Offsets, Recoupments and Refunds of Excess Payments of Royalties, Rentals, Bonuses, or Other Amounts Under Federal Offshore Mineral Leases

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 230

RIN 1010-AB90

Offsets, Recoupments and Refunds of Excess Payments of Royalties,

Rentals, Bonuses, or Other Amounts Under Federal Offshore Mineral

Leases

AGENCY: Minerals Management Service, Interior.

ACTION: Final rule.

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SUMMARY: The Royalty Management Program of the Minerals Management

Service (MMS) is amending its regulations establishing procedures for

obtaining refunds and credits of excess payments made under Federal

mineral leases on the Outer Continental Shelf (OCS) which are subject

to section 10 of the Outer Continental Shelf Lands Act of 1953 (OCSLA

section 10). The rules also describe the circumstances in which a

person may recover certain payments that are not subject to section

10's requirements.

EFFECTIVE DATE: August 29, 1994.

FOR FURTHER INFORMATION CONTACT:

David S. Guzy, Chief, Rules and Procedures Staff, at (303) 231-3432.

SUPPLEMENTARY INFORMATION: The principal authors of this proposed rule

are Paul A. Knueven, Technical Compliance Branch, Division of

Verification, Royalty Management Program, MMS, Lakewood, Colorado, and

Peter J. Schaumberg, Office of the Solicitor, Washington, DC.

I. Background

Excess payments of royalties, rentals, bonuses, or other amounts

made under OCS mineral leases result from a variety of reasons

(discussed in detail in the preamble to the Notice of Proposed

Rulemaking (NOPR) at 58 FR 53470-53471, October 15, 1993). Section

10(a) requires that a request for refund or credit of an excess payment

made in connection with any lease issued under that Act be filed with

the Secretary of the Interior (Secretary) within 2 years after making

the payment. Section 10(b) requires that all refunds or credits which

the Secretary proposes to approve be reported to Congress, and that the

Secretary wait at least 30 days while Congress is in continuous session

before making a refund payment or authorizing a credit. Any repayment

made pursuant to the Act must be without interest.

The purpose of these regulations is to codify the Department's

interpretation and application of section 10, incorporating the

policies and decisions from the various legal opinions, administrative

decisions, and administrative practice which are discussed in detail in

the preamble to the NOPR.

II. Comments on Proposed Rule

The proposed rulemaking (58 FR 53470, October 15, 1993) provided

for a 60-day public comment period, which ended December 14, 1993.

Eleven commenters submitted written comments during this period. The

principal comments are addressed in this section.

General Comments

(a) Several commenters requested that MMS revisit the reasoning and

legal arguments contained in the 1981 M-opinion Refunds and Credits

Under the Outer Continental Shelf Lands Act M-36942, 88 I.D. 1091

(December 15, 1981) (``1981 M-Opinion''). One commenter proposed that

MMS not permit offsetting as a means to recover an overpayment for one

production month to the extent underpayments exist on the same lease

for another month. Another commenter requested MMS to reconsider the

operation of the 2-year period for requesting refund or credit,

suggesting it could start later than the date of payment in specific

circumstances. This same commenter also suggested that section 10

should be construed to apply only to refunds, with credit adjustments

not subject to section 10's limitation.

Response: MMS disagrees with these comments. The 1981 M-Opinion,

and a second M-Opinion, Applicability of section 10 of the Outer

Continental Shelf Lands Act, M-36977 (Jan. 15, 1993) (``1993 M-

Opinion''), reflect the Department's interpretation of section 10's

requirements. The Department is not convinced that its legal view is

wrong. Therefore, the purpose of the rulemaking is to codify the

Department's existing interpretation and application of section 10.

(b) A commenter suggested that the regulations should require the

Government to act on a refund request within 90 days. Absent such

action the lessee should automatically be authorized to process a

credit adjustment.

Response: Section 10 is specific in the procedures that must be

followed for approval of a refund or credit. Unless those preconditions

are satisfied, MMS does not have the legal authority to allow a refund

or credit to be processed. The MMS has recognized the obvious

importance of approving refund requests quickly by changing procedures

to expedite the process. For example, the purpose of approval subject

to audit at Sec. 230.455 is to eliminate the audit time delay required

for recoupment authorizations. Such audits will still be required for

certain cash refunds.

(c) Several commenters stated that MMS should make any new rules

prospective, with an effective date on or after the date of

publication.

Response: With one exception, the rulemaking codifies the

Department's current interpretation and application of section 10. That

exception is Sec. 230.458(b), which imposes an assessment of $500 for

each unauthorized credit adjustment. This assessment will apply only to

transactions filed after the effective date of the regulations.

