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Rule2024-08138

Fluid Mineral Leases and Leasing Process

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Published

April 23, 2024

Effective

June 22, 2024

Issuing agencies

Interior DepartmentLand Management Bureau

Abstract

The Bureau of Land Management (BLM) is revising its oil and gas leasing regulations. Among other changes, the final rule implements provisions of the Inflation Reduction Act (IRA) pertaining to royalty rates, rentals, and minimum bids; updates the bonding requirements for leasing, development, and production; and revises some operating requirements. The final rule will improve the BLM's leasing process by ensuring proper stewardship of public lands and resources.

Full Text

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[Federal Register Volume 89, Number 79 (Tuesday, April 23, 2024)]
[Rules and Regulations]
[Pages 30916-31005]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08138]

[[Page 30915]]

Vol. 89

Tuesday,

No. 79

April 23, 2024

Part IV

Department of the Interior

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Bureau of Land Management

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

Fluid Mineral Leases and Leasing Process; Final Rule

Federal Register / Vol. 89 , No. 79 / Tuesday, April 23, 2024 / Rules
and Regulations

[[Page 30916]]

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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

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

[BLM_HQ_FRN_MO4500176829]
RIN 1004-AE80

Fluid Mineral Leases and Leasing Process

AGENCY: Bureau of Land Management, Interior.

ACTION: Final rule.

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SUMMARY: The Bureau of Land Management (BLM) is revising its oil and
gas leasing regulations. Among other changes, the final rule implements
provisions of the Inflation Reduction Act (IRA) pertaining to royalty
rates, rentals, and minimum bids; updates the bonding requirements for
leasing, development, and production; and revises some operating
requirements. The final rule will improve the BLM's leasing process by
ensuring proper stewardship of public lands and resources.

DATES: The final rule is effective on June 22, 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#c6bfa0afa3aaa2b586a4aaabe8a1a9b0"><span class="__cf_email__" data-cfemail="61180708040d051221030d0c4f060e17">[email&#160;protected]</span></a>, or by mail 1849 C St. NW, 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-2023-0005 on
<a href="http://www.regulations.gov">www.regulations.gov</a>.

SUPPLEMENTARY INFORMATION:

I. List of Acronyms
II. Executive Summary
III. Discussion of Public Comments on the Proposed Rule
IV. Overview of Modifications to the Proposed Rule
V. Procedural Matters

List of Acronyms

APD = Application for Permit to Drill
BLM = Bureau of Land Management
BOEM = Bureau of Ocean Energy Management
CA = Communitization Agreement
CD = Certificate of Deposit
CFR = Code of Federal Regulations
DOI = Department of the Interior
E.O. = Executive Order
EOI = Expression of Interest
FLPMA = Federal Land Policy and Management Act
GAO = Government Accountability Office
GHG = Greenhouse Gas
IBLA = Interior Board of Land Appeals
IIJA = Infrastructure Investment and Jobs Act of 2021
IM = Instruction Memoranda
IRA = Inflation Reduction Act of 2022
LOC = Letter of Credit
MLA = Mineral Leasing Act of 1920, as amended (MLA is also referred
to as ``Act'' in the regulations.)
MLAAL = Mineral Leasing Act for Acquired Lands of 1947, as amended
MLRS = Mineral and Land Records System
NAICS = North American Industry Classification System
NEPA = National Environmental Policy Act
OIG = Office of the Inspector General
ONRR = Office of Natural Resources Revenue
PRA = Paperwork Reduction Act
RIA = Regulatory Impact Analysis
RMP = Resource management plan
ROW = Right-of-way
SBA = Small Business Administration
U.S.C. = United States Code

Executive Summary

On July 24, 2023, the BLM published a proposed rule to amend the
regulations in 43 CFR parts 3000, 3100, 3110, 3120, 3130, 3140, 3150,
3160, 3170, and 3180 in the Federal Register (88 FR 47562), with a 60-
day comment period. Generally, the comments supported this rulemaking
and expressed the view that the changes outlined by the proposed rule
will be helpful. Comments on specific sections of the proposed
rulemaking opposed certain provisions and recommended changes. Within
this preamble, the BLM discusses those comments and the BLM's
responses.
Overall, this rule will enhance the BLM's administration of oil and
gas-related activities on America's public lands and reflects
Congress's changes to the oil and gas program in the IRA. Specifically,
the rule will reflect requirements of the IRA by increasing royalty
rates, rentals, and minimum bids for BLM-issued oil and gas leases, and
by imposing a fee for the submittal of an expression of interest (EOI)
for leasing Federal oil and gas. The rule also updates the bonding
requirements for leasing, development, and production to address
shortcomings identified in reports by the Government Accountability
Office (GAO) and the Department of the Interior's (DOI's) Office of
Inspector General (OIG). Collectively, the BLM proposed these changes
to bring the regulations into compliance with the IRA and the
Infrastructure Investment and Jobs Act (IIJA) mandates and to ensure
that reclamation costs are not borne by the American public. The BLM is
also adjusting its cost recovery mechanisms so that project applicants
provide a more appropriate share of the BLM's up-front costs for
processing these applications. Finally, the BLM is implementing several
changes to focus leasing on areas with fewer resource conflicts. The
BLM's final rule will be the first comprehensive update to the Federal
onshore oil and gas program's regulatory framework since 1988.
The Secretary of the Interior manages the Federal onshore oil and
gas program pursuant to the requirements of various statutes, including
the Federal Land Policy and Management Act of 1976, as amended (43
U.S.C. 1701 et seq.) (FLPMA); the Mineral Leasing Act of 1920, as
amended (30 U.S.C. 181 et seq.) (MLA or Act); and the Mineral Leasing
Act for Acquired Lands of 1947, as amended (30 U.S.C. 351 et seq.)
(MLAAL), as well as the recently enacted IRA (Pub. L. 117-169 (2022))
and IIJA (Pub. L. 117-58 (2021)). Under section 102 of FLPMA (43 U.S.C.
1701(a)(7)), the BLM manages approximately 245 million acres of public
lands and approximately 700 million acres of federally owned subsurface
minerals ``on the basis of multiple use and sustained yield.'' FLPMA's
definition of ``multiple use'' in section 103 (43 U.S.C. 1702(c))
requires the BLM to achieve ``a combination of balanced and diverse
resource uses that takes into account the long-term needs of future
generations for renewable and non-renewable resources.'' Oil and gas-
related activities are one of the multiple uses that FLPMA authorizes
and which the BLM administers in accordance with the MLA and MLAAL.
Both of those Acts govern the leasing of public lands to explore for
and develop oil, natural gas, coal, and other hydrocarbons, amongst
other mineral deposits.

Discussion of Public Comments on the Proposed Rule

The public comment period for the proposed rule ended on September
22, 2023. During the 60-day public comment period, the BLM received
over 215,000 comments submitted by Federal, State, and local
governments, local agencies, Tribal organizations, industry
representatives, individuals, and other external stakeholders. The vast
majority of submissions were form letters. Commenters also submitted
roughly 1,000 unique letters. From all submissions, the BLM identified
approximately 1,200 unique comments

[[Page 30917]]

raising specific issues on the proposed rule.
The BLM carefully reviewed all comments received on the proposed
rule. Certain comments suggesting that the BLM address issues outside
the scope of this rulemaking are discussed in Section III.A.
The BLM categorized the remaining comments received and provides an
overview of those categories and associated responses in Section III.B.
The BLM provides more detailed discussions of those comments in Section
IV.B. The Federal Government posts all comments 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-AE80 in the Search box and select the Fluid
Mineral Leases and Leasing Process proposed rule.

A. Comments Outside the Scope of This Rulemaking

The BLM received many comments directed at matters outside of the
scope of this rulemaking, including those regarding: project-specific
considerations; the BLM's existing website or computer application
programs (e.g., Automated Fluid Mineral Support System, National Fluid
Lease Sale System, etc.); additional rulemaking or programmatic
environmental impact statements specific to greenhouse gas (GHG)
emissions; geothermal or helium leasing activities; and additional
operational provisions in 43 CFR part 3160 or additional unit
provisions in 43 CFR part 3180 that were not part of the proposed rule.
Other commenters recommended changes to national energy policies and
priorities, such as to halt all oil and gas leasing activities due to
climate change, or discussed matters not specific to the BLM's
administration of oil and gas leasing. Many comments expressed general
statements of support or opposition to the rule. The BLM has not
responded to these comments in detail, because these myriad matters
were not encompassed in the proposed rule and are best addressed, if at
all, through future rulemakings.
A commenter stated that the BLM failed to write this entire rule in
a manner that is easily understood without providing any examples to
support the assertion. When drafting the proposed and final rules, the
BLM reviewed the rule text to identify areas where the regulations
could be written more clearly and made changes as necessary.

B. Categorized Public Comments on the Proposed Rule

This section of the preamble summarizes the major categories of
public comments that the BLM received in response to the proposed rule,
as well as the BLM's responses.
1. Comments Recommending Additional Oil and Gas Rulemaking, or Policy
Development
Summary of comments: Multiple commenters recommended that the BLM
initiate additional rulemaking efforts or develop additional policy
that are beyond the scope of this rulemaking. These recommendations
include: (1) a rule to update the BLM's unitization process in part
3180; (2) a rule to update the BLM's permitting process in 43 CFR part
3160; (3) development of ``The Bureau of Land Management's Blueprint
for 21st Century Outdoor Recreation''; (4) updated policy related to
oil and gas lease suspension; (5) updated policy related to oil and gas
unitization; (6) a similar joint rulemaking between the BLM and the
Bureau of Indian Affairs; and (7) a bureau-wide review of its standard
stipulation lists.
Response: The BLM reviewed these comments and determined that the
requested changes are outside the scope of this rulemaking. With
respect to the comments recommending the BLM update the unitization
portion of the regulations at part 3180, the BLM made changes to the
final rule to implement the increased royalty rate mandated by Congress
in the IRA but did not propose any changes to the remaining unitization
provisions. As the BLM did not propose any changes in the proposed
rule, the public was not provided with a chance to comment on any other
changes to the regulations governing unitization. As it reviews its
current policy in light of this rule's changes, the BLM will determine
whether to implement any changes to its approval process for lease
suspensions. Although a comment requested that the BLM review and
standardize a list of lease stipulations, in addition to the terms and
conditions in the BLM's standard form oil and gas lease, the BLM
develops lease stipulations as part of its resource management planning
process (which includes analysis under NEPA and other statutes), in
which the public has opportunities to comment, and those stipulations
apply to oil and gas leases issued within each RMP area. Any site-
specific concerns can be addressed through the NEPA process for a
particular sale or through conditions of approval at the Application
for Permit to Drill (APD) stage.
During the comment period, the BLM received comments requesting
additional updates to parts 3160 and 3170. As part of its review under
Executive Order (E.O.) 14008, issued on January 27, 2021, the
Department reviewed the onshore oil and gas leasing program and
published the Report on the Federal Oil and Gas Leasing Program on
November 26, 2021. The Report on the Federal Oil and Gas Leasing
Program recommended that the BLM should reform its royalty rate,
minimum bonus bids, rental rates, and bonding amounts; establish new
requirements for bidders; and take steps to discourage nominations of
low-potential lands. When the BLM drafted the proposed rule, the BLM
considered any critical permitting or operational changes to parts 3160
and 3170 that were needed in response to the Report's recommendation to
reduce speculation but did not propose any changes to the remaining
provisions. As the BLM did not propose any changes to parts 3160 and
3170, outside of the limited changes in the proposed rule, the public
was not provided with a chance to comment on any other changes to the
regulations governing permitting or operations.
As noted above in the summary of comments outside the scope of this
rulemaking effort, the BLM received a comment requesting the
development of a blueprint for outdoor recreation. Such a revision is
beyond the scope of this rulemaking as it would involve revising
regulations in Title 43 of the CFR, Subchapter H, and those regulations
do not pertain to oil and gas leasing and development, which is the
focus of this effort. Finally, a joint rulemaking between the BLM and
the Bureau of Indian Affairs is outside the scope of this rulemaking
effort.
2. Comments on Greenhouse Gas Emissions and Climate Change
Summary of comments: In the proposed rule, the BLM requested
comment on whether the preference criteria in Sec. 3120.34 or other
portions of the proposed rule should be expanded, or new provisions
added, to discuss analysis of GHG emissions and related decision making
based on that analysis. The BLM received many comments recommending
different approaches, including:
<bullet> Not changing the rule to address GHG emissions and climate
change on the grounds that the NEPA review process at the project level
provides a sufficient review for climate change issues, and that
refraining from leasing Federal minerals will not change the demand for
oil and gas production;

[[Page 30918]]

<bullet> Amending the rule to forgo future leasing based upon the
need to avoid exceeding the world's pre-industrial global temperature
level by 1.5 degree Celsius;
<bullet> Setting lease rates based on the Social Cost of Carbon
calculated by the U.S. Environmental Protection Agency in November 2022
at a discount rate of 1.5 percent;
<bullet> Aligning the oil and gas program with President Biden's
climate goals;
<bullet> Limiting GHG emissions via emissions monitoring;
<bullet> Implementing a three-stage leasing process to prioritize
lands for leasing with a final climate screening;
<bullet> Creating a carbon budget for the Federal onshore oil and
gas program;
<bullet> Requiring climate change mitigation, analyzing climate
impacts across BLM-managed lands, or implementing a rule to ensure
climate protection for all new leasing and permitting decisions;
<bullet> Initiating a programmatic environmental impact statement
for the onshore oil and gas program to assess the potential GHG
impacts;
<bullet> Establishing a quantitative climate test tool to evaluate
the relative impact and significance of GHG emissions at the project
level; and
<bullet> Expanding the competitive leasing preference criteria for
conformity with State policies on GHG emissions.
Response: Climate change is a global process that is affected by
the sum total of GHGs in the Earth's atmosphere. The BLM acknowledges
the views and suggestions reflected in these comments and recognizes
that GHG emissions from the Federal onshore oil and gas program
contributes to climate change. After reviewing the comments received,
the BLM did not make any changes to the final rule to address GHG
emissions and climate change. In this rule, the BLM implements
regulatory modifications required by Congress in the IRA and other
revisions that aim to improve the leasing process and ensure proper
management of public lands and resources. These reforms are not focused
on climate change. For example, the majority of these regulations cover
the administration of an oil and gas lease, such as changes to the
fixed filing fees, the fiscal terms mandated by Congress, the type of
lease the BLM can issue (eliminating noncompetitive leases as mandated
by Congress), and the method by which the public requests lands to be
considered for leasing (formal nominations vs. expressions of
interest). In implementing the MLA's requirement to hold quarterly
lease sales when lands are eligible and available, the BLM will
continue to use the NEPA review process and guidance issued by the
Council on Environmental Quality to evaluate GHG emissions that result
from oil and gas leasing and development and its effects on climate
change. The BLM understands the commenters' suggestions and may proceed
with those suggestions in future rulemakings that more directly address
GHG emissions. Further responses to comments related to the preference
criteria specifically are addressed in section IV.B.12 of the preamble.
3. Comments Recommending the BLM Stop All Oil and Gas Lease Sales and
Permitting
Summary of comments: Multiple commenters recommended that the BLM
stop, or phase out, all oil and gas lease sales, the issuance of
leases, as well as permitting and development, due to climate change
and the GHG emissions from oil and gas development.
Response: Pursuant to the IRA, the BLM is required to conduct lease
sales in order to permit wind and solar energy development projects on
public lands. The approach suggested by the commenters thus would
require the BLM to stop desirable wind and solar development. In
implementing the MLA's requirement to hold quarterly lease sales when
lands are eligible and available, the BLM will continue to use the NEPA
review process to evaluate GHG emissions that result from oil and gas
leasing and development and its effects on climate change.
4. Comments on Public Participation
Summary of comments: Tribes, States, and local governments
submitted comments requesting that the BLM update the rule to provide
additional consultation and outreach to them on oil and gas leasing and
development. Some comments encouraged the BLM to coordinate with the
relevant State and county agencies when land-use actions are taken or
if the BLM is considering leasing lands adjacent to State-owned or
managed lands. Other comments requested that the BLM explore
opportunities for Tribal cultural site protection and co-stewardship to
ensure the BLM fully advances opportunities for the incorporation of
Indigenous Knowledge, respect for Tribal sovereignty and treaty rights,
and the protection of Tribal cultural sites. Comments also recommended
that the BLM consult the State or local government's land use plans to
ensure the BLM applies the appropriate provisions to responsibly manage
natural resources, climate, and environmental quality issues during the
decision making and planning efforts for oil and gas leasing.
Response: The BLM will continue to engage with the public, Tribes,
Federal, State, and local government partners on the BLM's management
of its public lands, as appropriate. Subsequent actions that the BLM
may take will be subject to the applicable policies, laws, and
regulations pertaining to that action, including those for consultation
and environmental review. The BLM added language into the competitive
leasing process (see Sec. 3120.42) to include scoping, comment, and
protest periods to ensure that the BLM provides adequate time to
evaluate the views of a wide range of partners, stakeholders, and
landowners in any future decisions. Furthermore, in formulating or
amending its resource management plans (RMPs), the BLM complies with
FLPMA, NEPA, and its regulations providing for public participation,
coordination of planning efforts, and consistency. See 43 CFR 1610.2,
1610.3-1, 1610.3-2. The RMPs serve as blueprints to enable the BLM to
sustain the health, diversity, and productivity of public lands for the
use and enjoyment of present and future generations. Under an RMP, the
BLM will identify the lands closed to leasing of Federal oil and gas,
the lands open to leasing of Federal oil and gas, and the appropriate
stipulations to apply to a Federal oil and gas lease based upon the
location of the lease. These decisions are not made as part of this
rulemaking and will continue to be made through the BLM's land use
planning process, which involves cooperating with State and local
governments, consulting with Tribes, and robust public engagement.
The BLM takes its responsibilities to Tribes seriously and respects
Tribal sovereignty and treaty rights. Where there are such
opportunities, the BLM is committed to exploring co-stewardship
opportunities with Tribes. However, co-stewardship is outside the scope
of this rulemaking.
5. Comments on the BLM's Discretion To Offer Parcels for Lease Sales
Summary of comments: Multiple commenters stated that the rule
improperly limits and discourages exploration or closes off lands to
leasing outside of the NEPA process. These commenters pointed to
different aspects of the rule to support their claim that the rule
limits and discourages exploration. Some comments stated that the rule
violates, or evades, the multiple-use mandate of FLPMA or exceeds the
authority of the BLM under the MLA. Other comments stated that when a
person requests the BLM

