[Federal Register Volume 67, Number 70 (Thursday, April 11, 2002)]
[Rules and Regulations]
[Pages 17866-17894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8470]



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Part V





Department of the Interior





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Bureau of Land Management



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43 CFR Parts 3130 and 3160



National Petroleum Reserve-Alaska-Unitization; Final Rule

  Federal Register / Vol. 67, No. 70 / Thursday, April 11, 2002 / Rules 
and Regulations  

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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3130 and 3160

[WO-310-1310-01 24 1A]
RIN 1004-AD13


National Petroleum Reserve-Alaska-Unitization

AGENCY: Bureau of Land Management, Interior.

ACTION: Final rule.

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SUMMARY: This final rule adds a new subpart to the Bureau of Land 
Management's (BLM) oil and gas regulations implementing new statutory 
authority allowing operators to form units in the National Petroleum 
Reserve-Alaska (NPR-A). Units allow for the sharing of costs and 
spreading of revenues among several leases, and allow for production to 
be attributed to committed leases in the unit. The final rule also: 
allows for waiver, suspension, or reduction of rental or royalty for 
NPR-A leases; allows for suspension of operations and production for 
NPR-A leases; amends existing regulatory language to set the primary 
lease term for an NPR-A lease at 10 years. Current regulations allow 10 
years, or a shorter term if it is in the notice of sale; and adds a new 
subpart to the NPR-A regulations on subsurface storage agreements. 
Subsurface storage agreements allow operators to store gas in existing 
geologic structures on Federal lands.
    This rule also makes clear that existing suspension and royalty 
reduction regulations do not apply to the NPR-A.

EFFECTIVE DATE: This final rule is effective June 10, 2002.

FOR FURTHER INFORMATION CONTACT: Richard Watson at (202) 785-6595, or 
Ian Senio at (202) 452-5049, or write to Director (630), Bureau of Land 
Management, Room 401 LS, 1849 C Street, NW., Washington, DC 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 between 8:00 a.m. and 4:00 p.m. eastern time, Monday 
through Friday, excluding Federal holidays.

SUPPLEMENTARY INFORMATION:

Contents

I. Background
II. Final Rule as Adopted and Response to Comment
III. Procedural Matters

I. Background

Why Is BLM Implementing This Rule?

    Part 3130 of 43 Code of Federal Regulations (CFR) contains the 
regulations that apply to oil and gas leasing in the NPR-A authorized 
under the Naval Petroleum Reserves Production Act of 1976, as amended 
(the ``Act''), (42 U.S.C. 6501 et seq.). Until this final rule, part 
3130 did 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 rule implements 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 NPR-A 
and subsurface storage agreements.

How Does This Rule Change BLM's NPR-A Oil and Gas Regulations?

    The final rule applies to operations under Federal oil and gas 
leases in NPR-A and adds a new subpart allowing the formation of oil 
and gas units in the NPR-A. Units allow for the sharing of costs and 
spreading of revenues among several leases, and allow for development 
from unit leases to occur without regard to lease or property 
boundaries. The rule also:
    (A) Allows for waiver, suspension or reduction of rental or royalty 
for NPR-A leases and clarifies the rights of native corporations;
    (B) Allows for suspension of operations and production for NPR-A 
leases;
    (C) Amends existing regulatory language to set the primary lease 
term for an NPR-A lease at 10 years. Current regulations allow 10 years 
or a shorter term if it is in the notice of sale;
    (D) Adds a new subpart to the NPR-A 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) Makes it clear that existing suspension and royalty reduction 
regulations that preceded the enactment of Pub. L. 105-83, no longer 
apply to the NPR-A.

II. Final Rule as Adopted and Response to Comments

General

    BLM proposed this rule in the Federal Register on April 26, 2000 
(65 FR 24541). As a result of public requests, we extended the comment 
period on June 26, 2000 (65 FR 39334). The extended comment period 
closed on August 10, 2000.
    As a result of public comments we made several changes to the final 
rule. We did this by:
    (A) Clarifying the effect of suspensions of operations and 
production on a lease;
    (B) Adding a definition of drainage consistent with a previous rule 
(see 66 FR 1883) and modifying the definitions for ``committed tract,'' 
``NPR-A lease,'' and ``producible interval;'
    (C) Allowing use of a nonfederal unit agreement if the lands in the 
proposed unit comprise less than 10 percent of the lands in the unit. 
BLM will approve commitment in these cases if the unit agreement 
protects the public interest;
    (D) Defining what is ``economically feasible'' for drilling 
protective wells in drainage situations;
    (E) Allowing for delay in meeting the initial or a continuing 
development obligation if you cannot perform the obligation for reasons 
beyond your control;
    (F) Adding a BLM customer service standard for approving continuing 
development obligation plans;
    (G) Addressing secondary recovery operations in a unit;
    (H) Allowing acreage reduction in a participating area;
    (I) Allowing participating area expansion based on available data 
and information rather than basing it solely on drilling and testing 
new wells; and
    (J) Allowing extension of time to demonstrate that BLM should not 
terminate a participating area if you are prevented from doing so for 
reasons beyond your control.
    Several comments lead us to believe many commenters misunderstand 
the function of Federal unit agreements and the role BLM plays in 
approving and administering them. Our main concern in approving and 
administering Federal units is to ensure that our actions serve in the 
public interest (see 42 U.S.C. 6508). Our interpretation of 
administering in the public interest includes protecting Federal 
royalties and natural resources. For instance, we believe that the 
relations among unit participants are appropriately managed by the 
participants. Accordingly, we consider those issues to be outside the 
scope of Federal concern. These issues should be addressed in the 
context of secondary or third party agreements or unit operating 
agreements. Other issues that are outside the scope of Federal concerns 
include royalty or payment issues between or among working interest 
owners, and issues between nonfederal lessees and between nonfederal 
lessees and the operator.

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    Under an approved Federal unit agreement, BLM will look to the unit 
operator as its contact. Other parties are generally not directly 
involved in formal negotiations of Federal unit agreements. BLM has 
found it to be administratively efficient to deal directly with the 
unit operator, rather than all parties committed to the unit. Concerns 
between other interest owners and the unit operator may be addressed in 
third party unit operating agreements to which BLM is not a party. 
However, BLM welcomes input and additional information from any party 
with an interest in production or allocations from the unit agreement.
Subpart 3130--Oil and Gas Leasing, National Petroleum Reserve--Alaska: 
General
    Section 3130.4-2 sets NPR-A lease terms at 10 years to reflect 
statutory language at 42 U.S.C. 6508(8). 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. This section remains as 
proposed.
Subpart 3133--Rentals and Royalties
    Sections 3133.3 and 3133.4 provide for waiver, suspension, or 
reduction of rental, royalty, or minimum royalty for NPR-A leases if it 
encourages the greatest ultimate recovery of oil and gas or it is in 
the interest of conservation. BLM requires applicants to demonstrate 
that they can't operate their lease under its terms without a waiver, 
suspension, or reduction of rental, royalty, or minimum royalty. BLM 
also requires applicants to submit certain items in their application 
so BLM can determine if the applicant meets the standards of the 
regulations. We received no comments on these sections. However, we 
added a new paragraph (b) to section 3133.3 to recognize situations 
where an Alaska Native regional corporation holds the subsurface estate 
of leased lands which have been conveyed to an Alaska Native village 
corporation pursuant to 43 U.S.C. 1613. Under this new paragraph, BLM 
would consult with the regional corporation before taking an action 
under this section affecting leased lands in which the subsurface 
estate is held by the regional corporation. This new provision conforms 
this section with existing regulations at 43 CFR 2650.4-3 and with the 
statutory provision at 43 U.S.C. 1613 (g). We also amended paragraphs 
(b)(1) and (b)(2) of section 3133.4 to make it clear that we are 
requiring the signature of record title holders of the lease on an 
application for waiver, suspension or reduction of rental, royalty or 
minimum royalty.
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 latter suspensions relate to payments 
only and do not relate to suspensions of operations and production.
    Section 3135.2 describes the circumstances under which BLM will 
require or approve a request for a suspension of operations and 
production on an NPR-A lease. This section differs from the proposal in 
that it allows BLM to require a suspension of operations. We made this 
change in the final rule because the statute (see section 10 of 42 
U.S.C. 6508) authorizes BLM to ``direct or assent to the suspension of 
operations or production.'' We also amended paragraph (b) of this 
section to make it clear that the suspension pertains to operations and 
production on the lease. We also replaced the phrase ``those 
obligations'' with ``your lease requirements'' to more accurately 
describe the requirement. BLM will require or approve suspensions of 
operations and production if you are prevented from operating your 
lease for reasons beyond your control, and the suspension:
    (A) Is in the interest of conservation of natural resources. This 
includes conservation of oil and gas as well as other NPR-A resources;
    (B) Encourages the greatest ultimate recovery of oil and gas, such 
as by encouraging 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 require or grant a suspension 
could be those related to protection of natural habitat and wildlife, 
and protection of subsistence needs of rural residents.
    In the final rule we also require the operator to continue to 
perform necessary maintenance and safety activities on the lease during 
the period of the suspension. This is consistent with existing policy 
and practice of BLM field offices.
    One commenter encouraged BLM to work with the operator to ensure 
that issues such as environmental protection and subsistence issues 
related to granting a suspension are addressed prior to operations 
commencing. BLM is committed to addressing environmental and 
subsistence issues prior to any development. However, there may be 
unanticipated issues, such as undiscovered archaeological finds or 
endangered species, that may not be evident prior to operations 
commencing. In these cases, BLM would, of course, work with the 
operator to address the concerns in a manner that attempts to mitigate 
impacts to operators while still protecting Federal resources.
    Section 3135.3 provides the suspension application requirements. 
BLM requires the listed items to determine whether you qualify for a 
lease suspension. We received no comment on this section, but we 
amended it by replacing ``owners'' with ``holders'' wherever it 
appeared. We did this to be consistent with BLM terminology and the 
rest of this rule.
    Sections 3135.4 describes the effective date of the suspension. We 
received no comments on this section. The final rule is slightly 
different from the proposal in that we made changes to agree with the 
changes to section 3135.2, explained above.
    Section 3135.5 explains when you should stop paying rental or 
royalty. This section is different from the proposal in that it 
corrects a logical flaw in what we proposed. Under the proposed rule, 
the suspension could be the first day of the month in which you file an 
application for suspension and you would stop paying rental or royalty 
on the first day of the month following our approval of the suspension. 
This would have put lessees in the position of having to pay rental or 
royalty for one full month after the effective date of the suspension. 
The final rule corrects this by allowing you to stop paying rental or 
royalty on the first day of the month the suspension is effective. The 
final rule also explains that if there is any production sold or 
removed during that final month, you must pay royalty on it.
    Sections 3135.6 states that BLM will terminate suspensions when you 
begin any operations on your lease, or when BLM determines that the 
reason for granting the suspension no longer exists. You must notify 
BLM at least 24 hours before starting operations on a suspended lease. 
We received no comment on this section. However, we amended paragraph 
(a)(1) of this section to make it clear that the operator does not have 
unilateral authority to resume

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operations or production and must have BLM approval before doing so.
    Section 3135.7 lays out the effect that a suspension of operations 
and production has on the term of your lease. This section is different 
than what we proposed. The final rule breaks up the effect a suspension 
has on a lease into two categories and explains that:
    (A) For leases in their primary term, the suspension stops the 
running of the primary term for the period of the suspension; and
    (B) For leases in their extended term, the suspension holds your 
lease in its extended term for the period of suspension as if it were 
in production. In this case, the lease will not terminate for failure 
to produce.
    These changes more accurately describe the effects of a suspension 
on lease terms.
    We also moved the explanation of the impact a suspension has on 
rental and royalty into a new section 3135.8.
    Section 3135.8 is a new section to the final rule. It explains in 
more detail than the proposed rule when you must next pay advance 
annual rental, royalty or minimum royalty and includes an example. It 
also explains that if you remove or sell any production from the lease 
during the term of the suspension, you must pay royalty on that 
production.
Subpart 3137--Unitization Agreements, National Petroleum Reserve--
Alaska
    Section 3137.5 contains 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 are unique to the NPR-A and 
have no parallel in the regulations affecting Federal lands outside of 
NPR-A. These terms are important for the extension provisions of 
sections 3137.111 and 3137.112 and allow BLM to grant you an extension 
of a lease in a unit if you demonstrate that there are ongoing 
constructive drilling or reworking operations in the unit. Since oil 
and gas operations are difficult and expensive in the NPR-A, we believe 
that it is reasonable for constructive drilling or reworking operations 
to extend your lease.
    The definition of the term operating rights is the same as the 
definition of working interest: It means any interest you hold that 
allows you to explore for, develop, or produce oil and gas. The use of 
this term instead of the term ``working interest'' is adopted here to 
be consistent with current regulations that apply to Federal lands 
outside of NPR-A (see 43 CFR 3100.0-5 and 3160.0-6).
    Several commenters thought that we should use the term ``working 
interest'' instead of the term ``operating rights.'' Commenters said 
that ``working interest'' is a more universally used term and that it 
is a term used by the State of Alaska. ``Working interest'' means the 
same thing as ``operating rights.'' Because we use the term ``operating 
rights'' for Federal lands outside of NPR-A, we use that term in this 
final rule.
    Several commenters suggested that we add definitions for the terms 
``multiple unit owners'' and ``other fee owners.'' We did not add these 
terms. Those terms are not necessary for BLM to administer NPR-A units. 
Issues having to do with multiple owner units and other fee owners may 
be dealt with in unit operating agreements to which BLM is not a party. 
We recognize that there may be several different land owners whose land 
is committed to an NPR-A unit. However, we do not believe it is 
necessary to add those terms in order to administer NPR-A units.