Specific Comments

(a) Most of the commenters objected to the inclusion of the

definition of audit in Sec. 230.452. These comments questioned the need

to define a term that is used so little in the body of the regulations.

One commenter pointed out that the word ``audit'' appears only three

times in the rule (except in a section heading), and then only in

conjunction with the word ``review.'' Accordingly, it is suggested that

the definition adds nothing to the comprehension of the regulations.

Response: MMS agrees with the comments and the definition of audit

has been removed from the final regulations.

(b) Several commenters objected to the provisions of

Sec. 230.453(a)(3) which require MMS notification to the lessee that

its request for refund or credit is authorized before a recoupment can

be filed. Once MMS reviews the request, transmits it to Congress and

the Congressional review period is satisfied, these commenters argue

that they should be permitted to recoup. These commenters claim MMS is

exceeding its authority by conditioning the lessee's right to a timely

filed legitimate credit or refund on the receipt of a notice from the

MMS.

Response: MMS disagrees with these comments. First, it is the

Government's responsibility to assure that the technical requirements

of section 10, including the 30-day congressional review period, have

been satisfied before a recoupment is effected. Second, the requirement

for MMS to give final approval allows for proper control. After MMS

approves a recoupment, then it will know that when a credit adjustment

appears on a Form MMS-2014, that credit adjustment is authorized.

Further, there may be circumstances where a request for refund or

credit is approved, but MMS may not allow the recoupment to be

effected. MMS recently proposed rules related to administrative offset

and to credit adjustments generally (58 FR 43582, August 17, 1993).

There may be circumstances where a lessee owes money to MMS and MMS

would want to retain the otherwise approved request for refund or

credit as an offset. Thus, recoupments will not be permitted until MMS

provides approval.

(c) Several commenters objected to the requirements of

Sec. 230.453(b)(5) that lessees certify the accuracy of the data

submitted in the refund request. One commenter noted that there is no

necessity for the certification since the provisions of the Federal Oil

and Gas Royalty Management Act of 1982 (FOGRMA) already contain

adequate protection of the Federal lessor. According to this commenter,

the certification adds nothing but additional paperwork to the process.

Response: MMS disagrees with these comments. It has been a long

standing practice of MMS to require the certification as a condition of

processing the refund. This is not a new requirement. Most lessees have

long made the certification part of their refund request form letter,

so no additional burden will be imposed by this requirement.

(d) The provisions of Sec. 230.453(c) specifically state that the

submission of a credit adjustment on a Report of Sales and Royalty

Remittance, Form MMS-2014, will not constitute a refund request, or a

partially completed refund request as discussed in Sec. 230.453(c).

Additionally, Sec. 230.459 does not include the filing of a Form MMS-

2014 as a reason the 2-year period of section 10 will be tolled. MMS

requested comment on this issue.

Eight responders offered comments on the status of a Form MMS-2014

as a section 10 refund request and if such filing should toll the 2-

year limit. Four commenters stated that the Form MMS-2014 should toll

the 2-year period since it includes nearly all elements of a properly

completed refund request. Another commenter proposed that the Form MMS-

2014 should serve as a conditional refund request. If during later

audit it was judged valid, MMS should process the request for

congressional review. If invalid, the lessee would be required to repay

the amount of the credit with interest and apply for a refund. When

more than 2 years had passed since making payment, the lessee would be

time-barred from recovering the funds. It was urged that these

procedures would serve as an incentive for lessees to only file credits

in which they had a high level of confidence in their validity.

While noting that tolling the 2-year period by filing a Form MMS-

2014 would not benefit them, the sixth commenter observed that it would

encourage lessees to file unauthorized recoupments on questionable

properties ``just in case.''

The last two commenters noted that most of the unauthorized

recoupments filed in the past resulted from MMS' failure to issue

formal guidance on the application of section 10. They recognized that

this rulemaking resolves that problem, and they see no value to lessees

in the future to toll the 2-year period by filing an unauthorized

credit adjustment. With the publication of these rules, the commenters

stated that lessees will know what adjustments are and are not subject

to section 10.

Response: MMS disagrees with the first four commenters. While Form

MMS-2014 filings contain most of the information required for a refund

request, they do not include the information necessary to constitute a

proper request for refund or credit. Moreover, these credit adjustments

do not request recoupments, instead they effect recoupments and thereby

reduce Government receipts. Section 10 requires MMS and congressional

review before the funds are recovered. The conditional refund request

suggestion also would not meet this requirement.

MMS agrees with the last three commenters. Accepting Form MMS-2014

filing as tolling the 2-year period could increase the submission of

unauthorized credit adjustments and increase review costs.

Additionally, there is no logical reason to toll the section 10 2-year

period by filing a Form MMS-2014 credit adjustment after the rules have

been published.

