Onshore Oil and Gas Leasing and Operations

DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3100, 3110, 3120, 3130, 3140, 3150, 3160, 3170 and

3180

[WO-310-1310-00-2I-IP]

RIN 1004-AC94

Onshore Oil and Gas Leasing and Operations

AGENCY: Bureau of Land Management, Interior.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Bureau of Land Management (BLM) is proposing to revise its

Federal oil and gas leasing and operations regulations. This rule uses

performance standards in certain instances in lieu of the current

prescriptive requirements. These proposed regulations cite industry

standards and incorporate them by reference rather than repeat those

standards in the rule itself. Also, BLM's onshore orders and national

notices to lessees would be incorporated into these regulations to

eliminate overlap with existing regulations. This rule would increase

certain minimum bond amounts and would revise and replace BLM's current

unitization regulations with a more flexible unit agreement process.

Finally, this proposed rule would eliminate redundancies, clarify

procedures and regulatory requirements, and streamline processes.

DATES: Comments: Commenters must submit comments by April 5, 1999. BLM

will consider comments received or postmarked on or before this date in

the preparation of the final rule.

ADDRESSES: Comments: If you wish to comment, you may hand-deliver

comments to the Bureau of Land Management Administrative Record, Room

401, 1620 L Street, NW, Washington, D.C., or mail comments to the

Bureau of Land Management, Administrative Record, Room 401LS, 1849 C

Street, NW, Washington, D.C. 20240. Commenters may transmit comments

electronically via the Internet to: WoC[email protected] and please

include in your comments the regulation identifier number AC94 and your

name and return address. If you do not receive confirmation from the

system that we have received your Internet message, contact us

directly.

FOR FURTHER INFORMATION CONTACT: Ian Senio at (202) 452-5049 or John

Duletsky at (202) 452-0337 or write to Bureau of Land Management, U.S.

Department of the Interior, 1849 C Street, NW, 401LS, Washington, D.C.

20240.

SUPPLEMENTARY INFORMATION:

I. Public Comment Procedures

II. Background

III. Discussion of Proposed Rule

IV. Procedural Matters

I. Public Comment Procedures

Written Comments

Written comments on the proposed rule should be specific, should be

confined to issues pertinent to the proposed rule, and should explain

the reason for any recommended change. Where possible, comments should

reference the specific section or paragraph of the proposal which the

commenter is addressing. BLM may not necessarily consider or include in

the Administrative Record for the final rule comments which BLM

receives after the close of the comment period (see DATES) or comments

delivered to an address other than those listed above (see ADDRESSES).

You may view an electronic version of this proposed rule at BLM's

Internet home page: www.blm.gov.

Comments, including names, street addresses, and other contact

information of respondents, will be available for public review at this

address during regular business hours (8:00 a.m. to 4:30 p.m.), Monday

through Friday, except Federal holidays. BLM will also post all

comments on its Internet home page (www.blm.gov) at the end of the

comment period. Individual respondents may request confidentiality. If

you wish to request that BLM consider withholding your name, street

address, and other contact information (such as: Internet address, FAX

or phone number) from public review or from disclosure under the

Freedom of Information Act, you must state this prominently at the

beginning of your comment. However, we will not consider anonymous

comments. BLM will honor requests for confidentiality on a case-by-case

basis to the extent allowed by law. BLM will make available for public

inspection in their entirety all submissions from organizations or

businesses, and from individuals identifying themselves as

representatives or officials of organizations or businesses.

II. Background

Oil and gas produced from lands managed by BLM accounted for about

5.7 percent of domestic oil production and about 10.7 percent of

domestic gas production in 1996. BLM has jurisdiction and

responsibility over virtually all aspects of leasing, exploration,

development, and production of oil and gas from onshore Federal oil and

gas and approves and supervises most operations on Indian lands. BLM

administers 52,457 Federal and Indian leases, of which nearly 23,524

are in a producing or producible status. As of December 31, 1996, there

were 70,569 producing or producible wells under BLM's jurisdiction, and

2,347 new wells were drilling during the year. In 1996, more than $6.1

billion of oil and gas and associated products were sold from Federal

and Indian oil and gas leases, which generated $665 million in

royalties.

Mining Law

The Federal Government did not have an oil and gas leasing system

before 1920. However, Federal oil and gas reserves could be developed

under the Mining Law of 1872 (17 Stat. 91, 30 U.S.C. 22 et seq.) after

the applicant located a placer mining claim. If the mining claim was

validated by the location of a valuable discovery, the locator

essentially was entitled to fee title to the lands covered by the

claim. Congress soon realized that the Mining Law was not well suited

for oil and gas development since it resulted in over drilling and

waste of the resources. Congress passed the Mineral Leasing Act of 1920

(41 Stat. 437, 30 U.S.C. 181 et seq.) (MLA) and on February 25, 1920,

the President signed it into law. The MLA still remains the primary

authority under which the Federal Government leases the majority of

Federal onshore oil and gas.

Mineral Leasing Act

There have been several amendments to the MLA that affected the

Federal oil and gas leasing system, but it stayed substantially the

same until the enactment of the Federal Onshore Oil and Gas Leasing

Reform Act of 1987 (Pub. L. 100-203, 101 Stat. 1330-256) (Reform Act).

Before the Reform Act, Federal lands within known geologic structures

(KGS) of producing oil and gas fields were leased competitively to the

highest qualified bidder. Lands not within a KGS were leased ``over the

counter'' basically on a first-come and first-serve basis to qualified

entities.

In 1960, BLM implemented a simultaneous leasing system in order to

address concerns over the potential for fraud in the noncompetitive

leasing system. Under that system, all applications for available

public lands that were received within the time specified in the notice

were considered as received simultaneously. Applications then were

drawn randomly to determine the winner. Only

[[Page 66841]]

a fraction of Federal lands fell into the KGS category and most of the

Federal oil and gas leases that BLM issued were issued noncompetitively

through the lottery. The leasing system operated for many years before

Congress and the public became concerned that BLM's leasing system was

not functioning properly. The primary concern was that the Federal

Government was not receiving fair market value for oil and gas

resources. There was also concern that it was becoming increasingly

difficult for BLM to make KGS determinations, that the leasing system

was subject to fraud and abuse, and that the Bureau was not taking

enough care in protecting the environment affected by development of

Federal oil and gas leases.

The Reform Act

Congress passed the Reform Act on December 22, 1987, to address

concerns over the existing leasing system. The principal change made by

the Reform Act was to require that BLM offer competitively all lands

eligible and available for Federal oil and gas leasing before leasing

noncompetitively. KGS designations were eliminated, environmental

provisions were added, and BLM was required to have Forest Service

consent before leasing oil and gas on Forest Service lands. The Reform

Act also required BLM to post a notice of the lands it proposed to

include in a lease sale. It also required BLM to post a notice of

proposed drilling operations to allow the public and environmental

groups an opportunity to comment before BLM made a final determination.

Congress dealt with fraud and abuse by making it unlawful to be

involved with any plan to defeat the purposes of the Reform Act or its

implementing regulations. The Reform Act also provided for severe

penalties for violating these fraud provisions.

BLM has been leasing Federal oil and gas under the implementing

regulations of the MLA and the Reform Act, with only technical and

clarifying amendments, since the Reform Act regulations were published

in the Federal Register on June 17, 1988 (53 FR 9214, 1988).

FOGRMA

The Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA) (30

U.S.C. 1701 et seq.) made a few changes to the leasing and operations

aspects of BLM's oil and gas program. FOGRMA focuses mainly on royalty

and rental collection but also includes provisions related to on-the-

ground operations. BLM published the implementing regulations for the

operations aspects of FOGRMA on September 21, 1984 (49 FR 37356), and

for the leasing aspects on July 30, 1984 (49 FR 30446). The operational

regulations implementing FOGRMA prescribe standards for lessees and

operators to follow when conducting operations on Federal and Indian

oil and gas leases. The regulations also clarified BLM's

responsibilities for inspecting operations. BLM's leasing regulations

that implement FOGRMA deal mostly with royalty and rental collections

and with lease reinstatement provisions for leases that terminated by

operation of law.

III. Discussion of Proposed Rule

This proposed rule puts the regulations in a more logical sequence,

streamlines some processes, and reduces duplication. It incorporates

most of the existing oil and gas regulations and all of the existing

onshore orders and national notices to lessees to make one complete

document for lessees and operators to reference. Some sections of the

proposed rule contain new language to correct problems, improve

procedures, or clarify existing requirements. This proposal does not

include regulations that deal with oil and gas drainage (see 63 FR

1936, January 13, 1998, for the proposed rule), Combined Hydrocarbon

Leasing (3140), and the Oil and Gas Leasing: National Petroleum

Reserve--Alaska (3130).

These regulations are written in plain language to more effectively

communicate BLM regulatory requirements. Plain language uses a series

of questions and answers in place of the traditional short heading and

regulatory requirements. The question and answer together constitute

the regulatory requirement. The proposed regulation is also

organizationally different from the current regulation and presents

sections in a more logical order that closely tracks leasing and

operations procedures as they might occur chronologically.

Performance Standards

This proposed rule uses performance standards where possible in

lieu of the current prescriptive requirements or design standards. We

believe that performance standards offer operators and BLM increased

flexibility to deal with unique geologic, ecological, and engineering

circumstances, while at the same time protecting the environment and

other Federal and Indian interests. Under the current regulations and

onshore orders, operators are required to meet certain very specific

and often rigid requirements set out in the regulations and orders.

This inflexible ``laundry list'' approach may not always work in the

most efficient or even most desirable manner. BLM currently issues

variances to the regulations to deal with unique geologic, ecological,

and engineering situations. This is an administrative burden that BLM

cannot afford under current and foreseen declining budgets. It is time

consuming and expensive for operators as well.

Under current regulations, BLM ensures that an operator complies

with all of the requirements of a given regulation or Order. With

performance standards, our focus is no longer on a list of requirements

but on the outcome or goal stated in the regulation. This goal-oriented

approach better protects the public interest since operators will be

held to a stated standard rather than just having to comply with a

checklist. This type of regulation is also beneficial to operators

because it gives them flexibility to meet the goal stated in the

regulation. Finally, these performance regulations will remove some of

the administrative burdens and expense caused by having to issue

numerous variances to the current regulations.

We used performance standards in situations where there was little

or no risk to the health of the land or public health or safety. We

were careful to design a meaningful standard that protects the

environment, public health and safety and preserves BLM's ability to

account for Federal and Indian production. Use of performance standards

was limited to specific areas that deal with oil and gas exploration

and production. Please comment specifically on the performance

standards proposed and whether or not there are other sections of these

proposed regulations where performance standards would be appropriate.

Incorporating Industry Standards by Reference

BLM's current onshore orders contain very detailed minimum

standards to regulate oil and gas drilling and production operations.

In the process of incorporating the onshore orders into this proposed

rule, we replaced the many detailed minimum standards with references

to American Petroleum Institute (API) and American Gas Association

(AGA) standards and practices. BLM and industry recognize API and AGA

standards as acceptable operating practices for Federal lands. You can

purchase API and AGA publications cited in this proposed rule directly

from API and AGA. They will also be available for review at all of

BLM's field offices with oil and gas

[[Page 66842]]

responsibilities. We cite specific, dated editions of API and AGA

standards. Any future amendments or updates to the cited standards will

not be incorporated into BLM's regulations until BLM undertakes a

rulemaking to update the reference.

Changes From Existing Regulations

We propose to modify the leasing regulations by--

1. Eliminating the formal nomination process. Current regulations

give BLM's Director the discretion to post a Competitive Nomination

List and require the public to formally nominate lands from that list

for future competitive sales. The Director has never exercised this

discretion and does not plan to do so in the near future;

2. Eliminating presale offers. The intent of the Reform Act was to

emphasize competition for Federal oil and gas resources. Presale offers

were created by regulation and are not required by the Reform Act.

Eliminating presale offers would more closely follow the intent of the

Reform Act. This change would result in a more streamlined leasing

process because it would remove the one-year waiting period that

currently exists for filing offers on lands previously leased. Current

regulations prohibit filing offers for one year from the date of

expiration, termination, or cancellation of former leases;

3. Requiring that parcel integrity be maintained during the 2-year

post sale window. Under this proposal, you would be able to combine

more than one parcel from more than one sale notice in a lease offer.

Under the existing system, an offer must include a legal land

description. This proposal would simplify the filing of 2-year

noncompetitive lease offers since you would be able to use the parcel

number in the notice of competitive lease sale rather than listing the

complete land description. It would also expedite leasing because lease

stipulation revisions would not be necessary for split parcels. Post

sale offers could not exceed 2,560 acres;

4. Eliminating the existing requirement that an offer for public

domain minerals be for at least 640 acres. The proposal would also

allow you to file an offer on lands outside of the current six square

mile limit if you provide BLM a valid reason for exceeding the six

square mile limit. Eliminating the 640-acre rule and amending the six

square mile rule would simplify the leasing process, provide more

flexibility in filing offers and provide consistency in the competitive

and noncompetitive leasing processes;

5. Reducing the number of copies of an offer that you must file

from three to two. This would reduce your administrative burden and

still allow BLM to process your application efficiently;

6. Limiting competitive and noncompetitive leases to 2,560 acres

for the lower 48 states and 5,760 acres for Alaska. Limiting lease

acreage would provide consistency between competitive and

noncompetitive leases and should simplify the leasing system. Under

current regulations, noncompetitive leases may be for 10,240-acres,

while competitive leases are limited to 2,560 acres;

7. Considering the balance of bonus bids timely paid if the payment

is ``postmarked'' (or its equivalent for non-U.S. mail transmittals) on

or before the due date. The balance of the bonus bids is due within 10

business days after the day of the sale. Current regulations require

this balance to be ``submitted.'' We have interpreted this to mean that

BLM must receive the payment on or before that date. Currently, we do

not accept payments we receive after the tenth business day and BLM

will not issue leases if payments for those leases are not made timely.

This proposal would benefit those parties that exercise diligence in

submitting the balance of their bonus bids;

8. Eliminating unit bonds. Unit bonds are unnecessary since unit

operations may be covered under statewide and nationwide bonds. If

existing statewide or nationwide bonds are inadequate, BLM would

request an increase in those bond amounts rather than require a

separate unit bond;

9. Adding a new bond for wells that are inactive for more than one

year. After a well is inactive for one year, operators would be

required to either increase the bond in place by $2.00 per foot of

depth per well, or pay a nonrefundable $100 yearly fee; and

10. Increasing the dollar amount for the different types of bonds

that we currently require. Individual bonds would be increased from

$10,000 to $20,000 and the amount for statewide bonds would be

increased from $25,000 to $75,000. Nationwide bonds would remain at

$150,000. BLM has not increased bond amounts since 1960 and the

increase takes into account inflation and the fact that current bonding

levels do not cover the costs associated with plugging, reclamation,

and royalties.

