Agency Information Collection Activities: Submitted for Office of Management and Budget (OMB) Review; Comment Request

AGENCY:

Minerals Management Service (MMS), Interior.

ACTION:

Notice of a revision of a currently approved information collection (OMB Control Number 1010-0119).

SUMMARY:

To comply with the Paperwork Reduction Act of 1995 (PRA), we are notifying the public that we have submitted to OMB an information collection request (ICR) to renew approval of the paperwork requirements in the regulations under 30 CFR part 208—Sale of Federal Royalty Oil.

This notice also provides the public a second opportunity to comment on the paperwork burden of these regulatory requirements. The title of this information collection request (ICR) is “30 CFR Part 208—Sale of Federal Royalty Oil; Sale of Federal Royalty Gas; and Commercial Contracts (Forms MMS-4070, Application for the Purchase of Royalty Oil; MMS-4071, Letter of Credit; and MMS-4072, Royalty-in-Kind Contract Surety Bond).” We changed the title of this ICR to clarify the regulatory language we are covering under 30 CFR part 208 and to include relevant portions of the Royalty-In-Kind (RIK) 5-Year Business Plan. The title change also reflects OMB's approval of consolidation of five RIK-related ICRs. Those ICRs were titled:

• 1010-0042: 30 CFR part 208—Sale of Federal Royalty Oil; Royalty-in-Kind (RIK) Program (Form MMS-4070, Application for the Purchase of Royalty Oil);
• 1010-0119: 30 CFR part 208—Sale of Federal Royalty Oil, Royalty Oil Sales to Eligible Refiners (30 CFR 208.4(a) and (d));
• 1010-0126: Royalty-In-Kind (RIK) Pilot Program Directed Communications by Operators of Federal Oil and Gas Leases;
• 1010-0129: Royalty-in-Kind Pilot Program—Offers, Financial Statements, and Surety Instruments for Sales of Royalty Oil and Gas; and
• 1010-0135: 30 CFR 208.11(a), (b), (d), and (e)—Surety Requirements (Forms MMS-4071 and MMS-4072).

In the five ICRs, much of the general information was repeated and cross referenced. This consolidated ICR 1010-0119 eliminates that duplication of effort and redundancy of data and provides for review of all RIK information collection requirements on a program-wide basis.

DATES:

Submit written comments on or before February 22, 2006.

ADDRESSES:

Submit written comments by either FAX (202) 395-6566 or e-mail (OIRA_Docket@omb.eop.gov) directly to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for the Department of the Interior (OMB Control Number 1010-0119). Mail your comments to Sharron L. Gebhardt, Lead Regulatory Specialist, Minerals Management Service, Minerals Revenue Management, P.O. Box 25165, MS 302B2, Denver, Colorado 80225. If you use an overnight courier service or wish to hand-carry your comments, our courier address is Building 85, Room A-614, Denver Federal Center, West 6th Avenue and Kipling Blvd., Denver, Colorado 80225. You may also e-mail your comments to us at mrm.comments@mms.gov. Include the title of the information collection and the OMB control number in the “Attention” line of your comment. Also include your name and return address. Submit electronic comments as an ASCII file avoiding the use of special characters and any form of encryption. If you do not receive a confirmation that we have received your e-mail, contact Ms. Gebhardt at (303) 231-3211.

FOR FURTHER INFORMATION CONTACT:

Sharron L. Gebhardt, telephone (303) 231-3211, FAX (303) 231-3781, e-mail Sharron.Gebhardt@mms.gov. You may also contact Sharron Gebhardt to obtain a copy at no cost of the forms and regulations that require the subject collection of information.

SUPPLEMENTARY INFORMATION:

Title: 30 CFR part 208—Sale of Federal Royalty Oil; Sale of Federal Royalty Gas; and Commercial Contracts (Forms MMS-4070, Application for the Purchase of Royalty Oil; MMS-4071, Letter of Credit; and MMS-4072, Royalty-in-Kind Contract Surety Bond).

OMB Control Number: 1010-0119.

Bureau Form Number: Forms MMS-4070, MMS-4071, and MMS-4072.

Abstract: The Secretary of the U.S. Department of the Interior is responsible for matters relevant to mineral resource development on Federal and Indian lands and the Outer Continental Shelf (OCS). The Secretary, under the Mineral Leasing Act of 1920, Section 36, as amended (30 U.S.C. 192) (Mineral Leasing Act); and the Outer Continental Shelf Lands Act of 1953, Section 27, as amended (43 U.S.C. 1353) (OCS Lands Act), is responsible for managing the production of minerals from Federal and Indian lands and the OCS, collecting royalties from lessees who produce minerals, and distributing funds collected in accordance with applicable laws. The MMS performs the royalty management functions for the Secretary.

