Notice of Availability and Sale of Federal Royalty Oil to Small Refiners

[Federal Register Volume 64, Number 182 (Tuesday, September 21, 1999)]
[Notices]
[Pages 51138-51140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24525]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service


Notice of Availability and Sale of Federal Royalty Oil to Small 
Refiners

AGENCY: Minerals Management Service, Interior.

ACTION: Notice.

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SUMMARY: This Notice explains how small refiners may apply to 
participate in the sale of Federal royalty oil and the procedures under 
which subsequent contracts will be awarded.

DATES: Completed applications to participate in the sale must be 
received by the close of business (4:00 p.m. Mountain Standard Time) on 
October 15, 1999. Bid proposals, signed contracts, and surety 
instruments must be received by the close of business

[[Page 51139]]

(4:00 p.m. Mountain Standard Time) on October 27, 1999. Documents 
received after these dates and times will be rejected. The sale will be 
held on October 28, 1999.

ADDRESSES: You may obtain an application to participate in the sale 
(Form MMS-4070, Application for the Purchase of Royalty Oil) directly 
from our web site https://www.rmp.mms.gov/library/leglroom/notices/
Notices.htm. You may also request an application by writing to one of 
the addresses below or by calling Mr. Robert Prael at (303) 231-3217 or 
by sending an e-mail message to Robert.Prael@mms.gov.
    Completed applications, bid proposals, signed contracts, and surety 
instruments must be addressed as follows:
    Regular U.S. mail. Minerals Management Service, Royalty Management 
Program, Attention: Robert F. Prael, MS 3131, P.O. Box 5760, Denver, 
Colorado 80217-5760.
    Overnight mail or courier. Minerals Management Service, Royalty 
Management Program, Room A-212, Document Processing Section, Attention: 
Robert F. Prael, Building 85, Denver Federal Center, Denver, Colorado 
80225.
    For confidentiality, please place your bid proposal in an envelope 
marked as ``confidential, to be opened only by Robert Prael'' and 
enclose this envelope inside the envelope containing the signed 
contract and surety instrument.

FOR FURTHER INFORMATION CONTACT: Robert F. Prael, Chief, Royalty-in-
Kind Section, at (303) 231-3217, FAX (303) 231-3219, or e-mail 
Robert.Prael@mms.gov.

SUPPLEMENTARY INFORMATION: The Secretary of the Interior has determined 
that sufficient need exists among small refining companies to justify 
taking royalty oil in kind and offering this oil for sale to eligible 
refiners. This determination of need is based on the following facts:
    Small refiners who purchase crude oil in the Pacific and Gulf of 
Mexico regions have expressed concerns about the lack of stable access 
to the marketplace and the premium prices they frequently must pay to 
obtain desired feed stock.
    Small refiners continue to play a prominent role in providing 
military jet fuel to the U.S. Department of Defense. This supply of 
military jet fuel and the diversity in suppliers and locations combine 
to make the small refiner oil program an important contributor to 
National security.
    The U.S. Small Business Administration encourages program 
continuance in the interest of maintaining a competitive marketplace.
    Small refiners also provide valuable resources for several States 
and local governments.
    Accordingly, the Secretary has elected to take royalty oil in kind 
from certain Federal leases in the Gulf of Mexico and Pacific regions 
and offer such oil for sale to eligible small refiners.

Improvements to the Small Refiner Program

    The Minerals Management Service (MMS) is making several 
improvements in the small refiner program effective with this sale. 
These improvements are summarized below:
    1. Refiners will be reporting and paying based on their delivered 
volumes. In the past, MMS billed refiners based on volumes reported by 
operators. This volume, in many cases, had no relationship to the 
volume delivered to the refiners. The difference between deliveries and 
billings frequently created cash flow problems for refiners. By 
allowing refiners to pay only for what they receive, we will eliminate 
this problem.
    2. Pricing will be established in the contract. This will eliminate 
problems created when we billed for retroactive price adjustments and 
refiners had no means to recover the additional cost through their end 
users.
    3. We will monitor imbalances between the royalty barrels the 
Government is entitled to receive and the barrels actually received by 
the refiners. Deliveries by operators will be based on the royalty 
entitlement of 2 months prior, thereby keeping imbalances to a minimum 
(that is, Month 1 royalty entitlement will be delivered to the refiner 
in Month 3). If overdeliveries occur, we will issue a credit or refund 
to the operator. If underdeliveries occur, we will work with the 
operator and have either an additional delivery made or payment made in 
value. Penalties may also be assessed. We will charge or pay interest 
when operators under- or overdeliver royalty oil. We will charge or pay 
interest when refiners under- or overpay for royalty oil.
    4. Administrative fees have been canceled. Because this sale will 
be a competitive bid sale, there is no need for an administrative fee.
    5. Deliveries of royalty oil will occur at market centers such as 
St. James, etc.

Eligibility Requirements

    For purposes of this sale, ``eligible refiners'' are those refiners 
who meet the criteria for small refiners as defined in the U.S. Small 
Business Administration regulations at 13 CFR part 121 (that is, no 
more than 75,000 barrels per day refinery capacity and 1,500 
employees).
    We will not accept an application from a refiner who is not in 
operation during the 60-day period before the date of the sale, unless 
the refiner certifies that operations will begin by the first month in 
which oil becomes available under a royalty oil contract. Certification 
could be in the form of a notarized statement referencing a current 
permit to operate from the State or local environmental control agency. 
We will confirm the operating status of the applicant's refinery with 
the U.S. Department of Energy and/or the U.S. Small Business 
Administration as appropriate. We will terminate the royalty oil 
contract if operations do not begin by the first month in which oil 
becomes available.
    In addition, we will disallow multiple applications from two or 
more refiners who are affiliated through common ownership or control. 
Such refiners will be limited to one allotment in the allocation of 
royalty oil.
    An otherwise eligible refiner will not be permitted to participate 
in the sale if, at the time of the sale, that refiner is in arrears on 
payments owed to MMS.