This bond increase would not be immediate. It would be phased in as

follows:

a. Parties filing new Applications for Permit to Drill and Changes

of Operator subsequent to the effective date of the final rule would be

required to meet the increased amounts.

b. Existing bonds with no new activity would remain at their

current bond amount for two years at which time the principal must

increase the bond amount. During this 2-year period, BLM could request

bond increases for other reasons.

This proposal would also add a provision to allow you to apply for

a reduction in the bond amount under certain circumstances;

11. Changing BLM's current policy of terminating the period of

liability of bonds. BLM would cancel bonds after determining that you

have met lease obligations, including proper plugging and abandonment

of wells and surface reclamation. The Federal Oil and Gas Royalty

Simplification and Fairness Act of 1996 allows the Minerals Management

Service (MMS) seven years to complete royalty audits. Since bonds cover

royalty obligations, cancellation would be subject to concurrence from

MMS that there are no outstanding royalty obligations;

12. Eliminating the need for holders of overriding royalties,

production payments or similar interests, to file notice of those

interests with BLM. Current regulations require you to file these

documents with BLM. BLM does not currently verify these outstanding

royalty interests and frequently the official lease file does not

contain all outstanding transfers. Therefore, it is not an accurate

record for determining outstanding interests. Eliminating the need to

file these documents would save the $25 filing fee currently required

for each affected lease. If a lessee requested a royalty reduction

because the lease cannot be successfully operated, BLM would then

require the lessee to report the amount of outstanding overriding

royalties. This is not a new requirement;

13. Eliminating the semiannual reporting of lease interests you

hold under option. BLM would still request a statement of acreage you

hold under option when we conduct audits of acreage holdings. This

would reduce your administrative burden and still allow BLM to monitor

acreage holdings;

14. Allowing a Class I reinstatement when you pay a nominal

deficiency late. Current regulations state that if a rental payment is

nominally deficient, the lease will not terminate if the deficiency is

paid to the MMS within the specified time. The proposed change would

provide flexibility in qualifying for a Class I reinstatement. Under

existing regulations, such a lessee is required to

[[Page 66843]]

petition for a Class II reinstatement at a higher rental and royalty

rate. This does not seem equitable since rental deficiencies could

simply be a result of an acreage miscalculation. This rulemaking also

clarifies rental payment requirements for fractional acreage amounts;

and

15. Providing an increase in the percentage and dollar amount for

nominal deficiencies of rental payments. Current regulations provide

that a lease will not terminate if the rental deficiency is 5 percent

or $100, whichever is less. We are proposing to change that amount to

10 percent or $200, whichever is less. This is consistent with the

deficiency percentage and amount allowed when filing a noncompetitive

offer.

We propose to modify the drilling, production, and enforcement

regulations by--

1. Referencing published industry standards and practices instead

of listing minimum standards;

2. Simplifying the procedure to calculate average daily oil

production for leases with sliding and step-scale royalty rates;

3. Eliminating the provision to charge the full value of gas vented

or flared that would have begun one year after BLM ordered you to

capture the gas;

4. Exempting Federal oil wells that produce less than 10 Mcf per

day from the obligation to obtain prior BLM approval to vent or flare;

5. Allowing bypasses around oil and gas meters under certain

circumstances if sealing requirements are followed;

6. Not requiring site facility diagrams for single oil or

condensate tank facilities that service a single well. This is in

addition to the current facility diagram exemption for facilities

processing dry gas;

7. Exempting gas wells producing 100 Mcf of gas per day or less

from requirements for inspection frequency of the meter tube,

determination of flowing gas temperature, calibration frequency, and

tracking of static pens. These exemptions are in addition to the

measurement exemptions that currently exist for low volume wells with

respect to beta ratio range and differential pen tracking;

8. Requiring semiannual proving of positive displacement metering

(e.g., Lease Automatic Custody Transfer) systems measuring 10,000

barrels of oil per month or less;

9. Assessing operators up to $250 per day for each day a violation

remains uncorrected after a specified abatement period. This proposal

would also remove the categories of ``major'' and ``minor'' violations

of existing regulations. BLM believes this approach will simplify the

enforcement process and make it more consistent, while still providing

reasonable monetary incentive for operators to comply. BLM would

prescribe shorter abatement periods for more serious violations;

10. Changing the system of immediate assessments for serious

violations from a $500 per day per violation assessment to a

substantially increased one-time amount per violation assessment. This

change would simplify the enforcement process and would be more of a

deterrent for offenders;

11. Expanding the list of serious violations subject to immediate

assessments to include surface disturbance without approval, habitual

violation, and commingling of production without approval. These

violations would be added because of the potential harm to the

environment, production accountability, or public health and safety;

12. Simplifying the language for BLM's civil penalty regulations to

more closely follow the provisions of the Federal Oil and Gas Royalty

Management Act;

13. Revising BLM's existing oil and gas unitization regulations

with a more flexible unit agreement format. The primary change to the

unitization process would be an emphasis on up-front negotiation among

the various interest owners and BLM. The agreement format would be

flexible as long as it addressed the unit area, initial unit

obligations and continuing development obligations, productivity

criteria, and participating area size; and

14. Requiring a fair market value user fee for geophysical

exploration on BLM lands. The user fee would not, however, be charged

for geophysical exploration under a Federal oil and gas lease.

Section-by-Section Discussion

In many instances, this proposed rule does not change the policy or

procedure of the current regulations and consists only of a translation

from current regulatory language into plainer language. The section-by-

section analysis for the proposed leasing regulations mostly describes

significant changes from current BLM regulatory policy or procedure.

Certain sections also describe areas where we have clarified existing

procedures or policies. The section-by-section analysis for the

operating regulations is more detailed because the proposed changes to

the operating regulations are more complex than the proposed leasing

changes. The operating regulations' discussion also provides tables

that cross reference the proposed sections with existing requirements.

The discussion of the proposed regulatory text is generally a

discussion of changes from current policy or procedure.

The regulations would provide the operational requirements for the

exploration, development and production of oil or gas on both Federal

and Indian lands. These regulations also apply to the leasing of

Federal lands for oil or gas. However, they do not apply to the leasing

of Indian lands. Also, we propose that the operating regulations would

apply to oil and gas leases on lands the Federal government may acquire

in the future, to the extent that they are not inconsistent with the

rights granted in the original lease. The authority under which we

would regulate such leases is the Federal Land Policy and Management

Act of 1976 (43 U.S.C. 1701 et seq.).

Part 3100--Onshore Oil and Gas Leasing and Operations: General

Subparts 3101--General, 3102--Recordkeeping, 3103--Reports,

Submissions, and Notifications, and 3104--Environment and Safety

Definitions Section 3101.5 would consolidate and incorporate the

definitions included in the current 3000.0-5, 3100.0-5, 3150.0-5,

3160.0-5, 3180.0-5, 3190.0-5 for easier reference and to eliminate

redundancy. The definitions section would also include terms found in

current onshore orders. Some of the definitions that appear in existing

sections would be moved to a general definitions section proposed under

the Definitions rulemaking published on November 19, 1996 (61 FR

58843).

One particularly important definition is the term ``interest,''

which is used frequently in the rule. It is proposed that the term

means only record title interest or operating rights interest (also

known as working interest). Other interests such as overriding royalty

interests would not be included in this definition.

Section 3101.8 would contain a chart which references those

sections of these regulations where we cite and incorporate industry

standards.

Subparts 3101 through 3104 would lay out general requirements and

explanations of the proposed 3100 regulations. These general

requirements would include--

1. Principles that underlie the regulation of Federal oil and gas

leasing and operations.

2. The need for operators, lessees, and sublessees to comply with

the lease terms, stipulations, conditions of approval, notices to

lessees, and written or oral orders.

[[Page 66844]]

3. An explanation of the process for waiver, exception, and

modification of stipulations and variances to the requirements imposed

by these regulations.

4. A description of the surface use rights under a lease and your

reporting and recordkeeping requirements.

Subpart 3101 would include a chart referencing other regulations

that affect leasing or operations on Federal land and Subpart 3102

would include a list of the types of records BLM requires an operator

or lessee to keep. Subpart 3103 would identify reports, submissions,

and notifications BLM requires and the forms which must be used. It

would also include a cross reference to the pertinent section of the

regulation to which the record pertains.

Sections 3101.11 through 3101.13 would clarify the liability of

various interest owners when there are many parties with an interest in

a single lease. This section would state that each record title holder,

each operating rights owner, the operator and the bonded parties are

each fully responsible for the performance of all lease obligations (in

the case of an operating rights owner just for the area or depth

subject to its rights), unless provided otherwise in a particular

regulation. The rule makes express what is the case under standard

contract law: When two or more parties promise the same performance to

the same promisee, each is bound for the whole performance thereof.

Restatement of the Law of Contracts, Second Sec. 289(1). Furthermore,

when an oil and gas lessee assigns an undivided interest in his lease

to another, each of them is jointly and severally liable for the

performance of lease covenants. See Hafeman v. Gem Oil Co., 80 N.W.

139, 163 (Nebr. 1956). BLM bonding policy since 1988 has allowed a

single interest holder in a lease to provide a bond on behalf of all

lessees and record title holders, reflecting BLM's understanding that

by covering one such interest holder the surety has agreed to indemnify

BLM for full performance of the lease obligations, up to the amount of

the bond. BLM has never been authorized to agree to assume any portion

of the cost of reclamation or other lessee duties, just because one

interest holder is insolvent or cannot be found. The Bureau Oil and Gas

National Performance Review Report dated April 27, 1995, recommended

that BLM amend its regulations to make this ``joint and several''

liability more explicit. This regulation would be superseded where a

statute or regulation concerning a particular category of obligations

limits the liability of a co-lessee to its proportionate interest in

the lease, such as the Royalty Fairness and Simplification Act provides

with respect to payment obligations.

Section 3101.18 would explain that lessors are responsible for

drainage and would cross reference a proposed rule on oil and gas

drainage that was published in the Federal Register on January 13, 1998

(63 FR 1936). This final rule would incorporate the drainage rule and

cross reference it in this section.

Subpart 3104--Environment and Safety

Subpart 3104 would contain an explanation of what an operator must

do to protect the environment when conducting operations. This subpart

is not meant to describe in detail all of the environmental protection

aspects of leasing. It is only an overview of the issues that are

involved. The details of environmental protection are considered in

several other sections of these regulations and in lease terms and

conditions as well as orders and notices BLM may issue.

Subpart 3105--Lessee Qualifications

Subpart 3105 would contain requirements for lessee qualifications

including when persons who are not United States citizens or who are

minors may hold lease interests. This subpart would also include the

maximum acreage limitations for public domain and acquired minerals

that may be held by an entity which also applies to options for leases.

How BLM computes chargeable acreage would be explained as well as what

you must do if you exceed the acreage limitations. However, this

subpart would eliminate the existing requirement that option agreements

be filed with BLM. Acreage held under option remains chargeable. BLM

would request outstanding option agreements for acreage audit purposes.

Subpart 3106--Fees, Rentals, and Royalties

Subpart 3106 would contain general information regarding fees,

rentals, royalties and minimum royalties, acceptable forms of payment,

and where to submit payments. The proposal includes charts identifying

the types of payments, rental, royalty and minimum royalty rates for

competitive, noncompetitive, renewal, exchange and right-of-way leases,

and leases issued in lieu of unpatented oil placer mining claims. The

subpart would also include provisions on waivers, suspensions, and

reductions of rental and royalty.

Royalty Rates on Oil Sliding and Step-Scale Leases

Proposed regulations on determining oil royalty rates for sliding

and step-scale leases are in sections 3106.50 through 3106.54. These

sections would establish a new procedure to calculate average daily

production. Sliding and step-scale leases have royalty rates that

increase as the average daily production increases.

------------------------------------------------------------------------

Existing

Proposed regulation regulation

------------------------------------------------------------------------

3106.50.................................................... 3162.7-4.

3106.51

3106.52

3106.53

3106.54

------------------------------------------------------------------------

Sections 3106.50 through Section 3106.54 would describe a new

procedure for calculating average daily oil production for the purpose

of determining the correct royalty rate for a sliding-scale or step-

scale lease.

The existing procedure to determine average daily production

involves a complex system of identifying ``countable'' wells based on

the number of days a well was produced, whether a well was initially or

previously produced, and whether a well was shut-in for conservation

purposes. Generally, the average daily production is determined by

dividing the gross oil production for the month by the number of

countable wells multiplied by the number of days in the month,

regardless of how many days the wells actually produced. However, some

leases require the gross production to be divided by actual days

produced to arrive at the average production rate. You then use the

resulting average daily production per well to find the corresponding

royalty rate from the royalty provisions of the lease. For these types

of leases, the royalty rate increases on a scale from 12\1/2\ percent

to 25 percent as the average daily production per well increases.

The complex nature of the well count procedure has caused many

errors by both industry and BLM in calculating or verifying the average

daily production per well. The propensity for errors in the well count

procedure in turn results in incorrect royalty payments, which require

detailed, time consuming, and expensive audits to correct. Errors are

not readily identified by either BLM or MMS because all of the

information needed to verify the average production rate or royalty is

not found on the monthly report of operations, Form MMS-3160.

[[Page 66845]]

These regulations would simplify the procedure to determine the

average daily oil production. Under this proposal, gross production

from a lease or agreement would be divided by the total number of days

``eligible'' wells are produced or used for production. Any paying well

that produces oil is an eligible well, as is any injection well used to

recover oil. Wells shut-in for any reason would not have a bearing on

the average daily production rate. All of the information necessary to

make the computation of average daily production is found on Form MMS-

3160. The proposed procedure should not substantially impact royalty

payments. The proposed procedure would be implemented as of the

effective date of the final rule.

Stripper Oil Property Royalty Reduction

Proposed regulations on determining royalty reductions for stripper

oil properties would explain the procedures on how to determine if you

have a stripper oil property and, if so, how to apply to receive a

royalty reduction. They would also set the reduced royalty rates for

eligible production rates, provide for further royalty reductions as

production declines, and allow BLM to terminate the stripper oil

property royalty reduction program with proper notice.

