[Federal Register Volume 81, Number 222 (Thursday, November 17, 2016)]
[Rules and Regulations]
[Pages 81356-81459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25407]



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Vol. 81

Thursday,

No. 222

November 17, 2016

Part V





 Department of the Interior





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Bureau of Land Management





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43 CFR Parts 3160 and 3170





 Onshore Oil and Gas Operations; Federal and Indian Oil and Gas Leases; 
Site Security; Final Rule

  Federal Register / Vol. 81 , No. 222 / Thursday, November 17, 2016 / 
Rules and Regulations  

[[Page 81356]]


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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3160 and 3170

[17X.LLWO310000.L13100000.PP0000]
RIN 1004-AE15


Onshore Oil and Gas Operations; Federal and Indian Oil and Gas 
Leases; Site Security

AGENCY: Bureau of Land Management, Interior.

ACTION: Final rule.

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SUMMARY: This final rule replaces Onshore Oil and Gas Order No. 3, Site 
Security (Order 3), with new regulations codified in the Code of 
Federal Regulations (CFR). The final rule establishes minimum standards 
for oil and gas facility site security, and includes provisions to 
ensure that oil and gas produced from Federal and Indian (except Osage 
Tribe) oil and gas leases are properly and securely handled, so as to 
ensure accurate measurement, production accountability, and royalty 
payments, and to prevent theft and loss.
    The BLM developed this rule based on the proposed rule that was 
published in the Federal Register on July 13, 2015, and tribal and 
public comments the BLM received on the proposed rule. This rule 
strengthens the BLM's policies governing production verification and 
accountability by updating and replacing the existing requirements of 
Order 3 to address changes in technology and industry practices that 
have occurred in the 25 years since Order 3 was issued, and to respond 
to recommendations made by the Government Accountability Office (GAO) 
and the Office of the Inspector General (OIG) with respect to the BLM's 
production verification efforts.
    Like the proposed rule, the final rule addresses Facility 
Measurement Points (FMPs), site facility diagrams, the use of seals, 
bypasses around meters, documentation, recordkeeping, commingling, off-
lease measurement, the reporting of incidents of unauthorized removal 
or mishandling of oil and condensate, and immediate assessments for 
certain acts of noncompliance. The final rule also establishes a 
process for the BLM to consider variances from the requirements of the 
final regulation.
    Some of the key changes from the proposed rule that are 
incorporated into the final rule include: Additional exemptions from 
the final rule's commingling requirements; a streamlined FMP 
application and approval process; simplified site facility diagram 
submissions; and clarifications to tank gauging procedures and 
frequency.
    The BLM believes that this final rule, as well as the final rules 
to update and replace Onshore Oil and Gas Order No. 4 (Order 4), 
related to measurement of oil, and Onshore Oil and Gas Order No. 5 
(Order 5), related to measurement of gas enhance the BLM's overall 
production verification and accountability program.

DATES: The final rule is effective on January 17, 2017.

FOR FURTHER INFORMATION CONTACT: Michael Wade, BLM Colorado State 
Office, at 303-239-3737, for information about the requirements of this 
final rule, or Steven Wells, Division Chief, Fluid Minerals Division, 
202-912-7143, for information regarding the BLM's Fluid Minerals 
Program. Persons who use a telecommunications device for the deaf (TDD) 
may call the Federal Relay Service at 1-800-877-8339 to contact the 
above individuals during normal business hours. The Service is 
available 24 hours a day, 7 days a week to leave a message or question 
with the above individual. You will receive a reply during normal 
business hours.

SUPPLEMENTARY INFORMATION:

I. Executive Summary and Background
II. Overview of the Final Rule, Section-by-Section Analysis, and 
Response to Comments
III. Overview of Public Involvement and Consistency With GAO 
Recommendations
IV. Procedural Matters

I. Executive Summary and Background

    Under applicable law, royalties are owed on all production removed 
or sold from Federal and Indian oil and gas leases, as well as on any 
oil or gas that is avoidably lost during production. The basis for 
those royalty payments is the measured production from those leases. In 
the fiscal year (FY) 2015 sales year, onshore Federal oil and gas 
leases sold 180 million barrels (bbl) of oil,\1\ 2.50 trillion cubic 
feet of natural gas,\2\ and 2.6 billion gallons of natural gas liquids, 
with a market value of more than $17.7 billion and generating royalties 
of almost $2.0 billion. Nearly half of these revenues were distributed 
to the States in which the leases are located. Leases on tribal and 
Indian lands sold 59 million bbl of oil, 239 billion cubic feet of 
natural gas, 182 million gallons of natural gas liquids, with a market 
value of over $3.6 billion and generating royalties of over $0.6 
billion, which were distributed in their entirety to the applicable 
tribes and individual allottee owners.
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    \1\ Figures related to total production of oil include 168 
million bbl of regularly classified oil, plus additional sales of 
condensate, sweet and sour crude, black wax crude, other liquid 
hydrocarbons, inlet scrubber and drip or scrubber condensate, and 
avoidable oil losses, all of which are considered to be part of oil 
sales for accounting purposes.
    \2\ Includes all processed and unprocessed volumes recovered on-
lease, nitrogen, fuel gas, coal bed methane, and any volumes of gas 
avoidably lost due to venting or flaring.
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    As explained in the preamble for the proposed rule (80 FR 40768), 
given the magnitude of this production and the BLM's statutory and 
management obligations, it is critically important that the BLM ensure 
that operators accurately measure, properly report, and account for all 
production. This final rule helps the BLM achieve that objective by 
updating and replacing Order 3's requirements with regulations codified 
in the CFR that reflect changes in oil and gas measurement practices 
and technology since Order 3 was first promulgated in 1989.\3\
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    \3\ Order 3, which was published in the Federal Register on 
February 24, 1989 (54 FR 8056), has been in effect since March 27, 
1989.
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    Specifically, the requirements in this rule ensure the proper and 
secure handling of production from Federal and Indian (except Osage 
Tribe) oil and gas leases. The proper handling of production is 
essential to accurate measurement, proper reporting, and overall 
production accountability, all of which are necessary to ensure that 
the American public, as well as Indian tribes and allottees, receive 
the royalties to which they are entitled on oil and gas produced from 
Federal and Indian leases, respectively.
    Order 3 was one of seven Onshore Oil and Gas Orders that the BLM 
issued under its regulations at 43 CFR part 3160.\4\ Order 3 primarily 
supplemented the regulations at 43 CFR 3162.4 (records and reports), 
3162.5 (environmental safety), 3162.7 (disposition and measurement of 
oil and gas production and site security on Federal and Indian (except 
Osage Tribe) oil and gas leases), subpart 3163 (non-compliance, 
assessments, and civil penalties), and subpart 3165 (relief, conflicts, 
and appeals). While the BLM's Onshore Orders have all been published in 
the Federal Register, both for public comment and in final form, they 
were never codified in the CFR. With this final rule, the BLM is 
replacing Order 3 and updating and codifying its

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requirements regarding site security, as explained below.
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    \4\ These regulations provide for the issuance of Onshore Oil 
and Gas Orders to ``implement and supplement'' the regulations found 
in part 3160. 43 CFR 3164.1(a). The Onshore Orders apply nationwide 
to all Federal onshore and Indian (except Osage Tribe) oil and gas 
leases.
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    The development of this rule was driven largely by internal and 
external reviews of the BLM's existing production measurement and 
accountability program. These reviews began in 2007 when the Secretary 
appointed an independent panel--the Subcommittee on Royalty Management 
(Subcommittee)--to review the Department's procedures and processes 
related to the management of mineral revenues and to provide advice to 
the Department based on that review.\5\ In a report dated December 17, 
2007, the Subcommittee determined that the BLM's guidance regarding 
production accountability is ``unconsolidated, outdated, and sometimes 
insufficient'' (Subcommittee report, p. 30). The Subcommittee report 
found that this results in inconsistent and outmoded approaches to 
production accountability tasks, and the potential loss of royalty 
revenue.
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    \5\ The Subcommittee was commissioned to report to the Royalty 
Policy Committee, which was chartered under the Federal Advisory 
Committee Act to provide advice to the Secretary and other 
departmental officials responsible for managing mineral leasing 
activities and to provide a forum for the public to voice concerns 
about mineral leasing activities. The Royalty Policy Committee's 
chart has since expired.
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    The Subcommittee report expressed concern that the applicable ``BLM 
policy and guidance is outdated'' and ``some policy memoranda have 
expired'' (Subcommittee report, p. 31). The Subcommittee also expressed 
concern that ``BLM policy and guidance have not been consolidated in a 
single document or publication,'' which has led to the ``BLM's 31 oil 
and gas field offices using varying policy and guidance'' (id.). For 
example, ``some BLM State Offices have issued their own `Notices to 
Lessees' for oil and gas operations'' (id.). While the Subcommittee 
recognized that such Notices to Lessees may have a positive effect on 
some oil and gas field operations, it also observed that they 
necessarily ``lack a national perspective and may introduce 
inconsistencies among State [Offices]'' (id.).
    The Subcommittee made a number of recommendations relevant to site 
security. It recommended that the BLM re-evaluate its regulations and 
update its policy and guidance on production accountability, including 
requiring that requests to commingle production from multiple leases, 
unit participating areas (PAs), or areas subject to communitization 
agreements (CAs) identify allocation among zones (Subcommittee report, 
p. 32). The Subcommittee also recommended that the BLM re-evaluate its 
policies and guidance for royalty-free use of gas in lease operations. 
It also specifically recommended that the BLM establish a workgroup to 
evaluate Order 3. In response, the Department formed a fluid minerals 
team, comprising Departmental employees who are oil and gas experts. 
Based on its review, the team determined that Order 3 should be 
updated.
    In addition to the Subcommittee report, the GAO and the OIG have 
performed multiple audits since 2009 and issued reports that included 
many findings and recommendations addressing similar issues: (1) Report 
to Congressional Requesters, Oil and Gas Management, Interior's Oil and 
Gas Production Verification Efforts Do Not Provide Reasonable Assurance 
of Accurate Measurement of Production Volumes GAO-10-313 (GAO Report 
10-313); (2) Report to Congressional Requesters, Oil and Gas Resources, 
Interior's Production Verification Efforts: Data Have Improved but 
Further Actions Needed, GAO 15-39 (GAO Report 15-39); (3) Bureau of 
Land Management's Oil and Gas Inspection and Enforcement Program, CR-
EV-0001-2009 (OIG Report 2009); and (4) Energy Related Management 
Advisories, CR-IS-MOA-0005-2014 (OIG Report 2014).
    In 2010, the GAO found that Interior's measurement regulations and 
policies do not provide reasonable assurance that oil and gas are 
accurately measured. Regarding matters relevant to site security, the 
report found that the BLM lacks regulatory or policy requirements for 
operators to clearly identify points of royalty measurement, creating 
challenges for the BLM in verifying production (GAO Report 10-313, p. 
34). It also found that the BLM does not have sufficient national 
policies or a consistent process for approving arrangements that allow 
operators to commingle production from multiple Federal, Indian, State, 
and private leases, which also makes it difficult for the agency to 
verify production (GAO Report 10-313, p. 36). In response, the GAO 
specifically recommended that the BLM: (1) Develop guidance clarifying 
when Federal oil and gas may be commingled and establish standardized 
measurement methods for such circumstances so that production can be 
adequately measured and verified; (2) Confirm that commingling 
agreements are consistent with Interior guidance before they are 
approved, and that the agreements facilitate key production 
verification activities; and (3) Track all onshore meters, including 
information about meter location, identification number, and owner, to 
help ensure that Interior (through the BLM) is accurately and 
consistently tracking where and how onshore oil and gas are measured 
nationwide.
    The GAO reiterated some of these concerns in 2015 (GAO Report 15-
39). In that report, the GAO acknowledged the improvements the BLM had 
made in its processes and policies (e.g., issuing additional guidance 
in 2013 regarding commingling approvals), but reiterated the importance 
of the BLM updating its regulations related to measurement and site 
security (GAO Report 15-39, pp. 31-32).
    Based in part on its concern that the BLM's production verification 
efforts do ``not provide reasonable assurance that operators are 
accurately measuring and reporting'' the volumes of oil and gas 
produced from Federal and Indian leases, the GAO included the BLM's 
onshore oil and gas program on its High Risk List in 2011 (Report to 
Congressional Committees, High Risk Series, An Update, GAO-11-278 (GAO 
Report 11-278), p. 15). Because the GAO's recommendations have not yet 
been fully implemented, including those related to production 
verification, the onshore oil and gas program has remained on the High 
Risk List in subsequent updates in 2013 (Report to Congressional 
Committees, High Risk Series, An Update, GAO-13-283) and 2015 (Report 
to Congressional Committees, High Risk Series, An Update, GAO-15-290).
    The OIG made similar observations as part of its reviews of the 
BLM's inspection and enforcement program. For example, in 2009 the OIG 
observed that the BLM's ``inspection efforts are hampered because of 
provisions in the bureau's regulations that have not kept up with 
modern technology. Most notably, six of the seven Onshore Oil and Gas 
Orders, which address activities, such as drilling operations, the 
measurement of oil and gas, and site security, are outdated as they 
were enacted in the late 1980s and early 1990s.'' The OIG specifically 
recommended that the BLM ``(e)nsure that oil and gas regulations are 
current by updating and issuing onshore orders.'' (OIG Report 2009, p. 
10-11).
    The OIG also expressed concern that ``(c)urrent BLM policies (with 
respect to penalties and assessments) do not allow for immediate 
assessments for chronic offenders. As a result, at times there is 
little incentive for companies to meet their regulatory 
responsibilities.'' (id., p. 13). As a result, the OIG recommended that 
the BLM ``(e)nhance the deterrent for operator noncompliance by 
increasing the dollar amount of

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monetary assessments, seeking congressional action for increasing civil 
penalties, and expanding the infractions for which immediate 
assessments may be issued.'' (id., p. 14).
    The OIG supplemented these recommendations in 2014 with a series of 
recommendations that flowed from individual OIG investigations that 
were consolidated into one report--Energy Related Management 
Advisories, CR-IS-MOA-0005-2014 (Nov. 2014) (OIG Report 2014).\6\ That 
report made a number of recommendations, including the following 
relevant to this rule:
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    \6\ The OIG Report 2014, covered the following investigations: 
Berry Petroleum Co. & Quinex Energy Corp., DOI-OIG Case File Nos. 
OI-OG-07-0359-I & OI-OG-07-0389-I; Petrox Resources, Inc., DOI-OIG 
Case File No. OI-OG-09-0266-I; SEECO, Inc., OIG Case File No. OI-OG-
09-0722-1; and TEPPCO Partners, DOI-OIG Case File No. OI-OG-09-0346-
I).
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     Develop and implement procedures to ensure timely receipt 
of site facility diagrams and ensure that they contain adequate 
information related to production and sales phases (OIG Report 2014 at 
10, 18);
     Take steps to address misreporting associated with off-
lease measurement (id.);
     Ensure that adequate information exists regarding on-lease 
beneficial use in order to identify inappropriate deductions (id., at 
12); and
     Ensure that Federal measurement points are properly 
documented and recorded (id. at 21).
    In addition to the concerns from these entities, the BLM also 
recognized, based on its own experience, that its site security 
requirements needed strengthening. For example, as explained in the 
proposed rule, it is not uncommon for a BLM inspector, a lease 
operator, and field employees to all have different understandings of 
where the point of royalty measurement is on a given lease, because 
Order 3 did not require operators to formally identify and obtain BLM 
approval for the use of a particular royalty measurement point on a 
given lease, unit PA, or CA. This type of discrepancy can create 
needless uncertainties in production, accounting, and verification, and 
can increase the time spent on individual inspections and audits by 
both operators and the BLM, which strains the BLM's limited resources 
and requires additional response and resources on the part of 
operators. This final rule corrects this problem by requiring operators 
to identify and obtain BLM approval for their royalty measurement 
points, which are called FMPs under this rule.
    Similarly, with respect to commingling approvals, the BLM 
recognizes that the absence of uniform national guidance means that 
some BLM-approved commingling agreements may not provide the production 
data that the BLM needs to independently verify production that is 
attributable to the Federal or Indian leases covered by those 
agreements. The absence of this data limits the BLM's ability to 
fulfill its obligation to ensure that all production from Federal and 
Indian (except Osage Tribe) oil and gas leases is properly accounted 
for and that royalties are properly calculated. The final rule 
addresses these concerns by establishing uniform requirements for both 
existing and future commingling approvals. With respect to existing 
approvals, the final rule includes provisions: (1) Specifically 
grandfathering existing CAAs involving downhole commingling and where 
production falls below certain specified thresholds; (2) Expressly 
exempting from compliance with the rule's commingling requirements 
downhole commingling in new wells in areas where the BLM has 
specifically recognized that downhole commingling is necessary to 
ensure maximum economic recovery (such as when a lower formation is 
necessary to produce an upper one) or when commingled production is 
below certain levels; and, (3) Expressly recognizing as compliant CAAs 
authorized by tribal law or agreement. As explained in this preamble, 
the provisions related to grandfathering and the additional exemptions 
were developed in response to comments and are consistent with the 
exceptions in the original proposed rule.
    As explained in Section III of this preamble, the requirements in 
this final rule respond to the Subcommittee, GAO, and OIG 
recommendations by updating, enhancing, clarifying, and codifying the 
Order 3 requirements to reflect changes in technology, industry 
practice, and applicable statutory requirements. The final rule also 
responds to comments received during the public comment period on the 
proposed rule.\7\ In aggregate, the provisions in the final rule help 
ensure that the production of Federal and Indian (except Osage Tribe) 
oil and gas is adequately accounted for. By replacing the patchwork of 
guidance developed by BLM state and field offices, the final rule also 
provides operators with a level of consistency as to the requirements 
applicable to their operations on Federal and Indian (except Osage 
Tribe) lands nationwide.
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    \7\ As explained in the preamble to the proposed rule, the 
proposal was developed based, in part, on feedback received during a 
series of public meetings held by the BLM on April 24 and 25, 2013. 
The BLM also held public meetings and accepted comments in December 
2015.
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    The Department of the Interior (Department) plays the critical role 
of ensuring that the country's oil and gas assets are carefully 
developed and that the American people, Indian tribes and individual 
allottees receive fair compensation when these assets are leased and 
developed. A key part of this role consists of providing reasonable 
assurance that Federal and Indian oil and gas are accurately measured 
and that measurement efforts undertaken by the private companies 
developing these resources are held to high standards.

II. Overview of the Final Rule, Section-by-Section Analysis, and 
Response to Comments

A. General Overview of the Final Rule

    As discussed in the background section of this preamble, the BLM's 
rules concerning site security and production accountability found in 
Order 3 have not kept pace with industry standards and practices, 
statutory requirements, or applicable measurement technology and 
practices. This final rule enhances the BLM's overall production 
accountability efforts by addressing these concerns and will ensure 
that the oil and gas produced from Federal and Indian (except Osage 
Tribe) leases is adequately accounted for, ultimately ensuring that all 
royalties due are paid. The following table provides an overview of the 
changes between the proposed rule and this final rule. A similar chart 
explaining the differences between the proposed rule and Order 3 
appears in the proposed rule at 80 FR 40771.

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              Proposed rule                        Final rule                     Substantive changes
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43 CFR 3161.1(e) Jurisdiction...........  43 CFR 3161.1(b)             The final rule removes a provision from
                                           Jurisdiction.                the proposed rule that could have
                                                                        unintentionally extended the regulations
                                                                        in part 3160 to State or private tracts
                                                                        committed to a federally approved unit
                                                                        or CA.
                                                                       In its place, the BLM clarifies that the
                                                                        regulations under part 3170, including
                                                                        subparts 3173, 3174, and 3175, relating
                                                                        to site security, measurement, reporting
                                                                        of production and operations, and
                                                                        assessments or penalties for non-
                                                                        compliance with such requirements, apply
                                                                        to all wells and facilities on State or
                                                                        privately owned lands committed to a
                                                                        unit or CA, which includes Federal or
                                                                        Indian lease interests, notwithstanding
                                                                        any contrary provision of the unit or
                                                                        communization agreement.
43 CFR 3162.4-1(d) Well records and       43 CFR 3162.4-1(d) Well      Consistent with the proposed rule,
 reports.                                  records and reports.         paragraph (d) has been revised to
                                                                        incorporate the new records-retention
                                                                        period for Federal leases established by
                                                                        the 1996 amendments to Federal Oil and
                                                                        Gas Royalty Management Act (FOGRMA), 30
                                                                        U.S.C. 1701 et seq. In the final rule,
                                                                        that provision has been restructured
                                                                        consistent with the changes in
                                                                        paragraphs (c) through (e) of Sec.
                                                                        3170.7.
None....................................  43 CFR 3163.2 Generally....  The changes being made as part of this
                                                                        rule are a combination of the changes
                                                                        proposed as part of this rulemaking
                                                                        effort and the proposed rule to update
                                                                        and replace Order 5 (80 FR 61645). These
                                                                        changes also reflect the modifications
                                                                        made by the BLM's interim final rule--
                                                                        Onshore Oil and Gas Operations--Civil
                                                                        Penalties Inflation Adjustments (81 FR
                                                                        41860) (the ``Civil Penalty Rule'')--
                                                                        that updates the various daily penalty
                                                                        maximums in this section.
                                                                       Paragraph (a)(2) of the proposed rule is
                                                                        carried forward into the final. The
                                                                        final rule deletes existing paragraphs
                                                                        (g) and (j) in their entirety and
                                                                        redesignates existing paragraph (i) as
                                                                        paragraph (g).
43 CFR 3163.2(a)(l) Civil penalties.....  43 CFR 3163.2(a)(1) Civil    The final rule revises paragraph (a)(1)
                                           penalties.                   of the proposed rule to clarify that
                                                                        this section applies to ``any person,''
                                                                        as opposed to limiting it to ``operating
                                                                        rights owner or operator.'' This change
                                                                        was proposed as part of the Order 5
                                                                        rulemaking and conforms the regulation
                                                                        to the applicable statutory authority.
43 CFR 3163.2(b)(l) Civil penalties.....  43 CFR 3163.2(b)(l) Civil    The final rule changes the references in
                                           penalties.                   the proposed rule to ``operating rights
                                                                        owner, operator, purchaser, or
                                                                        transporter'' to just ``the person''
                                                                        consistent with the change to paragraph
                                                                        (a)(1) to reference ``any person.''
                                                                        Paragraph (b)(1) of the final also
                                                                        reflects the increase in maximum daily
                                                                        penalty from $500 to $1,031 made by the
                                                                        BLM's Civil Penalty Rule.
43 CFR 3163.2(b)(2) Civil penalties.....  43 CFR 3163.2(b)(2) Civil    The final rule changes the references in
                                           penalties.                   the proposed rule to ``operating rights
                                                                        owner, operator, purchaser, or
                                                                        transporter'' to just ``the person''
                                                                        consistent with the change to paragraph
                                                                        (a)(1) to reference ``any person.''
                                                                        Paragraph (b)(2) of the final rule also
                                                                        reflects the increase in the maximum
                                                                        daily penalty from $5,000 to $10,314
                                                                        made by the BLM's Civil Penalty Rule.
43 CFR 3163.2(d) Civil penalties.         43 CFR 3163.2(d) Civil       Consistent with the proposed rule to
 Proposed as part of the Order 5           penalties.                   update and replace Order 5, the final
 rulemaking.                                                            rule removes the regulatory cap on civil-
                                                                        penalty assessments. It also reflects
                                                                        the increase in maximum daily penalty
                                                                        from $500 to $1,031 made by the BLM's
                                                                        Civil Penalty Rule. Finally, it moves
                                                                        the substance of existing paragraph (k)
                                                                        to paragraph (d). As a result, paragraph
                                                                        (k) is removed.
43 CFR 3163.2(e) Civil penalties.         43 CFR 3163.2(e) Civil       Consistent with the proposed rule to
 Proposed as part of the Order 5           penalties.                   update and replace Order 5, the final
 rulemaking.                                                            rule removes the regulatory cap on civil
                                                                        penalty assessments and reflects the
                                                                        increase in maximum daily penalty from
                                                                        $10,000 to $20,628 made by the BLM's
                                                                        Civil Penalty Rule.
43 CFR 3163.2(f) Civil penalties.         43 CFR 3163.2(f) Civil       Consistent with the proposed rule to
 Proposed as part of the Order 5           penalties.                   update and replace Order 5, the final
 rulemaking.                                                            rule removes the regulatory cap on civil
                                                                        penalty assessments and reflects the
                                                                        increase in the maximum daily penalty
                                                                        from $25,000 to $51,570 made by the
                                                                        BLM's Civil Penalty Rule.
43 CFR 3165.3(a) Notice, State Director   43 CFR 3165.3(a) Notice,     The final rule clarifies in paragraph (a)
 review and hearing on the record.         State Director review and    that any person is subject to written
                                           hearing on the record.       notice or order by the authorized
                                                                        officer (AO) whenever they fail to
                                                                        comply with any provisions of the lease,
                                                                        the regulations in this part, applicable
                                                                        orders or notices, or any other
                                                                        appropriate order of the AO. The
                                                                        proposed rule made this provision
                                                                        applicable only to an operating rights
                                                                        owner or operator, as appropriate.
43 CFR 3170.3 Definitions and acronyms..  43 CFR 3170.3 Definitions    New definitions have been added for the
                                           and acronyms.                terms ``averaging period,'' ``bias,''
                                                                        and ``tampering'' in response to
                                                                        comments received and additional
                                                                        internal reviews.
                                                                       In the final rule, the acronym Btu
                                                                        (British thermal unit) is moved from
                                                                        Sec.   3173.1 to this section, and new
                                                                        acronyms--S&W (sediment and water) and
                                                                        LACT (lease automatic custody transfer),
                                                                        are included because they are used
                                                                        across multiple subparts in part 3170.

[[Page 81360]]

 
43 CFR 3170.6(a)(2) Variances...........  43 CFR 3170.6(a)(2)          Final paragraph (a)(2) adds a sentence
                                           Variances.                   that encourages operators to
                                                                        simultaneously submit variance requests
                                                                        and plans or applications if those plans
                                                                        or applications are contingent upon the
                                                                        BLM approving the variance requests.
43 CFR 3170.6(a)(3) Variances...........  43 CFR 3170.6(a)(3)          Final paragraph (a)(3) clarifies the
                                           Variances.                   process operators must use to submit
                                                                        their variance requests to the BLM--via
                                                                        WIS, or, if the operator is a small
                                                                        business without access to the Internet,
                                                                        to the BLM office having jurisdiction
                                                                        over the lease, unit, or CA.
43 CFR 3170.7(c) Required recordkeeping,  43 CFR 3170.7(c)(1) &        Paragraph (c) did not change
 records retention, and records            (c)(2) Required              substantively, but is split into two
 submission.                               recordkeeping, records       paragraphs. Paragraph (c)(1) states that
                                           retention, and records       records must be maintained for at least
                                           submission.                  7 years, and paragraph (c)(2) codifies
                                                                        the applicable statutory requirements
                                                                        for further retention beyond 7 years.
43 CFR 3170.7(d) Required recordkeeping,  43 CFR 3170.7(d)(1) &        Paragraph (d) did not change
 records retention, and records            (d)(2) Required              substantively, but is split into two
 submission.                               recordkeeping, records       paragraphs. Paragraph (d)(1) states that
                                           retention, and records       records must be maintained for at least
                                           submission.                  6 years, and subparagraph (d)(2)
                                                                        codifies the applicable statutory
                                                                        requirements for further retention
                                                                        beyond 6 years.
43 CFR 3170.7(e) Required recordkeeping,  43 CFR 3170.7(e)(1) &        The final rule moves paragraph (e)(2) of
 records retention, and records            (e)(2) Required              the proposed rule to (e)(1) and removes
 submission.                               recordkeeping, records       the phrase ``or until the Secretary or
                                           retention, and records       his designee releases the record holder
                                           submission.                  from the obligation to maintain the
                                                                        records, whichever is later.''
                                                                       The phrase in paragraph (e)(1) of the
                                                                        proposed rule--``but a judicial
                                                                        proceeding or demand is not commenced
                                                                        within 7 years after the records are
                                                                        generated, the record holder must retain
                                                                        all records regarding production from
                                                                        the unit or CA until the Secretary or
                                                                        his designee releases the record holder
                                                                        from the obligation to maintain the
                                                                        records''--is moved to its own paragraph
                                                                        (e)(2).
43 CFR 3170.7(g) Required recordkeeping,  43 CFR 3170.7(g) Required    The final rule is revised to require
 records retention, and records            recordkeeping, records       record holders to include the FMP number
 submission.                               retention, and records       or the lease, unit PA, or CA number,
                                           submission.                  along with a unique equipment identifier
                                                                        (e.g., a unique tank identification
                                                                        number and meter station number), on all
                                                                        their records.
3170.8 Appeal procedures................  3170.8(a) & (b) Appeal       The language from the proposed rule is
                                           procedures.                  moved to a new paragraph (a) and a new
                                                                        paragraph (b) is added that creates a
                                                                        separate appeal process for decisions
                                                                        made by the BLM, based on a
                                                                        recommendation from the Production
                                                                        Measurement Team (PMT). Under paragraph
                                                                        (b), a party may file a request for
                                                                        discretionary review by the Assistant
                                                                        Secretary for Land and Minerals
                                                                        Management (ASLM). Paragraph (b) also
                                                                        provides that the ASLM may delegate this
                                                                        review function.
3173.1 Definitions and acronyms.........  3173.1 Definitions and       The final rule adds new definitions for
                                           acronyms.                    the terms ``commingling and allocation
                                                                        approval (CAA),'' ``free water,''
                                                                        ``permanent measurement facility,''
                                                                        ``payout period,'' and ``royalty net
                                                                        present value'' in response to comments
                                                                        on the proposed rule.
                                                                       The term ``low volume property'' is
                                                                        replaced with the term ``economically
                                                                        marginal property,'' and the definition
                                                                        has also been modified.
                                                                       Lastly, the definition of the term ``land
                                                                        description'' is modified to be
                                                                        consistent with the well and facility
                                                                        identification requirements contained in
                                                                        Sec.   3162.6 of the final rule.
                                                                       CAA (commingling and allocation approval)
                                                                        is removed from the acronym list because
                                                                        the acronym is introduced in the
                                                                        definition section; BIA (Bureau of
                                                                        Indian Affairs) is added to the list of
                                                                        acronyms.
43 CFR 3173.3(a) Oil measurement system   43 CFR 3173.3(a) Oil         The requirement in paragraph (a)(5) that
 components--seals.                        measurement system           flow computers be effectively sealed is
                                           components--seals.           removed and instead a new requirement is
                                                                        added in paragraph (a)(6) that a LACT or
                                                                        CMS must be effectively sealed.
                                                                       Paragraph (a)(7) in the final rule
                                                                        clarifies that sealing the back pressure
                                                                        valve refers to the ``pressure
                                                                        adjustment'' on the valve, not the valve
                                                                        itself.
43 CFR 3173.6 Water-Draining operations.  43 CFR 3173.6 Water-         The final rule removes the requirements
                                           Draining operations.         that, when draining water from a
                                                                        production storage tank, operators,
                                                                        purchasers, or transporters document the
                                                                        FMP number associated with the tank, the
                                                                        time for when the opening and closing
                                                                        gauges took place, and the name of the
                                                                        person and company draining the tank.
                                                                       The final rule also clarifies that the
                                                                        gauging operation may be performed
                                                                        manually or automatically, to
                                                                        accommodate the use of automatic tank
                                                                        gauging systems. If gauging is performed
                                                                        manually, the final rule no longer
                                                                        specifies that the color cut method be
                                                                        used for measurement. It leaves the
                                                                        method for capturing the measurement up
                                                                        to the operator and simply requires the
                                                                        accuracy of the measurement to be to the
                                                                        nearest \1/2\ inch.

[[Page 81361]]

 
                                                                       The final rule also clarifies that during
                                                                        the opening gauge operations, the total
                                                                        observed volume (TOV) and free-water
                                                                        measurements must be documented, while
                                                                        during closing gauge operations only the
                                                                        TOV must be measured, since the water
                                                                        will have already been drained.
43 CFR 3173.7(a) Hot oiling, clean-up,    43 CFR 3173.7(a) Hot         The final rule removes the requirements
 and completion operations.                oiling, clean-up, and        that operators document the FMP number
                                           completion operations.       associated with the tank or group of
                                                                        tanks involved in a hot oiling, clean-
                                                                        up, or completion operation, the time at
                                                                        which the opening and closing gauges
                                                                        took place, and the name of the person
                                                                        and company removing production from the
                                                                        tank.
                                                                       The final rule also clarifies that the
                                                                        gauging operation may be performed
                                                                        manually or automatically; the accuracy
                                                                        of the measurement taken in either case
                                                                        must be to the nearest \1/2\ inch.
43 CFR 3173.7(d) Hot oiling, clean-up,    43 CFR 3173.7(d) Hot         Paragraph (d) of the final rule clarifies
 and completion operations.                oiling, clean-up, and        that when reporting production used
                                           completion operations.       during hot oiling, line flushing, or
                                                                        completion operations, the operator's
                                                                        report must include ``the period
                                                                        covering the production in question.''
None....................................  43 CFR 3173.8(b)(8) Report   In the final rule, a new reporting item
                                           of theft or mishandling of   is added to the list of information that
                                           production.                  an operator must include in their
                                                                        incident report: ``Whether the incident
                                                                        was reported to local law enforcement
                                                                        agencies and company security.'' This
                                                                        change was made in response to comments.
43 CFR 3173.9(a) Required recordkeeping   43 CFR 3173.9(a) Required    The final rule provides greater
 for inventory and seal records.           recordkeeping for            flexibility in how an operator
                                           inventory and seal records.  determines the monthly volumes of
                                                                        production in their tanks. Unlike the
                                                                        proposed rule, where the operator was
                                                                        required to measure the TOV at the end
                                                                        of each calendar month, the final rule
                                                                        allows the operator to either perform
                                                                        the inventory within +/- 3 days of the
                                                                        last day of the calendar month or
                                                                        estimate the end of month inventory
                                                                        based on daily production that takes
                                                                        place between two measured inventories
                                                                        that are not more than 31 days, nor less
                                                                        than 20, days apart. An equation has
                                                                        also been provided if the operator
                                                                        elects to estimate the end-of-month
                                                                        inventory instead of performing the
                                                                        inventory at the end of the calendar
                                                                        month.
43 CFR 3173.10(b) Form 3160-5, Sundry     43 CFR 3173.10(b) Form 3160- Paragraph (b) now clarifies the process
 Notices and Reports on Wells.             5, Sundry Notices and        operators must use to submit their
                                           Reports on Wells.            Sundry Notices to the BLM Office having
                                                                        jurisdiction over the lease, unit, or
                                                                        CA--namely via the applicable BLM
                                                                        electronic filing system, unless the
                                                                        operator is a small business without
                                                                        access to the Internet.
43 CFR 3173.11(c)(10)(i) Site facility    43 CFR 3173.11(c)(9)(i)      In paragraph (c)(9)(i), the final rule
 diagram.                                  Site facility diagram.       removes the requirement to identify the
                                                                        equipment manufacturer's name, rated
                                                                        use, and equipment serial number for
                                                                        each engine, motor, or major component
                                                                        powered by production from the lease,
                                                                        unit PA, or CA.
43 CFR 3173.11(c)(11) Site facility       None.......................  Proposed paragraph (c)(11) is eliminated.
 diagram.                                                               The final rule does not require the
                                                                        diagram to include a signature block to
                                                                        certify accuracy and completeness of the
                                                                        information contained within this site
                                                                        facility diagram.
43 CFR 3173.11(c)(1) Site facility        43 CFR 3173.11(d)(1) Site    Paragraph (c)(1) is eliminated in its
 diagram.                                  facility diagram.            entirety and is replaced with paragraph
                                                                        (d)(1), which now requires operators to
                                                                        submit site facility diagrams for new
                                                                        facilities within 30 days after the BLM
                                                                        assigns an FMP to a facility. This is a
                                                                        change from the proposed rule, which
                                                                        required operators to submit diagrams
                                                                        for new facilities within 30 days after
                                                                        completing construction of the new
                                                                        facilities.
43 CFR 3173.11(d) Site facility diagram.  43 CFR 3173.11(d)(2) Site    Paragraph (d)(2), which applies to
                                           facility diagram.            facilities that require FMP numbers and
                                                                        are in service before the effective date
                                                                        of this final rule, is changed. Under
                                                                        the final rule, if such a facility
                                                                        already has a diagram on file with the
                                                                        BLM that meets the minimum site-facility-
                                                                        diagram requirements of Order 3, the
                                                                        operator is not initially required to
                                                                        submit a new diagram meeting the
                                                                        requirements of this section. However,
                                                                        the operator must submit a new site
                                                                        facility diagram for the facility that
                                                                        complies with this section within 30
                                                                        days after the facility is modified, a
                                                                        non-Federal facility located on a
                                                                        Federal lease or federally approved unit
                                                                        or communitized area is constructed or
                                                                        modified, or there is a change in
                                                                        operator.
43 CFR 3173.11(e) Site facility diagram.  43 CFR 3173.11(e)(1) Site    Paragraph (e)(1) of the final rule
                                           facility diagram.            applies to new facilities in service
                                                                        after the effective date of the final
                                                                        rule that do not require an FMP number
                                                                        (e.g., a water disposal facility). This
                                                                        paragraph is revised to require the
                                                                        operator of such a facility to submit a
                                                                        new site facility diagram within 30 days
                                                                        after that facility becomes operational.

[[Page 81362]]

 
None....................................  43 CFR 3173.11(e)(2) Site    A new paragraph (e)(2) is added, which
                                           facility diagram.            applies to facilities that do not
                                                                        require an FMP number and are in service
                                                                        before the effective date of the final
                                                                        rule, is added to the final rule. If
                                                                        such a facility already has a diagram on
                                                                        file with the BLM that meets the minimum
                                                                        requirements of Order 3, the operator is
                                                                        not initially required to submit a
                                                                        diagram meeting the requirements of this
                                                                        section. However, the operator must
                                                                        submit a new site facility diagram for
                                                                        the facility that complies with this
                                                                        section within 30 days after the
                                                                        facility is modified, a non-Federal
                                                                        facility located on a Federal lease or
                                                                        federally approved unit or communitized
                                                                        area is constructed or modified, or
                                                                        there is a change in operator.
None....................................  43 CFR 3173.11(f) Site       The BLM added a new paragraph (f), which
                                           facility diagram.            requires operators to submit updated
                                                                        site facility diagrams on an ongoing
                                                                        basis within 30 days after that facility
                                                                        is modified, a non-Federal facility
                                                                        located on a Federal lease or federally
                                                                        approved unit or communitized area is
                                                                        constructed or modified, or there is a
                                                                        change in operator.
43 CFR 3173.12(d) Applying for a          43 CFR 3173.12(d) Applying   Paragraph (d) of this section applies to
 facility measurement point.               for a facility measurement   measurement facilities that come into
                                           point.                       service after the effective date of the
                                                                        final rule. This paragraph is changed to
                                                                        clarify that only ``permanent''
                                                                        measurement facilities require an FMP
                                                                        number, and not temporary measurement
                                                                        equipment used during well-testing
                                                                        operations. New language has also been
                                                                        added that requires the operator to
                                                                        ``apply'' for FMP approval (as opposed
                                                                        to ``obtaining'' FMP approval, as in the
                                                                        proposed rule) before removing any
                                                                        production from that facility. Finally,
                                                                        this paragraph clarifies that an
                                                                        operator must use the lease, unit PA, or
                                                                        CA number for reporting production to
                                                                        ONRR, until the BLM assigns an FMP
                                                                        number. After the BLM assigns the FMP
                                                                        number, the operator must use the FMP
                                                                        number for all reporting to ONRR.
43 CFR 3173.12(e) Applying for a          43 CFR 3173.12(e) Applying   The final rule clarifies that the
 facility measurement point.               for a facility measurement   requirement to apply for an FMP for
                                           point.                       facilities in service before the
                                                                        effective date of the final rule applies
                                                                        only to permanent measurement
                                                                        facilities. The final rule also
                                                                        clarifies that the production levels
                                                                        that serve as the triggers for when an
                                                                        operator must apply for an FMP for an
                                                                        existing facility are based on the
                                                                        production level of any one of the
                                                                        leases, unit PAs, or CAs, whether or not
                                                                        they are part of a CAA.
43 CFR 3173.12(e)(1) to (e)(3) Applying   43 CFR 3173.12(e)(1) to      The deadlines for applying for FMP
 for a facility measurement point.         (e)(3) Applying for a        numbers have been changed from 9 months,
                                           facility measurement point.  18 months, and 27 months in the proposed
                                                                        rule to 1 year, 2 years, and 3 years in
                                                                        the final rule for existing producing
                                                                        leases, unit PAs, and CAs. The deadlines
                                                                        are based on the production levels of
                                                                        any one of the leases, unit PAs, or CAs,
                                                                        which have also been modified from the
                                                                        proposed rule. Under the final rule,
                                                                        those facilities that produce:
                                                                       1. 10,000 Mcf or more for gas or 100 bbl
                                                                        of oil or more--must file within 1 year
                                                                        of the effective date;
                                                                       2. 1,500 Mcf or more but less than 10,000
                                                                        Mcf of gas per month or 10 bbl or more,
                                                                        but less than 100 bbl of oil per month--
                                                                        must file within 2 years; and
                                                                       3. Less than 1,500 Mcf of gas per month
                                                                        or less than 10 bbl of oil per month--
                                                                        must file within 3 years.
None....................................  43 CFR 3173.12(e)(4)         A new paragraph (e)(4) is added to the
                                           Applying for a facility      final rule requiring the operator of a
                                           measurement point.           stand-alone lease, unit PA, or CA that
                                                                        has not produced for a year or more
                                                                        before the effective date of the final
                                                                        rule to apply for an FMP prior to the
                                                                        resumption of production.
43 CFR 3173.12(e)(5) Applying for a       43 CFR 3173.12(e)(6)         Paragraph (e)(6) was paragraph (e)(5) in
 facility measurement point.               Applying for a facility      the proposed rule, but is renumbered
                                           measurement point.           because of the addition of a new
                                                                        paragraph (e)(4). The final rule also
                                                                        clarifies that if the operator applies
                                                                        for an FMP within the timeframes
                                                                        outlined in paragraphs (e)(1) to (e)(3),
                                                                        then the operator may continue using the
                                                                        lease, unit PA, or CA number for
                                                                        reporting production to ONRR, until the
                                                                        effective date of the BLM-assigned FMP
                                                                        number.
43 CFR 3173.12(f)(3) Applying for a       43 CFR 3173.12(f)(3)         The final rule is revised and no longer
 facility measurement point.               Applying for a facility      requires operators to identify the names
                                           measurement point.           and the manufacturer, model, and serial
                                                                        number of each measurement component.
                                                                       Paragraph (f)(3)(i) now requires
                                                                        operators to submit the following
                                                                        information on gas measurement
                                                                        equipment:
                                                                        The operator/purchaser/
                                                                        transporter unique station number;
                                                                        For primary elements, the meter
                                                                        tube size or serial number; and
                                                                        The type of secondary device,
                                                                        whether it is mechanical or electronic.

[[Page 81363]]

 
                                                                       Paragraph (f)(3)(ii) now requires
                                                                        operators who measure oil tanks by tank
                                                                        gauge to identify the equipment by
                                                                        either the tank number or tank serial
                                                                        number (The proposed rule required
                                                                        operators to provide both pieces of
                                                                        information.). The final rule adds a new
                                                                        requirement that operators specify the
                                                                        tank size(s), in barrels or gallons.
                                                                       Paragraphs (f)(3)(iii) and (f)(3)(iv) of
                                                                        the proposed rule have been combined
                                                                        into a new paragraph (f)(3)(iii). This
                                                                        paragraph now requires operators who
                                                                        measure oil using LACT systems or CMSs
                                                                        to identify the associated oil tank
                                                                        number(s) or tank serial number(s), the
                                                                        size of the tank(s) in barrels or
                                                                        gallons, and whether the equipment used
                                                                        is a LACT system or CMS.
43 CFR 3173.12(f)(4) Applying for a       None.......................  The final rule removes the requirement in
 facility measurement point.                                            paragraph (f)(4) to identify the gas
                                                                        sampling method for gas measurements.
                                                                        Paragraph (f)(5) in the proposed rule is
                                                                        now renumbered to paragraph (f)(4) in
                                                                        the final rule and is unchanged.
None....................................  43 CFR 3173.12(f)(5)         New paragraph (f)(5) adds to the list of
                                           Applying for a facility      information that operators must include
                                           measurement point.           in their FMP request.
43 CFR 3173.12(g) Applying for a          43 CFR 3173.12(g) Applying   Language is added to clarify that FMP
 facility measurement point.               for a facility measurement   requests--if they are submitted
                                           point.                       concurrently with requests for off-lease
                                                                        measurement or commingling and
                                                                        allocation approvals--must be submitted
                                                                        separately from the other requests.
43 CFR 3173.12(h) Applying for a          None.......................  Paragraph (h) is eliminated from the
 facility measurement point.                                            final rule because it was determined to
                                                                        be redundant.
43 CFR 3173.13(a) and (b) Requirements    None.......................  The final rule removes the requirement
 for approved facility measurement                                      for operators to stamp or stencil the
 points.                                                                FMP number on a fixed plate onto various
                                                                        pieces of oil and gas measurement
                                                                        equipment and to maintain the number in
                                                                        a legible condition.
43 CFR 3173.13(c) Requirements for        43 CFR 3173.13(a)            The final rule removes the requirement
 approved facility measurement points.     Requirements for approved    for operators to begin using the FMP
                                           facility measurement         number for recordkeeping on the first
                                           points.                      day of the month after the FMP number is
                                                                        assigned.
                                                                       A new provision is incorporated into
                                                                        paragraph (a) in the final rule that
                                                                        requires operators of existing
                                                                        facilities to begin using their FMP
                                                                        numbers for reporting production to the
                                                                        Office of Natural Resources Revenue
                                                                        (ONRR) on their Oil and Gas Operations
                                                                        Report (OGOR) for the fourth production
                                                                        month after the BLM assigns the FMP
                                                                        numbers. Operators of new facilities in
                                                                        service after this rule's effective date
                                                                        must start using their FMP numbers for
                                                                        production reporting on their OGORs for
                                                                        the first production month after the BLM
                                                                        assigns the FMP numbers.
43 CFR 3173.13(d)(1) and (d)(2)           43 CFR 3173.13(b)(1)         Paragraph (b)(1) in the final rule
 Requirements for approved facility        Requirements for approved    requires operators to notify the BLM via
 measurement points.                       facility measurement         a Sundry Notice within 30 days after
                                           points.                      changing or modifying an FMP (the
                                                                        proposed rule gave operators 20 business
                                                                        days). This paragraph also describes the
                                                                        types of changes that require the
                                                                        operator to submit a Sundry Notice,
                                                                        e.g., changes in the metering equipment
                                                                        or the wells served by the FMP.
                                                                        Paragraph (b)(1) also clarifies that
                                                                        temporary modifications, such as those
                                                                        made for maintenance purposes, do not
                                                                        require the filing of a Sundry Notice.
                                                                        The final rule removes the requirement
                                                                        in proposed paragraph (d)(2) that
                                                                        operators provide information about the
                                                                        old and new meter manufacturer, serial
                                                                        number(s), and the owner's name.
None....................................  43 CFR 3173.13(b)(2)         The final rule adds a new requirement
                                           Requirements for approved    that the operator's description of any
                                           facility measurement         modifications being made include
                                           points.                      details, such as the primary element,
                                                                        secondary element, LACT/CMS meter, tank
                                                                        number(s), and wells or facilities using
                                                                        the FMP.
43 CFR 3173.13(d)(3) Requirements for     43 CFR 3173.13(b)(3)         Final paragraph (b)(3) removes the
 approved facility measurement points.     Requirements for approved    requirement that operators specify why a
                                           facility measurement         change was made to a piece of equipment.
                                           points.
43 CFR 3173.14(a) Conditions for          43 CFR 3173.14(a)            Final paragraph (a) is modified so that
 commingling and allocation approval       Conditions for commingling   it explicitly states that the criteria
 (surface and downhole).                   and allocation approval      the BLM uses to approve a commingling
                                           (surface and downhole).      application under this paragraph is when
                                                                        the proposed allocation method used for
                                                                        commingled measurement does not have the
                                                                        potential to affect the BLM's
                                                                        determination of the total volume or
                                                                        quality of the production on which
                                                                        royalty is owed for all of the Federal
                                                                        or Indian leases, unit PAs, or CAs which
                                                                        are proposed for commingling.
3173.14(a)(1)(i) Conditions for           3173.14(a)(1)(i) Conditions  Paragraph (a)(1)(i) clarifies that
 commingling and allocation approval       for commingling and          commingling is permissible when it
 (surface and downhole).                   allocation approval          involves properties that contain 100
                                           (surface and downhole).      percent Federal mineral interests, the
                                                                        same fixed royalty rate, and the same
                                                                        revenue distribution.
3173.14(a)(1)(ii) Conditions for          3173.14(a)(1)(ii)            Paragraph (a)(1)(ii) clarifies that
 commingling and allocation approval       Conditions for commingling   commingling is permissible when it
 (surface and downhole).                   and allocation approval      involves properties that are wholly
                                           (surface and downhole).      owned by the same tribe and have the
                                                                        same fixed royalty rate.

[[Page 81364]]

 
None....................................  3173.14(a)(1)(iii)           A new paragraph (a)(1)(iii) is added
                                           Conditions for commingling   which clarifies that commingling of
                                           and allocation approval      Federal unit PAs or CAs is permissible
                                           (surface and downhole).      even if Federal ownership is not 100
                                                                        percent, so long as the properties have
                                                                        the same proportion of Federal
                                                                        ownership, royalty rate and revenue
                                                                        distribution.
None....................................  3173.14(a)(1)(iv)            A new paragraph (a)(1)(iv) is added which
                                           Conditions for commingling   clarifies that commingling of tribal
                                           and allocation approval      unit PAs or CAs is permissible even if
                                           (surface and downhole).      tribal ownership is not 100 percent, so
                                                                        long as the properties have the same
                                                                        proportion of tribal interest and fixed
                                                                        royalty rate.
3173.14(a)(2) Conditions for commingling  3173.14(a)(2) Conditions     This paragraph recognizes there are cases
 and allocation approval (surface and      for commingling and          where multiple operators are party to a
 downhole).                                allocation approval          CAA and clarifies that there must be a
                                           (surface and downhole).      signed agreement amongst the operators
                                                                        about the allocation methodology for the
                                                                        commingling proposal.
None....................................  3173.14(b) Conditions for    To complement paragraphs (a)(1)(iii) and
                                           commingling and allocation   (a)(1)(iv) to this section, paragraph
                                           approval (surface and        (b) clarifies that the BLM may consider
                                           downhole).                   commingling that involves production
                                                                        from properties with different royalty
                                                                        rates or revenue distributions, or
                                                                        multiple mineral ownerships.
3173.14(b)(1) Conditions for commingling  3173.14(b)(1) Conditions     This paragraph is revised to reflect the
 and allocation approval (surface and      for commingling and          BLM's switch from the term ``low-volume
 downhole).                                allocation approval          property'' to ``economically marginal
                                           (surface and downhole).      property.'' It also clarifies that if
                                                                        the BLM determines that a Federal or
                                                                        Indian lease, unit PA, or CA included in
                                                                        a CAA ceases to be an economically
                                                                        marginal property, then (b)(1) is no
                                                                        longer met.
3173.14(b)(2) Conditions for commingling  3173.14(b)(2) Conditions     In the proposed rule, paragraph (b)(2)
 and allocation approval (surface and      for commingling and          allowed operators to be exempted from
 downhole).                                allocation approval          the BLM's commingling standards if there
                                           (surface and downhole).      are overriding considerations that
                                                                        indicated approval of the CAA was
                                                                        appropriate in spite of royalty impacts.
                                                                        In the final rule, this provision is
                                                                        replaced with a new exemption if the
                                                                        average monthly production rate over the
                                                                        previous 12 months for each Federal or
                                                                        Indian lease, unit PA, and CA included
                                                                        in the CAA is less than 1,000 Mcf of gas
                                                                        per month or 100 bbl of oil per month.
                                                                       Paragraph (b)(2) from the proposed rule
                                                                        is now renumbered as paragraph (b)(5).
3173.14(b)(3) Conditions for commingling  3173.14(b)(3) Conditions     New paragraph (b)(3) of the final rule
 and allocation approval (surface and      for commingling and          adds a new exemption that allows the BLM
 downhole).                                allocation approval          to consider approval of a commingling
                                           (surface and downhole).      proposal that includes Indian leases,
                                                                        unit PAs, or CAs that has been
                                                                        authorized under tribal law or otherwise
                                                                        approved by a tribe.
                                                                       In the proposed rule, paragraph (b)(3)
                                                                        required the BLM to ensure that approval
                                                                        of a CAA in cases where the CAA would be
                                                                        exempted from the standards in this rule
                                                                        was in the public interest. This
                                                                        paragraph is eliminated and incorporated
                                                                        into the new paragraph (b)(5).
None....................................  3173.14(b)(4) Conditions     A new exemption is included as part of
                                           for commingling and          the final rule that allows the BLM to
                                           allocation approval          consider a commingling proposal if it
                                           (surface and downhole).      covers the downhole commingling of
                                                                        production from multiple formations
                                                                        where the BLM has determined that the
                                                                        proposed commingling is an acceptable
                                                                        practice for the purpose of achieving
                                                                        maximum ultimate economic recovery and
                                                                        resource conservation.
43 CFR 3173.15(a)(1) and (a)(2) Applying  43 CFR 3173.15(a) Applying   Paragraph (a) of the final rule
 for a commingling and allocation          for a commingling and        eliminates the numbering for paragraph
 approval.                                 allocation approval.         (a)(1) in the proposed rule, and
                                                                        clarifies that if off-lease measurement
                                                                        is a feature of the commingling
                                                                        proposal, then a separate Sundry Notice
                                                                        requesting approval for off-lease
                                                                        measurement is not necessary as long as
                                                                        the off-lease measurement request is
                                                                        included as part of the commingling
                                                                        application and the information required
                                                                        in Sec.   3173.23(b) through (e) and,
                                                                        where applicable, Sec.   3173.23(f)
                                                                        through (i) is included in the
                                                                        commingling application.
3173.15(a)(2) Applying for a commingling  43 CFR 3173.15(b)..........  Paragraph (a)(2) from the proposed rule
 and allocation approval.                                               is renumbered to a new paragraph (b) and
                                                                        clarifies that submission of a completed
                                                                        Sundry Notice for approval of off-lease
                                                                        measurement is required if any of the
                                                                        proposed FMPs are outside the boundaries
                                                                        of any lease, unit PA, or CA whose
                                                                        production would be commingled. This
                                                                        paragraph clarifies that this
                                                                        requirement does not apply if the
                                                                        circumstances under paragraph (a) of
                                                                        this section are applicable.
43 CFR 3173.15(b) Applying for a          43 CFR 3173.15(c) Applying   In addition to requiring operators to
 commingling and allocation approval.      for a commingling and        provide their proposed allocation
                                           allocation approval.         agreement, final paragraph (c) is
                                                                        revised to require operators to provide
                                                                        an allocation methodology, along with an
                                                                        example of how the methodology is to be
                                                                        applied.
None....................................  43 CFR 3173.15(d)..........  Requires the operator to include a list
                                                                        of all Federal or Indian lease, unit PA,
                                                                        or CA numbers in the proposed CAA,
                                                                        specifying the type of production (i.e.,
                                                                        oil, gas, or both) for which commingling
                                                                        is requested.

