Unitization

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 250

RIN 1010-AC19

Unitization

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Notice of proposed rulemaking.

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SUMMARY: MMS proposes to amend its unitization regulations by removing

the model unit agreements for exploration, development, and production

units and development and production units. The model agreements would

be available from the Regional Supervisor. The rule would also be

written in ``plain English.'' We take this action to support the

President's initiative to reform Government regulations. Our interest

is to shorten the regulation and clarify the wording.

DATES: MMS will consider all comments received by August 5, 1996. We

will begin reviewing comments at that time and may not fully consider

comments we receive after August 5, 1996.

ADDRESSES: Mail or hand-carry written comments to the Department of the

Interior, Minerals Management Service, 381 Elden Street, Mail Stop

4700, Herndon, Virginia 22070-4817, Attention: Chief, Engineering and

Standards Branch.

FOR FURTHER INFORMATION CONTACT:

Judith M. Wilson, Engineering and Standards Branch, telephone (703)

787-1600.

SUPPLEMENTARY INFORMATION: The rules on unitization in 30 CFR part 250,

implementing Section 5(a)7 of the Outer Continental Shelf (OCS) Lands

Act Amendments of 1978, were published on May 2, 1980. The rules were

amended on February 16, 1982. The amended rulemaking removed the

provisions that required segregation of the portion of the OCS oil and

gas lease not included in the unit agreement. That amendment was based

on the Department of the Interior (DOI) Solicitor's Opinion M-36927.

The rules were amended again in April 1988, when MMS restructured and

consolidated into one document the rules governing oil, gas, and

sulphur exploration, development, and production operations on the OCS.

The model unit agreements were incorporated at this time. The last

revision was in July 1991, to include sulphur operations in

unitization.

This subpart, 30 CFR part 250, Subpart M, Unitization, is intended

to

[[Page 28526]]

prevent waste, conserve natural resources (protection of marine life

was incorporated into conservation in 1971), and/or protect correlative

rights. The rules include provisions to:

explain the authority and requirements for unitization;

provide for compulsory or voluntary unitization;

explain requirements for competitive reservoir operations;

explain how a lessee may request a determination of

whether a reservoir is competitive;

explain how to submit a joint development and production

plan;

explain the process for voluntary unitization;

explain the process for compulsory unitization; and

explain the role of a model agreement.

This proposed rule does not intend any substantive changes to this

regulation. It would shorten existing regulations by removing the model

unit agreements. The ``plain English'' would clarify the rule.

There are two model unit agreements, one for exploration,

development, and production units, the other for development and

production units. The model agreements would continue to be available

from the Regional Supervisor. The Regional Supervisor could approve

variations from the model agreements for good cause.

Author: This document was prepared by Judy Wilson, Engineering and

Standards Branch, Offshore Resource Evaluation Division, MMS.

Executive Order (E.O.) 12866

This rule does not meet the criteria for a significant rule

requiring review by the Office of Management and Budget under E.O.

12866.

Regulatory Flexibility Act

Since this proposed amendment has no economic effects, DOI has

determined that this proposed rule will not have a significant effect

on a substantial number of small entities.

Paperwork Reduction Act

This proposed rule contains a collection of information which has

been submitted to the Office of Management and Budget (OMB) for review

and approval under section 3507(d) of the Paperwork Reduction Act of

1995. As part of our continuing effort to reduce paperwork and

respondent burden, MMS invites the public and other Federal agencies to

comment on any aspect of the reporting burden. Submit your comments to

the Office of Information and Regulatory Affairs, OMB, Attention Desk

Officer for the Department of the Interior (OMB control number 1010-

0068), Washington, DC 20503. Send a copy of your comments to the Chief,

Engineering and Standards Branch; Mail Stop 4700; Minerals Management

Service; 381 Elden Street; Herndon, Virginia 22070-4817. You may obtain

a copy of the proposed collection of information by contacting the

Bureau's Information Collection Clearance Officer at (703) 787-1242.

The title of this collection of information is ``30 CFR 250,

Subpart M, Unitization.'' OMB previously approved it under OMB control

number 1010-0068.

The collection of information consists of a proposed unit

agreement; a proposed initial plan of operation; supporting geological,

geophysical, and engineering data; and any other information necessary

to show that the unitization proposal meets the criteria in

Sec. 250.190. If approved, respondents will submit to MMS a unit

agreement, unit operation agreement, and the initial plan of operation

as the Regional Supervisor may require.

