[Federal Register Volume 70, Number 82 (Friday, April 29, 2005)]
[Rules and Regulations]
[Pages 22250-22252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-8557]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 203

RIN 1010-AD01


Technical Amendment to Oil and Gas and Sulphur Operations in the 
Outer Continental Shelf (OCS)--Relief or Reduction in Royalty Rates--
Deep Gas Provisions

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

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SUMMARY: This rule amends regulations to correct an unintended 
potential gap and administrative oversight in the original deep gas 
royalty rule by making leases located partly in water deeper than 200 
meters and issued during lease sales held in 2001 and later years 
expressly eligible for royalty relief for drilling deep gas wells on 
leases not subject to deep water royalty relief.

DATES: Effective date: This rule is effective on April 29, 2005.

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: Title 30 CFR part 203 regulates the 
reduction of oil and gas royalty under 43 U.S.C. 1337(a)(3). Under 
section 1337(a)(3)(B), MMS may reduce, modify, or eliminate royalties 
on certain producing or non-producing leases or categories of leases to 
promote development or increased production or to encourage production 
of marginal resources, in the Gulf of Mexico (GOM) west of 87 degrees, 
30 minutes West longitude. A final rule published January 26, 2004 (69 
FR 3492), and amended April 30, 2004 (69 FR 24052), offered an 
incentive for certain lessees to explore for and develop deep well gas 
reserves more rapidly. The objective of the gas incentive is to 
increase the volume of natural gas production from the OCS by 
encouraging deep drilling on leases in the shallow water areas of the 
GOM, i.e., water less than 200 meters deep.
    One important subset of these leases was inadvertently not 
expressly included in this incentive: Those leases straddling the deep 
water/shallow water depth line issued between January 1, 2001, and 
April 1, 2004, that did not contain deep well drilling relief terms 
that the lessee would have to renounce under Sec.  203.48 of the 
January 26, 2004, final rule. Those leases were intended to be included 
and were explicitly included and addressed in the preamble to the final 
rule published January 26, 2004. Briefly, Sec.  203.40 provides deep 
gas royalty relief to leases meeting various combinations of vintage, 
location, and production conditions. One of the changes between the 
proposed and final rule addressed comments on the proposed rule by 
adding eligibility for certain leases straddling the 200 meter water 
depth line. MMS intended to allow the incentive for all the leases that 
straddle this depth line that existed on the date of the final rule and 
to future such leases that straddle this depth line issued while the 
temporary incentive period is in effect as long as they were not 
``double dipping'' in incentive programs. The preamble to the final 
rule explains that change as follows:

    For leases lying partly in deep water, MMS prefers to avoid a 
situation in which any such lease can obtain non-discretionary 
relief from more than one categorical royalty relief program, e.g., 
deep water and deep depth drilling. The framework and parameters of 
each program were designed assuming no further categorical royalty 
relief would be provided. As of the summer of 2003, there were 132 
leases issued before 2001, and lying partly in water depths greater 
than 200 meters eligible for case-by-case or categorical royalty 
relief under Sections 302 and 304 of the Deep Water Royalty Relief 
Act (DWRRA). Eighty-two of these leases were issued from 1996'2000, 
and are covered under the categorical royalty relief program under 
section 304 of the DWRRA [43 U.S.C. 1337 note]. They are not 
eligible for the deep gas program. Fifty of the leases were issued 
before 1996, and are covered only by the discretionary royalty 
relief provisions of section 302 of the DWRRA, 43 U.S.C. 
1337(a)(3)(c). MMS's final rule extends eligibility for deep gas 
drilling relief to these 50 leases, as well as to any lease issued 
from sales held in 2001, or thereafter, without DWRRA royalty relief 
eligibility and lying at least partly in less than 200 meters of 
water depth.

