[Federal Register Volume 63, Number 113 (Friday, June 12, 1998)]
[Proposed Rules]
[Pages 32166-32172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15626]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Chapter II


Review of Existing Regulations

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Review of regulations; request for comment.

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[[Page 32167]]

SUMMARY: MMS has been performing annual reviews of its significant 
regulations and asking the public to participate in these reviews since 
1994. The purpose of the reviews is to identify and eliminate 
regulations that are obsolete, ineffective, or burdensome. In addition, 
the reviews are meant to identify essential regulations that should be 
revised because they are either unclear, inefficient, or interfere with 
normal market conditions. As MMS moves towards performance based 
regulations, we are looking at ways to offer regulatory relief to 
industry for exceptional performance. We request your comments and 
suggestions with respect to which regulations could be more performance 
based and less prescriptive.
    The purpose of this document is twofold. First, we want to provide 
the public an opportunity to comment on MMS regulations that should be 
eliminated or revised, or could be more performance based. Second, we 
are providing a status update of the actions MMS has taken on comments 
previously received from the public in response to documents published 
March 1, 1994, March 28, 1995, May 20, 1996, and April 24, 1997. We 
will only include in this document status updates on comments which 
have not been closed/implemented in the four previous status update 
documents listed above.

DATES: Written comments must be received by August 11, 1998.

ADDRESSES: Mail written comments to Department of the Interior; 
Minerals Management Service; Mail Stop 4230; 1849 C Street NW; 
Washington, DC 20240; Attention: Bettine Montgomery, MMS Regulatory 
Coordinator, Policy and Management Improvement.

FOR FURTHER INFORMATION CONTACT: Bettine Montgomery, Policy and 
Management Improvement, telephone: (202) 208-3976; Fax: (202) 208-4891; 
and E-Mail: Elizabeth.M[email protected].

SUPPLEMENTARY INFORMATION: MMS began a review of its regulations in 
early 1994 under the directives contained in the President's Executive 
Order 12866. The Executive Order calls for periodic regulatory reviews 
to ensure that all significant regulations are efficient and effective, 
impose the least possible burden upon the public, and are tailored no 
broader than necessary to meet the agency's objectives and Presidential 
priorities.
    We invited the public to participate in the regulatory review. The 
invitation was sent out via different media, namely a Federal Register 
document dated March 1, 1994 (59 FR 9718); MMS and independent 
publications; and public speeches by MMS officials during that time.
    MMS received approximately 40 public comments which were almost 
equally divided between its Royalty Management and Offshore Minerals 
Management Programs. We acknowledged the comments in a July 15, 1994 
(59 FR 36108), document and set forth our planned actions to address 
the comments, along with an estimated timetable for these actions.
    In the Federal Register notices published March 28, 1995 (60 FR 
15888); May 20, 1996 (61 FR 25160); and April 24, 1997 (62 FR 19961), 
MMS: (a) asked for further public comments on its regulations, and (b) 
provided a status update of actions it had taken on the major public 
comments received to date. We received 10 responses from the 1995 
document; 5 responses from the 1996 document; and 2 responses from the 
1997 document. A number of the commentators expressed appreciation for 
our streamlining efforts and responsiveness to suggestions from our 
regulated customers.
    This document updates the MMS planned actions and related 
timetables on the major comments received to date. It also solicits 
additional comments from the public concerning regulations that should 
be either eliminated or revised, or could be more performance based. 
Since some of the public responses received in response to prior 
documents contained comments on very specific and detailed parts of the 
regulations, this document does not address every one received. For 
information on any comment submitted which is not addressed in this 
document, please contact Mrs. Montgomery at the number and location 
stated in the forward sections of this document.
    MMS regulations are found at Title 30 in the Code of Federal 
Regulations. Parts 201 through 243 contain regulations applicable to 
MMS's Royalty Management Program; Parts 250 through 282 are applicable 
to MMS's Offshore Minerals Management; and Part 290 is applicable to 
Administrative Appeals.

Status Report

    The following is a status report by program area on the comments 
MMS has received, to date, on its regulations.

