Royalty-in-Kind (RIK) Eligible Refiner, Determination of Need, 2938-2940 [E8-624]

Agencies

• DEPARTMENT OF THE INTERIOR
• Minerals Management Service

[Federal Register Volume 73, Number 11 (Wednesday, January 16, 2008)]
[Notices]
[Pages 2938-2940]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-624]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service


Royalty-in-Kind (RIK) Eligible Refiner, Determination of Need

AGENCY: Minerals Management Service, Interior.

ACTION: Solicitation of comments.

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SUMMARY: The Minerals Management Service (MMS), an agency of the U.S. 
Department of the Interior, is requesting written comments from 
interested parties, particularly refiners who qualify under the RIK 
eligible refiner program, regarding their experiences in the crude oil 
marketplace. Specifically, we are interested in eligible refiners' 
experiences in gaining access to adequate supplies of crude oil at 
equitable prices. This Determination of Need process will assist the 
Secretary of the Interior in deciding whether or not to continue with 
sales of Federal Government royalty crude oil under the RIK eligible 
refiner program.

DATES: Submit written comments on or before March 3, 2008.

ADDRESSES: Submit written comments to Colin Bosworth, Minerals 
Management Service, Minerals Revenue Management, P.O. Box 25165, MS 
330B2, Denver, Colorado 80225. If you use an overnight courier service 
or wish to hand-carry your comments, our courier address is Building 
85, Room A-614, Denver Federal Center, West 6th Ave. and Kipling Blvd., 
Denver, Colorado 80225. You may also e-mail your comments to us at 
mrm.comments@mms.gov. Include the title of this Federal Register notice 
in the ``Attention'' line of your comment. Also include your name and 
return address. If you do not receive a confirmation that we have 
received your e-mail, contact Mr. Bosworth at (303) 231-3186.

FOR FURTHER INFORMATION CONTACT: Armand Southall, telephone (303) 231-
3221, FAX (303) 231-3781, or e-mail armand.southall@mms.gov.

SUPPLEMENTARY INFORMATION:
    Introduction: Under the provisions of the Mineral Leasing Act of 
1920 (MLA), as amended (30 U.S.C. 192), and the Outer Continental Shelf 
Lands Act (OCSLA) of August 7, 1953, as amended (43 U.S.C. 1334, 1353), 
the Secretary of the Interior can take Federal royalty crude oil in 
kind, in lieu of royalty payment, and sell it to eligible refiners for 
use in their refineries. The sale of royalty crude oil from Federal 
leases by the United States to eligible refiners is governed by the 
regulations at 30 CFR part 208, effective December 1, 1987, published 
in the Federal Register on October 30, 1987 (52 FR 41908).
    To purchase royalty crude oil under the eligible refiner program, 
an eligible refiner, as defined at 30 CFR 208.2, means a crude oil 
refiner meets the following criteria:

    (1) For the purchase of royalty oil from onshore leases, it 
means a refiner that qualifies as a small and independent refiner as 
those terms are defined in sections 3(3) and 3(4) of the Emergency 
Petroleum Allocation Act, 15 U.S.C. 751 et seq., except that the 
time period for determination contained in section 3(3)(A) would be 
the calendar quarter immediately preceding the date of the 
applicable ''Notice of Availability of Royalty Oil.''

    The Emergency Petroleum Allocation Act of 1973 (Public Law No. 93-
159; 87

[[Page 2939]]

Stat. 627) defines a small refiner as a refiner who:

    (a) Obtained directly or indirectly more than 70 percent of its 
refinery input of domestic crude oil, or 70 percent of its refinery 
input of domestic and imported crude oil, from producers who do not 
control, are not controlled by, and are not under common control 
with, such refiner; and
    (b) marketed or distributed in such quarter and continues to 
market or distribute a substantial volume of gasoline refined by it 
through branded independent marketers or non-branded independent 
marketers.
    Additionally, the term ``small refiner'' means a refiner whose 
total refinery capacity, including the refinery capacity of any 
person who controls, is controlled by, or is under common control 
with such refiner, does not exceed 175,000 barrels per day. Crude 
oil received in exchange for the refiner's own production is 
considered to be part of the refiner's own production for purposes 
of this section.

