[Federal Register Volume 65, Number 12 (Wednesday, January 19, 2000)]
[Notices]
[Pages 2981-2983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1104]


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DEPARTMENT OF INTERIOR

Minerals Management Service


Small Refiners Royalty-in-Kind Program

AGENCY:  Minerals Management Service (MMS), Interior.

ACTION:  Notice of availability and sale of Government royalty oil to 
small refiners.

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SUMMARY:  This notice explains how small refiners may apply to 
participate in the sale of Federal royalty oil and the procedures under 
which subsequent contracts will be awarded.

DATES:  All completed applications must be received by the close of 
business (4:00 p.m. Mountain Standard Time) on February 1, 2000. 
Applications received after this date will be rejected. The bid 
proposal, signed contracts, and the surety instrument must be received 
by close of business (4:00 p.m. Mountain Standard Time) on February 8, 
2000. The sale will be held on February 9, 2000.

ADDRESSES:  You may obtain an application to participate in the sale 
(Form MMS-4070, Application for the Purchase of Royalty Oil) directly 
from our web site http://www.rmp.mms.gov/reportingservices/forms/forms.htm or by writing to the Minerals Management Service, Royalty 
Management Program, Attention: Robert F. Prael, MS 3131, P.O. Box 5760, 
Denver, Colorado 80217-5760. You may also request an application by 
calling (303) 231-3217 or by e-mail to [email protected].
    Completed applications must be returned to the same address or sent 
by overnight mail or courier to Minerals Management Service, Royalty 
Management Program, Room A-212, Document Processing Section, Attention: 
Robert F. Prael, Building 85, Denver Federal Center, Denver, Colorado 
80225. Completed applications can also be sent via facsimile to (303) 
231-3219.
    For confidentiality, please put your bid proposal in an envelope 
marked as ``confidential, to be opened only by Todd W. Leneau'' and 
enclose this envelope inside the envelope containing the signed 
contract and surety instrument. Please mail the bid proposal, signed 
contracts, and the surety instrument to: Minerals Management Service, 
Procurement Branch, Attention: Todd W. Leneau, MS 2730, PO Box 25165, 
Denver Federal Center, Denver, CO 80225-0165.

FOR FURTHER INFORMATION CONTACT: Robert F. Prael, Chief, Royalty-in-
Kind Section, at the above address, (303) 231-3217, FAX (303) 231-3219, 
or e-mail at [email protected].

SUPPLEMENTARY INFORMATION:  The Secretary of the Interior has 
determined that sufficient need exists among small refining companies 
to justify taking royalty oil in kind and offering this oil to eligible 
refiners. This notice provides procedures that applicants must follow 
to permit MMS to determine the applicants' eligibility to participate 
in the sale and general terms under which the contracts will be 
awarded.
    This determination of need is based on the following facts:
    (1) Small refiners who purchase crude oil in the Pacific and Gulf 
of Mexico regions have indicated to the MMS that they have concerns 
about the lack of stable access to the marketplace and the premium 
prices they frequently must pay to obtain desired feed stock;
    (2) Small refiners continue to play a prominent role in providing 
military jet fuel to the Department of Defense. This supply of military 
jet fuel and the diversity in suppliers and locations combine to make 
the eligible refiner oil program an important contributor to national 
security;
    (3) The U.S. Small Business Administration encourages program 
continuance in the interest of maintaining a competitive marketplace; 
and 4) Small refiners also provide valuable resources for several 
States and local governments.

    Accordingly, the Secretary has elected to take royalty oil in kind 
from certain Federal leases in the Gulf of Mexico and

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Pacific regions and offer such oil for sale to eligible refiners.

