[Federal Register Volume 65, Number 81 (Wednesday, April 26, 2000)]
[Proposed Rules]
[Pages 24542-24565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10150]



[[Page 24541]]

-----------------------------------------------------------------------

Part II





Department of the Interior





-----------------------------------------------------------------------



Bureau of Land Management



-----------------------------------------------------------------------



43 CFR Parts 3130 and 3160



National Petroleum Reserve, Alaska--Utilization; Proposed Rule

  Federal Register / Vol. 65, No. 81 / Wednesday, April 26, 2000 / 
Proposed Rules  

[[Page 24542]]


-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3130 and 3160

[WO-310-1310-00 24 1A]
RIN 1004-AD13


National Petroleum Reserve, Alaska--Unitization

AGENCY: Bureau of Land Management, Interior.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would add a new subpart to the Bureau of 
Land Management's oil and gas regulations implementing new statutory 
authority allowing operators to form units in the National Petroleum 
Reserve, Alaska (NPRA). Units allow for the sharing of costs and 
spreading of revenues among several leases, and allow for production 
from unit leases to occur without regard to lease or property 
boundaries. The rule would also allow for waiver, suspension, or 
reduction of rental or royalty for NPRA leases; allow for suspension of 
operations and production for NPRA leases; amend existing regulatory 
language to set the primary lease term for an NPRA lease at 10 years. 
Current regulations allow 10 years, or a shorter term if it is in the 
notice of sale; and add a new subpart to the NPRA regulations on 
subsurface storage agreements. Subsurface storage agreements allow 
operators to store gas in existing geologic structures on Federal 
lands.
    This proposal would also make it clear that existing suspension 
regulations would not apply to the NPRA.

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

ADDRESSES: Mail: Director (630), Bureau of Land Management, 
Administrative Record, Room 401 LS, 1849 C Street, NW, Washington, D.C. 
20240.
    Personal or messenger delivery: Room 401, 1620 L Street, NW, 
Washington, D.C. 20036.
    Internet e-mail: [email protected]. (Include ``Attn: AD13'')

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

SUPPLEMENTARY INFORMATION:

I. Public Comment Procedures
II. Background
III. The Rule as Proposed
IV. Section-by-Section Analysis
V. Procedural Matters

I. Public Comment Procedures

A. How Do I Comment on the Proposed Rule?

    If you wish to comment, you may submit your comments by any one of 
several methods.
    You may mail comments to Director (630), Bureau of Land Management, 
Room 401 LS, 1849 C Street, NW, Washington, D.C. 20240.
    You may deliver comments to Room 401, 1620 L Street, NW, 
Washington, D.C. 20036.
    You may also comment via the Internet to [email protected]. Please 
submit Internet comments as an ASCII file avoiding the use of special 
characters and any form of encryption. Please also include ``Attn: 
AD13'' and your name and return address in your Internet message. If 
you do not receive a confirmation that we have received your Internet 
message, contact us directly at (202) 452-5030.
    Please make your written comments on the proposed rule as specific 
as possible, confine them to issues pertinent to the proposed rule, and 
explain the reason for any changes you recommend. Where possible, your 
comments should reference the specific section or paragraph of the 
proposal that you are addressing.
    BLM may not necessarily consider or include in the Administrative 
Record for the final rule comments that BLM receives after the close of 
the comment period (see DATES) or comments delivered to an address 
other than those listed above (see ADDRESSES).

B. May I Review Comments Submitted by Others?

    Comments, including names, street addresses, and other contact 
information of respondents, will be available for public review at 1620 
L Street, NW, Room 401, Washington, D.C., during regular business hours 
(7:45 a.m. to 4:15 p.m.), Monday through Friday, except Federal 
holidays.
    Individual respondents may request confidentiality. If you wish to 
request that BLM consider withholding your name, street address, and 
other contact information (such as: Internet address, FAX or phone 
number) from public review or from disclosure under the Freedom of 
Information Act, you must state this prominently at the beginning of 
your comment. BLM will honor requests for confidentiality on a case-by-
case basis to the extent allowed by law. BLM will make available for 
public inspection in their entirety all submissions from organizations 
or businesses, and from individuals identifying themselves as 
representatives or officials of organizations or businesses.

II. Background

Why is BLM Proposing This Rule?

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

Is this Rule Related to the Environmental Impact Statement or the 
Record of Decision to Lease Oil and Gas in the NPRA?

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

III. The Rule as Proposed

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

    The proposed rule applies to operations under Federal oil and gas 
leases in NPRA and would add a new

[[Page 24543]]

subpart allowing the formation of oil and gas units in the NPRA. The 
rule would also--
    (A) Allow for waiver, suspension or reduction of rental or royalty 
for NPRA leases;
    (B) Allow for suspension of operations and production for NPRA 
leases;
    (C) Amend existing regulatory language to set the primary lease 
term for an NPRA lease at 10 years. Current regulations allow 10 years 
or a shorter term if it is in the notice of sale;
    (D) Add a new subpart to the NPRA regulations on subsurface storage 
agreements. Subsurface storage agreements allow operators to store gas 
in existing geologic structures on Federal lands in return for fees; 
and
    (E) Make it clear that existing suspension regulations that 
preceded the enactment of P.L. 105-83, would no longer apply to the 
NPRA.

What is Unitization?

    Unitization is a means for a group of oil and gas lessees in a 
given area to share in the risks and costs associated with oil and gas 
exploration and development and also to share in the possible benefits. 
Unitization of leases reduces the need for surface disturbing 
activities by enhancing the likelihood that fewer wells would need to 
be authorized in order to produce the oil or gas reservoir. The 
proposed regulations implement statutory changes and are intended to 
recognize the unique climatic conditions of NPRA, the needs and 
practices of the oil and gas industry in light of those conditions, and 
the need to protect natural resources in NPRA.
    The Secretary is obligated to protect surface resources within NPRA 
(see 42 U.S.C. 6508). The protection of surface resources includes the 
protection of subsistence needs of rural residents. This proposal does 
not directly address subsistence because unitization will not change 
the obligation to comply with subsistence related stipulations in 
leases. Please comment on whether these proposed regulations will meet 
the needs of the public and the industry while protecting the NPRA 
environment and whether these regulations should specifically address 
subsistence.

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

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

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

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

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

Increased Flexibility
    Like the unit regulations proposed earlier (63 FR 66911), these 
regulations would increase the flexibility of the unitization process 
by allowing operators and BLM to negotiate exploration and development 
terms before entering into a unit agreement. The focus of this process 
would be to protect the public interest rather than to rely on the 
model unit agreement contained in existing regulations at 43 CFR 
subpart 3186, which is currently applicable to Federal lands outside of 
NPRA.
Up-Front Negotiation and Limited Number of Unit Terms
    The primary change to the unitization process that you may be 
familiar with would be an emphasis on up-front negotiation among the 
various interest owners and BLM. Operators would be able to use any 
agreement format in their unit agreement as long as it addressed the 
following four basic issues: (1) Unit area; (2) Initial and continuing 
development obligations; (3) Productivity criteria and participating 
areas; and (4) BLM's ability to set or modify the quantity, rate, and 
location of development and production.
    BLM would accept only a limited number of additional unit agreement 
terms beyond the mandatory terms. If the unit agreement does not 
specifically address modifications, they would not be permitted unless 
all of the parties to the agreement agree. The unit agreement would 
include all producing intervals unless the unit agreement specifies 
those producing interval(s) to which it applies.

What Would be the Basis for the Negotiations?

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

How Would the Unit Agreement Process Work?

    Under the proposed regulations, generally, if you own or lease 
tracts you could apply to BLM for review of your proposed unit 
agreement. You and BLM would negotiate the terms of the unit agreement. 
BLM would review the agreement and determine whether we should approve 
it. After BLM approves the unit agreement, tracts joining the unit 
would be committed tracts. BLM would designate a participating area if 
it found that a well meets the negotiated productivity criteria laid 
out in the unit agreement. To meet the productivity criteria, a well 
must have future production potential sufficient to pay for the costs 
of drilling, completing and operating a unit well. Each participating 
area would have at least one well meeting the productivity criteria. 
Participating areas are used to allocate production to committed tracts 
within the unit. A tract shares in production if there is anywhere 
within the tract a participating area containing a well that meets the 
productivity criteria.
    When a unit well in a participating area stops producing, the 
participating area terminates unless there is another unit well that is 
producing in that participating area. Normally, when the last unit well 
in the last participating area stops producing and there are no 
approved drilling or reworking operations on committed tracts, the unit 
terminates. After unit termination, all committed leases that were part 
of the unit would return to their individual lease status in effect at 
the time of termination and would not receive any further benefits of 
unitization. For example, if a committed Federal lease's primary term 
expires before unit termination, the Federal lease would terminate when 
the unit terminates, unless the lease qualifies for extension under 
current regulations at 43 CFR 3135.1-5. There is no automatic extension 
of the lease term provided for

[[Page 24544]]

Federal leases which have been previously committed to terminated 
units. Federal leases that have not completed their primary term would 
continue under their terms.

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

    Participating areas are used to allocate production from wells in a 
unit to the tracts committed to the unit and unleased Federal land. A 
participating area includes the land around a well that meets certain 
criteria negotiated for and laid out in the agreement. In general, 
these criteria must show that the production from the well can pay for 
its operation. You and BLM would negotiate the productivity criteria 
and the participating area and revision size, and would include these 
terms in the unit agreement. To establish a participating area, you 
must prove to BLM that the production from the area you propose to 
include in the participating area can cover the costs of operating the 
area.
    This proposal would change the current procedure involving the 
creation and size of initial participating areas and additions to 
existing participating areas. This rule would provide that the amount 
of land to be included in any participating area or revision be 
specified in the unit agreement. Under current procedures that apply to 
Federal lands outside of NPRA you are not required to specify the 
amount of land and BLM determines participating area size after a 
detailed review of production data. Under existing procedure, 
participating areas include only specific producing intervals. Under 
this proposal we presume that a participating area includes all 
producing intervals unless the agreement specifies that it doesn't. An 
addition to an existing participating area would occur when a new well 
that meets the productivity criteria defined in the unit agreement is 
drilled outside of that participating area.

Does This Proposal Require a Plan of Operations?

    The obligation in the model unit agreement to drill an exploratory 
well and subsequent wells under a plan of operations would be replaced 
with initial and continuing development obligations. Under this 
proposal, you and BLM would negotiate the initial and continuing 
development obligations and would include those terms in the unit 
agreement. These terms would define the number and frequency of wells 
you plan to drill or operations that would establish new unitized 
production. You would be required to submit a plan of operations to BLM 
after you completed initial development obligations that would detail 
how you plan to develop the area. Under this proposal, the unit would 
automatically contract (decrease in size) to the existing participating 
area(s) when you do not meet a continuing development obligation.
    Existing regulations that apply to Federal lands outside of NPRA 
allow five years for drilling and development of the unitized area 
before automatic elimination would occur for lands not in a 
participating area. This proposal would not contain the 5-year initial 
drilling and development period of current regulations applying to 
Federal lands outside of NPRA. BLM believes this new requirement would 
increase the potential for oil and gas development by encouraging 
operators to follow a continuous development program on a schedule 
appropriate for the area, or risk contraction of the unit area to the 
participating area(s).

What Are Paying Well Determinations and How Does This Proposal Treat 
Them?

    Under current regulations that apply to Federal lands outside of 
NPRA, paying well determinations are the basis to authorize the 
creation of a participating area. Under this proposal, paying well 
determinations would be replaced with well productivity criteria laid 
out in the unit agreement. This would allow the unit operator to 
negotiate criteria that are not tied strictly to well economics. 
Currently, production must cover the drilling and operating costs 
attributed to that well. Under this proposal, costs for that well would 
be considered as part of unit costs and not be required to be covered 
by production from that well alone. Productivity criteria must be 
adequate to indicate a well has established future production potential 
to pay for the cost of drilling, completing, and operating.

Under This Proposal, Is There a Set Time in Which I Must Develop the 
Entire Unit?

    Under existing procedures that apply to Federal lands outside of 
NPRA, operators are limited to a set time to develop the entire unit. 
Under the proposed regulations, the unit would not contract as long as 
development continued at the rate set out in the agreement. Once you 
meet your initial development obligations (set out in the agreement), 
all tracts committed to a unit would continue to receive the benefits 
of unitization as long as the unit is producing oil and gas.

Why is BLM Proposing Rules on Waiver, Suspension, or Reduction of 
Rental or Royalty?

    Recent amendments to the Act made by Public Law 105-83 authorize 
BLM to approve waiver, suspension, or reduction of rental or royalty 
for NPRA leases (see paragraph (10) of section 6508 of the Act). In 
accordance with the Act, BLM would approve these only if they 
encouraged the greatest ultimate recovery of oil and gas or it was in 
the interest of conservation. Operators would get the benefit only if 
they proved to BLM that they could not successfully operate the lease 
without the benefit. These standards are high because we should take 
these actions only as a last resort, to save a lease which ``cannot be 
successfully operated under the terms provided therein.'' (42 U.S.C. 
6508).

Why is BLM Proposing a Rule on Suspensions of Operations and 
Production?

    Recent amendments to the Act made by Public Law 105-83 authorize 
BLM to approve suspensions of operations and production for an NPRA 
lease. The rule would implement paragraph (10) of section 6508 of the 
Act that gives BLM the authority to suspend operations and production 
on NPRA leases. Because of the extreme sensitivity of Alaska's north 
slope environment, any surface disturbing activity requires a long 
construction lead-time and careful planning. The lapse of time between 
the discovery of oil and gas and the connection of that discovery well 
with transportation facilities is much greater in northern Alaska and 
is much more expensive than in the lower 48 States.
    A lease should not be lost, or the opportunity to develop a new 
field foregone, simply because a multi-year planning and construction 
process may be required. It is important that the environment receive 
maximum protection while providing the lessee, the United States, and 
the State of Alaska the opportunity to develop new mineral resources. 
These regulations would allow BLM to grant suspensions of operations 
and production of unitized leases to protect the surface resources, to 
promote the greatest ultimate recovery of resources to allow for the 
careful planning and construction of a transportation system to a new 
area of discovery, or to mitigate reasonably foreseeable and 
significant adverse effects on the surface resources.

[[Page 24545]]

How Does a Suspension of Operations and Production Affect a Lease?

    During the period of the suspension, operations and production 
would stop. Operators would not be required to pay any rental or 
royalty during the period of suspension, but neither would they have 
beneficial use of the lease. Suspensions of operations and production 
would also extend the term of a suspended lease, and add the period of 
the suspension to the lease term.

Why is BLM Proposing a Rule on NPRA Lease Extensions?

    Recent amendments to the Act made by Public Law 105-83 authorize 
BLM to approve lease extensions. Paragraph (8) of section 6508 of the 
Act provides that extensions can only occur by production or by 
reworking or drilling as approved by the Secretary. However, BLM is 
charged with administering this statute and has the duty to interpret 
and implement these provisions. If a very narrow construction is given 
to the words production, drilling or reworking, the result would be the 
expenditure of time and money without the opportunity to start 
operations that would otherwise extend the lease term. Accordingly, the 
proposed regulations would address the concepts of ``constructive 
drilling'' and ``constructive reworking operations,'' and recognize 
demonstrations of diligence in operations as a basis for extension.

What are Subsurface Storage Agreements?

    Subsurface storage agreements are agreements between an operator 
and BLM to store oil or gas on Federal lands in existing geologic 
structures in return for a fee. Tanks are not installed: The gas is 
reinjected, and is stored in, a geologic structure that exists 
naturally. There is very little environmental impact involved in 
storing oil or gas in this manner. Most times oil or gas is reinjected 
by existing surface and subsurface operating equipment from prior 
operations. Existing regulations that apply to Federal lands outside of 
NPRA allow subsurface storage agreements (see 43 CFR 3105.5). There is 
a similar need for subsurface storage agreements within the NPRA.

