CHAPTER 4 INDIAN OIL VALUATION REGULATIONS

• Jurisdiction: United States

Federal & Indian Oil & Gas Royalty Valuation and Management II
(Feb 1998)
CHAPTER 4
INDIAN OIL VALUATION REGULATIONS
David A. Hubbard
Royalty Valuation Division Minerals Management Service
Denver, Colorado

Note: At the time we submitted this paper to the Rocky Mountain Mineral Law Foundation (RMMLF), the proposed Indian oil valuation rule had received all necessary Department of Interior (DOI) surnames. It awaited review by the Office of Management and Budget (OMB) and subsequent publication in the Federal Register for public comment.

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TABLE OF CONTENTS

SYNOPSIS

I. Introduction

II. Background

III. Content of Proposed Rule

A. Major Provisions of Proposed Indian Rule

B. Comparison of Major Provisions of Proposed Indian and Federal Rules

IV. Status of Proposed Rule

V. Indian/Industry Perspectives

VI. Next Steps

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I. Introduction

Existing Minerals Management Service (MMS) oil royalty valuation regulations, both for Federal and Indian leases, need revision as a result of changes in oil-marketing practices and the marketplace itself. For example, oil posted prices are an important part of the valuation benchmarks in the current Federal and Indian oil valuation regulations. MMS and most of its constituents believe, however, that postings no longer represent market value in general. Accordingly, MMS has undertaken revision of both its Federal and Indian oil valuation regulations. This paper will concentrate on the procedures arrived at by MMS and the Indian community in the effort to modify existing Indian oil royalty valuation regulations.

II. Background

In June 1994, MMS formed an interagency task force to investigate allegations that oil royalty values reported on Federal leases in California were too low. During its deliberations, the task force concluded not only that oil often was undervalued, but that MMS needed to revise its oil valuation regulations—largely because of the regulations' reliance on oil posted prices.

In late 1995 MMS, partly because of the interim findings of the task force and also because of its and others' belief that oil postings no longer generally reflected market value, began work on an advance notice of proposed rulemaking. MMS published the advance notice in December 1995. It requested comments on whether postings nationwide still represented market value and, if not, suggestions on alternative valuation bases. The comment period ended in March 1996.

There was no general agreement by commentors as to the continued market validity of posted prices. States and the Indian community indicated they believed postings no longer represented market value and that index values such as New York Mercantile Exchange (NYMEX) oil futures prices should apply in royalty valuation. Industry generally believed postings fairly represented value.

In June 1996, MMS formed a team to develop proposed new oil royalty valuation regulations for Federal and Indian lands. In addition to MMS, it included single members...