30 CFR Part 220, OCS Net Profit Share Payment Reporting

PUBLIC LAW 104–185—AUG. 13, 1996

FEDERAL OIL AND GAS ROYALTY
SIMPLIFICATION AND FAIRNESS ACT OF 1996

110 STAT. 1700

PUBLIC LAW 104–185—AUG. 13, 1996

Public Law 104–185
104th Congress
An Act
Aug. 13, 1996
[H.R. 1975]
Federal Oil and
Gas Royalty
Simplification
and Fairness Act
of 1996.
30 USC 1701
note.
30 USC 1702.

To improve the management of royalties from Federal and Outer Continental Shelf
oil and gas leases, and for other purposes.

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996’’.
SEC. 2. DEFINITIONS.

Section 3 of the Federal Oil and Gas Royalty Management
Act of 1982 (30 U.S.C. 1701 et seq.) is amended—
(1) by amending paragraph (7) to read as follows:
‘‘(7) ‘lessee’ means any person to whom the United States
issues an oil and gas lease or any person to whom operating
rights in a lease have been assigned;’’; and
(2) by striking ‘‘and’’ at the end of paragraph (15), by
striking the period at the end of paragraph (16) and inserting
a semicolon, and by adding at the end the following:
‘‘(17) ‘adjustment’ means an amendment to a previously
filed report on an obligation, and any additional payment or
credit, if any, applicable thereto, to rectify an underpayment
or overpayment on an obligation;
‘‘(18) ‘administrative proceeding’ means any Department
of the Interior agency process in which a demand, decision
or order issued by the Secretary or a delegated State is subject
to appeal or has been appealed;
‘‘(19) ‘assessment’ means any fee or charge levied or
imposed by the Secretary or a delegated State other than—
‘‘(A) the principal amount of any royalty, minimum
royalty, rental bonus, net profit share or proceed of sale;
‘‘(B) any interest; or
‘‘(C) any civil or criminal penalty;
‘‘(20) ‘commence’ means—
‘‘(A) with respect to a judicial proceeding, the service
of a complaint, petition, counterclaim, cross claim, or other
pleading seeking affirmative relief or seeking credit or
recoupment: Provided, That if the Secretary commences
a judicial proceeding against a designee, the Secretary
shall give notice of that commencement to the lessee who
designated the designee, but the Secretary is not required
to give notice to other lessees who may be liable pursuant
to section 102(a) of this Act, for the obligation that is
the subject of the judicial proceeding; or

PUBLIC LAW 104–185—AUG. 13, 1996

110 STAT. 1701

‘‘(B) with respect to a demand, the receipt by the
Secretary or a delegated State or a lessee or its designee
(with written notice to the lessee who designated the designee) of the demand;
‘‘(21) ‘credit’ means the application of an overpayment (in
whole or in part) against an obligation which has become due
to discharge, cancel or reduce the obligation;
‘‘(22) ‘delegated State’ means a State which, pursuant to
an agreement or agreements under section 205 of this Act,
performs authorities, duties, responsibilities, or activities of
the Secretary;
‘‘(23) ‘demand’ means—
‘‘(A) an order to pay issued by the Secretary or the
applicable delegated State to a lessee or its designee (with
written notice to the lessee who designated the designee)
that has a reasonable basis to conclude that the obligation
in the amount of the demand is due and owing; or
‘‘(B) a separate written request by a lessee or its designee which asserts an obligation due the lessee or its
designee that provides a reasonable basis to conclude that
the obligation in the amount of the demand is due and
owing, but does not mean any royalty or production report,
or any information contained therein, required by the Secretary or a delegated State;
‘‘(24) ‘designee’ means the person designated by a lessee
pursuant to section 102(a) of this Act, with such written designation effective on the date such designation is received by
the Secretary and remaining in effect until the Secretary
receives notice in writing that the designation is modified or
terminated;
‘‘(25) ‘obligation’ means—
‘‘(A) any duty of the Secretary or, if applicable, a delegated State—
‘‘(i) to take oil or gas royalty in kind; or
‘‘(ii) to pay, refund, offset, or credit monies including (but not limited to)—
‘‘(I) the principal amount of any royalty, minimum royalty, rental, bonus, net profit share or
proceed of sale; or
‘‘(II) any interest; and
‘‘(B) any duty of a lessee or its designee (subject to
the provision of section 102(a) of this Act)—
‘‘(i) to deliver oil or gas royalty in kind; or
‘‘(ii) to pay, offset or credit monies including (but
not limited to)—
‘‘(I) the principal amount of any royalty, minimum royalty, rental, bonus, net profit share or
proceed of sale;
‘‘(II) any interest;
‘‘(III) any penalty; or
‘‘(IV) any assessment,
which arises from or relates to any lease administered
by the Secretary for, or any mineral leasing law related
to, the exploration, production and development of oil
or gas on Federal lands or the Outer Continental Shelf;
‘‘(26) ‘order to pay’ means a written order issued by the
Secretary or the applicable delegated State to a lessee or its

110 STAT. 1702

PUBLIC LAW 104–185—AUG. 13, 1996
designee (with notice to the lessee who designated the designee)
which—
‘‘(A) asserts a specific, definite, and quantified obligation claimed to be due, and
‘‘(B) specifically identifies the obligation by lease,
production month and monetary amount of such obligation
claimed to be due and ordered to be paid, as well as
the reason or reasons such obligation is claimed to be
due, but such term does not include any other communication or action by or on behalf of the Secretary or a delegated
State;
‘‘(27) ‘overpayment’ means any payment by a lessee or
its designee in excess of an amount legally required to be
paid on an obligation and includes the portion of any estimated
payment for a production month that is in excess of the royalties
due for that month;
‘‘(28) ‘payment’ means satisfaction, in whole or in part,
of an obligation;
‘‘(29) ‘penalty’ means a statutorily authorized civil fine
levied or imposed for a violation of this Act, any mineral leasing
law, or a term or provision of a lease administered by the
Secretary;
‘‘(30) ‘refund’ means the return of an overpayment;
‘‘(31) ‘State concerned’ means, with respect to a lease, a
State which receives a portion of royalties or other payments
under the mineral leasing laws from such lease;
‘‘(32) ‘underpayment’ means any payment or nonpayment
by a lessee or its designee that is less than the amount legally
required to be paid on an obligation; and
‘‘(33) ‘United States’ means the United States Government
and any department, agency, or instrumentality thereof, the
several States, the District of Columbia, and the territories
of the United States.’’.

