[104th Congress Public Law 185]
[From the U.S. Government Printing Office]


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[DOCID: f:publ185.104]


[[Page 1699]]

   FEDERAL OIL AND GAS ROYALTY SIMPLIFICATION AND FAIRNESS ACT OF 1996

[[Page 110 STAT. 1700]]

Public Law 104-185
104th Congress

                                 An Act


 
     To improve the management of royalties from Federal and Outer 
          Continental Shelf oil and gas leases, and for other 
            purposes. <<NOTE: Aug. 13, 1996 -  [H.R. 1975]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress <<NOTE: Federal Oil and Gas Royalty 
Simplification and Fairness Act of 1996.>> assembled,

SECTION 1. SHORT <<NOTE: 30 USC 1701 note.>>  TITLE.

    This Act may be cited as the ``Federal Oil and Gas Royalty 
Simplification and Fairness Act of 1996''.

SEC. 2. <<NOTE: 30 USC 1702.>> DEFINITIONS.

    Section 3 of the Federal Oil and Gas Royalty Management Act of 1982 
(30 U.S.C. 1701 et seq.) is amended--
            (1) by amending paragraph (7) to read as follows:
            ``(7) `lessee' means any person to whom the United States 
        issues an oil and gas lease or any person to whom operating 
        rights in a lease have been assigned;''; and
            (2) by striking ``and'' at the end of paragraph (15), by 
        striking the period at the end of paragraph (16) and inserting a 
        semicolon, and by adding at the end the following:
            ``(17) `adjustment' means an amendment to a previously filed 
        report on an obligation, and any additional payment or credit, 
        if any, applicable thereto, to rectify an underpayment or 
        overpayment on an obligation;
            ``(18) `administrative proceeding' means any Department of 
        the Interior agency process in which a demand, decision or order 
        issued by the Secretary or a delegated State is subject to 
        appeal or has been appealed;
            ``(19) `assessment' means any fee or charge levied or 
        imposed by the Secretary or a delegated State other than--
                    ``(A) the principal amount of any royalty, minimum 
                royalty, rental bonus, net profit share or proceed of 
                sale;
                    ``(B) any interest; or
                    ``(C) any civil or criminal penalty;
            ``(20) `commence' means--
                    ``(A) with respect to a judicial proceeding, the 
                service of a complaint, petition, counterclaim, cross 
                claim, or other pleading seeking affirmative relief or 
                seeking credit or recoupment: Provided, That if the 
                Secretary commences a judicial proceeding against a 
                designee, the Secretary shall give notice of that 
                commencement to the lessee who designated the designee, 
                but the Secretary is not required to give notice to 
                other lessees who may be liable pursuant to section 
                102(a) of this Act, for the obligation that is the 
                subject of the judicial proceeding; or

[[Page 110 STAT. 1701]]

                    ``(B) with respect to a demand, the receipt by the 
                Secretary or a delegated State or a lessee or its 
                designee (with written notice to the lessee who 
                designated the designee) of the demand;
            ``(21) `credit' means the application of an overpayment (in 
        whole or in part) against an obligation which has become due to 
        discharge, cancel or reduce the obligation;
            ``(22) `delegated State' means a State which, pursuant to an 
        agreement or agreements under section 205 of this Act, performs 
        authorities, duties, responsibilities, or activities of the 
        Secretary;
            ``(23) `demand' means--
                    ``(A) an order to pay issued by the Secretary or the 
                applicable delegated State to a lessee or its designee 
                (with written notice to the lessee who designated the 
                designee) that has a reasonable basis to conclude that 
                the obligation in the amount of the demand is due and 
                owing; or
                    ``(B) a separate written request by a lessee or its 
                designee which asserts an obligation due the lessee or 
                its designee that provides a reasonable basis to 
                conclude that the obligation in the amount of the demand 
                is due and owing, but does not mean any royalty or 
                production report, or any information contained therein, 
                required by the Secretary or a delegated State;
            ``(24) `designee' means the person designated by a lessee 
        pursuant to section 102(a) of this Act, with such written 
        designation effective on the date such designation is received 
        by the Secretary and remaining in effect until the Secretary 
        receives notice in writing that the designation is modified
or terminated;
            ``(25) `obligation' means--
                    ``(A) any duty of the Secretary or, if applicable, a 
                delegated State--
                          ``(i) to take oil or gas royalty in kind; or
                          ``(ii) to pay, refund, offset, or credit 
                      monies including (but not limited to)--
                                    ``(I) the principal amount of any 
                                royalty, minimum royalty, rental, bonus, 
                                net profit share or proceed of sale; or
                                    ``(II) any interest; and
                    ``(B) any duty of a lessee or its designee (subject 
                to the provision of section 102(a) of this Act)--
                          ``(i) to deliver oil or gas royalty in kind; 
                      or
                          ``(ii) to pay, offset or credit monies 
                      including (but not limited to)--
                                    ``(I) the principal amount of any 
                                royalty, minimum royalty, rental, bonus, 
                                net profit share or proceed of sale;
                                    ``(II) any interest;
                                    ``(III) any penalty; or
                                    ``(IV) any assessment,
                      which arises from or relates to any lease 
                      administered by the Secretary for, or any mineral 
                      leasing law related to, the exploration, 
                      production and development of oil or gas on 
                      Federal lands or the Outer Continental Shelf;
            ``(26) `order to pay' means a written order issued by the 
        Secretary or the applicable delegated State to a lessee or its

[[Page 110 STAT. 1702]]

        designee (with notice to the lessee who designated the designee) 
        which--
                    ``(A) asserts a specific, definite, and quantified 
                obligation claimed to be due, and
                    ``(B) specifically identifies the obligation by 
                lease, production month and monetary amount of such 
                obligation claimed to be due and ordered to be paid, as 
                well as the reason or reasons such obligation is claimed 
                to be due, but such term does not include any other 
                communication or action by or on behalf of the Secretary 
                or a delegated State;
            ``(27) `overpayment' means any payment by a lessee or its 
        designee in excess of an amount legally required to be paid on 
        an obligation and includes the portion of any estimated payment 
        for a production month that is in excess of the royalties due 
        for that month;
            ``(28) `payment' means satisfaction, in whole or in part, of 
        an obligation;
            ``(29) `penalty' means a statutorily authorized civil fine 
        levied or imposed for a violation of this Act, any mineral 
        leasing law, or a term or provision of a lease administered by 
        the Secretary;
            ``(30) `refund' means the return of an overpayment;
            ``(31) `State concerned' means, with respect to a lease, a 
        State which receives a portion of royalties or other payments 
        under the mineral leasing laws from such lease;
            ``(32) `underpayment' means any payment or nonpayment by a 
        lessee or its designee that is less than the amount legally 
        required to be paid on an obligation; and
            ``(33) `United States' means the United States Government 
        and any department, agency, or instrumentality thereof, the 
        several States, the District of Columbia, and the territories of 
        the United States.''.

