Interior Repeals Defective Federal Mineral Valuation Rule

Date: August 7, 2017
Contact: Interior_Press@ios.doi.gov

WASHINGTON – To create more workable oil, gas and mineral valuation regulations and avoid costly litigation, the Department of the Interior today announced the repeal of the Consolidated Federal Oil and Gas and Federal and Indian Coal Valuation Reform Rule (Valuation Rule) which had created confusion and uncertainty regarding how companies report and pay royalties on energy and other mineral resources from federal onshore and offshore areas and American Indian lands.

The repeal of the Valuation Rule, published today in the Federal Register and effective on September 6, 2017, will provide certainty and clarity to the regulated community by continuing to require compliance with lawful and well-known oil, gas, and coal regulations in force for more than a decade. These regulations are easy to understand and provide certainty to industry and the Office of Natural Resources Revenue (ONRR) that correct payment has been made.

“Repealing the Valuation Rule provides a clean slate to create workable valuation regulations,” said Secretary of the Interior Ryan Zinke. “We are committed to working closely with stakeholders and the newly chartered Royalty Policy Committee to explore options for future rulemakings and to avoid the structural defects that were found in the prior rule. The Department and the Office of Natural Resources Revenue remain committed to collecting every dollar due. These are taxpayer and American Indian assets, and the public and American Indians deserve an accurate accounting and valuation.”

“The United States is a safer and more sustainable nation when we rely on our own natural resource development,” Secretary Zinke emphasized. “Repealing the Valuation Rule restores our economic freedom by ensuring our energy independence. The increased costs associated with the Valuation Rule had the potential to decrease exploration and production on Federal lands, both onshore and offshore, making us rely more and more on foreign imports of oil and gas.” 

“I support Interior’s decision to repeal this rule and provide greater certainty to companies seeking to produce our valuable domestic resources, from Alaska to the Atlantic,” Senator Lisa Murkowski (R-Alaska) said. “While the federal government will continue to collect its fair share of revenues from responsible development, the repeal of this rule will help prevent negative impacts to exploration and production that would put our energy dominance at stake.”

“This rescindment is another important step by the Trump administration to position Interior as a facilitator of responsible energy development,” said House Natural Resources Committee Chairman Rob Bishop (R-UT). “I look forward to working with Secretary Zinke on ONRR policies and many other areas to spur more investment in Federal and Indian lands, foster greater regulatory certainty and eliminate or address pre-existing policies that work against these goals.” 

“The Obama Administration's changes to royalties for coal, oil, and natural gas was just one in a series of barriers it put up to hold back energy production on federal lands,” said Congressional Coal Caucus Chairman David McKinley, P.E. (R-WV). “Returning to the more reasonable previous standards paves the way for further investment and development of energy resources. I applaud Secretary Zinke’s commitment to supporting American energy dominance.” 

“This Obama-era rule was another misguided attack on affordable energy that would have caused significant harm to tribal, rural and Western economies,” said Congressional Western Caucus Chairman Paul Gosar (AZ-04). “This burdensome new regulation would have bankrupt small businesses, discouraged responsible energy production and hit the pocketbooks of hard-working American families. Furthermore, the rule would have imposed unnecessary and costly new reporting requirements that would have siphoned important revenues from local community coffers and the U.S. Treasury, creating a problem where there wasn’t one and having the opposite effect of what the regulation intended. I applaud Secretary Zinke’s leadership and am grateful he took action to provide certainty for job creators and to protect good-paying careers that are the backbone of many of our communities.” 

Developed by ONNR, the stated intent of the Valuation Rule was to offer greater simplicity, certainty, clarity and consistency in product valuation and reporting for federal and Indian mineral lessees. However, industry stakeholders and trade associations filed three lawsuits challenging the rule. The petitioners also sent a joint letter to the ONRR Director asserting that it would be impossible for them to comply with the rule’s new royalty reporting and payment requirements by the deadline, exposing non-compliant lessees to significant civil penalties. In response to these and other concerns lessees expressed in writing and workshops, ONRR identified several areas in the rule warranting reconsideration to meet policy and implementation objectives. ONRR stayed the Valuation Rule on February 27, 2017 via Federal Register Notice and published an April 4, 2017 Notice of Proposed Rulemaking to repeal the rule. 

Because provisions in the Valuation Rule increased the regulatory burden on the nation’s energy production, repealing the rule will reduce costs to oil, gas, and coal companies that would otherwise be passed to the American consumer. This greater efficiency for payors will reduce industry cost of compliance and ONRR’s cost to ensure industry compliance, consistent with the Secretary’s responsibility to the public, to good governance and to trust responsibilities to American Indian mineral owners to appropriately value production.

Members of the oil, gas, and coal industries also expressed support for parts of the Valuation Rule, as have members of environmental groups and the general public. The Department intends to further evaluate changes that may be warranted to the long-established oil, gas and coal regulations through the Royalty Policy Committee and publicly-vetted rulemaking, ensuring that valuation and revenue collection for the nation’s mineral and hydrocarbon resources remain transparent and consistent, while the taxpayers receive every dollar due from resources on their public lands and offshore areas. The Royalty Policy Committee is chaired by Vincent DeVito, Counselor to the Secretary for Energy Policy, and the Executive Director is James Schindler.

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