No. 28536 (Amendment): R652-20-1000. Rentals and Royalties

DAR File No.: 28536
Filed: 03/01/2006, 10:18
Received by: NL

 

RULE ANALYSIS

Purpose of the rule or reason for the change:

The intent of the rule is to annually adjust the base royalty rate of sodium chloride (salt) to account for inflation, after the base rate of $0.50 per dry ton is achieved. The purpose of the change is to clarify language in the rule that implies adjustments for inflation are calculated twice in the formula.

 

Summary of the rule or change:

The rule is currently misinterpreted to read that the inflationary change in the royalty rate is added into the formula twice. The intent of the rule is to adjust the base rate to reflect a royalty rate increase that matches the Producer Price Index for Industrial Commodities.

 

State statutory or constitutional authorization for this rule:

Subsection 65A-6-2(3)

 

Anticipated cost or savings to:

the state budget:

There is no impact on cost to state government to implement the change in rule. The rule clarifies and (hopefully) simplifies the wording of the rule so that the inflation factor is calculated to a base year of 1997.

 

local governments:

Budgets from local governments are not impacted by royalties from lessees on sovereign lands.

 

other persons:

Companies will still compensate the state for minerals extracted from the state's resources on a royalty rate that mimics inflation.

 

Compliance costs for affected persons:

The costs vary by salt producer and depend on the tonnage of salt extracted from the state's mineral estate. Salt producers pay an adjusted royalty rate on salt tied to inflation, specifically the Producer Price Index for Industrial Commodities. This rule amendment would not change the producer's requirement nor amount of royalty to the state.

 

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule clarifies the formula that is used to adjust royalty rates to inflation. Michael Styler, Executive Director

 

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Natural Resources
Forestry, Fire and State Lands
1594 W NORTH TEMPLE
SUITE 3520
SALT LAKE CITY UT 84116-3154

 

Direct questions regarding this rule to:

Dave Grierson at the above address, by phone at 801-538-5504, by FAX at 801-533-4111, or by Internet E-mail at [e-mail]

 

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

04/14/2006

 

This rule may become effective on:

04/15/2006

 

Authorized by:

Joel Frandsen, Director

 

 

RULE TEXT

R652. Natural Resources; Forestry, Fire and State Lands.

R652-20. Mineral Resources.

R652-20-1000. Rentals and Royalties.

1. Rentals

(a) Rental for the first lease year is at the rate of $1 per acre, or fractional part thereof, per annum, regardless of percentage of state ownership in any given acre of land. Subsequent rental paying dates shall be on or before the annual anniversary date of the effective date of the lease, the effective date of the lease being the first day of the month following the date on which the lease is issued.

(b) Any overpayment of advance rental occurring from mineral lease applicant's incorrect listing of acreage of lands described in the application may be credited toward the applicant's rental account.

(c) Minimum annual rental on any mineral lease is $20.

(d) The division shall accept lease payments made by any party, but the acceptance of lease payments shall not be deemed to be a recognition of any interest of the payee in the lease.

2. Royalty Provisions

The following production royalty rates shall apply to all classified mineral leases, as listed in R652-20-200, issued on or after the effective date of the applicable adjusted royalty rate. Mineral leases entered into prior to the effective date of adjusted royalty rates shall retain the royalty rate as specified in the lease agreement.

(a) Royalty rates on substances under oil, gas, and hydrocarbon leases.

 

TABLE

Oil     12-1/2%   -   Sulfur                         12-1/2%

Gas     12-1/2%   -   Other hydrocarbon substances    6-1/4%(1)



     (1)  The rental paid for the lease year shall be credited

against production royalties as they accrue for that lease year,

but not against advance or minimum royalties unless allowed by

the mineral lease.

     (2)  During the first ten years of production and

increasing annually thereafter at the rate of 1% to a maximum

of 16-2/3%.

 

(b) Royalty rates on mineral commodities, coal, and solid hydrocarbons.

