[Federal Register Volume 64, Number 13 (Thursday, January 21, 1999)]
[Proposed Rules]
[Pages 3360-3377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1219]



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Part III





Department of the Interior





_______________________________________________________________________



Minerals Management Service



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30 CFR Part 204



Accounting Relief for Marginal Properties; Proposed Rule

  Federal Register / Vol. 64, No. 13 / Thursday, January 21, 1999 / 
Proposed Rules  

[[Page 3360]]



DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 204

RIN 1010-AC30


Accounting Relief for Marginal Properties

AGENCY: Minerals Management Service, Interior.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Minerals Management Service (MMS) is proposing new 
regulations implementing recently enacted legislation for Federal oil 
and gas leases. The new regulations would explain to lessees and their 
designees how to obtain royalty prepayment and accounting and auditing 
relief for Federal marginal properties.

DATES: MMS must receive all comments on or before March 22, 1999. We 
will begin reviewing comments then and may not fully consider comments 
we receive after March 22, 1999.

ADDRESSES: Submit your written comments to David S. Guzy, Chief, Rules 
and Publications Staff, Minerals Management Service, Royalty Management 
Program, P.O. Box 25165, MS 3021, Denver, Colorado 80225. Courier 
address is Building 85, Denver Federal Center, Denver, Colorado 80225. 
E-mail address is RMP.[email protected].
    MMS will publish a separate notice in the Federal Register 
indicating dates and locations of public hearings regarding this 
proposed rulemaking.

FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and 
Publications Staff, Minerals Management Service, Royalty Management 
Program, telephone (303) 231-3432; fax (303) 231-3385; e-mail 
David__G[email protected].

SUPPLEMENTARY INFORMATION: The principal authors of this proposed rule 
are Nick E. Fadely of the Royalty Management Program, MMS, and Sarah L. 
Inderbitzin of the Office of the Solicitor, Department of the Interior.

I. Introduction

    On August 13, 1996, the President signed into law the Federal Oil 
and Gas Royalty Simplification and Fairness Act (RSFA), Pub. L. 104-
185, as corrected by Pub. L. 104-200. RSFA amends the Federal Oil and 
Gas Royalty Management Act of 1982 (FOGRMA), 30 U.S.C. 1711 et seq., in 
many respects. Section 7 of RSFA allows MMS and the State concerned 
(defined under RSFA as ``a State which receives a portion of royalties 
or other payments under the mineral leasing laws from [a Federal 
onshore or OCS oil and gas lease],'' 30 U.S.C. 1701(31)) to provide 
royalty prepayment and regulatory relief for marginal properties for 
Federal onshore and Outer Continental Shelf (OCS) oil and gas leases. 
30 U.S.C. 1727. The stated purpose of granting relief to marginal 
properties under RSFA is to promote production, reduce administrative 
costs, and increase net receipts to the United States and the States. 
30 U.S.C. 1727(a).
    Under RSFA, the State concerned must consent to any prepayment or 
auditing relief. 30 U.S.C. 1727(a). In addition, MMS and the State 
concerned must jointly determine, on a case-by-case basis, the amount 
of marginal production that may be subject to either a prepayment of 
royalty or accounting and auditing relief. Id. Although RSFA does not 
define marginal properties for purposes of Section 7, it does define 
marginal properties under section 6(d)(4), 30 U.S.C. 1726(d)(4), as a 
``lease that produces on average the combined equivalent of less than 
15 barrels of oil equivalents per well per day or 90 thousand cubic 
feet of gas per well per day, or a combination thereof.'' In addition, 
under section 6(d)(4), the production level is calculated ``by dividing 
the average daily production of crude oil and natural gas from 
producing wells on such leases by the number of such wells, unless the 
Secretary, together with the State concerned, determine that a 
different production is more appropriate.''
    RSFA also requires MMS and the States to ``provide accounting, 
reporting and auditing relief'' for marginal properties. 30 U.S.C. 
1727(c). However, such relief may only be granted in a State that 
concurs with this relief. Id.
    In response to the RSFA section 7 amendments, MMS conducted three 
workshops to receive input from a wide variety of constituent groups to 
develop the proposed rule. The workshops were held at MMS offices in 
Denver, Colorado, on October 31, 1996, January 23, 1997, and November 
5, 1997. Representatives from several Federal and State government 
organizations participated along with industry trade organizations 
representing both small and large Federal oil and gas lessees. The 
input received during these workshops was instrumental in developing 
the proposed rule.
    The proposed rule implements sections 7(a) and 7(c) of RSFA. 30 
U.S.C. 1727(a) and 1727(c). Although section 7 of RSFA provides two 
alternatives for marginal properties, one for prepayment of royalty 
under section 7(b), and another for accounting and auditing relief 
under section 7(c), this proposed rule only implements the general 
provisions for marginal properties and the accounting and auditing 
relief provisions. MMS will publish a proposed rule covering prepayment 
of royalty under section 7(b) of RSFA at a later date.
    The Department of the Interior's (Department) practice is to give 
the public an opportunity to participate in the rulemaking process. You 
may send written comments to the location cited in the ADDRESSES 
section of this preamble. We will post public comments after the 
comment period closes on the Internet at http://www.rmp.mms.gov or you 
may contact David S. Guzy, Chief, Rules and Publications Staff, MMS, 
telephone (303) 231-3432; fax (303) 231-3385; e-mail 
David__G[email protected].

II. Section-by-Section Analysis

30 CFR Part 204--Alternatives For Marginal Properties

    MMS proposes to include a new part 204 in its regulations. This 
part would implement the new requirements of section 7 of RSFA. 
However, as noted above, the substantive rules for prepayment of 
royalty are not included in this proposed rule. We would reserve 
subpart B for a later rulemaking.
Part 204, Subpart A--General Provisions
    This subpart would provide general requirements for both prepayment 
of royalty under section 7(b) of RSFA and accounting and auditing 
relief under section 7(c) of RSFA. However, as noted above, the 
substantive rules for prepayment of royalty are not included in this 
proposed rule. We would reserve subpart B for a later rulemaking.
Section 204.1  What is the Purpose of this Part?
    This part would explain how a lessee or its designee, of a Federal 
onshore or OCS lease may obtain prepayment or accounting and auditing 
relief for certain marginal properties. The prepayment portions of this 
rule would be proposed in a later rulemaking. Under RSFA, the lessee's 
``designee'' is a person the lessee designates in writing to MMS to 
report and pay royalties on its behalf. RSFA section 6(g) (codified as 
corrected at 30 U.S.C. 1712(a)). MMS has addressed the procedure to 
designate a designee in another rulemaking. 62 FR 42062 (1997) 
(Codified at 30 CFR 218.52).
Section 204.2  Definitions
    This section would define terms applicable to this part.

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    ``Agreement'' would mean a federally approved communitization 
agreement or unit participating area.
    ``Barrels of oil equivalents'' would mean the ``combined equivalent 
production'' of oil and gas stated in barrels of oil. Under this 
definition, each barrel of oil production would be equal to one barrel 
of oil equivalents. Each six thousand cubic feet of gas production at 
standard temperature and pressure also would be equal to one barrel of 
oil equivalents. This definition also is consistent with the use of 
this term in the definition of ``marginal properties'' under section 
6(d)(4) of RSFA.
    ``Base period'' would mean the 12-month period from October 1 
through September 30 immediately preceding the applicable calendar year 
in which you take or request marginal property relief. The term ``base 
period'' is used throughout the rule to calculate whether a property 
qualifies for certain relief during the current calendar year. For 
example, if you want to qualify for relief beginning in calendar year 
2000, the base period for that calendar year would be from October 1, 
1998, through September 30, 1999.
    ``Combined equivalent production'' would mean the total of all oil 
and gas production for the marginal property, stated in barrels of oil 
equivalents. This definition is consistent with the use of that term in 
the definition of ``marginal properties'' under section 6(d)(4) of RSFA 
discussed in the introduction.
    ``Designee'' would mean the person designated by a lessee under 30 
CFR 218.52 to make all or part of the royalty or other payments due on 
a lease on the lessee's behalf. This definition is essentially the same 
as that under RSFA Sec. 2(1), FOGRMA, 30 U.S.C. 1702(24). Accordingly, 
the definition would cite the rule implementing the requirements of 
RSFA Sec. 6(g), FOGRMA Sec. 102(a), 30 U.S.C. 1712(a), which allows 
lessees to designate another person to pay royalties on their behalf by 
written notice filed with MMS.
    ``Producing wells'' would mean only those producing oil or gas 
wells that contribute to the sum of barrels of oil equivalents used in 
the calculation under Sec. 204.004(c) of this part. This definition 
would not include injection and water wells.
    ``State concerned'' (State) would mean the State which receives a 
statutorily prescribed portion of the royalties from a Federal onshore 
or OCS lease. For example, this includes States that receive revenues 
from onshore leasing under the Mineral Leasing Act, 30 U.S.C. 191, or 
from the OCS under 43 U.S.C. 1337(g). This definition is the same as 
that under RSFA, 30 U.S.C. 1701(31).
Section 204.3  What Alternatives Are Available for Marginal Properties?
    This section would explain what alternatives are available to a 
lessee or its designee if they have production from a marginal 
property.
    Paragraph (a) would explain the prepayment of royalty alternative. 
For this alternative, MMS and the State may allow you to make a lump-
sum advance payment of royalties instead of monthly royalty payments 
for the remainder of the lease term. Although MMS is not including the 
RSFA section 7(b) prepayment of royalty requirements in this proposed 
rulemaking, it will do so at a later date under subpart B. However, the 
general requirements in subpart A would apply to the prepayment of 
royalty alternative under subpart B when that subpart is published.
    Paragraph (b) would explain the accounting and auditing relief 
alternative. For this alternative, MMS and the State may allow various 
accounting and auditing relief options intended to encourage you to 
continue to produce and develop your marginal property. The 
requirements for taking accounting and auditing relief would be under 
subpart C.
Section 204.4  What Is a Marginal Property Under This Part?
    This section would explain what properties qualify as ``marginal'' 
under this part. As explained further below, property does not just 
mean a lease for purposes of this rule.
    Only properties that qualify under this section could obtain 
royalty prepayment or accounting and auditing relief under this part. 
However, you must meet additional qualifications under Secs. 204.203, 
204.204, and 204.205 to obtain some of the accounting and auditing 
relief options.
    Paragraph (a) would explain what kinds of properties may qualify as 
``marginal'' under this part. To qualify as a marginal property 
eligible for royalty prepayment or accounting and auditing relief under 
this part, your production must be from, or attributable to, a Federal 
onshore or OCS lease. Indian leases would not be eligible for the 
marginal property alternatives under this part even though production 
from a qualifying marginal property may be attributable to an Indian 
lease.
    Under paragraph (a)(1), if your lease is not in an Agreement, then 
your entire lease is a property that must qualify as a marginal 
property under paragraph (b) of this section. In other words, these are 
``stand alone'' Federal leases and the entire lease would have to 
qualify under this part.
    Under paragraph (a)(2), if all or a portion of your lease is in one 
Agreement, then the entire Agreement must qualify as a marginal 
property under paragraph (b) of this section. For example, even if 
other leases in the participating area are not Federal leases, you must 
use the production attributable to those leases, as well as your lease, 
in order to make the calculation under paragraphs (b) and (c) of this 
section to determine whether the Agreement meets the production level 
limits under paragraph (b) of this section. If your Agreement does 
qualify, then only the production attributable to your lease may be 
separately eligible for relief under this part. However, any production 
from your lease that is not in the Agreement also may be eligible for 
relief under paragraph (a)(4) of this section.
    Under paragraph (a)(3), if all or a portion of your lease is in 
more than one Agreement, then each Agreement must qualify separately as 
a marginal property under paragraph (b) of this section. In addition, 
for each Agreement that qualifies, only the production attributable to 
your lease would be eligible for relief under this part. For example, 
if 50 percent of your lease is included in Agreement ``A'', and 50 
percent of your lease is included in Agreement ``B'', then Agreement 
``A'' must qualify as marginal in order for the 50 percent of your 
lease included in Agreement ``A'' to be eligible for relief. Likewise, 
in order for the 50 percent of your lease included in Agreement ``B'' 
to be eligible for relief, Agreement ``B'' must qualify as marginal.
    Under paragraph (a)(4), if a portion of your lease is in an 
Agreement and you have production from the portion of the lease that is 
not in the Agreement, then the portion of the lease that is not in the 
Agreement must qualify separately as a marginal property under 
paragraph (b) of this section. For example, if 50 percent of your lease 
is included in an Agreement and 50 percent is not, if the 50 percent 
that is not included in the Agreement qualifies as marginal under 
paragraph (b) of this section, then that 50 percent may be eligible for 
relief under this part. This would be true even if the 50 percent that 
is included in the Agreement does not qualify as marginal under this 
part.
    Paragraph (b) would provide that to qualify as a marginal property 
for a calendar year, the combined equivalent production of the property 
during the base period must equal an average daily well production of 
less than 15 barrels

