[Federal Register: December 3, 1998 (Volume 63, Number 232)]
[Proposed Rules]
[Page 66839-66937]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03de98-31]
[[Page 66839]]
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Part II
Department of the Interior
_______________________________________________________________________
Bureau of Land Management
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43 CFR Part 3100 et al.
Onshore Oil and Gas Leasing and Operations; Proposed Rule
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DEPARTMENT OF THE INTERIOR
Bureau of Land Management
43 CFR Parts 3100, 3110, 3120, 3130, 3140, 3150, 3160, 3170 and
3180
[WO-310-1310-00-2I-IP]
RIN 1004-AC94
Onshore Oil and Gas Leasing and Operations
AGENCY: Bureau of Land Management, Interior.
ACTION: Proposed rule.
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SUMMARY: The Bureau of Land Management (BLM) is proposing to revise its
Federal oil and gas leasing and operations regulations. This rule uses
performance standards in certain instances in lieu of the current
prescriptive requirements. These proposed regulations cite industry
standards and incorporate them by reference rather than repeat those
standards in the rule itself. Also, BLM's onshore orders and national
notices to lessees would be incorporated into these regulations to
eliminate overlap with existing regulations. This rule would increase
certain minimum bond amounts and would revise and replace BLM's current
unitization regulations with a more flexible unit agreement process.
Finally, this proposed rule would eliminate redundancies, clarify
procedures and regulatory requirements, and streamline processes.
DATES: Comments: Commenters must submit comments by April 5, 1999. BLM
will consider comments received or postmarked on or before this date in
the preparation of the final rule.
ADDRESSES: Comments: If you wish to comment, you may hand-deliver
comments to the Bureau of Land Management Administrative Record, Room
401, 1620 L Street, NW, Washington, D.C., or mail comments to the
Bureau of Land Management, Administrative Record, Room 401LS, 1849 C
Street, NW, Washington, D.C. 20240. Commenters may transmit comments
electronically via the Internet to: WoComment@wo.blm.gov and please
include in your comments the regulation identifier number AC94 and your
name and return address. If you do not receive confirmation from the
system that we have received your Internet message, contact us
directly.
FOR FURTHER INFORMATION CONTACT: Ian Senio at (202) 452-5049 or John
Duletsky at (202) 452-0337 or write to Bureau of Land Management, U.S.
Department of the Interior, 1849 C Street, NW, 401LS, Washington, D.C.
20240.
SUPPLEMENTARY INFORMATION:
I. Public Comment Procedures
II. Background
III. Discussion of Proposed Rule
IV. Procedural Matters
I. Public Comment Procedures
Written Comments
Written comments on the proposed rule should be specific, should be
confined to issues pertinent to the proposed rule, and should explain
the reason for any recommended change. Where possible, comments should
reference the specific section or paragraph of the proposal which the
commenter is addressing. BLM may not necessarily consider or include in
the Administrative Record for the final rule comments which BLM
receives after the close of the comment period (see DATES) or comments
delivered to an address other than those listed above (see ADDRESSES).
You may view an electronic version of this proposed rule at BLM's
Internet home page: www.blm.gov.
Comments, including names, street addresses, and other contact
information of respondents, will be available for public review at this
address during regular business hours (8:00 a.m. to 4:30 p.m.), Monday
through Friday, except Federal holidays. BLM will also post all
comments on its Internet home page (www.blm.gov) at the end of the
comment period. Individual respondents may request confidentiality. If
you wish to request that BLM consider withholding your name, street
address, and other contact information (such as: Internet address, FAX
or phone number) from public review or from disclosure under the
Freedom of Information Act, you must state this prominently at the
beginning of your comment. However, we will not consider anonymous
comments. BLM will honor requests for confidentiality on a case-by-case
basis to the extent allowed by law. BLM will make available for public
inspection in their entirety all submissions from organizations or
businesses, and from individuals identifying themselves as
representatives or officials of organizations or businesses.
II. Background
Oil and gas produced from lands managed by BLM accounted for about
5.7 percent of domestic oil production and about 10.7 percent of
domestic gas production in 1996. BLM has jurisdiction and
responsibility over virtually all aspects of leasing, exploration,
development, and production of oil and gas from onshore Federal oil and
gas and approves and supervises most operations on Indian lands. BLM
administers 52,457 Federal and Indian leases, of which nearly 23,524
are in a producing or producible status. As of December 31, 1996, there
were 70,569 producing or producible wells under BLM's jurisdiction, and
2,347 new wells were drilling during the year. In 1996, more than $6.1
billion of oil and gas and associated products were sold from Federal
and Indian oil and gas leases, which generated $665 million in
royalties.
Mining Law
The Federal Government did not have an oil and gas leasing system
before 1920. However, Federal oil and gas reserves could be developed
under the Mining Law of 1872 (17 Stat. 91, 30 U.S.C. 22 et seq.) after
the applicant located a placer mining claim. If the mining claim was
validated by the location of a valuable discovery, the locator
essentially was entitled to fee title to the lands covered by the
claim. Congress soon realized that the Mining Law was not well suited
for oil and gas development since it resulted in over drilling and
waste of the resources. Congress passed the Mineral Leasing Act of 1920
(41 Stat. 437, 30 U.S.C. 181 et seq.) (MLA) and on February 25, 1920,
the President signed it into law. The MLA still remains the primary
authority under which the Federal Government leases the majority of
Federal onshore oil and gas.
Mineral Leasing Act
There have been several amendments to the MLA that affected the
Federal oil and gas leasing system, but it stayed substantially the
same until the enactment of the Federal Onshore Oil and Gas Leasing
Reform Act of 1987 (Pub. L. 100-203, 101 Stat. 1330-256) (Reform Act).
Before the Reform Act, Federal lands within known geologic structures
(KGS) of producing oil and gas fields were leased competitively to the
highest qualified bidder. Lands not within a KGS were leased ``over the
counter'' basically on a first-come and first-serve basis to qualified
entities.
In 1960, BLM implemented a simultaneous leasing system in order to
address concerns over the potential for fraud in the noncompetitive
leasing system. Under that system, all applications for available
public lands that were received within the time specified in the notice
were considered as received simultaneously. Applications then were
drawn randomly to determine the winner. Only
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a fraction of Federal lands fell into the KGS category and most of the
Federal oil and gas leases that BLM issued were issued noncompetitively
through the lottery. The leasing system operated for many years before
Congress and the public became concerned that BLM's leasing system was
not functioning properly. The primary concern was that the Federal
Government was not receiving fair market value for oil and gas
resources. There was also concern that it was becoming increasingly
difficult for BLM to make KGS determinations, that the leasing system
was subject to fraud and abuse, and that the Bureau was not taking
enough care in protecting the environment affected by development of
Federal oil and gas leases.
The Reform Act
Congress passed the Reform Act on December 22, 1987, to address
concerns over the existing leasing system. The principal change made by
the Reform Act was to require that BLM offer competitively all lands
eligible and available for Federal oil and gas leasing before leasing
noncompetitively. KGS designations were eliminated, environmental
provisions were added, and BLM was required to have Forest Service
consent before leasing oil and gas on Forest Service lands. The Reform
Act also required BLM to post a notice of the lands it proposed to
include in a lease sale. It also required BLM to post a notice of
proposed drilling operations to allow the public and environmental
groups an opportunity to comment before BLM made a final determination.
Congress dealt with fraud and abuse by making it unlawful to be
involved with any plan to defeat the purposes of the Reform Act or its
implementing regulations. The Reform Act also provided for severe
penalties for violating these fraud provisions.
BLM has been leasing Federal oil and gas under the implementing
regulations of the MLA and the Reform Act, with only technical and
clarifying amendments, since the Reform Act regulations were published
in the Federal Register on June 17, 1988 (53 FR 9214, 1988).
FOGRMA
The Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA) (30
U.S.C. 1701 et seq.) made a few changes to the leasing and operations
aspects of BLM's oil and gas program. FOGRMA focuses mainly on royalty
and rental collection but also includes provisions related to on-the-
ground operations. BLM published the implementing regulations for the
operations aspects of FOGRMA on September 21, 1984 (49 FR 37356), and
for the leasing aspects on July 30, 1984 (49 FR 30446). The operational
regulations implementing FOGRMA prescribe standards for lessees and
operators to follow when conducting operations on Federal and Indian
oil and gas leases. The regulations also clarified BLM's
responsibilities for inspecting operations. BLM's leasing regulations
that implement FOGRMA deal mostly with royalty and rental collections
and with lease reinstatement provisions for leases that terminated by
operation of law.
III. Discussion of Proposed Rule
This proposed rule puts the regulations in a more logical sequence,
streamlines some processes, and reduces duplication. It incorporates
most of the existing oil and gas regulations and all of the existing
onshore orders and national notices to lessees to make one complete
document for lessees and operators to reference. Some sections of the
proposed rule contain new language to correct problems, improve
procedures, or clarify existing requirements. This proposal does not
include regulations that deal with oil and gas drainage (see 63 FR
1936, January 13, 1998, for the proposed rule), Combined Hydrocarbon
Leasing (3140), and the Oil and Gas Leasing: National Petroleum
Reserve--Alaska (3130).
These regulations are written in plain language to more effectively
communicate BLM regulatory requirements. Plain language uses a series
of questions and answers in place of the traditional short heading and
regulatory requirements. The question and answer together constitute
the regulatory requirement. The proposed regulation is also
organizationally different from the current regulation and presents
sections in a more logical order that closely tracks leasing and
operations procedures as they might occur chronologically.
Performance Standards
This proposed rule uses performance standards where possible in
lieu of the current prescriptive requirements or design standards. We
believe that performance standards offer operators and BLM increased
flexibility to deal with unique geologic, ecological, and engineering
circumstances, while at the same time protecting the environment and
other Federal and Indian interests. Under the current regulations and
onshore orders, operators are required to meet certain very specific
and often rigid requirements set out in the regulations and orders.
This inflexible ``laundry list'' approach may not always work in the
most efficient or even most desirable manner. BLM currently issues
variances to the regulations to deal with unique geologic, ecological,
and engineering situations. This is an administrative burden that BLM
cannot afford under current and foreseen declining budgets. It is time
consuming and expensive for operators as well.
Under current regulations, BLM ensures that an operator complies
with all of the requirements of a given regulation or Order. With
performance standards, our focus is no longer on a list of requirements
but on the outcome or goal stated in the regulation. This goal-oriented
approach better protects the public interest since operators will be
held to a stated standard rather than just having to comply with a
checklist. This type of regulation is also beneficial to operators
because it gives them flexibility to meet the goal stated in the
regulation. Finally, these performance regulations will remove some of
the administrative burdens and expense caused by having to issue
numerous variances to the current regulations.
We used performance standards in situations where there was little
or no risk to the health of the land or public health or safety. We
were careful to design a meaningful standard that protects the
environment, public health and safety and preserves BLM's ability to
account for Federal and Indian production. Use of performance standards
was limited to specific areas that deal with oil and gas exploration
and production. Please comment specifically on the performance
standards proposed and whether or not there are other sections of these
proposed regulations where performance standards would be appropriate.
Incorporating Industry Standards by Reference
BLM's current onshore orders contain very detailed minimum
standards to regulate oil and gas drilling and production operations.
