By OGJ editors
WASHINGTON, DC, Sept. 16 -- The US Minerals Management Service Monday said it will extend the comment period on its proposal to amend controversial oil valuation rules.
The US Minerals Management Service Aug. 20 proposed industry-supported changes to its 2000 oil valuation rule that the agency has characterized as only technical adjustments. MMS had planned to issue a final rule in mid-October, but concerns from some state royalty interests such as California and some members of Congress changed that ambitious timetable (OGJ Online, Sept. 11, 2003).
An MMS spokesperson said a new 30-day comment period will start as early as Friday or by next Monday, depending on when the notice is published in the Federal Register.
Nick Rahall (D-W.Va.), ranking member of the House Resources Committee, and Carolyn Maloney (D-NY), ranking member of the Subcommittee on Domestic Monetary Policy, Technology, and Economic Growth of the Financial Services Committee, wrote MMS Sept. 9. They argued that the proposed changes were too extensive and complicated to be reviewed in 30 days. In their letter, they asked MMS to provide answers to 14 detailed questions that cover a myriad of assumptions the agency used when drafting its proposal.
MMS officials said they are still working on responding to the letter.
"We find it difficult to ascertain precisely what data MMS used to justify these changes, therefore, we request that you provide additional information as well as the answers to these questions," the two congressman wrote.
The lawmakers as well as the state of California are worried that proposals to expand transportation cost deductions, and rates of return on oil pipeline investment may mean industry is not paying its fair share of royalties.
Benchmarking issues
MMS also proposed changes to its crude oil benchmarking system that might make data less accurate than under the current system, according to McGraw-Hill Cos. energy information service, Platts.
MMS Aug 20 proposed changing its valuation basis for transactions not at arm's-length from spot to New York Mercantile Exchange prices adjusted for locality and quality differentials. But to make those adjustments, producers will still need to use Platts or another approved price information service to calculate the crude value at a market center.
Platts officials cautioned that using a "half-and-half approach—NYMEX as the basis, published differentials for market center values—has the potential to create several accuracy problems," said John Kingston, global director of oil for Platts.
"The MMS appears to be trying to get away from a price that they believe might be manipulated, but ultimately conceding that it can't do that completely."
He noted, for example, that for the 3 days between the expiration of a particular month's NYMEX contract, and the concurrent close of cash West Texas Intermediate trading and pipeline scheduling for that same month, there will be a different basis for the NYMEX value and the differential to the market center.