A. Offshore Minerals Management (OMM) Program

    OMM is currently reviewing the following 14 sections of OMM 
regulations:
1. Regulations Governing Conservation of Resources and Diligence (30 
CFR 250, Subpart A.)
    Comments Received--(a) ``Revise Determination of Well Producibility 
to make wireline testing and/or mud logging analysis optional * * *.'' 
(b) ``* * * consider comments from the 11/30/95 MMS sponsored workshop 
to formulate policy for granting SOP (suspension of production) 
approvals based on host capacity delays, non-contiguous unitization, 
and market conditions/economic viability.''
    Action Taken or Planned--For (a) above, a proposed rule, 
``Postlease Operations,'' revising Subpart A was published on February 
13, 1998 (63 FR 7335). This revision addresses the determination of 
well producibility process, and the public is invited to comment on 
this and all areas of the proposed rule. The comment period closes on 
July 17, 1998. For (b) above, MMS did consider the comments from the 
11/30/95 workshop on granting suspensions of production when preparing 
the proposed rule.
    Timetable--The projected publication date for a final rule is April 
1999.
2. Revision of the Process for Incorporating Codes and Standards by 
Reference (30 CFR 250.1, Subpart A)
    Comments Received--``* * * review individual documents when changed 
and recommend adoption or rejection to reduce confusion as to the 
standard that should be used.''
    Action Taken or Planned--On November 26, 1996 (61 FR 60019), MMS 
published a final rule that updated over 50 documents incorporated by 
reference. In the preamble of the rule, MMS discussed its new policy 
for incorporating documents into the regulations. This will result in a 
much quicker and more efficient process for incorporating documents. If 
MMS determines that the changes to documents are minor, result in 
safety improvements or represent new industry standard technology, and 
do not impose undue costs on the affected parties, MMS will incorporate 
the new edition with a final rule published in the Federal Register. 
This will keep the number of out-of-date documents incorporated by 
reference to a minimum. This also means that a new edition becomes 
effective without public comment.
    Timetable--Completed.
3. Regulations Applicable to Directional Surveys (30 CFR 250.51, 
Subpart D)
    Comments Received--``Revise directional survey requirements to 
allow

[[Page 32168]]