[[Page 81365]]

 
43 CFR 3173.15(d) Applying for a          43 CFR 3173.15(e) Applying   Final paragraph (e) continues to require
 commingling and allocation approval.      for a commingling and        operators to provide maps with their
                                           allocation approval.         commingling and allocation requests, but
                                                                        the information requirements for the
                                                                        maps are changed. Please note that in
                                                                        the final rule, paragraphs (d)(2) and
                                                                        (d)(3) have been consolidated and
                                                                        renumbered as paragraphs (e)(1) and
                                                                        (e)(2) in the final rule. The final rule
                                                                        also reduces the amount of information
                                                                        that must be submitted with a
                                                                        commingling application relative to the
                                                                        proposed rule.\8\
43 CFR 3173.15(e) Applying for a          None.......................  Proposed paragraph (e), which required
 commingling and allocation approval.                                   submission a site facility diagram
                                                                        showing any changes to existing diagrams
                                                                        if changes were being proposed to an
                                                                        existing facility, is eliminated from
                                                                        the final rule.
43 CFR 3173.15(f) Applying for a          None.......................  Proposed paragraph (f), which required
 commingling and allocation approval.                                   submission of a schematic or engineering
                                                                        drawing for all new proposed facilities,
                                                                        is eliminated from the final rule.
43 CFR 3173.15(g) Applying for a          43 CFR 3173.15(f) Applying   Paragraph (f) of the final rule
 commingling and allocation approval.      for a commingling and        (paragraph (g) of the proposed rule) is
                                           allocation approval.         revised to clarify that operators must
                                                                        submit a surface use plan of operations
                                                                        if new surface disturbance is proposed
                                                                        for the FMP and its associated
                                                                        facilities, if those facilities are
                                                                        located on BLM-managed land within the
                                                                        boundaries of the lease, units, or
                                                                        communitized areas whose production will
                                                                        be commingled.
43 CFR 3173.15(h) Applying for a          43 CFR 3173.15(g) Applying   Final paragraph (g) clarifies that the
 commingling and allocation approval.      for a commingling and        operator must submit a right-of-way
                                           allocation approval.         grant application (Standard Form 299) if
                                                                        the proposed FMP is on a pipeline or is
                                                                        a meter or storage tank that entails new
                                                                        surface disturbance located on BLM-
                                                                        managed land outside any of the leases,
                                                                        units, or communitized areas whose
                                                                        production would be commingled.
43 CFR 3173.15(i) Applying for a          43 CFR 3173.15(h) Applying   Final paragraph (h) is essentially the
 commingling and allocation approval.      for a commingling and        same as proposed paragraph (i) but is
                                           allocation approval.         renumbered.
None....................................  43 CFR 3173.15(i) Applying   A new final paragraph (i) has been added
                                           for a commingling and        to clarify that the operator must submit
                                           allocation approval.         a right-of-way grant application to the
                                                                        appropriate BIA office if any of the
                                                                        proposed surface facilities are on
                                                                        Indian land outside the lease, unit, or
                                                                        communitized area from which the
                                                                        production would be commingled.
None....................................  43 CFR 3173.15(j)..........  Requires the operator to include
                                                                        documentation demonstrating that each of
                                                                        the leases, unit PAs, or CAs proposed
                                                                        for inclusion in the CAA is producing or
                                                                        capable of production in paying
                                                                        quantities.
43 CFR 3173.15(k) Applying for a          43 CFR 3173.15(k) Applying   Final paragraph (k) clarifies that gas
 commingling and allocation approval.      for a commingling and        analysis and oil gravity data is not
                                           allocation approval.         needed if the CAA falls under Sec.
                                                                        3173.14(a).
43 CFR 3173.16(a) Existing commingling    43 CFR 3173.16(a) Existing   This section is extensively rewritten
 and allocation approvals.                 commingling and allocation   from the proposed rule based on comments
                                           approvals.                   received. Final paragraph (a) includes
                                                                        new provisions that grandfather the
                                                                        following types of existing commingling
                                                                        operations and their associated off-
                                                                        lease measurement approvals, where
                                                                        applicable, that are in effect prior to
                                                                        the effective date of the final rule:
                                                                        Existing CAAs involving downhole
                                                                        commingling that includes Federal or
                                                                        Indian leases, unit PAs, or CAs; or
                                                                        Existing CAAs for surface
                                                                        commingling whose average production
                                                                        rate over the previous 12 months for
                                                                        each Federal or Indian lease, unit PA,
                                                                        and CA included in the CAA is less than
                                                                        1,000 Mcf of gas per month or 100 bbl of
                                                                        oil per month.
43 CFR 3173.16(b) Existing commingling    43 CFR 3173.16(b) Existing   A new provision has been added to
 and allocation approvals.                 commingling and allocation   paragraph (b), which clarifies that if
                                           approvals.                   the grandfathering conditions in
                                                                        paragraph (a) of this section are not
                                                                        met, then the existing CAA must meet the
                                                                        minimum standards and requirements for a
                                                                        CAA under Sec.   3173.14 of the final
                                                                        rule.
                                                                       This section also clarifies that the AO
                                                                        will notify the operator in writing of
                                                                        any inconsistencies or deficiencies with
                                                                        an existing CAA. When the AO is
                                                                        satisfied that the operator has
                                                                        corrected any inconsistencies or
                                                                        deficiencies, the AO will terminate the
                                                                        existing CAA and grant a new CAA based
                                                                        on the operator's corrections.
43 CFR 3173.16(c) Existing commingling    43 CFR 3173.16(b)(2)         Paragraph (b)(2) of the final rule
 and allocation approvals.                 Existing commingling and     clarifies that the AO may terminate an
                                           allocation approvals.        existing CAA and grant a new CAA with
                                                                        new or amended COAs to make the approval
                                                                        consistent with the requirements for
                                                                        CAAs under Sec.   3173.14 of the final
                                                                        rule. Under the proposed rule the AO
                                                                        could simply impose new or amended COAs
                                                                        to an existing commingling approval.
43 CFR 3173.16(e) Existing commingling    43 CFR 3173.16(c) Existing   Proposed paragraph (e) is now paragraph
 and allocation approvals.                 commingling and allocation   (c) and clarifies that any new
                                           approvals.                   allocation percentages resulting from
                                                                        the new CAA will only apply from the
                                                                        effective date of the CAA forward.

[[Page 81366]]

 
43 CFR 3173.18(a) Modification of a       43 CFR 3173.18(a)            Paragraph (a) is changed to require
 commingling and allocation approval.      Modification of a            operators to modify a CAA under certain
                                           commingling and allocation   circumstances. The final rule no longer
                                           approval.                    includes ``a change in operator'' in the
                                                                        list of circumstances that warrant a CAA
                                                                        modification.
43 CFR 3173.18(b) Modification of a       43 CFR 3173.18(b)            Final paragraph (b)(2) includes a new
 commingling and allocation approval.      Modification of a            requirement to describe not only a new
                                           commingling and allocation   allocation methodology for oil and gas
                                           approval.                    production, if appropriate, but also an
                                                                        allocation methodology for produced
                                                                        water and an example of how the
                                                                        methodology is applied.
None....................................  43 CFR 3173.18(c)            A new paragraph (c) is added that states
                                           Modification of a            that a change in operator does not
                                           commingling and allocation   trigger the need to modify a CAA.
                                           approval.
43 CFR 3173.20(a) Terminating a           43 CFR 3173.20(c)            The final rule redesignates and modifies
 commingling and allocation approval.      Terminating a commingling    proposed paragraph (a), which allows any
                                           and allocation approval.     operator who is a party to a CAA to
                                                                        unilaterally terminate the CAA.
                                                                       New paragraph (c) in the final rule
                                                                        clarifies that it allows an operator to
                                                                        terminate the CAA through the submission
                                                                        of a Sundry Notice to the BLM. It also
                                                                        clarifies that the termination by one
                                                                        operator does not terminate the CAA for
                                                                        all other operators, so long as the
                                                                        requirements of this part with respect
                                                                        to CAAs are still met as to the
                                                                        remaining operators and they submit a
                                                                        Sundry Notice requesting a new CAA as
                                                                        required by Sec.   3173.20(e).
43 CFR 3173.20(d) Terminating a           43 CFR 3173.20(d)            Paragraph (d) of the final rule clarifies
 commingling and allocation approval.      Terminating a commingling    that the BLM will notify all parties to
                                           and allocation approval.     a CAA the effective date of the
                                                                        termination and the inconsistencies or
                                                                        deficiencies with their CAA that serve
                                                                        as the reason(s) for termination.
                                                                       The final rule also gives operators the
                                                                        opportunity to correct the
                                                                        inconsistencies or deficiencies, or
                                                                        provide additional information, within
                                                                        20 business days after receipt of the
                                                                        BLM's notice. Otherwise, the CAA will be
                                                                        terminated.
43 CFR 3173.20(e) Terminating a           43 CFR 3173.20(e)            Paragraph (e) of the final rule clarifies
 commingling and allocation approval.      Terminating a commingling    that if a CAA is terminated, each lease,
                                           and allocation approval.     unit PA, or CA that was included in the
                                                                        CAA may require a new FMP number, or a
                                                                        new CAA may need to be applied for. In
                                                                        such cases, operators will have 30 days
                                                                        to apply for a new FMP number or CAA.
                                                                        Unlike the proposed rule--where
                                                                        operators would have been required to
                                                                        revert back to separate measurement for
                                                                        each lease, unit PA, or CA--the final
                                                                        rule allows the operator to use the
                                                                        existing FMP number for production
                                                                        reporting until a new FMP number is
                                                                        assigned or a new CAA is approved.
43 CFR 3173.21(b) Combining production    43 CFR 3173.21(b) Combining  Paragraph (b) makes clear that combining
 downhole in certain circumstances.        production downhole in       production downhole from different
                                           certain circumstances.       geologic formations on the same lease in
                                                                        a single well is not considered to be
                                                                        commingling for production accounting
                                                                        purposes. This applies even in cases
                                                                        where the respective geologic formations
                                                                        have different ownership. The proposed
                                                                        rule made this distinction, which no
                                                                        longer applies in the final rule.
                                                                       The final rule also clarifies that such
                                                                        activities are not subject to the
                                                                        commingling standards and requirements
                                                                        contained in Sec.  Sec.   3173.14
                                                                        through 3173.20.
43 CFR 3173.22(c) Requirements for off-   43 CFR 3173.22(c)            Changes to this paragraph clarify that
 lease measurement.                        Requirements for off-lease   topographic and environmental issues
                                           measurement.                 that make on-lease measurement
                                                                        physically impractical are factors to be
                                                                        considered when deciding if off-lease
                                                                        measurement is in the public interest.
43 CFR 3173.23(a) Applying for off-lease  43 CFR 3173.23(a) Applying   The second sentence of proposed paragraph
 Measurement.                              for off-lease Measurement.   (a) is removed because Sec.   3173.15(a)
                                                                        states that if off-lease measurement is
                                                                        a feature of the CAA proposal, then a
                                                                        separate Sundry Notice is not necessary
                                                                        as long as the information required
                                                                        under Sec.   3173.23(b) through (e) and,
                                                                        where applicable, Sec.   3173.23(f)
                                                                        through (i), is included as part of the
                                                                        request for approval of a CAA.
43 CFR 3173.23(c)(2) Applying for off-    43 CFR 3173.23(c)(2)         The final rule in this paragraph no
 lease Measurement.                        Applying for off-lease       longer requires location identification
                                           Measurement.                 by land description, but does include a
                                                                        new requirement to identify existing or
                                                                        proposed (to the extent known) FMPs.
43 CFR 3173.23(d) Applying for off-lease  None.......................  Paragraph (d) of the proposed rule
 Measurement.                                                           requiring operators to submit a
                                                                        schematic or engineering drawing for all
                                                                        new proposed facilities is deleted.
43 CFR 3173.23(e) Applying for off-lease  None.......................  Paragraph (e) of the proposed rule, which
 Measurement.                                                           required operators to submit as part of
                                                                        their off-lease measurement application,
                                                                        site facility diagrams clearly showing
                                                                        any proposed change to current site
                                                                        facility diagrams for existing
                                                                        facilities is deleted.

[[Page 81367]]

 
43 CFR 3173.23(f) Applying for off-lease  43 CFR 3173.23(e) Applying   In the event there is a change in the
 Measurement.                              for off-lease Measurement.   ownership of the non-Federal surface or
                                                                        of the measurement facilities, the final
                                                                        rule includes a new 30-day deadline for
                                                                        when an operator must submit written
                                                                        concurrence from the new owner that it
                                                                        will give the BLM unrestricted access to
                                                                        the off-lease measurement facility and
                                                                        the surface on which it is located to
                                                                        inspect the FMP and any associated
                                                                        equipment.
43 CFR 3173.23(g) Applying for off-lease  43 CFR 3173.23(f) Applying   Final paragraph (f) clarifies that if the
 Measurement.                              for off-lease Measurement.   proposed off-lease FMP is on a pipeline
                                                                        or is a meter or storage tank, then a
                                                                        right-of-way grant application using
                                                                        Standard Form 299 must be submitted.
                                                                       This paragraph also clarifies that this
                                                                        requirement applies only when new
                                                                        surface disturbance is proposed for the
                                                                        FMP and its associated facilities are
                                                                        located on BLM-managed land.
43 CFR 3173.23(h) Applying for off-lease  43 CFR 3173.23(g) Applying   Final paragraph (g) (re-lettered from
 Measurement.                              for off-lease Measurement.   paragraph (h)) clarifies that if any of
                                                                        the proposed surface facilities are on
                                                                        Indian land outside the lease, unit, or
                                                                        communitized area, then a right-of-way
                                                                        grant application filed under 25 CFR
                                                                        part 169 must be filed with the
                                                                        appropriate BIA office.
None....................................  43 CFR 3173.23(h) Applying   The final rule adds a new paragraph (h)
                                           for off-lease Measurement.   that requires written approval from the
                                                                        appropriate surface-management agency if
                                                                        new surface disturbance is proposed for
                                                                        the FMP and its associated facilities
                                                                        are located on Federal land managed by
                                                                        an agency other than the BLM.
3173.25(b) Existing approved off-lease    3173.25(b) Existing          Paragraph (b) of the final rule has been
 measurement.                              approved off-lease           revised to provide an opportunity for
                                           measurement.                 operators to request additional time to
                                                                        correct any inconsistencies or
                                                                        deficiencies that the AO identifies.
                                                                        This paragraph also clarifies that the
                                                                        extension request must explain the
                                                                        factors preventing the operator from
                                                                        timely compliance.
3173.25(c) Existing approved off-lease    3173.25(c) Existing          Paragraph (c) of the final rule clarifies
 measurement.                              approved off-lease           that if new or amended conditions of
                                           measurement.                 approval (COAs) are necessary to make an
                                                                        existing off-lease measurement approval
                                                                        consistent with the final rule's
                                                                        standards, then the BLM could address
                                                                        that situation by terminating the
                                                                        existing approval and issuing a new off-
                                                                        lease measurement approval with new or
                                                                        amended COAs.
None....................................  43 CFR 3173.25(e) Existing   A new paragraph (e) is added to the final
                                           approved off-lease           rule, clarifying that if the existing
                                           measurement.                 off-lease measurement approval under
                                                                        this section is consistent with the
                                                                        requirements under Sec.   3173.22, then
                                                                        that existing off-lease measurement is
                                                                        grandfathered and will be part of its
                                                                        FMP approval.
43 CFR 3173.25(e) Existing approved off-  43 CFR 3173.25(f) Existing   Proposed paragraph (e) is re-lettered to
 lease measurement.                        approved off-lease           paragraph (f).
                                           measurement.
43 CFR 3173.27(a) Termination of off-     43 CFR 3173.27(c)            Proposed paragraph (a) is deleted from
 lease measurement approval.               Termination of off-lease     the final rule and the provision in that
                                           measurement approval.        paragraph allowing an operator to
                                                                        terminate off-lease measurement is moved
                                                                        to paragraph (c).
43 CFR 3173.27(b) Termination of off-     43 CFR 3173.27(a)            Paragraphs re-lettered. No change.
 lease measurement approval.               Termination of off-lease
                                           measurement approval.
43 CFR 3173.27(c) Termination of off-     43 CFR 3173.27(b)            Final paragraph (b) is changed to say the
 lease measurement approval.               Termination of off-lease     BLM will notify the operator in writing
                                           measurement approval.        of any inconsistencies or deficiencies
                                                                        with its off-lease measurement approval
                                                                        that serve as the reason(s) for
                                                                        termination.
                                                                       The final rule is also changed to give
                                                                        the operator 20 business days after
                                                                        receipt of the notification to correct
                                                                        the inconsistencies or deficiencies that
                                                                        the BLM identifies, or provide
                                                                        additional information that the AO
                                                                        requests, or the off lease measurement
                                                                        approval terminates. The operator may
                                                                        request an extension of the 20-business-
                                                                        day timeframe.
43 CFR 3173.27(d) Termination of off-     43 CFR 3173.27(d)            Final paragraph (d) explains that if an
 lease measurement approval.               Termination of off-lease     off lease measurement approval is
                                           measurement approval.        terminated, each lease, unit PA, or CA
                                                                        that was in the approval may require a
                                                                        new FMP number(s) or a new off lease
                                                                        measurement approval. Operators will
                                                                        have 30 days to apply for a new FMP
                                                                        number or off lease measurement
                                                                        approval. The final rule allows
                                                                        operators to use the existing FMP number
                                                                        for production reporting until a new FMP
                                                                        number is assigned or a new off lease
                                                                        measurement approval is approved.
43 CFR 3173.29 Immediate assessments....  43 CFR 3173.29 Immediate     The final rule exempts purchasers and
                                           assessments.                 transporters from the immediate
                                                                        assessments that will be imposed for
                                                                        certain instances of non-compliance. In
                                                                        addition, the final rule modifies the
                                                                        description of violations number 7
                                                                        through 11.
                                                                        For violation number 7, the
                                                                        final rule clarifies that the applicable
                                                                        regulation is Sec.   3170.7, not Sec.
                                                                        3173.9(a)(1) and (a)(2).

[[Page 81368]]

 
                                                                        For violation 8, the final rule
                                                                        clarifies that an immediate assessment
                                                                        could result if operators fail to
                                                                        ``apply for'' the required FMP approval.
                                                                        The proposed rule required operators to
                                                                        ``obtain'' FMP approval.
                                                                        For violations 9, 10, and 11,
                                                                        the final rule clarifies that an
                                                                        immediate assessment could result if
                                                                        production is removed from a facility in
                                                                        operation after the effective of the
                                                                        final rule prior to receiving BLM
                                                                        approval for off-lease measurement or
                                                                        commingling. For an existing facility in
                                                                        service on or before the effective date
                                                                        of the final rule, an immediate
                                                                        assessment could result if production is
                                                                        removed from a facility that does not
                                                                        already have an existing BLM approval
                                                                        for off-lease measurement or
                                                                        commingling, if applicable.
----------------------------------------------------------------------------------------------------------------

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

    \8\ Specifically, the final rule no longer requires the 
commingling application to include the following items: (i) The land 
description of the FMP that will be used to measure the commingled 
production; (ii) Production facilities and flow lines proposed to be 
installed to the extent known; and (iii) A map or diagram showing 
all of the infrastructure-related facilities that are part of the 
commingling proposal. The final rule only requires identification of 
existing or planned facilities, all wellheads, and piping that will 
be included in the CAA, as well as existing or proposed FMPs to be 
installed (if known).
---------------------------------------------------------------------------

B. Section-by-Section Analysis and Response to Comments on Specific 
Provisions

    This final rule is codified primarily in a new 43 CFR subpart 3173 
within a new part 3170. The BLM is also issuing final rules that update 
and replace Order 4 (oil measurement) and Order 5 (gas measurement). 
Those final rules are codified at new 43 CFR subparts 3174 and 3175, 
respectively, within the new part 3170. Subpart 3170 of this final rule 
contains definitions of certain terms and provisions that are common to 
all three rules (and to any other provisions within part 3170), i.e., 
provisions prohibiting by-pass of or tampering with meters; procedures 
for obtaining variances from the requirements of a particular rule; 
requirements for recordkeeping, records retention, and submission; and 
administrative appeal procedures.
    In addition, this final rule makes changes to various provisions in 
43 CFR part 3160 and in 43 CFR 3161.1, 3162.3-2, 3162.4-1, 3162.6, 
3162.7-1, 3163.2, and 3165.3. Public comments on changes to the 
provisions in part 3160 are discussed in connection with the new 
subparts 3170 or 3173 provisions to which the particular comment 
relates. Other comments on changes to provisions in part 3160 are 
discussed at the end of this Section-by-Section analysis.
Subpart 3170 and Related Provisions
Section 3170.1 Authority
    Section 3170.1 of the final rule identifies the various grants of 
rulemaking authority in the Federal and Indian mineral leasing statutes 
and related statutes that give the Secretary authority to promulgate 
this rule. As explained in that section, the Department is authorized 
to lease Federal and Indian (except Osage Tribe) oil and gas under 
various mineral leasing statutes, including the Mineral Leasing Act, 30 
U.S.C. 181 et seq.; the Mineral Leasing Act for Acquired Lands, 30 
U.S.C. 351 et seq.; the Federal Oil and Gas Royalty Management Act 
(FOGRMA), 30 U.S.C. 1701 et seq.; the Indian Mineral Leasing Act, 25 
U.S.C. 396a et seq.; the Act of March 3, 1909, 25 U.S.C. 396; the 
Indian Mineral Development Act, 25 U.S.C. 2101 et seq.; and the Federal 
Land Policy and Management Act (FLPMA), 43 U.S.C. 1701 et seq.
    Each of these statutes expressly authorizes the Secretary of the 
Interior to promulgate necessary and appropriate rules and regulations 
governing those leases. See e.g., 30 U.S.C. 189; 30 U.S.C. 359; 30 
U.S.C. 1751; 25 U.S.C. 396d; 25 U.S.C. 396; 25 U.S.C. 2107; and 43 
U.S.C 1740. The Secretary has delegated this authority to the Bureau of 
Land Management (BLM). Specifically, under Secretarial Order Number 
3087, dated December 3, 1982, as amended on February 7, 1983 (48 FR 
8983), and the Departmental Manual (235 DM 1.1), the Secretary has 
delegated regulatory authority over onshore oil and gas development on 
Federal and Indian (except Osage Tribe) lands to the BLM. For Indian 
leases, the delegation of authority to the BLM is reflected in 25 CFR 
parts 211, 212, 213, 225, and 227. In addition, as authorized by 43 
U.S.C. 1731(a), the Secretary has delegated to the BLM regulatory 
responsibility for oil and gas operations in Indian lands. 235 DM 
1.1.K.
    These statutes and regulations form the basis of and provide the 
authority for the issuance of this final rule. For example, Sec.  
101(a) of FOGRMA directs the Secretary to ``establish a comprehensive 
inspection, collection and fiscal and production accounting and 
auditing system to provide the capability to accurately determine oil 
and gas royalties, interest, fines, penalties, fees, deposits, and 
other payments owed, and to collect and account for such amounts in a 
timely manner.'' Ensuring that oil and gas produced from Federal and 
Indian leases is accurately measured and properly accounted for is a 
critical component of any system to ensure that all royalties due are 
paid. Under Sec.  101(a) of FOGRMA, the Secretary is authorized to 
promulgate ``such rules and regulations as [s]he deems reasonably 
necessary to carry out.'' the purposes of the act. The FOGRMA mandate 
complements the policy articulated in FLPMA that the United States 
receive fair compensation for the use of public lands and resources. 
See 43 U.S.C. 1701(a)(9). This rule, by improving BLM requirements 
governing site security and related measures, helps ensure that all 
royalties due are paid, and thus that the United States receives fair 
compensation for the use of public minerals.
    The BLM did not receive any public comments related to this 
provision and only made minor changes for clarity between the proposed 
and final versions.
Section 3170.2 Scope
    Section 3170.2(a) explains that the regulations in part 3170 apply 
to all onshore Federal and Indian (except Osage Tribe) oil and gas 
leases. Paragraph (b) explains that part 3170 also applies to 
agreements for oil and gas development under the Indian Mineral 
Development Act, unless the relevant provisions of the rule are 
inconsistent with the specific terms of such agreement. Paragraph (c) 
explains that a Tribal Energy Resource Agreement entered into with the

[[Page 81369]]

Secretary is subject to part 3170, unless specifically excluded in such 
lease, other business agreement or Tribal Energy Resource Agreement. 
Paragraph (d) explains that State or private tracts committed to a 
federally approved unit or CA as defined by or established under 43 CFR 
subpart 3105 or 43 CFR part 3180 are also subject to the requirements 
of part 3170. Finally, paragraph (e) states that all FMPs measuring 
production from any of the aforementioned leases or agreements are 
subject to the requirements of part 3170.
    The BLM received several comments expressing concern with proposed 
paragraph (d), which applies the part 3170 regulations to State or 
private tracts committed to a federally approved unit or CA as defined 
by or established under 43 CFR subpart 3105 or 43 CFR part 3180. The 
same language also appeared in a new paragraph (e) that was proposed to 
be added to Sec.  3161.1 Jurisdiction. Comments received on both 
sections are discussed here.
    Many commenters thought that the new paragraph (e) language 
proposed for Sec.  3161.1 would extend the BLM's jurisdiction over oil 
and gas to activities that are not covered by this rule. Specifically, 
commenters were concerned that adding the proposed language to Sec.  
3161.1 and also to proposed Sec.  3170.2 would expand the BLM's 
authority over the processing and approval of Applications for Permits 
to Drill (APDs) within State and private tracts committed to a BLM-
approved Federal or Indian unit or CA. Commenters said that such an 
expansion of authority would force operators to obtain Federal drilling 
permits for drilling on State and private tracts. From the commenters' 
perspective, this perceived expansion in jurisdiction would 
fundamentally alter the way in which operators plan for development.
    The BLM disagrees with this interpretation of the new language and 
never intended for this rule to extend the BLM's permitting authority 
over State and private drilling approvals. However, to avoid confusion, 
the BLM in this final rule added a new paragraph (b) to its Sec.  
3161.1 revisions, which clarifies that it is the regulations in parts 
3160 and 3170 relating to site security, measurement, reporting of 
production and operations, and assessments or penalties for non-
compliance with such requirements (i.e., those found in subparts 3173, 
3174, and 3175) that are applicable to all wells and facilities on 
State or privately owned lands committed to a unit or CA where the unit 
or CA affects Federal or Indian interests. Proposed Sec.  3170.2(d) has 
not been changed because it is appropriate for this rule to state that 
the regulations under part 3170, which includes subparts 3173, 3174, 
and 3175, do in fact apply to State or private tracts committed to a 
federally approved unit or CA as defined by or established under 43 CFR 
subpart 3105 or 43 CFR part 3180. This is consistent with the BLM's 
past application of its regulations, including its Onshore Orders, 
under existing 43 CFR 3161.1(b).
Section 3170.3 Definitions and Acronyms
    This section defines terms and acronyms used across all of the 
various subparts of part 3170.
    The BLM did not receive any comments on the majority of the 
definitions that appeared in the proposed rule and that are now in the 
final rule. Those definitions for which we received no comments were 
carried forward in this final rule and are not discussed further here. 
As explained in the proposed rule, a number of the definitions in Sec.  
3170.3 of the proposed rule were the same definitions that were found 
in Order 3, with only minor revisions to either simplify or clarify 
those definitions.
    The following discussion first describes the new definitions that 
have been added to Sec.  3170.3 in the final rule, and then summarizes 
and responds to comments that the BLM received on a handful of the 
proposed definitions. With respect to the former, based on comments 
received and its own internal reviews, the BLM added three new 
definitions to Sec.  3170.3: ``Averaging period,'' ``bias,'' and 
``tampering.'' As explained below some of these definitions were 
originally proposed as part of the proposed rules to replace Order 4 
(80 FR 58952) and Order 5 (80 CFR 61646). The BLM determined that it 
was appropriate to move those definitions from those rulemakings to 
Sec.  3170.3, because the terms are used in multiple subparts, and 
should therefore be defined once in a section that covers the entirety 
of part 3170. Other definitions were added in response to public 
comments.
    The final rule defines ``averaging period'' to mean the previous 12 
months or the life of the meter, whichever is shorter. For FMPs that 
measure production from a newly drilled well, the averaging period 
excludes production from that well that occurred in or before the first 
full month after production began. For example, if an oil FMP or a gas 
FMP were installed to measure the production from a new well that first 
produced on April 10, the averaging period for this FMP would not 
include the production that occurred in April and May of that year. The 
BLM added this definition to Sec.  3170.3 because the term is used 
multiple times in subparts 3174 (oil measurement) and 3175 (gas 
measurement), relating to the applicability of uncertainty threshold 
requirements. The BLM determined it was important to provide a single 
definition of the averaging period in order to provide for consistent 
application of the BLM's oil and gas measurement rules.
    The final rule adds a definition for the term ``bias'' to Sec.  
3170.3 because that term is used in both subparts 3174 and 3175. 
``Bias'' is defined to mean a ``shift in the mean value of a set of 
measurements away from the true value of what is being measured.'' This 
definition was originally proposed as part of the rule to replace Order 
5 in Sec.  3175.10. The definition added to part 3170.3 is identical to 
the definition in proposed Sec.  3175.10, because the BLM did not 
receive any comments on that definition in the context of the Order 5 
rulemaking.
    In response to recommendations from many commenters, the BLM added 
a definition of the term ``tampering'' to Sec.  3170.3. The proposed 
and final rules prohibit operators from tampering with measurement 
equipment, components, or processes and appropriate valves. While the 
meaning of tampering is commonly understood, the BLM agrees with 
commenters that the term should be defined to ensure there is a common 
understanding of what is meant by tampering for purposes of this rule. 
Section 3170.3 defines tampering to include ``any deliberate adjustment 
or alteration to a meter or measurement device, appropriate valve, or 
measurement process that could introduce bias into the measurement or 
affect the BLM's ability to independently verify volumes or qualities 
reported.'' The BLM modified the definition of ``commingling'' in the 
final rule to clarify that combining production from multiple wells 
within a single lease, unit PA, or CA, or the downhole combining of 
production from different zones or formations that are part of the same 
lease, unit PA, or CA, is not considered ``commingling'' for the 
purpose of the final rule. Many commenters expressed concern that the 
definition for commingling in the proposed rule would have required an 
operator to obtain approval to combine production from multiple 
properties within a CA or unit PA prior to measurement, particularly 
when the CA or unit PA contains leases with multiple owners (i.e., 
Federal, Indian, State, or

[[Page 81370]]

private). Commenters said the proposed definition negates one of the 
primary benefits of establishing a CA or unit PA, which is the 
operation of the CA or unit PA as one entity and the sharing of 
revenues from that CA or unit PA on a fixed allocation schedule, 
typically based on ownership percentage within the CA or unit PA.
    The conclusions reached by these commenters were incorrect. Neither 
the proposed rule nor the final rule defined ``commingling'' to include 
the combining of production from multiple properties within a CA or 
unit PA prior to measurement. However, in response to these comments, 
the BLM revised the definition of commingling to help clarify the 
situations that are and are not considered commingling, and to 
emphasize that the combining of production from multiple properties 
within a CA or unit PA prior to royalty measurement is not commingling.
    One commenter said the proposed commingling definition could deter 
operators from drilling horizontal wells through several sections that 
contain different mineral estates and reduce the production and 
utilization of the State's oil and gas resources. The BLM agrees with 
this comment with respect to the limited situations in which there is 
no unit agreement or CA in place for those sections. Downhole 
commingling when there is multiple ownership and no unit or CA in place 
would adversely affect the uncertainty, bias, and verifiability of the 
measurement of the volumes produced from each property, and the BLM 
would deny such a request unless it qualified under Sec.  3173.14(b) of 
the final rule. If there was a unit or CA in place, however, the BLM 
would not consider the combining of production between several sections 
within the unit or CA to be commingling and no approval would be 
required. The BLM did not make any changes to the rule based on this 
comment.
    The definition of an FMP in this final rule is carried forward from 
the proposed rule, which defined an FMP to be a ``BLM-approved point 
where oil or gas produced from a Federal or Indian lease, unit PA, or 
CA is measured and the measurement affects the calculation of the 
volume or quality of production on which royalty is owed.'' As 
explained in more detail below in the discussion of comments for Sec.  
3173.12, the final rule sets forth a process for an operator of a new 
or existing facility to apply for approval of an FMP and issuance of an 
FMP number in proposed Sec.  3173.12. Because Sec.  3173.12 of the 
final rule requires operators of existing facilities to apply for an 
FMP in stages over a 36-month period, it will require 3 years from the 
effective date of the final rule for the BLM to receive, evaluate, and 
act on an FMP application for existing facilities. Therefore, for 
purposes of compliance with other provisions of this final rule, during 
this interim period, the definition of an FMP makes clear, as in the 
proposed rule, that an FMP ``also includes a meter or measurement 
facility used in the determination of the volume or quality of royalty-
bearing oil or gas produced before BLM approval of an FMP under Sec.  
3173.12 of this part.''
    The BLM received many comments on the proposed definition of an 
FMP. A couple of commenters pointed out that there are differences 
between the BLM's proposed definition and the ONRR's definition at 30 
CFR 1206.171. Commenters said these differences could cause confusion 
for industry, the BLM, and ONRR, and recommended that a single 
definition be established for both agencies. These commenters did not 
provide specific details or any examples of the confusion that could 
arise as a result of these definitional differences. The BLM compared 
both definitions and agrees that there are differences, but disagrees 
with commenters that these differences will cause confusion. The intent 
of both definitions is the same. Both agencies want to ensure that the 
FMP is the point at which measurement determines the royalty that is 
owed to the Federal Government or the Indian mineral owners. In 
general, the ONRR definition applies to offshore oil and gas 
operations, whereas the BLM definition applies only to onshore 
operations. So, while the two agencies' FMP definitions are not exactly 
the same, they capture a similar concept (i.e., the specific 
measurement point where operators determine the royalty due the Federal 
Government or Indian mineral owners). These comments did not result in 
a change to the final rule.
    It should be noted that in 2013, the GAO specifically noted in 
report GAO-10-313 that Interior's onshore and offshore policies for 
tracking and approving where and how oil and gas are measured are 
inconsistent. The Bureau of Safety and Environmental Enforcement (BSEE) 
already assigns FMP numbers for offshore oil and gas leases, which the 
operator, transporter, or purchaser must then use when reporting 
production results to ONRR. Based on that practice, the GAO recommended 
that the BLM clearly identify points of measurement where oil and gas 
royalties due to the Federal Government are determined and reported. By 
including the definition of FMP in the final rule, the BLM is able to 
both address the GAO's concerns and bring onshore reporting in-line 
with the approach used offshore.
    The BLM received additional comments pertaining to the FMP 
definition. One recommended that the definition be changed to allow 
operators to use gas processing plant tailgate meters located off the 
lease, unit, or CA as FMPs as a general matter, or to allow those 
meters to be used as FMPs under a variance. Another commenter asked 
whether an FMP is the same as a Central Delivery Point or Point of 
Royalty Measurement as defined in Washington Office Instruction 
Memorandum (IM) 2013-152, a BLM policy document created in 2013 
regarding commingling approvals.
    The BLM did not change the definition of an FMP to include tailgate 
meters because, under the Mineral Leasing Act (MLA) and FOGRMA, the 
Secretary's authority to regulate onshore oil and gas operations 
applies to lessees/operators and, during certain activities, to 
purchasers and transporters. While the owners of off-lease/unit/CA gas 
processing plants may sometimes fall into these categories of regulated 
entities, they will not always, and while the BLM may consider requests 
for off-lease measurement it is not required to approve such request. 
Therefore, the BLM chose not to include off-lease/unit/CA tailgate 
meters in the definition of an FMP in order to avoid default 
applications of this rule that might be inconsistent with BLM's 
statutory authority or the requirements of this final rule related to 
off-lease measurement at Sec. Sec.  3173.23 through 3173.28. With 
respect to whether the definition of an FMP is the same as the Central 
Delivery Point or Point of Royalty Measurement as defined in IM 2013-
152, the BLM can confirm that they are the same.
    The definition of ``off-lease measurement,'' in both the proposed 
and final rules, means measurement at an FMP that is not located on the 
lease, unit, or communitized area from which the production came. The 
BLM received several comments requesting that the definition be 
expanded to exempt from the proposed rule's off-lease measurement 
approval requirement cases in which a horizontally or directionally 
drilled well is completed through a Federal or Indian lease, unit, or 
communitized area, but conducts measurement operations off-lease at the 
wellhead. The commenters said that, in many instances, wells are being 
drilled from a surface location that is sited off-lease due to 
environmental conditions, such as rugged terrain or sensitive wildlife 
habitat. The BLM did not

[[Page 81371]]

change the definition of off-lease measurement in response to this 
comment because Sec.  3173.28(a) of the proposed and final rules 
already addresses this situation. Under Sec.  3173.28(a), measurement 
at an approved FMP is not considered off-lease measurement when the FMP 
is located on the well pad of a directionally or horizontally drilled 
well that produces oil and gas from a lease, unit, or CA on which the 
well pad is not located. Therefore, approval for off-lease measurement 
is not required under those circumstances, so long as measurement 
operations occur on the well pad of the directionally or horizontally 
drilled well.
    The final rule makes minor changes to the list of acronyms that 
appear in proposed Sec.  3170.3 based on the acronyms used in part 
3170. The BLM did not receive any comments on this list. The acronym 
Btu (British thermal unit) has been relocated from Sec.  3173.1 to 
Sec.  3170.3 because this acronym is used in both subparts 3173 and 
3175. The acronym S&W (sediment and water) is new to section. The BLM 
decided to include it in Sec.  3170.3 because the acronym is used in 
both subparts 3173 and. Although it is a commonly understood acronym in 
the oil and gas industry, the BLM believes it is appropriate to include 
the acronym here for clarity and to help inform the general public. The 
BLM also added the acronym LACT (lease automatic custody transfer) 
because it is used in both subparts 3173 and 3174.
Section 3170.4 Prohibitions Against By-Pass and Tampering
    The BLM did not make any changes to the requirements of this 
section between the proposed and final versions. Section 3170.4 
strengthens the prohibition against meter by-passes contained within 
section III.D of Order 3 by adding language that prohibits tampering 
with any measurement device, component of a measurement device, or 
measurement process. As explained in Sec.  3170.3, tampering includes 
any deliberate adjustment or alteration to the meter or measurement 
device or measurement process that could introduce bias into the 
measurement or affect the BLM's ability to independently verify volumes 
or qualities reported. Examples of tampering include deliberately 
installing an orifice plate in a gas meter with the bevel upstream, 
adjusting a transducer to read higher or lower than a certified test 
device, entering incorrect information into the configuration log of an 
electronic gas measurement system, submitting derived integral values 
on a volume statement in lieu of raw data, or making analogous 
adjustments or alterations to an oil measurement system.
    The BLM received many comments on this section of the proposed 
rule, most of which suggested that the BLM clarify that inadvertent 
human error or force majeure events should not be considered 
``tampering'' for purposes of this section. For example, one commenter 
said meter reports may use derived values due to tap freezes or data 
loss. The commenter believes that these situations should not be 
considered ``tampering.'' The commenter said the language in the 
proposed rule would not allow for such cases, and should be modified. 
The BLM agrees with this comment and in the final rule has provided a 
definition for the term ``tampering,'' as previously discussed, that 
clearly states that the act of tampering must be deliberate on the part 
of the operator. By requiring acts to be deliberate, consistent with 
the commenter's suggestion, the BLM is able to take into consideration 
whether a particular act is due to human error or is outside of the 
operator's control.
    The BLM did not amend the definition of tampering in response to 
the comment about the use of derived values rather than raw data in a 
meter report, such as when a tap freezes or other malfunctions are 
experienced. These circumstances can occur in the context of either oil 
or gas measurement, and they are addressed in specific provisions of 
subparts 3174 and 3175 (the new rules replacing Orders 4 and 5) that 
establish procedures that an operator must follow to notify the BLM of 
the malfunctioning equipment, document how derived values were 
determined, and indicate on the quantity transaction record that 
derived values, rather than raw data, were used to determine volumes. 
As a result, the BLM did not amend the definition of tampering in 
response to comments about derived values.
Section 3170.5 Industry Standards Incorporated by Reference
    Section 3170.5 is reserved for potential future incorporation by 
reference of standards that apply to more than one of the subparts of 
part 3170.
Section 3170.6 Variances
    Section 3170.6 of the final rule clarifies and makes more uniform 
the BLM's existing process and regulations for granting variances from 
the minimum standards contained in part 3170.
    Paragraph (a)(1) lists all the information that a party seeking a 
variance from the requirements of part 3170 must include when filing a 
request, including: Identification of the specific requirement from 
which a variance is sought, and the length of time the variance is 
requested; an explanation of the need for the variance; a detailed 
explanation of the proposed alternative means of compliance; and a 
showing that the proposed alternative meets or exceed the objectives of 
the applicable requirement. Paragraph (a)(2) requires that variance 
requests be submitted as separate documents from any plans or 
applications. The BLM will not consider variance-request documents that 
are submitted as part of a master development plan, APD, right-of-way 
application, or other applications for approval. This requirement does 
not preclude operators from submitting variance requests at the same 
time that they submit a master development plan or other application. 
In fact, the final rule encourages operators to submit their variance 
requests simultaneously with, but separately from, their development 
plans or applications, especially if the operators' proposals are 
contingent upon the BLM approving their variance requests. The BLM's 
primary rationale for requiring separate submittal is that, in the 
past, operators have put their variance requests in the cover letters 
that accompanied their development proposals, where they are sometimes 
overlooked. Having operators submit their variance requests via a 
separate Sundry Notice will help the BLM easily identify them when they 
are submitted simultaneously with other applications. Paragraph (a)(2) 
clarifies that approval of a plan or application that contains a 
request for a variance does not constitute approval of the variance. 
The BLM made this clarification to ensure that variances are submitted 
separately and brought to the attention of the BLM.
    Paragraph (a)(3) tells operators how to submit their variance 
requests. Operators must use WIS, which is an acronym described in the 
final rule to mean the Well Information System or any successor 
electronic filing system that might be developed by the BLM, to file 
their request, along with any supporting documents associated with it. 
This paragraph also provides an option for operators to submit a 
hardcopy application if electronic filing is not possible or practical. 
In such cases, the operator must submit a variance in hardcopy as 
directed by the AO in the Field Office having jurisdiction over the 
lands described in

[[Page 81372]]

the application. The BLM made minor revisions to this section to 
clarify the intent of this provision regarding electronic filing, and 
to provide additional flexibility as the BLM rolls out new electronic 
systems to replace its existing systems, including the Well Information 
System and the Automated Fluid Management Support System (AFMSS).
    No substantive changes were made to proposed paragraph (a)(4). This 
paragraph strengthens and standardizes the criteria the BLM uses for 
granting variances. Under Order 3, the AO was required to make only one 
determination--whether or not the variance request meets or exceeds the 
objectives of the applicable minimum standard. Under this paragraph in 
the final rule, the AO will still have to make that determination 
before granting a variance. Additionally, the final rule requires the 
AO to make two more determinations before granting a variance--that 
issuing a variance: (1) Will not adversely affect royalty income or 
production accountability; and (2) Is consistent with maximum ultimate 
economic recovery.
    Paragraphs (a)(5) and (a)(6) specify that granting or denying a 
variance is entirely within the BLM's discretion, and that a variance 
from a requirement in a regulation does not constitute a variance from 
any other regulations, including other Onshore Oil and Gas Orders. 
These paragraphs did not change from the proposed rule.
    Paragraph 3170.6(b) affirms the BLM's authority to rescind a 
variance or modify any condition of approval of a variance due to 
changes in Federal law, technology, regulation, BLM policy, field 
operations, noncompliance, or for any other reason.
    The BLM received many comments on this section of the proposed 
rule. A few commenters were concerned that the proposed rule would void 
existing variances and that operators with existing variances would 
have to apply for new ones. These commenters were concerned this would 
place an unnecessary burden on affected parties. They recommended that 
the provision be revised to expressly ``grandfather'' existing 
variances.
    The BLM did not make a change to the rule in response to these 
comments. This final rule does not automatically rescind any existing 
variance approvals. Rather, it clarifies the BLM's authority to rescind 
variances and provides the means by which it may rescind an existing 
approval if necessary. The BLM will re-evaluate existing variance 
approvals on a case-by-case basis, such as during the FMP application 
and review process under Sec.  3173.16. For example, if an operator has 
an existing variance approval from the BLM's previous commingling 
requirements, but during the FMP approval process the BLM determines 
that the existing approval is inconsistent with this final rule's new 
commingling standards, or the operator cannot be exempted from the new 
commingling standards, then the BLM will rescind the existing variance 
if the deficiencies are not corrected within the time specified by the 
BLM.
    Several commenters disagreed with the provision in paragraph (b) 
that allows the BLM to rescind variance approvals and modify conditions 
of approval. These commenters stated that companies made investments 
and proceeded with projects based on previously approved BLM variances. 
These commenters said that rescinding existing authorizations and what 
they believe to be contractual agreements would pose a great risk to 
their operations.
    The BLM did not make a change in the rule in response to these 
comments. The BLM's overriding contractual agreement with the operator 
is the lease agreement, which is expressly made subject to regulations 
and formal orders subsequently promulgated as long as such regulations 
are not inconsistent with the lease rights granted or the specific 
lease provisions (See BLM Lease Form 3100-11). The Department has long 
interpreted this language as ``incorporat(ing) future regulations, even 
though inconsistent with those in effect at the time of lease 
execution, and even though to do so creates additional obligations or 
burdens for the lessee.'' \9\ The BLM's authority to update the 
regulations that apply to existing leases and operations is well-
established, and this authority necessarily includes the authority to 
rescind existing variances and authorizations when these variances and 
authorizations are inconsistent with applicable regulations.
---------------------------------------------------------------------------

    \9\ Coastal Oil & Gas Corp., et al., 108 IBLA 62, 66 (1989).
---------------------------------------------------------------------------

    The BLM recognizes that the commingling and off-lease measurement 
requirements in this rule may result in the termination of existing 
commingling and off-lease measurement variance approvals. However, the 
BLM has sought to minimize the adverse impacts of these requirements by 
providing exemptions for economically marginal properties. These 
additional exemptions are discussed in further detail in the sections 
of this preamble that address commingling and off lease measurement. 
See the Section-by-Section discussions of Sec. Sec.  3173.1, 3173.14, 
3173.25, and 3173.27. For example, the final rule provides public-
interest exemptions for operators that cannot meet its new off-lease 
measurement standards.
    One commenter supported the standards in paragraph (a)(4) that the 
BLM will use to determine whether to grant a variance but went one step 
further to recommend that operators be required to demonstrate that 
compliance with the regulation is not feasible, so that the rule's 
relatively limited opportunities for variances are not abused. The BLM 
does not expect operators to abuse the variance process, which requires 
them to submit an application requesting a variance, and provide 
sufficient information and justification for the variance that the BLM 
will then review prior to making a determination on the variance 
request. In fact, this rule strengthens and standardizes the criteria 
that the BLM will use to determine whether to grant a variance and 
requires that the BLM make a determination that ``the proposed 
alternative meets or exceeds the objectives of the applicable 
requirement(s) of the regulation.'' As a result, the BLM does not 
believe the change requested by the commenter is necessary and did not 
make any changes the rule based on this comment.
    A few commenters expressed concern with language in paragraph (b) 
that allows the BLM to rescind a variance for ``other reasons'' 
because, they said, it could result in the BLM acting arbitrarily. The 
BLM disagrees that this language would allow it to act arbitrarily 
because paragraph (b) requires the BLM to provide a written 
justification when it rescinds a variance. The BLM included the term 
``other reason'' because the BLM cannot anticipate every possible 
situation in which there will be good cause for rescinding a variance. 
The BLM must preserve its ability to rescind a variance approval if 
that approval adversely affects royalty income or production 
accountability, or is not consistent with maximum ultimate economic 
recovery. If the operator does not agree with the BLM's decision to 
rescind a variance, the operator may file an appeal under applicable 
BLM regulations at 43 CFR subpart 3165--Relief, Conflicts, and Appeals.
    A few commenters stated that even though the BLM will provide 
written justification when it rescinds a variance or modifies a COA, 
operators should be given a 30-day advance notice if their variance is 
about to be rescinded, or COA modified, in order to give them an

[[Page 81373]]

opportunity to avoid a rescission or modification, or to adjust to 
operating without the variance. The BLM disagrees with this comment and 
did not change the rule in response. As previously noted, if an 
operator disagrees with the BLM's decision to rescind a variance or 
change a COA, the operator may file an appeal under the applicable 
regulations.
Section 3170.7 Required Recordkeeping, Records Retention and Records 
Submission
    Section 3170.7 of the final rule updates BLM regulations to reflect 
the records-retention requirement for Federal oil and gas leases that 
Congress established in the 1996 amendments to FOGRMA.\10\
---------------------------------------------------------------------------

    \10\ Federal Oil and Gas Royalty Simplification and Fairness Act 
of 1996, Public Law 104-185, 110 Stat. 1700 (Aug. 13, 1996).
---------------------------------------------------------------------------