 

TABLE

Coal                   8%      Phosphate                  5%

Oil Shale (1)          5%      Potash and Associated

                               Minerals                   5%

Asphaltic/Bituminous           Gypsum                     5%

   Sands (2)           7%

Gilsonite             10%      Clay                       5%

Met. Minerals:                 Geothermal Resources      10%

  Fissionable          8%      Building Stone/Limestone   5%

  Non-Fissionable      4%      (except 2% for calcined lime)

  Gemstone/Fossil(3)  10%      Volcanic Materials         5%

  Magnesium        1-1/2%      Industrial sands           5%

  Salt (Sodium chloride) (4)

                   $0.50/dry ton



     (1)  5% during the first five years of production and

increasing annually thereafter at the rate of 1% to a maximum

of 12-1/2%.

     (2)  May be escalated after the first five years of

production at the rate of 1% per annum to maximum of 12-1/2%.

     (3)  Requires payment of annual minimum royalty of

$5 per acre.

     (4) Beginning January 1, 2001, the royalty rate per

ton will be adjusted annually by the Producer Price Index for

Industrial Commodities as provided under R652-20-1000(e) using

1997 as the base year.

 

(c) Notwithstanding the terms of oil, gas, and hydrocarbon lease agreements, gas and natural gas liquid reports, and their required royalty payments, are required to be received by the division on or before the last day of the second month succeeding the month of production. This extension of payment and reporting time for gas and NGL does not alter the payment and reporting time for oil and condensate royalty which must be received by the division on or before the last day of the calendar month succeeding the month of production, as currently provided in the lease form.

(d) Readjustment of salt royalties on royalty agreements negotiated before July 9, 1992.

i) The division is obligated to receive full value for the public trust resources leased to persons for profit. This obligation includes obtaining a fair royalty for salt produced from the waters of Great Salt Lake. The division shall readjust the royalty rate for sodium chloride on all royalty agreements negotiated prior to July 9, 1992. The royalty rate will be readjusted in accordance with analysis done by the Utah Bureau of Economic and Business Research, Office of Energy and Resource Planning and division staff and with a rule change approved by the Board of State Lands and Forestry on July 9, 1992 to increase the royalty on salt from $0.10 per ton to a rate per ton approximately equivalent to three percent of gross value of dry salt. The division has determined this rate to be $0.50 per dry ton. The royalty rate shall be phased in as provided in Subsections (ii) and (iii).

ii) Effective January 1, 1997, the royalty rate for sodium chloride shall be $0.20 per dry ton. Effective January 1, 1998 and on each January 1 thereafter, the royalty rate for sodium chloride shall be increased by the lesser of $0.10 per dry ton or $0.10 per dry ton times the percent of salt in brine by weight at the point of intake for each lessee divided by the percent of salt by weight derived from samples at sampling point LVG4 as measured by the Utah Geological Survey for the current year. The method for calculating the percent salt in brine from Utah Geological Survey and company data shall be determined by the division, but shall include a weighted average of samples taken at low and high water and of samples taken at different depths at the sampling point. The point of sampling for each producer shall be determined by the division after considering factors including the location of the intake canal, point of diversion for water rights, and placement of intake pumps.

iii) The annual adjustment under Subsection(ii) shall continue until the royalty rate for a lessee is $0.50 per dry ton or an amount per ton as determined under Subsection (e), whichever is greater, at which time subsequent annual adjustments shall be determined in accordance with Subsection (e).

(e) Effective January 1, 2001 or the date on which the royalty paid by a lessee reaches $0.50 per dry ton, whichever is later, the royalty rate for sodium chloride will be adjusted annually by the Producer Price Index for Industrial Commodities using the following formula: [the current year royalty rate per ton]$.50 times the Producer price index for Industrial Commodities for the current year divided by the Producer Price Index for Industrial Commodities for 1997.

 

KEY: royalties, salt, primary term[*], administrative procedures

Date of Enactment or Last Substantive Amendment: [February 1, 1997]2006

Notice of Continuation: April 2, 2002

Authorizing, and Implemented or Interpreted Law: 65A-6-2; 65A-6-4(3)