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Model Preamble for a Proposed Rule - Example

This model preamble was last reviewed in May, 1998. You should check with your own legal staff to make sure there are no more recent requirements.

This is an abridged version of a proposed rule published in the Federal Register on April 26, 2000 (65 FR 24541).


Department of the Interior
Bureau of Land Management
43 CFR Parts 3130 and 3160
[WO-310-1310-00 24 1A]
RIN 1004-AD13

National Petroleum Reserve, Alaska — Unitization
AGENCY: Bureau of Land Management, Interior.
ACTION: Proposed rule.


Summary

This proposed rule would add a new subpart to the Bureau of Land Management’s oil and gas regulations implementing new statutory authority allowing operators to form units in the National Petroleum Reserve, Alaska (NPRA). Units allow for the sharing of costs and spreading of revenues among several leases, and allow for production from unit leases to occur without regard to lease or property boundaries. The rule would also allow for waiver, suspension, or reduction of rental or royalty for NPRA leases; allow for suspension of operations and production for NPRA leases; amend existing regulatory language to set the primary lease term for an NPRA lease at 10 years. Current regulations allow 10 years, or a shorter term if it is in the notice of sale; and add a new subpart to the NPRA regulations on subsurface storage agreements. Subsurface storage agreements allow operators to store gas in existing geologic structures on Federal lands.

This proposal would also make it clear that existing suspension regulations would not apply to the NPRA.

Dates

You must submit your comments to BLM at the appropriate address below on or before June 26, 2000. BLM will not necessarily consider any comments received after the above date in making its decisions on the final rule.

Addresses

  • Mail: Director (630), Bureau of Land Management, Administrative Record, Room 401 LS, 1849 C Street, NW, Washington, D.C. 20240.
  • Personal or messenger delivery: Room 401, 1620 L Street, NW, Washington, D.C. 20036.
  • Internet email: WOComment@blm.gov. (Include “Attn: AD13”)

For further information

Contact Erick Kaarlela at (202) 452-0340, or Ian Senio at (202) 452-5049, or write to Director (630), Bureau of Land Management, Room 401 LS, 1849 C Street, NW, Washington, D.C. 20240. Persons who use a telecommunications device for the deaf may contact these persons through the Federal Information Relay Service at 1-800-877-8339, 24 hours a day, 7 days a week.

Supplementary information

  1. Public Comment Procedures
  2. Background
  3. The Rule as Proposed
  4. Section-by-Section Analysis
  5. Procedural Matters

1. Public Comment Procedures

A. How Do I Comment on the Proposed Rule?

If you wish to comment, you may submit your comments by any one of several methods.

  • You may mail comments to Director (630), Bureau of Land Management, Room 401 LS, 1849 C Street, NW, Washington, D.C. 20240.
  • You may deliver comments to Room 401, 1620 L Street, NW, Washington, D.C. 20036.
  • You may also comment via the Internet to WOComment@blm.gov. Please submit Internet comments as an ASCII file avoiding the use of special characters and any form of encryption. Please also include “Attn:AD13” and your name and return address in your Internet message. If you do not receive a confirmation that we have received your Internet message, contact us directly at (202) 452-5030.

Please make your written comments on the proposed rule as specific as possible, confine them to issues pertinent to the proposed rule, and explain the reason for any changes you recommend. Where possible, your comments should reference the specific section or paragraph of the proposal that you are addressing.

BLM may not necessarily consider or include in the Administrative Record for the final rule comments that BLM receives after the close of the comment period (see DATES) or comments delivered to an address other than those listed above (see ADDRESSES).

B. May I Review Comments Submitted by Others?

Comments, including names, street addresses, and other contact information of respondents, will be available for public review at 1620 L Street, NW, Room 401, Washington, D.C., during regular business hours (7:45 a.m. to 4:15 p.m.), Monday through Friday, except Federal holidays.

