NEWS BLM eyes producing states for control of onshore federal leases

Applications to Drill on Federal Onshore Leases in Fiscal 1995* [28195 bytes]

Recent BLM Activity [28782 bytes]

The U.S. Bureau of Land Management plans to begin talks with producing states on how it can delegate to them control over onshore federal oil and gas leases.

The move is part of a BLM campaign to make its processes more efficient as it fulfills its role as the U.S. oil and gas producing industry's biggest landlord. The agency has several other initiatives under way, like improving rules to facilitate downhole regulations and applications to drill.

In a similar move, another Interior Department agency, the Minerals Management Service, last year studied whether to "devolve" its royalty collection activities to western states and ultimately decided against it (OGJ, Aug. 7, 1995, p. 21).

The Clinton administration's reinventing government (REGO) proposal first raised the idea of shifting BLM's oil and gas inspection and enforcement (I&E) and environmental compliance responsibilities to states and Indian tribes.

The 29 member Interstate Oil & Gas Compact Commission (Iogcc), representing most of the producing states, is enthused about the idea. It has formed a task force to develop a counterproposal and work with Interior.

Iogcc recently asked Interior officials to consider expanding the devolvement to other BLM oil and gas functions. Bob Armstrong, Interior assistant secretary for land and minerals management, agreed.

As with the MMS proposal, western states with the most oil and gas production-Wyoming, New Mexico, and Utah-are the most enthusiastic about the BLM devolvement. All have oil and gas agencies that parallel the BLM regulatory structure.

Although the avowed goal is to speed government processes, oil companies are concerned that devolvement might subject them to a greater variety of rules and reporting.

David Deal, an American Petroleum Institute attorney, said, "We would be skeptical of such decentralization. The prospect of nonidentical policies cuts against the grain of efficiency."

REGO proposal

The REGO plan at first did not propose to reimburse states for peforming BLM's I&E functions. Later, Interior said funding might be available for states and tribes that assume the programs, equal to the current BLM funding in their jurisdictions.

A BLM task force studied the devolvement proposal last year and issued a report in September. It said the action would allow states to "reengineer" BLM's I&E activities "to accomplish the same objectives with greater efficiency and cost savings."

The task force said, "States and tribes can customize inspection and enforcement functions to fit their existing infrastructures and obtain greater efficiencies and cost savings."

But it saw some constraints:

"The Federal Oil and Gas Royalty Management Act (Fogrma) specifies minimum inspection frequencies for wells which have either high petroleum production or a history of compliance problems. For wells falling into those statutory categories, inspections must be performed annually, affording virtually no flexibility in implementation.

"Conversely, inspections for compliance with environmental controls may be tailored to piggyback with inspection for other purposes and are governed only generally by statutory and regulatory requirements.

"The existing degree of flexibility for each type of inspection should be articulated, as should the source of the constraints on flexibility, be they statutory, regulatory, or by policy."

The report noted BLM will need to implement an oversight program to ensure that states and tribes adequately enforce its rules.

Other issues are training of state and tribal oil and gas lease inspectors and whether they should meet BLM standards.

The report observed that complaints about inexperienced or undertrained inspectors in the past had prompted BLM to develop a national certification program. Currently, 127 BLM, 10 tribal, and two state inspectors are certified or in the process of being certified.

The task force recommended that each BLM state office meet with state and tribal officials to determine case by case basis the best approach to devolvement.

Iogcc's counterplan

Iogcc has counterproposed that BLM devolve not just its I&E functions, but all of its oil and gas regulatory functions, to willing states.

"Iogcc believes there exists extensive duplication of effort by the BLM and state oil and gas regulatory authorities and a transfer of all BLM's regulatory activities will result in significant cost savings through a single coordinated and comprehensive regulatory program, while ensuring that the objectives of the state and federal regulatory programs are achieved."

The commission said there is ample federal precedent for the action. It noted that states implement the Environmental Protection Agency's pollution discharge and underground injection control programs and Occupational Safety & Health Administration rules.

