30 CFR Part 203, Relief or Reduction in Royalty Rates

Authority: 25 U.S.C. 396 et seq.; 25 U.S.C. 396a et seq.; 25 U.S.C. 2101 et seq.; 30 U.S.C. 181 et seq.; 30 U.S.C. 351 et seq.; 30 U.S.C. 1001 et seq.; 30 U.S.C. 1701 et seq.; 31 U.S.C. 9701; 43 U.S.C. 1301 et seq.; 43 U.S.C. 1331 et seq.; and 43 U.S.C. 1801 et seq.

Subpart A—General Provisions

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Source: 63 FR 2616, Jan. 16, 1998, unless otherwise noted.

§ 203.0 What definitions apply to this part?

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Authorized field means a field:

(1) Located in a water depth of at least 200 meters and in the Gulf of Mexico (GOM) west of 87 degrees, 30 minutes West longitude;

(2) That includes one or more pre-Act leases; and

(3) From which no current pre-Act lease produced, other than test production, before November 28, 1995.

Certified unsuccessful well means an original well, or a sidetrack with a sidetrack measured depth of at least 10,000 feet, on your lease that:

(1) You begin drilling on or after March 26, 2003, and before May 3, 2009, and before your lease produces gas or oil from a deep well with a perforated interval the top of which is at least 18,000 feet true vertical depth below the datum at mean sea level (TVD SS);

(2) You drill to at least 18,000 feet TVD SS with a target reservoir on your lease, identified from seismic and related data, deeper than that depth;

(3) Fails to meet the producibility requirements of 30 CFR part 250, subpart A, and does not produce gas or oil, or the MMS agrees is not commercially producible; and

(4) For which you have provided the notices and information in §203.46.

Complete application means an original and two copies of the six reports consisting of the data specified in 30 CFR 203.81, 203.83 and 203.85 through 203.89, along with one set of digital information, which MMS has reviewed and found complete.

Deep well means either an original well or a sidetrack with a perforated interval the top of which is at least 15,000 feet TVD SS. A deep well subsequently re-perforated less than 15,000 feet TVD SS in the same reservoir is still a deep well.

Determination means the binding decision by MMS on whether your field qualifies for relief or how large a royalty-suspension volume must be to make the field economically viable.

Development project means a project to develop one or more oil or gas reservoirs located on one or more contiguous leases that:

(1) Were issued in a sale held after November 28, 2000;

(2) Are located in a water depth of at least 200 meters and in the GOM wholly west of 87 degrees, 30 minutes West longitude; and

(3) Have had no production (other than test production) before the current application for royalty relief.

Draft application means the preliminary set of information and assumptions you submit to seek a nonbinding assessment on whether a field could be expected to qualify for royalty relief.

Eligible lease means a lease that:

(1) Is issued as part of an OCS lease sale held after November 28, 1995, and before November 28, 2000;

(2) Is located in the Gulf of Mexico in water depths of 200 meters or deeper;

(3) Lies wholly west of 87 degrees, 30 minutes West longitude; and

(4) Is offered subject to a royalty suspension volume.

Expansion project means a project you propose in a Development Operations Coordination Document (DOCD) or a Supplement approved by the Secretary of the Interior after November 28, 1995, that will significantly increase the ultimate recovery of resources from one or more reservoirs that have not produced on a pre-Act lease or a lease issued in a sale held after November 28, 2000. A significant increase does not simply extend recovery from reservoirs already in production. For a pre-Act lease, the expansion project must also involve a substantial capital investment (e.g., fixed-leg platform, subsea template and manifold, tension-leg platform, multiple well project, etc.). For a lease issued after November 28, 2000, the expansion project must involve a new well drilled into a reservoir that has not previously produced. In all cases, all leases in an expansion project must be wholly located in a water depth of at least 200 meters and in the GOM wholly west of 87 degrees, 30 minutes West longitude.

Fabrication (or start of construction) means evidence of an irreversible commitment to a concept and scale of development. Evidence includes copies of a binding contract between you (as applicant) and a fabrication yard, a letter from a fabricator certifying that continuous construction has begun, and a receipt for the customary down payment.

Field means an area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same general geological structural feature or stratigraphic trapping condition. Two or more reservoirs may be in a field, separated vertically by intervening impervious strata or laterally by local geologic barriers, or both.

Lease means a lease or unit.

New production means any production from a current pre-Act lease from which no royalties are due on production, other than test production, before November 28, 1995. Also, it means any additional production resulting from new lease-development activities on a lease issued in a sale after November 28, 2000, or a current pre-Act lease under a DOCD or a Supplement approved by the Secretary of the Interior after November, 28, 1995.

Nonbinding assessment means an opinion by MMS of whether your field could qualify for royalty relief. It is based on your draft application and does not entitle the field to relief.

Original well means a well that is drilled without utilizing an existing wellbore. An original well includes all sidetracks drilled from the original wellbore before the drilling rig moves off the well location. A bypass from an original well (e.g., drilling around material blocking the hole or to straighten crooked holes) is part of the original well.

Participating area means that part of the unit area that MMS determines is reasonably proven by drilling and completion of producible wells, geological and geophysical information, and engineering data to be capable of producing hydrocarbons in paying quantities.

Performance conditions means minimum conditions you must meet, after we have granted relief and before production begins, to remain qualified for that relief. If you do not meet each one of these performance conditions, we consider it a change in material fact significant enough to invalidate our original evaluation and approval.

Pre-Act lease means a lease that:

(1) Results from a sale held before November 28, 1995;

(2) Is located in the GOM in water depths of 200 meters or deeper; and

(3) Lies wholly west of 87 degrees, 30 minutes West longitude.

Production means all oil, gas, and other relevant products you save, remove, or sell from a tract or those quantities allocated to your tract under a unitization formula, as measured for the purposes of determining the amount of royalty payable to the United States.

Project means any activity that requires at least a permit to drill.

Qualified well means a deep well:

(1) For which drilling begins on or after March 26, 2003;

(2) That produces natural gas (other than test production), including gas associated with oil production, before May 3, 2009; and

(3) For which you have met the requirements prescribed in §203.43.

Redetermination means our reconsideration of our determination on royalty relief because you request it after:

(1) We have rejected your application;

(2) We have granted relief but you want a larger suspension volume;

(3) We withdraw approval; or

(4) You renounce royalty relief.

Renounce means action you take to give up relief after we have granted it and before you start production.

Reservoir means an underground accumulation of oil or natural gas, or both, characterized by a single pressure system and segregated from other such accumulations.

Royalty suspension (RS) lease means a lease that:

(1) Is issued as part of an OCS lease sale held after November 28, 2000;

(2) Is in locations or planning areas specified in a particular Notice of OCS Lease Sale offering that lease; and

(3) Is offered subject to a royalty suspension specified in a Notice of OCS Lease Sale published in the Federal Register.

Royalty suspension supplement means a royalty suspension volume resulting from drilling a certified unsuccessful well that is applied to future natural gas and oil production generated at any drilling depth on, or allocated under an MMS-approved unit agreement to, the same lease.

Royalty suspension volume means a volume of production from a lease that is not subject to royalty under the provisions of this part.

Sidetrack means, for the purpose of this subpart, a well resulting from drilling an additional hole to a new objective bottom-hole location by leaving a previously drilled hole. A sidetrack also includes drilling a well from a platform slot reclaimed from a previously drilled well or re-entering and deepening a previously drilled well. A bypass from a sidetrack (e.g., drilling around material blocking the hole, or to straighten crooked holes) is part of the sidetrack.

Sidetrack measured depth means the actual distance or length in feet a sidetrack is drilled beginning where it exits a previously drilled hole to the bottom hole of the sidetrack, that is, to its total depth.

Sunk costs for an authorized field means the after-tax eligible costs that you (not third parties) incur for exploration, development, and production from the spud date of the first discovery on the field to the date we receive your complete application for royalty relief. The discovery well must be qualified as producible under part 250, subpart A of this title. Sunk costs include the rig mobilization and material costs for the discovery well that you incurred before its spud date.

Sunk costs for an expansion or development project means the after-tax eligible costs that you (not third parties) incur for only the first well that encounters hydrocarbons in the reservoir(s) included in the application and that meets the producibility requirements under part 250, subpart A of this chapter on each lease participating in the application. Sunk costs include rig mobilization and material costs for the discovery wells that you incurred before their spud dates.

Withdraw means action we take on a field that has qualified for relief if you have not met one or more of the performance conditions.

[63 FR 2616, Jan. 16, 1998, as amended at 67 FR 1872, Jan. 15, 2002; 69 FR 3509, Jan. 26, 2004; 69 FR 24053, Apr. 30, 2004]

§ 203.1 What is MMS's authority to grant royalty relief?

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The Outer Continental Shelf (OCS) Lands Act, 43 U.S.C. 1337, as amended by the OCS Deep Water Royalty Relief Act (DWRRA), Public Law 104–58, authorizes us to grant royalty relief in three situations.

(a) Under 43 U.S.C. 1337(a)(3)(A), we may reduce or eliminate any royalty or a net profit share specified for an OCS lease to promote increased production.

(b) Under 43 U.S.C. 1337(a)(3)(B), we may reduce, modify, or eliminate any royalty or net profit share to promote development, increase production, or encourage production of marginal resources on certain leases or categories of leases. This authority is restricted to leases in the Gulf of Mexico (GOM) that are west of 87 degrees, 30 minutes West longitude.

(1) Your lease is in deep water (water at least 200 meters deep);

(2) Your lease is in designated areas of the GOM (west of 87 degrees, 30 minutes West longitude);

(3) Your lease was acquired in a lease sale held before the DWRRA (before November 28, 1995);

(4) We find that your new production would not be economic without royalty relief; and

(5) Your lease is on a field that did not produce before enactment of the DWRRA, or if you propose a project to significantly expand production under a Development Operations Coordination Document (DOCD) or a supplementary DOCD, that MMS approved after November 28, 1995.

§ 203.2 How can I get royalty relief?

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We may reduce or suspend royalties for Outer Continental Shelf (OCS) leases or projects that meet the criteria in the following table.

------------------------------------------------------------------------

Then we may grant

If you have a lease . . . And if you . . . you . . .

------------------------------------------------------------------------

(a) With earnings that cannot Would abandon A reduced royalty

sustain production (i.e., End- otherwise rate on current

of-life lease). potentially monthly

recoverable production and a

resources but higher royalty

seek to increase rate on

production by additional

operating beyond monthly

the point at production. (See

which the lease §§

is economic under 203.50 through

the existing 203.56.)

royalty rate.

(b) Located in a designated GOM Are producing and A royalty

deep water area, and acquired seek to increase suspension for

in a lease sale before November ultimate resource additional

28, 1995, or after November 28, recovery from one production large

2000, and you propose in a DOCD or more enough to make

or supplement to expand reservoirs not the project

production significantly. previously or economic. (See

currently §§

producing on the 203.60 through

field or lease, 203.79.)

not simply extend

recovery of

reservoirs that

already produced.