The MMS is responsible for ensuring that all revenues from Federal and Indian mineral leases are accurately collected, accounted for, and disbursed to recipients. Historically, most of these revenues have been received in the form of cash royalty payments, i.e., royalty in-value payments. These payments are paid by mineral development interests. In recent years, MMS conducted pilots to test the approach of taking royalties in kind.

The Federal Government's MMS RIK pilot program became a permanent operational program after several years of pilot project testing. The MMS RIK operational program takes payment from mineral lessees “in kind” in the form of produced crude oil and natural gas volumes, rather than in cash payments. The lessee transfers the title of the crude oil or natural gas to the Federal Government, and MMS sells the received product (crude oil or natural gas) to agents in the marketplace and disburses revenues as prescribed by law. The MMS sells some product competitively in the unrestricted marketplace, and other RIK product is sold competitively to eligible refiners (a small and independent refiner, as defined in 30 CFR 208.2). Additionally, when directed, MMS delivers the RIK product to other Federal agencies, as has been the case during the fill of the Strategic Petroleum Reserve (SPR), directed by the President in 2001, with scheduled completion in 2005. Specifically, within the MMS RIK operational program, MMS conducts the eligible refiner program and the SPR program, in addition to the Wyoming crude oil, offshore unrestricted crude oil, and offshore natural gas programs.

Recently, MMS consolidated and revised existing procedures and policies guiding the sale of onshore and offshore royalty crude oil and natural gas (1) to establish uniformity within the regulatory and operational framework; (2) to provide industry with a more efficient and responsive MMS RIK operational program; and (3) to improve the Federal Government's administration of this program. For example, several of the reporting requirements for eligible refiners under 30 CFR part 208 have been combined with reporting requirements for other RIK purchasers. However, due to the unique nature of the sale of crude oil to eligible refiners, certain requirements pertain only to that eligible refiner program.

Applicable citations of the laws pertaining to the taking and selling of the Federal Government's royalty share of mineral leases in the form of production (royalties “in kind”) include 30 CFR part 208; Mineral Leasing Act; OCS Lands Act; 30 U.S.C. 189 pertaining to Public Lands; 30 U.S.C. 359 pertaining to Acquired Lands; and 43 U.S.C. 1334 pertaining to OCS Lands. These citations, as well as specific language in the actual lease documents, authorize the Secretary to sell royalty oil and gas accruing to the United States. The standard lease terms state that royalties are due in amount or in value. In addition, these citations authorize the Secretary to prescribe proper rules and regulations and to do any and all things necessary to accomplish the purpose of applicable laws. The MMS directs communications between MMS operators and RIK purchasers through commercial contracts, situation-specific “Dear Operator” letters, or in the case of eligible refiners, through regulations at 30 CFR part 208. Proprietary information submitted to MMS under this collection is protected, and no items of a sensitive nature are collected.

Eligible Refiner Information—This information was previously collected under ICRs 1010-0042 and 1010-0119.

Determination of Need—Federal Register Notice

As stated earlier, royalties may be paid “in value” or “in kind.” The regulations at 30 CFR part 208, Sale of Federal Royalty Oil, govern the Federal oil RIK program for eligible refiners. Under 30 CFR 208.4(a) and (b), MMS, on behalf of the Secretary, performs a Determination of Need prior to issuing a Notice of Availability of Royalty Oil for sale. The MMS uses the feedback from the Determination of Need respondents (eligible refiners or other interested parties, such as lessees or operators) to assess current marketplace conditions, i.e., whether small and independent eligible refiners have access to ongoing supplies of crude oil at equitable prices. When MMS determines that eligible refiners do not have access to adequate supplies of oil, MMS may dispose of any royalty oil taken in kind, by conducting a sale of such oil, through an allocation process, to eligible refiners. The most recent Determination of Need assessment, requesting specific information from eligible refiners, was published in the Federal Register on August 11, 2003 (68 FR 47605).

In order to qualify for RIK sales, eligible refiners must prequalify by signing the MMS base contract, “RIK Crude Oil General Terms and Conditions,” and providing detailed financial information. Upon prequalification, MMS will issue an amount of unsecured credit, based on the creditability of the offeror.

Notice of Availability of Royalty Oil—Federal Register Notice

Under § 208.5, if MMS determines from the Determination of Need that eligible refiners do not have access to adequate supplies of crude oil, MMS would then publish a Notice of Availability of Royalty Oil for sale, in the Federal Register and other printed media, when appropriate. This notice advises industry of a forthcoming RIK crude oil sale for eligible refiners and includes administrative details concerning the application, the allocation process, and the contract award process for the royalty oil. It also details specific information about the crude oil types offered for sale and the location of delivery points. The most recent Notice of Availability of Royalty Oil was published in the Federal Register on March 12, 2004 (69 FR 11881).