In the process of incorporating the onshore orders into this proposed
rule, we replaced the many detailed minimum standards with references
to American Petroleum Institute (API) and American Gas Association
(AGA) standards and practices. BLM and industry recognize API and AGA
standards as acceptable operating practices for Federal lands. You can
purchase API and AGA publications cited in this proposed rule directly
from API and AGA. They will also be available for review at all of
BLM's field offices with oil and gas
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responsibilities. We cite specific, dated editions of API and AGA
standards. Any future amendments or updates to the cited standards will
not be incorporated into BLM's regulations until BLM undertakes a
rulemaking to update the reference.
Changes From Existing Regulations
We propose to modify the leasing regulations by--
1. Eliminating the formal nomination process. Current regulations
give BLM's Director the discretion to post a Competitive Nomination
List and require the public to formally nominate lands from that list
for future competitive sales. The Director has never exercised this
discretion and does not plan to do so in the near future;
2. Eliminating presale offers. The intent of the Reform Act was to
emphasize competition for Federal oil and gas resources. Presale offers
were created by regulation and are not required by the Reform Act.
Eliminating presale offers would more closely follow the intent of the
Reform Act. This change would result in a more streamlined leasing
process because it would remove the one-year waiting period that
currently exists for filing offers on lands previously leased. Current
regulations prohibit filing offers for one year from the date of
expiration, termination, or cancellation of former leases;
3. Requiring that parcel integrity be maintained during the 2-year
post sale window. Under this proposal, you would be able to combine
more than one parcel from more than one sale notice in a lease offer.
Under the existing system, an offer must include a legal land
description. This proposal would simplify the filing of 2-year
noncompetitive lease offers since you would be able to use the parcel
number in the notice of competitive lease sale rather than listing the
complete land description. It would also expedite leasing because lease
stipulation revisions would not be necessary for split parcels. Post
sale offers could not exceed 2,560 acres;
4. Eliminating the existing requirement that an offer for public
domain minerals be for at least 640 acres. The proposal would also
allow you to file an offer on lands outside of the current six square
mile limit if you provide BLM a valid reason for exceeding the six
square mile limit. Eliminating the 640-acre rule and amending the six
square mile rule would simplify the leasing process, provide more
flexibility in filing offers and provide consistency in the competitive
and noncompetitive leasing processes;
5. Reducing the number of copies of an offer that you must file
from three to two. This would reduce your administrative burden and
still allow BLM to process your application efficiently;
6. Limiting competitive and noncompetitive leases to 2,560 acres
for the lower 48 states and 5,760 acres for Alaska. Limiting lease
acreage would provide consistency between competitive and
noncompetitive leases and should simplify the leasing system. Under
current regulations, noncompetitive leases may be for 10,240-acres,
while competitive leases are limited to 2,560 acres;
7. Considering the balance of bonus bids timely paid if the payment
is ``postmarked'' (or its equivalent for non-U.S. mail transmittals) on
or before the due date. The balance of the bonus bids is due within 10
business days after the day of the sale. Current regulations require
this balance to be ``submitted.'' We have interpreted this to mean that
BLM must receive the payment on or before that date. Currently, we do
not accept payments we receive after the tenth business day and BLM
will not issue leases if payments for those leases are not made timely.
This proposal would benefit those parties that exercise diligence in
submitting the balance of their bonus bids;
8. Eliminating unit bonds. Unit bonds are unnecessary since unit
operations may be covered under statewide and nationwide bonds. If
existing statewide or nationwide bonds are inadequate, BLM would
request an increase in those bond amounts rather than require a
separate unit bond;
9. Adding a new bond for wells that are inactive for more than one
year. After a well is inactive for one year, operators would be
required to either increase the bond in place by $2.00 per foot of
depth per well, or pay a nonrefundable $100 yearly fee; and
10. Increasing the dollar amount for the different types of bonds
that we currently require. Individual bonds would be increased from
$10,000 to $20,000 and the amount for statewide bonds would be
increased from $25,000 to $75,000. Nationwide bonds would remain at
$150,000. BLM has not increased bond amounts since 1960 and the
increase takes into account inflation and the fact that current bonding
levels do not cover the costs associated with plugging, reclamation,
and royalties.
This bond increase would not be immediate. It would be phased in as
follows:
a. Parties filing new Applications for Permit to Drill and Changes
of Operator subsequent to the effective date of the final rule would be
required to meet the increased amounts.
b. Existing bonds with no new activity would remain at their
current bond amount for two years at which time the principal must
increase the bond amount. During this 2-year period, BLM could request
bond increases for other reasons.
This proposal would also add a provision to allow you to apply for
a reduction in the bond amount under certain circumstances;
11. Changing BLM's current policy of terminating the period of
liability of bonds. BLM would cancel bonds after determining that you
have met lease obligations, including proper plugging and abandonment
of wells and surface reclamation. The Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996 allows the Minerals Management
Service (MMS) seven years to complete royalty audits. Since bonds cover
royalty obligations, cancellation would be subject to concurrence from
MMS that there are no outstanding royalty obligations;
12. Eliminating the need for holders of overriding royalties,
production payments or similar interests, to file notice of those
interests with BLM. Current regulations require you to file these
documents with BLM. BLM does not currently verify these outstanding
royalty interests and frequently the official lease file does not
contain all outstanding transfers. Therefore, it is not an accurate
record for determining outstanding interests. Eliminating the need to
file these documents would save the $25 filing fee currently required
for each affected lease. If a lessee requested a royalty reduction
because the lease cannot be successfully operated, BLM would then
require the lessee to report the amount of outstanding overriding
royalties. This is not a new requirement;
13. Eliminating the semiannual reporting of lease interests you
hold under option. BLM would still request a statement of acreage you
hold under option when we conduct audits of acreage holdings. This
would reduce your administrative burden and still allow BLM to monitor
acreage holdings;
14. Allowing a Class I reinstatement when you pay a nominal
deficiency late. Current regulations state that if a rental payment is
nominally deficient, the lease will not terminate if the deficiency is
paid to the MMS within the specified time. The proposed change would
provide flexibility in qualifying for a Class I reinstatement. Under
existing regulations, such a lessee is required to
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petition for a Class II reinstatement at a higher rental and royalty
rate. This does not seem equitable since rental deficiencies could
simply be a result of an acreage miscalculation. This rulemaking also
clarifies rental payment requirements for fractional acreage amounts;
and
15. Providing an increase in the percentage and dollar amount for
nominal deficiencies of rental payments. Current regulations provide
that a lease will not terminate if the rental deficiency is 5 percent
or $100, whichever is less. We are proposing to change that amount to
10 percent or $200, whichever is less. This is consistent with the
deficiency percentage and amount allowed when filing a noncompetitive
offer.
We propose to modify the drilling, production, and enforcement
regulations by--
1. Referencing published industry standards and practices instead
of listing minimum standards;
2. Simplifying the procedure to calculate average daily oil
production for leases with sliding and step-scale royalty rates;
3. Eliminating the provision to charge the full value of gas vented
or flared that would have begun one year after BLM ordered you to
capture the gas;
4. Exempting Federal oil wells that produce less than 10 Mcf per
day from the obligation to obtain prior BLM approval to vent or flare;
5. Allowing bypasses around oil and gas meters under certain
circumstances if sealing requirements are followed;
6. Not requiring site facility diagrams for single oil or
condensate tank facilities that service a single well. This is in
addition to the current facility diagram exemption for facilities
processing dry gas;
7. Exempting gas wells producing 100 Mcf of gas per day or less
from requirements for inspection frequency of the meter tube,
determination of flowing gas temperature, calibration frequency, and
tracking of static pens. These exemptions are in addition to the
measurement exemptions that currently exist for low volume wells with
respect to beta ratio range and differential pen tracking;
8. Requiring semiannual proving of positive displacement metering
(e.g., Lease Automatic Custody Transfer) systems measuring 10,000
barrels of oil per month or less;
9. Assessing operators up to $250 per day for each day a violation
remains uncorrected after a specified abatement period. This proposal
would also remove the categories of ``major'' and ``minor'' violations
of existing regulations. BLM believes this approach will simplify the
enforcement process and make it more consistent, while still providing
reasonable monetary incentive for operators to comply. BLM would
prescribe shorter abatement periods for more serious violations;
10. Changing the system of immediate assessments for serious
violations from a $500 per day per violation assessment to a
substantially increased one-time amount per violation assessment. This
change would simplify the enforcement process and would be more of a
deterrent for offenders;
11. Expanding the list of serious violations subject to immediate
assessments to include surface disturbance without approval, habitual
violation, and commingling of production without approval. These
violations would be added because of the potential harm to the
environment, production accountability, or public health and safety;
12. Simplifying the language for BLM's civil penalty regulations to
more closely follow the provisions of the Federal Oil and Gas Royalty
Management Act;
13. Revising BLM's existing oil and gas unitization regulations
with a more flexible unit agreement format. The primary change to the
unitization process would be an emphasis on up-front negotiation among
the various interest owners and BLM. The agreement format would be
flexible as long as it addressed the unit area, initial unit
obligations and continuing development obligations, productivity
criteria, and participating area size; and
14. Requiring a fair market value user fee for geophysical
exploration on BLM lands. The user fee would not, however, be charged
for geophysical exploration under a Federal oil and gas lease.
Section-by-Section Discussion
In many instances, this proposed rule does not change the policy or
procedure of the current regulations and consists only of a translation
from current regulatory language into plainer language. The section-by-
section analysis for the proposed leasing regulations mostly describes
significant changes from current BLM regulatory policy or procedure.
Certain sections also describe areas where we have clarified existing
procedures or policies. The section-by-section analysis for the
operating regulations is more detailed because the proposed changes to
the operating regulations are more complex than the proposed leasing
changes. The operating regulations' discussion also provides tables
that cross reference the proposed sections with existing requirements.
The discussion of the proposed regulatory text is generally a
discussion of changes from current policy or procedure.
The regulations would provide the operational requirements for the
exploration, development and production of oil or gas on both Federal
and Indian lands. These regulations also apply to the leasing of
Federal lands for oil or gas. However, they do not apply to the leasing
of Indian lands. Also, we propose that the operating regulations would
apply to oil and gas leases on lands the Federal government may acquire
in the future, to the extent that they are not inconsistent with the
rights granted in the original lease. The authority under which we
would regulate such leases is the Federal Land Policy and Management
Act of 1976 (43 U.S.C. 1701 et seq.).
Part 3100--Onshore Oil and Gas Leasing and Operations: General
Subparts 3101--General, 3102--Recordkeeping, 3103--Reports,
Submissions, and Notifications, and 3104--Environment and Safety
Definitions Section 3101.5 would consolidate and incorporate the
definitions included in the current 3000.0-5, 3100.0-5, 3150.0-5,
3160.0-5, 3180.0-5, 3190.0-5 for easier reference and to eliminate
redundancy. The definitions section would also include terms found in
current onshore orders. Some of the definitions that appear in existing
sections would be moved to a general definitions section proposed under
the Definitions rulemaking published on November 19, 1996 (61 FR
58843).
One particularly important definition is the term ``interest,''
which is used frequently in the rule. It is proposed that the term
means only record title interest or operating rights interest (also
known as working interest). Other interests such as overriding royalty
interests would not be included in this definition.
Section 3101.8 would contain a chart which references those
sections of these regulations where we cite and incorporate industry
standards.
Subparts 3101 through 3104 would lay out general requirements and
explanations of the proposed 3100 regulations. These general
requirements would include--
1. Principles that underlie the regulation of Federal oil and gas
leasing and operations.
