Water Royalty Relief Act meeting the requirements of this subparagraph, upon application by the lessee, the Secretary shall determine within 90 days whether new production from such lease would be economic in the absence of the relief from the requirement to pay royalties provided for by clause (i) of the subparagraph. In making such determination, the Secretary shall consider all costs associated with obtaining, exploring, developing, and producing from the lease. If the Secretary determines that such new production would be economic in the absence of the relief, the provisions of clause (i) of this subparagraph shall not apply to such production. The rest of the clause is self-explanatory. New subclause (C)(iii)(aa) states that for purposes of the subparagraph, the term "capital costs" shall be defined by the Secretary and shall include exploration costs incurred after the acquisition of the lease and development costs directly related to new production. The terms " exploration" and "development" shall have the same meaning contained in subsections (k) and (1) of section 2 of this Act except the term "development" shall also include any similar additional development activities which take place after production has been initiated from such lease. Such capital costs shall not include any amounts paid as bonus bids but shall be adjusted to reflect changes in the consumer price index, as defined in section (1)(f)(4) of title 26 of the United States Code. New subclause (C)(ii)(bb) states that "new production" is any production from a lease from which no royalties are due on production, other than test production, prior to the date of enactment of the Outer Continental Shelf Deep Water Royalty Relief Act or any production resulting from lease development activities pursuant to a Development Operations Coordination Document approved by the Secretary after the date of enactment of the Outer Continental Shelf Deep Water Royalty Relief Act. New clause (C)(iv) states that in any month during which the arithmetic average of the closing prices for the earliest delivery month on the New York Mercantile Exchange for Light Sweet crude oil exceeds $28.00 per barrel, any production of oil subject to relief from the requirement to pay royalties under clause (i) of this subparagraph shall be subject to royalties at the lease stipulated rate, and the lessee's gross proceeds from such oil production, less Federal royalties, during such month shall be counted toward the recovery of capital costs under clause (i) of this subparagraph. New clause (C)(v) states that in any month during which the arithmetic average of the closing prices for the earliest delivery month on the New York Mercantile Exchange for natural gas exceeds $3.50 per million British thermal units, any production or natural gas subject to relief from the requirement to pay royalties under clause (i) of this subparagraph shall be subject to royalties at the lease stipulated rate, and the lessee's gross proceeds from such natural gas production, less Federal royalties, during such month shall be counted toward the recovery of capital costs under clause (i) of this subparagraph. New clause (C)(vi) states that the prices referred to in clauses (iv) and (v) of this subparagraph shall be changed during any calendar year after 1994 by the percentage if any by which the consumer price index changed during the preceding calendar year, as defined in section (1)(f)(4) of title 26 of the U.S. Code. Section 3 states that the Secretary shall promulgate such rules and regulations as are necessary to implement the provisions of this Act within 180 days after the date of enactment of this Act. Section 4(a) requires the Secretary to review and report to Congress on Federal regulations and policies within the Secretary's jurisdiction which create barriers and disincentives that unnecessarily preclude new production, or result in premature abandonment or suspension of existing production of oil and gas on Federal lands, including the Outer Continental Shelf. The remainder of the section is self-explanatory. Section 5 states that the Secretary shall not implement the system of tract nomination for oil and gas leasing in the Central and Western Planning Areas of the Gulf of Mexico under the Outer Continental Shelf Lands Act, and shall use the existing area-wide system of leasing in such areas. COST AND REGULATORY CONSIDERATIONS The following estimate of costs of this measure has been provided by the Congressional Budget Office: U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Hon. J. BENNETT JOHNSTON, DEAR MR. CHAIRMAN: The Congressional Budget Office has reviewed S. 318, the Outer Continental Shelf Deep Water Royalty Relief Act, as ordered reported by the Committee on Energy and Natural Resources on March 2, 1994. CBO estimates that implementation of this bill could result in a small increase in offsetting receipts. Such receipts, however, would be the proceeds of an asset sale and therefore would have no budgetary impact for pay-as-yougo purposes. S. 318 would direct the Secretary of