    In addition, 30 CFR 208.2 defines eligible refiner for the purchase 
of royalty oil from offshore leases as follows:

    (2) For the purchase of royalty oil from leases on the Outer 
Continental Shelf, it means a refiner that qualifies as a small 
business enterprise under the rules of the Small Business 
Administration (13 CFR part 121).

    The Small Business Administration (SBA), as updated and published 
in the Federal Register on March 28, 2003 (68 FR 15047), states the 
following:

    The SBA standard for a small business within the Petroleum 
Refining Industry is a concern with a total Operable Atmospheric 
Crude Oil Distillation Capacity of less than or equal to 125,000 
barrels per calendar day, and that has no more than 1,500 employees. 
Capacity includes owned or leased facilities as well as facilities 
under a processing agreement or an arrangement such as an exchange 
agreement or throughput.

    The regulation at 30 CFR 208.4(a) governs the Determination of Need 
process and states that:

    The Secretary may evaluate crude oil market conditions from time 
to time. The evaluation will include, among other things, the 
availability of crude oil and the crude oil requirements of the 
Federal Government, primarily those requirements concerning matters 
of national interest and defense. The Secretary will review these 
items and will determine whether eligible refiners have access to 
adequate supplies of crude oil and whether such oil is available to 
eligible refiners at equitable prices. Such determinations may be 
made on a regional basis * * *.

    Under its rules, the SBA draws no distinction between offshore and 
onshore oil purchases; thus, for a refiner to qualify as an eligible 
refiner, the refiner must have no more than 1,500 employees regardless 
of onshore or offshore oil purchases.
    Background: The MMS established the eligible refiner program to 
ensure fair and equitable prices for eligible refiners as defined at 30 
CFR 208.2. Historically, these eligible refiners have supplied U.S. 
military functions with jet fuel and other energy needs on military and 
naval bases. In the past, the MMS found that the eligible refiner 
program provided the following benefits to eligible refiners:
     Stability of supply;
     Access to domestic oil streams;
     Ease of hardship on obtaining capital.
    The RIK eligible refiner program has been an important source of 
crude oil for eligible refiners in the past. In September 2007, there 
were three eligible refiners participating in the eligible refiner 
program. However, beginning in October 2007, the number of 
participating refiners was two. This decline in participation can be 
partially attributed to a number of eligible refiners merging, thus 
becoming ineligible, along with the removal of Pacific and onshore 
properties from the eligible refiner program.
    In 1997, MMS undertook an examination of the RIK eligible refiner 
program and determined that it should use a ``proactive, structured, 
and documented methodology'' to conduct future RIK Determinations of 
Need. The MMS performed a full analysis in 1999; an update of that 
analysis in 2001; another full analysis in 2003; and an update to that 
previous analysis in 2005. These analyses supported MMS's continuation 
of the program, and each was followed by subsequent RIK sales to 
eligible refiners. The intent of the current analysis is for MMS to 
determine the need for the program in the market's current state and to 
make a recommendation concerning the program's continuation.
    Information Requested: To assist MMS in completing this 
Determination of Need, please respond in writing to the following 
questions:
    (1) Indicate your position as it relates to the domestic crude oil 
market:
    (a) Small/Independent Refiner
    (b) Large Refiner
    (c) Oil Producer
    (d) Oil Transporter
    (e) Oil Marketer
    (f) Other (please specify)
    (2) Describe your experience with the domestic crude oil market and 
your perception of the need for the eligible refiner program.
    (3) What is your perception of whether a benefit exists in 
conducting separate sales for onshore and offshore Federal lease crude 
oil?
    (4) Under the definition criteria outlined above, are you an 
eligible refiner of offshore lease crude oil, onshore lease crude oil, 
or both?
    If you answered yes to any of the categories in question (4), 
please address all the questions that follow. If you have multiple 
refineries, please respond to questions (a) through (i) for each 
refinery:
    (a) For your immediate region or geographic area of operation, how 
would you characterize the general availability of crude oil?
    (b) Is your refinery operating at full or near-full capacity in 
both summer and winter? If not, why not?
    (c) What is the slate of refined products and their volumes from 
your refinery over each of the past 12 months?
    (d) What percentage of onshore versus offshore crude oil volumes do 
you currently run through your refinery?
    (e) What type of crude oil do you need to sustain your mix of 
refined products (e.g., Wyoming Sour, Heavy Louisiana Sweet, Light 
Louisiana Sweet, etc.)?
    (f) Have you been denied access to crude oil supplies in the past 
18 months? If yes, what was the basis for the denial? For example, was 
the denial attributable to unavailability of desired crude oil, a lack 
of access to the transportation pipeline, or other reasons? Please 
provide documentation supporting any claim of denial.
    (g) Do you use exchange agreements? Why?
    (h) Are the feeder stocks you purchase priced above market value 
for your geographic area? In other words, do you pay a bonus or premium 
because of your status as an eligible refiner? Please identify, by 
crude oil type, what you pay on the average barrel of crude oil.
    (i) Have you previously participated in the Federal royalty oil 
program? If you left the program, why did you leave? How would you now 
benefit from receiving Federal royalty oil? If you have never 
participated in the program, what has deterred you from participating?
    (j) Do you currently provide refined products (e.g., heating oil, 
jet fuel, etc.) to a U.S. military base or Federal installation? If 
yes, identify the recipient facility and how long you have been 
supplying refined products.
    (k) Do you anticipate any near term developments that would change 
your access to necessary supplies of crude oil at equitable prices?
    Potential respondents should note that MMS's decision to conduct a 
Determination of Need in no way presupposes that there will or will not 
be subsequent eligible refiner RIK sales.