SEC. 3. DELEGATION OF ROYALTY COLLECTIONS AND RELATED ACTIVITIES.

    (a) General Authority.--Section 205 of the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C. 1735) is amended to read as 
follows:

``SEC. 205. DELEGATION OF ROYALTY <<NOTE: 30 USC 1735.>>  COLLECTIONS 
            AND RELATED ACTIVITIES.
            ``(a) Upon written request of any State, the Secretary is 
        authorized to delegate, in accordance with the provisions of 
        this section, all or part of the authorities and 
        responsibilities of the Secretary under this Act to:
            ``(1) conduct inspections, audits, and investigations;
            ``(2) receive and process production and financial reports;
            ``(3) correct erroneous report data;
            ``(4) perform automated verification; and
            ``(5) issue demands, subpoenas, and orders to perform 
        restructured accounting, for royalty management enforcement 
        purposes,

to any State with respect to all Federal land within the State.
    ``(b) After notice and opportunity for a hearing, the Secretary is 
authorized to delegate such authorities and responsibilities granted 
under this section as the State has requested, if the Secretary finds 
that--

[[Page 110 STAT. 1703]]

            ``(1) it is likely that the State will provide adequate 
        resources to achieve the purposes of this Act;
            ``(2) the State has demonstrated that it will effectively 
        and faithfully administer the rules and regulations of the 
        Secretary under this Act in accordance with the requirements of 
        subsections (c) and (d) of this section;
            ``(3) such delegation will not create an unreasonable burden 
        on any lessee;
            ``(4) the State agrees to adopt standardized reporting 
        procedures prescribed by the Secretary for royalty and 
        production accounting purposes, unless the State and all 
        affected parties (including the Secretary) otherwise agree;
            ``(5) the State agrees to follow and adhere to regulations 
        and guidelines issued by the Secretary pursuant to the mineral 
        leasing laws regarding valuation of production; and
            ``(6) where necessary for a State to have authority to carry 
        out and enforce a delegated activity, the State agrees to enact 
        such laws and promulgate such regulations as are consistent with 
        relevant Federal laws and regulations

with respect to the Federal lands within the State.
    ``(c) After notice and opportunity for hearing, the Secretary shall 
issue a ruling as to the consistency of a State's proposal with the 
provisions of this section and regulations under subsection (d) within 
90 days after submission of such proposal. In any unfavorable ruling, 
the Secretary shall set forth the reasons therefor and state whether the 
Secretary will agree to delegate to the State if the State meets the 
conditions set forth in such ruling.
    ``(d) After consultation with State <<NOTE: Regulations.>>  
authorities, the Secretary shall by rule promulgate, within 12 months 
after the date of enactment of this section, standards and regulations 
pertaining to the authorities and responsibilities to be delegated under 
subsection (a), including standards and regulations pertaining to--
            ``(1) audits to be performed;
            ``(2) records and accounts to be maintained;
            ``(3) reporting procedures to be required by States under 
        this section;
            ``(4) receipt and processing of production and financial 
        reports;
            ``(5) correction of erroneous report data;
            ``(6) performance of automated verification;
            ``(7) issuance of standards and guidelines in order to avoid 
        duplication of effort;
            ``(8) transmission of report data to the Secretary; and
            ``(9) issuance of demands, subpoenas, and orders to perform 
        restructured accounting, for royalty management enforcement 
        purposes.

Such standards and regulations shall be designed to provide reasonable 
assurance that a uniform and effective royalty management system will 
prevail among the States. The records and accounts under paragraph (2) 
shall be sufficient to allow the Secretary to monitor the performance of 
any State under this section.
    ``(e) If, after notice and opportunity for a hearing, the Secretary 
finds that any State to which any authority or responsibility of the 
Secretary has been delegated under this section is in violation of any 
requirement of this section or any rule thereunder, or that an 
affirmative finding by the Secretary under subsection (b) can no longer 
be made, the Secretary may revoke such delegation.

[[Page 110 STAT. 1704]]

If, after providing written notice to a delegated State and a reasonable 
opportunity to take corrective action requested by the Secretary, the 
Secretary determines that the State has failed to issue a demand or 
order to a Federal lessee within the State, that such failure may result 
in an underpayment of an obligation due the United States by such 
lessee, and that such underpayment may be uncollected without 
Secretarial intervention, the Secretary may issue such demand or order 
in accordance with the provisions of this Act prior to or absent the 
withdrawal of delegated authority.
    ``(f) Subject to appropriations, the Secretary shall compensate any 
State for those costs which may be necessary to carry out the delegated 
activities under this Section. Payment shall be made no less than every 
quarter during the fiscal year. Compensation to a State may not exceed 
the Secretary's reasonably anticipated expenditure for performance of 
such delegated activities by the Secretary. Such costs shall be 
allocable for the purposes of section 35(b) of the Act entitled `An act 
to promote the mining of coal, phosphate, oil, oil shale, gas and sodium 
on the public domain', approved February 25, 1920 (commonly known as the 
Mineral Leasing Act) (30 U.S.C. 191 (b)) to the administration and 
enforcement of laws providing for the leasing of any onshore lands or 
interests in land owned by the United States. Any further allocation of 
costs under section 35(b) made by the Secretary for oil and gas 
activities, other than those costs to compensate States for delegated 
activities under this Act, shall be only those costs associated with 
onshore oil and gas activities and may not include any duplication of 
costs allocated pursuant to the previous sentence. Nothing in this 
section affects the Secretary's authority to make allocations under 
section 35(b) for non-oil and gas mineral activities. All moneys 
received from sales, bonuses, rentals, royalties, assessments and 
interest, including money claimed to be due and owing pursuant to a 
delegation under this section, shall be payable and paid to the Treasury 
of the United States.
    ``(g) Any action of the Secretary to approve or disapprove a 
proposal submitted by a State under this section shall be subject to 
judicial review in the United States district court which includes the 
capital of the State submitting the proposal.
    ``(h) Any State operating pursuant to a delegation existing on the 
date of enactment of this Act may continue to operate under the terms 
and conditions of the delegation, except to the extent that a revision 
of the existing agreement is adopted pursuant to this section.''.
    (b) Clerical Amendment.--The item relating to section 205 in the 
table of contents in section 1 of the Federal Oil and Gas Royalty 
Management Act of 1982 (30 U.S.C. 1701) is amended
to read as follows:

``Sec. 205. Delegation of royalty collections and related activities.''.