Why is BLM Proposing a Rule on Subsurface Storage Agreements?

    Subsurface storage agreements are important for NPRA because they 
would allow operators to store oil or gas with minimal environmental 
impact while waiting for distribution. Climatic conditions in NPRA are 
often severe, making gas storage necessary until it can be distributed.

Are There any Other Changes to Existing Regulations That This Proposal 
Would Make?

    Yes. This rulemaking would make two more minor changes to the NPRA 
regulations.

1. Fixing the Lease Term at 10 Years

    In recent amendments to the Act made by Public Law 105-83, Congress 
mandated that the initial NPRA lease term be 10 years. These 
regulations would implement that provision. Under current regulations, 
the lease term could be less. Longer lease terms in the NPRA are 
preferable since there are harsh geologic and climatic conditions in 
the NPRA that make it difficult to operate in that region. Longer lease 
terms would allow operators additional time to deal with the geologic 
and climatic conditions in NPRA.
2. Administrative Provision
    Existing provisions on suspensions that apply to leases in the 
lower 48 States would no longer apply to NPRA leases. This proposal 
would amend existing language in subpart 3160 that cross-references 
Sec. 3104-3 and make it clear that that provision does not apply to 
NPRA leases. This amendment is strictly administrative. As discussed 
above, this proposal would implement statutory authority by adding 
suspension provisions that apply only to NPRA leases.

IV. Section-by-Section Analysis

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

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

Subpart 3133--Rentals and Royalties

    Section 3133.3 would provide for waiver, suspension, or reduction 
of rental, royalty, or minimum royalty for NPRA leases if it encouraged 
the greatest ultimate recovery of oil and gas or it was in the interest 
of conservation. Applicants would be required to prove to BLM that they 
couldn't operate under their current lease terms without a waiver, 
suspension, or reduction of rental, royalty, or minimum royalty.
    Section 3133.4 would require you to submit to BLM an application 
and describe in it the relief you are requesting. BLM would also 
require you to submit the items listed in this section in your 
application so that BLM can determine if you meet the standards of the 
regulations.

Subpart 3135--Transfers, Extensions, Consolidations and Suspensions

    The suspension of operations and production in this subpart should 
be distinguished from the suspensions of rental, royalty, or minimum 
royalty in subpart 3133. Those suspensions relate to payments only and 
do not relate to suspensions of operations and production contained in 
this subpart.
    Section 3135.2 would describe the circumstances under which BLM 
would approve a request for a suspension of operations and production 
on an NPRA lease. BLM would approve suspensions of operations and 
production if you are prevented from operating your lease for reasons 
beyond your control, and your request:
    (A) Is in the interest of conservation of natural resources. This 
could include conservation of oil and gas as well as other NPRA 
resources;
    (B) Encourages the greatest ultimate recovery of oil and gas, 
including the planning and construction of a transportation system to a 
new area of discovery; or
    (C) Mitigates reasonably foreseeable and significantly adverse 
effects on surface resources.
    The suspension stops the running of the lease term and during the 
period of the suspension you:
    (A) Are not required to pay rental or royalty; and
    (B) Do not have beneficial use of and may not operate on your 
lease.
    Examples of reasons that BLM might grant a suspension could be 
related to protection of natural habitat and wildlife, and protection 
of subsistence needs of rural residents. Please comment on whether the 
regulation should include specific reasons to support a grant of 
suspension, and whether additional or different reasons should be the 
basis supporting a grant of suspension.
    Section 3135.3 would provide the suspension application 
requirements. BLM would require the listed items to determine whether 
you qualify for a lease suspension.
    Sections 3135.4 and 3135.5 would describe the effective date of the 
suspension and when you should stop paying rental or royalty.
    Sections 3135.6 and 3135.7 would state when your suspension 
terminates and how the termination of the suspension would affect your 
lease. BLM will terminate suspensions when you begin any operations on 
your lease, or when BLM determines that the

[[Page 24546]]

reason for granting the suspension no longer exists. You must notify 
BLM at least 24 hours before starting operations on a suspended lease. 
Once the lease suspension terminates, your rental or minimum royalty 
obligation resumes. Your lease will be extended by adding the period of 
the suspension to the term of your lease.

Subpart 3137--Unitization Agreements, National Petroleum Reserve, 
Alaska

    Section 3137.5 would contain a definitions section that includes 
the terms you need to know to understand this subpart.
    This section introduces two terms, constructive drilling and 
constructive reworking operations, that would be unique to the NPRA. 
These terms are important for the extension provisions of 
Secs. 3137.111 through 3137.113 and would allow you to get an extension 
of a lease in a unit if you prove there are ongoing constructive 
drilling or reworking operations in the unit. Since oil and gas 
operations are difficult and expensive in the NPRA, we believe, as we 
noted in the overview discussion above, that it is reasonable for 
constructive drilling or reworking operations to extend your lease.
    We would use of the term operating rights instead of the use of the 
more universal term ``working interest'' here to be consistent with 
BLM's proposed Onshore Oil and Gas Leasing and Operations regulations 
(63 FR 66879) and current regulations that apply to Federal lands 
outside of NPRA. (see Secs. 3100.0-5 and 3160.0-7). Please specifically 
comment on this definition and how it compares to standard industry 
usage of this term.

General

    Section 3137.10 would explain the benefits to entering into a 
unitization agreement in the NPRA. One of the major benefits of 
unitization is that operations or production from one part of the unit 
meets the development obligations for all leases committed to the unit. 
You receive the benefits of operations or production, even if the 
operations are not on, or the production does not occur from, your 
lease. We give identical benefits to all the tracts in the unit for 
extensions and wells that meet the productivity requirements laid out 
in the agreement. As long as one well in the unit has met the 
productivity criteria, all leases in the unit are extended.
    Another benefit of unitization is that operations may occur in the 
unit without regard to restrictions such as spacing requirements and 
lease offsets. For example, if there were a 200-foot limit to drilling 
next to a lease boundary, it would not apply among unitized tracts and 
you would be able to drill within the 200-foot limit. Finally, since 
unit operator(s) would be responsible for operations for all unitized 
tracts, lessees benefit by being able to consolidate operations and 
reporting requirements.

Application

    Sections 3137.20 would describe the format of the unit agreement 
BLM will accept. BLM would accept any format as long as it protects the 
public interest, including oil and gas resources and environmental 
concerns, and includes the mandatory terms required by these 
regulations.
    Section 3137.21 would introduce the basic terms of a unit 
agreement. It would also cross reference other sections of the 
regulation whose subject is referenced here. This section would contain 
a provision that would allow BLM to request additional supporting 
documentation after reviewing your initial application.
    Section 3137.22 would lay out the size and shape requirements for 
the unit area. Units must be made up of tracts that are contiguous so 
that unit operations and production could be conducted in an efficient 
and logical manner. BLM considers this to be the minimum qualification 
for a tract to be included in a unit area. The unit area must also 
include at least one NPRA lease since these regulations would not apply 
if an NPRA lease were not in the unit.
    This section would also make it clear that BLM may limit the size 
and shape of the unit, considering the type, amount and rate of 
development and production and the location of the oil and gas. BLM 
would approve reasonable sizes and shapes as long as they comply with 
the other provisions of this section.
    Section 3137.23 would describe what you must submit to BLM in your 
application. This would include a statement that there are sufficient 
tracts in the agreement to reasonably operate and develop the unit 
area. This means that BLM expects unit operators to be able to operate 
the unit area efficiently without the need for participation in unit 
operations or production by non-committed parties.
    Your application would include a discussion of the reasonably 
foreseeable and significantly adverse effects on the surface resources 
of the NPRA. This standard is laid out in paragraph (1) of 42 U.S.C. 
6508. This section would also require you to explain how unit 
operations may reduce impacts compared to individual lease operations. 
In other words, your unit application must explain how:
    (A) Operations under the unit will comply with the environmental, 
subsistence, archaeological, and historical preservation requirements 
under laws or regulations; and
    (B) The unit operations' impacts on surface resources would be less 
than those impacts of lease operations were they to be performed 
individually.
    Section 3137.24 would list the reasons BLM would reject a unit 
agreement application.
    BLM would reject a unit application that:
    (A) Does not contain the mandatory terms these regulations require, 
and any additional terms BLM may require you to include;
    (B) Proposes a unit operator who has an unsatisfactory record of 
complying with applicable laws, regulations, the terms of any lease or 
permit, or the requirements of any notice or order. BLM has determined 
that only responsible, qualified operators should be allowed to operate 
a unit in the NPRA. Operators with satisfactory records of compliance 
are more likely to comply with the terms and conditions of leases and 
these regulations than those who have unsatisfactory records of 
compliance. BLM would also reject any unit application that proposes an 
operator who is not qualified, under any statute or regulation, to 
operate within NPRA;
    (C) Does not conserve natural resources. BLM interprets paragraph 
(10) of 42 U.S.C. 6508 as establishing this standard. BLM has 
interpreted ``in the interest of conservation'' from the statute to 
mean that the unit agreement must conserve natural resources, including 
oil and gas and other resources in the area of development;
    (D) We determined was not in the public interest. BLM would not 
approve unit applications that do not protect the resources in an oil 
and gas pool, field, or similar area;
    (E) Does not comply with any special conditions in effect for any 
part of the NPRA that would be affected by the unit or any lease 
subject to the unit. BLM often imposes special conditions, such as 
stipulations and conditions of approval, to protect surface and 
subsurface resources; or
    (F) Does not comply with the requirements of this subpart.
    Sections 3137.25 and 3137.26 would explain how parties to the unit 
would know if BLM approves or disapproves the unit agreement and when 
the unit agreement will become effective. BLM would provide notice to 
unit operators. The unit operator would be required to

[[Page 24547]]

notify in writing all parties to the unit agreement within 30 calendar 
days of receiving BLM notice. One important reason for this is to 
notify lessees of when the unit operator began acting on their behalf. 
A unit agreement is effective the date BLM approves it.
    Sections 3137.27 and 3137.28 would explain the effect of other 
agreements on the unit agreement and whether a unit agreement includes 
all oil and gas committed to the unit.
    This section would make it clear that private agreements between 
operators, among lessees, or between the operator(s) and lessees do not 
affect or modify the terms of the BLM approved unit agreement. 
Likewise, agreements entered into with any other parties, including 
lease agreements, do not modify unit terms or conditions. However, the 
unit agreement does not modify Federal lease stipulations.
    The regulations would require a unit agreement to include all oil 
and gas resources of committed tracts unless BLM approves agreement 
terms to the contrary.

Development

    Section 3137.40 and 3137.41 would explain that you must define 
initial and continuing development obligations in a unit agreement. You 
and BLM would negotiate the details of these terms before you submit a 
final application.
    Initial development obligations must be such that when you complete 
them, you will be able to estimate the size and shape of the reservoir 
within the unit area and understand the geologic conditions existing 
within the reservoir and unit area. You must complete initial 
development obligations before beginning continuing development 
obligations.
    Continuing development obligations should promote development 
within unit areas. BLM has determined that, as a matter of policy, in 
exchange for the benefits of unitization, operators must commit to 
development exceeding that of non-unit development in the area 
surrounding the unit.

Optional Terms

    Section 3137.50 would describe the optional terms BLM may allow you 
to include in your unit agreement if they promote additional 
development or enhanced production potential. These include optional 
terms that:
    (A) Limit the unit to certain formations;
    (B) Allow multiple unit operators; or (C) Allow modifications to 
the agreement by less than 100% of the parties to the unit.
    BLM would also allow other optional terms not listed above if you 
prove to BLM that they promote the greatest economic recovery of oil 
and gas.
    Section 3137.51 would establish the requirements for multiple unit 
operators. The unit agreement must explain the conditions under which 
additional unit operators would be acceptable. For example, a 
justification for multiple unit operators may be the need for different 
sets of operations to produce oil and gas with different and distinct 
characteristics from the same unit. Multiple unit operators may be 
necessary to have distinct, but not redundant, surface production 
facilities to handle that production. The unit agreement must also 
establish the responsibilities of the different operators so that 
lessees and BLM are informed of who is responsible for what, including 
bond coverage.
    You must also define in the unit agreement the consequences if one 
or more of the unit operators defaults, such as which operator(s) would 
be responsible for particular operations in case another operator 
defaults. Finally, the unit agreement must define which unit operator 
is responsible for unit obligations not specifically assigned in the 
unit agreement such as the division of responsibilities for different 
types of operations that might occur within the same unit.
    Section 3137.52 would set out the requirements to allow you to 
modify the unit agreement. You would be able to modify the unit 
agreement if:
    (A) All current parties (original parties or their successors) 
agree to the modification; or
    (B) You meet the modification provision in the unit agreement. In 
order to permit you to modify the unit agreement in this manner, the 
unit agreement must identify which parties, and what percentage of 
those parties, must consent to each type of modification named in the 
unit agreement.
    Before BLM approves a modification, you must certify that all 
necessary parties, as spelled out in the unit agreement, have agreed to 
the modification. Modifications would be effective retroactive to the 
date you filed a complete modification application.

Unit Agreement Operating Requirements

    Section 3137.60 would describe the unit operator's obligations. 
Operators must:
    (A) Comply with the terms and conditions of the unit agreement, 
Federal laws and regulations, lease terms and stipulations, and BLM 
notices and orders; and
    (B) Provide evidence of acceptable bonding. The proposal provides 
that the amount of acceptable bonding would be no less than the sum of 
the individual Federal bonding requirements for each of the Federal 
leases committed to the unit.
    Evidence of acceptable bonding could include:
    (A) A list of the bonds, their identification numbers, and their 
amounts; and
    (B) Certification that the bond amounts are sufficient to cover the 
proposed unit operations.
    Operators who do not comply with this section are not eligible to 
operate an NPRA unit.
    This section would require bonds to be payable to the Secretary of 
the Interior. This is standard practice for bonding on public lands.
    Section 3137.61 would make clear how you can change the unit 
operator. If you are the new unit operator of an existing unit, you 
must file statements with BLM that you accept unit obligations and that 
the required percentage of interest owners according to the unit terms 
consented to a change of the unit operator. New operators must also 
file evidence of acceptable bonding. The effective date of the change 
in the unit operator would be the date BLM approves it.
    Section 3137.62 would describe your liabilities as a former unit 
operator. Former unit operators would be liable for any duties and 
obligations that accrued before BLM approved a new unit operator.
    Section 3137.63 would describe your liabilities as the new unit 
operator. Liability would be joint and several with the former unit 
operator. This means that each person who holds an undivided interest 
in the lease is responsible for the full amount of liability if the 
other holders of the lease can't satisfy the liability. The new unit 
operator would have joint and several liability with the record title 
and operating rights owners for:
    (A) Compliance with the terms and conditions of the unit agreement, 
Federal laws and regulations, lease terms and stipulations and BLM 
notices and orders;
    (B) Plugging unplugged wells that were drilled and reclaiming 
unreclaimed facilities that were installed or used before the effective 
date of the change in unit operators; and
    (C) Liabilities that accrue during the time you are the unit 
operator. Under the proposed regulation, the new unit operator's 
liability for obligations under

[[Page 24548]]

the lease, such as royalties and other payments, would be limited by 
Section 102(a) of the Federal Oil and Gas Royalty Management Act of 
1982 (FOGRMA), 30 U.S.C. 1712(a).
    Section 102(a) of FOGRMA provides that, while a lessee may 
designate some other person, such as a unit operator, to make payments 
due to the Government on the lessee's behalf, the designated payer does 
not thereby become liable to the Government for those payment 
obligations. A designated payer, such as a unit operator, only has 
liability to the Government if he is also the owner of the operating 
rights in a lease or is the record title owner. The statute provides 
that the operating rights owners are primarily liable to the Government 
for payment obligations and that owners of record title are secondarily 
liable if they do not own the operating rights.
    Accordingly, the proposed regulation would recognize that a new 
unit operator's potential liability for the payments due the Government 
would not be automatic, but would be dependent upon whether he is an 
operating rights owner or an owner of record title, in accordance with 
the limitations contained in Section 102(a) of FOGRMA.
    Section 3137.64 would set out the requirements for preventing 
drainage or compensating the Federal Government for it. To prevent 
uncompensated drainage of oil and gas from unit land by wells on land 
not subject to the agreement, you must take such measures as BLM 
determines are necessary. This would include:
    (A) Drilling protective wells that are economically feasible. A 
protective well is considered economically feasible if it is projected 
to have production in quantities sufficient to pay for the cost of 
drilling, completing and producing operations;
    (B) Paying the Federal Government compensatory royalty for oil or 
gas lost through drainage from a unit. BLM would determine the amount 
of compensatory royalty that would cover oil and gas lost through 
drainage;
    (C) Forming other agreements or modifying existing agreements to 
allow the tracts in the unit to share in production. BLM would agree to 
this provision only if we determine that the Federal Government is 
being fairly compensated for drainage; or
    (D) Any additional measures that BLM considers necessary to prevent 
uncompensated drainage.

