[Federal Register Volume 64, Number 130 (Thursday, July 8, 1999)]
[Rules and Regulations]
[Pages 36782-36784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17238]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 227

RIN 1010-AC51


Change to Delegated State Audit Functions

AGENCY: Minerals Management Service, Interior.

ACTION: Final rule.

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SUMMARY: The Minerals Management Service (MMS) is amending its 
regulations to allow States which choose to assume audit duties to do 
so for less than all of the Federal mineral leases within the State or 
leases offshore of the State.

EFFECTIVE DATES: August 9, 1999.

FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and 
Publications Staff, telephone (303) 231-3432, FAX (303) 231-3385, e-
Mail David.G[email protected].

SUPPLEMENTARY INFORMATION: The principal author of this rulemaking is 
Ms. Shirley Burhop, State and Indian Compliance Division, Royalty 
Management Program (RMP).

I. Background

    This rule amends regulations governing the delegation of royalty 
management duties to States. Section 205 of the Federal Oil and Gas 
Royalty Management Act of 1982 (FOGRMA), 30 U.S.C. 1735, gives MMS the 
authority to delegate audit functions to States. Currently, 10 States 
have entered into the delegation agreements authorized by Section 205.
    Regulations in 30 CFR part 227 implementing the Federal Oil and Gas 
Royalty Simplification and Fairness Act of 1996 (RSFA), Pub. L. 104-
185, as corrected by Pub. L. 104-200, expanded the duties that States 
could assume. Those regulations at 30 CFR 227.101 prescribed that if a 
State wanted MMS to delegate the audit function to the State, then the 
State was required to audit all Federal mineral leases within that 
State and all 8(g) leases offshore of the State. We intended that 
States perform other delegable functions authorized by RSFA for all 
leases within that State and in all 8(g) leases offshore of the State. 
However, we do not believe it is either necessary or desirable in the 
case of the audit function. Typically auditing is done on a sampling 
basis, i.e. not all leases are audited.
    This change allows States which are now delegated audit authority 
under FOGRMA to continue that audit authority without significantly 
altering their staffing, funding, or other operations. By removing the 
requirement that they exercise audit authority over all Federal mineral 
leases within the State, the States will again be able to work with us 
in those cases where State resources do not allow the State to cover 
their entire audit universe. Thus, the State will designate the limits 
of its audit activity each year through an annual audit work plan. This 
wording change will also enable the MMS to continue to assist a State 
in its audit efforts when necessary.

II. Statutory Authority

    Authority for this change is granted by FOGRMA, 30 U.S.C. 1735, as 
amended by RSFA, Pub. L. 104-185, August 13, 1996, as corrected by Pub. 
L. 104-200. Authority regarding solid mineral leases, geothermal 
leases, and 8(g) leases is granted by Pub. L. 102-154.

III. Comments on Proposed Rule

    The proposed rulemaking provided a 60-day public comment period 
which ended April 12, 1999. MMS received comments from one oil and gas 
trade association commenter during the comment period. We reviewed and 
analyzed the comments pertaining to this final rulemaking, and did not 
revise the language of the final rule. The specific comments are 
addressed below:
    Comment--Regarding the Analysis section of the proposed rule 
preamble, the commenter questioned how a State could take on delegated 
functions without adequate staffing or funding. The commenter stated 
that ``the language in the proposed rule controverts the Delegation 
regulations,'' as stated at 30 CFR 227.103.
    Response--The final rule enables States to perform delegated audit 
functions for some or all Federal leases within their State rather than 
being required to assume responsibility for all such leases. Our intent 
is to enable those States which face staffing and funding limitations 
to take on delegated audit duties to the extent they can perform such 
duties with available resources. Current regulations at 30 CFR 227.101 
(1998) require a State to have the resources to audit its entire lease 
universe in order to take on any delegated audit duties.