(Expansion

project).

deep water area and acquired in from which no suspension for a

a lease sale held before current pre-Act minimum

November 28, 1995 (Pre-Act lease produced production volume

lease). (other than test plus any

production) additional volume

before November needed to make

28, 1995 the field

(Authorized economic. (See

field). §§

203.60 through

203.79.)

(d) Located in a designated GOM Have not produced A royalty

deep water area and acquired in and can suspension for a

a lease sale held after demonstrate that minimum

November 28, 2000. the suspension production volume

volume, if any, plus any

in your lease is additional volume

not enough to needed to make

make development your project

economic economic. (See

(Development §§

project). 203.60 through

203.79.)

(e) Where royalty relief would Are not eligible A royalty

recover significant additional to apply for end- modification in

resources or, in certain areas of-life or deep size, duration,

of the GOM, would enable water royalty or form that

development. relief, but show makes your lease

us you meet or project

certain economic. (See

elligibility § 203.80.)

conditions.

------------------------------------------------------------------------

[67 FR 1872, Jan. 15, 2002]

§ 203.3 Why must I pay a fee to request royalty relief?

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(a) When you submit an application or ask for a preview assessment, you must include a fee to reimburse us for our costs of processing your application or assessment. Federal policy and law require us to recover the cost of services that confer special benefits to identifiable non-Federal recipients. The Independent Offices Appropriation Act (31 U.S.C. 9701), Office of Management and Budget Circular A–25, and the Omnibus Appropriations Bill (Pub. L. 104–133, 110 Stat. 1321, April 26, 1996) authorize us to collect these fees.

(b) We will specify the necessary fees for each of the types of royalty-relief applications and possible MMS audits in a Notice to Lessees. We will periodically update the fees to reflect changes in costs as well as provide other information necessary to administer royalty relief.

§ 203.4 How do the provisions in this part apply to different types of leases and projects?

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The tables in this section summarize the similar application and approval provisions for the discretionary end-of-life and deep water royalty relief programs in §§203.50 to 203.91. Because royalty relief for deep gas on leases not subject to deep water royalty relief, as provided for under §§203.40 to 203.48, does not involve an application, its provisions do not parallel the other two royalty relief programs and are not summarized in this section.

(a) We require the information elements indicated by an X in the following table and described in §§203.51, 203.62, and 203.81 through 203.89 for applications for royalty relief.

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Deep water

End-of- ------------------------------------------

Information elements life Expansion Pre-act Development

lease project lease project

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(1) Administrative information report..................... X X X X

(2) Net revenue and relief justification report X

(prescribed format)......................................

(3) Economic viability and relief justification report ......... X X X

(Royalty Suspension Viability Program (RSVP) model inputs

justified with Geological and Geophysical (G&G),

Engineering, Production, & Cost reports).............

(4) G&G report........................................ ......... X X X

(5) Engineering report.................................... ......... X X X

(6) Production report..................................... ......... X X X

(7) Deep water cost report................................ ......... X X X

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(b) We require the confirmation elements indicated by an X in the following table and described in §§203.70, 203.81 and 203.90 through 203.91 to retain royalty relief.

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Deep water

End-of- ------------------------------------------

Confirmation elements life Expansion Pre-act Development

lease project lease project

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(1) Fabricator's confirmation report...................... ......... X X X

(2) Post-production development report approved by an ......... X X X

independent certified public accountant (CPA)............

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(c) The following table indicates by an X, and §§203.50, 203.52, 203.60 and 203.67 describe, the prerequisites for our approval of your royalty relief application.

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Deep water

End-of- ------------------------------------------

Approval conditions life Pre-act Development

lease Expansion lease project

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(1) At least 12 of the last 15 months have the required X

level of production......................................

(2) Already producing..................................... X

(3)A producible well into a reservoir that has not ......... X X X

produced before..........................................

(4) Royalties for qualifying months exceed 75% of net X

revenue (NR).............................................

(5) Substantial investment on a pre-Act lease (e.g.,

platform, subsea template)...............................

(6) Determined to be economic only with relief............ ......... X X X

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(d) The following table indicates by an X, and §§203.52 and 203.74 through 203.75 describe, the prerequisites for a redetermination of our royalty relief decision.

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Deep water

End-of- ------------------------------------------

Redetermination conditions Life Expansion Pre-act Development

lease project lease project

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(1) After 12 months under current rate, criteria same as X

for approval.............................................

(2) For material change in geologic data, prices, costs, ......... X X X

or available technology..................................

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(e) The following table indicates by an X, and §§203.53 and 203.69 describe, the characteristics of approved royalty relief.

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Deep water

End-of- ------------------------------------------

Relief rate and volume, subject to certain conditions life Expansion Pre-act Development

lease project lease project

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(1) One-half pre-application effective lease rate on the X

qualifying amount, 1.5 times pre-application effective

lease rate on additional production up to twice the

qualifying amount, and the pre-application effective

lease rate for any larger volumes........................

(2) Qualifying amount is the average monthly production X

for 12 qualifying months.................................

(3) Zero royalty rate on the suspension volume and the ......... X X X

original lease rate on additional production.............

(4) Suspension volume is at least 17.5, 52.5 or 87.5 ......... .............. X

million barrels of oil equivalent (MMBOE)................

(5) Suspension volume is at least the minimum set in the ......... X ......... X

Notice of Sale, the lease, or the regulations............

(6) Amount needed to become economic...................... ......... X X X

----------------------------------------------------------------------------------------------------------------

(f) The following table indicates by an X, and §§203.54 and 203.78 describe, circumstances under which we discontinue your royalty relief.

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Deep water

End-of- ------------------------------------------

Full royalty resumes when life Expansion Pre-act Development

lease project lease project

----------------------------------------------------------------------------------------------------------------

(1) Average NYMEX price for last 12 months is at least 25 X

percent above the average for the qualifying months......

(2) Average NYMEX price for last calendar year exceeds $28/ ......... X X

bbl or $3.50/mcf, escalated by the gross domestic product

(GDP) deflator since 1994................................

(3) Average prices for designated periods exceed levels we ......... X ......... X

specify in the Notice of Sale or the lease...............

----------------------------------------------------------------------------------------------------------------

(g) The following table indicates by an X, and §§203.55 and 203.76 through 203.77 describe, circumstances under which we end or reduce royalty relief.

----------------------------------------------------------------------------------------------------------------

Deep water

End-of- ------------------------------------------

Relief withdrawn or reduced life Expansion Pre-act Development

lease project lease project

----------------------------------------------------------------------------------------------------------------

(1) If recipient requests................................. X X X X

(2) Lease royalty rate is at the effective rate for 12 X

consecutive months.......................................

(3) Conditions occur that we specified in the approval X

letter in individual cases...............................

(4) Recipient does not submit post-production report that ......... X X X

compares expected to actual costs........................

(5) Recipient changes development system.................. ......... X X X

(6) Recipient excessively delays starting fabrication..... ......... X X X

(7) Recipient spends less than 80 percent of proposed pre- ......... X X X

production costs prior to start of production............

(8) Amount of relief volume is produced................... ......... X X X

----------------------------------------------------------------------------------------------------------------

[67 FR 1873, Jan. 15, 2002, as amended at 69 FR 3509, Jan. 26, 2004]

§ 203.5 What is MMS's authority to collect information?

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The Paperwork Reduction Act of 1995 (PRA) requires us to inform you that MMS may not conduct or sponsor and you are not required to respond to a collection of information unless it displays a currently valid OMB control number. OMB approved the information collection requirements in this part 203 under 44 U.S.C. 3501 et seq. in two actions. The information collection requirements in §§203.50 through 203.91 are approved under OMB control number 1010–0071, and those in §§203.40 through 203.48 are approved under 1010–0153.

[69 FR 3509, Jan. 26, 2004]

Subpart B—OCS Oil, Gas, and Sulfur General

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Source: 63 FR 2618, Jan. 16, 1998, unless otherwise noted.

Royalty Relief for Drilling Deep Gas Wells on Leases Not Subject to Deep Water Royalty Relief

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Source: 69 FR 3510, Jan. 26, 2004, unless otherwise noted.

§ 203.40 Which leases are eligible for royalty relief as a result of drilling deep wells?

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Your lease may receive a royalty suspension volume under §§203.41 through 203.43, and may receive a royalty suspension supplement under §§203.44 through 203.46, if it:

(a) Was:

(1) In existence on January 1, 2001;

(2) Issued in a lease sale held after January 1, 2001, and before April 1, 2004, and either the lessee has exercised the option provided for in §203.48 or the lease is located partly in water less than 200 meters deep and no deep water royalty relief provisions in statutes or lease terms apply to the lease; or

(3) Issued in a lease sale held on or after April 1, 2004, and either the lease terms provide for royalty relief under §§203.41 through 203.47 of this part or the lease is located partly in water less than 200 meters deep and no deep water royalty relief provisions in statutes or lease terms apply to the lease;

(b) Is located:

(1) In the GOM, wholly west of 87 degrees, 30 minutes West longitude;

(2) Entirely in water less than 200 meters deep, or partly in water less than 200 meters deep and no deep-water royalty relief provisions in statutes or lease terms apply to the lease; and

(c) Has not produced gas or oil from a deep well with a perforated interval the top of which is 18,000 feet TVD SS or deeper that commenced drilling before March 26, 2003.

[69 FR 3510, Jan. 26, 2004, as amended at 70 FR 22252, Apr. 29, 2005]

§ 203.41 If I have a qualified well, what royalty relief will my lease earn?

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(a) This paragraph and paragraph (b) of this section apply if your lease has not produced gas or oil from a deep well that commenced drilling before March 26, 2003. Subject to the administrative requirements of §203.43, the provisions of §203.44(d), and the price conditions in §203.47, you earn a royalty suspension volume shown in the following table in billions of cubic feet (BCF) or in thousands of cubic feet (MCF) applicable to gas production as prescribed in §203.42:

------------------------------------------------------------------------

Then you earn a royalty

suspension volume on this

If you have a qualified well that is . amount of gas production, as

. . prescribed in this section and

§ 203.42:

------------------------------------------------------------------------

(1) An original well with a perforated 15 BCF.

interval the top of which is from

15,000 to less than 18,000 feet TVD SS.

(2) A sidetrack with a perforated 4 BCF plus 600 MCF times

interval the top of which is from sidetrack measured depth

15,000 to less than 18,000 feet TVD SS. (rounded to the nearest 100

feet) but no more than 15 BCF.

(3) An original well with a perforated 25 BCF.

interval the top of which is 18,000

feet TVD SS or deeper.

(4) A sidetrack with a perforated 4 BCF plus 600 MCF times

interval the top of which is 18,000 sidetrack measured depth

feet TVD SS or deeper. (rounded to the nearest 100

feet) but no more than 25 BCF.

------------------------------------------------------------------------

(b) We will suspend royalties on gas volumes produced on or after May 3, 2004, reported on the Oil and Gas Operations Report, Part A (OGOR-A) for your lease under §216.53, as and to the extent prescribed in §203.42. All gas production from qualified wells reported on the OGOR-A, including production that is not subject to royalty (except for production to which a royalty suspension supplement under §§203.44 and 203.45 applies), counts toward the lease royalty suspension volume.

