Rule2024-06827
Waste Prevention, Production Subject to Royalties, and Resource Conservation
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 10, 2024
Effective
June 10, 2024
Issuing agencies
Interior DepartmentLand Management Bureau
Abstract
On November 30, 2022, the Department of the Interior, through the Bureau of Land Management (BLM), published in the Federal Register a proposed rule entitled "Waste Prevention, Production Subject to Royalties, and Resource Conservation." This final rule aims to reduce the waste of natural gas from venting, flaring, and leaks during oil and gas production activities on Federal and Indian leases. The final rule also ensures that, when Federal or Indian gas is wasted, the public and Indian mineral owners are compensated for that wasted gas through royalty payments. This final rule will be codified in the Code of Federal Regulations and will replace the BLM's current requirements governing venting and flaring, which are more than four decades old.
Full Text
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[Federal Register Volume 89, Number 70 (Wednesday, April 10, 2024)]
[Rules and Regulations]
[Pages 25378-25432]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06827]
[[Page 25377]]
Vol. 89
Wednesday,
No. 70
April 10, 2024
Part III
Department of the Interior
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Bureau of Land Management
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43 CFR Parts 3160 and 3170
Waste Prevention, Production Subject to Royalties, and Resource
Conservation; Final Rule
Federal Register / Vol. 89 , No. 70 / Wednesday, April 10, 2024 /
Rules and Regulations
[[Page 25378]]
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DEPARTMENT OF THE INTERIOR
Bureau of Land Management
43 CFR Parts 3160 and 3170
[BLM_HQ_FRN_MO4500174370]
RIN 1004-AE79
Waste Prevention, Production Subject to Royalties, and Resource
Conservation
AGENCY: Bureau of Land Management, Interior.
ACTION: Final rule.
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SUMMARY: On November 30, 2022, the Department of the Interior, through
the Bureau of Land Management (BLM), published in the Federal Register
a proposed rule entitled ``Waste Prevention, Production Subject to
Royalties, and Resource Conservation.'' This final rule aims to reduce
the waste of natural gas from venting, flaring, and leaks during oil
and gas production activities on Federal and Indian leases. The final
rule also ensures that, when Federal or Indian gas is wasted, the
public and Indian mineral owners are compensated for that wasted gas
through royalty payments. This final rule will be codified in the Code
of Federal Regulations and will replace the BLM's current requirements
governing venting and flaring, which are more than four decades old.
DATES: The final rule is effective on June 10, 2024. The incorporation
by reference of certain material listed in this rule is approved by the
Director of the Federal Register as of June 10, 2024.
FOR FURTHER INFORMATION CONTACT: Yvette M. Fields, Division Chief,
Fluid Minerals Division, telephone: 240-712-8358, email:
<a href="/cdn-cgi/l/email-protection#3b425d525e575f487b595756155c544d"><span class="__cf_email__" data-cfemail="0a736c636f666e794a686667246d657c">[email protected]</span></a>, or by mail to Bureau of Land Management, 1849 C St.
NW, Room 5633, Washington, DC 20240, for information regarding the
substance of this final rule.
Individuals in the United States who are deaf, deafblind, hard of
hearing, or have a speech disability may dial 711 (TTY, TDD, or
TeleBraille) to access telecommunications relay services. 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. For a summary of the final rule, please see the
final rule summary document in docket BLM-2022-0003 on
<a href="http://www.regulations.gov">www.regulations.gov</a>.
SUPPLEMENTARY INFORMATION:
I. List of Acronyms
II. Executive Summary
III. Background
IV. Discussion of Public Comments on the Proposed Rule
V. Section-by-Section Discussion
VI. Procedural Matters
I. List of Acronyms
AO = Authorized Officer
APD = Application for Permit to Drill
API = American Petroleum Institute
AVO = Audio, visual, and olfactory
BLM = Bureau of Land Management
CA = Communitization Agreement
CAA = Clean Air Act
CFR = Code of Federal Regulations
EA = Environmental Assessment
EPA = Environment Protection Agency
FLPMA = Federal Land Policy and Management Act
FMP = Facility measurement point
FOGRMA = Federal Oil and Gas Royalty Management Act
GAO = Government Accountability Office
GOR = Gas-to-oil ratio
IMDA = Indian Mineral Development Act of 1982
IRA = Inflation Reduction Act of 2022
LDAR = Leak detection and repair
Mcf = thousand cubic feet at standard conditions
MLA = Mineral Leasing Act of 1920, as amended
NTL = Notice to Lessees
NTL-4A = Notice to Lessees and Operators of Onshore Federal and
Indian Oil and Gas Leases: Royalty or Compensation for Oil and Gas
Lost
OGI = Optical gas imaging
OGOR = Oil and Gas Operations Report
ONRR = Office of Natural Resources Revenue
RIA = Regulatory Impact Analysis
Unit PA = Unit participating area
WMP = Waste Minimization Plan
II. Executive Summary
On November 30, 2022, the Department of the Interior (DOI or
``Department''), through the Bureau of Land Management (BLM), published
in the Federal Register a proposed rule entitled, Waste Prevention,
Production Subject to Royalties, and Resource Conservation. 87 FR 73588
(Nov. 30, 2022). The BLM has considered the public comments received on
the proposed rule to develop this final rule.
This final rule aims to reduce the waste of natural gas from oil
and gas leases administered by the BLM. This gas is lost during oil and
gas exploration and production activities through venting, flaring, and
leaks. Venting is the intentional release of gas into the atmosphere
during operations, such as liquids unloading. Gas that is combusted in
a controlled manner is flared gas. Leaks are the unintentional release
of gas into the atmosphere from production equipment. Although some
losses of gas may be unavoidable, Federal law requires that operators
take reasonable steps to prevent the waste of gas through venting,
flaring and leaks. The final rule describes the reasonable steps that
operators of Federal and Indian oil and gas leases must take to avoid
the waste of natural gas. The final rule also ensures that, when
Federal or Indian gas is avoidably wasted, the public and Indian
mineral owners are compensated for the wasted gas through royalty
payments.
The BLM administers a Federal onshore oil and gas leasing program
pursuant to the requirements of various statutes, including the Mineral
Leasing Act (MLA), the Federal Oil and Gas Royalty Management Act
(FOGRMA), the Inflation Reduction Act of 2022 (IRA) Public Law 117-169,
and the Federal Land Policy and Management Act (FLPMA). The MLA
requires lessees to ``use all reasonable precautions to prevent waste
of oil or gas developed in the land,'' \1\ and further requires oil and
gas lessees to observe ``such rules . . . for the prevention of undue
waste as may be prescribed by [the] Secretary . . . .'' \2\ Under
FOGRMA, oil and gas lessees are liable for royalty payments on gas
wasted from the lease site.\3\ In addition, as discussed further below,
the IRA provides that, for leases issued after August 16, 2022,
royalties are owed on all gas produced from Federal land, subject to
certain exceptions for gas that is lost during emergency situations,
used for the benefit of lease operations, or ``unavoidably lost.''
FLPMA authorizes the BLM to ``regulate'' the ``use, occupancy, and
development'' of the public lands via ``published rules,'' while
mandating that the Secretary, ``[i]n managing the public lands . . .
shall, by regulation or otherwise, take any action necessary to prevent
unnecessary or undue degradation of the lands.'' \4\ The BLM also
regulates oil and gas operations on trust and restricted fee lands
pursuant to the Indian Mineral Leasing Act, 25 U.S.C. 396a et seq.; the
Act of March 3, 1909, 25 U.S.C. 396; and the Indian Mineral Development
Act (IMDA), 25 U.S.C. 2101 et seq.
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\1\ 30 U.S.C. 225.
\2\ 30 U.S.C. 187.
\3\ 30 U.S.C. 1756.
\4\ 43 U.S.C. 1732(b).
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In addition to managing the leasing and production of oil and gas
from Federal lands, the BLM also oversees operations on many Indian and
Tribal oil and gas leases pursuant to a delegation of authority from
the Secretary of the Interior.\5\ The Secretary's management and
regulation of Indian mineral interests carries with
[[Page 25379]]
it the duty to act as a trustee for the benefit of the Indian mineral
owners.
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\5\ Department of the Interior, Departmental Manual, 235 DM
1.1K.
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This final rule replaces the BLM's current requirements governing
natural gas venting and flaring, which are contained in Notice to
Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases:
Royalty or Compensation for Oil and Gas Lost (NTL-4A).\6\ NTL-4A was
issued more than 40 years ago, and its policies and requirements are
outdated. To begin, NTL-4A is ill-suited to address the large volume of
flaring associated with the rapid development of unconventional
``tight'' oil and gas resources that has occurred in recent years. In
addition, NTL-4A does not account for technological and operational
advancements that can reduce losses of gas from oil storage tanks and
equipment leaks.
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\6\ 44 FR 76600 (Dec. 27, 1979).
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In 2016, the BLM issued a final rule replacing NTL-4A with new
regulations intended to reduce the waste of gas from venting, flaring,
and leaks.\7\ That rule was challenged in Federal court, and the BLM
never fully implemented the rule due to the resulting litigation.\8\ In
September 2018, the BLM issued a final rule effectively rescinding the
2016 Rule, and that rule was itself challenged in court.\9\ Eventually,
the United States District Court for the Northern District of
California vacated the 2018 rescission of the 2016 Rule on various
grounds, including what the Court determined was the rule's failure to
meet the BLM's statutory mandate to prevent waste.\10\ The U.S.
District Court for the District of Wyoming then vacated the 2016 Rule
on the grounds that, among other things: (1) the MLA's ``delegation of
authority does not allow and was not intended to authorize the
enactment of rules justified primarily upon the ancillary benefit of a
reduction in air pollution''; and (2) ``BLM acted arbitrarily and
capriciously in failing to fully assess the impacts of the [2016 Rule]
on marginal wells, failing to adequately explain and support the [2016
Rule's] capture requirements, and failing to separately consider the
domestic costs and benefits of the [2016 Rule].'' \11\ The result of
these rulemakings and court decisions is that NTL-4A continues to
govern venting and flaring from BLM-managed oil and gas leases.
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\7\ 81 FR 83008 (Nov. 18, 2016).
\8\ See Wyoming v. U.S. Dep't of the Interior, 493 F. Supp. 3d
1046, 1052-1057 (D. Wyo. 2020) (hereinafter, Wyoming court).
\9\ 83 FR 49184 (Sept. 28, 2018).
\10\ California v. Bernhardt, 472 F. Supp. 3d 573 (N.D. Cal.
2020).
\11\ See Wyoming court at 1086-87.
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Based on the lessons of prior rulemakings and court decisions, the
BLM concludes that this final rule will reduce the waste of natural gas
through improved regulatory requirements pertaining to venting,
flaring, and leaks, as well as improve upon NTL-4A in a variety of
significant ways while eschewing elements of the 2016 Rule criticized
by the District Court.
In brief, the primary components of this final rule are as follows:
<bullet> The final rule better implements the statutory requirement
that the ``lessee will . . . use all reasonable precautions to prevent
the waste of oil or gas developed in the land,'' \12\ consistent with
the BLM's authority to issue rules implementing that statutory
requirement.\13\ The final rule requires operators to take reasonable
measures to prevent waste as conditions of approval of an Application
for Permit to Drill (APD). Then, after an APD is approved, the BLM may
order an operator to implement, within a reasonable amount of time,
additional reasonable measures to prevent waste at ongoing exploration
and production operations. Reasonable measures to prevent waste may
reflect factors including, but not limited to, advances in technology
and changes in industry practice.
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\12\ 30 U.S.C. 225.
\13\ See 30 U.S.C. 187.
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<bullet> The final rule requires operators to submit either a Waste
Minimization Plan (WMP) or a self-certification statement as one of
five required attachments to their oil well applications for permit to
drill.\14\ The WMP will provide the BLM with the following information:
anticipated oil and associated-gas production and anticipated 3-year
decline curves; certification that the operator has an executed, valid
gas sales contract; and any other steps the operator commits to take to
reduce or eliminate gas losses.
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\14\ See Sec. 3162.3-1(d).
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In lieu of a waste-minimization plan, the operator may choose to
provide a self-certification statement. That statement would commit the
operator to capturing 100 percent of the associated gas produced from
an oil well and would obligate the operator to pay royalties on all
lost gas except for gas lost through emergencies. With the addition of
this new requirement to file a WMP or the described self-certification
statement for oil-well APDs, operators must now provide five
attachments with their completed Form 3160-3, including existing
requirements for a drilling plan, a surface use plan of operations, and
evidence of bond coverage. All five attachments must be
administratively and technically complete before the BLM approves the
APD. If the application is not complete, the BLM will defer action on
the APD, and the operator will have an opportunity to address BLM-
identified deficiencies. In the case of a WMP or self-certification
statement, the operator must address the identified deficiencies within
2 years of receiving notification from the BLM of the deficiencies or
the BLM may disapprove the application.
<bullet> The final rule recognizes the IRA's provision that
royalties are not owed on gas that is ``unavoidably lost''. The final
rule clarifies which lost oil or gas will qualify as ``unavoidably
lost'': lost oil or gas will qualify as ``unavoidably lost'' if, as
stated in the final rule at Sec. 3179.41, the operator has taken
reasonable steps to avoid waste; the operator has complied fully with
applicable laws, lease terms, regulations, provisions of a previously
approved operating plan, and other written orders of the BLM; and the
loss is within the applicable time or volume limits. The final rule
provides for several circumstances in which lost oil or gas will be
considered ``unavoidably lost,'' including during well completions,
production testing, and emergencies. The final rule also establishes a
volumetric threshold based on oil production on royalty-free flaring
due to pipeline capacity constraints, midstream processing failures, or
other similar events that may prevent produced gas from being
transported to market. The volumetric threshold is based on the total
volume of gas flared in a month divided by the total net volume of oil
produced in a month for each lease, unit PA, or CA. If an operator were
to exceed the avoidable loss threshold, then royalties are due on the
amount flared beyond the threshold.
<bullet> The final rule includes specific affirmative obligations
that operators must take to avoid wasting oil or gas. In particular:
The final rule requires operators on Federal or Indian leases to
maintain a leak detection and repair (LDAR) program designed to prevent
the waste of Federal or Indian gas. An operator's LDAR program must
provide for regular inspections of all oil and gas production,
processing, treatment, storage, and measurement equipment on the lease
site.
The requirements of this final rule are explained in detail in
sections III and IV that follow.
As detailed in the Regulatory Impact Analysis (RIA) prepared for
this final rule, the BLM estimates that this rule will have the
following economic impacts:
[[Page 25380]]
<bullet> Costs to industry of around $19.3 million per year
(annualized at 7 percent);
<bullet> Benefits to industry in recovered gas of $1.8 million per
year (annualized at 7 percent);
<bullet> Increases in royalty revenues from recovered and flared
gas of $51 million per year; and
<bullet> Ancillary effects society of $17.9 million per year from
reduced greenhouse gas emissions (using a 3 percent discount rate).
III. Background
A. Waste of Natural Gas During the Development of Federal and Indian
Oil and Gas Resources
The BLM is responsible for managing more than 245 million surface
acres of land and 700 million acres of subsurface mineral estate. The
BLM maintains a program for leasing these lands for oil and gas
development and regulates oil and gas production operations on Federal
leases. While the BLM does not manage the leasing of Indian and Tribal
lands for oil and gas production, the BLM does regulate oil and gas
operations on many Indian and Tribal leases as part of its Tribal trust
responsibilities.
The BLM's onshore oil and gas management program is a significant
contributor to the Nation's oil and gas production. Domestic production
from 88,887 Federal onshore oil and gas wells \15\ accounts for
approximately 8 percent of the Nation's natural gas supply and 9
percent of its oil.\16\ In Fiscal Year (FY) 2021, operators produced
473 million barrels of oil and 3.65 trillion cubic feet of natural gas
from onshore Federal and Indian oil and gas leases. The production of
this oil and gas generated more than $4.2 billion in royalties.
Approximately $3.2 billion of these royalties were shared between the
United States and the States in which the production occurred.
Approximately $1 billion of these royalties went directly to Tribes and
Indian allottees for production from Indian lands.\17\
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\15\ BLM Public Lands Statistics, Table 9 (FY 2021 data),
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>.
\16\ Bureau of Land Management Budget Justifications and
Performance Information Fiscal Year 2023, p. V-79, available at
<a href="https://www.doi.gov/sites/doi.gov/files/fy2023-blm-greenbook.pdf">https://www.doi.gov/sites/doi.gov/files/fy2023-blm-greenbook.pdf</a>.
\17\ Production and revenue number derived from data maintained
by the Office of Natural Resources Revenue at <a href="https://revenuedata.doi.gov/">https://revenuedata.doi.gov/</a>.
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In recent years, the United States has experienced a significant
increase in oil and natural gas production due to technological
advances, such as hydraulic fracturing combined with directional
drilling. This increase in production has been accompanied by a
significant waste of natural gas through venting and flaring. During
oil and gas operations it is sometimes necessary to vent gas (the
intentional release of natural gas into the atmosphere) or to flare gas
(the combustion of unsold gas). As the following graph illustrates, the
amount of venting and flaring from Federal and Indian leases has
increased dramatically from the 1990s to the 2010s, and the upward
trend in flaring suggests that it will continue to be a problem.
Between 1990 and 2000, the total venting and flaring reported by
Federal and Indian onshore lessees averaged approximately 11 billion
cubic feet (Bcf) per year. Between 2010 and 2020, in contrast, the
total venting and flaring reported by Federal and Indian onshore
lessees averaged approximately 44.2 Bcf per year.\18\
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\18\ The BLM analysis of ONRR Oil and Gas Operations Report part
B (OGOR-B) data provided for 1990-2000 and 2010-2020. All venting
and flaring data is nationwide and does not separate Federal and
Indian data. For certain data points, separating Federal and Indian
data would require a manual review of thousands of venting and
flaring sundry notices since the BLM does not have a database that
tracks this distinction.
[GRAPHIC] [TIFF OMITTED] TR10AP24.000
Assuming a $3 per thousand cubic feet (Mcf) price of gas,\19\ the
Federal and Indian gas that was vented and flared from 2010 to 2020
would be valued at $1.46 billion. The BLM notes that vented and flared
volumes have not
[[Page 25381]]
increased linearly with production: according to data maintained by the
Office of Natural Resources Revenue (ONRR), the average volume of
vented and flared gas as a percentage of total gas production was 0.42
percent from 1990 to 2000; from 2010 to 2020, however, vented and
flared gas averaged 1.07 percent of total gas production. This metric
reflects a 157 percent increase in the waste of gas during oil and gas
production from Federal and Indian lands. Furthermore, the average
amount of vented and flared gas (in Mcf) per barrel (bbl) of oil
production was 0.0815 Mcf/bbl from 1990 to 2000, while it rose to
0.1642 Mcf/bbl from 2010 to 2020 \20\--a 102 percent increase in the
waste of gas per barrel of oil produced. Together, these trends
demonstrate that the requirements established by NTL-4A are ineffective
at limiting the amount of gas that is vented or flared from Federal and
Indian lands.
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\19\ The average annual Henry Hub spot price for natural gas
from 2010 through 2020 was $3.19. U.S. Energy Information
Administration (EIA), Henry Hub Natural Gas Spot Price, available at
<a href="https://www.eia.gov/dnav/ng/hist/rngwhhda.htm">https://www.eia.gov/dnav/ng/hist/rngwhhda.htm</a>.
\20\ In the proposed rule, the BLM erroneously stated that the
average amount of vented and flared gas in thousands of cubic feet
(Mcf) per barrel (bbl) of oil production was 0.8148 Mcf/bbl from
1990 to 2000, which rose to 1.6418 Mcf/bbl from 2010 to 2020. The
correct average amounts are 0.08148 Mcf/bbl of vented and flared gas
from 1990 to 2000, which rose to 0.16418 Mcf/bbl from 2010 to 2020.
The accompanying graph, which appeared in the proposed and final
rules, is accurate and remains unchanged. Accordingly, the BLM is
revising the cited average amounts to reflect the information
provided in the accompanying graph.
