[Federal Register Volume 65, Number 203 (Thursday, October 19, 2000)]
[Rules and Regulations]
[Pages 62612-62614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26932]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 206

RIN 1010-AC72


Amendments to Gas Valuation Regulations for Indian Leases

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

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SUMMARY: MMS is removing the special timing requirements for 
adjustments and audits of royalties on gas produced from Indian leases 
in Montana and North Dakota. If not removed, these timing requirements 
could force tribal and MMS auditors to expend additional time and money 
or postpone ongoing audits to meet the restricted time periods. 
Removing these timing restrictions should increase royalties collected 
for Indian leases in these States.

DATES: The effective date of this final rule is November 20, 2000.

FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and 
Publications Staff, Minerals Management Service, Royalty Management 
Program, P.O. Box 25165, MS 3021, Denver, CO 80225-0165; telephone 
(303) 231-3432; fax (303) 231-3385; or e-mail [email protected].

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

I. Background

    On August 10, 1999, MMS published a final rule titled ``Amendments 
to Gas Valuation Regulations for Indian Leases,'' (64 FR 43506) with an 
effective date of January 1, 2000. These regulations apply to all gas 
production from Indian (tribal or allotted) oil and gas leases (except 
leases on the Osage Indian Reservation). The new regulations resulted 
from a negotiated rulemaking among Indian tribes and allottees, the oil 
and gas industry, and MMS.
    Among the newly adopted regulations was a provision at 30 CFR 
206.174(l) requiring that for Indian leases in Montana and North 
Dakota, lessees must make adjustments to reported royalty values 
sooner, and MMS must complete its audits sooner, than either has done 
historically. This provision does not apply to Indian leases in other 
States.
    The final rule limited the adjustment and audit period for Indian 
leases in Montana and North Dakota because, unlike most other producing 
regions, there are no acceptable published indexes applicable to that 
area (64 FR 43510). Accordingly, in areas such as Montana and North 
Dakota, valuation must be based on other criteria that are more 
difficult to determine than index prices.
    After the final rule was promulgated, tribal auditors informed MMS 
that the special timing requirements at 30 CFR 206.174(l) could force 
tribal and MMS auditors to expend additional time and money or postpone 
ongoing audits in Montana and North Dakota to meet the restricted time 
periods. Moreover, MMS believes that the reason for only placing time 
limits on Indian leases in Montana and North Dakota is not compelling. 
Consequently, on June 15, 2000, MMS published a proposed rulemaking (65 
FR 37504) to remove the requirements. The proposed rulemaking provided 
for a 30-day comment period that ended July 17, 2000.

II. Comments on Proposed Rule

    During the comment period for the proposed rule, MMS received two 
written comments: one from an Indian tribe (tribe) and one from 
industry. After careful consideration of the comments, MMS has decided 
to issue this final rule removing the special timing requirements for 
adjustments and audits of royalties on gas produced from Indian leases 
in Montana and North Dakota. This amendment to the regulations will 
apply prospectively to gas produced on or after the effective date 
specified in the DATES section above.

General Comments

    The industry commenter opposed the removal of the time limitations. 
The commenter believes that industry received the earlier valuation 
certainty in return for agreeing to an increase in the major portion 
calculation percentage to the 75th percentile. The commenter suggested 
that if MMS removes the adjustment and audit time limits then MMS 
should also change the major portion calculation to reflect the 
historical major portion value at the 50th percentile.

[[Page 62613]]

    The tribal commenter supported the proposed amendments. As stated 
previously, the final rule limited the adjustment and audit period for 
Indian leases in Montana and North Dakota because there are no 
acceptable published indexes applicable to that area. The tribal 
commenter believes that the lack of such an index means that the 
determination of value will take more time, not less time, in the audit 
process.
    Response. MMS and tribal auditors must retain the discretion to 
allocate audit resources to obtain the best data when that data becomes 
available. MMS believes that even without absolute time limits, 
industry is still afforded the certainty of a binding major portion 
value and no late-payment interest on any underpayment until that major 
portion value is due. Indian members of the Indian Negotiated 
Rulemaking Committee were unanimous in their belief that the median 
pricing methodology based on the 50th percentile did not accurately 
reflect the intent of lease terms. In exercising its trust 
responsibility to Indian lessors, MMS will continue to calculate the 
major portion value at the 75th percentile established in the August 
1999 final rule.

