Review of Existing Regulations

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Chapter II

Review of Existing Regulations

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Review of regulations; request for comment.

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SUMMARY: MMS has been performing annual reviews of its significant

regulations and asking the public to participate in these reviews since

1994. The purpose of the reviews is to identify and eliminate

regulations that are obsolete, ineffective, or burdensome. In addition,

the reviews are meant to identify essential regulations that should be

revised because they are either unclear, inefficient, or interfere with

normal market conditions. As MMS moves towards performance based

regulations, we are looking at ways to offer regulatory relief to

industry for exceptional performance. We request your comments and

suggestions with respect to which regulations could be more performance

based and less prescriptive.

The purpose of this document is twofold. First, we want to provide

the public an opportunity to comment on MMS regulations that should be

eliminated or revised, or could be more performance based. Second, we

are providing a status update of the actions MMS has taken on comments

previously received from the public in response to documents published

March 1, 1994, March 28, 1995, May 20, 1996, April 24, 1997, and June

12, 1998. We will only include in this document status updates on

comments which have not been closed or implemented in the five previous

status update documents listed above.

DATES: Written comments must be received by August 6, 1999.

ADDRESSES: Mail written comments to Department of the Interior;

Minerals Management Service; Mail Stop 4230; 1849 C Street NW;

Washington, DC 20240; Attention: Bettine Montgomery, MMS Regulatory

Coordinator, Policy and Management Improvement.

FOR FURTHER INFORMATION CONTACT: Bettine Montgomery, Policy and

Management Improvement, telephone: (202) 208-3976; Fax: (202) 208-4891;

and E-Mail: Elizabeth.M[email protected].

SUPPLEMENTARY INFORMATION: MMS began a review of its regulations in

early 1994 under the directives contained in the President's Executive

Order 12866. The Executive Order calls for periodic regulatory reviews

to ensure that all significant regulations are efficient and effective,

impose the least possible burden upon the public, and are tailored no

broader than necessary to meet the agency's objectives and Presidential

priorities.

We invited the public to participate in the regulatory review. The

invitation was sent out via different media, namely a Federal Register

document dated March 1, 1994 (59 FR 9718); MMS and independent

publications; and public speeches by MMS officials during that time.

MMS received approximately 40 public comments which were almost

equally divided between its Royalty Management and Offshore Minerals

Management Programs. We acknowledged the comments in a July 15, 1994

(59 FR 36108), document and set forth our planned actions to address

the comments, along with an estimated timetable for these actions.

In the Federal Register notices published March 28, 1995 (60 FR

15888); May 20, 1996 (61 FR 25160); April 24, 1997 (62 FR 19961); and

June 12, 1998 (63 FR 32166), MMS: (a) asked for further public comments

on its regulations, and (b) provided a status update of actions it had

taken on the major public comments received to date. We received 10

responses from the 1995 document, 5 responses from the 1996 document, 2

responses from the 1997 document, and 3 responses from the 1998

document. A number of the commentators expressed appreciation for our

streamlining efforts and responsiveness to suggestions from our

regulated customers.

This document updates our planned actions and related timetables on

the major comments received to date. It also solicits additional

comments from the public concerning regulations that should be either

eliminated or revised, or could be more performance based. Since some

of the public responses received in response to prior documents

contained comments on very specific and detailed parts of the

regulations, this document does not address every one received. For

information on any comment submitted which is not addressed in this

document, please contact Mrs. Montgomery at the number and location

stated in the forward sections of this document.

MMS regulations are found at Title 30 in the Code of Federal

Regulations. Parts 201 through 243 contain regulations applicable to

MMS's Royalty Management Program; Parts 250 through 282 are applicable

to MMS's Offshore Minerals Management; and Part 290 is applicable to

Administrative Appeals.

Status Report

The following is a status report by program area on the comments

MMS has received, to date, on its regulations.

A. Offshore Minerals Management (OMM) Program

OMM is currently reviewing the following 10 sections of OMM

regulations:

1. Regulations Governing Conservation of Resources and Diligence (30

CFR 250, Subpart A)

Comments Received--(a) ``Revise Determination of Well Producibility

to make wireline testing and/or mud logging analysis optional * * *.''

(b) ``* * * consider comments from the 11/30/95 MMS sponsored workshop

to formulate policy for granting SOP (suspension of production)

approvals based on host capacity delays, non-contiguous unitization,

and market conditions/economic viability.''

Action Taken or Planned--For (a) above, a proposed rule,

``Postlease Operations,'' revising Subpart A was published on February

13, 1998 (63 FR 7335). This revision addressed the determination of

well producibility, and the public was invited to comment on this and

all areas of the proposed rule. The comment period closed on July 17,

1998. For (b) above, MMS did consider the comments from the November

30, 1995, workshop on granting suspensions of production when preparing

the proposed rule. A final rule is being prepared for publication.

Timetable--We plan to publish the final rule by mid-summer of 1999.

