[Federal Register Volume 83, Number 189 (Friday, September 28, 2018)]
[Rules and Regulations]
[Pages 49184-49214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20689]
[[Page 49183]]
Vol. 83
Friday,
No. 189
September 28, 2018
Part III
Department of the Interior
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Bureau of Land Management
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43 CFR Parts 3160 and 3170
Waste Prevention, Production Subject to Royalties, and Resource
Conservation; Rescission or Revision of Certain Requirements; Final
Rule
Federal Register / Vol. 83 , No. 189 / Friday, September 28, 2018 /
Rules and Regulations
[[Page 49184]]
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DEPARTMENT OF THE INTERIOR
Bureau of Land Management
43 CFR Parts 3160 and 3170
[18X.LLWO310000.L13100000.PP0000]
RIN 1004-AE53
Waste Prevention, Production Subject to Royalties, and Resource
Conservation; Rescission or Revision of Certain Requirements
AGENCY: Bureau of Land Management, Interior.
ACTION: Final rule.
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SUMMARY: In this action, the Bureau of Land Management (BLM) is
revising its regulations, as amended by the November 18, 2016, rule
entitled, ``Waste Prevention, Production Subject to Royalties, and
Resource Conservation,'' in a manner that reduces unnecessary
compliance burdens, is consistent with the BLM's existing statutory
authorities, and re-establishes longstanding requirements that had been
replaced. The BLM is rescinding the novel requirements pertaining to
waste-minimization plans, gas-capture percentages, well drilling, well
completion and related operations, pneumatic controllers, pneumatic
diaphragm pumps, storage vessels, and leak detection and repair (LDAR).
The BLM is also revising other provisions related to venting and
flaring and is adding provisions regarding deference to appropriate
State or tribal regulation in determining when flaring of associated
gas from oil wells will be royalty-free.
DATES: The final rule is effective on November 27, 2018.
FOR FURTHER INFORMATION CONTACT: Steven Wells, Division Chief, Fluid
Minerals Division, 202-912-7143 or s1wells@blm.gov, for information
regarding the substance of this final rule or information about the
BLM's Fluid Minerals program. For questions relating to regulatory
process issues, contact Faith Bremner at 202-912-7441 or
fbremner@blm.gov. Persons who use a telecommunications device for the
deaf (TDD) may call the Federal Relay Service (FRS) at 1-800-877-8339,
24 hours a day, 7 days a week, to leave a message or question with the
above individuals. You will receive a reply during normal business
hours.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
II. Background
III. Discussion of the Final Rule
IV. Procedural Matters
I. Executive Summary
On November 18, 2016, the BLM published in the Federal Register a
final rule entitled, ``Waste Prevention, Production Subject to
Royalties, and Resource Conservation'' (82 FR 83008) (``2016 rule'').
The 2016 rule was intended to: Reduce waste of natural gas from
venting, flaring, and leaks during oil and natural gas production
activities on onshore Federal and Indian leases; clarify when produced
gas lost through venting, flaring, or leaks is subject to royalties;
and clarify when oil and gas production may be used royalty-free on-
site. The 2016 rule became effective on January 17, 2017, with some
requirements taking effect immediately, but the majority of
requirements were to phase-in on January 17, 2018, or later.
On March 28, 2017, President Trump issued Executive Order (E.O.)
13783, ``Promoting Energy Independence and Economic Growth,'' directing
the BLM to review the 2016 rule and, if appropriate, to publish
proposed and final rules suspending, revising, or rescinding it.
The BLM reviewed the 2016 rule and found that certain impacts were
underestimated and many provisions of the rule would have added
regulatory burdens that unnecessarily encumber energy production,
constrain economic growth, and prevent job creation. The BLM also found
that the 2016 rule's approach to reduction of fugitive emissions and
flaring departed from the historic approach of considering ``waste'' in
the context of a reasonable and prudent operator standard. This final
rule revises the 2016 rule in a manner that ensures consistency with
the policies set forth in section 1 of E.O. 13783, which states that
``[i]t is in the national interest to promote clean and safe
development of our Nation's vast energy resources, while at the same
time avoiding regulatory burdens that unnecessarily encumber energy
production, constrain economic growth, and prevent job creation.''
The BLM reviewed the 2016 rule and determined that it would have
imposed costs exceeding its benefits. As detailed in the Regulatory
Impact Analysis (RIA) prepared for this rule, and evidenced by the RIA
prepared for the 2016 rule (2016 RIA), many of the provisions of the
2016 rule would have imposed compliance costs well in excess of the
value of the resource (natural gas) that would have been conserved. In
addition, the provisions of the 2016 rule, unlike the analogous
Environmental Protection Agency (EPA) regulations with which many of
them overlapped, would have affected existing wells, including a
substantial number that are ``marginal,'' or low-producing, and
therefore less likely to remain economical to operate if subjected to
additional compliance costs. The BLM estimates that approximately 73
percent of wells on BLM-administered leases would be considered
marginal wells and that the annual compliance costs associated with the
2016 rule would have constituted 24 percent of an operator's annual
revenues from even the highest-producing marginal oil wells and 86
percent of an operator's annual revenues from the highest-producing
marginal gas wells. Finally, the BLM has determined that the 2016 rule
also contains numerous administrative and reporting requirements that
would have imposed unnecessary burdens on operators and the BLM. For
these reasons, the BLM revised the 2016 rule in a manner that reduces
unnecessary compliance burdens and, in large part, re-establishes the
longstanding requirements that the 2016 rule replaced.
With this final rule, the BLM is discouraging excessive venting and
flaring by placing volume and/or time limits on royalty-free venting
and flaring during production testing, emergencies, and downhole well
maintenance and liquids unloading. The BLM has also retained the 2016
rule's subpart 3178 provisions, which incentivize the beneficial use of
gas by making gas used for operations and production purposes royalty
free. Finally, by rescinding the 2016 rule's prescriptive requirements
for pneumatic equipment, storage tanks, and LDAR--many of which were
not cost-effective and risked the early shut-in of marginal wells--this
final rule allows operators to continue implementing waste reduction
strategies and programs that they find successful and to tailor or
modify their programs in a manner that makes sense for their
operations.
II. Background
A. Background
The BLM manages more than 245 million acres of public land, known
as the National System of Public Lands, primarily located in 12 Western
States, including Alaska. The BLM also manages 700 million acres of
subsurface mineral estate throughout the nation.
The BLM's onshore oil and gas management program is a major
contributor to the nation's oil and gas production. In fiscal year (FY)
2017, sales volumes from Federal onshore production lands accounted for
approximately 9 percent of domestic natural gas production, 5 percent
of U.S. natural gas liquids production, and 5
[[Page 49185]]
percent of domestically produced oil.\1\ Roughly $1.9 billion in
royalties were collected from all oil, natural gas, and natural gas
liquids transactions in FY 2017 on Federal Lands.\2\ Royalties from
Federal lands are shared with States. Royalties from Indian lands are
collected for the benefit of the Indian owners.
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\1\ United States Department of the Interior, ``Budget
Justifications and Performance Integration Fiscal Year 2019: Bureau
of Land Management'' at VI-82, available at https://www.doi.gov/sites/doi.gov/files/uploads/fy2019_blm_budget_justification.pdf.
\2\ Derived from data available on the Office of Natural
Resources Revenue website's ``Statistical Information'' page,
accessible at https://revenuedata.doi.gov/explore/.
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The venting or flaring of some natural gas is a practically
unavoidable consequence of oil and gas development. Whether during well
drilling, production testing, well purging, or emergencies, it is not
uncommon for gas to reach the surface that cannot be feasibly captured,
used, or sold. When this occurs, the gas must either be combusted
(``flared'') or released to the atmosphere (``vented''). Depending on
the circumstances, operators may flare natural gas on a longer-term
basis from production operations, predominantly in situations where an
oil well co-produces natural gas (or ``associated gas'') in an
exploratory area or a field that lacks adequate gas-capture
infrastructure to bring the gas to market. Production equipment may be
designed to vent or flare gas, e.g., gas may be vented with the use of
pneumatic controllers or combusted to generate power. Gas that
accumulates in oil-storage tanks may also necessitate venting or
flaring for safety. Finally, gas may be unintentionally lost through
leaks from equipment and facilities.
In response to oversight reviews and a recognition of increased
flaring from Federal and Indian leases, the BLM developed a final rule
entitled, ``Waste Prevention, Production Subject to Royalties, and
Resource Conservation,'' which was published in the Federal Register on
November 18, 2016 (81 FR 83008). The 2016 rule replaced the BLM's
existing policy at that time, Notice to Lessees and Operators of
Onshore Federal and Indian Oil and Gas Leases, Royalty or Compensation
for Oil and Gas Lost (NTL-4A) (44 FR 76600 (Dec. 27, 1979)).
The 2016 rule was intended to: Reduce waste of natural gas from
venting, flaring, and leaks during oil and natural gas production
activities on onshore Federal and Indian leases; clarify when produced
gas lost through venting, flaring or leaks is subject to royalties; and
clarify when oil and gas production may be used royalty free on-site.
The 2016 rule applied to all wells producing Federal and Indian oil and
gas and regulated new, modified, and existing sources of methane
emissions on Federal and Indian leases, units, and communitized areas.
The 2016 rule became effective on January 17, 2017, with some
requirements taking effect immediately, but the majority of
requirements were to phase-in over time.
On March 28, 2017, President Trump issued E.O. 13783, entitled,
``Promoting Energy Independence and Economic Growth,'' directing the
BLM to review the 2016 rule. Section 7(b) of E.O. 13783 directs the
Secretary of the Interior to review four specific rules, including the
2016 rule, for consistency with the policy articulated in section 1 of
the Order and, if appropriate, to publish rules suspending, revising,
or rescinding those rules. Among other things, section 1 of E.O. 13783
states that ``[i]t is in the national interest to promote clean and
safe development of our Nation's vast energy resources, while at the
same time avoiding regulatory burdens that unnecessarily encumber
energy production, constrain economic growth, and prevent job
creation.''
To implement E.O. 13783, Secretary of the Interior Ryan Zinke
issued Secretarial Order No. 3349, entitled, ``American Energy
Independence'' on March 29, 2017, which, among other things, directs
the BLM to review the 2016 rule to determine whether it is fully
consistent with the policy set forth in section 1 of E.O. 13783.
The BLM reviewed the 2016 rule and determined it to be inconsistent
with the policy in section 1 of E.O. 13783. The BLM found that some
provisions of the 2016 rule would have added (once fully in effect)
regulatory burdens that unnecessarily encumber energy production,
constrain economic growth, and prevent job creation. The BLM estimates
that approximately 73 percent of wells on BLM-administered leases would
be considered marginal wells and that the annual compliance costs
associated with the 2016 rule would have constituted 24 percent of the
annual revenues of even the highest-producing marginal oil wells and 86
percent of the annual revenues of the highest-producing marginal gas
wells. The BLM also finds that marginal oil and gas production on
Federal lands supported an estimated $2.9 billion in economic output in
the national economy in FY 2015. To the extent that the 2016 final rule
would have adversely impacted production from marginal wells through
premature shut-ins, this estimated economic output would have been
jeopardized.
On February 22, 2018, the BLM published a proposal to revise the
2016 rule in a manner that would make it consistent with the policies
set forth in section 1 of E.O. 13783. 83 FR 7924 (Feb. 22, 2018). The
BLM provided for a 60-day public comment period, which generated more
than 600,000 comments on the proposed rule. The BLM received comments
from a wide variety of persons and entities, including individual
citizens, environmental advocacy groups, industry advocacy groups, oil
and gas exploration and production companies, public interest groups,
state agencies, and tribes. The BLM has summarized and responded to
these comments in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.) In addition, the BLM has noted the most salient
comments on the proposed rule in its discussion of the final rule in
this preamble. In response to comments and after further consideration,
the BLM has made the following modifications to the proposed rule in
this final rule: (1) Clarification that the 24-hour limit on royalty-
free flaring during downhole well maintenance and liquids unloading in
Sec. 3179.104 applies ``per event''; (2) Addition of a standard for
``applicable rules, regulations, or orders'' of a State regulatory
agency or tribe in Sec. 3179.201(a); and (3) Addition of a provision
allowing for tribes to seek BLM approval to have tribal rules apply in
place of any or all of the provisions of subpart 3179. The final rule
is otherwise the same as the proposed rule.
The BLM has several compelling reasons for modifying the
requirements in the 2016 rule.
First, the BLM believes that many provisions of the 2016 rule
exceeded the BLM's statutory authority to regulate for the prevention
of ``waste'' under the Mineral Leasing Act (MLA). The MLA states that
all leases ``shall be subject to the condition that the lessee will, in
conducting his explorations and mining operations, use all reasonable
precautions to prevent waste of oil or gas developed in the land . . .
.'' \3\ The MLA further provides that ``[e]ach lease shall contain
provisions for the purpose
[[Page 49186]]
of insuring the exercise of reasonable diligence, skill, and care in
the operation of [the lease],'' as well as ``a provision that such
rules . . . for the prevention of undue waste as may be prescribed by
[the Secretary] shall be observed . . . .'' \4\ The concept of
``waste'' underlying the 2016 rule constituted a drastic departure from
the concept of ``waste'' applied by the Department of the Interior over
many decades of implementing the MLA. The 2016 rule was based on the
premise that essentially any losses of gas at the production site could
be regulated as ``waste,'' without regard to the economics of
conserving that lost gas. This is illustrated by the 2016 rule's
``capture percentage,'' storage vessel, and LDAR requirements, all of
which, as explained in more detail in the section-by-section analysis,
were expected to impose compliance costs well in excess of the value of
the gas to be conserved.
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\3\ 30 U.S.C. 225. For convenience, where several statutes
applicable to public lands support the same legal point, we refer
hereinafter only to the MLA.
\4\ 30 U.S.C. 187.
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The Department's implementation of the MLA has long been informed
by an understanding that there is a certain amount of unavoidable loss
of oil and gas that is inherent in oil and gas production and,
therefore, not all losses of gas may be considered ``waste'' under the
MLA. See Marathon Oil Co. v. Andrus, 452 F. Supp. 548, 551 (D. Wyo.
1978) (``For more than half a century, both the government, as lessor,
and all of its lessees have understood and have been governed by the
pertinent statutes to the end that all oil and gas used on the lease
for ordinary production purposes or unavoidably lost were not subject
to royalty payments to the government.''). Contrary to the novel
interpretation of ``waste'' employed in the 2016 rule, the BLM has
historically taken the lease-specific circumstances faced by an
operator--including the economic viability of capturing and marketing
the gas--into account before determining that a particular loss of gas
constitutes ``waste.'' See Rife Oil Properties, Inc., 131 IBLA 357, 376
(1994) (``[T]he ultimate issue in this case is whether it would have
been economic to market gas from the well at issue . . . .''); Ladd
Petroleum Corp., 107 IBLA 5 (1989) (remanding for ``further
consideration of whether it was uneconomic to capture that gas at that
time'').
In the 2016 rule, the BLM recognized the inconsistency with its
longstanding practice, but argued that past practice did not prohibit
the BLM from pursuing a different approach. See 81 FR 83038. However,
in adopting an interpretation of ``waste'' that is not informed by the
economics of capturing and marketing the gas, the BLM ignored the
longstanding concept of ``waste'' in oil and gas law, which Congress
adopted in enacting the MLA. Oil and gas law applies a ``prudent
operator'' standard to oil and gas lessees, thereby imposing an
obligation of reasonable diligence in the developing and marketing of
oil and gas from the lease, with due regard for the interest of both
the lessee and the lessor. See, e.g., Brewster v. Lanyon Zinc Co., 140
F. 801, 814 (8th Cir. 1905) (``It is only to the end that the oil and
gas shall be extracted with benefit or profit to both [lessee and
lessor] that reasonable diligence is required.''); see also Patrick H.
Martin & Bruce M. Kramer, William & Meyers Oil and Gas Law section
806.3 (abridged 4th edition) (2010). This prudent-operator standard was
incorporated into the MLA through the provisions requiring lessees to
exercise ``reasonable diligence, skill, and care'' in the operation of
the lease, and subjecting leases to the condition that the lessee will
``use all reasonable precautions to prevent waste of oil or gas
developed in the land.'' \5\ The exercise of ``reasonable diligence''
and employment of ``reasonable precautions'' do not require an operator
to lose money capturing and marketing uneconomic gas. To require that
operators do so, as the 2016 rule did, is inconsistent with the
prudent-operator standard incorporated in the MLA and exceeds the BLM's
waste-prevention authority. Although the 2016 rule contained provisions
allowing operators to apply for exemptions or variances from many of
the rule's requirements based on economic considerations, the standard
for approving these variances or exemptions was not whether capturing
and marketing the gas would be economic (i.e., whether capture would be
expected of a prudent operator), but, rather, whether compliance would
cause the operator to cease production and abandon significant
recoverable oil or gas reserves under the lease.
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\5\ 30 U.S.C. 187, 225.
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The BLM's experience in the litigation of the 2016 rule reinforces
the BLM's conclusion that the 2016 rule exceeded its statutory
authority. Immediately after the 2016 rule was issued, petitions for
judicial review of the rule were filed by industry groups and States
with significant BLM-managed Federal and Indian minerals. Wyoming v.
U.S. Dep't of the Interior, Case No. 2:16-cv-00285-SWS (D. Wyo.).
Petitioners in this litigation argued that the BLM exceeded its
statutory authority by promulgating a rule that, rather than regulating
for the prevention of ``waste,'' was actually intended to regulate air
quality, a matter within the regulatory jurisdiction of the EPA and the
States under the Clean Air Act. Petitioners also argued that the 2016
rule exceeded the BLM's waste-prevention authority by requiring
conservation without regard to economic feasibility, a key factor in
determining whether a loss of oil or gas is prohibited ``waste'' under
the MLA. Although the court denied petitioners' motions for a
preliminary injunction, the court did very clearly express grave
concerns that the BLM had usurped the authority of the EPA and the
States under the Clean Air Act, and questioned whether it was
appropriate for the 2016 rule to be justified based on its
environmental and societal benefits, rather than on its resource
conservation benefits alone. Wyoming v. U.S. Dep't of the Interior,
2017 WL 161428, *6-10 (D. Wyo.) (Jan. 16, 2017). The BLM has considered
the court's concerns with the 2016 rule and finds them to be valid. In
its revision of the 2016 rule, the BLM has sought to ensure that its
regulations are justified as waste-prevention measures under the BLM's
MLA authority and do not usurp the Clean Air Act authority of the EPA,
the States, and tribes. To achieve this end, the BLM is rescinding the
provisions of the 2016 rule that imposed costs in excess of their
resource conservation benefits or created the potential for
impermissible conflict with the regulation of air quality by the EPA or
the States under the Clean Air Act. The BLM acknowledges that, because
regulations that prevent wasteful losses of natural gas necessarily
reduce emissions of that gas, there is some limited degree of overlap
between the BLM's MLA authority and the Clean Air Act authority of the
EPA, the States, and tribes. However, in the words of the court, ``the
BLM cannot use overlap to justify overreach.'' Wyoming, 2017 WL 161428,
*9.
Second, the BLM reviewed the 2016 rule's requirements and
determined that the rule's compliance costs for industry and
implementation costs for the BLM exceed the rule's benefits. Over the
10-year evaluation period (2019-2028), the total net benefits from the
2016 rule are estimated to be -$736 million to -$1.01 billion (net
present value (NPV) and interim domestic social cost of methane (SC-
CH4) using a 7 percent discount rate) or -$722 million to -
$1.09 billion (NPV and interim domestic SC-CH4 using a 3
percent discount rate). For a more detailed explanation, see the
analysis of the 2016 rule's requirements (baseline scenario) in the
Regulatory Impact Analysis (RIA)
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prepared for this rule (RIA at Section 4.3). Although the 2016 RIA
found that overall benefits of the 2016 rule would exceed its costs,
this finding was dependent upon the use of a ``global'' social cost of
methane metric based on Technical Support Documents that have since
been rescinded. As described in more detail below, BLM's cost-benefit
analysis for this revision of the 2016 rule followed longstanding
guidance in Office of Management and Budget Circular A-4 (Sept. 17,
2003).
In addition, many of the 2016 rule's requirements placed a
particular compliance burden on operators of marginal or low-producing
wells, and there is a substantial risk that many of these wells would
not be economical to operate with the additional compliance costs.
Although the characteristics of what is considered to be a marginal
well can vary, the percentage of the nation's oil and gas wells
classified as marginal is high. The Interstate Oil and Gas Compact
Commission (IOGCC) published a report in 2015 detailing the
contributions of marginal wells to the nation's oil and gas production
and economic activity.\6\ According to the IOGCC, about 69.1 percent
and 75.9 percent of the nation's operating oil and gas wells,
respectively, are marginal (IOGCC 2015 at 22). The IOGCC defines a
marginal well as ``a well that produces 10 barrels of oil or 60 Mcf of
natural gas per day or less'' (IOGCC 2015 at 2).\7\ The U.S. Energy
Information Administration (EIA) reported that, in 2016, roughly 76.4
percent of oil wells produced less than or equal to 10 barrels of oil
equivalent (BOE) per day and 81.3 percent of oil wells produced less
than or equal to 15 BOE/day. For gas wells, EIA reported that roughly
71.6 percent produced less than or equal to 10 BOE/day and 78.2 percent
less than or equal to 15 BOE/day. For both oil and gas wells, EIA
estimates that 73.3 percent of all wells produce less than 10 BOE/
day.\8\ Applying these estimates to the overall number of BLM-
administered wells indicates that about 69,000 wells producing Federal
and/or Indian oil and gas are marginal.\9\
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\6\ IOGCC, ``Marginal Wells: Fuel for Economic Growth. 2015
Report.'' Available on the web at http://iogcc.ok.gov/Websites/iogcc/images/MarginalWell/MarginalWell-2015.pdf.
\7\ By other definitions, marginal or stripper wells might
include those with production of up to 15 barrels of oil or 90 Mcf
of natural gas per day or less. The U.S. Energy Information
Administration (EIA) reported that, in 2009, roughly 78.7 percent of
oil wells produced less than or equal to 10 barrels of oil
equivalent (BOE) per day and 85.4 percent of oil wells produced less
than or equal to 15 BOE/day. For gas wells, EIA reported that
roughly 64.5 percent produced less than or equal to 10 BOE/day and
73.3 percent less than or equal to 15 BOE/day. EIA, ``United States
Total 2009: Distribution of Wells by Production Rate Bracket.''
December 2010. Available on the web at https://www.eia.gov/naturalgas/archive/petrosystem/us_table.html.
\8\ EIA, ``The Distribution of U.S. Oil and Natural Gas Wells by
Production Rate.'' December 2017. Available on the web at https://www.eia.gov/petroleum/wells/, Table B17. United States oil and gas
well summary statistics, 2016.
\9\ The BLM obtained this number by estimating the percent of
marginal wells and by multiplying that percentage by the number of
Federal and Indian wells reported in the BLM Oil and Gas Statistics,
available at https://www.blm.gov/programs/energy-and-minerals/oil-and-gas/oil-and-gas-statistics. The BLM is not aware of any
information indicating that the incidence of marginal wells
producing Federal and Indian oil and gas is substantially different
than the incidence of marginal wells nationally, and so it is
appropriate to use the EIA's estimate of the national incidence of
marginal wells in estimating the number of marginal wells producing
Federal and Indian oil and gas. The BLM's estimate is further
supported by comments that the American Petroleum Institute (API)
submitted to the BLM's proposed rule. The API estimates that between
70 percent and 80 percent of the Federal and Indian wells that would
have been impacted by the 2016 rule are marginal. See API comment at
Appendix A, p. 3.