Example 1. If you have a qualified well that is an original well with a perforated interval the top of which is 16,000 feet TVD SS, you earn a royalty suspension volume of 15 BCF of gas production from qualified wells on your lease, as prescribed in §203.42. However, if the top of the perforated interval is 18,500 feet TVD SS, the royalty suspension volume is 25 BCF.

Example 2. If you have a qualified well that is a sidetrack with a perforated interval the top of which is 16,000 feet TVD SS, that has a sidetrack measured depth of 6,789 feet, we round the distance to 6,800 feet and you earn a royalty suspension volume of 8.08 BCF of gas production from qualified wells on your lease, as prescribed in §203.42.

Example 3. If you have a qualified well that is a sidetrack with a perforated interval the top of which is 16,000 feet TVD SS, that has a sidetrack measured depth of 19,500 feet, you earn a royalty suspension volume of 15 BCF of gas production from qualified wells on your lease, as prescribed in §203.42, even though 4 BCF plus 600 MCF per foot of sidetrack measured depth equals 15.7 BCF.

(c) This paragraph and paragraph (d) of this section apply if your lease has produced gas or oil from a deep well with a perforated interval the top of which is from 15,000 to less than 18,000 feet TVD SS (regardless of whether drilling began before or after March 26, 2003), and you subsequently have a qualified well on your lease with a perforated interval the top of which is 18,000 feet TVD or deeper. Subject to the administrative requirements of §203.43, the provisions of §203.44(d), and the price conditions in §203.47, you earn a royalty suspension volume specified in the following table, applicable to gas production as prescribed in §203.42. This royalty suspension volume is in addition to any royalty suspension volume your lease already may have earned, if any, as a result of a qualified well with a perforated interval the top of which is from 15,000 to less than 18,000 feet TVD SS.

------------------------------------------------------------------------

If your lease has produced gas or oil

from a deep well with a perforated Then, you earn a royalty

interval the top of which is from suspension volume on this

15,000 to less than 18,000 feet TVD SS, amount of gas production, as

and you subsequently have a qualified prescribed in this section and

well that is . . . § 203.42

------------------------------------------------------------------------

(1) An original well or a sidetrack 0 BCF.

with a perforated interval the top of

which is from 15,000 to less than

18,000 feet TVD SS.

(2) An original well with a perforated 10 BCF.

interval the top of which is 18,000

feet TVD SS or deeper.

(3) A sidetrack with a perforated 4 BCF plus 600 MCF times

interval the top of which is 18,000 sidetrack measured depth

feet TVD SS or deeper. (rounded to the nearest 100

feet) but no more than 10 BCF.

------------------------------------------------------------------------

(d) We will suspend royalties on gas volumes produced on or after May 3, 2004, reported on the Oil and Gas Operations Report, Part A (OGOR-A) for your lease under §216.53, as and to the extent prescribed in §203.42. All gas production from qualified wells reported on the OGOR-A, including production that is not subject to royalty (except for production to which a royalty suspension supplement under §§203.44 and 203.45 applies), counts toward the lease royalty suspension volume.

Example 1. If you have drilled and produced a well with a perforated interval the top of which is 16,000 feet TVD SS before March 26, 2003 (and therefore, it is not a qualified well and has earned no royalty suspension volume) and later drill:

(i) A well with a perforated interval the top of which is 17,000 feet TVD SS, you earn no royalty suspension volume.

(ii) A qualified well that is an original well with a perforated interval the top of which is 19,000 feet TVD SS, you earn a royalty suspension volume of 10 BCF of gas production from qualified wells on your lease, as prescribed in §203.42.

(iii) A qualified well that is a sidetrack with a perforated interval the top of which is 19,000 feet TVD SS, that has a sidetrack measured depth of 7,000 feet, you earn a royalty suspension volume of 8.2 BCF of gas production from qualified wells on your lease, as prescribed in §203.42.

Example 2. If you have a qualified well (i.e., drilled after March 26, 2003) that is an original well with a perforated interval the top of which is 16,000 feet TVD SS and later drill a second qualified well that is an original well with a perforated interval the top of which is 19,000 feet TVD SS, we increase the total royalty suspension volume for your lease from 15 BCF to 25 BCF, as prescribed in §203.42.

Example 3. If you have a qualified well (i.e., drilled after March 26, 2003) that is a sidetrack with a perforated interval the top of which is 16,000 feet TVD SS, that has a sidetrack measured depth of 4,000 feet, and later drill a second qualified well that is a sidetrack with a perforated interval the top of which is 19,000 feet TVD SS, that has a sidetrack measured depth of 8,000 feet, we increase the total royalty suspension volume for your lease from 6.4 BCF to 15.2 BCF, as prescribed in §203.42. The difference of 8.8 BCF represents the royalty suspension volume earned by the second sidetrack.

(e) After your lease has produced gas or oil from a deep well with a perforated interval the top of which is 18,000 feet TVD SS or deeper, your lease cannot earn a royalty suspension volume as a result of drilling any subsequent qualified wells.

(f) The royalty suspension volume determined under this section for the first qualified well on your lease (whether an original well or a sidetrack) establishes the total royalty suspension volume available for that drilling depth interval on your lease, regardless of the number of subsequent qualified wells you drill to that depth interval.

Example to paragraph (f): If your first qualified well is a sidetrack with a perforated interval the top of which is 16,000 feet TVD SS and earns a royalty suspension volume of 12.5 BCF, and you later drill a qualified original well to 17,000 feet TVD SS, the royalty suspension volume for your lease remains at 12.5 BCF and does not increase to 15 BCF. However, under paragraph (b) of this section, if you subsequently drill a qualified well to another depth interval 18,000 feet or greater TVD SS, you may earn an additional royalty suspension volume.

(g) If a qualified well on your lease is within a unitized portion of your lease, the royalty suspension volume earned by that well under this section applies only to your lease and not to other leases within the unit.

(h) If your qualified well is a directional well (either an original well or a sidetrack) drilled across a lease line, the lease with the perforated interval that initially produces earns the royalty suspension volume. However, if the perforated interval crosses a lease line, the lease where the surface of the well is located earns the royalty suspension volume.

(i) Any royalty suspension volume earned under this section is in addition to any royalty suspension supplement for your lease under §203.44 that results from a different wellbore.

(j) If your lease earns a royalty suspension volume under this section and later produces from a deep well that is not a qualified well, the royalty suspension volume is not forfeited or terminated. However, you may not apply the royalty suspension volume under this section to production from the deep well that is not a qualified well, even if it begins producing after your first qualified well.

(k) You owe minimum royalties or rentals in accordance with your lease terms notwithstanding any royalty suspension volumes allowed under paragraphs (a) and (b) of this section.

[69 FR 3510, Jan. 26, 2004, as amended at 69 FR 24053, Apr. 30, 2004]

§ 203.42 To which production do I apply the royalty suspension volume earned from qualified wells on my lease?

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(a) This paragraph applies to any lease that is not within an MMS-approved unit. Subject to the requirements of §§203.40, 203.41, 203.43, 203.44, and 203.47, you must apply the royalty suspension volumes prescribed in §203.41 to the earliest gas production:

(1) Occurring on and after the later of May 3, 2004, or the date that the first qualified well that earns your lease the royalty suspension volume begins production (other than test production);

(2) From all qualified wells, regardless of their depth, on your lease for which you have met the requirements in §203.43, up to the aggregate royalty suspension volume earned by your lease.

Example to paragraph (a): You began drilling an original well that was a qualified well with a perforated interval the top of which is 18,200 feet TVD SS on May 1, 2003 and it began producing on September 1, 2003. You subsequently drilled two more original wells that are qualified wells with a perforated interval the tops of which are 16,600 feet TVD SS. The first well earned a royalty suspension volume of 25 BCF. You must apply the royalty suspension volume each month beginning on March 1, 2004 to production from all three wells until the 25 BCF royalty suspension volume is fully utilized.

(b) This paragraph applies to any lease all or part of which is within an MMS-approved unit. If your lease has a qualified well, a share of the production from all the qualified wells in the unit participating area will be allocated to your lease each month according to the participating area percentages. Subject to the requirements of §§203.40, 203.41, 203.43, 203.44, and 203.47, you must apply the royalty suspension volume to the earliest gas production occurring on and after the later of May 3, 2004, or the date that the first qualified well that earns your lease the royalty suspension volume begins production (other than test production):

(1) From all qualified wells on the non-unitized area of your lease and

(2) Allocated to your lease from qualified wells on unitized areas of your lease and other leases in the unit under an MMS-approved unit agreement. That allocated share does not increase the royalty suspension volume for your lease. None of the volumes produced from a well that is not within a unit participating area may be allocated to other leases in the unit.

Example to paragraph (b): The east half of your lease A is unitized with all of lease B. There is one qualified well on the non-unitized portion of lease A, one qualified well on the unitized portion of lease A and a qualified well on lease B. The participating area percentages allocate 32 percent of production from both of the unit qualified wells to lease A and 68 percent to lease B. If the non-unitized qualified well on lease A produces 12,000 MCF and the unitized qualified well on lease A produces 15,000 MCF, and the qualified well on lease B produces 10,000 MCF, then the production volume from and allocated to lease A to which the lease A royalty suspension volume applies is 20,000 MCF [12,000 + (15,000 + 10,000)(32 percent)]. The production volume allocated to lease B to which the lease B royalty suspension volume applies is 17,000 MCF [(15,000 + 10,000)(68 percent)].

(d) You may not apply the royalty suspension volume allowed under §203.41:

(1) To production from completions less than 15,000 feet TVD SS, except in cases where the qualified well is re-perforated in the same reservoir previously perforated deeper than 15,000 feet TVD SS;

(2) To production from a deep well that commenced drilling before March 26, 2003; or

(3) To production from a deep well on any other lease, except as provided in paragraph (b) of this section.

(e) You must begin paying royalties when the cumulative production of gas from all qualified wells on your lease, or allocated to your lease under paragraph (b) of this section, reaches the applicable royalty suspension volume allowed under §203.41. For the month in which cumulative production reaches this royalty suspension volume, you owe royalties on the portion of gas production that exceeds the royalty suspension volume remaining at the beginning of that month.

(f) No royalty suspension volume may be applied to any liquid hydrocarbon (oil and condensate) volumes.

[69 FR 3510, Jan. 26, 2004, as amended at 69 FR 24054, Apr. 30, 2004]

§ 203.43 What administrative steps must I take to use the royalty suspension volume?

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(a) You must notify, in writing, the MMS Regional Supervisor for Production and Development of your intent to begin drilling operations on all deep wells; and

(b) Within 30 days of the beginning of production from all wells that would become qualified wells by satisfying the requirements of this section, you must:

(1) Provide written notification to the MMS Regional Supervisor for Production and Development that production has begun; and

(2) Request confirmation of the size of the royalty suspension volume earned by your lease.

(c) Before beginning production, you must meet any production measurement requirements that the MMS Regional Supervisor for Production and Development has determined are necessary under 30 CFR part 250, subpart L.

(d) If you produced from a qualified well before May 3, 2004, you must provide the information in paragraph (b) of this section no later than August 3, 2004.

