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Proposed Rule2023-14287

Fluid Mineral Leases and Leasing Process

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Published

July 24, 2023

Issuing agencies

Interior DepartmentLand Management Bureau

Abstract

The Bureau of Land Management (BLM) is proposing to revise the BLM's oil and gas leasing regulations. Among other things, the proposed rule would reflect provisions of the Inflation Reduction Act pertaining to royalty rates, rentals, and minimum bids, and would update the bonding requirements for leasing, development, and production. The proposed rule would also improve the BLM's leasing process to ensure proper stewardship of public lands and resources and would revise some operating requirements.

Full Text

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[Federal Register Volume 88, Number 140 (Monday, July 24, 2023)]
[Proposed Rules]
[Pages 47562-47648]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14287]

[[Page 47561]]

Vol. 88

Monday,

No. 140

July 24, 2023

Part II

Department of the Interior

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Bureau of Land Management

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43 CFR Parts 3000, 3100, 3110, et al.

Federal Register / Vol. 88 , No. 140 / Monday, July 24, 2023 /
Proposed Rules

[[Page 47562]]

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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3000, 3100, 3110, 3120, 3130, 3140, 3150, 3160, 3170,
and 3180

[BLM_HQ_FRN_MO4500172196]
RIN 1004-AE80

Fluid Mineral Leases and Leasing Process

AGENCY: Bureau of Land Management, Interior.

ACTION: Proposed rule.

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SUMMARY: The Bureau of Land Management (BLM) is proposing to revise the
BLM's oil and gas leasing regulations. Among other things, the proposed
rule would reflect provisions of the Inflation Reduction Act pertaining
to royalty rates, rentals, and minimum bids, and would update the
bonding requirements for leasing, development, and production. The
proposed rule would also improve the BLM's leasing process to ensure
proper stewardship of public lands and resources and would revise some
operating requirements.

DATES: Send your comments on this proposed rule to the BLM on or before
September 22, 2023. The BLM is not obligated to consider any comments
received after this date in making its decision on the final rule.
Information Collection Requirements: This proposed rule includes
revised and new information-collection requirements that must be
approved by the Office of Management and Budget (OMB). If you wish to
comment on the information-collection requirements, please note that
those comments should be sent directly to OMB. OMB is required to make
a decision concerning the collection of information contained in this
proposed rule between 30 and 60 days after publication of this document
in the Federal Register. Therefore, a comment to the OMB on the
proposed information-collection revisions is best assured of being
given full consideration if the OMB receives it by September 19, 2023.

ADDRESSES: Mail, personal, or messenger delivery: U.S. Department of
the Interior, Director (630), Bureau of Land Management, 1849 C St. NW,
Room 5646, Washington, DC 20240, Attention: 1004-AE80. Federal
eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. In the Search-box,
enter ``RIN 1004-AE80'' and click the ``Search'' button. Follow the
instructions at this website.

For Comments on Information--Collection Activities

Information-Collection Requirements: Written comments and
suggestions on the information-collection requirements should be
submitted by the date specified earlier in DATES to <a href="https://www.reginfo.gov/public/do/PRAMain">https://www.reginfo.gov/public/do/PRAMain</a>. Find this specific information-
collection by selecting ``Currently under Review--Open for Public
Comments'' or by using the search function.
If you submit comments on these information-collection burdens, you
should provide the BLM with a copy at one of the addresses shown
earlier in this section so that we can summarize all written comments
and address them in the final rulemaking. Please indicate ``Attention:
Paperwork Reduction Act Comments (RIN 1004-AE80).'' Comments not
pertaining to the proposed rule's information-collection burdens should
not be submitted to OMB. The BLM is not obligated to consider or
include in the Administrative Record for the final rule any comments
that are improperly directed to OMB.

FOR FURTHER INFORMATION CONTACT: Peter Cowan, Senior Mineral Leasing
Specialist, telephone: (720) 838-1641 or email: <a href="/cdn-cgi/l/email-protection#80f0e9e3eff7e1eec0e2ecedaee7eff6">[email&#160;protected]</a>, for
information regarding the substance of this proposed rule or Matt
Warren, Acting Division Chief for the Division of Fluid Minerals,
telephone: (505) 216-8832, or email: <a href="/cdn-cgi/l/email-protection#630e14021111060d23010f0e4d040c15">[email&#160;protected]</a>, for information
about the BLM's fluid minerals program. For questions relating to
regulatory process issues, contact Faith Bremner at email:
<a href="/cdn-cgi/l/email-protection#ed8b8f9f888083889fad8f8180c38a829b">[email&#160;protected]</a>. Individuals in the United States who are deaf, blind,
hard of hearing, or have a speech disability may dial 711 (TTY, TDD, or
TeleBraille) to access telecommunications relay services for contacting
Mr. Warren. Individuals outside the United States should use the relay
services offered within their country to make international calls to
the point-of-contact in the United States.

SUPPLEMENTARY INFORMATION:
I. List of Acronyms
II. Executive Summary
III. Public Comment Procedures
IV. Background
V. Discussion of the Proposed Rule
VI. Overview of Modifications
VII. Procedural Matters

I. List of Acronyms

ANWR = Arctic National Wildlife Refuge
BLM = Bureau of Land Management
CA = Communitization Agreement
CD = Certificate of Deposit
CFIUS = Committee on Foreign Investment in the United States
CFR = Code of Federal Regulations
DOI = Department of the Interior
E.O. = Executive Order
EOI = Expression of Interest
EPAct = Energy Policy Act of 2005
FLPMA = Federal Land Policy and Management Act
FOOGLRA = Federal Onshore Oil and Gas Leasing Reform Act of 1987
GAO = Government Accountability Office
IBLA = Interior Board of Land Appeals
IIJA = Infrastructure Investment and Jobs Act of 2021
IRA = Inflation Reduction Act of 2022
LOC = Letter of Credit
MLA = Mineral Leasing Act of 1920, as amended (MLA is also referred
to as ``Act'' in the regulations.)
MLAAL = Mineral Leasing Act for Acquired Lands of 1947, as amended
MLRS = Mineral and Land Records System
NEPA = National Environmental Policy Act
NFLSS = National Fluids Lease Sale System
NPR-A = National Petroleum Reserve--Alaska
OIG = Office of the Inspector General
OMB = Office of Management and Budget
ONRR = Office of Natural Resources Revenue
OPM = Office of Personnel Management
PRA = Paperwork Reduction Act
RIA = Regulatory Impact Analysis
ROW = Right-of-way
SBA = Small Business Administration
SO = Secretarial Order
SME = Subject matter expert
U.S.C. = United States Code
USFS = United States Forest Service

II. Executive Summary

This proposed rule aims to enhance the administration of oil and
gas-related activities on America's public lands and reflects
provisions in recently enacted laws that modify aspects of the Federal
onshore oil and gas program. Specifically, the proposed rule would
implement changes pertaining to royalty rates, rentals, and minimum
bids for BLM-issued oil and gas leases and would update the bonding
requirements for leasing, development, and production. The BLM has not
comprehensively updated the Federal onshore oil and gas program's
regulatory framework since 1988. As a result, many of the program's
regulatory requirements are outdated, do not adequately protect the
fiscal interests of the American public, and do not promote leasing
practices that are consistent with diligent development requirements
and multiple-use and sustained-yield principles. This proposed rule
seeks to update the existing regulations accordingly.
The Secretary of the Interior manages a Federal onshore oil and gas
program pursuant to the requirements of various statutes, including the
Federal Land Policy and Management Act of 1976, as amended (43 U.S.C.
1701 et seq.) (FLPMA), the Mineral Leasing Act of

[[Page 47563]]

1920, as amended (30 U.S.C. 181 et seq.) (MLA), and the Mineral Leasing
Act for Acquired Lands of 1947, as amended (30 U.S.C. 351 et seq.)
(MLAAL), as well as the recently enacted Inflation Reduction Act (IRA)
of 2022 and Infrastructure Investment and Jobs Act (IIJA) of 2021.
Under FLPMA, the BLM manages approximately 245 million acres of public
lands and approximately 700 million acres of federally owned subsurface
minerals ``on the basis of multiple use and sustained yield,'' which
requires the BLM to achieve ``a combination of balanced and diverse
resource uses that takes into account the long-term needs of future
generations for renewable and non-renewable resources.'' The BLM is
required to avoid ``permanent impairment of the productivity of the
land and the quality of the environment with consideration being given
to the relative values of the resources and not necessarily to the
combination of uses that will give the greatest economic return or the
greatest unit output.'' Oil and gas-related activities are one of the
multiple land uses that FLPMA authorizes and which the BLM administers
in accordance with the MLA and MLAAL. Both of those Acts govern the
leasing of public lands to explore for and develop petroleum, natural
gas, coal, and other hydrocarbons, amongst other mineral deposits.
Over the past 2 years, Congress has modified certain aspects of the
Federal onshore oil and gas program through the IRA and IIJA. In the
IRA, Congress updated the onshore oil and gas program's fiscal terms
and established a new leasing scheme for Federal lands. In the IIJA,
Congress directed the BLM to proactively ``reduce the inventory of
idled wells on Federal land.'' Idled wells can cause a wide range of
impacts on public lands, waters, wildlife, and nearby communities.
There are currently thousands of idled wells on Federal lands, many of
which have not produced oil or gas in years. The BLM intends to address
the IRA and IIJA in this rulemaking.
Prior to the enactment of the IRA and IIJA, the Government
Accountability Office (GAO) and the Department of the Interior's (DOI)
Office of the Inspector General (OIG) reviewed and audited the BLM's
Federal onshore oil and gas program to identify problematic areas in
this program and recommended actions to address them. As part of the
GAO's and OIG's respective audits, they highlighted weaknesses in the
onshore program's fiscal framework and recommended that the BLM take
steps to ensure that the American public receives a fair return from
oil and gas activities on public lands. The DOI and the BLM concurred
with these recommendations in the Report on the Federal Oil and Gas
Leasing Program issued in November 2021. Accordingly, the BLM is
proposing to adjust its oil and gas bonding requirements, including by
increasing minimum bond amounts for the first time in decades. The BLM
believes that doing so, along with other proposed changes, would help
ensure that reclamation costs reside primarily with oil and gas
lessees, operating rights owners, and operators and not the American
public. In the same vein, the BLM is proposing to adjust its cost
recovery mechanisms so that project applicants provide a more
appropriate share of up-front costs. Finally, the BLM is proposing
several changes to encourage diligent development of leased lands and
to direct leasing to areas with fewer multiple-use conflicts and a
greater likelihood of achieving responsible development.

III. Public Comment Procedures

If you wish to comment on this proposed rule, you may submit your
comments to the BLM by mail, personal or messenger delivery, or through
<a href="https://www.regulations.gov">https://www.regulations.gov</a> (see the ADDRESSES section). Please make
your comments on the proposed rule as specific as possible, confine
them to issues pertinent to the proposed rule, explain the reason for
any changes you recommend, and include any supporting documentation.
Where possible, your comments should reference the specific section or
paragraph of the proposal that you are addressing. The BLM is not
obligated to consider or include in the Administrative Record for the
final rule any comments received after the close of the comment period
(see DATES) or comments delivered to an address other than those listed
previously (see ADDRESSES). Comments, including names and street
addresses of respondents, will be available for public review at the
address listed under ``ADDRESSES: Mail, personal or messenger
delivery'' during regular hours (7:45 a.m. to 4:15 p.m. Eastern Time),
Monday through Friday, except holidays. Before including your address,
telephone number, email address, or other personal identifying
information in your comment, be advised that your entire comment--
including your personal identifying information--may be made publicly
available at any time. While you can ask us in your comment to withhold
from public review your personal identifying information, we cannot
guarantee that we will be able to do so.
As explained later, this proposed rule includes revisions to
information collection requirements that must be approved by the OMB.
If you wish to comment on the revised information collection
requirements in this proposed rule, please note that such comments must
be sent directly to the OMB in the manner described in the ADDRESSES
section. The OMB is required to make a decision concerning the
collection of information contained in this proposed rule between 30
and 60 days after publication of this document in the Federal Register.
Therefore, a comment to the OMB on the proposed information collection
revisions is best assured of being given full consideration if the OMB
receives it by September 19, 2023.

IV. Background

The BLM is undertaking this rulemaking for two primary reasons: (1)
to reflect provisions in recently enacted laws that modify aspects of
the Federal onshore oil and gas program; and (2) to enhance the
administration of the onshore program, consistent with the BLM's
multiple-use and sustained-yield mission. As documented in a DOI report
released in November 2021,\1\ and in numerous reports from the GAO and
DOI's OIG,\2\ the onshore program, historically, has failed to provide
the Federal Government with a fair return; exposed the Federal
Government to significant reclamation-related liabilities; lacked
adequate cost recovery mechanisms; and encouraged speculative leasing
and wasteful development practices. Through this rulemaking, the BLM
intends to adopt new procedures and requirements to address those
issues.
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\1\ DOI, ``Report on the Federal Oil and Gas Leasing Program''
(Nov. 2021).
\2\ See, e.g., OIG, ``Inspector General's Statement Summarizing
the Major Management and Performance Challenges Facing the U.S.
Department of the Interior'' (Nov. 2022); GAO, ``OIL AND GAS
LEASING--BLM Should Update Its Guidance and Review Its Fees'' (Nov.
2021); GAO, ``OIL AND GAS--Onshore Competitive and Noncompetitive
Lease Revenues'' (Nov. 2020); GAO, ``FEDERAL ENERGY DEVELOPMENT--
Challenges to Ensuring a Fair Return for Federal Energy Resources''
(Sept. 2019); GAO, ``OIL AND GAS--Bureau of Land Management Should
Address Risk from Insufficient Bonds to Reclaim Wells'' (Sept.
2019); GAO, ``OIL AND GAS LEASE MANAGEMENT--BLM Could Improve
Oversight of Lease Suspensions with Better Data and Monitoring
Procedures'' (June 2018); OIG, ``Bureau of Land Management's Idle
Well Program'' (Jan. 2018).
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The Secretary of the Interior manages Federal oil and gas resources
pursuant to the MLA, MLAAL, and other statutes pertaining to specific
categories of lands. The MLA and MLAAL prescribe

[[Page 47564]]

the minimum bid amounts, minimum rental rates, and minimum percentage
of royalty reserved to the United States under onshore oil and gas
leases on most Federal lands. The BLM is the agency within DOI
responsible for regulating onshore leasing activities for federally
managed lands and the subsurface mineral estate. The BLM regulations
governing onshore oil and gas leasing activities are set out in 43 CFR
parts 3000 and 3100. Aside from updating certain application fees for
consistency, the BLM is not proposing in this rule to revise the
regulations at 43 CFR part 3130, which govern oil and gas activity in
the National Petroleum Reserve--Alaska.
In 1976, FLPMA established particular land and resource management
authorities for the BLM, emphasizing multiple use, sustained yield, and
environmental protection as the guiding principles for public land
management. FLPMA directs the BLM to manage some areas for
conservation, to consider the best use of public lands in a broader
context than just economic return, and to take action necessary to
prevent unnecessary or undue degradation of the lands.
Today, Federal onshore oil and gas production accounts for
approximately 10 percent of domestically produced oil and 8 percent of
domestically produced natural gas. As of the end of Fiscal Year (FY)
2022, the BLM managed 34,409 Federal oil and gas leases covering 23.7
million acres with nearly 89,350 wells that are capable of production.
Of the more than 23 million onshore acres under lease today, over 11
million (approximately 48 percent) of those acres are non-producing.

A. Addressing Recently Enacted Laws Concerning the Federal Onshore Oil
and Gas Program

Over the past 2 years, Congress has enacted two laws--the IRA (Pub.
L. 117-169) and the IIJA (Pub. L. 117-58)--that modify the Federal
onshore oil and gas program's statutory framework. Through this
rulemaking, the BLM will incorporate the provisions that are contained
in these Acts into its oil and gas regulations.
1. Inflation Reduction Act
In August 2022, Congress passed the IRA, two sections of which the
BLM intends to implement, in part, through this rulemaking: (1) Section
50262--Mineral Leasing Act Modernization; and (2) Section 50265--
Ensuring Energy Security.
Section 50262--Mineral Leasing Act Modernization
In IRA section 50262, Congress modernized the onshore oil and gas
program's fiscal terms. Over the past decade, the GAO and OIG have
repeatedly raised concerns about the fiscal soundness of the onshore
program.\3\ Furthermore, in 2011, the GAO added the ``Management of
Federal Oil and Gas Resources'' to its list of ``high-risk'' Federal
programs after determining that DOI ``does not have reasonable
assurance that it is collecting its share of revenue from oil and gas
produced on Federal lands.'' \4\ ``High-risk'' programs are
``vulnerable to waste, fraud, abuse, or mismanagement, or in need of
transformation.'' GAO reaffirmed this ``high-risk'' determination in
2021 and specifically recommended that DOI ``needs to commit to
developing policies that consistently lead towards improvements in . .
. ensuring the government receives a fair return.'' \5\
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\3\ See, e.g., OIG, ``Inspector General's Statement Summarizing
the Major Management and Performance Challenges Facing the U.S.
Department of the Interior'' (Nov. 2022); GAO, ``FEDERAL ENERGY
DEVELOMPENT--Challenges to Ensuring a Fair Return for Federal Energy
Resources'' (Sept. 2019).
\4\ GAO, ``HIGH-RISK SERIES--An Update'' (Feb. 2011).
\5\ GAO, ``HIGH-RISK SERIES--Dedicated Leadership Needed to
Address Limited Progress in Most High-Risk Areas'' (Mar. 2021).
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The IRA addressed some of the GAO and OIG's concerns by increasing
the onshore program's statutory royalty rate, minimum rental rates, and
minimum lease bid, and establishing a new fee on expressions of
interest (EOI). The BLM proposes to incorporate these statutory changes
into its oil and gas regulations.
Section 50265--Ensuring Energy Security
In section 50265 of the IRA, Congress enacted new oil and gas
leasing terms for Federal lands. Under these terms, the BLM ``may not
issue a right-of-way for wind or solar energy development on Federal
land'' unless it has: (1) held an onshore oil and gas lease sale during
the 120-day period ending on the date of the issuance of the right-of-
way; and (2) ``the sum total of acres offered for lease in onshore
lease sales during the 1-year period ending on the date of the issuance
of the right-of-way . . . is not less than the lesser of . . .
2,000,000 acres[ ] and 50 percent of the acreage for which expressions
of interest have been submitted for lease sales during that period. . .
.''
2. Infrastructure Investment and Jobs Act
In November 2021, Congress passed the IIJA, which amended section
349 of the Energy Policy Act of 2005 (EPAct) (Pub. L. 109-58). Section
349 of EPAct directs the BLM to ``establish a program . . . to
remediate, reclaim, and close orphaned, abandoned, or idled oil and gas
wells located on land administered by the land management agencies
within the Department of the Interior and the Department of
Agriculture.'' Section 349 defines an ``idled well'' as ``a well . . .
[that] has been nonoperational for at least 7 years'' and has ``no
anticipated beneficial use.''
Since EPAct's passage in 2005, the BLM has gained additional
information, experience, and insights into its efforts to inventory and
manage idled wells. In 2018, the OIG issued a report finding that
``[i]dle wells pose notable financial risk to the U.S. Government and
the taxpayer, as idle wells can fall into disrepair creating
environmental, safety, and public health hazards. In addition, idle
wells pose a risk of becoming orphaned, thus creating an undue
financial burden on the taxpayer to pay for plugging and reclaiming.
Idle wells have the potential to cost taxpayers millions of dollars if
not properly reviewed and managed.'' \6\ The OIG also identified
``various program management issues,'' including a ``lack of an
accurate inventory of idle wells'' and ``unreliable data in managing
idle wells,'' ``that have contributed to BLM's inability to reduce its
idle well numbers.'' To address these issues, the OIG recommended that
the BLM strengthen its procedures for monitoring and tracking idled
wells.
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\6\ OIG, ``Bureau of Land Management's Idle Well Program'' (Jan.
2018).
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The GAO also addressed the idled well program in a pair of reports
issued in May 2018 and September 2019.\7\ In these reports, the GAO
stated that the BLM has ``few policy tools to manage shut-in wells,''
which represent a ``large portion'' of wells that become idled and
orphaned.\8\ The GAO also identified nearly 2,300 idled wells ``at
increased risk of becoming orphaned because they have not produced
since June 2008 and have not been reclaimed.'' The bonds for ``a
majority of these at-risk wells'' were ``too low to cover'' their
anticipated reclamation costs, which,

[[Page 47565]]

according to the GAO, may exceed $330 million.
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\7\ GAO, ``OIL AND GAS--Bureau of Land Management Should Address
Risk from Insufficient Bonds to Reclaim Wells'' (Sept. 2019); GAO,
``OIL AND GAS WELLS--Bureau of Land Management Needs to Improve Its
Data and Oversight of Its Potential Liabilities'' (May 2018).
\8\ See Sec. 3160.0-5 for a proposed definition of shut-in
well.
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In the IIJA, Congress provided the BLM with additional direction
concerning the idled well program. Specifically, the IIJA requires the
BLM to ``periodically review'' and proactively ``reduce the inventory
of idled wells on Federal land.'' The IIJA also reduces the
nonoperational period after which a well is considered idled from 7 to
4 years. In light of these statutory directives, as well as the
recommendations from the OIG and GAO, the BLM is proposing to adopt
additional requirements for operators of nonoperational wells
(specifically, shut-in and temporarily abandoned wells). The BLM
believes that these requirements would help the BLM reduce its
inventory of idled wells through improved identification, tracking, and
proactive management.

