Transcript Indian Oil Negotiated Rulemaking Committee Update

Indian Oil Negotiated
Rulemaking Committee
Kevin Barnes
Petroleum Accountants Society of Oklahoma
February 12, 2015
 First notice of intent to form the committee printed in Federal
Register January, 31, 2011
 Second notice published August 22, 2011
 Notice of establishment of the committee published in the
Federal Register December 8, 2011
 Appointed COPAS committee representative
December 23, 2011
 Charter: The Committee will advise the Office of Natural
Resources Revenue (ONRR) on a rulemaking to address Indian
oil valuation, as it relates to the major portion requirement in
Indian oil and gas leases
 Scope of the Committee limited to the major portion calculation
for oil produced from Indian leases. Committee is to Act Solely
in an advisory capacity to ONRR
 Committee members (excluding alternates):
 1 Designated Federal Officer (ONRR)
 2 Facilitators (CDR Associates)
 4 Federal Government (3 ONRR & 1 BIA)
 7 Indian (Tribal & Allottee Associations)
 6 Industry (Trade Associations and Companies)
 Total of nine Committee meetings held from May 2012 through
September 2013.
 First meeting May 1 & 2, 2012
 History of Indian oil valuation rule
 Overview of Indian oil production
 Indian sales statistics
 Indian oil administrative process
 Second meeting June 18 & 19, 2012
 Overview of Federal government trust responsibility to maximize
revenues for royalties from Indian leases
 Overview of crude oil flows, prices and market differentials
 Pervis & Gertz
 Argus
 Platts
 Overview of sample major potion analysis and correlation to other
initial proposals
 Third meeting August 1 & 2, 2012
 Presentation of major portion analysis normalized for quality (API
gravity)
 Overview of previously proposed Indian oil valuation rules
 Methods of calculating a major portion price discussed
 Fourth meeting September 5 & 6, 2012
 Presentation of three potential approaches to major portions price
calculation
• ONRR calculated major portion methodology
• Higher of gross proceeds or an index price methodology based on NYMEX
• Index priced methodology based on NYMEX
 Fifth meeting October 24 & 25, 2012
 Presentation of sample major portion analysis at the reservation
level and field level at 50% +1 barrel and 75% for two reservations
 Key issues discussed
 Could economic factors be analyzed to determine if certain fields could be
combined?
 If a field has < 3 payors ONRR constrained from publishing a major portion
price because it basically results in sharing a company’s proprietary financial
information
 Administrative factors involved in capturing field level information and
performing calculations at that level
 Crude type, can this be subjective? Is quality all that must be considered?
 Ad Hoc Subcommittee formed and tasked to
 Identify field names on Indian reservations
 Oklahoma not included due to number of fields
 Obtain information on the number of leases and payors per field.
Identify instances of < 3 payors
 Provide initial recommendations on where fields may be combined
 Sixth meeting April 17 & 18, 2013
 Presentation on action items from prior meeting
 Identify field names on Indian reservations
 Information on the number of leases and payors per field Identifying instances
of < 3 payors
 Initial recommendations on where fields may be combined
 ONRR provided rationale for requiring at least 3 payors
 Trade Secrets Act
 Must perform a major portion calculation
 ONRR provided rationale for use of designated areas
 Precedent for use of designated areas to provide reasonable sample of arm’s
length contracts
 Formed Ad Hoc Subcommittees to look at
 Designated Areas
 Oklahoma
 Ft. Berthold
 Uinta/Ouray
 Wind River
 Crude type / API gravity reporting
 Sub-committees gathered information and discussed issues, however
full committee made final deliberations
 Designated area considerations
 Markets served
 Similar Geography
 Number of payors
 Crude type
 Crude type / API gravity reporting considerations
 Different crude types
 System requirements
 Frequency (one-time / monthly)
 Utilizing OGOR reported API gravity
 FMP / sales point gravity
 Reporting by non-operators
 Seventh meeting June 4 - 5, 2013
 Review of Tribes/Allottees/ONRR straw man proposal
 Reviewed recommendations from the Ad Hoc Subcommittees.
 Prepared a revised straw man proposal to consider for the next
meeting
 Eighth meeting August 6 - 7, 2013
 Reviewed proposal from prior meeting and further discussed
 Transportation/Location Differential
 Premium applied to Index-Based Price formula
 Tribal/Allottee opt-out option
 Created proposal to present to constituencies
• Bob Wilkinson sent out to COPAS members 9/3/2013

Major Portion 75% from the top

Designated area reservation boundary except
 Fort Berthold 2 Areas North and South of Little Missouri River
 Uintah & Ouray 2 areas Uintah and Grand Counties / Duschesne County

