Establishing Oil Value for Royalty Due on Federal Leases, and on Sale of Federal Royalty Oil

SUMMARY: This rule will modify the valuation procedures for both arm's-

length and non-arm's-length crude oil transactions, establish a new MMS

form for collecting value differential data, and amend the valuation

procedure for the sale of Federal royalty oil. These changes will

decrease reliance on oil posted prices and assign a value to crude oil

that better reflects market value.

DATES: Comments must be submitted on or before March 25, 1997.

ADDRESSES: Mail written comments, suggestions, or objections regarding

the proposed rule to: Minerals Management Service, Royalty Management

Program, Rules and Procedures Staff, P.O. Box 25165, MS 3101, Denver,

Colorado, 80225-0165, courier address is Building 85, Denver Federal

Center, Denver, Colorado 80225, or e:Mail David__ G[email protected].

MMS will publish a separate notice in the Federal Register indicating

dates and locations of public hearings regarding this proposed

rulemaking.

FOR FURTHER INFORMATION CONTACT: David S. Guzy, Chief, Rules and

Procedures Staff, telephone (303) 231-3432, FAX (303) 231-3194, e:Mail

David__ G[email protected], Minerals Management Service, Royalty

Management Program, Rules and Procedures Staff, P.O. Box 25165, MS

3101, Denver, Colorado, 80225-0165.

SUPPLEMENTARY INFORMATION: The principal authors of this proposed rule

are David A. Hubbard of RMP and Peter Schaumberg of the Office of the

Solicitor in Washington, D.C.

I. Introduction

On December 20, 1995, MMS published an Advance Notice of Proposed

Rulemaking about possible changes to the rules for royalty valuation of

oil from Federal and Indian leases (60 FR 65610). The intent was to

decrease reliance on oil posted prices and to develop valuation rules

that better reflect market value.

MMS used various sources of information to develop the proposed

rule. In addition to comments received on the Advance Notice of

Proposed Rulemaking, MMS attended a number of presentations by: crude

oil brokers and refiners, commercial oil price reporting services,

companies that market oil directly, and private consultants

knowledgeable in crude oil marketing. MMS' deliberations were aided

greatly by a wide range of expert advice.

The Department of the Interior's (Department) practice is to give

the public an opportunity to participate in the rulemaking process.

Anyone interested may send written comments, suggestions, or objections

regarding this proposed rule to the location cited in the ADDRESSES

section of this preamble. We will post public comments after the

comment period closes on the Internet at http://www.rmp.mms.gov or

contact David S. Guzy, Chief, Rules and Procedures Staff, telephone

(303) 231-3432, FAX (303) 231-3194.

Because of the different terms of Indian leases and the Federal

government's Indian trust responsibility, MMS decided to develop

separate rules for Indian oil valuation. MMS will publish those

proposed regulations separately.

Finally, the Department's Royalty Policy Committee (RPC)

recommended that RMP ``establish a study group to review the Federal

oil RIK program and explore all options for improving the reporting,

billing, and MMS administration of the program.'' The proposed

amendment to 30 CFR Part 208 is responsive to this recommendation.

II. General Description of the Proposed Rule

The proposed rulemaking would add more certainty to valuation of

oil produced from Federal lands and eliminate any direct reliance on

posted prices. It retains the concept that for arm's-length sales,

gross proceeds generally would be royalty value, but its application

would be limited. Because of the frequency of oil exchange agreements,

reciprocal deals between crude oil buyers and sellers, and other

factors where the real consideration for the transaction could be

hidden, arm's-length contract prices would be used as royalty value

only by producers who do not also purchase crude oil.

MMS expects a large portion of Federal oil production to be valued

as if not sold under an arm's-length contract because most Federal oil

is disposed of under exchange agreements or sales to affiliated

refiners. For oil the lessee does not sell under an arm's-length

contract, but sells or transfers oil to an affiliate who later sells it

at arm's-length, this proposal provides the lessee the following

options to value the oil for a 2 year period:

(1) the arm's-length resale price (provided that, as described

above, neither the lessee nor its affiliate also purchases oil), or

(2) depending on location of production, the monthly average of the

New York Mercantile Exchange (NYMEX) or Alaska North Slope (ANS) prices

with appropriate adjustments for location and/or quality (hereafter

location/quality) differentials.

For all other non-California or non-Alaska oil production, if the

lessee or its affiliate refines or otherwise disposes of the oil non-

arm's-length, the lessee would apply a monthly average NYMEX price

adjusted for location and/or quality. For oil production, in California

and Alaska, if the lessee or its affiliate refines or otherwise

disposes of the oil non-arm's-length, the lessee would apply a monthly

average of spot prices for Alaska North Slope oil delivered in

California, adjusted for location quality (For purposes of the preamble

and the proposed regulatory changes, oil produced from Federal leases

in California refers to oil produced from Federal leases either onshore

or offshore California. Oil produced from Federal leases in Alaska

refers to oil produced from Federal leases either onshore or offshore

Alaska).

Adjustments for location quality against the index values are

limited to these components:

(1) A location and/or quality differential between the index

pricing point (for example, West Texas Intermediate at Cushing,

Oklahoma) and the appropriate market center (for example, Light

Louisiana Sweet at St. James, Louisiana, or Wyoming Sweet at Guernsey,

Wyoming), calculated as the difference between the average monthly spot

prices published in an MMS-approved publication for the respective

locations;

(2) A rate either published by MMS or contained in the lessee's

arm's-length exchange agreement representing location quality

differentials between the market center and major aggregation points

for oil from various sources; and

(3) As determined under the existing allowance rules, the actual

transportation costs from the aggregation point to the lease. However,

if oil flows to the market center, the actual transportation costs from

the market center to the lease.

Calculation of differentials could vary if the lessee takes its

production directly to its own refinery and the movement in no way

approximates movement

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through an aggregation point to a market center.

MMS would calculate and publish the rate from the market center to

major aggregation points based on specific information it would collect

on a new form: Form MMS-4415, Oil Location Differential Report. This

form is attached to this notice of proposed rulemaking as Appendix A.

MMS requests commenters to provide comments on this form according to

the information under the Paperwork Reduction Act in part IV,

Procedural Matters, of this notice.

MMS may publish an Interim Final Rule while it further evaluates

the methodology in this proposed rule. This approach would provide the

flexibility to do a revision after the first year without a new

rulemaking. We are asking for your comments on this approach to

implementing the new oil valuation regulations. MMS will also during

the first six months after the effective date of this rule verify that

the values determined by this rule are replicating actual market

prices. Comments on how best to perform this analysis are also

requested.

In the next section, we describe the major regulatory changes

proposed in this rulemaking. The proposed changes for valuing

production are substantive. But some sections, particularly those

involving transportation allowances, remain mostly the same. Also, to

clarify and simplify the rules, MMS is incorporating many changes that

are not substantive but are an effort to implement concepts of plain

English.

III. Section-by-Section Analysis

30 CFR Part 206

MMS proposes to amend part 206, Subpart C--Federal Oil as described

below. Some of the provisions would be largely the same as in the

existing rules, but would be rewritten for clarity.

Section 206.100 Purpose and Scope

This section's contents would remain the same except for

clarifications. MMS rewrote it in plain English to improve clarity.

Section 206.101 Definitions

MMS would retain most of the definitions in Sec. 206.101, many of

those retained were rewritten to reflect plain English. New definitions

to support the revised valuation procedures are proposed for:

Aggregation point, Crude oil call, Designee, Exchange agreement, Index

pricing, Index pricing point, Location differential, Market center,

MMS-approved publication, NYMEX, Quality differential, and Sale. The

definition of Allowance would be amended. We will discuss the new and

amended definitions below where they appear in the regulatory text.

The proposed rule would remove the definitions of Marketing

affiliate, Net-back method, Oil shale, Posted price, Processing,

Selling arrangement and Tar sands because they no longer relate to how

most crude oil is marketed and to the structure of the proposed rules.

The definition of Lessee would be revised to reflect the new definition

in the Federal Oil and Gas Royalty Simplification and Fairness Act of

1996 (RSFA), H.R. 1975, Public Law No. 104-185, 110 Stat. 1700. The new

definition of Lessee is: 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. The definition of Like-quality lease products also

would be revised under a new definition of Like-quality oil to support

the new valuation procedures. We will discuss this definition below

where it appears in the regulatory text.

Section 206.102 How do I calculate royalty value for oil?

This section would explain how lessees must calculate the value of

oil production for royalty purposes. It is the principal valuation

section of the proposed rules.

The proposal states that lessees and designees, defined terms, must

use these valuation provisions. Under the Federal Oil and Gas Royalty

Management Act of 1982, 30 U.S.C. 1701 et seq., as recently amended by

the Federal Oil and Gas Royalty Simplification and Fairness Act of

1996, Pub L. 104-185, only lessees are liable to MMS for royalties.

Lessee includes record title owners and operating rights owners. The

Royalty Simplification and Fairness Act also provides that lessees may

designate a designee to report and pay royalties on their behalf.

Therefore, these proposed valuation rules apply to lessees and

designees.

We propose to revise this section to reflect major changes in

valuing oil not sold under an arm's-length contract. Valuation of

production sold under arm's-length contracts would essentially stay the

same, but the number of transactions considered to be actual sales at

arm's-length would be limited, as explained further below.

Paragraph (a) How do I value oil sold under an arm's-length sales

contract? Proposed paragraph (a) would replace existing paragraph (b)

and retain the concept that if you sell oil under an arm's-length

contract, the royalty value is the gross proceeds accruing to you. But

several limitations would apply:

First, if the oil sales contract doesn't reflect all actual

consideration you receive directly or indirectly, MMS could require

royalty valuation under the non-arm's-length index pricing provisions

discussed below, or the total consideration you received, whichever is

greater.

Second, if MMS finds that your gross proceeds under the arm's-

length contract don't reflect the reasonable value of production

because of misconduct by or between the contracting parties, or because

you otherwise breached your duty to market to the mutual benefit of

yourself and the lessor, MMS would require you to value your oil under

the index pricing provisions discussed below.

However, MMS is proposing to limit applicability of the provision

allowing you to pay royalty based on your gross proceeds from an arm's-

length sale. Even if you sell at arm's-length, MMS would require you to

value your oil production under the index pricing provisions discussed

below if you or your affiliate also purchased any crude oil from an

unaffiliated third party in the United States during the two years

preceding the production month. If your only oil purchases were from

your affiliate, this provision is not triggered. However, such

purchases are not at arm's-length, thus they cannot be valued under

this section.

MMS is proposing this limitation because of concerns that multiple

dealings between the same participants, while apparently at arm's-

length, may be suspect concerning the contractual price terms. Just as

with exchange agreements (discussed later), a producer may have less

incentive to capture full market value in its sales contracts if it

knows it will have reciprocal dealings where it may be able to buy oil

at less than market value. Several MMS consultants reinforced the

notion that as long as the two parties maintain relative parity in

value of oil production traded, the absolute contract price in any

particular transaction has little meaning.

MMS would also like comments on an alternative proposal. Under this

alternative, MMS would accept your arm's-length contract price paid by

your purchaser or its affiliates as value unless during the two years

preceding the production month you or your affiliate bought oil, gas,

or any other goods or services from that same purchaser. MMS did not

make this the principal proposal because there was a concern that it

would be too difficult for a company to determine whether it bought

from the same party (or its affiliates) during the two years preceding

the production month. Commenters should address the

[[Page 3744]]

alternative proposal and MMS's concerns about the difficulty of

application.

Due to the widespread use of exchange agreements and frequent

reciprocal sales among companies--particularly major integrated firms--

MMS expects that a relatively small volume of Federal oil production

would be valued using the arm's-length gross proceeds method. In fact,

MMS considered requiring all production to be valued as if not sold at

arm's length. But the presence of true arm's-length sales, especially

by independent producers with no reciprocal purchases or trades,

convinced MMS to propose that the gross proceeds provision be kept for

such circumstances.

Also, MMS would state clearly that you may not use gross proceeds

to value oil you dispose of under an exchange agreement. The limitation

applies even if the exchange otherwise is arm's-length. Therefore, you

must use the index pricing provisions to value the oil.

An Exchange agreement is defined in the proposed rules as an

agreement by one person to deliver oil to another person at a specified

location in exchange for reciprocal oil deliveries at another location.

Such agreements may be made because each party has crude oil production

closer to the other's refinery or transportation facilities than to its

own, so each may gain locational advantages. Exchange agreements may or

may not specify prices for the oil involved and frequently specify

dollar amounts reflecting location, quality, or other differentials.

Buy/sell agreements, which specify prices to be paid at each exchange

point and may appear to be two separate sales within the same

agreement, are considered exchange agreements. Transportation

agreements are purely to accomplish transportation. They specify a

location differential for moving oil from one point to the other, with

redelivery to the first party at the second exchange point. They are

not considered exchange agreements.

The reason MMS would not accept the contract price for oil subject

to an exchange agreement is that the prices stated in an exchange

agreement may not reflect actual value. For example, if the market

value of oil were $20 per barrel (bbl), the two parties to the exchange

each could price their oil at $18 bbl. The parties can insure that each

remains whole by using a location/quality differential in the

agreement. MMS' consultants also supported this view.

Also, this paragraph would provide that if your oil production is

subject to a crude oil call, even if you sell it under an arm's-length

sales contract, you must value it under the index pricing provisions.

A Crude oil call is defined as the right of one person to buy all

or part of a second person's oil production from an oil and gas

property, where that right is a condition of sale or farmout of that

property from the first person to the second, or results from other

transactions between them. The price basis may be specified in advance.