IV. Procedural Matters

Regulatory Planning and Review (E.O. 12866)

    This document is not a significant rule and is not subject to 
review by the Office of Management and Budget under Executive Order 
12866.
    (1) This rule will not have an effect of $100 million or more on 
the economy. It will not adversely affect in a material way the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities. Requesting States may incur additional costs for 
delegation responsibilities. However, these direct costs will be fully 
reimbursed by the Federal Government in accordance with their annual, 
approved audit plan each year. This rule change does not require the 
States to file any additional information or fees.
    (2) This rule will not create a serious inconsistency or otherwise 
interfere with an action taken or planned by another agency. States 
with delegated audit authority must follow the policies of the 
Department. States will coordinate their audit actions with the Bureau 
of Land Management and MMS.
    (3) This rule does not alter the budgetary effects or entitlements, 
grants,

[[Page 36783]]

user fees, or loan programs or the rights or obligations of their 
recipients. Audits of Federal leases within State boundaries will be 
individually budgeted through an annual work plan proposal the State 
prepares and MMS approves. This is a process we have used effectively 
since 1985 and will continue under the rule.
    (4) This rule does not raise novel legal or policy issues. We have 
had authority to delegate audit duties to States since 1983. 
Historically, States have audited as much of the Federal lease universe 
as practical for each State and MMS audited the remainder. We expect 
these circumstances of operation to continue under this rule.

Regulatory Flexibility Act

    The Department of the Interior certifies that this document will 
not have a significant economic effect on a substantial number of small 
entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
    The major impact of the rule will be on State governments, which 
are not small entities. There will be some effect on the oil and gas 
companies which are subject to audit, as various audit staffs, 
including MMS's Compliance Divisions, State delegations, and Indian 
Tribal delegations, may now audit Federal and Indian leases located 
within a particular State's boundaries. This is no change from the way 
in which MMS and delegated States and Tribes have audited companies in 
the past. As has been done in the past, MMS will continue to coordinate 
audit efforts of the various entities which might be involved in any 
particular audit in order to minimize disruptions to the companies 
being audited.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act. This rule:
    a. Does not have an annual effect on the economy of $100 million or 
more. States would initially incur the expense of delegated audit 
functions and MMS would later reimburse them. The maximum economic 
impact for audit delegation is estimated to be $5.5 million.
    b. Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions. The audit of Federal leases is not a 
function which generates impacts on costs or prices to individuals or 
areas. States will review royalty calculation and payments to enforce 
existing Federal lease terms and royalty policies. States will conduct 
the audits as efficiently and economically as possible in accordance 
with Departmental policies.
    c. Does not have significant adverse effects on competition, 
employment, investment, productivity, innovation, or the ability of 
U.S.-based enterprises to compete with foreign-based enterprises. The 
laws providing for the delegation of audit duties, FOGRMA and RSFA, do 
not provide for any other entity, except tribal governments, to conduct 
these duties.

Unfunded Mandates Reform Act of 1995

    This rule does not impose an unfunded mandate on State, local, or 
tribal governments or the private sector of more than $100 million per 
year. The rule does not have a significant or unique effect on State, 
local or tribal governments or the private sector. The rule does not 
change valuation requirements, impose additional royalty collections or 
require new reporting forms. This rule merely gives State governments 
the option to conduct audits and investigations on less than all of the 
Federal mineral leases within State boundaries or section 8(g) leases 
on the OCS. The Federal Government will fully reimburse States for the 
costs they incur to conduct the audits and investigations in accordance 
with the State's annual, approved audit plan. We expect those costs to 
be no more than $5.5 million per year. County, local, or tribal 
governments will not perform the delegable audit functions on behalf of 
State governments; therefore, they will not be impacted by this rule.
    A statement containing the information required by the Unfunded 
Mandates Reform Act (2 U.S.C. 1531 et seq.) is not required.

Takings (E.O. 12630)

    In accordance with Executive Order 12630, the rule does not have a 
significant takings implication. States seeking audit delegation from 
year to year will propose the level of effort they can expend auditing 
Federal leases. This method of operation will give States first choice 
in cooperatively planning annual work with MMS. This rule does not 
represent a governmental action capable of interference with 
constitutionally protected property rights. A takings implication 
assessment is not required.