Under § 208.10(e), eligible refiners who purchase royalty oil cannot transfer, assign, or sell their rights or interest in a royalty oil contract without written approval of the Director, MMS. This provision is intended to ensure that only qualified eligible refiners benefit from these sales of royalty oil.

Form MMS-4070—Application for the Purchase of Royalty Oil

Under § 208.6, eligible refiners interested in purchasing royalty oil must submit Form MMS-4070 in accordance with instructions in the Notice of Availability of Royalty Oil and instructions issued by MMS for completion of the form. On Form MMS-4070, MMS requests specific information, such as: The location of their refinery; desirability of offshore versus onshore crude; type of crude desired (e.g., Wyoming Sweet); ability to obtain long-term supply of desired crude (with supporting documentation, such as “denial” by major supplier); ability to obtain desired crude at fair market prices (with supporting documentation that desired oil was not available or equitably priced for the area or region in question); percentage of total refining capacity attributable to Federal oil versus other sources; etc.

The Federal Government's administration of the eligible refiner program is aided significantly by the collection of information requested on Form MMS-4070. The MMS uses the information collected to determine the eligibility of refiners wanting to enter into contracts to purchase royalty oil and to provide a basis for the allocation of available royalty oil among eligible refiners, when necessary; that is, they meet the small refiner eligibility requirements issued by the Small Business Administration, as explained under § 208.6.

Directed Communications by Operators of Federal Oil and Gas Leases—This information was previously collected under ICR 1010-0126.

Collection of RIK crude oil and natural gas for eligible refiners and other RIK purchasers requires communication between MMS and the operators of a lease to ensure accurate and timely delivery of MMS's royalty share of production volumes. In order to take MMS's crude oil or natural gas in kind, MMS, as the responsible steward of oil and gas royalties, must direct operators of affected MMS leases to provide three types of communication:

(1) Report information about the projected volumes and qualities of RIK crude oil or natural gas production the operator expects to make available for delivery in the following month, and report corrections to those projected volumes and qualities for previous months, submitting monthly no later than 10 days before the first day of following month;

(2) Report cost/invoicing information about transportation charges incurred for delivering the RIK product to the delivery point, when applicable; and

(3) Report month-end summary information (lease imbalance statement) regarding total RIK crude oil or natural gas volumes and qualities needed to carry over to the next month to resolve aggregated imbalances that have occurred in prior months of RIK deliveries.

In marketing the product, information received through MMS's directed communication is essential for MMS to ensure the delivery and acceptance of verifiable quantities and qualities of crude oil and natural gas. In cases when MMS is directed to deliver the product to other Federal agencies, these types of directed communication are necessary so that exchange contractors can arrange to timely accept accurate amounts and qualities of royalty oil that will be delivered by MMS's exchange partner and for MMS to verify timely fulfillment of operators' and lessees' royalty obligations to the Federal Government.

The types of directed communication and the supporting data, which MMS requires operators to use in setting up the monthly delivery of RIK to the purchaser, are standard business practices in the oil and gas industry. Sample “Dear Operator” letters are posted on RIK's Web site at http://www.mrm.mms.gov/rikweb/RIKOperLts.htm.

Third-Party Agreements—This information was previously collected under ICR 1010-0042.

Title 30 CFR 208.9 requires that eligible refiners who purchase royalty oil must submit to MMS two copies of any written third-party agreements, or two copies of a complete written explanation of any oral third-party agreements, relating to the method and costs of delivery of royalty oil, or crude oil exchanged for the royalty oil, from the point of delivery under the contract to the purchaser's refinery. Also, this section requires that the purchaser must submit copies of agreements pertaining to quality differentials that may occur between the lease(s) and the delivery point(s). However, in practice MMS does not currently require eligible refiners to submit these agreements.

Offers, Financial Statements, and Surety Instruments for Sales of Royalty Oil and Gas—This information was previously collected under ICRs 1010-0129 and 1010-0135.

Offers. The Secretary is obligated to hold competition when selling to the public to protect actual RIK production before, during, and after any sale and to obtain a fair return on royalty production sold. The MMS must fulfill those obligations for the Secretary. The reporting requirements are (1) actual pricing offers that potential purchasers will submit when MMS offers production for competitive sale; (2) offerors' statements of financial qualification (audited financial statements or 10K report/statement); and (3) surety instruments, such as a Letter of Credit (LOC), bond, prepayment, or parent guaranty when financial qualification is not sufficient. All LOCs are irrevocable.

The MMS typically offers royalty oil and gas production for sale by Invitation for Offers (IFOs) to those offerors who have previously established their qualifications. The MMS evaluates all offers to determine which combination of price and other terms comprises the best return to the U.S. Department of the Treasury and to any affected state.