[[Page 30919]]

include certain lands in an upcoming competitive oil and gas lease sale
(via EOI) the BLM should offer all lands described in the EOI in the
next available sale based on and consistent with the management
decisions made in the relevant RMPs. Multiple comments stated that the
new preference criteria (see Sec. 3120.32) will create uncertainty,
conflicts among stakeholders and uses, and will hinder the BLM's
ability to achieve the congressional mandates such as offering enough
acreage for oil and gas leasing in order to allow wind and solar right-
of-way (ROW) permit issuance.
Response: With respect to contentions that the BLM's proposed
regulations exceed the Secretary's authority to select lands for
leasing, the BLM notes that the MLA, 30 U.S.C. 226(a), by providing
that the Secretary ``may'' lease lands, necessarily provides the BLM
with broad discretion in determining precisely which lands and parcels
the BLM will offer at an oil and gas lease sale. Accordingly, the
agency has, since at least 1988, consistently applied a public interest
determination to any such decisions. See 53 FR 22828 (June 17, 1988)
(``It is Bureau policy prior to offering the lands to determine whether
leasing will be in the public interest.''). The MLA does not specify
how and when this decision is to be made, and both the Supreme Court
and the U.S. Court of Appeals for the Tenth Circuit have recognized the
Secretary's discretion in this sphere. See Udall v. Tallman, 380 U.S.
1, 4 (1965); W. Energy All. v. Salazar, 709 F.3d 1040, 1044 (10th Cir.
2013).
Comments asserting that the application of the preference criteria
will result in the closure of any lands to oil and gas leasing are
incorrect. The BLM has and will continue to make land use decisions at
the land use planning stage and document those decisions in the
applicable RMP. The preference criteria, on the other hand, were
proposed consistent with the MLA to direct the BLM's administrative
resources to leasing tracts most likely to be developed, to reduce
conflicts between oil and gas development and other public land uses
that were not resolved in the resource management plans, and to ``take[
] into account the long-term needs of future generations for renewable
and nonrenewable resources,'' 43 U.S.C. 1702. These criteria may be
considered on a case-by-case basis in light of specific circumstances.
Even if the BLM were to apply such criteria and decide to defer
including particular lands from any particular lease sale, nothing in
this rule prevents those lands from being offered in future sales. The
RMPs do not always resolve all conflicts, especially those that may be
unforeseen or arise due to a change in circumstances. In many cases,
this calls for a more specific site review, and the MLA provides the
necessary discretion, apart from FLPMA, to engage in this type of site-
specific review.
6. Comments Recommending BLM Processes Should Be Addressed in Policy
and Not Regulations
Summary of comments: The BLM received multiple comments stating
that many of the BLM processes in the proposed rule should instead be
expressed in policy documents and that the rule goes beyond the
authority of the BLM under the IRA and IIJA. Comments expressed the
view that the function of regulations is to inform and instruct the
public with regard to actions that they may or may not take while
policy interprets those regulations and provides guidance to the agency
in implementing them. The commenters stated that inserting existing
policy guidance, which applies only to the BLM's actions, into the
regulations, rather than leaving it in Instruction Memoranda (IM), is
inappropriate. For example, commenters suggested that the preference
criteria and the details regarding lease suspensions belong in BLM
guidance documents and not in the regulations as these do not impose
any requirements on the oil and gas industry. Finally, the commenters
stated that the BLM does not need to update the existing regulations
governing the BLM's discretionary functions under the existing
regulations, since those regulations are adequate to protect the fiscal
interests of the American public. These commenters recommended that the
BLM only make the changes required by the IRA.
Response: By incorporating provisions such as the preference
criteria and lease suspensions into the regulations, the BLM makes
those provisions legally binding and provides greater certainty and
transparency to the public on the decision-making processes the BLM
will use when it processes EOIs (see Sec. 3120.32) and the timeframes
for lease suspensions (see Sec. 3165.1). These regulatory criteria may
influence a person's decision-making when deciding whether they will
submit an EOI or may influence lessees when they are deciding whether
to seek a lease suspension. Therefore, the BLM declines to make any
changes to the final rule based upon concerns that the changes could be
characterized as guidance.
7. Comments on Environmental Justice
Summary of comments: Multiple commenters stated that the BLM should
ensure that the final rule includes environmental and social justice
considerations as part of the oil and gas leasing process. Comments
stated that many of the fluid mineral resources are located in
underserved rural areas and on Tribal lands where the fluid mineral
industry has a large economic impact. These comments alleged that the
rule could undercut environmental justice goals by reducing the
economic benefits that would otherwise flow to disadvantaged
communities as a result of onshore Federal oil and gas activities. One
comment stated that jobs in extractive industries, such as oil and gas
development, are not going to the members of the communities burdened
by the fossil fuel industry and therefore that the BLM should end the
Federal fossil fuel leasing program. Another comment stated that the
BLM should solicit the knowledge and experience of those in underserved
communities and ensure that these communities' perspectives are
meaningfully incorporated into and actively shape planning and
decision-making, and the BLM should take into account community-driven
and localized health impact assessments and relevant local health and
demographic data as part of this process. Another comment recommended
that the BLM incorporate environmental justice as part of Sec.
3120.32.
Response: The BLM reviewed the comments recommending changes to the
rule to address environmental justice concerns and determined that no
changes were necessary. The BLM believes environmental justice concerns
are initially addressed through the land use planning process when the
BLM is evaluating whether lands should be open to leasing and what
stipulations should be imposed, and then at the more site-specific
level when identified parcels are being evaluated for possible
inclusion in a lease sale. Both of these processes also involve an
evaluation under NEPA, which provides an opportunity for considering
environmental justice concerns, which are dependent on the specific
conditions and history pertaining to each area and the communities
potentially impacted. In addition, the preference criteria that the BLM
is including in this final rule will provide a tool for the BLM to
assess environmental justice concerns through government-to-government
consultation and through scoping comments received from the public. To
the extent a

[[Page 30920]]

comment noted a specific environmental-justice-related concern with a
particular section of the rule, the BLM has also addressed such
comments in the following Section-by-Section Discussion.
8. Comments on the Impact of the Rule on Indian Leases
Summary of comments: The BLM received a comment stating that the
proposed rule preamble incorrectly stated that the rule ``will not
impact the leasing of Indian minerals.'' The comment asserted that the
rule would impact Indian interest, lands, and minerals, and that the
BLM needs to clarify this in the final rule. The BLM also received
comments stating that the rule should be revised to clarify that public
lands managed by the BLM under FLPMA and do not include Indian lands;
that the rule should eliminate BLM activities on Indian lands; and,
that the BLM lacks authority to manage activities on Indian lands.
Response: The BLM does not make leasing decisions for Indian lands.
However, the BLM does make recommendations for oil and gas operations
that may impact Indian lands. Existing regulations at 43 CFR part 3100
outline the BLM's authority over offering lands to lease under the
BLM's jurisdiction, which does not include Indian lands. The changes
made in this rulemaking clearly fall within the BLM's existing
statutory authorities. The BLM acknowledges that some of the proposed
changes may affect Indian lands when the BLM makes recommendations for
oil and gas operations to the Bureau of Indian Affairs under the
Standard Operating Procedures between agencies for the leases they
manage under their respective jurisdictions. While the majority of the
changes in the final rule impact the leasing of Federal minerals and
not Indian leases, there are some provisions that will apply to Indian
leases: the operational changes for shut-in and temporarily abandoned
wells at Sec. 3162.3-4 and the changes to the APD timeframe at Sec.
3171.14. The BLM has also increased filing fees to account for
inflation for applications such as APDs, as required by 30 U.S.C. 191.
The BLM considers these updates critical for both Federal and Indian
minerals because these changes will give the BLM the ability to
complete operator-diligence reviews, ensure that wells are producing on
Indian leases as required by law, and to recover its costs to process
applications.
9. Comments on the Rule Potentially Discouraging Federal Exploration
and Development
Summary of comments: Multiple commenters expressed concerns that
the proposed rule would discourage or eliminate future oil and gas
exploration and development on Federal lands or would force production
from Federal lands onto State or private lands. The BLM also received
comments asserting that the combination of proposed Sec. 3120.32
(reflecting the BLM's authority to defer certain parcels) and the
increased fees, royalties, and bonding would result in the BLM
violating its statutory requirements to prevent waste of the oil and
gas resource. Specifically, the commenter claimed that provisions in
this rule, such as the competitive leasing preference criteria at Sec.
3120.32, could result in delays in or the complete exclusion of the
development of non-Federal minerals in addition to the loss in Federal
bonuses and royalties. These commenters also asserted that this rule
fails to recognize studies indicating that the United States will
continue to need fossil fuels for the foreseeable future. The
commenters urged the BLM to look for ways to increase energy
development. Commenters also stated that the proposed rule ignored the
economic benefit provided by oil and gas development to local schools,
hospitals, and infrastructure.
Response: The GAO and the DOI OIG reviewed and audited the BLM's
Federal onshore oil and gas program to identify problematic areas in
this program and recommended actions to address them. Both the GAO's
and OIG's audits \1\ highlighted weaknesses in the onshore program's
fiscal framework and recommended that the BLM take steps to ensure that
the American public receives a fair return from oil and gas activities
on public lands. The DOI and the BLM concurred with these
recommendations in the Report on the Federal Oil and Gas Leasing
Program \2\ issued in November 2021.
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\1\ See, e.g., OIG, ``Inspector General's Statement Summarizing
the Major Management and Performance Challenges Facing the U.S.
Department of the Interior'' (Nov. 2022); GAO, ``OIL AND GAS
LEASING--BLM Should Update Its Guidance and Review Its Fees'' (Nov.
2021); GAO, ``OIL AND GAS--Onshore Competitive and Noncompetitive
Lease Revenues'' (Nov. 2020); GAO, ``FEDERAL ENERGY DEVELOPMENT--
Challenges to Ensuring a Fair Return for Federal Energy Resources''
(Sept. 2019); GAO, ``OIL AND GAS--Bureau of Land Management Should
Address Risk from Insufficient Bonds to Reclaim Wells'' (Sept.
2019); GAO, ``OIL AND GAS LEASE MANAGEMENT--BLM Could Improve
Oversight of Lease Suspensions with Better Data and Monitoring
Procedures'' (June 2018); OIG, ``Bureau of Land Management's Idle
Well Program'' (Jan. 2018).
\2\ DOI, ``Report on the Federal Oil and Gas Leasing Program''
(Nov. 2021). <a href="https://www.doi.gov/sites/doi.gov/files/report-on-the-federal-oil-and-gas-leasing-program-doi-eo-14008.pdf">https://www.doi.gov/sites/doi.gov/files/report-on-the-federal-oil-and-gas-leasing-program-doi-eo-14008.pdf</a>.
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Accordingly, the BLM is adjusting its oil and gas bonding
requirements, including by increasing minimum bond amounts for the
first time in decades. The BLM is proposing to adjust its cost recovery
mechanisms to account for changes in the leasing process since the fees
were initially set in 2005. The BLM drafted the proposed rule to: (1)
reflect the requirements of the IRA; and (2) enhance the administration
of the onshore program, to direct leasing to lands with a higher
development potential, and in response to the GAO's and OIG's numerous
reports identifying shortcomings in the program, as discussed in the
November 2021 Report on the Federal Oil and Gas Leasing Program.
The BLM did not make any changes to the final rule based upon the
comments expressing concerns that the increased bonding and fees could
result in the potential movement of production from Federal to State or
private lands. The royalty rates on State and private lands are often
higher than those for Federal lands as are the rental rates.\3\ Given
this, the BLM does not believe the increased rates will have the
asserted affect and instead will bring the rates more in line with one
another across jurisdictions. Moreover, Sec. 3120.32 does not affect
longstanding BLM policies that prioritize leasing parcels subject to
drainage (from adjacent State and private minerals); the BLM will
continue to work towards leasing lands that will allow for logical
development of the minerals by giving preference to lands after
accounting for expected yields of oil and gas, fair return for U.S.
taxpayers, and decisions embodied by the BLM's RMPs. This will provide
for continued development of Federal, State, and private minerals.
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\3\ DOI, ``Report on the Federal Oil and Gas Leasing Program''
(Nov. 2021).
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IV. Overview of Modifications to the Proposed Rule

A. Summary of Notable Changes

The BLM made changes to the rule in response to comments and for
accuracy, clarity, or grammar.
The BLM received numerous comments on the proposed changes to the
bonding regulations under subpart 3104, and in response to these
comments, the BLM reinstated an operators' ability to post personal
bonds secured with letters of credit (LOCs) and

[[Page 30921]]

certificates of deposit (CDs). The proposed rule requested comments on
if and how the BLM should adjust the minimum bond amounts in the
future. After review of the comments, bond amounts will be adjusted for
inflation every 10 years so that the minimum bond amounts do not become
outdated as they have in the past.
The BLM deleted the existing and proposed sections governing the
formal lease nomination process under part 3120.
The BLM revised the final rule to clarify that it will consider the
preference criteria in Sec. 3120.32 as part of the scoping process and
will apply the criteria after the conclusion of scoping but before
issuing the draft NEPA document for the lease sale, consistent with the
BLM's existing policy and implementation of IM 2023-007, Evaluating
Competitive Oil and Gas Lease Sale Parcels for Future Lease Sales.\4\
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\4\ <a href="https://www.blm.gov/policy/im-2023-007">https://www.blm.gov/policy/im-2023-007</a>.
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The BLM also revised the final rule to extend an approved APD's
term based on a lease suspension.
These revisions are discussed in more detail in the Section-by-
Section Discussion.

B. Section-by-Section Discussion

Sections that did not receive any comments, or that only received
comments in support of the proposed changes, are not discussed in this
Section-by-Section analysis and are adopted in the final rule as
proposed. In addition, throughout the final rule, the BLM replaced the
words ``he,'' ``she,'' or ``he/she'' with the appropriate title or
entity to comply with Executive Order 13988, Preventing and Combating
Discrimination on the Basis of Gender Identity or Sexual Orientation.
1. Section-by-Section Discussion for Changes to 43 CFR Part 3000
Section 3000.5 Definitions
The BLM received a number of comments on the definition of the
terms ``Acreage for which expressions of interest have been
submitted,'' ``Person,'' and ``Surface Management Agency.''
With respect to the phrase ``Acreage for which expressions of
interest have been submitted,'' a comment stated the BLM should change
the definition to ``acreage that is identified in an EOI on land
eligible and available for leasing'' to ensure that the BLM accurately
determines which EOIs have been properly submitted. No further changes
are made to the final rule as the definition already states, ``and for
which the BLM may lawfully issue an oil and gas lease.''
Comments on the term ``Person'' recommended that the BLM use the
definition in the Federal Oil and Gas Royalty Management Act, 30 U.S.C.
1702, to avoid any unnecessary confusion. The BLM adopts this
recommendation and has revised the definition of the term ``person'' in
the final rule accordingly.
Comments on the term ``surface management agency'' focused on the
assertion that the definition improperly required the BLM to obtain
consent from other agencies within the DOI in order to lease lands
managed by those agencies, and therefore, that the BLM should not adopt
the proposed changes to this definition. Based on these comments, the
BLM made additional changes to Sec. 3101.51 to provide that public
domain and acquired lands that are open to the operation of the Mineral
Leasing Act will be leased only with the consent of the surface
managing agency, which, upon receipt of a description of the lands from
the authorized officer, can report to the authorized officer that it
consents to leasing with stipulations, if any, or withholds consent or
objects to leasing.
Section 3000.40 Appeals
The existing Sec. 3000.4 details the appeal rights and exceptions
for parts 3000 through 3930. The BLM received suggestions that this
section be amended to include State Director Reviews, with an option to
further appeal to the Interior Board of Land Appeals (IBLA). The
commenters asserted that, without the intermediary appeal to the State
Director, there would effectively be no opportunity to appeal in light
of average times for IBLA decisions. The BLM does not believe any
change to this section is needed. Decisions that are signed at the
state office level, which are usually decisions that affect the
administration of a lease under parts 3100 and 3120, are signed on
behalf of the State Director, meaning that State Director review is not
applicable. In addition, 43 CFR subpart 3165 already states that
onshore oil and gas operational decisions made under the authority of
part 3160 are subject to the State Director Review process and any
decision of the State Director is appealable to the IBLA.
Section 3000.41 Severability
This is a new section that the BLM has added in response to
comments. The BLM received comments suggesting that it should include a
severability clause in the final rule similar to that found in the
BLM's realty regulations (43 CFR 2801.8). The final rulemaking adopts
this recommendation by adding a new section addressing severability.
This section will read, ``If a court holds any provisions of the
regulations in parts 3000 through 3180 or their applicability to any
person or circumstances invalid, the remainder of these rules and their
applicability to other people or circumstances will not be affected.''
The BLM published the proposed rule, in large part, to address the
changes required by the IRA, various reports by the GAO and OIG, and
the Department's report in response to section 208 of E.O. 14008. Those
sections implementing the IRA can and do function separately from those
sections proposing new bonding amounts or the competitive leasing
preference criteria.
One commenter stated that the courts will determine if a provision
is or is not severable from the rule. The comment is correct in that a
court will ultimately determine whether portions of the rule can be
severed from others in the event a court determines a provision was
improperly promulgated. This section is designed to aid that review by
demonstrating that the BLM intends the various components of the rule,
with various provenances and independent functions, to continue to
operate even if one or more of the provisions is declared unlawful.
Section 3000.50 Limitations on Time To Institute Suit To Challenge a
Decision of the Secretary
The existing Sec. 3000.5 reiterates the 90-day statute of
limitations for judicial challenges to certain BLM decisions under the
MLA. The BLM received comments on this section suggesting that the BLM
clarify that the regulation does not apply to claims brought under
statutes other than the MLA. The final rule does not adopt this
recommendation, as this section also applies to other minerals
management programs, such as mining claims, which are managed under the
general mining laws (see part 3800).
Section 3000.60 Filing of Documents
The existing Sec. 3000.6 specifies where and when documents filed
under these regulations must be submitted and provides for filing by
electronic means in addition to the hard copy or delivery service, as
was previously authorized. Commenters generally supported the proposed
changes to this section. Commenters suggested revising the provision to
include a requirement that each BLM office designate an email address
for filing, and that an e-filing should be deemed timely if it is