It said producing states have successfully regulated oil and gas activity (not on federal lands) for decades and have regulatory standards similar to BLM's.

It further said states could assume the BLM functions with "an incremental addition of workload," and the merged effort would be "highly cost efficient and relatively simple."

Iogcc said transfers of authority should be negotiated between states and their counterpart BLM state offices whether it be by delegation, cooperative agreement, or contract.

"We are cognizant that a 'one size fits all' approach to transferring regulatory authorities won't work and that the states and their BLM counterparts must be free to design a transfer arrangement that is suited to the existing state and federal programs and to local and regional circumstances."

Recommendations

Iogcc said the transferred regulatory program should be comprehensive. It said the current system requires separate-frequently duplicate-federal and state approvals for oil and gas operations on federal land.

"State and federal inspectors frequently scrutinize site preparation, drilling, production, and reclamation activities at the same wells, often witnessing the same events."

It said providing for a single responsible agency or a lead agency will improve coordination and timeliness while reducing expenses for all involved. "The thrust of modern regulatory programs is to offer one stop shopping, even for the most complex projects."

Although states can implement BLM's entire regulatory program, "there is a clear delineation between BLM's land and resource management responsibilities, which would remain unaffected by Iogcc's proposal, and BLM's oil and gas regulatory responsibilities, all of which should be available for transfer to interested states."

Iogcc said BLM oversight of the states' operations should be flexible. Rather than have the states adopt a verbatim copy of the federal program, they should be able to "adapt federal requirements into existing state programs to maximize administrative savings and minimize disruptions in program operation.

"It appears that certain BLM regulatory activities can simply cease in many states because state regulation of the activity is delivering desired results. In other cases, states will assume increased workload in existing regulatory activities."

Iogcc stressed the states will need funding from BLM, and it is likely that legislation and regulatory changes will be required.

Meetings planned

Jim Carter of the Utah Division of Oil, Gas & Mining chairs Iogcc's committee on the BLM inspection and enforcement transfer proposal.

At an Iogcc meeting in Washington, Carter said the Utah oil and gas bureau sees opportunities for very large savings from consolidating state and federal operations.

He said the states and BLM should strive to eliminate all duplication of their efforts and begin with an examination of the differences between the BLM program and state efforts.

Armstrong said Interior is interested in Iogcc's counterproposal and would examine it.

"Some states are more advanced than others, but there's no benefit to duplication anywhere. If we can reach some accommodation (with the states), we'll do so," he said.

Meetings are planned between the Iogcc task force and BLM and Interior officials.

Armstrong predicted Interior Sec. Bruce Babbitt will not object to widening the BLM devolvement. "He doesn't consider himself an expert on oil and gas. He lets us do pretty much what we want."

Armstrong said a full devolvement of BLM functions could not occur without legislative amendments to Fogrma, which only allows states to assume I&E functions. Also lacking is BLM regulations permitting contracts to be negotiated with states.

BLM overview

Mike Dombeck, acting BLM director, testified before the House energy and mineral resources subcommittee about his agency's oil and gas program.

BLM's proposed budget for fiscal 1997, which starts Oct. 1, is unchanged at $51.8 million.

At the end of 1995, BLM oversaw more than 51,000 leases on federal lands covering about 37 million acres. About 19,000 leases were on production. There were more than 63,000 producing wells on federal land, up 30% since 1985.

BLM also is responsible for operational management of 4,200 producing leases on Indian land, supervision of drilling on nonproducing leases, and advising the Bureau of Indian Affairs and Indian tribes and allottees on leasing matters.

The agency expects the oil and gas program to generate $500 million in 1997 from filing fees, bonuses, rentals, and royalty payments. All receipts, except for filing fees, are shared with the state in which the leasing occurs.

Dombeck said, "Our leasing program will continue to be focused in areas where the prospect for discovery is highest. We will be encouraging industry to nominate parcels while at the same time reducing the number of parcels BLM offers on its own initiative. This approach will maximize the effectiveness of money spent in our leasing program.

