CHAPTER 11 FEDERAL OIL AND GAS ROYALTY SIMPLIFICATION AND FAIRNESS ACT OF 1996 — OVERVIEW, HISTORY AND SYNOPSIS
| Jurisdiction | United States |
(Feb 1998)
FEDERAL OIL AND GAS ROYALTY SIMPLIFICATION AND FAIRNESS ACT OF 1996 — OVERVIEW, HISTORY AND SYNOPSIS
Energy and Natural Resources Subcommittee
U.S. House of Representatives
Washington, D.C.
Milton K. Dial
Program Re-Engineering Office
Minerals Management Service
Denver, Colorado
Patricia Dunmire Bragg
Gardere & Wynne, L.L.P.
Tulsa, Oklahoma
Background
On June 30, 1995, Senator Don Nickles (R-OK) and Congressman Ken Calvert (R-CA), along with other co-sponsors, introduced the Federal Oil and Gas Royalty Simplification and Fairness Act ("FOGRSFA"). After legislative hearings, Subcommittee and full Committee mark-ups, positive scoring by the Congressional Budget Office, redrafting to comply with the Byrd rule requirement on extraneous matters, and completion of the conference report, the FOGRSFA passed the Senate and House in November, 1995 as part of the Balanced Budget Act. After veto of the Balanced Budget Act by President Clinton in December, discussions were initiated between Congress and the White House to determine if common ground could be reached in order to include FOGRSFA in any bi-partisan Balanced Budget Act alternatives.
In December, 1995, Congressional staff members met with Administration representatives on FOGRSFA. The Administration voiced support for the bill but had four areas of concern with the conference report — (1) the language on lessee liability and the definition of "lessee"; (2) the tolling provisions on restructured accounting; (3) perceived limitations imposed by the "cost effective" accounting provision; and (4) the "delegation to States" provisions. On January 19, 1996, the House and Senate reached agreement with the Administration (Office of Management and Budget and the Department of Interior) on the first three issues. The agreement on the three issues provided for: (1) a lessee based liability system with a lessee's designee (payor) assuming no liability for any payment obligation; (2) tolling for restructured accounting upon the issuance of a notice by an Assistant Secretary that a company had not substantially complied with an initial restructured accounting order; and (3) more discretion to determine "cost effective" accounting procedures. The House Subcommittee on Energy and Mineral Resources held a mark-up on FOGRSFA on February 28, 1996. The Chairman's mark which passed the Subcommittee contained the January 19 "agreed to" language on the technical aspects of the bill and also included a revised "delegation to States" provision. The House Resources Committee held a mark-up on March 28, 1996. Following negotiations between the Senate and the White House which resulted in an agreement on the "delegation to States" provisions of the bill, the Senate Energy and Natural Resources Committee held a mark-up on May 1, 1996. Subsequently, the office of Management and Budget and the Department of Interior issued letters supporting the Senate language. FOGRSFA was passed by the House of Representatives on July 16, 1996 and by the Senate on August 2, 1996. President Clinton signed FOGRSFA into law on August 13, 1996.
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Overview And Status Of Key Provisions Of Implementation
I. DELEGATION TO STATES [30 U.S.C. § 1735 ]
• Content
A. Established a procedure for a State to request delegation of the Secretary's responsibilities and to receive a secretarial decision on its request. FOGRSFA allows a State the right to appeal the Secretary's decision to a federal district court in the State seeking delegation.
B. Authorizes the Secretary to delegate an expanded list of secretarial duties and responsibilities.
1. Conducting audits and investigations
2. Receiving and processing production and royalty reports
3. Correcting erroneous report data
4. Performing automated verification
5. Issuing demands, subpoenas, orders to perform restructured accounting, and related tolling agreements and notices to lessees or their designees.
C. Keeps existing agreements between MMS and the states in effect, but makes them amendable to include delegable duties and responsibilities under FOGRSFA.
D. Section 12 of FOGRSFA states that nothing in the Act should be construed to give a state a property interest in any lease or land.
• Implementation
A. Rulemaking
1. April 24, 1997 — proposed regulation published in Federal Register
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2. May 27, 1997 — 30-day comment period ends
3. August 12, 1997 final rule and notice of standards published in Federal Register
B. Dear Payor Letters/Policies & Procedures: none
C. Workgroup meeting notes: none
II. STATUTE OF LIMITATIONS [30 U.S.C. § 1724 ]
• Content
A. MMS must make a demand to a lessee or its designee for underpaid royalty obligation within 7 years of the date the royalty obligation became due (last day of the calendar month following the month of production).