Financial Statements. The MMS may request that a bidder submit its public-available statements of its financial condition (brought briefly up to date, if needed) or other related qualification information. The MMS evaluates the qualification information to determine whether bidders are reliable to follow through on payment of the dollar amount (or delivery of exchange production) offered, as they bid, and to determine their ability to timely perform activities attendant to the taking of crude oil and/or natural gas. The MMS performs this step to reduce the risk to the Federal Government in these transactions.

Surety Instruments. Under MMS's current practice, eligible refiners are subject to the same requirements as other RIK purchasers regarding MMS-acceptable surety instruments and qualification information. Reporting requirements in 30 CFR 208.11 discuss surety instruments for eligible refiners. Surety instruments include the broad field of financial instruments that may be collected, such as bonds, prepayments, and parent guaranties. When required, eligible refiners and other RIK purchasers must provide surety documents, i.e., Form MMS-4071, LOC; Form MMS-4072, Royalty-In-Kind Contract Surety Bond; other acceptable commercial surety, within 5 business days prior to the first delivery under the contract to protect the Federal Government's interest. For bonds, MMS requires a specific MMS-approved format. All parent guaranties must specify a dollar amount of the guaranty and the effective term.

For awards exceeding the amount of unsecured credit issued by MMS, successful offerors will be required to provide secured financial assurance in the form of an LOC, bond, or other MMS-acceptable surety instrument within 5 business days prior to the first delivery under the contract.

In cases of high-risk counterparties, or large awards of RIK crude oil or natural gas, MMS will require a surety instrument to guarantee performance under RIK sales or exchange agreement. Surety instruments are commonly used in the commercial oil and gas industry as a standard course of business where risk is encountered from counterparties.

The surety instruments provide the Federal Government with a means to collect money if refiners do not report and pay for the Federal oil they have received. Annually, the MMS receives approximately 3 bonds, less than 5 LOCs, 1 or 2 prepayment(s), and 10 parent guaranties or, in some cases, semiannually.

The MMS is requesting OMB's approval to continue to collect this information. Not collecting this information would limit the Secretary's ability to discharge his/her duties and may also result in loss of royalty payments.

Frequency of Response: On occasion, weekly, monthly, annually, frequency varies within monthly reporting cycle, or as necessary.

Estimated Number and Description of Respondents: 145 Federal lessees and/or operators; and 80 commercial oil and gas purchasers and/or refiners.

Estimated Annual Reporting and Recordkeeping “Hour” Burden: 2,284 hours.

The following chart shows the breakdown of the estimated burden hours by CFR section and paragraph. We are revising this ICR to include previously overlooked reporting requirements at § 208.10(d). We have adjusted the burden hours accordingly. We have not included in our estimates certain requirements performed in the normal course of business and considered usual and customary.

Estimated Annual Reporting and Recordkeeping “Non-hour” Cost Burden: We have identified no “non-hour” cost burdens.

Public Disclosure Statement: The PRA (44 U.S.C. 3501 et seq.) provides that an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

Comments: Section 3506(c)(2)(A) of the PRA requires each agency “* * * to provide notice * * * and otherwise consult with members of the public and affected agencies concerning each proposed collection of information * * *.” Agencies must specifically solicit comments to: (a) Evaluate whether the proposed collection of information is necessary for the agency to perform its duties, including whether the information is useful; (b) evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) enhance the quality, usefulness, and clarity of the information to be collected; and (d) minimize the burden on the respondents, including the use of automated collection techniques or other forms of information technology.

To comply with the public consultation process, we published a notice in the Federal Register on March 7, 2005 (70 FR 11027), announcing that we would submit this ICR to OMB for approval. The notice provided the required 60-day comment period. We received no comments in response to the notice.

If you wish to comment in response to this notice, you may send your comments to the offices listed under the ADDRESSES section of this notice. The OMB has up to 60 days to approve or disapprove the information collection but may respond after 30 days. Therefore, to ensure maximum consideration, OMB should receive public comments by February 22, 2006.

Public Comment Policy: We will post all comments in response to this notice on our Web site at http://www.mrm.mms.gov/Laws_R_D/InfoColl/InfoColCom.htm. We will also make copies of the comments available for public review, including names and addresses of respondents, during regular business hours at our offices n Lakewood, Colorado. Upon request, we will withhold an individual respondent's home address from the public record, as allowable by law. There also may be circumstances in which we would withhold a respondent's identity, as allowable by law. If you request that we withhold your name and/or address, state your request prominently at the beginning of your comment. However, we will not consider anonymous comments. We will make all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, available for public inspection in their entirety.

MMS Information Collection Clearance Officer: Arlene Bajusz (202) 208-7744.