[Federal Register Volume 61, Number 44 (Tuesday, March 5, 1996)]
[Proposed Rules]
[Pages 8537-8538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4975]



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DEPARTMENT OF THE INTERIOR
Bureau of Land Management

43 CFR Chapter II

[WO-310-3110-02 1A]


Promotion of Development, Reduction of Royalty for Marginal Gas 
Properties

AGENCY: Bureau of Land Management, Interior.

ACTION: Notice of request for information and suggestions regarding an 
incentive for producers of marginal gas from Federal leases.

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SUMMARY: The Bureau of Land Management (BLM) is seeking public comments 
and suggestions on a possible incentive for producers of marginal gas 
from Federal leases. The incentive would encourage continued production 
through a possible reduction in Federal royalties for producers of 
marginally economic gas properties. If the comments indicate that such 
a reduction in royalties is warranted and will result in a greater 
ultimate recovery of gas resources (without a net loss in revenues to 
the states and/or the Federal government), the BLM will initiate a 
public outreach program in order to discuss comments and suggestions 
received as a result of this request. Based upon those meetings, the 
BLM will prepare a proposed rule for subsequent publication.

DATES: Written comments should be received on or before June 3, 1996.

ADDRESSES: Dr. John W. Bebout, Senior Technical Specialist, Bureau of 
Land Management (WO-301), 1849 C Street, NW, Washington, D.C. 20240.

FOR FURTHER INFORMATION CONTACT: Dr. John W. Bebout (BLM) (202) 452-
0340.

SUPPLEMENTARY INFORMATION: The United States has a vast and diverse 
natural gas resource base. In their 1992 study entitled The Potential 
for Natural 

[[Page 8538]]
Gas in the United States, the National Petroleum Council (NPC) 
concluded that the technically recoverable natural gas resource base is 
1,295 trillion cubic feet (TCF) for the lower 48 states. Of this 
amount, 600 TCF was believed to be recoverable in the future at a 
wellhead price of $2.50 per million British thermal unit (1990 
dollars). According to the NPC (Marginal Wells, July 1994), however, 
the wellhead price on a current basis trended upward to a high of $2.66 
per thousand cubic feet (MCF) during the 1974-1984 period and has 
declined to around $1.60-$1.80 per MCF over the last eight years.
    There is a legitimate concern that low gas prices will result in 
premature abandonment of the marginal properties with the concurrent 
loss of potentially recoverable reserves as well as royalties, taxes 
and employment opportunities. A 1992 study by the Interstate Oil and 
Gas Compact Commission estimated that there were approximately 215,000 
idle or shut-in oil, gas and injection wells in the United States at 
that time. The NPC believes that as many as 50 percent of these wells 
are gas and injection wells. While some of these wells are undoubtedly 
shut-in or temporarily abandoned while waiting for pipeline 
connections, a large portion of these gas wells are idle because they 
are uneconomical to produce as a result of low producing rates, low gas 
prices and/or high operating costs (NPC, Marginal Wells, July 1994).
    It is clear that whatever combination of price and cost factors 
currently define the economic limit of a marginal gas well, production-
based incentives will improve gas well economics and extend their 
lives. Because premature abandonment of marginal wells results in the 
loss of domestic reserves, such incentives may be the only way to 
maintain the economic viability of the production and resources that 
these wells represent.
    Comments and suggestions on a reduction in Federal royalties should 
concentrate not only on the value of a royalty rate reduction for 
producers of marginal gas, but also on how the royalty rate reduction 
might best be implemented. Respondents should particularly consider the 
following issues:
    1. The need for economic relief for marginal gas properties. 
Respondents, both for and against the proposal, should document any 
economic arguments to the extent practicable. The documentation should 
include all economic assumptions used for estimated costs, profits, 
effects on employment, etc. The BLM would especially appreciate 
detailed source citations for verification and reference.
    2. A workable definition of a ``marginal'' gas property. Before its 
repeal, the Natural Gas Policy Act of 1978 defined a ``stripper'' gas 
well as one producing 60,000 cubic feet of gas or less per day (MCF/D). 
For Minerals Management Service accounting purposes, however, any 
proposal for royalty reductions should be based on a property (i.e., 
units, communitization agreements, leases, etc.) rather than a well-by-
well basis.
    3. Discouraging false reporting and manipulation. Proposals should 
describe measures to discourage manipulation of production rates in 
order to qualify for a royalty reduction. In addition, it would be 
useful to the BLM if respondents would suggest possible requirements 
for qualification and the time frames for subsequent qualification 
periods, if applicable.
    4. Minimal administrative burden. All proposals should be designed 
in a manner which minimizes the administrative burden placed upon the 
government and private industry. For example, consideration might be 
given to a notification process rather than a formal application 
process.
    5. Minimal Program Overlap. When preparing proposals, special 
consideration should be given to avoiding overlap with existing 
programs such as the Heavy Oil and Stripper Property royalty rate 
reductions.

    Dated: February 26, 1996.
Sylvia V. Baca,
Deputy Assistant Secretary of the Interior.
[FR Doc. 96-4975 Filed 3-4-96; 8:45 am]
BILLING CODE 4310-84-P