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Register entry No. 0002Report81 FR 43338

ONRR proposes oil, gas and coal valuation amendments, RIN 1012-AA39, with $331 million a year less in royalties

The proposed rule, published today at 91 FR 39754, would redraw where offshore gathering ends, let lessees value arm's-length gas sales at an index price and drop the 2016 default provision. Comments are due Aug. 31.

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Summary

The Office of Natural Resources Revenue estimates that its newest valuation proposal would reduce federal royalty collections by $331 million a year [1]. The proposed rule, “Federal Oil, Gas, and Coal Amendments,” was published today at 91 FR 39754 under Docket No. ONRR-2025-0001 and RIN 1012-AA39, and would amend 30 CFR parts 1206 and 1290 [1]. It is signed by April Lockler, Acting Director of ONRR, and cites the Federal Oil and Gas Royalty Management Act, the Mineral Leasing Act, the Outer Continental Shelf Lands Act and Secretary’s Orders 3299 and 3306 as authority. Comments are due by 11:59 p.m. EDT on August 31, 2026 [1].

What the record shows

The preamble lists eleven changes [1]. In dollar terms, one dominates: a new definition of gathering for offshore leases.

Offshore gathering. Royalty value is computed after deducting transportation, but not gathering, and the line between the two has been drawn since 1988 at “a central accumulation or treatment point,” a phrase the regulations never defined [1]. ONRR says that gap produced repeated disputes and litigation, and that deepwater lessees may move production as far as 60 miles before it is measured, all of it currently treated as nondeductible gathering [1]. The proposal would define gathering on Outer Continental Shelf leases as movement “from the well to the closest of” a point of accumulation of one or more wells, the point at which production is separated, or the lease boundary [1]. Onshore, gathering would end at the BLM-approved measurement point, which ONRR says leaves current onshore practice unchanged [1].

Movement past the new line would count as transportation. The proposal would also name costs a lessee may include in a transportation allowance: flow assurance (heated flowlines, pigs and their launchers and receivers, hydrate and paraffin inhibitors), the cost of repairing or restoring a plugged or damaged pipeline net of insurance, export pumps on oil platforms, and gas compression, dehydration and treatment beyond what marketable condition requires [1]. Lessees could deduct platform space “directly allocable” to that equipment, and buoyancy costs on floating platforms. Lighting, helipads and living quarters stay out [1]. ONRR states that marketable-condition costs “continue to be disallowed” [1].

Index pricing for gas. The 2016 rule let lessees value non-arm’s-length gas at the highest bidweek index price [1]. The proposal would extend the option to arm’s-length sales of federal gas and natural gas liquids, switch the base to the published average bidweek price, bar values below zero, and let ONRR demand gross-proceeds records from electing lessees [1]. Elections would be lease by lease, prospective only, and fixed for at least two years. The proposed transportation adjustment is a 20 percent reduction capped at 74 cents per MMBtu for Gulf of America sales and 13 percent capped at 45 cents elsewhere [1]. About 16 percent of eligible lessees used the existing option in 2020 through 2024, and ONRR expects more to elect it under the new terms [1].

Other provisions. The rule would remove the default provision at §§ 1206.105 and 1206.144, which lets ONRR set value when a contract does not reflect total consideration or misconduct is found, along with the definition of misconduct. ONRR says the provision has been applied once since 2016 [1]. A new § 1206.146(c) would tie marketable condition to the mainline pipeline’s delivery specifications, which ONRR describes as codifying current practice [1]. Lessees that acquire transportation, processing or coal washing assets without a compliant depreciation schedule could propose one, and could pick an alternative in-service date for assets never depreciated [1]. For Director-level appeals under § 1290.105(f), the Director would look for “credible evidence to support the Order,” review conclusions of law de novo, and decide “in a timely manner” [1].

