Waste Prevention, Production Subject to Royalties, and Resource Conservation

Federal RegisterApr 10, 2024

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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3160 and 3170

[BLM_HQ_FRN_MO4500174370]

RIN 1004-AE79

Waste Prevention, Production Subject to Royalties, and Resource Conservation

AGENCY:

Bureau of Land Management, Interior.

ACTION:

Final rule.

SUMMARY:

On November 30, 2022, the Department of the Interior, through the Bureau of Land Management (BLM), published in the

Federal Register

a proposed rule entitled “Waste Prevention, Production Subject to Royalties, and Resource Conservation.” This final rule aims to reduce the waste of natural gas from venting, flaring, and leaks during oil and gas production activities on Federal and Indian leases. The final rule also ensures that, when Federal or Indian gas is wasted, the public and Indian mineral owners are compensated for that wasted gas through royalty payments. This final rule will be codified in the Code of Federal Regulations and will replace the BLM's current requirements governing venting and flaring, which are more than four decades old.

DATES:

The final rule is effective on June 10, 2024. The incorporation by reference of certain material listed in this rule is approved by the Director of the Federal Register as of June 10, 2024.

FOR FURTHER INFORMATION CONTACT:

Yvette M. Fields, Division Chief, Fluid Minerals Division, telephone: 240-712-8358, email:

yfields@blm.gov,

or by mail to Bureau of Land Management, 1849 C St. NW, Room 5633, Washington, DC 20240, for information regarding the substance of this final rule.

Individuals in the United States who are deaf, deafblind, hard of hearing, or have a speech disability may dial 711 (TTY, TDD, or TeleBraille) to access telecommunications relay services. Individuals outside the United States should use the relay services offered within their country to make international calls to the point-of-contact in the United States. For a summary of the final rule, please see the final rule summary document in docket BLM-2022-0003 on

www.regulations.gov.

SUPPLEMENTARY INFORMATION:

I. List of Acronyms

II. Executive Summary

III. Background

IV. Discussion of Public Comments on the Proposed Rule

V. Section-by-Section Discussion

VI. Procedural Matters

I. List of Acronyms

AO = Authorized Officer

APD = Application for Permit to Drill

API = American Petroleum Institute

AVO = Audio, visual, and olfactory

BLM = Bureau of Land Management

CA = Communitization Agreement

CAA = Clean Air Act

CFR = Code of Federal Regulations

EA = Environmental Assessment

EPA = Environment Protection Agency

FLPMA = Federal Land Policy and Management Act

FMP = Facility measurement point

FOGRMA = Federal Oil and Gas Royalty Management Act

GAO = Government Accountability Office

GOR = Gas-to-oil ratio

IMDA = Indian Mineral Development Act of 1982

IRA = Inflation Reduction Act of 2022

LDAR = Leak detection and repair

Mcf = thousand cubic feet at standard conditions

MLA = Mineral Leasing Act of 1920, as amended

NTL = Notice to Lessees

NTL-4A = Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases: Royalty or Compensation for Oil and Gas Lost

OGI = Optical gas imaging

OGOR = Oil and Gas Operations Report

ONRR = Office of Natural Resources Revenue

RIA = Regulatory Impact Analysis

Unit PA = Unit participating area

WMP = Waste Minimization Plan

II. Executive Summary

On November 30, 2022, the Department of the Interior (DOI or “Department”), through the Bureau of Land Management (BLM), published in the

Federal Register

a proposed rule entitled, Waste Prevention, Production Subject to Royalties, and Resource Conservation. 87 FR 73588 (Nov. 30, 2022). The BLM has considered the public comments received on the proposed rule to develop this final rule.

This final rule aims to reduce the waste of natural gas from oil and gas leases administered by the BLM. This gas is lost during oil and gas exploration and production activities through venting, flaring, and leaks. Venting is the intentional release of gas into the atmosphere during operations, such as liquids unloading. Gas that is combusted in a controlled manner is flared gas. Leaks are the unintentional release of gas into the atmosphere from production equipment. Although some losses of gas may be unavoidable, Federal law requires that operators take reasonable steps to prevent the waste of gas through venting, flaring and leaks. The final rule describes the reasonable steps that operators of Federal and Indian oil and gas leases must take to avoid the waste of natural gas. The final rule also ensures that, when Federal or Indian gas is avoidably wasted, the public and Indian mineral owners are compensated for the wasted gas through royalty payments.

The BLM administers a Federal onshore oil and gas leasing program pursuant to the requirements of various statutes, including the Mineral Leasing Act (MLA), the Federal Oil and Gas Royalty Management Act (FOGRMA), the Inflation Reduction Act of 2022 (IRA) Public Law 117-169, and the Federal Land Policy and Management Act (FLPMA). The MLA requires lessees to “use all reasonable precautions to prevent waste of oil or gas developed in the land,”

and further requires oil and gas lessees to observe “such rules . . . for the prevention of undue waste as may be prescribed by [the] Secretary . . . .”

Under FOGRMA, oil and gas lessees are liable for royalty payments on gas wasted from the lease site.

In addition, as discussed further below, the IRA provides that, for leases issued after August 16, 2022, royalties are owed on all gas produced from Federal land, subject to certain exceptions for gas that is lost during emergency situations, used for the benefit of lease operations, or “unavoidably lost.” FLPMA authorizes the BLM to “regulate” the “use, occupancy, and development” of the public lands via “published rules,” while mandating that the Secretary, “[i]n managing the public lands . . . shall, by regulation or otherwise, take any action necessary to prevent unnecessary or undue degradation of the lands.”

The BLM also regulates oil and gas operations on trust and restricted fee lands pursuant to the Indian Mineral Leasing Act, 25 U.S.C. 396a

et seq.;

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

et seq.

30 U.S.C. 225.

30 U.S.C. 187.

30 U.S.C. 1756.

43 U.S.C. 1732(b).

In addition to managing the leasing and production of oil and gas from Federal lands, the BLM also oversees operations on many Indian and Tribal oil and gas leases pursuant to a delegation of authority from the Secretary of the Interior.

The Secretary's management and regulation of Indian mineral interests carries with

it the duty to act as a trustee for the benefit of the Indian mineral owners.

Department of the Interior, Departmental Manual, 235 DM 1.1K.

This final rule replaces the BLM's current requirements governing natural gas venting and flaring, which are contained in Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases: Royalty or Compensation for Oil and Gas Lost (NTL-4A).

NTL-4A was issued more than 40 years ago, and its policies and requirements are outdated. To begin, NTL-4A is ill-suited to address the large volume of flaring associated with the rapid development of unconventional “tight” oil and gas resources that has occurred in recent years. In addition, NTL-4A does not account for technological and operational advancements that can reduce losses of gas from oil storage tanks and equipment leaks.

44 FR 76600 (Dec. 27, 1979).

In 2016, the BLM issued a final rule replacing NTL-4A with new regulations intended to reduce the waste of gas from venting, flaring, and leaks.

That rule was challenged in Federal court, and the BLM never fully implemented the rule due to the resulting litigation.

In September 2018, the BLM issued a final rule effectively rescinding the 2016 Rule, and that rule was itself challenged in court.

Eventually, the United States District Court for the Northern District of California vacated the 2018 rescission of the 2016 Rule on various grounds, including what the Court determined was the rule's failure to meet the BLM's statutory mandate to prevent waste.

The U.S. District Court for the District of Wyoming then vacated the 2016 Rule on the grounds that, among other things: (1) the MLA's “delegation of authority does not allow and was not intended to authorize the enactment of rules justified primarily upon the ancillary benefit of a reduction in air pollution”; and (2) “BLM acted arbitrarily and capriciously in failing to fully assess the impacts of the [2016 Rule] on marginal wells, failing to adequately explain and support the [2016 Rule's] capture requirements, and failing to separately consider the domestic costs and benefits of the [2016 Rule].”

The result of these rulemakings and court decisions is that NTL-4A continues to govern venting and flaring from BLM-managed oil and gas leases.

81 FR 83008 (Nov. 18, 2016).

See Wyoming

U.S. Dep't of the Interior,

493 F. Supp. 3d 1046, 1052-1057 (D. Wyo. 2020) (hereinafter,

Wyoming

court).

83 FR 49184 (Sept. 28, 2018).

California

Bernhardt,

472 F. Supp. 3d 573 (N.D. Cal. 2020).

See Wyoming

court at 1086-87.

Based on the lessons of prior rulemakings and court decisions, the BLM concludes that this final rule will reduce the waste of natural gas through improved regulatory requirements pertaining to venting, flaring, and leaks, as well as improve upon NTL-4A in a variety of significant ways while eschewing elements of the 2016 Rule criticized by the District Court.

In brief, the primary components of this final rule are as follows:

• The final rule better implements the statutory requirement that the “lessee will . . . use all reasonable precautions to prevent the waste of oil or gas developed in the land,”

consistent with the BLM's authority to issue rules implementing that statutory requirement.

The final rule requires operators to take reasonable measures to prevent waste as conditions of approval of an Application for Permit to Drill (APD). Then, after an APD is approved, the BLM may order an operator to implement, within a reasonable amount of time, additional reasonable measures to prevent waste at ongoing exploration and production operations. Reasonable measures to prevent waste may reflect factors including, but not limited to, advances in technology and changes in industry practice.

30 U.S.C. 225.

See

30 U.S.C. 187.

• The final rule requires operators to submit either a Waste Minimization Plan (WMP) or a self-certification statement as one of five required attachments to their oil well applications for permit to drill.

The WMP will provide the BLM with the following information: anticipated oil and associated-gas production and anticipated 3-year decline curves; certification that the operator has an executed, valid gas sales contract; and any other steps the operator commits to take to reduce or eliminate gas losses.

See

§ 3162.3-1(d).

In lieu of a waste-minimization plan, the operator may choose to provide a self-certification statement. That statement would commit the operator to capturing 100 percent of the associated gas produced from an oil well and would obligate the operator to pay royalties on all lost gas except for gas lost through emergencies. With the addition of this new requirement to file a WMP or the described self-certification statement for oil-well APDs, operators must now provide five attachments with their completed Form 3160-3, including existing requirements for a drilling plan, a surface use plan of operations, and evidence of bond coverage. All five attachments must be administratively and technically complete before the BLM approves the APD. If the application is not complete, the BLM will defer action on the APD, and the operator will have an opportunity to address BLM-identified deficiencies. In the case of a WMP or self-certification statement, the operator must address the identified deficiencies within 2 years of receiving notification from the BLM of the deficiencies or the BLM may disapprove the application.

• The final rule recognizes the IRA's provision that royalties are not owed on gas that is “unavoidably lost”. The final rule clarifies which lost oil or gas will qualify as “unavoidably lost”: lost oil or gas will qualify as “unavoidably lost” if, as stated in the final rule at § 3179.41, the operator has taken reasonable steps to avoid waste; the operator has complied fully with applicable laws, lease terms, regulations, provisions of a previously approved operating plan, and other written orders of the BLM; and the loss is within the applicable time or volume limits. The final rule provides for several circumstances in which lost oil or gas will be considered “unavoidably lost,” including during well completions, production testing, and emergencies. The final rule also establishes a volumetric threshold based on oil production on royalty-free flaring due to pipeline capacity constraints, midstream processing failures, or other similar events that may prevent produced gas from being transported to market. The volumetric threshold is based on the total volume of gas flared in a month divided by the total net volume of oil produced in a month for each lease, unit PA, or CA. If an operator were to exceed the avoidable loss threshold, then royalties are due on the amount flared beyond the threshold.

• The final rule includes specific affirmative obligations that operators must take to avoid wasting oil or gas. In particular:

The final rule requires operators on Federal or Indian leases to maintain a leak detection and repair (LDAR) program designed to prevent the waste of Federal or Indian gas. An operator's LDAR program must provide for regular inspections of all oil and gas production, processing, treatment, storage, and measurement equipment on the lease site.

The requirements of this final rule are explained in detail in sections III and IV that follow.

As detailed in the Regulatory Impact Analysis (RIA) prepared for this final rule, the BLM estimates that this rule will have the following economic impacts:

• Costs to industry of around $19.3 million per year (annualized at 7 percent);

• Benefits to industry in recovered gas of $1.8 million per year (annualized at 7 percent);

• Increases in royalty revenues from recovered and flared gas of $51 million per year; and

• Ancillary effects society of $17.9 million per year from reduced greenhouse gas emissions (using a 3 percent discount rate).

III. Background

A. Waste of Natural Gas During the Development of Federal and Indian Oil and Gas Resources

The BLM is responsible for managing more than 245 million surface acres of land and 700 million acres of subsurface mineral estate. The BLM maintains a program for leasing these lands for oil and gas development and regulates oil and gas production operations on Federal leases. While the BLM does not manage the leasing of Indian and Tribal lands for oil and gas production, the BLM does regulate oil and gas operations on many Indian and Tribal leases as part of its Tribal trust responsibilities.

The BLM's onshore oil and gas management program is a significant contributor to the Nation's oil and gas production. Domestic production from 88,887 Federal onshore oil and gas wells

accounts for approximately 8 percent of the Nation's natural gas supply and 9 percent of its oil.

In Fiscal Year (FY) 2021, operators produced 473 million barrels of oil and 3.65 trillion cubic feet of natural gas from onshore Federal and Indian oil and gas leases. The production of this oil and gas generated more than $4.2 billion in royalties. Approximately $3.2 billion of these royalties were shared between the United States and the States in which the production occurred. Approximately $1 billion of these royalties went directly to Tribes and Indian allottees for production from Indian lands.

BLM Public Lands Statistics, Table 9 (FY 2021 data), available at

https://www.blm.gov/programs-energy-and-minerals-oil-and-gas-oil-and-gas-statistics.

