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Oil and Gas and Sulphur Operations in the Outer Continental Shelf-Revision of Requirements Governing Outer Continental Shelf Rights-of-Use and Easement and Pipeline Rights-of-Way

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Start Preamble

AGENCY:

Minerals Management Service (MMS), Interior.

ACTION:

Final rule.

SUMMARY:

MMS is modifying requirements governing rights-of-use and easements and pipeline rights-of-way on the Outer Continental Shelf (OCS). These changes will increase rental rates for pipeline rights-of-way and establish rentals for rights-of-use and easements. This change is needed because of requests made by lessees and pipeline right-of-way holders to use large areas outside of the area covered by their lease and pipeline right-of-way for accessory structures. This rule will require holders of rights-of-use and easements and holders granted use of large areas as part of a pipeline right-of-way to pay rentals on a per acre basis.

EFFECTIVE DATE:

This rule is effective January 12, 2004.

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FOR FURTHER INFORMATION CONTACT:

John Mirabella, Chief, Office of Offshore Regulations, (703) 787-1600.

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SUPPLEMENTARY INFORMATION:

Areas of the Gulf of Mexico (GOM) once thought beyond reach, located in water depths greater than 5,000 feet, are now being explored for development. A new generation of drillships and the development of new techniques allow drilling in waters as deep as 10,000 feet. Operators and pipeline right-of-way holders on the OCS are developing more sophisticated and cost-efficient technology that will lower the cost of safely finding, extracting, and delivering deepwater oil and natural gas.

In the next decade, as industry moves further offshore into ultra-deepwater frontiers, the number of floating production vessels will increase substantially. Structures such as tension-leg platforms and floating production and offloading systems will become widely used to produce oil and gas in the GOM. These systems must be stabilized above the seafloor in water depths of 1,000 to 10,000 feet and, therefore, require a mooring system that may have a “footprint” radius greater than 8,500 feet. In some cases, the mooring system may cover the majority of the OCS block on which the facility is positioned.

Additionally, where the cost of producing directly from a production platform in deep water will allow operators to produce only large hydrocarbon discoveries from platforms, operators will produce smaller hydrocarbon discoveries in deep water by means of wells with production trees (the assemblage of valves) that are located on the ocean floor. These subsea systems must be tied back to a host facility by means of pipelines that deliver the production for processing and/or measurement, and cable-like control umbilicals that contain electrical conductors and small diameter steel tubing. Umbilicals allow control of the valves in the production tree and the measurement of pressure and temperature within the well to be accomplished remotely from the host facility (a platform that may not be on or near the lease).

A right-of-use and easement or pipeline right-of-way grant allows lessees and pipeline right-of-way holders the freedom to optimize the placement of their facilities on unleased Start Printed Page 69309OCS areas or areas under lease to other companies. Since the rights-of-use and easements are of value to the recipient of the rights, MMS believes that it is equitable to charge for the rights at a per acre rate that is generally consistent with the rate paid by lessees. This rule establishes that charge for the rights conveyed.

On April 24, 2003, MMS published a proposed rule to modify 30 CFR 250.160, in subpart A, and 30 CFR 250.1009, in Subpart J, to allow MMS to charge an annual rental to compensate the United States for the use of areas outside of the company's lease and to change the rental amount charged to a pipeline right-of-way holder for accessories for the pipeline right-of-way. This rule applies to applicants for pipeline rights-of-way who request a site for accessories for the pipeline right-of-way, and to applicants who request use of an area that is not part of their lease (i.e., a right-of-use and easement). The rule covers new rights-of-use and easements and rights-of-way granted after the effective date of this rule and modifications to existing rights-of-use and easements and rights-of-way when the modification is granted after the effective date of this rule. The rule includes a rental of $5 per acre affected in water depths less than 200 meters and $7.50 per acre affected in water depths of 200 meters or greater. These rental rates correspond to the rental rates charged for leases in those water depths. The total annual rental depends on the size of the area requested, except that a minimum annual rental will be charged based on 90 acres. Therefore, the minimum rental is $450 per year in water depths of less than 200 meters and $675 per year in water depths of 200 meters or greater. Establishing the minimum charge based on 90 acres will ensure that the Federal Government receives sufficient payment to cover administrative costs.