The numbers. ONRR’s summary table assigns $329,543,000 of the annual royalty reduction to the gathering and offshore amendments and $1,563,000 to the index changes, for a total of $331,106,000, about two percent of 2024 federal oil, gas and coal royalties [1]. Lessees would save an estimated $2,572,000 a year in administrative costs [1]. BOEM projects that up to $205 million a year in retained earnings could be reinvested in the deepwater Gulf, adding 2.60 million barrels a year from 2031 through 2046 and $30.4 million in average annual gross royalties, at $70 oil and a 16.67 percent royalty rate [1]. BLM estimates $3.6 million a year in added onshore bonus bids [1]. OIRA designated the action economically significant, and ONRR expects it to count as an E.O. 14192 deregulatory action if finalized [1].

How did ONRR’s valuation rules get here?

The 2016 Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Rule, 81 FR 43338, added the default provision and the non-arm’s-length index option and rescinded the 1999 Deepwater Policy [1]. That policy had let deepwater lessees deduct the cost of moving bulk production from the seafloor to the first platform [1, 3]. When the 2016 rule was finalized, ONRR estimated it would bring in an additional “$72 million to $85 million,” and Interior’s 2017 repeal was undone by a federal judge in 2019 after California and New Mexico sued [5].

A second attempt, the 2020 Valuation Reform and Civil Penalty Rule at 86 FR 4612, would also have removed the default provision and opened the index option to arm’s-length sales [1]. ONRR withdrew it effective November 1, 2021 [6]. In the withdrawal, ONRR wrote that the “index-based valuation formula generally is not as reliable a measure of royalty value as is the use of actual sales prices” [1].

The 2016 oil and gas provisions survived court review. On August 25, 2023, the Tenth Circuit affirmed the District of Wyoming in a challenge brought by the American Petroleum Institute, with California, New Mexico and several conservation groups intervening on the government’s side [4]. Oil & Gas Journal reported that the panel upheld the end of the manifold-to-platform deduction, saying ONRR could decide “whether a deduction originally intended to promote deepwater work is still needed,” and also accepted the highest-bidweek price [3]. ONRR now cites the change-of-position standard from FCC v. Fox Television Stations and acknowledges it is reversing its 2016 positions [1].

What happens before the Aug. 31 comment deadline?

Comments may be filed on regulations.gov or by email, referencing RIN 1012-AA39, and will be posted without change [1]. ONRR lists questions on each provision. On appeals, it asks whether the Administrative Procedure Act’s “arbitrary, capricious” standard would be clearer than the one proposed [1]. It also asks whether a final rule should carry a separate compliance date for reporting and payment, and whether that date should fall six months after the effective date or sooner [1]. Index elections would apply only to production after a final rule’s effective date [1].

What the record does not show

The proposal publishes the $331 million total but not how it divides among the Treasury and the states and localities that share in federal royalties. It says only that the change in collections affects revenue “disbursed to States and local governments” and that the rule would not impose administrative costs on them [1]. ONRR invites comment on federalism effects without quantifying them [1].

The proposed rule does not show how the gathering change would apply to existing audits or appeals over “central accumulation or treatment point,” including the DCOR matter that a Texas district court remanded in part in 2023 [1].

Whether lower royalties would produce the projected barrels is unresolved. BOEM’s reinvestment figure assumes all retained earnings go back into Gulf development, and ONRR asks commenters whether that is realistic [1]. The 2016 allowance caps discussed by the Tenth Circuit, 50 percent of value for transportation and 66.6 percent for processing, are not among the eleven listed changes [1, 3].

No schedule for a final rule appears in the notice.

Positions on the record

Interior Secretary Doug Burgum said in the June 26 announcement, “The Trump administration is taking the handcuffs off American energy producers,” and that the proposal “cuts useless bureaucratic drag” [2]. Interior said the full text would appear in the Federal Register “in the coming days” [2].

The rule records that roughly 50 commenters on the 2020 proposal and the 2021 withdrawal “noted strong support” for an arm’s-length index option, and that most comments on prior rules called the default provision overly broad [1]. ONRR still writes that arm’s-length gross proceeds are “the best indicator of value” [1].

