[Federal Register Volume 65, Number 116 (Thursday, June 15, 2000)]
[Proposed Rules]
[Pages 37504-37507]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15201]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 206

RIN 1010-AC72


Amendments to Gas Valuation Regulations for Indian Leases

AGENCY: Minerals Management Service, Interior.

ACTION: Proposed rule.

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SUMMARY: The Minerals Management Service (MMS) is proposing to remove 
the special timing requirements for adjustments and audits of royalties 
on gas produced from Indian leases in Montana and North Dakota. These 
timing requirements may force tribal and MMS auditors to expend 
additional time and money or postpone ongoing audits to meet the 
restricted time periods. Removing these timing restrictions should 
increase royalties collected for Indian leases in these States.

DATES: Comments regarding this proposed rulemaking must be received on 
or before July 17, 2000.

ADDRESSES: If you wish to comment, you may submit your comments by any 
one of several methods. You may mail comments to David S. Guzy, Chief, 
Rules and Publications Staff, Minerals Management Service, Royalty 
Management Program, P.O. Box 25165, MS 3021, Denver, CO 80225-0165. 
Courier or overnight delivery address is Building 85, Room A-613, 
Denver Federal Center, Denver, CO 80225. You may also comment via the 
Internet to [email protected]. Please submit Internet comments as an 
ASCII file avoiding the use of special characters and any form of 
encryption. Please also include ``Attn: RIN 1010-ACT72'' and your name 
and return address in your Internet message. If you do not receive a 
confirmation from the system that we have received your Internet 
message, contact David S. Guzy directly at (303) 231-3432.

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

SUPPLEMENTARY INFORMATION: The principal author of this proposed 
rulemaking is Mr. Richard Adamski, Royalty Valuation Division, Royalty 
Management Program (RMP), MMS.

I. General

    On August 10, 1999, MMS published a final rule titled ``Amendments 
to Gas Valuation Regulations for Indian Leases,'' (64 FR 43506) with an 
effective date of January 1, 2000. These regulations apply to all gas 
production from Indian (tribal or allotted) oil and gas leases (except 
leases on the Osage Indian Reservation). The new regulations resulted 
from a negotiated rulemaking among Indian tribes and allottees, the oil 
and gas industry, and MMS.
    MMS's stated purposes for those amendments to the valuation of gas 
production were:
    (1) To ensure that Indian mineral lessors receive the maximum 
revenues from mineral resources on their land consistent with the 
Secretary of the Interior's (Secretary) trust responsibility and lease 
terms; and
    (2) To improve the regulatory framework so that information is 
available which would permit lessees to comply with the regulatory 
requirements at the time that royalties are due.
    Among the newly adopted regulations was a provision at 30 CFR 
206.174(1) requiring that for Indian leases in Montana and North 
Dakota, lessees must make adjustments to reported royalty values 
sooner, and MMS must complete its audits sooner, than either has done 
historically. This provision does not apply to Indian leases in other 
States.
    Under Sec. 2096.174(1), the timing of adjustments and audits 
depends on whether allowances are arm's-length or non-arm's-length. If 
the lessee's royalty value has arm's-length transportation or 
processing allowances, or no allowances, then: (1) The lessee must make 
all adjustments to value within 13 months of the production month; and 
(2) MMS must conclude any audit and order any adjustments to royalty 
value within 12 months after the lessee's adjustment reporting date. If 
the lessee's royalty value has non-arm's-length transportation or 
processing allowances, then: (1) the lessee must make all adjustments 
to value within 9 months of the date the lessee submits the actual cost 
allowance report to MMS; and (2) MMS must conclude any audit and order 
any adjustments to royalty value within 12 months after the lessee's 
adjustment reporting date.
    The final rule limited the adjustment and audit period to Indian 
leases in Montana and North Dakota because, unlike most other producing 
regions, there are no acceptable published indexes applicable to that 
area (64 FR 43510). In areas where this occurs, valuation must be based 
on other criteria which are most difficult to determine than index 
prices. Industry was concerned that if audits were not to occur until 
several years after the production month, any underpayments would 
include substantial late payment charges. The purpose of 
Sec. 206.174(1) was to accelerate the audit schedule to provide more 
valuation certainly for both the lessee and the Indian lessor at an 
earlier date.
    Representatives of Montana and North Dakota tribal and allotted 
lessors strongly oppose these time limits. They believe that the 1-year 
audit period is unreasonable and may compromise MMS's efforts to 
maximize revenues for gas produced from Indian leases consistent with 
its trust responsibility and lease terms. MMS shares the concern that 
in areas that do not have published indexes, auditors must be afforded 
adequate time to take the necessary steps to do quality audits. This 
may be difficult to accomplish under time limits that are absolute.
    MMS and tribal auditors also must retain the discretion to allocate 
audit resources to obtain the best data when that data becomes 
available. Indian representatives from Montana and North Dakota believe 
that time restrictions will force the tribes (especially those tribes