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of oil equivalents per well per day calculated under paragraph (c) of 
this section.
    As stated above, section 7 of RSFA provides for two alternatives 
without specifically defining a marginal property under that section. 
However, subsection 6(d)(4) of RSFA defines a marginal property as a 
lease which produces on average the combined equivalent of less than 15 
barrels of oil per well per day or 90 thousand cubic feet of gas per 
well per day.
    Several participants at the October 31, 1996, workshop for marginal 
properties stated that MMS should use State incentive program 
production levels to qualify as a marginal property. However, upon 
review of the various State incentive programs and the unique nature of 
each, MMS determined that using State incentive program production 
levels would require MMS to develop different production levels for 
each State with incentive programs, for States without incentive 
programs, and for offshore production if it adopted this approach. 
Therefore, MMS determined that using State incentive program production 
levels would be too onerous for use under this part.
    At the January 23, 1997, workshop for marginal properties, several 
participants stated that MMS should consider using the RSFA production 
levels for marginal properties under section 6(d)(4) to determine 
marginal properties under this part. Other participants stated that 
using RSFA section 6(d)(4) production levels would qualify too many 
properties as marginal, and result in an unmanageable workload for MMS 
and States. However, MMS considers using the production levels set 
forth in RSFA less onerous than varying production levels based on 
where a lease is located as would result if MMS used State incentive 
program production for qualification purposes. Moreover, the States and 
industry participated in the legislative process which culminated in 
the production levels under section 6(d)(4) of RSFA.
    Thus, in order to be consistent with other sections of RSFA, as 
well as to apply a consistent standard nationwide, MMS proposes to use 
the production levels in the definition of ``marginal properties'' in 
section 6(d)(4), together with other requirements, as a basis for what 
amount of marginal production qualifies a property as ``marginal'' 
under this part. MMS shares the concerns expressed in the workshop 
about the administrative burden for it and States under these proposed 
production levels and invites specific comments concerning those 
levels. Because RSFA section 7(a) requires that MMS and the State 
``jointly determine, on a case-by-case basis, the amount of what 
marginal production from a lease or leases or well or wells, or parts 
thereof'' may obtain royalty prepayment or accounting and auditing 
relief, MMS specifically requests that States comment on these 
production levels. Any State that does not concur with the production 
levels MMS ultimately adopts under a final rule may decline to offer 
alternatives under Sec. 204.214 of this part. MMS also invites comments 
on whether separate levels should be established for offshore leases.
    Paragraph (c) would explain how to calculate the production levels 
for your property to determine whether it qualifies as ``marginal'' 
under paragraph (b). This calculation would also be based, in part, on 
the definition of marginal properties under RSFA section (6)(d)(4). To 
determine the average daily well production for a property, you would 
divide the sum of the barrels of oil equivalents for all producing 
wells on the property by the sum of the number of days each of those 
wells actually produced during the base period. If the result obtained 
is less than 15 barrels of oil equivalents per well per day, your 
property would qualify as a marginal property under this part. 
Paragraph (c) also would provide that if the property is an Agreement, 
this calculation would have to include all wells in the Agreement even 
if they are not on a Federal onshore or OCS lease.
    Only producing oil and/or gas wells that contribute to the sum of 
barrels of oil equivalents are used in the calculation. Injection and 
water wells are not used in the calculation. For example, assume the 
marginal property has 5 wells. Well #1 produced 250 days in the base 
period, Well #2 produced 300 days, Well #3 produced 275 days, Well #4 
produced 325 days, and Well #5 produced 350 days in the base period. 
This equals 1,500 production days. Assume also that 15,000 barrels of 
oil equivalents were produced from these five wells in the base period. 
This equals 10 barrels per well per day (15,000 barrels/1,500 days), 
and the property would qualify as a marginal property.
Section 204.5  What Statutory Requirements Must I Meet To Obtain 
Royalty Prepayment or Accounting and Auditing Relief?
    Paragraph (a) would state the three statutory conditions under RSFA 
that MMS and the State concerned will consider prior to approving any 
marginal property alternative under this part. Thus, the rule would 
provide that MMS and the State may allow royalty prepayment or 
accounting and auditing relief for your marginal property under this 
part if MMS and the State jointly determine that the prepayment or 
relief is in the best interests of the Federal Government and the State 
to: (1) promote production; (2) reduce administrative costs; and (3) 
increase net receipts to the United States and the State. 30 U.S.C. 
1726(a).
    Paragraph (b) would state that MMS and the State may discontinue 
any royalty prepayment or accounting and auditing relief options 
granted for your marginal property under this part if MMS and the State 
jointly determine that the prepayment or relief option is no longer in 
the best interests of the Federal Government and the State to 
accomplish the objectives identified in paragraph (a).
Section 204.6  May I Appeal if MMS Denies My Request for Prepayment or 
Accounting and Auditing Relief?
    This section would explain how you may appeal if MMS denies your 
request for prepayment or accounting and auditing relief. If MMS denies 
your request for prepayment or accounting and auditing relief under 
this part because the State denied your request, you could not appeal 
MMS's decision under 30 CFR part 290 or 43 CFR part 4, subpart J. This 
is because RSFA section 7(a) provides the State with unconditional veto 
authority over such requests. Accordingly, MMS believes that it does 
not have authority, and Congress did not intend for it, to change a 
State's decision through the administrative appeal process. Thus, you 
only could challenge a State's denial of your request directly in 
Federal district court. However, under paragraph (b), you could appeal 
any other MMS action on your request under 30 CFR part 290 or 43 CFR 
part 4, subpart J.
Subpart B--Prepayment of Royalty [Reserved]
Subpart C--Accounting and Auditing Relief
Section 204.200  What Is the Purpose of This Subpart?
    This subpart would explain how a lessee or its designee may obtain 
the accounting and auditing relief required under section 117(c) of 
FOGRMA for production from a marginal property.
Section 204.201  Who May Obtain Accounting and Auditing Relief Under 
This Subpart?
    Paragraph (a) would explain that you may obtain accounting and 
auditing relief under this subpart if you are a

[[Page 3363]]

lessee or its designee for a Federal lease with production from a 
property that qualifies as a marginal property under Sec. 204.4 of this 
part.
    For some relief options, greater forms of relief would be available 
for marginal properties that produce less than other marginal 
properties. Therefore, paragraph (b) would explain that you also must 
meet any additional requirements for specific types of relief under 
this subpart. In addition, all options would be subject to a State 
disallowing that relief option under Sec. 204.214 of this subpart.
    Under paragraph (c), you could only request and obtain accounting 
and auditing relief for your individual fractional interest in a 
marginal property. However, the rule would not require all lessees or 
designees in a marginal property to seek relief. It also would not 
require all lessees or designees in a marginal property to seek the 
same form of relief.
    MMS believes that this approach implements Congress' intent under 
RSFA section 7(c) of providing accounting and auditing relief for 
marginal properties to encourage lessees or their designees to produce 
and develop properties. Moreover, requiring all interest owners of a 
marginal property to unanimously seek one agreed-upon form of relief 
would be an unnecessary burden.
Section 204.202  What Accounting and Auditing Relief Options Are 
Available to Me?
    This section would show you the six accounting and auditing relief 
options you may take for properties that qualify as marginal under 
Sec. 204.4 and where in this subpart you can obtain more information.
Section 204.203  What Is the Cumulative Royalty Reports and Payments 
Relief Option?
    This section would explain the ``cumulative royalty reports and 
payments relief option.'' Under this relief option, you would be 
allowed to submit royalty reports and payments less often than monthly. 
This relief option would reduce administrative costs by decreasing the 
total number of reports and payments you must submit and MMS must 
process.
    Paragraph (a) would explain how to determine whether you may submit 
royalty reports and payments less often than monthly based on the 
production levels from your lease during the base period. Less 
production would allow you to report and pay your royalties to MMS less 
often. Thus, for a qualifying marginal property, you could submit your 
royalty reports and payments as follows:
    (1) First, you would multiply the current royalty rate for each 
Federal lease in the marginal property by the combined equivalent 
production of oil and gas from or allocable to each lease during the 
base period;
    (2) You would total the volumes calculated under subparagraph 
(a)(1) of this section; and
    (3) You would determine your level of relief according to the 
following table:

----------------------------------------------------------------------------------------------------------------
  If the total volume calculated under paragraph (a)(2) of this
                            section is                               Then you may report and pay your royalties
----------------------------------------------------------------------------------------------------------------
(i) 125 or fewer barrels of oil equivalents......................  Annually, Semi-annually, or Quarterly.
(ii) More than 125, but not more than 250 barrels of oil           Semi-annually or Quarterly.
 equivalents.
(iii) More than 250, but not more than 500 barrels of oil          Quarterly.
 equivalents.
----------------------------------------------------------------------------------------------------------------

    For example, assume the qualifying marginal property was an 
Agreement consisting of three leases each with combined equivalent 
production of 1,000 barrels of oil during the base period, and your 
lease ``A'' was Federal with a \1/8\ royalty rate, and lease ``B'' was 
Federal with a \1/8\ royalty rate, and lease ``C'' was a fee lease. 
Under paragraph (a)(1), if you wanted relief under this option, you 
would multiply 1,000 times \1/8\ for leases ``A'' and ``B'', which 
equals 125 barrels each. Under paragraph (a)(2), you would add 125 plus 
125 for a total of 250 barrels of oil. The 250 barrels is the number 
you would then use to determine what level of relief you could take 
under paragraph (a)(3). In this example, you would be eligible to 
report and pay your royalties semi-annually or quarterly.
    Paragraph (b) would explain that you must notify MMS under 
Sec. 204.210(a) before taking relief under this option. However, you 
would not be required to submit a processing fee under this option.
    Paragraph (c) would explain that you must submit your report and 
payment by the end of the month following the end of the applicable 
quarterly, semi-annual, or annual reporting period. This paragraph 
would also explain that you must report one line of cumulative royalty 
information on the Report of Sales and Royalty Remittance, Form MMS-
2014, for the reporting period, the same as you would on a monthly 
basis. In addition, you would be required to use the last sales month 
of the reporting period to report the royalty information for that 
entire period.
    Paragraph (d) would explain that if you do not pay your royalty by 
the date due in paragraph (c)(1) of this section, you would owe late 
payment interest determined under part 218 of this title from the date 
your payment was due under this section until the date MMS receives it. 
For example, if you notify MMS under Sec. 204.210(a) that you qualify 
to report and pay royalties quarterly, and MMS receives your payment on 
May 15 for the first calendar quarter, instead of April 30, as required 
under paragraph (c) of this section, you will owe late payment interest 
from May 1 through May 15 on that late payment.
    Under paragraph (e), if you qualify for relief under paragraph (a) 
of this section, but you take more relief than you are entitled to 
under that paragraph, you would owe late payment interest determined 
under part 218 of this title from the date your payment was due under 
this section until the date MMS receives it. For example, if you 
qualify to report and pay royalties quarterly, and, instead you report 
and pay semi-annually, you would owe late payment interest from the 
date your quarterly payment was due until MMS receives your semi-annual 
payment. MMS also will require you to amend your Form MMS-2014 to 
reflect the proper reporting frequency. MMS will then assess you for 
any resulting late payment interest.
    Paragraph (f) would provide that you must report allowances on the 
same quarterly, semi-annual, or annual basis as the royalties for your 
marginal property on Form MMS-2014. This is necessary for MMS to 
properly associate the allowances you are deducting on Form MMS-2014 
with the royalties that you pay.
    Paragraph (g) would explain when during the calendar year you must 
report and pay royalties. Thus, under this relief option:
    (1) Quarterly reporting periods would begin on the first day of 
January, April, July, or October;
    (2) Semi-annual reporting periods would begin on the first day of 
January or July;

[[Page 3364]]

