[Federal Register Volume 65, Number 222 (Thursday, November 16, 2000)]
[Proposed Rules]
[Pages 69259-69275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29372]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 203

RIN 1010-AC71


Relief or Reduction in Royalty Rates--Deep Water Royalty Relief 
for OCS Oil and Gas Leases Issued After 2000

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Proposed rule.

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SUMMARY: This proposed rule revises regulations on royalty relief for 
oil and gas producers on the Outer Continental Shelf (OCS). It provides 
for suspension or reduction of royalty on a case-by-case basis for 
certain additional categories of OCS leases. Also, it identifies 
circumstances when we may consider special royalty relief outside our 
established end-of-life and deep water royalty relief (DWRR) programs.

DATES: We will consider all comments we receive by December 18, 2000. 
We will begin reviewing comments then and may not fully consider 
comments we receive after December 18, 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].

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

SUPPLEMENTARY INFORMATION: The OCS Lands Act (43 U.S.C. 1337 et seq.) 
is the basis for our regulations on suspending or lowering royalties on 
OCS leases. This rule describes how certain new deep water leases may 
qualify for royalty suspensions and what circumstances might cause us 
to grant royalty relief outside normal procedures.

Background

    The regulations at 30 CFR part 203 implement the Secretary of the 
Interior's (Secretary) authority to grant royalty relief to OCS leases. 
Section 302 of the Outer Continental Shelf Deep Water Royalty Relief 
Act of 1995 (Pub. L. 104-58) (the Act), gave us the authority to 
promote development and production of marginal resources in certain 
areas by suspending royalties. Existing regulations describe our 
programs in three discretionary relief situations--leases nearing the 
end of their life, new

[[Page 69260]]

developments in water 200 meters or deeper (deep water) in the Gulf of 
Mexico (GOM), or deep water expansion projects in the GOM. Our programs 
balance the effectiveness of royalty relief to encourage production 
that otherwise would not occur with receipt of fair market value for 
public resources in the specific circumstances of the individual 
leases.

Discretionary Relief To Promote Future Deep Water Development

    Promotion of development with discretionary royalty relief serves 
several public purposes. In marginal circumstances, royalty suspension 
can encourage development of resources that otherwise might be 
bypassed. Royalty suspension can also lead to new production that uses 
existing infrastructure. Further, making relief discretionary avoids 
the need to offer blanket relief to whole categories of leases, many of 
which do not need it to attract exploration or development interest.
    The Act contained the following provisions relating to DWRR:
     It authorized granting royalty relief both to nonproducing 
leases and to expansion projects on producing leases issued before 
adoption of royalty suspension in lease terms (pre-Act leases).
     It directed that we implement this authority in deep water 
(200 meters and greater water depth) because of the greater costs and 
economic risks involved in operating at those depths than in shallower 
water.
     It set out a qualification test intended to grant relief 
only when development otherwise would not make economic sense.
    Based on the Act, our current regulations governing pre-Act leases 
oblige us to consider each field in its entirety. That approach commits 
us to evaluating all the resources that the field may contain. To 
improve the assumptions that we have to make, we propose to add 
language to invite applicants to share information they may have on 
other leases that may eventually become part of the field. (See 
clarifications we propose in Sec. 203.63) Also, we propose to add 
language to clarify the reservoir and well data we are looking for in 
the geological and geophysical (G&G) report part of the application. 
(See changes proposed to Sec. 203.86) Both of these proposed changes 
reflect additional information we have requested from previous 
applicants.
    After November 2000, we will issue new deep water leases. Some will 
be like pre-Act leases in that we will issue them with no royalty 
suspension (RS) volume. Others, which we call RS leases, will have a 
royalty suspension included in the lease terms. In some circumstances, 
the size of the royalty suspension in the lease may be inadequate to 
induce development. For instance, stand-alone development of a marginal 
prospect may require more relief than a royalty suspension designed for 
a tie-back development. Because may of the special risks associated 
with deep water development remain, we propose to offer all leases 
issued in sales after November 2000 (post-2000 deep water leases) the 
opportunity to qualify for enough royalty suspension to make a 
development project or an expansion project economic. Deep water leases 
issued after the date of enactment of the Act and prior to November 28, 
2000 (eligible leases), may not apply for royalty relief beyond the 
eligible amount specified in the lease.
    Since the minimum suspension volumes set in the Act do not apply to 
leases issued in sales held after November 28, 2000, we propose to 
offer royalty suspension volumes on a project rather than a field-basis 
for post-2000 deep water leases. Specifically, any future deep water 
lease that lies west of 87 degrees, 30 minutes west longitude in the 
GOM may apply for royalty suspension on a development project if it had 
not produced, or on an expansion project if it has produced. 
Hereinafter, unless otherwise specified, reference to a ``project'' 
includes either a development of an expansion project. (See the new 
applicant category we add in proposed changes to Sec. 203.60.)
    The Act established a deadline by which we must evaluate a DWRR 
application for a pre-Act lease. The deadline helps development 
planning by giving applicants certainty about how long they can expect 
to wait for our relief determination. When companies have other 
investment opportunities, that planning certainty may be an important 
factor for keeping a marginal project alive. We plan to retain this 
deadline as a commitment for applications for post-2000 deep water 
leases. The Act also sets a default royalty suspension in the event we 
fail to act in time on an application. We propose to adopt a default 
royalty suspension amount that reflects the length of the delay, rather 
than the fixed default amount set by the DWRR Act for pre-Act leases. 
Specifically, if we fail to render a DWRR determination within 180 days 
(plus authorized extensions), a project on a post-2000 deep water lease 
will produce royalty-free for the number of months we delay a decision, 
plus the entire volume which our belated decision grants. (See the 
proposed new category we add to the table in Sec. 203.66.)

Adjustments to Our DWRR Program

    We have considered six DWRR applications over 4 years under the 
existing rules in 30 CFR part 203. During those evaluations, we 
identified some program elements that may produce results contrary to 
our intentions. We will therefore adjust provisions on minimum 
suspension volumes, sunk costs, discount rates, performance conditions, 
and allowable price increases while we modify these rules to authorize 
applications for royalty suspension by leases issued in OCS sales after 
November 2000.

Adjustments to Minimum Suspension Volumes and Relief Shares

    Except for an application involving a pre-Act lease on a field that 
did not produce before the Act, we propose to reduce the minimum 
suspension volumes for DWRR we grant to nonproducing leases. The field-
sized minimums established in the Act will continue to apply to 
qualifying applications that involve pre-Act leases. Congress based 
those original minimums on cost and producibility estimates from the 
early 1990's for field development. Since then, improved knowledge of 
deep water resources, technical progress, and new infrastructure have 
significantly reduced the size necessary for an economic prospect. As 
early as February 1996, the ``Oil and Gas Journal'' reported that 
industry experts believe the economic threshold for developing deep 
water projects had dropped from the 150 million barrels of oil 
equivalent (MMBOE) range to the 30 to 35 MMBOE range because deep water 
fields were proving more prolific and less troublesome than fields on 
the near-shore shelf. The fact that the Act's minimum suspension 
volumes exceed the expected resource sizes (in some cases by a large 
margin) in all but one of the deep water field applications we have 
reviewed, reflects the change in economic threshold.
    We propose to offer more appropriate minimum royalty suspension 
volumes for development projects and for expansion projects that 
qualify for relief. For a development project on a pre-production RS 
lease, the minimum will equal the royalty suspension volume with which 
we issued the lease, plus an increment explained in the following 
section on sunk cost. As explained in our companion proposed rule 
modifying 30 CFR part 260, published on

[[Page 69261]]

September 14, 2000 (65 FR 55476), we plan to update the royalty 
suspension volumes with which we issue RS leases over time as needed. 
We also propose to offer a minimum suspension volume to expansion 
projects and to development projects on leases issued with no royalty 
suspension volume in sales after November 2000. The minimum for these 
projects will equal the increment explained in the next section on sunk 
cost.
    When multiple nonproducing RS leases participate, the minimum 
volume suspension for the project equals the sum of the royalty 
suspension volumes applicable to the participating leases plus the 
increment explained in the next section. As with an expansion project, 
the applicant defines the scope of the development project, and relief 
applies only to wells included in the application. We reserve the 
right, as we do under the current program, to remove nonprospective 
wells or leases from the evaluation. (See the proposed new paragraph 
and conforming changes in Sec. 203.69.)
    With one exception, all leases participating in a successful 
application for DWRR share the single relief volume we approve. If the 
application involves a pre-Act lease, the single volume must at least 
equal the field-sized minimum set in the Act and applies to all 
production from the field. In these cases, we evaluate field rather 
than project economics, and all lessees share the volume we grant to 
the field.
    If the application involves only post-2000 deep water leases, the 
single relief volume equals the amount we judge necessary to make the 
project economic. In this case, the royalty suspension replaces any 
suspension volume in the lease instruments and only applies to the 
reservoirs identified in the application. Thus, should a qualifying 
project fail to produce the full royalty suspension volume we grant in 
response to an application, the leases that participated in the 
application may not apply the unused volume suspension to other 
production. To do otherwise encourages understatement of a lease's 
potential in the application we review. If no production has occurred 
from the participating leases, the royalty suspension volume is subject 
to the minimum applicable for the development or expansion project.
    The one exception to sharing a single volume occurs when an 
eligible lease is part of the field, In that instance, the eligible 
lease may produce royalty-free up to its field-sized suspension volume, 
regardless of the volume we set for the project proposed by the other 
leases. However, production from a development project on the same 
field counts against the field-sized volume available to the eligible 
lease.
    We reflect these principles by adding the new applicant category in 
the proposed changes to Sec. 203.71.