B. Enhancing the Administration and Functioning of the Federal Onshore
Oil and Gas Program

In addition to addressing recent Congressional directives, the BLM
is undertaking this rulemaking for the purpose of adopting new
procedures and requirements that would enhance the administration of
the Federal onshore oil and gas program, consistent with the BLM's
multiple use and sustained yield mission. The BLM has not updated its
oil and gas regulations comprehensively since 1988 and believes that
changes are needed to reduce taxpayer exposure to reclamation-related
liabilities; provide adequate cost recovery mechanisms; direct oil and
gas leasing to appropriate locations; and encourage diligent
development by parties that are responsible and qualified to conduct
such development.
1. Reducing Taxpayer Exposure to Reclamation-Related Liabilities
The MLA requires the BLM to ``establish such standards as may be
necessary to ensure that an adequate bond, surety, or other financial
arrangement will be established prior to the commencement of surface-
disturbing activities on any lease, to ensure the complete and timely
reclamation of the lease tract, and the restoration of any lands or
surface waters adversely affected by lease operations after the
abandonment or cessation of oil and gas operations on the lease'' (see
30 U.S.C. 226(g)). The MLA further requires the BLM to include in oil
and gas leases ``such provisions as [it] deem[s] necessary . . . for
the protection of the interests of the United States . . . and for the
safeguarding of the public welfare'' (see 30 U.S.C. 187). To comply
with these statutory requirements, the BLM is proposing to update its
bonding framework for the first time in over 60 years and adopt
additional changes to limit the reclamation-related liabilities of the
Federal Government.
The BLM's current minimum bond amounts are outdated, expose the
Federal Government to significant financial risks in the event of
bankruptcies, and delay ``complete and timely'' reclamation and
restoration of lease tracts, which can cause or exacerbate a range of
environmental issues, including methane leaks, surface and groundwater
contamination, interference with agricultural activities, and degraded
wildlife habitat.\9\ The BLM has not increased its minimum bond
amounts, which are currently $10,000 for individual lease bonds,
$25,000 for statewide bonds, and $150,000 for nationwide bonds, since
1951 (statewide and nationwide bonds) and 1960 (individual lease
bonds). Accounting for inflation, the 2022 equivalents of those bond
amounts are $100,105, $281,399, and $1,688,394 respectively. (See
<a href="https://www.usinflationcalculator.com/">https://www.usinflationcalculator.com/</a>). Consequently, the BLM's
current bonding requirements ``may not create an incentive for
operators to promptly reclaim wells after operations cease because it
costs more to reclaim the wells than the operator could collect from
its bond.'' \9\ According to the BLM's internal estimates, plugging
costs alone typically range from $35,000 to $200,000 per well.
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\9\ GAO, ``OIL AND GAS--Bureau of Land Management Should Address
Risk from Insufficient Bonds to Reclaim Wells'' (Sept. 2019).
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In addition to increasing minimum bond amounts, the BLM is
proposing other measures to protect taxpayers from reclamation-related
liabilities. These include enhanced oversight of idled wells, as
discussed previously. The BLM also intends to streamline the process
for adding noncompliant entities to its list of entities and their
officers that may not receive new leases under section 17(g) of the
MLA, 30 U.S.C. 226(g).
2. Providing Adequate Cost Recovery Mechanisms
As explained in greater detail in the Discussion of the Proposed
Rule, the BLM is proposing to revise the onshore program's cost
recovery mechanisms. The BLM is doing so to ensure that the program's
application fees reflect actual processing costs. In 2021, the GAO
released a report on the BLM's fee structure for the onshore oil and
gas program, which stated that the ``BLM does not have assurance that
its current application fees reflect changes in conditions because its
biennial fee review does not examine all the costs BLM intended to
recover through its application fees.'' \10\ The BLM concurred with
that finding, and, in conjunction with this rulemaking, evaluated those
costs, which informed the proposed adjustments to the onshore program's
application fees.
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\10\ GAO, ``OIL AND GAS LEASING--BLM Should Update Its Guidance
and Review Its Fees'' (Nov. 2021).
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3. Directing Oil and Gas Leasing to Appropriate Locations
To assist with the consideration and selection of lease sale
parcels, the BLM intends to incorporate preference criteria into its
oil and gas regulations. Historically, the BLM has not employed
nationwide criteria to inform its selection of sale parcels. The BLM
has invested a considerable amount of time and resources on evaluating
parcels that the public does not purchase and that lessees do not
develop. Between 2013 and 2022, the BLM offered approximately 40.3
million acres and leased approximately 9.5 million acres from
competitive lease sales.\11\ Even when parcels sell at or above the
minimum bid, they are rarely developed or generate royalties for the
Federal Government. The GAO found that only about 7 percent of the
leases reviewed produced oil and gas in the primary term of the
lease.\12\ The BLM believes that by directing Federal oil and gas
leasing towards areas that are more likely to produce, it can
appropriately utilize the BLM's time and resources. When new technology
becomes available, the BLM would reevaluate development potential in
light of that technology, which could change the identified areas that
are more likely to produce.
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\11\ BLM Public Lands Statistics, Table 11, available at <a href="https://www.blm.gov/programs-energy-and-minerals-oil-and-gas-oil-and-gas-statistics">https://www.blm.gov/programs-energy-and-minerals-oil-and-gas-oil-and-gas-statistics</a>.
\12\ GAO, ``OIL AND GAS--Onshore Competitive and Noncompetitive
Lease Revenues'' (Nov. 2020).
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The lack of preference criteria to aid in the selection of sale
parcels also leads to conflict when leases are offered in areas with
sensitive cultural, wildlife, and recreation resources. By directing
leasing toward areas that do not have such resources, the BLM believes
it can proactively avoid some of these conflicts. Additionally, the BLM
believes that this approach would provide stakeholders with greater
certainty, as it would be understood at the outset of the leasing
process that the

[[Page 47566]]

preference criteria would guide the BLM's decision-making.
While the proposed rule text sets out a number of criteria to aid
the BLM in selecting parcels for potential inclusion in lease sales,
the analysis of the impacts of leasing these parcels would also address
the potential impacts of direct, indirect, and cumulative greenhouse
gas emissions from leasing in accordance with the National
Environmental Policy Act (NEPA) and applicable legal precedent. While
the preference criteria will also affect the environmental consequences
of proposed leasing, the BLM requests comment on whether the preference
criteria or other portions of this proposed rule should be expanded, or
new provisions added, to discuss analysis of greenhouse gas emissions
and related decision-making based on the analysis.
4. Encouraging Diligent Development of Federal Oil and Gas Leased
Resources
The BLM has added provisions to the proposed rule that would
incentivize diligent development of leased resources by responsible and
qualified parties. When oil and gas leases are not diligently
developed, as required by the MLA and expressly stated in the BLM's oil
and gas lease form,\13\ there can be significant opportunity costs. For
example, the BLM expends time and resources processing and
administering lease suspensions and drilling permit extensions that
often do not lead to development.\14\ Additionally, leases that are not
diligently developed can limit the BLM's ability to manage public lands
for other uses and resources and fulfill its multiple-use and
sustained-yield missions. For these reasons, the BLM is proposing to
limit the use of lease suspensions and drilling permit extensions, and,
prior to issuing or approving the transfer of leases, strengthen its
oversight of whether the potential transferees are responsible and
qualified to pursue development.
---------------------------------------------------------------------------

\13\ BLM Form 3100-11, ``Offer to Lease and Lease for Oil and
Gas,'' available at <a href="https://www.blm.gov/sites/blm.gov/files/uploads/Services_National-Operations-Center_Eforms_Fluid-and-Solid-Minerals_3100-011.pdf">https://www.blm.gov/sites/blm.gov/files/uploads/Services_National-Operations-Center_Eforms_Fluid-and-Solid-Minerals_3100-011.pdf</a>.
\14\ GAO, ``OIL AND GAS LEASE MANAGEMENT--BLM Could Improve
Oversight of Lease Suspensions with Better Data and Monitoring
Procedures'' (June 2018).
---------------------------------------------------------------------------

V. Discussion of the Proposed Rule

A. Summary

The proposed modifications to parts 3000, 3100, 3110, 3120, 3130,
3140, 3150, 3160, 3170, and 3180 are described in detail in the
following section-by-section discussion. In addition, minor non-
substantive changes, which do not warrant detailed discussion, are also
proposed throughout the rule. For example, the rule proposes to change
``the Bureau'' to ``the BLM,'' change ``Service'' to ``ONRR,'' spell
out single-digit numbers, and change the question-and-answer formatting
to be consistent with other regulations that appear in the CFR.
Throughout the proposed rule, the existing term ``shall'' has been
replaced with the words ``must,'' ``will,'' or ``may,'' as appropriate,
to reduce confusion. The proposed rule would update all time frames to
specify either business or calendar days in order to reduce confusion.
In addition, all sections in the parts that are being revised and
replaced would be redesignated to remove the hyphens from the existing
section numbers to comply with the Office of the Federal Register's
updated style requirements. For example, Sec. 3000.0-5 would be
redesignated to Sec. 3000.5. Removing the hyphens would require the
BLM to redesignate some of the existing section numbers with decimals
by adding more place values to them, which would allow the BLM to
subsequently delineate the different sections. For example, Sec.
3000.1 would be redesignated as Sec. 3000.10, Sec. 3000.2 would be
redesignated as Sec. 3000.20, and so on. This redesignation would be
carried throughout the proposed rule, even in sections that are not
otherwise being updated. Finally, the BLM would remove the regulatory
section numbers for headings that have no text associated them. These
are referred to as ``undesignated center headings'' and serve as
section guideposts in the regulations.
Each section of each subpart, and each provision within those
sections, is separate and severable from the other sections and
provisions. If any provision of this rule is stayed or determined to be
invalid or unenforceable, that provision shall be severable from the
rest of the rule and not affect any remaining provisions. The remaining
provisions would remain in force. This rule should be construed to
continue to give the maximum effect to each provision as permitted by
law.

B. Section-by-Section Discussion

The following discussion addresses the proposed changes to the
existing regulations. If a provision is not specifically discussed in
this section-by-section analysis, then the provision would be
essentially the same as the existing regulation, except for the minor
non-substantive changes discussed previously.
1. Section-by-Section Discussion for Changes to 43 CFR Subpart 3000
The proposed rule would add a new section to the existing subpart
3000 regulations and revise five section headings. The goal of the
revisions is to replace the existing question-and-answer formats and
use more commonly used terms, consistent with other changes made
throughout this rule.
Section 3000.5 Definitions
The BLM is proposing to alphabetize the definitions in this
section.
The proposed rule would add a definition for ``acreage for which
expressions of interest have been submitted'' to refer to acreage that
is identified in an expression of interest received by BLM, that has
not been proposed for leasing in any pending sale or other expression
of interest pending BLM disposition, and for which BLM may lawfully
issue an oil and gas lease. This definition and the below definition of
``acres offered for lease'' are intended to clarify the means by which
BLM will internally track its leasing progress for purposes of the
Inflation Reduction Act, as further specified in new Sec. 3120.42.
The proposed rule would add a definition for ``acres offered for
lease'' to mean all acres that BLM has offered for oil and gas lease,
regardless of whether those acres are acreage for which expressions of
interest have been submitted.
The proposed rule would update the definition for ``Act'' to
include the acronym MLA for the Mineral Leasing Act of 1920, as this
acronym would appear in the proposed regulatory text.
The proposed rule would replace the term ``Service'' in this
section with ``ONRR'' because the relevant functions of the prior
Minerals Management Service (also referred to throughout the existing
regulations as ``Service'') are now performed by the ONRR. The proposed
rule would likewise change the term ``Service'' to ``ONRR'' wherever it
appears in the parts 3000 and 3100 regulations.
The proposed rule would add a definition for ``Person'' to unify
the terms ``person'' and ``entity.'' The proposed definition would
define ``person'' to mean any individual or entity, such as a
partnership, association, State, political subdivision of a State or
territory, or a private, public, or municipal corporation.
The proposed rule would modify the existing definition for ``Proper
BLM office'' to remove the reference to the BLM Alaska State Office.
The definition of this term would continue to refer the reader to Sec.
1821.10, which contains the

[[Page 47567]]

location information for all BLM state offices.
A new definition for ``Properly filed'' would be added to proposed
Sec. 3000.5 to correspond to the use of the term in Sec. 3000.60. The
new definition would describe ``Properly filed'' as a document or form
submitted to the appropriate office with all necessary information and
payments, as provided in 43 CFR subpart 1822.
The proposed rule would modify the existing definition for
``Surface managing agency'' to ensure that the definition includes
other agencies within the DOI with which the BLM must coordinate, in
addition to non-DOI agencies that have management responsibility for
the surface resources that overlay federally owned minerals. The
revised definition would replace the phrase ``any Federal agency
outside of the Department of the Interior with jurisdiction over the
surface overlying federally owned minerals'' with ``any Federal agency,
other than the BLM, having management responsibility for the surface
resources that overlay federally owned minerals.''
Section 3000.20 False Statements
The purpose of this section is to inform the public that submitting
false or fraudulent statements to the agency is a crime punishable by
imprisonment or a fine, or both. The proposed rule would remove the
references to specific imprisonment times and fine amounts for
violations provided in 18 U.S.C. 1001. The purpose of this change is to
ensure that this regulation does not become inaccurate or obsolete if
the penalty provisions in 18 U.S.C. 1001 are updated. The penalties are
already referenced at 18 U.S.C. 1001, which is cited in the BLM's
regulation.
Section 3000.40 Appeals
A BLM decision is subject to appeal to the Interior Board of Land
Appeals (IBLA) in accordance with the regulations contained in 43 CFR
part 4, when a decision accomplishes, authorizes, or prohibits some
action. See International Petroleum, 190 IBLA 130, 134-35 (2017). The
BLM will identify the applicable authority under which it made its
decision. Actions under certain sections of BLM's oil and gas leasing
regulations, for example the BLM's filing fees, are not subject to
appeal, because such actions are authorized pursuant to a previous
notice-and-comment process. The proposed rule would add a reference to
Sec. 3000.120 to clarify that point, consistent with existing language
found under Sec. 3000.12(b), which states the amount of a fixed fee is
not an agency decision subject to appeal under Sec. 3000.40 and part
4. The BLM also proposes to also add a reference to proposed Sec.
3000.130, which includes a similar paragraph stating the financial
terms for new leases are not subject to appeal. The proposed rule would
update an existing CFR reference from Sec. 3101.7-3(b) to Sec.
3101.53(b). This change reflects the proposed redesignation changes to
the process for oil and gas lease issuances under Sec. 3101. The
proposed rule would remove a reference to Sec. 3120.1-3, as the title
and language in that section are proposed to change from ``protests and
appeals'' to ``protest'' only. (See the discussion on the proposed
Sec. 3120 later in this preamble.)
Section 3000.50 Limitations On Time To Institute Suit To Challenge a
Decision of the Secretary
The proposed rule would update the word ``contesting'' in this
section to the more commonly used term ``challenging'' to provide
clarity.
Section 3000.60 Filing of Documents
This section describes how to file documents with the BLM. The
proposed rule would update this section to enable the BLM to accept
electronically filed documents. The provision would still allow the use
of hard-copy mailing services. In addition, this section would update
the reference to Sec. 1821.2 to the correct citation of subpart 1822.
Section 3000.90 Enforcement Actions Under 30 U.S.C. 195
This section explains that the U.S. Department of Justice is the
agency responsible for enforcement actions described in section 41 of
the MLA. The proposed rule would update the title and language in this
section to cite 30 U.S.C. 195. The U.S. Code reference is more
informative than the current reference to ``provisions of section 41 of
the Act.'' The proposed rule would add language from 30 U.S.C. 195 to
make this provision more informative.
Section 3000.100 Fees in General
The proposed rule would rename this section from ``What do I need
to know about fees in general?'' to ``Fees in general.''
Section 3000.110 Processing Fees on a Case-by-Case Basis
The proposed rule would rename this section from ``When and how
does BLM charge me processing fees on a case-by-case basis?'' to
``Processing fees on a case-by-case basis.'' In addition, the BLM
proposes to add ``and in accordance with all other applicable laws and
regulations'' into paragraph (b)(1) to avoid implying that an applicant
may prepare or assist in the preparation of certain NEPA documents
that, under CEQ regulations, are to be prepared solely by the
applicable agency.
Section 3000.120 Fee Schedule for Fixed Fees
Consistent with the IRA, the BLM has implemented a nonrefundable
filing fee of $5 per acre, or fraction thereof, for EOIs. This fee is
not considered a cost-recovery fee, and the monies collected are
transferred to the Treasury as miscellaneous receipts (see 30 U.S.C.
191).
The proposed rule would update the existing fee for name changes,
corporate mergers, or transfers to heirs and devisees to include
corporate dissolutions and sheriff's deeds. The BLM accepts corporate
dissolutions and sheriff's deeds to recognize the change in the
ownership of interest in a lease per existing policy at H-3106-1,
Transfers by Assignment, Sublease or Otherwise. The BLM processes these
types of changes in the same manner as name changes, corporate mergers
or transfers to heirs and devisees. Thus, these changes should also
require a fixed filing fee.
The BLM is also proposing to adjust the existing oil and gas filing
fees for competitive lease applications, leasing under rights-of ways,
class I lease reinstatements, and geophysical exploration permits. When
these fees were initially set in 2005, the BLM explained that it
reserved the right to amend the fees in future rulemakings to reflect
new data or other evidence that the fees did not accurately reflect
reasonable costs (70 FR 41532 (July 19, 2005)). The GAO has since found
that the BLM has not reviewed its application fees in response to
changing conditions. See GAO-22-103968, Oil and Gas Leasing: BLM Should
Update Its Guidance and Review Its Fees. The BLM concurred with GAO's
findings because the cost to the BLM of its oil and gas leasing process
has changed since 2005. For example, the BLM moved to online auctions
in 2016, and it no longer expends resources on holding auctions because
the winning bidders pay the auction company directly for auction
expenses. Previously, a portion of the competitive leasing application
fees was intended to recover the BLM's costs for holding in-person
auctions. Conversely, the BLM proposes to include the cost related to
complying with the NEPA in the filing fee for a competitive lease
application; that causes an increase to the filing fee. To reflect the
cost changes, the BLM is