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BILLING CODE 4331-29-P
[GRAPHIC] [TIFF OMITTED] TR10AP24.001
[GRAPHIC] [TIFF OMITTED] TR10AP24.002
[[Page 25382]]
BILLING CODE 4331-29-C
Recent studies have identified three other major sources of gas
losses during the oil and gas production process: emissions from
natural-gas-activated pneumatic equipment, venting from oil storage
tanks, and equipment leaks.\21\ The EPA estimates that, nationwide,
36.2 Bcf of methane was emitted from pneumatic controllers and 4.9 Bcf
of methane was emitted from equipment leaks at upstream oil and gas
production sites in the United States in 2019.\22\ The BLM estimates
that 13 Bcf of natural gas was lost from pneumatic devices on Federal
and Indian lands in 2019. The BLM estimates that an additional 0.86 Bcf
of gas was lost due to equipment leaks from Federal natural gas
production operations not subject at the time to State or EPA (LDAR)
requirements. Notably, leakage appears to be exacerbated in areas where
there is insufficient infrastructure for natural gas gathering,
processing, and transportation \23\--a known issue in basins such as
the Permian and Bakken, where substantial BLM-managed oil and gas
production occurs. Finally, the BLM estimates that 17.9 Bcf of natural
gas was emitted from storage tanks on Federal and Indian lands in 2019.
Losses from pneumatic equipment, leaks, and storage tanks would be
valued at $53.7 million dollars (at $3/Mcf) in 2019.
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\21\ Alvarez, et al., ``Assessment of methane emissions from the
U.S. oil and gas supply chain,'' Science 361 (2018); see also 81 FR
83008, 83015-17 (Nov. 18, 2016).
\22\ EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks:
1990-2019 at 3-73 (2019).
\23\ Zhang, et al., ``Quantifying methane emissions from the
largest oil-producing basin in the United States from space,''
Science Advances 6 (2020).
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Apart from undue waste, excessive venting, flaring, and leaks by
Federal oil and gas lessees also impose three additional harms. First,
vented or leaked gas wastes valuable publicly or Indian owned resources
that could be put to productive use, and deprives American taxpayers,
Tribes, and States of substantial royalty revenues. Second, the wasted
gas may harm local communities and surrounding areas through visual and
noise impacts from flaring. And third, vented or leaked gas also
contributes to climate change, because the primary constituent of
natural gas is methane, an especially powerful greenhouse gas, with
climate impacts roughly 28 to 36 times those of carbon dioxide
(CO<INF>2</INF>), if measured over a 100-year period, or 84 times those
of CO<INF>2</INF> if measured over a 20-year period.\24\ Thus,
regulatory measures that encourage operators to conserve gas and avoid
waste could, as a purely incidental matter, have ancillary effects on
public health and the environment.\25\
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\24\ See Intergovernmental Panel on Climate Change, Climate
Change 2013: The Physical Science Basis, Chapter 8, Anthropogenic
and Natural Radiative Forcing, at 714 (Table 8.7), available at
<a href="https://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WG1AR5_Chapter08_FINAL.pdf">https://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WG1AR5_Chapter08_FINAL.pdf</a>.
\25\ The BLM notes that the BLM did not rely on such ancillary
effects in developing this final rule. Rather, with the exception of
the safety provisions in Sec. 3179.50 (which also promotes worker
health), the requirements of this final rule are independently
justified as reasonable measures to prevent waste that would be
expected, regardless of ancillary effects on public health or the
environment.
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Both the MLA and IRA distinguish an avoidable loss from an
unavoidable loss. Indeed, some amount of venting and flaring is
unavoidable and expected to occur during oil and gas exploration and
production operations. For example, an operator may need to flare gas
on a short-term basis as part of drilling operations, well completion,
or production testing, among other situations. Longer-term flaring may
occur in exceptional circumstances, which might include the drilling of
and production from an exploratory well in a new field, where gas
pipelines have not yet been built due to a lack of information
regarding expected gas production.\26\ In some fields, the overall
quantity of gas produced may be so small that the development of gas-
pipeline infrastructure may not be economically justified.
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\26\ The BLM notes that, even in such exceptional circumstances,
operators should be expected to take measures to avoid excessive
flaring and this proposed rule would place limitations on royalty-
free flaring from exploratory wells.
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Although some venting or flaring may be unavoidable (and thus not
waste) under some circumstances, operators have an affirmative
obligation under Federal law to use reasonable precautions to prevent
the waste of oil or gas developed from a lease. As other technologies
and practices on oil and gas operations have evolved (as evidenced by
changes in State and Federal regulations, and in industry best
practices), so too measures that are considered reasonable to prevent
waste should progress over time with advances in technology and changes
in industry practice.
Further, operators' immediate economic interests may not always be
served by minimizing the loss of natural gas, and BLM regulation is
necessary to discourage operators from venting or flaring more gas than
is operationally necessary. A prime example is the flaring of oil-well
gas due to pipeline capacity constraints. Oil wells in certain fields
are known to produce relatively large volumes of associated natural
gas. Accordingly, natural-gas-capture infrastructure--including
pipelines--has been built out in those fields, and the BLM expects
operators to sell the associated gas they produce. However, it is not
uncommon for the rate of oil-well development to outpace the capacity
of the related gas-capture infrastructure. When the existing gas-
capture infrastructure is overwhelmed, an operator is faced with a
choice: flare the associated gas in order to continue oil production
unabated or curtail oil production in order to conserve the associated
gas. Absent clear requirements in NTL-4A as to whether a specific
operational circumstance is an avoidable or unavoidable loss, an
operator might conclude that the BLM would not make any avoidable loss
determination if the operator were to flare, and thus waste associated
gas to continue oil production--maximizing the operators' short-term
profits by providing immediate revenue from oil production, even
accounting for the loss of gas revenue. But the latter course of action
may often best serve the public's interest by maximizing overall energy
production (considering both production streams rather than producing
oil and flaring gas) and royalty revenues.
Likewise, maximizing the recovery of gas by regularly inspecting
for leaks may not always maximize the operator's profits. It is in
these circumstances--where an operator's interest in maximizing short-
term profits diverges from the public's interest in maximizing resource
recovery--that BLM regulation is necessary and appropriate to ensure
that operators take reasonable measures to prevent waste, as required
by statute.
B. Legal Authority
Pursuant to a delegation of Secretarial authority, the BLM is
authorized to regulate oil and gas exploration and production
activities on Federal and Indian lands under a variety of statutes,
including the MLA, the Mineral Leasing Act for Acquired Lands, the IRA,
FOGRMA, the FLPMA, the Indian Mineral Leasing Act of 1938, the IMDA,
and the Act of March 3, 1909.\27\ These statutes authorize the
Secretary of the Interior to promulgate such rules and regulations as
may be necessary to carry out the statutes' various purposes.\28\
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\27\ Mineral Leasing Act, 30 U.S.C. 188-287; Mineral Leasing Act
for Acquired Lands, 30 U.S.C. 351-360; Federal Oil and Gas Royalty
Management Act, 30 U.S.C. 1701-1758; Federal Land Policy and
Management Act of 1976, 43 U.S.C. 1701-1785; Indian Mineral Leasing
Act of 1938, 25 U.S.C. 396a-g; Indian Mineral Development Act of
1982, 25 U.S.C. 2101-2108; Act of March 3, 1909, 25 U.S.C. 396.
\28\ 30 U.S.C. 189 (MLA); 30 U.S.C. 359 (MLAAL); 30 U.S.C.
1751(a) (FOGRMA); 43 U.S.C. 1740 (FLPMA); 25 U.S.C. 396d (IMLA); 25
U.S.C. 2107 (IMDA); 25 U.S.C. 396.
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[[Page 25383]]
7. Authority Regarding the Waste of Natural Gas
The MLA rests on the fundamental principle that the public should
benefit from mineral production on public lands.\29\ An important means
of ensuring that the public benefits from mineral production on public
lands is minimizing and deterring the waste of oil and gas produced
from the Federal mineral estate. To this end, the MLA requires that all
oil and gas lessees be subject to the condition that lessees ``use all
reasonable precautions to prevent waste of oil or gas developed in the
land . . . .'' \30\ The MLA requires oil and gas lessees to exercise
``reasonable diligence, skill, and care'' in their operations and to
observe ``such rules . . . for the prevention of undue waste as may be
prescribed by [the] Secretary.'' \31\ Lessees are not only responsible
for taking measures to prevent waste, but also for making royalty
payments on wasted oil and gas when waste occurs, in accordance with
the MLA's assessment of royalties on all ``production removed or sold
from the lease.'' \32\ Furthermore, FOGRMA expressly makes lessees
``liable for royalty payments on oil or gas lost or wasted from a lease
site when such loss or waste is due to negligence on the part of the
operator of the lease, or due to the failure to comply with any rule or
regulation, order or citation issued under [FOGRMA] or any mineral
leasing law.'' \33\
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\29\ See, e.g., California Co. v. Udall, 296 F.2d 384, 388 (D.C.
Cir. 1961) (noting that the MLA was ``intended to promote wise
development of . . . natural resources and to obtain for the public
a reasonable financial return on assets that `belong' to the
public'').
\30\ 30 U.S.C. 225.
\31\ 30 U.S.C. 187.
\32\ 30 U.S.C. 226(b)(1)(A).
\33\ 30 U.S.C. 1756.
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In addition, on August 16, 2022, President Biden signed the IRA
into law. Section 50263 of the IRA, which is entitled ``Royalties on
All Extracted Methane,'' provides that, for leases issued after August
16, 2022, royalties are owed on all gas produced from Federal land,
including gas that is consumed or lost by venting, flaring, or
negligent releases through any equipment during upstream operations.
This section further provides three exceptions to the general
obligation to pay royalties on produced gas, namely on: ``(1) gas
vented or flared for not longer than 48 hours in an emergency situation
that poses a danger to human health, safety, or the environment; (2)
gas used or consumed within the area of the lease, unit, or
communitized area for the benefit of the lease, unit, or communitized
area; or, (3) gas that is unavoidably lost.'' \34\
---------------------------------------------------------------------------
\34\ 30 U.S.C. 1727.
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The BLM's authority to regulate the waste of Federal oil and gas is
not limited to operations that occur on Federal lands, but also extends
to operations on non-Federal lands where Federal oil and gas is
produced under a unit or communitization agreement (CA). ``For the
purpose of more properly conserving the natural resources of any oil or
gas pool, field, or like area,'' the MLA authorizes lessees to operate
their leases under a cooperative or unit plan of development and
operation if the Secretary of the Interior determines such an
arrangement to be necessary or advisable in the public interest.\35\
The Secretary is authorized, with the consent of the lessees involved,
to establish or alter drilling, producing, and royalty requirements and
to make such regulations with respect to the leases under a cooperative
or unit plan.\36\ The MLA states that a cooperative or unit plan of
development may contain a provision authorizing the Secretary to
regulate the rate of development and the rate of production.\37\
Accordingly, the BLM's standard form unit agreement provides that the
BLM may regulate the quantity and rate of production in the interest of
conservation.\38\ The BLM's standard form CA provides that the BLM
``shall have the right of supervision over all fee and state mineral
operations within the communitized area to the extent necessary to
monitor production and measurement, and to assure that no avoidable
loss of hydrocarbons occurs . . . .'' \39\ As noted earlier, FOGRMA
authorizes the BLM to assess royalties on gas lost or wasted from a
``lease site.'' The term ``lease site'' is broadly defined in FOGRMA as
any lands or submerged lands, including the surface of a severed
mineral estate, on which exploration for, or extraction or removal of,
oil or gas is authorized pursuant to a lease.\40\ The BLM maintains the
authority to regulate the waste of Federal minerals from operations on
those lands by requiring royalty payments and setting appropriate rates
of development and production.\41\
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\35\ 30 U.S.C. 226(m).
\36\ Id.
\37\ Id.
\38\ 43 CFR 3186.1, ] 21.
\39\ See ``BLM Manual 3160-9-Communitization,'' Appendix 1, ]
12.
\40\ See 30 U.S.C. 1702(6); Maralex Resources, Inc. v.
Bernhardt, 913 F.3d 1189, 1200 (10th Cir. 2019) (``the statutory
definition of `lease site' necessarily includes any lands, including
privately-owned lands, on which [production] of oil or gas is
occurring pursuant to a communitization agreement''). Additionally,
FOGRMA defines ``oil and gas'' broadly to mean ``any oil or gas
originating from, or allocated to, the Outer Continental Shelf,
Federal, or Indian lands.'' 30 U.S.C. 1702(9) (emphasis added).
\41\ This conclusion is consistent with the assessment of the
BLM's authority expressed by the court that vacated the 2016 Waste
Prevention Rule. See Wyoming 493 F. Supp. 3d at 1081-85.
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2. Authority Regarding Environmental Impacts to the Public Lands
In addition to ensuring that the public receives a pecuniary
benefit from oil and gas production from public lands, the BLM is also
tasked with regulating the physical impacts of oil and gas development
on public lands. The MLA directs the Secretary to ``regulate all
surface-disturbing activities conducted pursuant to any lease'' and to
``determine reclamation and other actions as required in the interest
of conservation of surface resources.'' \42\
---------------------------------------------------------------------------
\42\ 30 U.S.C. 226(g).
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The MLA requires oil and gas leases to include provisions ``for the
protection of the interests of the United States . . . and for the
safeguarding of the public welfare,'' including lease terms for
purposes other than safeguarding the public resource of oil and
gas.\43\ The Secretary may suspend lease operations ``in the interest
of conservation of natural resources,'' a phrase that encompasses not
just conservation of mineral deposits, but also preventing
environmental harm.\44\ The MLA additionally requires oil and gas
leases to contain ``a provision that such rules for the safety and
welfare of the miners
[[Page 25384]]
. . . as may be prescribed by the Secretary shall be observed.'' \45\
Accordingly, the Department's regulations governing oil and gas
operations on the public lands have long required operators to conduct
operations in a manner that is protective of natural resources,
environmental quality, and the health and safety of workers.\46\
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\43\ See Natural Resources Defense Council, Inc. v. Berklund,
458 F. Supp. 925, 936 n.17 (D.D.C. 1978). The BLM acknowledges that
the court that vacated the 2016 Waste Prevention Rule stated that
``it is not a reasonable interpretation of BLM's general authority
under the MLA to `safeguard[ ] the public welfare' as empowering the
agency to regulate air emissions, particularly when Congress
expressly delegated such authority to the EPA under the [Clean Air
Act].'' Wyoming 493 F. Supp. 3d at 1067. The BLM further notes that
the court that vacated the BLM's rescission of the 2016 Waste
Prevention Rule found that the rescission failed to satisfy the
BLM's ``statutory obligation'' to ``safeguard[ ] the public
welfare,'' and stated that the MLA's ``public welfare'' provision
supports the BLM's consideration of air emissions in promulgating
its waste prevention regulations. See California v. Bernhardt, 472
F. Supp. 3d 573, 616 (N.D. Cal. 2020). The BLM need not elaborate on
the meaning of the MLA's ``public welfare'' provision in this
rulemaking, as the BLM is proposing requirements that are
independently justified as waste prevention measures and are not for
environmental purposes. The one exception is Sec. 3179.50, which
does serve an environmental purpose, but is an exercise of the
Secretary's authority to prescribe ``rules for the safety and
welfare of the miners'' under 30 U.S.C. 187.
\44\ 30 U.S.C. 209; see also, e.g., Copper Valley Machine Works
v. Andrus, 653 F.2d 595, 601 & nn.7-8 (D.C. Cir. 1981); Hoyl v.
Babbitt, 129 F.3d 1377, 1380 (10th Cir. 1997); Getty Oil Co. v.
Clark, 614 F. Supp. 904, 916 (D. Wyo. 1985).
\45\ 30 U.S.C. 187.
\46\ See 43 CFR 3162.5-1, 3162.5-3. The BLM promulgated those
regulations in 1982. 47 FR 47765 (1982).
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FLPMA authorizes the BLM to ``regulate'' the ``use, occupancy, and
development'' of the public lands via ``published rules.'' \47\ FLPMA
also mandates that the Secretary, ``[i]n managing the public lands . .
. shall, by regulation or otherwise, take any action necessary to
prevent unnecessary or undue degradation of the lands.'' \48\ In
addition, section 102 of FLPMA declares a policy that the BLM should
both protect the environment, as stated in paragraph 102(a)(8), and
manage the land in such a manner as to provide for ``domestic sources
of minerals'' and other resources, as stated in paragraph
102(a)(12).\49\ With respect to protecting the environment, paragraph
102(a)(8) states the policy of the United States that lands be managed
to ``protect the quality of scientific, scenic, historical, ecological,
environmental, air and atmospheric, water resources, and archeological
values . . . .'' \50\
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\47\ 43 U.S.C. 1732(b).
\48\ Id.
\49\ 43 U.S.C. 1701; Theodore Roosevelt Conservation P'ship v.
Salazar, 605 F. Supp. 2d 263, 281-82 (D.D.C. 2009).
\50\ 43 U.S.C. 1701(a)(8); but see 43 U.S.C. 1701(b).
---------------------------------------------------------------------------
FLPMA also requires the BLM to manage public lands under principles
of multiple use and sustained yield.\51\ The statutory definition of
``multiple use'' explicitly includes the consideration of environmental
resources. ``Multiple use'' is a ``combination of balanced and diverse
resource uses that takes into account the long-term needs of future
generations for renewable and nonrenewable resources . . . .'' \52\
``Multiple use'' also requires resources to be managed in a
``harmonious and coordinated'' manner ``without permanent impairment to
the productivity of the land and the quality of the environment . . .
.'' \53\ Significantly, FLPMA directs the Secretary to consider ``the
relative values of the resources and not necessarily . . . the
combination of uses that will give the greatest economic return or the
greatest unit output.'' \54\
---------------------------------------------------------------------------
\51\ Id. at 1702(c), 1732(a).
\52\ 43 U.S.C. 1702(c).
\53\ Id.
\54\ Id.
---------------------------------------------------------------------------
The Secretary's management and regulation of Indian mineral
interests carries with it the duty to act as a trustee for the benefit
of the Indian mineral owners.\55\ Congress has directed the Secretary
to ``aggressively carry out [her] trust responsibility in the
administration of Indian oil and gas.'' \56\ In furtherance of her
trust obligations, the Secretary has delegated regulatory authority for
administering operations on Indian oil and gas leases to the BLM,\57\
which has developed specialized expertise through regulating the
production of oil and gas from public lands administered by the
Department. In choosing from among reasonable regulatory alternatives
for Indian mineral development, the BLM is obligated to adopt the
alternative that is in the best interest of the Tribe and individual
Indian mineral owners.\58\ What is in the best interest of the Tribe
and individual Indian mineral owners is determined by a consideration
of all relevant factors, including economic considerations as well as
potential environmental and social effects.\59\
---------------------------------------------------------------------------
\55\ See Woods Petroleum Corp. v. Department of Interior, 47
F.3d 1032, 1038 (10th Cir. 1995) (en banc).
\56\ 30 U.S.C. 1701(a)(4).
\57\ 235 DM 1.1.K.
\58\ See Jicarilla Apache Tribe v. Supron Energy Corp., 728 F.2d
1555, 1567 (10th Cir. 1984) (Seymour, J., concurring in part and
dissenting in part), adopted as majority opinion as modified en
banc, 782 F.2d 855 (10th Cir. 1986).
\59\ See 25 CFR 211.3.
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C. Regulatory History
The BLM has a long history of regulating venting and flaring from
onshore oil and gas operations. This section summarizes the BLM's
historic practices, as well as the BLM's experience in two recent
rulemakings related to venting and flaring.
8. Early Regulation of Surface Waste of Gas
The Department of the Interior has maintained regulations
addressing the waste of gas through venting and flaring from onshore
oil and gas leases since 1938. At that time, the Department's
regulations required the United States to be compensated ``at full
value'' for ``all gas wasted by blowing, release, escape into the air,
or otherwise,'' except where such disposal was authorized under the
laws of the United States and the State in which it occurred.\60\ The
regulations further provided that the production of oil or gas from the
lease was to be restricted to such amounts as could be put to
beneficial use and that, in order to avoid the excessive production of
oil or gas, the Secretary could limit the rate of production based on
the market demand for oil or the market demand for gas.\61\
---------------------------------------------------------------------------
\60\ 30 CFR 221.5(h) (1938).
\61\ Id. 221.27.