Adjustments to the Evaluation Elements

    Except for cases that involve fields with a pre-Act lease, we 
propose to change the way we count sunk costs in the determination of 
whether an application qualifies for royalty relief. To comply with the 
Act's instruction to consider historic costs for pre-Act leases, we 
originally included the costs of and after the discovery well when 
calculating whether a field appeared economic, but only on fields where 
no production had yet occurred. We now propose to allow the documented 
costs of the discovery well, both for development projects on post-2000 
deep water leases and for expansion projects on pre-Act or on post-2000 
deep water leases. The discovery well is the one that penetrates the 
first reservoir targeted by the project and that meets the well 
producibility requirements of 30 CFR part 250. We expect that allowing 
sunk costs for this broader scope of prospects will help promote 
exploration in deep water and greater use of the opportunity to obtain 
supplementary royalty suspension volumes. Allowing some sunk costs to 
more applicants permits more leases to quality for royalty relief and 
thus encourages more exploration.
    Unlike the treatment of sunk costs on pre-Act leases, we do not 
intend to count pre-application costs subsequent to the discovery well. 
This more limited treatment reflects a balanced approach to competing 
considerations. On the one hand, overcoming the unusual risks of deep 
water development may depend on Government sharing some of the 
uncertainty burden, even on expansion projects. Also, our regulations 
require only a discovery well before we will consider an application. 
Further, the uneconomic level for development projects will be lower 
because determination of whether the project qualifies for a 
supplemental volume suspension includes the value of any volume 
suspension with which we issued the participating leases. On the other 
hand, only future costs, not historic costs, influence decisions on 
whether to proceed on a specific project. Further, activities and costs 
other than the discovery well, such as acquiring seismic data, 
completing engineering studies, or drilling additional wells, are 
conducted at the applicant's discretion before filing an application 
for royalty relief. Additionally, costs associated with these other 
activities are more likely than a discovery well to benefit other 
prospects for help attract other partners or successor owners to this 
prospect. Counting only the cost of the discovery well balances sharing 
the exploration risk with the responsibility to include only relevant 
costs. (See the new category of sunk cost treatment proposed in the 
table in Sec. 203.68.)
    We do not propose to change the exclusion of sunk cost from the 
determination of how much relief a project needs to become economic 
(volume test). To do otherwise risks adding relief well beyond that 
necessary to make development economic. Also, it directs more relief to 
just the wrong projects, specifically those that are more likely to 
continue anyway because they have relatively smaller costs left to 
incur and that must be covered by future production. However, we will 
ensure that inclusion of sunk cost in the qualification determination 
gives the applicant an unambiguous benefit. We propose to do that by 
adding an increment of royalty-free production to any royalty 
suspension volume with which a qualifying project starts the 
application process. Our qualification test does factor in the volume 
suspensions with which we issued leases participating in the 
application, but not this increment.
    We propose to set this increment at 10 percent of the most likely 
resource size we agree is appropriate for the project. For instance, 
consider a development project that MMS agrees has a most likely 
resource size of 60 MMBOE. If it qualifies for relief and is located on 
RS leases that we issued with a combined royalty suspension volume of 
20 MMBOE, it will get a royalty suspension of at least 26 MMBOE. An 
expansion project in this situation would get at least 6 MMBOE.
    This form of increment improves on a universal fixed increment or 
one tied to water depth because it is project-specific. Further, its 
relatively small size ensures that it neither provides too much or too 
little relief to encourage individual project development and program-
wide exploration. It is preferable to a time-based increment, such as 
an extra year of royalty-free production, because it does not risk 
damaging ultimate recovery by creating an incentive to accelerate 
production to avoid royalties. A sub-marginal project may need royalty 
suspension for anywhere from a small fraction of its reserves to 
virtually all of them to be worth developing. If something less than 
royalty-free production of 50 percent of reserves on average justifies 
development on a look-forward basis

[[Page 69262]]

(excluding sunk costs), a fraction of that could be safely provided to 
induce exploration. The 10-percent share represents a considered amount 
designed to encourage exploration on future projects deemed marginally 
or sub-marginally profitable. This policy leaves up to 90 percent of 
the project's production still subject to royalties.
    Thus, the project-specific increment serves as a uniform 
replacement for sunk cost in the volume determination test. This 
increment assures any project that qualifies for supplemental relief 
because of sunk cost will have an additional volume suspension on top 
of what it has already. A development or an expansion project, 
therefore, may get a somewhat larger volume suspension than it needs to 
be economic on a look-forward basis. Alternatively, the project would 
get a larger volume than the minimum volume suspension if our 
evaluation indicates it needs more relief than the minimum to be 
economic on a look-forward basis. (See changes in Sec. 203.69.)
    To help us evaluate the effects of revising our treatment of sunk 
cost, we would like your comments on the following questions.
     How does a credit for sunk costs change your incentive to 
explore a risky prospect and to apply for royalty relief?
     What other treatments of sunk costs promote exploration 
without resulting in excessive volume suspension for many projects?
    Also, we propose to lower the viability standard we set as a 
prerequisite to evaluating a field's or a project's need for relief. 
Our current evaluation procedure requires that the application meet two 
economic criteria. First, the application must show that a field or 
project is viable, i.e., would be economic assuming it paid no 
royalties and no sunk costs. Second, qualification for relief requires 
that the application show a nonproducing field would not be profitable 
assuming it paid certain sunk costs and full royalties, or that an 
expansion project would not be profitable paying full royalties. We 
have revised Sec. 203.67 to clarify the dual criteria for 
qualification.
    Until now, we insisted that the same discount rate be used for both 
the viability and the profitability estimates. While ensuring that the 
application does not give an overly pessimistic portrayal of the field 
or expansion project, this equivalence of discount rates may be too 
restrictive. Development without royalty or sunk costs should be less 
risky than if these costs have to be covered. Thus, the cost of capital 
under the viability circumstances should be lower than when full 
royalties and sunk costs must be paid. To acknowledge this potential 
difference, we propose to accept applications that demonstrate fields 
or projects have a positive value at a 10-percent real rate of 
discount. Applicants retain the right to set the discount rate we use 
for the profitability test at any value between 10 and 15 percent. (See 
changes to the guidelines that accompany Sec. 203.67.) The MMS website, 
www.gomr.mms.gov/homepg/offshore/royrelef.html, provides the most 
current version of these guidelines, including the parameters we 
prescribe for discount rates and prices.
    This change in our discount rate procedure offsets one effect of 
changing the way we treat sunk costs, for leases other than pre-Act 
leases, in our qualification determination. A 10-percent discount rate 
has the effect of raising the estimated present value of the field or 
project in the absence of royalties. Past applicants always chose a 15-
percent discount rate. We anticipate that future applicants will 
continue to choose the maximum allowed discount rate for the full 
royalty profitability analysis. Thus, while limiting sunk costs 
generally reduces the difference between the viability and 
profitability estimate, a lower discount rate for the viability 
estimate than for the profitability estimate will increase this 
difference. The larger difference allows a wider range of circumstances 
to qualify as marginal fields or projects in need of royalty relief. 
More generally, limiting sunk costs for post-2000 deep water leases and 
acknowledging that development risks may be different with and without 
royalties makes our evaluation of economic need more realistic.
    Finally, we are proposing to add language that clarifies what we 
seek in the administrative and design parts of an application. As with 
the G&G report, these changes reflect additional information we have 
requested from previous applicants. (See changes proposed to 
Secs. 203.83 and 203.87.)

Adjustments to Post-Evaluation Elements

    We propose adjustments in several of the conditions successful 
applicants must meet to realize a royalty suspension or to re-apply for 
relief. We propose adjustments in the deadline to start fabrication of 
the development system, in correcting for overestimating costs in the 
application, and in what constitutes an appropriate reason for us to 
reconsider the need for relief. These three proposed adjustments apply 
to all fields or projects seeking a volume suspension after the 
effective date of these revisions. Also, we propose to specify in the 
leasing documents the price thresholds (which we identify at the time 
of lease sale) above which we will suspend any remaining royalty relief 
for post-2000 deep water leases.
    Current regulations require applicants to give evidence of a timely 
commitment to development by starting fabrication of their production 
facility within 1 year after we approve their application. We 
established this deadline to avoid premature applications. Requiring 
that projects or developments be ready to commence soon after approval 
means we make the relief decision close to the same point and with 
about the same quality of information as the applicant uses to make the 
commitment decision. While the fact that the ability to get into 
production quicker than expected partially accounts for the improvement 
in deep water economics, the 1-year-to-fabrication deadline we set 
needs lengthening. Shortages of drilling, design, and fabrication 
capacity for deep water development may make meeting the currently 
required schedule difficult. Also, we don't want to encourage token 
actions that don't really signal the start of development. Thus, we 
propose to lengthen the period when fabrication must start to 18 months 
after relief approval. Added to the 6-month period we use for 
evaluation, that gives a full 2 year lead-time between application and 
commitment to development. With our authority to extend that period for 
up to 6 months for events beyond the applicant's control, we feel this 
change should provide ample time to make the necessary arrangements to 
start development on projects or fields that receive royalty relief. 
(See change to deadlines proposed in Sec. 203.70.)
    Along with this deadline change, we propose to clarify that the 
meaning of ``starting fabrication'' requires continuous fabrication. 
Starting and then suspending fabrication of the production facility 
does not fulfill this performance condition. (See the addition we 
propose in Sec. 203.76(b)).
    Another performance condition we use to help ensure we deal with a 
realistic application has to do with estimated costs. We require actual 
expenditures to equal at least 80 percent of the costs that the 
applicant estimates spending. Both estimated and actual figures cover 
the period between the application and first production. The current 
correction for overestimating actual costs by too much is retention of 
only half of the volume suspension we originally granted. This 
correction has no real effect when the minimum