[[Page 47568]]

proposing to amend the fee for the following document filings or
actions: competitive leasing application fee, leasing under rights-of
ways, class I lease reinstatements, and geophysical exploration
permits.
The BLM is proposing to include new fixed filing fees for the
following Federal oil and gas actions to reimburse the BLM for its
reasonable processing costs: designation of successor operator; unit
agreement applications; subsurface storage agreement applications; unit
agreement expansion applications; and formal lease nominations. The BLM
considered proposing new fixed filing fees for Federal communitization
agreements (CA), Federal participating area applications, and royalty
rate reduction applications, but it ultimately declined to propose
these fees due to the low value and the public benefit related to these
items. Royalty rate reductions occur at the end of a lease's life and
allow the operator to continue producing from the property based on
reduced royalties. This gives the American public the benefit of
additional production and Federal revenue without additional surface
disturbance or environmental impact.
The BLM considered both case-by-case and fixed filing fees for the
new fees proposed in this rule. Historically, the BLM has determined
costs on a case-by-case basis for types of documents where the costs
may differ significantly in each case. In this proposal, the BLM has
opted to institute fixed filing fees for designation of successor
operator; unit agreement applications; subsurface storage agreement
applications; unit agreement expansion applications; and a formal lease
nomination fee because charging processing costs on a case-by-case
basis would be time consuming and would not be the most efficient use
of BLM resources. Collecting cost data on a case-by-case basis for each
document to be processed adds to the processing costs. The BLM decided
that, for the oil and gas documents at issue, it would likely be more
efficient and sufficiently reliable to set a fixed fee based on average
costs and indexed to inflation. In addition, applicants benefit from
knowing fees in advance.
To determine the new oil and gas fixed filing fees, the BLM
followed the same method it used in 2005 to set the current fixed fees:
using a weighted average rather than a simple average to determine the
processing cost for each type of document. This method gives greater
weight to the processing cost data from state offices with a heavy
workload and, thus, more expertise in processing a particular type of
document. The BLM's fluid minerals program identified the processing
steps and then asked the state office subject matter experts (SMEs) to
identify the appropriate job position, salary level, and time required
for particular steps specified by the BLM handbooks. The fluid minerals
program considered changes to the processing of each type of document
since the handbooks were last updated. The BLM then calculated a direct
cost for each process and adjusted to 2021 salary rates without a
locality factor. The BLM's fluid minerals program spot-checked the data
and sent each state office a summary of the cost data that the office
had previously submitted for these types of documents, along with the
BLM-wide weighted average cost for each. State offices were asked to
review the cost data and report whether that data, adjusted to current
filing fee amounts, remained reasonable. They were also asked to re-
estimate costs if the state office found the re-examined adjusted cost
data to be inaccurate. A re-examination verified that the BLM's data
continued to be valid and ensured that figures, which varied
significantly among offices, had not been submitted in error.
Processing Steps for the Fixed Fees
The BLM reviewed the changes in processing steps due to changes in
the law, regulations, and policy to determine how processing the
different fixed fee applications have changed since the BLM established
the fixed filing fee in 2005. The following table summarizes the
results of this review.

----------------------------------------------------------------------------------------------------------------
Current processing Removed processing
Document/action steps Added processing steps steps
----------------------------------------------------------------------------------------------------------------
Formal lease nomination *............ Validating data
received; Sorting
parcels (developing
parcel configuration/
acreage); Preparing
stipulations;
Preparing sale notices.
Competitive lease application........ Preparing sale notices; Adjudicating high bids; Sorting parcels
Noting land status Conducting (developing parcel
records; Preparing and environmental reviews. configuration/
conducting sale acreage); Preparing
auctions; Preparing sale notices;
lease decisions; Preparing and
Entering and conducting sale
transmitting data auctions; Entering
updates. data updates.
Leasing under right-of-way........... Receiving, validating, Adjudicating the Sorting parcels
and entering data; application and (developing parcel
Examining land status; preparing the notice/ configuration/
Sorting parcels invitation to bid; acreage); Preparing
(developing parcel Conducting sale notices;
configuration/ environmental review. Preparing and
acreage); Preparing conducting sale
stipulations; auctions; Entering
Preparing sale data updates.
notices; Noting land
status records;
Preparing and
conducting sale
auctions; Preparing
lease decisions;
Entering and
transmitting data
updates.
Lease consolidation.................. Receiving, validating,
and entering data;
Examining requests,
lease term conditions,
and production;
Preparing new leases
and decisions;
Entering and
transmitting updates.
Assignment and transfer of record Receiving, validating,
title or operating rights. and entering data;
Examining assignment
and transfer forms;
Reviewing leases and
bonds; Approving,
entering, and
transmitting updates.
Overriding royalty transfer, payment Receiving, validating,
out of production. and entering data.

[[Page 47569]]

Name change, corporate merger, Receiving, validating,
sheriff's deed, corporate and entering data;
dissolution, or transfer to heir/ Examining requests;
devisee. Determining successors-
in-interest or other
special requirements;
Reviewing leases and
bonds; Preparing
decisions; Entering
and transmitting
updates.
Lease reinstatement, Class I......... Receiving, validating, Conducting
and entering data; environmental review.
Examining eligibility;
Preparing decisions;
Entering and
transmitting updates.
Geophysical exploration permit Nominal filing fee for For all states--
application. Alaska only. Receiving, validating,
and entering data;
Examining land status;
Conducting
environmental review;
Preparing notices/
decisions; Entering
data updates.
Final application for Federal unit Receiving, validating,
approval, Federal unit agreement and entering data;
expansion, Federal subsurface gas Technical review;
storage application *. Determine commitment
status; Preparing
notices/decisions;
Entering data updates.
Designation of successor operator for Receiving, validating,
Federal agreements *. and entering data;
Technical review;
Preparing notices/
decisions; Entering
and transmitting data
updates.
----------------------------------------------------------------------------------------------------------------
* New proposed fixed filing fee.

The fixed fee for lease renewals would be removed, as there are no
longer any leases eligible for renewal. Under the MLA, any lease
renewal issued on or after November 15, 1990, ``continue[s] for twenty
years and so long thereafter as oil and gas is produced in paying
quantities.'' 30 U.S.C. 188(f)(3). If a lease renewed on or after
November 15, 1990, fails to produce oil and gas in paying quantities at
the end of its renewal term, the lease expires with no further option
of renewal.
The current $500 fee for Class II lease reinstatements is located
at existing 43 CFR 3108.2-3(b)(3)(vi). The BLM considered moving the
existing fee to 43 CFR 3000.120 for inclusion alongside the fixed
filing fees, increasing the fee to reflect the processing costs, and
then adjusting the fee annually for inflation. However, the MLA, at 30
U.S.C. 188(e), specifically states for Class II lease reinstatements
that ``[t]he lessee of a reinstated lease shall reimburse the Secretary
for the administrative costs of reinstating the lease, but not to
exceed $500.'' Accordingly, the BLM proposes to leave the
administrative fee of $500 in its current location at 43 CFR
3108.23(b)(3)(vi).
FLPMA Factors and Processing Fees
Section 304(b) of FLPMA lists six factors, commonly known as the
``FLPMA reasonableness factors,'' that the BLM must consider when
deciding the amount of a reasonable processing fee. Those factors are:
(1) The BLM's actual costs to process a document not including
management overhead, i.e., the processing time spent by the BLM State
Directors, Deputy State Directors, and other management staff. Actual
costs include (but are not limited to) time spent at the state and
field office levels by SMEs who work on a specific authorization, such
as a lease, and funds spent on environmental reviews, technical
reviews, and analyses.
(2) The monetary value, or objective worth, of the right or
privilege that the applicant seeks.
(3) The efficiency with which the BLM processes a document, i.e.,
minimizing of waste by carefully managing agency expenses and time.
(4) Whether any of the BLM's processing costs, for actions such as
studies or data collection, benefit the general public or the Federal
Government, rather than just the applicant alone.
(5) Whether the project provides any significantly tangible
improvement, such as a road, or other direct service to the public.
Occasionally, a negative factor, such as an adverse impact on wildlife,
habitats, or surface drainage, may prevent an improvement from
qualifying as a public service. Data collection that the BLM requires
of an applicant for monitoring an activity is not a public service.
(6) Other relevant factors.
The BLM considered each of the FLPMA reasonableness factors for
each type of document for which the BLM is proposing to adjust the
existing fee or add a new fixed fee. The BLM first estimated the actual
cost to process a type of document. When estimating the processing
costs, the BLM determined a range based on the range of costs provided
by the BLM State Offices. The BLM then considered each of the other
FLPMA factors to determine if they warranted setting the fee at less
than actual cost. If so, the BLM then considered whether any of the
remaining factors acted as an enhancing factor that would mitigate
against setting the fee at less than actual cost. Lastly, the BLM
decided the amount of the fee, which cannot be more than the processing
cost. For all of the fees in this proposal, this method resulted in
fees set at the lower end of the BLM's processing cost.
Actual Costs
Actual costs are the sum of both direct and indirect costs. Direct
costs include such things as labor, material, and equipment. The BLM
estimated the direct costs by reaching out to each BLM state office and
requesting an estimate of the processing time for each application
based on the steps detailed in the previous table. Then using the
average hourly wage, the BLM calculated the direct cost for the BLM to
process the application. Indirect costs include items such as rent and
overhead, excluding State Director and management overhead. For an
example of how the BLM would determine the sum of direct and indirect
costs, assume the measured direct cost of processing a document is
$200. To estimate the indirect cost for processing that document, the
BLM uses a ratio that it calculates annually. Annually, the BLM
calculates the indirect cost rate, which is assessed on these fixed
filing fees. Indirect costs are the overhead costs, which remain after
direct costs have been computed, and may include utilities,
telecommunications, information

[[Page 47570]]

technology, space rental, and other administrative support functions.
Currently that ratio is 10 to 2, or 20 percent, meaning for every $10
of direct costs there would be $2 of indirect costs. The BLM would
estimate the indirect cost using the ratio and direct cost figures. In
this example, since the direct cost was $200 and the ratio is 10 to 2,
the indirect cost is $40. The BLM then would add the direct and
indirect cost figures to arrive at the actual cost figure of $240 to
process the document. This method is generally accepted in the private
and public sectors.
Monetary Value of the Right or Privilege
Historically, the BLM concluded that its processing costs to
prepare parcels for lease sale benefit three classes of beneficiaries:
the party who requests that the parcel be included in the sale, all
parties who bid on the parcel, and the successful bidder. The party who
requests that a parcel be included in a lease sale benefits by
influencing the selection of parcels offered. The BLM considered this
benefit to be greatly outweighed by the benefit to the successful
bidder who ultimately obtains the lease and can develop the minerals on
the parcel. Similarly, while all bidders receive the benefit of being
considered for a lease, the BLM considered this benefit to be greatly
outweighed by the benefits to the successful bidder who obtains the
lease. With respect to the new proposed fees for agreements, the
operator benefits through economic gain if and when drilling activity
occurs and through development of the lease. In addition, any benefit
to the general public that would accrue from increased oil and gas
availability or lower prices is considered too speculative and indirect
to warrant consideration.
Monetary Value to the Applicant
The BLM did not attempt to calculate the monetary benefit to each
applicant because those values are not always knowable to the BLM, and
it would be inefficient to attempt to calculate them for each
application or submission.
Monetary Value of the Right or Privilege Granted
To gauge the monetary value, the BLM considered the monetary value
of similar rights or privileges granted to applicants historically. The
BLM reviewed each type of document and compared the proposed filing fee
for a given type of document with our professional judgment of the
historical values of similar rights or privileges the BLM has granted.
In each case, the BLM believes the value of the right or privilege is
so much greater than the processing cost that a fee based on the
average actual cost would not significantly affect the applicant's
proposed action. This is not surprising considering that the costs
pertain to documents related to the commercial development of minerals.
The BLM did not reduce any fees because of this factor.
Monetary Value Change
The BLM bases its decision about the monetary value of the benefit
to the applicant on the value at the time the applicant submits its
application. All leases have relatively large monetary value before
exploration compared with the proposed fees. The basic value of the
opportunity provided by a lease to explore for minerals is shown by the
willingness of applicants to pay large sums before exploration for
bonus bids, for lease transfers, and for exploration activities such as
drilling. Because the monetary value of the right sought in a lease is
much greater than the cost of processing the lease, the BLM considers
it reasonable to charge a fee equal to processing costs for all lease
applications.
The Efficiency Factor
The BLM's fluid minerals program asked the state office's SMEs to
provide a minimum, maximum, and average time spent on each application
process. Some SMEs stated that their estimated range depended on the
experience of the staff. The estimates from less experienced staff
increased the amounts for the average and the high estimate for
processing costs. In addition, some state offices receive fewer
applications than compared with other state offices. This can increase
the processing time spent for researching and processing applications
when they are not frequently received in a particular office.
Therefore, the BLM chose to use the lowest estimate for time spent on
processing applications to create the weighted average so that
applicants are not penalized for understaffed offices or offices with
fewer seasoned employees.
The BLM ensured that the field offices efficiently process the
documents for which fees are charged. For all of the new and existing
fees, the BLM based the processing procedures on standardized steps as
outlined in the BLM Handbooks and Instruction Memoranda in order to
eliminate duplication and extraneous procedures. The BLM developed
these detailed and measurable processing steps to be efficient.
The Public Benefit Factor
Possible public benefits from the BLM processing activities, such
as studies or data collection, are also difficult to measure. For
example, studies related to document processing often provide
information about an area's natural resources. This is sometimes a
public benefit, but the value of the information, or whether there will
be a benefit at all, is not predictable. The BLM concluded that
document processing for types of fixed fee documents in this rulemaking
does not usually produce studies or data that significantly benefits
the public. In addition, the BLM determined that for each type of
document in this rulemaking, the monetary value to the applicant
outweighs the possible benefit of such studies to the public. The BLM
analysts used their knowledge of the historical values of such cases to
make these determinations. The BLM has, therefore, decided that this
factor does not warrant setting any fee in this rulemaking at less than
its actual processing cost.
The Public Service Factor
A project's service to the public concerns whether the applicant's
project itself, as opposed to the BLM's processing of the related
documents, provides some significant direct service or benefit to the
general public. FLPMA refers to this as public service. Examples
include improvements, such as roads, trails, or recreation facilities.
Occasionally, a negative factor, such as an adverse impact on wildlife,
habitats, or surface drainage, may prevent the BLM from regarding an
improvement as a public service.
The BLM reviewed exploration data shared with the government to
consider whether it constitutes a public service. Applicants for
geophysical exploration for the oil and gas program in Alaska are
required to share with the government the mineral resource data they
derive from exploration. However, that information likely would not be
made public. Moreover, if the information is valuable for mineral
development, the BLM expects the findings would result in oil and gas
leases in that area. In that case, the monetary value of the
information to the permittee would outweigh its value to the public.
The BLM considered that even information that is not valuable to the
permit holder for mineral development might still provide some
geological or geophysical information of value to the government, which
the BLM could sometimes use for some types of resource management, such
as land classifications. However, because there is very little
information

[[Page 47571]]

obtained in this way and because its use is unpredictable, the
potential benefits of the information to the public are too small to
warrant an adjustment to the proposed fee. Finally, the operator may
consider geophysical information indicating low-development potential
valuable because the identification of low-development potential helps
the operator avoid unprofitable development; therefore, the value to
the operator outweighs any public benefit.
The projects with a proposed fixed fee do not generally provide a
public service. Large projects could include road construction, but
such roads are rarely open to the public or built to public safety
standards. In addition, they eventually must be removed. Consequently,
for fixed fee documents, the likelihood of providing such a public
service is too remote and speculative to warrant charging a fee less
than actual costs.
Other Factors
The BLM did not find other factors that made it reasonable to
adjust fees in this proposed rulemaking.
New Proposed Oil and Gas Fixed Fees

Table 1--Category: Fixed Fees
[Note that fees will be adjusted annually for inflation according to the
IPD-GDP and posted on the BLM's website. Revised fees are effective each
October 1]
------------------------------------------------------------------------
Document/action Existing fee Proposed fee
------------------------------------------------------------------------
Oil and Gas (parts 3100, 3110, 3120, 3130, 3150, 3160 and 3180)
------------------------------------------------------------------------
Formal lease nomination................. $0 $125
Expression of Interest fee per acre, or 0 5
fraction thereof.......................
Competitive lease application........... 185 3,100
Leasing under right-of-way.............. 475 660
Leases consolidation.................... 525 525
Assignment and transfer of record title 105 105
or operating rights....................
Overriding royalty transfer, payment out 15 15
of production..........................
Name change, corporate merger, sheriff's 250 250
deed, corporate dissolution, or
transfer to heir/devisee...............
Lease reinstatement, Class I............ 90 1,260
Geophysical exploration permit \a\ 30 \b\ 1,150
application--all states................
Renewal of exploration permit--Alaska... 30 30
Final application for Federal unit 0 1,200
agreement approval, Federal unit
agreement expansion, Federal subsurface
gas storage application................
Designation of successor operator for 0 120
Federal agreements.....................
------------------------------------------------------------------------
\a\ Alaska only.
\b\ All states.

