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Federal Register / Vol. 86, No. 187 / Thursday, September 30, 2021 / Rules and Regulations available for 13 subsea gathering segments serving 15 leases covering time periods from 1999 through 2010.
ONRR used the data to determine an average initial capital investment in the pipeline segments. Then, ONRR used the initial capital investment total to calculate depreciation and a return on undepreciated capital investment also known as the return on investment or ROI for eligible pipeline segments and calculated depreciation using a 20year straight-line depreciation schedule.
ONRR calculated the return on investment using the average BBB Bond rate for January 2018 the BBB Bond rating is a credit rating used by the Standard & Poors credit agency to signify a certain risk level of long-term bonds and other investments. ONRR
based the calculations for depreciation and ROI on the first year a pipeline was in service. From the same audit information, ONRR calculated an average annual operating and maintenance O&M cost. ONRR
increased the O&M cost by 12 percent to account for overhead expenses.
ONRR then decreased the total annual
O&M cost per pipeline segment by nine percent because, on average, nine percent of wellhead production volume is water, which must be excluded from any calculation of a permissible deduction. ONRR chose these two percentages based on knowledge and information gathered during audits of leases located in the Gulf of Mexico.
Finally, ONRR used an average royalty rate of 14 percent, which is the volumeweighted-average royalty rate for the non-Section 6 leases in the Gulf of Mexico. See 43 U.S.C. 1335a9. Based on these calculations, the average annual allowance per pipeline segment during the period that ONRR collected data from was approximately $233,000.
ONRR used this value to calculate a perlease cost based on the number of eligible leases during the same period.
ONRR then applied this value to the current number of eligible leases. This represented the estimated amount per lease for gathering that ONRR would allow a lessee to take as a transportation allowance based on the 2020 Rules deepwater gathering allowance. To
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calculate a range for the total cost, ONRR multiplied the average annual allowance by the low 96, mid 113, and high 130 number of potentially eligible segments. The low, mid, and high annual allowance estimates are $35
million, $41.1 million, and $47.3
million, respectively.
Of the eligible leases, 68 of 169, or about 40 percent, are estimated to qualify for a deduction under the 2020
Rules deepwater gathering allowance.
But due to varying lease terms, multiple royalty relief programs, price thresholds, volume thresholds, and other factors, ONRR estimated that half of the 68, or 34, leases eligible for royalty relief 20 percent of 169 have received royalty relief, which limits the value of a deepwater gathering allowance. ONRR chose to use an estimate of half of the leases for consistency, and it decreased the low, mid, and high annual cost-to-industry estimates by 20 percent. The table below shows the estimated royalty impact of withdrawing this provision of the 2020
Rule.

ANNUAL ESTIMATED IMPACT TO ROYALTY COLLECTIONS FROM WITHDRAWAL OF THE 2020 RULE

Royalty Impact

Cost Savings 1: Transportation Allowances for Certain OCS Gathering Costs for Offshore Federal Oil and Gas The 2020 Rule, by authorizing transportation allowances for certain OCS gathering, would result in an administrative cost to industry because it requires a qualified lessee to monitor its costs and perform additional calculations if it is to claim the allowance. ONRR identified no need to
Low
Mid
High
$28,000,000

$32,900,000

$37,900,000

adjust or change the analysis performed in the 2020 Rule to estimate this cost to industry. The cost to perform these calculations is significant because industry often hires additional labor or outside consultants to calculate subsea pipeline movement costs. ONRR
estimates that each lessee with leases eligible for transportation allowances for deepwater gathering systems will allocate one full-time employee annually or incur the equivalent cost
for an outside consultant to perform the calculation. ONRR used data from the BLS to estimate the hourly cost for industry accountants in a metropolitan area $42.33 mean hourly wage with a multiplier of 1.4 for industry benefits to equal approximately $59.26 per hour.
Using this fully burdened labor cost per hour, ONRR estimated that the annual administrative cost savings to industry if the 2020 Rule is withdrawn would be approximately $3.9 million.

ANNUAL ADMINISTRATIVE COST SAVINGS TO INDUSTRY TO CALCULATE CERTAIN OCS GATHERING COSTS FROM
WITHDRAWAL OF THE 2020 RULE
Annual burden hours per company
Industry labor cost/hour
Companies reporting eligible leases
Estimated cost savings to industry
2,080

$59.26

32

$3,931,000

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Allowance for Certain OCS Gathering Costs Withdrawn

Cost 1: Administrative Cost From Using Index-Based Valuation Method To Value Arms-Length Federal Unprocessed Gas, Residue Gas, Fuel Gas, Coalbed Methane, and NGLs In the 2020 Rule, ONRR assumed that half of the lessees would elect to use the index-based valuation method to value their arms-length natural gas and NGL

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transactions. As described earlier in this Economic Analysis, ONRR identified that 39.8 percent of leases with armslength sales would elect this option.
This is more accurate than the 2020
Rules assumptions, and ONRR will use it to estimate the potential administrative cost savings for industry.

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ONRR estimated the index-based valuation method would have shortened the time burden per line reported on the ONRR2014 royalty reporting form by 50 percent to 1.5 minutes per electronic line submission and 3.5 minutes per manual line submission. As with Cost Savings 1, ONRR used tables from the BLS to estimate the fully burdened
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