Bureau of Land Management Budget Justifications and Performance Information Fiscal Year 2023, p. V-79, available at

https://www.doi.gov/sites/doi.gov/files/fy2023-blm-greenbook.pdf.

Production and revenue number derived from data maintained by the Office of Natural Resources Revenue at

https://revenuedata.doi.gov/.

In recent years, the United States has experienced a significant increase in oil and natural gas production due to technological advances, such as hydraulic fracturing combined with directional drilling. This increase in production has been accompanied by a significant waste of natural gas through venting and flaring. During oil and gas operations it is sometimes necessary to vent gas (the intentional release of natural gas into the atmosphere) or to flare gas (the combustion of unsold gas). As the following graph illustrates, the amount of venting and flaring from Federal and Indian leases has increased dramatically from the 1990s to the 2010s, and the upward trend in flaring suggests that it will continue to be a problem. Between 1990 and 2000, the total venting and flaring reported by Federal and Indian onshore lessees averaged approximately 11 billion cubic feet (Bcf) per year. Between 2010 and 2020, in contrast, the total venting and flaring reported by Federal and Indian onshore lessees averaged approximately 44.2 Bcf per year.

The BLM analysis of ONRR Oil and Gas Operations Report part B (OGOR-B) data provided for 1990-2000 and 2010-2020. All venting and flaring data is nationwide and does not separate Federal and Indian data. For certain data points, separating Federal and Indian data would require a manual review of thousands of venting and flaring sundry notices since the BLM does not have a database that tracks this distinction.

ER10AP24.000

Assuming a $3 per thousand cubic feet (Mcf) price of gas,

the Federal and Indian gas that was vented and flared from 2010 to 2020 would be valued at $1.46 billion. The BLM notes that vented and flared volumes have not

increased linearly with production: according to data maintained by the Office of Natural Resources Revenue (ONRR), the average volume of vented and flared gas as a percentage of total gas production was 0.42 percent from 1990 to 2000; from 2010 to 2020, however, vented and flared gas averaged 1.07 percent of total gas production. This metric reflects a 157 percent increase in the waste of gas during oil and gas production from Federal and Indian lands. Furthermore, the average amount of vented and flared gas (in Mcf) per barrel (bbl) of oil production was 0.0815 Mcf/bbl from 1990 to 2000, while it rose to 0.1642 Mcf/bbl from 2010 to 2020

—a 102 percent increase in the waste of gas per barrel of oil produced. Together, these trends demonstrate that the requirements established by NTL-4A are ineffective at limiting the amount of gas that is vented or flared from Federal and Indian lands.

The average annual Henry Hub spot price for natural gas from 2010 through 2020 was $3.19. U.S. Energy Information Administration (EIA), Henry Hub Natural Gas Spot Price, available at

https://www.eia.gov/dnav/ng/hist/rngwhhda.htm.

In the proposed rule, the BLM erroneously stated that the average amount of vented and flared gas in thousands of cubic feet (Mcf) per barrel (bbl) of oil production was 0.8148 Mcf/bbl from 1990 to 2000, which rose to 1.6418 Mcf/bbl from 2010 to 2020. The correct average amounts are 0.08148 Mcf/bbl of vented and flared gas from 1990 to 2000, which rose to 0.16418 Mcf/bbl from 2010 to 2020. The accompanying graph, which appeared in the proposed and final rules, is accurate and remains unchanged. Accordingly, the BLM is revising the cited average amounts to reflect the information provided in the accompanying graph.

BILLING CODE 4331-29-P

ER10AP24.001

ER10AP24.002

BILLING CODE 4331-29-C

Recent studies have identified three other major sources of gas losses during the oil and gas production process: emissions from natural-gas-activated pneumatic equipment, venting from oil storage tanks, and equipment leaks.

The EPA estimates that, nationwide, 36.2 Bcf of methane was emitted from pneumatic controllers and 4.9 Bcf of methane was emitted from equipment leaks at upstream oil and gas production sites in the United States in 2019.

The BLM estimates that 13 Bcf of natural gas was lost from pneumatic devices on Federal and Indian lands in 2019. The BLM estimates that an additional 0.86 Bcf of gas was lost due to equipment leaks from Federal natural gas production operations not subject at the time to State or EPA (LDAR) requirements. Notably, leakage appears to be exacerbated in areas where there is insufficient infrastructure for natural gas gathering, processing, and transportation

—a known issue in basins such as the Permian and Bakken, where substantial BLM-managed oil and gas production occurs. Finally, the BLM estimates that 17.9 Bcf of natural gas was emitted from storage tanks on Federal and Indian lands in 2019. Losses from pneumatic equipment, leaks, and storage tanks would be valued at $53.7 million dollars (at $3/Mcf) in 2019.

Alvarez, et al., “Assessment of methane emissions from the U.S. oil and gas supply chain,”

Science

361 (2018);

see also

81 FR 83008, 83015-17 (Nov. 18, 2016).

EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2019 at 3-73 (2019).

Zhang, et al., “Quantifying methane emissions from the largest oil-producing basin in the United States from space,”

Science Advances

6 (2020).

Apart from undue waste, excessive venting, flaring, and leaks by Federal oil and gas lessees also impose three additional harms. First, vented or leaked gas wastes valuable publicly or Indian owned resources that could be put to productive use, and deprives American taxpayers, Tribes, and States of substantial royalty revenues. Second, the wasted gas may harm local communities and surrounding areas through visual and noise impacts from flaring. And third, vented or leaked gas also contributes to climate change, because the primary constituent of natural gas is methane, an especially powerful greenhouse gas, with climate impacts roughly 28 to 36 times those of carbon dioxide (CO

), if measured over a 100-year period, or 84 times those of CO

if measured over a 20-year period.

Thus, regulatory measures that encourage operators to conserve gas and avoid waste could, as a purely incidental matter, have ancillary effects on public health and the environment.

See Intergovernmental Panel on Climate Change, Climate Change 2013: The Physical Science Basis, Chapter 8,

Anthropogenic and Natural Radiative Forcing,

at 714 (Table 8.7),

available at https://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WG1AR5_Chapter08_FINAL.pdf.

The BLM notes that the BLM did not rely on such ancillary effects in developing this final rule. Rather, with the exception of the safety provisions in § 3179.50 (which also promotes worker health), the requirements of this final rule are independently justified as reasonable measures to prevent waste that would be expected, regardless of ancillary effects on public health or the environment.

Both the MLA and IRA distinguish an avoidable loss from an unavoidable loss. Indeed, some amount of venting and flaring is unavoidable and expected to occur during oil and gas exploration and production operations. For example, an operator may need to flare gas on a short-term basis as part of drilling operations, well completion, or production testing, among other situations. Longer-term flaring may occur in exceptional circumstances, which might include the drilling of and production from an exploratory well in a new field, where gas pipelines have not yet been built due to a lack of information regarding expected gas production.

In some fields, the overall quantity of gas produced may be so small that the development of gas-pipeline infrastructure may not be economically justified.

The BLM notes that, even in such exceptional circumstances, operators should be expected to take measures to avoid excessive flaring and this proposed rule would place limitations on royalty-free flaring from exploratory wells.

Although some venting or flaring may be unavoidable (and thus not waste) under some circumstances, operators have an affirmative obligation under Federal law to use reasonable precautions to prevent the waste of oil or gas developed from a lease. As other technologies and practices on oil and gas operations have evolved (as evidenced by changes in State and Federal regulations, and in industry best practices), so too measures that are considered reasonable to prevent waste should progress over time with advances in technology and changes in industry practice.

Further, operators' immediate economic interests may not always be served by minimizing the loss of natural gas, and BLM regulation is necessary to discourage operators from venting or flaring more gas than is operationally necessary. A prime example is the flaring of oil-well gas due to pipeline capacity constraints. Oil wells in certain fields are known to produce relatively large volumes of associated natural gas. Accordingly, natural-gas-capture infrastructure—including pipelines—has been built out in those fields, and the BLM expects operators to sell the associated gas they produce. However, it is not uncommon for the rate of oil-well development to outpace the capacity of the related gas-capture infrastructure. When the existing gas-capture infrastructure is overwhelmed, an operator is faced with a choice: flare the associated gas in order to continue oil production unabated or curtail oil production in order to conserve the associated gas. Absent clear requirements in NTL-4A as to whether a specific operational circumstance is an avoidable or unavoidable loss, an operator might conclude that the BLM would not make any avoidable loss determination if the operator were to flare, and thus waste associated gas to continue oil production—maximizing the operators' short-term profits by providing immediate revenue from oil production, even accounting for the loss of gas revenue. But the latter course of action may often best serve the public's interest by maximizing overall energy production (considering both production streams rather than producing oil and flaring gas) and royalty revenues.

Likewise, maximizing the recovery of gas by regularly inspecting for leaks may not always maximize the operator's profits. It is in these circumstances—where an operator's interest in maximizing short-term profits diverges from the public's interest in maximizing resource recovery—that BLM regulation is necessary and appropriate to ensure that operators take reasonable measures to prevent waste, as required by statute.

B. Legal Authority

Pursuant to a delegation of Secretarial authority, the BLM is authorized to regulate oil and gas exploration and production activities on Federal and Indian lands under a variety of statutes, including the MLA, the Mineral Leasing Act for Acquired Lands, the IRA, FOGRMA, the FLPMA, the Indian Mineral Leasing Act of 1938, the IMDA, and the Act of March 3, 1909.

These statutes authorize the Secretary of the Interior to promulgate such rules and regulations as may be necessary to carry out the statutes' various purposes.

Mineral Leasing Act, 30 U.S.C. 188-287; Mineral Leasing Act for Acquired Lands, 30 U.S.C. 351-360; Federal Oil and Gas Royalty Management Act, 30 U.S.C. 1701-1758; Federal Land Policy and Management Act of 1976, 43 U.S.C. 1701-1785; Indian Mineral Leasing Act of 1938, 25 U.S.C. 396a-g; Indian Mineral Development Act of 1982, 25 U.S.C. 2101-2108; Act of March 3, 1909, 25 U.S.C. 396.

30 U.S.C. 189 (MLA); 30 U.S.C. 359 (MLAAL); 30 U.S.C. 1751(a) (FOGRMA); 43 U.S.C. 1740

(FLPMA); 25 U.S.C. 396d (IMLA); 25 U.S.C. 2107 (IMDA); 25 U.S.C. 396.

7. Authority Regarding the Waste of Natural Gas

The MLA rests on the fundamental principle that the public should benefit from mineral production on public lands.

An important means of ensuring that the public benefits from mineral production on public lands is minimizing and deterring the waste of oil and gas produced from the Federal mineral estate. To this end, the MLA requires that all oil and gas lessees be subject to the condition that lessees “use all reasonable precautions to prevent waste of oil or gas developed in the land . . . .”

The MLA requires oil and gas lessees to exercise “reasonable diligence, skill, and care” in their operations and to observe “such rules . . . for the prevention of undue waste as may be prescribed by [the] Secretary.”

Lessees are not only responsible for taking measures to prevent waste, but also for making royalty payments on wasted oil and gas when waste occurs, in accordance with the MLA's assessment of royalties on all “production removed or sold from the lease.”

Furthermore, FOGRMA expressly makes lessees “liable for royalty payments on oil or gas lost or wasted from a lease site when such loss or waste is due to negligence on the part of the operator of the lease, or due to the failure to comply with any rule or regulation, order or citation issued under [FOGRMA] or any mineral leasing law.”

See, e.g., California Co.

Udall,

296 F.2d 384, 388 (D.C. Cir. 1961) (noting that the MLA was “intended to promote wise development of . . . natural resources and to obtain for the public a reasonable financial return on assets that `belong' to the public”).

30 U.S.C. 225.

30 U.S.C. 187.

30 U.S.C. 226(b)(1)(A).

30 U.S.C. 1756.

In addition, on August 16, 2022, President Biden signed the IRA into law. Section 50263 of the IRA, which is entitled “Royalties on All Extracted Methane,” provides that, for leases issued after August 16, 2022, royalties are owed on all gas produced from Federal land, including gas that is consumed or lost by venting, flaring, or negligent releases through any equipment during upstream operations. This section further provides three exceptions to the general obligation to pay royalties on produced gas, namely on: “(1) gas vented or flared for not longer than 48 hours in an emergency situation that poses a danger to human health, safety, or the environment; (2) gas used or consumed within the area of the lease, unit, or communitized area for the benefit of the lease, unit, or communitized area; or, (3) gas that is unavoidably lost.”

30 U.S.C. 1727.

The BLM's authority to regulate the waste of Federal oil and gas is not limited to operations that occur on Federal lands, but also extends to operations on non-Federal lands where Federal oil and gas is produced under a unit or communitization agreement (CA). “For the purpose of more properly conserving the natural resources of any oil or gas pool, field, or like area,” the MLA authorizes lessees to operate their leases under a cooperative or unit plan of development and operation if the Secretary of the Interior determines such an arrangement to be necessary or advisable in the public interest.

The Secretary is authorized, with the consent of the lessees involved, to establish or alter drilling, producing, and royalty requirements and to make such regulations with respect to the leases under a cooperative or unit plan.

The MLA states that a cooperative or unit plan of development may contain a provision authorizing the Secretary to regulate the rate of development and the rate of production.

Accordingly, the BLM's standard form unit agreement provides that the BLM may regulate the quantity and rate of production in the interest of conservation.

The BLM's standard form CA provides that the BLM “shall have the right of supervision over all fee and state mineral operations within the communitized area to the extent necessary to monitor production and measurement, and to assure that no avoidable loss of hydrocarbons occurs . . . .”

As noted earlier, FOGRMA authorizes the BLM to assess royalties on gas lost or wasted from a “lease site.” The term “lease site” is broadly defined in FOGRMA as any lands or submerged lands, including the surface of a severed mineral estate, on which exploration for, or extraction or removal of, oil or gas is authorized pursuant to a lease.

