Onshore Oil and Gas Operations; Federal and Indian Oil and Gas Leases; Site Security

Federal RegisterNov 17, 2016

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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3160 and 3170

[17X.LLWO310000.L13100000.PP0000]

RIN 1004-AE15

Onshore Oil and Gas Operations; Federal and Indian Oil and Gas Leases; Site Security

AGENCY:

Bureau of Land Management, Interior.

ACTION:

Final rule.

SUMMARY:

This final rule replaces Onshore Oil and Gas Order No. 3, Site Security (Order 3), with new regulations codified in the Code of Federal Regulations (CFR). The final rule establishes minimum standards for oil and gas facility site security, and includes provisions to ensure that oil and gas produced from Federal and Indian (except Osage Tribe) oil and gas leases are properly and securely handled, so as to ensure accurate measurement, production accountability, and royalty payments, and to prevent theft and loss.

The BLM developed this rule based on the proposed rule that was published in the

Federal Register

on July 13, 2015, and tribal and public comments the BLM received on the proposed rule. This rule strengthens the BLM's policies governing production verification and accountability by updating and replacing the existing requirements of Order 3 to address changes in technology and industry practices that have occurred in the 25 years since Order 3 was issued, and to respond to recommendations made by the Government Accountability Office (GAO) and the Office of the Inspector General (OIG) with respect to the BLM's production verification efforts.

Like the proposed rule, the final rule addresses Facility Measurement Points (FMPs), site facility diagrams, the use of seals, bypasses around meters, documentation, recordkeeping, commingling, off-lease measurement, the reporting of incidents of unauthorized removal or mishandling of oil and condensate, and immediate assessments for certain acts of noncompliance. The final rule also establishes a process for the BLM to consider variances from the requirements of the final regulation.

Some of the key changes from the proposed rule that are incorporated into the final rule include: Additional exemptions from the final rule's commingling requirements; a streamlined FMP application and approval process; simplified site facility diagram submissions; and clarifications to tank gauging procedures and frequency.

The BLM believes that this final rule, as well as the final rules to update and replace Onshore Oil and Gas Order No. 4 (Order 4), related to measurement of oil, and Onshore Oil and Gas Order No. 5 (Order 5), related to measurement of gas enhance the BLM's overall production verification and accountability program.

DATES:

The final rule is effective on January 17, 2017.

FOR FURTHER INFORMATION CONTACT:

Michael Wade, BLM Colorado State Office, at 303-239-3737, for information about the requirements of this final rule, or Steven Wells, Division Chief, Fluid Minerals Division, 202-912-7143, for information regarding the BLM's Fluid Minerals Program. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Relay Service at 1-800-877-8339 to contact the above individuals during normal business hours. The Service is available 24 hours a day, 7 days a week to leave a message or question with the above individual. You will receive a reply during normal business hours.

SUPPLEMENTARY INFORMATION:

I. Executive Summary and Background

II. Overview of the Final Rule, Section-by-Section Analysis, and Response to Comments

III. Overview of Public Involvement and Consistency With GAO Recommendations

IV. Procedural Matters

I. Executive Summary and Background

Under applicable law, royalties are owed on all production removed or sold from Federal and Indian oil and gas leases, as well as on any oil or gas that is avoidably lost during production. The basis for those royalty payments is the measured production from those leases. In the fiscal year (FY) 2015 sales year, onshore Federal oil and gas leases sold 180 million barrels (bbl) of oil,

2.50 trillion cubic feet of natural gas,

and 2.6 billion gallons of natural gas liquids, with a market value of more than $17.7 billion and generating royalties of almost $2.0 billion. Nearly half of these revenues were distributed to the States in which the leases are located. Leases on tribal and Indian lands sold 59 million bbl of oil, 239 billion cubic feet of natural gas, 182 million gallons of natural gas liquids, with a market value of over $3.6 billion and generating royalties of over $0.6 billion, which were distributed in their entirety to the applicable tribes and individual allottee owners.

Figures related to total production of oil include 168 million bbl of regularly classified oil, plus additional sales of condensate, sweet and sour crude, black wax crude, other liquid hydrocarbons, inlet scrubber and drip or scrubber condensate, and avoidable oil losses, all of which are considered to be part of oil sales for accounting purposes.

Includes all processed and unprocessed volumes recovered on-lease, nitrogen, fuel gas, coal bed methane, and any volumes of gas avoidably lost due to venting or flaring.

As explained in the preamble for the proposed rule (80 FR 40768), given the magnitude of this production and the BLM's statutory and management obligations, it is critically important that the BLM ensure that operators accurately measure, properly report, and account for all production. This final rule helps the BLM achieve that objective by updating and replacing Order 3's requirements with regulations codified in the CFR that reflect changes in oil and gas measurement practices and technology since Order 3 was first promulgated in 1989.

Order 3, which was published in the

Federal Register

on February 24, 1989 (54 FR 8056), has been in effect since March 27, 1989.

Specifically, the requirements in this rule ensure the proper and secure handling of production from Federal and Indian (except Osage Tribe) oil and gas leases. The proper handling of production is essential to accurate measurement, proper reporting, and overall production accountability, all of which are necessary to ensure that the American public, as well as Indian tribes and allottees, receive the royalties to which they are entitled on oil and gas produced from Federal and Indian leases, respectively.

Order 3 was one of seven Onshore Oil and Gas Orders that the BLM issued under its regulations at 43 CFR part 3160.

Order 3 primarily supplemented the regulations at 43 CFR 3162.4 (records and reports), 3162.5 (environmental safety), 3162.7 (disposition and measurement of oil and gas production and site security on Federal and Indian (except Osage Tribe) oil and gas leases), subpart 3163 (non-compliance, assessments, and civil penalties), and subpart 3165 (relief, conflicts, and appeals). While the BLM's Onshore Orders have all been published in the

Federal Register

, both for public comment and in final form, they were never codified in the CFR. With this final rule, the BLM is replacing Order 3 and updating and codifying its

requirements regarding site security, as explained below.

These regulations provide for the issuance of Onshore Oil and Gas Orders to “implement and supplement” the regulations found in part 3160. 43 CFR 3164.1(a). The Onshore Orders apply nationwide to all Federal onshore and Indian (except Osage Tribe) oil and gas leases.

The development of this rule was driven largely by internal and external reviews of the BLM's existing production measurement and accountability program. These reviews began in 2007 when the Secretary appointed an independent panel—the Subcommittee on Royalty Management (Subcommittee)—to review the Department's procedures and processes related to the management of mineral revenues and to provide advice to the Department based on that review.

In a report dated December 17, 2007, the Subcommittee determined that the BLM's guidance regarding production accountability is “unconsolidated, outdated, and sometimes insufficient” (Subcommittee report, p. 30). The Subcommittee report found that this results in inconsistent and outmoded approaches to production accountability tasks, and the potential loss of royalty revenue.

The Subcommittee was commissioned to report to the Royalty Policy Committee, which was chartered under the Federal Advisory Committee Act to provide advice to the Secretary and other departmental officials responsible for managing mineral leasing activities and to provide a forum for the public to voice concerns about mineral leasing activities. The Royalty Policy Committee's chart has since expired.

The Subcommittee report expressed concern that the applicable “BLM policy and guidance is outdated” and “some policy memoranda have expired” (Subcommittee report, p. 31). The Subcommittee also expressed concern that “BLM policy and guidance have not been consolidated in a single document or publication,” which has led to the “BLM's 31 oil and gas field offices using varying policy and guidance” (id.). For example, “some BLM State Offices have issued their own `Notices to Lessees' for oil and gas operations” (id.). While the Subcommittee recognized that such Notices to Lessees may have a positive effect on some oil and gas field operations, it also observed that they necessarily “lack a national perspective and may introduce inconsistencies among State [Offices]” (id.).

The Subcommittee made a number of recommendations relevant to site security. It recommended that the BLM re-evaluate its regulations and update its policy and guidance on production accountability, including requiring that requests to commingle production from multiple leases, unit participating areas (PAs), or areas subject to communitization agreements (CAs) identify allocation among zones (Subcommittee report, p. 32). The Subcommittee also recommended that the BLM re-evaluate its policies and guidance for royalty-free use of gas in lease operations. It also specifically recommended that the BLM establish a workgroup to evaluate Order 3. In response, the Department formed a fluid minerals team, comprising Departmental employees who are oil and gas experts. Based on its review, the team determined that Order 3 should be updated.

In addition to the Subcommittee report, the GAO and the OIG have performed multiple audits since 2009 and issued reports that included many findings and recommendations addressing similar issues: (1) Report to Congressional Requesters, Oil and Gas Management, Interior's Oil and Gas Production Verification Efforts Do Not Provide Reasonable Assurance of Accurate Measurement of Production Volumes GAO-10-313 (GAO Report 10-313); (2)

Report to Congressional Requesters, Oil and Gas Resources, Interior's Production Verification Efforts: Data Have Improved but Further Actions Needed,

GAO 15-39 (GAO Report 15-39); (3)

Bureau of Land Management's Oil and Gas Inspection and Enforcement Program,

CR-EV-0001-2009 (OIG Report 2009); and (4)

Energy Related Management Advisories,

CR-IS-MOA-0005-2014 (OIG Report 2014).

In 2010, the GAO found that Interior's measurement regulations and policies do not provide reasonable assurance that oil and gas are accurately measured. Regarding matters relevant to site security, the report found that the BLM lacks regulatory or policy requirements for operators to clearly identify points of royalty measurement, creating challenges for the BLM in verifying production (GAO Report 10-313, p. 34). It also found that the BLM does not have sufficient national policies or a consistent process for approving arrangements that allow operators to commingle production from multiple Federal, Indian, State, and private leases, which also makes it difficult for the agency to verify production (GAO Report 10-313, p. 36). In response, the GAO specifically recommended that the BLM: (1) Develop guidance clarifying when Federal oil and gas may be commingled and establish standardized measurement methods for such circumstances so that production can be adequately measured and verified; (2) Confirm that commingling agreements are consistent with Interior guidance before they are approved, and that the agreements facilitate key production verification activities; and (3) Track all onshore meters, including information about meter location, identification number, and owner, to help ensure that Interior (through the BLM) is accurately and consistently tracking where and how onshore oil and gas are measured nationwide.

The GAO reiterated some of these concerns in 2015 (GAO Report 15-39). In that report, the GAO acknowledged the improvements the BLM had made in its processes and policies (

e.g.,

issuing additional guidance in 2013 regarding commingling approvals), but reiterated the importance of the BLM updating its regulations related to measurement and site security (GAO Report 15-39, pp. 31-32).

Based in part on its concern that the BLM's production verification efforts do “not provide reasonable assurance that operators are accurately measuring and reporting” the volumes of oil and gas produced from Federal and Indian leases, the GAO included the BLM's onshore oil and gas program on its High Risk List in 2011 (Report to Congressional Committees,

High Risk Series, An Update,

GAO-11-278 (GAO Report 11-278), p. 15). Because the GAO's recommendations have not yet been fully implemented, including those related to production verification, the onshore oil and gas program has remained on the High Risk List in subsequent updates in 2013 (Report to Congressional Committees,

High Risk Series, An Update,

GAO-13-283) and 2015 (Report to Congressional Committees,

High Risk Series, An Update,

GAO-15-290).

The OIG made similar observations as part of its reviews of the BLM's inspection and enforcement program. For example, in 2009 the OIG observed that the BLM's “inspection efforts are hampered because of provisions in the bureau's regulations that have not kept up with modern technology. Most notably, six of the seven Onshore Oil and Gas Orders, which address activities, such as drilling operations, the measurement of oil and gas, and site security, are outdated as they were enacted in the late 1980s and early 1990s.” The OIG specifically recommended that the BLM “(e)nsure that oil and gas regulations are current by updating and issuing onshore orders.” (OIG Report 2009, p. 10-11).

The OIG also expressed concern that “(c)urrent BLM policies (with respect to penalties and assessments) do not allow for immediate assessments for chronic offenders. As a result, at times there is little incentive for companies to meet their regulatory responsibilities.” (

id.,

p. 13). As a result, the OIG recommended that the BLM “(e)nhance the deterrent for operator noncompliance by increasing the dollar amount of

monetary assessments, seeking congressional action for increasing civil penalties, and expanding the infractions for which immediate assessments may be issued.” (

id.,

p. 14).

The OIG supplemented these recommendations in 2014 with a series of recommendations that flowed from individual OIG investigations that were consolidated into one report—

Energy Related Management Advisories,

CR-IS-MOA-0005-2014 (Nov. 2014) (OIG Report 2014).

That report made a number of recommendations, including the following relevant to this rule:

The OIG Report 2014, covered the following investigations: Berry Petroleum Co. & Quinex Energy Corp., DOI-OIG Case File Nos. OI-OG-07-0359-I & OI-OG-07-0389-I; Petrox Resources, Inc., DOI-OIG Case File No. OI-OG-09-0266-I; SEECO, Inc., OIG Case File No. OI-OG-09-0722-1; and TEPPCO Partners, DOI-OIG Case File No. OI-OG-09-0346-I).

• Develop and implement procedures to ensure timely receipt of site facility diagrams and ensure that they contain adequate information related to production and sales phases (OIG Report 2014 at 10, 18);

• Take steps to address misreporting associated with off-lease measurement (

id.

);

• Ensure that adequate information exists regarding on-lease beneficial use in order to identify inappropriate deductions (

id.,

at 12); and

• Ensure that Federal measurement points are properly documented and recorded (

id.

at 21).

In addition to the concerns from these entities, the BLM also recognized, based on its own experience, that its site security requirements needed strengthening. For example, as explained in the proposed rule, it is not uncommon for a BLM inspector, a lease operator, and field employees to all have different understandings of where the point of royalty measurement is on a given lease, because Order 3 did not require operators to formally identify and obtain BLM approval for the use of a particular royalty measurement point on a given lease, unit PA, or CA. This type of discrepancy can create needless uncertainties in production, accounting, and verification, and can increase the time spent on individual inspections and audits by both operators and the BLM, which strains the BLM's limited resources and requires additional response and resources on the part of operators. This final rule corrects this problem by requiring operators to identify and obtain BLM approval for their royalty measurement points, which are called FMPs under this rule.

Similarly, with respect to commingling approvals, the BLM recognizes that the absence of uniform national guidance means that some BLM-approved commingling agreements may not provide the production data that the BLM needs to independently verify production that is attributable to the Federal or Indian leases covered by those agreements. The absence of this data limits the BLM's ability to fulfill its obligation to ensure that all production from Federal and Indian (except Osage Tribe) oil and gas leases is properly accounted for and that royalties are properly calculated. The final rule addresses these concerns by establishing uniform requirements for both existing and future commingling approvals. With respect to existing approvals, the final rule includes provisions: (1) Specifically grandfathering existing CAAs involving downhole commingling and where production falls below certain specified thresholds; (2) Expressly exempting from compliance with the rule's commingling requirements downhole commingling in new wells in areas where the BLM has specifically recognized that downhole commingling is necessary to ensure maximum economic recovery (such as when a lower formation is necessary to produce an upper one) or when commingled production is below certain levels; and, (3) Expressly recognizing as compliant CAAs authorized by tribal law or agreement. As explained in this preamble, the provisions related to grandfathering and the additional exemptions were developed in response to comments and are consistent with the exceptions in the original proposed rule.

