[Federal Register Volume 72, Number 117 (Tuesday, June 19, 2007)]
[Notices]
[Pages 33768-33771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-2991]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service


Notice of the Annual Price Threshold Determination

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Notice of annual price threshold determination and annual 
average oil and gas market price calculations, along with their effects 
for the Gulf of Mexico royalty relief programs.

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SUMMARY: This notice provides the official MMS documentation of which 
Gulf of Mexico price thresholds have been exceeded by annual market 
prices for oil or gas, by lease vintage, for calendar year 2006. This 
notice also explains in detail how MMS calculates the annual oil and 
gas prices and applicable price thresholds used to determine whether 
royalty relief applies in calendar year 2006 for our various deepwater 
and deep depth royalty relief programs.

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

SUPPLEMENTARY INFORMATION: By various laws (Outer Continental Shelf 
Lands Act, Deep Water Royalty Relief Act, Energy Policy Act) and 
regulations (30 CFR 203.47, 203.54, 203.78, 260.110, and 260.122), MMS 
has authority to impose price thresholds for royalty relief. As 
prescribed in applicable regulations or lease terms, notwithstanding 
any provisions for royalty relief, companies are required to pay 
royalties for those calendar years when annual average New York 
Mercantile Exchange (NYMEX) market prices for oil or gas exceed the 
adjusted price thresholds levels. As a courtesy, MMS tracks, 
calculates, and posts on its website a variety of relevant information 
about applicable oil and gas prices and the price threshold levels to 
be used in determining whether a particular lease continues to be 
eligible for deep gas, deep water, or other royalty relief. The 
information contained in this published notice was posted on MMS Web 
site previously.
    The following table represents the official MMS price threshold and 
market price calculation determinations made for calendar year 2006. 
Any subsequent inflation adjustments or market price adjustments will 
not affect these official results or their implication for royalty 
relief on the designated categories of leases.

                      Applicable Price Thresholds and Market Prices for Calendar Year 2006
----------------------------------------------------------------------------------------------------------------
                                                           Annual average  Adjusted price
                                     Lease vintage (sales    NYMEX price      threshold        Royalty relief
              Product                      held in)         ($/bbl or $/    level  ($/bbl        suspended
                                                               mmbtu)        or $/mmbtu)
----------------------------------------------------------------------------------------------------------------
Deepwater oil.....................  Before 1996; 1996-             $66.22          $35.75  Yes
                                     1997; 2000; 2002-3/
                                     2004.

[[Page 33769]]

 
Deepwater oil.....................  2001.................           66.22           32.06  Yes
Deepwater oil.....................  8/2004-2006..........           66.22           41.36  Yes
Deepwater gas.....................  Before 1996; 1996-               6.99            4.47  Yes
                                     1997; 2000; 2002-3/
                                     2004.
Deepwater gas.....................  2001.................            6.99            4.00  Yes
Deepwater gas.....................  8/2004-2006..........            6.99            6.88  Yes
Deep gas..........................  3/2001...............            6.99            4.00  Yes
Deep gas..........................  8/2001-2003..........            6.99            5.72  Yes
Deep gas..........................  2004-2006............            6.99            9.88  No
Deep gas..........................  Reg 30 CFR 203.47....            6.99            9.88  No
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bbl = barrel, mmbtu = million British Thermal Units.

Technical Documentation

    The data and methodology used for making the 2006 calculations and 
determinations are discussed below. This same information for all years 
since 1996 is available at the Economics Division Web site http://www.mms.gov/econ/DWRRAPrice1.htm. Additional information and notes 
about understanding this Web site are included at the end of this 
notice.

