[Federal Register Volume 71, Number 45 (Wednesday, March 8, 2006)]
[Proposed Rules]
[Pages 11557-11559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-2170]


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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Part 3100

Minerals Management Service

30 CFR Part 203

[WO-310-06-1310-PP]
RIN 1004-AD82


Enhanced Oil and Natural Gas Production Through Carbon Dioxide 
Injection

AGENCY: Bureau of Land Management, Minerals Management Service, 
Interior.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Bureau of Land Management (BLM) and the Minerals 
Management Service (MMS) request comments and suggestions to assist in 
preparing a proposed rule governing carbon dioxide injection for 
increased production and recovery of oil and natural gas. The rule 
would provide for royalty relief incentives to promote the capture, 
transportation, and injection of produced carbon dioxide 
(CO2), natural CO2, and other appropriate gases 
or other matter for injection/sequestration into oil and gas fields, to 
promote oil and natural gas production from the Outer Continental Shelf 
(OCS) and onshore Federal leases. We encourage members of the public to 
provide comments and suggestions to help clarify and define the 
requirements for enhanced oil and natural gas recovery production 
incentives as described in the Energy Policy Act of 2005.

DATES: We will accept comments and suggestions on the advance notice of 
proposed rulemaking until April 7, 2006.

ADDRESSES: You may submit comments by any of the following methods 
listed below. Federal rulemaking portal: http://www.regulations.gov 
(Follow the instructions for submitting comments.) Internet e-mail: 
[email protected]. (Include ``Attn: AD82'') Mail: Director 
(630), Bureau of Land Management, Administrative Record, Room 401-LS, 
Eastern States Office, 7450 Boston Boulevard, Springfield, Virginia 
22153. Personal or messenger delivery: Room 401, 1620 L Street, NW., 
Washington, DC 20036.

FOR FURTHER INFORMATION CONTACT: For onshore, Thomas J. Zelenka at 
(202) 452-0334 and for offshore, Marshall Rose at (703) 787-1536, as to 
the substance of the advance notice, or Ted Hudson at (202) 452-5042, 
as to procedural matters. Persons who use a telecommunications device 
for the deaf (TDD) may call the Federal Information Relay Service 
(FIRS) at 1-800-877-8330, 24 hours a day, seven days a week, to contact 
the above individuals.

SUPPLEMENTARY INFORMATION:

I. Public Comment Procedures
II. Background
III. Description of Information Requested

I. Public Comment Procedures

A. How Do I Comment on the Advance Notice of Proposed Rulemaking?

    Your written comments should:
     Be specific;
     Explain the reason for your comments and suggestions; and
     Be about the issues outlined in the notice.
    Comments and recommendations that will be most useful and likely to 
influence decisions on the content of the proposed rule are:
     Those supported by quantitative information or studies, 
and
     Those that include citations to and analyses of any 
applicable laws and regulations.
    We are particularly interested in receiving comments and 
suggestions about the topics listed under Section III. Description of 
Information Requested.
    If you wish to comment, you may submit your comments by any one of 
several methods, in each case referring to ``1004-AD82''.
     You may mail comments to Director (630), Bureau of Land 
Management, Administrative Record, Room 401 LS,

[[Page 11558]]

Eastern States Office, 7450 Boston Boulevard, Springfield, Virginia 
22153.
     You may deliver comments to Room 401, 1620 L Street, NW., 
Washington, DC 20036.
     You may comment on the rule at the Federal eRulemaking 
Portal: http://www.regulations.gov following the instructions at that 
link.
     You may also comment via e-mail to: [email protected].
    BLM and MMS may not necessarily consider or include in the 
Administrative Record for the final rule comments that BLM receives 
after the close of the comment period (see DATES) or comments delivered 
to an address other than those listed above (see ADDRESSES).

B. May I Review Comments Submitted by Others?

    Comments, including names and street addresses of respondents, will 
be available for public review at the address listed under ``ADDRESSES: 
Personal or messenger delivery'' during regular business hours (7:45 
a.m. to 4:15 a.m.), Monday through Friday, except holidays.
    Individual respondents may request confidentiality, which we will 
honor to the extent allowable by law. If you wish to withhold your name 
or address, except for the city or town, you must state this 
prominently at the beginning of your comment. We will make all 
submissions from organizations or businesses, and from individuals 
identifying themselves as representatives or officials of organizations 
or businesses, available for public inspection in their entirety.