As explained in Section III of this preamble, the requirements in this final rule respond to the Subcommittee, GAO, and OIG recommendations by updating, enhancing, clarifying, and codifying the Order 3 requirements to reflect changes in technology, industry practice, and applicable statutory requirements. The final rule also responds to comments received during the public comment period on the proposed rule.

In aggregate, the provisions in the final rule help ensure that the production of Federal and Indian (except Osage Tribe) oil and gas is adequately accounted for. By replacing the patchwork of guidance developed by BLM state and field offices, the final rule also provides operators with a level of consistency as to the requirements applicable to their operations on Federal and Indian (except Osage Tribe) lands nationwide.

As explained in the preamble to the proposed rule, the proposal was developed based, in part, on feedback received during a series of public meetings held by the BLM on April 24 and 25, 2013. The BLM also held public meetings and accepted comments in December 2015.

The Department of the Interior (Department) plays the critical role of ensuring that the country's oil and gas assets are carefully developed and that the American people, Indian tribes and individual allottees receive fair compensation when these assets are leased and developed. A key part of this role consists of providing reasonable assurance that Federal and Indian oil and gas are accurately measured and that measurement efforts undertaken by the private companies developing these resources are held to high standards.

II. Overview of the Final Rule, Section-by-Section Analysis, and Response to Comments

A. General Overview of the Final Rule

As discussed in the background section of this preamble, the BLM's rules concerning site security and production accountability found in Order 3 have not kept pace with industry standards and practices, statutory requirements, or applicable measurement technology and practices. This final rule enhances the BLM's overall production accountability efforts by addressing these concerns and will ensure that the oil and gas produced from Federal and Indian (except Osage Tribe) leases is adequately accounted for, ultimately ensuring that all royalties due are paid. The following table provides an overview of the changes between the proposed rule and this final rule. A similar chart explaining the differences between the proposed rule and Order 3 appears in the proposed rule at 80 FR 40771.

Proposed rule

Final rule

Substantive changes

43 CFR 3161.1(e) Jurisdiction

43 CFR 3161.1(b) Jurisdiction

The final rule removes a provision from the proposed rule that could have unintentionally extended the regulations in part 3160 to State or private tracts committed to a federally approved unit or CA.

In its place, the BLM clarifies that the regulations under part 3170, including subparts 3173, 3174, and 3175, relating to site security, measurement, reporting of production and operations, and assessments or penalties for non-compliance with such requirements, apply to all wells and facilities on State or privately owned lands committed to a unit or CA, which includes Federal or Indian lease interests, notwithstanding any contrary provision of the unit or communization agreement.

43 CFR 3162.4-1(d) Well records and reports

Consistent with the proposed rule, paragraph (d) has been revised to incorporate the new records-retention period for Federal leases established by the 1996 amendments to Federal Oil and Gas Royalty Management Act (FOGRMA), 30 U.S.C. 1701

et seq.

In the final rule, that provision has been restructured consistent with the changes in paragraphs (c) through (e) of § 3170.7.

None

43 CFR 3163.2 Generally

The changes being made as part of this rule are a combination of the changes proposed as part of this rulemaking effort and the proposed rule to update and replace Order 5 (80 FR 61645). These changes also reflect the modifications made by the BLM's interim final rule—

Onshore Oil and Gas Operations—Civil Penalties Inflation Adjustments

(81 FR 41860) (the “Civil Penalty Rule”)—that updates the various daily penalty maximums in this section.

Paragraph (a)(2) of the proposed rule is carried forward into the final. The final rule deletes existing paragraphs (g) and (j) in their entirety and redesignates existing paragraph (i) as paragraph (g).

43 CFR 3163.2(a)(l) Civil penalties

43 CFR 3163.2(a)(1) Civil penalties

The final rule revises paragraph (a)(1) of the proposed rule to clarify that this section applies to “any person,” as opposed to limiting it to “operating rights owner or operator.” This change was proposed as part of the Order 5 rulemaking and conforms the regulation to the applicable statutory authority.

43 CFR 3163.2(b)(l) Civil penalties

The final rule changes the references in the proposed rule to “operating rights owner, operator, purchaser, or transporter” to just “the person” consistent with the change to paragraph (a)(1) to reference “any person.” Paragraph (b)(1) of the final also reflects the increase in maximum daily penalty from $500 to $1,031 made by the BLM's Civil Penalty Rule.

43 CFR 3163.2(b)(2) Civil penalties

The final rule changes the references in the proposed rule to “operating rights owner, operator, purchaser, or transporter” to just “the person” consistent with the change to paragraph (a)(1) to reference “any person.” Paragraph (b)(2) of the final rule also reflects the increase in the maximum daily penalty from $5,000 to $10,314 made by the BLM's Civil Penalty Rule.

43 CFR 3163.2(d) Civil penalties.

Proposed as part of the Order 5 rulemaking

43 CFR 3163.2(d) Civil penalties

Consistent with the proposed rule to update and replace Order 5, the final rule removes the regulatory cap on civil-penalty assessments. It also reflects the increase in maximum daily penalty from $500 to $1,031 made by the BLM's Civil Penalty Rule. Finally, it moves the substance of existing paragraph (k) to paragraph (d). As a result, paragraph (k) is removed.

43 CFR 3163.2(e) Civil penalties.

Proposed as part of the Order 5 rulemaking

43 CFR 3163.2(e) Civil penalties

Consistent with the proposed rule to update and replace Order 5, the final rule removes the regulatory cap on civil penalty assessments and reflects the increase in maximum daily penalty from $10,000 to $20,628 made by the BLM's Civil Penalty Rule.

43 CFR 3163.2(f) Civil penalties.

Proposed as part of the Order 5 rulemaking

43 CFR 3163.2(f) Civil penalties

Consistent with the proposed rule to update and replace Order 5, the final rule removes the regulatory cap on civil penalty assessments and reflects the increase in the maximum daily penalty from $25,000 to $51,570 made by the BLM's Civil Penalty Rule.

43 CFR 3165.3(a) Notice, State Director review and hearing on the record

The final rule clarifies in paragraph (a) that any person is subject to written notice or order by the authorized officer (AO) whenever they fail to comply with any provisions of the lease, the regulations in this part, applicable orders or notices, or any other appropriate order of the AO. The proposed rule made this provision applicable only to an operating rights owner or operator, as appropriate.

43 CFR 3170.3 Definitions and acronyms

New definitions have been added for the terms “averaging period,” “bias,” and “tampering” in response to comments received and additional internal reviews.

In the final rule, the acronym Btu (British thermal unit) is moved from § 3173.1 to this section, and new acronyms—S&W (sediment and water) and LACT (lease automatic custody transfer), are included because they are used across multiple subparts in part 3170.

43 CFR 3170.6(a)(2) Variances

Final paragraph (a)(2) adds a sentence that encourages operators to simultaneously submit variance requests and plans or applications if those plans or applications are contingent upon the BLM approving the variance requests.

43 CFR 3170.6(a)(3) Variances

Final paragraph (a)(3) clarifies the process operators must use to submit their variance requests to the BLM—via WIS, or, if the operator is a small business without access to the Internet, to the BLM office having jurisdiction over the lease, unit, or CA.

43 CFR 3170.7(c) Required recordkeeping, records retention, and records submission

43 CFR 3170.7(c)(1) & (c)(2) Required recordkeeping, records retention, and records submission

Paragraph (c) did not change substantively, but is split into two paragraphs. Paragraph (c)(1) states that records must be maintained for at least 7 years, and paragraph (c)(2) codifies the applicable statutory requirements for further retention beyond 7 years.

43 CFR 3170.7(d) Required recordkeeping, records retention, and records submission

43 CFR 3170.7(d)(1) & (d)(2) Required recordkeeping, records retention, and records submission

Paragraph (d) did not change substantively, but is split into two paragraphs. Paragraph (d)(1) states that records must be maintained for at least 6 years, and subparagraph (d)(2) codifies the applicable statutory requirements for further retention beyond 6 years.

43 CFR 3170.7(e) Required recordkeeping, records retention, and records submission

43 CFR 3170.7(e)(1) & (e)(2) Required recordkeeping, records retention, and records submission

The final rule moves paragraph (e)(2) of the proposed rule to (e)(1) and removes the phrase “or until the Secretary or his designee releases the record holder from the obligation to maintain the records, whichever is later.”

The phrase in paragraph (e)(1) of the proposed rule—“but a judicial proceeding or demand is not commenced within 7 years after the records are generated, the record holder must retain all records regarding production from the unit or CA until the Secretary or his designee releases the record holder from the obligation to maintain the records”—is moved to its own paragraph (e)(2).

43 CFR 3170.7(g) Required recordkeeping, records retention, and records submission

The final rule is revised to require record holders to include the FMP number or the lease, unit PA, or CA number, along with a unique equipment identifier (

e.g.,

a unique tank identification number and meter station number), on all their records.

3170.8 Appeal procedures

3170.8(a) & (b) Appeal procedures

The language from the proposed rule is moved to a new paragraph (a) and a new paragraph (b) is added that creates a separate appeal process for decisions made by the BLM, based on a recommendation from the Production Measurement Team (PMT). Under paragraph (b), a party may file a request for discretionary review by the Assistant Secretary for Land and Minerals Management (ASLM). Paragraph (b) also provides that the ASLM may delegate this review function.

3173.1 Definitions and acronyms

The final rule adds new definitions for the terms “commingling and allocation approval (CAA),” “free water,” “permanent measurement facility,” “payout period,” and “royalty net present value” in response to comments on the proposed rule.

The term “low volume property” is replaced with the term “economically marginal property,” and the definition has also been modified.

Lastly, the definition of the term “land description” is modified to be consistent with the well and facility identification requirements contained in § 3162.6 of the final rule.

CAA (commingling and allocation approval) is removed from the acronym list because the acronym is introduced in the definition section; BIA (Bureau of Indian Affairs) is added to the list of acronyms.

43 CFR 3173.3(a) Oil measurement system components—seals

The requirement in paragraph (a)(5) that flow computers be effectively sealed is removed and instead a new requirement is added in paragraph (a)(6) that a LACT or CMS must be effectively sealed.

Paragraph (a)(7) in the final rule clarifies that sealing the back pressure valve refers to the “pressure adjustment” on the valve, not the valve itself.

43 CFR 3173.6 Water-Draining operations

The final rule removes the requirements that, when draining water from a production storage tank, operators, purchasers, or transporters document the FMP number associated with the tank, the time for when the opening and closing gauges took place, and the name of the person and company draining the tank.

The final rule also clarifies that the gauging operation may be performed manually or automatically, to accommodate the use of automatic tank gauging systems. If gauging is performed manually, the final rule no longer specifies that the color cut method be used for measurement. It leaves the method for capturing the measurement up to the operator and simply requires the accuracy of the measurement to be to the nearest

1/2

inch.

The final rule also clarifies that during the opening gauge operations, the total observed volume (TOV) and free-water measurements must be documented, while during closing gauge operations only the TOV must be measured, since the water will have already been drained.

43 CFR 3173.7(a) Hot oiling, clean-up, and completion operations

The final rule removes the requirements that operators document the FMP number associated with the tank or group of tanks involved in a hot oiling, clean-up, or completion operation, the time at which the opening and closing gauges took place, and the name of the person and company removing production from the tank.

The final rule also clarifies that the gauging operation may be performed manually or automatically; the accuracy of the measurement taken in either case must be to the nearest

1/2

inch.

43 CFR 3173.7(d) Hot oiling, clean-up, and completion operations

Paragraph (d) of the final rule clarifies that when reporting production used during hot oiling, line flushing, or completion operations, the operator's report must include “the period covering the production in question.”

None

43 CFR 3173.8(b)(8) Report of theft or mishandling of production

In the final rule, a new reporting item is added to the list of information that an operator must include in their incident report: “Whether the incident was reported to local law enforcement agencies and company security.” This change was made in response to comments.

43 CFR 3173.9(a) Required recordkeeping for inventory and seal records

The final rule provides greater flexibility in how an operator determines the monthly volumes of production in their tanks. Unlike the proposed rule, where the operator was required to measure the TOV at the end of each calendar month, the final rule allows the operator to either perform the inventory within +/− 3 days of the last day of the calendar month or estimate the end of month inventory based on daily production that takes place between two measured inventories that are not more than 31 days, nor less than 20, days apart. An equation has also been provided if the operator elects to estimate the end-of-month inventory instead of performing the inventory at the end of the calendar month.

43 CFR 3173.10(b) Form 3160-5, Sundry Notices and Reports on Wells

Paragraph (b) now clarifies the process operators must use to submit their Sundry Notices to the BLM Office having jurisdiction over the lease, unit, or CA—namely via the applicable BLM electronic filing system, unless the operator is a small business without access to the Internet.

43 CFR 3173.11(c)(10)(i) Site facility diagram

43 CFR 3173.11(c)(9)(i) Site facility diagram

In paragraph (c)(9)(i), the final rule removes the requirement to identify the equipment manufacturer's name, rated use, and equipment serial number for each engine, motor, or major component powered by production from the lease, unit PA, or CA.

43 CFR 3173.11(c)(11) Site facility diagram

None

Proposed paragraph (c)(11) is eliminated. The final rule does not require the diagram to include a signature block to certify accuracy and completeness of the information contained within this site facility diagram.

43 CFR 3173.11(c)(1) Site facility diagram

43 CFR 3173.11(d)(1) Site facility diagram

Paragraph (c)(1) is eliminated in its entirety and is replaced with paragraph (d)(1), which now requires operators to submit site facility diagrams for new facilities within 30 days after the BLM assigns an FMP to a facility. This is a change from the proposed rule, which required operators to submit diagrams for new facilities within 30 days after completing construction of the new facilities.

43 CFR 3173.11(d) Site facility diagram

43 CFR 3173.11(d)(2) Site facility diagram

Paragraph (d)(2), which applies to facilities that require FMP numbers and are in service before the effective date of this final rule, is changed. Under the final rule, if such a facility already has a diagram on file with the BLM that meets the minimum site-facility-diagram requirements of Order 3, the operator is not initially required to submit a new diagram meeting the requirements of this section. However, the operator must submit a new site facility diagram for the facility that complies with this section within 30 days after the facility is modified, a non-Federal facility located on a Federal lease or federally approved unit or communitized area is constructed or modified, or there is a change in operator.

43 CFR 3173.11(e) Site facility diagram

43 CFR 3173.11(e)(1) Site facility diagram

Paragraph (e)(1) of the final rule applies to new facilities in service after the effective date of the final rule that do not require an FMP number (

e.g.,

a water disposal facility). This paragraph is revised to require the operator of such a facility to submit a new site facility diagram within 30 days after that facility becomes operational.

None

43 CFR 3173.11(e)(2) Site facility diagram

A new paragraph (e)(2) is added, which applies to facilities that do not require an FMP number and are in service before the effective date of the final rule, is added to the final rule. If such a facility already has a diagram on file with the BLM that meets the minimum requirements of Order 3, the operator is not initially required to submit a diagram meeting the requirements of this section. However, the operator must submit a new site facility diagram for the facility that complies with this section within 30 days after the facility is modified, a non-Federal facility located on a Federal lease or federally approved unit or communitized area is constructed or modified, or there is a change in operator.

