Watching GovernmentRoyalty rule reproposal

Dec. 6, 1999
For the fourth time, the US Minerals Management Service plans to revise its controversial rule for valuing oil produced from federal leases.

For the fourth time, the US Minerals Management Service plans to revise its controversial rule for valuing oil produced from federal leases.

MMS said it would revise and reissue the regulation in mid-January, examine comments on the changes, and then issue a final rule shortly after Mar. 15 (OGJ, Nov. 29, 1999, Newsletter). The rule probably would take effect 60 days later, industry sources said.

MMS will hold workshops in late January to discuss the revised rule with interested parties. Locations have not yet been set.

For the past 3 years, MMS and producers have disputed the royalty rule revamp, which would base most royalty values on spot prices for crude.

Congress, after bitter debate, recently voted to continue until Mar. 15 a moratorium that has blocked MMS from issuing the rule (OGJ, Oct. 18, 1999, p. 34).

Reasons

MMS Director Walt Rosenbusch announced the reproposal at a meeting with Sen. Jeff Bingaman (D-NM) and a group of independent producers in Albuquerque.

Rosenbusch explained that reissuing the rule will allow all interested parties to comment on the current direction of the regulation and "provide a forum for discussing several important issues that were raised during the most recent workshops."

He said, "MMS hopes to productively use the time between now and next spring to resolve several remaining issues. The further exchange of views during this comment period will be helpful in bringing closure to this very important subject."

The agency also said it would repropose a separate rule for valuing oil production from Indian leases. It plans to issue a supplemental proposal in December, hold a workshop, and publish a final rule by April 2000.

Reactions

The American Petroleum Institute welcomed Rosenbusch's action.

API said, "Reproposal is the only way that we can determine whether MMS has taken into consideration the concerns of our industry. Reproposal will clear the air, bypass the rhetoric, and help us move toward resolution."

It added, "Our goal remains to help implement a royalty system that is simple to administer and fair both to our companies and to the taxpayers."

The Independent Petroleum Association of America said, "MMS is taking a step in the right direction."

Ben Dillon, IPAA public resources vice-president, said, "We hope MMS looks closely at some of the things industry proposed last spring."

He said independents want the rule to provide a concrete process that eliminates second-guessing, set a method to determine value if a producer sells royalty oil to an affiliate, and make MMS pricing determinations binding on the agency too.

Bill Whitsitt, Domestic Petroleum Council president, said the MMS-industry workshops should help, because similar sessions last spring "were very productive from our standpoint and led to industry making a compromise proposal."

He said a major area of difference is how to determine what sales are comparable for valuing crude. "If we can reach agreement on how that works, it will go a long way to resolving some of the most serious issues."