[Federal Register Volume 65, Number 248 (Tuesday, December 26, 2000)]
[Proposed Rules]
[Pages 81465-81471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32832]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Chapter II


Review of Existing Regulations

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Review of regulations; request for comment.

-----------------------------------------------------------------------

SUMMARY: MMS has been performing annual reviews of its significant 
regulations and asking the public to participate in these reviews since 
1994. The purpose of the reviews is to identify and eliminate 
regulations that are obsolete, ineffective, or burdensome. In addition, 
the reviews are meant to identify essential regulations that should be 
revised because they are either unclear, inefficient, or interfere with 
normal market conditions. As MMS moves towards performance based 
regulations, we are looking at ways to offer regulatory relief to 
industry for exceptional performance. We request your comments and 
suggestions with respect to which regulations could be more performance 
based and less prescriptive.
    The purpose of this document is twofold. First, we want to provide 
the public an opportunity to comment on MMS regulations that should be 
eliminated or revised, or could be more performance based. Second, we 
are providing a status update of the actions MMS has taken on comments 
previously received from the public in response to documents published 
March 1, 1994; March 28, 1995; May 20, 1996; April 24, 1997; June 12, 
1998; and June 7, 1999. We will only include in this document status 
updates on comments which have not been closed or implemented in the 
six previous status update documents listed above.

DATES: Written comments must be received by February, 26, 2001.

ADDRESSES: Mail written comments to Department of the Interior; 
Minerals Management Service; Mail Stop 4230; 1849 C Street NW.; 
Washington, DC 20240; Attention: Elizabeth Montgomery, MMS Regulatory 
Coordinator, Policy and Management Improvement.

FOR FURTHER INFORMATION CONTACT: Elizabeth Montgomery, Policy and 
Management Improvement, telephone: (202) 208-3976; Fax: (202) 208-4891; 
and E-Mail: [email protected].

SUPPLEMENTARY INFORMATION: MMS began a review of its regulations in 
early 1994 under the directives contained in the President's Executive 
Order 12866. The Executive Order calls for periodic regulatory reviews 
to ensure that all significant regulations are efficient and effective, 
impose the least possible burden upon the public, and are tailored no 
broader than necessary to meet the agency's objectives and Presidential 
priorities.
    We invited the public to participate in the regulatory review. The 
invitation was sent out via different media, namely a Federal Register 
document dated March 1, 1994 (59 FR 9718); MMS and independent 
publications; and public speeches by MMS officials during that time.
    MMS received approximately 40 public comments which were almost 
equally divided between its Minerals Revenue Management (formerly 
Royalty Management Program) and Offshore Minerals Management Programs. 
We acknowledged the comments in a July 15, 1994 (59 FR 36108), document 
and set forth our planned actions to address the comments, along with 
an estimated timetable for these actions.
    In the Federal Register notices published March 28, 1995 (60 FR 
15888); May 20, 1996 (61 FR 25160); April 24, 1997 (62 FR 19961); June 
12, 1998 (63 FR 32166); and June 7, 1999 (65 FR 30267), MMS: (a) Asked 
for further public comments on its regulations, and (b) provided a 
status update of actions it had taken on the major public comments 
received to date. We received 10 responses from the 1995 document, 5 
responses from the 1996 document, 2 responses from the 1997 document, 3 
responses from the 1998 document, and 3 responses from the 1999 
document. A number of the commentators expressed appreciation for our 
streamlining efforts and responsiveness to suggestions from our 
regulated customers.
    This document updates our planned actions and related timetables on 
the major comments received to date. It also solicits additional 
comments from the public concerning regulations that should be either 
eliminated or revised, or could be more performance based. Since some 
of the public responses received in response to prior documents 
contained comments on very specific and detailed parts of the 
regulations, this document does not address every one received. For 
information on any comment submitted which is not addressed in this 
document, please contact Mrs. Montgomery at the number and location 
stated in the forward sections of this document.
    MMS regulations are found at Title 30 in the Code of Federal 
Regulations. Parts 201 through 243 contain regulations applicable to 
MMS's Minerals Revenue Management, Parts 250 through 282 are applicable 
to MMS's Offshore Minerals Management; and Part 290 is applicable to 
Administrative Appeals.

Status Report

    The following is a status report by program area on the comments 
MMS has received, to date, on its regulations.

A. Offshore Minerals Management (OMM) Program

    OMM is currently reviewing the following areas of OMM regulations:

[[Page 81466]]