------------------------------------------------------------------------

Proposed regulation Existing regulation

------------------------------------------------------------------------

3106.60................................ 3103.4-2(a)(1).

3106.61................................ 3103.4-2(a)(2) through (4).

3106.62................................ 3103.4-2(b)(2).

3106.63................................ 3103.4-2(b)(3)(i)(B).

3106.64................................ 3103.4-2(b)(3)(ii).

3106.65................................ 3103.4-2(a)(1), (b)(2),

(b)(3)(i) and (b)(3)(ii).

3106.66................................ 3103.4-2(b)(3)(ii).

3106.67................................ 3103.4-2(b)(3)(ii), (iii)(B),

and (v), and 3103.4-

2(b)(3)(ii), (b)(6), and

(b)(7).

3106.68................................ 3103.4-2(b)(3)(ii).

3106.69................................ 3103.4-2(b)(3)(ii), (iii)(B),

and (iii)(C).

3106.70................................ 3103.4-2(b)(3)(iii)(A) and (B).

3106.71 ...............................

3106.72................................ 3103.4-2(b)(3)(iii)(C) and

(b)(8).

3106.73................................ 3103.4-2(b)(3)(vi).

3106.74 ...............................

------------------------------------------------------------------------

The requirements of this proposal are similar to those in existing

regulations. One minor change would be in section 3106.63. That section

would clarify what oil you must use when calculating your average daily

production rate. It establishes what liquid hydrocarbons are considered

``oil'', and therefore eligible for royalty reduction, and what is

considered ``condensate'', which is not eligible.

Subpart 3107--Lease, Surety, and Personal Bonds

Subpart 3107 would contain general bonding information regarding

who must post a bond, bond amounts, the types of acceptable bonds, and

procedures for bond increases, collections, and cancellations. This

subpart would generally contain existing regulatory requirements with

the following exceptions.

Section 3107.14 would increase amounts for bonds. Individual bonds

would increase from $10,000 to $20,000. The amount for a statewide bond

would increase from $25,000 to $75,000. The nationwide bond amount

would remain at $150,000. BLM believes the increases are justified

because the costs to plug a well, restore the surface, remove related

facilities, reclaim roads, rights-of-ways, etc., in many cases far

exceeds the present bond amounts. In addition, BLM has not increased

minimum bond amounts since 1960. Applying an inflation factor to the

individual and statewide bond amounts since 1960, would increase them

to $50,000 and $135,000 respectively. For these reasons, BLM has

concluded that the increase in bond amounts for individual and

statewide bonds is reasonable and justified. In BLM's experience,

entities that hold nationwide bonds do not pose an unacceptable risk.

Therefore, we are not proposing to increase nationwide bonding.

Section 3107.50 would allow you to apply to BLM for a decrease in

your bond amount. Your application must include your justification for

a decrease in the bond amount. BLM would approve a decrease in your

bond amount if we determine that the potential liabilities on your

lease are less than the existing bond amount. Please specifically

comment on the standards BLM should use to determine whether we will

approve a decrease in the bond amount.

Section 3107.52 would require additional bonding for inactive

wells. A significant source of orphan wells is temporarily abandoned

wells. In 1995, there were more than 6,500 temporarily abandoned wells

on BLM-managed lands. This is a major source of potential future

liability. The $2.00 per foot or $100 per well fees would complement

the proposed increase in individual and statewide bonds and partially

cover the potential liability.

Section 3107.70 would change BLM's current policy of terminating

only the period of liability of bonds. Under this proposal, BLM would

cancel bonds after determining that you met lease obligations,

including proper plugging and abandonment of wells, and surface

reclamation. The Federal Oil and Gas Royalty Simplification and

Fairness Act of 1996 allows MMS seven years to complete royalty audits.

Since bonds cover royalty obligations, cancellation would be subject to

concurrence from MMS that there are no outstanding royalty obligations.

Current section 3104.4, Unit Operator's bond, provides that a unit

operator's bond may be filed in lieu of an individual, statewide or

nationwide bond. This proposal would eliminate any provision for an

operator of a unit to file a unit bond. This is an unnecessary

requirement since BLM allows unit operations to be covered under

statewide and nationwide bonds. If existing statewide or nationwide

bonds are inadequate, BLM would request an increase in those bond

amounts rather than require a separate unit bond.

Subpart 3108 would contain bonding information for geophysical

exploration operations. This includes the types of bonds, amount of

bond, bond increases, terminations, and action to be taken for

nonperformance.

Part 3110--Oil and Gas Geophysical Exploration

Subparts 3110, 3112, and 3113 would contain the requirements for

conducting geophysical exploration operations on Federal lands.

------------------------------------------------------------------------

Proposed regulation Existing regulation

------------------------------------------------------------------------

3110.10 and 3110.11................. 3150.0-1.

3110.12............................. 3150.1.

3110.13............................. New section.

3112.10-12 and 3112.20-3112.21...... 3151.1 and 3151.2.

3113.10............................. 3152.1.

3113.11-3113.12 and 3113.20-3113.22. 3152.3-3152.5.

3113.30-3113.31..................... 3152.6.

3113.40............................. 3152.7.

3113.50............................. 3153.1.

------------------------------------------------------------------------

Subpart 3110--Onshore Oil and Gas Geophysical Exploration General

Provisions

This subpart would contain requirements similar to existing

regulations with one exception. Section 3110.13 would require you to

pay a fair market value fee (FMV) for the use of the public lands for

each Notice of Intent to Conduct Oil and Gas Geophysical Exploration

Operations. The Federal Land Policy and Management Act of 1976 (43

U.S.C. 1701 et seq.) (FLPMA) requires that ``the United States receive

the fair market value of the use of the public land and

[[Page 66846]]

its resources unless otherwise provided for by statute.'' In addition,

a May 1992 audit report by the U.S. Department of the Interior, Office

of Inspector General (OIG), recommended that BLM establish and

implement procedures to charge FMV for geophysical exploration. In

order to comply with the requirements of FLPMA and the OIG

recommendation, we propose to adopt a FMV for geophysical exploration.

The FMV would be based on the size of the area physically affected by

each individual geophysical exploration project. You would not be

required to pay the FMV for a geophysical exploration project, or a

portion of a project, that is conducted under a Federal oil and gas

lease.

Subpart 3112--Geophysical Exploration Outside of Alaska

Sections 3112.10 through 3112.12 and 3112.20 and 3112.21 would

describe the procedures you must follow to obtain authorization for

geophysical exploration operations outside of Alaska. It would also

implement a new provision that establishes when you must submit a

notice of intent (NOI) to BLM. Under this proposal, you would submit an

NOI ahead of your anticipated starting date. This time period should

allow BLM time to process your NOI before the day you plan to start

your geophysical exploration project. This section would describe the

actions BLM would take after we receive your application. It would

include a provision for a BLM field inspection to review the

geophysical exploration operations proposal, would describe how and

when to notify BLM that you completed operations, and explain how BLM

will act on your notice.

A new requirement would be added to make sure BLM receives

information to accurately determine the extent of the area affected by

your geophysical exploration project and whether you are conducting any

part of the project under a Federal oil and gas lease. BLM needs this

information to calculate FMV. BLM would not authorize your NOI until

you paid the required FMV.

Subpart 3113--Geophysical Exploration in Alaska

This subpart would contain the existing regulatory requirements

with the following exceptions.

Section 3113.10 would describe what you must include in your

application for an oil and gas geophysical exploration permit. This

proposal replaces the detailed, who, what, and where type of

information in current section 3152.1, with a general standard for

permit application requirements. This standard would provide more

flexibility to deal with on-site conditions and individual geophysical

exploration plans that may dictate different filing requirements.

This proposal would add a new requirement for determining FMV. This

requirement would ensure BLM receives information to accurately

determine the extent of the area affected by your geophysical

exploration project and whether any part of the project is being

conducted under a Federal oil and gas lease. BLM would not approve your

permit until you paid the required FMV.

Section 3113.40 would describe what you must submit to BLM after

you complete geophysical exploration operations, when you need to

submit a completion report, and what action BLM takes after we receive

a completion report. These sections would not include the detailed what

and where type of information that is in current section 3152.7.

Rather, section 3113.40 would replace the list of required information

with a standard for completion reports. A standard is appropriate in

this case because the information BLM needs in a completion report

depends on the application filed, the terms of the permit BLM issued,

and the results of your on-site activities. BLM proposes this standard

because the specific requirements in a completion report are often

worked out between the applicant and BLM before we issue a permit. This

information may also be included in the terms of the permit.

Part 3120--Oil and Gas Leasing

Subpart 3120--Leasing

Subpart 3120 would contain requirements for competitive and

noncompetitive leasing and would describe lands that are available for

leasing. It would contain charts outlining the terms of different types

of leases, and how to describe lands in a letter of nomination. This

subpart also would include procedures for renewal and exchange leases

and right-of-way leasing and would generally contain existing

regulatory requirements with the following exceptions.

This proposal would eliminate presale noncompetitive lease offers.

The intent of the Reform Act was to emphasize competition for Federal

oil and gas resources. Presale offers were created by regulation and

are not required by the Reform Act. Eliminating presale offers would

expedite leasing because it would remove the existing one-year waiting

period that prohibits the filing of offers for one year from the date

of expiration, termination, or cancellation of a former lease. This

would result in a streamlined leasing process, reduce confusion

regarding which lands are available for leasing, result in a cost

savings for unnecessary filing fees accompanying offers identifying

unavailable lands, and encourage competitive leasing.

This proposal would also eliminate the formal nomination procedures

in existing section 3120.3. This section gives BLM's Director the

discretion to post a Competitive Nomination List and requires the

public to formally nominate lands from that list for future competitive

sale. The Director has never exercised his discretion to implement

these regulations and does not plan to do so in the near future. We

therefore believe it would be appropriate to eliminate the requirements

of this section.

Section 3122.21 would allow BLM to accept a late payment of bonus

bid balances if you provide evidence showing the late payment was

postmarked by the U.S. Postal Service, or dated as received by a

courier or other delivery service, on or before the tenth business day

following the day of the sale. Currently, BLM will not accept payments

of bonus bid balances after the tenth business day after the sale.

Sections 3123.30 and 3123.31 would limit the acreage in

noncompetitive lease offers to 2,560 acres in the lower 48 States and

5,760 acres in Alaska. Under current regulations, the 10,240-acre

limitation for noncompetitive parcels exceeds the 2,560-acre limitation

for competitive parcels. As a result, BLM must reconfigure parcels in

order to offer the lands for competitive leasing. Limiting the acreage

will provide consistency between competitive and noncompetitive leases

and will simplify the leasing system.

Those sections would also require you to describe the lands in two-

year noncompetitive lease offers by the parcel number indicated in the

Notice(s) of Competitive Oil and Gas Lease Sale. Under the proposed

rule, you would be able to combine more than one parcel from more than

one sale notice in a lease offer. If you combined more than one parcel

into an offer, the lands would be required to be within six square

miles, unless you show BLM that a larger area is necessary. BLM will

consider larger areas if we determine that is in the interest of

conservation of resources. The current regulations require that lands

be within six square miles. Allowing you to come in with a larger area

would give you added flexibility to deal with geologic conditions.

[[Page 66847]]

These proposed changes would simplify the filing of two-year

noncompetitive lease offers since you would not be required to use

legal land descriptions in your offer, but only the parcel number. It

would also expedite leasing because lease stipulation revisions would

not be necessary for split parcels. The current regulations require

that noncompetitive offers for public domain minerals must be a minimum

of 640 acres unless the lands are isolated, i.e., there are no

contiguous lands. This regulation has resulted in confusion, the loss

of filing fees, loss of priority of offers, and is not required by

statute. This proposal would eliminate the 640-acre filing requirement.

Section 3123.40 would reduce the number of copies of noncompetitive

lease offers you must file. Two copies of a noncompetitive lease offer

would be required rather than the current three copies.

Sections 3124.40 through 3124.42 would clarify current provisions

that 20-year leases issued under Section 14 of the Act are in effect so

long as oil or gas is produced in paying quantities.

Section 3124.44 would require you to file applications for renewal

at least 90 calendar days before the lease expiration date. Existing

regulations require filing at least 90 calendar days, but not more than

six months, from the expiration of the lease term.

Subpart 3129--Record Title, Operating Rights, and Estate Transfers,

Name Changes, and Mergers

Subpart 3129 would cover requirements for transfers of record title

and operating rights interests in leases. This subpart would generally

contain existing regulatory requirements with the following exceptions.

Section 3129.11 would implement a change in policy and procedure.

This proposal would eliminate the requirements of current section

3106.4-2 (Transfers of other interests, including royalty interests and

production payments) that requires you to file overriding royalty

assignments, net profit and production payments with BLM. BLM does not

check the accuracy of these transfers and does not verify outstanding

royalty interests. BLM only places these documents in the lease file

for record purposes. Frequently, the official lease file at BLM does

not contain all outstanding transfers and is therefore not an accurate

record for determining the outstanding interests. Eliminating the

filing of these documents would save you the $25 filing fee currently

required for such transfers. Under these proposed regulations, if you

requested a royalty reduction under section 3106.40, BLM would still

require you to document the amount of outstanding overriding royalties.

Sections 3129.20 and 3129.21 would define mass transfers and would

describe a change from current procedure. BLM would no longer require

three originally-signed copies of mass transfers with one photocopy for

each of the additional leases the transfer affects. This procedure was

adopted under the 1988 regulations and is confusing to some. Under this

proposed rule, you would be required to file three originals of the

record title assignment and operating rights transfer forms for each

affected lease. BLM would not accept photocopies of the signed

documents for each additional lease the transfer affects.

Part 3130--Oil and Gas Agreements

Subpart 3130--Reservoir Management

This subpart would contain requirements for well spacing,

communitization agreements, subsurface storage agreements, development

contracts, compensatory royalty agreements and unit agreements. Also,

the unitization subpart would change current policy and procedure and

is discussed in greater detail in that subpart discussion. This

proposal contains additional types of agreements that are not covered

in existing regulations. These agreements would be added to identify

all types of agreements acceptable under current BLM policy.

------------------------------------------------------------------------

Proposed regulation Existing regulation

------------------------------------------------------------------------

3130.10...................... 3162.3-1(a) and (b).

3130.11...................... 3162.3-1(a).