(e) One commenter questioned the limited refund amendment rights

provided by Sec. 230.453(e)(1). This commenter stated that inadvertent

errors of notation related to the lease or any particular month should

be amendable.

Response: MMS disagrees with this commenter. Permitting exceptions

to the rule in an effort to be fair usually has the opposite effect. In

this case, MMS would be required to judge an ``inadvertent error''

exactly the same in every case, an impossible task. To assure clear

understanding and equal application to all lessees, the rule provides

for no exceptions and will be strictly applied.

(f) Several commenters questioned the approval of refund requests

subject to later audit contained in Sec. 230.455.

Reponse: The purpose of this section is to eliminate the time delay

required to complete an audit prior to the lessee's recovery of the

overpayment (see discussion of general comment (b) above). Without an

analysis of the lessee's records, MMS cannot determine the validity of

the refund request. Accepting refund requests as valid subject to audit

provides the lessees more timely use of funds, and provides for MMS'

recovery in the event the requests were improper.

(g) One commenter stated that MMS should clearly indicate that the

2-year requirement of section 10 does not apply to offsets described at

Sec. 230.456.

Response: Since section 10 does not apply to offsets, the 2-year

requirement of section 10 does not apply.

(h) One commenter stated that MMS should clearly define the word

``intentional'' within the meaning of Sec. 230.456, to protect lessees.

This commenter expressed concern that if this determination were based

upon the subjective judgment of the auditor, offsets would almost

certainly be applied inequitably.

Response: MMS disagrees with this comment. To develop a finding of

intentional underpayment for the purpose of Sec. 230.456, an auditor

would have to demonstrate that the lessee's policy is to recover

overpayments by filing subsequent underpayments. This finding would not

be a subjective audit determination.

(i) Three commenters objected to the provisions of Sec. 230.458(b)

which impose an assessment of $500 for each unauthorized credit

adjustment. Because MMS often discovers the unauthorized recoupment

more than 2 years after payment, one commenter stated that the recovery

of the improperly taken credit with interest already exceeds the actual

amounts required by lease terms. An additional penalty appears harsh to

this commenter. Another commenter argued that if it costs MMS $500 to

research and approve refunds, then all amounts less than that should be

allowed without following Sec. 230.453 procedures. The third commenter

stated that the amount is arbitrary and excessive because unauthorized

recoupments are generally unintentional and are incurred when

attempting to make internal accounting adjustments. Since proposed Form

MMS-2014 line entries must be submitted with a refund request, it is

often necessary and more expedient to process accounting corrections,

allow the MMS-2014 credit lines to be generated, and then eliminate

those credit entries prior to the normal monthly royalty payment. If

the adjustments are numerous or complex, a credit entry may fail to be

pulled, resulting in an inadvertent unauthorized adjustment. This

commenter further argued that the time delays in the process, both

before the overpayment is discovered and after the refund request is

filed and authorization issued, result in the Government receiving the

time value of the funds at the expense of the lessees.

Response: MMS disagrees with these comments. First, the review of

unauthorized recoupments within MMS is now an automated process. Once

these regulations are effective MMS will begin reviewing for such

recoupments on a current basis. The MMS plans to discover unauthorized

recoupments in time for the lessee to file a refund request before the

2-year period after payment has expired. Without the penalty, lessees

will incur no material costs as a consequence of filing an unauthorized

recoupment. In such an environment, some lessees may decide not to

establish internal controls to prevent unauthorized recoupments, but

rely instead on the Government. This reliance would shift the costs

from the lessees and provide protection from the effects of missing the

2-year limit. The MMS would not be properly enforcing section 10 if it

allowed such a result. Moreover, even with the penalty, many lessees

will incur less costs than with the less timely Government review that

has occurred in the past.

The penalty is not established to recover the costs of refund

request processing. Rather, MMS is recovering the costs of review

recoupments and comparing them with approved refunds. Since MMS cannot

determine the effect publishing these rules will have on the rate of

unauthorized recoupments, the cost per incident is not quantifiable.

The concerns of the third commenter related to production and

filing of proposed Forms MMS-2014 being eliminated when the regulations

are effective, since the forms are not required by Sec. 230.453.

(j) One commenter noted that the purpose of Sec. 230.459(a)(3) as

explained in the section-by-section analysis would be better served by

changing the date of tolling from the date of ``application'' for

unitization to the effective date of the unit. The commenter also noted

that unit revisions should be added as covered by this section.

Response: MMS disagrees that the date of tolling should be changed

to the effective date of the unit. As noted in the discussion of this

commenter, the effective date is subject to the judgment of the

Regional Supervisor. In contrast, the date of application is a fixed

event. Unit revisions are included in the operation of

Sec. 230.459(a)(3), as discussed in the proposed rule preamble.