[[Page 30922]]

received by 11:59 p.m. local time in the appropriate BLM office. These
changes were recommended to ensure that the appropriate official
receives the e-filing and to avoid any risk of default as a result of
e-filing with the wrong person in a BLM office. The BLM does not
support the use of emails for electronic filings for many of the same
reasons stated in the comment, i.e., the potential to be directed to
the wrong person and/or wrong office. In addition, the BLM will not
incorporate the recommendation to state a specific local time, since
the time by which a filing needs to be made is already addressed in 43
CFR 1821.11. The regulation at 43 CFR 1821.11 is entitled, ``During
what hours may I file an application?'' and specifically states, ``You
may file applications or other documents or inspect official records
during BLM office hours. Each BLM office will prominently display a
notice of the hours during which that particular office will be open.
Except for offices which are open periodically, for example, every
Wednesday or the 3rd Wednesday of the month, all offices will be open
Monday through Friday, excluding Federal holidays, at least from 9 a.m.
to 3 p.m., local time.'' Those instructions necessarily depend upon and
encompass the local time at particular BLM offices.
Section 3000.100 Fees in General
The existing Sec. 3000.10 provides general information on the
types of fees the BLM may assess, how the fees are calculated, when the
fees must be paid and how and when the BLM will adjust any fees. The
BLM received a comment recommending a change to paragraph (c), which
addresses adjustment of fees, recommending that any adjustments to
fixed fees be subject to notice and comment. The BLM declines to make
this change as further explained in the discussion of Sec. 3000.120
below.
Section 3000.120 Fee Schedule for Fixed Fees
The existing Sec. 3000.12 lists the fixed fees that must be paid
for each transaction requiring a fixed fee and includes transactions
that previously did not require a fee, such as the designation of a
successor operator; unit agreement applications; subsurface storage
agreement applications; unit agreement expansion applications; and
formal lease nominations. The final rule removes the formal lease
nominations process, consistent with the changes made under Sec. 3120.
The BLM received several comments on this section. Some comments
supported the BLM's proposal to incorporate processing fees for new
actions that were not previously subject to a fee, stating that the
fees were appropriate given the BLM's limited resources, or stating
that the proposed fees were not sufficient to cover the BLM's costs.
Other comments opposed the increased fees, asserting they were
excessive, disproportionate, unwarranted, and designed to be a
deterrent to Federal oil and gas leasing activities. In addition, some
commenters stated that the analysis in the preamble to the proposed
rule failed to comprehensively analyze the BLM's fee system, and,
specifically, failed to compare the fees to the increased bonus bids,
rentals, and bonding. Another comment objected to the application of
the new filing fees, royalty, and rental provisions to leases sold
before the enactment of the IRA but issued after the IRA.
The preamble to the proposed rule outlined the processing steps
considered by the BLM in calculating each of the fees. The general
comments only criticized the processing steps associated with the BLM's
review of a competitive lease application fee, as discussed below. No
comments criticized the processing steps for the other application
fees; therefore, the BLM will implement the proposed fixed filing fees
as stated in the preamble to reimburse the BLM for its processing
costs. With respect to the fixed filing fees, the preamble specifically
stated that the BLM would not charge a new fixed filing fee under this
rule for processing a document that the BLM received before the
effective date of the rule. Documents submitted before the effective
date of the final rule will be processed based on the fee that was in
effect when the document was submitted.
One comment recommended that the competitive lease application fee,
which includes the cost for the BLM to undertake any necessary NEPA
review, should not be a fixed fee and instead should be determined on a
case-by-case basis under Sec. 3000.110, or, alternatively, that the
cost should be fixed but that the applicant should have the option to
request a case-by-case fee determination to establish a fee for a
particular lease application. Although the BLM understands the impetus
for suggesting that the fee be determined for a particular lease, the
BLM cannot adopt the proposed change, because the NEPA analysis
prepared for each lease sale covers all of the parcels offered in a
given sale and is not for each individual parcel. Moreover, the
competitive lease application fee is collected after the NEPA review
has been completed, and after the lease sale has been held. Therefore,
the applicant would not be able to help pay for the preparation of any
BLM NEPA document before performing any case processing on a parcel-by-
parcel basis.
Other comments stated that the BLM should charge fixed filing fees
for compensatory royalty agreements and communitization agreements
(CAs). The final rule includes a fixed fee for compensatory royalty
agreements under ROW pursuant to subpart 3109 where the processing
steps are the same for leases. The BLM added the following clarifying
language to this provision in the final rule: ``Leasing and
compensatory royalty agreements applications under right-of-way
pursuant to subpart 3109.'' The BLM does not adopt the recommendation
to require a fixed filing fee for CAs. The BLM explained in the
preamble to the proposed rule that new fixed filing fees were
considered for Federal CAs (Sec. 3105), Federal participating area
applications (Sec. 3180), and royalty rate reduction applications
(Sec. 3103), but it ultimately declined to propose these fees due to
the low value and the public benefit related to these items.
The BLM received suggestions that the Bureau clarify requirements
for the fixed filing fee for designation of successor operator for
Federal agreements, such that the fee would not be required when a
successor operator is designated for contracted unit agreements that do
not contain Federal lands. The BLM adopts the suggestion and has
revised the Processing and Filing Fee table in this section of the
final rule to include the following language: ``Designation of
successor operator for all Federal agreements, except for contracted
unit agreements that contain no Federal lands.''
The BLM also received several comments stating the BLM erred in
adding the fee for EOIs to the fixed filing fee table, because these
fees are adjusted for inflation every year; and section 50262(d) of the
IRA expressly authorizes the Secretary to only adjust the EOI fee ``not
less frequently than every 4 years . . . to reflect the changes in
inflation.'' The BLM concurs with this comment and has moved the EOI
fee to the new Sec. 3103.1(a) where it will be adjusted based on
inflation every 4 years.
Another comment stated that the BLM did not explain its authority
to impose an annual inflation adjustment and that for the annual
inflation adjustment, the BLM must re-apply all of the factors set out
in section 304(b) of FLPMA, make a new determination as to whether the
fee warrants an adjustment, and similarly codify the determination via

[[Page 30923]]

rulemaking every time a fee is adjusted. A similar comment asked the
BLM to consider the disproportionate impact continued increases have on
the total cost to develop Federal minerals.
Section 304 of FLPMA, 43 U.S.C. 1734, authorizes the BLM to
establish fees intended to reimburse the government for reasonable
costs and authorizes the Secretary to change or abolish such fees. The
BLM establishes fees based upon the reasonableness factors at section
304(b) of FLPMA, which include ``actual costs (exclusive of management
overhead), the monetary value of the rights or privileges sought by the
applicant, the efficiency to the government processing involved, that
portion of the cost incurred for the benefit of the general public
interest rather than for the exclusive benefit of the applicant, the
public service provided, and other factors relevant to determining the
reasonableness of the costs.'' Once the BLM establishes a fee, the BLM
adjusts the fees for inflation annually to effectively keep fees in
line with current costs. This process comports with the broad authority
given to the BLM in section 304 to set reasonable fees. The BLM did not
propose changes to this method, or how the fees are adjusted annually
for inflation in this proposed rule. The BLM will not use an
alternative method for annual fee adjustments as it would require
collecting data periodically for each fee, which is inefficient,
costly, and impractical. However, as recommended by the GAO,\5\ the BLM
did review the six factors, commonly known as ``FLPMA reasonableness
factors'' in section 304(b), to account for changes in the leasing
process since the fees were initially set. For the proposed rule, the
BLM: (1) contacted each office with this type of application (the 10
state offices or all of the 40 field/district and state offices
depending on the application type); (2) requested the offices to
provide the average processing time for each type of application and
the employee completing this work; (3) received the estimates from each
office; (4) calculated the weighted average for each type of
application; (5) reviewed the monetary value of the right or privilege
that the applicant seeks; (6) evaluated how efficiently the BLM
processes a document based upon the processing times; (7) reviewed the
public benefit factor for the application; and (8) reviewed the public
service factor for the application. The preamble to the proposed rule
reflects this analysis of its fixed filing fees. Without the inflation
adjustment that has existed since 2005, the BLM would instead be
required to complete the same burdensome, eight step review under FLPMA
for every subsequent update.
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\5\ GAO. GAO-22-103968: OIL AND GAS LEASING BLM Should Update
Its Guidance and Review Its Fees. <a href="https://www.gao.gov/assets/gao-22-103968.pdf">https://www.gao.gov/assets/gao-22-103968.pdf</a>.
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Furthermore, to verify the accuracy of the BLM's method for
determining fees, the BLM reviewed a common oil and gas fixed filing
fee--assignments and transfers--which has not experienced changes to
the process since 2005. The BLM intentionally selected the assignment
and transfer fixed filing fee as the most representative filing fee to
review because (1) assignments and transfers are the most common
application received by the BLM; (2) the other applications that
require filing fees are more rarely used; and 3) all state offices are
familiar with the assignment and transfer application. After completing
the review of the assignment and transfer fixed filing fee for the
proposed rule, the BLM compared the outcome of that review with the
inflation adjustments (86 FR 54636 (Oct. 4, 2021)). The review
identified that the assignment and transfer fixed filing fee should be
$100 in FY2022 based upon the FLPMA factors. This amount matched the
inflation-adjusted fixed filing fee for FY2022, which was also $100.
Therefore, the FY2022 inflation adjustment matched the calculated fixed
filing fee based upon the FLPMA factors in FY2022. If the BLM's review
process changes for an application, and thus there is the potential
that reasonable costs may change outside of the cost of inflation, the
BLM would update the fixed filing fees based upon the FLPMA factors and
provide the opportunity for notice and comment.
Finally, the BLM requested comments related to changing its current
process, which requires publishing the annual fee adjustments as a
final rule in the Federal Register and then incorporating the new fees
in the Code of Federal Regulations (CFR). Instead, the BLM proposed to
post the updated table on the BLM's web page with the historical fees
posted in the same location.
Commenters stated that since the fixed filing fees are not subject
to appeal, the BLM should remove this provision; that adjustment of the
fees should include a notice and comment period; and that the BLM
should continue to publish the annual fee adjustments in the Federal
Register.
The BLM is updating the final rule to state that the BLM will
``announce annually in the Federal Register'' revised fees, as well as
posting the fees to the website. The BLM initially promulgated the
fixed filing fees in 2005 after conducting a notice-and-comment
rulemaking. Each year since, the fees have been adjusted for inflation
through a final rule without further notice and comment. This is
because the BLM included the method used to calculate inflation in its
proposal in 2005, and the same method has been used for each subsequent
increase. As stated in the proposed rule, the BLM will follow this same
procedure for any new fees. For example, the BLM will: (1) publish a
proposed rule with information on the proposed fee and propose to
adjust the fee based on inflation; (2) review the comments received on
the proposed rule for the new fixed filing; (3) publish a final rule
with the new fixed filing fee; and (4) adjust the new fixed filing fee
based upon inflation without notice and comment for any subsequent
increases. This process negates the need for notice and comment every
time the BLM adjusts the fee solely for inflation. These periodic
inflation adjustments are not subject to appeal.
Additionally, as stated above, if the BLM's review process for any
application changes, and thus there is the potential that the BLM's
reasonable costs may change outside of the cost of inflation, the BLM
would review the FLPMA factors to update the fixed filing fees and
provide the opportunity for notice and comment.
The BLM adopts the proposed change to publish the fixed filing fees
on the BLM's web page and to publish the adjusted fees each year in the
Federal Register to provide additional public notice. The table in this
section will still contain a list of the types of applications that
require a fixed filing fee, but the fee itself will be removed from the
table so it does not become outdated as each subsequent adjustment for
inflation is made. In addition, the BLM modified the regulatory text to
reflect that the table in 3000.120 does not include the actual fee
amounts. When fees are added, deleted, or need to be adjusted due to
changes in the processing steps for the application or a change to the
method to calculate the inflation adjustment amount, the BLM will do so
by a notice and comment rulemaking.
Section 3000.130 Fiscal Terms of New Leases
The provisions within Sec. 3000.130 only apply to oil and gas
leasing; therefore, the BLM moved the fiscal terms for new leases to a
new section under subpart 3103 for Fees, Rentals and Royalty in the
final rule in response to comments stating that failure to specify the
rental amounts, within the context of the regulation on annual

[[Page 30924]]

rentals, would be a disservice, detracting from the regulations' value
as an orderly source for basic information.
2. Section-by-Section Discussion for Changes to 43 CFR Subpart 3100
The BLM received a recommendation to reference its legal authority
and duties under FLPMA and NEPA in all authority citations in the
regulation. The BLM concurred in part and added a full reference to
FLPMA into the authority introduction to the regulatory text, which
changes ``43 U.S.C. 1732(b), 1733, and 1740'' to now state, ``43 U.S.C.
1701 et seq.'' This update was only made to part 3100 since the other
authority references already include a reference to FLPMA. The BLM did
not add NEPA into the authority section, as NEPA does not provide the
BLM with any authority for leasing.
Section 3100.3 Authority
The existing Sec. 3100.0-3 sets out the BLM's authority for
leasing on various types of lands, such as public domain land and
acquired lands. During the comment review period, the BLM decided to
add clarifying language in the final rule on Wild and Scenic Rivers to
comply with the Wild and Scenic Rivers Act (16 U.S.C. 1280). Therefore,
the final rule makes the following adjustments to the language for the
Wild and Scenic Rivers exceptions listed under both Public Domain and
Acquired lands: ``subject to valid existing rights,'' is moved to the
beginning of the sentence to clarify that this applies to all types of
National Wild and Scenic Rivers Systems lands. The following clarifying
language is added to the end of the sentence ``lands within designated
Wild and Scenic Rivers System that constitute the bed or bank or are
situated within one-quarter mile of the bank of certain rivers
designated as scenic or recreational, and in some cases, designating
legislation may apply a different boundary extent. Lands within the
National Wild and Scenic Rivers System that constitute the bed or bank
or are situated within one-half mile of the bank of any river
designated a wild river by the Alaska National Interest Lands
Conservation Act (16 U.S.C. 3148).''
The BLM received a comment on paragraphs (a)(1) and (b)(1),
suggesting that the BLM change the phrase ``are subject to lease'' to
``may be subject to lease'' to align with the discretion afforded the
Interior Secretary under the MLA, 30 U.S.C. 226(a), that lands ``may be
leased.'' The final rule does not adopt this recommendation. In 1920,
Congress enacted the MLA to facilitate the exploration and development
of oil and gas and other federally owned minerals. The MLA specifies
the lands that are subject to the statute, and then provides discretion
to the Secretary to determine which of those lands may be leased. The
first step in exercising that discretion is making decisions in the
BLM's resource management plans under FLPMA. The BLM declines to change
this phrase so as not to confuse this section on the authority to
lease, including the exceptions listed under both public domain and
acquired lands, where there is no discretion to lease ineligible lands.
A comment recommended that paragraphs (a)(2) and (b)(2) rely solely
on the subhead--Exceptions--to indicate what the provisions in the
sections mean and, for clarity, that the BLM should consider inserting
language to the effect of: ``The following lands are not subject to
lease.'' The final rule adopts this recommendation.
The BLM received a comment requesting that the BLM identify
additional exceptions for both public domain and acquired lands. This
exception would specify that the BLM cannot lease lands identified in
the land use plans as unavailable for oil and gas leasing or otherwise
determined by the authorized officer to be inappropriate for leasing to
protect other multiple use resources and values. The final rule does
not adopt this recommendation. As stated in the proposed rule, the
purpose of this section is to describe lands subject to leasing, and
changes proposed to this section were made to provide clarity and to
conform the regulations to exceptions identified in various other laws.
The change requested by the comment does not meet this requirement, as
the comment addresses discretionary decisions regarding leasing.
Moreover, the concerns represented by this comment are already
addressed in the BLM's land use planning process, NEPA reviews, and
other processes that identify suitable areas for leasing.
Section 3100.5 Definitions
The existing Sec. 3100.0-5 sets out the definitions applicable to
part 3100. The BLM added new proposed definitions for ``competitive
auction,'' ``exception,'' ``modification,'' ``oil and gas agreement,''
``qualified bidder,'' ``qualified lessee,'' ``responsible bidder,''
``responsible lessee,'' and ``waiver.'' The BLM received several
comments on this section requesting additional definitions for ``bad
actors,'' ``current land use plan,'' ``exclusion area,''
``mitigation,'' ``permanent impairment,'' and ``preferred leasing
area.'' Since these terms are not used in parts 3000, 3100, and 3120,
the BLM has not adopted these recommendations.
In addition, a comment recommended adding a definition for
``restoration.'' The BLM declines to make this change given that Sec.
3104.10, where this term is used, specifically states that the
restoration is to be ``in accordance with, but not limited to, the
standards and requirements set forth in 43 CFR 3162.3 and 3162.5 and
orders issued by the authorized officer.'' This flexible definition
does not warrant modification at this time.
Some comments recommended that the BLM expand the definitions in
this section to include the terms ``eligible'' and ``available.'' The
BLM declines to define those terms by regulation at this time and may
revisit the issue in future rulemakings.
One commenter requested that the BLM remove the definition for
``modification'' to avoid confusion where this term is used in contexts
other than changes to lease stipulations. The BLM agrees there is a
potential for confusion given the numerous different contexts in which
the word ``modification'' is used and has therefore revised the
definition to clarify that it only applies to lease stipulations. For
similar reasons, the BLM has made changes to ``exception'' and
``waiver'' in the final rule. Each definition now includes the phrase
``as used for lease stipulations.''
A comment recommended modifying the term ``oil and gas agreement''
to reflect the fact that an agreement may in some instances include
unleased lands. The BLM adopts this recommendation.
The BLM received a comment suggesting that the term ``operator''
should be revised to explicitly state that the operator holds operating
rights and thus has the same obligations as the operating rights owners
to plug wells and remediate the well sites. The BLM does not concur
with the recommendation, as an operator could be a lessee and may or
may not own operating rights. The current definition for ``operator''
states, ``including, but not limited to, the lessee or operating rights
owner, who has stated in writing to the authorized officer that it is
responsible under the terms and conditions of the lease for the
operations conducted on the leased lands or a portion thereof.''
Therefore, the BLM kept the existing definition of ``operator'' in the
final rule.
The BLM received several comments on the proposed definitions for
the terms ``qualified bidder,'' ``qualified lessee,'' ``responsible
bidder,'' and ``responsible lessee.'' Those comments that supported the
inclusion of these

[[Page 30925]]

new definitions suggested modifications that would also exclude from
those terms anyone with a history of failing to make timely rental or
royalty payments; failing to meet a diligent development obligation;
maintaining a significant number of inactive wells; engaging in
repeated or ongoing environmental, worker safety, or labor violations;
violating State reclamation requirements on other leases; or engaging
in lease speculation, such as failing to drill approved APDs, or
holding large quantities of undeveloped leases.
The BLM declines to include this language, which is too vague and
overlooks existing enforcement tools. For example, when a company fails
to make timely payments, such as rental payments, the Act already
dictates that the lease will automatically terminate through operation
of law. In addition, if a company fails to make royalty payments after
being notified such payments are due and exhausting its legal remedies,
the Office of Natural Resources Revenue (ONRR) may refer an entity to
the Federal suspension and debarment list. It is the BLM's policy to
check <a href="http://SAM.gov">SAM.gov</a> (the Federal suspension and debarment site) before
issuing a lease or approving an entity to acquire a lease interest
through an assignment or transfer of operating rights. The BLM may also
take enforcement actions when lessees violate the terms of a lease,
including environmental, worker safety, or labor standards. The BLM
does not agree that a company's decision to not drill a well or develop
leases should determine if they are responsible or qualified, because
such fact-specific business decisions do not, by themselves, determine
whether a lessee has acted irresponsibly or incompetently. The BLM
generally lacks the capacity to investigate and evaluate State law
reclamation violations; however, the current definition for responsible
lessee provides for the lessee to be in compliance with statutes
applicable to oil and gas development. While it is not the BLM's
practice to investigate a person's compliance with State law
reclamation requirements, the BLM would not ignore a person's
noncompliance when it has been brought to the BLM's attention for
consideration if a person is a responsible lessee prior to lease
issuance.
Other comments suggested that, in connection with these
definitions, the BLM should: (1) create a public registry of
individuals and companies currently identified as not being responsible
bidders and/or lessees, and make the list of ``Entities in
Noncompliance with Reclamation Requirements of section 17(g) of the
MLA'' public and updated on a regular basis; (2) clarify, in Sec.
3108.30, that leases are subject to cancellation if the lessee is found
not to be a ``qualified lessee'' or a ``responsible lessee''; and (3)
implement a system that allows States, local government, Tribal
governments, and individuals to report behavior or conduct that
warrants investigation.
The BLM updates the list of ``Entities in Noncompliance with
Reclamation Requirements of section 17(g) of the MLA'' on an as needed
basis, and then forwards the names of the entities to the Federal
Government's suspension and debarment program. <a href="http://SAM.gov">SAM.gov</a> is a publicly
available website. In turn, when a company returns to compliance, the
BLM notifies the suspension and debarment program that the entity
should be removed from <a href="http://SAM.gov">SAM.gov</a>. The cancellation provisions in Sec.
3108.30 contains language for entities that fail to comply with the
laws and regulations. The BLM also notes that any entity or individual
can contact the BLM to report behavior or conduct that warrants
investigation, and the BLM declines to create a separate regulatory
system for this purpose at this time.
The BLM also received comments regarding the new definitions for
``qualified bidder,'' ``qualified lessee,'' ``responsible bidder,'' and
``responsible lessee.'' One comment suggested that the term ``qualified
bidder'' does not take into account that brokers or non-operating
partners bid on leases, and that the new term could substantially
impede bidding if it were to mandate that bonding or similar bidder
requirements that historically only applied to a lessee be in place
prior to bidding. The BLM considered the involvement of brokers or non-
operating partners when it drafted these definitions, which is
evidenced by the separate definitions for ``qualified bidder'' and
``responsible bidder'', as well as to whom the lease is issued
(``qualified lessee'' and ``responsible lessee''), since these may not
be the same entities. In addition, there is no mandate, in either the
proposed or final rules, for bonding or similar requirements prior to
bidding.
Another comment suggested that the BLM should clarify in the
definitions (and in proposed Sec. 3102.51) that it will continue to
adhere only to the factors in MLA section 17(g), 30 U.S.C. 226(g), in
determining who may hold a lease. The BLM disagrees. The MLA, 30 U.S.C.
226(b)(1)(A), refers to responsible qualified bidders and specifically
states that: ``[a]ll lands to be leased which are not subject to
leasing under paragraph (2) shall be leased as provided in this
paragraph to the highest responsible qualified bidder by competitive
bidding under general regulations in units of not more than 2,560
acres, except in Alaska, where units shall be not more than 5,760
acres.'' The MLA also states that ``[t]he Secretary shall accept the
highest bid from a responsible qualified bidder which is equal to or
greater than the national minimum acceptable bid, without evaluation of
the value of the lands proposed for lease.'' The BLM's regulations
reiterate and rely on these statutory terms. Specifically, because a
person who bids on a lease is not necessarily the same person to whom
the lease is issued, it is appropriate to include definitions for
``qualified bidder'' and ``responsible bidder,'' as well as definitions
for whom the lease is issued, i.e., ``qualified lessee'' and
``responsible lessee.''
Another comment on the definitions for ``responsible bidder'' and
``responsible lessee'' questioned the inclusion of the phrase ``history
of noncompliance'' with applicable regulations and lease terms, stating
that the meaning of a ``history of noncompliance'' is unclear. The
comment suggested that the phrase could be construed broadly to mean
that, if a person ever was found to have been in noncompliance with the
terms of its Federal oil and gas lease or applicable regulations, that
person could be precluded from obtaining future Federal lease
interests, even if they corrected the alleged noncompliance or disputed
the alleged violation and won.
The BLM agrees the term is imprecise and has revised the
definitions by changing the phrase ``does not have a history of
noncompliance'' to ``is in compliance.'' A lessee would not be
precluded from obtaining future Federal lease interests if it corrected
the noncompliance. A lessee's noncompliance ends: (1) when the entity
has paid all civil penalties and performed the required reclamation;
(2) the BLM accepts the required reclamation performed under contract,
and the entity reimburses the U.S. for all costs associated with the
required reclamation, including the costs associated with the BLM's
issuing and overseeing the performance contract during its life; and
(3) if the bond is collected and is insufficient to cover the total
costs, the entity pays the entire amount due to the U.S. and the BLM
accepts compliance. This is outlined in