the Interior to offer a royalty waiver in certain cases to owners of Outer Continental Shelf (OCS) leases seeking to produce oil or gas. Currently, companies that want to produce on the OCS must pay a bonus for a lease as well as a royalty on any production that might eventually come from the lease. In some cases, however, a company that has already paid a bonus will relinquish a lease because the costs (including the royalty payments) of producing the estimated resources in deepwater tracts make the prospect economically unattractive. In these cases, the bill would allow a lessee to apply for a waiver of royalty payments that would remain in effect until it has recouped its capital investment in the lease. If the Secretary determines that production on the lease would be economic under current law without a royalty waiver, then he could deny the application. If the Secretary decides that it would not be economic for the lessee to produce without a royalty waiver, then he would allow the waiver to apply to that lease. Based on information from the Minerals Management Service (MMS), CBO expects that the Secretary would be able to evaluate accurately whether production on leases would be economic without the waiver. Thus, it is not likely that MMS would offer a waiver for leases on which production would be feasible under current law. Assuming that MMS would be able to offer the waiver only for leases that, under current law, would otherwise be turned back to the government and would not be generating royalties for the gov ernment anyway, CBO estimates that enactment of the bill would not result in lost receipts to the federal government over the 19951999 period. MMS has indicated, however, that it has some concern as to whether the bill's 90-day limit on time to review applications for royalty relief would be sufficient, especially if the agency receives a large number of applications over a short period of time. If MMS does not have sufficient time to review all applications within the 90-day limit, some leases may receive royalty relief without the economic justification required under the provisions of S. 318. If this occurred, the federal government would lose receipts relative to current law. It is possible that MMS would offer the waiver on deepwater leases that otherwise would not be economically producible. If so, companies might seek to acquire such leases and pay bonuses that they would not pay under current law. Any increase in annual bonus receipts would be small, however, because we do not expect the waiver to significantly increase the amount of activity on the OCS. Such receipts would not count for pay-as-you-go procedures because they would be considered proceeds from an asset sale under budget scorekeeping rules. If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contacts are Peter Fontaine and James Hearn. Sincerely, ROBERT D. REISCHAUER, REGULATORY IMPACT EVALUATION Director. In compliance with paragraph 11(b) of rule XXVI of the Standing Rules of the Senate, the Committee makes the following evaluation of the regulatory impact which would be incurred in implementing S. 318. The bill is not a regulatory measure in the sense of imposing Government-established standards or significant economic responsibilities on private individuals and businesses. No personal information would be collected in administering the program. Therefore, there would be no impact on personal privacy. Little, if any, additional paperwork would result from the enactment of S. 318 as amended. EXECUTIVE COMMUNICATIONS On March 2, 1993, the Committee on Energy and Natural Resources requested legislative reports from the Department of the Interior and the Office of Management and Budget setting forth executive views on S. 318. These reports has not been received at the time the report on S. 318 was filed. When the reports become avail able, the Chairman will request that they be printed in the Congressional Record for the advice of the Senate. CHANGES IN EXISTING LAW In compliance with paragraph 12 of rule XXVI of the Standing Rules of the Senate, changes in existing law made by the bill S. 318, as ordered reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, existing law in which no change is proposed shown in roman): AN ACT TO provide for the energy security of the Nation through encouraging the production of domestic oil and gas resources in deep water on the Outer Continental Shelf in the Gulf of Mexico, and for other purposes. OUTER CONTINENTAL SHELF LANDS ACT (43 U.S.C. 1337 (A)) SEC. 81. LEASING OF OUTER CONTINENTAL SHELF.