Individual respondents may request confidentiality. If you wish to request that BLM consider withholding your name, street address, and other contact information (such as: Internet address, FAX or phone number) from public review or from disclosure under the Freedom of Information Act, you must state this prominently at the beginning of your comment. BLM will honor requests for confidentiality on a case-by-case basis to the extent allowed by law. BLM will make available for public inspection in their entirety all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses.

2. Background

Why is BLM Proposing This Rule?

Part 3130 of 43 Code of Federal Regulations (CFR) contains the regulations that apply to oil and gas leasing in the National Petroleum Reserve, Alaska (NPRA) authorized under the Naval Petroleum Reserves Production Act of 1976, as amended (the “Act”), (42 U.S.C. 6501 et seq.). Part 3130 does not contain regulations on unitization, suspensions, or waivers of royalty or rental, suspensions of operations and production or subsurface storage of oil and gas. This proposed rule would implement amendments to the Act (see Pub. L. 105-83) authorizing operational activities, including unitization of leases, suspensions or waivers of royalty or rental, the suspension of operation and production for leases in NPRA and subsurface storage agreements.

No. BLM completed and made publicly available an Environmental Impact Statement/Integrated Activity Plan (EIS/IAP) regarding oil and gas leasing in the NPRA on August 7, 1998. The Secretary issued a Record of Decision (ROD) for that action on October 7, 1998. This proposal does not address the EIS/IAP or the ROD or any action involved with the actual leasing process, but would cover operational activities carried out under leases issued as a result of that process.

3. The Rule as Proposed

How Would This Rule Change BLM’s Oil and Gas Regulations?

The proposed rule applies to operations under Federal oil and gas leases in NPRA and would add a new subpart allowing the formation of oil and gas units in the NPRA. The rule would also:

  1. Allow for waiver, suspension or reduction of rental or royalty for NPRA leases;
  2. Allow for suspension of operations and production for NPRA leases;
  3. Amend existing regulatory language to set the primary lease term for an NPRA lease at 10 years. Current regulations allow 10 years or a shorter term if it is in the notice of sale;
  4. Add a new subpart to the NPRA regulations on subsurface storage agreements. Subsurface storage agreements allow operators to store gas in existing geologic structures on Federal lands in return for fees; and
  5. Make it clear that existing suspension regulations that preceded the enactment of P.L. 105-83, would no longer apply to the NPRA.

What is Unitization?

Unitization is a means for a group of oil and gas lessees in a given area to share in the risks and costs associated with oil and gas exploration and development and also to share in the possible benefits. Unitization of leases reduces the need for surface disturbing activities by enhancing the likelihood that fewer wells would need to be authorized in order to produce the oil or gas reservoir. The proposed regulations implement statutory changes and are intended to recognize the unique climatic conditions of NPRA, the needs and practices of the oil and gas industry in light of those conditions, and the need to protect natural resources in NPRA.

The Secretary is obligated to protect surface resources within NPRA (see 42 U.S.C. 6508). The protection of surface resources includes the protection of subsistence needs of rural residents. This proposal does not directly address subsistence because unitization will not change the obligation to comply with subsistence related stipulations in leases. Please comment on whether these proposed regulations will meet the needs of the public and the industry while protecting the NPRA environment and whether these regulations should specifically address subsistence.

Why is BLM Proposing a Rule on Unitization of Oil and Gas Leases in NPRA?

While there is already a detailed set of regulations governing oil and gas leasing in NPRA in Part 3130 of 43 CFR, there are no regulations allowing for unitization. The proposed rule implements paragraph (8) of section 6508 of the Act that authorizes unitization of NPRA leases.

Is This Proposal Similar to That Proposed in BLM’s Earlier Oil and Gas Rulemaking on Unitization?

This proposal closely follows the proposed unit regulations in BLM’s proposed comprehensive oil and gas rule published on December 3, 1998, at 63 FR 66840. Those unit regulations would apply on Federal lands in the lower 48 States and Alaska, but not in NPRA. This proposal differs from that proposal where the statute requires differences or where, because of environmental, climatic, or geologic concerns, we determined that rules in NPRA should differ from those applying to other Federal lands. This proposal is also different in that it applies only to exploratory units and would not apply to enhanced or secondary recovery units.