SEC. 3. DELEGATION OF ROYALTY COLLECTIONS AND RELATED
ACTIVITIES.

(a) GENERAL AUTHORITY.—Section 205 of the Federal Oil and
Gas Royalty Management Act of 1982 (30 U.S.C. 1735) is amended
to read as follows:
30 USC 1735.

‘‘SEC. 205. DELEGATION OF ROYALTY COLLECTIONS AND RELATED
ACTIVITIES.

‘‘(a) Upon written request of any State, the Secretary is
authorized to delegate, in accordance with the provisions of
this section, all or part of the authorities and responsibilities
of the Secretary under this Act to:
‘‘(1) conduct inspections, audits, and investigations;
‘‘(2) receive and process production and financial reports;
‘‘(3) correct erroneous report data;
‘‘(4) perform automated verification; and
‘‘(5) issue demands, subpoenas, and orders to perform
restructured accounting, for royalty management enforcement
purposes,
to any State with respect to all Federal land within the State.
‘‘(b) After notice and opportunity for a hearing, the Secretary
is authorized to delegate such authorities and responsibilities
granted under this section as the State has requested, if the Secretary finds that—

PUBLIC LAW 104–185—AUG. 13, 1996

110 STAT. 1703

‘‘(1) it is likely that the State will provide adequate
resources to achieve the purposes of this Act;
‘‘(2) the State has demonstrated that it will effectively
and faithfully administer the rules and regulations of the Secretary under this Act in accordance with the requirements
of subsections (c) and (d) of this section;
‘‘(3) such delegation will not create an unreasonable burden
on any lessee;
‘‘(4) the State agrees to adopt standardized reporting procedures prescribed by the Secretary for royalty and production
accounting purposes, unless the State and all affected parties
(including the Secretary) otherwise agree;
‘‘(5) the State agrees to follow and adhere to regulations
and guidelines issued by the Secretary pursuant to the mineral
leasing laws regarding valuation of production; and
‘‘(6) where necessary for a State to have authority to carry
out and enforce a delegated activity, the State agrees to enact
such laws and promulgate such regulations as are consistent
with relevant Federal laws and regulations
with respect to the Federal lands within the State.
‘‘(c) After notice and opportunity for hearing, the Secretary
shall issue a ruling as to the consistency of a State’s proposal
with the provisions of this section and regulations under subsection
(d) within 90 days after submission of such proposal. In any unfavorable ruling, the Secretary shall set forth the reasons therefor and
state whether the Secretary will agree to delegate to the State
if the State meets the conditions set forth in such ruling.
‘‘(d) After consultation with State authorities, the Secretary
shall by rule promulgate, within 12 months after the date of enactment of this section, standards and regulations pertaining to the
authorities and responsibilities to be delegated under subsection
(a), including standards and regulations pertaining to—
‘‘(1) audits to be performed;
‘‘(2) records and accounts to be maintained;
‘‘(3) reporting procedures to be required by States under
this section;
‘‘(4) receipt and processing of production and financial
reports;
‘‘(5) correction of erroneous report data;
‘‘(6) performance of automated verification;
‘‘(7) issuance of standards and guidelines in order to avoid
duplication of effort;
‘‘(8) transmission of report data to the Secretary; and
‘‘(9) issuance of demands, subpoenas, and orders to perform
restructured accounting, for royalty management enforcement
purposes.
Such standards and regulations shall be designed to provide reasonable assurance that a uniform and effective royalty management
system will prevail among the States. The records and accounts
under paragraph (2) shall be sufficient to allow the Secretary to
monitor the performance of any State under this section.
‘‘(e) If, after notice and opportunity for a hearing, the Secretary
finds that any State to which any authority or responsibility of
the Secretary has been delegated under this section is in violation
of any requirement of this section or any rule thereunder, or that
an affirmative finding by the Secretary under subsection (b) can
no longer be made, the Secretary may revoke such delegation.

Regulations.

110 STAT. 1704

PUBLIC LAW 104–185—AUG. 13, 1996

If, after providing written notice to a delegated State and a reasonable opportunity to take corrective action requested by the Secretary, the Secretary determines that the State has failed to issue
a demand or order to a Federal lessee within the State, that
such failure may result in an underpayment of an obligation due
the United States by such lessee, and that such underpayment
may be uncollected without Secretarial intervention, the Secretary
may issue such demand or order in accordance with the provisions
of this Act prior to or absent the withdrawal of delegated authority.
‘‘(f) Subject to appropriations, the Secretary shall compensate
any State for those costs which may be necessary to carry out
the delegated activities under this Section. Payment shall be made
no less than every quarter during the fiscal year. Compensation
to a State may not exceed the Secretary’s reasonably anticipated
expenditure for performance of such delegated activities by the
Secretary. Such costs shall be allocable for the purposes of section
35(b) of the Act entitled ‘An act to promote the mining of coal,
phosphate, oil, oil shale, gas and sodium on the public domain’,
approved February 25, 1920 (commonly known as the Mineral Leasing Act) (30 U.S.C. 191 (b)) to the administration and enforcement
of laws providing for the leasing of any onshore lands or interests
in land owned by the United States. Any further allocation of
costs under section 35(b) made by the Secretary for oil and gas
activities, other than those costs to compensate States for delegated
activities under this Act, shall be only those costs associated with
onshore oil and gas activities and may not include any duplication
of costs allocated pursuant to the previous sentence. Nothing in
this section affects the Secretary’s authority to make allocations
under section 35(b) for non-oil and gas mineral activities. All moneys
received from sales, bonuses, rentals, royalties, assessments and
interest, including money claimed to be due and owing pursuant
to a delegation under this section, shall be payable and paid to
the Treasury of the United States.
‘‘(g) Any action of the Secretary to approve or disapprove a
proposal submitted by a State under this section shall be subject
to judicial review in the United States district court which includes
the capital of the State submitting the proposal.
‘‘(h) Any State operating pursuant to a delegation existing
on the date of enactment of this Act may continue to operate
under the terms and conditions of the delegation, except to the
extent that a revision of the existing agreement is adopted pursuant
to this section.’’.
(b) CLERICAL AMENDMENT.—The item relating to section 205
in the table of contents in section 1 of the Federal Oil and Gas
Royalty Management Act of 1982 (30 U.S.C. 1701) is amended
to read as follows:
‘‘Sec. 205. Delegation of royalty collections and related activities.’’.
SEC. 4. SECRETARIAL AND DELEGATED STATES’ ACTIONS AND LIMITATION PERIODS.

