Change to Delegated State Audit Functions

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 227

RIN 1010-AC51

Change to Delegated State Audit Functions

AGENCY: Minerals Management Service, Interior.

ACTION: Final rule.

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

regulations to allow States which choose to assume audit duties to do

so for less than all of the Federal mineral leases within the State or

leases offshore of the State.

EFFECTIVE DATES: August 9, 1999.

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

Publications Staff, telephone (303) 231-3432, FAX (303) 231-3385, e-

Mail David.G[email protected].

SUPPLEMENTARY INFORMATION: The principal author of this rulemaking is

Ms. Shirley Burhop, State and Indian Compliance Division, Royalty

Management Program (RMP).

I. Background

This rule amends regulations governing the delegation of royalty

management duties to States. Section 205 of the Federal Oil and Gas

Royalty Management Act of 1982 (FOGRMA), 30 U.S.C. 1735, gives MMS the

authority to delegate audit functions to States. Currently, 10 States

have entered into the delegation agreements authorized by Section 205.

Regulations in 30 CFR part 227 implementing the Federal Oil and Gas

Royalty Simplification and Fairness Act of 1996 (RSFA), Pub. L. 104-

185, as corrected by Pub. L. 104-200, expanded the duties that States

could assume. Those regulations at 30 CFR 227.101 prescribed that if a

State wanted MMS to delegate the audit function to the State, then the

State was required to audit all Federal mineral leases within that

State and all 8(g) leases offshore of the State. We intended that

States perform other delegable functions authorized by RSFA for all

leases within that State and in all 8(g) leases offshore of the State.

However, we do not believe it is either necessary or desirable in the

case of the audit function. Typically auditing is done on a sampling

basis, i.e. not all leases are audited.

This change allows States which are now delegated audit authority

under FOGRMA to continue that audit authority without significantly

altering their staffing, funding, or other operations. By removing the

requirement that they exercise audit authority over all Federal mineral

leases within the State, the States will again be able to work with us

in those cases where State resources do not allow the State to cover

their entire audit universe. Thus, the State will designate the limits

of its audit activity each year through an annual audit work plan. This

wording change will also enable the MMS to continue to assist a State

in its audit efforts when necessary.

II. Statutory Authority

Authority for this change is granted by FOGRMA, 30 U.S.C. 1735, as

amended by RSFA, Pub. L. 104-185, August 13, 1996, as corrected by Pub.

L. 104-200. Authority regarding solid mineral leases, geothermal

leases, and 8(g) leases is granted by Pub. L. 102-154.

III. Comments on Proposed Rule

The proposed rulemaking provided a 60-day public comment period

which ended April 12, 1999. MMS received comments from one oil and gas

trade association commenter during the comment period. We reviewed and

analyzed the comments pertaining to this final rulemaking, and did not

revise the language of the final rule. The specific comments are

addressed below:

Comment--Regarding the Analysis section of the proposed rule

preamble, the commenter questioned how a State could take on delegated

functions without adequate staffing or funding. The commenter stated

that ``the language in the proposed rule controverts the Delegation

regulations,'' as stated at 30 CFR 227.103.

Response--The final rule enables States to perform delegated audit

functions for some or all Federal leases within their State rather than

being required to assume responsibility for all such leases. Our intent

is to enable those States which face staffing and funding limitations

to take on delegated audit duties to the extent they can perform such

duties with available resources. Current regulations at 30 CFR 227.101

(1998) require a State to have the resources to audit its entire lease

universe in order to take on any delegated audit duties.

IV. Procedural Matters

Regulatory Planning and Review (E.O. 12866)

This document is not a significant rule and is not subject to

review by the Office of Management and Budget under Executive Order

12866.

(1) This rule will not have an effect of $100 million or more on

the economy. It will not adversely affect in a material way the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments or

communities. Requesting States may incur additional costs for

delegation responsibilities. However, these direct costs will be fully

reimbursed by the Federal Government in accordance with their annual,

approved audit plan each year. This rule change does not require the

States to file any additional information or fees.

