[Federal Register Volume 74, Number 106 (Thursday, June 4, 2009)]
[Notices]
[Pages 26879-26882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13094]


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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 determination of which 
Gulf of Mexico price thresholds have been exceeded by annual market 
prices for oil or gas, by lease vintage, for calendar year 2008. 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 2008 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 203.48, 203.54, 203.78, 260.110, and 260.122), MMS 
has authority to impose price thresholds at which otherwise applicable 
royalty relief is suspended. 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. Production 
generated royalty-free counts against the remaining royalty suspension 
volume, with one exception. That exception involves deep-gas production 
from March 1, 2004, through May 2, 2004, from deep wells that qualified 
for royalty suspension under 30 CFR 203.40 through 203.48 (see 69 FR 
24055). As a courtesy, MMS tracks, calculates, and posts on its Web 
site 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

[[Page 26880]]

notice was previously posted on the MMS Web site. Beginning in the 
second quarter of each year, 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.
    The following table represents the official MMS price threshold and 
market price calculation determinations made for calendar year 2008. 
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 2008
----------------------------------------------------------------------------------------------------------------
                                                                                 Adjusted price
                                      Lease vintage (sale     Annual average    threshold level   Royalty relief
              Product                       held in)         NYMEX price  ($/     ($/bbl or $/       suspended
                                                             bbl or $/MMBtu)         MMBtu)
----------------------------------------------------------------------------------------------------------------
Deepwater oil......................  Before 1996; 1996-                 99.74              37.18            Yes.
                                      1997 \1\; 20001;
                                      2002-3/2004; 2007-
                                      2008.
Deepwater oil......................  2001.................              99.74              33.33            Yes.
Deepwater oil......................  8/2004-2006..........              99.74              43.28            Yes.
Deepwater gas......................  Before 1996; 1996-                  8.89               4.65            Yes.
                                      1997 \1\; 20001;
                                      2002-3/2004; 2007-
                                      2008.
Deepwater gas......................  2001.................               8.89               4.17            Yes.
Deepwater gas......................  8/2004-2006..........               8.89               7.21            Yes.
Deep gas...........................  3/2001 \2\...........               8.89               4.17            Yes.
Deep gas...........................  8/2001-2003 2........               8.89               5.95            Yes.
Deep gas \3\.......................  Before 2001, 2001-                  8.89              10.37             No.
                                      2003 2, 2004-2008.
Deep gas \4\.......................  Before 2001, 2001-                  8.89     10.37 and 4.65         No \4\.
                                      2003 2, 2004-2008.
Deep gas \5\.......................  All years............               8.89               4.65            Yes.
----------------------------------------------------------------------------------------------------------------
bbl = barrel, MMBtu = million British Thermal Units, bcf = billion cubic feet.
\1\ Price thresholds do not apply to leases issued in deepwater during the years 1998-1999 due to an
  administrative oversight. If the Kerr-McGee v. DOI, Fifth Circuit Court Decision (1/12/09) is upheld, price
  thresholds will not apply to deepwater leases issued during the years 1996-2000.
\2\ Leases issued in water 0-200 meters deep during 2001-2003 had the option to convert from lower price
  thresholds under lease terms to higher price thresholds set forth in the regulations.
\3\ Applies to qualified deep wells on leases in water 0-200 meters deep that spudded after 3/26/2003 and
  produced before 5/3/2009, and to qualified ultra-deep wells on leases in water 0-200 meters deep that spudded
  between 3/26/2003 and 5/17/2007 and produced before 5/3/2009.
\4\ Applies to qualified ultra-deep wells on leases in water 0-200 meters deep that spudded on or after 5/18/
  2007 and produced before 5/03/09. The higher price threshold applies to the first 25 bcf of royalty relief;
  the lower price threshold applies to the next 10 bcf of royalty relief. For qualified ultra-deep wells on
  leases in water 0-200 meters deep that spudded on or after 5/3/2009, the lower price threshold applies to the
  entire 35 bcf of royalty relief.
\5\ Applies to qualified deep wells on leases in water 200-400 meters deep that spudded on or after 5/18/2007
  and produced before 5/3/2013, and to qualified ultra-deep wells on leases in water 200-400 meters deep that
  spudded on or after 5/18/2007.

Technical Documentation

    The data and methodology used for making the 2008 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/econpt.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 or front 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 October 1, 2007, the nearby delivery month was November 
2007. There are prices for other delivery months that can be bought and 
sold on October 1, 2007, such as December 2007, January 2008, etc., but 
the ``nearby delivery month'' would be November 2007. However, the 
nearby delivery month is not always the next month because the last 
trading day of the month differs for oil and gas futures. For example, 
on March 27, 2008, the nearby delivery month for light sweet crude oil 
is May 2008 while for natural gas it is still April 2008.
    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 December 2008 (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, to 
avoid the necessity to keep track of actual trading days each month all 
year, and because our source summarizes the monthly price data with the 
inclusion.