(k) One commenter expressed concern that it may be impossible to

comply with the requirements of Sec. 230.459(a)(4). This section

provides that to toll the 2-year period, lessees must specifically

identify an action or proceeding that could result in payments becoming

excess, the lease(s) and sales months affected, and an estimated of the

amount that could be subject to refund or credit.

Response: When a person becomes aware of a pending administrative

or judicial action, or other action that may affect its royalty

obligation, prudence would require a complete analysis. While MMS

realizes the exact impact may not be determinable, a list of all leases

and sales months within those lease accounts which could possibly be

affected can be compiled. Paragraph (a)(4) of Sec. 230.459 requires

only an estimated dollar impact. The 2-year period for leases and/or

sales months not included in the tolling request will not be tolled.

The purpose of this strict construction is to minimize subjective

judgments in applying section 10 requirements.

(l) Two commenters objected to the provisions of Sec. 230.460 which

repeal the special treatment of advanced rental payments when leases

are later subject to suspensions.

Response: The IBLA rulings discussed with the preamble (58 FR

53474) were issued prior to any regulations governing section 10. These

cases concluded that under the unique fact situations presented, excess

rental payments which otherwise were not subject to refund or credit

under section 10 could be credited against future rentals. Upon review,

MMS still concludes that IBLA's conclusion is not consistent with the

Department's interpretation of section 10. Thus, after this rule is

effective, the IBLA decision will not be followed. However, these cases

are exactly the type of situation envisioned for tolling the 2-year

limit by filing a request pursuant to Sec. 230.459(a)(4).

(m) One commenter questioned the requirement of Sec. 230.461(d)

which disallows the recoupment of a payment amount that exceeds the

reported amount. This commenter stated that if the overpayment is not

subject to section 10, then the payor should not be required to file a

refund request.

Response: In those cases to which Sec. 230.461(d) applies, the

payor may recover its funds without a section 10 refund request. A

payment amount exceeding the total reported for more than one lease is

not a payment ``in connection with any lease.'' (See the detailed

discussion in the 1993 M-Opinion). Such an amount cannot be recouped by

reporting a credit entry for a specific lease since the funds were not

applied to any lease. After the Form MMS-2014 lines are processed,

amounts in excess of the total reported remain as an unapplied credit

in the payor's account. The MMS accountants would then contact the

payor for direction as to how the funds should be applied. In most

cases, the payor could reduce the next payment by an equal amount to

balance its payor account. In other situations, the funds could be

applied to an underpaid invoice or other Forms MMS-2014. If these

situations did not apply, the payor could request a non-section 10 cash

refund as outlined in the MMS ``Oil and Gas Payor Handbook'' (1986),

Volume II, page 4-25.

(n) One commenter stated that the provisions of Sec. 230.461(g),

which would not require a section 10 refund request after a successful

challenge of an MMS order to pay, would be more useful if MMS specifies

how such funds would be recovered.

Response: The overpayments may be recovered as explained in the

response to comment (m).

(o) Seven commenters submitted responses to the proposed de minimis

exception of Sec. 230.461(h). One commenter stated that MMS does not

have authority under the interpretations contained in the 1981 M-

Opinion to establish such a provision. Another commenter stated that

the amount should be set at \1/2\ percent of the normal monthly payment

to be meaningful. No support was received for the alternative of

limiting section 10 refund requests to $100 or more.

The other five commenters supported the de minimis idea, but

suggested the limit be increased from $25 to $100 per payor code per

month.

Response: After considering the comments, MMS has concluded that

instead of a fixed amount for the de minimis exception, MMS will

periodically review the matter and establish a de minimis amount.

Accordingly, the final regulations provide that a limit will be

published periodically in the Federal Register. This limit will be

based on the cost incurred to process a section 10 refund request.

Based on the cost experience for fiscal year 1993, the initial limit is

established at $250. Under these procedures, payors will be able to

file credits for OCS leases totalling less than $250 for each reporting

month, provided the payments subject to adjustment were made within 2

years of the date of the adjustments. Thus, even if a payor used this

exception to avoid section 10's reporting requirements, the most it

could recover for any lease is $6,000 (24 months x $250).

III. Summary of Final Rule

The MMS is adding new regulations at 30 CFR 230.451 through

230.461, which codify MMS' policy regarding the requirements of OCSLA

section 10, 43 U.S.C. 1339. Except for the changes to the rules

discussed above in response to the comments, MMS is adopting the rule

as proposed with some minor working changes. A detailed discussion of

each section is included in the preamble to the proposed rules, 58 FR

53470, explaining the purpose and effect of each section.