[[Page 69263]]

suspension volume prescribed by the Act more than doubles the field's 
expected production. Thus, we propose to adjust the correction volume 
to retention of the smaller of one-half of the granted suspension 
volume or one-half of the most likely production specified in the 
application. (See changes to a deadline and the relief correction 
amount proposed in Sec. 203.76.)
    In conjunction with this change, we also propose to broaden what 
constitutes a development system. For instance, we will no longer 
consider Spars and mini-tension-leg platforms different development 
systems. Both are essentially floaters with export pipelines and little 
if any storage capacity. With this change, we intend to maximize the 
flexibility applicants have to entertain bids for competing versions of 
the same basic development system.
    We also propose to expand the situations in which fields or 
projects may seek a redetermination of our initial relief decision. We 
provide more flexibility for allowing redeterminations when relief is 
withdrawn or relinquished. Also, we add another condition in which we 
permit a redetermination if we deny your application or you seek to 
increase an approved volume suspension. In these instances, in addition 
to substantial increases in estimated costs, reductions in expected 
prices, or new geologic information on the field, we propose to allow a 
re-application for a change of development system under certain 
conditions. It must be clear that the original application did not 
consider or deem the new development system infeasible. This situation 
might arise because new technology becomes available or a new owner 
with a different perspective takes over field development after the 
initial application. In either case, the new application needs to 
demonstrate that the new approach more efficiently develops the 
resource than what we originally evaluated. By more efficient, we mean 
either clearly lower costs or clearly larger recovery, so that 
estimated profit would increase under the circumstances we previously 
evaluated. (See the new fourth condition and the removal of the 
restriction on the price condition in the changes we propose to 
Sec. 203.74.)
    More realistic performance conditions may add value to the 
successful applicant's explicit right to renounce relief. Several 
successful past applicants have lost relief because they violated a 
withdrawal condition. Rather than wait until we formally withdraw 
relief, they could have renounced relief as soon as they realized they 
needed to change the proposed development system or significantly 
revise cost estimates. By renouncing, they could accelerate the start 
of a redetermination, thereby converting after-tax, sunk costs on 
authorized fields to before-tax, post-application costs for purposes of 
the next application. We propose to simplify Sec. 203.77 to avoid 
confusion about this right.
    Further, we propose to review the level we set and to which prices 
must rise before the need for royalty relief, granted under an earlier 
expectation of lower prices, disappears. By 1999, the Act's escalation 
procedure meant that oil prices must exceed $30/bbl or natural gas 
prices must exceed $3.80/MMBtu for an entire calendar year before pre-
Act leases with a remaining volume suspension owe royalty. For 
comparison, royalties reduce realized price by slightly less than the 
royalty percentage, e.g., 12.5 percent for deep water tracts in greater 
than 400 meters (m) of water. When market prices rise above levels that 
prompted development by more than that percentage for at least a year, 
the need for the royalty suspension incentive disappears, at least for 
these projects or fields. Therefore, we propose to suspend royalty 
relief for projects when prices rise and remain substantially above 
levels prevalent when we approved relief. To reflect evolving market 
conditions, we will set these threshold levels in the Notice of Sale 
and lease documents associated with each future lease. (See the 
proposed changes that add the new relief recipient category to 
Sec. 203.78.)
    Finally, we propose to make clear in the regulations that we want a 
Certified Public Account (CPA) not affiliated with the applicant to 
vouch for the historic data in the application and post-production 
report. Thus, we have added the word ``independent'' before CPA in 
changes proposed to Secs. 203.81 and 203.91.
    The following table summarizes the elements of the current DWRR 
program that we propose to modify with this rule.

               Proposed Modifications to DWRR Applications
------------------------------------------------------------------------
                                      Current and      Proposed changes
                                      continuing       Applies to post-
             Element               program  Applies     2000 deep water
                                   to pre-Act leases        leases
------------------------------------------------------------------------
Eligibility (Central, Western,    Leases in 200m or   Leases in 200m or
 and western part of Eastern       more water depth    more water depth
 Gulf of Mexico).                  issued before       issued after
                                   1996.               2000.
Royalty-free production can come  Any production      Only production
 from.                             from the field      from resources
                                   until cumulative    identified in the
                                   recovery volume     application until
                                   equals the          cumulative
                                   suspension volume.  recovery equals
                                                       the suspension
                                                       volume
Minimum suspension volume for     For fields that     For development
 non-producing leases.             did not produce     projects, matches
                                   before the Act,     volumes
                                   matches eligible    designated in
                                   lease suspension    sale and lease
                                   volumes (17.5,      documents for
                                   52.5, 87.5 MMBOE)   various water
                                   in equivalent       depths of 200m or
                                   water depths.       greater plus 10
                                                       percent of
                                                       reserves.
Credit for sunk costs in          For fields with     For development
 application.                      pre-Act leases      projects, after-
                                   that did not        tax cost of only
                                   produce before      the discovery
                                   the application,    well, except when
                                   after-tax costs     the application
                                   of and after        involves a pre-
                                   discovery well      Act lease.
                                   used in
                                   qualification.
Threshold oil and gas price       Statute sets        Lease terms set
 levels for lifting relief.        threshold price     threshold price
                                   for light sweet     for light sweet
                                   crude oil and       crude oil and
                                   natural gas.        natural gas.
------------------------------------------------------------------------


[[Page 69264]]


               Proposed Modifications to DWRR Applications
------------------------------------------------------------------------
                                      Current and      Proposed changes
                                     discontinuing    Applies to pre-Act
             Element               program  Applies   and post-2000 deep
                                   to pre-Act leases     water leases
------------------------------------------------------------------------
Discount rate used in evaluation  Same rate used on   Use 10% on
                                   viability and       viability test,
                                   profitability       applicant chooses
                                   tests, applicant    rate between 10%
                                   chooses between     and 15% for
                                   10% and 15%.        profitability
                                                       test.
Redetermination of field          Available for new   Available anytime
 qualification or volume by MMS.   well or seismic     after relief
                                   data, 25% lower     relinquished or
                                   prices, or 20%      withdrawn.
                                   higher cost.        Otherwise, for
                                                       new well or
                                                       seismic data, 25%
                                                       lower prices, 20%
                                                       higher cost, or
                                                       more efficient
                                                       development
                                                       system.
Deadline for starting             Within 1 year of    Within 18 months
 fabrication.                      approval,           of approval,
                                   extendable for up   extendable for up
                                   to 1 year.          to 6 months.
Correction for overestimating     Retain only half    Retain only half
 cost by 20% or more.              of suspension       or smaller of
                                   volume granted.     granted
                                                       suspension volume
                                                       or most likely
                                                       resource size.
Minimum suspension volume for     None..............  10 percent
 expansion project.                                    reserves.
Credit for sunk costs in          None..............  After-tax cost of
 application for expansion                             the discovery
 project.                                              well.
------------------------------------------------------------------------

Royalty Relief in Special Circumstances

    Certain circumstances can make leases ineligible for one of our 
established royalty relief programs. Yet, royalty relief may benefit 
both the lessee and the Federal Government. For example, a recent, 
significant renovation of operations prevents a lessee from seeking 
end-of-life royalty relief, at least temporarily. Or, the operator of a 
marginal expansion project in less than 200m of water cannot apply for 
a royalty suspension, even if it is located in the central and western 
GOM. When combined with other circumstances, such as a sudden drop in 
prices or unusually high original royalty rates, this ineligibility 
could cause substantial resources to be left unproduced. Some form of 
royalty relief in these unusual situations can serve the statutory 
purpose of increasing production or promoting development outside our 
established programs. Because of the rarity of situations that meet 
these unusual conditions, we will not establish another formal royalty 
relief program. But, we leave open the opportunity for an operator to 
request relief in special circumstances. Before evaluating a special 
relief application, we require that applicants establish eligibility. 
An applicant does this by gaining our approval that their situation 
meets several of the tests listed in the new Sec. 203.80. Once that is 
done, we will establish case-by-case qualification conditions and 
relief format appropriate to the special circumstances.
    Can you suggest forms of royalty reduction that we are not now 
using that might encourage increased production in the special 
circumstances we propose in Sec. 203.80?

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)

    The proposed rule is a significant regulatory action under 
Executive Order 12866, and is subject to review by the Office of 
Management and Budget (OMB).
    a. This proposed rule will not have an annual economic effect of 
$100 million or adversely affect an economic sector, productivity, 
jobs, the environment, or other units of government. This action 
describes how certain new deep water leases may quality for royalty 
suspensions and the circumstances under which we might grant royalty 
relief. Historically, we have received only a limited number of 
applications for royalty relief. Based upon our experience, only a 
small number of leases will quality for royalty relief in any one year, 
and the annual value of the relief will be less than $100 million. The 
only field that has gone into production after approval may, depending 
on prices, avoid slightly over $7 million in royalty payments in is 
first year of production. The royalty suspension options in this 
proposal will encourage new production from a few marginal leases. 
Because royalty suspension volumes are an incentive to production, they 
likely will have a beneficial effect on the offshore oil industry, 
domestic oil and gas supplies, and jobs. In fact, this program should 
increase aggregate OCS production by making production from marginal 
fields more economically feasible.
    b. This proposed rule does not create inconsistencies with other 
agencies' actions because it preserves the concepts and requirements 
from the existing rule.
    c. This proposed rule is an administrative change that will not 
affect entitlements, grants, user fees, loan programs, or their 
recipients. This proposed rule has no effect on these programs or 
rights of the programs' recipients.
    d. This proposed rule does not raise any novel legal issues, but 
does raise policy issues. The proposed rule extends and supplements the 
existing DWRR rule. It describes conditions under which lessees have 
the opportunity to apply for and acquire royalty relief on post-2000 
deep water leases. Also, it modifies some conditions under which 
lessees of pre-Act leases obtain royalty relief. In addition, the 
proposed action describes special circumstances under which lessees may 
apply for royalty relief that were not specified in our previous 
regulations. All of these changes are consistent with the basic 
philosophy in

[[Page 69265]]

the current rule of granting relief only when applicants show it is 
economically necessary for development.