As with multiple dealings between two parties, MMS would presume that

the price of oil sold under arm's-length contracts subject to crude oil

calls is suspect. This is because the sale terms may be liberal to the

property buyer in return for a favorable product purchase price by the

property seller.

MMS also is proposing to add a paragraph (5) to clarify how pre-

payments made to reduce or buy down the purchase price of oil to be

produced in later periods would be treated under the gross proceeds

provisions. In such a circumstance, you must allocate the pre-payment

over the production whose price the payment reduces and account for the

payment as part of the proceeds for that production when the production

occurs.

By way of illustration, assume that purchaser and seller agree to

renegotiate a sales contract and reduce the price for future production

of one million bbl. As part of the renegotiation, Purchaser makes a

payment of $1 million. Seller would be required to attribute one dollar

to each barrel produced thereafter and include the additional dollar in

the gross proceeds at the time each bbl is produced until the one

million bbl. threshold is reached.

Paragraph (b) What else must I do if I value oil under an arm's-

length contract? Proposed paragraph (b) includes several of the

provisions of the existing rules, but rewritten and reordered for

clarity. These provisions replace part or all of current paragraphs

(b)(1)(i), (b)(2), and (j), and state that:

(1) You must be able to show that your contract is at arm's length,

and is a Sale (defined term);

(2) MMS may require certification that the arm's-length contract

provisions include all consideration to be paid by the buyer; and

(3) Value determined by contract terms will be based on the highest

price a prudent lessee may legally receive. If you don't take proper or

timely action to get your entitled prices/benefits, you must pay

royalties on the entitled amounts. But if you make timely, reasonably

documented application for a price increase or benefit allowed under

your contract and the purchaser refuses, you will not owe additional

royalties until or unless you receive the additional monies or

consideration. This provision would not permit you to avoid royalty

obligations where a purchaser doesn't pay, or pay timely, for a

quantity of oil.

Paragraph (c) How do I value oil not sold under an arm's-length

contract? Proposed paragraph (c) would replace the ordered benchmarks

under existing paragraph (c). The current benchmarks rely heavily on

posted and contract prices. Since many contract prices are tied to

postings, the influence of posted prices is magnified. MMS is proposing

a different valuation approach because market conditions have changed.

Moreover, the widespread use of exchange agreements and reciprocal

sales as well as difficulties with relying on posted price, cast

additional doubt on the usefulness of many apparent arm's-length sales

prices as a good measure of market value. Given the mounting evidence

that posted prices frequently do not reflect value in today's

marketplace, the proposed valuation standards do not rely at all on

postings. Instead, after consulting various crude oil pricing experts

and considerable deliberation, MMS proposes the following procedures:

Under paragraph (c)(1), if you sell or transfer your oil to an

affiliate and either the affiliate or another affiliate disposes of oil

under an arm's-length sales contract, you have a choice of valuation

methods. The first choice would be to value it like an arm's-lengths

sale under paragraph (a) and use gross proceeds for your affiliate's

arms-length sales. However, the limitations in paragraph (a) apply as

well. For example, if you or your affiliate purchased oil from an

unaffiliated third party in the United States during the two year

period preceding the production month, you cannot use the gross

proceeds valuation method.

The second choice would be to use the index pricing method in

paragraph (c)(2), which is the method that applies to all other non-

arm's-length transactions. We explain the details of that method below.

When you make your election to use either the gross proceeds

methods or the index pricing method, you would be required to apply the

same election to value all oil that is produced from all your Federal

leases that is subject to paragraph (c)(1) (i.e. where your affiliate

sells the oil at arm's length). You may not use gross proceeds for some

leases and index pricing for others. This is intended to prevent

lessees and designees from choosing the method

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that would be to their advantage on a lease-by-lease basis.

The election to use gross proceeds or index pricing could be

changed. You may change your election on January 1 of the second year

after the rule is effective and on January 1 of each second year

thereafter. If new sales arrangements are made during the election

period that would come under paragraph (c)(1) for valuation purposes,

your existing election would apply. If you had not previously made an

election, because you did not have any production subject to valuation

under paragraph (c)(1), you could make the election when you start

reporting the new sales arrangement.

If neither you nor your affiliate disposes of the oil under an

arm's-length sales contract, then you would be required to value your

oil under paragraph (c)(2). This would include situations where you or

your affiliate refines or otherwise disposes of the oil. It also would

include all exchange transactions, even if the exchange is arm's

length.

The index pricing method you would use under paragraph (c)(2) would

depend upon whether your leases are in California or Alaska. For leases

not in California or Alaska, the royalty value would be the average of

the daily NYMEX futures settle prices for the Domestic Sweet Crude Oil

contract for the prompt month. The prompt month is the earliest month

for which futures are traded on the first day of the production month.

You would adjust the NYMEX price for location/quality differentials and

transportation costs, which are addressed later in Sec. 206.105(c).

Attached Appendix B is an example of the NYMEX-based index pricing

method. Assume that the production month is September 1996. The prompt

month would then be October 1996, the prompt month in effect on

September 1. In this instance, October 1996 oil futures are traded on

the NYMEX from August 21, 1996, through September 20, 1996. The average

of the daily NYMEX futures settle prices for the October 1996 prompt

month (determined by averaging the daily prices for 8/21 to 9/20) is

$23.13 per bbl. This price would be adjusted for location/quality

differentials and transportation (discussed later) to determine the

proper oil value for September production.

MMS searched for indicators to best reflect current market prices

and settled on NYMEX for several reasons. It represents the price for a

widely traded domestic crude oil (West Texas Intermediate at Cushing

Oklahoma), and there is little likelihood that any particular

participant in NYMEX trading could impact the price. Also, NYMEX prices

were regarded by many of the experts MMS consulted to be the best

available measure of oil market value. The most difficult problem, as

will be discussed in more detail below, would be to make appropriate

location and quality adjustments when comparing the NYMEX crude with

the crude produced. Other indicators MMS considered included spot

prices as tabulated by various publications and the P-plus market. The

P-plus assesses premiums over posted prices to reflect oil market value

on any given day. Spot prices offer the advantage that they are

published for several different locations and might involve somewhat

less difficult location and quality adjustments. MMS is proposing NYMEX

prices primarily because they are perceived to best reflect current

domestic crude market value on any given day and the minimal likelihood

that any one party could influence them.

MMS also considered timing of NYMEX application. Since the prompt

month changes around the 21st of any given production month, two

different prompt months exist during the production month. MMS decided

to use the prompt month in effect on the first day of the production

month. This would result in the current month's production being valued

at the nearest month's futures price. Although it is a futures price,

it would reflect the market's assessment of value during the production

month. MMS found this preferable to using a one-month-earlier futures

price, where the price would apply to deliveries in the production

month but would be determined in an earlier time period. The daily

closing NYMEX prices are widely available in most major newspapers and

various other publications.

MMS requests comments on each of the following, and any other

related issues you may want to address:

Use of market indicators (indices) to determine royalty

value under paragraph (c)(2),

Use of NYMEX as the index value, and possible

alternatives, and

Selection of the proper prompt month.

MMS is proposing a different procedure for California and Alaska

production largely because of the geographical isolation of these

markets. The distance from the mid-continent markets would lead to

great difficulties in making meaningful adjustments from the NYMEX

price. MMS believes that a more localized market indicator would better

represent royalty value. Several spot prices are published for

different types of California crude oil at different locations, as well

as P-plus prices. But none of these prices attaches to large enough

volumes for MMS to recommend that they apply as royalty value. The ANS

spot prices, on the other hand, represent large volumes of oil

delivered into the California market and used as refinery feedstock.

Also, several of the experts who gave presentations to MMS recommended

use of adjusted ANS spot prices as the best indicator of value for

California and Alaska production. You would adjust these ANS prices for

location/quality differentials or transportation costs under

Sec. 206.105(c).

Attached as Appendix C is an example of the index pricing method

utilizing ANS spot prices for California production. Assume that the

production month is September 1996 and that Platt's Oilgram is an MMS-

approved publication. For the October 1996 spot sales delivery month,

spot sales prices are assessed from August 26, 1996, through September

25, 1996. The daily mean spot price assessments for the month are

averaged to arrive at the ANS price basis, in this case $21.25 per bbl.

This price would be adjusted for location/quality differentials and

transportation (discussed later) to determine the proper value for your

oil.

MMS requests comments on each of the following, and any other

related issues you may want to address:

Use of a different market indicator for California and

Alaska than for the rest of the country,

Use of ANS spot prices as the indicator of oil market

value, and

Possible alternative market indicators for California and

Alaska.

MMS recognizes that markets change and that the NYMEX prices or the

ANS spot prices may either become unavailable or no longer represent a

reasonable basis for royalty value. For example, the lifting of export

restrictions on ANS production and the decline of that production may

substantially reduce the impact of ANS crude on the California market.

Under paragraph (c)(3), if MMS determines that an index no longer

is available or that it no longer represents a reasonable value, MMS

will, by rule, amend paragraph (c)(2) to establish a substitute method.

Proposed paragraph (c)(4) states that MMS periodically would

publish in the Federal Register a listing of MMS-approved publications

for determining the appropriate NYMEX or ANS prices. MMS-approved

publication is a defined term that would mean any publication on this

list (or those on the list

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discussed later for determining location differentials). The criteria

MMS would consider in determining acceptability would include, but not

be limited to, whether the publications:

are frequently used by buyers and sellers,

are frequently referenced in purchase or sales contracts,

use adequate survey techniques, including development of

spot price estimates based on daily surveys of buyers and sellers of

ANS crude oil, and

are independent from MMS, other lessors, and lessees.

The first two criteria reflect the importance of publications used

in ongoing oil marketing. The third reflects the importance of the

publication's survey procedures in assessing spot price levels, because

the proposed California and Alaska valuation procedure depends on ANS

spot prices. The last factor requires that the publication be unbiased

by the interests of anyone involved. MMS requests comments on specific

publications that should be approved for use in applying these rules.

Proposed paragraph (c)(5) would provide that publications could

petition MMS to become an acceptable publication.

Proposed paragraph (c)(6) would provide that MMS will specify which

tables in the publications must be used to determine index prices.

In addition to comments on the index-based valuation procedures

discussed above, MMS requests specific comments on alternative

valuation techniques based on local market indicators. MMS believes

that today's oil marketing is driven largely by the NYMEX market. Also,

the proposed rules should promote certainty for all involved. But the

location/quality adjustments needed to derive lease value using NYMEX

would involve considerable administrative effort for all involved. MMS

requests suggestions on ways to value Federal oil production based on

market indicators in the vicinity of the lease, with the following in

mind:

(1) The methods should not rely on posted prices unless they

account for the difference between postings and market value.

(2) The methods must account for value differences related to

quality and location.

(3) The methods must be widely applicable and flexible enough to

apply nationwide.

(4) Most importantly, the methods must reflect the general concepts

of fair market value--the agreed-upon cash price between willing and

knowledgeable buyers and sellers if neither were under undue pressure.

Paragraph (d)--What else must I do if I value oil under paragraph

(c)? Proposed paragraph (d) includes the same content as existing

paragraph (e)(1), but rewritten for clarity. We did modify the

paragraph on your obligation to place oil in marketable condition at no

cost to the Federal Government to clarify that it includes a duty to

market the oil. This is consistent with several Interior Board of Land

Appeals decisions construing this rule. See Walter Oil and Gas

Corporation, 111 IBLA 260 (1989).

Paragraph (e)--What other general responsibilities do I have under

this section? Proposed paragraphs (e)(1), (e)(2), and (e)(3) include

the same content as existing paragraphs (i), (d), and (f),

respectively, but are rewritten for clarity and rearranged for a more

logical grouping.

Paragraph (f) May I ask MMS to determine value? Proposed paragraph

(f) includes the same content as existing paragraph (g), but is

rewritten for clarity.

Paragraph (g) How do value redeterminations relate to audit

periods? Proposed paragraph (g) includes the content of existing

paragraph (k), but is rewritten for clarity.

Paragraph (h) Does MMS protect information I provide? Proposed

paragraph (h) includes the content of existing paragraph (l), but is

rewritten for clarity.

Deletion of existing paragraphs (e)(2) and (h). MMS proposes to

delete existing paragraph (e)(2), which requires lessees to notify MMS

if they determine value under existing paragraphs (c)(4) or (c)(5).

Since MMS proposes to delete those paragraphs, paragraph (e)(2) no

longer would apply.

MMS also proposes to delete paragraph (h), which says royalty value

will not be less than the lessee's gross proceeds, less applicable

allowances. This clause would have little meaning given the proposed

royalty valuation revisions. For those arm's-length situations where

the lessee is not required to value its production at an index price,

value would already be the lessee's gross proceeds. And under either

proposed index valuation procedure--California/Alaska or rest-of-

country--the derived value would be a proxy for gross proceeds. MMS

requests specific comments on deletion of paragraph (h).

Section 206.103 Point of royalty settlement

This section would not be changed.

Section 206.104 Transportation allowances and other adjustments--

general

Paragraph (a) What transportation allowances are permitted when I

value production based on my gross proceeds? Proposed paragraph (a) is

similar to paragraph (a) of the present rule, but would apply only when

you value your production based on gross proceeds. The proposed

paragraph would be rewritten to reflect clarity.

Paragraph (b) What transportation allowances and other adjustments

apply when I value production based on index pricing? Proposed new

paragraph (b) would state that if you value oil based on index pricing

(NYMEX or ANS spot pricing) under Section 206.102(c)(2), MMS will allow

certain transportation costs and other adjustments to value. We discuss

those costs and adjustments below under Sec. 206.105(c).