SEC. 4. SECRETARIAL AND DELEGATED STATES' ACTIONS AND LIMITATION 
            PERIODS.

    (a) In General.--The Federal Oil and Gas Royalty Management Act of 
1982 (30 U.S.C. 1701 et seq.) is amended by adding after section 114 the 
following new section:

[[Page 110 STAT. 1705]]

``SEC. 115. SECRETARIAL AND DELEGATED <<NOTE: 30 USC 1724.>>  STATES' 
            ACTIONS AND LIMITATION PERIODS.

    ``(a) In General.--The respective duties, responsibilities, and 
activities with respect to a lease shall be performed by the Secretary, 
delegated States, and lessees or their designees in a timely manner.
    ``(b) Limitation Period.--
            ``(1) In general.--A judicial proceeding or demand which 
        arises from, or relates to an obligation, shall be commenced 
        within seven years from the date on which the obligation becomes 
        due and if not so commenced shall be barred. If commencement of 
        a judicial proceeding or demand for an obligation is barred by 
        this section, the Secretary, a delegated State, or a lessee or 
        its designee (A) shall not take any other or further action 
        regarding that obligation, including (but not limited to) the 
        issuance of any order, request, demand or other communication 
        seeking any document, accounting, determination, calculation, 
        recalculation, payment, principal, interest, assessment, or 
        penalty or the initiation, pursuit or completion of an audit 
        with respect to that obligation; and (B) shall not pursue any 
        other equitable or legal remedy, whether under statute or common 
        law, with respect to an action on or an enforcement of said 
        obligation.
            ``(2) Rule of construction.--A judicial proceeding or demand 
        that is timely commenced under paragraph (1) against a designee 
        shall be considered timely commenced as to any lessee who is 
        liable pursuant to section 102(a) of this Act for the obligation 
        that is the subject of the judicial proceeding or demand.
            ``(3) Application of certain limitations.--The limitations 
        set forth in sections 2401, 2415, 2416, and 2462 of title 28, 
        United States Code, and section 42 of the Mineral Leasing Act 
        (30 U.S.C. 226-2) shall not apply to any obligation to which 
        this Act applies. Section 3716 of title 31, United States Code, 
        may be applied to an obligation the enforcement of which is not 
        barred by this Act, but may not be applied to any obligation the 
        enforcement of which is barred by this Act.

    ``(c) Obligation Becomes Due.--
            ``(1) In general.--For purposes of this Act, an obligation 
        becomes due when the right to enforce the obligation is fixed.
            ``(2) Royalty obligations.--The right to enforce any royalty 
        obligation for any given production month for a lease is fixed 
        for purposes of this Act on the last day of the calendar month 
        following the month in which oil or gas is produced.

    ``(d) Tolling of Limitation Period.--The running of the limitation 
period under subsection (b) shall not be suspended, tolled, extended, or 
enlarged for any obligation for any reason by any action, including an 
action by the Secretary or a delegated State, other than the following:
            ``(1) Tolling agreement.--A written agreement executed 
        during the limitation period between the Secretary or a 
        delegated State and a lessee or its designee (with notice to the 
        lessee who designated the designee) shall toll the limitation 
        period for the amount of time during which the agreement is in 
        effect.
            ``(2) Subpoena.--

[[Page 110 STAT. 1706]]

                    ``(A) The issuance of a subpoena to a lessee or its 
                designee (with notice to the lessee who designated the 
                designee, which notice shall not constitute a subpoena 
                to the lessee) in accordance with the provisions of 
                subparagraph (B)(i) shall toll the limitation period 
                with respect to the obligation which is the subject of a 
                subpoena only for the period beginning on the date the 
                lessee or its designee receives the subpoena and ending 
                on the date on which (i) the lessee or its designee has 
                produced such subpoenaed records for the subject 
                obligation, (ii) the Secretary or a delegated State 
                receives written notice that the subpoenaed records for 
                the subject obligation are not in existence or are not 
                in the lessee's or its designee's possession or control, 
                or (iii) a court has determined in a final decision that 
                such records are not required to be produced, whichever 
                occurs first.
                    ``(B)(i) A subpoena for the purposes of this section 
                which requires a lessee or its designee to produce 
                records necessary to determine the proper reporting and 
                payment of an obligation due the Secretary may be issued 
                only by an Assistant Secretary of the Interior or an 
                Acting Assistant Secretary of the Interior who is a 
                schedule C employee (as defined by section 213.3301 of 
                title 5, Code of Federal Regulations), or the Director 
                or Acting Director of the respective bureau or agency, 
                and may not be delegated to any other person. If a State 
                has been delegated authority pursuant to section 205, 
                the State, acting through the highest State official 
                having
ultimate authority over the collection of royalties from leases on 
Federal lands within the State, may issue such subpoena, but may not 
delegate such authority to any other person.
                    ``(ii) A subpoena described in clause (i) may only 
                be issued against a lessee or its designee during the 
                limitation period provided in this section and only 
                after the Secretary or a delegated State has in writing 
                requested the records from the lessee or its designee 
                related to the obligation which is the subject of the 
                subpoena and has determined that--
                          ``(I) the lessee or its designee has failed to 
                      respond within a reasonable period of time to the 
                      Secretary's or the applicable delegated State's 
                      written request for such records necessary for an 
                      audit, investigation or other inquiry made in 
                      accordance with the Secretary's or such delegated 
                      State's responsibilities under this Act; or
                          ``(II) the lessee or its designee has in 
                      writing denied the Secretary's or the applicable 
                      delegated State's written request to produce such 
                      records in the lessee's or its designee's 
                      possession or control necessary for an audit, 
                      investigation or other inquiry made in accordance 
                      with the Secretary's or such delegated State's 
                      responsibilities under this Act; or
                          ``(III) the lessee or its designee has 
                      unreasonably delayed in producing records 
                      necessary for an audit, investigation or other 
                      inquiry made in accordance with the Secretary's or 
                      the applicable delegated State's