Regulatory Flexibility (RF) Act

    The Department certifies that this document will 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 
proposed rule will not have a significant adverse economic effect on 
offshore lessees and operators, including those that are classified as 
small businesses. The proposed rule extends the benefit of 
discretionary royalty relief to certain OCS leases issued after 
November 2000 that qualify as marginally uneconomic. In any one year, 
we are likely to receive only a small number of royalty relief 
applications, which limits the number of entities the proposed rule may 
affect. Based on past experience, we expect to receive between one and 
two applications a year for DWRR. Also, because firms initiate 
applications, they have the ability to avoid any adverse effects they 
foresee. As suggested below, the new provisions proposed should 
actually lower the cost to those who choose to take advantage of the 
benefit offered by this regulation. An RF analysis is not required. A 
Small Entity Compliance Guide is not required.
    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. Of these, approximately 130 
companies are offshore lessess/operators, based on current estimates. 
Publicly available data indicate that 39 companies qualify as large 
firms according to SBA criteria, 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. Of the 211 deep water leases that have a discovery or 
production by mid-2000, 19 large firms are the lessee/operator of 193, 
while 7 small firms are lessee/operator of the other 18. While that 
ratio suggests a 1-in-12 chance that a small operator may apply for 
relief, 2 of the 16 past applications we received have been from small 
operators. This rule proposes continuing the same basic application 
system we now use. Small operators do not appear to be at a 
disadvantage in our application process.
    Provisions of the proposed rule, in comparison with existing rules 
for discretionary DWRR for pre-Act leases, may reduce applicant costs 
in three areas:
     First, new applications for DWRR will be on the basis of a 
fully identified project rather than a whole, often incompletely 
identified field. Consequently, applicants may need to provide less 
extensive G&G data. For instance, we will not require them to submit 
data they have access to on reservoirs that may be in the field but 
clearly are not part of the project. There is no sound basis for 
estimating the size of any savings associated with this reduced data 
burden because only some applications would involve potential extra 
reservoirs. For those that do, however, this change can reduce the 
amount of follow-up data we typically have to request from applicants 
and can expedite our evaluation.
     Second, applicants may no longer have to incur the cost of 
additional drilling or acquisition of new seismic data to request a 
determination. While significant new geologic information or price or 
cost changes still enable a redetermination, applicants may now seek a 
redetermination upon identification of a more efficient development 
system. That new reason could save drilling a new deep water well at a 
cost of $20 million or more or acquiring additional seismic data at a 
cost of about $100,000 per tract. We have received no redetermination 
requests. We attribute this to the fact that the DWRR program has not 
been active long enough to reach the redetermination stage for most of 
the applications we have already processed.
     Third, under the proposed rule, we give successful 
applicants more time to initiate development than under existing rules. 
This added time gives operators more time to arrange financing and to 
negotiate contracts with suppliers. Again, there is no sound basis for 
estimating the size of any savings associated with this greater 
applicant flexibility. It is clear, however, that this change, like the 
other two, cannot be considered to impose a significant adverse 
economic effect on a substantial number of small business entities. If 
anything, all four changes ameliorate the existing applicant cost 
burden.
    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 5 U.S.C. 804(2), the 
SBREFA. This proposed rule:
    a. Does not have an annual effect on the economy of $100 million or 
more. This proposed rule modifies some procedures used under the 
current rule, specifies how certain new deep water leases may qualify 
for royalty suspensions in the future, and describes circumstances that 
may cause us to grant royalty relief that were not covered in the 
current regulations. In general, the effect of qualifying for a royalty 
suspension increases production from a few marginal fields but does not 
change royalty collections--since without relief, no production or 
royalty payments would occur or be expected, so suspending them 
forfeits little if any revenue. To the extent that royalty relief 
encourages new production, it benefits applicants, one-third of which 
in the past have been small business. But only one of the four fields 
for which we have approved relief has gone into production. We expect, 
however, that in any one year, this proposed 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 natural gas prices are more 
localized, they correlate to oil prices. The proposed 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.

[[Page 69266]]

Leasing on the United States OCS is limited to residents of the United 
States or companies incorporated in the United States. This proposed 
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 proposed 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 proposed rule modifies some 
procedures in the existing regulation, describes how certain new leases 
may qualify for royalty suspensions, and specifies special 
circumstances that might cause us to grant royalty relief that were not 
considered previously. None of these changes involve State, local, or 
tribal mandates. 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 proposed rule does not have 
significant Takings implications. A Takings Implication Assessment is 
not required because the proposed rule would not take away or restrict 
a bidder's right to acquire or develop 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 from lessees in the 
deep water GOM, all of which is outside State jurisdiction. States have 
no role in this activity with or without this rule. This does not 
impose costs on States or localities. States and local governments play 
no part in the administration of the DWRR program.

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.

Paperwork Reduction Act (PRA) of 1995

    The information collection requirements in the proposed rulemaking 
remain unchanged from those currently approved by OMB, and a new 83-I 
submission is not required.
    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 1998, OMB approved 
the information collection requirements in the current regulations 
under OMB control number 1010-0071.
    Based on experience to date, MMS subsequently determined that the 
application filing fee schedule should be revised. In addition, the 
need became apparent for establishing a new fee to cover applications 
for ``special relief for marginal producing leases.'' Consequently, we 
initiated the process to obtain OMB approval of these changes to the 
information collection burden. We published the required 60-day Federal 
Register notice on May 11, 2000 (65 FR 30431). The comment period 
closed on July 11, 2000; we received no comments. We then submitted a 
request to OMB, and OMB approved the revised information collection 
burden with a current expiration date of September 30, 2003. The 
approved information collection burden is consistent with the proposed 
amendments to the regulations.
    As part of our continuing effort to reduce paperwork and respondent 
burdens, we invite your comments on any aspect of the reporting burden 
in part 203. MMS will address comments on the information collection 
burden in the final rule preamble. Refer to the Addresses section for 
mailing instructions. We specifically solicit 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?
    The title of the collection of information is ``30 CFR Part 203, 
Relief or Reduction in Royalty Rates.'' 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 under applicable law and 30 CFR 203.63(b) and 
250.196.
    The following chart provides our estimated ``hour'' burden for part 
203 regulations and the application and audit fee ``non-hour'' cost 
burdens authorized under Sec. 203.3

----------------------------------------------------------------------------------------------------------------
                                                                     Application/audit fees
 Reporting or recordkeeping requirement 30 CFR -----------------------------------------------------------------
                   Part 203                                                          Hours per     Annual burden
                                                        Annual responses             response          hours
----------------------------------------------------------------------------------------------------------------
                                             OCS Lands Act Reporting
----------------------------------------------------------------------------------------------------------------
Application--leases that generate earnings      2 Applications..................             100             200
 that can't sustain continued production (end-
 of-life lease).
                                               -----------------------------------------------------------------
                                                               Application  2 x $12,000=$24,000 \1\
                                                                 Audit       1 x $10,000=$10,000
                                               -----------------------------------------------------------------
Application--special relief for marginal        1 Application...................             250             250
 producing lease (expect less than 1 per year--
 new category).
                                               -----------------------------------------------------------------
                                                               Application  1 x $15,000=$15,000 \1\
                                                                 Audit        1 x $10,000=$10,000
                                               -----------------------------------------------------------------

[[Page 69267]]

 
Sec.  203.55 Renounce relief arrangement        1 Letter........................               1               1
 (seldom, if ever will be used; minimal burden
 to prepare letter).
                                               -----------------------------------------------------------------
Sec.  203.81, 203.83 through 203.89 required            Burden included with applications.
 reports.
                                               -----------------------------------------------------------------
    OCS Lands Act Reporting Subtotal..........  4 responses.....................             N/A             451
                                               -----------------------------------------------------------------
                                                                     Processing Fees=$59,000
----------------------------------------------------------------------------------------------------------------
                                                 DWRAA Reporting
----------------------------------------------------------------------------------------------------------------
Application--leases in designated areas of GOM  1 Application...................           2,000           2,000
 deep water acquired in lease sale before 11/
 28/95 or after 11/28/00 and are producing
 (deep water expansion project).
                                               -----------------------------------------------------------------
                                                                 Application  1 x $39,000=$39,000
                                                                              Audit
                                               -----------------------------------------------------------------
Application--leases in designated areas of      1 Application...................           2,000           2,000
 deep water GOM, acquired in lease sale before
 11/28/95 or after 11/28/00, that have not
 produced (pre-Act or post-2000 deep water
 leases).
                                               -----------------------------------------------------------------
                                                                 Application  1 x $49,000=$49,000
                                                                 Audit        1 x $25,000=$25,000
                                               -----------------------------------------------------------------
Application--short form to add or assign pre-   1 Application...................              40              40
 Act lease.
                                               -----------------------------------------------------------------
                                                                  Application  1 x $1,000=$1,000
                                                                             No Audit
                                               -----------------------------------------------------------------
Application--preview assessment (seldom if      1 Application...................             900             900
 ever will be used as applicants opt for
 binding determination by MMS instead).
                                               -----------------------------------------------------------------
                                                                 Application  1 x $46,600=$46,600
                                                                             No Audit
                                               -----------------------------------------------------------------
Application--special relief for marginal        1 Application...................           1,000           1,000
 expansion project or marginal non-producing
 lease (expect less than 1 per year--new
 category).
                                               -----------------------------------------------------------------
                                                                 Application  1 x $49,000=$49,000
                                                                 Audit        1 x $20,000=$20,000
                                               -----------------------------------------------------------------
Redetermination...............................  1 Redetermination...............             500             500
                                               -----------------------------------------------------------------
                                                               Application  1 x $32,000=$32,000 \1\
                                                                 Audit       1 x $25,000=$25,000
                                               -----------------------------------------------------------------
Sec.  203.70, 203.81, 203.90, 203.91 Submit     2 Reports.......................              20              40
 fabricator's confirmation report.
Sec.  203.70, 203.81, 203.90, 203.92 Submit     2 Reports \1\...................              50             100
 post-production development report.
Sec.  203.77 Renounce relief arrangement        1 Letter........................               1               1
 (seldom, if ever will be used; minimal burden
 to prepare letter).
Sec.  203.79(a) Request reconsideration of MMS  4 Requests......................             400           1,600
 field designation.
Sec.  203.79(c) Request extension of deadline   1 Request.......................               2               2
 to start construction.
                                               --------------------------------------------------
Sec.  203.81, 203.83 through 230.89 Required            Burden included with applications                      0
 reports..
                                               --------------------------------------------------
    DWRR Act Reporting Subtotal...............  16 Responses....................             N/A           8,183
                                               -----------------------------------------------------------------
                                                                     Processing Fees=$286,600
----------------------------------------------------------------------------------------------------------------
                                              RecordKeeping Burden
----------------------------------------------------------------------------------------------------------------
Sec.  203.91 Retain supporting cost records     2 Record keepers................               8              16
 for post-production development/fabrication
 reports (records retained as usual/customary
 business practice; minimal burden to make
 available at MMS request).
    Total Annual Burden.......................  22 Responses....................             N/A           8,650
                                               -----------------------------------------------------------------