3130.12...................... 3162.5-2(b).

3130.13...................... 3162.2(b).

3132.10...................... 3161.2.

3132.11...................... New section.

3132.12...................... 3105.2-2, 3105.5-4,

and 3107.

3132.13 and 3132.14.......... New sections.

3133.10...................... 3105.2-2.

3133.11...................... 3105.2-3(a).

3133.12...................... 3105.2-3(b).

3133.13 through 3133.15...... 3105.2-3(c).

3133.16 through 3133.18...... New sections.

3134.10...................... 3105.5-2.

3134.11...................... 3105.5-3.

3134.12...................... 3105.5-2.

3135.10...................... New section.

3135.11...................... 3105.3 and internal BLM guidance (WO IM

Number 95-146 and The Oil and Gas

Development Contract Task Force Report,

March 1988) on the application and use

of development contracts.

3135.12...................... 3105.3-2.

3135.13...................... 3105.3.

3135.14 through 3135.19...... New sections.

3136.10...................... New section.

3136.11...................... 3100.2-1.

------------------------------------------------------------------------

[[Page 66848]]

Well Spacing

Subpart 3130 would contain requirements substantially similar to

those in existing regulations.

Subpart 3132--Oil and Gas Agreements: General

Subpart 3132 would contain requirements substantially similar to

existing requirements with the following exceptions.

Section 3132.10 would set out the types of agreements which require

BLM approval. The language in this section consolidates general

provisions that are stated in many places throughout Federal mineral

leasing laws and BLM's existing regulations.

Section 3132.12 would state the benefits you receive for fulfilling

the requirements of an approved oil and gas agreement. This is a new

section. However, it contains no new requirements or policy issues.

Section 3132.13 would describe when you would be required to obtain

rights-of-stway for roads, facilities, or other surface uses for

Federal lands excluded from an agreement by contraction or termination.

This is a new section. However, it contains no new requirements or

policy issues.

Section 3132.14 would state that you may include State, Indian, or

private mineral interests with Federal interests in a Federal

agreement. This is a new section. However, it contains no new

requirements or policy issues.

Subpart 3133--Communitization Agreements

Communitization agreements are currently covered in subpart 3105.

This proposal would cover the application process and how BLM would set

the terms and conditions of the agreement. The subpart would contain

current regulatory requirements and implements existing policy with the

following exceptions.

Section 3133.11 would detail what you must submit to BLM in your

application. This section would eliminate the existing requirement that

the communitization agreement be signed by or on behalf of all

necessary parties. Instead, this section would require you to certify,

as applicant, that all necessary parties have committed their interests

to the agreement. This change was made as a result of a recommendation

of BLM's Onshore Oil and Gas Performance Review to streamline the

communitization process. Please specifically comment on alternative

ways to submit the required information.

Section 3133.13 would require BLM to notify the operator when we

make a decision on your request to communitize. It also would require

the operator to notify all necessary parties of BLM's decision within

30 calendar days. This new section would clarify current administrative

processes.

Subpart 3134--Subsurface Storage Agreements

This subpart contains current regulatory requirements and

implements existing policy. It does contain more detail than existing

regulations on subsurface storage agreements. However, it does not

implement new policy or procedure.

Subpart 3135--Development Contracts

This subpart contains current regulatory requirements and

implements existing policy. It does contain more detail than existing

regulations on development contracts. However, it does not implement

new policy or procedure.

Subpart 3136--Drainage Agreements

This subpart contains current regulatory requirements and

implements existing policy. It does contain more detail than existing

regulations on drainage agreements however, it does not implement new

policy or procedure. One section in this subpart would cross reference

another proposed rule. Proposed section 3136.10 cross references

regulatory requirements in a proposed rule on oil and gas drainage that

was published in the Federal Register on January 13, 1998 (63 FR 1936).

This final rule would incorporate the drainage rule and cross reference

it in this section.

Subpart 3137-- Unit Agreements

BLM developed this subpart of the proposal to respond to industry

concerns identified by the Bureau Oil and Gas Performance Review and

reinventing government initiatives. The public commented that the

existing unitization process was inflexible and that was a limitation

on increased development. Secretary Babbitt issued Secretarial Order

3199 on April 4, 1996, directing BLM to ``reengineer Federal oil and

gas unitization into a more efficient and flexible process.'' On

September 39, 1998, the Secretary renewed the order until the unit

regulations go into effect or September 30, 1999, whichever occurs

first. BLM drafted these regulations to focus the unitization process

more on what is to be accomplished rather than on how regulated

entities would achieve their objectives. BLM identified the following

as limitations on the effectiveness of the current unitization

process--

1. The process is unnecessarily complicated and is a barrier to

innovative and creative exploration and development;

2. Paying well determinations based solely on economics cause

delays;

3. Allocation of unitized production is often delayed because

paying well determinations cannot be made in a timely manner. This

necessitates extensive corrections to production and royalty reporting;

4. The unit designation process adds unnecessary complexity to the

application process; and

5. The existing model unit form (see 43 CFR 3186) contains many

terms unnecessary to the Secretary's decision whether to approve a unit

agreement or not.

These proposed regulations attempt to eliminate or minimize these

barriers, while still meeting the intent of the Mineral Leasing Act of

1920.

These regulations would increase the flexibility of the unitization

process by allowing operators and BLM to negotiate exploration and

development terms before entering into a unit agreement. The focus of

this new process would be to protect the public interest rather than to

rely on the existing model unit agreement. This regulation would not

change the terms and conditions of existing unit agreements or the way

BLM administers existing agreements.

------------------------------------------------------------------------

Proposed regulation Existing regulation

------------------------------------------------------------------------

3137.10 and 3137.11.......... 3186.1.

3137.12...................... New section.

3137.13...................... 3181.2 and 3186.1.

3137.14...................... 3181.3 and 3186.1.

3137.15...................... 3181.3.

3137.16...................... 3186.1, sec. 20.

3137.17 and 3137.18.......... New sections.

3137.20...................... 3186.1.

[[Page 66849]]

3137.21 and 3137.22.......... New sections.

3137.30...................... 3186.1, sec. 3.

3137.31 through 3137.34...... New sections.

3137.40...................... 3181.2.

3137.50 through 3137.52...... 3186.1, sec. 9.

3137.53...................... New section.

3137.54...................... 3186.1, sections 9 and 20.

3137.55 through 3137.59...... New sections.

3137.61 through 3137.66...... 3186.1, sec. 11.

3137.67...................... 3181.4 and 3181.5.

3137.68...................... 3101.3-1.

3137.69...................... 3186.1, sec. 11.

3137.70 through 3137.73...... 3186.1, sec. 11.

3137.74...................... New section.

3137.80 and 3137.81.......... 3186.1, sec. 8.

3137.82...................... 3186.1, sec. 5 and 3186.3.

3137.83...................... 3186.1, sec. 4.

3137.84...................... 3181.5 and 3186.1, sec. 17.

3137.90...................... 3186.1, sec. 25.

3137.91...................... 3186.1, sec. 9.

3137.100..................... 3186.1, sec. 20(b) and 20(d).

3137.101..................... 3183.4(b).

3137.102..................... New section.

3137.110..................... 3186.1, sec 14.

3137.111..................... 3181.5 and 3186.1, sec 17(b).

3137.112 through 3137.114.... 3186.1, sec 14.

3137.120 and 3137.130........ New sections.

------------------------------------------------------------------------

The primary change to the unitization process would be an emphasis

on up-front negotiation among the various interest owners and BLM.

Operators would be able to use any agreement format in their unit

agreement as long as it addressed the following four basic issues: (1)

Unit area; (2) Initial and continuing development obligations; (3)

Productivity criteria and participating areas; and (4) BLM's ability to

set or modify the quantity, rate and location of development and

production.

The unit operator and BLM would base the negotiation of unit

agreement terms on many factors. These factors may include the history

of the area, the environment, economics, the number and depth of wells

previously drilled in the area, the size of the area and the cost of

the proposed operations.

Under these proposed regulations, BLM would accept only a limited

number of additional unit agreement terms beyond the mandatory terms.

If the unit agreement does not specifically address modifications, they

would not be permitted unless all of the original parties or their

successors to the agreement agree. The unit agreement would be

considered to include all producing intervals unless the unit agreement

specifies producing interval(s).

Another change from current procedure involves the creation and

size of initial participating areas and additions to existing

participating areas. The amount of land to be included in any

participating area revision would be specified in the unit agreement

whereas currently it is not. Under existing procedure, participating

areas include only specific producing intervals. An addition to an

existing participating area occurs when a new well that meets the

productivity criteria defined in the unit agreement is drilled outside

of that participating area.

The current obligation to drill an exploratory well and subsequent

wells under a plan of operations would be replaced with initial and

continuing development obligations. Under this proposal, you and BLM

would negotiate the initial and continuing development obligations and

would include those terms in the unit agreement. These terms would

define the number and frequency of wells you plan to drill or

operations that would establish new unitized production. Under this

proposal, the unit would automatically contract to the existing

participating area(s) when you do not meet a continuing development

obligation. Existing regulations allow five years for drilling and

development of the unitized area before automatic elimination would

occur for lands not in a participating area. This proposal would

eliminate the 5-year initial drilling and development period of current

regulations. BLM believes this new requirement would increase the

potential for oil and gas development by encouraging operators to

follow a continuous development program or risk contraction of the unit

area to the participating area(s).

Paying well determinations would be replaced with well productivity

criteria. This would allow the unit operator to negotiate criteria that

are not tied strictly to well economics. Currently, production must

cover the drilling and operating costs attributed to that well. Under

this proposal, costs for that well would be considered as part of unit

costs and not be required to be covered by production from that well

alone. Productivity criteria must be adequate to indicate a well has

established future production potential to pay for the cost of

drilling, completing and operating.

Another change to the current system concerns development

requirements. After unitization, operators would know the effect of

development on participating areas and royalty distribution

immediately, without having to wait extended periods for BLM approvals.

This is because the criteria for deciding whether wells qualify to be

included in a participating area would be clearly spelled out in the

agreement.

Under existing regulations, operators are limited to a set time to

develop the entire unit. Under the proposed regulations, the unit would

not contract as long as development continued at the rate set out in

the agreement. Once you meet the initial development obligations, all

leases committed to a unit would continue to receive the benefits of

unitization as long as the unit is productive.

Under this proposal, BLM could grant suspensions and extensions of

time to

[[Page 66850]]

carry out the initial and continuing development obligations. In those

instances, the unit operator would be required to prove to BLM that the

obligations cannot be carried out due to circumstances beyond the

control of the operator, despite the exercise of due care and

diligence. Existing regulations contain similar provisions.

This subpart for the most part discusses new procedures and policy

or new regulatory requirements. Where a given section is substantially

similar to existing policy, procedure or regulatory requirement, it is

not discussed.

Application

Section 3137.10 would describe the types of unit agreements the

subpart covers. Up to now, BLM's regulations have not distinguished

between exploratory and enhanced recovery unit agreements. Since

enhanced recovery operations differ from exploratory operations, their

unit obligations should differ.

Sections 3137.11 and 3137.12 would require you to negotiate with

BLM on the terms of exploratory and enhanced recovery unit agreements

before you apply and explains that BLM will accept any unit agreement

format. Currently, BLM's regulations require that you use the unit

agreement form in section 3186.1.

Section 3137.13 would explain what you must include in your

unitization application.

Section 3137.14 would describe what the unit operator must certify

in the unitization application. This is a new requirement. Currently,

BLM requires the operator to submit signatures of all parties committed

to the unit. The certification would replace the signatures which will

reduce paperwork for you and BLM.

Section 3137.15 would make it clear that you are not required to

file with BLM evidence that all leases have actually committed to the

unit. However, BLM will require you to keep copies of the invitations

to join the unit, including written reasons why parties did not join

the unit.

Section 3137.16 would change existing policy and procedure. Under

existing regulations, BLM approves a unit agreement effective the date

of approval. If the unit does not meet the public interest requirement,

the unit is void ab initio. Under the proposal, BLM would provisionally

approve units and final approval would be given once you meet the

public interest requirement, retroactive to the date of the provisional

approval. One effect of this change would be that when a lease that is

partly in and partly out of a unit area is segregated into two leases,

the provisional approval would not give the lease that is outside of

the unit any benefits of unitization, including an extension, until

final unit approval. Final unit approval would be given when the unit

meets the public interest requirement by meeting the initial unit

obligations.

Section 3137.17 would require BLM to notify the unit operator in

writing when we approve the agreement. This section would also require

the unit operator to notify all parties to the agreement after it

receives BLM notice.

Section 3137.18 would explain that BLM will reject a unit agreement

application if it does not meet the requirements of this subpart.

Mandatory Topics

Section 3137.20 would define the mandatory terms of exploratory and

enhanced recovery unit agreements. Existing unit agreements contain

terms that deal with the relationship between the parties committed to

the unit agreement and not BLM. This proposal would also reduce the

number of permissible unit agreement terms to only those that deal with

the relationship between BLM and the parties committed to the unit.

Section 3137.21 would describe only mandatory terms in enhanced

recovery unit agreements and exploratory unit agreements. The area you

want to include in an enhanced recovery unit agreement must be fully

developed at the time you make the proposal. This section also explains

that ``fully developed'' means that you have drilled to reasonably

delineate the boundaries of the reservoir. Therefore, you would not be

required to include terms for initial unit obligation, participating

areas, productivity criteria and unit contraction. Instead, you would

be required to define enhancement obligations in an enhanced recovery

unit agreement.

Section 3137.22 would prohibit terms in unit agreements other than

those contained in the listed sections of the proposal. Parties to the

unit could set out other terms under private agreements.

Optional Provisions

Section 3137.30 would explain that you may include optional

provisions in the agreement for limiting the agreement to certain

producing intervals, authorizing multiple unit operators, and providing

means for unit agreement modifications. If those provisions are not

included in the agreement, the agreement applies to all intervals,

contemplates a single unit operator and requires unanimous consent for

modification. BLM would approve those optional provisions if you

demonstrate that they promote additional development or enhance

production potential. These optional provisions are not in existing

regulations. However, BLM does allow for these optional provisions if

operators apply and circumstances warrant that they be included. BLM

would add these provisions to the regulations to clarify existing

policy and procedure.

Sections 3137.31, 3137.32 and 3137.33 would set out the

requirements for having multiple unit operators, the circumstances

under which you may modify the terms of the unit agreement and what you

must submit to BLM if you modify a unit area, or change the commitment

status of a lease.