None

43 CFR 3173.11(f) Site facility diagram

The BLM added a new paragraph (f), which requires operators to submit updated site facility diagrams on an ongoing basis within 30 days after that facility is modified, a non-Federal facility located on a Federal lease or federally approved unit or communitized area is constructed or modified, or there is a change in operator.

43 CFR 3173.12(d) Applying for a facility measurement point

Paragraph (d) of this section applies to measurement facilities that come into service after the effective date of the final rule. This paragraph is changed to clarify that only “permanent” measurement facilities require an FMP number, and not temporary measurement equipment used during well-testing operations. New language has also been added that requires the operator to “apply” for FMP approval (as opposed to “obtaining” FMP approval, as in the proposed rule) before removing any production from that facility. Finally, this paragraph clarifies that an operator must use the lease, unit PA, or CA number for reporting production to ONRR, until the BLM assigns an FMP number. After the BLM assigns the FMP number, the operator must use the FMP number for all reporting to ONRR.

43 CFR 3173.12(e) Applying for a facility measurement point

The final rule clarifies that the requirement to apply for an FMP for facilities in service before the effective date of the final rule applies only to permanent measurement facilities. The final rule also clarifies that the production levels that serve as the triggers for when an operator must apply for an FMP for an existing facility are based on the production level of any one of the leases, unit PAs, or CAs, whether or not they are part of a CAA.

43 CFR 3173.12(e)(1) to (e)(3) Applying for a facility measurement point

The deadlines for applying for FMP numbers have been changed from 9 months, 18 months, and 27 months in the proposed rule to 1 year, 2 years, and 3 years in the final rule for existing producing leases, unit PAs, and CAs. The deadlines are based on the production levels of any one of the leases, unit PAs, or CAs, which have also been modified from the proposed rule. Under the final rule, those facilities that produce:

1. 10,000 Mcf or more for gas or 100 bbl of oil or more—must file within 1 year of the effective date;

2. 1,500 Mcf or more but less than 10,000 Mcf of gas per month or 10 bbl or more, but less than 100 bbl of oil per month—must file within 2 years; and

3. Less than 1,500 Mcf of gas per month or less than 10 bbl of oil per month—must file within 3 years.

None

43 CFR 3173.12(e)(4) Applying for a facility measurement point

A new paragraph (e)(4) is added to the final rule requiring the operator of a stand-alone lease, unit PA, or CA that has not produced for a year or more before the effective date of the final rule to apply for an FMP prior to the resumption of production.

43 CFR 3173.12(e)(5) Applying for a facility measurement point

43 CFR 3173.12(e)(6) Applying for a facility measurement point

Paragraph (e)(6) was paragraph (e)(5) in the proposed rule, but is renumbered because of the addition of a new paragraph (e)(4). The final rule also clarifies that if the operator applies for an FMP within the timeframes outlined in paragraphs (e)(1) to (e)(3), then the operator may continue using the lease, unit PA, or CA number for reporting production to ONRR, until the effective date of the BLM-assigned FMP number.

43 CFR 3173.12(f)(3) Applying for a facility measurement point

The final rule is revised and no longer requires operators to identify the names and the manufacturer, model, and serial number of each measurement component.

Paragraph (f)(3)(i) now requires operators to submit the following information on gas measurement equipment:

• The operator/purchaser/transporter unique station number;

• For primary elements, the meter tube size or serial number; and

• The type of secondary device, whether it is mechanical or electronic.

Paragraph (f)(3)(ii) now requires operators who measure oil tanks by tank gauge to identify the equipment by either the tank number or tank serial number (The proposed rule required operators to provide both pieces of information.). The final rule adds a new requirement that operators specify the tank size(s), in barrels or gallons.

Paragraphs (f)(3)(iii) and (f)(3)(iv) of the proposed rule have been combined into a new paragraph (f)(3)(iii). This paragraph now requires operators who measure oil using LACT systems or CMSs to identify the associated oil tank number(s) or tank serial number(s), the size of the tank(s) in barrels or gallons, and whether the equipment used is a LACT system or CMS.

43 CFR 3173.12(f)(4) Applying for a facility measurement point

None

The final rule removes the requirement in paragraph (f)(4) to identify the gas sampling method for gas measurements. Paragraph (f)(5) in the proposed rule is now renumbered to paragraph (f)(4) in the final rule and is unchanged.

None

43 CFR 3173.12(f)(5) Applying for a facility measurement point

New paragraph (f)(5) adds to the list of information that operators must include in their FMP request.

43 CFR 3173.12(g) Applying for a facility measurement point

Language is added to clarify that FMP requests—if they are submitted concurrently with requests for off-lease measurement or commingling and allocation approvals—must be submitted separately from the other requests.

43 CFR 3173.12(h) Applying for a facility measurement point

None

Paragraph (h) is eliminated from the final rule because it was determined to be redundant.

43 CFR 3173.13(a) and (b) Requirements for approved facility measurement points

None

The final rule removes the requirement for operators to stamp or stencil the FMP number on a fixed plate onto various pieces of oil and gas measurement equipment and to maintain the number in a legible condition.

43 CFR 3173.13(c) Requirements for approved facility measurement points

43 CFR 3173.13(a) Requirements for approved facility measurement points

The final rule removes the requirement for operators to begin using the FMP number for recordkeeping on the first day of the month after the FMP number is assigned.

A new provision is incorporated into paragraph (a) in the final rule that requires operators of existing facilities to begin using their FMP numbers for reporting production to the Office of Natural Resources Revenue (ONRR) on their Oil and Gas Operations Report (OGOR) for the fourth production month after the BLM assigns the FMP numbers. Operators of new facilities in service after this rule's effective date must start using their FMP numbers for production reporting on their OGORs for the first production month after the BLM assigns the FMP numbers.

43 CFR 3173.13(d)(1) and (d)(2) Requirements for approved facility measurement points

43 CFR 3173.13(b)(1) Requirements for approved facility measurement points

Paragraph (b)(1) in the final rule requires operators to notify the BLM via a Sundry Notice within 30 days after changing or modifying an FMP (the proposed rule gave operators 20 business days). This paragraph also describes the types of changes that require the operator to submit a Sundry Notice,

e.g.,

changes in the metering equipment or the wells served by the FMP. Paragraph (b)(1) also clarifies that temporary modifications, such as those made for maintenance purposes, do not require the filing of a Sundry Notice. The final rule removes the requirement in proposed paragraph (d)(2) that operators provide information about the old and new meter manufacturer, serial number(s), and the owner's name.

None

43 CFR 3173.13(b)(2) Requirements for approved facility measurement points

The final rule adds a new requirement that the operator's description of any modifications being made include details, such as the primary element, secondary element, LACT/CMS meter, tank number(s), and wells or facilities using the FMP.

43 CFR 3173.13(d)(3) Requirements for approved facility measurement points

43 CFR 3173.13(b)(3) Requirements for approved facility measurement points

Final paragraph (b)(3) removes the requirement that operators specify why a change was made to a piece of equipment.

43 CFR 3173.14(a) Conditions for commingling and allocation approval (surface and downhole)

Final paragraph (a) is modified so that it explicitly states that the criteria the BLM uses to approve a commingling application under this paragraph is when the proposed allocation method used for commingled measurement does not have the potential to affect the BLM's determination of the total volume or quality of the production on which royalty is owed for all of the Federal or Indian leases, unit PAs, or CAs which are proposed for commingling.

3173.14(a)(1)(i) Conditions for commingling and allocation approval (surface and downhole)

Paragraph (a)(1)(i) clarifies that commingling is permissible when it involves properties that contain 100 percent Federal mineral interests, the same fixed royalty rate, and the same revenue distribution.

3173.14(a)(1)(ii) Conditions for commingling and allocation approval (surface and downhole)

Paragraph (a)(1)(ii) clarifies that commingling is permissible when it involves properties that are wholly owned by the same tribe and have the same fixed royalty rate.

None

3173.14(a)(1)(iii) Conditions for commingling and allocation approval (surface and downhole)

A new paragraph (a)(1)(iii) is added which clarifies that commingling of Federal unit PAs or CAs is permissible even if Federal ownership is not 100 percent, so long as the properties have the same proportion of Federal ownership, royalty rate and revenue distribution.

None

3173.14(a)(1)(iv) Conditions for commingling and allocation approval (surface and downhole)

A new paragraph (a)(1)(iv) is added which clarifies that commingling of tribal unit PAs or CAs is permissible even if tribal ownership is not 100 percent, so long as the properties have the same proportion of tribal interest and fixed royalty rate.

3173.14(a)(2) Conditions for commingling and allocation approval (surface and downhole)

This paragraph recognizes there are cases where multiple operators are party to a CAA and clarifies that there must be a signed agreement amongst the operators about the allocation methodology for the commingling proposal.

None

3173.14(b) Conditions for commingling and allocation approval (surface and downhole)

To complement paragraphs (a)(1)(iii) and (a)(1)(iv) to this section, paragraph (b) clarifies that the BLM may consider commingling that involves production from properties with different royalty rates or revenue distributions, or multiple mineral ownerships.

3173.14(b)(1) Conditions for commingling and allocation approval (surface and downhole)

This paragraph is revised to reflect the BLM's switch from the term “low-volume property” to “economically marginal property.” It also clarifies that if the BLM determines that a Federal or Indian lease, unit PA, or CA included in a CAA ceases to be an economically marginal property, then (b)(1) is no longer met.

3173.14(b)(2) Conditions for commingling and allocation approval (surface and downhole)

In the proposed rule, paragraph (b)(2) allowed operators to be exempted from the BLM's commingling standards if there are overriding considerations that indicated approval of the CAA was appropriate in spite of royalty impacts. In the final rule, this provision is replaced with a new exemption if the average monthly production rate over the previous 12 months for each Federal or Indian lease, unit PA, and CA included in the CAA is less than 1,000 Mcf of gas per month or 100 bbl of oil per month.

Paragraph (b)(2) from the proposed rule is now renumbered as paragraph (b)(5).

3173.14(b)(3) Conditions for commingling and allocation approval (surface and downhole)

New paragraph (b)(3) of the final rule adds a new exemption that allows the BLM to consider approval of a commingling proposal that includes Indian leases, unit PAs, or CAs that has been authorized under tribal law or otherwise approved by a tribe.

In the proposed rule, paragraph (b)(3) required the BLM to ensure that approval of a CAA in cases where the CAA would be exempted from the standards in this rule was in the public interest. This paragraph is eliminated and incorporated into the new paragraph (b)(5).

None

3173.14(b)(4) Conditions for commingling and allocation approval (surface and downhole)

A new exemption is included as part of the final rule that allows the BLM to consider a commingling proposal if it covers the downhole commingling of production from multiple formations where the BLM has determined that the proposed commingling is an acceptable practice for the purpose of achieving maximum ultimate economic recovery and resource conservation.

43 CFR 3173.15(a)(1) and (a)(2) Applying for a commingling and allocation approval

43 CFR 3173.15(a) Applying for a commingling and allocation approval

Paragraph (a) of the final rule eliminates the numbering for paragraph (a)(1) in the proposed rule, and clarifies that if off-lease measurement is a feature of the commingling proposal, then a separate Sundry Notice requesting approval for off-lease measurement is not necessary as long as the off-lease measurement request is included as part of the commingling application and the information required in § 3173.23(b) through (e) and, where applicable, § 3173.23(f) through (i) is included in the commingling application.

3173.15(a)(2) Applying for a commingling and allocation approval

43 CFR 3173.15(b)

Paragraph (a)(2) from the proposed rule is renumbered to a new paragraph (b) and clarifies that submission of a completed Sundry Notice for approval of off-lease measurement is required if any of the proposed FMPs are outside the boundaries of any lease, unit PA, or CA whose production would be commingled. This paragraph clarifies that this requirement does not apply if the circumstances under paragraph (a) of this section are applicable.

43 CFR 3173.15(b) Applying for a commingling and allocation approval

43 CFR 3173.15(c) Applying for a commingling and allocation approval

In addition to requiring operators to provide their proposed allocation agreement, final paragraph (c) is revised to require operators to provide an allocation methodology, along with an example of how the methodology is to be applied.

None

43 CFR 3173.15(d)

Requires the operator to include a list of all Federal or Indian lease, unit PA, or CA numbers in the proposed CAA, specifying the type of production (

i.e.,

oil, gas, or both) for which commingling is requested.

43 CFR 3173.15(d) Applying for a commingling and allocation approval

43 CFR 3173.15(e) Applying for a commingling and allocation approval

Final paragraph (e) continues to require operators to provide maps with their commingling and allocation requests, but the information requirements for the maps are changed. Please note that in the final rule, paragraphs (d)(2) and (d)(3) have been consolidated and renumbered as paragraphs (e)(1) and (e)(2) in the final rule. The final rule also reduces the amount of information that must be submitted with a commingling application relative to the proposed rule.

43 CFR 3173.15(e) Applying for a commingling and allocation approval

None

Proposed paragraph (e), which required submission a site facility diagram showing any changes to existing diagrams if changes were being proposed to an existing facility, is eliminated from the final rule.

43 CFR 3173.15(f) Applying for a commingling and allocation approval

None

Proposed paragraph (f), which required submission of a schematic or engineering drawing for all new proposed facilities, is eliminated from the final rule.

43 CFR 3173.15(g) Applying for a commingling and allocation approval

43 CFR 3173.15(f) Applying for a commingling and allocation approval

Paragraph (f) of the final rule (paragraph (g) of the proposed rule) is revised to clarify that operators must submit a surface use plan of operations if new surface disturbance is proposed for the FMP and its associated facilities, if those facilities are located on BLM-managed land within the boundaries of the lease, units, or communitized areas whose production will be commingled.

43 CFR 3173.15(h) Applying for a commingling and allocation approval

43 CFR 3173.15(g) Applying for a commingling and allocation approval

Final paragraph (g) clarifies that the operator must submit a right-of-way grant application (Standard Form 299) if the proposed FMP is on a pipeline or is a meter or storage tank that entails new surface disturbance located on BLM-managed land outside any of the leases, units, or communitized areas whose production would be commingled.

43 CFR 3173.15(i) Applying for a commingling and allocation approval

43 CFR 3173.15(h) Applying for a commingling and allocation approval

Final paragraph (h) is essentially the same as proposed paragraph (i) but is renumbered.

None

43 CFR 3173.15(i) Applying for a commingling and allocation approval

A new final paragraph (i) has been added to clarify that the operator must submit a right-of-way grant application to the appropriate BIA office if any of the proposed surface facilities are on Indian land outside the lease, unit, or communitized area from which the production would be commingled.

None

43 CFR 3173.15(j)

Requires the operator to include documentation demonstrating that each of the leases, unit PAs, or CAs proposed for inclusion in the CAA is producing or capable of production in paying quantities.

43 CFR 3173.15(k) Applying for a commingling and allocation approval

Final paragraph (k) clarifies that gas analysis and oil gravity data is not needed if the CAA falls under § 3173.14(a).