2. Regulations Applicable to Directional Surveys (30 CFR 250.401,

Subpart D)

Comments Received--``Revise directional survey requirements to

allow a composite measurement-while-drilling

[[Page 30268]]

directional survey to be acceptable * * *.''

Action Taken or Planned--We are rewriting the regulations governing

Oil and Gas Drilling Operations, found in 30 CFR Part 250, Subpart D,

in plain English. During this rewrite, we are making appropriate

revisions to the regulations. Updating the requirements for directional

survey requirements is one of the revisions planned for this rewrite.

Timetable--We plan to publish a Notice of Proposed Rulemaking in

the fall of 1999.

3. Approval and Reporting Processes for Well-Completion Operations (30

CFR 250.513)

Comments Received--``* * * a recompletion operation requires that a

Well Summary Report MMS-125 be filed within 30 days. Much of this data

is repetitious of data previously submitted on the Sundry Notice MMS-

124. The process could be changed to provide only data that has

changed.''

Action Taken or Planned--We don't plan to change these reporting

requirements at this time. We're working on plans to implement

electronic reporting, which will streamline the process and increase

reporting efficiency.

Timetable--No plans to change reporting requirements.

4. Safety System Design and Installation (30 CFR 250.122)

Comments Received--``We believe that the (Safety and Environmental

Management Program) SEMP/RP 75 Performance Measure process of

alternative compliance for operators who voluntarily implement RP 75

and have ``good'' performance should allow those operators to

periodically update drawings and other documents of production safety

system installations and routine modifications instead of receiving

required MMS approval of these documents before any modifications are

performed (Comment #14 of our July 17, 1996 letter). This is one

example of the alternative compliance process that we suggest.''

Action Taken or Planned--This comment expresses an interest for

regulatory relief in exchange for ``compliance'' with API RP75. This

industry standard captures the essence of SEMP. On August 13, 1997, MMS

published a Federal Register notice on SEMP (62 FR 43345). This notice

publicly relayed our intent to continue collaborative efforts with the

U.S. offshore oil and gas industry to promote the non-regulatory (i.e.,

voluntary) adoption of SEMP; it simultaneously relayed our intent to

increasingly focus on operator performance in the field. We made this

decision after extensive review of the industry's actions to adopt

RP75. We have seen important strides made in the development of SEMP

programs by the majority of OCS operators. We have, however, still not

seen widespread implementation of these programs on offshore

installations. In the most recent SEMP notice, we asked senior company

officers to notify MMS when they had ``fully'' implemented SEMP at the

field level. In our view, ``fully'' means that an operator has

developed their SEMP plan and has implemented it at enough of their

offshore installations to commence continuous improvement efforts

(e.g., SEMP audits). At the end of April 1999, we had received such

notifications from only eight OCS operators. This fact leads us to

conclude that SEMP is not yet broadly implemented at the field level.

Therefore, any requests for regulatory relief in exchange for SEMP

implementation will need to be made to MMS on an ad hoc basis by

operators who are prepared to demonstrate, and have us verify, both the

extent of their SEMP implementation and their field-level performance.

We have begun the process of revising 30 CFR Part 250, Subpart H.

The process changes suggested will be considered internally during

preparation of the Notice of Proposed Rulemaking.

Timetable--We expect to publish for comment the Notice of Proposed

Rulemaking for a revised 30 CFR Part 250, Subpart H, at the end of

1999.

5. Regulations Applicable to Production on the Outer Continental Shelf

(30 CFR Part 250, Subpart H)

Comments Received--Production Safety System Testing and Records (30

CFR 250.124)--``OOC (Offshore Operators Committee) is very much

interested in working with MMS on a research project beginning in 1997

to consider appropriate leak rate tolerances for critical safety

devices (Comment #11 of our July 17, 1996 letter) as well as testing

frequencies of accurate and reliable new generation safety devices

(Comment #13 of our July 17, 1996 letter).''

Action Taken or Planned--MMS initiated a research project in

September 1997 with Southwest Research Institute which investigated the

question of leak rate tolerances for critical safety devices. Final

results from the study should become available to the public in June

1999. We have also initiated the rulemaking process to revise all of

Subpart H. As part of this process, we will discuss internally testing

frequencies for safety devices. Any proposed changes to testing

frequencies will appear in the Notice of Proposed Rulemaking for

Subpart H.

Timetable--We expect the Notice of Proposed Rulemaking for a

revised Subpart H to appear in the Federal Register for comment at the

end of 1999.

6. Regulations Governing Safety and Pollution Prevention Equipment

(SPPE) (30 CFR Part 250.126, Subpart H)

Comments Received--``Revise regulations governing Safety Valves to

increase time between test and allowable leakage rates.''

Action Taken or Planned--As discussed under Item No. 5, MMS

contracted with Southwest Research Institute in September 1997 to study

leakage rates for surface and subsurface safety valves.