Application Procedures

    Applications must be filed on Form MMS-4070, Application for the 
Purchase of Royalty Oil. The application must be complete and timely 
filed. We will reject any improperly completed or late application and 
any application from a refiner who does not meet the eligibility 
criteria established in this Notice.
    Applicants are advised that the Federal Oil and Gas Royalty 
Management Act of 1982, as amended, 30 U.S.C. 1701, et seq., provides 
civil and criminal penalties for false or inaccurate reporting. 
Applicants are also cautioned to provide adequate detail on each item 
in the application to preclude rejection of the application from 
further consideration. Any questions concerning the application should 
be directed to the contact listed in the ``For Further Information 
Contact'' section.
    We will provide an information package to each eligible refiner who 
files a timely application. This package will contain:
    1. Sale arrangements and procedures;
    2. Lease locations and approximate quantity and quality of royalty 
oil to be offered from each lease;
    3. A statement on the contract award processes, surety 
requirements, and imbalance procedures;

[[Page 51140]]

    4. A copy of the Federal royalty oil contract; and
    5. A copy of the regulations governing royalty-in-kind sales.

Sale Information

    Approximately 20,000 barrels of royalty oil per day from selected 
Federal leases in the Pacific region and 80,000 barrels per day in the 
Gulf of Mexico region will be offered for sale to qualified applicants. 
We will have a separate offering for each region at the sale.
    Royalty oil will be sold based on a competitive bidding process. 
The bid proposal will be based on formulas representing spot market 
prices with premiums added or deductions subtracted. Royalty oil will 
be sold in lease bundles representing groups of leases, oil types, and 
Facility Measurement Points. Refiners will be required to select the 
entire bundle.
    The highest bidder will be notified by phone or e-mail and provided 
a list of properties from which to choose. After the highest bidder 
selects his/her properties, the list of remaining properties will be 
provided to the next highest bidder. This process is continued until 
all the oil is selected or the minimum bid threshold is met.
    In the event that an applicant who has participated in the 
allocation process does not execute his/her contract, or in the event 
substantial quantities of royalty oil sold in this eligible lease sale 
are subsequently turned back to MMS, we may reallocate such oil. 
However, only those refiners who hold ongoing contracts from this sale 
will be allowed to participate in any reallocation, and then only if 
they continue to meet eligibility requirements as set forth in this 
Notice and 30 CFR part 208 (1999). Questions concerning these 
allocation and reallocation procedures should be directed to the 
contact listed in the ``For Further Information Contact'' section.

Surety Requirements

    Applicants for royalty oil will be required to provide a surety 
instrument with their bid package. This surety instrument must be an 
MMS-specified surety such as a bond, irrevocable letter of credit, etc. 
The amount of the surety instrument must equal the value of 30 days of 
production that the refiner is bidding on. Once the contract is 
awarded, the surety must be increased to an amount equal to the 
estimated value of royalty oil that could be taken by the purchaser in 
a 99-day period. The increased surety must be received by December 17, 
1999. All sureties must be in a form acceptable to MMS and must include 
any MMS-specified requirements to adequately protect the Government's 
interests. Sureties for unsuccessful bidders will be immediately 
returned to the financial institution. Upon termination of deliveries 
under the contract, we will reduce the amount of the surety in amounts 
proportionate to payments made by the refiner to fulfill payment 
obligations.
    If the refiner provides a bond or a certificate of deposit as the 
surety, the bond or certificate of deposit must be effective for the 
entire term of the contract plus a 6-month reconciliation period. If 
the refiner furnishes a letter of credit as the surety, the letter of 
credit must be effective for a 1-year period beginning the first day 
the royalty oil contract is effective, with a clause providing for 
automatic renewal for a new 6-month period. The purchaser or surety 
company may elect not to renew the letter of credit at any monthly 
anniversary date but must notify MMS of the intent not to renew at 
least 30 days before the anniversary date. We may grant the purchaser 
45 days to obtain a new surety. If no replacement surety is provided, 
we will terminate the contract effective at least 6 months before the 
expiration date of the letter of credit.
    Financial institutions that furnish bonds must be listed in the 
U.S. Department of the Treasury's Circular 570. Those institutions that 
propose to furnish letters of credit and certificates of deposit must 
be chartered in the United States and must be acceptable to MMS.

Contract Terms

    The royalty oil contracts will be effective January 1, 2000, and 
will have a 1-year term with an automatic evergreen clause subject to a 
90-day termination notice.
    Successful applicants who are awarded royalty oil contracts must 
process that royalty oil, or oil obtained in exchange for the royalty 
oil, in their refineries and may not resell it. If a refiner exchanges 
royalty oil for other crude oil to process in his/her refinery, the 
refiner must provide full information to us, including a copy of the 
exchange agreement within 30 days of the exchange agreement's effective 
date.

Authority

    This sale is conducted under the provisions of the Outer 
Continental Shelf Lands Act, as amended, 43 U.S.C. 1331, et seq., and 
regulations at 30 CFR part 208.

    Dated: September 15, 1999.
R. Dale Fazio,
Acting Associate Director for Royalty Management.
[FR Doc. 99-24525 Filed 9-20-99; 8:45 am]
BILLING CODE 4310-MR-P