Paragraph (c) Are there limits on my transportation allowance?

Proposed paragraphs (c)(1) and (c)(2) include the substance of existing

paragraphs (b)(1) and (b)(2) respectively, but rewritten for clarity

and to reflect plain English. The proposed paragraphs also would

specify the point where the 50-percent-of-value limitation would be

calculated if you value oil based on index pricing.

Paragraph (d) How must I allocate transportation costs? Proposed

paragraph (d) is essentially the same as existing paragraph (c).

Paragraph (e) What additional payments may I be liable for?

Proposed paragraph (e) is existing paragraph (d) rewritten for clarity.

Section 206.105 Determination of transportation allowances

Paragraph (a) would not be changed.

Paragraph (b) would be changed by deleting paragraph (b)(5). The

existing paragraph (b)(5) allows a lessee to apply for an exception

from the requirements that it compute actual costs of transportation

and use a Federal Energy Regulatory Commission (FERC) or State approved

tariffs. MMS believes that the use of actual costs is fair to lessees

and that the existing requirement to use a FERC approved tariff is no

longer a viable alternative since FERC ruled that it lacks jurisdiction

to enforce the Interstate Commerce Act with respect to oil pipelines

located wholly on the Offshore Continental Shelf. See Oxy Pipeline,

Inc., 61 FERC para. 61,051 (1992) and Bonito Pipe Line Company, 61 FERC

para. 61,050 (1992).

Paragraph (c) What adjustments and transportation allowances apply

when I use index pricing? Proposed paragraph (c)(1) describes allowable

transportation

[[Page 3747]]

cost deductions and mandatory adjustments to index prices where you

value your oil based on index pricing under Sec. 206.102(c)(2). The

allowable adjustments and deductions would reflect the location/quality

differentials and transportation costs associated with value

differences between oil produced at the lease and oil at the index

pricing point. Although location differentials would reflect

differences in value of oil at different locations, they are not

transportation cost allowances. In fact they may increase a value

rather than decreasing it as do transportation allowances. Quality

differentials would reflect differences in the value of oil due to

different API gravities, sulfur content, etc. Location differentials

generally also encompass quality differentials. Proposed paragraph

(c)(1) identifies the specific adjustments and allowances that may

apply to your production. Proposed paragraphs (c)(2) and (c)(3)

identify which of those adjustments and allowances would apply to you

in different circumstances. The possible adjustments and allowances

are:

(1) A location/quality differential to reflect the difference in

value between crude oils at the index pricing point (for example, West

Texas Intermediate at Cushing, Oklahoma) and the appropriate market

center (for example, Light Louisiana Sweet at St. James, Louisiana)

(proposed paragraph (c)(1)(i)). Index pricing point is the physical

location where a given price index such as NYMEX or ANS spot prices is

established. For NYMEX, that location is Cushing, Oklahoma. For ANS,

that location is either Los Angeles or San Francisco. Market center

would be defined as a major destination point for crude oil sales,

refining, or transshipment. As used here, market centers are locations

where trade publications provide crude oil spot price estimates. The

market center that you would use is the point where oil produced from

your lease or unit ordinarily would flow if not disposed of at an

earlier point.

For any given production month, the market center-index pricing

point location/quality differential would be the difference between the

average spot prices for the respective locations as published in an

MMS-approved publication. (MMS-approved publications as used here are

discussed below.) The purpose of this differential is to derive a NYMEX

price at the market center by adjusting the NYMEX price at the index

pricing point to the general quality of crude typically traded at the

market center, and otherwise to reflect location/quality value

differences at the appropriate market center.

Attached as Appendices D and E are examples of how the average of

the daily spot prices are calculated for the index pricing point

(Cushing, OK) and an OCS market center (St. James, LA), respectively.

The value difference between the two spot price averages is the

location differential between the index pricing point and the market

center.

Assume that Platt's Oilgram is an MMS-approved publication. For the

October 1996 delivery month, spot sales prices are assessed from August

26, 1996, through September 25, 1996. The average of the daily (mean)

spot price assessments for the month is utilized to calculate the

location differential. In this instance, the average price for Cushing

is $23.46 per bbl. and the average price for St. James is $23.68 per

bbl. Since the St. James price is $.22 per bbl. higher than the Cushing

price, the $.22 per bbl. would be added to the NYMEX-based price (or a

deduction would be made if the St. James price were lower than the

Cushing price).

(2) An express location/quality differential under your arm's-

length exchange agreement that includes a clearly identifiable

location/quality differential for the crude oil value difference

between the market center and the aggregation point (proposed paragraph

(c)(1)(ii)).

Aggregation point would mean a central point where production from

various leases or fields is aggregated for shipment to market centers

or refineries--including, but not limited to, blending and storage

facilities and connections where pipelines join. The aggregation point

to which oil produced from your lease or unit ordinarily flows would be

the aggregation point involved in this differential. In the many cases

that MMS expects will involve such agreements, the differential stated

in the agreement should reflect actual value differences resulting from

differences in location and quality between crude oils at the

aggregation point and the associated market center.

(3) A location/quality differential that MMS would publish annually

that you would use if you do not dispose of production under an arm's-

length exchange agreement that contains an express differential as

described above (proposed paragraph (c)(1)(iii)). MMS would publish

this differential for each aggregation point and an associated market

center. MMS would also classify pipeline terminations at refining

centers as aggregation points. An aggregation point may be associated

with more than one market center. As discussed in more detail below,

MMS periodically will publish in the Federal Register a list of market

centers and associated aggregation points. The differential would

represent crude oil value differences due to location and quality

factors. MMS would acquire the information needed to calculate these

differentials specific from exchange agreement data provided by lessees

and their affiliates on a new reporting form (Form MMS-4415) discussed

below. You would apply the differential on a calendar production year

basis. This means you would apply it for the reporting months of

February through the following January.

(4) Either your actual transportation costs from the lease to the

aggregation point as determined under Sec. 206.105 (proposed paragraph

(c)(1)(iv)) or actual transportation costs from the lease to the market

center (proposed paragraph (c)(1)(v)). MMS is not proposing to change

the existing methods to calculate transportation allowances. The

allowance would terminate at the aggregation or market center point

whichever is applicable to your situation as part of the total

adjustment to derive an index price based value at the lease.

The purpose of these adjustments and allowances is to reflect value

differences for crude oil production of different qualities and at

different locations to derive value at the lease. The location

differentials between the index pricing point and the market center,

and between the market center and the aggregation point, would not

necessarily reflect transportation alone. They would represent the

overall market assessment of the different relative values of similar

crude oil delivered at different locations. Only the actual

transportation costs from the lease to the aggregation point or market

center would represent pure transportation costs.

Alternatives for methods other than location/quality differentials

include using index values with no location adjustments to picking a

specific percentage deduction from the index value to generically

reflect location differentials. A variation of the latter would be to

develop percentage or absolute dollar deductions for different

geographical zones. In addition to specific comments on the proposed

method of adjusting index values, MMS requests suggestions on

alternative methods.

Proposed paragraph (c)(2) specifies which of the adjustments and

allowances described above apply to you in various situations if your

lease is not located in California or Alaska. If you dispose of your

production under an arm's-length exchange agreement and the agreement

has an express location/

[[Page 3748]]

quality differential to reflect the difference in value between the

aggregation point for your lease and an associated market center, then

you would use three of the four possible adjustments and allowances.

Specifically, you would use the market center-index pricing point

location/quality differential under paragraph (c)(1)(i), the

aggregation point-market center differential specified in your exchange

agreement under paragraph (c)(1)(ii), and the actual transportation

costs from the lease to the aggregation point under paragraph

(c)(1)(iv).

Attached as Appendix F is an example of a NYMEX-based royalty

computation for OCS Louisiana production. The procedures for

calculating the NYMEX price and index pricing point/market center

location differential have been discussed above and are illustrated at

Appendices B, D, and E.

The deduction to the NYMEX-based price for the location/quality

differential between the market center and aggregation point will be

the actual exchange agreement differential or an MMS-published

differential. (For the purposes of this example, (Appendix F) we used

$.40 per bbl.)

The transportation allowance deduction from the NYMEX-based price

will be the cost of transport between the lease and aggregation point.

(For the purposes of this example, (Appendix F) we used $.90 per bbl.).

If you do not move lease production through a MMS-identified

aggregation point to a MMS-identified market center, but instead move

it directly to an alternate disposal point (for example, your own

refinery), then you would use only two of the adjustments and

allowances. You would use the market center-index pricing point

location/quality differential under paragraph (c)(1)(i) and the actual

transportation costs from the lease to the alternate disposals point

under paragraph (c)(1)(iv). In this event, the alternate disposal point

is the aggregation point for purposes of that paragraph. The market

center for purposes of paragraph (c)(1)(iv) is the market center

nearest the lease where there is a published spot price for crude oil

of like quality to your oil. Like-quality oil would mean oil with

similar chemical, physical, and legal characteristics. For example,

West Texas Sour and Wyoming Sour would be like-quality, as would West

Texas Intermediate and Light Louisiana Sweet.

For example, a Wyoming Sour crude producer might transport its oil

directly to a refinery in Salt Lake City without accessing any defined

aggregation points or market centers. In this case West Texas Sour

crude at Midland, Texas, might represent the crude oil/market center

combination nearest to the oil produced. The market center-index

pricing point location/quality differential under paragraph (c)(1)(i)

would then be the difference in the spot price between West Texas

Intermediate at Cushing, Oklahoma, and West Texas Sour at Midland,

Texas as published in an MMS-approved publication. In addition to that

adjustment, the producer would be entitled to an allowance for the

actual transportation costs from the lease in Wyoming to Salt Lake

City. MMS has determined that this method is the best way to calculate

the differences in value between the lease and the index pricing point

due to location, quality, and transportation when the production is not

actually moved to a market center.

In all other situations, you would use the market center-index

pricing point location/quality differential (paragraph (c)(1)(i)), the

MMS-published aggregation point-market center location/quality

differential under paragraph (c)(1)(iii), and the actual transportation

costs from the lease to the aggregation point (paragraph (c)(1)(iv)).

These adjustments and allowances cover all location, quality, and

transportation differences in value between the lease and the index

pricing point.

Proposed paragraph (c)(3) specifies which of the adjustments and

allowances apply to you in various situations if your lease is located

in California or Alaska. In this context, the index pricing point

(where ANS crude is delivered in Los Angeles or San Francisco) would be

synonymous with the market center. The allowable adjustments would

still be the reasonable location/quality differentials and

transportation allowances associated with value differences between

production at the lease and the index pricing point. But since the

index pricing point and market center would coincide, there would be no

differential applicable between those two points. Thus, if you dispose

of your production under an arm's-length exchange agreement and the

agreement has an express location/quality differential to reflect the

difference in value between the aggregation point for your lease and an

associated market center, then you would use the aggregation point-

market center differential specified in your exchange agreement under

paragraph (c)(1)(ii), and the actual transportation costs from the

lease to the aggregation point under paragraph (c)(1)(iv). If you move

your oil directly to a market center then you would use the actual

transportation costs from the lease to the market center under

paragraph (c)(1)(v).

Attached as Appendix G is an example of an ANS-based royalty

computation for onshore California production. The procedure for

calculating the ANS price has been discussed above and is illustrated

at Appendix C.

The deduction to the ANS-based price for the location/quality

differential between the market center (Los Angeles using ANS spot

prices) and aggregation point will be the actual exchange agreement

differential or an MMS-published differential. (For the purposes of

this example, (Appendix G) we used $4.78 per bbl.)

The transportation allowance deduction from the ANS-based price

will be the cost of transport between the lease and aggregation point.

(For the purposes of this example (Appendix G) we used $.20 per bbl.)

If you do not move lease production through a MMS-identified

aggregation point to a MMS-identified market center, but instead move

it directly to an alternate disposal point (for example, your own

refinery), then you would use the actual transportation costs from the

lease to the alternate disposal point under paragraph (c)(1)(iv).

(Again, the alternate disposal point is the aggregation point for

purposes of that paragraph.) In addition, you would use a location/

quality differential calculated as the difference between the average

spot prices for the production month in a MMS-approved publication at

the aggregation point nearest the lease for which spot prices for like-

quality crude oil are published and the published spot prices or ANS

crude oil at the associated market center/index pricing point. For

example, for Midway-Sunset production, the nearest location/quality

combination might be Kern River crude. Then the difference between the

ANS and Kern River spot prices as published in an MMS-approved

publication would be the differential. For leases in California or

Alaska, this represents the most accurate calculation of the

differences in value between the lease and the index pricing point due

to location, quality, and transportation when the production is not

actually moved to a market center/index pricing point.

In all other situations in California or Alaska, you would use the

MMS-published aggregation point-market center/index pricing point

location/quality differential under paragraph (c)(1)(iii), and the

actual transportation costs from the lease to the aggregation point

(paragraph (c)(1)(iv)). These adjustments and allowances cover all

[[Page 3749]]

location, quality, and transportation differences in value between the

lease and the index pricing point for leases in California.

Proposed paragraph (c)(4) states that if a MMS calculated

differential does not apply to a lessee's oil due to location and

quality differentials, the lessee must request MMS in writing to

calculate a location and quality differential that applies to its oil.