a composite measurement-while-drilling directional survey to be 
acceptable * * *.''
    Action Taken or Planned--MMS is rewriting the regulations governing 
Oil and Gas Drilling Operations, found in 30 CFR Part 250, Subpart D, 
in plain English. During this rewrite, MMS is making appropriate 
revisions to the regulations. Updating the requirements for directional 
survey requirements is one of the revisions planned for this rewrite.
    Timetable--We plan to publish a Notice of Proposed Rulemaking this 
fall.
4. Regulations Applicable to Blowout Preventer (BOP) Testing and 
Maintenance Requirements (30 CFR 250.56 and 250.57, Subpart D)
    Comments Received--``Revise BOP testing regulations to allow for 
less frequent and shorter tests. Allow 14 day BOP test interval vs. 
current 7-day interval.''
    Action Taken or Planned--MMS published a proposed rule to amend the 
regulations governing the testing requirements for BOP systems used in 
drilling and completion operations in the Federal Register on July 15, 
1997 (62 FR 37819). The rule proposed to allow a lessee up to 14 days 
between BOP pressure tests. We made the decision to allow the extended 
testing time frame based on a completed study of BOP performance by an 
engineering consulting firm. The study concluded that no statistical 
difference in failure rates existed between BOP's tested as required, 
every 7 days, and those tested between an 8 to 14-day interval. The new 
testing time frame applies to drilling, sidetrack, and completion 
activities, but not to workover activities since they were not examined 
in the performance study. MMS has made minor revisions to the rule 
based on the five sets of comments on the proposed rule, and we 
published the final rule on June 1, 1998 (63 FR 29604).
    Timetable--Completed.
5. Approval and Reporting Processes for Well-Completion Operations (30 
CFR 250.83)
    Comments Received--``* * * a recompletion operation requires that a 
Well Summary Report MMS-125 be filed within 30 days. Much of this data 
is repetitious of data previously submitted on the Sundry Notice MMS-
124. The process could be changed to provide only data that has 
changed.''
    Action Taken or Planned--We will study this process to decide 
whether or not to change reporting requirements through rulemaking.
    Timetable--Ongoing.
6. Safety System Design and Installation (30 CFR 250.122)
    Comments Received--Safety System Design and Installation (30 CFR 
250.122)--``We believe that the (Safety and Environmental Management 
Program) SEMP/RP 75 Performance Measure process of alternative 
compliance for operators who voluntarily implement RP 75 and have 
``good'' performance should allow those operators to periodically 
update drawings and other documents of production safety system 
installations and routine modifications instead of receiving required 
MMS approval of these documents before any modifications are performed 
(Comment #14 of our July 17, 1996 letter). This is one example of the 
alternative compliance process that we suggest.''
    Action Taken or Planned--This comment expresses an interest for 
regulatory relief in exchange for ``compliance'' with API RP75. This 
industry standard captures the essence of SEMP. On August 13, 1997, the 
MMS published a Federal Register notice on SEMP (62 FR 43345). This 
notice publicly relayed our intent to continue collaborative efforts 
with the U.S. offshore oil and gas industry to promote the non-
regulatory (i.e., voluntary) adoption of SEMP; it simultaneously 
relayed our intent to increasingly focus on operator performance in the 
field. This decision was made after extensive review of the industry's 
actions to adopt RP75. We have seen important strides made in the 
development of SEMP programs by the majority of OCS operators. We have, 
however, still not seen widespread implementation of these programs on 
offshore installations. In the most recent SEMP notice, we asked senior 
company officers to notify MMS when they had ``fully'' implemented SEMP 
at the field level. In our view, ``fully'' means that an operator has 
developed their SEMP plan and has implemented it at enough of their 
offshore installations to commence continuous improvement efforts 
(e.g., SEMP audits). At the end of April 1998, we had received such 
notifications from only five OCS operators. This fact leads us to 
conclude that SEMP is not yet broadly implemented at the field level. 
Therefore, any requests for regulatory relief in exchange for SEMP 
implementation will need to be made to MMS on an ad hoc basis by 
operators who are prepared to demonstrate, and have the MMS verify, 
both the extent of their SEMP implementation and their field-level 
performance.
    MMS has begun the process of revising 30 CFR Part 250, Subpart H. 
The process changes suggested above will be considered internally 
during preparation of the Notice of Proposed Rulemaking.
    Timetable--MMS expects the Notice of Proposed Rulemaking for a 
revised 30 CFR Part 250, Subpart H, to be published for comment in the 
fall of 1998.
7. Regulations Applicable to Production on the Outer Continental Shelf 
(OCS) (30 CFR Part 250, Subpart H)
    Comments Received--Production Safety System Testing and Records (30 
CFR 250.124)--``OOC (Offshore Operators Committee) is very much 
interested in working with MMS on a research project beginning in 1997 
to consider appropriate leak rate tolerances for critical safety 
devices (Comment #11 of our July 17, 1996 letter) as well as testing 
frequencies of accurate and reliable new generation safety devices 
(Comment #13 of our July 17, 1996 letter).''
    Action Taken or Planned--MMS has initiated a research project with 
Southwest Research Institute which will investigate the question of 
leak rate tolerances for critical safety devices. First results from 
the study should become available in the fall of 1998. MMS has also 
initiated the rulemaking process to revise all of subpart H. As part of 
this process, testing frequencies for safety devices will be discussed 
internally. Any proposed changes to testing frequencies will appear in 
the Notice of Proposed Rulemaking for subpart H.
    Timetable--MMS expects the Notice of Proposed Rulemaking for a 
revised subpart H to appear in the Federal Register this fall.
8. Regulations Governing Safety and Pollution Prevention Equipment 
(SPPE) (30 CFR Part 250.126, Subpart H)
    Comments Received--(a) Quality Assurance (30 CFR 250.126)--``We 
encourage MMS to eliminate unnecessary record keeping requirements 
(Comment #16 of our July l7, 1996 letter) as proposed in the December 
18, 1996, Federal Register notice 61 FR 66639. However, we strongly 
object to eliminating functional noncertified SPPE that is currently in 
service for any reason other than hot work or remanufacture as 
explained in our February 14, 1997, comments on the proposal at 61 FR 
66639.'' (b) ``Revise regulations governing Safety Valves to increase 
time between test and allowable leakage rates.''
    Action Taken or Planned--For (a) above, revised quality assurance 
requirements were published as a

[[Page 32169]]

