American Geological Institute

Government Affairs Program


Update on the Federal Oil and Gas Royalty Simplification and Fairness Act (12-5-96)


President Clinton signed the Federal Oil and Gas Royalty Simplification and Fairness Act into law (P.L. 104-185) on August 13, 1996 during a ceremony in Jackson Hole, Wyoming.

Although most of the provisions of the law became effective September 1, 1996, the following provisions have a different effective date:

The new law, strongly supported by the energy industry and state governments, simplifies the way royalties are collected by reducing paperwork and accounting obligations associated with the collection process. The federal government is now required to assess royalties within a seven-year period, and also gives the states the opportunity to play a greater role in royalty collections.

The Congressional Budget Office estimates that this legislation will add $36 million to the U.S. Treasury over the next six years. Mineral leases on federal lands currently deliver $4.2 billion annually to the federal treasury which represents the third largest source of revenue to the federal government.

This legislation passed the Senate late on the night of August 2nd as Congress was preparing for its August recess. It now goes to President Clinton, who is expected to sign it into law. On July 16, the House of Representatives approved it under suspension of the rules which restricted debate to 40 minutes, allowed no amendments, and required two-thirds majority vote for passage. Representative Ken Calvert (R-CA), Chairman of the Resources Subcommittee on Energy and Mineral Resources was the Floor Manager. The bill had broad bipartisan support including 33 state governors, and the Clinton Administration. The House Resources Committee had reported the measure a week earlier with dissenting views by a vote of 20 to 7.

Although the full Senate had not yet acted on the measure, in view of a hold on the bill for a totally unrelated matter, Calvert substituted the Administration-supported Senate version (S. 1014) as original text on the House floor, and that was the versio n that passed. As indicated in earlier reports, the White House has signified its strong support of the Senate version, which passed the Committee on Energy and Natural Resources on May 1. The Administration's position was transmitted several weeks ago by White House Chief of Staff Leon Panetta to Senator Frank Murkowski, R-AK, chairman of that committee, and to Calvert. Last year, a version of this legislation was included in the budget reconciliation measure (H.R. 2491), which was vetoed for unrelated reasons.

The Senate version provides for numerous technical changes to simplify the oil and gas royalty payment process. S. 1014 places a seven-year statute of limitations on royalty collections and compels the government to pay interest to companies when overpayments have been made, expands the Interior Department's authority to delegate collection of royalties to the states, imposes a statute of limitations on audits and judicial proceedings, and allows operators to offset overpayments against outstanding obligations. The Department of the Interior is also required to promulgate regulations within one year to govern states' royalty management enforcement authorities.

Estimates by the Congressional Budget Office indicate that the bill would result in decreases in direct federal spending of approximately $36 million by FY 2002.

On February 28, Calvert convened his subcommittee to act upon H.R. 1975. Mr. Calvert offered an amendment in the nature of a substitute to the proposal originally introduced July 18, 1995. The chairman indicated that he and his staff had worked closely over the past few months with the White House, the Department of the Interior, the Minerals Management Service, and members of the House to develop legislation agreeable to all interested parties. Mr. Calvert believed that his substitution would be acceptable to all, despite remaining conflict over the issue of delegation to the States. House members believe that the States can do a better job of royalty collection, citing Texas as a prime example. Mr. Calvert stated that the Congressional Budget Office reported that there would be increased revenues from royalties to the federal government and the States within 7 years, should the States assume the responsibilities. In the amended version, the Secretary of the Interior would retain jurisdiction over royalty collection on the subject lands. Although the States would collect royalties, it would do so under provisions established by the Secretary. Other changes involved the appeals period, and the times necessary for response to State requested delegations.

Mr. Calvert stated that the Department of the Interior effort to prepare an executive order in lieu of the proposed legislation while negotiations were ongoing demonstrated bad faith.

Neil Abercrombie (D HI) Ranking Minority Member of the subcommittee supported the overall goals of the legislation, but had opposed the amendment on the grounds that the Administration's position was not known, and his industry contacts had indicated that MMS could accomplish the legislative goals under existing regulations.

(Contributed by John Dragonetti, AGI Government Affairs)


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Last updated December 5, 1996 (Technical corrections: 11-2-98)


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