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The 2016 rule's requirements that would have placed a particular
burden on marginal wells were those pertaining to pneumatic
controllers, pneumatic diaphragm pumps, and LDAR. To illustrate the
impact on the economic viability of marginal oil and gas wells from the
2016 rule, the BLM calculated the per-well reduction in revenue from
the costs imposed by the requirements in the 2016 rule. The reduction
in revenue was calculated using both total and annualized costs at
three different periods in EIA's 2018 Annual Energy Outlook (AEO) price
forecast. The per-well revenue values are the product of estimated
annual production and annual average prices less royalty payments and
lifting costs. Based on EIA's projected 2019 prices, the estimated
revenue reduction for marginal oil wells ranges from 24 percent for
wells producing 10 bbl/day to 236 percent for wells producing 1 bbl/
day. Revenue reductions to marginal gas wells range from 86 percent for
wells producing 60 mcf/day to 1,037 percent for wells producing 5 mcf/
day. These values are reduced when using annualized costs, however, the
reductions in revenue are still substantial. Production from marginal
wells represents a smaller fraction of total oil and gas production
than that of non-marginal wells. However, as the BLM's analysis
indicates, this means that any associated regulatory burdens would have
a disproportionate impact on marginal wells, since the compliance costs
represent a much higher fraction of oil and gas revenues for marginal
wells than they do for non-marginal wells. Thus, the compliance burdens
of the 2016 rule pose a greater cost to marginal-well producers. The
BLM's analysis of the impact of the 2016 rule on marginal wells is
explained in more detail in Section 4.5.6 of the RIA.
The 2016 rule attempted to address the marginal-well problem by
providing operators with an opportunity to obtain exemptions from many
of the most costly requirements when compliance would impose such costs
that an operator would cease production and abandon significant
recoverable reserves. Although the 2016 rule allowed operators to
request an alternative LDAR program based on these considerations,
there was no opportunity for a full exemption from the LDAR requirement
in the 2016 rule.\10\ Moreover, it was not clear what would constitute
significant recoverable reserves for purposes of determining whether an
operator would qualify for an exemption or an alternative LDAR program.
In light of the fact that compliance costs for the 2016 rule represent
24 percent of the revenues of the highest-producing marginal oil wells
and 86 percent of the revenues of the highest-producing marginal gas
wells, the BLM expects that full compliance with the 2016 rule could
have jeopardized the economic operations of many marginal wells and
that many applications for exemptions or alternative LDAR programs
would have been warranted. And, due to the prevalence of marginal and
low-producing wells, the BLM expects that the burden imposed by the
exemption/alternative processes would have been excessive, both for
operators and the BLM. An operator would incur costs in obtaining an
exemption or approval for an alternative LDAR program, as the operator
would need to submit an application with economic and geologic
information and analysis proving to BLM's satisfaction that compliance
would cause the operator to cease production and abandon significant
recoverable reserves. Considering this cost in light of the fact that
the standard for obtaining an exemption or approval for an alternative
LDAR program is unclear and subject to interpretation, the BLM believes
that the costs and uncertainties involved in processes for receiving an
exemption or approval for an alternative LDAR program could have led
the operators of the lowest-
[[Page 49188]]
producing marginal wells to shut them in prematurely, stranding
otherwise recoverable resources in place.
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\10\ The BLM estimates that, over 10 years from 2019-2028, the
2016 rule's LDAR requirements would have imposed costs of about $550
million to $688 million while only generating cost savings from
product recovery of about $101 million to $128 million (RIA at
Section 4.4).
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In addition to the costs of complying with the 2016 rule's
operational requirements, there were many reporting requirements in the
2016 rule and the cumulative effect of the burden would have been
substantial. Specifically, the BLM estimates that the 2016 rule would
have imposed administrative costs of about $14 million per year ($10.7
million to be borne by the industry and $3.27 million to be borne by
the BLM). The BLM estimates that this final rule will alleviate the
vast majority of these burdens and will pose administrative burdens of
only $349,000 per year. (See RIA Section 3.2.2).
Beyond the cost-benefit analysis, the impact to marginal wells, and
the reporting burdens, the BLM notes that the 2016 rule had many
requirements that overlapped with the EPA's regulations issued under
the Clean Air Act, namely EPA's New Source Performance Standards (NSPS)
at 40 CFR part 60, subparts OOOO (NSPS OOOO) and OOOOa (NSPS OOOOa).
The EPA's NSPS OOOO regulates new, reconstructed, and modified
pneumatic controllers, storage tanks, and gas wells completed using
hydraulic fracturing, while NSPS OOOOa regulates new, reconstructed,
and modified pneumatic pumps, fugitive emissions from well sites and
compressor stations, and oil and gas wells completed using hydraulic
fracturing. The BLM's 2016 rule also would have regulated emissions of
natural gas from these source categories. While the EPA regulates new,
modified, and reconstructed sources, the BLM's 2016 rule applied to all
wells and facilities producing Federal and Indian oil and gas and
regulated emissions from new, modified, and existing sources. The 2016
rule's emissions-targeting provisions were informed by and were largely
similar to EPA's requirements for the same sources of emissions.
Therefore, the practical effect of the 2016 rule's emissions-targeting
provisions was essentially to impose EPA requirements designed for new
and reconstructed sources on existing sources producing Federal and
Indian oil and gas.\11\
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\11\ The EPA can regulate existing facilities through a process
separate from how it regulates new, modified, and reconstructed
sources. Challengers of the 2016 rule argued that the BLM
circumvented that EPA process by promulgating the 2016 rule.
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In addition, as the BLM acknowledged during the development of the
2016 rule,\12\ some States with significant Federal oil and gas
production have similar regulations addressing the loss of gas from
these sources. For example, the State of Colorado has regulations that
restrict hydrocarbon emissions during most oil and gas well completions
and recompletions, impose requirements for pneumatic controllers and
storage vessels, require a comprehensive LDAR program, and set
standards for liquids unloading.\13\ In addition, the Utah Department
of Environmental Quality has issued regulations addressing emissions
from pneumatic controllers and storage vessels as well as fugitive
emissions from oil and gas wellsites.\14\ Since the promulgation of the
2016 rule, the State of California has also issued new regulations
that: Require quarterly monitoring of methane emissions from oil and
gas wells, compressor stations and other equipment involved in the
production of oil and gas; impose limitations on venting from natural-
gas-powered pneumatic devices and pumps; and require vapor recovery
from tanks under certain circumstances.\15\ The existence of methane
emissions regulations in these states highlights the unnecessary
regulatory overlap and duplication created by the 2016 rule.
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\12\ 81 FR 6616, 6633-34 (Feb. 8, 2016).
\13\ Colorado Air Quality Control Commission, Regulation 7, 5
CCR 1001-9, Sections XII, XVII, and XVIII.
\14\ Utah Admin. Code r.307--501-510.
\15\ Cal. Code Regs. Tit. 17, sections 95665-95677.
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Finally, the 2016 rule also had requirements that limited the
flaring of associated gas produced from oil wells. The 2016 rule sought
to constrain the flaring of associated gas through the imposition of a
``capture percentage'' requirement, which required operators to capture
a certain percentage of the gas they produce, after allowing for a
certain volume of flaring per well. The requirement would have become
more stringent over a period of years. As explained below, the BLM has
chosen to rescind this requirement in favor of an approach that relies
on State and tribal regulations and reinstates the NTL-4A standard for
flaring in the absence of applicable State or tribal regulations. The
BLM reviewed State regulations, rules, and orders designed to limit the
waste of oil and gas resources and the flaring of natural gas, and
determined that States with the most significant BLM-managed oil and
gas production place restrictions or limitations on gas flaring from
oil wells. For example, the State of North Dakota has requirements that
are similar (but not identical) to the 2016 rule. Other States
generally have flaring limits that trigger a review by a governing
board to determine whether the gas should be conserved. A memorandum
containing a summary of the statutory and regulatory restrictions on
venting and flaring in the 10 States responsible for approximately 99
percent of Federal oil and gas production is available on the Federal
eRulemaking Portal: https://www.regulations.gov. In the Searchbox,
enter ``RIN 1004-AE53,'' click the ``Search'' button, open the Docket
Folder, and look under Supporting Documents.
B. Legal Authority
Pursuant to a delegation of Secretarial authority, the BLM
regulates the development of Federal and Indian onshore oil and gas
resources under the following statutes: The Mineral Leasing Act of 1920
(MLA) (30 U.S.C. 188-287), the Mineral Leasing Act for Acquired Lands
(MLAAL) (30 U.S.C. 351-360), the Federal Oil and Gas Royalty Management
Act (30 U.S.C. 1701-1758), the Federal Land Policy and Management Act
of 1976 (FLPMA) (43 U.S.C. 1701-1785), the Indian Mineral Leasing Act
of 1938 (IMLA) (25 U.S.C. 396a-g), the Indian Mineral Development Act
of 1982 (IMDA) (25 U.S.C. 2101-2108), the Act of March 3, 1909 (25
U.S.C. 396), and the other statutes and authorities listed in 43 CFR
3160.0-3. These statutes authorize the Secretary of the Interior to
promulgate such rules and regulations as may be necessary to carry out
the statutes' various purposes.\16\ Although the MLA authorizes the
Secretary to prescribe rules and regulations for carrying out the
purposes of the MLA, it also states that ``nothing in [the MLA] shall
be construed or held to affect the rights of the States or other local
authority to exercise any rights which they may have.'' \17\
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\16\ E.g., 30 U.S.C. 189 (MLA); 30 U.S.C. 359 (MLAAL); 30 U.S.C.
1751(a) (FOGRMA); 43 U.S.C. 1740 (FLPMA); 25 U.S.C. 396d (IMLA); 25
U.S.C. 2107 (IMDA); 25 U.S.C. 396.
\17\ 30 U.S.C. 189.
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The Federal mineral leasing statutes share a common purpose of
promoting the development of Federal oil and gas resources for the
financial benefit of the public.\18\ The MLA states that all leases
``shall be subject to the condition that the lessee will, in conducting
his explorations and mining operations, use all reasonable precautions
to prevent waste of oil or gas developed in the
[[Page 49189]]
land . . . .'' \19\ The MLA further provides that ``[e]ach lease shall
contain . . . a provision that such rules . . . for the prevention of
undue waste as may be prescribed by [the Secretary] shall be observed .
. . .'' \20\ FOGRMA establishes royalty liability for ``oil or gas lost
or wasted . . . when such loss or waste is due to negligence on the
part of the operator of the lease, or due to the failure to comply with
any rule or regulation, order or citation issued under [the mineral
leasing laws].'' \21\ In FLPMA, Congress declared ``that it is the
policy of the United States that . . . the public lands be managed in a
manner which recognizes the Nation's need for domestic sources of
minerals . . . .'' \22\
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\18\ See, e.g., California Co. v. Udall, 296 F.2d 384, 388 (D.C.
Cir. 1961) (noting that the MLA ``was intended to promote wise
development of . . . natural resources and to obtain for the public
a reasonable financial return on assets that `belong' to the
public.'').
\19\ 30 U.S.C. 225. For convenience, where several statutes
applicable to public lands support the same legal point, we refer
hereinafter only to the MLA.
\20\ 30 U.S.C. 187.
\21\ 30 U.S.C. 1756.
\22\ 43 U.S.C. 1701.
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The Indian minerals statutes require the Secretary to exercise his
trust responsibilities in the best interests of the tribes or of the
individual Indian mineral owners, considering all factors affecting
their interests. E.g., Kenai Oil & Gas, Inc. v. DOI, 671 F.2d 383, 387
(10th Cir. 1982).
To assure that the development of Federal and Indian oil and gas
resources will not be unnecessarily hindered by regulatory burdens, the
BLM has, in this rulemaking, exercised its inherent authority \23\ to
reconsider the 2016 rule. The BLM's revision of the 2016 rule is
intended to ensure that, consistent with its statutory authority, the
BLM's waste prevention regulations target ``undue waste'' and require
``reasonable precautions'' on the part of operators, and that the BLM's
regulations do not unnecessarily constrain domestic mineral production
or oil and gas revenues from Indian lands.
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\23\ See Ivy Sports Med., LLC v. Burwell, 767 F.3d 81, 86 (D.C.
Cir. 2014) (noting the ``oft-repeated'' principle that the ``power
to reconsider is inherent in the power to decide'').
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The BLM received a number of comments addressing its statutory
authority and obligations. The BLM did not make any changes to the rule
based on these comments.
Some commenters argued that the 2016 rule exceeded the BLM's
statutory authority and alleged that BLM was attempting to regulate air
quality under the guise of waste prevention. These commenters argued
that the authority to regulate air quality at oil and gas operations
rests with the EPA and the States, not with the BLM. As evidence of the
alleged overreach, these commenters cited a number of ``air quality''
provisions in the 2016 rule for which compliance costs outweighed
conservation benefits. These commenters expressed support for the BLM's
revision of the 2016 rule on the grounds that the revision brings the
BLM's regulations back in line with its statutory authority.
Other commenters argued that the BLM's proposed revision of the
2016 rule would fail to meet what they saw as the BLM obligations under
the MLA. They argued that the proposed revision of the 2016 rule would
not require operators to use ``all reasonable precautions to prevent
waste'' and would not prevent ``undue waste.'' They further argued that
the BLM's policy determination that waste-prevention regulations should
balance compliance costs against conservation benefits (i.e., the value
of the resource to be conserved) is inconsistent with the concept of
``waste'' in the MLA. Ultimately, however, these commenters failed to
provide legal authorities or evidence sufficient to persuade the BLM
that the MLA either does not provide the BLM with the discretion to
determine what constitutes ``reasonable precautions'' and ``undue
waste,'' or that the BLM's revision of the 2016 rule exceeds the BLM's
discretion in this area.
Some commenters noted that the BLM gave less emphasis to operator
economics in developing the 2016 rule. As explained above, the BLM
believes that, by failing to give due regard to operator economics, the
BLM exceeded its statutory authority in imposing many of the 2016
rule's requirements. The BLM's revision of the 2016 rule is consistent
with the MLA and is consistent with the BLM's longstanding approach to
regulating waste prior to the promulgation of the 2016 rule that
considered the economic feasibility of marketing lost gas in making
``avoidable loss'' determinations. See Rife Oil Properties, Inc., 131
IBLA 357, 373-76 (1994); Ladd Petro. Corp., 107 IBLA 5, 7 (1989). And,
even if the 2016 rule did not exceed the BLM's statutory authority, it
is nonetheless within the BLM's authority to revise its ``waste
prevention'' regulations in a manner that balances compliance costs
against the value of the resources to be conserved.
Some commenters argued that the BLM's revision of the 2016 rule
violates FLPMA because FLPMA states that the Secretary ``shall manage
the public lands under principles of multiple use and sustained yield''
and that the Secretary ``shall, by regulation or otherwise, take any
action necessary to prevent unnecessary or undue degradation of the
public lands.'' 43 U.S.C. 1732(a)-(b). The BLM acknowledges the quoted
mandates of FLPMA, but disagrees that they support the commenters'
conclusion. FLPMA's concern with ``unnecessary or undue degradation''
must be understood in light of the statute's overarching mandate that
the BLM manage the public lands under ``principles of multiple use and
sustained yield.'' See Theodore Roosevelt Conservation P'ship v.
Salazar, 661 F.3d 66, 76 (D.C. Cir. 2011). FLPMA's multiple-use and
sustained-yield mandate requires the BLM to balance potentially
degrading uses, such as mineral extraction, with conservation of the
natural environment so as to ensure valuable uses of the lands in the
future. Id. Nothing in the revision of the rule precludes the BLM from
managing the development of Federal oil and gas--a statutorily
authorized use of the public lands--in accordance with the principles
of multiple use and sustained yield and requiring the avoidance and
minimization of impacts where appropriate. Commenters highlighted the
noise, light, and air quality impacts expected to be associated with
the revised regulations, but they failed to explain why it would be
impossible for the BLM to balance these impacts with appropriate
conservation measures as needed in order to comply with FLPMA. The BLM
considers the environmental impacts of oil and gas production in
complying with the National Environmental Policy Act at the resource
management planning, lease sale, and well permitting stages of Federal
oil and gas development, and the BLM may identify appropriate region-
and site-specific environmental-impact avoidance and minimization
measures at each of those stages. Commenters, therefore, failed to
convince the BLM that its revision of the 2016 rule is inconsistent
with FLPMA.
III. Discussion of the Final Rule
A. Summary
The 2016 rule replaced the BLM's prior policy, NTL-4A, which
governed venting and flaring from BLM-administered leases for more than
35 years. Because the BLM has found the 2016 rule would impose
excessive costs (when fully implemented), and believes that a
regulatory framework similar to NTL-4A can be applied in a manner that
limits waste without unnecessarily burdening production, the BLM has
replaced the requirements contained in the 2016 rule with requirements
similar
[[Page 49190]]
to, but with notable improvements on, those contained in NTL-4A.
The preamble to the 2016 rule suggested that NTL-4A was outdated
and needed to be overhauled to account for technological advancements
and to incorporate ``economical, cost-effective, and reasonable
measures that operators can take to minimize gas waste.'' \24\ But, as
evidenced by the 2016 RIA and the RIA prepared for this final rule,
many of the requirements imposed by the 2016 rule were not, in fact,
cost-effective and actually imposed compliance costs well in excess of
the value of the resource to be conserved. The BLM believes that a
return to an improved NTL-4A framework, as explained in more detail in
the section-by-section discussion below, is appropriate and will ensure
that operators take ``reasonable precautions'' to prevent ``undue
waste.'' Notable improvements on NTL-4A in this final rule include:
Codifying a general requirement that operators flare, rather than vent,
gas that is not captured (Sec. 3179.6); requiring persons conducting
manual well purging to remain onsite in order to end the venting event
as soon as practical (Sec. 3179.104); and, providing clarity about
what does and does not constitute an ``emergency'' for the purposes of
royalty assessment (Sec. 3179.103).
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\24\ 81 FR 83008, 83009, 83017 (Nov. 18, 2016).
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With this final rule, the BLM has rescinded the following
requirements of the 2016 rule:
Waste Minimization Plans;
Well drilling requirements;
Well completion and related operations requirements;
Pneumatic controllers equipment requirements;
Pneumatic diaphragm pumps equipment requirements;
Storage vessels equipment requirements; and
LDAR requirements.
In addition, the BLM has modified and/or replaced the following
requirements of the 2016 rule with requirements that are similar to
those that were in NTL-4A:
Gas-capture requirements;
Downhole well maintenance and liquids unloading
requirements; and
Measuring and reporting volumes of gas vented and flared.
The remaining requirements in the 2016 rule have either been
retained, modified only slightly, or removed, but the impact of the
removal is small relative to the items listed above.
Many of the rescinded provisions of the 2016 rule focused on
controlling emissions from sources and operations, which are regulated
by EPA under its Clean Air Act authority, and for which there are
analogous EPA regulations at 40 CFR part 60, subparts OOOO and OOOOa.
Specifically, these emissions-targeting provisions of the 2016 rule are
Sec. Sec. 3179.102, 3179.201, 3179.202, 3179.203, and 3179.301 through
3179.305. The BLM has chosen to rescind these provisions based on a
number of considerations.
First, the BLM has reconsidered whether the substantial compliance
costs associated with the emissions-targeting provisions are justified
by the value of the gas that is expected to be conserved as a result of
compliance. As detailed in the RIA, and evidenced by the 2016 RIA, many
of the emissions-targeting provisions of the 2016 rule were expected to
impose compliance costs well in excess of the value of the resource
(natural gas) that would be conserved. The BLM has made the policy
determination that it is not appropriate for ``waste prevention''
regulations to impose compliance costs greater than the value of the
resources they are expected to conserve. Although the RIA for the 2016
rule found that, in total, the benefits of these provisions outweighed
their costs, this finding depended on the use of a global social cost
of methane (SC-CH4) metric derived from Technical Support
Documents which have since been rescinded. The SC-CH4 metric
is a societal metric that does not inform the ``prevention of undue
waste'' or ``reasonable precautions to prevent waste'' under the MLA,
which is statutory language that the BLM interprets in terms of the
conservation of oil and gas resources. Although the BLM has employed
the SC-CH4 metric for the purpose of examining and
disclosing the impacts of this regulatory action pursuant to E.O.
12866, it is not appropriate for the BLM to use the SC-CH4
metric when determining whether a loss of natural gas is ``waste''
under the MLA.
E.O. 13783, at Section 5, disbanded the earlier Interagency Working
Group on Social Cost of Greenhouse Gases (IWG) and withdrew the
Technical Support Documents \25\ upon which the RIA for the 2016 rule
relied for the valuation of changes in methane emissions. The SC-
CH4 estimates presented by the BLM for this revision rule
are interim values for use in regulatory analyses until an improved
estimate of the impacts of climate change to the U.S. can be developed.
In accordance with E.O. 13783, they are adjusted to reflect discount
rates of 3 percent and 7 percent, and to focus on domestic--rather than
global--impacts of climate change, which is consistent with OMB
Circular A-4. The 7 percent rate is intended to represent the average
before-tax rate of return to private capital in the U.S. economy. The 3
percent rate is intended to reflect the rate at which society discounts
future consumption, which is particularly relevant if a regulation is
expected to affect private consumption directly. When assessing
domestic impacts of climate change, the benefits of many of the
emissions-targeting provisions do not outweigh their costs. And,
because the value of the conserved gas would not outweigh the costs,
the BLM does not believe that its legal authority to prescribe rules
``for the prevention of undue waste'' \26\ would cover the emissions-
targeting provisions in the 2016 rule.
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\25\ Technical Update of the Social Cost of Carbon for
Regulatory Impact Analysis Under E.O. 12866 (published August 26,
2016) and its Addendum.
\26\ 30 U.S.C. 187.
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Several commenters argued that the SC-CH4 approach taken
in the economic analysis for the revision of the 2016 rule fails to
adequately recognize the global nature of methane emissions impacts.
These commenters asserted that the U.S. will likely be forced to
increase humanitarian aid, deal with mass migrations, and manage
changing security needs (e.g., in the Arctic) as a result of overseas
climate change impacts. They further argued that overseas impacts could
also affect the U.S. economy, disrupting international trade and
undermining financial markets. In response, the BLM reiterates that the
Technical Support Documents that provided the basis for the use of the
global social cost of methane in the 2016 RIA were rescinded by E.O.
13783 and that the BLM followed the guidance in OMB Circular A-4 in
conducting its economic analysis of the anticipated climate impacts of
this rule.\27\ Finally, the BLM notes that its use of this same
domestic social cost of methane analysis in a rulemaking to temporarily
suspend certain provisions of the 2016 rule was recently examined by a
U.S. District Court in the context of a preliminary injunction motion
and that court found the BLM's social cost of methane analysis to be
acceptable. California v. BLM, 286 F.Supp.3d 1054, 1070 (N.D. Cal.
2018) (``[BLM] has provided a factual basis for its change in position
(the OMB circular and Executive Order 13793) as well as demonstrated
that the
[[Page 49191]]
change is within its discretion, at least with respect to this aspect
of the RIA'').
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\27\ See the RIA at Section 3.3 for a discussion of how the
BLM's analysis is consistent with Circular A-4.
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In addition to cost-benefit concerns, the BLM believes that the
emissions-targeting provisions of the 2016 rule create unnecessary
regulatory overlap in light of EPA's Clean Air Act authority and its
analogous regulations that similarly reduce losses of gas.\28\ In
general, the emissions-targeting provisions of the 2016 rule were
crafted so that compliance with similar provisions within EPA's
regulations would constitute compliance with the BLM's regulations.
