[House Report 118-562]
[From the U.S. Government Publishing Office]
118th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 118-562
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ROYALTY RESILIENCY ACT
_______
June 27, 2024.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Westerman, from the Committee on Natural Resources, submitted the
following
R E P O R T
[To accompany H.R. 7377]
[Including cost estimate of the Congressional Budget Office]
The Committee on Natural Resources, to whom was referred
the bill (H.R. 7377) to amend the Federal Oil and Gas Royalty
Management Act of 1982 to improve the management of royalties
from oil and gas leases, and for other purposes, having
considered the same, reports favorably thereon with an
amendment and recommends that the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Royalty Resiliency Act''.
SEC. 2. DETERMINATION OF ALLOCATIONS OF PRODUCTION FOR UNITS AND
COMMUNITIZATION AGREEMENTS.
Section 111(j) of the Federal Oil and Gas Royalty Management Act of
1982 (30 U.S.C. 1721(j)), as amended by the Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996 (Public Law 104-185), is
amended to read as follows:
``(j) The Secretary shall issue all determinations of allocations of
production for units and communitization agreements within 120 days of
a request for determination. Until the Secretary issues the
determination, the lessee or its designee of a lease in a unit or
communitization agreement shall report and pay royalties on oil and gas
production for each production month in accordance with the terms of
the proposed allocation of production for the unit or communitization
agreement. After the Secretary issues the determination, the lessee or
its designee shall, as necessary, correct such reports and the amount
of royalties paid on oil and gas production under the unit or
communitization agreement by not later than the end of the third month
following the month in which the lessee or its designee receives the
determination from the Secretary. Subject to the full and timely
monthly payment of royalties to all parties in accordance with the
terms of the proposed allocation of production for the unit or
communitization agreement, the Secretary shall waive interest due on
obligations subject to the determination until the end of the third
month following the month in which the lessee or its designee receives
the determination from the Secretary. This subsection shall not apply
to unit or communization agreements containing Indian lands.''.
Purpose of the Legislation
The purpose of H.R. 7377 is to amend the Federal Oil and
Gas Royalty Management Act of 1982 to improve the management of
royalties from oil and gas leases, and for other purposes.
Background and Need for Legislation
The Federal Oil and Gas Royalty Management Act of 1982
(FOGRMA) grants the Secretary of the Interior authority to
manage and collect oil and gas royalties from leases on federal
and Indian lands. This includes the establishment of a
comprehensive inspection, collection, and production auditing
system for accurately determining royalties, interests, fines,
penalties, fees, deposits, and other payments owed on
leases.\1\ FOGRMA also sets forth the duties of operators on
oil and gas leases. For example, lessees are required to make
royalty payments on time and notify the Secretary of the
Interior of any assignments of interest on a lease or
production on new wells.
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\1\BOEM, Federal Oil and Gas Royalty Management Act, https://
www.boem.gov/sites/default/files/documents/about-boem/regulations-
guidance/Federal%20Oil%20and%20Gas%20Royalty%20Management%20Act.pdf
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The Department of the Interior's Office of Natural
Resources Revenue (ONRR) is responsible for accounting for,
verifying, and collecting mineral leasing revenues from all
federal onshore areas, including oil and gas royalties. When an
oil and gas project involving a federal lease cannot be
independently developed because of other state or private
assets, the Bureau of Land Management (BLM) may approve a
communitization agreement (CA) upon a determination that it is
in the public interest. CAs are essentially revenue-sharing
agreements for oil and gas projects that involve federal,
state, and private property. Under current law, BLM is
responsible for approving CAs within 120 days and determining
allocations of production for royalty payments between
lessees.\2\ Despite the statutory timeline, operators have
experienced wait times of up to three years for CAs.
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\2\30 U.S.C. Sec. 1721(j).
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ONRR currently requires operators to pay a 100% royalty to
the federal government until the BLM approves the CA, meaning
operators are forced to pay excess royalties for years while
they wait for BLM approval. For example, if the mineral
ownership for a project is 50% state, 25% private, and 25%
federal, the operator would be required to pay a royalty of
175% until the BLM approves the CA (50% state, 25% private, and
100% federal). H.R. 7377 would solve this issue by allowing
lessees to pay a royalty to ONRR that is based on the
apportionment in their proposed CA rather than a blanket 100%.
