UNITED STATES DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
Washington, D. C. 20240
http://www.blm.gov
 
March 24, 2006
 
In Reply Refer To:
3483 (320) P
 
EMS TRANSMISSION 04/05/2006
Instruction Memorandum No. 2006-127
Expires: 09/30/2007
 
To:                   State Directors
 
From:               Assistant Director, Minerals, Realty, and Resource Protection
 
Subject:           Interim Guidance for Implementation of the Energy Policy Act of 2005 for Federal Coal Lease Advance Royalty
 
PROGRAM AREA: Coal Management
 
PURPOSE: Provide interim guidance for the implementation of Section 434 of the Energy Policy Act of 2005 [Public Law 109-58] (the Act) which provides:
  • A prescribed structure for the valuation of coal for the purposes of paying advance royalty in lieu of continued operation (advance royalty);
  • A maximum of 20 annual advance royalty payments during the life of a coal lease; and
  • No restrictions concerning when advance royalty payments can be credited against future production royalties during the life of the lease.
 
POLICY: Until new final regulations are issued to implement Section 434 of the Act, BLM will administer a policy for advance royalty that is consistent with current regulations at 43 C.F.R. 3483.4 as modified by the requirements of the Act. This memorandum describes the requirements of the Act that are different than and supersede the regulations. The interim advance royalty policy is as follows:
  • Applicability: This policy applies to all coal leases and logical mining units (LMU).
 
  • Effect on existing policy: This interim guidance supersedes Instruction Memorandum WO-2005-191 which established, before enactment of the Act, that a lessee could pay advance royalty 10 times during the life of the lease.
 
  • Advance royalty policy:
    • The condition of continued operation may be suspended upon the payment of advance royalties.
 
    • A lease or LMU is in compliance with the continued operation requirement (43 C.F.R. 3480.0-5(a)(8)) while a request to pay advance royalty is being processed by the Bureau of Land Management (BLM) and the Minerals Management Service (MMS) and by timely paying advance royalty (43 C.F.R. 3480.0-5(a)(1)) upon receipt of an Order to Pay Advance Royalty (bill) from MMS.
    • Advance royalty may be paid in lieu of continued operation, after diligent development is achieved, at any time during the life of the lease or LMU. Payment of advance royalties shall reduce the amount of production royalty to be paid for any year (but not below zero) to the extent that the advance royalties have not been used to reduce production royalties for a prior year. In accordance with Section 434 of the Act that supersedes 43 C.F.R. 3483.4(f), this reduction will be allowed during the initial 20-year term of a lease and during any succeeding terms of the lease.
    • In accordance with Section 434 of the Act that supersedes 43 C.F.R. 3483.4(d), the aggregate number of years during the life of the lease or LMU that advance royalty can be paid is twenty (20).
    • MMS will calculate advance royalty value and issue the applicant an advance royalty assessment based upon 43 C.F.R. 3483.4(c).
    • Any lessee that pays advance royalty after the date of enactment of the Act, but before the effective date of the final implementing regulations, may have its advance royalty reevaluated under the new regulations once those regulations become effective. The Department expects to receive comments on this issue during the rulemaking.
 
  • Application procedures:
    • Two copies of a written request to pay advance royalty must be filed with BLM within thirty (30) days after the start of the continued operation year.
    • Each application must:
      • By serial number, identify all lease(s) or LMU(s) to which the application to pay advance royalty applies; and
      • For each lease or LMU, specify the lease or LMU continued operation year for which the applicant requests to pay advance royalty.
    • Any confidential data provided to BLM and MMS must be marked pursuant to 43 C.F.R. 3481.3.
 
  • Processing Procedures:
    • BLM will determine if advance royalty can be paid and, if approved, the amount of coal for which advance royalty must be paid, as determined under 43 C.F.R. 3483.4(c).
    • BLM will forward the approved request to pay advance royalty to MMS, including the advanced royalty tonnage and a determination whether late penalties should be assessed, as set forth in 43 C.F.R. 3483.3(b).
    • MMS will determine the advance royalty value based upon the regulations at 43 C.F.R. 3483.4(c).
    • MMS will bill the lessee for the amount of advance royalty that is due. 
    • MMS will provide BLM written notice when the advance royalty has been paid.
 
  • Late payment fees:
    Late payment fees may be assessed if the application to pay advance royalty is not received within 30 days after the start of a new continued operation year.
Late payment interest will be assessed according to MMS’s Order to Pay Advance Royalty, if the advance royalty payment is not timely submitted.
 
  • Impact on future regulations:  
    • This interim policy does not reflect a final BLM decision on the content of the final implementing regulations for Section 434 of the Act.
    • Section 434 of the Act provides that the coal value for assessment of advance royalty must be computed based on the average price in the spot market for sales of comparable coal from the same region during the last month of each applicable continued operation year. Because more than one interpretation of that provision exists, BLM believes that implementation of this provision should not occur without the opportunity for public comment. Therefore, implementation of the valuation provision will not be included in this interim guidance but will be addressed in the upcoming proposed rulemaking. 
 
ACTIONS REQUIRED:  Implement interim guidance for applications for payment of advance royalty until final regulations are completed.
 
TIMEFRAME: Immediate.
 
BUDGET IMPACT: Minimal.
 
BACKGROUND: Congress passed The Energy Policy Act of 2005 (the Act) (Pub.L.109-58) on August 8, 2005. Title 4, Subtitle D of the Act contains several amendments to the Mineral Leasing Act for federal coal leasing and federal coal lease management. This memorandum provides interim guidance to implement Section 434 of the Act until regulations can be finalized. The interim guidance contained in this memorandum applies to all federal coal leases and LMU’s.
 
A federal coal lease is required to produce commercial quantities of coal within 10 years of lease issuance. Commercial quantities are defined in BLM’s regulations as one percent of the recoverable coal reserve. After the date that commercial quantities of coal are initially produced, the lessee must thereafter annually maintain the lease in continued operation by producing at least commercial quantities of coal. The annual continued operation requirement may be satisfied by either producing at least commercial quantities of coal or by maintaining an average production for three years that is in excess of the combined annual commercial quantities requirement. The Secretary may suspend the condition of continued operation upon the payment of an advance royalty if such a payment is determined to be in the public interest (43 C.F.R. 3483.4).
 
MANUAL/HANDBOOK SECTIONS AFFECTED:
Logical Mining Unit Application and Processing Guidelines, August 19, 1985, 50 FR 35145.
 
COORDINATION: This policy was developed with the assistance of the BLM State Offices, the Minerals Management Service, and the Department of the Interior Solicitor’s Office.
 
CONTACT PERSON: Solid Mineral Division (WO-320), Ted Murphy 202-452-0351, or William Radden-Lesage 202-452-0360.
 
MMS Contact: Robert Davidoff, Supervisor, Solid Minerals and Geothermal Compliance and Asset Management, Minerals Management Service 303-231-3306.
 
Signed by:                                                                   
Authenticated by:
Thomas P. Lonnie                                                        
Robert M. Williams
Assistant Director                                                        
Division of IRM Governance,WO-560
Minerals, Realty and Resource Protection