Federalism (E.O. 12612)

    In accordance with Executive Order 12612, the rule does not have 
sufficient federalism implications to warrant the preparation of a 
Federalism Assessment. This rule allows States to continue to audit 
selected leases within legal boundaries. It does not alter roles, 
rights or responsibilities of States conducting delegated audits. A 
Federalism Assessment is not required.

Civil Justice Reform (E.O. 12988)

    In accordance with Executive Order 12988, the Office of the 
Solicitor has determined that this rule does not unduly burden the 
judicial system and meets the requirements of sections 3(a) and 3(b)(2) 
of the Order.

Paperwork Reduction Act

    This regulation does not require an additional information 
collection approval under the Paperwork Reduction Act of 1995. There is 
currently in place an approved information collection titled Delegation 
of Authority to States, OMB Control Number 1010-0088, which expires on 
June 30, 2000.

National Environmental Policy Act of 1969

    This rule does not constitute a major Federal action significantly 
affecting the quality of the human environment. A detailed statement 
under the National Environmental Policy Act of 1969 is not required.

Clarity of This Regulation

    Executive Order 12866 requires each agency to write regulations 
that are easy to understand. We invite your comments on how to make 
this rule easier to understand, including answers to questions such as 
the following:
    (1) Are the requirements in the rule clearly stated?
    (2) Does the rule contain technical language or jargon that 
interferes with its clarity?
    (3) Does the format of the rule (grouping and order of sections, 
use of headings, paragraphing, etc.) aid or reduce its clarity?
    (4) Would the rule be easier to understand if it were divided into 
more (but shorter) sections? (A ``section'' appears in bold type and is 
proceeded by the symbol ``Sec. '' and a number heading; for example:


Sec. 227.101  What royalty management functions may MMS delegate to a 
State?

    (5) Is the description of the rule in the ``Supplementary 
Information'' section of this preamble helpful in understanding the 
rule?
    (6) What else could we do to make the rule easier to understand?
    Send a copy of any comments that concern how we could make this 
rule

[[Page 36784]]

easier to understand to: Office of Regulatory Affairs, Department of 
the Interior, Room 7229, 1849 C Street NW, Washington, DC 20240. You 
may also E-mail your comments to this address: E[email protected].

List of Subjects in 30 CFR Part 227

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

    Dated: June 19, 1999.
Sylvia V. Baca,
Acting Assistant Secretary--Land and Minerals Management.
    For the reasons set out in the preamble, 30 CFR part 227 is amended 
as follows:

PART 227--DELEGATION TO STATES

    1. The authority citation for part 227 continues to read as 
follows:

    Authority: 30 U.S.C. 1735; 30 U.S.C. 196; Pub. L. 102-154.

    2. Revise Sec. 227.101 to read as follows:


Sec. 227.101   What royalty management functions may MMS delegate to a 
State?

    (a) If there are oil and gas leases subject to the Act on Federal 
lands within your State, MMS may delegate the following royalty 
management functions for all such Federal oil and gas leases to you 
under this part:
    (1) Receiving and processing production or royalty reports;
    (2) Correcting erroneous report data; and
    (3) Performing automated verification.
    (b) If there are oil and gas leases subject to the Act on Federal 
lands within your State, MMS may delegate the following royalty 
management functions for some or all of the Federal oil and gas leases 
to you under this part:
    (1) Conducting audits and investigations; and
    (2) Issuing demands, subpoenas, and orders to perform restructured 
accounting, including related notices to lessees or their designees, 
and entering into tolling agreements under section 115(d)(1) of the 
Act, 30 U.S.C. 1725(d)(1).
    (c) If there are oil and gas leases offshore of your State subject 
to section 8(g) of the Outer Continental Shelf Lands Act, 43 U.S.C. 
1337 (g), or solid mineral leases or geothermal leases on Federal lands 
within your State, MMS may delegate authority to conduct audits and 
investigations for some or all such Federal leases.

[FR Doc. 99-17238 Filed 7-7-99; 8:45 am]
BILLING CODE 4310-MR-P