ONRR’s new rule could stifle production while creating widespread uncertainty

WASHINGTON, June 30, 2016 – API Upstream and Industry Operations Director Erik Milito issued the following statement regarding the U.S. Department of the Interior’s Office of Natural Resources Revenue (ONRR) release of a final regulation on valuing royalties from oil and natural gas produced on public lands. 

 

“This rule directly undercuts the goals described by the rule itself,” said Milito. “Many of the provisions in the proposal are arbitrary and create wide business and contract uncertainty, and could further stifle energy production on federal lands. The U.S. – now the number one producer of natural gas and oil – has become the global leader in reduced carbon and other emissions, which are near 20-year lows, while reducing prices for consumers. This rule undermines the status of the U.S. as a global energy superpower; regulatory policies need to embrace - not discourage – domestic energy production."

 

According to the ONRR, the purpose of implementing this final rule was “(1) to offer greater simplicity, certainty, clarity, and consistency in product valuation for mineral lessees and mineral revenue recipients; (2) to ensure that Indian mineral lessors receive the maximum revenues from coal resources on their land, consistent with the Secretary’s trust responsibility and lease terms; (3) to decrease industry’s cost of compliance and ONRR’s cost to ensure industry compliance; and (4) to provide early certainty to industry and to ONRR that companies have paid every dollar due.”

 

“The rule’s failure to achieve the stated goals related to oil and gas development combined with the agency’s reversal of many longstanding policies on valuation options and allowances could well serve as a disincentive for companies wishing to invest and develop on federal lands,” said Milito. “Clear, consistent leasing and royalty terms are part of what makes investments possible. Preserving certainty and fairness in the process is critical for the consumers and workers that benefit from domestic production.”

 

Among other areas that concern the oil and natural gas industry, a new “default provision” permits the agency to “second-guess” lessees’ royalty valuation yet provides no standards for when and how such a decision would be made and justified. ONRR has also redefined “gathering” for Outer Continental Shelf (OCS) leases to no longer allow for transportation deductions for movement in the OCS areas from the wellhead to the first platform. This is significant for companies as the first movement of production could span hundreds of miles and could bring additional costs of tens of millions of dollars annually without providing companies any flexibility to conform their operations to the new rule.

 

API is the only national trade association representing all facets of the oil and natural gas industry, which supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. API’s more than 650 members include large integrated companies, as well as exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms. They provide most of the nation’s energy and are backed by a growing grassroots movement of more than 30 million Americans.