1. Regulations Governing Conservation of Resources and Diligence (30 
CFR Part 250, Subpart A)
    Comments Received--(a) ``Revise Determination of Well Producibility 
to make wireline testing and/or mud logging analysis optional * * *.'' 
(b) ``* * *  consider comments from the 11/30/95 MMS sponsored workshop 
to formulate policy for granting SOP [suspension of production] 
approvals based on host capacity delays, non-contiguous unitization, 
and market conditions/economic viability.'' (c) ``Grant SOP approval 
based on host capacity delays, non-contiguous unitization and market 
conditions/economic viability.''
    Action Taken or Planned--For (a) above, a final rule, ``Postlease 
Operations Safety,'' revising 30 CFR Part 250, Subpart A, was published 
on December 28, 1999 (64 FR 72756), effective January 28, 2000. This 
revision addressed the determination of well producibility. For (b) and 
(c) above, the final rule also addressed suspensions of production. 
While preparing the rule, we did consider the comments on granting 
suspensions of production from the November 30, 1995, workshop.
    Timetable--Completed.
2. Regulations Applicable to Oil and Gas Drilling Operations (30 CFR 
Part 250, Subpart D)
    Comments Received--(a) ``Revise directional survey requirements to 
allow a composite measurement-while-drilling directional survey to be 
acceptable * * *.'' (b) ``Revise the regulation to eliminate the 
requirement for multishop surveys when MWD [measurement-while-drilling] 
surveys are taken.'' (c) ``Revise the regulations to clarify that 
casings shall be tested to the lesser of the Maximum Design Pressure or 
to 70 percent of their MIY [minimum internal yield].'' (d) ``* * * 
allow the initial subsea BOP [Blowout Preventer] stump pressure test to 
serve as the initial test with 14 days of operations after installation 
as long as the BOP was fully stump tested within 48 hours of 
installation.'' (e) ``* * * require that blind and blind shear rams on 
subsea BOPs be tested to a pressure not greater than the casing test 
pressure.''
    Action Taken or Planned--We rewrote the regulations governing Oil 
and Gas Drilling Operations, found in 30 CFR Part 250, Subpart D, in 
plain English. During this rewrite, we made appropriate revisions to 
the regulations and specifically allowed measurement-while-drilling 
technology to be used when it meets certain minimum requirements. We 
also updated the BOP requirements in this rewrite. The Notice of 
Proposed Rulemaking was published for comment on June 21, 2000. The 
comment period closed on October 19, 2000.
    Timetable--We plan to publish a Final Rule late in 2001.
3. Regulations Applicable to Oil and Gas Well Completion Operations and 
Well Workover Operations (30 CFR Part 250, Subparts E and F)
    Comments Received--(a) ``For subsea wells, require monitoring only 
on the tubing/production casing annulus.'' (b) ``* * * allow concentric 
workover rigs and related equipment to be moved onto a platform without 
shutting in wells.'' (c) ``Revise the regulations to allow a 14-day 
testing frequency for workovers.''
    Action Taken or Planned--We plan to rewrite the regulations on well 
completion and well workover operations, and will address these 
comments at that time.
    Timetable--We plan to publish for comment a Notice of Proposed 
Rulemaking in 2002.
4. Safety System Design and Installation (30 CFR Part 250, Subpart H)
    Comments Received--``We believe that the [Safety and Environmental 
Management Program] SEMP/RP 75 Performance Measure process of 
alternative compliance for operators who voluntarily implement RP 75 
and have `good' performance should allow those operators to 
periodically update drawings and other documents of production safety 
system installations and routine modifications instead of receiving 
required MMS approval of these documents before any modifications are 
performed (Comment #14 of our July 17, 1996 letter). This is one 
example of the alternative compliance process that we suggest.''
    Action Taken or Planned--This comment expresses an interest for 
regulatory relief in exchange for ``compliance'' with API RP75. This 
industry standard captures the essence of SEMP. On August 13, 1997, MMS 
published a Federal Register notice on SEMP (62 FR 43345). This notice 
publicly relayed our intent to continue collaborative efforts with the 
U.S. offshore oil and gas industry to promote the non-regulatory (i.e., 
voluntary) adoption of SEMP; it simultaneously relayed our intent to 
increasingly focus on operator performance in the field. We made this 
decision after extensive review of the industry's actions to adopt 
RP75. We have seen important strides made in the development of SEMP 
programs by the majority of OCS operators. We have, however, still not 
seen widespread implementation of these programs on offshore 
installations. In the most recent SEMP notice, we asked senior company 
officers to notify MMS when they had ``fully'' implemented SEMP at the 
field level. In our view, ``fully'' means that an operator has 
developed their SEMP plan and has implemented it at enough of their 
offshore installations to commence continuous improvement efforts 
(e.g., SEMP audits). At the end of December 1999, we had received such 
notifications from only nine OCS operators. This fact leads us to 
conclude that SEMP is not yet broadly implemented at the field level. 
Therefore, any requests for regulatory relief in exchange for SEMP 
implementation will need to be made to MMS on an ad hoc basis by 
operators who are prepared to demonstrate, and have us verify, both the 
extent of their SEMP implementation and their field-level performance.
    We have begun the process of revising 30 CFR Part 250, Subpart H. 
The process changes suggested will be considered internally during 
preparation of the Notice of Proposed Rulemaking.
    Timetable--We expect to publish for comment the Notice of Proposed 
Rulemaking for a revised 30 CFR Part 250, Subpart H, in early 2001.
5. Regulations Applicable to Production Safety Systems on the Outer 
Continental Shelf (30 CFR Part 250, Subpart H)
    Comments Received--Production Safety System Testing and Records (30 
CFR 250.124) (a) ``OOC [Offshore Operators Committee] is very much 
interested in working with MMS on a research project beginning in 1997 
to consider appropriate leak rate tolerances for critical safety 
devices (Comment #11 of our July 17, 1996 letter) as well as testing 
frequencies of accurate and reliable new generation safety devices 
(Comment #13 of our July 17, 1996 letter).'' (b) ``Revise regulations 
governing Safety Valves to increase time between test and allowable 
leakage rates.''
    Action Taken or Planned--MMS initiated a research project in 
September 1997 with Southwest Research Institute which investigated the 
question of leak rate tolerances for critical safety devices. The 
project also studied leakage rates for surface and subsurface safety 
valves. Final results from the project became available to the public 
in July 1999. We have now initiated the rulemaking process to revise 
all of 30 CFR Part 250, Subpart H. As part of this process, we will 
discuss internally testing frequencies for safety devices. Any proposed 
changes to our regulations as