Although EPA's regulations apply to new, reconstructed, and modified
sources, while the 2016 rule's requirements also applied to existing
sources, the BLM notes that the EPA's regulations at 40 CFR part 60,
subpart OOOO,\29\ were published in 2012 and that over time, as
existing well sites are modified or reconstructed and new well sites
come online, the EPA's regulations at 40 CFR part 60, subparts OOOO and
OOOOa, will displace the BLM's regulations, eventually rendering
certain emissions-targeting provisions of the 2016 rule entirely
duplicative. The rate by which we expect the EPA's regulations to
become entirely duplicative of the 2016 rule varies by requirement and
the specific equipment or operations being regulated. For example,
assuming a pneumatic controller equipment life of 15 years, we would
expect the EPA's subpart OOOO regulations to entirely duplicate the
2016 rule in 8 years (or by 2026) since those requirements have been in
effect for 7 years. With respect to LDAR, an existing well would fall
under EPA's subpart OOOOa regulations if any of the existing wells on
the wellsite are modified or reconstructed, or if a new well is added
to the wellsite. Therefore, existing wells might shift quickly from the
2016 rule to EPA's subpart OOOOa regulation (e.g., if multiple existing
wells shift to the EPA's regulations due to the modification of a
single well on the wellsite) or not at all (e.g., if a well or wellsite
is never modified before being plugged and abandoned). By removing the
duplicative emissions-targeting provisions, the final rule falls
squarely within the scope of the BLM's authority to prevent waste and
leaves the regulation of air emissions to the EPA, the agency with the
experience, expertise, and clear statutory authority to do so.
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\28\ The BLM is aware that the EPA has proposed a temporary stay
of some of the requirements contained in NSPS OOOOa and that the EPA
is undertaking a reconsideration of these requirements. See 82 FR
27645 (June 16, 2017). The BLM has coordinated with the EPA
throughout the process of revising the 2016 rule.
\29\ Subpart OOOO was finalized in 2012, but covers new,
modified, reconstructed sources since 2011.
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The BLM received comments asserting that the BLM cannot rely on
EPA's regulations to reduce waste from oil and gas operations on
Federal and Indian leases for a variety of reasons, including that
EPA's regulations do not apply to existing sources, that the EPA does
not regulate for the purpose of preventing waste, and that the BLM has
not quantified the extent to which EPA's regulations will reduce waste
from Federal and Indian oil and gas operations in the time period
before EPA's regulations entirely displace the 2016 rule's
requirements. These comments are based on an incorrect belief that the
BLM is relying on EPA regulations to limit waste. As discussed above,
the BLM has found that many of the emissions-targeting provisions of
the 2016 rule do not target waste because their compliance costs far
exceed the value of the resource to be conserved. Even if the BLM were
relying on EPA's regulations to address waste from these sources and
operations--which it is not--this would be consistent with the 2016
rule, which provided exemptions for sources and operations compliant
with or subject to analogous EPA regulations.\30\
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\30\ See former 43 CFR 3179.102(b), 3179.201(a)(2),
3179.202(a)(2), 3179.203(a)(2), 3179.301(k).
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Finally, the BLM recognizes that the oil and gas exploration and
production industry continues to pursue reductions in methane emissions
on a voluntary basis. For example, XTO Energy, Inc., which operates
2,572 BLM-administered leases and agreements, has publicly stated that
it is undertaking a 3-year plan to phase out high-bleed pneumatic
devices from its operations and will be implementing an enhanced LDAR
program.\31\ In December 2017, the American Petroleum Institute (API)
announced a voluntary program to reduce methane emissions. The API
announced that 26 companies, including ExxonMobil, Chevron, Shell,
Anadarko and EOG Resources, would take action to implement LDAR
programs and replace, remove, or retrofit high-bleed pneumatic
controllers with low- or zero-emitting devices.\32\
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\31\ XTO Energy, ``Methane emissions reduction program'',
available at https://www.xtoenergy.com/en-us/responsibility/current-issues/air/xto-energy-methane-emissions-reduction-program.
\32\ Osborne, J., ``Oil companies clamping down on methane
leaks,'' Houston Chronicle (Dec. 6, 2017); American Petroleum
Institute, ``Natural Gas, Oil Industry Launch Environmental
Partnership to Accelerate Reductions in Methane, VOCs,'' available
at http://www.api.org/news-policy-and-issues/news/2017/12/04/natural-gas-oil-environmental-partnership-accelerate-reductions-methane-vocs.
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With this final rule, the BLM did not revise the royalty provisions
(43 CFR 3103.3-1) or the royalty-free use provisions (43 CFR part 3170,
subpart 3178) that were part of the 2016 rule. Although the BLM sought
and received comments on the royalty-free use provisions in subpart
3178, the BLM was not persuaded that any amendment of subpart 3178 is
necessary at this time.
The BLM intends that each of the provisions of the final rule is
severable. It is reasonable to consider the provisions severable
because they do not inextricably depend on each other. For example,
revised Sec. 3179.4, which specifies when losses of oil or gas
associated with common events and operations will be deemed
``avoidable'' or ``unavoidable,'' does not depend on, and may operate
effectively in the absence of, revised Sec. 3179.201, which determines
when the flaring of associated gas from oil wells will be royalty-
bearing.
B. Section-by-Section Discussion
1. 2016 Rule Requirements Rescinded
As was proposed, the BLM rescinds the following provisions of the
2016 rule in this final rule:
43 CFR 3162.3-1(j)--Drilling Applications and Plans
In the 2016 rule, the BLM added a paragraph (j) to 43 CFR 3162.3-1,
which required that, when submitting an Application for Permit to Drill
(APD) for an oil well, an operator must also submit a waste-
minimization plan. Submission of the plan was required for approval of
the APD, but the plan was not itself part of the APD, and the terms of
the plan were not enforceable against the operator. The purpose of the
waste-minimization plan was for the operator to set forth a strategy
for how the operator would comply with the requirements of 43 CFR part
3170, subpart 3179, regarding the control of waste from venting and
flaring from oil wells.
The waste-minimization plan was required to include information
regarding: The anticipated completion date(s) of the proposed oil
well(s); a description of anticipated production from the well(s);
certification that the operator has provided one or more midstream
processing companies with information about the operator's production
plans, including the anticipated completion dates and gas production
rates of the proposed well or wells; and identification of a gas
[[Page 49192]]
pipeline to which the operator plans to connect.
Additional information was required when an operator could not
identify a gas pipeline with sufficient capacity to accommodate the
anticipated production from the proposed well, including: A gas
pipeline system location map showing the proposed well(s); the name and
location of the gas processing plant(s) closest to the proposed
well(s); all existing gas trunklines within 20 miles of the well, and
proposed routes for connection to a trunkline; the total volume of
produced gas, and percentage of total produced gas, that the operator
is currently venting or flaring from wells in the same field and any
wells within a 20-mile radius of that field; and a detailed evaluation,
including estimates of costs and returns, of potential on-site capture
approaches.
The BLM estimates that the administrative burden of the waste-
minimization plan requirements would be roughly $5 million per year for
industry and $800,000 per year for the BLM (RIA at Section 7.1).
This final rule rescinds the waste minimization plan requirement of
Sec. 3162.3-1(j). The BLM believes that the waste minimization plan
requirement imposed an unnecessary administrative burden on both
operators and the BLM. The purpose of the waste-minimization-plan
requirement was to guide an operator's behavior by forcing it to
collect and consider information pertaining to gas capture. The BLM
believes that there will be sufficient information-based safeguards
against undue waste even in the absence of the waste-minimization-plan
requirement for the following reasons. First, the BLM has found that
comparable gas-capture-plan requirements in North Dakota and New Mexico
will ensure that operators in those States take account of the
availability of capture infrastructure. In New Mexico, the operator
must submit a gas-capture plan when seeking permission to drill a well.
In North Dakota, the operator must submit a gas-capture plan when
seeking permission to drill a well if the operator has not been in
compliance with the State's gas-capture requirements during any of the
most recent 3 months. The BLM notes that more than half of the flaring
of Federal and Indian gas occurs in the states of North Dakota and New
Mexico. Second, State regulations in Utah, Wyoming, and Montana require
operators to submit production information similar to that required
under Sec. 3162.3-1(j)(2) when operators seek approval for long-term
flaring of associated gas. In these States, both operators and State
regulators will be able to consider the potential for capture before
long-term flaring of associated gas can be approved. Finally, under
Sec. 3179.201(c), applicable in the absence of State or tribal
regulation for the flaring of associated gas, an operator is required
to submit one of the following before it could receive approval for
royalty-free flaring of associated gas under final Sec. 3179.201(c):
(1) A report supported by engineering, geologic, and economic data
which demonstrates to the BLM's satisfaction that the expenditures
necessary to market or use the gas are not economically justified; or
(2) An action plan that will eliminate the flaring within a time period
approved by the BLM. All of these requirements will help to fulfill the
purpose of Sec. 3162.3-1(j), which is to ensure that operators do not
waste gas without giving due consideration to the possibility of
marketing or using the gas.
In addition, the extensive amount of information that an operator
must include in the waste-minimization plan makes compliance with the
requirement cumbersome for operators. Operators have also expressed
concern that the waste-minimization-plan requirement will slow down APD
processing as BLM personnel take time to determine whether the waste-
minimization plan submitted by an operator is ``complete and
adequate,'' and whether the operator has provided all required pipeline
information to the full extent that the operator can obtain it.
Some commenters expressed support for the rescission of Sec.
3162.3-1(j), arguing that the BLM's waste-minimization-plan requirement
was redundant with State requirements and reflected an inappropriate
``one size fits all'' approach to basin-specific infrastructure
problems. These commenters further argued that the BLM had erroneously
assumed that, unless operators are forced to gather information
pertaining to gas capture infrastructure, they will not do so or will
not pursue opportunities to capture and market associated gas when
economically justified. Some commenters argued that the BLM has not
justified the rescission of the waste-minimization-plan requirement
because: New Mexico has not been enforcing its comparable requirement;
the process for seeking approval for flaring in Utah, Wyoming, and
Montana is not an adequate substitute since the information is
submitted after the well has been approved and drilled; and, the BLM
can allocate more resources to APD processing to ensure that the waste-
minimization-plan requirement does not slow down APD processing. First,
the BLM is aware of no evidence that New Mexico is not implementing its
gas capture plan requirement. Second, the BLM does not agree that the
timing of the applications to flare--whether under Utah, Wyoming, or
Montana State regulations or Sec. 3179.201(c)--precludes operators and
regulators from using the information to make prudent determinations
about whether flaring or capture is warranted. The fact that a well has
already been drilled does not preclude State regulators from denying
approval to flare where production and infrastructure information
indicates that capture is warranted. Finally, the BLM does not see the
need to allocate additional BLM resources to accommodate a requirement
that is duplicative of State requirements in the two States with the
highest rates of flaring and provides limited additional benefit (if
any) in other States where flaring is less prevalent and/or State
regulations require similar information to be submitted to regulators
in order to obtain permission to flare.
In light of the foregoing, the BLM concludes that there is limited
(if any) benefit to the waste minimization plan requirement of Sec.
3162.3-1(j) and is therefore rescinding it in its entirety.
The BLM has summarized and responded to the comments received on
the rescission of Sec. 3162.3-1(j) in a separate ``Responses to
Comments'' document, available on the Federal eRulemaking Portal:
https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-
AE53,'' click the ``Search'' button, open the Docket Folder, and look
under Supporting Documents.)
43 CFR 3179.7--Gas-Capture Requirement
In the 2016 rule, the BLM sought to constrain the routine flaring
of associated gas through the imposition of a ``capture percentage''
requirement, requiring operators to capture a certain percentage of the
gas they produce, after allowing for a certain volume of flaring per
well. The capture percentage requirement would have become more
stringent over a period of years, beginning with an 85 percent capture
requirement (5,400 Mcf per well flaring allowable) in January 2018, and
eventually reaching a 98 percent capture requirement (750 Mcf per well
flaring allowable) in January 2026. An operator could choose to comply
with the capture targets on each of the operator's leases, units or
communitized areas, or on a county-wide or state-wide basis.
As proposed, this final rule rescinds the 2016 rule's capture
percentage
[[Page 49193]]
requirements for a number of reasons. First, the BLM estimates that
this requirement, over 10 years from 2019-2028, would impose costs of
$556 million to $1.10 billion and generate cost savings from product
recovery of $381 to $507 million (RIA at Section 4.4). That is, the
BLM's estimates indicate that the 2016 rule's capture-percentage
requirements would have imposed costs that exceeded the value of the
gas that they were expected to conserve. Because the capture-percentage
requirements are expected to impose net costs, the BLM believes that it
is appropriate to rescind them and replace them with a different
approach to regulating the flaring of associated gas.
In addition, the BLM has identified a number of practical problems
with the 2016 rule's capture percentage requirements. In the early
years, when capture percentages would not be as high and allowable
flaring would be high, the 2016 rule would have allowed for large
amounts of royalty-free flaring. In the later years, the BLM believes
that the 2016 rule would have introduced complexities that would have
undermined its effectiveness. Because of the common use of horizontal
drilling through multiple leaseholds of different ownership, the 2016
rule's coordination requirements in previous Sec. 3179.12 (providing
for coordination with States and tribes when any requirement would
adversely impact production from non-Federal and non-Indian interests)
created a high degree of uncertainty over how the capture requirements
would have been implemented and what their impact would have been. Even
if the capture percentage requirements were to be implemented and
effective as written, the BLM is concerned that the prescriptive nature
of the approach would have allowed for unnecessary flaring in some
cases while prohibiting necessary flaring in others. For example, even
if an operator could feasibly capture all of the gas it produces from a
Federal well, the operator could still flare a certain amount of gas
without violating previous Sec. 3179.7's capture-percentage
requirements. Thus, in situations where the operator faced transmission
or processing-plant capacity limitations (i.e., where a pipeline or
processing plant does not have the capacity to take all of the gas that
is being supplied to it), previous Sec. 3179.7 would have allowed the
operator to flare gas from a Federal well in order to produce more gas
from a nearby non-Federal well for which there are tighter regulatory
or contractual constraints on flaring.
Furthermore, the capture-percentage requirement afforded less
flexibility for smaller operators with fewer operating wells than it
would have for larger operators with a greater number of operating
wells. A small operator with only a few wells in an area with
inadequate gas-capture infrastructure would have likely been faced with
curtailing production or violating Sec. 3179.7's prescriptive limits.
On the other hand, a larger operator with many wells would have had
greater flexibility to average the flaring allowable over its portfolio
and avoid curtailing production or other production constraints.
In place of the 2016 rule's capture-percentage requirements, the
final rule, as was proposed, addresses the routine flaring of
associated gas by deferring to State or tribal regulations where
possible and codifying the familiar NTL-4A standard for royalty-free
flaring as a backstop where no applicable State or tribal regulation
exists. The final rule's approach to the routine flaring of associated
gas is explained more fully below (see the discussion of Sec.
[thinsp]3179.201).
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on the rescission of
Sec. 3179.7 in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.) Many of the comments received about this section
expressed dissatisfaction with BLM giving deference to state
regulations in Sec. 3179.201. Those comments are addressed in the
discussion of final Sec. 3179.201.
43 CFR 3179.8--Alternative Capture Requirement
Previous Sec. 3179.8 allowed operators of leases issued before
January 17, 2017, to request a lower capture percentage requirement
than would otherwise be imposed under Sec. 3179.7. In order to obtain
this lower capture requirement, an operator would have had to
demonstrate that the applicable capture percentage under Sec. 3179.7
would ``impose such costs as to cause the operator to cease production
and abandon significant recoverable oil reserves under the lease.''
Because the BLM is rescinding the capture percentage requirements of
previous Sec. 3179.7, the BLM is also rescinding the mechanism for
obtaining a lower capture requirement, as was proposed. Because Sec.
3179.7 is now rescinded, there is no need for previous Sec. 3179.8.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on the rescission of
Sec. 3179.8 in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
43 CFR 3179.11--Other Waste Prevention Measures
Previous Sec. 3179.11(a) stated that the BLM may exercise its
existing authority under applicable laws and regulations, as well as
under the terms of applicable permits, orders, leases, and unitization
or communitization agreements, to limit production from a new well that
is expected to force other wells off of a common pipeline. Previous
Sec. 3179.11(b) stated that the BLM could similarly exercise existing
authority to delay action on an APD or impose conditions of approval on
an APD. Previous Sec. 3179.11 was not an independent source of
authority or obligation on the part of the BLM. Rather, previous Sec.
3179.11 was intended to clarify how the BLM could exercise existing
authorities in addressing the waste of gas. However, the BLM
understands that previous Sec. 3179.11 could easily be misread to
indicate that the BLM has plenary authority to curtail production or
delay or condition APDs regardless of the circumstances. Because
previous Sec. 3179.11 is unnecessary and is susceptible to
misinterpretation, the BLM is rescinding it, as proposed.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on the rescission of
Sec. 3179.11 in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
43 CFR 3179.12--Coordination With State Regulatory Authority
Previous Sec. 3179.12 stated that, to the extent an action to
enforce 43 CFR part 3170, subpart 3179, may adversely affect production
of oil or gas from non-Federal and non-Indian mineral interests, the
BLM will coordinate with the appropriate State regulatory authority.
The purpose of this provision was to ensure that due regard was given
[[Page 49194]]
to the States' interests in regulating the production of non-Federal
and non-Indian oil and gas. As was proposed, in this final rule the BLM
has rescinded previous Sec. 3179.12 because, as explained more fully
below, the BLM revised subpart 3179 in a manner that defers to State
and tribal requirements with respect to the routine flaring of
associated gas. In light of this new approach, the BLM believes that
there is much less concern that subpart 3179 could be applied in ways
that State regulatory agencies find to be objectionable or in ways that
would adversely affect oil or gas production from non-Federal and non-
Indian mineral interests. The BLM continues to recognize the value of
coordinating with State regulatory agencies, but no longer considers it
necessary to include a coordination requirement in subpart 3179.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on the rescission of
Sec. 3179.12 in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
43 CFR 3179.101--Well Drilling
Previous Sec. 3179.101(a) required gas reaching the surface as a
normal part of drilling operations to be used or disposed of in one of
four ways: (1) Captured and sold; (2) Directed to a flare pit or flare
stack; (3) Used in the operations on the lease, unit, or communitized
area; or (4) Injected. Previous Sec. 3179.101(a) also specified that
gas may not be vented, except under the circumstances specified in
previous Sec. 3179.6(b) or when it was technically infeasible to use
or dispose of the gas in one of the ways specified above. Previous
Sec. 3179.101(b) stated that gas lost as a result of a loss of well
control would be classified as avoidably lost if the BLM determined
that the loss of well control was due to operator negligence.
As was proposed, the BLM is rescinding previous Sec. 3179.101
because it would be duplicative under final subpart 3179. In essence,
Sec. 3179.101(a) required an operator to flare gas lost during well
drilling rather than vent it (unless technically infeasible). This same
requirement is contained in final Sec. 3179.6(b). Previous Sec.
3179.101(b) stated that where gas was lost during a loss of well
control, the lost gas would be considered ``avoidably lost'' if the BLM
determined that the loss of well control was due to operator
negligence. This principle is contained in final Sec. 3179.4(b), which
requires an absence of operator negligence in order for lost gas to be
considered ``unavoidably lost.''
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on the rescission of
Sec. 3179.101 in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.) The comments that opposed the rescission of this
section asserted that there would be no state or EPA backstop if BLM
rescinds the section. In its response to these comments, BLM explains
that the essential requirements of former Sec. 3179.101 are retained
in the revised rule.
43 CFR 3179.102--Well Completion and Related Operations
Previous Sec. 3179.102 addressed gas that reached the surface
during well-completion, post-completion, and fluid-recovery operations
after a well has been hydraulically fractured or refractured. It
required the gas to be disposed of in one of four ways: (1) Captured
and sold; (2) Directed to a flare pit or stack, subject to a volumetric
limitation in Sec. 3179.103; (3) Used in the lease operations; or (4)
Injected. Previous Sec. 3179.102 specified that gas could not be
vented, except under the narrow circumstances specified in previous
Sec. 3179.6(b) or when it was technically infeasible to use or dispose
of the gas in one of the four ways specified above. Previous Sec.
3179.102(b) provided that an operator would be deemed to be in
compliance with its gas capture and disposition requirements if the
operator was in compliance with the requirements for control of gas
from well completions established under 40 CFR part 60, subparts OOOO
or OOOOa, or if the well was not a ``well affected facility'' under
those regulations. Previous Sec. 3179.102(c) and (d) allowed the BLM
to exempt an operator from the requirements of previous Sec. 3179.102
where the operator demonstrated that compliance would cause the
operator to cease production and abandon significant recoverable oil
reserves under the lease.
As was proposed, this final rule rescinds previous Sec. 3179.102
in its entirety. The EPA finalized regulations in 40 CFR part 60,
subpart OOOO and OOOOa, that are applicable to all of the well
completions covered by previous Sec. 3179.102. See 81 FR 35824 (June
3, 2016); 81 FR 83055-56. In light of the complete overlap with EPA
regulations, and the fact that compliance with these regulations
satisfies an operator's obligations under previous Sec. 3179.102, the
BLM has concluded that previous Sec. 3179.102 is duplicative and
unnecessary. In the 2016 rule, the BLM recognized the duplicative
nature of Sec. 3179.102, but sought to establish a ``backstop'' in the
``unlikely event'' that the analogous EPA regulations ceased to be in
effect. See 81 FR 83056. The BLM no longer believes that it is
appropriate to insert duplicative regulations into the Code of Federal
Regulations as insurance against unlikely events. In addition, the BLM
questions the appropriateness of issuing regulations that serve as a
backstop to the regulations of other Federal agencies, especially when
those agencies have promulgated their regulations under different
authorities.
The BLM notes that, under revised Sec. 3179.4(b)(2), the BLM
reserves the right to limit royalty-free flaring during well-completion
operations based on the operator's negligence or failure to take
reasonable precautions to prevent the loss. Furthermore, the implicit
requirement of previous Sec. 3179.102 that gas that reaches the
surface during well-completion operations be disposed of by some means
other than venting is maintained in the general venting prohibition of
final Sec. 3179.6.
In light of the foregoing, the BLM is rescinding previous Sec.
3179.102 in its entirety.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on the rescission of
Sec. Sec. 3179.102 in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
43 CFR 3179.201--Equipment Requirements for Pneumatic Controllers
Previous Sec. 3179.201 addressed pneumatic controllers that use
natural gas produced from a Federal or Indian lease, or from a unit or
communitized area that includes a Federal or Indian lease. Previous
Sec. 3179.201 applied to such controllers if the controllers: (1) Had
a continuous bleed rate greater than 6 standard cubic feet per hour
(scf/hour) (``high-bleed'' controllers); and (2) Were not covered by
EPA regulations that prohibit the new use of high-bleed
[[Page 49195]]
pneumatic controllers (40 CFR part 60, subpart OOOO or OOOOa), but
would have been subject to those regulations if the controllers were
new, modified, or reconstructed. Previous Sec. 3179.201(b) required
the applicable pneumatic controllers to be replaced with controllers
(including, but not limited to, continuous or intermittent pneumatic
controllers) having a bleed rate of no more than 6 scf/hour, subject to
certain exceptions. Previous Sec. 3179.201(d) (as amended by the 2017
Suspension Rule) required that this replacement occur no later than
January 17, 2019, or within 3 years from the effective date of the 2016
rule if the well or facility served by the controller had an estimated
remaining productive life of 3 years or less. Previous Sec.
