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The
NewsRoom
Release #: 3106
Date: July 23, 2004
Natural Gas Valuation Rule Amendments Proposed:
MMS Aims to Secure Economic Value for America
Proposed changes to the 1988
Federal Gas Valuation Rule will make Federal natural gas leases more
attractive for development, and provide assurance of a fair market
return on these resources to the American public, according to the
Minerals Management Service. The valuation rule is used to determine
royalties due on natural gas from federal leases. The proposed changes
were published today in the Federal Register.
“The proposed changes
will offer greater certainty, clarity and consistency on natural gas
valuation issues for the producers,” said MMS Director Johnnie Burton.
“The result will be more accurate royalty reporting, which ultimately
helps MMS continue to assure economic value for America on these
important resources.”
MMS held a series of public
workshops in April and May of 2003 to gather feedback on possible
revisions to the 16-year-old rule. Based on feedback from the
workshops as well as subsequent written comments, MMS determined that
proposing changes to the rule was warranted.
MMS is proposing
changes to future valuation, rate of return, transportation
allowances, and definitions and tariffs.
Synopsis of the Proposed
Changes
Future Valuation:
Add a provision in 30 CFR 206.150, to allow for future valuation
agreements consistent with language contained in the June 2000 Federal
Oil Rule.
Rate of Return:
Increase the rate of return on non-arms length transportation
arrangements from one times the Standard and Poor’s BBB Industrial
Bond rate to 1.3 times that rate to better reflect industry’s actual
weighted average cost of capital consistent with the May 2004 Federal
Oil Rule amendments.
Transportation Allowances:
Revise the definition of transportation allowance in the gas rule to
conform to the definition found in other rules. Eliminate the 1988
“grandfather clause” for pre-1988 allowance approvals. Change the
1998 amendment to the gas transportation allowance regulations
specifying that unused firm demand costs are allowable consistent with
the D.C. Circuit Court’s decision in IPAA v. DeWitt.
Arm’s-length Transportation
Contracts - Allow costs of securing a letter of credit that the
pipeline requires a shipper to maintain. Disallow fees paid to
brokers, fees paid to scheduling service providers and internal
costs.
Non-arm’s-length
Transportation Contracts - Allow fees paid (either in volume or in
value) for actual line losses. Disallow fees paid to brokers, fees
paid to scheduling service providers and internal costs.
Definitions: Modify
the definition of “arm’s-length contract” and add a definition of the
term “affiliate” to be identical to the June 2000 Federal Oil Rule and
to conform the gas valuation rule to the D.C. Circuit’s holding in
National Mining Association v. DOI.
Tariffs: For
Federal Energy Regulatory Commission-approved tariffs used in
non-arm’s-length transportation situations, simplify and revise the
conditions under which a lessee may request an exception to the
requirement to calculate non-arm’s-length transportation costs.
The proposed rule can be
viewed online.
The Minerals
Management Service is the federal agency in the U.S. Department of the
Interior that manages the nation’s oil, natural gas, and other mineral
resources on the Outer Continental Shelf in Federal offshore waters.
The agency also collects, accounts for, and disburses mineral revenues
from Federal and American Indian lands. MMS disbursed more than $8
billion in FY 2003 and more than $135 billion since the agency was
created in 1982. Nearly $1 billion from those revenues go into the
Land and Water Conservation Fund annually for the acquisition and
development of state and Federal park and recreation lands.
Relevant Web Sites
MMS Main Website
Media Contacts
Curtis Carey
(202) 208-3985
Patrick Etchart
(303) 231-3162
MMS: Securing Ocean Energy & Economic Value for
America
U.S. Department of the Interior |