The Interior Department’s Minerals Management Service (MMS) hasissued a final rule for determining royalties for natural gasproduced on Indian lands. Under the new rule, which was publishedin the Aug. 10 Federal Register, Indian leases would have theoption to either compute royalties on wellhead gas using apublished price index, continue using the existing gross-proceedsmethod for arms-length contracts, or use the current MMS benchmarksystem for non-arms-length sales. If gas is processed, Indiantribes then would adopt a “dual accounting” method under whichroyalties would be based on whichever has the greater value for gas- before processing or after processing. In most cases, it’s thelatter.

Indian tribes can choose the method that will bring them thegreatest value. “Surprisingly MMS has found that a lot oftribes…..are going to lose money on indexing,” said Larry Cobb, atechnical advisor for MMS. The agency felt that would be”politically incorrect.” That’s why Indian tribes also were giventhe “dual accounting” option – to ensure that they “get theincreased value that they’re entitled to after processing.”

The new rule will go into effect Jan. 1, 2000. Prior to then,MMS will provide a list of “acceptable” trade publications thatpublish gas index prices. The rule was developed by the Indian GasValuation Negotiated Rulemaking Committee, whose members includedIndian tribes and allottee associations, industry groups, MMS andthe Bureau of Indian Affairs.

Natural gas production on Indian lands last year was estimatedat 279 Bcf, according to Cobb. Producers paid about $191 million inroyalties on gas, oil and coal minerals that were extracted fromIndian lands in 1998.

Susan Parker

©Copyright 1999 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.