Committed Tract

    Two commenters suggested that we amend the definition of committed 
tract to make it clear that neither the State of Alaska nor the Arctic 
Slope Regional Corporation (ASRC) should be responsible for unit 
operations. We agree that the proposed definition was not clear. We did 
not intend that either Alaska or ASRC be responsible for unit 
operations. In the final rule, we amended the definition, to the extent 
it is applicable to State leases or private lands, by replacing the 
word ``owners'' with ``oil and gas lessees.'' This change makes it 
clear that the oil and gas lessees and operating rights owners would 
agree to unit agreement terms and conditions and to accept 
responsibility for unit operations. We also eliminated the phrase ``and 
agreed to accept responsibility for unit operations'' from paragraphs 
(1) and (2), since that language has nothing to do with whether or not 
a tract is committed to a unit agreement.
    Another commenter suggested that we amend the term ``committed 
tract'' by replacing ``Federal lease'' with ``NPR-A lease'' in the 
first paragraph. We didn't make this change. There are circumstances 
where it would be possible for a Federal lease outside of NPR-A issued 
under the Mineral Leasing Act to be committed to an NPR-A unit 
agreement.
    One commenter suggested that we amend the definition by introducing 
the concept of ``other fee owner'' as someone who could commit their 
lands to an NPR-A unit. We believe other fee owners are already covered 
in the definition under ``private parcel of land'' and therefore it 
would be redundant and possibly confusing to amend the definition as 
suggested.
    Finally, we amended the definition by adding the phrase ``or the 
owners of unleased minerals'' to paragraph (2), to make it clear that 
we are not precluding owners of unleased minerals from committing to a 
unit.

NPR-A Lease

    Several commenters suggested that we amend the definition to make 
it clear that leases issued by the Federal Government that are 
subsequently selected by ASRC are not NPR-A leases. We agree and 
amended the definition by adding the phrase ``and administered'' to 
make it clear that NPR-A leases are only those leases the Federal 
Government issues and administers.

Participating Area

    One commenter suggested we amend the definition of the term to say 
``those committed tracts or portions of committed tracts within the 
unit area that meet the productivity criteria for inclusion in a 
participating area (PA) specified in the unit agreement.'' We did not 
adopt the commenter's language in the final rule. PAs will consist of 
all acreage around a well that a unit operator can reasonably prove 
productive. When we approve the creation of a PA, we will consider all 
information available at the time; however, we will not approve a PA 
without at least one well that meets the productivity criteria.
    One commenter suggested that we revise the definition by saying 
that the PA includes committed tracts within the unit area that contain 
a well meeting the productivity criteria and those committed tracts or 
portions of the committed tracts that meet the productivity criteria. 
We did not make this change in the final rule. We believe that the 
proposed definition, along with sections 3137.80 through 3137.92, make 
it clear that the PA will include all lands that meet the productivity 
criteria.

Producible Interval

    One commenter suggested that we amend the definition by saying that 
the pool, deposit, zone or portion thereof ``is capable of meeting the 
productivity criteria.'' We disagree. There may be producible intervals 
within the boundaries of the unit agreement area that do not meet the 
productivity criteria. We did make editorial changes to this definition 
to clarify its meaning.

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Record Title

    One commenter suggested that we amend the definition of the term by 
adding ``or in the records in which such lease is authorized to be 
recorded under the law of the State of Alaska.'' We did not adopt the 
commenter's suggestion. We agree that an NPR-A unit may include land in 
State of Alaska or ASRC oil and gas leases. However, we do not agree 
that these regulations should be concerned with record title of Alaska 
or ASRC leases. We are not responsible for insuring that a lessee is 
granted record title to an Alaska or ASRC lease, nor would we directly 
administer those leases for any reason outside of the terms of the 
Federal unit agreement. Therefore, we believe it inappropriate for the 
definition to include record title of Alaska or ASRC leases.

Unit Agreement, Unit Area

    One commenter suggested that we amend the definition of these two 
terms to deal with leases owned by the State of Alaska or ASRC. We did 
not adopt the comment. BLM will not address issues having to do with 
multiple owner units and other fee owners. Those issues may be dealt 
with in unit operating agreements to which BLM is not a party. We 
recognize that there may be several different land owners whose lands 
are committed to an NPR-A unit. However, we do not believe it is 
necessary to amend these definitions as the commenter suggested.

General

    Section 3137.10 explains the benefits to entering into a 
unitization agreement in NPR-A. One of the major benefits of 
unitization is that operations or production from one part of the unit 
meet the development obligations for all Federal 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 Federal 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 Federal 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 ignore those offsets between unitized tracts and drill 
within the 200-foot limit. Finally, since unit operator(s) are 
responsible for operations for all unitized tracts, lessees benefit by 
being able to consolidate operations and reporting requirements. With 
the exception of minor editorial changes to paragraphs (a) and (b) of 
the final rule, it remains as proposed.

Application

    Section 3137.15 This is a new section that explains that if the 
Federal lands in a proposed unit agreement constitute less than 10 
percent of the lands in the unit:
    (A) You may use a unit agreement approved by the State and/or a 
native corporation;
    (B) BLM will authorize commitment of the Federal lands to the unit, 
if BLM determines that the unit agreement protects the public interest; 
and
    (C) Operators may request that BLM approve and administer the unit. 
If we agreed, you would be required to follow, and we would administer, 
this final rule and existing 43 CFR part 3160--Onshore Oil and Gas 
Operations.
    We added this section as a result of a comment on section 3137.21. 
Also, this section is similar to existing regulations in section 
3181.1, that apply to Federal lands outside of NPR-A.
    Sections 3137.20 provides that BLM will accept any format of the 
unit agreement as long as it protects the public interest and includes 
the mandatory terms required by these regulations.
    In the proposed rule we asked for comment on whether or not the 
model unit agreement in subpart 3186 of existing regulations would be 
appropriate for use in the NPR-A. We received several comments that 
said that the model unit agreement form is too inflexible for use in 
NPR-A. Commenters preferred the proposed rule over the model form since 
it would allow negotiation of unit terms with BLM, which would result 
in a unit agreement that would reflect the unique circumstances 
inherent in the conduct of operations in NPR-A.
    Several commenters suggested that we amend this section to require 
BLM to negotiate unit terms with the unit operator and any other fee 
owner. We did not adopt these comments. BLM's philosophy in dealing 
with Federal units has always been that we deal directly with the unit 
operator. We have been effectively administering units in this manner 
outside of NPR-A for more than 50 years and we will deal with units in 
a like manner in the NPR-A as well. We will not be a party to 
negotiations among or between interest owners other than the unit 
operator as representative of the unit because we are only concerned 
with issues that affect the public interest, rather than resolving 
internal, essentially private, issues among unit participants. We are 
also concerned about the potential difficulty of BLM attempting to 
negotiate with multiple potential unit participants. This would take 
significant resources for BLM and would involve BLM in essentially 
private party relationships. One of the factors relevant to a 
successful unit is for the participants to work together and to select 
and work with the unit operator. Accordingly, other lessees or interest 
owners should address their private concerns in their leasing 
instruments or by negotiating unit operating agreements with the unit 
operator.
    One commenter suggested that any regulation that would purport to 
empower BLM to force the inclusion of ASRC lands in a unit would 
infringe upon the police powers of the State of Alaska and potentially 
interfere with constitutionally protected property rights of ASRC. 
Neither the proposed regulations nor this final rule allow BLM to force 
unitization of nonfederal lands. BLM has traditionally relied on State 
procedures for issues addressing control of nonfederal lands and will 
continue to do so under these regulations.
    One commenter suggested that the interest of the unit operator may 
not be the same interest as a working interest owner, and if the 
working interest owner is not allowed to participate in unit agreement 
negotiations with BLM, they believe their interests will not be 
protected. Issues of concern to working interest owners may be 
addressed in either unit operating agreements between the working 
interest owners and the unit operator or in the lease instrument 
itself.
    This final section remains as proposed.
    Section 3137.21 introduces the basic terms of a unit agreement. It 
also cross-references other sections of the regulation whose subject is 
discussed here. This section contains a provision that allows BLM to 
request additional supporting documentation after reviewing your 
initial application.
    We amended paragraph (a)(3) of this section to make it clear that 
the unit agreement should include ``proposed well'' locations. This 
change recognizes that we are concerned with well locations and not 
necessarily just PA location and size, and that the final well location 
may be different from that proposed in the initial unit agreement.
    We also made paragraph (a)(5) clearer by stating that you have the 
choice to

[[Page 17870]]

include the optional terms in the unit agreement.
    One commenter suggested that we amend paragraph (a)(3) of this 
section to require a production allocation methodology for each 
committed tract within the PA. Federal units outside of NPR-A have 
traditionally allocated production to each committed tract in a PA in 
the same proportion that such tract's surface acreage in the PA bears 
to the total acreage in the PA. To be consistent with Federal units 
outside of NPR-A, this final rule will allocate production in the same 
manner (see section 3137.81(a)). We believe this manner of allocation 
is reasonable, predictable and protects Federal and other interest 
owners equally. We suggest you address allocation issues among other 
interest owners in a unit operating agreement.
    One commenter believes that the proposed rule does not allow enough 
flexibility since the rule deals primarily with four mandatory terms. 
We believe the rule allows flexibility to address issues outside of the 
four mandatory terms. Section 3137.50(d) allows other terms in the 
agreement that will promote the greatest ultimate recovery of oil and 
gas. Issues that aren't covered under this section may be addressed in 
third party or unit operating agreements.
    One commenter suggested we add the following language to this 
section:
    ``Any terms negotiated and agreed upon among you, BLM, any other 
fee owner, and the applicable owners of oil and gas lease interests 
(record title and operating rights) with respect to a multiple owner 
unit dealing with the continuation or termination of oil and gas leases 
covering land in which the oil and gas is owned by such other fee owner 
or with exploration, development, production, or operation of such land 
or allocation of production from a PA including such land, which terms 
may vary from terms of other sections of this subpart governing NPR-A 
leases included in the unit.''
    We did not adopt this language in the final rule. BLM will only 
negotiate with the unit operator. We acknowledge that there may be 
several different land owners in an NPR-A unit. However, as discussed 
above, interest owners may address issues of nonfederal concern in unit 
operating agreements.
    One commenter suggested that we add language to paragraph (b) 
stating that BLM may not unilaterally make changes in a proposed 
agreement without the consent of the other parties to the unit 
agreement. We agree that BLM will not make unilateral changes to the 
unit agreement. We will negotiate in good faith the terms of the unit 
agreement with the unit operator. Issues outside the scope of these 
regulations may be addressed in a unit operating agreement between 
interest owners and the operator.
    Several commenters suggested that we add a provision addressing 
situations where the Federal interest in a unit is relatively small 
(e.g., less than 10 percent). We agree and have added section 3137.15, 
which is similar to section 3181.1 in existing regulations that apply 
outside of NPR-A, to address situations where the Federal lands in the 
unit are less than 10 percent of the lands in the unit.
    One commenter asked if the rules were limited to exploratory and 
primary recovery operations and whether the operator could propose 
secondary or enhanced recovery operations in the continuing development 
plan. The proposed rule primarily addresses exploratory or primary 
recovery operations. However, we amended the final rule in several 
places (i.e., 3137.81 (b) and (c), and 3137.82(c)) to address secondary 
recovery issues. BLM would approve a continuing development plan that 
proposed secondary or enhanced recovery if in support of the plan you 
had enough geologic or drilling data to show the need for secondary 
recovery operations.
    One commenter asked if they should propose an amendment to the unit 
agreement or propose a new unit agreement when they plan to perform 
secondary or enhanced recovery operations. In administering these 
rules, BLM will deal with unit agreements on a case-by-case basis. You 
should work with your local BLM office to determine which course of 
action is most appropriate in your given circumstance.
    One commenter suggested that in the final rule we address what 
happens when there are leases in an NPR-A unit with differing royalty 
rates. This final rule will not address differing royalty rates. As far 
as royalty payments are concerned, the Department is primarily 
concerned with the Federal interest. The rule does not prohibit parties 
to the agreement from entering into allocation agreements for the 
nonfederal share.
    One commenter suggested that the final rule address NPR-A units 
that include nonfederal leases. We believe the rule does address units 
including nonfederal leases. As explained above, Federal unit 
agreements address different issues than standard State or private unit 
agreements because our primary concerns are protecting the public 
interest and conservation of Federal resources. Issues of concern to 
nonfederal interest owners holders may be addressed in separate unit 
operating agreements. BLM has historically administered Federal units 
in this manner outside of NPR-A and will administer units in this 
manner in NPR-A as well.
    One commenter suggested that we allow working interest owners to 
form voluntary units. We believe that in the absence of a State order 
forcing nonfederal lessees to join a Federal unit, the units formed 
under these regulations will be voluntary units.
    Section 3137.22 lays 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 can 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 NPR-A lease since these regulations generally do not apply 
if an NPR-A lease were not in the unit. This section also makes 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 will approve reasonable sizes and 
shapes as long as they comply with the other provisions of this 
section.
    We made one minor editorial change to paragraph (a) of this section 
by replacing ``Be composed of'' with ``Consist'' so that final 
paragraph (a)(1) reads:
    ``Consist 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''. We 
believe this wording is clearer than that proposed.
    Section 3137.23 describes what you must submit to BLM in your 
application. This includes 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 must include a discussion of the reasonably 
foreseeable and significantly adverse effects on the surface resources 
of the NPR-A. This standard is laid out in paragraph (1) of 42 U.S.C. 
6508. This section also requires 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

[[Page 17871]]