    (3) Annual reporting periods would begin on the first day of 
January.
    Paragraph (h) would refer you to MMS's Marginal Property Guidelines 
for additional reporting instructions for this relief option. These 
guidelines are being developed.
Section 204.204  What is the Net Adjustment Reporting Relief Option?
    This section would explain the ``net adjustment reporting relief 
option.'' Under this relief option, you could adjust previously 
reported royalty lines to MMS as a one-line net entry on the Form MMS-
2014, instead of the required two-line adjustment process. Under the 
two-line adjustment process, you must reverse the original report line 
and report a corrected line on Form MMS-2014. MMS proposes to allow 
this relief option based on the volume of production from the marginal 
property. This relief option would reduce administrative costs by 
decreasing the total number of lines you must report and MMS must 
process.
    Paragraph (a) would explain how to determine whether your 
qualifying marginal property is eligible for relief under this option 
as follows:
    (1) First, you would multiply the current royalty rate for each 
Federal lease in the marginal property by the combined equivalent 
production of oil and gas from or attributable to each lease during the 
base period;
    (2) You would total the volumes calculated under subparagraph 
(a)(1) of this section;
    (3) If the total volume you calculated under paragraph (a)(2) is 
equal to or less than 2,500 barrels of oil equivalents, then your 
property would be eligible for relief under this option. Using the same 
example as that under Sec. 204.203(a), where the total volume 
calculated for the qualifying marginal property was 250 barrels of oil 
equivalents, your property would be eligible for this relief option.
    Paragraph (b) would explain that you must notify MMS under 
Sec. 204.210(a) before taking relief under this option. However, you 
would not be required to submit a processing fee under this option.
    Under paragraph (c), you could not net adjustments for royalties 
due with adjustments for allowances on Form MMS-2014. Thus, you would 
have to report an adjustment to a previously reported royalty due line 
as a one-line net entry and report any corresponding adjustment to your 
previously reported allowance line as a separate one-line net entry. 
For example, if you originally reported $1,000 royalty due with an 
allowance of $100 and needed to adjust them to $1,200 and $120, 
respectively, you would report two separate adjustment lines--one line 
reporting additional royalty due of $200 and another line claiming an 
additional allowance of $20.
    Paragraph (d) would refer you to MMS's Marginal Property Guidelines 
for additional reporting instructions for this relief option.
Section 204.205  What Is the Rolled-up Reporting Relief Option?
    This section would explain the ``rolled-up reporting relief 
option.'' Under this relief option, you could report all selling 
arrangements for a revenue source to MMS under a single selling 
arrangement line on Form MMS-2014. MMS proposes to allow this relief 
option based on the volume of production from the marginal property. 
This relief option would reduce administrative costs by decreasing the 
total number of lines you must report and MMS must process. For 
example, if you currently report royalties under 3 separate selling 
arrangement lines for a lease and revenue source, you could combine 
them into a single report line under any one of your existing selling 
arrangements.
    Paragraph (a) would explain how to determine whether your 
qualifying marginal property is eligible for relief under this option 
as follows:
    (1) First, you would multiply the current royalty rate for each 
Federal lease in the marginal property by the combined equivalent 
production of oil and gas from or attributable to each lease during the 
base period;
    (2) You would total the volumes calculated under paragraph (a)(1) 
of this section;
    (3) If the total volume you calculated under paragraph (a)(2) is 
equal to or less than 1,000 barrels of oil equivalents, then your 
property would be eligible for relief under this option. Using the same 
example as that under Sec. 204.203(a), where the total volume 
calculated for the qualifying marginal property was 250 barrels of oil 
equivalents, your property would be eligible for this relief option.
    Paragraph (b) would explain that you must notify MMS under 
Sec. 204.210(a) before taking relief under this option. However, you 
would not be required to submit a processing fee under this option.
    Paragraph (c) would refer you to MMS's Marginal Property Guidelines 
for additional reporting instructions for this relief option.
Section 204.206  What Is the Alternate Valuation Relief Option?
    This section would explain the ``alternate valuation relief 
option.'' Under this relief option, you could request to report and pay 
royalties using a valuation method other than that required under 30 
CFR part 206. MMS anticipates that you would propose a simplified 
valuation method because it would reduce administrative costs.
    Paragraph (a) would state that any alternate valuation method that 
you propose:
    (1) Must be readily determinable and certain; and
    (2) Must approximate royalties payable under the valuation 
regulations in 30 CFR part 206.
    An example that MMS and the State might find acceptable is when the 
marginal property is located in an area with an active spot market that 
has reliable, published index prices. The use of the index price along 
with a reasonably based location differential could be acceptable based 
on the particular circumstances of the property if MMS's economic 
analysis showed that royalties paid using the location-adjusted index 
price would remain relatively unchanged from those paid under 30 CFR 
part 206.
    Paragraph (b) would explain that you must obtain approval from MMS 
and the State under Sec. 204.210(b) before taking alternate valuation 
relief. Thus, unlike relief options provided in Secs. 204.203, 204.204, 
and 204.205 above, you may not merely notify MMS that you are taking 
this relief option. This paragraph would also explain that you must 
submit a processing fee under this option as provided for in 
Sec. 204.210(b)(3).
    Paragraph (c) would explain that if MMS and the State approve your 
request, the valuation method you requested would be the value for 
royalty purposes for production from or attributable to your lease 
interest in the marginal property. Thus, you would no longer value your 
production under 30 CFR part 206 and any underpayment would be 
determined based on the approved alternative valuation method.
    Paragraph (d) would refer you to MMS's Marginal Property Guidelines 
for reporting instructions for this relief option.
Section 204.207  What Is the Audit Relief Option?
    This section would explain the ``audit relief option.'' Under this 
relief option, you could request a reduced royalty audit burden. 
However, MMS would not consider any request that eliminates

[[Page 3365]]

MMS's or the State's right to audit. The reduced audit burden would 
reduce the administrative costs associated with audits.
    (a) Audit relief may include:
    (1) Audits of limited scope. For example, MMS and the State may 
accept, under certain conditions, that an audit of a particular 
marginal property would not occur more frequently than once in every 6-
year period unless previous audits have resulted in royalty 
underpayments;
    (2) Coordinated royalty and severance tax audits. For example, MMS 
and the State may accept, under certain conditions, that the State will 
perform audits of royalty records for a marginal property at the same 
time as the State's audit of severance taxes;
    (3) Reliance by MMS on independent certified audits. For example, 
the MMS and the State, under certain conditions may accept an 
affirmative statement in the audit report of the company's independent 
certified auditors that they have reviewed the company's royalty 
accounting practices with respect to marginal properties and found them 
to be in compliance with Federal lease terms, laws, and regulations. 
MMS may retain the right to review the support for such certification;
    (4) Any other audit relief which may be appropriate. MMS and the 
State will determine on a case by case basis whether the audit relief 
you request is appropriate.
    Paragraph (b) would explain that you must obtain prior approval 
from MMS and the State under Sec. 204.210(b) before receiving audit 
relief. Thus, unlike relief options provided in Secs. 204.203, 204.204, 
and 204.205 above, you could not merely notify MMS that you are taking 
this relief option. This paragraph would also explain that you must 
submit a processing fee under this option as provided for in 
Sec. 204.210(b)(3).
    Paragraph (c) would refer you to MMS's Marginal Property Guidelines 
for reporting instructions for this relief option.
Section 204.208  What Is the Other Relief Option?
    This section would explain the ``other relief option.'' Under this 
relief option, you could request any type of accounting and auditing 
relief that is appropriate for your marginal property, provided it is 
not specifically prohibited under Sec. 204.209 of this subpart. MMS 
proposes this ``other relief option'' because it recognizes that no one 
kind of relief is appropriate for every marginal property. MMS and the 
State would determine on a case by case basis whether the other relief 
option you request is appropriate.
    Paragraph (a) would explain that you must obtain prior approval 
from MMS and the State under Sec. 204.210(b) before taking relief under 
this option. Thus, unlike relief options provided in Secs. 204.203, 
204.204, and 204.205 above, you could not merely notify MMS that you 
are taking this relief option. This paragraph would also explain that 
you must submit a processing fee under this option as provided for in 
Sec. 204.210(b)(3).
    Paragraph (b) would refer you to MMS's Marginal Property Guidelines 
for reporting instructions for this relief option.
Section 204.209  What Accounting and Auditing Relief Will MMS Not 
Allow?
    This section would explain that MMS will not approve your request 
for accounting and auditing relief under this subpart if your request:
    (a) Prohibits MMS or the State from conducting any form of audit. 
MMS developed an audit strategy to assure compliance with laws, 
regulations, and lease terms. To administer this strategy, MMS and the 
States must audit a sample of leases consisting of a wide range of 
conditions. Therefore, MMS proposes to deny any relief requested under 
this subpart that prevents it or a State from conducting an audit of a 
marginal property. However, as provided in Sec. 204.207, we would 
consider applications that provide for reduced or streamlined audit 
coverage under appropriate circumstances;
    (b) Permanently relieves you from making future royalty reports or 
payments. MMS believes that RSFA's requirement that any relief option 
must increase net receipts to the United States and the States 
prohibits this as a relief option. Applicants who wish to alter their 
monthly royalty payments should explore the cumulative royalty report 
and payment relief option under Sec. 204.203 or the prepayment of 
royalty alternative under subpart B of this part;
    (c) Provides for less frequent royalty reports and payments than 
annually. Annual royalty information is necessary to monitor the 
continuing eligibility of marginal properties;
    (d) Provides for you to submit royalty reports and payments at 
separate times. MMS must disburse the royalty revenues it receives on a 
timely basis. Therefore, the royalty payment and the royalty report 
must be submitted together under any relief proposal;
    (e) Impairs MMS's ability to properly or efficiently account for or 
disburse royalties. MMS must have sufficient royalty information to 
effect disbursement to the States and other revenue recipients. Thus, 
it would reject any proposal that lacks that information;
    (f) Requests relief for a lease under which the Federal Government 
takes its royalties in-kind. Because the royalty obligation is 
satisfied by the Federal Government taking its royalty in-kind, 
accounting or auditing relief to the lessee or its designee is not 
necessary;
    (g) Alters production reporting requirements. Although MMS proposes 
to allow fractional interest owners of qualifying marginal properties 
to seek individual relief under this subpart, we believe production 
information must be submitted on a monthly basis for the entire 
marginal property. This is necessary so that MMS and other agencies can 
continue to monitor production from the property;
    (h) Alters lease operation or safety requirements. MMS does not 
believe RSFA contemplated relief of this nature;
    (i) Conflicts with rent, minimum royalty, or lease requirements. 
The lessee or its designee must satisfy the rent, minimum royalty, and 
other lease obligations regardless of any marginal property relief. 
Therefore, any relief option which would reduce or eliminate the lease 
obligations will not be allowed;
    (j) Requests relief for a marginal property located in a State that 
has determined in advance that it will not allow such relief under 
Sec. 204.214 of this subpart.
Section 204.210  How Do I Obtain Accounting and Auditing Relief?
    This section would explain how to notify MMS that you are taking, 
or request from MMS authorization to take, the relief options under 
this subpart.
    Paragraph (a) would explain that to take accounting relief under 
Secs. 204.203, 204.204, and 204.205, you must notify MMS in writing 
prior to the first day of the sales month for which you begin taking 
your relief. MMS believes that the notification required under 
paragraph (a) of this section allows MMS and the State to jointly 
determine whether to grant relief on a ``case-by-case'' basis, as 
required under RSFA section 7(a), for three reasons.
    First, the rule itself would set forth which ``cases'' are eligible 
for relief under Secs. 204.203, 204.204, and 204.205. Second, States 
have the opportunity to comment on the proposed eligibility 
requirements in this proposed rulemaking, and MMS will work with the 
States to develop the eligibility requirements in the final rule. 
Finally, States who disagree with the eligibility requirements may 
decide not to grant

[[Page 3366]]