Conditions for an exception would include:

(1) The lessee must deliver to MMS its written request for an MMS

calculated differential within 30 days after MMS publishes its annual

listing of location differentials;

(2) The lessee must provide clear evidence demonstrating why the

published differential(s) does not adequately reflect its

circumstances;

(3) If the lessee does not request an exception within 30 days

after MMS publishes its annual listing of location differentials, MMS

will calculate such a differential when it receives the lessee request

or when it determines that the MMS-calculated differential does not

apply to the lessee's oil. MMS will then bill for additional royalties

and interest due. MMS will not refund any overpayments made due to

failure to timely request MMS to calculate a differential; and

(4) MMS cannot unilaterally change any of its calculated

differentials after it has published them in the Federal Register.

MMS would insert paragraph (c)(5) to note that it would

periodically publish a list of MMS-acceptable publications in the

Federal Register. This paragraph would also specify the criteria for

acceptability; they are very similar to the criteria listed at

206.102(c)(5) for publications used in index pricing.

Proposed paragraph (c)(6) would allow any publication to petition

MMS to add them to the list of acceptable publications.

Proposed paragraph (c)(7) would state that MMS would reference the

specific tables in individual publications that lessees must use to

determine location differentials.

Proposed paragraph (c)(8) states that MMS would periodically

publish in the Federal Register a list of aggregation points and market

centers. MMS would monitor market activity and, if necessary, add or

modify market centers or aggregation points. MMS would consider the

following factors and conditions in specifying market centers and

aggregation points:

(i) Points where MMS-approved publications publish prices useful

for index purposes;

(ii) Markets served;

(iii) Pipeline and other transportation linkage;

(iv) Input from industry and others knowledgeable in crude oil

marketing and transportation;

(v) Simplification; and

(vi) Other relevant matters.

MMS would initially consider the following as Market Centers:

Cushing, OK

Empire, LA

Guernsey, WY

Los Angeles/San Francisco, CA

Midland, TX

St. James, LA

Where Cushing, Oklahoma is used as a market center, the index

pricing point and market center would coincide. Los Angeles and San

Francisco are two other market centers that also represent index

pricing points. In those two cases, there would be no differential

between the index pricing point and market center. Los Angeles and San

Francisco are listed together because MMS believes the ANS spot price

generally is identical at both locations.

Appendix H is a list of aggregation points MMS has initially

selected to publish differentials under (3) above. MMS requests

specific comments on the initial list of market centers and aggregation

points, including suggested additions, deletions and other

modifications.

(d) Reporting requirements. MMS would redesignate existing

paragraph (c) as (d). Existing paragraphs (c)(1) and (c)(2) (i), (ii),

and (iii) would otherwise remain the same. MMS would delete paragraph

(d)(2)(iv) consistent with the previous change to delete the use of

FERC or State approved tariffs.

(3) What information must I provide to support index pricing

deductions, and how are they used? Proposed paragraph (d)(3) would be

added to require lessees and their affiliates to submit a new form to

MMS annually. Proposed Form MMS-4415, Oil Location Differential Report,

would capture location differentials in all exchange agreements or

other oil disposal contracts. MMS would use these data to calculate

location differentials between market centers and aggregation points.

MMS would publish these differentials annually for lessees to use in

royalty reporting. MMS has included a copy of proposed Form MMS-4415 as

Attachment A to these proposed regulations.

Information submitted on the new form would cover all of the

lessee's and its affiliate's crude oil production, and not just

information related to Federal or Indian lease production. Reporting

duplicate information would not be required (e.g. identical locational/

quality differential between the same point). All Federal and Indian

lessees (or their affiliates as appropriate) would initially submit

Form MMS-4415 no later than two months after the effective date of this

reporting requirement, and then by October 31 of the year this

regulation takes effect and by October 31 of each succeeding year.

However, if October 31 of the year this regulation takes effect is less

than six months after the effective date of this reporting requirement,

the second submission of the Form MMS-4415 would be by October 31 of

the succeeding year. The reporting requirement would take effect before

the effective date of the rule. Early submittal of this information

would allow MMS to publish the representative market center-aggregation

point location differentials in the Federal Register by the effective

date of the final regulation. Then MMS would publish location

differentials by January 31 of all subsequent years. MMS would publish

differentials for different qualities/grades of crude oil if the data

are sufficient and if multiple differentials are appropriate for the

area. Each year following the year this regulation became effective,

lessees would use the new published differentials beginning with

January production royalties reported in February.

MMS requests comments on Form MMS-4415 (See Appendix A), including:

Its layout and information requested,

Frequency and timing of submittal, frequency and timing of

MMS's calculations and publication of differentials, and

All other relevant comments.

Remainder of Section 206.105

MMS proposes no changes to existing paragraphs (d) and (e) except

to redesignate them as paragraphs (e) and (f).

In addition to redesignating paragraph (f) as (g), MMS proposes to

remove the reference to FERC or State approved tariffs to be consistent

with the proposed deletion of paragraph 206.105(b). MMS proposes no

change to existing paragraph (g) except to redesignate it as paragraph

(h).

Section 206.106 Operating allowances.

MMS proposes no changes to Section 206.106.

Proposed change to 30 CFR 208.4(b)(2).

MMS currently sells RIK crude oil to small refiners under the

provisions of 30 CFR 208. The RIK program is popular,

[[Page 3750]]

but has been criticized for several of its procedures. Much of the

criticism stems from the fact that MMS prices the crude oil sold to

small refiners at the values reported by the entities providing the in-

kind crude oil (producers). These values are reported on Form MMS-2014,

and are subject to later adjustments. This method is onerous to the

producers and creates risk for the small refiners.

The Royalty Policy Committee (RPC) provided three possible

improvement options for the oil RIK program, as follows:

Eliminate reporting on the Form MMS-2014;

Establish product value in the RIK contract; and

Bill entitled volumes from the Form MMS-3160, Monthly

Report of Operations.

The RPC gave the following reason for its recommendations: The

current method of administering the Federal oil RIK program is time-

consuming and burdensome on producers, small refiners, and MMS. The

administrative burden includes reconciling what volumes the small

refiner actually took, what value to assign the small refiner volumes,

who is to pay for what volumes, and who owes for what volumes.

MMS' proposal would tie RIK valuation to the index pricing

provisions of 30 CFR 206.102(c)(2). MMS believes that changing the oil

RIK valuation procedure as proposed would provide a cornerstone for a

revised oil RIK program. In particular, the changes would provide

certainty in pricing and would simplify reporting for producers.

However, MMS realizes that the proposed change is significant, and

requests comments on the proposal. In particular, MMS requests comments

from crude oil producers and small refiners as to the impacts of the

proposal on them. In addition, MMS requests comments from interested

parties as to whether this proposed method of valuation would meet the

fair market value definition of the Outer Continental Shelf (OCS) Lands

Act.

IV. Procedural Matters

The Regulatory Flexibility Act

The Department certifies that this rule will not have significant

economic effect on a substantial number of small entities under the

Regulatory Flexibility Act (5 U.S.C. Sec. 601 et seq.). This proposed

rule would amend regulations governing the valuation for royalty

purposes of crude oil produced from Federal leases. These changes would

modify the valuation methods in the existing regulations. Small

entities are encouraged to comment on this proposed rule.

Unfunded Mandates Reform Act of 1995

The Department of the Interior has determined and certifies

according to the Unfunded Mandates Reform Act, 2 U.S.C. Sec. 1502 et

seq., that this rule will not impose a cost of $100 million or more in

any given year on local, Tribal, or State governments, or the private

sector.

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 12988

The Department has certified to the Office of Management and Budget

that this proposed rule meets the applicable civil justice reform

standards provided in Sections 3(a) and 3(b)(2) of this Executive

Order.

Executive Order 12866

The Office of Management and Budget has determined this rule is a

significant rule under this Executive Order 12866 Section 3(f)(4).

Which states: ``Raise novel legal or policy issues arising out of legal

mandates, the President's priorities, or the principles set forth in

this Executive Order.'' The Department's analysis of these proposed

revisions to the oil valuation regulations indicate these changes will

not have a significant economic effect, as defined by Section 3(f)(4)

of this Executive Order.

Paperwork Reduction Act

This proposed rule contains a collection of information which has

been submitted to the Office of Management and Budget (OMB) for review

and approval under section 3507(d) of the Paperwork Reduction Act of

1995. As part of our continuing effort to reduce paperwork and

respondent burden, MMS invites the public and other Federal agencies to

comment on any aspect of the reporting burden. Submit your comments to

the Office of Information and Regulatory Affairs, OMB, Attention Desk

Officer for the Department of the Interior, Washington, D.C. 20503.

Send copies of your comments to: Minerals Management Service, Royalty

Management Program, Rules and Procedures Staff, P.O. Box 25165, MS

3101, Denver, Colorado, 80225-0165; courier address is: Building 85,

Denver Federal Center, Denver, Colorado 80225; e:Mail address is:

David__G[email protected].

OMB may make a decision to approve or disapprove this collection of

information after 30 days from receipt of our request. Therefore, your

comments are best assured of being considered by OMB if OMB receives

them within that time period. However, MMS will consider all comments

received during the comment period for this notice of proposed

rulemaking.

The information collection is titled Oil Location Differential

Report. Part of the valuation of oil not sold under arm's-length

contracts rely on price indices that lessees may adjust for location

differences between the index pricing point and the lease. Federal

lessees and their affiliates would be required to give MMS information

on the location differentials included in their various oil exchange

agreements and sales contracts. From these data MMS would calculate and

publish representative location differentials for lessees use in

reporting royalties in different areas. This process would introduce

certainty into royalty reporting.

Rules establishing the use of Form MMS-4415 to report oil location

differentials are at proposed 30 CFR 206.105(d)(3). Information

provided on the forms may be used by MMS auditors and the Valuation and

Standards Division (VSD).

MMS estimates the annual reporting burden to be approximately

32,000 hours. There are approximately 2,000 royalty payors on Federal

and Indian leases. The MMS subject matter experts estimate that on

average, these payors would have about 64 exchange agreements and sales

contracts from which data would need to be extracted. This annual

filing as required by 30 CFR 206.105(d)(3) could require about one-

quarter hour per report to extract the data from individual exchange

agreements and sales contracts. Only a minimal recordkeeping burden

would be imposed by this collection of information. Based on $25 per

hour, the annual industry cost is estimated to be $800,000.

In compliance with the requirement of Section 3506(c)(2)(A) of the

Paperwork Reduction Act of 1995, MMS is providing notice and otherwise

consulting with members of the public and affected agencies concerning

collection of information in order to solicit comment to: (a) evaluate

whether the proposed collection of information is necessary for the

proper performance

[[Page 3751]]

of the functions of the agency, including whether the information shall

have practical utility; (b) evaluate the accuracy of the agency's

estimate of the burden of the proposed collection of information; (c)

enhance the quality, utility, and clarity of the information to be

collected; and (d) minimize the burden of the collection of information

on those who are to respond, including through the use of automated

collection techniques or other forms of information technology.

The Paperwork Reduction Act of 1995 provides that an agency may not

conduct or sponsor, and a person is not required to respond to, a

collection of information unless it displays a currently valid OMB

control number.

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

required.

List of Subjects in 30 CFR Parts 206 and 208

Coal, Continental shelf, Geothermal energy, Government contracts,

Indians-lands, Mineral royalties, Natural gas Petroleum, Public lands--

mineral resources, Reporting and recordkeeping requirements.

Dated: December 30, 1996.

Bob Armstrong,

Assistant Secretary--Land, Minerals Management.

For the reasons set out in the preamble, 30 CFR parts 206 and 208

are proposed to be amended as follows:

PART 206--PRODUCT VALUATION

1. The authority citation for Part 206 continues to read as

follows:

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

seq.; 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.

Subpart C--Federal Oil

2. Sections 206.100 through 206.102 are revised to read as follows:

Sec. 206.100 What is the purpose of this subpart?

(a) This subpart applies to all oil produced from Federal oil and

gas leases onshore and on the Outer Continental Shelf (OCS). It

explains how lessees and designees must calculate the value of

production for royalty purposes consistent with the mineral leasing

laws, other applicable laws, and lease terms.

(b) This subpart does not apply in three situations. The statute,

settlement agreement, or lease provision will govern, if the

regulations in this subpart are inconsistent with:

(1) A Federal statute;

(2) A settlement agreement between the United States and a lessee

resulting from administrative or judicial litigation; or

(3) An express provision of an oil and gas lease subject to this

subpart.

(c) MMS may audit and adjust all royalty payments.

Sec. 206.101 Definitions.

The following definitions apply to this subpart:

Aggregation point means a central point where production is

aggregated for shipment to market centers or refineries. It includes,

but is not limited to, blending and storage facilities and connections

where pipelines join. Pipeline terminations at refining centers also

are classified as aggregation points. MMS periodically will publish in

the Federal Register a list of aggregation points and associated market

centers.

Area means a geographic region at least as large as the limits of

an oil and/or gas field in which oil and/or gas lease products have

similar quality, economic, and legal characteristics.

Arm's-length contract means a contract or agreement between

independent, nonaffiliated persons with opposing economic interests

regarding that contract. Two persons are affiliated if one person

controls, is controlled by, or is under common control with another

person. Based on the instruments of ownership of the voting securities

of an entity, or based on other forms of ownership: ownership over 50

percent constitutes control; ownership of 10 through 50 percent creates

a presumption of control; and ownership of less than 10 percent creates

a presumption of noncontrol. MMS may rebut this presumption if it

demonstrates actual or legal control, as through interlocking

directorates. MMS may require the lessee to certify the percentage of

ownership or control. Aside from the percentage ownership criteria,

contracts between relatives, either by blood or by marriage, are not

arm's-length contracts. To be considered arm's-length for any

production month, a contract must satisfy this definition for that

month, as well as when the contract was executed.