What Are the Major Differences Between This Proposal and the Unit Regulations That Currently Apply to Federal Lands Outside of NPRA?

Increased Flexibility

Like the unit regulations proposed earlier (63 FR 66911), these regulations would increase the flexibility of the unitization process by allowing operators and BLM to negotiate exploration and development terms before entering into a unit agreement. The focus of this process would be to protect the public interest rather than to rely on the model unit agreement contained in existing regulations at 43 CFR subpart 3186, which is currently applicable to Federal lands outside of NPRA.

Up-Front Negotiation and Limited Number of Unit Terms

The primary change to the unitization process that you may be familiar with would be an emphasis on up-front negotiation among the various interest owners and BLM. Operators would be able to use any agreement format in their unit agreement as long as it addressed the following four basic issues: (1) Unit area; (2) Initial and continuing development obligations; (3) Productivity criteria and participating areas; and (4) BLM’s ability to set or modify the quantity, rate, and location of development and production.

BLM would accept only a limited number of additional unit agreement terms beyond the mandatory terms. If the unit agreement does not specifically address modifications, they would not be permitted unless all of the parties to the agreement agree. The unit agreement would include all producing intervals unless the unit agreement specifies those producing interval(s) to which it applies.

What Would be the Basis for the Negotiations?

The unit operator and BLM would base the negotiation of unit agreement terms on many factors. These factors may include the history of the area, economics, the number and depth of wells previously drilled in the area, the size of the area, and the cost of the proposed operations and the unique environmental and climatic and geologic conditions in the NPRA.

How Would the Unit Agreement Process Work?

Under the proposed regulations, generally, if you own or lease tracts you could apply to BLM for review of your proposed unit agreement. You and BLM would negotiate the terms of the unit agreement. BLM would review the agreement and determine whether we should approve it. After BLM approves the unit agreement, tracts joining the unit would be committed tracts. BLM would designate a participating area if it found that a well meets the negotiated productivity criteria laid out in the unit agreement. To meet the productivity criteria, a well must have future production potential sufficient to pay for the costs of drilling, completing and operating a unit well. Each participating area would have at least one well meeting the productivity criteria. Participating areas are used to allocate production to committed tracts within the unit. A tract shares in production if there is anywhere within the tract a participating area containing a well that meets the productivity criteria.

When a unit well in a participating area stops producing, the participating area terminates unless there is another unit well that is producing in that participating area. Normally, when the last unit well in the last participating area stops producing and there are no approved drilling or reworking operations on committed tracts, the unit terminates. After unit termination, all committed leases that were part of the unit would return to their individual lease status in effect at the time of termination and would not receive any further benefits of unitization. For example, if a committed Federal lease’s primary term expires before unit termination, the Federal lease would terminate when the unit terminates, unless the lease qualifies for extension under current regulations at 43 CFR 3135.1-5. There is no automatic extension of the lease term provided for Federal leases which have been previously committed to terminated units. Federal leases that have not completed their primary term would continue under their terms.

What Are Participating Areas and How Does This Proposal Treat Them?

Participating areas are used to allocate production from wells in a unit to the tracts committed to the unit and unleased Federal land. A participating area includes the land around a well that meets certain criteria negotiated for and laid out in the agreement. In general, these criteria must show that the production from the well can pay for its operation. You and BLM would negotiate the productivity criteria and the participating area and revision size, and would include these terms in the unit agreement. To establish a participating area, you must prove to BLM that the production from the area you propose to include in the participating area can cover the costs of operating the area.

This proposal would change the current procedure involving the creation and size of initial participating areas and additions to existing participating areas. This rule would provide that the amount of land to be included in any participating area or revision be specified in the unit agreement. Under current procedures that apply to Federal lands outside of NPRA you are not required to specify the amount of land and BLM determines participating area size after a detailed review of production data. Under existing procedure, participating areas include only specific producing intervals. Under this proposal we presume that a participating area includes all producing intervals unless the agreement specifies that it doesn’t. An addition to an existing participating area would occur when a new well that meets the productivity criteria defined in the unit agreement is drilled outside of that participating area.