43 CFR 3173.16(a) Existing commingling and allocation approvals

This section is extensively rewritten from the proposed rule based on comments received. Final paragraph (a) includes new provisions that grandfather the following types of existing commingling operations and their associated off-lease measurement approvals, where applicable, that are in effect prior to the effective date of the final rule:

• Existing CAAs involving downhole commingling that includes Federal or Indian leases, unit PAs, or CAs; or

• Existing CAAs for surface commingling whose average production rate over the previous 12 months for each Federal or Indian lease, unit PA, and CA included in the CAA is less than 1,000 Mcf of gas per month or 100 bbl of oil per month.

43 CFR 3173.16(b) Existing commingling and allocation approvals

A new provision has been added to paragraph (b), which clarifies that if the grandfathering conditions in paragraph (a) of this section are not met, then the existing CAA must meet the minimum standards and requirements for a CAA under § 3173.14 of the final rule.

This section also clarifies that the AO will notify the operator in writing of any inconsistencies or deficiencies with an existing CAA. When the AO is satisfied that the operator has corrected any inconsistencies or deficiencies, the AO will terminate the existing CAA and grant a new CAA based on the operator's corrections.

43 CFR 3173.16(c) Existing commingling and allocation approvals

43 CFR 3173.16(b)(2) Existing commingling and allocation approvals

Paragraph (b)(2) of the final rule clarifies that the AO may terminate an existing CAA and grant a new CAA with new or amended COAs to make the approval consistent with the requirements for CAAs under § 3173.14 of the final rule. Under the proposed rule the AO could simply impose new or amended COAs to an existing commingling approval.

43 CFR 3173.16(e) Existing commingling and allocation approvals

43 CFR 3173.16(c) Existing commingling and allocation approvals

Proposed paragraph (e) is now paragraph (c) and clarifies that any new allocation percentages resulting from the new CAA will only apply from the effective date of the CAA forward.

43 CFR 3173.18(a) Modification of a commingling and allocation approval

Paragraph (a) is changed to require operators to modify a CAA under certain circumstances. The final rule no longer includes “a change in operator” in the list of circumstances that warrant a CAA modification.

43 CFR 3173.18(b) Modification of a commingling and allocation approval

Final paragraph (b)(2) includes a new requirement to describe not only a new allocation methodology for oil and gas production, if appropriate, but also an allocation methodology for produced water and an example of how the methodology is applied.

None

43 CFR 3173.18(c) Modification of a commingling and allocation approval

A new paragraph (c) is added that states that a change in operator does not trigger the need to modify a CAA.

43 CFR 3173.20(a) Terminating a commingling and allocation approval

43 CFR 3173.20(c) Terminating a commingling and allocation approval

The final rule redesignates and modifies proposed paragraph (a), which allows any operator who is a party to a CAA to unilaterally terminate the CAA.

New paragraph (c) in the final rule clarifies that it allows an operator to terminate the CAA through the submission of a Sundry Notice to the BLM. It also clarifies that the termination by one operator does not terminate the CAA for all other operators, so long as the requirements of this part with respect to CAAs are still met as to the remaining operators and they submit a Sundry Notice requesting a new CAA as required by § 3173.20(e).

43 CFR 3173.20(d) Terminating a commingling and allocation approval

Paragraph (d) of the final rule clarifies that the BLM will notify all parties to a CAA the effective date of the termination and the inconsistencies or deficiencies with their CAA that serve as the reason(s) for termination.

The final rule also gives operators the opportunity to correct the inconsistencies or deficiencies, or provide additional information, within 20 business days after receipt of the BLM's notice. Otherwise, the CAA will be terminated.

43 CFR 3173.20(e) Terminating a commingling and allocation approval

Paragraph (e) of the final rule clarifies that if a CAA is terminated, each lease, unit PA, or CA that was included in the CAA may require a new FMP number, or a new CAA may need to be applied for. In such cases, operators will have 30 days to apply for a new FMP number or CAA. Unlike the proposed rule—where operators would have been required to revert back to separate measurement for each lease, unit PA, or CA—the final rule allows the operator to use the existing FMP number for production reporting until a new FMP number is assigned or a new CAA is approved.

43 CFR 3173.21(b) Combining production downhole in certain circumstances

Paragraph (b) makes clear that combining production downhole from different geologic formations on the same lease in a single well is not considered to be commingling for production accounting purposes. This applies even in cases where the respective geologic formations have different ownership. The proposed rule made this distinction, which no longer applies in the final rule.

The final rule also clarifies that such activities are not subject to the commingling standards and requirements contained in §§ 3173.14 through 3173.20.

43 CFR 3173.22(c) Requirements for off-lease measurement

Changes to this paragraph clarify that topographic and environmental issues that make on-lease measurement physically impractical are factors to be considered when deciding if off-lease measurement is in the public interest.

43 CFR 3173.23(a) Applying for off-lease Measurement

The second sentence of proposed paragraph (a) is removed because § 3173.15(a) states that if off-lease measurement is a feature of the CAA proposal, then a separate Sundry Notice is not necessary as long as the information required under § 3173.23(b) through (e) and, where applicable, § 3173.23(f) through (i), is included as part of the request for approval of a CAA.

43 CFR 3173.23(c)(2) Applying for off-lease Measurement

The final rule in this paragraph no longer requires location identification by land description, but does include a new requirement to identify existing or proposed (to the extent known) FMPs.

43 CFR 3173.23(d) Applying for off-lease Measurement

None

Paragraph (d) of the proposed rule requiring operators to submit a schematic or engineering drawing for all new proposed facilities is deleted.

43 CFR 3173.23(e) Applying for off-lease Measurement

None

Paragraph (e) of the proposed rule, which required operators to submit as part of their off-lease measurement application, site facility diagrams clearly showing any proposed change to current site facility diagrams for existing facilities is deleted.

43 CFR 3173.23(f) Applying for off-lease Measurement

43 CFR 3173.23(e) Applying for off-lease Measurement

In the event there is a change in the ownership of the non-Federal surface or of the measurement facilities, the final rule includes a new 30-day deadline for when an operator must submit written concurrence from the new owner that it will give the BLM unrestricted access to the off-lease measurement facility and the surface on which it is located to inspect the FMP and any associated equipment.

43 CFR 3173.23(g) Applying for off-lease Measurement

43 CFR 3173.23(f) Applying for off-lease Measurement

Final paragraph (f) clarifies that if the proposed off-lease FMP is on a pipeline or is a meter or storage tank, then a right-of-way grant application using Standard Form 299 must be submitted.

This paragraph also clarifies that this requirement applies only when new surface disturbance is proposed for the FMP and its associated facilities are located on BLM-managed land.

43 CFR 3173.23(h) Applying for off-lease Measurement

43 CFR 3173.23(g) Applying for off-lease Measurement

Final paragraph (g) (re-lettered from paragraph (h)) clarifies that if any of the proposed surface facilities are on Indian land outside the lease, unit, or communitized area, then a right-of-way grant application filed under 25 CFR part 169 must be filed with the appropriate BIA office.

None

43 CFR 3173.23(h) Applying for off-lease Measurement

The final rule adds a new paragraph (h) that requires written approval from the appropriate surface-management agency if new surface disturbance is proposed for the FMP and its associated facilities are located on Federal land managed by an agency other than the BLM.

3173.25(b) Existing approved off-lease measurement

Paragraph (b) of the final rule has been revised to provide an opportunity for operators to request additional time to correct any inconsistencies or deficiencies that the AO identifies. This paragraph also clarifies that the extension request must explain the factors preventing the operator from timely compliance.

3173.25(c) Existing approved off-lease measurement

Paragraph (c) of the final rule clarifies that if new or amended conditions of approval (COAs) are necessary to make an existing off-lease measurement approval consistent with the final rule's standards, then the BLM could address that situation by terminating the existing approval and issuing a new off-lease measurement approval with new or amended COAs.

None

43 CFR 3173.25(e) Existing approved off-lease measurement

A new paragraph (e) is added to the final rule, clarifying that if the existing off-lease measurement approval under this section is consistent with the requirements under § 3173.22, then that existing off-lease measurement is grandfathered and will be part of its FMP approval.

43 CFR 3173.25(e) Existing approved off-lease measurement

43 CFR 3173.25(f) Existing approved off-lease measurement

Proposed paragraph (e) is re-lettered to paragraph (f).

43 CFR 3173.27(a) Termination of off-lease measurement approval

43 CFR 3173.27(c) Termination of off-lease measurement approval

Proposed paragraph (a) is deleted from the final rule and the provision in that paragraph allowing an operator to terminate off-lease measurement is moved to paragraph (c).

43 CFR 3173.27(b) Termination of off-lease measurement approval

43 CFR 3173.27(a) Termination of off-lease measurement approval

Paragraphs re-lettered. No change.

43 CFR 3173.27(c) Termination of off-lease measurement approval

43 CFR 3173.27(b) Termination of off-lease measurement approval

Final paragraph (b) is changed to say the BLM will notify the operator in writing of any inconsistencies or deficiencies with its off-lease measurement approval that serve as the reason(s) for termination.

The final rule is also changed to give the operator 20 business days after receipt of the notification to correct the inconsistencies or deficiencies that the BLM identifies, or provide additional information that the AO requests, or the off lease measurement approval terminates. The operator may request an extension of the 20-business-day timeframe.

43 CFR 3173.27(d) Termination of off-lease measurement approval

Final paragraph (d) explains that if an off lease measurement approval is terminated, each lease, unit PA, or CA that was in the approval may require a new FMP number(s) or a new off lease measurement approval. Operators will have 30 days to apply for a new FMP number or off lease measurement approval. The final rule allows operators to use the existing FMP number for production reporting until a new FMP number is assigned or a new off lease measurement approval is approved.

43 CFR 3173.29 Immediate assessments

The final rule exempts purchasers and transporters from the immediate assessments that will be imposed for certain instances of non-compliance. In addition, the final rule modifies the description of violations number 7 through 11.

• For violation number 7, the final rule clarifies that the applicable regulation is § 3170.7, not § 3173.9(a)(1) and (a)(2).

• For violation 8, the final rule clarifies that an immediate assessment could result if operators fail to “apply for” the required FMP approval. The proposed rule required operators to “obtain” FMP approval.

• For violations 9, 10, and 11, the final rule clarifies that an immediate assessment could result if production is removed from a facility in operation after the effective of the final rule prior to receiving BLM approval for off-lease measurement or commingling. For an existing facility in service on or before the effective date of the final rule, an immediate assessment could result if production is removed from a facility that does not already have an existing BLM approval for off-lease measurement or commingling, if applicable.

Specifically, the final rule no longer requires the commingling application to include the following items: (i) The land description of the FMP that will be used to measure the commingled production; (ii) Production facilities and flow lines proposed to be installed to the extent known; and (iii) A map or diagram showing all of the infrastructure-related facilities that are part of the commingling proposal. The final rule only requires identification of existing or planned facilities, all wellheads, and piping that will be included in the CAA, as well as existing or proposed FMPs to be installed (if known).

B. Section-by-Section Analysis and Response to Comments on Specific Provisions

This final rule is codified primarily in a new 43 CFR subpart 3173 within a new part 3170. The BLM is also issuing final rules that update and replace Order 4 (oil measurement) and Order 5 (gas measurement). Those final rules are codified at new 43 CFR subparts 3174 and 3175, respectively, within the new part 3170. Subpart 3170 of this final rule contains definitions of certain terms and provisions that are common to all three rules (and to any other provisions within part 3170),

i.e.,

provisions prohibiting by-pass of or tampering with meters; procedures for obtaining variances from the requirements of a particular rule; requirements for recordkeeping, records retention, and submission; and administrative appeal procedures.

In addition, this final rule makes changes to various provisions in 43CFR part 3160 and in 43 CFR 3161.1, 3162.3-2, 3162.4-1, 3162.6, 3162.7-1, 3163.2, and 3165.3. Public comments on changes to the provisions in part 3160 are discussed in connection with the new subparts 3170 or 3173 provisions to which the particular comment relates. Other comments on changes to provisions in part 3160 are discussed at the end of this Section-by-Section analysis.

Subpart 3170 and Related Provisions

Section 3170.1 Authority

Section 3170.1 of the final rule identifies the various grants of rulemaking authority in the Federal and Indian mineral leasing statutes and related statutes that give the Secretary authority to promulgate this rule. As explained in that section, the Department is authorized to lease Federal and Indian (except Osage Tribe) oil and gas under various mineral leasing statutes, including the Mineral Leasing Act, 30 U.S.C. 181

et seq.;

the Mineral Leasing Act for Acquired Lands, 30 U.S.C. 351

et seq.;

the Federal Oil and Gas Royalty Management Act (FOGRMA), 30 U.S.C. 1701

et seq.;

the Indian Mineral Leasing Act, 25 U.S.C. 396a

et seq.;

the Act of March 3, 1909, 25 U.S.C. 396; the Indian Mineral Development Act, 25 U.S.C. 2101

et seq.;

and the Federal Land Policy and Management Act (FLPMA), 43 U.S.C. 1701

et seq.

Each of these statutes expressly authorizes the Secretary of the Interior to promulgate necessary and appropriate rules and regulations governing those leases.

See e.g.,

30 U.S.C. 189; 30 U.S.C. 359; 30 U.S.C. 1751; 25 U.S.C. 396d; 25 U.S.C. 396; 25 U.S.C. 2107; and 43 U.S.C 1740. The Secretary has delegated this authority to the Bureau of Land Management (BLM). Specifically, under Secretarial Order Number 3087, dated December 3, 1982, as amended on February 7, 1983 (48 FR 8983), and the Departmental Manual (235 DM 1.1), the Secretary has delegated regulatory authority over onshore oil and gas development on Federal and Indian (except Osage Tribe) lands to the BLM. For Indian leases, the delegation of authority to the BLM is reflected in 25 CFR parts 211, 212, 213, 225, and 227. In addition, as authorized by 43 U.S.C. 1731(a), the Secretary has delegated to the BLM regulatory responsibility for oil and gas operations in Indian lands. 235 DM 1.1.K.

These statutes and regulations form the basis of and provide the authority for the issuance of this final rule. For example, § 101(a) of FOGRMA directs the Secretary to “establish a comprehensive inspection, collection and fiscal and production accounting and auditing system to provide the capability to accurately determine oil and gas royalties, interest, fines, penalties, fees, deposits, and other payments owed, and to collect and account for such amounts in a timely manner.” Ensuring that oil and gas produced from Federal and Indian leases is accurately measured and properly accounted for is a critical component of any system to ensure that all royalties due are paid. Under § 101(a) of FOGRMA, the Secretary is authorized to promulgate “such rules and regulations as [s]he deems reasonably necessary to carry out.” the purposes of the act. The FOGRMA mandate complements the policy articulated in FLPMA that the United States receive fair compensation for the use of public lands and resources. See 43 U.S.C. 1701(a)(9). This rule, by improving BLM requirements governing site security and related measures, helps ensure that all royalties due are paid, and thus that the United States receives fair compensation for the use of public minerals.

The BLM did not receive any public comments related to this provision and only made minor changes for clarity between the proposed and final versions.

