Allow Lessees More Flexibility in Keeping Leases in Force Beyond Their Primary Term

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 250

RIN 1010-AC07

Allow Lessees More Flexibility in Keeping Leases in Force Beyond

Their Primary Term

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

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SUMMARY: This final rule amends regulations that specify how Outer

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Continental Shelf (OCS) lessees can continue their leases beyond their

primary term. Changes in industry exploration practices have increased

the time necessary to collect and analyze data associated with

operations. The changes increase from 90 to 180 days the time allowed

between operations for a lease continued beyond its primary term.

EFFECTIVE DATE: November 29, 1996.

FOR FURTHER INFORMATION CONTACT:

Lawrence H. Ake or John Mirabella, Engineering and Standards Branch,

telephone (703) 787-1600.

SUPPLEMENTARY INFORMATION:

I. Background and Purpose

On March 1, 1994, the Department of the Interior (DOT) published a

notice in the Federal Register (59 FR 9718-9719), requesting comments

and suggestions on DOI agency regulations. In its notice, DOI announced

its intention to periodically review its regulations and asked the

public to participate in the review. Over 40 responses were received

concerning MMS regulations from the public, industry, and Government.

Several letters suggested that MMS make changes to Subpart A of 30

CFR Part 250. These comments proposed allowing 180 days between

drilling, well-reworking, or other operations in order to keep a lease

in effect beyond its primary term.

Commenters told MMS that although many OCS operations can be ended

and recommenced within the present 90-day time allowance, many require

considerably more time. The comments went on to say that the search for

oil and gas resources in the OCS has reached a mature phase. Most of

the easily found resources have been produced. Industry is now focusing

its efforts in deeper waters, on subsalt projects, and other areas of

extremely complex geology. The changes these commenters proposed would

allow more time for efficient and expedient production, drilling, and

well-reworking operations.

MMS held a public meeting in New Orleans on June 12, 1995, to

discuss this and other issues. Based on the comments heard at that

meeting, as well as those previously received, a notice of proposed

rulemaking (NPR) was prepared for public comment. On April 25, 1996, an

NPR was published in the Federal Register (61 FR 18309) which proposed

to increase from 90 to 180 days the time allowed between operations for

a lease continued beyond its primary term.

II. Discussion of the Rule

Under current MMS regulations (30 CFR 250.13 and 256.37(b)), if no

production, drilling, or well-reworking activities occur on the lease

during the last 90 days prior to lease expiration and no suspension of

operations or production is in effect on the lease, the lease expires

by law and lease term.

Current Sec. 250.13 gives lessees several methods to keep leases in

effect beyond their primary term. The most common method is through

production of resources and payment of a royalty. Continuous drilling

or well-reworking activities without a break of more than 90 days will

also keep a lease in effect beyond its primary term. Other methods for

extending a lease include receiving a suspension of production (30 CFR

250.10); a suspension of operations (30 CFR 250.10); or participation

in a unit which has another lease that is being held beyond its primary

term by one of these operations (30 CFR 250.190 (e) and (f)).

With this rulemaking, MMS increases from 90 to 180 days the time

allowed between production, drilling, or well-reworking operations for

leases continued beyond their primary term. For example, under the

current rule if a lessee ceases production, drilling or well-reworking

operations on a lease 60 days before the lease expiration date, he must

resume operations within 90 days (i.e., within 30 days after the

original lease expiration date). In this example, the new rule would

allow the lessee 180 days (i.e., 120 days after the original lease

expiration date) within which to resume operations.

Leases that have been continued past their primary term will remain

in force as long as the break in operations is no longer than 180 days.

This contrasts with 90 days provided by the current rule.

III. Discussion of Comments

Comment: MMS received 21 letters commenting on the NPR. Seventeen

of the letters received were supportive of the proposed rule. Many of

these comments cited how the extra time allowed would allow for better

analysis of geological, geophysical, and engineering data. Others noted

that the additional time would provide relief when analyzing subsalt or

deepwater prospects. Still others spoke of the beneficial effects the

rule would have when confronting time-consuming projects, such as

working out cost-sharing arrangements with other operators or analyzing

3D seismic data.

Four letters provided comments that were critical of some aspect of

the proposed rule. Two of these commenters supported the need of

lessees and operators for more flexibility to keep their leases in

effect, but felt that the extension of time to 180 days should be

handled on a case-by-case basis. These commenters were concerned that

the proposed rule could unnecessarily tie up some untested OCS acreage

and thus slow the discovery of additional resources. One commenter

opposed any open-ended authority for the Regional Supervisor to extend

time limits beyond those in the proposed rule. Still another noted that

the rule provides no assurance that the additional time granted to

lessees will result in additional operations on the lease.

Response: One of the primary missions of the MMS is ensuring the

orderly and expeditious exploration and development of the OCS. With

this rule, we attempt to strike a balance between encouraging diligent

operations and allowing proper time for lessees to evaluate their

exploratory and development options. We agree with the majority of

commenters that this rule change recognizes a need of industry. This

extra time is frequently needed for detailed analysis of geological,

geophysical, or engineering data. It also provides operators an

opportunity to better evaluate deep-water and subsalt drilling

prospects. However, the rule specifically states that any drilling or

well-reworking program must be part of a plan that has as its objective

continuous production on the lease. MMS intends to closely monitor the

actions of lessees to ensure that this objective is met. MMS also fully

expects that the 180 day timeframe will provide sufficient time for all

but extraordinary delays. MMS will closely scrutinize all requests for

more than 180 days between operations on leases beyond their primary

term.

