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More Oil Money May Flow to Natives Thanks to New Interior Ruling

Department of Interior issues final rule for valuation of oil produced on American Indian lands
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The Department of Interior has released its final regulations that amend a previous valuation requirement for oil production on American Indian lands. Officials say Native lessors might see significant increases in royalty returns as a result.

A draft of the proposed rule was first published in the Federal Register in June of 2014, but the agency in charge of making the final decision, the Interior’s Office of Natural Resources Revenue (ONRR), weighed public comments, including three from Indian tribes, and four from individual Indian mineral owners, before issuing a final rule. The regulations effect oil produced after July 1.

The Obama Administration says that the regulations will “ensure tribal communities receive all the royalties they are owed from oil production on their lands, reduce administrative costs and provide greater predictability to the oil industry,” a DOI news release said.

Key changes to the proposed rule were based on the major portion valuation requirement -- the highest price paid for the oil produced from a particular field -- and the form filing requirements related to oil transportation allowances. Specifically, the new rule eliminates form filing requirements for arm’s length transportation allowances, as well as the prefiling of form ONRR 4110, according to the ONRR’s final rule, which can be read here.

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Also according to the final rule, the major portion valuation will, among other things, allow Indian lessors to do three things: “receive royalties on their oil production founded on an index based price equivalent to a 25 percent major portion from the top or the gross proceeds that their lessees receive; (2) more predictable and transparent information on revenues that they can expect to receive; and (3) royalties based on the leases’ major portion provision sooner and with fewer adjustments.”

Interior Secretary Sally Jewell, who chairs the White House Council on Native American Affairs, said in a release, “As part of our trust and treaty responsibilities, these common-sense regulations will help protect and fairly value Indian oil assets, support exploration and development, and reduce administrative costs. This rule reflects the President’s strong commitment to tribal sovereignty and self-governance, offering greater simplicity, certainty, clarity and consistency for energy companies that operate on tribal lands, while potentially boosting royalties to Indian country.”