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Federal Register / Vol. 86, No. 187 / Thursday, September 30, 2021 / Rules and Regulations SUMMARY OF ANNUAL ADMINISTRATIVE IMPACTS TO INDUSTRY FROM WITHDRAWAL OF THE 2020 RULE
Cost cost savings
Rule provision Administrative Cost for Index-Based Valuation Method for Gas & NGLs
Administrative Cost Savings for Allowances for Certain OCS Gathering

$1,077,000
3,931,000

Total

2,850,000

Following the publication of the delay rules and after consideration of comments received in response to the First Delay Rule, ONRR assessed which parts of the previous economic analysis warranted revision. To provide a more complete analysis, this final rule presents the estimated royalty impacts of the withdrawal of the 2020 Rule using the updated analyses. Changes are measured relative to a baseline that includes the royalty changes finalized in the 2020 Rule.
As shown in the tables, an updated analysis of the impact to royalty under the 2020 Rule results in a total decrease in royalties of $64.6 million per year, which translates to an increase of $64.6
million per year under this withdrawal.
This amount stands in contrast to the annual decrease of $28.9 million per year in royalties previously estimated in the 2020 Rule and further justifies
withdrawal of the 2020 Rule. The change in amounts is largely attributable to the new assumption and method used to estimate the impact from extending the index-based valuation method to arms-length natural gas and NGL sales.
A more detailed explanation of the new method is described below. All impacts to royalties other than those related to the index-based valuation option remain unchanged from those published in the 2020 Rule.
The administrative costs and potential administrative cost savings attributable to the 2020 Rule have also been updated using the new assumptions for the extension of index-based valuation method to arms-length sales. The administrative cost to industry for deepwater gathering allowances would remain unchanged from the value published in the 2020 Rule.

ONRR updated the estimated onetime administrative cost associated with the optional use of the index-based valuation method. These costs are only incurred by a lessee once to distinguish allowed and disallowed costs in reported processing and transportation allowances. In many situations, industry has already performed these calculations to comply with previous reporting requirements. ONRR reduced the total one-time administrative cost published in the Proposed Withdrawal Rule to be more reflective of only newer gas processing plants that would require the additional administrative cost.
Unless there is a significant change in processing and transportation costs, the ratio of allowed to disallowed costs should not substantially change from year to year.

ONE-TIME ADMINISTRATIVE IMPACTS TO INDUSTRY FROM WITHDRAWAL OF 2020 RULE
Rule provision
Cost
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Administrative Cost of Unbundling Related to Index-Based Valuation Method for Gas & NGLs

Withdrawal of the 2020 Rule will increase administrative costs when compared to the current status quo, which is the 2020 Rule. While that rule has not yet gone into effect due to the First and Second Delay Rules, it would have gone into effect absent this withdrawal rule, and therefore is the appropriate point of comparison for the measurement of costs, benefits, and transfers.
ONRR used the same base dataset for this proposed rules economic analysis as it used in the 2020 Rule for consistency and comparability. The description of the data was provided in the Economic Analysis of the 2020 Rule and is repeated here. ONRR reviewed royalty data for Federal oil, condensate, residue gas, unprocessed gas, fuel gas, gas lost flared or vented, carbon dioxide CO2, sulfur, coalbed methane, and natural gas products product codes 03, 04, 15, 16, 17, 19, 39, 07, 01, 02, 61, 62, 63, 64, and 65 from five calendar years, 20142018. ONRR
used five calendar years of royalty data
VerDate Sep<11>2014

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to reduce volatility caused by fluctuations in commodity pricing and volume swings. ONRR adjusted the historical data in this analysis to calendar year 2018 dollars using the Consumer Price Index all items in U.S.
city average, all urban consumers published by the BLS. ONRR found that some companies aggregate their natural gas volumes from multiple leases into pools and sell that gas under multiple contracts. A lessee reports those sales and dispositions using the POOL
sales type code. Only a small portion of these gas sales are non-arms-length.
ONRR used estimates of 10 percent of the POOL volumes in the economic analysis of non-arms-length sales and 90 percent of the POOL volumes in the economic analysis of arms-length sales.

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$243,000

Change in Royalty 1: Using Index-Based Valuation Method to Value ArmsLength Federal Unprocessed Gas, Residue Gas, Fuel Gas, and Coalbed Methane ONRR analyzed this provision similarly to the 2020 Rule, assuming that half of lessees would elect to use the index-based valuation method.
ONRR received many comments stating that this assumption was flawed, because a lessee will typically act in a manner that maximizes, not harms, financial benefits to the lessee. ONRR
stated in the 2020 Rule that the assumption that half of lessees would elect to use the index-based valuation option was an attempt to simplify the royalty impact estimation. Due to the delay rules, ONRR was able to apply a more sophisticated set of assumptions to estimate the lessees that would likely benefit from the 2020 Rules amendments to the index-based valuation option and those that would not. ONRR began the analysis with a similar rationale on the same data that
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