Existing regulations for pipeline right-of-way rentals allow for payment on an annual basis, for a 5-year period, or for multiples of 5 years. This regulation retains these payment options for pipeline rights-of-way and establishes the same payment options for rights-of-use and easements.

Section 160 of Title 30 CFR is rewritten to add a table. Section 1009 is separated and redesignated as Sections 1009 through 1014. Current Sections 1010 through 1014 are redesignated as Sections 1015 through 1019. Redesignated Section 1012 is rewritten to add a table. The use of tables and the use of shorter sections with titles are intended to improve the clarity and readability of the regulation.

The comment period following publication of the proposed rule ended on May 27, 2003. Five comment letters were received during the comment period. One letter from an oil and gas company protested the rule as being in conflict with other rules that provide a royalty suspension under certain circumstances. The company argued that this rule will reduce the effect of the royalty reduction. Of the other four letters, two were received from oil and gas companies, one from seven different associations representing the natural gas and oil industry, and one from a law student. These four letters all supported the proposed rule. The commentors supporting the rule cited the increasing need for large rights-of-use and easement in deep water and considered the proposed rentals reasonable.

As mentioned above, one commentor argued that the fees established in the rule will reduce the effect of the royalty reduction. MMS believes that the increase in rental fees is appropriate because the purposes of these rentals and the purposes of royalty and royalty relief are very different and are unrelated. Royalty reduction provides major financial incentives to encourage specific actions such as deep water exploration that would not be undertaken under normal royalty obligations. This rule does not change that incentive. This rule simply establishes reasonable charges for companies choosing to use large areas of the OCS. Based on the majority of comments received, the rental fees being established are reasonable and will not discourage deep water exploration. In addition, lessees who receive deep-water royalty relief receive a financial benefit and incentive that is of a much greater magnitude than the amount of rentals owed under this rule.

One comment letter supported the change in the regulation but expressed the opinion that the estimate of two requests per year for new or modified rights-of-use and easements is low. The opinion was based on an expectation that production of methane hydrates will require larger rights-of-use and easements. MMS recognizes the potential for production of methane hydrates and the possible need for rights-of-use and easements associated with that production. However, MMS does not agree that such activity will occur soon. The economic effects estimated for the proposed rule were based on projections for the next 5 years. MMS believes that the estimates used are a good estimate of the requests that will be received over the next 5 years.

Commentors made no suggestions for revisions to the proposed regulation.

In revised Section 250.1012(b), the proposed rule used the phrase “including fixed and floating platforms, subsea manifolds, and other similar structures” to describe an accessory to a pipeline right-of-way. The proposed phrase is different from the existing text of the regulation, which used the phrase “including but not limited to a platform.” No substantive change was intended. The final rule uses the original phrase to clarify that the rule changes the amount of the rental but does not change the criteria used to determine when a site will be considered an accessory to a pipeline right-of-way.

Procedural Matters

Regulatory Planning and Review (Executive Order 12866)

This rule was determined by the Office of Management and Budget (OMB) to be significant and has been reviewed by OMB under Executive Order 12866.

Over the next 5 years, in water depths 200 meters or greater, MMS anticipates that it will receive an average of two requests per year for a new or modified right-of-use and easement and an average of two requests per year for a new or modified pipeline right-of-way that includes an area for an accessory. These requests will be affected by this rule. Based on historical data, the estimated affected area per request in water depths 200 meters or greater will average 5,760 acres, which is the typical size of one OCS lease block. In these water depths, the new rule imposes a rental of $7.50 per acre affected. This equates to a total cost of $86,400 (5,760 x $7.50 x 2) for pipeline right-of-way applicants and $86,400 (5,760 x $7.50 x 2) for right-of-use and easement applicants.