Procedural Matters

The Regulatory Flexibility Act

The Department certifies that this rule will not have a significant

economic effect on a substantial number of small entities under the

Regulatory Flexibility Act (5 U.S.C. 601 et seq.). There are not many

small entities involved in offshore oil and gas operations.

Executive Order 12630

The Department certifies that the rule does not represent a

governmental action capable of interference with constitutionally

protected property rights. Thus, a Takings Implication Assessment need

not be prepared under Executive Order 12630, ``Government Action and

Interference with Constitutionally Protected Property Rights.''

Excutive Order 12778

The Department has certified to the Office of Management and Budget

that the rule meets the applicable standards provided in sections 2(a)

and 2(b)(2) of Executive Oder 12778.

Executive Order 12866

This document has been reviewed under Executive Order 12866 and is

not a significant regulatory action.

Paperwork Reduction Act of 1980

This rule does contain information collection requirements which

have been approved by the Office of Management and Budget as required

by 44 U.S.C. 3501 et seq., and assigned approval number 1010-0094.

National Environment Policy Act of 1969

It is hereby determined that this rulemaking does not constitute a

major Federal action significantly affecting the quality of the human

environment and a detailed statement pursuant to paragraph (2)(C) of

section 102 of the National Environmental Policy Act of 1969 (42 U.S.C.

4332(2)(C)) is not required.

List of Subjects in 30 CFR Part 230

Coal, Continental shelf, Electronic Funds transfers, Geothermal

energy, Government contracts, Indian lands, Mineral royalties, Natural

gas, Penalties, Petroleum, Public land--mineral resources, Reporting

and recordkeeping requirements.

Dated: June 24, 1994.

Bob Armstrong,

Assistant Secretary--Land and Minerals Management.

For the reasons set out in the preamble, 30 CFR part 230 is amended

as follows:

PART 230--ROYALTY REFUNDS

1. The authority citation for part 230 is revised to read as

follows:

Authority: 5 U.S.C. 301 et seq.; 25 U.S.C. 396 et seq.; 25

U.S.C. 396a et seq.; 25 U.S.C. 2101 et seq.; 30 U.S.C. 181 et seq.;

30 U.S.C. 351 et seq.; 30 U.S.C. 1001 et seq.; 30 U.S.C. 1701 et

seq.; 31 U.S.C. 3716; 31 U.S.C. 3720A; 31 U.S.C. 9701; 43 U.S.C.

1301 et seq.; 43 U.S.C. 1331 et seq.; and 43 U.S.C. 1801 et seq.

2. A new subpart J is added under part 230 to read as follows:

Subpart J--Refunds and Recoupments of Overpayments Under Federal Leases

on the Outer Continental Shelf; Impementation of Section 10 of the

Outer Continental Shelf Lands Act

Sec.

230.451 Scope.

230.452 Definitions.

230.453 Request for refund or credit.

230.454 Interest on excess payments.

230.455 Authorization of refund or credit and subsequent audit.

230.456 Offsets of overpayment and underpayments on the lease (or

unit) by the same person.

230.457 Offsets among different persons who reported and paid

royalties on a lease for the same prior sales month.

450.458 Unauthorized credit adjustments.

230.549 Stopping or tolling of the section 10(a) 2-year period.

230.460 Lease suspension.

230.461 Transactions not subject to section 10.

Subpart J--Refunds and Recoupments of Overpayments Under Federal

Leases on the Outer Continental Shelf; Implementation of Section 10

of the Outer Continental Shelf Lands Act

Sec. 230.451 Scope.

This subpart establishes the procedures that lessees and other

persons who make royalty and other payments on Federal oil and gas

leases on the Outer Continental Shelf (OCS) must follow to recover

certain excess payments made in connection with their leases in

accordance with section 10 of the Outer Continental Shelf Lands Act

(section 10), 43 U.S.C. 1339. The requirements of this subpart apply to

both requests for refund from the Treasury of excess payments and

requests to recover excess payments by recouping the amount through a

credit adjustment. This subpart applies only to Federal leases on the

OCS.

Sec. 230.452 Definitions.

Terms used in this subpart shall have the same meaning as in 30

U.S.C. 1702. In addition, the following definitions apply to this

subpart:

Credit or crediting means reduction of a current or future royalty

or other payment made in connection with a lease as a result of

reporting a credit adjustment.

Credit Adjustment means any adjustment reported on a Report of

Sales and Royalty Remittance (Form MMS-2014) or any other royalty

report form which reduces any royalty or other payment made in

connection with a lease which was reported and paid in any previous

period.

