[Federal Register Volume 64, Number 108 (Monday, June 7, 1999)]
[Proposed Rules]
[Pages 30267-30273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14346]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Chapter II


Review of Existing Regulations

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Review of regulations; request for comment.

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SUMMARY: MMS has been performing annual reviews of its significant 
regulations and asking the public to participate in these reviews since 
1994. The purpose of the reviews is to identify and eliminate 
regulations that are obsolete, ineffective, or burdensome. In addition, 
the reviews are meant to identify essential regulations that should be 
revised because they are either unclear, inefficient, or interfere with 
normal market conditions. As MMS moves towards performance based 
regulations, we are looking at ways to offer regulatory relief to 
industry for exceptional performance. We request your comments and 
suggestions with respect to which regulations could be more performance 
based and less prescriptive.
    The purpose of this document is twofold. First, we want to provide 
the public an opportunity to comment on MMS regulations that should be 
eliminated or revised, or could be more performance based. Second, we 
are providing a status update of the actions MMS has taken on comments 
previously received from the public in response to documents published 
March 1, 1994, March 28, 1995, May 20, 1996, April 24, 1997, and June 
12, 1998. We will only include in this document status updates on 
comments which have not been closed or implemented in the five previous 
status update documents listed above.

DATES: Written comments must be received by August 6, 1999.

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

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

SUPPLEMENTARY INFORMATION: MMS began a review of its regulations in 
early 1994 under the directives contained in the President's Executive 
Order 12866. The Executive Order calls for periodic regulatory reviews 
to ensure that all significant regulations are efficient and effective, 
impose the least possible burden upon the public, and are tailored no 
broader than necessary to meet the agency's objectives and Presidential 
priorities.
    We invited the public to participate in the regulatory review. The 
invitation was sent out via different media, namely a Federal Register 
document dated March 1, 1994 (59 FR 9718); MMS and independent 
publications; and public speeches by MMS officials during that time.
    MMS received approximately 40 public comments which were almost 
equally divided between its Royalty Management and Offshore Minerals 
Management Programs. We acknowledged the comments in a July 15, 1994 
(59 FR 36108), document and set forth our planned actions to address 
the comments, along with an estimated timetable for these actions.
    In the Federal Register notices published March 28, 1995 (60 FR 
15888); May 20, 1996 (61 FR 25160); April 24, 1997 (62 FR 19961); and 
June 12, 1998 (63 FR 32166), MMS: (a) asked for further public comments 
on its regulations, and (b) provided a status update of actions it had 
taken on the major public comments received to date. We received 10 
responses from the 1995 document, 5 responses from the 1996 document, 2 
responses from the 1997 document, and 3 responses from the 1998 
document. A number of the commentators expressed appreciation for our 
streamlining efforts and responsiveness to suggestions from our 
regulated customers.
    This document updates our planned actions and related timetables on 
the major comments received to date. It also solicits additional 
comments from the public concerning regulations that should be either 
eliminated or revised, or could be more performance based. Since some 
of the public responses received in response to prior documents 
contained comments on very specific and detailed parts of the 
regulations, this document does not address every one received. For 
information on any comment submitted which is not addressed in this 
document, please contact Mrs. Montgomery at the number and location 
stated in the forward sections of this document.
    MMS regulations are found at Title 30 in the Code of Federal 
Regulations. Parts 201 through 243 contain regulations applicable to 
MMS's Royalty Management Program; Parts 250 through 282 are applicable 
to MMS's Offshore Minerals Management; and Part 290 is applicable to 
Administrative Appeals.

Status Report

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

A. Offshore Minerals Management (OMM) Program

    OMM is currently reviewing the following 10 sections of OMM 
regulations:
1. Regulations Governing Conservation of Resources and Diligence (30 
CFR 250, Subpart A)
    Comments Received--(a) ``Revise Determination of Well Producibility 
to make wireline testing and/or mud logging analysis optional * * *.'' 
(b) ``* * * consider comments from the 11/30/95 MMS sponsored workshop 
to formulate policy for granting SOP (suspension of production) 
approvals based on host capacity delays, non-contiguous unitization, 
and market conditions/economic viability.''
    Action Taken or Planned--For (a) above, a proposed rule, 
``Postlease Operations,'' revising Subpart A was published on February 
13, 1998 (63 FR 7335). This revision addressed the determination of 
well producibility, and the public was invited to comment on this and 
all areas of the proposed rule. The comment period closed on July 17, 
1998. For (b) above, MMS did consider the comments from the November 
30, 1995, workshop on granting suspensions of production when preparing 
the proposed rule. A final rule is being prepared for publication.
    Timetable--We plan to publish the final rule by mid-summer of 1999.
2. Regulations Applicable to Directional Surveys (30 CFR 250.401, 
Subpart D)
    Comments Received--``Revise directional survey requirements to 
allow a composite measurement-while-drilling