2. The need for operators, lessees, and sublessees to comply with
the lease terms, stipulations, conditions of approval, notices to
lessees, and written or oral orders.
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3. An explanation of the process for waiver, exception, and
modification of stipulations and variances to the requirements imposed
by these regulations.
4. A description of the surface use rights under a lease and your
reporting and recordkeeping requirements.
Subpart 3101 would include a chart referencing other regulations
that affect leasing or operations on Federal land and Subpart 3102
would include a list of the types of records BLM requires an operator
or lessee to keep. Subpart 3103 would identify reports, submissions,
and notifications BLM requires and the forms which must be used. It
would also include a cross reference to the pertinent section of the
regulation to which the record pertains.
Sections 3101.11 through 3101.13 would clarify the liability of
various interest owners when there are many parties with an interest in
a single lease. This section would state that each record title holder,
each operating rights owner, the operator and the bonded parties are
each fully responsible for the performance of all lease obligations (in
the case of an operating rights owner just for the area or depth
subject to its rights), unless provided otherwise in a particular
regulation. The rule makes express what is the case under standard
contract law: When two or more parties promise the same performance to
the same promisee, each is bound for the whole performance thereof.
Restatement of the Law of Contracts, Second Sec. 289(1). Furthermore,
when an oil and gas lessee assigns an undivided interest in his lease
to another, each of them is jointly and severally liable for the
performance of lease covenants. See Hafeman v. Gem Oil Co., 80 N.W.
139, 163 (Nebr. 1956). BLM bonding policy since 1988 has allowed a
single interest holder in a lease to provide a bond on behalf of all
lessees and record title holders, reflecting BLM's understanding that
by covering one such interest holder the surety has agreed to indemnify
BLM for full performance of the lease obligations, up to the amount of
the bond. BLM has never been authorized to agree to assume any portion
of the cost of reclamation or other lessee duties, just because one
interest holder is insolvent or cannot be found. The Bureau Oil and Gas
National Performance Review Report dated April 27, 1995, recommended
that BLM amend its regulations to make this ``joint and several''
liability more explicit. This regulation would be superseded where a
statute or regulation concerning a particular category of obligations
limits the liability of a co-lessee to its proportionate interest in
the lease, such as the Royalty Fairness and Simplification Act provides
with respect to payment obligations.
Section 3101.18 would explain that lessors are responsible for
drainage and would cross reference a proposed rule on oil and gas
drainage that was published in the Federal Register on January 13, 1998
(63 FR 1936). This final rule would incorporate the drainage rule and
cross reference it in this section.
Subpart 3104--Environment and Safety
Subpart 3104 would contain an explanation of what an operator must
do to protect the environment when conducting operations. This subpart
is not meant to describe in detail all of the environmental protection
aspects of leasing. It is only an overview of the issues that are
involved. The details of environmental protection are considered in
several other sections of these regulations and in lease terms and
conditions as well as orders and notices BLM may issue.
Subpart 3105--Lessee Qualifications
Subpart 3105 would contain requirements for lessee qualifications
including when persons who are not United States citizens or who are
minors may hold lease interests. This subpart would also include the
maximum acreage limitations for public domain and acquired minerals
that may be held by an entity which also applies to options for leases.
How BLM computes chargeable acreage would be explained as well as what
you must do if you exceed the acreage limitations. However, this
subpart would eliminate the existing requirement that option agreements
be filed with BLM. Acreage held under option remains chargeable. BLM
would request outstanding option agreements for acreage audit purposes.
Subpart 3106--Fees, Rentals, and Royalties
Subpart 3106 would contain general information regarding fees,
rentals, royalties and minimum royalties, acceptable forms of payment,
and where to submit payments. The proposal includes charts identifying
the types of payments, rental, royalty and minimum royalty rates for
competitive, noncompetitive, renewal, exchange and right-of-way leases,
and leases issued in lieu of unpatented oil placer mining claims. The
subpart would also include provisions on waivers, suspensions, and
reductions of rental and royalty.
Royalty Rates on Oil Sliding and Step-Scale Leases
Proposed regulations on determining oil royalty rates for sliding
and step-scale leases are in sections 3106.50 through 3106.54. These
sections would establish a new procedure to calculate average daily
production. Sliding and step-scale leases have royalty rates that
increase as the average daily production increases.
------------------------------------------------------------------------
Existing
Proposed regulation regulation
------------------------------------------------------------------------
3106.50.................................................... 3162.7-4.
3106.51
3106.52
3106.53
3106.54
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Sections 3106.50 through Section 3106.54 would describe a new
procedure for calculating average daily oil production for the purpose
of determining the correct royalty rate for a sliding-scale or step-
scale lease.
The existing procedure to determine average daily production
involves a complex system of identifying ``countable'' wells based on
the number of days a well was produced, whether a well was initially or
previously produced, and whether a well was shut-in for conservation
purposes. Generally, the average daily production is determined by
dividing the gross oil production for the month by the number of
countable wells multiplied by the number of days in the month,
regardless of how many days the wells actually produced. However, some
leases require the gross production to be divided by actual days
produced to arrive at the average production rate. You then use the
resulting average daily production per well to find the corresponding
royalty rate from the royalty provisions of the lease. For these types
of leases, the royalty rate increases on a scale from 12\1/2\ percent
to 25 percent as the average daily production per well increases.
The complex nature of the well count procedure has caused many
errors by both industry and BLM in calculating or verifying the average
daily production per well. The propensity for errors in the well count
procedure in turn results in incorrect royalty payments, which require
detailed, time consuming, and expensive audits to correct. Errors are
not readily identified by either BLM or MMS because all of the
information needed to verify the average production rate or royalty is
not found on the monthly report of operations, Form MMS-3160.
[[Page 66845]]
These regulations would simplify the procedure to determine the
average daily oil production. Under this proposal, gross production
from a lease or agreement would be divided by the total number of days
``eligible'' wells are produced or used for production. Any paying well
that produces oil is an eligible well, as is any injection well used to
recover oil. Wells shut-in for any reason would not have a bearing on
the average daily production rate. All of the information necessary to
make the computation of average daily production is found on Form MMS-
3160. The proposed procedure should not substantially impact royalty
payments. The proposed procedure would be implemented as of the
effective date of the final rule.
Stripper Oil Property Royalty Reduction
Proposed regulations on determining royalty reductions for stripper
oil properties would explain the procedures on how to determine if you
have a stripper oil property and, if so, how to apply to receive a
royalty reduction. They would also set the reduced royalty rates for
eligible production rates, provide for further royalty reductions as
production declines, and allow BLM to terminate the stripper oil
property royalty reduction program with proper notice.
------------------------------------------------------------------------
Proposed regulation Existing regulation
------------------------------------------------------------------------
3106.60................................ 3103.4-2(a)(1).
3106.61................................ 3103.4-2(a)(2) through (4).
3106.62................................ 3103.4-2(b)(2).
3106.63................................ 3103.4-2(b)(3)(i)(B).
3106.64................................ 3103.4-2(b)(3)(ii).
3106.65................................ 3103.4-2(a)(1), (b)(2),
(b)(3)(i) and (b)(3)(ii).
3106.66................................ 3103.4-2(b)(3)(ii).
3106.67................................ 3103.4-2(b)(3)(ii), (iii)(B),
and (v), and 3103.4-
2(b)(3)(ii), (b)(6), and
(b)(7).
3106.68................................ 3103.4-2(b)(3)(ii).
3106.69................................ 3103.4-2(b)(3)(ii), (iii)(B),
and (iii)(C).
3106.70................................ 3103.4-2(b)(3)(iii)(A) and (B).
3106.71 ...............................
3106.72................................ 3103.4-2(b)(3)(iii)(C) and
(b)(8).
3106.73................................ 3103.4-2(b)(3)(vi).
3106.74 ...............................
------------------------------------------------------------------------
The requirements of this proposal are similar to those in existing
regulations. One minor change would be in section 3106.63. That section
would clarify what oil you must use when calculating your average daily
production rate. It establishes what liquid hydrocarbons are considered
``oil'', and therefore eligible for royalty reduction, and what is
considered ``condensate'', which is not eligible.
Subpart 3107--Lease, Surety, and Personal Bonds
Subpart 3107 would contain general bonding information regarding
who must post a bond, bond amounts, the types of acceptable bonds, and
procedures for bond increases, collections, and cancellations. This
subpart would generally contain existing regulatory requirements with
the following exceptions.
Section 3107.14 would increase amounts for bonds. Individual bonds
would increase from $10,000 to $20,000. The amount for a statewide bond
would increase from $25,000 to $75,000. The nationwide bond amount
would remain at $150,000. BLM believes the increases are justified
because the costs to plug a well, restore the surface, remove related
facilities, reclaim roads, rights-of-ways, etc., in many cases far
exceeds the present bond amounts. In addition, BLM has not increased
minimum bond amounts since 1960. Applying an inflation factor to the
individual and statewide bond amounts since 1960, would increase them
to $50,000 and $135,000 respectively. For these reasons, BLM has
concluded that the increase in bond amounts for individual and
statewide bonds is reasonable and justified. In BLM's experience,
entities that hold nationwide bonds do not pose an unacceptable risk.
Therefore, we are not proposing to increase nationwide bonding.
Section 3107.50 would allow you to apply to BLM for a decrease in
your bond amount. Your application must include your justification for
a decrease in the bond amount. BLM would approve a decrease in your
bond amount if we determine that the potential liabilities on your
lease are less than the existing bond amount. Please specifically
comment on the standards BLM should use to determine whether we will
approve a decrease in the bond amount.
Section 3107.52 would require additional bonding for inactive
wells. A significant source of orphan wells is temporarily abandoned
wells. In 1995, there were more than 6,500 temporarily abandoned wells
on BLM-managed lands. This is a major source of potential future
liability. The $2.00 per foot or $100 per well fees would complement
the proposed increase in individual and statewide bonds and partially
cover the potential liability.
Section 3107.70 would change BLM's current policy of terminating
only the period of liability of bonds. Under this proposal, BLM would
cancel bonds after determining that you met lease obligations,
including proper plugging and abandonment of wells, and surface
reclamation. The Federal Oil and Gas Royalty Simplification and
Fairness Act of 1996 allows MMS seven years to complete royalty audits.
Since bonds cover royalty obligations, cancellation would be subject to
concurrence from MMS that there are no outstanding royalty obligations.
Current section 3104.4, Unit Operator's bond, provides that a unit
operator's bond may be filed in lieu of an individual, statewide or
nationwide bond. This proposal would eliminate any provision for an
operator of a unit to file a unit bond. This is an unnecessary
requirement since BLM allows unit operations to be covered under
statewide and nationwide bonds. If existing statewide or nationwide
bonds are inadequate, BLM would request an increase in those bond
amounts rather than require a separate unit bond.
Subpart 3108 would contain bonding information for geophysical
exploration operations. This includes the types of bonds, amount of
bond, bond increases, terminations, and action to be taken for
nonperformance.
Part 3110--Oil and Gas Geophysical Exploration
Subparts 3110, 3112, and 3113 would contain the requirements for
conducting geophysical exploration operations on Federal lands.
------------------------------------------------------------------------
Proposed regulation Existing regulation
------------------------------------------------------------------------
3110.10 and 3110.11................. 3150.0-1.
3110.12............................. 3150.1.
3110.13............................. New section.