Audit means a review, conducted under generally accepted accounting

and auditing standards, of royalty payment compliance activities of

lessees, designees or other persons who pay royalties, rents, or

bonuses on Federal leases.

BLM means the Bureau of Land Management of the Department of the

Interior.

Condensate means liquid hydrocarbons (normally exceeding 40 degrees

of API gravity) recovered at the surface without processing. Condensate

is the mixture of liquid hydrocarbons resulting from condensation of

petroleum hydrocarbons existing initially in a gaseous phase in an

underground reservoir.

Contract means any oral or written agreement, including amendments

or revisions, between two or more persons, that is enforceable by law

and that with due consideration creates an obligation.

Crude oil call means the right of one person to buy, at its option,

all or a part of the second person's oil production from an oil and gas

property. This right generally arises as a condition of the sale or

farmout of that property from the first person to the second, or as a

result of other transactions between them. The price basis may be

specified when the property is sold or farmed out.

Designee means the person the lessee designates to report and pay

the lessee's royalties for a lease.

Exchange agreement means an agreement where one person agrees to

deliver oil to another person at a specified location in exchange for

oil deliveries at another location. Exchange agreements may or may not

specify prices for the oil involved. They frequently specify dollar

amounts reflecting location, quality, or other differentials. Exchange

agreements include ``buy/sell'' agreements, which specify prices to be

paid at each exchange point and may appear to be two separate sales

within the same agreement. Exchange agreements do not include

``transportation'' agreements, whose principal purpose is

transportation.

Field means a geographic region situated over one or more

subsurface oil and gas reservoirs and encompassing at least the

outermost boundaries of all oil and gas accumulations known within

those reservoirs, vertically projected to the land surface. State oil

and gas regulatory agencies usually name onshore fields and designate

their official boundaries. MMS names and designates boundaries of OCS

fields.

Gathering means the movement of lease production to a central

accumulation or treatment point on the lease, unit, or communitized

area, or to a central accumulation or treatment point off the lease,

unit, or

[[Page 3752]]

communitized area that BLM or MMS approves for onshore and offshore

leases, respectively.

Gross proceeds means the total monies and other consideration

accruing for the disposition of oil produced. Gross proceeds includes,

but is not limited to the examples discussed in this definition. Gross

proceeds include payments for services such as dehydration,

measurement, and/or gathering which the lessee must perform at no cost

to the Federal Government. It also includes the value of services, such

as salt water disposal, that the producer normally performs but that

the buyer performs on the producer's behalf. Gross proceeds also

includes, but is not limited to, reimbursements for harboring or

terminaling fees. Tax reimbursements are part of the gross proceeds

even though the Federal royalty interest may be exempt from taxation.

Monies and all other consideration a seller is contractually or legally

entitled to, but does not seek to collect through reasonable efforts,

are also part of gross proceeds.

Index pricing means using NYMEX futures prices or Alaska North

Slope (ANS) crude oil spot prices for royalty valuation.

Index pricing point means the physical location where an index

price is established in an MMS-approved publication.

Lease means any contract, profit-share arrangement, joint venture,

or other agreement issued or approved by the United States under a

mineral leasing law that authorizes exploration for, development or

extraction of, or removal of oil or gas products--or the land area

covered by that authorization, whichever the context requires.

Lessee means any person to whom the United States issues an oil and

gas lease, an assignee of all or a part of the record title interest,

or any person to whom operating rights in a lease have been assigned.

Like-quality oil means oil with similar chemical, physical, and

legal characteristics.

Load oil means any oil used in the operation of oil or gas wells

for wellbore stimulation, workover, chemical treatment, or production

purposes. It does not include oil used at the surface to place lease

production in marketable condition.

Location differential means the value difference for oil at two

different points.

Market center means a major point MMS recognizes for oil sales,

refining, or transshipment. Market centers generally are locations

where MMS-approved publications publish oil spot prices.

Marketable condition means oil sufficiently free from impurities

and otherwise in a condition a purchaser will accept under a sales

contract typical for the field or area.

Minimum royalty means that minimum amount of annual royalty the

lessee must pay as specified in the lease or in applicable leasing

regulations.

MMS-approved publication means a publication MMS approves for

determining NYMEX or ANS prices, or determining location differentials.

Net profit share (for applicable Federal leases) means the

specified share of the net profit from production of oil and gas as

provided in the agreement.

Netting means reducing the reported sales value to account for

transportation instead of reporting a transportation allowance as a

separate line on Form MMS-2014.

NYMEX means the New York Mercantile Exchange.

Oil means a mixture of hydrocarbons that existed in the liquid

phase in natural underground reservoirs, remains liquid at atmospheric

pressure after passing through surface separating facilities, and is

marketed or used as a liquid. Condensate recovered in lease separators

or field facilities is considered oil.

Outer Continental Shelf (OCS) means all submerged lands lying

seaward and outside of the area of lands beneath navigable waters as

defined in Section 2 of the Submerged Lands Act (43 U.S.C. 1301) and of

which the subsoil and seabed appertain to the United States and are

subject to its jurisdiction and control.

Person means any individual, firm, corporation, association,

partnership, consortium, or joint venture (when established as a

separate entity).

Quality differential means the value difference between two oils

due to differences in their API gravity, sulfur content, viscosity,

metals content, and other quality factors.

Sale means a contract between two persons where:

(1) The seller unconditionally transfers title to the oil to the

buyer. The seller may not retain any related rights such as the right

to buy back similar quantities of oil from the buyer elsewhere;

(2) The buyer pays money or other consideration for the oil; and

(3) The parties' intent is for a sale of the oil to occur.

Section 6 lease means an OCS lease subject to section 6 of the

Outer Continental Shelf Lands Act, as amended, 43 U.S.C. 1335.

Spot price means the price under a spot sales contract where:

(1) A seller agrees to sell to a buyer a specified amount of oil at

a specified price over a specified period of short duration;

(2) No cancellation notice is required to terminate the sales

agreement; and

(3) There is no obligation or implied intent to continue to sell in

subsequent periods.

Transportation allowance means a deduction in determining royalty

value for the reasonable, actual costs of moving oil to a point of sale

or delivery off the lease, unit area, or communitized area. The

transportation allowance does not include gathering costs.

Sec. 206.102 How do I calculate royalty value for oil?

This section explains how lessees and designees must calculate the

value of oil production for royalty purposes. The value of oil produced

from leases subject to this subpart is the value calculated under this

section less applicable allowances determined under this subpart.

(a) How do I value oil sold under an arm's-length sales contract?

If you have an arm's-length contract for the sale of your oil, the

value is the gross proceeds accruing to you.

(1) Paragraphs (a)(2), (a)(3), (a)(4), (a)(5) and (a)(6) of this

section contain exceptions to this section.

(2) The royalty value you report is subject to MMS' monitoring,

review, and audit. MMS may examine whether your oil sales contract

reflects the total consideration actually transferred either directly

or indirectly from the buyer to you. If it does not, then MMS may

require that you value the oil sold under that contract under paragraph

(c)(2) of this section or the total consideration, whichever is

greater.

(3)(i) MMS will provide you an opportunity to submit written

information justifying the royalty value, if MMS determines that the

value under this paragraph (a) does not reflect the reasonable value of

the production due to either:

(A) Misconduct by or between you and the other contracting party;

or

(B) Breach of your duty to market the oil for the mutual benefit of

yourself and the lessor.

(ii) If you cannot justify the value to MMS' satisfaction, MMS will

require that you value the oil under paragraph (c)(2) of this section.

(4) You may not use this paragraph (a) to value oil disposed of

under an exchange agreement or for production that is subject to crude

oil calls. Use paragraph (c)(2) of this section to value this oil

production.

[[Page 3753]]

(5) Your gross proceeds include payments made to reduce or buy down

the purchase price of oil to be produced in later periods. You must

allocate such payments over the production whose price the payment

reduces and account for the payment as proceeds for the production as

it occurs.

(6) Even if you have an arm's-length contract for the sale of your

oil, you must value your oil under paragraph (c)(2) of this section

instead of this paragraph if you or any of your affiliates purchased

crude oil from an unaffiliated third party in the United States in the

2-year period preceding the production month.

(b) What else must I do if I value oil under an arm's-length sales

contract? (1) You must be able to demonstrate that your contract is an

arm's-length sales contract.

(2) MMS may require you to certify that your arm's-length contract

provisions include all of the consideration the buyer must pay, either

directly or indirectly, for the oil.

(3) You must base value on the highest price you can receive

through legally enforceable claims under your contract. If you fail to

take proper or timely action to receive prices or benefits you are

entitled to, you must pay royalty at a value based upon that obtainable

price or benefit. If you make timely application for a price increase

or benefit allowed under your contract but the purchaser refuses, and

you take reasonable documented measures to force purchaser compliance,

you will owe no additional royalties unless or until you receive monies

or consideration resulting from the price increase or additional

benefits. This paragraph (b) will not permit you to avoid your royalty

payment obligation where a purchaser fails to pay, pays only in part,

or pays late. Any contract revisions or amendments that reduce prices

or benefits to which you are entitled must be in writing and signed by

all parties to your arm's-length contract.

(c) How do I value oil not sold under an arm's-length sales

contract? This paragraph (c) explains how to value oil not sold under

an arm's-length sales contract, or any other oil production you may not

value under paragraph (a) of this section. Use the first of paragraphs

(c)(1), (c)(2), or (c)(3) of this section that applies to you:

(1) If you sell or transfer your oil production to an affiliate and

either that affiliate or another affiliate disposes of the oil under an

arm's-length sales contract, value is either:

(i) The gross proceeds accruing to your affiliate under its arm's-

length sales contract using the same rules as paragraph (a) of this

section; or

(ii) The value according to paragraph (c)(2) of this section. If

you elect to use this paragraph (c)(1)(ii) to value your oil, you must

make the same election to value all oil that is produced from all your

leases and is subject to this paragraph (c)(1). You may not use

paragraph (c)(1)(i) of this section for some leases and this paragraph

(c)(1)(ii) for other leases. However, you may change your election on

January 1 the second year after the effective date of the final rule

and January 1 every 2 years after that.

(2) If neither you nor your affiliate disposes of the oil under an

arm's-length sales contract, use this paragraph (c)(2) to value the

oil:

(i) For production from leases not in California or Alaska, value

is the average of the daily NYMEX futures settle prices (Cushing,

Oklahoma) for the Domestic Sweet crude oil contract for the prompt

month. The prompt month is the earliest month for which futures are

traded on the first day of the month of production. You must adjust the

NYMEX prices for applicable location and quality differentials and you

may adjust it for transportation costs under Sec. 206.105(c) of this

subpart.

(ii) For production from leases in California or Alaska, value is

the average of the daily mean Alaska North Slope (ANS) spot prices for

the month of production published in an MMS-approved publication (see

paragraph (c)(4) of this section). You must adjust the spot prices for

applicable location and quality differentials and you may adjust it for

transportation costs under Sec. 206.105(c) of this subpart.

(3) MMS will monitor the index prices in paragraph (c)(2) of this

section. If MMS determines that NYMEX or ANS spot prices are

unavailable or no longer represent reasonable royalty value, MMS will,

by rule, amend paragraph (c)(2) of this section to establish a

substitute valuation method.

(4) MMS periodically will publish in the Federal Register a list of

acceptable publications based on certain criteria, including but not

limited to:

(i) Publications buyers and sellers frequently use;

(ii) Publications frequently mentioned in purchase or sales

contracts;

(iii) Publications which use adequate survey techniques, including

development of spot price estimates based on daily surveys of buyers

and sellers of ANS crude oil; or

(iv) Publications independent from MMS, other lessors, and lessees.

(5) Any publication may petition MMS to be added to the list of

acceptable publications.

(6) MMS will reference the tables you must use in the publications

to determine the associated index prices.

(d) What else must I do if I value oil under paragraph (c) of this

section? If you determine the value of your oil production under

paragraph (c) of this section, you must retain all data relevant to the

determination of royalty value. Recordkeeping requirements are found at

30 CFR 207.5. MMS may review and audit such data, and MMS will direct

you to use a different value if it determines that the reported value

is inconsistent with the requirements of this section.

(e) What other general responsibilities do I have under this

section? (1) You must place oil in marketable condition and market the

oil for the mutual benefit of the lessee and the lessor at no cost to

the Federal Government unless otherwise provided in the lease agreement

or this section. If you establish value under this section as your

gross proceeds, then you must increase value to the extent your gross

proceeds are reduced because the purchaser, or any other person,

provides certain services you normally would be responsible to perform

to place the oil in marketable condition or to market the oil.

(2) If MMS determines that you have not properly determined value,

you must pay the difference, if any, between the royalty payments you

made and those that are due based upon the value MMS establishes. You

must also pay interest on the difference computed under 30 CFR 218.54.

If you are entitled to a credit, MMS will provide instructions for

taking that credit.

(f) May I ask MMS to determine value? You may ask MMS to determine

value. Propose a value determination method to MMS and use that value

for royalty payments until MMS issues a value determination. You must

submit all available data relevant to your proposal. MMS will promptly

determine the proper procedure based upon your proposal and any

additional information MMS deems necessary. In making a value

determination, MMS may use any of the valuation criteria this subpart

authorizes. In its determination letter, MMS will tell you the period

for which the determination applies. After MMS issues its

determination, you must make any needed adjustments under paragraph

(e)(2) of this section.