The BLM maintains the authority to regulate the waste of Federal minerals from operations on those lands by requiring royalty payments and setting appropriate rates of development and production.

30 U.S.C. 226(m).

Id.

43 CFR 3186.1, ¶ 21.

See “BLM Manual 3160-9-Communitization,” Appendix 1, ¶ 12.

See 30 U.S.C. 1702(6);

Maralex Resources, Inc.

Bernhardt,

913 F.3d 1189, 1200 (10th Cir. 2019) (“the statutory definition of `lease site' necessarily includes any lands, including privately-owned lands, on which [production] of oil or gas is occurring pursuant to a communitization agreement”). Additionally, FOGRMA defines “oil and gas” broadly to mean “any oil or gas originating from,

or allocated to,

the Outer Continental Shelf, Federal, or Indian lands.” 30 U.S.C. 1702(9) (emphasis added).

This conclusion is consistent with the assessment of the BLM's authority expressed by the court that vacated the 2016 Waste Prevention Rule.

See Wyoming

493 F. Supp. 3d at 1081-85.

2. Authority Regarding Environmental Impacts to the Public Lands

In addition to ensuring that the public receives a pecuniary benefit from oil and gas production from public lands, the BLM is also tasked with regulating the physical impacts of oil and gas development on public lands. The MLA directs the Secretary to “regulate all surface-disturbing activities conducted pursuant to any lease” and to “determine reclamation and other actions as required in the interest of conservation of surface resources.”

30 U.S.C. 226(g).

The MLA requires oil and gas leases to include provisions “for the protection of the interests of the United States . . . and for the safeguarding of the public welfare,” including lease terms for purposes other than safeguarding the public resource of oil and gas.

The Secretary may suspend lease operations “in the interest of conservation of natural resources,” a phrase that encompasses not just conservation of mineral deposits, but also preventing environmental harm.

The MLA additionally requires oil and gas leases to contain “a provision that such rules for the safety and welfare of the miners

. . . as may be prescribed by the Secretary shall be observed.”

Accordingly, the Department's regulations governing oil and gas operations on the public lands have long required operators to conduct operations in a manner that is protective of natural resources, environmental quality, and the health and safety of workers.

See Natural Resources Defense Council, Inc.

Berklund,

458 F. Supp. 925, 936 n.17 (D.D.C. 1978). The BLM acknowledges that the court that vacated the 2016 Waste Prevention Rule stated that “it is not a reasonable interpretation of BLM's general authority under the MLA to `safeguard[ ] the public welfare' as empowering the agency to regulate air emissions, particularly when Congress expressly delegated such authority to the EPA under the [Clean Air Act].”

Wyoming

493 F. Supp. 3d at 1067. The BLM further notes that the court that vacated the BLM's rescission of the 2016 Waste Prevention Rule found that the rescission failed to satisfy the BLM's “statutory obligation” to “safeguard[ ] the public welfare,” and stated that the MLA's “public welfare” provision supports the BLM's consideration of air emissions in promulgating its waste prevention regulations.

See California

Bernhardt,

472 F. Supp. 3d 573, 616 (N.D. Cal. 2020). The BLM need not elaborate on the meaning of the MLA's “public welfare” provision in this rulemaking, as the BLM is proposing requirements that are independently justified as waste prevention measures and are not for environmental purposes. The one exception is § 3179.50, which does serve an environmental purpose, but is an exercise of the Secretary's authority to prescribe “rules for the safety and welfare of the miners” under 30 U.S.C. 187.

30 U.S.C. 209;

see also, e.g., Copper Valley Machine Works

Andrus,

653 F.2d 595, 601 & nn.7-8 (D.C. Cir. 1981);

Hoyl

Babbitt,

129 F.3d 1377, 1380 (10th Cir. 1997);

Getty Oil Co.

Clark,

614 F. Supp. 904, 916 (D. Wyo. 1985).

30 U.S.C. 187.

See

43 CFR 3162.5-1, 3162.5-3. The BLM promulgated those regulations in 1982. 47 FR 47765 (1982).

FLPMA authorizes the BLM to “regulate” the “use, occupancy, and development” of the public lands via “published rules.”

FLPMA also mandates that the Secretary, “[i]n managing the public lands . . . shall, by regulation or otherwise, take any action necessary to prevent unnecessary or undue degradation of the lands.”

In addition, section 102 of FLPMA declares a policy that the BLM should both protect the environment, as stated in paragraph 102(a)(8), and manage the land in such a manner as to provide for “domestic sources of minerals” and other resources, as stated in paragraph 102(a)(12).

With respect to protecting the environment, paragraph 102(a)(8) states the policy of the United States that lands be managed to “protect the quality of scientific, scenic, historical, ecological, environmental, air and atmospheric, water resources, and archeological values . . . .”

43 U.S.C. 1732(b).

Id.

43 U.S.C. 1701;

Theodore Roosevelt Conservation P'ship

Salazar,

605 F. Supp. 2d 263, 281-82 (D.D.C. 2009).

43 U.S.C. 1701(a)(8); but see 43 U.S.C. 1701(b).

FLPMA also requires the BLM to manage public lands under principles of multiple use and sustained yield.

The statutory definition of “multiple use” explicitly includes the consideration of environmental resources. “Multiple use” is a “combination of balanced and diverse resource uses that takes into account the long-term needs of future generations for renewable and nonrenewable resources . . . .”

“Multiple use” also requires resources to be managed in a “harmonious and coordinated” manner “without permanent impairment to the productivity of the land and the quality of the environment . . . .”

Significantly, FLPMA directs the Secretary to consider “the relative values of the resources and not necessarily . . . the combination of uses that will give the greatest economic return or the greatest unit output.”

Id.

at 1702(c), 1732(a).

43 U.S.C. 1702(c).

Id.

The Secretary's management and regulation of Indian mineral interests carries with it the duty to act as a trustee for the benefit of the Indian mineral owners.

Congress has directed the Secretary to “aggressively carry out [her] trust responsibility in the administration of Indian oil and gas.”

In furtherance of her trust obligations, the Secretary has delegated regulatory authority for administering operations on Indian oil and gas leases to the BLM,

which has developed specialized expertise through regulating the production of oil and gas from public lands administered by the Department. In choosing from among reasonable regulatory alternatives for Indian mineral development, the BLM is obligated to adopt the alternative that is in the best interest of the Tribe and individual Indian mineral owners.

What is in the best interest of the Tribe and individual Indian mineral owners is determined by a consideration of all relevant factors, including economic considerations as well as potential environmental and social effects.

See

Woods Petroleum Corp.

Department of Interior,

47 F.3d 1032, 1038 (10th Cir. 1995) (en banc).

30 U.S.C. 1701(a)(4).

235 DM 1.1.K.

See Jicarilla Apache Tribe

Supron Energy Corp.,

728 F.2d 1555, 1567 (10th Cir. 1984) (Seymour, J., concurring in part and dissenting in part), adopted as majority opinion as modified

en banc,

782 F.2d 855 (10th Cir. 1986).

See

25 CFR 211.3.

C. Regulatory History

The BLM has a long history of regulating venting and flaring from onshore oil and gas operations. This section summarizes the BLM's historic practices, as well as the BLM's experience in two recent rulemakings related to venting and flaring.

8. Early Regulation of Surface Waste of Gas

The Department of the Interior has maintained regulations addressing the waste of gas through venting and flaring from onshore oil and gas leases since 1938. At that time, the Department's regulations required the United States to be compensated “at full value” for “all gas wasted by blowing, release, escape into the air, or otherwise,” except where such disposal was authorized under the laws of the United States and the State in which it occurred.

The regulations further provided that the production of oil or gas from the lease was to be restricted to such amounts as could be put to beneficial use and that, in order to avoid the excessive production of oil or gas, the Secretary could limit the rate of production based on the market demand for oil or the market demand for gas.

30 CFR 221.5(h) (1938).

Id.

221.27.

By 1942, the Department's regulations contained a definition of “waste of oil or gas.” This definition included the “physical waste of oil or gas,” which was defined as “the loss or destruction of oil or gas after recovery thereof such as to prevent proper utilization and beneficial use thereof, and the loss of oil or gas prior to recovery thereof by isolation or entrapment, by migration, by premature release of natural gas from solution in oil, or in any other manner such as to render impracticable the recovery of such oil or gas.”

The regulations stated that a lessee was “obligated to prevent the waste of oil or gas” and, in order to avoid the physical waste of gas, the lessee was required to “consume it beneficially or market it or return it to the productive formation.”

The regulations stated that “unavoidably lost” gas was not subject to royalty, though the regulations did not define “unavoidably lost.”

30 CFR 221.6(n) (1942).

Id.

221.35.

Id.

221.44.

In 1974, the Secretary issued NTL-4, which established the following policy for royalties on gas production: Gas production subject to royalty shall include: (1) that gas (both dry and casing-head) which is produced and sold either on a lease basis or that which is allocated to a lease under the terms of an approved communitization or unitization agreement; (2) that gas which is vented or flared in well tests (drill-stem, completion, or production) on a lease, communitized tract, or unitized area; and, (3) that gas which is otherwise vented or flared on a lease, communitized tract, or unitized area with the prior written authorization of the Area Oil and Gas Supervisor (Supervisor).

See

44 FR 76600 (Dec. 27, 1979).

NTL-4 thus effectively required onshore oil and gas lessees to pay royalties on

all

gas produced, including gas that was unavoidably lost or used for production purposes. Various oil and gas companies sought judicial review of NTL-4. In 1978, the U.S. District Court for the District of Wyoming overturned NTL-4, holding that the MLA does not authorize the collection of royalties on gas production

that is unavoidably lost or used in lease operations.

Marathon Oil Co.

Andrus,

452 F. Supp. 548, 553 (D. Wyo. 1978).

2. NTL-4A

From January 1980 to January 2017, the Department of the Interior's instructions governing the venting and flaring of gas from onshore oil and gas leases were contained in “Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases: Royalty or Compensation for Oil and Gas Lost” (“NTL-4A”).

NTL-4A was issued by the U.S. Geological Survey (USGS), which was the Interior bureau tasked with oversight of Federal onshore oil and gas production at the time.

44 FR 76600 (Dec. 27, 1979).

Under NTL-4A, operators were required to pay royalties on “avoidably lost” gas—

i.e.,

gas lost due to the operator's negligence, failure to take reasonable precautions to prevent or control the loss, or failure to comply with lease terms, regulations, or BLM orders. NTL-4A expressly authorized royalty-free venting and flaring “on a short-term basis” during emergencies, well purging and evaluation tests, initial production tests, and routine and special well tests. NTL-4A prohibited the flaring of gas from gas wells under any other circumstances. For gas produced from oil wells, however, NTL-4A authorized (but did not mandate) the BLM to approve flaring where conservation of the gas was not “economically justified” because it would “lead to the premature abandonment of recoverable oil reserves and ultimately to a greater loss of equivalent energy than would be recovered if the venting or flaring were permitted to continue . . . .”

NTL-4A stated that, “when evaluating the feasibility of requiring conservation of the gas, the total leasehold production, including oil and gas, as well as the economics of a field-wide plan,” must be considered. Finally, under NTL-4A, the loss of gas vapors from storage tanks was considered “unavoidably lost,” unless the BLM “determine[d] that the recovery of such vapors would be warranted . . . .”

Id.

at 76601 (Dec. 27, 1979).

Id.

Soon after issuing NTL-4A, the USGS issued guidelines and procedures for implementing NTL-4A, which were published in the Conservation Division Manual (CDM) Part 644, Chapter 5.

Among other things, the CDM provided guidance regarding applications to flare oil-well gas. Specifically, the CDM provided guidance for responding to a lessee's contention “that reserves of casinghead gas are inadequate to support the installation of facilities for gas collection and sale . . . .”

The CDM explained that, “[f]rom an economic basis, all leasehold production must be considered; the major concern is profitable operation of the lease, not just profitable disposition of the gas.”

The CDM further explained that the “economics of conserving gas must be on a field-wide basis, and the Supervisor must consider the feasibility of a joint operation between all other lessees/operators in the field or area.”

Thus, the economic standard for obtaining approval to flare oil-well gas under NTL-4A was on its face a demanding one. The fact that the capture and sale of oil-well gas from an individual lease would not pay for itself was not sufficient to justify royalty-free flaring of the gas.

Geological Survey Conservation Division Manual, Part 644 Producing Operations Chapter 5 Waste Prevention/Beneficial Use, 6-23-80 (Release No. 68).

Id.

at 644.53F.

Id.

The CDM also provided guidance for venting and flaring situations involving both Federal and non-Federal lands. In such cases, the BLM was directed to contact the appropriate State agency to work jointly for optimum gas conservation. However, where such a cooperative effort was not possible, the BLM was directed to “proceed unilaterally to take action to prevent unnecessary venting or flaring from Federal lands.”

Under the plain terms of NTL-4A, flaring without prior approval (outside of the short-term circumstances specified in Sections II and III of NTL-4A) constituted a royalty-bearing loss of gas, regardless of the economic circumstances. The BLM originally applied NTL-4A to that effect, and this practice was upheld by the Interior Board of Land Appeals.

See Lomax Exploration Co.,

105 IBLA 1 (1988). However, the BLM changed this policy in Instruction Memorandum No. 87-652 (Aug. 17, 1987), which required the BLM to provide an operator with an207pportuneity to demonstrate, after the fact, that capturing the gas was not economically justified.

See Ladd Petroleum Corp.,

107 IBLA 5 (1989).

Even so, the number of applications for royalty-free flaring received by the BLM increased dramatically between 2005 and 2016: in 2005, the BLM received just 75 applications to vent or flare gas, while in 2015 it received 2,901 applications.

The following table shows the number of applications to vent or flare gas received by the BLM through 2021, but it does not reflect when the venting or flaring occurred.