Value reported on the higher of
 Index Based Formula Price
 Gross proceeds

Crude type reported monthly on Form ONRR-2014
 No reporting of API gravity
 Ninth meeting September 16, 2013
 Last meeting of the Committee
 After discussion each Committee Member was asked if they could support the
rule
 All members affirmed but one member, who’s objection was added to the
Final Committee Report
 Agreement to the final proposal by the committee based on
 Filing simplicity - only one value is reported
Must include crude type on Form ONRR-2014 but not API gravity
 Filing certainty - major portion not calculated over a year after the
close of year, resulting in significant adjusted filings
 Assurances in the calculation of the index that Tribes/Allottees
receive major portion
 Final Report of the Indian Oil Valuation Negotiated Rulemaking
Committee Published on September 30, 2013
 ONRR began the process of
drafting the proposed rule
 Proposed rule published in the Federal Register June 19, 2014
 COPAS provided comments on the proposed rule on August 11,
2014
 COPAS provided comments on the proposed rule on August 11,
2014
In the proposed rule, ONRR reserved the
ability to eliminate or redefine how the roll is
calculated. This change would be published in
the Federal Register.
 COPAS provided comments on the proposed rule on August 11,
2014
In the proposed rule, ONRR reserved the
ability to eliminate or redefine how the roll is
calculated. This change would be published in
the Federal Register.
COPAS commented that in this case
Industry should also be given the
opportunity to comment on the proposed
change.
 COPAS provided comments on the proposed rule on August 11,
2014
In the proposed rule, ONRR reserved the
ability to eliminate or redefine how the roll is
calculated. This change would be published in
the Federal Register.
COPAS commented that in this case
Industry should also be given the
opportunity to comment on the proposed
change.
Additional COPAS comments on items that
were not a part of the Negotiated
Rulemaking Committee.
 COPAS provided comments on the proposed rule on August 11,
2014
Rather than filing Form ONRR-4410, Oil
Transportation Allowance Report, lessee would
submit copies of arm’s–length transportation
contracts and any amendments within 2 months
after the lessee reported a transportation
allowance on its Form ONRR-2014.
For non-arm’s length transportation, lessee
must submit Form ONRR-4410, with actual
cost information, within 3 months after the end
of the 12 month period to which the allowance
applies.
These changes would mirror the Indian Gas
rule.
 COPAS provided comments on the proposed rule on August 11,
2014
COPAS supports this change but requested
further guidance
1 –What is the required format in which
contracts must be provided? (hardcopy,
email, flash drive)
2 –What needs to be provided for FERC
tariffs / transportation factors for which
there are no transportation contracts?
3 – Does this apply to mainline
transportation which could have hundreds of
contracts when it is tied to a price pool?
 COPAS provided comments on the proposed rule on August 11,
2014
The proposed rule eliminates the ability to net an
arm’s-length transportation fee with gross
proceeds, requiring lessees to report as a
transportation allowance.
 COPAS provided comments on the proposed rule on August 11,
2014
The proposed rule eliminates the ability to net an
arm’s-length transportation fee with gross
proceeds, requiring lessees to report as a
transportation allowance.
COPAS does not support eliminating
transportation factors as that would not be
consistent with Indian Gas regulations which
state that “ONRR will not consider the
transportation factor to be a transportation
allowance.”
This would also be a major recording change as
the pricing adjustment is typically accounted
for as part of the base price within our
accounting systems.
 COPAS provided comments on the proposed rule on August 11,
2014
The proposed rule would eliminate any language
around requesting approval to exceed the 50%
transportation allowance. ONRR states that no one
has ever made this request.
 COPAS provided comments on the proposed rule on August 11,
2014
The proposed rule would eliminate any language
around requesting approval to exceed the 50%
transportation allowance. ONRR states that no one
has ever made this request.
COPAS does not support the elimination of the
capability to request to exceed the 50% as it
would not be consistent with the Indian Gas
regulations. Also, although no one has
requested to do so previously, a situation could
develop where it would exceed the 50% limit. If
this would happen, the lessee should be allowed
to request approval to exceed the 50% limit.
 COPAS provided comments on the proposed rule on August 11,
2014.
The final rule has not been published. At
this time we do not know if or how COPAS
comments will be addressed in the final
rule.
 Indian Oil Valuation Negotiated Rulemaking Committee
 Meeting Announcements
 Members
 Documents
 Meeting Materials
 Proposed Rule
 http://www.onrr.gov/Laws_R_D/IONR/