3112.10-12 and 3112.20-3112.21...... 3151.1 and 3151.2.
3113.10............................. 3152.1.
3113.11-3113.12 and 3113.20-3113.22. 3152.3-3152.5.
3113.30-3113.31..................... 3152.6.
3113.40............................. 3152.7.
3113.50............................. 3153.1.
------------------------------------------------------------------------
Subpart 3110--Onshore Oil and Gas Geophysical Exploration General
Provisions
This subpart would contain requirements similar to existing
regulations with one exception. Section 3110.13 would require you to
pay a fair market value fee (FMV) for the use of the public lands for
each Notice of Intent to Conduct Oil and Gas Geophysical Exploration
Operations. The Federal Land Policy and Management Act of 1976 (43
U.S.C. 1701 et seq.) (FLPMA) requires that ``the United States receive
the fair market value of the use of the public land and
[[Page 66846]]
its resources unless otherwise provided for by statute.'' In addition,
a May 1992 audit report by the U.S. Department of the Interior, Office
of Inspector General (OIG), recommended that BLM establish and
implement procedures to charge FMV for geophysical exploration. In
order to comply with the requirements of FLPMA and the OIG
recommendation, we propose to adopt a FMV for geophysical exploration.
The FMV would be based on the size of the area physically affected by
each individual geophysical exploration project. You would not be
required to pay the FMV for a geophysical exploration project, or a
portion of a project, that is conducted under a Federal oil and gas
lease.
Subpart 3112--Geophysical Exploration Outside of Alaska
Sections 3112.10 through 3112.12 and 3112.20 and 3112.21 would
describe the procedures you must follow to obtain authorization for
geophysical exploration operations outside of Alaska. It would also
implement a new provision that establishes when you must submit a
notice of intent (NOI) to BLM. Under this proposal, you would submit an
NOI ahead of your anticipated starting date. This time period should
allow BLM time to process your NOI before the day you plan to start
your geophysical exploration project. This section would describe the
actions BLM would take after we receive your application. It would
include a provision for a BLM field inspection to review the
geophysical exploration operations proposal, would describe how and
when to notify BLM that you completed operations, and explain how BLM
will act on your notice.
A new requirement would be added to make sure BLM receives
information to accurately determine the extent of the area affected by
your geophysical exploration project and whether you are conducting any
part of the project under a Federal oil and gas lease. BLM needs this
information to calculate FMV. BLM would not authorize your NOI until
you paid the required FMV.
Subpart 3113--Geophysical Exploration in Alaska
This subpart would contain the existing regulatory requirements
with the following exceptions.
Section 3113.10 would describe what you must include in your
application for an oil and gas geophysical exploration permit. This
proposal replaces the detailed, who, what, and where type of
information in current section 3152.1, with a general standard for
permit application requirements. This standard would provide more
flexibility to deal with on-site conditions and individual geophysical
exploration plans that may dictate different filing requirements.
This proposal would add a new requirement for determining FMV. This
requirement would ensure BLM receives information to accurately
determine the extent of the area affected by your geophysical
exploration project and whether any part of the project is being
conducted under a Federal oil and gas lease. BLM would not approve your
permit until you paid the required FMV.
Section 3113.40 would describe what you must submit to BLM after
you complete geophysical exploration operations, when you need to
submit a completion report, and what action BLM takes after we receive
a completion report. These sections would not include the detailed what
and where type of information that is in current section 3152.7.
Rather, section 3113.40 would replace the list of required information
with a standard for completion reports. A standard is appropriate in
this case because the information BLM needs in a completion report
depends on the application filed, the terms of the permit BLM issued,
and the results of your on-site activities. BLM proposes this standard
because the specific requirements in a completion report are often
worked out between the applicant and BLM before we issue a permit. This
information may also be included in the terms of the permit.
Part 3120--Oil and Gas Leasing
Subpart 3120--Leasing
Subpart 3120 would contain requirements for competitive and
noncompetitive leasing and would describe lands that are available for
leasing. It would contain charts outlining the terms of different types
of leases, and how to describe lands in a letter of nomination. This
subpart also would include procedures for renewal and exchange leases
and right-of-way leasing and would generally contain existing
regulatory requirements with the following exceptions.
This proposal would eliminate presale noncompetitive lease offers.
The intent of the Reform Act was to emphasize competition for Federal
oil and gas resources. Presale offers were created by regulation and
are not required by the Reform Act. Eliminating presale offers would
expedite leasing because it would remove the existing one-year waiting
period that prohibits the filing of offers for one year from the date
of expiration, termination, or cancellation of a former lease. This
would result in a streamlined leasing process, reduce confusion
regarding which lands are available for leasing, result in a cost
savings for unnecessary filing fees accompanying offers identifying
unavailable lands, and encourage competitive leasing.
This proposal would also eliminate the formal nomination procedures
in existing section 3120.3. This section gives BLM's Director the
discretion to post a Competitive Nomination List and requires the
public to formally nominate lands from that list for future competitive
sale. The Director has never exercised his discretion to implement
these regulations and does not plan to do so in the near future. We
therefore believe it would be appropriate to eliminate the requirements
of this section.
Section 3122.21 would allow BLM to accept a late payment of bonus
bid balances if you provide evidence showing the late payment was
postmarked by the U.S. Postal Service, or dated as received by a
courier or other delivery service, on or before the tenth business day
following the day of the sale. Currently, BLM will not accept payments
of bonus bid balances after the tenth business day after the sale.
Sections 3123.30 and 3123.31 would limit the acreage in
noncompetitive lease offers to 2,560 acres in the lower 48 States and
5,760 acres in Alaska. Under current regulations, the 10,240-acre
limitation for noncompetitive parcels exceeds the 2,560-acre limitation
for competitive parcels. As a result, BLM must reconfigure parcels in
order to offer the lands for competitive leasing. Limiting the acreage
will provide consistency between competitive and noncompetitive leases
and will simplify the leasing system.
Those sections would also require you to describe the lands in two-
year noncompetitive lease offers by the parcel number indicated in the
Notice(s) of Competitive Oil and Gas Lease Sale. Under the proposed
rule, you would be able to combine more than one parcel from more than
one sale notice in a lease offer. If you combined more than one parcel
into an offer, the lands would be required to be within six square
miles, unless you show BLM that a larger area is necessary. BLM will
consider larger areas if we determine that is in the interest of
conservation of resources. The current regulations require that lands
be within six square miles. Allowing you to come in with a larger area
would give you added flexibility to deal with geologic conditions.
[[Page 66847]]
These proposed changes would simplify the filing of two-year
noncompetitive lease offers since you would not be required to use
legal land descriptions in your offer, but only the parcel number. It
would also expedite leasing because lease stipulation revisions would
not be necessary for split parcels. The current regulations require
that noncompetitive offers for public domain minerals must be a minimum
of 640 acres unless the lands are isolated, i.e., there are no
contiguous lands. This regulation has resulted in confusion, the loss
of filing fees, loss of priority of offers, and is not required by
statute. This proposal would eliminate the 640-acre filing requirement.
Section 3123.40 would reduce the number of copies of noncompetitive
lease offers you must file. Two copies of a noncompetitive lease offer
would be required rather than the current three copies.
Sections 3124.40 through 3124.42 would clarify current provisions
that 20-year leases issued under Section 14 of the Act are in effect so
long as oil or gas is produced in paying quantities.
Section 3124.44 would require you to file applications for renewal
at least 90 calendar days before the lease expiration date. Existing
regulations require filing at least 90 calendar days, but not more than
six months, from the expiration of the lease term.
Subpart 3129--Record Title, Operating Rights, and Estate Transfers,
Name Changes, and Mergers
Subpart 3129 would cover requirements for transfers of record title
and operating rights interests in leases. This subpart would generally
contain existing regulatory requirements with the following exceptions.
Section 3129.11 would implement a change in policy and procedure.
This proposal would eliminate the requirements of current section
3106.4-2 (Transfers of other interests, including royalty interests and
production payments) that requires you to file overriding royalty
assignments, net profit and production payments with BLM. BLM does not
check the accuracy of these transfers and does not verify outstanding
royalty interests. BLM only places these documents in the lease file
for record purposes. Frequently, the official lease file at BLM does
not contain all outstanding transfers and is therefore not an accurate
record for determining the outstanding interests. Eliminating the
filing of these documents would save you the $25 filing fee currently
required for such transfers. Under these proposed regulations, if you
requested a royalty reduction under section 3106.40, BLM would still
require you to document the amount of outstanding overriding royalties.
Sections 3129.20 and 3129.21 would define mass transfers and would
describe a change from current procedure. BLM would no longer require
three originally-signed copies of mass transfers with one photocopy for
each of the additional leases the transfer affects. This procedure was
adopted under the 1988 regulations and is confusing to some. Under this
proposed rule, you would be required to file three originals of the
record title assignment and operating rights transfer forms for each
affected lease. BLM would not accept photocopies of the signed
documents for each additional lease the transfer affects.
Part 3130--Oil and Gas Agreements
Subpart 3130--Reservoir Management
This subpart would contain requirements for well spacing,
communitization agreements, subsurface storage agreements, development
contracts, compensatory royalty agreements and unit agreements. Also,
the unitization subpart would change current policy and procedure and
is discussed in greater detail in that subpart discussion. This
proposal contains additional types of agreements that are not covered
in existing regulations. These agreements would be added to identify
all types of agreements acceptable under current BLM policy.
------------------------------------------------------------------------
Proposed regulation Existing regulation
------------------------------------------------------------------------
3130.10...................... 3162.3-1(a) and (b).
3130.11...................... 3162.3-1(a).
3130.12...................... 3162.5-2(b).
3130.13...................... 3162.2(b).
3132.10...................... 3161.2.
3132.11...................... New section.
3132.12...................... 3105.2-2, 3105.5-4,
and 3107.
3132.13 and 3132.14.......... New sections.
3133.10...................... 3105.2-2.
3133.11...................... 3105.2-3(a).
3133.12...................... 3105.2-3(b).
3133.13 through 3133.15...... 3105.2-3(c).
3133.16 through 3133.18...... New sections.
3134.10...................... 3105.5-2.
3134.11...................... 3105.5-3.
3134.12...................... 3105.5-2.
3135.10...................... New section.
3135.11...................... 3105.3 and internal BLM guidance (WO IM
Number 95-146 and The Oil and Gas
Development Contract Task Force Report,
March 1988) on the application and use
of development contracts.
3135.12...................... 3105.3-2.
3135.13...................... 3105.3.
3135.14 through 3135.19...... New sections.
3136.10...................... New section.
3136.11...................... 3100.2-1.
------------------------------------------------------------------------
[[Page 66848]]
Well Spacing
Subpart 3130 would contain requirements substantially similar to
those in existing regulations.
Subpart 3132--Oil and Gas Agreements: General
Subpart 3132 would contain requirements substantially similar to
existing requirements with the following exceptions.
Section 3132.10 would set out the types of agreements which require
BLM approval. The language in this section consolidates general
provisions that are stated in many places throughout Federal mineral
leasing laws and BLM's existing regulations.
Section 3132.12 would state the benefits you receive for fulfilling
the requirements of an approved oil and gas agreement. This is a new
section. However, it contains no new requirements or policy issues.
Section 3132.13 would describe when you would be required to obtain
rights-of-stway for roads, facilities, or other surface uses for
Federal lands excluded from an agreement by contraction or termination.