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 may also require you to submit additional documentation such as 
any agreements you may have with persons who have the right to engage 
in subsistence activities on lands in the unit area, or additional 
copies of maps, plats and other such exhibits.
    We amended paragraph (b) of this section to make it clear that the 
map this section requires you to submit is of the proposed unit area. 
This change also recognizes the fact that the final unit may be 
different from what you proposed in your application.
    We also amended paragraph (c)(3) of this section by replacing 
``holding'' with ``owning'' in order to be consistent with BLM 
terminology.
    One commenter asked why a discussion of reasonably foreseeable and 
significantly adverse effects on surface resources of NPR-A is needed 
at the time of application. BLM requires this information because it is 
a statutory requirement (see 42 U.S.C. 6508(1)). We require this 
information at the application stage because we need this information 
as a condition of approval of the unit and to determine the effects of 
your operations on NPR-A. We realize that you will not have all of the 
information necessary for a detailed plan of operations at the 
application stage, but we expect you to address these issues to the 
extent you can with the information you have available at the time of 
application.
    One commenter asked what constitutes ``sufficient tracts committed 
to the unit agreement to reasonably operate and develop the unit area'' 
and if the rule does not address ``involuntary unitization,'' how will 
an operator achieve effective control. ``Sufficient tracts'' means the 
committed area necessary for the unit operator to have reasonable 
control of the unit area. This is generally considered to mean a 
significant percentage of tracts in the unit area and is determined on 
a case-by-case basis. For example, outside of NPR-A ``sufficient 
tracts'' has meant control of as little as 70 percent of the committed 
area within the unit area. BLM does not have authority to force the 
unitization of nonfederal tracts. Outside of NPR-A we have 
traditionally relied on State procedures to deal with resource 
conservation issues on nonfederal lands and would do the same in NPR-A. 
Therefore, if an operator did not believe it had effective control of 
the unit area, it could ask the State of Alaska to intervene.
    One commenter asked if the rules contemplate ``all depths'' units 
or can a unit agreement and development plan be formation or pool 
specific. Section 3137.28 addresses this directly and makes it clear 
that NPR-A unit agreements include all oil and gas resources of 
committed tracts unless we approve unit agreement terms to the 
contrary.
    One commenter said they believe this section means that BLM expects 
unit operators to operate the unit area efficiently without 
participation in unit operations or production from noncommitted 
parties. We believe the commenter is implying that the final rule 
should provide for forced unitization. As mentioned above, BLM does not 
have the authority to force the unitization of nonfederal leases. We 
rely on State procedures for forced unitization of nonfederal lands.
    One commenter suggested that the final rule should ``recognize that 
the existing Northeast National Petroleum Reserve-Alaska Final 
Integrated Activity Plan/Environmental Impact Statement (FIAP/EIS) 
concluded that the application of all lease stipulations prescribed by 
the FIAP/EIS and any additional stipulations added by the BLM 
authorizing officer, will be sufficient to comply with existing law.'' 
Another commenter suggested we amend paragraph 3137.23(d)(1) by adding 
``recognizing that existing lease stipulations are sufficient to comply 
with existing law.'' We did not amend the section as suggested. The 
FIAP/EIS ``describes the future multiple-use management of 4.6 million 
acres of the NPR-A, consistent with existing statutory direction for 
its management.'' See Record of Decision, Northeast National Petroleum 
Reserve, Alaska, Integrated Activity Plan/Environmental Impact 
Statement, Record of Decision Summary, at page v (October 7, 1998). The 
FIAP/EIS and any stipulations proposed therein were not written to 
address regulations of general applicability to the entire NPR-A. 
Future leasing decisions in other portions of the NPR-A will determine 
what stipulations would be required in light of available information.
    One commenter suggested that we amend paragraph (d)(1) by adding 
``other fee owners'' to those entities which the regulation would 
require you to invite to join the unit. We did not make this change. 
Other fee owners are already included in this paragraph under ``owners 
of oil and gas lease rights (leased or unleased)'' and it would be 
redundant to amend this section.
    Section 3137.24 lists the reasons BLM will reject a unit agreement 
application. BLM will reject unit applications that:
    (A) Do not contain all of the mandatory terms these regulations 
require, and any additional terms BLM may require you to include;
    (B) Propose 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 
units in the NPR-A. 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 will also reject any unit application that proposes an 
operator who is not qualified, under any statute or regulation, to 
operate within NPR-A;
    (C) Do not conserve natural resources. BLM interprets paragraph 
(10) of 42 U.S.C. 6508 as establishing this standard. BLM interprets 
``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 determine are not in the public interest. BLM will not 
approve unit applications that do not protect the resources in an oil 
and gas pool, field, or similar area;
    (E) That do not comply with any special conditions in effect for 
any part of the NPR-A 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) Do not comply with the requirements of subpart 3137.
    One commenter asked if all the criteria for unit approval are in 
section 3137.24 and also if the term of the unit agreement will be 
specified in the approval. Section 3137.24 contains all the approval 
criteria, including paragraph (f) which requires the unit application 
to comply with the requirements of the entire subpart. BLM will specify 
the unit term either in the unit agreement itself or in the approval 
document.
    With the exception of minor editorial changes to paragraphs (e) and 
(f) of this section, the final rule remains as proposed.
    Sections 3137.25 and 3137.26 explain how parties to the unit will 
know if

[[Page 17872]]

BLM approves or disapproves the unit agreement and when unit agreements 
are effective. BLM will provide notice to unit operators of the action 
it takes on the unit application. The unit operator must notify in 
writing all parties to the unit agreement within 30 calendar days of 
receiving BLM's decision. One important reason for this notification is 
to advise lessees of when the unit operator may begin acting on their 
behalf. A unit agreement is effective the date BLM approves it.
    We received no comments on these sections and they remain as 
proposed.
    Section 3137.27 explains the effect of subsequent contracts and 
agreements on the unit agreement. This section explains 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.
    We modified this section in the final rule by replacing ``other 
agreement'' with ``subsequent contract or obligation'' to make it clear 
that the unit agreement cannot affect existing agreements and because 
we believe that the new phrase better describes existing policy. We 
received no comments on this section, and other than the changes 
mentioned above, the rule remains as proposed.
    Section 3137.28 requires a unit agreement to include all oil and 
gas resources of committed tracts unless BLM approves agreement terms 
to the contrary. We received no comments on this section. However, we 
added a cross reference to section 3137.50, which has to do with 
optional unit agreement terms.

Development

    Section 3137.40 explains that you must define initial development 
obligations in a unit agreement. You and BLM will 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.
    We amended paragraph (a) of this section to make clear that as part 
of the initial development obligations you must define the number of 
wells you anticipate will be necessary to assess the reservoir 
adequately. The proposed rule asked you to define ``[t]he number of 
wells required to assess the reservoir adequately.'' The final rule 
recognizes that, at the negotiating stages, you may not know with 
certainty the exact number of wells necessary to assess the reservoir.
    One commenter interpreted this section and section 3137.41 to mean 
that if both parties agree on unit obligations, the obligations will be 
``satisfactory to be able to estimate the size and shape of the 
reservoir within the unit area and to understand its geologic 
conditions.'' We do not agree.
    We don't expect you to drill wells pursuant to unit obligations if 
new information shows that the reservoir is different than you 
anticipated. We don't believe one can know everything about an 
exploratory unit before exploratory work begins and would expect that 
if subsequent data supports a change in the operating plan, we will 
consider changes from the originally negotiated plan.
    Section 3137.41 explains that you must define continuing 
development obligations in a unit agreement. You and BLM will negotiate 
the details of these terms before you submit a final application.
    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.
    We amended our proposal for this section by adding a cross-
reference to section 3137.71 to make it clear to which program of 
exploration and development we are referring.
    One commenter suggested that we amend this section to allow for 
supplemental or additional plans of development. As stated above, we 
don't believe one can know everything about an exploratory unit before 
exploratory work begins and we expect that if data supports a change in 
the operating plan, we will consider changes from the originally 
negotiated plan.

Optional Terms

    Section 3137.50 describes 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 of the unit agreement terms by less than 
100 percent of the parties to the unit.
    BLM will also allow other optional terms not listed above if you 
demonstrate to BLM that they promote the greatest economic recovery of 
oil and gas.
    We didn't receive any comments on this section. However, we made an 
editorial change to paragraph (c) of this section to make it clear that 
you may modify the unit agreement with less than 100 percent agreement 
of the parties to the unit agreement if the agreement allows it.
    Section 3137.51 establishes 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.
    One commenter said that multiple unit operators should be allowed 
only under very unique circumstances. We did not amend this section as 
a result of this comment. We believe that this section allows you to 
negotiate with BLM the conditions under which multiple unit operators 
will be allowed and does not preclude you from negotiating the limited 
circumstances under which you believe multiple unit operators are 
appropriate. The same commenter believed that the unit agreement should 
specifically outline the responsibilities of the different unit 
operators in a multiple operator unit. We believe paragraph (b) is 
worded generally enough to allow you to negotiate very detailed 
responsibilities of the different unit operators in

[[Page 17873]]

multiple operator units. The final rule remains as proposed.
    Section 3137.52 sets out the requirements to allow you to modify 
the unit agreement. You may modify the unit agreement if:
    (A) All the 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 have certified that 
all necessary parties, as spelled out in the unit agreement, have 
agreed to the modification. Modifications are effective retroactive to 
the date you filed a complete modification application. BLM will reject 
any modification application that does not comply with BLM regulations 
or applicable law. For example, you would be required to comply with 
the requirements of this section before changing your initial or 
continuing development obligations.
    In the final rule we restructured paragraph (b). It requires you to 
include in the application the items listed. To address changes in the 
allocation schedule as a result of unit modification, the final rule 
requires you to submit both:
    (A) A description of the new allocation methodology; and
    (B) The new allocation schedule.
    This change recognizes that there may be situations where 
modification of the unit agreement might change the allocation 
schedule. It also accounts for situations where the original 
exploratory unit agreement is modified so that the unit agreement is a 
secondary recovery unit agreement and, consequently, the allocation 
schedule changes.
    One commenter suggested that we make uniform the unit modification 
provisions in sections 3137.50 and 3137.52. While the provisions are 
consistent in their treatment of the issue of modification, we believe 
the commenter misread the two provisions since they have a different 
focus. Section 3137.50 addresses optional terms that you may include in 
the unit agreement, including modification of the unit agreement, 
whereas section 3137.52 addresses unit modifications. Uniformity of 
these regulatory provisions would, therefore, not be appropriate given 
their different purposes. Therefore, we did not adopt the comment.
    One commenter suggested that we amend this section to specify which 
types of modifications would be permitted according to which voting 
percentage. We did not adopt the comment. We believe parties to the 
unit agreement should have the flexibility to determine the types of 
modifications and voting percentages they will allow and set them as 
terms in the unit agreement itself.
    One commenter suggested that we include a clause to specifically 
address circumstances which are not otherwise specifically addressed in 
this section. We did not adopt the comment because we believe that the 
section allows modification as long as you comply with the requirements 
of the section, including BLM approval of the modification.

Unitization Agreement Operating Requirements

    Section 3137.60 describes 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 rule provides that 
the amount of acceptable bonding can 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 NPR-A unit.
    This section requires bonds to be payable to the Secretary of the 
Interior. This is standard practice for bonding on public lands.
    We received no comments on this section and, except for editorial 
changes, the final rule remains as proposed.
    Section 3137.61 describes how BLM will allow a change in the unit 
operator. If you are the new unit operator of an existing unit, you 
must file statements that you accept unit obligations and that the 
required percentage of interest owners as specified in the unit 
agreement 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 is the date BLM approves it.
    One commenter asked that we amend this section by specifically 
stating that a former approved unit operator be allowed to assign its 
existing bond to the new operator after BLM approval. We did not adopt 
this comment because we do not believe it necessary to regulate the 
common practice of filing bond riders with BLM for change in the 
covered party on a bond.
    The final rule remains as proposed.
    Section 3137.62 lays out your liabilities as a former unit 
operator. Former unit operators are liable for any duties and 
obligations that accrued before BLM approved a new unit operator. We 
received no comments on this section and the final rule remains as 
proposed.
    Section 3137.63 describes your liabilities as the new unit 
operator. Liability is joint and several with the former unit operator. 
The new unit operator has 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. This liability is joint and 
several with the former unit operator; and
    (C) Liabilities that accrue during the time you are the unit 
operator. The new unit operator's liability for payment obligations 
under the lease, such as royalties and other payments, is 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 payor does 
not thereby become liable to the Government for those payment 
obligations. A designated payor, such as a unit operator, only has 
liability to the Government if it is also the owner of the operating 
rights in a lease or is the record title holder. The statute provides 
that the operating rights owners are primarily liable to the Government 
for payment obligations and that holders of record title are 
secondarily liable if they do not own the operating rights.
    Accordingly, the regulation recognizes that a new unit operator's 
potential liability for the payments due the Government is not 
automatic, but is

