[Federal Register Volume 65, Number 179 (Thursday, September 14, 2000)]
[Proposed Rules]
[Pages 55476-55489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23552]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Parts 218, 256, and 260

RIN 1010-AC69


Outer Continental Shelf Oil and Gas Leasing

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Proposed rule.

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SUMMARY: This proposed rule outlines why and how we may issue Outer 
Continental Shelf (OCS) leases after November 2000 with royalty 
suspensions. It also presents a plain-language revision of the existing 
rules for bidding systems and joint bidding restrictions. It does not 
change the current policies on royalty suspensions for leases issued 
before December 2000, though it does add one minor reporting 
requirement for leases issued with royalty suspension.

DATES: We will consider all comments we receive by October 16, 2000. We 
will begin reviewing comments then and may not fully consider comments 
we receive after October 16, 2000.

ADDRESSES: If you wish to comment, you may mail or hand-carry comments 
to the Department of the Interior; Minerals Management Service; Mail 
Stop 4024; 381 Elden Street; Herndon, Virginia 20170-4817; Attention: 
Rules Processing Team (RPT). The RPT's e-mail address is: 
[email protected].
    Mail or hand-carry comments with respect to the information 
collection burden of the proposed rule to the Office of Information and 
Regulatory Affairs; Office of Management and Budget; Attention: Desk 
Officer for the Department of the Interior (OMB control number 1010-
NEW); 725 17th Street, NW., Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Marshall Rose, Economics Division, at 
(703) 787-1536.

SUPPLEMENTARY INFORMATION: The OCS Lands Act (OCSLA) (43 U.S.C. 1331 et 
seq.) is the authority for our regulations governing leasing of oil and 
gas resources on the OCS. Section 8(a)(1) of the OCSLA (43 U.S.C. 
1337(a)(1)) provides authority for the Secretary of the Interior 
(Secretary) to offer leases

[[Page 55477]]

under a variety of bidding systems. This proposed rule describes the 
bidding systems, our joint bidding requirements, a modified rental 
policy, and royalty suspension for certain leases.

Overview

    The regulations at 30 CFR part 260 implement the Secretary's 
authority to encourage leasing competition through the use of 
appropriate bidding-system alternatives and a joint bidding ban among 
certain large companies. Also, these regulations implement the 
Secretary's authority to promote leasing interest in certain areas of 
the OCS through suspension of royalties. They describe:
    (1) The characteristics of various bidding systems that we can use 
at OCS lease sales;
    (2) The criteria for listing a company as a restricted joint 
bidder; and
    (3) Our approach to offering royalty suspension for deep water 
leases.
    Regulations at 30 CFR part 218 cover the rental and minimum royalty 
fees associated with leases.
    Section 303 of the Outer Continental Shelf Deep Water Royalty 
Relief Act (Pub.L. 104-58) 43 U.S.C. 1337(3) (the Act), established 
authority for the Secretary to offer tracts with royalty suspensions 
for a period of time, volume of production, or value of production. 
Section 304 made all deep water (200 meters or greater) leases issued 
between 1996 and 2000 in the western and central Gulf of Mexico (GOM) 
and westernmost part of the eastern GOM eligible for royalty suspension 
for certain volumes of production. In addition to modifying our royalty 
suspension policy and extending it to certain deep water leases issued 
in sales held after November 2000, this proposed rule adds a minor 
reporting requirement at 30 CFR 260.114 for deep water leases issued 
before 2001. It also clarifies and rewrites in plain language current 
rental regulations at 30 CFR 218.151 to provide for lessees to pay 
rental fees during the period of royalty suspension.

Future Royalty Suspensions

    For leases issued after November 2000, we offer incentives in lease 
terms to encourage more exploration and development than would 
otherwise occur in certain domestic areas. Suspension of royalty does 
this, in part, by raising the prospective rate of return relative to 
other domestic and foreign opportunities competing for investment by 
multi-national oil companies. Royalty suspension also may convert 
marginal prospects to profitable ones. Leasing incentives can encourage 
more examination of an important domestic oil and gas province. This 
examination not only improves understanding of the potential in the 
area but also stimulates development of technology necessary to exploit 
resources found there. Also, temporary incentives can promote 
development sooner rather than later by compounding the advantage of 
infrastructure that will be installed on many of the fields recently 
leased in the area.
    Recent leasing experience supports the notion that royalty 
suspensions provide a powerful incentive. MMS issued the large majority 
of GOM deep water leases during the period of leasing with royalty 
suspension volumes mandated by the Act. Of the total of 1,906 central 
GOM leases now active in 800 meters or deeper water, we issued 79 
percent (1,497) during the first 4 years of leasing under the Act. Of 
the total of 1,342 western GOM leases in 800 meters or deeper water, we 
issued 92 percent (1,231) since the Act. However, with so much acreage 
in their inventory, current operators may not be able to assess the 
hydrocarbon producibility of all of the leases they have acquired. Only 
about 40 vessels are currently available to drill in deep water, and 
they each can drill only about four wells per year on average. Many of 
the currently leased deep water tracts may simply be returned 
unexplored. Also, leasing statistics indicate less leasing interest as 
water depth increases, despite the royalty suspension incentives of the 
Act. In water deeper than 2,400 meters, only 15 percent of available 
tracts have been leased in the central GOM planning area. This compares 
with 60 percent of available tracts in water between 200 meters and 
2,400 meters deep in the central GOM. For these reasons, we see value 
in continuing some form of leasing incentive, especially in the deepest 
part of the GOM. But, because of our experience under the Act, we also 
see a need to adjust the deep water leasing incentive to new 
circumstances.
    We expect that generally smaller royalty suspensions than were 
mandated by the Act should suffice for several reasons.
    (a) Oil and gas prices are higher than they have been in at least a 
decade, and many now expect them to remain high for some time.
    (b) The current leasing density in much of the deep water portion 
of the central and western GOM will improve the economics of future 
leases in at least two ways. One, it will build a knowledge base on the 
unfamiliar geology in the GOM deep water. Discoveries on already-leased 
tracts will provide geologic analogs that reduce play risk and the 
uncertainty associated with estimating reserve volumes and production 
characteristics faced by future deep water lessees. Two, it will 
eventually support the installation of critical infrastructure such as 
pipelines and accessible processing capacity. Existing infrastructure 
improves the economics of nearby resources.
    (c) Experience developing already-leased deep-water tracts will 
identify and demonstrate the most effective technologies for operating 
in this challenging environment. Thus, later deep-water projects should 
be more efficient and face less development risk than the pioneering 
projects.
    (d) As explained in the next section, we propose to increase the 
value of a given royalty suspension volume by reducing uncertainty 
about how much royalty relief a lease would ultimately realize. Under 
volumes set in the Act, bidders contend not only with whether a lease 
has producible reserves but also whether production from neighboring 
leases will preempt some or all their royalty relief. We propose to 
eliminate the latter form of uncertainty.
    (e) Finally, we may enlarge the scope of our discretionary royalty 
relief program under 30 CFR part 203, which can supplement the 
incentive provided by royalty suspensions in leasing terms.
    Perhaps the biggest change we propose in this renewal of our 
leasing incentive program is to have flexibility in our pre-production 
royalty suspension lease terms. We plan to do this by reserving to the 
annual lease sale notices the size and scope of the royalty suspensions 
we will offer. The rapid change in the economics of deep water 
development makes rigid leasing incentives inappropriate. Royalty 
suspensions attuned to one set of price and cost expectations become 
unrealistic when price or cost conditions change significantly. If 
costs fall, for instance, not only may old incentive levels provide 
more relief than needed for newer leases but also may undermine general 
support for a program of leasing incentives. On the other hand, if 
market prices for oil and gas show a significant or sustained decline, 
royalty suspensions can be adjusted upward to ensure the appropriate 
level of incentives necessary to sustain deep water activities. Thus, 
we plan to review periodically and, when appropriate, adjust future 
leasing incentives. However, once established, we expect the royalty 
suspension volumes to be in place for at least 3 years to provide 
industry with the certainty needed to

[[Page 55478]]

plan their lease acquisition and bidding strategies.
    To help us design appropriate incentives, we would like comments on 
how best to answer the following questions:
     What factors should we consider, and how should we 
evaluate these factors, when we choose water depths beyond which 
bidders still need leasing incentives in the GOM?
     What elements besides water depth should we consider, and 
how should we consider them, when deciding how much royalty suspension 
to offer on new leases?
     Which of the following leasing policies would encourage 
more domestic investment, given equal expected rates of return, and why 
would it do so? One offering a:
    (a) Substantial royalty suspension volume coupled with higher than 
normal royalty rates (e.g., 20 percent) for additional production 
between specified cumulative production volumes; or
    (b) Modest royalty suspension volume but with only normal lease 
royalty rates for production above the royalty suspension volume?
     Does the likely increase in bid levels and shift of 
uncertainty from government to industry that are associated with 
royalty suspension adversely affect small companies relative to large 
companies?