Methodology for Calculation of the Actual Annual Average NYMEX Nearby 
Delivery Price

    1. We use the price for the nearby delivery month. That is, the 
price for the first contract or earliest month that you can get the 
delivery/inventory for buying and selling today's product. For example, 
on September 1, 2006, the nearby delivery month was October 2006. There 
are prices for other delivery months that can be bought and sold on 
September 1, 2006, such as November 2006, December 2006, etc., but the 
``nearby delivery month'' would be October 2006. However, the nearby 
delivery month is not always the next month because trading days may 
differ for oil and gas futures. For example, on September 28, 2006, the 
nearby delivery month was November 2006.
    2. The daily NYMEX closing price is listed as the settle price at 
the end of business trading hours for each commodity. These are listed 
at http://www.nymex.com and also summarized at http://www.oilnergy.com.
    3. The daily closing average is used to calculate the monthly 
average. For holidays and weekends, we use the previous business day's 
closing average. For example, Table A illustrates the calculation of 
the average NYMEX oil price for the month of September 2006. (Note--
this methodology is different from the Minerals Revenue Management's 
Royalty In-Kind Program that excludes weekends and holidays.) Our 
analysis indicates that inclusion or exclusion of weekends and holidays 
does not bias the annual average price calculation in either direction. 
We chose to include the weekends and holidays, as highlighted in Table 
A, because our source summarizes the monthly price data with the 
inclusion.

                             Table A.--Example of Monthly Average Price Calculation
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                                                       Daily                                             Daily
                                                      closing                                           closing
                 Day                       Date      price  ($/           Day                Date      price  ($/
                                                        bbl)                                              bbl)
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Friday...............................      9/1/2006     $69.19  Saturday...............     9/16/2006     $63.33
Saturday.............................      9/2/2006      69.19  Sunday.................     9/17/2006      63.33
Sunday...............................      9/3/2006      69.19  Monday.................     9/18/2006      63.80
Monday (Holiday).....................      9/4/2006      69.19  Tuesday................     9/19/2006      61.66
Tuesday..............................      9/5/2006      68.60  Wednesday..............     9/20/2006      60.46
Wednesday............................      9/6/2006      67.50  Thursday...............     9/21/2006      61.59
Thursday.............................      9/7/2006      67.32  Friday.................     9/22/2006      60.55
Friday...............................      9/8/2006      66.25  Saturday...............     9/23/2006      60.55
Saturday.............................      9/9/2006      66.25  Sunday.................     9/24/2006      60.55
Sunday...............................     9/10/2006      66.25  Monday.................     9/25/2006      61.45
Monday...............................     9/11/2006      65.61  Tuesday................     9/26/2006      61.01
Tuesday..............................     9/12/2006      63.76  Wednesday..............     9/27/2006      62.96
Wednesday............................     9/13/2006      63.97  Thursday...............     9/28/2006      62.76
Thursday.............................     9/14/2006      63.22  Friday.................     9/29/2006      62.91
Friday...............................     9/15/2006      63.33  Saturday...............     9/30/2006      62.91
                                      --------------------------------------------------------------------------
    Average..........................  ............  .........  .......................  ............      64.29
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[[Page 33770]]

    4. The monthly average is used to calculate the annual average. For 
example, Table B illustrates the calculation of the NYMEX oil price for 
2006. The calculation for the year-to-date average consists of the 
monthly averages so far in the year. The dollar amount of the result is 
rounded to the nearest tenth decimal point (i.e., cents).

          Table B. Example of Annual Average Price Calculation
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                                                               Average
                                                               closing
                           Month                              price ($/
                                                                 bbl)
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January....................................................       $65.33
February...................................................        62.02
March......................................................        62.89
April......................................................        70.11
May........................................................        70.86
June.......................................................        71.03
July.......................................................        74.45
August.....................................................        73.11
September..................................................        64.29
October....................................................        59.22
November...................................................        59.14
December...................................................        62.22
                                                            ------------
    Average................................................        66.22
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Methodology for Calculation of the Applicable Oil and Natural Gas Price 
Thresholds

    1. The price thresholds are estimates until they are locked in for 
a calendar year based on the most current inflation data available 
after the close of the year. In conjunction with the calculation of the 
annual market prices for oil and gas above, once the price thresholds 
are locked in, MMS makes an official determination regarding whether 
these market prices have exceeded the applicable price thresholds for 
the calendar year for a given vintage of lease and royalty relief 
program. After this official MMS determination is made, any subsequent 
revisions in the underlying source of the inflation figures will not 
affect the locked-in price thresholds or the determination of 
eligibility for royalty relief for that calendar year.
    2. The source for inflation data is the Department of Commerce, 
Bureau of Economic Analysis (BEA) http://www.bea.gov. U.S. Economic 
Accounts--Gross Domestic Product (GDP). National Income and Products 
Account (NIPA) Table 1.1.9. The 4th quarter implicit price deflator is 
usually not available from BEA until March of the subsequent calendar 
year.
    3. The implicit price deflator for GDP is used to calculate the 
applicable annual inflation rate, as illustrated in Table C. The 
deflator from the applicable year is divided by the deflator from the 
previous year and subtracted by one. For example, the inflation rate 
used to set the 2003 price threshold is calculated as {(106.40/104.19) 
- 1 = 2.1%{time} 