Development Requirements

    Sections 3137.70 would explain:
    (A) The requirements to meet initial development obligations; and
    (B) What you must submit to BLM after you meet initial development 
obligations. To meet initial development obligations by the time you 
agreed to in your unit agreement, you must have:
    (1) Drilled the required test well(s) to the primary target. This 
term would have been negotiated with BLM before you submitted to BLM 
your complete unit application;
    (2) Drilled at least one well that meets the productivity criteria 
(see the discussion of Sec. 3137.82 for a discussion of productivity 
criteria); or
    (3) Established to BLM's satisfaction that further drilling to meet 
the productivity criteria is unwarranted or impracticable. BLM would 
require you to submit information showing that the primary target 
defined in the unit has been adequately drilled and tested as proof 
that further drilling is unwarranted or impracticable. This information 
could include well logs and production test data. If you meet this 
standard, and BLM agrees that further drilling should not occur, the 
unit may terminate. Alternatively, if you have a modification provision 
in your unit agreement, you could submit, for BLM approval, a request 
to modify the initial development obligations and/or productivity 
criteria in your unit agreement.
    You would be required to submit to BLM certification that you met 
initial development obligations within 60 calendar days after having 
done so.
    Section 3137.71 would explain the requirements to meet continuing 
development obligations and would list what kinds of operations BLM 
would consider to be continuing development. (See the discussion of 
Secs. 3137.40 and 3137.41.) Work you conducted before meeting initial 
development requirements would not be continuing development. You would 
be required to submit to BLM, no later than 90 days after meeting 
initial development obligations, a plan that describes how you will 
meet continuing development obligations. No later than 90 days after 
BLM's approval of your plan, you would be required to certify to BLM in 
writing that you started operations to fulfill continuing development 
obligations.
    Section 3137.72 would explain that you may conduct additional 
development within or outside a participating area to fulfill 
continuing development obligations.
    Section 3137.73 would explain that a unit contracts if you do not 
meet a deadline for performing a continuing development obligation. 
This section would also explain contraction and when it is effective. 
Contraction means that all areas outside any participating area will be 
eliminated from the unit and only established participating areas 
(producing or non-producing, depending on unit terms) remain in the 
unit. After contraction, any producing wells no longer in the unit 
would produce oil or gas under the terms of the lease or other 
agreement (e.g., communitization agreement) under which they are 
operating. If you do not meet a continuing development obligation 
before a participating area is established, the unit terminates.

Participating Areas

    Sections 3137.80 and 3137.81 would define participating areas and 
describe their function. Whether an area surrounding a well becomes a 
participating area depends on whether the well within the unit area 
meets the productivity criteria set out in the unit agreement. The 
function of a participating area is to allocate production to each 
committed tract that is within or partially within the participating 
area according to that tract's surface acreage within the participating 
area. Section 3137.80 would require you to delineate a participating 
area at the time it meets the productivity criteria defined in 
Sec. 3137.82.
    Section 3137.82 would define productivity criteria as the 
characteristics of a well that warrant including an area (defined in 
the unit agreement) surrounding the well in a participating area. The 
criteria would be required to be defined in the unit agreement for each 
producible interval. Well characteristics include things like the:
    (A) Depth of the well;
    (B) Geology surrounding the well that might affect drainage from 
the oil and gas reservoir; and
    (C) Area you estimate the well to be draining.
    You must be able to determine whether you meet the criteria when 
the well is drilled and you have completed testing. This means that as 
soon as you complete testing, it must be evident whether or not the 
well meets the productivity criteria.
    To meet the productivity criteria, you must be able to demonstrate 
to BLM that the well has sufficient future production potential to pay 
for the costs of drilling, completing, and operating the well as a unit 
well. This is different from a paying lease well, since those wells 
need only cover the operating costs on a lease basis. A unit benefits 
from the efficiencies and economics of operating several leases 
jointly, whereas a non-unit lease must stand on its own.

[[Page 24549]]

    Section 3137.83 would explain that the first well you drill after 
unitization that meets the productivity criteria would establish the 
initial participating area. If that initial participating area contains 
wells that meet the productivity criteria that existed before BLM 
approved the unit agreement, the wells will either:
    (A) Be added to the participating area if the well is in the same 
producible interval; or
    (B) Establish a separate participating area if the well is in a 
different producible interval. This would occur unless the unit 
agreement defines the productivity criteria to include separate 
producible intervals in a single participating area.
    Section 3137.84 would describe what you must submit to BLM to 
establish an initial or new participating area or add to an existing 
participating area. You must submit to BLM:
    (A) A statement that the well meets the productivity criteria as 
defined in the unit agreement. BLM may request you to submit 
information verifying your statement. This could include well logs and 
production test data.
    (B) A map showing the new or revised participating area and 
acreage. This map should be detailed enough for BLM to determine the 
participating area boundary and the exact acreage.
    (C) An allocation schedule for each participating area that 
establishes production allocation for each tract and for each record 
title and operating rights owners in the participating area. This 
information is necessary to determine proper allocation of production 
and for royalty purposes.
    Section 3137.85 would set the effective date of an initial, new, or 
revised participating area as the first day of the month in which you 
complete a well that meets the productivity criteria.
    However, this date can't be earlier than the effective date of the 
unit, even if the well was drilled and met the productivity criteria 
before BLM approved the unit.
    Section 3137.86 would lay out what happens to a participating area 
when you drill new wells that meet the productivity criteria. The 
participating area will remain the same, a new participating area will 
be established, or an existing participating area will be expanded, 
depending on whether the well is:
    (A) Inside or outside the participating area boundaries; and
    (B) In the same or different producible interval as an existing 
well.
    Section 3137.87 would describe your responsibilities if there are 
unleased Federal tracts in a participating area. You must include any 
unleased Federal tracts in a participating area even though BLM will 
not share in unit costs. BLM cannot be a party to the unit agreement. 
However, you must allocate production to the unleased Federal tracts 
for royalty purposes as if they were committed to the agreement. The 
Federal Government would receive royalties based on the production 
allocated to that land in the participating area.
    If there are unleased Federal tracts that are leased after the 
effective date of the unit, you must admit them as of the effective 
date of the lease. Any time there is a new Federal lease admitted to 
the unit, you must submit to BLM:
    (A) Revised maps;
    (B) A new list of committed leases; and
    (C) New allocation schedules reflecting introduction of the new 
lease to the unit.
    Section 3137.88 would explain that wells on committed tracts 
outside any existing participating area that do not meet the 
productivity criteria would be considered to be non-unit wells, and 
operations on those wells are non-unit operations. Not later than 60 
calendar days after a unit well does not meet the productivity 
criteria, you must notify BLM and treat the well as a non-unit well. 
This means that you must conduct operations under the terms of the 
lease or any other federally approved cooperative agreements such as 
communitization agreements and drainage compensation agreements but not 
under the unit terms.
    Section 3137.89 would explain how production is allocated from 
wells that do not meet the productivity criteria. If a well that does 
not meet the productivity criteria was drilled before the unit was 
formed, or outside the participating area but still within the unit, 
production from that well must be allocated on a lease or other 
agreement basis. If a well was drilled after BLM approved the unit and 
was completed within an existing participating area, the production 
from that well becomes part of the participating area production. This 
is true whether or not the well meets the productivity criteria.
    Section 3137.90 would explain that wells on committed tracts 
outside an existing participating area that do not meet the 
productivity criteria may be operated by someone other than the unit 
operator. However, as the unit operator, you must continue to operate 
wells you drilled after unit formation that do not meet the 
productivity criteria. You must do this until BLM approves a new 
operator for those wells.
    Section 3137.91 would explain that a well BLM previously determined 
was a non-unit well (it did not meet the productivity criteria) that 
now meets the productivity criteria may establish or revise a 
participating area. You must notify BLM within 60 days of when this 
occurs and demonstrate to us that the well meets the productivity 
criteria before you revise an existing participating area or establish 
a new one. Operators would be required to submit engineering and 
geologic and geophysical exploration information to prove to BLM that a 
well meets the productivity criteria.
    Section 3137.92 would explain that after contraction under 
Sec. 3137.73 of this subpart, a participating area terminates 60 
calendar days after BLM notifies you that there is insufficient 
production to meet the operating costs of that production, unless you 
show that within 60 days after BLM's notification--
    (A) Your operations to restore or establish new production are in 
progress; and
    (B) You are diligently pursuing oil and gas production.

Production Allocation

    Section 3137.100 would explain how to allocate production when a 
participating area includes unleased Federal lands as if the unleased 
Federal lands were leased and committed to the agreement. This protects 
the Federal interest and ensures that the public is fairly compensated 
for Federal oil and gas produced.
    The obligation to pay the United States for production from 
unleased Federal lands accrues from the later of the date:
    (A) The committed leases in the participating area that includes 
unleased Federal lands receive a production allocation; or
    (B) Federal lands become unleased, whichever is later.
    Federal lands that were committed to the unit may become unleased 
for a variety of reasons; such as BLM determining that the lessee of 
record is ineligible to hold a lease.
    The royalty rate for production from unleased Federal lands in the 
unit would be the greater of 121/2% or the highest royalty rate of any 
lease in the unit. This provision would be consistent with how royalty 
rates are determined for unleased Federal lands in Federal units 
outside of the NPRA.

Obligations and Extensions

    Section 3137.110 would make it clear that nothing in a unit 
agreement modifies Federal lease stipulations

[[Page 24550]]

including lease-specific environmental stipulations.
    Section 3137.111 would explain that BLM will extend the primary 
term of a unit if there is:
    (A) Actual production from a well in the unit that meets the 
productivity criteria; or
    (B) Actual or constructive drilling or reworking operations.
    These actions should demonstrate to BLM that you expended 
sufficient effort to explore for oil and gas that should be rewarded 
with an extension of the unit.
    Section 3137.112 would contain a chart that explains that as long 
as the unit exists:
    (A) Production from any unit well that meets the productivity 
criteria from any tract committed to the unit will extend all leases in 
the unit as long as that production is occurring;
    (B) BLM would approve an extension of up to three years for all 
leases committed to the unit if you perform actual or constructive 
drilling or reworking operations on any tract in the unit; and
    (C) After an extension for actual or constructive drilling or 
reworking operations, all leases in the unit would be eligible for an 
extension of up to three more years if you demonstrate reasonable 
diligence and reasonable monetary expenditures in performing the 
approved drilling or reworking operations during the initial extension. 
If, after the second extension, you still have not drilled a well 
within the unit that meets the productivity criteria and within the 
unit there is no producing well that meets the productivity criteria, 
the unit terminates.
    Section 3137.113 would explain that BLM will extend all committed 
leases if, for reasons beyond your control, you were prevented from 
starting actual or constructive reworking or drilling operations. You 
would be eligible for two extensions for a total of six years. You must 
resume actual or constructive drilling or reworking operations as soon 
as the reasons that prevented you from starting operations no longer 
exist. If you do not resume operations, BLM will cancel the extension 
and the unit would terminate.

Change in Ownership

    Section 3137.120 would make it clear that grantees, transferees, 
and successors in interest of a unitized lease are subject to the terms 
and conditions of the unit agreement. This is standard practice for 
BLM-approved units and in the oil and gas industry in general.

Unit Termination

    Section 3137.130 would describe the circumstances under which BLM 
will approve voluntary termination. BLM will approve voluntary 
termination of the unit any time before the unit operator discovers 
production that meets the productivity criteria, or the unit operator 
certifies that at least 75% of the operating rights (working interest) 
owners on a surface acreage basis agree to the termination. BLM chose 
75% of operating rights (working interest) owners as the standard to 
discourage voluntary unit termination against the will of most of the 
lessees, and to protect interest owners in the unit.
    Section 3137.131 would explain that if the unit terminated before 
the unit operator met the initial development obligations, BLM's 
approval of the agreement is revoked. The consequences of this are that 
lessees forfeit any benefits they may have received as a result of 
unitization, such as lease extensions and suspensions. Any lease that 
BLM extended as a result of being committed to the unit would expire 
unless it qualified for an extension under Sec. 3135.1-5 of this part. 
Any lease suspension BLM granted as a result of a lease being committed 
to the unit would be canceled.
    Section 3137.132 would explain that a unit automatically terminates 
if you did not meet a continuing development obligation before any 
participating area is established. You would have negotiated continuing 
development obligations with BLM that would be specified in the unit 
agreement, and as such, BLM will strictly enforce the obligations. The 
effective date of the termination is the day after you did not meet a 
continuing development obligation.
    Section 3137.133 would explain that a unit terminates when the last 
participating area of a unit terminates. If there are no participating 
areas in the unit, it means that there is no production from any well 
that meets the productivity criteria in the unit area. Consequently, 
the reason for the unit no longer exists.
    Section 3137.134 would explain that when the unit terminates, all 
committed leases are subject to their original provisions. Any lease 
that has completed its primary term on or before the unit expires, 
unless it qualifies for an extension under current Sec. 3135.1-5.
    Section 3137.135 would explain that the unit operator must submit 
to BLM a plan and schedule for mitigating the impact of unit operations 
within 3 months after unit termination. Operators would be required to 
describe in detail planned plugging and abandonment and surface 
restoration operations.

Appeals

    Section 3137.150 would explain that any person who is adversely 
affected by a BLM decision under this subpart may appeal that decision. 
This section would also cross-reference State Director Review (SDR) 
regulations that BLM is developing. Details of how the SDR process 
would work will be in an upcoming proposed rule. Under this proposal, 
you would be able to request an SDR of decisions BLM issues under these 
regulations. This section would not become final until the SDR 
regulations are final.
    In the event that these regulations become final before the SDR 
regulations are final, SDRs would be available for decisions issued 
under these regulations following the process in existing regulations 
at Sec. 3165.3(b).

