[Federal Register Volume 69, Number 84 (Friday, April 30, 2004)]
[Notices]
[Page 24055]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-9861]



  Federal Register / Vol. 69, No. 84 / Friday, April 30, 2004 / 
Notices  

[[Page 24055]]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service


Relief or Reduction in Royalty Under Certain Federal Oil and Gas 
Leases on the Outer Continental Shelf (OCS)

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Notice.

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SUMMARY: The Department of the Interior (DOI), under authority granted 
in the Outer Continental Shelf Lands Act, is eliminating the royalty 
set forth in certain Federal offshore oil and gas leases on gas 
produced from certain deep wells on those leases between March 1 and 
May 2, 2004.

DATES: Effective Date: April 30, 2004.

FOR FURTHER INFORMATION CONTACT: Marshall Rose, Chief, Economics 
Division, Minerals Management Service, at (703) 787-1536. e-mail: 
[email protected]. Address: Minerals Management Service, MS 4050, 
381 Elden Street, Herndon, Virginia 20170.

SUPPLEMENTARY INFORMATION: MMS published a final rule entitled ``Oil 
and Gas and Sulphur Operations in the Outer Continental Shelf--Relief 
or Reduction in Royalty Rates--Deep Gas Provisions'' in the Federal 
Register on January 26, 2004 (69 FR 3492) (``January final rule''). 
That rule provided for (1) temporary incentives in the form of royalty 
suspension volumes for producing gas from certain deep wells (at least 
15,000 feet true vertical depth below the datum at mean sea level (TVD 
SS)); (2) a royalty suspension supplement for drilling certain 
unsuccessful deep wells; and (3) price thresholds that may result in 
discontinuation of the royalty relief. The effective date for the 
January final rule as originally published was March 1, 2004.
    However, 5 U.S.C. 801(a)(1)(A) provides that before a rule can take 
effect, the Federal agency promulgating the rule must submit to each 
House of the Congress and to the Comptroller General a report 
containing a copy of the rule, a concise general statement relating to 
the rule, including whether it is a major rule, and the proposed 
effective date of the rule. Section 801(a)(3) then provides:

    (3) A major rule relating to a report submitted under paragraph 
(1) shall take effect on the latest of--
    (A) The later of the date occurring 60 days after the date on 
which--
    (i) The Congress receives the report submitted under paragraph 
(1); or
    (ii) The rule is published in the Federal Register, if so 
published.

The January final rule is a major rule under 5 U.S.C. 801-808 because 
it has an annual effect on the economy of $100 million or more. In the 
case of the January final rule, the Congress did not receive the rule 
until March 4, 2004. Therefore, the January final rule could not, by 
law, become effective before May 3, 2004. As a consequence, gas 
produced between March 1 and May 2, 2004, that would have been subject 
to a royalty suspension volume under the January final rule as 
published will not be subject to the royalty suspension provisions of 
the final rule because the rule cannot take effect before May 3, 2004. 
The DOI published a Final Rule--Technical Amendments today changing the 
effective date of the January final rule and making associated 
amendments to relevant dates in the regulatory text.
    Publishing the final rule on January 26, 2004, with a March 1, 
2004, effective date created the expectation that lessees could begin 
applying the royalty relief prescribed in the January final rule to 
production beginning March 1, 2004. In the course of meetings with 
offshore producers, MMS learned that several lessees, in making project 
startup and investment decisions, acted in reliance on the March 1, 
2004, date and the incentives provided in the January final rule. The 
statutory delay in the effective date of the January final rule and the 
reliance by some lessees on the March 1, 2004, date have created an 
unexpected and substantial disadvantage to these lessees with respect 
to the calculations on which they based their project startup and 
investment decisions.
    Section 8(a)(3)(B) of the OCS Lands Act (OCSLA), 43 U.S.C. 
1337(a)(3)(B) (as added by section 302(2) of the Deep Water Royalty 
Relief Act of 1995, Pub. L. No. 104-58, 109 Stat. 563, 565), provides 
in relevant part:

    In the Western and Central Planning Areas of the Gulf of Mexico 
* * * the Secretary may, in order to--
    (i) Promote development or increased production on producing or 
non-producing leases; or
    (ii) Encourage production of marginal resources on producing or 
non-producing leases;
    Through primary, secondary, or tertiary recovery means, reduce 
or eliminate any royalty or net profit share set forth in the 
lease(s). * * *

The Secretary of the Interior has delegated the authority to the MMS 
Director to exercise the royalty relief authority granted under the 
statute.
    By this notice, the DOI eliminates the royalty on gas produced 
between March 1 and May 2, 2004, from wells drilled on or after March 
26, 2003, with a perforated interval the top of which is at least 
15,000 feet TVD SS. This notice corrects the problem created by the 
agency's oversight regarding the January final rule's effective date, 
and corrects the negative effects of the lessees' reliance on the 
incentives provided for in the January final rule to promote 
development and production. This notice is published under the 
authority provided in 43 U.S.C. 1337(a)(3)(B). The relief granted by 
this notice will fulfill both the lessees' and MMS's expectations 
regarding the amount of royalty relief to which lessees would be 
entitled and for what period of time under the January final rule, and 
it corrects the inequity to the lessees that otherwise would result 
from MMS's error.
    This relief is very limited. It applies to only a very few leases 
and the unusual circumstances originating with MMS's error that delayed 
the beginning of the royalty relief for these deep wells provided in 
the January final rule.
    This action protects the integrity of an MMS commitment to OCS 
operators who acted in good faith on a deep drilling incentive. It 
avoids penalizing, because of an administrative error, those operators 
who acted expeditiously on the incentive. Such a penalty would be 
inconsistent with an incentive whose principal purpose is to accelerate 
deep drilling.
    Because this royalty relief is granted outside the January final 
rule, the volume of production on which a lessee will not pay royalties 
as a result of this notice does not count against the royalty 
suspension volume for the lease under the January final rule (see 30 
CFR 203.41). MMS acknowledges that the result of this notice is to 
grant lessees an additional 2 months of royalty relief above the level 
to which they were entitled in the January final rule, assuming that 
production levels prove to be high enough to equal or exceed the total 
royalty suspension volume provided for under the January final rule and 
this notice. However, MMS believes that this result is the most fair 
and equitable to the lessees in light of the purposes of the statutory 
grant of royalty relief authority and the fact that the problems are 
the fault of the government, not the lessees.

    Dated: April 26, 2004.
R.M. ``Johnnie'' Burton,
Director, Minerals Management Service.
[FR Doc. 04-9861 Filed 4-29-04; 8:45 am]
BILLING CODE 4310-MR-P