any relief under Sec. 204.214 of this subpart.
    MMS requires notification prior to taking relief under paragraph 
(a) of this section in order to enter the information into MMS's 
accounting system. This will prevent MMS's automated systems from 
generating spurious exceptions on marginal properties for which relief 
is being taken.
    MMS would like comments on whether the relief options under 
Secs. 204.203, 204.204, and 204.205 should be automatic, i.e. not 
require prior approval based on production levels, as proposed in the 
notification requirement under paragraph (a) of this section.
    Paragraph (a)(1) would list the information that must be supplied 
in the notification.
    Paragraph (a)(2) would explain that you may file a single 
notification for multiple marginal properties if you are taking the 
same relief option with the same effective date for all the properties. 
As an example, assume that a lessee or its designee's marginal property 
``A'' qualifies under the Sec. 204.203 ``cumulative royalty reports and 
payments option'' for semi-annual reporting and payment, and its 
marginal property ``B'' qualifies under the Sec. 204.203 ``cumulative 
royalty reports and payments option'' for annual reporting and payment 
as well as the ``net adjustment reporting relief option'' under 
Sec. 204.204. The lessee or its designee could submit a single notice 
to MMS that it is taking the ``cumulative royalty reports and payments 
option'' for both properties ``A'' and ``B'' if the effective date for 
the relief were the same for both properties. However, the lessee or 
its designee would have to submit a separate notice to MMS that it is 
taking the ``net adjustment reporting relief option'' for property 
``B''.
    Paragraph (b) would explain that if you wish to obtain accounting 
or auditing relief under Secs. 204.206, 204.207, and 204.208, you must 
file a written request for relief with MMS. Accordingly, you must 
obtain MMS's prior approval before taking relief under these sections. 
MMS believes that the requests required under Sec. 204.210(b) allow MMS 
and the State to jointly determine whether to grant relief on a ``case-
by-case'' basis, as required under RSFA, for four reasons.
    First, MMS and the State, if applicable, would consider each 
request to determine whether you are eligible for the relief options 
under Secs. 204.206, 204.207, and 204.208. Second, States have the 
opportunity to comment on the proposed request requirements in this 
proposed rulemaking, and MMS will work with the States to develop the 
request requirements in the final rule. Third, under the proposed 
rulemaking, MMS and the State, if applicable, would jointly determine 
whether a property is eligible for the relief options under 
Secs. 204.206, 204.207, and 204.208. Finally, States who disagree with 
the request requirements or relief option(s) may decide not to grant 
any relief under Sec. 204.214 of this subpart.
    Paragraph (b)(1) would list the information that must be supplied 
in your request.
    Under paragraph (b)(2) you could file a single request for multiple 
marginal properties if you are requesting the same relief for all 
properties. As an example, assume that a lessee or its designee's 
marginal property ``A'' qualifies for the ``alternate valuation relief 
option'' under Sec. 204.206, and marginal property ``B'' qualifies for 
the ``alternate valuation relief option'' under Sec. 204.206 as well as 
the ``audit relief option'' under Sec. 204.207. The lessee or its 
designee could submit a single request to MMS asking to take the 
``alternate valuation relief option'' for both properties ``A'' and 
``B''. However, the lessee or its designee would have to submit a 
separate request to MMS to ask to take the ``audit relief option'' for 
property ``B''.
    Paragraph (b)(3) would explain that you must remit a processing fee 
in the amount of $50 for requests for accounting or auditing relief 
under Secs. 204.206, 204.207, and 204.208. MMS is recovering its costs 
under the Independent Offices Appropriations Act of 1952, 31 U.S.C. 
9701 et seq. (IOAA), for Federal offshore leases, and the Federal Land 
Policy and Management Act of 1976, 43 U.S.C. 1701 (FLPMA), for Federal 
onshore leases. Thus, as part of this proposed rulemaking, we analyzed 
the proposed marginal property relief's cost recovery fees for 
reasonableness according to the factors in FLPMA Section 304(b). 
Although the IOAA does not contain the same ``reasonableness factors'' 
as FLPMA Section 304(b), the factors MMS considered under the IOAA to 
determine reasonable fees led it to conclude that the fees for offshore 
leases should be the same as that for onshore leases.
    The ``reasonableness factors'' which FLPMA requires to be 
considered are: (a) actual costs (exclusive of management overhead); 
(b) the monetary value of the rights or privileges sought by the 
applicant; (c) the efficiency to the Government processing involved; 
(d) that portion of the cost incurred for the benefit of the general 
public interest rather than for the exclusive benefit of the applicant; 
(e) the public service provided; and (f) other factors relevant to 
determining the reasonableness of the costs.
    For marginal property relief taken or requested under Sec. 204.210, 
the method used to evaluate the factors is twofold. First, actual costs 
are estimated and each of the remaining FLPMA reasonableness factors 
(b) through (f) is evaluated individually to decide whether the factor 
might reasonably lead to an adjustment in actual costs. If so, that 
factor is then weighed against the remaining factors to determine 
whether another factor might reasonably increase, decrease, or 
eliminate the contemplated reduction. On the basis of this twofold 
analysis, MMS determined what final fee is reasonable for the marginal 
property relief sought. MMS cannot recover an amount greater than its 
actual costs, so any final adjustment cannot result in a fee greater 
than actual costs.
    For processing a notice that a lessee or its designee is taking 
marginal property relief under Sec. 204.210(a), we concluded that we 
would not charge fees because it is exempted from cost recovery under 
the Department of the Interior Manual (DM). Under the Departmental 
Manual, agencies may exempt activities from cost recovery if ``[t]he 
incremental cost of collecting the charges would be an unduly large 
part of the receipts from the activity.'' 346 DM 1.2 C (2). Based on 
our analysis, we estimated that our actual costs for processing these 
notices would be less than $5.00. However, the increased cost to MMS 
for billing and collecting a processing fee would be $8.00 (estimated 
by the Department of the Interior Director of Financial Management in 
1991). Therefore, for processing a lessee's or its designee's notice to 
take marginal property relief under Sec. 204.210(a), we concluded that 
this is an activity exempt from cost recovery under the Departmental 
Manual. 346 DM 1.2 C(2). Because we do not propose to recover costs to 
process notifications under Sec. 204.210(a), the balance of the 
discussion on cost recovery will focus on processing fees for requests 
under Sec. 204.210(b).
    Factor (a)--Actual Costs. Actual costs means the financial measure 
of resources expended or used by MMS in processing a notice that a 
lessee or its designee is requesting to take marginal property relief 
under Sec. 204.210(b), including, but not limited to, the costs of 
special studies, monitoring compliance with this part, termination of 
relief authorized under this part, or any other relevant action. Actual 
costs include both direct and indirect costs,

[[Page 3367]]

exclusive of management overhead. Management overhead costs means costs 
associated with the MMS directorate, which means the entire Washington 
office staff, except where a member of such staff is required to 
perform work on a specific case. Section 304(b) of FLPMA requires that 
we exclude management overhead from chargeable costs.
    Direct costs include agency expenditures for labor, material, 
stores, and equipment usage connected with the performance of 
processing responsibilities. MMS's indirect costs include program 
support such as systems, appeals, enforcement, and rulemaking. Indirect 
costs are allocated to specific projects on a pro rata basis. MMS 
calculated its indirect cost rate of 18.5 percent by dividing the 
support costs described above by the total program costs. This method 
of calculating costs is a generally accepted practice in both the 
private and public sectors.
    MMS's method of establishing actual costs involved measuring the 
cost of an individual transaction within a relief category. MMS 
concluded that measuring the cost of an individual transaction within a 
relief category is reasonable because the actual costs will not vary 
substantially from one individual transaction to another within the 
same relief category, making the average cost of an individual 
transaction a reliable measure. In this proposed rulemaking, MMS 
determined that the above characteristic is exhibited by all relief 
categories. Each of these is discussed below.
    The costs to process a lessee or its designee's request to take the 
``alternative valuation relief option,'' the ``audit relief option,'' 
and the ``other relief option,'' under Sec. 204.210(b), would include 
the cost to process the request. This consists of several phases. The 
first phase is the review and analysis of the proposed relief by MMS 
personnel and our preliminary approval, modification, or denial of the 
proposed relief. The second phase involves the coordination with the 
affected State. The third phase consists of communicating the decision 
to the lessee or its designee. MMS has determined that the average 
burden hour estimate to the Federal Government for these phases is 40 
hours per request. This estimate is based on current MMS time 
requirements for completing similar tasks. Using an estimate of $50 per 
hour based on an average of MMS's personnel costs, we estimate the 
average direct cost burden for these requests is $2,000 ($50/hour x 40 
hours). MMS's indirect costs for the requests is $370 per request (18.5 
percent indirect cost rate x $2,000) resulting in total estimated 
actual costs of $2,370 per average request.
    If a request is approved, additional phases are necessary. In the 
data entry phase, MMS personnel enter the approval information the 
lessee or its designee submits with its request into MMS's automated 
systems. MMS personnel then file the original request for future 
reference. In the monitoring phase, MMS would monitor the marginal 
property annually to ensure that it continues to qualify for the relief 
granted. MMS estimates that the time necessary to complete both of 
these phases is negligible. Therefore, we have not included any 
additional costs from these phases into our actual cost estimate.
    Factor (b)--Monetary Value of the Rights and Privileges Sought. The 
monetary value of rights and privileges sought means the objective 
worth of the marginal property relief sought or taken, in financial 
terms, to the lessee or its designee. MMS rejected the idea of trying 
to calculate monetary value on a case-by-case basis as too time-
consuming, wasteful of resources, and subject to endless disputes. 
Instead, MMS has attempted to calculate an actual figure to represent 
the monetary value of rights for transactions in this rulemaking. In 
addition, MMS took into account equitable considerations involving the 
costs to process relative to the monetary value of the relief sought.
    MMS determined that the ``alternative valuation relief option'' and 
``audit relief option'' would benefit lessees and their designees by 
decreasing the total number of hours they must devote to calculating 
royalty payments and responding to MMS audits. MMS estimated the 
maximum average monetary benefit of these relief options could be as 
high as $1,200 annually (2 hours per month savings x 12 months x $50/
hour labor cost). However, MMS did not upwardly adjust its actual costs 
for this factor. As discussed under factor (f) below, if MMS increased 
its costs due to this factor, it would frustrate Congress' intent under 
RSFA to promote continued production. This is because lessees and their 
designees would not request relief if MMS's recovery costs are 
excessive.
    Second, the lessee or its designee receives the value of continued 
production and the resultant continued income from the property. 
However, any MMS estimate of the average life of a marginal property 
and the average monetary benefit from continued production to the 
lessee or its designee would be purely speculative. In addition, this 
equitable factor would be offset by the increased royalties the public 
would receive as discussed under factor (e) below. Therefore, MMS did 
not upwardly adjust its actual costs based on this factor.
    MMS has reviewed the request-based relief options proposed in this 
rulemaking and found them to have significantly higher processing 
costs/fees than the monetary value of the right being provided to the 
customer. MMS has determined that consideration of this factor should 
also include an examination of equitable considerations related to 
monetary value, rather than precise figures, which would be very 
difficult or impossible to calculate. A major equitable consideration 
is whether the level of cost reimbursement could, as a result of the 
expense required to process the fee itself for example, burden the 
applicant to such an extent that the proposed relief would actually 
grant no relief at all. Relief with a small value to the applicant, but 
which triggers higher processing costs, would be an example of an 
instance where the fee might reasonably be set at a figure less than 
the actual cost of processing due to this factor.
    Factor (c)--Efficiency to the Government Processing Involved. 
Efficiency to the Government processing means the ability of the United 
States to process a request to take marginal property relief under 
Sec. 204.210(b) with a minimum of waste, expense, and effort. Implicit 
in this factor is the establishment of a cost recovery process that 
does not cost more to operate than MMS would collect and does not 
unduly increase the costs to be recovered. As noted in the above 
section on actual costs, MMS has determined that for the relief options 
proposed in this rulemaking, it would be inefficient to determine 
actual cost data on a case-by-case basis. Estimates based on MMS 
experience indicate that the cost of maintaining actual cost data on 
specific cases is unreasonably high where the amount potentially 
collectible is relatively small. This is principally because MMS's 
automated accounting system would have to be extensively reprogrammed 
to add a relatively few items of information. MMS has thus used cost 
estimates derived from collected data.
    Because RSFA requires that any relief granted be in the best 
interests of the United States and the State concerned, MMS must 
perform sufficient review of the unique circumstances involving each 
individual marginal property for which relief is being requested. MMS 
believes the 40-hour actual cost estimate from factor (a) above 
anticipates an

[[Page 3368]]