Section 3170.2 Scope

Section 3170.2(a) explains that the regulations in part 3170 apply to all onshore Federal and Indian (except Osage Tribe) oil and gas leases. Paragraph (b) explains that part 3170 also applies to agreements for oil and gas development under the Indian Mineral Development Act, unless the relevant provisions of the rule are inconsistent with the specific terms of such agreement. Paragraph (c) explains that a Tribal Energy Resource Agreement entered into with the

Secretary is subject to part 3170, unless specifically excluded in such lease, other business agreement or Tribal Energy Resource Agreement. Paragraph (d) explains that State or private tracts committed to a federally approved unit or CA as defined by or established under 43 CFR subpart 3105 or 43 CFR part 3180 are also subject to the requirements of part 3170. Finally, paragraph (e) states that all FMPs measuring production from any of the aforementioned leases or agreements are subject to the requirements of part 3170.

The BLM received several comments expressing concern with proposed paragraph (d), which applies the part 3170 regulations to State or private tracts committed to a federally approved unit or CA as defined by or established under 43 CFR subpart 3105 or 43 CFR part 3180. The same language also appeared in a new paragraph (e) that was proposed to be added to §

3161.1 Jurisdiction.

Comments received on both sections are discussed here.

Many commenters thought that the new paragraph (e) language proposed for § 3161.1 would extend the BLM's jurisdiction over oil and gas to activities that are not covered by this rule. Specifically, commenters were concerned that adding the proposed language to § 3161.1 and also to proposed § 3170.2 would expand the BLM's authority over the processing and approval of Applications for Permits to Drill (APDs) within State and private tracts committed to a BLM-approved Federal or Indian unit or CA. Commenters said that such an expansion of authority would force operators to obtain Federal drilling permits for drilling on State and private tracts. From the commenters' perspective, this perceived expansion in jurisdiction would fundamentally alter the way in which operators plan for development.

The BLM disagrees with this interpretation of the new language and never intended for this rule to extend the BLM's permitting authority over State and private drilling approvals. However, to avoid confusion, the BLM in this final rule added a new paragraph (b) to its § 3161.1 revisions, which clarifies that it is the regulations in parts 3160 and 3170 relating to site security, measurement, reporting of production and operations, and assessments or penalties for non-compliance with such requirements (

i.e.,

those found in subparts 3173, 3174, and 3175) that are applicable to all wells and facilities on State or privately owned lands committed to a unit or CA where the unit or CA affects Federal or Indian interests. Proposed § 3170.2(d) has not been changed because it is appropriate for this rule to state that the regulations under part 3170, which includes subparts 3173, 3174, and 3175, do in fact apply to State or private tracts committed to a federally approved unit or CA as defined by or established under 43 CFR subpart 3105 or 43 CFR part 3180. This is consistent with the BLM's past application of its regulations, including its Onshore Orders, under existing 43 CFR 3161.1(b).

Section 3170.3 Definitions and Acronyms

This section defines terms and acronyms used across all of the various subparts of part 3170.

The BLM did not receive any comments on the majority of the definitions that appeared in the proposed rule and that are now in the final rule. Those definitions for which we received no comments were carried forward in this final rule and are not discussed further here. As explained in the proposed rule, a number of the definitions in § 3170.3 of the proposed rule were the same definitions that were found in Order 3, with only minor revisions to either simplify or clarify those definitions.

The following discussion first describes the new definitions that have been added to § 3170.3 in the final rule, and then summarizes and responds to comments that the BLM received on a handful of the proposed definitions. With respect to the former, based on comments received and its own internal reviews, the BLM added three new definitions to § 3170.3: “Averaging period,” “bias,” and “tampering.” As explained below some of these definitions were originally proposed as part of the proposed rules to replace Order 4 (80 FR 58952) and Order 5 (80 CFR 61646). The BLM determined that it was appropriate to move those definitions from those rulemakings to § 3170.3, because the terms are used in multiple subparts, and should therefore be defined once in a section that covers the entirety of part 3170. Other definitions were added in response to public comments.

The final rule defines “averaging period” to mean the previous 12 months or the life of the meter, whichever is shorter. For FMPs that measure production from a newly drilled well, the averaging period excludes production from that well that occurred in or before the first full month after production began. For example, if an oil FMP or a gas FMP were installed to measure the production from a new well that first produced on April 10, the averaging period for this FMP would not include the production that occurred in April and May of that year. The BLM added this definition to § 3170.3 because the term is used multiple times in subparts 3174 (oil measurement) and 3175 (gas measurement), relating to the applicability of uncertainty threshold requirements. The BLM determined it was important to provide a single definition of the averaging period in order to provide for consistent application of the BLM's oil and gas measurement rules.

The final rule adds a definition for the term “bias” to § 3170.3 because that term is used in both subparts 3174 and 3175. “Bias” is defined to mean a “shift in the mean value of a set of measurements away from the true value of what is being measured.” This definition was originally proposed as part of the rule to replace Order 5 in § 3175.10. The definition added to part 3170.3 is identical to the definition in proposed § 3175.10, because the BLM did not receive any comments on that definition in the context of the Order 5 rulemaking.

In response to recommendations from many commenters, the BLM added a definition of the term “tampering” to § 3170.3. The proposed and final rules prohibit operators from tampering with measurement equipment, components, or processes and appropriate valves. While the meaning of tampering is commonly understood, the BLM agrees with commenters that the term should be defined to ensure there is a common understanding of what is meant by tampering for purposes of this rule. Section 3170.3 defines tampering to include “any deliberate adjustment or alteration to a meter or measurement device, appropriate valve, or measurement process that could introduce bias into the measurement or affect the BLM's ability to independently verify volumes or qualities reported.” The BLM modified the definition of “commingling” in the final rule to clarify that combining production from multiple wells within a single lease, unit PA, or CA, or the downhole combining of production from different zones or formations that are part of the same lease, unit PA, or CA, is not considered “commingling” for the purpose of the final rule. Many commenters expressed concern that the definition for commingling in the proposed rule would have required an operator to obtain approval to combine production from multiple properties within a CA or unit PA prior to measurement, particularly when the CA or unit PA contains leases with multiple owners (

i.e.,

Federal, Indian, State, or

private). Commenters said the proposed definition negates one of the primary benefits of establishing a CA or unit PA, which is the operation of the CA or unit PA as one entity and the sharing of revenues from that CA or unit PA on a fixed allocation schedule, typically based on ownership percentage within the CA or unit PA.

The conclusions reached by these commenters were incorrect. Neither the proposed rule nor the final rule defined “commingling” to include the combining of production from multiple properties within a CA or unit PA prior to measurement. However, in response to these comments, the BLM revised the definition of commingling to help clarify the situations that are and are not considered commingling, and to emphasize that the combining of production from multiple properties within a CA or unit PA prior to royalty measurement is not commingling.

One commenter said the proposed commingling definition could deter operators from drilling horizontal wells through several sections that contain different mineral estates and reduce the production and utilization of the State's oil and gas resources. The BLM agrees with this comment with respect to the limited situations in which there is no unit agreement or CA in place for those sections. Downhole commingling when there is multiple ownership and no unit or CA in place would adversely affect the uncertainty, bias, and verifiability of the measurement of the volumes produced from each property, and the BLM would deny such a request unless it qualified under § 3173.14(b) of the final rule. If there was a unit or CA in place, however, the BLM would not consider the combining of production between several sections within the unit or CA to be commingling and no approval would be required. The BLM did not make any changes to the rule based on this comment.

The definition of an FMP in this final rule is carried forward from the proposed rule, which defined an FMP to be a “BLM-approved point where oil or gas produced from a Federal or Indian lease, unit PA, or CA is measured and the measurement affects the calculation of the volume or quality of production on which royalty is owed.” As explained in more detail below in the discussion of comments for § 3173.12, the final rule sets forth a process for an operator of a new or existing facility to apply for approval of an FMP and issuance of an FMP number in proposed § 3173.12. Because § 3173.12 of the final rule requires operators of existing facilities to apply for an FMP in stages over a 36-month period, it will require 3 years from the effective date of the final rule for the BLM to receive, evaluate, and act on an FMP application for existing facilities. Therefore, for purposes of compliance with other provisions of this final rule, during this interim period, the definition of an FMP makes clear, as in the proposed rule, that an FMP “also includes a meter or measurement facility used in the determination of the volume or quality of royalty-bearing oil or gas produced before BLM approval of an FMP under § 3173.12 of this part.”

The BLM received many comments on the proposed definition of an FMP. A couple of commenters pointed out that there are differences between the BLM's proposed definition and the ONRR's definition at 30 CFR 1206.171. Commenters said these differences could cause confusion for industry, the BLM, and ONRR, and recommended that a single definition be established for both agencies. These commenters did not provide specific details or any examples of the confusion that could arise as a result of these definitional differences. The BLM compared both definitions and agrees that there are differences, but disagrees with commenters that these differences will cause confusion. The intent of both definitions is the same. Both agencies want to ensure that the FMP is the point at which measurement determines the royalty that is owed to the Federal Government or the Indian mineral owners. In general, the ONRR definition applies to offshore oil and gas operations, whereas the BLM definition applies only to onshore operations. So, while the two agencies' FMP definitions are not exactly the same, they capture a similar concept (

i.e.,

the specific measurement point where operators determine the royalty due the Federal Government or Indian mineral owners). These comments did not result in a change to the final rule.

It should be noted that in 2013, the GAO specifically noted in report GAO-10-313 that Interior's onshore and offshore policies for tracking and approving where and how oil and gas are measured are inconsistent. The Bureau of Safety and Environmental Enforcement (BSEE) already assigns FMP numbers for offshore oil and gas leases, which the operator, transporter, or purchaser must then use when reporting production results to ONRR. Based on that practice, the GAO recommended that the BLM clearly identify points of measurement where oil and gas royalties due to the Federal Government are determined and reported. By including the definition of FMP in the final rule, the BLM is able to both address the GAO's concerns and bring onshore reporting in-line with the approach used offshore.

The BLM received additional comments pertaining to the FMP definition. One recommended that the definition be changed to allow operators to use gas processing plant tailgate meters located off the lease, unit, or CA as FMPs as a general matter, or to allow those meters to be used as FMPs under a variance. Another commenter asked whether an FMP is the same as a Central Delivery Point or Point of Royalty Measurement as defined in Washington Office Instruction Memorandum (IM) 2013-152, a BLM policy document created in 2013 regarding commingling approvals.

The BLM did not change the definition of an FMP to include tailgate meters because, under the Mineral Leasing Act (MLA) and FOGRMA, the Secretary's authority to regulate onshore oil and gas operations applies to lessees/operators and, during certain activities, to purchasers and transporters. While the owners of off-lease/unit/CA gas processing plants may sometimes fall into these categories of regulated entities, they will not always, and while the BLM may consider requests for off-lease measurement it is not required to approve such request. Therefore, the BLM chose not to include off-lease/unit/CA tailgate meters in the definition of an FMP in order to avoid default applications of this rule that might be inconsistent with BLM's statutory authority or the requirements of this final rule related to off-lease measurement at §§ 3173.23 through 3173.28. With respect to whether the definition of an FMP is the same as the Central Delivery Point or Point of Royalty Measurement as defined in IM 2013-152, the BLM can confirm that they are the same.

The definition of “off-lease measurement,” in both the proposed and final rules, means measurement at an FMP that is not located on the lease, unit, or communitized area from which the production came. The BLM received several comments requesting that the definition be expanded to exempt from the proposed rule's off-lease measurement approval requirement cases in which a horizontally or directionally drilled well is completed through a Federal or Indian lease, unit, or communitized area, but conducts measurement operations off-lease at the wellhead. The commenters said that, in many instances, wells are being drilled from a surface location that is sited off-lease due to environmental conditions, such as rugged terrain or sensitive wildlife habitat. The BLM did not

change the definition of off-lease measurement in response to this comment because § 3173.28(a) of the proposed and final rules already addresses this situation. Under § 3173.28(a), measurement at an approved FMP is not considered off-lease measurement when the FMP is located on the well pad of a directionally or horizontally drilled well that produces oil and gas from a lease, unit, or CA on which the well pad is not located. Therefore, approval for off-lease measurement is not required under those circumstances, so long as measurement operations occur on the well pad of the directionally or horizontally drilled well.

The final rule makes minor changes to the list of acronyms that appear in proposed § 3170.3 based on the acronyms used in part 3170. The BLM did not receive any comments on this list. The acronym Btu (British thermal unit) has been relocated from § 3173.1 to § 3170.3 because this acronym is used in both subparts 3173 and 3175. The acronym S&W (sediment and water) is new to section. The BLM decided to include it in § 3170.3 because the acronym is used in both subparts 3173 and. Although it is a commonly understood acronym in the oil and gas industry, the BLM believes it is appropriate to include the acronym here for clarity and to help inform the general public. The BLM also added the acronym LACT (lease automatic custody transfer) because it is used in both subparts 3173 and 3174.

Section 3170.4 Prohibitions Against By-Pass and Tampering

The BLM did not make any changes to the requirements of this section between the proposed and final versions. Section 3170.4 strengthens the prohibition against meter by-passes contained within section III.D of Order 3 by adding language that prohibits tampering with any measurement device, component of a measurement device, or measurement process. As explained in § 3170.3, tampering includes any deliberate adjustment or alteration to the meter or measurement device or measurement process that could introduce bias into the measurement or affect the BLM's ability to independently verify volumes or qualities reported. Examples of tampering include deliberately installing an orifice plate in a gas meter with the bevel upstream, adjusting a transducer to read higher or lower than a certified test device, entering incorrect information into the configuration log of an electronic gas measurement system, submitting derived integral values on a volume statement in lieu of raw data, or making analogous adjustments or alterations to an oil measurement system.

The BLM received many comments on this section of the proposed rule, most of which suggested that the BLM clarify that inadvertent human error or force majeure events should not be considered “tampering” for purposes of this section. For example, one commenter said meter reports may use derived values due to tap freezes or data loss. The commenter believes that these situations should not be considered “tampering.” The commenter said the language in the proposed rule would not allow for such cases, and should be modified. The BLM agrees with this comment and in the final rule has provided a definition for the term “tampering,” as previously discussed, that clearly states that the act of tampering must be deliberate on the part of the operator. By requiring acts to be deliberate, consistent with the commenter's suggestion, the BLM is able to take into consideration whether a particular act is due to human error or is outside of the operator's control.

The BLM did not amend the definition of tampering in response to the comment about the use of derived values rather than raw data in a meter report, such as when a tap freezes or other malfunctions are experienced. These circumstances can occur in the context of either oil or gas measurement, and they are addressed in specific provisions of subparts 3174 and 3175 (the new rules replacing Orders 4 and 5) that establish procedures that an operator must follow to notify the BLM of the malfunctioning equipment, document how derived values were determined, and indicate on the quantity transaction record that derived values, rather than raw data, were used to determine volumes. As a result, the BLM did not amend the definition of tampering in response to comments about derived values.

Section 3170.5 Industry Standards Incorporated by Reference

Section 3170.5 is reserved for potential future incorporation by reference of standards that apply to more than one of the subparts of part 3170.

Section 3170.6 Variances

Section 3170.6 of the final rule clarifies and makes more uniform the BLM's existing process and regulations for granting variances from the minimum standards contained in part 3170.