    Paragraphs (a) and (b) are the same as in the proposed rule. These 
paragraphs establish both the entities covered and the time period over 
which the records-retention requirements apply. In the final rule, 
purchasers and transporters are held to the same minimum standards as 
operators for recordkeeping, records retention, and records 
submission--i.e., to maintain all records that are relevant to 
determining the quality, quantity, disposition, and verification of 
production from Federal and Indian leases. As described in the proposed 
rule, the BLM has authority to impose these requirements on purchasers 
and transporters under FOGRMA. Specifically, Section 103(a) of FOGRMA, 
30 U.S.C. 1713(a), requires persons involved in transporting and 
purchasing oil or gas through the point of first sale or the point of 
royalty computation, whichever is later (along with persons involved in 
producing or selling), to ``establish and maintain any records, make 
any reports, and provide any information that the Secretary may, by 
rule, reasonably require.''
    Although paragraph (c) did not change substantively from the 
proposed rule, the final rule splits it up into two paragraphs for 
clarity. Paragraph (c)(1) states that records pertaining to Federal 
leases, units, or CAs must be maintained for at least 7 years, 
consistent with applicable statutory requirements. Paragraph (c)(2) 
codifies the applicable statutory requirements for further retention 
beyond 7 years under the circumstances specifically identified by 
statute (see 30 U.S.C. 1724(f)), as required under the 1996 amendments 
to FOGRMA.
    Similarly, although paragraph (d) did not change substantively from 
the proposed rule, the final rule splits it up into two paragraphs for 
clarity. Paragraph (d)(1) states that records pertaining to Indian 
leases, units, or CAs must be maintained for at least 6 years, 
consistent with applicable statutory requirements. Paragraph (d)(2) 
codifies the applicable statutory requirements for further retention 
beyond 6 years under the circumstances specifically identified by 
statute (see 30 U.S.C. 1713(b)). The records-retention requirement on 
Indian leases remains unchanged because the 1996 amendments to FOGRMA, 
by their express terms, applied only to Federal leases and not to 
Indian leases.
    Paragraph (e)(1) addresses the discrepancy between the records-
retention requirements for Federal (7 years) and Indian (6 years) 
leases, as relevant to units and CAs that contain both Federal and 
Indian leases. No substantive changes were made as part of the final 
rule. However, the phrase, ``but a judicial proceeding or demand is not 
commenced within 7 years after the records are generated, the record 
holder must retain all records regarding production from the unit or CA 
until the Secretary or his designee releases the record holder from the 
obligation to maintain the records'' has been eliminated from this 
paragraph of the proposed rule and moved to its own paragraph (e)(2).
    In paragraph (e)(2) of the proposed rule, which is now paragraph 
(e)(1) of the final rule, the phrase ``or until the Secretary or his 
designee releases the record holder from the obligation to maintain the 
records, whichever is later,'' was removed from the final rule in order 
to more closely track the authorizing language in FOGRMA, and also to 
make the record-retention obligation clearer.
    Paragraph (f) requires the record holder to maintain an audit trail 
and is unchanged from the proposed rule.
    Paragraph (g) requires operators, purchasers, and transporters to 
place specific identifying information on all records, including source 
records, used to determine quality, quantity, disposition, and 
verification of production attributable to a Federal or Indian lease, 
unit PA, or CA. The proposed rule would have required record holders to 
use BLM-assigned FMP numbers on such records. The final rule is revised 
to allow record holders, in lieu of an FMP number, to use the lease, 
unit PA, or CA number, as applicable, on their records, including 
source records. In any case, the record holder must also include a 
unique equipment identifier, such as a unique tank identification 
number or meter station number. The BLM made this change in response to 
many comments that it would be difficult or impossible for some record 
holders to modify their electronic systems to accommodate FMP numbers 
on their records. In these instances, the final rule allows record 
holders to use the lease, unit PA, or CA number instead of the FMP 
number.
    Paragraph (h) requires operators, purchasers, and transporters to 
provide all records to the BLM upon request. This ensures that all 
records--whether they are created by lessees, operators, transporters, 
or purchasers--are readily available to the BLM. The BLM did not 
receive any comments on this paragraph and did not change it in the 
final rule.
    Paragraph (i) requires that all records be legible. The BLM did not 
receive any comments on this paragraph and did not change it in the 
final rule.
    Paragraph (j) requires that all records requiring a signature must 
also have the signer's printed name. The BLM did not receive any 
comments on this paragraph of the proposed rule and did not change it 
in the final rule.
    The BLM received a number of comments on Sec.  3170.7 of the 
proposed rule as a whole requesting various changes to be made to the 
proposed requirements. Each of these comments is addressed below.
    One commenter stated that maintaining audit records for 7 years, as 
required in paragraph (c)(1), would result in unnecessary costs for 
purchasers and transporters, and that they should not have to account 
for production volumes. The BLM does not agree with this comment, nor 
can it make the changes suggested by the commenter. As discussed 
earlier, the records retention period set by FOGRMA for Federal leases 
is now 7 years and the change in retention period in this final rule 
merely conforms the regulations to that statutory authority.
    A number of other commenters asserted that the BLM does not have 
the authority to hold purchasers and transporters to the same records-
retention and recordkeeping requirements as lessees and operators, as 
outlined in paragraphs (a) and (f) of Sec.  3170.7. Other commenters 
indicated that they did not see a need for this new requirement and 
that it would be too costly. Still others disagreed that FOGRMA 
authorizes the BLM to impose recordkeeping and records-retention 
requirements on purchasers and transporters in the first instance. One 
commenter argued that the BLM had not properly defined ``any person 
directly involved in producing, transporting, purchasing, selling, or 
measuring oil

[[Page 81374]]

and gas'' under FOGRMA, and therefore had improperly extended these 
recordkeeping requirements to purchasers and transporters.
    The BLM disagrees with these comments. Section 103(a) of FOGRMA, 30 
U.S.C. 1713(a), requires a ``lessee, operator, or other person directly 
involved in developing, producing, transporting, purchasing, or selling 
oil or gas . . . through the point of first sale or the point of 
royalty computation, whichever is later, [to] establish and maintain 
any records, make any reports, and provide any information that the 
Secretary may, by rule, reasonably require.'' While FOGRMA does not 
specifically define ``any person directly involved,'' the intent of the 
provision is clear. It authorizes the Secretary to establish by rule 
requirements for anyone involved ``. . . in developing, producing, 
transporting, purchasing, or selling oil or gas,'' which plainly 
includes purchasers and transporters. 30 U.S.C. 1713(a) (emphasis 
added).
    Based on its experience in the field, the BLM believes it is 
appropriate to implement this statutory authority and have purchasers 
and transporters adhere to the same recordkeeping and records-retention 
requirements as lessees and operators. This is because the BLM must 
occasionally rely on purchasers' and transporters' records to verify 
production when operators do not maintain their own records properly, 
or go out of business, or are acquired by other companies and their 
records are destroyed. For this reason, the BLM believes that it is 
important for everyone involved in the production and sale of oil and 
gas produced from Federal and Indian leases to be responsible for 
maintaining and providing the necessary records to account for and 
verify that production. The BLM did not make any changes in response to 
these comments.
    Another commenter said the BLM did not adequately analyze the 
economic impact that this requirement would have on purchasers and 
transporters. The BLM does not agree with this comment. As part of this 
rulemaking process the BLM prepared an Economic and Threshold Analysis 
For Final Rule Onshore Oil and Gas Operations; Federal and Indian Oil 
and Gas Leases; Site Security (Economic and Threshold Analysis). That 
analysis specifically analyzed, among other things, the impact of these 
proposed recordkeeping requirements on purchasers and transporters. 
Based on that analysis, the BLM estimates that 200 to 300 purchasers 
and transporters will have to comply with this final rule's new 
recordkeeping and records-retention requirements. However, it is likely 
that many purchasers and transporters already compile records that 
will, for the most part, satisfy this rule's requirements, and 
therefore the additional compliance costs imposed by this rule should 
be minimal. For more details, please see the Economic and Threshold 
Analysis.
    Several commenters said that some transporters do not have space to 
store records and would not be capable of meeting the paragraph (a) 
requirements. They said that transporters would create inaccurate 
records, and that operators would be held responsible. They asked that 
the BLM not hold operators responsible for transporters' recordkeeping 
violations. Conversely, some commenters said operators may provide 
incorrect information to purchasers and transporters, such as incorrect 
FMP numbers, which could subject purchasers and transporters to 
recordkeeping penalties if they were to use the inaccurate information 
in their records. The BLM does not agree with the concerns raised by 
these commenters, as under the rules each party will be responsible for 
the content of their own records and must also bear some responsibility 
for ensuring the accuracy of the information they are tracking. The BLM 
does not believe that the provision should be modified to account for 
the possibility that operators might provide faulty information to a 
purchaser or transporter. Parties bear the responsibility to ensure the 
accuracy of their own records, and the BLM anticipates that provision 
of faulty information to a purchaser or transporter by an operator 
could be handled on a case-by-case basis in the enforcement context. 
The final rule was not changed as a result of these comments.
    Some commenters said the BLM should make the records-retention 
requirements for both Federal and Indian leases the same--6 years. 
Paragraph (c) requires Federal-lease operators to retain their records 
for 7 years (consistent with Congress' 1996 amendments to FOGRMA), 
while paragraph (d) requires Indian-lease operators to retain theirs 
for 6 years. One commenter said the 6-year retention requirement for 
all records under Order 3 has not been a problem and questioned why 
Congress extended the retention period for Federal-lease operators from 
6 years to 7 years. The BLM understands these concerns, but the 
retention period for records maintained by Federal-lease operators is 7 
years by statute. 30 U.S.C. 1724(f). That statutory requirement has 
been in place for 20 years. This final rule simply codifies that 
requirement. Thus, the BLM did not change the final rule in response to 
these comments.
    Several commenters expressed concern about the requirement in 
paragraph (g) of the proposed rule that lessees, operators, purchasers, 
and transporters place FMP numbers on all of their source records, 
particularly records generated by flow computers. They said that flow 
computers cannot handle the 11-digit FMP numbers and that it would take 
operators years to modify their production accounting systems to 
accommodate the new numbers. The BLM agrees with these commenters and 
changed the final rule to allow lessees, operators, purchasers and 
transporters, as an alternative, to use the lease, unit PA, or CA 
number, along with a unique equipment identifier, on their records. The 
BLM believes this change will simplify the final rule's record-keeping 
requirements because in its experience lessees, operators, purchasers 
and transporters are already using a lease, unit PA, or CA number, plus 
some unique equipment identifier in connection with existing 
operations, which means this information is already reflected on 
records being generated under existing recordkeeping systems.
    In addition to the preceding comments on specific provisions of 
Sec.  3170.7, the BLM received some general comments on Sec.  3170.7 
that were not directed to any specific paragraph. Several commenters 
said the recordkeeping requirements do not address new production 
reporting technology and practices that are used by regulators outside 
of the U.S., such as the Norwegian Petroleum Directorate. These 
commenters did not suggest any specific changes, and therefore the BLM 
did not make any changes in the final rule in response to these 
comments. That said, it should be noted that the BLM is currently 
updating its existing database system (AFMSS) that it uses to track 
Federal and Indian oil and gas production. As part of this 
comprehensive update, the BLM is following data management models and 
standards established by industry organizations, such as the 
Professional Petroleum Data Management Association. These update 
efforts respond to the concerns raised by commenters.
    Another commenter said the new recordkeeping and records-retention 
requirements would cause problems for the BLM. This commenter said BLM 
field offices do not have room for the additional records that would be 
generated under the final rule. The BLM disagrees with this commenter. 
The

[[Page 81375]]

BLM will not be storing or accepting all of the records that a lessee, 
operator, purchaser, or transporter will be required to create and 
retain under this final rule, rather records must be available to the 
BLM if requested (see Sec.  3170.7(h)). The BLM did not change the 
final rule as a result of these comments.
    Several commenters suggested that requiring purchasers and 
transporters to keep and retain records would be redundant because 
purchasers and transporters already provide this information to the 
operators, who use it to fill out their own production records. The BLM 
agrees that operators do often base their production reporting on 
information that purchasers and transporters provide them, however, the 
BLM cannot confirm that this happens in all cases. Moreover, as noted, 
operators' records may sometimes be or become unavailable. Requiring 
each party involved in production from Federal and Indian oil and gas 
leases to maintain its own records allows the BLM to compare the 
information and make an independent determination that production is 
being properly accounted for and that the correct royalties are being 
paid.
    One commenter said this section's new recordkeeping and records-
retention requirements will be costly and cause delays, and will 
discourage oil and gas development on Federal lands, as well as on 
adjacent State and private lands. The commenter said this in turn will 
result in lost royalties and jobs. The BLM does not agree with this 
comment. These recordkeeping requirements are not substantially 
different from the requirements that operators are currently following 
(e.g., the records retention requirements have only increased from 6 to 
7 years). As explained above, it is likely that most purchasers and 
transporters are already maintaining records that will, for the most 
part, satisfy this final rule's requirements. No change was made to the 
final rule as a result of this comment.
Section 3170.8 Appeal Procedures
    Section 3170.8 provides that BLM decisions, orders, assessments, or 
other actions under part 3170 are administratively appealable (first to 
the BLM State Director and then to the Interior Board of Land Appeals) 
under 43 CFR 3165.3(b), 3165.4, and part 4. The BLM did not receive any 
comments on this section; however, in response to comments received on 
provisions of the proposed rules to replace Orders 4 and 5 the BLM made 
several changes to this section.
    The language from the proposed rule was moved to a new paragraph 
(a) and a new paragraph (b) was added that creates a separate appeal 
process for decisions made by the BLM, based on a recommendation from 
the PMT, for approval or denial of specific measurement equipment or 
procedures. Under paragraph (b) a party may file a request for 
discretionary review by the ASLM. Paragraph (b) also provides that the 
ASLM may delegate this review function as he or she deems appropriate, 
in which case the application for discretionary review must be made to 
the person or persons to whom the review function has been delegated.
    A specific appeals procedure for recommendations from the PMT was 
developed for two reasons. First, such a procedure responds directly to 
comments received on Orders 4 and 5 specifically requesting a procedure 
to review decisions made by the PMT. Second, the BLM determined that a 
separate appeal process is necessary because it determined that PMT 
reviews did not fit under the existing appeals procedure at 43 CFR 
3170.8. As explained in this preamble and the preambles for the rules 
to replace Orders 4 and 5, the PMT will review new measurement 
technologies and methods and then make recommendations to the BLM as to 
whether they should be approved. It is the BLM's intent that those 
approvals be made at the national or Washington Office level, as a 
result those decisions would not properly be appealable to a BLM State 
Director as contemplated in paragraph (a). The new language under 
paragraph (b) reads: ``For any recommendation made by the PMT, and 
approved by the BLM, a party affected by such decision may file a 
request for discretionary review by the Assistant Secretary for Land 
and Minerals Management. Under paragraph (b), the Assistant Secretary 
may delegate this review function as he or she deems appropriate, in 
which case the affected party's application for discretionary review 
must be made to the person or persons to whom the Assistant Secretary's 
review function has been delegated.'' \11\
---------------------------------------------------------------------------

    \11\ It should be noted that decisions by the Assistant 
Secretary would not be reviewable by the Interior Board of Land 
Appeals.
---------------------------------------------------------------------------

Section 3170.9 Enforcement
    Section 3170.9 provides that noncompliance with any requirements of 
part 3170 or any order issued thereunder may result in enforcement 
actions under 43 CFR subpart 3163 or any other remedy available under 
applicable law or regulation.
    The BLM received numerous comments regarding the BLM's proposal, in 
proposed Sec.  3170.9, not to include in this rule the enforcement, 
corrective action, and abatement period provisions that were in Order 
3, and instead to develop an internal Inspection and Enforcement 
Handbook that would provide direction to BLM inspectors on how to 
classify a violation as major or minor, and what the corrective action 
and timeframes for correction should be. These comments and the BLM's 
response are discussed later in this preamble in connection with Sec.  
3173.29.
Subpart 3173--Requirements for Site Security and Production Handling 
and Related Provisions
Section 3173.1 Definitions and Acronyms
    This section defines the terms used in subpart 3173 that pertain to 
site security and production handling. The BLM did not receive any 
comments on a majority of the definitions that appeared in proposed 
Sec.  3173.1. Those definitions, for which we received no comment, were 
carried forward into this final rule and are not discussed further 
here. The following discussion summarizes and responds to comments that 
the BLM received on a handful of proposed definitions, describes 
modifications to some of those definitions, and describes five 
definitions that were added to Sec.  3173.1 of the final rule: ``Free 
water,'' ``permanent measurement facility,'' ``payout period,'' 
``royalty net present value (NPVR),'' and ``royalty-free use of oil and 
gas.''
    At the outset it should be noted that as explained in the preamble 
to the proposed rule, a number of the definitions in Sec.  3173.1 are 
the same definitions that were found in Order 3, with only minor 
simplifications or clarifications.
    As noted in the Section-by-Section discussion for Sec.  3170.3, the 
acronym for ``British thermal unit (Btu)'' has been moved from this 
section to Sec.  3170.3 of the final rule because it is used in more 
than one subpart of Sec.  3170. The acronym BIA (Bureau of Indian 
Affairs) was added to this final rule because it is used in Sec. Sec.  
3173.14 and 3173.23.
    Similarly, the acronym for ``CAA (commingling and allocation 
approval)'' was provided in the proposed rule, but the term was not 
otherwise defined. One commenter suggested that a definition for this 
term be provided. The BLM agrees with this comment and has provided a 
definition in the final rule

[[Page 81376]]

for this commonly used term. The final rule defines ``commingling and 
allocation approval (CAA)'' to mean ``a formal allocation agreement to 
combine production from two or more sources (leases, unit PAs, CAs, or 
non-Federal or non-Indian properties) before that production reaches an 
FMP.'' This definition is consistent with the commonly understood 
meaning of the term and its use in the proposed rule.
    The BLM also replaced the term ``low-volume property'' with the 
term ``economically marginal property'' and modified the definition 
based on comments received. The term ``low-volume property'' was 
intended to identify category of leases, unit PAs, and CAs for which 
commingled measurement of production may be justified, even though the 
property would not meet the conditions of proposed Sec.  3173.14(a)(1) 
regarding mineral interest ownership of commingled production. In 
response to comments, the BLM made a number of changes to this 
definition, most notably changing the term to ``economically marginal 
property'' in the final rule.
    The BLM believes this new term is more reflective of the BLM's 
intent, which is to describe a type of property that should be allowed 
to be part of a CAA in order to avoid premature plugging and 
abandonment. The thresholds that the proposed and final rules use to 
identify a property as at risk of being shut-in are not exclusively 
volume-based. The new name recognizes that the thresholds are actually 
based on production volume and other economic considerations, including 
commodity price, fixed and variable operating costs, and taxes.
    Specifically, under both the proposed and final rules, the BLM can 
approve commingling in two circumstances relating to economics of well 
operations: (1) When a prudent operator, for economic reasons, would 
plug a well or shut-in the lease, unit PA, or CA instead of spending 
the money to achieve non-commingled measurement of production; or (2) 
When the capital expenditure on equipment necessary to achieve non-
commingled measurement of production would exceed the net present value 
of projected Federal or Indian royalty over the life of the new 
equipment. The BLM captured both of these circumstances in the 
definition of a ``low-volume property'' in the proposed rule, and 
carried that structure into the final rule's definition of an 
``economically marginal property.''
    Under the final rule, a lease, unit PA, or CA qualifies as an 
``economically marginal property'':

    (1) ``If the operator demonstrates that the expected revenue 
generated from crude oil or nature gas production volumes on that 
property (above the operating costs associated with those production 
activities) is not sufficient to cover the nominal costs of the 
capital expenditures required to achieve measurement of non-
commingled production of oil or gas from that property over a payout 
period of 18 months,'' or
    (2) If the operator demonstrates that ``its royalty net present 
value, or the discounted value of the Federal or Indian royalties 
collected on revenue earned from crude oil or natural gas production 
on the lease, unit PA, or CA over the expected life of the equipment 
that would need to be installed to achieve non-commingled 
measurement volumes, is less than the capital cost of purchasing and 
installing this equipment.''

    The final rule takes a somewhat different approach than the 
proposed rule to define these two circumstances. Specifically, the 
final rule:
     Changes the threshold for what qualifies as an 
economically marginal property from a 10 percent, before tax, rate of 
return in the proposed rule to an 18-month, after-tax, payout period in 
the final rule;
     States explicitly that the economic analysis considers 
operating costs;
     Clarifies that the analyses for oil and gas commodities 
are done separately, based on the income streams from the commodity and 
the expenses required to achieve non-commingled measurement of that 
commodity; and
     States explicitly that if economic circumstances change, 
and a Federal or Indian lease, unit PA, or CA ceases to be an 
economically marginal property, the lease, unit PA, or CA will no 
longer qualify for a CAA.
    The BLM changed the first economic threshold test from a 10 
percent, before tax, rate of return in the proposed rule to an 18-
month, after-tax, payout in the final rule, primarily based on comments 
received. As explained in the preamble to the proposed rule, the 
initial test was developed based on the provisions of Instruction 
Memorandum (IM) 2013-152. The purpose of the economic analysis in IM 
2013-152, the proposed rule, and the final rule is to simulate the 
analysis that a prudent operator would make in deciding whether or not 
to invest money to achieve non-commingled measurement of production. If 
that analysis concludes that it would be uneconomic for the operator to 
make the investment and they would instead opt to shut in the property, 
then the BLM will grant commingling approval. In these situations, the 
BLM believes that it is in the public interest to sustain production by 
allowing commingling, even if commingled measurement may be somewhat 
less accurate and hard to verify than non-commingled measurement.
    The only question is how best to identify the point at which a 
prudent operator would choose to shut in rather than invest in 
equipment to achieve non-commingled measurement. Several commenters 
said the proposed 10 percent rate-of-return cutoff point (calculated 
before Federal, State, and local taxes) was too low, and that the BLM, 
should instead use a 20 percent rate of return. Other commenters 
recommended replacing the 10 percent rate of return threshold with a 
payout period. The BLM agrees with the commenters who recommended that 
the BLM use a payout period method rather than a rate-of-return method, 
because the former provides a simpler and more objective picture of 
whether a particular course of action is economically viable, and it is 
a method commonly used by industry.
    Under the rate-of-return method in the proposed rule, the BLM would 
have had to assume a rate of return on initial investment that would be 
sufficient for a prudent operator to install metering equipment to 
achieve non-commingled measurement of a lease, unit PA, or CA. The 
payout method used in the final rule uses a formula to determine 
whether the production volumes at that lease, unit PA, or CA are 
sufficient to generate enough net revenue, after taxes and operating 
costs, to cover the nominal cost of equipment installation within the 
payout period. Additionally it was clear from the comments received 
that different companies apply different rates of return to evaluate 
their investments. For these reasons, the BLM felt it was appropriate 
to replace the rate-of-return method with the payout method.
    One commenter stated that industry typically uses a payout period 
of 6 months to 18 months as the criterion for deciding whether or not 
to invest in a new project. The commenter went on to state that a 15 
percent rate of return (before tax) yields approximately the same 
result as a 22-month payout. An 18-month payout would be approximately 
the same as a 20 percent (before tax) rate of return, which is a 
threshold suggested by several commenters. Based on these comments, the 
BLM believes that an 18-month payout period is reasonably 
representative of the threshold a prudent operator would use to 
determine the economic viability of achieving non-commingled 
measurement of production.
    Additionally, there were a few comments that recommended that the

[[Page 81377]]

BLM evaluate alternative cost-benefit methodologies and definitions, 
including those found in the Federal Oil and Gas Royalty Simplification 
and Fairness Act of 1996, and the Interstate Oil and Gas Commission 
report, entitled Marginal Wells: Fuel for Economic Growth, (2012). The 
BLM agrees with these comments, noting that the proposed 10 percent 
rate of return was a starting point, as the proposed rule specifically 
asked for feedback on the suitability of the BLM's using this rate of 
return for identifying a ``low-volume property.'' The BLM believes the 
18-month payout threshold used in the final rule is consistent with 
these comments.
    Also unlike the proposed definition of ``low-volume property,'' the 
definition of ``economically marginal property'' in the final rule 
specifically considers taxes, fixed and variable operating costs, and 
commodity prices. While the ``low-volume property'' definition in the 
proposed rule implicitly included operating costs and commodity prices 
in the rate-of-return calculation, it did not include taxes. The BLM 
believes that the addition of taxes and the explicit addition of 
operating costs and commodity price considerations help to make the 
payout calculation more representative of an economic analysis that a 
prudent operator would perform.
    Finally, in the final rule definition, the BLM clarified that the 
economic analyses are specific to the commodity to which the 
commingling request applies. For example, if a lease produces a high 
volume of gas with small amounts of associated condensate, and the 
operator wishes to commingle the condensate production with similar 
volumes of condensate produced from private leases, the economic 
analysis performed under Sec.  3173.14(b)(1) would only consider the 
income, costs, and payout period related to measuring the condensate. 
The BLM made this addition to the final rule to clarify that neither 
operators nor BLM field offices should include the income and costs 
from a commodity which the operator is not proposing to commingle. The 
proposed rule was silent on whether the economic analysis should be 
based on total oil and gas production or just on the commodity the 
operator requests for commingling. However, it was always the BLM's 
intent that this analysis occur on the basis of the commodity for which 
commingled measurement is proposed. This clarification in the final 
rule is consistent with that intent.
    In support of the new definition for ``economically marginal 
property'' the BLM added two additional definitions--``payout period'' 
and ``royalty net present value (RNPV)''--each of which is discussed 
(in alphabetical order) below.
    In addition, in the final rule the BLM added a definition for the 
term ``free water.'' That term appeared multiple times in the proposed 
rule but was not defined because the BLM believes it is commonly 
understood by the industry. While the BLM did not receive any comments 
on the use of this term, the BLM determined that it should nevertheless 
include a definition in the final rule to clarify its intent with 
respect to the use of the term in this regulation. The final rule 
therefore defines ``free water'' as ``the measured volume of water that 
is present in a container and that is not in suspension in the 
contained liquid at observed temperature.'' This definition tracks the 
commonly understood definition of the term used routinely by industry 
and the BLM.
    The final rule modifies the definition of the term ``land 
description'' from the proposed rule in Sec.  3173.1, to clarify the 
information needed by the BLM. The purpose of defining the term ``land 
description'' in both the proposed and final rules is to ensure that 
the geographic location information that operators occasionally provide 
to the BLM meets the applicable standards.
    Under the proposed rule, the BLM defined ``land description'' to 
mean ``the geographical coordinates referenced to the National Spatial 
Reference System, North American Datum 1983 or latest edition, in feet 
and direction from the nearest two adjacent section lines, or, if not 
within the Rectangular Survey System, the nearest two adjacent property 
lines, generated from the BLM's current Geographic Coordinate database 
(Public Land Survey System).'' The final rule modifies this definition 
to require operators to provide information about location that is 
consistent with the U.S. Department of the Interior's Manual of 
Surveying Instructions (2009) and that includes information about the 
quarter-quarter section, section, township, range, and principal 
meridian of the proposed location. This definitional change was not 
suggested by commenters, but was made to make the definition in Sec.  
3173.1 consistent with the existing geographic location information 
requirements of 43 CFR. 3162.6, which requires operators to have 
geographic location information on their well- and facility-
identification signs. Subpart 3173 requires operators to record land 
descriptions on their site facility diagrams, FMP applications, water 
draining and hot-oiling paperwork, and reports of theft or mishandling 
of production. By confirming the definitional provisions of these two 
requirements, the final rule ensures consistency and allows BLM 
inspectors to cross-reference the land description information on a 
site facility diagram with the geographic location information on a 
given facility sign and confirm that they are inspecting the correct 
measurement facility. It should be noted that the definition of ``land 
description'' does contemplate the use of ``other authorized survey 
designations acceptable to the AO, such as metes-and-bounds, or 
latitude and longitude,'' which accounts for instances where the land 
may be unsurveyed or another survey method is necessary.
    As noted in the discussion above, to support the implementation of 
the definition of ``economically marginal property'' the BLM added a 
definition for the term ``payout period,'' which is defined as ``the 
time required, in months, for the cost of an investment in an oil or 
gas FMP at a specific lease, unit PA, or CA to equal the nominal 
revenue earned from crude oil production for an oil FMP, or natural gas 
production for a gas FMP, minus taxes, royalties, and any operating and 
variable costs.'' This definition is consistent with the intent behind 
the definition of ``economically marginal property'' established by 
this final rule. The definition clarifies that payout periods are 
determined independently for each oil and gas FMP at a given lease, 
unit PA, or CA.
    The BLM included a definition for the term ``permanent measurement 
facility'' to the final rule in response to a commenter's concern with 
Sec.  3173.12(d) of the proposed rule, which required operators to 
obtain FMP approval before any production leaves a measurement 
facility. The commenter pointed out that during well testing, and 
before initiating production, operators send oil to a temporary tank or 
send gas down the sales line to determine the well's production rate. 
The test results help the operator determine the size and type of 
measurement facility needed. The commenter said it would be overly 
burdensome to require operators to obtain FMP approvals for temporary 
measurement equipment used during well testing as well as for permanent 
measurement facilities.
    The BLM agrees in part with this comment and has provided a 
definition for the term ``permanent measurement facility,'' which means 
``all equipment constructed or installed and used on-site for 6 months 
or longer for the purpose of determining the quantity, quality, or 
storage of production that meets the definition of FMP under Sec.  
3170.3.'' In addition, the final rule also

[[Page 81378]]

clarifies that paragraphs (d) and (e) of Sec.  3173.12, which pertain 
to when operators must apply for their FMP numbers, apply only to 
permanent measurement facilities. Therefore, temporary equipment used 
during well testing operations, including temporary tanks to store oil, 
are not affected by the FMP requirement. However, since a ``sales 
line'' by definition is a permanent facility, and any gas that travels 
through it is royalty bearing, the BLM added a 6-month timeframe to the 
definition of permanent measurement facility to make clear that the FMP 
requirement does not apply during well testing. Six months was chosen 
because that is when the BLM typically performs its first environmental 
inspection of production facilities after a well is completed, and 
after that point, the continued use of temporary equipment at the 
wellsite would raise concerns that an operator is having difficulty 
installing its permanent facilities.
    The BLM added a definition of ``royalty net present value (RNPV)'' 
to support implementation of the term ``economically marginal 
property.'' The final rule defines RNPV as the ``net present value of 
all Federal or Indian royalties paid on revenue earned from crude oil 
production or natural gas production from an oil or gas FMP at a given 
lease, unit PA, or CA over the expected life of the metering equipment 
that must be installed for that lease, unit PA, or CA to achieve non-
commingled measurement.'' This definition is consistent with the intent 
behind the definition of ``economically marginal property'' established 
by this final rule.
    The BLM also received comments concerning its use of the term 
``royalty-free use.'' Specifically, a commenter expressed concern that 
the terms ``beneficial use'' and ``royalty-free use'' were used 
interchangeably multiple times in the preamble discussion of the 
proposed rule, without any definitions being offered for either term. 
The commenter also noted that only the term ``royalty-free use'' was 
used in the proposed rule itself, and no definition was provided. The 
commenter suggested a definition of ``royalty-free uses,'' which 
specifically included all equipment and facilities serving 
directionally or horizontally drilled wells that may be located off the 
lease.
    The BLM agrees with the commenter that it should not have used the 
two terms interchangeably. The BLM should have used the term ``royalty-
free use'' rather than ``beneficial use,'' because the former is more 
specific and more applicable in the context of this rule. For example, 
the term ``beneficial use'' sometimes refers to using produced water 
for other purposes, such as a water source for livestock or for 
enhancing vegetation regrowth during reclamation, both of which have 
nothing to do with production verification and accountability.
    The BLM did not, however, feel it was necessary to provide a 
definition for royalty-free use at this time. First, the royalty-free 
use of oil or gas from onshore Federal and Indian leases, units, and 
CAs is governed by the longstanding Notice to Lessees and Operators 4A 
(NTL-4A) and the BLM believes the concept to be well understood by 
operators. Second, the BLM plans to update its regulations pertaining 
to the royalty-free use of oil and gas as part of a separate 
rulemaking--Waste Prevention, Production Subject to Royalties, and 
Resource Conservation (81 FR 6616) (Waste Prevention Rule)--that will 
provide additional clarity on the royalty-free use of oil and gas from 
onshore Federal and Indian leases. Until such time as the Waste 
Prevention Rule is finalized, for the purpose of this final rule, the 
meaning of the term ``royalty-free use of oil and gas'' will be 
consistent with the royalty-free use of oil or gas as currently defined 
in NTL-4A. No changes were made to proposed rule in response to this 
comment.
Section 3173.2 Storage and Sales Facilities--Seals
    Paragraphs (a) and (b) of Sec.  3173.2 require any lines entering 
or leaving any oil storage tank or storage facility to have valves 
capable of being effectively sealed during specific operational 
phases--production, sales, water draining, or hot oiling.
    Paragraph (c) identifies the specific types of valves that are not 
considered ``appropriate valves'' (i.e., valves that must be sealed 
during the production phase or the sales phase) and, as such, are not 
subject to the requirements of subpart 3173. These valves include 
valves on production equipment; valves on water tanks, so long as there 
is no possibility of access to production; valves on tanks contains 
waste or slop oil; sample cock valves; fill-line valves on certain 
marginal production tanks; gas line valves; heating system valves; pump 
valves; tank vent-line valves; and sales, equalizer or fill-line valves 
on systems where production may only be removed through an approved 
metering system.
    Paragraph (d) prohibits tampering with an ``appropriate valve,'' 
and specifies that tampering may result in assessment of civil 
penalties for knowingly or willfully preparing, maintaining, or 
submitting false, inaccurate, or misleading information under Section 
109(d)(1) of FOGRMA, 30 U.S.C. 1719(d)(1), and 43 CFR 3163.2(f)(1), or 
for knowingly or willfully taking, removing, transporting, using, or 
diverting oil or gas from a lease site without valid legal authority 
under Section 109(d)(2) of FOGRMA, 30 U.S.C. 1719(d)(2), and 43 CFR 
3163.2(f)(2).
    The BLM received many comments on proposed Sec.  3173.2. Several 
commenters expressed concern with the relationship between the general 
prohibition against tampering under Sec.  3170.4 of the proposed rule 
and the specific prohibition against tampering with any appropriate 
valve under proposed paragraph (d) of this section.
    One commenter, in particular, was concerned that under the new 
requirements the commenter would not be able to perform maintenance on 
valves without the procedure being considered tampering or unauthorized 
seal removal. Two other commenters stated that the criteria for 
determining what qualifies as tampering were overbroad and ambiguous. 
They also questioned if an unintentional act or human error would be 
considered tampering.
    The BLM believes these comments have merit and, as discussed 
previously, has added a definition of the term ``tampering'' to Sec.  
3170.3 of the final rule. As previously noted, ``tampering'' means any 
deliberate adjustment or alteration to the meter or measurement device, 
appropriate valve, or measurement processes that could introduce bias 
into the measurement or affect the BLM's ability to independently 
verify volumes or qualities reported. This definition should help the 
public understand how the BLM will determine whether a particular 
incident constitutes tampering.
    As for operator maintenance on valves, such acts will not be 
considered tampering as long as the maintenance work does not alter the 
valve or introduce bias into the measurement. If the valve being worked 
on falls under the seal requirements (i.e., it is used in the process 
for determining the quantity or quality of oil for royalty purposes), 
it is permissible to remove the seal for maintenance purposes as long 
as the specific reason for removing the seal is noted in the seal 
record. The BLM did not change the final rule to address this comment.
    Another commenter stated that valves would need to be changed out 
in response to the requirements under this section, making marginal 
wells unprofitable. The BLM does not believe that any valves will need 
to be changed

[[Page 81379]]

out because these requirements are the same as those in Order 3, which 
already requires all appropriate valves capable of being effectively 
sealed to be sealed. Since this provision merely continues existing 
requirements, no changes to the final rule were made in response to 
this comment.
    Another commenter was concerned that proposed Sec.  3173.2(c)(3), 
which exempts valves on tanks that contain oil that the AO or 
authorized representative (AR) has determined to be waste or slop, 
would impose additional costs on operators because of the time it could 
take the AO or AR to make the determination. While waiting for the AO 
or AR determination, the commenter said, operators would have to spend 
money on additional tanks to store their slop or waste oil. The BLM 
disagrees. This requirement is very similar to the existing 
requirements of Order 3, and therefore will not impose any additional 
burdens on operators. A company will not need a new tank while waiting 
for a determination from the AO or AR; rather the company will have to 
properly seal any tanks holding such oil until it is determined to be 
slop oil or waste oil. The cost to obtain a seal should not present any 
sort of monetary hardship for the operator. Thus, the BLM did not make 
any changes in response to this comment.
Section 3173.3 Oil Measurement System Components--Seals
    Section 3173.3 of the final rule identifies a nonexclusive list of 
the components used in LACT meters or Coriolis oil measurement systems 
(CMS) that must be effectively sealed to indicate whether tampering may 
have occurred. The BLM received a few comments on this section of the 
proposed rule.
    One commenter stated that the proposed seal requirements are much 
more extensive than those in Order 3 and will create additional burden 
and expense for the operator because seals routinely break and the 
seal-reporting requirements for these instances under Sec.  3173.9 are 
fairly detailed. In addition, the commenter said there is a risk of 
delayed revenue while the operator waits for the AO to approve removal 
of a seal. The BLM disagrees that the seal requirements are much more 
extensive than those found in Order 3. This final rule adds only four 
items to the Order 3 list of components that are used for quantity or 
quality determination of oil and that must therefore be effectively 
sealed. Those four additional components are the right-angle drive, 
totalizer, prover connections, and valves on diverter lines larger than 
1 inch in nominal diameter. The BLM does not believe seal requirements 
for these components are particularly burdensome, and, since they all 
are points where tampering could occur, it is important that they be 
subject to the same sealing requirements as other components of the 
measurement system.
    As for the commenter's concern about revenue being delayed while an 
operator waits for the AO to approve removal of a seal--under normal 
circumstances, there is no need to wait for AO approval to remove a 
seal. Seals may be taken off and put back on as long as these events 
are recorded in the seal record. In the event a Federal seal is placed 
on a component, the AO must provide approval prior to any removal; 
however, an AO can provide verbal approval to remove a Federal seal as 
soon as the associated violation is corrected. These comments did not 
result in any changes to the final rule.
    One commenter said they could not determine what effect proposed 
Sec.  3173.3 would have on their operations when related requirements--
contained in the rulemaking that is replacing Order 4 (oil 
measurement)--had not yet published or been made available for public 
comment. The additional requirements cross referenced in proposed Sec.  
3173.3 can be found in proposed 43 CFR 3174.8(a) (for LACT systems) and 
proposed 43 CFR 3174.9(e) (for Coriolis systems). The BLM recognized 
the need for both sets of requirements to be available for public 
comment at the same time, which is why the comment period for this 
proposed rule was extended from its original September 11, 2015, 
closure date until December 14, 2015, in order to ensure there was 
sufficient overlap between the comment periods for the proposed rules 
for subparts 3173, 3174, and 3175. This overlap gave operators an 
opportunity to review the parts of proposed subpart 3174 that were 
referenced in Sec.  3173.3. This comment did not result in any changes 
to the final rule.
    Another commenter said that the seal requirements for oil 
measurement systems are only appropriate at those points where theft or 
mishandling can realistically occur, and the requirements under this 
section are unnecessary. The commenter suggested that the BLM maintain 
the seal requirements in Order 3, which address the sealing of tanks 
when oil is sold through a LACT. The BLM did not make a change in 
response to this comment. The BLM does not believe that theft or 
mishandling, which affects only the quantity of the oil being measured, 
are the only factors that may impact the determination of royalties 
owed. The quality of the oil being produced will also influence royalty 
determination. For this reason, the BLM believes it is necessary to 
have a section in the rule dedicated to ensuring that all components of 
an oil measurement system that are used to determine the quality and 
quantity of oil must be effectively sealed. The BLM does agree with the 
commenter's suggestion that we maintain Order 3's seal requirements, 
which is why they were incorporated into the list of components that 
must be sealed under Sec.  3173.3 of this final rule.
    The BLM also received several comments stating that some components 
of a LACT are not capable of being sealed, such as flow computers and 
back pressure valves. The commenters said flow computers are not 
capable of accepting a seal and back-pressure valves cannot operate if 
they are sealed. These commenters recommended that the BLM not subject 
these two components to the Sec.  3173.3 sealing requirements. A third 
commenter stated, without providing specifics, that some of the devices 
listed in this proposed section are not constructed to be sealed. The 
commenter suggested that sealable components would have to be purchased 
or a secondary device would have to be built to allow for sealing. 
Without more specific information, the BLM cannot address this comment. 
However, prior to issuing this final rule, the BLM re-assessed the 
components listed in this section and continues to believe, except as 
noted below, that all of the identified components can reasonably be 
sealed, as all of them are routinely sealed today.
    With regards to requiring flow computers to follow this final 
rule's seal requirements, commenters should be aware that the intent of 
sealing the flow computer is to have a log of when someone accesses the 
software. Sealing a flow computer could be accomplished through a lead 
wire seal, adhesive backed paper (sticker), or plastic seal, or a 
password and an event log. However, in response to this comment, the 
BLM has changed the final rule. The BLM removed flow computers from 
paragraph (a)(5) of this section and added a new item to the list--LACT 
or CMS--in paragraph (a)(6), giving the operator the opportunity to 
decide how best to ensure that the flow computer is sealed. As a result 
of these changes, paragraphs Sec.  3173.3(a)(6) through (12) in the 
proposed rule are redesignated as Sec.  3173.3(a)(7) through (13) in 
the final rule.
    As for concerns raised about the inability to seal back-pressure 
valves, the BLM has made a change in response to this comment. In 
3173.3(a)(7) of the

[[Page 81380]]

final rule (Sec.  3173.3(a)(6) in the proposed rule), the BLM has 
clarified that the component that is subject to the seal requirement is 
the back pressure valve pressure adjustment. Sealing the pressure 
adjustment on the back-pressure valve was already required under Order 
3. The BLM believes it is important to preserve this requirement 
because if the pressure adjustment is changed after a meter proving, it 
could change the flow rate of hydrocarbons through the meter, impacting 
the accuracy of the measurement based on the prior proving.
Section 3173.4 Federal Seals
    In the final rule, paragraph (a) of Sec.  3173.4 codifies the 
authority in section IV of Order 3, which calls for the BLM to place a 
Federal seal on any appropriate valve, sealing device, or oil meter 
system component that does not comply with the requirements of final 
Sec. Sec.  3173.2 or 3173.3. Paragraph (b) clarifies that the placement 
of a Federal seal does not relieve the operator of the requirement to 
comply with Sec. Sec.  3713.2 or 3173.3. Paragraph (c) prohibits the 
removal of a Federal seal without BLM approval.
    The BLM received several comments requesting that Federal seals not 
be attached immediately upon discovery of a violation that warrants 
placement of a seal. Two commenters requested a 10-day notice prior to 
the BLM placing a Federal seal, and another commenter requested that a 
reasonable time be given to bring the component into compliance prior 
to the BLM attaching a Federal seal. Other commenters said the BLM 
should not be sealing or changing valves or any other production 
components without an operator's representative being present to 
witness the change. Commenters recommended that the BLM give notice to 
the operator as to why the seal was placed, and the procedure for 
removing the seal.
    The BLM did not change the final rule in response to these comments 
because the only violations that would cause the BLM to place a Federal 
seal on valves or production equipment would be those that are 
considered major, as defined in 43 CFR 3160.0-5--that is, noncompliance 
actions that could cause or threaten immediate, substantial, and 
adverse impacts on health and safety, the environment, production 
accountability, or royalty income. Since the seal requirements in 
Sec. Sec.  3173.2 or 3173.3 of this final rule were put in place to 
ensure that tampering does not occur, the BLM generally believes these 
incidents of noncompliance constitute major violations.
    However, the BLM believes that some of the commenters' concerns 
have merit, and will ensure that its Inspection and Enforcement 
Handbook provides clear guidance to BLM inspectors that: They must not 
change the position of a valve or component; the Federal seal must be 
attached to the valve or component as found; and each Federal seal 
installed must have a card attached that identifies it as a Federal 
seal, and advises that the removal or violation of the seal without 
approval by the AO will result in an immediate assessment of $1,000. 
The name and telephone number of the AO will be shown on the card. In 
addition, the operator will also receive notice in the form of an INC 
that will address all the violations associated with the Federal seal 
that the operator must correct prior to removal of the seal. The BLM 
did not make any changes to the final rule in response to this comment.
Section 3173.5 Removing Production From Tanks for Sale and 
Transportation by Truck
    Section 3173.5, paragraphs (a) and (b), of the final rule make 
clear that, at the completion of either a single or a multiple 
truckload sale, the driver of the load(s) must possess all the 
information that is required in Sec.  3174.12. Under paragraph (c), 
once the seals are broken, the purchaser or transporter is responsible 
for the entire contents of a tank until it is resealed.
    The BLM received a comment asking us to delay this final rule until 
we publish and make available for public comment two related 
rulemakings that will replace Orders 4 (subpart 3174) and 5 (subpart 
3175). The commenter noted that Sec.  3173.5(a) and (b) require truck 
drivers to possess certain information after oil sales, but the 
information will be set forth in Sec.  3174.12, which was proposed in 
the separate Order 4. The BLM recognizes the commenter's concern, at 
least as it relates to the proposed rule to replace Order 4, which is 
why the comment period for this proposed rule was extended from its 
original September 11, 2015, closure date until December 14, 2015, to 
ensure there was sufficient overlap between the comment periods for the 
proposed rules for subparts 3173, 3174, and 3175. This overlap gave 
operators an opportunity to review the parts of proposed subpart 3174 
that were referenced in Sec.  3173.5. This comment did not result in 
any changes to the final rule.
    Several commenters expressed concern with language in paragraph (c) 
that makes the purchaser or transporter responsible for the entire 
contents of the oil tank from the time that the seals are broken until 
it is resealed. The requirements in paragraph (c) are taken directly 
from Order 3 with one minor modification. Under section III.C.1.c of 
Order 3, only the ``purchaser'' is responsible for the entire contents 
of the unsealed tank during a sale. The commenters stated that Sec.  
3173.5(c) would be a burden on transporters because it will cost them 
time and money to wait on-site for tanks to be resealed by the 
facility's operator after an oil sale. The BLM disagrees with this 
comment. It is standard practice for transporters, whether or not they 
are the purchasers, to remove and replace seals without the operator's 
representative being on location. Transporters do this because it 
protects them from liability if, subsequently, produced oil cannot be 
accounted for. No changes were made to the final rule as a result of 
this comment.
Section 3173.6 Water-Draining Operations
    Section 3173.6 of the final rule requires the operator, purchaser, 
or transporter, as appropriate, to record specific information when 
water is drained from tanks that hold hydrocarbons, including the total 
observed volume (TOV) and free water that are in the tank before, and 
TOV after, water is drained. Order 3 did not require operators to 
record these volumes, which could have led to hydrocarbons being 
drained with the water and removed without proper measurement and 
accounting, and without royalties being paid.
    The BLM received many comments regarding this section. Several 
commenters stated that the documentation requirements were excessive 
and added little to no value to accounting for production. The BLM made 
several changes in response to these comments, to reduce documentation 
requirements and eliminate any confusion over when operators should 
document the FMP number during water-draining operations. Specifically, 
the BLM reduced the overall amount of information that operators must 
document by eliminating from this section the requirements that 
operators record the opening and closing gauge times, the name of the 
person and company draining the tank, and the FMP number associated 
with the tank.
    Another commenter questioned whether the requirement to identify 
the FMP associated with a tank subject to this provision would mean 
that an FMP is required for each condensate tank in the field. By way 
of clarification, condensate tanks, just like oil storage tanks, must 
have FMP numbers.

[[Page 81381]]

However, oil and condensate tanks that are part of a tank battery share 
the same FMP number.
    Another commenter recommended that the BLM exempt ``low-volume 
sources'' from the requirements, to reduce the paperwork and record-
maintenance costs for operators of such sources. The BLM does not 
believe that an exemption for small producers (or operators of low-
volume sources) is appropriate and did not change the final rule as a 
result of this comment. As noted earlier, it is important for all 
operators to ensure that hydrocarbons are not being drained with the 
water and removed without proper measurement and accounting, and 
without the royalties due being paid. Having operators record the 
volume of hydrocarbons that are in the tank before and after water is 
drained helps ensure that the proper royalties are paid. When 
performing production accountability inspections, the BLM will compare 
these water-draining records, along with other production and sales 
records, with production reports that operators submit to ONRR. These 
records will allow the BLM to independently verify production that is 
attributable to Federal and Indian leases. The BLM did not make any 
changes in response to this comment.
    One commenter said the existing Order 3 seal requirements already 
prevent theft of oil because they provide a tracking mechanism for the 
transfer of any liquids from production tanks, and therefore the 
provisions of the proposed rule were unnecessary. The BLM disagrees 
that Order 3's seal requirements already prevent theft of oil. Existing 
requirements related to seal records do not provide any information on 
how much TOV is in a tank before and after water is drained. They 
merely show when a tank is sealed and unsealed, and by whom, not what 
was drained, nor how much was removed from the tank. No changes were 
made to the final rule as a result of this comment.
    Other commenters stated that Sec.  3173.6 would require the gauging 
of tanks prior to and after a sale. They said that while such a 
practice is necessary during custody transfer, this requirement could 
be hazardous to employees because it would unnecessarily expose them to 
benzene or volatile organic compounds (VOC). In response to these 
comments, the BLM added new language to paragraphs (e) and (g) that 
allows either manual or automatic gauging for the opening and closing 
gauge, TOV, and free-water measurements, all of which must be to the 
nearest \1/2\ inch. Giving operators the option of conducting this 
measurements using automatic gauging will provide an opportunity for 
operators to reduce employees' exposure in the field.
    Finally, one commenter said the color-cut measurement method 
requirement in the proposed rule is not accurate for indicating water 
oil contact with heavy oils that are less than 30 degrees gravity. The 
commenter said that an opening and closing gauge would be a sufficient 
indicator to determine the amount of water in the tank. The BLM agrees 
with the comment that color-cut measurements are not accurate in some 
situations and has removed this requirement from the final rule. 
Instead, paragraph (e) has been rewritten to require operators to 
simply document ``free-water measurements,'' which allows operators to 
use any reliable method for measuring free water, including electronic 
equipment.
Section 3173.7 Hot Oiling, Clean-Up, and Completion Operations
    Section 3173.7(a) of the final rule requires that specific 
information be recorded when hydrocarbons are removed from storage and 
used on the lease, unit PA, or CA for hot oiling, clean-up, and 
completion operations, including the volume of hydrocarbons removed 
from storage and expected to be returned to storage. Paragraph (b) 
requires operators to consider as sold, and to measure following the 
requirements of this final rule, any production used from storage for 
hot oiling, line flushing, or completion operations on a different 
lease, unit PA, or CA.
    Under Order 3, the operator was required to record only the date, 
seal number removed, new seal number installed, and the reason for 
removing oil for hot-oiling, clean-up, or completion operations. The 
operator was not required to record the volume of hydrocarbons that was 
removed from storage and were expected to be returned. This omission 
could have led to the volume of produced hydrocarbons being counted 
twice--first when it was initially produced then later after it was 
returned to storage.
    The BLM received many comments on this requirement. A few 
commenters said that an operator's field personnel are on hand, closely 
monitoring these types of operations, ensuring that the oil is returned 
to the tank and that it is counted just once. Commenters said there is 
no reason for the BLM to require operators to maintain records of these 
volumes because operators only pay royalties on oil that is sold, not 
oil that is produced, and hot-oiling, clean-up, and completion 
operations are unrelated to sales. The BLM agrees that having an 
operator's field personnel on hand, closely monitoring these 
operations, is ideal for ensuring that oil is not counted twice during 
these operations. However, the BLM's experience has shown that in many 
instances field personnel do not monitor these operations because they 
are called away for other duties. The BLM did not change the final rule 
in response to this comment, because the BLM believes there is a need 
to address inconsistent practices among operators and to ensure there 
is proper documentation of the volume of oil used in these operations.
    In response to the comment that hot oiling, clean-up, and 
completion operations have nothing to do with sales volumes, the BLM 
notes that it is required to verify not only sales volumes but also 
production volumes and to report on avoidably lost gas under NTL-4A. 
Hot oiling, clean-up, and completion all involve production volumes, 
and therefore are properly within the scope of the proposed rule.
    Another commenter said the BLM does not have the authority to 
impose the requirements under this section, requested that the BLM 
explain why these new requirements are necessary, and asked that we 
provide the legal citation for the new law that justifies this 
authority. The BLM's authority to impose site-security, record-keeping, 
and production accountability requirements for the production of 
Federal and Indian oil and gas is not ``new.'' The statutes authorizing 
the BLM to issue this rule have been in place for decades and were 
identified earlier in this preamble. These statutes include the ones 
that were identified as the basis for existing Order 3.
    A few commenters said that the requirement that operators gauge oil 
level, maintain seals, track FMPs, gauge tanks, etc., during completion 
operations will add to the workload of field personnel performing those 
tasks. For example, an employee will need to be onsite 24 hours a day, 
7 days a week to make sure the seal changes are recorded on the run 
tickets and logged properly for tracking purposes. Several commenters 
said the documentation requirements under this section were excessive 
and added little to no value to production accounting.
    The BLM agrees with these commenters that the proposed 
documentation requirements were too expansive and in response changed 
the final rule to reduce the amount of information that operators must 
document during hot oiling, clean-up, and completion operations. In the 
final rule, the BLM removed requirements

[[Page 81382]]

that operators document the opening and closing gauge times; the name 
of person and company removing production from the tank; and the FMP 
number associated with the tank or group of tanks. The BLM has 
accounted for the costs of these revised recordkeeping requirements in 
its Paperwork Reduction Act analysis, which we discuss later in this 
preamble, and concludes that they are not a significant financial 
burden on operators.
    With respect to the general concern that these requirements are 
unnecessary, the BLM does not agree. These requirements are important 
and represent an important part of the final rule, because in their 
absence, operators could drain, transfer, or sell hydrocarbons without 
measuring and accounting for them during hot oiling, clean-up, and 
completion operations, resulting in incorrect royalties being paid. The 
BLM will use these records when performing production accountability 
inspections. Specifically, it will compare records from hot oiling, 
clean-up and completion operations, and other production and sales 
records, with reports that operators submit to ONRR. This will allow 
the BLM to independently verify production that is attributable to 
Federal and Indian leases.
    As for the commenter's claim that these recordkeeping requirements 
for well completion operations would necessitate an operator's field 
personnel to be present at the wellsite 24/7, the BLM does not have 
enough information to respond to this comment. While the BLM agrees 
that, in general, operators will now have to document more information 
than they have been documenting under Order 3, the BLM does not believe 
that any of these additional recordkeeping requirements will require 
company personnel to be onsite 24/7. The final rule was not changed as 
a result of this comment.
    The BLM did not receive any comments on paragraph (b). However, the 
BLM makes a clarification in the final rule that the production 
reported to ONRR as sold must be ``for the period covering the 
production in question.''
Section 3173.8 Report of Theft or Mishandling of Production
    Section 3173.8 of the final rule includes security provisions that 
are intended to prevent theft or mishandling of oil, complementing the 
minimum standards for site security and production handling established 
in this rule. Paragraph (a) requires operators, transporters, and 
purchasers to report verbally all incidents of theft and mishandling of 
production to the BLM no later than the next business day after they or 
their employees discover them. Paragraph (b) specifies the information 
that must be included in a written incident report, which is required 
within 10 business days of any oral report. Such reports must be made 
the next business day after discovery and may be made orally or through 
a ``written incident report.'' Oral reports must be followed by written 
reports within 10 business days. Adding purchasers and transporters to 
these requirements is a change from Order 3, which required only 
operators to report theft or production mishandling, but is consistent 
with the overall approach to these requirements in the proposed and 
final rules.
    Many commenters were concerned about the requirement in paragraph 
(a) that purchasers and transporters report incidents of theft and 
mishandling to the BLM, and questioned the BLM's authority to impose 
such a requirement on them. Since the wells and facilities belong to 
the operator, commenters said, the operator should be the one reporting 
all theft and production mishandling. The commenters said it would be 
redundant and unnecessary to have purchasers and transporters reporting 
theft and mishandling to the BLM, and could lead to multiple reports 
and confusion. A few commenters added that this change could make 
operators accountable for potentially arbitrary and inaccurate third-
party reports of theft or production mishandling.
    Finally, some commenters asked why operators could be subject to an 
immediate assessment when they fail to report theft or mishandling to 
the BLM.
    The BLM believes it is necessary to require purchaser and 
transporters, in addition to operators, to report instances of theft or 
production mishandling when they discover them because, as noted in the 
proposed rule preamble, purchases and transporters are sometimes the 
first to discover such instances or to recognize suspicious activity. 
When transporters or purchasers report theft or production mishandling, 
the BLM intends to work with transporters, purchasers, and operators to 
verify the reports, with each party being responsible for the 
information it provides. The BLM's authority to require purchasers and 
transporters to report theft or production mishandling comes from 
Section 103(a) of FOGRMA, which provides that ``a lessee, operator, or 
other person directly involved in developing, producing, transporting, 
purchasing, or selling oil or gas . . . shall establish and maintain 
any records, make any reports, and provide any information that the 
Secretary may, by rule, reasonably require for the purposes of 
implementing this Act or determining compliance with rules or orders 
under this Act.'' Sections 102(b)(2) and 301(a) of FOGRMA allow the BLM 
to prescribe any rules, regulations, or appropriate measures to protect 
oil from theft. The final rule simply places the same expectations on 
purchasers, transporters, and operators, which are all parties involved 
in production, for reporting theft and mishandling of production.
    The BLM does not agree that requiring purchasers and transporters 
to report theft and production mishandling creates confusion or is 
redundant and unnecessary. Reports by purchasers and transporters, 
together with information provided by operators, will improve the 
existing reporting system by giving the BLM more facts faster to 
investigate these situations. No changes were made to the final rule as 
a result of these comments.
    Other commenters discussing the provisions of the proposed rule 
related to theft or mishandling did not agree with the BLM's decision 
to eliminate the self-inspection requirements contained in Order 3 
section III.F, which are related to Order 3's requirements for 
reporting theft or mishandling of oil. The purpose of the self-
inspection requirement, according to those commenters, was for 
operators to periodically measure production volumes to assure that 
they complied with the BLM's minimum site security requirements. These 
commenters said that self-inspection programs are a good practice, and 
that it would not be appropriate for the BLM to find an operator in 
violation of this section if they elect to implement a self-inspection 
program and report incidences of theft and mishandling. The commenters 
encouraged the BLM to maintain the Order 3 requirements for a self-
inspection compliance program, rather than eliminate them.
    It has been impractical for the BLM to enforce the Order 3 self-
inspection requirements because the requirements were vague, and the 
BLM never supplemented them with internal guidance or enforcement 
policy. This final rule replaces the Order 3 self-inspection program 
with stronger recordkeeping and documentation requirements, such as 
those in Sec.  3173.9 (Required recordkeeping for inventory and seal 
records). As explained in the recordkeeping section of this preamble, 
we believe this approach will ultimately improve overall production 
verification and accountability. That said, the BLM

[[Page 81383]]

does not disagree with the notion that self-inspection programs can 
help with a company's internal compliance efforts, and nothing in the 
final rule would prohibit a company from implementing such a program on 
its own initiative. No changes were made in response to this comment.
    As for the commenters' suggestion that the BLM not issue immediate 
assessments or take enforcement actions against those operators who are 
implementing a self-inspection program, the BLM does not agree with 
this suggestion. The BLM takes enforcement actions against operators 
that fail to report theft or production mishandling. The fact that an 
operator has a self-inspection plan in place does not and should not 
immunize the operator from enforcement for a failure to report. Under 
the final rule, consistent with the proposed rule, an operator that 
fails to report is subject to an immediate assessment under Sec.  
3173.29 (Immediate Assessments) of the final rule. No change was made 
in response to this comment.
    Finally, a number of commenters suggested that the BLM should be 
told whether incidents of theft or production mishandling have also 
been reported to law enforcement and company security in addition to 
the BLM. The BLM agrees that it needs to know if law enforcement and 
company security have been notified and added a new paragraph (b)(8), 
which now includes this requirement. This change will help the BLM work 
with company security and law enforcement to investigate and prosecute 
alleged incidents of theft and production mishandling in order to 
prevent future occurrences.
Section 3173.9 Required Recordkeeping for Inventory and Seal Records
    Paragraph (a) of this section of the final rule requires operators 
to perform an end-of-month inventory consisting of the TOV in storage 
(measured to the nearest \1/2\ inch), subtracting free water, and the 
volume not corrected for temperature/S&W, as reported to ONRR on the 
OGOR. Paragraph (b) specifies the records that an operator must 
maintain for each seal.
    The BLM received several comments on proposed Sec.  3173.9. In the 
proposed rule, operators were simply required to measure and record the 
TOV in storage at the end of each calendar month. A few commenters said 
they did not have the ability to measure inventory at all sites on the 
actual last day of the month due to the number of tanks they operate, 
the volume corrections for temperature/S&W, and the accuracy needed to 
meet the measurement standards of this section.
    The BLM agrees that operators may not be able to measure all 
inventory on the very last day of the month, especially those operators 
who have large numbers of storage tanks. In response, the final rule 
provides two options for an operator to perform an end-of-month 
inventory. The operator can either perform the measurements within +/-3 
days of the end of the month, or it can interpolate the values based on 
daily production values and gross sales volumes, using inventory 
measurements taken before and after the final day of the month. To help 
guide operators on the interpolation of their end-of-month inventories, 
the BLM provides the following equation in paragraph (b)(2) of this 
section, as well as an example of how the equation is to be applied:

{[(X + Y-W)/Z1] * Z2{time}  + X = A,

Where:

A = calculated end of month inventory;
W = first inventory measurement;
X = second inventory measurement;
Y = gross sales volume between the first and second inventory;
Z1 = number of actual days produced between the first and second 
inventory; and
Z2 = number of actual days produced between the second inventory and 
end of calendar month for which the OGOR report is due.