[[Page 17874]]

dependent upon whether the operator is an operating rights owner or an 
holder of record title, in accordance with the limitations contained in 
Section 102(a) of FOGRMA.
    We amended paragraphs (b)(2) and (b)(6) by making it clear that the 
unit operator's liabilities are for:
    (A) Protecting the unit from drainage, not protecting the lease 
from drainage, as proposed; and
    (B) Other requirements related to unit operations, rather than 
``operations on the lease,'' as proposed.
    We also made a similar change to paragraph (c) by replacing 
``lease'' with ``unit.'' The proposed rule did not accurately describe 
the unit operator's liabilities when it referred to liabilities in 
terms of ``lease'' liabilities, rather than ``unit'' liabilities.
    Section 3137.64 sets 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 unit agreement, you must take such measures as BLM determines are 
necessary. Permissible means of satisfying this obligation 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 have a reasonable profit 
above the cost of drilling, completing and producing operations. In the 
final rule we added a definition of ``economically feasible'' to 
paragraph (a), using a definition consistent with that in the final 
drainage rule (see 66 FR 1893);
    (B) Paying the Federal Government compensatory royalty for oil or 
gas lost through drainage from a unit. BLM will determine the amount of 
compensation that would cover the royalties on 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 will agree to 
this provision only if we determine that the Federal Government is 
being fairly compensated for drainage. In the final rule we added 
language to paragraph (c) to make clear that the share in production 
does not apply retroactively; or
    (D) Any additional measures that BLM considers necessary to prevent 
uncompensated drainage.
    One commenter said that this section was too broad and that 
drainage protection should be limited to ``such measures as it 
considers necessary and prudent, based upon available information.'' We 
did not adopt this comment. We believe that the final rule reflects BLM 
policy and Federal oil and gas lease terms and conditions and is 
consistent with the final drainage rule BLM promulgated on January 10, 
2001 (66 FR 1883). This final rule is also consistent with how BLM 
currently addresses drainage in units outside of NPR-A (see paragraph 
17(a) of the model unit agreement form in 43 CFR 3186).
    One commenter said that the rule failed to address what would 
happen if an NPR-A unit is drained by development outside NPR-A on 
either State or ASRC land. We disagree. The rule does address the 
situation and would require the unit operator to protect the unit from 
drainage under this section no matter where the offending well is 
located.
    One commenter said we should amend paragraph (a) of this section by 
defining ``economically feasible'' to mean ``a person's ability to 
extract a reasonable rate of return on one's investment.'' We did not 
adopt the comment. As stated in the final drainage rule (66 FR 1893), 
BLM defines an economically feasible well for drainage purposes as one 
that produces a sufficient quantity of oil or gas for a reasonable 
profit above the cost of drilling, completing and operating the 
protective well. Consistent with existing policy, as stated above, we 
added this definition of economically feasible to paragraph (a) of this 
section.
    One commenter suggested we amend this section by making clear that 
it is not feasible to allow tracts committed to a unit agreement to 
share in production from other tracts on a retroactive basis. We 
amended paragraph (c) of this section by adding to the end of the 
paragraph the phrase ``after the effective date of the new or modified 
agreement.''
    One commenter believed that paragraph (c) of this section allows 
for pooling, but that the language should allow BLM to force pool 
leases in drainage situations. We did not amend the rule as a result of 
this comment. BLM does not have the authority to force pool nonfederal 
leases. We would rely on the other provisions of this section to deal 
with drainage and in cases where the only remedy would be forced 
pooling, we would rely on State procedures.
    One commenter suggested we delete proposed paragraph (d) and 
replace it with the following: ``Any additional measures BLM considers 
reasonably necessary and prudent to prevent uncompensated drainage 
based on available information.'' The commenter said this change would 
make it clear that it would ``not be appropriate to require a unit 
operator to drill an offset well to prevent drainage when all available 
information indicates that such offset well would not produce in 
sufficient quantities to enable the unit operator to recover the costs 
of drilling, completing and operating such well.'' We did not amend 
paragraph (d) as suggested. However, we believe the changes to 
paragraph (a), discussed above, address this commenter's concern.

Development Requirements

    Sections 3137.70 explains:
    (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. You 
should negotiate this term with BLM before you submit to BLM your 
complete unitization application;
    (2) Drilled at least one well that meets the productivity criteria 
(see the discussion of section 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 will 
require you to submit information showing that you have adequately 
drilled to the primary target defined in the unit and tested the 
results to prove 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.
    You are required to submit to BLM certification that you met 
initial development obligations within 60 calendar days after having 
done so.
    One commenter suggested that we amend paragraph (a)(2) of this 
section to allow wells drilled prior to the effective date of the unit 
agreement that meet the productivity criteria to meet the obligation to 
drill a well under the unit that meets the productivity criteria. We 
did not amend this section as suggested. BLM provides incentives (such 
as lease extensions for all Federal leases in a producing unit) for 
Federal leases to join units. In exchange for these incentives we 
expect the unit reservoir to be as fully explored and produced as 
possible. This obligation includes the

[[Page 17875]]

requirement to drill new obligation wells under the unit agreement. 
Section 9 of the Act says that ``Drilling, production, and well 
reworking operations performed in accordance with a unit agreement 
shall be deemed to be performed for the benefit of all lessees that are 
subject in whole or in part to such unit agreement.'' We interpret this 
to mean that wells drilled prior to the effective date of the unit are 
not operations ``performed in accordance with a unit agreement'' and 
consequently are not performed for the benefit of all lessees. 
Therefore, wells drilled before the effective date of the unit 
agreement do not meet the initial development obligations. However, 
these wells may be included in a unit plan and production from them may 
subsequently be considered unit production.
    One commenter asked if there were not a modification provision 
(section 3137.52) in the unit agreement, are you precluded from 
amending the initial or continuing development obligations or the 
productivity criteria in the unit agreement. Under paragraph 
3137.52(a)(1), you may modify the unit agreement without a modification 
provision in the unit agreement if all current parties to the unit 
agreement agree to the modification. Under paragraph 3137.52(b) you are 
required to apply to BLM for approval of any modification to the unit 
agreement.
    One commenter asked if a well is successfully drilled to the 
primary target depth, but a different formation is encountered than 
that anticipated, is the initial development obligation still satisfied 
for the purposes of section 3137.70. BLM would not consider this to be 
an initial obligation well. However, you would satisfy the requirement 
under paragraph (a)(3) if you demonstrated to BLM that further drilling 
to meet the productivity criteria would be unwarranted or 
impracticable.
    This final rule remains as proposed.
    Section 3137.71 explains the requirements to meet continuing 
development obligations and lists what kinds of operations BLM 
considers to be continuing development (see the discussion of sections 
3137.40 and 3137.41). Work you conducted before meeting initial 
development requirements is not continuing development. You must submit 
to BLM, within 90 calendar days after meeting initial development 
obligations, a plan that describes how you will meet continuing 
development obligations. However, you must submit to BLM updated 
continuing obligation plans as soon as you determine that, for whatever 
reason, the plan needs amending. While this is a new provision in the 
final rule, it merely requires that you update BLM regarding amendment 
of the plans which you previously submitted. Given that you will have 
possession of the information necessary to readily comply with this 
requirement, we believe it is reasonable to require you to provide us 
updates of your continuing development plans as operating plans change. 
Finally, we moved proposed paragraph (c) to a new section 3137.74.
    One commenter asked that we amend this section to require BLM to 
``take action on the continuing development obligation plan within 30 
days of receipt, otherwise the plan shall be deemed approved.'' We did 
not adopt this comment. BLM cannot allow a development plan to be 
approved without our review, since we must ensure that the public 
interest is protected. However, in the final rule we added a new 
section 3137.73 that contains a customer service standard. Please see 
the discussion of that section for an explanation.
    One commenter suggested that we amend this section by adding a 
sentence to paragraph (c) that would allow extension of the 90 calendar 
day period for certification of the start of operations due to seasonal 
work or access limitations. We agree that 90 days may not be enough 
time to begin continuing development operations in some circumstances. 
Consequently, we added a new section 3137.72 allowing for an extension 
of time to meet continuing development obligations if it is necessary 
for reasons beyond the operator's control.
    Section 3137.72 This new section allows for an extension of time to 
meet the initial or a continuing development obligation if reasons 
beyond your control keep you from meeting those obligations by the time 
the unit agreement specifies. In the application for extension you 
must:
    (A) State the obligation for which you are requesting a delay;
    (B) List the reasons beyond your control that prevent you from 
performing the obligation; and
    (C) State when you expect the reasons beyond your control to 
terminate.
    BLM will grant an extension of time if we determine that the 
extension encourages the greatest ultimate recovery of oil or gas or is 
in the interest of conservation and that reasons beyond your control 
prevent you from performing the initial or a continuing development 
obligation. The extension lasts as long as the conditions giving rise 
to the extension continue to exist.
    We added this section because several commenters indicated that in 
several places in the proposed rule there were obligations that they 
may not be able to meet timely because of circumstances beyond their 
control. The language in this section is consistent with existing 
policy on Federal lands outside of NPR-A.
    Section 3137.73 This new section contains a customer service 
standard that requires BLM, within 30 calendar days of receiving your 
plan, to notify you in writing that we:
    (A) Approved your plan;
    (B) Rejected your plan and explain why, including an explanation of 
how you should correct the plan so that it will be in compliance; or
    (C) Have not acted on the plan, explaining the reasons and when you 
can expect a final response.
    We added this section in response to the comment discussed in 
section 3137.71 above which suggested that BLM's lack of action within 
30 days should result in the deemed approval of the plan. We rejected 
that approach for the reasons discussed above.
    Section 3137.74 This new section contains the provisions from 
previously proposed paragraph 3137.71(c). Under this section, within 90 
calendar days after BLM approves your plan, you must certify to BLM in 
writing that you started operations to fulfill continuing development 
obligations. BLM may require you to support your certification with 
documentation and submit periodic reports demonstrating continuing 
development. Other than renumbering, this section remains as proposed.
    Section 3137.75 (proposed section 3137.72) explains that you may 
conduct additional development within or outside a PA to fulfill 
continuing development obligations. We received no comments on this 
section and it remains as proposed.
    Section 3137.76 (proposed section 3137.73) explains that a unit 
contracts if you do not meet a deadline for performing a continuing 
development obligation. This section also explains contraction and when 
it is effective. Contraction means that all areas outside any PA will 
be eliminated from the unit and only established PAs (producing or non-
producing, depending on unit terms) remain in the unit. After 
contraction, any producing wells no longer in the unit 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 PA is 
established, the unit

[[Page 17876]]

terminates. We didn't receive any comments on this section and, except 
for renumbering, it remains as proposed.

Participating Areas

General
    Several commenters suggested that we amend the regulations to allow 
for corrective adjustments of allocation of production among tracts in 
a PA. We agree with the commenters to the extent that a PA is found to 
be larger or smaller than originally anticipated. We amended sections 
3137.84 and 3137.85 and added to the final rule a new section 3137.86 
to address PA revisions.
    Several commenters suggested that we amend the regulations to 
permit a production allocation methodology for each PA based on 
something other than surface acreage. We did not adopt this suggestion. 
As stated above, BLM is primarily concerned with protecting the public 
interest and resource conservation. We believe that for exploratory and 
primary production units, production allocation based on surface 
acreage is reasonable and appropriate and protects the public interest. 
This method is easily measurable, verifiable and understandable. The 
rule, however, does not prohibit parties to the agreement from entering 
into allocation agreements for the nonfederal share.
    One commenter suggested that basing allocation on surface acreage 
could be an unconstitutional taking of property rights of a royalty 
owner. We disagree. Nothing in these regulations compels royalty owners 
to commit their interest to the unit agreement. Therefore, under these 
regulations there is no taking of a royalty owner's property under any 
circumstance. Allocation based on surface acreage is the only 
participation parameter that has any degree of certainty with respect 
to an exploratory unit. Allocation based on reservoir parameters is not 
possible until the reservoir has been discovered and fully delineated. 
Using surface acreage as an allocation methodology enables all royalty 
interest owners to have a common understanding and expectation as to 
how allocation of royalties will occur. Allocation based on evolving 
reservoir parameters would subject interest owners to uncertainty and 
would be unreasonably difficult to administer. Under the final rule, 
all interest owners, including the Federal Government, share in the 
risk associated with basing allocations on surface acreage.
    One commenter suggested that we amend the regulations to allow 
revisions of previous allocations and royalty payments. We did not 
adopt the comment. Similar to the discussion above, reallocation based 
on evolving reservoir data, or other factors, would be impracticable to 
administer.
    One commenter suggested that the rules should be flexible enough to 
allow for establishing or expanding PAs based on available geological, 
geophysical and engineering information. We agree and believe the final 
rule is flexible enough to allow what the commenter suggests. However, 
we will not allow establishment of a PA absent a well that meets the 
productivity criteria.
    Sections 3137.80 defines PAs and how they relate to the unit 
agreement. Whether an area surrounding a well becomes a PA depends on 
whether the well within the unit area meets the productivity criteria 
set out in the unit agreement. You must include the proposed PA size in 
the unit agreement for planning purposes and to aid in the mitigation 
of reasonably foreseeable and significantly adverse effects on NPR-A 
surface resources. Since the proposed PA facilitates the analysis of 
where operations and surface impacts are likely to occur, we believe 
the size and location of PAs should be anticipated at unit formation to 
assist BLM to meet the statutory standard ``to mitigate reasonably 
foreseeable and significantly adverse effects on the surface resources 
of the National Petroleum Reserve in Alaska.'' (see paragraph (1) of 42 
U.S.C. 6508). This section also requires you to delineate a PA at the 
time it meets the productivity criteria defined in section 3137.82.
    This section remains as proposed.
    Section 3137.81 describes the function of a PA and how BLM 
determines production allocation. The function of a PA is to allocate 
production to each committed tract that is within or partially within 
the PA according to that tract's surface acreage within the PA.
    The final rule explains that for exploratory and primary recovery 
operations, we will consider gas cycling and pressure maintenance when 
establishing PA boundaries. It also explains that for secondary and 
tertiary recovery operations, we will consider all wells that 
contribute to production when establishing PA boundaries. BLM will not 
consider disposal wells when setting PA boundaries since those wells do 
not contribute to production and therefore should not receive a 
production allocation. These provisions are new to the final rule. They 
are consistent with how BLM sets PA boundaries on Federal lands outside 
of NPR-A.
    Also, we distinguished exploratory and primary recovery operations 
from secondary and tertiary recovery in this section since in the North 
Slope, it is common practice to have gas cycling and pressure 
maintenance during primary recovery operations.
    Section 3137.82 defines productivity criteria as the 
characteristics of a well that warrant including a defined area 
surrounding the well in a PA. You must define the criteria in the unit 
agreement for each producible interval. Characteristics include things 
like the depth of the well, the geology surrounding the well that might 
affect drainage from the oil and gas reservoir, and the area you 
estimate the well is, or is capable of, draining.
    You must be able to determine whether you meet the criteria when 
you drilled the well and you completed testing, after a reasonable 
period of time to analyze new data. This means that as soon as you 
complete testing and analyzing the data, 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.
    This section also reiterates that BLM will consider wells that 
contribute to production when setting PA boundaries. Also see paragraph 
3137.81(c).
    Several commenters believe that we should amend this section to 
allow consideration of wells that contribute to unit production when 
setting PA boundaries. We agree and added paragraph (c) to this section 
stating that we will consider wells that contribute to unit production 
(e.g., pressure maintenance and gas cycling) when setting PA 
boundaries. We also amended section 3137.81 by adding two new 
paragraphs, as explained above, to address gas cycling and pressure 
maintenance wells, and other wells that contribute to production, when 
establishing PA boundaries.
    One commenter suggested that we make clear that well testing 
includes a reasonable period of time to evaluate whether or not the 
well meets the productivity criteria. We agree and amended paragraph 
(a) to allow a reasonable period of time to analyze new data.