Notice of Final Rulemaking in the Federal Register on August 8, 1997 
(62 FR 42669). To reduce paperwork, the new rule eliminated the need 
for companies to update their list of noncertified SPPE. It also 
eliminated the detailed reporting requirements regarding the 
installation and failure of certified equipment. The final rule 
requires replacement of noncertified SPPE only when the noncertified 
SPPE requires offsite repair, remanufacturing, or hot work, such as 
welding. This allows operators to continue using noncertified SPPE 
provided the equipment works properly, and when necessary, requires 
only minor repairs. Once noncertified SPPE requires offsite repair, 
manufacturing, or hot work, it may not be used on the OCS.
    For (b) above, as discussed under Item No. 7, MMS contracted with 
Southwest Research Institute in September 1997 to study leakage rates 
for surface and subsurface safety valves.
    Timetable--The Southwest Research Institute will complete the study 
in the fall of 1998.
9. Regulations Regarding Construction and Removal of Platforms and 
Structures (30 CFR 250, Subpart I)
    Comments Received--(a) ``Modify platform design wave return period 
calculation by placing a cap of 100 years on the field life calculation 
* * *.'' (b) ``Adopt API RP2A (20th edition) Section 14, Surveys, in 
its entirety * * *.'' (c) ``Revise site clearance requirements * * *.'' 
(d) ``Revise requirements for placing protective domes over well stubs 
* * *,'' etc.
    Action Taken or Planned--For (a), (c), and (d) above, the 
proceedings for the International Workshop on Offshore Lease 
Abandonment and Platform Disposal held in April 1996 were published in 
1997. We will be considering the comments we received from the 
proceedings in drafting a proposed rule on decommissioning. For (b) 
above, NTL98-4N was issued on March 4, 1998. It contains interim 
guidance for applying ``Simplified Fatigue Analysis'' Procedure from 
American Petroleum Institute (API) Recommended Practice 2A (RP2A), 
Planning, Designing, and Constructing Fixed Offshore Platforms, 
Nineteenth Edition (August 1, 1991), and Twentieth Edition (July 1, 
1993), and its supplement 1 (February 1, 1997).
    Timetable--For (a), (c), and (d) above, MMS plans to draft a rule 
on decommissioning by December 1998. For (b) above, ongoing.
10. Regulations Applicable to Pipelines and Pipeline Rights-of-Way (30 
CFR 250, Subpart J)
    Comments Received--Revise regulations to avoid duplication of 
requirements between the Department of the Interior (DOI) and the 
Department of Transportation (DOT). The following comments were 
submitted on the proposed rule on regulating pipelines which was 
published October 2, 1997 (62 FR 51614):--Commentators raised concerns 
about the Notice of Proposed Rulemaking involving technical issues 
affecting the applicability of the rule to producer-operated pipelines. 
The pipelines were either previously subject to DOT regulation under 
terms of the former 1976 Memorandum of Understanding between DOI and 
DOT, or cross into State waters without first connecting to a 
transporting operator's pipeline on the OCS as described in the 1996 
Memorandum of Understanding.
    Action Taken or Planned--As stated in our previous Notice, 
``Reviewing Existing Regulations'' (April 24, 1997), a Memorandum of 
Understanding on the pipeline issue between DOI and DOT became 
effective December 10, 1996, and was published in the Federal Register 
on February 14, 1997 (62 FR 7037). Since then, we have published a 
proposed rule on October 2, 1997 (62 FR 51614) clarifying regulatory 
jurisdiction of the pipelines. MMS is now proceeding with a final rule 
that will clarify and resolve the technical issues raised during the 
comment period on the proposed rule.
    Timetable--We plan to publish the Notice of Final Rulemaking 
incorporating comments on the proposed rule by mid-summer.
11. Allocation Meter Facility Requirements (30 CFR 250.180(e))
    Comments Received--``We suggest that the regulations be revised to 
recognize the use of liquid turbine meters and the inability to 
physically make adjustments to these types of meters, and to clarify 
that samples should be taken proportional to flow to reflect present 
industry practice.''
    Action Taken or Planned--MMS published a proposed rule, ``Oil and 
Gas Production Measurement, Surface Commingling, and Security,'' on 
February 26, 1997 (62 FR 8665), that addressed this comment. The final 
rule was published May 12, 1998 (63 FR 26361), and will be effective 
June 29, 1998.
    Timetable--Completed.
12. Model Unit Agreement (30 CFR 250.194)
    Comments Received--``In several instances within the Model Unit 
Agreement language, the defined terms are not used when it seems 
appropriate. We recommend that the defined terms be used to avoid 
confusion when reviewing the agreements.''
    Action Taken or Planned--On July 3, 1996 (61 FR 28525), MMS 
published a final rule which removed the Model Unit Agreement from the 
Code of Federal Regulations. We have no plans to revise the Agreement 
at this time. A final rule on Unitization was published on February 5, 
1997 (62 FR 5329), and was effective March 7, 1997.
    Timetable--Completed.
13. Shallow Hazards Requirements (NTL No. 83-3)
    Comments Received--``* * * revise (Notice to Lessees) NTL No. 83-3 
which relates to shallow hazards requirements. Industry has requested 
that MMS allow use of navigational positioning equipment in lieu of 
buoying pipelines.''
    Action Taken or Planned--We are revising NTL No. 83-3 and are in 
the process of developing guidance for navigational positioning 
equipment technology. In the revised NTL, industry may still use 
buoying, but if they choose not to use buoying, the NTL will require 
the use of state-of-the-art navigational systems. This will assure the 
accuracy and safety of anchoring operations in the vicinity of 
pipelines.
    Timetable--Ongoing.
14. Regulations Applicable to Production Safety System Training (30 CFR 
250.214, Subpart O)
    Comments Received--In response to a June 10, 1997, workshop on the 
development of a performance based training rule, MMS received a 
variety of comments from the oil and gas industry and MMS accredited 
training schools. These comments include: (a) ``Continue to implement 
the current Subpart O training system.'' (b) ``Develop a dual training 
system incorporating elements from both a performance based program and 
MMS's current system.'' (c) ``Companies may neglect training under a 
performance based system.'' (d) ``MMS should use caution when changing 
from the current prescriptive training system * * *'' (e) ``* * * use 
of a written MMS test may cause employees stress that would lead to 
poor performance on the exams.'' (f) ``* * * hands-on simulator testing 
is an excellent and realistic means of gauging performance. * * * MMS 
may not have the expertise or

