[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Rules and Regulations]
[Pages 61624-61626]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25154]



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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Part 3100

[LLWO310000.L13100000.PP0000-241A.00]
RIN 1004-AE04


Promotion of Development, Reduction of Royalty Rates for Stripper 
Well and Heavy Oil Properties

AGENCY: Bureau of Land Management, Interior.

ACTION: Final rule.

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SUMMARY: The Bureau of Land Management (BLM) is removing portions of 
two regulations in order to characterize accurately the current status 
of two programs that have been terminated. In the past, the programs 
reduced royalty rates for stripper well properties and for heavy oil 
properties, so that Federal lessees would have incentives to keep 
economically marginal oil wells in production. This rule provides for 
record retention and correction of errors in calculation of royalties 
requirements that enable the Office of Natural Resources Revenue (ONRR) 
to continue to verify that royalties associated with past production 
were correctly paid.

DATES: Effective October 6, 2010.

ADDRESSES: You may mail suggestions or inquiries to the Bureau of Land 
Management, Division of Fluid Minerals, WO-310, 1849 C Street, NW., 
Washington, DC 20240-0001.

FOR FURTHER INFORMATION CONTACT: Rudy Baier, Bureau of Land Management, 
202-912-7146.

SUPPLEMENTARY INFORMATION:

I. Background
    A. Basics
    B. Termination
    C. Energy Policy Act
II. Discussion of the Final Rule
III. Procedural Matters

I. Background

A. Basics

    Section 39 of the Mineral Leasing Act authorizes the Secretary of 
the Interior to waive, suspend, or reduce the rental, or minimum 
royalty, or reduce the royalty on an entire leasehold, or on any tract 
or portion thereof segregated for royalty purposes, for the purpose of 
encouraging the greatest ultimate recovery of oil, gas, and other 
minerals, and in the interest of conservation of natural resources (1) 
whenever, in his judgment, it is necessary to do so in order to promote 
development; or (2) whenever, in his judgment, the leases cannot be 
successfully operated under the terms provided therein (30 U.S.C. 209).
    The BLM's regulations at 43 CFR 3103.4 include a provision 
authorizing royalty relief on a case-by-case application basis (43 CFR 
3103.4-1), as well as provisions establishing categorical royalty 
reductions for two categories of oil-producing properties: Stripper 
wells (43 CFR 3103.4-2) and heavy oil (43 CFR 3103.4-3). The BLM 
promulgated the latter two provisions in 1992 and 1996, respectively 
(57 FR 35973 (Aug. 11, 1992); 61 FR 4750 (Feb. 8, 1996)).
    A stripper well property, within the meaning of section 3103.4-2, 
is any Federal lease or portion thereof segregated for royalty 
purposes, a communitization agreement, or a participating area of a 
unit agreement, operated by the same operator, that produces an average 
of less than 15 barrels of oil per eligible well per well-day for the 
qualifying period (43 CFR 3103.4-2(a)(1)).
    A heavy oil property, within the meaning of section 3103.4-3, is 
any Federal lease or portion thereof segregated for royalty purposes, a 
communitization area, or a unit participating area, operated by the 
same operator, that produces crude oil with a weighted average gravity 
of less than 20 degrees as measured on the American Petroleum Institute 
scale (43 CFR 3103.4-3(a)(1)).

B. Termination

    Sections 3103.4-2 and 3103.4-3 include a total of four provisions 
(two in each regulation) that authorize termination of the royalty 
reduction programs for stripper well properties and heavy oil 
properties. The provision for heavy oil properties (43 CFR 3103.4-
3(b)(6)(ii)) and the analogous provision for stripper well properties 
(43 CFR 3103.4-2(b)(5)) state that royalty reduction benefits may be 
terminated if the Secretary determines that royalty rate reductions 
have not been effective.
    In addition, both sections authorize termination if oil prices 
exceed specific thresholds. Section 3103.4-2(b)(4) (describing the 
royalty reduction program for stripper well properties) states that 
upon 6 months' notice in the Federal Register, the BLM may terminate 
royalty rate reduction benefits after a determination that the oil 
price, adjusted for inflation by the BLM and the ONRR, using the 
implicit price deflator for gross national product with 1991 as the 
base year, remains on average above $28 per barrel, based on West Texas 
Intermediate crude average posted price for a period of 6 consecutive 
months. A generally analogous provision for heavy oil properties sets 
the threshold price for termination or suspension at $24 per barrel 
with 1991 as the base year (43 CFR 3103.4-3(b)(6)(i)).
    Exercising its authority under the ``price-threshold'' provisions 
described above, the BLM terminated the program for stripper well 
properties (70 FR 42093 (July 21, 2005)). The BLM suspended and 
subsequently terminated the program for heavy oil properties (70 FR 
21810 (April 27, 2005); 72 FR 60691 (Oct. 25, 2007)). The effective 
dates of the terminations were February 1, 2006, for stripper well 
properties and May 1, 2008, for heavy oil properties.

