[Federal Register Volume 68, Number 154 (Monday, August 11, 2003)]
[Notices]
[Pages 47605-47606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20354]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service


Royalty-in-Kind (RIK) Eligible Refiner, Determination of Need

AGENCY: Minerals Management Service, Interior.

ACTION: Solicitation of comments.

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SUMMARY: The Minerals Management Service (MMS), an agency of the U.S. 
Department of the Interior, is requesting written comments from 
interested parties--particularly from small and/or independent 
petroleum refiners--regarding their experiences in the crude oil 
marketplace. Specifically, we are interested in small and/or 
independent refiners' experiences in gaining access to adequate 
supplies of crude oil at equitable prices. This Determination of Need 
process will assist the Secretary of the Interior in deciding whether 
or not to continue with sales of Federal Government royalty oil under 
the RIK eligible refiner program.

DATES: Submit written comments on or before September 25, 2003.

ADDRESSES: Address your comments and suggestions regarding this 
proposal to Sharron L. Gebhardt, Regulatory Specialist.
    By regular U.S. mail: Center for Excellence, Minerals Revenue 
Management, Minerals Management Service, P.O. Box 25165, MS 320B2, 
Denver, Colorado 80225-0165; or
    By overnight mail or courier: Attn: Sharron L. Gebhardt, (303) 231-
3211, Center for Excellence, Minerals Revenue Management, Minerals 
Management Service, Building 85, Room A614, Denver Federal Center, 
Denver, Colorado 80225-0165; or
    By fax: Please submit fax Attn: Sharron L. Gebhardt, fax (303) 231-
3781, Re: ``Determination of Need'' and your name and return address in 
your fax message. If you do not receive a confirmation that we have 
received your fax message, call the contact person listed below.
    By e-mail: [email protected]. Please submit Internet comments as 
an ASCII file and avoid the use of special characters and any form of 
encryption. Also, please include ``Attn: Determination of Need'' and 
your name and return address in your Internet message. If you do not 
receive a confirmation that we have received your Internet message, 
call the contact person listed below.

FOR FURTHER INFORMATION CONTACT: Sharron L. Gebhardt at telephone (303) 
231-3211, fax (303) 231-3781, or P.O. Box 25165, MS320B2, Denver 
Federal Center, Denver, Colorado 80225-0165.

SUPPLEMENTARY INFORMATION:
    Introduction: Under the provisions of the Mineral Leasing Act of 
1920 (MLA), as amended (30 U.S.C. 192), and the Outer Continental Shelf 
Lands Act (OCSLA) of August 7, 1953, as amended (43 U.S.C. 1334, 1353), 
the Secretary of the Interior can take Federal royalty oil in kind, in 
lieu of royalty payment, and sell it to ``eligible refiners'' for use 
in their refineries. The sale of royalty oil from Federal leases by the 
United States to eligible refiners is governed by the regulations at 30 
CFR 208, effective December 1, 1987 (52 FR 41908, 10/30/1987).
    An ``eligible refiner,'' as defined at 30 CFR 208.2, means a 
refiner of crude oil meeting the following criteria to purchase royalty 
oil:
    (1) For the purchase of royalty oil from onshore leases, it means a 
refiner that has an operating refinery and qualifies as a small and 
independent refiner as those terms are defined below:
    [sbull] The term ``independent refiner'' means a refiner who (a) 
obtained, directly or indirectly more than 70 percent of his refinery 
input of domestic crude oil (or 70 percent of his refinery input of 
domestic and imported crude oil) from producers who do not control, are 
not controlled by, and are not under common control with, such refiner 
for the calendar quarter immediately preceding the date of the 
applicable ``Notice of Availability of Royalty Oil,'' and (b) marketed 
or distributed in such quarter and continues to market and distribute a 
substantial volume of gasoline refined by him through branded 
independent marketers or non-branded independent marketers.
    [sbull] The term ``small refiner'' means a refiner whose total 
refinery capacity (including the refinery capacity of any person who 
controls, is controlled by, or is under common control with such 
refiner) does not exceed 175,000 barrels per day.
    Crude oil received in exchange for the refiner's own production is 
considered to be part of that refiner's own production for purposes of 
this section.
    (2) For the purchase of royalty oil from offshore leases, it means 
a refiner that has an operating refinery and qualifies as a small 
business enterprise under the rules of the Small Business 
Administration (SBA) (13 CFR Part 121) as updated in Federal Register 
Notice (68 FR 15047, 03/28/2003). The SBA standard for a small business 
within the Petroleum Refining Industry is a concern with a total 
Operable Atmospheric Crude Oil Distillation Capacity of less than or 
equal to 125,000 barrels per calendar day, and that has no more than 
1,500 employees. Capacity includes owned or leased facilities as well 
as facilities under a processing agreement or an arrangement such as an 
exchange agreement or throughput.
    The regulation at 30 CFR 208.4(a) governs the Determination of Need 
process and states that:

