Wyo. Code R. 060-0002-7
Land Commissioners, Board of
Chapter 7: Disposition of State In-Kind Royalty Oil & Gas
Effective Date: 10/03/2000 to Current
Rule Type: Current Rules & Regulations
Reference Number: 060.0002.7.10032000
BOARD OF LAND COMMISSIONERS
This chapter is promulgated under the authority of W.S. 36-2-107.
As used in this chapter:
(a) 'Board' means the Board of Land Commissioners.
(b) 'Beneficiaries' means the State Land Trust and any other entity specifically designated as the beneficiary of lands administered under this chapter.
(c) 'Director' means the Director of the Office of State Lands and Investments.
(d) 'Eligible Products' includes gasoline, kerosene, diesel fuel, and such other refined products as the Board may determine to be in demand within the State of Wyoming forming a part of the total output of an eligible refinery.
(e) 'Eligible Refiner' means a refiner whose refining operations are conducted entirely within the State of Wyoming and who is unable to purchase sufficient crude oil to continue to operate its refinery at the rated capacity. Neither the refiner nor any of its related companies may be engaged in exporting crude oil from the State of Wyoming. The refiner must be one which produces eligible products as a part of its total output.
(f) 'Lessee' means the person, firm, association, or corporation in whose name an oil lease appears on record in the Office.
(g) 'Market Price' means the highest price offered in an open bid/negotiation process by an eligible refiner, qualified marketer, or responsible bidder and accepted by the Board as indicative of the value of the Board's production royalty.
(h) 'Office' means the Office of State Lands and Investments.
(j) 'Qualified Marketer' means any party engaged in the daily marketing of crude oils or natural gas on a national or regional market basis, who handles at least $20,000,000 in oil or gas sales with non-affiliated entities per year.
(k) 'Purchaser' means eligible refiner and/or responsible bidder to whom the Board has awarded an in-kind royalty oil contract.
(m) 'Responsible Bidder' means one who routinely buys and sells crude oil or natural gas in the marketplace that can demonstrate financial and performance responsibility related to the volumes of royalty oil bid. The term may include, but is not limited to, resellers and refiners.
(n) 'Royalty Oil' means crude oil and lease condensate from gas wells taken in kind when the Board exercises its authority to take its royalty from the lessees of state lands in kind rather than in cash payment.
(o) 'Royalty Gas' means natural gas taken in kind when the Board exercises its authority to take its royalty from the lessees of state lands in kind rather than in cash payment.
(p) 'State Lands' means all subsurface resource lands under the jurisdiction and control of the Board.
(q) 'Volumetric Substantiation' means a refinery slate schedule detailing the refined products to be derived from in-kind royalty oil, and a notation of the sales disposition within the state for each product.
(a) The Board shall dispose of royalty oil and gas in a manner as shall, in the judgment of the Board, inure to the greatest benefit of the state land trust beneficiaries.
(b) The Board may dispose of royalty oil and gas, pursuant to this chapter, to eligible refiners, responsible bidders, and qualified marketers at no less than the market price.
(c) Royalty oil sales to eligible refiners is intended as a temporary measure to allow crude stock-deficient Wyoming refiners to continue to operate within the state, where no other sources of crude stocks are available to them at market prices.
(a) Any eligible refiner who is interested in purchasing royalty oil may file with the Office a request to be notified of any royalty sales. After the Board has decided to sell its royalty oil, the Office shall notify all eligible refiners who have made this request of the proposed sale.
(b) An eligible refiner may file an application to purchase royalty oil within thirty (30) days after the Director has, upon the direction of the Board, determined that royalty oil should be sold to eligible refiners within the state. An application, which shall be filed at the Office, shall include the following information:
(i) The full name and address of the applicant; the location of the refinery to be supplied; and a complete disclosure of applicant's affiliation or association with any other refinery.
(ii) A certified statement that the applicant is an eligible refiner.
(iii) A certified statement, including volumetric substantiation, that the applicant will make diligent efforts to market the products of the royalty oil within the state.
(iv) The capacity of the refinery to be supplied, the amount of royalty oil requested by the applicant, the kinds of refined products the applicant presently produces, and where refined products are being or will be marketed.
(v) The amount of additional crude oil needed to meet either existing refining capacity or the amount needed to meet the additional capacity which is projected to come on stream during the period of the royalty oil sale contract.
(c) The Director shall examine each application filed by an eligible refiner pursuant to this chapter and, where he finds that the showing submitted is inadequate or unsatisfactory, may request additional showing as he deems necessary.
(d) The Director shall allow or disallow, subject to the approval of the Board, each application for royalty oil submitted by an eligible refiner and shall report his decision to the Board for its approval at its next regular meeting or special meeting held for consideration of the sale of royalty oil to an eligible refiner.
(e) If applications are filed by two or more eligible refiners for the same oil, the Director will determine how the oil is to be allocated. In making his determination, the Director will consider, among other things, how much crude oil each applicant needs in order to operate its refinery at capacity, the size of the refinery, whether the refinery is able to produce the types of refined products needed in the state, and how much of the refinery's product is presently sold in the state. The Director may solicit information from the eligible refiners to facilitate prorata allocations when required.