[[Page 81467]]

a result of this project will be incorporated into the Notice of 
Proposed Rulemaking for 30 CFR Part 250, Subpart H.
    Timetable--As mentioned in the Timetable for Item No. 4, we expect 
the Notice of Proposed Rulemaking for a revised Subpart H to appear in 
the Federal Register for comment in early 2001.
6. Production System Requirements and Production Safety-System Testing 
and Records (30 CFR Part 250, Subpart H)
    Comments Received--(a) ``* * * allow the use of electronic pressure 
transducers to establish pressure ranges.'' (b) ``* * * allow the high 
pressure shut-in sensor to be set no higher than 5 percent or 5 psi, 
whichever is greater, below the relief valve set pressure.'' (c) 
``Revise the testing frequency of certain surface safety devices.'' (d) 
``* * * eliminate the monthly safety system qualifier that says `but at 
no time shall more than 6 weeks elapse between tests'.'' (e) ``* * * 
allow for the annual testing of the pilot and once every 4 years for 
the valve body of pilot operated PSVs [pressure safety valves].'' (f) 
``Delete the requirement to be in attendance on a satellite platform 
where the subsurface safety device is inoperative or temporarily 
removed from a well for routine operations * * *.''
    Action Taken or Planned--These comments will be taken into 
consideration as we rewrite 30 CFR Part 250, Subpart H.
    Timetable--As noted previously, we plan to publish a Notice of 
Proposed Rulemaking for Subpart H in early 2001.
7. Regulations Regarding Platforms and Structures (30 CFR Part 250, 
Subpart I)
    Comments Received--(a) ``Revise site clearance requirements * * 
*.'' (b) ``Revise requirements for placing protective domes over well 
stubs * * *,'' etc. (c) ``Rescind NTL [Notice to Lessees] 98-26 and 
follow the regulations in 250.193'' (d) ``* * * allow the Regional 
Supervisor to approve partial platform removal on a case by case basis 
at deep and intermediate water depth locations.'' (d) ``Rescind NTL 98-
19 and follow the regulations at 250.703(b) and 250.703(c).'' (e) 
``Modify platform design wave return period calculation by placing a 
cap of 100 years on the field life calculation * * *.'' (f) ``* * * 
acknowledge the USCG [U.S. Coast Guard] role per the current MOU 
[Memorandum of Understanding].'' (g) ``Adopt the draft API RP for 
floating systems when issued.'' (h) ``For fixed platforms, adopt API RP 
2A (19 or 20th edition), Section 14, Surveys, in its entirety, which 
allows underwater inspections for unmanned facilities at intervals from 
5 to 10 yrs.'' (i) For floating systems * * * acknowledge the USCG 
responsibility for these inspections * * *.''
    Action Taken or Planned--For (a), (b), (c), and (d) above, the 
proceedings for the International Workshop on Offshore Lease 
Abandonment and Platform Disposal held in April 1996 were published in 
1997. We considered the comments we received from the proceedings in 
the Notice of Proposed Rulemaking, ``Decommissioning Activities,'' 
published on July 7, 2000, with comments due by October 5 (65 FR 
41892). For (e) through (i) above, we are planning to rewrite 30 CFR 
Part 250, Subpart I, at which time we will address these comments.
    Timetable--We plan to publish a Final Rule on decommissioning in 
late 2001, and a Notice of Proposed Rulemaking for comment on 30 CFR 
Part 250, Subpart I, in 2001.
8. Regulations Applicable to Pipelines and Pipeline Rights-of-Way (30 
CFR Part 250, Subpart J)
    Comments Received--(a) Revise regulations to avoid duplication of 
requirements between the Department of the Interior (DOI) and the 
Department of Transportation (DOT) in accordance with the 1996 
Memorandum of Understanding on Outer Continental Shelf Pipelines. (b) 