Lease-Based Royalty Suspension

    Aside from adjusting the size and scope of royalty suspensions with 
which we might issue new leases in deep water, we propose to simplify 
the way we apply royalty suspensions to leases. The following discusses 
the differences between how we apply royalty suspension to leases 
issued between 1996 and 2000 and how we propose to apply royalty 
suspension to leases issued in sales held after November 2000. Under 
current regulations, specific leases are eligible for the royalty 
suspension volumes assigned to a field. With this rule, we propose to 
assign a royalty suspension (RS) volume to individual RS leases. Among 
other things, that would mean the field to which we eventually assign 
the RS lease would not affect how much royalty suspension the lease 
realizes.
    Assigning royalty suspension volumes to a field rather than to a 
lease leaves individual lessees eligible, but uncertain about how much 
royalty suspension they could eventually realize. Fields typically 
consist of multiple leases, so we established allocation rules that 
generally applied the royalty suspension volume to the earliest 
production in the field (first come, first served). If some leases in 
the field produce first, little if any royalty suspension volume may be 
left for other leases. Because the infrastructure should then be 
available for late-producing leases on the field, this result was 
appropriate. But, if different producers on the field develop 
independently, existing infrastructure may not benefit later leases. 
Thus, reserving some royalty suspension for later leases may be vital 
to encouraging full development of some fields. Generally, the prospect 
of having to share an unknown portion of a royalty suspension for a 
field with other leases lessens a bidder's certainty about the value of 
royalty relief on a particular tract. With so many tracts now leased in 
deep water, new leases may face a significant risk that the royalty 
suspension volume on their field will have already been depleted by 
others by the time they reach production stage. The existing rule 
assigned royalty suspension volumes to fields for a variety of reasons 
(see the interim rule in the Federal Register on March 25, 1996, 61 FR 
12023-12026), in part because the size of the mandatory suspension 
volumes was based on the incentive amount needed to encourage field 
development. The Act did not mandate field-sized royalty suspension 
volumes for sales held after November 2000, so we now propose to grant 
royalty suspension volumes to individual leases, without regard to 
field allocation rules.
    Lease-based royalty suspension also eliminates the unavoidable 
complexity associated with a field-based incentive approach. Fields may 
combine leases issued under different lease terms. Some fields may have 
leases issued with the Act's royalty suspension volume (eligible 
leases) and others issued before the Act (pre-Act leases) with no 
royalty suspension. The combination of leases issued under different 
terms obligated us to establish procedures that allocate field-based, 
royalty suspension volumes clearly. Existing regulations at 30 CFR 
260.110(d) use 14 subparagraphs to describe the rules necessary to 
allocate field-based relief among multiple leases and the current 
categories of leases. A field-based incentive approach for new leases 
we issue in sales after November 2000 would require additional 
allocation procedures.
    A lease-based royalty suspension does not eliminate the need for 
allocation rules for fields that combine different categories of 
leases, but it substantially reduces the number and complexity of those 
rules. It achieves this by phasing out the role a field designation 
plays. Leases issued in sales before November 2000 must follow the 
current field allocation rules. Leases issued in lease sales after 
November 2000 will not need field allocation rules. Their RS volume 
stays the same no matter to what field MMS assigns them. Where they 
occur in a field with leases issued in lease sales before November 
2000, we propose special field allocation rules to account for how new 
RS leases affect field suspension volumes. Production from new leases 
that are issued with a lease-based RS volume and that are on fields 
with eligible leases counts against the field-size volume on a first 
come, first served basis. However, unlike the eligible leases, the 
field's RS leases may receive their full RS volume even after the field 
has produced the suspension volumes allowed for eligible leases. This 
is the simplest way to transition into a lease-based RS volume program, 
while remaining consistent with the field royalty suspension program.
    Lease-based royalty suspensions avoid progressive complications 
associated with a field-based approach. A convenient simplification 
used in the existing leasing regulations is that all eligible leases in 
the same field share, on a first come, first served basis, the maximum 
royalty suspension volume available to any lease in the field. This 
simplification avoided windfalls to individual leases and complications 
in allocating the field's volume suspension among individual leases. 
Trying to continue volume suspension incentives on a field basis would 
further complicate our accounting for changes in the economics of 
exploration and development. When we offer leases after November 2000 
with volume suspensions, we intend to issue the leases with sufficient 
RS volumes to fit the economic circumstances prevalent at the time 
without providing an outdated or excessive incentive. This also helps 
MMS to achieve the fair market value mandates of the OCSLA. Flexibility 
to revise RS volumes from time to time means we can identify changes--
in technology, infrastructure availability, price expectations, etc.--
that support a change in the size of royalty suspension. To try to 
account for this flexibility in a field-based, royalty suspension 
volume system would not help MMS achieve its fair market value mandate 
and would compound the allocation complexity mentioned above.
    We designate a deep water lease issued in a sale after November 
2000 with a royalty suspension volume as an RS lease. Where adopted, 
royalty suspension will continue to take the form of zero royalty for 
an explicit volume of production. However, instead of a field-sized, 
royalty suspension volume fixed in regulation within a

[[Page 55479]]

designated water depth interval, we will offer RS leases with a lease-
specific royalty suspension volume published in the Federal Register 
notices that announce each sale. We intend to do an analysis of how 
different royalty suspension volumes affect the economics of various 
development scenarios. That analysis will factor in changes in 
technology and infrastructure availability, as well as the sizes of the 
un-leased fields we foresee in the relevant water depths. To assign the 
appropriate volume to each RS lease, we intend to divide the amount of 
royalty suspension we consider necessary for a development by the 
typical number of participating leases. These RS volumes may vary by 
different water depth demarcations, and leases in some water depths may 
be issued with no volume suspension. We will propose specific 
suspension volumes in the Proposed Notices of Sale published in the 
Federal Register for public comment several months before each sale. 
After weighing any comments, we will establish the appropriate royalty 
suspension volumes for leases sold in that sale. We expect the volumes 
to be in place for sales held over the next 3 years.
    We are currently in the process of determining the appropriate 
royalty suspension volumes for sales in the central and western GOM 
over the next 3 years. Part of this determination involves assessing 
the nature and extent of deep water oil and gas resources that could be 
leased in these sales. This assessment requires speculation about 
resource potential using the most current geologic and geophysical 
information, insight from recent discoveries, and estimates of how much 
remains undiscovered and un-leased. To insure we have the best 
available information on resource potential, we have been working 
collaboratively with industry representatives to identify the potential 
range and size of fields in the deep water GOM. We expect to complete 
our resource interpretations while these draft regulations are under 
public review.
    At this point, we can say we presume that bidders have identified 
and acquired most profitable prospects, at least an ample supply of the 
ones on which they can assess the hydrocarbon potential over the next 5 
to 10 years. Many of the remaining opportunities should be of a fill-in 
nature, especially in all but the deepest water. For this reason, we 
will be considering the merits of focusing incentives for upcoming 
sales on royalty suspension volumes appropriate to subsea developments 
that tie back to host platforms. The industry trade associations, in 
their August 3, 2000, letter to the Director of MMS, noted that many 
future discoveries that are close to existing infrastructure will be 
developed as tie-backs rather than stand-alone facilities because of 
the lower capital investments required. But they also pointed out that 
many companies may choose to develop some close-by fields with stand-
alone facilities. The hosting potential of these close-by facilities 
can supplement the ability of royalty suspensions to improve lease 
profitability. Viewed another way, large stand-alone incentives appear 
unnecessarily costly at a time when remaining prospects will have 
access to already installed infrastructure on recently leased deep 
water tracts.
    To help us evaluate these changes to the leasing program, we would 
like comments and answers to the following questions.
     Do you agree with our observation that a lease-based 
royalty relief program, providing a guaranteed royalty suspension 
volume to each lease regardless of which field it overlies, is 
preferable to a field-based royalty relief program, providing a royalty 
suspension volume to be claimed by the earliest producers on a field?
     Do you share our expectation that royalty suspension 
volumes tailored to a typical tie-back development will promote bidding 
and exploration in the deep water areas that will be available in the 
next several years?
     Is it reasonable to assume between 2 and 3 leases per 
field will be developed as a tie-back?
     What benefits would occur for bidders and lessees if we 
modified the volume suspensions offered on new leases every 3 years as 
opposed to more frequently?

Rental Payments

    Under current rental regulations at 30 CFR 218.151 for OCS leases, 
the obligation to pay rental at the beginning of the lease year ends 
when a discovery is made on the lease. During the time between 
discovery and the start of production, MMS imposes a charge called a 
``minimum royalty,'' which we typically set equal to the rental fee. 
Lessees pay minimum royalties at the end of the lease year. Once 
production begins, the minimum royalty applies if ordinary royalties 
fall below the annual amount associated with the minimum royalty. Thus, 
lessees pay a fee in one form or another for each year they hold a 
tract under lease.
    The term ``minimum royalties'' during production of royalty 
suspension volumes seemed inconsistent with the royalty relief policies 
of the Act. Suspending minimum royalties meant collection of not even a 
holding fee during periods in which no royalty payments were due on 
production. The absence of a holding fee during the royalty suspension 
period on deep water leases has raised some concerns with the 
Department of the Interior's Office of the Inspector General. (See 
Evaluation Report--Opportunity to Increase Offshore Oil and Gas Rental 
Revenues,'' Minerals Management Service, Report No. 99-I-387, March 
1999.)
    In response to those concerns and to reduce confusion, we propose 
to clarify and rewrite in plain language the definition of rentals for 
new leases issued after the effective date of this rule so that the 
same fee applies up to the commencement of royalty payments. After this 
point, minimum royalty obligations apply. In fact, this treatment is 
similar to the way we currently define rentals for net profit share 
leases. Collection of rental or holding fees during royalty suspension 
periods is analogous to their collection during the capital recovery 
period when net profit share leases pay no royalty.