[[Page 17877]]

    One commenter said that most wells ``will not be tested and that 
the productivity criteria of such wells will be evaluated based on 
other available data such as well logs, core samples, formation 
sampling, pressure measurements, etc. prior to completing the wells and 
commencing sustained production.'' Although we recognize that the 
information gathered by the measurements and sampling the commenter 
lists may be indicators of a well's capability for production, we 
disagree that information gathered as suggested is sufficient to 
establish an initial production rate that we believe is necessary to 
establish a PA. It is important that we have physical evidence of a 
well's production and not merely estimates gleaned from logs or bottom 
whole pressure measurements. We do recognize that there may not 
immediately be a market for oil and gas and therefore it would be 
impractical to store the production from extended testing. However, we 
believe it is reasonable to expect well testing, however limited, to 
determine whether or not a well meets the productivity criteria.
    Section 3137.83 explains that the first well you drill after 
unitization meeting the productivity criteria establishes the initial 
PA. If the initial PA contains wells that existed before BLM approved 
the unit agreement and the wells meet the productivity criteria, the 
wells will either:
    (A) Be added to the PA if the well is in the same producible 
interval; or
    (B) Establish a separate PA if the well is in a different 
producible interval. This will occur unless the unit agreement defines 
the productivity criteria to include separate producible intervals in a 
single PA.
    One commenter suggested that we amend this section to say that ``a 
participating area should be established not necessarily when you have 
drilled the first well that meets the productivity criteria, but when 
you can demonstrate the lands or tracts meet the criteria.'' We 
disagree that a PA can ever be established absent a well meeting the 
productivity criteria. As stated in the previous section discussion, we 
require physical evidence and not mere estimates to establish a PA.
    Section 3137.84 describes what you must submit to BLM to establish 
an initial or new PA or modify (add to or remove land from) an existing 
PA. 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 PA and acreage. This map 
should be detailed enough for BLM to determine the PA boundary and the 
acreage in the PA; and
    (C) An allocation schedule for each PA that establishes production 
allocation for each tract and for each record title holder and 
operating rights owner in the PA. This information is necessary to 
determine proper allocation of production and for royalty purposes.
    We amended this section by allowing you to ``modify'' a PA. This 
addresses removing lands from an existing PA. We also added a provision 
that requires you to explain the reason for adding land to or removing 
land from an existing PA and information supporting your reason. For 
example, reasons that we would remove land from a PA could include 
geologic or reservoir characteristics that were unknown at the time of 
the PA establishment. Supporting documentation could include things 
like well logs, well test data, seismic data or core sample data.
    One commenter suggested that we amend this section to allow land to 
be removed from a PA if subsequent information shows that some of the 
lands in the PA do not meet the productivity criteria. We agree and 
amended this section to allow for removal of lands from a PA. We also 
made corresponding changes to section 3137.85 and replaced section 
3137.86 with a new section allowing for removal of lands from a PA.
    One commenter suggested that we amend paragraph (a) by replacing 
``well'' with ``the area proposed to be included meets the productivity 
criteria.'' We did not make the change. Section 3137.82 defines 
productivity criteria as ``characteristics of a unit well that warrant 
including a defined area surrounding the well in a participating 
area.'' Consistent with that definition, when a well meets the 
productivity criteria, we then derive the PA, or revise the PA, from 
the well's characteristics, after well testing and other data 
gathering, such as production history.
    One commenter suggested we amend paragraph (c) of this section to 
make clear that the requirement for an allocation schedule should not 
be limited to NPR-A leases or tracts. We did not amend the section as 
suggested. The definitions provided at section 3137.5 of these 
regulations for ``NPR-A lease'' and ``Tract'' include, respectively, 
``any oil and gas lease within the boundaries of the NPR-A, issued and 
administered 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' and ``land that 
may be included in an NPR-A oil and gas unit agreement and that may or 
may not be in a Federal lease.'' We believe the final rule is broad 
enough to include all types of land that may be included in an NPR-A 
unit.
    One commenter suggested that we amend paragraph (c) by replacing 
``operating rights owners'' with the term ``working interest owners.'' 
We did not make this change. BLM uses the term ``operating rights 
owner'' to mean any interest you hold that allows you to explore for, 
develop, or produce oil and gas. We use this term throughout our 
regulations to be consistent with our other regulations. Because there 
is no practical difference in the application of the term ``operating 
rights owners,'' we will use the term in these regulations as well.
    One commenter suggested that this section should address situations 
``where the allocation schedule for a participating area may be changed 
or adjusted pursuant to the agreement.'' We did not amend this section 
as requested since this section addresses establishing a PA or adding 
to or removing lands from a PA. However, we did amend section 
3137.52(b) to require a new allocation schedule when there are 
modifications to a unit agreement that affect production allocation.
    Section 3137.85 sets the effective date of an initial PA as the 
first day of the month in which you complete a well meeting 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. Only wells drilled 
after BLM approves the unit agreement will be considered initial unit 
wells. This section also sets the date of a modified PA as the earlier 
of first day of the month in which you:
    (A) Complete a new well meeting the productivity criteria; or
    (B) Should have known you needed to revise the allocation schedule.
    We amended paragraph (a) slightly and we added a new paragraph (b) 
to this section to allow for removing lands from a PA, something the 
proposed rule did not do. The new paragraph (b) ties the effective date 
of a modified PA to the earlier of when you complete a new well meeting 
the productivity criteria or when you should have known you needed to 
revise the allocation schedule. We believe this reasonably puts the 
burden on the operator to

[[Page 17878]]

revise allocations timely so that committed tracts receive correct 
allocations.
    One commenter said we should revise this section to set the 
effective date of a new or revised PA to be the date a new or revised 
allocation schedule is submitted or such other date as set out in the 
unit agreement. We adopted the commenter's suggestion in part. We did 
not tie the effective date of a PA to filing of an allocation schedule 
because, as we stated earlier, establishment of a PA must be tied to a 
well meeting the productivity criteria. However, as stated above, we 
did tie the effective date of a PA revision to when you complete a new 
well meeting the productivity criteria or when you should have known to 
revise the allocation schedule.
    We amended this section in this manner to address both the 
situations when a new well revises a PA and the situations where there 
is no well, but additional information requires that the PA be revised. 
For the second standard the final rule sets a ``should have known'' 
standard for the revised PA date so that delayed filings of the 
allocation schedule do not also delay revision of the PA and the 
accompanying revised allocations. We did not amend this section to 
allow for the unit agreement to set the effective date of the PA as the 
commenter suggested. We believe that for Federal royalty payment 
purposes, it is reasonable to expect consistency among different unit 
agreements.
    Section 3137.86 We eliminated this proposed section and replaced it 
with a new section that recognizes:
    (A) Participating areas can be larger or smaller than originally 
established; and
    (B) BLM can base PA expansion or contraction on data other than new 
well data.
    Under this new section, if you obtain information demonstrating 
that a PA should be larger than previously determined, you must submit 
to BLM information required in section 3137.84. If the expanded PA is 
outside the unit boundaries, you must invite all owners of the oil and 
gas in the additional land to join the unit. If the owners agree to 
join the unit, you must submit to BLM an application to enlarge the 
unit. The application must include:
    (A) A map showing the expanded unit area and for each new tract the 
information required in paragraph 3137.23(c); and
    (B) A revised allocation schedule.
    If any new committed tracts meet the productivity criteria, you 
must comply with section 3137.84 of this final rule.
    If you obtain information demonstrating that the PA should be 
smaller than previously determined, you must comply with 3137.84 of 
this final rule and request BLM to remove from the PA all lands that do 
not meet the productivity criteria.
    One commenter suggested that we amend this section to allow for 
creation or expansion of a PA based on information other than well data 
and to allow removal of land from a PA. We agree to the extent that a 
PA may be expanded or contracted based on new information demonstrating 
that the lands either do or do not meet the productivity criteria. 
However, as stated above, we do not agree that we may approve a PA 
absent a well that meets the productivity criteria.
    Section 3137.87 describes your responsibilities if there are 
unleased Federal tracts in a PA. You must include any unleased Federal 
tracts in a PA even though BLM will not share in unit costs. However, 
you must allocate production to the unleased Federal tracts for royalty 
purposes as if they were committed to the agreement. The Federal 
Government receives royalties based on the production allocated to that 
land in the PA. 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 revised maps, a new list 
of committed leases and new allocation schedules reflecting 
introduction of the new lease to the unit.
    One commenter said that since the operator assumes all operational 
risk, we should amend this section by stating that BLM will not 
subsequently challenge any decision made by the operator, provided the 
decision was in accordance with the unit plan of operations. We did not 
adopt the comment. BLM will make every effort to allow the operator to 
follow the unit plan as approved. However, there may be unforeseen 
circumstances that may affect Federal lands and resources where it 
would be necessary for BLM to ensure that the public interest is 
protected.
    One commenter suggested that we amend paragraph (a) to allow the 
unit operator access to the surface and subsurface of any unleased 
Federal lands in a unit. We did not amend the regulations as suggested. 
BLM will make every effort to lease Federal lands within the boundaries 
of a unit. Any such lease issued after the approval of a Federal unit 
will contain a requirement for the Federal lessee to join the unit or 
prove to BLM why they should not. However, we recognize there may be 
very limited circumstances where there are unleased Federal lands in an 
NPR-A unit. In such cases, BLM will not grant a unit operator access to 
the surface without some use authorization such as a special use permit 
or right-of-way. In no case will BLM allow oil and gas production from 
Federal lands without an oil and gas lease. Allowing oil and gas 
production in the absence of a lease is essentially leasing by fiat. 
That would be contrary to the intent of the statute to conduct an 
expeditious program of competitive leasing (see 42 U.S.C. 6508).
    One commenter suggested that we amend paragraph (c) by requiring 
that subsequent Federal lessees be required to pay for their share of 
past development costs. We did not amend paragraph (c) as requested. 
Payments among interest owners are not a Federal concern and should be 
addressed in separate unit operating agreements to which BLM is not a 
party.
    The final rule remains as proposed.
    Section 3137.88 explains that wells on committed tracts outside any 
existing PA not meeting the productivity criteria are non-unit wells, 
and operations on those wells are non-unit operations. You must notify 
BLM within 60 calendar days after you determine that a well does not 
meet the productivity criteria. This means that you may no longer 
conduct operations on that well under the unit terms. You must conduct 
operations for that well under the terms of the lease or any other 
federally-approved agreements.
    We amended this section by revising the second sentence to make it 
clearer. The proposed language could be misinterpreted to mean that 
there were no unit operations occurring anywhere in the unit. That was 
not our intent. We intended this section to say that you should notify 
BLM that the well did not meet the productivity criteria and, as a 
result, the well would no longer support unit operations.
    One commenter was concerned that under this section wells not 
meeting the productivity criteria will not be added to the PA and must 
be produced on a lease basis. The commenter stated that those wells 
should be treated as unit wells because the production from such wells 
would result in underpayment or overpayment of the royalty owner in the 
tract in which the well is situated. The well should be treated as unit 
wells since the tract will either suffer drainage by reason of 
production from adjoining PAs or will have unitized substances driven 
from the PA to another well as a result of pressure maintenance. We did 
not amend this section as a result of this comment. The comment does 
not make clear why a well's status as a unit