Possible Alternative

    Please specifically comment on whether or not the existing 
regulations in subparts 3180-3183 and the model unit agreement form in 
subpart 3186 could apply to units in the NPRA in lieu of the unit 
agreement process we are proposing. We also invite comments on how the 
model agreement form should be modified to apply to NPRA units.
    Due to statutory requirements and policy considerations, such as 
the difficulties of conducting operations in the NPRA, we believe that 
if BLM were to decide to use the existing unit agreement regulations, 
instead of the regulations in this proposal, several sections of the 
proposal would need to be incorporated into the regulatory process. In 
addition to the existing regulations on units and the model unit 
agreement for unproven areas (43 CFR 3186.1), the following sections of 
the proposal would apply to NPRA units:
     The definitions of constructive drilling and constructive 
reworking operations in proposed Sec. 3137.5.
     Paragraphs (b) through (e) of proposed Sec. 3137.24, 
dealing with the reasons BLM would reject a unit application.
     Proposed Sec. 3137.60, which lays out the unit operator's 
obligations.
     Proposed Sec. 3137.63, describing liabilities of a new 
unit operator after a change in unit operators.
     Proposed Sec. 3137.112, which addresses lease extensions 
for actual or constructive drilling operations. The concept in the 
proposal of ``productivity criteria'' would be replaced with ``paying 
well'' determinations contained in the existing unit agreement 
regulations.

[[Page 24551]]

     Proposed Sec. 3137.113, which also addresses lease 
extensions.
     Proposed Sec. 3137.150, which has to do with appeals of 
decisions under the subpart.
    Several provisions of the model form in Sec. 3186.1 would also be 
modified for NPRA units as follows:
     Replacing the ``Mineral Leasing Act of February 25, 1920, 
as amended,'' with ``Naval Petroleum Reserves Production Act of 1976, 
as amended,'' wherever it appears.
     Section 9 of the model form would be modified by removing 
``6 months'' from the first sentence of the section and replacing it 
with a blank. BLM would determine a reasonable time frame in which 
particular operations would be required to occur. BLM realizes that, 
due to the more severe climate in NPRA, operations there are more 
difficult and more time consuming than in the lower 48 and therefore 
operators may require more than 6 months to establish drilling 
operations. For the same reasons the same modification would apply to 
optional section 9a.
     Paragraph 18(g) would be eliminated since that paragraph 
pertains to and directly quotes from the Mineral Leasing Act, which 
does not apply to NPRA.
     Sections 7, 8, 9 and 10 of the ``General Guidelines'' 
would be eliminated. Section 7 would be eliminated since there are no 
NFS lands in NPRA. Section 8 applies to the Jackson Hole Area of 
Wyoming only. There are no reclamation lands in NPRA to which section 9 
could apply. Finally, there are no existing or planned power sites in 
the NPRA , so section 10 would be eliminated.

Subpart 3138--Subsurface Storage Agreements

    This proposal would add a new subpart to BLM's NPRA leasing 
regulations dealing with subsurface storage agreements.
    Section 3138.10 would make it clear that BLM will allow you to 
store oil or gas in existing geologic structures on either leased or 
unleased Federal lands, if you prove to BLM that the storage is 
necessary to avoid waste or to promote conservation of natural 
resources, including oil and gas. Under this subpart you would be able 
to store gas produced from Federal or non-Federal lands.
    Section 3138.11 would require you to submit to BLM an application 
to receive a subsurface storage agreement. In the application you must:
    (A) Provide the reason for forming a subsurface storage agreement. 
This is in addition to the proof required by Sec. 3138.10. For example, 
your justification could be that you require subsurface storage while 
awaiting the building of a distribution system or that you require 
storage for economic reasons, or to avoid waste;
    (B) Describe the area you plan to include in the agreement. This 
should include a legal land description of all Federal or non-Federal 
leases within the area of the storage agreement;
    (C) Describe the formation you plan to use for storage. This should 
include the standard geologic name or designation, if any, of the 
reservoir, and the depths at which the formation exists;
    (D) Pay proposed storage or rental fees based on the value of the 
storage, injection, and withdrawal volumes and rental or other income 
you might generate for letting or subletting the storage area. BLM 
could approve or disapprove your proposed fee structure or make a 
counter-proposal;
    (E) Pay any royalty payment for oil and gas that you may produce 
from the formation;
    (F) Describe how often and under what circumstances you propose 
that you and BLM renegotiate fees and payments. For example, this could 
be based on anticipated changes in the rate of reservoir fill-up or 
withdrawal from the reservoir;
    (G) Propose an effective date and term of the agreement. This 
should be tied to your justification for the agreement (see A above);
    (H) Certify that all owners of mineral rights and lease interests 
have consented to the gas storage agreement in writing. This is to 
protect mineral owners' and lessees' mineral rights. BLM will reject 
subsurface storage agreement applications that do not comply with this 
provision;
    (I) Provide an ownership schedule showing lease or land status. 
This should include the status of leased and unleased and Federal and 
non-Federal properties;
    (J) Provide a schedule of the participation factor for all parties 
to the agreement. The schedule should list the parties to the agreement 
and the percent or volume of oil or gas stored for each of them; and
    (K) Demonstrate the capability of the reservoir to store oil or 
gas. This demonstration could include geologic maps showing the storage 
formation, reservoir data demonstrating the volume of area available 
for storage, and similar data.
    This section would also explain that the terms of the storage 
agreement are negotiated between you and BLM. The agreement will 
include terms on bonding and reservoir management. BLM may request 
additional data we find necessary to approve your application.
    Section 3138.12 would describe what you must pay for storage. The 
fee could be based on any combination of storage fees, rentals, or 
royalties to which you and BLM agree. When determining a fair storage 
fee, typically, BLM would also take into consideration what operators 
in the same area are paying for similar gas storage arrangements 
whether on Federal or non-Federal land.

Part 3160--Onshore Oil and Gas Operations

    This proposal would amend the existing purpose section of BLM's 
operating regulations. Subpart 3160 applies to NPRA lease operations 
and to unit operations. This section would revise subpart 3160 to make 
it clear that the referenced suspension regulations apply to operations 
on other Federal lands but not to NPRA.

V. Procedural Matters

Regulatory Planning and Review

    In accordance with the criteria in Executive Order 12866, this rule 
is not a significant regulatory action and is not subject to review by 
the Office of Management and Budget (OMB).
    a. This rule will not have an annual economic effect of $100 
million or adversely affect an economic sector, productivity, jobs, the 
environment, or other units of government since the costs of operating 
and leasing in the NPRA would not be substantially affected (see the 
economic analysis).
    b. This rule will not create inconsistencies with other agencies' 
actions. This rule does not change the relationships of the oil and gas 
program with other agencies' actions. These relationships are all 
encompassed in agreements and memorandums of understanding that will 
not change with this proposed rule.
    c. This rule will not materially affect entitlements, grants, user 
fees, loan programs, or the rights and obligations of their recipients. 
The proposal does not deal with entitlements, grants, loan programs, or 
rights and obligations of their recipients; BLM's oil and gas program 
does not typically have an impact on these issues and neither would 
this proposal. BLM does charge user fees for certain activities on 
Federal lands. However, this proposal would not implement any new user 
fees. Any fees, such as filing fees for leases, already exist under 
other regulations.
    d. This rule will not raise novel legal or policy issues. NPRA 
leasing

[[Page 24552]]

regulations already exist. However, those regulations do not address 
unitization, suspension of rental and royalty, suspension of operations 
and production or subsurface storage agreements. This rule would make 
operating practices in the NPRA more consistent with those on Federal 
lands outside of NPRA in that unitization would be made available in 
NPRA.

Clarity of Regulations

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

Regulatory Flexibility Act

    Congress enacted the Regulatory Flexibility Act of 1980, as amended 
(5 U.S.C. 601-612) (RFA), to ensure that government regulations do not 
unnecessarily or disproportionately burden small entities. The RFA 
requires a regulatory flexibility analysis if a rule would have a 
significant economic impact, either detrimental or beneficial, on a 
substantial number of small entities.
    This rule will not have a significant economic effect on a 
substantial number of small entities as defined under RFA. A Regulatory 
Flexibility Analysis is not required. Accordingly, a Small Entity 
Compliance Guide is not required.
    For the purposes of this section, a ``small entity'' is considered 
to be an individual, limited partnership, or small company with fewer 
than 500 employees. Many of the operators BLM deals within the oil and 
gas program would be considered to be small entities.
    Leasing decisions could potentially impact small operators. 
However, this rule is independent of leasing decisions. The rule is 
neutral as to whether or not leasing will occur in NPRA. Due to the 
significant costs associated with oil and gas operations in the NPRA, 
we do not anticipate many small operators will lease oil and gas in the 
NPRA. Having an NPRA lease, as that is defined in the proposal, is a 
condition precedent to unit formation in NPRA. If small operators did 
lease in NPRA, the economic impacts associated with this proposal are 
positive, but minimal, for operators in general (see the economic 
analysis) and would also be so for small operators. Therefore, the 
proposed rule would not have a significant economic impact on a 
substantial number of small entities under the Regulatory Flexibility 
Act.

Small Business Regulatory Enforcement Fairness Act

    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act. This rule:
    a. Does not have an annual effect on the economy of $100 million or 
more (see the economic analysis).
    b. Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions. The proposal would not effect costs or 
prices for consumers since the actions associated with the proposal 
would have minimal economic impact on the industry (see the economic 
analysis).
    c. Does not have significant adverse effects on competition, 
employment, investment, productivity, innovation, or the ability of 
U.S.-based enterprises to compete with foreign-based enterprises, but 
could positively effect them by making it more attractive to lease oil 
and gas in the NPRA.

Unfunded Mandates Reform Act

    In accordance with the Unfunded Mandates Reform Act (UMRA) (2 
U.S.C. 1501, et seq.):
    a. This rule will not ``significantly or uniquely'' affect small 
governments. A Small Government Agency Plan is not required. The 
proposal would not change the relationship between BLM's oil and gas 
program and small governments.
    b. This rule will not produce a Federal mandate of $100 million or 
greater in any year, i.e., it is not a ``significant regulatory 
action'' under the Unfunded Mandates Reform Act (see the economic 
analysis). These proposed regulations do not impose an unfunded mandate 
on State, local or Tribal governments or the private sector of more 
than $100 million per year; nor do these proposed regulations have a 
significant or unique effect on State, local or Tribal governments or 
the private sector.

Takings Implications

    In accordance with Executive Order 12630, the proposed rule does 
not represent a government action capable of interfering with 
constitutionally protected property rights. A takings implication 
assessment is not required. The proposed rule would not take anyone's 
property. The proposed rule would not take away or restrict an 
operator's right to develop an NPRA oil and gas lease under the lease 
terms. Therefore, the Department of the Interior has determined that 
the rule would not cause a taking of private property or require 
further discussion of takings implications under this Executive Order.

Federalism Implications

    In accordance with Executive Order 13132, the rule does not have 
sufficient federalism implications to warrant the preparation of a 
federalism summary impact statement. The rule does not have substantial 
direct effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. The rule does 
not preempt State law. The proposed rule would make operations in the 
NPRA more consistent with practices on other Federal lands.

Civil Justice Reform

    In accordance with Executive Order 12988, the Office of the 
Solicitor has determined that the rule does not unduly burden the 
judicial system and meets the requirements of sections 3(a) and 3(b)(2) 
of the Order. BLM drafted this rule in plain-language to provide clear 
standards and to ensure that the rule is clearly written. BLM consulted 
with the Department of the Interior's Office of the Solicitor 
throughout the rule drafting process for the same reasons.

Paperwork Reduction Act

    These regulations would contain information collection 
requirements. As required by the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), BLM has submitted a copy of the proposed information 
collection requirements to the Office of Management and Budget (OMB) 
for review. BLM will not require

[[Page 24553]]

collection of this information until OMB has given its approval.
    The recordkeeping and information collection items required under 
various provisions of this proposal in subparts 3133, 3135, 3137, and 
3138 pertain to data that would be submitted by the operator or 
operating rights owner. The information would provide data so that BLM 
may approve a proposed unit agreement or storage agreements or enable 
BLM to monitor compliance with granted approvals. For unit agreements, 
BLM would use the information to grant approval to begin or modify unit 
operations or to allow unit agreements to continue.
    The information required under the 3130 subparts would cover a 
range of activities, and a specific operator would not be required to 
obtain or provide each item. Many of the requirements are one-time 
filings BLM would use to approve operations under a unit agreement or 
to apply for reduction of royalty, suspension or operations or 
production, or a subsurface storage agreement. BLM would use other 
routine data submissions to monitor drilling and production and ensure 
compliance with the unit agreement, lease terms, regulations, orders, 
notices to lessees, lease stipulations, and conditions of approval. All 
recordkeeping burdens are associated with the items requested in this 
regulation.
    The information burden in subparts 3133, 3135, 3137, and 3138 
totals an estimated 410\1/4\ hours. BLM professional staff derived 
these estimates by relying on personal experiences in working with the 
oil and gas industry and by consulting with field office staff. This 
collection comprises non-form items, and BLM expects the public 
reporting burden to be as follows:
    Section 3133.4. An application for waiver, suspension, or reduction 
of rental, royalty, or minimum royalty on a lease would include:
    (1) A description of the requested relief.
    (2) The lease serial number.
    (3) Number, locations, and status of each well drilled.
    (4) A statement that shows the amount of oil or gas subject to 
royalty for each month covering a period of at least 6 months 
immediately before the filing date of the application.
    (5) The number of wells counted as producing each month and the 
average production per well per day.
    (6) A detailed statement of expenses and costs of operating the 
entire lease.
    (7) All facts that demonstrate why the wells cannot be successfully 
operated under the terms of the lease.
    (8) The amount of any outstanding overriding royalty and payments 
out of production or similar interests.
    (9) Other information BLM may require.
    The information and data provide the basis and evidence to BLM that 
the lease cannot be operated under its terms without the rental or 
royalty relief and that the applicant meets the standards of the 
regulations, the benefit would be granted if it would encourage the 
greatest ultimate recovery of oil and gas, or the waiver, suspension, 
etc., is in the interest of conservation of natural resources.
    We estimate it would take approximately 16 hours to comply with the 
information requirement for application for waiver, suspension, or 
reduction of rental or royalty. The estimate includes time for 
gathering, preparing, completing, and maintaining the specified 
information, much of which is already maintained by the operator. We 
estimate that there will be one application for royalty suspension for 
a total information collection burden of 16 hours.
    Section 3135.3. An application for suspension of lease operations 
and production would include a description of the circumstances that 
are beyond the operator's reasonable control that prevent operation of, 
or production on, the entire lease.
    The information is required to determine whether the applicant 
qualifies for a lease suspension, the suspension is in the interest of 
conservation of oil and gas or other natural resources, the lease 
cannot be operated for reasons beyond the control of the operator, and 
the lessee is complying with the other requirements of the regulations.
    We estimate it would take approximately four hours to comply with 
the information requirement for application for suspension. We estimate 
that there will be one application for suspension within a given year, 
for a total information collection burden of four hours.
    Section 3135.6. After BLM terminates a suspension of operations or 
production, the operator would be required to notify BLM before 
resuming operations or production.
    Notification ensures proper monitoring by BLM of operations 
activities. The information is required so that BLM may approve the 
proposed operations. It would also enable BLM to monitor operations for 
compliance with the regulations and lease terms.
    We estimate it would take approximately \1/4\ of an hour to comply 
with the notification requirement, and we estimate one response for a 
total information burden of \1/4\ of an hour.
    Section 3137.23. An application for NPRA unitization would include:
    (1) The proposed agreement.
    The agreement would provide the information requested in 
Sec. 3137.21 as follows:
    (A) A description of the unit area and the geologic and engineering 
factors on which the area is based.
    The information is required for BLM to determine if the proposed 
unitization of leases is technically feasible and to adequately assess 
you proposed initial and continuing development obligations. The 
information would also be necessary for BLM to ensure that operations 
are conducted in a manner that promotes the conservation of natural 
resources.
    (B) Initial and continuing development obligations.
    This information would allow BLM to verify that the operator has 
planned a program of exploration or development that meets or exceeds 
the rate of well operations in the vicinity of the unit without 
unitization and represents an investment proportionate to the size of 
the area in the unit agreement.
    (C) Proposed participating area size and locations.
    This requirement would be necessary for BLM to determine whether 
the lands within the unit area have been reasonably proven to contain 
unitized substances that can be produced in paying quantities.
    (D) Acknowledgment of BLM's authority to set or modify the 
quantity, rate, and location of development and production.
    (E) Any optional terms authorized by section 3137.50.
    (2) A map showing the unit area and committed leases and other 
tracts;
    The map would show all tracts that are to be included in the unit.
    (3) A list of committed leases and other tracts with legal 
descriptions, record titles, working interests, and acreage.
    This would list owners of record title and all working interest 
owners that have agreed to abide by the terms and conditions of the 
unit agreement.
    (4) Written certification that: (a) All owners of leased or 
unleased minerals rights and record title and operating rights lease 
interests were invited to join the unit; (b) there is sufficient 
commitment to the unit agreement for reasonable control of the unit 
area; (c) all of the interests are committed to the unit; and (d) there 
is agreement to unit obligations under 3170.60.

