PAAS) in a timely manner as provided in
the Standards and 30 CFR part 219; and
(d) Comply with the procedures for appealed demands or orders,
including meeting timeframes, supplying
[[Page 43090]]
information, and using the appropriate format.
Sec. 227.600 What automated verification functions may a State
perform?
Automated verification involves systematic monitoring of production
and royalty reports to identify and resolve reporting or payment
discrepancies. States may perform the following:
(a) Automated comparison of sales volumes reported by royalty
reporters to sales and transfer volumes reported by production
reporters. If you request delegation of automated comparison of sales
and production volumes, you must perform at least the following
functions:
(1) Performing an initial sales volume comparison between royalty
and production reports;
(2) Performing subsequent comparisons when reporters adjust royalty
or production reports;
(3) Checking unit prices for reasonable product valuation based on
reference price ranges MMS provides;
(4) Resolving volume variances using written correspondence,
telephone inquiries, or other media;
(5) Maintaining appropriate file documentation to support case
resolution; and
(6) Issuing orders to correct reports or payments;
(b) Any one or more of the following additional automated
verification functions:
(1) Verifying compliance with lease financial terms, such as
payment of rent, minimum royalty, and advance royalty;
(2) Identifying and resolving improper adjustments;
(3) Identifying late payments and insufficient estimates, including
calculating interest owed to MMS and verifying payor-calculated
interest owed to MMS;
(4) Calculating interest due to a lessee or its designee for an
adjustment or refund, including identifying overpayments and excessive
estimates;
(5) Verifying royalty rates; and
(6) Verifying compliance with transportation and processing
allowance limitations;
(c) Issuing notices and bills associated with any of the functions
under paragraphs (a) and (b) of this section; and
(d) Providing assistance to MMS for any of these delegated
functions on appealed demands or orders, including meeting timeframes,
supplying information, using the appropriate format, taking remanded
actions, modifying orders, and providing oral and written briefing and
testimony as expert witnesses.
Sec. 227.601 What are a State's responsibilities if it performs
automated verification?
To perform automated verification of production reports or royalty
reports, you must:
(a) Verify through research and analysis all identified exceptions
and prepare the appropriate billings, assessment letters, warning
letters, notification letters, Lease Problem Reports, other internal
forms required, and correspondence required to perform any required
follow-up action for each function, as specified in the Standards or
your delegation agreement;
(b) Resolve and respond to all production reporter or royalty
reporter inquiries;
(c) Maintain all documentation and logging procedures as specified
in the Standards or your delegation agreement;
(d) Access well, lease, agreement, and production reporter or
royalty reporter reference data from MMS and provide updated
information to MMS; and
(e) Comply with procedures for appealed demands and orders,
including meeting time frames, supplying information, and using the
appropriate format.
Sec. 227.700 What enforcement documents may a State issue in support
of its delegated function?
This section explains what enforcement actions you may take as part
of your delegated functions.
(a) You may issue demands, subpoenas, and orders to perform
restructured accounting, including related notices to lessees and their
designees. You also may enter into tolling agreements under section
15(d)(1) of the Act, 30 U.S.C. 1725(d)(1).
(b) When you issue any enforcement document you must comply with
the requirements of section 115 of the Act, 30 U.S.C. 1725.
(c) When you issue a demand or enter into a tolling agreement under
section 15(d)(1) of the Act, 30 U.S.C. 1725(d)(1), the highest State
official having ultimate authority over the collection of royalties or
the State official to whom that authority has been delegated must sign
the demand or tolling agreement.
(d) When you issue a subpoena or order to perform a restructured
accounting you must:
(1) Coordinate with MMS to ensure identification of issues that may
concern more than one State before you issue subpoenas and orders to
perform restructured accounting; and
(2) Ensure that the highest State official having ultimate
authority over the collection of royalties signs any subpoenas and
orders to perform restructured accounting, as required under section
115 of the Act, 30 U.S.C. 1725. This official may not delegate
signature authority to any other person.
Performance Review
Sec. 227.800 How will MMS monitor a State's performance of delegated
functions?
This section explains MMS's procedures for monitoring your
performance of any of your delegated functions.
(a) A monitoring team of MMS officials will annually review your
performance of the delegated functions and compliance with your
delegation agreement, the Standards, and 30 U.S.C. 1735, including
conducting fiscal examination to verify your costs for reimbursement.
(b) The monitoring team also will:
(1) Periodically review your statistical reports required under
Sec. 227.200(e) to verify your accuracy, timeliness, and efficiency;
(2) Check for timely transmittal of production report or royalty
report information to MMS and other affected agencies, as applicable,
to allow for proper disbursement of funds and processing of
information;
(3) Coordinate on-site visits and Office of the Inspector General,
General Accounting Office, and MMS audits of your performance of your
delegated functions; and
(4) Maintain reports of its monitoring activities.