(2) This rule will not create a serious inconsistency or otherwise

interfere with an action taken or planned by another agency. States

with delegated audit authority must follow the policies of the

Department. States will coordinate their audit actions with the Bureau

of Land Management and MMS.

(3) This rule does not alter the budgetary effects or entitlements,

grants,

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user fees, or loan programs or the rights or obligations of their

recipients. Audits of Federal leases within State boundaries will be

individually budgeted through an annual work plan proposal the State

prepares and MMS approves. This is a process we have used effectively

since 1985 and will continue under the rule.

(4) This rule does not raise novel legal or policy issues. We have

had authority to delegate audit duties to States since 1983.

Historically, States have audited as much of the Federal lease universe

as practical for each State and MMS audited the remainder. We expect

these circumstances of operation to continue under this rule.

Regulatory Flexibility Act

The Department of the Interior certifies that this document will

not have a significant economic effect on a substantial number of small

entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

The major impact of the rule will be on State governments, which

are not small entities. There will be some effect on the oil and gas

companies which are subject to audit, as various audit staffs,

including MMS's Compliance Divisions, State delegations, and Indian

Tribal delegations, may now audit Federal and Indian leases located

within a particular State's boundaries. This is no change from the way

in which MMS and delegated States and Tribes have audited companies in

the past. As has been done in the past, MMS will continue to coordinate

audit efforts of the various entities which might be involved in any

particular audit in order to minimize disruptions to the companies

being audited.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

This rule is not a major rule under 5 U.S.C. 804(2), the Small

Business Regulatory Enforcement Fairness Act. This rule:

a. Does not have an annual effect on the economy of $100 million or

more. States would initially incur the expense of delegated audit

functions and MMS would later reimburse them. The maximum economic

impact for audit delegation is estimated to be $5.5 million.

b. Will not cause a major increase in costs or prices for

consumers, individual industries, Federal, State, or local government

agencies, or geographic regions. The audit of Federal leases is not a

function which generates impacts on costs or prices to individuals or

areas. States will review royalty calculation and payments to enforce

existing Federal lease terms and royalty policies. States will conduct

the audits as efficiently and economically as possible in accordance

with Departmental policies.

c. Does not have significant adverse effects on competition,

employment, investment, productivity, innovation, or the ability of

U.S.-based enterprises to compete with foreign-based enterprises. The

laws providing for the delegation of audit duties, FOGRMA and RSFA, do

not provide for any other entity, except tribal governments, to conduct

these duties.

Unfunded Mandates Reform Act of 1995

This rule does not impose an unfunded mandate on State, local, or

tribal governments or the private sector of more than $100 million per

year. The rule does not have a significant or unique effect on State,

local or tribal governments or the private sector. The rule does not

change valuation requirements, impose additional royalty collections or

require new reporting forms. This rule merely gives State governments

the option to conduct audits and investigations on less than all of the

Federal mineral leases within State boundaries or section 8(g) leases

on the OCS. The Federal Government will fully reimburse States for the

costs they incur to conduct the audits and investigations in accordance

with the State's annual, approved audit plan. We expect those costs to

be no more than $5.5 million per year. County, local, or tribal

governments will not perform the delegable audit functions on behalf of

State governments; therefore, they will not be impacted by this rule.

A statement containing the information required by the Unfunded

Mandates Reform Act (2 U.S.C. 1531 et seq.) is not required.

Takings (E.O. 12630)

In accordance with Executive Order 12630, the rule does not have a

significant takings implication. States seeking audit delegation from

year to year will propose the level of effort they can expend auditing

Federal leases. This method of operation will give States first choice

in cooperatively planning annual work with MMS. This rule does not

represent a governmental action capable of interference with

constitutionally protected property rights. A takings implication

assessment is not required.