(g) How do value redeterminations relate to audit periods? No

review, reconciliation, monitoring, or other like process that results

in MMS

[[Page 3754]]

redetermining your oil royalty value will be considered final or

binding on the Federal Government until MMS formally closes the audit

period. However, if MMS directs you to compute royalties in a manner

inconsistent with applicable lease terms or regulations, closing of the

audit period does not forclose MMS from correcting the error and

collecting any royalties due.

(h) Does MMS protect information I provide? Certain information you

submit to MMS to support valuation proposals, including transportation

allowances, is exempt from disclosure under Federal law. MMS will keep

confidential, under applicable laws and regulations, any data you

submit that is privileged, confidential, or otherwise exempt. All

requests for information about determinations made under this part must

be submitted under the Freedom of Information Act regulation of the

Department of the Interior, 43 CFR part 2.

3. Section 206.104 is revised to read as follows:

Sec. 206.104 Transportation allowances and other adjustments--general.

(a) What transportation allowances are permitted when I value

production based on my gross proceeds? Where you value oil under

Sec. 206.102 of this subpart based on gross proceeds from a sale at a

point off the lease, unit, or communitized area, and the movement of

the oil is not gathering, MMS will allow a deduction for your

reasonable, actual costs to:

(1) Transport oil from an onshore lease to the point off the lease

under Sec. 206.105 (a) or (b), as applicable. However, for onshore

leases, you may not take a transportation allowance for transporting

oil taken as Royalty-In-Kind (RIK); or

(2) Transport oil from an offshore lease to the point off the lease

under Sec. 206.105 (a) or (b), as applicable. For oil taken as RIK, you

may take a transportation allowance for your reasonable, actual costs

to transport that oil to the delivery point specified in the contract

between the RIK oil purchaser and the Federal Government.

(b) What transportation allowances and other adjustments apply when

I value production based on index pricing? If you value oil under

Sec. 206.102(c)(2) of this subpart, MMS will allow a deduction for

certain costs associated with transporting oil as provided under

Sec. 206.105(c).

(c) Are there limits on my transportation allowance? (1) Except as

provided in paragraph (c)(2) of this section, your transportation

allowance deduction may not exceed 50 percent of the value of the oil

at the point of sale or aggregation point, as applicable, as determined

under Sec. 206.102 of this subpart. You may not use transportation

costs incurred to move a particular volume of production to reduce

royalties owed on production on which those costs were not incurred.

(2) You may ask MMS to approve a transportation allowance deduction

in excess of the limitation in paragraph (c)(1) of this section. You

must demonstrate that the transportation costs incurred were

reasonable, actual, and necessary. Your application for exception

(using Form MMS-4393-Request to Exceed Regulatory Allowance Limitation)

must contain all relevant and supporting documentation necessary for

MMS to make a determination. You may never reduce the royalty value of

any production to zero.

(d) Must I allocate transportation costs? You must allocate

transportation costs among all products produced and transported as

provided in Sec. 206.105 of this subpart. You must express

transportation allowances for oil as dollars per barrel.

(e) What additional payments may I be liable for? If MMS determines

that you underpaid royalties because you took an excessive

transportation allowance, then you must pay any additional royalties,

plus interest under 30 CFR 218.54. You also could be entitled to a

credit with interest if you understated your transportation allowance.

If you take a deduction for transportation on Form MMS-2014 by

improperly netting the allowance against the sales value of the oil

instead of reporting the allowance as a separate line item, MMS may

assess you an amount under Sec. 206.105(d) of this subpart.

4. Section 206.105 is amended by revising the section heading,

removing paragraph (b)(5), by redesignating paragraphs (c) through (g)

as paragraphs (d) through (h), adding a new paragraph (c), and by

revising newly redesignated paragraphs (d)(3) and (g) to read as

follows:

Sec. 206.105 Determination of transportation allowances and other

adjustments.

* * * * *

(c) What adjustments and transportation allowance apply when I use

index pricing? (1) When you use index pricing to calculate the value of

production, under Sec. 206.102(c)(2), you must adjust the index price

for the reasonable location/quality differentials (mandatory) and

transportation costs (optional) to reflect value differences between

the lease and the index pricing point. The adjustments and

transportation allowances that might apply to your production are

listed in paragraphs (c)(1)(i) through (v) of this section. See

paragraphs (c)(2) through (c)(3) of this section to determine which

adjustments and transportation allowances you must use based on how you

dispose of your production and where your leases are located. These

adjustments and transportation allowances are:

(i) A location differential to reflect the difference in value of

crude oils at the index pricing point and the appropriate market

center. For any production month, the location differential is the

difference between the average spot prices for that month for the

respective crude oils at the index pricing point and at the market

center. Use MMS-approved publications to determine average spot prices.

(ii) An express location/quality differential under your arm's-

length exchange agreement that reflects the difference in value of

crude oil at the aggregation point and the market center.

(iii) A location/quality differential that MMS will publish

annually based on data MMS collects on Form MMS-4415. MMS will

calculate that differential using a volume-weighted average of the

differentials reported on Form MMS-4415 for the previous reporting

year. MMS may publish separate rates for various crude oil qualities

that are identified separately on Form MMS-4415 (e.g. sweet vs. sour or

gravity ranges). MMS will publish differentials that reflect both a

location differential based on the market center/aggregation point

pairs and a quality differential based on the type of crude oil. MMS

will publish these differentials in the Federal Register by the

effective date of the final regulation and by January 31 of all

subsequent years. You must use MMS-published rates on a calendar year

basis--apply them to January through December production reported

February through the following January.

(iv) Actual transportation costs from the aggregation point to the

lease determined under this section.

(v) Actual transportation costs from the market center to the lease

determined under this section.

(2) If your lease is not located in California or Alaska, use the

applicable paragraph of paragraphs (c)(2)(i) through (iv) of this

section to determine which adjustments and transportation allowances

apply to your production:

(i) If you dispose of your production under an arm's-length

exchange agreement and that exchange agreement

[[Page 3755]]

has an express location differential to reflect the difference in value

between the aggregation point for your lease and the associated market

center, use paragraphs (c)(1)(i), (ii), and (iv) of this section to

determine your adjustments and transportation allowance.

(ii) If you do not move lease production through a MMS-identified

aggregation point to a MMS-identified market center, but move it

directly to an alternate disposal point (for example, your own

refinery), use paragraphs (c)(1) (i) and (iv) of this section. In this

situation, the market center for purposes of paragraph (c)(1)(i) of

this section is MMS-identified market center nearest the lease where

there is a published spot price for crude oil of like quality to your

oil. You must use the spot price for the like-quality oil. The

aggregation point for purposes of paragraph (c)(1)(iv) of this section

is the alternate disposal point.

(iii) If you move your oil directly to a MMS-identified market

center index pricing point, deduct the actual transportation costs to

that market center under (c)(1)(v) of this section.

(iv) In all other situations, use paragraphs (c)(1) (i), (iii), and

(iv) of this section.

(3) If your lease is located in California or Alaska, the index

pricing point (Los Angeles or San Francisco) is the same as the market

center. Use the applicable paragraphs of paragraphs (c)(3) (i) through

(iv) of this section to determine which adjustments and transportation

allowances apply to your production.

(i) If you dispose of your production under an arm's-length

exchange agreement and that agreement has an express location

differential to reflect the difference in value between the aggregation

point for your lease and the associated market center, use paragraphs

(c)(1) (ii) and (iv) of this section to determine your adjustments and

transportation allowances.

(ii) If you do not move lease production through a MMS-identified

aggregation point to a MMS-identified market center, but move it

directly to an alternate disposal point (for example, your own

refinery), use paragraph (c)(1)(iv) of this section. For purposes of

paragraph (c)(1)(iv) of this section only, the aggregation point is the

alternate disposal point. In addition, use a location/quality

differential calculated as the difference between the average of the

published spot price for the production month in a MMS-approved

publication at the aggregation point nearest the lease for which spot

prices for like-quality crude oil are published and the published spot

prices for ANS crude oil at the associated market center/index pricing

point.

(iii) If you move your oil directly to a MMS-identified market

center, deduct the actual transportation costs to that market center

under paragraph (c)(1)(v) of this section.

(iv) In all other situations, use paragraphs (c)(1) (iii) and (iv)

of this section.

(4) If an MMS-calculated differential under paragraph (c)(1)(iii)

of this section does not apply to your oil, either due to location or

quality differences, you must request MMS to calculate a differential

for you.

(i) After MMS publishes its annual listing of location/quality

differentials, you must file your request in writing with MMS for an

MMS-calculated differential.

(ii) You must provide clear evidence demonstrating why the

published differential does not adequately reflect your circumstances.

(iii) If you do not file a request for an MMS-calculated

differential within 30 days after MMS publishes its annual listing of

location differentials, MMS will calculate such a differential when it

receives your request or when it discovers that the MMS-calculated

differential under paragraph (c)(1)(iii) of this section does not apply

to your oil. MMS will bill you for any additional royalties and

interest due. MMS will not refund any overpayments you made due to your

failure to timely request MMS to calculate a differential for you.

(iv) File your request at the following address: Minerals

Management Service, Royalty Management Program, Valuation and Standards

Division, P.O. Box 25165, Mail Stop 3150, Denver, CO 80225-0165.

(5) For the differentials referenced in paragraphs (c)(1)(i) and

(c)(3)(ii) of this section, periodically MMS will publish in the

Federal Register a list of acceptable publications. MMS' acceptance

decision will be based on criteria which include but are not limited

to:

(i) Publications buyers and sellers frequently use;

(ii) Publications frequently mentioned in purchase or sales

contracts;

(iii) Publications which use adequate survey techniques, including

development of spot price estimates based on daily surveys of buyers

and sellers of crude oil; or

(iv) Publications independent from MMS, other lessors, and lessees.

(6) Any publication may petition MMS to be added to the list of

acceptable publications.

(7) MMS will specify the tables you must use in the publications to

determine the associated location differentials.

(8) Periodically, MMS will publish in the Federal Register a list

of aggregation points and the associated market centers. MMS will

monitor market activity and, if necessary, add to or modify the list of

market centers and aggregation points and will publish such

modifications in the Federal Register. MMS will consider the following

factors and conditions in specifying market centers and aggregation

points:

(i) Points where MMS-approved publications publish prices useful

for index purposes;

(ii) Markets served;

(iii) Pipeline and other transportation linkage;

(iv) Input from industry and others knowledgeable in crude oil

marketing and transportation;

(v) Simplification; and

(vi) Other relevant matters.

(d) Reporting requirements--(1) Arm's-length contracts.

* * * * *

(3) What information must I provide to support index pricing

adjustments, and how are they used? You must submit information on Form

MMS-4415 related to all your and your affiliates' crude oil production,

and not just information related to Federal lease production. All

Federal lessees (or their affiliates, as appropriate) must initially

submit Form MMS-4415 no later than 2 months after the effective date of

this reporting requirement, and then by October 31 of the year this

regulation takes effect and by October 31 of each succeeding year.

* * * * *

(g) Actual or theoretical losses. Notwithstanding any other

provision of this subpart, for other than arm's-length contracts, no

cost shall be allowed for oil transportation which results from

payments (either volumetric or for value) for actual or theoretical

losses.

* * * * *

PART 208--SALE OF FEDERAL ROYALTY OIL

5. The authority citation for Part 208 is revised to read as

follows:

Authority: 5 U.S.C. 301 et seq.; 30 U.S.C. 181 et seq., 351 et

seq., 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq., 1331 et

seq., and 1801 et seq.

6. Section 208.4(b)(2) is revised to read as follows:

Sec. 208.4 Royalty oil sales to eligible refiners.

* * * * *

(b) * * *

[[Page 3756]]

(2) Effective with sales of royalty oil for the first full

production month after the effective date of this rule, the sales price

of all royalty oil from onshore and OCS leases will be the value

determined under 30 CFR 206.102 (c)(2), regardless of whether oil

produced from the lease is or would be valued for royalty purposes on

that basis. MMS will calculate and provide that value to the buyer. For

royalty oil from OCS leases only, the price will include associated

transportation costs to the designated delivery point, if applicable.

* * * * *

Note: The following Appendices will not appear in the Code of

Federal Regulations.

BILLING CODE 4310-MR-P

[[Page 3757]]

[GRAPHIC] [TIFF OMITTED] TP24JA97.000

BILLING CODE 4310-MR-C

[[Page 3758]]

Instructions for Completing Form MMS-4415 Oil Location Differential

Report

This form's purpose is to collect value differential data for

exchanged oil, whether the exchange takes place at the lease or

downstream of the lease. These differentials may be related to

quality, volume, or location. MMS will use this information to value

Federal oil--see 30 CFR 206.105(d)(3). For each contract where oil

is exchanged between non-affiliated parties, fill out the requested

information on a separate Form MMS-4415. Attach additional sheets if

necessary. Do not include production subject to call rights where

another party has the right to purchase oil at some redefined price

basis or to match other purchase offers.

Company (Payor) Information

Fill out your company name (whether lessee or affiliate),

address, and zip code. If additional forms are needed to provide the

required information, the address may be omitted from subsequent

forms provided that the cover form containing the address is

attached.

Write in your MMS payor code on each form submitted.

Write in the reporting period this form covers.

1. Contract Party Name: Write the name of the party you

contracted with to transfer your oil. If that party has an MMS payor

code, write it in the space provided (if known).

2. Contract Type: Check the appropriate box to indicate the

contract type. [Buy/Sell is an exchange where monetary value is

assigned to settle both transactions in the exchange. Non-Cash

Exchange is a transaction where no monetary value is assigned to

either transaction in the exchange; instead, a dollar amount is

assigned to the difference between the two values. Sales Subject to

Balancing are transactions tied to an overall exchange agreement

(either expressed or implied) where volumes purchased and sold by

each party are in balance.] Also, fill in the Contract Number that

would allow a third party to clearly identify the document.

