US MMS to publish oil royalties valuation rule Monday

Washington (Platts)--10Feb2006

The US Minerals Management Service is set to unveil on Monday a
long-awaited proposal to decide how royalties are calculated for oil leases on
Indian land. 

     In 1998 the agency proposed basing royalties for a given Indian oil lease
on the highest of one of three benchmarks: the New York Mercantile Exchange
price; "gross proceeds" from the sale of the lessee's oil; or the "highest
price paid or offered" for the "major portion" of production from the oil
field in question. 

     Then, in 2000, MMS proposed replacing the NYMEX benchmark with spot
prices. Five years later MMS scrapped the proceeding, citing "changes that
have occurred since then in the market for crude oil." 

     On Monday, MMS will propose a new rule that would not rely on NYMEX or
spot prices to calculate Indian oil royalties. Because most of the oil sold
from Indian leases is not transported before it is sold at "arm's-length," the
agency will propose basing royalties on the gross proceeds lessees or their
affiliates receive from sales of their oil. 

     "In the rare circumstance that the sale occurs away from the lease, the
proposed rule would provide for appropriate transportation allowances," says
the rule, slated to be published in the Federal Register. 

     The majority of the leases governed by the rule are on Indian land in the
San Juan Basin, northeastern Utah, and Wyoming. Those leases are in turn on
land owned mostly by the Ute, Southern Ute, Navajo, Jicarilla Apache, Shoshone
and Arapaho tribes. 

     Comments on the proposed rule are due to MMS by April 14.

     For more information, take a trial to Platts Oilgram News at
http://oilgramnews.platts.com.

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