Commenters submitted comments on the proposed rule that was published 
on October 1, 1999 (64 FR 53298), concerning producer-operated 
pipelines that cross directly into State waters without first 
connecting to a transporter-operated pipeline on the OCS. Commenters 
were primarily concerned with refinements in regulatory language to 
better define certain regulatory situations and the responsibilities of 
DOI and DOT in those situations. (c) ``* * * allow the setting level of 
actuation for pressure safety devices and redundant safety devices to 
be MAOP [Maximum Allowable Operating Pressure] plus 10 percent.'' (d) 
``* * * require testing after a repair only for the pipeline sections/
appurtenances that were replaced or repaired.'' (e) ``* * * allow the 
PSH [Pressure Safety High] to be set at MAOP plus 10 percent on 
departing pipelines.'' (f) ``* * * allow for a 15 second time delay 
bypass of the PSL [Pressure Safety Low] during pump and compressor 
start-up.''
    Action Taken or Planned--For (a) and (b) above, as stated in our 
previous Notice, ``Reviewing Existing Regulations'' (June 7, 1999), the 
1996 Memorandum of Understanding on Outer Continental Shelf pipelines 
became effective December 10, 1996, and was published in the Federal 
Register on February 14, 1997 (62 FR 7037). Since then we have 
published a final rule on August 17, 1998 (63 FR 43876), clarifying our 
regulatory responsibility for producer-operated pipelines that connect 
to transportation pipelines on the Outer Continental Shelf. Our 
proposed rule asserting our regulatory responsibility for producer-
operated pipelines that do not connect to transportation pipelines on 
the Outer Continental Shelf was published on October 1, 1999. We 
published the final version of that rule on July 27, 2000 (65 FR 
46092). DOT is now in the process of publishing their complementary 
rule in which they would relinquish their regulatory responsibility for 
nearly all producer-operated lines. The DOI and DOT rules, taken 
together, fully regulate the design, construction, operation, and 
maintenance requirements of all Outer Continental Shelf pipelines.
    We are now preparing a proposed work practices rule for pipeline 
repairs or modifications that involve either cutting into a pipeline or 
opening a pipeline at a flange. The rule would require lessees and 
right-of-way holders to submit in writing the measures they plan to 
take and the procedures they plan to follow to protect company or 
contract workers from hazards resulting from pressure or combustibles 
during such repairs. Accidents during pipeline modifications and 
repairs have the potential for fire or explosion resulting in multiple 
fatalities, heavy equipment damage, and spills to the environment.
    For (c), (d), and (f) above, we will consider these comments as we 
work with the Department of Transportation to make our regulations more 
compatible with theirs. We do not agree with comment (e) above. We 
earlier responded to this comment in the preamble of our final pipeline 
marking rule, ``Pipelines and Pipeline Rights-of-Way,'' published on 
August 17, 1998 (63 FR 43876).
    Timetable--We plan to publish for comment the Notice of Proposed 
Rulemaking on work practices for pipeline repairs or modifications in 
early 2001. We will be working with the Department of Transportation on 
the remaining issues and will initiate a rewrite of 30 CFR, Part 250, 
Subpart J, in late 2001.
9. Regulations Applicable to Oil and Gas Production rates (30 CFR, Part 
250, Subpart K)
    Comments Received--(a) ``Clarify the regulations to allow various 
methods for testing subsea wells, including testing