          Table A--Example of Monthly Average Price Calculation
------------------------------------------------------------------------
                                                         Daily closing
                Day                        Date          price ($/bbl)
------------------------------------------------------------------------
Monday............................          12/1/2008             $49.28
Tuesday...........................          12/2/2008              46.96
Wednesday.........................          12/3/2008              46.79
Thursday..........................          12/4/2008              43.67

[[Page 26881]]

 
Friday............................          12/5/2008              40.81
Saturday..........................          12/6/2008              40.81
Sunday............................          12/7/2008              40.81
Monday............................          12/8/2008              43.71
Tuesday...........................          12/9/2008              42.07
Wednesday.........................         12/10/2008              43.52
Thursday..........................         12/11/2008              47.98
Friday............................         12/12/2008              46.28
Saturday..........................         12/13/2008              46.28
Sunday............................         12/14/2008              46.28
Monday............................         12/15/2008              44.51
Tuesday...........................         12/16/2008              43.60
Wednesday.........................         12/17/2008              40.06
Thursday..........................         12/18/2008              36.22
Friday............................         12/19/2008              33.87
Saturday..........................         12/20/2008              33.87
Sunday............................         12/21/2008              33.87
Monday............................         12/22/2008              39.91
Tuesday...........................         12/23/2008              38.98
Wednesday.........................         12/24/2008              35.35
Thursday (Holiday)................         12/25/2008              35.35
Friday............................         12/26/2008              37.71
Saturday..........................         12/27/2008              37.71
Sunday............................         12/28/2008              37.71
Monday............................         12/29/2008              40.02
Tuesday...........................         12/30/2008              39.03
Wednesday.........................         12/31/2008              44.60
                                   -------------------------------------
    Average.......................  .................              41.21
------------------------------------------------------------------------

    4. The monthly average is used to calculate the annual average. For 
example, Table B illustrates the calculation of the NYMEX oil price for 
2008. 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 hundredth decimal point (i.e., cents). We do not 
weight the average each month by the number of days in that month, 
again to avoid adding superfluous complexity.

          Table B--Example of Annual Average Price Calculation
------------------------------------------------------------------------
                                                              Average
                          Month                            closing price
                                                              ($/bbl)
------------------------------------------------------------------------
January.................................................           92.94
February................................................           94.92
March...................................................          105.15
April...................................................          112.58
May.....................................................          125.61
June....................................................          134.60
July....................................................          134.42
August..................................................          116.73
September...............................................          104.41
October.................................................           76.77
November................................................           57.54
December................................................           41.21
                                                         ---------------
    Average.............................................           99.74
------------------------------------------------------------------------

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: The 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 
not available from BEA until late 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 2008 price threshold is calculated as {(122.42/119.82) 
- 1 = 2.2%{time} .

[[Page 26882]]



                                Table C--Inflation Rates (Current and Locked-In)
                                             [Derived from BEA data]
----------------------------------------------------------------------------------------------------------------
                                           Implicit price       Implicit price                       Locked-in
             Calendar year                deflator for GDP     deflator for GDP   Current annual      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             2.4             2.2
2002..................................  ...................               104.19             1.7             1.1
2003..................................  ...................               106.40             2.1             1.7
2004..................................  ...................               109.46             2.9             2.1
2005..................................  ...................               113.03             3.3             2.8
2006..................................  ...................               116.68             3.2             2.9
2007..................................  ...................               119.82             2.7             2.7
2008..................................  ...................               122.42             2.2             2.2
----------------------------------------------------------------------------------------------------------------

    4. Because price thresholds are fixed for previous years, the 
current inflation rate displayed on the BEA Web site (see Table C 
above) may not correspond precisely to the rate MMS employed to 
calculate previous price thresholds. For example, the GDP deflator 
posted on the BEA Web site in March 2008 shows an inflation rate for 
2004 of 2.9 percent. However, back in March 2005, when the 2004 price 
threshold was locked in, the BEA Web site showed an inflation rate of 
2.1 percent, which MMS used in a change for the deepwater oil price 
threshold for most leases, as shown in the first column of the 
Deepwater Table on the Web site, from $32.81/bbl in 2003 to $33.50/bbl 
in 2004. The figures that were shown on the BEA Web site in March of 
each year were used to make the adjustments 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.

    Dated: April 20, 2009.
Chris C. Oynes,
Associate Director for Offshore Energy and Minerals Management.
[FR Doc. E9-13094 Filed 6-3-09; 8:45 am]
BILLING CODE 4310-MR-P