[[Page 30268]]

directional survey to be acceptable * * *.''
    Action Taken or Planned--We are rewriting the regulations governing 
Oil and Gas Drilling Operations, found in 30 CFR Part 250, Subpart D, 
in plain English. During this rewrite, we are making appropriate 
revisions to the regulations. Updating the requirements for directional 
survey requirements is one of the revisions planned for this rewrite.
    Timetable--We plan to publish a Notice of Proposed Rulemaking in 
the fall of 1999.
3. Approval and Reporting Processes for Well-Completion Operations (30 
CFR 250.513)
    Comments Received--``* * * a recompletion operation requires that a 
Well Summary Report MMS-125 be filed within 30 days. Much of this data 
is repetitious of data previously submitted on the Sundry Notice MMS-
124. The process could be changed to provide only data that has 
changed.''
    Action Taken or Planned--We don't plan to change these reporting 
requirements at this time. We're working on plans to implement 
electronic reporting, which will streamline the process and increase 
reporting efficiency.
    Timetable--No plans to change reporting requirements.
4. Safety System Design and Installation (30 CFR 250.122)
    Comments Received--``We believe that the (Safety and Environmental 
Management Program) SEMP/RP 75 Performance Measure process of 
alternative compliance for operators who voluntarily implement RP 75 
and have ``good'' performance should allow those operators to 
periodically update drawings and other documents of production safety 
system installations and routine modifications instead of receiving 
required MMS approval of these documents before any modifications are 
performed (Comment #14 of our July 17, 1996 letter). This is one 
example of the alternative compliance process that we suggest.''
    Action Taken or Planned--This comment expresses an interest for 
regulatory relief in exchange for ``compliance'' with API RP75. This 
industry standard captures the essence of SEMP. On August 13, 1997, MMS 
published a Federal Register notice on SEMP (62 FR 43345). This notice 
publicly relayed our intent to continue collaborative efforts with the 
U.S. offshore oil and gas industry to promote the non-regulatory (i.e., 
voluntary) adoption of SEMP; it simultaneously relayed our intent to 
increasingly focus on operator performance in the field. We made this 
decision after extensive review of the industry's actions to adopt 
RP75. We have seen important strides made in the development of SEMP 
programs by the majority of OCS operators. We have, however, still not 
seen widespread implementation of these programs on offshore 
installations. In the most recent SEMP notice, we asked senior company 
officers to notify MMS when they had ``fully'' implemented SEMP at the 
field level. In our view, ``fully'' means that an operator has 
developed their SEMP plan and has implemented it at enough of their 
offshore installations to commence continuous improvement efforts 
(e.g., SEMP audits). At the end of April 1999, we had received such 
notifications from only eight OCS operators. This fact leads us to 
conclude that SEMP is not yet broadly implemented at the field level. 
Therefore, any requests for regulatory relief in exchange for SEMP 
implementation will need to be made to MMS on an ad hoc basis by 
operators who are prepared to demonstrate, and have us verify, both the 
extent of their SEMP implementation and their field-level performance.
    We have begun the process of revising 30 CFR Part 250, Subpart H. 
The process changes suggested will be considered internally during 
preparation of the Notice of Proposed Rulemaking.
    Timetable--We expect to publish for comment the Notice of Proposed 
Rulemaking for a revised 30 CFR Part 250, Subpart H, at the end of 
1999.
5. Regulations Applicable to Production on the Outer Continental Shelf 
(30 CFR Part 250, Subpart H)
    Comments Received--Production Safety System Testing and Records (30 
CFR 250.124)--``OOC (Offshore Operators Committee) is very much 
interested in working with MMS on a research project beginning in 1997 
to consider appropriate leak rate tolerances for critical safety 
devices (Comment #11 of our July 17, 1996 letter) as well as testing 
frequencies of accurate and reliable new generation safety devices 
(Comment #13 of our July 17, 1996 letter).''
    Action Taken or Planned--MMS initiated a research project in 
September 1997 with Southwest Research Institute which investigated the 
question of leak rate tolerances for critical safety devices. Final 
results from the study should become available to the public in June 
1999. We have also initiated the rulemaking process to revise all of 
Subpart H. As part of this process, we will discuss internally testing 
frequencies for safety devices. Any proposed changes to testing 
frequencies will appear in the Notice of Proposed Rulemaking for 
Subpart H.
    Timetable--We expect the Notice of Proposed Rulemaking for a 
revised Subpart H to appear in the Federal Register for comment at the 
end of 1999.
6. Regulations Governing Safety and Pollution Prevention Equipment 
(SPPE) (30 CFR Part 250.126, Subpart H)
    Comments Received--``Revise regulations governing Safety Valves to 
increase time between test and allowable leakage rates.''
    Action Taken or Planned--As discussed under Item No. 5, MMS 
contracted with Southwest Research Institute in September 1997 to study 
leakage rates for surface and subsurface safety valves.
    Timetable--As noted previously, the final results of the Southwest 
Research Institute Study will be made available this June. Any changes 
to our regulations as a result of this study will be incorporated into 
the Notice of Proposed Rulemaking for 30 CFR 250, Subpart H, projected 
to be published for comment by the end of 1999.
7. Regulations Regarding Construction and Removal of Platforms and 
Structures (30 CFR 250, Subpart I)
    Comments Received--(a) ``Modify platform design wave return period 
calculation by placing a cap of 100 years on the field life calculation 
* * *.'' (b) ``Adopt API RP2A (20th edition) Section 14, Surveys, in 
its entirety * * *.'' (c) ``Revise site clearance requirements * * *.'' 
(d) ``Revise requirements for placing protective domes over well stubs 
* * *,'' etc.
    Action Taken or Planned--For (a), (c), and (d) above, the 
proceedings for the International Workshop on Offshore Lease 
Abandonment and Platform Disposal held in April 1996 were published in 
1997. We will be considering the comments we received from the 
proceedings in drafting a proposed rule on decommissioning. For (b) 
above, Notice to Lessees (NTL 98-4N) was issued on March 4, 1998. It 
contains interim guidance for applying ``Simplified Fatigue Analysis'' 
Procedure from American Petroleum Institute (API) Recommended Practice 
2A (RP2A), Planning, Designing, and Constructing Fixed Offshore 
Platforms, Nineteenth Edition (August 1, 1991), and Twentieth Edition 
(July 1, 1993), and its supplement 1 (February 1, 1997). When the 
Twenty-First Edition is published, we will be reviewing it to decide 
whether or not MMS will adopt it.