Offset means to net or cancel previous overpayments against

previous underpayments on the same OCS lease or across lease boundaries

if all the individual leases are part of an approved unit agreement.

Overpayment means any payment made in excess of the amount that the

lessee was lawfully required to pay.

Payment means money MMS receives in satisfaction of a lessee's

royalty, rental, bonus, net profit share, or late payment interest

obligation as established by statute, regulation, or the terms of a

lease.

Recoup or recoupment means to recover a previous overpayment

through a credit against a current or future royalty or other payment

or liability under an OCS lease. A recoupment occurs whenever a payor

reports a credit adjustment on a Form MMS-2014 or other royalty report

form resulting in a net negative dollar value for the transaction and

the credit is taken against the royalty or other payment or liability

shown in the balance of the report.

Refund means a repayment by the United States Treasury to a person

of any overpayment.

Unit means an area of 2 or more leases subject to an agreement for

the consolidated development and recovery of oil and gas contained on

the leases which are part of the agreement approved by MMS.

Sec. 230.453 Request for refund or credit.

(a) Except as otherwise provided in this subpart, no person may

recover an excess payment it has made in connection with an OCS lease

unless:

(1) That person has made a request for refund or credit in

accordance with the provisions of this subpart;

(2) MMS has transmitted a report on the request for refund or

credit to the President of the Senate and the Speaker of the House of

Representatives and 30 days have expired since the submission in

accordance with section 10(b), 43 U.S.C. 1339(b); and

(3) MMS notifies the person that its request for refund or credit

is authorized and that the person may receive its refund for, or may

report a credit adjustment to recoup, the excess payment.

(b) A request for refund or credit must:

(1) Be in writing;

(2) Provide the person's MMS-established payor code;

(3) Identify the leases and sales months with respect to which the

excess payments occurred;

(4) Identify the amount of the excess payment or, with specificity,

describe a class of payments that are, or as a result of an

administrative or judicial decision or other identified contingency,

may become, excess payments;

(5) Provide the reasons why a refund or credit is due;

(6) Include a certification that, to the best of the person's

knowledge or belief, the information provided in response to paragraphs

(b)(2) through (b)(5) of this section is accurate and complete.

(c) If MMS determines that a request for refund or credit is

incomplete, the person who submitted the request will have 30 days, or

such time as MMS may specify, following notice from MMS, to supplement

the request for refund or credit.

(d) A credit adjustment reported on a Form MMS-2014 does not

constitute a request for refund or credit for purposes of this section,

and does not constitute an incomplete request for refund or credit for

purposes of paragraph (c) of this section.

(e) A person who has filed a request for refund or credit pursuant

to this section may amend that request to add an additional amount if:

(1) The additional amount is for the same lease and sales month;

and

(2) The reason for the excess payment for the additional amount is

the same as for the originally requested amount.

(f) Except as otherwise provided in this subpart, no request for a

refund or credit will be approved unless the request is received at MMS

at the address provided below within 2 years of the date that MMS

received the excess payment.

(1) The request for refund or credit must be received at the

following address:

(i) By mail: Minerals Management Service, Section 10 Refund

Requests, P.O. Box 173702, Denver, CO 80217-3702.

(ii) By express delivery or courier: Minerals Management Service,

Section 10 Refund Requests, Building 85, Denver Federal Center, Room A-

212, Denver, CO 80225.

(2) If the last day of the 2-year period from the date MMS received

the excess payment falls on a Saturday, Sunday, holiday or any other

day that MMS is not open for business at the address specified in

paragraph (f)(1) of this section, then the last day of the 2-year

period will be the next regular business day. Requests received at the

specified MMS address after 4 p.m. Mountain Time are considered

received the following business day.

Sec. 230.454 Interest on excess payments.

No person is entitled to interest on any excess payment made in

connection with a lease that is refunded or recouped pursuant to this

subpart.

Sec. 230.455 Authorization of refund or credit and subsequent audit.

MMS may grant a refund or authorize a credit based upon

satisfactory evidence that the payment for which a refund or credit is

requested was made, and upon a determination that the payment was

excess. An approved request for refund or credit may be subject to

later review or audit by MMS. If, based upon later review or audit, MMS

determines that the refund or credit should not have been granted or

authorized, the person who requested the refund or credit must repay

the amount refunded or recouped plus interest determined pursuant to 30

U.S.C. 1721(a) and 30 CFR 218.150 from the date the refund was made or

the recoupment taken until the date it is repaid.

Sec. 230.456 Offsets of overpayments and underpayments on the same

lease (or unit) by the same person.