---------------------------------------------------------------------------
By 1942, the Department's regulations contained a definition of
``waste of oil or gas.'' This definition included the ``physical waste
of oil or gas,'' which was defined as ``the loss or destruction of oil
or gas after recovery thereof such as to prevent proper utilization and
beneficial use thereof, and the loss of oil or gas prior to recovery
thereof by isolation or entrapment, by migration, by premature release
of natural gas from solution in oil, or in any other manner such as to
render impracticable the recovery of such oil or gas.'' \62\ The
regulations stated that a lessee was ``obligated to prevent the waste
of oil or gas'' and, in order to avoid the physical waste of gas, the
lessee was required to ``consume it beneficially or market it or return
it to the productive formation.'' \63\ The regulations stated that
``unavoidably lost'' gas was not subject to royalty, though the
regulations did not define ``unavoidably lost.'' \64\
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\62\ 30 CFR 221.6(n) (1942).
\63\ Id. 221.35.
\64\ Id. 221.44.
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In 1974, the Secretary issued NTL-4, which established the
following policy for royalties on gas production: Gas production
subject to royalty shall include: (1) that gas (both dry and casing-
head) which is produced and sold either on a lease basis or that which
is allocated to a lease under the terms of an approved communitization
or unitization agreement; (2) that gas which is vented or flared in
well tests (drill-stem, completion, or production) on a lease,
communitized tract, or unitized area; and, (3) that gas which is
otherwise vented or flared on a lease, communitized tract, or unitized
area with the prior written authorization of the Area Oil and Gas
Supervisor (Supervisor).\65\
---------------------------------------------------------------------------
\65\ See 44 FR 76600 (Dec. 27, 1979).
---------------------------------------------------------------------------
NTL-4 thus effectively required onshore oil and gas lessees to pay
royalties on all gas produced, including gas that was unavoidably lost
or used for production purposes. Various oil and gas companies sought
judicial review of NTL-4. In 1978, the U.S. District Court for the
District of Wyoming overturned NTL-4, holding that the MLA does not
authorize the collection of royalties on gas production
[[Page 25385]]
that is unavoidably lost or used in lease operations.\66\
---------------------------------------------------------------------------
\66\ Marathon Oil Co. v. Andrus, 452 F. Supp. 548, 553 (D. Wyo.
1978).
---------------------------------------------------------------------------
2. NTL-4A
From January 1980 to January 2017, the Department of the Interior's
instructions governing the venting and flaring of gas from onshore oil
and gas leases were contained in ``Notice to Lessees and Operators of
Onshore Federal and Indian Oil and Gas Leases: Royalty or Compensation
for Oil and Gas Lost'' (``NTL-4A'').\67\ NTL-4A was issued by the U.S.
Geological Survey (USGS), which was the Interior bureau tasked with
oversight of Federal onshore oil and gas production at the time.
---------------------------------------------------------------------------
\67\ 44 FR 76600 (Dec. 27, 1979).
---------------------------------------------------------------------------
Under NTL-4A, operators were required to pay royalties on
``avoidably lost'' gas--i.e., gas lost due to the operator's
negligence, failure to take reasonable precautions to prevent or
control the loss, or failure to comply with lease terms, regulations,
or BLM orders. NTL-4A expressly authorized royalty-free venting and
flaring ``on a short-term basis'' during emergencies, well purging and
evaluation tests, initial production tests, and routine and special
well tests. NTL-4A prohibited the flaring of gas from gas wells under
any other circumstances. For gas produced from oil wells, however, NTL-
4A authorized (but did not mandate) the BLM to approve flaring where
conservation of the gas was not ``economically justified'' because it
would ``lead to the premature abandonment of recoverable oil reserves
and ultimately to a greater loss of equivalent energy than would be
recovered if the venting or flaring were permitted to continue . . .
.'' \68\ NTL-4A stated that, ``when evaluating the feasibility of
requiring conservation of the gas, the total leasehold production,
including oil and gas, as well as the economics of a field-wide plan,''
must be considered. Finally, under NTL-4A, the loss of gas vapors from
storage tanks was considered ``unavoidably lost,'' unless the BLM
``determine[d] that the recovery of such vapors would be warranted . .
. .'' \69\
---------------------------------------------------------------------------
\68\ Id. at 76601 (Dec. 27, 1979).
\69\ Id.
---------------------------------------------------------------------------
Soon after issuing NTL-4A, the USGS issued guidelines and
procedures for implementing NTL-4A, which were published in the
Conservation Division Manual (CDM) Part 644, Chapter 5.\70\ Among other
things, the CDM provided guidance regarding applications to flare oil-
well gas. Specifically, the CDM provided guidance for responding to a
lessee's contention ``that reserves of casinghead gas are inadequate to
support the installation of facilities for gas collection and sale . .
. .'' \71\ The CDM explained that, ``[f]rom an economic basis, all
leasehold production must be considered; the major concern is
profitable operation of the lease, not just profitable disposition of
the gas.'' \72\ The CDM further explained that the ``economics of
conserving gas must be on a field-wide basis, and the Supervisor must
consider the feasibility of a joint operation between all other
lessees/operators in the field or area.'' \73\ Thus, the economic
standard for obtaining approval to flare oil-well gas under NTL-4A was
on its face a demanding one. The fact that the capture and sale of oil-
well gas from an individual lease would not pay for itself was not
sufficient to justify royalty-free flaring of the gas.
---------------------------------------------------------------------------
\70\ Geological Survey Conservation Division Manual, Part 644
Producing Operations Chapter 5 Waste Prevention/Beneficial Use, 6-
23-80 (Release No. 68).
\71\ Id. at 644.53F.
\72\ Id.
\73\ Id.
---------------------------------------------------------------------------
The CDM also provided guidance for venting and flaring situations
involving both Federal and non-Federal lands. In such cases, the BLM
was directed to contact the appropriate State agency to work jointly
for optimum gas conservation. However, where such a cooperative effort
was not possible, the BLM was directed to ``proceed unilaterally to
take action to prevent unnecessary venting or flaring from Federal
lands.''
Under the plain terms of NTL-4A, flaring without prior approval
(outside of the short-term circumstances specified in Sections II and
III of NTL-4A) constituted a royalty-bearing loss of gas, regardless of
the economic circumstances. The BLM originally applied NTL-4A to that
effect, and this practice was upheld by the Interior Board of Land
Appeals. See Lomax Exploration Co., 105 IBLA 1 (1988). However, the BLM
changed this policy in Instruction Memorandum No. 87-652 (Aug. 17,
1987), which required the BLM to provide an operator with
an207pportuneity to demonstrate, after the fact, that capturing the gas
was not economically justified. See Ladd Petroleum Corp., 107 IBLA 5
(1989).
Even so, the number of applications for royalty-free flaring
received by the BLM increased dramatically between 2005 and 2016: in
2005, the BLM received just 75 applications to vent or flare gas, while
in 2015 it received 2,901 applications.\74\ The following table shows
the number of applications to vent or flare gas received by the BLM
through 2021, but it does not reflect when the venting or flaring
occurred.\75\
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\74\ Following publication of the proposed rule, the BLM re-
queried the Automated Fluid Minerals Support System (AFMSS) to
obtain the number of venting and flaring sundry notices in the
database. The number of sundry notices has been updated in the final
rule to reflect the updated query.
\75\ The BLM applies the venting and flaring rule that was in
effect at the time the flaring occurred, not when the application
was received, which may be later in time than the flaring, even
years later. See, e.g., Ladd Petroleum Corp., 107 IBLA 5 (1989). The
application, therefore, does not provide for straightforward
comparison of the effects of regulatory changes, particularly given
recent court orders setting aside the BLM's rules in this sphere.
------------------------------------------------------------------------
Number of
applications
Year received to vent
or flare gas
------------------------------------------------------------------------
2015................................................. 2,900
2016................................................. 2,637
2017................................................. 2,162
2018................................................. 2,095
2019................................................. 2,901
2020................................................. 2,386
2021................................................. 922
------------------------------------------------------------------------
Both the 2016 Waste Prevention Rule and the 2018 Revision Rule
would have dispensed with case-by-case flaring approvals, but because
those rules were both struck down, post-2016 flaring application data
does not provide a useful comparison between the 2016 Waste Prevention
Rule and NTL-4A. In addition, there is no useful comparison because the
2016 Waste Prevention Rule was never in effect and the 2018 revision
rule was in effect for less than 2 years. Most of the applications to
flare royalty-free were submitted to the field offices in New Mexico,
Montana, and the Dakotas, which oversee Federal and Indian mineral
interests in unconventional plays where oil production is accompanied
by large volumes of associated gas. Notably, the vast majority of these
applications involved wells that were connected to a gas pipeline but
flared due to pipeline capacity constraints.
3. 2016 Waste Prevention Rule
On November 18, 2016, the BLM issued a final rule intended to
reduce the waste of Federal and Indian gas through venting, flaring,
and leaks (``2016 Waste Prevention Rule'').\76\ The 2016 Waste
Prevention Rule replaced NTL-4A and became effective on January 17,
2017. The BLM's development of the 2016 Waste Prevention Rule was
prompted by a
[[Page 25386]]
combination of factors, including the substantial increase in flaring
over the previous decade, the growing number of applications to vent or
flare royalty-free, new information regarding the quantities of gas
lost through venting and leaks, and concerns expressed by oversight
entities such as the U.S. Government Accountability Office (GAO).\77\
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\76\ 81 FR 83008 (Nov. 18, 2016).
\77\ Id. at 83014-83017; GAO, ``Federal Oil and Gas Leases--
Opportunities Exist to Capture Vented and Flared Gas, Which Would
Increase Royalty Payments and Reduce Greenhouse Gases'' (Oct. 2010);
GAO, ``OIL AND GAS--Interior Could Do More to Account for and Manage
Natural Gas Emissions'' (July 2016).
---------------------------------------------------------------------------
The 2016 Waste Prevention Rule applied to all onshore Federal and
Indian oil and gas leases, units, and communitized areas. The key
components of the 2016 Waste Prevention Rule were:
<bullet> A requirement that APDs be accompanied by a WMP that would
detail anticipated gas production and opportunities to conserve the
gas;
<bullet> A provision specifying the various circumstances under
which a loss of oil or gas would be ``avoidably lost'' and therefore
royalty-bearing;
<bullet> A requirement that operators capture (rather than flare) a
certain percentage of the gas they produce;
<bullet> Equipment requirements for pneumatic controllers,
pneumatic diaphragm pumps, and storage vessels (tanks); and
<bullet> LDAR provisions requiring semiannual lease site
inspections, the use of specified instruments and methods, and
recordkeeping and reporting.
The rule's ``capture percentage'' requirements were intended to
address the routine flaring of gas from oil wells. The rule required an
operator to capture, rather than flare, a certain percentage of the gas
produced from the operator's ``development oil wells.'' The required
capture percentage would increase over a 10-year period, starting at 85
percent in 2018 and ultimately reaching 98 percent in 2026. Gas flared
in excess of the capture requirements would be royalty bearing.
In the 2016 Waste Prevention Rule, the BLM recognized that the EPA
had promulgated emissions limitations for pneumatic equipment and
storage tanks as well as LDAR requirements for new and modified sources
in the oil and gas production sector pursuant to its authority under
the Clean Air Act (CAA). The BLM further recognized that those EPA
requirements would have the effect of reducing the waste of gas from
leases subject to those requirements. In order to avoid unnecessary
duplication or conflict between the BLM and EPA regulations, the 2016
Waste Prevention Rule allowed for operators to comply with the
analogous EPA regulations as an alternative means of compliance with
BLM's requirements.\78\
---------------------------------------------------------------------------
\78\ See 81 FR 83008, 83018-19, 83085-89 (Nov. 18, 2016).
---------------------------------------------------------------------------
The capture percentage, pneumatic equipment, storage tanks, and
LDAR requirements of the 2016 Rule were each subject to phase-in
periods, and the rule allowed operators to obtain exemptions or reduced
requirements where compliance would ``cause the operator to cease
production and abandon significant recoverable oil reserves under the
lease.'' \79\ The BLM's RIA for the 2016 Waste Prevention rule
estimated that the rule would impose costs of between $110 million and
$275 million per year, while generating benefits of between $20 million
and $157 million per year worth of additional gas captured and between
$189 million and $247 million per year in quantified social benefits
(in the form of forgone methane emissions).\80\
---------------------------------------------------------------------------
\79\ See 81 FR 83082-88 (Nov. 18, 2016).
\80\ BLM (2016). Regulatory Impact Analysis for: Revisions to 43
CFR 3100 (Onshore Oil and Gas Leasing) and 43 CFR 3600 (Onshore Oil
and Gas Operations) Additions of 43 CFR 3178 (Royalty-Free Use of
Lease Production) and 43 CFR 3179 (Waste Prevention and Resource
Conservation). p. 4-5. Available at <a href="https://www.regulations.gov/document/BLM-2016-0001-9127">https://www.regulations.gov/document/BLM-2016-0001-9127</a>.
---------------------------------------------------------------------------
Certain States and operators filed petitions for judicial review of
the Waste Prevention Rule in the U.S. District Court for the District
of Wyoming.\81\ Following the change in Administration in January 2017,
the litigation was effectively paused in response to the BLM's
administrative actions to suspend the rule. After those actions were
invalidated by a different court,\82\ the Wyoming court stayed
implementation of the capture percentage, pneumatic equipment, storage
tank, and LDAR requirements, and stayed the litigation pending
finalization of the BLM's voluntary revision of the 2016 Waste
Prevention Rule.
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\81\ Wyoming v. DOI, Case No. 2:16-cv-00285-SWS (D. Wyo.).
\82\ See California v. BLM, No. 3:17-CV-03804-EDL (N.D. Cal.);
Sierra Club v. Zinke, No. 3:17-CV-03885-EDL (N.D. Cal.). On June 15,
2017, the BLM announced that it would postpone the January 17, 2018,
compliance dates to phase-in certain parts of the 2016 Waste
Prevention Rule. Wyoming at 1053. Several Intervenors-Respondents
from the Wyoming litigation, as well as the Attorney Generals from
the States of California and New Mexico challenged the BLM's 2017
postponement decision in the aforementioned cases in the Northern
District of California. Id. at 1053-54. This California district
court held that the BLM's 2017 postponement notice was invalid,
thereby resulting in the reinstatement of the phase-in dates for
certain parts of the 2016 Waste Prevention Rule. Id. at 1054.
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4. 2018 Revision of Waste Prevention Rule
On September 28, 2018, the BLM issued a final rule substantially
revising the 2016 Waste Prevention Rule (``2018 Revision Rule'').\83\
In the 2018 Revision Rule, the BLM rescinded the WMP, gas capture
percentage, pneumatic equipment, storage tank, and LDAR requirements of
the 2016 Waste Prevention Rule. The BLM also revised the remaining
provisions of the rule to largely reflect the language of NTL-4A.
Finally, the BLM established a new policy of deferring to State
regulations for determining when the routine flaring of oil-well gas is
royalty-free.
---------------------------------------------------------------------------
\83\ 83 FR 49184 (Sept. 28, 2018).
---------------------------------------------------------------------------
In the 2018 Revision Rule, the BLM concluded that the 2016 Waste
Prevention Rule exceeded the BLM's statutory authority by imposing
requirements with compliance costs that exceed the value of the gas
that would be conserved, thus violating the non-statutory ``prudent
operator'' standard that some believed to have been implicitly
incorporated into the MLA when it was adopted in 1920. The BLM also
stated that the 2016 Waste Prevention Rule created a risk of premature
shut-ins of marginal wells, reasoning that the compliance costs
associated with the 2016 Waste Prevention Rule would represent a
significant proportion of a marginal well's revenue. Contrary to what
the BLM had found in 2016, the BLM stated in the 2018 Revision Rule
that existing State flaring regulations provided sufficient assurance
against excessive flaring.
The RIA for the 2018 Revision Rule found that the economic benefits
of the 2018 Revision Rule (i.e., reduced compliance costs) would
significantly outweigh its economic costs (i.e., forgone gas production
and additional methane emissions).\84\ This result was based in large
part on the use of a narrowly defined ``domestic'' social cost of
methane metric. That metric purported to capture domestic methane
costs. However, because it focused on impacts within U.S. borders, it
underestimated the full benefits of GHG mitigation accruing to U.S.
citizens and residents and thus drastically reduced the monetized
climate benefits of the 2016 Waste Prevention Rule relative to
[[Page 25387]]
what had been estimated in the RIA for the 2016 Waste Prevention
Rule.\85\
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\84\ BLM (2018). Regulatory Impact Analysis for the Final Rule
to Rescind or Revise Certain Requirements of the 2016 Waste
Prevention Rule. p. 2-4. Available at <a href="https://www.regulations.gov/document/BLM-2018-0001-223607">https://www.regulations.gov/document/BLM-2018-0001-223607</a>.
\85\ See California v. Bernhardt, 472 F. Supp. 3d 573, 611 (N.D.
Cal. 2020).
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5. Judicial Review of the Revision Rule
In September 2018, a coalition of organizations and the States of
California and New Mexico filed lawsuits challenging the 2018 Revision
Rule in the U.S. District Court for the Northern District of
California. On July 15, 2020, the district court ruled in favor of the
plaintiffs. California v. Bernhardt, 472 F. Supp. 3d 573 (N.D. Cal.
2020). The court found that:
<bullet> The BLM's interpretation of its statutory authority in the
2018 Revision Rule was unjustifiably limited, failed to require lessees
to use all reasonable precautions to prevent waste, and failed to meet
the BLM's statutory mandate to protect the public welfare;
<bullet> The BLM's decision to defer to State flaring regulations
was not supported by sufficient analysis or record evidence;
<bullet> The record did not support the BLM's claims that the 2016
Waste Prevention Rule posed excessive regulatory burdens and that its
costs outweighed its benefits; and
<bullet> The BLM's cost-benefit analysis underlying the rule was
flawed for a variety of reasons, including that the use of a
``domestic'' social cost of methane was unreasonable and not based on
the best available science.
The court ordered that the 2018 Revision Rule be vacated in its
entirety.\86\
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\86\ However, the court stayed vacatur until October 13, 2020.
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6. Judicial Review of the 2016 Waste Prevention Rule
Following the decision in California v. Bernhardt, the Wyoming
court lifted the stay on the litigation over the 2016 Waste Prevention
Rule. In the briefing, the Department of the Interior confessed error
on the grounds that the BLM exceeded its statutory authority and was
``arbitrary and capricious'' in promulgating the rule. In October 2020,
the district court ruled in favor of the plaintiffs, finding that the
BLM had exceeded its statutory authority and had been arbitrary and
capricious in promulgating the 2016 Waste Prevention Rule. Wyoming v.
U.S. Dep't of the Interior, 493 F. Supp. 3d 1046 (D. Wyo. 2020).
Specifically, the court found that the 2016 Waste Prevention Rule was
essentially an air quality regulation and that the BLM had usurped the
authority to regulate air emissions that Congress had granted to EPA
and the States in the CAA. The court found that the rule was not
independently justified as a waste-prevention measure under the MLA.
Rather, in the court's view, the record reflected that the BLM's
primary concern was regulating methane emissions from existing oil and
gas sources. The court faulted the BLM's rulemaking for imposing
requirements beyond what could be expected of a ``prudent operator''
that develops the lease for the mutual profit of lessee and lessor.
Finally, the court faulted the BLM for applying air quality
regulations--as opposed to waste-prevention regulations--to unit and CA
operations on non-Federal lands. The court ordered that the 2016 Waste
Prevention Rule be vacated, thereby reinstating NTL-4A as the BLM's
standard for managing venting and flaring from Federal oil and gas
leases.
7. The Inflation Reduction Act
On August 16, 2022, President Biden signed the IRA into law.\87\
The IRA contains a suite of provisions addressing onshore and offshore
oil and gas development under Federal leases. For example, section
50265, inter alia, requires the Department to maintain a certain level
of onshore oil and gas leasing activity as a prerequisite to approving
renewable energy rights-of-way on Federal lands. Importantly, that
provision of the IRA is accompanied by other provisions that serve to
ensure that lessees pay fair and appropriate compensation to the
Federal Government in exchange for the opportunity to conduct their
industrial activities under Federal leases.
---------------------------------------------------------------------------
\87\ Public Law 117-169.