[[Page 30926]]

the BLM handbook H-3120-1, Competitive Leases, Appendix 4.\6\
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\6\ <a href="https://www.blm.gov/sites/blm.gov/files/uploads/Media_Library_BLM_Policy_h3120.pdf">https://www.blm.gov/sites/blm.gov/files/uploads/Media_Library_BLM_Policy_h3120.pdf</a>.
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The BLM proposed to separate the definitions for ``assignment'' and
``sublease'' from the current definition of ``transfer'' in the
existing regulations. One comment stated that a greater understanding
of the differences between assignment and transfer of operating rights
is long overdue. Another comment stated that the BLM's definitions for
``assignment'' and ``transfer'' have corresponding, but different,
meanings; that the Bureau of Ocean Energy Management (BOEM) recently
issued a proposed rule stating that the terms are interchangeable; and
that the BLM should ensure consistency and clarity in use of these
terms between the two bureaus regulating Federal oil and gas leasing
onshore and on the Outer Continental Shelf. The BLM reviewed its
definitions and believes the two terms are distinct and should remain
separate. An assignment of record title conveys both record title and
operating rights and is limited under Sec. 3106.10 to certain
restrictions that do not apply to transfers. The BOEM regulations do
not have this distinction, which is why the BLM is retaining the
separate definitions.
Comments recommended adding a definition for ``unnecessary or undue
degradation.'' The BLM declines to define this phrase in this rule
because it is used only once, in Sec. 3120.32, and such a definition
would benefit from public input before promulgation. As used in Sec.
3120.32, the phrase reflects the ordinary meaning of the terms used in
section 302(b) of FLPMA.
Section 3100.22 Drilling and Production or Payment of Compensatory
Royalty
The existing Sec. 3100.2-2 addresses drainage protection, an
express covenant of the lease agreement. Under the terms of Federal
leases, the lessee has the obligation to protect the leased land from
drainage by drilling and producing any well that is necessary to
protect the lease from drainage, or, in lieu thereof and with the
consent of the authorized officer, by paying a compensatory royalty
assessment to the Federal government. The BLM did not propose changes
to this section but did receive a comment stating that the BLM should
consider using this opportunity to amend this section to (1) clarify
when drainage involving two Federal leases with different fund
distribution codes occurs; and (2) specify that the lessee may resolve
drainage by creating a federally approved agreement for sharing
production among the affected leases. These proposals already reflect
current policy; refer to the BLM Manual Section 3160, Drainage
Protection Manual.\7\ The Drainage Protection Manual provides
guidelines, standards, and procedures to prevent the loss of oil and
gas resources and any resulting loss of royalty revenues from drainage
on leased and unleased public domain, acquired, and Indian lands. The
BLM does not believe changes are needed to this section since these
proposals are already allowed under the current regulations to address
possible solutions to drainage.
---------------------------------------------------------------------------

\7\ BLM. MS-3160, Drainage Protection Manual (Public). <a href="https://www.blm.gov/sites/blm.gov/files/uploads/mediacenter_blmpolicymanual3160.pdf">https://www.blm.gov/sites/blm.gov/files/uploads/mediacenter_blmpolicymanual3160.pdf</a>.
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Section 3100.40 Public Availability of Information
The proposed rule stated that the BLM was considering adding
language that would provide notice that names and addresses of the
nominator, lessee, operating rights holders, and operators would be
made public on the BLM's Mineral & Land Records System (MLRS). The
BLM's lease and agreement case files are already public records, and
any change to the existing Sec. 3100.4 would merely reflect the BLM's
current practice. The BLM received comments supporting additional
changes to this section, stating that it should be made clear to
nominators, lessees, operating rights holders, and lessees that their
identities will be made public through the MLRS rather than the current
practice, which requires a member of the public to be at the BLM state
office to submit a paper request to document the case file. The BLM
will continue to release the names and addresses of nominators,
lessees, operating rights holders, and lessees to the extent allowed by
the Privacy Act to ensure there is a transparent onshore leasing
process and does not believe any further changes to this section are
needed. The names and addresses of individuals were redacted from all
reports, including Serial Register Pages, as a result of a recent
privacy review. The redacted information only applies to individuals
(MLRS personal accounts) and not companies (MLRS business accounts).
Specifically, the privacy review determined that all personal accounts
regardless of type of case are considered to contain Personally
Identifiable Information (PII). In order to release this PII--
specifically names and addresses that are collected of our applicants/
interest holders--the BLM must meet two requirements. First, the BLM
must establish and disclose a routine use for the information--which,
in other words, is establishing that the public need and benefit
outweighs the need for the protection of the privacy information and
notifies that the PII may potentially be released. This has been
completed by disclosing the routine uses contained in BLM System of
Records Notice (SORN) LLM32 in accordance with the Privacy Act. The
SORN LLM32 is for Lands & Minerals Authorization Tracking System and
covers the data from both LR2000 and MLRS. Most requests made in the
Information Access Center at the state offices fall under routine use
number ``(2) to Federal, State, or local agencies or a member of the
general public in response to a specific request for pertinent
information.'' Second, to meet Privacy Act requirements, the BLM must
be able to track who received the information, when, and for what
purpose to satisfy the Privacy Act's requirement that the information
was released in accordance with a ``specific request for pertinent
information.'' A member of the public can create an MLRS account to
view unredacted information. This log in method allows for the BLM to
meet this requirement through a logging system.
The BLM received a comment stating that the BLM provides no
justification for publishing information on all entities registered to
bid during a lease sale, rather than providing this information only
for issued leases. Publishing participants in oil and gas lease sales
has been a long-standing Bureau policy to provide transparency in the
competitive leasing process. Refer to H-3120-1 Competitive Leases
handbook, published February 2013.\8\ This policy specifically states,
``Names of bidders/high bidders remain confidential until the end of
the sale.'' In addition, each Notice of Competitive Lease Sale provides
adequate notice that the names and addresses of bidders will be
released and no further changes to the lease sale process are needed.
---------------------------------------------------------------------------

\8\ BLM: H-3120-1, Competitive Leases handbook. <a href="https://www.blm.gov/sites/blm.gov/files/uploads/Media_Library_BLM_Policy_h3120.pdf">https://www.blm.gov/sites/blm.gov/files/uploads/Media_Library_BLM_Policy_h3120.pdf</a>.
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Another comment stated that the final rule should also authorize
researchers to use lease and production data to analyze market-level
royalty, bid, and rental rates. The comment then stated that
independent, professional analysis would provide the BLM with critical
data on the appropriate market-level rates for Federal mineral charges.
In addition, the commenter also stated that the final rule should
authorize the BLM to provide a quarterly report to the

[[Page 30927]]

public on all revenues received from leasing and mineral production on
Federal lands on a lease-by-lease basis, and as the ultimate owners of
the lands and minerals being leased, the public has a right to know
this information. The BLM makes lease information, including lease
terms such as rental rates and royalty rates, available through the
MLRS; however, because the amount of royalty is a function of
production and proprietary data is confidential, the royalty amount the
Federal government receives cannot be released on a lease-by-lease
basis. The public may obtain general information on production data,
rental, and royalty payments from the ONRR.
Section-by-Section Discussion for Changes to 43 CFR Subpart 3101
Section 3101.12 Surface Use Rights
The proposed rule revised the existing Sec. 3101.1-2, which was
originally promulgated in 1988, to provide that the BLM could impose
reasonable measures under the lease terms to avoid, minimize, or
mitigate adverse impacts to other resource values, land uses or users,
federally recognized Tribes, and underserved communities. Those
reasonable measures include site-specific minimum siting and timing
parameters that the BLM may impose on lessees to protect the public
interest.
The BLM received numerous comments on this section, including: (1)
support for the proposed changes, and statements that the changes are
critical to mitigate impacts when the relevant RMP is outdated; (2)
requests for clarification that leases are contingent on NEPA analysis
and not a lessee's expectation; (3) requests for clarification that a
lessee's surface use rights are subject to a land use plan's term,
including terms provided for by land use plans either revised or
amended after a lease is issued; and (4) requests for the BLM to
clarify that the agency retains its full authority to condition
development and production on leases after the lease is issued in order
to respond to findings of site-specific NEPA analyses or changing
conditions between the time a lease is issued and when it is developed.
These changes are unwarranted as the BLM has the authority to impose
measures that are more stringent than those in the regulations as long
as they constitute reasonable measures to minimize adverse impacts,
Yates Petroleum, 176 IBLA 144, 156 (2008). Therefore, the BLM is not
revising this section further based on these comments, many of which
request unwarranted or unnecessary clarification or specificity that
would exceed the scope of this rulemaking.
Some comments opposed the proposed changes to this section,
including by asserting that: (1) distance/siting requirements could
lead to the BLM exceeding its authority to regulate air quality; (2)
the BLM did not reference a lease provision that grants the agency the
proposed new authority to constrain or deny lease operations; and (3)
the BLM should consider public welfare when determining which measures
may be reasonable. The BLM has the authority to use terms and
conditions under Section 6 of the standard lease form to control site-
specific environmental or public welfare impacts on leaseholds, as
opposed to using lease-specific protective measures in lease
stipulations from the RMPs.\9\ Section 6 of the standard lease form
authorizes the BLM to require ``reasonable measures'' to the extent
that such measures would be consistent with the lessee's lease rights.
The existing regulation has been misconstrued as limiting the BLM's
authority to establish reasonable measures to protect resources and to
establish minimum parameters within which the BLM can specify site-
specific mitigating measures that are consistent with the lease rights
granted a lessee.
---------------------------------------------------------------------------

\9\ Stipulations are additional specific terms and conditions
that change the manner in which operations may be conducted on a
lease or modify the lease rights granted.
---------------------------------------------------------------------------

Comments requested (1) the removal of language that arguably
suggests that the BLM could require a lessee to ``avoid'' or
``mitigate'' all adverse impacts of developing mineral rights; and (2)
that the final rule specify how water sources will be protected. The
BLM has revised this section by clarifying that not all surface impacts
must be mitigated and by clarifying the distance the BLM may require
operations to be moved. The final rule strikes the words ``avoid,
minimize, or'' since this is not needed as avoidance and minimization
are integral to mitigating adverse impacts.
Some comments requested changes to require the relocation distances
to be either a maximum of or be at least 1 mile and requested the BLM
to prohibit new surface disturbing operations. The language in this
section has been in place since at least 1988 and does not prohibit new
surface disturbance. The BLM proposed to change only the minimum siting
and timing parameters to account for changes in technology. The BLM
declines to further increase or set a maximum parameter as this would
not allow the flexibility that may be required to avoid resource
conflict. The final rule amends the last sentence of the section to
clarify the intent of the proposed rule. The proposed rule removed the
phrase ``At a minimum'' from the existing regulations but retained the
phrase ``by more than.'' The final rule is amended to state, ``At a
minimum, modifications that are consistent with lease rights include,
but are not limited to, requiring relocation of proposed operations by
up to 800 meters,'', which allows the BLM to require a lessee to
relocate proposed operations by up to 800 meters to avoid a resource
conflict that may not have been identified at the time the BLM issued
the lease. For example, the BLM may need to move operations to avoid a
sage grouse lek, a contingency that may not be encompassed by standard
lease terms. In that circumstance, this provision would allow the BLM
to move the operations up to 800 meters to minimize the impacts to the
sage grouse lek. As stated in the 1988 final rule preamble for the
existing regulations, ``Similarly, the authority of the BLM to
prescribe ``reasonable,'' but more stringent, protection measures is
not affected by the final rulemaking,'' see 53 FR 17341 (May 16, 1988).
This section does not apply to the protection of resource values that
are already addressed in lease stipulations.
Comments requested that the BLM strike the word ``specific'' as a
modifier for ``nondiscretionary statutes'' that provide post-lease
restrictions on surface use rights. The final rule adopts the
recommendation to strike the word ``specific'' as a modifier to
nondiscretionary statutes.
Comments stated that the language explicitly allowing a BLM officer
to restrict the development of a project to proactively avoid impacts
to ``land users'' or ``underserved communities,'' is improper because,
the commenter contended, such language is vague and would improperly
expand the BLM's authority, potentially encroach upon a lessee's lease
rights, and cause uncertainty. Other comments requested that the BLM
add ``overburdened and'' before ``underserved communities'' in the
final rule, and that the BLM better specify procedures the BLM could
use to protect multiple use standards and Native Americans' land rights
in areas near reservations. For the reasons explained below, the BLM
does not agree with these comments and retains its proposed language to
proactively avoid impacts to ``land users'' or ``underserved
communities.''
The term ``land users'' is already used in the existing 43 CFR
3101.1-2 and is specifically included in Section 6 of the

[[Page 30928]]

standard lease form. This term identifies segments of the public that
use the land for recreation or for economic growth in the community.
Like the term, ``resource values''--which the BLM's regulations do not
define--the term ``underserved communities'' has a straightforward and
commonly understood meaning that would not benefit from elaboration
here, and the BLM has an obligation under the MLA and APA to articulate
a rational connection between underserved communities and the proposed
operations, as modified by the BLM. Based on the above, the BLM
declines to modify or remove either ``land users'' or ``underserved
communities.''
Section 3101.13 Stipulations and Information Notices
The BLM proposed to split the existing Sec. 3101.13 into two
separate provisions and add a new paragraph (a), stating the BLM would
consider the sensitivity and importance of a resource when developing
stipulations without regard to the restrictiveness of the stipulation.
One comment on this section recommended that the consideration of
affected resources and potential uncertainty be made mandatory by
substituting ``shall'' or ``must'' for ``may'' in the final rule text
to remove any uncertainty. The BLM declines to make this change so as
to maintain discretion when considering potential stipulations. The BLM
requires this discretion because the BLM need not consider every
potentially affected resource for each parcel. Instead, the BLM will
use its discretion to determine, based on the sensitivity, importance,
and any uncertainty, which resources should be considered, and will
then assess whether those resources are adequately protected by
stipulation.
Some comments stated that the BLM should delete the proposed
paragraph (a) \10\, arguing that the language is subjective and would
allow the inclusion of new stipulations that were not addressed in the
underlying planning documents. Some comments stated that proposed
paragraph (a), and in particular the phrase ``without regard to the
restrictiveness of the stipulation,'' disregards the principle of
multiple use by elevating certain uses or allows the BLM to essentially
prevent oil and gas operations. Another comment recommended changing
the phrase ``without regard'' to ``along with consideration.''
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\10\ Proposed regulation text at 43 CFR 3101.13(a): ``The BLM
may consider the sensitivity and importance of potentially affected
resources and any uncertainty concerning the present or future
condition of those resources and will assess whether a resource is
adequately protected by stipulation without regard for the
restrictiveness of the stipulation on operations.''
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As stated in the proposed rule, the BLM added this paragraph to
more explicitly recognize its mandate to manage the Federal lands for
multiple use. Stipulations do not prevent oil and gas operations from
occurring under a lease. Rather, stipulations that allow, but control,
surface use are a valuable management tool to achieve balanced multiple
resource use, including oil and gas development. As stated above, the
BLM retains discretion in this section and will rely on its expertise
when making these site-specific decisions regarding stipulations.
Consistent with these objectives, the BLM agrees that the bureau should
consider the restrictiveness of a stipulation on operations. In the
final rule, the BLM deletes the phrase ``without regard for'' and
inserts instead ``while considering'' to recognize the BLM's mandate to
manage the Federal lands for multiple use and to provide for the
protection of the resources on those lands.
The BLM also received a comment on proposed paragraph (c), which
specified that the BLM may attach an information notice to the lease.
That comment requested that the BLM remove the last sentence in the
paragraph--which reads, ``Information notices may not be a basis for
denial of lease operations''--because it undermines the BLM's
management authority. Another comment recommended that this paragraph
incorporate a requirement that information notices highlight potential
conflicts with other resource values and be accompanied by full lease
stipulations specifying how those conflicts will be resolved. The final
rule does not adopt these recommendations, as the information notice is
a method of informing lessees of requirements that may be imposed by an
existing law or regulation, not of imposing new requirements.
Finally, the BLM received comments recommending the development of
specific stipulations and considerations for all leases, including a no
surface occupancy within 2 miles of developed recreation sites and a 1-
mile no surface occupancy from key recreation areas. The BLM disagrees
and declines to adopt one-size-fits-all stipulations for all leases.
The BLM historically has identified the appropriate stipulations
through RMPs, ensuring that the BLM ties the appropriate stipulations
to the lease under consideration. That approach allows the BLM to
develop and set forth lease stipulations in the land-use planning
documents/RMPs so that the public is aware of the balance that will
exist between environmental protection and opportunities for
development of oil and gas resources in advance of offering the lands
for lease.
Section 3101.14 Modification, Waiver, or Exception
This section describes the standards that the BLM will use when
evaluating modifications, waivers, or exceptions. The BLM proposed
changes to the existing Sec. 3101.14 to more explicitly recognize its
mandate to manage the Federal lands for multiple use and to provide for
the protection of the resources on those lands. The proposed rule also
split the existing provision into two components: one to address
modifications prior to lease issuance and one for modifications after
lease issuance.
The BLM received multiple comments on the BLM's proposed approach.
For example, comments: (1) expressed concern that the language
broadened the ability of surface management agencies to object to the
inclusion of parcels in an oil and gas lease sale; (2) requested a
revision to paragraph (a) to state that requests for modification,
waivers, or exceptions would not be posted for public comment; (3)
suggested the BLM should clarify that this paragraph does not alter or
affect criteria for modification, waivers, and exceptions of
stipulations in the BLM's RMPs; (4) suggested that the proposed rule
introduced new subjective standards, such as a ``major concern to the
public;'' and (5) recommended that the BLM should not remove the
language ``or if proposed operations would not cause unacceptable
impacts,'', since, in the commentors' view, that edit would curtail the
BLM's flexibility for addressing circumstances where the BLM's granting
of the modification or waiver would not result in unacceptable impacts.
After consideration of these comments, the final rule splits
paragraph (a) into two paragraphs for clarity. The first sentence in
proposed paragraph (a) now appears at the end of the section in new
final paragraph (d), since modifications, waivers, and exceptions to a
stipulation are considered later at the APD stage, not at the leasing
stage. The restructuring of this provision addresses concerns that the
paragraph alters or affects criteria for modification, waivers, and
exceptions of stipulations in the BLM's RMPs.
As stated in the proposed rule, the BLM removed the existing
provision--allowing the granting of modifications, waivers, or
exceptions to lease stipulations if the authorized officer

