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Federal Register / Vol. 86, No. 187 / Thursday, September 30, 2021 / Rules and Regulations
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when the repeal of the 2016 Valuation Rule was overturned, to October 1, 2020, and full compliance with the 2016
Valuation Rule was delayed by the series of Dear Reporter letters to October 1, 2020. Given that the Proposed 2020
Rule was, in many instances, an attempt to return to the valuation rules that existed prior to the 2016 Valuation Rule, ONRR should have included justifications for the proposed changes in the Proposed 2020 Rule to allow for public comment thereon. In addition, ONRR should have explained the inconsistencies between the 2016
Valuation Rule and the amendments described in the Proposed 2020 Rule and adequately explained its potential rejection of the position under which the agency and the regulated public had been operating for only a brief period of time. California, 381 F. Supp. 3d at 117374.
For example, the 2016 Valuation Rule discussed, but rejected, extending the index-based valuation option to armslength sales of gas. 81 FR 43347. The 2020 Rule did not adequately explain its change in position to adopt a provision rejected in the 2016 Valuation Rule.
Similarly, the 2016 Valuation Rule rejected the request to use average bidweek prices for the index-based valuation option. Id. When it was published, the 2020 Rule took the position that the average bidweek price should be used but failed to explain why the change in position was warranted after being rejected by the 2016 Valuation Rule. Additionally, the 2016 Valuation Rule established that any movement of bulk production from the wellhead to a platform offshore is gathering and not transportation and effectively rescinded the Deepwater Policy. See 81 FR 43340. The 2020 Rule, however, allowed a lessee producing in waters deeper than 200 meters to deduct the costs incurred in gathering to be deducted as part of its transportation allowance. 86 FR 4613, 46224624. The 2020 Rule did not explain why ONRR
was adopting a position so recently rejected in the 2016 Valuation Rule.
Because ONRR failed to explain, in the Proposed 2020 Rule, its reasons for changing rules adopted in 2016 and only belatedly did so in the 2020 Rule, the 2020 Rule is defective under the APA. See California, 381 F. Supp. 3d at 116668.
E. The 2020 Rules Economic Analysis Is Flawed As discussed in the Economic Analysis of this Final Rule, the economic analyses set forth in the Proposed 2020 Rule and the 2020 Rule were flawed. See Section V, infra. The
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numerous flaws in the economic analysis in the Proposed 2020 Rule and the 2020 Rule could have a direct impact on the changes made relative to the transportation allowances allowed under 30 CFR 1206.141c1iv and 1206.142d1iv if a lessee elects optional index-based reporting.
Accordingly, the 2020 Rule should be withdrawn in order to allow ONRR to propose changes to its valuation rules that are based on sound economic analysis.
F. Comments Regarding the Support Needed for a Full Withdrawal Public Comment: Multiple commenters stated that the Proposed Withdrawal Rule does not justify a full withdrawal of the 2020 Rule. According to the commenters, the Proposed Withdrawal Rule did not provide ONRRs rationale for the withdrawal of the 2020 Rules revenue-neutral amendments, such as the default provision, coal valuation, and civil penalties amendments. One commenter suggested that ONRR provide another opportunity for notice and comment before proceeding with a full withdrawal.
ONRR Response: ONRR has considered the commenters statements and disagrees. Upon careful review, the defects of the 2020 Rule, including the lack of adequate comment period Section II.A, the inadequate discussion of alternatives Section II.B, the lack of reasoned explanation Section II.C, and the inadequate justification for change in recently adopted policy Section II.D
necessitate the withdrawal of the rule.
As stated above, ONRR has the present intention to open a new rulemaking process with respect to some provisions that were adopted in the 2020 Rule.
III. Additional Reasons for the Withdrawal of Certain Amendments Citing now-withdrawn E.O.s and S.O.s, the 2020 Rule adopted the deepwater gathering allowance, extraordinary processing allowance, and amendments to index-based valuation for Federal oil and gas production revenue-impacting amendments to incentivize oil and gas production. 86
FR 46144615. ONRR is withdrawing these revenue-impacting amendments for the reasons identified in Section II
above and the additional reasons set forth in this section.
A. Unwarranted and Overbroad Attempt To Incentivize Production ONRR was formed when the Secretary reorganized the former MMS into BOEM, BSEE, and ONRR. See S.O. 3299
Aug. 29, 2011. This reorganization was
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to improve the management, oversight, and accountability of activities on the OCS; ensure a fair return to the taxpayer from royalty and revenue collection and disbursement activities;
and provide independent safety and environmental oversight and enforcement of offshore activities. Id.
at Sec. 1. As part of this reorganization, ONRR assumed the royalty and revenue management functions of MMS, including, but not limited to, royalty and revenue collection, distribution, auditing and compliance, investigation and enforcement, and asset management for both onshore and offshore activities . . . . Id. at Sec. 5. Consistent with these responsibilities, ONRR
promulgated detailed regulations governing mineral royalty reporting, valuation, auditing, collection, and disbursement. See 30 CFR Chapter XII.
BLM, BOEM, and BSEE, on the other hand, are primarily responsible for mineral leasing functions, such as awarding leases, setting royalty rates, and granting royalty relief when appropriate. 86 FR 31201. This royalty relief authority originates in the MLA
and OCSLA. For onshore leases, the MLA authorizes the Secretary to reduce the royalty on an entire leasehold . . . whenever in his judgment it is necessary to do so in order to promote development, or . . .
the leases cannot be successfully operated under the terms provided therein. 30 U.S.C. 209. For offshore leases, OCSLA authorizes the Secretary to reduce or eliminate any royalty to promote increased production on the lease area. 43 U.S.C. 1337a3. To implement the Secretarys royalty relief authority, BLM and BSEE promulgated regulations requiring detailed technical and economic information for each lease or lease area for which royalty relief is sought. See 30 CFR part 203; 76 FR
64432, 64435 Oct. 18, 2011 for offshore leases, stating that BSEE is responsible for the regulatory oversight of need-based royalty relief awarded after lease issuance and the tracking of all royalty-free production.; 43 CFR
3103.41b1 for onshore leases, requiring that an operator file a relief application with the appropriate BLM
office for BLMs consideration.
ONRR departed from its traditional role in the DOI in seeking to incentivize other oil and gas development and production through the revenueimpacting amendments. See 86 FR
31200. This was unwarranted because BLM, BOEM, and BSEE have primary authority, experience, and expertise to determine when royalty relief is needed for individual leases or lease areas to promote development or increase
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