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equipment to properly conduct simulator tests.'' (g) ``Hands-on testing 
should only be conducted onshore, not offshore.'' (h) ``How will MMS 
react to a company that does not train its employees but has a good 
safety record * * *.'' (i) ``This may not be the right time to move 
towards a performance system because of the increase in OCS activity 
and the shortage of trained and experienced workers.''
    Activity Taken or Planned--MMS has prepared a proposed rule on a 
performance based training program which relies on industry to design 
its training needs. We would monitor the program through tests and 
audits. In developing the rule, we took into consideration the comments 
received in the June 10, 1997, workshop.
    Timetable--We plan to publish the Notice of Proposed Rulemaking for 
comment by late summer.

B. Royalty Management Program (RMP)

    RMP is reviewing regulations in the following 12 subject areas:
1. Statute of Limitations and Record Retention
    Comments Received--``Statute of limitations is unclear.''--
``Establish a reciprocal 5-year statute of limitations from the date an 
obligation becomes due.''--``Absence of a record retention program 
creates some confusion. Regulations should require record retention to 
coincide with the 5-year statute of limitations.''
    Action Taken or Planned--The Federal Oil and Gas Royalty 
Simplification and Fairness Act (Act) was signed into law on August 13, 
1996. The Act contains language to implement a 7-year statute of 
limitations for MMS processes. We are changing processes, developing 
implementation plans, and preparing regulatory changes to comply with 
the requirements of the Act.
    Timetable--Ongoing.
2. Interest on Overpayments
    Comment Received--``Interest accrual should be equitable between 
the agency and industry.''
    Action Taken or Planned--The Act provides for the payment of 
interest on overpayments for oil and gas leases on Federal lands. On 
March 31, 1997, we issued a Dear Payor letter about the Act's 
provisions involving interest issues. We issued another Dear Payor 
letter on October 1, 1997, explaining interest calculations and 
interest reporting requirements. MMS is designing system changes to 
implement the requirements of the Act and preparing regulations to be 
published.
    Timetable--A Notice of Rulemaking providing for interest on 
overpayments and underpayments will be published for comment in 1998.
3. Interest Assessments
    Comments Received--``A de minimis provision should be established 
for the assessment of interest.''--``* * * MMS should enhance their 
existing interest assessment system to allow for the offsetting of 
prior period adjustments made on the MMS Form 2014 before calculating 
applicable interest.''
    Action Taken or Planned--The Act not only provides for the payment 
of interest on overpayments for oil and gas leases on Federal lands, 
but allows industry to calculate the correct interest assessment. Also, 
the Act allows interest that has accrued on overpayments to be applied 
to reduce underpayments. We have included billing thresholds in our 
interest system to prevent bills for de minimis amounts. In May 1997, 
we started sending interest statements instead of interest bills, and 
the statements contain totals for interest that MMS owes and for 
interest owed to MMS. MMS is implementing system changes to conform 
with the requirements of the Act and preparing regulations.
    Timetable--As noted under Item 2, Timetable, a Notice of Rulemaking 
for comment on payment of interest will be published in 1998.
4. Gas Valuation
    Comments Received--(a) ``Define gross proceeds more equitably and 
clearly in this ever changing gas marketing environment.'' (b) ``It is 
important that the Federal Gas Valuation Rule final rule not 
discriminate against producers which are affiliated with marketing 
companies and are party to non-arms-length contracts.'' (c) ``Extend 
the elimination of processing and transportation allowance forms to 
oil.'' (d) ``* * *commends the MMS on their use of negotiated 
rulemaking process to address the valuation of gas. Rule should result 
in administrative cost savings for all parties.'' (e) ``If the Takes 
vs. Entitlements policy stays in effect, MMS should strictly enforce 
reporting on actual quantities taken for all industry participants.'' 