[[Page 30269]]

    Timetable--For (a), (c), and (d) above, we plan to publish for 
comment a Notice of Proposed Rulemaking on decommissioning by December 
1999. For (b) above, COMPLETED.
8. Regulations Applicable to Pipelines and Pipeline Rights-of-Way (30 
CFR 250, Subpart J)
    Comments Received--Revise regulations to avoid duplication of 
requirements between the Department of the Interior (DOI) and the 
Department of Transportation (DOT). The following comments were 
submitted on the proposed rule on regulating pipelines which was 
published October 2, 1997 (62 FR 51614): Commentators raised concerns 
about the Notice of Proposed Rulemaking involving technical issues 
affecting the applicability of the rule to producer-operated pipelines. 
The pipelines were either previously subject to DOT regulation under 
terms of the former 1976 Memorandum of Understanding between DOI and 
DOT, or cross into State waters without first connecting to a 
transporting operator's pipeline on the Outer Continental Shelf as 
described in the 1996 Memorandum of Understanding.
    Action Taken or Planned--As stated in our previous Notice, 
``Reviewing Existing Regulations'' (June 12, 1998), a Memorandum of 
Understanding on the pipeline issue between DOI and DOT became 
effective December 10, 1996, and was published in the Federal Register 
on February 14, 1997 (62 FR 7037). Since then, we have published a 
final rule on August 17, 1998 (63 FR 43876) clarifying regulatory 
jurisdiction of producer-operated pipelines that connect to 
transportation pipelines on the Outer Continental Shelf. We are now 
proceeding with a proposed rule that will clarify and resolve the 
technical issues concerning producer-operated pipelines that cross into 
State waters without first connecting to transportation pipelines on 
the Outer Continental Shelf.
    Timetable--We plan to publish the Notice of Proposed Rulemaking 
incorporating comments on the earlier proposed rule by mid-summer 1999.
9. Shallow Hazards Requirements (NTL No. 83-3)
    Comments Received--`` * * * revise (Notice to Lessees) NTL No. 83-3 
which relates to shallow hazards requirements. Industry has requested 
that MMS allow use of navigational positioning equipment in lieu of 
buoying pipelines.''
    Action Taken or Planned--Notice to Lessees (NTL) No. 83-3 has been 
superseded by NTL No. 98-20. In NTL No. 98-20, however, we did not 
address this comment on navigational positioning equipment. We are 
planning to revise NTL No. 98-20, and are in the process of developing 
guidance for navigational positioning equipment technology. In the 
planned revision of NTL No. 98-20, industry may still use buoying, but 
if they choose not to use buoying, the NTL will require the use of 
state-of-the-art navigational systems. This will assure the accuracy 
and safety of anchoring operations in the vicinity of pipelines.
    Timetable--Ongoing.
10. Regulations Applicable to Production Safety System Training (30 CFR 
250.214, Subpart O)
    Comments Received--In response to a June 10, 1997, workshop on the 
development of a performance based training rule, MMS received a 
variety of comments from the oil and gas industry and MMS accredited 
training schools. These comments include: (a) ``Continue to implement 
the current Subpart O training system.'' (b) ``Develop a dual training 
system incorporating elements from both a performance based program and 
MMS's current system.'' (c) ``Companies may neglect training under a 
performance based system.'' (d) ``MMS should use caution when changing 
from the current prescriptive training system * * *.'' (e) ``* * * use 