[[Page 69268]]

 
                                                                 Total Processing Fees=$345,600
----------------------------------------------------------------------------------------------------------------
\1\ In addition, under Sec.  203,81, a report prepared by an independent CPA must accompany the application and
  post-production report (except expansion project, short form, and preview assessment applications are
  excluded). The OCS Lands Act applications will require this report only once; the DWRR Act applications will
  require this report at two stages--with the application and post-production development report for successful
  applicants. We estimate an average cost for a report is $45,000 and that seven CPA certifications per year
  will be necessary if the applications are approved. The total estimated annual ``non-hour'' cost burden for
  this requirement is $315,000 ($45,000 per certification  x  7 CPA certifications=$315,000).

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 proposed rule easier to understand, including answers to questions 
like the following:
    (1) Are the criteria for obtaining royalty relief clearly 
specified?
    (2) Are the procedures for obtaining royalty relief clearly 
described?
    (3) Are the rules for determining royalty suspension volumes for 
the various categories of leases clearly stated?
    (4) Are the conditions for obtaining royalty relief in special 
circumstances adequately specified?
    (5) Does the proposed rule contain technical language or jargon 
that interferes with its clarity?
    (6) Does the format of the proposed rule (grouping and ordering of 
sections, use of headings, etc.) increase or reduce its clarity?
    (7) Would the proposed rule be easier to understand if it were 
divided into more, but shorter, sections?
    (8) Is there anything else we can do to make the proposed rule 
easier to understand? Send a copy of any comments that concern how we 
could make this proposed 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].

List of Subjects in 30 CFR Part 203

    Continental shelf, Government contracts, Indians-lands, Minerals 
royalties, Oil and gas exploration, Public lands-mineral resources, 
Reporting and recordkeeping requirements, Sulphur.

    Dated: October 30, 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 part 203 as follows:

PART 203--RELIEF OR REDUCTION IN ROYALTY RATES

    1. The authority citation for part 203 continues to read as 
follows:

    Authority: 25 U.S.C. 396 et seq.; 25 U.S.C. 396a et seq.; 25 
U.S.C. 2101 et seq.; 30 U.S.C. 181 et seq.; 30 U.S.C. 351 et seq.; 
30 U.S.C. 1001 et seq.; 30 U.S.C. 1701 et seq.; 31 U.S.C. 9701 et 
seq.; 43 U.S.C. 1301 et seq.; 43 U.S.C. 1331 et seq.; and 43 U.S.C. 
1801 et seq.;
    2. Section 203.0 is amended by adding ``Development project'' and 
``Royalty suspension (RS) lease'' and revising ``Authorized field,'' 
``Eligible lease,'' ``Expansion project,'' ``Fabrication (or start of 
construction),'' ``New production,'' ``Pre-Act lease,'' 
``Redetermination,'' and ``Sunk costs'' to read as follows:


Sec. 203.0  What definitions apply to this part?

    Authorized field means a field:
    (1) Located in a water depth of at least 200 meters and in the Gulf 
of Mexico west of 87 degrees, 30 minutes West longitude;
    (2) That includes one or more pre-Act leases; and
    (3) From which no current pre-Act lease produced, other than test 
production, before November 28, 1995;
* * * * *
    Development project means a project that:
    (1) You propose in a Development Operations Coordination Document 
(DOCD); and
    (2) Is located on one or more contiguous leases that;
    (i) Were issued in a sale held after November 28, 2000;
    (ii) Are located in the Gulf of Mexico west of 87 degrees, 30 
minutes West longitude; and
    (iii) Have had no production (other than test production) before 
the current application for royalty relief.
* * * * *
    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.
    Expansion project means a project you propose in a Development 
Operations Coordination Document (DOCD) or a Supplement approved by the 
Secretary of the Interior after November 28, 1995, that will 
significantly increase the ultimate recovery of resources from pre-Act 
lease or a lease issued in a sale held after November 28, 2000. For a 
pre-Act lease, it must also involve a substantial capital investment 
(e.g., fixed-leg platform, subsea template and manifold, tension-leg 
platform, multiple well project, etc.).
    Fabrication (or start of construction) means evidence of 
irreversible commitment to a concept and scale of development, 
including copies of a binding contract between you (as applicant) and a 
fabrication yard, a letter from a fabricator certifying that continuous 
construction has begun, and a receipt for the customary down payment.
* * * * *
    New production means any production from a current pre-Act lease 
from which no royalties are due on production, other than test 
production, before November 28, 1995. Also, it means any production 
resulting from lease-development activities on a

[[Page 69269]]

current pre-Act lease or a lease issued in a sale after November 28, 
2000, under a Development Operations Coordination Document (DOCD) or a 
Supplement approved by the Secretary of the Interior after November, 
28, 1995, that significantly expands production.
* * * * *
    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 
this part.)
* * * * *
    Redetermination means your request for us to reconsider our 
determination on royalty relief because:
    (1) We have rejected your application;
    (2) We have granted relief but you want a larger suspension volume;
    (3) We withdraw approval; or
    (4) You renounce royalty relief.
* * * * *
    Royalty suspension (RS) lease means a lease that:
    (1) Results from a lease sale held after November 28, 2000;
    (2) Is in a location or planning area specified in the Notice of 
Sale offering that lease; and
    (3) Is offered subject to a royalty suspension volume.
    Sunk costs on an authorized field means the after-tax costs (as 
specified in Sec. 203.89(a)) of exploration, development, and 
production that you incur after the date of first discovery on the 
field and before the date we receive your complete application for 
royalty relief. Sunk costs on an expansion project or development 
project means, and on an authorized field includes, the after-tax costs 
of the discovery well qualified as producible under 30 CFR part 250, 
subpart A. In no case does sunk cost include any pre-discovery activity 
costs or lease acquisition and holding costs such as cash bonus and 
rental payments. Discovery well costs include any tangible costs 
directly related to the well that you incurred prior to the discovery 
date. We count pre-application costs on an unescalated, after-tax 
basis.
* * * * *
    3. Section 203.2 is revised to read as follows:


Sec. 203.3  When can I get royalty relief?

    We can reduce or suspend royalties for Outer Continental Shelf 
(OCS) leases or projects that meet the criteria in the following table.

------------------------------------------------------------------------
                                                      Then we may grant
    If you have a lease--         And if you--              you--
------------------------------------------------------------------------
(a) Whose earnings cannot     Would abandon         A reduced royalty
 sustain production (End-of-   otherwise             rate on current
 life lease).                  potentially           monthly production
                               recoverable           and a higher
                               resources but seek    royalty rate on
                               to increase           additional monthly
                               production            production. (See
                               significantly by      Secs.  203.50
                               operating beyond      through 203.56.)
                               the point at which
                               the lease is
                               economic under the
                               existing royalty
                               rate.
(b) Located in a designated   Are producing and     A royalty suspension
 Gulf of Mexico (GOM) deep     seek to make a        for additional
 water area, and acquired in   substantial           production large
 a lease sale before           investment (e.g., a   enough to make the
 November 38, 1995, or after   platform or subsea    project economic.
 November 28, 2000, and you    template) to          (See Secs.  203.60
 propose in a DOCD or          increase ultimate     through 203.79.)
 supplement to expand          resource recovery
 production significantly.     from the field or
                               lease (Expansion
                               project).
(c) Located in a designated   Are on a field from   A royalty suspension
 GOM deep water area and       which no current      for a minimum
 acquired in a lease she       pre-Act lease         production volume
 held before November 28,      produced (other       plus any additional
 1995 (Pre-Act lease).         than test             volume needed to
                               production) before    make the field
                               November 28, 1995     economic. (See
                               (Authorized field).   Secs.  203.60
                                                     through 203.79.)
(d) Located in a designated   Have not produced     A royalty suspension
 GOM deep water area and       and can demonstrate   for a minimum
 acquired in a lease sale      that the suspension   production volume
 held after November 28,       volume in your        plus any additional
 2000.                         lease is not enough   volume needed to
                               to make development   make your project
                               economic              economic. (See
                               (Development          Secs.  203.60
                               project).             through 203.79.)
(e) Where royalty relief      Are not eligible to   A royalty reduction
 would increase production     apply for end-of-     in a size or
 significantly or, in          life or deep water    duration that makes
 certain areas of the GOM,     royalty relief, but   your lease or
 would enable development.     show us you meet      project economic.
                               certain eligibility   (See Secs.
                               conditions.           203.80.)
------------------------------------------------------------------------

    4. Section 203.4 is revised to read as follows:


Sec. 203.4  How to do the provisions in this part apply to different 
types of leases and projects?