(f) ``Eliminate Transportation and Processing Allowance Forms for 
Indians.''
    Action Taken or Planned--For (c) above, a final rule revising the 
valuation regulations governing allowances was published in the Federal 
Register on February 12, 1996 (61 FR 5448). This rule eliminated most 
allowance forms filing requirements for oil, gas, and coal produced 
from Federal leases.
    For (a) above, on December 16, 1997, MMS published a final rule 
clarifying what deductions may be taken from gross proceeds for the 
costs of transportation under Federal Energy Regulatory Commission 
(FERC) Order No. 636. The rule was effective February 1, 1998 (63 FR 
65753). For (a), (b), and (d) above, the Federal Gas Valuation proposed 
rule was published in the Federal Register on November 6, 1995 (60 FR 
56007), and the comment period closed on February 5, 1996. In light of 
the comments received from 44 entities, on May 21, 1996, MMS reopened 
the public comment period and asked for public comment on five options 
for proceeding with further rulemaking (61 FR 25421). The reopened 
public comment period closed August 19, 1996. MMS reconvened the 
Federal Gas Valuation Negotiated Rulemaking Committee on June 12-14, 
1996, and asked the Committee to provide input into the five options.
    MMS performed a cost benefit analysis on three viable options for 
proceeding with gas valuation regulations. Given the results of the 
cost benefit analysis ($20 million annual loss in royalties) and 
changes occurring in the gas market, MMS withdrew the proposed 
rulemaking on April 22, 1997 (62 FR 19536). MMS is developing a 
framework for offshore gas valuation and will conduct workshops to 
obtain constituent input. We will work with the States to develop an 
onshore perspective.
    For (e) above, the Act contains language requiring ``takes'' 
reporting for stand alone leases and agreements containing 100 percent 
Federal leases. The Act also requires ``entitlements'' reporting for 
so-called mixed agreements (agreements containing Federal, State, 
Indian, and/or fee leases) with an exception to use ``takes'' reporting 
for marginal properties. We are changing processes, developing 
implementation plans, and preparing regulatory changes to comply with 
the requirements of the Act.
    For (f) above, a proposed rule developed by the Indian Gas 
Valuation Negotiated Rulemaking Committee was published on September 
23, 1996 (61 FR 49894). The Indian Valuation Negotiated Rulemaking 
Committee was reconvened on March 26, 1997. This rule addressed the 
valuation for royalty purposes of natural gas produced from Indian 
leases. The rule proposes to reduce substantially the transportation 
and allowance reporting forms for gas from Indian leases. The proposed 
rule would add a methodology to calculate

[[Page 32171]]

the major portion value and an alternative methodology for dual 
accounting as required by Indian lease terms. The proposed rulemaking 
would simplify and add certainty to the valuation of production from 
Indian leases.
    Timetable--We plan to publish a Notice of Proposed Rulemaking for 
comment on takes vs. entitlements early in 1999. We plan to publish a 
Notice of Final Rulemaking on Valuation of Gas From Indian Leases in 
1998.
5. Reporting Procedures and Threshold
    Comments Received--``Eliminate or streamline MMS Form 2014 
reporting.''

--``Report prior period adjustments on a ``net'' basis.''
--``Change estimated payment from lease level to payor level.''
--``Assess interest at the payor level--for the Indian leases on the 
basis of each Indian Tribe.''
--``Eliminate Payor Information Form (PIF) Filings. This is an 
unnecessary and costly reporting requirement.''
--``MMS should modify the regulations and system tolerances/thresholds 
so that only those exceptions that are cost beneficial for MMS to 
pursue are generated.''
--``Set thresholds or tolerances for regulations to save costs to both 
MMS and industry. (Example: Invoices are sent for less than $1.00.)''
--``MMS should not implement regulations until its systems are 
programmed to handle the new regulations.''
--``* * *the prompt implementation of the recommendations of the 
Royalty Policy Committee Audit and Royalty Reporting and Production 
Accounting Subcommittees will achieve those simplification and 
streamlining goals * * *.''