MMS uses the information to ensure that operations under the

proposed unit agreement will prevent waste, conserve natural resources,

and protect correlative rights including the Government's interests.

Respondnets are Federal OCS oil, gas, and sulphur lessees. MMS

receives approximately 53 responses each year. The frequency of

submission varies.

MMS estimates the annual reporting burden to be approximately 2,424

hours, an average of 45.7 hours per response. Based on $35 per hour,

the burden hour cost to respondents is estimated to be $84,840. The

estimate of other annual costs to respondents is unknown.

MMS will summarize written responses to this notice and address

them in the final rule. All comments will become a matter of public

record.

1. MMS specifically solicits comments on the following questions:

(a) Is the proposed collection of information necessary for the

proper performance of MMS's functions, and will it be useful?

(b) Are the estimates of the burden hours of the proposed

collection reasonable?

(c) Do you have any suggestions that would enhance the quality,

clarity, or usefulness of the information to be collected?

(d) Is there a way to minimize the information collection burden on

those who are to respond, including through the use of appropriate

automated electronic, mechanical, or other forms of information

technology?

2. In addition, the Paperwork Reduction Act of 1995 requires

agencies to estimate the total annual cost burden to respondents or

recordkeepers resulting from the collection of information. MMS needs

your comments on this item. Your response should split the cost

estimate into two components:

(a) Total capital and startup cost component and

(b) Annual operation, maintenance, and purchase of services

component.

Your estimates should consider the costs to generate, maintain, and

disclose or provide the information. You should describe the methods

you use to estimate major cost factors, including system and technology

acquisition, expected useful life of capital equipment, discount

rate(s), and the period over which you incur costs. Capital and startup

costs include, among other items, computers and software you purchase

to prepare for collecting information; monitoring, sampling, drilling,

and testing equipment; and record storage facilities. Generally, your

estimates should not include equipment or services purchased: before

October 1, 1995; to comply with requirements not associated with the

information collection; for reasons other than to provide information

or keep records for the Government; or as part of customary and usual

business or private practice.

The Paperwork Reduction Act of 1995 provides that an agency may not

conduct or sponsor, and a person is not required to respond to, a

collection of information unless it displays a currently valid OMB

control number.

Takings Implication Assessment

The DOI certifies that this rule does not represent a governmental

action capable of interference with constitutionally protected property

rights. A Takings Implication Assessment prepared pursuant to E.O.

12630, Government Action and Interference with Constitutionally

Protected Property Rights, is not required.

Unfunded Mandate Reform Act of 1995

This rule does not contain any unfunded mandates to State, local,

or tribal governments or the private sector.

E.O. 12988

DOI has certified to OMB that this proposed rule meets the

applicable civil justice reform standards provided in Sections 3(b)(2)

of E.O. 12988.

[[Page 28527]]

National Environmental Policy Act

MMS has examined the proposed rulemaking and has determined that

this rule does not constitute a major Federal action significantly

affecting the quality of the human environment pursuant to Section

102(2)(c) of the National Environmental Policy Act of 1969 (42 U.S.C.

4332(2)(c)).

List of Subjects in 30 CFR Part 250

Continental shelf, Environmental impact statements, Environmental

protection, Government contracts, Incorporation by reference,

Investigations, Mineral royalties, Oil and gas development and

production, Oil and gas exploration, Oil and gas reserves, Penalties,

Pipelines, Public lands--mineral resources, Public lands--rights-of-

way, Reporting and recordkeeping requirements, Sulphur development and

production, Sulphur exploration, Surety bonds.

Bob Armstrong,

Assistant Secretary, Land and Minerals Management.

For the reasons set forth in the preamble, the Minerals Management

Service proposes to amend 30 CFR part 250 as follows:

PART 250--SUBPART M--UNITIZATION

1. The authority citation for part 250 continues to read as

follows:

Authority: 43 U.S.C. 1334.

2. Subpart M is revised to read as follows:

Subpart M--Unitization

Sec.