If a person makes an overpayment on any OCS lease or unit in a

prior month, it may offset that overpayment against an underpayment

that same person made in any prior month on that same lease or unit for

the same or a different product without submitting a request for refund

or credit. This offset is permitted only if the underpayment was not

created as a result of a credit adjustment to recoup the amount of the

overpayment or was not otherwise created intentionally to provide an

underpayment against which to offset the overpayment. This offset also

is subject to any limitations imposed by other applicable law or

regulations.

Sec. 230.457 Offsets among different persons who reported and paid

royalties on a lease for the same prior sales month.

(a) This section applies to any reallocation of production for a

prior sales month among different persons who reported and paid royalty

for that month on a lease or unit, except for reallocations of

production that result from the approval or amendment of a unit

agreement subject to Sec. 230.461(b).

(b) In the event of a reallocation of production as described in

paragraph (a) of this section, the respective persons who reported and

paid royalty may reconcile any resulting differences in royalty payment

obligations between themselves without submitting revised royalty

reports or requests for refund or credit to MMS under this subpart,

except that:

(1) Any person who paid any amount which remains as a net

overpayment after such reconciliation must file a request for refund or

credit in accordance with the requirements of this subpart to recover

the excess payment;

(2) Any person whose royalty obligation remains underpaid after

such reconciliation must report the additional royalties due for the

prior sales month on a Form MMS-2014 and pay interest on the

underpayment from the last day of the month following the sales month

until the date the additional royalties are paid; and

(3) All persons involved in such reconciliation must retain all

documents pertaining to the reallocation of production, calculation of

royalties due, and the subsequent reconciliation among the persons

involved together with other records pertaining to production from that

lease during the prior sales month and the royalty due and paid

thereon, and make such documents available for review and audit in the

same manner as other records pertaining to the lease.

(c) If persons who reported and paid royalty do not reconcile

between themselves any differences in royalty payment obligations

arising as a result of a reallocation as provided in paragraph (b) of

this section, each person who pays royalties for the lease must report

and pay any additional royalties due, or file a request for refund or

credit in accordance with the requirements of this subpart to recover

the excess payment, as applicable. Any person who reports additional

royalties due for the prior sales month must pay interest pursuant to

30 CFR 218.54 on the underpayment from the last day of the month

following the sales month until the date the additional royalties are

paid.

Sec. 230.458 Unauthorized credit adjustments.

(a) If a person reports a credit adjustment on Form MMS-2014 that

results in a credit before MMS approves the recoupment pursuant to

Sec. 230.455, and if the credit adjustment does not qualify as one of

the transactions not subject to section 10 as provided in Sec. 230.461,

then that person has taken an unauthorized credit adjustment.

(1) If the unauthorized credit adjustment recouped a payment that

MMS received more than 2 years before the date MMS received the Form

MMS-2014 which includes the unauthorized credit adjustment, the person

must repay the amount recouped plus late payment interest determined

pursuant to 30 U.S.C. 1721(a) and 30 CFR 218.150 from the date the

unauthorized recoupment was taken until the date it is repaid. Unless

the person filed a request for refund or credit pursuant to

Sec. 230.453 within 2 years of the making of the excess payment for

which the unauthorized credit adjustment was reported, the excess

payment is not subject to refund or recoupment.

(2) If the unauthorized credit adjustment recouped a payment that

MMS received less than 2 years before the date MMS received the Form

MMS-2014 with the unauthorized credit adjustment, the person must repay

the amount recouped plus late payment interest determined pursuant to

30 U.S.C. 1721(a) and 30 CFR 218.150 from the date the unauthorized

recoupment was taken until the date it is repaid. The report of the

unauthorized credit adjustment on the Form MMS-2014 does not constitute

a request for refund or credit that tolls the 2-year period in section

10(a), 43 U.S.C. 1339(a). The person may file a request for refund or

credit pursuant to section 230.453 for the payment for which the

unauthorized credit adjustment was reported. MMS will review the

request pursuant to the requirements of this subpart only if the

request for refund or credit is received within 2 years of the making

of the original payment for which the unauthorized credit adjustment

was reported.

(b) A person who reports an unauthorized credit adjustment to MMS

on a Form MMS-2014 will be assessed $500 for each unauthorized credit

adjustment reported.

Sec. 230.459 Stopping or tolling of the section 10(a) 2-year period.