[[Page 24554]]

    The certification would provide BLM information to determine 
whether there is sufficient commitment of leases or tracts in the unit 
area for reasonable control of the unit area and that the committed 
parties agree to abide by the terms and conditions of the unit 
agreement.
    (5) Evidence of acceptable bonding. BLM requires this information 
to determine that operations under the unit agreement are covered by a 
bond in an amount sufficient to protect public lands and resources.
    (6) A discussion of the reasonably foreseeable and significantly 
adverse effects on the surface resources of the NPRA. This standard is 
laid out in paragraph (1) of 42 U.S.C. 6508. This section would also 
require you to explain how unit operations may reduce impacts compared 
to individual lease operations. BLM requires this information to 
determine if:
    (A) Unit operations will comply with the environmental, 
subsistence, archaeological, and historical preservation requirements 
under laws or regulations; and
    (B) The unit operations' impacts on surface resources would be less 
than those impacts of lease operations were they to be performed 
individually. BLM considers this to be an important factor in 
determining whether or not to approve the unit agreement.
    We estimate it would take approximately 80 hours to comply with the 
information requirement for application for unit designation. The 
estimate includes time for gathering, preparing, completing, and 
maintaining the specified information, but not the time normally 
required to obtain, analyze, and interpret the information normally 
expended as part of an exploration program without unitization. We 
estimate that there will be no more than three unit applications made 
within a given year, for a total information collection burden of 240 
hours.
    Section 3137.25 would require the operator to notify in writing all 
parties to the unit agreement that BLM approved the unit.
    We estimate that it would take approximately one hour to comply 
with the notification requirement. The estimate includes the time to 
draft the notifications to the different parties to the unit. We expect 
three respondents for a total information collection burden of three 
hours.
    Section 3137.52. An application for modification of a unit 
agreement would include certification that:
    (1) All parties to the agreement consent to the modification; or
    (2) The operator meets the modification provision in the agreement, 
which identifies which parties and what percentage of those parties 
consent to each type of modification.
    BLM requires this certification by the operator to ensure that the 
terms of the unit agreement previously approved are met.
    We estimate that application for modification of a unit agreement 
will take approximately four hours, and that there will be one 
application for a total burden of four hours.
    Section 3137.60. The operator would be required to provide BLM 
evidence of acceptable bonding.
    BLM would require evidence of such bonding because bonding is 
required under the regulations and the terms of the lease.
    We estimate the information would take approximately \1/2\ of an 
hour to provide for each new occurrence, and estimate three 
respondents, for a total information burden of 1\1/2\ hours.
    Section 3137.61. To change unit operators, and when there is a 
change of unit operator, the new unit operator must provide, for BLM's 
approval:
    (1) A statement that it accepts unit obligations;
    (2) A statement of the percentage of interest owners required by 
the unit agreement consenting to a change of unit operator; and
    (3) Evidence of acceptable bonding.
    Statements of unit obligation acceptance and percentage of interest 
owners consenting to the change are required so that unit requirements 
and the terms of the previously-approved unit agreement are continued 
to be met, and that the unit may remain in effect.
    Evidence of acceptable bonding is necessary because bonding is 
required under the regulations and the terms of the lease and so that 
BLM can determine that operations under the unit agreement are 
continued to be covered by a bond sufficient to protect public lands 
and resources.
    We estimate it will take approximately \3/4\ hour to provide the 
statements and the evidence of acceptable bonding. We estimate two 
responses, for a total information burden of 1\1/2\ hours.
    Section 3137.70. The operator would be required to submit 
certification that it met the initial unit obligation.
    Certification is required to document that the initial unit 
obligation, as required in the unit agreement, was timely met so that 
the unit may remain in effect.
    We estimate it will take approximately two hours to comply with the 
certification information. The estimate includes time for gathering and 
compiling data showing that unit requirements such as drilling and 
production are met, and for providing certification. We estimate three 
responses, for a total information burden of six hours.
    Section 3137.71. The operator would be required to provide a plan 
describing how it will meet continuing development obligations. The 
plan would include a description of the activities needed for full 
development of the oil and gas field and any further actual or 
constructive drilling operations that will be conducted.
    BLM requires the information to determine if the plan would 
actually comply with the unit terms on continuing development.
    The operator would also be required to submit certification, and 
supporting documentation if requested, that it met continuing 
development obligations.
    This certification documents that continuing development 
obligations, as required in the unit agreement, were met on time to 
ensure compliance with unit terms.
    We estimate it will take approximately two hours to comply with the 
certification requirement. The estimate includes time for gathering and 
compiling drilling, testing, completion, and recompletion data and 
providing certification. We estimate three responses, for a total 
information burden of six hours.
    Section 3137.84. The respondent would be required to submit a 
statement that the well meets the productivity criteria and economic, 
geologic, and engineering data; a map; and a production allocation 
schedule to establish or revise a participating area (PA).
    The information is necessary for BLM to determine whether the unit 
meets the requirements to form a PA and to determine that the unit is 
productive.
    We estimate it will take approximately 12 hours to comply with the 
information required for an operator's request to establish or revise a 
PA. The estimate includes time for compiling and preparing the various 
data requirements. We estimate two responses, for a total information 
burden of 24 hours.
    Section 3137.87. If there are unleased Federal tracts in a 
participating area, the operator would be required to include the 
unleased Federal tracts in the unit. If the tract is later leased you 
must provide revised maps, a list of committed leases, and production 
allocation schedules to BLM.

[[Page 24555]]

    The information enables BLM to monitor the terms of the 
participating area and to ensure that royalty revenue is properly 
allocated and reported.
    The information would require approximately three hours to prepare 
and provide. We estimate one respondent, for a total information burden 
of three hours.
    Section 3137.88. The respondent would be required to provide 
notification to BLM that a well does not meet the productivity 
criteria.
    This information is necessary for BLM to determine whether to 
approve the well for non-unit operations and to ensure proper 
allocation of production.
    We estimate it will take approximately a \1/2\ of an hour to comply 
with the notification requirement, and one response, for a total 
information burden of \1/2\ of an hour.
    Section 3137.91. The respondent would be required to notify BLM 
when a non-unit well meets productivity criteria, which is then used to 
revise or establish a PA.
    BLM would use the required information to determine whether a non-
unit well meets the productivity criteria and therefore will revise or 
establish a PA.
    We estimate it would take approximately \1/2\ of an hour to comply 
with the notification requirement, and estimate one response, for a 
total information burden of \1/2\ of an hour.
    Section 3137.92. The respondent would be required to provide 
information that it restored or established production and well 
completion information so that a participating area would not terminate 
after BLM notification of insufficient production.
    BLM requires this information to determine whether to keep a PA in 
effect.
    We estimate it will take approximately one hour to comply with the 
production information requirement. The estimate includes time to 
compile production data. We estimate one response, for a total 
information burden of one hour.
    Section 3137.112. The operator would be required to provide 
information that shows actual well production meets the productivity 
criteria or that there is actual or constructive drilling or reworking 
operations in order to request an extension of the primary term of all 
leases committed to a unit agreement.
    BLM would require verification that the operator met the 
requirements for obtaining a lease extension.
    We estimate there will be one respondent and the information, which 
is already maintained by the operator, will take approximately three 
hours to organize and compile. The total burden would be three hours.
    Section 3137.113. The operator would be required to demonstrate to 
BLM that it cannot start actual or constructive drilling or reworking 
activities because of reasons beyond the operator's control.
    BLM requires the information to determine the validity of the 
operator's inability to conduct drilling or reworking activities, as 
required under the terms of the lease.
    We estimate one respondent and that two hours would be needed to 
fulfill the information requirement for a total information burden of 
two hours.
    Section 3137.130. If a unit operator requests approval for 
voluntary termination of the unit, and production is insufficient to 
establish a participating area, the operator would be required to 
certify that at least 75 percent of the interest owners in the 
agreement agree to the voluntary termination.
    BLM requires the certification to approve termination of the unit 
based on production data and consent of the interest owners under the 
terms of the agreement.
    This information would take approximately one hour to compile. We 
estimate one respondent, for a total information burden of one hour.
    Section 3137.135. The respondent would be required to submit a plan 
for mitigating the impacts from unit operations after termination of 
the unit.
    The information is necessary for BLM approval of mitigation plans 
for timely, proper, and efficient management of the surface impacts 
resulting from unit operations.
    We estimate it would take approximately four hours to comply with 
the information requirement for application for unit designation. The 
estimate includes time for formulating and preparing the specified 
information. We estimate three responses, for a total information 
burden of 12 hours. The estimate includes the time for reviewing the 
instructions, searching existing data bases, gathering and maintaining 
the data needed, and completing and reviewing the collection of 
information.
    Section 3138.11. An application for a subsurface storage agreement 
would include:
    (1) The reason for forming the agreement;
    (2) Descriptions of both the area that is to be included and the 
formation;
    (3) The proposed storage fees or rentals;
    (4) Royalty for oil or gas present in the formation before 
injection and produced when stored oil or gas is withdrawn;
    (5) A description of fees and payments renegotiations;
    (6) The proposed effective date and term of the agreement;
    (7) Certification that all owners of leased or unleased minerals 
rights and lease interests have committed or consented to the 
commitment of their interest in writing;
    (8) An ownership schedule showing lease or land status;
    (9) A schedule showing the participation factor for all parties to 
the agreement;
    (10) Geologic maps and other data that demonstrate storage 
capability of the reservoir.
    The information is necessary so that BLM can determine whether the 
proposed agreement is technically feasible and is necessary to avoid 
waste and that operations will be conducted in a manner that promotes 
conservation of natural resources.
    We estimate it would take approximately 80 hours to comply with the 
information requirement for application for storage agreement. The 
estimate includes time for compiling and preparing the various 
specified information and obtaining commitments and providing 
certification. We estimate that there will be one storage agreement 
application, for a total information collection burden of 80 hours.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Interior Desk Officer (1004-NEW) New Executive Office Building, 
Washington, D.C. 20503.
    BLM considers comments by the public on this proposed collection of 
information in:
    Evaluating whether the proposed collection of information is 
necessary for the proper performance of the functions of BLM, including 
whether the information will have practical use;
    Evaluating the accuracy of BLM's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used;
    Enhancing the quality, usefulness, and clarity of the information 
to be collected; and
    Minimizing the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology; such as permitting electronic 
submittal of responses.

[[Page 24556]]

    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days of publication. This does not affect 
the deadline for the public to comment to BLM on the proposed 
regulations.

National Environmental Policy Act

    We have analyzed this rule in accordance with the criteria of the 
National Environmental Policy Act and 516 DM. This rule does not 
constitute a major Federal action significantly affecting the quality 
of the human environment.
    BLM has prepared an environmental assessment and has found that the 
proposed rule would not constitute a major Federal action significantly 
affecting the quality of the human environment under section 102(2)(C) 
of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 
4332(2)(C). A detailed statement under NEPA is not required.
    Environmental effects that could occur would be the result of 
leasing, not the result of these proposed regulations. To the extent 
that there are any environmental effects incident to the proposed 
regulations, they would likely be beneficial. Unitization combines the 
development plans of several lessees into a single consolidated plan of 
development under one operator instead of separate operators and 
separate plans of development for each lease. The advantage of having 
one operator and one plan of development under one unit agreement is 
that the effect on the environment could be minimized in contrast to 
having several plans of development for each lease covering an oil and/
or gas field with a relatively greater environmental effect.
    For subsurface storage agreements, the oil or gas is reinjected, 
and would be stored in a geologic structure. There are no tanks 
installed and the oil or gas usually is reinjected using existing 
surface and subsurface operating equipment from prior operations. There 
is very little environmental impact involved in storing oil or gas in 
this manner. The operator must demonstrate that storage is necessary to 
avoid waste or to promote the conservation of natural resources which 
otherwise may be vented or lost. Therefore, the proposed regulations 
could encourage better, more efficient development with a smaller 
environmental ``footprint'' and effects.
    These regulations would not add to the effects of other actions, 
but could facilitate less of an environmental footprint due to 
consolidating and unifying the development of a given oil or gas field 
under one operator. The authorization of subsurface storage agreement 
would promote the conservation of oil or gas which otherwise may be 
vented or lost. This would conserve natural resources.

Government-to-Government Relationship With Tribes

    In accordance with the President's memorandum of April 29, 1994, 
``Government-to-Government Relations with Native American Tribal 
Governments'' (59 FR 22951) and 512 DM 2, we have evaluated whether 
formal government-to-government consultation with Indian Tribes is 
required with respect to the proposed rules. In this case, we have 
concluded that, within the context of this rulemaking, formal 
consultation other than opportunities provided to the public for notice 
and comment is not required.
    Executive Order 13084 (``E.O. 13084''), ``Consultation and 
Coordination with Indian Tribal Governments'' (May 14, 1998), (63 FR 
27655) supplements the President's memorandum of April 29, 1994. E.O. 
13084 provides that Federal agencies must consult with Indian Tribal 
Governments before formal promulgation of regulations that 
``significantly or uniquely affect'' Tribal communities. E.O. 13084 
defines ``Indian Tribes'' for purposes of government-to-government 
consultation as those ``that the Secretary of the Interior acknowledges 
to exist as an Indian tribe pursuant to the Federally Recognized Indian 
Tribe List Act of 1994, 25 U.S.C. 479a.'' E.O. 13084 at Section 1(b). 
In accordance with this mandate, the Bureau of Indian Affairs recently 
published a list of recognized Tribes, including a large number of 
Native Alaskan entities including Villages, Communities, and Tribes. 
See 63 FR 71941 (December 30, 1998). If there is a duty of government-
to-government consultation, it would be owed to those listed Tribal 
governments.
    The proposed regulations are designed to permit consolidated 
operation of oil and gas leases on Federal lands and thereby promote 
conservation. We are not aware that any of the recognized Tribal 
governments have significant oil and gas interests within NPRA or 
within the vicinity of NPRA. To the extent that any of those Tribes 
acquire oil and gas interests and choose to join a unit which includes 
Federal NPRA leases, they would be eligible to participate in those 
unit agreements in the same manner as any other participants. 
Accordingly, the proposed regulations would not ``significantly or 
uniquely affect'' those Tribes and there is no government-to-government 
consultation obligation in this case.
    Additionally, we are aware that a number of Alaska Native 
corporations organized under the Alaska Native Claims Settlement Act 
(43 U.S.C. 1601 et seq.) (ANCSA) may have oil and gas interests. These 
corporations could potentially become participants in units which 
include Federal NPRA leases. If so, they would be eligible to 
participate in those unit agreements in the same manner as any other 
participants. However, no special consultation with such corporations 
is required. The Bureau of Indian Affairs has recently declined to 
include such corporations on the list of recognized Tribes eligible for 
government-to-government consultation. The Bureau of Indian Affairs 
indicated that ANCSA corporations ``are formally state-chartered 
corporations rather than tribes in the conventional legal or political 
sense'' and that Alaskan Native Villages were Indian Tribes. See 
``Indian Entities Recognized and Eligible to Receive Services From the 
United States Bureau of Indian Affairs,'' 60 FR 9250 (February 16, 
1995).
    Finally, while the proposal of these regulations imposes no special 
government-to-government consultation obligation upon the Department, 
there will be ample opportunity for the Tribal governments, along with 
the public generally, to comment in accordance with the notice and 
comment requirements of the Administrative Procedure Act.