(f) Except in the circumstances defined in Subsection (g) of this section and Section 7(b) of this chapter, all royalty oil purchased by an eligible refiner must be refined in that refiner's facility within the state and may not be resold in kind.
(g) Eligible refiners purchasing royalty oil may enter into agreements for the processing of the royalty oil only if justified by reason of operational interruption or to minimize transportation, distribution, and handling costs. Processing agreements shall not result in a reduction in the amount of refined products for existing available markets within the state or the market value of the oil delivered. Processing agreements will not be effective until approved by the Director.
(h) The Director shall specify or approve the form of the contract to be used in such sale of royalty oil to an eligible refiner. The Director shall execute the contract, or contracts, of sale of royalty oil on behalf of the Board upon approval of the Board.
(j) Contracts for the sale of royalty oil to eligible refiners within the state shall be for a maximum term of two (2) years.
(k) Eligible refiners must provide a performance and payment bond in a sum sufficient to cover the estimated monthly production for three (3) months of all of the Board's crude oil royalty in-kind volume contracted. Bond may be raised at the discretion of the Board.
(a) For royalty oil and gas bid sales to responsible bidders, the Office will solicit bids under the terms and conditions, and for the royalty production only, as set out in its bid package. When offering in-kind royalty oil or gas for bid, the Board reserves the right to reject any or all bids, and to waive any informality or technical defect regarding any bid. The Board will award bid contracts to the most responsive and responsible bidders. No bidder will be allowed to withdraw its bid for a period of the earlier or forty-five (45) days having expired or until the successful bidder has entered into a contract with the Board.
(b) The Office may make such investigation as it deems necessary to determine the ability of a bidder to make payment and the bidder shall promptly furnish to the Office all such information and data for this purpose as the Office may request. If the bidder does not supply information requested by the Office in a timely manner, the Office may determine the bidder is unresponsive and may disqualify the bidder.
(c) Submission of a bid will indicate acceptance by the bidder of the provisions and terms contained in the applicable royalty sales contract contained in the bid package. The successful bidder will be required to enter into a formal contract with the Board.
(d) The Director shall examine all bids filed by responsible bidders to a royalty volume sale, and shall award upon Board approval, royalty oil or gas to the bidder(s) offering the highest price for the oil or gas available for the period available, relying on market indices and comparable value experiences for like production in quality and general location.
(e) The successful responsible bidder shall purchase the Board's entire monthly crude oil/condensate or natural gas in-kind royalty available from the leases or wells contracted during the term of the contract.
(f) The purchase term for oil and gas sales to responsible bidders shall be for no greater than six months from the contract effective date, and monthly thereafter by agreement of both parties, in writing, subject to Board approval.
(g) Unless waived by the Board, the successful responsible bidder must furnish performance and payment bonds guaranteeing the faithful performance of the contract and the payment thereunder. Bonds are to be in a sum sufficient to cover the estimated monthly production for two (2) months of all of the Board's crude oil/condensate and three (3) months for all of the Board's gas royalties taken in-kind as bid and remain in force for a period of two (2) months after delivery cessation for oil and three (3) months for gas.
The Office is authorized to negotiate, for Board approval, any terms for contracting its oil or gas royalty in-kind with any qualified oil or gas marketer. Marketers shall take possession of all of the Board's royalty in-kind made available at the wellhead and negotiate all the terms for lease transfer, volume transportation, delivery scheduling, and sale value.
(a) The Office is authorized to exchange crude oil and natural gas on an equal value basis with any of its lessees or operators, responsible bidders, or eligible refiners in order to obtain a ultimate sales price that is greater than that which would have been received for the same collective volume of oil or gas on a cash royalty basis.
(b) Royalty oil and gas purchased by eligible refiners or responsible bidders or marketed by qualified marketers may be exchanged for other crude oil or gas only if the exchange operates to minimize transportation, distribution, and handling costs and does not serve to reduce the amount of refined products for existing available markets within the state or the market value of the oil or gas delivered. Exchange agreements will not be effective until approved by the Director.
At least forty-five (45) days in advance, the Office shall notify each lessee or operator under the Board's oil and gas leases involved that the lessee or operator shall deliver the Board's royalty oil or gas in kind and in what manner the delivery of that production in kind will take place. This notice shall specify the time period for delivery and to whom delivery is to be made.
(a) Sales reporting and payment responsibilities for RIK deliveries reside with the Board's 'purchaser.' Operator/lessees are responsible for reporting produced volume delivered to the Board's 'purchaser.'
(b) The Board's lessees and operators shall not be responsible for crude oil or natural gas beyond the points of delivery and shall not be responsible for costs or penalties imposed by a transporter against the Board's RIK purchased volumes. Purchasers shall not be liable for underpayments resulting from under-deliveries by the Board's lessees/operators if such lessees/operators under-deliver RIK production. Lessees/operators will be responsible for under-delivered volumes in excess of ten percent (10%) at the price bid by the Board's 'purchaser' for those volumes. Variances that are less than ten percent (10%) shall be made up in the next month after identification thereof. Variances resulting in under-deliveries of greater than ten percent (10%) shall be settled by a cash call on the Board's mineral lessee/operator at the amount noted above.
(c) Lessees/operators shall not be interrupted or unduly delayed as a result of the Board's taking royalty production RIK insofar as disposition of non-RIK production remaining.