[[Page 37505]]

with audit programs) and MMS auditors to expend additional time and 
funds to complete audits and take other necessary actions within the 
restricted time period. For the most part, the tribes in Montana and 
North Dakota are the least able to bear the costs of such burdens. In 
some cases, this will force the tribes to postpone or abandon on-going 
audits of earlier periods to meet the new deadlines.
    Moreover, upon further consideration, MMS believes the reason for 
placing time limits only on Indian leases in Montana and North Dakota 
(because there are no acceptable published indexes applicable to that 
area) is not compelling. The final Indian gas rule (Sec. 206.172(f) and 
(g)) permits MMS to exclude Indian tribal leases (upon request of the 
tribe) or Indian allotted leases (after consultation with the Bureau of 
Indian Affairs) in any State from valuation under the index-based 
methodology. To Date, MMS has excluded two tribes and two allotted 
groups from valuation under this method. Under Sec. 206.172(f)(1)(i) 
and (g)(1)(ii) of the new regulations, lessees of those tribes and 
allotted groups therefore must value gas produced from those excluded 
Indian leases under 30 CFR 206.174, the same section that governs the 
valuation of gas produced from Indian leases in Montana and North 
Dakota. Yet,the adjustment and audit time limits in Sec. 206174(l) do 
not apply to those excluded leases--they apply only to those Indian 
leases in Montana and North Dakota (64 FR 43510). For this reason, 
representatives of Montana and North Dakota Indian lessors believe that 
to the extent time restrictions and additional burdens were placed on 
the Montana and North Dakota leases alone, they are unfair and 
represent unwarranted disparate treatment.
    Therefore, MMS is proposing to remove Sec. 206.174(1) from the 
regulation. MMS specifically seeks comment on whether there is a valid 
reason for differentiating between leases located in other States and 
leases in Montana and North Dakota when they both may be required to 
use the same valuation standards. MMS also seeks comments on whether 
the time limitations on adjustment and audit could have a negative 
revenue impact on royalties collected from gas produced from Indian 
lands in Montana and North Dakota.

II. Procedural Matters

1. Public Comment Policy

    MMS is limiting the comment period for this proposed rule to 30 
days after the date of publication in the Federal Register rather than 
the standard 60 days. MMS believes a 30-day comment period is adequate 
because the language we propose to remove was recently the subject of 
an extensive comment period. Because this provision did not receive 
extensive comments during that period, and the change we are proposing 
is limited, we believe a 30-day comment period is sufficient.
    Our practice is to make comments, including names and home 
addresses of respondents, available for public review during regular 
business hours and on our Internet site at www.rmp.mms.gov. Individual 
respondents may request that we withhold their home address from the 
rulemaking record, which we will honor to the extent allowable by law. 
There also may be circumstances in which we would withhold from the 
rulemaking record a respondent's identity, as allowable by law. If you 
wish us to withhold your name and/or address, you must state this 
prominently at the beginning of your comments. However, we will not 
consider anonymous comments. We will make all submissions from 
organizations or businesses, and from individuals identifying 
themselves as representatives or officials of organizations or 
businesses, available for public inspection in their entirety.