250.190 What is the purpose of this subpart?

250.191 What are the requirements for unitization?

250.192 What if I have a competitive reservoir on my lease?

250.193 How do I get approval for voluntary unitization?

250.194 How will MMS require unitization?

Subpart M--Unitization

Sec. 250.190 What is the purpose of this subpart?

This subpart explains how Outer Continental Shelf (OCS) leases are

unitized. If you are an OCS lessee, use the regulations in this subpart

for both voluntary and required unitization situations. The purpose of

unitization is to:

(a) Conserve natural resources;

(b) Prevent waste; and/or

(c) Protect correlative rights, including Federal royalty

interests.

Sec. 250.191 What are the requirements for unitization?

(a) Voluntary unitization. You and other OCS lessees may ask the

Regional Supervisor to approve a request for voluntary unitization. The

Regional Supervisor may approve the request for voluntary unitization

if unitized operations:

(1) Will promote and expedite lease exploration and development; or

(2) Are necessary to prevent waste, conserve natural resources, or

protect correlative rights, including Federal royalty interests, of a

reasonably delineated and productive reservoir.

(b) Compuslory unitization. The Regional Supervisor may require you

and other lessees to unitize operations if unitized operations are

necessary to prevent waste, conserve natural resources, or protect

correlative rights of a reasonably delineated and productive reservoir.

(c) Unit area. The area that a unit includes is the minimum number

of leases that will allow the lessees to minimize the number of

platforms, facility installations, and wells necessary for efficient

exploration, development, and production. A unit may include whole

leases of portions of leases.

(d) Unit agreement. You and the other lessees of the leases in the

unit must enter into a unit agreement that allocates benefits to

unitized leases. The unit agreement must designate a unit operator and

specify the effective date of the unit agreement. A unit agreement of

terminates when the unit no longer produces unitized substances and the

unit operator no longer conducts drilling or well-workover operations

under the unit agreement, unless the Director orders or approves a

suspension of production under Sec. 250.10.

(e) Unit operating agreement. The unit operator and the owners of

working interests in the unitized leases must enter into a unit

operating agreement. The unit operating agreements must describe how

all the unit participants will apportion all costs and liabilities

incurred maintaining or conducting operations. When a unit involves one

or more net-profit-share leases, the unit operating agreement must

describe how to attribute costs and credits to the net-profit-share

lease(s).

(f) Termination or adjustment of a unit agreement. If your unit

agreement expires or terminates, or if MMS adjusts the unit area to

exclude your lease from the unit, your lease expires unless:

(1) Its initial term has not expired;

(2) You conduct drilling, production, or well-reworking operations

on your lease consistent with applicable regulations; or

(3) MMS orders or approves a suspension of production or operations

for your lease.

(g) Unit operations. If your lease is subject to a unit agreement,

the entire lease continues for the term provided in the lease and as

long thereafter as any portion of your lease remains part of the unit

area, and as long as operations continue the unit in effect.

(1) Drilling, production, and well-reworking operations performed

on any lease in accordance with the unit agreement benefit all leases

in the unit. If your unit ceases drilling activities for a period

between the discovery and delineation of one or more reservoirs and the

initiation of actual development and production operations and that

time period would extend beyond your lease's primary term, you must

request and obtain MMS approval of a suspension of production under

Sec. 250.10.

(2) When a lease in a unit agreement is beyond the primary term and

the lease or unit is not producing, the lease will expire unless:

(i) You conduct a continuous drilling or well reworking program

designed to develop or restore the lease or unit production; or

(ii) MMS orders or approves a suspension of operations under

Sec. 250.10.

Sec. 250.192 What if I have a competitive reservoir on my lease?

(a) The Regional Supervisor may require you to conduct development

and production operations in a competitive reservoir under either a

voluntary joint Development and Production Plan or a unitization

agreement. A competitive reservoir has one or more producing or

producible well completions on each of two or more leases, or portions,

with different owners. For purposes of this paragraph, a producible

well completion is a well which is capable of production and which is

shut in but not necessarily connected to production facilities, and

from which the operator plans future production.

(b) You may request that the Regional Supervisor make a preliminary

determination whether a reservoir is competitive. When you receive the

preliminary determination, you have 30 days (or longer if the Regional

Supervisor allows additional time) to concur or to submit an objection

with supporting evidence if you do not concur. The Regional Supervisor

will make a final determination and notify you.