    The tables in this section summarize how similar provisions of this 
part apply in different situations.
    (a) Information elements required for applications in Secs. 203.51, 
205.62, and 203.81 through 203.89.

----------------------------------------------------------------------------------------------------------------
                                                                                    Deep water
                                                    End-of-life  -----------------------------------------------
              Information elements                     lease         Expansion                      Development
                                                                      project      Pre-act lease      project
----------------------------------------------------------------------------------------------------------------
(1) Administrative information report...........              X               X               X               X
(2) Net revenue and relief justification report               X   ..............  ..............  ..............
 (prescribed format)............................
(3) Economic viability and relief justification   ..............              X               X               X
 report (Royalty Suspension Viability Program
 (RSVP) model inputs justified with geological
 and geophysical (G&G), Engineering, Production,
 & Cost reports)................................
(4) G&G report..................................  ..............              X               X               X
(5) Engineering report..........................  ..............              X               X               X
(6) Production report...........................  ..............              X               X               X
(7) Deep water cost report......................  ..............              X               X               X
----------------------------------------------------------------------------------------------------------------


[[Page 69270]]

    (b) Confirmation elements required to retain royalty relief in 
Secs. 203.70, 203.81 and 203.90 through 203.91.

----------------------------------------------------------------------------------------------------------------
                                                                                    Deep water
                                                    End-of-life  -----------------------------------------------
              Confirmation elements                    lease         Expansion                      Development
                                                                      project      Pre-act lease      project
----------------------------------------------------------------------------------------------------------------
(1) Fabricator's confirmation report............  ..............              X               X               X
(2) Post-production development report approved   ..............              X               X               X
 by an independent certified public accountant
 (CPA)..........................................
----------------------------------------------------------------------------------------------------------------

    (c) Prerequisites for approval of relief in Secs. 203.50, 203.52, 
203.60 and 203.67.

----------------------------------------------------------------------------------------------------------------
                                                                                    Deep water
                                                    End-of-life  -----------------------------------------------
               Approval conditions                     lease         Expansion                      Development
                                                                      project      Pre-act lease      project
----------------------------------------------------------------------------------------------------------------
(1) At least 12 of the last 15 months have the                X   ..............  ..............  ..............
 required level of production...................
(2) Already producing...........................              X   ..............  ..............  ..............
(3) Well can produce............................  ..............              X               X               X
(4) Royalties for qualifying months exceed 75%                X   ..............  ..............  ..............
 of net revenue (NR)............................
(5) Substantial investment on a pre-Act lease     ..............              X   ..............  ..............
 (e.g., platform, subsea template)..............
(6) Determined to be economic only with relief..  ..............              X               X               X
----------------------------------------------------------------------------------------------------------------

    (d) Prerequisites for a redetermination in Secs. 203.52 and 203.74 
through 203.75.

----------------------------------------------------------------------------------------------------------------
                                                                                    Deep water
                                                    End-of-life  -----------------------------------------------
           Redetermination conditions                  lease         Expansion                      Development
                                                                      project      Pre-act lease      project
----------------------------------------------------------------------------------------------------------------
(1) After 12 months under current rate, criteria              X   ..............  ..............  ..............
 same as for approval...........................
(2) For material change in geologic data,         ..............              X               X               X
 prices, costs, or available technology.........
----------------------------------------------------------------------------------------------------------------

    (e) Characteristics of relief in Secs. 203.53 and 203.69.

----------------------------------------------------------------------------------------------------------------
                                                                                    Deep water
                                                    End-of-life  -----------------------------------------------
             Relief rate and volume                    lease         Expansion                      Development
                                                                      project      Pre-act lease      project
----------------------------------------------------------------------------------------------------------------
(1) One-half pre-application effective lease                  X   ..............  ..............  ..............
 rate on the qualifying amount, 1.5 times pre-
 application effective lease rate on additional
 production up to twice the qualifying amount,
 and the preapplication effective lease rate for
 any larger volumes.............................
(2) Qualifying amount is the average monthly                  X   ..............  ..............  ..............
 production for 12 qualifying months............
(3) Zero royalty rate on the suspension volume    ..............              X               X               X
 and the original lease rate or higher on
 additional production..........................
(4) Suspension volume is at least 17.5, 52.5 or   ..............  ..............              X   ..............
 87.5 million barrels of oil equivalent (MMBOE).
(5) Suspension volume is at least the minimum     ..............  ..............  ..............              X
 set in the lease...............................
(6) Amount needed to become economic............  ..............              X               X               X
----------------------------------------------------------------------------------------------------------------

    (f) Provisions for discontinuing relief in Secs. 203.54 and 203.78.

----------------------------------------------------------------------------------------------------------------
                                                                                    Deep water
                                                    End-of-life  -----------------------------------------------
            Full royalty resumes when                  lease         Expansion                      Development
                                                                      project      Pre-act lease      project
----------------------------------------------------------------------------------------------------------------
(1) Average NYMEX price for last 12 months is at              X   ..............  ..............  ..............
 least 25 percent above the average for the
 qualifying months..............................
(2) Average NYMEX price for last calendar year    ..............              X               X   ..............
 exceeds $28/bbl or $3.50/mcf, escalated by the
 gross domestic product (GDP) deflator since
 1994...........................................
(3) Average prices for designated periods exceed  ..............              X   ..............              X
 levels we specify in the lease document........
----------------------------------------------------------------------------------------------------------------

    (g) Provisions for ending or reducing relief in Secs. 203.55 and 
203.76 through 203.77.

----------------------------------------------------------------------------------------------------------------
                                                                                    Deep water
                                                    End-of-life  -----------------------------------------------
           Relief Withdrawn or Reduced                 lease         Expansion                      Development
                                                                      project      Pre-act lease      project
----------------------------------------------------------------------------------------------------------------
(1) If recipient requests.......................              X               X               X               X

[[Page 69271]]

 
(2) Royalty rate is at the effective rate for                 X   ..............  ..............  ..............
 the most recent 12 of past 15 months with
 qualifying amounts of production...............
(3) Conditions that we may specify in the                     X   ..............  ..............  ..............
 approval letter in individual cases that
 actually occur.................................
(4) Recipient does not submit post-production     ..............              X               X               X
 report that compares expected to actual costs..
(5) Recipient changes development system........  ..............              X               X               X
(6) Recipient excessively delays starting         ..............              X               X               X
 fabrication....................................
(7) Recipient spends less than 80 percent of      ..............              X               X               X
 proposed pre-production costs prior to start of
 production.....................................
(8) Amount of relief volume is produced.........  ..............              X               X               X
----------------------------------------------------------------------------------------------------------------

    5. Section 203.60 is revised to read as follows:


Sec. 203.60  Who may apply for deep water royalty relief?

    Under conditions in Secs. 203.61(b) and 203.62, you may apply for 
royalty relief if:
    (a) You are a lessee of a lease in water at least 200 meters deep 
in the GOM and lying wholly west of 87 degrees, 30 minutes West 
longitude;
    (b) We have assigned your lease to a field (as defined in 
Sec. 203.0); and
    (c) You either:
    (1) Hold a pre-act lease on an authorized field (as defined in 
Sec. 203.0) or
    (2) Propose an expansion project (as defined in Sec. 203.0) or
    (3) Propose a development project (as defined in Sec. 203.0).
    6. Sec. 203.62, the introductory sentence and paragraph (c) are 
revised to read as follows:


Sec. 203.62  How do I apply for relief?

    You must send a complete application and the required fee to the 
MMS Regional Director for the GOM.
* * * * *
    (c) Sections 203.81, 203.83, and 203.85 through 203.89 describe 
what these reports must include. The MMS regional office for the GOM 
will guide you on the format for the required reports.
    7. In Sec. 203.63, the following changes are made:
    A. The introductory paragraph is redesignated (a) and is revised as 
set forth below.
    B. Paragraphs (a), (b), and (c) following the introductory 
paragraph are redesignated paragraphs (1), (2), and (3).
    C. A new paragraph (b) is added as set forth below.


Sec. 203.63  Does my application have to include all leases in the 
field?

    (a) For authorized fields, we will accept only one joint 
application for all leases that are part of the designated field on the 
date of application, except as provided in paragraph (a)(3) of this 
section and Sec. 203.64. However, we will evaluate all acreage that may 
eventually become part of the authorized field. Therefore, if you have 
any other leases that you believe may eventually be part of the 
authorized field, you may submit data for these leases according to 
Sec. 203.81.
* * * * *
    (b) No, if your application seeks only project relief.
    8. In Sec. 203.64, the section heading and the first sentence in 
the introductory paragraph are revised to read as follows:


Sec. 203.64  How many applications may I file on a field or a 
development project?

    You may file one complete application for royalty relief during the 
life of the field or for a specific development project. * * *
* * * * *
    9. In Sec. 203.65 paragraph (b) is revised to read as follows:


Sec. 203.65  How long will MMS take to evaluate my application?

* * * * *
    (b) We will evaluate your first application on a field or project 
within 180 days and evaluate a redetermination under Sec. 203.75 within 
120 days after we determine that is is complete.
* * * * *
    10. Section 203.66 is revised to read as follows:


Sec. 203.66  What happens if MMS does not act in the time allowed?

    If we do not act within the timeframes established under 
Sec. 203.65, the conditions in the following table aply.

