CHAPTER 14 a KEY EVENTS IN MMS PRODUCT VALUATION RULEMAKING 1980-1988

• Jurisdiction: United States

Royalty Valuation and Management
(Mar 1988)
CHAPTER 14a
KEY EVENTS IN MMS PRODUCT VALUATION RULEMAKING 1980-1988
David T. Deal
American Petroleum Institute
Washington, D.C.

Linowes Commission (1980-1982)

o In 1981 the time was ripe for a comprehensive review of DOI's Royalty Management Program:

— lingering concerns about program had been addressed in series of reports by GAO and DOI's own Inspector General's office in 50's-70's

— royalty stakes had risen astronomically

1920-1950	$354 million	(30 years)
1951-1960	757 million	(10 years)
1961-1970	2.5 billion	(10 years)
1971-1980	12.1 billion	(10 years)
1981-1985	24 billion	(5 years)
1981-1990	51.9 billion(est)	(10 years)

— astronomical revenues had created big business but management still in hands of petroleum scientists.

o Precipitating event, however, was accusation of oil theft and fraud on Wind River Reservation in 1980; Linowes Commission established by Secretary Watt in July 1981.

o Whatever the reasons, Linowes Commission undertook a comprehensive review of RMP and in its January 1982 Final Report, "Fiscal Accountability of the Nation's Energy Resources," arrived at some 60 recommendations directed at dealing with such things as:

— lack of site security

— no reconciliation of royalty accounts

— lax enforcement

— lack of DOI cooperation with states/Indian tribes

— uncertain valuation guidelines.

o However, all the Linowes Commission said on valuation was that DOI needed to clarify valuation guidelines promptly

MMS Proposed Order for Valuation of OCS Gas (April 1982)

o Odd event occurred on April 16, 1982 (47 FR 16423-26)

o At the heart of the proposed order was the notion that for regulated OCS gas the benchmark for valuation should be NGPA ceiling price irrespective of contract proceeds; offshore version of NTL-5.

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o Industry response was immediate and negative; extensive comments filed July 1982 all arguing that contract proceeds not NGPA ceiling prices should drive valuation determinations.

o Proposed order abandoned. But see Amoco Production Co. v. Hodel, 627 F. Supp. 1375 (W.D.La. 1986) holding that DOI could use NGPA ceiling prices as the basis for valuation even though lessee's proceeds under warranty contracts is far less.

Federal Oil and Gas Royalty Management Act, P.L. 97-451, 30 U.S.C § 1701 et seq. (January 1983)

o FOGRMA enacted in record time; introduced in December 1981 and signed January 1983.

o...