3179.201(b)(4) and (c) allowed the BLM to exempt an operator from the
requirements of previous Sec. 3179.201 where the operator demonstrated
that compliance would cause the operator to cease production and
abandon significant recoverable oil reserves under the lease.
The BLM estimates that this requirement, over 10 years from 2019-
2028, would have imposed costs of about $12 million to $13 million and
would have generated cost savings from product recovery of $20 million
to $26 million (RIA at Section 4.4). As was proposed, this final rule
rescinds previous Sec. 3179.201 in its entirety. Low-bleed continuous
pneumatic controllers are expected to generate revenue for operators
when employed at sites from which gas is captured and sold and when the
sale price of gas is generally higher than it is now. Thus, the BLM
expects many operators to adopt low-bleed pneumatic controllers even in
the absence of previous Sec. 3179.201's requirements. This belief is
supported by the fact that low-bleed continuous pneumatic controllers
are already very common, representing about 89 percent of the
continuous bleed pneumatic controllers in the petroleum and natural gas
production sectors.\33\ Because low-bleed pneumatic controllers are
often cost-effective and are already very common, the BLM does not
believe that it is necessary to maintain previous Sec. 3179.201 in its
regulations, even though it was expected to result in overall cost
savings.
---------------------------------------------------------------------------
\33\ Environmental Protection Agency, Inventory of U.S.
Greenhouse Gas Emissions and Sinks: 1990-2015, Annex 3 (published
April 2017). Data are available in Table 3.5-5 and Table 3.6-7.
---------------------------------------------------------------------------
The BLM notes that the EPA has regulations in 40 CFR part 60,
subparts OOOO and OOOOa, that require new, modified, or reconstructed
continuous bleed controllers to be low-bleed. As new facilities on
Federal and Indian leases come online and more of the existing high-
bleed continuous controllers are replaced, these EPA regulations will
require the installation of low-bleed continuous controllers. The BLM
understands the typical lifespan of a pneumatic controller to be 10 to
15 years. Finally, as discussed above, the BLM recognizes that the oil
and gas exploration and production industry continues to pursue
reductions in methane emissions on a voluntary basis, and the BLM
expects these efforts to result in a reduction in the number of high-
bleed pneumatic devices employed by the industry.
In addition to the explanation provided here, which addresses most
of the issues raised in the comments that BLM received about the
rescission of this section, the BLM has summarized and responded to the
comments received about the rescission of Sec. 3179.201 in a separate
``Responses to Comments'' document, available on the Federal
eRulemaking Portal: https://www.regulations.gov. (In the Searchbox,
enter ``RIN 1004-AE53,'' click the ``Search'' button, open the Docket
Folder, and look under Supporting Documents.)
43 CFR 3179.202--Requirements for Pneumatic Diaphragm Pumps
Previous Sec. 3179.202 established requirements for operators with
pneumatic diaphragm pumps that use natural gas produced from a Federal
or Indian lease, or from a unit or communitized area that included a
Federal or Indian lease. It applied to such pumps if they were not
covered under EPA regulations at 40 CFR part 60, subpart OOOOa, but
would be subject to that subpart if they were a new, modified, or
reconstructed source. For covered pneumatic pumps, previous Sec.
3179.202 required that the operator either replace the pump with a
zero-emissions pump or route the pump exhaust to processing equipment
for capture and sale. Alternatively, an operator had the option of
routing the exhaust to a flare or low-pressure combustion device if the
operator made a determination (and notifies the BLM through a Sundry
Notices and Reports on Wells, Form 3160-5) that replacing the pneumatic
diaphragm pump with a zero-emissions pump or capturing the pump exhaust
was not viable because: (1) A pneumatic pump was necessary to perform
the function required; and (2) Capturing the exhaust was technically
infeasible or unduly costly. If an operator made this determination and
had no flare or low-pressure combustor on-site, or routing to such a
device would have been technically infeasible, the operator was not
required to route the exhaust to a flare or low-pressure combustion
device. Under previous Sec. 3179.202(h), an operator was required to
replace its covered pneumatic diaphragm pump or route the exhaust gas
to capture or flare beginning no later than January 17, 2018. Previous
Sec. 3179.202(f) and (g) would have allowed the BLM to exempt an
operator from the requirements of previous Sec. 3179.202 where the
operator demonstrated that compliance would have caused the operator to
cease production and abandon significant recoverable oil reserves under
the lease.
The BLM estimates that the costs of compliance with previous Sec.
3179.202 would have outweighed the value of its conservation effects.
Specifically, the BLM estimates that Sec. 3179.202, over 10 years from
2019-2028, would have imposed costs of about $29 million to $30
million, while only generating cost savings from product recovery of
$15 million to $19 million (RIA at Section 4.4). Because previous Sec.
3179.202 imposed compliance costs greater than the value of the
resources it was expected to conserve, the BLM does not consider it to
be an appropriate ``waste prevention'' requirement, and is rescinding
it in its entirety, as was proposed.
The BLM notes that, as discussed above, industry is making ongoing
efforts to retire old leak-prone equipment, including pneumatic pumps,
on a voluntary basis. Furthermore, analogous EPA regulations in 40 CFR
part 60, subpart OOOOa, will reduce the loss of gas from pneumatic
diaphragm pumps on Federal and Indian leases as more and more of them
are covered by the EPA regulations over time. These reasons further
support rescission of previous Sec. 3179.202.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on the rescission of
Sec. 3179.202 in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
43 CFR 3179.203--Storage Vessels
Previous Sec. 3179.203 applied to crude oil, condensate,
intermediate hydrocarbon liquid, or produced-water storage vessels that
contained production from a Federal or Indian lease, or from a unit or
communitized
[[Page 49196]]
area that included a Federal or Indian lease, and that were not subject
to 40 CFR part 60, subparts OOOO or OOOOa, but would be if they were
new, modified, or reconstructed sources. If such storage vessels had
the potential for volatile organic compound (VOC) emissions equal to or
greater than 6 tons per year (tpy), previous Sec. 3179.203 required
operators to route all gas vapor from the vessels to a sales line.
Alternatively, the operator could have routed the vapor to a combustion
device if it determined that routing the vapor to a sales line was
technically infeasible or unduly costly. The operator could have also
submitted a Sundry Notice to the BLM that demonstrated that compliance
with the above options would cause the operator to cease production and
abandon significant recoverable oil reserves under the lease.
As proposed, the BLM is rescinding previous Sec. 3179.203 in its
entirety. The BLM finds that the costs of compliance with previous
Sec. 3179.203 would have outweighed the value of its conservation
effects. Specifically, the BLM estimates that previous Sec. 3179.203,
over 10 years from 2019-2028, would have imposed costs of about $51
million to $56 million while only generating cost savings from product
recovery of about $1 million (RIA at Section 4.4). The BLM has always
believed that previous Sec. 3179.203 would have a limited reach, due
to the 6 tpy emissions threshold and the carve-out for storage vessels
covered by EPA regulations. The BLM estimated in the RIA for the 2016
rule that Sec. 3179.203 would impact fewer than 300 facilities on
Federal and Indian lands (2016 RIA at 69). Because previous Sec.
3179.203 imposed compliance costs well in excess of the value of the
resources it was expected to conserve, the BLM does not consider it to
be an appropriate ``waste prevention'' requirement, and is rescinding
it in its entirety.
Finally, the BLM notes that, even with Sec. 3179.203 rescinded,
the BLM retains the authority to impose royalties on vapor losses from
storage vessels under final Sec. 3179.4(b)(2)(vii) when the BLM
determines that recovery of the vapors is warranted.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on the rescission of
Sec. 3179.203 in a separate ``Responses to Comments'' document,
available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
43 CFR 3179.301 Through 3179.305--Leak Detection and Repair
Previous Sec. Sec. 3179.301 through 3179.305 established leak
detection, repair, and reporting requirements for: (1) Sites and
equipment used to produce, process, treat, store, or measure natural
gas from or allocable to a Federal or Indian lease, unit, or
communitization agreement; and (2) Sites and equipment used to store,
measure, or dispose of produced water on a Federal or Indian lease.
Previous Sec. 3179.302 prescribed the instruments and methods that may
have been used for leak detection. Previous Sec. 3179.303 prescribed
the frequency for inspections and previous Sec. 3179.304 prescribed
the time frames for repairing leaks found during inspections. Finally,
previous Sec. 3179.305 required operators to maintain records of their
LDAR activities and submit an annual report to the BLM. Pursuant to
previous Sec. 3179.301(f), operators were required to begin to comply
with the LDAR requirements of previous Sec. Sec. 3179.301 through
3179.305 before: (1) January 17, 2018, for all existing sites; (2) 60
days after beginning production for sites that begin production after
January 17, 2017; and (3) 60 days after a site that was out of service
was brought back into service and re-pressurized.
As proposed, the BLM is rescinding previous Sec. Sec. 3179.301
through 3179.305 in their entirety. The BLM finds that the costs of
compliance with Sec. Sec. 3179.301 through 3179.305 outweigh the value
of their conservation effects. The BLM estimates that these
requirements, over 10 years from 2019-2028, would have imposed costs of
about $550 million to $688 million while only generating cost savings
from product recovery of about $101 million to $128 million (RIA at
Section 4.4). In addition, the BLM estimates that the administrative
burdens associated with the LDAR requirements, at roughly $5 million,
would have represented the bulk of the administrative burdens of the
2016 rule. Because the 2016 rule's LDAR requirements would have imposed
compliance costs well in excess of the value of the resources they were
expected to conserve, the BLM does not consider them to be appropriate
``waste prevention'' requirements, and is rescinding them in their
entirety.
The BLM has identified additional problems with the 2016 rule's
LDAR requirements--beyond their unjustified costs--that further support
rescission. First, the LDAR requirements inappropriately applied to all
wellsites equally. Wellsites that are not connected to deliver gas to
market would not achieve any waste reduction because sales from the
recovered gas would not be realized. Second, the LDAR requirements
posed an unnecessary burden to operators of marginal wells,
particularly marginal oil wells. The BLM does not estimate that the
potential fugitive gas losses from marginal oil wells would be
substantial enough to warrant the costs of maintaining an LDAR program
with semi-annual inspection frequencies. As noted previously, the BLM
estimates that over 73 percent of oil wells on the public lands are
marginal.
Some commenters argued that, rather than rescinding the LDAR
requirements in their entirety, the BLM should have considered
alternative LDAR requirements that would have been less burdensome to
operators. The BLM appreciates the commenters' concern with examining
alternative approaches to LDAR. The BLM considered a reasonable range
of LDAR alternatives and determined that the rescission of the LDAR
requirements of the 2016 final rule is appropriate. This determination
was based on the following information. In the RIA for the 2016 rule,
the BLM examined the impacts of a range of alternative approaches for
LDAR. See 2016 RIA at 91-93. Specifically the RIA examined the five
following LDAR alternatives: (1) Semi-annual inspections (adopted in
the 2016 rule); (2) Quarterly inspections; (3) Semi-annual inspections,
but annual inspections for oil wells with <300 gas/oil ratio (GOR); (4)
Semi-annual inspections, exempting oil wells with <300 GOR; and (5)
Annual inspections. Note that the last three alternatives would have
imposed fewer compliance costs than the alternative adopted in the 2016
rule. However, for all of the alternatives examined, compliance costs
greatly outweighed cost savings (i.e., the value of the gas conserved).
The annual inspections alternative was the least burdensome in terms of
compliance costs. However, the 2016 RIA estimated that this alternative
would impose costs of about $48 million per year while generating only
$8 million to $14 million in annual cost savings. Finally, even when
including estimates of benefits associated with foregone emissions
(using the domestic social cost of methane), the BLM found net costs
for all of the alternatives analyzed in the 2016 RIA. In light of this
information, the BLM continues to assess that the rescission of the
LDAR requirements of the 2016 final rule is appropriate.
In addition to the explanation provided here, the BLM has
summarized and responded to the
[[Page 49197]]
comments received on the rescission of Sec. Sec. 3179.301 through
3179.305 in a separate ``Responses to Comments'' document, available on
the Federal eRulemaking Portal: https://www.regulations.gov. (In the
Searchbox, enter ``RIN 1004-AE53,'' click the ``Search'' button, open
the Docket Folder, and look under Supporting Documents.)
43 CFR 3179.401--State or Tribal Requests for Variances From the
Requirements of This Subpart
Previous Sec. 3179.401 would have allowed a State or tribe to
request a variance from any provisions of subpart 3179 by identifying a
State, local, or tribal regulation to be applied in place of those
provisions and demonstrating that such State, local, or tribal
regulation would perform at least equally well as those provisions in
terms of reducing waste of oil and gas, reducing environmental impacts
from venting and/or flaring of gas, and ensuring the safe and
responsible production of oil and gas.
As was proposed, the BLM is rescinding previous Sec. 3179.401
because it believes that the variance process established by this
section was too restrictive and is no longer necessary in light of the
BLM's action to re-institute NTL-4A standards and to defer to State and
tribal regulations for the flaring of associated gas, as explained in
the discussion of final Sec. 3179.201. Notably, in this final rule,
the BLM has chosen to include a new Sec. 3179.401, described below,
which will allow for additional deference to tribal regulations. We
discuss tribal comments received on this section below.
2. Final Subpart 3179
With this final rule, the BLM is revising subpart 3179 as follows:
43 CFR 3179.1--Purpose
Section 3179.1 states that the purpose of 43 CFR part 3170, subpart
3179, is to implement and carry out the purposes of statutes relating
to prevention of waste from Federal and Indian leases, the conservation
of surface resources, and management of the public lands for multiple
use and sustained yield. The BLM is not revising existing Sec. 3179.1
as a part of this rulemaking. Section 3179.1 is presented here for
context.
43 CFR 3179.2--Scope
This section specifies which leases, agreements, tracts, and
facilities are covered by this subpart. The section also states that
subpart 3179 applies to Indian Mineral Development Act (IMDA)
agreements, unless specifically excluded in the agreement or unless the
relevant provisions of this subpart are inconsistent with the
agreement, and to agreements for the development of tribal energy
resources under a Tribal Energy Resource Agreement entered into with
the Secretary of the Interior, unless specifically excluded in the
agreement. Existing Sec. 3179.2 remains largely unchanged. However,
the BLM is revising paragraph (a)(5) by using the more-inclusive words
``well facilities'' instead of the words ``wells, tanks, compressors,
and other equipment'' to describe the onshore equipment that is subject
to this final rule. The purpose of the phrase ``wells, tanks,
compressors, and other equipment'' was to specify components subject to
LDAR requirements which, as described above, the BLM is rescinding.
43 CFR 3179.3--Definitions and Acronyms
As was proposed, this section keeps, in their entirety, four of the
18 definitions that appear in previous Sec. 3179.3: ``Automatic
ignition system,'' ``gas-to-oil ratio,'' ``liquids unloading,'' and
``lost oil or lost gas.'' The definition for ``capture'' is retained in
this final rule as it appeared in previous Sec. 3179.3, except, as
proposed, the word ``reinjection'' has been changed to ``injection'' to
be consistent with references to conservation by injection (as opposed
to reinjection) elsewhere in subpart 3179.
A definition for ``gas well'' is also maintained in this final
rule, however the second and third sentences in the existing definition
are removed, as was proposed. The second-to-last sentence in the
previous definition of ``gas well'' is removed because, although a
well's designation as a ``gas'' well or ``oil'' well is appropriately
determined by the relative energy values of the well's products, the
6,000 scf/bbl standard in previous Sec. 3179.3 is not a commonly used
standard. The last sentence in the existing definition of ``gas well,''
which states generally that an oil well will not be reclassified as a
gas well when its gas-to-oil ratio (GOR) exceeds the 6,000 scf/bbl
threshold, is removed and replaced with a simpler qualifier making
clear that a well's status as a ``gas well'' is ``determined at the
time of completion.''
As was proposed, a new definition for ``oil well'' is added in this
final rule that defines an ``oil well'' as a ``well for which the
energy equivalent of the oil produced exceeds the energy equivalent of
the gas produced, as determined at the time of completion.'' The
addition of a definition of ``oil well'' should help to make clear when
final Sec. 3179.201's requirements for ``oil-well gas'' apply.
In the proposed rule, the BLM proposed to add a definition of
``waste of oil or gas'' that would define waste, for the purposes of
subpart 3179, to mean any act or failure to act by the operator that is
not sanctioned by the authorized officer as necessary for proper
development and production, where compliance costs are not greater than
the monetary value of the resources they are expected to conserve, and
which results in: (1) A reduction in the quantity or quality of oil and
gas ultimately producible from a reservoir under prudent and proper
operations; or (2) Avoidable surface loss of oil or gas. This proposed
definition incorporated the definition of ``waste of oil or gas'' from
the BLM's operating regulations at 43 CFR 3160.0-5, but added an
economic limitation: Waste does not occur where the cost of conserving
the oil or gas exceeds the monetary value of that oil or gas. The BLM
requested public comment on this proposed definition. Some commenters
expressed support for the economic standard contained in the definition
and argued that it would be consistent with the MLA's concept of
``waste,'' as well as past BLM practice. Other commenters argued that
``waste of oil or gas'' expressed the same concept as ``avoidably
lost'' production, and that the new definition of ``waste of oil or
gas'' was therefore superfluous and could create confusion to the
extent that it could be read as inconsistent with the definition of
``avoidably lost'' production in Sec. 3179.4(a). Still other
commenters noted that the practical application of the definition of
``waste of oil or gas'' would be difficult because the definition did
not contain a time horizon over which the operator should evaluate its
compliance costs and the value of the resources that compliance would
be expected to conserve. The BLM has chosen to retain the proposed
definition of ``waste of oil or gas'' in the final rule. This
definition codifies the BLM's policy determination that it is not
appropriate for ``waste prevention'' regulations to impose compliance
costs greater than the value of the resources they are expected to
conserve. Because the term ``waste of oil or gas'' is not used in
subpart 3179 (outside of the definitions section), the BLM does not
expect any conflict between this definition and the provisions of Sec.
3179.4, which identify ``avoidably lost'' oil or gas. However, if a
conflict ever arises, the BLM will view Sec. 3179.4 as controlling on
the question of what constitutes a royalty-bearing
[[Page 49198]]
``avoidable'' loss of oil or gas. Although the definition does not
contain a specific time horizon for comparing the value of resources
conserved to the cost of conservation, the BLM notes that, to the
extent a technical application of this definition would ever be
required under these regulations (which is unlikely given the fact that
the phrase is not used in subpart 3179 outside of the definitions
section), there is no reason to believe that the BLM would not employ a
reasonable time frame in assessing costs and benefits.
As was proposed, this section removes 12 definitions from the
previous regulations because they are no longer needed: ``Accessible
component,'' ``capture infrastructure,'' ``compressor station,''
``continuous bleed,'' ``development oil well,'' ``high pressure
flare,'' ``leak,'' ``leak component,'' ``liquid hydrocarbon,''
``pneumatic controller,'' ``storage vessel,'' and ``volatile organic
compounds (VOC).'' These definitions pertain to requirements in
previous subpart 3179 that the BLM is rescinding.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on Sec. 3179.3 in a
separate ``Responses to Comments'' document, available on the Federal
eRulemaking Portal: https://www.regulations.gov. (In the Searchbox,
enter ``RIN 1004-AE53,'' click the ``Search'' button, open the Docket
Folder, and look under Supporting Documents.)
43 CFR 3179.4--Determining When the Loss of Oil or Gas is Avoidable or
Unavoidable
Final Sec. 3179.4 describes the circumstances under which lost oil
or gas is classified as ``avoidably lost'' or ``unavoidably lost.''
None of the language in this section of the final rule has changed from
the language that BLM proposed. Under final Sec. 3179.5, royalty is
due on all avoidably lost oil or gas, while royalty is not due on
unavoidably lost oil or gas. Final Sec. 3179.4 includes concepts from
both previous Sec. 3179.4 and NTL-4A, Sections II. and III.
Final paragraph (a) defines ``avoidably lost'' production and
mirrors the ``avoidably lost'' definition in NTL-4A Section II.A. Final
paragraph (a) defines avoidably lost gas as gas that is vented or
flared without BLM approval, and produced oil or gas that is lost due
to operator negligence, the operator's failure to take all reasonable
measures to prevent or control the loss, or the operator's failure to
comply fully with applicable lease terms and regulations, appropriate
provisions of the approved operating plan, or prior written BLM orders.
This paragraph replaces the ``avoidably lost'' definition that appears
in the last paragraph of previous Sec. 3179.4, which primarily defined
``avoidably lost'' oil or gas as lost oil gas that is not ``unavoidably
lost'' and also expressly included ``excess flared gas'' as defined in
previous Sec. 3179.7, which the BLM is rescinding.
Final paragraph (b) defines ``unavoidably lost'' production. Final
paragraph (b)(1) follows language from Section II.C(2) of NTL-4A. It
states that oil or gas that is lost due to line failures, equipment
malfunctions, blowouts, fires, or other similar circumstances is
considered to be unavoidably lost production, unless the BLM determines
that the loss was avoidable under Sec. 3179.4(a)(2)--i.e., the loss
resulted from operator negligence, the failure to take all reasonable
measures to prevent or control the loss, or the failure of the operator
to comply fully with applicable lease terms and regulations,
appropriate provisions of the approved operating plan, or prior written
orders of the BLM.
Final paragraph (b)(2) is substantially similar to the definition
of ``unavoidably lost'' oil or gas that appears in previous Sec.
3179.4(a). This paragraph improves upon NTL-4A by providing clarity to
operators and the BLM about which losses of oil or gas should be
considered ``unavoidably lost.'' Paragraph (b)(2) introduces a list of
operations or sources from which lost oil or gas is considered
``unavoidably lost,'' so long as the operator has not been negligent,
has taken all reasonable measures to prevent or control the loss, and
has complied fully with applicable laws, lease terms, regulations,
provisions of a previously approved operating plan, or other written
orders of the BLM, as provided in Sec. 3179.4(a)(2).
Except for cross references, final Sec. 3179.4(b)(2)(i) through
(vi) are the same as paragraphs (a)(1)(i) through (vi) in previous
Sec. 3179.4. These paragraphs list the following operations or sources
from which lost oil or gas would be considered ``unavoidably lost'':
Well drilling; well completion and related operations; initial
production tests; subsequent well tests; exploratory coalbed methane
well dewatering; and emergencies.
This final rule removes normal operating losses from pneumatic
controllers and pumps (previous Sec. 3179.4(a)(1)(vii)) from the list
of unavoidable losses because the use of gas in pneumatic controllers
and pumps is already royalty free under previous Sec. 3178.4(a)(3).
Final paragraph (b)(2)(vii) is similar to previous Sec.
3179.4(a)(1)(viii), but has been rephrased to reflect the NTL-4A
provisions pertaining to storage-tank losses (NTL-4A Section II.C(1)).
Under final Sec. 3179.4(b)(2)(vii), normal gas vapor losses from a
storage tank or other low-pressure production vessel are unavoidably
lost, unless the BLM determines that recovery of the vapors is
warranted. Changing the phrase ``operating losses'' (as used in
previous Sec. 3179.4(a)(1)(viii)) to ``gas-vapor losses'' makes clear
that this provision applies to low-pressure gas losses.
Final Sec. 3179.4(b)(2)(viii) is the same as previous Sec.
3179.4(a)(1)(ix). It states that well venting in the course of downhole
well maintenance and/or liquids unloading performed in compliance with
Sec. 3179.104 is an operation from which lost gas is considered
``unavoidably lost.''
The final rule does not retain previous Sec. 3179.4(a)(1)(x),
which classified leaks as unavoidable losses when the operator has
complied with the LDAR requirements in previous Sec. Sec. 3179.301
through 3179.305. The BLM is rescinding these LDAR requirements and so
there is no need to reference these requirements as a limitation on
losses through leaks.