Timetable--As noted previously, the final results of the Southwest

Research Institute Study will be made available this June. Any changes

to our regulations as a result of this study will be incorporated into

the Notice of Proposed Rulemaking for 30 CFR 250, Subpart H, projected

to be published for comment by the end of 1999.

7. Regulations Regarding Construction and Removal of Platforms and

Structures (30 CFR 250, Subpart I)

Comments Received--(a) ``Modify platform design wave return period

calculation by placing a cap of 100 years on the field life calculation

* * *.'' (b) ``Adopt API RP2A (20th edition) Section 14, Surveys, in

its entirety * * *.'' (c) ``Revise site clearance requirements * * *.''

(d) ``Revise requirements for placing protective domes over well stubs

* * *,'' etc.

Action Taken or Planned--For (a), (c), and (d) above, the

proceedings for the International Workshop on Offshore Lease

Abandonment and Platform Disposal held in April 1996 were published in

1997. We will be considering the comments we received from the

proceedings in drafting a proposed rule on decommissioning. For (b)

above, Notice to Lessees (NTL 98-4N) was issued on March 4, 1998. It

contains interim guidance for applying ``Simplified Fatigue Analysis''

Procedure from American Petroleum Institute (API) Recommended Practice

2A (RP2A), Planning, Designing, and Constructing Fixed Offshore

Platforms, Nineteenth Edition (August 1, 1991), and Twentieth Edition

(July 1, 1993), and its supplement 1 (February 1, 1997). When the

Twenty-First Edition is published, we will be reviewing it to decide

whether or not MMS will adopt it.

[[Page 30269]]

Timetable--For (a), (c), and (d) above, we plan to publish for

comment a Notice of Proposed Rulemaking on decommissioning by December

1999. For (b) above, COMPLETED.

8. Regulations Applicable to Pipelines and Pipeline Rights-of-Way (30

CFR 250, Subpart J)

Comments Received--Revise regulations to avoid duplication of

requirements between the Department of the Interior (DOI) and the

Department of Transportation (DOT). The following comments were

submitted on the proposed rule on regulating pipelines which was

published October 2, 1997 (62 FR 51614): Commentators raised concerns

about the Notice of Proposed Rulemaking involving technical issues

affecting the applicability of the rule to producer-operated pipelines.

The pipelines were either previously subject to DOT regulation under

terms of the former 1976 Memorandum of Understanding between DOI and

DOT, or cross into State waters without first connecting to a

transporting operator's pipeline on the Outer Continental Shelf as

described in the 1996 Memorandum of Understanding.

Action Taken or Planned--As stated in our previous Notice,

``Reviewing Existing Regulations'' (June 12, 1998), a Memorandum of

Understanding on the pipeline issue between DOI and DOT became

effective December 10, 1996, and was published in the Federal Register

on February 14, 1997 (62 FR 7037). Since then, we have published a

final rule on August 17, 1998 (63 FR 43876) clarifying regulatory

jurisdiction of producer-operated pipelines that connect to

transportation pipelines on the Outer Continental Shelf. We are now

proceeding with a proposed rule that will clarify and resolve the

technical issues concerning producer-operated pipelines that cross into

State waters without first connecting to transportation pipelines on

the Outer Continental Shelf.

Timetable--We plan to publish the Notice of Proposed Rulemaking

incorporating comments on the earlier proposed rule by mid-summer 1999.

9. Shallow Hazards Requirements (NTL No. 83-3)

Comments Received--`` * * * revise (Notice to Lessees) NTL No. 83-3

which relates to shallow hazards requirements. Industry has requested

that MMS allow use of navigational positioning equipment in lieu of

buoying pipelines.''

Action Taken or Planned--Notice to Lessees (NTL) No. 83-3 has been

superseded by NTL No. 98-20. In NTL No. 98-20, however, we did not

address this comment on navigational positioning equipment. We are

planning to revise NTL No. 98-20, and are in the process of developing

guidance for navigational positioning equipment technology. In the

planned revision of NTL No. 98-20, industry may still use buoying, but

if they choose not to use buoying, the NTL will require the use of

state-of-the-art navigational systems. This will assure the accuracy

and safety of anchoring operations in the vicinity of pipelines.

Timetable--Ongoing.

10. Regulations Applicable to Production Safety System Training (30 CFR

250.214, Subpart O)

Comments Received--In response to a June 10, 1997, workshop on the

development of a performance based training rule, MMS received a

variety of comments from the oil and gas industry and MMS accredited

training schools. These comments include: (a) ``Continue to implement

the current Subpart O training system.'' (b) ``Develop a dual training

system incorporating elements from both a performance based program and

MMS's current system.'' (c) ``Companies may neglect training under a

performance based system.'' (d) ``MMS should use caution when changing

from the current prescriptive training system * * *.'' (e) ``* * * use

of a written MMS test may cause employees stress that would lead to

poor performance on the exams.'' (f) ``* * * hands-on simulator testing

is an excellent and realistic means of gauging performance. * * * MMS

may not have the expertise or equipment to properly conduct simulator

tests.'' (g) ``Hands-on testing should only be conducted onshore, not

offshore.'' (h) ``How will MMS react to a company that does not train

its employees but has a good safety record * * *.'' (I) ``This may not

be the right time to move towards a performance system because of the

increase in OCS activity and the shortage of trained and experienced

workers.''