Relief Suspension During High Prices

    Our deep water leasing program has also applied the high oil or gas 
price threshold provision, specified in the Act explicitly for pre-Act 
leases to which we grant royalty suspension under 30 CFR part 203, to 
eligible leases issued under 30 CFR part 260. This provision requires 
payment of full royalties, notwithstanding any remaining royalty 
suspension volume, when market prices rise above prescribed levels or 
thresholds. We anticipate continuing this concept, but in a more 
flexible manner. Again, we intend to follow the general structure 
established by the Act of setting a clear price threshold above which 
royalties must be paid, yet production continues to count against any 
remaining royalty suspension volume. Also, as in the Act, we intend to 
escalate these price thresholds for inflation. But, rather than adopt 
the initial oil and gas price thresholds specified in the Act, we 
reserve the right to adjust these to be consistent with changing cost 
structures in deep water. We may specify in the Federal Register 
``Notice of OCS Lease Sale'' new price thresholds above which full 
royalties are due on the leases sold in that particular sale. We may 
adjust these thresholds sale-by-sale. However, any adjustments would 
apply only to new leases issued at the upcoming sale, not leases issued 
previously. We also may change the price or the period of

[[Page 55480]]

applicable production from a calendar year to a current year, rolling 
average year, monthly or quarterly, either retrospectively or 
prospectively. The Act retroactively applies royalties when prices in 
the previous calendar year exceed the threshold.
    To select initial price thresholds for future lease sales, we will 
focus on recent price history, price forecasts, and a variation of our 
bid adequacy evaluations. Specifically, we will identify price 
increases from expected levels that make royalty suspension a benefit 
unnecessary to potential development sizes. We will do this by 
combining price history and forecasts with current estimates of minimum 
resource sizes necessary to be economic with a typical tie-back 
development.
    To help us evaluate these proposed changes in lease terms, we would 
like comments on and answers to the following questions.
     What effect, if any, would rental obligations during 
periods of royalty-free production have on the way firms plan and 
manage a project?
     Do you agree with our observation that, given current 
costs, technology and development options in deep water and the dynamic 
nature of these factors, the program would benefit from periodic 
adjustments at the time of lease sales in price thresholds for new 
leases?
     Do you believe that adjustments in royalty obligations, 
other than retroactively for the previous calendar year are desirable? 
If so, why and what is the nature of the preferred adjustments?
     Do you agree with our preliminary findings that the 
applicable price thresholds should be 10 to 15 percent below the levels 
currently applicable under the Act, e.g., $28 rather than $31 per 
barrel for oil, and $3.45 rather than $3.90 per million British thermal 
units?

Change to Royalty Suspension Policy for Eligible Leases

    One final item of note is a proposed requirement that a lessee with 
eligible leases issued with a royalty suspension volume notify the MMS 
Regional Supervisor for Production and Development before starting 
production. We would add this new provision to otherwise unchanged 
regulations covering eligible leases. Such notification would ensure 
that we can timely identify how much suspension volume is used by 
individual leases. The new provisions increase the variety of volume 
suspensions that fields may have as well as the amounts attributable to 
individual leases in the same field. In this situation, it is prudent 
to validate royalty suspensions at the time of initial lease 
production.
    To help us evaluate this proposed change, we would like comments 
and answers to the following question:
     Does this additional notification step impose any 
meaningful burden on lessees?

Citation Correction in Part 256

    In addition, we are correcting a citation error in Sec. 256.40 that 
we discovered in developing the proposed part 260 regulations which 
reference this section.

Simplification of Valuation Basis

    Finally, we take this opportunity to drop a reference in the new 
Sec. 260.111, to the discontinued ceiling price provisions in other 
parts of the CFR.

Summary of Proposed Changes

    To summarize, this proposed rule would adopt plain-language 
phrasing and would implement the system described above by changing the 
existing rules in five places.
     In Sec. 218.151, we would add language to specify the 
rental policy for leases issued in sales after November 2000.
     In Sec. 260.102, we would add definitions for RS leases 
and enhance the existing definition for eligible leases to be clear 
that it refers to leases issued between 1996 and 2000. Also, we would 
move the definition of a pre-Act lease from the existing 
Sec. 260.110(d)(9) to Sec. 260.102.
     We would renumber the old Secs. 260.110(a)-(d) and 
Sec. 260.111 as Secs. 260.112-260.117 and Sec. 260.130.
     We would add a new Sec. 260.114(c) requiring notification 
of start of production by eligible leases.
     Finally, we would add new Secs. 260.120-260.124 to explain 
the basic principles we will follow in future lease sale notices when 
describing how royalty suspension applies to RS leases. Sections 
260.112-117 and 260.120-124 are similar but separate to facilitate 
referencing in leasing documents for RS leases as opposed to those for 
eligible leases, and to facilitate future changes we may make in the 
regulations for future leases. Also, the separation serves to highlight 
the shift from a rigid field-based, to a flexible lease-based, royalty 
suspension policy that we propose. The proposed rules assume RS leases 
receive the royalty suspension volume with which we issue them (except 
if prices rise enough to trigger payment of royalties). Eligible leases 
do not have that assurance, only the eligibility to share in a field's 
royalty suspension volume.

Procedural Matters

Public Comment Procedure

    Our practice is to make comments, including names and home 
addresses of respondents, available for public review during regular 
business hours. Individual respondents may request that we withhold 
their home address from the record, which we will honor to the extent 
allowable by law. There may be circumstances in which we would withhold 
from the 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 comment. We will not consider any 
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.

Regulatory Planning and Review (Executive Order 12866)

    According to the criteria in Executive Order 12866, this rule is a 
significant regulatory action. The Office of Management and Budget 
(OMB) makes the final determination under Executive Order 12866.
    a. This rule will not have an annual economic effect of $100 
million or adversely affect an economic sector, jobs, the environment 
or other units of government. This action is a plain-language rewrite 
of current rules and clarification of policies that may be employed for 
issuing leases with royalty suspensions in lease sales held after 
November 2000. There is no assurance that the leasing system option 
provided in this rule will be used in all future offshore sales. For 
instance, sustained high prices or a shortage of unleased tracts may 
cause us to discontinue leasing incentives. Even when used, the leasing 
system option in this rule will not change substantially the net 
economic value of production from leases eligible for royalty 
suspension volumes. Royalty suspension should lead to higher bonuses 
because future production will be more profitable. Also, more tracts 
should receive bids because royalty relief makes smaller, more remote 
fields potentially profitable. But, because the government collects the 
fair market value of a tract in the up-front bid, the risk that the 
tract will not prove productive is shifted entirely to the bidder. We 
do not expect bonus bids to fully offset the anticipated royalty 
savings on a specific tract. Since these offsetting effects on revenue 
will play out over an extended period and

[[Page 55481]]

involve uncertainties that will be assessed differently by the 
different bidders, we cannot predict the ultimate effect on government 
receipts. Most of the more prospective tracts have been leased already 
and the incentives we envision for the next several years are smaller 
than those mandated by the Act. Thus, we don't expect to see the level 
of bidding activity experienced in the last 5 years, nor the same level 
of future royalty reduction. At this point we can say that deep water 
royalty relief will serve primarily to accelerate the timing of 
production and redistribute realization of fair market value from 
royalty to bonus collection. As royalty suspension volumes are an 
incentive to production, they likely encourage timely exploration in 
hope of finding reserves, since royalty relief has no value unless and 
until production occurs. This acceleration will have a beneficial 
effect on offshore oil industry production and jobs in the near term.
    b. This rule will not create inconsistencies with other agencies' 
actions because there are no changes in requirements from the existing 
rule.
    c. This rule is an administrative change that will not affect 
entitlements, grants, user fees, loan programs, or their recipients. 
This rule has no effect on these programs or rights of the programs' 
recipients.
    d. This rule will raise novel legal or policy issues. Although this 
action is basically the rewrite of an existing rule in plain language 
and sets up a more flexible framework to continue current royalty 
suspension policies for future sales, it comes at a time when oil and 
gas prices are unusually high. Some may question the need to continue 
leasing incentives. We believe royalty suspension remains necessary in 
a scaled-down and more flexible format because prices can fall as well 
as rise. Also, a continued program reduces disruptions associated with 
an abrupt termination of incentives and resultant pressure to continue 
the rigid, outdated and expiring terms of the Act.