We have rounded estimated fees down or up to the nearest $5.00, for
ease of payment and administration. This is consistent with general
business practices.
Annual Inflation Adjustments
The BLM is also proposing to cease publishing the annual fee
adjustments in the Federal Register and the CFR. The BLM would instead
post the updated table on the BLM's web page with the historical fees
posted in the same location. Revised fees would be effective each year
on October 1. The BLM is requesting comments on this process change.
Annual inflation adjustments would be calculated based on the
percentage change in the Implicit Price Deflator for Gross Domestic
Product (IPD-GDP) for the 1-year period between the fourth quarters of
the previous 2 years, consistent with the 2005 Cost Recovery Rule. For
example, the FY 2022 fees were set based on the change in the IPD-GDP
from the fourth quarter of 2020 to the fourth quarter of 2021. The BLM
would then multiply the current fee amounts by that multiplier to
obtain the adjusted fee amounts. The resulting amounts would be rounded
to the nearest $5 at the end of the calculation process for ease of
payment and administration. This is consistent with general business
practices.
Existing Applications
The BLM would not charge a new fixed fee under this rule for
processing a document that the BLM received before the effective date
of the rule. Documents submitted before the effective date of the final
rule will be processed with the appropriate fees under the regulations
existing as of the submittal date.
Section 3000.130 Fiscal Terms of New Leases
The BLM is proposing a new provision consisting of a table
outlining the fiscal terms for new leases. Under the existing
regulations, various subparts describe the base rental rate for leases.
Likewise, various subparts describe the minimum bonus bids for
competitive leases. In this rule, the BLM proposes to conform its
regulations to the IRA by increasing the minimum bids and base rental
rates. The BLM proposes to identify these rates in a new section and
table so the rates can be regularly adjusted for inflation. The IRA
precludes the adjustment of these fiscal terms until after August 16,
2032. Each of the various sections would now refer to this new section,
rather than itemizing the relevant fees. The BLM proposes to include a
paragraph (b) to state that these rates are not subject to appeal,
since these base rates would be applied through the publication of a
final rule in the Federal Register.
Consistent with 43 CFR 3000.120, the BLM is also proposing to no
longer publish the annual fee adjustments in the Federal Register and
the CFR. The BLM would instead post the updated table on the BLM's
website before October 1 of each year. Revised fees would be effective
each year on October 1. The BLM is requesting comments on this process
change.
Annual inflation adjustments would be calculated based on the
percentage change in the Implicit Price Deflator for Gross Domestic
Product (IPD-GDP) for the 1-year period between the fourth quarters of
the previous 2 years, consistent with the 2005 Cost Recovery Rule. For
example, the FY 2022 fees were set based on the change in the IPD-GDP
from the fourth quarter of 2020 to the fourth quarter of 2021. The BLM
would then multiply the current fee amounts by that multiplier to
obtain the adjusted fee amounts. The resulting amounts would be rounded
to the

[[Page 47572]]

nearest $5 at the end of the calculation process for ease of payment
and administration. This is consistent with general business practices.
2. Section-by-Section Discussion for Changes to 43 CFR Subpart 3100
The proposed rule does not make any revisions to the section
headings in the existing subpart 3100 regulations.
Section 3100.3 Authority
The purpose of this section is to describe lands that are subject
to leasing. The proposed changes to this section were made to provide
clarity and to conform the regulations to various other laws. This
proposed section would remove the reference to the National Petroleum
Reserve--Alaska (NPR-A) from the exceptions listed under both Public
Domain and Acquired lands to reduce confusion. The NPR-A is
appropriately listed under 43 CFR 3100.3(c) and would remain as lands
that are subject to leasing under the Department of the Interior
Appropriations Act, FY 1981 (42 U.S.C. 6508). These lands are subject
to leasing under the regulations found under 43 CFR part 3130.
The proposed rule updates the exceptions for lands within the
National Wilderness Preservation System to cite to 16 U.S.C. 1133. The
proposed reference to the United States Code is more informative than
the current reference to ``section 4(d)(3) of the Wilderness Act.''
This proposed section would also add lands within Wild and Scenic
Rivers to the exceptions listed under both Public Domain and Acquired
lands. Subject to valid existing rights, the Wild and Scenic Rivers Act
(16 U.S.C. 1280) withdraws from leasing lands within designated Wild
and Scenic Rivers that constitute the bed or bank or are situated
within one-quarter mile of the bank of any river designated a wild
river.
This proposed rule would move the reference to lands within
wildlife refuges in existing 43 CFR 3101.5-1 to the exceptions listed
under both Public Domain and Acquired lands in the proposed
redesignated 43 CFR 3100.3. This change would not impose new
requirements. The proposed rule would remove the reference to
noncompetitive lease offers, consistent with changes made by the IRA.
Currently, existing 43 CFR 3101.6 states that lands within
Recreation and Public Purposes leases and patents are subject to lease
under 43 CFR part 3100. The proposed rule would move that statement to
Sec. 3100.3(h) because it belongs in the list of authorities. It would
not result in any substantive regulatory change.
Finally, this proposed section would add a reference to the Fish
and Wildlife Coordinating Act (16 U.S.C. 661) in paragraphs (j)(1)
through (3) dealing with coordination lands and refuges in Alaska.
These references are currently found in the existing 43 CFR 3101.5-
2(a), Sec. 3101.5-2(b), and Sec. 3101.5-3, but are more appropriately
listed under the authority for leasing. These are not new requirements.
Section 3100.5 Definitions
The purpose of this section is to provide definitions of terms used
through subpart 3100. The proposed rule would alphabetize the
definitions and remove embedded definitions, so the terms are defined
separately.
The proposed rule would update the definition for the term ``bid''
to include a specific definition corresponding to the term's use in 43
CFR 3109 as, in the BLM's experience, this has caused confusion in the
past. For leases or compensatory royalty agreements issued under 43 CFR
3109, the term ``bid'' would mean an amount or percent of royalty or
compensatory royalty that the owner or lessee must pay for the
extraction of the oil and gas underlying the ROW, which is different
from the bonus bids received on competitive leases.
The proposed rule would add a definition for ``competitive
auction,'' which would mean an in-person or internet-based bidding
process where leases are offered to the highest bidder. The addition of
this term would help the BLM to streamline the regulations by obviating
the need to use the longer phrase ``oral or internet-based auction''
throughout the regulations.
The proposed rule would add a new definition for the term
``exception'' which would mean a limited exemption, for a particular
site within the leasehold, to a stipulation. The addition of this term
would help to provide clarity in the regulations. The term is used in
43 CFR subpart 3101 and is further discussed later.
The proposed rule would add a new definition for the term
``modification'' which would mean a change to the provisions of a lease
stipulation for some or all sites within the leasehold and either
temporarily or for the term of the lease. The term is used in 43 CFR
subpart 3101 and is further discussed later. The addition of this term
would allow the BLM to incorporate existing policy into its regulations
and help to provide clarity in the regulations.
The proposed rule would add a new definition for the term ``oil and
gas agreement'' which would mean an agreement between lessees and the
BLM to govern the development and allocation of production for existing
leases, including, but not limited to, CAs, unit agreements, secondary
recovery agreements, and gas storage agreements. The BLM would add this
term to identify regulations that apply to multiple types of
agreements. The term is used in the proposed rule in 43 CFR subpart
3105 and is further discussed later.
The proposed rule would update the definition for ``operating right
(working interest)'' to include the holder's obligations under the
lease. The amended rule would state, ``Operating rights include the
obligation to comply with the terms of the original lease, as it
applies to the area or horizons for the interest acquired, including
the responsibility to plug and abandon all wells that are no longer
capable of producing, reclaim the lease site, and remedy environmental
problems.'' The update to this term would provide clarity in the
regulations.
The proposed rule would update the definition for the ``primary
term of all other leases'' to state that it means the initial term of
the lease, which is set at 10 years. The change in this definition
updates the outdated reference to 5-year terms for competitive leases
used prior to FOOGLRA.
The proposed rule would update the definition for ``record title''
to include the lessee's obligations under the lease. The lessee's
interest, which is also referred to as the record title, includes the
obligations to perform and bear ultimate responsibility to adhere to
lease terms, including requirements relating to well operations and
abandonment. The update to this term would provide clarity in the
regulations.
The proposed rule would add a new definition for ``qualified
bidder'' to mean any person in compliance with the laws and regulations
governing a bid. The addition of this term would provide clarity in the
regulations.
The proposed rule would add a new definition for ``qualified
lessee'' to mean any person that is compliant with the laws and
regulations governing the BLM issued leases held by that person. The
addition of this term would provide clarity in the regulations.
The proposed rule would add a new definition for ``responsible
bidder'' to mean any person who has not defaulted on winning bids, is
capable of fulfilling the requirements of onshore BLM oil and gas
leases, and does not have a history of noncompliance with applicable
statutes and regulations or the terms of a BLM-issued oil and gas

[[Page 47573]]

lease. The term ``responsible bidder'' would not include persons who
bid with no intention of paying a winning bid or persons who default on
a winning bid. The addition of this term would provide clarity in the
regulations.
The proposed rule would add a new definition for ``responsible
lessee'' to mean any person who has not defaulted on previous winning
bids, is capable of fulfilling the requirements of onshore Federal oil
and gas leases, and does not have a history of noncompliance with
applicable statutes or the terms of a BLM-issued oil and gas lease. The
addition of this term would provide clarity in the regulations.
The proposed rule would add a new definition for the term
``waiver'' which would mean a permanent exemption from a lease
stipulation. The term is used in subpart 3101 and is further discussed
later. The addition of this term would allow the BLM to incorporate
existing policy into its regulations and help to provide clarity in the
regulations.
Finally, the BLM split out the definitions for ``assignment'' and
``sublease'' from the current definition of ``transfer'' in the
existing regulations. This will assist the public in finding the
applicable definition as well as highlight the differences between an
assignment and a sublease.
Section 3100.9 Information Collection
The current regulation lists out-of-date OMB control numbers for
information collection requirements. The proposed rule would update
those control numbers and restructure the format of this section to
include the authority for and purpose of the section, including a table
that lists the current OMB control numbers.
Section 3100.31 Enforceability
The proposed rule would streamline the section on options. The MLA
expressly authorizes and restricts options to acquire an interest in a
lease. See 30 U.S.C. 184(d). While the BLM has not previously received
option statements from the industry, the BLM cannot prohibit options
and will continue to accept option statements for the record if they
are submitted to the BLM. Under the ``Enforceability'' section (43 CFR
3100.31(a)), the BLM would remove the phrase ``without the approval of
the Secretary.'' That would eliminate the discretion to authorize
options for a period of more than 3 years. Paragraph (b)(3) would be
revised for clarity to change the reference to ``the number of acres
covered by the option and of the interests and obligations of the
parties to the option, including the date and expiration date of the
option'' to read ``the number of acres and the type and percentage of
interest to be conveyed and retained by the parties to the option,
including the expiration date of the option.''
Section 3100.40 Public Availability of Information
The proposed rule would not make any substantive changes to this
section; however, the BLM is considering adding language that would
provide notice that names and addresses of the nominator, lessee,
operating rights holders, and operators would be made public through
the BLM's automated system. The BLM's lease and agreement case files
are already public records, and any change to this section would merely
reflect the BLM's current practice.
3. Section-by-Section Discussion for Changes to 43 CFR Subpart 3101
The proposed rule would remove 10 sections in the existing subpart
3101 as outlined in Section VI of this preamble titled Overview of
Modifications. The removal of these sections would cause some of the
sections to be redesignated accordingly. The purpose of this removing
and redesignating is to achieve consistency and ease of reference
throughout subpart 3101, as sections were consolidated and reorganized.
Section 3101.12 Surface Use Rights
This section was promulgated in 1988 to clarify the BLM's authority
to use the terms and conditions of the standard lease form to control
site-specific environmental impacts on leaseholds, as opposed to lease-
specific protective measures, addressed in lease stipulations, to
mitigate impacts to specific resources values identified on leased
lands. The standard lease form authorizes the BLM to require
``reasonable measures'' to the extent that such measures would be
consistent with the lessee's rights. However, this revised section
would more clearly outline the measures that the BLM may require to
promote development practices that are consistent with multiple use and
sustained yield and the terms of the BLM's oil and gas leases.
Specifically, this section would be updated to state that the
authorized officer may require and detail reasonable measures to avoid,
minimize, or mitigate adverse impacts to other resource values, land
uses or users, federally recognized Tribes, and underserved
communities. Such reasonable measures may include, but are not limited
to, relocation or modification to siting or design of facilities,
timing of operations, specification of interim and final reclamation
measures, and specification of rates of development and production in
the public interest. These measures are consistent with the BLM's
standard lease form, which has been in effect since October 2008 and
which states that the BLM ``reserves [the] right to specify rates of
development and production in the public interest. . . .''
Additionally, the MLA authorizes the BLM to adopt ``such other
provisions as [it] may deem necessary . . . for the protection of the
interests of the United States . . . and for the safeguarding of the
public welfare.'' 30 U.S.C. 187. The BLM may also manage the manner of
development under this section, which may include waste prevention
measures, containment of fluids, and monitoring both water and air
quality in the project area. As set out in E.O. 14035, ``[t]he term
`underserved communities' refers to populations sharing a particular
characteristic, as well as geographic communities, who have been
systematically denied a full opportunity to participate in aspects of
economic, social, and civic life.'' E.O. 14008 provides additional
guidance on securing environmental justice by requiring agencies to
``[develop] programs, policies, and activities to address the
disproportionately high and adverse human health, environmental,
climate-related and other cumulative impacts on disadvantaged
communities, as well as the accompanying economic challenges of such
impacts.'' For the purposes of E.O. 14008, the Council on Environmental
Quality has provided interim guidance on the definition of community to
``mean either a group of individuals living in geographic proximity to
one another, or a geographically dispersed set of individuals (such as
migrant workers or Native Americans), where either type of group
experiences common conditions.'' \15\ These underserved communities can
be impacted as a result of greater vulnerability to environmental
hazards, lack of opportunity for public participation, or other
factors. Increased vulnerability may be attributable to an accumulation
of negative or lack of positive environmental, health, economic, or
social conditions within these populations or places. The term
describes situations where multiple factors, including both
environmental and socio-economic stressors, may act cumulatively to
affect health and the environment and contribute to

[[Page 47574]]

persistent environmental health disparities.
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\15\ M-21-28, July 20, 2021, <a href="https://www.whitehouse.gov/wp-content/uploads/2021/07/M-21-28.pdf">https://www.whitehouse.gov/wp-content/uploads/2021/07/M-21-28.pdf</a>.
---------------------------------------------------------------------------

Due to the advances in horizontal and directional drilling, and in
an effort to strike the best multiple use balance, the BLM proposes to
update the following language: ``At a minimum, measures shall be deemed
consistent with lease rights granted, provided that they do not:
require relocation of proposed operations by more than 200 meters;
require that operations be sited off the leasehold; or prohibit new
surface-disturbing operations for a period in excess of 60 days in any
lease year.'' The proposed language would state, ``Modifications that
are consistent with lease rights include, but are not limited to:
requiring relocation of proposed operations by more than 800 meters and
prohibiting new surface disturbing operations for a period of 90 days
in any lease year.'' With the changes in technology allowing 3-mile
laterals and \1/2\-mile directional wells, the BLM considers 800 meters
(approximately \1/2\ mile) to be a reasonable floor for moving
operations due to resource concerns. The BLM proposes updating the
floor to account for changes in technology.
The BLM also proposes these changes because the existing provision
has been misconstrued as limiting BLM's authority to require relocation
only up to 200 meters. The IBLA has upheld the BLM's authority to move
operations and confirmed that the siting and timing parameters in the
current regulations are minimums. The BLM has the authority to impose
measures higher than those in the regulations as long as they
``constitute [ ] reasonable measure[s] to minimize adverse impacts
under 43 CFR 3101.1-2.'' Yates Petroleum, 176 IBLA 144, 156 (2008). The
BLM is requesting comments on the proposed distance standard for
reasonable measures.
Section 3101.13 Stipulations and Information Notices
The proposed rule would split the existing content of this section
into two paragraphs for clarity and would add a new paragraph (a) to
state that, when developing stipulations, the BLM would consider the
sensitivity and importance of potentially affected resources and any
uncertainty concerning the present or future condition of those
resources. The BLM is proposing this change to more explicitly
recognize its mandate to manage the Federal lands for multiple use and
to provide for the protection of the resources on those lands. When
evaluating stipulations to be included in a lease, the BLM will assess
whether a resource is adequately protected by stipulation without
regard to the restrictiveness of the stipulation on operations.
The proposed rule also would update the existing content of this
section (paragraph (b)) to reflect the IRA's elimination of the
noncompetitive leasing process. Paragraph (b) refers to lease
stipulations, and paragraph (c) refers to lease information notices. No
other substantive changes have been made to the language that now
constitutes these two paragraphs. In addition, the BLM proposes to move
the language and requirements from the existing regulation found at
Sec. 3101.5-4 (which refers to stipulations applied to leases for
lands managed by the Fish and Wildlife Service) to a new paragraph (d)
under this section to consolidate all stipulation requirements in one
section.
Section 3101.14 Modification, Waiver, or Exception
The proposed rule would update the title of this section from
``Modification or waiver of lease terms and stipulations'' to
``Modification, waiver, or exception.'' The first paragraph in this
section describes the standards the BLM will use when evaluating
modifications, waivers, or exceptions. It states that a public review
period will be required when a change to a lease term or stipulation is
substantial or involves a major concern to the public.
In paragraph (a), the proposed rule proposes to add the existing
modification, waiver, or exception policy for lease stipulations into
the regulations based on Instruction Memorandum Number 2022-003,
Documentation and Tracking Requirements for Waivers, Exceptions, and
Modifications for Fluid Minerals Exploration and Development
Activities. Unlike the existing policy, the BLM is proposing to remove
the provision that allows the BLM to grant modifications, waivers, or
exceptions (MWEs) to lease stipulations if the authorized officer
determines that the ``proposed operations would not cause unacceptable
impacts.'' This very subjective standard has been overused at times and
has led to unnecessary adverse environmental impacts in some instances.
The BLM would consider a change to the lease terms to be substantial if
the change would have an important, considerable, consequential, major,
or meaningful effect on the environment that was not previously
considered, thus requiring public notification (30-day public review)
of a lease term or stipulation.
In paragraphs (b) and (c), the proposed rule would split an
existing provision in the regulations related to modifications of
stipulations into two provisions, one of which would address
modifications made before lease issuance and the other of which would
address modifications made after lease issuance. This regulatory change
reflects decisions of the IBLA, which have stated that if a lease is
issued without prior notice of an additional stipulation, the
stipulation is not binding on the potential lessee and is without
effect in the absence of the potential lessee's acceptance of the
stipulation. See Emery Energy, Inc, 64 IBLA 175 (1982). For
modifications to stipulations prior to lease issuance, the BLM proposes
to add language clarifying that the potential lessee must be given an
opportunity to accept the additional or modified stipulation. If the
potential lessee does not accept the additional or modified
stipulation, the BLM may reject the bid and include the lands in the
next Notice of Competitive Lease Sale. If the modification in
stipulation(s) increases the value of the parcel, the BLM, following
current policy, will reject the bid and include the lands in the next
Notice of Competitive Lease Sale. For example, if the lease is
currently subject to a no-surface-occupancy stipulation, and the BLM
determines a controlled-surface-use stipulation is appropriate instead,
this could increase the value of the lease. After lease issuance, if
the BLM adds or modifies a stipulation without notice to the lessee,
the additional or modified stipulation is not binding on the lessee and
is without effect in the absence of the lessee's acceptance of the
stipulation. When a stipulation is required by the relevant Resource
Management Plan and the BLM inadvertently omits it, a lessee's failure
to sign and accept modifications to the stipulations when requested by
the authorized officer may subject the lease to cancellation.
Section 3101.22 Acquired Lands
For clarity, the BLM proposes to repeat the language found in the
existing 43 CFR 3101.2-1(a) for public domain lands to describe the
same acreage limitations that also apply to acquired lands.
Section 3101.23 Excepted Acreage
The proposed rule would update the existing 43 CFR 3101.2-3(a)(1)
to change the language from ``unit or cooperative plan or
communitization agreement'' to read ``oil and gas agreement.'' Under
this proposed rule, unit agreements and CAs would no longer be referred
to as cooperative plans and, as discussed earlier in this preamble, a
new definition would be added to define ``oil and gas