----------------------------------------------------------------------------------------------------------------
                                           And we do not decide within
  If you apply for royalty relief for--        the time specified--                 As long as you--
----------------------------------------------------------------------------------------------------------------
(a) An authorized field..................  You get the minimum          Abide by Secs.  203.70 and 203.76.
                                            suspension volumes
                                            specified in Sec.  203.69.
(b) An expansion project.................  You get a royalty            Abide by Secs.  203.70 and 203.76.
                                            suspension for the first
                                            year of production.
(c) A development project................  You get a royalty            Abide by Secs.  203.70 and 203.76.
                                            suspension for production
                                            during the number of
                                            months that a decision is
                                            delayed beyond the
                                            stipulated timeframes set
                                            by Sec.  203.65, plus all
                                            the royalty suspension
                                            volume for which you
                                            qualify.
----------------------------------------------------------------------------------------------------------------

    11. Section 203.67 is revised to read as follows:


Sec. 203.67  What economic criteria must I meet to get royalty relief 
on an authorized field or project?

    We will not approve applications if we determine that royalty 
relief cannot make the field or project economically viable. Your field 
or proejct must be uneconomic while you are paying royalties and must 
become economic with royalty relief.
    12. In Sec. 203.68, paragraph (b) is revised to read as follows:

[[Page 69272]]

Sec. 203.68  What pre-application costs will MMS consider in 
determining economic viability?

* * * * *
    (b) We will consider sunk costs (allowable expenditures on and in 
some cases after the discovery well as specified in Sec. 203.89(a)) 
according to the following table:

----------------------------------------------------------------------------------------------------------------
                          We will                                              When determining
----------------------------------------------------------------------------------------------------------------
(1) Include sunk costs.....................................  whether a field that includes a pre-Act lease which
                                                              has not produced, other than test production,
                                                              before the application or redetermination
                                                              submission date needs relief to become economic.
(2) Not include sunk costs.................................  whether an authorized field or project can become
                                                              economic with any relief (see Sec.  203.67).
(3) Not include sunk costs.................................  how much suspension volume is necessary to make the
                                                              field or project economic (see Sec.  203.69(c)).
(4) Include sunk costs for the discovery well only.........  whether a development project or an expansion
                                                              project needs relief to become economic.
----------------------------------------------------------------------------------------------------------------

    13. In Sec. 203.69, the introductory paragraph and paragraphs (b) 
through (e) are revised and paragraph (f) is added to read as follows:


Sec. 203.69  If my application is approved, what royalty relief will I 
receive?

    If we approve your application, we will not collect royalties on a 
specified suspension volume for your field. Suspension volumes include 
volumes allocated to a lease under an approved unit agreement, but 
exclude any volumes of production that are not normally royalty-bearing 
under the lease or the regulations of this chapter (e.g., fuel gas).
* * * * *
    (b) For development projects, any relief we grant applies only to 
project wells and replaces the royalty suspension volume with which we 
issued your lease. If your project is economic given the royalty 
suspension volume with which we issued your lease, we will reject the 
application. Otherwise, the minimum royalty suspension volumes:
    (1) For RS leases, is the sum of the volume suspensions with which 
we issued the RS leases participating in the application plus 10 
percent of the most likely resource size we agree is reasonable for 
your project; and
    (2) For other deep water leases issued in sales after November 28, 
2000, is 10 percent of the most likely resource size we agree is 
reasonable for your project.
    (c) If the application for the field includes pre-Act or eligible 
leases in different categories of water depth, we apply the minimum 
royalty suspension volume for the deepest such lease then assigned to 
the field. We base the water depth and makeup of a field on the water-
depth delineations in the ``Royalty Suspension Areas Map'' and the 
``Field Names Master List'' and updates in effect at the time your 
application is deemed complete. These publications are available from 
the MMS Regional Office for the GOM.
    (d) You will get a royalty suspension volume above the minimum if 
we determine that you need more to make the field or development 
project economic.
    (e) For expansion projects, the minimum suspension volumes equal 10 
percent of the most likely resource size we agree is reasonable for 
your project plus any suspension volumes required according to 
Sec. 203.66. If we determine that your expansion project may be 
economic only with more relief, we will determine and grant you the 
royalty suspension volume necessary to make the project economic.
    (f) The royalty suspension volume applicable to specific leases 
will continue through the end of the month in which cumulative 
production reaches that volume. The cumulative production is from all 
the leases in the authorized field or project that are entitled to 
share the royalty suspension volume.
    14. Section 203.70 is revised to read as follows:


Sec. 203.70  What information must I provide after MMS approves relief?

    You must submit reports to us as indicated in the following table. 
Sections 203.81, 203,90, and 203.91 describe what these reports must 
include. The MMS regional office for the GOM will tell you the formats.

------------------------------------------------------------------------
       Required report           When due to MMS     Due date extensions
------------------------------------------------------------------------
(a) Fabricator's              Within 18 months      MMS Director may
 confirmation report.          after approval of     grant you an
                               relief.               extension under
                                                     Sec.  203.79(c) for
                                                     up to 6 months.
(b) Post-production report..  Within 120 days       With acceptable
                               after the start of    justification from
                               production that is    you, MMS Regional
                               subject to the        Director for the
                               approved royalty      GOM may extend due
                               suspension volume.    date up to 30 days.
------------------------------------------------------------------------

    15. In Sec. 203.71, the introductory paragraph and paragraphs (a) 
through (c) are revised to read as follows:


Sec. 203.71  How does MMS allocate a field's suspension volume between 
my lease and other leases on my field?

    The allocation depends on when production occurs, when we issued 
the lease, when we assigned it to the field, and whether we award the 
volume suspension by an approved application or establish it in the 
lease terms as prescribed in this section.
    (a) If your authorized field has an approved royalty suspension 
volume under Secs. 203.67 and 203.69, we will suspend payment of 
royalties on production from all applying leases in the field until 
their cumulative production equals the approved volume.
    The following conditions also apply:

------------------------------------------------------------------------
            If--                     Then--                 And--
------------------------------------------------------------------------
(1) We assign an eligible     We will not change    The assigned
 lease to your field after     your field's          lease(s) may share
 we approve relief.            royalty suspension    in any remaining
                               volume.               royalty relief.

[[Page 69273]]

 
(2) We assign a pre-Act or    We will not change    The assigned
 post-2000 deep water lease    your field's          lease(s) may share
 to your field after we        royalty suspension    in any remaining
 approve your application.     volume.               royalty relief by
                                                     filing the short-
                                                     form application
                                                     specified in Sec.
                                                     203.83 and
                                                     authorized in Sec.
                                                     203.82. An assigned
                                                     RS lease also gets
                                                     any portion of its
                                                     royalty suspension
                                                     volume remaining
                                                     even after the
                                                     field has produced
                                                     the approved relief
                                                     volume.
(3) We assign another         We will change your   The assigned
 lease(s) that you operate     field's minimum       lease(s) may share
 to your field while we are    suspension volume     the royalty--
 evaluating your               if the assigned       suspension we grant
 application, you agree to     lease is a pre-Act    to the new field.
 toll the evaluation clock     or eligible lease     If you do not agree
 until you modify your         entitled to a         to toll, we will
 application to be             larger minimum or     reject your
 consistent with the new       automatic             application due to
 field, and we have an         suspension volume.    inadequate
 additional 60 days to                               information. But,
 review the new information.                         an eligible
                                                     lease(s) we assign
                                                     to the field keeps
                                                     its automatic
                                                     suspension volume.
(4) We assign another         We will change your   The assigned
 operator's lease to your      field's minimum       lease(s) may share
 field while we are            suspension volume     the royalty
 evaluating your               provided the          suspension we grant
 application, you both agree   assigned lease        to the new field.
 to toll the evaluation        joins the             If you do not agree
 clock until both of you       application and is    to toll, the other
 modify your application to    entitled to a         operator's lease
 be consistent with the new    larger minimum        retains any
 field, and we have an         suspension volume.    suspension volume
 additional 60 days to                               it has or may share
 review the new information.                         in any relief that
                                                     we grant by filing
                                                     the short form
                                                     application
                                                     specified in Sec.
                                                     203.83 and
                                                     authorized in Sec.
                                                     203.82.
(5) We assign a lease to      We will not change    The assigned lease
 your field before you         your field's          will not share in
 submitted the royalty         royalty suspension    the relief if it
 relief application.           volume.               did not participate
                                                     in the application.
(6) We reassign a well on a   The past production   The past production
 pre-Act, eligible, or post-   from the well         from that well will
 2000 deep water lease to      counts toward the     not count toward
 another field.                royalty suspension    any royalty
                               volume of the field   suspension volume
                               to which we assign    granted to the
                               the well.             field from which we
                                                     reassigned it.
------------------------------------------------------------------------

    (b) If your authorized field has a royalty suspension volume 
established under Sec. 260.111 of this chapter (i.e., a field with a 
pre-Act lease where an eligible lease starts production first), we will 
suspend payment of royalties on production from all eligible leases in 
the field until their cumulative production equals the established 
volume. The following conditions also apply:

------------------------------------------------------------------------
            If--                     Then--                 And--
------------------------------------------------------------------------
(1) We assign another         Your field's royalty  The assigned lease
 eligible lease to your        suspension volume     may share in any
 field.                        does not change.      remaining royalty
                                                     relief.
(2) We assign and RS lease    Your field's royalty  The assigned lease
 to your field.                suspension volume     gets only the
                               does not change.      volume suspension
                                                     with which we
                                                     issued it, and its
                                                     production volume
                                                     counts against the
                                                     field's royalty
                                                     suspension volume.
(3) We assign a pre-Act       Your field's royalty  The assigned lease
 lease without royalty         suspension volume     shares none of the
 suspension to your field.     does not change.      volume suspension,
                                                     and its production
                                                     does not count as
                                                     part of the
                                                     suspension volume.
(4) A pre-Act or post-2000    Your field's royalty  All leases in the
 deep water lease applies      suspension volume     field share the
 (along with the other         may increase or       royalty suspension
 leases in the field) and      stay the same, but    volume if we
 qualifies (subject to any     will not diminish.    approve the
 suspension volume in the                            application; or the
 lease) for royalty relief                           RS leases in the
 under Secs.  203.67 and                             field keep their
 203.69.                                             respective volumes
                                                     if we reject the
                                                     application.
------------------------------------------------------------------------

    (c) This paragraph applies to a project with more than one lease. 
The royalty suspension volume for each lease equals that lease's actual 
production from the project (or production allocated under an approved 
until agreement) until total production for all leases in the project 
equals the project's approved royalty suspension volume.
* * * * *
    16. In Sec. 203.74, the introductory paragraph is revised, 
paragraph (b) and (c) are revised and redesignated paragraphs (c) and 
(d), and a new paragraph (b) is added to read as follows:


Sec. 203.70  When will MMS reconsider its determination?