Following publication of the proposed rule, the BLM re-queried the Automated Fluid Minerals Support System (AFMSS) to obtain the number of venting and flaring sundry notices in the database. The number of sundry notices has been updated in the final rule to reflect the updated query.

The BLM applies the venting and flaring rule that was in effect at the time the flaring occurred, not when the application was received, which may be later in time than the flaring, even years later. See,

e.g.,

Ladd Petroleum Corp., 107 IBLA 5 (1989). The application, therefore, does not provide for straightforward comparison of the effects of regulatory changes, particularly given recent court orders setting aside the BLM's rules in this sphere.

Year

Number of

applications

received to

vent or

flare gas

2015

2,900

2016

2,637

2017

2,162

2018

2,095

2019

2,901

2020

2,386

2021

922

Both the 2016 Waste Prevention Rule and the 2018 Revision Rule would have dispensed with case-by-case flaring approvals, but because those rules were both struck down, post-2016 flaring application data does not provide a useful comparison between the 2016 Waste Prevention Rule and NTL-4A. In addition, there is no useful comparison because the 2016 Waste Prevention Rule was never in effect and the 2018 revision rule was in effect for less than 2 years. Most of the applications to flare royalty-free were submitted to the field offices in New Mexico, Montana, and the Dakotas, which oversee Federal and Indian mineral interests in unconventional plays where oil production is accompanied by large volumes of associated gas. Notably, the vast majority of these applications involved wells that were connected to a gas pipeline but flared due to pipeline capacity constraints.

3. 2016 Waste Prevention Rule

On November 18, 2016, the BLM issued a final rule intended to reduce the waste of Federal and Indian gas through venting, flaring, and leaks (“2016 Waste Prevention Rule”).

The 2016 Waste Prevention Rule replaced NTL-4A and became effective on January 17, 2017. The BLM's development of the 2016 Waste Prevention Rule was prompted by a

combination of factors, including the substantial increase in flaring over the previous decade, the growing number of applications to vent or flare royalty-free, new information regarding the quantities of gas lost through venting and leaks, and concerns expressed by oversight entities such as the U.S. Government Accountability Office (GAO).

81 FR 83008 (Nov. 18, 2016).

Id.

at 83014-83017; GAO, “Federal Oil and Gas Leases—Opportunities Exist to Capture Vented and Flared Gas, Which Would Increase Royalty Payments and Reduce Greenhouse Gases” (Oct. 2010); GAO, “OIL AND GAS—Interior Could Do More to Account for and Manage Natural Gas Emissions” (July 2016).

The 2016 Waste Prevention Rule applied to all onshore Federal and Indian oil and gas leases, units, and communitized areas. The key components of the 2016 Waste Prevention Rule were:

• A requirement that APDs be accompanied by a WMP that would detail anticipated gas production and opportunities to conserve the gas;

• A provision specifying the various circumstances under which a loss of oil or gas would be “avoidably lost” and therefore royalty-bearing;

• A requirement that operators capture (rather than flare) a certain percentage of the gas they produce;

• Equipment requirements for pneumatic controllers, pneumatic diaphragm pumps, and storage vessels (tanks); and

• LDAR provisions requiring semiannual lease site inspections, the use of specified instruments and methods, and recordkeeping and reporting.

The rule's “capture percentage” requirements were intended to address the routine flaring of gas from oil wells. The rule required an operator to capture, rather than flare, a certain percentage of the gas produced from the operator's “development oil wells.” The required capture percentage would increase over a 10-year period, starting at 85 percent in 2018 and ultimately reaching 98 percent in 2026. Gas flared in excess of the capture requirements would be royalty bearing.

In the 2016 Waste Prevention Rule, the BLM recognized that the EPA had promulgated emissions limitations for pneumatic equipment and storage tanks as well as LDAR requirements for new and modified sources in the oil and gas production sector pursuant to its authority under the Clean Air Act (CAA). The BLM further recognized that those EPA requirements would have the effect of reducing the waste of gas from leases subject to those requirements. In order to avoid unnecessary duplication or conflict between the BLM and EPA regulations, the 2016 Waste Prevention Rule allowed for operators to comply with the analogous EPA regulations as an alternative means of compliance with BLM's requirements.

See 81 FR 83008, 83018-19, 83085-89 (Nov. 18, 2016).

The capture percentage, pneumatic equipment, storage tanks, and LDAR requirements of the 2016 Rule were each subject to phase-in periods, and the rule allowed operators to obtain exemptions or reduced requirements where compliance would “cause the operator to cease production and abandon significant recoverable oil reserves under the lease.”

The BLM's RIA for the 2016 Waste Prevention rule estimated that the rule would impose costs of between $110 million and $275 million per year, while generating benefits of between $20 million and $157 million per year worth of additional gas captured and between $189 million and $247 million per year in quantified social benefits (in the form of forgone methane emissions).

See 81 FR 83082-88 (Nov. 18, 2016).

BLM (2016). Regulatory Impact Analysis for: Revisions to 43 CFR 3100 (Onshore Oil and Gas Leasing) and 43 CFR 3600 (Onshore Oil and Gas Operations) Additions of 43 CFR 3178 (Royalty-Free Use of Lease Production) and 43 CFR 3179 (Waste Prevention and Resource Conservation). p. 4-5. Available at

https://www.regulations.gov/document/BLM-2016-0001-9127.

Certain States and operators filed petitions for judicial review of the Waste Prevention Rule in the U.S. District Court for the District of Wyoming.

Following the change in Administration in January 2017, the litigation was effectively paused in response to the BLM's administrative actions to suspend the rule. After those actions were invalidated by a different court,

the Wyoming court stayed implementation of the capture percentage, pneumatic equipment, storage tank, and LDAR requirements, and stayed the litigation pending finalization of the BLM's voluntary revision of the 2016 Waste Prevention Rule.

Wyoming

DOI,

Case No. 2:16-cv-00285-SWS (D. Wyo.).

See

California

BLM,

No. 3:17-CV-03804-EDL (N.D. Cal.);

Sierra Club

Zinke,

No. 3:17-CV-03885-EDL (N.D. Cal.). On June 15, 2017, the BLM announced that it would postpone the January 17, 2018, compliance dates to phase-in certain parts of the 2016 Waste Prevention Rule.

Wyoming

at 1053. Several Intervenors-Respondents from the

Wyoming

litigation, as well as the Attorney Generals from the States of California and New Mexico challenged the BLM's 2017 postponement decision in the aforementioned cases in the Northern District of California.

Id.

at 1053-54. This California district court held that the BLM's 2017 postponement notice was invalid, thereby resulting in the reinstatement of the phase-in dates for certain parts of the 2016 Waste Prevention Rule.

Id.

at 1054.

4. 2018 Revision of Waste Prevention Rule

On September 28, 2018, the BLM issued a final rule substantially revising the 2016 Waste Prevention Rule (“2018 Revision Rule”).

In the 2018 Revision Rule, the BLM rescinded the WMP, gas capture percentage, pneumatic equipment, storage tank, and LDAR requirements of the 2016 Waste Prevention Rule. The BLM also revised the remaining provisions of the rule to largely reflect the language of NTL-4A. Finally, the BLM established a new policy of deferring to State regulations for determining when the routine flaring of oil-well gas is royalty-free.

83 FR 49184 (Sept. 28, 2018).

In the 2018 Revision Rule, the BLM concluded that the 2016 Waste Prevention Rule exceeded the BLM's statutory authority by imposing requirements with compliance costs that exceed the value of the gas that would be conserved, thus violating the non-statutory “prudent operator” standard that some believed to have been implicitly incorporated into the MLA when it was adopted in 1920. The BLM also stated that the 2016 Waste Prevention Rule created a risk of premature shut-ins of marginal wells, reasoning that the compliance costs associated with the 2016 Waste Prevention Rule would represent a significant proportion of a marginal well's revenue. Contrary to what the BLM had found in 2016, the BLM stated in the 2018 Revision Rule that existing State flaring regulations provided sufficient assurance against excessive flaring.

The RIA for the 2018 Revision Rule found that the economic benefits of the 2018 Revision Rule (

i.e.,

reduced compliance costs) would significantly outweigh its economic costs (

i.e.,

forgone gas production and additional methane emissions).

This result was based in large part on the use of a narrowly defined “domestic” social cost of methane metric. That metric purported to capture domestic methane costs. However, because it focused on impacts within U.S. borders, it underestimated the full benefits of GHG mitigation accruing to U.S. citizens and residents and thus drastically reduced the monetized climate benefits of the 2016 Waste Prevention Rule relative to

what had been estimated in the RIA for the 2016 Waste Prevention Rule.

BLM (2018). Regulatory Impact Analysis for the Final Rule to Rescind or Revise Certain Requirements of the 2016 Waste Prevention Rule. p. 2-4. Available at

https://www.regulations.gov/document/BLM-2018-0001-223607.

See California

Bernhardt,

472 F. Supp. 3d 573, 611 (N.D. Cal. 2020).

5. Judicial Review of the Revision Rule

In September 2018, a coalition of organizations and the States of California and New Mexico filed lawsuits challenging the 2018 Revision Rule in the U.S. District Court for the Northern District of California. On July 15, 2020, the district court ruled in favor of the plaintiffs.

California

Bernhardt,

472 F. Supp. 3d 573 (N.D. Cal. 2020). The court found that:

• The BLM's interpretation of its statutory authority in the 2018 Revision Rule was unjustifiably limited, failed to require lessees to use all reasonable precautions to prevent waste, and failed to meet the BLM's statutory mandate to protect the public welfare;

• The BLM's decision to defer to State flaring regulations was not supported by sufficient analysis or record evidence;

• The record did not support the BLM's claims that the 2016 Waste Prevention Rule posed excessive regulatory burdens and that its costs outweighed its benefits; and

• The BLM's cost-benefit analysis underlying the rule was flawed for a variety of reasons, including that the use of a “domestic” social cost of methane was unreasonable and not based on the best available science.

The court ordered that the 2018 Revision Rule be vacated in its entirety.

However, the court stayed vacatur until October 13, 2020.

6. Judicial Review of the 2016 Waste Prevention Rule

Following the decision in

California

Bernhardt,

the Wyoming court lifted the stay on the litigation over the 2016 Waste Prevention Rule. In the briefing, the Department of the Interior confessed error on the grounds that the BLM exceeded its statutory authority and was “arbitrary and capricious” in promulgating the rule. In October 2020, the district court ruled in favor of the plaintiffs, finding that the BLM had exceeded its statutory authority and had been arbitrary and capricious in promulgating the 2016 Waste Prevention Rule.

Wyoming

U.S. Dep't of the Interior,

493 F. Supp. 3d 1046 (D. Wyo. 2020). Specifically, the court found that the 2016 Waste Prevention Rule was essentially an air quality regulation and that the BLM had usurped the authority to regulate air emissions that Congress had granted to EPA and the States in the CAA. The court found that the rule was not independently justified as a waste-prevention measure under the MLA. Rather, in the court's view, the record reflected that the BLM's primary concern was regulating methane emissions from existing oil and gas sources. The court faulted the BLM's rulemaking for imposing requirements beyond what could be expected of a “prudent operator” that develops the lease for the mutual profit of lessee and lessor. Finally, the court faulted the BLM for applying air quality regulations—as opposed to waste-prevention regulations—to unit and CA operations on non-Federal lands. The court ordered that the 2016 Waste Prevention Rule be vacated, thereby reinstating NTL-4A as the BLM's standard for managing venting and flaring from Federal oil and gas leases.

7. The Inflation Reduction Act

On August 16, 2022, President Biden signed the IRA into law.

The IRA contains a suite of provisions addressing onshore and offshore oil and gas development under Federal leases. For example, section 50265,

inter alia,

requires the Department to maintain a certain level of onshore oil and gas leasing activity as a prerequisite to approving renewable energy rights-of-way on Federal lands. Importantly, that provision of the IRA is accompanied by other provisions that serve to ensure that lessees pay fair and appropriate compensation to the Federal Government in exchange for the opportunity to conduct their industrial activities under Federal leases.

Public Law 117-169.

One such provision of the Act is section 50263, which is entitled, “Royalties on All Extracted Methane.”

Consistent with the MLA's assessment of royalties on all gas “removed or sold from the lease”

and FOGRMA's requirement that lessees pay royalties on lost or wasted gas,

section 50263 of the IRA provides that, for leases issued after the date of enactment of the Act, royalties are owed on all gas produced from Federal land, including gas that is consumed or lost by venting, flaring, or negligent releases through any equipment during upstream operations. Section 50263 further provides three exceptions to the general obligation to pay royalties on produced gas, namely: (1) gas that is vented or flared for not longer than 48 hours in an emergency situation that poses a danger to human health, safety, or the environment; (2) gas used or consumed within a lease, unit, or communitized area for the benefit of the lease, unit, or communitized area; and, (3) gas that is unavoidably lost.

30 U.S.C. 1727.

30 U.S.C. 226(b).

30 U.S.C. 1756.

30 U.S.C. 1727.

The BLM has for decades assessed royalties on upstream production and has exempted from royalties gas lost in emergency situations, “beneficial use” gas, and “unavoidably lost” gas. IRA section 50263 is consistent with the BLM's prior agency practice regarding emergency situations, beneficial use, and the unavoidable loss of gas, and it provides additional support for the approach set forth in this proposed rule. Importantly, IRA section 50263 confirms that the concepts of “avoidable” and “unavoidable” loss are appropriate for assessing royalties. Section 50263 also confirms that the United States' pecuniary interest in regulating losses extends to those from upstream equipment. But the IRA leaves certain questions open, such as what losses qualify as “unavoidably lost” and what qualifies as an “emergency situation.” Congress thus has left it to the BLM, as an exercise of the agency's expertise and judgment, to determine answers to the specific questions the IRA leaves open. As set forth below, this final rule addresses these questions in a manner that is consistent with the IRA's focus on (and the MLA's and FOGRMA's pre-existing emphasis on) ensuring that Federal lessees pay fair and appropriate compensation to the Federal Government in exchange for the opportunity to conduct their industrial activities under Federal leases.

