UPDATE: The ONRR published in the Federal Register a delay in the effective date of the ONRR 2020 Valuation Reform and Civil Penalty Rule (i.e. the 2020 Valuation Rule). The effective date for the 2020 Valuation Rule is now November 1, 2021. The ONRR is requesting public comments on the delay and also on issues of fact, law, and policy raised by the 2020 rule. Comments are due by March 15, 2020. The ONRR is specifically seeking comments on the following questions:

1. Does the repeal of prior Executive Orders and the issuance of new Executive Orders demonstrate a change in policy meriting or requiring reconsideration of some or all of the 2020 Rule?
2. Is the 2020 Rules reinstatement of allowances for certain deep water oil and gas gathering costs consistent with the current law and policy of the United States?
3. Is the 2020 Rule’s reinstatement of extraordinary processing allowances consistent with current law and policy of the United States in the limited circumstances described in the 2020 Rule?
4. Should the Department of the Interior consider science on the source and impacts of climate change in setting royalty and revenue management policy?
5. Is the 2020 Rule’s economic evaluation supporting the extension of index-based valuation to arm’s-length transactions appropriate and supported by current law and policy?
6. Does the index-based valuation options adopted in the 2020 Rule support the ONRR’s goals of clarity, early certainty and transparency in royalty valuation?
7. Given that the Department of the Interior has long viewed gross proceeds received under an arm’s-length contract between independent person…to be the best indicator of value in most circumstances, should the ONRR have given lessees the option to elect an index-based value?
8. Do you believe procedural issues exist in the 2020 Rule’s rulemaking process and , if so, what are those issues and what could ONRR do to remedy those issues?
9. What would be the impact of a potential further delay of 60 to 120 days in the effective date of the 2020 Rule?
10. Should the 2020 Rule be amended, rescinded, delayed pending further review by the agency, or allowed to go into effect?

Amendments adopted in this final rule include the following:

1. Allowing a lessee producing Federal oil and gas from the OCS under leases in water depths of 200 meters or greater to take a deduction for certain gathering costs as part of its transportation allowance.

2. Allowing a lessee to apply to ONRR for approval to claim an extraordinary processing allowance for Federal gas in situations where the gas stream, plant design, and/or unit costs were extraordinary, unusual, or unconventional relative to standard industry conditions and practice.

3. Removing the definition of “misconduct” from 30 CFR part 1206 as it applies to Federal oil and gas, and Federal and Indian coal.

4. Removing the default provision and references thereto from the regulations applying to Federal oil and gas, and Federal and Indian coal.

5. Removing the requirement that a lessee have contracts signed by all parties in order for those contracts to be recognized valid and binding with respect to the valuation of Federal oil and gas, and Federal and Indian coal.

6. Removing the requirement for a lessee to cite legal precedent when seeking a valuation determination for Federal oil and gas or a valuation decision for Federal or Indian coal.

7. Expanding the option to use index-based valuation to arm’s-length Federal gas sales, which, under the 2016 Valuation Rule, was only available for non-arm’s-length Federal gas sales.

8. For unprocessed and residue gas valued using the index-based valuation method, changing from the high index price to the average index price.

9. Changing the transportation deductions allowed under an index-based valuation method to reflect more recent transportation cost data reported to ONRR.

10. Amending other regulation language to make non-substantive corrections so as to make the regulations more clear and workable.

11. Amending ONRR’s Federal and Indian coal valuation regulations to remove the requirement to value certain coal based on the sale of electricity.

12. Amending ONRR’s Federal and Indian coal valuation regulations to remove the definition of “coal cooperative” and the method to value sales between members of a “coal cooperative.”

13. Amending ONRR’s civil penalty regulations to clarify that ONRR will consider the unpaid, underpaid, or late payment amounts in the severity analysis for payment violations only.

14. Amending ONRR’s civil penalty regulations to clarify that ONRR may consider aggravating and mitigating circumstances when calculating the amount of a civil penalty.

15. Amending ONRR’s civil penalty regulations to remove an ALJ’s ability to vacate the benefit of a stay of an accrual of penalties if the ALJ later determines that a violator’s defense to a notice of noncompliance was frivolous.

Click here for the entire ONRR 2020 Rule:

Federal Register :: ONRR 2020 Valuation Reform and Civil Penalty Rule

Disclaimer: The purpose of this article is to make you aware of certain ONRR rule changes. Laws are subject to change and ONRR interpretation. Please see official ONRR correspondence for official guidance.