[Federal Register Volume 70, Number 40 (Wednesday, March 2, 2005)]
[Notices]
[Pages 10111-10112]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4032]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service


Collection of Royalties, Rentals, Bonuses, and Other Monies Due 
the Federal Government

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Notice requesting comments on an increase in base rentals and 
the use of sliding scale rentals in the Gulf of Mexico (GOM) lease 
sales.

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SUMMARY: MMS is considering an increase to the base level rentals and 
the use of sliding scale rentals in Gulf of Mexico lease sales. This 
notice explains the purpose of the change and what the sliding scale 
rentals might be. MMS requests comments on both the increase to the 
base amounts and on the structure of the sliding scale system and its 
potential effects.

DATES: MMS will consider all comments received by April 1, 2005, and 
may not fully consider comments received after April 1, 2005.

ADDRESSES: You may submit comments on the notice by any of the 
following methods listed below. Please use ``Increasing Base Rentals 
and Sliding Scale Rentals'' as an identifier in your message. See also 
Public Comment Policy at the end of this notice.
     MMS's Public Connect on-line commenting system, http://ocsconnect.mms.gov. Follow the instructions on the website for 
submitting comments.
     Email MMS at [email protected]. Use ``Increasing Base 
Rentals and Sliding Scale Rentals'' in the subject line.
     Fax: 703-787-1093. Identify as ``Increasing Base Rentals 
and Sliding Scale Rentals''.
     Mail or hand-carry comments to the Department of the 
Interior; Minerals Management Service; Attention: Rules Processing Team 
(RPT); 381 Elden Street, MS-4024; Herndon, Virginia 20170-4817. Please 
reference ``Increasing Base Rentals and Sliding Scale Rentals'' in your 
comments.

FOR FURTHER INFORMATION CONTACT: Marshall Rose, Chief, Economics 
Division, at (703) 787-1536 or [email protected].

SUPPLEMENTARY INFORMATION: 

Background

    The increase in the pace of leasing since the introduction of the 
Deep Water Royalty Relief Act (DWRRA) has been about twice as high as 
the increase in the pace of exploration. In order to encourage 
exploration drilling in deepwater areas earlier in the lease term, MMS 
is considering the use of a sliding scale rental system in future GOM 
sales. Under this policy, annual rentals would escalate gradually 
beginning with the sixth year of the initial lease term period except 
under certain conditions. If a lease is drilled within the first 5 
years of its initial period, escalating rentals can be avoided either 
through a discovery, at which time the rental rate would stay the same 
until the start of royalty-bearing production, or, as might occur in 
the case of unsuccessful exploration, through relinquishment. If a 
discovery is made after the first 5 years of the primary term of the 
lease, the rental rates would return to the level that prevailed during 
the first 5-year period.
    Most deepwater blocks, i.e., those located in water depths of 400 
meters or greater, are issued with longer primary terms and lower 
royalty rates than shallow water blocks. MMS issues all deepwater 
blocks, i.e., those located in water depths of 200 meters or greater, 
with provisions for royalty suspension or the possibility of royalty 
suspension, unlike shallow water blocks. Partly due to these lease 
terms, a $7.50 per acre annual rental rate has been used in deeper 
water depths since the implementation of the DWRRA in 1996. In 
contrast, the annual rental rate for leases in shallow water has been 
set at $5.00 per acre over this same time period. The authority for MMS 
to require payment of a rental, at a rate specified in the lease, 
exists under 43 U.S.C. 1337 (b)(6): An oil and gas lease issued 
pursuant to this section shall `` * * * contain such rental and other 
provisions as the Secretary may prescribe at the time of offering the 
area for lease * * *.''
    The President's FY 2006 Budget submission includes language that 
MMS would increase the base level for rentals. The current base amounts 
are $5.00 per acre or fraction thereof for blocks in water depths of 
less than 200 meters and $7.50 per acre or fraction thereof for blocks 
in water depths of 200 meters or greater. These rates were last 
adjusted in 1993 for the shallow water depth and in 1996 for the deeper 
water depth. MMS is considering raising these base levels to 
approximately $6.25 per acre or fraction thereof for blocks in water 
depths of less than 200 meters

[[Page 10112]]

and $9.50 per acre or fraction thereof for blocks in water depths of 
200 or greater in subsequent GOM sales. These increased rental rates 
mostly reflect inflationary adjustments from the last time rentals were 
revised.

Potential Structure for Rental Rates

    For future lease sales for the GOM, MMS is considering using a 
sliding scale structure for blocks in water depths of 400 meters or 
greater, where royalty relief is typically offered. MMS would not use 
this escalating system in shallow water blocks of less than 200 meters 
or for deepwater blocks between 200 meters and less than 400 meters. 
However, as noted above, the base level of the rental rate for leases 
in water depths less than 400 meters may be raised. For leases in water 
depths of 400 meters or deeper, the table below lists the possible 
annual rental rates being considered, both base levels and escalated 
levels.

------------------------------------------------------------------------
                                                            Rental rate
                                                          (per acre  per
                          Year                                year or
                                                             fraction
                                                             thereof)
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1.......................................................           $9.50
2.......................................................            9.50
3.......................................................            9.50
4.......................................................            9.50
5.......................................................            9.50
6.......................................................           10.50
7.......................................................           12.00
8.......................................................           13.75
9.......................................................           15.50
10......................................................           17.50
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    Rentals must be paid on or before the first day of each lease year 
until a discovery in paying quantities of oil or gas, and then at the 
expiration of each lease year until the start of royalty-bearing 
production. In water depths of 400 meters or deeper, if a discovery in 
paying quantities is made (see 30 CFR 250.115 or 250.116 and NTL No. 
2000-G04 for requirements to demonstrate well producibility), 
regardless of the rental rate in effect before or at the time of the 
discovery, the rental rate will revert to $9.50 per acre per year or 
fraction thereof in years subsequent to such a discovery. Thus, if a 
discovery in paying quantities is made in year 8, at the beginning of 
which the lessee paid a rental of $13.75 per acre per year or fraction 
thereof, then at the expiration of each lease year thereafter until the 
start of royalty-bearing production, the rental rate would be fixed at 
$9.50 per acre per year or fraction thereof.
    MMS would like to receive comments about both the increase to a new 
base level of rentals for all water depths, and the structure of the 
escalating rental rates that MMS is considering for water depths 400 
meters or greater and their possible effects on acquisition and 
exploration decisions. Would fewer tracts receive bids? Would the 
amount of the individual bids change? Would escalating rentals at the 
rate specified above have any effect on the timing of exploration? 
Depending on upcoming sale results, changing market conditions, 
responses to this notice, and revisions in future projections, a 
sliding scale rental structure also might have to be adjusted. MMS will 
advise you of its final decision regarding base rental rates and any 
sliding scale rental stipulations in a future Notice of Lease Sale.

Public Comments Procedures

    All submissions received must include the agency name and refer to 
``Increasing Base Rentals and Sliding Scale Rentals.' MMS' practice is 
to make comments, including names and addresses of respondents, 
available for public review during regular business hours. Individual 
respondents may request that MMS withhold their address from the 
record, which will be honored to the extent allowable by law. There may 
be circumstances in which MMS would withhold from the record a 
respondent's identity, as allowable by the law. If you wish us to 
withhold your name and/or address, you must state this prominently at 
the beginning of your comment. However, MMS will not consider anonymous 
comments. Except for proprietary information, MMS 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.

    Dated: January 25, 2005.
Thomas Readinger,
Associate Director for Offshore Minerals Management.
[FR Doc. 05-4032 Filed 3-1-05; 8:45 am]
BILLING CODE 4310-MR-P