of a written MMS test may cause employees stress that would lead to 
poor performance on the exams.'' (f) ``* * * hands-on simulator testing 
is an excellent and realistic means of gauging performance. * * * MMS 
may not have the expertise or equipment to properly conduct simulator 
tests.'' (g) ``Hands-on testing should only be conducted onshore, not 
offshore.'' (h) ``How will MMS react to a company that does not train 
its employees but has a good safety record * * *.'' (I) ``This may not 
be the right time to move towards a performance system because of the 
increase in OCS activity and the shortage of trained and experienced 
workers.''
    Activity Taken or Planned--On April 20, 1999, we published for 
comment a proposed rule on a performance based training program which 
relies on industry to design its training programs (64 FR 19318). In 
this proposed rule, ``Training of Lessee and Contractor Employees 
Engaged in Oil and Gas and Sulphur Operations in the Outer Continental 
Shelf,'' we propose to monitor the program through tests and audits. 
The comment period ends July 17, 1999. We have scheduled a public 
workshop on this proposed rule in Houston on June 10, 1999 (64 FR 
23029).
    Timetable--We plan to publish the final rule in the spring of the 
year 2000.
Overview of MMS/Offshore Minerals Management Regulatory Actions
    The Offshore Minerals Management Program has scheduled an ambitious 
program in the coming year for rewriting current rules into Plain 
English and updating them to reflect changing conditions in the energy 
industry. We want to summarize some of the highlights of this rule 
rewriting effort.
     Postlease Operations Safety (30 CFR 250, Subpart A)--Final 
rule to be published by mid-summer of 1999. The rule includes various 
interrelated topics all dealing with postlease operations.
     Coastal Zone Consistency Review of Exploration Plans and 
Development and Production Plans (30 CFR Parts 250 and 204)--Final rule 
to be published by the end of 1999.
     Leasing of Sulphur or Oil and Gas in the Outer Continental 
Shelf--Bonus Payments with Bids (30 CFR Part 256)--Final rule to be 
published by the fall of 1999. This rule allows MMS to require a 
specific payment method for 1/5 of the bonus payment due when we hold a 
sale to lease Federal offshore Outer Continental Shelf lands.
     Producer-Operated Outer Continental Shelf Pipelines that 
Cross Directly into State Waters (30 CFR 250)--Proposed rule to be 
published by summer of 1999. This rule proposes to implement a 
provision of the December 10, 1996, Memorandum of Understanding between 
the Departments of the Interior and Transportation regarding Outer 
Continental Shelf Pipelines.
     Prospecting for Minerals Other Than Oil, Gas, and Sulphur 
in the Outer Continental Shelf (30 CFR Part 280)--Proposed rule to be 
published in the summer of 1999. This rule proposes to specify how to 
conduct Geological and Geophysical prospecting and research for 
minerals other than oil, gas, and sulphur in the Outer Continental 
Shelf under a permit.
     End of Life Royalty Relief for Oil and Gas Leases on the 
Outer Continental Shelf (30 CFR Part 203)--Proposed rule to be 
published by the end of 1999. This rule avoids continuance of royalty 
relief in the presence of noticeable improvement in lease economics and 
market conditions. The rule applies only to new applications and 
approvals, not to existing arrangements.
     Exploration and Development and Production Plans (30 CFR 
Part 250 Subpart B)--Proposed rule to be published by the end of 1999. 
The