[[Page 17879]]

well would protect it from drainage. Presumably, an operator of a well 
that is profitable will produce from that well whether it is a unit 
well or not. The provisions of this section are consistent with 
existing policy on lands outside of NPR-A.
    One commenter stated that due to costs of operations, 
infrastructure and treatment and transportation facilities necessary to 
operate in NPR-A, it is unlikely that it would be feasible to operate 
and produce a single well on a non-unit basis. We agree that operating 
and producing from a single well in NPR-A is unlikely. However, these 
regulations do not preclude you from utilizing infrastructure, 
treatment and transportation facilities for non-unit production. We 
realize that to do this might require commingling production. Upon 
application, BLM will allow commingling of lease production and unit 
production (see 43 CFR 3162.7-2 and 3162.7-3).
    One commenter suggested we add a paragraph to this section to 
address expanding a PA when a well drilled in the unit outside of a PA 
meets the productivity criteria. We did not amend this section as 
suggested. However, new section 3137.86 addresses expansion of existing 
PAs.
    Section 3137.89 explains how production is allocated from wells 
that do not meet the productivity criteria. If a well not meeting the 
productivity criteria was drilled before the unit was formed, or 
outside the PA but still within the unit, production from that well 
must be allocated on a lease or other federally-approved oil and gas 
agreement basis. If a well was drilled after BLM approved the unit and 
was completed within an existing PA, the production from that well 
becomes part of the PA production, whether or not the well meets the 
productivity criteria. BLM may require the PA to be revised under 
section 3137.84 of this final rule, depending on the new well data.
    One commenter suggested that we amend this section to allow wells 
drilled before the unit agreement was established that do not meet the 
productivity criteria to be considered unit wells. Section 9 of 42 
U.S.C. 6508 says that ``Drilling, production, and well reworking 
operations performed in accordance with a unit agreement shall be 
deemed to be performed for the benefit of all lessees that are subject 
in whole or in part to such unit agreement.'' We interpret this to mean 
that wells drilled prior to the effective date of the unit are not 
operations ``performed in accordance with a unit agreement'' and 
consequently are not performed for the benefit of all lessees. 
Therefore, wells drilled before the effective date of the unit 
agreement cannot be unit wells.
    Section 3137.90 explains that wells on committed tracts outside an 
existing PA not meeting 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, and not included in the PA, 
unless BLM approves a new operator for those wells.
    One commenter suggested we add the phrase ``and is not included in 
a participating area'' in paragraph (a) after the words ``the unit was 
formed'' and also add the phrase ``and are not included in a 
participating area'' in paragraph (b) following ``productivity 
criteria'' to make clear that the lands that don't meet the 
productivity criteria are not in the PA. We agree that the suggested 
change to paragraph (a) makes the rule clearer and amended the rule as 
suggested. However, we did not change paragraph (b) as suggested since 
that change would be in conflict with paragraph (b) of section 3137.89.
    One commenter suggested that we add a paragraph to this section to 
state that the unit operator must operate wells in a PA not meeting the 
productivity criteria. We believe that section 3137.90(b) addresses 
this commenter's concern.
    Section 3137.91 explains that a well on a committed tract that BLM 
previously determined was a non-unit well (it did not meet the 
productivity criteria) that now meets the productivity criteria may 
establish or modify a PA. You must notify BLM within 60 calendar days 
after you determine that the well meets the productivity criteria and 
demonstrate to us that the well meets the productivity criteria before 
you modify an existing PA or establish a new one. Operators must submit 
engineering and geologic and geophysical exploration information to 
prove to BLM that a well meets the productivity criteria.
    One commenter suggested that we revise this section because the 
exact time a unit operator obtains information sufficient to determine 
that a well, after having previously been classified as a non-unit 
well, meets the productivity criteria is imprecise. We agree and 
amended this section by replacing ``of when this occurs'' with ``after 
you determine the well meets the productivity criteria.'' The change 
recognizes that it may take a period of time longer than 60 calendar 
days after completing the work on the well to determine whether the 
well meets the productivity criteria. The final rule gives you 60 
calendar days after you determine that the well meets the productivity 
criteria to demonstrate that fact to BLM. We also replaced the word 
``revise'' with the word ``modify'' to be consistent with other 
revisions to the final rule. We also amended the heading of this 
section to make it clearer.
    Section 3137.92 explains that a PA terminates 60 calendar days 
after BLM notifies you that there is insufficient production to meet 
the operating costs of that production. The PA will not terminate if 
you demonstrate to BLM that your operations to restore or establish new 
production in the PA are:
    (A) In progress within 60 calendar days after BLM's notification; 
and
    (B) Being pursued diligently.
    BLM will determine whether the production is sufficient to cover 
operating costs by comparing revenue from a well to production costs 
related to the actual lifting and producing costs, but not any 
capitalized or sunk costs related to project development. Capitalized 
or sunk costs are costs to pay for long term assets and costs already 
incurred, such as equipment necessary to operate on the lease.
    We added a new paragraph (b) that allows an extension of time to 
meet the requirements of paragraphs (a)(1) and (a)(2), to show BLM that 
operations to restore or establish new production are in progress and 
you are diligently pursuing oil and gas production. To qualify for an 
extension, you must prove to BLM that reasons beyond your control 
prevent you from meeting those requirements. This change responds to 
commenter's concerns that seasonal drilling limitations may prevent 
them from meeting the requirements within 60 days.
    One commenter suggested that we amend this section to ``allow for 
continuous or ongoing drilling to be completed prior to a final 
decision on termination of the participating area.'' We did not amend 
this section because we believe the commenter's concern is already 
addressed in this section. Paragraph (b) allows the PA to remain in 
effect if you show BLM that reasons beyond your control prevent you 
from meeting the requirements of the rule.
    One commenter said we should amend this section to state how far 
away a well may be drilled and still be included in an expanded PA. We 
did not adopt this suggestion. Whether or not a well drilled outside of 
an existing PA that meets the productivity criteria will expand the PA 
will depend on geology, engineering and well spacing, and not on an 
arbitrarily determined distance set out in these rules.

[[Page 17880]]

    One commenter suggested we amend this section by stating in 
paragraph (b) that the costs should be ``actual'' and replacing 
``diligently'' with ``reasonably'' to remove subjectivity from these 
provisions. We did not adopt this suggestion. We do not believe the 
suggested changes would make this section more objective than what we 
proposed.

Production Allocation

    Section 3137.100 explains that you must allocate production when a 
PA includes unleased Federal lands as if the unleased Federal lands 
were leased and committed to the unit 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 either the date the committed 
leases in the PA that includes unleased Federal lands receive a 
production allocation or 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 a lessee relinquishing its 
lease.
    The royalty rate for production from unleased Federal lands in the 
unit is the greater of 12\1/2\ percent or the highest royalty rate of 
any lease in the unit.
    We added a paragraph (c) to this section to provide a cross-
reference to the Minerals Management Service oil and gas product 
valuation regulations at 30 CFR part 206.

Obligations and Extensions

    Section 3137.110 makes it clear that nothing in a unit agreement 
modifies Federal lease stipulations including lease-specific 
environmental stipulations. We received no comment on this section and 
it remains as proposed.
    Section 3137.111 explains that BLM will extend the primary term of 
all leases in 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. We received no comment on this section. 
Because of the similarity of the subject matter between proposed 
sections 3137.111 and 3137.112, in the final rule we combined them into 
a new section 3137.111 and renumbered proposed section 3137.113 as 
3137.112.
    Section 3137.112 (proposed) contained a chart explaining that:
    (A) Production from any unit well meeting the productivity criteria 
from any lease committed to the unit will extend all leases in the unit 
as long as that production is occurring and as long as the unit exists;
    (B) BLM will 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 are 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 meeting the productivity criteria and there is no 
producing well within the unit that meets the productivity criteria, 
the unit terminates.
    As stated above, we combined this section with section 3137.111.
    We also amended proposed paragraphs (b) and (c) of this section 
(final paragraphs (b)(2) and (b)(3)) to make it clear that the three 
year extension is for the initial extension. As proposed, this section 
could have been misinterpreted to mean that the extension period is 
limited to three years.
    One commenter suggested we amend the table by allowing additional 
successive three year extensions for actual or constructive drilling or 
reworking operations for as long as those operations occur. We did not 
amend this section as requested.
    NPR-A leases are issued with an initial term of ten years. The 
final rule allows up to six years of extensions beyond that initial 
term for actual or constructive drilling or reworking operations. We 
believe it is reasonable to expect an operator to establish production 
on an NPR-A lease within 16 years of lease issuance. In addition, the 
regulations provide for suspension of operations and production (see 
3135.2 of this rule), which essentially tolls the clock for the period 
of the suspension.
    Section 3137.112 (proposed section 3137.113) explains that BLM will 
extend all committed NPR-A leases if, for reasons beyond your control, 
you were prevented from starting actual or constructive reworking or 
drilling operations. You are 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 will terminate. After the unit 
terminates, leases revert to their original lease terms. Any leases 
whose term has expired will also terminate unless they are otherwise 
held by production from the lease or they are part of another agreement 
from which production would hold the lease.
    One commenter suggested that we amend this section by replacing 
``committed leases'' with ``NPR-A leases'' since ``committed leases'' 
is not defined. We agree partially with the commenter. We believe the 
term ``committed leases'' is self explanatory. However, since BLM has 
authority under these regulations and 42 U.S.C. 6508 to extend only 
committed NPR-A leases, we amended this section to make this clear.
    One commenter suggested that we make it clear that seasonal 
limitations are not counted as events that would trigger extensions. We 
did not make the suggested change because we believe this section 
clearly states those situations that would trigger an extension.

Change in Ownership

    Section 3137.120 states that transferees of a unitized lease are 
subject to the terms and conditions of the unit agreement. This would 
include grantees and successors in interest. This is standard practice 
for BLM-approved units and in the oil and gas industry in general. We 
didn't receive any comment on this section and it remains as proposed.

Unit Termination

    Section 3137.130 describes 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 
meeting the productivity criteria, or the unit operator certifies that 
at least 75 percent of the operating rights (working interest) owners 
on a surface acreage basis agree to the termination. BLM chose 75 
percent 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. This section 
remains as proposed.
    Section 3137.131 explains that if the unit terminated before the 
unit operator met the initial development obligations, BLM's approval 
of the unit agreement is

[[Page 17881]]

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 will be terminated unless it qualified for 
an extension under section 3135.1-5 of this part. BLM will cancel any 
lease suspension BLM granted as a result of a lease being committed to 
the unit. This section remains as proposed.
    Section 3137.132 explains that a unit automatically terminates if 
you did not meet a continuing development obligation before you 
establish a PA. You would have negotiated continuing development 
obligations with BLM that would be specified in the unit agreement, and 
as such, BLM will strictly enforce them. The effective date of the 
termination is the day after you did not meet a continuing development 
obligation.
    One commenter suggested that the effective date of unit termination 
should be the day after BLM certifies and the operator receives notice 
of certification that the operator did not meet a continuing 
development obligation. The commenter said this would ensure that BLM 
does not prematurely terminate a unit for delay in performance of a 
continuing development obligation for reasons beyond the control of the 
operator. We did not amend this section as suggested, but we added a 
new section 3137.72, allowing you to apply for an extension for meeting 
the initial or a continuing development obligation. This assures that 
the operator, who has control of the information, will come forward in 
a timely manner to seek an extension.
    Section 3137.133 explains that a unit terminates when the last PA 
of a unit terminates. If there are no PAs 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. This section remains as proposed.
    Section 3137.134 explains 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 terminates 
also terminates, unless it qualifies for an extension under current 
section 3135.1-5. We didn't receive any comments on this section and it 
remains as proposed.
    Section 3137.135 explains that the unit operator must submit to BLM 
a plan and schedule for mitigating the impact of unit operations within 
three months after unit termination. Operators must describe in detail 
planned plugging and abandonment and surface restoration operations.
    One commenter said that with respect to any multiple owner units, 
including State of Alaska leases, abandonment and restoration 
operations should be governed by the unit agreement, State statutes and 
regulations and the terms and conditions of the lease. We agree in 
part. Although BLM has authority over production accountability for 
nonfederal lands in a Federal unit, BLM has no authority over 
nonfederal well approval or abandonment and restoration operations. On 
nonfederal lands, for abandonment and restoration operations, operators 
must comply with terms and conditions of their lease and State statutes 
and regulations.

Appeals

    Section 3137.150 explains that any person who is adversely affected 
by a BLM decision under this subpart may appeal that decision. The 
proposed rule cross-referenced State Director Review (SDR) regulations 
that BLM is developing. Since BLM has not finalized the SDR 
regulations, this final rule cross-references existing SDR regulations 
in subpart 3165, instead. The final rule flips proposed paragraphs (a) 
and (b) since chronologically, State Director Reviews come before 
appeals and also makes it clear that an adversely affected party may 
file an SDR or appeal directly under parts 4 and 1840.
    One commenter suggested that we include an appeals process for unit 
decisions that would require BLM to issue a decision within 60 days of 
the appeal. We did not add a new appeals provision to the final rule 
since the existing appeals provisions in 43 CFR subpart 3165 already 
apply to NPR-A.
    Another commenter suggested that we add a dispute resolution 
provision in the final rule. We did not add a dispute resolution 
provision to the final rule, but you may rely on existing appeal 
regulations in subpart 3165 for disputes with BLM decisions. 
Alternative dispute resolution for disputes among working interest 
owners is outside of the scope of this rulemaking. However, we suggest 
third party unit operating agreements to which BLM is not a party can 
address any such dispute resolution procedures.
Subpart 3138--Subsurface Storage Agreements in NPR-A
    This final rule adds a new subpart to BLM's NPR-A leasing 
regulations dealing with subsurface storage agreements.
    Section 3138.10 states that BLM will enter into an agreement 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 may store gas 
produced from Federal or nonfederal lands. This is consistent with 
existing policy on lands outside of NPR-A.
    One commenter suggested that in order to ensure consistency with 
the State of Alaska's underground storage rules, BLM consider adopting 
the State rules as our own, but did not explain what provisions of the 
State rules we should consider. We did not amend the rule as suggested. 
The final NPR-A subsurface storage rule is consistent with policy and 
procedure on Federal lands outside of NPR-A. Also, we believe the final 
rule is flexible enough so that it is not necessarily inconsistent with 
Alaska rules on subsurface storage (see Chapter 83, sections 500-520 of 
the Alaska Administrative Code). Also, BLM will consider issues of 
concern to the State before approving subsurface storage agreements on 
Federal lands.
    Section 3138.11 requires you to submit to BLM an application to 
receive a subsurface storage agreement. In the application you must 
include the following:
    (A) The reason for forming a subsurface storage agreement. This is 
in addition to the proof required by section 3138.10. For example, your 
justification could be that you require subsurface storage while 
waiting for a distribution system to be built or that you require 
storage for economic reasons, or to avoid waste;
    (B) A description of the area you plan to include in the agreement. 
This should include a legal land description of all Federal or 
nonfederal leases within the area of the storage agreement;
    (C) A description of 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) 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 that we find acceptable;
    (E) Any royalty payment for oil and gas that existed in the 
formation before you injected gas for storage that may be produced when 
you withdraw the stored oil or gas;
    (F) A description of how often and under what circumstances you 
propose that you and BLM should renegotiate

[[Page 17882]]

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) The proposed effective date and term of the agreement. This 
should be tied to your justification for the agreement (see A above);
    (H) Certification 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) An ownership schedule showing lease or land status. This should 
include the status of leased and unleased and Federal and nonfederal 
properties;
    (J) A schedule showing 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) Data demonstrating the capability of the reservoir to store oil 
or gas. This could include geologic maps showing the storage formation, 
reservoir data demonstrating the volume of area available for storage, 
and similar data.
    This section also explains that the terms of the storage agreement 
are negotiated between you and BLM. The agreement must include terms on 
bonding and reservoir management. BLM may request additional data we 
find necessary to approve your application.
    Section 3138.12 describes 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, BLM will usually take into consideration what operators in the 
same area are paying for similar gas storage arrangements on either 
Federal or nonfederal land.
    In the final rule we amended this section by deleting the last 
sentence. We realize that commingling of native gas and stored gas will 
occur and, as a practical matter, it would be impossible to segregate 
the two when withdrawing the gas from storage.
Part 3160--Onshore Oil and Gas Operations
    This final rule amends the existing ``Purpose'' section of BLM's 
operating regulations. Part 3160 applies to NPR-A lease operations and 
to unit operations. This section revises part 3160 to make it clear 
that the suspension and royalty reduction regulations in part 3160 
apply to operations on other Federal lands, but not to NPR-A. The 
proposal incorrectly limited the revision to section 3103.4-4.