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One such provision of the Act is section 50263, which is entitled,
``Royalties on All Extracted Methane.'' \88\ Consistent with the MLA's
assessment of royalties on all gas ``removed or sold from the lease''
\89\ and FOGRMA's requirement that lessees pay royalties on lost or
wasted gas,\90\ section 50263 of the IRA provides that, for leases
issued after the date of enactment of the Act, royalties are owed on
all gas produced from Federal land, including gas that is consumed or
lost by venting, flaring, or negligent releases through any equipment
during upstream operations. Section 50263 further provides three
exceptions to the general obligation to pay royalties on produced gas,
namely: (1) gas that is vented or flared for not longer than 48 hours
in an emergency situation that poses a danger to human health, safety,
or the environment; (2) gas used or consumed within a lease, unit, or
communitized area for the benefit of the lease, unit, or communitized
area; and, (3) gas that is unavoidably lost.\91\
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\88\ 30 U.S.C. 1727.
\89\ 30 U.S.C. 226(b).
\90\ 30 U.S.C. 1756.
\91\ 30 U.S.C. 1727.
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The BLM has for decades assessed royalties on upstream production
and has exempted from royalties gas lost in emergency situations,
``beneficial use'' gas, and ``unavoidably lost'' gas. IRA section 50263
is consistent with the BLM's prior agency practice regarding emergency
situations, beneficial use, and the unavoidable loss of gas, and it
provides additional support for the approach set forth in this proposed
rule. Importantly, IRA section 50263 confirms that the concepts of
``avoidable'' and ``unavoidable'' loss are appropriate for assessing
royalties. Section 50263 also confirms that the United States'
pecuniary interest in regulating losses extends to those from upstream
equipment. But the IRA leaves certain questions open, such as what
losses qualify as ``unavoidably lost'' and what qualifies as an
``emergency situation.'' Congress thus has left it to the BLM, as an
exercise of the agency's expertise and judgment, to determine answers
to the specific questions the IRA leaves open. As set forth below, this
final rule addresses these questions in a manner that is consistent
with the IRA's focus on (and the MLA's and FOGRMA's pre-existing
emphasis on) ensuring that Federal lessees pay fair and appropriate
compensation to the Federal Government in exchange for the opportunity
to conduct their industrial activities under Federal leases.
D. The Final Rule
The BLM has authority under the MLA to promulgate such rules and
regulations as may be necessary ``for the prevention of undue waste''
\92\ and to ensure that lessees ``use all reasonable precautions to
prevent waste of oil or gas.'' \93\ For many years, the BLM has
implemented this authority through restrictions on the venting and
flaring of gas from onshore Federal oil and gas leases. However, as
illustrated by the judicial decisions noted previously, before the
IRA's enactment, courts disagreed about the full scope of the BLM's
authority to regulate venting and flaring. Requirements that one court
might consider necessary for the BLM to meet its statutory mandates
might have been seen as regulatory overreach by another court.
Consistent with the approach outlined in the proposed rule, and in
light of all the statutory
[[Page 25388]]
authorities including the IRA, the BLM has chosen to focus on improving
upon NTL-4A in a variety of ways without advancing elements of the 2016
Waste Prevention Rule that were the subject of certain judicial
criticism.
---------------------------------------------------------------------------
\92\ 30 U.S.C. 187.
\93\ 30 U.S.C. 225.
---------------------------------------------------------------------------
As explained in more detail below and in Section IV, the Section-
by-Section Discussion, this final rule makes substantial improvements
in addressing the waste of Federal and Indian gas, while also
addressing the Wyoming court's criticisms of the 2016 Waste Prevention
Rule. First, the requirements unambiguously constitute reasonable waste
prevention measures that should be expected of an operator. The
requirements impose fewer overall costs than those of the 2016 Waste
Prevention Rule and ensure either actual conservation of gas that would
otherwise be wasted or compensation to the public and Indian mineral
owners through royalty payments when gas is wasted. This contrasts with
certain provisions in the 2016 Rule that would have reduced pollution--
but not necessarily reduced waste--by allowing operators to comply with
analogous EPA standards in place of the BLM requirements.
Second, to address the Wyoming court's ruling that the BLM's
authority regarding unit and CA operations on non-Federal and non-
Indian surface is limited, certain requirements in this final rule are
narrower in scope than similar requirements in the 2016 Waste
Prevention Rule. Specifically, the final rule's requirements pertaining
to safety, storage tanks, and LDAR apply only to operations on Federal
or Indian surface estates.
Third, the requirements are consistent with the ``prudent
operator'' standard as that term has been applied in the oil and gas
jurisprudence.
Fourth, the final rule has been developed with an eye towards
avoiding excessive compliance burdens on marginal wells.
Finally, the BLM is expressly excluding the social cost of
greenhouse gases from its decisions on any of the proposed waste
prevention requirements, thereby addressing the Wyoming court's concern
that the 2016 Rule was inappropriately supported by ``climate change
benefits.''
The provisions of this final rule serve straightforward waste
prevention objectives by promoting gas conservation. To avoid
situations where oil-well development outpaces the capacity of the
available gas capture infrastructure, the BLM is requiring operators to
submit either a WMP, including certification of a valid, executed
contract to sell the associated gas, or a self-certification of 100
percent capture of associated gas with oil-well APDs. The BLM
recognizes that not all venting and flaring can be prevented. In the
circumstances in which some venting or flaring cannot be prevented
(e.g., initial production tests or emergencies), the BLM is
establishing appropriate time or volume limits on royalty-free venting
or flaring. The BLM is addressing the problem of intermittent flaring
due to pipeline capacity constraints by establishing a volume limit
based on oil production for royalty-free flaring caused by inadequate
capture infrastructure. Requiring royalty payments on venting and
flaring that exceeds the established limits will both discourage waste
and ensure that Federal and Indian royalty revenues are not reduced by
an operator's wasteful practices. The BLM estimates that the royalty-
free flaring limits of the final rule would generate $51 million per
year in additional royalties. See section 7.6 of the RIA for more
information.
This final rule also contains LDAR provisions intended to reduce
losses of natural gas. Unlike the 2016 Waste Prevention Rule--which
extended these requirements to State and private surface estates in
certain situations--the requirements in this final rule apply only to
operations on the Federal or Indian surface estate, where the BLM has
express authority and responsibility to regulate for safety, the
prevention of waste, and the payment of Federal or Indian royalties.
These requirements would not apply to operations that occur on State or
private surface tracts committed to a Federal unit or CA. The BLM
estimates that the requirements of this final rule regarding LDAR would
result in the conservation of up to 0.5 Bcf of gas each year.
The BLM acknowledges that the contents of this final rule differ in
some regards from the 2018 Revision Rule's narrower interpretation of
the BLM's statutory authority.\94\ Consistent with the BLM's
understanding of its authority for decades prior to 2018, the BLM has
reconsidered the relevant conclusions of the 2018 Revision Rule and now
rejects those conclusions for the following reasons. To begin, nothing
in the MLA's plain text--which requires lessees to take ``all
reasonable precautions to prevent waste'' and to abide by rules and
regulations issued ``for the prevention of undue waste''--suggests that
the BLM's authority is limited to the promulgation of rules that
effectively pay for themselves (as measured by balancing compliance
costs against the value of the recovered gas).\95\ Consistent with this
text, the BLM's longstanding policy governing venting and flaring has
assessed the economic feasibility of gas conservation in the context of
``the total leasehold production, including oil and gas, as well as the
economics of a field-wide plan.'' See supra, Part III.C.2. As the CDM
made clear, the BLM's concern under the MLA for nearly four decades
prior to the 2018 Revision Rule was ``profitable operation of the
lease, not just profitable disposition of the gas.''
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\94\ See 83 FR 49184, 49185-86 (Sept. 28, 2018).
\95\ 30 U.S.C. 187, 225. Indeed, such a requirement would
imperil nearly all operational regulations.
---------------------------------------------------------------------------
Despite suggestions to the contrary in the 2018 Revision Rule, the
focus of the final rule on overall ultimate resource recovery, not
lessee profits vis-[agrave]-vis wasted gas, is consistent with the non-
statutory ``prudent operator'' standard. While the prudent operator
standard rests on an expectation of ``mutually profitable development
of the lease's mineral resources,'' \96\ it does not follow that
lessees can maximize their profit by wasting recoverable hydrocarbon
resources without regard for the lessor's lost royalty revenues or the
lessor's interest in conserving the gas for future disposition. To the
contrary, lessees have an obligation of reasonable diligence in the
development of the leased resources, rooted in due regard for the
interests of both the lessee and the lessor.\97\ And in the MLA,
FOGRMA, and the IRA, Congress enshrined the United States' interest, as
a mineral lessor, in avoiding waste and maximizing royalty
revenues.\98\ The BLM, in managing oil and gas resources on behalf of
the United States, may value more production--considering both oil and
gas production--over a
[[Page 25389]]
longer time period more highly than does an operator, who might be more
focused on generating near-term profits. None of the authorities
previously relied upon by the BLM to interpret the ``prudent operator''
standard forecloses any Secretarial action that might marginally affect
lessee profits.\99\
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\96\ Wyoming at 1072.
\97\ See Id.; see also Sinclair Oil & Gas Co. v. Bishop, 441
P.2d 436, 447 (Okla. 1967) (``Necessarily, we determine the lessee
was acting prudently when he ascertained that it was illegal and
improper to flare gas in the quantities shown by the evidence, in
order to produce the unallocated allowable of oil.''); Tr. Co. of
Chicago v. Samedan Oil Corp., 192 F.2d 282, 284 (10th Cir. 1951)
(``A first consideration is the precept that a prudent operator may
not act only for his self-interest. He must not forget that the
primary consideration to the lessor for the lease is royalty from
the production of the lease free of cost of development and
operation.'').
\98\ See 30 U.S.C. 187, 225, 226(m), 1756; see also California
Co. v. Udall, 296 F.2d 384, 388 (D.C. Cir. 1961) (``[The Secretary]
has a responsibility to insure that these resources are not
physically wasted and that their extraction accords with prudent
principles of conservation. To protect the public's royalty interest
he may determine that minerals are being sold at less than
reasonable value. Under existing regulations he can restrict a
lessee's production to an amount commensurate with market demand,
and thus protect the public's royalty interest by preventing
depression of the market.'').
\99\ Cf. California v. Bernhardt, 472 F. Supp. 3d 573, 596 (N.D.
Cal. 2020) (``The statutory language demonstrates on its face that
any consideration of waste management limited to the economics of
individual well-operators would ignore express statutory mandates
concerning BLM's public welfare obligations.'').
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In contrast to NTL-4A, this final rule does not allow operators to
request that flared oil-well gas be deemed royalty-free based on case-
by-case economic assessments. There are a number of reasons for this
approach. In the first instance, Federal law does not require the
American taxpayers to forgo royalties on wasted gas due to an
individual operator's economic circumstances. Although it was the BLM's
practice to engage in case-by-case economic assessments under NTL-4A,
that approach is no longer appropriate, as the practical realities of
oilfield development have changed dramatically since 1980. As the U.S.
Department of Energy explained in a recent report, ``flaring has become
more of an issue with the rapid development of unconventional tight oil
and gas resources over the past two decades'' that has ``brought online
hydrocarbon resources that vary in their characteristics and
proportions of natural gas, natural gas liquids and crude oil.'' \100\
Consistent with these developments, and as discussed in Section III.A,
the BLM has witnessed a massive increase in the amount of venting and
flaring from the 1990's to the 2010's. The average amount of annual
venting and flaring from Federal and Indian leases between 1990 and
2000 was 11 Bcf. Between 2010 and 2020, it quadrupled to an average of
44.2 Bcf per year, with a 157 percent increase in the amount of vented
and flared gas as a percentage of gas production, and a 102 percent
increase in the amount of vented and flared gas per barrel of oil
produced. The upward trend in venting and flaring suggests is likely to
continue.
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\100\ U.S. Department of Energy, Office of Fossil Energy, Office
of Oil and Natural Gas, ``Natural Gas Flaring and Venting: State and
Federal Regulatory Overview, Trends, and Impacts'' (June 2019).
<a href="https://www.energy.gov/fecm/articles/natural-gas-flaring-and-venting-regulations-report">https://www.energy.gov/fecm/articles/natural-gas-flaring-and-venting-regulations-report</a>.
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Based on EIA data from 1990 through 2022, U.S. vented and flared
volumes continue an upward trend that tends to mirror U.S. oil
production,\101\ which raises a concern that new exploration and
development is outpacing infrastructure construction. Oil production in
2019 reached a record high level of 4.5 billion barrels of oil despite
a relatively low average annual spot price of $57 per barrel. Operators
may have increased oil production in 2019 to maintain revenues given
the lower pricing. An increase in oil production to maintain revenues
may have led to the very high flare volume in that year. While the
vented and flared volume has decreased since 2019--likely due to
unrepresentative production during the COVID 19 pandemic that resulted
in reduced drilling and completions during this time--the data
demonstrates that, generally, venting and flaring has continued to
increase since 1990, particularly as compared to the production of oil.
This rule will work toward reducing the waste from Federal and Indian
mineral estates.\102\
---------------------------------------------------------------------------
\101\ <a href="https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_VGV_mmcf_m.htm">https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_VGV_mmcf_m.htm</a>.
\102\ For the following tables, see <a href="https://rigcount.bakerhughes.com/na-rig-count/">https://rigcount.bakerhughes.com/na-rig-count/</a>, <a href="https://www.eia.gov/dnav/pet/hist/rwtcA.htm">https://www.eia.gov/dnav/pet/hist/rwtcA.htm</a>.
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BILLING CODE 4331-29-P
[GRAPHIC] [TIFF OMITTED] TR10AP24.003
[[Page 25390]]
[GRAPHIC] [TIFF OMITTED] TR10AP24.004
[GRAPHIC] [TIFF OMITTED] TR10AP24.005
BILLING CODE 4331-29-C
The related increase in the number of flaring applications--from 75
in 2005, to 922 in 2021 has created a significant administrative burden
for the BLM.\103\ It has also created an estimated information
collection burden of approximately 23,228 total annual burden hours
potentially incurred by operators and has led to significant
uncertainty for operators as hundreds of applications wait to be
processed.
---------------------------------------------------------------------------
\103\ See table in the Executive Summary.
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Finally, the BLM notes that the bulk of the recent royalty-free
flaring applications has concerned flaring from wells that are
connected to pipeline infrastructure. The purpose of the economic
inquiry under NTL-4A, by contrast, was to determine whether the volumes
of associated gas production would make the installation of gas-capture
infrastructure economically viable. CDM 644.5.3E and F. Where the gas-
capture infrastructure has already been built out, there is no need to
consider the cost and value of its installation against the volume of
associated gas production. The BLM understands that, as posited by a
commenter, there may be instances where a gas pipeline connected to an
oil well is not able to accept that well's gas for a time. In those
circumstances, an operator may temporarily curtail production or shut
in the well instead of wasting the gas. Oil and gas production should
resume when the pipeline can accept the gas.
One of the primary concerns underlying the BLM's promulgation of
the 2018 Revision Rule was the compliance burden on ``marginal wells,''
i.e., wells that produce approximately 10 barrels of oil or 60 Mcf of
natural gas per day or less.\104\ The court that vacated the 2016 Waste
Prevention Rule faulted the BLM for failing to adequately assess the
impact of that rule on marginal wells.\105\ The court that vacated the
2018 Revision Rule, however, rejected that concern as unfounded.\106\
The BLM does not wish to impose requirements that
[[Page 25391]]
inadvertently cause recoverable oil or gas resources to be stranded due
to premature lease abandonment, but, as the MLA makes clear, any such
considerations go to whether particular conservation measures are
reasonable under the MLA, not whether marginal operations must take
reasonable measures in the first instance. 30 U.S.C. 225. For example,
there is no real risk of premature abandonment by requiring the
operator of a marginal gas well to minimize the loss of gas during
liquids unloading operations, as required in this rule. Under the final
rule, an operator of a marginal gas well may vent gas during liquids
unloading operations royalty-free for 24 hours. If the gas well is not
put into production within 24 hours and maintenance operations must
continue, the volume of gas vented is likely very small and the flowing
pressure very low--otherwise, the operator would be returning the well
to production. Thus, the marginal time that it takes an operator to
continue liquids unloading beyond the initial 24 hours will not result
in significant vented gas and corresponding royalty obligation.
Furthermore, the BLM has provisions for royalty rate reductions in 43
CFR 3103.4-1 to encourage the greatest ultimate recovery of oil or gas.
Therefore, in the unlikely event that compliance with the final rule
would lead to an operator's premature abandonment of a well, an
operator may seek royalty relief to continue operations.
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\104\ 83 FR 49184, 49187 (Sept 28, 2018).
\105\ Wyoming 493 F. Supp. 3d at 1075-78.
\106\ California v. Bernhardt, 472 F. Supp. 3d 573, 606 (N.D.
Cal. 2020).
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The BLM has developed this final rule to avoid excessive and
unreasonable compliance burdens on marginal wells when balanced against
the need to reduce waste. In the 2018 Revision Rule, the BLM noted that
the provisions of the 2016 Waste Prevention Rule that placed a
particular burden on marginal wells were those pertaining to pneumatic
controllers, pneumatic diaphragm pumps, and LDAR. In this final rule,
the requirements for LDAR only apply to Federal or Indian minerals
produced from facilities located on a Federal or Indian surface estate,
thereby limiting the number of operators to which the LDAR program
applies. In addition, the BLM has not included in this final rule the
provisions in the proposed rule regarding pneumatic controllers and
diaphragm pumps.
The BLM acknowledges that, in the 2018 Revision Rule, it asserted
that additional restrictions on flaring were unnecessary because the
States with the most significant BLM-managed oil and gas production
impose regulatory restrictions on flaring from oil wells and that these
State regulations ``provide[d] a reasonable assurance . . . that the
waste of associated gas will be controlled.'' \107\ This assertion
directly contradicted the BLM's prior findings during the promulgation
of the 2016 Waste Prevention Rule, and a district court held that the
BLM's decision to rely on State flaring regulations was unjustified
based on the record evidence.\108\
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\107\ 83 FR 49184, 49202 (Sept. 28, 2018).
\108\ California v. Bernhardt, 472 F. Supp. 3d 573, 601-04 (N.D.
Cal. 2020).
---------------------------------------------------------------------------
For this rulemaking, the BLM analyzed the State regulations
governing flaring, venting, and leaks in the 10 States responsible for
99 percent of Federal oil and gas production: Alaska, California,
Colorado, Montana, New Mexico, North Dakota, Oklahoma, Texas, Utah, and
Wyoming. Summaries of these regulations were collected in a table that
is available in the docket for this rulemaking at <a href="http://www.regulations.gov">www.regulations.gov</a>.
While there have been notable advancements in some States since the
promulgation of the 2016 Waste Prevention Rule--for example, new
comprehensive flaring regulations have since been adopted in New Mexico
and Colorado, and new requirements for storage tanks, pneumatic
equipment, and LDAR have been adopted in Colorado and Utah--State
regulations vary widely in their scope and stringency.\109\ And,
importantly, many of the State flaring regulations reserve substantial
discretion to the State agencies to authorize additional flaring.\110\
That discretion creates significant uncertainty about the extent to
which the BLM can rely on those regulations to protect the interests of
the United States and Indian mineral owners in minimizing waste and
maximizing royalty revenues.
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\109\ Examples of variations among State regulations include the
following. Unlike other States, (1) the States of New Mexico, North
Dakota, Montana, Texas, Alaska, and Oklahoma do not have regulations
to control losses of gas from pneumatic equipment; (2) Texas'
requirements to inspect for and repair leaks are focused on storage
tanks; (3) Alaska does not maintain LDAR requirements; and (4)
Wyoming's requirements for tanks, pneumatic equipment, and LDAR are
limited to the Upper Green River Basin ozone nonattainment area.
\110\ These States are Wyoming, Utah, Montana, Texas, and
Oklahoma.