(a) IN GENERAL.—The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.) is amended by adding
after section 114 the following new section:

PUBLIC LAW 104–185—AUG. 13, 1996

110 STAT. 1705

‘‘SEC. 115. SECRETARIAL AND DELEGATED STATES’ ACTIONS AND
LIMITATION PERIODS.

‘‘(a) IN GENERAL.—The respective duties, responsibilities, and
activities with respect to a lease shall be performed by the Secretary, delegated States, and lessees or their designees in a timely
manner.
‘‘(b) LIMITATION PERIOD.—
‘‘(1) IN GENERAL.—A judicial proceeding or demand which
arises from, or relates to an obligation, shall be commenced
within seven years from the date on which the obligation
becomes due and if not so commenced shall be barred. If
commencement of a judicial proceeding or demand for an obligation is barred by this section, the Secretary, a delegated State,
or a lessee or its designee (A) shall not take any other or
further action regarding that obligation, including (but not
limited to) the issuance of any order, request, demand or other
communication seeking any document, accounting, determination, calculation, recalculation, payment, principal, interest,
assessment, or penalty or the initiation, pursuit or completion
of an audit with respect to that obligation; and (B) shall not
pursue any other equitable or legal remedy, whether under
statute or common law, with respect to an action on or an
enforcement of said obligation.
‘‘(2) RULE OF CONSTRUCTION.—A judicial proceeding or
demand that is timely commenced under paragraph (1) against
a designee shall be considered timely commenced as to any
lessee who is liable pursuant to section 102(a) of this Act
for the obligation that is the subject of the judicial proceeding
or demand.
‘‘(3) APPLICATION OF CERTAIN LIMITATIONS.—The limitations
set forth in sections 2401, 2415, 2416, and 2462 of title 28,
United States Code, and section 42 of the Mineral Leasing
Act (30 U.S.C. 226–2) shall not apply to any obligation to
which this Act applies. Section 3716 of title 31, United States
Code, may be applied to an obligation the enforcement of which
is not barred by this Act, but may not be applied to any
obligation the enforcement of which is barred by this Act.
‘‘(c) OBLIGATION BECOMES DUE.—
‘‘(1) IN GENERAL.—For purposes of this Act, an obligation
becomes due when the right to enforce the obligation is fixed.
‘‘(2) ROYALTY OBLIGATIONS.—The right to enforce any royalty obligation for any given production month for a lease
is fixed for purposes of this Act on the last day of the calendar
month following the month in which oil or gas is produced.
‘‘(d) TOLLING OF LIMITATION PERIOD.—The running of the
limitation period under subsection (b) shall not be suspended, tolled,
extended, or enlarged for any obligation for any reason by any
action, including an action by the Secretary or a delegated State,
other than the following:
‘‘(1) TOLLING AGREEMENT.—A written agreement executed
during the limitation period between the Secretary or a delegated State and a lessee or its designee (with notice to the
lessee who designated the designee) shall toll the limitation
period for the amount of time during which the agreement
is in effect.
‘‘(2) SUBPOENA.—

30 USC 1724.

110 STAT. 1706

PUBLIC LAW 104–185—AUG. 13, 1996
‘‘(A) The issuance of a subpoena to a lessee or its
designee (with notice to the lessee who designated the
designee, which notice shall not constitute a subpoena to
the lessee) in accordance with the provisions of subparagraph (B)(i) shall toll the limitation period with respect
to the obligation which is the subject of a subpoena only
for the period beginning on the date the lessee or its
designee receives the subpoena and ending on the date
on which (i) the lessee or its designee has produced such
subpoenaed records for the subject obligation, (ii) the Secretary or a delegated State receives written notice that
the subpoenaed records for the subject obligation are not
in existence or are not in the lessee’s or its designee’s
possession or control, or (iii) a court has determined in
a final decision that such records are not required to be
produced, whichever occurs first.
‘‘(B)(i) A subpoena for the purposes of this section
which requires a lessee or its designee to produce records
necessary to determine the proper reporting and payment
of an obligation due the Secretary may be issued only
by an Assistant Secretary of the Interior or an Acting
Assistant Secretary of the Interior who is a schedule C
employee (as defined by section 213.3301 of title 5, Code
of Federal Regulations), or the Director or Acting Director
of the respective bureau or agency, and may not be delegated to any other person. If a State has been delegated
authority pursuant to section 205, the State, acting through
the highest State official having ultimate authority over
the collection of royalties from leases on Federal lands
within the State, may issue such subpoena, but may not
delegate such authority to any other person.
‘‘(ii) A subpoena described in clause (i) may only be
issued against a lessee or its designee during the limitation
period provided in this section and only after the Secretary
or a delegated State has in writing requested the records
from the lessee or its designee related to the obligation
which is the subject of the subpoena and has determined
that—
‘‘(I) the lessee or its designee has failed to respond
within a reasonable period of time to the Secretary’s
or the applicable delegated State’s written request for
such records necessary for an audit, investigation or
other inquiry made in accordance with the Secretary’s
or such delegated State’s responsibilities under this
Act; or
‘‘(II) the lessee or its designee has in writing denied
the Secretary’s or the applicable delegated State’s written request to produce such records in the lessee’s
or its designee’s possession or control necessary for
an audit, investigation or other inquiry made in accordance with the Secretary’s or such delegated State’s
responsibilities under this Act; or
‘‘(III) the lessee or its designee has unreasonably
delayed in producing records necessary for an audit,
investigation or other inquiry made in accordance with
the Secretary’s or the applicable delegated State’s