[[Page 47575]]

agreements,'' which includes unit agreements and CAs. In addition, the
BLM has noticed that the phrase ``operating, drilling, or development
contract'' in the existing 43 CFR 3101.2-3(a)(3) has often been
confused with approved Applications for Permit to Drill. A reference to
43 CFR 3105.30 would be added to this section to clarify the phrase
since ``operating, drilling, or development contract'' has a specific
regulatory meaning.
Section 3101.25 Computation
The proposed rule would remove as outdated all language referencing
an entity's ownership in a company, parties to a contract, and acreage
held in common by the same persons. In 1982, the BLM eliminated the
requirement to submit documents related to qualifications and now
requires entities to certify their compliance with law on the lease or
assignment application, subject to the criminal sanctions in 18 U.S.C.
1001 (see 47 FR 8544, February 28, 1982). Accordingly, the BLM no
longer keeps documents related to qualifications and does not collect
information on stock ownership, company or corporate structures
(resolutions or company formation documents), or ownership in a
company.
Section 3101.2-6 Showing Required
As explained in the previous section, the BLM eliminated
qualification statements in 1982. The proposed rule would remove this
section in its entirety, as it is outdated and no longer necessary. The
BLM can run reports through its Mineral and Lands Record System to
obtain the data confirming compliance with acreage limitations. When an
entity exceeds its acreage limitation, the BLM provides the company
with a list of the entity's leases for a particular State and provides
the entity with an appropriate timeframe to identify inconsistencies or
to relinquish, transfer, or otherwise divest sufficient interests
before the BLM takes appropriate action to cancel the entity's
excessive leases or interests.
Section 3101.30 Leases Within Unit Areas, Joinder Evidence Required
It is the policy of the BLM not to include lands that are partly
within and partly outside the boundary of an oil and gas agreement in
any one parcel listed in a Notice of Competitive Lease Sale. The
proposed rule would remove 43 CFR 3101.3-2, ``Separate Leases to
Issue,'' in its entirety due to the elimination of noncompetitive
offers from the IRA. Incorporating this change, the heading of 43 CFR
3101.30 would now read, ``Leases within unit areas, joinder evidence
required.'' In the remaining language regarding joinder evidence, the
BLM proposes to change the term ``operator'' to ``lessee'' because this
section is referring to the time of lease issuance.
Section 3101.40 Terminated Leases
The proposed rule would remove the existing 43 CFR 3101.4, ``Lands
Covered by Application to Close Lands to Mineral Leasing'' in its
entirety, since this section only applies to noncompetitive leases,
which the IRA eliminated. Section 3101.40 would now be referred to as
``Terminated leases.'' The BLM proposes to move the content of the
existing regulations at 43 CFR 3108.2-2(d) and 43 CFR 3108.2-3(c) to
this section to consolidate the requirements for issuing a lease for
previously leased lands that have terminated.
Section 3101.5-1 Wildlife Refuge Lands (Existing Rule)
The BLM proposes to move the content of this existing section to
the Authority for leasing section (43 CFR 3100.3), for ease of
reference. The BLM proposes to move paragraph (a) and the first
sentence of paragraph (b), which refer to lands subject to leasing, to
the Authority for leasing section at 43 CFR 3100.3(b)(2)(xiv). The BLM
proposes to move the remaining language in paragraph (b) to 43 CFR
3101.52(d), to consolidate it with the regulations addressing consent
from other Federal agencies.
Section 3101.5-2 Coordination Lands (Existing Rule)
The BLM proposes to move the content of this existing section to
the Authority for leasing section (43 CFR 3100.03) for ease of
reference.
Section 3101.53 Alaska Wildlife Areas (Existing Rule)
The BLM proposes to move the content of this existing section to
the Authority for leasing section (43 CFR 3100.3(k)) for ease of
reference.
Section 3101.5-4 Stipulations (Existing Rule)
The BLM proposes to move the content of this existing section,
which refers to stipulations prescribed by the Fish and Wildlife
Service, to the general stipulations section (43 CFR 3101.13) for ease
of reference.
Section 3101.6 Recreation and Public Purposes Lands (Existing Rule)
The BLM proposes to move the content of this existing section,
which refers to lands subject to leasing, to the Authority for leasing
section (43 CFR 3100.3(i)) for ease of reference.
Section 3101.50 Federal Lands Administered by an Agency Outside of the
Department of the Interior
The proposed rule would redesignate this section from 43 CFR 3101.7
to 43 CFR 3101.50 because of the consolidation and reorganization of
neighboring sections.
Section 3101.51 General Requirements
The proposed rule would consolidate the three paragraphs under this
existing section into one paragraph. Currently, there are separate
paragraphs for (a) Acquired lands, (b) Public Domain lands, and (c)
National Forest System lands. The new paragraph would provide that all
lands will be leased only with the consent of the surface managing
agency and that the surface management agency will report to the BLM
whether it consents to leasing with stipulations, or, alternately,
withholds consent or objects to leasing. On acquired lands, National
Forest System lands, and public lands reserved for the use of the
Department of Defense, the consent of the surface management agency is
statutorily required prior to offering the lands for oil and gas lease.
The surface management agency has the authority to refuse to consent to
lease. Pursuant to longstanding BLM policy, public domain lands
withdrawn or reserved for the use of another agency will be leased only
after consultation with the surface management agency or upon
recommendation for leasing by the surface management agency. The BLM
deems a surface management agency's recommendation to not lease to have
the same effect as the agency withholding consent or objecting to
leasing. Regardless of whether the lands are acquired or public domain
lands, the BLM will not lease lands when a surface management agency
objects to leasing or withholds its consent. Consolidating these
paragraphs would reduce any confusion. When an agency has given its
consent to leasing, the BLM incorporates all the stipulations provided
by the agency for a lease parcel. The BLM may add its own stipulations
to the lease parcel. The Secretary of the Interior has the final
authority and discretion to decide to offer and issue a lease.
Therefore, although an agency agrees that the lands may be leased, the
BLM has the authority, on behalf of the Secretary, to not issue a lease
for all or a portion of the lands.

[[Page 47576]]

Section 3101.52 Action by the Bureau of Land Management
The proposed rule would update paragraph (b) to remove the phrase
``and shall reject any lease offer,'' because the IRA, by eliminating
noncompetitive leasing, eliminated such offers. For ease of reference,
the proposed rule would add a paragraph (d) from language now found at
43 CFR 3101.5-1(b), which references the consent required for lands
managed by the Fish and Wildlife Service. The proposed rule would also
remove from paragraph (d) the phrase ``on a form approved by the
director,'' as there is no such standard form for stipulations.
4. Section-by-Section Discussion for Changes to 43 CFR Subpart 3102
The proposed rule would revise one section heading in the existing
subpart 3102. The purpose of this revision is to replace outdated
terminology.
Section 3102.20 Non-U.S. Citizens
The BLM proposes to rename the section on ``aliens'' and to replace
this outdated, derogatory terminology with the phrase ``non-U.S.
citizens'' in both the heading of the section and the language used in
the paragraph. The BLM proposes to add a new paragraph (b) due to a
final rule from the Office of Investment Security, Department of the
Treasury, implementing the provisions relating to real estate
transactions in section 721 of the Defense Production Act of 1950, as
amended by the Foreign Investment Risk Review Modernization Act of
2018. That final rule was published at 85 FR 3158 (Jan. 17, 2020) and
codified at 31 CFR part 802. The rule sets forth the process relating
to the national security review by the Committee on Foreign Investment
in the United States (CFIUS) of certain transactions, referred to in
the rule as ``covered real estate transactions,'' that involve the
purchase or lease (including an assignment or other transfer) by, or
concession to, a foreign person of certain real estate in the United
States. Covered real estate transactions may include certain
transactions involving the Federal mineral estate. The CFIUS looks not
only at the entities that are lessees, but also to any (legal) person
with the ability to exercise control, as defined by the regulations of
the Department of Treasury's implementing regulations, over the lessee.
The CFIUS review could result in the modification, suspension, or
prohibition of the acquisition of a lease or interest therein.
Accordingly, the BLM recommends that each potential bidder, lessee, or
other interest holder review the regulations at 31 CFR part 802 before
bidding on or acquiring an interest in a Federal oil and gas lease.
Section 3102.40 Signatures
The BLM proposes to add a new introductory paragraph to clarify
that this section applies to signatures on all applications and forms.
When applicants submit a form or application to the BLM, they are
certifying their acceptance of lease terms and stipulations, as well as
their compliance with the regulations under subpart 3100. The BLM may,
in its discretion, accept electronic signatures and submissions.
Paragraph (a) would be updated to include that when copies of the BLM-
approved forms are submitted to the BLM, they must be exact
reproductions without additions, omissions, or other changes. The
existing paragraph (b), referring to assignments and transfers, would
be removed from this section since this language is already covered in
the existing 43 CFR 3106.4-1. The existing paragraph (d), which refers
to qualification numbers, would be removed as obsolete: the BLM
discarded qualification statements in favor of self-certifications in
1982.
Section 3102.51 Compliance
The proposed rule would revise the introductory paragraph to more
clearly define the qualifications to hold interest in a lease. The BLM
proposes to update paragraph (a) to change the term ``alien
stockholders'' to ``non-U.S. citizens who own stock'' for consistency
with the changes described earlier. Paragraph (d) would be updated to
remove the sentence, ``The term entity is defined at 43 CFR 3400.0-
5(rr) of this title,'' because the proposed rule would add a new
definition for ``person,'' which would include ``entities'' as
explained earlier in 43 CFR 3000.5. Paragraphs (d), (e), and (f) would
be updated to include the appropriate references to the United States
Code, which are more meaningful than ``sections 2(a)(2)(A) of the
Act,'' ``section 41 of the Act,'' ``section 17(g) of the Act,'' and
``section 30A of the Act.''
In addition, the BLM proposes to revise paragraph (f) to emphasize
that reclamation obligations reside primarily with oil and gas lessees,
operating rights owners, and operators and not the American public and
to ensure that those who are in non-compliance with section 17(g) of
the MLA are not qualified to hold a lease. The BLM reviewed the
timeframe it takes to add a person to the list of persons in
noncompliance with MLA section 17(g). Under the current policy, it
takes a minimum of 100 days from the date when the BLM first issues an
incident of noncompliance (INC), or 130 days from the date when the BLM
first issues a written order, due to the time it takes to complete each
enforcement action. The timeframe to complete each enforcement action
is generally as follows:

<bullet> Written Order (30 days)
<bullet> First INC (30 days)
<bullet> Second INC (30 days)
<bullet> Impose civil penalties (40 days)

Therefore, the BLM proposes to modify paragraph (f) and specify
that noncompliance with MLA section 17(g) begins when a person has
failed to comply with their reclamation obligations in the time
specified by notice from the BLM, not, as under the current
regulations, when the authorized officer has imposed a civil penalty or
collected a bond, whichever is first. The new language would more
closely track the language of the MLA at 30 U.S.C. 226(g) and would
recognize the changes that were made in 2016 to 43 CFR 3163.1 and
3163.2 (81 FR 81609, Nov. 17, 2016) regarding notice of noncompliance.
This language clearly states that a person's failure to timely comply
with a notice of noncompliance with reclamation requirements or other
standards would trigger the noncompliance with section 17(g); it would
not rely on a specific follow-up action (assessment, civil penalty, or
bond collection) by the BLM. This would allow the BLM flexibility in
how it responds to a person's failure to comply, while clearly stating
when noncompliance with section 17(g) begins.
With the regulations matching the law, the BLM would expect to
quickly identify persons in noncompliance and prevent these persons
from acquiring future Federal leases. The BLM would add a person to the
list of persons in noncompliance with MLA section 17(g) after the
abatement date has passed for the first enforcement action, either a
written order or the first INC. This would result in a person being
added to the 17(g) list in a minimum of 30 days, instead of the current
minimum of 100 or 130 days.
Finally, the BLM proposes to add a new paragraph (h) to state that,
in accordance with 2 CFR parts 180 and 1400, compliance means that the
lessee, potential lessee, and all parties described at the beginning of
the section are not excluded or disqualified from participating in a
transaction covered by Federal non-procurement debarment and
suspension, unless the DOI explicitly approves an exception for a

[[Page 47577]]

transaction pursuant to the regulations in those parts.
Section 3102.52 Certification of Compliance
The BLM proposes to update the last sentence of this paragraph to
remove the phrase ``an offer,'' because the IRA, by eliminating
noncompetitive leasing, eliminated such offers.
5. Section-by-Section Discussion for Changes to 43 CFR Subpart 3103
The proposed rule would revise one section heading and remove two
others in the existing 43 CFR subpart 3103 regulations, necessitating
redesignating throughout the subpart.
Section 3103.11 Form of Remittance
The BLM proposes to update the existing paragraph by changing the
reference from the Minerals Management Service to the successor agency,
the ONRR.
Section 3103.12 Where Remittance Is Submitted
The proposed rule would rename this section from ``Where
submitted'' to ``Where remittance is submitted.'' The BLM proposes to
update paragraph (a)(1) to clarify that the processing fees for various
applications would be found in the fee schedule in 43 CFR 3000.120. The
BLM proposes to update paragraph (a)(2) to replace the ONRR's mailing
address and direct rental payments to the ONRR's online rental payment
system to conform to ONRR's regulations at 30 CFR 1218.51. The BLM
proposes to update paragraph (b) to replace the phrase ``communitized
leases in producing well units'' with the more commonly used language
of ``communitized leases in producing spacing units.'' In addition, the
BLM proposes to remove the phrase ``and easements for directional
drilling,'' as this is an outdated reference, and the BLM has never
issued easements for directional drilling.
Section 3103.21 Rental Requirements
The proposed rule would update paragraph (a) to remove the phrases
``or competitive nomination'' and ``List of Lands Available for
Competitive Nominations or'' consistent with the changes made to 43 CFR
part 3120. The proposed rule would also remove the reference to
noncompetitive lease offers, the phrase ``if known, and, if not known,
shall be based on 40 acres for each smallest legal subdivision,'' as
well as the last two sentences in their entirety, because the IRA ended
noncompetitive leasing. The proposed rule would update paragraph (b) in
this section to remove the phrase ``List of Lands Available for
Competitive Nominations or a'' due to modifications made to 43 CFR part
3120 to make nominations nonbinding.
Diligent Development
The BLM is considering adding a new requirement for diligent
development obligations under Federal oil and gas leases and is
particularly interested in receiving comments on this topic. As stated
in the DOI's Report on the Federal Oil and Gas Leasing Program, dated
November 2021, noncompetitive leases are frequently less developed than
competitive leases. Similarly, the GAO reported (see GAO 22-103968 and
GAO 21-138) that competitive leases with higher bonus bids were more
likely to produce than competitive leases with lower bonus bids or
noncompetitive leases. Accordingly, the BLM is considering adding a
section to further promote development of leases by specifying the
steps that must be taken to meet diligent development obligations. For
example, the lessee would meet the diligent development obligation if,
at the end of the fifth year of the lease term, the lessee: (a) has
established actual production in paying quantities on the lease; (b)
has established allocated production in paying quantities on the lease;
(c) has filed a complete Application for Permit to Drill; (d) has
extended the lease term by committing it to an oil and gas agreement,
43 CFR 3107.30; (e) has filed a Notice of Intent to undertake
geophysical exploration. The BLM reviewed existing leases and the
development milestones on those leases and determined that 56 percent
of the current leases have met the proposed diligent development
obligation under one of the options set out here prior to the fifth
lease year.
In addition, the BLM is considering requiring the lessee to provide
notice to the BLM of how and when the lessee met the diligent
development obligation, and a provision increasing the rent if the
lessee has not satisfied the diligent development obligation by the end
of the fifth lease year. Under this provision, the lease would be
subject to a supplemental escalating rental rate of an additional $1
per acre, or fraction thereof, for each lease year between the sixth
and tenth lease years until the diligent development obligation is met.
The BLM solicits comments as to whether the increased rental rates
prescribed by the IRA may render a diligent development obligation
unnecessary.
Section 3103.22 Annual Rental Payments
This section provides information on the royalty rate for existing
and future leases. The proposed rule would revise the phrase ``timely
payment'' in the introductory paragraph to ``payment on or before the
lease anniversary date'' to more clearly specify what constitutes a
timely payment. The proposed rule would update paragraph (a) to simply
state that the annual rental for all leases is as stated in the lease.
To implement the IRA, for all new oil and gas leases issued in the
next 10 years, rentals are set at $3 per acre, or fraction thereof, for
lease years 1 and 2; $5 per acre, or fraction thereof, for years 3
through 8; and $15 per acre, or fraction thereof, thereafter. After 10
years following the enactment of the IRA, those rental rates become
minimums and are subject to increase. Paragraph (b) reflects that
following the commencement of production, the rental requirement
converts to a minimum royalty in lieu of rental. The minimum royalty is
``not less than the rental which otherwise would be required for that
lease year'' when production begins in paying quantities. (See Sec.
3103.32(a)(2)).
The proposed rule would revise paragraph (b) because the existing
paragraph (b) is obsolete. The proposed rule would eliminate the
existing introductory paragraph (b). The proposed rule would remove the
existing paragraph (d) because, due to the IRA's amendment of the MLA,
reinstatements will no longer be available for noncompetitive leases
issued for public domain lands. The proposed paragraph (c) would now
state the annual rental for a reinstated lease is located in 43 CFR
3000.130. As required by the IRA, the rental rate for reinstated
competitive leases is $20 per acre, or fraction thereof. The proposed
rule would redesignate the existing paragraph (f) to paragraph (d) to
state that each succeeding time a specific lease is reinstated, the
rental rate will increase by an additional $10 per acre, or fraction
thereof, as required by the IRA.
Section 3103.31 Royalty on Production
All updates to this section would implement provisions of the IRA.
The proposed rule would update paragraph (a)(1) to state that leases
issued before the passage of the IRA will have a rate as prescribed in
the lease or applicable regulations at the time of lease issuance. In
paragraph (a)(2), the proposed rule would increase the royalty rates
for leases issued on or after the effective

[[Page 47578]]

date of the IRA and for the next 10 years to 16.67 percent. Paragraph
(a)(3) would be updated to state that for leases issued after the 10-
year period following the passage of the IRA, the royalty rate will be
not less than 16.67 percent. The proposed paragraph (a)(4) would state
that ROW leases issued under subpart 3109 would have a minimum royalty
rate of 16.67 percent.
The proposed paragraph (a)(5) would be updated to state that for
reinstated leases, the royalty rate is the rate used for royalty
determination that applies to new leases at the time of the
reinstatement plus 4 percentage points, plus an additional 2 percentage
points for each succeeding reinstatement. In no case will the
reinstated lease have royalties at a rate less than 20 percent. The IRA
amended the MLA to state that competitive leases may be reinstated
under a condition that ``a requirement for future royalties at a rate
of not less than 20 percent computed on a sliding scale based upon the
average production per well per day, at a rate which shall be not less
than 4 percentage points greater than the competitive royalty schedule
then in force [i.e., at the time of the lease] and used for royalty
determination for competitive leases issued pursuant to such section,
as determined by the Secretary.'' (30 U.S.C. 188(e)(3)). To implement
this provision of the IRA, the reinstatement of a terminated lease with
a royalty rate of 12.5 percent would be conditioned on a reinstated
royalty rate of not less than 20 percent. Leases issued after the
enactment of the IRA that carry a royalty rate of 16.67 percent royalty
would be conditioned on a reinstated royalty rate of not less than 4
percentage points greater than the competitive royalty schedule in
force at the time of the lease, or 20.67 percent. The current
regulation increases the royalty rate 2 percentage points for each
succeeding reinstatement. This language would remain in the regulation.
Section 3103.32 Minimum Royalties
The proposed rule would revise the exception clause in paragraph
(a) by changing ``except that on unitized leases'' to ``except on
unitized leases that lack production.'' This change clarifies the
intended exception without suggesting that rental should be paid on the
leased area outside the participating area, even when the producing
well for the participating area is located on the leasehold. In
general, once oil and/or gas is discovered in paying quantities on the
lands committed to a unit, all lands included in the participating area
are charged a minimum royalty per acre per year in lieu of rental.
Rental for those portions of unitized leases that are not within such
participating areas continue at the rental rate established in the
lease. That is, the portion of a lease inside the participating area
will pay minimum royalty and the portion outside the participating area
is subject to rental. However, if there is actual production on a
unitized lease, then minimum royalty should apply to the entire lease
(i.e., both portions within and outside the participating area). The
proposed changes clarify that for leases partly inside and partly
outside the participating area and containing a producing well (or a
well that was once capable of production in paying quantities), the
entire lease is obligated to pay minimum royalty.
Paragraph (a)(2) would be updated to change ``competitive leases
issued from successful bids placed at oral or internet-based auctions
conducted after December 22, 1987'' to read ``competitive leases issued
after December 22, 1987.'' The extra language was necessary to
implement changes from FOOGLRA in 1987, but it no longer applies, since
the BLM does not have pending competitive lease applications that date
back to 1987.
Paragraph (d) would be updated to remove the reference to 43 CFR
3108.2-4, since the section for Class III reinstatements would be
eliminated, as further described in the discussion of subpart 3108.
The proposed rule would add a new paragraph (e) to state that if
the royalty paid during any year aggregates to less than the minimum
royalty, then the lessee must pay the difference at the end of the
lease year. This is not a new requirement or a change in the BLM's
policy; it is only added to clarify the pre-existing requirement.
Section 3103.41 Royalty Reductions
The proposed rule would revise paragraph (a) to change the phrase
``successfully operated'' to ``produced in paying quantities,'' which
has a clearly understood meaning within the oil and gas industry. This
change is to clarify the prerequisite for obtaining this relief as the
previous term ``successfully operated'' is not a term that is easily
defined.
The BLM considered additional changes to this section due to the
GAO's report entitled, ``Federal Oil and Gas Revenue: Actions Needed to
Improve BLM's Royalty Relief Policy'' GAO-21-169T. In this report, the
GAO found that the BLM's decisions to grant royalty relief during the
COVID-19 pandemic were not made efficiently and equitably across the
states. The BLM considered using the Bureau of Ocean Energy Management
(BOEM) regulations and policy on royalty rate reductions. The BOEM has
multiple authorities to provide royalty relief. The BOEM regulations
include the authority to grant royalty relief for deep water leases and
for development and expansion projects (see 30 CFR 203.60 to 203.80),
drilling ultra-deep wells on leases not subject to deep water royalty
relief (see 30 CFR 203.30 to 203.36), drilling deep gas wells on leases
not subject to deep water royalty relief (see 30 CFR 203.40 to 203.49),
and end-of-life leases (see 30 CFR 203.50 to 203.56). The BLM provides
royalty relief only for a lease's end-of-life (equivalent to the BOEM's
regulations at 30 CFR 203.50 through 203.56). After reviewing BOEM's
authority, the BLM concluded that the BOEM's regulations were based on
specific legal authorities that the BLM does not have. Therefore, the
BLM is not proposing any changes to this section at this time. The
existing regulations require evaluation of royalty reduction
applications on a lease-by-lease basis, require applicants to provide a
detailed statement with ``all facts tending to show whether the wells
can be successfully operated upon the fixed royalty or rental,'' and
generally provide for royalty rate reductions. The BLM is committed to
adhering to those rules and will ensure that they are consistently and
faithfully applied to future royalty relief applications.
The BLM solicits feedback to improve the royalty rate reduction
section. Revised regulations could provide explicit criteria on royalty
rate reductions, which could include setting a limit on the lower end
of a royalty rate reduction, implementing a calculation to decide if
the BLM should approve a royalty rate reduction, implementing an
automatic lifting provision similar to BOEM (see 30 CFR 203.55), or
making it explicit that a royalty rate reduction would transfer to the
new lessee when a lease is assigned.
Sections 3103.4-2 Stripper Well Royalty Reductions and 3103.4-3 Heavy
Oil Royalty Reductions
The proposed rule would eliminate both of these sections in their
entirety because they are obsolete. Both sections were revised on
October 6, 2010 (75 FR 61624), to eliminate these types of royalty
relief. However, these provisions were retained in the final rule
because, while these types of royalty relief were no longer available
for current production, prior production subject to this relief
continued to be subject to audits. In addition, the 7-year statute of
limitations period during which ONRR could pursue a demand for royalty