II. Background

    A. Statutory: The Energy Policy Act of 2005 (EPAct), at Section 
354, Enhanced Oil and Natural Gas Production through Carbon Dioxide 
Injection, is intended: (1) To promote the capture, transportation, and 
injection of produced CO2, natural CO2, and other 
appropriate gases or other substances for sequestration into oil and 
gas fields; and (2) to promote oil and natural gas production from the 
OCS and onshore Federal leases by providing royalty incentives to use 
enhanced recovery techniques using injection of substances referred to 
above. The statute directs the Secretary to undertake a rulemaking to 
grant royalty relief ``if the Secretary determines that reduction of 
the royalty under a Federal oil and gas lease * * * is in the public 
interest and promotes the purposes of this section * * *''. The EPAct, 
at Section 354(b)(2), also directs the Secretary to issue an Advance 
Notice of Proposed Rulemaking within 180 days after the August 8, 2005, 
date of its enactment.
    B. Technical Review: Traditional primary and secondary oil 
production methods typically recover one third of the oil in place in a 
field. This leaves behind two thirds of the oil as a target for 
enhanced oil recovery (EOR) techniques. Thermal, chemical, and gas 
flooding are three major EOR methods which have been developed and 
utilized for maximizing oil reserves recovery from onshore fields.
    EOR is fairly advanced in some regions of the United States. Steam 
flooding is used to enhance production from many California fields 
because the oil can be very viscous. CO2 flooding is common 
in the fields in New Mexico, West Texas, western Oklahoma, and Wyoming 
because commercial pipelines deliver the CO2 gas to these 
regions from natural CO2 sources or from natural gas 
processing plants. CO2 is also available for some fields in 
Mississippi and Louisiana. EOR operations are not common in most of the 
rest of the nation because steam is not needed or CO2 is not 
available. Where CO2 from natural sources is not available 
nearby, the use of CO2 sequestration from gas processing or 
other industrial plants may be an alternative source.
    Studies conducted by DOE and industry estimate that 55 percent of 
oil and 33 percent of gas remain stranded offshore Louisiana using 
traditional primary and secondary recovery practices. Preliminary 
research suggests that one-tenth to one-third of that stranded resource 
could be recovered using CO2 EOR technology. In Norway, the 
target for original oil left behind in place is about 45% and other new 
offshore projects are attempting further increases in the rate of 
recovery. Domestically, incentives to spur new technology may encourage 
additional technologies and recovery efficiencies.
    C. Ongoing Research and Development Activities: The potential for 
enhanced oil recovery through CO2 injection has been 
demonstrated to be a viable technology for mature onshore oil fields. 
Until recently, most of the CO2 used for EOR projects has 
come from naturally-occurring reservoirs. New technologies are being 
developed to produce CO2 from industrial applications such 
as natural gas processing, fertilizer, ethanol, and hydrogen plants in 
locations where naturally-occurring CO2 reservoirs are not 
available.
    Large scale field expansion potential for enhanced coal bed methane 
(ECBM) gas recovery through CO2 and nitrogen gas 
(N2) injection into coal bed natural gas reservoirs has not 
yet been demonstrated to be technically and economically feasible. 
Until more pilot performance testing can be successfully performed and 
evaluated for large project expansion, enhanced natural gas production 
potential remains to be realized.

III. Description of Information Requested

    We are committed to carrying out the provisions of the EPAct. The 
diverse enhanced recovery (ER) techniques available for increasing oil 
and gas recovery from the OCS and onshore Federal lands suggest that a 
rule providing for a flexible, case-by-case assessment of each ER 
application for royalty relief would be the most logical approach to 
take.
    The CO2 and other gases or matter injection production 
incentive aims to promote additional oil and natural gas recovery from 
mature oil and natural gas fields by providing a royalty suspension 
volume of up to 5 million barrels of oil equivalent for each eligible 
lease, the maximum amount authorized under the EPAct. A lease may be 
eligible if:
     It is a lease for the production of oil and gas from the 
OCS or Federal onshore lands;
     The injection of produced CO2, natural 
CO2, and other appropriate gases or matter will be used as 
an enhanced recovery technique on such lease; and
     The Secretary determines the lease contains oil or gas 
that would likely not be produced without the royalty reduction 
provided in the EPAct.