(e) If you cannot produce from a well that otherwise meets the criteria for a qualified well before May 3, 2009, the MMS Regional Supervisor for Production and Development may extend the deadline for beginning production for up to 1 year, based on the circumstances of the particular well involved, provided you demonstrate that:

(1) The delay occurred after reaching total depth in your well;

(2) Production (other than test production) was expected to begin before March 1, 2009; and

(3) The delay in beginning production is for reasons beyond your control, including but not limited to adverse weather and unavoidable accidents.

[69 FR 3510, Jan. 26, 2004, as amended at 69 FR 24054, Apr. 30, 2004]

§ 203.44 If I drill a certified unsuccessful well, what royalty relief will my lease earn?

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Your lease may earn a royalty suspension supplement. Subject to paragraph (d) of this section, the royalty suspension supplement is in addition to any royalty suspension volume your lease may earn under §203.41.

(a) If you drill a certified unsuccessful well and you satisfy the administrative requirements of §203.46 and subject to the price conditions in §203.47, you earn a royalty suspension supplement shown in the following table (in billions of cubic feet of gas equivalent (BCFE) or in thousands of cubic feet of gas equivalent (MCFE)) applicable to oil and gas production as prescribed in §204.45:

------------------------------------------------------------------------

Then, you earn a royalty

suspension supplement on this

If you have a certified unsuccessful volume of oil and gas

well that is . . . production as prescribed in

this section and § 203.45:

------------------------------------------------------------------------

(1) An original well and your lease has 5 BCFE.

not produced gas or oil from a deep

well.

(2) A sidetrack (with a sidetrack 0.8 BCFE plus 120 MCFE times

measured depth of at least 10,000 sidetrack measured depth

feet) and your lease has not produced (rounded to the nearest 100

gas or oil from a deep well. feet) but no more than 5 BCFE.

(3) An original well or a sidetrack 2 BCFE.

(with a sidetrack measured depth of at

least 10,000 feet) and your lease has

produced gas or oil from a deep well

with a perforated interval the top of

which is from 15,000 to less than

18,000 feet TVD SS.

------------------------------------------------------------------------

(b) We will suspend royalties on oil and gas volumes produced on or after May 3, 2004, reported on the Oil and Gas Operations Report, Part A (OGOR-A) for your lease under §216.53, as and to the extent prescribed in §203.45. All oil and gas production reported on the OGOR-A, including production that is not subject to royalty (except for production to which a royalty suspension volume under §§203.41 and 203.42 applies), counts toward the lease royalty suspension supplement.

Example 1. If you drill a certified unsuccessful well that is an original well to a target 19,000 feet TVD SS, you earn a royalty suspension supplement of 5 BCFE of gas and oil production if your lease has not previously produced from a deep well, or you earn a royalty suspension supplement of 2 BCFE of gas and oil production if your lease has previously produced from a deep well with a perforated interval from 15,000 to less than 18,000 feet TVD SS, as prescribed in §203.45.

Example 2. If you drill a certified unsuccessful well that is a sidetrack that reaches a target 19,000 feet TVD SS, that has a sidetrack measured depth of 12,545 feet, and your lease has not produced gas or oil from any deep well, we round the distance to 12,500 feet and you earn a royalty suspension supplement of 2.3 BCFE of gas and oil production as prescribed in §203.45.

(d) Each lease is eligible for up to two royalty suspension supplements. Therefore, the total royalty suspension supplement for a lease cannot exceed 10 BCFE.

(1) You may not earn more than one royalty suspension supplement from a single wellbore.

(2) If you begin drilling a certified unsuccessful well on one lease but the completion target is on a second lease, the entire royalty suspension supplement belongs to the second lease. However, if the target straddles a lease line, the lease where the surface of the well is located earns the royalty suspension supplement.

(e) If the same wellbore that earns a royalty suspension supplement as a certified unsuccessful well later produces from a perforated interval the top of which is 15,000 feet TVD SS or deeper before May 3, 2009, it will become a qualified well subject to the following conditions:

(1) Beginning on the date production starts, you must stop applying the royalty suspension supplement earned by that wellbore to your lease production.

(2) If the completion of this qualified well is on your lease or, in the case of a directional well, is on another lease, then you must subtract from the royalty suspension volume earned by that qualified well the royalty suspension supplement amounts earned by that wellbore that have already been applied either on your lease or any other lease. The difference represents the royalty suspension volume earned by the qualified well.

(f) If the same wellbore that earned a royalty suspension supplement later has a sidetrack drilled from that wellbore, you are not required to subtract any royalty suspension supplement earned by that wellbore from the royalty suspension volume that may be earned by the sidetrack.

(g) You owe minimum royalties or rentals in accordance with your lease terms notwithstanding any royalty suspension supplements under this section.

[69 FR 3510, Jan. 26, 2004, as amended at 69 FR 24054, Apr. 30, 2004]

§ 203.45 To which production do I apply the royalty suspension supplements from drilling one or two certified unsuccessful wells on my lease?

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(a) Subject to the requirements of §§203.40, 203.42, 203.44, 203.46 and 203.47, you must apply royalty suspension supplements in §203.44 to the earliest oil and gas production:

(1) Occurring on and after the day you file the information under §203.46(b),

(2) From, or allocated under an MMS-approved unit agreement to, the lease on which the certified unsuccessful well was drilled, without regard to the drilling depth of the well producing the gas or oil.

(b) If you have a royalty suspension volume for the lease under §203.41, you must use the royalty suspension volumes for gas produced from qualified wells on the lease before using royalty suspension supplements for gas produced from qualified wells.

Example to paragraph (b): You have two shallow oil wells on your lease. Then you drill a certified unsuccessful well and earn a royalty suspension supplement of 5 BCFE. Thereafter, you begin production from an original well that is a qualified well that earns a royalty suspension volume of 15 BCF. You use only 2 BCFE of the royalty suspension supplement before the oil wells deplete. You must use up the 15 BCF of royalty suspension volume before you use the remaining 3 BCFE of the royalty suspension supplement for gas produced from the qualified well.

(c) If you have no current production on which to apply the royalty suspension supplement allowed under §203.44, your royalty suspension supplement applies to the earliest subsequent production of gas and oil from, or allocated under an MMS-approved unit agreement to, your lease.

(d) Unused royalty suspension supplements transfer to a successor lessee and expire with the lease.

(e) You may not apply the royalty suspension supplement allowed under §203.44 to production from any other lease, except for production allocated to your lease from an MMS-approved unit agreement. If your certified unsuccessful well is on a lease subject to an MMS-approved unit agreement, the lessees of other leases in the unit may not apply any portion of the royalty suspension supplement for your lease to production from the other leases in the unit.

(f) You must begin or resume paying royalties when cumulative gas and oil production from, or allocated under an MMS-approved unit agreement to, your lease (excluding any gas produced from qualified wells subject to a royalty suspension volume allowed under §203.41) reaches the applicable royalty suspension supplement. For the month in which the cumulative production reaches this royalty suspension supplement, you owe royalties on the portion of gas or oil production that exceeds the amount of the royalty suspension supplement remaining at the beginning of that month.

§ 203.46 What administrative steps do I take to obtain and use the royalty suspension supplement?

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(a) Before you start drilling a well on your lease targeted to a reservoir at least 18,000 feet TVD SS, you must notify, in writing, the MMS Regional Supervisor for Production and Development of your intent to begin drilling operations and the depth of the target.

(b) After drilling the well, you must provide the MMS Regional Supervisor for Production and Development within 60 days after reaching the total depth in your well:

(1) Information that allows MMS to confirm that you drilled a certified unsuccessful well as defined under §203.0, including:

(i) Well log data, if your original well or sidetrack does not meet the producibility requirements of 30 CFR part 250, subpart A; or

(ii) Well log, well test, seismic, and economic data, if your well does meet the producibility requirements of 30 CFR part 250, subpart A; and

(2) Information that allows MMS to confirm the size of the royalty suspension supplement for a sidetrack, including sidetrack measured depth and supporting documentation.

(c) If you commenced drilling a well that otherwise meets the criteria for a certified unsuccessful well on or after March 26, 2003, and finished it before May 3, 2004, provide the information in paragraph (b) of this section no later than August 3, 2004.

[69 FR 3510, Jan. 26, 2004, as amended at 69 FR 24054, Apr. 30, 2004]

§ 203.47 Do I keep royalty relief if prices rise significantly?

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(a) You must pay royalties on all gas and oil production for which royalty suspension volume or royalty suspension supplement otherwise would be allowed under §§203.40 through 203.46 for any calendar year when the average daily closing NYMEX natural gas price exceeds the threshold of $9.34 per MMBtu, adjusted annually after year 2004 for inflation. The threshold price for any calendar year after 2004 is found by adjusting the threshold price in the previous year by the percentage that the implicit price deflator for the gross domestic product as published by the Department of Commerce changed during the calendar year.

(b) You must pay any royalty due under this paragraph, plus late payment interest from the end of the month after the month of production until the date of payment under 30 CFR 218.54, no later than 90 days after the end of the calendar year for which you owe royalty.

(c) Production volumes on which you must pay royalty under this section count as part of your royalty suspension volumes and royalty suspension supplements.

§ 203.48 May I substitute the deep gas drilling provisions in §203.0 and §§203.40 through 203.47 for the deep gas royalty relief provided in my lease terms?

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(a) You may exercise an option to replace the applicable lease terms for royalty relief related to deep-well drilling with those in §203.0 and §§203.40 through 203.47 if you have a lease issued with royalty relief provisions for deep-well drilling. Such leases:

(1) Must be issued as part of an OCS lease sale held after January 1, 2001, and before April 1, 2004; and

(2) Must be located wholly west of 87 degrees, 30 minutes West longitude in the GOM entirely or partly in water less than 200 meters deep.

(b) To exercise the option under paragraph (a) of this section, you must notify, in writing, the MMS Regional Supervisor for Production and Development of your decision before September 1, 2004 or 180 days after your lease is issued, whichever is later, and specify the lease and block number.

(c) Once you exercise the option under paragraph (a) of this section, you are subject to all the activity, timing, and administrative requirements pertaining to deep gas royalty relief as specified in §§203.40 through 203.47.

(d) Exercising the option under paragraph (a) of this section is irrevocable. If you do not exercise this option, then the terms of your lease apply.

Royalty Relief for End-of-life Leases

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§ 203.50 Who may apply for end-of-life royalty relief?

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You may apply for royalty relief in two situations.

(a) Your end-of-life lease (as defined in §203.2) is an oil and gas lease and has average daily production of at least 100 barrels of oil equivalent (BOE) per month (as calculated in §203.73) in at least 12 of the past 15 months. The most recent of these 12 months are considered the qualifying months. These 12 months should reflect the basic operation you intend to use until your resources are depleted. If you changed your operation significantly (e.g., begin re-injecting rather than recovering gas) during the qualifying months, or if you do so while we are processing your application, we may defer action on your application until you revise it to show the new circumstances.

(b) Your end-of-life lease is other than an oil and gas lease (e.g., sulphur) and has production in at least 12 of the past 15 months. The most recent of these 12 months are considered the qualifying months.