PUBLIC LAW 104–185—AUG. 13, 1996

110 STAT. 1707

responsibilities under this Act after the Secretary’s
or delegated State’s written request.
‘‘(C) In seeking records, the Secretary or the applicable
delegated State shall afford the lessee or its designee a
reasonable period of time after a written request by the
Secretary or such delegated State in which to provide such
records prior to the issuance of any subpoena.
‘‘(3) MISREPRESENTATION OR CONCEALMENT.—The intentional misrepresentation or concealment of a material fact for
the purpose of evading the payment of an obligation in which
case the limitation period shall be tolled for the period of
such misrepresentation or such concealment.
‘‘(4) ORDER TO PERFORM RESTRUCTURED ACCOUNTING.—A)(i)
The issuance of a notice under subparagraph (D) that the
lessee or its designee has not substantially complied with the
requirement to perform a restructured accounting shall toll
the limitation period with respect to the obligation which is
the subject of the notice only for the period beginning on the
date the lessee or its designee receives the notice and ending
120 days after the date on which (I) the Secretary or the
applicable delegated State receives written notice that the
accounting or other requirement has been performed, or (II)
a court has determined in a final decision that the lessee
is not required to perform the accounting, whichever occurs
first.
‘‘(ii) If the lessee or its designee initiates an administrative
appeal or judicial proceeding to contest an order to perform
a restructured accounting issued under subparagraph (B)(i),
the limitation period in subsection (b) shall be tolled from
the date the lessee or its designee received the order until
a final, nonappealable decision is issued in any such proceeding.
‘‘(B)(i) The Secretary or the applicable delegated State may
issue an order to perform a restructured accounting to a lessee
or its designee when the Secretary or such delegated State
determines during an audit of a lessee or its designee that
the lessee or its designee should recalculate royalty due on
an obligation based upon the Secretary’s or the delegated State’s
finding that the lessee or its designee has made identified
underpayments or overpayments which are demonstrated by
the Secretary or the delegated State to be based upon repeated,
systemic reporting errors for a significant number of leases
or a single lease for a significant number of reporting months
with the same type of error which constitutes a pattern of
violations and which are likely to result in either significant
underpayments or overpayments.
‘‘(ii) The power of the Secretary to issue an order to perform
a restructured accounting may not be delegated below the most
senior career professional position having responsibility for the
royalty management program, which position is currently designated as the ‘Associate Director for Royalty Management’,
and may not be delegated to any other person. If a State
has been delegated authority pursuant to section 205 of this
Act, the State, acting through the highest ranking State official
having ultimate authority over the collection of royalties from
leases on Federal lands within the State, may issue such order
to perform, which may not be delegated to any other person.
An order to perform a restructured accounting shall—

110 STAT. 1708

Notice.

PUBLIC LAW 104–185—AUG. 13, 1996

‘‘(I) be issued within a reasonable period of time from
when the audit identifies the systemic, reporting errors;
‘‘(II) specify the reasons and factual bases for such
order;
‘‘(III) be specifically identified as an ‘order to perform
a restructured accounting’;
‘‘(IV) provide the lessee or its designee a reasonable
period of time (but not less than 60 days) within which
to perform the restructured accounting; and
‘‘(V) provide the lessee or its designee 60 days within
which to file an administrative appeal of the order to
perform a restructured accounting.
‘‘(C) An order to perform a restructured accounting shall
not mean or be construed to include any other action by or
on behalf of the Secretary or a delegated State.
‘‘(D) If a lessee or its designee fails to substantially comply
with the requirement to perform a restructured accounting
pursuant to this subsection, a notice shall be issued to the
lessee or its designee that the lessee or its designee has not
substantially complied with the requirements to perform a
restructured accounting. A lessee or its designee shall be given
a reasonable time within which to perform the restructured
accounting. Such notice may be issued under this section only
by an Assistant Secretary of the Interior or an acting Assistant
Secretary of the Interior who is a schedule C employee (as
defined by section 213.3301 of title 5, Code of Federal Regulations) and may not be delegated to any other person. If a
State has been delegated authority pursuant to section 205,
the State, acting through the highest State official having ultimate authority over the collection of royalties from leases on
Federal lands within the State, may issue such notice, which
may not be delegated to any other person.
‘‘(e) TERMINATION OF LIMITATIONS PERIOD.—An action or an
enforcement of an obligation by the Secretary or delegated State
or a lessee or its designee shall be barred under this section prior
to the running of the seven-year period provided in subsection
(b) in the event—
‘‘(1) the Secretary or a delegated State has notified the
lessee or its designee in writing that a time period is closed
to further audit; or
‘‘(2) the Secretary or a delegated State and a lessee or
its designee have so agreed in writing.
For purposes of this subsection, notice to, or an agreement by,
the designee shall be binding on any lessee who is liable pursuant
to section 102(a) for obligations that are the subject of the notice
or agreement.
‘‘(f) RECORDS REQUIRED FOR DETERMINING COLLECTIONS.—
Records required pursuant to section 103 of this Act by the Secretary or any delegated State for the purpose of determining obligations due and compliance with any applicable mineral leasing law,
lease provision, regulation or order with respect to oil and gas
leases from Federal lands or the Outer Continental Shelf shall
be maintained for the same period of time during which a judicial
proceeding or demand may be commenced under subsection (b).
If a judicial proceeding or demand is timely commenced, the record
holder shall maintain such records until the final nonappealable
decision in such judicial proceeding is made, or with respect to