                                Table C.--Inflation Rates (Current and Locked-In)
                                             [Derived from BEA data]
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                                        Implicit price     Implicit price
            Calendar year              deflator for GDP   deflator for GDP    Current annual    Locked-in annual
                                         ( base=1996)       (base=2000)       inflation rate     inflation rate
----------------------------------------------------------------------------------------------------------------
1994................................              96.01  .................  .................  .................
1995................................              98.10  .................  .................  .................
1996................................             100.00  .................  .................  .................
1997................................             101.95  .................  .................  .................
1998................................             103.20  .................  .................  .................
1999................................             104.65  .................  .................  .................
2000................................             107.04             100.00  .................  .................
2001................................  .................             102.40                2.2                2.3
2002................................  .................             104.19                1.2                1.2
2003................................  .................             106.40                2.1                1.6
2004................................  .................             109.43                2.8                2.3
2005................................  .................             112.74                3.0                3.5
2006................................  .................             116.04                2.9                2.9
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    4. Because price thresholds are fixed for previous years, the 
current inflation rate displayed in Table C above may not correspond 
precisely to the rate actually employed to calculate previous price 
thresholds. For example, the GDP deflator posted on the BEA Web site in 
March 2007 shows an inflation rate for 2004 of 2.8 percent. However, 
back in March 2005, when the 2004 price threshold was locked-in, the 
BEA Web site showed an inflation rate of 2.3 percent, resulting in a 
change for the deepwater oil price threshold for lease vintage 1996-
2000*; 2002-3/2004*, as shown in the Deepwater Table on the Web site, 
from $32.80/bbl in 2003 to $33.55/bbl in 2004. Note that the figures 
that were shown on the BEA Web site in March of each year would be 
consistent with the adjustments made in the price thresholds from year 
to year. Rounding explains any remaining small differences between 
calculated locked-in inflation rates and those rates depicted on the 
MMS Web site. Therefore, to replicate the calculation for previous 
price thresholds, use the locked-in inflation rate. To replicate the 
calculation for the estimated price threshold, prior to March of the 
subsequent year, use the current inflation rate.

Additional Information and Notes About the Web Site

    1. The MMS will estimate the average market price at which oil or 
gas would have to sell during the remainder of the calendar year for 
the estimated price threshold to be exceeded for that year. If that 
estimated market price is shown in the table as a negative number, the 
average price at which oil or gas would have to be sold during the rest 
of the calendar year as of that time is guaranteed to exceed the 
estimated price threshold for the calendar year.
    2. The bold font shown for selected actual annual market prices 
indicates years in which at least some leases were not eligible for 
royalty relief because actual prices exceeded the applicable price 
thresholds set for those leases. For example, in calendar year 2004, 
the actual average price of natural gas of $6.18 (per million Btu) 
exceeded the

[[Page 33771]]

shallow water, deep natural gas price threshold levels of $3.76 for 
leases issued in Sale 178 (2001), and $5.37 for leases issued in all 
other Gulf of Mexico Sales held from 2001-2003 that did not exercise 
the option to switch terms offered under 30 CFR 203.48.
    3. Production generated royalty-free under the deep gas program 
counts against the remaining royalty suspension volume, with one 
exception. That exception involves production from March 1, 2004, 
through May 2, 2004, from deep wells that qualified for royalty 
suspension under 30 CFR 203.40 through 48 (see Federal Register, Volume 
69, Number 84, page 24055).
    4. Regulations pertaining to price thresholds include 30 CFR 
203.47, 203.54, 203.78, 260.110, and 260.122.

    Dated: May 22, 2007.
Chris C. Oynes,
Associate Director for Offshore Minerals Management.
[FR Doc. 07-2991 Filed 6-18-07; 8:45 am]
BILLING CODE 4310-MR-P