Regulations Governing Recoupment of Overpayments on Indian Mineral Leases

Federal RegisterJan 13, 1995

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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 218

RIN 1010-AB40

Regulations Governing Recoupment of Overpayments on Indian

Mineral Leases

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

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SUMMARY: The Minerals Management Service (MMS) is amending its Royalty

Management Program regulations to codify longstanding policy with

respect to recoupment of overpayments made by lessees and other payors

on Indian mineral leases. The established policy is that recoupments

cannot exceed 50 percent of the reported revenues in the current month

on an allotted lease or 100 percent of the reported revenues in the

current month on a tribal lease.

EFFECTIVE DATE: February 13, 1995.

FOR FURTHER INFORMATION CONTACT:

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

(303) 231-3194.

SUPPLEMENTARY INFORMATION: The principal author of this final rule is

Marvin D. Shaver of the Royalty Management Program, Rules and

Procedures Staff, Lakewood, Colorado.

I. Background

In the Notice of Proposed Rulemaking (55 FR 3232, January 31,

1990), MMS described the current policy regarding recoupment of

overpayments made by lessees and other payors on Indian mineral leases.

As stated in the proposed rule, royalty payments on production from

mineral leases are a major source of income to many Indian allottees

and tribes and, for some allottees, the only source.

The current policy permits lessees and payors to recoup

overpayments as a credit against future rental or royalty accruals due

to Indian tribes or allottees. Lessees and operators were instructed to

follow the recoupment policy in ``Notice to Lessees and Operators of

Indian Oil and Gas Leases No. 1A'' (NTL-1A), issued by the Conservation

Division of the U.S. Geological Survey in 1977. Section IX of NTL-1A

provided that in the case of tribal leases the credit must be against

the same lease or, with approval of the tribe, against amounts due

under other tribal leases. In the case of allotted leases, such credits

were limited to the lease on which the overpayments were made with

recovery of the overpayment prorated over a period of time necessary to

prevent an allottee's current monthly revenue being reduced by more

than 50 percent. This recoupment policy was adopted by MMS and

instructions were included in Volume II of the MMS ``Oil and Gas Payor

Handbook'' by Addendum No. 12, effective December 1, 1983. Also,

instructions were included in the revised MMS ``Oil and Gas Payor

Handbook'' issued in December 1986 (Section 3.7, ``Reporting Indian

Overpayment Recoupments''). The instructions are also included in the

MMS ``AFS Payor Handbook--Solid Minerals'' issued in September 1984

(Chapter 5, ``Recoupments on Indian Leases''). These payor handbooks

have been provided to all royalty payors on Federal and Indian leases

for specific guidance with respect to reporting requirements on oil and

gas and solid mineral leases.

MMS published in the Federal Register revised final oil and gas

product valuation regulations at 30 CFR Part 206 on January 15, 1988,

effective March 1, 1988 (53 FR 1184 and 53 FR 1230). Paragraph

206.150(e)(2) of the revised regulations terminated NTL-1A. However,

MMS' policy and procedure remained in the payor handbooks.

Although the Indian lease overpayment recoupment policy has been

the same for many years, MMS has determined that its regulations should

state the policy. Consequently, MMS published the January 31, 1990,

proposed rulemaking to codify the policy and procedure. In response to

the proposed rule, MMS received comments from four lessees/payors and

other interested parties. All of these comments were considered in the

final rule and are discussed in Section II below. The final rule is

summarized in Section III below.

[[Page 3086]]

II. Comments Received on Proposed Rule

The proposed rule provided for a 30-day public comment period,

which ended March 2, 1990. Four commenters (three industry and one

Indian representative) submitted comments during the comment period

which are addressed in this section.

Comment: The Indian representative objected to the proposed

requirement that BIA approval be obtained before lessees and payors

could recoup more than 50 percent of the monthly reported revenues on

an individual allotted lease. This objection was based on the

commenter's opinion that BIA is ill-equipped to make an independent

determination of the propriety of any claimed overpayment. Because

there is an obvious adverse impact on allottees subject to recoupment,

this commenter recommended that the final rule require prior

consultation and concurrence of the affected allottee regarding

requests from lessees and payors to recoup more than 50 percent of

reported revenues in an individual month.