3. Contract Term: Fill in the date the contract started and its

initial term in months. Check the expiration term that applies.

4. Title Transfer Location: Check the appropriate box to

indicate where you transferred title to your oil and where you took

title to oil you received under the exchange. If title transferred

at an MMS lease, write in the 10-digit MMS lease number. If the

contract applies to production from multiple Federal leases, attach

a separate sheet identifying them. Otherwise, check the appropriate

box and enter the location that title transferred.

Fill in the cost ($/barrel) of transporting oil you produced

from the production location to the point where title transfers. If

the contract so specifies (or this information is known to you) fill

in this information for oil you receive or sell. Describe the terms

(i.e. starting location, ending location) involved in the

transportation of the oil. Use MMS aggregation points (if available)

or State, Section/Township/Range if not an MMS aggregation point.

Where oil traverses more than one aggregation point be sure to

include all segments of the transportation route. Do not include the

cost of gathering. Attach a separate sheet, if needed, to adequately

describe the transportation.

5. Volume Terms: Fill in the volume in barrels per day of oil

sold or transferred. If the contract states that all available oil

will be purchased, write in the estimated barrels per day of oil

(sold/received). Otherwise, write in the fixed volume (sold/

received) specified in the contract.

6. Crude Quality: Fill in the API Gravity of the oil you sold

and the oil you received to the nearest tenth of a degree. Fill in

the Sulfur Content of the oil you sold or transferred to the nearest

tenth of a percent.

7. Pricing Terms:

Posted Price Basis: If the contract references a posted price,

write in the name(s) of the company or companies posting(s) and the

crude oil referenced in the posting(s). List any premium (+) or

deduction (-) to the referenced price(s).

Formula Price: If the contract uses a formula to determine

price, completely describe the method used.

Fixed Price: If the price is set through the duration of the

contract, list the price per barrel.

Other: Fully describe the method used if it is not covered under

any of the above pricing provisions.

8. Quality Adjustments:

API Gravity: Check the appropriate box. If the gravity is

deemed, write the deemed API gravity to the nearest tenth of a

degree and any corresponding price adjustment from the contract. If

an actual reference gravity is used to make an adjustment, write the

gravity to the nearest tenth of a degree and the corresponding price

adjustment from the contract.

Sulfur or Other Adjustment: Write any other adjustment(s)

specified in the contract and the $/barrel adjustment(s).

The Paperwork Reduction Act of 1995 requires us to inform you of

the following: (a) this information is being collected to aid the

Minerals Management Service in its efforts at determining a fair

value of oil for royalty calculation purposes from which location

differentials can be calculated and published for lessees' use in

reporting loyalties; (b) the burden to complete this report is

estimated at one-quarter hour; (c) comments on the accuracy of this

burden estimate or suggestions on reducing this burden should be

directed to the ICCO, MS 2053, MMS, 381 Elden Street, Herndon, VA

20170-4817; (d) this collection of information is mandatory and

responses are considered proprietary (5 U.S.C. 552); and (e) an

agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information unless it displays a

currently valid OMB control number.

Appendix B to Preamble of Oil Valuation Rule

NYMEX Index Price Basis,

Non-California Oil Production,

September 1996 Production and Sale.

------------------------------------------------------------------------

NYMEX

NYMEX trade date NYMEX delivery daily

(Prompt) month close

------------------------------------------------------------------------

Aug-21-96............................ Oct. 1996............. $21.72

Aug-22-96............................ Oct. 1996............. 22.30

Aug-23-96............................ Oct. 1996............. 21.96

Aug-26-96............................ Oct. 1996............. 21.62

Aug-27-96............................ Oct. 1996............. 21.56

Aug-28-96............................ Oct. 1996............. 21.71

Aug-29-96............................ Oct. 1996............. 22.15

Aug-30-96............................ Oct. 1996............. 22.25

Sept-03-96........................... Oct. 1996............. 23.40

Sept-04-96........................... Oct. 1996............. 23.24

Sept-05-96........................... Oct. 1996............. 23.44

Sept-06-96........................... Oct. 1996............. 23.85

Sept-09-96........................... Oct. 1996............. 23.73

Sept-10-96........................... Oct. 1996............. 24.12

Sept-11-96........................... Oct. 1996............. 24.75

Sept-12-96........................... Oct. 1996............. 25.00

Sept-13-96........................... Oct. 1996............. 24.51

Sept-16-96........................... Oct. 1996............. 23.19

Sept-17-96........................... Oct. 1996............. 23.31

Sept-18-96........................... Oct. 1996............. 23.89

Sept-19-96........................... Oct. 1996............. 23.54

Sept-20-96........................... Oct. 1996............. 23.63

------------------------------------------------------------------------

NYMEX Average Price for September 1996 Prod.--$23.13.

Appendix C to Preamble of Oil Valuation Rule

ANS Spot Index Price Basis, California Oil Production, September

1996 Production and Sale.

------------------------------------------------------------------------

Final ANS

ANS spot delivery spot

ANS spot trade date month assess.

(mean)

------------------------------------------------------------------------

Aug-26-96............................ Oct. 1996............. $19.55

Aug-27-96............................ Oct. 1996............. 19.49

Aug-28-96............................ Oct. 1996............. 19.68

Aug-29-96............................ Oct. 1996............. 20.16

Aug-30-96............................ Oct. 1996............. 20.23

Sept-03-96........................... Oct. 1996............. 21.43

Sept-04-96........................... Oct. 1996............. 21.19

Sept-05-96........................... Oct. 1996............. 21.39

Sept-06-96........................... Oct. 1996............. 21.70

Sept-09-96........................... Oct. 1996............. 21.57

Sept-10-96........................... Oct. 1996............. 21.95

Sept-11-96........................... Oct. 1996............. 22.45

Sept-12-96........................... Oct. 1996............. 22.88

Sept-13-96........................... Oct. 1996............. 22.21

Sept-16-96........................... Oct. 1996............. 20.85

Sept-17-96........................... Oct. 1996............. 20.99

Sept-18-96........................... Oct. 1996............. 21.54

Sept-19-96........................... Oct. 1996............. 21.24

Sept-20-96........................... Oct. 1996............. 21.42

Sept-23-96........................... Oct. 1996............. 21.55

Sept-24-96........................... Oct. 1996............. 21.81

Sept-25-96........................... Oct. 1996............. 22.16

------------------------------------------------------------------------

ANS Average Spot Price for September 1996 Prod.--$21.25.

Appendix D to Preamble of Oil Valuation Rule

WTI Spot Price, Market Center: Cushing, OK, September 1996

Production and Sale.

[[Page 3759]]

------------------------------------------------------------------------

Final

cushing

Cushing WTI spot trade date Cushing WTI spot WTI spot

delivery month assess.

(mean)

------------------------------------------------------------------------

Aug-26-96............................ Oct. 1996............. $21.60

Aug-27-96............................ Oct. 1996............. 21.54

Aug-28-96............................ Oct. 1996............. 21.73

Aug-29-96............................ Oct. 1996............. 22.21

Aug-30-96............................ Oct. 1996............. 22.28

Sept-03-96........................... Oct. 1996............. 23.48

Sept-04-96........................... Oct. 1996............. 23.24

Sept-05-96........................... Oct. 1996............. 23.44

Sept-06-96........................... Oct. 1996............. 23.85

Sept-09-96........................... Oct. 1996............. 23.72

Sept-10-96........................... Oct. 1996............. 24.10

Sept-11-96........................... Oct. 1996............. 24.70

Sept-12-96........................... Oct. 1996............. 25.15

Sept-13-96........................... Oct. 1996............. 24.51

Sept-16-96........................... Oct. 1996............. 23.15

Sept-17-96........................... Oct. 1996............. 23.29

Sept-18-96........................... Oct. 1996............. 23.84

Sept-19-96........................... Oct. 1996............. 23.54

Sept-20-96........................... Oct. 1996............. 23.72

Sept-23-96........................... Oct. 1996............. 23.85

Sept-24-96........................... Oct. 1996............. 24.50

Sept-25-96........................... Oct. 1996............. 24.71

------------------------------------------------------------------------

Cushing WTI Avg Spot Price for September 1996--$23.46.

Appendix E to Preamble of Oil Valuation Rule

Light Louisiana Sweet (LLS) Spot Price, Market Center: St.

James, LA, September 1996 Production and Sale.

------------------------------------------------------------------------

Final LLS

LLS spot delivery spot

LLS spot trade date month assess.

(mean)

------------------------------------------------------------------------

Aug-26-96............................ Oct. 1996............. $21.88

Aug-27-96............................ Oct. 1996............. 21.84

Aug-28-96............................ Oct. 1996............. 22.01

Aug-29-96............................ Oct. 1996............. 22.51

Aug-30-96............................ Oct. 1996............. 22.57

Sept-03-96........................... Oct. 1996............. 23.82

Sept-04-96........................... Oct. 1996............. 23.55

Sept-05-96........................... Oct. 1996............. 23.79

Sept-06-96........................... Oct. 1996............. 24.22

Sept-09-96........................... Oct. 1996............. 24.10

Sept-10-96........................... Oct. 1996............. 24.47

Sept-11-96........................... Oct. 1996............. 25.06

Sept-12-96........................... Oct. 1996............. 25.48

Sept-13-96........................... Oct. 1996............. 24.82

Sept-16-96........................... Oct. 1996............. 23.42

Sept-17-96........................... Oct. 1996............. 23.57

Sept-18-96........................... Oct. 1996............. 24.06

Sept-19-96........................... Oct. 1996............. 23.50

Sept-20-96........................... Oct. 1996............. 23.67

Sept-23-96........................... Oct. 1996............. 23.66

Sept-24-96........................... Oct. 1996............. 24.29

Sept-25-96........................... Oct. 1996............. 24.61

------------------------------------------------------------------------

St. James LLS Avg Spot Price for September 1996--$23.68.

Appendix F to Preamble of Oil Valuation Rule

NYMEX-based Oil Royalty Computation, Non-California Oil

Production, OCS-Louisiana, Market Center: St. James, LA, September

1996 Production and Sale.

NYMEX Average Close Price.................... $23.13

Cushing/Market Center Location Differential:

WTI Cushing Average Spot Price........... $23.46

St. James Average Spot Price............. 23.68

St. James over (under) WTI Cushing....... .22

Market Center/Aggregation Point Location and

Quality Differential (Exchange Agreement):

Transportation and Quality Differential

from OCS Aggregation Point to St. James. (.40)

Transportation Allowance:

Transportation costs from OCS lease to

Aggregation Point....................... (.90)

Royalty Value per barrel................. 22.05

Appendix G to Preamble of Oil Valuation Rule

ANS-based Oil Royalty Computation, California Oil Production,

Onshore California: Midway-Sunset, Market Center: Los Angeles, CA,

September 1996 Production and Sale.

ANS Average Spot Price.................................... $21.25

ANS/Aggregation Point Location and Quality Differential

(Exchange Agreement):

Transportation and Quality Differential from Onshore

Aggregation Point--Midway-Sunset to Los Angeles...... (4.78)

Transportation Allowance:

Transportation costs from CA lease to Aggregation

Point--Midway-Sunset................................. (.20)

Royalty Value per barrel.............................. 16.27

Appendix H to Preamble of Oil Valuation Rule

------------------------------------------------------------------------

County/Offshore

State Station location location

------------------------------------------------------------------------

AL..................... Marion Corp. Connection Mobile.

AL..................... Mobile................. Mobile.

AL..................... Saraland Terminal...... Mobile.

AL..................... Ten Mile Point Terminal Mobile.

CA..................... Coalinga............... Fresno.

CA..................... Belridge............... Kern.

CA..................... Fellows................ Kern.

CA..................... Kelley................. Kern.

CA..................... Leutholtz Jct.......... Kern.

CA..................... Pentland............... Kern.

CA..................... Midway................. Kern.

CA..................... Station 36-Kern River.. Kern.

CA..................... Newhall................ Los Angeles.

CA..................... Sunset................. Los Angeles.

CA..................... Cadiz.................. San Bernadino.

CA..................... Avila.................. San Luis Obispo.

CA..................... Gaviota Terminal....... Santa Barbara.

CA..................... Lompoc................. Santa Barbara.

[[Page 3760]]

CA..................... Sisquoc Jct............ Santa Barbara.

CA..................... Filmore................ Ventura.

CA..................... Rincon................. Ventura.

CA..................... Ventura................ Ventura.

CA..................... Junction............... (County Unknown).

CA..................... Lake................... (County Unknown).

CA..................... Rio Bravo.............. (County Unknown).

CA..................... Santa Paula............ (County Unknown).

CA..................... Signa.................. (County Unknown).

CA..................... Stewart................ (County Unknown).

CO..................... Denver................. Adams.

CO..................... Cheyenne Wells Station. Cheyenne.

CO..................... Iles................... (County Unknown).

CO..................... Sterling............... Logan.

CO..................... Fruita................. Mesa.

CO..................... Rangley................ Rio Blanca.

KS..................... Humbolt-Williams P.L... Allen.

KS..................... Augusta................ Butler.

KS..................... Eldorado............... Butler.

KS..................... Harper's Ranch......... Clark.

KS..................... Arkansas City.......... Cowley.

KS..................... McPherson Sta.......... McPherson.

KS..................... Caney.................. Montgomery.

KS..................... Laton Sta.............. Osborne.

KS..................... Herndon Station........ Rawlings.