[[Page 81468]]

by subtraction.'' (b) ``Allow the use of subsea tree pressure sensors 
to measure shut-in wellhead pressures corrected with produced fluid 
data from well tests.'' (c) ``Clarify criteria for flaring or venting 
small amounts of gas.''
    Action Taken or Planned--We will address these comments when we 
rewrite 30 CFR, Part 250, Subpart K.
    Timetable--We plan to publish for comment a Notice of Proposed 
Rulemaking in 2002.
10. Regulations Applicable to Oil and Gas Production Measurement, 
Surface Commingling, and Security (30 CFR Part 250, Subpart L)
    Comments Received--(a) ``Drop requirement of separate continuous 
measurement and allocation trains for different royalty rate production 
volumes.'' (b) Give operators authority to switch (gas and liquid) 
between connecting pipeline systems, downstream royalty points, prior 
to arrival onshore, without modifying commingling authority.''
    Action Taken or Planned--We will consider these comments when we 
update our rewrite of 30 CFR Part 250, Subpart L.
11. Regulations Applicable to Production Safety System Training (30 CFR 
Part 250, Subpart O)
    Comments Received--In response to a June 10, 1997, workshop on the 
development of a performance based training rule, MMS received a 
variety of comments from the oil and gas industry and MMS accredited 
training schools. These comments include: (a) ``Continue to implement 
the current Subpart O training system.'' (b) ``Develop a dual training 
system incorporating elements from both a performance based program and 
MMS's current system.'' (c) ``Companies may neglect training under a 
performance based system.'' (d) ``MMS should use caution when changing 
from the current prescriptive training system * * *.'' (e) ``* * *use 
of a written MMS test may cause employees stress that would lead to 
poor performance on the exams.'' (f) ``* * *hands-on simulator testing 
is an excellent and realistic means of gauging performance. * * *MMS 
may not have the expertise or equipment to properly conduct simulator 
tests.'' (g) ``Hands-on testing should only be conducted onshore, not 
offshore.'' (h) ``How will MMS react to a company that does not train 
its employees but has a good safety record * * *.'' (i) ``This may not 
be the right time to move towards a performance system because of the 
increase in OCS activity and the shortage of trained and experienced 
workers.''
    Activity Taken or Planned--We addressed comments (a) through (i) in 
the final rule revising 30 CFR Part 250, Subpart O, ``Well Control and 
Production Safety Training.'' The rule was published on August 14, 2000 
(65 FR 49485), and was effective on October 15, 2000. We have 
distributed the published final rule to lessees and operators and the 
training schools.
    Timetable--Completed.
12. Shallow Hazards Requirements (NTL No. 83-3)
    Comments Received--``* * * revise (Notice to Lessees) NTL No. 83-3 
which relates to shallow hazards requirements. Industry has requested 
that MMS allow use of navigational positioning equipment in lieu of 
buoying pipelines.''
    Action Taken or Planned--NTL No. 83-3 has been superseded by NTL 
No. 98-20. In NTL No. 98-20, however, we did not address this comment 
on navigational positioning equipment. We are planning to revise NTL 
No. 98-20, and are in the process of developing guidance for 
navigational positioning equipment technology. In the planned revision 
of NTL No. 98-20, industry may still use buoying, but if they choose 
not to use buoying, the NTL will require the use of state-of-the-art 
navigational systems. This will assure the accuracy and safety of 
anchoring operations in the vicinity of pipelines.
    Timetable--We plan to publish the revision of NTL 98-20 in early 
2001.
13. Regulations Applicable to Oil Spill Financial Responsibility for 
Offshore Facilities (30 CFR Part 253)
    Comments Received--``The current rule requires the party 
responsible for demonstrating OSFR [oil spill financial 
responsibility], the Designated Applicant, to file a new application 
and secure completion of form MMS-1017 by each co-lessee of record 
(Responsible Party) appointed the Designated Applicant. We request that 
the filing of Form MMS-1017 be on an exception basis only. In most 
cases, the Designated Applicant of the Lease/Permit is the Lease 
Operator or the holder of the `Right of Use and Easement.' The rare 
cases when different parties operate them should be handled as 
exceptions with the filing of Form MMS-1017.''
    Activity Taken or Planned--Form MMS-1017 was developed as a 
mechanism to reduce the financial and reporting burden for 
``Responsible Parties,'' as defined in Section 1001 of the Oil 
Pollution Act of 1990 (Public Law 101-380, as amended). Section 1016(c) 
of the Oil Pollution Act of 1990 requires that each ``Responsible 
Party'' with respect to an offshore facility must establish and 
maintain the required amount of evidence of financial responsibility. 
The result, without utilization of form MMS-1017, for any offshore 
facility with more than one ``Responsible Party'' would be multiple 
financial coverage for those offshore facilities. The amount of 
financial coverage would be excessive for any potential oil spills, but 
would be required by law without the legal mechanism provided by form 
MMS-1017 to designate an agent to act for all of the lessees/
permittees. The resultant cost would be excessive for many small to 
medium size companies and would make the current standard procedure of 
spreading risk, by only owning a portion of a lease or permit, 
untenable. Further, a review of the financial bond market capacities 
would be exceeded by requiring each lessee or permittee to evidence the 
specified amount of financial responsibility, resulting in many 
companies being forced out of the offshore oil and gas drilling and 
production marketplace.
    Timetable--For the reasons stated above, we cannot incorporate the 
suggestion for 30 CFR Part 253.
    14. Documents Incorporated by Reference
    Comments Received--(a) ``30 CFR 250.101(e)) Incorporate by 
Reference ASME/ANSI B31G `Manual for determining the remaining strength 
of corroded pipelines'.'' (b) ``(30 CFR 250.803(b)(1)) and (30 CFR 
250.1629(b)(1)) Incorporate by Reference API 510 ``Pressure Vessel 
Inspection Code: Maintenance Inspection, Rating, Repair, and 
Alteration'.''
    Action Taken or Planned--For (a) above, we are currently studying 
ASME/ANSI B31G to decide whether we will adopt it. For (b) above, we 
are planning to incorporate API 510 by reference as part of the Notice 
of Proposed Rulemaking we are preparing in our revision of 30 CFR Part 
250, Subpart H.
    Timing--We plan to publish for comment the Notice of Proposed 
Rulemaking revising Subpart H in early 2001.

B. Minerals Revenue Management (MRM)

    MRM was formerly known as the Royalty Management Program. The 
program was renamed on October 8, 2000, but the functions remain the 
same. MRM is reviewing regulations in the following areas:
1. Statute of Limitations and Record Retention
    Comments Received--(a) ``Statute of limitations is unclear.'' (b) 
``Establish a

[[Page 81469]]