D. The Final Rule

The BLM has authority under the MLA to promulgate such rules and regulations as may be necessary “for the prevention of undue waste”

and to ensure that lessees “use all reasonable precautions to prevent waste of oil or gas.”

For many years, the BLM has implemented this authority through restrictions on the venting and flaring of gas from onshore Federal oil and gas leases. However, as illustrated by the judicial decisions noted previously, before the IRA's enactment, courts disagreed about the full scope of the BLM's authority to regulate venting and flaring. Requirements that one court might consider necessary for the BLM to meet its statutory mandates might have been seen as regulatory overreach by another court. Consistent with the approach outlined in the proposed rule, and in light of all the statutory

authorities including the IRA, the BLM has chosen to focus on improving upon NTL-4A in a variety of ways without advancing elements of the 2016 Waste Prevention Rule that were the subject of certain judicial criticism.

30 U.S.C. 187.

30 U.S.C. 225.

As explained in more detail below and in Section IV, the Section-by-Section Discussion, this final rule makes substantial improvements in addressing the waste of Federal and Indian gas, while also addressing the

Wyoming

court's criticisms of the 2016 Waste Prevention Rule. First, the requirements unambiguously constitute reasonable waste prevention measures that should be expected of an operator. The requirements impose fewer overall costs than those of the 2016 Waste Prevention Rule and ensure either actual conservation of gas that would otherwise be wasted or compensation to the public and Indian mineral owners through royalty payments when gas is wasted. This contrasts with certain provisions in the 2016 Rule that would have reduced pollution—but not necessarily reduced waste—by allowing operators to comply with analogous EPA standards in place of the BLM requirements.

Second, to address the

Wyoming

court's ruling that the BLM's authority regarding unit and CA operations on non-Federal and non-Indian surface is limited, certain requirements in this final rule are narrower in scope than similar requirements in the 2016 Waste Prevention Rule. Specifically, the final rule's requirements pertaining to safety, storage tanks, and LDAR apply only to operations on Federal or Indian surface estates.

Third, the requirements are consistent with the “prudent operator” standard as that term has been applied in the oil and gas jurisprudence.

Fourth, the final rule has been developed with an eye towards avoiding excessive compliance burdens on marginal wells.

Finally, the BLM is expressly excluding the social cost of greenhouse gases from its decisions on any of the proposed waste prevention requirements, thereby addressing the

Wyoming

court's concern that the 2016 Rule was inappropriately supported by “climate change benefits.”

The provisions of this final rule serve straightforward waste prevention objectives by promoting gas conservation. To avoid situations where oil-well development outpaces the capacity of the available gas capture infrastructure, the BLM is requiring operators to submit either a WMP, including certification of a valid, executed contract to sell the associated gas, or a self-certification of 100 percent capture of associated gas with oil-well APDs. The BLM recognizes that not all venting and flaring can be prevented. In the circumstances in which some venting or flaring cannot be prevented (

e.g.,

initial production tests or emergencies), the BLM is establishing appropriate time or volume limits on royalty-free venting or flaring. The BLM is addressing the problem of intermittent flaring due to pipeline capacity constraints by establishing a volume limit based on oil production for royalty-free flaring caused by inadequate capture infrastructure. Requiring royalty payments on venting and flaring that exceeds the established limits will both discourage waste and ensure that Federal and Indian royalty revenues are not reduced by an operator's wasteful practices. The BLM estimates that the royalty-free flaring limits of the final rule would generate $51 million per year in additional royalties. See section 7.6 of the RIA for more information.

This final rule also contains LDAR provisions intended to reduce losses of natural gas. Unlike the 2016 Waste Prevention Rule—which extended these requirements to State and private surface estates in certain situations—the requirements in this final rule apply only to operations on the Federal or Indian surface estate, where the BLM has express authority and responsibility to regulate for safety, the prevention of waste, and the payment of Federal or Indian royalties. These requirements would not apply to operations that occur on State or private surface tracts committed to a Federal unit or CA. The BLM estimates that the requirements of this final rule regarding LDAR would result in the conservation of up to 0.5 Bcf of gas each year.

The BLM acknowledges that the contents of this final rule differ in some regards from the 2018 Revision Rule's narrower interpretation of the BLM's statutory authority.

Consistent with the BLM's understanding of its authority for decades prior to 2018, the BLM has reconsidered the relevant conclusions of the 2018 Revision Rule and now rejects those conclusions for the following reasons. To begin, nothing in the MLA's plain text—which requires lessees to take “all reasonable precautions to prevent waste” and to abide by rules and regulations issued “for the prevention of undue waste”—suggests that the BLM's authority is limited to the promulgation of rules that effectively pay for themselves (as measured by balancing compliance costs against the value of the recovered gas).

Consistent with this text, the BLM's longstanding policy governing venting and flaring has assessed the economic feasibility of gas conservation in the context of “the total leasehold production, including oil and gas, as well as the economics of a field-wide plan.”

See supra,

Part III.C.2. As the CDM made clear, the BLM's concern under the MLA for nearly four decades prior to the 2018 Revision Rule was “profitable operation of the lease, not just profitable disposition of the gas.”

See

83 FR 49184, 49185-86 (Sept. 28, 2018).

30 U.S.C. 187, 225. Indeed, such a requirement would imperil nearly all operational regulations.

Despite suggestions to the contrary in the 2018 Revision Rule, the focus of the final rule on

overall

ultimate resource recovery, not lessee profits vis-à-vis wasted gas, is consistent with the non-statutory “prudent operator” standard. While the prudent operator standard rests on an expectation of “mutually profitable development of the lease's mineral resources,”

it does not follow that lessees can maximize their profit by wasting recoverable hydrocarbon resources without regard for the lessor's lost royalty revenues or the lessor's interest in conserving the gas for future disposition. To the contrary, lessees have an obligation of reasonable diligence in the development of the leased resources, rooted in due regard for the interests of both the lessee and the lessor.

And in the MLA, FOGRMA, and the IRA, Congress enshrined the United States' interest, as a mineral lessor, in avoiding waste and maximizing royalty revenues.

The BLM, in managing oil and gas resources on behalf of the United States, may value more production—considering both oil and gas production—over a

longer time period more highly than does an operator, who might be more focused on generating near-term profits. None of the authorities previously relied upon by the BLM to interpret the “prudent operator” standard forecloses any Secretarial action that might marginally affect lessee profits.

Wyoming

at 1072.

See Id.; see also Sinclair Oil & Gas Co.

Bishop,

441 P.2d 436, 447 (Okla. 1967) (“Necessarily, we determine the lessee was acting prudently when he ascertained that it was illegal and improper to flare gas in the quantities shown by the evidence, in order to produce the unallocated allowable of oil.”);

Tr. Co. of Chicago

Samedan Oil Corp.,

192 F.2d 282, 284 (10th Cir. 1951) (“A first consideration is the precept that a prudent operator may not act only for his self-interest. He must not forget that the primary consideration to the lessor for the lease is royalty from the production of the lease free of cost of development and operation.”).

See

30 U.S.C. 187, 225, 226(m), 1756;

see also California Co.

Udall,

296 F.2d 384, 388 (D.C. Cir. 1961) (“[The Secretary] has a responsibility to insure that these resources are not physically wasted and that their extraction accords with prudent principles of conservation. To protect the public's royalty interest he may determine that minerals are being sold at less than reasonable value. Under existing regulations he can restrict a lessee's production to an amount commensurate with market demand, and thus protect the public's royalty interest by preventing depression of the market.”).

Cf. California

Bernhardt,

472 F. Supp. 3d 573, 596 (N.D. Cal. 2020) (“The statutory language demonstrates on its face that any consideration of waste management limited to the

economics

of individual well-operators would ignore express statutory mandates concerning BLM's public welfare obligations.”).

In contrast to NTL-4A, this final rule does not allow operators to request that flared oil-well gas be deemed royalty-free based on case-by-case economic assessments. There are a number of reasons for this approach. In the first instance, Federal law does not require the American taxpayers to forgo royalties on wasted gas due to an individual operator's economic circumstances. Although it was the BLM's practice to engage in case-by-case economic assessments under NTL-4A, that approach is no longer appropriate, as the practical realities of oilfield development have changed dramatically since 1980. As the U.S. Department of Energy explained in a recent report, “flaring has become more of an issue with the rapid development of unconventional tight oil and gas resources over the past two decades” that has “brought online hydrocarbon resources that vary in their characteristics and proportions of natural gas, natural gas liquids and crude oil.”

100

Consistent with these developments, and as discussed in Section III.A, the BLM has witnessed a massive increase in the amount of venting and flaring from the 1990's to the 2010's. The average amount of annual venting and flaring from Federal and Indian leases between 1990 and 2000 was 11 Bcf. Between 2010 and 2020, it quadrupled to an average of 44.2 Bcf per year, with a 157 percent increase in the amount of vented and flared gas as a percentage of gas production, and a 102 percent increase in the amount of vented and flared gas per barrel of oil produced. The upward trend in venting and flaring suggests is likely to continue.

100

U.S. Department of Energy, Office of Fossil Energy, Office of Oil and Natural Gas, “Natural Gas Flaring and Venting: State and Federal Regulatory Overview, Trends, and Impacts” (June 2019).

https://www.energy.gov/fecm/articles/natural-gas-flaring-and-venting-regulations-report.

Based on EIA data from 1990 through 2022, U.S. vented and flared volumes continue an upward trend that tends to mirror U.S. oil production,

101

which raises a concern that new exploration and development is outpacing infrastructure construction. Oil production in 2019 reached a record high level of 4.5 billion barrels of oil despite a relatively low average annual spot price of $57 per barrel. Operators may have increased oil production in 2019 to maintain revenues given the lower pricing. An increase in oil production to maintain revenues may have led to the very high flare volume in that year. While the vented and flared volume has decreased since 2019—likely due to unrepresentative production during the COVID 19 pandemic that resulted in reduced drilling and completions during this time—the data demonstrates that, generally, venting and flaring has continued to increase since 1990, particularly as compared to the production of oil. This rule will work toward reducing the waste from Federal and Indian mineral estates.

102

101

https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_VGV_mmcf_m.htm.

102

For the following tables, see

https://rigcount.bakerhughes.com/na-rig-count/, https://www.eia.gov/dnav/pet/hist/rwtcA.htm.

BILLING CODE 4331-29-P

ER10AP24.003

ER10AP24.004

ER10AP24.005

BILLING CODE 4331-29-C

The related increase in the number of flaring applications—from 75 in 2005, to 922 in 2021 has created a significant administrative burden for the BLM.

103

It has also created an estimated information collection burden of approximately 23,228 total annual burden hours potentially incurred by operators and has led to significant uncertainty for operators as hundreds of applications wait to be processed.

103

See table in the Executive Summary.

Finally, the BLM notes that the bulk of the recent royalty-free flaring applications has concerned flaring from wells that are connected to pipeline infrastructure. The purpose of the economic inquiry under NTL-4A, by contrast, was to determine whether the volumes of associated gas production would make the

installation

of gas-capture infrastructure economically viable. CDM 644.5.3E and F. Where the gas-capture infrastructure has already been built out, there is no need to consider the cost and value of its installation against the volume of associated gas production. The BLM understands that, as posited by a commenter, there may be instances where a gas pipeline connected to an oil well is not able to accept that well's gas for a time. In those circumstances, an operator may temporarily curtail production or shut in the well instead of wasting the gas. Oil and gas production should resume when the pipeline can accept the gas.

One of the primary concerns underlying the BLM's promulgation of the 2018 Revision Rule was the compliance burden on “marginal wells,”

i.e.,

wells that produce approximately 10 barrels of oil or 60 Mcf of natural gas per day or less.

104

The court that vacated the 2016 Waste Prevention Rule faulted the BLM for failing to adequately assess the impact of that rule on marginal wells.

105

The court that vacated the 2018 Revision Rule, however, rejected that concern as unfounded.

106

The BLM does not wish to impose requirements that

inadvertently cause recoverable oil or gas resources to be stranded due to premature lease abandonment, but, as the MLA makes clear, any such considerations go to whether particular conservation measures are reasonable under the MLA, not whether marginal operations must take reasonable measures in the first instance. 30 U.S.C. 225. For example, there is no real risk of premature abandonment by requiring the operator of a marginal gas well to minimize the loss of gas during liquids unloading operations, as required in this rule. Under the final rule, an operator of a marginal gas well may vent gas during liquids unloading operations royalty-free for 24 hours. If the gas well is not put into production within 24 hours and maintenance operations must continue, the volume of gas vented is likely very small and the flowing pressure very low—otherwise, the operator would be returning the well to production. Thus, the marginal time that it takes an operator to continue liquids unloading beyond the initial 24 hours will not result in significant vented gas and corresponding royalty obligation. Furthermore, the BLM has provisions for royalty rate reductions in 43 CFR 3103.4-1 to encourage the greatest ultimate recovery of oil or gas. Therefore, in the unlikely event that compliance with the final rule would lead to an operator's premature abandonment of a well, an operator may seek royalty relief to continue operations.