Sec. 227.801 What if a State does not adequately perform a delegated
function?
If your performance of the delegated function does not comply with
your delegation agreement, or the Standards, or if MMS finds that you
can no longer meet the statutory requirements under Sec. 227.106, then
MMS may:
(a) Notify you in writing of your noncompliance or inability to
comply. The notice will prescribe corrective actions you must take, and
how long you have to comply. You may ask MMS for an extension of time
to comply with the notice. In your extension request you must explain
why you need more time; and
(b) If you do not take the prescribed corrective actions within the
time that MMS allows in a notice issued under paragraph (a) of this
section, then MMS may:
(1) Initiate proceedings under Sec. 227.802 to terminate all or a
part of your delegation agreement;
(2) Withhold compensation provided to you under Sec. 227.112; and
(3) Perform the delegated function, before terminating or without
terminating your delegation agreement,
[[Page 43091]]
including, but not limited to, issuing a demand or order to a Federal
lessee, or its designee, or any other person when:
(i) Your failure to issue the demand or order would result in an
underpayment of an obligation due MMS; and
(ii) The underpayment would go uncollected without MMS
intervention.
Sec. 227.802 How will MMS terminate a State's delegation agreement?
This section explains the procedures MMS will use to terminate all
or a part of your delegation agreement:
(a) MMS will notify you in writing that it is initiating procedures
to terminate your delegation agreement;
(b) MMS will provide you notice and opportunity for a hearing under
Sec. 227.803 of this part;
(c) The MMS Director, with concurrence from the Secretary, will
decide whether to terminate your delegation agreement.
(d) After the hearing, MMS may:
(1) Terminate your delegation agreement; or
(2) Allow you 30 days to correct any remaining deficiencies. If you
do not correct the deficiency within 30 days, MMS will terminate all or
a part of your delegation agreement.
(e) MMS will determine the date your agreement is terminated and
will notify you of that date in writing. MMS will determine the
termination date based on the number of delegated functions and the
impact of the termination on all affected parties.
Sec. 227.803 What are the hearing procedures for terminating a State's
delegation agreement?
(a) The MMS Director will appoint a hearing official to conduct one
or more public hearings for fact finding and to determine any actions
you must take to correct the noncompliance. The hearing official will
not decide whether to terminate your delegation agreement;
(b) The hearing official will contact you about scheduling a
hearing date and location;
(c) The hearing official will publish notice of the hearing in the
Federal Register and other appropriate media within your State;
(d) At the hearing, you will have an opportunity to present
testimony and written information on your ability to perform your
delegated functions as required under this part, your delegation
agreement, and the Standards;
(e) Other persons may attend the hearing and may present testimony
and written information for the record;
(f) MMS will record the hearing;
(g) After the hearing, MMS may require you to submit additional
information; and
(h) Information presented at each public hearing will help MMS to
determine whether:
(1) You have complied with the terms and conditions of your
delegation agreement; or
(2) You have the capability to comply with the requirements under
Sec. 227.106 of this part.
Sec. 227.804 How else may a State's delegation agreement terminate?
You may request MMS to terminate your delegation at any time by
submitting your written notice of intent 6 months prior to the date on
which you want to terminate. MMS will determine the date your agreement
is terminated and will notify you of that date in writing. MMS will
determine the termination date based on the number of delegated
functions and the impact of the termination on all affected parties.
Sec. 227.805 How may a State obtain a new delegation agreement after
termination?
After your delegation agreement is terminated, you may apply again
for delegation by beginning with the proposal process under this part.
PART 228--COOPERATIVE ACTIVITIES WITH STATES AND INDIAN TRIBES
2. The authority citation for part 228 is revised to read as
follows:
Authority: Sec. 202, Pub. L. 97-451, 96 Stat. 2457 (30 U.S.C.
1732).
3. A new Sec. 228.3 is added to read as follows:
Sec. 228.3 Limitation on applicability.
As of the effective date of this rule, September 11, 1997, this
part does not apply to Federal lands.
PART 229--DELEGATION TO STATES
4. The authority citation for part 229 is revised to read as
follows:
Authority: 30 U.S.C. 1735.
5. A new Sec. 229.3 is added to read as follows:
Sec. 229.3 Limitation on applicability.
As of the effective date of this rule, September 11, 1997, this
part does not apply to Federal lands.
[FR Doc. 97-21162 Filed 8-11-97; 8:45 am]
BILLING CODE 4310-MR-P