Improvements to the Small Refiner Royalty-in-Kind (RIK) Program

    MMS is making several improvements in the small refiner program 
effective with this sale. These improvements are summarized below:
    (1) Refiners will be reporting and paying based on their delivered 
volumes. In the past, the Royalty Management Program (RMP) billed 
refiners based on volumes reported by operators. This volume in many 
cases had no relationship to the volume delivered to the refiners. The 
difference between deliveries and billings created cash flow problems 
for refiners. Having the refiners pay for what they actually receive 
will eliminate this problem.
    (2) Pricing will be established in the contract. This eliminates 
past problems when refiners were billed for retroactive price 
adjustments and had no means to recover the additional cost through 
their end users.
    (3) We will monitor imbalances between the royalty barrels the 
Government is entitled to receive and the barrels actually received by 
the refiners.
    (4) Administrative fee has been canceled. Because this sale will be 
a competitive bid sale, there is no need for an administrative fee.
    (5) Deliveries of royalty oil will occur at market centers such as 
St. James, etc.

Eligibility Requirements

    For purposes of this sale ``eligible refiners'' will be those 
refiners who meet the criteria for small refiners as defined in the 
U.S. Small Business Administration regulations at 13 CFR part 121 
(75,000 barrels per day refinery capacity and 1,500 employees). An 
eligible refiner may not sell royalty oil that it purchases under an 
RIK contract except for purposes of an exchange for other crude oil on 
a volume or equivalent value basis. Crude oil purchased under an RIK 
contract or received in exchange for such royalty oil must be processed 
into refined petroleum products in the eligible refiner's refinery.
    We will not accept an application from an refiner who is not in 
operation during the 60-day period before the date of the royalty oil 
sale, unless such applicant certifies to MMS that it will begin 
operations by the first month in which oil becomes available under a 
royalty oil contract. Certification could be in the form of a notarized 
statement referencing a current permit to operate from the State or 
local environmental control agency. We will confirm the operating 
status of the applicant's refinery with the Department of Energy and/or 
the U.S. Small Business Administration as appropriate. We will 
terminate the royalty oil contract if operations do not begin by the 
first month in which oil becomes available. In addition, we will 
disallow multiple applications from two or more refiners who are 
affiliated through common ownership or control. Such refiners will be 
limited to one allotment in the allocation of royalty oil.
    An otherwise eligible refiner will not be permitted to participate 
in the sale if, at the time of the sale, that refiner is in arrears on 
payments owed to MMS.

Application Procedures

    Applications must be filed on Form MMS-4070, Application for the 
Purchase of Royalty Oil. The application must be complete and filed 
timely. Improperly completed or late applications will be rejected. We 
will reject any application from a refiner that does not meet 
eligibility criteria established in this notice.
    Applicants are advised that the Federal Oil and Gas Royalty 
Management Act of 1982, as amended, 30 U.S.C. 1701, et seq., provides 
civil and criminal penalties for false or inaccurate reporting. 
Applicants are also cautioned to provide adequate detail on each item 
in the application to preclude rejection of the application from 
further consideration. Any questions concerning the application should 
be directed to the contact listed in the FOR FURTHER INFORMATION 
CONTACT section of this notice. We will provide an information package 
to each applicant who has filed a timely application. This package will 
contain:
    (1) Sale arrangements and procedures;
    (2) The lease locations and approximate quantity and quality of 
royalty oil to be offered from each lease;
    (3) A statement on the contract award processes, surety 
requirements, imbalance procedures;
    (4) A copy of the Federal royalty oil contract; and
    (5) A copy of the regulations governing royalty-in-kind sales.