efficient process that provides for the necessary technical review and 
State coordination functions. The procedures that MMS will use in 
processing the data would be based on standardized steps for similar 
MMS transactions in order to eliminate duplication and extraneous 
procedures. Therefore, MMS believes this would be the most efficient 
processing method. Accordingly, because this is an efficient processing 
method, MMS has made no adjustment to actual costs as a result of this 
factor.
    Factor (d)--Cost Incurred for the Benefit of the General Public 
Interest. The cost incurred for the benefit of the general public 
interest (public benefit) means funds the United States expends in 
connection with the processing of a request to take marginal property 
relief under Sec. 204.210(b), for studies and/or data collection 
determined to have value or utility to the United States or the general 
public separate and apart from the document processing. It is important 
to note that this definition addresses funds expended in connection 
with a request. There is another level of public benefit that includes 
studies which MMS is required, by statute or regulation, to perform 
regardless of whether a request is received. The costs of such studies 
are excluded from any cost recovery calculations from the outset. 
Therefore, no additional reduction from costs recovered is necessary in 
relation to these studies.
    MMS analysts concluded that the processing of requests for relief 
included in this proposed rulemaking did not as a rule produce studies 
or data collection that might benefit the public to any appreciable 
degree. Therefore, any possible benefits of such studies to the public 
are balanced by their possible benefits to the applicant. Accordingly, 
MMS made no adjustment to the fee recovered based on this factor.
    Factor (e)--Public Service Provided. Public service provided means 
tangible improvements or other direct benefits, such as increased 
royalty and prolonged production, and reduced administrative costs, 
with significant public value that are expected in connection with the 
granting of marginal property relief. Data collection that MMS needs to 
monitor marginal property relief granted or taken does not constitute a 
public service. The definition specifically notes that negative 
factors, such as an adverse impact on royalty or MMS's audit ability, 
may preclude considering an improvement as a public service and that 
data collection MMS needs to monitor a relief option does not 
constitute a public service. This definition distinguishes the factor 
of ``public service provided'' (a benefit resulting from activities 
associated with the underlying relief) from the factor of ``costs 
incurred for the benefit of the general public interest'' (which 
relates to benefits of the document processing itself). MMS has 
determined that the relief options under this rule provide several 
public services.
    First, for the ``alternative valuation relief option'' and ``audit 
relief option,'' MMS receives the benefit of reducing its costs by 
decreasing the total number of hours it must devote to auditing. MMS 
anticipates approving simpler valuation and audit methods under this 
rule. Therefore, MMS has determined that the Government would benefit 
under this factor to some extent.
    Most audits of marginal properties performed by MMS or State 
auditors are conducted in conjunction with audits of larger producing 
leases that the lessee or designee reports and pays royalties on. MMS 
and State auditors do not spend significant resources on conducting 
audits of the marginal properties, instead concentrating the audit 
effort on the larger leases. Therefore, MMS has determined that the 
audit savings would be relatively minor along with the resulting public 
benefit. Because the following reasonableness factor already reduces 
the fee charged well below MMS's actual costs, MMS has not further 
reduced actual costs as a result of these minor audit savings.
    Second, it is possible that the granting of marginal property 
relief may extend the life of a lease, and thereby extend the United 
States' receipt of royalties from those properties. As discussed below, 
that was one of Congress' goals when enacting RSFA. However, any 
increased receipts are purely speculative. Moreover, any such continued 
royalty payments from such a property would most likely be nominal, and 
thus outweighed by the costs of processing and auditing such payments. 
Therefore, MMS concluded that the benefit to the Government would be 
too remote and speculative to warrant any reduction in the fee charged.
    Factor (f)--Other Factors. The final reasonableness factor is other 
factors relevant to determining the reasonableness of the costs. MMS 
examined the relief options to determine whether other factors 
warranted a reduction in the proposed fee.
    MMS's primary consideration under this factor was RSFA's purpose 
with respect to marginal properties. Congress enacted RSFA to ``promote 
production,'' RSFA section 7(a), by ``encourag[ing] lessees to continue 
to produce and develop marginal properties.'' S. Rep. 260, 104th Cong., 
2d Sess. 20 (1996); H.R. 667, 104th Cong., 2d Sess. 20 (1996). Congress 
stated that ``certain regulatory * * * obligations should be waived if 
it can be demonstrated such a waiver could aid in maintaining 
production that might otherwise be abandoned.'' H.R. 667, 104th Cong., 
2d Sess. 20 (1996). However, RSFA also mandated that any relief should 
``reduce administrative costs, and increase net receipts to the United 
States and the States.'' RSFA section 7(a). Congress stated that 
granting relief for marginal properties should ``result in additional 
receipts from oil and gas production that would otherwise be abandoned, 
and would * * * increase oil and gas production on Federal lands by 
creating economic efficiencies to make Federal leases more competitive 
with private leases.'' Id. at 20-21. Thus, as part of its FLPMA 
reasonableness analysis, MMS was required to consider whether the 
benefit from the increase in royalties to be gained from continued 
production from marginal properties and the decreased administrative 
burden to MMS from granting such relief merited a reduction in fee 
charges.
    The relief options proposed in this rulemaking were therefore 
reviewed by MMS personnel with expertise and program management 
responsibilities in the particular area of the transaction, who weighed 
the proposed processing fee against their knowledge of the value of 
similar transactions. In the case of the relief options proposed in 
this rulemaking, the MMS analysts concluded that the value of the 
rights was clearly so far below the expected processing cost that a fee 
set at actual costs would preclude lessees or their designees from 
seeking those relief options. In fact, at MMS's marginal property 
workshops, industry representatives indicated that significant 
processing fees would likely result in requests for relief not being 
submitted. Representatives of independent oil and gas producers stated 
that processing fees would likely discriminate against the small 
producers because larger oil and gas producers often sell properties 
that approach marginal status to the smaller producers. Thus, setting a 
fee at actual costs would frustrate Congress' stated purpose under RSFA 
to promote continued production and increase administrative efficiency 
because lessees and their designees would decline to request such 
relief. Accordingly, MMS placed the greatest weight on this factor when 
considering the reasonableness of charging actual costs. As a result, 
MMS has determined

[[Page 3369]]

that a processing cost of $50 would meet the reasonableness factors of 
FLPMA for onshore leases and further Congressional intent to provide 
marginal property relief for requests under Secs. 204.206, 204.207, and 
204.208.
    MMS invites specific comments concerning the proposed processing 
fees. MMS further requests input concerning the value to marginal 
property lessees and designees of the relief options under 
Secs. 204.206, 204.207, and 204.208 of this subpart.
    Paragraph (b)(3) would require you to remit a processing fee in the 
amount of $50 for each request for marginal property relief. If you 
file a single request for multiple marginal properties as provided in 
paragraph (b)(2), your processing fee is $50 for the entire request. 
Thus, under the example in paragraph (b)(2) of this section, for the 
single request filed to request the ``alternate valuation relief 
option'' for both properties ``A'' and ``B'', you must remit a total of 
$50.
    Paragraph (b)(3)(i) would explain that if you do not remit the 
processing fee with your request for relief, MMS will return your 
request for relief unprocessed. If MMS returns your request unprocessed 
it is not considered an appealable denial of your request.
    Paragraph (b)(3)(ii) would explain that if you remit a partial 
processing fee, your request for relief will not be processed until you 
pay the processing fee in full. Thus, under the example in paragraph 
(b)(3) of this section, if you remit $30 with your request for both 
properties ``A'' and ``B'', rather than the $50 required under that 
section, MMS will not process your request until you remit the 
additional $20. This paragraph would also provide that MMS will notify 
you in writing that your processing fee is insufficient. You would have 
30 days from your receipt of MMS's notice to remit the balance. If you 
did not remit the balance within the 30-day period, MMS would return 
your request for relief unprocessed. If MMS returned your request 
unprocessed, it would not be considered an appealable denial of your 
request.
    Paragraph (b)(3)(iii) would provide that processing fees, including 
partial processing fees, are not refundable for any reason. 
Accordingly, under the example in paragraph (b)(3)(ii), if you did not 
remit the additional $20 within the 30-day period, MMS would not refund 
the $30 partial payment you remitted.
    Paragraph (b)(3)(iv) would refer you to MMS's Marginal Property 
Guidelines for additional instructions on submitting processing fees.
    Paragraph (c) would provide that you must submit notifications, 
requests, or processing fees required under this section to the address 
specified in MMS's Marginal Properties Guidelines.
Section 204.211  What Will MMS Do When It Receives My Request for 
Accounting and Auditing Relief?
    The section would explain that when MMS receives your request for 
accounting and auditing relief under Sec. 204.210(b), it will notify 
you as follows:
    Paragraph (a) would provide that if your request for relief is 
complete, MMS and the State may either approve, deny, or modify your 
request. MMS would notify you of the decision in writing under 
Sec. 204.215 of this subpart.
    Paragraph (b) would provide that if your request for relief is not 
complete, MMS would notify you in writing that your request is 
incomplete and identify any missing information. You would have to 
submit the missing information within 30 days of your receipt of MMS's 
notice that your request is incomplete.
    Under paragraph (1), if you submit the missing information within 
30 days of MMS's notification, MMS and the State could either approve, 
deny, or modify your request for relief under Sec. 204.213 of this 
subpart.
    Under paragraph (2), if you do not submit the missing information 
within 30 days, MMS would return your request for relief as incomplete. 
If MMS returns your request because it is incomplete, MMS would not 
return any processing fee you submitted with your request. You could 
submit a new request for relief under this subpart, including another 
processing fee, at any time following MMS return of your incomplete 
request. If MMS returns your request unprocessed, it would not be 
considered an appealable denial of your request.
Section 204.212  Who Will Decide Whether To Approve, Deny, or Modify My 
Request for Accounting and Auditing Relief?
    Because RSFA requires MMS to determine whether to approve relief 
for marginal properties jointly with a State concerned, the section 
would explain who will decide your request for relief depending on 
whether there is a State concerned.
    Paragraph (a) would provide that if there is not a State concerned 
for your marginal property, only MMS would decide whether to approve, 
deny, or modify your relief request.
    Paragraph (b) would provide that if there is a State concerned for 
your marginal property, the highest State official having ultimate 
authority over the collection of royalties or the State official to 
whom that authority has been delegated would have to jointly determine 
with MMS whether to approve, deny, or modify your relief request. Also, 
the State would be required to provide MMS with the identity of the 
State official with this authority.
    Paragraph (c) would provide that MMS will not approve your request 
to use an alternate valuation method until the Assistant Secretary for 
Land and Minerals Management approves the request.
Section 204.213  How Will MMS and the State Jointly Determine Whether 
To Approve, Deny, or Modify My Request for Accounting and Auditing 
Relief?
    This section would explain the process MMS and the State will use 
to jointly decide whether to approve, deny, or modify your request for 
relief under Sec. 204.210(b).
    If a State determines in advance that it may grant one or more of 
your relief options under this subpart:
    Paragraph (a) would provide that MMS will preliminarily determine 
whether to approve, deny, or modify your relief request and send its 
preliminary determination to the State. RSFA provides that the State 
must consent to accounting and auditing relief granted under section 
117(c) of FOGRMA. Thus, RSFA requires the involvement of the State in 
the approval process for a marginal property relief alternative under 
this subpart. Accordingly, MMS proposes that after its preliminary 
approval, denial, or modification(s) of a relief request, it would 
forward the request and its preliminary determination to the 
appropriate State for concurrence;
    Paragraph (b) would provide that after the State receives MMS's 
preliminary determination, it must notify MMS in writing within 30 
days, or such longer period as MMS may allow, of its recommendation to 
approve, deny, or modify your relief request under Sec. 204.210(b);
    Under paragraph (1), if the State approved your relief request:
    (i) MMS would approve your relief request if its preliminary 
determination was to approve your request;
    (ii) MMS could either approve or deny your relief request if its 
preliminary determination was to deny your request. This would give MMS 
the flexibility to revise its preliminary determination to deny your 
request if, after consultation with the State, it agreed with the State 
that your request should be approved;

[[Page 3370]]

    Under paragraph (2), if the State denied your relief request, then 
MMS would deny your relief request because RSFA provides that States 
must consent to any relief;
    Under paragraph (3), if the State approved MMS's modification(s) to 
your relief request, MMS would modify your relief request;
    Under paragraph (4), if the State denied MMS's modification(s) to 
your relief request, MMS would deny your relief request, because RSFA 
provides that States must consent to any relief;
    Under paragraph (5), if the State modified your relief request, MMS 
would consider the modification(s) and would:
    (i) Modify your request if it approves the State's modification(s); 
or
    (ii) Deny your request if it disagrees with the State's 
modification(s);
    Paragraph (c) would provide that if the State does not notify MMS 
of its decision within the time period allowed under paragraph (b) of 
this section, then the State would be deemed to have agreed with MMS's 
preliminary determination. Because MMS could allow States additional 
time to decide whether to approve, deny, or modify your request under 
paragraph (b) of this section, MMS believes that this provision is 
reasonable and necessary in order to assure timely processing of 
requests.
Section 204.214  May a State Decide in Advance That It Will Not Allow 
Certain Relief Options Under This Subpart?
    Paragraph (a) would provide that a State may decide in advance that 
it will not allow any one or more of the relief options specified in 
this subpart. MMS proposes to allow States to deny some or all of the 
relief options under this subpart in advance because RSFA provides that 
States must consent to any relief requested. MMS is also allowing 
States to deny relief in advance because some State government 
organizations who participated in the meetings of October 31, 1996, and 
January 23, 1997, regarding this proposed rule expressed concerns about 
granting relief for marginal properties. Finally, MMS believes this is 
the most efficient means to prevent you from submitting requests, and 
MMS and the State from processing requests, which States will 
automatically deny.
    If a State decides it wants to deny relief in advance, the highest 
State official having royalty collection authority would be required 
to:
    (1) Notify MMS in writing no later than 90 days prior to the 
beginning of the applicable calendar year of the State's intent to 
disallow one or more of the relief options under this subpart; and
    (2) Specify in its notice of intent to MMS which relief option(s) 
it will not allow.
    Paragraph (b) would provide that a State that had previously 
decided to not allow some or all relief under this subpart, may later 
allow such relief. The State would have to:
    (1) Notify MMS in writing no later than 90 days prior to the 
beginning of the applicable calendar year of its intent to allow one or 
more of the relief options under this subpart; and
    (2) Specify in its notice of intent to MMS which relief option(s) 
it will allow.
    Paragraph (c) would provide that MMS would publish the State's 
notice of intent to disallow or to allow certain relief options under 
this section in the Federal Register no later than 60 days prior to the 
beginning of the applicable calendar year. This would notify lessees or 
their designees whether or not they should submit the notices or 
requests required under Sec. 204.210 for relief the State has denied in 
advance.
Section 204.215  How Will MMS Notify Me of the Decision To Approve, 
Deny, or Modify My Request for Accounting and Auditing Relief?
    This section would explain that MMS will notify you in writing of 
the decision on your request for accounting and auditing relief under 
Sec. 204.210(b).
    Under paragraph (a), if MMS and the State approve your request for 
relief, MMS would notify you of the effective date of your accounting 
or auditing relief and other specifics of the relief approved.
    Under paragraph (b), if MMS and the State deny your relief request, 
MMS would state the reasons for denial in its notice informing you of 
its decision and explain your appeal rights under Sec. 204.6.
    Under paragraph (c), if MMS and the State modify your relief 
request, you would have 30 days from your receipt of MMS's modification 
notice to either accept or reject any modification(s) in writing. If 
you reject the modification(s) or fail to respond to MMS's notice, MMS 
and the State would deny your relief request. MMS would state the 
reasons for denial in its notice informing you of its decision and 
explain your appeal rights under Sec. 204.6.
Section 204.216  What Other Guidance Is Available for Accounting and 
Auditing Relief Obtained Under This Subpart?
    This section would explain that MMS will provide additional 
guidance for accounting and auditing relief in MMS's Marginal Property 
Guidelines. MMS anticipates using these Marginal Property Guidelines to 
provide detailed reporting instructions, such as unique adjustment 
reason codes and transaction codes, for marginal property reporting on 
Form MMS-2014. The Marginal Property Guidelines would also provide 
addresses for submitting notifications, requests, processing fees, 
reports, and payments for marginal properties.
Section 204.217  What If My Property Ceases To Qualify for Relief 
Obtained Under This Subpart?
    This section would explain what happens if your property no longer 
qualifies for relief under this subpart because your production 
increased during the base period.
    Paragraph (a) would provide that you must qualify for relief under 
this subpart for each calendar year based on production during the base 
period. The notice or request you provided to MMS under Sec. 204.210 
for the first calendar year that you qualified for relief will remain 
effective for successive calendar years if you continue to qualify. For 
example, if you qualified for relief beginning in calendar year 2000, 
and if you continue to qualify in calendar year 2001, based on the 
period from October 1, 1999, through September 30, 2000, you need not 
submit a new notice or request for calendar year 2001.
    Paragraph (b) would provide that if you find you are no longer 
eligible for relief because your production increased in the most 
recent base period, your relief terminates as of December 31 of that 
calendar year. By December 31, you would have to notify MMS in writing 
at the address provided in MMS's Marginal Property Guidelines that your 
relief has terminated. For example, if you qualified for relief 
beginning in calendar year 2000, but no longer continue to qualify in 
calendar year 2001 because your production increased during the base 
period, you must notify MMS by December 31, 2000, that your relief has 
terminated.
    Paragraph (c) would provide that MMS may retroactively rescind your 
relief, if MMS determines that your lease was not eligible for the 
relief you obtained under this subpart because:
    (1) You did not submit a notice or request for relief under 
Sec. 204.210;
    (2) You submitted erroneous information in the notice or request 
for