[[Page 30929]]

determines that the ``proposed operations would not cause unacceptable
impacts''--because this authority has been overused \11\ and has
potentially led to unnecessary adverse environmental impacts.
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\11\ See, e.g., GAO-17-307, <a href="https://www.gao.gov/products/gao-17-307">https://www.gao.gov/products/gao-17-307</a>.
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The BLM has concluded that it is appropriate to exempt situations
based on time-sensitive information from the review requirement. For
example, if a survey is completed for nesting raptors and it can be
confirmed that there are no raptors present, then an exception from a
timing stipulation based on the presence of nesting raptors would be
appropriate. However, if the 30-day review period applied, the
conditions would no longer be in effect to support the exception. Final
paragraph (a), which applies to lease terms and stipulations, now
states, ``If the authorized officer determines that a change to a lease
term or stipulation is substantial or a stipulation involves an issue
of major concern to the public, except time-sensitive exceptions based
on verified data, the changes will be subject to public review for at
least 30 calendar days.'' As stated in the proposed rule, the BLM would
consider a change to the lease terms to be substantial if the change
would have an important, considerable, consequential, major, or
meaningful effect on the environment that was not previously
considered, thus requiring public notification (30-day public review)
of a lease term or stipulation.
The language in this section does not broaden surface management
agencies' ability to object to the inclusion of parcels in an oil and
gas lease sale, because lands requiring the consent of other surface
management agencies is addressed under Sec. 3101.51. This rulemaking
does not introduce new subjective standards. Language such as a ``major
concern to the public'' appears in existing regulations and has not
caused issues.
One commenter stated paragraph (b) presents potential disruption to
the competitive lease sale process as all lease conditions or
stipulations must be disclosed prior to a lease sale. The BLM revised
this paragraph to reflect IBLA decisions, which have stated that if a
lease is issued without prior notice of an additional stipulation, the
stipulation is not binding on the potential lessee and is without
effect in the absence of the potential lessee's acceptance of the
stipulation, see Emery Energy, Inc, 64 IBLA 175 (1982). While this
rarely occurs, the purpose of this section is to allow the BLM to
correct errors made when preparing the Notice of Competitive Lease
Sale. Moreover, the MLA vests the Secretary with broad discretion to
decide, up until the time of lease issuance, whether particular parcels
of Federal land ``may be leased'' for oil and gas development, see 30
U.S.C. 226(a). Under the final rule, the BLM may decide not to issue a
lease if the modification of a stipulation could increase the value of
a parcel. For example, if the Notice of Competitive Lease Sale
incorrectly listed a parcel as subject to a no-surface-occupancy
stipulation, and it is then realized that the parcel should not have
been subject to that limitation, but this mistake is not caught until
after the sale, this could increase the value of the lease. To ensure a
fair return to the public, the BLM would decline to issue the lease and
would offer the parcel in a future lease sale. The competitive bidding
process would ensure that the BLM receives the appropriate bid for the
parcel with the modified stipulation.
One comment on paragraph (c) recommended striking the phrase ``was
inadvertently omitted,'' and adding ``to comply with a nondiscretionary
legal requirement, or to address an adverse effect that was not
reasonably foreseeable at the time of lease issuance or whose analysis
was otherwise expressly deferred to the site-specific proposal stage,''
and changing ``may'' to ``will'' in reference to lease cancellation.
These recommendations would substantially change the meaning of the
paragraph, which was intended to address situations when the BLM
inadvertently omits a stipulation when preparing parcels for a lease
sale. The intent of the modified language is to reflect IBLA decisions
on this issue. The BLM has not made any changes based on this comment.
Section 3101.21 Public Domain Lands
The BLM did not propose any changes to the existing Sec. 3101.2-1;
however, the BLM received a comment stating that the BLM should not
only rely on the section title to convey to readers that the language
in the section applies to public domain lands (whereas the next section
applies to acquired lands). The BLM concurs with this recommendation
and inserts in final paragraph (a) ``on public domain lands.''
Section 3101.22 Acquired Lands
The BLM did not propose any changes to the existing Sec. 3101.2-2;
however, the BLM received a comment stating that the BLM should not
only rely on the section title to convey to readers that the language
applies to acquired lands. Another comment stated that the BLM should
specify that the acquired lands limitation is separate from, and in
addition to, the limitation for public domain lands. The BLM concurs
with these recommendations and inserts in final paragraph (a) ``on
acquired lands'' as well as ``separate from, and in addition to, the
limitation for public domain lands.''
Federal Lands Administered by an Agency Other Than the Bureau of Land
Management
Because of other proposed changes to part 3100, the BLM proposed to
redesignate and consolidate the provisions under this heading. The BLM
received several comments suggesting that the new definition for
``surface management agency'' under Sec. 3000.5 of this chapter, which
includes Interior agencies such as the Fish and Wildlife Service and
the Bureau of Reclamation, conflicts with and causes confusion with the
provisions under this heading. The BLM concurs and changes the title of
this heading from ``Federal Lands Administered by an Agency Outside of
the Department of the Interior'' to ``Federal Lands Administered by an
Agency Other than the Bureau of Land Management.''
Section 3101.51 General Requirements and Section 3101.52 Action by the
Bureau of Land Management
The BLM received numerous comments on proposed revisions, which,
collectively, would replicate several paragraphs in the existing
regulations requiring the BLM to seek and, in some cases, obtain the
consent of surface management agencies prior to leasing acquired or
public domain lands into one paragraph. Some comments supported the
change. Several comments opposed the change, asserting that it expands
the authority of some surface managing agencies, such as the Fish and
Wildlife Service and the Bureau of Reclamation, beyond that which is
provided under the applicable statute.
The BLM disagrees that the proposed change improperly expands the
authority of certain surface management agencies, such as the Fish and
Wildlife Service. Instead, this change merely consolidates and
clarifies the BLM's duties with respect to prohibitions provided
elsewhere in statute or regulation. The BLM has a longstanding practice
of consultation with all Federal surface management agencies before
authorizing subsurface mineral leasing. For example, the existing
regulation at 43 CFR 3101.7-1 recognizes that in some cases the
Secretary may lease over the objection of the surface management

[[Page 30930]]

agency and in other cases the Secretary may not. Moreover, even where
consent is statutorily required, such as on Forest Service lands, the
MLA directs that the Secretary of the Interior the Secretary of the
Interior ultimately must apply their independent judgement before any
leasing may occur. The proposed regulation merely supplies the BLM with
the uniform procedures necessary to facilitate these preexisting
prohibitions and grants of discretion; it does not enlarge or restrict
the BLM's authority. The BLM has added a clause to Sec. 3101.52(b) to
clarify that a lack of consent or concurrence will preclude leasing
only where provided by law. The BLM has also made certain minor changes
for clarity.
Commentors stated that, under the MLAAL, 30 U.S.C. 352, only the
head of an executive department has the authority to consent to leasing
covered by that statute, such that it necessarily does not embrace
``consent'' by subdivisions of the DOI. The BLM agrees, particularly
because the Department's sub-agencies ordinarily enjoy their authority
only be virtue of delegation from the Secretary. As set forth above,
the proposed text does not alter the balance of authority and
discretion among agencies within the Department, but instead simply
clarifies that the BLM shall, as a procedural matter, confer with
surface management agencies.
Section-by-Section Discussion for Changes to 43 CFR Subpart 3102
Section 3102.20 Non-U.S. Citizens
The BLM proposed to revise the existing Sec. 3102.2 to remove the
reference to the outdated term ``alien.'' The BLM received a comment
stating that this section should be amended to include more stringent
language that would require prospective, non-U.S. citizen bidders,
lessees, or interest holders to submit to the BLM a certification of
compliance with Federal foreign ownership laws and procedures,
including the final rule from the Office of Investment Security,
Department of the Treasury, implementing the provisions relating to
real estate transactions in section 721 of the Defense Production Act
of 1950, as amended by the Foreign Investment Risk Review Modernization
Act of 2018, prior to the BLM granting such entities a lease. The BLM
declines to adopt this change, which is unnecessary. In 1982, the BLM
eliminated the requirement for entities to submit documents
substantiating their qualifications to hold a lease or an interest in a
lease and now requires entities to certify their compliance, including
those relating to foreign investment in Federal land, on the lease or
assignment application. Any false statements on these documents are
subject to the criminal sanctions in 18 U.S.C. 1001 (see 47 FR 8544,
February 28, 1982).
Section 3102.40 Signature
The BLM proposed changes to the existing Sec. 3102.4 to clarify
that it applies to all applications submitted to the BLM and to allow
for electronic signatures. The BLM received a comment in support of the
proposal to remove paragraph (b) from this section. The commenter also
said the BLM erred, as the submission of three hard copies of any
transfer of record title or operating rights is required by the MLA. 30
U.S.C. 187a. The BLM agrees and makes the appropriate changes to the
final Sec. 3106.41. The BLM declines to reinstate paragraph (b) in
this section to avoid confusion when the BLM starts accepting transfers
electronically.
Section 3102.51 Compliance
The BLM proposed revising the existing Sec. 3102.5-1 to clarify
who is entitled to hold a lease and that the reclamation obligations
under the lease reside with the lessee, operating rights owners, and
operators, and not the American taxpayer. The BLM received comments in
support of the proposed changes to this section and a recommendation in
a comment that the BLM publish and regularly update the list of
entities that are not in noncompliance with reclamation requirements of
section 17(g) of the MLA. Many comments opposed the proposed changes,
citing a lack of due process, fairness, the BLM's ability to take
enforcement actions to address any compliance deficiencies, and the
need to provide entities the ability to remedy any alleged compliance
issues before the BLM turns to cancelling a lease, among other
concerns.
To address the comments, the BLM is revising the phrase ``will be
subject to cancellation'' to ``may be subject to cancellation'' to
clarify that cancellation is only one of the enforcement tools the BLM
could apply and allows for due process. As provided under Sec. 3000.40
of this chapter, any decision issued by the BLM pursuant to this
section would be subject to appeal. In addition, the BLM updates the
list of ``Entities in Noncompliance with Reclamation Requirements of
section 17(g) of the MLA'' on an as-needed basis, and then forwards the
names of the entities to the Federal Government's suspension and
debarment program. <a href="http://SAM.gov">SAM.gov</a> is a publicly available website that
contains the list of suspended or debarred entities. Likewise, when a
company returns to compliance, the BLM notifies the suspension and
debarment program that the entity should be removed from <a href="http://SAM.gov">SAM.gov</a>. The
BLM declines to publish a duplicate list of these entities. Thus, no
further changes are warranted.
Section 3102.52 Certification of Compliance
The BLM proposed a minor change to the existing Sec. 3102.5-2: the
removal of the word ``offer'' to reflect Congress' elimination of the
noncompetitive leasing process. The BLM received a comment on this
section recommending additional language to explicitly state that any
false certification is subject to the criminal penalties contained in
18 U.S.C. 1001. The BLM declines to adopt this proposal, which is
unnecessary. Section 3000.20 of this chapter already informs all
entities that they are subject to criminal penalties if they provide
false statements to the BLM. In addition, the standard forms used by
the BLM under these regulations, such as the bid form (3000-002),
assignment of record title form (3000-003) and the transfer of
operating rights (3000-003a), and the lease form (3100-011), all
include similar statements and references to 18 U.S.C. 1001 for any
false statements.
5. Section-by-Section Discussion for Changes to 43 CFR Subpart 3103
Section 3103.1 Fiscal Terms
The BLM removes the proposed Sec. 3000.130 from the final rule and
moves the information in that section into final Sec. 3103.1, since
this section addresses oil and gas fiscal terms and does not impact
other minerals management programs. Therefore, the BLM determined that
it is more appropriate to codify this section in subpart 3103 instead
of part 3000. As a result of this change, the BLM updated all cross
references in the final rule from Sec. 3000.130 to Sec. 3103.1.
Based upon the comments received, the BLM also incorporates
additional updates that include: (1) adding the EOI filing fee from the
IRA to this section and (2) changing the timeframe that the BLM will
adjust the fees for inflation from annually to once every 4 years.
First, the BLM moved the new EOI filing fee, established by the
IRA, from proposed Sec. 3000.120 to final Sec. 3103.1(a). The BLM
cannot update the EOI fee annually. The MLA at 30 U.S.C. 226(q)(2)(B)
states, ``The Secretary shall, by regulation, not less frequently than
every 4 years, adjust the amount of the fee under subparagraph (A) to
reflect the change in inflation.'' Therefore, the final

[[Page 30931]]

rule moves the EOI fee to paragraph (a). Second, the EOI fee will be
adjusted every 4 years by way of a final rule as part of the new Fiscal
Terms Table. The BLM also changed the adjustment for minimum bonus bids
and rentals to be adjusted every 4 years for inflation by way of a
final rule. This change will allow the final rule to update these terms
to occur at the same time and minimize the public's costs for these
inflation adjustments. The BLM also renamed the title of this section
from ``Fiscal terms of new leases'' to ``Fiscal terms.''
One commenter stated that the BLM should tie all costs and returns
associated with oil and gas leasing to an inflation index. The BLM did
not make any changes in response to this comment, as all fees in Sec.
3000.120, the fiscal terms in Sec. 3103.1, and the minimum bond
amounts are tied to changes in the Implicit Price Deflator for Gross
Domestic Product, which is published quarterly by the U.S. Department
of Commerce. Finally, a comment stated that the BLM should clarify that
the inflation adjustment as described in this section will include
adjustments for inflation occurring over any period of multiple years
after August 16, 2022, during which bid and rental rates were left
unchanged despite inflation. The BLM concurs with this recommendation,
which is reflected in the existing regulations and its use of the
Implicit Price Deflator for Gross Domestic Product.
Another commentor stated that the proposed rule references no
authority that would support annual inflation adjustments for the
rental and bonus as the IRA precludes the adjustment of these fiscal
terms until after August 16, 2032. The BLM agrees that the rental and
minimum bonus bids must remain at the current rate until August 16,
2032; however, after this date, the IRA changes these amounts to
minimums. Therefore, the BLM proposed and is implementing inflation
adjustments for rental amounts and minimum bonus bids after August 16,
2032. To reduce confusion, the BLM updates paragraph (a) by adding the
sentence, ``Per the Inflation Reduction Act, the BLM will not adjust
the rental nor the minimum bonus bids until after August 16, 2032.''
Section 3103.12 Where Remittance is Submitted
The BLM proposed to update the existing Sec. 3103.1-2 to clarify
that fees set out in the fee schedule in Sec. 3000.120 of this chapter
and all first-year rentals and bonuses for leases issued under 43 CFR
part 3100 must be paid to the proper BLM office. This final section
also removes outdated references to the former Minerals Management
Service and mailing address for payments. The BLM received a related
comment on lease reinstatements, in which the commenter stated that
references in the BLM regulations to rental payments through the ONRR's
online system should also acknowledge ONRR's continuing practice of
accepting non-electronic rental payments in some circumstances. The BLM
concurs and changes the language in paragraph (a)(2) from ``through its
online system'' to ``refer to 30 CFR 1218.51'' that lists the methods
by which lessees and operators may submit payments to the ONRR.
Section 3103.21 Rental Requirements
The BLM requested comments on adding a new requirement for diligent
development obligations.
Comments that supported a diligent development provision included
recommendations that the BLM: (1) implement further leasing reforms,
such as increasing production from existing leases by ensuring diligent
development, implementing specific diligent operations standards, and
adopting a mechanism to hold private companies accountable when they
fail to meet the requirements; (2) tie the diligent development
requirement to the definitions of ``qualified lessee,'' ``responsible
bidder,'' and ``responsible lessee;'' and (3) impose a diligent
operator standard with reporting requirements, and absent a rental rate
increase, clarify what consequences an operator may face when it fails
to operate diligently including lease termination. Comments also
asserted that the proposed lease rentals are insufficient and leases
that are not pursued for development within 5 years should be
permanently revoked and should not be transferable to another entity.
Comments that opposed a diligent development provision included
statements that: (1) failure to act diligently to develop a lease has
no adverse impacts on the environment; (2) adding diligent development
obligations would result in additional work for the BLM and an
unnecessary burden on lessees; (3) the increased rental rates
prescribed by Congress in the IRA and adopted in the final regulations
will encourage diligent development on their own and encourage prudent
development or lease surrender; (4) the diligent development
obligations would impact business decisions that are based on markets,
investment capital, supply chains, labor and equipment availability,
and other factors; (5) geophysical exploration does not always result
in lease development; (6) new diligent development terms would impose
large cost increases on many leases and inhibit operator flexibility to
properly evaluate and commence operations in a responsible
developmental situation and economic manner consistent with lease
requirements; (7) a diligent development requirement could exacerbate
the climate crisis; (8) the BLM should consider delays that are out of
an operator's control, such as the time certain Federal processes or
lawsuits can take; (9) the proposed rule's list of alternatives is
overly lenient and promotes speculative ventures; and (10) the BLM
should not apply too broad an interpretation of diligent development.
After careful consideration of the comments received, the BLM did
not implement a diligent development requirement with an escalating
rental rate in the final rule. The BLM believes the existing increasing
rental rates prescribed by Congress in the IRA will encourage diligent
development on their own by incentivizing lessees and operators to
develop a lease to avoid the increased costs. The BLM will continue to
assess the oil and gas leasing program, and if the BLM determines
Congress' rental rate increases are not as effective as expected at
encouraging diligent development, the BLM may consider additional
rulemaking. The BLM further clarifies final paragraph (a) by adding,
``for that lease'' after the words ``total acreage'' to clarify the
basis for calculating the first-year rental. No further changes have
been made to this section.
Section 3103.22 Annual Rental Payments
The BLM proposed changes to the existing Sec. 3103.2-2 to
implement changes made by Congress in the IRA and clarify what
constitutes a timely payment of rental by tying the payment to the
lease anniversary date. The BLM received numerous comments on this
section. The comments encouraged the BLM to: (1) set out the actual
required rental amounts, as provided by the current regulations, rather
than referring to the lease terms; (2) set a policy determining when
rental rates should be higher than the statutory minimums; (3)
implement the regular rate increases; and (4) further increase the
rental rates, on the theory that the rental rates in the IRA are too
low.
In the IRA, Congress set rentals at $3 per acre, or fraction
thereof, for lease years 1 and 2; $5 per acre, or fraction thereof, for
years 3 through 8; and $15 per acre, or fraction thereof, thereafter.
Ten years after the enactment of the

[[Page 30932]]

