THE MMS PERSPECTIVE OF THE FERC'S JURISDICTIONAL ROLE UNDER THE OCSLA

• Jurisdiction: United States

Federal & Indian Oil & Gas Royalty Valuation and Management III
(2000)
CHAPTER 13A
THE MMS PERSPECTIVE OF THE FERC'S JURISDICTIONAL ROLE UNDER THE OCSLA
Martin C. Grieshaber
Policy and Management Improvement Minerals Management Service
Denver, Colorado

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Lakewood, Colorado

April, 2000

INTRODUCTION

The Minerals Management Service is responsible for management of the Nation's mineral resources on the Federal Outer Continental Shelf (OCS). Particularly, the MMS is responsible for collecting royalties from the leases issued on these lands. The Federal Energy Regulatory Commission (FERC) also has a statutory obligation that impacts the oil and gas industry operating on the OCS. Communication and coordination between the two agencies is in the best interest of both parties. The closer the two agencies work together, the more likely the industry will be able to 1) comply with all applicable regulations; 2) avoid litigation; and 3) develop the Nation's resources in an economic and prudent fashion.

TRANSPORTATION AND GATHERING

The MMS' goal is to receive fair market value for its royalty share of production. MMS regulations permit royalty payors to deduct the actual and reasonable costs of transporting Federal production from the lease to a valuation point when that point is remote from the lease — a frequent occurrence, particularly in the offshore environment.

The FERC provides regulatory oversight of pipelines on the OCS. Companies file tariff applications with the FERC requesting rate approval. Companies may use FERC approved tariffs when calculating royalty value under the current MMS regulations. As stated below, the MMS routinely denies requests to use FERC oil tariffs on certain OCS pipelines. The MMS accepts FERC gas tariffs. The new oil valuation regulations published in March of this year do not reference the acceptability of FERC tariffs.

The MMS supports the concept that transportation rates should reflect the market value. The rates should be established in an open market. MMS regulations provide that companies may deduct the costs of transporting royalty bearing substances away from the lease when the valuation of those substances occurs away from the lease. These regulations are found at 30 CFR § 206.104 for oil; 30 CFR §§ 206.156 and 206.157 for gas. MMS regulations do not explicitly define transportation, but rather provide instructions on how to calculate a transportation allowance when permissible. Generally, once production has been placed in marketable condition and measured for royalty purposes, a deduction for the costs of movement from that point to the point of valuation is appropriate.

The transportation allowance is calculated differently depending upon the relationship of the shipper and the transporter. The deductible amounts may be determined by the terms of an arm's-length contract, or in the case of affiliation between the producer and transporter, the deductible amounts may be the actual calculated costs or a FERC tariff.

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The MMS and FERC have different definitions of the same term — gathering.

MMS

For the purposes of royalty calculations, the MMS differentiates between the terms gathering and transportation. The purpose for this differentiation is that the costs of transportation are deductible from royalties whereas the costs of gathering are not. Current MMS regulations, define gathering as:

Gathering means the movement of lease production to a central accumulation and/or treatment point on the lease, unit, or communitized area, or to a central accumulation or treatment...