    The Secretary may evaluate crude oil market conditions from time 
to time. The evaluation will include, among other things, the 
availability of crude oil and the crude oil requirements of the 
Federal Government, primarily those requirements concerning matters 
of national interest and defense. The Secretary will review these 
items and will determine whether eligible refiners have access to 
adequate supplies of crude oil and whether such oil is available to 
eligible refiners at equitable prices. Such determinations may be 
made on a regional basis * * *.

    In accordance with its practice of conducting periodic reviews of 
market trends and conditions, MMS believes that undertaking another 
Determination of Need will be beneficial in formulating any decision to 
hold future royalty oil sales to eligible refiners.
    Background: The RIK eligible refiner program has been an important 
source of crude oil for these refiners in the past. Currently, there 
are six eligible refiner RIK contracts (involving Gulf of Mexico and 
Pacific Region offshore leases).
    In 1997, MMS undertook an examination of the eligible refiner RIK 
program and determined that a ``proactive, structured, and documented 
methodology'' should be used to conduct future RIK Determinations of 
Need. The MMS performed a full analysis in 1999 and an update of that 
analysis in 2001. These analyses supported the continuation of the 
program, and each was followed by subsequent RIK sales to eligible 
refiners.
    More recently, MMS has expanded the percentage of the oil royalties 
it takes in kind (apart from the eligible refiner program) to improve 
the efficiency and effectiveness of collecting and distributing 
royalties. In doing so, it has improved the administration of its RIK 
programs to better interface with standard industry practices. These 
improvements include:
    [sbull] Changing the way we conduct our operations by implementing 
logical

[[Page 47606]]