Activity Taken or Planned--On April 20, 1999, we published for

comment a proposed rule on a performance based training program which

relies on industry to design its training programs (64 FR 19318). In

this proposed rule, ``Training of Lessee and Contractor Employees

Engaged in Oil and Gas and Sulphur Operations in the Outer Continental

Shelf,'' we propose to monitor the program through tests and audits.

The comment period ends July 17, 1999. We have scheduled a public

workshop on this proposed rule in Houston on June 10, 1999 (64 FR

23029).

Timetable--We plan to publish the final rule in the spring of the

year 2000.

Overview of MMS/Offshore Minerals Management Regulatory Actions

The Offshore Minerals Management Program has scheduled an ambitious

program in the coming year for rewriting current rules into Plain

English and updating them to reflect changing conditions in the energy

industry. We want to summarize some of the highlights of this rule

rewriting effort.

Postlease Operations Safety (30 CFR 250, Subpart A)--Final

rule to be published by mid-summer of 1999. The rule includes various

interrelated topics all dealing with postlease operations.

Coastal Zone Consistency Review of Exploration Plans and

Development and Production Plans (30 CFR Parts 250 and 204)--Final rule

to be published by the end of 1999.

Leasing of Sulphur or Oil and Gas in the Outer Continental

Shelf--Bonus Payments with Bids (30 CFR Part 256)--Final rule to be

published by the fall of 1999. This rule allows MMS to require a

specific payment method for 1/5 of the bonus payment due when we hold a

sale to lease Federal offshore Outer Continental Shelf lands.

Producer-Operated Outer Continental Shelf Pipelines that

Cross Directly into State Waters (30 CFR 250)--Proposed rule to be

published by summer of 1999. This rule proposes to implement a

provision of the December 10, 1996, Memorandum of Understanding between

the Departments of the Interior and Transportation regarding Outer

Continental Shelf Pipelines.

Prospecting for Minerals Other Than Oil, Gas, and Sulphur

in the Outer Continental Shelf (30 CFR Part 280)--Proposed rule to be

published in the summer of 1999. This rule proposes to specify how to

conduct Geological and Geophysical prospecting and research for

minerals other than oil, gas, and sulphur in the Outer Continental

Shelf under a permit.

End of Life Royalty Relief for Oil and Gas Leases on the

Outer Continental Shelf (30 CFR Part 203)--Proposed rule to be

published by the end of 1999. This rule avoids continuance of royalty

relief in the presence of noticeable improvement in lease economics and

market conditions. The rule applies only to new applications and

approvals, not to existing arrangements.

Exploration and Development and Production Plans (30 CFR

Part 250 Subpart B)--Proposed rule to be published by the end of 1999.

The

[[Page 30270]]

rewrite for this proposed rule will include other plans such as Deep

Water Operations Plan, Development Operations Coordination Document,

and Conservation Information Documents.

Oil and Gas and Drilling Operations (30 CFR Part 250

Subpart D)--Proposed rule to be published by the end of 1999. This rule

proposes to restructure the requirements for oil and gas drilling

operations on the Outer Continental Shelf, remove overly prescriptive

requirements, and update requirements to reflect changes in drilling

technology.

Abandonment of Wells (30 CFR Part 250 Subpart G)--Proposed

rule to be published by the end of 1999. This proposed rule on

decommissioning platforms will consider the comments received on the

proceedings from the International Workshop on Offshore Lease

Abandonment and Platform disposal held in April 1996.

Oil and Gas Production Safety Systems (30 CFR Part 250

Subpart H)--Proposed rule to be published by the spring of the year

2000. We will write this proposed rule in Plain English and update the

requirements to reflect current practice in the offshore energy

industry.

B. Royalty Management Program (RMP)

RMP is reviewing regulations in the following 14 subject areas:

1. Statute of Limitations and Record Retention

Comments Received--(a) ``Statute of limitations is unclear.'' (b)

``Establish a reciprocal 5-year statute of limitations from the date an

obligation becomes due.'' (c) ``Absence of a record retention program

creates some confusion. Regulations should require record retention to

coincide with the 5-year statute of limitations.'' (d) ``the MMS is

changing processes, developing implementation plans, and preparing

regulatory changes,'' in doing so, the congressional intent of FOGRSFA

should be followed to provide certainty and simplicity to lessees.