These alternate approaches to maintaining inventories give operators 
more flexibility to meet the BLM's recordkeeping requirements, but 
still ensure monthly volume measurements are recorded.
    Other commenters interpreted the proposed section to mean that 
operators were required to gauge their storage tanks manually, since at 
the time the proposed rule was released the BLM's oil measurement 
regulations did not allow operators to use automatic tank gauging 
systems. As a result, these commenters asserted that requiring 
operators to manually gauge tanks would unnecessarily expose their 
employees to hazardous fumes. The BLM understands this concern and has 
added clarifying language to the final rule that allows operators to 
measure TOV either manually or with automated systems. The BLM was able 
to make this change because in the related rulemaking that is replacing 
Order 4 with a new subpart 3174, operators now have the ability to use 
automatic tank gauging systems for oil sales, and thus such a system 
will also be permissible for inventory maintenance.
    Other commenters said this section was not necessary because 
recording the TOV in tanks is routine practice under sales contracts, 
and the seal requirements in paragraph (b) of this section are 
unnecessary because they are already covered in Sec. Sec.  3173.2 and 
3173.3 of the proposed rules. With respect to those comments stating 
that recording the tank TOV is routine operator practice under sales 
contracts, it should be noted that those recordkeeping activities 
relate to periodic tank sales. Those records do not allow the BLM or 
the operator to determine monthly production or to detect theft or 
improper handling of production like an end-of-month inventory does. 
Additionally, operators are already required to report end-of-month 
inventories to ONRR so this requirement should not create an additional 
burden for operators. The BLM did not change the final rule in response 
to this comment.
    With respect to the concerns about paragraph (b), the BLM disagrees 
that the seal recordkeeping requirements are already covered in 
Sec. Sec.  3173.2 and 3173.3. Those two sections only identify which 
valves or components must be sealed. They do not address the 
recordkeeping requirements associated with such seals. The BLM did not 
change the final rule in response to this comment.
    Finally, some commenters asserted that paragraph (b) should not 
apply to purchasers and transporters because they are not responsible 
for installing or maintaining such seals. The BLM agrees that Sec.  
3173.9, particularly paragraph (b), does not apply to purchasers and 
transporters. However, the BLM did not change the rule in response to 
this comment because the text in Sec.  3173.9 makes clear that its 
requirements apply solely to operators.
Section 3173.10 Form 3160-5, Sundry Notices and Reports on Wells
    Section 3173.10, paragraphs (a) and (b), require all parties 
involved in Federal and Indian oil and gas production to submit Sundry 
Notices, Form 3160-5, electronically to the BLM for their site facility 
diagrams, requests for FMP designations, requests for CAAs, requests 
for off-lease measurement, and any amendments to the diagrams or 
requests. As noted in the preamble of the proposed rule, requiring 
electronic submission will, in the long run, increase efficiencies 
throughout BLM field offices, for both the BLM and operators, by making 
the diagrams easier to track and more accessible to inspectors in the 
field. Paragraph (b) provides an exemption from the electronic-filing 
requirement

[[Page 81384]]

for small operators that do not have access to the Internet.
    Several commenters supported the proposed requirements for online 
filing, but were concerned with the BLM's ability to handle a 
significant increase in electronic submissions ``at one time,'' and 
wanted the BLM to clarify what it means when it says that this change 
will, in the long run, increase BLM efficiencies. Some of these same 
commenters said they were concerned with the ability of the BLM's 
existing WIS to handle this volume of submissions.
    Requiring electronic submission of Sundry Notices and Reports on 
wells provides both operators and the BLM with an efficient 
chronological method for tracking items submitted for approval, rather 
than relying on hard copies. The BLM is aware that the Well Information 
System has had problems in the past, and is working on an improved 
version of its in-house database, known as AFMSS II. As part of its 
transition to AFMSS II, the BLM is evaluating industry information 
technology standards, such as XML, to develop a system that will make 
data sharing and management as seamless as possible between the BLM and 
the public. That said, even the existing system should not prevent the 
BLM from realizing the benefits of electronic filing of facility 
diagrams.
    One of the reasons the proposed rule gave operators a phase-in 
period to apply for an FMP on existing leases, units, and CAs was to 
help the BLM avoid having to process a flood of Sundry Notices at one 
time. Under the proposed rule, operators would have applied for their 
FMP numbers over a 9- to 27-month period, starting on the effective 
date of the final rule, on a tiered scheduled based on production 
level, with the highest producing wells having the earliest required 
application date. As discussed later in this preamble, the final rule 
extends the phase-in periods for the FMP application process to 12, 24, 
and 36 months, based on production level thresholds that are similar to 
those in the proposed rule. This will give some operators up to 3 years 
after the effective date of this final rule to apply for an FMP for 
stand-alone leases, CAs, unit PAs and CAAs. If a stand-alone lease, 
unit PA, or CA has not produced for a year or more before the effective 
date of this final rule, the operator will not need to apply for an FMP 
until resuming production. The BLM believes that these changes will 
substantially reduce the number of electronic filings the BLM must 
process at any one time, reducing the risk that its systems lack the 
capacity to handle the submissions.
    Similarly, and as explained below in connection with Sec.  
3173.11(d) and (e), the BLM has also modified the proposed rule's 
requirements for updated site facility diagrams. Instead of requiring 
all facilities to upgrade their diagrams with 30 days of receiving an 
FMP, as was suggested in the proposed rule, under the final rule site 
facility diagrams at existing facilities will only have to be updated 
when or if the existing facility is modified (e.g., when equipment or 
wells are added or removed, when co-located facilities are added, or 
when there is a change in operator). This change reduces the overall 
number of Sundry Notice submissions associated with site facility 
diagrams and helps distribute notice submissions over time.
    Some commenters wanted to know if the BLM will send out electronic 
notifications when it approves Sundry Notices that have been filed 
electronically. The BLM will provide such notifications, just as it 
does now as part of its new APD system.
    One commenter suggested that the BLM use off-the-shelf software 
common to industry to handle its electronic data submissions, saying it 
would reduce reporting costs to industry since these programs are 
already used industry-wide. The BLM disagrees because the BLM already 
has an existing e-filing system up and running, and operators are 
already familiar with using it. This system allows operators to see the 
status of their submissions and provides them an electronic response of 
the AO's decision. The AFMSS II update builds on this existing 
infrastructure. The BLM did not change this final rule as a result of 
these comments.
Section 3173.11 Site Facility Diagrams
    As discussed in the proposed rule, the requirements in Sec.  
3171.11 update and replace Order 3's Site Facility Diagram 
requirements, which are currently found in section III.I. Paragraphs 
(a) through (c) of Sec.  3171.11 set forth the requirements for the 
content and format of site facility diagrams, while Appendix A to 
subpart 3173 provides some basic examples of what these diagrams should 
look like.
    Under Sec.  3173.11(a) through (c), a site facility diagrams must 
include, in addition to drawings that show the relative locations of 
equipment, specific information, such as FMP numbers; the land 
description; unit PA, or CA numbers; site equipment; and royalty-free 
use information. Site facility diagrams are one of the BLM's primary 
mechanisms for ensuring that operators are complying with measurement 
regulations and policy, which is why it is important that accurate 
diagrams are submitted to the BLM in a timely manner.
    As explained in the preamble to the proposed rule, under Order 3 
the BLM required operators to provide generalized diagrams showing each 
piece of equipment being used at a facility, including connections 
between each piece of equipment, valve positions on production storage 
tanks (sales valves, drain valves, equalizers, and overflow valves), 
and their relative positions to each other. While these diagrams were 
useful to the BLM, they did not provide all of the information 
necessary for inspection and enforcement activities. The more detailed 
information required by this final rule will provide the BLM with a 
more useful tool to achieve improved production accountability.
    For example, the requirement in paragraph (c)(9) of this final rule 
(paragraph (c)(10) in the proposed rule) will allow the BLM, for the 
first time, to verify royalty-free-use volumes that operators report on 
their OGORs. This paragraph requires operators to specify on their site 
facility diagrams which equipment on the lease is using oil or gas 
royalty-free and how they determine the volumes of oil or gas used by 
that equipment, if the volume is not measured. This requirement will 
provide greater consistency in how operators determine the volumes of 
oil and gas used royalty-free, and will enable the BLM to more easily 
verify those volumes, which enhances production accountability. This 
particular change also responds to the GAO recommendations (Report 10-
313) that the BLM establish uniform systems for collecting and tracking 
information about royalty-free use in order to ensure that such use can 
be properly verified. Affirmatively requiring this information to be 
reported on a site facility diagram will ultimately save the BLM and 
operator time because it will eliminate the need for the BLM to obtain 
the information in connection with a production accountability review.
    Paragraph (d) sets forth the timeframe within which facilities that 
are required to obtain an FMP under Sec.  3173.12 must submit a site 
facility diagram that complies with this rule. It covers both existing 
and new facilities. Paragraph (d)(1) in this final rule (paragraph 
(c)(1) in the proposed rule) requires operators, whose facilities 
become operational on or after the effective date of this rule to 
submit their diagrams within 30 days after the BLM assigns their FMP. 
For operators of existing facilities that were in operation on or 
before the effective

[[Page 81385]]

date of this rule, paragraph (d)(2) explains that such facilities are 
not initially required to submit an updated site facility diagram if 
they already have one on file with the BLM that meets the minimum 
requirements of Order 3. These operators are only required to submit an 
updated site facility diagram consistent with the requirements of this 
final rule if and when the operators modify their facilities, construct 
or modify a non-Federal facility located on their Federal lease or 
federally approved unit or communitized area, or if there is a change 
in operator.
    Paragraph (e) sets forth the timeframe within which facilities that 
do not require FMP numbers under Sec.  3173.12 (e.g., facilities that 
dispose of produced water) must submit a site facility diagram that 
complies with this rule. It covers both existing and new facilities. 
Paragraph (e)(1) requires operators of facilities that become 
operational after this rule's effective date to submit their diagrams 
within 30 days after the facilities become operational. For operators 
of facilities in operation on or before the effective date of this rule 
that do not require an FMP, paragraph (e)(2) in this final rule 
explains that such facilities are not initially required to submit an 
updated site facility diagram if they already have one on file with the 
BLM that meet the minimum requirements of Order 3. These operators are 
only required to submit an updated site facility diagram consistent 
with the requirements of this final rule if and when the operators 
modify their facilities, construct or modify a non-Federal facility 
located on their Federal lease or federally approved unit or 
communitized area, or if there is a change in operator.
    Paragraph (f) explains that operators of facilities required to 
have a site facility diagram have an ongoing obligation to update those 
diagrams within 30 days after the operator modifies its facilities, 
constructs or modifies a non-Federal facility located on the Federal 
lease or federally approved unit or communitized area, or if there is a 
change in operator.
    The BLM received many comments on this section of the proposed 
rule. One commenter suggested that the BLM develop a database that 
allows operators to submit the information needed for site facility 
diagrams using a standard form. The commenter said any changes to a 
site facility diagram, along with other information, could be 
automatically and periodically submitted by operators, thus making the 
process of submitting and updating diagram information to the BLM 
effortless. The BLM recognizes the potential efficiencies provided by 
the commenter, but did not make any changes at this time because the 
BLM's WIS--which follows the Sundry Notice format--is currently the 
only method for electronic submission. At this time, that system does 
not allow for submission along the lines suggested by the commenter. As 
result, the BLM will accept electronic records that contain the 
requested information on additional pages as long as they are submitted 
with the actual diagram on Form 3160-5 (Sundry Notices) and they follow 
the prescribed numbering format. The BLM did not change the final rule 
based on this comment.
    Many commenters expressed concern that application of the proposed 
rule's site facility diagram requirements to existing facilities is 
unnecessary, and that the deadlines in the proposed rule for submitting 
the diagrams would be onerous. These commenters also said the demands 
in this section are so burdensome that they would cause operators to 
reconsider future development plans, after having invested money in 
complying with previous regulations.
    Although the BLM believes the new site facility diagrams for 
existing facilities, including those that handle waste water, will 
allow the BLM to improve production accountability, the BLM also 
believes that commenters' concerns with the deadlines for submitting 
the new diagrams have merit. In response to these comments, and in an 
effort to reduce the number of diagrams that operators must initially 
submit to the BLM, we have revised paragraph (d)(2) (formerly paragraph 
(d) in the proposed rule) and added a new paragraph (e)(2) to the final 
rule which specifies that operators of existing facilities are not 
initially required to submit updated site diagrams, so long as they 
have a diagram on file that complies with the requirements of Order 3. 
As noted, these paragraphs require updates to existing diagrams only 
when facilities undergo changes. The BLM believes that this change 
addresses the identified concern, while ensuring that as these existing 
facilities undergo changes the agency will eventually receive site 
facility diagrams that meet the requirements of Sec.  3173.11. Although 
the existing site-facility diagrams are not as detailed, the BLM will 
continue to work off the diagrams that it has on file to perform its 
production accountability-related inspections on existing facilities, 
until such time as those diagrams are updated.
    Other commenters questioned why it was necessary to provide a 
diagram for salt-water disposal facilities because, they said, these 
facilities are unrelated to actual oil and gas production operations. 
The BLM does not agree with this commenter. These diagrams are not a 
new requirement. Operators are already required to have site facility 
diagrams on file with the BLM for their water-disposal facilities; 
Order 3.III.I.1. requires diagrams for ``all facilities.'' The BLM is 
responsible for accounting for all production, including water, not 
just oil and gas. No changes were made to the final rule as a result of 
these comments.
    A few comments sought clarification on how to legibly depict 
multiple wells and headers, encompassing an area several miles in size, 
on a single sheet of 8\1/2\ x 11 paper. The BLM did not change the 
final rule based on these comments because paragraph (b) in the 
proposed and paragraph (c)(1) in the final rule (paragraph (c)(2) in 
the proposed) already state that, while diagrams need to reflect 
equipment locations, they need not be to scale, and more than one page 
can be used, if necessary. The Appendix to subpart 3173 provides 
examples of multi-well submissions.
    One commenter said the valve-positioning and labeling requirements 
in paragraph (c) and the examples in the Appendix would result in 
operators putting redundant information on the diagrams when multiple 
tanks, with similar valves that are operated similarly, are involved. 
The BLM did not make a change in response to this comment. The BLM 
cannot create a single template that addresses how all site facility 
diagrams, for a myriad of field configurations, should be drawn. The 
Appendix examples are meant to be a starting point for operators. It is 
up to the operator to determine how best to identify valve positioning 
on paper, as long as the valves and their positions are identified, 
legible, and comprehensible as required in Sec.  3173.11.
    The BLM received several comments on the requirement in paragraph 
(c)(9) of the final rule (paragraph (c)(10) of the proposed rule) that 
operators identify on their diagrams any equipment that uses production 
royalty-free, and either the calculated or measured volumes that are 
used. Under the final rule, operators are permitted to use any method 
they want to determine their royalty-free use volume, as long as they 
show on the diagram how they determined it.
    Several commenters pointed out that royalty-free fuel use 
fluctuates monthly, and one commenter even provided its method for 
determining ``on lease use fuel gas.'' The commenter recommended

[[Page 81386]]

that the BLM consider letting operators provide an average lease use 
fuel gas estimate and questioned the need for operators to report this 
information on their diagrams since on-lease fuel gas is already 
reported to the BLM. The BLM did not change the final rule in response 
to this comment. The commenter has confused BLM and ONRR requirements. 
Operators are required to report the volumes of fuel used royalty-free 
to power production equipment on a lease to ONRR, not the BLM. In order 
to enhance accountability, BLM field inspectors need to be able to 
independently verify royalty-free-use volumes reported to the ONRR, 
using the information in the diagrams pertaining to the equipment that 
uses the royalty-free oil and gas. Currently, the BLM has no method for 
determining whether the royalty-free use rate that operators report on 
their OGORs is accurate. This new requirement enhances production 
accountability and responds to key recommendations made by the GAO 
(Report 10-313), as explained above.
    A few commenters questioned the BLM's rationale for creating the 
new site-facility-diagram requirement, while eliminating the Order 3 
requirement for site security plans, which some operators had 
established. The BLM agrees that these two requirements are related. 
The site-facility diagram was part of the larger site-security plan 
required in Order 3. As discussed earlier in this preamble, the Order 3 
site-security plan's self-inspection requirements are not in the final 
rule. However, elements of the old site security plan requirements have 
been incorporated into this final rule at Sec. Sec.  3170.4 
(Prohibitions against by-pass and tampering), 3173.8 (Report of theft 
or mishandling of production), 3173.9 (Required recordkeeping for 
inventory and seal records), and 3173.11 (Site facility diagrams); and 
into the final rule that is replacing Order 4 at 43 CFR 3174.12 
(Measurement tickets).
    Many commenters questioned the need for operators to provide 
information and documentation on their site facility diagrams, as 
required under proposed Sec.  3173.11, for what they consider to be 
extraneous equipment and components. Commenters offered to work with 
the BLM to create a pragmatic approach for allowing the BLM to verify 
royalty-free volumes and for operators to submit their diagrams within 
a sensible time. However, as proposed, many commenters saw this section 
as unnecessary and unreasonable overreach by the BLM, and a drain on 
resources for both operators and the agency, especially given that 
operators would need to track information on multiple components on 
numerous pieces of equipment across several locations. For example, one 
commenter did not understand how putting equipment serial numbers, 
rated fuel use, and manufacturer information on a site facility diagram 
would help the BLM verify whether a reasonable determination was made 
on royalty-free use volumes reported to ONRR. Depending on their 
configuration, production facilities can have an extensive number of 
major components, and requiring operators to track down this 
information and report it on their diagrams would cause a hardship on 
many operators, commenters said.
    Another commenter disagreed with the requirement in proposed 
paragraph (c)(11) that an operator or its representative include a 
signed certification statement on the diagram. This requirement is 
redundant and unnecessary, the commenter said, because existing 
statutes--18 U.S.C. 1001 and 43 U.S.C. 1212--already make it a crime 
for any person to knowingly and willfully make a false statement to the 
BLM.
    The BLM agrees with these comments and in response has made changes 
to the final rule that reduce the information that must be submitted 
and expand the timeframe within which the submission must occur, 
including deleting paragraph (c)(11). The final rule will not require 
operators to include a signed certification statement as part of their 
site facility diagrams, because, as noted by a commenter, operators are 
responsible by law for ensuring the accuracy of the information in 
their diagrams. In response to comments questioning the requirement in 
paragraph (c)(10)(i) of the proposed rule, which directed operators to 
provide equipment serial numbers, rated fuel use, and manufacturer 
information on their site-facility diagrams, the BLM removed this 
requirement in paragraph (c)(10)(i) of the proposed rule from the final 
rule because the information, although useful in verifying whether 
equipment had been replaced, would not help the BLM verify that the 
royalty-free-use volumes reported to ONRR were accurate.
    One commenter said that the requirement in paragraph (a), that 
operators submit a site facility diagram for each FMP, is cumbersome, 
particularly in cases where the FMP for oil facilities and gas 
facilities are on the same site. The commenter recommended that the BLM 
require a single FMP number for an entire facility at a single site in 
order make it simpler for operators, while providing the necessary 
information to the BLM. The BLM disagrees with this comment because the 
BLM's inspection verification process is based, in large part, on 
comparing production information that is reported to ONRR against 
information contained in a site facility diagram, and operators report 
their oil and gas production separately to ONRR. Having information on 
both types of facilities on one diagram could complicate and undermine 
the BLM's verification process. No change has been made to the rule 
based on this comment.
    Many commenters were also very concerned with the cost to operators 
to comply with the proposed diagram requirement, particularly the costs 
of re-submitting all site facility diagrams within the proposed rule's 
30-day submission deadline. However, as discussed above and in greater 
detail in the Economic and Threshold Analysis, the final rule greatly 
scales back the range of circumstances in which operators of existing 
operations must submit new site-facility diagrams. This reduces the 
number of diagrams that must be prepared and the amount of information 
that operators need to provide on those diagrams, which will 
significantly reduce compliance costs. The BLM estimated in the 
proposed rule that it would take operators 8 hours to prepare and 
submit a revised diagram. The BLM now believes that with the reduced 
workload, operators can perform this task in 6 hours. The BLM 
originally estimated in the proposed rule that operators would submit 
revised diagrams for 125,000 existing facilities over a 27-month phase-
in period. After taking a more detailed look at our computer data, the 
BLM has revised downward its estimate of the number of existing 
facilities to 83,116. The BLM now estimates under this final rule's 
revised requirements that only 5 percent of existing facilities, or 
about 4,165 facilities, do not have accurate and up-to-date site 
facility diagrams on file with the BLM and will have to submit revised 
diagrams to the BLM over the 3-year phase-in period. The BLM now 
estimates that the total one-time cost to industry to submit revised 
site facility diagrams will be $1.6 million, spread over 3 years, down 
from the BLM's previous estimate in the proposed rule of $63.6 million. 
On an ongoing basis, the BLM estimates operators will submit about 
5,000 new diagrams per year for a total annual cost to the regulated 
community of $1.9 million.
    Other commenters said they were physically limited--by the sizes of 
their staff and facilities--from submitting site facility diagrams for 
multiple existing

[[Page 81387]]

and new facilities within 30 days of receiving their new FMP numbers. 
Commenters said carrying out such a labor-intensive effort within 30 
days of receiving an FMP number was impractical, unreasonable, and a 
burden. Some comments suggested that a 60- to 90-day timeframe was more 
realistic. One commenter suggested 180 days would be more reasonable, 
with a couple of others suggesting that operators have up to 1 year to 
complete the diagrams. Another commenter proposed that the BLM set a 
30-day deadline for new facilities to submit their diagrams that would 
start from the date of first production, while another suggested a 
phase-in process, and still another comment proposed diagrams for new 
facilities only.
    The BLM agrees that operators need more time to submit diagrams for 
new and existing facilities, and made corresponding changes to the 
final rule. The commenter misstated the requirement of the proposed 
rule, which would have required operators to submit their diagrams much 
earlier--within 30 days of completing construction of their facilities. 
Under the final rule, operators will need to submit diagrams for new 
facilities (those that become operational on or after the effective 
date of this final rule) within 30 days after the BLM assigns an FMP to 
those facilities. The BLM believes these changes ensures that it will 
not receive a site facility diagram for a new facility prior to having 
assigned that facility an FMP number, which means operators will not 
have to go back and subsequently revise their diagrams to reflect the 
new FMP numbers. As discussed earlier, under the final rule, operators 
of existing facilities that already have site facility diagrams on file 
with the BLM that meet the requirements of Order 3 do not have to 
revise those diagrams unless they modify their facilities or there is a 
change in operator.
    Finally, one commenter was concerned about having to submit and 
resubmit multiple site facility diagrams for a facility with multiple 
FMPs, if the FMPs were not approved within 30 days of each other. The 
commenter said compliance would be impossible under these 
circumstances. The BLM believes that this commenter was trying to 
describe a well pad with multiple wells that are coming in to 
production consecutively. In this case, the FMP numbers will not 
change, but a new site-facility diagram will be required within 30 days 
from the onset of production from each well to reflect the new facility 
coming online. The BLM did not change the final rule in response to 
this comment. With respect to the commenter's concern about facilities 
having multiple FMPs, for the most part, facilities will have no more 
than two FMPs--one for oil and one for gas. Even though the 
applications for each FMP number will be submitted under a separate 
Sundry Notices, there is no reason an operator could not submit them at 
the same time, nor for the BLM to assign the FMP numbers at different 
times, as it is unlikely that the measurement system for oil would come 
online later than the measurement system for gas.
Section 3173.12 Applying for a Facility Measurement Point
    Section 3173.12 of the final rule establishes a formal nationwide 
process for designating and approving the point at which oil or gas 
must be measured for the purpose of determining royalty. Prior to this 
final rule, the BLM did not have a formal, written process for 
designating measurement points on the leases it manages. While some 
Field Offices had their own internal policies for establishing these 
points, this lack of uniform guidance across Field Offices resulted in 
instances of confusion about the location of royalty measurement 
points, which interfered with the BLM's production verification 
process. This section now requires operators to obtain BLM approval of 
FMPs for all measurement points used to determine royalties.
    The BLM will approve an FMP that meets the requirements of this 
final rule (the most important elements of which are the identification 
of the wells associated with the FMP and the measurement method). The 
BLM will assign each FMP a unique identifying number, which the 
operator, transporter, or purchaser will use when reporting production 
results to ONRR. Each FMP number will be 11 digits long. The first two 
digits (ranging from 52 to 99) will identify the product--oil or gas--
as well as other information, such as whether the FMP is on-lease or 
off-lease, whether it is part of a commingling arrangement, and the 
measurement method used at the FMP--tank gauge, LACT, Coriolis, etc. 
The next 5 digits will represent the American Petroleum Institute (API) 
state and county code, while the last 4 digits will be a combination of 
letters or numbers that will make each FMP number unique.
    The BSEE already assigns similar FMP numbers for the offshore oil 
and gas leases that it manages, which the operator, transporter, or 
purchaser must then use when reporting production results to ONRR. The 
changes in this final rule will make BLM practices consistent with 
existing BSEE and ONRR practices for production reporting.
    Paragraph (a)(1) of this final section provides that, unless 
otherwise approved, the FMPs for all Federal or Indian leases, unit 
PAs, or CAs must be located within the boundaries of the lease, unit 
PA, or communitized area from which the production originated, and must 
measure only production from that lease, unit PA, or communitized area, 
unless otherwise approved. Paragraph (a)(2) provides that off-lease 
measurement or commingling and allocation of production requires prior 
approval under 43 CFR 3162.7-2 and 3162.7-3, and Sec. Sec.  3173.15, 
3173.16, 3173.24, and 3173.25 of this final rule.
    Paragraph (b) provides that the BLM will not approve a meter at the 
tailgate of a gas processing plant located off the lease, unit, or 
communitized area as an FMP. This paragraph codifies existing BLM 
practice with respect to tailgate meters.
    Paragraph (c) provides that the operator must submit separate 
applications for approval of separate FMP numbers for a measurement 
point that measures oil produced from a particular lease, unit PA, CA, 
or pursuant to an approved CAA, and a measurement point that measures 
gas produced from the same lease, unit PA, or CA, or pursuant to an 
approved CAA. The requirements for a separate FMP apply even if the 
measurement equipment or facilities are at the same location. As 
discussed earlier, the first two numbers in the FMP number specify 
whether the FMP measures oil or gas. The BLM will not approve the same 
FMP number for a facility that measures oil and a facility that 
measures gas.
    Paragraph (d) requires the operator to apply for approval of an FMP 
for a new permanent measurement facility (i.e., one coming into service 
after the effective date of the final rule) before any production 
leaves the facility. In the final rule, we clarify that this 
requirement does not apply to temporary measurement equipment used 
during well-testing operations. Until the BLM assigns the FMP number, 
the operator must use the lease, unit PA, or CA number for reporting 
production to ONRR.
    Paragraph (e) provides that for existing permanent production 
measurement facilities, an operator has 1 year, 2 years or 3 years from 
the effective date of the final rule within which to apply for BLM 
approval of its FMP, depending on the production level of the lease, 
unit PA, or CA that the

[[Page 81388]]

measurement facility serves. The prescribed application deadline 
applies to both oil and gas measurement facilities measuring production 
from that lease, unit PA, and CA, whether or not it is part of a CAA. 
The final rule requires FMP applications for existing measurement 
facilities that serve operations with the highest production volumes to 
be submitted first:
    1. Under paragraph (e)(1), operators of stand-alone leases, unit 
PAs, or CAs, which produce 10,000 Mcf or more of gas per month, or 100 
bbl or more of oil per month must, apply for FMP approval within 1 year 
after the effective date of the final rule.
    2. Paragraph (e)(2) requires operators of stand-alone leases, unit 
PAs, or CAs, which produce 1,500 Mcf or more but less than 10,000 Mcf 
of gas per month, or 10 bbl or more but less than 100 bbl of oil per 
month, to apply for FMP approval within 2 years after the effective 
date of the final rule.
    3. Paragraph (e)(3) requires operators of stand-alone leases, unit 
PAs, or CAs that produce less than 1,500 Mcf of gas per month, or less 
than 10 bbl of oil per month, to apply for FMP approval within 3 years 
after the effective date of the final rule.
    To determine which category a facility is in, the final rule 
requires the facility to calculate average production over the 12 
months preceding the effective date of the final rule, or over the 
period the lease, unit, CA, or CAA has been in production, whichever is 
shorter.
    Paragraph (e)(4) explains that if a stand-alone lease, unit PA, or 
CA has not produced for a year or more before the effective date of 
this final rule, the operator is not required to apply for an FMP 
immediately, but rather need only apply prior to resuming production. 
Under paragraph (e)(6), if an operator applies for FMP approval by the 
date, the operator may continue to use the lease, unit PA, or CA number 
for reporting production to ONRR while the application is pending, 
until the effective date of the BLM-assigned FMP number, at which point 
the operator must use the FMP number for such reporting. If, however, 
an operator fails to apply for an FMP approval by the date required by 
the final rule, paragraph (e)(7) explains that the operator will be 
subject to an incident of noncompliance and may also be subject to an 
assessment of civil penalty under 43 CFR subpart 3163, together with 
any other remedy available under applicable law or regulation.
    Paragraph (f) identifies the information that a request for FMP 
approval must include. Under paragraph (f)(1), FMP requests must be 
submitted on a Sundry Notice and include information pertaining to the 
equipment that will be used to measure the oil and gas. Paragraph 
(f)(2) requires the applicable Measurement Type Code specified in WIS. 
Paragraph (f)(3) requires information about the equipment used for oil 
and gas measurement: (i) For gas measurement, specify unique station 
number, primary element (meter tube) size or serial number, and type of 
secondary device (mechanical or electronic); (ii) For oil measurement 
by tank gauge, specify oil tank number or tank serial number and size 
in barrels or gallons for all tanks associated with measurement at an 
FMP; and (iii) For oil measurement by LACT or CMS, specify whether the 
equipment is LACT or CMS and the associated oil tank number or tank 
serial number and size in barrels or gallons (there may be more than 
one tank associated with an FMP). Paragraph (f)(4) requires operators 
to include a list of the API well numbers that will flow to the 
requested FMP if that FMP will serve more than one well, and provide a 
land description for the FMP location. Under paragraph (f)(5), the FMP 
location by land description must also be included in the FMP 
application.
    As explained below, the BLM in the final rule has also reduced the 
quantity of information that operators must submit on their FMP number 
applications. For consistency with Sec.  3173.10(c)(10)(i), the BLM 
removed requirements that operators provide component names, 
manufacturer, model, serial number, range limits for electronic flow 
computers, transducer (static, differential, and temperature), chart 
recorders, LACT totalizer, and Coriolis meter from Sec.  
3173.12(f)(3)(i), (ii), (iii), (iv) and combined subparagraphs (iii) 
and (iv) into (iii).
    Paragraph (g) allows concurrent requests for FMP approval and for 
approval of off-lease measurement or commingling and allocation.
    Section 3173.12 is a key element of the final rule as it implements 
one of the GAO's central recommendations: That the Interior Department 
consistently track where and how oil and gas are measured, including 
information about meter location, identification number, and owner. By 
requiring operators to obtain approval from the BLM for the location of 
the FMP at which oil or gas is measured, the final rule provides that 
consistent tracking. The BLM will also now tie the FMP numbers to other 
appropriate approvals and documentation that are part of its production 
verification and accountability efforts, such as site facility 
diagrams, off-lease measurement approvals, commingling approvals, and 
royalty-free use (if volumes used royalty-free are measured).
    In the final rule, operators, purchasers, and transporters must 
include on all records the FMP number or until the BLM approves the FMP 
number, the lease, unit PA, or CA number, along with a unique equipment 
identifier and the name of the company that created the record.\12\ 
Records include, but are not limited to, calibration reports, gas 
analysis, sales statements, manifests, seal records, and related 
approvals. Once assigned, the operator must use the FMP number for 
production reporting to ONRR after the effective date of the BLM's FMP 
approval.
---------------------------------------------------------------------------

    \12\ Once an FMP number is approved, it must be used on all 
subsequent reporting as outlined in this rule.
---------------------------------------------------------------------------

    The BLM estimates there are approximately 83,116 existing oil and 
gas facilities associated with Federal and Indian leases. Many 
facilities have one FMP for oil and one FMP for gas for a total of 
approximately 166,232 FMPs for existing facilities.
    In connection with its creation of the new FMP system in Sec.  
3173.12, the BLM has also revised its existing well and facility 
identification provisions at 43 CFR 3162.6(b) and (c) to include a 
signage requirement for wells on Federal or Indian lands and facilities 
at which Federal or Indian oil or gas is measured or processed. 
Additional revisions to Sec.  3162.6 include: (1) Making the surveyed-
location language in paragraphs (b) and (c) consistent, including a new 
reference to longitude and latitude; and (2) Removing a sentence in 
paragraph (b) that provided a grace period for well signs that were in 
existence on the effective date of the rulemaking in which that section 
was first promulgated.
    The BLM received a comment requesting that the definition of an FMP 
in Sec.  3173.1 include more details on how to obtain an FMP, the 
deadlines for operators to obtain an FMP, and the economic impacts that 
the FMP requirement would have on industry. The BLM disagrees with this 
commenter. Section 3173.12 of this final rule provides all of the 
information requested by the commenter related to requests to apply for 
an FMP. It addresses the deadlines--which are based on average 
production volumes--for operators to submit FMP applications for 
facilities that are in service on or before the effective date of this 
rule, or that will come into service after the effective date. It also 
specifies

[[Page 81389]]

the three production thresholds on which the FMP application deadlines 
are based. As for the economic impacts, the BLM carefully evaluated 
those as part of the rulemaking process in both a draft and a final 
regulatory impact analysis for this rulemaking, both of which are made 
available to the public. The Procedural Matters section of this 
preamble contains a short discussion of this rule's potential economic 
impact on industry. We did not change the final rule as a result of 
this comment.
    A number of commenters were concerned that they could not meet the 
proposed rule's deadlines in Sec.  3173.12(e) for applying for and then 
receiving an FMP number before producing oil and gas. They said the 
resources needed to prepare FMP applications would be exorbitant, 
especially for large producers that have many thousands of wells, many 
of which will likely have associated commingling or off-lease 
measurement approvals that the BLM will need to review (see discussion 
of Sec.  3173.16 below).
    Many commenters also complained about the proposed tiered volume 
thresholds that figured into the timelines for filing FMP applications. 
Many operators said that most of their wells' production levels would 
require them to submit their FMP applications within 9 months of the 
final rule's effective date. Commenters said such timeframes would be 
unreasonably short for operators with large well inventories, 
considering that they would also be required to submit new site 
facility diagrams and possibly update existing commingling and off-
lease measurement approvals.
    Under the proposed rule, operators would have had to submit their 
FMP application within:
     Twenty seven months from the effective date of the final 
rule for leases, unit PAs, and CAs that produced less than 3,000 
thousand cubic feet (Mcf) of gas or 20 bbl of oil per month;
     Eighteen months from the effective date of the final rule 
for leases, unit PAs, and CAs that produced between 3,000 and 6,000 Mcf 
of gas or 20 and 40 bbl of oil per month; and
     Nine months from the effective date of the final rule for 
leases, unit PAs, and CAs that produced over 6,000 Mcf of gas or 40 bbl 
of oil per month.
    The BLM agrees with commenters that the proposed deadlines were too 
tight. In response, the BLM changed the final rule to give operators 
additional time to submit FMP applications for facilities that are in 
service before the effective date of the final rule. The amount of 
additional time is based on the facility's average reported monthly oil 
and gas production volumes over the previous 12 months. When 
establishing the new thresholds, the BLM analyzed lease production data 
in AFMSS to determine the impacts on all currently producing leases. In 
setting the FMP application deadlines, the BLM attempted to spread the 
impact evenly across the three timeframes and across all BLM-
administered leases.
    As discussed previously, the final rule also allows operators to 
continue to produce oil and gas while their FMP applications are 
pending BLM approval, provided that those applications are submitted 
within the deadlines specified in Sec.  3173.12(e). While waiting for 
their FMP approvals, operators may continue to use the lease, unit PA, 
or CA numbers that they have been using for reporting their production 
to ONRR. These changes should make it easier for operators to meet the 
final rule's FMP application deadlines and give them more time to plan 
and budget for this new requirement, while continuing their production 
operations. As explained in connection with Sec.  3173.11(d) and (e), 
this final rule removes the proposed rule's requirement that all 
existing facilities submit updated site facility diagrams within 30 
days of approval of an FMP, further reducing requirements on existing 
facilities.
    In addition, as discussed previously, the BLM changed the final 
rule to eliminate some of the information required in the FMP 
applications (e.g., equipment serial numbers and manufacturer 
information). Furthermore, the final rule exempts leases, unit PAs, and 
CAs, which have not produced any oil or gas within the past 12 months. 
Only when operators resume production from these idle leases, unit PAs, 
and CAs must they then apply for FMPs.
    A number of commenters also expressed concern that the BLM would 
not have been able to handle the number of FMP applications that the 
agency would have received under the proposed rule's timeline and 
requirements. However, the BLM now anticipates having a much smaller 
workload, spread more evenly over time. For one thing, a review of 
AFMSS data suggests that there are only 83,116 active facilities 
affected by this rule--about 25 percent fewer than the BLM had 
estimated in analyzing the proposed rule. In addition, the final rule 
requires operators to provide less information on their FMP 
applications and site facility diagrams than the proposed rule would 
have required. We now estimate that it will take BLM staff 2 hours to 
process each FMP application, instead of the 4 hours we anticipated 
under the proposed rule's information requirements. Additionally, 
because of the provisions allowing continued production and reporting 
while an FMP application is pending, operators should no longer be 
concerned about potential FMP application backlogs.
    Several commenters said they were concerned about delays in the FMP 
approval process holding them up from putting new wells online and 
removing production from the lease. The proposed rule at Sec.  
3173.12(d) required operators to ``obtain'' FMP approval for 
measurement facilities that came into service after the rule's 
effective date before they could begin removing production from a 
lease, unit PA, CA, or CAA. The BLM agrees that proposed paragraph (d) 
needed to be changed to avoid production delays on new facilities. To 
address these concerns, the BLM has made several changes to paragraph 
(d) in the final rule. First, the BLM added language to the section to 
clarify that operators must apply for FMP approvals for permanent 
measurement facilities only--not temporary test facilities--as defined 
in Sec.  3173.1 of this final rule. In addition, the BLM added language 
to paragraph (d) that requires operators of new facilities to simply 
``apply for'' FMP approval before any production leaves the permanent 
measurement facility. This change allows operators to install a new 
measurement facility, remove production from that facility without 
delay, and use the lease, unit PA, or CA number for production 
reporting to ONRR until the BLM assigned an FMP number, as long as they 
apply for their FMP approval before any production leaves that 
permanent facility. While the applications are pending, operators may 
continue using their lease, unit PA, or CA number for reporting 
production to ONRR.
    One commenter thought the BLM should allow operators to file one 
application on the facility as a whole, and not be required to submit 
one application for oil and another for gas. The BLM did not revise the 
rule as a result of this comment. One of the purposes of an FMP is to 
be able to consistently verify where and how oil or gas is measured. 
The BLM does this by comparing information that operators report to the 
BLM against information operators report to ONRR, which does, in fact, 
collect the oil and gas production information separately. Using one 
FMP number to track oil and gas measurement operations together would 
compromise the BLM's ability to consistently verify production

[[Page 81390]]

measurements for royalty purposes. Such a system is also incompatible 
with ONRR's existing reporting systems, and it would not meet the goals 
of establishing an FMP.
    Finally, one commenter said that BLM staff should be given a 
deadline for approving FMPs, since it is not fair to hold operators to 
multiple deadlines, making them subject to INCs for missing those 
deadlines, while not holding the BLM to the same standard. As discussed 
above, the BLM's new FMP approval process will not interfere with 
operators' production. Once operators file a timely request for an FMP 
approval on existing facilities, they may continue to operate and use 
their lease, unit PA, or CA number for reporting production to ONRR 
until the BLM assigns an FMP number.
    Once an FMP number is assigned to a facility, Sec.  3173.13(a) of 
this final rule gives the operator several months before it must use 
the FMP number when reporting production to ONRR. Specifically, for 
existing facilities, the operator will have to begin using the FMP 
number for reporting production to ONRR on its OGOR for the fourth 
production month after the FMP number is assigned. For facilities that 
come into service after the effective date of this final rule, 
operators are required to apply for FMP approval before any production 
leaves the permanent measurement facility and then use the FMP number 
for reporting production to ONRR on its OGOR for the first production 
month after the FMP number is assigned. As result of these changes, we 
do not believe deadlines for BLM review are necessary or appropriate.
Section 3173.13 Requirements for Approved Facility Measurement Points
    Section 3173.13 of the final rule sets forth the requirements that 
are applicable to all approved FMPs. Paragraph (a) requires the 
operator of an existing facility to use assigned FMP numbers in 
reporting production to ONRR on its OGORs for the fourth production 
month after an FMP is assigned. For new facilities in service after the 
effective date of this rule, paragraph (a) requires the operator to 
begin using its assigned FMP numbers on its OGORs for the first 
production month after the FMP number is assigned.
    Paragraph (b) requires an operator to file, within 30 days after 
any changes or modifications to an approved FMP, a Sundry Notice 
notifying the BLM of the change. It also describes the information that 
operators must provide to the BLM in the Sundry Notice, including any 
changes or modifications to the equipment that is used for measuring 
oil or gas at the FMP, or to the API well numbers associated with the 
FMP.
    The BLM received several comments on this section of the proposed 
rule. Unlike the final rule, the proposed rule required operators to 
use their FMP numbers for both recordkeeping purposes and production 
reporting to ONRR beginning on the first day of the month after the FMP 
number was assigned. A few commenters said they needed more time to 
start using the number for production reporting and recordkeeping 
because an FMP could be issued on the last day of the month, thereby 
obligating the operator to use the FMP on the next day. The commenters 
said that this would not give them enough time to take the steps they 
need to comply with FMP requirements, such as stenciling the FMP number 
onto equipment, labeling all records with the FMP number, and making 
updates to their existing database systems that track oil and gas 
production operations.
    The BLM agrees that requiring operators to begin using their FMP 
numbers for recordkeeping and production reporting on the first day of 
the month after the FMP number is assigned may not be possible for some 
operators. As discussed earlier, the BLM changed Sec.  3170.7(g) from 
requiring operators to use FMP numbers on all records, to allowing 
operators to use either FMP numbers or lease, unit PA, or CA numbers, 
along with unique equipment identifiers, on their records. In addition, 
the BLM changed final Sec.  3173.13(a) to extend the effective date 
that operators of existing facilities are required to begin using their 
FMP numbers in production reporting to ONRR. Under the final Sec.  
3173.13(a), operators must start using FMP numbers for reporting 
production to ONRR on their OGORs for the fourth production month after 
the FMP number is assigned. For example, if the BLM assigns an existing 
facility an FMP number on January 17, the operator must begin using 
that FMP number on its May production OGORs. Because ONRR requires 
operators to submit their electronic reports ``on the 15th day of the 
second month following the production month being reported,'' the May 
production report must be submitted by July 15, effectively giving the 
operator 5-\1/2\ months of leeway before having to submit a report 
using the FMP number assigned on January 17. The BLM chose this new 
timeframe because it believes that nearly six months is ample time for 
operators of existing facilities to start using their new FMP numbers 
for reporting production to ONRR.
    For new facilities, operators will be required to begin using their 
FMP numbers in reporting production to ONRR on their OGORs for the 
first production month after the FMP number is assigned. For example, 
if the BLM assigns the FMP number on April 30, the operator must begin 
using that FMP number for its May production. As noted, however, the 
May production report is not due to ONRR until July 15, effectively 
giving the operator 2-\1/2\ months leeway before having to submit the 
report using the FMP number.
    Some commenters asked why proposed Sec.  3173.13(d) required 
operators to submit a Sundry Notice detailing ``any'' modifications 
they make to an approved FMP and why the changes were made. Commenters 
said the BLM does not need this information. The BLM agrees that it 
does not need to know why a change was made and has removed this 
requirement from the final rule. However, the BLM does need to know 
when operators change out measurement equipment at an approved FMP, 
along with specific information about the replacement equipment, and 
when they add or remove wells served by an FMP, along with the 
associated API well numbers. The BLM needs this information so that it 
can keep track of these types of changes, which directly impact the 
BLM's efforts to verify production. In addition, the BLM has provided 
some additional context, by clarifying that it does not need to be 
notified when temporary modifications (e.g., for maintenance purposes) 
are made. With these clarifications, the final rule in paragraph (b)(1) 
still requires operators to file a Sundry Notice within 30 days 
notifying the BLM of changes in measuring equipment at an approved FMP 
or of the addition or subtraction of wells served by an approved FMP. 
These are essentially changes in the information that operators 
submitted on their FMP applications, as required under Sec.  
3173.12(f)(3) and (4).
    The BLM received several comments on the requirement in proposed 
Sec.  3173.13(a) that operators stamp or stencil FMP numbers on 
specific pieces of equipment within 30 days after an FMP number 
assignment. Commenters said this requirement was too expensive and 
would take too much time. Several commenters recommended that the BLM, 
instead, cross-reference the FMP number to a unique meter station 
identifier supplied by the operator, such as the meter station number, 
LACT ID number, or tank number, all of which are already available and 
visible to BLM inspectors. The BLM agrees that the

[[Page 81391]]

requirement to stamp or stencil FMP numbers on equipment that is used 
to measure for royalty is unnecessary and has removed it from the final 
rule.
    The BLM changed the final rule at Sec.  3173.12(f) to require 
operators, when they apply for a gas FMP number, to identify the 
royalty measurement point by specifying a unique station number; 
primary element (meter tube) size or serial number; type of secondary 
device (mechanical or electronic); and associated API well numbers 
where production from more than one well will flow to the requested 
FMP; along with a land description of the FMP's location. On an oil FMP 
number application, operators must supply the tank number or tank 
serial number and size in barrels or gallons; specify whether LACT or 
CMS, if applicable; associated API well numbers where production from 
more than one well will flow to the requested FMP; along with a land 
description of the FMP's location.
    One commenter said operators should be exempt from the requirement 
that they file a Sundry Notice when they temporarily modify an FMP due 
to changing out equipment for maintenance. The commenter said the 
replacement equipment, using the same measurement methodology, would 
not impact accuracy. The BLM agrees that operators do not need to 
notify the BLM when they install temporary replacement equipment while 
performing maintenance on the permanent equipment. As noted, the final 
rule clarifies in paragraph (b)(1) that the BLM does not need to be 
notified when temporary modifications (e.g., for maintenance purposes) 
are made.
    Finally, one commenter objected to the requirement in proposed 
paragraph (b)(2) that operators file a Sundry Notice whenever there is 
a change in the wells or facilities served by an FMP. This commenter 
said an operator may need to transfer product to different meters 
several times a day when the meters freeze during the winter months. 
The commenter said it would be impossible to maintain a list of the 
wells going to the FMPs under these conditions. The BLM is not aware of 
situations where operators direct their gas stream to different sales 
meters because of line freezing. This practice may be allowed on State 
and private wells, but, such a transfer is not allowed on Federal and 
Indian wells. We did not change the final rule as a result of this 
comment.
Sections 3173.14 through 3173.21 Commingling and Allocation Approvals
    As explained in the Definitions section of this preamble, 
commingling, for production accounting and reporting purposes, means 
the ``combining, before the point of royalty measurement, production 
from more than one lease, unit PA, or CA, or production from one or 
more leases, unit PAs, or CAs with production from State, local 
governmental, or private properties that are outside the boundaries of 
those leases, unit Pas, or CAs.'' Operators apply for commingling 
approval for several reasons, including:
    (1) It can simplify accounting to have the sales point be the same 
as the point of royalty measurement;
    (2) Lower operating costs can be achieved by reducing the number of 
meters required (such as when well testing is an appropriate allocation 
method); and
    (3) Lower operating costs can also be achieved by eliminating the 
need for separate plumbing and surface equipment (pipelines, 
separators, dehydrators, compressors, tanks, etc.).
    Commingling can also have some advantages for the BLM:
    (1) More accurate measurement can sometimes be achieved from a 
meter measuring combined flows, which can be better-conditioned and, 
more consistent, and have higher flow rates, than from a single low-
volume meter measuring erratic flow with a higher potential for 
multiple phases of fluid;
    (2) The environmental footprint can be reduced by reducing the need 
for duplicate surface equipment; and
    (3) Production accounting can be simplified by reducing the number 
of meters to inspect and verify.
    However, in many situations the advantages of commingling are 
offset by increased measurement uncertainty, increased potential for 
measurement bias, and a decrease in the BLM's ability to verify 
reported production volumes. This is especially true if the properties 
proposed for commingling are of different ownership, have different 
royalty rates, or have different royalty distributions.
    As explained below, Sec. Sec.  3173.14 through 3173.21 of the final 
rule restrict the instances in which the BLM will approve commingling 
and establish the standards that an operator must meet to obtain an 
approval. Existing regulations at 43 CFR 3162.7-2 and 3162.7-3 require 
BLM approval before operators commingle production from a Federal or 
Indian lease with production from other sources; however, prior to this 
rule, there were no regulations addressing how or under what 
circumstance commingling should be approved. The requirements in this 
final rule are based on and codify the policy outlined by the BLM with 
respect to commingling approvals in IM 2013-152 (2013), ``Reviewing 
Requests for Surface and Downhole Commingling of Oil and Gas Produced 
from Federal and Indian Leases.'' The principal difference between the 
provisions of this rule and the BLM's existing IM is that the final 
rule establishes a new process for the BLM to review existing CAAs when 
operators apply for their FMP approvals. In contrast, the IM focused 
solely on new CAAs. Also, in response to public comment and additional 
internal reviews, the final rule expands the number of exemptions under 
which an existing or proposed CAA could be commingled if the CAA does 
not meet the criteria identified in Sec.  3173.14 (a) of the final 
rule.
Section 3173.14 Conditions for Commingling and Allocation Approval 
(Surface and Downhole)
Section 3174.14(a)
    To ensure the accuracy and verifiability of the volume and quality 
measurements on which royalty is based, Sec.  3173.14(a) states that 
the BLM ``may grant a CAA only if the proposed allocation method used 
for any such commingled measurement does not have the potential to 
affect the determination of the total volume or quality of production 
on which royalty owed is determined for all the Federal or Indian 
leases, unit PAs, or CAs which are proposed for commingling. . . .'' 
Paragraph (a)(1) goes on to identify the conditions under which this 
occurs.
    The most common situation when this occurs is when all the 
properties proposed for commingling are 100 percent Federal or leased 
100 percent by the same Indian tribe, have the same fixed royalty rate, 
and have the same revenue distribution. In these situations, the 
allocation method is irrelevant because the total amount of royalty 
received by the Federal Government or tribal mineral interest owner 
will be the same regardless of how it is allocated to the individual 
leases, unit PAs, or CAs that are part of the CAA. Consequently, the 
BLM can ensure accurate measurement and proper reporting by inspecting 
and verifying only the commingled point of royalty measurement (i.e., 
the commingled FMP). This would also apply in situations where, for 
example, ``lease-line'' CAs proposed for commingling are all 50 percent 
Federal and 50 percent non-Federal.