This is a new section. However, it contains no new requirements or
policy issues.
Section 3132.14 would state that you may include State, Indian, or
private mineral interests with Federal interests in a Federal
agreement. This is a new section. However, it contains no new
requirements or policy issues.
Subpart 3133--Communitization Agreements
Communitization agreements are currently covered in subpart 3105.
This proposal would cover the application process and how BLM would set
the terms and conditions of the agreement. The subpart would contain
current regulatory requirements and implements existing policy with the
following exceptions.
Section 3133.11 would detail what you must submit to BLM in your
application. This section would eliminate the existing requirement that
the communitization agreement be signed by or on behalf of all
necessary parties. Instead, this section would require you to certify,
as applicant, that all necessary parties have committed their interests
to the agreement. This change was made as a result of a recommendation
of BLM's Onshore Oil and Gas Performance Review to streamline the
communitization process. Please specifically comment on alternative
ways to submit the required information.
Section 3133.13 would require BLM to notify the operator when we
make a decision on your request to communitize. It also would require
the operator to notify all necessary parties of BLM's decision within
30 calendar days. This new section would clarify current administrative
processes.
Subpart 3134--Subsurface Storage Agreements
This subpart contains current regulatory requirements and
implements existing policy. It does contain more detail than existing
regulations on subsurface storage agreements. However, it does not
implement new policy or procedure.
Subpart 3135--Development Contracts
This subpart contains current regulatory requirements and
implements existing policy. It does contain more detail than existing
regulations on development contracts. However, it does not implement
new policy or procedure.
Subpart 3136--Drainage Agreements
This subpart contains current regulatory requirements and
implements existing policy. It does contain more detail than existing
regulations on drainage agreements however, it does not implement new
policy or procedure. One section in this subpart would cross reference
another proposed rule. Proposed section 3136.10 cross references
regulatory requirements in a proposed rule on oil and gas drainage that
was published in the Federal Register on January 13, 1998 (63 FR 1936).
This final rule would incorporate the drainage rule and cross reference
it in this section.
Subpart 3137-- Unit Agreements
BLM developed this subpart of the proposal to respond to industry
concerns identified by the Bureau Oil and Gas Performance Review and
reinventing government initiatives. The public commented that the
existing unitization process was inflexible and that was a limitation
on increased development. Secretary Babbitt issued Secretarial Order
3199 on April 4, 1996, directing BLM to ``reengineer Federal oil and
gas unitization into a more efficient and flexible process.'' On
September 39, 1998, the Secretary renewed the order until the unit
regulations go into effect or September 30, 1999, whichever occurs
first. BLM drafted these regulations to focus the unitization process
more on what is to be accomplished rather than on how regulated
entities would achieve their objectives. BLM identified the following
as limitations on the effectiveness of the current unitization
process--
1. The process is unnecessarily complicated and is a barrier to
innovative and creative exploration and development;
2. Paying well determinations based solely on economics cause
delays;
3. Allocation of unitized production is often delayed because
paying well determinations cannot be made in a timely manner. This
necessitates extensive corrections to production and royalty reporting;
4. The unit designation process adds unnecessary complexity to the
application process; and
5. The existing model unit form (see 43 CFR 3186) contains many
terms unnecessary to the Secretary's decision whether to approve a unit
agreement or not.
These proposed regulations attempt to eliminate or minimize these
barriers, while still meeting the intent of the Mineral Leasing Act of
1920.
These regulations would increase the flexibility of the unitization
process by allowing operators and BLM to negotiate exploration and
development terms before entering into a unit agreement. The focus of
this new process would be to protect the public interest rather than to
rely on the existing model unit agreement. This regulation would not
change the terms and conditions of existing unit agreements or the way
BLM administers existing agreements.
------------------------------------------------------------------------
Proposed regulation Existing regulation
------------------------------------------------------------------------
3137.10 and 3137.11.......... 3186.1.
3137.12...................... New section.
3137.13...................... 3181.2 and 3186.1.
3137.14...................... 3181.3 and 3186.1.
3137.15...................... 3181.3.
3137.16...................... 3186.1, sec. 20.
3137.17 and 3137.18.......... New sections.
3137.20...................... 3186.1.
[[Page 66849]]
3137.21 and 3137.22.......... New sections.
3137.30...................... 3186.1, sec. 3.
3137.31 through 3137.34...... New sections.
3137.40...................... 3181.2.
3137.50 through 3137.52...... 3186.1, sec. 9.
3137.53...................... New section.
3137.54...................... 3186.1, sections 9 and 20.
3137.55 through 3137.59...... New sections.
3137.61 through 3137.66...... 3186.1, sec. 11.
3137.67...................... 3181.4 and 3181.5.
3137.68...................... 3101.3-1.
3137.69...................... 3186.1, sec. 11.
3137.70 through 3137.73...... 3186.1, sec. 11.
3137.74...................... New section.
3137.80 and 3137.81.......... 3186.1, sec. 8.
3137.82...................... 3186.1, sec. 5 and 3186.3.
3137.83...................... 3186.1, sec. 4.
3137.84...................... 3181.5 and 3186.1, sec. 17.
3137.90...................... 3186.1, sec. 25.
3137.91...................... 3186.1, sec. 9.
3137.100..................... 3186.1, sec. 20(b) and 20(d).
3137.101..................... 3183.4(b).
3137.102..................... New section.
3137.110..................... 3186.1, sec 14.
3137.111..................... 3181.5 and 3186.1, sec 17(b).
3137.112 through 3137.114.... 3186.1, sec 14.
3137.120 and 3137.130........ New sections.
------------------------------------------------------------------------
The primary change to the unitization process would be an emphasis
on up-front negotiation among the various interest owners and BLM.
Operators would be able to use any agreement format in their unit
agreement as long as it addressed the following four basic issues: (1)
Unit area; (2) Initial and continuing development obligations; (3)
Productivity criteria and participating areas; and (4) BLM's ability to
set or modify the quantity, rate and location of development and
production.
The unit operator and BLM would base the negotiation of unit
agreement terms on many factors. These factors may include the history
of the area, the environment, economics, the number and depth of wells
previously drilled in the area, the size of the area and the cost of
the proposed operations.
Under these proposed regulations, BLM would accept only a limited
number of additional unit agreement terms beyond the mandatory terms.
If the unit agreement does not specifically address modifications, they
would not be permitted unless all of the original parties or their
successors to the agreement agree. The unit agreement would be
considered to include all producing intervals unless the unit agreement
specifies producing interval(s).
Another change from current procedure involves the creation and
size of initial participating areas and additions to existing
participating areas. The amount of land to be included in any
participating area revision would be specified in the unit agreement
whereas currently it is not. Under existing procedure, participating
areas include only specific producing intervals. An addition to an
existing participating area occurs when a new well that meets the
productivity criteria defined in the unit agreement is drilled outside
of that participating area.
The current obligation to drill an exploratory well and subsequent
wells under a plan of operations would be replaced with initial and
continuing development obligations. Under this proposal, you and BLM
would negotiate the initial and continuing development obligations and
would include those terms in the unit agreement. These terms would
define the number and frequency of wells you plan to drill or
operations that would establish new unitized production. Under this
proposal, the unit would automatically contract to the existing
participating area(s) when you do not meet a continuing development
obligation. Existing regulations allow five years for drilling and
development of the unitized area before automatic elimination would
occur for lands not in a participating area. This proposal would
eliminate the 5-year initial drilling and development period of current
regulations. BLM believes this new requirement would increase the
potential for oil and gas development by encouraging operators to
follow a continuous development program or risk contraction of the unit
area to the participating area(s).
Paying well determinations would be replaced with well productivity
criteria. This would allow the unit operator to negotiate criteria that
are not tied strictly to well economics. Currently, production must
cover the drilling and operating costs attributed to that well. Under
this proposal, costs for that well would be considered as part of unit
costs and not be required to be covered by production from that well
alone. Productivity criteria must be adequate to indicate a well has
established future production potential to pay for the cost of
drilling, completing and operating.
Another change to the current system concerns development
requirements. After unitization, operators would know the effect of
development on participating areas and royalty distribution
immediately, without having to wait extended periods for BLM approvals.
This is because the criteria for deciding whether wells qualify to be
included in a participating area would be clearly spelled out in the
agreement.
Under existing regulations, operators are limited to a set time to
develop the entire unit. Under the proposed regulations, the unit would
not contract as long as development continued at the rate set out in
the agreement. Once you meet the initial development obligations, all
leases committed to a unit would continue to receive the benefits of
unitization as long as the unit is productive.
Under this proposal, BLM could grant suspensions and extensions of
time to
[[Page 66850]]
carry out the initial and continuing development obligations. In those
instances, the unit operator would be required to prove to BLM that the
obligations cannot be carried out due to circumstances beyond the
control of the operator, despite the exercise of due care and
diligence. Existing regulations contain similar provisions.
This subpart for the most part discusses new procedures and policy
or new regulatory requirements. Where a given section is substantially
similar to existing policy, procedure or regulatory requirement, it is
not discussed.
Application
Section 3137.10 would describe the types of unit agreements the
subpart covers. Up to now, BLM's regulations have not distinguished
between exploratory and enhanced recovery unit agreements. Since
enhanced recovery operations differ from exploratory operations, their
unit obligations should differ.
Sections 3137.11 and 3137.12 would require you to negotiate with
BLM on the terms of exploratory and enhanced recovery unit agreements
before you apply and explains that BLM will accept any unit agreement
format. Currently, BLM's regulations require that you use the unit
agreement form in section 3186.1.
Section 3137.13 would explain what you must include in your
unitization application.
Section 3137.14 would describe what the unit operator must certify
in the unitization application. This is a new requirement. Currently,
BLM requires the operator to submit signatures of all parties committed
to the unit. The certification would replace the signatures which will
reduce paperwork for you and BLM.
Section 3137.15 would make it clear that you are not required to
file with BLM evidence that all leases have actually committed to the
unit. However, BLM will require you to keep copies of the invitations
to join the unit, including written reasons why parties did not join
the unit.
Section 3137.16 would change existing policy and procedure. Under
existing regulations, BLM approves a unit agreement effective the date
of approval. If the unit does not meet the public interest requirement,
the unit is void ab initio. Under the proposal, BLM would provisionally
approve units and final approval would be given once you meet the
public interest requirement, retroactive to the date of the provisional
approval. One effect of this change would be that when a lease that is
partly in and partly out of a unit area is segregated into two leases,
the provisional approval would not give the lease that is outside of
the unit any benefits of unitization, including an extension, until
final unit approval. Final unit approval would be given when the unit
meets the public interest requirement by meeting the initial unit
obligations.
Section 3137.17 would require BLM to notify the unit operator in
writing when we approve the agreement. This section would also require
the unit operator to notify all parties to the agreement after it
receives BLM notice.
Section 3137.18 would explain that BLM will reject a unit agreement
application if it does not meet the requirements of this subpart.
Mandatory Topics
Section 3137.20 would define the mandatory terms of exploratory and
enhanced recovery unit agreements. Existing unit agreements contain
terms that deal with the relationship between the parties committed to
the unit agreement and not BLM. This proposal would also reduce the
number of permissible unit agreement terms to only those that deal with
the relationship between BLM and the parties committed to the unit.
