Establishment of Category 5 Royalty Rate at 2.2 Percent in Fort Union Federal Coal Production Region

Summary:

This notice is issued for the purpose of announcing the reassessment of the Category 5 Royalty Rate to 2.2 percent within the Fort Union Federal Coal Producing Region in the Counties of McLean, Mercer, and Oliver, North Dakota, and Richland County, Montana. This reassessment was conducted pursuant to the Bureau of Land Management Royalty Reduction Guidelines for Coal and Solid Leasable Minerals which requires a periodic review of the prevailing non-Federal royalty rate in the producing region.

Dates:

Effective Date: June 7, 2004.

For further information contact:

Randy D. Heuscher, Chief, Branch of Solid Minerals, telephone (406) 896-5118, Montana State Office, Bureau of Land Management,P.O. Box 36800, Billings, Montana 59107-6800.

Supplementary information:

Section 2505 of the Energy Policy Act of 1992 afforded royalty relief in the Fort Union Coal region for coal lease applicants, for lessees with royalty reductions approved after March 29, 1990, and for lessees whose royalty reduction applications are approved in the future.

Section 39 of the Mineral Leasing Act of 1920, as amended and supplemented,authorizes the Secretary of Interior to reduce royalty rates to a rate lower than the legal minimum for Federal minerals. This authority to reduce the royalty rate for coal leases is defined in 43 CFR 3485.2(c)(1). The purpose of a royalty reduction must be to encourage the greatest ultimate recovery of Federal coal and to conserve the resource;i.e., to prevent Federal coal from being bypassed. Royalty reduction is warranted when it is necessary to promote development or if the Federal lease cannot be successfully operated under the terms of the lease.

The “Fort Union Category 5 Royalty Rate Reduction Study” requested by the State Director, Montana State Office, Bureau of Land Management, was completed by the Northwest Regional Evaluation Team of the Bureau of Land Management of the Department of Interior in 1991. The 1991 study recommended that a Category 5 Royalty Rate Reduction be granted for the Fort Union Coal Region. The study determined that all five (5) criteria for a Category 5 reduction were met. Based on royalty rate information at that time, the study recommended that the Federal royalty rate be set at 2.0 percent. The rate took effect on applications filed, beginning in 1992.

The BLM Royalty Reduction Guidelines for Coal and Solid Leasable Minerals require that a review of the competitive non-Federal coal royalty rate, within the Qualified Geographic Area, be completed every 2 years in order to determine if the rate is still appropriate. Subsequent review studies, by the Bureau of Land Management, Montana State Office, determined that the prevailing rates remained at 2.0 percent from 1991 through 1996; increased to 2.6 percent from 1997 through 2000; and decreased to 2.4 percent from 2001 through 2003. The most recent study, completed in March 2004, is the basis for the following determinations.

A. Geographic Area Qualification—The Counties of McLean, Mercer, and Oliver, North Dakota, and Richland County, Montana, continue to meet the established five (5) criteria to qualify under Category 5 for royalty rate differentials as follows: (1) The Federal Government is not market dominant in this area; (2) Federal royalty rates are above the current market royalty rate for non-Federal rates in the area; (3) Based on a mine-by-mine examination, it is apparent that there are instances where Federal coal can be expected to be bypassed in the near future due to the royalty rate differential between Federal and non-Federal coal; (4) All three (3) previous criteria considerations have been found to exist throughout the region; and (5) A Category 5 Royalty Rate Reduction is not likely to result in undue competitive advantages over neighboring areas.

B. Establishment of Competitive Royalty Rates—The competitive royalty rate of 2.2 percent is established to promote development of Federal coal reserves situated in the Counties of McLean, Mercer, and Oliver, North Dakota, and Richland County, Montana, that may otherwise be bypassed in favor of non-Federal coal having a lower royalty rate.

C. Category 5 Reduction in Royalty Applications—Federal lease-specific applications for Category 5 Reduction in Royalty for Coal deposits within the Counties in North Dakota and Montana named above will be accepted by the Montana State Office, Bureau of Land Management, P.O. Box 36800, Billings, Montana 59107-6800. The Category 5 Royalty Rate of 2.2 percent will be effective upon publication of this notice. Applications will be processed pursuant to the regulations at 43 CFR part 3485 as established by the “Royalty Rate Reduction Guidelines for the Solid Leasable Minerals.”

The geographic area qualification and the establishment of the competitive royalty rate under Category 5 of the “Royalty Rate Reduction Guidelines for the Solid Leasable Minerals” will be reviewed again and updated 2 years from the effective date hereof.

Dated: May 11, 2004. Randy D. Heuscher,

Chief, Branch of Solid Minerals.

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