Economic Analysis

Unitization

    The proposal implements the Naval Petroleum Reserves Production Act 
of 1976 (42 U.S.C. 6501 et seq.), which was amended by Public Law 105-
83, and allowed for the creation of units in the Naval Petroleum 
Reserves, Alaska (NPRA). Unitization could increase the potential value 
of NPRA leases, which could result in higher bonus bids at lease sales. 
Operators could also obtain some benefit due to some reduction in 
operating and reporting costs. These reduced costs are a benefit 
derived from unitization since production may occur from fewer areas 
and reporting requirements could be consolidated. However, the 
essential costs of

[[Page 24557]]

operating and leasing in NPRA would not be substantially affected. As 
previously noted, there are other non-economic benefits to unitization 
(see discussion of Sec. 3137.10).
    Once leasing occurs in NPRA, the proposed unitization rules may 
increase the probability of finding and producing oil and gas there 
through more efficient and economic exploration and production, but the 
net effect should be small enough that there would not be a measurable 
net effect on oil and gas prices. Any impacts on the economy, 
productivity, competition, or jobs would be positive. Development could 
only occur if it did not endanger the environment, public health, or 
safety.
    To the extent that the proposed rules may increase the bonus bids 
for leases and the probability of production, the potential increase in 
revenue and economic activity could have a positive effect on State, 
local, and tribal governments and communities.

Subsurface Storage

    The proposal would also allow for subsurface storage agreements in 
the NPRA. This would have little economic effect. Most often, companies 
use existing infrastructures to re-inject oil or gas into existing 
geologic structures. Companies would derive an economic benefit since 
they could store oil or gas while waiting for distribution of it or 
while waiting for more favorable economic conditions. The Federal 
government would derive a benefit in the form of storage fees. The 
benefits derived by the companies operating in NPRA or the Federal 
government would not be significant. In 1998 BLM had in effect 32 oil 
and gas storage agreements in the lower 48 states which provided 
$982,346 in revenues. That averages out to about $30,698 in revenue 
payments to the United States per agreement. We anticipate far fewer 
agreements in NPRA than in the lower 48 with about the same average 
income stream being generated per agreement. These could impact State, 
local, and tribal governments and communities positively, but only 
minimally. Any impacts on the economy, productivity, competition, or 
jobs would be positive, but minimal.

Waiver, Suspension, or Reduction of Rental or Royalty

    The proposal would also allow for the waiver, suspension, or 
reduction of rental or royalty on NPRA leases. This provision would 
have minimal economic impact. BLM would not allow for any to take place 
unless it encouraged the greatest ultimate recovery of oil and gas or 
it was in the interest of conservation. Operators would only get the 
benefit if they proved to BLM that they could not successfully operate 
the lease without the benefit. These standards are high because BLM 
believes we should take these actions only as a last resort, to save a 
lease which ``cannot be successfully operated under the terms provided 
therein.'' (42 U.S.C. 6508).
    Operators would benefit since they would be able to continue to 
operate their leases. BLM would benefit as well since producible leases 
would not be shut down and the Federal government would continue to 
receive revenue, albeit at a reduced rate. State, local, and Tribal 
governments and communities would be positively affected since leases 
that would under other circumstances be shut down, would continue to 
produce, providing jobs and revenues to local areas. Any impacts on the 
economy, productivity, competition, or jobs would be positive, but 
minimal.

Suspensions of Operations and Production

    This proposal would allow for suspension of operations and 
production for NPRA leases. Suspensions of operations and production 
give operators relief from lease obligations when they are prevented 
from complying with the obligations for reasons that are beyond their 
control. During the period of the suspension, lessees are not required 
to pay rental or royalty on their lease, but they do not have 
beneficial use of their lease during the period. The lease term would 
be extended by the time period of the suspension.
    One example where lease suspensions would be appropriate would be 
where an operator has found oil and gas in producible quantities, but 
there is no transportation system available to get the oil and gas to 
market. BLM would suspend operations and production on the lease until 
operations on the lease resume or when BLM determines the reason for 
the suspension no longer exists.
    Any economic impacts associated with this provision would, in the 
long run, be positive. The alternative to suspension would be shutting 
down lease operations. This alternative is not beneficial to the 
government or operators. Short-term loss in rentals and royalties is 
preferable to shutting down a lease completely. State and local 
governments and native communities could be positively impacted since 
leases that would under other circumstances be shut down, would, in the 
long run, continue to produce, providing jobs and revenues to local 
areas. Any impacts on the economy, productivity, competition, or jobs 
would be positive, but minimal.

Lease Extensions

    This proposal would allow for the extension of unit leases if, from 
anywhere in the unit there is--
    (A) Actual production from a well in the unit that meets the 
productivity criteria set out in the unit agreement;
    (B) Actual or constructive drilling operations; or
    (C) Actual or constructive reworking operations.
    This proposal would have little economic impact on the industry as 
a whole, but could make unitizing leases in the NPRA more attractive to 
individual operators. Operators would get the benefit of diligently 
developing their leases by way of lease extensions. This is a benefit 
to industry, since leases in units which otherwise would be canceled 
would be extended if there was constructive drilling or reworking 
within the unit.
    Any economic impacts associated with this provision would, in the 
long run, be positive. The alternative to extending leases in the unit 
would be canceling a lease and shutting down operations. This 
alternative is not beneficial to the government or operators. State, 
local, and Tribal governments and communities would be positively 
affected since leases that would under other circumstances be shut down 
would continue to operate, increasing the chances of discovering oil 
and gas. If producible oil and gas is discovered, the unit could 
provide jobs and revenues to local areas. Any impacts on the economy, 
productivity, competition, or jobs would be positive, but minimal.

Fixing Lease Term at 10 Years

    Congress mandated that the initial NPRA lease term be 10 years. The 
provision setting the lease term at 10 years would have little, if any, 
economic impact. It could benefit operators since the term would be 
fixed at 10 years consistent with the statute, whereas under current 
regulations, the term could be less. Longer lease terms in the NPRA are 
preferable since there are harsh geology and climate in the NPRA make 
it difficult to operate in that region. Longer lease terms would allow 
operators additional time to deal with the geologic and climatic 
conditions in NPRA.

Administrative Provision

    The provision that clarifies which suspension regulations apply to 
NPRA

[[Page 24558]]

is strictly administrative and would have no economic impact.

Authors

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

List of Subjects

43 CFR Part 3130

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

43 CFR Part 3160

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

    Accordingly, for the reasons stated in the preamble, and under the 
authorities cited below, amend Title 43, Subtitle B, Chapter II, 
Subchapter C, Part 3130 as follows:

PART 3130--OIL AND GAS LEASING: NATIONAL PETROLEUM RESERVE, ALASKA

    1. Revise the authority citation for part 3130 to read as follows:

    Authority:  42 U.S.C. 6508, 43 U.S.C. 1733 and 1740.

    2. Revise Sec. 3130.4-2 to read as follows:


Sec. 3130.4-2  Lease term.

    The primary term of an NPRA lease is 10 years.
    3. Add Sec. 3133.3 and Sec. 3133.4 to subpart 3133 to read as 
follows:


Sec. 3133.3  Under what circumstances will BLM waive, suspend, or 
reduce the rental, royalty, or minimum royalty on my NPRA lease?

    BLM will waive, suspend, or reduce the rental, royalty, or minimum 
royalty of your lease if BLM finds that--
    (a) It encourages the greatest ultimate recovery of oil or gas or 
it is in the interest of conservation; and
    (b) You can't successfully operate the lease under its terms. This 
means that your cost to operate the lease exceeds income from the 
lease.


Sec. 3133.4  How do I apply for a waiver, suspension or reduction of 
rental, royalty or minimum royalty for my NPRA lease?

    (a) Submit to BLM your application and in it describe the relief 
you are requesting and include--
    (1) The lease serial number;
    (2) The number, location and status of each well drilled;
    (3) A statement that shows the aggregate amount of oil or gas 
subject to royalty for each month covering a period of at least six 
months immediately before the date you filed the application;
    (4) The number of wells counted as producing each month and the 
average production per well per day;
    (5) A detailed statement of expenses and costs of operating the 
entire lease;
    (6) All facts that demonstrate that you can't successfully operate 
the wells under the terms of the lease;
    (7) The amount of any overriding royalty and payments out of 
production or similar interests applicable to your lease; and
    (8) Any other information BLM requires.
    (b) Your application must be signed by--
    (1) All lessees of record; or
    (2) By the operator on behalf of the lessees of record.
    4. Revise the subpart 3135 heading to read as follows:

Subpart 3135--Transfers, extensions, consolidations, and 
suspensions

    5. Add Secs. 3135.2 through 3135.7 as follows:


Sec. 3135.2  Under what circumstances will BLM approve my request for a 
suspension of operations and production for my lease?

    (a) BLM will approve your request for a suspension of operations 
and production for your lease(s) if BLM determines that--
    (1) It is in the interest of conservation of natural resources;
    (2) It encourages the greatest ultimate recovery of oil and gas, 
including the planning and construction of a transportation system to a 
new area of discovery; or
    (3) It mitigates reasonably foreseeable and significantly adverse 
effects on surface resources.
    (b) BLM will suspend lease obligations if it determines that, 
despite the exercise of due care and diligence, you can't comply with 
those obligations for reasons beyond your control.
    (c) If BLM approves your request for a suspension of operations and 
production, the suspension--
    (1) Stops the running of your lease term and prevents it from 
expiring for as long as the suspension is in effect;
    (2) Relieves you of your obligation to pay rent, royalty, or 
minimum royalty during the suspension; and
    (3) Prohibits you from operating on, producing from, or having any 
other beneficial use of your lease during the suspension.


Sec. 3135.3  How do I apply for a suspension of operations and 
production?

    (a) You must submit to BLM an application stating the circumstances 
that are beyond your reasonable control that prevent you from operating 
or producing your lease(s).
    (b) Your suspension application must be signed by--
    (1) All record title owners of the lease; or
    (2) By the operator on behalf of the record title owners of the 
leases committed to an approved agreement.
    (c) You must submit your application to BLM before your lease 
expires.
    (d) Your application must be for your entire lease.


Sec. 3135.4  When is a suspension of operations and production 
effective?

    A suspension of operations and production is effective--
    (a) The first day of the month in which you file the application 
for suspension; or
    (b) Any other date BLM specifies in the approval document.


Sec. 3135.5  When should I stop paying rental or royalty after my 
suspension of operations and production is approved?

    You should stop paying rental or royalty on the first day of the 
month following BLM's approval of the suspension.


Sec. 3135.6  When will my suspension terminate?

    (a) Your suspension terminates--
    (1) On the first day of the month in which you begin to operate or 
produce on your lease; or
    (2) The date BLM specifies in a written notice to you.
    (b) You must notify BLM at least 24 hours before you begin 
operations or production under paragraph (a)(1) of this section.


Sec. 3135.7  How will termination of the suspension affect my lease?

    (a) BLM extends your lease term by adding the period of the 
suspension to the term of the lease.
    (b) Your rental and/or minimum royalty obligation resumes on the 
date the suspension terminates.
    6. Add a new subpart 3137 to part 3130 to read as follows:

[[Page 24559]]

Subpart 3137--Unitization Agreements--National Petroleum Reserve, 
Alaska

Sec.
3137.5   What terms do I need to know to understand this subpart?

General

3137.10   What benefits do I receive for entering into a unit 
agreement?

Application

3137.20   Is there a standard unit agreement form?
3137.21   What must I include in a NPRA unit agreement?
3137.22   What are the size and shape requirements for a unit area?
3137.23   What must I include in my NPRA unitization application?
3137.24   Why would BLM reject a unit agreement application?
3137.25   How will the parties to the unit know if BLM approves the 
unit agreement?
3137.26   When is a unit agreement effective?
3137.27   What effect do other agreements have on the unit 
agreement?
3137.28   What oil and gas resources of committed tracts does the 
unit agreement include?

Development

3137.40   What initial development obligations must I define in a 
unit agreement?
3137.41   What continuing development obligations must I define in a 
unit agreement?

Optional Terms

3137.50   What optional terms may I include in a unit agreement?
3137.51   Under what conditions does BLM permit multiple unit 
operators?
3137.52   When may I modify the agreement?

Unit Agreement Operating Requirements

3137.60   As the unit operator, what are my obligations?
3137.61   How do I change unit operators?
3137.62   What are my liabilities as a former unit operator?
3137.63   What are my liabilities after BLM approves me as the new 
unit operator?
3137.64   As a unit operator, what must I do to prevent or 
compensate for drainage?

Development Requirements

3137.70   What must I do to meet initial development obligations?
3137.71   What must I do to meet continuing development obligations?
3137.72   May I perform additional development outside established 
participating areas to fulfill continuing development obligations?
3137.73   What happens if I do not meet a continuing development 
obligation?

Participating Areas

3137.80   What are participating areas and how do they relate to the 
unit agreement?
3137.81   What is the function of a participating area?
3137.82   What are productivity criteria?
3137.83   What establishes a participating area?
3137.84   What must I submit to BLM to establish a new participating 
area, or add to an existing participating area?
3137.85   What is the effective date of a participating area?
3137.86   What happens to the participating area when I drill new 
wells that meet the productivity criteria?
3137.87   What must I do if there are unleased Federal tracts in a 
participating area?
3137.88   What happens when a well outside a participating area does 
not meet the productivity criteria?
3137.89   How does production allocation occur from wells that do 
not meet the productivity criteria?
3137.90   Who must operate wells that do not meet the productivity 
criteria?
3137.91   When may a well BLM previously determined to be a non-unit 
well establish or revise a participating area?
3137.92   When does a participating area terminate?

Production Allocation

3137.100   How must I allocate production to the United States when 
a participating area includes unleased Federal lands?

Obligations and Extensions

3137.110   Do the terms and conditions of a unit agreement modify 
Federal lease stipulations?
3137.111   When will BLM extend the primary term of all leases 
committed to a unit agreement?
3137.112   Under what circumstances will BLM extend my NPRA lease?
3137.113   What happens if I am prevented from performing actual or 
constructive drilling or reworking operations?

Change in Ownership

3137.120   As a transferee of an interest in a unitized NPRA lease, 
am I subject to the terms and conditions of the unit agreement?

Unit Termination

3137.130   Under what circumstances will BLM approve a voluntary 
termination of the unit?
3137.131   What happens if the unit terminated before the unit 
operator met the initial development obligations?
3137.132   What if I do not meet a continuing development obligation 
before I establish any participating area in the unit?
3137.133   After participating areas are established, when does the 
unit terminate?
3137.134   What happens to committed leases if the unit terminates?
3137.135   What are the unit operator's obligations after unit 
termination?

Appeals

3137.150   Who may appeal a decision BLM issues under this subpart?
Subpart 3137--Unitization Agreements--National Petroleum Reserve, 
Alaska


Sec. 3137.5  What terms do I need to know to understand this subpart?