    The last sentence in the above paragraph explains and confirms that 
MMS intended to offer deep gas royalty relief to leases straddling the 
200 meter water depth line that did not have DWRRA section 304 non-
discretionary royalty relief. Because non-discretionary deep water 
royalty relief has not been provided to leases in less than 400 meters 
of water since 2000, two kinds of leases meet those criteria--pre-DWRRA 
leases and leases issued in sales held in 2001-2004. As the preamble 
mentions, there were 50 leases in the former category, from lease sales 
held before enactment of the DWRRA that are still active. The latter 
category numbers 81 leases issued in lease sales held in 2001-2004. 
Additional such leases may be issued in lease sales held in the next 
several years. Modifications in the final rule explicitly made the 50 
pre-DWRRA leases that meet those criteria eligible for royalty relief 
for drilling deep gas wells on leases not subject to deep water royalty 
relief (Sec.  203.40(a)(1) and (b)(2)).
    Unfortunately, contrary to MMS's intent as expressed in the 
preamble to the final rule, the language in Sec.  203.40(a)(2) does not 
make expressly eligible for deep gas royalty relief leases located 
partly in water less than 200 meters deep that were issued between 
January 1, 2001, and April 1, 2004. This is the case because such 
leases did not have any royalty incentives for deep well gas drilling 
included as part of their lease terms. Likewise, also contrary to MMS's 
intent as expressed in the preamble, language in Sec.  203.40(a)(3) 
does not make similarly located leases issued on and after April 1, 
2004, expressly eligible for deep gas relief. Under Sec.  203.40(a)(2) 
and (a)(3), leases issued after 2001 need to exercise the option under 
Sec.  203.48 to replace incentive terms in their original lease 
document with those in the regulation. However, leases have this option 
under Sec.  203.48 only if they were issued with royalty relief 
provisions for deep well drilling. Leases located partly in water less 
than 200 meters deep were not issued with any royalty relief provisions 
for deep well drilling, and hence do not have any option to exercise. 
In fact, they do not need to have an option to

[[Page 22251]]

exercise since they are in the same situation as the lessee of a lease 
that has exercised its option, and our intent was to allow such leases 
to participate in the deep well program. This amendment makes that 
clear and adds that future leases in the same situation may be eligible 
for the incentive under the rule.
    This amendment to the final rule issued on January 26, 2004, makes 
the rule language consistent with MMS's express intent as explained in 
the preamble by expressly authorizing royalty relief for drilling deep 
gas wells on all leases located partly in water less than 200 meters 
deep that are not subject to deep water royalty relief, regardless of 
when they were issued and regardless of whether the lease terms 
included royalty relief provisions. Lessees who read the preamble to 
the final rule and understood it to mean a lease straddling the 
boundary without a DWRRA incentive could participate in the deep gas 
incentive expected and may have relied on this explanation in the 
preamble. Without this amendment, leases similarly situated would not 
necessarily be treated the same.

Procedural Matters

Public Comment Procedures

    Section 553 of the Administrative Procedures Act (5 U.S.C. 553) 
generally requires agencies to provide notice and an opportunity for 
public comment on substantive rules. The requirement does not apply, 
however, if the agency determines that notice and opportunity for 
public comment is ``impracticable, unnecessary, or contrary to public 
interest.'' DOI finds that good cause exists for dispensing with notice 
and opportunity for public comment in issuing this amended rule because 
those procedures are unnecessary where, as here, the agency has already 
provided notice and comment in the previous rulemaking on this exact 
issue and addressed it explicitly in the earlier preamble. This final 
rule simply conforms the Code of Federal Regulations to correct an 
inadvertent error in the regulatory text and may express what the 
earlier rule implied and its Preamble explained. DOI finds good cause 
to make this rule immediately effective under 5 U.S.C. 553 (d)(3). 
Because it also relieves a restriction possibly imposed by the earlier 
rule, it also qualifies for an exception to the 30-day effective date 
under 5 U.S.C. 553(d)(1).