Final Sec. 3179.4(b)(2)(ix) is the same as previous Sec.
3179.4(a)(1)(xi), identifying facility and pipeline maintenance, such
as when an operator must blow-down and depressurize equipment to
perform maintenance or repairs, as an operation from which lost oil or
gas would be considered ``unavoidably lost,'' so long as the operator
has not been negligent and has complied with all appropriate
requirements.
The final rule does not include previous Sec. 3179.4(a)(1)(xii).
This paragraph listed the flaring of gas from which at least 50 percent
of natural gas liquids have been removed and captured for market as an
unavoidable loss. This provision was included in the 2016 rule as part
of the BLM's effort to adopt a gas-capture percentage scheme similar to
that of North Dakota. The BLM is removing this provision because it is
rescinding the gas-capture percentage requirements contained in the
2016 rule.
The final rule does not include previous Sec. 3179.4(a)(2).
Previous Sec. 3179.4(a)(2) provided that gas that is flared or vented
from a well that is not connected to a gas pipeline is unavoidably
lost, unless the BLM has determined otherwise. Previous Sec.
3179.4(a)(2) was essentially a blanket approval for royalty-free
flaring from wells not connected to a gas pipeline. Flaring from these
wells, however,
[[Page 49199]]
would no longer have been royalty free if the operator failed to meet
the gas-capture requirements imposed by previous Sec. 3179.7 and the
flared gas thus became royalty-bearing ``excess flared gas.'' Because
the BLM is rescinding previous Sec. 3179.7, maintaining previous Sec.
3179.4(a)(2) would amount to sanctioning unrestricted flaring from
wells not connected to gas pipelines. The routine flaring of oil-well
gas from wells not connected to a gas pipeline is addressed by final
Sec. 3179.201, which is discussed in more detail below.
Final Sec. 3179.4(b)(3) states that produced gas that is flared or
vented with BLM authorization or approval is unavoidably lost. This
provision mirrors final Sec. 3179.4(a), which states that gas that is
flared or vented without BLM authorization or approval is avoidably
lost, and provides clarity to operators about royalty obligations with
respect to authorized venting and flaring.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on Sec. 3179.4 in a
separate ``Responses to Comments'' document, available on the Federal
eRulemaking Portal: https://www.regulations.gov. (In the Searchbox,
enter ``RIN 1004-AE53,'' click the ``Search'' button, open the Docket
Folder, and look under Supporting Documents.)
43 CFR 3179.5--When Lost Production is Subject to Royalty
As proposed, the final rule does not change previous Sec. 3179.5.
This section continues to state that royalty is due on all avoidably
lost oil or gas and that royalty is not due on any unavoidably lost oil
or gas.
43 CFR 3179.6--Venting Limitations
The title of this section in the final rule has been changed from
``venting prohibitions'' to ``venting limitations.'' As was proposed,
the final rule retains most of the provisions in previous Sec. 3179.6.
The purpose of both sections is to prohibit flaring and venting from
gas wells, with certain exceptions, and to require operators to flare,
rather than vent, any uncaptured gas, whether from oil wells or gas
wells, with certain exceptions.
Final Sec. 3179.6(a) is the same as the previous Sec. 3179.6(a),
except the cross reference has been updated. It states that gas-well
gas may not be flared or vented, except where it is unavoidably lost,
pursuant to Sec. 3179.4(b). This same restriction on the flaring of
gas-well gas was included in NTL-4A.
Both previous and final Sec. 3179.6(b) state that operators must
flare, rather than vent, any gas that is not captured, with the
exceptions listed in subsequent paragraphs. Although the text of NTL-4A
did not contain a similar requirement that, in general, lost gas should
be flared rather than vented, the implementing guidance for NTL-4A in
the United States Geological Survey's (USGS) Conservation Division
Manual did contain a similar preference for flaring over venting. The
flaring of gas is generally preferable to the venting of gas due to
safety concerns. Final Sec. 3179.6(b) therefore represents an
improvement on NTL-4A by making clear in the regulation, rather than in
implementation guidance, that lost gas should be flared when possible.
The first three flaring exceptions in both the previous and final
Sec. 3179.6 are identical: Paragraph (b)(1) allows for venting when
flaring is technically infeasible; paragraph (b)(2) allows for venting
in the case of an emergency, when the loss of gas is uncontrollable, or
when venting is necessary for safety; and paragraph (b)(3) allows for
venting when the gas is vented through normal operation of a natural-
gas-activated pump or pneumatic controller.
The fourth flaring exception, listed in final Sec. 3179.6(b)(4),
allows gas vapors to be vented from a storage tank or other low-
pressure production vessel, except when the BLM determines that gas-
vapor recovery is warranted. Although this language is somewhat
different than what appears in previous Sec. 3179.6(b)(4), it has the
same practical effect. As was proposed, it has been changed in this
final rule to align the language with final Sec. 3179.4(b)(vii) and to
remove the cross-reference to the storage tank requirements in previous
Sec. 3179.203, which the BLM is rescinding.
The fifth exception, listed in final Sec. 3179.6(b)(5), applies to
gas that is vented during downhole well maintenance or liquids
unloading activities. This is similar to previous Sec. 3179.6(b)(5),
except that the final rule, as was proposed, removes the cross
reference to previous Sec. 3179.204. Although the revision of subpart
3179 retains limitations on royalty-free losses of gas during well
maintenance and liquids unloading in final Sec. 3179.104, no cross-
reference to those restrictions is necessary in this section, which
simply addresses whether the gas may be vented or flared, not whether
it is royalty-bearing.
The final rule removes the flaring exception listed in previous
Sec. 3179.6(b)(6), which applied to gas vented through a leak,
provided that the operator had complied with the LDAR requirements in
previous Sec. Sec. 3179.301 through 3179.305. The BLM is rescinding
these LDAR requirements so there is no need to reference these
requirements as a limitation on venting through leaks.
The sixth flaring exception, listed in final Sec. 3179.6(b)(6), is
identical to the exception listed in previous Sec. 3179.6(b)(7). This
exception allows gas venting that is necessary to allow non-routine
facility and pipeline maintenance to be performed.
The seventh flaring exception, listed in final Sec. 3179.6(b)(7),
is identical to the exception listed in previous Sec. 3179.6(b)(8).
This exception allows venting when a release of gas is unavoidable
under Sec. 3179.4, and Federal, State, local, or tribal law,
regulation, or enforceable permit terms prohibit flaring.
Final Sec. 3179.6(c) is identical to previous Sec. 3179.6(c).
Both sections require all flares or combustion devices to be equipped
with automatic ignition systems. In addition to the explanation
provided here, the BLM has summarized and responded to the comments
received on Sec. 3179.6 in a separate ``Responses to Comments''
document, available on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
Authorized Flaring and Venting of Gas
43 CFR[thinsp]3179.101--Initial Production Testing
As was proposed, final Sec. 3179.101 establishes volume and
duration standards which limit the amount of gas that may be flared
royalty free during initial production testing. The gas is no longer
royalty free after reaching either limit. Final Sec. 3179.101
establishes a volume limit of 50 million cubic feet (MMcf) of gas that
may be flared royalty free during the initial production test of each
completed interval in a well. Additionally, final Sec. 3179.101 limits
royalty-free initial production testing to a 30 day period, unless the
BLM approves a longer period.
The 2016 rule also used volume and duration thresholds to limit
royalty-free initial production testing. Previous Sec. 3179.103
provided for up to 20 MMcf of gas to be flared royalty free during well
drilling, well completion, and initial production testing operations
combined. Under previous Sec. 3179.103, upon receiving a Sundry Notice
request from the operator, the BLM could have increased the volume of
royalty-free
[[Page 49200]]
flared gas up to an additional 30 MMcf. Under previous Sec. 3179.103,
similar to final Sec. 3179.101, the BLM allowed royalty-free testing
for a period of up to 30 days after the start of initial production
testing. Under previous Sec. 3179.103, the BLM could, upon request,
extend the initial production testing period by up to an additional 60
days. Further, previous Sec. 3179.103 provided additional time for
dewatering and testing exploratory coalbed methane wells. Under
previous Sec. 3179.103, such wells had an initial royalty-free period
of 90 days (rather than the 30 days applicable to all other well
types), and the possibility of the BLM approving, upon request, up to
two additional 90-day periods.
Under NTL-4A, gas lost during initial production testing was
royalty free for a period not to exceed 30 days or the production of 50
MMcf of gas, whichever occurred first, unless a longer test period was
authorized by the State and accepted by the BLM.
The volume and duration limits in final Sec. 3179.101 are similar
to those in previous Sec. 3179.103 and NTL-4A. Both sections and NTL-
4A allow 30 days from the start of the test, and all three allow for
extensions of time. However, previous Sec. 3179.103 limited an
extension to no more than 60 days, whereas final Sec. 3179.101 does
not specify an extension limit. Final Sec. 3179.101 allows for up to
50 MMcf of gas to be flared royalty free, with no express opportunity
for an increase in the volume of royalty-free flaring during initial
production testing. By comparison, previous Sec. 3179.103 allowed for
20 MMcf to be flared royalty free, with the possibility of an
additional 30 MMcf of gas flared with BLM approval, and no opportunity
for additional royalty-free flaring beyond the cumulative 50 MMcf of
gas.
Some commenters argued that the regulation should allow for
operators to seek BLM approval for additional volumes of royalty-free
flaring during initial production testing in the same way they can seek
additional time for royalty-free flaring. Commenters also argued that
the BLM should allow for additional time and volumes of royalty-free
flaring when such longer periods or additional volumes of flaring are
authorized by a State. The BLM does not agree with the comments and did
not change Sec. 3179.101 in response to them. Based on consultation
with experienced BLM petroleum engineers and the fact that these
limitations are consistent with longstanding standards in NTL-4A, the
BLM believes the limitations in Sec. 3179.101(a)(2) and (3) provide
most operators sufficient time and volume for testing in a royalty-free
status. Although an extension of the time period for initial production
testing may sometimes be justified (as where the operator has failed to
acquire adequate reservoir information), the volume threshold acts as a
governor to ensure that the public and tribes are compensated for
excessive losses of publicly or tribally owned gas during initial
production testing. Beyond the 50 Mmcf threshold, the operator may
continue initial production testing, but incurs a royalty obligation.
The provision for exploratory coalbed methane wells in previous
Sec. 3179.103 is the most notable difference between it and this final
rule with regard to the initial production testing. Previous Sec.
3179.103 provided for up to 270 cumulative royalty-free production
testing days for exploratory coalbed methane wells, whereas the final
rule contains no special provision for such wells. Exploratory coalbed
methane wells are expected to be an exceedingly low percentage of
future wells drilled, and so the BLM does not believe that a special
provision addressing these wells is necessary.\34\ In the future, if an
exploratory coalbed methane well requires additional time for initial
production testing, this can be handled under final Sec. 3179.101(b),
which allows an operator to request a longer test period without
imposing an outside limit on the length of the additional test period
the BLM might approve.
---------------------------------------------------------------------------
\34\ Exploratory coalbed methane (CBM) well completions have
declined precipitously over the past 15 years, likely due to the
drop in natural gas prices and the relative attractiveness of
natural gas from shale formations. In 2004, the number of
exploratory CBM well completions was 904, while in 2015, 2016, 2017,
and 2018, the number of CBM well completions on Federal lands was 9,
8, 1, and 1, respectively. Meaning, from 2004 to 2018, exploratory
CBM well completions on Federal lands dropped by 99.9%.
---------------------------------------------------------------------------
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on Sec. 3179.101 in
a separate ``Responses to Comments'' document, available on the Federal
eRulemaking Portal: https://www.regulations.gov. (In the Searchbox,
enter ``RIN 1004-AE53,'' click the ``Search'' button, open the Docket
Folder, and look under Supporting Documents).
43 CFR[thinsp]3179.102--Subsequent Well Tests
As proposed, final Sec. 3179.102(a) provides that gas flared
during well tests subsequent to the initial production test is royalty
free for a period not to exceed 24 hours, unless the BLM approves or
requires a longer test period. Also as proposed, final Sec.
3179.102(b) provides that the operator may request a longer test period
and must submit its request using a Sundry Notice. Final Sec. 3179.102
is functionally identical to previous Sec. 3179.104.
NTL-4A included royalty-free provisions for ``evaluation tests''
and for ``routine or special well tests.'' Because NTL-4A also
contained specific provisions for ``initial production tests,'' all of
the other mentioned tests were presumed to be subsequent to the initial
production tests. Under NTL-4A, royalty-free evaluation tests were
limited to 24 hours, with no mention of a possibility for extension.
Routine or special well tests, which are well tests other than initial
production tests and evaluation tests, were royalty free under NTL-4A,
but only after approval by the BLM.
The provisions for subsequent well tests in final Sec. 3179.102
are essentially the same as those in both the 2016 rule and in NTL-4A.
All three provide for a base test period of 24 hours, and all three
have a provision for the BLM to approve a longer test period. Final
Sec. 3179.102 improves upon NTL-4A by dispensing with the distinction
between ``evaluation tests'' and ``routine or special well tests,''
making the requirements for subsequent well tests more clear.
The comments about this section that the BLM received expressed
support for the provision, as summarized in a separate ``Responses to
Comments'' document, available on the Federal eRulemaking Portal:
https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-
AE53,'' click the ``Search'' button, open the Docket Folder, and look
under Supporting Documents.)
43 CFR[thinsp]3179.103--Emergencies
Under final Sec. 3179.4(b)(2)(vi), royalty is not due on gas that
is lost during an emergency. As proposed, final Sec. 3179.103
describes the conditions that constitute an emergency, and lists
circumstances that do not constitute an emergency. As provided in final
Sec. 3179.103(d), an operator is required to estimate and report to
the BLM on a Sundry Notice the volumes of gas that were flared or
vented beyond the timeframe for royalty-free flaring under final Sec.
3179.103(a) (i.e., venting or flaring beyond 24 hours, or a longer
necessary period as determined by the BLM).
The provisions in final Sec. 3179.103 are nearly identical to
those in previous Sec. 3179.105. The most notable change from the 2016
rule is in describing those things that do not constitute an
[[Page 49201]]
emergency. Where previous Sec. 3179.105(b)(1) specifies that ``more
than 3 failures of the same component within a single piece of
equipment within any 365-day period'' is not an emergency, final Sec.
3179.103(c)(4) simplifies that concept by including ``recurring
equipment failures'' among the situations caused by operator negligence
that do not constitute an emergency. This simplification addresses the
practical difficulties involved in tracking the number of times the
failure of a specific component of a particular piece of equipment
causes emergency venting or flaring, and recognizes that recurring
failures of the same equipment, even if involving different
``components,'' may not constitute a true unavoidable emergency.
The description of ``emergencies'' in NTL-4A was brief and was
subject to misinterpretation. The purpose behind both previous Sec.
3179.105 and final Sec. 3179.103 is to improve upon NTL-4A by
narrowing the meaning of ``emergency,'' such that it is uniformly
understood and consistently applied.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on Sec. 3179.103 in
a separate ``Responses to Comments'' document, available on the Federal
eRulemaking Portal: https://www.regulations.gov. (In the Searchbox,
enter ``RIN 1004-AE53,'' click the ``Search'' button, open the Docket
Folder, and look under Supporting Documents.).
43 CFR 3179.104--Downhole Well Maintenance and Liquids Unloading
Under final Sec. 3179.4(b)(2)(viii), gas lost in the course of
downhole well maintenance and/or liquids unloading performed in
compliance with final Sec. 3179.104 is royalty free. Final Sec.
3179.104(a) states that gas vented or flared during downhole well
maintenance and well purging is royalty free for a period not to exceed
24 hours. Final Sec. 3179.104(a) also states that gas vented from a
plunger lift system and/or an automated well control system is royalty
free. Final Sec. 3179.104(b) states that the operator must minimize
the loss of gas associated with downhole well maintenance and liquids
unloading, consistent with safe operations. Final Sec. 3179.104(c)
states that, for wells equipped with a plunger lift system or automated
control system, minimizing gas loss under paragraph (b) includes
optimizing the operation of the system to minimize gas losses to the
extent possible consistent with removing liquids that would inhibit
proper function of the well. Final Sec. 3179.104(d) provides that the
operator must ensure that the person conducting manual well purging
remains present on-site throughout the event in order to end the event
as soon as practical, thereby minimizing any venting to the atmosphere.
Final Sec. 3179.104(e) defines ``well purging'' as blowing accumulated
liquids out of a wellbore by reservoir gas pressure, whether manually
or by an automatic control system that relies on real-time pressure or
flow, timers, or other well data, where the gas is vented to the
atmosphere, and it does not apply to wells equipped with a plunger lift
system. Final Sec. 3179.104(e) is identical to previous Sec.
3179.204(g).
Previous Sec. 3179.204 required the operator to ``minimize vented
gas'' in liquids unloading operations, but did not impose volume or
duration limits. As with final Sec. 3179.104, previous Sec. 3179.204
allowed for gas vented or flared during well purging to be royalty free
provided that the operator ensured that the person conducting the
operation remained on-site throughout the event. Previous Sec.
3179.204 also required plunger lift and automated control systems to be
optimized to minimize gas loss associated with their effective
operation. The main difference between previous Sec. 3179.204 and
final Sec. 3179.104 is that previous Sec. 3179.204(c) required the
operator to file a Sundry Notice with the BLM the first time that each
well was manually purged or purged with an automated control system.
That Sundry Notice was required to include documentation showing that
the operator evaluated the feasibility of using methods of liquids
unloading other than well purging and that the operator determined that
such methods were either unduly costly or technically infeasible. In
addition to the apparent administrative burden of filing the Sundry
Notice, this would have imposed additional costs on the operator by
requiring it to evaluate and analyze other methods of liquids
unloading. And, the evaluation may have led the operator to identify a
more costly alternative that could not be ignored as ``unduly costly.''
Additionally, under previous Sec. 3179.204, the operator would file a
Sundry Notice with the BLM each time a well-purging event exceeded
either a duration of 24 hours in a month or an estimated gas loss of 75
Mcf in a month. For each manual purging event, the operator would also
have needed to keep a record of the cause, date, time, duration, and
estimate of the volume of gas vented. The operator would have had to
maintain these records and make them available to the BLM upon request.
With respect to royalty, gas vented during well purging was
addressed in NTL-4A as follows: ``. . . operators are authorized to
vent or flare gas on a short-term basis without incurring a royalty
obligation . . . during the unloading or cleaning up of a well during .
. . routine purging . . . not exceeding a period of 24 hours.'' As used
in NTL-4A, it is unclear whether the ``24 hours'' limit was intended to
be 24 hours per month or 24 hours per purging event. In this final
rule, the BLM has modified proposed Sec. 3179.104(a) to make clear
that it imposes a 24-hour limit per event.
The available data show that the frequency of liquids unloading
maintenance operations vary and that the events are relatively short in
duration. A study by Shires and Lev-On \35\ examined data from an API
and American Natural Gas Alliance (ANGA) nationwide survey. The
researchers found that, of the roughly 6,500 surveyed wells that vented
to the atmosphere for liquids unloading (i.e., not equipped with a
plunger lift), the wells required an average of 32.57 events per year
for an average of 1.9 hours per event.\36\ A study by Allen et al.\37\
examined a small sample of nine wells conducting manual well liquids
unloading and found that the wells in the sample required an average of
5.9 events per year for an average of 1 hour per event.\38\ While the
BLM has finalized a 24-hour limit recognizing that certain instances or
wells might require maintenance operations that exceed the averages
noted, the BLM notes that the rule requires the person conducting
manual well purging to remain present on-site throughout the event to
end the event as soon as practical. Therefore, even though the 24-hour
limit exceeds the average, we are convinced that the duration of events
will be limited to the time necessary.
---------------------------------------------------------------------------
\35\ Shires, T. & Lev-On, M. (2012). Characterizing Pivotal
Sources of Methane Emissions from Unconventional Natural Gas
Production: Summary and Analysis of API and ANGA Survey Responses.
September 2012.
\36\ See Table 7 on p. 15.
\37\ Allen, D., Torres, V., et al. (2013). Measurements of
methane emissions at natural gas production sites in the United
States. Proceedings of the National Academy of Sciences or the
United States of America.
\38\ See appendix to study at S-37.
---------------------------------------------------------------------------
In terms of minimizing the loss of gas during well-purging events,
final Sec. 3179.104 and previous Sec. 3179.204 are essentially the
same. Differences between the two are found in the reporting and
recordkeeping requirements imposed by the 2016 rule.
[[Page 49202]]
The intent of these recordkeeping requirements, as explained in the
2016 rule preamble, was to build a record of the amount of gas lost
through these operations so that information might lead to better
future management of liquids unloading operations. The BLM now believes
that the reporting and recordkeeping requirements in previous Sec.
3179.204 are unnecessary and unduly burdensome. In particular, the
reporting requirement of previous Sec. 3179.204(c) appears to be
unnecessary because wells undergoing manual well purging are mature and
the well pressure is in decline \39\ and alternative methods of liquids
unloading are likely to be costly for those wells.\40\ And in light of
the economic and production circumstances faced by wells undergoing
manual well purging, the BLM does not realistically foresee the
development of better waste-management techniques based on manual well-
purging information collected pursuant to previous Sec. 3179.204.
---------------------------------------------------------------------------
\39\ EPA (2014). Oil and Natural Gas Sector Liquids Unloading
Process: Report for Oil and Natural Gas Sector Liquids Unloading
Process Review Panel. April 2014. pp. 2, 25.
\40\ Ibid. pp. 16-19 of that report detail the costs of various
possible interventions.
---------------------------------------------------------------------------
As mentioned above, final Sec. [thinsp]3179.104(d) requires the
person conducting manual well purging to remain present on-site
throughout the event to end the event as soon as practical. This
provision was not a requirement in NTL-4A, and was first established in
the 2016 rule.
The comments about section that the BLM received expressed support
for the provision, as summarized in a separate ``Responses to
Comments'' document, available on the Federal eRulemaking Portal:
https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-
AE53,'' click the ``Search'' button, open the Docket Folder, and look
under Supporting Documents.)
Other Venting or Flaring
43 CFR 3179.201--Oil-Well Gas.
As proposed, final Sec. 3179.201 governs the routine flaring of
associated gas from oil wells. The requirements of final Sec. 3179.201
replace the ``capture percentage'' requirements of the 2016 rule.
Short-term flaring, such as that experienced during initial production
testing, subsequent well testing, emergencies, and downhole well
maintenance and liquids unloading, are governed by final Sec. Sec.
3179.101 through 3179.104.
Final Sec. 3179.201(a) allows operators to vent or flare oil-well
gas royalty free when the venting or flaring is done in compliance with
applicable rules, regulations, or orders of the State regulatory agency
(for Federal gas) or tribe (for Indian gas). This section establishes
State or tribal rules, regulations, and orders as the prevailing
regulations for the venting and flaring of oil-well gas on BLM-
administered leases, unit participating areas (PAs), or communitization
agreements (CAs).
Under the 2016 rule, an operator's royalty obligations for venting
or flaring were determined by the avoidable/unavoidable loss
definitions and the gas-capture-requirement thresholds. Operator
royalty obligations for the flaring of associated gas from oil wells
under NTL-4A were, for the most part, dependent on a discretionary
authorization by the BLM based on the economics of gas capture or an
action plan to eventually eliminate the flaring. NTL-4A also allowed
for gas to be flared royalty free pursuant to the rules, regulations,
or order of the appropriate State regulatory agency, when the BLM had
ratified or accepted such rules, regulations, or orders. The final rule
implements this concept from NTL-4A by deferring to the rules,
regulations, or orders of State regulatory agencies or a tribe. This
change both simplifies an operator's obligations by aligning Federal
and State venting and flaring requirements for oil-well gas and allows
for region-specific regulation of oil-well gas that accounts for
regional differences in production, markets, and infrastructure. An
operator owes royalty on any oil-well gas flared in violation of
applicable State or tribal requirements.
