[Federal Register Volume 67, Number 177 (Thursday, September 12, 2002)]
[Rules and Regulations]
[Pages 57737-57739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23146]



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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 260

RIN 1010-AC94


Outer Continental Shelf Oil and Gas Leasing--Clarifying 
Amendments

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

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SUMMARY: This rule clarifies amendments to regulations on Outer 
Continental Shelf (OCS) bidding systems. The amendments make explicit 
that water depth and production timing on leases issued after 2000 and 
located in a field with leases issued earlier do not result in any 
modifications in the way we determine the royalty suspension volume 
(RSV) available to a field's eligible leases issued between 1996 and 
2000. Specifically, this rule clarifies that RSV production from a 
lease issued after 2000 that is part of a field that was granted 
royalty relief under the Deep Water Royalty Relief Act (DWRRA) counts 
toward the total eligible field relief.

EFFECTIVE DATE: October 15, 2002.

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

SUPPLEMENTARY INFORMATION: On February 12, 2002, we published a 
proposed rule (67 FR 6454) that added clarifying amendments to the 
regulations on OCS Oil and Gas Leasing under 30 CFR 260.114 and 
260.124. The minor changes we make here to those final regulations 
affect persons acquiring or holding deepwater oil and gas leases under 
43 U.S.C. 1337(a).
    The intent of the DWRRA was to grant one maximum royalty suspension 
volume per field to jump start development of technology and resource 
production in the deepwater Gulf of Mexico. We have been implementing 
the DWRRA to be consistent with that intent by stipulating that 
production from all leases that were issued with royalty suspension 
volume terms on a field counts against the volume on which royalties 
are suspended for that field. Wording in the current regulation says 
that only production occurring after an eligible lease (one issued from 
1996 through 2000 with royalty suspension terms) starts production, 
counts against the royalty suspension volume for the field. After the 
five-year window (1996 through 2000) covered by the DWRRA, we exercised 
our discretionary authority to issue leases, which we call royalty 
suspension leases (RS leases), with a definite but smaller royalty 
suspension volume independent of field status. Though it is unlikely, a 
newer RS lease could begin production before any older eligible lease 
on the same field. To account for that possibility, we need to change 
the regulation in two places to ensure that the total royalty 
suspension volume on a field does not surpass the levels set by 
Congress in the DWRRA.
    In 30 CFR 260.114(d), we adjust the scope of the field subject to 
rules governing use of the field's royalty suspension volume so that it 
can consist of more than eligible (DWRRA-era) leases. We do this by 
striking the qualifying phrase ``consisting only of eligible leases'' 
from the reference to the kind of field on which production from an 
eligible lease establishes the field's royalty suspension volume. We 
continue the practice of not counting against the field's royalty 
suspension volume any production from a lease on the field that was not 
issued with royalty suspension terms. In the same subparagraph, we also 
add a phrase to specify that the water depth of the deepest eligible 
lease on the field when an eligible lease starts production determines 
the size of the field's royalty suspension volume.
    We change 30 CFR 260.124(b)(1) by striking the word ``remaining'' 
from the phrase describing the situation in which the production on an 
RS lease that is subject to royalty suspension counts as part of the 
field's royalty suspension volume. This change ensures that all such 
production on an RS lease issued with a definite royalty suspension 
volume (after the five-year DWRRA window), not just production 
occurring after an eligible lease starts production, counts as part of 
the field's royalty suspension volume.
    For example, suppose a field consists of five eligible leases and 
one RS lease and the RS lease has a 10-million-barrel royalty 
suspension volume. The RS lease begins production first and goes 
through its entire royalty suspension volume. When an eligible lease 
begins production thereafter and the field is in a water depth that has 
a royalty suspension volume of 87.5 million barrels, the royalty 
suspension volume remaining on the field is 77.5 million barrels. This 
results because the RS lease has already taken its 10 million barrels 
of royalty suspension. Thus, the field can produce royalty-free up to 
87.5, not 97.5, million barrels.
    This final rule makes this situation clear, so that there will be 
no basis to misinterpret or contest the royalty suspension volume 
available to eligible leases on the field.