Section 3137.34 would make it clear that other agreements do not

affect the terms and conditions of a Federal unit agreement.

Size and Shape

Section 3137.40 would require that the unit area consist of tracts

that are contiguous at least at one point. It would explain that areas

of noncommitted tracts totally within the exterior boundary of the unit

are allowed and that BLM may limit the size and shape of the unit area.

BLM currently has policies and procedures to deal with the size and

shape of units that are similar to this section.

Development

Section 3137.50 would define initial unit obligations for

exploratory unit agreements. Existing regulations require you to drill

at least one well to explore for unitized substances for your initial

unit obligation. As a matter of policy, one well will hold up to about

30,000 acres, depending on geology, economics and other factors. This

proposal would require that you negotiate with BLM and define the

number of wells necessary to determine the existence of oil and gas in

the area of the unit. This proposal would also require that the unit

agreement define the primary target for each well and the time between

drilling those wells. This would also be subject to negotiation.

Existing regulations only require you to define the primary target for

the initial well and the time between drilling the well depends on

whether it is a producing well or not. BLM believes that negotiation of

the provisions for development would allow operators flexibility and

ensures that the resources will be diligently developed.

Section 3137.51 would define what you must do to meet initial unit

obligations and fulfill the public interest

[[Page 66851]]

requirement for an exploratory unit agreement. Before the time set out

in the agreement, you must drill at least one well that establishes

unit production, drill a test well to the primary target, or convince

BLM that drilling the initial well(s) or future wells is unwarranted or

impracticable.

Section 3137.52 would define the enhancement obligations for

enhanced recovery unit agreements. The unit agreement would define that

amount, type and timing of enhanced recovery operations.

Section 3137.53 would define what you must do to meet enhancement

obligations and fulfill the public interest requirement for enhanced

recovery unit agreements. You would be required to fulfill the

provisions of section 3137.52, or prove to BLM either that enhanced

recovery operations have actually increased reservoir performance or

that further enhancement operations are unwarranted, impracticable or

uneconomical.

Section 3137.54 would state that if you do not meet initial unit

obligations or enhancement obligations, BLM's approval of the agreement

is invalid and BLM will not extend the term of any lease in the unit.

Section 3137.55 would define continuing development obligations.

This section would require that your program of exploration or

development exceed the pace of non-unitized operations in the area near

the unit. The exploration program must also represent an investment

commensurate with the size of the unit agreement. BLM believes that

these standards for a continuing development obligation would ensure

that the resources will be diligently developed.

Section 3137.56 would describe how to define continuing development

obligations in the unit agreement. Continuing development obligations

occur after you complete initial development obligations, but do not

include work you performed prior to unitization. This differs from

existing policy in that this new provision would be negotiated up front

and defined in the agreement. Currently, continuing development

obligations are not defined at the outset, but are laid out after an

initial discovery, in a plan of development.

Section 3137.57 would explain that continuing development may occur

within or outside a participating area. Currently, starting five years

after a participating area is established, you are required to drill

outside established participating areas to continue the unit. This

proposal would provide flexibility for operators and still encourage

additional exploratory drilling by allowing them to negotiate for

additional drilling within established participating areas.

Section 3137.58 would require a unit to contract if you do not meet

a continuing development obligation. Under existing regulations, if you

have not drilled outside of a participating area after five years from

the date the first participating area was established, the unit

contracts to existing participating areas.

Section 3137.59 would require you to submit certain information to

BLM after you meet continuing development obligations. You would be

required to submit documentation that supports your certification. If

you establish production in a well that does not meet the productivity

criteria, you would be required to operate, produce, and report the

well on a lease basis. This section is substantially similar to

existing requirements. BLM does not currently require a certification,

however, the information required would be substantially similar to the

information in the current application to establish or expand a

participating area.

Productivity Criteria and Participating Area

Section 3137.60 would require that productivity criteria be defined

in the unit agreement. This section would require that the productivity

criteria indicate future production potential sufficient to pay for the

costs of drilling, completing and operating the well on a unit basis.

This section would also require that the productivity criteria warrant

continued production of the individual well itself and that the well

must be ready to produce unitized substances. This section would

explain that BLM will enlarge participating areas when you drill a well

that meets the productivity criteria outside of an existing

participating area. Paying well determinations would be replaced with

well productivity criteria. This would allow the unit operator to

negotiate criteria that are not tied strictly to well economics.

Currently, production must cover the drilling and operating costs

attributed to that well. Under this proposal, costs for that well would

be considered as part of unit costs and not be required to be covered

by the production from that well alone. Productivity criteria must be

adequate to indicate a well has established future production potential

to pay for the cost of drilling, completing and operating.

Section 3137.61 would describe the function or purpose of

participating areas. The unit agreement allocates production to

committed leases within the participating areas in proportion to the

leased surface acreage relative to the total acreage of the

participating area. This is similar to existing policy and procedure.

Section 3137.62 would explain that the first well you drill after

unitization that meets the productivity criteria establishes a

participating area. Existing regulations use the term ``production in

paying quantities'' as the sole acceptable productivity criteria. This

section would further explain that when you establish the first

participating area, lands which contain previously existing wells that

meet the productivity criteria will either be added to the initial

participating area or become a new participating area.

Section 3137.64 would require you to submit to BLM certification

that you established unitized production, a map of the participating

area, and a schedule that establishes the allocation to each interest

owner in the participating area. This section is substantially similar

to existing requirements. BLM does not currently require a

certification. However, the information used to make that certification

would be substantially similar to the information in the current

application to establish or expand a participating area.

Section 3137.65 would require the size of participating area

additions to be approximately the same size as the initial

participating area for that interval. Currently, BLM does not require

them to be the same size. Requiring the participating area additions to

be the same or similar in size would simplify expansion of unit

participating areas.

Unit Operations

The sections covered under the heading ``Unit Operations'' are

substantially similar to existing regulatory requirements.

Suspensions and Extensions of Development

The sections covered under the heading ``Suspensions and Extensions

of Development'' are substantially similar to existing regulatory

requirements.

Unit Termination

The sections covered under the heading ``Unit Termination'' are

substantially similar to existing regulatory requirements.

Royalties

The sections covered under the heading ``Royalties'' are

substantially similar to existing regulatory requirements.

[[Page 66852]]

Leases and Contracts Conformed and Extended

The sections covered under the heading ``Leases and Contracts

Conformed and Extended'' are substantially similar to existing

regulatory requirements.

Change in Ownership

The section covered under the heading ``Change in Ownership'' is

substantially similar to existing regulatory requirements.

Part 3140--Oil and Gas Lease Administration

Subpart 3140--Extensions

Subpart 3140 would contain provisions for drilling extensions,

continuation of leases by production, unit production and segregations,

elimination of leases from unit and communitization agreements, leases

segregated by assignments, and compensatory royalty and lease payments

for subsurface storage of oil or gas. This subpart would not change

requirements of existing regulations, with the exception of

segregations as they relate to provisional unit approval described

earlier in the discussion of proposed section 3137.16.

Subpart 3141--Suspensions

Subpart 3141 would contain requirements for obtaining suspensions

of operations, suspensions of production or suspensions of operations

and production. Filing requirements for approval of a suspension of

operations or production would be outlined. This subpart would describe

the effects of a suspension on the terms of a lease and also

requirements for the suspension or waiver of lease rights during

pending legal proceedings. This subpart would not change requirements

of existing regulations.

Subpart 3142--Lease Terminations and Reinstatements

Subpart 3142 would contain requirements for obtaining Class I and

Class II reinstatements for leases that terminate for nonpayment or

late payment of rental. This subpart would also include Class III

provisions for converting unpatented oil placer mining claims to

noncompetitive oil and gas leases. This subpart proposes two changes

from existing requirements. One change allows a Class I reinstatement

for the late payment of a nominal deficiency (see section 3142.20). The

other change increases the nominal deficiency amount from 5 percent or

$100, to the lesser of 10 percent or $200, which provides consistency

with the nominal deficiency amount allowed for noncompetitive offers

(see section 3142.11).

Subpart 3143--Relinquishments

Subpart 3143 would generally contain existing regulatory

requirements and clarifications of existing requirements pertaining to

relinquishments.

Subpart 3144--Cancellations

Subpart 3144 would contain provisions for cancellations and would

not change existing regulatory requirements. It would also contain

existing regulatory requirements regarding bona fide purchasers.

Part 3145--Oil and Gas Drilling

Subpart 3145--Drilling and Additional Well Operations

This subpart would incorporate the requirements from existing and

proposed regulations dealing with drilling and additional well

operations. The Onshore Orders referenced in this preamble that relate

to the conduct of operations and appear in the charts and proposed

operations regulations that follow are: Onshore Order Number 1, which

was published on October 21, 1983, (48 FR 48916); Proposed Onshore

Order Number 1, which was published on July 23, 1992, (57 FR 32756);

Onshore Order Number 2, which was published on October 18, 1988, (53 FR

46798) (Revised on December 9, 1988, (53 FR 49661), September 27, 1989

(54 FR 39528), and January 27, 1992, (57 FR 3023)); Onshore Order

Number 3, which was published on February 24, 1989, (54 FR 8056)

(Revised on September 27, 1989, (54 FR 39528)); Onshore Order Number 4,

which was published on February 24, 1989, (54 FR 8086); Proposed

Onshore Order Number 4, which was published on March 9, 1994, (59 FR

11019); Onshore Order Number 5, which was published on February 24,

1989, (54 FR 8100) (Revised on September 27, 1989, (54 FR 39527));

Proposed Onshore Order Number 5, which was published on January 6,

1994, (59 FR 718); Onshore Order Number 6, which was published on

November 23, 1990, (55 FR 48958) (Revised on January 17, 1992, (57 FR

2039 and 2136) and on February 12, 1992, (57 FR 5211)); Onshore Order

Number 7, which was published on September 8, 1993, (58 FR 47354)

(Revised on November 2, 1993, (58 FR 58505)); and Proposed Onshore

Order Number 8, which was published on May 6, 1991, (56 FR 20568). This

proposal also references Notice to Lessees (NTL) Number 3A, which was

published on January 10, 1979, (44 FR 2204) and NTL Number 4A which was

published on December 27, 1979 (44 FR 76600). The following is a

crosswalk for this subpart.

------------------------------------------------------------------------

Existing

Proposed regulation regulation Onshore order

------------------------------------------------------------------------

Application for Permit to Drill or Reenter (APD)

------------------------------------------------------------------------

3145.5........................ 3162.1 and 3162.3-

3

3145.10....................... 3162.3-1(c), (d) Order Number 1,

and (g). III.D.; Order Number

2, parts of I., II.,

III.G. and D.5.; and

Proposed Order

Number 1, II.B.,

III.B., III.C.,

III.E. and IV.

3145.11....................... 3162.3-1(h), Order Number 1,

3164.3(b) and III.G.4.; and

(c). Proposed Order

Number 1, III.C.2.

3145.12 and 3145.13........... 3162.3-1(d)(1)-(4 Order Number 1,

), (e) and (f). III.C., III.G.; and

Proposed Order

Number 1., III.A.,

III.C., and III.F.3.

3145.14....................... ................. Order Number 1,

VII.A.; and Proposed

Order Number 1,

parts of section IV.

3145.15....................... ................. Order Number 1,

VII.B.; and Proposed

Order Number 1, V.

3145.16....................... 3162.3-1(e) and Order Number 1,

(f). Introduction and

III.G.4.

3145.17 and 3145.18........... ................. Order Number 1,

III.B.1.; and

Proposed Order

Number 1, III.D.

3145.19....................... 3162.3-1(g) and Order Number 1,

(h). III.B. and III.C.;

and Proposed Order

Number 1, III.E.,

III.F.

3145.20....................... ................. Proposed Order Number

1, III.E.

3145.21....................... ................. Proposed Order Number

1, I.D

3145.22....................... 3162.4-2......... Order Number 1, VIII

------------------------------------------------------------------------

[[Page 66853]]

Technical Drilling Standards

------------------------------------------------------------------------

3145.30....................... 3162.5-2(a)...... Order Number 2,

III.A.

3145.31....................... 3162.5-2(a)...... Order Number 2,

III.E.

3145.32....................... 3162.5-2(a)...... Order Number 2,

3162.5-3 III.B., III.C. and

III.E.; and Order

Number 6, III.C.4.c.

3145.33....................... 3162.5-2(c)...... Order Number 2,

III.B.

3145.34....................... ................. Order Number 2,

III.D.

------------------------------------------------------------------------

Drilling Operations in a Hydrogen Sulfide Environment

------------------------------------------------------------------------

3145.40....................... 3162.5-3......... Order Number 2,

III.C.6.b; and Order

Number 6, III.A.,

III.B., and IIIC.

3145.41....................... 3162.5-1(d)...... Order Number 6, I.C.,

III.A., III.B., and

IIIC.

3145.42....................... 3162.5-3......... Order Number 6, II.S.

3145.43....................... 3162.5-3......... Order Number 6,

III.C.1.c.

3145.44....................... 3162.5-3......... Order Number 6,

III.C.3.a., C.3.b.

------------------------------------------------------------------------

Additional Well Operations

------------------------------------------------------------------------

3145.50....................... 3162.3-2(a) and Order Number 1, parts

3162.3-3. of IV.A., IV.B., and

IV.C.; Proposed

Order Number 1, part

of VI.; Order Number

7, III.E.1.f., and

III.F.; and Proposed

Order Number 8,

parts of III.A.

through III.D.

3145.51....................... 3162.3-2(a) and Order Number 1, IV.A,

3162.3-3. IV.B., and V.;

Proposed Order

Number 1, VI, Order

Number 7, III.A.;

and Proposed Order

Number 8, parts of

III.A. through

III.D.

3145.52....................... 3162.3-2(b) and Order Number 1, IV.A.

(c) and 3162.3-3. and C.; and Proposed

Order Number 1,

parts of VI.

3145.53....................... 3162.3-2(a)...... Order Number 1,

IV.B.; Proposed

Order Number 1, VI.;

and Order Number 7,

III.A.

3145.54....................... 3162.3-2......... Order Number 1, IV.A.

and IV.B.; and

Proposed Order

Number 1, VI.;

Proposed Order

Number 8, parts of

A., B. and C.

3145.55....................... 3162.5-1(b)...... Proposed Order Number

1, VII.A.; and

Proposed Order

Number 8, parts of

III.A.