reciprocal 5-year statute of limitations from the date an obligation 
becomes due.'' (c) ``Absence of a record retention program creates some 
confusion. Regulations should require record retention to coincide with 
the 5-year statute of limitations.'' (d) `` `the MMS is changing 
processes, developing implementation plans, and preparing regulatory 
changes,' in doing so, the congressional intent of FOGRSFA should be 
followed to provide certainty and simplicity to lessees.''
    Action Taken or Planned--The Federal Oil and Gas Royalty 
Simplification and Fairness Act (FOGRSFA) was signed into law on August 
13, 1996. FOGRSFA contains language to implement a 7-year statute of 
limitations for MMS processes. We are changing processes, developing 
implementation plans, and preparing regulatory changes to comply with 
the requirements of FOGRSFA.
2. Interest--Overpayments & Assessments
    Comment received--(a) ``Interest accrual should be equitable 
between the agency and industry.'' (b) ``the MMS should be mindful of 
the congressional intent of simplicity and certainty in promulgating 
any regulations to implement these provisions of FOGRSFA.'' (c) ``A de 
minimis provision should be established for the assessment of 
interest.'' (d) ``* * * MMS should enhance their existing interest 
assessment system to allow for the offsetting of prior period 
adjustments made on the MMS Form 2014 before calculating applicable 
interest.'' (e) ``MMS should enhance their existing interest assessment 
system to calculate interest properly when payment and reporting are 
received on different dates. Interest is supposed to be calculated on 
payment date, not reporting date as is done currently in the MMS 
system. This can cause increased staff time and could easily cause 
incorrect overpayment of interest. The MMS system could remain as is, 
justified by the fact that the majority of the time payment and 
reporting are made on the same dates. In this case we would encourage 
the MMS to develop an override in the system so that payment date can 
be used when necessary to calculate interest. Payments are sometimes 
made to stop the running of interest before reports are submitted.''
    Action Taken or Planned--For (a) above, FOGRSFA provides for the 
payment of interest on overpayments for oil and gas leases on Federal 
lands.
    For (b) above, on March 31, 1997, we issued a Dear Payor letter 
about FOGRSFA's provisions involving interest issues. We issued another 
Dear Payor letter on October 1, 1997, explaining interest calculations 
and interest reporting requirements. We have implemented system 
enhancements to fulfill the requirements of FOGRSFA, and we are 
preparing regulations which will address these interest issues.
    For (c) above, we have included billing thresholds in our interest 
system to prevent bills for de minimis amounts.
    For (d) above, FOGRSFA not only provides for the payment of 
interest on overpayments for oil and gas leases on Federal lands, but 
allows industry to calculate the interest assessment. Also, FOGRSFA 
allows interest that has accrued on overpayments to be applied to 
reduce underpayments. In May 1997, we started sending interest 
statements instead of interest bills, and the statements contain totals 
for interest that MMS owes and for interest owed to MMS. MMS is 
implementing system changes to conform with the requirements of FOGRSFA 
and preparing corresponding regulations.
    For (e) above, we calculate interest on underpayments based upon 
the date we receive payment. Interest on overpayments is calculated 
from the original royalty due date for a given sales month to the date 
we receive the Form MMS-2014, Report of Sales and Royalty Remittance, 
recouping overpaid royalties.
    Timetable--We will publish for comment a Notice of Proposed 
Rulemaking in 2001 addressing interest on overpayments and 
underpayments.
3. Gas Valuation
    Comments received (a) ``If the Takes vs. Entitlements policy stays 
in effect, MMS should strictly enforce reporting on actual quantities 
taken for all industry participants.'' (b) ``Eliminate Transportation 
and Processing Allowance Forms for Indians.''
    Action Taken or Planned (a) FOGRSFA contains language requiring 
``takes'' reporting for stand alone leases and agreements containing 
100 percent Federal leases. FOGRSFA also requires ``entitlements'' 
reporting for so-called mixed agreements (agreements containing 
Federal, State, Indian, and/or fee leases) with an exception to use 
``takes'' reporting for marginal properties. We are changing processes, 
developing implementation plans, and preparing regulatory changes to 
comply with the requirements of FOGRSFA.
    (b) A final rule developed by the Indian Gas Valuation Negotiated 
Rulemaking Committee was published on August 10, 1999 (64 FR 43506), 
and became effective on January 1, 2000. This rule addresses the 
valuation for royalty purposes of natural gas produced from Indian 
leases. The rule substantially reduces the transportation and allowance 
reporting forms for gas from Indian leases. The rule also adds a 
methodology to calculate the major portion value and an alternative 
methodology for dual accounting as required by Indian lease terms. The 
rule simplifies and adds certainty to the valuation of production from 
Indian leases.
    Timetable--We plan to publish for comment a Notice of Proposed 
Rulemaking in 2001 on takes vs. entitlements.
4. Reporting Procedures and Threshold
    Comments Received--(a) ``* * * the prompt implementation of the 
recommendations of the Royalty Policy Committee Audit and Royalty 
Reporting and Production Accounting Subcommittees will achieve those 
simplification and streamlining goals 
* * *.''
    (b) ``The RMP Reengineering Team has recommended 32 reporting 
changes to reduce and simplify reporting and reduce administrative 
costs for both MMS and lessees. MMS should proceed diligently to 
implement these changes.''
    (c) ``The review references the proposed changes to reporting 
requirements to the OGOR's and the 2014's. The statement, `If these 
changes are implemented, they will significantly reduce the volumes of 
lines reported and processed,' is not totally correct in our 
assessment. It may be true for the OGOR's because some duplicate 
reporting is being eliminated, but not for the 2014's. If the current 
proposed 2014 becomes the final 2014, the lines of reporting will be 
greatly increased mainly because of the new proposed valuation code. If 
industry is required to report their sales at the six different 
valuation levels proposed by the MMS, the number of lines will greatly 
increase.''
    Action Taken or Planned--On July 14, 2000, the Office of Management 
and Budget (OMB) approved the information collection changes in 
production reporting, and on August 1, 2000, OMB approved the 
information collection changes in royalty reporting, Form MMS-2014.
    On July 15, 1999 (64 FR 38116), we published a final rule 
requesting that certain reports be submitted electronically beginning 
in November 1999. Electronic submission significantly reduces the 
amount of time necessary for a company to complete the monthly reports 
and MMS processing time, since no manual entry is required.