Does This Proposal Require a Plan of Operations?

The obligation in the model unit agreement to drill an exploratory well and subsequent wells under a plan of operations would be replaced with initial and continuing development obligations. Under this proposal, you and BLM would negotiate the initial and continuing development obligations and would include those terms in the unit agreement. These terms would define the number and frequency of wells you plan to drill or operations that would establish new unitized production. You would be required to submit a plan of operations to BLM after you completed initial development obligations that would detail how you plan to develop the area. Under this proposal, the unit would automatically contract (decrease in size) to the existing participating area(s) when you do not meet a continuing development obligation.

Existing regulations that apply to Federal lands outside of NPRA allow five years for drilling and development of the unitized area before automatic elimination would occur for lands not in a participating area. This proposal would not contain the 5-year initial drilling and development period of current regulations applying to Federal lands outside of NPRA. BLM believes this new requirement would increase the potential for oil and gas development by encouraging operators to follow a continuous development program on a schedule appropriate for the area, or risk contraction of the unit area to the participating area(s).

[Abridged]

4. Section-by-section analysis

Subpart 3130–Oil and Gas Leasing, National Petroleum Reserve, Alaska:General

Section 3130.4-2 would set NPRA lease terms at 10 years. Existing regulations allow lease terms to be less than 10 years if it is in thenotice of lease sale. This change was mandated by Congress.

Subpart 3133–Rentals and Royalties

Section 3133.3 would provide for waiver, suspension, or reduction of rental, royalty, or minimum royalty for NPRA leases if it encouraged the greatest ultimate recovery of oil and gas or it was in the interest of conservation. Applicants would be required to prove to BLM that they couldn’t operate under their current lease terms without a waiver, suspension, or reduction of rental, royalty, or minimum royalty.

Section 3133.4 would require you to submit to BLM an application and describe in it the relief you are requesting. BLM would also require you to submit the items listed in this section in your application so that BLM can determine if you meet the standards of the regulations.

[Abridged]

5. Procedural Matters

Regulatory Planning and Review

In accordance with the criteria in Executive Order 12866, this rule is not a significant regulatory action and is not subject to review by the Office of Management and Budget (OMB).

[Abridged]

Clarity of Regulations

Executive Order 12866 requires each agency to write regulations that are simple and easy to understand. We invite your comments on how to make these proposed regulations easier to understand, including answers to questions such as the following: (1) Are the requirements in the proposed regulations clearly stated? (2) Do the proposed regulations contain technical language or jargon that interferes with their clarity? (3) Does the format of the proposed regulations (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce their clarity? (4) Would the regulations be easier to understand if they were divided into more (but shorter) sections? (5) Is the description of the proposed regulations in the SUPPLEMENTARY INFORMATION section of this preamble helpful in understanding the proposed regulations? How could this description be more helpful in making the proposed regulations easier to understand?

Please send any comments you have on the clarity of the regulations to the address specified in the ADDRESSES section.

[Abridged]

Authors

The principal authors of this rule are Erick Kaarlela (Washington Office), Sherri Thompson (Colorado State Office), Rick Wymer (Tulsa Field Office), Duane Spencer (Colorado State Office), and Chris Gibson (Alaska State Office), assisted by Ian Senio of BLM’s Regulatory Affairs Group (Washington Office) and Harvey Blank (Office of the Solicitor, Department of the Interior).

List of Subjects

43 CFR Part 3130

Alaska, Government contracts, Mineral royalties, Oil and gas exploration, Oil and gas reserves, Public lands-mineral resources, Reporting and recordkeeping requirements, Surety bonds.

43 CFR Part 3160

Administrative practice and procedure, Government contracts, Indians’lands, Mineral royalties, Oil and gas exploration, Penalties, Public lands-mineral resources, Reporting and recordkeeping requirements.