[63 FR 2618, Jan. 16, 1998, as amended at 63 FR 57249, Oct. 27, 1998]

§ 203.51 How do I apply for end-of-life royalty relief?

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You must submit a complete application and the required fee to the appropriate MMS Regional Director. Your MMS regional office will provide specific guidance on the report formats. A complete application for relief includes:

(a) An administrative information report (specified in §203.83) and

(b) A net revenue and relief justification report (specified in §203.84).

§ 203.52 What criteria must I meet to get relief?

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(a) To qualify for relief, you must demonstrate that the sum of royalty payments over the 12 qualifying months exceeds 75 percent of the sum of net revenues (before-royalty revenues minus allowable costs, as defined in §203.84).

(b) To re-qualify for relief, e.g., either applying for additional relief on top of relief already granted, or applying for relief sometime after your earlier agreement terminated, you must demonstrate that:

(1) You have met the criterion listed in paragraph (a) of this section, and

(2) The 12 required qualifying months of operation have occurred under the current royalty arrangement.

§ 203.53 What relief will MMS grant?

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(a) If we approve your application and you meet certain conditions, we will reduce the pre-application effective royalty rate by one-half on production up to the relief volume amount. If you produce more than the relief volume amount:

(1) We will impose a royalty rate equal to 1.5 times the effective royalty rate on your additional production up to twice the relief volume amount; and

(2) We will impose a royalty rate equal to the effective rate on all production greater than twice the relief volume amount.

(b) Regardless of the level of production or prices (see §203.54), royalty payments due under end-of-life relief will not exceed the royalty obligations that would have been due at the effective royalty rate.

(1) The effective royalty rate is the average lease rate paid on production during the 12 qualifying months.

(2) The relief volume amount is the average monthly BOE production for the 12 qualifying months.

§ 203.54 How does my relief arrangement for an oil and gas lease operate if prices rise sharply?

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In those months when your current reference price rises by at least 25 percent above your base reference price, you must pay the effective royalty rate on all monthly production.

(a) Your current reference price is a weighted average of daily closing prices on the NYMEX for light sweet crude oil and natural gas over the most recent full 12 calendar months;

(b) Your base reference price is a weighted average of daily closing prices on the NYMEX for light sweet crude oil and natural gas during the qualifying months; and

(c) Your weighting factors are the proportions of your total production volume (in BOE) provided by oil and gas during the qualifying months.

§ 203.55 Under what conditions can my end-of-life royalty relief arrangement for an oil and gas lease be ended?

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(a) If you have an end-of-life royalty relief arrangement, you may renounce it at any time. The lease rate will return to the effective rate during the qualifying period in the first full month following our receipt of your renouncement of the relief arrangement.

(b) If you pay the effective lease rate for 12 consecutive months, we will terminate your relief. The lease rate will return to the effective rate in the first full month following this termination.

(c) We may stipulate in the letter of approval for individual cases certain events that would cause us to terminate relief because they are inconsistent with an end-of-life situation.

§ 203.56 Does relief transfer when a lease is assigned?

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Yes. Royalty relief is based on the lease circumstances, not ownership. It transfers upon lease assignment.

Royalty Relief For Deep Water Expansion Projects And Pre-Act Deep Water Leases

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§ 203.60 Who may apply for deep water royalty relief?

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You may apply for royalty relief under §§203.61(b) and 203.62 if:

(a) You are a lessee of a lease in water at least 200 meters deep in the GOM and lying wholly west of 87 degrees, 30 minutes West longitude;

(b) We have assigned your pre-Act lease to a field (as defined in §203.0); and

(1) Hold a pre-Act lease on an authorized field (as defined in §203.0) or

(2) Propose an expansion project (as defined in §203.0) or

(3) Propose a development project (as defined in §203.0).

[67 FR 1875, Jan. 15, 2002]

§ 203.61 How do I assess my chances for getting relief?

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You may ask for a nonbinding assessment (a formal opinion on whether a field would qualify for royalty relief) before turning in your first complete application on an authorized field. This field must have a qualifying well under 30 CFR part 250, subpart A, or be on a lease that has allocated production under an approved unit agreement.

(a) To request a nonbinding assessment, you must:

(1) Submit a draft application in the format and detail specified in guidance from the MMS regional office for the GOM;

(2) Propose to drill at least one more appraisal well if you get a favorable assessment; and

(3) Pay a fee under §203.3.

(b) You must wait at least 90 days after receiving our assessment to apply for relief under §203.62.

(c) This assessment is not binding because a complete application may contain more accurate information that does not support our original assessment. It will help you decide whether your proposed inputs for evaluating economic viability and your supporting data and assumptions are adequate.

Effective Date Note: At 63 FR 2619, Jan. 16, 1998, §203.61 was revised. This section contains information collection and recordkeeping requirements and will not become effective until approval has been given by the Office of Management and Budget.

§ 203.62 How do I apply for relief?

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You must send a complete application and the required fee to the MMS Regional Director for the GOM.

(a) Your application for deep water royalty relief must include an original and two copies (one set of digital information) of:

(1) Administrative information report;

(2) Deep water economic viability and relief justification report;

(3) G&G report;

(4) Engineering report;

(5) Production report; and

(6) Deep water cost report.

(b) Section 203.82 explains why we are authorized to require these reports.

(c) Sections 203.81, 203.83, and 203.85 through 203.89 describe what these reports must include. The MMS regional office for the GOM will guide you on the format for the required reports, and we encourage you to contact this office prior to preparing your application for this guidance.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1875, Jan. 15, 2002]

§ 203.63 Does my application have to include all leases in the field?

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(a) For authorized fields, we will accept only one joint application for all leases that are part of the designated field on the date of application, except as provided in paragraph (a)(3) of this section and §203.64. However, we will evaluate all acreage that may eventually become part of the authorized field. Therefore, if you have any other leases that you believe may eventually be part of the authorized field, you must submit data for these leases according to §203.81.

(1) The Regional Director maintains a Field Names Master List with updates of all leases in each designated field.

(2) To avoid sharing proprietary data with other lessees on the field, you may submit your proprietary G&G report separately from the rest of your application. Your application is not complete until we receive all the required information for each lease on the field. We will not disclose proprietary data when explaining our assumptions and reasons for our determinations under §203.67.

(3) We will not require a joint application if you show good cause and honest effort to get all lessees in the field to participate. If you must exclude a lease from your application because its lessee will not participate, that lease is ineligible for the royalty relief for the designated field.

(b) If your application seeks only relief for a development project or an expansion project, your application does not have to include all leases in the field.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1875, Jan. 15, 2002]

§ 203.64 How many applications may I file on a field or a development project?

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You may file one complete application for royalty relief during the life of the field or for a development project or an expansion project designed to produce a reservoir or set of reservoirs. However, you may send another application if:

(a) You are eligible to apply for a redetermination under §203.74;

(b) You apply for royalty relief for an expansion project;

(d) You apply for end-of-life royalty relief.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1875, Jan. 15, 2002]

§ 203.65 How long will MMS take to evaluate my application?

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(a) We will determine within 20 working days if your application for royalty relief is complete. If your application is incomplete, we will explain in writing what it needs. If you withdraw a complete application, you may reapply.

(b) We will evaluate your first application on a field within 180 days, evaluate your first application on a development project or an expansion project within 150 days and evaluate a redetermination under §203.75 within 120 days after we determine that it is complete.

------------------------------------------------------------------------

If_ Then we may_

------------------------------------------------------------------------

We need more records to audit sunk Ask to extend the 120-day or 180-

costs. day evaluation period. The

extension we request will equal

the number of days between when

you receive our request for

records and the day we receive the

records.

We cannot evaluate your application Add another 30 days. We may add

for a valid reason, such as more than 30 days, but only if you

missing vital information or agree.

inconsistent or inconclusive

supporting data.

We need more data, explanations, or Ask to extend the 120-day or 180-

revision. day evaluation period. The

extension we request will equal

the number of days between when

you receive our request and the

day we receive the information.

------------------------------------------------------------------------

(d) We may change your assumptions under §203.62 if our technical evaluation reveals others that are more appropriate. We may consult with you before a final decision and will explain any changes.

(e) We will notify all designated lease operators within a field when royalty relief is granted.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1875, Jan. 15, 2002]

§ 203.66 What happens if MMS does not act in the time allowed?

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If we do not act within the timeframes established under §203.65, you get royalty relief according to the following table.

------------------------------------------------------------------------

And we do not

If you apply for royalty relief decide within the As long as you

for time specified

------------------------------------------------------------------------

(a) An authorized field......... You get the Abide by

minimum §§

suspension 203.70 and

volumes specified 203.76.

in § 203.69.

(b) An expansion project........ You get a royalty Abide by

suspension for §§

the first year of 203.70 and

production. 203.76.

suspension for §§

initial 203.70 and

production for 203.76.

the number of

months that a

decision is

delayed beyond

the stipulated

timeframes set by

§ 203.65,

plus all the

royalty

suspension volume

for which you

qualify.

------------------------------------------------------------------------

[67 FR 1875, Jan. 15, 2002]

§ 203.67 What economic criteria must I meet to get royalty relief on an authorized field or project?

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We will not approve applications if we determine that royalty relief cannot make the field, development project, or expansion project economically viable. Your field or project must be uneconomic while you are paying royalties and must become economic with royalty relief.

[67 FR 1876, Jan. 15, 2002]

§ 203.68 What pre-application costs will MMS consider in determining economic viability?

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(a) We will not consider ineligible costs as set forth in §203.89(h) in determining economic viability for purposes of royalty relief.

(b) We will consider sunk costs according to the following table.

------------------------------------------------------------------------

We will When determining

------------------------------------------------------------------------

(1) Include sunk costs................. Whether a field that includes a

pre-Act lease which has not

produced, other than test

production, before the

application or redetermination

submission date needs relief

to become economic.

(2) Not include sunk costs............. Whether an authorized field, a

development project, or an

expansion project can become

economic with full relief (see

§ 203.67).

(3) Not include sunk costs............. How much suspension volume is

necessary to make the field, a

development project, or an

expansion project economic

(see § 203.69(c)).

(4) Include sunk costs for the project Whether a development project

discovery well on each lease. or an expansion project needs

relief to become economic.

------------------------------------------------------------------------

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1876, Jan. 15, 2002]

§ 203.69 If my application is approved, what royalty relief will I receive?

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If we approve your application, subject to certain conditions, we will not collect royalties on a specified suspension volume for your field, development project, or expansion project. Suspension volumes include volumes allocated to a lease under an approved unit agreement, but exclude any volumes of production that are not normally royalty-bearing under the lease or the regulations of this chapter (e.g., fuel gas).

(a) For authorized fields, the minimum royalty-suspension volumes are:

(1) 17.5 million barrels of oil equivalent (MMBOE) for fields in 200 to 400 meters of water;

(2) 52.5 MMBOE for fields in 400 to 800 meters of water; and

(3) 87.5 MMBOE for fields in more than 800 meters of water.