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In its comments on the proposed rule, the Wyoming Oil and Gas
Conservation Commission asserts that the BLM incorrectly characterizes
Wyoming's regulations regarding flaring and gas capture plan
requirements. Specifically, Wyoming challenges language in the proposed
rule that ``Wyoming's gas capture plan requirements are not triggered
until after flaring becomes a problem at the well.'' \111\
Specifically, the State objects to the proposed rule's description of
Wyoming regulations as triggering a plan only after a flaring
``issue,'' explaining that, in the Commission's view, ``[t]he operator
must submit a gas capture plan, among other information . . . before
flaring or it would need to limit flaring to 60 mcf/d or be in
violation of the [applicable] rule.'' But whether or not these
contingencies are properly characterized as an ``issue,'' the BLM's
point--that it was deemed a plan to be useful when the APD is
submitted--stands. State gas capture plan requirements, by themselves,
do not provide the BLM, in its capacity as regulator and steward of the
Federal mineral estate, with an opportunity to render its own
determinations regarding potential waste when processing an APD.
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\111\ 87 FR 73588, 73598 (Nov. 30, 2022).
---------------------------------------------------------------------------
North Dakota in its comments on the proposed rule takes issue with
the way the BLM characterized the allowance for variances in North
Dakota's gas capture regulations. Specifically, the State asserted:
``In its proposed rule publication, the BLM disingenuously criticizes
North Dakota's gas capture regulations for allowing variances, and then
inconsistently proposes a rule that considers associated natural gas as
unavoidably lost under the same circumstances as 9 out of 10 [North
Dakota Industrial Commission] variance allowances. . . .'' The BLM
acknowledges North Dakota's disagreement with the BLM's
characterization of North Dakota's gas capture regulations.
Nonetheless, as discussed in the proposed rule, the BLM found
significant variance in the scope and stringency of State regulations.
Flaring statistics show that State regulations, by themselves, have not
been adequate to reduce waste from Federal oil wells, underscoring the
need for uniformity with respect to Federal mineral interests. As
discussed further in the section-by-section analysis below, according
to EIA data from 2017 through 2022, North Dakota accounted for
approximately 33 percent of the volume of gas flared nationwide but
only 11 percent of the volume of oil produced nationwide. Wyoming
accounted for approximately 11 percent of the average total flared gas
onshore nationwide and 2 percent of the oil produced nationwide. State
efforts to reduce venting and flaring, though important, do not
displace the Secretary's duty to prevent undue waste from Federal and
Indian wells nationwide.\112\ Consequently, the BLM's
[[Page 25392]]
application of a uniform national standard ensures improved royalty
collection and avoidance of waste. In addition, the Secretary, and not
the States, is responsible for collecting Federal and Indian royalties.
The Secretary can best do this by not requiring shifting Federal
standards in response to any changes to State requirements.
---------------------------------------------------------------------------
\112\ <a href="https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_VGV_mmcf_a.htm">https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_VGV_mmcf_a.htm</a>, <a href="https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm">https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm</a>.
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The BLM also recognizes that the EPA has recently finalized
regulations governing certain aspects of oil and gas production
operations at 40 CFR part 60, subparts OOOOb and OOOOc, and that these
regulations can have the incidental effect of reducing the waste of gas
during production activities. Specifically, EPA's regulations \113\
require: (1) capture or flaring of gas that reaches the surface during
well completion operations with hydraulic fracturing; \114\ (2) storage
tanks with potential methane emissions of 20 tons or more per year to
control those emissions (including through combustion); \115\ (3)
process controllers to be zero emissions; \116\ (4) pumps to be zero
emissions; \117\ and (5) operators of well sites to develop and
implement a fugitive emissions monitoring plan.\118\
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\113\ 40 CFR part 60 subpart OOOOb regulates greenhouse gases
(in the form of limitations on methane) and VOCs from various new,
modified, and reconstructed emission sources across the Crude Oil
and Natural Gas source category for which construction,
reconstruction, or modification commenced after December 6, 2022. 40
CFR part 60 subpart OOOOc includes presumptive standards for
greenhouse gases (in the form of limitations on methane, a
designated pollutant), for certain existing emission sources prior
to December 6, 2022, across the Crude Oil and Natural Gas source
category.
\114\ See 40 CFR part 60 subpart OOOOb at Sec. 60.5375b.
\115\ See 40 CFR part 60 subpart OOOOb at Sec. 60.5395b and 40
CFR part 60 subpart OOOOc at Sec. 60.5396c.
\116\ See 40 CFR part 60 subpart OOOOb at Sec. 60.5370b and 40
CFR part 60 subpart OOOOc at Sec. 60.5362c(c), Sec. 60.5370c and
Table 1.
\117\ See 40 CFR part 60 subpart OOOOb at Sec. 60.5370b and 40
CFR part 60 subpart OOOOc at Sec. 60.5362c(c), Sec. 60.5370c and
Table 1.
\118\ See 40 CFR part 60 subpart OOOOb at Sec. 60.5370b, and
Sec. 60.5397b and 40 CFR part 60 subpart OOOOc at Sec.
60.5362c(c), Sec. 60.5370c, Table 1, and Sec. 60.5397c.
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Although operator compliance with those EPA requirements can reduce
the waste of natural gas from Federal and Indian leases, they do not
supplant the need for BLM standards that are adopted pursuant to the
BLM's independent statutory authority and duties. The BLM further notes
that, under the CAA, States with one or more existing sources must
develop and submit State plans to the EPA for approval. Under this
statutory structure, State plans would implement the emissions
guidelines for existing sources. Also, EPA's requirements are not a
substitute for BLM standards because EPA's requirements are focused on
controlling GHG (in the form of methane) and VOC emissions, rather than
conserving natural gas, and compliance with the EPA's standards will
not always reduce the waste of natural gas or assure payment of
royalties to the United States or to Indian mineral owners. For
example, an operator can comply with EPA's requirements for storage
tanks by routing the emissions to combustion (i.e., flaring) and
therefore eliminating venting from the tanks altogether. That process
results in the same loss of gas as venting the gas from the tank.
Therefore, while that process reduces air pollution by prioritizing
flaring over venting, it does not reduce waste or assure payment of
royalties because in either scenario, the same amount of gas is lost.
Based on its review and analysis of State and EPA regulations, the
BLM finds that it is necessary to establish a uniform standard
governing the wasteful losses of Federal and Indian gas through
venting, flaring, and leaks.\119\ The BLM cannot rely on a patchwork of
State and EPA regulations to ensure that operators of Federal oil and
gas leases consistently meet the waste prevention mandates of the MLA,
that the American public receive a fair return for the development of
the Federal mineral estate, and that the Department's trust
responsibility to Indian mineral owners is satisfied. The BLM
acknowledges that this is a change in position from what the BLM stated
in the Revision Rule regarding analogous State and EPA regulations, a
change shown to be necessary by the vast increase in flaring in recent
decades, which demonstrates the ineffectiveness of NTL-4A in
controlling the waste of gas through venting and flaring. In addition,
establishing a uniform standard in lieu of case-by-case avoidable and
unavoidable loss determinations reduces the administrative burden on
the BLM's limited resources; avoids inconsistent application across the
States; and simplifies Federal and Indian enforcement.
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\119\ The BLM acknowledges that the Wyoming court questioned
what it described as the BLM's authority to ``hijack'' the
cooperative federalism framework of the CAA ``under the guise of
waste management.'' Wyoming 493 F. Supp. 3d at 1066. However, as
noted elsewhere, this final rule is justified not by any ancillary
effects on air quality or climate change, but solely on the basis of
waste prevention--an arena where the BLM has independent statutory
authority to regulate. See Id. at 1063 (``The terms of the MLA and
FOGRMA make clear that Congress intended the Secretary, through the
BLM, to exercise rulemaking authority to prevent the waste of
Federal and Indian mineral resources and to ensure the proper
payment of royalties to Federal, State, and Tribal governments.'').
On its own terms, therefore, the Wyoming court's reference to
cooperative federalism under the Clean Air Act is inapplicable to
this final rule, which does not seek to improve air quality and does
not rely on EPA's CAA regulations.
---------------------------------------------------------------------------
The RIA for this final rule calculates that this rule would cost
operators $19.3 million per year, using a 7 percent discount rate, for
the next 10 years ($19.2 million per year using a 3 percent discount
rate), while generating benefits to operators of approximately $1.8
million per year, using a 7 percent discount rate, in the form of 0.45
Bcf of additional captured gas.\120\ The RIA estimates that this final
rule would generate $51 million per year in additional royalties. The
BLM acknowledges that the estimated costs of this rule to operators
will outweigh the benefits in terms of the estimated monetized market
value of the gas conserved. However, these benefits do not take into
account the increase in royalties that will be received by the American
taxpayer or Indian mineral owners, or include any increase in
production that could possibly be received from changes in behavior due
to the avoidable loss threshold, which would also lead to an increase
in benefits. The BLM notes that the statutory provisions authorizing
the BLM to regulate oil and gas operations for the prevention of waste
do not impose a net-benefit requirement.
---------------------------------------------------------------------------
\120\ The cost-benefit analysis contained in the RIA was
generated to comply with Executive Order 12866 and is not required
by the statutes authorizing the BLM to regulate for the prevention
of waste from oil and gas leases.
---------------------------------------------------------------------------
Separately, the reduced methane emissions associated with the final
rule provide a monetized benefit to society (in the form of avoided
climate damages) of $17.9 million per year over the same time frame,
leading to an overall net monetized benefit from the rule of $360,000
to $441,000 a year, as well as additional unquantified benefits. (See
Appendix A of the RIA regarding unquantified benefits.) The basis for
the BLM's estimates of social benefits from reduced methane emissions--
namely, the social cost of greenhouse gases (SC-GHG)--is explained in
detail in Appendix A of the RIA. To be clear, although the BLM is
reporting its estimates of the social benefits of reduced methane
emissions here and in the RIA, the purpose of that reporting is solely
to provide the most complete and transparent accounting of the costs
and benefits of the rule for the public's awareness. The BLM considered
but did not rely on climate-related costs and
[[Page 25393]]
benefits when reaching the policy decisions in this rule. The
requirements of this final rule reflect reasonable measures to avoid
waste, regardless of any impacts with respect to climate change.
IV. Discussion of Public Comments on the Proposed Rule
This section of the preamble summarizes the major categories of the
public comments that the BLM received in response to the proposed rule,
as well as the BLM's responses. Detailed discussion regarding the
substantive comments on the proposed rule that the BLM received, the
BLM's responses to those comments, and changes that the BLM made in the
final rule are provided in Section V (Section-by-Section Discussion) of
this preamble.
The public comment period for the proposed rule ended on January
30, 2023. During the 60-day public comment period, the BLM received
3,323 total comments submitted from Federal, State, local governments,
local agencies, Tribal organizations, industry representatives,
individuals, and other external stakeholders. Of the 3,323 comment
letter submissions, 2,892 were template form letters from seven
different organizations, leaving 134 additional unique commenters. From
these 141 unique commenters, the BLM identified 1,123 unique comments
on the proposed rule.
Several commenters requested that the BLM hold meetings to take
public input on the proposed rule before the comment period ended. The
BLM held additional meetings with the Santa Rosa Rancheria Tachi-Yokut
Tribe on December 1, 2022; the Mandan, Hidatsa and Arikara Nation (MHA
Nation) on December 6, 2022, and February 13, 2023; and the Southern
Ute Indian Tribe on April 10, 2023, May 25, 2023, and June 8, 2023.
All relevant comments are posted at the Federal eRulemaking portal:
<a href="http://www.regulations.gov">http://www.regulations.gov</a>. To access the comments at that website,
enter 1004-AE79 in the Searchbox.
Comments on Federalism Implications
Summary of Comments: Several commenters suggested that the BLM
withdraw the proposed rule on the grounds that it exceeds Federal
statutory authority or, in the alternative, revise the proposed rule to
reflect a federalism framework to affirm the States' authority over
State and local mineral resources within the State's boundaries. To
that end, the commenters stated that the final rule has sufficient
federalism implications to warrant the preparation of a federalism
summary impact statement. In support of this position, the commenters
claimed that this rule unlawfully focuses on air quality emissions
rather than waste, and that this focus violates the cooperative
federalism framework under the CAA. The commenters referenced the BLM's
purported preference for flaring over venting and claimed that this
preference for flaring is unsupported because the BLM's regulatory
authority is limited to waste prevention and does not include safety as
a guise to regulate air quality.
Response: The BLM disagrees with the commenters. The BLM developed
this rule based on its statutory authority to prevent and reduce the
waste of natural gas produced from Federal and Indian (not State) land
through improved regulatory requirements pertaining to venting,
flaring, and leaks, while ensuring a fair return to the American
public.\121\ It does not override the States' or Tribes' more stringent
requirements for flaring and gas capture or waste prevention measures
on State or Indian lands. Operators with leases on Federal lands must
comply with the Department's regulations and with State requirements to
the extent that they do not conflict with the Department's regulations.
As stated in the Federalism section of this rule, below, although the
final rule will affect the relationship between operators, lessees, and
the BLM, it will not directly impact States. Accordingly, a federalism
summary impact statement is not warranted.
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\121\ 30 U.S.C. 187.
---------------------------------------------------------------------------
Any claim that this rule violates the cooperative federalism
framework under the CAA is likewise unfounded. As discussed below, the
waste prevention rule is intended to prevent the waste of gas from
Federal oil and gas leases and is, therefore, not an air quality
emissions rule. As noted in the preamble to the proposed rule, the
Wyoming court questioned the BLM's authority to--in the court's view--
preempt cooperative federalism under the CAA, using a pretext of waste
prevention. But as consistently explained throughout this preamble,
this final rule is authorized by the BLM's independent statutory
authority to prevent waste of natural gas and is not focused on
achieving any ancillary effects on air quality or climate change. As
such, cooperative federalism requirements under the CAA do not apply to
this final rule.\122\ Moreover, the Department's regulations governing
oil and gas operations on the public lands have long required operators
to conduct operations in a manner that is protective of natural
resources, environmental quality, and public health and safety. See 43
CFR 3162.5-1 and 3162.5-3. As the BLM stated in the proposed rule and
reiterated in the Sec. 3179.50 Safety discussion in this final
preamble, combusting gas rather than venting it into the surrounding
air is safer for operations due to the gas' explosiveness and the risk
to workers from hypoxia and exposure to various associated pollutants.
---------------------------------------------------------------------------
\122\ We have found no statutory support for the argument that
any regulation that has ancillary effects on air quality is per se
preempted by the CAA.
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Comments on State or Tribal Variances
Summary of Comments: At least one commenter said that, as a
sovereign regulatory authority over the State and private minerals
located within the State's boundaries, it objected to the requirement
that the State and private mineral holders must seek variances from the
waste prevention requirements. This commenter also concluded that the
variance provision was improper because, according to the commenter,
the rule is an air quality emissions rule.
Response: The BLM decided not to include the provisions for State
or Tribal requests for variances that were found in the proposed rule
at 43 CFR 3179.401 in part because it concluded that the proposed
variance provision could lead to regulatory uncertainty. As stated
above in response to comments regarding federalism implications, the
final rule does not preempt more stringent requirements for flaring,
gas capture, or waste prevention under State or Tribal law, as
appropriate. Operators with oil and gas leases on Federal lands must
comply with the Department's regulations and with State requirements,
to the extent that they do not conflict with the Department's
regulations, and similarly operators of Tribal leases must comply with
both Tribal and Departmental regulations. Moreover, the waste
prevention rule is intended to prevent the waste of gas from Federal
and Indian oil and gas leases and is, therefore, not an air quality
emissions rule, as further discussed below.
Comments on Air Quality
Summary of Comments: Some commenters claimed that this rule seeks
to address air quality rather than waste prevention and that the BLM
should defer to the Environmental Protection Agency (EPA) or State
agencies to regulate air quality under the CAA and other authorities.
Response: The BLM disagrees. As discussed above, the rule responds
to the BLM's statutory obligation to prevent waste. The MLA requires
the BLM to subject all oil and gas leases to the condition that the
lessee ``use all
[[Page 25394]]
reasonable precautions to prevent the waste of oil or gas developed in
the land'' and underscores that ``[v]iolations of the provisions of
this section shall constitute grounds for the forfeiture of the
lease.'' \123\ The Act also provides the Secretary with authority to
subject leases to ``such rules . . . for the prevention of undue waste
as may be prescribed by [the] Secretary.'' \124\ Even the Wyoming
court--which vacated portions of the 2016 Rule after the court found it
was primarily justified by air quality benefits--recognized that the
BLM does in fact have authority to promulgate and impose rules designed
to reduce waste, provided such rules are ``independently justified as
waste prevention measures pursuant to [the BLM's] MLA authority.'' 493
F. Supp. 3d at 1067. As explained below, the waste prevention
provisions of the final rule are independently justified, and the air
quality comments from oil-and-gas industry representatives do not
demonstrate otherwise.
---------------------------------------------------------------------------
\123\ 30 U.S.C. 225.
\124\ 30 U.S.C. 187.
---------------------------------------------------------------------------
Notwithstanding this authority, a commenter opposed to much of the
proposed rule stated that the BLM should avoid conflict or duplication
with EPA's and the States' exercise of their ``exclusive authority''
over air quality. The commenter added that CAA regulation and
enforcement fall within other Federal and State agencies' ``exclusive
jurisdiction.'' The commenter also referred to what it described as the
``exclusive air quality purview'' of EPA and the States, while arguing
that the BLM should not ``assume'' such authority.
The BLM is not regulating air quality in this rule. The BLM is
regulating to prevent waste and to assure payment of royalties pursuant
to independent and express statutory authority. The ability of EPA and
the States to regulate air pollution does not bar the BLM from
fulfilling its statutory obligation to regulate waste. Addressing waste
may have some effects on air pollution and its connection to human
health and welfare, which is the primary responsibility of the EPA,
States, and local governments.\125\ But the possibility that a BLM rule
might have incidental effects on air quality does not strip the BLM
from exercising its clear, express statutory authority under the MLA to
prevent or reduce waste of gas. Cf. Wyoming, 493 F. Supp. 3d at 1063
(acknowledging that ``a regulation that prevents wasteful losses of
natural gas from venting and flaring necessarily reduces emissions of
that gas''). The MLA is designed to encourage diligent development of
Federal oil and gas resources, avoid waste, and generate revenue, see
Public Law 66-145, sections 15, 16, 26, 27, while the CAA seeks to
reduce air pollution to protect the public health and welfare. 42
U.S.C. 7401(a)(2), (b)(1). The EPA's regulation of methane emissions
does not excuse the BLM from its obligation to prevent waste of and
generate revenue from Federal oil and gas resources. In the proposed
and final rules, the BLM has explained why it is implementing certain
measures for waste prevention or other matters attendant to BLM
authority (e.g., safety and royalty measurement).
---------------------------------------------------------------------------
\125\ Bell v. Cheswick Generating Station, 734 F.3d 188, 190 (3d
Cir. 2013) (emphasis added).
---------------------------------------------------------------------------
Another comment expressed concern about conflicts between the MLA
and various air quality regulations and statutes. The commenter
specified that the rule should not ``create potential conflicts or
duplication with EPA and State requirements promulgated pursuant to the
CAA and State authorities.'' Another comment expressed concern about a
``potentially conflicting and duplicative BLM regulatory overlay'' on
existing and forthcoming regulations on methane and VOC emissions. As
noted, the CAA and the MLA pursue different statutory goals, which may,
as a general matter, reduce the possibility of conflict among specific
regulations promulgated by the BLM and EPA. The successful prevention
of the waste of gas may also lead to air quality effects. Nonetheless,
we have examined the EPA's methane-related regulations and the EPA's
OOOO series rules \126\ and have avoided conflict by focusing on the
BLM's waste prevention and royalty measurement mandates, while
acknowledging ancillary effects to air quality from this final rule. We
have found no provision of the final rule that prevents compliance with
EPA's regulations.
---------------------------------------------------------------------------
\126\ 77 FR 49490, 49542 (Aug. 16, 2012); 81 FR 35824, 35898
(June 3, 2016); 86 FR 63110 (Nov. 15, 2021).
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Enactment of the CAA did not repeal any section of the MLA or any
of the BLM's other statutory authorities. Thus, neither the CAA, nor
the programs of the EPA, States, or Tribes relieve the BLM of its
statutory obligations to prevent waste and to assure royalty
accountability. Similarly, nothing in this final rule interferes with
any air quality regulation of EPA, the States, or Tribes.
In sum, we conclude that the final rule is a proper exercise of the
agency's authority under the MLA and other statutes (discussed above)
to promulgate regulations for the prevention of waste. Its ancillary
effects on air quality are not disqualifying and, despite commenters'
suggestions to the contrary, do not defeat the provisions of the MLA
discussed above, as reinforced by the IRA.