[[Page 3371]]

relief you provided to MMS under Sec. 204.210 or in your royalty or 
production reports; or
    (3) Your property is no longer eligible for relief because 
production increased, but you failed to provide the notice required 
under paragraph (b) of this section.
    Paragraph (d) would provide that you may owe additional royalties 
and will owe late payment interest determined under part 218 of this 
title from the date your payment was due until the date MMS receives 
it.
Section 204.218  May I Obtain Accounting and Auditing Relief for a 
Marginal Property That Benefits From Other Federal or State Incentive 
Programs?
    This section would provide that you may obtain accounting and 
auditing relief for your marginal property under this subpart even if 
the property benefits from other Federal or State production incentive 
programs. There is no evidence in RSFA or the legislative history that 
Congress intended for the marginal property relief provisions of FOGRMA 
section 117(c) to subrogate other relief programs.

III. Procedural Matters

The Regulatory Flexibility Act

    The Department certifies that this proposed rule will not have 
significant economic effect on a substantial number of small entities 
under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). This 
proposed rule implements the alternatives for marginal properties as 
required under sections 117(a) and 117(c) of the Federal Oil and Gas 
Royalty Management Act of 1982, as amended by the Federal Oil and Gas 
Royalty Simplification and Fairness Act of 1996.
    This proposed rule provides significant potential savings to all 
Federal oil and gas lessees and designees, regardless of size, by 
providing optional accounting and auditing relief. If a small entity 
does not wish to avail itself of the optional relief, it will incur no 
expense or burden under the proposed rule. If a small entity does seek 
to avail itself of accounting or auditing relief provided for in the 
proposed rule, it will incur nominal expenses. The benefit that would 
be obtained by the small entity would outweigh these nominal expenses. 
The analysis of both savings and expenses is provided in the Paperwork 
Reduction Act section below.
    Small entities are encouraged to comment on this proposed rule.

Unfunded Mandates Reform Act of 1995

    The Department of the Interior has determined and certifies 
according to the Unfunded Mandates Reform Act, 2 U.S.C. 1502 et seq., 
that this proposed rule will not impose a cost of $100 million or more 
in any given year on local, Tribal, or State governments, or the 
private sector. MMS has determined that first year impacts to all 
States under this proposed rule would be $52,600 with subsequent year 
impacts of $2,800 per year. MMS anticipates that these impacts will be 
at least partially offset by administrative savings and/or increased 
revenues realized by the relief granted under this proposed rule.

Executive Order 12630

    The Department certifies that the proposed rule does not represent 
a governmental action capable of interference with constitutionally 
protected property rights. Thus, a Takings Implication Assessment need 
not be prepared under Executive Order 12630, ``Governmental Actions and 
Interference with Constitutionally Protected Property Rights.''

Executive Order 12988

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

Executive Order 12866

    The Office of Management and Budget has determined this proposed 
rule is not a significant rule under this Executive Order 12866. The 
Department's analysis indicates this proposed regulation will result in 
a net benefit for industry, the Federal government, and the State and 
local royalty recipients through reduced administrative burden and 
enhanced revenues.

Paperwork Reduction Act

    This proposed rule contains new information collection requirements 
and revises information collection requirements that are approved by 
the Office of Management and Budget (OMB) for Form MMS-2014 (OMB 
Control Number 1010-0022). Therefore, we have submitted information 
collection requests to OMB for review and approval under section 
3507(d) of the Paperwork Reduction Act of 1995. As part of our 
continuing effort to reduce paperwork and respondent burden, we invite 
the public and other Federal agencies to comment on any aspect of the 
reporting burden. Submit your comments to the Office of Information and 
Regulatory Affairs, OMB, Attention Desk Officer for the Department of 
the Interior (OMB Control Number 1010-NEW), Washington, D.C. 20503. 
Send copies of your comments to Minerals Management Service, Royalty 
Management Program, Rules and Publications Staff, P.O. Box 25165, MS 
3021, Denver, Colorado, 80225-0165; courier address is Building 85, 
Denver Federal Center, Denver, Colorado 80225; e-Mail address is 
RMP.[email protected]. We will consider all comments received during the 
comment period for this notice of proposed rulemaking.
    OMB has up to 60 days to approve or disapprove this collection of 
information but may respond after 30 days. Therefore, public comments 
should be submitted to OMB within 30 days in order to assure their 
maximum consideration. However, we will consider all comments received 
during the comment period for this notice of proposed rulemaking.
    RSFA requires that MMS provide accounting and auditing relief for 
marginal properties on a case-by-case basis when in the best interests 
of the Federal Government and the State concerned.
    We require that a lessee or designee submit either a notification 
or a request to obtain marginal property relief. This will allow us to 
determine what relief is being taken or is being sought.
    Notifications or requests are only required of lessees or designees 
who wish to obtain accounting or auditing relief under RSFA. Therefore, 
your submission is strictly voluntary. RSFA provides that both MMS and 
the State concerned must consent to the relief before it can be taken.
    Industry applicants, the States concerned, and the Federal 
Government will have information collection costs. An applicant must 
submit its company name, address, phone number, contact name, MMS-
assigned Payor Code Number, Accounting Identification Number for the 
marginal property, and a detailed description of the specific 
accounting or auditing relief sought. In addition, depending on the 
relief sought, the lessee or designee must provide the single selling 
arrangement it will report royalties under or the new reporting 
frequency. The information is readily available to the lessee or 
designee taking the specific relief option being sought.
    We anticipate that applicants may file as many as 10,500 
notifications under Sec. 204.210(a) and 143 requests under 
Sec. 204.210(b) in the first year of implementation. We estimate that 
each request on average may contain about

[[Page 3372]]

five qualifying marginal properties. Because the relief for a marginal 
property is for the life of the property, as long as the property 
remains marginal, a lessee or designee need only file an application 
one time. Thereafter, we expect approximately 1,050 notifications and 
14 requests filed each year. Each notification is expected to take 
approximately one-half hour to complete, and each request is expected 
to take 4 hours to complete.
    We determined that the burden hour estimate to industry in the 
first year for preparing and filing the marginal property applications 
is 5,822 burden hours (10,500 notifications  x  \1/2\ hour per 
notification) + (143 requests  x  4 hours per request). Using an 
estimate of $50 per hour for industry cost, we estimate the cost burden 
is $291,100 (5,822 burden hours  x  $50 per hour). This burden is 
offset by 514,000 fewer royalty lines of information per year that are 
no longer required. We project that the total hour burden reduction for 
manual and electronic reporting is 25,700 hours, resulting in an 
estimated dollar savings to industry of $1,285,000 (25,700 hours  x  
$50 per hour). In subsequent years, the annual burden hour estimate is 
581 burden hours ((1,050 notifications  x  \1/2\ hour per notification) 
+ (14 requests  x  4 hours per request), and the annual cost burden 
estimate is $29,050 (581 burden hours  x  $50 per hour). This annual 
cost burden is offset by $1,285,000. This is the dollar amount in cost 
savings to industry associated with a reduction of 514,000 fewer 
royalty lines of data that are no longer required.
    In addition, lessees and designees must submit a processing fee of 
$50 per request for marginal property relief. This fee is required 
under the Independent Offices Appropriations Act of 1952 (IOAA), 31 
U.S.C. 9701, and the Federal Land Policy and Management Act of 1976 
(FLPMA), 43 U.S.C. 1701. The fee is not required for notifications 
because the cost of collection of the fee is a significant portion of 
the total costs of processing. Therefore, the additional cost burden to 
industry is $7,150 ($50 fee  x  143 requests) in the first year and 
$700 ($50 fee  x  14 requests) for subsequent years.
    We determined that the burden hour estimate to the Federal 
Government in the first year, for processing, input, review, approval, 
and handling is 5,720 burden hours (143 requests  x  40 hours per 
request). Using an estimate of $50 per hour for direct labor cost, we 
estimate the cost burden is $286,000 (5,720 burden hours  x  $50 per 
hour). This burden is partially offset by $7,150 ($50 fee  x  143 
requests) in processing fee collections. In addition, we estimate that 
annually 514,000 fewer lines of royalty information will be processed 
for an administrative savings of $303,260 (514,000  x  $.59 per line). 
In subsequent years, the annual burden hour estimate is 560 burden 
hours (14 requests  x  40 hours per request). The annual cost burden 
estimate is $28,000 (560 burden hours  x  $50 per hour). This burden is 
offset by $700 ($50 fee  x  14 requests) in processing fees and 
$303,260 in administrative savings from processing fewer royalty lines.
    The State concerned will also have information collection and 
processing costs. We estimate that the first year burden is 1,052 
hours. RSFA requires State approval for all marginal property relief 
granted under RSFA. Therefore, State burden is unavoidable. First year 
burden hour estimates for review and development of a State-blanket 
acceptance policy for the three notification-based relief options under 
Sec. 204.210 (a) is 40 hours per relief option  x  3 relief options  x  
4 primary States = 480 hours. In addition, first year burden hour 
estimates for property-by-property review and determination for the 
three request-based relief options is 4 hours per individual property 
relief request  x  143 first year requests = 572 hours. We anticipate 
that the State's review is significantly more limited than MMS's review 
of each request and that, in most cases, the State will rely on the 
review effort and recommendation by MMS. Therefore, the total estimate 
for first year State burden is 480 hours + 572 hours = 1,052 hours  x  
$50 cost per hour = $52,600.
    We estimate that the combined annual burden to all States is 56 
hours after the first year. The burden to the States for the review and 
development of a State-blanket acceptance policy for the three 
notification-based relief options is a one-time effort accomplished 
during the first year. Subsequent year burden hours for property-by-
property review and determination for the three request-based relief 
options is estimated at no more than 10 percent of the first year's 
request level. Relief approval for a property is granted for as long as 
the property qualifies as marginal. By nature, production from a 
marginal property will tend to decline over time. Therefore, most 
marginal properties will continue to qualify as marginal. We estimate 
an additional 10 percent of requests for subsequent years based on 
newly-qualifying marginal properties--properties which previously 
qualified but for which no relief had been sought and resubmitted 
requests which had been previously denied. Therefore, the subsequent 
years' burden to the States is estimated as 4 hours per individual 
property relief request  x  14 annual requests  x  $50 per hour = 
$2,800.
    In accordance with section 3506(c)(2)(A) of the Paperwork Reduction 
Act (PRA) of 1995, we are providing notice and consulting with members 
of the public and affected agencies to solicit comment to (a) evaluate 
whether this expanded 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.
    The PRA provides that an agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
    Your comments are important. The Small Business and Agriculture 
Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were 
established to receive comments from small businesses about Federal 
agency enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to small 
business. If you wish to comment on the enforcement actions in this 
proposed rule, call 1-888-734-3247.

National Environmental Policy Act of 1969

    We have determined that this proposed rulemaking is not a major 
Federal action significantly affecting the quality of the human 
environment, and a detailed statement under section 102(2)(C) of the 
National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) is not 
required.