Response to Comments

    We received two comments from one oil and gas company in response 
to our request for written comments on our proposed rulemaking. Copies 
of all written comments we received are available on our Web site at 
http://www.mms.gov/federalregister/PublicComments/rulecomm.htm.
    Comment: The first comment suggested the rule apply only to leases 
issued after the final rule takes effect.
    Response: The implication is that the eligible leases, later 
followed by RS leases issued prior to this rule, may have been acquired 
under the assumption that any RS lease production occurring before 
eligible lease production would not count against the field's RSV. 
However, it was fully explained in the final rule we published on 
January 16, 1998 (63 FR 2626), that royalty relief applies to the field 
upon which the leases issued under the DWRRA reside. Certainly, during 
this time it was envisioned that leases would be issued after 2000 that 
could be placed on a field that already received royalty relief. It was 
always intended, and we thought clear in our regulations, that all such 
leases, plus those issued under the DWRRA, would have to share the 
relief volume set forth in the DWRRA intended for new fields.
    Moreover, any RS lease production is royalty free up to the lease-
specific royalty suspension volume with which it was issued. Only the 
maximum royalty suspension volume available for eligible leases is 
affected, and these eligible leases were acquired before we introduced 
the concept of an RS lease. Thus, for these reasons, the manner in 
which we treat RS lease production could not have affected bidder's 
assumptions under which eligible leases were acquired.
    Comment: The second comment requested confirmation that if an 
eligible lease produces before an RS lease on a field with an RS lease 
and five existing eligible leases, then the RS lease is still eligible 
to receive its volume suspension, as stipulated in the lease agreement.
    Response: This final rule keeps Sec.  260.124(b)(2) as originally 
written and, thus, does not change the aforementioned circumstance. RS 
leases get their full royalty suspension volume regardless of what 
eligible leases do. Such RS lease production does count against the 
field's suspension volume and, hence, may affect the royalty relief 
available to eligible leases if total

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production on the leases exceeds the field's royalty suspension volume.

Procedural Matters

Regulatory Planning and Review (Executive Order 12866)

    According to the criteria in Executive Order 12866, this rule is 
not a significant regulatory action. The Office of Management and 
Budget (OMB) makes the final determination under Executive Order 12866.
    a. This rule will not have an annual economic effect of $100 
million or adversely affect an economic sector, jobs, the environment 
or other units of government. This action avoids confusion and possible 
conflict in the rare situation when a deepwater RS lease, that happens 
to be in a field with deepwater eligible leases, is the first lease to 
produce in the field. This event should be rare because the eligible 
leases pre-date the RS lease, meaning the eligible leases were deemed 
the better prospect, and their owners have had more time to explore and 
develop their potential. Further, the royalty status only of production 
that occurs probably 10 or more years after the start of production on 
the field would be affected by this rare event because of the large 
size of the field suspension volumes relative to annual production on 
typical leases. Finally, any royalty-free production shifted from the 
eligible leases to the RS lease on the one or two fields where this 
event may occur would total only about $20 to $30 million, only a 
portion of which would occur in any one year.
    b. This rule will not create inconsistencies with other agencies' 
actions because there are no changes in requirements from the existing 
rule.
    c. This rule is an administrative change that will not affect 
entitlements, grants, user fees, loan programs, or their recipients. 
This rule has no effect on these programs or rights of the programs' 
recipients.
    d. This rule will not raise novel legal or policy issues. This 
action protects the original intent of the DWRRA, should a rare and 
unlikely situation arise. We propose to handle this situation in a 
manner that is parallel to our established treatment of the same field 
when the normal situation of the eligible lease starting producing 
first occurs.