[[Page 30270]]

rewrite for this proposed rule will include other plans such as Deep 
Water Operations Plan, Development Operations Coordination Document, 
and Conservation Information Documents.
     Oil and Gas and Drilling Operations (30 CFR Part 250 
Subpart D)--Proposed rule to be published by the end of 1999. This rule 
proposes to restructure the requirements for oil and gas drilling 
operations on the Outer Continental Shelf, remove overly prescriptive 
requirements, and update requirements to reflect changes in drilling 
technology.
     Abandonment of Wells (30 CFR Part 250 Subpart G)--Proposed 
rule to be published by the end of 1999. This proposed rule on 
decommissioning platforms will consider the comments received on the 
proceedings from the International Workshop on Offshore Lease 
Abandonment and Platform disposal held in April 1996.
     Oil and Gas Production Safety Systems (30 CFR Part 250 
Subpart H)--Proposed rule to be published by the spring of the year 
2000. We will write this proposed rule in Plain English and update the 
requirements to reflect current practice in the offshore energy 
industry.

B. Royalty Management Program (RMP)

    RMP is reviewing regulations in the following 14 subject areas:
1. Statute of Limitations and Record Retention
    Comments Received--(a) ``Statute of limitations is unclear.'' (b) 
``Establish a reciprocal 5-year statute of limitations from the date an 
obligation becomes due.'' (c) ``Absence of a record retention program 
creates some confusion. Regulations should require record retention to 
coincide with the 5-year statute of limitations.'' (d) ``the MMS is 
changing processes, developing implementation plans, and preparing 
regulatory changes,'' in doing so, the congressional intent of FOGRSFA 
should be followed to provide certainty and simplicity to lessees.
    Action Taken or Planned--The Federal Oil and Gas Royalty 
Simplification and Fairness Act (FOGRSFA) was signed into law on August 
13, 1996. FOGRSFA contains language to implement a 7-year statute of 
limitations for MMS processes. We are changing processes, developing 
implementation plans, and preparing regulatory changes to comply with 
the requirements of FOGRSFA.
    Timetable--Ongoing.
2. Interest on Overpayments
    Comment received--(a) ``Interest accrual should be equitable 
between the agency and industry.'' (b) ``the MMS should be mindful of 
the congressional intent of simplicity and certainty in promulgating 
any regulations to implement these provisions of FOGRSFA.''
    Action Taken or Planned--FOGRSFA provides for the payment of 
interest on overpayments for oil and gas leases on Federal lands. On 
March 31, 1997, we issued a Dear Payor letter about FOGRSFA's 
provisions involving interest issues. We issued another Dear Payor 
letter on October 1, 1997, explaining interest calculations and 
interest reporting requirements. MMS is designing system changes to 
implement the requirements of FOGRSFA and preparing regulations to be 
published.
    Timetable--We will publish for comment in late 1999, or early next 
year, a Notice of Proposed Rulemaking providing for interest on 
overpayments and underpayments.
3. Interest Assessments
    Comments Received--(a) ``A de minimis provision should be 
established for the assessment of interest.'' (b) ``* * * MMS should 
enhance their existing interest assessment system to allow for the 
offsetting of prior period adjustments made on the MMS Form 2014 before 
calculating applicable interest.''
    Action Taken or Planned--FOGRSFA not only provides for the payment 
of interest on overpayments for oil and gas leases on Federal lands, 
but allows industry to calculate the correct interest assessment. Also, 
FOGRSFA allows interest that has accrued on overpayments to be applied 
to reduce underpayments. We have included billing thresholds in our 
interest system to prevent bills for de minimis amounts. In May 1997, 
we started sending interest statements instead of interest bills, and 
the statements contain totals for interest that MMS owes and for 
interest owed to MMS. MMS is implementing system changes to conform 
with the requirements of FOGRSFA and preparing regulations.
    Timetable--As noted under Item 2, Timetable, we plan to publish a 
Notice of Proposed Rulemaking for comment on payment of interest late 
in 1999 or early next year.
4. Gas Valuation
    Comments received--(a) ``Define gross proceeds more equitably and 
clearly in this ever changing gas marketing environment.'' (b) ``It is 
important that the Federal Gas Valuation Rule final rule not 
discriminate against producers which are affiliated with marketing 
companies and are party to non-arms-length contracts.'' (c) ``* * * 
commends the MMS on their use of negotiated rulemaking process to 
address the valuation of gas. Rule should result in administrative cost 
savings for all parties.'' (d) ``If the Takes vs. Entitlements policy 
stays in effect, MMS should strictly enforce reporting on actual 
quantities taken for all industry participants.'' (e) ``Eliminate 
Transportation and Processing Allowance Forms for Indians.'' (f) ``MMS, 
States, and industry * * * devoted considerable time and expense during 
the REGNEG process and * * * is disappointed that the strong commitment 
of all the respective parties did not result in a valuation methodology 
that MMS can endorse.''
    Action Taken or Planned--For (a) above, on December 16, 1997, MMS 
published a final rule clarifying what deductions may be taken from 
gross proceeds for the costs of transportation under Federal Energy 
Regulatory Commission (FERC) Order No. 636. The rule was effective 
February 1, 1998 (63 FR 65753). For (a), (b), (c) and (f) above, the 
Federal Gas Valuation proposed rule was published in the Federal 
Register on November 6, 1995 (60 FR 56007), and the comment period 
closed on February 5, 1996. In light of the comments received from 44 
entities, on May 21, 1996, MMS reopened the public comment period and 
asked for public comment on five options for proceeding with further 
rulemaking (61 FR 25241). The reopened public comment period closed 
August 19, 1996. MMS reconvened the Federal Gas Valuation Negotiated 
Rulemaking Committee on June 12-14, 1996, and asked the Committee to 
provide input into the five options.
    MMS performed a cost benefit analysis on three viable options for 
proceeding with gas valuation regulations. Given the results of the 
cost benefit analysis ($20 million annual loss in royalties) and 
changes occurring in the gas market, MMS withdrew the proposed 
rulemaking on April 22, 1997 (62 FR 19536).
    For (d) above, FOGRSFA contains language requiring ``takes'' 
reporting for stand alone leases and agreements containing 100 percent 
Federal leases. FOGRSFA also requires ``entitlements'' reporting for 
so-called mixed agreements (agreements containing Federal, State, 
Indian, and/or fee leases) with an exception to use ``takes'' reporting 
for marginal properties. We are changing processes, developing 
implementation plans, and preparing regulatory changes to comply with 
the requirements of FOGRSFA.