------------------------------------------------------------------------

Application for Permit to Drill or Reenter

Regulations for Application for Permit to Drill or Reenter (APD)

would include filing, processing, and surface and drilling operating

requirements. Generally, the sections discussed in this subpart contain

changes from existing policy or procedure.

Section 3145.5 would make it clear that you must conduct all

operations on Federal and Indian leases, including those that do not

require BLM approval, according to the surface use and drilling

standards of this subpart. BLM currently applies similar standards to

workovers and additional well operations via conditions of approval.

This regulation would clarify that existing policy.

Section 3145.10 would require you to submit an Application for

Permit to Drill or Reenter (Form 3160-3) to BLM for review and approval

before you disturb the surface or begin any drilling operations for a

new well or reentry of an abandoned well. Under this section, you would

be required to have a BLM-approved APD before you start any

construction activity or any operation to develop a Federal or Indian

lease, including activity on private surface necessary to operations on

a Federal or Indian lease. This would include the need to obtain BLM

approval for horizontal or directional wells that develop any portion

of a Federal or Indian lease, even if the well site is located on State

or private surface.

The Reform Act requires that BLM post a public notice of Federal

well proposals for 30 calendar days before we are authorized to approve

it. Therefore, you should submit your well proposals to BLM at least 31

calendar days before you plan to begin drilling operations to give BLM

enough time to post it. This time period would allow BLM time to

process your APD before the day you plan to start drilling your well.

This period also matches the filing requirement that you should follow

if you are requesting a suspension of operations or production in

connection with drilling a new well or reentering an abandoned well

(section 3141.12 of these proposed regulations).

The Forest Service (FS) approves surface use plans on National

Forest System lands (NFS). Surface use plan submittal time frames on

NFS lands are longer because the FS must comply with the Reform Act and

timeframes established by Section 322 of the Department of the Interior

and Related Agencies Appropriation Act for Fiscal Year 1993 (P.L. 102-

381, 106 Stat. 1419, 16 U.S.C. 1612 note.). The FS needs time for the

public notice period mandated by the Reform Act, a public comment

period for review of environmental assessments completed for well

proposals, and an appeal period. The minimum time the FS requires to

process surface use plans is 120 calendar days.

Section 3145.11 would state the authority and general involvement

of the FS and other Federal or State agencies in processing APD's you

propose on a Federal or Indian lease where the surface is not managed

by BLM or a private landowner. This section addresses BLM's limited

responsibility for managing oil and gas operations on lands managed by

the FS. The Reform Act limited BLM's responsibility on NFS lands to

development or operational proposals involving subsurface activity,

related impacts, and any appeals regarding the same. Surface use plans

on NFS lands require only FS approval, and all appeals related to the

surface use plan are appeals of the FS decision. Unlike existing

regulations, the proposal would not require you to submit a surface use

plan of operations with your APD, if the proposed drilling location is

on NFS lands. Agency responsibilities under this rule and the Reform

Act are determined on the basis of subsurface

[[Page 66854]]

(BLM) and surface (FS) authority for oil and gas operations on NFS

lands.

BLM also shares responsibility for approving surface use plans on

National Wildlife Refuge lands in Alaska. If your proposal involved

these types of lands, the U.S. Fish and Wildlife Service would be

responsible for approving surface use plans for APD's on land it

manages.

Sections 3145.12 and 3145.13 would describe what information you

must submit to BLM for a complete APD and what requirements you must

comply with during operations. This section would require you to submit

a drilling and surface use plan and also would establish standards for

conducting Federal and Indian lease operations. This section would not

require the prescriptive 8-point drilling plan and 13-point surface use

plan of operations required by Order Number 1. Instead, it would

require your plan to describe how your proposal will affect, protect,

or mitigate impacts to surface and subsurface resources. This section

would identify the resource concerns that BLM expects you to address in

your plan and operations. This is in contrast to the approach of Order

Number 1, which places more emphasis on specific information that you

must submit to BLM.

The term useable water would be used in these sections and other

places in section 3145.32. We defined this term as water containing

less than 10,000 parts per million (ppm) of total dissolved solids.

This definition is consistent with the regulations of the Environmental

Protection Agency (EPA) at 40 CFR 144.3 and 146.3, for an underground

source of drinking water. This is also consistent with the existing

definition in Onshore Oil and Gas Order Number 2. This section would

require you to submit Form 3160-3 for each new well that you propose to

drill, or abandoned well you propose to reenter.

Section 3145.14 would provide for additional APD submission

requirements when your well has a proposed surface location on

privately-owned surface. It also would discuss conditions under which

BLM may approve an APD if you are unable to reach agreement with the

surface owner for access or occupancy. BLM's responsibilities under the

National Environmental Policy Act (42 U.S.C. 4321 et seq.), Endangered

Species Act (16 U.S.C. 1531), and the National Historic Preservation

Act (16 U.S.C. 470 et seq.), are essentially the same for Federal or

Indian surface and split-estate lands. BLM will seek full cooperation

of the private surface owner. However, the surface owner may not veto

Federal statutory requirements. Consequently, surface use agreements

with private landowners must satisfy the private surface owner and meet

BLM's requirements for environmental protection and mitigation. This

proposed rule would also apply to horizontal or directional wells that

are located on State or private surface, if the well ultimately

develops Federal or Indian leases.

Section 3145.15 would provide for additional APD requirements when

your proposed well is located on an Indian oil and gas lease or on

surface held in trust for an Indian tribe or an individual Indian. It

also describes circumstances where a surface-use agreement is not

necessary.

Section 3145.16 would allow you to submit either a single APD

package for each well or a field-wide APD package for several wells in

a field or area of geologic or environmental similarity. You would be

able to develop a field-wide plan for the drilling plan, the surface

use plan, or both. If you developed a field-wide plan, it would allow

you to reference already approved material when you propose future well

sites. This would reduce the amount of paperwork that you would be

required to submit for each APD. If your drilling or surface use plan

were nearly identical to a previously approved field-wide plan, you

would be required to submit information to BLM only on the items that

deviate from your approved field-wide plan.

Sections 3145.17 and 3145.18 would allow you to submit a Notice of

Staking (NOS) to notify BLM that you have selected a drilling location.

You would submit a NOS before an APD to provide BLM the basic

information on the type and location of the well you propose to drill.

You would submit a NOS only if you actually intended to file an APD at

a later date. Section 3145.18 would list the basic information required

in a NOS application and surveying requirements that you must complete

before BLM conducts a predrill inspection under a NOS.

Section 3145.19 would describe general actions BLM will take to

process your APD. Order Number 1 and current regulations at sections

3162.3-1(h) and 3162.5-1 require BLM to complete processing of

applications in specified timeframes. Order Number 1 also includes

specific timeframes for BLM to conduct predrill inspections and to

notify operators that additional information is needed. The only

processing time frames included in this subpart are the 30-day public

notice period required by the Reform Act and the 120-day period for

surface use plan proposals on NFS lands. The other processing time

frames of current regulations are not statutory and would be eliminated

by this proposal. BLM will continue to process complete applications in

a timely manner.

Section 3145.20 would allow up to two extensions of 12 months for

APD's. Existing regulations do not address extensions of APD's.

However, current practice in many BLM offices is to grant APD

extensions when justified.

Section 3145.23 would require you, within 30 calendar days after a

well becomes inactive, to put the well into production or service,

submit to BLM plans to conduct well work to restore production or

service, submit plans to plug and abandon the well or comply with the

requirements of section 3107.53. These would be new requirements. BLM

has found that inactive wells often become orphan wells that BLM would

eventually have to plug and abandon. This section would require

operators to take action to put inactive wells back into service, plug

and abandon them or provide additional bonding or pay into a fund to

help mitigate costs of orphan wells. BLM believes that this is

necessary to encourage operators to fulfill their lease obligations as

they pertain to inactive wells.

Technical Drilling Standards

Technical drilling standards are BLM's requirements for designing

and drilling wells on Federal and Indian leases. Areas covered by these

sections would include well control, air drilling, well design and

construction, well integrity testing, and drill stem testing.

Section 3145.30 would list the general well control requirements

that you must comply with when you design and drill a well. This

section would contain performance standards that would replace certain

prescriptive requirements of Order Number 2. This section would also

incorporate by reference the applicable American Petroleum Institute's

(API) publication on well control systems. Many of the existing

requirements in BLM's regulations on well control mirror the

requirements in the cited API publication. This section also contains

specific well control provisions that BLM believes are essential to

protect surface and downhole resources and public health and safety.

Section 3145.31 would require you to follow the standards contained

in the referenced API document when drilling with gas, air or mist. As

noted above, many requirements in BLM's existing orders contain

requirements similar to the cited API publication.

[[Page 66855]]

Section 3145.32 would state the performance standards for designing

and drilling your well. As with the well control section, this section

would require certain specific measures that BLM believes critical to

resource protection and public health and safety. You must address all

of the applicable requirements of this section in your APD and conduct

your drilling operations accordingly. These performance standards would

replace the prescriptive requirements of Order Number 2.

Section 3145.33 would require you to pressure-test all casing

strings below the conductor pipe before you set the next string of

casing. You also must perform a mud weight equivalency test for all

exploratory wells and any part of a well approved to use a 5000 pounds

per square inch blowout prevention equipment system (BOP). The proposed

requirement differs from the existing Order Number 2 requirements in

that it does not specify minimum test pressures or standards for a

successful test. Under this proposal, testing would be performed in any

manner that demonstrates that the casing or formation can withstand the

maximum pressure it is likely to be subject to throughout its useful

life. BLM would determine the adequacy of your testing program before

approving your APD.

Drilling Operations in a Hydrogen Sulfide (H2S) Environment

Section 3145.44 would require you to train all personnel working at

the wellsite about H2S drilling and contingency procedures

according to standards contained in the referenced API publication.

This section would require that training be completed at least three

business days before drilling into, or before reaching a depth of 500

feet above, known or probable H2S zones. The training

frequency contained in the referenced API publication would replace the

existing Order 6 requirement to have weekly H2S and well

control drills. The API standard would allow you and BLM to agree upon

a training frequency commensurate with the H2S potential.

This section also states who must have appropriate personal protective

breathing devices at your wellsite and requires such equipment to

comply with the standards contained in the referenced API document.

Additional Well Operations

Regulations for additional well operations would address general

filing, processing and operating requirements for well operation

activities that generally occur after you drill a well, including

reclamation requirements. More specific information is included for

some of these activities in separate subparts of this proposed rule

(e.g., subpart 3155 for disposal of produced water and subpart 3159 for

temporary and permanent abandonment).

Section 3145.50 would include filing requirements and a reference

to the form (Sundry Notice, Form 3160-5) that you must use when

applying for additional well operations that require BLM approval. The

filing requirements and operating standards would parallel requirements

in this subpart for drilling a new well or reentering an abandoned

well.

Section 3145.51 would list additional well operations that BLM must

approve before you begin them. These operations would require BLM

approval, although there would be some exceptions described in other

sections of this proposed rule. For example, section 3155.12 describes

cases when an approval for disposal of produced water is not necessary.

This section also includes standards to determine when other additional

well operations, which are not specifically listed in this section,

would require BLM approval. Some of these activities may be fully

addressed in your approved APD. If this is the case, a Sundry Notice

and a separate approval would not be necessary, unless you plan to

change proposals that were part of your approved APD.

Existing regulations allow BLM to grant oral approval for plugging

and abandonment of newly drilled dry holes, drilling failures and in

emergency situations. This proposal would allow BLM to grant oral

approvals for additional well operations that require BLM written

approval. We propose this change because many of these operations are

repetitive in terms of technical design, equipment use, the time it

takes to complete the operation, and surface use.

Section 3145.52 would identify when additional well operations

would not require BLM approval. See the definition of ``routine well

maintenance'' in section 3101.5 of this proposal to accurately apply

these standards. This section would also contain a requirement that you

notify BLM within 48-hours of actions taken to correct or contain an

emergency.

Section 3145.54 would require you to submit reports, well logs,

test data, and other information that may be required by a condition of

approval within 30 calendar days after you complete additional well

operations. A well completion report would also be necessary within 30

calendar days if a well completion occurs in a new formation.

This section would require you to submit a subsequent report on

Sundry Notice, Form 3160-5, within 30 calendar days after you complete

additional well operations, if you alter the existing wellbore

configuration. A subsequent report would also be required if BLM

requested it.

Section 3145.55 would include reclamation standards that you must

follow during drilling and lease operations. Current regulations

require you to submit a plan that explains how you will reclaim the

disturbed area. This section would set out performance standards for

recontouring, seedbed preparation and revegetation. The details of

these standards would be laid out in your APD or Sundry Notice for

additional lease operations and approved by BLM.

Part 3150--Oil and Gas Measurement and Operations

Subpart 3151--Production Storage and Measurement--General and

Production Operations With Hydrogen Sulfide

This subpart would contain regulations on the production, storage,

and measurement activities that require BLM approval. This subpart

would contain requirements substantially similar to existing

requirements with some exceptions.

------------------------------------------------------------------------

Existing

Proposed regulation regulation Existing order or NTL

------------------------------------------------------------------------

3151.10....................... 3162.3-2......... Order Number 4

section III.E. and

F.;

3162.7-2......... Order Number 5

section III.D.; and

3162.7-3......... Notice to Lessees

(NTL)-4A.

3151.11....................... 3162.7-2......... Order Number 4

section III.E. and

F.;

3162.7-2......... Order Number 5

section III.D., NTL-

4A; and

3162.7-3......... BLM Manuals and

Instructional

Memorandums.

3151.12....................... 3162.7-1(a) and

(b).

................. Order Number 7

section III.A.3

3151.13....................... 3162.7-1(e)......

[[Page 66856]]

3151.14....................... 3162.7-1(d)...... Order Number 4

section II.O.3. and

section III.B.;

3151.15....................... ................. NTL-4A sections I and

II; and BLM

Instructional

Memoranda.

3151.16....................... ................. NTL-4A section III.

------------------------------------------------------------------------

Production, Storage, and Measurement--General

Section 3151.16 would list instances where you would be able to

vent or flare gas royalty-free without prior BLM approval. Under this

proposal you would be able to vent or flare 10,000 cubic feet or less

of associated gas per well, provided the gas is produced as part of

normal oil production operations and is vented or flared in a safe

manner according to applicable laws, regulations and accepted industry

practice. This would be a new regulatory requirement that implements

existing policy.