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 rule 
will not have a significant economic effect on offshore lessees and 
operators, including those that are classified as small businesses. The 
rule will limit automatic royalty relief to deepwater fields to the 
amount established by the DWRRA, regardless of the water depth and 
production timing of RS leases on the field. New regulatory provisions 
will rarely apply and when they do will affect firms, large and small, 
the same way. Firm size should have no effect on whether RS or eligible 
leases on the same field start production first.
    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. You may comment to the Small Business 
Administration without fear of retaliation. Disciplinary action for 
retaliation by an MMS employee may include suspension or termination 
from employment with the Department of the Interior.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

    This rule is not a major rule under 5 U.S.C. 804(2), the SBREFA. 
This rule:
    a. Does not have an annual effect on the economy of $100 million or 
more. The proposed rule closes a possible loophole, the use of which 
may never be attempted. Even if a situation were to arise where this 
provision applies, the amount of royalties involved is a small fraction 
of $100 million.
    b. Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions. Oil prices are not based on the 
production from any one region, but are based on worldwide production 
and demand at any point in time. While gas prices are more localized, 
they correlate to oil prices. The rule does not change any existing 
leasing policies, so it should not cause prices to increase.
    c. Does not have significant adverse effects on competition, 
employment, investment, innovation, or the ability of United States-
based enterprises to compete with foreign-based enterprises. Leasing on 
the United States OCS is limited to residents of the United States or 
companies incorporated in the United States. This rule does not change 
that requirement, so it does not change the ability of United States 
firms to compete in any way.

Paperwork Reduction Act (PRA)

    The revisions do not contain any information collection 
requirements subject to the PRA. We will not submit a form OMB 83-I to 
OMB for review and approval under section 3507(d) of the PRA.

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 may affect the collection of royalty revenues from lessees in the 
deepwater Gulf of Mexico, all of which is outside State jurisdiction. 
States have no role in this activity with or without this rule. This 
rule does not impose costs on States or localities. States and local 
governments play no part in the administration of the deepwater royalty 
relief programs.

Takings Implications Assessment (Executive Order 12630)

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

Energy Supply, Distribution, or Use (Executive Order 13211)

    This rule is not a significant rule and is not subject to review by 
OMB under Executive Order 12866. This clarification rule does not have 
a significant effect on energy supply, distribution, or use because it 
reduces uncertainty in a rare circumstance relating to the order of 
drilling of different vintages of leases on a deepwater field having 
royalty relief. Greater certainty about how a particular sequence of 
drilling affects both the fields' and leases' applicable RSVs serves to 
focus lessee effort towards solving development and production 
challenges rather than to contesting the ultimate size of an already 
generous RSV awarded to them.

Unfunded Mandates Reform Act (UMRA)

    This rule does not impose an unfunded mandate on State, local, or 
tribal governments or the private sector of more than $100 million per 
year. The rule does not have a significant or unique effect on State, 
local, or tribal governments. The rule describes the

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policies for OCS leases issued with different royalty suspension 
amounts that happen to be on the same field. A statement containing 
additional UMRA (2 U.S.C. 1531 et seq.) information is not required.

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.

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.

List of Subjects for 30 CFR Part 260

    Bidding system, Continental shelf, Oil and gas leasing, Reporting 
requirements, Restricted joint bidder, Royalty suspension.

    Dated: August 29, 2002.
Rebecca W. Watson,
Assistant Secretary--Land and Minerals Management.

    For the reasons stated in the preamble, the Minerals Management 
Service (MMS) amends 30 CFR part 260 as follows:

PART 260--OUTER CONTINENTAL SHELF OIL AND GAS LEASING

    1. The authority citation for part 260 continues to read as 
follows:

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

Subpart B--[Amended]

    2. In Sec.  260.114, paragraph (d) is revised to read as follows:


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

* * * * *
    (d) When production (other than test production) first occurs from 
any of the eligible leases in a field, we will determine what royalty 
suspension volume applies to the lease(s) in that field. We base the 
determination for eligible lease(s) on the royalty suspension volumes 
specified in paragraph (b) of this section and the water depths of 
eligible leases specified in Sec.  260.117(a).
* * * * *

    3. In Sec.  260.124, paragraph (b)(1) is revised to read as 
follows:


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

* * * * *
    (b) * * *
    (1) Royalty-free production from your RS lease shares from and 
counts as part of any royalty suspension volume under Sec.  260.114(d) 
for the field to which we assign your lease; and
* * * * *
[FR Doc. 02-23146 Filed 9-11-02; 8:45 am]
BILLING CODE 4310-MR-P