104

83 FR 49184, 49187 (Sept 28, 2018).

105

Wyoming

493 F. Supp. 3d at 1075-78.

106

California

Bernhardt,

472 F. Supp. 3d 573, 606 (N.D. Cal. 2020).

The BLM has developed this final rule to avoid excessive and unreasonable compliance burdens on marginal wells when balanced against the need to reduce waste. In the 2018 Revision Rule, the BLM noted that the provisions of the 2016 Waste Prevention Rule that placed a particular burden on marginal wells were those pertaining to pneumatic controllers, pneumatic diaphragm pumps, and LDAR. In this final rule, the requirements for LDAR only apply to Federal or Indian minerals produced from facilities located on a Federal or Indian surface estate, thereby limiting the number of operators to which the LDAR program applies. In addition, the BLM has not included in this final rule the provisions in the proposed rule regarding pneumatic controllers and diaphragm pumps.

The BLM acknowledges that, in the 2018 Revision Rule, it asserted that additional restrictions on flaring were unnecessary because the States with the most significant BLM-managed oil and gas production impose regulatory restrictions on flaring from oil wells and that these State regulations “provide[d] a reasonable assurance . . . that the waste of associated gas will be controlled.”

107

This assertion directly contradicted the BLM's prior findings during the promulgation of the 2016 Waste Prevention Rule, and a district court held that the BLM's decision to rely on State flaring regulations was unjustified based on the record evidence.

108

107

83 FR 49184, 49202 (Sept. 28, 2018).

108

California

Bernhardt,

472 F. Supp. 3d 573, 601-04 (N.D. Cal. 2020).

For this rulemaking, the BLM analyzed the State regulations governing flaring, venting, and leaks in the 10 States responsible for 99 percent of Federal oil and gas production: Alaska, California, Colorado, Montana, New Mexico, North Dakota, Oklahoma, Texas, Utah, and Wyoming. Summaries of these regulations were collected in a table that is available in the docket for this rulemaking at

www.regulations.gov.

While there have been notable advancements in some States since the promulgation of the 2016 Waste Prevention Rule—for example, new comprehensive flaring regulations have since been adopted in New Mexico and Colorado, and new requirements for storage tanks, pneumatic equipment, and LDAR have been adopted in Colorado and Utah—State regulations vary widely in their scope and stringency.

109

And, importantly, many of the State flaring regulations reserve substantial discretion to the State agencies to authorize additional flaring.

110

That discretion creates significant uncertainty about the extent to which the BLM can rely on those regulations to protect the interests of the United States and Indian mineral owners in minimizing waste and maximizing royalty revenues.

109

Examples of variations among State regulations include the following. Unlike other States, (1) the States of New Mexico, North Dakota, Montana, Texas, Alaska, and Oklahoma do not have regulations to control losses of gas from pneumatic equipment; (2) Texas' requirements to inspect for and repair leaks are focused on storage tanks; (3) Alaska does not maintain LDAR requirements; and (4) Wyoming's requirements for tanks, pneumatic equipment, and LDAR are limited to the Upper Green River Basin ozone nonattainment area.

110

These States are Wyoming, Utah, Montana, Texas, and Oklahoma.

In its comments on the proposed rule, the Wyoming Oil and Gas Conservation Commission asserts that the BLM incorrectly characterizes Wyoming's regulations regarding flaring and gas capture plan requirements. Specifically, Wyoming challenges language in the proposed rule that “Wyoming's gas capture plan requirements are not triggered until after flaring becomes a problem at the well.”

111

Specifically, the State objects to the proposed rule's description of Wyoming regulations as triggering a plan only after a flaring “issue,” explaining that, in the Commission's view, “[t]he operator must submit a gas capture plan, among other information . . . before flaring or it would need to limit flaring to 60 mcf/d or be in violation of the [applicable] rule.” But whether or not these contingencies are properly characterized as an “issue,” the BLM's point—that it was deemed a plan to be useful when the APD is submitted—stands. State gas capture plan requirements, by themselves, do not provide the BLM, in its capacity as regulator and steward of the Federal mineral estate, with an opportunity to render its own determinations regarding potential waste when processing an APD.

111

87 FR 73588, 73598 (Nov. 30, 2022).

North Dakota in its comments on the proposed rule takes issue with the way the BLM characterized the allowance for variances in North Dakota's gas capture regulations. Specifically, the State asserted: “In its proposed rule publication, the BLM disingenuously criticizes North Dakota's gas capture regulations for allowing variances, and then inconsistently proposes a rule that considers associated natural gas as unavoidably lost under the same circumstances as 9 out of 10 [North Dakota Industrial Commission] variance allowances. . . .” The BLM acknowledges North Dakota's disagreement with the BLM's characterization of North Dakota's gas capture regulations. Nonetheless, as discussed in the proposed rule, the BLM found significant variance in the scope and stringency of State regulations. Flaring statistics show that State regulations, by themselves, have not been adequate to reduce waste from Federal oil wells, underscoring the need for uniformity with respect to Federal mineral interests. As discussed further in the section-by-section analysis below, according to EIA data from 2017 through 2022, North Dakota accounted for approximately 33 percent of the volume of gas flared nationwide but only 11 percent of the volume of oil produced nationwide. Wyoming accounted for approximately 11 percent of the average total flared gas onshore nationwide and 2 percent of the oil produced nationwide. State efforts to reduce venting and flaring, though important, do not displace the Secretary's duty to prevent undue waste from Federal and Indian wells nationwide.

112

Consequently, the BLM's

application of a uniform national standard ensures improved royalty collection and avoidance of waste. In addition, the Secretary, and not the States, is responsible for collecting Federal and Indian royalties. The Secretary can best do this by not requiring shifting Federal standards in response to any changes to State requirements.

112

https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_VGV_mmcf_a.htm, https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm.

The BLM also recognizes that the EPA has recently finalized regulations governing certain aspects of oil and gas production operations at 40 CFR part 60, subparts OOOOb and OOOOc, and that these regulations can have the incidental effect of reducing the waste of gas during production activities. Specifically, EPA's regulations

113

require: (1) capture or flaring of gas that reaches the surface during well completion operations with hydraulic fracturing;

114

(2) storage tanks with potential methane emissions of 20 tons or more per year to control those emissions (including through combustion);

115

(3) process controllers to be zero emissions;

116

(4) pumps to be zero emissions;

117

and (5) operators of well sites to develop and implement a fugitive emissions monitoring plan.

118

113

40 CFR part 60 subpart OOOOb regulates greenhouse gases (in the form of limitations on methane) and VOCs from various new, modified, and reconstructed emission sources across the Crude Oil and Natural Gas source category for which construction, reconstruction, or modification commenced after December 6, 2022. 40 CFR part 60 subpart OOOOc includes presumptive standards for greenhouse gases (in the form of limitations on methane, a designated pollutant), for certain existing emission sources prior to December 6, 2022, across the Crude Oil and Natural Gas source category.

114

See

40 CFR part 60 subpart OOOOb at § 60.5375b.

115

See

40 CFR part 60 subpart OOOOb at § 60.5395b and 40 CFR part 60 subpart OOOOc at § 60.5396c.

116

See

40 CFR part 60 subpart OOOOb at § 60.5370b and 40 CFR part 60 subpart OOOOc at § 60.5362c(c), § 60.5370c and Table 1.

117

See

40 CFR part 60 subpart OOOOb at § 60.5370b and 40 CFR part 60 subpart OOOOc at § 60.5362c(c), § 60.5370c and Table 1.

118

See

40 CFR part 60 subpart OOOOb at § 60.5370b, and § 60.5397b and 40 CFR part 60 subpart OOOOc at § 60.5362c(c), § 60.5370c, Table 1, and § 60.5397c.

Although operator compliance with those EPA requirements can reduce the waste of natural gas from Federal and Indian leases, they do not supplant the need for BLM standards that are adopted pursuant to the BLM's independent statutory authority and duties. The BLM further notes that, under the CAA, States with one or more existing sources must develop and submit State plans to the EPA for approval. Under this statutory structure, State plans would implement the emissions guidelines for existing sources. Also, EPA's requirements are not a substitute for BLM standards because EPA's requirements are focused on controlling GHG (in the form of methane) and VOC emissions, rather than conserving natural gas, and compliance with the EPA's standards will not always reduce the waste of natural gas or assure payment of royalties to the United States or to Indian mineral owners. For example, an operator can comply with EPA's requirements for storage tanks by routing the emissions to combustion (

i.e.,

flaring) and therefore eliminating venting from the tanks altogether. That process results in the same loss of gas as venting the gas from the tank. Therefore, while that process reduces air pollution by prioritizing flaring over venting, it does not reduce waste or assure payment of royalties because in either scenario, the same amount of gas is lost.

Based on its review and analysis of State and EPA regulations, the BLM finds that it is necessary to establish a uniform standard governing the wasteful losses of Federal and Indian gas through venting, flaring, and leaks.

119

The BLM cannot rely on a patchwork of State and EPA regulations to ensure that operators of Federal oil and gas leases consistently meet the waste prevention mandates of the MLA, that the American public receive a fair return for the development of the Federal mineral estate, and that the Department's trust responsibility to Indian mineral owners is satisfied. The BLM acknowledges that this is a change in position from what the BLM stated in the Revision Rule regarding analogous State and EPA regulations, a change shown to be necessary by the vast increase in flaring in recent decades, which demonstrates the ineffectiveness of NTL-4A in controlling the waste of gas through venting and flaring. In addition, establishing a uniform standard in lieu of case-by-case avoidable and unavoidable loss determinations reduces the administrative burden on the BLM's limited resources; avoids inconsistent application across the States; and simplifies Federal and Indian enforcement.

119

The BLM acknowledges that the

Wyoming

court questioned what it described as the BLM's authority to “hijack” the cooperative federalism framework of the CAA “under the guise of waste management.”

Wyoming

493 F. Supp. 3d at 1066. However, as noted elsewhere, this final rule is justified not by any ancillary effects on air quality or climate change, but solely on the basis of waste prevention—an arena where the BLM has independent statutory authority to regulate.

See Id.

at 1063 (“The terms of the MLA and FOGRMA make clear that Congress intended the Secretary, through the BLM, to exercise rulemaking authority to prevent the waste of Federal and Indian mineral resources and to ensure the proper payment of royalties to Federal, State, and Tribal governments.”). On its own terms, therefore, the

Wyoming

court's reference to cooperative federalism under the Clean Air Act is inapplicable to this final rule, which does not seek to improve air quality and does not rely on EPA's CAA regulations.

The RIA for this final rule calculates that this rule would cost operators $19.3 million per year, using a 7 percent discount rate, for the next 10 years ($19.2 million per year using a 3 percent discount rate), while generating benefits to operators of approximately $1.8 million per year, using a 7 percent discount rate, in the form of 0.45 Bcf of additional captured gas.

120

The RIA estimates that this final rule would generate $51 million per year in additional royalties. The BLM acknowledges that the estimated costs of this rule to operators will outweigh the benefits in terms of the estimated monetized market value of the gas conserved. However, these benefits do not take into account the increase in royalties that will be received by the American taxpayer or Indian mineral owners, or include any increase in production that could possibly be received from changes in behavior due to the avoidable loss threshold, which would also lead to an increase in benefits. The BLM notes that the statutory provisions authorizing the BLM to regulate oil and gas operations for the prevention of waste do not impose a net-benefit requirement.

120

The cost-benefit analysis contained in the RIA was generated to comply with Executive Order 12866 and is not required by the statutes authorizing the BLM to regulate for the prevention of waste from oil and gas leases.

Separately, the reduced methane emissions associated with the final rule provide a monetized benefit to society (in the form of avoided climate damages) of $17.9 million per year over the same time frame, leading to an overall net monetized benefit from the rule of $360,000 to $441,000 a year, as well as additional unquantified benefits. (See Appendix A of the RIA regarding unquantified benefits.) The basis for the BLM's estimates of social benefits from reduced methane emissions—namely, the social cost of greenhouse gases (SC-GHG)—is explained in detail in Appendix A of the RIA. To be clear, although the BLM is reporting its estimates of the social benefits of reduced methane emissions here and in the RIA, the purpose of that reporting is solely to provide the most complete and transparent accounting of the costs and benefits of the rule for the public's awareness. The BLM considered but did not rely on climate-related costs and

benefits when reaching the policy decisions in this rule. The requirements of this final rule reflect reasonable measures to avoid waste, regardless of any impacts with respect to climate change.

IV. Discussion of Public Comments on the Proposed Rule

This section of the preamble summarizes the major categories of the public comments that the BLM received in response to the proposed rule, as well as the BLM's responses. Detailed discussion regarding the substantive comments on the proposed rule that the BLM received, the BLM's responses to those comments, and changes that the BLM made in the final rule are provided in Section V (Section-by-Section Discussion) of this preamble.

The public comment period for the proposed rule ended on January 30, 2023. During the 60-day public comment period, the BLM received 3,323 total comments submitted from Federal, State, local governments, local agencies, Tribal organizations, industry representatives, individuals, and other external stakeholders. Of the 3,323 comment letter submissions, 2,892 were template form letters from seven different organizations, leaving 134 additional unique commenters. From these 141 unique commenters, the BLM identified 1,123 unique comments on the proposed rule.

Several commenters requested that the BLM hold meetings to take public input on the proposed rule before the comment period ended. The BLM held additional meetings with the Santa Rosa Rancheria Tachi-Yokut Tribe on December 1, 2022; the Mandan, Hidatsa and Arikara Nation (MHA Nation) on December 6, 2022, and February 13, 2023; and the Southern Ute Indian Tribe on April 10, 2023, May 25, 2023, and June 8, 2023.

All relevant comments are posted at the Federal eRulemaking portal:

http://www.regulations.gov.

To access the comments at that website, enter 1004-AE79 in the Searchbox.

Comments on Federalism Implications

Summary of Comments:

Several commenters suggested that the BLM withdraw the proposed rule on the grounds that it exceeds Federal statutory authority or, in the alternative, revise the proposed rule to reflect a federalism framework to affirm the States' authority over State and local mineral resources within the State's boundaries. To that end, the commenters stated that the final rule has sufficient federalism implications to warrant the preparation of a federalism summary impact statement. In support of this position, the commenters claimed that this rule unlawfully focuses on air quality emissions rather than waste, and that this focus violates the cooperative federalism framework under the CAA. The commenters referenced the BLM's purported preference for flaring over venting and claimed that this preference for flaring is unsupported because the BLM's regulatory authority is limited to waste prevention and does not include safety as a guise to regulate air quality.

