The Minerals Management Service plans to make several administrative and regulatory changes, including changing its definition of deepwater leases, in a program designed to help bolster U.S. production.
The new definition means MMS will reduce its royalty rate to 12.5% from 16% on fields in 200-400 m of water. It currently collects a 16% royalty on production in less than 400 m of water and 12.5% on production in water deeper than 400 m.
MMS said, "Technology costs have been shown to increase dramatically around the 200 m depth rather than the 400 m depth set a year ago.
"Changing the definition of deep water would make it possible for offshore operators to afford to recover mineral resources they previously could not economically recover."
The agency plans to clarify its procedures for reducing royalty rates on existing leases, giving lessees more information on conditions and criteria that must be met to qualify for a rate reduction.
It said to allow lower royalties on some leases would keep them on production, resulting in more oil or gas for the nation and continued royalty payments.
MMS plans to relieve royalty payers of the need to file an appeal and a request for a stay of an MMS order at the same time. In addition to a combined filing, the proposal would give producers more options when they post surety bonds, including interest bearing instruments.
The agency intends to permit offsetting of royalty payments. Currently, when an error is corrected between two leases, the payer is charged interest on the underpaid lease but receives no interest credit for the overpaid lease. Under the change, the books would be corrected, but no interest would be charged.
MMS also plans to clarify the valuation of gas production under unitization agreements and consolidate its oil and gas and hard minerals royalty information forms.
OTHER CHANGES
MMS also is changing its definition of "refunds" regarding offshore royalties. Currently, the law allows refunds of overpayments on Outer Continental Shelf leases only if a refund request is made within 2 years of overpayment and if Congress has been notified of the refund request for at least 30 days. It said the change will eliminate burdensome reporting requirements for businesses, with a net economic benefit of $300,000/year.
As previously disclosed, MMS said it will identify ways to reduce delays in the administrative appeals process (OGJ, Sept. 28, p. 41). It figures that will reduce industry costs by about $10 million/year.
MMS also plans to allow electronic transfer of permitting and reporting data using standard formats, resulting in "substantial savings" for those in industry and government using the new system.
MMS will review its options under law to use alternative OCS bidding systems for cases in which weak oil and gas prices may inhibit "environmentally sensitive development" of leases under the traditional system.
Since 1983, all OCS lease sales have used a fixed royalty, cash bonus bidding system.
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