[[Page 30271]]

    For (e) above, a proposed rule developed by the Indian Gas 
Valuation Negotiated Rulemaking Committee was published on September 
23, 1996 (61 FR 49894). The Indian Valuation Negotiated Rulemaking 
Committee was reconvened on March 26, 1997. This rule addressed the 
valuation for royalty purposes of natural gas produced from Indian 
leases. The rule proposes to reduce substantially the transportation 
and allowance reporting forms for gas from Indian leases. The proposed 
rule would add a methodology to calculate the major portion value and 
an alternative methodology for dual accounting as required by Indian 
lease terms. The proposed rulemaking would simplify and add certainty 
to the valuation of production from Indian leases.
    Timetable--We plan to publish for comment a Notice of Proposed 
Rulemaking on takes vs. entitlements in 1999. Also in 1999, we plan to 
publish a final rule on Valuation of Gas From Indian Leases.
5. Reporting Procedures and Threshold
    Comments Received--(a) ``Eliminate or streamline MMS Form 2014 
reporting.''
    (b) ``Report prior period adjustments on a ``net'' basis.''
    (c) ``Change estimated payment from lease level to payor level.''
    (d) ``Assess interest at the payor level--for the Indian leases on 
the basis of each Indian Tribe.''
    (e) ``Eliminate Payor Information Form (PIF) Filings. This is an 
unnecessary and costly reporting requirement.''
    (f) ``MMS should modify the regulations and system tolerances/
thresholds so that only those exceptions that are cost beneficial for 
MMS to pursue are generated.''
    (g) ``Set thresholds or tolerances for regulations to save costs to 
both MMS and industry. (Example: Invoices are sent for less than 
$1.00.)''
    (h) ``MMS should not implement regulations until its systems are 
programmed to handle the new regulations.''
    (i) ``* * * the prompt implementation of the recommendations of the 
Royalty Policy Committee Audit and Royalty Reporting and Production 
Accounting Subcommittees will achieve those simplification and 
streamlining goals * * *.''
    (j) The RMP Reengineering Team has recommended 32 reporting changes 
to reduce and simplify reporting and reduce administrative costs for 
both MMS and lessees. MMS should proceed diligently to implement these 
changes.
    (k) We recommend that MMS immediately implement at least a one 
dollar threshold or higher thresholds which would alleviate tremendous 
burden and cost to the government and lessees.
    Action Taken or Planned--Building upon the Royalty Policy 
Committee's earlier study, the RMP Reengineering Team (Team) analyzed 
current information reporting requirements to determine the data 
necessary for future RMP processes. The Team identified opportunities 
for easing reporting burden, avoiding data duplication, decreasing 
error rates, and increasing processing efficiency. The Team developed 
32 reporting changes that are in their report titled ``Preliminary 
Design Concepts of the RMP Reengineering Team.'' If these changes are 
implemented, they will significantly reduce the volume of lines 
reported and processed, minimize errors and related error correction 
workload, simplify reporting, and lower costs for both reporters and 
RMP. The Team's changes generally incorporate or exceed the Royalty 
Policy Committee's recommendations.
    On February 23, 1999 (64 FR 8844), we published a notice of 
information collection solicitation and public meetings for changes to 
the royalty and production accounting reports. At the public meetings, 
which were held in March, we consulted with industry representatives on 
the proposed reporting changes.
    In addition to our reengineering work, we continue to pursue 
shorter range reporting improvements not requiring significant system 
changes. For example, the Payor Information Form MMS-4025 is being 
streamlined to eliminate numerous data fields. Also, many production 
reporting changes are being implemented where redundant or unnecessary 
data collection is identified. We have revised our billing thresholds 
to $100 for bills due on Federal leases and $25 for bills due on Indian 
leases.
    On April 14, 1998 (63 FR 17133), we published a proposed rule 
requesting that all reports be submitted electronically by December 31, 
1998. Electronic submission significantly reduces the amount of time 
necessary for a company to complete the monthly reports and MMS 
processing time, since no manual entry is required.
    Timetable--Ongoing.
6. Refunds Due to Industry Which Are Controlled by Section 10 of the 
Outer Continental Shelf Lands Act
    Comments Received--(a) ``Section 10 refund requirements should be 
eliminated. The refund process used for onshore properties should be 
established for offshore properties.'' (b) * * * we would urge the MMS 
to facilitate elimination of the Section 10 recoupment procedures in 
its entirety. The current practice is administratively burdensome and 
not cost effective for the industry or MMS.'' (c) ``Eliminate 
documentation requirements for refund requests over $250M (million); 
and/or increase this threshold to $500M; raise the refund request limit 
to $5M. Exempt pure accounting adjustments for items such as production 
date adjustments and incorrect AID (Accounting Identification) numbers; 
exempt unit revisions because these revisions are often made more than 
2 years after the date of production; establish a time limit on MMS for 
review of a refund request to expedite the process; and overpayments on 
OCS properties should be allowed to be offset against any OCS 
underpayment.''
    Action Taken or Planned--FOGRSFA repeals the Section 10 refund 
procedures of the OCS Lands Act. On November 25, 1996, we mailed a Dear 
Payor letter with guidelines on refund procedures. We are presently 
developing a proposed rule implementing the new refund procedures.
    Timetable--Ongoing.
7. Electronic Data Exchange
    Comments Received--(a) ``* * * MMS (should) continue their ongoing 
effort to exchange data by electronic means rather than hard copy 
thereby enabling the industry to adjust the data elements to integrate 
with each company's systems.'' (b) ``* * * is looking forward to 
working with MMS to develop an electronic reporting and funds transfer 
system that is both cost effective and efficient for all parties.''
    Action Taken or Planned--We continue to encourage the exchange of 
data electronically. Our Reporter and Payor Training sessions stress 
the benefits of electronic reporting and provide reporters and payors 
with options for reporting by electronic data interchange, diskette, or 
magnetic tape. On April 22, 1997 (62 FR 19497), we published a final 
rule specifying how payments are made for mineral royalties, rentals, 
and bonuses that requires all payments to be made electronically to the 
extent it is cost effective and practical. We also published on April 
8, 1998 (63 FR 17133), a proposed rule to require reporters to submit 
royalty and production reports electronically. Another way we publicize 
electronic