Comment: Another commenter suggested that a lease be extended for

180 days past the expiration date of the lease term if operations were

conducted at any time during the last 180 days of the lease term. This

commenter felt that this change would simplify the rule and help to

avoid any misunderstanding of the time remaining on the lease.

Response: This comment was not accepted. MMS feels that the rule

should be applied consistently, whether the lease is just passing its

primary term or has previously been extended through continuous

operations.

Comment: One of the comments was more editorial in nature. This

comment pointed out that the wording in Sec. 250.13(a)(2) of the NPR

was ambiguous. The commenter also stressed that by changing to a

``plain

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English'' format, MMS may sacrifice clarity.

Response: The cited wording has been changed. MMS will attempt to

write all of its rules as clearly as possible.

Executive Order (E.O.) 12866

This is a significant rule under E.O. 12866 and has been reviewed

by the Office of Management and Budget (OMB).

Regulatory Flexibility Act

The DOI determined that this rule will not have a significant

effect on a substantial number of small entities. In general, the

entities that engage in offshore activities are not considered small

due to the technical and financial resources and experience necessary

to safely conduct such activities. Small entities are more likely to

operate onshore or in State waters--areas not covered by this

regulation. When small entities work in the OCS, they are more likely

to be contractors than operators. For example, a company that collects

geologic and geophysical data might be a small entity. While these

contractors must follow the rules governing OCS operations, we are not

changing the rules that govern the actual operations on a lease. We are

only modifying the rules governing the extension of a lease beyond the

primary term. The rule could have a secondary effect. By extending the

time available to the lessee, more leases may be active and this could

result in an increase in opportunities for small entities to collect

data or perform other services. The added time could also work to

benefit smaller companies who may have slower computers and could

benefit from a longer time period for review of data.

Paperwork Reduction Act

This rule has been examined under the Paperwork Reduction Act of

1995 and has been found to contain no reporting and information

collection requirements.

Takings Implication Assessment

The DOI determined that this rule does not represent a governmental

action capable of interference with constitutionally protected property

rights. Thus, DOI does not need to prepare a Takings Implication

Assessment pursuant to E.O. 12630, Government Action prepare a Takings

Implication Assessment pursuant to E.O. 12630, Government Action and

Interference with Constitutionally Protected Property Rights.

Executive Order (E.O.) 12988

The DOI has certified to OMB that the rule meets the applicable

reform standards provided in Sections 3(a) and 3(b)(2) of E.O. 12988.

Unfunded Mandate Reform Act of 1995

The DOI has determined and certifies according to the Unfunded

Mandates Reform Act, 2 U.S.C. 1502 et seq., that this rule will not

impose a cost of $100 million or more in any given year on local,

tribal, State governments, or the private sector.

National Environmental Policy Act

The DOI determined that this action does not constitute a major

Federal action significantly affecting the quality of the human

environment; therefore, an Environmental Impact Statement is not

required.

List of Subjects in 30 CFR Part 250

Continental shelf, Environmental impact statement, 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.

Dated: October 2, 1996.

Sylvia V. Baca,

Deputy Assistant Secretary, Land and Minerals Management.

For the reasons set forth in the preamble, Minerals Management

Service (MMS) amends 30 CFR Part 250 as follows:

PART 250--OIL AND GAS AND SULPHUR OPERATIONS IN THE OUTER

CONTINENTAL SHELF

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

follows:

Authority: 43 U.S.C. 1334.

2. Section 150.13 is revised to read as follows:

Sec. 250.13 How Does Production, Drilling, or Well-reworking Affect

Your Lease Term?

(a) Your lease expires at the end of its primary term unless you

are producing or conducting drilling or well-reworking operations on

your lease. See Sec. 256.37(b) of this title. Also, any drilling or

well-reworking program must be part of a plan that has as its objective

continuous production on the lease. For purposes of this section, the

term ``operations'' means production, drilling, or well-reworking.

(b) If you stop conducting operations during the last 180 days of

the primary lease term, your lease will remain in effect beyond the

primary term only if you:

(1) Resume operations on the lease no later than 180 days after the

operations ended; or

(2) Ask MMS for a suspension of operations or production under 30

CFR 150.10 before the 180th day after you stop operations, and

thereafter receive the Regional Supervisor's approval; or

(3) Receive a directed suspension of operations or production from

the Regional Supervisor under 30 CFR 250.10 before the 180th day after

you stop operations.

(c) If you stop conducting operations on a lease that has continued

beyond its primary term, then your lease will expire unless you comply

with either paragraph (b)(1), (b)(2), or (b)(3) of this section.

(d) You may ask the Regional Supervisor to allow you more than 180

days to resume operations on a lease continued beyond its primary term

when operating conditions warrant. The request must be writing and

explain the operating conditions that warrant a longer period. In

allowing additional time, the Regional Supervisor must determine that

the longer period is in the national interest and that it conserves

resources, prevents waste, or protects correlative rights.

[FR Doc. 96-27783 Filed 10-29-96; 8:45 am]

BILLING CODE 4310-MR-M