Action Taken or Planned--The Federal Oil and Gas Royalty

Simplification and Fairness Act (FOGRSFA) was signed into law on August

13, 1996. FOGRSFA contains language to implement a 7-year statute of

limitations for MMS processes. We are changing processes, developing

implementation plans, and preparing regulatory changes to comply with

the requirements of FOGRSFA.

Timetable--Ongoing.

2. Interest on Overpayments

Comment received--(a) ``Interest accrual should be equitable

between the agency and industry.'' (b) ``the MMS should be mindful of

the congressional intent of simplicity and certainty in promulgating

any regulations to implement these provisions of FOGRSFA.''

Action Taken or Planned--FOGRSFA provides for the payment of

interest on overpayments for oil and gas leases on Federal lands. On

March 31, 1997, we issued a Dear Payor letter about FOGRSFA's

provisions involving interest issues. We issued another Dear Payor

letter on October 1, 1997, explaining interest calculations and

interest reporting requirements. MMS is designing system changes to

implement the requirements of FOGRSFA and preparing regulations to be

published.

Timetable--We will publish for comment in late 1999, or early next

year, a Notice of Proposed Rulemaking providing for interest on

overpayments and underpayments.

3. Interest Assessments

Comments Received--(a) ``A de minimis provision should be

established for the assessment of interest.'' (b) ``* * * MMS should

enhance their existing interest assessment system to allow for the

offsetting of prior period adjustments made on the MMS Form 2014 before

calculating applicable interest.''

Action Taken or Planned--FOGRSFA not only provides for the payment

of interest on overpayments for oil and gas leases on Federal lands,

but allows industry to calculate the correct interest assessment. Also,

FOGRSFA allows interest that has accrued on overpayments to be applied

to reduce underpayments. We have included billing thresholds in our

interest system to prevent bills for de minimis amounts. In May 1997,

we started sending interest statements instead of interest bills, and

the statements contain totals for interest that MMS owes and for

interest owed to MMS. MMS is implementing system changes to conform

with the requirements of FOGRSFA and preparing regulations.

Timetable--As noted under Item 2, Timetable, we plan to publish a

Notice of Proposed Rulemaking for comment on payment of interest late

in 1999 or early next year.

4. Gas Valuation

Comments received--(a) ``Define gross proceeds more equitably and

clearly in this ever changing gas marketing environment.'' (b) ``It is

important that the Federal Gas Valuation Rule final rule not

discriminate against producers which are affiliated with marketing

companies and are party to non-arms-length contracts.'' (c) ``* * *

commends the MMS on their use of negotiated rulemaking process to

address the valuation of gas. Rule should result in administrative cost

savings for all parties.'' (d) ``If the Takes vs. Entitlements policy

stays in effect, MMS should strictly enforce reporting on actual

quantities taken for all industry participants.'' (e) ``Eliminate

Transportation and Processing Allowance Forms for Indians.'' (f) ``MMS,

States, and industry * * * devoted considerable time and expense during

the REGNEG process and * * * is disappointed that the strong commitment

of all the respective parties did not result in a valuation methodology

that MMS can endorse.''

Action Taken or Planned--For (a) above, on December 16, 1997, MMS

published a final rule clarifying what deductions may be taken from

gross proceeds for the costs of transportation under Federal Energy

Regulatory Commission (FERC) Order No. 636. The rule was effective

February 1, 1998 (63 FR 65753). For (a), (b), (c) and (f) above, the

Federal Gas Valuation proposed rule was published in the Federal

Register on November 6, 1995 (60 FR 56007), and the comment period

closed on February 5, 1996. In light of the comments received from 44

entities, on May 21, 1996, MMS reopened the public comment period and

asked for public comment on five options for proceeding with further

rulemaking (61 FR 25241). The reopened public comment period closed

August 19, 1996. MMS reconvened the Federal Gas Valuation Negotiated

Rulemaking Committee on June 12-14, 1996, and asked the Committee to

provide input into the five options.

MMS performed a cost benefit analysis on three viable options for

proceeding with gas valuation regulations. Given the results of the

cost benefit analysis ($20 million annual loss in royalties) and

changes occurring in the gas market, MMS withdrew the proposed

rulemaking on April 22, 1997 (62 FR 19536).

For (d) above, FOGRSFA contains language requiring ``takes''

reporting for stand alone leases and agreements containing 100 percent

Federal leases. FOGRSFA also requires ``entitlements'' reporting for

so-called mixed agreements (agreements containing Federal, State,

Indian, and/or fee leases) with an exception to use ``takes'' reporting

for marginal properties. We are changing processes, developing

implementation plans, and preparing regulatory changes to comply with

the requirements of FOGRSFA.

[[Page 30271]]

For (e) above, a proposed rule developed by the Indian Gas

Valuation Negotiated Rulemaking Committee was published on September

23, 1996 (61 FR 49894). The Indian Valuation Negotiated Rulemaking

Committee was reconvened on March 26, 1997. This rule addressed the

valuation for royalty purposes of natural gas produced from Indian

leases. The rule proposes to reduce substantially the transportation

and allowance reporting forms for gas from Indian leases. The proposed

rule would add a methodology to calculate the major portion value and

an alternative methodology for dual accounting as required by Indian

lease terms. The proposed rulemaking would simplify and add certainty

to the valuation of production from Indian leases.