Regulatory Flexibility (RF) Act

    The Department certifies that this proposed rule would not have a 
significant economic effect on a substantial number of small entities 
under the RF Act (5 U.S.C. 601 et seq.). The provisions of this rule 
will not have a significant economic effect on offshore lessees and 
operators, including those that are classified as small businesses. The 
rule will authorize royalty relief to certain OCS leases awarded in 
sales held after November 2000. New regulatory provisions will offer 
firms, large and small, economic incentives to acquire and develop deep 
water leases in the GOM.
    Companies that extract oil, gas, or natural gas liquids or are 
otherwise in oil and gas exploration and development activities acquire 
the vast majority of leases offered at OCS lease sales and will be most 
affected by this rule. The Small Business Administration (SBA) defines 
a small business as having:
     Annual revenues of $5 million or less for exploration 
service and field service companies.
     Fewer than 500 employees for drilling companies and for 
companies that extract oil, gas, or natural gas liquids.
    Under the Standard Industrial Classification code, 1381, Drilling 
Oil and Gas Wells, MMS estimates that a total of 1,380 firms drill oil 
and gas wells onshore and offshore. The group most affected by this 
rule is the approximately 130 companies that are offshore lessees/
operators. According to SBA criteria, 39 companies qualify as large 
firms, leaving up to 91 companies that may qualify as small firms with 
fewer than 500 employees. However, because of the extremely high cost 
and technical complexity involved in exploration and development in 
deep water, the vast majority of lessees/operators that will be 
affected by this rule will be large companies. Nineteen of the 26 
lessee/operators that have registered a total of 211 discoveries by 
mid-year 2000 in deep water (200 meters and greater) are not small and 
these 19 large firms account for over 91 percent of the total 
discoveries. The proposed rule envisions limiting incentives to deeper 
water (800 meters and greater) than the Act, where the presence of 
large firms is even more prevalent. Virtually all of the prospective 
tracts in the part of deep water where small firms traditionally 
operate are already under lease.
    This rule would add costs in two areas where there are no costs 
under the existing rules and the deep water royalty relief terms 
associated with eligible leases. First, lease terms for eligible leases 
suspended all payments, including rents and minimum royalties, after 
start of production on the lease and until the mandated royalty 
suspension volumes were fully produced. This rule would require that 
lessees of leases issued in sales after the effective date of this rule 
must continue to make annual rental payments after a discovery until 
established suspension volumes have been produced and lessees begin to 
make royalty payments on production at the lease-stipulated royalty 
rate. Rentals would replace minimum royalties between discovery and 
start of production for those leases. Experience to date (mid-2000) 
shows that only three leases issued with the royalty suspension terms 
set by the Act have gone into production. One of these three operators 
is a small business, and the other two might be. If that experience 
continues for leases issued after this rule, we might expect that 
perhaps one such lease may produce by 2004, and two more might produce 
by 2005. Thus, these new leases, irrespective of the size of the 
lessee, may owe extra rentals ($43,200/lease/year) of $172,800, or an 
average over the next 5 years of just below $35,000/year. This estimate 
presumes that these leases will pay rentals instead of ``minimum 
royalties'' between discovery and start of production.
    Second, the rule would add the requirement that owners of eligible 
leases notify MMS prior to initiating production on the leases. We 
estimate it will take an operator one-half hour to draft, finalize, and 
send such a notification letter. We envision that this letter will be 
very brief and give only pertinent data such as lease number, area/
block, date production is scheduled to commence, and language 
requesting confirmation of the amount of royalty relief applicable. We 
currently have six eligible leases with approved Development Operations 
Coordination Documents (DOCD) and 264 eligible leases with approved 
Plans of Exploration (POE). For this analysis, we assume that:
    (1) All six leases with approved DOCDs will commence production 
within the first 5 years;
    (2) Thirty percent (79) of the 264 leases with approved POEs will 
drill a discovery well; and
    (3) Twenty-five percent (20) of those leases with a discovery well 
will obtain a DOCD and commence production. Based on these assumptions, 
we estimate that a total of 26 eligible leases will commence production 
within the next 5 years.
    At an estimated paperwork cost of $50 per hour or $25 per 
notification, the total estimated cost of the notification requirement 
for the first 5 years in which the rule is in effect is $650 or $130 
per year.
    Thus, total estimated incremental costs associated with this 
proposed rule are slightly below $35,000 per year on average through 
2005. The annual cost will be spread among lessees whose eligible 
leases commence production and eventually among leases issued after 
this rule becomes effective and that produce with a royalty suspension. 
Based on the ratios found above, small

[[Page 55482]]

business may incur one-tenth to one-third of this incremental cost. The 
annual cost for a small business with a producing royalty suspension 
lease paying rental and several eligible leases commencing production 
could be approximately $44,000 per year. It is clear, however, that the 
magnitude of the costs do not impose a significant economic effect on a 
substantial number of small business entities engaged in multi-million 
dollar drilling and development activities.
    Further, any costs associated with the rule must be viewed in light 
of the substantial economic benefits to be gained from the suspension 
of royalty payments on the established volume of production. While 
estimated averaged annual costs are just under $35,000 per year through 
2005, lessees that produce stand to gain tens of millions of dollars in 
royalty relief from the rule. For example, the standard royalty portion 
(\1/8\) of say an eight MMBOE royalty suspension volume is worth 
between $20 and $30 million at current oil and gas prices. Again, small 
business may claim one-tenth to one-third of this benefit. The 
potential benefit of royalty relief to a small business can be as high 
as $5 million/year, far outweighing the $44,000 maximum cost/year for a 
small business operating in deep water.
    Your comments are important. The Small Business and Agriculture 
Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were 
established to receive comments from small businesses about Federal 
agency enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to small 
business. If you wish to comment on the enforcement actions of MMS, 
call toll-free (888) 734-3247.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

    This proposed rule is not a major rule under the SBREFA, 5 U.S.C. 
804(2). This rule:
    a. Does not have an annual effect on the economy of $100 million or 
more. This rule rewrites the existing rule and clarifies royalty 
suspension policies for future sales. This rule does not specify exact 
royalty suspension parameters, but describes concepts that we will 
follow in determining sale-specific royalty suspensions for designated 
tracts. While royalty suspension volumes for future sales are not 
likely to be as high as the current levels specified in the Act, they 
will still provide meaningful benefits to large and small business 
lessees.
    In general, royalty suspension redistributes revenues--royalty 
payments decline during the royalty suspension period, while bonus 
payments before exploration and tax payments due on extra income to the 
lessee during the royalty suspension period increase. To benefit from 
the royalty suspension, the lease must produce. Because only a fraction 
of tracts leased ultimately produce oil and gas, a relatively small 
number of tracts actually receive a royalty suspension. To determine 
the annual effect of the royalty relief system on the economy, both the 
effects on bonus bids and future royalties need to be considered. For 
purposes of illustration, consider the experience from sales where 
leases have had time to run the course of the original lease term. Data 
for leases issued during the period 1983 to 1988 (when no royalty 
suspension volumes were offered but also when many of the best 
prospects were leased) show that, on average, only about 15 percent go 
into production. Also, estimates for sales between 1996 and 2000 
suggest that bidders bid about a $500,000 premium per royalty 
suspension lease. Using a ratio of seven leases issued for every one 
(15 percent) that produces, the Government can expect to collect 
perhaps $3.5 million in extra bonus revenues for each lease that uses a 
royalty suspension. If royalty suspension causes some leases to be bid 
on that otherwise would not be, the Government would collect even more 
extra bonus. Unfortunately we have no good estimates of this second 
kind of extra bonus. Nonetheless, the extra bonus from the seven-plus 
leases will be offset by collection of about $20 million less in 
royalties from the one that produces (e.g., \1/8\ of eight MMBOE times 
$20/BOE over the production period (e.g., 2010 to 2020). If extra taxes 
reclaim about \1/4\ of the royalty cost savings, those are comparable 
sums on a present value basis (e.g., 7  x  $0.5 approximately = $20 
(1-$0.25)  x  0.26 where 0.26 is a discount factor for payments 
received 10 to 20 years in the future). Thus, even when scaled up to 
cover sales of hundreds of leases in any one year, this rule 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. Oil prices are not based on the 
production from any one region, but are based on worldwide production 
and demand at any point in time. While gas prices are more localized, 
they correlate to oil prices. The rule does not change any existing 
leasing policies, so it should not cause prices to increase.
    c. Does not have significant adverse effects on competition, 
employment, investment, innovation, or the ability of United States-
based enterprises to compete with foreign-based enterprises. Leasing on 
the United States OCS is limited to residents of the United States or 
companies incorporated in the United States. This rule does not change 
that requirement, so it does not change the ability of United States 
firms to compete in any way.

Unfunded Mandates Reform Act (UMRA)

    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. The rule describes the existing 
regulation in ``plain language'' and clarifies royalty suspension 
policies for OCS lease sales held after November 2000. A statement 
containing additional UMRA (2 U.S.C. 1531 et seq.) information is not 
required.

Takings Implications Assessment (Executive Order 12630)

    According to Executive Order 12630, the rule does not have 
significant Takings Implications. A Takings Implication Assessment is 
not required because the rule would not take away or restrict a bidders 
right to acquire OCS leases.

Federalism (Executive Order 13132)

    According to Executive Order 13132, this rule does not have 
Federalism implications. This rule does not substantially and directly 
affect the relationship between the Federal and State Governments. This 
rule affects the collection of royalty revenues and rentals from 
lessees in the deep water GOM, all of which are outside State 
jurisdiction. States have no role in this activity with or without this 
rule. This rule does not impose costs on States or localities. States 
and local governments play no part in the administration of the deep 
water royalty relief or rental programs.

Civil Justice Reform (Executive Order 12988)

    According to 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.