"The postlease workload for the oil and gas program will remain constant. In fiscal 1997, we expect to process 2,300 applications for permits to drill, 25,000 lease adjustments, close to 1,900 drainage cases, and conduct about 17,000 inspections.

"Inspection and enforcement remains a high priority program activity. We will continue to conduct inspections of leases as required by Fogrma, as well as conduct drilling, abandonment, and other inspections authorized under the Mineral Leasing Acts."

Royalty relief

Dombeck said, "As part of the BLM's performance review, we have involved our customers in our decisionmaking to ensure that BLM develops effective policies. The performance review has evaluated the bureau's oil and gas operations, regulations and policies, and identified opportunities to improve the way the BLM provides services to its customers."

He said in the first phase of the performance review, BLM developed a questionnaire and compiled the comments and concerns of its constituents. The Bureau Performance Review (BPR) final report recommended many changes to BLM's oil and gas program.

Dombeck said one of the first recommendations to be implemented was royalty relief for heavy crude production.

"A year ago, the heavy crude oil industry was suffering from low prices and high production costs. Although rising prices have recently provided some relief, this administration recognized that producers would still be vulnerable to future price fluctuations. As many as two thirds of the marginal properties could be shut in during a period of sustained low oil prices."

BLM early this year issued a rule that set a sliding scale of royalty relief for heavy crude production (OGJ, Feb. 19, p. 28).

Dombeck said DOE estimates reserves will increase by 33-104 million bbl, depending on oil prices, as a direct result of this rule because the life of wells will be extended.

BLM also asked DOE to help it evaluate the effects of reducing the royalty rate on marginal gas production. In 1994, more than 3,000 stripper gas wells were abandoned in the U.S.

Dombeck said, "Incentives such as a royalty rate reduction may extend the economic lives of many of these wells, increasing the amount of recoverable reserves, preserving jobs, and providing royalties over a longer period of time.''

BLM published a notice of request for information in the Mar. 5 Federal Register asking for suggestions on ways to define marginal gas wells and ways in which royalty relief might be granted. Replies are due by June 3 (OGJ, Mar. 11, Newsletter).

Applications to drill

Dombeck pointed out that the first action required to begin operations on a federal or Indian lease is the filing of an application for permit to drill, commonly called an APD.

He said, "Fogrma requires that the APD must be submitted complete and must be posted and made available for public inspection for at least 30 days prior to approval action. We are aware of the need for timely processing and approval decisions on APDs.

"However, problems can and do occur in the APD approval process. These problems include weather conditions that prevent on the ground environmental review, failure on the part of the operator to submit a complete application, an overload resulting from large numbers of APDs filed in an area of active development, and delays encountered when surface management agencies other than the BLM require approval of their surface use plan prior to the BLM approving an APD.

"BLM is evaluating problems that make it difficult to meet its goal of timely approval of all applications. In particular, although the vast majority of APDs submitted to the BLM are reviewed and an operator receives a timely decision, in some instances the application process is taking too long."

BLM has formed an interagency task force with the U.S. Forest Service and DOE to identify obstacles and develop internal procedures that will help expedite the approval process. The APD task force is scheduled to complete its work by early June.

The Rocky Mountain Oil & Gas Association told BLM, "Too often, BLM staff does not consider the needs of industry with regard to streamlining procedures and cutting costs, both financially and temporally.

"As a result, industry is confronted with unnecessary delays, permitting duplicity, and increased financial burdens."

Downhole regulations

Dombeck also said, "Private industry has long maintained there are obvious problems when oil and gas operators attempt to comply with differing orders from different jurisdictions that cover the same issue or problem.

"Of special concern to industry is 'downhole' approvals, that is, approvals concerning operations performed at or close to the bottom of the well or adjacent to the production zones."

Iogcc has established the Public Lands Project to identify opportunities that would promote regulatory efficiencies between states and the federal government.

Iogcc's task force recommended that certain downhole responsibilities be regulated by state oil and gas commissions without duplication of those responsibilities by BLM.