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110 STAT. 1709

that demand is rendered, unless the Secretary or the applicable
delegated State authorizes in writing an earlier release of the
requirement to maintain such records. Notwithstanding anything
herein to the contrary, under no circumstance shall a record holder
be required to maintain or produce any record relating to an obligation for any time period which is barred by the applicable limitation
in this section. In connection with any hearing, administrative
proceeding, inquiry, investigation, or audit by the Secretary or
a delegated State under this Act, the Secretary or the delegated
State shall minimize the submission of multiple or redundant
information and make a good faith effort to locate records previously
submitted by a lessee or a designee to the Secretary or the delegated
State, prior to requiring the lessee or the designee to provide
such records.
‘‘(g) TIMELY COLLECTIONS.—In order to most effectively utilize
resources available to the Secretary to maximize the collection
of oil and gas receipts from lease obligations to the Treasury within
the seven-year period of limitations, and consequently to maximize
the State share of such receipts, the Secretary should not perform
or require accounting, reporting, or audit activities if the Secretary
and the State concerned determine that the cost of conducting
or requiring the activity exceeds the expected amount to be collected
by the activity, based on the most current 12 months of activity.
This subsection shall not provide a defense to a demand or an
order to perform a restructured accounting. To the maximum extent
possible, the Secretary and delegated States shall reduce costs
to the United States Treasury and the States by discontinuing
requirements for unnecessary or duplicative data and other information, such as separate allowances and payor information, relating
to obligations due. If the Secretary and the State concerned determine that collection will result sooner, the Secretary or the
applicable delegated State may waive or forego interest in whole
or in part.
‘‘(h) APPEALS AND FINAL AGENCY ACTION.—
‘‘(1) 33-MONTH PERIOD.—Demands or orders issued by the
Secretary or a delegated State are subject to administrative
appeal in accordance with the regulations of the Secretary.
No State shall impose any conditions which would hinder a
lessee’s or its designee’s immediate appeal of an order to the
Secretary or the Secretary’s designee. The Secretary shall issue
a final decision in any administrative proceeding, including
any administrative proceedings pending on the date of enactment of this section, within 33 months from the date such
proceeding was commenced or 33 months from the date of
such enactment, whichever is later. The 33-month period may
be extended by any period of time agreed upon in writing
by the Secretary and the appellant.
‘‘(2) EFFECT OF FAILURE TO ISSUE DECISION.—If no such
decision has been issued by the Secretary within the 33-month
period referred to in paragraph (1)—
‘‘(A) the Secretary shall be deemed to have issued
and granted a decision in favor of the appellant as to
any nonmonetary obligation and any monetary obligation
the principal amount of which is less than $10,000; and
‘‘(B) the Secretary shall be deemed to have issued
a final decision in favor of the Secretary, which decision
shall be deemed to affirm those issues for which the agency

110 STAT. 1710

PUBLIC LAW 104–185—AUG. 13, 1996

rendered a decision prior to the end of such period, as
to any monetary obligation the principal amount of which
is $10,000 or more, and the appellant shall have a right
to judicial review of such deemed final decision in accordance with title 5 of the United States Code.
‘‘(i) COLLECTIONS OF DISPUTED AMOUNTS DUE.—To expedite
collections relating to disputed obligations due within the sevenyear period beginning on the date the obligation became due, the
parties shall hold not less than one settlement consultation and
the Secretary and the State concerned may take such action as
is appropriate to compromise and settle a disputed obligation,
including waiving or reducing interest and allowing offsetting of
obligations among leases.
‘‘(j) ENFORCEMENT OF A CLAIM FOR JUDICIAL REVIEW.—In the
event a demand subject to this section is properly and timely
commenced, the obligation which is the subject of the demand
may be enforced beyond the seven-year limitations period without
being barred by this statute of limitations. In the event a demand
subject to this section is properly and timely commenced, a judicial
proceeding challenging the final agency action with respect to such
demand shall be deemed timely so long as such judicial proceeding
is commenced within 180 days from receipt of notice by the lessee
or its designee of the final agency action.
‘‘(k) IMPLEMENTATION OF FINAL DECISION.—In the event a
judicial proceeding or demand subject to this section is timely
commenced and thereafter the limitation period in this section
lapses during the pendency of such proceeding, any party to such
proceeding shall not be barred from taking such action as is required
or necessary to implement a final unappealable judicial or administrative decision, including any action required or necessary to implement such decision by the recovery or recoupment of an underpayment or overpayment by means of refund or credit.
‘‘(l) STAY OF PAYMENT OBLIGATION PENDING REVIEW.—Any person ordered by the Secretary or a delegated State to pay any
obligation (other than an assessment) shall be entitled to a stay
of such payment without bond or other surety instrument pending
an administrative or judicial proceeding if the person periodically
demonstrates to the satisfaction of the Secretary that such person
is financially solvent or otherwise able to pay the obligation. In
the event the person is not able to demonstrate, the Secretary
may require a bond or other surety instrument satisfactory to
cover the obligation. Any person ordered by the Secretary or a
delegated State to pay an assessment shall be entitled to a stay
without bond or other surety instrument.’’.
(b) CLERICAL AMENDMENT.—The table of contents in section
1 of the Federal Oil and Gas Royalty Management Act of 1982
(30 U.S.C. 1701) is amended by inserting after the item relating
to section 114 the following new item:
‘‘Sec.

115.

Secretarial and delegated States’ actions and limitation periods.’’.

SEC. 5. ADJUSTMENT AND REFUNDS.