IRA, those rental rates become minimums and are subject to increase, as
discussed in Sec. 3103.1. The BLM agrees with the comments that the
section in the proposed rule was not clear and adds the following
clause at the end of paragraph (a) ``the annual rental for all new
leases will be as specified in 43 CFR 3103.1.'' 43 CFR 3103.1 sets out
the actual required rental rate, provides details on when the BLM will
increase the rental rate, and implements a rate increase every 4 years.
The BLM cannot increase the rental until August 16, 2032, based upon
Congress' direction in the IRA.
Another comment objected to the application of these rentals to
leases sold before the passage of the IRA but issued after the IRA was
signed into law. The commenter explained that companies bid on those
parcels relying on the rental and royalty rates that were in effect at
the time of the lease sale and contended that lease issuance was only
delayed due to the BLM's failure to timely resolve protests.
As explained in the preamble to the proposed rule, the IRA amended
the rental rate for all new oil and gas leases issued in the next 10
years. Because the statute ties the new rates to lease issuance, the
BLM does not have the authority to exempt leases sold but not issued
prior to the enactment of the IRA from its terms.
Section 3103.31 Royalty on Production
The BLM proposed changes to the existing Sec. 3103.3-1 to
implement the requirements of the IRA and received numerous comments.
Supportive comments recommended that the final rule address plans,
specify criteria, or include a procedure for increasing the royalty
rate after 2032. These comments suggested various ways to implement
this recommendation, including codifying a higher royalty rate of at
least 18.75 percent, or 20 percent; increasing the royalty rate
consistent with the previous 10-years' worth of inflation, but not
deflation, and indexing the royalty rate to raise at prescribed
intervals; or adjusting all rates to market levels on a regular basis
to better ensure fair return. Supportive comments also requested a
termination provision, similar to that for failure to pay rentals, for
the failure to pay royalties. Other supportive comments stated that the
BLM should limit changes to just those required by the IRA, as the new
rate could affect the competitiveness of the U.S. minerals program.
Comments that opposed the changes included statements that: (1)
higher royalty rates have consistently led to increased revenues
without discouraging oil and gas development and the new rate of 16.67
percent is still well below the rate that is charged for offshore
drilling in Federal waters (18.75 percent) and imposed by leading oil-
and gas-producing States, including Texas (20-25 percent), Colorado (20
percent), and New Mexico (18.75 to 20 percent); (2) the final rule
should refrain from setting a minimum rate because the cost of
operating on Federal lands is higher than on State or private lands,
and a higher royalty will make it uneconomic to operate on most Federal
lands; (3) the higher minimum, and any increased royalty rate, will
disincentivize operations on Federal lands, harming small business,
local governments, and States; (4) the BLM failed to provide a
justification for making the royalty rate the minimum, and the bureau
should consider establishing 16.67 percent as the maximum with a
mechanism for determining a lower rate when the 10-year statutory
requirement expires; (5) the BLM should not comply with the IRA's
mandate or adopt a permanent royalty relief rule for onshore
production; (6) raising oil and gas royalty rates will directly reduce
well operators' revenue margins, risking well closures and deliberate
attempts to devalue oil fields; (7) higher royalty rates affect long
term project economics by reducing the expected revenue and making them
less financially feasible; (8) higher rates will deter small operators
from investing in expensive enhanced oil recovery methods that can
extend the productive life of a well; and (9) raising the Federal
royalty rate encourages cheating and requires greater Federal
investment in compliance enforcement at taxpayer expense.
As stated in the proposed rule, the BLM updated this section to
implement IRA section 50262, which set royalty rates at 16.67 percent
for the 10 years following the Act's enactment. Final paragraph (a)(3)
of the regulation states that for leases issued after the 10-year
period following the passage of the IRA, the royalty rate will be not
less than 16.67 percent, which is the rate Congress required in the
IRA. The BLM declines to set post-2032 rates now (or to implement
associated procedures) so far in advance of any authorized increase.
However, the BLM may consider further adjustments after 2032. The BLM
also declines the suggestion to implement an automatic termination
provision for the nonpayment of royalties. The procedures for lease
forfeiture and cancellation are set forth in section 31(a) of the Act
(30 U.S.C. 188) and Sec. 3108.30(b) of the regulations. The BLM adopts
this section into the final rule without any further changes.
Section 3103.41 Royalty Reductions
The BLM proposed revising the existing Sec. 3103.4-1 to clarify
that production in paying quantities is a prerequisite to obtaining
royalty relief under this section. The BLM also solicited feedback to
improve the royalty rate reduction section.
Comments recommended that the BLM: (1) describe the specific
circumstances for justifying a reduction and clarify that the
reductions will terminate as soon as the conditions justifying the
reduction have passed; (2) explicitly state that a royalty rate
reduction would transfer to the new lessee when a lease is assigned;
(3) provide specific criteria for lowering the rate; (4) set a limit on
the lower end of the reduced rate; (5) limit the period for the
reduction to apply; (6) specify that reduced royalties transfer to
assignees only on a case-by-case basis; (7) extend royalty relief to
all producers at any point of production; (8) extend the royalty relief
to any field where operators are seeking to conduct or are conducting
waterfloods or other enhanced oil recovery methods; (9) not set a floor
for royalty reductions because a universal rate, even a low one, cannot
account for the varying productivity within a formation; (10) determine
the royalty relief by the field productivity and the crude grade
produced; (11) determine the appropriate royalty rate reductions based
upon a critical review of the economic data for reasonableness and
clearly enumerate the costs that are allowed for the economic
evaluation to ensure operators send unbiased data; (12) closely monitor
any approved royalty reduction; (13) clearly define under what
circumstance/criteria royalty reduction terminates; (14) revise the
phrase ``royalty reductions at the discretion of the Secretary'' to
convey that reductions are the exception, not the norm; and (15) add
language to require notification to the State when royalty reductions
take place, given the State's interest in the royalty rate and the
economic health of the industry and local communities.
The BLM rarely grants royalty rate reductions, and after careful
review of the comments, has decided against making any further changes.
The regulation states that the Secretary may waive, suspend, or reduce
the rental or royalty upon a ``determination that it is necessary to
promote development or that the leases cannot be produced in paying
quantities under the terms provided therein.'' Thus, the BLM only

[[Page 30933]]

grants a reduction in royalty rate if the operating costs exceed the
gross income. Otherwise, the BLM would deny the royalty rate reduction.
The regulatory requirements reflecting these parameters come directly
from the statutory authorization for royalty reductions at 30 U.S.C.
209. Additionally, if the operating costs would still exceed the gross
income with a royalty rate reduction, the BLM must consider terminating
the lease for no longer being capable of production in paying
quantities under 43 CFR 3107.22.
The factors the BLM considers when evaluating a reduction are case-
specific, and the BLM must review each application. Given this and the
exceptional nature of circumstances that may warrant royalty
reductions, the BLM declines to further specify the circumstances or
specific criteria for lowering a royalty rate in the regulation in
order to retain the discretion of the authorized officer to address
case specific situations that may occur. The BLM is committed to
adhering to the existing rules and policy and will ensure that they are
consistently and faithfully applied to future royalty relief
applications.
Second, the BLM declines to codify language stating that a royalty
rate reduction would transfer to a new lessee when a lessee assigns its
lease. The operating costs for the lease may change with the new
lessee; therefore, the BLM would need to complete a new review to
determine if the royalty rate reduction is appropriate.
Third, some commenters opposed and some supported implementing a
lower limit for royalty reductions, but no lower limit was proposed.
The BLM has decided not to implement a lower limit and will instead
continue to rely on the economics of each lease to determine the
appropriate royalty reduction, if warranted.
Fourth, the BLM will not provide royalty relief based only upon
operators conducting or seeking to conduct waterfloods or other
enhanced oil recovery methods. These operations will return a profit to
the operators and in most cases a royalty reduction would not be
appropriate as the gross income exceeds the operating costs.
Fifth, the requirements to monitor royalty rate reductions or to
send notice to States are better suited to be addressed through policy
as these requirements would apply only to the BLM and not the regulated
community. The BLM already tracks royalty rate reductions in MLRS and
will continue to closely monitor reductions. Given how rare royalty
rate reductions are, the BLM has not established a requirement to
notify the States. The BLM will consider whether a notification to the
States should become a matter of policy in the future.
Sixth, the existing regulations and Bureau policy reserve the BLM's
right to terminate a royalty reduction, re-adjust the amount of
reduction, or restore the royalty rate to the rate required by the
lease terms and/or regulations at any time for the entire lease or for
any portion thereof. Given that the grant of a royalty rate reduction
is uncommon, the BLM is declining to add any blanket provisions to the
regulations that would remove this flexibility. For example, the BLM
may need to terminate relief retroactively if such relief was based on
manipulation of normal production or adulteration of oil sold.
Sections 3103.42 Stripper Well Royalty Reductions and 3103.4-3 Heavy
Oil Royalty Reductions
The BLM proposed to eliminate both of Sec. Sec. 3103.4-2 and
3103.4-3 in their entirety because they are obsolete for the reasons
described below. The BLM received a comment stating the BLM's removal
for obsolescence ignores the fact that over the next decade, the number
of stripper wells on Federal lands will rise along with necessary oil
exploration and production.
As stated in the proposed rule, the BLM revised both sections on
October 6, 2010 (75 FR 61624), to eliminate these types of royalty
relief, because Congress enacted separate relief in section 343 of the
Energy Policy Act of 2005 (42 U.S.C. 15903). However, the BLM retained
the regulations because, while these types of royalty relief were no
longer available for current production, prior production subject to
this relief continued to be subject to audits. This is no longer the
case; therefore, these provisions serve no purpose. To the extent
relief is required in the future, the BLM would promulgate any
necessary regulations under section 343 of the Energy Policy Act of
2005 rather than relying on these provisions. In addition, the BLM has
the authority under section 39 of the MLA to waive, suspend, or reduce
the royalty for a lease.
Section 3103.42 Suspension of Operations and/or Production
The BLM proposed redesignating this section from 43 CFR 3103.4-4 to
43 CFR 3103.42 and clarifying how a lease term will be adjusted once
the suspension ends.
The BLM received a comment on paragraph (a) stating that the BLM
should broaden the circumstances for which a lease would be eligible
for a suspension of operations only or a suspension of production only
beyond force majeure, or at a minimum should acknowledge that the BLM's
own delays constitute such a force majeure for the purposes of these
types of suspensions. The regulations clarify that a force majeure is
``matters beyond the reasonable control of the lessee.'' Because this
encompasses an administrative delay, the BLM already takes such delays
into consideration when evaluating a suspension. The BLM is not
revising the regulation to further specify instances that may be
considered force majeure; BLM Manual 3160-10, Suspension of Operations
and or Production, provides further examples of acts constituting force
majeure.
Some comments stated that lease suspensions, whether requested by
the lessee or directed by the BLM, should be made public as soon as
they are submitted and should be subject to public review and comment
in accordance with NEPA. The BLM disagrees with this recommendation.
NEPA is only triggered if there is a proposal for a major Federal
action that potentially affects the environment. Although the approval
or direction of a suspension is a Federal action, lease suspensions are
categorically excluded from NEPA review as administrative actions taken
on an already existing authorized lease. See the BLM's National
Environmental Policy Act Handbook H-1790-1, Appendix 4.\12\
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\12\ <a href="https://www.blm.gov/sites/blm.gov/files/uploads/Media_Library_BLM_Policy_Handbook_h1790-1.pdf">https://www.blm.gov/sites/blm.gov/files/uploads/Media_Library_BLM_Policy_Handbook_h1790-1.pdf</a>.
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Some comments stated that the BLM should clarify that both the
suspension request and the decision by the BLM must be made in writing
and published on a BLM website, and that the proposed rule fails to
provide the transparency and public access to information about lease
suspensions that is guaranteed by the Administrative Procedure Act. The
BLM disagrees with this comment, as suspension decisions have always
been publicly available through review of the case file located in the
relevant BLM state offices or through the BLM's reporting application
at <a href="https://reports.blm.gov/reports/MLRS">https://reports.blm.gov/reports/MLRS</a>.
Another comment stated that the BLM should clarify in paragraph (d)
that any lease production is prohibited while a suspension of
operations and production is in effect. The BLM agrees, and it is BLM
policy that production from a lease is prohibited if there is a
suspension of operations and production. See BLM Manual Section 3160-
10, Suspension of Operations

[[Page 30934]]

and/or Production.\13\ The rule provides that ``if there is any
production sold or removed during the suspension, the lessee must pay
royalty on that production.'' This statement covers instances where
there are no operations or production, but the operator sells already
existing product captured prior to when the suspension went into
effect; it does not supersede the ordinary bar on production during
suspensions, and merely ensures the lessees pay royalty on that sold
production.
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\13\ <a href="https://www.blm.gov/sites/default/files/docs/2022-03/MS-3160-10%20Rel.%203-150.pdf">https://www.blm.gov/sites/default/files/docs/2022-03/MS-3160-10%20Rel.%203-150.pdf</a>.
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Multiple commenters stated that the BLM should: (1) clarify that
lease suspensions are the exception and not the rule; (2) provide
limited and specific criteria that would justify a suspension; and (3)
offer guidance on how the BLM plans to deal with existing lease
suspensions. The BLM declines to modify the regulations as detailed in
the three comments above. The MLA provides direction, and the BLM has
set guidance on when a lease suspension is appropriate. First, the BLM
currently has approximately 3,000 suspended leases of the over 33,000
authorized onshore oil and gas leases. While suspensions are not a
common occurrence, the number of lease suspensions has increased based
upon the large number of leases litigated in court after lease issuance
over the past decade. Second, the BLM declines to provide limited and
specific criteria in the regulations. The BLM provides guidance to its
employees in IMs and MS-3160-10, Suspension of Operations and/or
Production.\14\ The BLM declines to make this change at this time to
retain the discretion of the authorized officer to address unique
situations that may occur. Third, the BLM already established guidance
on how the BLM plans to deal with existing lease suspensions in
Permanent IM 2019-007, Monitoring and Review of Lease Suspensions; \15\
therefore, the BLM declines to add this information into the
regulations. The existing regulations require evaluation of lease
suspensions on a lease-by-lease basis. Reviews of existing lease
suspensions are currently addressed in the BLM's policy IM 2023-012,
Suspension of Operations and/or Production \16\. No changes have been
made in the final rule to avoid limiting the discretion of the
authorized officer to address unique situations that may occur. For
example, litigation or actions of Federal or State agencies that
prevent commencement or continuation of operations may be applied to
suspensions granted under section 17(i) or section 39 of the MLA
depending on the unique circumstances of the case.
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\14\ <a href="https://www.blm.gov/sites/default/files/docs/2022-03/MS-3160-10%20Rel.%203-150.pdf">https://www.blm.gov/sites/default/files/docs/2022-03/MS-3160-10%20Rel.%203-150.pdf</a>.
\15\ <a href="https://www.blm.gov/policy/pim-2019-007">https://www.blm.gov/policy/pim-2019-007</a>.
\16\ <a href="https://www.blm.gov/policy/im-2023-012">https://www.blm.gov/policy/im-2023-012</a>.
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A commenter was concerned that changing the word ``terminating'' in
existing paragraph (e) to ``lifting'' in final paragraph (g) will be
interpreted by lessees and others to require the BLM to take
affirmative action to end a suspension. The comment states that a lease
suspension should lift automatically--without any subsequent
administrative action by the BLM--when certain regulatory events occur
or as otherwise stated in the approval letter, and the BLM should avoid
any change that would increase the administrative burden on the agency.
The BLM disagrees with this comment. While it is true that, in some
cases, the BLM's decision to suspend a lease will document a particular
event or action that will eventually lift a suspension, the BLM always
issues a decision for the official record when lifting a suspension,
allowing for the expiration date of the lease to be properly adjusted
and facilitating any reconciliation of the rental amount that may be
due, see C.W. Trainer, 69 I.D. 81 (1962). A copy of that decision is
sent to ONRR to notify it of a change in the status of the lease. The
final rule did not change this process. Based upon a review of the
comments received, the BLM did not make any changes for this section
from the proposed rule: the process described above is consistent with
the term ``lifting'' as the term avoids confusion and leads to an
understanding that the BLM takes an action to end a suspension.
Section-by-Section Discussion for Changes to 43 CFR Subpart 3104
In subpart 3104, the BLM proposed to revise its bonding regulations
by increasing the minimum amount of bonds, removing nationwide and unit
operator bonds, adding surface owner protection bonds, and removing
letters of credit (LOCs) and CDs as options that lessees can use to
secure the required bond amounts. The BLM received several comments on
the proposed bond amounts. Some comments supported the higher amounts,
with some stating these amounts do not reflect the full reclamation
costs of oil and gas wells. Other commenters recommended the final rule
establish a full-liability, individual lease bond or tie the bond
amount to the number of wells covered by a bond. The MLA does not
require the BLM to impose full cost reclamation bonds but does require
the Secretary to ensure the bonding is adequate to ensure reclamation.
Requiring a full liability bond would require increased staffing at the
field and state offices to manage increased workloads for the review of
changing conditions and the adjudication of additional bond riders to
either raise or reduce the bond amount. In addition, the BLM's APD
processing time would slow due to waits for additional bond riders. The
BLM has opted to keep to a higher minimum bond amount and depend upon
its policy guidance and future adjudications for increasing the bond
amount for specific operations that pose additional risk, which will
allow the BLM to direct its limited resources to where they can have
the most impact.
Comments also recommended that the BLM review its average costs for
reclaiming orphaned wells, noting that the States have identified a
higher average cost for their orphaned wells. The BLM reviewed its
costs related to cleaning up orphaned wells that were plugged since the
BLM calculated the average cost as part of this rulemaking effort. Due
to the limited number of additional orphaned wells that have been
plugged in that time, there is not enough additional data to warrant a
recalculation. Therefore, the BLM did not adjust the minimum bond
amount based on a new average orphaned well cost.
Some comments stated the BLM should not have used the median number
of wells to determine the new minimum bond amounts but rather should
have considered the probability of the number of wells to be orphaned.
The BLM is unable to predict whether any particular well will become an
orphan well due to many factors that can lead to a well becoming
orphaned (e.g., operator's revenue stream, operator's cost stream,
current regulatory framework within the State, remaining oil and gas
reserves, etc.) and the lack of data for each of these factors.
Therefore, the BLM lacks the necessary information to determine the
probability of a well to become orphaned and thus did not use it as a
basis to calculate bond costs.
Several comments opposed the higher minimum bond amounts and
requested that the BLM remove the proposed bonding changes, explaining
that the BLM rarely needs to access a bond to plug a well. Comments
also asserted that the BLM's own statistics do not justify the bonding
provisions in light of the MLA's requirement for an adequate bond. As
stated in the proposed rule, the minimum bond amounts have not been
increased since 1951 (for statewide and nationwide bonds) and 1960 (for
lease bonds), have been repeatedly