Over the next 5 years, in water depths less than 200 meters, MMS anticipates, based on requests in recent years, that applicants will submit an average of 10 requests per year for a new right-of-use and easement and an average of two requests per year for a new or modified pipeline right-of-way that includes an area for an accessory. These requests will be affected by this rule. The estimated affected area per request in water depths less than 200 meters will average 90 acres. In these water depths, the new rule imposes a rental of $5 per acre affected. This equates to a total annual cost of $4,500 (90 x $5 x 10) for right-of-use and easement applicants and $900 (90 x $5 x 2) for pipeline right-of-way applicants.Start Printed Page 69310

Under this scenario, the annual cost to industry for rentals will be $178,200 ($86,400 + $86,400 + $4,500 + $900).

Since the current regulations provide for an annual rental of $75 per site included in an application for pipeline rights-of-way accessories and no cost for right-of-use and easement applications, the total cost under current rules for these same activities is $300 per year for pipeline right-of-way applicants ($75 x 2 + $75 x 2) and no cost for right-of-use and easement applicants.

(1) This rule will not have an effect of $100 million or more on the economy. It will not adversely affect in a material way the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.

(2) This rule will not create a serious inconsistency or otherwise interfere with an action taken or planned by another agency. Issuance of a pipeline right-of-way or right-of-use and easement does not interfere with the ability of other agencies to exercise their authority.

(3) This rule will not alter the budgetary effects of entitlements, grants, user fees, or loan programs or the rights or obligations of their recipients. This rule will have no effect on the rights of the recipients of entitlements, grants, user fees, or loan programs.

(4) This rule may raise novel legal or policy issues.

Regulatory Flexibility (RF) Act

The Department certifies that this rule will not have a significant economic effect on a substantial number of small entities under the RF Act (5 U.S.C. 601 et seq.).

This rule will affect lessees and holders of pipeline rights-of-way in the OCS. This includes about 130 different companies. These companies are generally classified under the North American Industry Classification System (NAICS) code 211111, which includes companies that extract crude petroleum and natural gas. For this NAICS code classification, a small company is one with fewer than 500 employees. Based on these criteria, an estimated 70 percent of these companies are considered small. This rule, therefore, affects a substantial number of small entities.

The companies that are considered small have an average of about 15 offshore facilities. The small companies have estimated annual sales between $10 million and $40 million. As discussed earlier, the total annual cost to industry is estimated to be $178,800. No large or small company will bear a significant cost.

Comments are important. The Small Business and Agriculture Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small business about Federal agency enforcement actions. The Ombudsman will annually evaluate the enforcement activities and rate each agency's responsiveness to small business. If you wish to comment on the actions of MMS, call 1-888-734-3247. You may comment to the Small Business Administration without fear of retaliation. Disciplinary action for retaliation by an MMS employee may include suspension or termination from employment with the Department of the Interior.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

This rule is not a major rule under the SBREFA (5 U.S.C. 804(2)). This rule:

(a) Will not have an annual effect on the economy of $100 million or more.

(b) Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions.

(c) Will not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

This rule is not expected to have a significant effect because, as discussed under procedural matters, Regulatory Planning and Review (Executive Order 12866), this rule is estimated to have a total industry effect of $178,200 annually. This amount is not a significant effect for companies that do business on the OCS.

Paperwork Reduction Act (PRA) of 1995

The PRA provides that an agency may not conduct or sponsor a collection of information unless it displays a currently valid OMB control number. Until OMB approves a collection of information and assigns a control number, you are not required to respond. The revisions to 30 CFR Part 250, Subparts A and J, refer to, but do not change, information collection requirements in current regulations. OMB has approved the referenced information collection requirements under OMB control numbers 1010-0114 for Subpart A, current expiration date of July 31, 2005; and 1010-0050 for Subpart J, current expiration date of January 31, 2006. The rule imposes no new paperwork requirements, and an OMB form 83-I submission to OMB under the PRA is not required.

Federalism (Executive Order 13132)

With respect to Executive Order 13132, the rule will not have Federalism implications. This rule will not substantially and directly affect the relationship between the Federal and State governments. To the extent that State and local governments have a role in OCS activities, this rule will not affect that role.