The BLM has analyzed the statutory and regulatory restrictions on
venting and flaring in the 10 States constituting the top eight
producers of Federal oil and the top eight producers of Federal gas,
which collectively produce more than 99 percent of Federal oil and more
than 98 percent of Federal gas. The BLM found that each of these States
have statutory or regulatory restrictions on venting and flaring that
are expected to constrain the waste of associated gas from oil wells.
Most of these States require an operator to obtain approval from the
State regulatory authority (by justifying the need to flare) in order
to engage in the flaring of associated gas.\41\ North Dakota has a
similar requirement, but, in the Bakken, Bakken/Three Forks, and Three
Forks pools, restricts flaring through the application of gas-capture
goals that function similarly to the capture percentage requirements of
the 2016 rule. Summaries of the State statutory and regulatory
restrictions on venting and flaring analyzed by the BLM are contained
in a Memorandum that BLM has published for public access on https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53,'' click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.) Final Sec. 3179.201(a) defers to State and
tribal statutes and regulations, like those described in the
Memorandum, that provide a reasonable assurance to the BLM that
operators will not be permitted to engage in the flaring of associated
gas without limitation and that the waste of associated gas will be
controlled. In order to make this clear in the final regulatory text,
Sec. 3179.201(a) states that applicable State or tribal rules,
regulations, or orders are appropriate if they place limitations on the
venting and flaring of oil-well gas, including through general or
qualified prohibitions, volume or time limitations, capture percentage
requirements, or trading mechanisms.
---------------------------------------------------------------------------
\41\ These States are: New Mexico, Wyoming, Colorado, Utah,
Montana, Texas, and Oklahoma.
---------------------------------------------------------------------------
Some commenters expressed support for the deference to State and
tribal regulations in Sec. 3179.201(a). These commenters noted that
the various oil and gas fields throughout the country possess different
geological characteristics and that the primary fossil fuel resources
extracted from the fields vary in type and quality. These commenters
expressed support for Sec. 3179.201(a) because it accounts for these
regional differences. The BLM agrees with these commenters that
regional geological differences make it difficult to develop a single
standard for oil-well gas flaring that will be fair and effective when
applied nationwide.
Other commenters objected to Sec. 3179.201(a) on the grounds that
State flaring regulations are less stringent than the 2016 rule, that
State flaring regulations differ from State to State, that existing
State regulations will not reduce flaring from current levels, that
States may amend their regulations, and that North Dakota's flaring
regulations have been, in the view of the commenters, ineffective. The
BLM agrees that many of the State regulations it analyzed are not as
stringent as the capture percentage requirements of the 2016 rule and
that State flaring regulations vary from State to State. However, the
BLM disagrees that this represents a flaw in Sec. 3179.201(a). As
explained above and evidenced by the 2016 RIA, BLM expected the capture
percentage requirements of the 2016 rule to impose net costs. In Sec.
3179.201(a), the BLM is replacing a regulatory requirement that imposed
unreasonable costs with a policy that will reasonably constrain waste
while
[[Page 49203]]
accounting for the differing geological and infrastructure realities
faced by operators in different regions. The BLM does not argue that
each State's existing flaring regulations will necessarily reduce
flaring rates in that State. However, this does not mean that the BLM
is acting unreasonably or in violation of its statutory obligations in
deferring to them under Sec. 3179.201(a). As explained above, after
reviewing the State regulations for the 10 states producing
approximately 99 percent of Federal oil and gas, the BLM believes that
these regulations require operators to take reasonable precautions to
prevent undue waste. The BLM also recognizes that States may amend
their regulations. If such an amendment were to propose a relaxation of
a State's restrictions on flaring, and the BLM judged that it allowed
for undue waste of Federal gas, then the BLM would move swiftly to
amend Sec. 3179.201 to preclude deference to that State's flaring
regulations.
With respect to the efficacy of North Dakota's regulations,
commenters submitted tabular data indicating that, of the top 30
producers of gas in the Bakken/Bakken-Three Forks/Three-Forks pools, 19
exceeded the applicable flaring percentage requirement in at least one
month in 2017. The table submitted by the commenters highlighted each
month in which an operator failed to meet the applicable capture target
of 85 percent. The BLM notes that the table indicates that in many of
these instances the operator appears to have narrowly missed the
requirement (e.g., capturing 84 percent instead of 85 percent). The BLM
further notes that, for all but five or six of the 30 operators, the
failure to meet the monthly capture target was an occasional, rather
than routine, issue. The table submitted by commenters shows that: 11
of the 30 operators met their capture target for every month in 2017; 5
of the 30 operators failed to meet their capture target in only 1 month
in 2017; and 5 of the 30 operators failed to meet their capture target
in only 2 months in 2017. The BLM does not believe that these
statistics indicate that North Dakota's flaring regulations are
deficient. Commenters also claimed that North Dakota has been derelict
in taking enforcement actions against operators that fail to meet the
capture target. However, the extent of a State's enforcement of its
regulations does not impact whether flared gas is royalty bearing under
Sec. 3179.201(a). If the flaring violates the applicable State
regulation, it will be royalty bearing regardless of whether the State
takes enforcement action. Finally, the BLM estimates that the flaring
of Federal and Indian mineral estate oil-well gas in North Dakota has
been reduced substantially from 64 Bcf in 2015 to 44 Bcf in 2016.
Final Sec. 3179.201(b) exclusively addresses oil-well gas
production from an Indian lease. Vented or flared oil-well gas from an
Indian lease will be treated as royalty free pursuant to final Sec.
3179.201(a) only to the extent it is consistent with the BLM's trust
responsibility.
In the event a State regulatory agency or tribe does not currently
have rules, regulations, or orders governing venting or flaring of oil-
well gas, the BLM is retaining the NTL-4A approach as a backstop,
providing a way for operators to obtain BLM approval to vent or flare
oil-well gas royalty free by submitting an application with sufficient
justification as described in final Sec. 3179.201(c). Applications for
royalty-free venting or flaring of oil-well gas must include either:
(1) An evaluation report supported by engineering, geologic, and
economic data demonstrating that capturing or using the gas is not
economical; or (2) An action plan showing how the operator will
minimize the venting or flaring of the gas within 1 year of the
application. If an operator vents or flares oil-well gas in excess of
10 MMcf per well during any month, the BLM may determine the gas to be
avoidably lost and subject to royalty assessment. The BLM notes that
there was no similar provision in NTL-4A allowing for the BLM to impose
royalties where flaring under an action plan exceeds 10 MMcf per well
per month. However, this provision is based on guidance in the
Conservation Division Manual \42\ (at 644.5.3F), which was developed by
the USGS and has long been used by the BLM as implementation guidance
for NTL-4A.
---------------------------------------------------------------------------
\42\ Available at https://www.ntc.blm.gov/krc/uploads/172/NTL-4A%20Royalty%20or%20Compensation%20for%20Oil%20and%20Gas%20Lost.pdf.
---------------------------------------------------------------------------
As under NTL-4A, the evaluation report required under final Sec.
3179.201(c)(1) must demonstrate to the BLM's satisfaction that the
expenditures necessary to market or beneficially use the gas are not
economically justified. Under final Sec. 3179.201(d)(1), the
evaluation report must include estimates of the volumes of oil and gas
that would be produced to the economic limit if the application to vent
or flare were approved, and estimates of the volumes of oil and gas
that would be produced if the applicant was required to market or use
the gas.
From the information contained in the evaluation report, the BLM
will determine whether the operator can economically operate the lease
if it is required to market or use the gas, taking into consideration
both oil and gas production, as well as the economics of a field-wide
plan. Under final Sec. 3179.201(d)(2), the BLM is able to require
operators to provide updated evaluation reports as additional
development occurs or economic conditions improve, but no more than
once a year. NTL-4A did not contain a similar provision allowing the
BLM to require an operator to update its evaluation report based on
changing circumstances. Final Sec. 3179.201(d)(2) thus represents a
change from NTL-4A.
An action plan submitted under final Sec. 3179.201(c)(2) must show
how the operator will minimize the venting or flaring of the oil-well
gas within 1 year. An operator may apply for an approval of an
extension of the 1-year time limit. In the event the operator fails to
implement the action plan, the entire volume of gas vented or flared
during the time covered by the action plan would be subject to royalty.
Final Sec. 3179.201(e) provides for grandfathering of prior
approvals to flare royalty free. These approvals will continue in
effect until no longer necessary because the venting or flaring is
authorized by the rules, regulations, or orders of an appropriate State
regulatory agency or tribe under final Sec. 3179.201(a), or the BLM
requires an updated evaluation report and determines to amend or revoke
its approval.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on Sec. 3179.201 in
a separate ``Responses to Comments'' document, available on the Federal
eRulemaking Portal: https://www.regulations.gov. (In the Searchbox,
enter ``RIN 1004-AE53,'' click the ``Search'' button, open the Docket
Folder, and look under Supporting Documents.)
Measurement and Reporting Responsibilities
43 CFR 3179.301--Measuring and Reporting Volumes of Gas Vented and
Flared
As proposed, final Sec. 3179.301(a) requires operators to estimate
or measure all volumes of lost oil and gas, whether avoidably or
unavoidably lost, from wells, facilities, and equipment on a lease,
unit PA, or CA and report those volumes under applicable Office of
Natural Resources Revenue (ONRR)
[[Page 49204]]
reporting requirements. Under final Sec. 3179.301(b), the operator
may: (1) Estimate or measure the vented or flared gas in accordance
with applicable rules, regulations, or orders of the appropriate State
or tribal regulatory agency; (2) Estimate the volume of the vented or
flared gas based on the results of a regularly performed GOR test and
measured values for the volume of oil production and gas sales, to
allow BLM to independently verify the volume, rate, and heating value
of the flared gas; or, (3) Measure the volume of the flared gas.
Under final Sec. 3179.301(c), the BLM may require the installation
of additional measurement equipment whenever it determines that the
existing methods are inadequate to meet the purposes of subpart 3179.
NTL-4A contained essentially the same provision. Based on past
experience in implementing NTL-4A, the BLM believes that final Sec.
3179.301(c) would help to ensure accuracy and accountability in
situations in which high volumes of royalty-bearing gas are being
flared.
Final Sec. 3179.301(d) allows the operator to combine gas from
multiple leases, unit PAs, or CAs for the purpose of flaring or venting
at a common point, but the operator is required to use a BLM-approved
method to allocate the quantities of the vented or flared gas to each
lease, unit PA, or CA. Commingling to a single flare is allowed because
the BLM recognizes that the additional costs of requiring individual
flaring measurement and meter facilities for each lease, unit PA, or
communitized area are not necessarily justified by the incremental
royalty accountability afforded by the separate meters and flares.
Final Sec. 3179.301 is essentially the same as previous Sec.
3179.9. The main difference between the two is that previous Sec.
3179.9 required measurement or calculation under a particular protocol
when the volume of flared gas exceeded 50 Mcf per day.
In addition to the explanation provided here, the BLM has
summarized and responded to the comments received on Sec. 3179.301 in
a separate ``Responses to Comments'' document, available on the Federal
eRulemaking Portal: https://www.regulations.gov. (In the Searchbox,
enter ``RIN 1004-AE53,'' click the ``Search'' button, open the Docket
Folder, and look under Supporting Documents).
Additional Deference to Tribal Regulations
Sec. 3179.401--Deference to Tribal Regulations
Tribal commenters stated that the revision of the 2016 rule should
provide more opportunity for tribes to exercise their sovereignty over
oil and gas development under their jurisdiction. In order to
facilitate this, the BLM has chosen to modify the proposed rule to
include a new provision that would allow for additional deference to
Tribal rules, regulations, and orders concerning the matters addressed
in subpart 3179. New Sec. 3179.401(a) states that a Tribe that has
rules, regulations, or orders that are applicable to any of the matters
addressed in subpart 3179 may seek approval from the BLM to have such
rules, regulations, or orders apply in place of any or all of the
provisions of subpart 3179 with respect to lands and minerals over
which that Tribe has jurisdiction. Under Sec. 3179.401(b), the BLM
will approve the tribe's request as long as it is consistent with the
BLM's trust responsibility.
C. Summary of Estimated Impacts
The BLM reviewed the final rule and conducted an RIA and
Environmental Assessment (EA) that examine the impacts of the final
rule's requirements. The RIA and EA that the BLM prepared have been
posted in the docket for the final rule on the Federal eRulemaking
Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN
1004-AE53'', click the ``Search'' button, open the Docket Folder, and
look under Supporting Documents.) The following discussion is a summary
of the final rule's economic impacts. For a more complete discussion of
the expected economic impacts of the final rule, please review the RIA.
The BLM's final rule will remove almost all of the requirements in
the 2016 rule that we previously estimated would pose a compliance
burden to operators and generate benefits of gas savings or reductions
in methane emissions. The final rule replaces the 2016 rule's
requirements with requirements largely similar to those that were in
NTL-4A. Also, for the most part, the final rule removes the
administrative burdens associated with the 2016 rule's subpart 3179.
In conducting this RIA, the BLM also revisited the underlying
assumptions used in the RIA for the 2016 rule. Specifically, the BLM
revisited the underlying assumptions pertaining to LDAR, administrative
burdens, and climate benefits (see Sections 3.2, 3.3, and 7 of the
RIA).
For this final rule, we track the impacts over the first 10 years
of implementation against the baseline. The period of analysis in the
RIA prepared for the 2016 rule was 10 years. Results are provided using
the net present value (NPV) of costs and benefits estimated over the
evaluation period, calculated using 7 percent and 3 percent discount
rates.
Estimated Reductions in Compliance Costs
First, we examined the reductions in compliance costs, excluding
the savings that would have been realized from product recovery. The
final rule reduces compliance costs from the baseline. Over the 10-year
evaluation period (2019-2028), we estimate a total reduction in
compliance costs of $1.36 billion to 1.63 billion (NPV using a 7
percent discount rate) or $1.71 billion to 2.08 billion (NPV using a 3
percent discount rate). We expect very few compliance costs associated
with the final rule, including the remaining administrative burdens.
Estimated Reduction in Benefits
The final rule reduces benefits from the baseline, since estimated
cost savings that would have come from product recovery will be forgone
and the emissions reductions would also be forgone. The final rule will
result in forgone cost savings from natural gas recovery. Over the 10-
year evaluation period (2019-2028), we estimate total forgone cost
savings from natural gas recovery (from the baseline) of $559 million
(NPV using a 7 percent discount rate) or $734 million (NPV using a 3
percent discount rate). The final rule also expects to result in
forgone methane emissions reductions. Over the 10-year evaluation
period (2019-2028), we estimate total forgone methane emissions
reductions from the baseline valued at $66 million (NPV and interim
domestic SC-CH4 using a 7 percent discount rate) or $259 million (NPV
and interim domestic SC-CH4 using a 3 percent discount rate).
Estimated Net Benefits
The final rule is estimated to result in positive net benefits
relative to the baseline. More specifically, we estimate that the
reduction of compliance costs will exceed the forgone cost savings from
recovered natural gas and the value of the forgone methane emissions
reductions. Over the 10-year evaluation period (2019-2028), we estimate
total net benefits from the baseline of $734 million to $1.01 billion
(NPV and interim domestic SC-CH4 using a 7 percent discount
rate) or $720 million to
[[Page 49205]]
$1.08 billion (NPV and interim domestic SC-CH4 using a 3
percent discount rate).
Energy Systems
The final rule is expected to influence the production of natural
gas, natural gas liquids, and crude oil from onshore Federal and Indian
oil and gas leases. However, since the relative changes in production
are expected to be small, we do not expect that the final rule will
significantly impact the price, supply, or distribution of energy. This
is not to say that the rule would not have a positive effect on
marginal wells and the production of oil and natural gas from marginal
wells.
The BLM conducted an analysis to examine the impacts that the 2016
rule would have had on marginal wells. As described in Section II.b of
this preamble and Section 4.5.6 of the RIA, the BLM estimates that
approximately 73 percent of wells on BLM-administered leases are
considered to be marginal wells and that the annual compliance costs
associated with the 2016 rule would have constituted 24 percent of the
annual revenues of even the highest-producing marginal oil wells and 86
percent of the annual revenues of the highest-producing marginal gas
wells. Production from marginal wells represents a smaller fraction of
total oil and gas production than that of non-marginal wells. However,
as the BLM's analysis indicates, this means that any associated
regulatory burdens would have a disproportionate impact on marginal
wells, since the compliance costs represent a much higher fraction of
oil and gas revenues for marginal wells than they do for non-marginal
wells. Thus, the compliance burdens of the 2016 rule pose a greater
cost to marginal well producers.
The BLM also finds that marginal oil and gas production on Federal
lands supported an estimated $2.9 billion in economic output in the
national economy in FY 2015. To the extent that the 2016 rule would
have adversely impacted production from marginal wells through
premature shut-ins, this estimated economic output would have been
jeopardized. Therefore, while the BLM has determined that the 2018
final rule would not significantly impact the price, supply, or
distribution of energy, the BLM acknowledges that the 2016 rule had the
potential to harm the production of oil and natural gas from marginal
wells and that this revision of the 2016 rule would avoid those
potentially harmful effects.
The final rule will reverse the estimated incremental changes in
crude oil and natural gas production associated with the 2016 rule.
Over the 10-year evaluation period (2019-2028), we estimate that 18.4
million barrels of crude oil production and 22.7 Bcf of natural gas
production will no longer be deferred (as it would have been under the
2016 rule). However, we also estimate that there will be 299 Bcf of
forgone natural gas production (that would have been produced and sold
under the 2016 rule, rather than vented or flared). See RIA at Section
4.5.1.
For context, we note the share of the total U.S. onshore production
in 2015 that the incremental changes in production will represent. The
per-year average of the estimated crude oil volume that will no longer
be deferred represents 0.058 percent of the total onshore U.S. crude
oil production in 2015.\43\ The per-year average of the estimated
natural gas volume that will no longer be deferred represents 0.008
percent of the total onshore U.S. natural gas production in 2015.\44\
The per-year average of the estimated forgone natural gas production
represents 0.109 percent of the total onshore U.S. natural gas
production in 2015.\45\
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\43\ Calculation based on total onshore U.S. crude oil
production in 2015, as reported by the U.S. EIA. Production data
available at https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm.
\44\ Calculation based on total onshore U.S. natural gas and
gross withdrawals in 2015, as reported by the U.S. EIA. Production
data available at https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_FGW_mmcf_a.htm.
\45\ Ibid.
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Royalty Impacts
The 2016 rule would have been expected to impact the production of
crude oil and natural gas from Federal and Indian oil and gas leases.
In the RIA for the 2016 rule, the BLM estimated that the rule's
requirements would generate additional natural gas production, but that
substantial volumes of crude oil production would be deferred or
shifted to the future. The BLM concluded that the 2016 rule would
generate overall additional royalty, with the royalty gains from the
additional natural gas produced outweighing the value of the royalty
losses from crude oil production (and some associated gas) being
deferred into the future.
This final rule, which reverses most of the 2016 rule's provisions,
is expected to reverse the estimated royalty impacts of the 2016 rule.
This formulation does not account for the potential countervailing
impacts of the reduction in compliance burdens, which might spur
additional production on Federal and Indian lands and prolong
production from marginal wells, and therefore have a positive impact on
royalties.
We note that royalty impacts are presented separately from the
costs, benefits, and net benefits. Royalty payments are recurring
income to Federal or tribal governments and costs to the operator or
lessee. As such, they are transfer payments that do not affect the
total resources available to society. An important but sometimes
difficult problem in cost estimation is to distinguish between real
costs and transfer payments. While transfers should not be included in
the economic analysis estimates of the benefits and costs of a
regulation, they may be important for describing the distributional
effects of a regulation.
The final rule will result in forgone royalty payments to the
Federal Government, tribal governments, States, and private landowners.
Over the 10-year evaluation period (2019-2028), we estimate total
forgone royalty payments (from the baseline) of $28.3 million (NPV
using a 7 percent discount rate) or $79.1 million (NPV using a 3
percent discount rate).
Consideration of Alternative Approaches
E.O. 13563 reaffirms the principles of E.O. 12866 and requires that
agencies, among other things, ``identify and assess available
alternatives to direct regulation, including providing economic
incentives to encourage the desired behavior, such as user fees or
marketable permits, or providing information upon which choices can be
made by the public.''
The 2016 rule established requirements and direct regulation on
operators. Under this final rule, the BLM will remove the requirements
of the 2016 rule that impose the most substantial direct regulatory
burdens on operators. Also, with the final rule, the BLM will remove
the duplicative operational and equipment requirements and paperwork
and administrative burdens.
In developing this final rule, the BLM considered scenarios for
retaining certain requirements previously contained in subpart 3179.
For example, we examined the impacts of retaining subpart 3179 in its
entirety (essentially taking no action). We also examined the impacts
of retaining the gas-capture requirements of the 2016 rule (previous
Sec. Sec. 3179.7 and 3179.8) and the measurement/metering requirements
(previous Sec. 3179.9) while rescinding the operational and equipment
requirements addressing venting from leaks, pneumatic equipment, and
storage tanks. The results of these alternative scenarios are presented
in the RIA at Section 4.
[[Page 49206]]
Employment Impacts
E.O. 13563 reaffirms the principles established in E.O. 12866, but
calls for additional consideration of the regulatory impact on
employment. E.O. 13563 states, ``Our regulatory system must protect
public health, welfare, safety, and our environment while promoting
economic growth, innovation, competitiveness, and job creation.'' An
analysis of employment impacts is a standalone analysis and the impacts
should not be included in the estimation of benefits and costs.
This final rule removes or replaces requirements of the BLM's 2016
rule on waste prevention and is a deregulatory action. As such, we
estimate that it will result in a reduction of compliance costs for
operators of oil and gas leases on Federal and Indian lands. Therefore,
it is likely that the impact, if any, on employment will be positive.
In the RIA for the 2016 rule, the BLM concluded that the
requirements were not expected to impact the employment within the oil
and gas extraction, drilling oil and gas wells, and support activities
industries, in any material way. This determination was based on
several reasons. First, the estimated incremental gas production
represented only a small fraction of the U.S. natural gas production
volumes. Second, the estimated compliance costs represented only a
small fraction of the annual net incomes of companies likely to be
impacted. Third, for those operations that would have been impacted,
the 2016 rule had provisions that would exempt these operations from
compliance to the extent that the compliance costs would force the
operator to shut in production. Based on these factors, the BLM
determined that the 2016 rule would not alter the investment or
employment decisions of firms or significantly adversely impact
employment. The RIA also noted that the requirements would necessitate
the one-time installation or replacement of equipment and the ongoing
implementation of an LDAR program, both of which would require labor.
By removing or revising the requirements of the 2016 rule, the BLM
is alleviating the associated compliance burdens on operators. The
investment and labor necessary to comply with the 2016 rule will not be
needed. We do not believe that the cost savings in themselves will be
substantial enough to substantially alter the investment or employment
decisions of firms. However, we also recognize that there may be a
small positive impact on investment and employment due to the reduction
in compliance burdens if the output effects dominate. The magnitude of
the reductions will be relatively small but could carry competitiveness
impacts, specifically on marginal wells on Federal lands, encouraging
investment. In sum, the effect on investment and employment of this
rule remains unknown, but we do not believe that the final rule will
substantially alter the investment or employment decisions of firms.
