CHAPTER 9 ROYALTY VALUATION IN A DYNAMIC MARKET ENVIRONMENT

• Jurisdiction: United States

Federal & Indian Oil & Gas Royalty Valuation and Management III
(2000)
CHAPTER 9
ROYALTY VALUATION IN A DYNAMIC MARKET ENVIRONMENT
Sylvia Baca, Assistant Secretary
U.S. Department of the Interior
Washington, D.C.

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(Luncheon Presentation)

Land and Minerals Management

• Thanks very much to the Rocky Mountain Mineral Law Foundation for inviting me here today to address such a distinguished group.

• Let me first say that we in the Department of the Interior really appreciate the service performed by the Rocky Mountain Mineral Law Foundation. Just looking at the agenda for this institute shows how effective you are at bringing experts from government and industry together to discuss important issues. And your reporting service for MMS decisions provides a valuable resource both for industry and government. Thanks for your good work — we are happy to provide support to your organization.

• It is very nice to see that many of the industry counsel out there have an opportunity to meet with representatives of MMS, the Office of the Solicitor and even with judges from the IBLA in person, rather than just through filing of briefs or arguing cases in court. It is a credit to our society that we can oppose each other vigorously in court at times but then can get together in groups like this and discuss the issues in a more cooperative manner.

• Who would have thought that an arcane topic like Federal royalty valuation would generate so much interest. But it makes sense when you realize that MMS collects more than $4 billion a year in revenues — issues that are worth just a few pennies on the dollar add up to real money before long.

• During my tenure at the Department of the Interior over the past six years, as Deputy Assistant Secretary, as Interim Director of the BLM, and now as Assistant Secretary, I've encountered no issues that have been more controversial than royalty valuation. A few have come close — hard rock mining regulations, grazing permits, wild horses, and mountaintop mining have been challenging and interesting — but this issue probably has been the toughest.

• Just two weeks after we finally completed the oil valuation rule, after five years of effort, we received the decision of Judge Lamberth, holding invalid regulatory changes we completed two years ago for natural gas. And now the IPAA has sued us on the oil rule. I feel like a full-fledged Assistant Secretary now that I've been sued. So we've been through the Congress and the Executive Branch on this rule, and now we're in the third branch of Government.

• Unfortunately, these long, drawn-out battles do not help to achieve the certainty that we would like to see for royalty valuation.

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• Of course we spend most of our time working on the issues that cause the most controversy. But it is useful occasionally to step back for a minute and look at what we have in common.

• We should remember that mineral leases are essentially a cooperative venture between the lessor and the lessee. Our common interest in maximizing production and revenues from the lease is much larger than our opposing interests on the exact amount of...