[[Page 55483]]

Paperwork Reduction Act (PRA)

    The proposed revisions to 30 CFR parts 218 and 256 do not contain 
any information collection subject to the PRA and do not require that a 
form OMB 83-I be submitted to OMB for review and approval under 
Sec. 3507(d) of the PRA.
    The proposed revisions to 30 CFR part 260 contain information 
collection subject to the PRA, and a form OMB 83-I has been submitted 
to OMB for review and approval under Sec. 3507(d) of the PRA. The 
proposed revisions also contain references to approved information 
collection requirements in 30 CFR parts 203 and 256. OMB control 
numbers for the information collections in parts 203 and 256 are 1010-
0071 and 1010-0006.
    The title of the collection of information for the revised part 260 
is ``30 CFR 260--Outer Continental Shelf Oil and Gas Leasing'' (OMB 
control number 1010-NEW). Respondents include approximately 130 Federal 
OCS oil and gas lessees. The frequency of response is on occasion. 
Responses to this collection of information are required to obtain or 
retain a benefit. MMS will protect proprietary information according to 
the Freedom of Information Act and 30 CFR 250.196, ``Data and 
information to be made available to the public.''
    This rulemaking imposes only one new information collection burden. 
Under Sec. 260.114(c), respondents must notify MMS of their intention 
to begin production, and they must request confirmation of the size of 
the royalty suspension volume that applies to their eligible lease. We 
estimate the burden to be one-half hour per notification, and that we 
would receive five-to-six notices annually. MMS will use the 
information collected to avoid errors about the shares of the royalty 
suspension volume for a field available to individual leases on the 
field.
    The current part 260 regulations contain a provision for a lessee 
or other affected lessees to request reconsideration of MMS's 
assignment of a lease that has a qualifying well to an existing field 
or designate a new field (current Sec. 260.110(d)(2)). At the time the 
current regulations were drafted, appeals and reconsiderations were 
considered exempt under the PRA. In the proposed part 260, 
Secs. 260.114 and 260.124 contain this same provision. However, appeals 
and reconsiderations are no longer considered exempt, and our 
submission to OMB for information collection approval also includes the 
estimated burden for these sections. We estimate the burden can range 
between 80 and 1,000 hours per request for reconsideration. That wide 
range reflects the fact that fields can underlie from 1 to more than 10 
leases, can include from one to several dozen reservoirs, or can 
require simple to complex geological and geophysical interpretations. 
Because a favorable field assignment can save a lessee tens of millions 
of dollars in royalties, we may get as many simple as complex appeals. 
For purposes of estimating burden, we assume that we receive three or 
four annually, uniformly spread over the simple to complex range with 
an average burden of 400 hours. MMS uses the information collected to 
reconsider and adjust, if necessary, the initial field assignment for a 
lease.
    We estimate the total annual reporting ``hour'' burden for the 
proposed 30 CFR part 260 regulations to be about 1,600 hours. There are 
no recordkeeping requirements.
    As part of our continuing effort to reduce paperwork and respondent 
burdens, MMS invites the public and other Federal agencies to comment 
on any aspect of the reporting burden in part 260. You may submit your 
comments directly to the Office of Information and Regulatory Affairs, 
OMB. Send a copy of your comments to MMS. Refer to the ``Addresses'' 
section for mailing instructions. MMS will summarize written responses 
to this notice and address them in the final rule preamble. All 
comments will become a matter of public record.
    The PRA provides that an agency may not conduct or sponsor and a 
person is not required to respond to a collection of information unless 
it displays a currently valid OMB control number. In order for MMS to 
have final regulations in effect before the final notice of the next 
lease sale, the comment period on this NPR is limited to 30 days. OMB 
may make a decision concerning the collection of information contained 
in these proposed regulations after. Therefore, a comment to OMB is 
best assured of having its full effect if OMB receives it by October 
16, 2000.
    1. MMS specifically solicits comments on the following questions:
    (a) Is the proposed collection of information necessary for MMS to 
properly perform its functions, and will it be useful?
    (b) Are the estimates of the burden hours of the proposed 
collection reasonable?
    (c) Do you have any suggestions that would enhance the quality, 
clarity, or usefulness of the information to be collected?
    (d) Is there a way to minimize the information collection burden on 
those who are to respond, including the use of appropriate automated 
electronic, mechanical, or other forms of information technology?
    2. In addition, the PRA requires agencies to estimate the total 
annual reporting and recordkeeping ``non-hour cost'' burden resulting 
from the collection of information. We have not identified any such 
burdens.

National Environmental Policy Act (NEPA) of 1969

    This rule does not constitute a major Federal action significantly 
affecting the quality of the human environment. A detailed statement 
under the NEPA is not required.

Government-to-Government Relationship With Tribes

    According to the President's memorandum of April 29, 1994, 
``Government-to-Government Relations with Native American Tribal 
Governments'' (59 FR 22951) and 512 DM 2, we have determined that there 
are no effects from this action on federally recognized Indian tribes.

Clarity of this Regulation

    Executive Order 12866 requires each agency to write regulations 
that are easy to understand. We invite your comments about how to make 
this rule easier to understand, including answers to questions like the 
following:
    (1) Are the characteristics of the alternative bidding systems 
clearly stated?
    (2) Is the approach for granting royalty suspension to post-2000 
leases clearly described?
    (3) Are the requirements to be listed as a restricted joint bidder 
clearly stated?
    (4) Does the rule contain technical language or jargon that 
interferes with its clarity?
    (5) Does the format of the rule (grouping and ordering of sections, 
use of headings, etc.) increase or reduce its clarity?
    (6) Would the rule be easier to understand if it were divided into 
more, but shorter sections?
    (7) Is there anything else we can 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, N.W., Washington, D.C. 
20240. You may also e-mail your comments to [email protected].

[[Page 55484]]

List of Subjects

30 CFR Part 218

    Continental shelf, Mineral royalties, Public lands--Mineral 
resources.

30 CFR Part 256

    Administrative practice and procedure, Continental shelf, 
Environmental protection, Government contracts, Mineral royalties, Oil 
and gas exploration, Pipelines, Public lands--mineral resources, Public 
lands--rights-of-way, Reporting and recordkeeping requirements, Surety 
bonds.

30 CFR Part 260

    Continental shelf, Mineral royalties, Oil and gas leasing, 
Reporting requirements.

    Dated: August 31, 2000.
Sylvia V. Baca,
Assistant Secretary, Land and Minerals Management.
    For the reasons stated in the preamble, the Minerals Management 
Service (MMS) proposes to amend 30 CFR parts 218, 256, and 260 as 
follows:

PART 218--COLLECTION OF ROYALTIES, RENTALS, BONUSES AND OTHER 
MONIES DUE THE FEDERAL GOVERNMENT

    1. The authority citation for part 218 continues to read as 
follows:

    Authority: 25 U.S.C. 396 et seq., 396a et seq., 2101 et seq.; 30 
U.S.C. 181 et seq., 351 et seq., 1001 et seq., 1701 et seq.; 31 
U.S.C.A. 3335; 43 U.S.C. 1301 et seq., 1331 et seq., 1801 et seq.

    2. In Sec. 218.151, the section heading is revised; an introductory 
paragraph is added; paragraphs (a) and (b) are revised to read as set 
forth below; paragraphs (c) and (d) are removed; and paragraph (e) is 
redesignated as paragraph (c).


Sec. 218.151  Rental fees.

    The annual rental paid in any year is in addition to, and is not 
credited against, any royalties due from production. The lessee must 
pay an annual rental as shown in paragraphs (a), (b), and (c) of this 
section.
    (a) This paragraph applies to any lease not covered by paragraph 
(b) or paragraph (c) of this section.

------------------------------------------------------------------------
                                  issued as a result    the lessee must
               For                  of a sale held        pay rental
------------------------------------------------------------------------
(1) An oil and gas lease........  before the          on the first day
                                   effective date of   of each lease
                                   this part,          year before the
                                   [insert effective   discovery of oil
                                   date of this        or gas on the
                                   rule].              lease.
(2) An oil and gas lease........  after the           on the first day
                                   effective date of   of each lease
                                   this part,          year before the
                                   [insert effective   date the first
                                   date of this        royalty payment
                                   rule].              is due on the
                                                       lease.
(3) A mineral lease for other     before the          on the first day
 than oil or gas.                  effective date of   of each lease
                                   this part,          year before the
                                   [insert effective   discovery in
                                   date of this        paying
                                   rule].              quantities.
(4) A mineral lease for other     after the           on the first day
 than oil or gas.                  effective date of   of each lease
                                   this part,          year before the
                                   [insert effective   date the first
                                   date of this        royalty payment
                                   rule].              becomes due.
------------------------------------------------------------------------

    (b) This paragraph applies to any lease created by segregating a 
portion of a producing lease when there is no actual or allocated 
production on the segregated portion. The lessee must pay an annual 
rental for the segregated portion at the rate specified in the lease. 
The lessee must pay the rental as shown in the following table.