[[Page 30935]]

found inadequate by the GAO and the OIG, and are no longer adequate to
provide the requisite funding for reclamation when a lessee defaults on
its obligations.
The BLM received several comments stating that the higher minimum
bond amounts will be a significant financial burden on operators and
small businesses, because sureties often require companies to post cash
or security collateral. The BLM disagrees. The Small Business
Administration (SBA) helps small businesses guarantee performance bonds
issued by certain surety companies, which allows the companies to offer
surety bonds to small businesses that might not meet the criteria for
other sureties. The SBA's website states that all performance bond
guarantees require small businesses to pay SBA a fee of 0.6% of the
contract price. The operator would need to make a payment of $900 for
an individual bond or $3,000 for a statewide bond to SBA, which would
allow the small entity to obtain a surety bond without requiring the
company to post cash or security collateral. The BLM encourages small
businesses and operators to reach out to the resources available to
them including those provided by the SBA and visit their web page:
<a href="https://www.sba.gov/funding-programs/surety-bonds">https://www.sba.gov/funding-programs/surety-bonds</a>.
In addition, the BLM conducted a review of small entities operating
on Federal oil and gas leases based upon public data. If these
companies paid sureties 3% of the additional bonding cost annually,
their overall cost-to-revenue ratios would increase by less than one-
tenth of one percent. If these companies instead chose to fund the full
bonding amount out of revenues, their cost-to-revenue ratio would
increase by at most 1.4% for one year. Based upon our analysis, the BLM
certifies that there will not be a significant economic impact on small
entities in the RFA; refer to section V.B. Please also review the RIA
for more information.
Section 3104.1 Bond Amounts
Based upon the comments received, the BLM decided to implement
inflation adjustments for minimum bond amounts. The BLM completed this
action by (1) adding the minimum bond amounts to this section to
provide for inflation adjustments; (2) moving the phase-in period for
lease and statewide bonds into this section; (3) providing a longer
implementation for small operators to increase or replace their bonds;
and (4) providing information to operators on the penalties they could
incur if they fail to increase or replace existing bonds that do not
meet the new minimum bond amounts.
First, the BLM requested comments on whether it should adjust the
minimum bond amounts to keep up with inflation. The BLM received
multiple comments recommending the BLM periodically adjust the minimum
bond amounts to better protect the taxpayer's interests in adequate
reclamation. The BLM agrees with these comments and updates the final
rule to include inflation adjustments to bond amounts by way of a final
rule and titled this Sec. 3104.1 ``Bond amounts.'' This update will
allow the BLM to periodically update bond amounts based upon the rates
of inflation.
Second, the BLM moved the phase-in period for statewide and
individual bonds from proposed Sec. 3104.90 to final Sec. 3104.1(c).
The phase-in period for lessees to replace unit and nationwide bonds
remains in final Sec. 3104.90. This change allows the BLM to easily
update the phase-in periods for individual or lease bonds and statewide
bonds upon adjusting the minimum bond amounts for inflation. The BLM
anticipates that when the minimum bond amounts are adjusted for
inflation in the future, the phase-in periods will occur over 2 years:
<bullet> One year for statewide bonds, and
<bullet> Two years for individual bonds.
This phase-in follows the initial proposed timeframes. The BLM has
calculated the staffing needs required to process all bond increases
for a 1-year phase-in period and concluded the BLM will require 2 years
to provide sufficient time to ensure all bonds are brought into
compliance.
Third, the BLM considered comments regarding the impact to small
operators from increasing the minimum bond amounts. Larger companies
usually hold nationwide or statewide bonds, while smaller companies
usually hold individual bonds. Initially, the BLM proposed to require
individual bond holders to come into compliance with the new bond
amounts first. Commenters expressed concerns that the higher minimum
bond amounts may force small operators out of business. To alleviate
some of the concerns expressed by commenters with respect to the impact
on small operators and given the large number of individual bonds, the
BLM has revised the final paragraph (c) to give those with individual
bonds more time by phasing in this requirement over a 3-year period,
instead of over a 2-year period. The longer phase-in period for
individual bonds will provide more time for smaller operators, who
predominantly rely on individual bonds, to research and obtain the
appropriate bond amount. When minimum statewide and individual bond
amounts are adjusted for inflation in the future, the BLM anticipates
the shorter phase-in periods (2 years for individual bonds) will be
sufficient for all bond holders to come into compliance because the
bond amount increase will not be as significant a change.
A comment expressed concern regarding which penalties could accrue
to lessees who do not increase the bond amounts within the time
allowed. The BLM reviewed its existing regulations and added a new
paragraph (d) to this section to address this comment. Paragraph (d)
now refers to the existing regulations that the BLM may use if an
operator fails to increase or replace an existing bond as required by
the regulations. The potential penalties include shut down of
operations under 43 CFR 3163.1(a)(3), lease cancellation under 43 CFR
3108.30, or referral of the obligor or principal to the Department's
Suspension and Debarment Program under 2 CFR part 1400.
The BLM considered shorter timeframes for inflation adjustments to
the minimum bond amounts, including annual adjustments, but concluded
that shorter timeframes are unworkable given the BLM's workload
associated with possible enforcement. Instead, the BLM has opted to
update the minimum bond amounts in the final Sec. 3104.1 table every
10 years. The final rule for the updated bond amounts in the 3104.1
table will also indicate the new deadlines for compliance. This 10-year
timeframe will provide sufficient time for entities to come into
compliance, for adjudication of the financial assurances, and for the
BLM to ensure such compliance prior to the implementation of new
minimum bond amounts.
The BLM received other comments related to adjusting the fiscal
terms for inflation. One commenter stated that the BLM should not
attempt to automatically adjust existing bonds for inflation without
the surety's consent. The phase-in periods will provide time for the
bonded principal to work with the surety to increase the amount or
replace the bond. Another commenter recommended that the BLM conduct
annual reviews and commit to increases in line with larger economic
trends and not just inflation. The BLM will move forward with updating
the minimum bond amounts based upon inflation every 10 years as part of
the final rule; however, the BLM maintains the right to conduct reviews
of bonds to determine if additional increases are necessary and in the
public interest.

[[Page 30936]]

Section 3104.10 Bond Obligations
The BLM requested comments on the proposed revisions to Sec.
3104.1 along with any supporting information on whether the final rule
should provide for any other types of financial arrangements that the
BLM should consider.
The BLM received several comments stating the BLM should not
eliminate CDs and LOCs from the options available to satisfy bonding
requirements, reasoning that the elimination would impose an
unwarranted burden on lessees and operators, particularly small
operators, and that the BLM should provide more options to post the
bonds rather than eliminating options.
Based on the comments, the BLM has decided to reinstate CDs and
LOCs as acceptable forms of security for a personal bond. To resolve
some of the issues that led the BLM to propose eliminating the
securities, the BLM made changes to the regulations for CDs and LOCs.
Given that CDs are now issued electronically by banks, they do not meet
the existing requirement that Secretarial approval be indicated on the
face of the document. Therefore, the BLM modifies paragraph (c)(1) for
CDs by inserting ``or through assignment'' to provide for Secretarial
approval prior to any redemption.
The BLM modifies paragraph (c)(5) for LOCs to change ``shall'' to
``must'' or ``will'' as appropriate and consistent with the similar
changes made in the proposed rule. The BLM also removes the language
``the deposits of which are federally insured,'' as this phrase in the
existing regulation has caused confusion to both operators submitting a
bond and BLM staff who review bonds and their associated securities.
The $250,000 Federal deposit insurance limit for deposits that a person
may have with a financial institution does not apply to LOCs, because
the guarantee of payment under a LOC is made by the financial
institution directly to the BLM by demand, see 31 CFR part 28.204-3(b).
LOCs are not depositor accounts to which the Federal Deposit Insurance
Corporation (FDIC) insurance applies. Therefore, the BLM is not
concerned with FDIC insurance when the amount of a LOC exceeds the FDIC
limit.
Paragraph (c)(5)(ii) is modified to appropriately reference the
types of bonds as ``an individual lease or statewide bond,'' and to
change the term ``attachment'' to ``collection'' for clarity.
Paragraph (c)(5)(v) is modified to state, ``In the event the BLM is
notified of the financial institution's intent not to renew the letter
of credit, the principal must extend the letter of credit or provide an
adequate replacement bond with an assumption of liability rider. If the
BLM does not receive an adequate notice or replacement bond with rider,
the BLM will collect the letter of credit within 30 days of the
expiration without further notification to the obligor.'' The BLM is
including this language to ease the administrative burden that results
if an entity fails to maintain the LOC. Previously, when an entity
failed to pay the premiums to the bank, the BLM, in turn, had to notify
the obligor (the bonded party) to replace the bond within 60 days;
monitor the timeframes to ensure the LOC is extended or replaced;
adjudicate an acceptable form of replacement security or bond; and send
a demand to collect on the letter of credit when all else fails. The
new language will reduce the BLM's workload by obviating the initial
notice to the obligor to replace the bond. To be clear, the BLM will
send a demand to the bank to collect the funds from the LOC 30 days
prior to the expiration date without further notice of the action from
the BLM when the obligor fails to take corrective action on their own
accord.
For other types of financial guarantees, one commenter recommended
that the oil and gas program review the bonding requirements and
language of the BLM's solar and wind energy regulations in 43 CFR
2801.5(b) for consistency, especially language regarding whether
corporate guarantees are an acceptable or unacceptable bond instrument.
Another commenter stated that alternative financial arrangements could
include insurance policies as both an alternative and to complement
surety bonds such as insurance accounts to pre-fund decommissioning
costs, where sureties direct a portion of their annual premiums and
payouts could be made to the operator or the BLM upon default.
The BLM carefully considered the comments and other forms of
financial assurance to secure bonding and is declining to include any
other forms of financial assurance because the BLM believes the current
list, with the retention of LOCs and CDs, is sufficient. The BLM
reviewed BOEM regulations, which provide for corporate guarantees,
insurance, decommissioning accounts, and other forms of security
approved by the Regional Director. The BLM also reviewed the solar and
wind energy regulations, which provide for the same financial
assurances listed in this final rule as well as insurance. As discussed
below, the BLM has decided not to allow corporate guarantees and
insurance as means to satisfy the bond requirements. The BLM has
determined that corporate guarantees are not an acceptable form of bond
security given the need to continually confirm the viability of the
corporate guarantee. The BLM does not have the staff or expertise to
perform this function, and, without the ability to closely monitor the
financial stability of the corporation providing the guarantee, there
is a risk the company may default or go bankrupt during the term of a
lease, before plugging and reclamation of the existing well(s) and
disturbance. To secure a replacement bond at that time would be
difficult, if not impossible, thereby potentially leaving the Federal
taxpayer to foot the bill for any necessary reclamation.
While insurance is an acceptable form of bond security used in
other BLM programs, the BLM declines to use insurance for the oil and
gas program given the risks and increased administrative workload for
the following reasons.
First, the basic principle of insurance is the transfer of risk. It
transfers the risk of financial losses as a result of specified but
unpredictable events to an insurer in return for a fee or premium.
While insurance is acceptable for unforeseen events such as spills or
accidents, the BLM's performance bond secures the promise to fulfill a
known, contractual obligation an entity has undertaken to perform at
some point in the future.
Second, an insurance policy is usually a written contract between
two parties, the policyholder (the person or company that gets the
policy) and the insurer (the insurance company). The BLM would be a
third-party beneficiary under this scheme, and considered appropriate
language to that effect, but this arrangement is still significantly
different from surety bonds where there is a contract between three
parties (the BLM, the principal (or bonded party), and the surety where
the BLM is a party to the agreement). Therefore, the BLM would hold
more risk because it is not a party to the insurance.
Third, generally, either party to an insurance contract may cancel
the contract unilaterally. To address this, the BLM considered
regulatory language stating, e.g., that policy must be non-cancellable.
However, this could cause confusion with cancellation of a bond since
existing Sec. 3104 does not provide for canceling or releasing oil and
gas bonds and the only time a bond is canceled is by a court order. The
regulations only provide for terminating the period of liability on the
bond.
The BLM believes the revised regulations provide sufficient options

[[Page 30937]]

for the regulated community to meet the bonding requirements, and, for
all the reasons stated above, the BLM has determined not to rely on
insurance for bonding.
As mentioned above, BOEM's bonding regulations at 30 CFR 556.900
allow for the provision of ``Another form of security approved by the
Regional Director.'' 30 CFR 556.902(e)(3). The BLM recognizes this
option provides a level of flexibility that is not present in the BLM's
regulations. However, the BLM has decided to refrain from including a
similar provision in its regulations because the BLM does not have
staff to implement such a provision. As of May 1, 2021, BOEM managed
about 2,287 active oil and gas leases on approximately 12.1 million
acres, while the BLM managed 35,871 leases on approximately 24.9
million acres. The BLM manages significantly more leases and
significantly more bonds with no staff solely dedicated to bond
adjudication. Instead, the BLM staff adjudicate both bonds and post-
leasing actions. Therefore, the BLM does not have the staff nor
expertise to implement a provision similar to 30 CFR 556.900.
The BLM considered decommissioning, abandonment, or trust accounts
that can only be drawn upon to cover decommissioning expenses. Similar
to corporate guarantees, allowing the use of these types of accounts
would require continual review of constantly changing conditions and
the expertise that BLM staff lack.
Some comments stated the BLM should require additional criteria for
surety companies to ensure that bonded amounts will be available to the
regulator if, and when, the operator defaults. The commenter
recommended that the BLM should adopt additional criteria that (1)
consider a surety's existing aggregate risk when determining whether
that surety qualifies for certification, and (2) impose an underwriting
limitation on the aggregate risk of all bonds issued by a surety. The
BLM declines to make this change because the Department of Treasury
already reviews the underwriting limitation and requires an excess risk
reinsurance to protect the Federal Government. Please see Department of
the Treasury Circular 570 for more information.
Section 3104.20 Lease Bond
For the existing Sec. 3104.2, the BLM proposed changing the
specifications regarding who must post a bond to state that the
operator must be covered by a bond in its name as principal or obligor.
The BLM received a comment urging the BLM to analyze the bonding regime
of the host State jurisdiction and decline further bond requirements
where that State provides for bonding inclusive of Federal leases and
wells. The BLM declines to adopt this proposal. Including such a
provision in the BLM's rules would require the BLM to execute separate
agreements between the BLM and the State to allow the BLM to access any
funds available. Moreover, for such arrangements to work, the State
bonding requirements must, at a minimum, cover all of the terms and
conditions of a Federal lease, including the amount of uncollected
royalties due to ONRR, plus the amount of money owed to the BLM, as the
lessor, due to previous violations remaining outstanding. In the BLM's
experience, these characteristics are uncommon. The BLM would be in
favor of such an alternate bonding option if any State is interested in
pursuing adequate arrangements, but the BLM cannot make or assume the
existence of such commitments in this rulemaking.
A commenter stated that the BLM should modify this section because
it is inconsistent with other sections and is confusing. For example,
Sec. 3104.10 states that, before the start of any surface disturbing
activities, the lessee, operating rights owner, or operator must submit
a bond, whereas this section states only that the operator must provide
a bond in its name. The comment then stated that the BLM's primary
concern should be that at least one person post the required financial
assurance for a lease, and should leave it to the operator, lessee, and
operating rights owner to determine among themselves who will provide
the required bonding for a particular lease. The BLM concurs that its
primary concern is that at least one person must post the required
financial assurance for a lease and that the proposed changes to this
section may cause confusion. Therefore, the BLM revised final Sec.
3104.20 to be consistent with final Sec. 3104.10, so that an operator,
a lessee, or an owner of operating rights (sublessee) must be covered
by a bond in its own name as principal or obligor. In order to be
consistent with existing Sec. 3171.9(a), the BLM added the following
sentence to the final rule Sec. 3104.20: ``The operator shall be
covered by a bond in his/her own name as principal, or a bond in the
name of the lessee or sublessee, provided that a consent of the surety,
or the obligor in the case of a personal bond, to include the operator
under the coverage of the bond is furnished to the BLM office
maintaining the bond.''
One commenter expressed concern that the proposed rule did not
consider related operators or subsidiaries operating under a parent
company and could cause a parent company to be required to provide
multiple bonds with significantly greater total bonding. The BLM
disagrees. Under the existing and final regulations, the BLM allows for
co-principals to submit a bond or to be added through bond riders. Bond
riders can accompany the original bond or be filed subsequent to the
acceptance of the bond. Therefore, the BLM is not making any changes to
the final rule based on this comment.
A commenter urged the BLM to require that an individual lease bond
be increased if it is to cover more than two wells, and, in determining
the lease bond amount to be posted, that the BLM must take into account
a number of variables including the well depth, the presence of other
resources, the number of wells, the number of low-producing or inactive
wells, the capability of any responsible party to carry out the
reclamation, the anticipated condition of the well site, the extent of
reclamation and remediation to be required, and compliance with the
laws. The BLM declines to make any changes based on this comment,
which, if accepted, would require the BLM to calculate each bond amount
based on constantly changing conditions. That practice is unworkable
given the number of bonds the BLM is required to maintain. The BLM
already prescribes when a bond will be increased in Sec. 3104.50.
Section 3104.30 Statewide Bonds
In the proposed rule, the BLM renamed the existing Sec. 3104.3 due
to the proposed elimination of nationwide bonds and proposed increase
in the amount of statewide bonds to $500,000. The BLM received numerous
comments suggesting a larger statewide bond amount if the bond: (a)
covers more than seven wells; (b) is based on a number of variables; or
(c) should be a set amount for each additional well. Another commenter
recommended eliminating both nationwide and statewide bonds. The BLM
declines to adopt these suggestions, which would require the BLM to
calculate each bond amount based on constantly changing conditions;
that practice is unworkable given the number of bonds the BLM is
required to maintain. The regulations in Sec. 3104.50 already specify
when an increase might be required and provides the BLM with sufficient
authority to review and ensure bond amounts are adequate.

[[Page 30938]]

Nationwide Bonds
The BLM proposed to remove nationwide bonding as an option due to
the administrative burden they impose on the agency.
The BLM received comments supporting the removal of nationwide
bonds. Those comments generally asserted that no nationwide option can
fulfill the purposes of incentivizing operator reclamation and ensuring
availability of adequate funds. Comments that opposed the removal of
nationwide bonding stated there are benefits to continuing the
nationwide tier for companies. Comments asserted that this change would
deprive lessees and operators of a financial tool currently available
to mitigate bonding costs by spreading them over a larger universe of
leases and that the BLM's analysis that these bonds are
administratively inefficient is not by itself a reason to remove
nationwide bonds. Commenters pointed to language in a draft version of
the IRA bill that included nationwide bonds, which Congress ultimately
removed before the law was enacted.
The majority of the commenters who wanted the BLM to maintain
nationwide bonds did not understand why the BLM considered nationwide
bonds more difficult to manage and why the BLM proposed eliminating
nationwide bonds. As stated in the proposed rule, for bond adequacy
reviews, the BLM state office, which manages the nationwide bond, must
coordinate with every field and state office with wells covered by this
type of bond. The BLM administrative state office will usually contact
between 4 (2 field offices and 2 state offices) and 40 (32 field
offices and 8 state offices) offices and request these offices to
conduct a bond adequacy review, which entails pulling the operator's
well and inspection records. This is needed as the environmental and
development situations may vary between offices. The administrative
state office, while familiar with its field offices, would not be
familiar with field offices in other administrative state offices. This
will result in staff spending approximately 1 hour per office
conducting the bond adequacy review and the administrative state office
spending approximately 10 hours consolidating the reviews. With
coordination required with between 4 and 40 offices, this would result
in approximately $700 to $2,500 per bond adequacy review (assuming $50
hourly cost). Annually, this results in total costs of $33,740 to
$120,500.
With this change, the BLM will no longer manage nationwide bonds
and instead will have additional statewide bonds. The BLM estimates
that the 243 nationwide bonds would become approximately 143 additional
statewide bonds (see the Regulatory Impact Analysis for more
information).\17\ The BLM estimates that each administrative state
office would be able to review one statewide bond using 10 hours of
staff time ($500 per bond adequacy review). The administrative state
office requires less time to compile the review from the field offices
as there will be fewer field office reviews to compile, so any time
needed by field offices within the state office would come out of the
assumed 10 hours of staff time. This would result in an annual cost of
$14,300, which is a reduction of $19,440 to $106,200 annually. Overall,
the BLM sees significant administrative benefits with the elimination
of nationwide bonds.
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\17\ The BLM reviewed its bonds and found many bonds tied to no
existing liability or operations. The BLM expects to terminate the
period of liability for many of the nationwide bonds without
liability, which is why the 243 nationwide bonds would become
approximately 143 statewide bonds.
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Additionally, the elimination of nationwide bonding in favor of the
proposed increase in the amount of the statewide and lease bonds will
allow the agency to focus on specific areas and fields to ensure the
bonds are adequate to cover reclamation costs in the event an operator
fails to complete proper plugging and abandonment. As of March 1, 2024,
the BLM has identified 35 unplugged orphaned wells that were covered by
nationwide bonds. The bonds covering these wells were insufficient, so
the BLM must seek funds under the IIJA to plug these wells. Localized
bonding to the individual or statewide level will allow the agency to
ensure improved bonding reviews, reduces the administrative burden, and
the BLM anticipates additional environmental benefits from this
regulatory change. As discussed in the RIA, the BLM expects that the
expedited timing for reclamation of orphaned wells from increased
bonding could provide benefits related to wildlife, vegetation, soil
erosion, climate change (reduced greenhouse gas emissions from
unplugged orphaned wells), visual and aesthetic resources, ground
water, and allowing the surface land to be utilized for other uses
sooner (for example, for grazing purposes). The BLM cannot currently
quantify these benefits using the information available to the BLM.
Finally, the BLM reviewed the concerns from some commenters that
eliminating nationwide bonds would deprive lessees and operators of one
financial tool for mitigating bonding costs. No additional data or
support was provided beyond a statement that nationwide bonds mitigate
bonding costs by spreading these costs over a larger number of leases.
The BLM does not anticipate a large impact to lessees and operators
from this change, given the other options available, such as
reinstating CDs and LOCs. The RIA provides additional details on the
impact of eliminating nationwide bonds.
Therefore, the BLM does not adopt the recommendation to reinstate
nationwide bonds and is not making any further changes to this section.
As stated in the proposed rule, the BLM will be able to better tailor
statewide bond amounts to the local conditions and State-specific
requirements when reviewing a bond for adequacy.
Section 3104.4 Unit Operator's Bond
The BLM proposed eliminating operator bonds because they are seldom
used and because the bonds are obsolete. The BLM has been treating and
managing these bonds like statewide bonds and eliminating them would
create efficiencies in the program. The BLM received several comments
that supported the elimination of unit operator bonds for the reasons
the BLM provided. The BLM also received a comment stating the BLM
should keep unit operator bonds without providing a reason why these
should be kept. The final rule eliminates unit operator bonds.
Section 3104.40 Surface Owner Protection Bond
The BLM proposed adding this new surface owner protection bond
section, which is cross-referenced to 43 CFR 3171.19, to provide for an
additional type of acceptable bond that can be submitted when the
operator is unable to reach a surface access agreement with the surface
owner. The BLM requested comments on whether the BLM should increase
the minimum bond amount. The BLM received numerous comments on Sec.
3104.40.
The BLM received comments opposing the inclusion of this provision
on the basis that it duplicates State law and should only apply to
lands where the surface is private, or that the BLM also should address
the interplay between existing Sec. 3171.19(b)(2) that allows for an
``agreement'' with the surface owner in lieu of bonding, noting such an
agreement does not necessarily require payment of ``compensatory
damages'' as proposed in Sec. 3104.40. Comments also stated the BLM
should clarify that such bonds are not intended to cover reclamation,
but rather only compensate a surface owner for inadvertent, limited
purpose,