(b) For development projects, any relief we grant applies only to project wells and replaces the royalty suspension volume with which we issued your lease. If your project is economic given the royalty suspension volume with which we issued your lease, we will reject the application. Otherwise, the minimum royalty suspension volumes are as shown in the following table:

------------------------------------------------------------------------

The minimum royalty

For suspension volume is Plus

------------------------------------------------------------------------

(1) RS leases................. A volume equal to the 10 percent of

combined royalty the median of

suspension volumes the

(or the volume distribution of

equivalent based on known

the data in your recoverable

approved application resources upon

for other forms of which we based

royalty suspension) approval of

with which we issued your

the leases application

participating in the from all

application that have reservoirs

or plan a well into a included in the

reservoir identified project.

in the application.

(2) Other deep water leases A volume equal to 10

issued in sales after percent of the median

November 28, 2000. of the distribution

of known recoverable

resources upon which

we based approval of

your application from

all reservoirs

included in the

project.

------------------------------------------------------------------------

(c) If your application includes pre-Act or eligible leases in different categories of water depth, we apply the minimum royalty suspension volume for the deepest such lease then assigned to the field. We base the water depth and makeup of a field on the water-depth delineations in the “Lease Terms and Economic Conditions” map and the “Field Names Master List” documents and updates in effect at the time your application is deemed complete. These publications are available from the MMS Regional Office for the GOM.

(d) You will get a royalty suspension volume above the minimum if we determine that you need more to make the field or development project economic.

(e) For expansion projects, the minimum royalty suspension volume equals 10 percent of the median of the distribution of known recoverable resources upon which we based approval of your application from all reservoirs included in your project plus any suspension volumes required under §203.66. If we determine that your expansion project may be economic only with more relief, we will determine and grant you the royalty suspension volume necessary to make the project economic.

(f) The royalty suspension volume applicable to specific leases will continue through the end of the month in which cumulative production reaches that volume. You must calculate cumulative production from all the leases in the authorized field or project that are entitled to share the royalty suspension volume.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1876, Jan. 15, 2002]

§ 203.70 What information must I provide after MMS approves relief?

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You must submit reports to us as indicated in the following table. Sections 203.81, 203.90, and 203.91 describe what these reports must include. The MMS regional office for the GOM will prescribe the formats.

------------------------------------------------------------------------

Due date

Required report When due to MMS extensions

------------------------------------------------------------------------

(a) Fabricator's confirmation Within 18 months MMS Director may

report. after approval of grant you an

relief. extension under

§ 203.79(c)

for up to 6

months.

(b) Post-production report...... Within 120 days With acceptable

after the start justification

of production from you, MMS

that is subject Regional Director

to the approved for the GOM may

royalty extend due date

suspension volume. up to 30 days.

------------------------------------------------------------------------

[67 FR 1876, Jan. 15, 2002]

§ 203.71 How does MMS allocate a field's suspension volume between my lease and other leases on my field?

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The allocation depends on when production occurs, when we issued the lease, when we assigned it to the field, and whether we award the volume suspension by an approved application or establish it in the lease terms, as prescribed in this section.

(a) If your authorized field has an approved royalty suspension volume under §§203.67 and 203.69, we will suspend payment of royalties on production from all leases in the field that participate in the application until their cumulative production equals the approved volume. The following conditions also apply:

------------------------------------------------------------------------

If . . . Then . . . And . . .

------------------------------------------------------------------------

(1) We assign an eligible lease We will not change The assigned

to your field after we approve your field's lease(s) may

relief. royalty share in any

suspension volume. remaining royalty

relief.

(2) We assign a pre-Act or post- We will not change The assigned

November 2000 deep water lease your field's lease(s) may

to your field after we approve royalty share in any

your application. suspension volume. remaining royalty

relief by filing

the short-form

application

specified in

§ 203.83 and

authorized in

§ 203.82. An

assigned RS lease

also gets any

portion of its

royalty

suspension volume

remaining even

after the field

has produced the

approved relief

volume.

(3) We assign another lease(s) We will change (i) You toll the

that you operate to your field your field's time period for

while we are evaluating your minimum evaluation until

application. suspension volume you modify your

if the assigned application to be

lease is a pre- consistent with

Act or eligible the new field;

lease entitled to (ii) We have an

a larger minimum additional 60

or automatic days to review

suspension volume. the new

information; and

(iii) The assigned

lease(s) shares

the royalty

suspension we

grant to the new

field. If you do

not agree to

toll, we will

have to reject

your application

due to incomplete

information. But,

an eligible lease

we assigned to

the field kept

its automatic

suspension

volume.

(4) We assign another operator's We will change (i) You both toll

lease to your field while we your field's the time period

are evaluating your application. minimum for evaluation

suspension volume until both of you

provided the modify your

assigned lease application to be

joins the consistent with

application and the new field;

is entitled to a (ii) We have an

larger minimum additional 60

suspension volume. days to review

the new

information; and

(iii) The assigned

lease(s) shares

the royalty

suspension we

grant to the new

field. If you

(the original

applicant) do not

agree to toll,

the other

operator's lease

retains any

suspension volume

it has or may

share in any

relief that we

grant by filing

the short form

application

specified in

§ 203.83 and

authorized in

§ 203.82.

(5) We reassign a well on a pre- The past The past

Act, eligible, or post-November production from production from

2000 deep water lease to the well counts that well will

another field. toward the not count toward

royalty any royalty

suspension volume suspension volume

of the field to granted to the

which we assigned field from which

the well. we reassigned it.

------------------------------------------------------------------------

(b) If your authorized field has a royalty suspension volume established under §260.111 of this title (i.e., a field with a pre-Act lease where an eligible lease starts production first), we will suspend payment of royalties on production from all eligible leases in the field until their cumulative production equals the established volume. The following conditions also apply:

------------------------------------------------------------------------

If . . . Then . . . And . . .

------------------------------------------------------------------------

(1) We assign another eligible Your field's The assigned lease

lease to your field. royalty may share in any

suspension volume remaining royalty

does not change. relief.

(2) We assign an RS lease to Your field's The assigned lease

your field. royalty gets only the

suspension volume volume suspension

does not change. with which we

issued it, and

its production

volume counts

against the

field's royalty

suspension

volume.

(3) We assign a pre-Act lease or Your field's We assign lease

a lease issued after November royalty shares none of

2000 without royalty suspension suspension volume the volume

to your field. does not change. suspension, and

its production

does not count as

part of the

suspension

volume.

(4) A pre-Act or post-November Your field's (i) All leases in

2000 deep water lease applies royalty the field share

(along with the other leases in suspension volume the royalty

the field) and qualifies may increase or suspension volume

(subject to any pre-existing stay the same, if we approve the

suspension volumes) for royalty but will not application; or

relief under §§ diminish. (ii) The eligible

203.67 and 203.69. or RS leases in

the field keep

their respective

volumes if we

reject the

application.

------------------------------------------------------------------------

(c) When a project has more than one lease, the royalty suspension volume for each lease equals that lease's actual production from the project (or production allocated under an approved unit agreement) until total production for all leases in the project equals the project's approved royalty suspension volume.

(d) You may receive a royalty-suspension volume only if your entire lease is west of 87 degrees, 30 minutes West longitude. If the field lies on both sides of this meridian, only leases located entirely west of the meridian will receive a royalty-suspension volume.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1877, Jan. 15, 2002]

§ 203.72 Can my lease receive more than one suspension volume?

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Yes. You may apply for royalty relief that involves more than one suspension volume under §203.62 in two circumstances.

(a) Each field that includes your lease may receive a separate royalty-suspension volume, if it meets the evaluation criteria of §203.67.

(b) An expansion project on your lease may receive a separate royalty-suspension volume, even if we have already granted a royalty-suspension volume to the field that encompasses the project. But the reserves associated with the project must not have been part of our original determination, and the project must meet the evaluation criteria of §203.67.

§ 203.73 How do suspension volumes apply to natural gas?

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You must measure natural gas production under the royalty-suspension volume as follows: 5.62 thousand cubic feet of natural gas, measured in accordance with 30 CFR part 250, subpart L, equals one barrel of oil equivalent.

§ 203.74 When will MMS reconsider its determination?

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You may request a redetermination after we withdraw approval or after you renounce royalty relief, unless we withdraw approval due to your providing false or intentionally inaccurate information. Under certain conditions you may also request a redetermination if we deny your application or if you want your approved royalty suspension volume to change. In these instances, to be eligible for a redetermination, at least one of the following four conditions must occur.

(a) You have significant new G&G data and you previously have not either requested a redetermination or reapplied for relief after we withdrew approval or you relinquished royalty relief. “Significant” means that the new G&G data:

(1) Results from drilling new wells or getting new three-dimensional seismic data and information (but not reinterpreting old data);

(2) Did not exist at the time of the earlier application; and

(3) Changes your estimates of gross resource size, quality, or projected flow rates enough to materially affect the results of our earlier determination.

(b) You demonstrate in your new application that the technology that most efficiently develops this field or lease was not considered or deemed feasible in the original application. Your newly proposed technology must improve the profitability, under equivalent market conditions, of the field or lease relative to the development system proposed in the prior application.

(c) Your current reference price decreases by more than 25 percent from your base reference price as calculated under this paragraph.

(1) Your current reference price is a weighted-average of daily closing prices on the NYMEX for light sweet crude oil and natural gas over the most recent full 12 calendar months;

(2) Your base reference price is a weighted average of daily closing prices on the NYMEX for light sweet crude oil and natural gas for the full 12 calendar months preceding the date of your most recently approved application for this royalty relief; and

(3) The weighting factors are the proportions of the total production volume (in BOE) for oil and gas associated with the most likely scenario (identified in §§203.85 and 203.88) from your most recently approved application for this royalty relief.

(d) Before starting to build your development and production system, you have revised your estimated development costs, and they are more than 120 percent of the eligible development costs associated with the most likely scenario from your most recently approved application for this royalty relief.

[63 FR 2618, Jan. 16, 1998; 63 FR 24747, May 5, 1998, as amended at 67 FR 1878, Jan. 15, 2002]

§ 203.75 What risk do I run if I request a redetermination?

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If you request a redetermination after we have granted you a suspension volume, you could lose some or all of the previously granted relief. This can happen because you must file a new complete application and pay the required fee, as discussed in §203.62. We will evaluate your application under §203.67 using the conditions prevailing at the time of your redetermination request. In our evaluation, we may find that you should receive a larger, equivalent, smaller, or no suspension volume. This means we could find that you do not qualify for the amount of relief previously granted or for any relief at all.

§ 203.76 When might MMS withdraw or reduce the approved size of my relief?

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We will withdraw approval of relief for any of the following reasons.

(a) You change the type of development system proposed in your application (e.g., change from a fixed platform to floating production system, or from an independent development and production system to one with subsea wells tied back to a host production facility, etc.).

(b) You do not start building the proposed development and production system within18 months of the date we approved your application, unless the MMS Director grants you an extension under §203.79(c). If you start building the proposed system and then suspend its construction before completion, and you do not restart continuous building of the proposed system within 18 months of our approval, we will withdraw the relief we granted.

(c) Your actual development costs are less than 80 percent of the eligible development costs estimated in your application's most likely scenario, and you do not report that fact in your post-production development report (§203.70). Development costs are those expenditures defined in §203.89(b) incurred between the application submission date and start of production. If you report this fact in the post-production development report, you may retain the lesser of 50 percent of the original royalty suspension volume or 50 percent of the median of the distribution of the potentially recoverable resources anticipated in your application.