[[Page 47579]]

continued to apply. Since that statute of limitations period has passed
for all production that qualified for relief under these sections, they
are no longer necessary and are being removed.
Section 3103.42 Suspension of Operations and/or Production
This section of the existing regulations implements the provisions
of 30 U.S.C. 226(i) and 209 for suspending oil and gas leases. The
proposed rule would redesignate this section from 43 CFR 3103.4-4 to 43
CFR 3103.42 as discussed at the beginning of the preamble. The proposed
rule would change the language in paragraph (b) to clarify that the
term of a suspended lease will be adjusted to account for the time of
suspension, i.e., by calculating the running of the primary term
without including the time during which the lease was suspended. In the
BLM's experience, the language in the current regulations--providing
that the primary term of a lease will be ``extended by adding the
period of the suspension''--has been incorrectly interpreted to mean
that the length of the suspension is added to the lease term when the
suspension is lifted. For example, consider a lease issued for a
primary term of 10 years. In the ninth year, a suspension is granted.
The suspension lasts for 2 years. When the suspension is lifted, the
time remaining on the primary term is the 1 year that was left prior to
the suspension. The 2 years of the suspension are not added to the
primary term.
Paragraph (d) would be clarified to state that if there is any
production sold or removed during the month the suspension is granted,
the lessee must pay royalty on that production. Paragraph (d) would
also be split into three sections due to the length of the paragraph
and for clarity. The other two sections would become new paragraphs (e)
and (f), and the remaining paragraphs would be redesignated.
Redesignated paragraph (g) would update the term ``terminating a
suspension'' to ``lifting a suspension,'' since ``termination'' is a
term of art that refers to a lease ending through operation of law when
the rental is not paid.
The proposed rule would update redesignated paragraph (h) to change
the language from ``unit or cooperative plan'' to read ``agreement'' to
conform to the definitional change made earlier in this proposed rule.
6. Section-by-Section Discussion for Changes to 43 CFR Subpart 3104
The BLM proposes to revise its oil and gas bonding requirements in
several respects. The BLM proposes to increase minimum bond amounts for
the first time since 1951 (statewide and nationwide bonds) and 1960
(lease bonds). In addition, the proposed rule would add one section,
Sec. 3104.90, into the existing subpart 3104 regulations to address
when lessees must come into compliance with the new bond amounts and
would revise two section headings in the existing subpart 3104 to more
accurately reflect the contents of those sections. The proposed rule
would also remove nationwide and unit operator's bonds and add surface
owner protection bonds. The BLM believes these proposed changes,
particularly the increased bond amounts and the elimination of
nationwide bonding, would help ensure that reclamation responsibilities
reside primarily with oil and gas lessees and operators and not the
American public.
The MLA authorizes the Secretary to establish standards ``as may be
necessary to ensure that an adequate bond, surety, or other financial
arrangement will be established prior to the commencement of surface-
disturbing activities on any lease, to ensure the complete and timely
reclamation of the lease tract, and the restoration of any lands or
surface waters adversely affected by lease operations after the
abandonment or cessation of oil and gas operations on the lease.'' (30
U.S.C. 226(g)). The existing regulations at Sec. 3104.1 implement this
authority and require that, prior to surface-disturbing activities
related to drilling operations, the lessee, sublessee, or operator
submit a surety or personal bond. The purpose of the bond is to ensure
the ``complete and timely plugging of the well(s), reclamation of the
lease area(s), and the restoration of any lands or surface waters
adversely affected by lease operations after the abandonment or
cessation of oil and gas operations.'' (43 CFR 3104.1(a)). The
regulations at Sec. Sec. 3104.2 through 3104.4 currently set forth
four different bond types:
[cir] Lease/Individual Bonds, which provide coverage for one lease
and must be in an amount of not less than $10,000;
[cir] Statewide Bonds, which cover all leases and operations in one
State and must be in an amount of not less than $25,000;
[cir] Nationwide Bonds, which cover all leases and operations
nationwide and must be in an amount of not less than $150,000; and
[cir] Unit Operator's Bonds, which may be used in lieu of
individual lease, statewide, or nationwide bonds for operations
conducted on leases committed to an approved unit agreement.
Existing regulations set a minimum amount for these types of bonds.
The BLM has not increased its minimum bond amounts since 1951
(statewide and nationwide bonds) and 1960 (individual lease bonds). In
September of 2019, the GAO issued a report recommending that the BLM
address risks from insufficient bonding (GAO-19-615). The GAO found the
bonds held by the BLM were insufficient to prevent wells from becoming
orphan wells and thereby shifting the costs to plug and abandon and
reclaim these wells onto the taxpayer. Specifically, GAO found that 84
percent of the bonds reviewed were not sufficient to cover the costs to
reclaim the wells covered by the bonds. Further, GAO determined the
bond amounts, which were usually set at the regulatory minimum, ``does
not account for variables such as the number of wells [the bonds] cover
or other characteristics that affect reclamation costs, such as well
depth.''
Currently, the BLM uses Instruction Memorandum 2019-014, Oil and
Gas Bond Adequacy Reviews, to review existing Federal bond amounts and
request increases to the bond amount based on the potential risk or
liability posed by the operators. Similar policy has been in place for
the past decade, see Instruction Memorandums 2013-151, 2010-161, 2008-
122, and 2006-206. The BLM is proposing to increase the minimum bond
amounts to reflect inflation and the minimum coverage that would be
required for operations on Federal land, based on the BLM's estimate of
current plugging and reclamation costs. The proposed minimum bond
amounts would provide sufficient protection to allow an operator to
begin drilling; however, the BLM would still need to review bond
amounts periodically to determine whether the bond amount should be
increased based upon the risk of default posed by the operator or the
risk to the environment posed by the operations. In the past 2 fiscal
years, the BLM has spent $2.7 million annually on orphaned wells.
Without an increase in the bond amounts, the BLM expects to continue to
incur similar annual costs to address orphaned wells. Because of
inflation, the lack of increased bond amounts for almost 40 years, and
the increased number of orphaned wells resulting from insufficient
funds available under current bonds and associated costs ultimately
borne by the American taxpayer, the revisions to the bond amounts
proposed here are justified.

[[Page 47580]]

In addition to the proposed rule, the BLM also considered two
alternatives: adjusting the bond only for inflation (alternative 2) and
requiring a full liability bond (alternative 3). The second
alternative, only adjusting the bond amount for inflation, would
increase the lease/individual bond to $100,000 and the statewide bond
to $300,000. The third alternative considered adjusting the bond to
cover the full plugging and reclamation cost of all Federal onshore
operations covered by the bond. In this alternative, the BLM would
allow the operator to use either a statewide bond or an individual
bond; however, the operator would be required to submit a bond rider
for each additional well drilled to ensure the bond amount covers the
full cost for plugging and reclamation for all wells covered by the
bond. In this instance, the BLM estimated an average lease/individual
bond of $994,000 would cover 14 wells and an average statewide bond of
$4,686,000 would cover 66 wells. The BLM concluded that implementing
the third alternative would require increased staffing at the field and
state offices to manage increased workload surrounding the additional
bond riders. In addition, it is expected that the BLM's application for
permit to drill processing time would slow down due to waiting for
additional bond riders.
Although the BLM analyzed the second and third alternatives in the
economic analysis, the BLM did not propose either of these alternatives
in the proposed rule. The BLM is requesting commenters to provide
information on additional alternatives for bonding that the BLM might
consider.
Additionally, the BLM is requesting comments on whether it should
propose to adjust the minimum bond amounts by inflation. Currently, the
BLM is not proposing this in the rule; however, the BLM would prefer to
have a method to adjust minimum bond amounts by inflation factors.
Please provide comments on if and how the BLM should adjust minimum
bond amounts in the future.
Finally, the BLM also proposes to remove the nationwide and unit
operator bond types to reduce the cost and burden on the American
public for administering these types of bonds. For nationwide bonds,
the state office that is administering a nationwide bond must
coordinate with not only the field offices within the state, but also
every other state office. With the proposed elimination of nationwide
bonds, the BLM would not need to coordinate with all the other state
offices for a bond adequacy review. In addition, the BLM state office
could more easily ensure that the field offices within the State have
completed the required bond reviews. As a result, the BLM would be able
to better tailor the bond amounts to the local conditions and State-
specific requirements when reviewing a bond for adequacy. The BLM also
would be able to review statewide bond amounts and ensure that the bond
amount is adjusted before an operator defaults, thus reducing the
financial burden on the American taxpayer. Overall, the elimination of
nationwide bonding in favor of the proposed increase in the amount of
the statewide and lease bonds would allow the agency to ensure improved
bonding, with an appropriate focus on specific areas and fields, which
should reduce the burden to the taxpayer if an operator fails to
complete proper plugging and abandonment.
Section 3104.10 Bond Obligations
To enhance the administration of oil and gas bonding on America's
public lands, the BLM is proposing to remove paragraphs (c)(1) and (5),
which allow certificates of deposits (CDs) and letters of credit (LOCs)
to secure a personal bond. The BLM is proposing to remove CDs because
they are difficult to manage: the face of these instruments do not
include the BLM's required language that Secretarial approval is
required prior to redemption of the CD by any party. The BLM is
proposing to remove LOCs because the BLM has found it is difficult for
banks to include the BLM's requirements in LOCs. Under the proposed
rule, any existing personal bond that is secured by a CD or a LOC need
not change the security until the bond is replaced. However, the BLM
would not accept CDs or LOCs as security for a new personal bond after
the final rule takes effect. Finally, the BLM requests comments with
any supporting information on whether the final regulation should
provide for any other types of approved financial arrangements and the
types of financial arrangements that the BLM should consider.
Section 3104.20 Lease Bond
The proposed rule would change the specifications regarding who
must post a bond to state that the operator must be covered by a bond
in its name as principal or obligor. The existing regulations authorize
a lessee, owner of operating rights (sublease), or operator to post a
lease bond. The proposed change would not result in any administrative
changes for the BLM, because under the existing regulations, when a
lessee or an operating rights owner posts the bond for the operator,
the bond must include the operator as principal. The proposed language
is intended to simplify these provisions by requiring an operator to
have a bond in its own name and removing the requirement for lessees
and sublessees to ensure their bonds cover the operator. The BLM
recognizes that lessees and owners of operating rights (sublessees)
have certain obligations and are ultimately responsible for operations
on their lease, as required by 43 CFR 3106.76, and additional bonding
may be required by the authorized officer when, for example, an
operator is noncompliant.
The proposed rule would increase the minimum lease bond amount to
be not less than $150,000. The existing lease bond amount of $10,000,
established in 1960, no longer provides an adequate incentive for
companies to meet their reclamation obligations, nor does it cover the
potential costs to reclaim a well should this obligation not be met.
This current bond requirement increases the risk that taxpayers will
cover the cost of reclaiming wells in the event the operator refuses to
do so or declares bankruptcy. According to a GAO report entitled,
Federal Energy Development, Challenges to Ensuring a Fair Return for
Federal Energy Resources, GAO-19-718T, ``weaknesses with bonds for coal
mining and for oil and gas development pose a financial risk to the
Federal Government as laws, regulations, or agency practices have not
been adjusted to reflect current economic circumstances.''
To determine the appropriate minimum lease bond amount, the BLM
reviewed its existing lease bonds and the number of wells tied to the
lease bonds. The BLM currently manages 933 lease bonds; however, only
369 lease bonds cover existing wells or liability. The lease bonds that
do not cover any existing liability are usually put in place for a well
that has not yet been drilled or where the principal forgot to request
termination of the bond after transferring or plugging and abandoning
its prior oil and gas liability. For the lease bonds with existing
wells, each lease bond, on average, covers 14 wells; however, lease
bonds cover a median number of one well per bond. In addition, the
lease bonds covering existing wells average $26,000 per bond. For
background, the BLM calculated the average by adding up all the lease
bond amounts and dividing this total by the number of lease bonds. The
BLM calculated the median by taking the middle value, i.e., the value
for which half of the lease bonds are larger and half are smaller.
Thus, half of the lease

[[Page 47581]]

bonds with existing liability cover one well per bond. The cost to plug
one well and reclaim the surface, however, can vary significantly based
on the depth of the well. The proposed rule would require the minimum
bond amount to be sufficient to reclaim two wells to account for the
uncertainty surrounding the depth of wells and the large variability in
reclamation costs for orphaned wells. The BLM would conduct bond
adequacy reviews on all bonds and increase the required bond amount
based upon the risk of the operations. This review would include
several risk factors regarding the wells covered by the bond and the
operator's compliance history.
Between 1960 and 2022, the cumulative inflation rate, as measured
by the U.S. Consumer Price Index was 901 percent and, accordingly, the
2022 equivalent of $10,000 (the 1960 lease bond amount) would be
$100,105 (<a href="https://www.usinflationcalculator.com">https://www.usinflationcalculator.com</a>). After reviewing the
costs to plug orphaned wells, the BLM determined the cost to plug a
well and reclaim the surface ranges from $35,000 to $200,000, with an
average cost of $71,000. Considering that the median number of wells is
one well per lease bonds, the BLM is proposing to set the new minimum
lease bond amount at $150,000 (rounded up from $142,000), which would
cover the estimated plugging and reclamation costs for two wells. The
BLM is proposing to round the bond amount up to the nearest $50,000 for
ease of payment and administration. Through the BLM's current policy
for bond adequacy reviews, the BLM will increase the lease bond amount
for operators with more than two wells tied to the bond. The proposed
minimum lease bond amount would provide sufficient coverage for an
operator starting operations with a lease bond.
Based upon a review of the lease bond and related operations, the
BLM determined that the minimum lease bond amount should be not less
than $150,000. In addition, the minimum lease bond amount of $150,000
matches the amounts proposed in Congress by Senator Michael Bennet (S.
2177) and Representative Teresa Leger Fernandez (H.R. 2415). The BLM
believes this update would help ensure that reclamation
responsibilities reside primarily with oil and gas lessees and
operators and not the American public. The BLM requests comments with
any supporting information on whether the final regulation should
provide a higher or lower amount for lease bonds.
Section 3104.30 Statewide Bonds
The proposed rule would rename this section from ``Statewide and
nationwide bonds'' to ``Statewide Bonds'' as BLM proposes to remove
nationwide bonds. The proposed rule increases the statewide bond amount
to not less than $500,000, covering all leases and operations in any
one State to reflect current economic circumstances. The BLM
established the previous statewide bond amount of $25,000 in 1951. As
stated earlier, insufficient bonding levels provide an inadequate
incentive for companies to meet their reclamation obligations and do
not provide sufficient funding in the event a company fails or refuses
to meet its obligations, thereby ultimately shifting the reclamation
obligations on the taxpayer.
To determine the appropriate minimum statewide bond amount, the BLM
reviewed its existing statewide bonds, and the number of wells tied to
the statewide bonds. The BLM currently manages 1,815 statewide bonds;
however, only 1,007 statewide bonds cover existing wells. For the
statewide bonds with wells, each statewide bond, on average, covers 66
wells; however, the statewide bonds cover a median number of seven
wells per bond. The larger number of wells covered provides the BLM
more time to conduct a bond adequacy review and increase bond amounts
if needed. In addition, the statewide bonds covering existing wells
averaged $387,000 per bond. For background, the BLM calculated the
average by adding up all the statewide bond amounts and dividing this
total by the number of statewide bonds. The BLM calculated the median
by taking the middle value, i.e., the value for which half of the
statewide bonds are larger and half are smaller. Since half of the
statewide bonds, with existing liability, cover seven wells per bond,
the proposed rule would require the minimum bond amount to cover seven
wells, the median number of wells. Unlike bonds for individual leases
where the BLM is proposing to cover more than the median number of
wells, for statewide bonds, the larger number of wells covered (7)
reduces the uncertainty related to depth of individual wells and the
variability of reclamation costs. It also gives the BLM more time to
conduct a bond adequacy review and increase bond amounts if needed. The
BLM would conduct bond adequacy reviews on all bonds and increase the
required bond amount based upon the risk of the operations. This review
would include the number of wells covered by the bond.
Between 1951 and 2022, the cumulative inflation rate, as measured
by the U.S. Consumer Price Index was 1,040 percent and, accordingly,
the 2022 equivalent of $25,000 (the 1951 statewide bond amount) would
be $284,914 (<a href="https://www.usinflationcalculator.com">https://www.usinflationcalculator.com</a>). After researching
the BLM's data on orphaned wells, the cost to plug a well and to
reclaim the surface ranged from $35,000 to $200,000, with an average
cost of $71,000. Considering that the median number of wells is seven
wells per statewide bond, the BLM opted to have the minimum statewide
bond cover seven wells, which resulted in a statewide bond of $500,000,
rounded from $497,000. The BLM rounded the bond to the nearest $50,000
for ease of payment and administration. Through the BLM's current
policy for bond adequacy reviews, the BLM will increase the statewide
bond amount for operators with more than seven wells tied to the bond.
The new minimum statewide bond amount would provide sufficient coverage
for an operator starting operations with a statewide bond.
Based upon a review of the statewide bond and related operations,
the BLM determined that the minimum statewide bond amount should be not
less than $500,000. In addition, the minimum statewide bond amount of
$500,000 matches the amounts proposed in congress by Senator Michael
Bennet (S. 2177) and Representative Teresa Leger Fernandez (H.R. 2415).
The BLM believes this update would help ensure that end-of-life
liabilities reside primarily with oil and gas lessees and operators and
not the American public. The BLM requests comments with any supporting
information on whether the final regulation should provide a higher or
lower amount for statewide bonds.
Finally, the proposed rule would rescind the use of nationwide
bonds, which call upon the BLM to manage nationwide risks and
liabilities and are therefore administratively inefficient. The
elimination of nationwide bonding in favor of the proposed increase in
the amount of the statewide and lease bonds described earlier would
allow the agency to ensure improved bonding, with an appropriate focus
on specific areas and fields, which should reduce the burden to the
taxpayer if an operator fails to complete proper plugging and
abandonment.
For more background, the BLM reviewed its existing nationwide
bonds, and the number of wells tied to the nationwide bonds. The BLM
currently manages 241 nationwide bonds; however, only 129 nationwide
bonds