[[Page 110 STAT. 1707]]

                      responsibilities under this Act after the 
                      Secretary's or delegated State's written request.
                    ``(C) In seeking records, the Secretary or the 
                applicable delegated State shall afford the lessee or 
                its designee a reasonable period of time after a written 
                request by the Secretary or such delegated State in 
                which to provide such records prior to the issuance of 
                any subpoena.
            ``(3) Misrepresentation or concealment.--The intentional 
        misrepresentation or concealment of a material fact for the 
        purpose of evading the payment of an obligation in which case 
        the limitation period shall be tolled for the period of such 
        misrepresentation or such concealment.
            ``(4) Order to perform restructured accounting.--A)(i) The 
        issuance of a notice under subparagraph (D) that the lessee or 
        its designee has not substantially complied with the requirement 
        to perform a restructured accounting shall toll the limitation 
        period with respect to the obligation which is the subject of 
        the notice only for the period beginning on the date the lessee 
        or its designee receives the notice and ending 120 days after 
        the date on which (I) the Secretary or the applicable delegated 
        State receives written notice that the accounting or other 
        requirement has been performed, or (II) a court has determined 
        in a final decision that the lessee is not required to perform 
        the accounting, whichever occurs first.
            ``(ii) If the lessee or its designee initiates an 
        administrative appeal or judicial proceeding to contest an order 
        to perform a restructured accounting issued under subparagraph 
        (B)(i), the limitation period in subsection (b) shall be tolled 
        from the date the lessee or its designee received the order 
        until a final, nonappealable decision is issued in any such 
        proceeding.
            ``(B)(i) The Secretary or the applicable delegated State may 
        issue an order to perform a restructured accounting to a lessee 
        or its designee when the Secretary or such delegated State 
        determines during an audit of a lessee or its designee that the 
        lessee or its designee should recalculate royalty due on an 
        obligation based upon the Secretary's or the delegated State's 
        finding that the lessee or its designee has made identified 
        underpayments or overpayments which are demonstrated by the 
        Secretary or the delegated State to be based upon repeated, 
        systemic reporting errors for a significant number of leases or 
        a single lease for a significant number of reporting months with 
        the same type of error which constitutes a pattern of violations 
        and which are likely to result in either significant 
        underpayments or overpayments.
            ``(ii) The power of the Secretary to issue an order to 
        perform a restructured accounting may not be delegated below the 
        most senior career professional position having responsibility 
        for the royalty management program, which position is currently 
        designated as the `Associate Director for Royalty Management', 
        and may not be delegated to any other person. If a State has 
        been delegated authority pursuant to section 205 of this Act, 
        the State, acting through the highest ranking State official 
        having ultimate authority over the collection of royalties from 
        leases on Federal lands within the State, may issue such order 
        to perform, which may not be delegated to any other person. An 
        order to perform a restructured accounting shall--

[[Page 110 STAT. 1708]]

                    ``(I) be issued within a reasonable period of time 
                from when the audit identifies the systemic, reporting 
                errors;
                    ``(II) specify the reasons and factual bases for 
                such order;
                    ``(III) be specifically identified as an `order to 
                perform a restructured
accounting';
                    ``(IV) provide the lessee or its designee a 
                reasonable period of time (but not less than 60 days) 
                within which to perform the restructured accounting; and
                    ``(V) provide the lessee or its designee 60 days 
                within which to file an administrative appeal of the 
                order to perform a restructured accounting.
            ``(C) An order to perform a restructured accounting shall 
        not mean or be construed to include any other action by or on 
        behalf of the Secretary or a delegated State.
            ``(D) If a lessee <<NOTE: Notice.>>  or its designee fails 
        to substantially comply with the requirement to perform a 
        restructured accounting pursuant to this subsection, a notice 
        shall be issued to the lessee or its designee that the lessee or 
        its designee has not substantially complied with the 
        requirements to perform a restructured accounting. A lessee or 
        its designee shall be given a reasonable time within which to 
        perform the restructured accounting. Such notice may be issued 
        under this section only by an Assistant Secretary of the 
        Interior or an acting Assistant Secretary of the Interior who is 
        a schedule C employee (as defined by section 213.3301 of title 
        5, Code of Federal Regulations) and may not be delegated to any 
        other person. If a State has been delegated authority pursuant 
        to section 205, the State, acting through the highest State 
        official having ultimate authority over the collection of 
        royalties from leases on Federal lands within the State, may 
        issue such notice, which may not be delegated to any other 
        person.

    ``(e) Termination of Limitations Period.--An action or an 
enforcement of an obligation by the Secretary or delegated State or a 
lessee or its designee shall be barred under this section prior to the 
running of the seven-year period provided in subsection (b) in the 
event--
            ``(1) the Secretary or a delegated State has notified the 
        lessee or its designee in writing that a time period is closed 
        to further audit; or
            ``(2) the Secretary or a delegated State and a lessee or its 
        designee have so agreed in writing.