Timetable--We plan to publish for comment a Notice of Proposed

Rulemaking on takes vs. entitlements in 1999. Also in 1999, we plan to

publish a final rule on Valuation of Gas From Indian Leases.

5. Reporting Procedures and Threshold

Comments Received--(a) ``Eliminate or streamline MMS Form 2014

reporting.''

(b) ``Report prior period adjustments on a ``net'' basis.''

(c) ``Change estimated payment from lease level to payor level.''

(d) ``Assess interest at the payor level--for the Indian leases on

the basis of each Indian Tribe.''

(e) ``Eliminate Payor Information Form (PIF) Filings. This is an

unnecessary and costly reporting requirement.''

(f) ``MMS should modify the regulations and system tolerances/

thresholds so that only those exceptions that are cost beneficial for

MMS to pursue are generated.''

(g) ``Set thresholds or tolerances for regulations to save costs to

both MMS and industry. (Example: Invoices are sent for less than

$1.00.)''

(h) ``MMS should not implement regulations until its systems are

programmed to handle the new regulations.''

(i) ``* * * the prompt implementation of the recommendations of the

Royalty Policy Committee Audit and Royalty Reporting and Production

Accounting Subcommittees will achieve those simplification and

streamlining goals * * *.''

(j) The RMP Reengineering Team has recommended 32 reporting changes

to reduce and simplify reporting and reduce administrative costs for

both MMS and lessees. MMS should proceed diligently to implement these

changes.

(k) We recommend that MMS immediately implement at least a one

dollar threshold or higher thresholds which would alleviate tremendous

burden and cost to the government and lessees.

Action Taken or Planned--Building upon the Royalty Policy

Committee's earlier study, the RMP Reengineering Team (Team) analyzed

current information reporting requirements to determine the data

necessary for future RMP processes. The Team identified opportunities

for easing reporting burden, avoiding data duplication, decreasing

error rates, and increasing processing efficiency. The Team developed

32 reporting changes that are in their report titled ``Preliminary

Design Concepts of the RMP Reengineering Team.'' If these changes are

implemented, they will significantly reduce the volume of lines

reported and processed, minimize errors and related error correction

workload, simplify reporting, and lower costs for both reporters and

RMP. The Team's changes generally incorporate or exceed the Royalty

Policy Committee's recommendations.

On February 23, 1999 (64 FR 8844), we published a notice of

information collection solicitation and public meetings for changes to

the royalty and production accounting reports. At the public meetings,

which were held in March, we consulted with industry representatives on

the proposed reporting changes.

In addition to our reengineering work, we continue to pursue

shorter range reporting improvements not requiring significant system

changes. For example, the Payor Information Form MMS-4025 is being

streamlined to eliminate numerous data fields. Also, many production

reporting changes are being implemented where redundant or unnecessary

data collection is identified. We have revised our billing thresholds

to $100 for bills due on Federal leases and $25 for bills due on Indian

leases.

On April 14, 1998 (63 FR 17133), we published a proposed rule

requesting that all reports be submitted electronically by December 31,

1998. Electronic submission significantly reduces the amount of time

necessary for a company to complete the monthly reports and MMS

processing time, since no manual entry is required.

Timetable--Ongoing.

6. Refunds Due to Industry Which Are Controlled by Section 10 of the

Outer Continental Shelf Lands Act

Comments Received--(a) ``Section 10 refund requirements should be

eliminated. The refund process used for onshore properties should be

established for offshore properties.'' (b) * * * we would urge the MMS

to facilitate elimination of the Section 10 recoupment procedures in

its entirety. The current practice is administratively burdensome and

not cost effective for the industry or MMS.'' (c) ``Eliminate

documentation requirements for refund requests over $250M (million);

and/or increase this threshold to $500M; raise the refund request limit

to $5M. Exempt pure accounting adjustments for items such as production

date adjustments and incorrect AID (Accounting Identification) numbers;

exempt unit revisions because these revisions are often made more than

2 years after the date of production; establish a time limit on MMS for

review of a refund request to expedite the process; and overpayments on

OCS properties should be allowed to be offset against any OCS

underpayment.''

Action Taken or Planned--FOGRSFA repeals the Section 10 refund

procedures of the OCS Lands Act. On November 25, 1996, we mailed a Dear

Payor letter with guidelines on refund procedures. We are presently

developing a proposed rule implementing the new refund procedures.

Timetable--Ongoing.

7. Electronic Data Exchange

Comments Received--(a) ``* * * MMS (should) continue their ongoing

effort to exchange data by electronic means rather than hard copy

thereby enabling the industry to adjust the data elements to integrate

with each company's systems.'' (b) ``* * * is looking forward to

working with MMS to develop an electronic reporting and funds transfer

system that is both cost effective and efficient for all parties.''

