Sens. Mary Landrieu (D-LA) and Don Nickles (R-OK) introducedlegislation last week designed to prevent the Department of theInterior’s Minerals Management Service from altering its oil andgas royalty valuations methodology in a way that could costproducers millions more in royalty payments. The proposedlegislation, titled the “Federal Royalty Certainty Act” (SB 924),is designed to give producers what they have been seeking for sometime: certainty about what they owe the government.

“My bill will codify the fundamental, longstanding principlethat royalty is due on the value of production at the lease,”Nickles said in a statement. The MMS’ rule as currently writtenwould require that royalties be valued at market points downstreamof the wellhead, something producers charge would cost asignificant amount more in marketing, transportation and storagecosts than the true value of the production.

Under Nickles’ legislation, if royalty payments, whether in kindor in cash, are based on the value of oil or gas fartherdownstream, companies would be reimbursed for transporting,marketing and processing. The legislation would apply to oil andgas produced from onshore and offshore federal leases, but wouldnot apply to leases on Indian lands.

“These provisions will reduce the costs of a complicated systemthat spawns disputes, while preserving the taxpayer’s right to afair return for its resources,” said Nickles. “As I have said onmany occasions, we need to reduce unnecessary, burdensome andexcessively costly regulations. We need a little common sense.”

The Natural Gas Supply Association and the Independent PetroleumAssociation both said they strongly support the legislation. “Thebasic premise on why we oppose the MMS’ current rulemakings isbecause they include those add-ons – [the costs of marketing andtransportation],” said NGSA’s John Sharp. “We believe royaltiesshould be something that is evaluated at the wellhead, not at somepoint downstream.

“I think we’ve gotten down to the point now where thisrulemaking is more of a legal battle than anything else. It hasbecome a very legal question as to where we believe royaltiesshould be collected. I don’t know if we’re going to be able topersuade MMS to our way of thinking and certainly they are notgoing to be able to persuade us to their way of thinking.”

Congress has imposed several moratoria on MMS’ valuation rulesbecause of the strong industry opposition. Currently there isemergency funding supplement in Interiors’ appropriations bill thatif passed would halt funding for any royalty valuation rulemakinguntil the end of the year.

MMS concluded a second comment period on its oil royaltyvaluations rule April 27. It addressed gas valuation in a formalnegotiated rulemaking proceeding over the last few years and aproposed final rule was published last year, but it was met withstrong industry opposition. The MMS has placed the final gasvaluations rule on hold until resolution of the issues involved inboth the gas and oil royalty valuations proceedings.

The Nickles legislation may lead to hearings at the SenateEnergy and Natural Resources Committee level but a schedule has notbeen drawn up, said a committee staffer.

MMS’ Lyn Herdt, chief of the office of communications, said theMMS is still reviewing the legislation and currently has nocomment.

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.