Paragraph (a)(1) lists all the information that a party seeking a variance from the requirements of part 3170 must include when filing a request, including: Identification of the specific requirement from which a variance is sought, and the length of time the variance is requested; an explanation of the need for the variance; a detailed explanation of the proposed alternative means of compliance; and a showing that the proposed alternative meets or exceed the objectives of the applicable requirement. Paragraph (a)(2) requires that variance requests be submitted as separate documents from any plans or applications. The BLM will not consider variance-request documents that are submitted as part of a master development plan, APD, right-of-way application, or other applications for approval. This requirement does not preclude operators from submitting variance requests at the same time that they submit a master development plan or other application. In fact, the final rule encourages operators to submit their variance requests simultaneously with, but separately from, their development plans or applications, especially if the operators' proposals are contingent upon the BLM approving their variance requests. The BLM's primary rationale for requiring separate submittal is that, in the past, operators have put their variance requests in the cover letters that accompanied their development proposals, where they are sometimes overlooked. Having operators submit their variance requests via a separate Sundry Notice will help the BLM easily identify them when they are submitted simultaneously with other applications. Paragraph (a)(2) clarifies that approval of a plan or application that contains a request for a variance does not constitute approval of the variance. The BLM made this clarification to ensure that variances are submitted separately and brought to the attention of the BLM.

Paragraph (a)(3) tells operators how to submit their variance requests. Operators must use WIS, which is an acronym described in the final rule to mean the Well Information System or any successor electronic filing system that might be developed by the BLM, to file their request, along with any supporting documents associated with it. This paragraph also provides an option for operators to submit a hardcopy application if electronic filing is not possible or practical. In such cases, the operator must submit a variance in hardcopy as directed by the AO in the Field Office having jurisdiction over the lands described in

the application. The BLM made minor revisions to this section to clarify the intent of this provision regarding electronic filing, and to provide additional flexibility as the BLM rolls out new electronic systems to replace its existing systems, including the Well Information System and the Automated Fluid Management Support System (AFMSS).

No substantive changes were made to proposed paragraph (a)(4). This paragraph strengthens and standardizes the criteria the BLM uses for granting variances. Under Order 3, the AO was required to make only one determination—whether or not the variance request meets or exceeds the objectives of the applicable minimum standard. Under this paragraph in the final rule, the AO will still have to make that determination before granting a variance. Additionally, the final rule requires the AO to make two more determinations before granting a variance—that issuing a variance: (1) Will not adversely affect royalty income or production accountability; and (2) Is consistent with maximum ultimate economic recovery.

Paragraphs (a)(5) and (a)(6) specify that granting or denying a variance is entirely within the BLM's discretion, and that a variance from a requirement in a regulation does not constitute a variance from any other regulations, including other Onshore Oil and Gas Orders. These paragraphs did not change from the proposed rule.

Paragraph 3170.6(b) affirms the BLM's authority to rescind a variance or modify any condition of approval of a variance due to changes in Federal law, technology, regulation, BLM policy, field operations, noncompliance, or for any other reason.

The BLM received many comments on this section of the proposed rule. A few commenters were concerned that the proposed rule would void existing variances and that operators with existing variances would have to apply for new ones. These commenters were concerned this would place an unnecessary burden on affected parties. They recommended that the provision be revised to expressly “grandfather” existing variances.

The BLM did not make a change to the rule in response to these comments. This final rule does not automatically rescind any existing variance approvals. Rather, it clarifies the BLM's authority to rescind variances and provides the means by which it may rescind an existing approval if necessary. The BLM will re-evaluate existing variance approvals on a case-by-case basis, such as during the FMP application and review process under § 3173.16. For example, if an operator has an existing variance approval from the BLM's previous commingling requirements, but during the FMP approval process the BLM determines that the existing approval is inconsistent with this final rule's new commingling standards, or the operator cannot be exempted from the new commingling standards, then the BLM will rescind the existing variance if the deficiencies are not corrected within the time specified by the BLM.

Several commenters disagreed with the provision in paragraph (b) that allows the BLM to rescind variance approvals and modify conditions of approval. These commenters stated that companies made investments and proceeded with projects based on previously approved BLM variances. These commenters said that rescinding existing authorizations and what they believe to be contractual agreements would pose a great risk to their operations.

The BLM did not make a change in the rule in response to these comments. The BLM's overriding contractual agreement with the operator is the lease agreement, which is expressly made subject to regulations and formal orders subsequently promulgated as long as such regulations are not inconsistent with the lease rights granted or the specific lease provisions (See BLM Lease Form 3100-11). The Department has long interpreted this language as “incorporat(ing) future regulations, even though inconsistent with those in effect at the time of lease execution, and even though to do so creates additional obligations or burdens for the lessee.”

The BLM's authority to update the regulations that apply to existing leases and operations is well-established, and this authority necessarily includes the authority to rescind existing variances and authorizations when these variances and authorizations are inconsistent with applicable regulations.

Coastal Oil & Gas Corp., et al.,

108 IBLA 62, 66 (1989).

The BLM recognizes that the commingling and off-lease measurement requirements in this rule may result in the termination of existing commingling and off-lease measurement variance approvals. However, the BLM has sought to minimize the adverse impacts of these requirements by providing exemptions for economically marginal properties. These additional exemptions are discussed in further detail in the sections of this preamble that address commingling and off lease measurement.

See

the Section-by-Section discussions of §§ 3173.1, 3173.14, 3173.25, and 3173.27. For example, the final rule provides public-interest exemptions for operators that cannot meet its new off-lease measurement standards.

One commenter supported the standards in paragraph (a)(4) that the BLM will use to determine whether to grant a variance but went one step further to recommend that operators be required to demonstrate that compliance with the regulation is not feasible, so that the rule's relatively limited opportunities for variances are not abused. The BLM does not expect operators to abuse the variance process, which requires them to submit an application requesting a variance, and provide sufficient information and justification for the variance that the BLM will then review prior to making a determination on the variance request. In fact, this rule strengthens and standardizes the criteria that the BLM will use to determine whether to grant a variance and requires that the BLM make a determination that “the proposed alternative meets or exceeds the objectives of the applicable requirement(s) of the regulation.” As a result, the BLM does not believe the change requested by the commenter is necessary and did not make any changes the rule based on this comment.

A few commenters expressed concern with language in paragraph (b) that allows the BLM to rescind a variance for “other reasons” because, they said, it could result in the BLM acting arbitrarily. The BLM disagrees that this language would allow it to act arbitrarily because paragraph (b) requires the BLM to provide a written justification when it rescinds a variance. The BLM included the term “other reason” because the BLM cannot anticipate every possible situation in which there will be good cause for rescinding a variance. The BLM must preserve its ability to rescind a variance approval if that approval adversely affects royalty income or production accountability, or is not consistent with maximum ultimate economic recovery. If the operator does not agree with the BLM's decision to rescind a variance, the operator may file an appeal under applicable BLM regulations at 43 CFR subpart 3165—Relief, Conflicts, and Appeals.

A few commenters stated that even though the BLM will provide written justification when it rescinds a variance or modifies a COA, operators should be given a 30-day advance notice if their variance is about to be rescinded, or COA modified, in order to give them an

opportunity to avoid a rescission or modification, or to adjust to operating without the variance. The BLM disagrees with this comment and did not change the rule in response. As previously noted, if an operator disagrees with the BLM's decision to rescind a variance or change a COA, the operator may file an appeal under the applicable regulations.

Section 3170.7 Required Recordkeeping, Records Retention and Records Submission

Section 3170.7 of the final rule updates BLM regulations to reflect the records-retention requirement for Federal oil and gas leases that Congress established in the 1996 amendments to FOGRMA.

Federal Oil and Gas Royalty Simplification and Fairness Act of 1996, Public Law 104-185, 110 Stat. 1700 (Aug. 13, 1996).

Paragraphs (a) and (b) are the same as in the proposed rule. These paragraphs establish both the entities covered and the time period over which the records-retention requirements apply. In the final rule, purchasers and transporters are held to the same minimum standards as operators for recordkeeping, records retention, and records submission—

i.e.,

to maintain all records that are relevant to determining the quality, quantity, disposition, and verification of production from Federal and Indian leases. As described in the proposed rule, the BLM has authority to impose these requirements on purchasers and transporters under FOGRMA. Specifically, Section 103(a) of FOGRMA, 30 U.S.C. 1713(a), requires persons involved in transporting and purchasing oil or gas through the point of first sale or the point of royalty computation, whichever is later (along with persons involved in producing or selling), to “establish and maintain any records, make any reports, and provide any information that the Secretary may, by rule, reasonably require.”

Although paragraph (c) did not change substantively from the proposed rule, the final rule splits it up into two paragraphs for clarity. Paragraph (c)(1) states that records pertaining to Federal leases, units, or CAs must be maintained for at least 7 years, consistent with applicable statutory requirements. Paragraph (c)(2) codifies the applicable statutory requirements for further retention beyond 7 years under the circumstances specifically identified by statute (

see

30 U.S.C. 1724(f)), as required under the 1996 amendments to FOGRMA.

Similarly, although paragraph (d) did not change substantively from the proposed rule, the final rule splits it up into two paragraphs for clarity. Paragraph (d)(1) states that records pertaining to Indian leases, units, or CAs must be maintained for at least 6 years, consistent with applicable statutory requirements. Paragraph (d)(2) codifies the applicable statutory requirements for further retention beyond 6 years under the circumstances specifically identified by statute (

see

30 U.S.C. 1713(b)). The records-retention requirement on Indian leases remains unchanged because the 1996 amendments to FOGRMA, by their express terms, applied only to Federal leases and not to Indian leases.

Paragraph (e)(1) addresses the discrepancy between the records-retention requirements for Federal (7 years) and Indian (6 years) leases, as relevant to units and CAs that contain both Federal and Indian leases. No substantive changes were made as part of the final rule. However, the phrase, “but a judicial proceeding or demand is not commenced within 7 years after the records are generated, the record holder must retain all records regarding production from the unit or CA until the Secretary or his designee releases the record holder from the obligation to maintain the records” has been eliminated from this paragraph of the proposed rule and moved to its own paragraph (e)(2).

In paragraph (e)(2) of the proposed rule, which is now paragraph (e)(1) of the final rule, the phrase “or until the Secretary or his designee releases the record holder from the obligation to maintain the records, whichever is later,” was removed from the final rule in order to more closely track the authorizing language in FOGRMA, and also to make the record-retention obligation clearer.

Paragraph (f) requires the record holder to maintain an audit trail and is unchanged from the proposed rule.

Paragraph (g) requires operators, purchasers, and transporters to place specific identifying information on all records, including source records, used to determine quality, quantity, disposition, and verification of production attributable to a Federal or Indian lease, unit PA, or CA. The proposed rule would have required record holders to use BLM-assigned FMP numbers on such records. The final rule is revised to allow record holders, in lieu of an FMP number, to use the lease, unit PA, or CA number, as applicable, on their records, including source records. In any case, the record holder must also include a unique equipment identifier, such as a unique tank identification number or meter station number. The BLM made this change in response to many comments that it would be difficult or impossible for some record holders to modify their electronic systems to accommodate FMP numbers on their records. In these instances, the final rule allows record holders to use the lease, unit PA, or CA number instead of the FMP number.

Paragraph (h) requires operators, purchasers, and transporters to provide all records to the BLM upon request. This ensures that all records—whether they are created by lessees, operators, transporters, or purchasers—are readily available to the BLM. The BLM did not receive any comments on this paragraph and did not change it in the final rule.

Paragraph (i) requires that all records be legible. The BLM did not receive any comments on this paragraph and did not change it in the final rule.

Paragraph (j) requires that all records requiring a signature must also have the signer's printed name. The BLM did not receive any comments on this paragraph of the proposed rule and did not change it in the final rule.

The BLM received a number of comments on § 3170.7 of the proposed rule as a whole requesting various changes to be made to the proposed requirements. Each of these comments is addressed below.

One commenter stated that maintaining audit records for 7 years, as required in paragraph (c)(1), would result in unnecessary costs for purchasers and transporters, and that they should not have to account for production volumes. The BLM does not agree with this comment, nor can it make the changes suggested by the commenter. As discussed earlier, the records retention period set by FOGRMA for Federal leases is now 7 years and the change in retention period in this final rule merely conforms the regulations to that statutory authority.

A number of other commenters asserted that the BLM does not have the authority to hold purchasers and transporters to the same records-retention and recordkeeping requirements as lessees and operators, as outlined in paragraphs (a) and (f) of § 3170.7. Other commenters indicated that they did not see a need for this new requirement and that it would be too costly. Still others disagreed that FOGRMA authorizes the BLM to impose recordkeeping and records-retention requirements on purchasers and transporters in the first instance. One commenter argued that the BLM had not properly defined “any person directly involved in producing, transporting, purchasing, selling, or measuring oil

and gas” under FOGRMA, and therefore had improperly extended these recordkeeping requirements to purchasers and transporters.

The BLM disagrees with these comments. Section 103(a) of FOGRMA, 30 U.S.C. 1713(a), requires a “lessee, operator, or other person directly involved in developing, producing, transporting, purchasing, or selling oil or gas . . . through the point of first sale or the point of royalty computation, whichever is later, [to] establish and maintain any records, make any reports, and provide any information that the Secretary may, by rule, reasonably require.” While FOGRMA does not specifically define “any person directly involved,” the intent of the provision is clear. It authorizes the Secretary to establish by rule requirements for anyone involved “. . . in developing, producing,

transporting, purchasing,

or selling oil or gas,” which plainly includes purchasers and transporters. 30 U.S.C. 1713(a) (emphasis added).

Based on its experience in the field, the BLM believes it is appropriate to implement this statutory authority and have purchasers and transporters adhere to the same recordkeeping and records-retention requirements as lessees and operators. This is because the BLM must occasionally rely on purchasers' and transporters' records to verify production when operators do not maintain their own records properly, or go out of business, or are acquired by other companies and their records are destroyed. For this reason, the BLM believes that it is important for everyone involved in the production and sale of oil and gas produced from Federal and Indian leases to be responsible for maintaining and providing the necessary records to account for and verify that production. The BLM did not make any changes in response to these comments.

Another commenter said the BLM did not adequately analyze the economic impact that this requirement would have on purchasers and transporters. The BLM does not agree with this comment. As part of this rulemaking process the BLM prepared an

Economic and Threshold Analysis For Final Rule Onshore Oil and Gas Operations; Federal and Indian Oil and Gas Leases; Site Security

(Economic and Threshold Analysis). That analysis specifically analyzed, among other things, the impact of these proposed recordkeeping requirements on purchasers and transporters. Based on that analysis, the BLM estimates that 200 to 300 purchasers and transporters will have to comply with this final rule's new recordkeeping and records-retention requirements. However, it is likely that many purchasers and transporters already compile records that will, for the most part, satisfy this rule's requirements, and therefore the additional compliance costs imposed by this rule should be minimal. For more details, please see the Economic and Threshold Analysis.

