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Interior Explores New Royalty Valuation Approach

Responding to President Obama's call for federal agencies to streamline their regulations, the Interior Department said it plans to explore a "simplified market-based approach" to determine the value of oil and natural gas for royalty purposes.

This "could dramatically reduce [the] accounting and paperwork requirements and costs on industry, and better ensure proper royalty valuation" for the federal government, the department said in its "retrospective regulatory review" plan, which was posted on the White House website Thursday. Approximately 30 federal agencies submitted plans for trimming regulations thought to be unnecessary, and the administration contends this could eliminate tens of millions of hours of reporting burdens and billions of dollars in regulatory costs.

In January Obama signed an executive order calling for a government-wide review of regulations that discourage job creation and make the U.S. economy less competitive (see Daily GPI, Jan. 19). "We're...making it our mission to root out regulations that conflict, that are not worth the cost, or that are just plain dumb," he said.

Interior further noted that the U.S. Fish and Wildlife Service, in conjunction with the National Marine Fisheries Services, is working to revise and update the Endangered Species Act, which seeks to protect threatened and endangered plants and animals. The two agencies are aiming to "improve conservation effectiveness, reduce administrative burden [and] enhance clarity for impacted stakeholders," Interior said.

Interior's Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) defended changes in the offshore safety standards that it has made in the wake of last year's Macondo well blowout in the Gulf of Mexico, which sank the Deepwater Horizon drilling rig (see Daily GPI, April 26, 2010). BOEM is "now considering applying 'safety case' type performance standards, such as those widely applied internationally, to the U.S. offshore regulatory regime.

"A hybrid combination of performance-based and prescriptive standards will provide flexibility to adapt to changing technologies and increasingly complex operation conditions, while maintaining worker and environmental protections," the Interior agency said.

Oil and natural gas producers have complained that the new safety regulations for offshore drilling activity have slowed the pace of permitting in the Gulf of Mexico and stifled job creation.

The Department of Energy (DOE) said it has proposed amending the National Environmental Policy Act (NEPA) with respect to categorical exclusions (CE). The granting of CEs, or the ability to forgo detailed environmental reviews of an energy project, came under fierce attack following the BP plc-leased Deepwater Horizon disaster. BP had received a CE for the Deepwater Horizon.

The proposal to amend NEPA is "intended to better align DOE's categorical exclusions with current activities and recent experiences," said the department.

High on the pipelines' list was the wish that the Department of Transportation (DOT) would address the conflicting state/federal jurisdiction surrounding oil and gas pipelines. The Association of Oil Pipe Lines and the American Petroleum Institute urged the department to develop with the Environmental Protection Agency a memorandum of understanding or a letter agreement that would tackle the issue, reducing the confusion surrounding dual regulatory jurisdiction of pipeline facilities and to "harmonize two separate regulatory schemes."

The DOT's Pipeline Safety and Hazardous Materials Administration said it "continues to work with EPA and the U.S. Coast Guard on a variety of issues," but it did not say whether dual pipeline jurisdiction was one of them.

The conflicting jurisdiction arises from the fact that the Natural Gas Act gives the federal government primary authority over gas transmission pipelines, while the Clean Air Act and the Clean Water Act essentially award the states veto power to block proposed gas pipelines.

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