B. To stop the running of the limitation period for any obligation, an order to pay must
1. Be in writing
2. Be issued by the Secretary or applicable delegated State
3. Be issued to lessee or lessee's designee with written notice to lessee
4. Have a reasonable basis to conclude the obligation is due and owing
5. Assert a specific, definite, quantified obligation is deemed to be due
6. Specifically identify the obligation by lease, production month and monetary amount
7. State the reason(s) the obligation is due
C. If no demand is made within 7 years, MMS is barred from any later action to collect the payment.
D. There is a separate royalty obligation for each month for each lease and partial lease.
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E. Lessees are subject to the same 7-year statute of limitations for refund requests.
F. The lessee's demand for refund must:
1. Be in writing to the Secretary
2. Be identified as a "demand"
3. Identify the person entitled to the refund
4. Contain sufficient information to identify the overpayment
5. Provide reasons overpayment was made
G. The Secretary cannot use refunds to offset otherwise time-barred obligations.
H. Tolling
1. By agreement
2. By issuance of subpoena for records
3. By misrepresentation or concealment
4. By issuance of notice that the lessee has not substantially complied with a restructured accounting order or if the lessee challenges the restructured accounting order
• Implementation
A. Rulemaking:
1. Target Date for proposed rulemaking — to be determined
B. Dear Payor Letters/Policies & Procedures: none
C. Workgroup meeting notes:
1. Royalty re-engineering team is addressing the issue.
2. Current issue: What changes must MMS make to current process which institute the statute of limitations.
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III. APPEALS [30 U.S.C. § 1724 ]
• Content
A. Secretary required to issue a final agency decision in any administrative proceeding within 33 months of the date of appeal.
B. Appeals pending on the date of FOGRSFA's enactment must have a final decision issued by the Secretary by 05/13/99.
C. If the Secretary fails to act within 33 months of an appeal of a non-monetary issue or for monetary obligations less than $10,000, appeal is to be granted in favor of the appellant. For amounts greater than $10,000, appeal is granted in favor of the Secretary.
D. A stay of payment on a pending appeal is permitted without posting a bond/other surety if appellant demonstrates financial solvency.
E. Parties must hold at least one settlement conference. FOGRSFA clarifies Secretary's settlement authority.
• Implementation
APPEALS • 33-MONTH TIME LIMIT
A. Rulemaking:
1. October 28, 1996 — MMS publishes proposed rule in Federal Register
2. December 23, 1996 — Comment period extended to March 27, 1997
3. MMS was to make recommendations to the Secretary by August 31, 1997.
4. September 22, 1997 —the Secretary signed a letter to the RPC accepting most of their recommendations. MMS was to prepare revised proposed regulations to implement the RPC recommendations.
5. December 31, 1997 — MMS published a notice that it plans to revise the regulations based on the RPC report and that it will hold a workshop on January 27, 1998 to discuss the issues before publishing its revised notice of proposed rulemaking.
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B. Dear Payor Letters/Policies & Procedures:
1. Dear Payor letter issued February 10, 1997 explaining new appeal procedures.
C. Workgroup meeting notes:
1. Internal plan developed
2. RPC approved the Appeals subcommittee recommendations on March 21, 1997 and submitted them to the Secretary.
3. MMS is distributing a summary of all comments received on the proposed rulemaking and a copy of the RPC report to interested parties in the department.
• Implementation
APPEALS • SELF-BONDING
A. Rulemaking:
1. April 15, 1997 — Draft regulation sent to MMS in Washington D.C.
2. Target date for proposed rule — April 1998
B. Dear Payor Letters/Policies & Procedures: none to date
C. Workgroup meeting notes:
1. How will MMS handle sureties for obligations related to production prior to 9/1/96 until final regulations are finalized?
2. How should MMS define financial solvency?
IV. AUDITS [30 U.S.C. § 1724 ]
• Content
A. If overpayments that are not time-barred are identified during an audit, a credit of the amount overpaid will be allowed.
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B. The Secretary or the applicable delegated State may issue an order to perform a restructured accounting to a lessee or its designee when it is determined from an audit that the lessee or its designee has repeatedly made reporting errors which could result in significant underpayments or overpayment.
• Implementation
A. Rulemaking
1. Limitations on Adjustments (Pre and Post 9/96) Target date for proposed rule: April 1998
B. Dear Payor Letters/Policies & Procedures: none
C. Workgroup meeting notes:
...1. How will MMS
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