Response:

The BLM disagrees with the commenters. The BLM developed this rule based on its statutory authority to prevent and reduce the waste of natural gas produced from Federal and Indian (not State) land through improved regulatory requirements pertaining to venting, flaring, and leaks, while ensuring a fair return to the American public.

121

It does not override the States' or Tribes' more stringent requirements for flaring and gas capture or waste prevention measures on State or Indian lands. Operators with leases on Federal lands must comply with the Department's regulations and with State requirements to the extent that they do not conflict with the Department's regulations. As stated in the Federalism section of this rule, below, although the final rule will affect the relationship between operators, lessees, and the BLM, it will not directly impact States. Accordingly, a federalism summary impact statement is not warranted.

121

30 U.S.C. 187.

Any claim that this rule violates the cooperative federalism framework under the CAA is likewise unfounded. As discussed below, the waste prevention rule is intended to prevent the waste of gas from Federal oil and gas leases and is, therefore, not an air quality emissions rule. As noted in the preamble to the proposed rule, the

Wyoming

court questioned the BLM's authority to—in the court's view—preempt cooperative federalism under the CAA, using a pretext of waste prevention. But as consistently explained throughout this preamble, this final rule is authorized by the BLM's independent statutory authority to prevent waste of natural gas and is not focused on achieving any ancillary effects on air quality or climate change. As such, cooperative federalism requirements under the CAA do not apply to this final rule.

122

Moreover, the Department's regulations governing oil and gas operations on the public lands have long required operators to conduct operations in a manner that is protective of natural resources, environmental quality, and public health and safety.

See

43 CFR 3162.5-1 and 3162.5-3. As the BLM stated in the proposed rule and reiterated in the § 3179.50 Safety discussion in this final preamble, combusting gas rather than venting it into the surrounding air is safer

for operations

due to the gas' explosiveness and the risk to workers from hypoxia and exposure to various associated pollutants.

122

We have found no statutory support for the argument that any regulation that has ancillary effects on air quality is per se preempted by the CAA.

Comments on State or Tribal Variances

Summary of Comments:

At least one commenter said that, as a sovereign regulatory authority over the State and private minerals located within the State's boundaries, it objected to the requirement that the State and private mineral holders must seek variances from the waste prevention requirements. This commenter also concluded that the variance provision was improper because, according to the commenter, the rule is an air quality emissions rule.

Response:

The BLM decided not to include the provisions for State or Tribal requests for variances that were found in the proposed rule at 43 CFR 3179.401 in part because it concluded that the proposed variance provision could lead to regulatory uncertainty. As stated above in response to comments regarding federalism implications, the final rule does not preempt more stringent requirements for flaring, gas capture, or waste prevention under State or Tribal law, as appropriate. Operators with oil and gas leases on Federal lands must comply with the Department's regulations and with State requirements, to the extent that they do not conflict with the Department's regulations, and similarly operators of Tribal leases must comply with both Tribal and Departmental regulations. Moreover, the waste prevention rule is intended to prevent the waste of gas from Federal and Indian oil and gas leases and is, therefore, not an air quality emissions rule, as further discussed below.

Comments on Air Quality

Summary of Comments:

Some commenters claimed that this rule seeks to address air quality rather than waste prevention and that the BLM should defer to the Environmental Protection Agency (EPA) or State agencies to regulate air quality under the CAA and other authorities.

Response:

The BLM disagrees. As discussed above, the rule responds to the BLM's statutory obligation to prevent waste. The MLA requires the BLM to subject all oil and gas leases to the condition that the lessee “use all

reasonable precautions to prevent the waste of oil or gas developed in the land” and underscores that “[v]iolations of the provisions of this section shall constitute grounds for the forfeiture of the lease.”

123

The Act also provides the Secretary with authority to subject leases to “such rules . . . for the prevention of undue waste as may be prescribed by [the] Secretary.”

124

Even the

Wyoming

court—which vacated portions of the 2016 Rule after the court found it was primarily justified by air quality benefits—recognized that the BLM does in fact have authority to promulgate and impose rules designed to reduce waste, provided such rules are “independently justified as waste prevention measures pursuant to [the BLM's] MLA authority.” 493 F. Supp. 3d at 1067. As explained below, the waste prevention provisions of the final rule are independently justified, and the air quality comments from oil-and-gas industry representatives do not demonstrate otherwise.

123

30 U.S.C. 225.

124

30 U.S.C. 187.

Notwithstanding this authority, a commenter opposed to much of the proposed rule stated that the BLM should avoid conflict or duplication with EPA's and the States' exercise of their “exclusive authority” over air quality. The commenter added that CAA regulation and enforcement fall within other Federal and State agencies' “exclusive jurisdiction.” The commenter also referred to what it described as the “exclusive air quality purview” of EPA and the States, while arguing that the BLM should not “assume” such authority.

The BLM is not regulating air quality in this rule. The BLM is regulating to prevent waste and to assure payment of royalties pursuant to independent and express statutory authority. The ability of EPA and the States to regulate air pollution does not bar the BLM from fulfilling its statutory obligation to regulate waste. Addressing waste may have some effects on air pollution and its connection to human health and welfare, which is the primary responsibility of the EPA, States, and local governments.

125

But the possibility that a BLM rule might have incidental effects on air quality does not strip the BLM from exercising its clear, express statutory authority under the MLA to prevent or reduce waste of gas.

Cf. Wyoming,

493 F. Supp. 3d at 1063 (acknowledging that “a regulation that prevents wasteful losses of natural gas from venting and flaring necessarily reduces emissions of that gas”). The MLA is designed to encourage diligent development of Federal oil and gas resources, avoid waste, and generate revenue,

see

Public Law 66-145, sections 15, 16, 26, 27, while the CAA seeks to reduce air pollution to protect the public health and welfare. 42 U.S.C. 7401(a)(2), (b)(1). The EPA's regulation of methane emissions does not excuse the BLM from its obligation to prevent waste of and generate revenue from Federal oil and gas resources. In the proposed and final rules, the BLM has explained why it is implementing certain measures for waste prevention or other matters attendant to BLM authority (

e.g.,

safety and royalty measurement).

125

Bell

Cheswick Generating Station,

734 F.3d 188, 190 (3d Cir. 2013) (emphasis added).

Another comment expressed concern about conflicts between the MLA and various air quality regulations and statutes. The commenter specified that the rule should not “create potential conflicts or duplication with EPA and State requirements promulgated pursuant to the CAA and State authorities.” Another comment expressed concern about a “potentially conflicting and duplicative BLM regulatory overlay” on existing and forthcoming regulations on methane and VOC emissions. As noted, the CAA and the MLA pursue different statutory goals, which may, as a general matter, reduce the possibility of conflict among specific regulations promulgated by the BLM and EPA. The successful prevention of the waste of gas may also lead to air quality effects. Nonetheless, we have examined the EPA's methane-related regulations and the EPA's OOOO series rules

126

and have avoided conflict by focusing on the BLM's waste prevention and royalty measurement mandates, while acknowledging ancillary effects to air quality from this final rule. We have found no provision of the final rule that prevents compliance with EPA's regulations.

126

77 FR 49490, 49542 (Aug. 16, 2012); 81 FR 35824, 35898 (June 3, 2016); 86 FR 63110 (Nov. 15, 2021).

Enactment of the CAA did not repeal any section of the MLA or any of the BLM's other statutory authorities. Thus, neither the CAA, nor the programs of the EPA, States, or Tribes relieve the BLM of its statutory obligations to prevent waste and to assure royalty accountability. Similarly, nothing in this final rule interferes with any air quality regulation of EPA, the States, or Tribes.

In sum, we conclude that the final rule is a proper exercise of the agency's authority under the MLA and other statutes (discussed above) to promulgate regulations for the prevention of waste. Its ancillary effects on air quality are not disqualifying and, despite commenters' suggestions to the contrary, do not defeat the provisions of the MLA discussed above, as reinforced by the IRA.

Commenters also suggested that the BLM's proposed rule implicates a “major question” as that term is used in

West Virginia

EPA,

142 S. Ct. 2587 (2022). In that case, the Supreme Court vacated an EPA rulemaking because, according to the Court, EPA “claimed to discover in a long-extant statute an unheralded power representing a transformative expansion in its regulatory authority,” “located that newfound power in the vague language of an ancillary provision of the Act,” and “adopted a regulatory program that Congress had conspicuously and repeatedly declined to enact itself.”

Id.

At 2610. The Supreme Court went on to hold that, in such circumstances, colorable congressional authorization was insufficient; the agency must instead point to “clear congressional authorization” for its actions.

Id.

At 2614.

The final rule is not the type of “extraordinary” Rule that implicates a major question.

See Id.

At 2609. The BLM has not claimed to discover any novel authority in the MLA. Rather, a lessor's legal capacity to prevent waste extends back at least to the common law prudent operator standard. Congress codified the Secretary's authority and obligation to prevent waste in 1920, when it drafted the MLA to provide that “[e]ach lease shall contain . . . a provision that such rules . . . for the prevention of undue waste as may be prescribed by said Secretary shall be observed.”

127

Congress affirmed the BLM's authority and obligations in 2022, when, in the IRA, it required the BLM to charge royalties on gas that was not “unavoidably lost” but did not otherwise define that term.

128

By the same token, the MLA provisions at issue here are not “ancillary:” they have been squarely and explicitly relied upon for decades in efforts to reduce waste. In short, the Department's authority to regulate waste is—and always has been—a component of its authority to lease.

127

See 30 U.S.C. 187).

128

As previously stated in the preamble, the IRA provides that, for leases issued after August 16, 2022, royalties are owed on all gas produced from Federal land, subject to certain exceptions for gas that is lost during emergency situations, used for the benefit of lease operations, or “unavoidably lost.”

Beyond this longstanding authority, the BLM's rule is narrower than the

Supreme Court's characterization of the rule in

West Virginia.

That rule, according to the Court, “balance[ed] the many vital considerations of national policy implicated in deciding how Americans will get their energy.” 142 S. Ct. at 2612.

Accord Biden

Nebraska,

143 S. Ct. 2355, 2372 (2023) (striking down student loan forgiveness program on the grounds that “no regulation premised on [the ostensibly authorizing statute] has even begun to approach the size or scope of the Secretary's program”). Here, the BLM is changing its regulations to marginally adjust waste prevention—merely one component of oil and gas production—under the MLA and the Indian minerals statutes. Those statutes, in turn, reflect merely one component of the nation's total oil and gas production, which itself is merely one component of the nation's total energy mix.

Nor has Congress considered and rejected the measures in this final rule. Commenters did not provide evidence showing that the most significant portions of this rule—new requirements for APDs, clarification of the term “avoidably lost”, and leak detection—have been the subject of congressional debate. Ultimately, “common sense” indicates that the MLA and the IRA reflect precisely “the manner in which Congress [would have been] likely to delegate” the technical and discrete issue of waste prevention vis-à-vis public minerals.

West Virginia

at 2609. The BLM therefore did not make changes based on these comments.

Comments on Ways To Minimize Waste of Natural Gas During the Leasing Stage

Summary of Comments:

The BLM requested public comment on how it can improve its processes pertaining to the leasing stage of development to minimize the waste of natural gas during later stages of development. Some commenters recommended that the BLM require WMPs at the land use planning stage or when an operator nominates parcels of land for leasing under an Expression of Interest. Although at least one commenter recommended that the BLM require a WMP during the leasing stage, at least one other commenter objected to that proposal. At least one commenter objected to the BLM's proposed requirement that an APD include a WMP and specifically protested what it claimed to be vague standards for approval or denial of the plan. The commenter further stated that this proposed provision potentially duplicates a State's gas capture plans and may delay or cause the State permit to expire if the rule required the operator to submit information that conflicts with the State's requirements. Another commenter requested that the BLM remove any requirement for the operator to provide confidential business information or otherwise unavailable information in the WMP because the operator does not possess this information and it is not helpful for the specific purpose it is intended.

Response:

As discussed further in the Section-by-Section discussion, the BLM in this final rule has retained the requirement to submit a WMP with a Federal or Indian oil and gas APD, or, in the alternative, submit a self-certification statement that would commit the operator to capturing 100 percent of the associated gas produced from an oil well and would obligate the operator to pay royalties on all lost gas except for gas lost through emergencies. The BLM has reviewed the comments and changed the provisions for a WMP. Under the final rule, the operator may submit either: (1) a self-certification statement committing the operator to capture 100 percent of the associated gas less any on-lease use of associated gas pursuant to subpart 3178; or (2) a WMP that includes, among other requirements, a certification that the operator has a valid, executed gas sales contract for the associated gas. A WMP is subject to the avoidable loss flaring limit established in final § 3179.70, while self-certification is a statement that the operator will be able to capture, as defined in final § 3179.10, 100 percent of the associated gas. In the case of self-certification, 100 percent of the oil-well flared gas has a royalty obligation from the date of first production until the well is plugged and abandoned, less any on-lease use of associated gas pursuant to subpart 3178.

The BLM has added the self-certification option to the final rule in response to comments that the waste prevention plan requirement is overly burdensome for industry and provides little benefit to the BLM. The self-certification option serves the dual purposes of providing operators with a less burdensome alternative, while simultaneously reducing waste through the encouragement of capture, a term defined in the proposed rule and unchanged in the final rule. The updated requirement provides the operator with the flexibility to secure a valid, executed gas sales contract or elect to expedite approval of the APD with a self-certification statement. In making this decision, operators may consider,

e.g.,

the time to secure a gas sales contract, the desired date of the oil well completion, or the flaring royalty obligation associated with either a WMP or self-certification.