Comments on Specific Issues

    MMS specifically sought comment on whether there is a valid reason 
for differentiating between leases located in other States and leases 
in Montana and North Dakota when they both may be required to use the 
same valuation standards.
    The tribal commenter pointed out that under the provisions of the 
gas regulations that allow other tribes and allottees to opt out of the 
applicable indexes, no time limits for audits, adjustments, and 
collection are imposed. The commenter stated that the result is unfair 
and disparate treatment for the Montana and North Dakota tribes.
    The industry commenter recognized that the Indian lessors in 
Montana and North Dakota are being treated differently from those 
groups under the index-based valuation. The commenter offered two 
solutions to remedy the situation:
     Apply the restricted time limits to all Indian lessors; or
     Calculate major portion at the 50th percentile.
    Response. MMS concludes that there is no valid reason for 
differentiating between leases located in Montana and North Dakota and 
leases located in other States when they both may be required to use 
the same valuation standards. Further, we believe the suggestions 
proffered by the industry commenter are not in the best interests of 
Indian lessors and consistent with the Secretary's trust 
responsibilities.
    MMS also sought comments on whether the time limits on adjustment 
and audit could have a negative revenue impact on royalties collected 
from gas produced from Indian lands in Montana and North Dakota.
    The tribal commenter believes that the reduced time periods place a 
significant burden on tribes that conduct their own audit program. It 
may require tribes to put aside, postpone or abandon ongoing audits of 
earlier periods to meet the new deadlines. The reduced time period may 
affect tribes' abilities to do a comprehensive and thorough audit or 
possibly any audit at all within the shortened time period. The 
commenter is also concerned that MMS valuation resources may be 
stretched too thin. The above factors together may result in less 
revenues to Indian lessors located in Montana and North Dakota.
    Response. MMS agrees that the timing restrictions could hinder MMS 
and tribal audit efforts.
    The tribal commenter suggests that paragraphs (2), (3) and (4) of 
30 CFR 206.174 be removed as they would no longer be necessary if 
paragraph (1) is removed.
    Response. This comment is a misunderstanding caused by 
typographical errors in the June 15, 2000, proposed rule (65 FR 37504) 
which replaced the lowercase ``L'' with a numerical ``1'' in many parts 
of the text. MMS is removing 30 CFR 206.174(l) (i.e., lowercase ``L'') 
which includes paragraphs (1)-(4). MMS corrected these typographical 
errors in the July 7, 2000, Federal Register (65 FR 42064).