[[Page 28528]]

(c) If you conduct drilling or production operations in a

competitive reservoir, you and the other affected lessees must submit

for approval a joint plan of operations. You must submit the joint plan

within 90 days after the Regional Supervisor makes a final

determination that the reservoir is competitive. The joint plan must

provide for the development and/or production of the reservoir. You may

submit supplemental plans for the Regional Supervisor's approval.

(d) If you and the other affected lessees cannot reach an agreement

on a joint Development and Production Plan within the approved period

of time, each lessee must submit a separate plan to the Regional

Supervisor. The Regional Supervisor may hold a hearing to resolve

differences in the separate plans. If the differences in the separate

plans are not resolved at the hearing and the Regional Supervisor

determines that unitization is necessary under Sec. 250.191(b), MMS

will initiate unitization under Sec. 250.194.

Sec. 250.193 How do I get approval for voluntary unitization?

(a) You must file a request with the Regional Supervisor for

approval of a unit. Your request must include:

(1) A draft of the proposed unit agreement;

(2) A proposed initial plan of operation;

(3) Supporting geological, geophysical, and engineering data; and

(4) Other information that may be necessary to show that the

unitization proposal meets the criteria of Sec. 250.190.

(b) The unit agreement must comply with the requirements of this

part. MMS will provide a model unit agreement for you to follow. If you

make changes to the model agreement, you must obtain the approval of

the Regional Supervisor.

(c) After the Regional Supervisor approves your unitization

proposal, you and the unit operator must sign it and file copies of the

unit agreement, the unit operating agreement, and the plan of operation

with the Regional Supervisor.

Sec. 250.194 How will MMS require unitization?

(a) If the Regional Supervisor determines that unitization of

operations within a proposed unit area is necessary to prevent waste,

conserve natural resources of the OCS, or protect correlative rights,

including Federal royalty interests, the Regional Supervisor may order

unitization according to a plan for unitization. This plan will conform

to the model unit agreement available from the Regional Supervisor

unless the Regional Supervisor approves a variation.

(b) If you ask MMS to compel unitization, you must file a request

with the Regional Supervisor. Include a proposed unit agreement as

described in Sec. 250.192(b), a proposed unit operating agreement, and

a proposed initial plan of operation together with supporting

geological, geophysical, and engineering data, and any other

information that may be necessary to show that unitization meets the

criteria of Sec. 250.190. The proposed unit agreement must include a

counterpart executed by each lessee seeking compulsory unitization.

Lessees seeking compulsory unitization must simultaneously serve, on

the non-consenting lessees, copies of:

(1) The request;

(2) The proposed unit agreement with executed counterparts;

(3) The proposed unit operating agreement; and

(4) The proposed initial plan of operation.

(c) If the Regional Supervisor initiates compulsory unitization,

MMS will serve all lessees of the proposed unit area with a copy of the

plan for unitization and a statement of reasons for the proposed

unitization.

(d) The Regional Supervisor will not compel unitization until MMS

provides all lessees of the proposed unit area written notice and an

opportunity for a hearing. If you want MMS to hold a hearing, you must

request it within 30 days after you receive written notice from the

Regional Supervisor or after you are served with a request for

compulsory unitization from anther lessee.

(e) MMS will not hold a hearing under this paragraph until at least

30 days after MMS provides written notice of the hearing date to all

parties owning interests which would be made subject to the unit

agreement. The Regional Supervisor must give all lessees of the

proposed unit area an opportunity to submit views orally or in writing

and to question both those seeking and those opposing compulsory

unitization. Adjudicatory procedures are not required. The Regional

Supervisor will make a decision based upon a record of the hearing,

including any written information made a part of the record. The

Regional Supervisor will arrange for a court reporter to make a

verbatim transcript. The party seeking compulsory unitization must pay

for the court reporter and pay for and provide to the Regional

Supervisor within 10 days after the hearing three copies of the

verbatim transcript, made by a court reporter.

(f) The Regional Supervisor will issue an order that requires or

rejects compulsory unitization. That order must include a statement of

reasons for the action taken including identification of those parts of

the record which form the basis of the decision. Any party may appeal

the final order of the Regional Supervisor under 30 CFR part 290.

[FR Doc. 96-13990 Filed 6-4-96; 8:45 am]

BILLING CODE 4310-MR-M