MMS seeks more input on royalty rule alternatives

The U.S. Minerals Management Service has delayed its controversial rule to change the way royalties are set on crude production from federal leases. MMS plans to hold more workshops with oil companies and other interested parties in September and October and then decide what alternatives to pursue. Cynthia Quarterman, MMS director, said, "After thoroughly reviewing more than 2,500 pages of comments submitted on the proposed and supplementary rulemakings, MMS has decided to request additional

Sept. 15, 1997

2 min read

The U.S. Minerals Management Service has delayed its controversial rule to change the way royalties are set on crude production from federal leases.

MMS plans to hold more workshops with oil companies and other interested parties in September and October and then decide what alternatives to pursue.

Cynthia Quarterman, MMS director, said, "After thoroughly reviewing more than 2,500 pages of comments submitted on the proposed and supplementary rulemakings, MMS has decided to request additional input on alternatives arising from those comments before proceeding with the rulemaking.

"Once we have had a chance to discuss these alternatives with our constituents during workshops, we will issue a further notice of proposed rulemaking," she said.

MMS issued the proposed oil valuation rule last January. It would require the value of most production to be set on an average of New York Mercantile Exchange futures prices, adjusted for crude quality and location.

It amended the proposal last July after independent producers argued they should be allowed to use the value of crude sold in arm's-length transactions.

Industry response

The Independent Petroleum Association of America praised MMS for delaying the rule to gather more input from industry.

Ben Dillon, IPAA vice president of public resources, said, "This is exactly what IPAA is asking for. Now we can get down to business with the states and MMS to openly discuss workable improvements to oil royalty valuation rules."

IPAA said the best way to value royalties is from the gross proceeds of arm's length sales. It also recommended MMS take some of its share of actual oil and gas production rather than royalty payments.

And for non-arm's-length transactions, it recommended "benchmarking," a procedure where MMS uses purchases and sales in a field or nearby fields to determine the value of oil.