Action Taken or Planned--We continue to encourage the exchange of

data electronically. Our Reporter and Payor Training sessions stress

the benefits of electronic reporting and provide reporters and payors

with options for reporting by electronic data interchange, diskette, or

magnetic tape. On April 22, 1997 (62 FR 19497), we published a final

rule specifying how payments are made for mineral royalties, rentals,

and bonuses that requires all payments to be made electronically to the

extent it is cost effective and practical. We also published on April

8, 1998 (63 FR 17133), a proposed rule to require reporters to submit

royalty and production reports electronically. Another way we publicize

electronic

[[Page 30272]]

reporting is on the MMS/Royalty Management Program Internet website.

Timetable--Reporter and Payor Training sessions are planned for the

summer of 1999. We plan to publish a final rule on Electronic Reporting

in 1999.

8. Parameters for Identifying Improper MMS Form 2014 Adjustments

Comments Received--``The MMS currently inquires as to any variances

between any Form 2014 adjustments and its original Form 2014 entry that

exceed $1.00, which is an insignificant amount. It is suggested that

the MMS's review should be relevant to the amount of the adjustment

such as a given percentage.''

Action Taken or Planned--At this time, MMS does not plan to make

changes in this procedure. We need to ensure accuracy and integrity in

the accounting systems, and retain precise records for the auditors. In

our reengineering effort, we are looking at streamlined reporting for

short- and long-term benefits for MMS and industry.

Timetable--Ongoing.

9. Publish Final Rules Expeditiously

Comments Received--``* * * primary recommendation is the

expeditious completion and publication of pending final rules, for

example, the proposed rules on administrative offset and limitations on

credit adjustments, and the proposed rule on payor liability. * * *

Certainly, publication of the final federal (and Indian) gas valuation

rule should be facilitated to the maximum extent possible.''

Action Taken or Planned--We are in the process of finalizing the

Indian gas valuation rule. As for the final Federal gas valuation rule,

on April 22, 1997, we published a Notice in the Federal Register (62 FR

19536) that withdrew the proposed rule because of changes occurring in

the gas market.

New language in FOGRSFA will cause a number of changes in the Payor

Liability rule and the Administrative Offset and Limitations on Credit

Adjustments rule. We are working to incorporate the effects of FOGRSFA

in these rules.

Timetable--Ongoing.

10. The Appeals Process

Comments Received--``Current appeals process is too long.''

Action Taken or Planned--FOGRSFA imposed a 33-month time frame for

the Department of the Interior to decide appeals involving royalties on

Federal oil and gas leases. This deadline does not apply to appeals on

royalties involving Indian leases and Federal leases for minerals other

than oil and gas.

On October 28, 1996 (61 FR 55607), MMS published a proposed rule

establishing a 16-month deadline for MMS to decide all appeals to the

Director, including Indian leases and appeals for royalties on minerals

other than oil and gas. After MMS' decision, the appellants can further

appeal to the Interior Board of Land Appeals. The comment period for

this proposed rule ended on March 27, 1997.

The Royalty Policy Committee, a Federal Advisory Committee

reporting to the Secretary, established a subcommittee of State,

Indian, and industry representatives to study the appeals process. The

Royalty Policy Committee reported its recommendations to the Secretary

in March 1997, and the Secretary accepted the recommendations, with

minor changes, in September 1997. The Department published a proposed

rule on January 12, 1999 (64 FR 1930), to implement these

recommendations.

Timetable--We published a final rule on May 13, 1999 (64 FR 26240),

to implement the provisions of FOGRSFA related to the 33-month time

limit to decide oil and gas appeals on Federal leases. We are currently

reviewing comments on other parts of the proposed rule.

11. Valuation of Coal From Federal Leases

Comments Received--(a) ``* * * amending this section to allow the

use of the lessee's arm's length contracts to support the value for a

nonarm's-length contract would make this section more effective and

also eliminate the need to use third-party proprietary information in

many instances.'' (b) ``* * * the use of the lessee's arm's-length

contracts is the best evidence of the comparable value of any nonarm's-

length sales by the lessee.''

Action Taken or Planned--The Royalty Policy Committee's Coal

Subcommittee is reviewing issues related to coal valuation, and we will

use the Royalty Policy Committee's recommendations to make improvements

to the coal royalty valuation and reporting procedures and associated

regulations.

Timetable--Ongoing.

12. Royalty-in-Kind Alternative

Comments Received--``urges the MMS to pursue implementation of a

RIK program as a cost effective alternative.''

Action Taken or Planned--In 1997 MMS conducted a Feasibility Study

which examined a series of Royalty-in-Kind (RIK) options, both offshore

and onshore. Under RIK, the government accepts its royalty share in the

form of production rather than in value (cash). Based on the Study's

recommendations, we are presently conducting three pilot projects to

study the concept.