(d) We granted you a royalty-suspension volume after you qualified for a redetermination under §203.74(c), and we find out your actual development costs are less than 90 percent of the eligible development costs associated with your application's most likely scenario. Development costs are those expenditures defined in §203.89(b) incurred between your application submission date and start of production.

(e) You do not send us the fabrication confirmation report or the post-production development report, or you provide false or intentionally inaccurate information that was material to our granting royalty relief under this section. You must pay royalties and late-payment interest determined under 30 U.S.C. 1721 and §218.54 of this chapter on all volumes for which you used the royalty suspension. You also may be subject to penalties under other provisions of law.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1878, Jan. 15, 2002]

§ 203.77 May I voluntarily give up relief if conditions change?

top

Yes, by sending a letter to that effect to the MMS Regional Director for the GOM.

[67 FR 1878, Jan. 15, 2002]

§ 203.78 Do I keep relief if prices rise significantly?

top

If prices rise above a base price for light sweet crude oil or natural gas, set by statute for pre-Act leases, indicated in your original lease agreement or Notice of Sale for post-November 2000 deep water leases, you must pay full royalties as prescribed in this section. For post-November 2000 deepwater leases, price thresholds apply on a lease basis, so different leases on the same field, development project, or expansion project may have different price thresholds.

(a) Suppose the arithmetic average of the daily closing NYMEX light sweet crude oil prices for the previous calendar year exceeds $28.00 per barrel, as adjusted in paragraph (f) of this section. In this case, we retract the royalty relief authorized in this section and you must:

(1) Pay royalties on all oil production for the previous year at the lease stipulated royalty rate plus interest (under 30 U.S.C. 1721 and §218.54 of this chapter) by March 31 of the current calendar year, and

(2) Pay royalties on all your oil production in the current year.

(b) Suppose the arithmetic average of the daily closing NYMEX natural gas prices for the previous calendar year exceeds $3.50 per million British thermal units (Btu), as adjusted in paragraph (f) of this section. In this case, we retract the royalty relief authorized in this section and you must:

(1) Pay royalties on all natural gas production for the previous year at the lease stipulated royalty rate plus interest (under 30 U.S.C. 1721 and §218.54 of this chapter) by March 31 of the current calendar year, and

(2) Pay royalties on all your natural gas production in the current year.

(d) You are entitled to a refund or credit, with interest, of royalties paid on any production (that counts as part of the royalty-suspension volume):

(1) Of oil if the arithmetic average of the closing oil prices for the current calendar year is $28.00 per barrel or less, as adjusted in paragraph (f) of this section, and

(2) Of gas if the arithmetic average of the closing natural gas prices for the current calendar year is $3.50 per million Btu or less, as adjusted in paragraph (f) of this section.

(e) You must follow our regulations in part 230 of this chapter for receiving refunds or credits.

(f) We change the prices referred to in paragraphs (a), (b), and (d) of this section periodically. For pre-Act leases, these prices change during each calendar year after 1994 by the percentage that the implicit price deflator for the gross domestic product changed during the preceding calendar year. For post-November 2000 deepwater leases, these prices change as indicated in the lease instrument or in the Notice of Sale under which we issued the lease.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1878, Jan. 15, 2002]

§ 203.79 How do I appeal MMS's decisions related to Deep Water Royalty Relief?

top

(a) Once we have designated your lease as part of a field and notified you and other affected operators of the designation, you can request reconsideration by sending the MMS Director a letter within 15 days that also states your reasons. The MMS Director's response is the final agency action.

(b) Our decisions on your application for relief from paying royalty under §203.67 and the royalty-suspension volumes under §203.69 are final agency actions.

(c) If you cannot start construction by the deadline in §203.76(b) for reasons beyond your control (e.g., strike at the fabrication yard), you may request an extension up to 1 year by writing the MMS Director and stating your reasons. The MMS Director's response is the final agency action.

(d) We will notify you of all final agency actions by certified mail, return receipt requested. Final agency actions are not subject to appeal to the Interior Board of Land Appeals under 30 CFR part 290 and 43 CFR part 4. They are judicially reviewable under section 10(a) of the Administrative Procedure Act (5 U.S.C. 702) only if you file an action within 30 days of the date you receive our decision.

§ 203.80 When can I get royalty relief if I am not eligible for end-of-life or deep water royalty relief?

top

We may grant royalty relief when it serves the statutory purposes summarized in §203.1, and our formal relief programs provide inadequate encouragement to increase production or development. Unless your lease lies wholly west of 87 degrees, 30 minutes West longitude in the Gulf of Mexico, your lease must be producing to qualify for relief. Before you may apply for royalty relief apart from our end-of-life or deepwater programs, we must agree that your lease or project has two or more of the following characteristics:

(a) The lease has produced for a substantial period and the lessee can recover significant additional resources. Significant additional resources means enough to allow production for at least a year more than would be profitable without royalty relief.

(b) Valuable facilities (e.g., a platform or pipeline that would be removed upon lease relinquishment) exist that we do not expect a successor lessee to use. If the facilities are located off the lease, their preservation must depend on continued production from the lease applying for royalty relief. We will only consider an allocable share of costs for off-lease facilities in the relief application.

(d) The lessee made major efforts to reduce operating costs too recently to use the formal program for royalty relief (e.g., recent significant change in operations).

(e) Circumstances beyond the lessee's control, other than water depth, preclude reliance on one of the existing royalty relief programs.

[67 FR 1879, Jan. 15, 2002]

Required Reports

top

§ 203.81 What supplemental reports do royalty-relief applications require?

top

(a) You must send us the supplemental reports, indicated in the following table by an X, that apply to your field. Sections 203.83 through 203.91 describe these reports in detail.

----------------------------------------------------------------------------------------------------------------

Deep water

End-of- ------------------------------------------

Required reports life Expansion Pre-act Development

lease project lease project

----------------------------------------------------------------------------------------------------------------

(1) Administrative information Report..................... X X X X

(2) Net revenue & relief justification report......... X

(3) Economic viability & relief justification report ......... X X X

(RSVP model imputs justified by other required reports)..

(4) G&G report........................................ ......... X X X

(5) Engineering report.................................... ......... X X X

(6) Production report..................................... ......... X X X

(7) Deep water cost report................................ ......... X X X

(8) Fabricator's confirmation report...................... ......... X X X

(9) Post-production development report.................... ......... X X X

----------------------------------------------------------------------------------------------------------------

(b) You must certify that all information in your application, fabricator's confirmation and post-production development reports is accurate, complete, and conforms to the most recent content and presentation guidelines available from the MMS GOM Regional Office.

(c) With your application and post-production development report, you must submit an additional report prepared by an independent CPA that:

(1) Assesses the accuracy of the historical financial information in your report; and

(2) Certifies that the content and presentation of the financial data and information conform to our most recent guidelines on royalty relief. This means the data and information must—

(i) Include only eligible costs that are incurred during the qualification months; and

(ii) Be shown in the proper format.

(d) You must identify the people in the CPA firm who prepared the reports referred to in paragraph (c) of this section and make them available to us to respond to questions about the historical financial information. We may also further review your records to support this information.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1879, Jan. 15, 2002]

§ 203.82 What is MMS's authority to collect this information?

top

The Office of Management and Budget (OMB) approved the information collection requirements in part 203 under 44 U.S.C. 3501 et seq. and assigned OMB control number 1010–0071.

(a) We use the information to determine whether royalty relief will result in production that wouldn't otherwise occur. We rely largely on your information to make these determinations.

(1) Your application for royalty relief must contain enough information on finances, economics, reservoirs, G&G characteristics, production, and engineering estimates for us to determine whether:

(i) We should grant relief under the law, and

(ii) The requested relief will ultimately recover more resources and return a reasonable profit on project investments.

(2) Your fabricator confirmation and post-production development reports must contain enough information for us to verify that your application reasonably represented your plans.

(b) Applicants (respondents) are Federal OCS oil and gas lessees. Applications are required to obtain or retain a benefit. Therefore, if you apply for royalty relief, you must provide this information. We will protect information considered proprietary under applicable law and under regulations at §203.63(b) and part 250 of this chapter.

(c) The Paperwork Reduction Act of 1995 requires us to inform you that we may not conduct or sponsor, and you are not required to respond to, a collection of information unless it displays a currently valid OMB control number.

(d) Send comments regarding any aspect of the collection of information under this part, including suggestions for reducing the burden, to the Information Collection Clearance Officer, Minerals Management Service, Mail Stop 4230, 1849 C Street, NW., Washington, DC 20240.

[63 FR 2618, Jan. 16, 1998, as amended at 65 FR 2875, Jan. 19, 2000]

§ 203.83 What is in an administrative information report?

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This report identifies the field or lease for which royalty relief is requested and must contain the following items:

(a) The field or lease name;

(b) The serial number of leases we have assigned to the field, names of the lease title holders of record, the lease operators, and whether any lease is part of a unit;

(c) Well number, API number, location, and status of each well that has been drilled on the field or lease or project (not required for non-oil and gas leases);

(d) The location of any new wells proposed under the terms of the application (not required for non-oil and gas leases);

(e) A description of field or lease history;

(f) Full information as to whether you will pay royalties or a share of production to anyone other than the United States, the amount you will pay, and how much you will reduce this payment if we grant relief;

(g) The type of royalty relief you are requesting;

(h) Confirmation that we approved a DOCD or supplemental DOCD (Deep Water expansion project applications only); and

(i) A narrative description of the development activities associated with the proposed capital investments and an explanation of proposed timing of the activities and the effect on production (Deep Water applications only).

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1879, Jan. 15, 2002]

§ 203.84 What is in a net revenue and relief justification report?

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This report presents cash flow data for 12 qualifying months, using the format specified in the “Guidelines for the Application, Review, Approval, and Administration of Royalty Relief for End-of-Life Leases”, U.S. Department of the Interior, MMS. Qualifying months for an oil and gas lease are the most recent 12 months out of the last 15 months that you produced at least 100 BOE per day on average. Qualifying months for other than oil and gas leases are the most recent 12 of the last 15 months having some production.

(a) The cash flow table you submit must include historical data for:

(1) Lease production subject to royalty;

(2) Total revenues;

(3) Royalty payments out of production;

(4) Total allowable costs; and

(5) Transportation and processing costs.

(b) Do not include in your cash flow table the non-allowable costs listed at 30 CFR 220.013 or:

(1) OCS rental payments on the lease(s) in the application;

(2) Damages and losses;

(3) Taxes;

(4) Any costs associated with exploratory activities;

(5) Civil or criminal fines or penalties;

(6) Fees for your royalty relief application; and

(7) Costs associated with existing obligations (e.g., royalty overrides or other forms of payment for acquiring the lease, depreciation on previously acquired equipment or facilities).

(c) We may, in reviewing and evaluating your application, disallow costs when you have not shown they are necessary to operate the lease, or if they are inconsistent with end-of-life operations.