business practices in the areas of administrative fees, transportation 
allowances, counterparty risk management, operator delivery 
requirements, resolution of delivery imbalances, and gravity bank 
adjustments; and
    [sbull] Providing greater specificity and certainty with regard to 
RIK contract language, especially with regard to provisions addressing 
the valuation of RIK oil for billing purposes.
    Additionally, on November 13, 2001, President Bush announced an 
initiative to fill the remaining capacity of the Strategic Petroleum 
Reserve (SPR) with crude oil originating from royalties taken in kind. 
Royalty oil volumes from offshore Gulf of Mexico Federal leases have 
largely been dedicated to this effort, although about 22 percent of the 
Federal oil share from these leases is still currently being purchased 
under RIK eligible refiner sales. The MMS is taking approximately 90 
percent of its royalty oil share in kind from Federal offshore 
California leases. This oil is also purchased under eligible refiner 
sales.
    Potential respondents should also note that the mere conduct of a 
Determination of Need in no way presupposes that there will or will not 
be subsequent eligible refiner RIK sales. A Determination of Need is a 
logical first step in identifying general marketplace conditions. 
However, any decision to conduct additional RIK sales will necessarily 
be predicated on the regulatory criteria of ``access'' and ``equity''--
i.e., whether a significant number of refiners have limited or no 
access to the marketplace and/or have experienced difficulty in 
negotiating a fair price for feeder stocks.
    Information Requested: To assist MMS in completing a Determination 
of Need, please respond in writing to the following questions:
    (1) Indicate your perspective as it relates to the domestic crude 
oil market: Small/Independent Refiner.
    Large Refiner.
    Oil Producer.
    Oil Transporter.
    Oil Marketer.
    Other (please specify).
    (2) Describe your experience with the domestic crude oil market and 
your perception of the need for the eligible refiner program.
    (3) What is your perception of whether a benefit exists to 
conducting separate sales for onshore and offshore Federal lease crude?
    (4) Under the sets of criteria outlined above, are you an eligible 
refiner of offshore lease oil, onshore lease oil, or both?
    If you answered yes to any of the categories in the previous 
question, please address the questions that follow. (If you have 
multiple refineries, please address questions 1 through 5 for each 
refinery).
    (1) For your immediate region or geographic area of operation, how 
would you characterize the general availability of crude oil?
    (2) Is your refinery operating at full or near-full capacity in 
both summer and winter? If not, why not?
    (3) What are the slate of refined products and their volumes from 
your refinery over each of the past 12 months?
    (4) What percentage of onshore versus offshore crude oil volumes 
are currently being run through your refinery?
    (5) What type of crude is desired to sustain your mix of refined 
products (e.g., Wyoming Sweet, Wyoming Sour, Light Louisiana Sweet, 
etc.)?
    (6) Have you been denied access to crude oil supplies in the past 
18 months? What was the basis for the denial? For example, was the 
denial attributable to unavailability of desired crude, a lack of 
access to the transportation pipeline, or other reasons? Please provide 
documentation supporting any claim of denial.
    (7) Do you use exchange agreements? Why?
    (8) Are the feeder stocks you purchase, priced above market values 
for your geographic area? In other words, do you pay a bonus or premium 
because of your status as a small and/or independent refiner? Please 
identify, by crude oil type, what you pay on the average per barrel of 
oil.
    (9) Have you previously participated in the Federal royalty oil 
program? If a prior program participant, why did you leave the program? 
How would you now benefit from receiving Federal royalty oil?
    (10) Do you currently provide refined products (heating oil, jet 
fuel, etc.) to a U.S. military base or Federal installation? If so, 
identify the recipient facility and how long you have been supplying 
refined products.
    (11) Do you anticipate any near term developments that would change 
your access to necessary supplies of crude oil at equitable prices?
    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) 
requires us to inform you that this information is being collected by 
MMS under an approved information collection titled Royalty-in-Kind 
(RIK)--Eligible Refiners, Determination of Need, OMB Control Number 
1010-0119. All correspondence, records, or information received in 
response to this Notice, and specifically in response to the questions 
listed above, are subject to disclosure under the Freedom of 
Information Act (FOIA). All information provided will be made public 
unless the respondent identifies which portions are proprietary. Please 
highlight the proprietary portions, including any supporting 
documentation, or mark the page(s) that contain proprietary data. 
Proprietary information is protected by the Federal Oil and Gas Royalty 
Management Act of 1982 (30 U.S.C. 1733), FOIA (5 U.S.C. 552 (b)(4), the 
Indian Minerals Development Act of 1982 (25 U.S.C. 2103), and 
Department regulations (43 CFR 2). 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. 
Public reporting burden is estimated to be 4 hours per response. 
Comments on the accuracy of this burden estimate or suggestions on 
reducing this burden should be directed to the Information Collection 
Clearance Officer, MMS, MS-4230, 1849 C Street, NW., Washington, DC 
20240.

    Dated: July 15, 2003.
Lucy Querques Denett,
Associate Director for Minerals Revenue Management.
[FR Doc. 03-20354 Filed 8-8-03; 8:45 am]
BILLING CODE 4310-MR-P