    As used in this subpart--
    Actual drilling means operations you conduct that are similar to 
those that a person seriously looking for oil or gas could be expected 
to conduct in that particular area, given the existing knowledge of 
geologic and other pertinent facts about the area to be drilled. The 
term includes the testing, completing, or equipping of the drill hole 
(casing, tubing, packers, pumps, etc.) so that it is capable of 
producing oil or gas. Actual drilling operations do not include 
preparatory or preliminary work such as grading roads and well sites, 
or moving equipment onto the lease.
    Actual production means oil or gas flowing from the wellbore into 
treatment or sales facilities.
    Actual reworking operations means reasonably continuous well-bore 
operations such as fracturing, acidizing, and tubing repair.
    Committed tract means--
    (1) A Federal lease where all owners of record title and all 
operating rights owners have agreed to the terms and conditions of a 
unit agreement and agreed to accept responsibility for unit operations; 
or
    (2) A State lease or private parcel of land where all owners and 
all operating rights owners have agreed to the terms and conditions of 
a unit agreement and agreed to accept responsibility for unit 
operations.
    Constructive drilling means those activities that are necessary to 
prepare for actual drilling that occurs after BLM approves an 
application to drill, but before you actually drill the well. These 
include, but are not limited to, activities such as road and well pad 
construction, and drilling rig and equipment set-up.
    Constructive reworking operations means activities that are 
necessary to prepare for well-bore operations. These may include rig 
and equipment set-up and pit construction.
    Continuing development obligations means a program of development 
or operations you conduct that, after you complete initial obligations 
defined in a unit agreement--
    (1) Meets or exceeds the rate of non-unit operations in the 
vicinity of the unit; and
    (2) Represents an investment proportionate to the size of the area 
covered by the unit agreement.
    NPRA lease means any oil and gas lease within the boundaries of the 
National Petroleum Reserve, Alaska

[[Page 24560]]

(NPRA), issued by the United States under the Naval Petroleum Reserves 
Production Act of 1976, as amended (42 U.S.C. 6501-6508), that 
authorizes exploration for and removal of oil and gas.
    Operating rights (working interest) means any interest you hold 
that allows you to explore for, develop, or produce oil and gas.
    Participating area means those committed tracts or portions of 
those committed tracts within the unit area that contain a well meeting 
the productivity criteria specified in the unit agreement.
    Primary target means the principal geologic formation that you 
intend to develop and produce.
    Producible interval means the section of any pool, deposit, zone, 
or portion thereof capable of producing oil and gas.
    Record title means legal ownership of an oil and gas lease recorded 
in BLM's records.
    Tract means land that may be included in an NPRA oil and gas unit 
agreement and that may or may not be in a Federal lease.
    Unit agreement means a BLM-approved agreement to cooperate in 
exploring, developing, operating and sharing in production of all or 
part of an oil or gas pool, field or like area, including at least one 
NPRA lease, without regard to lease boundaries and ownership.
    Unit area means all tracts committed to a BLM-approved unit. Tracts 
not committed to the unit, even though they may be within the external 
unit boundary, are not part of the unit area.
    Unit operations are all activities associated with exploration, 
development drilling, and production operations conducted by the unit 
operator(s) on committed tracts.

General


Sec. 3137.10  What benefits do I receive for entering into a unit 
agreement?

    (a) Each individual tract committed to the agreement meets its full 
performance obligation if one or more tracts in the unit meets the 
development or production requirements;
    (b) Production from a well that meets the productivity criteria 
(see Sec. 3137.82 of this subpart) under the unit agreement extends all 
NPRA leases committed to the agreement as provided in Sec. 3137.112 of 
this subpart;
    (c) You may drill within the unit without regard to certain lease 
restrictions, such as lease boundaries within the unit and spacing 
offsets; and
    (d) You may consolidate operations and permitting and reporting 
requirements.

Application


Sec. 3137.20  Is there a standard unit agreement form?

    There is no standard unit agreement form. BLM will accept any unit 
agreement format if it protects the public interest and includes the 
mandatory terms required in Sec. 3137.21 of this subpart.


Sec. 3137.21  What must I include in an NPRA unit agreement?

    (a) Your NPRA unit agreement must include--
    (1) A description of the unit area and any geologic and engineering 
factors upon which the area may be based;
    (2) Initial and continuing development obligations (see 
Secs. 3137.40 and 3137.41 of this subpart);
    (3) The proposed participating area size and locations (see 
Sec. 3137.80(b) of this subpart);
    (4) A provision that acknowledges BLM's authority to set or modify 
the quantity, rate, and location of development and production; and
    (5) Any optional terms authorized by Sec. 3137.50 of this subpart.
    (b) You must include in the unit agreement any additional terms and 
conditions that result from consultation with BLM. After your initial 
application, BLM may request additional supporting documentation.


Sec. 3137.22  What are the size and shape requirements for a unit area?

    (a) The unit area must--
    (1) Be composed of tracts, each of which must be contiguous to at 
least one other tract in the unit, that are located so that you can 
perform operations and production in an efficient and logical manner; 
and
    (2) Include at least one NPRA lease.
    (b) BLM may limit the size and shape of the unit considering the 
type, amount and rate of the proposed development and production and 
the location of the oil and gas.


Sec. 3137.23  What must I include in my NPRA unitization application?

    Submit your unitization application to BLM and include in it--
    (a) The proposed agreement;
    (b) A map showing the unit area;
    (c) A list of committed tracts including, for each tract, the--
    (1) Legal land description and acreage;
    (2) Names of persons holding record title interest;
    (3) Names of persons holding operating rights; and
    (4) Name of the unit operator.
    (d) You must certify--
    (1) That you invited all owners of oil and gas rights (leased or 
unleased) and lease interests (record title and operating rights) 
within the external boundary of the unit area described in the 
application to join the unit;
    (2) That there are sufficient tracts committed to the unit 
agreement to reasonably operate and develop the unit area;
    (3) The commitment status of all tracts within the area proposed 
for unitization; and
    (4) That you accept unit obligations under Sec. 3137.60 of this 
subpart.
    (e) Evidence of acceptable bonding;
    (f) A discussion of reasonably foreseeable and significantly 
adverse effects on the surface resources of NPRA and how unit 
operations may reduce impacts compared to individual lease operations; 
and
    (g) Other documentation BLM may request. BLM may require additional 
copies of maps, plats, and other similar exhibits.


Sec. 3137.24  Why would BLM reject a unit agreement application?

    BLM will reject a unit agreement application--
    (a) That does not address all mandatory terms, including those 
required under Sec. 3137.21(b) of this subpart;
    (b) If the unit operator--
    (1) Has an unsatisfactory record of complying with applicable laws, 
regulations, the terms of any lease or permit, or the requirements of 
any notice or order; or
    (2) Is not qualified to operate within NPRA under applicable laws 
and regulations;
    (c) That does not conserve natural resources;
    (d) That is not in the public interest;
    (e) That does not comply with any special conditions in effect for 
any part of the NPRA that would be affected by the unit or any lease 
subject to the unit; or
    (f) That does not otherwise comply with the requirements of this 
subpart.


Sec. 3137.25  How will the parties to the unit know if BLM approves the 
unit agreement?

    BLM will notify the unit operator in writing when it approves or 
disapproves the proposed unit agreement. The unit operator must notify 
in writing all parties to the agreement within 30 calendar days after 
receiving BLM's notice of approval or disapproval.


Sec. 3137.26  When is a unit agreement effective?

    The agreement is effective on the date BLM approves it.


Sec. 3137.27  What effect do other agreements have on the unit 
agreement?

    No other agreement--

[[Page 24561]]

    (a) Modifies the terms or conditions of the unit agreement; or
    (b) Relieves the unit operator of any right or obligation under the 
unit agreement.


Sec. 3137.28  What oil and gas resources of committed tracts does the 
unit agreement include?

    A unit agreement includes all oil and gas resources of committed 
tracts unless BLM approves agreement terms to the contrary.

Development


Sec. 3137.40  What initial development obligations must I define in a 
unit agreement?

    You must define--
    (a) The number of wells required to assess the reservoir 
adequately;
    (b) A primary target for each well;
    (c) A schedule for starting and completing drilling operations for 
each well; and
    (d) The time between starting operations on a well to the start of 
operations on the next well.


Sec. 3137.41  What continuing development obligations must I define in 
a unit agreement?

    A unit agreement must obligate the operator to a program of 
exploration and development that, after completion of the initial 
obligations--
    (a) Meets or exceeds the rate of non-unit operations in the 
vicinity of the unit; and
    (b) Represents an investment proportionate to the size of the area 
covered by the unit agreement.

Optional Terms


Sec. 3137.50  What optional terms may I include in a unit agreement?

    BLM may approve the following optional terms if they promote 
additional development or enhanced production potential--
    (a) Limiting the agreement to certain formations and their 
intervals (see Sec. 3137.28 of this subpart);
    (b) Multiple unit operators (see Sec. 3137.51 of this subpart);
    (c) Modifying the agreement terms by less than 100 percent of the 
parties to the agreement (see Sec. 3137.52 of this subpart); or
    (d) Other terms that BLM determines will promote the greatest 
economic recovery of oil and gas consistent with applicable law.


Sec. 3137.51  Under what conditions does BLM permit multiple unit 
operators?

    BLM permits multiple unit operators only if the unit agreement 
defines--
    (a) The conditions under which additional unit operators are 
acceptable;
    (b) The responsibilities of the different operators, including 
obtaining BLM approvals, reporting, paying Federal royalties and 
conducting operations;
    (c) Which unit operators are obligated to ensure bond coverage for 
each NPRA lease in the unit;
    (d) The consequences if one or more unit operators defaults. For 
example, if an operator defaults, the agreement would list which unit 
operators would conduct that operator's operations and ensure bonding 
of those operations; and
    (e) Which unit operator is responsible for unit obligations not 
specifically assigned in the unit agreement.


Sec. 3137.52  When may I modify the agreement?

    (a) You may modify a unit agreement if--
    (1) All current parties to the agreement agree to the modification; 
or
    (2) You meet the requirements of the modification provision in the 
unit agreement. The modification provision must identify which parties, 
and what percentage of those parties, must consent to each type of 
modification.
    (b) You must submit to BLM an application for modification.
    (c) The operator must certify that the necessary parties have 
agreed to the modification.
    (d) A modification is not effective unless BLM approves it. After 
BLM approves the modification, it is effective retroactively to the 
date you filed a complete application for modification. However, BLM 
may approve a different effective date if you request it and provide 
acceptable justification.
    (e) BLM will reject any modifications that do not comply with BLM 
regulations or applicable law.

Unit Agreement Operating Requirements


Sec. 3137.60  As the unit operator, what are my obligations?

    (a) You must comply with the terms and conditions of the unit 
agreement, Federal laws and regulations, lease terms and stipulations, 
and BLM notices and orders.
    (b) You must provide BLM evidence of acceptable bonding. Acceptable 
bonding means a bond in an amount which is no less than the sum of the 
individual Federal bonding requirements for each of the NPRA leases 
committed to the unit. This requirement may also be met if the unit 
operator is added as a principal to lease bonds to reach the required 
amount.
    (c) The bond must be payable to the Secretary of the Interior.


Sec. 3137.61  How do I change unit operators?

    (a) To change unit operators, the new unit operator must submit to 
BLM--
    (1) Statements that--
    (i) It accepts unit obligations; and
    (ii) The percentage of required interest owners consented to a 
change of unit operator; and
    (2) Evidence of acceptable bonding (see Sec. 3137.60(b) of this 
subpart).
    (b) The effective date of the change in unit operator is the date 
BLM approves the new unit operator.


Sec. 3137.62  What are my liabilities as a former unit operator?

    You are responsible for all duties and obligations of the unit 
agreement that accrued while you were unit operator up to the date BLM 
approves a new unit operator.


Sec. 3137.63  What are my liabilities after BLM approves me as the new 
unit operator?

    (a) After BLM approves the change in unit operator, you, as the new 
unit operator, assume full liability, jointly and severally with the 
record title and operating rights owners, except as otherwise provided 
in paragraph (c) and to the extent permitted by law, for--
    (1) Compliance with the terms and conditions of the unit agreement, 
Federal laws and regulations, lease terms and stipulations, and BLM 
notices and orders;
    (2) Plugging unplugged wells and reclaiming unreclaimed facilities 
that were installed or used before the effective date of the change in 
unit operator (this liability is joint and several with the former unit 
operator); and
    (3) Those liabilities accruing during the time you are unit 
operator.
    (b) Your liability includes, but is not limited to--
    (1) Rental and royalty payments;
    (2) Protecting the lease from loss due to drainage as provided in 
Sec. 3137.64 of this subpart;
    (3) Well plugging and abandonment;
    (4) Surface reclamation;
    (5) All environmental remediation or restoration required by law, 
regulations, lease terms, or conditions of approval; and
    (6) Other requirements related to operations on the lease.
    (c) Your liability for royalty and other payments on the lease is 
limited by section 102(a) of the Federal Oil and Gas Royalty Management 
Act of 1982, as amended (30 U.S.C. 1712(a)).


Sec. 3137.64  As a unit operator, what must I do to prevent or 
compensate for drainage?

    You must prevent uncompensated drainage of oil and gas from unit 
land

[[Page 24562]]

by wells on land not subject to the agreement. This includes, but is 
not limited to--
    (a) Drilling a protective well if it is economically feasible;
    (b) Paying compensatory royalty;
    (c) Forming other agreements, or modifying existing agreements, 
that allow the tracts committed to the agreement to share in 
production; or
    (d) Any additional measures BLM considers necessary to prevent 
uncompensated drainage.

Development Requirements


Sec. 3137.70  What must I do to meet initial development obligations?

    (a) To meet initial development obligations by the time specified 
in your unit agreement you must--
    (1) Drill the required test well(s) to the primary target;
    (2) Drill at least one well that meets the productivity criteria 
(see Sec. 3137.82 of this subpart); or
    (3) Establish, to BLM's satisfaction, that further drilling to meet 
the productivity criteria is unwarranted or impracticable.
    (b) You must certify to BLM that you met initial development 
obligations no later than 60 calendar days after meeting the 
obligations. BLM may require you to supply documentation that supports 
your certification.


Sec. 3137.71  What must I do to meet continuing development 
obligations?

    (a) Once you meet initial development obligations, you must perform 
additional development. Work you did before meeting initial development 
obligations is not continuing development. Continuing development 
includes the following operations--
    (1) Drilling, testing, or completing additional wells to the 
primary target or other unit formations;
    (2) Drilling or completing additional wells that establish 
production of oil and gas;
    (3) Recompleting wells or other operations that establish new unit 
production; or
    (4) Drilling existing wells to a deeper target.
    (b) No later than 90 calendar days after meeting initial 
development obligations, submit to BLM a plan that describes how you 
will meet continuing development obligations.
    (1) If you have drilled a well that meets the productivity 
criteria, your plan must describe the activities to fully develop the 
oil and gas field.
    (2) If you fulfilled your initial development obligations, but did 
not establish a well that meets the productivity criteria, your plan 
must describe any further actual or constructive drilling operations 
you will conduct.
    (c) No later than 90 calendar days after BLM's approval of your 
plan submitted under paragraph (b) of this section, you must certify to 
BLM that you started operations to fulfill your continuing development 
obligations. BLM may require you to--
    (1) Supply documentation to support your certification; and
    (2) Submit periodic reports that demonstrate continuing 
development.


Sec. 3137.72  May I perform additional development outside established 
participating areas to fulfill continuing development obligations?

    You may perform additional development either within or outside a 
participating area, depending on the terms of the unit agreement.


Sec. 3137.73  What happens if I do not meet a continuing development 
obligation?