Small Business Impacts
The BLM reviewed the Small Business Administration (SBA) size
standards for small businesses and the number of entities fitting those
size standards as reported by the U.S. Census Bureau. We conclude that
small entities represent the majority of entities operating in the
onshore crude oil and natural gas extraction industry and, therefore,
the final rule will impact a substantial number of small entities. To
examine the economic impact of the rule on small entities, the BLM
performed a screening analysis on a sample of potentially affected
small entities, comparing the reduction of compliance costs to entity
profit margins. This screening analysis showed that the estimated per-
entity reduction in compliance costs would result in an average
increase in profit margin of 0.19 percentage points (based on the 2014
company data).\46\
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\46\ Average commodity price in 2014 was higher than subsequent
years; therefore, the result in profit margin may not be
representative of the increase in profit margin as a result of the
updated rulemaking.
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The BLM performed the screening analysis pursuant to its
obligations under the Regulatory Flexibility Act and the Small Business
Regulatory Enforcement Fairness Act. The BLM recognizes that there are
many operators of Federal and Indian leases that are substantially
smaller than the SBA size standards for small businesses in the
affected industries.\47\ For these smaller operators, the estimated
reduction in compliance costs would result in a larger increase in
profits than the average increase shown above.
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\47\ This rule directly affects entities classified within the
Crude Petroleum and Natural Gas Extraction (North American Industry
Classification System (NAICS) code 211111), Natural Gas Liquid
Extraction (NAICS code 211112), Drilling of Oil and Natural Gas
Wells (NAICS code 213111), and Support Activities for Oil and Gas
Operations (213112) industries. The SBA size standards for these
industries are 1,250 employees, 1,000 employees, and annual receipts
of less than $38.5 million, respectively.
---------------------------------------------------------------------------
The BLM also notes that most of the emissions-based requirements in
the 2016 rule (including LDAR, pneumatic controllers, pneumatic pumps,
and liquids unloading requirements) would have imposed a particular
burden on marginal or low-producing wells.\48\ There is concern that
those wells would not have been able to be operated profitably with the
additional compliance costs imposed by the 2016 rule. While the 2016
rule allows for exemptions when compliance would impose such costs that
the operator would cease production and abandon significant recoverable
reserves, due to the prevalence of marginal and low-producing wells,
the BLM expects that many exemptions would have been warranted, making
the burdens imposed by the exemption process, in itself, excessive. The
prospect of either shutting-in a marginal well or assuming unwarranted
administrative burdens to avoid compliance costs potentially
represented a substantial loss of income for companies operating
marginal wells. The BLM's final rule rescinds or revises these
requirements in the 2016 rule, thus reducing compliance costs for all
wells, including marginal wells, and reducing the potential economic
harm to small businesses.
---------------------------------------------------------------------------
\48\ As explained previously, the IOGCC defines a marginal well
as one that produces 10 barrels of oil or 60 Mcf of natural gas per
day or less and reports that about 69.1 and 75.9 percent of the
Nation's operating oil and gas wells, respectively, are marginal.
EIA estimates that 73.3 percent of wells are marginal.
---------------------------------------------------------------------------
Impacts Associated With Oil and Gas Operations on Tribal Lands
The final rule applies to oil and gas operations on both Federal
and Indian leases. In the RIA, the BLM estimates the impacts associated
with operations on Indian leases, as well as royalty implications for
tribal governments. We estimate these impacts by scaling down the total
impacts by the share of oil wells on Indian lands and the share of gas
wells on Indian Lands. Please reference the RIA at Section 4.4.5 for a
full explanation of the estimated impacts.
IV. Procedural Matters
Regulatory Planning and Review (E.O. 12866, E.O. 13563)
Executive Order 12866 provides that the Office of Information and
Regulatory Affairs within the Office of Management and Budget (OMB)
will review all significant rules. The Office of Information and
Regulatory Affairs has determined that this final rule is economically
significant because it will:
Have an annual effect of $100 million or more on the
economy; and
Raise novel legal or policy issues.
Executive Order 13563 reaffirms the principles of Executive Order
12866 while calling for improvements in the Nation's regulatory system
to promote
[[Page 49207]]
predictability, to reduce uncertainty, and to use the best, most
innovative, and least burdensome tools for achieving regulatory ends.
The Executive Order directs agencies to consider regulatory approaches
that reduce burdens and maintain flexibility and freedom of choice for
the public where these approaches are relevant, feasible, and
consistent with regulatory objectives. Executive Order 13563 emphasizes
further that regulations must be based on the best available science
and that the rulemaking process must allow for public participation and
an open exchange of ideas. We have developed this rule in a manner
consistent with these requirements.
This final rule rescinds or revises portions of the BLM's 2016
rule. We have developed this final rule in a manner consistent with the
requirements in Executive Order 12866 and Executive Order 13563.
The BLM reviewed the requirements of the final rule and determined
that it will not adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities. For more detailed information, see the RIA
prepared for this final rule. The RIA has been posted in the docket for
the proposed rule on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53'', click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
Reducing Regulation and Controlling Regulatory Costs (E.O. 13771)
This final rule is expected to be an E.O. 13771 deregulatory
action. Details on the estimated cost savings of this proposed rule can
be found in the rule's RIA.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
generally requires that Federal agencies prepare a regulatory
flexibility analysis for rules subject to the notice-and-comment
rulemaking requirements under the Administrative Procedure Act (5
U.S.C. 500 et seq.), if the rule would have a significant economic
impact, whether detrimental or beneficial, on a substantial number of
small entities. See 5 U.S.C. 601-612. Congress enacted the RFA to
ensure that government regulations do not unnecessarily or
disproportionately burden small entities. Small entities include small
businesses, small governmental jurisdictions, and small not-for-profit
enterprises.
The BLM reviewed the SBA size standards for small businesses and
the number of entities fitting those size standards as reported by the
U.S. Census Bureau in the Economic Census. The BLM concludes that the
vast majority of entities operating in the relevant sectors are small
businesses as defined by the SBA. As such, the final rule will likely
affect a substantial number of small entities.
The BLM reviewed the final rule and estimates that it will generate
cost savings of about $72,000 per entity per year. These estimated cost
savings will provide relief to small operators, which, the BLM notes,
represent the overwhelming majority of operators of Federal and Indian
leases.
For the purpose of carrying out its review pursuant to the RFA, the
BLM believes that the final rule will not have a ``significant economic
impact on a substantial number of small entities,'' as that phrase is
used in 5 U.S.C. 605. An initial regulatory flexibility analysis is
therefore not required. In making a significance determination under
the RFA, BLM used an estimated per-entity cost savings to conduct a
screening analysis. The analysis shows that the average reduction in
compliance costs associated with this final rule are a small enough
percentage of the profit margin for small entities, so as not be
considered ``significant'' under the RFA.
Details on this determination can be found in the RIA for the final
rule.
Small Business Regulatory Enforcement Fairness Act
This final rule is a major rule under 5 U.S.C. 804(2), the Small
Business Regulatory Enforcement Fairness Act. This final rule:
(a) Will have an annual effect on the economy of $100 million or
more.
(b) Will not cause a major increase in costs or prices for
consumers, individual industries, Federal, State, or local government
agencies, or geographic regions.
(c) Will not have a significant adverse effect on competition,
employment, investment, productivity, innovation, or the ability of
U.S.-based enterprises to compete with foreign-based enterprises.
Unfunded Mandates Reform Act (UMRA)
This final rule will not impose an unfunded mandate on State,
local, or tribal governments, or the private sector of $100 million or
more per year. The final rule will not have a significant or unique
effect on State, local, or tribal governments or the private sector.
The final rule contains no requirements that would apply to State,
local, or tribal governments. It will rescind or revise requirements
that would otherwise apply to the private sector. A statement
containing the information required by the Unfunded Mandates Reform Act
(UMRA) (2 U.S.C. 1531 et seq.) is not required for the final rule. This
final rule is also not subject to the requirements of section 203 of
UMRA because it contains no regulatory requirements that might
significantly or uniquely affect small governments, because it contains
no requirements that apply to such governments, nor does it impose
obligations upon them.
Governmental Actions and Interference With Constitutionally Protected
Property Right--Takings (Executive Order 12630)
This final rule would not effect a taking of private property or
otherwise have taking implications under Executive Order 12630. A
takings implication assessment is not required. The final rule rescinds
or revises many of the requirements placed on operators by the 2016
rule. Operators will not have to undertake the associated compliance
activities, either operational or administrative. Therefore, the final
rule impacts some operational and administrative requirements on
Federal and Indian lands. All such operations are subject to lease
terms which expressly require that subsequent lease activities be
conducted in compliance with subsequently adopted Federal laws and
regulations. This final rule conforms to the terms of those leases and
applicable statutes and, as such, the rule is not a government action
capable of interfering with constitutionally protected property rights.
Therefore, the BLM has determined that the rule will not cause a taking
of private property or require further discussion of takings
implications under Executive Order 12630.
Federalism (Executive Order 13132)
Under the criteria in section 1 of Executive Order 13132, this
final rule does not have sufficient federalism implications to warrant
the preparation of a federalism summary impact statement. A federalism
impact statement is not required.
The final rule will not have a substantial direct effect on the
States, on the relationship between the Federal Government and the
States, or on the distribution of power and responsibilities among the
levels of government. It would not apply to States or local governments
or State or local governmental entities. The rule will affect the
relationship between
[[Page 49208]]
operators, lessees, and the BLM, but it does not directly impact the
States. Therefore, in accordance with Executive Order 13132, the BLM
has determined that this final rule does not have sufficient federalism
implications to warrant preparation of a Federalism Assessment.
Civil Justice Reform (Executive Order 12988)
This final rule complies with the requirements of Executive Order
12988. More specifically, this final rule meets the criteria of section
3(a), which requires agencies to review all regulations to eliminate
errors and ambiguity and to write all regulations to minimize
litigation. This final rule also meets the criteria of section 3(b)(2),
which requires agencies to write all regulations in clear language with
clear legal standards.
Consultation and Coordination With Indian Tribal Governments (Executive
Order 13175 and Departmental Policy)
The Department strives to strengthen its government-to-government
relationship with Indian tribes through a commitment to consultation
with Indian tribes and recognition of their right to self-governance
and tribal sovereignty. We have evaluated this final rule under the
Department's consultation policy and under the criteria in Executive
Order 13175 and have identified substantial direct effects on federally
recognized Indian tribes that will result from this final rule. Under
this final rule, oil and gas operations on tribal and allotted lands
will no longer be subject to many of the requirements placed on
operators by the 2016 rule.
The BLM believes that revising the requirements of subpart 3179
will prevent Indian lands from being viewed as less attractive to oil
and gas operators than non-Indian lands due to unnecessary and
burdensome compliance costs, thereby preventing economic harm to tribes
and allottees. The BLM conducted tribal outreach which it believes is
appropriate given that the final rule will remove many of the
compliance burdens of the 2016 rule, defer to tribal laws, regulations,
rules, and orders, with respect to oil-well gas flaring from Indian
leases, and otherwise revise subpart 3179 in a manner that aligns it
with NTL-4A.
The BLM is committed to engaging in meaningful Tribal Consultation.
Through a letter dated November 21, 2017, the BLM notified 428 Tribal
leaders and representatives of its intent to propose a rule to revise
the 2016 final rule. In the letter, the BLM offered to participate in
government-to-government consultations or to accept for consideration
written comments, at the recipient's convenience. These letters were
sent three months before the BLM published the proposed rule in the
Federal Register.
The BLM received letters from several tribes seeking government-to-
government consultation. The BLM also received comments from three
allottees and members of tribes who did not request consultation. In
response, the BLM conducted government-to-government consultations with
the tribes who had requested consultation. During each of these
government-to-government consultations, the BLM discussed the
regulatory action with the tribes. The feedback the BLM received was
overall positive, particularly about the opportunity for greater tribal
sovereignty.
Paperwork Reduction Act
1. Overview
The Paperwork Reduction Act (PRA) (44 U.S.C. 3501-3521) provides
that an agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information, unless it displays a
currently valid control number. 44 U.S.C. 3512. Collections of
information include requests and requirements that an individual,
partnership, or corporation obtain information, and report it to a
Federal agency. 44 U.S.C. 3502(3); 5 CFR 1320.3(c) and (k).
OMB approved 24 information collection activities in the 2016 rule
pertaining to waste prevention and assigned control number 1004-0211 to
those activities. See ``Waste Prevention, Production Subject to
Royalties, and Resource Conservation,'' Final Rule, 81 FR 83008 (Nov.
18, 2016). In the Notice of Action approving the 24 information
collection activities in the 2016 rule, OMB announced that the control
number will expire on January 31, 2018. The Notice of Action also
included terms of clearance.
On October 5, 2017, the BLM proposed a rule that would suspend or
delay several regulations in the 2016 rule. In that proposed rule, the
BLM requested the extension of control number 1004-0211 until January
31, 2019, including the 24 information collection activities in the
2016 rule. The BLM invited public comment on the proposed extension of
control no. 1004-0211. The BLM also submitted the information
collection request for the proposed rule to OMB for review in
accordance with the PRA.
The BLM finalized that rule on December 8, 2017. See 82 FR 58050.
OMB approved the information collection activities in the rule with an
expiration date of December 31, 2020, and with a Term of Clearance that
maintains the effectiveness of the Terms of Clearance associated with
the 2016 rule. That Term of Clearance requires the BLM to submit to the
Office of Information and Regulatory Affairs draft guidance to
implement the collection of information requirements of the 2016 rule
no later than 3 months after January 17, 2019.
This final rule does not modify any regulations in 43 CFR part
3170, subpart 3178. Accordingly, the BLM requests continuation of the
information collection activity at 43 CFR 3178.5, 3178.7, 3178.8, and
3178.9 (``Request for Approval for Royalty-Free Uses On-Lease or Off-
Lease'').
The final rule removes the information collection activity at 43
CFR 3162.3-1(j) (``Plan to Minimize Waste of Natural Gas''). The final
rule also removes or revises many regulations and information
collection activities in 43 CFR part 3170, subpart 3179. As a result,
the BLM now requests revision of control number 1004-0211 to include:
The information collection activities in this final rule;
and
The information collection activity entitled, ``Request
for Approval for Royalty-Free Uses On-Lease or Off-Lease.''
2. Summary of Information Collection Activities
Title: Waste Prevention, Production Subject to Royalties, and
Resource Conservation (43 CFR parts 3160 and 3170).
OMB Control Number: 1004-0211.
Form: Form 3160-5, Sundry Notices and Reports on Wells.
Description of Respondents: Holders of Federal and Indian (except
Osage Tribe) oil and gas leases, those who belong to Federally approved
units or communitized areas, and those who are parties to oil and gas
agreements under the Indian Mineral Development Act, 25 U.S.C. 2101-
2108.
Respondents' Obligation: Required to obtain or retain a benefit.
Frequency of Collection: On occasion.
Abstract: The BLM requests that control number 1004-0211 be revised
to include the information collection activities in this final rule, as
well as the information collection activity in 43 CFR part 3170,
subpart 3178, that was in the 2016 rule. The BLM also requests the
removal of the information collection activity in 43 CFR 3162.3-1(j)
[[Page 49209]]
that was in the 2016 rule, and the removal or revision of the
information collection activities that were in 43 CFR part 3170,
subpart 3179, of the 2016 rule.
Estimated Number of Responses: 1,075.
Estimated Total Annual Burden Hours: 4,010.
Estimated Total Non-Hour Cost: None.
2. Information Collection Request
A. The BLM requests that OMB control number 1004-0211 continue to
include the following information collection activity that was included
at 43 CFR part 3170, subpart 3178, of the 2016 rule: Request for
Approval for Royalty-Free Uses On-Lease or Off-Lease (43 CFR 3178.5,
3178.7, 3178.8, and 3178.9).
Section 3178.5 requires submission of a Sundry Notice (Form 3160-5)
to request prior written BLM approval for use of gas royalty free for
the following operations and production purposes on the lease, unit or
communitized area:
Using oil or gas that an operator removes from the
pipeline at a location downstream of the facility measurement point
(FMP);
Removal of gas initially from a lease, unit PA, or
communitized area for treatment or processing because of particular
physical characteristics of the gas, prior to use on the lease, unit PA
or communitized area; and
Any other type of use of produced oil or gas for
operations and production purposes pursuant to Sec. 3178.3 that is not
identified in Sec. 3178.4.
Section 3178.7 requires submission of a Sundry Notice (Form 3160-5) to
request prior written BLM approval for off-lease royalty-free uses in
the following circumstances:
The equipment or facility in which the operation is
conducted is located off the lease, unit, or communitized area for
engineering, economic, resource-protection, or physical-accessibility
reasons; and
The operations are conducted upstream of the FMP.
Section 3178.8 requires that an operator measure or estimate the
volume of royalty-free gas used in operations upstream of the FMP. In
general, the operator is free to choose whether to measure or estimate,
with the exception that the operator must in all cases measure the
following volumes:
Royalty-free gas removed downstream of the FMP and used
pursuant to Sec. Sec. 3178.4 through 3178.7; and
Royalty-free oil used pursuant to Sec. Sec. 3178.4
through 3178.7.
If oil is used on the lease, unit or communitized area, it is most
likely to be removed from a storage tank on the lease, unit or
communitized area. Thus, this regulation also requires the operator to
document the removal of the oil from the tank or pipeline.
Section 3178.8(e) requires that operators use best available
information to estimate gas volumes, where estimation is allowed. For
both oil and gas, the operator must report the volumes measured or
estimated, as applicable, under ONRR reporting requirements. As
revisions to Onshore Oil and Gas Orders No. 4 and 5 have now been
finalized as 43 CFR part 3170, subparts 3174 and 3175, respectively,
the final rule text now references Sec. 3173.12, as well as Sec. Sec.
3178.4 through 3178.7 to clarify that royalty-free use must adhere to
the provisions in those sections.
Section 3178.9 requires the following additional information in a
request for prior approval of royalty-free use under Sec. 3178.5, or
for prior approval of off-lease royalty-free use under Sec. 3178.7:
A complete description of the operation to be conducted,
including the location of all facilities and equipment involved in the
operation and the location of the FMP;
The volume of oil or gas that the operator expects will be
used in the operation and the method of measuring or estimating that
volume;
If the volume expected to be used will be estimated, the
basis for the estimate (e.g., equipment manufacturer's published
consumption or usage rates); and
The proposed disposition of the oil or gas used (e.g.,
whether gas used would be consumed as fuel, vented through use of a
gas-activated pneumatic controller, returned to the reservoir, or
disposed by some other method).
B. The BLM requests the revision of the following information
collection activities in accordance with this final rule:
1. Request for Extension of Royalty-Free Flaring During Initial
Production Testing (43 CFR 3179.101)
A regulation in the 2016 rule, 43 CFR 3179.103, allows gas to be
flared royalty free during initial production testing. The regulation
lists specific volume and time limits for such testing. An operator may
seek an extension of those limits on royalty-free flaring by submitting
a Sundry Notice (Form 3160-5) to the BLM.
A regulation in this final rule, 43 CFR 3179.101, is similar to the
2016 rule in addressing the royalty-free treatment of gas volumes
flared during initial production testing. Title 43 CFR 3179.101 in this
final rule would provide that gas flared during the initial production
test of each completed interval in a well is royalty free until one of
the following occurs:
The operator determines that it has obtained adequate
reservoir information;
30 days have passed since the beginning of the production
test, unless the BLM approves a longer test period; or
The operator has flared 50 MMcf of gas.
Section 3179.101 of this final rule also provides that an operator
may request a longer test period by submitting a Sundry Notice.
2. Request for Extension of Royalty-Free Flaring During Subsequent Well
Testing (43 CFR 3179.102)
A regulation in the 2016 rule, 43 CFR 3179.104, allows gas to be
flared royalty free for no more than 24 hours during well tests
subsequent to the initial production test. That regulation allows an
operator to seek authorization to flare royalty free for a longer
period by submitting a Sundry Notice (Form 3160-5) to the BLM.
A regulation in this final rule, 43 CFR 3179.102, is substantively
identical to 43 CFR 3179.104 in the 2016 rule. Accordingly, the BLM
requests that the information collection activity at 43 CFR 3179.102 of
this final rule replace the activity at 43 CFR 3179.104 of the 2016
rule.
3. Emergencies (43 CFR 3179.103)
A regulation in the 2016 rule, 43 CFR 3179.105, allows an operator
to flare gas royalty free during a temporary, short-term, infrequent,
and unavoidable emergency. A regulation in this final rule, at 43 CFR
3179.103, is almost identical to 43 CFR 3179.105 of the 2016 rule. The
BLM thus requests that the information collection activity entitled,
``Reporting of Venting or Flaring (43 CFR 3179.105)'' be re-named
``Emergencies (43 CFR 3179.103).''
As provided at 43 CFR 3179.103(a) of this final rule, gas flared or
vented during an emergency would be royalty-free for a period not to
exceed 24 hours, unless the BLM determines that emergency conditions
exist necessitating venting or flaring for a longer period. Section
3179.103(d) of this final rule would require the operator to report to
the BLM on a Sundry Notice, within 45 days of the
[[Page 49210]]
start of an emergency, the estimated volumes flared or vented beyond
the timeframe specified in paragraph (a).
As defined at 43 CFR 3179.103(b) of this final rule, an
``emergency'' for purposes of 43 CFR part 3170, subpart 3179, is a
temporary, infrequent and unavoidable situation in which the loss of
gas or oil is uncontrollable or necessary to avoid risk of an immediate
and substantial adverse impact on safety, public health, or the
environment, and is not due to operator negligence.
As provided at 43 CFR 3179.103(c) of this final rule, the following
events would not constitute emergencies for the purposes of royalty
assessment:
The operator's failure to install appropriate equipment of
a sufficient capacity to accommodate the production conditions;
Failure to limit production when the production rate
exceeds the capacity of the related equipment, pipeline, or gas plant,
or exceeds sales contract volumes of oil or gas;
Scheduled maintenance;
A situation caused by operator negligence, including
recurring equipment failures; or
A situation on a lease, unit, or communitized area that
has already experienced 3 or more emergencies within the past 30 days,
unless the BLM determines that the occurrence of more than 3
emergencies within the 30 day period could not have been anticipated
and was beyond the operator's control.
D. The BLM requests the removal of the following information
collection activities in accordance with this final rule:
1. ``Plan to Minimize Waste of Natural Gas'';
2. ``Notification of Choice to Comply on County- or State-wide
Basis'';
3. ``Request for Approval of Alternative Capture Requirement'';
4. ``Request for Exemption from Well Completion Requirements'';
5. ``Notification of Functional Needs for a Pneumatic Controller'';
6. ``Showing that Cost of Compliance Would Cause Cessation of
Production and Abandonment of Oil Reserves (Pneumatic Controller)'';
7. ``Showing in Support of Replacement of Pneumatic Controller
within 3 Years'';
8. ``Showing that a Pneumatic Diaphragm Pump was Operated on Fewer
than 90 Individual Days in the Prior Calendar Year'';
9. ``Notification of Functional Needs for a Pneumatic Diaphragm
Pump'';
10. ``Showing that Cost of Compliance Would Cause Cessation of
Production and Abandonment of Oil Reserves (Pneumatic Diaphragm
Pump)'';
11. ``Showing in Support of Replacement of Pneumatic Diaphragm Pump
within 3 Years'';
12. ``Storage Vessels'';
13. ``Downhole Well Maintenance and Liquids Unloading--
Documentation and Reporting'';
14. ``Downhole Well Maintenance and Liquids Unloading--Notification
of Excessive Duration or Volume'';
15. ``Leak Detection--Compliance with EPA Regulations'';
16. ``Leak Detection--Request to Use an Alternative Monitoring
Device and Protocol'';
17. ``Leak Detection--Operator Request to Use an Alternative Leak
Detection Program'';
18. ``Leak Detection--Operator Request for Exemption Allowing Use
of an Alternative Leak-Detection Program that Does Not Meet Specified
Criteria'';
19. ``Leak Detection--Notification of Delay in Repairing Leaks'';
20. ``Leak Detection--Inspection Recordkeeping and Reporting''; and
21. ``Leak Detection--Annual Reporting of Inspections.''