Section 3137.21 would describe only mandatory terms in enhanced
recovery unit agreements and exploratory unit agreements. The area you
want to include in an enhanced recovery unit agreement must be fully
developed at the time you make the proposal. This section also explains
that ``fully developed'' means that you have drilled to reasonably
delineate the boundaries of the reservoir. Therefore, you would not be
required to include terms for initial unit obligation, participating
areas, productivity criteria and unit contraction. Instead, you would
be required to define enhancement obligations in an enhanced recovery
unit agreement.
Section 3137.22 would prohibit terms in unit agreements other than
those contained in the listed sections of the proposal. Parties to the
unit could set out other terms under private agreements.
Optional Provisions
Section 3137.30 would explain that you may include optional
provisions in the agreement for limiting the agreement to certain
producing intervals, authorizing multiple unit operators, and providing
means for unit agreement modifications. If those provisions are not
included in the agreement, the agreement applies to all intervals,
contemplates a single unit operator and requires unanimous consent for
modification. BLM would approve those optional provisions if you
demonstrate that they promote additional development or enhance
production potential. These optional provisions are not in existing
regulations. However, BLM does allow for these optional provisions if
operators apply and circumstances warrant that they be included. BLM
would add these provisions to the regulations to clarify existing
policy and procedure.
Sections 3137.31, 3137.32 and 3137.33 would set out the
requirements for having multiple unit operators, the circumstances
under which you may modify the terms of the unit agreement and what you
must submit to BLM if you modify a unit area, or change the commitment
status of a lease.
Section 3137.34 would make it clear that other agreements do not
affect the terms and conditions of a Federal unit agreement.
Size and Shape
Section 3137.40 would require that the unit area consist of tracts
that are contiguous at least at one point. It would explain that areas
of noncommitted tracts totally within the exterior boundary of the unit
are allowed and that BLM may limit the size and shape of the unit area.
BLM currently has policies and procedures to deal with the size and
shape of units that are similar to this section.
Development
Section 3137.50 would define initial unit obligations for
exploratory unit agreements. Existing regulations require you to drill
at least one well to explore for unitized substances for your initial
unit obligation. As a matter of policy, one well will hold up to about
30,000 acres, depending on geology, economics and other factors. This
proposal would require that you negotiate with BLM and define the
number of wells necessary to determine the existence of oil and gas in
the area of the unit. This proposal would also require that the unit
agreement define the primary target for each well and the time between
drilling those wells. This would also be subject to negotiation.
Existing regulations only require you to define the primary target for
the initial well and the time between drilling the well depends on
whether it is a producing well or not. BLM believes that negotiation of
the provisions for development would allow operators flexibility and
ensures that the resources will be diligently developed.
Section 3137.51 would define what you must do to meet initial unit
obligations and fulfill the public interest
[[Page 66851]]
requirement for an exploratory unit agreement. Before the time set out
in the agreement, you must drill at least one well that establishes
unit production, drill a test well to the primary target, or convince
BLM that drilling the initial well(s) or future wells is unwarranted or
impracticable.
Section 3137.52 would define the enhancement obligations for
enhanced recovery unit agreements. The unit agreement would define that
amount, type and timing of enhanced recovery operations.
Section 3137.53 would define what you must do to meet enhancement
obligations and fulfill the public interest requirement for enhanced
recovery unit agreements. You would be required to fulfill the
provisions of section 3137.52, or prove to BLM either that enhanced
recovery operations have actually increased reservoir performance or
that further enhancement operations are unwarranted, impracticable or
uneconomical.
Section 3137.54 would state that if you do not meet initial unit
obligations or enhancement obligations, BLM's approval of the agreement
is invalid and BLM will not extend the term of any lease in the unit.
Section 3137.55 would define continuing development obligations.
This section would require that your program of exploration or
development exceed the pace of non-unitized operations in the area near
the unit. The exploration program must also represent an investment
commensurate with the size of the unit agreement. BLM believes that
these standards for a continuing development obligation would ensure
that the resources will be diligently developed.
Section 3137.56 would describe how to define continuing development
obligations in the unit agreement. Continuing development obligations
occur after you complete initial development obligations, but do not
include work you performed prior to unitization. This differs from
existing policy in that this new provision would be negotiated up front
and defined in the agreement. Currently, continuing development
obligations are not defined at the outset, but are laid out after an
initial discovery, in a plan of development.
Section 3137.57 would explain that continuing development may occur
within or outside a participating area. Currently, starting five years
after a participating area is established, you are required to drill
outside established participating areas to continue the unit. This
proposal would provide flexibility for operators and still encourage
additional exploratory drilling by allowing them to negotiate for
additional drilling within established participating areas.
Section 3137.58 would require a unit to contract if you do not meet
a continuing development obligation. Under existing regulations, if you
have not drilled outside of a participating area after five years from
the date the first participating area was established, the unit
contracts to existing participating areas.
Section 3137.59 would require you to submit certain information to
BLM after you meet continuing development obligations. You would be
required to submit documentation that supports your certification. If
you establish production in a well that does not meet the productivity
criteria, you would be required to operate, produce, and report the
well on a lease basis. This section is substantially similar to
existing requirements. BLM does not currently require a certification,
however, the information required would be substantially similar to the
information in the current application to establish or expand a
participating area.
Productivity Criteria and Participating Area
Section 3137.60 would require that productivity criteria be defined
in the unit agreement. This section would require that the productivity
criteria indicate future production potential sufficient to pay for the
costs of drilling, completing and operating the well on a unit basis.
This section would also require that the productivity criteria warrant
continued production of the individual well itself and that the well
must be ready to produce unitized substances. This section would
explain that BLM will enlarge participating areas when you drill a well
that meets the productivity criteria outside of an existing
participating area. Paying well determinations would be replaced with
well productivity criteria. This would allow the unit operator to
negotiate criteria that are not tied strictly to well economics.
Currently, production must cover the drilling and operating costs
attributed to that well. Under this proposal, costs for that well would
be considered as part of unit costs and not be required to be covered
by the production from that well alone. Productivity criteria must be
adequate to indicate a well has established future production potential
to pay for the cost of drilling, completing and operating.
Section 3137.61 would describe the function or purpose of
participating areas. The unit agreement allocates production to
committed leases within the participating areas in proportion to the
leased surface acreage relative to the total acreage of the
participating area. This is similar to existing policy and procedure.
Section 3137.62 would explain that the first well you drill after
unitization that meets the productivity criteria establishes a
participating area. Existing regulations use the term ``production in
paying quantities'' as the sole acceptable productivity criteria. This
section would further explain that when you establish the first
participating area, lands which contain previously existing wells that
meet the productivity criteria will either be added to the initial
participating area or become a new participating area.
Section 3137.64 would require you to submit to BLM certification
that you established unitized production, a map of the participating
area, and a schedule that establishes the allocation to each interest
owner in the participating area. This section is substantially similar
to existing requirements. BLM does not currently require a
certification. However, the information used to make that certification
would be substantially similar to the information in the current
application to establish or expand a participating area.
Section 3137.65 would require the size of participating area
additions to be approximately the same size as the initial
participating area for that interval. Currently, BLM does not require
them to be the same size. Requiring the participating area additions to
be the same or similar in size would simplify expansion of unit
participating areas.
Unit Operations
The sections covered under the heading ``Unit Operations'' are
substantially similar to existing regulatory requirements.
Suspensions and Extensions of Development
The sections covered under the heading ``Suspensions and Extensions
of Development'' are substantially similar to existing regulatory
requirements.
Unit Termination
The sections covered under the heading ``Unit Termination'' are
substantially similar to existing regulatory requirements.
Royalties
The sections covered under the heading ``Royalties'' are
substantially similar to existing regulatory requirements.
[[Page 66852]]
Leases and Contracts Conformed and Extended
The sections covered under the heading ``Leases and Contracts
Conformed and Extended'' are substantially similar to existing
regulatory requirements.
Change in Ownership
The section covered under the heading ``Change in Ownership'' is
substantially similar to existing regulatory requirements.
Part 3140--Oil and Gas Lease Administration
Subpart 3140--Extensions
Subpart 3140 would contain provisions for drilling extensions,
continuation of leases by production, unit production and segregations,
elimination of leases from unit and communitization agreements, leases
segregated by assignments, and compensatory royalty and lease payments
for subsurface storage of oil or gas. This subpart would not change
requirements of existing regulations, with the exception of
segregations as they relate to provisional unit approval described
earlier in the discussion of proposed section 3137.16.
Subpart 3141--Suspensions
Subpart 3141 would contain requirements for obtaining suspensions
of operations, suspensions of production or suspensions of operations
and production. Filing requirements for approval of a suspension of
operations or production would be outlined. This subpart would describe
the effects of a suspension on the terms of a lease and also
requirements for the suspension or waiver of lease rights during
pending legal proceedings. This subpart would not change requirements
of existing regulations.
Subpart 3142--Lease Terminations and Reinstatements
Subpart 3142 would contain requirements for obtaining Class I and
Class II reinstatements for leases that terminate for nonpayment or
late payment of rental. This subpart would also include Class III
provisions for converting unpatented oil placer mining claims to
noncompetitive oil and gas leases. This subpart proposes two changes
from existing requirements. One change allows a Class I reinstatement
for the late payment of a nominal deficiency (see section 3142.20). The
other change increases the nominal deficiency amount from 5 percent or
$100, to the lesser of 10 percent or $200, which provides consistency
with the nominal deficiency amount allowed for noncompetitive offers
(see section 3142.11).
Subpart 3143--Relinquishments
Subpart 3143 would generally contain existing regulatory
requirements and clarifications of existing requirements pertaining to
relinquishments.
Subpart 3144--Cancellations
Subpart 3144 would contain provisions for cancellations and would
not change existing regulatory requirements. It would also contain
existing regulatory requirements regarding bona fide purchasers.
Part 3145--Oil and Gas Drilling
Subpart 3145--Drilling and Additional Well Operations
This subpart would incorporate the requirements from existing and
proposed regulations dealing with drilling and additional well
operations. The Onshore Orders referenced in this preamble that relate
to the conduct of operations and appear in the charts and proposed
operations regulations that follow are: Onshore Order Number 1, which
was published on October 21, 1983, (48 FR 48916); Proposed Onshore
Order Number 1, which was published on July 23, 1992, (57 FR 32756);
Onshore Order Number 2, which was published on October 18, 1988, (53 FR
46798) (Revised on December 9, 1988, (53 FR 49661), September 27, 1989
(54 FR 39528), and January 27, 1992, (57 FR 3023)); Onshore Order
Number 3, which was published on February 24, 1989, (54 FR 8056)
(Revised on September 27, 1989, (54 FR 39528)); Onshore Order Number 4,
which was published on February 24, 1989, (54 FR 8086); Proposed
Onshore Order Number 4, which was published on March 9, 1994, (59 FR
11019); Onshore Order Number 5, which was published on February 24,
1989, (54 FR 8100) (Revised on September 27, 1989, (54 FR 39527));
Proposed Onshore Order Number 5, which was published on January 6,
1994, (59 FR 718); Onshore Order Number 6, which was published on
November 23, 1990, (55 FR 48958) (Revised on January 17, 1992, (57 FR
2039 and 2136) and on February 12, 1992, (57 FR 5211)); Onshore Order
Number 7, which was published on September 8, 1993, (58 FR 47354)
(Revised on November 2, 1993, (58 FR 58505)); and Proposed Onshore
Order Number 8, which was published on May 6, 1991, (56 FR 20568). This
proposal also references Notice to Lessees (NTL) Number 3A, which was
published on January 10, 1979, (44 FR 2204) and NTL Number 4A which was
published on December 27, 1979 (44 FR 76600). The following is a
crosswalk for this subpart.