    Action Taken or Planned--Building upon the Royalty Policy 
Committee's earlier study, the RMP Reengineering Team (Team) analyzed 
current information reporting requirements to determine the data 
necessary for future RMP processes. The Team identified opportunities 
for easing reporting burden, avoiding data duplication, decreasing 
error rates, and increasing processing efficiency. The Team developed 
32 reporting changes that are in their report titled ``Preliminary 
Design Concepts of the RMP Reengineering Team.'' If these changes are 
implemented, they will significantly reduce the volume of lines 
reported and processed, minimize errors and related error correction 
workload, simplify reporting, and lower costs for both reporters and 
RMP. The Team's changes generally incorporate or exceed the Royalty 
Policy Committee's recommendations.
    In addition to our reengineering work, we continue to pursue 
shorter range reporting improvements not requiring significant system 
changes. For example, the Payor Information Form MMS-4025 is being 
streamlined to eliminate numerous data fields. Also, many production 
reporting changes are being implemented where redundant or unnecessary 
data collection is identified. We will continue to review and revise 
our billing thresholds and assessment policies to reduce administrative 
costs.
    On April 14, 1998 (63 FR 17133), we published a proposed rule 
requesting that all reports be submitted electronically by December 31, 
1998. Electronic submission significantly reduces the amount of time 
necessary for a company to complete the monthly reports and MMS 
processing time, since no manual entry is required.
    Timetable--Ongoing.
6. Refunds Due to Industry Which Are Controlled by Section 10 of the 
OCS Lands Act
    Comments Received--``Section 10 refund requirements should be 
eliminated. The refund process used for onshore properties should be 
established for offshore properties.''

--``* * * we would urge the MMS to facilitate elimination of the 
Section 10 recoupment procedures in its entirety. The current practice 
is administratively burdensome and not cost effective for the industry 
or MMS.''
--``Eliminate documentation requirements for refund requests over $250M 
(million); and/or increase this threshold to $500M; raise the refund 
request limit to $5M. Exempt pure accounting adjustments for items such 
as production date adjustments and incorrect AID (Accounting 
Identification) numbers; exempt unit revisions because these revisions 
are often made more than 2 years after the date of production; 
establish a time limit on MMS for review of a refund request to 
expedite the process; and overpayments on OCS properties should be 
allowed to be offset against any OCS underpayment.''

    Action Taken or Planned--The Act repeals the Section 10 refund 
procedures of the OCS Lands Act. On November 25, 1996, we mailed a Dear 
Payor letter with guidelines on refund procedures. We are presently 
developing a proposed rule implementing the new refund procedures.
    Timetable--Ongoing.
7. Electronic Data Exchange
    Comments Received--``* * * MMS (should) continue their ongoing 
effort to exchange data by electronic means rather than hard copy 
thereby enabling the industry to adjust the data elements to integrate 
with each company's systems.''
    Action Taken or Planned--We continue to encourage the exchange of 
data electronically. Our Reporter and Payor Training sessions stress 
the benefits of electronic reporting and provide reporters and payers 
with options for reporting by electronic data interchange, diskette, or 
magnetic tape. On April 22, 1997 (62 FR 19497), we published a final 
rule specifying how payments are made for mineral royalties, rentals, 
and bonuses that requires all payments to be made electronically to the 
extent it is cost effective and practical. We also published on April 
8, 1998 (63 FR 17133), a proposed rule to require reporters to submit 
royalty and production reports electronically. Another way we publicize 
electronic reporting is on the MMS/Royalty Management Program Internet 
website.
    Timetable--Reporter and Payor Training sessions are planned for the 
summer of 1998. We will work towards publishing a Notice of Final 
Rulemaking on Electronic Reporting in 1999.
8. Parameters for Identifying Improper MMS Form 2014 Adjustments
    Comments Received--``The MMS currently inquires as to any variances 
between any Form 2014 adjustments and its original Form 2014 entry that 
exceed $1.00, which is an insignificant amount. It is suggested that 
the MMS's review should be relevant to the amount of the adjustment 
such as a given percentage.''
    Action Taken or Planned--At this time, MMS does not plan to make 
changes in this procedure. We need to ensure accuracy and integrity in 
the accounting systems, and retain precise records for the auditors. In 
our reengineering effort, we are looking at streamlined reporting for 
short- and long-term benefits for MMS and industry.
    Timetable--Ongoing.
9. Publish Final Rules Expeditiously
    Comments Received--(a) ``* * * primary recommendation is the 
expeditious completion and publication of pending final rules, for 
example, the proposed rules on administrative offset and limitations on 
credit adjustments, and the proposed rule on payor liability.