[[Page 2940]]

A Determination of Need is a logical first step in identifying general 
marketplace conditions. However, any MMS decision to conduct additional 
RIK eligible refiner sales will necessarily be predicated on the 
regulatory criteria of ``access'' and ``equity,'' i.e., whether a 
significant number of refiners have limited or no access to the 
marketplace and/or have experienced difficulty in negotiating a fair 
price for feeder stocks.
    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) 
requires us to inform you that this information is being collected by 
MMS under an approved information collection, OMB Control Number 1010-
0119, titled ``30 CFR Part 208--Sale of Federal Royalty Oil; Sale of 
Federal Royalty Gas; and Commercial Contracts.'' All correspondence, 
records, or information received, in response to this Notice and 
specifically in response to the questions listed above, are subject to 
disclosure under the Freedom of Information Act (FOIA). All information 
provided will be made public unless the respondent identifies which 
portions are proprietary. Please highlight the proprietary portions, 
including any supporting documentation, or mark the page(s) that 
contain proprietary data. Proprietary information is protected by the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1733), 
FOIA (5 U.S.C. 552 (b)(4), the Indian Minerals Development Act of 1982 
(25 U.S.C. 2103), and Department regulations (43 CFR 2). An agency may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid OMB 
Control Number. Public reporting burden is estimated to be 4 hours per 
response. Comments on the accuracy of this burden estimate, or 
suggestions on reducing this burden, should be directed to the 
Information Collection Clearance Officer, MMS, MS-4230, 1849 C Street, 
NW., Washington, DC 20240.

     Dated: January 10, 2008.
Lucy Querques Denett,
Associate Director for Minerals Revenue Management.
 [FR Doc. E8-624 Filed 1-15-08; 8:45 am]
BILLING CODE 4310-MR-P