[[Page 81470]]

    Timetable--Completed.
5. Refunds Due to Industry Which Are Controlled by Section 10 of the 
Outer Continental Shelf Lands Act
    Comments Received--(a) ``Section 10 refund requirements should be 
eliminated. The refund process used for onshore properties should be 
established for offshore properties.'' (b) ``* * * we would urge the 
MMS to facilitate elimination of the Section 10 recoupment procedures 
in its entirety. The current practice is administratively burdensome 
and not cost effective for the industry or MMS.'' (c) ``Eliminate 
documentation requirements for refund requests over $250M (million); 
and/or increase this threshold to $500M; raise the refund request limit 
to $5M. Exempt pure accounting adjustments for items such as production 
date adjustments and incorrect AID (Accounting Identification) numbers; 
exempt unit revisions because these revisions are often made more than 
2 years after the date of production; establish a time limit on MMS for 
review of a refund request to expedite the process; and overpayments on 
OCS properties should be allowed to be offset against any OCS 
underpayment.''
    Action Taken or Planned--FOGRSFA repeals the Section 10 refund 
procedures of the OCS Lands Act. On November 25, 1996, we mailed a Dear 
Payor letter with guidelines on refund procedures. We are presently 
developing a proposed rule implementing the new refund procedures.
6. Electronic Data Exchange
    Comments Received--(a) ``* * *MMS (should) continue their ongoing 
effort to exchange data by electronic means rather than hard copy 
thereby enabling the industry to adjust the data elements to integrate 
with each company's systems.'' (b) ``* * * is looking forward to 
working with MMS to develop an electronic reporting and funds transfer 
system that is both cost effective and efficient for all parties.''
    Action Taken or Planned--We continue to encourage the exchange of 
data electronically. Our Reporter and Payor Training sessions stress 
the benefits of electronic reporting and provide reporters and payors 
with options for reporting by electronic data interchange, diskette, or 
magnetic tape. Another way we publicize electronic reporting is on the 
MMS/Minerals Revenue Management Internet website, www.rmp.mms.gov. (In 
January 2001, this website will be changed to www.mrm.mms.gov.)
    On April 22, 1997 (62 FR 19497), we published a final rule 
specifying how payments are made for mineral royalties, rentals, and 
bonuses that requires all payments to be made electronically to the 
extent it is cost effective and practical.
    On July 15, 1999 (64 FR 38116), we published a final rule 
requesting that certain reports be submitted electronically beginning 
in November 1999. Electronic submission significantly reduces the 
amount of time necessary for a company to complete the monthly reports 
and MMS processing time, since no manual entry is required.
    Timetable--Completed.
7. Publish Final Rules Expeditiously
    Comments Received --* * * primary recommendation is the expeditious 
completion and publication of pending final rules, for example, the 
proposed rules on administrative offset and limitations on credit 
adjustments, and the proposed rule on payor liability. * * * Certainly, 
publication of the final federal (and Indian) gas valuation rule should 
be facilitated to the maximum extent possible.''
    Action Taken or Planned--We published the final Indian gas 
valuation rule on August 10, 1999 (64 FR 43506). On April 22, 1997, we 
published a Notice in the Federal Register (62 FR 19536) withdrawing 
the proposed final Federal gas valuation rule because of changes 
occurring in the gas market.
    New language in FOGRSFA will cause a number of changes in the Payor 
Liability rule and the Administrative Offset and Limitations on Credit 
Adjustments rule. We are working to incorporate the effects of FOGRSFA 
in these rules.
8. Valuation of Coal from Federal leases
    Comments Received--(a) ``* * * amending this section to allow the 
use of the lessee's arm's length contracts to support the value for a 
non-arm's-length contract would make this section more effective and 
also eliminate the need to use third-party proprietary information in 
many instances.'' (b) ``* * * the use of the lessee's arm's-length 
contracts is the best evidence of the comparable value of any non-
arm's-length sales by the lessee.''
    Action Taken or Planned--The Royalty Policy Committee's Coal 
Subcommittee is reviewing issues related to coal valuation, and we will 
use the RPC's recommendations to make improvements to the coal royalty 
valuation and reporting procedures and associated regulations. The 
subcommittee anticipates presenting their report on coal valuation at a 
meeting of the full Royalty Policy Committee in the spring of 2001.
9. Royalty-in-Kind (RIK) Alternative
    Comments Received--``urges the MMS to pursue implementation of a 
RIK program as a cost effective alternative.''
    Action Taken or Planned--In 1997, we conducted a Feasibility Study 
that examined a series of RIK options, both offshore and onshore. Under 
RIK, the government accepts its royalty share in the form of production 
rather than the agency's usual practice of collecting oil royalties as 
a share of the cash value received by the lessee for sale of the 
production. Based on the study's recommendations, we are conducting 
pilot projects to study various approaches to implementing the RIK 
concept.
    In cooperation with the State of Wyoming, royalty crude oil from 
Federal leases in the State of Wyoming and from State of Wyoming 
properties has been sold competitively on the open market about twice 
yearly. The State of Wyoming and MMS are satisfied enough with the 
initial results of these joint competitive open market RIK sales to 
continue and expand them. Both agencies are continuing to monitor the 
cost-effectiveness of the RIK approach to crude oil sales in Wyoming.
    Under the second pilot, royalty natural gas is being taken in kind 
from Federal leases in the Texas 8(g) zone of the Gulf of Mexico 
(Federal offshore leases adjacent to State waters). The gas is being 
marketed competitively in partnership with the Texas General Land 
Office through a Cooperative Agreement with the State of Texas.
    In 1999, we initiated the third pilot, taking royalty gas from 
offshore Federal leases, Gulf of Mexico-wide. We are offering royalty 
gas under competitive sales held monthly for a contract term of 30 days 
as well as under less frequent sales resulting in contracts of longer 
terms. Part of it is sold to the General Services Administration (GSA) 
under an interagency agreement for use by Federal agencies.
    In 2000, we initiated a pilot to address the feasibility of taking 
royalty crude oil from Federal properties in the Gulf of Mexico. This 
offshore oil pilot makes the Federal royalty crude available, under 
public competitive sales, to a broad range of qualified bidders, 
without limitation to those eligible under the Small Refiner RIK 
Program.
    We will analyze these pilots to determine if, and under what 
circumstances, the RIK option can reduce administrative costs for 
government and industry while producing at least as much revenue as