[[Page 30272]]

reporting is on the MMS/Royalty Management Program Internet website.
    Timetable--Reporter and Payor Training sessions are planned for the 
summer of 1999. We plan to publish a final rule on Electronic Reporting 
in 1999.
8. Parameters for Identifying Improper MMS Form 2014 Adjustments
    Comments Received--``The MMS currently inquires as to any variances 
between any Form 2014 adjustments and its original Form 2014 entry that 
exceed $1.00, which is an insignificant amount. It is suggested that 
the MMS's review should be relevant to the amount of the adjustment 
such as a given percentage.''
    Action Taken or Planned--At this time, MMS does not plan to make 
changes in this procedure. We need to ensure accuracy and integrity in 
the accounting systems, and retain precise records for the auditors. In 
our reengineering effort, we are looking at streamlined reporting for 
short- and long-term benefits for MMS and industry.
    Timetable--Ongoing.
9. Publish Final Rules Expeditiously
    Comments Received--``* * * primary recommendation is the 
expeditious completion and publication of pending final rules, for 
example, the proposed rules on administrative offset and limitations on 
credit adjustments, and the proposed rule on payor liability. * * * 
Certainly, publication of the final federal (and Indian) gas valuation 
rule should be facilitated to the maximum extent possible.''
    Action Taken or Planned--We are in the process of finalizing the 
Indian gas valuation rule. As for the final Federal gas valuation rule, 
on April 22, 1997, we published a Notice in the Federal Register (62 FR 
19536) that withdrew the proposed rule because of changes occurring in 
the gas market.
    New language in FOGRSFA will cause a number of changes in the Payor 
Liability rule and the Administrative Offset and Limitations on Credit 
Adjustments rule. We are working to incorporate the effects of FOGRSFA 
in these rules.
    Timetable--Ongoing.
10. The Appeals Process
    Comments Received--``Current appeals process is too long.''
    Action Taken or Planned--FOGRSFA imposed a 33-month time frame for 
the Department of the Interior to decide appeals involving royalties on 
Federal oil and gas leases. This deadline does not apply to appeals on 
royalties involving Indian leases and Federal leases for minerals other 
than oil and gas.
    On October 28, 1996 (61 FR 55607), MMS published a proposed rule 
establishing a 16-month deadline for MMS to decide all appeals to the 
Director, including Indian leases and appeals for royalties on minerals 
other than oil and gas. After MMS' decision, the appellants can further 
appeal to the Interior Board of Land Appeals. The comment period for 
this proposed rule ended on March 27, 1997.
    The Royalty Policy Committee, a Federal Advisory Committee 
reporting to the Secretary, established a subcommittee of State, 
Indian, and industry representatives to study the appeals process. The 
Royalty Policy Committee reported its recommendations to the Secretary 
in March 1997, and the Secretary accepted the recommendations, with 
minor changes, in September 1997. The Department published a proposed 
rule on January 12, 1999 (64 FR 1930), to implement these 
recommendations.
    Timetable--We published a final rule on May 13, 1999 (64 FR 26240), 
to implement the provisions of FOGRSFA related to the 33-month time 
limit to decide oil and gas appeals on Federal leases. We are currently 
reviewing comments on other parts of the proposed rule.
11. Valuation of Coal From Federal Leases
    Comments Received--(a) ``* * * amending this section to allow the 
use of the lessee's arm's length contracts to support the value for a 
nonarm's-length contract would make this section more effective and 
also eliminate the need to use third-party proprietary information in 
many instances.'' (b) ``* * * the use of the lessee's arm's-length 
contracts is the best evidence of the comparable value of any nonarm's-
length sales by the lessee.''
    Action Taken or Planned--The Royalty Policy Committee's Coal 
Subcommittee is reviewing issues related to coal valuation, and we will 
use the Royalty Policy Committee's recommendations to make improvements 
to the coal royalty valuation and reporting procedures and associated 
regulations.
    Timetable--Ongoing.
12. Royalty-in-Kind Alternative
    Comments Received--``urges the MMS to pursue implementation of a 
RIK program as a cost effective alternative.''
    Action Taken or Planned--In 1997 MMS conducted a Feasibility Study 
which examined a series of Royalty-in-Kind (RIK) options, both offshore 
and onshore. Under RIK, the government accepts its royalty share in the 
form of production rather than in value (cash). Based on the Study's 
recommendations, we are presently conducting three pilot projects to 
study the concept.
    Two of the pilot projects are underway. Pilot I is in the State of 
Wyoming where Federal and State crude oil is being taken in kind and 
sold on the open market. Pilot II uses Federal leases in the Gulf of 
Mexico, Texas 8(g) zone (Federal offshore leases adjacent to State 
waters), where natural gas is being taken in kind and part of it sold 
to the General Services Administration (GSA) under an interagency 
agreement for use by Federal agencies. The rest of the gas is being 
marketed in partnership with the Texas General Land office through a 
Cooperative Agreement with the State of Texas. Both these pilots will 
last a minimum of 2 years. Pilot III is scheduled to begin this fall 
and will take RIK gas from offshore Federal leases in the Gulf of 
Mexico. This Pilot will involve the largest volume of the three pilots. 
We expect to sell up to 800 million cubic feet of gas per day, or one 
third of the Federal royalty share of production in the Gulf. As in 
Pilot II, a portion of this gas will be transferred to GSA, and the 
rest sold competitively on the open market.
    We will analyze the results of these three pilots to determine if, 
and under what circumstances, the RIK option can reduce administrative 
costs for government and industry while producing at least as much 
revenue as our current method of collecting royalties in value.
    Timetable--Ongoing.
13. Lessee/Designee
    Comments Received--MMS published an interim final rule on August 5, 
1997 (62 FR 42062), to implement the designation of royalty payment 
responsibility provision of FOGRSFA. Generally, we support the need for 
lessees to submit designations pursuant to FOGRSFA, however they take 
issue with MMS's overall approach to implementing these very important 
provisions of FOGRSFA. Specifically, they object to the need for MMS to 
collect some of the information sought, the level of detailed 
information required by this rule, the burdensomeness of information 
required, and the ability of MMS and the Bureau of Land Management 
(BLM) to utilize information that these bureaus already have and 
maintain. Also, they take issue with MMS's authority to collect the 
information required under the rule from designees (payors).