KS..................... Rawlings Sta........... Rice.

KS..................... Lyons Station.......... Sedgwick.

KS..................... Valley Center.......... Thomas.

KS..................... Bemis St............... (County Unknown).

KS..................... Broome St.............. (County Unknown).

KS..................... Towlanda............... (County Unknown).

LA..................... Brown Sta.............. Caddo.

LA..................... Clifton Ridge.......... Calcasieu.

LA..................... Conoco Jct............. Calcasieu.

LA..................... Lake Charles........... Calcasieu.

LA..................... Pecan Grove............ Calcasieu.

LA..................... Rose Bluff............. Calcasieu.

LA..................... Texaco Jct............. Calcasieu.

LA..................... Grand Chenier Term..... Cameron.

LA..................... Hainesville Sta........ Claiborne.

LA..................... Maryland............... East Baton Rouge.

LA..................... Bayou Fifi............. Jefferson.

LA..................... Grand Isle............. Jefferson.

LA..................... Bay Marchand Term...... Lafourche.

LA..................... Bayou Fourchon......... Lafourche.

LA..................... Clovelly............... Lafourche.

LA..................... Clovelly Storage Dome.. Lafourche.

LA..................... Elmers Jct............. Lafourche.

LA..................... Fourchon Terminal...... Lafourche.

LA..................... Golden Meadow.......... Lafourche.

LA..................... Larose Barge Terminal.. Lafourche.

LA..................... Pass Fourchon P.L...... Lafourche.

LA..................... Blk. 28 Tie-in......... Offshore East Cameron.

LA..................... Blk. 23................ Offshore Eugene

Island.

LA..................... Blk. 51 B Platform..... Offshore Eugene

Island.

LA..................... Blk. 188 A Structure... Offshore Eugene

Island.

LA..................... Blk. 259............... Offshore Eugene

Island.

LA..................... Blk. 316............... Offshore Eugene

Island.

LA..................... Blk. 337 Subsea Tie-in. Offshore Eugene

Island.

LA..................... Blk. 361............... Offshore Eugene

Island.

LA..................... Texas P.L. Subsea Tie- Offshore Eugene

in. Island.

LA..................... Blk. 17................ Offshore Grand Isle.

LA..................... Blk. 42--Chevron P.L... Offshore Main Pass.

LA..................... Blk. 42L............... Offshore Main Pass.

LA..................... Blk. 69 B Plat......... Offshore Main Pass.

LA..................... Blk. 77 (Pompano P.L. Offshore Main Pass.

Jct.).

LA..................... Blk. 144 Structure A... Offshore Main Pass.

LA..................... Blk. 298 Plat. A....... Offshore Main Pass.

LA..................... Blk. 299 Platform...... Offshore Main Pass.

LA..................... Blk. 28................ Offshore Ship Shoal.

LA..................... Blk. 154............... Offshore Ship Shoal.

LA..................... Blk. 169............... Offshore Ship Shoal.

LA..................... Blk. 203 Subsea Tie-in. Offshore Ship Shoal.

LA..................... Blk. 208............... Offshore Ship Shoal.

[[Page 3761]]

LA..................... Blk. 208 B Structure... Offshore Ship Shoal.

LA..................... Blk. 208 F............. Offshore Ship Shoal.

LA..................... Ship Shoal Area........ Offshore Ship Shoal.

LA..................... Blk. 6................. Offshore South Marsh

Island.

LA..................... Blk. 10--Structure A... Offshore South Marsh

Island.

LA..................... Blk. 58A............... Offshore South Marsh

Island.

LA..................... Blk. 139............... Offshore South Marsh

Island.

LA..................... Blk. 139 Subsea Tap Offshore South Marsh

Valve Connect. Island.

LA..................... Blk. 207--Light House Offshore South Marsh

Point A. Island.

LA..................... Blk. 268--Platform A... Offshore South Marsh

Island.

LA..................... Blk. 55................ Offshore--South Pass.

LA..................... Blk. 13 (Wesco P.L. Offshore--South Pelto.

Subsea Tie-in).

LA..................... Blk. 35 Platform D..... Offshore--S.

Timbalier.

LA..................... Blk. 52 Plat. A........ Offshore--S.

Timbalier.

LA..................... Blk. 172 Plat. D....... Offshore--S.

Timbalier.

LA..................... Blk. 196 Exxon P.L. Offshore--S.

System Tie-in. Timbalier.

LA..................... Blk. 300............... Offshore--S.

Timbalier.

LA..................... Blk. 255............... Offshore Vermilion.

LA..................... Blk. 265 Platform A.... Offshore Vermilion.

LA..................... Blk. 350............... Offshore Vermilion.

LA..................... Blk. 30................ Offshore--West Delta.

LA..................... Blk. 53................ Offshore--West Delta.

LA..................... Blk. 53 Plat. B........ Offshore--West Delta.

LA..................... Blk. 53B--Chevron P.L.. Offshore--West Delta.

LA..................... Blk. 53B Plat. Gulf Offshore--West Delta.

Refining Co..

LA..................... Blk. 83................ Offshore--West Delta.

LA..................... Alliance Refinery...... Plaquemines.

LA..................... Empire Terminal........ Plaquemines.

LA..................... Main Pass.............. Plaquemines.

LA..................... Main Pass Blk. 69...... Plaquemines.

LA..................... Ostrica Term........... Plaquemines.

LA..................... Pelican Island......... Plaquemines.

LA..................... Pilottown.............. Plaquemines.

LA..................... Romere Pass............ Plaquemines.

LA..................... South Pass Blk. 60A.... Plaquemines.

LA..................... South Pass Blk. 27..... Plaquemines.

LA..................... Onshore facil.......... Plaquemines.

LA..................... South Pass Blk. 24..... Plaquemines.

LA..................... South Pass Blk. 24 Plaquemines.

Onshore Plat..

LA..................... Southwest Pass Sta..... Plaquemines.

LA..................... West Delta Blk. 53..... Plaquemines.

LA..................... West Delta Rec'vg Sta.-- Plaquemines.

Onshore.

LA..................... Dehli.................. Richland.

LA..................... Chalmette.............. St. Bernard.

LA..................... Norco (Shell Refinery). St. Charles.

LA..................... St. James.............. St. James.

LA..................... Bayou Sale............. St. Mary.

LA..................... Burns Term............. St. Mary.

LA..................... Charenton.............. St. Mary.

LA..................... South Bend............. St. Mary.

LA..................... Caillou Island......... Terrebonne.

LA..................... Caillou Island Fld..... Terrebonne.

LA..................... Gibson Term............ Terrebonne.

LA..................... Erath.................. Vermilion.

LA..................... Forked Island.......... Vermilion.

LA..................... Mermentau River Station Vermilion.

LA..................... Anchorage.............. West Baton Rouge.

LA..................... Grand Lake Terminal.... (County Unknown).

LA..................... Twin Island Terminal... (County Unknown).

LA..................... Lakeside Terminal...... (County Unknown).

LA..................... Bayou Penchant Terminal (County Unknown).

LA..................... Gibbstown Terminal..... (County Unknown).

LA..................... Bluewater Terminal..... (County Unknown).

LA..................... Cocodrie Terminal...... (County Unknown).

MI..................... Bay City............... Bay.

MI..................... Montcalm............... Carson City.

MI..................... Lewiston............... Crawford.

MI..................... Kalamazoo.............. Fulton Takeoff.

MI..................... Alma................... Gratiot.

MI..................... St. Clair.............. Marysville.

MI..................... Monroe................. Samaria Sta.

MI..................... Ingham................. Stockbridge.

MI..................... Detroit................ Wayne.

MI..................... Ogemaw................. West Branch.

[[Page 3762]]

MS..................... Liberty................ Amite.

MS..................... Mayersville............ Issaquena.

MS..................... Pascogoula............. Jackson.

MS..................... Soso................... Jones.

MS..................... Lumberton.............. Lamar.

MS..................... Purvis................. Lamar.

MS..................... Collierville Station... Marshall.

MT..................... Silver Tip Station..... Carbon.

MT..................... Alzada................. Carter.

MT..................... Richey Station......... Dawson.

MT..................... Baker.................. Fallon.

MT..................... Cut Bank Station....... Glacier.

MT..................... Bell Creek Station..... Powder River.

MT..................... Poplar Station......... Roosevelt.

MT..................... Billings............... Yellowstone.

MT..................... Laurel................. Yellowstone.

MT..................... Clear Lake Sta......... (County Unknown).

ND..................... Fryburg Station........ Billings.

ND..................... Tree Top Station....... Billings.

ND..................... Lignite................ Burke.

ND..................... Alexander.............. McKenzie.

ND..................... Keene.................. McKenzie.

ND..................... Killdear............... Dunn.

ND..................... Mandan................. Morton.

ND..................... Tioga.................. Ramberg.

ND..................... Ramberg................ Williams.

ND..................... Thunderbird Refinery... Williams.

ND..................... Tioga.................. Williams.

ND..................... Trenton................ Williams.

NM..................... Jal.................... Lea.

NM..................... Lovington.............. Lea.

NM..................... Ciniza................. McKinley.

NM..................... Bisti Jct.............. San Juan.

NM..................... Navajo Jct............. San Juan.

TX..................... Carson Station......... Archer.

TX..................... Holliday............... Archer.

TX..................... Fullerton.............. Andrews.

TX..................... Buccaneer Term......... Brazoria.

TX..................... Sweeney Sta............ Brazoria.

TX..................... Mont Belvieu........... Chambers.

TX..................... Crane.................. Crane.

TX..................... Ranger................. Eastland.

TX..................... Caproch Jct............ Ector.

TX..................... Odessa................. Ector.

TX..................... North Cowden........... Ector.

TX..................... Wheeler................ Ector.

TX..................... El Paso................ El Paso.

TX..................... Missouri City Jct...... Fort Bend.

TX..................... Winnsboro.............. Franklin.

TX..................... Worthham............... Freestone.

TX..................... Pearsall Sta........... Frio.

TX..................... Texas City............. Galveston.

TX..................... Roberts................ Glasscock.

TX..................... Covey Station.......... Grayson.

TX..................... Bumpus Sta............. Gregg.

TX..................... Kilgore St............. Gregg.

TX..................... Longview............... Gregg.

TX..................... Longview Mid-Valley.... Gregg.

TX..................... Sabine Sta. Amoco P.L.. Gregg.

TX..................... Mobil Jct.............. Hardin.

TX..................... Sour Lake.............. Hardin.

TX..................... Baytown................ Harris.

TX..................... Exxon Jct.............. Harris.

TX..................... Genoa Jct.............. Harris.

TX..................... Houston................ Harris.

TX..................... Pasadena............... Harris.

TX..................... Webster................ Harris.

TX..................... Hillsboro.............. Hill.

TX..................... Big Spring............. Howard.

TX..................... Phillips Hutchinson.... Howard.

TX..................... Jacksboro Sta.......... Jack.

TX..................... Beaumont............... Jefferson.

TX..................... Lucas.................. Jefferson.

TX..................... Nederland.............. Jefferson.

[[Page 3763]]

TX..................... Port Arthur............ Jefferson.

TX..................... Port Neches............ Jefferson.

TX..................... Sabine Pass............ Jefferson.

TX..................... Mexia Jct.............. Limestone.

TX..................... Midland................ Midland.

TX..................... Colorado City Station.. Mitchell.

TX..................... McKee.................. Moore.

TX..................... Corsicanna............. Navarro.

TX..................... American Petrofina..... Nueces.

TX..................... Corpus Christi......... Nueces.

TX..................... Harbor Island.......... Nueces.

TX..................... Beaver Station......... Ochiltree

TX..................... Blk. 474--Inters. Seg. Offshore--High Island.

III, III-7.

TX..................... Blk. A-571............. Offshore--High Island.

TX..................... End Segment II......... Offshore--High Island.

TX..................... End Segment III--10.... Offshore--High Island.

TX..................... End Segment III--10 Offshore--High Island.

(Blk. 547).

TX..................... End Segment III--6..... Offshore--High Island.

TX..................... Irran Sta.............. Pecos.

TX..................... Kemper................. Reagan.

TX..................... Mason Jct.............. Reeves.

TX..................... Rufugio Sta............ Rufugio.

TX..................... Midway................. San Patricio.

TX..................... Eldorado............... Scheicher.

TX..................... Basin Station.......... Scurry.

TX..................... Colorado City.......... Scurry.

TX..................... Ft. Worth.............. Tarrant.

TX..................... Merkel................. Taylor.

TX..................... Tye.................... Taylor.

TX..................... McCamey................ Upton.

TX..................... Mesa Sta............... Upton.

TX..................... Burkburnett............ Wichita.

TX..................... KMA--Total P.L......... Wichita.

TX..................... Wichita Falls.......... Wichita.

TX..................... Halley................. Winkler.

TX..................... Hendrick/Hendrick-Wink. Winkler.

TX..................... Keystone............... Winkler.

TX..................... Wink................... Winkler.

TX..................... South Bend............. Young.

TX..................... Channel View Jct....... (County Unknown).

TX..................... Clear Creek Sta........ (County Unknown).

TX..................... Oyster Lake Term....... (County Unknown).

TX..................... Queens Jct............. (County Unknown).

TX..................... Spacek Sta............. (County Unknown).

TX..................... Jolly Jct.............. (County Unknown).

TX..................... Nettleton Sta.......... (County Unknown).

TX..................... Trent Sta.............. (County Unknown).

------------------------------------------------------------------------

[FR Doc. 97-1573 Filed 1-23-97; 8:45 am]

Billing Code 4310-MR-P