(a) IN GENERAL.—The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.) is amended by inserting
after section 111 the following:

PUBLIC LAW 104–185—AUG. 13, 1996

110 STAT. 1711

‘‘SEC. 111A. ADJUSTMENTS AND REFUNDS.
A

‘‘(a) ADJUSTMENTS TO ROYALTIES PAID TO THE SECRETARY OR
DELEGATED STATE.—
‘‘(1) If, during the adjustment period, a lessee or its designee determines that an adjustment or refund request is necessary to correct an underpayment or overpayment of an obligation, the lessee or its designee shall make such adjustment
or request a refund within a reasonable period of time and
only during the adjustment period. The filing of a royalty
report which reflects the underpayment or overpayment of an
obligation shall constitute prior written notice to the Secretary
or the applicable delegated State of an adjustment.
‘‘(2)(A) For any adjustment, the lessee or its designee shall
calculate and report the interest due attributable to such adjustment at the same time the lessee or its designee adjusts the
principle amount of the subject obligation, except as provided
by subparagraph (B).
‘‘(B) In the case of a lessee or its designee who determines
that subparagraph (A) would impose a hardship, the Secretary
or such delegated State shall calculate the interest due and
notify the lessee or its designee within a reasonable time of
the amount of interest due, unless such lessee or its designee
elects to calculate and report interest in accordance with
subparagraph (A).
‘‘(3) An adjustment or a request for a refund for an obligation may be made after the adjustment period only upon written
notice to and approval by the Secretary or the applicable delegated State, as appropriate, during an audit of the period
which includes the production month for which the adjustment
is being made. If an overpayment is identified during an audit,
then the Secretary or the applicable delegated State, as appropriate, shall allow a credit or refund in the amount of the
overpayment.
‘‘(4) For purposes of this section, the adjustment period
for any obligation shall be the six-year period following the
date on which an obligation became due. The adjustment period
shall be suspended, tolled, extended, enlarged, or terminated
by the same actions as the limitation period in section 115.
‘‘(b) REFUNDS.—
‘‘(1) IN GENERAL.—A request for refund is sufficient if it—
‘‘(A) is made in writing to the Secretary and, for purposes of section 115, is specifically identified as a demand;
‘‘(B) identifies the person entitled to such refund;
‘‘(C) provides the Secretary information that reasonably
enables the Secretary to identify the overpayment for which
such refund is sought; and
‘‘(D) provides the reasons why the payment was an
overpayment.
‘‘(2) PAYMENT BY SECRETARY OF THE TREASURY.—The Secretary shall certify the amount of the refund to be paid under
paragraph (1) to the Secretary of the Treasury who shall make
such refund. Such refund shall be paid from amounts received
as current receipts from sales, bonuses, royalties (including
interest charges collected under this section) and rentals of
the public lands and the Outer Continental Shelf under the
provisions of the Mineral Leasing Act and the Outer Continental Shelf Lands Act, which are not payable to a State or

30 USC 1721a.

110 STAT. 1712

PUBLIC LAW 104–185—AUG. 13, 1996

the Reclamation Fund. The portion of any such refund attributable to any amounts previously disbursed to a State, the
Reclamation Fund, or any recipient prescribed by law shall
be deducted from the next disbursements to that recipient
made under the applicable law. Such amounts deducted from
subsequent disbursements shall be credited to miscellaneous
receipts in the Treasury.
‘‘(3) PAYMENT PERIOD.—A refund under this subsection
shall be paid or denied (with an explanation of the reasons
for the denial) within 120 days of the date on which the request
for refund is received by the Secretary. Such refund shall
be subject to later audit by the Secretary or the applicable
delegated State and subject to the provisions of this Act.
‘‘(4) PROHIBITION AGAINST REDUCTION OF REFUNDS OR CREDITS.—In no event shall the Secretary or any delegated State
directly or indirectly claim or offset any amount or amounts
against, or reduce any refund or credit (or interest accrued
thereon) by the amount of any obligation the enforcement of
which is barred by section 115 of this Act.’’.
(b) CLERICAL AMENDMENT.—The table of contents in section
1 of the Federal Oil and Gas Royalty Management Act of 1982
(30 U.S.C. 1701) is amended by inserting after the item relating
to section 111 the following new item:
‘‘Sec. 111A. Adjustments and refunds.’’.
SEC.

6.

ROYALTY TERMS
PENALTIES.

AND

CONDITIONS,

INTEREST,

AND

(a) LESSEE OR DESIGNEE INTEREST.—Section 111 of the Federal
Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721)
is amended by adding after subsection (g) the following:
‘‘(h) Interest shall be allowed and paid or credited on any
overpayment, with such interest to accrue from the date such overpayment was made, at the rate obtained by applying the provisions
of subparagraphs (A) and (B) of section 6621(a)(1) of the Internal
Revenue Code of 1986, but determined without regard to the sentence following subparagraph (B) of section 6621(a)(1). Interest
which has accrued on any overpayment may be applied to reduce
an underpayment. This subsection applies to overpayments made
later than six months after the date of enactment of this subsection
or September 1, 1996, whichever is later. Such interest shall be
paid from amounts received as current receipts from sales, bonuses,
royalties (including interest charges collected under this section)
and rentals of the public lands and the Outer Continental Shelf
under the provisions of the Mineral Leasing Act, and the Outer
Continental Shelf Lands Act, which are not payable to a State
or the Reclamation Fund. The portion of any such interest payment
attributable to any amounts previously disbursed to a State, the
Reclamation Fund, or any other recipient designated by law shall
be deducted from the next disbursements to that recipient made
under the applicable law. Such amounts deducted from subsequent
disbursements shall be credited to miscellaneous receipts in the
Treasury.’’.
(b) LIMITATION ON INTEREST.—Section 111 of the Federal Oil
and Gas Royalty Management Act of 1982, as amended by subsection (a), is further amended by adding at the end the following:
‘‘(i) Upon a determination by the Secretary that an excessive
overpayment (based upon all obligations of a lessee or its designee