(a) The period of 2 years from the making of the excess payment,

within which a request for refund or credit must be filed under section

10(a), 43 U.S.C. 1339(a), will be:

(1) Tolled by MMS's receipt of a substantially complete request for

refund or credit pursuant to Sec. 230.453; or

(2) Tolled by a general tolling notice issued by MMS and published

in the Federal Register in circumstances where MMS believes a

substantial number of requests for refund or credit could result as a

consequence of a pending administrative or judicial proceeding or other

action. The running of the 2-year period will be tolled for the time

period specified in the notice; or

(3) Stopped by an application for unitization of OCS leases with

respect to any excess payment that may result from the reallocation of

production among leases after the unit or revision is approved; or

(4) Tolled by a notice filed by a person at the address stated in

Sec. 230.453(f) stating that a specifically identified action or

proceeding may result in payments made on an OCS lease becoming excess

payments. The notice must include:

(i) A list of affected leases and sales months;

(ii) The specific action or proceeding that could result in

payments becoming excess;

(iii) An estimate of the amount that could be subject to a request

for refund or credit; and

(iv) The person's MMS-established payor code.

(b) A request for refund or credit that is filed timely by a person

who made an excess payment on an OCS lease does not stop or toll the

running of the 2-year period with respect to any excess payment made by

any other person on that lease.

Sec. 230.460 Lease suspension.

If MMS suspends an OCS lease pursuant to 30 CFR 250.10(b)(6), a

person who has made excess rental payments for the period of suspension

may request a refund or credit of any excess payments pursuant to this

subpart. If the request for refund or credit is filed more than 2 years

after MMS received the excess rentals, the excess payment will not be

refunded, recouped, or credited against future rentals due on the same

lease.

Sec. 230.461 Transactions not subject to section 10.

(a) A request for refund of, or any other action to recover, excess

payments made by a refiner/purchaser under a royalty-in-kind contract

for royalty oil produced from an OCS lease is not subject to section

10.

(b) If MMS approves a unit agreement on the OCS, or a revision to a

unit, a person may file amended Forms MMS-2014 within the time period

MMS prescribes, reallocating production among its affected leases. A

person must file a request for refund or credit pursuant to this

subpart only if, and to the extent that, there is a net reduction in

the royalty that person previously paid for the leases committed to the

unit as a result of the amendments.

(c) A person may amend Form MMS-2014 to adjust volume and royalty

reports among OCS leases within a unit within the same sales month

without filing a request for refund or credit pursuant to this subpart,

except that a request for refund or credit must be filed to the extent

that there is a net reduction in the royalty previously paid for the

leases committed to the unit as a result of the amendments.

(d) A person who pays more money than the total royalty due as

reported on the Form MMS-2014 accompanying the payment, where all

amounts reported on the Form MMS-2014 are correct, may submit a request

for refund of the overpaid amounts. The request for refund is not

subject to section 10's requirements unless the Form MMS-2014 includes

reports for only one OCS lease. Any overpayment subject to this

paragraph may not be recovered by recoupment.

(e) A person may reduce an estimate balance, established for any

lease product pursuant to MMS instructions, by submitting a credit

adjustment on a Form MMS-2014, or a request for refund, for all or part

of the established estimate balance. A credit adjustment or request for

refund to recover all or part of an estimate balance authorized by this

paragraph is not subject to the requirements of section 10.

(f) (1) If adjustment of an estimated oil transportation allowance

or estimated gas transportation allowance pursuant to 30 CFR 206.105(e)

and 206.157(e), respectively, results in an overpayment for any sales

month because the estimated transportation costs were less than the

actual costs, a person may submit a credit adjustment on a Form MMS-

2014 to recoup, or may request a refund of, the overpayment. The credit

adjustment or request for refund authorized by this paragraph is not

subject to the requirements of section 10, and MMS approval is not

required before reporting the credit adjustment.

(2) If adjustment of an estimated gas processing allowance pursuant

to 30 CFR 206.159(e) results in an overpayment for any sales month

because the estimated processing costs were less than the actual costs,

a person may submit a credit adjustment on a Form MMS-2014 to recoup,

or may request a refund of, the overpayment. The credit adjustment or

request for refund authorized by this paragraph is not subject to the

requirements of section 10, and MMS approval is not required before

reporting the credit adjustment.

(3) If a person makes an error in the report of actual

transportation or processing costs pursuant to paragraphs (f)(1) or

(f)(2) of this section, any subsequent adjustment to the report that

results in a credit is subject to section 10 and the requirements of

this subpart.

(g) If a person pays pursuant to an MMS order and challenges the

obligation to pay in an administrative appeal or judicial action, and

if the person is successful in a challenge to all or part of the MMS

order to pay, section 10 does not apply to the refund or recoupment of

the disputed payment or portion thereof.

(h) MMS approval is not required for an adjustment by any person to

the amount reported for a report month that results in a credit of not

more than an amount established periodically by MMS and published in

the Federal Register. However, no adjustment may be reported more than

2 years after the date MMS received the Form MMS-2014 including the

excess payment.

[FR Doc. 94-18395 Filed 7-27-94; 8:45 am]

BILLING CODE 4310-MR-M