The U.S. Department of Interior (DOI) has finalized its Indian Oil Valuation Amendments, which expand and clarify a major component of tribal oil and natural gas leases pertaining to how royalty payments are calculated.

According to DOI, the Negotiated Rulemaking Committee (NRC) reached an agreement to base royalties for production on tribal lands on whichever is higher: gross proceeds or an index-based formula that captures a unique provision in Indian leases referred to as the “major portion price,” a term that refers to the highest price paid for oil produced from a field or area.

DOI’s Office of Natural Resources Revenue (ONRR) said Indian lessors should receive significant increases in royalty payments under the new rule, which becomes effective on July 1. The final rule was published in the Federal Register Friday.

“We estimated the costs and benefits that this rulemaking may have on all potentially affected groups: industry, Indian lessors, and the federal government,” ONRR said in the Federal Register. “This amendment will result in an estimated annual increase in royalty collections of between $19.4 million and $20.6 million for ONRR to disburse to Indian lessors.

“This net impact represents a minimal increase of between 3.82% and 3.93% of the total Indian oil royalties that ONRR collected in 2012. We also estimate that industry and the federal government will experience one-time increased system costs of approximately $4.84 million and $247,000, respectively.”

The NRC was formed in late 2011 and included representatives from American Indian tribes, individual Indian mineral owner associations, the oil and gas industry, ONRR and DOI’s Bureau of Indian Affairs. The committee met nine times through 2012 and 2013.

Last month, DOI began taking public comments on a proposal to give its Bureau of Land Management to adjust royalty rates for drilling on public lands (see Daily GPI,April 17).