For purposes of this subsection, notice to, or an agreement by, the 
designee shall be binding on any lessee who is liable pursuant to 
section 102(a) for obligations that are the subject of the notice or 
agreement.
    ``(f) Records Required for Determining Collections.--Records 
required pursuant to section 103 of this Act by the Secretary or any 
delegated State for the purpose of determining obligations due and 
compliance with any applicable mineral leasing law, lease provision, 
regulation or order with respect to oil and gas leases from Federal 
lands or the Outer Continental Shelf shall be maintained for the same 
period of time during which a judicial proceeding or demand may be 
commenced under subsection (b). If a judicial proceeding or demand is 
timely commenced, the record holder shall maintain such records until 
the final nonappealable decision in such judicial proceeding is made, or 
with respect to

[[Page 110 STAT. 1709]]

that demand is rendered, unless the Secretary or the applicable 
delegated State authorizes in writing an earlier release of the 
requirement to maintain such records. Notwithstanding anything herein to 
the contrary, under no circumstance shall a record holder be required to 
maintain or produce any record relating to an obligation for any time 
period which is barred by the applicable limitation in this section. In 
connection with any hearing, administrative proceeding, inquiry, 
investigation, or audit by the Secretary or a delegated State under this 
Act, the Secretary or the delegated State shall minimize the submission 
of multiple or redundant information and make a good faith effort to 
locate records previously submitted by a lessee or a designee to the 
Secretary or the delegated State, prior to requiring the lessee or the 
designee to provide such records.
    ``(g) Timely Collections.--In order to most effectively utilize 
resources available to the Secretary to maximize the collection of oil 
and gas receipts from lease obligations to the Treasury within the 
seven-year period of limitations, and consequently to maximize the State 
share of such receipts, the Secretary should not perform or require 
accounting, reporting, or audit activities if the Secretary and the 
State concerned determine that the cost of conducting or requiring the 
activity exceeds the expected amount to be collected by the activity, 
based on the most current 12 months of activity. This subsection shall 
not provide a defense to a demand or an order to perform a restructured 
accounting. To the maximum extent possible, the Secretary and delegated 
States shall reduce costs to the United States Treasury and the States 
by discontinuing requirements for unnecessary or duplicative data and 
other information, such as separate allowances and payor information, 
relating to obligations due. If the Secretary and the State concerned 
determine that collection will result sooner, the Secretary or the 
applicable delegated State may waive or forego interest in whole or in 
part.
    ``(h) Appeals and Final Agency Action.--
            ``(1) 33-month period.--Demands or orders issued by the 
        Secretary or a delegated State are subject to administrative 
        appeal in accordance with the regulations of the Secretary. No 
        State shall impose any conditions which would hinder a lessee's 
        or its designee's immediate appeal of an order to the Secretary 
        or the Secretary's designee. The Secretary shall issue a final 
        decision in any administrative proceeding, including any 
        administrative proceedings pending on the date of enactment of 
        this section, within 33 months from the date such proceeding was 
        commenced or 33 months from the date of such enactment, 
        whichever
is later. The 33-month period may be extended by any period of time 
agreed upon in writing by the Secretary and the appellant.
            ``(2) Effect of failure to issue decision.--If no such 
        decision has been issued by the Secretary within the 33-month 
        period referred to in paragraph (1)--
                    ``(A) the Secretary shall be deemed to have issued 
                and granted a decision in favor of the appellant as to 
                any nonmonetary obligation and any monetary obligation 
                the principal amount of which is less than $10,000; and
                    ``(B) the Secretary shall be deemed to have issued a 
                final decision in favor of the Secretary, which decision 
                shall be deemed to affirm those issues for which the 
                agency

[[Page 110 STAT. 1710]]

                rendered a decision prior to the end of such period, as 
                to any monetary obligation the principal amount of which 
                is $10,000 or more, and the appellant shall have a right 
                to judicial review of such deemed final decision in 
                accordance with title 5 of the United States Code.

    ``(i) Collections of Disputed Amounts Due.--To expedite collections 
relating to disputed obligations due within the seven-year period 
beginning on the date the obligation became due, the parties shall hold 
not less than one settlement consultation and the Secretary and the 
State concerned may take such action as is appropriate to compromise and 
settle a disputed obligation, including waiving or reducing interest and 
allowing offsetting of obligations among leases.
    ``(j) Enforcement of a Claim for Judicial Review.--In the event a 
demand subject to this section is properly and timely commenced, the 
obligation which is the subject of the demand may be enforced beyond the 
seven-year limitations period without being barred by this statute of 
limitations. In the event a demand subject to this section is properly 
and timely commenced, a judicial proceeding challenging the final agency 
action with respect to such demand shall be deemed timely so long as 
such judicial proceeding is commenced within 180 days from receipt of 
notice by the lessee or its designee of the final agency action.
    ``(k) Implementation of Final Decision.--In the event a judicial 
proceeding or demand subject to this section is timely commenced and 
thereafter the limitation period in this section lapses during the 
pendency of such proceeding, any party to such proceeding shall not be 
barred from taking such action as is required or necessary to implement 
a final unappealable judicial or administrative decision, including any 
action required or necessary to implement such decision by the recovery 
or recoupment of an underpayment or overpayment by means of refund or 
credit.
    ``(l) Stay of Payment Obligation Pending Review.--Any person ordered 
by the Secretary or a delegated State to pay any obligation (other than 
an assessment) shall be entitled to a stay of such payment without bond 
or other surety instrument pending an administrative or judicial 
proceeding if the person periodically demonstrates to the satisfaction 
of the Secretary that such person is financially solvent or otherwise 
able to pay the obligation. In the event the person is not able to 
demonstrate, the Secretary may require a bond or other surety instrument 
satisfactory to cover the obligation. Any person ordered by the 
Secretary or a delegated State to pay an assessment shall be entitled to 
a stay without bond or other surety instrument.''.
    (b) Clerical Amendment.--The table of contents in section 1 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701) is 
amended by inserting after the item relating to section 114 the 
following new item:

``Sec.  115.  Secretarial and delegated States' actions and limitation 
           periods.''.

SEC. 5. ADJUSTMENT AND REFUNDS.

    (a) In General.--The Federal Oil and Gas Royalty Management Act of 
1982 (30 U.S.C. 1701 et seq.) is amended by inserting after section 111 
the following:

[[Page 110 STAT. 1711]]

``SEC. 111A. <<NOTE: 30 USC 1721a.>>  ADJUSTMENTS AND REFUNDS.