Federalism (E.O. 12612)

In accordance with Executive Order 12612, the rule does not have

sufficient federalism implications to warrant the preparation of a

Federalism Assessment. This rule allows States to continue to audit

selected leases within legal boundaries. It does not alter roles,

rights or responsibilities of States conducting delegated audits. A

Federalism Assessment is not required.

Civil Justice Reform (E.O. 12988)

In accordance with Executive Order 12988, the Office of the

Solicitor has determined that this rule does not unduly burden the

judicial system and meets the requirements of sections 3(a) and 3(b)(2)

of the Order.

Paperwork Reduction Act

This regulation does not require an additional information

collection approval under the Paperwork Reduction Act of 1995. There is

currently in place an approved information collection titled Delegation

of Authority to States, OMB Control Number 1010-0088, which expires on

June 30, 2000.

National Environmental Policy Act of 1969

This rule does not constitute a major Federal action significantly

affecting the quality of the human environment. A detailed statement

under the National Environmental Policy Act of 1969 is not required.

Clarity of This Regulation

Executive Order 12866 requires each agency to write regulations

that are easy to understand. We invite your comments on how to make

this rule easier to understand, including answers to questions such as

the following:

(1) Are the requirements in the rule clearly stated?

(2) Does the rule contain technical language or jargon that

interferes with its clarity?

(3) Does the format of the rule (grouping and order of sections,

use of headings, paragraphing, etc.) aid or reduce its clarity?

(4) Would the rule be easier to understand if it were divided into

more (but shorter) sections? (A ``section'' appears in bold type and is

proceeded by the symbol ``Sec. '' and a number heading; for example:

Sec. 227.101 What royalty management functions may MMS delegate to a

State?

(5) Is the description of the rule in the ``Supplementary

Information'' section of this preamble helpful in understanding the

rule?

(6) What else could we do to make the rule easier to understand?

Send a copy of any comments that concern how we could make this

rule

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easier to understand to: Office of Regulatory Affairs, Department of

the Interior, Room 7229, 1849 C Street NW, Washington, DC 20240. You

may also E-mail your comments to this address: E[email protected].

List of Subjects in 30 CFR Part 227

Coal, Continental shelf, Geothermal energy, Government contracts,

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

resources, Reporting and recordkeeping requirements.

Dated: June 19, 1999.

Sylvia V. Baca,

Acting Assistant Secretary--Land and Minerals Management.

For the reasons set out in the preamble, 30 CFR part 227 is amended

as follows:

PART 227--DELEGATION TO STATES

1. The authority citation for part 227 continues to read as

follows:

Authority: 30 U.S.C. 1735; 30 U.S.C. 196; Pub. L. 102-154.

2. Revise Sec. 227.101 to read as follows:

Sec. 227.101 What royalty management functions may MMS delegate to a

State?

(a) If there are oil and gas leases subject to the Act on Federal

lands within your State, MMS may delegate the following royalty

management functions for all such Federal oil and gas leases to you

under this part:

(1) Receiving and processing production or royalty reports;

(2) Correcting erroneous report data; and

(3) Performing automated verification.

(b) If there are oil and gas leases subject to the Act on Federal

lands within your State, MMS may delegate the following royalty

management functions for some or all of the Federal oil and gas leases

to you under this part:

(1) Conducting audits and investigations; and

(2) Issuing demands, subpoenas, and orders to perform restructured

accounting, including related notices to lessees or their designees,

and entering into tolling agreements under section 115(d)(1) of the

Act, 30 U.S.C. 1725(d)(1).

(c) If there are oil and gas leases offshore of your State subject

to section 8(g) of the Outer Continental Shelf Lands Act, 43 U.S.C.

1337 (g), or solid mineral leases or geothermal leases on Federal lands

within your State, MMS may delegate authority to conduct audits and

investigations for some or all such Federal leases.

[FR Doc. 99-17238 Filed 7-7-99; 8:45 am]

BILLING CODE 4310-MR-P