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Federal Register / Vol. 86, No. 187 / Thursday, September 30, 2021 / Rules and Regulations
production. Id. at 31201. These entities review and consider royalty relief applications and can grant targeted royalty relief where needed. See, e.g., Special Case Royalty Relief, https
www.bsee.gov/what-we-do/
conservation/gulf-of-mexico-deepwaterprovince/special-case-royalty-reliefoverview. The 2020 Rules revenueimpacting amendments, in contrast, are overbroad because those amendments apply to all leases, including highly profitable leases and lease areas that are being produced or will be developed and produced even without the incentives contained in the 2020 Rule.
Id. This global reduction of royalties on profitable oil and gas production for the purpose of incentivizing other development and production undermines and conflicts with the royalty rate setting and royalty relief functions of BLM, BSEE, and BOEM and exceeds ONRRs expertise and area of delegated authorities.
Although the 2020 Rule cited certain E.O.s and S.O.s as a basis for incentivizing production, these E.O.s and S.O.s, before they were revoked, expressly required that they be implemented consistent with applicable law. See, e.g., E.O. 13783, Sec. 8b. As discussed above, the MLA and OCSLA, and BOEM and BSEEs regulations, authorize targeted royalty relief for a lease or lease area. The revenueimpacting amendments are inconsistent with this targeted royalty relief because these amendments apply to all production, including production in highly profitable areas. Further, the E.O.s and S.O.s upon which the 2020
Rule was premised were revoked prior to the effective date of the 2020 Rule.
See E.O. 13990, Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis, Sec. 7 Jan. 20, 2021 revoking E.O.s 13783 and 13795; E.O. 13992, Revocation of Certain Executive Orders Concerning Federal Regulation, Sec. 2
Jan. 20, 2021 revoking E.O. 13892;
and S.O. 3398, Sec. 4 Apr. 16, 2021
revoking S.O.s 3350 and 3360. Thus, the global incentivization of production exceeded ONRRs delegated authority and should not have been cited as a basis for the 2020 Rule. 86 FR 31200.
Further, regardless of whether ONRR
has a role to play in the DOI in incentivizing oil and gas production, ONRR still would withdraw the amendments because there is insufficient basis to conclude that the amendments would maintain or incentivize oil and gas production in the United States above levels that would occur in their absence. 86 FR 31201.
Many factors, such as oil and gas prices,
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national and international supply, market forecasts, alternative energy sources, credit markets, and competition, play a role in decisions on oil and gas development and production. The 2020 Rule fails to cite an economic study or contain an economic analysis demonstrating that the amendments would incentivize higher levels of oil and gas production from Federal lands. Nor does the 2020
Rule demonstrate that the royalties paid on any additional oil and gas production will offset the reduction in royalties attributable to the deepwater gathering allowance, extraordinary processing allowance, and amendments to the index-based valuation option contained in the 2020 Rule.
Public Comment: A commenter stated that ONRR departed from its primary accounting and auditing role in seeking to incentivize development and production. This commenter pointed to the long-held policy that gathering costs are considered costs of placing gas into marketable condition. This commenter supports withdrawal of the allowance to restore taxpayer protections, uphold valuation standards, and prevent the loss of hundreds of millions of dollars in royalty revenue over the next decade.
ONRR Response: ONRR acted outside of its traditional accounting and auditing role in seeking to incentivize oil and gas development and production.
Public Comment: A commenter stated that 2020 Rule was premised in part on a drop in commodity prices, that commodity prices have since recovered, and that commodity prices cannot be a basis for consistent Federal policy.
ONRR Response: In general, it is not advisable for ONRR to amend royalty valuation regulations based on temporary fluctuations in commodity prices. FOGRMA directs the Secretary to maintain a comprehensive inspection, collection, and fiscal and production accounting and auditing system that: 1
Accurately determines mineral royalties, interest, and other payments owed, 2 collects and accounts for such amounts in a timely manner, and 3
disburses the funds collected. See 30
U.S.C. 1701 and 1711. ONRR performs these mineral revenue management responsibilities for the Secretary. See S.O. 3299. Under its delegated authority, ONRRs function is to ensure fair return i.e., fair value for the taxpayer from royalty and revenue collection and disbursement activities.
Id. It has no statutory mandate or delegated authority to change its valuation regulations to account for fluctuations in commodity prices. The valuation regulations already account
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for changes in commodity prices because valuation often is based on the prices received for the mineral production, and in instances when the price received is lower, the dollar amount of the royalty obligation is lower. BLM, BOEM, and BSEE have authority to and are better positioned to address temporary drops in commodity prices when needed to incentive oil and gas development or production.
B. Deepwater Gathering Allowance The 2020 Rule adopted a deepwater gathering allowance for the stated purpose of incentivizing deepwater oil and gas development and production.
See 86 FR 4654. The allowance mirrors the Deepwater Policy that was expressly overturned by the 2016 Valuation Rule.
ONRR is withdrawing the deepwater gathering allowance for the reasons stated in Sections II and III.A, and the additional reasons below.
1. Unwarranted Allowance for Bulk Oil and Gas Production Not Treated or Measured for Royalty Purposes ONRR is withdrawing the deepwater gathering allowance for the additional reason that the DOI has long required that oil and gas be placed into marketable condition at no cost to the Federal lessor and gathering has consistently been held to be a part of that process. See, e.g., Nexen Petroleum U.S.A., Inc. v. Norton, No.
023543, 2004 WL 722435, at 9 E.D.
La. Mar. 31, 2004. Consistent with the marketable condition requirement, ONRRs regulations define gathering as movement of lease production to a central accumulation or treatment point on the lease, unit, or communitized area, or to a central accumulation or treatment point off of the lease, unit, or communitized area that BLM or BSEE
approves for onshore and offshore leases, respectively, including any movement of bulk production from the wellhead to a platform offshore. 30
CFR 1206.20. ONRR views the movement of bulk oil and gas production that has not been separated, treated, and measured for royalty purposes as gathering because these processes are integral to placing oil and gas into marketable condition. See 53
FR 11901191, 1193 Jan. 15, 1988;
Devon Energy Corp., Acting Asst. Sec.
Decision, Valuation Determination for Coalbed Methane Production from the Kitty, Spotted Horse, and Rough Draw Fields, Powder River Basin, Wyoming, at 2, 18, 2122, 3233 Oct. 9, 2003
Devon Valuation Determination, affd sub nom., Devon Energy Corp v.
Norton, No. 04CV0821 GK, 2007 WL
2422005 D.D.C. Aug. 23, 2007, affd
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