Several commenters said that some transporters do not have space to store records and would not be capable of meeting the paragraph (a) requirements. They said that transporters would create inaccurate records, and that operators would be held responsible. They asked that the BLM not hold operators responsible for transporters' recordkeeping violations. Conversely, some commenters said operators may provide incorrect information to purchasers and transporters, such as incorrect FMP numbers, which could subject purchasers and transporters to recordkeeping penalties if they were to use the inaccurate information in their records. The BLM does not agree with the concerns raised by these commenters, as under the rules each party will be responsible for the content of their own records and must also bear some responsibility for ensuring the accuracy of the information they are tracking. The BLM does not believe that the provision should be modified to account for the possibility that operators might provide faulty information to a purchaser or transporter. Parties bear the responsibility to ensure the accuracy of their own records, and the BLM anticipates that provision of faulty information to a purchaser or transporter by an operator could be handled on a case-by-case basis in the enforcement context. The final rule was not changed as a result of these comments.

Some commenters said the BLM should make the records-retention requirements for both Federal and Indian leases the same—6 years. Paragraph (c) requires Federal-lease operators to retain their records for 7 years (consistent with Congress' 1996 amendments to FOGRMA), while paragraph (d) requires Indian-lease operators to retain theirs for 6 years. One commenter said the 6-year retention requirement for all records under Order 3 has not been a problem and questioned why Congress extended the retention period for Federal-lease operators from 6 years to 7 years. The BLM understands these concerns, but the retention period for records maintained by Federal-lease operators is 7 years by statute. 30 U.S.C. 1724(f). That statutory requirement has been in place for 20 years. This final rule simply codifies that requirement. Thus, the BLM did not change the final rule in response to these comments.

Several commenters expressed concern about the requirement in paragraph (g) of the proposed rule that lessees, operators, purchasers, and transporters place FMP numbers on all of their source records, particularly records generated by flow computers. They said that flow computers cannot handle the 11-digit FMP numbers and that it would take operators years to modify their production accounting systems to accommodate the new numbers. The BLM agrees with these commenters and changed the final rule to allow lessees, operators, purchasers and transporters, as an alternative, to use the lease, unit PA, or CA number, along with a unique equipment identifier, on their records. The BLM believes this change will simplify the final rule's record-keeping requirements because in its experience lessees, operators, purchasers and transporters are already using a lease, unit PA, or CA number, plus some unique equipment identifier in connection with existing operations, which means this information is already reflected on records being generated under existing recordkeeping systems.

In addition to the preceding comments on specific provisions of § 3170.7, the BLM received some general comments on § 3170.7 that were not directed to any specific paragraph. Several commenters said the recordkeeping requirements do not address new production reporting technology and practices that are used by regulators outside of the U.S., such as the Norwegian Petroleum Directorate. These commenters did not suggest any specific changes, and therefore the BLM did not make any changes in the final rule in response to these comments. That said, it should be noted that the BLM is currently updating its existing database system (AFMSS) that it uses to track Federal and Indian oil and gas production. As part of this comprehensive update, the BLM is following data management models and standards established by industry organizations, such as the Professional Petroleum Data Management Association. These update efforts respond to the concerns raised by commenters.

Another commenter said the new recordkeeping and records-retention requirements would cause problems for the BLM. This commenter said BLM field offices do not have room for the additional records that would be generated under the final rule. The BLM disagrees with this commenter. The

BLM will not be storing or accepting all of the records that a lessee, operator, purchaser, or transporter will be required to create and retain under this final rule, rather records must be available to the BLM if requested (see § 3170.7(h)). The BLM did not change the final rule as a result of these comments.

Several commenters suggested that requiring purchasers and transporters to keep and retain records would be redundant because purchasers and transporters already provide this information to the operators, who use it to fill out their own production records. The BLM agrees that operators do often base their production reporting on information that purchasers and transporters provide them, however, the BLM cannot confirm that this happens in all cases. Moreover, as noted, operators' records may sometimes be or become unavailable. Requiring each party involved in production from Federal and Indian oil and gas leases to maintain its own records allows the BLM to compare the information and make an independent determination that production is being properly accounted for and that the correct royalties are being paid.

One commenter said this section's new recordkeeping and records-retention requirements will be costly and cause delays, and will discourage oil and gas development on Federal lands, as well as on adjacent State and private lands. The commenter said this in turn will result in lost royalties and jobs. The BLM does not agree with this comment. These recordkeeping requirements are not substantially different from the requirements that operators are currently following (

e.g.,

the records retention requirements have only increased from 6 to 7 years). As explained above, it is likely that most purchasers and transporters are already maintaining records that will, for the most part, satisfy this final rule's requirements. No change was made to the final rule as a result of this comment.

Section 3170.8 Appeal Procedures

Section 3170.8 provides that BLM decisions, orders, assessments, or other actions under part 3170 are administratively appealable (first to the BLM State Director and then to the Interior Board of Land Appeals) under 43 CFR 3165.3(b), 3165.4, and part 4. The BLM did not receive any comments on this section; however, in response to comments received on provisions of the proposed rules to replace Orders 4 and 5 the BLM made several changes to this section.

The language from the proposed rule was moved to a new paragraph (a) and a new paragraph (b) was added that creates a separate appeal process for decisions made by the BLM, based on a recommendation from the PMT, for approval or denial of specific measurement equipment or procedures. Under paragraph (b) a party may file a request for discretionary review by the ASLM. Paragraph (b) also provides that the ASLM may delegate this review function as he or she deems appropriate, in which case the application for discretionary review must be made to the person or persons to whom the review function has been delegated.

A specific appeals procedure for recommendations from the PMT was developed for two reasons. First, such a procedure responds directly to comments received on Orders 4 and 5 specifically requesting a procedure to review decisions made by the PMT. Second, the BLM determined that a separate appeal process is necessary because it determined that PMT reviews did not fit under the existing appeals procedure at 43 CFR 3170.8. As explained in this preamble and the preambles for the rules to replace Orders 4 and 5, the PMT will review new measurement technologies and methods and then make recommendations to the BLM as to whether they should be approved. It is the BLM's intent that those approvals be made at the national or Washington Office level, as a result those decisions would not properly be appealable to a BLM State Director as contemplated in paragraph (a). The new language under paragraph (b) reads: “For any recommendation made by the PMT, and approved by the BLM, a party affected by such decision may file a request for discretionary review by the Assistant Secretary for Land and Minerals Management. Under paragraph (b), the Assistant Secretary may delegate this review function as he or she deems appropriate, in which case the affected party's application for discretionary review must be made to the person or persons to whom the Assistant Secretary's review function has been delegated.”

It should be noted that decisions by the Assistant Secretary would not be reviewable by the Interior Board of Land Appeals.

Section 3170.9 Enforcement

Section 3170.9 provides that noncompliance with any requirements of part 3170 or any order issued thereunder may result in enforcement actions under 43 CFR subpart 3163 or any other remedy available under applicable law or regulation.

The BLM received numerous comments regarding the BLM's proposal, in proposed § 3170.9, not to include in this rule the enforcement, corrective action, and abatement period provisions that were in Order 3, and instead to develop an internal Inspection and Enforcement Handbook that would provide direction to BLM inspectors on how to classify a violation as major or minor, and what the corrective action and timeframes for correction should be. These comments and the BLM's response are discussed later in this preamble in connection with § 3173.29.

Subpart 3173—Requirements for Site Security and Production Handling and Related Provisions

Section 3173.1 Definitions and Acronyms

This section defines the terms used in subpart 3173 that pertain to site security and production handling. The BLM did not receive any comments on a majority of the definitions that appeared in proposed § 3173.1. Those definitions, for which we received no comment, were carried forward into this final rule and are not discussed further here. The following discussion summarizes and responds to comments that the BLM received on a handful of proposed definitions, describes modifications to some of those definitions, and describes five definitions that were added to § 3173.1 of the final rule: “Free water,” “permanent measurement facility,” “payout period,” “royalty net present value (NPVR),” and “royalty-free use of oil and gas.”

At the outset it should be noted that as explained in the preamble to the proposed rule, a number of the definitions in § 3173.1 are the same definitions that were found in Order 3, with only minor simplifications or clarifications.

As noted in the Section-by-Section discussion for § 3170.3, the acronym for “British thermal unit (Btu)” has been moved from this section to § 3170.3 of the final rule because it is used in more than one subpart of § 3170. The acronym BIA (Bureau of Indian Affairs) was added to this final rule because it is used in §§ 3173.14 and 3173.23.

Similarly, the acronym for “CAA (commingling and allocation approval)” was provided in the proposed rule, but the term was not otherwise defined. One commenter suggested that a definition for this term be provided. The BLM agrees with this comment and has provided a definition in the final rule

for this commonly used term. The final rule defines “commingling and allocation approval (CAA)” to mean “a formal allocation agreement to combine production from two or more sources (leases, unit PAs, CAs, or non-Federal or non-Indian properties) before that production reaches an FMP.” This definition is consistent with the commonly understood meaning of the term and its use in the proposed rule.

The BLM also replaced the term “low-volume property” with the term “economically marginal property” and modified the definition based on comments received. The term “low-volume property” was intended to identify category of leases, unit PAs, and CAs for which commingled measurement of production may be justified, even though the property would not meet the conditions of proposed § 3173.14(a)(1) regarding mineral interest ownership of commingled production. In response to comments, the BLM made a number of changes to this definition, most notably changing the term to “economically marginal property” in the final rule.

The BLM believes this new term is more reflective of the BLM's intent, which is to describe a type of property that should be allowed to be part of a CAA in order to avoid premature plugging and abandonment. The thresholds that the proposed and final rules use to identify a property as at risk of being shut-in are not exclusively volume-based. The new name recognizes that the thresholds are actually based on production volume and other economic considerations, including commodity price, fixed and variable operating costs, and taxes.

Specifically, under both the proposed and final rules, the BLM can approve commingling in two circumstances relating to economics of well operations: (1) When a prudent operator, for economic reasons, would plug a well or shut-in the lease, unit PA, or CA instead of spending the money to achieve non-commingled measurement of production; or (2) When the capital expenditure on equipment necessary to achieve non-commingled measurement of production would exceed the net present value of projected Federal or Indian royalty over the life of the new equipment. The BLM captured both of these circumstances in the definition of a “low-volume property” in the proposed rule, and carried that structure into the final rule's definition of an “economically marginal property.”

Under the final rule, a lease, unit PA, or CA qualifies as an “economically marginal property”:

(1) “If the operator demonstrates that the expected revenue generated from crude oil or nature gas production volumes on that property (above the operating costs associated with those production activities) is not sufficient to cover the nominal costs of the capital expenditures required to achieve measurement of non-commingled production of oil or gas from that property over a payout period of 18 months,” or

(2) If the operator demonstrates that “its royalty net present value, or the discounted value of the Federal or Indian royalties collected on revenue earned from crude oil or natural gas production on the lease, unit PA, or CA over the expected life of the equipment that would need to be installed to achieve non-commingled measurement volumes, is less than the capital cost of purchasing and installing this equipment.”

The final rule takes a somewhat different approach than the proposed rule to define these two circumstances. Specifically, the final rule:

• Changes the threshold for what qualifies as an economically marginal property from a 10 percent, before tax, rate of return in the proposed rule to an 18-month, after-tax, payout period in the final rule;

• States explicitly that the economic analysis considers operating costs;

• Clarifies that the analyses for oil and gas commodities are done separately, based on the income streams from the commodity and the expenses required to achieve non-commingled measurement of that commodity; and

• States explicitly that if economic circumstances change, and a Federal or Indian lease, unit PA, or CA ceases to be an economically marginal property, the lease, unit PA, or CA will no longer qualify for a CAA.

The BLM changed the first economic threshold test from a 10 percent, before tax, rate of return in the proposed rule to an 18-month, after-tax, payout in the final rule, primarily based on comments received. As explained in the preamble to the proposed rule, the initial test was developed based on the provisions of Instruction Memorandum (IM) 2013-152. The purpose of the economic analysis in IM 2013-152, the proposed rule, and the final rule is to simulate the analysis that a prudent operator would make in deciding whether or not to invest money to achieve non-commingled measurement of production. If that analysis concludes that it would be uneconomic for the operator to make the investment and they would instead opt to shut in the property, then the BLM will grant commingling approval. In these situations, the BLM believes that it is in the public interest to sustain production by allowing commingling, even if commingled measurement may be somewhat less accurate and hard to verify than non-commingled measurement.

The only question is how best to identify the point at which a prudent operator would choose to shut in rather than invest in equipment to achieve non-commingled measurement. Several commenters said the proposed 10 percent rate-of-return cutoff point (calculated before Federal, State, and local taxes) was too low, and that the BLM, should instead use a 20 percent rate of return. Other commenters recommended replacing the 10 percent rate of return threshold with a payout period. The BLM agrees with the commenters who recommended that the BLM use a payout period method rather than a rate-of-return method, because the former provides a simpler and more objective picture of whether a particular course of action is economically viable, and it is a method commonly used by industry.

Under the rate-of-return method in the proposed rule, the BLM would have had to assume a rate of return on initial investment that would be sufficient for a prudent operator to install metering equipment to achieve non-commingled measurement of a lease, unit PA, or CA. The payout method used in the final rule uses a formula to determine whether the production volumes at that lease, unit PA, or CA are sufficient to generate enough net revenue, after taxes and operating costs, to cover the nominal cost of equipment installation within the payout period. Additionally it was clear from the comments received that different companies apply different rates of return to evaluate their investments. For these reasons, the BLM felt it was appropriate to replace the rate-of-return method with the payout method.

One commenter stated that industry typically uses a payout period of 6 months to 18 months as the criterion for deciding whether or not to invest in a new project. The commenter went on to state that a 15 percent rate of return (before tax) yields approximately the same result as a 22-month payout. An 18-month payout would be approximately the same as a 20 percent (before tax) rate of return, which is a threshold suggested by several commenters. Based on these comments, the BLM believes that an 18-month payout period is reasonably representative of the threshold a prudent operator would use to determine the economic viability of achieving non-commingled measurement of production.

Additionally, there were a few comments that recommended that the

BLM evaluate alternative cost-benefit methodologies and definitions, including those found in the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996, and the Interstate Oil and Gas Commission report, entitled

Marginal Wells: Fuel for Economic Growth,

(2012). The BLM agrees with these comments, noting that the proposed 10 percent rate of return was a starting point, as the proposed rule specifically asked for feedback on the suitability of the BLM's using this rate of return for identifying a “low-volume property.” The BLM believes the 18-month payout threshold used in the final rule is consistent with these comments.

Also unlike the proposed definition of “low-volume property,” the definition of “economically marginal property” in the final rule specifically considers taxes, fixed and variable operating costs, and commodity prices. While the “low-volume property” definition in the proposed rule implicitly included operating costs and commodity prices in the rate-of-return calculation, it did not include taxes. The BLM believes that the addition of taxes and the explicit addition of operating costs and commodity price considerations help to make the payout calculation more representative of an economic analysis that a prudent operator would perform.

Finally, in the final rule definition, the BLM clarified that the economic analyses are specific to the commodity to which the commingling request applies. For example, if a lease produces a high volume of gas with small amounts of associated condensate, and the operator wishes to commingle the condensate production with similar volumes of condensate produced from private leases, the economic analysis performed under § 3173.14(b)(1) would only consider the income, costs, and payout period related to measuring the condensate. The BLM made this addition to the final rule to clarify that neither operators nor BLM field offices should include the income and costs from a commodity which the operator is not proposing to commingle. The proposed rule was silent on whether the economic analysis should be based on total oil and gas production or just on the commodity the operator requests for commingling. However, it was always the BLM's intent that this analysis occur on the basis of the commodity for which commingled measurement is proposed. This clarification in the final rule is consistent with that intent.