    You may request a redetermination after we withdraw approval or 
after you renounce royalty relief. Under certain conditions you may 
also request a redetermination if we deny your application or if you 
want your approved royalty suspension volume to change. In these 
instances, to be eligible for a redetermination, at least one of the 
following of our conditions must occur.
* * * * *
    (b) You demonstrate in your new application that a technology not 
considered or deemed feasible in the original application most 
efficiently develops this field or lease.
    (c) Your current reference price decreases by more than 25 percent 
from your base reference price as determined under this paragraph.
    (1) Your current reference price is a weighted average of daily 
closing prices on the NYMEX for light sweet crude oil and natural gas 
over the most recent full 12 calendar months;
    (2) Your base reference price is a weighted average of daily 
closing prices on the NYMEX for oil and gas for the most recent full 12 
calendar months preceding the date of your most recently approved 
application for this royalty relief; and
    (3) The weighting factors are the proportions of the total 
production

[[Page 69274]]

volume (in BOE) for oil and gas associated with the most likely 
scenario (identified in Secs. 203.85 and 203.88) from your most 
recently approved application for his royalty relief.
    (d) Before starting to build your development and production 
system, you have revised your estimated development costs, and they are 
more than 120 percent of the eligible development costs associated with 
the most likely scenario from you most recently approved application 
for this royalty relief.
    17. In Sec. 203.76, paragraphs (a), (b), and (c) are revised to 
read as follows:


Sec. 203.76  When might MMS withdraw or reduce the approved size of my 
relief?

* * * * *
    (a) You change the type of development system proposed in your 
application (e.g., change from a fixed platform to floating production 
system, an independent development and production system to one with 
subsea wells tied back to a host production facility, etc.).
    (b) You do not start building the proposed development and 
production system within 18 months of the date we approved your 
application, unless the MMS Director grants you an extension under 
Sec. 203.79(c). If you start building the proposed system and then 
suspend its construction before completion, and you do not restart 
continuous building of the proposed system within 18 months of our 
approval, we will withdraw the relief we granted.
    (c) Your actual development costs are less than 80 percent of the 
eligible development costs estimated in your application's most likely 
scenario, and you do not report that fact in your post-production 
development report (Sec. 203.70). Development costs are those 
expenditures defined in Sec. 203.89(b) incurred between the application 
submission date and start of production. If you report this fact in the 
post-production development report, you may retain the lesser of 50 
percent of the original royalty suspension volume or 50 percent of the 
most likely size of producible resources anticipated in your 
application.
* * * * *
    18. Section 203.77 is revised to read as follows:


Sec. 203.77  May I voluntarily give up relief if conditions change?

    Yes, by sending a letter to this effect to the MMS Regional 
Director for the GOM.
    19. In Sec. 203.78, the introductory paragraph and paragraph (f) 
are revised to read as follows:


Sec. 203.78  Do I keep relief if prices rise significantly?

    If prices rise above a base price for light sweet crude oil or 
natural gas, set by statute for pre-Act leases, or in your original 
lease agreement for post-2000 deep water leases, you must pay full 
royalties as prescribed in this section.
* * * * *
    (f) We change the prices referred to in paragraphs (a), (b), and 
(d) of this section during each calendar year after 1994. For pre-Act 
leases, these prices change by the percentage that the implicit price 
deflator for the gross domestic product changed during the preceding 
calendar year. For post-2000 deep water leases, these prices change as 
specified in the leasing instrument and in the Notice of Sale under 
which we issued the lease.
    20. Section 203.80 is added to read as follows:


Sec. 203.80  When can I get royalty relief if I am not eligible for 
end-of-life or deep water royalty relief?

    We may grant special royalty relief when it serves the statutory 
purposes summarized in Sec. 203.1, and our formal relief programs 
provide inadequate encouragement to increase production or development. 
Before you may apply for special royalty relief, we must agree that 
your lease or project has two or more of the following characteristics.
    (a) The lease has produced for a substantial period and the lessee 
can recover significant additional resources.
    (b) Valuable facilities (e.g., a platform or pipeline that would be 
removed upon lease relinquishment) exist on the lease that we do not 
expect a successor lessee to use.
    (c) A substantial risk exists that no new lessee will recover the 
resources.
    (d) The lessee made major efforts to reduce operating costs too 
recently to use the formal program for royalty relief (e.g., recent 
significant change in operations).
    (e) Circumstances beyond the lessee's control, other than water 
depth, preclude reliance on one of the existing royalty relief 
programs.
    21. In Sec. 203.81, paragraphs (a) and (c) are revised to read as 
follows:


Sec. 203.81  What supplemental reports do royalty-relief applications 
require?

    (a) You must send us the supplemental reports listed in the 
following table that apply to your field. Secs. 203.83 through 203.91 
describe these reports in detail.

----------------------------------------------------------------------------------------------------------------
                                                                                    Deep water
                                                    End-of-life  -----------------------------------------------
                Required reports                       lease         Expansion                      Development
                                                                      project      Pre-act lease      project
----------------------------------------------------------------------------------------------------------------
(1) Administrative information report...........              X               X               X               X
(2) Net revenue & relief justification report...              X   ..............  ..............  ..............
(3) Economic viability & relief justification     ..............              X               X               X
 report (RSVP model inputs justified by other
 required reports)..............................
(4) G&G report..................................  ..............              X               X               X
(5) Engineering report..........................  ..............              X               X               X
(6) Production report...........................  ..............              X               X               X
(7) Deep water cost report......................  ..............              X               X               X
(8) Fabricator's confirmation report............  ..............              X               X               X
(9) Post-production development report..........  ..............              X               X               X
----------------------------------------------------------------------------------------------------------------

* * * * *
    (c) With your application and post-production development report, 
you must submit an additional report prepared by an independent CPA 
that:
    (1) Assesses the accuracy of the historical financial information 
in your report and
    (2) Certifies that the content and presentation of the financial 
data and information conform to our most recent guidelines on royalty 
relief, with primary regard to including only eligible costs that are 
incurred during the qualification months and shown in the proper 
format.
* * * * *

[[Page 69275]]

    22. In Sec. 203.83, paragraph (c) is revised to read as follows:


Sec. 203.83  What is in an administrative information report?

* * * * *
    (c) Lessee's well designation, the API number, and the location of 
each well that has been drilled on the field or lease or project (not 
required for non-oil and gas leases);
* * * * *
    23. In Sec. 203.86, the following changes are made:
    A. The word ``and'' is removed at the end of paragraph (b)(6).
    B. The ``.'' is removed and ``; and'' is added at the end of 
paragraph (b)(7).
    C. Paragraph (b)(8) is added.
    D. Paragraph (c)(4) is revised.
    E. The word ``and'' is removed at the end of paragraph (d)(6).
    F. The ``.'' is removed and ``; and'' is added at the end of 
paragraph (d)(7).
    G. Paragraph (d)(8) is added.
    The additions and revisions in changes C, D, and G read as follows:


Sec. 203.86  What is in G&G report?

* * * * *
    (b) * * *
    (8) A table listing the wells/completions and indicating which 
sands and fault blocks will be targeted for completion/recompletion.
    (c) * * *
    (4) an explanation for excluding the reservoirs you are not 
planning to develop.
    (d) * * *
    (8) Reserve/resource distribution by reservoir.
* * * * *
    24. In Sec. 203.87, paragraphs (a)(1) and (d) are revised to read 
as follows, and paragraphs (d)(1) and (d)(2) are removed.


Sec. 203.87  What is in an engineering report?

* * * * *
    (a)  *  *  *
    (1) Its size along with basic design specifications and drawings 
and
* * * * *
    (d) A discussion of any plans for multi-phase development which 
includes the conceptual basis for developing in phases and goals or 
milestones required for starting later phases.
* * * * *
    25. In Sec. 203.89, paragraph (a) is revised to read as follows:


Sec. 203.89  What is in an engineering report?

* * * * *
    (a) On an authorized field, sunk costs which are all your eligible 
post-discovery exploration, development, and production expenses (no 
third party costs), and include the eligible costs of the discovery 
well on the field. On an expansion project or a development project, 
sunk costs are just the eligible costs of the discovery well for the 
project. Report them in nominal dollars and only if you have 
documentation. We count sunk costs in an evaluation (specified in 
Sec. 203.68) as after-tax expenses, using nominal dollar amounts.
* * * * *
    26. In Sec. 203.91, a new last sentence is added to read as 
follows:


Sec. 203.91  What is in an engineering report?

    *  *  *  Also, you must have this report certified by an 
independent CPA according to Sec. 203.81(c).

[FR Doc. 00-29372 Filed 11-15-00; 8:45 am]
BILLING CODE 4310-MR-M