Two of the pilot projects are underway. Pilot I is in the State of

Wyoming where Federal and State crude oil is being taken in kind and

sold on the open market. Pilot II uses Federal leases in the Gulf of

Mexico, Texas 8(g) zone (Federal offshore leases adjacent to State

waters), where natural gas is being taken in kind and part of it sold

to the General Services Administration (GSA) under an interagency

agreement for use by Federal agencies. The rest of the gas is being

marketed in partnership with the Texas General Land office through a

Cooperative Agreement with the State of Texas. Both these pilots will

last a minimum of 2 years. Pilot III is scheduled to begin this fall

and will take RIK gas from offshore Federal leases in the Gulf of

Mexico. This Pilot will involve the largest volume of the three pilots.

We expect to sell up to 800 million cubic feet of gas per day, or one

third of the Federal royalty share of production in the Gulf. As in

Pilot II, a portion of this gas will be transferred to GSA, and the

rest sold competitively on the open market.

We will analyze the results of these three pilots to determine if,

and under what circumstances, the RIK option can reduce administrative

costs for government and industry while producing at least as much

revenue as our current method of collecting royalties in value.

Timetable--Ongoing.

13. Lessee/Designee

Comments Received--MMS published an interim final rule on August 5,

1997 (62 FR 42062), to implement the designation of royalty payment

responsibility provision of FOGRSFA. Generally, we support the need for

lessees to submit designations pursuant to FOGRSFA, however they take

issue with MMS's overall approach to implementing these very important

provisions of FOGRSFA. Specifically, they object to the need for MMS to

collect some of the information sought, the level of detailed

information required by this rule, the burdensomeness of information

required, and the ability of MMS and the Bureau of Land Management

(BLM) to utilize information that these bureaus already have and

maintain. Also, they take issue with MMS's authority to collect the

information required under the rule from designees (payors).

[[Page 30273]]

Action Taken or Planned--When the payor remits royalties on behalf

of the lessee, FOGRSFA requires that the lessee designate the paying

party as their designee for each lease. The interim final rule

published on August 5, 1997, implements the requirements of FOGRSFA. We

have worked with BLM to set up a process to identify operating rights

owners and changes to operating rights ownership.

Timetable--Ongoing.

14. Other MMS/Royalty Management Program Regulatory Actions

Comments Received--(a) ``In order to craft a reasonable, fair, and

proper (oil valuation) rule, it is imperative that MMS publicly address

all critical issues prior to the issuance of any final rule so that

affected persons can participate meaningfully in the rulemaking

process.''

(b) ``Congress pushed for delegation of royalty management

functions to states as a means of streamlining and simplifying the

process of collection and payment of federal royalties. Despite

Congress' clear intent however, the final regulations published on

August 12, 1997 and the standards for delegation published on September

8, 1997 in no way attempt to achieve that purpose.''

Action Taken or Planned--The regulations for the Delegation of

Royalty Management Functions to States were developed in consultation

with State government representatives and industry. The final rule was

published on August 12, 1997 (62 FR 43076), and included responses to

comments we received on the proposed rule. On February 10, 1999 (64 FR

6586), we published a proposed rule that would allow States which

choose to assume duties to do so for less than all of the Federal

mineral leases within the State or leases offshore of the State,

subject to section 8(g), of the Outer Continental Shelf Lands Act. We

plan to issue a final rule in 1999.

On January 24, 1997, we published a proposed rule on Valuation of

Oil From Federal Leases (62 FR 3742), and on February 12, 1998, we

published a proposed rule on Valuation of Oil From Indian Leases (63 FR

7089). We've held numerous public meetings regarding the proposed oil

valuation rules, and in response to the many comments received in the

meetings and through the mail, we published the following in the

Federal Register on the proposed rule, Valuation of Oil on Federal

Leases:

Supplementary Proposed Rule (July 3, 1997-62 FR 36030);

Reopened Public Comment Period and Offered Alternatives

(September 22, 1997-62 FR 49460);

Supplementary Proposed Rule (February 6, 1998-63 FR 6113);

Supplementary Proposed Rule (July 16, 1998-63 FR 38355);

and

Reopened Comment Period and Offered Three Workshops in

Houston, TX; Albuquerque, NM; and Washington, DC (March 12, 1999-64 FR

12267).

We are also preparing a Supplementary Proposed Rule for the

Valuation of Oil From Indian Leases, and plan to publish it in 1999.

Conclusion

We invite you to comment on our existing regulations and also the

actions we have taken in response to comments and enacted legislation.

And, we invite you to stay further informed on many of the topics

discussed in this status report by visiting the MMS Internet Website at

www.mms.gov.

Dated: May 28, 1999.

Lucy Querques Denett,

Director, Minerals Management Service.

[FR Doc. 99-14346 Filed 6-4-99; 8:45 am]

BILLING CODE 4310-MR-P