[[Page 81471]]

our current method of collecting royalties in value.
10. Lessee/Designee
    Comments Received--MMS published an interim final rule on August 5, 
1997 (62 FR 42062), to implement the designation of royalty payment 
responsibility provision of FOGRSFA. Generally, we support the need for 
lessees to submit designations pursuant to FOGRSFA, however, the 
lessees take issue with MMS's overall approach to implementing these 
very important provisions of FOGRSFA. Specifically, they object to the 
need for MMS to collect some of the information sought, the level of 
detailed information required by this rule, the burdensomeness of 
information required, and the ability of MMS and the Bureau of Land 
Management (BLM) to utilize information that these bureaus already have 
and maintain. Also, they take issue with MMS's authority to collect the 
information required under the rule from designees (payors).
    Action Taken or Planned--When the payor remits royalties on behalf 
of the lessee, FOGRSFA requires that the lessee designate the paying 
party as their designee for each lease. The interim final rule 
published on August 5, 1997, implements the requirements of FOGRSFA. We 
have a process in place with BLM to identify operating rights owners 
and changes to operating rights ownership.
    Timetable--Completed.
11. Other MMS/Minerals Revenue Management Regulatory Actions
    Comments Received--(a) ``In order to craft a reasonable, fair, and 
proper [oil valuation] rule, it is imperative that MMS publicly address 
all critical issues prior to the issuance of any final rule so that 
affected persons can participate meaningfully in the rulemaking 
process.''
    (b) ``Congress pushed for delegation of royalty management 
functions to states as a means of streamlining and simplifying the 
process of collection and payment of federal royalties. Despite 
Congress' clear intent, however, the final regulations published on 
August 12, 1997, and the standards for delegation published on 
September 8, 1997, in no way attempt to achieve that purpose.''
    Action Taken or Planned--For (a) above, on January 24, 1997, we 
published a proposed rule on Valuation of Oil From Federal Leases (62 
FR 3742), and on February 12, 1998, we published a proposed rule on 
Valuation of Oil From Indian Leases (63 FR 7089). We've held numerous 
public meetings regarding the proposed oil valuation rules, and in 
response to the many comments received in the meetings and through the 
mail, we published the following in the Federal Register on the 
proposed rule, Valuation of Oil on Federal Leases:

     Supplementary Proposed Rule (July 3, 1997--62 FR 36030);
     Reopened Public Comment Period and Offered Alternatives 
(September 22, 1997--62 FR 49460);
     Supplementary Proposed Rule (February 6, 1998--63 FR 
6113);
     Supplementary Proposed Rule (July 16, 1998--63 FR 38355); 
and
     Reopened Comment Period and Offered Three Workshops in 
Houston, TX; Albuquerque, NM; and Washington, DC (March 12, 1999--64 FR 
12267).
     Final Rule (March 15, 2000--65 FR 14022).

    We also prepared a Supplementary Proposed Rule for Establishing Oil 
Value for Royalty Due on Indian Leases and published it on January 5, 
1999 (65 FR 403).
    For (b) above, the regulations for the Delegation of Royalty 
Management Functions to States were developed in consultation with 
State government representatives and industry. The final rule was 
published on August 12, 1997 (62 FR 43076), and included responses to 
comments we received on the proposed rule. On July 18, 1999 (64 FR 
36782), we published a final rule that allows States which choose to 
assume duties to do so for less than all of the Federal mineral leases 
within the State or leases
    Timetable--For (a) above, we plan to publish a Final Rule, 
``Establishing Oil Value for Royalty Due on Indian Leases,'' in 2001. 
For (b) above, completed.

Conclusion

    We invite you to comment on our existing regulations and also the 
actions we have taken in response to comments and enacted legislation. 
And, we invite you to stay further informed on many of the topics 
discussed in this status report by visiting the MMS Internet Website at 
www.mms.gov.

    Dated: December 19, 2000.
Acting for Walter D. Cruickshank,
Director, Minerals Management Service.
[FR Doc. 00-32832 Filed 12-22-00; 8:45 am]
BILLING CODE 4310-MR-P