Commenters also suggested that the BLM's proposed rule implicates a
``major question'' as that term is used in West Virginia v. EPA, 142 S.
Ct. 2587 (2022). In that case, the Supreme Court vacated an EPA
rulemaking because, according to the Court, EPA ``claimed to discover
in a long-extant statute an unheralded power representing a
transformative expansion in its regulatory authority,'' ``located that
newfound power in the vague language of an ancillary provision of the
Act,'' and ``adopted a regulatory program that Congress had
conspicuously and repeatedly declined to enact itself.'' Id. At 2610.
The Supreme Court went on to hold that, in such circumstances,
colorable congressional authorization was insufficient; the agency must
instead point to ``clear congressional authorization'' for its actions.
Id. At 2614.
The final rule is not the type of ``extraordinary'' Rule that
implicates a major question. See Id. At 2609. The BLM has not claimed
to discover any novel authority in the MLA. Rather, a lessor's legal
capacity to prevent waste extends back at least to the common law
prudent operator standard. Congress codified the Secretary's authority
and obligation to prevent waste in 1920, when it drafted the MLA to
provide that ``[e]ach lease shall contain . . . a provision that such
rules . . . for the prevention of undue waste as may be prescribed by
said Secretary shall be observed.'' \127\ Congress affirmed the BLM's
authority and obligations in 2022, when, in the IRA, it required the
BLM to charge royalties on gas that was not ``unavoidably lost'' but
did not otherwise define that term.\128\ By the same token, the MLA
provisions at issue here are not ``ancillary:'' they have been squarely
and explicitly relied upon for decades in efforts to reduce waste. In
short, the Department's authority to regulate waste is--and always has
been--a component of its authority to lease.
---------------------------------------------------------------------------
\127\ See 30 U.S.C. 187).
\128\ As previously stated in the preamble, the IRA provides
that, for leases issued after August 16, 2022, royalties are owed on
all gas produced from Federal land, subject to certain exceptions
for gas that is lost during emergency situations, used for the
benefit of lease operations, or ``unavoidably lost.''
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Beyond this longstanding authority, the BLM's rule is narrower than
the
[[Page 25395]]
Supreme Court's characterization of the rule in West Virginia. That
rule, according to the Court, ``balance[ed] the many vital
considerations of national policy implicated in deciding how Americans
will get their energy.'' 142 S. Ct. at 2612. Accord Biden v. Nebraska,
143 S. Ct. 2355, 2372 (2023) (striking down student loan forgiveness
program on the grounds that ``no regulation premised on [the ostensibly
authorizing statute] has even begun to approach the size or scope of
the Secretary's program''). Here, the BLM is changing its regulations
to marginally adjust waste prevention--merely one component of oil and
gas production--under the MLA and the Indian minerals statutes. Those
statutes, in turn, reflect merely one component of the nation's total
oil and gas production, which itself is merely one component of the
nation's total energy mix.
Nor has Congress considered and rejected the measures in this final
rule. Commenters did not provide evidence showing that the most
significant portions of this rule--new requirements for APDs,
clarification of the term ``avoidably lost'', and leak detection--have
been the subject of congressional debate. Ultimately, ``common sense''
indicates that the MLA and the IRA reflect precisely ``the manner in
which Congress [would have been] likely to delegate'' the technical and
discrete issue of waste prevention vis-[agrave]-vis public minerals.
West Virginia at 2609. The BLM therefore did not make changes based on
these comments.
Comments on Ways To Minimize Waste of Natural Gas During the Leasing
Stage
Summary of Comments: The BLM requested public comment on how it can
improve its processes pertaining to the leasing stage of development to
minimize the waste of natural gas during later stages of development.
Some commenters recommended that the BLM require WMPs at the land use
planning stage or when an operator nominates parcels of land for
leasing under an Expression of Interest. Although at least one
commenter recommended that the BLM require a WMP during the leasing
stage, at least one other commenter objected to that proposal. At least
one commenter objected to the BLM's proposed requirement that an APD
include a WMP and specifically protested what it claimed to be vague
standards for approval or denial of the plan. The commenter further
stated that this proposed provision potentially duplicates a State's
gas capture plans and may delay or cause the State permit to expire if
the rule required the operator to submit information that conflicts
with the State's requirements. Another commenter requested that the BLM
remove any requirement for the operator to provide confidential
business information or otherwise unavailable information in the WMP
because the operator does not possess this information and it is not
helpful for the specific purpose it is intended.
Response: As discussed further in the Section-by-Section
discussion, the BLM in this final rule has retained the requirement to
submit a WMP with a Federal or Indian oil and gas APD, or, in the
alternative, submit a self-certification statement that would commit
the operator to capturing 100 percent of the associated gas produced
from an oil well and would obligate the operator to pay royalties on
all lost gas except for gas lost through emergencies. The BLM has
reviewed the comments and changed the provisions for a WMP. Under the
final rule, the operator may submit either: (1) a self-certification
statement committing the operator to capture 100 percent of the
associated gas less any on-lease use of associated gas pursuant to
subpart 3178; or (2) a WMP that includes, among other requirements, a
certification that the operator has a valid, executed gas sales
contract for the associated gas. A WMP is subject to the avoidable loss
flaring limit established in final Sec. 3179.70, while self-
certification is a statement that the operator will be able to capture,
as defined in final Sec. 3179.10, 100 percent of the associated gas.
In the case of self-certification, 100 percent of the oil-well flared
gas has a royalty obligation from the date of first production until
the well is plugged and abandoned, less any on-lease use of associated
gas pursuant to subpart 3178.
The BLM has added the self-certification option to the final rule
in response to comments that the waste prevention plan requirement is
overly burdensome for industry and provides little benefit to the BLM.
The self-certification option serves the dual purposes of providing
operators with a less burdensome alternative, while simultaneously
reducing waste through the encouragement of capture, a term defined in
the proposed rule and unchanged in the final rule. The updated
requirement provides the operator with the flexibility to secure a
valid, executed gas sales contract or elect to expedite approval of the
APD with a self-certification statement. In making this decision,
operators may consider, e.g., the time to secure a gas sales contract,
the desired date of the oil well completion, or the flaring royalty
obligation associated with either a WMP or self-certification.
The BLM disagrees with a commenter's belief that the WMP
potentially duplicates a State's gas capture plans or would delay or
cause a State permit to expire if the rule requires the operator to
provide confidential or otherwise unavailable information. In any State
or on any Tribal lands with essentially the same requirements as this
final rule, this rule has no additional substantive burden on
operators. As previously stated, the final rule does not preempt any
State's or Tribe's requirements that are more stringent with respect to
flaring and gas capture requirements or for waste prevention. There is
nothing unique about this rule's interaction with State or Tribal law;
those laws have always applied to operations regulated by the BLM,
except on the rare occasion in which they prevent compliance with BLM
regulations. More stringent State or Tribal regulations apply of their
own force. Operators with leases on Federal lands must comply with both
the Department's regulations and with State or Tribal requirements, to
the extent that the non-Federal requirements do not conflict with the
Department's regulations. None of the commenters have shown that any
portion of the rule would interfere with the States' or Tribes' ability
to regulate oil and gas operations on Federal lands or that the
operator cannot comply with both the final rule and State or Tribal
regulations.
After carefully considering the comments received concerning
confidential information that may be included in the WMP, as well as
information that is not within the operator's purview, the BLM has
revised the required information in the WMP to align with the BLM's
waste prevention objectives more closely. For example, the BLM is not
finalizing the proposal for operators to identify in the WMP the
anticipated daily capacity of the pipeline at the anticipated date of
first gas sales from the proposed well, or the proposal to include any
plans known to the operator for expansion of pipeline capacity for the
area that includes the proposed well. Commenters indicated that this
information could be confidential and proprietary information that
belongs to midstream companies and that oil and gas operator are
obligated to keep confidential. We agree.
[[Page 25396]]
Comments on Definition of ``Unreasonable and Undue Waste of Gas'' in
the Loss of Oil or Gas, Avoidable or Unavoidable Determination, and the
Prudent Operator Standard
``Unreasonable and undue waste of gas,'' avoidable or unavoidable
determination, and the prudent operator standard are interrelated and
warrant a combined discussion. Accordingly, the following summary of
comments and the BLM's response will cover these three concepts.
Summary of Comments: In the proposed rule, the BLM requested public
comment on the definition of ``unreasonable and undue waste of gas,''
which the BLM considers when determining whether the loss of oil or gas
is avoidable or unavoidable. Commenters suggested that the definition
include an express reference to economic feasibility because, according
to the commenters, the rule will become unwieldy and difficult for the
BLM to administer without this economic consideration. Commenters
expressed concern that the proposed avoidable loss threshold ignores
whether the lessee is acting reasonably and prudently without any
evaluation of the operator's actual economic circumstances, and that
flaring is not automatically ``waste.''
Response: We disagree with the commenters' suggestion that the rule
should accommodate economic feasibility for individual flaring cases.
In the proposed rule, the BLM explained that ``lessees have an
obligation of reasonable diligence in the development of the leased
resources, rooted in due regard for the interests of both the lessee
and the lessor.'' 87 FR 73597. The lessor has an interest in collecting
royalties on production and in conserving gas for future disposition.
The proposed rule also explained that the prudent operator standard
looks to the operation of a lease as a whole and considers the
interests of both the lessees and the lessors in conserving and
developing the Federal mineral resource. However, with the final rule,
the BLM has decided to not carry forward the proposed definition of
``unreasonable and undue waste of gas'' and removed the term from Sec.
3179.10 and references to the definition in Sec. Sec. 3179.100 and
3179.70(b). The BLM has determined that the definition might create
unnecessary confusion and is not relevant for purpose of carrying out
Sec. Sec. 3179.100 and 3179.70(b).
Several commenters objected to the BLM's discussion of the prudent
operator standard, which focuses on the lease as a whole, and argued
that the prudent operator standard forecloses the BLM from imposing
measures for waste prevention that may, in some situations, require an
operator to spend more than the value of potentially wasted gas. That
is, the commenters did not contend that the BLM's rule would render
leases unprofitable on the whole, but merely that the prevention of
marginal waste might not, from the individual operator's perspective
(and particularly for low volume producers) pay for itself.
In support of this reading, the commenters cited the BLM's
regulatory definition of waste as:
any act or failure to act by the operator that is not sanctioned by
the authorized officer as necessary for proper development and
production and which results in: (1) A reduction in the quantity or
quality of oil and gas ultimately producible from a reservoir under
prudent and proper operations; or (2) avoidable surface loss of oil
or gas.
43 CFR 3160.0-5 (emphasis added). The definitions in 43 CFR 3160.0-5
explicitly apply to part 3160 only, and the BLM notes that most of the
regulations in this final rule appear in part 3170. In any event, there
is no conceptual inconsistency between the regulations in that part and
the definitions in part 3160. The definition of ``waste'' in part 3160
indicates that gas is wasted where, inter alia, loss is avoidable, and
the final definitions in part 3170 explain when loss is avoidable and,
separately, what subset of ``waste'' is ``undue.'' To avoid confusion,
the final rule has deleted the word ``prudent'' where it had occurred
in the proposed rule. See Sec. 3179.41(a) and (b).
It is unclear precisely why commenters believe this provision is
inconsistent with a fair reading of the non-statutory prudent operator
standard and why they believe that standard requires a narrower
reading. It is true, as commenters note (and as discussed elsewhere in
this rule), that NTL-4A and IBLA caselaw have previously recognized
``unavoidably lost'' gas--the waste implicitly contemplated by 43 CFR
3160.0-5(1)--as excluding those cases where, in a case-by-case
determination, ``the Supervisor determines that said loss resulted from
. . . the failure of the lessee or operator to take all reasonable
measures to prevent and/or control the loss.'' NTL-4A. II.A. For the
reasons explained elsewhere in this preamble, such case-by-case
determinations are no longer sufficient for the BLM's fulfillment of
its obligations to prevent waste. Here, we explain why the authorities
cited by some commentors do not require individualized determinations.
Thus, for example, commenters' frequent citations to court
decisions and to the IBLA decisions in Ladd Petroleum Corporation and
Rife Oil Properties are misplaced. Ladd did not address the meaning of
the prudent operator standard or avoidably lost gas at all, and instead
held that, where the BLM had chosen to issue certain guidance detailing
case-by-case feasibility determinations, the substance of that guidance
should govern in pending administrative appeals. 107 IBLA 5 (1989).
Rife Oil, meanwhile, stands for the proposition that NTL-4A provided
for case-by-case waste determinations, not that the MLA and FOGRMA
require such determinations. 131 IBLA 357, 373-75 (1994).\129\ The same
is true for the cases cited by Ladd and Rife Oil. See Lomax Exploration
Co., 105 IBLA 1 (1988) (concluding that NTL-4A applied to certain
venting or flaring without passing on the BLM's discretion to modify or
depart from NTLA-4A); Mallon Oil Co., 107 IBLA 150, 156 (1989) (same);
Maxus Exploration Co., 122 IBLA 190, 198 n.1 (1992) (``As the word
`economic' is used in NTL-4A, it relates to a lessee's argument that
conservation of the gas is not viable from an economic standpoint . . .
.'') (emphasis added).
---------------------------------------------------------------------------
\129\ In dicta, the Rife Oil decision considered a possible
``read[ing] [of] NTL-4A as barring the venting of gas . . . without
regard to whether it was avoidably lost'' within the meaning if NTL-
4A, 131 IBLA at 374, hypothesizing that such a reading ``would lead
to potential waste of oil where production of oil was marginally
economic but production of gas was not economic and the requirement
to market the gas caused a premature abandonment of the well.'' Id.
at 374 n.6 (emphasis added). This abstract hypothetical says nothing
regarding the United States' general authority as lessor to balance
by regulation the waste from potential loss of gas against the waste
from potential loss of oil, much less does it evaluate the specific
balancing the BLM has performed throughout in this rule.
---------------------------------------------------------------------------
Some commenters also concluded that the IRA essentially codified
NTL-4A's definitions of ``avoidable'' and ``unavoidable,'' reasoning
that Congress must have been aware of the BLM's pre-2016 definitions of
those terms. The IRA, however, did not provide a statutory definition
of ``avoidable'' or ``unavoidable,'' and did not prohibit the Secretary
of the Interior from promulgating a rule to define and implement those
terms under her existing statutory authorities. See, e.g., 30 U.S.C.
189.\130\ The IRA did not amend the MLA to require the type of case-by-
case evaluations the commenters seek, and commenters have
[[Page 25397]]
not provided ``the sort of overwhelming evidence of [congressional]
acquiescence'' to NTL-4A's definitions ``necessary to support [their]
argument in the face of Congress's failure to amend.'' Sackett v. EPA,
143 S. Ct. 1322, 1343 (2023).\131\
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\130\ ``The Secretary of the Interior is authorized to prescribe
necessary and proper rules and regulations and to do any and all
things necessary to carry out and accomplish the purposes of [the
MLA].''
\131\ In the context of drainage (the original problem addressed
by the prudent operator standard) the BLM has promulgated
regulations detailing a lessee's obligations to avoid uncompensated
drainage or to pay compensatory royalties. 43 CFR 3162.2-2 to
3162.2-15. Thus, as in this final rule, the BLM by regulation
specifies the duties of lessees without reliance upon common law
standards, including the prudent operator standard.
---------------------------------------------------------------------------
Commenters also cited FOGRMA's provision that lessees are liable
for royalties when ``waste is due to negligence . . . or . . . failure
to comply with any rule or regulation . . . under any mineral leasing
law.'' 30 U.S.C. 1756 (emphasis added). This provision says nothing of
the prudent operator standard and imposes royalty for failure to comply
with any applicable regulations, including the regulations at issue in
this rule. Some commenters attempted to downplay this language by
characterizing FOGRMA as requiring compliance only with ``specific
regulatory requirement[s],'' but the relevant statute does not include
the word ``specific,'' and the commenters provided no explanation as to
how that concept, even if somehow embodied in FOGRMA, would operate to
exclude from royalty obligations those regulations--like this final
rule--designed to conserve the Federal and Indian mineral estates.
Commenters also cited to the District of Wyoming's decision
addressing the merits of the 2016 Rule, but that decision likewise does
not compel the commenters' preferred reading of the prudent operator
standard or elevate it to a statutory limit on the Secretary's
rulemaking authority. The relevant portion of the decision began by
reciting the history of the BLM's case-by-case evaluation of
feasibility, citing Rife Oil and the IBLA's Ladd Petroleum decision.
See Wyoming, 493 F. Supp. 3d at 1073-74.\132\ The Wyoming court then
concluded that although the ``MLA's waste provisions leave room for
interpretation,'' the BLM's 2016 construction of those provisions was
unlawful because the BLM had ``primarily'' sought to ``benefit the
environment and improve air quality,'' as reflected in the BLM's
reliance on the 2016 Rule's ancillary effects. Id.
---------------------------------------------------------------------------
\132\ In the Wyoming decision, the court characterized the
IBLA's Ladd holding as ``remanding BLM decision that flared gas was
avoidably lost for determination of `whether in fact it was
economically feasible to market the gas' and explaining that
interpretation of NTL-4A giving operator opportunity to show gas was
not marketable `is consistent with the intent of the underlying
statutory and regulatory authority.' '' This statement is a quote
from a headnote in IBLA's decision, not the decision itself. Ladd
Petroleum Corp., 107 IBLA 5 (1989).
---------------------------------------------------------------------------
In both its proposed and final rules, however, the BLM is
exclusively focused on addressing waste and royalty payments, along
with certain safety provisions, and has disavowed in form and substance
any effort to regulate air quality in a manner entrusted to EPA and
that agency's State and Tribal partners, including by eschewing any
reliance on ancillary effects on the atmosphere. Instead, the BLM has
promulgated this rule purely to curb the excessive, accelerating, and
nationwide waste of Federal and Indian gas and to curb localized
hazards to human health and safety from operations. As it did in the
2016 Rule, the BLM has acknowledged its ``decades-long practice of
factoring in operator economics on a case-by-case basis when
determining whether a loss was avoidable,'' explaining in this
rulemaking why the MLA's waste provisions--which ``leave room for
interpretation''--now justify a suite of nationwide standards and
important flexibilities for specific operators and leases. Id.
Therefore, the final rule does not conflict with the Wyoming court's
decision.
In dicta, the Wyoming court also discussed the prudent operator
standard without reference to considerations like the social cost of
methane. Id. The District Court cited caselaw and the MLA for the
general proposition that ``[o]il and gas leases--including those
between the Federal Government and its lessees--are intended to ensure
mutually profitable development of the lease's mineral resources.'' Id.
(emphasis added). Indeed, the cases cited by the Wyoming court stand
for the proposition that a mineral lease is fundamentally different
from ``a business into which [the lessee] puts property, money, and
labor exclusively his own, the profits and losses in which are of
concern only to him, and the conduct of which may be according to his
own judgment . . . .'' Brewster v. Lanyon Zinc Co., 140 F. 801, 814
(8th Cir. 1905). Instead, the ``interest in the subject of the lease .
. . make the extent to which . . . the operations are prosecuted of
immediate concern to the lessor.'' Id. As the BLM noted in the proposed
rule and reaffirms here, these general propositions do not specify
precisely how the United States, as manager of the Federal mineral
estate, must perform its statutory duty of preventing waste, and,
specifically, whether it must do so on a case-by-case basis or elevate
an operator's profit maximization over the United States' duties to the
taxpayers and to Indian mineral owners.
As discussed in Brewster, one way the lessor may elect to enforce
this interest is by seeking expedited production, so that the lessee's
failure to develop the lease does not ``exhaust'' the oil and gas
``through the operation of wells on adjoining lands.'' Id. See also
Gerson v. Anderson-Prichard Prod. Corp., 149 F.2d 444, 446 10th Cir.
1945 (``A lease of this kind contains an implied covenant that the
lessee will exercise reasonable diligence in the development of the
leasehold and in the protection of it from undue drainage through wells
on adjacent lands.'') (emphasis added). The prudent operator standard
chiefly applies to these drainage cases, in which it protects the
operator from overbroad allegations of a ``breach of the covenant for
the exercise of reasonable diligence.'' Brewster, 140 F. at 814-15
(emphasis added). Given the significant cost of drilling a new well
\133\ ``and the fact that the lessee must bear the loss if the
operations are not successful,'' the standard shields the lessee from
demands to drill unprofitable wells ``even if some benefit to the
lessor will result'' from less drainage. Brewster, 140 F. at 814
(emphasis added). See also Olsen v. Sinclair Oil & Gas Co., 212 F.