III. Procedural Matters

Regulatory Planning and Review

    In accordance with the criteria in Executive Order 12866, this rule 
is not a significant regulatory action and was not reviewed 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 NPR-A 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 this 
rule will not change.
    c. This rule will not materially affect entitlements, grants, user 
fees, loan programs, or the rights and obligations of their recipients. 
The rule 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 final rule. BLM does charge user fees for certain activities on 
Federal lands. However, this rule 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. NPR-A 
leasing 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 NPR-A more consistent with those 
on Federal lands outside of NPR-A in that unitization, and lease 
extensions and suspensions would become available to NPR-A lessees 
consistent with the provisions of 42 U.S.C. 6508.

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 with in 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 NPR-A. Due to the 
significant costs associated with oil and gas operations in the NPR-A, 
we do not anticipate many small operators will lease oil and gas in the 
NPR-A. Having an NPR-A lease, as that is defined in the final rule, is 
a condition precedent to unit formation in NPR-A. If small operators 
did lease in NPR-A, the economic impacts associated with this final 
rule are positive, but minimal, for operators in general (see the 
economic analysis) and would also be so for small operators. Therefore, 
the rule would not have a significant economic impact on a substantial 
number of small entities under the RFA.

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 rule would not affect costs or 
prices for consumers since the actions associated with the rule 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 affect them by making it more attractive to lease oil 
and gas in the NPR-A.

[[Page 17883]]

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 final 
rule 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 UMRA (see the economic analysis). These 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 
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 rule does not 
represent a government action capable of interfering with 
constitutionally protected property rights. A takings implication 
assessment is not required. The rule would not take anyone's property. 
The rule would not take away or restrict an operator's right to develop 
an NPR-A 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 rule would make operations in the NPR-A 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 written clearly. 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

    This regulation does require information collection under the 
Paperwork Reduction Act. The Office of Management and Budget has 
approved the information collection requirements under the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.) and assigned OMB 
approval number 1004-0196.

National Environmental Policy Act

    We have analyzed this rule in accordance with the criteria of the 
National Environmental Policy Act and 516 Departmental Manual (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 
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 regulations. To the extent that there 
are any environmental effects incident to these 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 regulations should 
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 memorandum issued by the President on 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 these 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 13175 (``E.O. 13175''), ``Consultation and 
Coordination with Indian Tribal Governments'' (November 6, 2000), (65 
FR 67249) supplements the memorandum of April 29, 1994. E.O. 13175 
provides that Federal agencies must consult with Indian Tribal 
Governments before formal promulgation of regulations ``that have 
Tribal implications.'' E.O. 13175 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. 13175 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 65 FR 13298 (March 13, 
2000). If there is a duty of government-to-government consultation, it 
would be owed to those listed Tribal governments.
    The final regulations are designed to permit consolidated operation 
of oil and gas leases on Federal lands and thereby promote 
conservation. None of the recognized Tribal governments have 
significant oil and gas interests within NPR-A or within the vicinity 
of NPR-A. Therefore, nothing in these final regulations has 
``substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal

[[Page 17884]]

government and Indian tribes, or on the distribution of power and 
responsibilities between the Federal Government and Indian tribes.'' 
(See Section 1(a) of E.O. 13175.) Accordingly, the final regulations do 
not have Tribal implications 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 NPR-A 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 as a matter of law. The Bureau of Indian Affairs has 
recently declined to include such corporations on the list of 
recognized Tribes eligible for government-to-government consultation. 
See 65 FR 13298 (March 13, 2000). The Bureau of Indian Affairs 
previously 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 these regulations impose no special government-to-
government consultation obligation upon the Department, there was ample 
opportunity for the Tribal governments, along with the public 
generally, to comment during the comment period, in accordance with the 
notice and comment requirements of the Administrative Procedure Act.
    Therefore, in accordance with E.O. 13175, we have found that this 
final rule does not include policies that have Tribal implications.

Actions Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use

    This rule is not a significant energy action under Executive Order 
13211. It will not have an adverse effect on energy supplies. To the 
extent that the rule allows more efficient oil and gas operations in 
NPR-A, the rule should have a minimal, but positive, impact on energy 
supplies.
Economic Analysis

Unitization

    The final rule 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 NPR-A. Unitization 
could increase the potential value of NPR-A 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 operating and leasing in 
NPR-A will not be substantially affected. As previously noted, there 
are other non-economic benefits to unitization (see discussion of 
section 3137.10).
    Once leasing occurs in NPR-A, the 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 should be positive. Development could only occur 
if it did not endanger the environment, public health, or safety.
    To the extent that the 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 final rule also allows for subsurface storage agreements in the 
NPR-A. This will have little economic effect. Companies often use 
existing infrastructures to re-inject oil or gas into existing geologic 
structures. Companies should 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 
will derive a benefit in the form of storage fees. The economic 
benefits of subsurface storage, however, derived by the companies 
operating in NPR-A or the Federal government should not be significant. 
In 2000 BLM had in effect 32 oil and gas storage agreements in the 
lower 48 states which provided $1,085,605 in revenues. That averages 
out to about $33,925 in revenue payments to the United States per 
agreement. We anticipate far fewer agreements in NPR-A 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 should be positive, but minimal.

Waiver, Suspension, or Reduction of Rental or Royalty

    The final rule also allows for the waiver, suspension, or reduction 
of rental or royalty on NPR-A leases. This provision will have minimal 
economic impact. BLM will not allow any waiver, suspension, or 
reduction of rental or royalty to take place unless it encouraged the 
greatest ultimate recovery of oil and gas or it was in the interest of 
conservation. Operators will 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 will benefit since they will be able to continue to 
operate their leases. BLM will benefit as well since producible leases 
would not be shut down and the Federal government will continue to 
receive revenue, albeit at a reduced rate. State, local, and Tribal 
governments and communities could potentially be positively affected 
since leases that would under other circumstances be shut down, will 
continue to produce, providing jobs and revenues to local areas. Any 
impacts on the economy, productivity, competition, or jobs should be 
positive, but minimal.

Suspensions of Operations and Production

    This final rule allows for suspension of operations and production 
for NPR-A 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 will 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 will

[[Page 17885]]

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 should, 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 final rule allows 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 provision should have little economic impact on the industry 
as a whole, but could make unitizing leases in the NPR-A more 
attractive to individual operators. Operators will 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 will be extended if there is constructive drilling or 
reworking within the unit.
    Any economic impacts associated with this provision should, in the 
long run, be positive. The alternative to extending leases in the unit 
would be to cancel a lease and shut 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 will 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 should be positive, but minimal.

Fixing Lease Term at 10 Years

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

Administrative Provision

    The provision that clarifies which suspension regulations apply to 
NPR-A is strictly administrative and has no economic impact.

Authors

    The principal authors of this rule are Erick Kaarlela (Washington 
Office), Chris Gibson (Alaska State Office), Richard Watson (Washington 
Office Fluid Minerals Group), Harvey Blank (Office of the Solicitor), 
Ian Senio (Washington Office Regulatory Affairs Group), Peter Ditton 
(Anchorage Field Office), and Greg Noble (Anchorage Field Office).

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.

    Dated: March 25, 2002.
Rebecca W. Watson,
Assistant Secretary, Land and Minerals Management.

    Accordingly, for the reasons stated in the preamble, and under the 
authorities cited below, amend Title 43, Subtitle B, Chapter II, 
Subchapter C, Parts 3130 and 3160 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 NPR-A 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 NPR-A lease?

    (a) BLM will waive, suspend, or reduce the rental, royalty, or 
minimum royalty of your lease if BLM finds that--
    (1) It encourages the greatest ultimate recovery of oil or gas or 
it is in the interest of conservation; and
    (2) You can't successfully operate the lease under its terms. This 
means that your cost to operate the lease exceeds income from the 
lease.
    (b) If the subsurface estate is held by a regional corporation, BLM 
will consult with the regional corporation, in accordance with 43 CFR 
2650.4-3, before approving an action under this section. Regional 
corporation is defined in 43 U.S.C. 1602.


Sec. 3133.4  How do I apply for a waiver, suspension or reduction of 
rental, royalty or minimum royalty for my NPR-A 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--

[[Page 17886]]

    (1) All record title holders of the lease; or
    (2) By the operator on behalf of all record title holders.
    4. Revise the subpart 3135 heading to read as follows:

Subpart 3135--Transfers, Extensions, Consolidations, and 
Suspensions

    5. Add Secs. 3135.2 through 3135.8 as follows:


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

    (a) BLM will require a suspension of operations and production or 
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, 
such as by encouraging 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 operations and production for your lease if it 
determines that, despite the exercise of due care and diligence, you 
can't comply with your lease requirements for reasons beyond your 
control.
    (c) If BLM requires a suspension of operations and production or 
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. However, you 
must continue to perform necessary maintenance and safety activities.


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 holders of the lease; or
    (2) The operator on behalf of the record title holders 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 BLM requires the suspension; or
    (b) Any other date BLM specifies in the decision document.


Sec. 3135.5  When should I stop paying rental or royalty after BLM 
requires or approves a suspension of operations and production ?

    You should stop paying rental or royalty on the first day of the 
month that the suspension is effective. However, if there is any 
production sold or removed during that month, you must pay royalty on 
that production.


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 with BLM approval; 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  What effect does a suspension of operations and production 
have on the term of my lease?

    (a) Primary term. If BLM grants a suspension of operations and 
production for your lease, the suspension stops the running of the 
primary term of your lease for the period of the suspension.
    (b) Extended term. If your lease is in its extended term, a 
suspension holds your lease in its extended term for the period of the 
suspension as if it were in production.


Sec. 3135.8  If BLM requires a suspension or grants my request for a 
suspension of operations and production for my lease, when must I next 
pay advance annual rental, royalty, or minimum royalty?

    (a) You are not required to submit your next rental or minimum 
royalty payment until the date the suspension terminates. Therefore, if 
your suspension begins in month 3 of lease year A and ends in month 2 
of lease year B, you must submit your rental payment for lease year B 
when your suspension ends. BLM will send a written notice to the lessee 
and operator stating that the suspension is terminated and the date 
your rental payment for lease year B is due to MMS. BLM's notice also 
will state when you must pay any minimum royalty due for lease year A. 
Your minimum royalty for lease year B will be due at the end of that 
year.
    (b) If you remove or sell any production from the lease during the 
term of the suspension, you must pay royalty on that production.

    6. Add a new subpart 3137 to part 3130 to read as follows:

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

3137.15   If the Federal lands constitute less than 10 percent of 
the lands in the proposed unit area, is the unit agreement subject 
to Federal regulations or approval?
3137.20   Is there a standard unit agreement form?
3137.21   What must I include in a NPR-A unit agreement?
3137.22   What are the size and shape requirements for a unit area?
3137.23   What must I include in my NPR-A 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 subsequent contracts or obligations 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   How may I modify the unit 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?

[[Page 17887]]

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   What if reasons beyond my control prevent me from meeting 
the initial or a continuing development obligation by the time the 
unit agreement specifies?
3137.73   What will BLM do after I submit a plan to meet continuing 
development obligations?
3137.74   What must I do after BLM approves my continuing 
development obligations plan?
3137.75   May I perform additional development outside established 
participating areas to fulfill continuing development obligations?
3137.76   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 modify an existing participating area?
3137.85   What is the effective date of a participating area?
3137.86   What happens to participating area when I obtain new 
information demonstrating that the participating area should be 
larger or smaller than previously determined?
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 will BLM allow a well previously determined to be a 
non-unit well to be used in establishing or modifying a PA?
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   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 NPR-A 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   How do I appeal a decision that 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 record title holders and all 
operating rights owners have agreed to the terms and conditions of a 
unit agreement, committed their interest to the unit; or
    (2) A State lease or private parcel of land where all oil and gas 
lessees and all operating rights owners or the owners of unleased 
minerals have agreed to the terms and conditions of a unit agreement.
    Constructive drilling means those activities that are necessary to 
prepare for actual drilling that occur 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.
    Drainage means the migration of hydrocarbons, inert gases (other 
than helium), or associated resources caused by production from other 
wells.
    NPR-A lease means any oil and gas lease within the boundaries of 
the NPR-A, issued and administered 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, and 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 any pool, deposit, zone, or portion 
thereof capable of producing oil or 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 NPR-A 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 
NPR-A 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

[[Page 17888]]

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 the unit operator(s) 
conducts 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 unit 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 the 
term of all NPR-A leases committed to the unit agreement as provided in 
Sec. 3137.111 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. 3137.15  If the Federal lands constitute less than 10 percent of 
the lands in the proposed unit area, is the unit agreement subject to 
Federal regulations or approval?