The royalty relief, if authorized under a final rule and approved for 
an eligible lease, would apply only to production occurring on or after 
the date of publication of this advance notice of proposed rulemaking. 
Under Section 354(b)(4) of the EPAct, while relief is retroactive to 
the date of the advance notice of proposed rulemaking, lessees must pay 
royalty on production that occurs before publication of a final rule. 
However, lessees may request a refund of the royalties paid after 
publication of a final rule. In addition, pursuant to Section 354(b)(5) 
of the EPAct, royalty relief may be subject to oil and natural gas 
price threshold provisions or other limitations based on market price.
    We are interested in receiving comments regarding incentive 
provisions that would encourage enhanced recovery techniques to 
increase oil and gas production from existing fields.
    Topics we are considering for the proposed regulations include, but 
are not limited to, the following:
    1. Is there an appropriate Federal role in providing production 
incentives for

[[Page 11559]]

enhanced oil and gas recovery projects or should such decisions be left 
to market forces?
    2. If the Secretary determines that incentives are warranted, does 
the case-by-case assessment approach for enhanced recovery project 
evaluation provide the appropriate framework for the intended 
production incentives?
    3. Should existing enhanced oil recovery (EOR) projects be 
considered to qualify for production royalty relief to promote 
additional oil recovery as the project nears the end of its economic 
life? If yes, how?
    4. How should the assessment be structured with regard to 
determining whether royalty relief is needed? Is it reasonable to 
expect that such assessments can be consistently and reliably completed 
for a wide variety of projects? If the Secretary determines that relief 
is warranted, how should the amount of relief be calculated?
    5. Should the relief awarded be conditioned on market price? If 
yes, how?
    6. How should the production incentive be applied to the enhanced 
recovery projects to promote project expansions and maximum oil and gas 
recoveries?
    7. Should this incentive be limited to new technology? Should other 
gases and matter be considered for EOR royalty relief?
    8. How should royalty relief be structured for the additional 
production resulting from enhanced recovery methods?
    9. How should production currently using CO2 for 
recovery be differentiated from new production which results from an 
incentive?
    10. How could we encourage the capture, transportation, and 
sequestration of CO2 and promote other public interests in 
addition to enhanced oil recovery?
    11. In making the determination of whether the royalty relief 
described in Section 354 would be in the public interest, how should 
the Secretary value the benefit associated with the sequestration of 
CO2 or other appropriate gases used to increase oil and gas 
production?
    12. How, where, and when in the process should the value of the 
CO2 (or other gas) or the benefit of its sequestration be 
measured: at its source or upon its capture, transportation, or 
sequestration on the lease?
    13. Are there recommended methodologies, economic models, or other 
precedents that the Secretary could consider in assessing the value of 
sequestration?
    14. Can relief be structured to focus on sequestering 
CO2 that would otherwise be released into the atmosphere or 
not used for productive purposes?
    15. Should this royalty relief take into consideration any existing 
incentives available for energy production?
    16. Are there other issues that should be considered?
    Section 354(b)(1) of the EPAct requires that the Secretary 
determine that royalty reduction is in the public interest and promotes 
the purposes of the Act. Thus, the Secretary must determine whether the 
anticipated amount of additional production justifies the level of 
Federal subsidies that would be provided through such royalty 
reduction. As a result of comments received in response to this Advance 
Notice of Proposed Rulemaking, the Secretary may determine that the 
production royalty incentive provided for by Section 354 of the EPAct 
is either unnecessary to promote enhanced oil and gas recovery or is 
insufficient to increase oil and gas production through enhanced 
recovery. Therefore, the Secretary is not yet prepared to make the 
determination under Section 354(b)(1) of the EPAct that royalty relief 
for CO2 injection is in the public interest and promotes the 
purpose of that section of the Act. However, if BLM and/or MMS adopt a 
royalty relief rule it would be applicable to any eligible production 
occurring on or after the publication date of this Advance Notice of 
Proposed Rulemaking in the Federal Register.

    Dated: February 1, 2006.
Johnnie Burton,
Acting Assistant Secretary of the Interior.
[FR Doc. 06-2170 Filed 3-7-06; 8:45 am]
BILLING CODE 4310-84-P; 4310-MR-P