------------------------------------------------------------------------
If the lease results from a segregation     the lessee must pay rental
------------------------------------------------------------------------
(1) Before the effective date of this    on the first day of each lease
 part, [insert effective date of this     year before the discovery of
 rule].                                   oil or gas on the segregated
                                          portion.
(2) After the effective date of this     on the first day of each lease
 part, [insert effective date of this     year before the date the first
 rule].                                   royalty payment is due on the
                                          segregated portion.
------------------------------------------------------------------------

    (c) * * *

PART 256--LEASING OF SULPHUR OR OIL AND GAS IN THE OUTER 
CONTINENTAL SHELF

    3. The authority citation for part 256 continues to read as 
follows:

    Authority: 42 U.S.C. 6213 and 43 U.S.C. 1331, et seq.
    4. In Sec. 256.40, the introductory paragraph is revised to read as 
follows:


Sec. 256.40  Definitions

    The following definitions apply to Secs. 256.38 through 256.44 of 
this part.
* * * * *
    5. Part 260 is revised to read as follows:

PART 260--OUTER CONTINENTAL SHELF OIL AND GAS LEASING

Subpart A--General Provisions
Sec.
260.1   What is the purpose of this part?
260.2   What definitions apply to this part?
260.3   What is MMS's authority to collect this information?
Subpart B--Bidding Systems
260.101   What is the purpose of this subpart?
260.102   What definitions apply to this subpart?
260.110   What bidding systems may MMS use?
260.111   What conditions apply to the bidding systems that MMS 
uses?
260.112   How do royalty suspension volumes apply to eligible 
leases?
260.113   When does an eligible lease qualify for a royalty 
suspension volume?
260.114   How does MMS assign and monitor royalty suspension volumes 
for eligible leases?
260.115   How long will a royalty suspension volume for an eligible 
lease be effective?
260.116   How do I measure natural gas production on my eligible 
lease?
260.117   What other provisions apply to royalty suspension volumes 
for eligible leases?
260.120   How do royalty suspension volumes apply to leases issued 
in a sale held after November 2000?
260.121   When does a lease issued in a sale held after November 
2000 get a royalty suspension volume?
260.122   How long will a royalty suspension volume be effective for 
a lease issued in a sale held after November 2000?
260.123   How do I measure natural gas production for a lease issued 
in a sale held after November 2000?
260.124   How will royalty suspension apply if MMS assigns a lease 
issued in a sale held after November 2000 to a field that has an 
eligible or pre-Act lease?
260.130   What criteria does MMS use for selecting bidding systems 
and bidding system components?
Subpart C [Reserved]
Subpart D--Joint Bidding
260.301   What is the purpose of this subpart?
260.302   What definitions apply to this subpart?
260.303   What are the joint bidding requirements?

    Authority: 43 U.S.C. 1331 et seq.

[[Page 55485]]

Subpart A--General Provisions


Sec. 260.1  What is the purpose of this part?

    Part 260 implements the Outer Continental Shelf Lands Act (OCSLA), 
43 U.S.C. 1331 et seq., as amended, by providing regulations to foster 
competition including, but not limited to:
    (a) Implementing alternative bidding systems;
    (b) Prohibiting joint bidding for development rights by certain 
types of joint ventures; and
    (c) Establishing diligence requirements for Federal OCS leases.


Sec. 260.2  What definitions apply to this part?

    OCSLA means the Outer Continental Shelf Lands Act, (43 U.S.C. 1331 
et seq.), as amended.
    OCS lease means a Federal lease for oil and gas issued under the 
OCSLA.
    Person includes, in addition to a natural person, an association, a 
State, or a private, public, or municipal corporation.
    We means the Minerals Management Service (MMS).
    You means the lessee.


Sec. 260.3  What is MMS's authority to collect this information?

    The Paperwork Reduction Act of 1995 (PRA) requires us to inform you 
that we may not conduct or sponsor and you are not required to respond 
to a collection of information unless it displays a currently valid OMB 
control number. OMB approved the information collection requirements in 
part 260 under 44 U.S.C. 3501 et seq. and assigned OMB control number 
1010-XXXX. The PRA also requires us to inform you of the following:
    (a) We use the information collected:
    (1) To make decisions on requests for reconsideration of our 
assignment of a lease that has a qualifying well to an existing field 
or designate a new field.
    (2) To ensure that the royalty suspension volume is properly 
allocated among constituent leases on a field.
    (b) Respondents are Federal OCS oil and gas lessees. Responses are 
required to obtain or retain a benefit. We will protect proprietary 
information under applicable law and part 250 of this chapter.
    (c) You may send comments regarding any aspect of the collection of 
information under this part, including suggestions for reducing the 
burden, to the Information Collection Clearance Officer, Minerals 
Management Service, Mail Stop 4230, 1849 C Street, N.W., Washington, 
D.C. 20240.

Subpart B--Bidding Systems

General Provisions


Sec. 260.101  What is the purpose of this subpart?

    This subpart establishes the bidding systems that we may use to 
offer and sell Federal leases for the exploration, development, and 
production of oil and gas resources located on the OCS. We may only use 
bidding systems established by this subpart in OCS lease sales.


Sec. 260.102  What definitions apply to this subpart?

    Act means the Outer Continental Shelf Deep Water Royalty Relief 
Act, Pub.L. 104-58, 43 U.S.C. 1337(3).
    Eligible lease means a lease that:
    (1) Results from a sale held after November 28, 1995, and before 
November 28, 2000;
    (2) Is located in the Gulf of Mexico in water depths of 200 meters 
or deeper;
    (3) Lies wholly west of 87 degrees, 30 minutes West longitude; and
    (4) Is offered subject to a royalty suspension volume.
    Field means an area consisting of a single reservoir or multiple 
reservoirs all grouped on, or related to, the same general geological 
structural feature and/or stratigraphic trapping condition. Two or more 
reservoirs may be in a field, separated vertically by intervening 
impervious strata, or laterally by local geologic barriers, or by both.
    Highest responsible qualified bidder means a person who has met the 
appropriate requirements of 30 CFR part 256, subpart G, and has 
submitted a bid higher than any other bids by qualified bidders on the 
same tract.
    Highest royalty rate means the highest percent rate payable to the 
United States, as specified in the leases, in the amount or value of 
the production saved, removed, or sold.
    Lease period means the time from lease issuance until 
relinquishment, expiration, or termination.
    Lowest royalty rate means the lowest percent rate payable to the 
United States, as specified in the leases, in the amount or value of 
the production saved, removed, or sold.
    OCS lease sale means the Department of the Interior (DOI) 
proceeding by which leases for certain OCS tracts are offered for sale 
by competitive bidding and during which bids are received, announced, 
and recorded.
    Pre-Act lease means a lease that:
    (1) Results from a sale held before November 28, 1995;
    (2) Is located in the Gulf of Mexico in water depths of 200 meters 
or deeper; and
    (3) Lies wholly west of 87 degrees, 30 minutes West longitude. (See 
30 CFR part 203.)
    Period of production means the period during which the amount of 
oil and gas produced from a tract (or, if the tract is unitized, the 
amount of oil and gas as allocated under a unitization formula) will be 
measured for purposes of determining the amount of royalty payable to 
the United States.
    Qualified bidder means a person who has met the appropriate 
requirements of 30 CFR part 256, subpart G.
    Royalty rate means the percentage of the amount or value of the 
production saved, removed, or sold that is due and payable to the 
United States Government.
    Royalty suspension (RS) lease means a lease that:
    (1) Results from a sale held after November 28, 2000;
    (2) Is in locations or planning areas specified in a particular 
Notice of OCS Lease Sale; and
    (3) Is offered subject to a royalty suspension volume specified in 
a Notice of OCS Lease Sale published in the Federal Register.
    Tract means a designation assigned solely for administrative 
purposes to a block or combination of blocks that are identified by a 
leasing map or an official protraction diagram prepared by the DOI.
    Value of production means the value of all oil and gas production 
saved, removed, or sold from a tract (or, if the tract is unitized, the 
value of all oil and gas production saved, removed, or sold and 
credited to the tract under a unitization formula) during a period of 
production. The value is determined according to Sec. 260.111(e).


Sec. 260.110  What bidding systems may MMS use?

    We will apply a single bidding system selected from those listed in 
this section to each tract included in an OCS lease sale. The following 
table lists bidding systems, the bid variables, and characteristics.

[[Page 55486]]