Supp. 332, 333 (D. Wyo. 1963) (``the `prudent operator' rule . . . is
to the effect that the lessee has no implied duty to drill an offset
well if reasonably prudent operators would not drill it'').
---------------------------------------------------------------------------
\133\ According to a 2016 report by the Energy Information
Agency: ``Total capital costs per well in the onshore regions
considered in the study [ranged] from $4.9 million to $8.3 million,
including average completion costs that generally fell in the range
of $ 2.9 million to $ 5.6 million per well. However, there is
considerable cost variability between individual wells.'' Trends in
U.S. Oil and Natural Gas Upstream Costs, p.2 (U.S. E.I.A. March
2016).
---------------------------------------------------------------------------
In other words, the prudent operator standard originally arose in
and chiefly applies to drainage, but the principles underlying the
standard equally enable the lessor to exercise its ``immediate
concern'' in the lease by requiring conservation of the mineral estate.
Brewster at 814. The policy concerns ordinarily animating application
of the prudent operator standard are not as salient in the latter case,
where there is materially less risk that the lessor will seek to reap a
profit by asking the lessee to shoulder a significant net loss. A
lessor requiring the lessee to conserve marginally more resources
generally does not, for example, seek royalties from significant
capital expenses, borne by the lessee, ``incident to the work of
exploration,'' Id., or to ``drill[ing] an
[[Page 25398]]
offset well.'' Gerson, 149 F.2d at 446.\134\ Congress essentially
codified that understanding in the MLA, commanding the Secretary of the
Interior to ``obtain for the public a reasonable financial return on
assets that `belong' to the public,'' while requiring only ``some
incentive'' for development. Cal. Co. v. Udall, F.2d 384, 388 (D.C.
Cir. 1961).
---------------------------------------------------------------------------
\134\ Accord Parker A. Lee, Ming Lei, Dominique J. Torsiello,
``Reasonably Prudent Operator or Good and Workmanlike Manner: Does
Your Contract Have the Right Standard of Care?'' McDermott Will &
Emery, The National Law Review, XIII, Number 27 (``Under the
reasonably prudent operator standard, the lessee or operator is
obligated to make reasonable efforts to develop the interest for the
common advantage of both the lessor and lessee.'') (emphasis added).
---------------------------------------------------------------------------
In all events--and contrary to the commenters' arguments in support
of individualized economic analyses--any application of the prudent
operator standard considers the profitability of the entire lease, not
whether individual volumes of potentially wasted gas are themselves
profitable for the lessee. See Gerson, 149 F.2d at 446 (``the lessee
does not bear an implied obligation . . . unless, taking into
consideration all existing facts and circumstances, it would probably
produce oil in sufficient quantity to repay the whole sum required to
be expended, including the cost of drilling, equipping, and operating
the well, and also pay a reasonable profit on the entire outlay''). For
the reasons discussed in this preamble, the BLM has reached reasonable
determinations, with respect to each of its waste prevention measures,
that the marginal restrictions in the final rule will not render a
lease unprofitable.
On this score, some commenters argued that the draft RIA shows that
the costs of the proposed rule exceed the benefits, and therefore the
rule is arbitrary and capricious and/or is in tension with the prudent
operator standard. The BLM disagrees. The RIA for the final rule
provides estimates of the monetized costs and benefits under the
accounting rules in OMB Circular A-4, p.38 (2003), and acknowledges
that not all costs and benefits can be monetized. Comparison of
monetized benefits to monetized costs provides useful but not complete
analysis, and thus is not determinative with respect to the non-
statutory prudent operator standard. The final rule requires operators
to incur some expenses from which they may derive revenue (selling the
gas), or may not gain revenue (paying royalties on flared gas or
curtailing oil production to limit flaring). For example, the RIA
treats royalties as ``transfer payments.'' Transfer payments do not
increase or decrease the wealth of society as a whole, and thus are not
counted as benefits of the final rule under the OMB Circular. For the
Federal taxpayers and Indian mineral owners, though, royalty payments
are income, and as such are benefits to which they are entitled under
statute, regulations, and the terms of leases. We also note that some
industry commenters point out that some of the costs of the proposed
rule projected in the draft RIA are for tasks that are already required
by the EPA in New Source Performance Standards subpart OOOOa. The BLM
acknowledges that some projected costs are for tasks now required in
the final EPA New Source Performance Standards subparts OOOOa, OOOOb,
and OOOOc rules, as addressed in the RIA.
Comments on Banning Routine Flaring and Requiring Gas Capture
Summary of Comments: Some commenters requested that the BLM's final
rule include a prohibition on ``routine flaring'' and that the final
rule should ``require capture of flared gas where it is both
technologically and economically feasible.'' The commenters also assert
that the BLM is ``legally required to reduce waste, not just charge
royalties on it.'' They note that reducing the waste of avoidably lost
gas through capture requirements will also benefit ``individual
taxpayers and Tribes and will have the added co-benefits of protecting
frontline communities and the climate from the effects of wasted gas.''
Some commenters specifically noted the impacts of oil and gas
operations and venting and flaring on environmental justice communities
and asserted that charging royalties on flaring of associated gas and
requiring WMPs will not significantly reduce venting and flaring
without a prohibition on routine flaring.
Response: The BLM disagrees with those commenters in part. The MLA
does not mandate capture of all gas as such or place a ban on venting
or flaring as such, but instead requires operators to ``use all
reasonable diligence to prevent the waste of oil or gas developed in
the land.'' \135\ As commenters note, the MLA also requires that all
leases include ``a provision that such rules for . . . the prevention
of undue waste as may be prescribed by said Secretary shall be
observed.'' \136\ Those statutory provisions accommodate instances
where waste is not preventable, even when operators employ all
reasonable diligence. Likewise, section 50263 of the IRA does not
mandate capture of gas or place a ban on venting or flaring as such,
but instead requires, subject to exceptions, the payment of royalties
on gas that is consumed or lost by venting, flaring, or negligent
releases through any equipment during upstream operations.\137\ In
short, Congress could have banned venting and flaring as such in the
MLA or IRA, but did not.
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\135\ 30 U.S.C. 225 (emphasis added).
\136\ 30 U.S.C. 187 (emphasis added).
\137\ (a) IN GENERAL.--For all leases issued after the date of
enactment of this Act, except as provided in subsection (b),
royalties paid for gas produced from Federal land and on the outer
Continental Shelf shall be assessed on all gas produced, including
all gas that is consumed or lost by venting, flaring, or negligent
releases through any equipment during upstream operations.
(b) EXCEPTION.--Subsection (a) shall not apply with respect to--
(1) gas vented or flared for not longer than 48 hours in an
emergency situation that poses a danger to human health, safety, or
the environment; (2) gas used or consumed within the area of the
lease, unit, or communitized area for the benefit of the lease,
unit, or communitized area; or (3) gas that is unavoidably lost. 30
U.S.C. 1727.
---------------------------------------------------------------------------
The final rule implements the requirement in section 50263 of the
IRA to assess royalties on gas that is lost by venting and flaring.
Although the BLM believes that the royalty obligation for flared gas
provides some marginal incentive for operators to make investments to
sell the gas rather than to pay royalties on flared gas, we agree with
the commenters that the statutory requirement for operators to use all
reasonable diligence to prevent waste is a separate though related
mandate--one that the final rule achieves through such requirements as
a WMP.
Some commenters assert that to meet the MLA's requirements, the BLM
must: (1) adopt a definition of ``unreasonable and undue waste'' that
clarifies that routine flaring constitutes avoidable loss; (2) ban
routine flaring, as some States have done; and (3) include only narrow
exceptions where there is no alternative to venting or flaring. The BLM
agrees that much of the historical flaring was avoidable, and as
discussed below, the final rule includes provisions that impose limits
on what would otherwise be ``routine flaring,'' including the
definition of ``unavoidably lost'' in Sec. 3179.41(b). We disagree,
though, that the MLA requires that all routine flaring be defined as
``avoidable'' loss. The MLA requires operators to use ``reasonable
diligence'' to avoid waste, and thus ``reasonable diligence'' to
prevent undue waste; the statute does not prohibit all venting and
flaring. Contrary at least one commenter's views, therefore, the final
rule is not based on maximizing operators' internal profit--that is not
the
[[Page 25399]]
test for ``reasonable diligence,'' and the final rule may require some
operators to incur some costs of compliance. Other operators may design
and operate their facilities to capture and sell virtually all oil-well
gas at a profit, but that is merely sufficient--not necessary--for
compliance with the relevant portions of the rule. Although the MLA
does not authorize the BLM to prohibit all flaring, State laws or
regulations prohibiting routine flaring apply to operations on Federal
lands.
Some commenters argue that FLPMA requires the BLM to protect the
quality of the air and atmospheric resources, citing 43 U.S.C.
1701(a)(8). Section 1701(a)(8) states it is the ``policy of the United
States'' that ``the public lands be managed in a manner that will
protect the quality of [various ecologic values, including] air and
atmospheric'' values. That statement, however, is ``effective only as
specific statutory authority for [its] implementation is enacted by
[FLPMA] or by subsequent legislation and shall then be construed as
supplemental to and not in derogation of the purposes for which public
lands are administered under other provisions of law.'' \138\ Here, the
BLM's authority for its waste prevention and safety measures is
established in the MLA, FOGRMA, and the IRA. The purposes of the final
rule are waste prevention and royalty accountability, not air quality
control. The BLM also addresses impacts on air quality in the EA for
the final rule, as required by statute.
---------------------------------------------------------------------------
\138\ 43 U.S.C. 1701(b).
---------------------------------------------------------------------------
Commenters cited evidence that continued fossil fuel production is
inconsistent with meeting goals of limiting climate change and that
communities living near oil and gas operations suffer
disproportionately high rates of adverse health effects. Those include
several environmental justice communities near oil and gas operations
on the public lands. Those issues are discussed in the NEPA compliance
document and the RIA. However, ending fossil fuel production is outside
the scope of this rulemaking, the purpose of which is to update the
waste prevention requirements for oil and gas development on public
lands. Like several other oil and gas regulations, the final rule may
have some incidental public health and climate effects, but the BLM
does not have authority to regulate air emissions for the benefit of
public health or the climate, and the final rule is designed to address
waste prevention and royalty accountability.
A commenter advocated greater enforcement by the BLM. The BLM
regularly reviews its enforcement programs for effective deployment of
its resources. Enforcement plans, however, are outside the scope of
this rulemaking.
A commenter asserted that the BLM underestimated historical venting
and flaring. The BLM has used the best available data. That data show
that the current regulation at NTL-4A has failed to control venting and
flaring, particularly over the last two decades. Thus, we agree with
the commenter that a more effective regulation is needed to assure that
operators exercise reasonable diligence to prevent waste.
The BLM also recognizes the benefits of gas capture, and the final
rule encourages greater capture and sale of gas from oil wells. In part
in response to these comments, the BLM included in Sec. 3162.3-1 of
the final rule an option for operators to self-certify that they will
capture 100 percent of oil-well gas produced by an oil well as an
alternative to submitting a waste management plan. If a self-certifying
operator flares gas other than in response to a defined emergency, the
loss is ``avoidable'' and fully royalty bearing. Although the BLM has
no firm estimates for the number of operators who will self-certify,
the option should both prevent waste and prove attractive for the
reasons set forth elsewhere in this preamble.
Comments on Impact of the Rule on Indian Leases
Summary of Comments: Noting that the proposed rule was generally
intended to apply in equal measure to Federal leases and Indian leases,
one commenter criticized the rule for not addressing how flaring
limitations and other features of the rule--given their potential to
cause premature shut[hyphen]in or curtailment of oil and gas
production--may disproportionately impact Indian lessors who rely on
production revenues and may not be as willing as the Federal Government
to curtail or shut[hyphen]in production in order to avoid what the
commenter characterized as ``relatively minor'' losses of revenue
resulting from venting or flaring. The commenter also contended that,
under the various Indian leasing statutes--including the IMDA (25
U.S.C. 2101 et seq.)--the BLM must assure that the lands are developed
in a manner that maximizes the ``best economic interests'' of Indian
lessors.
Response: The BLM's regulations apply to oil and gas operations on
Indian trust and restricted fee lands as provided by 25 CFR 221.1(c),
212.1(d), 225.1(c), and the BLM is the bureau tasked with regulating
oil and gas operations on those lands by delegations to the BLM from
the Secretary of the Interior. The purposes of the regulations of
mineral development on Indian lands are to maximize the best economic
interest of the Indian mineral owner and to minimize any adverse
environmental or cultural impact. 25 CFR 221.1(a) (Tribal leases),
212.1(a) (allotted leases), 225.1(a) (IMDA). ``In considering whether
it is `in the best interest of the Indian mineral owner' to take a
certain action . . . , the Secretary shall consider any relevant
factor, including, but not limited to: economic considerations, such as
date of lease expiration; probable financial effect on the Indian
mineral owner; leasability of land concerned; need for change in the
terms of the existing lease; marketability; and potential
environmental, social, and cultural effects.'' 25 CFR 211.3, 212.3,
225.3. Accord, e.g., 25 U.S.C. 2103(b) (IMDA). Thus, economic
considerations, such as immediate production of oil, are relevant
factors, but they are not the sole factors; the regulations promulgated
in accordance with the BLM's statutory authority give the Secretary
broad discretion. The Secretary thus has discretion to require
operators producing Indian oil to take reasonable measures to reduce
waste of Indian resources, to define avoidably lost gas, and to require
payment of royalties to the Indian lessors on avoidably wasted gas.
Since the final rule will apply equally on Indian lands as it does
on Federal lands, there will be no disproportionate impact on Indian
leasing or development. It might be that on some leases at some times,
Indian royalty payments would temporarily decrease as oil production is
curtailed while the operator complies with the final rule. We have no
reason to believe that total long-term revenues from such leases would
suffer, rather we believe they will increase as the operators pay
royalties on the gas as well as on the oil. Indeed, for many leases
there is likely to be no decrease in royalty payments, and most likely
there will be increases in royalty payments because operators will pay
royalties on captured or flared gas with little or no interruption of
oil sales.
We do not believe that the final rule will cause premature plugging
and abandonment of otherwise profitable wells. Every day, oil wells on
Indian lands, as on Federal lands and elsewhere, are produced at
capacity, curtailed, shut in, or plugged and abandoned based on a
variety of factors, including production quantity and quality, costs of
production, availability of transportation, and commodity prices.
Although it is possible that
[[Page 25400]]
compliance with the final rule may increase net costs for some
operators, it would be only one of many business costs for operators
and is likely not as determinative for continuing operations as are the
changes in prices for the oil or gas, either positive or negative.
There is nothing improper in the final rule's requirements to reduce
waste of Indian gas and to pay royalties to the Indian mineral owners
on gas that would otherwise be wasted. The final rule has not been
changed in response to the comment.
Comments on the RIA
In preparing the final rule, the BLM updated the numbers in the
proposed RIA. The updated RIA indicates that the final rule would cost
$19.3 million per year (using a 7 percent discount rate to annualize
capital costs), while generating private costs savings benefits of
around $1.8 million per year and ancillary effects on society from
reduced methane emissions of around $17.9 million per year, with total
benefits averaging around $19.7 million per year. The updated RIA
estimates that the final rule would generate $51 million per year in
royalties. The projected costs changed from the RIA for the proposed
rule to the RIA for the final rule because the final rule does not
include certain requirements from the proposed rule, such as pneumatic
control devices, thereby reducing the rule's costs.
The BLM received a comment stating that the BLM's estimated burden
hours for operators to prepare a WMP was too low. In response, the BLM
notes that there are significantly fewer requirements for a WMP in the
final rule as compared with the proposed rule. Therefore, we believe
that our estimate of 1 hour is appropriate.
One commenter disagreed with the BLM's estimate regarding the
projected number of orifice meters that would be installed the first
year. The intent of the comment is not entirely clear because it only
indicates the commenter's view that an estimated installation of 968
meters appears to be inaccurate but does not specify the nature of the
inaccuracy or how the inaccuracy is a burden to operators. In the final
RIA, the BLM estimates that there would be a total of 902 meters
installed and explains that it uses the 1,050 Mcf threshold to
determine the number of meters installed because the final rule
requires all high-pressure flares with more than 1,050 Mcf of flaring
per month to measure flaring.
The BLM received a comment expressing concern with the
administrative burden resulting from the proposed rule. The BLM
addresses administrative burdens in the RIA and the accompanying
supporting statement under the Paperwork Reduction Act. In the RIA for
the final rule, the BLM estimates that the total annual administrative
burden of the final rule will be about $8.9 million. The BLM notes that
the requirements for a WMP have been significantly reduced in the final
rule. In the final rule, the WMP only requires information operators
would have readily available when submitting an APD. The information
collection activity associated with the WMP required for this rule is 1
hour of additional time to complete an APD. Further, operators have the
option of self-certifying that they will commit to capture 100 percent
of the gas and thus avoid the administrative cost of preparing a WMP.
The information collection activity associated with either preparing
and submitting the WMP or the self-certification is 1 hour of
administrative time. The BLM believes operators submitting APDs for
multiple wells on a single well pad will be able to simply copy and
paste the WMP from one well's APD into the next well's APD. This
copying and pasting for a multi-well pad also has an information
collection burden of 1 hour, which most likely overestimates the time
it will take operators to copy and paste the information from one
document into another. And the final rule does not require ``complete
and adequate'' information in a WMP as proposed, but does require the
WMP to be technically and administratively complete. The phrase
``technically and administratively complete'' is further explained in
the preamble discussion for Sec. 3162.3-1.
V. Section-by-Section Discussion
The following table is provided to aid the reader in understanding
the changes from the proposed rule section numbers and names to the
final rule sections.
Table 1 to IV--Section-by-Section Changes Made From the Proposed to the
Final Rule
------------------------------------------------------------------------
Proposed rule section Final rule section
------------------------------------------------------------------------
3162.3-1 Drilling applications and 3162.3-1 Drilling applications
plans. and plans.
3179.1 Purpose......................... 3179.1 Purpose.
3179.2 Scope........................... 3179.2 Scope.
3179.3 Definitions and acronyms........ 3179.10 Definitions and
acronyms.
3179.11 Severability.
3179.30 Incorporation by
reference (IBR).
3179.40 Reasonable precautions
to prevent waste.
3179.4 Determining when the loss of oil 3179.41 Determining when a loss
or gas is avoidable or unavoidable. of oil or gas is avoidable or
unavoidable.
3179.5 When lost production is subject 3179.42 When lost production is
to royalty. subject to royalty.
3179.43 Data submission and
notification requirements.
3179.6 Safety.......................... 3179.50 Safety.
3179.7 Gas-well gas.................... 3179.60 Gas-well gas.
3179.8 Oil-well gas.................... 3179.70 Oil-well gas.
3179.9 Measuring and reporting volumes 3179.71 Measurement of flared
of gas vented and flared. oil-well gas volume.
3179.72 Reporting and
recordkeeping of vented and
flared gas volumes.
3179.10 Determinations regarding 3179.73 Prior determinations
royalty-free flaring. regarding royalty-free
flaring.
3179.11 Incorporation by reference Renumbered to 3179.30.
(IBR).
3179.12 Reasonable precautions to Renumbered to 3179.41.
prevent waste.
------------------------------------------------------------------------
Flaring and Venting Gas During Drilling and Production Operations
------------------------------------------------------------------------
3179.101 Well drilling................. 3179.80 Loss of well control
while drilling.
3179.102 Well completion and related 3179.81 Well completion and
operations. recompletion flaring
allowance.
3179.103 Initial production testing.... Removed.
3179.104 Subsequent well tests......... 3179.82 Subsequent well test
for an existing completion.
[[Page 25401]]
3179.105 Emergencies................... 3179.83 Emergencies.
Gas Flared or Vented from Equipment and
During Well Maintenance Operations.
3179.201 Pneumatic controllers and Removed.
pneumatic diaphragm pumps.