[[Page 81392]]

    Based on comments received on the proposed rule and additional 
internal reviews, the BLM revised paragraph (a) and its subparagraphs 
as outlined below. In paragraph (a) itself, the BLM added language 
which explicitly states the criteria the BLM uses to approve a 
commingling application. Paragraphs (a)(1)(i) and (a)(1)(ii) were 
retained, with modifications for clarity, from the proposed rule. Those 
provisions recognize that if the leases, unit PAs, or CAs to be 
commingled are 100 percent Federal or leased 100 percent by the same 
Indian tribe, and at the same fixed royalty rate, then commingling is 
generally acceptable, assuming the other requirements of this part are 
met. Indian allotted leases are not included under paragraph (a) 
because there would be virtually no instances where the revenue 
distribution to the allottees would be identical in different leases, 
unit PAs, or CAs.
    Several commenters suggested that commingling among unit PAs or CAs 
that have less than 100 percent Federal ownership should be recognized 
as permissible, so long as they have the same proportion of Federal 
interest. The BLM agrees with this comment and added paragraph 
(a)(1)(iii) to allow commingling of Federal unit PAs or CAs where each 
unit PA or CA proposed for commingling has the same proportion of 
Federal interest, which is subject to the same fixed royalty rate and 
revenue distribution. Under this provision, the BLM could approve a 
commingling request where an operator proposes to commingle two Federal 
CAs of mixed ownership where both are 50 percent Federal/50 percent 
private, so long as the Federal interests have the same royalty rates 
and royalty distributions. The BLM also added a new paragraph 
(a)(1)(iv), which provides a parallel provision for tribal interests, 
with the key again being identical percentage of tribal participation 
and royalty rates.
    In paragraph (a)(2) of the final rule, the BLM makes it clear that 
the operator or group of operators that are part of a CAA must provide 
the BLM with the allocation methodology for the properties from which 
production is to be commingled, along with an agreement signed by the 
operators that are parties to the CAA if there is more than one 
operator. Paragraphs (a)(3) and (a)(4) remain unchanged from the 
proposed rule.
    Paragraph 3173.14(a)(3) requires operators to demonstrate that each 
of the leases, unit PAs, or CAs proposed for inclusion in a CAA is 
producing in paying quantities or, in the case of Federal leases, 
capable of producing in paying quantities. One commenter asked why the 
BLM wants to know that wells involved in commingling are capable of 
production in paying quantities. The purpose of this requirement is to 
ensure that CAAs are not used to extend the terms of a nonproducing 
lease, by allocating production to it. The BLM did not change the rule 
as a result of this comment.
    Paragraph (a)(4) requires that the FMP(s) for the proposed CAA 
measure production originating exclusively from the leases, unit PAs, 
or communitized areas in the proposed CAA. The BLM received no comments 
on this provision.
Section 3173.14(b)
    Paragraph (b) of final Sec.  3173.14 sets forth the exceptional 
circumstances in which the BLM will allow commingling even when the 
circumstances outlined in paragraph (a) are not met because, for 
example, there is a combination of Federal and non-Federal ownership, 
Indian allotted leases are involved, or the Federal or Indian leases 
have different royalty rates. This paragraph includes the two 
circumstances given in the proposed rule: Economically marginal 
properties (called low-volume properties in the proposed rule) and 
overriding considerations, such as environmental impacts. The final 
rule also adds three additional circumstances where the BLM can approve 
commingling:
     When the average monthly production over the preceding 12 
months for each Federal or Indian lease, unit PA, or CA proposed for 
the CAA is less than 1,000 Mcf of gas per month, or 100 bbl of oil per 
month;
     The CAA has been authorized under tribal law or otherwise 
approved by a tribe; or
     The CAA covers the downhole commingling of production from 
multiple formations that are covered by separate leases, CAs, or unit 
PAs where the BLM has deemed the commingling of these formations to be 
an acceptable practice for the purpose of achieving maximum ultimate 
economic recovery and resource conservation.
    The BLM received numerous comments on this paragraph in the 
proposed rule, stating that the exceptions granted in paragraph (b) of 
the proposed rule were not adequate for surface commingling approvals 
in cases involving low production volumes. The commenters said that 
this would result in lost oil and gas production, revenue, and 
royalties from operators forced to shut-in thousands of wells covered 
by existing CAAs where surface commingling takes place and where the 
economics did not justify the cost of installing new metering and 
measurement equipment. In many of these instances, the commenters 
stated that production volumes have declined to the point where the 
revenue from continued operation would not be sufficient to justify 
installing new measurement equipment, particularly in the current low-
price environment.
    The BLM disagrees with these comments. The provisions for approving 
a CAA for economically marginal properties (low-volume properties in 
the proposed rule) in both the proposed rule and the final rule were 
designed specifically to allow the BLM to determine if a property would 
truly be shut in if the only alternative was for the operator to 
achieve non-commingled measurement of production. The BLM believes many 
of the worst case scenarios flagged by commenters would fit within the 
economically marginal property exception. Unlike downhole commingling, 
the costs for surface commingling are relatively easy to define. An 
operator on the edge of profitability should be able to demonstrate to 
the BLM under paragraph (b)(1) that the properties proposed for 
commingling qualify as economically marginal properties. The commenters 
did not submit any data to substantiate that the existing provisions 
under paragraph (b)(1) were inadequate as they relate to surface 
commingling.
    Although the BLM did not make any changes to the rule based on 
these comments, the BLM changed the economic threshold in the final 
rule based on comments on the definition of low-volume property in the 
proposed rule. As discussed in connection with Sec.  3173.1, under the 
new definition of an economically marginal property, the BLM changed 
the threshold from a 10 percent before-tax rate of return in the 
proposed rule to an 18-month after-tax payout in the final rule. The 
BLM believes this change will increase the number of leases, unit PAs, 
or CAs that would qualify as economically marginal leases and, 
therefore, might qualify for a CAA under this paragraph. The BLM does 
not have any data to quantify this increase, however.
    Commenters also expressed concern about the workload and timeframes 
involved with obtaining a commingling approval under paragraph (b). 
Because the provisions of paragraph (b)(1) of both the proposed and 
final rule are very similar to the provisions of IM 2013-152, the BLM 
has experience with the process of reviewing CAAs for economically 
marginal properties. Based on its experience processing commingling 
requests under IM 2013-

[[Page 81393]]

152, the BLM agrees that the process for requesting and reviewing a CAA 
can take time, especially for properties that do not clearly fit within 
the economic thresholds established in the final rule.
    As a result, the BLM made two changes in the final rule. The first 
change was to grandfather any existing surface commingling approval 
where the average production rate over the previous 12 months for each 
of the Federal or Indian leases, unit PAs, or CAs included in the 
approval is less than 100 bbl of oil per month or 1,000 Mcf of gas per 
month (see Sec.  3173.16(a)(1) and (2)). Second, recognizing that such 
limited production may also occur in connection with new CAA approvals, 
Sec.  3173.14(b)(2) now allows the BLM to approve new CAAs if the 
average production rate from the proposed CAA satisfy the thresholds 
for grandfathering of existing CAAs. The new CAA would also have to 
comply with Sec.  3173.14(a)(2) through (4); however, under the final 
rule, the BLM will not require any additional economic analysis from 
the operator.
    The BLM chose these thresholds because properties producing below 
these thresholds would almost always qualify as economically marginal 
properties under this rule. Therefore, the BLM can approve commingling 
requests that qualify under this paragraph with significantly less 
paperwork burden on both the BLM and industry, and without the in-depth 
economic analysis that would have been required in the proposed rule. 
The BLM chose the oil threshold of 100 bbl per month by assuming the 
cost of achieving non-commingled measurement of oil would be $50,000 
(setting a small oil tank, for example). The production rate required 
to achieve an 18-month payout of this investment, assuming a $60 per 
bbl oil price and including taxes, royalty payments, and fixed and 
variable operating costs, would be about 3.5 bbl per day, or 
approximately 100 bbl per month.
    The BLM used a similar approach for determining the gas threshold. 
The BLM assumed that an operator would have to invest $20,000 to 
achieve non-commingled measurement of gas (the cost of installing a new 
meter). The production rate required to achieve an 18-month payout of 
this investment, assuming a $3 per MMBtu gas price, and including 
taxes, royalty payments, and operating costs, would be about 30 Mcf/
day, or roughly 1,000 Mcf per month.
    The BLM added Sec.  3173.14(b)(3) to the final rule, which provides 
for CAAs that have been authorized under tribal law or otherwise 
approved by a tribe. The BLM included this provision in response to 
tribal comments indicating that tribal law or agreements may 
independently identify circumstances where commingling is appropriate. 
The BLM added this provision because it believes that tribes should 
have a say in approving CAAs that involve production from tribal 
leases.
    The BLM received many comments stating that the exceptions provided 
in Sec.  3173.14(b) of the proposed rule did not address downhole 
commingling agreements in the New Mexico portions of the San Juan and 
Permian Basins and elsewhere that would not meet the requirements Sec.  
3173.14(a). The commenters said that this omission would result in lost 
oil and gas production, revenue, and royalties from operators forced to 
shut-in thousands of wells at existing CAAs where downhole commingling 
takes place and where the economics do not justify the cost of drilling 
additional wells or segregating downhole production. Many of the wells, 
according to the commenters, were drilled specifically to commingle 
downhole production from multiple leases, CAs, and unit PAs, including 
combinations of Federal, Indian, fee, and State ownership. The 
commenters said downhole commingling allows operators to reduce costs 
and environmental impacts by reducing the number of wellbores because 
multiple zones can be produced out of a single wellbore. In addition, 
commenters stated that some individual zones do not have enough 
production to justify the drilling and completion costs for separate 
wells. Other commenters stressed that downhole commingling increases 
the maximum ultimate economic recovery because reservoir energy from 
lower formations allows oil and gas from highly-depleted upper 
formations to be produced (i.e., production from the lower formation is 
necessary to produce the upper formation). In many of these instances, 
production volumes have declined to the point where the revenue from 
continued operation would not be sufficient to justify drilling new 
wells or re-completing existing wells to avoid downhole commingling, 
particularly in the current price environment.
    The BLM agrees with commenters that the exceptions listed in the 
proposed rule, need to be expanded to account for downhole CAAs, to 
ensure that improvements in measurement accuracy and the BLM's ability 
to verify production made by this rule do not unnecessarily result in 
operators shutting in large numbers of existing wells, particularly 
during times of low commodity prices. The BLM believes that it is in 
the public interest to receive royalty on a volume of oil or gas that 
may have heightened levels of uncertainty and may not be perfectly 
verifiable by the BLM, rather than receiving no royalty at all if the 
property is shut in to avoid the cost of achieving uncertainty and 
verifiability goals.
    The low-volume exemption in the proposed rule would have provided 
an objective measure of the economic viability of a lease, CA, or unit 
PA, as it relates to downhole commingling. However, this economic test 
has been difficult to implement for downhole commingling applications 
under IM 2013-152 because the costs associated with achieving non-
commingled downhole production are highly speculative and vary by 
facility and formations. These costs could be in the millions of 
dollars if an operator had to drill multiple wells in lieu of downhole 
commingling in one wellbore. It is also difficult to predict or 
quantify the benefits of increasing the maximum ultimate economic 
recovery from a well due to the ability to produce more oil and gas 
from downhole commingling.
    As a result of these comments, the BLM made two changes in the 
final rule. First, the BLM added an exception for certain categories of 
downhole commingling under paragraph (b)(4). This new exception allows 
the BLM to approve downhole commingling of production from multiple 
leases, CAs, and unit PAs if the BLM deems the proposed operation to be 
an acceptable practice for the purpose of achieving maximum economic 
recovery and conservation of the oil and gas resource. This exception 
provides a means for the BLM to recognize downhole commingling 
practices that have historically been approved in areas where such 
practices provide the only way to produce the Federal or Indian 
interest, and therefore are necessary to avoid having some operators 
prematurely plug existing wells. The addition of this provision gives 
Field Offices flexibility to approve downhole commingling requests 
based on local knowledge and experience with the characteristics of a 
particular oil or gas reservoir. Second, for existing downhole 
commingling approvals, the BLM added Sec.  3173.16(a)(1), which will 
grandfather all downhole commingling approvals in existence prior to 
the effective date of this rule (see discussion under Sec.  
3173.16(a)(1)).
    Several commenters said that the final regulations should state 
clearly how the BLM will balance the Federal interest in royalty 
measurement against competing interests, such as environmental 
concerns. One commenter

[[Page 81394]]

recommended that the BLM include an exemption from the commingling 
requirements in situations where the BLM's denial of a request for a 
CAA would increase a project's environmental impact. The BLM did not 
make any changes to the rule in response to these comments because 
paragraph (b)(5) of the final rule already expressly allows the BLM to 
consider approving a CAA if there are overriding conditions, such as 
topographic or other environmental considerations, notwithstanding 
potential negative royalty impacts from commingled measurement. Section 
3173.14(b)(2) of the proposed rule contained a similar provision. The 
BLM has determined that this language would allow the BLM to grant new 
CAAs in instances where the BLM determines that minimizing 
environmental impacts takes precedence over ensuring accurate and 
verifiable measurement and proper reporting of oil and gas removed or 
sold from a lease, unit PA, or CA. The BLM believes these situations 
will be rare and CAA approval will only be considered after exhausting 
all feasible alternatives, including alternate measurement techniques. 
The environmental analysis for the final rule indicates that in most 
cases where operators are required to install new facilities, they will 
likely place those facilities at sites where there is existing surface 
disturbance and where the environmental impact would be minimal (see 
the Procedural Matters section below for more discussion about the 
environmental analysis). If new equipment requirements result in new 
surface disturbances, the BLM, under the provisions of this rule, will 
evaluate any potential environmental impacts and require operators to 
mitigate them.
    One commenter stated that the added and unnecessary cost to 
industry to have to build and maintain separate pipelines and 
facilities without a substantial benefit for the BLM in return is 
unreasonable. The commenter said that they have a few wells in a field 
that are not in the unit, but use the same facilities that service the 
unit. The commenter is concerned that they would not be able to 
continue commingling in the future without doing a substantial economic 
study to quantify the cost to build separate facilities including 
shipping facilities. Another commenter asked the BLM to consider 
exempting those properties that are in close proximity to an existing 
gathering system and allowing production from those properties to be 
commingled with other properties, even if they are not considered to be 
low-volume properties.
    The BLM disagrees with these comments and did not make any changes 
to the rule as a result. Allocation methods that affect royalty 
measurement and reporting have the potential to increase measurement 
uncertainty, introduce bias, and inhibit the BLM's ability to verify 
and account for oil and gas production removed or sold from a lease, 
unit PA, or CA. The exceptions that allow for commingling when 
allocation methods affect royalty are included in paragraph (b) of the 
final rule; they cover cases where the requirement to achieve non-
commingled measurement of production would cause a prudent operator to 
shut in production or would cause significant and unavoidable 
environmental impacts. When demonstrating whether a lease, unit PA, or 
CA is economically marginal, operators can and should include the cost 
of building additional gathering lines, any new facilities, and 
mitigating environmental impacts into their capital cost calculations 
to see if they would qualify for commingling approval under paragraph 
(b)(1) of this section. If they do not meet the definition, or any of 
the other exceptions in paragraph (b) of this section, then the 
operator should be able to construct the additional facilities while 
still realizing a reasonable return on that investment, rather than 
shutting in production from a particular well.
    One commenter was concerned that, under the CAA requirements, 
operators who currently commingle small amounts of saleable liquids 
produced from gas wells (e.g., condensate) would have to install 
separate storage tanks for that liquid, imposing a significant and 
unjustified cost on operators. The BLM agrees with this concern raised 
by the commenter and made two changes to the final rule as a result. 
First, the definition of economically marginal property (low volume 
property in the proposed rule) was changed in the final rule to clarify 
that the expected costs and revenues for the economic analysis need 
only take into consideration the commodity for which the measurement 
equipment would be built, whether it is the oil or gas. In the example 
provided by the commenter, the economic analysis of condensate 
measurement would only consider the income stream from the sale of 
condensate and would not include the income stream from the sale of 
gas. Therefore, the small amounts of condensate generated would likely 
qualify for an exemption under paragraph (b)(1). Second, the BLM added 
paragraph (b)(2) to the final rule which provides an automatic 
exemption from the CAA restrictions and from performing an economic 
analysis for leases, unit PAs, or CAs that produce less than 100 bbl of 
oil per month or 1,000 Mcf of gas per month, averaged over the previous 
12 months. In this example, if the small amount of saleable condensate 
was less than 100 bbl per month averaged over the previous 12 months, 
the BLM could grant commingling approval for the condensate without any 
further analysis, assuming that the conditions in paragraph (a)(2) 
through (a)(4) were also met.
    One commenter representing Native Alaskan interests said it would 
not be economically feasible to prevent commingling of production from 
BLM lands that are within a unit PA that has an existing measurement 
system approved by all parties, when the BLM lands comprise only a 
small portion of the production. The BLM did not make any changes to 
the final rule in response to this comment, for two reasons. First, if 
the BLM portion of the unit PA is very small or the production is low, 
it might qualify as an ``economically marginal property'' under the 
definition of an economically marginal property in Sec.  3173.1. In 
this case, the BLM could approve commingling with other unit PAs within 
the unit or other properties outside of the unit. The BLM may also be 
able to approve commingling under Sec.  3173.14(b)(5) if achieving non-
commingled measurement of production addresses some overriding 
consideration, such as avoiding undue environmental impacts. If, on the 
other hand, the properties that are proposed for inclusion in a CAA do 
not meet the definition of economically marginal properties, do not 
present some other overriding consideration, such as environmental 
impacts, or otherwise satisfy one of this rule's criteria, then the BLM 
will require the operator to achieve non-commingled measurement of that 
unit PA.
    A couple of commenters suggested that the BLM is creating new law 
by establishing standards and requirements for existing CAAs that were 
not in Order 3. The BLM does not understand the comment. The purpose of 
the rulemaking process that the BLM is going through is to establish 
new standards and requirements. By following the BLM's authorizing 
statues and the procedures established by the Administrative Procedure 
Act, 5 U.S.C. 551 et seq., the BLM is able to establish new or 
different standards and requirements than those found in existing Order 
3. As explained elsewhere in this preamble, the final rule is squarely 
within the scope of the BLM's authorizing statutes and the

[[Page 81395]]

related delegations of authority from the Secretary.
    Several commenters also said the BLM has not analyzed the impacts 
of the rule on industry and the BLM, and requested clarification on how 
the BLM will balance the Federal interest in royalty measurement 
against competing interests. The BLM disagrees that it has not analyzed 
the impacts on industry or the BLM. As stated earlier in this preamble, 
the BLM has rigorously weighed and considered the economic impacts that 
this final rule will have on industry and prepared draft and final 
regulatory impact analyses for this rulemaking, which are available to 
the public. The Procedural Matters section of this preamble contains a 
short discussion of this rule's potential economic impact on industry. 
The analysis estimates that this rule's CAA requirements will have a 
one-time cost to industry of $4.9 million to $7.6 million for operators 
to submit documentation and respond to the BLM's informational requests 
for existing leases, and $2.7 million to install meters where the BLM 
rescinds existing commingling agreements. The analysis also estimates 
there will be an annual paperwork cost to industry from these 
provisions of $3 million to $4.6 million for new and modified 
commingling agreements, and $1.6 million in new annual metering 
installation costs for those FMPs where a commingling agreement is 
rescinded.
    The BLM believes that the final rule provides clear guidance on how 
the BLM will balance the Federal interest in accurate measurement with 
competing interests, such as not causing production to be shut in or 
creating additional environmental impacts. The final rule includes 
numerous provisions that allow commingling in cases where the public 
interest is better served by allowing commingling even if it results in 
potential negative effects to royalty measurement. These instances 
include properties that the BLM determines to be economically marginal, 
properties that produce below set thresholds, situations that involve 
downhole commingling, and where unnecessary or undue degradation or 
unavoidable environmental impacts or other overriding considerations 
would result if commingling were denied. The BLM did not make any 
changes to the rule based on these comments.
Section 3173.15 Applying for a Commingling and Allocation Approval
    Section 3173.15 of the final rule establishes the requirements 
operators must follow when requesting a CAA, and the information they 
need to include. Most of these requirements were in the proposed rule, 
but the final rule includes changes to the amount and type of 
information operators must include in their applications. The BLM made 
these changes in response to many comments it received on this section. 
The following discussion describes those comments and the changes that 
were made.
    One commenter suggested that proposed paragraph (b) be changed to 
require operators to submit as part of their CAA applications an 
allocation method, instead of an allocation schedule, which is subject 
to frequent changes. The BLM agrees that information about a CAA's 
allocation method would be more useful, and as a result changed the 
final rule to require an allocation method instead of a schedule.
    Several commenters said they did not believe the BLM has the 
authority to require operators to submit site facility diagrams as part 
of new CAA approvals for existing facilities, as required in paragraph 
(e) of the proposed rule. The BLM agrees that it does not need a site 
facility diagram to approve a CAA application for existing facilities 
and has eliminated that requirement in the final rule in response to 
these comments.
    One of the commenters asked about the purpose in Sec.  3173.15(e), 
for requiring operators to provide a map showing the boundaries, FMPs, 
and location of wellheads and production facilities as part of their 
commingling and allocation application. In response, the BLM changed 
paragraph (e) of the final rule to reduce the amount of information 
that operators must include in maps submitted as part of CAA 
applications. The required maps need only show the boundaries of any 
lease, unit, unit PA, or CA from which production is proposed to be 
commingled and indicate the locations of existing or planned facilities 
with the relative location of all wellheads (with API numbers), the 
piping, and existing or proposed FMPs included as part of the CAA 
request. The BLM needs this information for several reasons, one of 
which is to determine if all the production flowing through the 
proposed FMP originates from the leases, unit PAs, or CAs proposed to 
be part of the CAA. Another reason is to obtain clarity on what leases, 
unit PAs, or CAs are actually proposed for commingling. This is 
especially important when unit PAs or CAs are included in the proposal. 
In these situations, the location of a well or facility in relation to 
lease, unit PA, or CA boundaries, is critical for the BLM to understand 
when evaluating a commingling application. For example, one well may be 
physically located on a Federal lease but only produce from a CA that 
covers one of the formations under that lease, while another well on 
the same lease may only produce from a portion of the lease that is not 
part of the CA. In this case, the BLM would have to understand that 
even though both wells are physically located on the same lease, a CAA 
is required to combine their production because their production 
originates from different properties. The BLM did not make any changes 
to the rule based on these comments.
    One commenter asked whether the BLM planned to monitor which wells 
are flowing to which FMP and make operational recommendations. While 
the BLM has no intention of making operational recommendations, it will 
monitor which wells are flowing to which FMPs if that affects the CAA 
or the underlying allocation of production. The BLM did not make any 
changes to the rule based on these comments.
    Several commenters wanted to know why, in Sec.  3173.15(k), 
submission of up to 6 years of gas analyses, including Btu content and 
all oil gravities, is required for CAA requests. They indicated that it 
would be too burdensome for CAA applicants to provide historical crude 
oil gravity and natural gas heating value data, as only current data is 
relevant for trying to determine the prices received for these 
products. A couple of other commenters said this information 
requirement is excessive and would not improve the quality of the 
application. The BLM does not believe this to be an onerous 
requirement. First, 6 years' worth of data would not necessarily 
include a lot of data, especially for lower producing leases, unit PAs, 
and CAs for which the BLM would consider approving a CAA. For example, 
under 43 CFR 3175.100, a very-low-volume FMP (producing 35 Mcf per day 
or less), is only required to have a gas analysis taken once per year, 
so 6 years of data for that well is only 6 gas analyses. For oil, the 
API gravity is only determined when an oil sale takes place. A low-
producing oil lease may only have an oil sale several times per year, 
in which case 6 years of API gravities would include only one or two 
dozen API gravities. Second, operators should already have this 
information readily available because they are currently required to 
maintain records for at least 6 years under 43 CFR 3170.7, which 
retention period has been increased to 7 years for Federal leases under 
this rule. One of the reasons the BLM needs historical Btu and API 
gravities is to

[[Page 81396]]

assess the allocation methodology proposed by the operator. If, for 
example, the gas analysis data showed statistically significant 
variations between Federal and non-Federal properties proposed for a 
CAA, the BLM may require that the allocation method account for the Btu 
differences. On the other hand, if the gas analyses for the properties 
proposed for commingling were not significantly different, then the 
allocation method could be purely volume based. The BLM could also 
analyze the historical trend of Btu content or API gravity to determine 
if, for example, increasing Btu content could result in greater future 
royalty. Without this data, it would be impossible for the BLM to 
perform any analysis on the allocation method or on future revenue 
projections as part of an economic analysis.
    Another commenter noted that this information has no royalty impact 
if the properties are 100 percent Federal or Indian mineral ownership 
with the same fixed royalty rate and distribution. The BLM agrees with 
this comment and added a caveat to Sec.  3173.15(k) indicating that 
this information is required only if the CAA is not approved under 
Sec.  3173.14(a)(1).
    The BLM also determined it was necessary to make other changes to 
Sec.  3174.15 in the final rule to address considerations related to 
the administration of the rule. As part of the final rule, the BLM 
clarifies in paragraphs (f) through (i) which additional approvals 
operators must seek if their commingling proposals entail new surface 
disturbance or take place on Indian lands or on lands administered by 
other Federal surface management agencies, in case operators are 
unaware of these requirements. Finally, this section clarifies that if 
off-lease measurement is part of a commingling and allocation proposal, 
then a separate Sundry Notice under Sec.  3173.23 is not needed as long 
as the information required under paragraphs (b) through (e) and, where 
applicable, paragraphs (f) through (i) of Sec.  3173.23 is included as 
part of the request for approval for commingling and allocation. This 
revision clarifies that an applicant may submit both proposals in one 
Sundry Notice request.
Section 3173.16 Existing Commingling and Allocation Approvals
    Under Sec.  3173.16 of the final rule, the BLM will review an 
existing CAA when it receives an operator's request for an FMP number 
for a facility associated with the CAA. The BLM made numerous changes 
to both the structure and content of this section in the final rule in 
response to comments.
Section 3173.16(a)
    A new paragraph (a) was added to the final rule that grandfathers 
existing commingling approvals in some specific situations. Paragraph 
(a)(1) grandfathers all existing downhole commingling approvals.
    Based on the numerous comments the BLM received on downhole 
commingling approvals (see a discussion of those comments under Sec.  
3173.14(b)), the BLM decided to grandfather all existing downhole 
commingling approvals. The BLM is aware that there are large numbers of 
wells in the San Juan basin and elsewhere that are currently approved 
for downhole commingling. The BLM believes that the vast majority of 
these wells are producing low volumes of oil and gas and that continued 
production of these wells increases the maximum ultimate recovery of 
oil and gas. As a result, the BLM has made a determination that it is 
in the public interest to ensure these wells continue to produce even 
if the methods used to allocate production to Federal and Indian 
leases, unit PAs, and CAs potentially result in higher levels of 
uncertainty, bias, and make verification of production more difficult. 
The BLM also believes that most of these wells would be approved by the 
BLM to continue commingling even if the BLM were to perform an 
evaluation on them as would have been required under this section of 
the proposed rule. Grandfathering all existing downhole commingling 
approvals will streamline the review process and reduce the paper work 
burden on both industry and the BLM. When the BLM receives a request 
for an FMP for a well that has an existing downhole CAA, the BLM will 
document that the existing downhole CAA qualifies under Sec.  
3173.16(a)(1) of the final rule. The BLM will address any shortcomings 
of the existing approval, such as the absence of a defined allocation 
method, on a case-by-case basis during inspections and production 
audits. The BLM may issue written orders to operators to correct these 
deficiencies.
    Paragraph (a)(2) grandfathers existing surface commingling 
approvals where each lease, unit PA, or CA that is part of the approval 
produces less than 100 bbl of oil per month or 1,000 Mcf of gas per 
month, averaged over the previous 12 months. See the discussion under 
Sec.  3173.14(b) for an explanation of how the BLM derived these 
thresholds. As with downhole commingling, the BLM decided to 
grandfather these existing commingling approvals based on comments 
received on the proposed rule. However, the BLM does not agree with 
comments stating that the economic exemptions in the proposed rule were 
inadequate. The BLM believes that the economic exemptions in both the 
proposed and final rules are adequate to address those operations where 
achieving non-commingled measurement of production would truly be 
uneconomic. In addition, the definition of an economically marginal 
property in the final rule expands the criteria in the proposed rule by 
changing the threshold from a 10 percent before tax rate of return to 
an 18-month after tax payout. The BLM believes this could significantly 
increase the number of leases, unit PAs, and CAs that would be able to 
qualify for the economic exemption.
    The BLM does, however, agree with comments expressing concern over 
the paperwork burden associated with preparing and reviewing 
applications involving lower volume leases, unit PAs, and CAs. The BLM 
chose to grandfather these existing surface commingling approvals based 
on the understanding that leases, CA, and unit PAs producing below 
these thresholds would almost certainly qualify under the definition of 
an economically marginal property. The purpose of grandfathering these 
approvals, therefore, was to reduce the paperwork burden for both the 
BLM and industry.
    Under this provision, the operator of any lease, unit PA, or CA 
that is below these thresholds would retain the existing CAA from the 
BLM without any further information or analysis required. The BLM would 
only have to verify that the average monthly production rates of the 
leases, CAs, and unit PAs included in the approval are below the 
thresholds listed in this section.
Section 3173.16(b)
    A new provision has been added to paragraph (b), which clarifies 
that if the grandfathering conditions in paragraph (a) of this section 
are not met, then the existing CAA must meet the minimum standards and 
requirements for a CAA under Sec.  3173.14 of the final rule.
    This section also sets out a process if the AO identifies 
deficiencies. Paragraph (b)(1) requires the AO to notify the operator 
in writing of any inconsistencies or deficiencies with an existing CAA. 
The operator will then be given 20 days after receipt of such notice to 
correct any inconsistencies or deficiencies, provide the additional 
information requested, or request an extension of time. When the AO is 
satisfied that the operator has corrected

[[Page 81397]]

any inconsistencies or deficiencies, the AO will terminate the existing 
CAA and grant a new CAA based on the operator's corrections.
    Paragraph (b)(2) clarifies that the AO may terminate an existing 
CAA and grant a new CAA with new or amended COAs to make the approval 
consistent with the requirements for CAAs under Sec.  3173.14 of the 
final rule. Under the proposed rule the AO could simply impose new or 
amended COAs to an existing commingling approval.
Section 3173.16(c)
    One of the primary goals of paragraph (c) in the final rule (Sec.  
3173.16(a) through (d) of the proposed rule) is to ensure that existing 
commingling approvals that do not qualify for grandfathering under 
paragraph (a) of this section, meet the standards for commingling under 
Sec.  3173.14. Another primary goal is to ensure that, if the existing 
commingling approval does meet the standards under Sec.  3173.14, it 
also contains the information required under Sec.  3173.15, to ensure 
that the BLM can verify the volumes allocated to each lease, unit PA, 
or CA that are part of the existing CAA.
    Under paragraph (c), the BLM will review existing CAAs that do not 
qualify for grandfathering under paragraph (a), for their consistency 
with the minimum standards and requirements under Sec.  3173.14 when 
the operator submits a request for an FMP number. If the BLM determines 
that the existing CAA does not meet the requirements under Sec.  
3173.14, the BLM may take several courses of action. Under paragraph 
(c)(1), the AO will notify the operator in writing of any 
inconsistencies or deficiencies that the BLM identifies. The operator 
will have 20 business days to provide additional information requested 
by the BLM, request an extension of time in which to reply to the AO, 
or correct any inconsistencies or deficiencies. Under paragraph (c)(2), 
the BLM can impose new or amended COAs on an existing CAA to make it 
compliant with the requirements of this final rule. Paragraph (c)(3) 
allows the AO to terminate the CAA if the operator fails to correct the 
deficiencies that the BLM identifies.
    The only significant change to paragraph (c)(1) of the final rule 
relative to paragraph (b) of the proposed rule is that the BLM 
clarifies that when the operator corrects any inconsistencies or 
deficiencies, the BLM will terminate the existing CAA and grant a new 
CAA in its place. The BLM made a similar change to paragraph (c)(2) of 
the final rule (paragraph (c) of the proposed rule), which clarifies 
that the BLM will impose new or amended COAs on an existing CAA by 
terminating the existing CAA and granting a new CAA in its place that 
includes those COAs.
    Under paragraph (d) of the final rule (paragraph (e) of the 
proposed rule), if the BLM approves a new CAA to replace an existing 
agreement, it will be effective on the first day of the month following 
its approval. The BLM also included a new sentence in this paragraph 
that clarifies that any resulting change in the allocation method will 
only apply from the effective date of the CAA forward. The BLM added 
this clause to clarify that changes in the allocation method will not 
be applied retroactively. The BLM believes that retroactive application 
of new allocation percentages would impose a large paperwork burden on 
both industry and the BLM and would not be necessary.
    Numerous commenters requested that the BLM consider grandfathering 
all existing CAA approvals. One commenter said the modifications to 
their facilities will put up to 87 percent of their production at risk 
of being shut in and possibly lost forever, along with the royalties to 
each of the mineral owners. The BLM agrees that there are instances 
where existing commingling agreements do not need to meet the final 
rule's commingling standards outlined in Sec.  3173.14(a)(1), and has 
provided exemptions in Sec.  3173.16(a) that allow operators to 
maintain existing agreements. See the discussion under Sec.  3173.16(a) 
for further discussion. In addition, Sec.  3173.14(c) includes three 
additional circumstances, beyond the three provided under the proposed 
rule, in which the BLM can approve a CAA. Given the grandfathering 
provisions and the expanded number of situations where the BLM can 
approve a CAA under the final rule, the BLM does not believe that any 
existing CAAs that are truly on the edge of profitability will be 
impacted by the final rule's requirements.
    Other commenters did not like the idea of being required to upgrade 
existing wells and facilities that comply with existing laws, 
regulations, and policies. While the BLM notes that standard terms and 
conditions found in Federal oil and gas leases require compliance with 
all applicable requirements, including requirements that might be 
subsequently promulgated by the BLM, the BLM nevertheless believes that 
this comment has some merit. Most existing surface commingling 
approvals are for leases, unit PAs, and CAs where production volumes 
are low enough, or other overriding considerations exist, such that the 
CAA will comply with the requirements of Sec.  3173.14(a) or (b) of the 
final rule with little or no changes required. Similarly, any CAA 
granted under IM 2013-152 should already meet the requirements of the 
final rule, especially considering that the final rule adds four 
additional exemptions under which the BLM may grant a CAA as compared 
to the two exemptions allowed under the IM (for low-volume properties 
and overriding considerations), and lowers the threshold for leases, 
unit PAs, and CAs to meet the definition of an economically marginal 
property. For the relatively few existing CAAs that do not meet the 
requirements of the final rule, some changes to plumbing or measurement 
equipment may be required. In these cases, the BLM will determine that 
a CAA is not justified because these leases, unit PAs, or CAs do not 
meet the definition of an economically marginal property and no other 
overriding conditions exist that would allow the BLM to grant a CAA.
    One commenter said the proposed rule would require operators to 
submit all existing authorizations to the BLM for re-approval, and 
added that many operators and BLM staff spent countless hours 
negotiating approvals of existing CAAs to ensure they protect 
environmentally sensitive areas while providing accurate measurement of 
production. Although the BLM did not make any changes to the rule based 
on this comment, the final rule includes grandfathering provisions 
under Sec.  3173.16(a), which would no longer require operators to 
submit existing downhole commingling authorizations or surface 
commingling authorizations that qualify under Sec.  3173.16(a)(1) and 
(2) when applying for an FMP. In addition, for those existing CAAs that 
do not meet the grandfathering criteria of paragraph (a) of this 
section, but comply with the requirements of the new rule, the BLM will 
not require re-approval--these CAAs will be allowed to continue as 
originally approved.
    Several commenters disagreed with the requirement in Sec.  
3173.16(c)(1) that operators correct any inconsistencies or 
deficiencies that the AO finds with an existing CAA within 20 business 
days. One commenter said North Slope operators have significant 
weather-related challenges that would make it difficult for them to 
meet the 20-business-day deadline, while another said that the required 
fixes could involve installing new piping, which would likely take 
longer than 20 business days. Several commenters said this final rule 
will require every existing

[[Page 81398]]

CAA to have some work done and operators must be given flexibility if 
they have multiple CAAs because 20 business days may not be enough time 
to bring them all into compliance. Another commenter said that they 
have made substantial investments in their gathering systems and would 
need a reasonable amount of time to make the changes to facilities that 
handle leases with mixed ownerships that are not already part of a unit 
PA or CA.
    In response to these comments, the BLM added language to the final 
rule at Sec.  3173.16(c)(1) which allows an operator to request an 
extension during the 20-business-day timeframe. The operator should 
justify the extension request by explaining the factors that will not 
allow it to comply within the 20-business-day timeframe, and provide a 
timeframe under which they can comply. The BLM will consider the 
request and grant an extension if the justification is adequate. This 
final rule will not require every existing CAA to undergo significant 
work to bring it into conformity with the new requirements as one 
commenter suggested. In fact, the BLM estimates that the majority of 
existing CAAs will continue operating as they have been because they 
are exempt from the requirements due to their low production volumes or 
other factors.
    Several commenters said it would be unfair for the BLM to apply new 
COAs that existing CAAs could not meet, causing production to be shut 
in. Another commenter said it would be unreasonable for the BLM to 
impose new or amended conditions of approvals on existing commingling 
agreements and recommended that Sec.  3173.16(c) be deleted altogether. 
The BLM does not agree with these comments and did not make any changes 
to the final rule as a result.
    The BLM estimates that only a small percentage of existing CAAs 
will require new COAs and most of those COAs will be for minor 
deficiencies such as providing a better explanation of the allocation 
process. For those new COAs that require additional work to which the 
operator may object, the BLM has already included a provision in 
paragraph (c)(2) of the final rule that will allow the existing CAA to 
continue in effect during the pendency of any appeal of the decision 
that requires the new COAs. The BLM did not make any changes to the 
rule based on these comments.
    Lastly, some commenters expressed concern that existing CAAs were 
at risk of being terminated if the BLM did not timely respond to their 
FMP applications and review their CAA approvals. As stated earlier, 
operators may continue to produce oil and gas prior to FMP approval and 
CAA review and may continue to use their lease, unit PA, or CA numbers 
for reporting production to ONRR as long as they have applied for their 
FMP numbers within the deadlines specified under Sec.  3173.12. The BLM 
did not make any changes to the rule based on these comments.
Section 3173.17 Relationship of a Commingling and Allocation Approval 
to Royalty-Free Use of Production
    Section 3173.17 clarifies that approval of a CAA does not 
constitute approval of off-lease royalty-free use of production in 
facilities located at an off-lease FMP approved under the CAA. The BLM 
did not make any changes to this section.
    One commenter from the San Juan Basin said the new CAA requirements 
would reduce Federal royalties from existing CAAs because operators 
would have to install new compressors at each well, resulting in more 
royalty-free production used as fuel to power those compressors. The 
commenter provided a diagram that showed a compressor for each lease 
that they believe would be required if commingling was not approved. 
For comparison, another diagram showed one large compressor located at 
an off-lease FMP in lieu of the wellhead compressors, if commingling 
was approved. The commenter stated that with commingling approval, 
operators must pay royalty on the fuel used at the commingled off-lease 
compressor because it does not qualify as royalty-free use.
    The BLM disagrees with the premise of this comment because there is 
nothing in the scenario presented by the commenter that would compel 
them to install separate lease compressors if the BLM denied 
commingling. The small amount of royalty the operator would not have to 
pay if the compressors were located on-lease would never offset the 
additional capital and ongoing expense of having to install, operate, 
and maintain three lease compressors as compared to one large 
compressor located at a central delivery point. Instead, if the BLM did 
not grant a CAA, a prudent operator would simply use the allocation 
meters already installed at each property they were proposing to 
commingle as FMPs, continue to use the large off-lease compressor, and 
continue to pay royalties on the fuel used to run that compressor as 
they do now. The BLM did not make any changes to the rule based on this 
comment.
    Another commenter stated that other royalty owners will be burdened 
by all the downstream losses (fuel, etc.) if the operator must install 
an on-lease FMP rather than rely on measurements taken at a downstream 
commingled measurement point.
    According to the commenter this raises legal concerns with respect 
to other agency regulations and contractual agreements between 
operators. The BLM disagrees with this comment and did not make any 
changes as a result. The requirement to install an FMP on the lease, 
unit PA, or communitized area, and pay royalty based on that FMP only 
applies to Federal and Indian leases. It would not preclude other 
royalty owners to base their royalty distribution on a down-stream 
commingled measurement point that is different from the FMP on which 
the Federal or Indian royalties are based.
Section 3173.18 Modification of a Commingling and Allocation Approval
    Section 3173.18(a) of the final rule identifies the circumstances 
under which all operators who are parties to a CAA must request a 
modification, including: Modifications to the allocation agreement; 
inclusion of additional leases, unit PAs, or CAs into a CAA; or 
termination of a lease, unit PA, or CA within a CAA. Paragraph (b) 
identifies the information that must be submitted in connection with a 
modification request. Paragraph (c) was added to the final rule to 
clarify that a CAA does not need to be modified when there is a change 
in operator.
    One commenter suggested that the BLM change proposed Sec.  
3173.18(a)(1), which allowed operators who are a party to a CAA to 
modify the CAA when there is a change in the allocation schedule. The 
commenter said it was not practical or beneficial to update the CAA 
each time the allocation schedule changes. The BLM agrees that 
requiring an update to the CAA when the allocation schedule changes is 
not necessary. The intent of requiring information on the allocation 
was to ensure that the BLM can verify and re-calculate the volumes 
reported on the OGORs. Allocation schedules are often based on periodic 
well testing and can change each time a well test is conducted. As long 
as the BLM thoroughly understands the allocation methodology, we can 
request the well testing or other data from which the operator 
determines the allocation schedule and verify that the allocation was 
done in accordance with the allocation methodology and was properly 
reported on the OGOR. Paragraph (a)(1) has been modified to require a 
CAA modification only when there is a modification to an allocation

[[Page 81399]]

agreement, which in the final rule must include an allocation 
methodology rather than an allocation schedule. Thus, only if there is 
a change in the methodology used to determine allocation percentages 
would an operator have to make changes to their existing CAA. A change 
to the allocation schedule itself would not require such a 
modification.
    One commenter did not like the idea of having a CAA re-evaluated 
when new leases are proposed to be added to the CAA, as required under 
Sec.  3173.18(a)(2). The BLM disagrees with this comment and did not 
make any changes to the rule as a result. The addition of a lease, unit 
PA, or CA to an existing CAA will affect the allocation of production 
in a CAA, and therefore the BLM will need to review the addition to 
ensure that the allocation method is verifiable and provides a fair 
return to the Federal Government or Indian tribes or allottees.
    Finally, several commenters asked whether submission of a 
``Successor of Operator Sundry Notice'' would automatically change the 
operator of the FMP and the CAA. A Sundry Notice for a change in 
operator of a well(s) and a facility on a lease, unit PA, or CA will 
designate that new operator as being responsible for reporting 
production from the property, and therefore will include the CAA 
agreement. In response to this comment, the BLM has removed one of the 
conditions under which a CAA may be modified--when there is a change in 
operator. Furthermore, a new paragraph (c) has been added to the final 
rule stating that a change in operator will not trigger the need to 
modify the CAA. The FMP will automatically transfer since it is part of 
the facility.
Section 3173.19 Effective Date of a Commingling and Allocation Approval
    Section 3173.19 (a) and (b) of the final rule identifies the 
effective date of a CAA after the approval of an application or 
modification, respectively. Paragraph (c) of this section clarifies 
that a CAA does not modify any of the terms of any leases, unit PAs, or 
CAs. The BLM did not receive any public comments on this section and 
did not change it in the final rule, except to make minor modifications 
for clarity.
Section 3173.20 Terminating a Commingling and Allocation Approval
    Paragraph (a) of Sec.  3173.20 of this final rule (paragraph (b) of 
the proposed rule) authorizes the BLM to terminate an approved CAA for 
any reason, including changes in technology, regulation, or policy, or 
where the operator has not complied with the terms of the CAA. 
Paragraph (b) (paragraph (c) of the proposed rule) provides for 
automatic termination of a CAA if only one lease, unit PA, or CA 
remains in the CAA. Paragraph (c) (paragraph (a) of the proposed rule) 
states that an operator may terminate its participation in a CAA by 
submitting a Sundry Notice to the BLM. Unlike the provision in the 
proposed rule, paragraph (c) of the final rule clarifies that the 
termination by one operator does not automatically terminate the CAA as 
to all other operators, so long as the requirements of this part are 
met with respect to the remaining participants in the CAA.
    After termination of a CAA, paragraph (d) requires the BLM to 
notify in writing all operators who are a party to the CAA of the 
effective date of the termination and any inconsistencies or 
deficiencies with their CAA approval that caused the termination. The 
BLM modified this provision from the proposed rule to provide that upon 
receipt of the BLM's notice of termination, the operator has 20 
business days to correct any inconsistencies or deficiencies, or 
provide additional information that the AO has requested or that 
explains or justifies the inconsistency or deficiency. If the operator 
does not correct the inconsistency or deficiency within 20 business 
days after receipt of the BLM's notice, the CAA is terminated as of the 
effective date in the BLM's notice. The effective date of the 
termination will not be earlier than the 20 business days outlined in 
paragraph (d). Paragraph (e) provides that upon termination, each 
lease, unit PA, or CA may require a new FMP number or a new CAA. Under 
the final rule, operators will have up to 30 days to apply for a new 
FMP number or CAA, whichever is applicable. Following termination, 
while the BLM is processing the application for a new FMP number or 
CAA, the operator may use the existing FMP number for recordkeeping and 
production reporting.
    Several commenters were concerned that paragraph (a) in the 
proposed rule would have allowed a party to a CAA to unilaterally 
terminate the CAA by submitting a Sundry Notice to the BLM, and that 
paragraph (b) in the proposed rule, or paragraph (a) in the final rule, 
allows the BLM to terminate a CAA for any reason. One commenter said it 
would be fine to allow a party to terminate their participation in the 
CAA, but the remaining operators should have the opportunity to 
continue with the CAA. One commenter asked that the final rule be 
changed to allow an existing CAA to continue after one of the parties 
pulls out, as long as the remaining operator(s) follow the COAs for the 
CAA.
    The BLM agrees with the commenters and believes that the continued 
operation of a CAA when one operator decides to pull out is in the 
public interest. All the CAA requirements of this rule are designed to 
ensure that the CAA is in the public interest by, for example, allowing 
continued production of low volume properties, addressing other 
overriding considerations, or allowing the maximum ultimate recovery of 
oil and gas resources. The BLM does not believe that the decision of 
one operator to pull out of the CAA would change the BLM's public 
interest determination and terminating the CAA as a result would only 
result in additional paperwork for both the BLM and industry. Instead, 
the operator who wants to terminate its own, individual participation 
in the CAA should be able to do so. In response to this comment, the 
BLM removed proposed paragraph (a) in the final rule and re-designated 
it with modifications as paragraph (c). While paragraph (c) still 
allows an operator to terminate a CAA through submission of a Sundry 
Notice, the BLM clarified that paragraph in response to comments to 
make clear that termination of participation in a CAA by one operator 
does not necessarily impact all operators, so long as the other 
requirements of this part are met with respect to that CAA and the 
other operators submit a Sundry Notice for a new CAA as required by 
paragraph (e).
    An operator who wishes to terminate its participation will need to 
submit the appropriate paperwork to the BLM as outlined in 3173.20(c). 
Additionally, if a CAA is terminated, paragraph (e) of the final rule 
no longer requires separate measurement. Rather, it gives operators 30 
days to apply for a new FMP number and/or CAA, if applicable. The old 
FMP number may be used for recordkeeping and production reporting until 
a new FMP number is assigned or a new CAA is approved. If more than one 
lease, unit PA, or CA remains in a CAA, the operator(s) of those 
leases, unit PAs, or CAs will need to submit a Sundry Notice for a new 
CAA under Sec.  3173.18.
    Another commenter stated that they have established gathering 
systems that are subject to the existence of CAAs. If the CAA is 
terminated by the BLM, the commenter states that operators could no 
longer sell gas into the gathering system, which could result in the 
shut in of wells, lost production and lost revenues. Instead, the 
operator suggests that if an operator no longer wants their lease to be 
part of a CAA, the CAA could be easily modified to include only