[[Page 30273]]

    Action Taken or Planned--When the payor remits royalties on behalf 
of the lessee, FOGRSFA requires that the lessee designate the paying 
party as their designee for each lease. The interim final rule 
published on August 5, 1997, implements the requirements of FOGRSFA. We 
have worked with BLM to set up a process to identify operating rights 
owners and changes to operating rights ownership.
    Timetable--Ongoing.
14. Other MMS/Royalty Management Program Regulatory Actions
    Comments Received--(a) ``In order to craft a reasonable, fair, and 
proper (oil valuation) rule, it is imperative that MMS publicly address 
all critical issues prior to the issuance of any final rule so that 
affected persons can participate meaningfully in the rulemaking 
process.''
    (b) ``Congress pushed for delegation of royalty management 
functions to states as a means of streamlining and simplifying the 
process of collection and payment of federal royalties. Despite 
Congress' clear intent however, the final regulations published on 
August 12, 1997 and the standards for delegation published on September 
8, 1997 in no way attempt to achieve that purpose.''
    Action Taken or Planned--The regulations for the Delegation of 
Royalty Management Functions to States were developed in consultation 
with State government representatives and industry. The final rule was 
published on August 12, 1997 (62 FR 43076), and included responses to 
comments we received on the proposed rule. On February 10, 1999 (64 FR 
6586), we published a proposed rule that would allow States which 
choose to assume duties to do so for less than all of the Federal 
mineral leases within the State or leases offshore of the State, 
subject to section 8(g), of the Outer Continental Shelf Lands Act. We 
plan to issue a final rule in 1999.
    On January 24, 1997, we published a proposed rule on Valuation of 
Oil From Federal Leases (62 FR 3742), and on February 12, 1998, we 
published a proposed rule on Valuation of Oil From Indian Leases (63 FR 
7089). We've held numerous public meetings regarding the proposed oil 
valuation rules, and in response to the many comments received in the 
meetings and through the mail, we published the following in the 
Federal Register on the proposed rule, Valuation of Oil on Federal 
Leases:
     Supplementary Proposed Rule (July 3, 1997-62 FR 36030);
     Reopened Public Comment Period and Offered Alternatives 
(September 22, 1997-62 FR 49460);
     Supplementary Proposed Rule (February 6, 1998-63 FR 6113);
     Supplementary Proposed Rule (July 16, 1998-63 FR 38355); 
and
     Reopened Comment Period and Offered Three Workshops in 
Houston, TX; Albuquerque, NM; and Washington, DC (March 12, 1999-64 FR 
12267).
    We are also preparing a Supplementary Proposed Rule for the 
Valuation of Oil From Indian Leases, and plan to publish it in 1999.

Conclusion

    We invite you to comment on our existing regulations and also the 
actions we have taken in response to comments and enacted legislation. 
And, we invite you to stay further informed on many of the topics 
discussed in this status report by visiting the MMS Internet Website at 
www.mms.gov.

    Dated: May 28, 1999.
Lucy Querques Denett,
Director, Minerals Management Service.
[FR Doc. 99-14346 Filed 6-4-99; 8:45 am]
BILLING CODE 4310-MR-P