The BLM disagrees with a commenter's belief that the WMP potentially duplicates a State's gas capture plans or would delay or cause a State permit to expire if the rule requires the operator to provide confidential or otherwise unavailable information. In any State or on any Tribal lands with essentially the same requirements as this final rule, this rule has no additional substantive burden on operators. As previously stated, the final rule does not preempt any State's or Tribe's requirements that are more stringent with respect to flaring and gas capture requirements or for waste prevention. There is nothing unique about this rule's interaction with State or Tribal law; those laws have always applied to operations regulated by the BLM, except on the rare occasion in which they prevent compliance with BLM regulations. More stringent State or Tribal regulations apply of their own force. Operators with leases on Federal lands must comply with both the Department's regulations and with State or Tribal requirements, to the extent that the non-Federal requirements do not conflict with the Department's regulations. None of the commenters have shown that any portion of the rule would interfere with the States' or Tribes' ability to regulate oil and gas operations on Federal lands or that the operator cannot comply with both the final rule and State or Tribal regulations.

After carefully considering the comments received concerning confidential information that may be included in the WMP, as well as information that is not within the operator's purview, the BLM has revised the required information in the WMP to align with the BLM's waste prevention objectives more closely. For example, the BLM is not finalizing the proposal for operators to identify in the WMP the anticipated daily capacity of the pipeline at the anticipated date of first gas sales from the proposed well, or the proposal to include any plans known to the operator for expansion of pipeline capacity for the area that includes the proposed well. Commenters indicated that this information could be confidential and proprietary information that belongs to midstream companies and that oil and gas operator are obligated to keep confidential. We agree.

Comments on Definition of “Unreasonable and Undue Waste of Gas” in the Loss of Oil or Gas, Avoidable or Unavoidable Determination, and the Prudent Operator Standard

“Unreasonable and undue waste of gas,” avoidable or unavoidable determination, and the prudent operator standard are interrelated and warrant a combined discussion. Accordingly, the following summary of comments and the BLM's response will cover these three concepts.

Summary of Comments:

In the proposed rule, the BLM requested public comment on the definition of “unreasonable and undue waste of gas,” which the BLM considers when determining whether the loss of oil or gas is avoidable or unavoidable. Commenters suggested that the definition include an express reference to economic feasibility because, according to the commenters, the rule will become unwieldy and difficult for the BLM to administer without this economic consideration. Commenters expressed concern that the proposed avoidable loss threshold ignores whether the lessee is acting reasonably and prudently without any evaluation of the operator's actual economic circumstances, and that flaring is not automatically “waste.”

Response:

We disagree with the commenters' suggestion that the rule should accommodate economic feasibility for individual flaring cases. In the proposed rule, the BLM explained that “lessees have an obligation of reasonable diligence in the development of the leased resources, rooted in due regard for the interests of both the lessee and the lessor.” 87 FR 73597. The lessor has an interest in collecting royalties on production and in conserving gas for future disposition. The proposed rule also explained that the prudent operator standard looks to the operation of a lease as a whole and considers the interests of both the lessees and the lessors in conserving and developing the Federal mineral resource. However, with the final rule, the BLM has decided to not carry forward the proposed definition of “unreasonable and undue waste of gas” and removed the term from § 3179.10 and references to the definition in §§ 3179.100 and 3179.70(b). The BLM has determined that the definition might create unnecessary confusion and is not relevant for purpose of carrying out §§ 3179.100 and 3179.70(b).

Several commenters objected to the BLM's discussion of the prudent operator standard, which focuses on the lease as a whole, and argued that the prudent operator standard forecloses the BLM from imposing measures for waste prevention that may, in some situations, require an operator to spend more than the value of potentially wasted gas. That is, the commenters did not contend that the BLM's rule would render leases unprofitable on the whole, but merely that the prevention of marginal waste might not, from the individual operator's perspective (and particularly for low volume producers) pay for itself.

In support of this reading, the commenters cited the BLM's regulatory definition of waste as:

any act or failure to act by the operator that is not sanctioned by the authorized officer as

necessary

for proper development and production and which results in: (1) A reduction in the quantity or quality of oil and gas ultimately producible from a reservoir under prudent and proper operations; or (2) avoidable surface loss of oil or gas.

43 CFR 3160.0-5 (emphasis added). The definitions in 43 CFR 3160.0-5 explicitly apply to part 3160 only, and the BLM notes that most of the regulations in this final rule appear in part 3170. In any event, there is no conceptual inconsistency between the regulations in that part and the definitions in part 3160. The definition of “waste” in part 3160 indicates that gas is wasted where,

inter alia,

loss is avoidable, and the final definitions in part 3170 explain when loss is avoidable and, separately, what subset of “waste” is “undue.” To avoid confusion, the final rule has deleted the word “prudent” where it had occurred in the proposed rule. See § 3179.41(a) and (b).

It is unclear precisely why commenters believe this provision is inconsistent with a fair reading of the non-statutory prudent operator standard and why they believe that standard requires a narrower reading. It is true, as commenters note (and as discussed elsewhere in this rule), that NTL-4A and IBLA caselaw have previously recognized “unavoidably lost” gas—the waste implicitly contemplated by 43 CFR 3160.0-5(1)—as excluding those cases where, in a case-by-case determination, “the Supervisor determines that said loss resulted from . . . the failure of the lessee or operator to take all reasonable measures to prevent and/or control the loss.” NTL-4A. II.A. For the reasons explained elsewhere in this preamble, such case-by-case determinations are no longer sufficient for the BLM's fulfillment of its obligations to prevent waste. Here, we explain why the authorities cited by some commentors do not

require

individualized determinations.

Thus, for example, commenters' frequent citations to court decisions and to the IBLA decisions in

Ladd Petroleum Corporation

and

Rife Oil Properties

are misplaced.

Ladd

did not address the meaning of the prudent operator standard or avoidably lost gas at all, and instead held that, where the BLM had

chosen

to issue certain guidance detailing case-by-case feasibility determinations, the substance of that guidance should govern in pending administrative appeals. 107 IBLA 5 (1989).

Rife Oil,

meanwhile, stands for the proposition that NTL-4A provided for case-by-case waste determinations, not that the MLA and FOGRMA require such determinations. 131 IBLA 357, 373-75 (1994).

129

The same is true for the cases cited by

Ladd

and

Rife Oil. See Lomax Exploration Co.,

105 IBLA 1 (1988) (concluding that NTL-4A applied to certain venting or flaring without passing on the BLM's discretion to modify or depart from NTLA-4A);

Mallon Oil Co.,

107 IBLA 150, 156 (1989) (same);

Maxus Exploration Co.,

122 IBLA 190, 198 n.1 (1992) (“As the word `economic' is used

in NTL-4A,

it relates to a lessee's argument that conservation of the gas is not viable from an economic standpoint . . . .”) (emphasis added).

129

In dicta, the

Rife Oil

decision considered a possible “read[ing] [of] NTL-4A as barring the venting of gas . . . without regard to whether it was avoidably lost” within the meaning if NTL-4A, 131 IBLA at 374, hypothesizing that such a reading “would lead to potential waste of oil where production of oil was marginally economic but production of gas was not economic

and the requirement to market the gas caused a premature abandonment of the well.” Id.

at 374 n.6 (emphasis added). This abstract hypothetical says nothing regarding the United States' general authority as lessor to balance by regulation the waste from potential loss of gas against the waste from potential loss of oil, much less does it evaluate the specific balancing the BLM has performed throughout in this rule.

Some commenters also concluded that the IRA essentially codified NTL-4A's definitions of “avoidable” and “unavoidable,” reasoning that Congress must have been aware of the BLM's pre-2016 definitions of those terms. The IRA, however, did not provide a statutory definition of “avoidable” or “unavoidable,” and did not prohibit the Secretary of the Interior from promulgating a rule to define and implement those terms under her existing statutory authorities.

See, e.g.,

30 U.S.C. 189.

130

The IRA did not amend the MLA to require the type of case-by-case evaluations the commenters seek, and commenters have

not provided “the sort of overwhelming evidence of [congressional] acquiescence” to NTL-4A's definitions “necessary to support [their] argument in the face of Congress's failure to amend.”

Sackett

EPA,

143 S. Ct. 1322, 1343 (2023).

131

130

“The Secretary of the Interior is authorized to prescribe necessary and proper rules and regulations and to do any and all things necessary to carry out and accomplish the purposes of [the MLA].”

131

In the context of drainage (the original problem addressed by the prudent operator standard) the BLM has promulgated regulations detailing a lessee's obligations to avoid uncompensated drainage or to pay compensatory royalties. 43 CFR 3162.2-2 to 3162.2-15. Thus, as in this final rule, the BLM by regulation specifies the duties of lessees without reliance upon common law standards, including the prudent operator standard.

Commenters also cited FOGRMA's provision that lessees are liable for royalties when “waste is due to negligence . . . or . . . failure to comply with

any rule or regulation

. . . under any mineral leasing law.” 30 U.S.C. 1756 (emphasis added). This provision says nothing of the prudent operator standard and imposes royalty for failure to comply with any applicable regulations, including the regulations at issue in this rule. Some commenters attempted to downplay this language by characterizing FOGRMA as requiring compliance only with “specific regulatory requirement[s],” but the relevant statute does not include the word “specific,” and the commenters provided no explanation as to how that concept, even if somehow embodied in FOGRMA, would operate to exclude from royalty obligations those regulations—like this final rule—designed to conserve the Federal and Indian mineral estates.

Commenters also cited to the District of Wyoming's decision addressing the merits of the 2016 Rule, but that decision likewise does not compel the commenters' preferred reading of the prudent operator standard or elevate it to a statutory limit on the Secretary's rulemaking authority. The relevant portion of the decision began by reciting the history of the BLM's case-by-case evaluation of feasibility, citing

Rife Oil

and the IBLA's

Ladd Petroleum

decision. See

Wyoming,

493 F. Supp. 3d at 1073-74.

132

The

Wyoming

court then concluded that although the “MLA's waste provisions leave room for interpretation,” the BLM's 2016 construction of those provisions was unlawful because the BLM had “primarily” sought to “benefit the environment and improve air quality,” as reflected in the BLM's reliance on the 2016 Rule's ancillary effects.

Id.

132

In the Wyoming decision, the court characterized the IBLA's

Ladd

holding as “remanding BLM decision that flared gas was avoidably lost for determination of `whether in fact it was economically feasible to market the gas' and explaining that interpretation of NTL-4A giving operator opportunity to show gas was not marketable `is consistent with the intent of the underlying statutory and regulatory authority.' ” This statement is a quote from a headnote in IBLA's decision, not the decision itself.

Ladd Petroleum Corp.,

107 IBLA 5 (1989).

In both its proposed and final rules, however, the BLM is exclusively focused on addressing waste and royalty payments, along with certain safety provisions, and has disavowed in form and substance any effort to regulate air quality in a manner entrusted to EPA and that agency's State and Tribal partners, including by eschewing any reliance on ancillary effects on the atmosphere. Instead, the BLM has promulgated this rule purely to curb the excessive, accelerating, and nationwide waste of Federal and Indian gas and to curb localized hazards to human health and safety from operations. As it did in the 2016 Rule, the BLM has acknowledged its “decades-long practice of factoring in operator economics on a case-by-case basis when determining whether a loss was avoidable,” explaining in this rulemaking why the MLA's waste provisions—which “leave room for interpretation”—now justify a suite of nationwide standards and important flexibilities for specific operators and leases.

Id.

Therefore, the final rule does not conflict with the Wyoming court's decision.

In dicta, the

Wyoming

court also discussed the prudent operator standard without reference to considerations like the social cost of methane.

Id.

The District Court cited caselaw and the MLA for the general proposition that “[o]il and gas leases—including those between the Federal Government and its lessees—are intended to ensure mutually profitable development of the lease's mineral resources.”

Id.

(emphasis added). Indeed, the cases cited by the

Wyoming

court stand for the proposition that a mineral lease is fundamentally different from “a business into which [the lessee] puts property, money, and labor exclusively his own, the profits and losses in which are of concern only to him, and the conduct of which may be according to his own judgment . . . .”

Brewster

Lanyon Zinc Co.,

140 F. 801, 814 (8th Cir. 1905). Instead, the “interest in the subject of the lease . . . make the extent to which . . . the operations are prosecuted of immediate concern to the lessor.”

Id.

As the BLM noted in the proposed rule and reaffirms here, these general propositions do not specify precisely

how

the United States, as manager of the Federal mineral estate, must perform its statutory duty of preventing waste, and, specifically, whether it must do so on a case-by-case basis or elevate an operator's profit maximization over the United States' duties to the taxpayers and to Indian mineral owners.

As discussed in

Brewster,

one way the lessor may elect to enforce this interest is by seeking

expedited

production, so that the lessee's failure to develop the lease does not “exhaust” the oil and gas “through the operation of wells on adjoining lands.”

Id. See also Gerson

Anderson-Prichard Prod. Corp.,

149 F.2d 444, 446 10th Cir. 1945 (“A lease of this kind contains an implied covenant that the lessee will exercise reasonable diligence in the development of the leasehold and

in the protection of it from undue drainage through wells on adjacent lands

.”) (emphasis added). The prudent operator standard chiefly applies to these drainage cases, in which it protects the operator from overbroad allegations of a “breach of the covenant for the exercise of reasonable

diligence.” Brewster,

140 F. at 814-15 (emphasis added). Given the significant cost of drilling a new well

133

“and the fact that the lessee must bear the loss if the operations are not successful,” the standard shields the lessee from demands to drill unprofitable wells “even if some benefit to the lessor will result” from less drainage.

Brewster,

140 F. at 814 (emphasis added).