------------------------------------------------------------------------
Existing
Proposed regulation regulation Onshore order
------------------------------------------------------------------------
Application for Permit to Drill or Reenter (APD)
------------------------------------------------------------------------
3145.5........................ 3162.1 and 3162.3-
3
3145.10....................... 3162.3-1(c), (d) Order Number 1,
and (g). III.D.; Order Number
2, parts of I., II.,
III.G. and D.5.; and
Proposed Order
Number 1, II.B.,
III.B., III.C.,
III.E. and IV.
3145.11....................... 3162.3-1(h), Order Number 1,
3164.3(b) and III.G.4.; and
(c). Proposed Order
Number 1, III.C.2.
3145.12 and 3145.13........... 3162.3-1(d)(1)-(4 Order Number 1,
), (e) and (f). III.C., III.G.; and
Proposed Order
Number 1., III.A.,
III.C., and III.F.3.
3145.14....................... ................. Order Number 1,
VII.A.; and Proposed
Order Number 1,
parts of section IV.
3145.15....................... ................. Order Number 1,
VII.B.; and Proposed
Order Number 1, V.
3145.16....................... 3162.3-1(e) and Order Number 1,
(f). Introduction and
III.G.4.
3145.17 and 3145.18........... ................. Order Number 1,
III.B.1.; and
Proposed Order
Number 1, III.D.
3145.19....................... 3162.3-1(g) and Order Number 1,
(h). III.B. and III.C.;
and Proposed Order
Number 1, III.E.,
III.F.
3145.20....................... ................. Proposed Order Number
1, III.E.
3145.21....................... ................. Proposed Order Number
1, I.D
3145.22....................... 3162.4-2......... Order Number 1, VIII
------------------------------------------------------------------------
[[Page 66853]]
Technical Drilling Standards
------------------------------------------------------------------------
3145.30....................... 3162.5-2(a)...... Order Number 2,
III.A.
3145.31....................... 3162.5-2(a)...... Order Number 2,
III.E.
3145.32....................... 3162.5-2(a)...... Order Number 2,
3162.5-3 III.B., III.C. and
III.E.; and Order
Number 6, III.C.4.c.
3145.33....................... 3162.5-2(c)...... Order Number 2,
III.B.
3145.34....................... ................. Order Number 2,
III.D.
------------------------------------------------------------------------
Drilling Operations in a Hydrogen Sulfide Environment
------------------------------------------------------------------------
3145.40....................... 3162.5-3......... Order Number 2,
III.C.6.b; and Order
Number 6, III.A.,
III.B., and IIIC.
3145.41....................... 3162.5-1(d)...... Order Number 6, I.C.,
III.A., III.B., and
IIIC.
3145.42....................... 3162.5-3......... Order Number 6, II.S.
3145.43....................... 3162.5-3......... Order Number 6,
III.C.1.c.
3145.44....................... 3162.5-3......... Order Number 6,
III.C.3.a., C.3.b.
------------------------------------------------------------------------
Additional Well Operations
------------------------------------------------------------------------
3145.50....................... 3162.3-2(a) and Order Number 1, parts
3162.3-3. of IV.A., IV.B., and
IV.C.; Proposed
Order Number 1, part
of VI.; Order Number
7, III.E.1.f., and
III.F.; and Proposed
Order Number 8,
parts of III.A.
through III.D.
3145.51....................... 3162.3-2(a) and Order Number 1, IV.A,
3162.3-3. IV.B., and V.;
Proposed Order
Number 1, VI, Order
Number 7, III.A.;
and Proposed Order
Number 8, parts of
III.A. through
III.D.
3145.52....................... 3162.3-2(b) and Order Number 1, IV.A.
(c) and 3162.3-3. and C.; and Proposed
Order Number 1,
parts of VI.
3145.53....................... 3162.3-2(a)...... Order Number 1,
IV.B.; Proposed
Order Number 1, VI.;
and Order Number 7,
III.A.
3145.54....................... 3162.3-2......... Order Number 1, IV.A.
and IV.B.; and
Proposed Order
Number 1, VI.;
Proposed Order
Number 8, parts of
A., B. and C.
3145.55....................... 3162.5-1(b)...... Proposed Order Number
1, VII.A.; and
Proposed Order
Number 8, parts of
III.A.
------------------------------------------------------------------------
Application for Permit to Drill or Reenter
Regulations for Application for Permit to Drill or Reenter (APD)
would include filing, processing, and surface and drilling operating
requirements. Generally, the sections discussed in this subpart contain
changes from existing policy or procedure.
Section 3145.5 would make it clear that you must conduct all
operations on Federal and Indian leases, including those that do not
require BLM approval, according to the surface use and drilling
standards of this subpart. BLM currently applies similar standards to
workovers and additional well operations via conditions of approval.
This regulation would clarify that existing policy.
Section 3145.10 would require you to submit an Application for
Permit to Drill or Reenter (Form 3160-3) to BLM for review and approval
before you disturb the surface or begin any drilling operations for a
new well or reentry of an abandoned well. Under this section, you would
be required to have a BLM-approved APD before you start any
construction activity or any operation to develop a Federal or Indian
lease, including activity on private surface necessary to operations on
a Federal or Indian lease. This would include the need to obtain BLM
approval for horizontal or directional wells that develop any portion
of a Federal or Indian lease, even if the well site is located on State
or private surface.
The Reform Act requires that BLM post a public notice of Federal
well proposals for 30 calendar days before we are authorized to approve
it. Therefore, you should submit your well proposals to BLM at least 31
calendar days before you plan to begin drilling operations to give BLM
enough time to post it. This time period would allow BLM time to
process your APD before the day you plan to start drilling your well.
This period also matches the filing requirement that you should follow
if you are requesting a suspension of operations or production in
connection with drilling a new well or reentering an abandoned well
(section 3141.12 of these proposed regulations).
The Forest Service (FS) approves surface use plans on National
Forest System lands (NFS). Surface use plan submittal time frames on
NFS lands are longer because the FS must comply with the Reform Act and
timeframes established by Section 322 of the Department of the Interior
and Related Agencies Appropriation Act for Fiscal Year 1993 (P.L. 102-
381, 106 Stat. 1419, 16 U.S.C. 1612 note.). The FS needs time for the
public notice period mandated by the Reform Act, a public comment
period for review of environmental assessments completed for well
proposals, and an appeal period. The minimum time the FS requires to
process surface use plans is 120 calendar days.
Section 3145.11 would state the authority and general involvement
of the FS and other Federal or State agencies in processing APD's you
propose on a Federal or Indian lease where the surface is not managed
by BLM or a private landowner. This section addresses BLM's limited
responsibility for managing oil and gas operations on lands managed by
the FS. The Reform Act limited BLM's responsibility on NFS lands to
development or operational proposals involving subsurface activity,
related impacts, and any appeals regarding the same. Surface use plans
on NFS lands require only FS approval, and all appeals related to the
surface use plan are appeals of the FS decision. Unlike existing
regulations, the proposal would not require you to submit a surface use
plan of operations with your APD, if the proposed drilling location is
on NFS lands. Agency responsibilities under this rule and the Reform
Act are determined on the basis of subsurface
[[Page 66854]]
(BLM) and surface (FS) authority for oil and gas operations on NFS
lands.
BLM also shares responsibility for approving surface use plans on
National Wildlife Refuge lands in Alaska. If your proposal involved
these types of lands, the U.S. Fish and Wildlife Service would be
responsible for approving surface use plans for APD's on land it
manages.
Sections 3145.12 and 3145.13 would describe what information you
must submit to BLM for a complete APD and what requirements you must
comply with during operations. This section would require you to submit
a drilling and surface use plan and also would establish standards for
conducting Federal and Indian lease operations. This section would not
require the prescriptive 8-point drilling plan and 13-point surface use
plan of operations required by Order Number 1. Instead, it would
require your plan to describe how your proposal will affect, protect,
or mitigate impacts to surface and subsurface resources. This section
would identify the resource concerns that BLM expects you to address in
your plan and operations. This is in contrast to the approach of Order
Number 1, which places more emphasis on specific information that you
must submit to BLM.
The term useable water would be used in these sections and other
places in section 3145.32. We defined this term as water containing
less than 10,000 parts per million (ppm) of total dissolved solids.
This definition is consistent with the regulations of the Environmental
Protection Agency (EPA) at 40 CFR 144.3 and 146.3, for an underground
source of drinking water. This is also consistent with the existing
definition in Onshore Oil and Gas Order Number 2. This section would
require you to submit Form 3160-3 for each new well that you propose to
drill, or abandoned well you propose to reenter.
Section 3145.14 would provide for additional APD submission
requirements when your well has a proposed surface location on
privately-owned surface. It also would discuss conditions under which
BLM may approve an APD if you are unable to reach agreement with the
surface owner for access or occupancy. BLM's responsibilities under the
National Environmental Policy Act (42 U.S.C. 4321 et seq.), Endangered
Species Act (16 U.S.C. 1531), and the National Historic Preservation
Act (16 U.S.C. 470 et seq.), are essentially the same for Federal or
Indian surface and split-estate lands. BLM will seek full cooperation
of the private surface owner. However, the surface owner may not veto
Federal statutory requirements. Consequently, surface use agreements
with private landowners must satisfy the private surface owner and meet
BLM's requirements for environmental protection and mitigation. This
proposed rule would also apply to horizontal or directional wells that
are located on State or private surface, if the well ultimately
develops Federal or Indian leases.
Section 3145.15 would provide for additional APD requirements when
your proposed well is located on an Indian oil and gas lease or on
surface held in trust for an Indian tribe or an individual Indian. It
also describes circumstances where a surface-use agreement is not
necessary.
Section 3145.16 would allow you to submit either a single APD
package for each well or a field-wide APD package for several wells in
a field or area of geologic or environmental similarity. You would be
able to develop a field-wide plan for the drilling plan, the surface
use plan, or both. If you developed a field-wide plan, it would allow
you to reference already approved material when you propose future well
sites. This would reduce the amount of paperwork that you would be
required to submit for each APD. If your drilling or surface use plan
were nearly identical to a previously approved field-wide plan, you
would be required to submit information to BLM only on the items that
deviate from your approved field-wide plan.
Sections 3145.17 and 3145.18 would allow you to submit a Notice of
Staking (NOS) to notify BLM that you have selected a drilling location.
You would submit a NOS before an APD to provide BLM the basic
information on the type and location of the well you propose to drill.
You would submit a NOS only if you actually intended to file an APD at
a later date. Section 3145.18 would list the basic information required
in a NOS application and surveying requirements that you must complete
before BLM conducts a predrill inspection under a NOS.
Section 3145.19 would describe general actions BLM will take to
process your APD. Order Number 1 and current regulations at sections
3162.3-1(h) and 3162.5-1 require BLM to complete processing of
applications in specified timeframes. Order Number 1 also includes
specific timeframes for BLM to conduct predrill inspections and to
notify operators that additional information is needed. The only
processing time frames included in this subpart are the 30-day public
notice period required by the Reform Act and the 120-day period for
surface use plan proposals on NFS lands. The other processing time
frames of current regulations are not statutory and would be eliminated
by this proposal. BLM will continue to process complete applications in
a timely manner.