Sale Information

    Approximately 2,900 barrels per day for the Pacific region and 
82,000 barrels per day for the Gulf of Mexico region of royalty oil 
from selected Federal leases will be offered for sale to qualified 
applicants.
    Royalty oil will be sold based on a competitive bidding process. 
The bid proposal will be based on formulas representing spot market 
prices with premiums added or deductions subtracted. Royalty oil will 
be sold in lease bundles representing groups of leases, oil types, and 
Facility Measurement Points. Refiners will be required to select the 
entire bundle.
    The highest bidder, exceeding or meeting minimum bid, will be 
notified by phone or e-mail and provided a list of properties from 
which to choose. After the highest bidder selects their properties, the 
list of remaining properties will be provided to the next highest 
bidder. This process is continued until all the oil is selected or the 
minimum bid threshold is met. The sale will be a competitive bidding 
process, whereby a minimum bid, for each oil type, near spot market 
prices will be established. If the minimum bid price is not met, MMS 
will have the option to negotiate prices with the highest bidder.
    In the event that an applicant who has participated in the 
allocation process does not execute its contract, or in the event 
substantial quantities of royalty oil sold in this eligible lease sale 
are subsequently turned back to MMS, we may reallocate such oil. 
However, only those refiners who hold ongoing contracts from this sale 
will be allowed to participate in any reallocation, and then only if 
they continue to meet eligibility requirements as set forth in this 
notice and 30 CFR part 208 (1999).
    Questions or additional information on the allocation and 
reallocation procedures should be directed to the contact listed in the 
FOR FURTHER INFORMATION CONTACT section of this notice.

Surety Requirements

    Applicants for royalty oil will be required to provide a surety 
instrument with their bid package. This surety instrument must be an 
MMS-specified surety such as a bond, irrevocable letter of credit, etc. 
The amount of the surety instrument must equal the value of 30 days of 
production that the refiner is bidding on. Once the contract is 
awarded, the surety must be increased to an amount equal to the 
estimated value of royalty oil that could be taken by the purchaser in 
a 99-day period. The increased surety must be received by March 24, 
2000. All sureties must be in a form acceptable to MMS and must include 
any MMS-specified requirements to adequately protect the Government's 
interests. Sureties for unsuccessful bidders will be immediately 
returned to the financial institution. Upon termination of deliveries 
under the contract, MMS will reduce the amount of the surety in amounts 
proportionate to payments

[[Page 2983]]

made by the refiner to fulfill payment obligations.
    If the refiner provides a bond or a certificate of deposit as the 
surety, it must be effective for the entire term of the contract plus a 
6-month reconciliation period. If the refiner furnishes a letter of 
credit as the surety, it must be effective for a 6-month period 
beginning the first day the royalty oil contract is effective, with a 
clause providing for automatic renewal for a new 6-month period. The 
purchaser or its surety company may elect not to renew the letter of 
credit at any monthly anniversary date but must notify MMS of its 
intent not to renew at least 30 days before the anniversary date. We 
may grant the purchaser 45 days to obtain a new surety. If no 
replacement surety is provided, we will terminate the contract 
effective at least 6 months before the expiration date of the letter of 
credit.
    Financial institutions that furnish bonds must be listed in the 
Department of the Treasury's Circular 570. Those institutions that 
propose to furnish letters of credit and certificates of deposit must 
be chartered in the United States and must be acceptable to MMS.

Contract Terms

    The royalty oil contracts will be effective April 1, 2000, and will 
have a 6-month term with an automatic evergreen clause that renews the 
contract for another 6-month term subject to a 90-day termination 
notice by either the refiner or MMS.
    Successful applicants who are awarded royalty oil contracts must 
process that royalty oil, or oil obtained in exchange for the royalty 
oil, in their refineries and may not resell it. If a refiner exchanges 
royalty oil for other crude oil to process in its refinery, it must 
provide full information to MMS, including a copy of the exchange 
agreement within 30 days of the exchange agreement's effective date.

Authority

    These actions are taken according to the provisions of the Outer 
Continental Shelf Lands Act, 43 U.S.C. 1331 to 1356 as amended, the 
Outer Continental Shelf Lands Act Amendments of 1978, 43 U.S.C. 1331 
et. seq., and regulations at 30 CFR part 208.

    Dated: January 12, 2000.
R. Dale Fazio,
Acting Associate Director for Royalty Management
[FR Doc. 00-1104 Filed 1-18-00; 8:45 am]
BILLING CODE 4310-MR-P