The responsibilities include pooling rules (including spacing and drainage considerations), flare/no flare rules, commingling orders, groundwater protection, multiple zone completions, directional drilling, and enhanced oil recovery determinations.

In January, Armstrong concurred in principle with Iogcc's recommendations. He said they are consistent with the administration's initiatives to reduce regulatory burdens and streamline government.

He ordered BLM to review its regulations, procedures, and agreements with state oil and gas regulatory commissions and amend or create new agreements to ensure that all orders and decisions involving those areas listed in the recommendations are covered.

Dombeck said, "We anticipate this effort will result in improved efficiency of the regulatory process for oil and gas development on public lands."

Green River basin

In another cooperative effort, BLM formed the Green River Basin Advisory Committee.

Dombeck said, "Natural gas is the cornerstone of the Clinton administration's domestic energy policy. Interior believes gas resources within the Greater Green River basin probably represent the most significant onshore gas resource underlying primarily federal lands in the Lower 48 states."

Babbitt formed the 17 person advisory panel "as a means for addressing concerns of industry and the environmental community while facilitating environmentally responsible development of oil and gas resources in the Greater Green River basin of Wyoming and Colorado.

"The committee will provide a regionally focused forum to address and make recommendations to resolve controversial issues related to the recovery of natural gas and oil without sacrificing environmental values."

The committee consists of representatives of the oil and gas industry, environmental organizations, resource conservation groups, state and local officials, and landowners.

Dombeck stressed, "The committee is not a decisionmaking body or another layer of bureaucracy to impede BLM's decisionmaking process. The committee has no authority to impose new regulations or restrictions.

"Its function is strictly to advise Interior and BLM on how best to manage two world-class resources: natural gas and oil and unparalleled wildlife resources.

"The committee's work is scheduled to be complete by March 1997 and will culminate in a report of consensus based recommendations that will ensure continued development of the tremendous natural gas and oil resource potential, while also ensuring equal consideration and protection of the wildlife resources within the Greater Green River basin."

Other actions

Dombeck said BLM has worked for improvements in areas of conflict resolution and use of automation.

"For example," he said, "in the Delaware basin of New Mexico there is concern about production from federal oil and gas leases in areas containing potash deposits. The concern centers around possible contamination of potash deposits due to oil and gas drilling operations.

"BLM has brought interested parties together, including members of the potash and oil and gas industries, state and local governments, and the conservation community, to seek consensus on an acceptable solution."

BLM also is working on its Automated Fluid Minerals Support System, which is designed to automate processes associated with oil and gas leasing activities.

"This includes lease operations, I&E, and reservoir management and focuses on capturing basic information and tracking the processing of applications, reports, approvals, and permits as well as I&E activities.

"Enhancements, including electronic commerce which provides for electronic exchange of data, and integration with Geographic Information System and Automated Lands and Minerals Recordation System will be implemented by fiscal 1997. We are currently operating pilot stations in Farmington, N.M., and Bakersfield, Calif.

"We are also working with the oil and gas and computer industries to develop database and data exchange standards covering almost all aspects of the exploration and production phases of the oil and gas industry. The goal is for industry and government to adopt these standards so we can all take a giant step toward paperless transactions."

BLM's list of initiatives covers several other items.

It is trying to streamline the unitization process for oil fields. It also wants to simplify production pooling (communitization), eliminating the requirement that operators submit a separate application for federal approval after obtaining a state spacing order.

It is working with states to develop a program for bioremediation of spills and waste oils, reducing cleanup costs.

BLM plans to consider granting royalty relief for discoveries to encourage exploration, as well as relief for new enhanced oil recovery projects.

It is developing a program to allow oil and gas operators with good compliance records to self-certify environmental compliance, reducing I&E costs.

BLM is working to eliminate or minimize duplicate bonding between state and federal agencies.

Patrick Crow
Energy Policies Editor

Copyright 1996 Oil & Gas Journal. All Rights Reserved.