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Interior repeals Obama-era energy valuation reform rule

The U.S. Office of Natural Resources Revenue, or ONRR, is repealing the Obama-era federal energy valuation reform rule.

The agency proposed to end the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Final Rule in April after putting a pause on it in February. The rule was announced in the summer of 2016 and took effect Jan. 1.

ONRR said in the Federal Register to be published Aug. 7 that it was repealing the reform in its entirety. "ONRR discovered several significant defects in the rule that would have undermined its purpose and intent," the ONRR said in the Federal Register.

It added that it received a number of comments from the regulated community and from other members of the public that were "highly critical of certain provisions in the rule."

The reasons for repeal given by the agency included an allegation that the valuation rule would be difficult to implement or enforce and would impose a "costly and unnecessary burden on federal and Indian lessees."

The rule would also "unnecessarily burden the development of federal oil and gas and federal and Indian coal beyond the degree necessary to protect the public interest or otherwise comply with the law."

The agency said consultations facilitated by the re-established Royalty Policy Committee and further internal assessment and analysis will lead to a revised valuation rule. Secretary of the Interior Ryan Zinke was still looking for nominations for the RPC this summer.

In the meantime, ONRR said it was reinstating the regulations that governed the valuation of oil, natural gas and coal produced from federal and Indian leases that were in effect before Jan. 1.

Luke Popovich, spokesperson for the National Mining Association, told S&P Global Market Intelligence that the trade group fully supported the rescission of the valuation rule.

"Even ONRR staff were doubtful how certain provisions would be applied and shared our concerns over the validity of core features of the rule, such as valuing coal based on the sales price of electricity or valuing coal production in certain transactions. Aside from substantive flaws, the rule ran afoul of the president's order promoting energy independence and economic growth, since this rule would have jeopardized both."