[[Page 81400]]

the remaining leases. The BLM agrees with this comment and removed 
paragraph (a) as discussed above.
    Regarding comments that the BLM should not have the authority to 
terminate existing CAA approvals for any reason, commenters already 
should be aware that under the terms of all existing CAAs, the BLM 
retains the right to terminate a CAA for any reason. Thus, the 
requirements found in paragraph (a) are a codification of existing 
practices. However, the reasons listed under paragraphs (a)(1) through 
(a)(3) of this final rule should cover the majority of the situations 
that could lead to termination of a CAA. If a CAA is not in compliance 
with this rule's commingling requirements, the BLM will work with the 
operators on a case-by-case basis to bring the CAA back into compliance 
to avoid a termination. If a CAA is terminated because of changes in 
technology, regulation, or BLM policy, operators will be given 
sufficient time to make any necessary changes. In the event that the 
BLM does take steps to terminate a CAA, paragraph (c) of this final 
section provides that the BLM's notice-of-termination letter will 
describe the inconsistencies or deficiencies that will lead to the CAA 
termination, along with the effective date of the termination. The 
parties to a CAA will then have an opportunity to avoid termination of 
the CAA by correcting those inconsistencies or deficiencies within 20 
business days of their receipt of notification.
Section 3173.21 Combining Production Downhole in Certain Circumstances
    Section 3173.21 of this final rule identifies certain circumstances 
in which downhole combining of production is subject to the commingling 
requirements contained in Sec. Sec.  3173.14 through 3173.20. Under 
paragraph (a)(1), the combination of production from a single 
directional well drilled into different hydrocarbon pools or geologic 
formations under separate adjacent properties, regardless of ownership, 
where none of the pools or formations are common to more than one of 
the properties, constitutes commingling under the final rule, and is 
therefore subject to the requirements in Sec. Sec.  3173.14 through 
3173.21 of this subpart. If, on the other hand, the pools or geologic 
formations are common to more than one property, then under paragraph 
(a)(2), the operator is required to establish a unit PA or CA as 
opposed to obtaining a CAA. Paragraph (b) clarifies that combining 
production downhole from different geologic formations on the same 
lease from a single well, while requiring AO approval, is not 
considered commingling for purposes of this final rule, unless those 
formations have different ownership.
    The BLM did not receive any public comments on this section, but 
did make one small change. In paragraph (b), the final rule clarifies 
that the requirements of Sec. Sec.  3173.14 through 3173.20 do not 
apply when operators combine production downhole from different 
geologic formations on the same lease in a single well.
Sections 3173.22 through 3173.28 Off-Lease Measurement Approvals
    Sections 3173.22 through 3173.28 of this final rule establish the 
circumstances in which the BLM will approve measurement of production 
off of the lease, unit, or CA (referred to as ``off-lease 
measurement''). Prior to this rule, there were no national standards 
that operators had to meet when applying for off-lease measurement. 
Neither Order 3 nor other regulations addressed how or under what 
circumstances the BLM would approve off-lease measurement. This lack of 
guidance led to much confusion over the location of off-lease 
measurement points. Off-lease measurement is also often associated with 
commingling. Meters that measure commingled production are often 
referred to as central delivery points. In most situations, the meter 
at the central delivery point is located off of at least one of the 
Federal or Indian leases, units, or CAs from which the production 
originates. This configuration requires the BLM to approve both the 
commingling and the off-lease location of the measurement point.
    In the absence of uniform national standards governing off-lease 
measurement, BLM State Offices created their own policies for approving 
off-lease measurement applications, which were not necessarily 
consistent. Sections 3173.22 through 3173.28 of this final rule, 
discussed below, provide such uniform national standards, addressing 
the concerns identified by the GAO, the OIG, and the Subcommittee.
    Some commenters said that this section contains new record-keeping 
requirements that are vague and that could cause operators to submit 
incorrect applications for off-lease measurement. The commenters did 
not specify the sections that they believe are vague, nor did they 
provide any explanation as to why they are vague. The BLM did not make 
any changes to the rule based on these comments. The BLM notes, 
however, that Sec.  3173.23 contains a complete list all of the 
information and documentation that operators need to provide to the BLM 
when applying for off-lease measurement approvals.
Section 3173.22 Requirements for Off-Lease Measurement
    Section 3173.22 of the final rule establishes the conditions under 
which the BLM will consider granting a request for off-lease 
measurement. It requires such requests to satisfy the requirements of 
paragraphs (a) through (d). Under paragraph (a), the BLM will consider 
off-lease measurement of production only from a single CAA or a single 
Federal or Indian lease, unit PA, or CA. Paragraph (b) requires that 
the off-lease measurement provide for accurate production 
accountability and paragraph (c) requires that off-lease measurement be 
in the public interest. Paragraph (d) requires off-lease measurement to 
occur at an approved FMP.
    Commenters asked that the BLM list the conditions under which off-
lease measurement will be approved. The BLM did not make any changes to 
the rule based on this comment because this section clearly lists the 
conditions under which off-lease measurement will be considered for 
approval. Requests that meet the requirements of this section will be 
approved, while requests that do not will not be approved.
    Another commenter requested that the BLM provide exemptions from 
the off-lease measurement requirements in situations where topography 
or other environmental issues prevent operators from measuring on-
lease. The BLM agrees that there are circumstances when it is 
physically impractical to measure on-lease or where measuring on-lease 
could cause additional environmental impacts. Examples include 
situations where well pads are located at high altitudes that could be 
inaccessible in the winter or when the BLM has imposed seasonal access 
restrictions due to environmental concerns. In response to this 
comment, final paragraph (c) has been changed to allow off-lease 
measurement when on-lease measurement is not practical due to 
topographic or environmental concerns. As with any of the requirements 
in this subpart, an operator may also request a variance to the off-
lease measurement requirements on a case-by-case basis.
    One commenter said its liquids-gathering system, which is within 
the boundary of a CAA, should be exempt from the off-lease measurement 
requirements of Sec.  3173.22 because this

[[Page 81401]]

system has been in place for over 10 years, was approved by the BLM, 
and works well. The BLM did not change the final rule in response to 
this comment. Instead, the BLM will review existing off-lease 
measurement approvals associated with CAAs, along with the CAAs 
themselves, on a case-by-case basis as part of the FMP approval process 
to ensure consistency with the minimum standards and requirements under 
Sec.  3173.22 of the final rule.
    Several commenters said that the new off-lease measurement 
requirements will result in more FMPs and that off-lease measurement--
because it requires fewer FMPs--provides better accuracy and reduces 
recordkeeping, allowing multiple wells or pads (in a unit operation) to 
commingle production at a central tank battery. These commenters 
asserted that this made it easier for the BLM to track production and 
audit facilities.
    The BLM believes the commenters are confused about the definition 
of off-lease measurement. The operator can locate an FMP, including a 
central tank battery as mentioned by the commenters, anywhere within 
the boundary of a lease, a unit, or a CA from which the production 
originates without meeting the definition of off-lease measurement and 
without needing approval from the BLM. Although the requirements for 
approving a CAA in this rule may increase the number of FMPs required, 
the BLM does not agree that the off-lease measurement requirements of 
this rule would have any effect on the number of FMPs required. As 
noted earlier in discussion of Sec.  3173.15(a) of the final rule, if 
off-lease measurement is a feature of a commingling and allocation 
proposal, then a separate Sundry Notice application for off-lease 
measurement is not necessary and the off-lease measurement proposal 
will be considered as part of the CAA request. The BLM expects that 
this final rule will have a smaller impact than the proposed rule would 
have had on existing off-lease measurement approvals tied to CAAs 
because Sec. Sec.  3173.14(b) and 3173.16(a) of the final rule includes 
an expanded list of exemptions that allow commingling as well as 
grandfathering provisions for some existing CAAs.
    Finally, a few commenters said that some existing off-lease 
measurement approvals could be at risk if they do not meet the BLM's 
conditions for being ``in the public interest,'' as outlined in 
paragraph (c) of this section. We agree that some existing off-lease 
measurement approvals may not be in the public interest, and they will 
therefore be terminated. The public interest generally includes 
minimizing environmental impacts, achieving maximum ultimate economic 
recovery, and allowing the BLM to verify volumes and qualities of oil 
and gas reported on the OGORs. Existing approvals that are merely for 
the convenience of the operator may not be in the public interest. If, 
for example, an existing off-lease measurement approval allows the FMP 
to be located on private land that makes BLM access difficult or 
impossible, and the approval cannot be justified based on environmental 
circumstances or achieving maximum ultimate economic recovery, it is 
likely that the BLM will terminate the approval. The BLM estimates that 
best management practices and environmental and topographic 
considerations will outweigh the need to terminate many existing off-
lease measurement approvals or to deny new ones. The final rule was not 
changed in response to these comments.
Section 3173.23 Applying for Off-Lease Measurement
    Section 3173.23 of this final rule establishes the requirements 
operators must follow when applying for an off-lease measurement 
approval or amending an existing approval, including required 
supporting information and related documentation.
    One commenter said that this section of the rule is unnecessary and 
redundant and that the off-lease measurement application and approval 
process should be part of the APD process. The BLM does not agree that 
this section is unnecessary and redundant because it establishes the 
process that operators will use to apply for an off-lease measurement 
approval, which is entirely separate from and independent of the 
process the BLM uses to process an APD. However, Sec.  3173.23 does not 
prohibit operators from submitting new off-lease measurement 
applications with their APDs. The BLM, in fact, would prefer to receive 
comprehensive proposals upfront from operators when they submit their 
APDs because it streamlines the BLM's review process by allowing BLM 
staff to look at a project in its entirety early in the permitting 
process.
    Section 3173.23(a) requires operators to submit their off-lease 
measurement application via a Sundry Notice. That Sundry Notice package 
may be submitted at the same time as, but separately from, an 
operator's APD package(s) and the BLM will process both applications at 
the same time. The final rule did not change as a result of this 
comment.
    Several commenters said it would be too burdensome to require 
operators, whose off-lease measurement facilities are located on non-
federally owned surface, to include in their off-lease measurement 
applications written concurrence from the surface owners, including 
from future owners if the ownership changes, as called for in paragraph 
(e) of the final rule. The BLM does not agree with these commenters. 
Operators should already be obtaining concurrences from surface owners 
as part of the APD process as Onshore Order 1 (Approval of Operations) 
specifically requires operators to make a good faith effort to obtain a 
Surface Access Agreement from the surface owner. Therefore, this 
requirement does not place any additional burden on the operator.
    In addition, the BLM must have guaranteed access to the off-lease 
measurement location. Without this guaranteed access, the BLM may not 
be able to verify or account for the volumes and qualities of oil and 
gas on which royalty is due and would therefore deny the off-lease 
measurement request or terminate the existing off-lease measurement 
approval. No change to the rule was made in response to this comment.
    Finally, one commenter said that the proposed rule did not 
specifically require operators to obtain the written consent of the 
owner and operator of measurement facilities. As a result, the 
commenter said, this rule would subject owners and operators of the 
measurement facility to the jurisdiction of the BLM without its consent 
or knowledge. The BLM believes that this is a valid concern. However, 
the BLM did not make a change to the rule in response to this comment 
because paragraph (e) (paragraph (f) in the proposed rule) already 
requires operators to obtain written concurrence signed not only by the 
surface owner(s), but also by the owner(s) of the measurement 
facilities.
    In addition to these changes, the BLM made a few minor 
administrative changes to final Sec.  3173.23. These clarifications 
were consistent with the overall changes made to the final rule and 
were not made in response to any particular comments. The BLM added a 
new paragraph (h) to the final rule to clarify that operators, under 
existing BLM regulations, must obtain approval from the appropriate 
surface-management agency, if new surface disturbance is proposed for 
the FMP, and its associated facilities are located on Federal land 
managed by an agency other than the BLM. The BLM also clarified 
paragraph (f) to state that an

[[Page 81402]]

operator needs to submit a right-of-way grant application to the BLM 
along with the off-lease measurement request only when new surface 
disturbance is proposed for the FMP and its associated facilities are 
located on BLM-managed land. If the proposed surface facilities are on 
Indian land, then paragraph (g) of the final rule requires that a 
right-of-way grant application must be filed with the appropriate BIA 
office.
    Other changes we made that were unrelated to public comments 
include modifications to the type of information operators must submit 
as part of their off-lease measurement application. In paragraph (c)(2) 
of the final rule, the BLM no longer requires the operator to identify 
the land description of all wells, pipelines, and other facilities 
expected to be installed as part of their proposal. Operators need only 
identify the relative location of such facilities. Paragraph (e) in the 
proposed rule required submission of a schematic or engineered drawing 
showing all new facilities that are part of the off-lease measurement 
proposal. This requirement is no longer in the final rule. Finally, the 
requirement in paragraph (e) of the proposed rule that called for the 
submission of a site facility diagram for existing facilities if 
changes are being proposed to the facility is removed as unnecessary 
because the requirements related to site facility diagrams for existing 
facilities are already addressed by Sec.  3173.11. The BLM elected to 
make these changes consistent with the changes made to the information-
submission requirements for commingling applications under Sec.  
3173.15 of the final rule. It is not necessary for the information-
collection requirements for commingling applications to be different 
than the information-collection requirements for off-lease measurement 
applications.
Section 3173.24 Effective Date of an Off-Lease Measurement Approval
    Section 3173.24 provides that off-lease measurement approvals are 
effective on the date the BLM issues the approval, unless the BLM 
specifies a different effective date in the approval. The BLM did not 
receive any public comments on this provision and did not make any 
changes to the final rule.
Section 3173.25 Existing Approved Off-Lease Measurement
    Under this section of the final rule, an existing off-lease 
measurement approval will be reviewed upon receipt of an operator's 
request for the assignment of an FMP number to a facility associated 
with the off-lease measurement approval. Section 3173.25(a) states that 
the AO reviews the existing off-lease measurement approval for 
consistency with the minimum standards and requirements in Sec.  
3173.22. The AO will notify the operator in writing of any 
inconsistencies or deficiencies. Under paragraph (b), the operator will 
have to correct the inconsistencies or deficiencies, provide the 
additional information that the AO has requested, or request an 
extension from the AO within 20 business days. If an operator is 
requesting an extension, they must justify the request by explaining 
the factors that will not allow the operator to comply within 20 days 
and provide a timeframe under which the operator can comply.
    Under paragraph (c), in connection with approving the requested 
FMP, the AO may terminate an existing off-lease measurement approval 
and grant a new off-lease measurement approval with new or amended COAs 
to make the approval consistent with the requirements of this rule. In 
addition, paragraph (c) provides that the existing off-lease 
measurement approval will continue in effect during any pendency of an 
appeal of the new off-lease measurement approval. If the operator fails 
to correct the deficiencies, paragraph (d) provides that the AO may 
terminate the off-lease measurement approval. If the existing off-lease 
measurement approval under this section is consistent with the 
requirements under Sec.  3173.22(e) of the final rule allows that 
existing off-lease measurement be grandfathered and be part of the 
operator's FMP approval. Under paragraph (f), if the BLM grants a new 
off-lease measurement approval, that new approval is effective on the 
first day of the month following its approval.
    Several commenters had concerns with the paragraph (a) requirement 
that the AO review existing off-lease measurement approvals to 
determine if they comply with the new off-lease measurement 
requirements in Sec.  3173.22. These commenters requested that the BLM 
``grandfather in'' existing off-lease measurement approvals. Another 
commenter said that operators spent countless hours negotiating their 
existing CAAs, along with their off-lease measurement approvals, with 
BLM field staff, which resulted in protections for environmentally 
sensitive areas and accurate measurement of production.
    The BLM agrees with the comments as they relate to grandfathered 
CAAs and included language under Sec.  3173.16(a) that also 
grandfathers existing off-lease measurement approvals that are included 
as part of those grandfathered CAAs under Sec.  3173.16(a)(1) or (2).
    The BLM does not, however, agree that existing off-lease 
measurement approvals that are not included in Sec.  3173.16(a) should 
be grandfathered. As we stated earlier in this preamble, a major goal 
of this final rule is to ensure that new and existing approvals--be 
they for CAAs or off-lease measurement--allow BLM staff to verify that 
oil and gas are being measured and reported accurately under these 
approvals. Without the ability to consistently track where and how oil 
and gas are measured, the BLM cannot be assured that production 
reporting is accurate. Section 3173.25 sets up a process for the BLM to 
review existing non-grandfathered off-lease measurement approvals that 
were granted before the BLM established guidance and standards that 
ensure such approvals were structured so that BLM staff can verify 
production reporting.
    For existing off-lease measurement approvals that are associated 
with a non-grandfathered CAA, the CAA would provide the public interest 
justification for the off-lease measurement approval, whether that is 
due to economics, protection of the environment, or to achieve maximum 
ultimate economic recovery. The BLM estimates that more than 95 percent 
of existing CAAs will be either grandfathered or approved under the 
provisions of the final rule. Therefore, the only aspect of non-
grandfathered off-lease measurement approval that the BLM will be 
concerned with is the BLM's access to the proposed off-lease 
measurement location.
    Another commenter said that the proposed rule would have required 
operators to submit all existing off-lease measurement approvals to the 
BLM for re-approval. The BLM disagrees. This rule does not require 
operators to submit all existing authorizations to the BLM for re-
approval. It does provide that the AO, when an operator submits an 
application for an FMP number associated with an existing off-lease 
measurement approval, the AO will review that existing approval for 
consistency with the minimum standards and requirements for off-lease 
measurement under Sec.  3173.22 and notify the operator in writing of 
any inconsistency or deficiency, or request additional information. No 
changes to the final rule were made as a result of this comment.
    Several commenters were concerned that paragraph (b) gives 
operators only 20 business days to correct any inconsistencies or 
deficiencies that the

[[Page 81403]]

AO identifies with existing off-lease measurement approvals or to 
provide any additional information the AO requests. The commenters said 
20 business days is not enough time to make such corrections and 
recommended that operators be given 60 to 90 days to fix any problems. 
One commenter said some operators could be required to reconfigure 
their pipes in order to maintain their off-lease measurement approvals, 
which would likely take longer than 20 days to accomplish. Several 
others said that since this is the first time that the BLM will be 
reviewing existing CAAs and off-lease measurement approvals for 
compliance with the new requirements, every commingling facility with 
off-lease measurement will need some corrective work and operators must 
be given more than 20 days to bring their operations into compliance if 
they receive multiple notices.
    The BLM believes that some of the commenters have confused the 
requirements relating to the review of existing off-lease measurement 
approvals with those relating to the review of existing CAAs under 
Sec.  3173.16(b). The review of existing off-lease measurement 
approvals will have nothing to do with allocation methods and will 
rarely involve any on-the-ground work. The BLM will be concerned with 
only four issues when reviewing existing off-lease measurement 
approvals:
    1. Does the existing off-lease measurement point only measure 
production from one lease, unit PA, CA, or CAA?
    2. Is the off-lease measurement point reasonably accessible to the 
BLM for the purpose of production accountability?
    3. Is the off-lease measurement approval in the public interest?
    4. Does the off-lease measurement occur at an approved FMP?
    For the majority of existing off-lease measurement approvals that 
are associated with a CAA, items 1, 3, and 4 will already be addressed 
by the CAA. Therefore, the only review the BLM will do is to ensure the 
off-lease measurement point is reasonably accessible to the BLM. In the 
rare case where it is not, the BLM may require that the operator either 
modify the location to make it more accessible to the BLM or, in the 
most extreme cases, move the measurement facility to a location where 
it is accessible to the BLM.
    Second, in response to these comments, the BLM added language to 
the final rule that allows an operator to request an extension of the 
20-day timeframe. The operator should justify the extension request by 
explaining the factors that will not allow them to comply within the 
20-day timeframe and provide a timeframe under which they can comply.
    One commenter objected to a provision in paragraph (c) that allows 
the AO to impose new or amended COAs on an existing off-lease 
measurement approval to make the approval consistent with the off-lease 
measurement requirements in Sec.  3173.22. The commenter was referring 
to an off-lease measurement approval that is part of an existing CAA. 
The commenter stated that numerous sales contracts are based on 
existing approvals and that by changing the approval, gas sales 
contracts may be at risk of termination. Other commenters expressed 
concern that new COAs could result in economic burdens that would 
result in the shut-in of production and loss of Federal or Indian 
royalty. Other commenters said the new off-lease measurement 
requirements would force them to reconfigure gathering lines at sites 
where existing off-lease measurement agreements were not approved, 
which would be costly and cause additional environmental impacts that 
may not be necessary.
    The BLM did not make any changes to the rule based on this comment 
because this has little do with the off-lease measurement approval and 
much more to do with the CAA approvals, discussed previously in the 
preamble. As discussed in the portion of this preamble dealing with 
commingling, the primary concern of the BLM when reviewing existing 
off-lease measurement approvals that are associated with a CAA is to 
ensure that the BLM has reasonable access to inspect the off-lease 
measurement facility. Generally, the only COAs that the BLM would 
impose on an existing off-lease measurement approval that is associated 
with a CAA would relate to ensuring BLM access to the FMP. These COAs 
could include remedies such as obtaining express authorization for the 
BLM to access the facility in situations where the facility is not 
located on land managed by the BLM, or in rare cases, moving the 
measurement facility to a location that does provide the BLM reasonable 
access. This paragraph further provides that if the operator appeals 
one or more of the new COAs, the existing off-lease measurement 
approval will continue during the pendency of the appeal.
    The BLM would like to reiterate that most of the existing wells in 
the San Juan Basin, where surface and downhole commingling are 
occurring together with off-lease measurement, may be exempt from 
having to meet the new commingling and related off-lease measurement 
requirements because they qualify for grandfathering under Sec.  
3173.16(a). Section 3173.16(a) grandfathers all existing downhole 
commingling CAAs and any existing surface CAAs if the average 
production over the past 12 months is less than 1,000 Mcf of gas per 
month, or 100 bbl of oil per month for each lease, unit PA, or CA 
included in the CAA. In such cases, the associated off-lease 
measurement approval would also be grandfathered under Sec.  
3173.16(a).
Section 3173.26 Relationship of Off-Lease Measurement Approval to 
Royalty-Free Use of Production
    Section 3173.26 of the final rule clarifies that approval of off-
lease measurement does not constitute approval of off-lease royalty-
free use of production as fuel in facilities located at an approved 
off-lease FMP. Under NTL-4A, the lessee or operator may claim royalty-
free use only for gas or oil used on the same lease, on the unit for 
the same unit PA, or on the same CA from which the gas or oil was 
produced. Thus, the lessee or operator may not claim royalty-free use 
for any of the production used as fuel at an off-lease FMP, absent BLM 
approval.
    One commenter asked that the BLM define the term ``royalty-free 
use'' in this rule. As explained in this preamble with respect to Sec.  
3173.1, the BLM does not believe such a change is necessary. The 
definition of royalty-free use in NTL-4A will control unless and until 
it is replaced.
Section 3173.27 Termination of Off-Lease Measurement Approval
    Section 3173.27(a) of the final rule provides that the BLM may 
terminate an off-lease measurement approval for any reason. By way of 
illustration, this paragraph identifies certain circumstances under 
which the BLM might exercise that authority--such as changes in 
technology, regulation, or BLM policy; operator non-compliance with the 
terms or conditions of the off-lease measurement approval; or operator 
non-compliance with Sec. Sec.  3173.22 through 3173.26. Under paragraph 
(b), the BLM will notify the operator in writing of the effective date 
of the termination and any inconsistencies or deficiencies with the 
operator's approval that serve as the reason(s) for the termination. 
Upon receipt of the BLM's notice, the operator will have 20 business 
days to correct any inconsistencies or deficiencies, or provide any 
additional information the AO requests. Paragraph (b) also provides

[[Page 81404]]

an opportunity for an operator to request an extension of time from the 
AO within 20 business days after receipt of the BLM's notice, or the 
off lease measurement approval terminates.
    Paragraph (c) provides that an operator may terminate an off-lease 
measurement approval by submitting to the BLM a Sundry Notice, which 
must identify the new FMPs for the lease(s), unit PA(s), or CA(s) 
previously subject to the off-lease measurement approval. Under 
paragraph (d), each lease, unit PA, or CA that was subject to the off-
lease measurement approval may require a new FMP number(s) or a new 
off-lease measurement approval. Operators will have up to 30 days to 
apply for a new FMP number or off-lease measurement approval, whichever 
is applicable. While the BLM processes the application for a new FMP 
number or off-lease measurement approval, the operator may continue to 
use the existing FMP number.
    The BLM received several comments on this section of the proposed 
rule, one of which expressed concern that proposed Sec.  3173.27 did 
not provide an explicit timeframe or process for the BLM to terminate 
off-lease measurement approvals or for operators to correct the 
inconsistencies or deficiencies that led to the termination. This 
commenter recommended that the BLM give operators 9 months to correct 
their inconsistencies or deficiencies before terminating their 
approvals. Several other commenters objected to paragraph (a) of the 
final rule (paragraph (b) of the proposed rule), which authorizes the 
BLM to terminate an off-lease measurement approval for any reason. One 
commenter stated that some gas sales contracts involving gathering 
systems are based on having off-lease measurement approvals and CAAs 
and that if the BLM terminates the off-lease measurement approval, the 
operator will no longer be able to sell gas into the gathering system. 
The commenter stated that operators need to have some confidence that 
the existing off-lease measurement approval will allow continued 
operations as long as the operator follows the COA for the off-lease 
measurement approval. If there are issues to be resolved, the operator 
should be given a reasonable time to resolve the issues.
    The BLM agrees in part with these comments and made several changes 
to the final rule in response. Under revisions to final paragraph (b), 
the BLM's notification letter will describe the inconsistencies or 
deficiencies in the operator's existing off-lease measurement approval 
that will result in the termination, and state the effective date of 
the termination. The revisions also give the operator 20 business days 
from receipt of the letter to correct the inconsistencies or 
deficiencies identified by the BLM, provide more information, or 
request an extension of time from the AO in order to avoid termination. 
The BLM does not agree with a 9-month timeframe as recommended by one 
commenter because unique circumstances may warrant different 
timeframes. If an operator believes that correcting the inconsistencies 
or deficiencies will take longer than 20 days, it may request a 
reasonable extension of time from the AO in order to make any necessary 
corrections.
    The BLM received several comments on paragraph (d) of the proposed 
rule. Proposed paragraph (d) said that if an off-lease measurement 
approval is terminated, each lease, unit PA, or CA subject to the 
approval reverts to measurement on the respective lease, unit, or 
communitized area. Commenters said that this requirement should not 
apply to gathering systems that were installed with BLM approval for 
the purpose of off-lease measurement. If such an approval were 
terminated, commenters said, the gathering system could no longer 
transport gas to the sales meter that is off-lease and wells connected 
to the gathering system would likely be shut in or plugged as they 
could no longer sell their gas. The new on-lease measurement system 
would not be connected to a gas sales line as well, the commenter said. 
The commenter recommended that the BLM delete the whole section from 
the final rule.
    The BLM disagrees with this comment and did not make any changes to 
the final rule as a result. The commenter's concern principally relates 
to the underlying CAA approval, not to the off-lease measurement 
approval itself. The BLM's primary concern with off-lease measurement 
approvals that are tied to a CAA is the BLM's access to the off-lease 
FMP for the purpose of inspection and production accounting. For off-
lease measurement approvals that are not tied to a CAA, Sec.  
3173.22(c) allows the BLM to consider an operator's ability to achieve 
maximum ultimate economic recovery from a lease, unit PA, or CA in 
determining whether it is in the public interest to approve off-lease 
measurement. This provision gives the BLM the leeway it needs to exempt 
leases, unit PAs, or CAs from the off-lease measurement requirements in 
situations where denial of off-lease measurement might result in shut-
ins.
Section 3173.28 Instances Not Constituting Off-Lease Measurement, for 
Which No Approval Is Required
    Section 3173.28 of the final rule identifies two circumstances that 
will not be considered off-lease measurement for purposes of the rule. 
The first is where an FMP is located on a well pad of a directionally 
drilled well that produces oil or gas from a lease, unit, or CA on 
which the well pad is not located. The second is where a lease, unit, 
or CA is made up of separate non-contiguous tracts. If production is 
moved from one tract to another tract within the same lease, unit, or 
CA, and the production is not diverted during movement between the 
tracts before the FMP (except for production used royalty-free), 
measurement would not be considered to be off-lease.
    Several commenters were under the impression that they would need 
off-lease measurement approval for horizontal and directionally drilled 
wells where the well pad itself is located off the lease, CA or unit. 
Under paragraph (a), off-lease measurement approval for such wells is 
not needed, unless the FMP is also located off of the well pad, 
regardless of distance. If any of the facilities are located on non-
federally owned surface, the operator will still need to obtain written 
concurrence signed by the surface owner(s), and the operator(s) of the 
measurement facilities that grants the BLM unrestricted access to the 
off-lease measurement facility and the surface on which it is located, 
in order to conduct production verification inspections. The BLM did 
not make any changes to the rule based on this comment.
    One commenter said that, in some cases, there may by reasons to 
locate the FMP near, but not actually on, the well pad, triggering the 
need for the operator to obtain off-lease measurement approval. The 
commenter stated that if the FMP is located a small distance off the 
well pad, but clearly serves the wells on the pad this should not 
require an off-lease measurement approval. The BLM disagrees with this 
comment and did not make any changes to the rule as a result. Paragraph 
(a) of this section clearly states that the FMP must be located on the 
well pad to avoid the need for an off-lease measurement approval. 
Normally, well pads are clearly delineated in the field by a berm, 
fence, or other easily-identifiable feature. This makes the requirement 
clear, objective, and enforceable. Adding a provision that would, as 
suggested by the commenter, include FMPs that are only a short distance 
off the well pad would render the provision

[[Page 81405]]

subjective and unenforceable. If the operator can demonstrate that 
locating the FMP a small distance off the well pad is in the public 
interest and that the BLM has guaranteed access to inspect the FMP, 
then the BLM would approve off-lease measurement.
    Another commenter suggested that the BLM add a paragraph to this 
section that states gas used for fuel at locations that are not 
considered to be ``off lease'' under paragraphs (a) and (b) of this 
section qualifies as royalty-free usage. The BLM did not make any 
changes to the rule based on these comments because what qualifies as 
royalty-free use is outside the scope of this rulemaking.
Section 3173.29 Immediate Assessments for Certain Violations
    Section 3173.29 expands the number and types of violations that 
would be subject to immediate assessments. Immediate assessments are 
not civil penalties and are separate from the civil penalties 
authorized under Section 109 of FOGRMA, 30 U.S.C. 1719. Unlike the 
proposed rule, the final rule does not subject purchasers and 
transporters to immediate assessments--only operators. For violation 7, 
non-retention of records necessary to determine quantity and quality of 
production, the final rule clarifies that the applicable regulation is 
Sec.  3170.7, not Sec.  3173.9(a)(1) and (2). Also, the final rule 
clarifies that violation 8 could result in an immediate assessment if 
operators fail to ``apply for,'' rather than ``obtain,'' the required 
FMP approval.
    With respect to violations 9, 10, and 11, which pertain to 
approvals for off-lease measurement and surface or downhole 
commingling, respectively, the final rule clarifies that removing 
production from a facility that begins operation after the effective 
date of the final rule, prior to receiving BLM approval for off-lease 
measurement or commingling, could result in an immediate assessment. If 
the facility will be servicing new wells not yet drilled, as well as 
existing wells already in production, then the existing wells must use 
their respective existing FMP numbers when reporting production to 
ONRR's OGOR until the BLM assigns the new FMP number associated with 
its off-lease measurement or commingling approval.
    An existing facility (i.e., one in service on or before the 
effective date of the final rule) would be subject to an immediate 
assessment if it engaged in off-lease measurement or commingling 
without an existing BLM approval. Under such circumstances, the BLM 
could issue an immediate assessment for each applicable lease, unit PA, 
or CA, since off-lease measurement or commingling without approval is a 
violation of this final rule and existing BLM requirements under 43 CFR 
3162.7-2 and 3162.7-3, both of which require BLM approval before 
operators store or measure production from a Federal or Indian lease 
off-lease.
    Some commenters argued that these immediate assessments are 
inconsistent with due process because there is no opportunity for an 
operator to correct its violations before an assessment is imposed. To 
the contrary, the use of immediate assessments for breaches of the oil 
and gas operating regulations is well established and is consistent 
with the notice requirements of due process. Operators obligate 
themselves to fulfill the terms and conditions of the Federal or Indian 
oil and gas leases under which they operate. These leases incorporate 
the BLM's regulations by reference. Thus, the immediate assessments 
contained in the regulations act as ``liquidated damages'' owed by 
operators who have breached their leases by breaching the regulations. 
See, e.g., M. John Kennedy, 102 IBLA 396, 400 (1988). Operators are 
expected to know the obligations and requirements of the Federal or 
Indian oil and gas lease under which they operate; additional notice is 
not required.
    Several commenters said there could be instances when an operator 
is not aware that a violation exists. One commenter said the assessment 
should be imposed only if the violation was a willful or knowing act of 
noncompliance. Another commenter suggested the BLM place a Federal seal 
and notify the operator of the violation instead of issuing an 
immediate assessment for something that they are not aware of or that 
might be beyond their control. The BLM disagrees with these comments. 
Operators have a responsibility to inspect their properties to ensure 
site security, consistent with all applicable regulations, including 
this final rule. The violations outlined in this section of the final 
rule all have substantial adverse impacts on production accountability 
or royalty income and, thus, the BLM believes the assessments are 
warranted. No changes to the rule were made in response to these 
comments.
    Numerous commenters said that the increases in the number of 
immediate assessments related to producing operations, from 1 to 11, 
and in the dollar amount of the assessments, from $250 to $1,000, are 
unreasonable. The number of immediate assessments was expanded to 
include violations that pose particular threats to the integrity of the 
BLM's production accounting system and that significantly increase the 
BLM's workload and enforcement costs. The increase to $1,000 is 
justified because it generally approximates what it will cost the 
agency, on average, to identify and document a violation and verify 
remedial action and compliance.
    Commenters objected to this section of the proposed rule subjecting 
purchasers and transporters to immediate assessments. One said that 
purchasers and transporters should not be involved in retaining records 
pertaining to the quality and quantity of production. Another commenter 
said that oil and gas lease agreements are a contract between the 
government and lessees and that purchasers and transporters are not a 
party to those agreements and, therefore, should not be subject to 
these assessments. Other commenters argued that the proposed immediate 
assessments on purchasers and transporters exceeded the BLM's statutory 
authority under FOGRMA. Upon consideration of these arguments, and 
further review and analysis of FOGRMA and other authorities, the BLM 
has removed the immediate assessments on purchasers and transporters 
from final Sec.  3173.29.
Enforcement Actions
    As explained in the proposed rule, the final rule removes the 
enforcement, corrective action, and abatement period provisions of 
Order 3. In their place, the BLM will develop an internal Inspection 
and Enforcement Handbook that will provide direction to BLM inspectors 
on how to classify a violation--as either major or minor--what the 
corrective action should be, and what the timeframes for correction 
should be. The AO will use the Inspection and Enforcement Handbook in 
conjunction with 43 CFR subpart 3163, which provides for assessments 
and civil penalties when lessees and operators fail to remedy their 
violations in a timely fashion, and for immediate assessments for 
certain violations.
    As previously discussed in the proposed rule, the final rule allows 
the BLM to make a case-by-case determination of the severity of a 
violation, based on applicable definitions in the regulations. In 
deciding how severe a violation is, BLM inspectors must take into 
account whether a violation could result in ``immediate, substantial, 
and adverse impacts on public health and safety, the environment, 
production accountability, or royalty income.'' (Definition of ``major 
violation,'' 43 CFR 3160.0-5.) Under the existing definition of ``major 
violation,'' which is not being revised as

[[Page 81406]]

part of this rulemaking, the same violation could be major or minor, 
depending on the context.
    Several commenters objected to the BLM using internal guidance or 
the Inspection and Enforcement Handbook to address violations, 
assessments for noncompliance, and corrective actions. Commenters 
argued that the use of internal enforcement guidance is inconsistent 
with the APA and that these guidance documents constitute substantive 
rules that must be developed through notice-and-comment rulemaking. 
These comments misunderstand the nature of the Internal Inspection and 
Enforcement Handbook that the BLM will develop. The Handbook will not 
establish new obligations to be imposed on the regulated community in a 
manner that will improve consistency in how those BLM personnel excise 
there discretion in applying existing regulations and addressing 
instances of non-compliance. Those obligations are spelled out in 
applicable regulations, orders, and permits, as well as the terms and 
conditions of leases and other agreements. Rather, the Handbook will 
provide guidance to BLM personnel as to how to apply the existing 
regulations and address instances of non-compliance. The overarching 
enforcement infrastructure of 43 CFR subpart 3163 remains in effect, 
and the definitions of ``major violation'' and ``minor violation'' in 
Sec.  3160.0-5 remain unchanged. It is these duly promulgated 
regulations (among other authorities), and not the Inspection and 
Enforcement Handbook, that will provide the legal basis for the BLM's 
enforcement actions; the BLM's enforcement actions must be consistent 
with these regulations irrespective of what may be contained in its 
Inspection and Enforcement Handbook. It is not necessary for the BLM to 
develop its Handbook--which does not expand the BLM's authorities or 
impose binding obligations on the regulated community--through notice-
and-comment rulemaking.
    The commenters requested that the BLM use a transparent process to 
develop this internal guidance and that operators be given the 
opportunity to comment on it. The BLM did not accept these comments; 
however, the BLM will post the Inspection and Enforcement Handbook on 
the BLM Web site after it is developed and finalized.
Elimination of Self Inspections
    Consistent with the proposed rule, this final rule eliminates the 
self-inspection provision of Order 3, section III.F., because it has 
been impractical for the BLM to enforce. Under the self-inspection 
program, operators were supposed to establish a program for the purpose 
of periodically measuring production volumes and assuring they were 
complying with the BLM's minimum site security requirements. But, as 
discussed earlier in response to comments on this topic during the 
discussion of Sec.  3173.8, the Order 3 requirements were vague and the 
BLM never supplemented them with internal guidance or enforcement 
policy. As a result, the BLM determined that this requirement was of 
limited utility.
    Nonetheless, the BLM received a comment that recommended that 
instead of removing the requirement, the language should be improved to 
ensure that an inspection program is established for periodically 
measuring production volumes and ensuring compliance with the BLM's 
site security requirements from Order 3. The BLM disagrees with this 
comment and did not make a change in response. In lieu of reworking or 
updating this requirement, the final rule strengthens recordkeeping 
requirements for operators, including for transporters and purchasers, 
which the BLM believes will ultimately accomplish the same results and 
be more useful going forward. It should also be noted that although the 
self-inspection requirement from Onshore Order 3 has been eliminated, 
the actions that an operator, transporter, or purchaser must take to 
conduct periodic production volume inspections and ensure site security 
have been incorporated into this final rule as required elements under 
Sec. Sec.  3173.2 through 3173.10 of the final rule.
General Comments
    The BLM received a few comments that were general in nature and do 
not necessarily relate to a specific provision of the rule.
    A number of comments argued that the rule is impermissibly 
``retroactive.'' These comments argued that the rule is retroactive 
because it will apply to wells, facilities, and authorizations that 
existed before the rule's effective date. While the BLM agrees that 
retroactive regulations raise special legal concerns, those concerns 
are not implicated here because this rule is not a retroactive 
regulation. The comments misunderstand the nature of the 
``retroactive'' regulations that the law disfavors. ``A law does not 
operate `retrospectively' merely because it is applied in a case 
arising from conduct antedating the statute's enactment or upsets 
expectations based in prior law.'' Landgraf v. USI Film Prods., 511 
U.S. 244, 269 (1994) (internal citations omitted). Rather, the test for 
retroactivity is whether the new regulation ``attaches new legal 
consequences to events completed before its enactment.'' Id. at 270. 
The rule at hand does not attach any new legal consequence to the 
operation of existing wells and facilities prior to the rule's 
effective date. As the U.S. Court of Appeals for the D.C. Circuit has 
explained, the fact that a change in the law adversely affects pre-
existing business arrangements does not render that law 
``retroactive:''

    It is often the case that a business will undertake a certain 
course of conduct based on the current law, and will then find its 
expectations frustrated when the law changes. This has never been 
thought to constitute retroactive lawmaking, and indeed most 
economic regulation would be unworkable if all laws disrupting prior 
expectations were deemed suspect.

Chemical Waste Mgmt., Inc. v. EPA, 869 F.2d 1526, 1536 (D.C. Cir. 
1989). Thus, despite the fact that this rule may require operators to 
update or modify their existing wells, facilities, and authorizations, 
the rule is nonetheless prospective--not retroactive--in nature.
    A couple of comments expressed that the BLM was employing 
discriminatory regulation, and gave as their examples the inequality of 
producers, operators, and transporters in regard to equity interest in 
production. The proposed rule would treat producers, operators, and 
transporters equally even though some of these parties (specifically 
transporters) have no ownership interest in the oil and gas product 
generated from Federal or Indian lands. Because they have no interest, 
it is most likely that the costs they incur will be passed directly on 
to equity holders, commenters said. Over time, the commenter asserted, 
because equity holders may deduct transportation costs from royalties 
owed, this may result in reduced royalty payments for both the 
government and the tribes. While the BLM recognizes the possibility of 
some pass through of compliance costs from purchasers and transporters 
to operators, based on its analysis of the costs of this final rule, it 
does not believe those costs will be significant. Additionally, this 
change is consistent with the provisions of FOGRMA, which addresses 
responsibilities and duties of operators, purchasers, and transporters. 
By statute, Congress applied these legal requirements to those parties 
equally.
    One commenter pointed out that the regulations fail to recognize 
the current industry business models, as it pertains to Master Limited 
Partnerships. Unlike C Corporations, MLPs have no mechanism for 
capitalizing the required

[[Page 81407]]

changes and will be forced to expense the cost. This passes the cost 
immediately to unit holders. The commenter recommended that the BLM 
remove MLPs from the regulation. The BLM did not understand this 
comment in the context of this rule. Under the applicable statutes and 
regulations operators, purchasers, and transporters are subject to the 
regulations governing operations on a Federal or Indian (except Osage 
Tribe) lease. The underlying corporate structure of those entities has 
no bearing on their duty to comply with these requirements.
    Many commenters questioned whether the BLM has the resources to 
implement this and other rules that it has finalized, or will finalize 
in the coming months, for example the new hydraulic fracturing 
regulations, which went into effect on June 24, 2015 (currently 
enjoined by order of the District Court of Wyoming), and the proposed 
Waste Prevention, Production Subject to Royalties, and Resource 
Conservation proposed rule, which published on February 8, 2016 (85 FR 
6616). Commenters stated that the BLM does not have enough staff to 
enforce its existing regulations, let alone new ones. Commenters also 
said that the cumulative economic impact of this final rule should be 
analyzed together with the economic impacts of the final rules that are 
updating and replacing Orders 4 and 5.
    The BLM does not agree with these comments. Most of the 
requirements in this final rule are not new--they codify existing 
requirements that are found in Order 3 or they are standard industry 
practices that most operators, transporters, and purchasers already 
follow. Those requirements that are new have been added for two 
reasons: (1) To give operators the flexibility to use new technology, 
which could, in the long run, reduce costs for both industry and the 
BLM; and (2) To address production accountability and site security 
concerns raised by governmental oversight bodies, such as the 
Subcommittee, the GAO, and the OIG. The BLM did not change the final 
rule as a result of these comments.
    One commenter stated that the regulations should consider laws and 
lease provisions that apply only in Alaska, and should more clearly 
provide for balancing measurement accuracy and environmental 
considerations. According to the commenter, these laws and lease 
provisions impose heightened restrictions on development in Alaska with 
which the site security regulations, in particular the requirements for 
additional measurement facilities, would conflict. The BLM does not 
agree with the commenter that changes to the rule are necessary. To the 
extent trade-offs between measurement accuracy and environmental 
considerations are appropriate, the BLM has already addressed those 
issues in the rule--see e.g., the discussion of considerations that go 
into reviewing requests for off-lease measurement or commingling 
approvals. Additionally, whether the final rule requires additional 
facilities is facility-specific. Moreover, as explained throughout this 
preamble and the associated EA, the BLM expects that, to the extent the 
final rule requires the construction of new facilities on a lease, the 
relocation of existing facilities onto a lease, or the retrofitting of 
existing facilities on a lease, it would likely be done on surfaces 
that have already been disturbed. Thus, the BLM does not believe that 
this rule will result in the significant ``footprint'' expansion the 
commenter identified. Furthermore, should compliance with a requirement 
of this rule necessitate surface disturbance inconsistent with 
applicable laws or lease terms, the operator may, through the PMT or 
under Sec.  3170.6, as applicable, seek approval of an alternative 
means of compliance that would meet the objectives of that requirement.
Miscellaneous Changes to Other BLM Regulations in 43 CFR Part 3160
    As noted at the beginning of this Section-by-Section discussion, 
the BLM has made other changes to provisions in 43 CFR part 3160. Some 
of those have already been discussed above in connection with 
provisions of this final rule to which they relate. The remaining 
revisions are those noted here.
    1. The authority citation for part 3160 is corrected to include 25 
U.S.C. 396, the grant of rulemaking authority to the Secretary for 
allotted Indian leases, which does not appear in the current print 
edition of the CFR. The BLM did not receive any comments on this 
change.
    2. Section 3160.0-3, Authority, is updated to include the 
amendments to the Federal Oil and Gas Royalty Management Act of 1982 
enacted by the Federal Oil and Gas Royalty Simplification Act of 1996. 
The BLM did not receive any comments on this change.
    3. Section 3161.1, Jurisdiction, is updated to include references 
to FMPs, the Indian Mineral Development Act, and Tribal Energy Resource 
Agreements. To see the BLM's response to public comment on these 
changes, please see the discussion of related changes to Sec.  3170.2 
earlier in this preamble.
    4. Section 3162.3-2 is revised by adding a new paragraph (d), which 
refers operators to provisions in subpart 3173 for details on how to 
apply for approval of FMPs, surface or subsurface commingling from 
different leases, unit PAs and CAs, or off-lease measurement. The BLM 
did not receive any comments on this change.
    5. Section 3162.4-1, Well records and reports, is amended in a 
number of respects by this final rule. Consistent with the proposed 
rule, this final rule revises paragraph (a) to make clear that the new 
recordkeeping requirements also apply to ``source records'' that are 
relevant to ``determining and verifying the quality, quantity, and 
disposition of production from or allocable to Federal or Indian 
leases.'' Similarly, paragraph (d) has been revised to establish the 
new records-retention period established by the 1996 amendments to 
FOGRMA, and mirror for part 3160 the provisions in paragraphs (c) 
through (e) of Sec.  3170.7 of the final rule. A new paragraph (e) 
lists those ``record holders'' who would be subject to the new 
recordkeeping requirements. This section also makes clear that all 
record holders must maintain their records when directed by the 
Secretary, or his/her designee, in cases where there is a judicial 
proceeding or demand involving such records. In this section of the 
previous rule, the Secretary, or his/her designee, could direct record 
holders to maintain their records only in cases where there was an 
audit or investigation.
    6. Section 3162.4-3, the provisions regarding the no-longer-used 
Form 3160-6 (the monthly report of operations), is removed. The BLM did 
not receive any comments on this change.
    7. Section 3162.6, Well and facility identification, is revised to 
correct the misspelled word ``indentification'' in paragraph (a) to 
read ``identification.'' Paragraph (b) is revised to remove a provision 
allowing abbreviated sign designations and a ``grandfathering'' 
provision for old well signs. Paragraph (c) is revised to extend 
signage requirements to include facilities at which oil or gas produced 
from Federal or Indian leases is stored or processed. The fifth 
sentence of the current paragraph (c) becomes the new paragraph (d), 
with its wording revised. The current paragraph (d) is now paragraph 
(e). The BLM did not receive any comments on this change.
    8. Section 3162.7-1, Disposition of production. This final rule 
removes paragraph (f), which currently refers to a 6-year retention 
period, since the initial statutory retention period for records 
concerning Federal leases is

[[Page 81408]]

now 7 years. The BLM opted not to retain paragraph (f) because this 
retention period is already prescribed Sec. Sec.  3162.4-1 and 3170.7 
of the final rule. The BLM received no comments on this proposed change 
and did not make any changes from the proposed rule to the final rule.
    9. Section 3162.7-5, Site security on Federal and Indian (except 
Osage Tribe) oil and gas leases, has been removed. The provisions in 
the final rule that correspond to, or cover the same subject matter as, 
the several paragraphs in Sec.  3162.7-5 are shown in the following 
table:

------------------------------------------------------------------------
       43 CFR 3162.7-5 paragraph               Final new provision
------------------------------------------------------------------------
(a) Definitions........................  43 CFR 3173.1.
(b)(1) Lines and valves; effective       43 CFR 3173.2(a), 3173.9(b) and
 sealing.                                 3173.11(c)(7).
(b)(2) LACT meters and effective         43 CFR 3170.4, 3173.3, and two
 sealing of components.                   sections in anticipated new
                                          subpart 3174.
(b)(3) By-passes around meters.........  43 CFR 3170.4.
(b)(4) Sealing of appropriate valves     43 CFR 3173.2(a) and (b).
 during oil measurement by hand gauging.
(b)(5) Circulating lines with valves     43 CFR 3173.1.
 allowing access to remove oil from
 storage tanks.
(b)(6) Records retention requirements..  43 CFR 3170.7.
(b)(7) Removal of oil for                43 CFR 3173.5.
 transportation by vehicle and required
 documentation.
(b)(8) Reporting theft or mishandling    43 CFR 3173.8.
 of oil.
(b)(9) Variances.......................  43 CFR 3170.6.
(c) Site security plans................  None (site security plans
                                          eliminated).
(d) Site facility diagrams.............  43 CFR 3173.11.
------------------------------------------------------------------------

    10. Section 3163.2, Civil penalties, is rewritten in several 
respects by this final rule. The changes being made to this section as 
part of this rule are a combination of the changes proposed as part of 
this rulemaking effort and the proposed rule to update and replace 
Order 5 (80 FR 61645). In addition, following the publication of those 
proposed rules, but prior to the publication of this rule, the BLM 
published an interim final rule--Onshore Oil and Gas Operations--Civil 
Penalties Inflation Adjustments (81 FR 41860)--that made adjustments 
for inflation to all of the daily civil monetary penalty maximums found 
in Sec.  3163.2. The adjustments made by the interim final rule were 
required by the Federal Civil Penalties Inflation Adjustment Act 
Improvements Act of 2015 (Sec. 701 of Pub. L. 114-74).
    The BLM is making the following additional changes to Sec.  3163.2 
in this final rule. These changes are not a result of the Federal Civil 
Penalties Inflation Adjustment Act Improvements Act.
    First, the BLM is amending the civil penalty regulations to reflect 
the fact that purchasers and transporters who fail to maintain and 
submit records as required by the BLM can be subject to civil penalties 
under Section 109 of FOGRMA (30 U.S.C. 1719). As explained in the 
proposed rule, this change is being made because the BLM's existing 
regulations do not reflect this longstanding statutory authority. In 
order to effectuate this change the BLM is designating the first 
sentence of paragraph (a) of the existing Sec.  3163.2 as paragraph 
(a)(1), and adding a new paragraph (a)(2) that reads as follows:
    (2) Whenever a purchaser or transporter who is not an operating 
rights owner or operator fails or refuses to comply with 30 U.S.C. 1713 
or applicable rules or regulations regarding records relevant to 
determining the quality, quantity, and disposition of oil or gas 
produced from or allocable to a Federal or Indian oil or gas lease, the 
authorized officer will notify the purchaser or transporter, as 
appropriate, in writing of the violation. The second sentence of the 
existing paragraph (a) (pertaining to the maximum amount of the penalty 
if the violation is not corrected within 20 days of the date of notice) 
is redesignated as paragraph (b)(1). The existing paragraph (b) 
(pertaining to the maximum amount of the penalty if the violation is 
not corrected within 40 days of the date of notice) is redesignated as 
paragraph (b)(2).
    The BLM received a number of comments asserting that it was unfair 
to subject purchasers and transporters to the civil penalties under the 
onshore oil and gas regulations because purchasers and transporters 
often do not have control over the information provided by operators. 
The BLM does not agree with these comments. As explained above, this 
change is being driven primarily by longstanding statutory 
requirements. Additionally, it should be noted that there are instances 
where the purchaser or transporter actually owns the oil and gas 
delivery point, and therefore has control of much of the relevant 
information. With respect to concerns about the accuracy of information 
provided by an operator to a purchaser or transporter, while entities 
are generally responsible for the content of their records, the BLM 
recognizes that such a situation (i.e., inaccurate information provided 
by an operator) would be a factor that could be considered in an 
enforcement action on a case-by-case basis.
    In addition to the changes identified above, the BLM is also 
revising paragraphs (a)(1) and (b)(1) to refer to ``any person'' and 
``the person,'' respectively, rather than limiting the applicability of 
civil penalties to an operating rights owner or operator. This change 
is consistent with the statutory language found in Section 109(a) of 
FOGRMA (30 U.S.C. 1719(a)). It also clarifies that potential penalty 
liability exists for parties who contract with operating rights owners 
or operators to perform activities on Federal or Indian leases and who 
violate applicable regulations, statutes, permits, or lease terms in 
performing those activities. While the operating rights owner or 
operator is responsible (and liable for penalties) for violations 
committed by contractors, the contractors are also themselves subject 
to the requirements of certain statutes, regulations, permits, and 
lease terms. The BLM is revising the regulations in this manner in 
order to enable the agency to hold contractors directly responsible for 
violations they commit.
    In addition, this rule also removes the regulatory caps on civil 
penalty assessments found in the current regulations paragraphs (b) 
(paragraph (b)(2) in the final rule), (d), (e), and (f). As explained 
in the proposed rule to update and replace Order 5 (80 FR 61645), this 
change is based on

[[Page 81409]]

comments received on an Advance Notice of Proposed Rulemaking (ANPR) 
(80 FR 22148) that sought input on a variety of issues related to the 
onshore oil and gas program, including whether the regulatory civil 
penalty caps should be removed. The ANPR explained that these caps are 
not required by statute, and that in the BLM's view they impose a limit 
on the total penalties that may be assessed that do not seem reasonable 
in the modern oil and gas context where it can cost $5 to $10 million 
dollars to drill a well.
    As the BLM explained, it does not believe that the existing 
regulatory caps provide an adequate deterrence for unlawful conduct, 
particularly drilling on Federal onshore leases without authorization 
and drilling into leased parcels in knowing and willful trespass. 
Similar concerns were expressed by the Department's OIG in a report, 
dated September 29, 2014--Bureau of Land Management, Federal Onshore 
Oil & Gas Trespass and Drilling Without Approval (No. CR-IS-BLM-0004-
2014). In that report, the OIG specifically questioned the adequacy of 
the BLM's policies to deter such activities and recommended that the 
BLM pursue increased monetary fines. Based on the foregoing, the final 
rule rewrites paragraphs (b) (paragraph (b)(2) in the final rule), (d), 
(e), and (f) accordingly, to remove the regulatory caps, while 
maintaining the statutory limits imposed on the amount that may be 
assessed on a daily basis (30 U.S.C. 1719(a)-(d)), as amended by the 
BLM's recent interim final rule adjusting those amounts for inflation.
    Due to the removal of the regulatory civil penalty caps, the BLM 
determined that paragraph (j) is unnecessary given that its 
requirements would have tiered off the expiration of those caps. As a 
result, this rule removes paragraph (j). The BLM is also deleting all 
of paragraph (g). The existing requirements of paragraph (g)(1) and 
(g)(2)(iii), which require initial proposed penalties to be at the 
maximum rate, are being removed because they are inconsistent with 
subsequent judicial and administrative decisions regarding the 
computation and setting of penalties. The BLM also determined that the 
requirements in paragraph (g)(1) and (g)(2)(iii) (establishing caps on 
a per operating rights owner or operator per lease) are inconsistent 
with the BLM's removal of regulatory caps on penalties found in 
paragraphs (b) (paragraph (b)(2) in the final rule), (d), (e), and (f). 
With respect to paragraphs (g)(2)(i) and (g)(2)(ii), the BLM is 
removing the additional notice procedure and corrective period for 
minor violations required under those paragraphs because it does not 
believe those provisions are necessary. The BLM's regulations governing 
oil and gas operations are clear, and provide more than adequate notice 
of what is required, making additional notification requirements 
unnecessary and administratively inefficient. As a result, this rule 
removes all of paragraph (g) and redesignates existing paragraph (i) as 
(g). Existing paragraph (h) is unaffected by this rule.
    Finally, the BLM is moving the substance of existing paragraph (k), 
which requires the revocation of a transporter's authority to remove 
crude oil produced from, or allocated to, any Federal or Indian lease 
if it fails to permit inspection for required documentation under 43 
CFR 3162.7-1(c)), to paragraph (d) in order to streamline the 
regulations. As a result, paragraph (k) is removed as part of this 
rule.
    One commenter on the proposed rule to replace Order 5 objected to 
the BLM's expansion of the civil penalty provision to ``purchasers and 
transporters'' and to the change to ``any person,'' instead of 
retaining the existing language that limited Sec.  3163.2 to the 
operating rights owner or operator. That commenter contended that the 
BLM lacked authority to impose liability on contractors undertaking 
activities on a Federal or Indian lease. The BLM disagrees with this 
comment because this change is consistent with Section 109(a) of FOGRMA 
(30 U.S.C. 1719(a)), which states that ``any person'' who violates the 
mineral leasing laws, any rule or regulation issued under those laws, 
or the terms of any lease or permit shall be liable for civil 
penalties.
    The BLM also heard a range of opinions on the removal of the 
regulatory civil penalty caps. Some commenters contended that the 
provisions would result in the imposition of penalties that are 
excessive, while others supported the change. As explained early in 
this section, the existing regulatory caps on civil penalties result in 
maximum penalties that are small relative to the costs of drilling a 
modern oil and gas well such that the potential deterrent effect of 
civil penalties is limited. For example, the maximum penalty that could 
be assessed under existing paragraph (b) is $600,000, which is only 10 
percent of the cost of drilling a typical well, which is potentially 
insufficient to act as a deterrent to non-compliance.
    Finally, several commenters suggested that the BLM amend the 
proposed regulations to require that any time a purchaser, transporter, 
or contractor receives an INC, a copy be provided to the operating 
rights owner. The BLM agrees with commenters that adequate notice of 
potential violations is important; however, it determined that such 
changes are unnecessary. By existing policy and practice, the BLM 
addresses INCs to the party who is the subject of the action and does 
not believe it is appropriate to automatically copy unrelated third 
parties. Additionally, the regulations already require that if a party 
is going to be subject to such penalties, it has to receive notice in 
writing first from the BLM. Thus, under the scenarios identified by the 
commenters, if they were going to be penalized they would have to first 
receive a written notice from the BLM identifying the violation(s) in 
question.
    11. Section 3164.1, Onshore Oil and Gas Orders, is revised to 
remove the reference to Order No. 3, Site Security, from the table in 
paragraph (b) because the Order is now replaced by this codified final 
rule.
    12. Section 3165.3, Notice, State Director review and hearing on 
the record, is rewritten in several respects by this final rule. 
Specifically, consistent with the changes to Sec.  3163.2 and the 
proposed rule, this rule amends the notice requirements of the existing 
regulations at 43 CFR 3165.3 to include a provision regarding notice to 
a purchaser or transporter (who is not an operating rights owner or 
operator) of a failure to comply with records maintenance or production 
requirements. This final rule also adopts the changes proposed as part 
of the Order 5 rulemaking to revise this section to clarify that any 
person, not just ``an operating rights owner or operator'' (as 
previously provided for in paragraph (a)(1)), is subject to a written 
notice or order of they fail to comply with any provisions of the 
lease, the regulations in this part, applicable orders or notices, or 
any other appropriate order of the authorized officer.
    In addition, the BLM has also divided the several sentences of the 
existing paragraph (a) into numbered paragraphs (a)(1) through (a)(7) 
and added clarifying, nonsubstantive revisions throughout the section. 
After the first sentence, which has been redesignated as paragraph 
(a)(1) (and rephrased into active voice), the BLM has added a new 
paragraph (a)(2) as set out in the regulatory text of this final rule.
    In addition, the second and third sentences of existing paragraph 
(a) are redesignated as paragraph (a)(3), and the fourth, fifth and 
sixth and seventh sentences are redesignated as paragraphs (a)(4) 
through (a)(7). The

[[Page 81410]]

BLM did not receive any comments on these changes and as a result did 
not make any further changes in this final rule.

