ONRR repeals Obama-era rule that increased federal royalty rates

The US Office of Natural Resources Revenue announced on Aug. 7 that it is repealing higher royalty rates for production of oil, gas, and coal on federal and Indian land that the Obama administration imposed on July 1, 2016.

The US Office of Natural Resources Revenue announced on Aug. 7 that it is repealing higher royalty rates for production of oil, gas, and coal on federal and Indian land that the Obama administration imposed on July 1, 2016. The US Department of the Interior agency said it simultaneously was reinstating regulations that governed valuation of these resources before the repealed rule went into effect on Jan. 1.

“Repealing the Valuation Rule provides a clean slate to create workable valuation regulations,” Interior Sec. Ryan Zinke said. “We are committed to working closely with stakeholders and the newly chartered Royalty Policy Committee to explore options for future rulemakings and to avoid the structural defects that were found in the prior rule.”

The valuation repeal, which appeared as an Aug. 7 Federal Register notice, will become effective on Sept. 6. ONRR said it took the action after it discovered several defects in the new rule that would have undermined its stated purpose of offering greater simplicity, clarity, consistency, and certainty in product valuation for lessees and mineral revenue recipients.

It also was supposed to ensure that Indian mineral lessors receive the maximum revenue from coal resources on their land; decrease industry’s costs of compliance and ONRR’s costs to ensure that compliance; and provide early certainty to industry and to ONRR that companies have paid every dollar due.

ONRR also received numerous comments from the regulated entities and members of the public from July 1, 2016, onward both in response to its proposed repeal notice that it issued on Apr. 4 and in other public forums that were highly critical of the rule, it said. The American Petroleum Institute and the Western Energy Alliance each were highly critical soon after the higher royalty rates were imposed (OGJ Online, July 1, 2016).

“By the middle of December 2016, we had become aware that the rule contained several defects that, at a minimum, would seriously complicate, and probably compromise, ONRR’s ability to implement and enforce certain provisions,” it said.

It said that three different sets of petitioners filed three separate petitions challenging the 2017 Valuation Rule in US District Court for Wyoming on Dec. 29, 2016.

“The petitioners alleged that the rule created widespread uncertainty about reporting and payment of royalties, and in some respects, was unreasonably difficult to comply with,” ONRR said. “[Their] arguments echoed the questions and concerns that had been raised at the reporter training sessions and in various guidance requests.”

By late January, ONRR said, it had recognized that implementing the rule would be contrary to its stated purposes.

ONRR then decided to repeal the rule because:

• It had several defects that made certain provisions challenging to comply with, implement, or enforce.

• It had certain provisions that would unnecessarily burden federal oil and gas and federal and Indian coal beyond the degree needed to protect the public interest or otherwise comply with the law.

• Zinke announced on Mar. 29 that he was reestablishing the Royalty Policy Committee under the Federal Advisory Committee Act to advise ONRR on current and emerging issues related to the determination of fair market value and the collection of royalties from energy and mineral resources on federal and Indian lands.

ONRR stayed the Valuation Rule on Feb. 27 and published a proposed rulemaking notice to repeal the rule on Apr. 4.

Contact Nick Snow at nicks@pennwell.com.

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