Interior issues final rule for royalties

The Department of the Interior has published a final rule, changing the way in which royalties are calculated for mineral resources, including oil and gas, produced from federal lands. Essentially, the agency has changed the manner in which the value of the resource is determined - the royalties due to the federal government are a percentage of that value.

The new rule affirms that the valuation is calculated at or near the lease where the resources are extracted, taking into account the cost of transporting the resources to market. For an “arms-length” sale of resources to a third party purchaser, the valuation will be derived from the proceeds of the resource sales. But for a non-arms-length sale to an affiliate company, valuation will come from a corresponding arms-length sale.

For oil production from federal lands in Alaska, the royalty valuation of the oil in non-arms-length trading will be based on the daily mean Alaska North Slope spot price for the concurrent trading month of the production.

“These improvements were long overdue and urgently needed to better align our regulatory framework with a 21st century energy marketplace, offering a simpler, smarter, market oriented process,” said Interior Secretary Sally Jewell. “As the steward of America’s oil, natural gas and coal production on public lands, Interior has an obligation - and is fully committed - to ensuring that the American taxpayer receives every dollar due for the production of these domestic energy resources.”

- ALAN BAILEY