US Interior proposes repeal of recent energy royalty rule amendments
The US Department of the Interior announced a proposal to repeal the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Rule in its entirety.
DOI's Office of Natural Resources Revenue (ONRR) is publishing an advance notice of proposed rulemaking (ANOPR) seeking comments on whether revisions are appropriate or needed to preexisting regulations governing royalty values, including comments on whether the 2017 valuation rule ultimately should be retained or repromulgated, in whole or in part.
ONRR postponed the Jan. 1 effective date for the amended rule after several petitioners legally challenged it in US District Court for Wyoming on Dec. 29, 2016, the agency announced several weeks ago.
DOI finalized the amended rule, which then-Sec. Sally Jewell said was needed to better align federal royalty collections with a 21st century energy marketplace, on June 30, 2016. Oil and gas industry groups were immediately critical, saying that it might enable federal officials to second-guess values used in royalty collections.
The amendments' original intent was to offer greater simplicity, certainty, clarity, and consistency in product valuation and reporting for mineral lessees, DOI said. ONRR has since identified several areas in the rule that warrant reconsideration to meet policy and implementation objectives, it said.
DOI said repealing the 2017 rule would provide certainty and clarity to the regulated community by continuing to require compliance with lawful, long-standing, and well-known procedures. It said it intends to further evaluate changes that may be warranted to the long-established regulations, ensuring that federal energy valuation and revenue collections remain free of loopholes and produce every dollar due for taxpayers.
The repeal proposal and ANOPR were slated to be published in the Apr. 4 Federal Register, which will trigger a 30-day comment period.
Eric Milito, American Petroleum Institute upstream and industry operations group director, welcomed the news when ONRR first indicated it was considering repealing the royalty valuation amendments for oil and gas produced on public lands due to the rule's lack of certainty, clarity, and consistency.
"Certainty and fairness in the leasing process is a critical part of ensuring consumers and businesses can benefit from domestic energy production, which is why we are pleased that ONRR recognizes the substantial burdens and potential legal flaws associated with this rule," Milito said. "Its lack of clarity and certainty would stifle energy production on federal lands instead of fostering oil and gas production."
Other groups responded as DOI formally announced its move on Apr. 3. National Ocean Industries Association Pres. Randall B. Luthi said in Washington that NOIA applauded the action since the amendments "would have created a cloud of regulatory uncertainty, put at risk billions of dollars of federal oil and gas leases, and left much needed jobs and revenue for America on the table."
Luthi said NOIA also appreciated efforts by US House Majority Whip Steve Scalise (R-La.), Rep. Scott Tipton (R-Colo.), and Sen. Steve Daines (R-Mont.) to assure that any federal royalty valuation changes occur in a fair, transparent, and thoughtful manner.
Meanwhile, Western Energy Alliance Pres. Kathleen Sgamma said in Denver, "We're glad to see that the administration has moved forward quickly with reviewing and rescinding the rule. The final rule had increased the complexity of royalty reporting exponentially, even without a revenue benefit to the government in many cases."
An Independent Petroleum Association of America spokesman noted in Washington, "The changes to ONRR royalty valuations under the previous administration essentially gave Interior complete discretion in establishing royalty values on a case-by-case basis apart from any oversight. We look forward to working with the new administration to make sure the American people are being paid fairly for public lands and industry can have the certainly to know they are playing within the outlined set of rules."
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.
