MMS Proposes Accounting Relief for Marginal Properties

The MMS is proposing new regulations which would explain how lease holders may obtain accounting and auditing relief for federal oil and gas leases that qualify as marginal properties. Marginal properties are identified as properties whose wells produce, on average, less than 15 barrels of oil equivalent per day.

"The goal of the new regulations is to promote continued production of otherwise uneconomic properties through reduction of administrative costs." said MMS Director Johnnie Burton.

The new regulations implement provisions of the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996, and were developed by MMS based on input from the Royalty Policy Committee an advisory committee charted by the department to advise the secretary on royalty policy matters.

The proposed rule would provide two types of accounting and auditing relief for qualifying properties: (1) cumulative reports and payments, and (2) other accounting and auditing relief appropriate for the specific property.

The cumulative reports and payments option would permit lessees to submit royalty reports and payments annually rather than monthly for qualifying marginal properties. Lessees would have to notify MMS in writing before applying this option.

The "other" option would permit requests for any type of accounting and auditing relief appropriate for a property, subject to certain limitations. Lessees would need MMS approval before applying this option. MMS would approve, deny or modify the request only after consulting with the affected state. However, by written notification to MMS, a state could decide in advance whether it would allow either of the relief options. Generally, the relief could continue as long as the property qualifies as marginal.

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