BLM updates, revamps lease regulations

The U.S. Bureau of Land Management (BLM) has proposed a rule to reduce overlap in current oil and gas regulations and give operators increased flexibility in meeting agency requirements.

Acting BLM Director Tom Fry said, "Our goal is to make all regulations relating to oil and gas leasing and operations easier to understand.

"We also believe, by using performance standards-identifying for the operators what objectives need to be met instead of prescribing exactly how to do it-oil and gas operators will have more flexibility. At the same time, we can ensure protection of the environment and federal royalty interests."

The proposal combines most of the existing BLM oil and gas regulations. The agency said that, in most cases, it does not change the policy or procedure of a given section of the current regulation, it just converts it from regulatory language into plain English.

Rather than have BLM set operating standards for industry, the regulation would require operators to meet American Petroleum Institute and American Gas Association minimum standards and practices. In some cases, it would allow operators to meet performance standards that would replace prescriptive rules.

BLM said, "Under the current regulations and onshore orders, operators must meet very specific and often rigid requirements. Using performance standards will give operators and the BLM increased flexibility to deal with unique geologic, ecological, and engineering circumstances, while still protecting environmental and other federal interests."

Other changes

The rule would increase individual lease bonds to $20,000 from $10,000, and statewide bonds to $75,000 from $25,000. Nationwide bonds would remain at $150,000.

BLM explained current bond levels have not changed since 1960 and are insufficient to ensure that wells are properly plugged and royalties are paid. It plans to phase in the new levels over 2 years.

It also proposed to increase bonds for wells inactive for more than 1 year. The operator would be required to increase the bond by $2/ft of well depth or pay a $100/year fee into a BLM account to help offset the cost of plugging orphan wells.

Also, BLM would cancel bonds after ensuring that lease obligations are met, releasing the operator from liability. Currently, it does not cancel bonds unless someone else assumes liability.

The proposed rule would eliminate the "major" and "minor" classification of regulatory violations. Instead, the BLM would require that severe violations be corrected more quickly than less critical violations.

It also would replace the $500/day fine for major violations and the one-time $250 fine for minor violations with a fine of up to $250/day for uncorrected violations.

The proposed rule would revamp the current unitization rules with a more flexible process that would allow BLM and operators to negotiate terms. BLM would be able to limit the number of unit terms.

The proposed rule would not alter drainage regulations, which are being addressed in a separate rulemaking, nor combined hydrocarbon leasing.

The agency published the rule in the Dec. 3 Federal Register and will accept public comments until Apr. 2, 1999.

BLM manages public lands that produced 5.6% of U.S. oil and 10.7% of gas last year. It administers 43,708 federal and Indian leases, of which nearly 23,595 are in a producing or producible status with a total of about 74,000 wells.

Specific changes

Regarding its leasing and geophysical rules, BLM would:

Eliminate the formal lease nomination process and presale lease offers.
Require that parcel integrity be maintained during the 2-year post-sale window.
Eliminate the requirement that an offer be made for all available lands in a section and contiguous lands to meet a 640-acre minimum unless the lands are isolated.
Reduce the number of copies of an offer that must be filed from three to two.
Limit competitive and noncompetitive leases to 2,560 acres in the Lower 48 and 5,760 acres in Alaska.
Consider balance due payments from bonus bids on time if payment is postmarked on or before the due date.
Eliminate unit bonds and add a bond requirement for wells inactive for more than 1 year.
Change current policy of terminating the period of liability of bonds.
Eliminate the need for holders of overriding royalties, production payments, or similar interests to file notices with BLM.
Eliminate a requirement for option holders to file a semiannual report of lease interest held under option with BLM.
Allow a Class I reinstatement when a nominal deficiency is paid late.
Provide for an increase in percentage and dollar amount for nominal deficiencies on issued leases.
Add a user fee for geophysical exploration on BLM lands.

Unitizations

The BLM rule would make the unitization process more flexible by allowing operators and BLM to negotiate exploration and development terms before entering into a unit agreement.

Operators could use any format, provided it covers key provisons such as area, development obligations, well criteria, and BLM's ability to protect federal interests.

BLM said that change would eliminate delays in its determination of participating areas.

D&P rules

Regarding its drilling and production rules, BLM would:

Reference published industry standards instead of listing minimum standards for drilling and production operations.
Simplify a procedure to calculate average daily oil production for leases with sliding-scale and step-scale royalty rates.
Eliminate a provision to charge full value of gas vented or flared beginning 1 year after BLM orders capture of gas.
Exempt oil wells that produce less than 10 Mcfd of gas from having to obtain BLM approval to vent or flare.
Allow bypasses to oil and gas meters if sealing requirements are followed.
Eliminate requirement for site facility diagrams for single-tank facilities that service a single well.
Provide exemptions for gas wells producing at a rate of 100 Mcfd or less from requirements for inspection frequency of the meter tube, determination of flowing gas temperature, frequency of calibration, and tracking of static pens.
Reduce proving requirement for positive-displacement meters to semiannually for systems measuring 10,000 bbl/month of oil or less.
Change the system of immediate fines for serious violations from $500/ day/violation to a substantial one-time amount.
Expand the list of serious violations subject to immediate assessments to include surface disturbance and commingling of production without approval.
Simplify language in civil penalty regulations to more closely follow provisions of the Federal Oil and Gas Royalty Management Act