    ``(a) Adjustments to Royalties Paid to the Secretary or a Delegated 
State.--
            ``(1) If, during the adjustment period, a lessee or its 
        designee determines that an adjustment or refund request is 
        necessary to correct an underpayment or overpayment of an 
        obligation, the lessee or its designee shall make such 
        adjustment or request a refund within a reasonable period of 
        time and only during the adjustment period. The filing of a 
        royalty report which reflects the underpayment or overpayment of 
        an obligation shall constitute prior written notice to the 
        Secretary or the applicable delegated State of an adjustment.
            ``(2)(A) For any adjustment, the lessee or its designee 
        shall calculate and report the interest due attributable to such 
        adjustment at the same time the lessee or its designee adjusts 
        the principle amount of the subject obligation, except as 
        provided by subparagraph (B).
            ``(B) In the case of a lessee or its designee who determines 
        that subparagraph (A) would impose a hardship, the Secretary or 
        such delegated State shall calculate the interest due and notify 
        the lessee or its designee within a reasonable time of the 
        amount of interest due, unless such lessee or its designee 
        elects to calculate and report interest in accordance with 
        subparagraph (A).
            ``(3) An adjustment or a request for a refund for an 
        obligation may be made after the adjustment period only upon 
        written notice to and approval by the Secretary or the 
        applicable delegated State, as appropriate, during an audit of 
        the period which includes the production month for which the 
        adjustment is being made. If an overpayment is identified during 
        an
audit, then the Secretary or the applicable delegated State, as 
appropriate, shall allow a credit or refund in the amount of the 
overpayment.
            ``(4) For purposes of this section, the adjustment period 
        for any obligation shall be the six-year period following the 
        date on which an obligation became due. The adjustment period 
        shall be suspended, tolled, extended, enlarged, or terminated by 
        the same actions as the limitation period in section 115.

    ``(b) Refunds.--
            ``(1) In general.--A request for refund is sufficient if 
        it--
                    ``(A) is made in writing to the Secretary and, for 
                purposes of section 115, is specifically identified as a 
                demand;
                    ``(B) identifies the person entitled to such refund;
                    ``(C) provides the Secretary information that 
                reasonably enables the Secretary to identify the 
                overpayment for which such refund is sought; and
                    ``(D) provides the reasons why the payment was an 
                overpayment.
            ``(2) Payment by secretary of the treasury.--The Secretary 
        shall certify the amount of the refund to be paid under 
        paragraph (1) to the Secretary of the Treasury who shall make 
        such refund. Such refund shall be paid from amounts received as 
        current receipts from sales, bonuses, royalties (including 
        interest charges collected under this section) and rentals of 
        the public lands and the Outer Continental Shelf under the 
        provisions of the Mineral Leasing Act and the Outer Continental 
        Shelf Lands Act, which are not payable to a State or

[[Page 110 STAT. 1712]]

        the Reclamation Fund. The portion of any such refund 
        attributable to any amounts previously disbursed to a State, the 
        Reclamation Fund, or any recipient prescribed by law shall be 
        deducted from the next disbursements to that recipient made 
        under the applicable law. Such amounts deducted from subsequent 
        disbursements shall be credited to miscellaneous receipts in the 
        Treasury.
            ``(3) Payment period.--A refund under this subsection shall 
        be paid or denied (with an explanation of the reasons for the 
        denial) within 120 days of the date on which the request for 
        refund is received by the Secretary. Such refund shall be 
        subject to later audit by the Secretary or the applicable 
        delegated State and subject to the provisions of this Act.
            ``(4) Prohibition against reduction of refunds or credits.--
        In no event shall the Secretary or any delegated State directly 
        or indirectly claim or offset any amount or amounts against, or 
        reduce any refund or credit (or interest accrued thereon) by the 
        amount of any obligation the enforcement of which is barred by 
        section 115 of this Act.''.

    (b) Clerical Amendment.--The table of contents in section 1 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701) is 
amended by inserting after the item relating to section 111 the 
following new item:

``Sec. 111A. Adjustments and refunds.''.

SEC. 6. ROYALTY TERMS AND CONDITIONS, INTEREST, AND 
            PENALTIES.

    (a) Lessee or Designee Interest.--Section 111 of the Federal Oil and 
Gas Royalty Management Act of 1982 (30 U.S.C. 1721) is amended by adding 
after subsection (g) the following:
    ``(h) Interest shall be allowed and paid or credited on any 
overpayment, with such interest to accrue from the date such overpayment 
was made, at the rate obtained by applying the provisions of 
subparagraphs (A) and (B) of section 6621(a)(1) of the Internal Revenue 
Code of 1986, but determined without regard to the sentence following 
subparagraph (B) of section 6621(a)(1). Interest which has accrued on 
any overpayment may be applied to reduce an underpayment. This 
subsection applies to overpayments made later than six months after the 
date of enactment of this subsection or September 1, 1996, whichever is 
later. Such interest shall be paid from amounts received as current 
receipts from sales, bonuses, royalties (including interest charges 
collected under this section) and rentals of the public lands and the 
Outer Continental Shelf under the provisions of the Mineral Leasing Act, 
and the Outer Continental Shelf Lands Act, which are not payable to a 
State or the Reclamation Fund. The portion of any such interest payment 
attributable to any amounts previously disbursed to a State, the 
Reclamation Fund, or any other recipient designated by law shall be 
deducted from the next disbursements to that recipient made under the 
applicable law. Such amounts deducted from subsequent disbursements 
shall be credited to miscellaneous receipts in the Treasury.''.
    (b) Limitation on Interest.--Section 111 of the Federal Oil and Gas 
Royalty Management Act of 1982, as amended by subsection (a), is further 
amended by adding at the end the following:
    ``(i) Upon a determination by the Secretary that an excessive 
overpayment (based upon all obligations of a lessee or its designee

[[Page 110 STAT. 1713]]

for a given reporting month) was made for the sole purpose of receiving 
interest, interest shall be paid on the excessive amount of such 
overpayment. For purposes of this Act, an `excessive overpayment' shall 
be the amount that any overpayment a lessee or its designee pays for a 
given reporting month (excluding payments for demands for obligations 
determined to be due as a result of judicial or administrative 
proceedings or agreed to be paid pursuant to settlement agreements) for 
the aggregate of all of its Federal leases exceeds 10 percent of the 
total royalties paid that month for those leases.''.
    (c) Estimated Payment.--Section 111 of the Federal Oil and Gas 
Royalty Management Act
of 1982 (30 U.S.C. 1721), as amended by subsections (a) and (b), is 
further amended by adding at the end the following:

    ``(j) A lessee or its designee may make a payment for the 
approximate amount of royalties (hereinafter in this subsection 
`estimated payment') that would otherwise be due for such lease by the 
rate royalties are due for that lease. When an estimated payment is 
made, actual royalties are payable at the end of the month following the 
month in which the estimated payment is made. If the estimated payment 
was less than the amount of actual royalties due, interest is owned on 
the underpaid amount. If the estimated payment exceeds the actual 
royalties due, interest is owned on the overpayment. If the lessee or 
its designee makes a payment for such actual royalties, the lessee or 
its designee may apply the estimated payment to future royalties. Any 
estimated payment may be adjusted, recouped, or reinstated at any time 
by the lessee or its designee.''.
    (d) Volume Allocation of Oil and Gas Production.--Section 111 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as 
amended by subsections (a) through (c), is amended by adding at the end 
the following:
    ``(k)(1) Except as otherwise provided by this subsection--
            ``(A) a lessee or its designee of a lease in a unit or 
        communitization agreement which contains only Federal leases 
        with the same royalty rate and funds distribution shall report 
        and pay royalties on oil and gas production for each production 
        month based on the actual volume of production sold by or on 
        behalf of that lessee;
            ``(B) a lessee or its designee of a lease in any other unit 
        or communitization agreement shall report and pay royalties on 
        oil and gas production for each production month based on the 
        volume of oil and gas produced from such agreement and allocated 
        to the lease in accordance with the terms of the agreement; and
            ``(C) a lessee or its designee of a lease that is not 
        contained in a unit or communitization agreement shall report 
        and pay royalties on oil and gas production for each production 
        month based on the actual volume of production sold by or on 
        behalf of that lessee.

    ``(2) This subsection applies only to requirements for reporting and 
paying royalties. Nothing in this subsection is intended to alter a 
lessee's liability for royalties on oil or gas production based on the 
share of production allocated to the lease in accordance with the terms 
of the lease, a unit or communitization agreement, or any other 
agreement.

[[Page 110 STAT. 1714]]

    ``(3) For any unit or communitization agreement if all lessees 
contractually agree to an alternative method of royalty reporting and 
payment, the lessees may submit such alternative method to the Secretary 
or the delegated State for approval and make payments in accordance with 
such approved alternative method so long as such alternative method does 
not reduce the amount of the royalty obligation.
    ``(4) The Secretary or the delegated State shall grant an exception 
from the reporting and payment requirements for marginal properties by 
allowing for any calendar year or portion thereof royalties to be paid 
each month based on the volume of production sold. Interest shall not 
accrue on the difference for the entire calendar year or portion thereof 
between the amount of oil and gas actually sold and the share of 
production allocated to the lease until the beginning of the month 
following such calendar year or portion thereof. Any additional 
royalties dues or overpaid royalties and associated interest shall be 
paid, refunded, or credited within six months after the end of each 
calendar year in which royalties are paid based on volumes of production 
sold. For the purpose of this subsection, the term `marginal property' 
means a lease that produces on average the combined equivalent of less 
than 15 barrels of oil per well per day or 90 thousand cubic feet of gas 
per well per day, or a combination thereof, determined by dividing the 
average daily production of crude oil and natural gas from producing 
wells on such lease by the number of such wells, unless the Secretary, 
together with the State concerned, determines that a different 
production is more appropriate.
    ``(5) Not later than two years after the date of the enactment of 
this subsection, the Secretary shall issue any appropriate demand for 
all outstanding royalty payment disputes regarding who is required to 
report and pay royalties on production from units and communitization 
agreements outstanding on the date of the enactment of this subsection, 
and collect royalty amounts owed on such production.''.
    (e) Production Allocation.--Section 111 of the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C. 1721), as amended by 
subsections (a) through (d), is amended by adding at the end the 
following:
    ``(l) The Secretary shall issue all determinations of allocations of 
production for units and communitization agreements within 120 days of a 
request for determination. If the Secretary fails to issue a 
determination within such 120-day period, the Secretary shall waive 
interest due on obligations subject to the determination until the end 
of the month following the month in which the determination is made.''.
    (f) New Assessment To Encourage Proper Royalty Payments.--
            (1) In general.--The Federal Oil and Gas Royalty Management 
        Act of 1982 (30 U.S.C. 1721), as amended by section 4(a), is 
        further amended by adding at the end the following:

``SEC. 116. <<NOTE: 30 USC 1725.>> ASSESSMENTS.

    ``Beginning eighteen months after the date of enactment of this 
section, to encourage proper royalty payment the Secretary or the 
delegated State shall impose assessments on a person who chronically 
submits erroneous reports under this Act. Assessments under this Act may 
only be issued as provided for in this section.''.

[[Page 110 STAT. 1715]]

            (2) Clerical amendment.--The table of contents in section 1 
        of such Act (30 U.S.C. 1701) is amended by adding after the item 
        relating to section 115 the following new item:

``Sec. 116. Assessments.''.

    (g) Liability for Royalty Payments.--Section 102(a) of the Federal 
Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1712(a)) is 
amended to read as follows:
    ``(a) In order to increase receipts and achieve effective 
collections of royalty and other payments, a lessee who is required to 
make any royalty or other payment under a lease or under the mineral 
leasing laws, shall make such payments in the time and manner as may be 
specified by the Secretary or the applicable delegated State. A lessee 
may designate a person to make all or part of the payments due under a 
lease on the lessee's behalf and shall notify the Secretary or the 
applicable delegated State in writing of such designation, in which 
event said designated person may, in its own name, pay, offset or credit 
monies, make adjustments, request and receive refunds and submit reports 
with respect to payments required by the lessee. Notwithstanding any 
other provision of this Act to the contrary, a designee shall not be 
liable for any payment obligation under the lease. The person owning 
operating rights in a lease shall be primarily liable for its pro rata 
share of payment obligations under the lease. If the person owning the 
legal record title in a lease is other than the operating rights owner, 
the person owning the legal record title shall be secondarily liable for 
its pro rata share of such payment obligations under the lease.''.
    (h) Clerical Amendments.--(1) The heading of section 111 of the 
Federal Oil and Gas Royalty management Act of 1982 (30 U.S.C. 1721) is 
amended to read as follows:

       ``royalty terms and conditions, interest, and penalties''.