Section 3145.20 would allow up to two extensions of 12 months for
APD's. Existing regulations do not address extensions of APD's.
However, current practice in many BLM offices is to grant APD
extensions when justified.
Section 3145.23 would require you, within 30 calendar days after a
well becomes inactive, to put the well into production or service,
submit to BLM plans to conduct well work to restore production or
service, submit plans to plug and abandon the well or comply with the
requirements of section 3107.53. These would be new requirements. BLM
has found that inactive wells often become orphan wells that BLM would
eventually have to plug and abandon. This section would require
operators to take action to put inactive wells back into service, plug
and abandon them or provide additional bonding or pay into a fund to
help mitigate costs of orphan wells. BLM believes that this is
necessary to encourage operators to fulfill their lease obligations as
they pertain to inactive wells.
Technical Drilling Standards
Technical drilling standards are BLM's requirements for designing
and drilling wells on Federal and Indian leases. Areas covered by these
sections would include well control, air drilling, well design and
construction, well integrity testing, and drill stem testing.
Section 3145.30 would list the general well control requirements
that you must comply with when you design and drill a well. This
section would contain performance standards that would replace certain
prescriptive requirements of Order Number 2. This section would also
incorporate by reference the applicable American Petroleum Institute's
(API) publication on well control systems. Many of the existing
requirements in BLM's regulations on well control mirror the
requirements in the cited API publication. This section also contains
specific well control provisions that BLM believes are essential to
protect surface and downhole resources and public health and safety.
Section 3145.31 would require you to follow the standards contained
in the referenced API document when drilling with gas, air or mist. As
noted above, many requirements in BLM's existing orders contain
requirements similar to the cited API publication.
[[Page 66855]]
Section 3145.32 would state the performance standards for designing
and drilling your well. As with the well control section, this section
would require certain specific measures that BLM believes critical to
resource protection and public health and safety. You must address all
of the applicable requirements of this section in your APD and conduct
your drilling operations accordingly. These performance standards would
replace the prescriptive requirements of Order Number 2.
Section 3145.33 would require you to pressure-test all casing
strings below the conductor pipe before you set the next string of
casing. You also must perform a mud weight equivalency test for all
exploratory wells and any part of a well approved to use a 5000 pounds
per square inch blowout prevention equipment system (BOP). The proposed
requirement differs from the existing Order Number 2 requirements in
that it does not specify minimum test pressures or standards for a
successful test. Under this proposal, testing would be performed in any
manner that demonstrates that the casing or formation can withstand the
maximum pressure it is likely to be subject to throughout its useful
life. BLM would determine the adequacy of your testing program before
approving your APD.
Drilling Operations in a Hydrogen Sulfide (H<INF>2</INF>S) Environment
Section 3145.44 would require you to train all personnel working at
the wellsite about H<INF>2</INF>S drilling and contingency procedures
according to standards contained in the referenced API publication.
This section would require that training be completed at least three
business days before drilling into, or before reaching a depth of 500
feet above, known or probable H<INF>2</INF>S zones. The training
frequency contained in the referenced API publication would replace the
existing Order 6 requirement to have weekly H<INF>2</INF>S and well
control drills. The API standard would allow you and BLM to agree upon
a training frequency commensurate with the H<INF>2</INF>S potential.
This section also states who must have appropriate personal protective
breathing devices at your wellsite and requires such equipment to
comply with the standards contained in the referenced API document.
Additional Well Operations
Regulations for additional well operations would address general
filing, processing and operating requirements for well operation
activities that generally occur after you drill a well, including
reclamation requirements. More specific information is included for
some of these activities in separate subparts of this proposed rule
(e.g., subpart 3155 for disposal of produced water and subpart 3159 for
temporary and permanent abandonment).
Section 3145.50 would include filing requirements and a reference
to the form (Sundry Notice, Form 3160-5) that you must use when
applying for additional well operations that require BLM approval. The
filing requirements and operating standards would parallel requirements
in this subpart for drilling a new well or reentering an abandoned
well.
Section 3145.51 would list additional well operations that BLM must
approve before you begin them. These operations would require BLM
approval, although there would be some exceptions described in other
sections of this proposed rule. For example, section 3155.12 describes
cases when an approval for disposal of produced water is not necessary.
This section also includes standards to determine when other additional
well operations, which are not specifically listed in this section,
would require BLM approval. Some of these activities may be fully
addressed in your approved APD. If this is the case, a Sundry Notice
and a separate approval would not be necessary, unless you plan to
change proposals that were part of your approved APD.
Existing regulations allow BLM to grant oral approval for plugging
and abandonment of newly drilled dry holes, drilling failures and in
emergency situations. This proposal would allow BLM to grant oral
approvals for additional well operations that require BLM written
approval. We propose this change because many of these operations are
repetitive in terms of technical design, equipment use, the time it
takes to complete the operation, and surface use.
Section 3145.52 would identify when additional well operations
would not require BLM approval. See the definition of ``routine well
maintenance'' in section 3101.5 of this proposal to accurately apply
these standards. This section would also contain a requirement that you
notify BLM within 48-hours of actions taken to correct or contain an
emergency.
Section 3145.54 would require you to submit reports, well logs,
test data, and other information that may be required by a condition of
approval within 30 calendar days after you complete additional well
operations. A well completion report would also be necessary within 30
calendar days if a well completion occurs in a new formation.
This section would require you to submit a subsequent report on
Sundry Notice, Form 3160-5, within 30 calendar days after you complete
additional well operations, if you alter the existing wellbore
configuration. A subsequent report would also be required if BLM
requested it.
Section 3145.55 would include reclamation standards that you must
follow during drilling and lease operations. Current regulations
require you to submit a plan that explains how you will reclaim the
disturbed area. This section would set out performance standards for
recontouring, seedbed preparation and revegetation. The details of
these standards would be laid out in your APD or Sundry Notice for
additional lease operations and approved by BLM.
Part 3150--Oil and Gas Measurement and Operations
Subpart 3151--Production Storage and Measurement--General and
Production Operations With Hydrogen Sulfide
This subpart would contain regulations on the production, storage,
and measurement activities that require BLM approval. This subpart
would contain requirements substantially similar to existing
requirements with some exceptions.
------------------------------------------------------------------------
Existing
Proposed regulation regulation Existing order or NTL
------------------------------------------------------------------------
3151.10....................... 3162.3-2......... Order Number 4
section III.E. and
F.;
3162.7-2......... Order Number 5
section III.D.; and
3162.7-3......... Notice to Lessees
(NTL)-4A.
3151.11....................... 3162.7-2......... Order Number 4
section III.E. and
F.;
3162.7-2......... Order Number 5
section III.D., NTL-
4A; and
3162.7-3......... BLM Manuals and
Instructional
Memorandums.
3151.12....................... 3162.7-1(a) and
(b).
................. Order Number 7
section III.A.3
3151.13....................... 3162.7-1(e)......
[[Page 66856]]
3151.14....................... 3162.7-1(d)...... Order Number 4
section II.O.3. and
section III.B.;
3151.15....................... ................. NTL-4A sections I and
II; and BLM
Instructional
Memoranda.
3151.16....................... ................. NTL-4A section III.
------------------------------------------------------------------------
Production, Storage, and Measurement--General
Section 3151.16 would list instances where you would be able to
vent or flare gas royalty-free without prior BLM approval. Under this
proposal you would be able to vent or flare 10,000 cubic feet or less
of associated gas per well, provided the gas is produced as part of
normal oil production operations and is vented or flared in a safe
manner according to applicable laws, regulations and accepted industry
practice. This would be a new regulatory requirement that implements
existing policy.
Production Operations With Hydrogen Sulfide
Proposed regulations on production operations with H<INF>2</INF>S
would require you to test your wells and facilities to identify the
potential for H<INF>2</INF>S and take the necessary steps to protect
public health and safety and the environment.
------------------------------------------------------------------------
Existing
Proposed regulation regulation Existing orders
------------------------------------------------------------------------
3151.20....................... 3162.5-1(a) and Onshore Order Number
3162.5-3. 6 section III.A.2.b.
and c.
3151.21....................... ................. Order Number 6
section III.A.2.a.,
III.D.1.c., and
III.D.2.
3151.22....................... ................. Order Number 6
section III.D.2.b.
through g.
3151.23....................... ................. Order Number 6
section III.D.3.a
through j.
3151.24....................... ................. Order Number 6
section III.D.1.c.
------------------------------------------------------------------------
Section 3151.22 lists the public protection requirements that would
apply to storage tanks that meet the criteria in proposed section
3151.21. Many types of signs and fences satisfy the requirements to
warn of danger and restrict access. The proposed section leaves out
much of the existing regulatory detail regarding the visual appearance
of danger signs and the type of fencing required. The proposed rule
would allow BLM the flexibility to accept practices appropriate for a
particular area as long as they could achieve the stated performance
standard of alerting the public of the potential H<INF>2</INF>S hazard
and restricting access to production facilities.
Section 3151.23 lists the public protection requirements that would
apply to completed wells and production facilities when the
H<INF>2</INF>S concentration in the gas stream is 100 ppm or more. As
with proposed section 3151.22, a standard for signs and fences is
proposed that would eliminate the regulatory detail that presently
exists in Order Number 6. The section would require that your facility
be designed and constructed in accordance with the referenced API
publication and would require you to calculate the 100 and 500 ppm
radii of exposure. You would also be required to implement the
contingency planning procedures of the referenced API publication when
the identified standards are exceeded.
Section 3151.24 would require you to take specific actions to
reduce ambient air concentrations of H<INF>2</INF>S and sulphur dioxide
if the specified thresholds for sustained ambient air concentrations
are exceeded.
Subpart 3152--Site Security
This subpart would contain regulations on site security to provide
for production accountability through sealing requirements, site
security plans, facility diagrams, well and facility identification,
recordkeeping and theft reporting.
------------------------------------------------------------------------
Existing
Proposed regulation regulation Existing orders
------------------------------------------------------------------------
3152.10....................... 3161.1(b)........ Onshore Order Number
3 section I.B., I.C.
3152.20....................... 3162.7-5(a) and Order Number 3
(b) (1), (2), section III.A.1 and
(4), and (5). 2.
3152.21....................... ................. Order Number 3
section III.A.1.b
and g; and Order
Number 3 section
III.A.2.a.
3152.30....................... 3162.7-5(b) (2) Order Number 3
and (3). section III.B. and
D.
3152.40....................... 3163............. Order Number 3
section IV.
3152.50....................... 3162.7-5......... Order Number 3
section III.F. and
H.
3152.51....................... 3162.7-5(d)...... Order Number 3
3152.52....................... section III.I.
3152.60....................... 3162.6...........
3152.70....................... 3162.7-1(c) (1) Order Number 4
through (4). section III.E.
3152.80....................... 3162.7-5(b)(8)... Order Number 3
section III.E.
------------------------------------------------------------------------
Site Security--General
Section 3152.10 would set site security standards for Federal and
Indian oil and gas lease facilities and those facilities that store
allocable production.
Storage and Sales Facilities--Seals
Section 3152.20 would contain a performance standard for when a
particular valve is subject to seal requirements. The performance
standard would describe the characteristics of valves you must seal.
This differs from Order Number 3, which lists specific valves that are
either subject to, or exempt from, sealing requirements. This standard
should give operators the flexibility to take into account local
conditions or practices that may affect the need to seal a valve. This
section would eliminate the list in Order Number 3 section