[63 FR 2618, Jan. 16, 1998, as amended at 63 FR 57249, Oct. 27, 1998]

§ 203.85 What is in an economic viability and relief justification report?

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This report should show that your project appears economic without royalties and sunk costs using the RSVP model we provide. The format of the report and the assumptions and parameters we specify are found in the “Guidelines for the Application, Review, Approval and Administration of the Deep Water Royalty Relief Program,” U.S. Department of the Interior, MMS. Clearly justify each parameter you set in every scenario you specify in the RSVP. You may provide supplemental information, including your own model and results. The economic viability and relief justification report must contain the following items for an oil and gas lease.

(a) Economic assumptions we provide which include:

(1) Starting oil and gas prices;

(2) Real price growth;

(3) Real cost growth or decline rate, if any;

(4) Base year;

(5) Range of discount rates; and

(6) Tax rate (for use in determining after-tax sunk costs).

(b) Analysis of projected cash flow (from the date of the application using annual totals and constant dollar values) which shows:

(1) Oil and gas production;

(2) Total revenues;

(3) Capital expenditures;

(4) Operating costs;

(5) Transportation costs; and

(6) Before-tax net cash flow without royalties, overrides, sunk costs, and ineligible costs.

(1) Discount rate used (selected from within the range we specify).

(2) Before-tax net present value without royalties, overrides, sunk costs, and ineligible costs.

(d) Demonstrations that:

(1) All costs, gross production, and scheduling are consistent with the data in the G&G, engineering, production, and cost reports (§§203.86 through 203.89) and

(2) The development and production scenarios provided in the various reports are consistent with each other and with the proposed development system. You can use up to three scenarios (conservative, most likely, and optimistic), but you must link each to a specific range on the distribution of resources from the RSVP Resource Module.

§ 203.86 What is in a G&G report?

top

This report supports the reserve and resource estimates used in the economic evaluation and must contain each of the following elements.

(a) Seismic data which includes:

(1) Non-interpreted 2D/3D survey lines reflecting any available state-of-the-art processing technique in a format readable by MMS and specified by the deep water royalty relief guidelines;

(2) Interpreted 2D/3D seismic survey lines reflecting any available state-of-the-art processing technique identifying all known and prospective pay horizons, wells, and fault cuts;

(3) Digital velocity surveys in the format of the GOM region's letter to lessees of 10/1/90;

(4) Plat map of “shot points;” and

(5) “Time slices” of potential horizons.

(b) Well data which includes:

(1) Hard copies of all well logs in which—

(i) The 1-inch electric log shows pay zones and pay counts and lithologic and paleo correlation markers at least every 500-feet,

(ii) The 1-inch type log shows missing sections from other logs where faulting occurs,

(iii) The 5-inch electric log shows pay zones and pay counts and labeled points used in establishing resistivity of the formation, 100 percent water saturated (R_o) and the resistivity of the undisturbed formation (R_t), and

(iv) The 5-inch porosity logs show pay zones and pay counts and labeled points used in establishing reservoir porosity or labeled points showing values used in calculating reservoir porosity such as bulk density or transit time;

(2) Digital copies of all well logs spudded before December 1, 1995;

(3) Core data, if available;

(4) Well correlation sections;

(5) Pressure data;

(6) Production test results;

(7) Pressure-volume-temperature analysis, if available; and

(8) A table listing the wells and completions, and indicating which sands and fault blocks will be targeted for completion or recompletion.

(1) Structure maps consisting of top and base of sand maps showing well and seismic shot point locations;

(2) Isopach maps for net sand, net oil, net gas, all with well locations;

(3) Maps indicating well surface and bottom hole locations, location of development facilities, and shot points; and

(4) An explanation for excluding the reservoirs you are not planning to develop.

(d) Reservoir-specific data which includes:

(1) Probability of reservoir occurrence with hydrocarbons;

(2) Probability the hydrocarbon in the reservoir is all oil and the probability it is all gas;

(3) Distributions or point estimates (accompanied by explanations of why distributions less appropriately reflect the uncertainty) for the parameters used to estimate reservoir size, i.e., acres and net thickness;

(4) Most likely values for porosity, salt water saturation, volume factor for oil formation, and volume factor for gas formation;

(5) Distributions or point estimates (accompanied by explanations of why distributions less appropriately reflect the uncertainty) for recovery efficiency (in percent) and oil or gas recovery (in stock-tank-barrels per acre-foot or in thousands of cubic feet per acre foot);

(6) A gas/oil ratio distribution or point estimate (accompanied by explanations of why distributions less appropriately reflect the uncertainty) for each reservoir;

(7) A yield distribution or point estimate (accompanied by explanations of why distributions less appropriately reflect the uncertainty) for each gas reservoir; and

(8) Reserve or resource distribution by reservoir.

(e) Aggregated reserve and resource data which includes:

(1) The aggregated distributions for reserves and resources (in BOE) and oil fraction for your field computed by the resource module of our RSVP model;

(2) A description of anticipated hydrocarbon quality (i.e., specific gravity); and

(3) The ranges within the aggregated distribution for reserves and resources that define the development and production scenarios presented in the engineering and production reports. Typically there will be three ranges specified by two positive reserve and resource points on the aggregated distribution. The range at the low end of the distribution will be associated with the conservative development and production scenario; the middle range will be related to the most likely development and production scenario; and, the high end range will be consistent with the optimistic development and production scenario.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1879, Jan. 15, 2002]

§ 203.87 What is in an engineering report?

top

This report defines the development plan and capital requirements for the economic evaluation and must contain the following elements.

(a) A description of the development concept (e.g., tension leg platform, fixed platform, floater type, subsea tieback, etc.) which includes:

(1) Its size along with basic design specifications and drawings; and

(2) The construction schedule.

(b) An identification of planned wells which includes:

(1) The number;

(2) The type (platform, subsea, vertical, deviated, horizontal);

(3) The well depth;

(4) The drilling schedule;

(5) The kind of completion (single, dual, horizontal, etc.); and

(6) The completion schedule.

(1) The production capacity for oil and gas and a description of limiting component(s);

(2) Any unusual problems (low gravity, paraffin, etc.);

(3) All subsea structures;

(4) All flowlines; and

(5) Schedule for installing the production system.

(d) A discussion of any plans for multi-phase development which includes the conceptual basis for developing in phases and goals or milestones required for starting later phases.

(e) A set of development scenarios consisting of activity timing and scale associated with each of up to three production profiles (conservative, most likely, optimistic) provided in the production report for your field (§203.88). Each development scenario and production profile must denote the likely events should the field size turn out to be within a range represented by one of the three segments of the field size distribution. If you send in fewer than three scenarios, you must explain why fewer scenarios are more efficient across the whole field size distribution.

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1880, Jan. 15, 2002]

§ 203.88 What is in a production report?

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This report supports your development and production timing and product quality expectations and must contain the following elements.

(a) Production profiles by well completion and field that specify the actual and projected production by year for each of the following products: oil, condensate, gas, and associated gas. The production from each profile must be consistent with a specific level of reserves and resources on the aggregated distribution of field size.

(b) Production drive mechanisms for each reservoir.

§ 203.89 What is in a deep water cost report?

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This report lists all actual and projected costs for your field, must explain and document the source of each cost estimate, and must identify the following elements.

(a) Sunk costs. Report sunk costs in dollars not adjusted for inflation and only if you have documentation.

(b) Appraisal, delineation and development costs. Base them on actual spending, current authorization for expenditure, engineering estimates, or analogous projects. These costs cover:

(1) Platform well drilling and average depth;

(2) Platform well completion;

(3) Subsea well drilling and average depth;

(4) Subsea well completion;

(5) Production system (platform); and

(6) Flowline fabrication and installation.

(1) Operation;

(2) Equipment; and

(3) Existing royalty overrides (we will not use the royalty overrides in evaluations).

(d) Transportation costs, based on historical costs, engineering estimates, or analogous projects. These costs cover:

(1) Oil or gas tariffs from pipeline or tankerage;

(2) Trunkline and tieback lines; and

(3) Gas plant processing for natural gas liquids.

(e) Abandonment costs, based on historical costs, engineering estimates, or analogous projects. You should provide the costs to plug and abandon only wells and to remove only production systems for which you have not incurred costs as of the time of application submission. You should also include a point estimate or distribution of prospective salvage value for all potentially reusable facilities and materials, along with the source and an explanation of the figures provided.

(f) A set of cost estimates consistent with each one of up to three field-development scenarios and production profiles (conservative, most likely, optimistic). You should express costs in constant real dollar terms for the base year. You may also express the uncertainty of each cost estimate with a minimum and maximum percentage of the base value.

(g) A spending schedule. You should provide costs for each year (in real dollars) for each category in paragraphs (a) through (f) of this section.

(h) A summary of other costs which are ineligible for evaluating your need for relief. These costs cover:

(1) Expenses before first discovery on the field;

(2) Cash bonuses;

(3) Fees for royalty relief applications;

(4) Lease rentals, royalties, and payments of net profit share and net revenue share;

(5) Legal expenses;

(6) Damages and losses;

(7) Taxes;

(8) Interest or finance charges, including those embedded in equipment leases;

(9) Fines or penalties; and

(10) Money spent on previously existing obligations (e.g., royalty overrides or other forms of payment for acquiring a financial position in a lease, expenditures for plugging wells and removing and abandoning facilities that existed on the application submission date).

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1880, Jan. 15, 2002]

§ 203.90 What is in a fabricator's confirmation report?

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This report shows you have committed in a timely way to the approved system for production. This report must include the following (or its equivalent for unconventionally acquired systems):

(a) A copy of the contract(s) under which the fabrication yard is building the approved system for you;

(b) A letter from the contractor building the system to the MMS's GOM Regional Supervisor—Production and Development, certifying when construction started on your system; and

§ 203.91 What is in a post-production development report?

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For each cost category in the deep water cost report, you must compare actual costs up to the date when production starts to your planned pre-production costs. If your application included more than one development scenario, you need to compare actual costs with those in your scenario of most likely development. Also, you must have this report certified by an independent CPA according to §203.81(c).

[63 FR 2618, Jan. 16, 1998, as amended at 67 FR 1880, Jan. 15, 2002]

Subpart C—Federal and Indian Oil [Reserved]

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Subpart D—Federal and Indian Gas [Reserved]

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Subpart E—Solid Minerals, General [Reserved]

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Subpart F—Coal

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§ 203.250 Advance royalty.

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Provisions for the payment of advance royalty in lieu of continued operation are contained at 43 CFR 3483.4.

[54 FR 1522, Jan. 13, 1989]

§ 203.251 Reduction in royalty rate or rental.

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An application for reduction in coal royalty rate or rental shall be filed and processed in accordance with 43 CFR group 3400.

[54 FR 1522, Jan. 13, 1989]

Subpart G—Other Solid Minerals [Reserved]

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Subpart H—Geothermal Resources [Reserved]

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Subpart I—OCS Sulfur [Reserved]

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Last updated: August 7, 2006

File Type	application/msword
File Title	Electronic Code of Federal Regulations (e-CFR)
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Last Modified By	bajusza
File Modified	2006-09-13
File Created	2006-09-13