C. Energy Policy Act

    Section 343 of the Energy Policy Act is titled, ``Marginal Property 
Production Incentives,'' and generally defines ``marginal property'' as 
an onshore, gas- or oil-producing Federal property with an average 
daily production of less than 15 barrels of oil per well, or less than 
90,000,000 British thermal units of natural gas per well. Average daily 
production is to be based only on wells that produce on more than half 
of the days during the 3 most recent production months (42 U.S.C. 
15903(a)).
    Section 343 also states that, until such time as the Secretary 
issues regulations that prescribe different standards or requirements, 
the Secretary shall reduce the royalty rate on (1) oil production from 
marginal properties if the spot price of West Texas Intermediate crude 
oil at Cushing, Oklahoma, is, on average, less than $15 per barrel 
(adjusted in accordance with the Consumer Price Index for all-urban 
consumers, United States city average, as published by the Bureau of 
Labor Statistics) for 90 consecutive trading days; and (2) gas 
production from marginal properties if the spot price of natural gas 
delivered at Henry Hub, Louisiana, is, on average, less than $2.00 per 
million British thermal units (adjusted in accordance with the Consumer 
Price Index for all-urban consumers, United States city average, as 
published by the Bureau of Labor Statistics) for 90 consecutive trading 
days (42 U.S.C. 15903(b)).
    The BLM has issued a notice explaining that Section 343 of the 
Energy Policy Act has taken the place of the royalty reduction program 
for stripper well properties until the Secretary of the Interior issues 
regulations prescribing different relief (71 FR 71187 (Dec. 8, 2006)).

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II. Discussion of the Final Rule

    The purpose of this rule is to avoid confusion regarding the 
continued availability of royalty relief under the BLM's regulations. 
Categorical royalty relief pursuant to the existing codified 
regulations is no longer available for current production, since the 
BLM has terminated the regulatory programs that established royalty 
relief and Congress has enacted a superseding relief program for 
marginal wells. The current regulations provide for royalty relief on a 
case-by-case basis.
    However, it is inappropriate to rescind all of the provisions of 
the regulations that provide for royalty relief. While royalty relief 
is no longer available for current production, prior production 
continues to be subject to audits and, when appropriate, corrective 
actions. The Federal Oil and Gas Royalty Simplification and Fairness 
Act (30 U.S.C. 1701, et seq.) provides for a 7-year statute of 
limitations for the ONRR to pursue a demand for royalty following the 
date the obligation became due, i.e., the month in which oil or gas is 
produced (30 U.S.C. 1724(b)(1)). As a result, the ONRR continues to 
verify that royalties associated with the stripper well and heavy oil 
royalty rate reduction programs were correctly paid, and the BLM may 
still terminate relief retroactively if such relief was based on 
manipulation of normal production or adulteration of oil sold. Since 
the ONRR and cooperating State auditors continue to perform audits, 
recalculate royalty rates improperly calculated, and, together with the 
BLM, take compliance actions for production manipulation, the substance 
of existing 43 CFR 3103.4-2(b)(3)(v), (vi), and (vii) as well as 43 CFR 
3103.4-3(b)(5)(vi) and (vii) is retained and redesignated. This will 
avoid any dispute over the continuing obligation to maintain records 
for BLM or ONRR inspection and to pay, upon demand, any underpaid 
royalties with interest or receive credits for overpaid royalties with 
interest.
    Besides removing provisions referring to royalty relief for 
stripper well properties and heavy oil properties, this rule updates 43 
CFR 3100.0-9(b) to remove a reference to 43 CFR 3103.4-1(d), which was 
removed in a previous rulemaking. The remainder of 43 CFR 3100.0-9(b) 
provides for information collection by the ONRR and is otherwise 
unchanged so that the ONRR will be able to verify that royalties 
associated with past production were correctly paid. In addition, this 
rule: (1) Corrects a typographical error in existing 43 CFR 3103.4-
2(b)(v) (redesignated as 43 CFR 3103.4-2(a)), and (2) removes from 
existing 43 CFR 3103.4-3(b)(5)(vi) two references to existing paragraph 
(b) that will be confusing once that paragraph is redesignated as 43 
CFR 3103.4-3(a).
    This rule may be issued without first publishing a proposed rule 
for public comment. Pursuant to 5 U.S.C. 553(b)(3)(B), the BLM for good 
cause finds that notice and public procedure are unnecessary, since the 
royalty relief programs for stripper wells and heavy oil properties 
already are terminated, and the Energy Policy Act of 2005 took the 
place of the royalty reduction program for stripper well properties 
until regulations governing this area are promulgated. Additionally, 
the BLM for good cause finds under 5 U.S.C. 553(d)(3) that this removal 
may properly take effect upon publication since it does not require any 
change in conduct by any regulated party.