[[Page 47582]]

cover existing wells or liability. For the nationwide bonds with wells,
each nationwide bond, on average, covers 295 wells; however, the
nationwide bonds cover a median number of 35 wells per bond. The
nationwide bonds covering existing wells averaged $198,000 per bond.
Compared to statewide bonds, nationwide bonds cover more wells and
averaged lower amounts per bond. The BLM believes the increased
administrative burden related to managing nationwide bonds has caused
nationwide bonds to lag behind statewide bonds for bond increases and
reviews. Overall, the BLM believes the elimination of nationwide bonds
would result in prompt adjustments to bond amounts with changing
circumstances of the bonded parties' operations. The BLM seeks public
comment on the appropriate minimum amount for a nationwide bond, if it
opts to retain the nationwide bonding provision.
Section 3104.4 Unit Operator's Bond
The proposed rule would eliminate unit operator bonds in their
entirety, as currently found in 43 CFR 3104.4. Currently, these bonds
are treated like statewide bonds and may be used in lieu of individual
lease, statewide, or nationwide bonds for operations conducted on
leases committed to an approved unit agreement. The language for the
unit operator bond can be found at 43 CFR 3186.2. The BLM has less than
20 active unit operator's bonds nationwide. The BLM's review of bonds
shows that the forms predating June 1987 did not clearly cover the
principal in the capacity of a unit operator where the operator does
not hold an interest in the lease. Prior to June 1987, the BLM required
the principal or obligor to provide a rider to a statewide or
nationwide bond extending the bond's coverage to include all
obligations of the principal or obligor under the terms and conditions
of unit agreements. The current bond forms do not have this deficiency
as they contain the statement, ``WHEREAS the principal and surety
agree(s) that with notice to the surety the coverage of this bond, in
addition to the present holding(s) of and/or authorization(s) granted
to the principal, shall extend to and include: [. . .] Any activity
subsequent hereto of the principal as operator under a lease(s) issued
pursuant to the Acts cited in this bond.'' Today, unit operator bonds
are usually submitted to the BLM when a unit agreement includes lands
located in more than one State as it costs less to post a single unit
operator bond for $25,000 rather than posting two statewide bonds for
$50,000 or a nationwide bond for $150,000. This was not BLM's intention
for the unit operator bond in 1987 when the bond forms were updated.
Therefore, eliminating and replacing the unit operator's bond, which is
already treated and managed like statewide bonds, would bring
efficiencies to the program.
Section 3104.40 Surface Owner Protection Bond
The proposed rule would add a provision related to surface owner
protection bonds to consolidate all of the bonding provisions in one
place. The BLM promulgated the current requirements for surface owner
protection bonds through Onshore Order 1 in 2007. The BLM recently
codified these requirements in 43 CFR subpart 3171. In this proposed
rule, the BLM would incorporate the existing bonding requirements set
out in Onshore Order 1. It also would add a new requirement that the
surface owner protection bond must be filed on the BLM approved form
and specify that the type of bond can either be a personal or surety
bond. The BLM requests supporting documentation and comments on whether
the final rule should change the minimum bond amount for surface owner
protection bonds.
Section 3104.60 Where Filed and Number of Copies
The proposed rule would remove the last sentence in this paragraph,
which states that nationwide bonds may be filed in any BLM state
office. As noted previously, this rule would eliminate nationwide
bonds.
Section 3104.70 Default
The proposed rule would divide the current paragraph (b) into three
paragraphs for clarity. Paragraph (b)(1) would state that all the
leases covered by the bond may be subject to cancellation if the
principal fails to comply with the paragraph (b) requirements. The BLM
proposes to add information on failure to comply by referencing section
17 of the MLA and the DOI's suspension and debarment program to ensure
the bonded principal understands the risks that incur for a default
under the bond. The rule proposes to add paragraphs (b)(2) and (3).
Paragraph (b)(2) would state that the bonded party may be prevented
from acquiring any new lease or interest when the entity is in
violation of section 17 of the MLA; it references the provisions for
qualifications to hold a lease at 43 CFR 3102.51(f). Paragraph (b)(3)
would state that the bonded party may be referred to the DOI's
Suspension and Debarment Program under 2 CFR part 1400 to determine if
the person will be suspended or debarred from doing business with the
Federal Government for failure to comply with the paragraph (b)
requirements.
Section 3104.90 Bonds Held Prior to [EFFECTIVE DATE OF THE FINAL RULE]
The proposed rule would add a new section entitled ``Bonds Held
Prior to [EFFECTIVE DATE OF THE FINAL RULE]'' to manage the elimination
of existing nationwide and unit bonds. Paragraph (a) would state that
the current unit operator bonds accepted by the BLM prior to the
effective date of the final rule must be replaced by a statewide bond
within 2 years from the effective date of the final rule. The BLM would
no longer accept new unit operator bonds. Paragraph (b) would provide a
phase-in period within which bonds held prior to the final rule must
meet the increased minimum bond amounts. The phase-in period for
individual, state, and nationwide bonds would be 1, 2, and 3 years,
respectively (for nationwide bonds, the phase-in period refers to the
time in which nationwide bonds must be converted into state bonds).
The phase-in period should be as short as possible to account for
the large number of inadequate bonds and the associated taxpayer
exposure. The BLM opted for a 3-year phased approach based on the
workload related to reviewing and accepting new bonds or bond riders.
This approach would spread out the workload of replacing bonds over a
3-year period and allow the BLM to process the bond increases without
requiring additional adjudication staff to manage the increased
workload. The BLM opted to start with individual bonds as these are
usually smaller operations with an increased risk of bankruptcies. The
BLM requests supporting documentation and comments on whether the final
regulation should change the priority order for the phase-in period.
7. Section-by-Section Discussion for Changes to 43 CFR Subpart 3105
The proposed rule would add one section and remove five sections in
existing 43 CFR subpart 3105. The proposed rule would revise one
section heading in the existing 43 CFR subpart 3105 to remove an
unnecessary reference to drilling agreements.

[[Page 47583]]

Section 3105.10 Cooperative or Unit Agreement
The proposed rule would add a new paragraph (b) to this section to
require that all applications to form a unit agreement, a unit
expansion, or a designation of a successor operator include the new
processing fee found in the fee schedule in 43 CFR 3000.120 of this
chapter.
Communitization Agreements
This section of the regulations covers the BLM's management and
approval of communitization agreements, which are oil and gas
agreements covering one or more Federal leases that cannot be
independently developed due to well-spacing or well development
programs. The CA allows the lessees to cooperatively develop such
tracts. The proposed rule would rename this section from
``Communitization or Drilling Agreements'' to ``Communitization
Agreements.'' The proposed rule would eliminate ``drilling agreements''
in this section, since the BLM has determined that such agreements are
rarely if ever used.
Section 3105.21 Where Filed
The proposed rule would remove the triplicate filing requirement in
paragraph (a) as the BLM believes this requirement is no longer needed
given electronic filing. The proposed rule would replace the language
in current paragraph (b) with a list of three items that an application
for a CA must include. Paragraph (b)(1) would require that all
applications to form a CA must include a statement as to whether the
proposed CA deviates from the BLM's current model CA form and a
certification that the applicant received the required signatures.
Paragraph (b)(2) would require an Exhibit A to display a map of the
area covered by the agreement and the separate agreement tracts, and
paragraph (b)(3) would require the filing of an Exhibit B displaying
the separate tracts and ownership. The new paragraph (c) would state
that all applications to form a CA should be submitted at least 90
calendar days prior to first production to ensure accurate reporting to
the ONRR. Finally, the new paragraph (d) would require operators to
file the designation of successor operator with the filing fee in the
fee schedule at 43 CFR 3000.120.
Section 3105.22 Purpose
The proposed rule would remove the unnecessary reference to
drilling agreements.
Section 3105.23 Requirements
The proposed rule would remove the unnecessary reference to
drilling agreements.
Section 3105.24 Communitization Agreement Terms
The proposed rule would add a new section to outline CA terms to
provide clarity. The new paragraph in this section would provide that
these agreements would remain in effect for a period of 2 years from
the effective date of the CA or approval date, whichever is later, and
as long thereafter as communitized substances may be produced in paying
quantities, or as otherwise specified in the agreement.
Section 3105.31 Where Filed
The proposed rule would remove the requirement for five copies of
an operating, drilling, or development contract to be submitted when
these contracts are submitted to the BLM for approval as the BLM
believes this requirement is no longer necessary because of electronic
filing.
Section 3105.4 Combination for Joint Operations or for Transportation
of Oil
The proposed rule would eliminate the section on the combination
for joint operations or for transportation of oil. These provisions are
not used by the BLM or operators and are therefore obsolete. A ROW for
pipelines may be granted, as provided in 43 CFR part 2880, without
retaining the duplicative language under this subpart. A ROW grant is
an authorization to use a specific piece of public land for a certain
project, such as a road, pipeline, transmission line, or communication
site. A more complete explanation of the BLM ROW program is found in
Title 43 CFR parts 2800 and 2880.
Subsurface Storage of Oil and Gas
The proposed rule would change the existing 43 CFR 3105.5 to just
the heading ``Subsurface storage of oil and gas.''
Section 3105.41 Where Filed
The proposed rule would update paragraph (a) to include designation
of successor operators for gas storage agreements among the
applications to be filed in the proper BLM office. This information
needs to be filed with the BLM when there is a change in operator. The
proposed rule would update paragraph (b) to remove the requirement for
five copies of a gas storage agreements to be submitted when these are
filed with the BLM as the BLM believes this requirement is no longer
necessary because of electronic filing. A new paragraph (c) would
require that all applications for a subsurface gas storage agreement or
a designation of a successor operator must include the new processing
fee found in the fee schedule in 43 CFR 3000.120.
Section 3105.42 Purpose
The proposed rule would add clarification that a gas storage
agreement will require a bond under 43 CFR part 3104.
Section 3105.43 Requirements
The proposed rule would update the language in this section to
mirror the language found in 43 CFR 3105.42 for clarity.
Section 3105.50 Consolidation of Leases
The proposed rule would split the single paragraph under this
section into several paragraphs for clarity. These paragraphs would
also incorporate language from 43 CFR 3135.17 to provide a consistent
approach across leasing in the NPR-A and under the MLA. Paragraph (a)
would incorporate language stating that leases may be consolidated upon
written request of the lessee filed with the proper BLM office. This
change is proposed to identify who should submit the request for
consolidation. The request must identify each lease involved by serial
number and must explain the factors that justify the consolidation.
Paragraph (b) would state that all parties holding any undivided
interest in any lease involved in the consolidation must agree to enter
into the same lease consolidation. Consistent with the existing
language, paragraph (c) would clarify the circumstances under which
leases cannot be consolidated. Paragraph (d) would state that a
consolidated lease will not exceed acreage limits of 2,560 acres for
competitive leases and 10,240 acres for noncompetitive leases, as
required by 30 U.S.C. 226. Paragraph (e) would require the effective
date, anniversary date, and the primary term of the consolidated lease
to be those of the oldest original lease included in the consolidation.
It would also allow the term of a consolidated lease to be extended
beyond the primary lease term pursuant to 43 CFR subpart 3107.
Paragraph (f) would state that the highest royalty and rental rates of
the each of the leases to be consolidated would apply to the
consolidated lease. Paragraph (g) would state that lease stipulations
and other terms and conditions of each original lease would, in
general, continue to apply to the lease to which they originally
applied, regardless of the lease becoming a part

[[Page 47584]]

of a consolidated lease. These additions bring consistency between
Sec. Sec. 3135.17 and 3105.50.
8. Section-by-Section Discussion for Changes to 43 CFR Subpart 3106
The proposed rule would add one section and remove two sections in
existing subpart 3106. The proposed rule would revise five section
headings in the existing subpart 3106 to provide clarity and replace
the existing question-and-answer formats.
Section 3106.10 Transfers, General
The proposed rule would split paragraph (a) into two paragraphs and
add a provision regarding transfers of operating rights to provide
clarity and reduce the confusion the BLM has seen in applications. The
new paragraph (b) would state that an assignment of a separate zone,
deposit, depth, formation, a specific well, or part of a legal
subdivision will be denied. The proposed rule would add a new paragraph
(c) to state that operating rights may only be divided with respect to
legal subdivisions, depth ranges, and formations within the boundaries
of a Federal lease. Terms, such as stratigraphic equivalent, pools,
reservoirs, wellbores, and references to unnamed formations occurring
at a specified depth within a specific well are not allowed, as they
are not definitive, and introduce ambiguity into the boundaries along
which lease rights are split.
The proposed language more clearly states the BLM's current
obligations. The current regulation at 43 CFR 3106.1(a) states:
``Leases may be transferred by assignment or sublease as to all or part
of the acreage in the lease or as to either a divided or undivided
interest therein. An assignment of a separate zone or deposit, or of
part of a legal subdivision, shall be disapproved.'' The
``stratigraphic equivalent'' of a formation (i.e., a division that
extends beyond that formation) meets the definition of a ``zone.'' A
``pool'' of oil or gas trapped in the rocks below the ground surface
meets the definition of a ``deposit.'' Under the current regulations,
therefore, the BLM must disapprove these types of assignments.
The BLM's practice is sound as a practical matter. The BLM cannot
approve assignments or transfers that attempt to separate rights along
boundaries that cannot be defined without geological interpretation
(for example, ``the stratigraphic equivalent of the formation
encountered in Well X, at a depth of Y feet below the surface''). A
boundary that requires geological interpretation is inherently
imprecise. As for wellbore-only transfers, a wellbore is essentially a
line, not a spatial region within a leasehold. The BLM cannot define a
distribution of lease rights relative to a linear feature in three-
dimensional space below the surface of the ground. Wellbore-only rights
that purportedly encompass the area drained by that wellbore pose the
problem of defining the boundaries of the area drained, which may
require geological interpretation and/or engineering analysis.
The proposed rule would also split the existing paragraph (b) into
five paragraphs due to the length of the paragraph and for clarity. The
proposed paragraph (d) would revise the second sentence to simply
reference 43 CFR 3102.51(g) for certification of compliance rather than
repeating the language set out in 43 CFR 3102.51(g). The proposed rule
would redesignate the existing paragraph (c) to paragraph (i) because
of the previously mentioned reorganization.
Section 3106.20 Qualifications of Transfers
The purpose of this section is to ensure new lessees and operating
rights owners comply with the provisions of 43 CFR subpart 3102. The
proposed rule would update the title of the section from
``Qualifications of transferees'' to ``Qualifications of assignees and
transferees.'' The proposed rule would also update the paragraph to
include ``assignees'' as well as ``transferees.'' The purpose of these
changes is to clarify that this section on qualifications applies to
both assignments of record title as well as transfers of operating
rights. The proposed rule would add a sentence that states ``Only
qualified and responsible lessees may own, hold, or control an interest
in a lease.'' This addition is made to conform the language in this
provision with similar proposed changes.
Section 3106.30 Fees
This section includes the requirement to submit the requisite
filing fees with assignment and transfer applications. The proposed
rule would split the current paragraph into two paragraphs for clarity.
The reference to the filing fee for assignments and transfers would now
be found under paragraph (a). The reference to the filing fee for
transfer of overriding royalty or payment out of production would now
be found under paragraph (b). References to the filing fees for mergers
and name changes and for transfers to heirs or devisees would be
removed from this section as the filing fee requirement is included in
the sections for those specific topics.
Section 3106.41 Transfers of Record Title and of Operating Rights
(Subleases)
This section describes the forms required for assignment and
transfers. The proposed rule would update this section to allow for the
acceptance of electronic submissions. The proposed rule would reduce
the triplicate filing to a duplicate filing so that the BLM can keep
one copy for the official case file and return one copy of the approved
assignment or transfer for the applicant's records. The BLM does not
require a duplicate copy of the assignment or transfer when it is
electronically submitted.
The proposed rule would also require assignments and transfers to
be submitted on a current form and would no longer allow the use of
obsolete forms. All current forms can be located on the BLM's web
pages. The BLM believes that lessees may locate the current form far
easier now than in the days prior to widespread internet access.
The current regulations allow for the assignee or transferee to
sign only one copy of the assignment or transfer, while the assignor or
transferor must sign all three copies of the form. In light of the
proposal to reduce the triplicate filing to (at most) a duplicate
filing, the BLM believes it would no longer be a burden for the
assignee or transferee to sign both copies of the form submitted to the
BLM. This change would streamline the BLM's verification of the
required signatures.
Section 3106.42 Transfers of Other Interest, Including Royalty
Interests and Production Payments
The proposed rule would update paragraphs (a) and (b) to ensure
overriding royalty transfers are submitted on the BLM's current
assignment or transfer forms.
Section 3106.43 Mass Transfers
This section allows an assignor or transferor to make a mass
assignment or transfer when conveying any type of interest in a large
number of Federal leases to the same assignee or transferee. The
proposed rule would update paragraph (a) to include the words
``assignor'' and ``assignee.'' As explained earlier, the term
``transferees'' usually refers to transfers of operating rights, but
this section has always functioned to apply to both assignments of
record title as well as transfers of operating rights. The BLM believes
that adding assignors and assignees to this