E. The BLM requests the addition of following information
collection activity, in accordance with this final rule: Oil-Well Gas
(43 CFR 3179.201).
A regulation in this final rule, 43 CFR 3179.201, would provide
that, except as otherwise provided in 43 CFR part 3170, subpart 3179,
oil-well gas may not be vented or flared royalty free unless BLM
approves such action in writing. The BLM would be authorized to approve
an application for royalty-free venting or flaring of oil-well gas upon
determining that royalty-free venting or flaring is justified by the
operator's submission of either:
(1) An evaluation report supported by engineering, geologic, and
economic data that demonstrates to the BLM's satisfaction that the
expenditures necessary to market or beneficially use such gas are not
economically justified; or
(2) An action plan showing how the operator will minimize the
venting or flaring of the gas within 1 year or within a greater amount
of time if the operator justifies an extended deadline. If the operator
fails to implement the action plan, the gas vented or flared during the
time covered by the action plan would be subject to royalty.
The data in the evaluation report that is mentioned above would
need to include:
The applicant's estimates of the volumes of oil and gas
that would be produced to the economic limit if the application to vent
or flare were approved; and
The volumes of the oil and gas that would be produced if
the applicant were required to market or use the gas.
The BLM would be authorized to require the operator to provide an
updated evaluation report as additional development occurs or economic
conditions improve. In addition, the BLM would be authorized to
determine that gas is avoidably lost and therefore subject to royalty
if flaring exceeds 10 MMcf per well during any month.
The BLM notes that there are no additional reporting requirements
associated with 43 CFR 3179.301 in the final rule. Section 3179.301,
which is a revision of 43 CFR 3179.9, is already covered under an
approved OMB control number 1012-0004. The provision provides that the
operator must estimate or measure volumes of gas vented or flared, and
report those volumes under ``applicable ONRR reporting requirements,''
which is authorized under control number 1012-0004. An ONRR regulation
(30 CFR 1210.102) requires operators to submit a form that is included
in that control number (Form ONRR-4054, Oil and Gas Operations Report)
monthly for all oil and gas production. Volumes of vented gas and
flared gas must be included in that report, using codes to identify
those volumes. ONRR uses the information on Form ONRR-4054 to track all
oil and gas from the point of production to the point of first sale or
other disposition, to ensure proper royalties are paid. The BLM and
other Federal Government agencies use the data to monitor and inspect
lease operations. As revised, proposed 43 CFR 3179.301 does not change
the burdens that ONRR estimates for Form ONRR-4054.
4. Burden Estimates
This final rule results in the following adjustments in hour or
cost burdens:
1. The hours per response for Request for Approval for Royalty-Free
Uses On-Lease or Off-Lease are increased from 4 to 8.
2. The number of responses for ``Request for Extension of Royalty-
Free Flaring During Initial Well Testing'' are increased from 500 to
750.
Program changes in this final rule would result in 62,125 fewer
responses than in the 2016 rule (1,075 responses minus 63,200
responses) and 78,160 fewer burden hours than in the 2016 rule (4,010
responses minus 82,170 responses). The program changes and their
reasons are itemized in Tables 15-1 and 15-2 of the supporting
statement.
The following table details the annual estimated hour burdens for
the information activities described above:
[[Page 49211]]
----------------------------------------------------------------------------------------------------------------
Total Hours
Type of response Number of Hours per (Column B x
responses response Column C)
A. B. C. D.
----------------------------------------------------------------------------------------------------------------
Request for Approval for Royalty-Free Uses On-Lease or Off- 50 8 400
Lease, 43 CFR 3178.5, 3178.7, 3178.8, and 3178.9, Form 3160-5..
Request for Extension of Royalty-Free Flaring During Initial 750 2 1,500
Production Testing, 43 CFR 3179.101, Form 3160-5...............
Request for Extension of Royalty-Free Flaring During Subsequent 5 2 10
Well Testing, 43 CFR 3179.102, Form 3160-5.....................
Emergencies, 43 CFR 3179.103, Form 3160-5....................... 250 2 500
Oil-Well Gas, 43 CFR 3179.201................................... 20 80 1,600
-----------------------------------------------
Totals...................................................... 1,075 .............. 4,010
----------------------------------------------------------------------------------------------------------------
National Environmental Policy Act
The BLM has prepared an Environmental Assessment (EA) to determine
whether this proposed rule would have a significant impact on the
quality of the human environment under the National Environmental
Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq.). Based on this EA,
the BLM has concluded that the final rule would not have a significant
impact on the quality of the human environment. This conclusion is
detailed in the BLM's Finding of No Significant Impact (FONSI). Both
the EA and the FONSI for the final rule are available in the docket for
the rule on the Federal eRulemaking Portal: https://www.regulations.gov. (In the Searchbox, enter ``RIN 1004-AE53'', click
the ``Search'' button, open the Docket Folder, and look under
Supporting Documents.)
Actions Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use (Executive Order 13211)
This final rule is not a significant energy action under the
definition in Executive Order 13211. A statement of Energy Effects is
not required.
Section 4(b) of Executive Order 13211 defines a ``significant
energy action'' as ``any action by an agency (normally published in the
Federal Register) that promulgates or is expected to lead to the
promulgation of a final rule or regulation, including notices of
inquiry, advance notices of rulemaking, and notices of rulemaking:
(1)(i) That is a significant regulatory action under Executive Order
12866 or any successor order, and (ii) Is likely to have a significant
adverse effect on the supply, distribution, or use of energy; or (2)
That is designated by the Administrator of the Office of Information
and Regulatory Affairs as a significant energy action.''
The rule rescinds or revises certain requirements in the 2016 rule
and reduces compliance burdens. The BLM determined that the 2016 rule
would not have impacted the supply, distribution, or use of energy. It
stands to reason that a revision in a manner that conforms 43 CFR part
3170, subpart 3179, with the policies governing venting and flaring
prior to the 2016 rule will likewise not have an impact on the supply,
distribution, or use of energy. As such, we do not consider the final
rule to be a ``significant energy action'' as defined in Executive
Order 13211.
Authors
The principal authors of this final rule are: James Tichenor,
Justin Abernathy, Michael Riches, and Nathan Packer of the BLM
Washington Office; Adam Stern of the Department of the Interior's
Office of Policy Analysis; Beth Poindexter of the BLM Montana and North
Dakota State Office; David Mankiewicz of the BLM Farmington, New Mexico
Field Office; and Jennifer Sanchez of the BLM Roswell, New Mexico Field
Office; assisted by Faith Bremner of the BLM's Division of Regulatory
Affairs and by the Department of the Interior's Office of the
Solicitor.
List of Subjects
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.
43 CFR Part 3170
Administrative practice and procedure, Flaring, Government
contracts, Incorporation by reference, Indians--lands, Immediate
assessments, Mineral royalties, Oil and gas exploration, Oil and gas
measurement, Public lands--mineral resources, Reporting and
recordkeeping requirements, Royalty-free use, Venting.
Joseph R. Balash,
Assistant Secretary for Land and Minerals Management.
43 CFR Chapter II
For the reasons set out in the preamble, the Bureau of Land
Management amends 43 CFR parts 3160 and 3170 as follows:
PART 3160--ONSHORE OIL AND GAS OPERATIONS
0
1. The authority citation for part 3160 continues to read as follows:
Authority: 25 U.S.C. 396d and 2107; 30 U.S.C. 189, 306, 359,
and 1751; and 43 U.S.C. 1732(b), 1733, and 1740; and Sec. 107, Pub.
L. 114-74, 129 Stat. 599, unless otherwise noted.
Sec. 3162.3-1 [Amended]
0
2. Amend Sec. 3162.3-1 by removing paragraph (j).
PART 3170--ONSHORE OIL AND GAS PRODUCTION
0
3. The authority citation for part 3170 continues to read as follows:
Authority: 25 U.S.C. 396d and 2107; 30 U.S.C. 189, 306, 359,
and 1751; and 43 U.S.C. 1732(b), 1733, and 1740.
0
4. Revise subpart 3179 to read as follows:
Subpart 3179--Waste Prevention and Resource Conservation
Secs.
3179.1 Purpose.
3179.2 Scope.
3179.3 Definitions and acronyms.
3179.4 Determining when the loss of oil or gas is avoidable or
unavoidable.
3179.5 When lost production is subject to royalty.
3179.6 Venting limitations.
Authorized Flaring and Venting of Gas
3179.101 Initial production testing.
3179.102 Subsequent well tests.
3179.103 Emergencies.
[[Page 49212]]
3179.104 Downhole well maintenance and liquids unloading.
Other Venting or Flaring
3179.201 Oil-well gas.
Measurement and Reporting Responsibilities
3179.301 Measuring and reporting volumes of gas vented and flared.
Additional Deference to Tribal Regulations
3179.401 Deference to tribal regulations.
Subpart Sec. 3179--Waste Prevention and Resource Conservation
Sec. [thinsp]3179.1 Purpose.
The purpose of this subpart is to implement and carry out the
purposes of statutes relating to prevention of waste from Federal and
Indian (other than Osage Tribe) leases, conservation of surface
resources, and management of the public lands for multiple use and
sustained yield. This subpart supersedes those portions of Notice to
Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases,
Royalty or Compensation for Oil and Gas Lost (NTL-4A), pertaining to,
among other things, flaring and venting of produced gas, unavoidably
and avoidably lost gas, and waste prevention.
Sec. [thinsp]3179.2 Scope.
(a) This subpart applies to:
(1) All onshore Federal and Indian (other than Osage Tribe) oil and
gas leases, units, and communitized areas, except as otherwise provided
in this subpart;
(2) IMDA oil and gas agreements, unless specifically excluded in
the agreement or unless the relevant provisions of this subpart are
inconsistent with the agreement;
(3) Leases and other business agreements and contracts for the
development of tribal energy resources under a Tribal Energy Resource
Agreement entered into with the Secretary, unless specifically excluded
in the lease, other business agreement, or Tribal Energy Resource
Agreement;
(4) Committed State or private tracts in a federally approved unit
or communitization agreement defined by or established under 43 CFR
part 3100, subpart 3105, or 43 CFR part 3180; and
(5) All onshore well facilities located on a Federal or Indian
lease or a federally approved unit or communitized area.
(b) For purposes of this subpart, the term ``lease'' also includes
IMDA agreements.
Sec. [thinsp]3179.3 Definitions and acronyms.
As used in this subpart, the term:
Automatic ignition system means an automatic ignitor and, where
needed to ensure continuous combustion, a continuous pilot flame.
Capture means the physical containment of natural gas for
transportation to market or productive use of natural gas, and includes
injection and royalty-free on-site uses pursuant to subpart 3178 of
this part.
Gas-to-oil ratio (GOR) means the ratio of gas to oil in the
production stream expressed in standard cubic feet of gas per barrel of
oil.
Gas well means a well for which the energy equivalent of the gas
produced, including its entrained liquefiable hydrocarbons, exceeds the
energy equivalent of the oil produced, as determined at the time of
well completion.
Liquids unloading means the removal of an accumulation of liquid
hydrocarbons or water from the wellbore of a completed gas well.
Lost oil or lost gas means produced oil or gas that escapes
containment, either intentionally or unintentionally, or is flared
before being removed from the lease, unit, or communitized area, and
cannot be recovered.
Oil well means a well for which the energy equivalent of the oil
produced exceeds the energy equivalent of the gas produced, as
determined at the time of well completion.
Waste of oil or gas means any act or failure to act by the operator
that is not sanctioned by the authorized officer as necessary for
proper development and production, where compliance costs are not
greater than the monetary value of the resources they are expected to
conserve, and which results in:
(1) A reduction in the quantity or quality of oil and gas
ultimately producible from a reservoir under prudent and proper
operations; or
(2) Avoidable surface loss of oil or gas.
Sec. [thinsp]3179.4 Determining when the loss of oil or gas is
avoidable or unavoidable.
For purposes of this subpart:
(a) Avoidably lost production means:
(1) Gas that is vented or flared without the authorization or
approval of the BLM; or
(2) Produced oil or gas that is lost when the BLM determines that
such loss occurred as a result of:
(i) Negligence on the part of the operator;
(ii) The failure of the operator to take all reasonable measures to
prevent or control the loss; or
(iii) The failure of the operator to comply fully with the
applicable lease terms and regulations, appropriate provisions of the
approved operating plan, or prior written orders of the BLM.
(b) Unavoidably lost production means:
(1) Oil or gas that is lost because of line failures, equipment
malfunctions, blowouts, fires, or other similar circumstances, except
where the BLM determines that the loss was avoidable pursuant to
paragraph (a)(2) of this section;
(2) Oil or gas that is lost from the following operations or
sources, except where the BLM determines that the loss was avoidable
pursuant to paragraph (a)(2) of this section:
(i) Well drilling;
(ii) Well completion and related operations;
(iii) Initial production tests, subject to the limitations in Sec.
[thinsp]3179.101;
(iv) Subsequent well tests, subject to the limitations in Sec.
[thinsp]3179.102;
(v) Exploratory coalbed methane well dewatering;
(vi) Emergencies, subject to the limitations in Sec.
[thinsp]3179.103;
(vii) Normal gas vapor losses from a storage tank or other low
pressure production vessel, unless the BLM determines that recovery of
the gas vapors is warranted;
(viii) Well venting in the course of downhole well maintenance and/
or liquids unloading performed in compliance with Sec.
[thinsp]3179.104; or
(ix) Facility and pipeline maintenance, such as when an operator
must blow-down and depressurize equipment to perform maintenance or
repairs; or
(3) Produced gas that is flared or vented with BLM authorization or
approval.
Sec. [thinsp]3179.5 When lost production is subject to royalty.
(a) Royalty is due on all avoidably lost oil or gas.
(b) Royalty is not due on any unavoidably lost oil or gas.
Sec. [thinsp]3179.6 Venting limitations.
(a) Gas well gas may not be flared or vented, except where it is
unavoidably lost pursuant to Sec. [thinsp]3179.4(b).
(b) The operator must flare, rather than vent, any gas that is not
captured, except:
(1) When flaring the gas is technically infeasible, such as when
the gas is not readily combustible or the volumes are too small to
flare;
(2) Under emergency conditions, as defined in Sec.
[thinsp]3179.105, when the loss of gas is uncontrollable or venting is
necessary for safety;
(3) When the gas is vented through normal operation of a natural
gas-activated pneumatic controller or pump;
(4) When gas vapor is vented from a storage tank or other low
pressure
[[Page 49213]]
production vessel, unless the BLM determines that recovery of the gas
vapors is warranted;
(5) When the gas is vented during downhole well maintenance or
liquids unloading activities;
(6) When the gas venting is necessary to allow non-routine facility
and pipeline maintenance to be performed, such as when an operator
must, upon occasion, blow-down and depressurize equipment to perform
maintenance or repairs; or
(7) When a release of gas is unavoidable under Sec. [thinsp]3179.4
and flaring is prohibited by Federal, State, local or tribal law,
regulation, or enforceable permit term.
(c) For purposes of this subpart, all flares or combustion devices
must be equipped with an automatic ignition system.
Authorized Flaring and Venting of Gas
Sec. 3179.101 Initial production testing.
(a) Gas flared during the initial production test of each completed
interval in a well is royalty free until one of the following occurs:
(1) The operator determines that it has obtained adequate reservoir
information;
(2) Thirty (30) days have passed since the beginning of the
production test, unless the BLM approves a longer test period; or
(3) The operator has flared 50 million cubic feet (MMcf) of gas.
(b) The operator may request a longer test period and must submit
its request using a Sundry Notice.
Sec. [thinsp]3179.102 Subsequent well tests.
(a) Gas flared during well tests subsequent to the initial
production test is royalty free for a period not to exceed 24 hours,
unless the BLM approves or requires a longer test period.
(b) The operator may request a longer test period and must submit
its request using a Sundry Notice.
Sec. [thinsp]3179.103 Emergencies.
(a) Gas flared or vented during an emergency is royalty free for a
period not to exceed 24 hours, unless the BLM determines that emergency
conditions exist necessitating venting or flaring for a longer period.
(b) For purposes of this subpart, an ``emergency'' is a temporary,
infrequent and unavoidable situation in which the loss of gas or oil is
uncontrollable or necessary to avoid risk of an immediate and
substantial adverse impact on safety, public health, or the
environment, and is not due to operator negligence.
(c) The following do not constitute emergencies for the purpose of
royalty assessment:
(1) The operator's failure to install appropriate equipment of a
sufficient capacity to accommodate the production conditions;
(2) Failure to limit production when the production rate exceeds
the capacity of the related equipment, pipeline, or gas plant, or
exceeds sales contract volumes of oil or gas;
(3) Scheduled maintenance;
(4) A situation caused by operator negligence, including recurring
equipment failures; or
(5) A situation on a lease, unit, or communitized area that has
already experienced 3 or more emergencies within the past 30 days,
unless the BLM determines that the occurrence of more than 3
emergencies within the 30 day period could not have been anticipated
and was beyond the operator's control.
(d) Within 45 days of the start of the emergency, the operator must
estimate and report to the BLM on a Sundry Notice the volumes flared or
vented beyond the timeframe specified in paragraph (a) of this section.
Sec. [thinsp]3179.104 Downhole well maintenance and liquids
unloading.
(a) Gas vented or flared during downhole well maintenance and well
purging is royalty free for a period not to exceed 24 hours per event,
provided that the requirements of paragraphs (b) through (d) of this
section are met. Gas vented or flared from a plunger lift system and/or
an automated well control system is royalty free, provided the
requirements of paragraphs (b) and (c) of this section are met.
(b) The operator must minimize the loss of gas associated with
downhole well maintenance and liquids unloading, consistent with safe
operations.
(c) For wells equipped with a plunger lift system and/or an
automated well control system, minimizing gas loss under paragraph (b)
of this section includes optimizing the operation of the system to
minimize gas losses to the extent possible consistent with removing
liquids that would inhibit proper function of the well.
(d) For any liquids unloading by manual well purging, the operator
must ensure that the person conducting the well purging remains present
on-site throughout the event to end the event as soon as practical,
thereby minimizing to the maximum extent practicable any venting to the
atmosphere.
(e) For purposes of this section, ``well purging'' means blowing
accumulated liquids out of a wellbore by reservoir gas pressure,
whether manually or by an automatic control system that relies on real-
time pressure or flow, timers, or other well data, where the gas is
vented to the atmosphere, and it does not apply to wells equipped with
a plunger lift system.
Other Venting or Flaring
Sec. 3179.201 Oil-well gas.
(a) Except as provided in Sec. Sec. 3179.101, 3179.102, 3179.103,
and 3179.104, vented or flared oil-well gas is royalty free if it is
vented or flared pursuant to applicable rules, regulations, or orders
of the appropriate State regulatory agency or tribe. Applicable State
or tribal rules, regulations, or orders are appropriate if they place
limitations on the venting and flaring of oil-well gas, including
through general or qualified prohibitions, volume or time limitations,
capture percentage requirements, or trading mechanisms.
(b) With respect to production from Indian leases, vented or flared
oil-well gas will be treated as royalty free pursuant to paragraph (a)
of this section only to the extent it is consistent with the BLM's
trust responsibility.
(c) Except as otherwise provided in this subpart, oil-well gas may
not be vented or flared royalty free unless the BLM approves it in
writing. The BLM may approve an application for royalty-free venting or
flaring of oil-well gas if it determines that it is justified by the
operator's submission of either:
(1) An evaluation report supported by engineering, geologic, and
economic data that demonstrates to the BLM's satisfaction that the
expenditures necessary to market or beneficially use such gas are not
economically justified. If flaring exceeds 10 MMcf per well during any
month, the BLM may determine that the gas is avoidably lost and
therefore subject to royalty; or
(2) An action plan showing how the operator will minimize the
venting or flaring of the oil-well gas within 1 year. An operator may
apply for approval of an extension of the 1-year time limit, if
justified. If the operator fails to implement the action plan, the gas
vented or flared during the time covered by the action plan will be
subject to royalty. If flaring exceeds 10 MMcf per well during any
month, the BLM may determine that the gas is avoidably lost and
therefore subject to royalty.
(d) The evaluation report in paragraph (c)(1) of this section:
(1) Must include all appropriate engineering, geologic, and
economic data to support the applicant's determination that marketing
or using the gas is not economically viable. The
[[Page 49214]]
information provided must include the applicant's estimates of the
volumes of oil and gas that would be produced to the economic limit if
the application to vent or flare were approved and the volumes of the
oil and gas that would be produced if the applicant was required to
market or use the gas. When evaluating the feasibility of marketing or
using of the gas, the BLM will determine whether the operator can
economically operate the lease if it is required to market or use the
gas, considering the total leasehold production, including both oil and
gas, as well as the economics of a field-wide plan; and
(2) The BLM may require the operator to provide an updated
evaluation report as additional development occurs or economic
conditions improve, but no more than once a year.
(e) An approval to flare royalty free, which is in effect as of
November 27, 2018, will continue in effect unless:
(1) The approval is no longer necessary because the venting or
flaring is authorized by the applicable rules, regulations, or orders
of an appropriate State regulatory agency or tribe, as provided in
paragraph (a) of this section; or
(2) The BLM requires an updated evaluation report under paragraph
(d)(2) of this section and determines to amend or revoke its approval.
Measurement and Reporting Responsibilities
Sec. 3179.301 Measuring and reporting volumes of gas vented and
flared.
(a) The operator must estimate or measure all volumes of lost oil
and gas, whether avoidably or unavoidably lost, from wells, facilities
and equipment on a lease, unit PA, or communitized area and report
those volumes under applicable ONRR reporting requirements.
(b) The operator may:
(1) Estimate or measure vented or flared gas in accordance with
applicable rules, regulations, or orders of the appropriate State or
tribal regulatory agency;
(2) Estimate the volume of the vented or flared gas based on the
results of a regularly performed GOR test and measured values for the
volumes of oil production and gas sales, to allow BLM to independently
verify the volume, rate, and heating value of the flared gas; or
(3) Measure the volume of the flared gas.
(c) The BLM may require the installation of additional measurement
equipment whenever it is determined that the existing methods are
inadequate to meet the purposes of this subpart.
(d) The operator may combine gas from multiple leases, unit PAs, or
communitized areas for the purpose of flaring or venting at a common
point, but must use a method approved by the BLM to allocate the
quantities of the vented or flared gas to each lease, unit PA, or
communitized area.
Additional Deference to Tribal Regulations
Sec. 3179.401 Deference to tribal regulations.
(a) A tribe that has rules, regulations, or orders that are
applicable to any of the matters addressed in this subpart may seek
approval from the BLM to have such rules, regulations, or orders apply
in place of any or all of the provisions of this subpart with respect
to lands and minerals over which that tribe has jurisdiction.
(b) The BLM will approve a tribe's request under paragraph (a) to
the extent that it is consistent with the BLM's trust responsibility.
(c) The deference to tribal rules, regulations, or orders provided
for in this section is supplemental to, and does not limit, the
deference to tribal rules, regulations, or orders provided for in Sec.
3179.201.
[FR Doc. 2018-20689 Filed 9-27-18; 8:45 am]
BILLING CODE 4310-84-P