III. Overview of Public Involvement and Consistency With GAO 
Recommendations

Public Outreach

    The BLM conducted extensive public and tribal outreach on this rule 
both prior to its publication as a proposed rule and during the public 
comment period on the proposed rule. Prior to the publication of the 
proposed rule, the BLM held both tribal and public forums to discussion 
potential changes to the rule. In 2011, the BLM held three tribal 
meetings in Tulsa, Oklahoma (July 11, 2011); Farmington, New Mexico 
(July 13, 2011); and Billings, Montana (August 24, 2011). On April 24 
and 25, 2013, the BLM held a series of public meetings in Washington, 
DC, to discuss draft proposed revisions to Orders 3, 4, and 5. The 
meetings were webcast so tribal members, industry, and the public 
across the country could participate and ask questions either in person 
or over the Internet. Following those meetings, the BLM opened a 36-day 
informal comment period, during which 13 comment letters were 
submitted. The comments received during that comment period were 
summarized in the preamble for the proposed rule (80 FR 58952).
    The proposed rule was made available for public comment from 
September 30, 2015, through December 14, 2015. During that period, the 
BLM held tribal and public meetings on December 1 (Durango, Colorado), 
December 3 (Oklahoma City, Oklahoma), and December 8 (Dickinson, North 
Dakota). The BLM also held a tribal webinar on November 19, 2015. In 
total, the BLM received 106 comment letters on the proposed rule, the 
substance of which are addressed in the Section-by-Section analysis of 
this preamble.

Consistency With GAO Recommendations

    As explained in the background section of this preamble, three 
outside independent entities--the Subcommittee, the OIG, and the GAO--
have repeatedly found that the BLM's oil and gas measurement rules do 
not provide sufficient assurance that operators pay the royalties due. 
Specifically, these groups found that the BLM needed updated guidance 
on oil and gas measurement technologies, to address existing 
technological advances, as well as technologies that might be developed 
in the future. These groups have all found that the BLM's existing 
guidance is ``unconsolidated, outdated, and sometimes insufficient,'' 
and more specifically with respect to Order 3, that:
     There was no uniform means of tracking all onshore meters, 
including information about meter location, identification number, and 
owner;
     Some BLM State offices have issued their own guidance, 
which lacks a national perspective; more specifically there were 
concerns about the lack of uniform national guidance with respect to 
the review and approval of commingling and off-lease measurements 
requests; and
     There was insufficient information collected with respect 
to on-lease royalty-free use.
    The final rule addresses these recommendations by establishing 
uniform national guidance governing the review and approval of FMPs, 
CAAs, and off-lease measurements. It also requires operators to provide 
more information about royalty-free use. The provisions of the final 
rule specifically address modern oil industry practices with respect to 
each of these, while also updating relevant documentation and 
recordkeeping requirements in order to ensure that all production is 
properly accounted for.

IV. Procedural Matters

Executive Orders 12866 and 13563, Regulatory Planning and Review

    Executive Order 12866 provides that the Office of Information and 
Regulatory Affairs (OIRA) will review all significant rules. The OIRA 
has determined that this rule is not significant.
    Executive Order 13563 reaffirms the principles of E.O. 12866 while 
calling for improvements in the nation's regulatory system to promote 
predictability, to reduce uncertainty, and to use the best, most 
innovative, and least burdensome tools for achieving regulatory ends. 
The executive order directs agencies to consider regulatory approaches 
that reduce burdens and maintain flexibility and freedom of choice for 
the public where these approaches are relevant, feasible, and 
consistent with regulatory objectives. E.O. 13563 emphasizes further 
that regulations must be based on the best available science and that 
the rulemaking process must allow for public participation and an open 
exchange of ideas. The BLM has developed this rule in a manner 
consistent with these requirements.

Regulatory Flexibility Act

    The BLM certifies that this final rule will not have a significant 
economic effect on a substantial number of small entities as defined 
under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The Small 
Business Administration (SBA) has developed size standards to carry out 
the purposes of the Small Business Act and those size standards can be 
found at 13 CFR 121.201. The Small Business Act applies to oil and gas 
extraction firms with fewer than 1,250 employees, oil and gas drilling 
firms with fewer than 1,000 employees, and firms providing oil and gas 
support activities with annual receipts of no more than $38.5 million. 
These small entities must be considered as being at ``arm's length'' 
from the control of any parent companies.
    Of the 6,460 domestic firms involved in crude oil and gas 
extraction in 2013, U.S. Census data show that 99 percent (or 6,370) 
had fewer than 500 employees, which means that nearly all U.S. firms 
involved in oil and gas extraction in 2013 fell within the SBA's size 
standard of fewer than 1,250 employees. Of the 2,097 firms 
participating in oil and gas drilling activities in 2013, U.S. Census 
data show that 2,044 (97 percent) had fewer than 500 employees, which 
means that nearly all U.S. firms involved in oil and gas support 
activities in 2013 fell within the SBA's size standard of fewer than 
1,000 employees. In 2012, there were 8,877 firms involved in drilling 
and other support functions, of which 96 percent (8,561) had annual net 
receipts of no more than $35 million, with a greater number below the 
SBA's $38.5 million threshold.
    In addition to lessees and operators, we must consider the size of 
the purchaser and transporter firms. There are multiple NAICS 
categories that could include firms involved in the purchasing and 
transporting of petroleum from Federal and Indian leases. For example, 
petroleum refiners could be identified as purchasers. For petroleum 
refiners (NAICS code 324110), the SBA standard says a small business 
cannot have more than 1,500 employees or more than 200,000 bbl per 
calendar day total operable atmospheric crude oil distillation 
capacity. In that context, capacity includes owned or leased facilities 
as well as facilities under a processing agreement or an arrangement 
such as an exchange agreement or a throughput agreement. Purchasers 
could also be wholesalers, truck transporters, or natural gas or 
pipeline operators. For wholesalers, including petroleum wholesalers 
(NAICS codes 424710 and 424720), the SBA standard for a small entity is 
one that has fewer than 200 employees. For truck transporters (NAICS 
subsector

[[Page 81411]]

484), the SBA defines a small entity as a firm with less than $27.5 
million in annual receipts. For natural gas pipeline operators (NAICS 
code 486210), the standard is a maximum of $27.5 million in receipts 
per year. For crude oil pipeline operators (NAICS code 486110), the 
standard is fewer than 1,500 employees.
    As discussed above, national data, including number of firms, 
number of employees by firm, and annual receipts by firm, is not 
discretely identified for purchasers and transporters of petroleum or 
natural gas. The potentially affected purchasers and transporters will 
likely be a minor component in any number of the relevant NAICS 
categories. Of the few NAICS categories where reported employment, 
receipt, and production data matches up with the SBA size standards, 
the preponderance of the firms will be considered small entities as 
defined by the SBA.
    Based on the available national data, the preponderance of firms 
involved in developing, producing, purchasing, and transporting oil and 
gas from Federal and Indian lands are small entities as defined by the 
SBA. As such, it appears a substantial number of small entities could 
be affected by this final rule.
    Using the best available data, the BLM estimates there are 
approximately 3,700 lessees and operators conducting oil and gas 
operations on Federal and Indian lands that could be affected by this 
final rule. Additionally, the BLM estimates there are approximately 200 
to 300 purchasers and transporters operating on Federal and Indian 
lands that potentially could be affected by this final rule.
    In addition to determining whether a substantial number of small 
entities are likely to be affected by this rule, the BLM must also 
determine whether the rule is anticipated to have a significant 
economic impact on those small entities. Based on the Economic and 
Threshold Analysis prepared for this final rule, the BLM anticipates 
the cost of implementing the provisions could reduce the average annual 
net income of impacted small entities by less than 0.001 percent. 
Except for the electronic filing requirement, all of the provisions 
apply to entities regardless of size. However, entities with the 
greatest activity will likely experience the greatest increase in 
compliance costs. As a general matter, smaller business entities are 
more likely to operate a smaller number of sites and FMPs for which 
they will have to submit the information and documentation that this 
final rule requires. Copies of the analysis can be obtained from the 
contact person listed earlier (see FOR FURTHER INFORMATION CONTACT).
    Based on the available information, we conclude that the final rule 
will not have a significant impact on a substantial number of small 
entities. Therefore, a final Regulatory Flexibility Analysis is not 
required, and a Small Entity Compliance Guide is not required.

Small Business Regulatory Enforcement Fairness Act

    This final rule is not a major rule under 5 U.S.C. (2), the Small 
Business Regulatory Enforcement Fairness Act. This rule will not have 
an annual effect on the economy of $100 million or more. As explained 
in the Economic and Threshold Analysis, the final rule will increase 
the estimated ongoing costs associated with the development of Federal 
and Indian oil and gas resources by an estimated $11.7 million annually 
for the regulated community. In addition, there will be an estimated 
one-time cost to the regulated community to implement the new 
provisions of $31.2 million. The one-time implementation costs will be 
spread over 3 years, or about $10.4 million per year. As discussed in 
the Economic and Threshold Analysis, the BLM anticipates the cost of 
implementing the provisions could reduce the average annual net income 
of impacted small entities by approximately 0.01 percent.
    This rule replaces Order 3 to ensure that oil and gas produced from 
Federal and Indian leases is properly and securely handled so that 
these resources are accurately accounted for.
    This rule:
     Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, tribal, or local 
government agencies, or geographic regions; and
     Will 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.

Unfunded Mandates Reform Act

    In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 
et seq.), the BLM finds that:
     This rule will not ``significantly or uniquely'' affect 
small governments. A Small Government Agency Plan is unnecessary.
     This rule will not produce a Federal mandate of $100 
million or greater in any single year.
    The rule is not a ``significant regulatory action'' under the 
Unfunded Mandates Reform Act. The changes in this rule will not impose 
any requirements on any non-Federal Governmental entity.

Executive Order 12630, Governmental Actions and Interference With 
Constitutionally Protected Property Rights (Takings)

    Under Executive Order 12630, the rule will not have significant 
takings implications. A takings implication assessment is not required. 
This rule will set minimum standards for ensuring that oil and gas 
produced from Federal and Indian (except the Osage Tribe) oil and gas 
leases are properly and securely handled, so as to prevent theft and 
loss and to enable accurate measurement and production accountability. 
All such actions are subject to lease terms which expressly require 
that subsequent lease activities be conducted in compliance with 
applicable Federal laws and regulations. The rule conforms to the terms 
of those Federal leases and applicable statutes, and as such the rule 
is not a governmental action capable of interfering with 
constitutionally protected property rights. Therefore, the rule will 
not cause a taking of private property or require further discussion of 
takings implications under this Executive Order.

Executive Order 13132, Federalism

    In accordance with Executive Order 13132, the BLM finds that the 
rule would not have significant Federalism effects. A Federalism 
assessment is not required. This rule will not change the role of or 
responsibilities among Federal, State, and local governmental entities. 
It does not relate to the structure and role of the States and will not 
have direct, substantive, or significant effects on States.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    Under Executive order 13175, the President's memorandum of April 
29, 1994, ``Government-to-Government Relations with Native American 
Tribal Governments'' (59 FR 22951), and 512 Departmental Manual 2, the 
BLM evaluated possible effects of the final rule on federally 
recognized Indian tribes. The BLM approves proposed operations on all 
Indian onshore oil and gas leases (except Osage Tribe). Therefore, the 
final rule has the potential to affect Indian tribes. In conformance 
with the Secretary's policy on tribal consultation, the BLM held tribal 
consultation meetings to which more than 175 tribal entities were 
invited, both before the rule was

[[Page 81412]]

proposed and during the public comment period on the proposed rule. The 
consultations were held in:
Pre-Publication Meetings
     Tulsa, Oklahoma on July 11, 2011;
     Farmington, New Mexico on July 13, 2011; and
     Billings, Montana on August 24, 2011.
     Tribal workshop and webcast in Washington, DC, on April 
24, 2013.
Post-Publication Meetings
     The BLM hosted a webinar to discuss the requirements of 
the proposed rule and solicit feedback from affected tribes on November 
19, 2015; and
     In-person meetings were held in:
    [cir] Durango Colorado, on December 1, 2015;
    [cir] Oklahoma City, Oklahoma, on December 3, 2015; and
    [cir] Dickinson, North Dakota, on December 8, 2015.
    The BLM also met with interested tribes on a one-on-one basis as 
requested to address questions on the proposed rule prior to the 
publication of the final rule. In each instance, the purpose of these 
meetings was to solicit feedback and comments from the tribes. The 
primary concerns expressed by tribes related to the subordination of 
tribal laws, rules, and regulations by the proposed rule; tribal 
representation on the Department's Gas and Oil Measurement Team; and 
the BLM's Inspection and Enforcement program's ability to enforce the 
terms of this rule. In general, the tribes, as royalty recipients, 
expressed support for the goals of the rulemaking, namely accurate 
measurement. With respect to tribal representation on the Department's 
Gas and Oil Measurement Team, it should be noted that the team is 
internal only. That said, the BLM will continue to consult with tribes 
on measurement issues that impact them and their resources. None of the 
tribal comments received were directed specifically at this rule's oil 
measurement requirements, and therefore no changes were made as a 
result of these comments. While the BLM will continue to address these 
concerns, none of the concerns affect the substance of the proposed 
rule.

Executive Order 12988, Civil Justice Reform

    Under Executive Order 12988, the Office of the Solicitor has 
determined that the final rule will not unduly burden the judicial 
system and meets the requirements of Sections 3(a) and 3(b)(2) of the 
Executive Order. The Office of the Solicitor has reviewed the final 
rule to eliminate drafting errors and ambiguity. It has been written to 
minimize litigation, provide clear legal standards for affected conduct 
rather than general standards, and promote simplification and burden 
reduction.

Executive Order 13352, Facilitation of Cooperative Conservation

    Under Executive Order 13352, the BLM has determined that this final 
rule will not impede facilitating cooperative conservation and will 
take appropriate account of and consider the interests of persons with 
ownership or other legally recognized interests in land or other 
natural resources. This rulemaking process involved Federal, tribal, 
State, and local governments, private for-profit and nonprofit 
institutions, other nongovernmental entities and individuals in the 
decision-making via the public comment process. That process provides 
that the programs, projects, and activities are consistent with 
protecting public health and safety.

Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) (44 U.S.C. 3501-3521) provides 
that an agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information, unless it displays a 
currently valid OMB control number. Collections of information include 
requests and requirements that an individual, partnership, or 
corporation obtain information, and report it to a Federal agency. See 
44 U.S.C. 3502(3); 5 CFR 1320.3(c) and (k).
    This rule contains information collection activities that require 
approval by the OMB under the PRA. The BLM included an information 
collection request in the proposed rule. OMB has approved the 
information collection for the final rule under control number 1004-
0207.
    Some of the information collection activities in the rule will add 
new uses and burdens for BLM Form 3160-5, Sundry Notices and Reports on 
Wells. Form 3160-5 has been approved by OMB for uses enumerated at 43 
CFR 3162.3-2, and is one of 17 information collection activities that 
are included in control number 1004-0137, Onshore Oil and Gas 
Operations (43 CFR part 3160) (expiration date January 31, 2018).
    The information collection activities in this rule are described 
below along with estimates of the annual burdens. Included in the 
burden estimates are the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing each component of the information collection.

Summary of Information Collection Activities

    Title: Oil and Gas Facility Site Security (43 CFR Subparts 3170 and 
3173).
    Forms: Form 3160-5, Sundry Notices and Reports on Wells.
    OMB Control Number: 1004-0207.
    Description of Respondents: Oil and gas operators, lessees, 
operators, purchasers, transporters, and any other person directly 
involved in producing, transporting, purchasing, selling, or measuring 
oil or gas.
    Abstract: This rule establishes minimum security standards for 
Federal and Indian (except Osage Tribe) oil and gas leases.
    Frequency of Collection: On occasion.
    Obligation To Respond: Required to obtain or retain benefits.
    Estimated Annual Responses: 274,886.
    Estimated Reporting and Recordkeeping ``Hour'' Burden: 578,240 
hours.
    Estimated ``Non-Hour'' Burden: $4,891.972.

Discussion of Information Collection Activities

    Some of the activities will be one-time-only, while others will be 
ongoing. Similarly, the BLM recognizes that for some of the activities, 
there will be both an annual burden for some respondents, and a one-
time burden for virtually all respondents in the initial 
implementation. Because of the way the rule is structured, the one-time 
burdens that are applicable to all respondents are phased-in over 3 
years based on production volumes.
    The preamble to the proposed rule solicited public comments on the 
information collection. Those comments, and responses of the BLM, are 
discussed above in the preamble. All comments--both those pertaining to 
information collection and other comments--are addressed in the final 
rule. The comments and BLM responses pertaining specifically to the 
collection of information are discussed in the Section-by-Section 
analysis of the following sections of the final rule:
     3170.7;
     3173.6 through 3173.9;
     3173.11 through 3173.13;
     3173.15;
     3173.23; and
     3173.25.
    The information-collection activities in this rule are described 
below.

[[Page 81413]]

Well and Facility Identification (43 CFR 3162.6)
    The information-collection activity in the current version of Sec.  
3162.6 has been approved by OMB under control number 1004-0137. The 
revisions effected by this rule are not expected to exceed the existing 
burden hours authorized by control number 1004-0137. This activity is 
not included in the burdens for this rule.
Variance Requests (43 CFR 3170.6)
    Section 3170.6, a new regulation, authorizes any party that is 
subject to the regulations in 43 CFR part 3170 to request a variance 
from any of the regulations in part 3170. While Sec.  3170.6 states 
that a request for a variance should be filed using the BLM's 
electronic system, it also allows the use of paper copies of Form 3160-
5 (Sundry Notices). Thus, Sec.  3170.6 represents a new use of Form 
3160-5, Sundry Notices and Reports on Wells.
Required Recordkeeping and Records Submission (43 CFR 3170.7)
    Section 3170.7 applies to lessees, operators, purchasers, 
transporters, and any other person directly involved in producing, 
transporting, purchasing, selling, or measuring oil or gas through the 
point of royalty measurement or the point of first sale, whichever is 
later. This regulation applies to records generated during or for the 
period for which the lessee or operator has an interest in or conducted 
operations on the lease, or in which a person is involved in 
transporting, purchasing, or selling production from the lease. This 
information collection activity assists the BLM in accurate accounting 
of oil and gas production.
    In general, records from Federal leases must be maintained for 7 
years, and records from Indian leases must be maintained for 6 years. 
Additional details and exceptions are explained below.
    For Federal leases, and units or communitized areas that include 
Federal leases but do not include Indian leases, the record holder must 
maintain records for 7 years after the records are generated. If a 
judicial proceeding or demand involving such records is timely 
commenced, the record holder must maintain such records until the final 
nonappealable decision in such judicial proceeding is made, or with 
respect to that demand is rendered, unless the Secretary, her designee, 
or the applicable delegated State authorizes in writing an earlier 
release of the requirement to maintain such records.
    For Indian leases, and units or communitized areas that include 
Indian leases but do not include Federal leases, the record holder must 
maintain records for 6 years after the records are generated. If the 
Secretary or her designee notifies the record holder that the 
Department of the Interior has initiated or is participating in an 
audit or investigation involving such records, the record holder must 
maintain such records until the Secretary or his designee releases the 
record holder from the obligation to maintain the records.
    For units and communitized areas that include both Federal and 
Indian leases, if the Secretary or his designee has notified the record 
holder within 6 years after the records are generated that an audit or 
investigation involving such records has been initiated, but a judicial 
proceeding or demand is not commenced within 7 years after the records 
are generated, the record holder must retain all records regarding 
production from the unit or communitized area until the Secretary or 
her designee releases the record holder from the obligation to maintain 
the records. If a judicial proceeding or demand is commenced within 7 
years after the records are generated, the record holder must retain 
all records regarding production from the unit or communitized area 
until the final nonappealable decision in such judicial proceeding is 
made, or with respect to that demand is rendered, unless the Secretary 
or her designee authorizes in writing a release of the requirement to 
maintain such records before a final nonappealable decision is made or 
rendered.
    For all types of Federal and Indian leases, the lessee, operator, 
purchaser, and transporter must maintain an audit trail that includes 
all records, including source records that are used to determine 
quality, quantity, disposition, and verification of production 
attributable to a Federal or Indian lease, unit participating area 
(unit PA), or CA, must include the FMP number or the lease, unit PA, or 
CA number along with a unique equipment identifier (e.g., a unique tank 
identification number and meter station number); and the name of the 
company that created the record. For existing measurement facilities, 
in the interim period before the assignment of an FMP number, all 
records must include the following information:
     The name of the operator;
     The lease, unit PA, or CA number; and
     The well or facility name and number.
    Section 3170.7(h) requires operators, purchasers, and transporters 
to submit all records, including source records that are relevant to 
determining the quality, quantity, disposition, and verification of 
production attributable to Federal or Indian leases, upon request, in 
accordance with a regulation, written order, Onshore Order, NTL, or 
COA.
Water-Draining Operations--Data Collection (43 CFR 3173.6); and
Water-Draining Operations--Recordkeeping and Records Submission (43 CFR 
3170.7 and 3173.6)
    Section 3173.6 requires submission of information when water is 
drained from a production storage tank. The information is required 
from the operator, purchaser, or transporter, as appropriate. 
Previously, the operator was not required to record the volume of 
hydrocarbons that are in the tank before and after water is drained. As 
a result, hydrocarbons could be drained with the water and removed 
without proper measurement and accounting, and without royalties being 
paid. This information collection activity assists the BLM in accurate 
accounting of oil and gas produced from Federal and Indian leases.
    The following information is required:
     Federal or Indian lease, unit PA, or CA number(s);
     The tank location by land description;
     The unique tank number and nominal capacity;
     Date for opening gauge;
     Opening gauge of the total oil volume and free-water 
measurements;
     Unique identifying number of each seal removed;
     Closing gauge of the total oil volume measurement; and
     Unique identifying number of each seal installed.
Hot Oiling, Clean-Up, and Completion Operations--Data Collection (43 
CFR 3173.7); and
Hot Oiling, Clean-Up, and Completion Operations--Recordkeeping and 
Records Submission (43 CFR 3170.7 and 3173.7)
    Section 3173.7 requires the submission of information during hot 
oil, clean-up, or completion operations, or any other situation where 
the operator removes oil from storage, temporarily uses it for 
operational purposes, and then returns it to storage on the same lease, 
unit PA, or CA.
    Previously, the operator was not required to record the volume of 
hydrocarbons removed from storage with the expectation that they will 
be returned to storage. As a result, the volume of produced 
hydrocarbons

[[Page 81414]]

could be counted twice; first when it was initially produced then later 
after it is returned to storage. This information collection activity 
assists the BLM in accurate accounting of oil and gas produced from 
Federal and Indian leases.
    The following information is required:
     Federal or Indian lease, unit PA, or CA number(s);
     The tank location by land description;
     The unique tank number and nominal capacity;
     Date of the opening gauge;
     Opening gauge measurement;
     Closing gauge measurement;
     Unique identifying number of each seal installed;
     How the oil was used; and
     Where the oil was used (i.e., well or facility name and 
number).
Report of Theft or Mishandling of Production (43 CFR 3173.8)
    Section 3173.8 requires operators, transporters, or purchasers to 
submit a report (either oral or written) no later than the next 
business day after discovery of an incident of apparent theft or 
mishandling of production. All oral reports must be followed up with a 
written incident report within 10 business days of the oral report. By 
applying not only to operators but also to transporters and purchasers 
(who often are the first ones to discover theft and mishandling or to 
recognize suspicious activity), this information collection activity 
assists in prompt disclosure of theft or mishandling. The incident 
report must include the following information:
     Company name and name of the person reporting the 
incident;
     Lease, unit PA, or CA number, well or facility name and 
number, and FMP number, as appropriate;
     Land description of the facility location where the 
incident occurred;
     The estimated volume of production removed;
     The manner in which access was obtained to the production 
or how the mishandling occurred;
     The name of the person who discovered the incident;
     The date and time of the discovery of the incident; and
     Whether the incident was reported to local law enforcement 
agencies and company security
Required Recordkeeping for Inventory and Seal Records (43 CFR 3173.9)
    Section 3173.9 requires operators to measure and record within 
 3 days of the final day of each calendar month an 
inventory consisting of TOV in storage (less free water). If the 
inventory is not taken on the final day of each month, it must be 
estimated based on two measurements no less than 20 days and no more 
than 31 days apart, based upon the prorated difference between these 
inventory levels and any sales that have occurred between the two 
measurements. This information collection activity assists the BLM in 
accurate accounting of oil and gas production.
    For each seal, the operator must maintain a record that includes 
the unique identifying number of each seal and the valve or meter 
component on which the seal is or was used; the date of installation or 
removal of each seal; for valves, the position (open or closed) in 
which it was sealed; and the reason the seal was removed.
Site Facility Diagrams for Existing Facilities (43 CFR 3173.11(d)(2)); 
and
Site Facility Diagrams for Future Facilities (43 CFR 3173.11(d)(1))
    Section 3173.11 requires a site facility diagram for all 
facilities. Section 3170.3 of the final rule defines ``facility'' as a 
site and associated equipment used to:
     Process, treat, store, or measure oil or gas production 
from or allocated to a Federal or Indian lease, unit, or CA that is 
located upstream of or at (and including) the approved point of royalty 
measurement; or
     Store, measure, or dispose of produced water that is 
located on a lease, unit, or CA.
    A site facility diagram is one of the BLM's primary mechanisms for 
monitoring operators' compliance with measurement regulations and 
policy. These information collection activities enable the BLM to 
verify, among other things, royalty-free-use volumes reported by the 
operator on its OGORs. These activities also enhance production 
accountability and respond to key recommendations made by the GAO and 
the OIG. In the long term, this information collection request will 
eliminate the need for the BLM to obtain the information in connection 
with a production verification and accountability review.
    Paragraphs (a) through (c) of Sec.  3173.11 require that each site 
facility diagram be submitted with a completed Sundry Notice.\13\ The 
diagram itself should be formatted to fit on an 8\1/2\ x 11 sheet of 
paper, if possible, and must be legible and comprehensible to an 
individual with an ordinary working knowledge of oilfield operations. 
If more than one page is required, each page must be numbered (in the 
format ``N of X pages''). Paragraph (c) specifies that a site facility 
diagram must:
---------------------------------------------------------------------------

    \13\ Form 3160-3, which is approved under OMB control number 
1004-0137 for uses enumerated at 43 CFR 3162.3-2.
---------------------------------------------------------------------------

     Reflect the position of the production and water recovery 
equipment, piping for oil, gas, and water, and metering or other 
measuring systems in relation to each other, but need not be to scale;
     Commencing with the header, identify all of the equipment, 
including, but not limited to, the header, wellhead, piping, tanks, and 
metering systems located on the site, and include the appropriate 
valves and any other equipment used in the handling, conditioning, or 
disposal of production and water, and indicate the direction of flow;
     Identify by API number the wells flowing into headers;
     Indicate which valve(s) must be sealed and in what 
position during the production and sales phases and during the conduct 
of other production activities (e.g., circulating tanks or drawing off 
water), which may be shown by an attachment, if necessary;
     Clearly identify the lease, unit PA, or CA to which the 
diagram applies and the land description of the facility, and the name 
of the company submitting the diagram, with co-located facilities being 
identified for each lease, unit PA, or CA; and
     Clearly identify as an attachment all meters and 
measurement equipment. Specifically identify all approved and assigned 
FMPs.
    If another operator operates a co-located facility, the site 
facility diagram must depict the co-located facilities on the diagram 
or list them on an attachment and identify them by company name, 
facility name(s), lease, unit PA, or CA number, and FMP number(s). When 
describing co-located facilities operated by one operator, the site 
facility diagram must include a skeleton diagram of the co-located 
facility, showing equipment only. For storage facilities common to co-
located facilities operated by one operator, one diagram would be 
sufficient.
    If the operator claims royalty-free use, the site facility diagram 
must clearly identify on the diagram or as an attachment, the equipment 
for which the operator claims royalty-free use.
    Section 3173.11(d) specifies the timing requirements for submission 
of an updated site facility diagram for facilities for which the BLM 
will assign an FMP number under Sec.  3173.12. This section applies to 
both new and existing facilities.
     For facilities that are in service on or after the 
effective date of the final

[[Page 81415]]

rule, a site facility diagram must be submitted within 30 days after 
the BLM assigns an FMP number to the facility.
     For facilities that are in service before the effective 
date of the final rule and that have a site facility diagram on file 
that meets the minimum requirements of the previous rule (i.e., Order 
3), operators must submit a new site facility diagram within 30 days 
after:
    [cir] Existing facilities are modified;
    [cir] A non-Federal facility located on a Federal lease or 
federally approved unit or communitized area is constructed or 
modified; or
    [cir] There is a change in operator.

The submitted diagram must comply with the requirements of paragraphs 
(a) through (c) of Sec.  3173.11. Those requirements are described 
above.
    Section 3173.11(e) specifies the timing requirements for submission 
of an updated site facility diagram for facilities for which the BLM 
will not assign an FMP number under Sec.  3173.12. This section applies 
to both new and existing facilities.
     For facilities that are in service on or after the 
effective date of the final rule, a site facility diagram must be 
submitted within 30 days after the BLM assigns an FMP number to the 
facility.
     For facilities that are in service before the effective 
date of the final rule and that have a site facility diagram on file 
that meets the minimum requirements of the previous rule (i.e., Order 
3), operators must submit a new site facility diagram within 30 days 
after:
    [cir] Existing facilities are modified;
    [cir] A non-Federal facility located on a Federal lease or 
federally approved unit or communitized area is constructed or 
modified; or
    [cir] There is a change in operator.
    Section 3173.11(f) specifies that after a site facility diagram has 
been submitted that complies with the requirements of Sec.  3173.11, 
operators have an ongoing obligation to update and amend them within 30 
days after such facilities are modified, a non-Federal facility located 
on a Federal lease or federally approved unit or communitized area is 
constructed or modified, or there is a change in operator.
Request for Approval of an FMP for Existing Measurement Facilities (43 
CFR 3173.12(e)); and
Request for Approval of an FMP for Future Measurement Facilities (43 
CFR 3173.12(d))
    Section 3173.12 requires operators to obtain BLM approval of FMPs 
for all measurement points that are used to determine royalties. An FMP 
is a BLM-approved point where oil or gas produced from a Federal or 
Indian lease, unit, or CA is measured and the measurement affects the 
calculation of the volume or quality of production on which royalty is 
owed. See 43 CFR 3170.3.
    This information collection activity provides the BLM with a formal 
nationwide process for designating and approving the point at which oil 
or gas must be measured for the purpose of determining royalty. This 
activity assists the BLM in verifying production. Upon receiving an 
initial request for an FMP, the BLM will approve it if it meets the 
requirements of this rule, and assign each FMP a unique identifying 
number, which the operator, transporter, or purchaser will use when 
reporting production results to the Office of Natural Resources Revenue 
(ONRR).
    All requests for an FMP must include the following:
     A complete Sundry Notice;
     The applicable Measurement Type Code specified in the 
BLM's Well Information System (WIS);
     For gas measurement, identification of the operator/
purchaser/transporter unique station number, meter tube size or serial 
number, and type of secondary device;
     For oil measurement, identification of the oil tank 
number(s) or tank serial number(s) and size of each tank, and whether 
the oil was measured by LACT or CMS if not measured by tank gauge;
     Where production from more than one well will flow to the 
requested FMP, a list of the API well numbers associated with the FMP; 
and
     FMP location by land description.
    Section 3173.12(d) requires operators to request a new FMP for new 
permanent measurement facilities before any production leaves the 
facility. Each request must meet the requirements listed above.
Modifications to an FMP (43 CFR 3173.13(b)(1))
    Section 3173.13(b)(1) requires operators with an approved FMP to 
submit a Sundry Notice that details any modifications to the FMP within 
30 days after the change. These details include, but are not limited 
to, tank numbers or serial numbers and sizes for oil FMPs, unique 
station numbers, meter tube sizes or serial numbers, and type of 
secondary devices for gas FMPs, and for all FMPs with more than one 
well, the API numbers for all wells associated with the facility. The 
Sundry Notice must specify what was changed, the effective date, and 
include, if appropriate, an amended site facility diagram. This 
information collection activity assists the BLM in accurate accounting 
of oil and gas production.
Request for Approval of an Existing CAA (43 CFR 3173.15); and
Request for Approval of a Future CAA (43 CFR 3173.15)
    A CAA is a formal allocation agreement to combine production from 
two or more sources (leases, unit PAs, CAs, or non-Federal or non-
Indian properties) before the FMP. See 43 CFR 3173.1. This information 
collection activity helps the BLM obtain the production data that is 
necessary to verify production from Federal or Indian leases covered by 
CAAs.
    Section 3173.15 requires the following information:
     A completed Sundry Notice seeking approval of commingling 
and allocation, and of off-lease measurement, if any of the proposed 
FMPs are outside the boundaries of any of the leases, units, or CAs 
whose production would be commingled;
     A proposed allocation agreement and a proposed allocation 
methodology with an example of how the methodology is applied 
(including allocation of produced water) signed by each operator of 
each of the leases, unit PAs, or CAs whose production would be included 
in the CAA;
     A list of all Federal or Indian lease, unit PA, or CA 
numbers in the proposed CAA, specifying the type of production (i.e., 
oil, gas, or both) for which commingling is requested;
     A topographic map or maps showing the boundaries of all 
the leases, units, unit PAs, or communitized areas whose production is 
proposed to be commingled; the location of all existing or planned 
facilities and relative location of all wellheads and piping included 
in the CAA, and FMPs existing or proposed to be installed to the extent 
known or anticipated;
     Documentation demonstrating that each of the leases, unit 
PAs, or CAs proposed for inclusion in the CAA is producing in paying 
quantities (or, in the case of Federal leases, is capable of production 
in paying quantities) pending approval of the CAA; and
     All gas analyses, including Btu content (if the CAA 
request includes gas) and all oil gravities (if the CAA request 
includes oil) for previous periods of production from the leases, 
units, unit PAs, or CAs proposed for inclusion in the CAA, up to 6 
years before the date of the application for approval of the CAA. 
However, gas analysis and oil gravity data is not

[[Page 81416]]

needed if the CAA meets the requirements and standards of Sec.  
3173.14(a) of the final rule.
    If new surface disturbance is proposed on one or more of the 
leases, units, or CAs, and the surface is managed by the BLM, the 
application must include a proposed surface use plan of operations for 
the proposed surface disturbance.
    If new surface disturbance is proposed on BLM-managed land outside 
any of the leases, units, or CAs whose production would be commingled, 
the application must include a right-of-way grant application, under 43 
CFR part 2880 if the FMP is on a pipeline, or under 43 CFR part 2800, 
if the FMP is a meter or storage tank. Applications for right-of-way 
(i.e., on SF-299) are authorized under OMB control number 0596-0082.
    If new surface disturbance is proposed on Federal land managed by 
an agency other than the BLM, the application must include written 
approval from the appropriate surface-management agency.
    If a new surface disturbance is proposed on Indian land outside the 
lease, unit, or communitized area from which the production would be 
commingled, a right-of-way grant application must be filed under 25 CFR 
part 169, with the appropriate BIA office.
Request for Modification of a CAA (43 CFR 3173.18)
    Section 3173.18 provides that a CAA must be modified when there is 
modification to the allocation agreement, additional leases, unit PAs, 
or CAs are proposed for inclusion in the CAA, or any of the leases, 
unit PAs, or CAs within the CAA terminate or permanently cease 
production. The following information would be required in a request to 
modify a CAA:
     A completed Sundry Notice describing the modification 
requested;
     A new allocation methodology, if appropriate, and an 
example of how the methodology is applied; and
     Certification by each operator that it agrees to the CAA 
modification.
    This information collection activity helps the BLM obtain the 
production data that is necessary to verify production from Federal or 
Indian leases covered by CAAs.
Response to Notice of Insufficient CAA (43 CFR 3173.16)
    Upon receipt of an operator's request for assignment of an FMP 
number to a facility associated with a CAA existing on the effective 
date of the final rule, (1) The BLM may determine that the CAA meets 
the requirements (at 43 CFR 3173.16) for grandfathering the CAA; or (2) 
If grandfathering is not appropriate, the BLM will review the CAA for 
consistency with the minimum standards and requirements for a CAA under 
43 CFR 3173.14. The BLM will notify the operator in writing of any 
inconsistencies or deficiencies. The operator must then correct any 
inconsistencies or deficiencies that the AO identifies, provide 
additional information, or request an extension of time, within 20 
business days after receipt of the BLM's notice. When the BLM is 
satisfied that the operator has corrected any inconsistencies or 
deficiencies, the BLM will terminate the existing CAA and grant a new 
CAA based on the operator's corrections. If the existing CAA does not 
meet the applicable standards and the operator does not correct the 
deficiencies, the BLM may terminate the existing CAA and deny the 
request for an FMP number for the facility associated with the existing 
CAA.
Request To Modify a CAA (43 CFR 3173.18)
    A CAA must be modified when there is a modification to the 
allocation agreement; additional leases, unit PAs, or CAs are proposed 
for inclusion in the CAA; or any of the leases, unit PAs, or CAs within 
the CAA terminate or permanently cease production.
    To request a modification of a CAA, all operators must submit to 
the BLM:
     A completed Sundry Notice describing the modification 
requested;
     A new allocation methodology, including an allocation 
methodology which includes allocation of produced water and an example 
of how the methodology is applied, if appropriate; and
     Certification by each operator in the CAA that it agrees 
to the CAA modification.
    A change in operator does not trigger the need to modify a CAA.
Request To Terminate a CAA (43 CFR 3173.20)
    Section 3173.20 authorizes the BLM to terminate an approved CAA and 
allows for the CAA to be terminated by the operator at their request. 
The operator must submit a Sundry Notice to the BLM requesting the 
termination in which the notice must identify the FMP(s) for the 
lease(s), unit(s), or CA(s) previously subject to the CAA.
Request for Approval of Off-Lease Measurement--General (43 CFR 
3173.23);
Request for Approval of Off-Lease Measurement--Amendment of an Existing 
Approval (43 CFR 3173.23); and
Response to Notice of Insufficient Off-Lease Measurement Approval (43 
CFR 3173.25)
    These information collection activities assist the BLM in reducing 
discrepancies between operator-allocated volumes, which operators 
report to ONRR, and the volumes that the BLM calculates during follow-
up audits. In accordance with this final rule, the BLM will allow off-
lease measurement of production only from a single Federal or Indian 
lease, unit PA, CA, or CAA, and only at an approved FMP.
    Section 3173.23(a) through (j) requires the following information 
in an application for approval of off-lease measurement:
     A completed Sundry Notice;
     Justification for off-lease measurement;
     A topographic map of appropriate scale showing the 
boundary of the lease(s), unit(s), or CA(s) from which the production 
originates, the location of existing or planned facilities, the 
relative location of all wellheads (including the API number for each 
well) and piping included in the off-lease measurement proposal, and 
existing FMPs or FMPs proposed to be installed to the extent known or 
anticipated;
     The surface ownership of all land on which equipment is, 
or is proposed to be, located; and
     A statement that indicates whether the proposal includes 
all, or only a portion of, the production from the lease, unit, or CA 
and if the proposal includes only a portion of the production, the 
application would be required to identify the FMP(s) where the 
remainder of the production from the lease, unit, or CA is measured or 
is proposed to be measured.
    If any of the proposed off-lease measurement facilities are located 
on non-federally owned surface, the application must include a written 
concurrence signed by the owner(s) of the surface and the owner(s) of 
the measurement facilities, including each owner(s)' name, address, and 
telephone number, granting the BLM unrestricted access to the off-lease 
measurement facility and the surface on which it is located, for the 
purpose of inspecting any production, measurement, water

[[Page 81417]]

handling, or transportation equipment located on the non-Federal 
surface up to and including the FMP, and for otherwise verifying 
production accountability. If the ownership of the non-Federal surface 
or of the measurement facility changes, the operator must obtain and 
provide to the AO the written concurrence required under this paragraph 
from the new owner(s) within 30 days of the change in ownership.
    If a proposed off-lease FMP with facilities on BLM land would 
involve new surface disturbance and consists of a meter or storage 
tank, or is on a pipeline, a right-of-way grant application must be 
submitted. Applications for rights-of-way (SF-299) are authorized under 
control number 0596-0082, which is administered by the U.S. Forest 
Service on behalf of several Federal agencies. If new surface 
disturbance if proposed for an FMP that includes facilities on Federal 
land managed by an agency other than the BLM, written approval is 
required from that agency. A right-of-way grant application must also 
be submitted with the appropriate BIA office if any of the proposed 
facilities are on Indian lands outside of the producing area.
    If the operator proposes to use production from the lease, unit or 
CA as fuel at the off-lease measurement facility without payment of 
royalty, the application must include an application for approval of 
off-lease royalty-free use under applicable rules. The BLM is 
developing the applicable rules and will seek OMB clearance for the 
information collection activities in those rules.
    Section 3173.23(k) provides that to apply for an amendment of an 
existing approval of off-lease measurement, the operator must submit a 
completed Sundry Notice required under paragraph (a), and information 
listed at paragraphs (b) through (j) of Sec.  3173.23 to the extent the 
previously submitted information has changed. This information 
collection activity assists the BLM in reducing discrepancies between 
operator-allocated volumes, which operators report to ONRR, and the 
volumes that the BLM calculates during follow-up audits.
    Upon receipt of an operator's request for assignment of an FMP 
number for a facility associated with an off-lease measurement approval 
existing on the effective date of the final rule, the BLM will review 
the existing approval for consistency with the requirements at 43 CFR 
3173.22. The BLM will notify the operator of any inconsistencies or 
deficiencies. The operator must correct any of the identified flaws, 
provide additional information, or request an extension of time from 
the AO, within 20 business days after receiving the notice. This 
information collection activity assists the BLM in reducing 
discrepancies between operator-allocated volumes, which operators 
report to ONRR, and the volumes that the BLM calculates during follow-
up audits.
Request To Terminate an Off-Lease Measurement Approval (43 CFR 3173.27)
    Section 3173.27 authorizes the BLM to terminate an off-lease 
measurement approval and allows for the off-lease measurement approval 
to also be terminated by the operator at their request. The operator 
must submit a Sundry Notice to the BLM requesting the termination in 
which the notice must identify the new FMP(s) for the lease(s), 
unit(s), or CA(s) previously subject to the off-lease measurement 
approval.
    The following table itemizes the estimated hour and cost burdens 
for the information collection activities.

                                             Estimated Hour Burdens
----------------------------------------------------------------------------------------------------------------
                                                                                                    Total hours
                        Type of response                             Number of       Hours per      (Column B x
                                                                     responses       response        Column C)
A.                                                                            B.              C.              D.
----------------------------------------------------------------------------------------------------------------
Variance Requests (43 CFR 3170.6) Annual........................             100               8             800
Required Recordkeeping and Records Submission (43 CFR 3170.7)              4,300               5          21,500
 Annual.........................................................
Water-Draining Operations--Data Collection (43 CFR 3173.6)                 5,000               2          10,000
 Annual.........................................................
Water-Draining Operations --Recordkeeping and Records Submission          60,000            0.25          15,000
 (43 CFR 3173.6) Annual.........................................
Hot Oiling, Clean-Up, and Completion Operations--Data Collection           5,000               2          10,000
 (43 CFR 3173.7) Annual.........................................
Hot Oiling, Clean-Up, and Completion Operations--Recordkeeping            15,000            0.25           3,750
 and Records Submission (43 CFR 3173.6) Annual..................
Report of Theft or Mishandling of Production (43 CFR 3173.8)                   5              10              50
 Annual.........................................................
Required Recordkeeping for Inventory and Seal Records (43 CFR              5,000               2          10,000
 3173.9) Annual.................................................
Site Facility Diagrams for Existing Facilities) (43 CFR                    4,156               6          24,935
 3173.11(d)(2)) One-time........................................
Site Facility Diagrams for Future Facilities (43 CFR                       5,000               6          30,000
 3173.11(d)(1)) Annual..........................................
Request for Approval of an FMP for Existing Measurement                  166,232               2         332,464
 Facilities (43 CFR 3173.12(e)) One-time........................
Request for Approval of an FMP for Future Measurement Facilities           1,000               2           2,000
 (43 CFR 3173.12(d)) Annual.....................................
Modifications to an FMP (43 CFR 3173.13(b)(1)) Annual...........           1,000               2           2,000
Request for Approval of an Existing CAA (43 CFR 3173.15) One-              1,662              40          66,480
 time...........................................................
Request for Approval of a Future CAA (43 CFR 3173.15) Annual....             500              40          20,000
Response to Notice of Insufficient CAA (43 CFR 3173.16) Annual..             150              40           6,000
Request to Modify a CAA (43 CFR 3173.18) Annual.................             500              40          20,000
Request for Approval of Off-Lease Measurement--General (43 CFR               100              10           1,000
 3173.23) Annual................................................
Request for Approval of Off-Lease Measurement--Amendment of an               166              10           1,662
 Existing Approval (43 CFR 3173.23) One-time....................
Response to Notice of Insufficient Off-Lease Measurement                      15              40             600
 Approval (43 CFR 3173.25) Annual...............................
                                                                 -----------------------------------------------
    Totals......................................................         274,886  ..............         578,240
----------------------------------------------------------------------------------------------------------------


[[Page 81418]]

National Environmental Policy Act

    The BLM prepared an environmental assessment (EA), a Finding of No 
Significant Impact (FONSI), and Decision Record (DR) that concludes 
that the final rule will 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 (NEPA), 42 
U.S.C. 4332(2)(C). Therefore, a detailed statement under NEPA is not 
required. A copy of the EA, FONSI, and DR are available for review and 
on file in the BLM Administrative Record at the address specified in 
the ADDRESSES section.
    As explained in the EA, FONSI, and DR, the final rule will not have 
a significant effect on the human environment because, for the most 
part, its requirements involve changes that are of an administrative, 
technical, or procedural nature that apply to the BLM's and the 
lessee's or operator's management processes. For example, operators are 
now required to maintain records generated for Federal leases for at 
least 7 years, consistent with statutory requirements. Similarly, the 
final rule requires more detailed information on site facility diagrams 
such as information about the equipment for which an operator claims 
royalty-free use. The submission of this additional information will 
not result in any on-the-ground impacts. In contrast with these 
provisions, compliance with some of the rule's other requirements may 
result in additional surface-disturbing activities (e.g., additional 
surface disturbance might be required if an operator with an existing 
off lease measurement authorization has to move those measurement 
facilities back on lease because they did not comply with the 
requirements of this final rule.) Such surface-disturbing activities 
will be subject to their own project-specific NEPA analyses, as 
appropriate, and will be conducted in accordance with existing surface 
operating standards and guidelines for oil and gas exploration and 
development, including appropriate Best Management Practices (BMP).
    A draft of the EA was shared with the public during the public 
comment period on the proposed rule. During that process the BLM 
received a handful of comments on the EA. Some commenters questioned 
the BLM's level of NEPA analysis, specifically whether the BLM had met 
the ``hard look'' test of describing the environmental consequences of 
the proposed action, and the BLM's ability to reach a FONSI based on 
the level of analysis prepared. One commenter requested a complete NEPA 
revision with formal scoping on the EA and a meaningful socioeconomic 
analysis. Many commenters questioned the use of three separate EAs to 
disclose impacts of three separate orders. Those commenters asserted 
that CEQ regulations require connected actions to be evaluated in a 
single document and suggested a single EIS to address all three rules.
    CEQ's NEPA regulations at 40 CFR 1508.18 identify new or revised 
agency rules and regulations as an example of a Federal action. 
Drafting new agency regulations of a technical or administrative nature 
is a Federal action that is categorically excluded from NEPA review 
pursuant to 43 CFR 46.210(i). Instead of relying on the categorical 
exclusion, the BLM chose to complete a more robust level of NEPA 
documentation in the form of an EA for each of the proposed rules to 
replace Orders 3, 4, and 5. By preparing an EA for each of the proposed 
regulations, the BLM was able to disclose the potential environmental 
effects of the Federal agency decision on each of the regulations. This 
analysis addressed the impact of each rule individually, as well as the 
impact of all three rules cumulatively. With respect to socio-economic 
impacts, the BLM completed an Economic and Threshold Analyses for each 
of the rules. These analyses were not referenced in the Draft EAs for 
the rules, but have been addressed in the EAs for the final rules.
    Other commenters stated that the BLM understated the potential 
surface impacts associated with the new rules and did not: (i) 
Adequately address potential surface impacts to private land; (ii) 
Address a reasonable range of alternatives; and (iii) Adequately 
describe the affected environment. As explained in the EA, the BLM 
anticipates that in the majority of cases, operators will use existing 
surface disturbances such as existing well pad locations in connection 
with activities undertaken in compliance with the final rule, which 
will minimize new surface construction and surface impacts.
    Similarly, the codification of BLM regulations does not hinder or 
prevent development of private minerals. The likelihood of impacts to 
private surface is low. It is unclear whether private lands would be 
affected at all by the denial of off-lease measurement agreements and 
the resultant re-location of measurement facilities on to a lease, CA 
or unit PA. In the rare instances when new pipelines or other 
facilities were found to be necessary on private surface, BLM 
authorization for activities on split estate would include site-
specific NEPA documentation, with appropriate project-level mitigation 
and BMPs. In short, the impact of these provisions on private lands in 
terms of surface disturbance is likely to be minimal, and any attempt 
to estimate these impacts would be speculative.
    The BLM's obligation under NEPA is to analyze alternatives that 
would meet the purpose and need for the proposed action and allow for a 
reasoned choice to be made. As described in the EA, a number of 
alternatives were considered, but eliminated from detailed study 
because they did not meet the purpose and need. Similarly, the 
discussion of the affected environment should only contain data and 
analysis commensurate in detail with the importance of the impacts, 
which the BLM anticipates to be minimal. The EA, FONSI, and DR were 
updated to address these comments, but did not change the BLM's overall 
analysis of the potential environmental impacts of the rule.