III. Procedural Matters

Executive Order 12866, Regulatory Planning and Review

    The BLM has determined that this rule is not a ``significant 
regulatory action'' within the meaning of Executive Order 12866.
     This rule will not have an annual effect on the economy of 
$100 million or more, and will not adversely affect in a material way 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or State, local, or tribal 
governments or communities. This rule will not have an impact on the 
economy because it is a ministerial action.
     This rule will not create inconsistencies with other 
agencies' actions. No other agency has jurisdiction over the rate of 
royalty for minerals produced on Federal lands. The BLM has coordinated 
this rulemaking with the ONRR, the agency that is responsible for 
enforcing royalty payment requirements.
     This rule will not materially affect entitlements, grants, 
loan programs, or the rights and obligations of their recipients.
     This rule will not raise novel legal or policy issues 
because it only removes from the regulations royalty rate reduction 
programs that are not in effect and will not be reinstated.

Regulatory Flexibility Act

    This rule will not have a significant economic effect on a 
substantial number of small entities as defined in the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) because the relief programs have 
been terminated and replaced by a new statute. Accordingly, a final 
Regulatory Flexibility Analysis is not required, and a Small Entity 
Compliance Guide is not required.

Small Business Regulatory Enforcement Fairness Act

    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act.
     This rule will not have an annual effect on the economy of 
$100 million or more.
     This rule will not materially alter current BLM policy.
     This rule will not cause a major increase in costs or 
prices for consumers, individual industries, Federal, State, or local 
government agencies, or geographic regions.
     This rule will not have significant adverse effects on 
competition, employment, investment, productivity, innovation, or the 
ability of U.S.-based enterprises to compete with foreign-based 
enterprises.

Unfunded Mandates Reform Act

    In accordance with the criteria in the Unfunded Mandates Reform Act 
(2 U.S.C. 1501 et seq.), the BLM has determined that this rule contains 
no regulatory requirements that might significantly or uniquely affect 
small governments. The BLM has also determined that this rule does not 
include a Federal mandate that may result in estimated annual costs of 
$100 million or more to State, local, and tribal governments in the 
aggregate, or to the private sector. Accordingly, the BLM is not 
required to prepare a budgetary impact statement or a plan for 
providing notice to any small governments.

Executive Order 12630, Takings

    The BLM has determined that this rule does not have takings 
implications. A takings implication assessment is not required.

Executive Order 13132, Federalism

    The final rule will not have a substantial direct effect on the 
States, on the relationship between the National and State Governments, 
or on the distribution of power and responsibilities among the various 
levels of government. Therefore, the BLM has determined that this final 
rule does not warrant preparation of a Federalism Assessment.

Executive Order 12988, Civil Justice Reform

    The BLM has determined that this rule meets the requirements of 
sections 3(a) and 3(b)(2) of Executive Order 12988, and therefore does 
not unduly burden the judicial system.

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Paperwork Reduction Act

    This rule does not initiate any new information collection 
requirements. This rule does not affect any existing information 
collection requirements which are assigned the clearance number 1010-
0090 and are administered by the ONRR. Accordingly, no analysis or 
action is necessary under the Paperwork Reduction Act.