Response: MMS agrees with the commenter's recommendation with

respect to affected Indian allottees. However, in many situations, it

may be impractical to obtain concurrence for more than a 50 percent

recoupment from all affected Indians in a timely manner. Therefore, the

final regulation was changed and no longer provides for such an

exception to the 50 percent recoupment limitation on allotted leases.

Comment: One industry commenter agreed with the proposed recoupment

procedure and in general with the proposed limitation. However, the

commenter expressed concern regarding the need for expeditious handling

of requests for recoupments in excess of the limitation. The commenter

emphasized that it was important that the request for any recoupment

above the limitation be processed timely, unless interest could be

recovered by the lessee on the overpayment.

Response: Since the final regulation no longer provides for

recoupments in excess of the limitations, expeditious handling of such

requests is a moot point. In regard to interest on overpayments, MMS

does not have legal authority to pay interest on overpayments made by

lessees and payors.

Comment: Another industry commenter agreed that MMS regulations

should establish the recoupment policy. However, this commenter

questioned the necessity for the requirement that written permission be

obtained from a tribe before overpayments made on one lease could be

recouped from a different tribal lease. In this commenter's opinion, a

lessee or payor should be able to take a credit and recoup any

overpayment against any and all of its producing leases with that tribe

without requiring that tribe's approval, because the tribe's revenue is

generally not limited to a single lease.

Response: Royalty payments on production from mineral leases are a

major source of income to many tribes. When a lessee or payor can

recoup an overpayment against payments due on all producing tribal

leases without permission, the tribe cannot plan the distribution of

royalty revenues with reasonable accuracy.

In order that the tribe may plan for decreases in royalty revenues,

MMS has determined that a payor must obtain written permission from the

tribe to recoup overpayments made on one tribal lease from a different

tribal lease. Paragraphs 218.53(b) and 218.203(b) of the final rule

require that the payor provide MMS with a copy of the tribe's written

permission in accordance with instructions provided in the ``Oil and

Gas Payor Handbook'' and the ``AFS Payor Handbook--Solid Minerals''.

Comment: A different industry commenter who was in general support

of the proposed rule stated that a strict application of the policy

may, in some cases, be inequitable. For example, if a lessee or payor

is required to make a payment to an Indian allottee on a Bill for

Collection that is under appeal and the lessee or payor prevails on the

appeal, the lessee/payor may not be able to recoup if the company is no

longer the payor on the lease or the level of production on the lease

has declined to a point where recoupment is not an adequate remedy. In

this commenter's opinion, it would not be good policy in these

situations to allow an allottee to keep the payment and prevent the

lessee from otherwise obtaining a refund. The commenter recommended

that the final rule allow lessees to obtain a cash refund when

recoupment is an inadequate remedy.

Response: MMS recognizes the merit of this commenter's concerns.

However, this situation can be avoided if the payor, in accordance with

30 CFR 243.2, elects to post a surety pending a decision on the appeal

rather than submitting payment. If the appellant prevails on its

appeal, the surety would be returned and recoupment or refund of a

payment would not be necessary. If the payor elects to submit payment

and is not able to recoup the payment, MMS does not have legal

authority to refund the payment from general funds, but can seek a

special congressional appropriation for the amount of any refund due to

the payor.

Comment: One industry commenter state that any rulemaking that

would deny or delay recovery of any overpayment, other than under a

strict statute of limitations imposed equitably on both the Indian(s)

and lessee, would be a violation of Executive Order 12630, ``Government

Actions and Interference with Constitutionally Protected Property

Rights.''

Response: A continuing payor with sufficient recoupable balances

would not be denied recoupment of any overpayment under the proposed or

final rule. MMS has determined that the procedures set forth in the

proposed or final rule do not violate E.O. 12630.

III. Summary of Final Rule

This final rulemaking codifies MMS' longstanding policy with

respect to recoupment of overpayments made by lessees and other royalty

payors on Indian mineral leases by the addition of new sections at 30

CFR 218.53 (previously reserved) and 30 CFR 218.203. Overpayments

subject to recoupment under the adopted rule include all payments made

in excess of the required payment for royalty, rental, bonus, or other

amounts owed as specified by statute, regulation, order, or terms of an

Indian mineral lease.