    (a) After you establish a participating area, if you do not meet a 
continuing development obligation and BLM has not granted you an 
extension of time to meet the obligation, the unit contracts. This 
means that--
    (1) All areas within the unit that do not have participating areas 
established will be eliminated from the unit. Any eliminated areas are 
subject to their original lease terms; and
    (2) Only established participating areas, whether they are actually 
producing or not, remain in the unit.
    (b) Units contract effective the first day of the month after the 
date on which the unit agreement required the continuing development 
obligations to begin.
    (c) If you do not meet a continuing development obligation before 
you establish a participating area, the unit terminates (see 
Sec. 3137.132 of this subpart).

Participating Areas


Sec. 3137.80  What are participating areas and how do they relate to 
the unit agreement?

    (a) Participating areas are those committed tracts or portions of 
those committed tracts within the unit area that contain a well meeting 
the productivity criteria specified in the unit agreement.
    (b) You must include the proposed participating area size in the 
unit agreement for planning purposes and to mitigate reasonably 
foreseeable and significantly adverse effects on NPRA surface 
resources. The unit agreement must define the proposed participating 
areas. Your proposed participating area may be limited to separate 
producible intervals or areas.
    (c) At the time you meet the productivity criteria discussed in 
Sec. 3137.82 of this subpart, you must delineate those participating 
areas.


Sec. 3137.81  What is the function of a participating area?

    The function of a participating area is to allocate production to 
each committed tract within a participating area. Allocation to each 
committed tract within the participating area is in the same proportion 
as that tract's surface acreage in the participating area to the total 
acreage in the participating area.


Sec. 3137.82  What are productivity criteria?

    (a) Productivity criteria are characteristics of a unit well that 
warrant including a defined area surrounding the well in a 
participating area. The unit agreement must define these criteria for 
each separate producible interval. You must be able to determine 
whether you meet the criteria when the well is drilled and you complete 
well testing.
    (b) To meet the productivity criteria the well must indicate future 
production potential sufficient to pay for the costs of drilling, 
completing, and operating the well on a unit basis.


Sec. 3137.83  What establishes a participating area?

    The first well you drill after the unit agreement is formed that 
meets the productivity criteria establishes an initial participating 
area. When you establish an initial participating area, lands that 
contain previously existing wells in the unit that meet the 
productivity criteria (see Sec. 3137.82 of this subpart), will--
    (a) Be added to that initial participating area as a revision, if 
it is in the same producible interval; or
    (b) Become a separate participating area, if it is in a different 
producible interval (see also Sec. 3137.88 of this subpart for wells 
that do not meet the productivity criteria).


Sec. 3137.84  What must I submit to BLM to establish a new 
participating area, or add to an existing participating area?

    To establish a new participating area or add to an existing 
participating area, you must submit to BLM a--
    (a) Statement that the well meets the productivity criteria (see 
Sec. 3137.82 of this subpart). BLM may require you to submit 
information supporting your statement;
    (b) Map showing the new or revised participating area and acreage; 
and
    (c) Schedule that establishes the production allocation for each 
NPRA lease or tract, and each record title and operating rights owner 
in the

[[Page 24563]]

participating area. You must submit a separate allocation schedule for 
each participating area.


Sec. 3137.85  What is the effective date of a participating area?

    The effective date of either an initial or revised participating 
area is the first day of the month in which you complete a well that 
meets the productivity criteria, but no earlier than the effective date 
of the unit.


Sec. 3137.86  What happens to the participating area when I drill new 
wells that meet the productivity criteria?

    If a new well that meets the productivity criteria is--
    (a) Inside a participating area boundary and completed in the same 
producible interval, the participating area will remain the same;
    (b) Outside a participating area boundary and completed in the same 
producible interval as the well in an existing participating area, the 
participating area expands to include the new area; or
    (c) In a different producible interval, inside or outside the 
participating area, a new participating area may be established for the 
well.


Sec. 3137.87  What must I do if there are unleased Federal tracts in a 
participating area?

    If there are unleased Federal tracts in a participating area, you 
must--
    (a) Include the unleased Federal tracts in the participating area, 
even though BLM will not share in unit costs;
    (b) Allocate production for royalty purposes as if the unleased 
Federal tracts were leased and committed to the agreement under 
Sec. 3137.100 of this subpart;
    (c) Admit Federal tracts leased after the effective date of the 
unit agreement into the agreement on the date the lease is effective; 
and
    (d) Submit to BLM revised maps, a list of committed leases, and 
allocation schedules that reflect the commitment of the newly leased 
Federal tracts to the unit.


Sec. 3137.88  What happens when a well outside a participating area 
does not meet the productivity criteria?

    If a well outside any of the established participating area(s) does 
not meet the productivity criteria, all operations on that well are 
non-unit operations and we do not revise the participating area. No 
later than 60 calendar days after the well did not meet the 
productivity criteria, you must notify BLM that unit operations are no 
longer occurring. You must conduct non-unit operations under the terms 
of the underlying lease or other federally approved cooperative oil and 
gas agreements.


Sec. 3137.89  How does production allocation occur from wells that do 
not meet the productivity criteria?

    (a) If a well that does not meet the productivity criteria was 
drilled before the unit was formed, the production is allocated on a 
lease or other federally approved cooperative oil and gas agreement 
basis. You must pay and report the royalties from any such well either 
as specified in the underlying lease or other federally approved 
cooperative oil and gas agreements.
    (b) If you drilled a well after the unit was formed and the well is 
completed within an existing participating area, the production becomes 
a part of that participating area production. This paragraph applies 
whether or not the well meets the productivity criteria.
    (c) If a well that does not meet the productivity criteria is 
outside a participating area, the production is allocated the same as 
under paragraph (a) of this section.


Sec. 3137.90  Who must operate wells that do not meet the productivity 
criteria?

    (a) If a well that does not meet the productivity criteria was 
drilled before the unit was formed, the operator of the well at the 
time the unit was formed may continue as operator.
    (b) As unit operator, you must continue to operate wells drilled 
after unit formation that do not meet the productivity criteria, until 
BLM approves a change in the designation of operator for those wells.


Sec. 3137.91  When may a well BLM previously determined to be a non-
unit well establish or revise a participating area?

    If you, as the unit operator, complete sufficient work so that a 
well BLM previously determined to be a non-unit well now meets the 
productivity criteria, you must demonstrate this to BLM within 60 
calendar days of when this occurs. You must then revise an existing 
participating area or establish a new participating area (see 
Sec. 3137.84 of this subpart).


Sec. 3137.92  When does a participating area terminate?

    After contraction under Sec. 3137.73 of this subpart, a 
participating area terminates 60 calendar days after BLM notifies you 
that there is insufficient production to meet the operating costs of 
that production, unless you show that within 60 days after BLM's 
notification--
    (a) Your operations to restore or establish new production are in 
progress; and
    (b) You are diligently pursuing oil or gas production.

Production Allocation


Sec. 3137.100  How must I allocate production to the United States when 
a participating area includes unleased Federal lands?

    (a) When a participating area includes unleased Federal lands, you 
must allocate production as if the unleased Federal lands were leased 
and committed to the agreement (see Secs. 3137.80 and 3137.81 of this 
subpart). The obligation to pay royalty for production attributable to 
unleased Federal lands accrues from the later of the date the--
    (1) Committed leases in the participating area that includes 
unleased Federal lands receive a production allocation; or
    (2) Previously leased tracts within the participating area become 
unleased.
    (b) The royalty rate applicable to production allocated to unleased 
Federal lands is the greater of 121/2% or the highest royalty rate for 
any lease committed to the unit.

Obligations and Extensions


Sec. 3137.110  Do the terms and conditions of a unit agreement modify 
Federal lease stipulations?

    A unit agreement does not modify Federal lease stipulations.


Sec. 3137.111  When will BLM extend the primary term of all leases 
committed to a unit agreement?

    If the unit operator requests it, BLM will extend the primary term 
of an NPRA lease committed to a unit agreement if, from anywhere in the 
unit area, there is--
    (a) Actual production from a well that meets the productivity 
criteria;
    (b) Actual or constructive drilling operations; or
    (c) Actual or constructive reworking operations.


Sec. 3137.112  Under what circumstances will BLM extend my NPRA lease?

    BLM will extend all NPRA leases committed to the unit, for as long 
as the unit exists, for the following types of operations from any NPRA 
lease committed to the unit--

[[Page 24564]]



------------------------------------------------------------------------
                                       Length of          Additional
       Type of operations              extension           extension
------------------------------------------------------------------------
(a) Actual production...........  As long as there    Does not apply.
                                   is production
                                   from a well in
                                   the unit that
                                   meets the
                                   productivity
                                   criteria.
(b) Actual or constructive        Up to 3 years.....  Up to three more
 drilling operations.                                  years if you
                                                       demonstrate
                                                       reasonable
                                                       diligence and
                                                       reasonable
                                                       monetary
                                                       expenditures in
                                                       carrying out the
                                                       approved drilling
                                                       or reworking
                                                       operations during
                                                       the initial
                                                       extension.
(c) Actual or constructive        Up to 3ears.......  Up to three more
 reworking operations.                                 years if you
                                                       demonstrate
                                                       reasonable
                                                       diligence and
                                                       reasonable
                                                       monetary
                                                       expenditures in
                                                       carrying out the
                                                       approved drilling
                                                       or reworking
                                                       operations during
                                                       the initial
                                                       extension.
------------------------------------------------------------------------

Sec. 3137.113  What happens if I am prevented from performing actual or 
constructive drilling or reworking operations?

    (a) If you demonstrate to BLM that reasons beyond your control 
prevent you, despite reasonable diligence, from starting actual or 
constructive drilling, reworking, or completing operations, BLM will 
extend all committed leases as if you were performing constructive or 
actual drilling or reworking operations. You are limited to two 
extensions under this section.
    (b) You must resume actual or constructive drilling or reworking 
operations when conditions permit. If you do not resume operations--
    (1) BLM will cancel the extension; and
    (2) The unit terminates (see Sec. 3137.131 of this subpart).

Change in Ownership


Sec. 3137.120  As a transferee of an interest in a unitized NPRA lease, 
am I subject to the terms and conditions of the unit agreement?

    As a transferee of an interest in an NPRA lease that is included in 
a unit agreement, you are subject to the terms and conditions of the 
unit agreement.

Unit Termination


Sec. 3137.130  Under what circumstances will BLM approve a voluntary 
termination of the unit?

    BLM will approve the voluntary termination of the unit at any 
time--
    (a) Before the unit operator discovers production sufficient to 
establish a participating area; and
    (b) The unit operator submits to BLM certification that at least 75 
percent of the operating rights owners in the agreement, on a surface 
acreage basis, agree to the termination.


Sec. 3137.131  What happens if the unit terminated before the unit 
operator met the initial development obligations?

    If the unit terminated before the unit operator met the initial 
development obligations, BLM's approval of the agreement is revoked. 
You, as lessee, forfeit all further benefits, including extensions and 
suspensions, granted any NPRA lease as a result of having been 
committed to the unit. Any lease that BLM extended as a result of being 
committed to the unit would expire unless it qualified for an extension 
under Sec. 3135.1-5 of this part.


Sec. 3137.132  What if I do not meet a continuing development 
obligation before I establish any participating area in the unit?

    If you do not meet a continuing development obligation before any 
participating area is established, the unit terminates automatically. 
Termination is effective the day after you did not meet a continuing 
development obligation.


Sec. 3137.133  After participating areas are established, when does the 
unit terminate?

    After participating areas are established, the unit terminates when 
the last participating area of the unit terminates (see Sec. 3137.92 of 
this subpart).


Sec. 3137.134  What happens to committed leases if the unit terminates?

    (a) If the unit terminates, all committed NPRA leases return to 
individual lease status and are subject to their original provisions.
    (b) An NPRA lease that has completed its primary term on or before 
the date the unit terminates expires unless it qualifies for extension 
under Sec. 3135.1-5 of this part.


Sec. 3137.135  What are the unit operator's obligations after unit 
termination?

    Within 3 months after unit termination, the unit operator must 
submit to BLM for approval a plan and schedule for mitigating the 
impacts resulting from unit operations. The plan must describe in 
detail planned plugging and abandonment and surface restoration 
operations. The unit operator must then comply with the BLM-approved 
plan and schedule.

Appeals


Sec. 3137.150  Who may appeal a decision BLM issues under this subpart?

    (a) Any person adversely affected by a BLM decision under this 
subpart may appeal the decision under parts 4 and 1840 of this title.
    (b) You may file for a State Director Review (SDR) of decision BLM 
issues under this subpart. Sections [to be specified in the final rule] 
of this title contain regulations on SDR.
    7. Add a new subpart 3138 to part 3130 to read as follows:

Subpart 3138--Subsurface Storage Agreements

Sec.
3138.10   When will BLM allow subsurface storage agreements covering 
federally-owned lands?
3138.11   How do I apply for a subsurface storage agreement?
3138.12   What must I pay for storage?


Sec. 3138.10  When will BLM allow subsurface storage agreements 
covering federally-owned lands?

    BLM will allow you to use either leased or unleased federally-owned 
lands for the subsurface storage of oil and gas, whether or not the oil 
or gas you intend to store is produced from federally-owned lands, if 
you demonstrate that storage is necessary to--
    (a) Avoid waste; or
    (b) Promote conservation of natural resources.


Sec. 3138.11  How do I apply for a subsurface storage agreement?

    (a) You must submit an application to BLM for a subsurface storage 
agreement that includes--
    (1) The reason for forming a subsurface storage agreement;
    (2) A description of the area you plan to include in the subsurface 
storage agreement;
    (3) A description of the formation you plan to use for storage;
    (4) The proposed storage fees or rentals. The fees or rentals must 
be

[[Page 24565]]

based on the value of the subsurface storage, injection, and withdrawal 
volumes, and rental income or other income generated by the operator 
for letting or subletting the storage facilities;
    (5) The payment of royalty for native oil or gas (oil or gas that 
exists in the formation before injection and that is produced when the 
stored oil or gas is withdrawn);
    (6) A description of how often and under what circumstances you and 
BLM intend to renegotiate fees and payments;
    (7) The proposed effective date and term of the subsurface storage 
agreement;
    (8) Certification that all owners of mineral rights (leased or 
unleased) and lease interests have consented to the gas storage 
agreement in writing;
    (9) An ownership schedule showing lease or land status;
    (10) A schedule showing the participation factor for all parties to 
the subsurface storage agreement; and
    (11) Supporting data (geologic maps showing the storage formation, 
reservoir data, etc.) demonstrating the capability of the reservoir for 
storage.
    (b) BLM will negotiate the terms of a subsurface storage agreement 
with you, including bonding, and reservoir management.
    (c) BLM may request documentation in addition to that which you 
provide under paragraph (a) above of this section.


Sec. 3138.12  What must I pay for storage?

    You must pay any combination of storage fees, rentals, or royalties 
to which you and BLM agree. The royalty you pay on production of native 
oil and gas from leased lands will be the royalty required by the 
underlying lease(s). You must not produce native oil and gas from 
unleased lands in the storage agreement area.

PART 3160--ONSHORE OIL AND GAS OPERATIONS

    8. Revise the authority citation for part 3160 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.

    9. Revise 3160.0-1 to read as follows:


Sec. 3160.0-1  Purpose.

    The regulations in this part govern operations associated with the 
exploration, development and production of oil and gas deposits from--
    (a) Leases issued or approved by the United States;
    (b) Restricted Indian land leases; and
    (c) Those leases under the jurisdiction of the Secretary of the 
Interior by law or administrative arrangement including the National 
Petroleum Reserve-Alaska (NPR-A). However, Sec. 3103.4-4 of this 
chapter does not apply to the NPR-A.

    Dated: April 11, 2000.
Kathy Karpan,
Acting Principal Deputy Assistant Secretary, Land and Minerals 
Management.
[FR Doc. 00-10150 Filed 4-25-00; 8:45 am]
BILLING CODE 4310-84-P