Regulatory Planning and Review (Executive Order 12866)

    According to the criteria in Executive Order 12866, this rule is 
not a significant regulatory action for which a Regulatory Analysis has 
been prepared. The Office of Management and Budget (OMB) has made that 
determination under Executive Order 12866.
    (1) This amended final rule will not have an economic effect of 
$100 million or more. Though we estimated that the original deep gas 
rule would have such an effect, this technical correction involves only 
2 percent (81 of 3,500) of leases covered by the deep gas incentive. 
Further, the effect of the incentive on this small subset of leases was 
already included in the economic analysis of the original regulatory 
action.
    The full economic analysis is available at http://www.mms.gov/econ. 
The deep gas incentive rule reduces royalties for lessees that drill 
and produce natural gas from deep wells in shallow water areas of the 
GOM. The royalty suspension volume (RSV) offered should increase deep 
drilling activity on existing leases over the period of the program and 
make additional resources economic. The deep gas royalty suspensions 
are likely to reduce net Federal royalty collections. MMS's best 
estimate of this reduction is from $150 to $220 million in net present 
value over a 16-year period, depending on gas price volatility.
    (2) This amended rule will not create any inconsistencies with 
actions by other agencies because royalty relief is confined to leasing 
in Federal offshore waters that lie outside the coastal jurisdiction of 
State and other local agencies. Careful review of the lease sale 
notices, along with stringent leasing policies now in force, ensures 
that the Federal OCS leasing program, of which royalty relief is only a 
component, does not conflict with the work of other Federal agencies.
    (3) This amended rule has no effect on entitlements, grants, user 
fees, loan programs, or their recipients.
    (4) This rule raises no novel legal or policy issue. It only 
corrects an oversight that omitted a small subset of the leases from 
eligibility for the deep gas incentive.

Regulatory Flexibility Act (RFA)

    A detailed analysis of the small business impacts and alternatives 
considered can be found in the economic analysis of the original 
version of this regulation available at http://www.mms.gov/econ. This 
amended rule does not alter the findings of that analysis because the 
original analysis already covered the special subset of leases that are 
the subject of this amendment. This amendment only corrects an 
inconsistency between the original regulatory language and the intent 
expressed in the original rulemaking. No other changes are being made.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

    This amended rule is not a major rule under 5 U.S.C. 804(2), the 
SBREFA. This rule:
    (1) Only clarifies and corrects an inadvertent omission of express 
language to include some 81 leases and any others similarly situated 
without any current lease term royalty relief incentives within the 
rule promulgated on January 26, 2004. These leases represent only a 
small fraction of the leases covered by the earlier rule and their 
effect was included in the estimated effect of the earlier rule.
    (2) Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions. The overall deep gas incentive should 
materially moderate expected gas prices by adding to the overall 
supply, and this amended rule will contribute only a very small part to 
that effect.
    (3) Does not have significant adverse effects on competition, 
employment, investment, innovation, or the ability of U.S.-based 
enterprises to compete with foreign-based enterprises. Companies 
eligible for the deep gas royalty relief should produce more natural 
gas and earn more income while encountering no negative effects.

Paperwork Reduction Act (PRA) of 1995

    The revision to 30 CFR part 203 regulations, refers to, but does 
not change, information collection (IC) requirements in current 
regulations. The rule proposes no new reporting or recordkeeping 
requirements, and an OMB form 83-I submission to OMB under the PRA is 
not required. This rule corrects an unintended potential gap and 
administrative oversight to the rule and the IC requirements remain 
unchanged. The PRA provides that an agency may not conduct or sponsor a 
collection of information unless it displays a currently valid OMB 
control number. Until OMB approves a collection of information and 
assigns a control number, you are not required to respond. OMB approved 
the referenced information collection requirements under OMB control 
number 1010-0153, expiration 4/30/2006.