[[Page 47585]]

language would reduce any confusion on this matter. In addition, the
regulatory language was clarified to ensure that the minimum number of
leases for a mass transfer is more than one lease.
The proposed rule would update paragraph (b) to reduce the
triplicate filing to a duplicate filing so the BLM can keep one copy
for the official case file and return one copy of the approved
assignment or transfer for the applicant's records. The proposed rule
would update paragraph (c) to state that the BLM does not require a
duplicate copy of the assignment or transfer when it is electronically
submitted. In addition, a new paragraph (c)(2) would be added to state
that when the BLM does not receive the requisite number of copies for
mass transfers, the applicant would reimburse the BLM for the full
costs incurred to make the required number of copies. The BLM would
waive any copy fees under one dollar.
Section 3106.50 Description of Lands
The proposed rule would update the language in this paragraph from
``transfer of record title'' to ``assignment of record title'' for
consistency. In addition, the reference to 43 CFR 3110.5 would be
removed to more simply state that each assignment must describe the
lands in the same manner as the lands described in the lease.
Section 3106.60 Bond Requirements
The purpose of this section is to ensure the new lessee or
operating rights owner obtains a bond equivalent in coverage to the
assignor's or transferor's bond before approval of the assignment or
transfer. The proposed rule would update the title of this section from
``Bonds'' to ``Bond requirements.'' This section would also consolidate
the separate sections for ``Lease bond'' (43 CFR 3106.6-1) and
``Statewide/nationwide bond'' (43 CFR 3106.6-2) into one paragraph to
streamline the regulations. In addition, the rule would remove
references to a transferee or a new operator as a co-principal on the
transferor's or operator's bond. In the BLM's experience, this dynamic
does not occur. An assignee assumes all the obligations incurred by the
assignor as well as the benefits that have accrued to the assignor. The
bond the assignee, transferee, or new operator must provide is a proper
bond that would cover any obligations arising under the lease to the
same extent as the assignor's bond. The BLM's practice is to ascertain
the adequacy of such bond before approving the assignment.
Approval of Transfer or Assignment
The proposed rule would change the existing 43 CFR 3106.7
``Approval of transfer'' to the heading ``Approval of transfer or
assignment.'' The reference to both assignments and transfers conforms
the title of this section with similar proposed changes.
Section 3106.71 Failure To Qualify
The proposed rule would update the paragraph in this section to
active voice and update the language from ``transfer of record title or
of operating rights (sublease)'' to ``assignment of record title or
transfer of operating rights (sublease),'' consistent with the other
changes made to this subpart. In addition, the term ``qualified
lessee'' is used in place of the existing language ``qualified to hold
the transferred interest.'' i.
Section 3106.72 Continuing Obligation of an Assignor or Transferor
The purpose of this section is to describe the continuing
obligation of the assignor or transferor after the BLM approves the
assignment or transfer. The proposed rule would update the title and
paragraphs of this section to remove the question-and-answer format.
The title would change from ``If I transfer my lease, what is my
continuing obligation?'' to read ``Continuing obligation of an assignor
or transferor.'' In paragraph (a), the proposed rule would change ``you
are responsible'' to ``the lessee or sublessee remains responsible''
and paragraph (b) would change ``you'' to ``the assignor or
transferor.'' This is intended to clarify who ``you'' is in this
section.
Section 3106.73 Lease Account Status
The proposed rule would update this section to active voice and
revise the phrase ``unless the lease account is in good standing'' to
clarify that the lease account must not be delinquent with respect to
royalty payments; lease obligations, such as, but not limited to, rent
and minimum royalty; or production reporting to the ONRR for a lease in
non-terminable status.
Section 3106.75 Effect of Transfer
This section requires that an assignment to 100 percent of a
portion of the lease segregates the transferred and retained portions
into separate leases. The proposed rule would update the language in
this paragraph from ``transfer of record title'' to ``assignment of
record title,'' consistent with the other changes made to this subpart.
The proposed rule would also update the paragraph in this section to
clarify the meaning of undivided interest to the more commonly used
phrase of ``less than 100 percent of a portion of the lease.''
Section 3106.76 Obligations of Assignee or Transferee
The purpose of this section is to describe the obligations the
lessee or sublessee assumes after the BLM approves the assignment or
transfer. By seeking approval of the assignment or transfer and being
substituted in place of the assignor or transferor, the assignee or
transferee assumes the responsibility for complying with all lease
obligations in existence and that a purchaser exercising reasonable
diligence should have known existed at the time of the transfer. The
proposed rule would update the title and paragraphs of this section to
remove the question-and-answer format. The title would change from ``If
I acquire a lease by an assignment or transfer, what obligations do I
agree to assume?'' to read ``Obligations of assignee or transferee.''
This formatting change brings overall consistency with the other
regulations in this subpart. The proposed rule would also replace
``you'' in this section with ``the record title holder'' or
``transferee of operating rights,'' as appropriate. It would also state
more clearly that the transferee assumes the responsibility to plug and
abandon all wells that are no longer capable of producing.
Section 3106.81 Heirs and Devisees
The proposed rule would split paragraph (a) into two paragraphs for
clarity. The existing paragraph (b) would become paragraph (c) due to
the reorganization of the section. The language in paragraph (a) would
be updated to state that the lease interest would be assigned or
transferred to the heirs, devisees, executor, or administrator of the
estate, as appropriate, upon the filing of a court order, death
certificate, or other legal document demonstrating that the assignee is
to be recognized as the successor of the deceased. New paragraph (b)
would contain the requirement for the filing fee. Newly redesignated
paragraph (c) would include a requirement to file a qualification
statement, as well as the current language found in existing paragraph
(b). The proposed rule would add a new paragraph (d) that would contain
the bonding requirements that are found in paragraph (a) in the current
regulation.
Section 3106.82 Change of Name
The proposed rule would split the reference to the filing fee and
bond into

[[Page 47586]]

three separate paragraphs for clarity. The current regulation requires
a notice of the name change to be accompanied by a list of the serial
numbers of the leases affected by the name change. This requirement
would be removed, as it is outdated. In practice, the BLM generates a
report of the leases affected by the name change and returns that list
to the lessee with a notice that recognizes the name change. The
proposed paragraph (a) would be updated to require that for a corporate
name change, the request must include the Secretary of State's
Certificate of Name Change, along with the Articles of Incorporation,
or Amendment, if available. This is consistent with the BLM's current
approach for processing these types of documents. New paragraph (b)
would contain the requirement for the filing fee. The proposed rule
would add a new paragraph (c) that would contain the bonding
requirements that are found in the current regulation.
Section 3106.83 Corporate Mergers and Dissolution of Corporations,
Partnerships, and Trust
The proposed rule would update the title of this section from
``Corporate merger'' to ``Corporate Mergers and Dissolution of
Corporations, Partnerships, and Trust.'' The goal of renaming the
section is to incorporate other types of changes to lease ownership
interests that may occur without any intention by the holder of an
interest to assign or transfer the interest. The proposed rule would
split the current paragraph into three paragraphs for clarity.
The current regulation requires a notification of merger to be
accompanied by a list of the serial numbers of the leases affected by
the merger. This requirement would be removed, as it is outdated. In
practice, the BLM does not rely on a list of leases provided by a
lessee and, instead, generates its own report of the leases affected by
the merger. The BLM returns that list to the lessee with a notice that
recognizes the corporate merger.
This section would be updated to require that, for a merger, the
request must include the Secretary of State's Certificate of Merger,
along with the Articles of Incorporation, or Amendment, if available.
This requirement is consistent with the BLM's current approach for
processing these types of documents. New paragraphs would be added
allowing the BLM to recognize lease interests assigned through
dissolutions of corporations and dissolutions of partnerships and
trust. The new provision would state that the BLM would not recognize
any transfers provided by the Articles of Dissolution unless an entity
has filed with the BLM a Certificate of Dissolution of an incorporated
entity, certified as accepted by the State where the entity was
incorporated. Dissolution of a partnership or trust through an order or
decree that authorizes settlement, discharge, and distribution of the
lease holdings and/or interests must be filed with the BLM for official
recognition of the assignment of lease interests. These requirements
are consistent with the BLM's current approach for processing these
types of documents.
Section 3106.84 Sheriff's Sale/Deed
The proposed rule would add a new section under Sec. 3106.80, to
include sheriff's sales as another type of transfer. The BLM accepts
these types of assignments to recognize lease interests assigned to
other parties through foreclosure actions. The proposed rule would
state that where a notice of sale of the leasehold interest is
published pursuant to State law applicable to the execution of sales of
real property, the purchaser must submit to the proper BLM office a
copy of the Sheriff's Certificate of Sale after any redemption period
has passed. Additional paragraphs under this new section would include
a filing fee requirement, a qualification statement, and bonding
requirements. These requirements are consistent requirements with the
BLM's current approach for processing these types of documents.
9. Section-by-Section Discussion for Changes to 43 CFR Subpart 3107
The proposed rule would remove six sections in existing 43 CFR
subpart 3107. The proposed rule would change the title of this subpart
from ``Continuation, Extension or Renewal'' to ``Continuation and
Extension'' due to the removal of the sections on renewal of leases, as
explained later. The proposed rule would revise two section headings in
the existing 43 CFR subpart 3107. The goal of the revisions is to
replace ``plans'' with ``agreements'' to provide clarity and to conform
this language with other changes in this proposed rule.
Section 3107.10 Extension by Drilling
The proposed rule would split the existing paragraph into two
separate paragraphs for clarity. In paragraph (a), a sentence would be
added to state that the BLM would not grant a drilling extension for a
lease in its extended term. This change would clarify and complement
the first sentence of this section, which states that a drilling
extension would only be granted for a lease on which actual drilling
operations are being diligently pursued at the end of the primary lease
term or any lease that is committed to an approved oil and gas
agreement. A new paragraph (c) would be added to address directional or
horizontal wells on off-lease locations by stating that when a BLM-
approved directional or horizontal well is drilled within the leased
area from an off-lease location with the intent to produce from the
leased area, the BLM would consider drilling to have commenced on the
leased area when drilling is commenced at the off-lease location. This
addition is consistent with the leasing regulations under 43 CFR part
3130.
Section 3107.22 Cessation of Production
The proposed rule would update this section because the IBLA has
held that the current regulations--which provide that ``[t]he 60-day
period commences upon receipt of notification from the authorized
officer''--directly conflicts with the statutory provision of section
17(i) of the MLA (30 U.S.C. 226(i)). Refer to Two Bay Petroleum, Inc,
166 IBLA 329 (2005), International Metals & Petroleum Corp, 158 IBLA 15
(2002), and Merit Productions, et al., 144 IBLA 156 (1998). In summary,
these cases explain that through operation of law a lease in its
extended term expires 60 days following cessation of production, not 60
days after the lessee receives the BLM notice.
The paragraph in the proposed rule would now read that a lease in
its extended term because of production (and lacking a well capable of
production in paying quantities) would not expire upon cessation of
production, if, within 60 calendar days of cessation of production,
reworking or drilling operations on the leasehold are commenced and are
thereafter conducted with reasonable diligence during the period of
nonproduction. The proposed rule would also add a sentence stating,
``If these reworking or drilling operations fail to result in
production in paying quantities, the lease will expire by operation of
law, effective as of the date production ceased.''
Section 3107.23 Leases Capable of Production
The proposed rule would update the existing paragraph to specify 60
``calendar days'' in order to be clearer.

[[Page 47587]]

Section 3107.30 Extension for Terms of Agreements
The proposed rule would update the title of this section from
``Extension for terms of cooperative or unit plan'' to ``Extension for
Terms of Agreements.'' This conforms this language to other changes in
this proposed rule.
Section 3107.31 Leases Committed to an Agreement
The proposed rule would update the title of this section from
``Leases committed to plan'' to ``Leases committed to an agreement.''
The proposed rule would also remove the reference to the existing 43
CFR 3107.3-3 (renewal leases) due to the changes made to that section,
as further described later.
The proposed rule would add a new paragraph (b) because IBLA cases
have held that a well that is capable of production in paying
quantities on a lease basis and that is completed on a committed tract
within a unit agreement will extend the term of all expiring Federal
leases committed to the unit agreement for the term of the unit
agreement and/or for so long as the well is capable of production in
paying quantities. Refer to Yates Petroleum Corp. 67 IBLA 246 (1982).
Section 3107.32 Segregation of Leases Committed in Part
This section addresses any lease committed to a unit agreement that
covers less than the entirety of the lands covered by the lease. In
paragraph (a), a sentence would be added to state that, for unproven
areas, segregation would occur only when the public interest
requirement is satisfied pursuant to 43 CFR 3183.4(b). The sentence
would also provide that, upon satisfaction of the public interest
requirement, the BLM would deem the segregation to have been effective
as of the date of commitment of the lands to the unit. Segregating a
lease after the public interest requirement is met would create
efficiencies in the program. If the public interest requirement is not
met, the BLM would not be required to consolidate the improperly
segregated leases, and the ONRR would not be required to consolidate
improperly segregated lease accounts for payments.
The proposed rule would delete the portion of existing paragraph
(b), which described how a lease segregation would be declared invalid
if the public interest requirement was not met. This change is
consistent with the changes made to paragraph (a).
The proposed rule would add a new paragraph (b)(2) to clarify that
the base or segregated lease may be extended by production on the
associated lease by stating that, if a partially committed lease is in
an extended term because of production, the segregated, non-producing
lease would continue in effect so long as the producing lease exists
and rentals are paid, and so long thereafter as oil or gas is produced
from the committed lease.
Section 3107.3-3 20-Year Lease or Any Renewal Thereof.
The proposed rule would eliminate this section because it is
outdated. All 20-year leases, also known as renewal leases, have either
expired or are held by production. Renewal leases are further described
in detail under 43 CFR 3107.80.
Section 3107.51 Extension After Discovery on Other Segregated Portions
The proposed rule would update the language in this paragraph from
``the date of first discovery of oil or gas in paying quantities'' to
read ``the date a well capable of production in paying quantities is
established.'' The change reflects language more commonly used by the
BLM.
Section 3107.7 Exchange Leases: 20-Year Term
The proposed rule would eliminate this section because it is
obsolete. Exchange leases were outstanding MLA leases that could be
exchanged for a new lease under the Act of August 21, 1935, Public Law
74-295 Sec. 2(a), 49 Stat. 674, 679. The August 8, 1946, Act
eliminated the 1935 Act provisions for exchange leases, and the BLM no
longer accepts these types of applications. Public Law 79-696 sec. 3,
60 Stat. 950, 951.
Section 3107.8 Renewal Leases
The proposed rule would eliminate Sec. Sec. 3107.8-1 through
3107.8-3, which are the provisions related to renewal leases, in their
entirety because they are obsolete. Renewal leases that had an
expiration date after November 15, 1990, were eligible for a final
renewal under the provisions of the November 15, 1990, Act, (for 10
years and for so long thereafter as oil and gas is produced in paying
quantities). Public Law 101-567, 104 Stat. 2802. If a lease was renewed
after the 1990 amendment and was not producing oil or gas at the end of
its 10-year renewal term, the lease expired with no further option for
renewal. The BLM no longer accepts these types of applications.
Section 3107.71 Payment of Compensatory Royalty
The proposed rule would redesignate this section from Sec. Sec.
3107.9-1 to 3107.71 pursuant to the reorganization identified earlier.
Section 3107.72 Subsurface Storage of Oil and Gas
Instead of citing to 43 CFR 3105.5-4, the proposed rule would add
the language from 43 CFR 3105.5-4 to this section. This change negates
the need to refer to another section of the rule.
10. Section-by-Section Discussion for Changes to 43 CFR Subpart 3108
The proposed rule would remove one section and revise two section
headings in the existing 43 CFR subpart 3108. The goal of the revisions
is to replace the question-and-answer format and to remove obsolete
language related to Class III reinstatements.
Section 3108.10 Relinquishment
The proposed rule would update the title from ``As a lessee, may I
relinquish my lease?'' to read ``Relinquishment.'' The proposed rule
would also change references to ``you'' to ``the lessee(s).'' In
addition, the proposed rule would update paragraph (c) to allow either
the BLM or the appropriate surface management agency to approve a plan
for the reclamation of the oil and gas operations on a relinquished
lease.
Section 3108.21 Automatic Termination
The proposed rule would update paragraph (b) to remove the phrase
``bill rendered by the designated Service Office, or,'' because the
ONRR updated its policy in 2015 to eliminate the mailing of courtesy
notices. The proposed rule would add a new paragraph (c) to incorporate
caselaw providing that Congress intended the automatic termination
provision of 30 U.S.C. 188 to apply to the regular, annual rental
payment, the necessity for which a lessee had continuous notice, and
that the automatic termination provision was not intended to apply to a
case where a lessee had no way of knowing that the obligation had
accrued, e.g., where a lease suspension is lifted or where the lease
account reverts from a royalty to a rental status. See Husky Oil
Company of Delaware Depco, Inc., 5 IBLA 7 (1972). This might happen
where a lease suspension is lifted or where the leases were held by
allocated production from an agreement and the agreement terminates,
thus reverting the lease account from a royalty to a rental status. The
new paragraph (c) would state that the

[[Page 47588]]

automatic termination provision does not apply where, due to other
contingencies such as a suspension being lifted or unit terminating,
additional rental is due on a date other than the lease anniversary
date and where the lessee did not receive notice that the obligation
had accrued, unless the lessee fails to pay the rental within the
period prescribed in the BLM notice.
Section 3108.22 Reinstatement at Existing Rental and Royalty Rates:
Class I Reinstatements
The proposed rule would update paragraph (a)(2) to replace the
reference to a postmark by the U.S. Postal Service with a reference to
the ONRR's online rental payment system, since the ONRR updated its
policy in 2015 to require only electronic rental payments. The proposed
rule would move paragraph (d)--which provides that the BLM would not
issue a new lease for lands that have been covered by a lease that
terminated automatically until 90 days after the date of termination--
to 43 CFR 3101.40(a). The intent is to ensure that this language is not
overlooked by placing it more prominently with lease issuance
provisions. The IRA did not make any changes to the grounds and
conditions for Class I reinstatements.
Section 3108.23 Reinstatement at Higher Rental and Royalty Rates: Class
II Reinstatements
To further implement the IRA, the proposed rule would update
paragraph (a) so that the grounds for a Class II reinstatement only
apply to competitive leases. The IRA explicitly rescinded the BLM's
authority to approve Class II reinstatements for noncompetitive leases
issued for public domain lands under the MLA and implicitly did the
same for the MLAAL (by eliminating references to higher rental
requirements for reinstated, noncompetitive leases). In any event,
reinstatements are discretionary; had Congress not directed the BLM to
eliminate reinstatement of noncompetitive leases under the MLAAL, the
BLM has concluded that such reinstatements are not prudent because the
grounds for a reinstatement should be based on the type of lease and
not be based on the land status.
The proposed rule would eliminate the existing paragraph (b)(1) in
its entirety. This provision addresses the timeliness of Class II
reinstatement petitions for leases that terminated on or before August
8, 2005, and is no longer applicable. The proposed rule would update
the proposed redesignated paragraph (b)(2)(iii) to remove the reference
to funds held in escrow, as this is outdated. The BLM would not approve
a reinstatement if the BLM does not collect all back rentals and
royalties at the rates established in the reinstated lease, but the BLM
would not require the funds to be held in escrow until a reinstatement
is approved.
The proposed rule would move existing paragraph (c)--which states
that the BLM will not issue a new lease for lands covered by a
terminated lease until all action on the petition is final--to 43 CFR
3101.40(a). The intent is to ensure that this language is not
overlooked by placing it more prominently with lease issuance
provisions. The proposed rule would update the reference to the
Committee on Interior and Insular Affairs (which no longer exists) to
the current House Committee on Natural Resources. The proposed rule
would remove existing paragraph (f), which refers to royalty
reductions, as this language would already be covered under the
proposed 43 CFR 3103.41(c).
Section 3108.2-4 Conversion of Unpatented Oil Placer Mining Claims:
Class III Reinstatements (Existing Rule)
The purpose of the existing section is for converting unpatented
oil placer mining claims validly located prior to February 24, 1920, to
an oil and gas lease. The proposed rule would remove the language
related to Class III reinstatements in its entirety because the IRA
removed the authority for Class III reinstatements.
Section 3108.30 Cancellation
The proposed rule would update the last sentence in paragraph (a)
to remove the phrase ``after notice to the lessee in accordance with
section 31(b) of the Act and only.'' This phrase does not add anything
to the existing regulation and has therefore led to confusion. The
proposed rule would state instead that ``The lease may be canceled only
after default continues for 30 calendar days after a notice of default
has been delivered in accordance with 43 CFR 1810.2.'' The proposed
rule would update paragraphs (b) and (c) to change the phrase from ``by
judicial proceedings'' to ``by court order'' to align with the text
found in 43 CFR 3136.3(b), bringing consistency to the regulations.
11. Section-by-Section Discussion for Changes to 43 CFR Subpart 3109
The proposed rule would not make any rev

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