[[Page 32172]]

* * * Certainly, publication of the final federal (and Indian) gas 
valuation rule should be facilitated to the maximum extent possible.'' 
(b) `` * * * it would be extremely beneficial for MMS to publish its 
proposed rule implementing the Federal Energy Regulatory Commission's 
(FERC) Order 636 as soon as possible because of its impact on and 
relationship to the federal gas valuation rule.''
    Action Taken or Planned--For (a) above, we are in the process of 
finalizing the Indian gas valuation rule. As for the final Federal 
Register (62 FR 19536) that withdrew the proposed rule because of 
changes occurring in the gas market. MMS is developing a framework for 
offshore gas valuation and will conduct workshops to obtain constituent 
input. We will work with the States to develop an onshore perspective.
    New language in the Act will cause a number of changes in the Payor 
Liability rule and the Administrative Offset and Limitations on Credit 
Adjustments rule. We are working to incorporate the effects of the Act 
in these rules.
    For (b) above, the final rule implementing FERC Order 636 was 
published on December 16, 1997 (62 FR 65753).
    Timetable--Ongoing.
10. The Appeals Process
    Comments Received--``Current appeals process is too long.''
    Action Taken or Planned--The Act imposed a 33-month time frame for 
the Department of the Interior to decide appeals involving royalties on 
Federal oil and gas leases. This deadline does not apply to appeals on 
royalties involving Indian leases and Federal leases for minerals other 
than oil and gas.
    On October 28, 1996 (61 FR 55607), MMS published a proposed rule 
establishing a 16-month deadline for MMS to decide all appeals to the 
Director, including Indian leases and appeals for royalties on minerals 
other than oil and gas. After MMS's decision, the appellants can 
further appeal to the Interior Board of Land Appeals. The comment 
period for this proposed rule ended on March 27, 1997.
    The Royalty Policy Committee, a Federal Advisory Committee 
reporting to the Secretary, established a subcommittee of State, 
Indian, and industry representatives to study the appeals process. The 
Royalty Policy Committee reported its recommendations to the Secretary 
in March 1997, and the Secretary accepted the recommendations, with 
minor changes, in September 1997. The Department now is preparing a 
revised proposed rule to implement these recommendations.
    Timetable--We plan to issue a revised Notice of Proposed Rulemaking 
on the Administrative Appeals Process by late 1998, and a Notice of 
Final Rulemaking in 1999.
11. Valuation of Coal From Federal Leases
    Comments Received--``* * * [A]mending this section to allow the use 
of the lessee's arm's length contracts to support the value for a 
nonarm's-length contract would make this section more effective and 
also eliminate the need to use third-party proprietary information in 
many instances.'' ``* * * [T]he use of the lessee's arm's-length 
contracts is the best evidence of the comparable value of any nonarm's-
length sales by the lessee.''
    Action Taken or Planned--The Royalty Policy Committee's Coal 
Subcommittee is reviewing issues related to coal valuation, and we will 
use the Royalty Policy Committee's recommendations to make improvements 
to the coal royalty valuation and reporting procedures and associated 
regulations.
    Timetable--Ongoing.
12. Other MMS/Royalty Management Program Regulatory Actions
    This past year we published proposed rules that would amend the 
valuation of oil produced from Federal and Indian leases and held a 
number of public meetings to receive input on the proposals. After 
analyzing the comments received, we plan to issue final rules in late 
1998.
    The Act expanded the authorities and responsibilities that the 
Secretary of the Interior may delegate to the States. To implement 
this, we published a final rule on August 12, 1997 (62 FR 43076), for 
Delegation of Royalty Management Functions to the States.
    We invite you to comment on our existing regulations and also the 
actions we have taken in response to comments and enacted legislation. 
And, we invite you to stay further informed on many of the topics 
discussed in this status report by visiting the MMS Internet Website at 
www.mms.gov.

Cynthia Quarterman,
Director, Minerals Management Service
[FR Doc. 98-15626 Filed 6-11-98; 8:45 am]
BILLING CODE 4310-MR-P