If the apportionment is found to be incorrect when the CA is
approved (which is rare), the lessee must pay the government
back within three months.
Committee Action
H.R. 7377 was introduced on February 15, 2024, by
Representative Wesley Hunt (R-TX). The bill was referred to the
Committee on Natural Resources, and within the Committee to the
Subcommittee on Energy and Mineral Resources. On March 6, 2024,
the Subcommittee on Energy and Mineral Resources held a hearing
on the bill. On April 16, 2024, the Committee on Natural
Resources met to consider the bill. The Subcommittee on Energy
and Mineral Resources was discharged from further consideration
of H.R. 7377 by unanimous consent. Rep. Hunt (R-TX) offered an
Amendment in the Nature of a Substitute designated Hunt ANS_01.
The Amendment in the Nature of a Substitute was agreed to by
unanimous consent. The bill, as amended, was ordered favorably
reported to the House of Representatives by unanimous consent.
Hearings
For the purposes of clause 3(c)(6) of House rule XIII, the
following hearing was used to develop or consider this measure:
hearing by the Subcommittee on Energy and Mineral Resources
held on March 6, 2024.
Section-by-Section Analysis
Section 1. Short title
Designates the bill as the ``Royalty Resiliency Act''.
Section 2. Determination of allocations of production for units and
communitization agreements
Section 2 amends Section 111(j) of the Federal Oil and Gas
Royalty Management Act of 1982 by allowing lessees to pay a
royalty to ONRR that is based on the apportionment in their
proposed CA rather than a blanket 100%. If the apportionment is
found to be incorrect when the CA is approved, the lessee would
be required to pay the government back within three months. The
bill would not apply to CAs that involve Indian lands.
Committee Oversight Findings and Recommendations
Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of
rule XIII of the Rules of the House of Representatives, the
Committee on Natural Resources' oversight findings and
recommendations are reflected in the body of this report.
Compliance With House Rule XIII and Congressional Budget Act
1. Cost of Legislation and the Congressional Budget Act.
With respect to the requirements of clause 3(c)(2) and (3) of
rule XIII of the Rules of the House of Representatives and
sections 308(a) and 402 of the Congressional Budget Act of
1974, the Committee has received the following estimate for the
bill from the Director of the Congressional Budget Office:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
H.R. 7377 would amend the Federal Oil and Gas Royalty
Management Act of 1982 to change how leaseholders that are
applying to jointly develop federal land allocate royalty
payments before the Department of the Interior (DOI) approves
the final allocations.
Oil and gas leaseholders can enter into joint agreements to
develop leased land and drill wells in areas where they could
not independently comply with certain regulations. Such a joint
application includes the proposed apportionment of production
and royalties to be paid by each producer.
Under current law, until DOI approves the final royalty
allocations, the first leaseholder to drill pays any royalties
due to the federal government for all production on land
subject to the proposed agreement. After DOI approves the final
allocations, that leaseholder is reimbursed by the other
participants in the agreement for their share of the payments.
The bill would require oil and gas leaseholders that seek
to form such agreements to make royalty payments based on the
proposed production allocation under the agreement application
until DOI approves the final allocations.
Royalties paid on oil and gas produced on federal land are
recorded in the budget as offsetting receipts, that is, as
reductions in direct spending. A portion of those offsetting
receipts are spent without further appropriation.
CBO expects that enacting H.R. 7377 would not change the
total amount of royalties owed to the federal government, but
it could affect when those payments are received. Thus, CBO
estimates that enacting the bill would have an insignificant
effect on direct spending over the 2024-2034 period.
The CBO staff contacts for this estimate are David Hughes
(for offshore leasing) and Lilia Ledezma (for onshore leasing).
The estimate was reviewed by H. Samuel Papenfuss, Deputy
Director of Budget Analysis.
Phillip L. Swagel,
Director, Congressional Budget Office.
2. General Performance Goals and Objectives. As required by
clause 3(c)(4) of rule XIII, the general performance goal or
objective of this bill is to amend the Federal Oil and Gas
Royalty Management Act of 1982 to improve the management of
royalties from oil and gas leases, and for other purposes.
Earmark Statement
This bill does not contain any Congressional earmarks,
limited tax benefits, or limited tariff benefits as defined
under clause 9(e), 9(f), and 9(g) of rule XXI of the Rules of
the House of Representatives.