List of Subjects in 30 CFR Part 204

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

    Dated: January 6, 1999.
Sylvia V. Baca,
Assistant Secretary--Land and Minerals Management.

    For the reasons set out in the preamble, MMS proposes to add part

[[Page 3373]]

204 to title 30 of the Code of Federal Regulations, as follows:

PART 204--ALTERNATIVES FOR MARGINAL PROPERTIES

Subpart A--General Provisions

Sec.
204.1  What is the purpose of this part?
204.2  Definitions.
204.3  What alternatives are available for marginal properties?
204.4  What is a marginal property under this part?
204.5  What statutory requirements must I meet to obtain royalty 
prepayment or accounting and auditing relief?
204.6  May I appeal if MMS denies my request for prepayment or 
accounting and auditing relief?

Subpart B--Prepayment of Royalty [Reserved]

Subpart C--Accounting and Auditing Relief

204.200  What is the purpose of this subpart?
204.201  Who may obtain accounting and auditing relief under this 
subpart?
204.202  What accounting and auditing relief options are available 
to me?
204.203  What is the cumulative royalty reports and payments relief 
option?
204.204  What is the net adjustment reporting relief option?
204.205  What is the rolled-up reporting relief option?
204.206  What is the alternate valuation relief option?
204.207  What is the audit relief option?
204.208  What is the other relief option?
204.209  What accounting and auditing relief will MMS not allow?
204.210  How do I obtain accounting and auditing relief?
204.211  What will MMS do when it receives my request for accounting 
and auditing relief?
206.212  Who will decide whether to approve, deny, or modify my 
request for accounting and auditing relief?
204.213  How will MMS and the State jointly determine whether to 
approve, deny, or modify my request for accounting and auditing 
relief?
204.214  May a State decide in advance that it will not allow 
certain relief options under this subpart?
204.215  How will MMS notify me of the decision to approve, deny, or 
modify my request for accounting and auditing relief?
204.216  What other guidance is available for accounting and 
auditing relief obtained under this subpart?
204.217  What if my property ceases to qualify for relief obtained 
under this subpart?
204.218  May I obtain accounting and auditing relief for a marginal 
property that benefits from other Federal or State incentive 
programs?

    Authority: 5 U.S.C. 301 et seq.; 30 U.S.C. 181 et seq., 351 et 
seq., 1001 et seq., 1701 et seq., 1721 et seq.,1726 et seq.; 31 
U.S.C. 9701 et seq.; 43 U.S.C. 1701 et seq., 1331 et seq., and 1801 
et seq.

Subpart A--General Provisions


Sec. 204.1  What is the purpose of this part?

    This part explains how a lessee or its designee of a Federal 
onshore or Outer Continental Shelf (OCS) oil and gas lease may obtain 
prepayment or accounting and auditing relief for certain marginal 
properties.


Sec. 204.2  Definitions.

    Agreement means a federally approved communitization agreement or 
unit participating area.
    Barrels of oil equivalents means the combined equivalent production 
of oil and gas stated in barrels of oil. Each barrel of oil production 
is equal to one barrel of oil equivalents. Also, each six thousand 
cubic feet of gas production is equal to one barrel of oil equivalents.
    Base period means the 12-month period from October 1 through 
September 30 immediately preceding the calendar year in which you take 
or request marginal property relief.
    Combined equivalent production means the total of all oil and gas 
production for the marginal property, stated in barrels of oil 
equivalents.
    Designee means the person designated by a lessee under 30 CFR 
218.52 to make all or part of the royalty or other payments due on a 
lease on the lessee's behalf.
    Producing wells means only those producing oil or gas wells that 
contribute to the sum of barrels of oil equivalents used in the 
calculation under Sec. 204.4(c). Producing wells do not include 
injection and water wells.
    State concerned (State) means the State which receives a 
statutorily prescribed portion of the royalties from a Federal onshore 
or OCS lease.


Sec. 204.3  What alternatives are available for marginal properties?

    If you have production from a marginal property you may:
    (a) Prepay royalty. MMS and the State may allow you to make a lump-
sum advance payment of royalties instead of monthly royalty payments 
for the remainder of the lease term.
    (b) Take accounting and auditing relief. MMS and the State may 
allow various accounting and auditing relief options to encourage you 
to continue to produce and develop your marginal property. See subpart 
C for accounting and auditing relief requirements.


Sec. 204.4  What is a marginal property under this part?

    To qualify as a marginal property eligible for royalty prepayment 
or accounting and auditing relief under this part, your property must 
meet the following requirements:
    (a) Production must be from, or attributable to, a Federal onshore 
or OCS lease. Indian leases are not eligible for the marginal property 
alternatives under this part, even though production from a qualifying 
marginal property may be attributable to an Indian lease. You must also 
meet the criteria shown in the following table:

------------------------------------------------------------------------
   If your lease is . . .          Then . . .             And . . .
------------------------------------------------------------------------
(1) Not in an Agreement.....  The entire lease      ....................
                               must qualify as a
                               marginal property
                               under paragraph (b)
                               of this section.
(2) Entirely or partly in     The entire Agreement  Agreement production
 one Agreement.                must qualify as a     allocable to your
                               marginal property     lease may be
                               under paragraph (b)   eligible for relief
                               of this section.      under this part.
                                                     Any production from
                                                     your lease that is
                                                     not in the
                                                     Agreement also
                                                     separately may be
                                                     eligible for relief
                                                     under (a)(4) of
                                                     this table.
(3) Entirely or partly in     Each Agreement must   Only the qualifying
 more than one Agreement.      qualify separately    Agreement's
                               as a marginal         production
                               property under        allocable to your
                               paragraph (b) of      lease may be
                               this section.         eligible for
                                                     separate relief
                                                     under this part.
(4) Partly in an Agreement    The part of the
 and you have production       lease that is not
 from the part of the lease    in the Agreement
 that is not in the            must qualify
 Agreement.                    separately as a
                               marginal property
                               under paragraph (b)
                               of this section.
------------------------------------------------------------------------


[[Page 3374]]

    (b) To qualify as a marginal property for a calendar year, the 
combined equivalent production of the property during the base period 
must equal an average daily well production of less than 15 barrels of 
oil equivalents per well per day calculated under paragraph (c) of this 
section.
    (c) To determine the average daily well production on or 
attributable to your property, divide the sum of the barrels of oil 
equivalents for all producing wells on the property by the sum of the 
number of days each of those wells actually produced during the base 
period. If your property is in an Agreement, your calculation under 
this section must include all wells included in the Agreement, even if 
they are not on a Federal onshore or OCS lease.


Sec. 204.5  What statutory requirements must I meet to obtain royalty 
prepayment or accounting and auditing relief?

    (a) MMS and the State may allow royalty prepayment or accounting 
and auditing relief for your marginal property under this part if MMS 
and the State jointly determine that the prepayment or relief is in the 
best interests of the Federal Government and the State to:
    (1) Promote production;
    (2) Reduce the administrative costs of MMS and the State; and
    (3) Increase net receipts to the Federal Government and the State.
    (b) MMS and the State may discontinue to allow any royalty 
prepayment or accounting and auditing relief options granted for your 
marginal property if MMS and the State jointly determine that the 
prepayment or relief option is no longer in the best interests of the 
Federal Government and the State under the standards in paragraph (a) 
of this section.


Sec. 204.6  May I appeal if MMS denies my request for prepayment or 
accounting and auditing relief?

    (a) If MMS denies your request for prepayment or accounting and 
auditing relief under this part because the State denied your request, 
MMS's decision is the final decision for the Department of the Interior 
and is not subject to administrative appeal.
    (b) You may appeal any other MMS action on your request under 30 
CFR parts 243 or 290.

Subpart B--Prepayment of Royalty [Reserved]

Subpart C--Accounting and Auditing Relief


Sec. 204.200  What is the purpose of this subpart?

    This subpart explains how a lessee or its designee may obtain 
accounting and auditing relief for production from a marginal property.


Sec. 204.201  Who may obtain accounting and auditing relief under this 
subpart?

    You may obtain accounting and auditing relief under this subpart:
    (a) If you are a lessee or its designee for a Federal lease with 
production from a property that qualifies as a marginal property under 
Sec. 204.4;
    (b) If you meet any additional requirements for specific types of 
relief under this subpart; and
    (c) Only for your fractional interest in the marginal property.


Sec. 204.202  What accounting and auditing relief options are available 
to me?

    The following table shows the six relief options that you may take 
for properties that qualify as marginal under Sec. 202.4 and tells you 
where in this subpart you can obtain more information:

------------------------------------------------------------------------
                          For . . .                            See . . .
------------------------------------------------------------------------
Cumulative royalty reports and payments relief..............  Sec.  204.
                                                                     203
Net adjustment reporting relief.............................     204.204
Rolled-up reporting relief..................................     204.205
Alternate valuation relief..................................     204.206
Audit relief................................................     204.207
Other relief................................................     204.208
------------------------------------------------------------------------

Sec. 204.203  What is the cumulative royalty reports and payments 
relief option?

    Under this relief option, you may submit royalty reports and 
payments less frequently than monthly.
    (a) To determine whether your marginal property is eligible for 
relief under this relief option, you must:
    (1) Multiply the current royalty rate for each Federal lease (your 
leases as well as others' leases) in the marginal property by the 
combined equivalent production of oil and gas from or allocable to that 
lease during the base period;
    (2) Total the volumes calculated under paragraph (a)(1) of this 
section; and
    (3) Report your royalties as shown in the following table:

----------------------------------------------------------------------------------------------------------------
  If the total volume calculated for the marginal property under     Then you may report and pay royalties for
               paragraph (a)(2) of this section is                                   your lease
----------------------------------------------------------------------------------------------------------------
(i) 125 or fewer barrels of oil equivalents......................  Annually, semi-annually, or quarterly.
(ii) More than 125, but not more than 250 barrels of oil           Semi-annually or quarterly.
 equivalents.
(iii) More than 250, but not more than 500 barrels of oil          Quarterly.
 equivalents.
----------------------------------------------------------------------------------------------------------------

    (b) You must notify MMS under Sec. 204.210(a) before taking relief 
under this option. You are not required to remit a processing fee for 
this option.
    (c) You must:
    (1) Submit your royalty report and payment in accordance with 
Sec. 218.51(g) of this chapter by the end of the month following the 
end of the applicable quarterly, semi-annual, or annual reporting 
period;
    (2) Report one line of cumulative royalty information on the Report 
of Sales and Royalty Remittance, Form MMS-2014, for the reporting 
period, the same as if it were a monthly report; and
    (3) Use the last sales month of the reporting period to report the 
royalty information for the entire period.
    (d) If you do not pay your royalty by the date due in paragraph 
(c)(1) of this section, you will owe late payment interest determined 
under part 218 of this chapter from the date your payment was due under 
this section until the date MMS receives it.
    (e) If you qualify for relief under paragraph (a) of this section, 
but you take more relief than you are entitled to under that paragraph, 
you will owe late payment interest determined under part 218 of this 
title from the date your payment was due under this section until the 
date MMS receives it. You must also amend your Form MMS-2014 to reflect 
the allowable reporting frequency.
    (f) You must report allowances on Form MMS-2014 on the same 
quarterly, semi-annual, or annual basis as the royalties for your 
marginal property.
    (g) Under this relief option:
    (1) Quarterly reporting periods begin on the first day of January, 
April, July, or October;
    (2) Semi-annual reporting periods begin on the first day of January 
or July; and
    (3) Annual reporting periods begin on the first day of January.

[[Page 3375]]

    (h) See MMS's Marginal Property Guidelines for additional reporting 
instructions for this relief option.


Sec. 204.204  What is the net adjustment reporting relief option?

    Under this relief option, you may adjust previously reported 
royalty lines to MMS as a one-line net entry on Form MMS-2014, instead 
of the two-line adjustment process.
    (a) To determine your eligibility for relief under this option, you 
must:
    (1) First, multiply the current royalty rate for each Federal lease 
(your leases as well as others' leases) in the marginal property by the 
combined equivalent production of oil and gas from or attributable to 
that lease during the base period;
    (2) Total the volumes that you calculated under paragraph (a)(1) of 
this section;
    (3) If the total volume calculated under paragraph (a)(2) of this 
section is less than or equal to 2,500 barrels of oil equivalents, then 
your property is eligible for relief under this option.
    (b) You must notify MMS under Sec. 204.210(a) before taking relief 
under this option. You are not required to remit a processing fee for 
this option.
    (c) You may not net your adjustments for royalties due with 
adjustments for allowances on Form MMS-2014.
    (1) You must report your adjustment to a previously reported 
royalty due line as a one-line net entry; and
    (2) You must report any corresponding adjustment to your previously 
reported allowance line as a separate one-line net entry.
    (d) See MMS's Marginal Property Guidelines for additional reporting 
instructions for this relief option.


Sec. 204.205  What is the rolled-up reporting relief option?