[[Page 30939]]

``reasonable and foreseeable damages to crops and tangible
improvements,'' as stated in the proposed rule.
Some comments supported the proposed $1,000 minimum bond amount,
while others stated the minimum bond amount must be raised to at least
$10,000 per well to support adequate remediation, plus an additional
$2,000 per acre of disturbed land, and the impacts covered under the
surface owner protection bond must be expanded beyond ``the reasonable
and foreseeable damages to crops and tangible improvements.''
As stated in the proposed rule, the BLM promulgated the current
requirements for surface owner protection bonds through Onshore Order 1
in 2007 and subsequently codified these requirements in 43 CFR subpart
3171. This bond is for the limited purpose of ensuring a private
surface owner's crops and other tangible improvements are protected. In
response to comments, the BLM has revised final paragraph (a) to remove
the phrase ``to pay compensatory damages to the surface owner,'' to
clarify the purpose of these bonds and added the phrase ``under 43 CFR
3171.19'' to encompass the situation where an agreement is reached with
the surface owner. The BLM reviewed the surface owner protection bond
amount and determined it appropriate for the narrow purposes of the
bond. This bond covers ``the payment of such damages to the crops or
tangible improvements (i.e., agricultural, residential and commercial
improvements, including improvements made by residential subdividers)
of the entryman or owner.'' See 43 U.S.C. 299(a). The BLM has not made
any changes to the minimum bond amount. Paragraph I provides a process
to increase the bond if the surface owner objects to the sufficiency of
the bond. This mechanism adequately addresses the unique cases where
the minimum bond amount may need to be increased.
Finally, the BLM declines to incorporate a provision that requires
the BLM to defer to State bonding requirements for surface owner
protection bonds. First, not all States require a surface owner
protection bond if the surface owner and Federal lessee cannot complete
a surface use agreement for operations. In addition, a State's surface
owner protection bond provisions may not provide the same coverage as
required in the BLM's surface owner protection bond because the State
bonds are required under the State's law and not under Federal law. See
Wyoming Stat Ann. section 30-5-402, Colorado Code Regs. section 404-1-
704, or New Mexico Stat. section 70-12-6. Therefore, the BLM declines
to incorporate a provision that requires the BLM to defer to State
bonding requirements for surface owner protection bonds.
Section 3104.50 Increased Amount of Bonds
Although the BLM did not propose any changes to the existing Sec.
3104.5, it did receive the following comments and recommendations for
the BLM to: (1) require an increase in the bond amount when the wells
covered by the bond exceeds the number of wells that the BLM originally
used to determine the new minimum bond amounts; (2) incorporate the
BLM's bond adequacy review policy into the regulations; (3) require a
bond review when an operator temporarily abandons or shuts-in a Federal
well; (4) change or expand the risk factors described in paragraph (b);
(5) state that an operator may satisfy a demand for an increased bond
amount by providing another form of security; (6) state that any person
aggrieved by a decision to increase bond amounts may seek review of a
decision through State Director review and appeal to the IBLA; (7)
remove ``uncollected royalties due,'' alleging that the bond amount
should not include amounts demanded, payment of which is stayed pending
appeals under 30 CFR part 1243; (8) explicitly state that operators do
not need to provide a full liability bond; and (9) require bonds from
record title and operating rights holders for unpaid royalty payments.
The MLA requires the Secretary to ensure that bonding is adequate,
and, after review of the comments, the BLM has determined that no
changes are needed to this section at this time. The BLM's proposed
changes and additions in 43 CFR 3104.1 and existing regulations are
sufficient to ensure compliance with the lease terms. Bonds given to
the BLM are performance bonds to guarantee performance of the lease
requirements. The performance bond protects the BLM, and ultimately the
taxpayers, from financial loss should the operator fail to perform and
comply with the regulations and laws governing lease operations. This
financial loss includes unpaid royalty amounts; however, the BLM will
first use the funds to address all outstanding plugging and reclamation
costs. The BLM did not make any changes to the appeal language that
already exists in the regulations and provides for both IBLA appeals in
43 CFR 3000.40 and State Director review when BLM staff recommend
increased bond amounts pursuant to 43 CFR 3165.3(b).
In the proposed rule, the BLM requested comments on whether to
require a bond adequacy review when a well is temporarily abandoned.
The BLM received comments in support and opposition to this proposal.
After reviewing the comments, the BLM has decided not to require a bond
adequacy review for a change in well status, including temporary
abandonment of a well. The BLM can review the adequacy of a bond at any
time, and the new reporting and operational requirements for operators
of temporarily abandoned wells will allow enhanced oversight of these
wells. The BLM considers the discretionary authority to review a bond,
combined with the new reporting and operational requirements,
sufficient to effectively manage any risks to the environment
associated with these types of wells without needing to require a bond
adequacy review.
The BLM declines to change or expand the risk factors described in
paragraph (b). The BLM considers the existing risk factors to provide
an adequate basis for reviewing and identifying the appropriate bond
amount. In addition, the BLM may consider additional risk factors on a
case-by-case basis due to the language, which states, ``including, but
not limited to,'' in the existing regulations and in the final rule.
Further, the BLM may need to require an entity to provide a full
liability bond. It is the BLM's responsibility to take proactive
measures to minimize the liability associated with high-risk operators.
To mitigate the public's risk with a high-risk operator, the BLM may
need to require a full liability bond on a case-by-case basis;
therefore, the BLM declines to explicitly state that operators do not
need to provide a full liability bond.
The BLM also declines to require bonds from record title and
operating rights holders, in addition to operators, for unpaid royalty
payments. The BLM's bonds required for operations cover both
environmental liabilities and unpaid royalty payments. At one point,
the BLM did require bonds from lessees; however, the BLM moved away
from this practice in the 1980's due to the administrative burden
related to requiring lessees and operators to maintain a bond. The BLM
declines to require bonds from record title and operating rights
holders, in addition to operators, for unpaid royalty payments.
While the BLM used the median number of wells to determine the new
minimum bond amounts, an increase to the bond based solely on the
number of wells is unwarranted. The BLM will capture the need for any
bond increases

[[Page 30940]]

based on its bond adequacy reviews. It is the BLM's responsibility to
take proactive measures to minimize the liability associated with high-
risk operators, which may include full liability bonding in certain
circumstances. The current BLM policy outlined in IM 2024-014, Oil and
Gas Bonds Adequacy Reviews,\18\ supplements the requirements in this
section by directing reviews of existing Federal bond amounts and
requesting increases to the bond amounts based on the potential risk or
liability posed by the operators. As stated in the proposed rule,
similar bond adequacy review policy has been in place for the past
decade, and the BLM has periodically revised that policy to account for
changing risk factors including, critically, the status of the well(s)
and the operator's compliance history. The BLM declines to incorporate
risk factors into the regulation in order to retain flexibility in bond
reviews and allow it to adapt guidance more quickly to changing needs.
If the BLM issues a decision requiring an increase in the bond amount,
the regulations do not prohibit the operator from satisfying this by
providing another form of security.
---------------------------------------------------------------------------

\18\ <a href="https://www.blm.gov/policy/im-2024-014">https://www.blm.gov/policy/im-2024-014</a>.
---------------------------------------------------------------------------

Section 3104.70 Default
To improve clarity, the BLM proposed to divide the existing Sec.
3104.7 into three separate paragraphs and included language to address
what happens in the event a party fails to comply with the
requirements. The BLM received a comment objecting to paragraph (b)(2),
stating that the paragraph effectuates the equivalent of suspension or
debarment even if the BLM does not pursue that route--with its
corresponding procedural protections--under paragraph (b)(3). The BLM
is not proceeding with proposed paragraph (b)(2), which refers to
preventing the bonded principal from acquiring additional Federal
leases, at this time. The BLM prefers to continue to address this
situation through policy, as an operator can still come back into
compliance even after the bond is collected once all reclamation has
been completed and all monies owed the U.S. have been paid.
Because the BLM is deleting the proposed paragraph (b)(2), proposed
(b)(3) is now redesignated as (b)(2) in the final rule.
Section 3104.80 Termination of Period of Liability
The BLM did not propose any changes to existing Sec. 3104.8 but
did receive comments urging the BLM to revise the section to clarify
that any new bond supersedes and replaces any prior bonds, and that the
liability of the prior surety is terminated. The current language
addresses this comment by stating the period of liability for a
previous bond will terminate once the BLM receives a new bond meeting
the regulatory requirements.
Section 3104.90 Unit Operator and Nationwide Bonds Held Prior to June
22, 2024
The BLM proposed this new section to address the elimination of
unit operator and nationwide bonds and to provide the timeline by which
entities must comply with the new bonding requirements. The BLM
received a number of comments recommending that the BLM adjust the
minimum bond amounts for inflation. The BLM has addressed comments
directed at increasing bond amounts for inflation in Sec. 3104.1.
A comment asked how the BLM plans to terminate the liability of
sureties under unit operator and nationwide bonds that are being
eliminated. After the final rules goes into effect, the BLM will send a
notice to the principals maintaining the bond explaining the new
requirement to replace their bond. Once an acceptable replacement bond
is received, the period of liability will be terminated on the prior
bond under Sec. 3104.80. A replacement bond is not considered
acceptable unless it also has an assumption of liability rider which
assumes any outstanding liability accrued by the prior bond.
Multiple commenters requested that the BLM exempt existing
operations and bond amounts as part of the final rule or provide more
time to meet the increased bond amounts. The BLM declines to exempt
existing bond amounts. The BLM, GAO, and OIG have concluded that the
BLM's current bond amounts are inadequate to protect the Federal
resources. If the BLM were to exempt those bonds covering existing
operations, the problems identified by the GAO and the OIG would
persist. The GAO, in report GAO-11-292, Oil and Gas Bonds: BLM Needs a
Comprehensive Strategy to Better Manage Potential Oil and Gas Well
Liability,\19\ recommended that the BLM develop a strategy to increase
the regulatory minimum bonding amounts over time and to more clearly
define the conditions that warrant a bond increase beyond the minimum
bond amounts. The BLM implemented these recommendations in policy;
however, the GAO, in report GAO-19-615, Oil and Gas: Bureau of Land
Management Should Address Risks from Insufficient Bonds to Reclaim
Wells,\20\ went on to recommend that the BLM should take steps to
adjust bond levels, for all bonds, to more closely reflect expected
reclamation costs. Reading these two reports, it is clear that the BLM
should not exempt bonds covering existing operations. Similarly, the
OIG, in Report No. OI-OG-12-0085-I, BLM Oil and Gas Bonding
Procedures,\21\ recommended that the BLM conduct and support bond
adequacy reviews and bond increases periodically and do so before
problems arise. If the BLM exempted the increased bond amounts for
existing operations, the BLM would not be able to increase the bonds
before problems arise for the existing operations. Further, increasing
the bonds for all operators maintains a level playing field.
---------------------------------------------------------------------------

\19\ <a href="https://www.gao.gov/products/gao-11-292">https://www.gao.gov/products/gao-11-292</a>.
\20\ <a href="https://www.gao.gov/products/gao-19-615">https://www.gao.gov/products/gao-19-615</a>.
\21\ <a href="https://www.doioig.gov/sites/default/files/2021-migration/BLM%2520Oil%2520and%2520Gas%2520Bonding%2520Procedures.pdf">https://www.doioig.gov/sites/default/files/2021-migration/BLM%2520Oil%2520and%2520Gas%2520Bonding%2520Procedures.pdf</a>.
---------------------------------------------------------------------------

While the BLM declines to expand the phase-in periods overall,
swapping them in final Sec. 3104.1 to give individual bonds the longer
phase-in periods will allow additional time for smaller operators with
individual bonds to come into compliance. The holders of nationwide
bonds are larger companies, which have increased staff and can more
easily comply with the updated phase-in period to convert their
nationwide bonds to statewide and/or individual bonds. The BLM updated
the phase-in period in the final rule by requiring lessees and
operators that currently use nationwide and unit bonds to come into
compliance within 1 year of the effective date of the final rule. This
phase-in period provides time for the BLM and its staff to process the
increased and new bond amounts expected. The BLM has a total of 3,234
bonds: 975 individual or lease bonds, 1,987 statewide bonds, 19
collective (unit) bonds, and 253 nationwide bonds. Upon identifying
that the majority of the bonds are statewide and individual bonds, the
BLM determined that it made more sense to revise the phase-in period by
requiring current nationwide bonds to be brought into compliance first
and the others as follows:
<bullet> 1 year for nationwide and unit bonds,
<bullet> 2 years for statewide bonds, and
<bullet> 3 years for individual bonds.
Specifically, this phase-in period will provide individual lease
bond holders--the majority of those affected by the provision of the
rule, many of which are small businesses--more time to prepare

[[Page 30941]]

for compliance, and, likewise, will allow the BLM to prepare for the
associated workload.
Section-by-Section Discussion for Changes to 43 CFR Subpart 3105
Communitization Agreements
Section 3105.21 Where Filed
The BLM proposed to remove the requirement in the existing Sec.
3105.2-1 to file the agreement in triplicate and to specify the minimum
contents for such an agreement. The BLM received comments on this
section stating that the BLM should include a fixed filing fee for CAs.
As previously stated, the BLM considered proposing new fixed filing
fees for Federal CAs but ultimately declined to add a fee due to the
public benefit of allowing Federal and State minerals that might
otherwise be wasted to be developed.
A commenter stated that paragraph (c), which recommends that an
application be submitted at least 90 days prior to first production,
overlooks that CAs are commonly submitted only after production has
been obtained, and are usually effective retroactively to the date of
first production. The BLM's proposed language did consider this fact,
which is why the proposed section says ``should'' instead of ``must.''
The final rule does not make further changes in response to these
comments. The final rule did remove the acronym ``CA'' from the final
regulatory text and replace it with ``communitization agreement'' for
clarity and consistency.
Subsurface Storage of Oil and Gas
Section 3105.42 Purpose
The BLM revised the existing the existing Sec. 3105.4-2 to clarify
that gas storage agreement applications must include a bond. The BLM
received a comment stating that such agreements should also be subject
to a significant rental fee and bond. No additional changes are
warranted in response to this comment because this section already
covers the rental and bonding requirements. A fee is also required in
Sec. 3105.41.
Section-by-Section Discussion for Changes to 43 CFR Subpart 3106
The BLM proposed to add one section, remove two sections, and
update the headings of each section to remove the outdated question and
answer format that appears in the existing regulations. The BLM
received a comment on this subpart stating the BLM should, as a matter
of transparency, codify the policies and procedures that the authorized
officer is required to follow with regard to approving and overseeing
lease transfers. The BLM did not make any changes to this subpart based
on this comment. The BLM has a handbook, H-3106-1, Transfers by
Assignment, Sublease, or Otherwise, that provides the necessary
guidance to the BLM to adjudicate these transfers. The public may
obtain copies of this handbook, which is not currently available
online, from any BLM state office.
Section 3106.10 Transfers, General
The BLM proposed splitting the existing Sec. 3106.1 paragraph (a)
to provide clarity, added a new paragraph (b) clarifying that the BLM
will deny a transfer in certain situations, and added a new paragraph
(c) limiting the transfer of operating rights. The BLM received a
comment recommending the BLM address the impact of the severance of
operating rights from record title interest. The BLM agrees with this
comment. The BLM receives a multitude of transfers of operating rights
that are unnecessary because those rights have never been severed from
the record title. The final rule includes a new paragraph (b) to state
that a record title assignment conveys both record title and operating
rights unless operating rights have been previously severed. The
remaining paragraphs are redesignated accordingly.
The BLM received comments on the proposed paragraph (b), which is
final paragraph (c). The BLM added this paragraph to state an
assignment of a separate zone, deposit, depth, formation, specific
well, or of part of a legal subdivision, will be denied. One commenter
supported this language, while another commenter stated that wellbore
assignments are not ambiguous, because wellbores have API numbers that
include bottom hole data and that are within approved drilling and
spacing units specifying the acreage being drained by the wellbore.
Wellbore rights are private agreements between private parties and need
not be reported to the BLM. If the intent is to transfer a specific
legal surface area and/or depth of the operating rights for a lease, a
legal description of that area and depth is required.
A commenter stated that the language in the proposed paragraph (c),
which is final paragraph (d), providing that operating rights interests
may only be divided with respect to legal subdivisions is ill-advised,
as it implicitly would preclude transfers of operating rights as to
parts of legal subdivisions. The BLM disagrees with this comment. The
paragraph must be read in conjunction with paragraph (a) that
specifically states, ``Leases may be transferred by assignment or
sublease as to all or part of the acreage in the lease or as to either
a divided or undivided interest therein.'' The final rule adopts the
proposed paragraph unchanged.
Section 3106.20 Qualifications of Assignees and Transferees
The BLM proposed revisions to the existing Sec. 3106.2 to clarify
that entities to whom record title or operating rights are being
transferred must be qualified to hold a lease. The BLM received one
comment on this section, requesting that the BLM revise the section to
clarify that the new bonding requirements apply only to operators and
not all lessees, assignees, and transferees. The BLM is not making any
changes to the section in the final rule, because the bonding
requirements may apply to any entity to whom an interest is being
transferred and not just an operator.
Forms
Section 3106.41 Transfers of Record Title and of Operating Rights
(Subleases)
The BLM proposed revising the existing Sec. 3106.4-1 to require
the use of an approved form to accomplish these transfers and to reduce
the requir

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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.