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United States Department of the Interior 
Montana State Office
5001 Southgate Drive
Billings, Montana 59101-4669
February 1, 2010

3100 (MT9222.TB) P                             

Instruction Memorandum No. MT-2010-030
Expires: 9/30/2011
To:             Leadership Advisory Team          
From:         State Director
Subject:     Compensatory Royalty Assessment Procedures
Program Area: Oil and Gas Management. 
Purpose:  To provide consistent statewide procedures when compensatory royalty is assessed on a Federal oil and gas lease, and to provide consistent procedures for data entry into LR2000 regarding compensatory royalty assessments. 
Policy/Action: Field office and state office staffs are to adhere to the procedures listed on Attachment 1 when compensatory royalty is assessed on a Federal oil and gas lease. These procedures do not pertain to Indian leases since no data entry is required in LR2000.
Timeframe: The policy is effective immediately. 
Budget Impact: The outcome of this guidance is to implement consistent procedures and LR2000 data standards. LR2000 is a tool used by both the BLM and the Minerals Management Service (MMS). Data accuracy and consistency result in overall cost efficiencies in time and allocation of resources. 
Background: Compensatory royalty is assessed when a Federal oil and gas lease is either being drained by an off-lease well or when the lessee elects not to commit the lease to either a communitization agreement or unitization agreement, and the lessee takes no action to protect the lease from drainage. When compensatory royalty is assessed against a Federal lease that is in a terminable status (i.e. not considered to be held by production), the lease account remains in a terminable status and the lease is subject to both advance rental and compensatory royalty. If annual rental is not paid on or before the anniversary date, the lease is subject to automatic termination. The term of the lease remains in rental/royalty status until compensatory royalty is no longer assessed. At that time, the lease term will be extended for a period of one year, or continue with the primary term of the lease, whichever is greater. If the lease is in a non-terminable status (i.e. considered held by production), the lease is subject to both royalty/minimum royalty and compensatory royalty.
Historically, there have not been a significant number of compensatory royalty assessments in the Montana/Dakotas, and guidance has not been detailed or consolidated.  This IM consolidates the guidance and establishes statewide data standards and entries into LR2000.
Manual/Handbook Sections Affected: None.
Coordination: This guidance was coordinated with the Minerals Management Service, Branch of Fluid Minerals, and Montana/Dakota Field Offices.
Contact: Please direct any questions to Teri Bakken at (406) 896-5091 or Pascual Laborda at
(406) 896-5102.
Signed by:                                                                              Authenticated by:
Gene R. Terland                                                                      Kathy Ray
State Director                                                                         Staff Assistant (MT9220)                                                          
 3 Attachments
      1-FO & SO Procedures (2 pp)
      3-Template for Non-terminable Leases (1 p)                                                                                    
cc: MMS-MRM,
       Attn: Dena Delgado,
       P.O. Box 5760, MS 3571B,
       Denver, CO 80217-5760

Last updated: 03-18-2013