    Under this relief option, you may report all selling arrangements 
for a revenue source to MMS under a single selling arrangement on Form 
MMS-2014.
    (a) To determine your eligibility for relief under this option, you 
must:
    (1) First, multiply the current royalty rate for each Federal lease 
(your leases as well as others' leases) in the marginal property by the 
combined equivalent production of oil and gas from or attributable to 
that lease during the base period;
    (2) Total the volumes that you calculated under paragraph (a)(1) of 
this section;
    (3) If the total volume calculated under paragraph (a)(2) of this 
section is less than or equal to 1,000 barrels of oil equivalents, then 
your property is eligible for relief under this option.
    (b) You must notify MMS under Sec. 204.210(a) before taking relief 
under this option. You are not required to remit a processing fee for 
this option.
    (c) See MMS's Marginal Property Guidelines for additional reporting 
instructions for this relief option.


Sec. 204.206  What is the alternate valuation relief option?

    Under this relief option, you may request to report and pay 
royalties using a valuation method other than that required under part 
206 of this chapter.
    (a) Any alternate valuation method that you propose:
    (1) Must be readily determinable and certain; and
    (2) Must approximate royalties payable under the valuation 
regulations in part 206 of this chapter.
    (b) You must obtain approval from MMS and the State under 
Sec. 204.210(b) before taking alternate valuation relief. You must also 
submit a processing fee under Sec. 204.210(b)(3).
    (c) If MMS and the State approve your request, the valuation method 
you requested will be the value for royalty purposes for production 
from or attributable to your lease interest in the marginal property.
    (d) See MMS's Marginal Property Guidelines for reporting 
instructions for this relief option.


Sec. 204.207  What is the audit relief option?

    Under this relief option, you may request a reduced royalty audit 
burden. However, MMS will not consider any request that eliminates 
MMS's or the State's right to audit.
    (a) Audit relief may include:
    (1) Audits of limited scope, including audits based on a 
statistical sampling of leases;
    (2) Coordinated royalty and severance tax audits;
    (3) Reliance by MMS on independent certified audits; and
    (4) Any other audit relief that may be appropriate.
    (b) You must obtain approval from MMS and the State under 
Sec. 204.210(b) before receiving audit relief. You must also submit a 
processing fee under Sec. 204.210(b)(3).
    (c) See MMS's Marginal Property Guidelines for reporting 
instructions for this relief option.


Sec. 204.208  What is the other relief option?

    Under this relief option, you may request any type of accounting 
and auditing relief that is appropriate for your marginal property, 
provided it is not specifically prohibited under Sec. 204.209.
    (a) You must obtain approval from MMS and the State under 
Sec. 204.210(b) before taking relief under this option. You must also 
submit a processing fee under Sec. 204.210(b)(3).
    (b) See MMS's Marginal Property Guidelines for reporting 
instructions for this relief option.


Sec. 204.209  What accounting and auditing relief will MMS not allow?

    MMS will not approve your request for accounting and auditing 
relief under this subpart if your request:
    (a) Prohibits MMS or the State from conducting any form of audit;
    (b) Permanently relieves you from making future royalty reports or 
payments;
    (c) Provides for less frequent royalty reports and payments than 
annually;
    (d) Provides for you to submit royalty reports and payments at 
separate times;
    (e) Impairs MMS's ability to properly or efficiently account for or 
distribute royalties;
    (f) Requests relief for a lease under which the Federal Government 
takes its royalties in-kind;
    (g) Alters production reporting requirements;
    (h) Alters lease operation or safety requirements;
    (i) Conflicts with rent, minimum royalty, or lease requirements; or
    (j) Requests relief for a marginal property located in a State that 
has determined in advance that it will not allow such relief under 
Sec. 204.214.


Sec. 204.210  How do I obtain accounting and auditing relief?

    (a) To take accounting relief under Secs. 204.203, 204.204, and 
204.205, you must notify MMS in writing before the first day of the 
sales month for which you begin taking your relief.
    (1) Your notification must contain:
    (i) Your company name, MMS-assigned Payor Code, address, phone 
number, and contact name;
    (ii) The specific Accounting Identification Number(s) (MMS lease 
number and revenue source);
    (iii) The specific relief option under Secs. 204.203, 204.204, and 
204.205 that you are taking;
    (iv) The first sales month that your relief is effective for;
    (v) The frequency of your cumulative reports and payments if you 
are taking relief under Sec. 204.203; and
    (vi) The single selling arrangement you will use to report 
royalties and allowances for your marginal property if you are taking 
relief under Sec. 204.205.
    (2) You may file a single notification for multiple marginal 
properties if you are taking the same relief with the same effective 
date for all the properties.
    (3) You do not need to remit a processing fee with your 
notification.

[[Page 3376]]

    (b) To obtain accounting or auditing relief under Secs. 204.206, 
204.207, and 204.208, you must file a written request for relief with 
MMS.
    (1) Your request must contain:
    (i) Your company name, MMS-assigned Payor Code, address, phone 
number, and contact name;
    (ii) The specific Accounting Identification Number(s) (MMS lease 
number and Revenue Source); and
    (iii) A complete and detailed description of the specific 
accounting or auditing relief you seek under Secs. 204.206, 204.207, 
and 204.208.
    (2) You may file a single request for multiple marginal properties 
if you are requesting the same relief for all properties.
    (3) You must remit a processing fee in the amount of $50 for each 
request for marginal property relief under Secs. 204.206, 204.207, and 
204.208. If you file a single request for multiple marginal properties 
as provided in paragraph (b)(2) of this section, your processing fee is 
$50 for the entire request.
    (i) If you do not remit the processing fee with your request for 
relief, MMS will return your request for relief unprocessed.
    (ii) If you remit a partial processing fee, your request for relief 
will not be processed until you pay the processing fee in full. MMS 
will notify you in writing that your processing fee is insufficient. 
You will have 30 days to remit the balance. If you do not remit the 
balance within the 30-day period, MMS will return your request for 
relief unprocessed.
    (iii) Processing fees, including partial processing fees, are not 
refundable for any reason.
    (iv) See MMS's Marginal Property Guidelines for additional 
instructions on submitting processing fees.
    (c) You must submit notifications, requests, or processing fees 
required under this section to the address specified in MMS's Marginal 
Properties Guidelines.


Sec. 204.211  What will MMS do when it receives my request for 
accounting and auditing relief?

    When MMS receives your request for accounting and auditing relief 
under Sec. 204.210(b), it will notify you as follows:
    (a) If your request for relief is complete, MMS and the State may 
either approve, deny, or modify your request in writing.
    (b) If your request for relief is not complete, MMS will notify you 
in writing that your request is incomplete and identify any missing 
information. You must submit the missing information within 30 days of 
your receipt of MMS's notice that your request is incomplete.
    (1) If you submit all required information, MMS and the State may 
approve, deny, or modify your request for relief;
    (2) If you do not submit the missing information within 30 days, 
MMS will return your request for relief as incomplete.
    (i) If MMS returns your request because it is incomplete, MMS will 
not return any processing fee you submitted with your request.
    (ii) You may submit a new request for relief under this subpart at 
any time after MMS returns your incomplete request. You must also 
submit another processing fee.


Sec. 204.212  Who will decide whether to approve, deny, or modify my 
request for accounting and auditing relief?

    (a) If there is not a State concerned for your marginal property, 
only MMS will decide whether to approve, deny, or modify your relief 
request.
    (b) If there is a State concerned for your marginal property, the 
highest State official having ultimate authority over the collection of 
royalties or the State official to whom that authority has been 
delegated must jointly determine with MMS whether to approve, deny, or 
modify your relief request. States must submit the following minimum 
information to MMS in writing within 30 days of the effective date of 
this rule:
    (1) The name and title of the State official authorized to jointly 
determine with MMS whether to approve, deny, or modify relief requests; 
and
    (2) The name, address, and telephone number of the State contact 
for processing relief requests.
    (c) MMS will not approve your request to use an alternate valuation 
method until the Assistant Secretary for Land and Minerals Management 
approves the request.


Sec. 204.213  How will MMS and the State jointly determine whether to 
approve, deny, or modify my request for accounting and auditing relief?

    If a State determines in advance that it may grant one or more of 
the relief options under this subpart:
    (a) MMS will preliminarily determine whether to approve, deny, or 
modify your relief request and send its preliminary determination to 
the State;
    (b) After the State receives MMS's preliminary determination, it 
must notify MMS in writing within 30 days, or such longer period as MMS 
may allow, of its recommendation to approve, deny, or modify your 
relief request.
    (1) If the State approves your relief request:
    (i) MMS will approve your relief request if MMS's preliminary 
determination was to approve your request;
    (ii) MMS may either approve or deny your relief request if MMS's 
preliminary determination was to deny your request.
    (2) If the State denies your relief request, then MMS will deny 
your relief request.
    (3) If the State approves MMS's modification(s) to your relief 
request, MMS will modify your relief request.
    (4) If the State denies MMS's modification(s) to your relief 
request, MMS will deny your relief request.
    (5) If the State modifies your relief request, MMS will consider 
the modification(s) and will either:
    (i) Modify your request if it approves the State's modification(s); 
or
    (ii) Deny your request if it denies the State's modification(s).
    (c) If the State does not notify MMS of its decision within the 
time period allowed under paragraph (b) of this section, then the State 
is deemed to have agreed with MMS's preliminary determination.


Sec. 204.214  May a State decide in advance that it will not allow 
certain relief options under this subpart?

    (a) A State may decide in advance that it will not allow some or 
all of the relief options specified in this subpart. If it so decides, 
the State must:
    (1) Notify the Associate Director for Royalty Management, MMS, in 
writing, no later than 90 days before the beginning of the applicable 
calendar year, of its intent to disallow one or more of the relief 
options under this subpart; and
    (2) Specify in its notice of intent to MMS which relief option(s) 
it will not allow.
    (b) If a State decides in advance under paragraph (a) of this 
section that it will not allow some or all of the relief options 
specified in this subpart, it may later decide that it will allow some 
or all of the relief options in this subpart. If it so decides, the 
State must:
    (1) Notify the Associate Director for Royalty Management, MMS, in 
writing, no later than 90 days before the beginning of the applicable 
calendar year, of its intent to allow one or more of the relief options 
under Sec. 204.202; and
    (2) Specify in its notice of intent to MMS which relief option(s) 
it will allow.
    (c) MMS will publish a notice of the State's intent to disallow or 
to allow

[[Page 3377]]

certain relief options under this section in the Federal Register no 
later than 60 days before the beginning of the applicable calendar 
year.


Sec. 204.215  How will MMS notify me of the decision to approve, deny, 
or modify my request for accounting and auditing relief?

    MMS will notify you in writing of the decision on your request for 
accounting and auditing relief.
    (a) If MMS and the State approve your request for relief, MMS will 
notify you of the effective date of your accounting or auditing relief 
and other specifics of the relief approved.
    (b) If MMS and the State deny your relief request, MMS will notify 
you of the reasons for denial and your appeal rights under Sec. 204.6.
    (c) If MMS and the State modify your relief request, MMS will 
notify you of the modifications.
    (1) You have 30 days from your receipt of MMS's notice to either 
accept or reject any modification(s) in writing.
    (2) If you reject the modification(s) or fail to respond to MMS's 
notice, MMS and the State will deny your relief request. MMS will 
notify you in writing of the reasons for denial and your appeal rights 
under Sec. 204.6.


Sec. 204.216  What other guidance is available for accounting and 
auditing relief obtained under this subpart?

    MMS will provide additional guidance for accounting and auditing 
relief in MMS's Marginal Property Guidelines.


Sec. 204.217  What if my property ceases to qualify for relief obtained 
under this subpart?

    (a) Your property must qualify for relief under this subpart for 
each calendar year based on production during the base period. The 
notice or request you provided to MMS under Sec. 204.210 for the first 
calendar year that your property qualified for relief remains effective 
for successive calendar years if you continue to qualify.
    (b) If you find your property is no longer eligible for relief 
because production increased in the most recent Base Period, the relief 
for your property terminates as of December 31 of that calendar year. 
By December 31, you must notify MMS in writing at the address provided 
in MMS's Marginal Property Guidelines that the relief for your property 
has terminated.
    (c) MMS may retroactively rescind the relief for your property if 
MMS determines that your property was not eligible for the relief 
obtained under this subpart because:
    (1) You did not submit a notice or request for relief under 
Sec. 204.210;
    (2) You submitted erroneous information in the notice or request 
for relief you provided to MMS under Sec. 204.210 or in your royalty or 
production reports; or
    (3) Your property is no longer eligible for relief because 
production increased, but you failed to provide the notice required 
under paragraph (b) of this section.
    (d) If you took relief under this subpart for a period for which 
you were not eligible, you may owe additional royalties and late 
payment interest determined under part 218 of this title from the date 
your payment was due until the date MMS receives it.


Sec. 204.218  May I obtain accounting and auditing relief for a 
marginal property that benefits from other Federal or State incentive 
programs?

    You may obtain accounting and auditing relief for your marginal 
property under this subpart even if the property benefits from other 
Federal or State production incentive programs.

[FR Doc. 99-1219 Filed 1-20-99; 8:45 am]
BILLING CODE 4310-MR-P