------------------------------------------------------------------------
                                 The bid variable         And the
    For the bidding system            is the        characteristics are
------------------------------------------------------------------------
(a) Cash bonus bid with a       Cash bonus.......  The highest
 fixed royalty rate of not                          responsible
 less than 12.5 percent.                            qualified bidder
                                                    will pay a royalty
                                                    rate of not less
                                                    than 12.5 percent at
                                                    the beginning of the
                                                    lease period. We
                                                    will specify the
                                                    royalty rate for
                                                    each tract offered
                                                    in the Notice of OSC
                                                    Lease Sale published
                                                    in the Federal
                                                    Register.
(b) Royalty rate bid with       Royalty rate.....  We will specify the
 fixes cash bonus.                                  fixed amount of cash
                                                    bonus the highest
                                                    responsible
                                                    qualified bidder
                                                    must pay in the
                                                    Notice of OCS Lease
                                                    Sale published in
                                                    the Federal
                                                    Register.
(c) Cash bonus bid with a       Cash bonus.......  (1) We will calculate
 sliding royalty rate of not                        the royalty rate the
 less than 12.5 percent at the                      highest responsible
 beginning of the lease period.                     qualified bidder
                                                    must pay using
                                                    either:
                                                   (i) A sliding-scale
                                                    formula, which
                                                    relates the royalty
                                                    rate to the adjusted
                                                    value of production,
                                                    or
                                                   (ii) A schedule that
                                                    establishes the
                                                    royalty rate that we
                                                    will apply to
                                                    specified ranges of
                                                    the adjusted value
                                                    of production.
                                                   (2) We will determine
                                                    the adjusted value
                                                    of production by
                                                    applying an
                                                    inflation factor to
                                                    the actual value of
                                                    production.
                                                   (3) If you are the
                                                    successful high
                                                    bidder, your lease
                                                    will include the
                                                    sliding-scale
                                                    formula or schedule
                                                    and will specify the
                                                    lowest and highest
                                                    royalty rates that
                                                    we can charge.
                                                   (4) You will pay a
                                                    royalty rate of not
                                                    less than 12.5
                                                    percent at the
                                                    beginning of the
                                                    lease period.
                                                   (5) We will include
                                                    the sliding-scale
                                                    royalty formula or
                                                    schedule, inflation
                                                    factor and
                                                    procedures for
                                                    making the inflation
                                                    adjustment and
                                                    determining the
                                                    value or amount of
                                                    production in the
                                                    Notice of OCS Lease
                                                    Sale published in
                                                    the Federal
                                                    Register.
(d) Cash bonus bid with fixed   Cash bonus.......  (1) If we award you a
 share of the net profits or                        lease as the highest
 no less than 30 percent.                           responsible
                                                    qualified bidder,
                                                    you will determine
                                                    the amount of the
                                                    net profit share
                                                    payment to the
                                                    United States for
                                                    each month by
                                                    multiplying the net
                                                    profit share base
                                                    times the net profit
                                                    share rate,
                                                    according to Sec.
                                                    220.022. You will
                                                    calculate the net
                                                    profit share base
                                                    according to Sec.
                                                    220.021.
                                                   (2) You will pay a
                                                    net profit share of
                                                    not less than 30
                                                    percent.
                                                   (3) We will specify
                                                    the capital recovery
                                                    factor, as described
                                                    in Sec.  220.020,
                                                    and the net profit
                                                    share rate, both of
                                                    which may vary from
                                                    tract to tract, in
                                                    the Notice of OCS
                                                    Lease Sale published
                                                    in the Federal
                                                    Register.
(e) Cash bonus with variable    Cash bonus.......  (1) We may suspend or
 royalty rate(s) during one or                      defer royalty for a
 more periods of production.                        period, volume, or
                                                    value of production.
                                                    Notwithstanding
                                                    suspensions or
                                                    deferrals, we may
                                                    impose a minimum
                                                    royalty. The
                                                    suspensions or
                                                    deferrals may vary
                                                    based on prices or
                                                    price changes of oil
                                                    and/or gas.
                                                   (2) You may pay a
                                                    royalty rate less
                                                    than 12.5 percent on
                                                    production but not
                                                    less than zero
                                                    percent.
                                                   (3) We will specify
                                                    the applicable
                                                    royalty rate(s) and
                                                    suspension or
                                                    deferral magnitudes,
                                                    formulas, or
                                                    relationships in the
                                                    Notice of OCS Lease
                                                    Sale published in
                                                    the Federal
                                                    Register.
(f) Cash bonus with royalty     Cash bonus.......  We will base the
 rate(s) based on formula(s)                        royalty rate on
 or schedule(s) during one or                       formula(s) or
 more periods of production.                        schedule(s)
                                                    specified in the
                                                    Notice of LCS Lease
                                                    Sale published in
                                                    the Federal
                                                    Register.
(g) Cash bonus with a fixed     Cash bonus.......  Except for periods of
 royalty rate of not less than                      royalty suspension,
 12.5 percent, at the                               you will pay a fixed
 beginning of the lease                             royalty rate of not
 period, suspension of                              less than 12.5
 royalties for a period,                            percent. If we award
 volume, or value of                                to you a lease under
 production, or depending upon                      this system, you
 selected characteristics of                        must calculate the
 extraction, and with                               royalty due during
 suspensions that may vary                          the designated
 based on the price of                              period using the
 production.                                        rate, formula, or
                                                    schedule specified
                                                    in the lease. We
                                                    will specify the
                                                    royalty rate,
                                                    formula, or schedule
                                                    in the Notice of OCS
                                                    Lease Sale published
                                                    in the Federal
                                                    Register.
------------------------------------------------------------------------

Sec. 260.111  What conditions apply to the bidding systems that MMS 
uses?

    (a) For each of the bidding systems in Sec. 260.110, we will 
include an annual rental fee. Other fees and provisions may apply as 
well. The Notice of OCS Lease Sale published in the Federal Register 
will specify the annual rental and any other fees the highest 
responsible qualified bidder must pay and any other provisions.
    (b) If we use any deferment or schedule of payments for the cash 
bonus bid, we will specify and include it in the Notice of OCS Lease 
Sale published in the Federal Register.
    (c) For the bidding systems listed in this subpart, if the bid 
variable is a cash bonus bid, the highest bid by a qualified bidder 
determines the amount of cash bonus to be paid. We will include the 
minimum bid level(s) in the Notice of OCS Lease Sale published in the 
Federal Register.
    (d) For the bidding systems listed in this subpart, if the bid 
variable is royalty rate, the highest bid by a qualified bidder 
determines the royalty rate to be paid. We will include the minimum

[[Page 55487]]

royalty rate(s) in the Notice of OCS Lease Sale published in the 
Federal Register.
    (e) The value basis for determining the actual value of production 
for purposes of computing royalty according to the bidding systems 
established in this section is determined under 30 CFR part 206.
    (f) We may, by rule, add to or modify the bidding systems listed in 
Sec. 260.110, according to the procedural requirements of the OCSLA, 43 
U.S.C. 1331 et seq., as amended by Public Law 95-372, 92 Stat. 629.

Eligible Leases


Sec. 260.112  How do royalty suspension volumes apply to eligible 
leases?

    Royalty suspension volumes, as specified in section 304 of the Act, 
apply to eligible leases that meet the criteria in Sec. 260.113. For 
purposes of this section and Secs. 260.113 through 260.117:
    (a) Any volumes of production that are not normally royalty-bearing 
under the lease or the regulations (e.g., fuel gas) do not count 
against royalty suspension volumes; and
    (b) Production includes volumes allocated to a lease under an 
approved unit agreement.


Sec. 260.113  When does an eligible lease qualify for a royalty 
suspension volume?

    (a) Your eligible lease may receive a royalty suspension volume 
only if it is in a field where no current lease produced oil or gas 
(other than test production) before November 28, 1995. For eligible 
leases, the bidding system in Sec. 260.110(g) applies only to leases in 
fields that meet this condition.
    (b) You may receive a royalty suspension volume only if your entire 
lease is west of 87 degrees, 30 minutes West longitude. A field that 
lies on both sides of that meridian will receive a royalty suspension 
volume only for those eligible leases lying entirely west of the 
meridian.


Sec. 260.114  How does MMS assign and monitor royalty suspension 
volumes for eligible leases?

    (a) We will assign your lease that has a qualifying well (under 30 
CFR part 250, subpart A) to an existing field or designate a new field 
and will notify you and other affected lessees in the field of that 
assignment.
    (1) Within 30 days of that notification, you or any of the other 
affected lessees may file a written request with the Director of MMS 
(Director) for reconsideration accompanied by a ``Statement of 
Reasons.''
    (2) The Director will respond in writing either affirming or 
reversing the assignment decision. The Director's decision is final for 
the Department of the Interior (DOI) and is not subject to appeal to 
the Interior Board of Land Appeals under 30 CFR part 290 and 43 CFR 
part 4.
    (b) We will specify the water depth for each eligible lease in the 
``Final Notice of OCS Lease Sale.'' Our determination of water depth 
for each lease is final once we issue the lease. We will specify in the 
Notice the royalty suspension volume applicable to each water depth. We 
show the minimum royalty suspension volumes for fields in million 
barrels of oil equivalent (MMBOE) in the following table:

------------------------------------------------------------------------
                                             Minimum royalty suspension
                Water depth                            volume
------------------------------------------------------------------------
(1) 200-to-400 meters.....................  17.5 MMBOE.
(2) 400-to-800 meters.....................  52.5 MMBOE.
(3) 800 meters or more....................  87.5 MMBOE.
------------------------------------------------------------------------

    (c) Before commencing production, you must:
    (1) Notify the MMS Regional Supervisor for Production and 
Development of your intention to start production; and
    (2) Request confirmation of the size of the royalty suspension 
volume that applies to your eligible lease.
    (d) When production (other than test production) first occurs from 
any of the eligible leases in a field consisting only of eligible 
leases, we will determine what royalty suspension volume applies to the 
leases(s) in that field. We base the determination for eligible 
lease(s) on the royalty suspension volumes specified in paragraph (b) 
of this section and Sec. 260.117(a).
    (e) Your eligible lease may obtain more than one royalty suspension 
volume. If a new field is discovered on your eligible lease that 
already benefits from the royalty suspension volume from another field, 
production from that new field receives a separate royalty suspension.


Sec. 260.115  How long will a royalty suspension volume for an eligible 
lease be effective?

    A royalty suspension volume for an eligible lease will continue 
through the end of the month in which cumulative production, from the 
leases in a field entitled to share the royalty suspension volume, 
reaches that volume or the lease period ends.


Sec. 260.116  How do I measure natural gas production on my eligible 
lease?

    You must measure natural gas production on your eligible lease 
subject to the royalty suspension volume as follows: 5.62 thousand 
cubic feet of natural gas, measured according to 30 CFR part 250, 
subpart L, equals one barrel of oil equivalent.


Sec. 260.117  What other provisions apply to royalty suspension volumes 
for eligible leases?