III. Procedural Matters

1. Summary Cost and Benefit Data.

    The objective of this rule is to remove the special timing 
requirements for adjustments and audits of royalties on gas produced 
from Indian leases in Montana and North Dakota. We have summarized 
below the estimated costs and benefits of this rule to the three 
affected groups: Indian lessors in Montana and North Dakota, industry, 
and the Federal Government. The cost and benefit information in this 
Item 1 of Procedural Matters is used as the basis for the departmental 
certifications in Items 3-10.
A. Indian Lessors in Montana and North Dakota
    We estimate that in 1997, through audits, MMS identified and 
collected unpaid revenues amounting to 2 percent of the total royalties 
paid for gas production on certain Indian leases located in Montana.
    In 1999, payors submitted about $420,000 in royalties from gas 
produced from Indian leases in Montana and $49,000 in royalties from 
gas produced from Indian leases in North Dakota. Using 2 percent to 
calculate the additional audit revenues that may be expected for the 
1999 sales year, MMS should collect an additional $8,400 from leases in 
Montana and $980 from leases in North Dakota. We conclude that if 
audits cannot be completed within one year of the royalty line 
adjustments timeframes, Indian lessors could potentially lose these 
uncollected revenues, plus applicable late payment interest, annually.
B. Industry
    This rule will impose no new reporting burdens on industry. 
Industry will benefit from the final rule by being able to make 
adjustments to royalty lines beyond the current 1-year period. However, 
industry will pay an undetermined amount of additional interest on any 
underpayments discovered during audits that take longer than 1 year to 
complete.
    Small Business Issues. Approximately 17 entities in Montana and 5 
in North Dakota--most of which are small businesses because they employ 
500 or less employees--pay royalties to MMS on gas produced from Indian 
leases. As discussed in A. above, these 22 entities collectively will 
pay less than $10,000 in uncollected royalties annually as a result of 
an extended adjustment and audit period. The average estimated impact 
would be $426 in uncollected royalties affecting about 4 percent of the 
small businesses reporting gas royalties for Indian leases. This rule 
benefits small tribes that would otherwise have to hire additional 
audit staff to handle the burden of performing both past and present 
audits concurrently. From this information, we conclude that this rule 
will not have a significant economic impact on a substantial number of 
small entities.
C. Federal Government
    Removing the time limits on audit will help to ensure that Indian 
mineral lessors receive the maximum revenues from mineral resources on 
their land consistent with the Secretary's trust responsibility and 
lease terms.
D. Summary of Costs and Benefits to Affected Groups

[[Page 62614]]



------------------------------------------------------------------------
                                           Cost>/Benefit Amount
 Description  (See corresponding ---------------------------------------
        narrative above)              First Year       Subsequent Years
------------------------------------------------------------------------
Indian Lessors in Montana and     $9,380 plus         $9,380 plus
 North Dakota.                     interest.           interest
Industry........................  $9,380 plus         $9,380 plus
                                   interest>.          interest>
Federal Government..............  -0-...............  -0-
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2. Regulatory Planning and Review (E.O. 12866)

    This document is not a significant rule and is not subject to 
review by the Office of Management and Budget under Executive Order 
12866.
    (1) This rule will not have an effect of $100 million or more on 
the economy. It will not adversely affect in a material way the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities.
    (2) This rule will not create a serious inconsistency or otherwise 
interfere with an action taken or planned by another agency.
    (3) This rule will not alter the budgetary effects or entitlements, 
grants, user fees, or loan programs or the rights or obligations of 
their recipients.
    (4) This rule does not raise novel legal or policy issues.

3. The Regulatory Flexibility Act

    The Department of the Interior certifies that this rule will not 
have a significant economic effect on a substantial number of small 
entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
See Small Business Issues in Item 1.B. above.
    Your comments are important. The Small Business and Agricultural 
Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were 
established to receive comments from small businesses about Federal 
agency enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to small 
business. If you wish to comment on the enforcement actions in this 
rule, call 1-888-734-3247.

4. Small Business Regulatory Enforcement Act (SBREFA)

    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act. This rule:
    a. Will not have an annual effect on the economy of $100 million or 
more.
    b. Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions.
    c. Will not have significant adverse effects on competition, 
employment, investment, productivity, innovation, or the ability of 
U.S.-based enterprises to compete with foreign-based enterprises.

5. Unfunded Mandates Reform Act

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

6. Takings (E.O. 12630)

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

7. Federalism (E.O. 13132)

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

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

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

9. Paperwork Reduction Act of 1995

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

10. National Environmental Policy Act

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

List of Subjects in 30 CFR 206

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

    Dated: October 10, 2000.
Sylvia V. Baca,
Assistant Secretary, Land and Minerals Management.

    For reasons stated in the preamble, MMS amends part 206 as follows:

PART 206--PRODUCT VALUATION

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

    Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq., 396a et 
seq., 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq., 1001 et 
seq., 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq., 1331 et 
seq., 1801 et seq.


Sec. 206.174  [Amended]

    2. In Sec. 206.174, remove paragraph (l).

[FR Doc. 00-26932 Filed 10-18-00; 8:45 am]
BILLING CODE 4310-MR-P