PUBLIC LAW 104–185—AUG. 13, 1996

110 STAT. 1713

for a given reporting month) was made for the sole purpose of
receiving interest, interest shall be paid on the excessive amount
of such overpayment. For purposes of this Act, an ‘excessive overpayment’ shall be the amount that any overpayment a lessee or
its designee pays for a given reporting month (excluding payments
for demands for obligations determined to be due as a result of
judicial or administrative proceedings or agreed to be paid pursuant
to settlement agreements) for the aggregate of all of its Federal
leases exceeds 10 percent of the total royalties paid that month
for those leases.’’.
(c) ESTIMATED PAYMENT.—Section 111 of the Federal Oil and
Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as amended
by subsections (a) and (b), is further amended by adding at the
end the following:
‘‘(j) A lessee or its designee may make a payment for the
approximate amount of royalties (hereinafter in this subsection
‘estimated payment’) that would otherwise be due for such lease
by the rate royalties are due for that lease. When an estimated
payment is made, actual royalties are payable at the end of the
month following the month in which the estimated payment is
made. If the estimated payment was less than the amount of
actual royalties due, interest is owned on the underpaid amount.
If the estimated payment exceeds the actual royalties due, interest
is owned on the overpayment. If the lessee or its designee makes
a payment for such actual royalties, the lessee or its designee
may apply the estimated payment to future royalties. Any estimated
payment may be adjusted, recouped, or reinstated at any time
by the lessee or its designee.’’.
(d) VOLUME ALLOCATION OF OIL AND GAS PRODUCTION.—Section
111 of the Federal Oil and Gas Royalty Management Act of 1982
(30 U.S.C. 1721), as amended by subsections (a) through (c), is
amended by adding at the end the following:
‘‘(k)(1) Except as otherwise provided by this subsection—
‘‘(A) a lessee or its designee of a lease in a unit or
communitization agreement which contains only Federal leases
with the same royalty rate and funds distribution shall report
and pay royalties on oil and gas production for each production
month based on the actual volume of production sold by or
on behalf of that lessee;
‘‘(B) a lessee or its designee of a lease in any other unit
or communitization agreement shall report and pay royalties
on oil and gas production for each production month based
on the volume of oil and gas produced from such agreement
and allocated to the lease in accordance with the terms of
the agreement; and
‘‘(C) a lessee or its designee of a lease that is not contained
in a unit or communitization agreement shall report and pay
royalties on oil and gas production for each production month
based on the actual volume of production sold by or on behalf
of that lessee.
‘‘(2) This subsection applies only to requirements for reporting
and paying royalties. Nothing in this subsection is intended to
alter a lessee’s liability for royalties on oil or gas production based
on the share of production allocated to the lease in accordance
with the terms of the lease, a unit or communitization agreement,
or any other agreement.

110 STAT. 1714

PUBLIC LAW 104–185—AUG. 13, 1996

‘‘(3) For any unit or communitization agreement if all lessees
contractually agree to an alternative method of royalty reporting
and payment, the lessees may submit such alternative method
to the Secretary or the delegated State for approval and make
payments in accordance with such approved alternative method
so long as such alternative method does not reduce the amount
of the royalty obligation.
‘‘(4) The Secretary or the delegated State shall grant an exception from the reporting and payment requirements for marginal
properties by allowing for any calendar year or portion thereof
royalties to be paid each month based on the volume of production
sold. Interest shall not accrue on the difference for the entire
calendar year or portion thereof between the amount of oil and
gas actually sold and the share of production allocated to the
lease until the beginning of the month following such calendar
year or portion thereof. Any additional royalties dues or overpaid
royalties and associated interest shall be paid, refunded, or credited
within six months after the end of each calendar year in which
royalties are paid based on volumes of production sold. For the
purpose of this subsection, the term ‘marginal property’ means
a lease that produces on average the combined equivalent of less
than 15 barrels of oil per well per day or 90 thousand cubic feet
of gas per well per day, or a combination thereof, determined
by dividing the average daily production of crude oil and natural
gas from producing wells on such lease by the number of such
wells, unless the Secretary, together with the State concerned,
determines that a different production is more appropriate.
‘‘(5) Not later than two years after the date of the enactment
of this subsection, the Secretary shall issue any appropriate demand
for all outstanding royalty payment disputes regarding who is
required to report and pay royalties on production from units and
communitization agreements outstanding on the date of the enactment of this subsection, and collect royalty amounts owed on such
production.’’.
(e) PRODUCTION ALLOCATION.—Section 111 of the Federal Oil
and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as
amended by subsections (a) through (d), is amended by adding
at the end the following:
‘‘(l) The Secretary shall issue all determinations of allocations
of production for units and communitization agreements within
120 days of a request for determination. If the Secretary fails
to issue a determination within such 120-day period, the Secretary
shall waive interest due on obligations subject to the determination
until the end of the month following the month in which the
determination is made.’’.
(f) NEW ASSESSMENT TO ENCOURAGE PROPER ROYALTY PAYMENTS.—
(1) IN GENERAL.—The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as amended by section
4(a), is further amended by adding at the end the following:
30 USC 1725.

‘‘SEC. 116. ASSESSMENTS.

‘‘Beginning eighteen months after the date of enactment of
this section, to encourage proper royalty payment the Secretary
or the delegated State shall impose assessments on a person who
chronically submits erroneous reports under this Act. Assessments
under this Act may only be issued as provided for in this section.’’.

PUBLIC LAW 104–185—AUG. 13, 1996

110 STAT. 1715

(2) CLERICAL AMENDMENT.—The table of contents in section
1 of such Act (30 U.S.C. 1701) is amended by adding after
the item relating to section 115 the following new item:
‘‘Sec. 116. Assessments.’’.

(g) LIABILITY FOR ROYALTY PAYMENTS.—Section 102(a) of the
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C.
1712(a)) is amended to read as follows:
‘‘(a) In order to increase receipts and achieve effective collections
of royalty and other payments, a lessee who is required to make
any royalty or other payment under a lease or under the mineral
leasing laws, shall make such payments in the time and manner
as may be specified by the Secretary or the applicable delegated
State. A lessee may designate a person to make all or part of
the payments due under a lease on the lessee’s behalf and shall
notify the Secretary or the applicable delegated State in writing
of such designation, in which event said designated person may,
in its own name, pay, offset or credit monies, make adjustments,
request and receive refunds and submit reports with respect to
payments required by the lessee. Notwithstanding any other provision of this Act to the contrary, a designee shall not be liable
for any payment obligation under the lease. The person owning
operating rights in a lease shall be primarily liable for its pro
rata share of payment obligations under the lease. If the person
owning the legal record title in a lease is other than the operating
rights owner, the person owning the legal record title shall be
secondarily liable for its pro rata share of such payment obligations
under the lease.’’.
(h) CLERICAL AMENDMENTS.—(1) The heading of section 111
of the Federal Oil and Gas Royalty management Act of 1982 (30
U.S.C. 1721) is amended to read as follows:
‘‘ROYALTY

TERMS AND CONDITIONS, INTEREST, AND PENALTIES’’.