    In addition to the provisions in Secs. 260.111 through 260.116, the 
provisions in this section apply to royalty suspension volumes on 
eligible leases.
    (a) If a new field consists of eligible leases in different water-
depth categories, the royalty suspension volume associated with the 
deepest eligible lease applies.
    (b) If your eligible lease is the only eligible lease in a field, 
you do not owe royalty on the production from your lease up to the 
applicable royalty suspension volume.
    (c) If a field consists of more than one eligible lease:
    (1) Payment of royalties on the eligible leases' initial production 
is suspended until cumulative production equals the field's established 
royalty suspension volume;
    (2) Only production from leases entitled to share in the field's 
royalty suspension volume counts as part of this cumulative production; 
and
    (3) The royalty suspension volume for each eligible lease is equal 
to each lease's actual production (or production allocated under an 
approved unit agreement) until the field's royalty suspension volume is 
reached.
    (d) This paragraph applies if we add an eligible lease to a field 
that has an established royalty suspension volume that we approved 
under 30 CFR part 203. This paragraph also applies to a field that has 
an established royalty suspension volume as a result of production 
starting from one or more eligible leases in the field. In situations 
covered by this paragraph:
    (1) The field's royalty suspension volume will not change, even if 
the added lease is in deeper water;
    (2) If we granted a royalty suspension volume under 30 CFR part 203 
that is larger than the minimum specified for that water depth, the 
added eligible lease may share in the larger suspension volume;
    (3) The eligible lease may receive a royalty suspension volume only 
to the extent of its production before the cumulative production equals 
to the field's previously established royalty suspension volume; and
    (4) Only production from leases entitled to share in the field's 
previously established royalty suspension volume counts as part of this 
cumulative production.

[[Page 55488]]

    (e) A pre-Act lease(s) may receive a royalty suspension volume 
under 30 CFR part 203 for a field that already has a royalty suspension 
volume due to eligible leases. If this happens, then:
    (1) The eligible and pre-Act leases share a single royalty 
suspension volume;
    (2) The field's royalty suspension volume is the larger of the 
volume for the eligible leases or the volume MMS grants in response to 
the pre-Act leases' application; and
    (3) The suspension volume for each eligible lease is its actual 
production from the field until cumulative production from all leases 
in the field entitled to share in the field-based suspension volume 
equals the suspension volume.
    (f) If we reassign a well on an eligible lease to another field, 
the past production from that well:
    (1) Will count toward the royalty suspension volume, if any, 
specified for the field to which it is reassigned; and
    (2) Will not count toward the royalty suspension volume, if any, 
for the field from which it was reassigned.

Royalty Suspension (RS) Leases


Sec. 260.120  How do royalty suspension volumes apply to leases issued 
in a sale held after November 2000?

    We may issue leases with royalty suspension volumes, as authorized 
in section 303 of the Act. For purposes of this section and 
Secs. 260.121 through 260.124:
    (a) Any volumes of production that are not normally royalty-bearing 
under the lease or the regulations (e.g., fuel gas) do not count 
against royalty suspension volumes; and
    (b) Production includes volumes allocated to a lease under an 
approved unit agreement.


Sec. 260.121  When does a lease issued in a sale held after November 
2000 get a royalty suspension volume?

    (a) We will specify any royalty suspension volume for your RS lease 
in the Notice of OCS Lease Sale published in the Federal Register for 
the sale in which you acquire the RS lease and will repeat it in the 
lease document. In addition:
    (1) Your RS lease may produce royalty-free the royalty suspension 
volume we specify for your lease, even if the field to which we assign 
it is producing.
    (2) No other leases in the field to which we assign your RS lease 
will share the royalty suspension volume we specify for your lease.
    (b) You may apply for a supplemental royalty suspension volume for 
a project under 30 CFR part 203, if your lease lies:
    (1) In the Gulf of Mexico,
    (2) In water 200 meters or deeper, and
    (3) Wholly west of 87 degrees, 30 minutes West longitude.
    (c) Your RS lease retains the royalty suspension volume with which 
we issued it even if we deny your application for more relief.


Sec. 260.122  How long will a royalty suspension volume be effective 
for a lease issued in a sale held after November 2000?

    The royalty suspension volume for your RS lease will continue 
through the end of the month in which cumulative production from your 
lease or project reaches the applicable royalty suspension volume or 
the lease period ends. Any production during a period when 
Sec. 260.124(d) applies counts as part of your royalty suspension 
volume.


Sec. 260.123  How do I measure natural gas production for a lease 
issued in a sale held after November 2000?

    You must measure natural gas production subject to the royalty 
suspension volume for your lease as follows: 5.62 thousand cubic feet 
of natural gas, measured according to 30 CFR part 250, subpart L, 
equals one barrel of oil equivalent.


Sec. 260.124  How will royalty suspension apply if MMS assigns a lease 
issued in a sale held after November 2000 to a field that has an 
eligible or pre-Act lease?

    (a) We will assign your lease that has a qualifying well (under 30 
CFR 250, subpart A) to an existing field or designate a new field and 
will notify you and other affected lessees in the field of that 
assignment.
    (1) Within 30 days of the final notification, you or any of the 
other affected lessees may file a written request with the Director for 
reconsideration, accompanied by a Statement of Reasons.
    (2) The Director will respond in writing either affirming or 
reversing the assignment decision. The Director's decision is final for 
DOI and is not subject to appeal to the Interior Board of Land Appeals 
under 30 CFR part 290 and 43 CFR part 4.
    (b) If we establish a royalty suspension volume for a field, either 
as a result of an approved application for royalty relief submitted for 
a pre-Act lease under 30 CFR part 203 or as the result of production 
starting from one or more eligible leases in the field, then:
    (1) Royalty-free production from your RS lease counts as part of 
any royalty suspension volume remaining for the field to which we 
assign your lease; and
    (2) Your RS lease may continue to produce royalty-free up to the 
royalty suspension volume we specified for your lease, even if the 
field to which we assign your RS lease has produced all of its royalty 
suspension volume.
    (c) Your lease may share in a suspension volume larger than the 
royalty suspension volume with which we issued it and to the extent we 
grant a larger volume in response to an application by a pre-Act lease 
submitted under 30 CFR part 203. To share in any larger royalty 
suspension volume, you must file an application described in 
Sec. 203.83. In no case will royalty-free production for your RS lease 
be less than the royalty suspension volume specified for your lease.
    (d) You must pay royalty on applicable production from your RS 
lease at the lease-stipulated royalty rate if average daily closing 
prices on the NYMEX rise above a base price for light sweet crude oil 
or natural gas that we have specified.
    (1) We will specify the base price and applicable production for 
your lease in the Notice of OCS Lease Sale published in the Federal 
Register and will repeat it in the lease document.
    (2) Applicable production:
    (i) Is the production upon which royalties would otherwise be 
suspended; and
    (ii) Counts as part of any remaining royalty suspension volume.

Bidding System Selection Criteria


Sec. 260.130  What criteria does MMS use for selecting bidding systems 
and bidding system components?

    In analyzing the application of one of the bidding systems listed 
in Sec. 260.110 to tracts selected for any OCS lease sale, we may, at 
our discretion, consider the following purposes and policies. We 
recognize that each of the purposes and policies may not be 
specifically applicable to the selection process for a particular 
bidding system or tract, or may present a conflict that we will have to 
resolve in the process of bidding system selection. The order of 
listing does not denote a ranking.
    (a) Providing fair return to the Federal Government;
    (b) Increasing competition;
    (c) Ensuring competent and safe operations;
    (d) Avoiding undue speculation;
    (e) Avoiding unnecessary delays in exploration, development, and 
production;
    (f) Discovering and recovering oil and gas;
    (g) Developing new oil and gas resources in an efficient and timely 
manner;

[[Page 55489]]

    (h) Limiting the administrative burdens on Government and industry; 
and
    (i) Providing an opportunity to experiment with various bidding 
systems to enable us to identify those most appropriate for the 
satisfaction of the objectives of the United States in OCS lease sales.

Subpart C--[Reserved]

Subpart D--Joint Bidding


Sec. 260.301  What is the purpose of this subpart?

    The purpose of this subpart is to encourage participation in OCS 
oil and gas lease sales by limiting the requirement for filing 
``Statements of Production'' to certain joint bidders.


Sec. 260.302  What definitions apply to this subpart?

    For the purposes of this subpart, all terms used are defined as in 
30 CFR 256.40.


Sec. 260.303  What are the joint bidding requirements?

    (a) You must file a Statement of Production with the Director, 
according to the requirements of 30 CFR 256.38 through 256.44 if:
    (1) You submit a joint bid for any OCS oil and gas lease during a 
6-month bidding period; and
    (2) You were chargeable for the prior production period with an 
average daily production from all sources in excess of 1.6 million 
barrels of crude oil, natural gas equivalents, and liquefied petroleum 
products.
    (b) The Statement of Production that you file under paragraph (a) 
of this section must state that you are chargeable for the prior 
production period with an average daily production in excess of the 
quantities listed in paragraph (a) of this section.
    (c) If your average daily production in the prior production period 
met or exceeded the quantities specified in paragraph (a) of this 
section, you may not submit a joint bid for any OCS oil and gas lease 
during the applicable 6-month bidding period with any other person 
similarly chargeable. We will disqualify and reject these bids.
    (d) If your average daily production in the prior production period 
met or exceeded the quantities specified in paragraph (a) of this 
section, you may not enter into an agreement that would result in two 
or more persons, similarly chargeable, acquiring or holding any 
interest in the tract for which the bid is submitted. We will 
disqualify and reject these bids.

[FR Doc. 00-23552 Filed 9-13-00; 8:45 am]
BILLING CODE 4310-MR-P