During the 2020 round, Western Energy Alliance President Kathleen Sgamma called the 2016 rule a “gotcha” rule, while Shannon Anderson of the Powder River Basin Resource Council said, “There was an undervaluing of federal coal” [5]. California and New Mexico defended the 2016 rule as intervenors in the Tenth Circuit [4].

Reading-room questions

Questions readers bring to this record, answered from the documents cited below.

When are comments due on ONRR's Federal Oil, Gas, and Coal Amendments proposed rule?
By 11:59 p.m. EDT on August 31, 2026. Comments go to regulations.gov under Docket ID ONRR-2025-0001 or by email, and must cite RIN 1012-AA39 [1].
How much would the ONRR valuation proposal cut federal royalties?
ONRR estimates about $331 million a year, roughly two percent of the federal oil, gas and coal royalties it collected in 2024. Nearly all of it, $329.5 million, comes from the offshore gathering and allowance changes [1].
What would change for offshore lessees in the Gulf of America?
Gathering on Outer Continental Shelf leases would end at the closest of a point where wells accumulate, the point where production is separated, or the lease boundary. Movement past that point, plus listed platform, flow assurance and pipeline repair costs, could be deducted as transportation [1].
Can lessees use an index price for arm's-length gas sales under the proposal?
Yes, if the rule is finalized as proposed. The index option would extend to arm's-length sales of federal gas and NGLs, priced at the published average bidweek index instead of the highest, with elections made lease by lease and locked for two years [1].
Does the proposal change federal coal royalties?
Only slightly. ONRR says the sole coal change is new depreciation definitions and a path for lessees to submit a depreciation schedule for acquired assets [1].

Note on sourcing

All dollar and production figures are ONRR, BOEM and BLM estimates as stated in the proposed rule; the Preliminary Regulatory Impact Analysis behind them sits in the rulemaking docket and this report does not draw on it directly. The $205 million reinvestment figure assumes all retained Gulf of America earnings are reinvested there, an assumption ONRR itself asks commenters to test. Interior's June 26 announcement carries no figures. This report does not draw on comments filed in the new docket; the industry and advocacy positions quoted here date from the 2020 rulemaking and are labeled as such. The account of the 2016 rule's history before 2020 rests on E&E News reporting.

Sources

  1. Federal Oil, Gas, and Coal Amendments, proposed rule, 91 FR 39754 (FR Doc. 2026-13133; Docket No. ONRR-2025-0001; RIN 1012-AA39)Federal Register (Office of Natural Resources Revenue), June 30, 2026 · federalregister.gov
  2. Department of the Interior Proposes Streamlined Regulations for Oil, Gas and CoalU.S. Department of the Interior, June 26, 2026 · doi.gov
  3. Court rejects appeal on regulations used to value oil and gas for royaltiesOil & Gas Journal, August 29, 2023 · ogj.com
  4. American Petroleum Institute v. U.S. Department of Interior, No. 21-8076 (opinion)U.S. Court of Appeals for the Tenth Circuit, August 25, 2023 · ca10.washburnlaw.edu
  5. Trump admin tries again to revise royalty ruleE&E News, August 7, 2020 · eenews.net
  6. ONRR 2020 Valuation Reform and Civil Penalty Rule: Final Withdrawal Rule, 86 FR 54045 (FR Doc. 2021-20979)Federal Register (Office of Natural Resources Revenue), September 30, 2021 · federalregister.gov

Subject headings

Cross-references

Other register entries filed under the same subject headings.

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  2. No. 0030 · Report · 1 shared headingFERC opens scoping on Longboard LNG import terminal off Oʻahu, Docket No. PF26-10-000
  3. No. 0024 · Report · 1 shared headingEPA repeals most 2024 power plant carbon standards and proposes ending the rest, 91 FR 58954 and 91 FR 59002