Production Operations With Hydrogen Sulfide

Proposed regulations on production operations with H2S

would require you to test your wells and facilities to identify the

potential for H2S and take the necessary steps to protect

public health and safety and the environment.

------------------------------------------------------------------------

Existing

Proposed regulation regulation Existing orders

------------------------------------------------------------------------

3151.20....................... 3162.5-1(a) and Onshore Order Number

3162.5-3. 6 section III.A.2.b.

and c.

3151.21....................... ................. Order Number 6

section III.A.2.a.,

III.D.1.c., and

III.D.2.

3151.22....................... ................. Order Number 6

section III.D.2.b.

through g.

3151.23....................... ................. Order Number 6

section III.D.3.a

through j.

3151.24....................... ................. Order Number 6

section III.D.1.c.

------------------------------------------------------------------------

Section 3151.22 lists the public protection requirements that would

apply to storage tanks that meet the criteria in proposed section

3151.21. Many types of signs and fences satisfy the requirements to

warn of danger and restrict access. The proposed section leaves out

much of the existing regulatory detail regarding the visual appearance

of danger signs and the type of fencing required. The proposed rule

would allow BLM the flexibility to accept practices appropriate for a

particular area as long as they could achieve the stated performance

standard of alerting the public of the potential H2S hazard

and restricting access to production facilities.

Section 3151.23 lists the public protection requirements that would

apply to completed wells and production facilities when the

H2S concentration in the gas stream is 100 ppm or more. As

with proposed section 3151.22, a standard for signs and fences is

proposed that would eliminate the regulatory detail that presently

exists in Order Number 6. The section would require that your facility

be designed and constructed in accordance with the referenced API

publication and would require you to calculate the 100 and 500 ppm

radii of exposure. You would also be required to implement the

contingency planning procedures of the referenced API publication when

the identified standards are exceeded.

Section 3151.24 would require you to take specific actions to

reduce ambient air concentrations of H2S and sulphur dioxide

if the specified thresholds for sustained ambient air concentrations

are exceeded.

Subpart 3152--Site Security

This subpart would contain regulations on site security to provide

for production accountability through sealing requirements, site

security plans, facility diagrams, well and facility identification,

recordkeeping and theft reporting.

------------------------------------------------------------------------

Existing

Proposed regulation regulation Existing orders

------------------------------------------------------------------------

3152.10....................... 3161.1(b)........ Onshore Order Number

3 section I.B., I.C.

3152.20....................... 3162.7-5(a) and Order Number 3

(b) (1), (2), section III.A.1 and

(4), and (5). 2.

3152.21....................... ................. Order Number 3

section III.A.1.b

and g; and Order

Number 3 section

III.A.2.a.

3152.30....................... 3162.7-5(b) (2) Order Number 3

and (3). section III.B. and

D.

3152.40....................... 3163............. Order Number 3

section IV.

3152.50....................... 3162.7-5......... Order Number 3

section III.F. and

H.

3152.51....................... 3162.7-5(d)...... Order Number 3

3152.52....................... section III.I.

3152.60....................... 3162.6...........

3152.70....................... 3162.7-1(c) (1) Order Number 4

through (4). section III.E.

3152.80....................... 3162.7-5(b)(8)... Order Number 3

section III.E.

------------------------------------------------------------------------

Site Security--General

Section 3152.10 would set site security standards for Federal and

Indian oil and gas lease facilities and those facilities that store

allocable production.

Storage and Sales Facilities--Seals

Section 3152.20 would contain a performance standard for when a

particular valve is subject to seal requirements. The performance

standard would describe the characteristics of valves you must seal.

This differs from Order Number 3, which lists specific valves that are

either subject to, or exempt from, sealing requirements. This standard

should give operators the flexibility to take into account local

conditions or practices that may affect the need to seal a valve. This

section would eliminate the list in Order Number 3 section

[[Page 66857]]

III.A.1.c through f and section III.A.2.a., of specific valves that

need to either be sealed, or are exempt from, seal requirements.

This section also establishes the standard for how to seal valves

and how to seal sealable measurement system components. This part of

the section does not change existing requirements.

Section 3152.21 would describe when you must seal the valves that

meet the standards in section 3152.20.

Oil and Gas Meters

Section 3152.30 would state BLM's site security requirements for

oil or gas metering systems. This section describes the characteristics

of components of a Lease Automatic Custody Transfer (LACT) unit you

must seal. This differs from the Order Number 3 approach of listing the

specific components subject to sealing. This proposal would also

require BLM approval for any bypass. We recognize that meters may be

used in an operation for check purposes and not for determining royalty

volumes.

Federal Seals

Section 3152.40 addresses how and when BLM would seal a valve that

is in violation of these regulations. The proposed rule would not

change BLM's current procedure on Federal seals.

Plans and Facility Diagrams

Section 3152.50 would state what you must include in your site

security plan and would require you to follow your plan for Federal

facilities. As with existing Order Number 3, you would not be required

to send in your site security plan unless BLM requests it.

Sections 3152.51 and 3152.52 would address what you must include in

your site facility diagram and for which facilities you must prepare a

diagram. This section would except the requirement for a site facility

diagram where a single tank is used for collecting small volumes of oil

and condensate produced from a single well. In these circumstances, the

design of the facility is so simple that a diagram is unnecessary.

Also, the volumes these wells produce are low and the risk for

significant royalty loss is minimal. The time frame for submitting the

site facility diagram is covered in the general recordkeeping section

3103.10 of this proposed rule and is not repeated here.

Well and Facility Identification

Section 3152.60 would require you to identify wells and facilities

with signs that show basic information. This is a change from existing

requirements in that it would eliminate the detailed requirements of

existing regulations and replace them with a standard. The standard for

well and facility identification would require the sign to identify the

wells and facilities so that anyone visiting the site will know the

``who'' (operator), ``what'' (lease or agreement number), and ``where''

(legal description) of the site.

Transporter Documentation

The section on transporter documentation contains requirements

similar to existing requirements.

Theft

Section 3152.80 would address when and how you must report

incidents of oil or condensate theft from your lease. BLM and the

person reporting the theft would determine the level of detail needed

to document the incident. Existing regulations require you to use a

form to report a theft. This section would not.

Subpart 3153--Oil Measurement

This subpart on oil measurement would identify the types of

measurement systems and procedures that must be used to accurately

measure the quantity and quality of oil you produce.

------------------------------------------------------------------------

Existing

Proposed regulation regulation Existing order

------------------------------------------------------------------------

3153.10....................... 3162.7-2.........

3153.20....................... ................. Order Number 4

section III.C.

3153.30....................... ................. Order Number 4

3153.31 section III.D.1 and

2.

3153.32....................... ................. Order Number 4

section III.D.3.c.;

and Proposed Order

Number 4 section

III.D.4.

3153.33....................... ................. Order Number 4

section III.D.3.a(1)

and (2); and

Proposed Order

Number 4 section

III.D.3.a.(2).

3153.34....................... ................. Order Number 4

section III.D.3.b.

3153.35....................... ................. Order Number 4

3153.36 section III.D.3.c(4)

and section III.D.4

Proposed Order

Number 4 section

III.D.4.

3153.37....................... ................. Order Number 4

section III.D.5.

3153.38....................... ................. Order Number 4

section III.D.4.

3153.40....................... ................. Order Number 3

section III.C.1.a

and b.

------------------------------------------------------------------------

Oil Measurement--General

Section 3153.10 would establish how you must measure oil produced

from or allocated to a Federal or Indian lease. The proposed section

requires oil to be measured by tank gauging, positive displacement

metering system, or a method that you can demonstrate to BLM is

equivalent in accuracy and accountability to tank gauging or a positive

displacement metering system.

Tank Gauging

Section 3153.20 would contain a table that lists activities which

affect volume and quality determinations if you use tank gauging to

measure oil. For each of the listed activities, the table also lists

the API standards and practices that you must follow to ensure proper

oil measurement. API standards are equivalent to the minimum standards

that presently exist in Order Number 4 for tank gauging.

Lease Automatic Custody Transfer (LACT)

Sections 3153.30 and 3153.31 would specify how you must install,

operate, and maintain a LACT system to measure oil. The section

identifies the API specifications and standards that would become the

regulatory requirements for LACT systems. It also lists specific

components that you must use in a LACT system, even though components

are considered optional in the referenced API documents. You would not

be required to retrofit LACT systems installed before the effective

date of the rule to meet the requirements of the listed API references.

Section 3153.31 would require that oil gravity, sediment, and water be

determined in the same manner as you would for tank gauging.

Incorporating the API publications by reference should be equivalent to

the minimum standards that presently exist in Order Number 4 for LACT

systems.

[[Page 66858]]

Sections 3153.32 through 3153.38 would specify: (1) how and when

you must determine the composite meter factor for a LACT meter; (2)

requirements for meter provers used to determine meter factors; (3) the

acceptable tolerance for composite meter factors; (4) corrective action

in the event of an out-of-range meter factor; (5) reporting

requirements for LACT systems; and (6) how you must correct volumes if

your meter factor changes between provings. These sections incorporate

by reference the appropriate API references for proving a LACT.

Accuracy and repeatability standards for prover meters, the meter

proving process, and the LACT's meter factor are not specified in the

referenced API documents. However, BLM believes these are important to

volume accuracy. Therefore, the repeatability tolerances of existing

Order Number 4 (five consecutive proving runs within 0.05 percent) and

the tolerance for deviation of the composite meter factor

(0.0025 between provings) would continue to be required.

The range for initial and repaired meter factors (0.9950 to 1.0050)

presently in Order Number 4 has been deleted in the proposed rule.

There is no evidence to support repair or replacement of a meter that

does not fall within 0.9950 and 1.0050 upon installation as long as the

repeatability and meter factor deviation requirements are met.

Section 3153.40 states how you would document the sale of oil from

your production facility. To be consistent with API publications, the

proposed section uses the term ``measurement ticket'' as a new standard

term to refer to ``run ticket'' and ``receipt and delivery ticket''

which are terms customarily used in the oil industry to mean the same

thing. This proposed section would apply to documentation of sale or

removal of oil regardless of the measurement system you use.

Subpart 3154--Gas Measurement

The subpart on gas measurement would establish the performance

standards for measurement systems used to measure and report Federal

and Indian gas. This subpart would also include requirements on

installation, operation, and maintenance requirements for orifice

metering systems. Other areas covered in this subpart would include

metering systems other than orifice meters, reportable volume

corrections, and gas quality measurements.

Subpart 3154 would incorporate by reference certain API standards

relating to gas measurement. These standards are recognized by both BLM

and industry as sound operating practices and BLM believes the cited

API standards are appropriate. However, BLM is specifically seeking

comment on the applicability of such industry standards as they relate

to the measurement, sampling, quality determination, and frequency of

meter calibration for gas produced from or allocated to Federal and

Indian lands. Please also comment on the point of measurement for

reporting such production for royalty purposes.

------------------------------------------------------------------------

Existing

Proposed regulation regulation Existing order

------------------------------------------------------------------------

3154.10....................... 3162.7-3

3154.20....................... ................. Order Number 5

section III.C.1-3,

and 6-11.

3154.21....................... ................. Order Number 5

section III.C.21.

3154.30....................... ................. Order Number 5

section III.C.5.

3154.31....................... ................. Proposed Order Number

5, section III.D.11.

3154.32....................... ................. Order Number 5,

section III.C.12-16.

3154.33....................... ................. Order Number 5,

section III.C.17.

3154.40....................... ................. Order Number 5,

sections III.B. and

III.C.1 and 6; and

Proposed Order

Number 5, section

III.C.1, 2, and 6.

3154.50....................... ................. Order Number 5,

section III.D.

3154.60....................... ................. Order Number 5,

section III.C.19 and

20; and Proposed

Order Number 5,

section III.D.8.

3154.70....................... ................. Order Number 5,

section III.E.4.

------------------------------------------------------------------------

Gas Measurement--General

Section 3154.10 would establish the standards that would apply to

all measurement systems that are used to measure gas from Federal and

Indian lands. Any measurement system meeting these standards could be

installed and used without prior BLM approval. Currently, you are

required to obtain BLM approval before using anything other than an

orifice meter system. BLM believes that measurement systems that meet

the standards of this section would accurately measure gas to ensure

proper royalty payments. Measurement systems not meeting these

standards must either be approved by BLM before they are used or be

modified to meet the performance standards. This section also states

the base temperature and pressure at which you must report gas volumes

to MMS and references MMS reporting regulations for Federal and Indian

gas. Finally, the section would list the acceptable methods to

determine the volume of gas you use for beneficial purposes.

Orifice Meters--Primary Element

Section 3154.20 would identify the API standard that you must

follow to install, operate, and maintain an orifice meter. This section

would also supplement the API standard with additional requirements

that BLM believes are essential to ensure your orifice meter measures

accurately. The additional requirement that sets a 6-year meter tube

inspection frequency is new and is based on recommended industry

practice found in API Manual of Petroleum Measurement Standards,

Chapter 20.1, ``Allocation Measurement.'' This section would exclude

the additional standards for meters measuring less than 100 Mcf since

the cost of compliance for meters measuring lower volumes would likely

exceed the value of any additional Federal or Indian royalty that might

result. This section would also allow orifice meters installed before

the effective date of the final rule to comply with an earlier API

standard. This ``grandfathering'' of older orifice metering systems

would apply for as long as the existing system is in operation or until

the system is completely replaced, whichever comes first.

Section 3154.21 would require you to make volume determinations

through your orifice meter using the flow equations found in the

referenced API document. BLM currently requires you to use the same

equations to measure gas volumes. However, we do not currently

reference the API document containing those equations.

[[Page 66859]]

Orifice Meters--Secondary Element

Section 3154.30 would set the required tracking range for static

and differential pressures on your chart recorder. This section would

modify the existing requirement of Order Number 5, Section III.C.4, by

increasing the allowable range for differential pressures from the

upper 66.7 percent (i.e., 2/3rds) of the chart to the upper 80 percent.

(In regards to inverted charts, where the zero position is at the outer

limits of the chart, the accuracy of the differential element depends

on the physical distance of the pen from ``zero,'' regardless of the

type of chart you use.) BLM concluded that expanding the tracking range

would not significantly decrease overall meter accuracy because the

required range would still be well above the minimum differential

pressure range of a given meter. This change would better accommodate

wells with declining production.