3179.203 Oil storage vessels........... 3179.90 Oil storage tank
vapors.
3179.204 Downhole well maintenance and 3179.91 Downhole well
liquids unloading. maintenance and liquids
unloading.
3179.205 Size of production equipment.. 3179.92 Size of production
equipment.
------------------------------------------------------------------------
Leak Detection and Repair (LDAR)
------------------------------------------------------------------------
3179.301 Leak detection and repair 3179.100 Leak detection and
program. repair program.
3179.302 Repairing leaks............... 3179.101 Repairing leaks.
3179.303 Leak detection inspection 3179.102 Leak detection
recordkeeping and reporting. inspection recordkeeping and
reporting.
------------------------------------------------------------------------
State or Tribal Variance
------------------------------------------------------------------------
3179.401 State or Tribal requests for Removed.
variances from the requirements of
this subpart.
------------------------------------------------------------------------
Immediate Assessments
------------------------------------------------------------------------
A. 43 CFR Part 3160--Onshore Oil and Gas Operations
Section 3162.3-1 Drilling Applications and Plans
Existing Sec. 3162.3-1 contains the BLM's longstanding requirement
for the operator to submit an APD prior to conducting any drilling
operations on a Federal or Indian oil and gas lease. Drilling may only
commence following the BLM's approval of the APD. The proposed rule
would have added two new paragraphs to Sec. 3162.3-1, intended to help
operators and the BLM avoid situations where substantial volumes of
associated gas are flared from oil wells due to inadequate gas capture
infrastructure.
Proposed Sec. 3162.3-1(j) would have required an operator to
provide a WMP with its APD for an oil well, demonstrating how the
operator intended to address the capture of associated gas from an oil
well when production begins. The purpose of the proposed WMP was to
help the BLM understand how much associated gas could be wasted as a
result of the approval of an APD. The proposed WMP required the
inclusion of the following information with an oil-well APD: the
anticipated completion date of the oil well; a description of the
anticipated production of both oil and associated gas; a certification
that the operator has informed at least one midstream processing
company of the operator's production plans; and information regarding
the gas pipeline to which the operator plans to connect. If an operator
was not able to identify a gas pipeline with sufficient capacity to
accommodate the anticipated associated gas production, the WMP would
have been required to also include the following information: a gas
pipeline system map showing the existing pipelines within 20 miles of
the well and the location of the closest gas processing plant;
information about the operator's flaring from other wells in the
vicinity; and a detailed evaluation of opportunities for alternative
on-site capture methods, such as compression of the gas, removal of
Natural Gas Liquids (NGL), or other capture means. Finally, the
operator would have been required to include any other information
demonstrating the operator's plans to avoid the waste of gas production
from any source, including pneumatic equipment, storage tanks, and
leaks.
The purpose of the proposed WMP was for the operator to provide the
BLM with information necessary to understand how much associated gas
would be lost to flaring if the BLM were to approve the oil-well APD
and whether the loss of that gas would be reasonable under the
circumstances. If the WMP were to demonstrate that approving an
otherwise administratively and technically complete APD could result in
undue waste of Federal or Indian gas, the proposed Sec. 3162.3-1(k)
would have authorized the BLM to take one of the following actions: the
BLM could have approved the APD subject to conditions for gas capture
and/or royalty payments on vented and flared gas; or the BLM could have
deferred action on the APD in the interest of preventing waste. If the
potential for undue waste had not been addressed within 2 years of the
applicant's receipt of the notice of the deferred action, under the
proposed rule the BLM would have denied the APD.
The BLM received numerous comments on the proposed WMP. Based on
those comments, we believe there was some confusion about when a WMP
would be required. For both the proposed and final rules, a WMP is
required when a Federal or Indian APD is required. In both the proposed
and final rules, only wells that are being drilled to target oil
production--in other words Federal or Indian oil-well APDs--will
require a WMP. The BLM assumes that if an operator is drilling a gas
well, there is a predetermined market for the gas or a plan to shut in
wells until gas infrastructure is built. For this reason, if a well is
being drilled to a known gas formation and will be producing primarily
gas, the Federal or Indian APD does not require a WMP.
Based on public comment, the BLM has revised the content of the
proposed WMP in this final rule. Many commenters said the waste
minimization requirements were overly burdensome for both the BLM and
operators. In addition, commenters read the requirements as calling for
operators to provide proprietary, confidential information belonging to
midstream companies that operators are unable to provide. Commenters
were also concerned about how the BLM would evaluate an operator's WMP,
pointing to subjective language in proposed Sec. 3162.3-1(j)
indicating that the BLM could deny an APD if the operator failed to
submit a complete and ``adequate'' WMP. Many commenters said the
proposed required information for the WMP failed to meet the BLM's
stated objectives of understanding associated
[[Page 25402]]
gas capture and reducing waste through flaring prior to approval of a
Federal or Indian APD.
After evaluating the primary objective of the WMP, which is to
ensure operators have adequately planned to reduce associated gas waste
prior to drilling an oil well, the BLM agrees with commenters that the
rule can be effective without requiring all the information in the
proposed rule. The proposed rule required 19 pieces of information for
the WMP for the operator to demonstrate to the BLM that it had
sufficiently planned for the capture or sale of associated gas from an
oil well. After careful consideration of the comments and the purpose
of a WMP, the BLM in the final rule is reducing the information
required to 4 pieces in a WMP: (1) initial oil production estimates and
decline, (2) initial gas production estimates and decline, (3)
certification that the operator has an executed gas sales contract to
sell 100 percent of the produced oil-well gas, and (4) any other
information demonstrating the operator's plans to avoid the waste of
gas.
The BLM agrees with the commenters that BLM's objective--
determining if an operator has a plan to capture the produced gas--can
be accomplished with less information. And as mentioned above, the BLM
intends to eschew collection of information that could be proprietary
or confidential. The final rule also provides operators with an
alternative to the submission of a WMP with their APDs by allowing
operators to instead submit a self-certification statement that the
operator will be able to capture, as defined in final Sec. 3179.10,
100 percent of the oil-well gas that the oil well produces.
The BLM has required the anticipated initial production rate and 3
years of production decline because the BLM has concluded that 3 years
of data will sufficiently cover the ordinarily steep decline for
production for unconventional reservoirs and the associated
establishment of the reservoir's production decline curve. This
information provides the BLM with an estimate of how much associated
gas could be flared, the size of production equipment required at
initial production, and the size of production equipment required when
production has leveled off. The WMP information is relevant to
understand not only the volume at risk for flaring, but also how the
sizing of the production equipment affects tank vapors. (If the
production equipment is undersized or there is insufficient separation
upstream of the production tanks, there will be more gas wasted as tank
vapors.) Approved APDs with a WMP will be subject to the flaring
limitations identified in final Sec. 3179.70 once the well begins
producing. The BLM believes the revised waste minimization requirements
reduce the burden on operators, reduce the review time for the BLM,
eliminate any concern of providing proprietary or confidential
information, and increase the BLM's understanding of the disposition of
the associated gas from an oil well to ensure the public receives a
fair return for its oil and gas.
As an alternative to the submission of a WMP with the APD, Sec.
3162.3-1(d)(4) of the final rule allows operators to submit a self-
certification. Section 3162.3-1(k) provides that a self-certification
is a statement by the operator that it will be able to capture, as
defined in final Sec. 3179.10, 100 percent of the oil-well gas that
the oil well produces. If the operator elects to self-certify, all
flared oil-well gas, except for gas flared under emergencies as
identified in Sec. 3179.83, is an avoidable loss with a royalty
obligation and is not subject to the unavoidable loss threshold in
Sec. 3179.70(a). In the case of self-certification, 100 percent of the
oil-well non-emergency flared gas has a royalty obligation from the
date of first production until the well is plugged and abandoned. The
BLM offers the self-certification alternative to accommodate operators
who may consider this option an advantageous business alternative while
ensuring the public receives a fair return for its oil and gas. An
operator might choose to avoid having to submit a WMP because it can be
relatively easy to design, build, and operate its facilities to capture
all of the gas and sell it. In addition, an operator may want to
accelerate drilling and development in lieu of waiting for a gas
contract and accept the additional royalty obligation as a business
expense should the operator need to flare following drilling and
completion.
The BLM's approval process for the WMP or the self-certification
statement appears in the new final Sec. 3162.3-1(l). With this
addition, the BLM has clarified for operators how the Bureau will
evaluate a WMP or self-certification statement. Upon review of the WMP
or the self-certification, the BLM may take one of the following
actions: (1) approve an administratively and technically complete oil-
well APD with a WMP, subject to the conditions for flared gas described
in Sec. 3162.3-1(j); (2) approve an administratively and technically
complete oil-well APD with a self-certification statement for
associated gas capture subject to the conditions for flared gas
described in Sec. 3162.3-1(k); or (3) defer action on an APD that is
not administratively or technically complete in the interest of
preventing waste until such time as the operator is able to amend its
APD to comply with the requirements in either Sec. 3162.3-1 paragraph
(j) or (k).
The final rule replaces the subjective term ``adequate'' in this
section with the term ``administratively and technically complete.''
The concept ``administratively and technically complete'' appears in
the original Sec. 3162.3-1(d), which states that ``[p]rior to
approval, the application shall be administratively and technically
complete.'' To be administratively complete, an APD must contain all
the required components: a drilling plan, a surface use plan of
operations, evidence of bond coverage, other information as may be
required by applicable orders and notices, and, with the finalization
of this rule, for an oil well, a WMP or self-certification. For an APD
to be technically complete, the APD must fulfill all the requirements
of each of the components and be technically correct pursuant to any
applicable orders and notices. For example, an APD is not
administratively complete if it does not include a drilling plan. If
the APD does include a drilling plan, but the drilling plan fails to
include the appropriate blowout prevention equipment, as required in 43
CFR subpart 3172, then the drilling plan is not technically complete.
A WMP or self-certification will now be a required component of an
APD for it to be administratively complete. If an operator does not
submit a WMP or a self-certification statement with the APD, then the
APD will not be administratively complete. For the WMP or self-
certification to be technically complete, it must contain the required
information in final Sec. 3162.3-1 paragraph (j) or (k). If the
operator submits a WMP that includes only the anticipated oil
production decline curve for 1 year, then the APD is not technically
complete. If an operator fails to include a WMP or self-certification
as required or if the WMP or self-certification fails to meet the
requirements in Sec. 3162.3-1 paragraph (j) or (k), then the BLM will
defer action on the APD until the operator amends the APD to comply
with the requirements of administrative and technical completeness.
Final Sec. 3162.3-1(l)(3) limits the time in which the operator
must address deficiencies in the WMP or the self-certification to
within 2 years of submission of the APD. If the operator does not meet
this deadline, then the
[[Page 25403]]
BLM may disapprove the APD. This change conforms the WMP or self-
certification process with the rest of the current Sec. 3162.3-1 and
review process. Furthermore, a 2-year limit provides operators with
sufficient time to either secure a gas sales contract or proceed with
self-certification in the absence of a sales contract. The 2-year time
limit also ensures that an APD will not remain in a pending status with
the BLM for an extended period because of an operator's lack of
diligence or inability to complete its application. A 2-year limit is
reasonable for an operator who intends to drill on a lease and is
capable of submitting a complete WMP or self-certification.
B. 43 CFR Part 3170--Onshore Oil and Gas Production
Section 3179.1 Purpose
Final Sec. 3179.1 has only one change from the proposed rule. The
BLM changed the name of the Osage Tribe to the Tribe's official name,
The Osage Nation, which the Tribe adopted in 2008. The purpose of
subpart 3179 remains unchanged in the final rule and continues to
implement and carry out the purposes of statutes relating to the
prevention of waste from Federal and Indian oil and gas leases,
conservation of surface resources, and management of the public lands
for multiple use and sustained yield, including section 50263 of the
IRA.
This final rule section continues to clarify that upon publication,
final subpart 3179 supersedes those portions of NTL-4A that pertain to,
among other things, flaring and venting of produced gas, unavoidably
and avoidably lot gas, and waste prevention. Subpart 3178, published on
November 18, 2016 (81 FR 83078), superseded the portions of NTL-4A that
pertain to oil or gas used on lease for beneficial purposes (see 43 CFR
subpart 3178). With the final publication of subpart 3179, NTL-4A has
been superseded in its entirety.
Section 3179.2 Scope
Section 3179.2 of the final rule continues to identify the
operations to which the various provisions of subpart 3179 will apply.
Paragraph (a) states that, in general, the provisions of the final rule
apply to: (1) all onshore Federal and Indian (other than The Osage
Nation) oil and gas leases, units, and communitized areas; (2) IMDA
agreements, except in certain circumstances described in the rule text;
(3) leases and other business agreements and contracts for the
development of Tribal energy resources under a Tribal Energy Resource
Agreement entered into with the Secretary, except under certain
circumstances; and (4) wells, equipment, and operations on State or
private tracts that are committed to a federally approved unit or CA.
Final Sec. 3179.2(a) removes the duplication of the words ``provided
in'' that appeared in the proposed rule.
Final paragraph (b) is substantially the same as proposed paragraph
(b). The only change in the final rule is that the crossed-referenced
sections have been revised to reflect the new section numbers. As in
the proposed rule, it provides that certain provisions in subpart 3179,
namely redesignated Sec. Sec. 3179.50, 3179.90, and 3179.100 through
102, apply only to operations and production equipment located on a
Federal or Indian oil and gas surface estate and do not apply to
operations on State or private tracts, even where such tracts are
committed to a federally approved unit or CA, sometimes referred to as
``mixed ownership'' agreements.
As in the proposed rule, final Sec. 3179.2(b) implicates a
question regarding the BLM's authority raised by the court that vacated
the 2016 Waste Prevention Rule. That court stated that the MLA ``does
not provide broad authorization for the BLM to impose comprehensive
Federal regulations similar to those applicable to operations on
Federal lands on State or privately-owned tracts or interests.'' \139\
In that court's view, the BLM's authority to regulate unit or CA
operations on State and private tracts under the MLA and FOGRMA may be
limited to rates of development and matters directly relevant to the
BLM's proprietary interest in the Federal minerals.\140\ This rule does
not reach a position on the full extent of the BLM's authority to
regulate non-Federal lands. For purposes of this rule, however, we note
that many provisions in the final rule--including final Sec. Sec.
3179.41, 3179.70, 3179.81, 3179.82, and 3179.83 and the final
measurement and reporting requirements in final Sec. Sec. 3179.71 and
3179.72--have a direct impact on royalty revenue and apply to all
operations producing Federal or Indian gas, whether on a Federal or
Indian lease or as part of a mixed-ownership agreement. Other
requirements--such as those related to storage tank hatches and the
leak detection-and repair program--apply when the facilities are
located on Federal or Indian surface estate because those requirements
have a slightly less direct connection to royalties. While the BLM does
not view that connection as dispositive of its authority in this
sphere, it has in this rule chosen to limit application of these
programs in light of the BLM's recent history of regulation and the
possibility that further extending these requirements would generate
relatively small marginal gains in revenue relative to other
requirements.
---------------------------------------------------------------------------
\139\ Wyoming court at 1082.
\140\ Id. at 1082-83.
---------------------------------------------------------------------------
The final rule redesignates sections throughout the subpart to
standardize the organization of sections in part 3170 (e.g., section
numbers ending in ``30'' will be the sections that contain
incorporation-by-reference material, as required, throughout part
3170). Further, the reorganization of the sections in part 3170 groups
similar topics together under similar section designations for ease of
use and readability.
Section 3179.10 Definitions and Acronyms
This final rule section contains definitions for 12 terms that are
used in subpart 3179 as opposed to the 13 terms that appeared in the
proposed rule. The BLM removed the proposed definition for ``storage
vessel.'' Proposed Sec. 3179.203, which pertained to oil storage
vessels, was significantly revised based on public comment as discussed
further below. Thus, the BLM removed the definition for ``storage
vessel'' and substituted the more commonly understood term ``oil
storage tank'' for ``storage vessel'' in the remainder of subpart 3179.
The use of the common term ``oil storage tank'' brings the final
subpart 3179 into alignment with the use of ``oil storage tank'' in
current subpart 3174.
One commenter recommended that, ``for the purposes of this section,
where there is a State definition that applies for the same BLM term,
the BLM will apply the definition used in the State in which the
applicable gas or oil well is located.'' The BLM is charged with
ensuring that the public and Indian mineral interests receive a fair
return for their oil and gas leases. That obligation necessarily
entails the determination of a lessee's royalty obligation, which, in
the case of waste prevention, relies directly on the BLM's consistent
use of terms. The BLM would be unable to implement the requirements of
this rule consistently--and to ensure a uniformly fair return--if the
Bureau were to rely on multiple, varying, and changeable State
definitions for the terms used in this regulation. Further, if the BLM
were to adopt this approach, and there was a conflict between the BLM
requirements and the State definition, there would be no clear path to
resolution of the conflict. The BLM did not make changes
[[Page 25404]]
to allow for the use of definitions from State code to apply to Federal
and Indian oil and gas regulations for the State in which the
production occurs.
The BLM received comments on the definition for ``automatic
ignition system'' that agree with the BLM's approach to not require a
specific type of device. The BLM agrees that the term ``automatic
ignition system'' connotes the concept of an ignition source without
specifying a particular type of device. To be clear, any applicable
rule of the EPA, a State, or a Tribe regarding such equipment and its
destruction efficiency apply to operations regulated by the BLM.
One commenter stated that requiring a continuous flame is wasteful
and unnecessary. The BLM disagrees with this comment because the
proposed definition of ``automatic ignition system'' only requires a
continuous pilot flare where needed to ensure continuous combustion.
The BLM believes the proposed definition allows for a great deal of
operator flexibility and did not change the ``automatic ignition
system'' definition based on the comments.
The BLM did not receive any comments on the proposed definitions
for ``capture,'' ``compressor station,'' ``gas-to-oil ratio (GOR),'' or
``pneumatic controller.'' Therefore, these four definitions remain the
same in final rule as in the proposed rule.
One commenter requested the BLM to add a definition for ``economic
feasibility.'' The commenter's recommended definition mirrors part of
the definition for ``economically marginal property'' found in subpart
3173. For the proposed rule, the BLM used the term ``economically
infeasible'' in proposed Sec. 3179.203(b), which addressed vapor
recovery systems. Since the BLM has removed the requirement for a vapor
recovery system on oil storage tanks in the final rule, the final rule
no longer references the terms ``economically feasible'' or
``economically infeasible.'' Therefore, the BLM has not included a
definition for ``economic feasibility'' in the final rule.
Commenters recommended that the BLM include a definition for the
term ``exploratory well.'' The BLM has a definition for ``exploratory
well'' in existing subpart 3172, but that definition applies within
that subpart. Leaving the term undefined in this rule could cause
confusion. Accordingly, we are adding the same definition of
``exploratory well'' to this rule as appears in 43 CFR 3172.5:
``[e]xploratory well means any well drilled beyond the known producing
limits of a pool.'' Subpart 3179 resides in part 3170 Onshore Oil and
Gas Production. The definitions that are used within multiple subparts
of part 3170 reside in subpart 3170. Originally published in 1988 as
Onshore Oil and Gas Order No. 2, subpart 3172 was codified in the CFR
on June 16, 2023 (88 FR 39514). When the BLM revises subpart 3170, it
will remove the definition for exploratory well from subpart 3172 and
include it in subpart 3170 since the definition now applies to more
than one subpart.
The BLM received numerous comments on the definition for ``gas
well.'' The definition that the BLM included in the proposed rule was
taken from the Conservation Division Manual 644.5. One commenter
recommended including a definition that relied on a GOR standard
throughout the rule and did not recommend incorporating any deference
to the States' definitions in the rule. The commenter did not provide
any recommendation for the appropriate GOR standard for a gas well. The
BLM is aware that many States define a gas well in terms of GOR, and
the GOR varies among State definitions. The BLM has decided not to
change the proposed definition, which relies on whether the well
produces more energy from gas or oil. The BLM has implemented that
definition in the CDM for decades. Commenters did not explain how a GOR
based definition would improve implementation of this final rule.
Conversely, adopting a new definition--one relying on GOR--could create
implementation conflicts insofar as the BLM chooses a GOR that differs
from certain State definitions. Historically, the proposed
[…truncated; see source link]Indexed from Federal Register on April 10, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.