Unfunded Mandates Reform Act Statement
According to the Congressional Budget Office, H.R. 7377
contains no unfunded mandates as defined by the Unfunded
Mandates Reform Act.
Existing Programs
Directed Rule Making. This bill does not contain any
directed rule makings.
Duplication of Existing Programs. This bill does not
establish or reauthorize a program of the federal government
known to be duplicative of another program. Such program was
not included in any report from the Government Accountability
Office to Congress pursuant to section 21 of Public Law 111-139
or identified in the most recent Catalog of Federal Domestic
Assistance published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169) as relating to other programs.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Preemption of State, Local or Tribal Law
Any preemptive effect of this bill over state, local, or
tribal law is intended to be consistent with the bill's
purposes and text and the Supremacy Clause of Article VI of the
U.S. Constitution.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
FEDERAL OIL AND GAS ROYALTY MANAGEMENT ACT OF 1982
* * * * * * *
TITLE I--FEDERAL ROYALTY MANAGEMENT AND ENFORCEMENT
* * * * * * *
ROYALTY TERMS AND CONDITIONS, INTEREST, AND PENALTIES
Sec. 111. (a) In the case of oil and gas leases where royalty
payments are not received by the Secretary on the date that
such payments are due, or are less than the amount due, the
Secretary shall charge interest on such late payments or
underpayments at the rate applicable under section 6621 of the
Internal Revenue Code of 1954. In the case of an underpayment
or partial payment, interest shall be computed and charged only
on the amount of the deficiency and not on the total amount
due.
(b) Any payment made by the Secretary to a State under
section 35 of the Mineral Leasing Act of 1920 (30 U.S.C. 191)
and any other payment made by the Secretary to a State from any
oil or gas royalty received by the Secretary which is not paid
on the date required under section 35 shall include an interest
charge computed at the rate applicable under section 6621 of
the Internal Revenue Code of 1954.
(c) All interest charges collected under this Act or under
other applicable laws because of nonpayment, late payment or
underpayment of royalties due and owing an Indian tribe or an
Indian allottee shall be deposited to the same account as the
royalty with respect to which such interest is paid.
(d) Any deposit of royalty funds made by the Secretary to an
Indian account which is not made by the date required under
subsection 104(b) shall include an interest charge computed at
the rate applicable under section 6621 of the Internal Revenue
Code of 1954.
(e) Notwithstanding any other provision of law, no State will
be assessed for any interest or penalties found to be due
against the Secretary for failure to comply with the Emergency
Petroleum Allocation Act of 1973 or regulation of the Secretary
of Energy thereunder concerning crude oil certification or
pricing with respect to crude oil taken by the Secretary in
kind as royalty. Any State share of an overcharge, resulting
from such failure to comply, shall be assessed against moneys
found to be due and owing to such State as a result of audits
of royalty accounts for transactions which took place prior to
the date of the enactment of this Act except that it after the
completion of such audits, sufficient moneys have not been
found due and owing to any State, the State shall be assessed
the balance of that State's share of the overcharge.
(f) Interest shall be charged under this section only for the
number of days a payment is late.
(g) The first sentence of section 35 of the Act of February
25, 1920 is amended by inserting ``including interest charges
collected under the Federal Oil and Gas Royalty Management Act
of 1982'' between ``royalties'' and ``and''.
(h) 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 date 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 owed on the
underpaid amount. 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.
(i)(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.
(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 due 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.
[(j) 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.]
(j) The Secretary shall issue all determinations of
allocations of production for units and communitization
agreements within 120 days of a request for determination.
Until the Secretary issues the determination, the lessee or its
designee of a lease in a unit or communitization agreement
shall report and pay royalties on oil and gas production for
each production month in accordance with the terms of the
proposed allocation of production for the unit or
communitization agreement. After the Secretary issues the
determination, the lessee or its designee shall, as necessary,
correct such reports and the amount of royalties paid on oil
and gas production under the unit or communitization agreement
by not later than the end of the third month following the
month in which the lessee or its designee receives the
determination from the Secretary. Subject to the full and
timely monthly payment of royalties to all parties in
accordance with the terms of the proposed allocation of
production for the unit or communitization agreement, the
Secretary shall waive interest due on obligations subject to
the determination until the end of the third month following
the month in which the lessee or its designee receives the
determination from the Secretary. This subsection shall not
apply to unit or communization agreements containing Indian
lands.
* * * * * * *
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