    (2) The item relating to section 111 in the table of contents in 
section 1 of such Act (30 U.S.C. 1701) is amended to read as follows:

``Sec. 111. Royalty terms and conditions, interest, and penalties.''.

SEC. 7. ALTERNATIVES FOR MARGINAL PROPERTIES.

    (a) In General.--The Federal Oil and Gas Royalty Management Act of 
1982 (30 U.S.C. 1701 et seq.), as amended by section 6 of this Act, is 
further amended by adding at the end the following:

``SEC. 117. <<NOTE: 30 USC 1726.>>  ALTERNATIVES FOR MARGINAL 
            PROPERTIES.

    ``(a) Determination of Best Interests of State Concerned and the 
United States.--The Secretary and the State concerned, acting in the 
best interests of the United States and the State concerned to promote 
production, reduce administrative costs, and increase net receipts to 
the United States and the States, shall jointly determine, on a case by 
case basis, the amount of what marginal production from a lease or 
leases or well or wells, or parts thereof, shall be subject to a 
prepayment under subsection (b) or regulatory relief under subsection 
(c). If the State concerned does not consent, such prepayments or 
regulatory relief shall not be made available under this section for 
such marginal production: Provided, That if royalty payments from a 
lease or leases, or well or wells are not shared with any State, such 
determination shall be made solely by the Secretary.

[[Page 110 STAT. 1716]]

    ``(b) Prepayment of Royalty.--

            ``(1) In general.--Notwithstanding the provisions of any 
        lease to the contrary, for any lease or leases or well or wells 
        identified by the Secretary and the State concerned pursuant to 
        subsection (a), the Secretary is authorized to accept a 
        prepayment for royalties in lieu of monthly royalty payments 
        under the lease for the remainder of the lease term if the 
        affected lessee so agrees. Any prepayment agreed to by the 
        Secretary, State concerned and lessee which is less than an 
        average $500 per month in total royalties shall be effectuated 
        under this section not earlier than two years after the date of 
        enactment of this section and, any prepayment which is greater 
        than an average $500 per month in total royalties shall be 
        effectuated under this section not earlier than three years 
        after the date of enactment of this section. The Secretary and 
        the State concerned may condition their acceptance of the 
        prepayment authorized under this section on the lessee's 
        agreeing to such terms and conditions as the Secretary and the 
        State concerned deem appropriate and consistent with the 
        purposes of this Act. Such terms may--

                    ``(A) provide for prepayment that does not result in 
                a loss of revenue to the United States in present value 
                terms;

                    ``(B) include provisions for receiving additional 
                prepayments or royalties for developments in the lease 
                or leases or well or wells that deviate significantly 
                from the assumptions and facts on which the valuation is 
                determined; and

                    ``(C) require the lessee or it designee to provide 
                such periodic production reports as may be necessary to 
                allow the Secretary and the State concerned to monitor 
                production for the purposes of subparagraph (B).

            ``(2) State share.--A prepayment under this section shall be 
        shared by the Secretary with any State or other recipient to the 
        same extent as any royalty payment for such lease.

            ``(3) Satisfaction of obligation.--Except as may be provided 
        in the terms and conditions established by the Secretary under 
        subsection (b), a lessee or its designee who makes a prepayment 
        under this section shall have satisfied in full the lessee's 
        obligation to pay royalty on the production stream sold from the 
        lease or leases or well or wells.

    ``(c) Alternative Accounting and Auditing Requirements.--Within one 
year after the date of the enactment of this section, the Secretary or 
the delegated State shall provide accounting, reporting, and auditing 
relief that will encourage lessees to continue to produce and develop 
properties subject to subsection (a): Provided, That such relief will 
only be available to lessees in a State that concurs, which concurrence 
is not required if royalty payments from the lease or leases or well or 
wells are not shared with any State. Prior to granting such relief, the 
Secretary and, if appropriate, the State concerned shall agree that the 
type of marginal wells and relief provided under this paragraph is in 
the best interest of the United States and, if appropriate, the State 
concerned.''.

[[Page 110 STAT. 1717]]

    (b) Clerical Amendment.--The table of contents in section 1 of such 
Act (30 U.S.C. 1701) is amended by adding after the item relating to 
section 116 the following new item:

``Sec. 117. Alternatives for marginal properties.''.

SEC. 8. APPLICABILITY.

    (a) FOGRMA <<NOTE: 30 USC 1732 note.>> .--With respect to Federal 
lands, sections 202 and 307 of the Federal Oil and Gas Royalty 
Management Act of 1982 (30 U.S.C. 1732 and 1755), are no longer 
applicable. The applicability of those sections to Indian leases is not 
affected.

    (b) OCSLA.--Effective on the date of the enactment of this Act, 
section 10 of the Outer Continental Shelf Lands Act (43 U.S.C. 1339) is 
repealed.

SEC. 9. INDIAN <<NOTE: 30 USC 1701 note.>>  LANDS.

    The amendments made by this Act shall not apply with respect to 
Indian lands, and the provisions of the Federal Oil and Gas Royalty 
Management Act of 1982 as in effect on the day before the date of 
enactment of this Act shall continue to apply after such date with 
respect to Indian lands.

SEC. 10. <<NOTE: 30 USC 1701 note.>>  PRIVATE LANDS.

    This Act shall not apply to any privately owned minerals.

SEC. 11. <<NOTE: 30 USC 1701 note.>>  EFFECTIVE DATE.

    Except as provided by section 115(h), section 111(h), section 
111(k)(5), and section 117 of the Federal Oil and Gas Royalty Management 
Act of 1982 (as added by this Act), this Act, and the amendments made by 
this Act, shall apply with respect to the production of oil and gas 
after the first day of the month following the date of the enactment of 
this Act.

SEC. 12. SAVINGS <<NOTE: 30 USC 1701 note.>>  CLAUSE.

    Nothing in this Act shall be construed to give a State a property 
right or interest in any Federal lease or land.

    Approved August 13, 1996.

LEGISLATIVE HISTORY--H.R. 1975:
---------------------------------------------------------------------------

HOUSE REPORTS: No. 104-667 (Comm. on Resources).
CONGRESSIONAL RECORD, Vol. 142 (1996):
            July 16, considered and passed House.
            Aug. 2, considered and passed Senate.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):
            Aug. 13, Presidential remarks and statement.

                                  <all>