[[Page 22252]]

Federalism (Executive Order (E.O.) 13132)

    According to E.O. 13132, this rule does not have meaningful 
federalism implications. As noted above, it would have at most only a 
small effect relative to the original rule, which itself may have only 
a small consequence ($1 to $2 million a year) on Gulf Coast States in 
the form of reduced payments under section 8(g) of the OCSLA.

Takings Implication Assessment (Executive Order 12630)

    According to E.O. 12630, the rule does not have significant takings 
implications; therefore a Takings Implication Assessment is not 
required.

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

    This amended rule is not a significant rule and is not subject to 
review by OMB under E.O. 12866. This amended rule does not have a 
significant adverse effect on energy supply, distribution, or use. This 
amended rule may slightly increase and accelerate the production of gas 
from deep wells in shallow waters of the GOM by providing for a RSV 
volume for successful deep production and a royalty suspension 
supplement for unsuccessful deep drilling efforts to a few more leases, 
so it has a positive effect on energy supply based on our regulatory 
analysis.

Unfunded Mandates Reform Act (UMRA) of 1995

    This amended 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 amended rule does not have any Federal mandates. 
Nor does the rule have a significant or unique effect on State, local, 
or tribal governments or the private sector. A statement containing the 
information required by the UMRA (2 U.S.C. 1531 et seq.) is not 
required.

Civil Justice Reform (Executive Order 12988)

    According to E.O. 12988, the Office of the Solicitor has determined 
that the rule does not unduly burden the judicial system and meets the 
requirements of Sections 3(a) and 3(b)(2) of the E.O.

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.

Consultation and Coordination With Indian Tribal Governments (Executive 
Order 13175)

    In accordance with E.O. 13175, this rule does not have tribal 
implications that impose substantial direct compliance costs on Indian 
tribal governments.

List of Subjects in 30 CFR Part 203

    Continental shelf, Government contracts, Indian lands, Minerals 
royalties, Oil and gas exploration, Public lands-mineral resources, 
Reporting and recordkeeping requirements, Sulphur.

    Dated: April 11, 2005.
Chad Calvert,
Acting Assistant Secretary--Land and Minerals Management.

0
For the reasons stated in the preamble, the Minerals Management Service 
(MMS) amends 30 CFR part 203 as follows:

PART 203--RELIEF OR REDUCTION IN ROYALTY RATES

0
1. The authority citation for part 203 continues to read as follows:

    Authority: 25 U.S.C. 396 et seq.; 25 U.S.C. 396a et seq.; 25 
U.S.C. 2101 et seq.; 30 U.S.C. 181 et seq.; 30 U.S.C. 351 et seq.; 
30 U.S.C. 1001 et seq.; 30 U.S.C. 1701 et seq.; 31 U.S.C. 9701 et 
seq.; 43 U.S.C. 1301 et seq.; 43 U.S.C. 1331 et seq.; and 43 U.S.C. 
1801 et seq.


0
2. Section 203.40 introductory text and paragraph (a) are revised to 
read as follows:


Sec.  203.40  Which leases are eligible for royalty relief as a result 
of drilling deep wells?

    Your lease may receive a royalty suspension volume under Sec. Sec.  
203.41 through 203.43, and may receive a royalty suspension supplement 
under Sec. Sec.  203.44 through 203.46, if it:
    (a) Was:
    (1) In existence on January 1, 2001;
    (2) Issued in a lease sale held after January 1, 2001, and before 
April 1, 2004, and either the lessee has exercised the option provided 
for in Sec.  203.48 or the lease is located partly in water less than 
200 meters deep and no deep water royalty relief provisions in statutes 
or lease terms apply to the lease; or
    (3) Issued in a lease sale held on or after April 1, 2004, and 
either the lease terms provide for royalty relief under Sec. Sec.  
203.41 through 203.47 of this part or the lease is located partly in 
water less than 200 meters deep and no deep water royalty relief 
provisions in statutes or lease terms apply to the lease;
* * * * *
[FR Doc. 05-8557 Filed 4-28-05; 8:45 am]
BILLING CODE 4310-MR-P