    If the Federal lands constitute less than 10 percent of the lands 
in the proposed unit area--
    (a) You may use a unit agreement approved by the State and/or a 
native corporation;
    (b) BLM will authorize commitment of the Federal lands to the unit 
if it determines that the unit agreement protects the public interest; 
or
    (c) As unit operator you may ask BLM to approve and administer the 
unit. If BLM agrees to approve and administer the unit, you must 
follow, and BLM will administer, the regulations in this subpart and 43 
CFR part 3160.


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 NPR-A unit agreement?

    (a) Your NPR-A unit agreement must include--
    (1) A description of the unit area and any geologic and engineering 
factors upon which you are basing the area;
    (2) Initial and continuing development obligations (see 
Secs. 3137.40 and 3137.41 of this subpart);
    (3) The proposed participating area size and proposed well 
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 which are authorized in Sec. 3137.50 of this 
subpart you choose to include in the unit agreement.
    (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) Consist 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 NPR-A 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 or gas.


Sec. 3137.23  What must I include in my NPR-A unitization application?

    Your unitization application to BLM must include--
    (a) The proposed unit agreement;
    (b) A map showing the proposed 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 owning 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 NPR-A 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 NPR-A 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 NPR-A that the unit or any lease subject to the unit 
would affect; or
    (f) That does not 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 unit agreement within 30 calendar days 
after receiving BLM's notice of approval or disapproval.


Sec. 3137.26  When is a unit agreement effective?

    The unit agreement is effective on the date BLM approves it.


Sec. 3137.27  What effect do subsequent contracts or obligations have 
on the unit agreement?

    No subsequent contract or obligation--
    (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

[[Page 17889]]

BLM approves unit agreement terms to the contrary pursuant to 
Sec. 3137.50 of this subpart.

Development


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

    Your unit agreement must define--
    (a) The number of wells you anticipate will be necessary 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 (see Sec. 3137.71) 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 for a unit agreement 
if they promote additional development or enhanced production 
potential--
    (a) Limiting the unit agreement to certain formations and their 
intervals;
    (b) Multiple unit operators (see Sec. 3137.51 of this subpart);
    (c) Allowing modification of the unit agreement terms if less than 
100 percent of the parties to the unit agreement (see Sec. 3137.52 of 
this subpart) agree to the modification; 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 NPR-A lease in the unit;
    (d) The consequences if one or more unit operators defaults. For 
example, if an operator defaults, the unit 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  How may I modify the unit agreement?

    (a) You may modify a unit agreement if--
    (1) All current parties to the unit 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. The 
application must include the following--
    (1) The operator must certify that the necessary parties have 
agreed to the modification; and
    (2) If the unit agreement modification alters the current 
allocation schedule, you must submit to BLM both a--
    (i) Description of the new allocation methodology; and
    (ii) New allocation schedule.
    (c) 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.
    (d) BLM will reject 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?

    As the unit operator--
    (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 to 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 NPR-
A leases committed to the unit. You may also meet this requirement if 
you add the unit operator as a principal to lease bonds to reach the 
required amount; and
    (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) of this section 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 unit 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 unit operations.
    (c) Your liability for royalty and other payments on the unit 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 17890]]

by wells on land not subject to the unit agreement. Permissible means 
of satisfying the obligation include--
    (a) Drilling a protective well if it is economically feasible. For 
this subpart, economically feasible means producing a sufficient 
quantity of oil or gas from a protective well in the unit for a 
reasonable profit above the cost of drilling, completing and operating 
the protective well;
    (b) Paying compensatory royalty;
    (c) Forming other agreements, or modifying existing agreements, 
that allow the tracts committed to the unit agreement to share in 
production after the effective date of the new or modified agreement; 
or
    (d) BLM may require additional measures 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. You must submit to BLM 
updated continuing obligation plans as soon as you determine that, for 
whatever reason, the plan needs amending.
    (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 the further actual or constructive drilling operations 
you will conduct.


Sec. 3137.72  What if reasons beyond my control prevent me from meeting 
the initial or a continuing development obligation by the time the unit 
agreement specifies?

    (a) If reasons beyond your control prevent you from meeting the 
initial or a continuing development obligation by the time specified in 
the unit agreement, you may apply to BLM for an extension of time for 
meeting those obligations. You must submit the request for an extension 
of time before the date the obligation is due to be met. In the 
application-
    (1) State the obligation for which you are requesting an extension;
    (2) List the reasons beyond your control that prevent you from 
performing the obligation; and
    (3) State when you expect the reasons beyond your control to 
terminate.
    (b) BLM will grant an extension of time to meet initial or 
continuing development obligations if we determine that-
    (1) The extension encourages the greatest ultimate recovery of oil 
or gas or it is in the interest of conservation; and
    (2) The reasons beyond your control prevent you from performing the 
initial or a continuing development obligation.
    (c) The extension of time for performing the initial or a 
continuing development obligation will continue for so long as the 
conditions giving rise to the extension continue to exist.


Sec. 3137.73  What will BLM do after I submit a plan to meet continuing 
development obligations?

    Within 30 calendar days after receiving your proposed plan, BLM 
will notify you in writing that we--
    (a) Approved your plan;
    (b) Rejected your plan and explain why. This will include an 
explanation of how you should correct the plan to come into compliance; 
or
    (c) Have not acted on the plan, explaining the reasons and when you 
can expect a final response.


Sec. 3137.74  What must I do after BLM approves my continuing 
development obligations plan?

    No later than 90 calendar days after BLM's approval of your plan 
submitted under
    3137.71(b), you must certify to BLM that you started operations to 
fulfill your continuing development obligations. BLM may require you 
to--
    (a) Supply documentation to support your certification; and
    (b) Submit periodic reports that demonstrate continuing 
development.


Sec. 3137.75  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. 3137.76  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 are 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 aid in the mitigation of 
reasonably foreseeable and significantly adverse effects on NPR-A 
surface resources. The unit agreement must define the proposed 
participating areas. Your proposed participating area may be

[[Page 17891]]

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?

    (a) The function of a participating area is to allocate production 
to each committed tract within a participating area. For royalty 
purposes, BLM allocates to each committed tract within the 
participating area in the same proportion as that tract's surface 
acreage in the participating area to the total acreage in the 
participating area.
    (b) For exploratory and primary recovery operations, BLM will 
consider gas cycling and pressure maintenance wells when establishing 
participating area boundaries.
    (c) For secondary and tertiary recovery operations, BLM will 
consider all wells that contribute to production when establishing 
participating area boundaries.


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, after a reasonable period of time to analyze new data.
    (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.
    (c) BLM will consider wells that contribute to unit production 
(e.g., pressure maintenance, gas cycling) when setting the 
participating area boundaries as provided in Sec. 3137.81(b) and (c) of 
this subpart.


Sec. 3137.83  What establishes a participating area?

    The first well you drill meeting the productivity criteria after 
the unit agreement is formed establishes an initial participating area. 
When you establish an initial participating area, lands that contain 
previously existing wells in the unit meeting the productivity criteria 
(see Sec. 3137.82 of this subpart), will--
    (a) Be added to that initial participating area as a revision, if 
the well is completed in the same producible interval; or
    (b) Become a separate participating area, if the well is completed 
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 modify an existing participating area?

    To establish a new participating area or modify an existing 
participating area, you must submit to BLM a--
    (a) Statement that--
    (1) The well meets the productivity criteria (see Sec. 3137.82 of 
this subpart), necessary to establish a new participating area. You 
must submit information supporting your statement; or
    (2) Explains the reasons for modifying an existing participating 
area. You must submit information supporting your explanation;
    (b) Map showing the new or revised participating area and acreage; 
and
    (c) Schedule that establishes the production allocation for each 
NPR-A lease or tract, and each record title holder and operating rights 
owner in the 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?

    (a) The effective date of an initial participating area is the 
first day of the month in which you complete a well meeting the 
productivity criteria, but no earlier than the effective date of the 
unit.
    (b) The effective date of a modified participating area is the 
earlier of the first day of the month in which you--
    (1) Complete a new well meeting the productivity criteria; or
    (2) Should have known you needed to revise the allocation schedule.


Sec. 3137.86  What happens to a participating area when I obtain new 
information demonstrating that the participating area should be larger 
or smaller than previously determined?

    (a) If you obtain new information demonstrating that the 
participating area should be larger than BLM previously determined, 
within 60 calendar days of obtaining the information, you must--
    (1) File a statement, map and revised production allocation 
schedule under Sec. 3137.84 of this subpart requesting addition to the 
participating area of all committed tracts or portions of committed 
tracts in the unit area that meet the productivity criteria;
    (2) If the proposed expanded participating area is outside the 
existing unit boundaries, invite all owners of oil and gas rights 
(leased or unleased) and lease interests (record title and operating 
rights) in such additional land to join the unit. If the owners of oil 
and gas rights in any tract of such land join the unit, you must submit 
to BLM--
    (i) An application to enlarge the unit to include the expanded 
area;
    (ii) A map showing the expanded area of the unit and the 
information with respect to each additional committed tract you 
proposed to add to the unit specified in Sec. 3137.23(c) of this 
subpart; and
    (iii) A revised allocation schedule; and
    (3) If any additional committed tract or tracts are added to the 
unit under paragraph (a)(2) of this section, you must file a statement, 
map and revised production allocation schedule under Sec. 3137.84 of 
this subpart requesting addition to the participating area of all such 
committed tracts or portions of such committed tracts in the unit area 
meeting the productivity criteria.
    (b) If you obtain information demonstrating that the participating 
area should be smaller than previously determined, within 60 calendar 
days of obtaining the information, you must file a statement, map and 
revised production allocation schedule under Sec. 3137.84 of this 
subpart requesting removal from the participating area of all land that 
does not meet the productivity criteria.


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 unit agreement under 
Sec. 3137.100 of this subpart;
    (c) Admit Federal tracts leased after the effective date of the 
unit agreement into the unit 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 will not revise the participating area. You 
must notify BLM within 60 calendar days after you determine a well

[[Page 17892]]

does not meet the productivity criteria. 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 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 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 even if it does not meet 
the productivity criteria. BLM may require the participating area to be 
revised under Sec. 3137.84 of this subpart.
    (c) If a well not meeting the productivity criteria is outside a 
participating area, the production is allocated as provided in 
paragraph (a) of this section.


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

    (a) If a well not meeting the productivity criteria was drilled 
before the unit was formed and is not included in the participating 
area, 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 not meeting the productivity criteria unless BLM 
approves a change in the designation of operator for those wells.


Sec. 3137.91  When will BLM allow a well previously determined to be a 
non-unit well to be used in establishing or modifying a PA?

    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 after you determine that the well meets the productivity 
criteria. You must then modify 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?

    (a) After contraction under Sec. 3137.76 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 calendar days after 
BLM's notification--
    (1) Your operations to restore or establish new production are in 
progress; and
    (2) You are diligently pursuing oil or gas production.
    (b) If you demonstrate to BLM that reasons beyond your control 
prevent you, despite reasonable diligence, from meeting the 
requirements in paragraphs (a)(1) and (a)(2) of this section within 60 
calendar days after BLM notifies you that there is insufficient 
production to meet the operating costs of that production, BLM will 
extend the period of time to start those operations.

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 unit 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 12\1/2\ percent or the highest royalty 
rate for any lease committed to the unit.
    (c) The value of the production must be determined under the 
Minerals Management Service's oil and gas product value regulations at 
30 CFR part 206.

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?

    (a) If the unit operator requests it, BLM will extend the primary 
term of all NPR-A leases committed to a unit agreement if, from 
anywhere in the unit area, there is--
    (1) Actual production from a well that meets the productivity 
criteria;
    (2) Actual or constructive drilling operations; or
    (3) Actual or constructive reworking operations.
    (b) BLM will extend all NPR-A leases committed to the unit, as 
provided in the following table, for the following types of operations 
from any lease committed to the unit--

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


[[Page 17893]]

Sec. 3137.112  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 NPR-A 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 NPR-A 
lease, am I subject to the terms and conditions of the unit agreement?

    As a transferee of an interest in an NPR-A 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 unit 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 unit agreement is 
revoked. You, as lessee, forfeit all further benefits, including 
extensions and suspensions, granted any NPR-A 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 you 
establish any participating area, 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 NPR-A leases return to 
individual lease status and are subject to their original provisions.
    (b) An NPR-A 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 three 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  How do I appeal a decision that BLM issues under this 
subpart?

    (a) You may file for a State Director Review (SDR) of a decision 
BLM issues under this subpart. Part 3160, subpart 3165 of this title 
contains regulations on SDR; or
    (b) If you are adversely affected by a BLM decision under this 
subpart you may directly appeal the decision under parts 4 and 1840 of 
this title.

    7. Add a new subpart 3138 to part 3130 to read as follows:

Subpart 3138--Subsurface Storage Agreements in the National 
Petroleum Reserve-Alaska (NPR-A)

Sec.
3138.10   When will BLM enter into a subsurface storage agreements 
in NPR-A 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 enter into a subsurface storage agreement 
in NPR-A covering federally-owned lands?

    BLM will enter into a subsurface storage agreement in NPR-A 
covering federally-owned lands to 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 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) 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).

[[Page 17894]]

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, provisions relating to 
suspension and royalty reductions contained in subpart 3165 of this 
part do not apply to the NPR-A.

[FR Doc. 02-8470 Filed 4-10-02; 8:45 am]
BILLING CODE 4310-84-P