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Federal Register / Vol. 86, No. 187 / Thursday, September 30, 2021 / Rules and Regulations it used in the 2020 Rules calculation.
ONRR reviewed the reported royalty data for all Federal gas sales except for non-arms-length transactions discussed below, future valuation agreements, and percentage of proceeds POP contracts. ONRR also adjusted the POOL sales down to 90 percent as described above, which were spread across ten major geographic areas with active index prices. The ten areas account for over 95 percent of all Federal gas produced. ONRR assumed the remaining five percent of lessees producing Federal gas will not elect the index-based method because areas outside of major producing basins may have infrastructure limitations or limited access to index pricing. The ten geographic areas are:
1. Offshore Gulf of Mexico 2. Big Horn Basin 3. Green River Basin 4. Permian Basin 5. Piceance Basin 6. Powder River Basin 7. San Juan Basin 8. Uinta Basin 9. Williston Basin 10. Wind River Basin To calculate the estimated royalty impact, ONRR:
1 Identified the monthly bidweek price index, published by Platts Inside FERC, for each applicable area Northwest Pipeline Rockies for Green River, Piceance and Uinta basins; El Paso San Juan for San Juan basin;
Colorado Interstate Gas for Big Horn, Powder River, Williston, and Wind River basins; El Paso Permian for Permian basin; and Henry Hub for the Gulf of Mexico. ONRR determined the applicability of a price index based on
proximity to the producing area and the frequency with which ONRRs audit and compliance staff verify these index prices in sales contracts;
2 subtracted the appropriate transportation deduction as described in the 2020 Rule from the midpoint index price identified in step 1;
3 compared the reported monthly price for each lease inclusive of any reported transportation allowances to the applicable index price for the lease calculated in step 2 for all months in the first year of reported royalty data in the dataset;
4 identified all leases in step 3
where the reported price exceeded the price calculated in step 2 for seven or more months in the time period;
5 used the lease list created in step 4 as the base universe of properties that would elect to use the index-based valuation method available;
6 compared the actual reported price for each month for each lease in the universe identified in step 5, inclusive of transportation allowances reported, to the calculated price in step 2 to identify the difference between what was reported as actual royalties and what would have been reported as royalties under the terms of the indexbased valuation method;
7 performed this calculation and comparison for the next two sets of twoyear time periods in the remaining four years of royalty reporting in the dataset;
and 8 calculated the total difference in the four years between the original reported royalty prices and royalties of the identified lease universe that elected the index-based valuation method, then divided that total by four to get an annual estimated royalty impact.

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This new method of identification of the lease universe that would elect the index-based valuation method if given the opportunity is the basis for the differences between the estimated royalty impact published in the 2020
Rule and the estimated royalty impact included in this final rule. Also, this identification of the leases that stand to benefit is similar to how a lessee will make its decisions and is a better method to estimate the royalty impact.
ONRR compared the monthly prices reported to it in the first year of the data period, inclusive of transportation allowances, to the index prices for the appropriate producing areas, inclusive of transportation deductions. ONRR
then identified the leases with reported prices higher than the index price in seven or more months of the year. For these leases with prices higher than index for more than half of the year, ONRR assumes the lessee would elect to use the index-based valuation method.
For arms-length natural gas sales, this equates to 39.8 percent of the entire list of leases and represents a percentage that is lower than the 50 percent assumption made by ONRR in the 2020
Rules estimated impacts on royalty collections of this same provision. This new percentage incorporates a more logical identification of the leases taking into account a lessees potential financial benefit.
ONRR estimates the index-based valuation method in the 2020 Rule would have decreased royalty payments on arms-length natural gas by approximately $6.8 million per year when compared to ONRR regulations in effect prior to the 2020 Rule.

ANNUAL CHANGE IN ROYALTIES PAID USING INDEX-BASED METHOD FOR ARMS-LENGTH GAS SALES FROM WITHDRAWAL
OF THE 2020 RULE
Gulf of Mexico Annualized Reported Royalties from Identified Lease Universe
Royalties Estimated using Index-Based Valuation Method for Lease Universe
Difference

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Change in Royalties 2: Using the IndexBased Valuation Method To Value Arms-Length Sales of Federal NGLs ONRR used similar changes to the assumptions when calculating the royalty impact from extending the index-based valuation option to armslength sales of NGLs. As in the previous section, ONRRs goal was to identify a universe of leases that would benefit financially from electing the indexbased valuation method. In the 2020

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$51,720,000
53,940,000
2,220,000

Rule, ONRR assumed that half of the lessees would elect the method without regard to financial benefit or harm.
ONRR used the same dataset for this analysis that was used in the 2020 Rule.
It included all NGL sales except for nonarms-length transactions and future valuation agreements. ONRR also adjusted the POOL sales down to 90
percent as described above. These sales were spread across the same ten major geographic areas with active
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Other areas $168,850,000
159,790,000
9,060,000

Total $220,570,000
213,730,000
6,840,000

index prices for this analysis. To calculate the estimated royalty impact of the index-based valuation method on NGLs from Federal leases, ONRR:
1 Identified the Platts Oilgram Price Report Price Average Supplement Platts Conway or OPIS LP Gas Spot Prices Monthly OPIS Mont Belvieu for published monthly midpoint NGL
prices per component applicable to each area: Platts Conway for Williston and Wind River basins; and OPIS Mont
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