The final rule permits lessees and payors to recoup overpayments as

credits against reported revenues due to Indian tribes or allottees in

the current month on the same lease. Specifically, the final rule

allows recoupment of overpayments not to exceed 50 percent of reported

revenues in that month on an allotted lease or 100 percent of the

reported revenues in that month on a tribal lease. A payor may recoup

an overpayment made on one tribal lease from a different tribal lease

only if written permission is authorized by tribal statute or

resolution.

The final rule also provides that MMS may issue an order to a payor

prohibiting recoupment of any amount for a reasonable period of time as

MMS may need to review the nature and amount of any overpayment.

Situations may arise in which a payor believes it has made an

overpayment and is entitled to recoup the overpaid amount. However, the

payor in fact may not have overpaid, and should not be allowed to

recoup since recoupments reduce the Indian lessor's expected revenues.

The authority in paragraph (d) of both Sec. 218.53 and Sec. 218.203

allows MMS to prevent the payor from taking the recoupment until the

fact that the payor has overpaid and the amount of the

[[Page 3087]] overpayment have been reviewed. MMS expects to use this

authority only in limited circumstances, such as when there is

information suggesting there has been no overpayment, or where the

proposed recoupment would be extraordinarily large and result in

reduced revenues for a long period of time to the Indian lessor.

IV. 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.).

The rule is needed to conform regulations to existing policy and

practice.

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.''

Executive Order 12778

The Department has certified to the Office of Management and Budget

that these final regulations meet the applicable standards provided in

sections 2(a) and 2(b)(2) of Executive Order 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

The collections of information contained in this rule have been

approved by the Office of Management and Budget under 44 U.S.C. 3501 et

seq. and assigned clearance number 1010-0022.

National Environmental Policy Act of 1969

We have determined that this rulemaking is not a major Federal

action significantly affecting the quality of the human environment,

and a detailed statement under section 102(2)(C) 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 218

Coal, Continental shelf, Electronic funds transfers, Geothermal

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

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

and recordkeeping requirements.

Dated: November 28, 1994.

Bob Armstrong,

Assistant Secretary--Land and Minerals Management.

For the reasons set out in the preamble, 30 CFR part 218 is amended

as set forth below:

PART 218--COLLECTION OF ROYALTIES, RENTALS, BONUSES AND OTHER

MONIES DUE THE FEDERAL GOVERNMENT

1. The authority citation for Part 218 continues to read as

follows:

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

seq., 25 U.S.C. 2101 et seq.; 30 U.S.C. 181 et seq., 351 et seq.,

1001 et seq., 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq.,

1331 et seq., and 1801 et seq.

2. Section 218.53 (previously reserved) under Subpart B (Oil and

Gas, General) is added to read as follows:

Sec. 218.53 Recoupment of overpayments on Indian mineral leases.

(a) Whenever an overpayment is made under an Indian oil and gas

lease, a payor may recoup the overpayment through a recoupment on Form

MMS-2014 against the current month's royalties or other revenues owed

on the same lease. However, for any month a payor may not recoup more

than 50 percent of the royalties or other revenues owed in that month

under an individual allotted lease or more than 100 percent of the

royalties or other revenues owed in that month under a tribal lease.

(b) With written permission authorized by tribal statute or

resolution, a payor may recoup an overpayment against royalties or

other revenues owed in that month under other leases for which that

tribe is the lessor. A copy of the tribe's written permission must be

furnished to MMS pursuant to instructions for reporting recoupments in

the MMS ``Oil and Gas Payor Handbook.'' See 30 CFR 210.53. Recouping

overpayments on one allotted lease from royalties paid to another

allotted lease is specifically prohibited.

all payments made in excess of the required payment for royalty,

rental, bonus, or other amounts owed as specified by statute,

regulation, order, or terms of an Indian mineral lease.

(d) The MMS Director or his/her designee may order any payor to not

recoup any amount for such reasonable period of time as may be

necessary for MMS to review the nature and amount of any claimed

overpayment.

3. A new Sec. 218.203 under Subpart E (Solid Minerals, General) is

added to read as follows:

Sec. 218.203 Recoupment of overpayments on Indian mineral leases.

(a) Whenever an overpayment is made under an Indian solid mineral