National Environmental Policy Act

    The BLM has determined that this rule is not a major Federal action 
within the meaning of 40 U.S.C. 4332(2)(C). This rule removes 
regulations that established two programs that have been terminated. 
The removal of the regulations merely clarifies the programs' current 
status, and is thus a ministerial act. No analysis is required under 
the National Environmental Policy Act.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    The BLM has determined that this rule does not have ``tribal 
implications'' within the meaning of Executive Order 13174.

Executive Order 13211, Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    Under Executive Order 13211, a ``significant energy action'' is one 
that is ``significant'' under Executive Order 12866 and is likely to 
have a significant adverse energy effect. The BLM has determined that 
this rule is not ``significant'' within the meaning of Executive Order 
12866. Moreover, the BLM has determined that this rule is not likely to 
have a significant adverse energy effect, in view of the price data 
that led to the termination of royalty reduction benefits for stripper 
well properties and heavy oil properties. Accordingly, the BLM has 
determined that this rule is not a ``significant energy action'' 
requiring a ``Statement of Energy Effects'' within the meaning of 
Executive Order 13211.

Author

    The principal author of this final rule is Rudy Baier, Minerals and 
Realty Management, with the assistance of Jean Sonneman of the Division 
of Regulatory Affairs, Bureau of Land Management, Washington, DC.

List of Subjects in 43 CFR Part 3100

    Mineral royalties, Oil and gas exploration and production, Public 
lands--mineral resources, Reporting and recordkeeping requirements, and 
Surety bonds.

0
For the reasons stated in the preamble, and under the authorities cited 
below, part 3100, Subchapter C, Chapter II of Title 43 of the Code of 
Federal Regulations, is amended as set forth below:

Ned Farquhar,
Deputy Assistant Secretary, Land and Minerals Management.

PART 3100--OIL AND GAS LEASING

0
1. The authority citation for part 3100 continues to read as follows:

    Authority: 30 U.S.C. 189 and 359; 43 U.S.C. 1732(b), 1733, and 
1740; and the Energy Policy Act of 2005 (Pub. L. 109-58).

Subpart 3103--Fees, Rentals and Royalty


Sec.  3103.4-1  [Amended]

0
2. Section 3103.4-1(b)(1) is amended by removing the phrase ``on other 
than stripper oil well leases or heavy oil properties'' and the 
sentence ``(Royalty reductions specifically for stripper oil well 
leases or heavy oil properties are discussed in Sec.  3103.4-2 and 
Sec.  3103.4-3 respectively.)''.


Sec.  3103.4-2  [Amended]

0
3. Section 3103.4-2 is amended as follows:
0
a. Remove paragraph (a), the introductory text of paragraph (b), 
paragraphs (b)(1)and (b)(2), the introductory text of paragraph (b)(3), 
and paragraphs (b)(3)(i), (b)(3)(ii), (b)(3)(iii), (b)(3)(iv), (b)(4), 
(b)(5), (b)(6), (b)(7), (b)(8), (b)(9), and (b)(10).
0
b. Redesignate paragraphs (b)(3)(v), (b)(3)(vi), and (b)(3)(vii) as 
paragraphs (a), (b), and (c).
0
c. Amend redesignated paragraph (a) by removing the term ``MSS'' and 
adding in its place the term ``ONRR''.


Sec.  3103.4-3  [Amended]

0
4. Section 3103.4-3 is amended as follows:
0
a. Remove paragraph (a), the introductory text of paragraph (b), 
paragraphs (b)(1), (b)(2), (b)(3), and (b)(4), the introductory text of 
paragraph (b)(5), and paragraphs (b)(5)(i), (b)(5)(ii), (b)(5)(iii), 
(b)(5)(iv), (b)(5)(v), (b)(6), (b)(7), (b)(8), (b)(9), (b)(10), and 
(b)(11).
0
b. Redesignate paragraphs (b)(5)(vi) and (b)(5)(vii) as paragraphs (a) 
and (b).
0
c. Amend redesignated paragraph (a) by removing the phrases 
``authorized by this paragraph (b),'' and ``of this paragraph (b)''.

[FR Doc. 2010-25154 Filed 10-5-10; 8:45 am]
BILLING CODE 4310-84-P