(2) The item relating to section 111 in the table of contents
in section 1 of such Act (30 U.S.C. 1701) is amended to read
as follows:
‘‘Sec. 111. Royalty terms and conditions, interest, and penalties.’’.
SEC. 7. ALTERNATIVES FOR MARGINAL PROPERTIES.

(a) IN GENERAL.—The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.), as amended by section
6 of this Act, is further amended by adding at the end the following:
‘‘SEC. 117. ALTERNATIVES FOR MARGINAL PROPERTIES.

‘‘(a) DETERMINATION OF BEST INTERESTS OF STATE CONCERNED
AND THE UNITED STATES.—The Secretary and the State concerned,
acting in the best interests of the United States and the State
concerned to promote production, reduce administrative costs, and
increase net receipts to the United States and the States, shall
jointly determine, on a case by case basis, the amount of what
marginal production from a lease or leases or well or wells, or
parts thereof, shall be subject to a prepayment under subsection
(b) or regulatory relief under subsection (c). If the State concerned
does not consent, such prepayments or regulatory relief shall not
be made available under this section for such marginal production:
Provided, That if royalty payments from a lease or leases, or well
or wells are not shared with any State, such determination shall
be made solely by the Secretary.

30 USC 1726.

110 STAT. 1716

PUBLIC LAW 104–185—AUG. 13, 1996

‘‘(b) PREPAYMENT OF ROYALTY.—
‘‘(1) IN GENERAL.—Notwithstanding the provisions of any
lease to the contrary, for any lease or leases or well or wells
identified by the Secretary and the State concerned pursuant
to subsection (a), the Secretary is authorized to accept a prepayment for royalties in lieu of monthly royalty payments under
the lease for the remainder of the lease term if the affected
lessee so agrees. Any prepayment agreed to by the Secretary,
State concerned and lessee which is less than an average $500
per month in total royalties shall be effectuated under this
section not earlier than two years after the date of enactment
of this section and, any prepayment which is greater than
an average $500 per month in total royalties shall be effectuated under this section not earlier than three years after
the date of enactment of this section. The Secretary and the
State concerned may condition their acceptance of the prepayment authorized under this section on the lessee’s agreeing
to such terms and conditions as the Secretary and the State
concerned deem appropriate and consistent with the purposes
of this Act. Such terms may—
‘‘(A) provide for prepayment that does not result in
a loss of revenue to the United States in present value
terms;
‘‘(B) include provisions for receiving additional prepayments or royalties for developments in the lease or leases
or well or wells that deviate significantly from the assumptions and facts on which the valuation is determined; and
‘‘(C) require the lessee or it designee to provide such
periodic production reports as may be necessary to allow
the Secretary and the State concerned to monitor production for the purposes of subparagraph (B).
‘‘(2) STATE SHARE.—A prepayment under this section shall
be shared by the Secretary with any State or other recipient
to the same extent as any royalty payment for such lease.
‘‘(3) SATISFACTION OF OBLIGATION.—Except as may be provided in the terms and conditions established by the Secretary
under subsection (b), a lessee or its designee who makes a
prepayment under this section shall have satisfied in full the
lessee’s obligation to pay royalty on the production stream
sold from the lease or leases or well or wells.
‘‘(c) ALTERNATIVE ACCOUNTING AND AUDITING REQUIREMENTS.—
Within one year after the date of the enactment of this section,
the Secretary or the delegated State shall provide accounting,
reporting, and auditing relief that will encourage lessees to continue
to produce and develop properties subject to subsection (a): Provided, That such relief will only be available to lessees in a State
that concurs, which concurrence is not required if royalty payments
from the lease or leases or well or wells are not shared with
any State. Prior to granting such relief, the Secretary and, if appropriate, the State concerned shall agree that the type of marginal
wells and relief provided under this paragraph is in the best interest
of the United States and, if appropriate, the State concerned.’’.

PUBLIC LAW 104–185—AUG. 13, 1996

110 STAT. 1717

(b) CLERICAL AMENDMENT.—The table of contents in section
1 of such Act (30 U.S.C. 1701) is amended by adding after the
item relating to section 116 the following new item:
‘‘Sec. 117. Alternatives for marginal properties.’’.
SEC. 8. APPLICABILITY.

(a) FOGRMA.—With respect to Federal lands, sections 202
and 307 of the Federal Oil and Gas Royalty Management Act
of 1982 (30 U.S.C. 1732 and 1755), are no longer applicable. The
applicability of those sections to Indian leases is not affected.
(b) OCSLA.—Effective on the date of the enactment of this
Act, section 10 of the Outer Continental Shelf Lands Act (43 U.S.C.
1339) is repealed.

30 USC 1732
note.

SEC. 9. INDIAN LANDS.

30 USC 1701
note.

The amendments made by this Act shall not apply with respect
to Indian lands, and the provisions of the Federal Oil and Gas
Royalty Management Act of 1982 as in effect on the day before
the date of enactment of this Act shall continue to apply after
such date with respect to Indian lands.
SEC. 10. PRIVATE LANDS.

This Act shall not apply to any privately owned minerals.
SEC. 11. EFFECTIVE DATE.

Except as provided by section 115(h), section 111(h), section
111(k)(5), and section 117 of the Federal Oil and Gas Royalty
Management Act of 1982 (as added by this Act), this Act, and
the amendments made by this Act, shall apply with respect to
the production of oil and gas after the first day of the month
following the date of the enactment of this Act.
SEC. 12. SAVINGS CLAUSE.

Nothing in this Act shall be construed to give a State a property
right or interest in any Federal lease or land.
Approved August 13, 1996.

LEGISLATIVE HISTORY—H.R. 1975:
HOUSE REPORTS: No. 104–667 (Comm. on Resources).
CONGRESSIONAL RECORD, Vol. 142 (1996):
July 16, considered and passed House.
Aug. 2, considered and passed Senate.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):
Aug. 13, Presidential remarks and statement.

Æ

30 USC 1701
note.
30 USC 1701
note.

30 USC 1701
note.