— (a) (3) (A) The Secretary may, in order to promote increased production on the lease area, through direct, secondary, or tertiary recovery means, reduce or eliminate any royalty or net profit share set forth in the lease for such area. (B) The Secretary may, in order to promote development and new production on a producing or non-producing lease, through primary, secondary, or tertiary recovery means, or to encourage production of marginal or uneconomic resources on a producing or nonproducing lease, reduce of suspend any royalty or net profit share set forth in the lease. (C)(i) Notwithstanding the provisions of this Act other than this subparagraph, no royalty payment shall be due on new production, as defined in clause (iii) of this subparagraph, from any lease located in water depths of 200 meters or greater in the Western and Central Planning Areas of the Gulf of Mexico, and the Eastern Planning Area of the Gulf of Mexico west of the lateral seaward boundary between the States of Florida and Alabama, or for any lease in the frontier areas of Alaska, which shall, at a minimum, include those areas with seasonal sea ice, long distances to existing pipelines and ports, or a lack of production infrastructure, until the capital costs directly related to such new production have been recovered by the lessee out of the proceeds from such new production. (ii) With respect to any lease in existence on the date of enactment of the Outer Continental Shelf Deep Water Royalty Relief Act meeting the requirements of this subparagraph, upon application by the lessee, the Secretary shall determine within 90 days of such application whether new production from such lease would be economic in the absence of the relief from the requirement to pay royalties_provided for by clause (i) of this subparagraph. In making such determination, the Secretary shall consider all costs associated with obtaining, exploring, developing, and producing from the lease. The lessee shall be afforded an opportunity to provide information to the Secretary prior to such determination. Such application may be made on the basis of an individual lease or unit (as defined under the provisions of 30 CFR Part 250). If the Secretary determines that such new production would be economic in the absence of the relief from the requirement to pay royalties provided for by clause (1) of this subparagraph, the provisions of clause (i) of this subparagraph shall not apply to such production. Redetermination of the applica bility of clause (i) shall be undertaken by the Secretary when requested by the lessee upon significant change in the factors upon which the original determination was made. The Secretary shall make such redetermination within 60 days of such application. The Secretary may extend the time period for making any determination under this clause for 30 days if circumstances so warrant. The les see shall be notified in writing of any determination or redetermination and the reasons for and assumptions used for such determination. In the event that the Secretary fails to make the determination or redetermination upon application by the lessee within the time period, together with any such extension thereof provided for by this clause, the relief from the requirement to pay royalties provided for by clause (i) shall apply to such production. (iii) For purposes of this subparagraph, the term— (aa) "capital costs" shall be defined by the Secretary and shall include exploration costs incurred after the acquisition of the lease and development costs directly related to new production. The terms "exploration" and "development" shall have the same meaning contained in subsections (k) and (1) of section 2 of this Act except the term "development" shall also include any similar additional development activities which take place after production has been initiated from such lease. Such capital costs shall not include any amounts paid as bonus bids but shall be adjusted to reflect changes in the consumer price index, as defined in section (1)(f)(4) of title 26 of the United States Code; and (bb) "new production" is (1) any production from a lease from which no royalties are due on production, other than test production, prior to the date of enactment of the Outer Continental Shelf Deep Water Royalty Relief Act; or (II) any production resulting from lease development activi ties pursuant to a Development Operations Coordination Document approved by the Secretary after the date of enactment of the Outer Continental Shelf Deep Water Royalty Relief Act; (iv) In any month during which the arithmetic average of the closing prices for the earliest delivery month on the New York Mercantile Exchange for Light Sweet crude oil exceeds $28.00 per barrel, and production of oil subject to relief for the requirement to pay royalties under clause (i) of this subparagraph shall be subject to royalties at the lease stipulated rate, and the lessee's gross proceeds from such oil production, less Federal royalties, during such month shall be counted toward the recovery of capital costs under clause (i) of this subparagraph. (v) In any month during which the arithmetic average of the closing prices for the earliest delivery month on the New York Mercantile Exchange for natural gas exceed $3.50 per million British thermal units, any production of natural gas subject to relief from the requirement to pay royalties under clause (i) of this subparagraph shall be subject to royalties at the lease stipulated rate, and the lessee's gross proceeds from such natural gas production, less |