Takings (Executive Order 12630)

With respect to Executive Order 12630, the rule will not have significant Takings implications. A Takings Implication Assessment is not required. The rulemaking is not a governmental action capable of interfering with constitutionally protected property rights.

Energy Supply, Distribution, or Use (Executive Order 13211)

This rule is not a significant rule and is not subject to review by the Office of Management and Budget under Executive Order 13211. The rule will not have a significant effect on energy supply, distribution, or use because payments to compensate the Federal Government for making resources unavailable for leasing will occur on the average less than one time a year. The costs due to increases in the rental rate will be very small compared with the costs of operating in the OCS. Thus, a Statement of Energy Effects is not required.

Civil Justice Reform (Executive Order 12988)

With respect to Executive Order 12988, the Office of the Solicitor has determined that this rule will not unduly burden the judicial system and that it meets the requirements of Sections 3(a) and 3(b)(2) of the Executive Order.

National Environmental Policy Act (NEPA) of 1969

This rule will not constitute a major Federal action significantly affecting the quality of the human environment. This rule will not affect the environmental regulations that a right-of-use and easement holder or a pipeline right-of-way holder will need to follow. A detailed statement under the NEPA is not required.

Unfunded Mandate Reform Act (UMRA) of 1995 (Executive Order 12866)

This rule will not impose an unfunded mandate on State, local, or tribal governments or the private sector of more than $100 million per year. The rule will not have a significant or unique effect on State, local, or tribal Start Printed Page 69311governments or the private sector. A statement containing the information required by the UMRA (2 U.S.C. 1531 et seq.) is not required. This is because the rule will not affect State, local, or tribal governments, and the effect on the private sector is small.

Start List of Subjects

List of Subjects in 30 CFR Part 250

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Dated: November 28, 2003.

Patricia E. Morrison,

Acting Assistant Secretary—Land and Minerals Management.

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For the reasons stated in the preamble, the Minerals Management Service (MMS) amends

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1. The authority citation for part 250 continues to read as follows:

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Authority: 43 U.S.C. 1331, et seq.

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2. In § 250.160, new paragraphs (f) through (i) are added to read as follows:

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When will MMS grant me a right-of-use and easement, and what requirements must I meet?
* * * * *

(f) You must pay a fee as required by paragraph (g) of this section if:

(1) You obtain a right-of-use and easement after January 12, 2004; or

(2) You ask MMS to modify your right-of-use and easement to change the footprint of the associated platform, artificial island, or installation or device.

(g) If you meet either of the conditions in paragraph (f) of this section, you must pay a fee to MMS as shown in the following table:

If...Then...
(1) Your right-of-use and easement site is located in water depths of less than 200 meters;You must pay a rental of $5 per acre per year with a minimum of $450 per year. The area subject to annual rental includes the areal extent of anchor chains, pipeline risers, and other equipment associated with the platform, artificial island, installation or device.
(2) Your right-of-use and easement site is located in water depths of 200 meters or greater;You must pay a rental of $7.50 per acre per year with a minimum of $675 per year. The area subject to annual rental includes the areal extent of anchor chains, pipeline risers, and other equipment associated with the platform, artificial island, or installation or device.

(h) You may make the rental payments required by paragraph (g)(1) and (g)(2) of this section on an annual basis, for a 5-year period, or for multiples of 5 years. You must make the first payment at the time you submit the right-of-use and easement application. You must make all subsequent payments before the respective time periods begin.

(i) Late payments. An interest charge shall be assessed on unpaid and underpaid amounts from the date the amounts are due, in accordance with the provisions found in 30 CFR 218.54. If you fail to make a payment that is late after written notice from MMS, MMS may initiate cancellation of the right-of-use grant and easement under 30 CFR 250.1009(d).

