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Federal Register / Vol. 86, No. 187 / Thursday, September 30, 2021 / Rules and Regulations
shall be made at reasonable times and intervals and, at the Lessors option, shall be effected either i on or immediately adjacent to the leased area, without cost to the Lessor, or ii at a more convenient point closer to shore or on shore, in which event the Lessee shall be entitled to reimbursement for the reasonable cost of transporting the royalty production to such delivery point. The Secretary phased out the DOIs royalty-in-kind program starting in 2009. See 75 FR 15725. Moreover, lease terms govern if the lease terms are inconsistent with any of the valuation regulations. See 30 CFR 1206.100d and 1206.140c. Thus, withdrawal of the deepwater gathering allowance would have no impact on the referenced lease term in the unique situation suggested by the commenter.
In addition, the commenters reliance on Kerr-McGee Corp., 22 IBLA 124
1975 is misplaced. Kerr-McGee was decided under the historic concept of field gathering and is devoid of any traditional contract law analysis. When the concept of field gathering was replaced in 1988 by the adoption of regulations containing a definition of gathering, that rulemaking also affected previously existing precedents that discussed the concept of field gathering. 53 FR 1184, 1193 Jan. 15, 1988 rejecting recommendations to limit gathering to the lease or unit area so a transportation allowance may be obtained for all off-lease movement;
53 FR 1230, 1240 Jan. 15, 1988 same;
Devon Valuation Determination, at 18
explaining how the regulatory definitions of gathering may impact precedents applying the historic concept of field gathering. As a result, the line between gathering and transportation may not be the same for royalties paid in amount and royalties paid in value. Compare Form BOEM
2005, 6 Feb. 2017 and 30 CFR
1206.20, 1206.110, and 1206.152.
Additionally, the commenters statement that the elimination of the Deepwater Policy violated the APA is not supported by explanation or analysis. MMS royalty and revenue management functions were transferred to ONRR in 2010. See 76 FR 64432 Oct.
18, 2011. At that time, ONRR became responsible for MMS regulations governing gathering and transportation.
ONRR subsequently determined that the Deepwater Policy was inconsistent with the regulatory definitions of gathering and Departmental decisions interpreting that term. See 85 FR 62054, 62059 Oct.
1, 2020; 80 FR 608, 624 Jan. 6, 2015.
Consequently, it rescinded the Deepwater Policy in the 2016 Valuation Rule. See id. This final rule affects the
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2020 Rule, not any provision of the 2016
Valuation Rule.
2. Missing Regulatory Text While the Proposed 2020 Rules preamble explained ONRRs intention to adopt a deepwater gathering allowance in 30 CFR 1206.110 oil and 1206.152
gas, consistent with the former Deepwater Policy, key components and criteria for a deepwater gathering allowance were omitted from the proposed regulation text. For oil, the Proposed 2020 Rule omitted language later added by the 2020 Rule that expanded the proposed allowance from oil produced in waters deeper than 200
meters to oil produced from a lease or unit any part of which lies in waters deeper than 200 meters. Cf. 85 FR 62080
with 86 FR 4654. The Proposed 2020
Rule further omitted other key requirements of the Deepwater Policy, including that the movement is not to a facility that is located on a lease or unit adjacent to the lease or unit on which the production originates, that the movement is beyond a central accumulation point, defined to include a single well, a subsea manifold, the last well in a group of wells connected in a series, or a platform extending above the surface of the water, and that the gathering costs are only those allocable to the royalty-bearing oil. Id. For gas, the Proposed 2020 Rule completely omitted the deepwater gathering allowance in the proposed regulation text for 1206.152. See 85 FR 4656.
Because ONRR made significant, substantive additions to the 1206.110a and 1206.152a without reopening the comment period, the public had inadequate opportunity to review and comment on the substantially revised regulatory text prior to publication of the 2020 Rule.
Accordingly, the adoption of a deepwater gathering allowance in the 2020 Rule was defective because ONRR
did not give the public adequate notice of the intended regulatory language and the scope of the allowance.
Public Comment: A commenter stated that ONRR revealed, in the preamble to the Proposed 2020 Rule, an intention to revert back to the Deepwater Policy and that any prospective commenter could review the Deepwater Policy. This commenter noted that several commenters pointed out the error in the text language in response to the Proposed 2020 Rule, suggesting that interested entities had access to information sufficient to formulate meaningful comments.
ONRR Response: ONRR disagrees.
The Deepwater Policy was not adopted through any recognized form of
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rulemaking. The proposed regulation text was not included in the Proposed 2020 Rule, despite a general discussion appearing in the Proposed 2020 Rules preamble. Moreover, the absence of the regulation text created a high likelihood of confusion regarding the precise parameters of the allowance being proposed. Moreover, because the meaning of unambiguous regulatory text is not changed by conflicting preamble language, some commenters may have reviewed and commented on the proposed regulatory text without reading the preamble and its general discussion. Because much of the intended regulatory text was missing from the Proposed 2020 Rule, including key provisions relating to deepwater allowances, the public was not provided with adequate notice and an opportunity to comment.
3. Procedural Defects Specific to the Deepwater Gathering Provision Prior to adopting the deepwater gathering allowance, ONRR was required to offer a rationale for the adoption of the amendment in order to allow interested parties a meaningful opportunity to comment. See Sections II.C and II.D. As its basis for the deepwater gathering allowance, the Proposed 2020 Rule stated that a lessee may be unable without great costs, impaired engineering efficiency, or both to satisfy ONRRs gathering definition before production reaches the platform due to unique environmental and operational factors in deepwater. 85
FR 62060. While this may be true for some deepwater leases, the 2020 Rule does not explain why these unique factors justify a deepwater gathering allowance that is applicable to all deepwater leases. Many locations, both onshore and offshore, have unique environmental and operational factors.
The burdens placed on a lessee by the environment in which it operates are matters considered at the time the lease is issued, and reflected in the amount of bonus bids and, in some cases, the royalty rate. See 53 FR 1205 Jan. 15, 1988. Thus, environmental and operational factors alone are inadequate justifications for a deepwater gathering allowance.
The 2020 Rule added new rationale for the deepwater gathering allowance.
For example, the 2020 Rule stated that the Gulf of Mexico is currently viewed as a mature hydrocarbon province; that most of the acreage available for leasing has received multiple seismic surveys, has been offered for lease a number of times, or is under lease; that many of the remaining reserves are located in smaller fields that do not warrant stand-

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