The data and methodology used for making the 2007 calculations and determinations are discussed below. This same information for all years since 1996 is available at the Economics Division website. Additional information and notes about understanding this website are included at the end of this notice.

Methodology for Calculation of the Actual Annual Average NYMEX Nearby Delivery Price:

1. We use the price for the nearby delivery month or front month. That is, the price for the first contract or earliest month that you can get the delivery/inventory for buying and selling today’s product. For example, on October 1, 2007, the nearby delivery month was November 2007. There are prices for other delivery months that can be bought and sold on October 1, 2007, such as December 2007, January 2008, etc., but the “nearby delivery month” would be November 2007. However, the nearby delivery month is not always the next month because the last trading day of the month differs for oil and gas futures. For example, on March 27, 2008, the nearby delivery month for light sweet crude oil is May 2008 while for natural gas it is still April 2008.
    

2. The daily NYMEX closing price is listed as the settle price at the end of business trading hours for each commodity. These are listed at www.nymex.com and also summarized at www.oilnergy.com .
    

3. The daily closing average is used to calculate the monthly average. For holidays and weekends, we use the previous business day’s closing average. For example, Table A illustrates the calculation of the average NYMEX oil price for the month of November 2007. (Note--this methodology is different from the Minerals Revenue Management’s Royalty In-Kind Program that excludes weekends and holidays.) Our analysis indicates that inclusion or exclusion of weekends and holidays does not bias the annual average price calculation in either direction. We chose to include the weekends and holidays, as highlighted in Table A, to avoid the necessity to keep track of actual trading days each month all year, and because our source summarizes the monthly price data with the inclusion.

4. The monthly average is used to calculate the annual average. For example, Table B illustrates the calculation of the NYMEX oil price for 2007. The calculation for the year-to-date average consists of the monthly averages so far in the year. The dollar amount of the result is rounded to the nearest tenth decimal point (i.e., cents). We do not weight the average each month by the number of days in that month, again to avoid adding superfluous complexity.

Methodology for Calculation of the Applicable Oil and Natural Gas Price Thresholds:

1. The price thresholds are estimates until they are locked in for a calendar year based on the most current inflation data available after the close of the year. In conjunction with the calculation of the annual market prices for oil and gas above, once the price thresholds are locked in, MMS makes an official determination regarding whether these market prices have exceeded the applicable price thresholds for the calendar year for a given vintage of lease and royalty relief program. After this official MMS determination is made, any subsequent revisions in the underlying source of the inflation figures will not affect the locked-in price thresholds or the determination of eligibility for royalty relief for that calendar year.
    

2. The source for inflation data is the Department of Commerce, Bureau of Economic Analysis (BEA) http://www.bea.gov . U.S. Economic Accounts – GDP. National Income and Products Account (NIPA) Table 1.1.9. The 4th quarter implicit price deflator is not available from BEA until late March of the subsequent calendar year.
    

3. The implicit price deflator for GDP is used to calculate the applicable annual inflation rate, as illustrated in Table C. The deflator from the applicable year is divided by the deflator from the previous year and subtracted by one. For example, the inflation rate used to set the 2007 price threshold is calculated as {(119.66/116.57) -1 = 2.7%}

4. Because price thresholds are fixed for previous years, the current inflation rate displayed in Table C above may not correspond precisely to the rate actually employed to calculate previous price thresholds. For example, the GDP deflator posted on the BEA website in March 2008 shows an inflation rate for 2004 of 2.9 percent. However, back in March 2005, when the 2004 price threshold was locked-in, the BEA website showed an inflation rate of 2.1 percent, resulting in a change for the deepwater oil price threshold for most leases, as shown in the first column of the Deepwater Table on the website, from $32.81/bbl in 2003 to $33.50/bbl in 2004. Note that the figures that were shown on the BEA website in March of each year would be consistent with the adjustments made in the price thresholds from year to year. Rounding explains any remaining small differences between calculated locked-in inflation rates and those rates depicted on the MMS website. Therefore, to replicate the calculation for previous price thresholds, use the locked-in inflation rate. To replicate the calculation for the estimated price threshold, prior to March of the subsequent year, use the current inflation rate.

Additional Information and Notes about the Website:

1. Beginning in the second quarter of each year, the MMS will estimate the average market price at which oil or gas would have to sell during the remainder of the calendar year for the estimated price threshold to be exceeded for that year. If that estimated market price is shown in the table as a zero, the average price at which oil or gas would have to be sold during the rest of the calendar year as of that time is guaranteed to exceed the estimated price threshold for the calendar year.
    

2. The yellow highlight shown for selected actual annual market prices indicates years in which at least some leases were not eligible for royalty relief because actual prices exceeded the applicable price thresholds set for those leases. The coral highlight indicates years in which no leases were eligible for royalty relief because actual prices exceeded all applicable price thresholds. For example, in calendar year 2007, the actual average price of natural gas of $7.12 (per million Btu) exceeded the shallow water, deep natural gas price threshold levels of $4.08 for leases issued in Sale 178 (2001), and $5.83 for leases issued in all other Gulf of Mexico Sales held from 2001-2003 that did not exercise the option to switch terms offered under 30 CFR § 203.48, but did not exceed the price threshold level of $10.15 for all other leases with relief under 30 CFR § 203.47.
    

3. Production generated royalty-free under the deep gas program counts against the remaining royalty suspension volume, with one exception. That exception involves production from March 1, 2004, through May 2, 2004, from deep wells that qualified for royalty suspension under 30 CFR §§ 203.40 through 48 (see Federal Register, Volume 69, Number 84, page 24055).
    

4. Regulations pertaining to price thresholds include 30 CFR §§ 203.47, 203.54, 203.78, 260.110, and 260.122.