This section would apply only to meters measuring more than 100 Mcf

of gas per day and would exempt meters where operating conditions such

as erratic flow patterns preclude tracking in the required range. The

latter exemption is not presently in Order Number 5 and was added as

result of BLM's experience with variance requests for meters servicing

wells with erratic flow patterns.

Section 3154.31 would establish additional requirements if your

secondary element uses an electronic flow computer (EFC). EFC's are not

addressed in existing Order Number 5 or other BLM regulations. However,

this section implements current policy. EFC requirements would be no

more stringent than those for chart recorders. The current static

pressure, differential pressure, and temperature would have to be

displayed on a continuous basis, and the EFC would be required to have

a back-up power source capable of retaining collected data for a

minimum of 35 calendar days. To meet the requirement to continuously

display parameters, EFC's may have either a scrolling display or a

toggle switch that allows the display to be activated.

Section 3154.32 would require you to calibrate your orifice meter

by following the recommended API practices for on-site calibrations.

Because it is not addressed in the referenced API standard, this

section would retain the requirement of Order Number 5, section

III.C.15, to test the linearity of differential and static pens at 100

percent of the element's range. This section would also require you to

document calibrations of your meter.

Section 3154.33 would establish how frequently you must calibrate

the secondary element of your orifice meter. Quarterly calibrations

would be required only for orifice meters that measure more than an

average of 100 Mcf or less per day on a monthly basis.

Orifice Meters--Low Volume Exemptions

Section 3154.40 requires orifice meters that measure an average of

100 Mcf or less per day on a monthly basis to comply with all the

requirements of this subpart except for the listed items. We believe

the cost for you to comply with these standards for low volume

production could exceed the value of the gain in measured gas from the

incremental increase in accuracy.

Some of the alternatives listed in this section are carryovers from

Order Number 5. New alternatives include--

(1) Waiving the six-year inspection requirement for the meter tube.

We believe that a six-year frequency of meter tube inspections for low

volume meters is not needed to ensure accurate gas measurement;

(2) Allowing the use of a temperature that reasonably represents

the average flowing temperature of the gas stream to calculate volumes.

As long as you use a temperature that reasonably represents flowing gas

temperature, you would no longer be required to submit a variance to

BLM for approval to use something other than a continuous temperature

recorder or an indicating thermometer, as you currently do under

existing Order Number 5;

(3) Calibrating your meter at least annually rather than quarterly.

BLM would pay particular attention to implementation of this exemption

to ensure that less frequent calibration of low volume meters does not

have an adverse impact on Federal and Indian royalty income; and

(4) Inspecting your orifice plate at least annually rather than

semiannually. As with annual calibrations, BLM would monitor the impact

of this requirement on measurement accuracy and royalty income.

Other Metering Systems

Section 3154.50 would deal with other metering systems and is

substantially similar to existing regulatory requirements.

Volume Corrections

Section 3154.60 would deal with volume corrections and is

substantially similar to existing regulatory requirements. However, the

proposed rule would drop the existing requirement from Order Number 5

that volumes are to be corrected only if the volume error is more than

2 percent. This gives BLM and MMS the flexibility to require volume

corrections when it is in the public interest.

Gas Quality Measurements

Section 3154.70 would require you to determine the quality of the

gas you produce at least annually, or more frequently, if BLM requires

it. This section would also identify--

(1) Where you must collect your sample;

(2) The industry standard you must follow to collect and handle

samples; and

(3) How you must determine the specific gravity and heating value

of the gas sample.

This section would cite API standards for collecting and handling

natural gas samples and would specify where samples are to be

collected. Existing regulations do not address this issue. Implementing

this section would ensure that sample collections are uniform in

determining the quality and liquid content of the gas.

Subpart 3155--Produced Water Disposal

This subpart would require you to obtain BLM approval before you

dispose of produced water. These sections would also require certain

construction and operating practices to ensure proper disposal of

produced water from Federal and Indian lands.

------------------------------------------------------------------------

Existing

Proposed regulation regulation Onshore order

------------------------------------------------------------------------

3155.10....................... 3162.5-1(b)...... Order Number 7,

3162.5-3 III.A., III.B.2.

3155.11 and 3155.12........... Order Number 7, I.C.

and requirement 1 of

III.F.

3155.13....................... Order Number 7,

III.A., III.B.1.,

III.B.2., III.C. and

III.G.

3155.14....................... Order Number 7,

III.B.1, III.B.2,

III.C., III.B.1.a.,

III.B.1.b.,

III.B.2a, and

III.B.2.b.

[[Page 66860]]

3155.15 and 3155.16........... Order Number 7,

II.D.1., III.D.2,

III.E. and

requirements 4

through 9 of III.F.

3155.17....................... Order Number 7,

requirement 11 of

III.F.

3155.18....................... Order Number 7,

III.G.1.F.

3155.19....................... Order Number 7, Part

III.A.

------------------------------------------------------------------------

Section 3155.10 would describe the reasons you must have BLM

approval to dispose of produced water from a Federal or Indian well, or

from a communitized or unitized private or State well for disposal into

a Federal disposal facility within the same communitized or unitized

area.

Sections 3155.11 and 3155.12 would describe when you need BLM

approval to dispose of produced water. This proposal would add two

instances to those in existing regulations that would not require BLM

approval for disposal of produced water. Under this proposal, BLM would

not require approval for the disposal of produced water if simultaneous

injection or disposal of produced water into the same formation occurs

in a producing well. This section would also eliminate the need for BLM

approval for disposal of produced water if it is injected into an

approved disposal well on the same Federal or Indian lease.

Section 3155.13 would describe the type of water disposal BLM

allows. This section includes the requirements from III.A., Order

Number 7, that lists how you must dispose of produced water from

Federal and Indian leases. This section would include additional

examples of disposal methods not in Order Number 7. We included these

examples to show other methods available to dispose of produced water

that could ultimately provide water for beneficial uses.

Section 3155.14 would describe the forms or permits you must submit

to construct and operate disposal facilities, and to obtain approval

for disposing of produced water. It also cites those regulations you

must follow that dictate the type of information that you must submit

with these forms. This section would list the BLM forms required under

different surface ownership, lease status, and disposal methods.

This section would require you to submit a Sundry Notice, Form

3160-5, or other acceptable filing instrument (letter) for water

disposal, unless you are drilling a Federal or Indian injection or

disposal well on-lease as part of your produced water disposal plan.

In addition to BLM approval, you must have an Underground Injection

Control (UIC) permit issued by the EPA, State, or Indian Tribe,

according to 40 CFR parts 144 and 146, before drilling an injection

well or converting an existing well to an injection well. The EPA,

State or Indian Tribe also require permitting for National Pollution

Discharge Elimination System permit (NPDES) facilities and the State or

Indian Tribe may require permitting for constructing and operating an

earthen pit. This section would provide the option to either submit a

copy of these permits from other agencies to BLM, or include a

reference to the location and permit name or number to BLM.

The proposed rule would also allow you to submit to BLM the same

information you use to obtain a UIC permit, earthen pit or NPDES

permit, if you are planning to construct or convert a Federal or Indian

facility into a water disposal facility.

This section includes the conditions that would require a BLM

right-of-way (R/W) or similar permit from other agencies, individuals,

or Indian tribes for constructing or operating disposal facilities,

roads, and pipelines. It also provides a reference to BLM's R/W

regulations.

This section would require that your Sundry Notice for disposal of

produced water include plans for construction of roads or pipelines on-

lease if they are part of your overall disposal plan.

Sections 3155.15 and 3155.16 would describe the requirements you

must follow to dispose of produced water into lined and unlined pits.

These sections would incorporate the requirements of parts III.D.1. and

2., III.E., and requirements 4 through 9 of III.F. of Order Number 7.

These sections would replace the extensive list of requirements found

in Order Number 7 with performance standards. The performance standards

would provide the flexibility to deal with different ecological and

geographical conditions, changing technology, specific proposals, and

local knowledge about specific design measures that are best suited to

local conditions.

Order Number 7 requires you to submit a water quality analysis that

tests specific parameters and also provides exceptions from this

requirement. The proposed rule would allow the same water quality

submittal exceptions found in Order Number 7, but the specific

requirements would be changed. This proposal would require that you

provide the information on the ``quality of the produced water'' with

your application for disposal of produced water into a pit. BLM has

determined that flexibility is needed to require testing when

necessary, but only for parameters that are unknown and needed to

process an application for the disposal of produced water.

This section would eliminate the detailed construction and design

provisions in Order Number 7. The detailed provisions in Order Number 7

would be replaced with standards that would allow you to design and

obtain permits for facilities without time consuming variance requests.

Section 3155.17 would require you to submit to BLM an amended

proposal to dispose of produced water if the quantity or quality of

produced water changes.

Section 3155.18 would describe what you must submit to BLM to

surface discharge produced water under a NPDES. This section would

incorporate the requirements of Order Number 7, III.G.1.F, with the

following change: This section would require you to submit information

you use to obtain an NPDES permit, if BLM requested it. This provision

would streamline the permitting process in situations where existing

applications for other agency permits already include information

required by this section (water quality analysis, description of site

facilities or surface use plans).

Section 3155.19 would explain that BLM would terminate your water

disposal permit if the EPA, State, or Indian tribe cancels or suspends

your disposal facility permit. This would require you to propose

another disposal method to BLM.

Subpart 3156--Spills and Accidents

This subpart would require you to report spills and accidents to

BLM. The term, ``Spills and Accidents'' would be used instead of the

currently used term, ``Undesirable Events.''

BLM determines if hydrocarbons are avoidably or unavoidably lost

even though oil and gas lessees must report this information to MMS (30

CFR, part 216, subpart B). Existing NTL-3A and this proposal do not

require you to file reports with BLM of spills or discharges

[[Page 66861]]

in nonsensitive areas involving less than 10 barrels of liquid or 50

Mcf of gas. BLM is able to monitor spills involving less than 10

barrels of oil by tracking MMS required reports. We still would require

that you report spills on all volumes of more than 10 barrels of liquid

or more than 50 Mcf of gas lost. These larger losses are cases that

could involve avoidably lost hydrocarbons and BLM will continue to make

avoidable and unavoidable determinations to ensure production

accountability.

------------------------------------------------------------------------

Existing Onshore order or

Proposed regulation regulation notice to lessees

------------------------------------------------------------------------

3156.10....................... 3162.5-1(c)

3156.11....................... ................. NTL-3A section I; and

Order Number 7,

III.H.

3156.12....................... ................. NTL-3A section II.,

Section III.; and

Order Number 7,

III.H.

3156.13....................... ................. NTL-3A section II.,

section IV.; and

Order Number 7,

III.A.3.

3156.14....................... ................. NTL-3A section II.

------------------------------------------------------------------------

Section 3156.10 would describe the actions you must take after an

accident or spill that involves Federal or Indian oil or gas. These

actions include corrective measures to mitigate the spill or accident,

reporting to BLM the spill or accident, and BLM's approval and

monitoring of your reclamation and remediation plans.

Section 3156.11 would describe the type of spills and accidents

that you must report to BLM within 24 hours of an event. In addition,

this section would implement several changes to the current

requirements.

The proposal would require you to report the release of hazardous

substances. Reporting this information to BLM would not relieve you of

any other reporting required by any State or other Federal regulations.

This proposal would eliminate the existing exception to 24 hour

reporting of spills of 100 barrels of liquids or more if they are

contained within the firewall. This quantity of oil or water in a

confined area could migrate deeper than a spill in an unconfined area

and affect shallow groundwater. In addition, a confined spill would

more likely attract birds and wildlife. BLM believes it is necessary to

report these types of spills within 24 hours to minimize contamination

and threats to wildlife.

Existing NTL-3A states that these types of spills or accidents

should be reported immediately and also states that reports must be

furnished, ``as soon as practical, but within a maximum of 24 hours.''

This section would require reports within 24 hours of the event. This

proposal would change the deadline for reporting major and life

threatening injuries. Existing NTL-3A requires reporting for these

types of injuries within 15 days of the event. BLM believes that a

major or life threatening injury is important information and should be

reported within 24 hours.

Section 3156.12 would describe the type of spills and accidents

that you are not required to report within 24 hours of an event and

when you would be required to submit initial written reports.

This section would not include an existing requirement to submit

two copies of a written report within 15 days following all spills and

accidents. Instead, this section would require a written report within

10 business days after a spill or accident occurs for specific events

listed, and all events that require you to notify BLM within 24 hours.

Section 3156.13 would describe what you must include in written and

oral reports. These standards would contain more guidelines than NTL-3A

and would require information that is directly related to the purpose

of requiring reports of spills and accidents. This would help BLM

determine if loss of oil or gas is avoidable or unavoidable, if sites

need to be inspected, if an approval is needed for spill remediation or

reclamation, and if corrective orders or contingency plans are needed

to address future events.

Section 3156.14 would describe when you must submit more than one

written report of a spill or accident to BLM. Under existing

regulations intermediate reports are required when BLM requests them.

This proposal would require intermediate reports to allow BLM to more

effectively monitor spill clean up.

Subpart 3159--Well Abandonment

This subpart would incorporate requirements from existing

regulations and some proposals from proposed regulations. Proposed and

existing regulations on well abandonment require you to submit a plan

to BLM for approval before a well is temporarily abandoned for more

than 30 calendar days and before a well is permanently abandoned. This

subpart also explains how to obtain BLM approval for abandonment and

sets the performance standards that you must meet when you plug a well.

This subpart generally contains existing requirements with a few

exceptions.

------------------------------------------------------------------------

Existing

Proposed section regulation Existing orders

------------------------------------------------------------------------

3159.10....................... 3162.3-4(c)...... Proposed Order Number

3159.11 8 section III.C.1.

and 2.

3159.20....................... 3162.3-4(a)

3159.21....................... 3162.3-4(a)...... Order Number 2

section III.G.

3159.22....................... ................. Proposed Order Number

8 section III.D and

Order Number 2

section III.G.

3159.23....................... ................. Proposed Order Number

8 section III.D and

Order Number 2

section III.G.

3159.24....................... 3162.3-4(b) .....................

3159.25....................... 3162.3-4......... Proposed Order Number

8 section III.D.3.b.

3159.26....................... 3161.2........... Proposed Order Number

8 section III.D.1.

------------------------------------------------------------------------

Temporary Abandonment

Section 3159.11 would set out the basic performance goals for

temporary abandonment operations. This section would implement existing

policy that you temporarily abandon a well so

This text is long and has been trimmed here. Open the source document for the complete record.