In support of the new definition for “economically marginal property” the BLM added two additional definitions—“payout period” and “royalty net present value (RNPV)”—each of which is discussed (in alphabetical order) below.

In addition, in the final rule the BLM added a definition for the term “free water.” That term appeared multiple times in the proposed rule but was not defined because the BLM believes it is commonly understood by the industry. While the BLM did not receive any comments on the use of this term, the BLM determined that it should nevertheless include a definition in the final rule to clarify its intent with respect to the use of the term in this regulation. The final rule therefore defines “free water” as “the measured volume of water that is present in a container and that is not in suspension in the contained liquid at observed temperature.” This definition tracks the commonly understood definition of the term used routinely by industry and the BLM.

The final rule modifies the definition of the term “land description” from the proposed rule in § 3173.1, to clarify the information needed by the BLM. The purpose of defining the term “land description” in both the proposed and final rules is to ensure that the geographic location information that operators occasionally provide to the BLM meets the applicable standards.

Under the proposed rule, the BLM defined “land description” to mean “the geographical coordinates referenced to the National Spatial Reference System, North American Datum 1983 or latest edition, in feet and direction from the nearest two adjacent section lines, or, if not within the Rectangular Survey System, the nearest two adjacent property lines, generated from the BLM's current Geographic Coordinate database (Public Land Survey System).” The final rule modifies this definition to require operators to provide information about location that is consistent with the U.S. Department of the Interior's

Manual of Surveying Instructions

(2009) and that includes information about the quarter-quarter section, section, township, range, and principal meridian of the proposed location. This definitional change was not suggested by commenters, but was made to make the definition in § 3173.1 consistent with the existing geographic location information requirements of 43 CFR. 3162.6, which requires operators to have geographic location information on their well- and facility-identification signs. Subpart 3173 requires operators to record land descriptions on their site facility diagrams, FMP applications, water draining and hot-oiling paperwork, and reports of theft or mishandling of production. By confirming the definitional provisions of these two requirements, the final rule ensures consistency and allows BLM inspectors to cross-reference the land description information on a site facility diagram with the geographic location information on a given facility sign and confirm that they are inspecting the correct measurement facility. It should be noted that the definition of “land description” does contemplate the use of “other authorized survey designations acceptable to the AO, such as metes-and-bounds, or latitude and longitude,” which accounts for instances where the land may be unsurveyed or another survey method is necessary.

As noted in the discussion above, to support the implementation of the definition of “economically marginal property” the BLM added a definition for the term “payout period,” which is defined as “the time required, in months, for the cost of an investment in an oil or gas FMP at a specific lease, unit PA, or CA to equal the nominal revenue earned from crude oil production for an oil FMP, or natural gas production for a gas FMP, minus taxes, royalties, and any operating and variable costs.” This definition is consistent with the intent behind the definition of “economically marginal property” established by this final rule. The definition clarifies that payout periods are determined independently for each oil and gas FMP at a given lease, unit PA, or CA.

The BLM included a definition for the term “permanent measurement facility” to the final rule in response to a commenter's concern with § 3173.12(d) of the proposed rule, which required operators to obtain FMP approval before any production leaves a measurement facility. The commenter pointed out that during well testing, and before initiating production, operators send oil to a temporary tank or send gas down the sales line to determine the well's production rate. The test results help the operator determine the size and type of measurement facility needed. The commenter said it would be overly burdensome to require operators to obtain FMP approvals for temporary measurement equipment used during well testing as well as for permanent measurement facilities.

The BLM agrees in part with this comment and has provided a definition for the term “permanent measurement facility,” which means “all equipment constructed or installed and used on-site for 6 months or longer for the purpose of determining the quantity, quality, or storage of production that meets the definition of FMP under § 3170.3.” In addition, the final rule also

clarifies that paragraphs (d) and (e) of § 3173.12, which pertain to when operators must apply for their FMP numbers, apply only to permanent measurement facilities. Therefore, temporary equipment used during well testing operations, including temporary tanks to store oil, are not affected by the FMP requirement. However, since a “sales line” by definition is a permanent facility, and any gas that travels through it is royalty bearing, the BLM added a 6-month timeframe to the definition of permanent measurement facility to make clear that the FMP requirement does not apply during well testing. Six months was chosen because that is when the BLM typically performs its first environmental inspection of production facilities after a well is completed, and after that point, the continued use of temporary equipment at the wellsite would raise concerns that an operator is having difficulty installing its permanent facilities.

The BLM added a definition of “royalty net present value (RNPV)” to support implementation of the term “economically marginal property.” The final rule defines RNPV as the “net present value of all Federal or Indian royalties paid on revenue earned from crude oil production or natural gas production from an oil or gas FMP at a given lease, unit PA, or CA over the expected life of the metering equipment that must be installed for that lease, unit PA, or CA to achieve non-commingled measurement.” This definition is consistent with the intent behind the definition of “economically marginal property” established by this final rule.

The BLM also received comments concerning its use of the term “royalty-free use.” Specifically, a commenter expressed concern that the terms “beneficial use” and “royalty-free use” were used interchangeably multiple times in the preamble discussion of the proposed rule, without any definitions being offered for either term. The commenter also noted that only the term “royalty-free use” was used in the proposed rule itself, and no definition was provided. The commenter suggested a definition of “royalty-free uses,” which specifically included all equipment and facilities serving directionally or horizontally drilled wells that may be located off the lease.

The BLM agrees with the commenter that it should not have used the two terms interchangeably. The BLM should have used the term “royalty-free use” rather than “beneficial use,” because the former is more specific and more applicable in the context of this rule. For example, the term “beneficial use” sometimes refers to using produced water for other purposes, such as a water source for livestock or for enhancing vegetation regrowth during reclamation, both of which have nothing to do with production verification and accountability.

The BLM did not, however, feel it was necessary to provide a definition for royalty-free use at this time. First, the royalty-free use of oil or gas from onshore Federal and Indian leases, units, and CAs is governed by the longstanding Notice to Lessees and Operators 4A (NTL-4A) and the BLM believes the concept to be well understood by operators. Second, the BLM plans to update its regulations pertaining to the royalty-free use of oil and gas as part of a separate rulemaking—Waste Prevention, Production Subject to Royalties, and Resource Conservation (81 FR 6616) (Waste Prevention Rule)—that will provide additional clarity on the royalty-free use of oil and gas from onshore Federal and Indian leases. Until such time as the Waste Prevention Rule is finalized, for the purpose of this final rule, the meaning of the term “royalty-free use of oil and gas” will be consistent with the royalty-free use of oil or gas as currently defined in NTL-4A. No changes were made to proposed rule in response to this comment.

Section 3173.2 Storage and Sales Facilities—Seals

Paragraphs (a) and (b) of § 3173.2 require any lines entering or leaving any oil storage tank or storage facility to have valves capable of being effectively sealed during specific operational phases—production, sales, water draining, or hot oiling.

Paragraph (c) identifies the specific types of valves that are not considered “appropriate valves” (

i.e.,

valves that must be sealed during the production phase or the sales phase) and, as such, are not subject to the requirements of subpart 3173. These valves include valves on production equipment; valves on water tanks, so long as there is no possibility of access to production; valves on tanks contains waste or slop oil; sample cock valves; fill-line valves on certain marginal production tanks; gas line valves; heating system valves; pump valves; tank vent-line valves; and sales, equalizer or fill-line valves on systems where production may only be removed through an approved metering system.

Paragraph (d) prohibits tampering with an “appropriate valve,” and specifies that tampering may result in assessment of civil penalties for knowingly or willfully preparing, maintaining, or submitting false, inaccurate, or misleading information under Section 109(d)(1) of FOGRMA, 30 U.S.C. 1719(d)(1), and 43 CFR 3163.2(f)(1), or for knowingly or willfully taking, removing, transporting, using, or diverting oil or gas from a lease site without valid legal authority under Section 109(d)(2) of FOGRMA, 30 U.S.C. 1719(d)(2), and 43 CFR 3163.2(f)(2).

The BLM received many comments on proposed § 3173.2. Several commenters expressed concern with the relationship between the general prohibition against tampering under § 3170.4 of the proposed rule and the specific prohibition against tampering with any appropriate valve under proposed paragraph (d) of this section.

One commenter, in particular, was concerned that under the new requirements the commenter would not be able to perform maintenance on valves without the procedure being considered tampering or unauthorized seal removal. Two other commenters stated that the criteria for determining what qualifies as tampering were overbroad and ambiguous. They also questioned if an unintentional act or human error would be considered tampering.

The BLM believes these comments have merit and, as discussed previously, has added a definition of the term “tampering” to § 3170.3 of the final rule. As previously noted, “tampering” means any deliberate adjustment or alteration to the meter or measurement device, appropriate valve, or measurement processes that could introduce bias into the measurement or affect the BLM's ability to independently verify volumes or qualities reported. This definition should help the public understand how the BLM will determine whether a particular incident constitutes tampering.

As for operator maintenance on valves, such acts will not be considered tampering as long as the maintenance work does not alter the valve or introduce bias into the measurement. If the valve being worked on falls under the seal requirements (

i.e.,

it is used in the process for determining the quantity or quality of oil for royalty purposes), it is permissible to remove the seal for maintenance purposes as long as the specific reason for removing the seal is noted in the seal record. The BLM did not change the final rule to address this comment.

Another commenter stated that valves would need to be changed out in response to the requirements under this section, making marginal wells unprofitable. The BLM does not believe that any valves will need to be changed

out because these requirements are the same as those in Order 3, which already requires all appropriate valves capable of being effectively sealed to be sealed. Since this provision merely continues existing requirements, no changes to the final rule were made in response to this comment.

Another commenter was concerned that proposed § 3173.2(c)(3), which exempts valves on tanks that contain oil that the AO or authorized representative (AR) has determined to be waste or slop, would impose additional costs on operators because of the time it could take the AO or AR to make the determination. While waiting for the AO or AR determination, the commenter said, operators would have to spend money on additional tanks to store their slop or waste oil. The BLM disagrees. This requirement is very similar to the existing requirements of Order 3, and therefore will not impose any additional burdens on operators. A company will not need a new tank while waiting for a determination from the AO or AR; rather the company will have to properly seal any tanks holding such oil until it is determined to be slop oil or waste oil. The cost to obtain a seal should not present any sort of monetary hardship for the operator. Thus, the BLM did not make any changes in response to this comment.

Section 3173.3 Oil Measurement System Components—Seals

Section 3173.3 of the final rule identifies a nonexclusive list of the components used in LACT meters or Coriolis oil measurement systems (CMS) that must be effectively sealed to indicate whether tampering may have occurred. The BLM received a few comments on this section of the proposed rule.

One commenter stated that the proposed seal requirements are much more extensive than those in Order 3 and will create additional burden and expense for the operator because seals routinely break and the seal-reporting requirements for these instances under § 3173.9 are fairly detailed. In addition, the commenter said there is a risk of delayed revenue while the operator waits for the AO to approve removal of a seal. The BLM disagrees that the seal requirements are much more extensive than those found in Order 3. This final rule adds only four items to the Order 3 list of components that are used for quantity or quality determination of oil and that must therefore be effectively sealed. Those four additional components are the right-angle drive, totalizer, prover connections, and valves on diverter lines larger than 1 inch in nominal diameter. The BLM does not believe seal requirements for these components are particularly burdensome, and, since they all are points where tampering could occur, it is important that they be subject to the same sealing requirements as other components of the measurement system.

As for the commenter's concern about revenue being delayed while an operator waits for the AO to approve removal of a seal—under normal circumstances, there is no need to wait for AO approval to remove a seal. Seals may be taken off and put back on as long as these events are recorded in the seal record. In the event a Federal seal is placed on a component, the AO must provide approval prior to any removal; however, an AO can provide verbal approval to remove a Federal seal as soon as the associated violation is corrected. These comments did not result in any changes to the final rule.

One commenter said they could not determine what effect proposed § 3173.3 would have on their operations when related requirements—contained in the rulemaking that is replacing Order 4 (oil measurement)—had not yet published or been made available for public comment. The additional requirements cross referenced in proposed § 3173.3 can be found in proposed 43 CFR 3174.8(a) (for LACT systems) and proposed 43 CFR 3174.9(e) (for Coriolis systems). The BLM recognized the need for both sets of requirements to be available for public comment at the same time, which is why the comment period for this proposed rule was extended from its original September 11, 2015, closure date until December 14, 2015, in order to ensure there was sufficient overlap between the comment periods for the proposed rules for subparts 3173, 3174, and 3175. This overlap gave operators an opportunity to review the parts of proposed subpart 3174 that were referenced in § 3173.3. This comment did not result in any changes to the final rule.

Another commenter said that the seal requirements for oil measurement systems are only appropriate at those points where theft or mishandling can realistically occur, and the requirements under this section are unnecessary. The commenter suggested that the BLM maintain the seal requirements in Order 3, which address the sealing of tanks when oil is sold through a LACT. The BLM did not make a change in response to this comment. The BLM does not believe that theft or mishandling, which affects only the quantity of the oil being measured, are the only factors that may impact the determination of royalties owed. The quality of the oil being produced will also influence royalty determination. For this reason, the BLM believes it is necessary to have a section in the rule dedicated to ensuring that all components of an oil measurement system that are used to determine the quality and quantity of oil must be effectively sealed. The BLM does agree with the commenter's suggestion that we maintain Order 3's seal requirements, which is why they were incorporated into the list of components that must be sealed under § 3173.3 of this final rule.

The BLM also received several comments stating that some components of a LACT are not capable of being sealed, such as flow computers and back pressure valves. The commenters said flow computers are not capable of accepting a seal and back-pressure valves cannot operate if they are sealed. These commenters recommended that the BLM not subject these two components to the § 3173.3 sealing requirements. A third commenter stated, without providing specifics, that some of the devices listed in this proposed section are not constructed to be sealed. The commenter suggested that sealable components would have to be purchased or a secondary device would have to be built to allow for sealing. Without more specific information, the BLM cannot address this comment. However, prior to issuing this final rule, the BLM re-assessed the components listed in this section and continues to believe, except as noted below, that all of the identified components can reasonably be sealed, as all of them are routinely sealed today.

With regards to requiring flow computers to follow this final rule's seal requirements, commenters should be aware that the intent of sealing the flow computer is to have a log of when someone accesses the software. Sealing a flow computer could be accomplished through a lead wire seal, adhesive backed paper (sticker), or plastic seal, or a password and an event log. However, in response to this comment, the BLM has changed the final rule. The BLM removed flow computers from paragraph (a)(5) of this section and added a new item to the list—LACT or CMS—in paragraph (a)(6), giving the operator the opportunity to decide how best to ensure that the flow computer is sealed. As a result of these changes, paragraphs § 3173.3(a)(6) through (12) in the proposed rule are redesignated as § 3173.3(a)(7) through (13) in the final rule.

As for concerns raised about the inability to seal back-pressure valves, the BLM has made a change in response to this comment. In 3173.3(a)(7) of the

final rule (§ 3173.3(a)(6) in the proposed rule

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