2. Summary Cost and Benefit Data

    The objective of this proposed rule is to remove the special timing 
requirements for adjustments and audits of royalties on gas produced 
from Indian leases in Montana and North Dakota. We have summarized 
below the estimated costs and benefits of this rule to the three 
affected groups: Indian lessors in Montana and North Dakota, industry, 
and the Federal Government. The cost and benefit information in this 
Item 2 of Procedural Matters is used as the basis for the Departmental 
certifications in Items 3-11.
A. Indian Lessors in Montana and North Dakota
    In 1997, we estimate that auditors collected additional revenues 
amounting to 2 percent of the total royalties paid for gas production 
on certain Indian leases located in Montana.
    In 1999, payors submitted about $420,000 in royalties from gas 
produced from Indian leases in Montana and $49,000 in royalties from 
gas produced from Indian leases in North Dakota. Using 2 percent to 
calculate the additional audit revenues that may be expected for the 
1999 sales year, MMS should collect an additional $8,400 from leases in 
Montana and $980 from leases in North Dakota. We conclude that if 
audits cannot be completed within 1 year of the royalty line 
adjustments timeframes, Indian lessors could potentially lose these 
additional revenues, plus applicable late payment interest, annually.
B. Industry
    This proposed rule will impose no new reporting burdens on 
industry. Industry will benefit from the proposed rule by being able to 
make adjustments to royalty lines beyond the current 1-year period. 
However, industry will pay an undetermined amount of additional 
interest on any underpayments discovered during audits that take longer 
than 1 year to complete.
    Small Business Issues. Approximately 17 entities in Montana and 5 
entities in North Dakota--most of which are small businesses because 
they employ 500 or less employees--pay royalties to MMS on gas produced 
from Indian leases. As discussed above, these 22 entities will pay less 
than $10,000 in additional royalties annually as a result of an 
extended adjustment and audit period. This proposed rule benefits small 
tribes that would otherwise have to hire additional audit staff to 
handle the burden of performing both past and present audits 
concurrently. From this information, we conclude that this rule will 
not have a significant economic impact on a substantial number of small 
entities.
C. Federal Government
    Removing the time limits on audit will help to ensure that Indian 
mineral lessors receive the maximum revenues from mineral resources on 
their land consistent with the Secretary's trust responsibility and 
lease terms.
D. Summary of Costs and Benefits to Affected Groups

------------------------------------------------------------------------
                                           Cost>/Benefit amount
 Description (see corresponding  ---------------------------------------
        narrative above)              First year       Subsequent years
------------------------------------------------------------------------
Indian Lessors in Montana and     $9,380 plus         $9,380 plus
 North Dakota.                     interest.           interest.

[[Page 37506]]

 
Industry........................  $9,380 plus         $9,380 plus
                                   interest>.          interest>.
Federal Government..............  0>................  0.>.
Net Cost> or Benefit............  0>................  0.>.
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3. 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 proposed 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.
    (2) This proposed rule will not create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency.
    (3) This proposed rule will not alter the budgetary effects or 
entitlements, grants, user fees, or loan programs or the rights or 
obligations of their recipients.
    (4) This proposed rule does not raise novel legal or policy issues.

4. The Regulatory Flexibility Act

    The Department of the Interior certifies that this rule 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.). 
See Small Business Issues in Item #2.B. above.
    Your comments are important. The Small Business and Agricultural 
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 
rule, call 1-888-734-3247.

5. Small Business Regulatory Enforcement 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. Will not have an annual effect on the economy of $100 million or 
more.
    b. Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions.
    c. Will 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.

6. Unfunded Mandates Reform Act

    This rule will not impose an unfunded mandate on State, local or 
tribal governments or the private sector of more than $100 million per 
year. The rule will not have a significant or unique effect on State, 
local, or tribal, governments or the private sector. A statement 
containing the information required by the Unfunded Mandates Reform Act 
(2 U.S.C. 1531 et seq.) is not required.

7. Takings (E.O. 12630)

    In accordance with Executive Order 12630, this proposed rule does 
not have significant takings implications. This rule does not impose 
conditions or limitations on the use of any private property; 
consequently, a takings implication assessment is not required.

8. Federalism (E.O. 13132)

    In accordance with Executive Order 13132, this proposed rule does 
not have Federalism implications. This rule does not substantially or 
directly affect the relationship between Federal and State governments 
or impose costs on States or localities.

9. Civil Justice Reform (E.O. 12988)

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

10. Paperwork Reduction Act of 1995

    This proposed rule does not contain an information collection, as 
defined by the Paperwork Reduction Act, and the submission of Office of 
Management and Budget Form 83-I is not required.

11. National Environmental Policy Act

    This proposed 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.

12. 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 preceded by the symbol ``Sec. '' and a numbered heading; for 
example, Sec. 206.174  How do I value gas production when an index-
based method cannot be used?) (5) Is the description of the rule in the 
Supplementary Information section of the preamble helpful in 
understanding the proposed rule? 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 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 the comments to this address: [email protected].

List of Subjects in 30 CFR Part 206

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

    Dated: June 7, 2000.
Sylvia. V. Baca,
Assistant Secretary--Land and Minerals Management.
    For reasons stated in the preamble, MMS proposes to amend 30 CFR 
part 206 as follows:

PART 206--PRODUCT VALUATION

    1. The authority citation for part 206 continues to read as 
follows:

    Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 396a et 
seq., 2102 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1001 et 
seq.,

[[Page 37507]]

1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq., 1331 et seq., 
1801 et seq.


Sec. 206.174  [Amended]

    2. In Sec. 206.174, remove paragraph (1).
[FR Doc. 00-15201 Filed 6-14-00; 8:45 am]
BILLING CODE 4310-MR-M