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3. In Subpart J, §§ 250.1009 through 250.1014 are redesignated as shown in the following table:

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Current section and paragraphRedesignated section and paragraph
250.1009(a)(1)250.1009(a).
250.1009(a)(2)250.1009(b).
250.1009(b)(1)250.1011(a).
250.1009(b)(1)(i)250.1011(a)(1).
250.1009(b)(1)(ii)250.1011(a)(2).
250.1009(b)(2)250.1011(b).
250.1009(b)(2)(i)250.1011(b)(1).
250.1009(b)(2)(ii)250.1011(b)(2).
250.1009(b)(2)(iii)250.1011(b)(3).
250.1009(b)(3)250.1011(c).
250.1009(b)(4)250.1011(d).
250.1009(c) introductory text250.1010 introductory text.
250.1009(c)(1)250.1010(a).
250.1009(c)(2)250.1012.
250.1009(c)(3)250.1010(b).
250.1009(c)(4)250.1010(c).
250.1009(c)(5)250.1010(d).
250.1009(c)(6)250.1010(e).
250.1009(c)(7)(i)250.1010(f)(1).
250.1009(c)(7)(ii)250.1010(f)(2).
250.1009(c)(7)(ii)(A)250.1010(f)(2)(i).
250.1009(c)(7)(ii)(B)250.1010(f)(2)(ii).
250.1009(c)(8)250.1010(g).
250.1009(c)(9)250.1010(h).
250.1009(d)250.1013.
250.1009(e)250.1014.
250.1010250.1015.
250.1011250.1016.
250.1012250.1017.
250.1013250.1018.
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250.1014250.1019.
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4. The headings for newly redesignated §§ 250.1010 through 250.1014 are revised, and headings for newly redesignated §§ 250.1015 through 250.1019 are added to read as follows:

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Requirements to obtain pipeline right-of-way grants.
* * * * *
General requirements for pipeline right-of-way holders.
* * * * *
Bond requirements for pipeline right-of-way holders.
* * * * *
Required payments for pipeline right-of-way holders.
* * * * *
Grounds for forfeiture of pipeline right-of-way grants.
* * * * *
When pipeline right-of-way grants expire.
* * * * *
Applications for pipeline right-of-way grants.
* * * * *
Granting pipeline rights-of-way.
* * * * *
Requirements for construction under pipeline right-of-way grants.
* * * * *
Assignment of pipeline right-of-way grants.
* * * * *
Relinquishment of pipeline right-of-way grants.
* * * * *
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5. Redesignated § 250.1012 is revised to read as follows:

End Amendment Part
Required payments for pipeline right-of-way holders.

(a) You must pay MMS an annual rental of $15 for each statute mile, or part of a statute mile, of the OCS that your pipeline right-of-way crosses.

(b) This paragraph applies to you if you obtain a pipeline right-of-way that includes a site for an accessory to the pipeline, including but not limited to a platform. This paragraph also applies if you apply to modify a right-of-way to change the site footprint. In either case, you must pay the amounts shown in the following table.

If...Then...
(1) Your accessory site is located in water depths of less than 200 meters;You must pay a rental of $5 per acre per year with a minimum of $450 per year. The area subject to annual rental includes the areal extent of anchor chains, pipeline risers, and other facilities and devices associated with the accessory.
(2) Your accessory site is located in water depths of 200 meters or greater;You must pay a rental of $7.50 per acre per year with a minimum of $675 per year. The area subject to annual rental includes the areal extent of anchor chains, pipeline risers, and other facilities and devices associated with the accessory.

(c) If you hold a pipeline right-of-way that includes a site for an accessory to your pipeline and you are not covered by paragraph (b) of this section, then you must pay MMS an annual rental of $75 for use of the affected area.

(d) You may make the rental payments required by paragraphs (a), (b)(1), (b)(2), and (c) of this section on an annual basis, for a 5-year period, or for multiples of 5 years. You must make the first payment at the time you submit the pipeline right-of-way application. You must make all subsequent payments before the respective time periods begin.

(e) Late payments. An interest charge shall be assessed on unpaid and underpaid amounts from the date the amounts are due, in accordance with the provisions found in 30 CFR 218.54. If you fail to make a payment that is late after written notice from MMS, MMS may initiate cancellation of the right-of-use grant and easement under 30 CFR 250.1009(d).

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[FR Doc. 03-30768 Filed 12-11-03; 8:45 am]

BILLING CODE 4310-MR-P