Executive Order 13211, Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This final rule will not have a substantial direct effect on the 
nation's energy supply, distribution or use, including a shortfall in 
supply or price increase. The final rule strengthens the BLM's 
production accountability requirements for operators of Federal and 
Indian oil and gas leases. These changes increase recordkeeping 
requirements, place additional restrictions on CAAs and on off-lease 
measurement, and provide for significant new immediate assessments for 
violations of the regulations. All of these changes in the final rule 
are administrative in nature and will have a one-time average 
transition cost of about $8,400 per regulated entity and an ongoing 
annual average cost of about $3,200 per entity per year. Entities with 
the greatest activity (e.g., numerous FMPs) will incur higher costs, 
but they will still be relatively minor. As a result, the BLM does not 
expect that the final rule will result in a net change in the quantity 
of oil and gas that is produced from oil and gas leases on Federal and 
Indian lands.

Information Quality Act

    In developing this rule, the BLM did not conduct or use a study, 
experiment, or survey requiring peer review under the Information 
Quality Act (Pub. L. 106-554, Appendix C Title IV, 515, 114 Stat. 
2763A-153).

Authors

    The principal authors of this final rule are Michael Wade, Senior 
Oil and Gas

[[Page 81419]]

Compliance Specialist, BLM Washington Office; Adrienne Brumley, 
Petroleum Engineer, BLM New Mexico State Office; Conan Donnelly, 
Petroleum Engineering Technician, BLM Miles City Field office; Kahindo 
Kamau, Petroleum Engineer, BLM Great Falls Field Office; Steve 
McCracken, Petroleum Engineering Technician, BLM Great Falls Field 
Office; Chris Carey, ONRR Denver Office; Luke Lundmark, ONRR Denver 
Office; and Vicky Stafford, ONRR Denver Office. The team was assisted 
by Rich Estabrook, BLM Washington Office; Faith Bremner, Jean Sonneman 
and Ian Senio, Office of Regulatory Affairs, BLM Washington Office; 
Michael Ford, Economist, BLM Washington Office; Barbara Sterling, 
Natural Resource Specialist, BLM Colorado State Office; Bryce Barlan, 
Senior Policy Analyst, BLM Washington Office; and Dylan Fuge, Counselor 
to the Director, BLM Washington Office; Christopher Rhymes, Attorney 
Advisor, Office of the Solicitor, Department of the Interior; and 
Leslie Peterson and Geoffrey Heath (both now retired).

List of Subjects

43 CFR Part 3160

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

43 CFR Part 3170

    Administrative practice and procedure, Immediate assessments, 
Incorporation by reference, Indians-lands, Mineral royalties, Oil and 
gas measurement, Public lands--mineral resources.

    Dated: October 6, 2016.
Janice M. Schneider,
Assistant Secretary, Land and Minerals Management.

    For the reasons set out in the preamble, the Bureau of Land 
Management amends 43 CFR chapter II as follows:

PART 3160--ONSHORE OIL AND GAS OPERATIONS

0
1. Revise the authority citation for part 3160 to read as follows:

    Authority:  25 U.S.C. 396, 396d and 2107; 30 U.S.C. 189, 306, 
359, and 1751; and 43 U.S.C. 1732(b), 1733, and 1740.


Sec.  3160.0-3   [Amended]

0
2. Amend Sec.  3160.0-3 by removing the words ``the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C.1701)'' and adding in their 
place the words ``the Federal Oil and Gas Royalty Management Act of 
1982, as amended by the Federal Oil and Gas Royalty Simplification Act 
of 1996 (30 U.S.C. 1701 et seq.)''.

0
3. Revise Sec.  3161.1 to read as follows:


Sec.  3161.1  Jurisdiction.

    (a) The regulations in this part apply to all operations conducted 
on:
    (1) All Federal and Indian (except those of the Osage Tribe) 
onshore oil and gas leases;
    (2) All onshore facility measurement points where Federal or Indian 
(except those of the Osage Tribe) oil or gas is measured;
    (3) Indian Mineral Development Act agreements for oil and gas, 
unless specifically excluded in the agreement; and
    (4) Leases and other business agreements for the development of 
tribal energy resources under a Tribal Energy Resource Agreement 
entered into with the Secretary, unless specifically excluded in the 
lease, other business agreement, or Tribal Energy Resource Agreement.
    (b) The regulations in this part and 43 CFR part 3170, including 
subparts 3173, 3174, and 3175, relating to site security, measurement 
of oil and gas, reporting of production and operations, and assessments 
or penalties for non-compliance with such requirements, are applicable 
to all wells and facilities on State or privately owned lands committed 
to a unit or communitization agreement, which include Federal or Indian 
lease interests, notwithstanding any provision of a unit or 
communitization agreement to the contrary.

0
4. Amend Sec.  3162.3-2 by adding paragraph (d) to read as follows:


Sec.  3162.3-2  Subsequent well operations.

* * * * *
    (d) For details on how to apply for approval of a facility 
measurement point; approval for surface or subsurface commingling from 
different leases, unit participating areas and communitized areas; or 
approval for off-lease measurement, see 43 CFR 3173.12, 3173.15, and 
3173.23, respectively.

0
5. Amend Sec.  3162.4-1 by revising paragraphs (a) and (d) and adding 
paragraph (e) to read as follows:


Sec.  3162.4-1  Well records and reports.

    (a) The operator must keep accurate and complete records with 
respect to:
    (1) All lease operations, including, but not limited to, drilling, 
producing, redrilling, repairing, plugging back, and abandonment 
operations;
    (2) Production facilities and equipment (including schematic 
diagrams as required by applicable orders and notices); and
    (3) Determining and verifying the quantity, quality, and 
disposition of production from or allocable to Federal or Indian leases 
(including source records).
* * * * *
    (d) All records and reports required by this section must be 
maintained for the following time periods:
    (1) For Federal leases and units or communitized areas that include 
Federal leases, but do not include Indian leases:
    (i) Seven years after the records are generated; unless,
    (ii) A judicial proceeding or demand involving such records is 
timely commenced, in which case the record holder must maintain such 
records until the final nonappealable decision in such judicial 
proceeding is made, or with respect to that demand is rendered, unless 
the Secretary or the applicable delegated State authorizes in writing 
an earlier release of the requirement to maintain such records.
    (2) For Indian leases, and units or communitized areas that include 
Indian leases, but do not include Federal leases:
    (i) Six years after the records are generated; unless,
    (ii) The Secretary or his/her designee notifies the record holder 
that the Department has initiated or is participating in an audit or 
investigation involving such records, in which case the record holder 
must maintain such records until the Secretary or his/her designee 
releases the record holder from the obligation to maintain the records.
    (3) For units and communitized areas that include both Federal and 
Indian leases, 6 years after the records are generated, unless the 
Secretary or his/her designee has notified the record holder within 
those 6 years that an audit or investigation involving such records has 
been initiated, then:
    (i) If a judicial proceeding or demand is commenced within 7 years 
after the records are generated, the record holder must retain all 
records regarding production from the lease, unit or communitization 
agreement until the final nonappealable decision in such judicial 
proceeding is made, or with respect to that demand is rendered, unless 
the Secretary or his/her designee authorizes in writing a release of 
the requirement to maintain such records before a final nonappealable 
decision is made or rendered;
    (ii) If a judicial proceeding or demand is not commenced within 7 
years after

[[Page 81420]]

the records are generated, the record holder must retain all records 
regarding production from the unit or communitized area until the 
Secretary or his/her designee releases the record holder from the 
obligation to maintain the records.
    (e) Record holders include lessees, operators, purchasers, 
transporters, and any other person directly involved in producing, 
transporting, purchasing, or selling, including measuring, oil or gas 
through the point of royalty measurement or the point of first sale, 
whichever is later. Record holders must maintain records generated 
during or for the period for which the lessee or operator has an 
interest in or conducted operations on the lease, or in which a person 
is involved in transporting, purchasing, or selling production from the 
lease, for the period of time required in paragraph (d) of this 
section.


Sec.  3162.4-3  [Removed]

0
 6. Remove Sec.  3162.4-3.

0
 7. Amend Sec.  3162.6 as follows:
0
a. In paragraph (a), remove the word ``indentification'' and add in its 
place ``identification''; and
0
b. Revise paragraphs (b) and (c), redesignate paragraph (d) as 
paragraph (e), and add a new paragraph (d).
    The revisions and addition read as follows:


Sec.  3162.6  Well and facility identification.

* * * * *
    (b) For wells located on Federal and Indian lands, the operator 
must properly identify, by a sign in a conspicuous place, each well, 
other than those permanently abandoned. The well sign must include the 
well number, the name of the operator, the lease serial number, and the 
surveyed location (the quarter-quarter section, section, township and 
range or other authorized survey designation acceptable to the 
authorized officer, such as metes and bounds or longitude and 
latitude). When specifically requested by the authorized officer, the 
sign must include the unit or communitization agreement name or number. 
The authorized officer may also require the sign to include the name of 
the Indian allottee lessor(s) preceding the lease serial number.
    (c) All facilities at which oil or gas produced from a Federal or 
Indian lease is stored, measured, or processed must be clearly 
identified with a sign that contains the name of the operator, the 
lease serial number or communitization or unit agreement identification 
number, as appropriate, and the surveyed location (the quarter-quarter 
section, section, township and range or other authorized survey 
designation acceptable to the authorized officer, such as metes and 
bounds or longitude and latitude). On Indian leases, the sign also must 
include the name of the appropriate tribe and whether the lease is 
tribal or allotted. For situations of one tank battery servicing one 
well in the same location, the requirements of this paragraph and 
paragraph (b) of this section may be met by one sign as long as it 
includes the information required by both paragraphs. In addition, each 
storage tank must be clearly identified by a unique number. With regard 
to the quarter-quarter designation and the unique tank number, any such 
designation established by State law or regulation satisfies this 
requirement.
    (d) All signs must be maintained in legible condition and must be 
clearly apparent to any person at or approaching the storage, 
measurement, or transportation point.
* * * * *


Sec.  3162.7-1  [Amended]

0
 8. Amend Sec.  3162.7-1 by removing paragraph (f).


Sec.  3162.7-5  [Removed]

0
 9. Remove Sec.  3162.7-5.

0
 10. Amend Sec.  3163.2 by:
0
 a. Revising paragraphs (a), (b), (d), (e) introductory text, and (f) 
introductory text;
0
 b. Removing paragraph (g);
0
 c. Redesignating paragraphs (h) and (i) as paragraphs (g) and (h);
0
d. Revising newly redesignated paragraphs (g) and (h); and
0
 e. Removing paragraphs (j) and (k).
    The revisions read as follows:


Sec.  3163.2  Civil penalties.

    (a)(1) Whenever any person fails or refuses to comply with any 
applicable requirements of the Federal Oil and Gas Royalty Management 
Act, any mineral leasing law, any regulation thereunder, or the terms 
of any lease or permit issued thereunder, the authorized officer will 
notify the person in writing of the violation, unless the violation was 
discovered and reported to the authorized officer by the liable person 
or the notice was previously issued under Sec.  3163.1.
    (2) Whenever a purchaser or transporter who is not an operating 
rights owner or operator fails or refuses to comply with 30 U.S.C. 1713 
or applicable rules or regulations regarding records relevant to 
determining the quality, quantity, and disposition of oil or gas 
produced from or allocable to a Federal or Indian oil and gas lease, 
the authorized officer will notify the purchaser or transporter, as 
appropriate, in writing of the violation.
    (b)(1) If the violation specified in paragraph (a) of this section 
is not corrected within 20 days of such notice or report, or such 
longer time as the authorized officer may agree to in writing, the 
person will be liable for a civil penalty of up to $1,031 per violation 
for each day such violation continues, dating from the date of such 
notice or report. Any amount imposed and paid as assessments under 
Sec.  3163.1(a)(1) will be deducted from penalties under this section.
    (2) If the violation specified in paragraph (a) of this section is 
not corrected within 40 days of such notice or report, or a longer 
period as the authorized officer may agree to in writing, the person 
will be liable for a civil penalty of up to $10,314 per violation for 
each day the violation continues, dating from the date of such notice 
or report. Any amount imposed and paid as assessments under Sec.  
3163.1(a)(1) will be deducted from penalties under this section.
* * * * *
    (d) Whenever a transporter fails to permit inspection for proper 
documentation by any authorized representative, as provided in Sec.  
3162.7-1(c) of this chapter, the transporter is liable for a civil 
penalty of up to $1,031 per day for the violation, dating from the date 
of notice of the failure to permit inspection and continuing until the 
proper documentation is provided. If the violation continues beyond 20 
days, the authorized officer will revoke the transporter's authority to 
remove crude oil produced from, or allocated to, any Federal or Indian 
lease under the authority of that authorized officer. This revocation 
of the transporter's authority will continue until the transporter 
provides proper documentation and pays any related penalty.
    (e) Any person is liable for a civil penalty of up to $20,628 per 
violation for each day such violation continues, if the person:
* * * * *
    (f) Any person is liable for a civil penalty of up to $51,570 per 
violation for each day such violation continues, if the person:
* * * * *
    (g) On a case-by-case basis, the Secretary may compromise or reduce 
civil penalties under this section. In compromising or reducing the 
amount of a civil penalty, the Secretary will state on the record the 
reasons for such determination.
    (h) Civil penalties provided by this section are supplemental to, 
and not in derogation of, any other penalties or assessments for 
noncompliance in any

[[Page 81421]]

other provision of law, except as provided in paragraphs (a) and (b) of 
this section.


Sec.  3164.1  [Amended]

0
 11. Amend Sec.  3164.1, in paragraph (b), by removing the third entry 
in the table (the reference to Order No. 3, Site Security).

0
 12. Amend Sec.  3165.3 by revising paragraphs (a) and (d) to read as 
follows:


Sec.  3165.3  Notice, State Director review and hearing on the record.

    (a) Notice. (1) Whenever any person fails to comply with any 
provisions of the lease, the regulations in this part, applicable 
orders or notices, or any other appropriate order of the authorized 
officer, the authorized officer will issue a written notice or order to 
the appropriate party and the lessee(s) to remedy any defaults or 
violations.
    (2) Whenever any purchaser or transporter, who is not an operating 
rights owner or operator, fails or refuses to comply with 30 U.S.C. 
1713 or applicable rules or regulations regarding records relevant to 
determining the quality, quantity, and disposition of oil or gas 
produced from or allocable to a Federal or Indian oil and gas lease, 
applicable orders or notices, or any other appropriate orders of the 
authorized officer, the authorized officer will give written notice or 
order to the purchaser or transporter to remedy any violations.
    (3) Written orders or a notice of violation, assessment, or 
proposed penalty will be issued and served by personal service by the 
authorized officer, or by certified mail, return receipt requested. 
Service will be deemed to occur when the document is received or 7 
business days after the date it is mailed, whichever is earlier.
    (4) Any person may designate a representative to receive any notice 
of violation, order, assessment, or proposed penalty on that person's 
behalf.
    (5) In the case of a major violation, the authorized officer will 
make a good faith effort to contact such designated representative by 
telephone, to be followed by a written notice or order. Receipt of a 
notice or order will be deemed to occur at the time of such verbal 
communication, and the time of notice and the name of the receiving 
party will be documented in the file. If the good faith effort to 
contact the designated representative is unsuccessful, notice of the 
major violation or order may be given to any person conducting or 
supervising operations subject to the regulations in this part.
    (6) In the case of a minor violation, the authorized officer will 
only provide a written notice or order to the designated 
representative.
    (7) A copy of all orders, notices, or instructions served on any 
contractor or field employee or designated representative will also be 
mailed to the operator. Any notice involving a civil penalty against an 
operator will be mailed to the operator, with a copy to the operating 
rights owner.
* * * * *
    (d) Action on request for State Director review. The State Director 
will issue a final decision within 10 business days after the receipt 
of a complete request for administrative review or, where oral 
presentation has been made, within 10 business days after the oral 
presentation. The State Director's decision represents the final Bureau 
decision from which further review may be obtained as provided in 
paragraph (c) of this section for proposed penalties, and in Sec.  
3165.4 for all other decisions.
* * * * *

0
13. Add part 3170 to read as follows:

PART 3170--ONSHORE OIL AND GAS PRODUCTION

Subpart 3170--Onshore Oil and Gas Production: General
Sec.
3170.1 Authority.
3170.2 Scope.
3170.3 Definitions and acronyms.
3170.4 Prohibitions against by-pass and tampering.
3170.5 [Reserved]
3170.6 Variances.
3170.7 Required recordkeeping, records retention, and records 
submission.
3170.8 Appeal procedures.
3170.9 Enforcement.
Subpart 3171--[Reserved]
Subpart 3172--[Reserved]
Subpart 3173--Requirements for Site Security and Production Handling
3173.1 Definitions and acronyms.
3173.2 Storage and sales facilities--seals.
3173.3 Oil measurement system components--seals.
3173.4 Federal seals.
3173.5 Removing production from tanks for sale and transportation by 
truck.
3173.6 Water-draining operations.
3173.7 Hot oiling, clean-up, and completion operations.
3173.8 Report of theft or mishandling of production.
3173.9 Required recordkeeping for inventory and seal records.
3173.10 Form 3160-5, Sundry Notices and Reports on Wells.
3173.11 Site facility diagram.
3173.12 Applying for a facility measurement point.
3173.13 Requirements for approved facility measurement points.
3173.14 Conditions for commingling and allocation approval (surface 
and downhole).
3173.15 Applying for a commingling and allocation approval.
3173.16 Existing commingling and allocation approvals.
3173.17 Relationship of a commingling and allocation approval to 
royalty-free use of production.
3173.18 Modification of a commingling and allocation approval.
3173.19 Effective date of a commingling and allocation approval.
3173.20 Terminating a commingling and allocation approval.
3173.21 Combining production downhole in certain circumstances.
3173.22 Requirements for off-lease measurement.
3173.23 Applying for off-lease measurement.
3173.24 Effective date of an off-lease measurement approval.
3173.25 Existing approved off-lease measurement.
3173.26 Relationship of off-lease measurement approval to royalty-
free use of production.
3173.27 Termination of off-lease measurement approval.
3173.28 Instances not constituting off-lease measurement, for which 
no approval is required.
3173.29 Immediate assessments for certain violations.
Appendix A to Subpart 3173--Examples of Site Facility Diagrams

    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.

Subpart 3170--Onshore Oil and Gas Production: General


Sec.  3170.1   Authority.

    The authorities for promulgating the regulations in this part are 
the Mineral Leasing Act, 30 U.S.C. 181 et seq.; the Mineral Leasing Act 
for Acquired Lands, 30 U.S.C. 351 et seq.; the Federal Oil and Gas 
Royalty Management Act, 30 U.S.C. 1701 et seq.; the Indian Mineral 
Leasing Act, 25 U.S.C. 396a et seq.; the Act of March 3, 1909, 25 
U.S.C. 396; the Indian Mineral Development Act, 25 U.S.C. 2101 et seq.; 
and the Federal Land Policy and Management Act, 43 U.S.C. 1701 et seq. 
Each of these statutes gives the Secretary the authority to promulgate 
necessary and appropriate rules and regulations governing Federal and 
Indian (except Osage Tribe) oil and gas leases. See 30 U.S.C. 189; 30 
U.S.C. 359; 25 U.S.C. 396d; 25 U.S.C. 396; 25 U.S.C. 2107; and 43 
U.S.C. 1740. Under Secretarial Order Number 3087, dated December 3, 
1982, as amended on February 7, 1983 (48 FR 8983), and the Departmental 
Manual (235 DM 1.1), the Secretary has delegated regulatory authority 
over onshore oil and gas development on

[[Page 81422]]

Federal and Indian (except Osage Tribe) lands to the BLM. For Indian 
leases, the delegation of authority to the BLM is reflected in 25 CFR 
parts 211, 212, 213, 225, and 227. In addition, as authorized by 43 
U.S.C. 1731(a), the Secretary has delegated to the BLM regulatory 
responsibility for oil and gas operations on Indian lands. 235 DM 
1.1.K.


Sec.  3170.2  Scope.

    The regulations in this part apply to:
    (a) All Federal onshore and Indian oil and gas leases (other than 
those of the Osage Tribe);
    (b) Indian Mineral Development Act (IMDA) agreements for oil and 
gas, unless specifically excluded in the agreement or unless the 
relevant provisions of the rule are inconsistent with the agreement;
    (c) Leases and other business agreements for the development of 
tribal energy resources under a Tribal Energy Resource Agreement 
entered into with the Secretary, unless specifically excluded in the 
lease, other business agreement, or Tribal Energy Resource Agreement;
    (d) State or private tracts committed to a federally approved unit 
or communitization agreement (CA) as defined by or established under 43 
CFR subpart 3105 or 43 CFR part 3180; and
    (e) All onshore facility measurement points where oil or gas 
produced from the leases or agreements identified earlier in this 
section is measured.


Sec.  3170.3  Definitions and acronyms.

    (a) As used in this part, the term:
    Allocated or allocation means a method or process by which 
production is measured at a central point and apportioned to the 
individual lease, or unit Participating Area (PA), or CA from which the 
production originated.
    API (followed by a number) means the American Petroleum Institute 
Manual of Petroleum Measurement Standards, with the number referring to 
the Chapter and Section in that manual.
    Audit trail means all source records necessary to verify and 
recalculate the volume and quality of oil or gas production measured at 
a facility measurement point (FMP) and reported to the Office of 
Natural Resources Revenue (ONRR).
    Authorized officer (AO) has the same meaning as defined in 43 CFR 
3000.0-5.
    Averaging period means the previous 12 months or the life of the 
meter, whichever is shorter. For FMPs that measure production from a 
newly drilled well, the averaging period excludes production from that 
well that occurred in or before the first full month of production. 
(For example, if an oil FMP and a gas FMP were installed to measure 
only the production from a new well that first produced on April 10, 
the averaging period for this FMP would not include the production that 
occurred in April (partial month) and May (full month) of that year.)
    Bias means a shift in the mean value of a set of measurements away 
from the true value of what is being measured.
    By-pass means any piping or other arrangement around or avoiding a 
meter or other measuring device or method (or component thereof) at an 
FMP that allows oil or gas to flow without measurement. Equipment that 
permits the changing of the orifice plate of a gas meter without 
bleeding the pressure off the gas meter run (e.g., senior fitting) is 
not considered to be a by-pass.
    Commingling, for production accounting and reporting purposes, 
means combining, before the point of royalty measurement, production 
from more than one lease, unit PA, or CA, or production from one or 
more leases, unit PAs, or CAs with production from State, local 
governmental, or private properties that are outside the boundaries of 
those leases, unit PAs, or CAs. Combining production from multiple 
wells within a single lease, unit PA, or CA, or combining production 
downhole from different geologic formations within the same lease, unit 
PA, or CA, is not considered commingling for production accounting 
purposes.
    Communitized area means the area committed to a BLM approved 
communitization agreement.
    Communitization agreement (CA) means an agreement to combine a 
lease or a portion of a lease that cannot otherwise be independently 
developed and operated in conformity with an established well spacing 
or well development program, with other tracts for purposes of 
cooperative development and operations.
    Condition of Approval (COA) means a site-specific requirement 
included in the approval of an application that may limit or modify the 
specific actions covered by the application. Conditions of approval may 
minimize, mitigate, or prevent impacts to public lands or resources.
    Days means consecutive calendar days, unless otherwise indicated.
    Facility means:
    (i) A site and associated equipment used to process, treat, store, 
or measure production from or allocated to a Federal or Indian lease, 
unit PA, or CA that is located upstream of or at (and including) the 
approved point of royalty measurement; and
    (ii) A site and associated equipment used to store, measure, or 
dispose of produced water that is located on a lease, unit, or 
communitized area.
    Facility measurement point (FMP) means a BLM-approved point where 
oil or gas produced from a Federal or Indian lease, unit PA, or CA is 
measured and the measurement affects the calculation of the volume or 
quality of production on which royalty is owed. FMP includes, but is 
not limited to, the approved point of royalty measurement and 
measurement points relevant to determining the allocation of production 
to Federal or Indian leases, unit PAs, or CAs. However, allocation 
facilities that are part of a commingling and allocation approval under 
Sec.  3173.15 or that are part of a commingling and allocation approval 
approved after July 9, 2013, are not FMPs. An FMP also includes a meter 
or measurement facility used in the determination of the volume or 
quality of royalty-bearing oil or gas produced before BLM approval of 
an FMP under Sec.  3173.12. An FMP must be located on the lease, unit, 
or communitized area unless the BLM approves measurement off the lease, 
unit, or CA. The BLM will not approve a gas processing plant tailgate 
meter located off the lease, unit, or CA, as an FMP.
    Gas means any fluid, either combustible or noncombustible, 
hydrocarbon or non-hydrocarbon, that has neither independent shape nor 
volume, but tends to expand indefinitely and exists in a gaseous state 
under metered temperature and pressure conditions.
    Incident of Noncompliance (INC) means documentation that the BLM 
issues that identifies violations and notifies the recipient of the 
notice of required corrective actions.
    Lease has the same meaning as defined in 43 CFR 3160.0-5.
    Lessee has the same meaning as defined in 43 CFR 3160.0-5.
    NIST traceable means an unbroken and documented chain of 
comparisons relating measurements from field or laboratory instruments 
to a known standard maintained by the National Institute of Standards 
and Technology (NIST).
    Notice to lessees and operators (NTL) has the same meaning as 
defined in 43 CFR 3160.0-5.
    Off-lease measurement means measurement at an FMP that is not 
located on the lease, unit, or communitized area from which the 
production came.
    Oil means a mixture of hydrocarbons that exists in the liquid phase 
at the temperature and pressure at which it is

[[Page 81423]]

measured. Condensate is considered to be oil for purposes of this part. 
Gas liquids extracted from a gas stream upstream of the approved point 
of royalty measurement are considered to be oil for purposes of this 
part.
    (i) Clean oil or Pipeline oil means oil that is of such quality 
that it is acceptable to normal purchasers.
    (ii) Slop oil means oil that is of such quality that it is not 
acceptable to normal purchasers and is usually sold to oil reclaimers. 
Oil that can be made acceptable to normal purchasers through special 
treatment that can be economically provided at existing or modified 
facilities or using portable equipment at or upstream of the FMP is not 
slop oil.
    (iii) Waste oil means oil that has been determined by the AO or 
authorized representative to be of such quality that it cannot be 
treated economically and put in a marketable condition with existing or 
modified lease facilities or portable equipment, cannot be sold to 
reclaimers, and has been determined by the AO to have no economic 
value.
    Operator has the same meaning as defined in 43 CFR 3160.0-5.
    Participating area (PA) has the same meaning as defined in 43 CFR 
3180.0-5.
    Point of royalty measurement means a BLM-approved FMP at which the 
volume and quality of oil or gas which is subject to royalty is 
measured. The point of royalty measurement is to be distinguished from 
meters that determine only the allocation of production to particular 
leases, unit PAs, CAs, or non-Federal and non-Indian properties. The 
point of royalty measurement is also known as the point of royalty 
settlement.
    Production means oil or gas removed from a well bore and any 
products derived therefrom.
    Production Measurement Team (PMT) means a panel of members from the 
BLM (which may include BLM-contracted experts) that reviews changes in 
industry measurement technology, methods, and standards to determine 
whether regulations should be updated, and provides guidance on 
measurement technologies and methods not addressed in current 
regulation. The purpose of the PMT is to act as a central advisory body 
to ensure that oil and gas produced from Federal and Indian leases is 
accurately measured and properly reported.
    Purchaser means any person or entity who legally takes ownership of 
oil or gas in exchange for financial or other consideration.
    Source record means any unedited and original record, document, or 
data that is used to determine volume and quality of production, 
regardless of format or how it was created or stored (e.g., paper or 
electronic). It includes, but is not limited to, raw and unprocessed 
data (e.g., instantaneous and continuous information used by flow 
computers to calculate volumes); gas charts; measurement tickets; 
calibration, verification, prover, and configuration reports; pumper 
and gauger field logs; volume statements; event logs; seal records; and 
gas analyses.
    Statistically significant describes a difference between two data 
sets that exceeds the threshold of significance.
    Tampering means any deliberate adjustment or alteration to a meter 
or measurement device, appropriate valve, or measurement process that 
could introduce bias into the measurement or affect the BLM's ability 
to independently verify volumes or qualities reported.
    Threshold of significance means the maximum difference between two 
data sets (a and b) that can be attributed to uncertainty effects. The 
threshold of significance is determined as follows:
[GRAPHIC] [TIFF OMITTED] TR17NO16.000

Where:

Ts = Threshold of significance, in percent
Ua = Uncertainty (95 percent confidence) of data set a, 
in percent
Ub = Uncertainty (95 percent confidence) of data set b, 
in percent

    Total observed volume (TOV) means the total measured volume of all 
oil, sludges, sediment and water, and free water at the measured or 
observed temperature and pressure.
    Transporter means any person or entity who legally moves or 
transports oil or gas from an FMP.
    Uncertainty means the statistical range of error that can be 
expected between a measured value and the true value of what is being 
measured. Uncertainty is determined at a 95 percent confidence level 
for the purposes of this part.
    Unit means the land within a unit area as defined in 43 CFR 3180.0-
5.
    Unit PA means the unit participating area, if one is in effect, the 
exploratory unit if there is no associated participating area, or an 
enhanced recovery unit.
    Variance means an approved alternative to a provision or standard 
of a regulation, Onshore Oil and Gas Order, or NTL.
    (b) As used in this part, the following additional acronyms apply:
    API means American Petroleum Institute.
    BLM means the Bureau of Land Management.
    Btu means British thermal unit.
    CMS means Coriolis Measurement System.
    LACT means lease automatic custody transfer.
    OGOR means Oil and Gas Operations Report (Form ONRR-4054 or any 
successor report).
    ONRR means the Office of Natural Resources Revenue, U.S. Department 
of the Interior, and includes any successor agency.
    S&W means sediment and water.
    WIS means Well Information System or any successor electronic 
filing system.


Sec.  3170.4  Prohibitions against by-pass and tampering.

    (a) All by-passes are prohibited.
    (b) Tampering with any measurement device, component of a 
measurement device, or measurement process is prohibited.
    (c) Any by-pass or tampering with a measurement device, component 
of a measurement device, or measurement process may, together with any 
other remedies provided by law, result in an assessment of civil 
penalties for knowingly or willfully:
    (1) Taking, removing, transporting, using, or diverting oil or gas 
from a lease site without valid legal authority under 30 U.S.C. 
1719(d)(2) and 43 CFR 3163.2(f)(2); or
    (2) Preparing, maintaining, or submitting false, inaccurate, or 
misleading reports, records, or information under 30 U.S.C. 1719(d)(1) 
and 43 CFR 3163.2(f)(1).


Sec.  3170.5  [Reserved]


Sec.  3170.6  Variances.

    (a) Any party subject to a requirement of a regulation in this part 
may request a variance from that requirement.
    (1) A request for a variance must include the following:
    (i) Identification of the specific requirement from which the 
variance is requested;
    (ii) Identification of the length of time for which the variance is 
requested, if applicable;
    (iii) An explanation of the need for the variance;
    (iv) A detailed description of the proposed alternative means of 
compliance;
    (v) A showing that the proposed alternative means of compliance 
will produce a result that meets or exceeds the objectives of the 
applicable requirement for which the variance is requested; and
    (vi) The FMP number(s) for which the variance is requested, if 
applicable.

[[Page 81424]]

    (2) A request for a variance must be submitted as a separate 
document from any plans or applications. A request for a variance that 
is submitted as part of a master development plan, application for 
permit to drill, right-of-way application, or application for approval 
of other types of operations, rather than submitted separately, will 
not be considered. Approval of a plan or application that contains a 
request for a variance does not constitute approval of the variance. A 
separate request for a variance may be submitted simultaneously with a 
plan or application. For plans or applications that are contingent upon 
the approval of the variance request, the BLM encourages the 
simultaneous submission of the variance request and the plan or 
application.
    (3) The party requesting the variance must file the request and any 
supporting documents using WIS. If electronic filing is not possible or 
practical, the operator may submit a request for variance on the Form 
3160-5, Sundry Notices and Reports on Wells (Sundry Notice) to the BLM 
Field Office having jurisdiction over the lands described in the 
application.
    (4) The AO, after considering all relevant factors, may approve the 
variance, or approve it with COAs, only if the AO determines that:
    (i) The proposed alternative means of compliance meets or exceeds 
the objectives of the applicable requirement(s) of the regulation;
    (ii) Approving the variance will not adversely affect royalty 
income and production accountability; and
    (iii) Issuing the variance is consistent with maximum ultimate 
economic recovery, as defined in 43 CFR 3160.0-5.
    (5) The decision whether to grant or deny the variance request is 
entirely within the BLM's discretion.
    (6) A variance from the requirements of a regulation in this part 
does not constitute a variance from provisions of other regulations, 
including Onshore Oil and Gas Orders.
    (b) The BLM reserves the right to rescind a variance or modify any 
COA of a variance due to changes in Federal law, technology, 
regulation, BLM policy, field operations, noncompliance, or other 
reasons. The BLM will provide a written justification if it rescinds a 
variance or modifies a COA.


Sec.  3170.7  Required recordkeeping, records retention, and records 
submission.

    (a) Lessees, operators, purchasers, transporters, and any other 
person directly involved in producing, transporting, purchasing, 
selling, or measuring oil or gas through the point of royalty 
measurement or the point of first sale, whichever is later, must retain 
all records, including source records, that are relevant to determining 
the quality, quantity, disposition, and verification of production 
attributable to Federal or Indian leases for the periods prescribed in 
paragraphs (c) through (e) of this section.
    (b) This retention requirement applies to records generated during 
or for the period for which the lessee or operator has an interest in 
or conducted operations on the lease, or in which a person is involved 
in transporting, purchasing, or selling production from the lease.
    (c) For Federal leases, and units or CAs that include Federal 
leases, but do not include Indian leases, the record holder must 
maintain records for:
    (1) Seven years after the records are generated; unless,
    (2) A judicial proceeding or demand involving such records is 
timely commenced, in which case the record holder must maintain such 
records until the final nonappealable decision in such judicial 
proceeding is made, or with respect to that demand is rendered, unless 
the Secretary or his/her designee or the applicable delegated State 
authorizes in writing an earlier release of the requirement to maintain 
such records.
    (d) For Indian leases, and units or CAs that include Indian leases, 
but do not include Federal leases, the record holder must maintain 
records for:
    (1) Six years after the records are generated; unless,
    (2) The Secretary or his/her designee notifies the record holder 
that the Department of the Interior has initiated or is participating 
in an audit or investigation involving such records, in which case the 
record holder must maintain such records until the Secretary or his/her 
designee releases the record holder from the obligation to maintain the 
records.
    (e) For units and communitized areas that include both Federal and 
Indian leases, 6 years after the records are generated. If the 
Secretary or his/her designee has notified the record holder within 
those 6 years that an audit or investigation involving such records has 
been initiated, then:
    (1) If a judicial proceeding or demand is commenced within 7 years 
after the records are generated, the record holder must retain all 
records regarding production from the lease, unit PA, or CA until the 
final nonappealable decision in such judicial proceeding is made, or 
with respect to that demand is rendered, unless the Secretary or his/
her designee authorizes in writing a release of the requirement to 
maintain such records before a final nonappealable decision is made or 
rendered.
    (2) If a judicial proceeding or demand is not commenced within 7 
years after the records are generated, the record holder must retain 
all records regarding production from the unit or communitized area 
until the Secretary or his/her designee releases the record holder from 
the obligation to maintain the records;
    (f) The lessee, operator, purchaser, or transporter must maintain 
an audit trail.
    (g) All records, including source records, that are used to 
determine quality, quantity, disposition, and verification of 
production attributable to a Federal or Indian lease, unit PA, or CA, 
must include the FMP number or the lease, unit PA, or CA number, along 
with a unique equipment identifier (e.g., a unique tank identification 
number and meter station number), and the name of the company that 
created the record. For all facilities existing prior to the assignment 
of an FMP number, all records must include the following information:
    (1) The name of the operator;
    (2) The lease, unit PA, or CA number; and
    (3) The well or facility name and number.
    (h) Upon request of the AO, the operator, purchaser, or transporter 
must provide such records to the AO as may be required by regulation, 
written order, Onshore Order, NTL, or COA.
    (i) All records must be legible.
    (j) All records requiring a signature must also have the signer's 
printed name.


Sec.  3170.8  Appeal procedures.

    (a) BLM decisions, orders, assessments, or other actions under the 
regulations in this part are administratively appealable under the 
procedures prescribed in 43 CFR 3165.3(b), 3165.4, and part 4.
    (b) For any recommendation made by the PMT, and approved by the 
BLM, a party affected by such recommendation may file a request for 
discretionary review by the Assistant Secretary for Land and Minerals 
Management. The Assistant Secretary may delegate this review function 
as he or she deems appropriate, in which case the affected party's 
application for discretionary review must be made to the person or 
persons to whom the Assistant Secretary's review function has been 
delegated.


Sec.  3170.9   Enforcement.

    Noncompliance with any of the requirements of this part or any 
order

[[Page 81425]]

issued under this part may result in enforcement actions under 43 CFR 
subpart 3163 or any other remedy available under applicable law or 
regulation.

Subpart 3171--[Reserved]

Subpart 3172--[Reserved]

Subpart 3173--Requirements for Site Security and Production 
Handling


Sec.  3173.1  Definitions and acronyms.

    (a) As used in this subpart, the term:
    Access means the ability to:
    (i) Add liquids to or remove liquids from any tank or piping 
system, through a valve or combination of valves or by moving liquids 
from one tank to another tank; or
    (ii) Enter any component in a measuring system affecting the 
accuracy of the measurement of the quality or quantity of the liquid 
being measured.
    Appropriate valves means those valves that must be sealed during 
the production or sales phase (e.g., fill lines, equalizer, overflow 
lines, sales lines, circulating lines, or drain lines).
    Authorized representative (AR) has the same meaning as defined in 
43 CFR 3160.0-5.
    Business day means any day Monday through Friday, excluding Federal 
holidays.
    Commingling and allocation approval (CAA) means a formal allocation 
agreement to combine production from two or more sources (leases, unit 
PAs, CAs, or non-Federal or non-Indian properties) before that product 
reaches an FMP.
    Economically marginal property means a lease, unit PA, or CA that 
does not generate sufficient revenue above operating costs, such that a 
prudent operator would opt to plug a well or shut-in the lease, unit 
PA, or CA instead of making the investments needed to achieve non-
commingled measurement of production from that lease, unit PA, or CA. A 
lease, unit PA, or CA may be regarded as economically marginal if the 
operator demonstrates that the expected revenue (net any associated 
operating costs) generated from crude oil or natural gas production 
volumes on that property is not sufficient to cover the nominal cost of 
the capital expenditures required to achieve measurement of non-
commingled production of oil or gas from that property over a payout 
period of 18 months. A lease, unit PA, or CA can also be considered 
economically marginal if the operator demonstrates that its royalty net 
present value (RNPV), or the discounted value of the Federal or Indian 
royalties collected on revenue earned from crude oil or natural gas 
production on the lease, unit PA, or CA, over the expected life of the 
equipment that would need to be installed to achieve non-commingled 
measurement volumes, is less than the capital cost of purchasing and 
installing this equipment. Both the payout period and the RNPV are 
determined separately for each lease, unit PA, or CA oil or gas FMP. 
Additionally, oil FMPs are evaluated using estimated revenue (net of 
taxes and operating costs) from crude oil production, as defined in 
this section, while gas FMPs are evaluated using estimated revenue (net 
of taxes and operating costs) from natural gas production, as defined 
in this section.
    Effectively sealed means the placement of a seal in such a manner 
that the sealed component cannot be accessed, moved, or altered without 
breaking the seal.
    Free water means the measured volume of water that is present in a 
container and that is not in suspension in the contained liquid at 
observed temperature.
    Land description means a location surveyed in accordance with the 
U.S. Department of the Interior's Manual of Surveying Instructions 
(2009), that includes the quarter-quarter section, section, township, 
range, and principal meridian, or other authorized survey designation 
acceptable to the AO, such as metes-and-bounds, or latitude and 
longitude.
    Maximum ultimate economic recovery has the same meaning as defined 
in 43 CFR 3160.0-5.
    Mishandling means failing to measure or account for removal of 
production from a facility.
    Payout period means the time required, in months, for the cost of 
an investment in an oil or gas FMP for a specific lease, unit PA, or CA 
to be covered by the nominal revenue earned from crude oil production, 
for an oil FMP, or natural gas production, for a gas FMP, minus taxes, 
royalties, and any operating and variable costs. The payout period is 
determined separately for each oil or gas FMP for a given lease, unit 
PA, or CA.
    Permanent measurement facility means all equipment constructed or 
installed and used on-site for 6 months or longer, for the purpose of 
determining the quantity, quality, or storage of production, and which 
meets the definition of FMP under Sec.  3170.3.
    Piping means a tubular system (e.g., metallic, plastic, fiberglass, 
or rubber) used to move fluids (liquids and gases).
    Production phase means that event during which oil is delivered 
directly to or through production equipment to the storage facilities 
and includes all operations at the facility other than those defined by 
the sales phase.
    Royalty Net Present Value (RNPV) means the net present value of all 
Federal or Indian royalties paid on revenue earned from crude oil 
production or natural gas production from an oil or gas FMP for a given 
lease, unit PA, or CA over the expected life of metering equipment that 
must be installed for that lease, unit PA, or CA to achieve non-
commingled measurement.
    Sales phase means that event during which oil is removed from 
storage facilities for sale at an FMP.
    Seal means a uniquely numbered device that completely secures 
either a valve or those components of a measuring system that affect 
the quality or quantity of the oil being measured.
    (b) As used in this subpart, the following additional acronyms 
apply:
    BIA means the Bureau of Indian Affairs.
    BMP means Best Management Practice.


Sec.  3173.2  Storage and sales facilities--seals.

    (a) All lines entering or leaving any oil storage tank must have 
valves capable of being effectively sealed during the production and 
sales phases unless otherwise provided under this subpart. During the 
production phase, all appropriate valves that allow unmeasured 
production to be removed from storage must be effectively sealed in the 
closed position. During any other phase (sales, water drain, or hot 
oiling), and prior to taking the top tank gauge measurement, all 
appropriate valves that allow unmeasured production to enter or leave 
the sales tank must be effectively sealed in the closed position (see 
Appendix A to subpart 3173). Each unsealed or ineffectively sealed 
appropriate valve is a separate violation.
    (b) Valves or combinations of valves and tanks that provide access 
to the production before it is measured for sales are considered 
appropriate valves and are subject to the seal requirements of this 
subpart (see Appendix A to subpart 3173). If there is more than one 
valve on a line from a tank, the valve closest to the tank must be 
sealed. All appropriate valves must be in an operable condition and 
accurately reflect whether the valve is open or closed.
    (c) The following are not considered appropriate valves and are not 
subject to the sealing requirements of this subpart:

[[Page 81426]]

    (1) Valves on production equipment (e.g., separator, dehydrator, 
gun barrel, or wash tank);
    (2) Valves on water tanks, provided that the possibility of access 
to production in the sales and storage tanks does not exist through a 
common circulating, drain, overflow, or equalizer system;
    (3) Valves on tanks that contain oil that has been determined by 
the AO or AR to be waste or slop oil;
    (4) Sample cock valves used on piping or tanks with a Nominal Pipe 
Size of 1 inch or less in diameter;
    (5) Fill-line valves during shipment when a single tank with a 
nominal capacity of 500 barrels (bbl) or less is used for collecting 
marginal production of oil produced from a single well (i.e., 
production that is less than 3 bbl per day). All other seal 
requirements of this subpart apply;
    (6) Gas line valves used on piping with a Nominal Pipe Size of 1 
inch or less used as tank bottom ``roll'' lines, provided there is no 
access to the contents of the storage tank and the roll lines cannot be 
used as equalizer lines;
    (7) Valves on tank heating systems that use a fluid other than the 
contents of the storage tank (i.e., steam, water, or glycol);
    (8) Valves used on piping with a Nominal Pipe Size of 1 inch or 
less connected directly to the pump body or used on pump bleed off 
lines;
    (9) Tank vent-line valves; and
    (10) Sales, equalizer, or fill-line valves on systems where 
production may be removed only through approved oil metering systems 
(e.g., LACT or CMS). However, any valve that allows access for removing 
oil before it is measured through the metering system must be 
effectively sealed (see Appendix A to subpart 3173).
    (d) Tampering with any appropriate valve is prohibited. Tampering 
with an appropriate valve may result in an assessment of civil 
penalties for knowingly or willfully preparing, maintaining, or 
submitting false, inaccurate, or misleading reports, records, or 
written information under 30 U.S.C. 1719(d)(1) and 43 CFR 3163.2(f)(1), 
or knowingly or willfully taking, removing, transporting, using, or 
diverting oil or gas from a lease site without valid legal authority 
under 30 U.S.C. 1719(d)(2) and 43 CFR 3163.2(f)(2), together with any 
other remedies provided by law.


Sec.  3173.3  Oil measurement system components--seals.

    (a) Components used for quantity or quality determination of oil 
must be effectively sealed to indicate tampering, including, but not 
limited to, the following components of LACT meters (see Sec.  
3174.8(a)) and CMSs (see Sec.  3174.9(e)):
    (1) Sample probe;
    (2) Sampler volume control;
    (3) All valves on lines entering or leaving the sample container, 
excluding the safety pop-off valve (if so equipped). Each valve must be 
sealed in the open or closed position, as appropriate;
    (4) Meter assembly, including the counter head and meter head;
    (5) Temperature averager;
    (6) LACT meters or CMS;
    (7) Back pressure valve pressure adjustment downstream of the 
meter;
    (8) Any drain valves in the system;
    (9) Manual-sampling valves (if so equipped);
    (10) Valves on diverter lines larger than 1 inch in nominal 
diameter;
    (11) Right-angle drive;
    (12) Totalizer; and
    (13) Prover connections.
    (b) Each missing or ineffectively sealed component is a separate 
violation.


Sec.  3173.4  Federal seals.

    (a) In addition to any INC issued for a seal violation, the AO or 
AR may place one or more Federal seals on any appropriate valve, 
sealing device, or oil-metering-system component that does not comply 
with the requirements in Sec. Sec.  3173.2 and 3173.3 if the operator 
is not present, refuses to cooperate with the AO or AR, or is unable to 
correct the noncompliance.
    (b) The placement of a Federal seal does not constitute compliance 
with the requirements of Sec. Sec.  3173.2 and 3173.3.
    (c) A Federal seal may not be removed without the approval of the 
AO or AR.


Sec.  3173.5  Removing production from tanks for sale and 
transportation by truck.

    (a) When a single truck load constitutes a completed sale, the 
driver must possess documentation containing the information required 
in Sec.  3174.12.
    (b) When multiple truckloads are involved in a sale and the oil 
measurement method is based on the difference between the opening and 
closing gauges, the driver of the last truck must possess the 
documentation containing the information required in Sec.  3174.12. All 
other drivers involved in the sale must possess a trip log or manifest.
    (c) After the seals have been broken, the purchaser or transporter 
is responsible for the entire contents of the tank until it is 
resealed.


Sec.  3173.6  Water-draining operations.

    When water is drained from a production storage tank, the operator, 
purchaser, or transporter, as appropriate, must document the following 
information:
    (a) Federal or Indian lease, unit PA, or CA number(s);
    (b) The tank location by land description;
    (c) The unique tank number and nominal capacity;
    (d) Date of the opening gauge;
    (e) Opening gauge (gauged manually or automatically), TOV, and 
free-water measurements, all to the nearest \1/2\ inch;
    (f) Unique identifying number of each seal removed;
    (g) Closing gauge (gauged manually or automatically) and TOV 
measurement to the nearest \1/2\ inch; and
    (h) Unique identifying number of each seal installed.


Sec.  3173.7  Hot oiling, clean-up, and completion operations.

    (a) During hot oil, clean-up, or completion operations, or any 
other situation where the operator removes oil from storage, 
temporarily uses it for operational purposes, and then returns it to 
storage on the same lease, unit PA, or communitized area, the operator 
must document the following information:
    (1) Federal or Indian lease, unit PA, or CA number(s);
    (2) Tank location by land description;
    (3) Unique tank number and nominal capacity;
    (4) Date of the opening gauge;
    (5) Opening gauge measurement (gauged manually or automatically) to 
the nearest \1/2\ inch;
    (6) Unique identifying number of each seal removed;
    (7) Closing gauge measurement (gauged manually or automatically) to 
the nearest \1/2\ inch;
    (8) Unique identifying number of each seal installed;
    (9) How the oil was used; and
    (10) Where the oil was used (i.e., well or facility name and 
number).
    (b) During hot oiling, line flushing, or completion operations or 
any other situation where the operator removes production from storage 
for use on a different lease, unit PA, or communtized area, the 
production is considered sold and must be measured in accordance with 
the applicable requirements of this subpart and reported as sold to 
ONRR on the OGOR under 30 CFR part 1210 subpart C for the period 
covering the production in question.


Sec.  3173.8  Report of theft or mishandling of production.

    (a) No later than the next business day after discovery of an 
incident of

[[Page 81427]]

apparent theft or mishandling of production, the operator, purchaser, 
or transporter must report the incident to the AO. All oral reports 
must be followed up with a written incident report within 10 business 
days of the oral report.
    (b) The incident report must include the following information:
    (1) Company name and name of the person reporting the incident;
    (2) Lease, unit PA, or CA number, well or facility name and number, 
and FMP number, as appropriate;
    (3) Land description of the facility location where the incident 
occurred;
    (4) The estimated volume of production removed;
    (5) The manner in which access was obtained to the production or 
how the mishandling occurred;
    (6) The name of the person who discovered the incident;
    (7) The date and time of the discovery of the incident; and
    (8) Whether the incident was reported to local law enforcement 
agencies and/or company security.


Sec.  3173.9  Required recordkeeping for inventory and seal records.

    (a) The operator must perform an end-of-month inventory (gauged 
manually or automatically) that records: TOV in storage (measured to 
the nearest \1/2\ inch) subtracting free water, the volume not 
corrected for temperature/S&W, and the volume as reported to ONRR on 
the OGOR;
    (1) The end-of-month inventory must be completed within +/- 3 days 
of the last day of the calendar month; or
    (2) The end of month inventory must be a calculated ``end of 
month'' inventory based on daily production that takes place between 
two measured inventories that are not more than 31, nor fewer than 20, 
days apart. The calculated monthly inventory is determined based on the 
following equation:

{[(X + Y - W)/Z1] * Z2{time}  + X = A,

Where:

A = calculated end of month inventory;
W = first inventory measurement;
X = second inventory measurement;
Y = gross sales volume between the first and second inventory;
Z1 = number of actual days produced between the first and second 
inventory; and
Z2 = number of actual days produced between the second inventory and 
end of calendar month for which the OGOR report is due.

    For example: If the first inventory measurement performed on 
January 12 is 125 bbl, the second inventory measurement performed on 
February 10 is 150 bbl, the gross sales volume between the first and 
second inventory is 198 bbl, and February is the calendar month for 
which the report is due. For purposes of this example, we assume 
February had 28 days and that the well was non-producing for two of 
those days.

{[(150 bbl + 198 bbl - 125 bbl)/29 days] * 16 days{time}  + 150 bbl = 
273 bbl for the February end-of-month inventory.

    (b) For each seal, the operator must maintain a record that 
includes:
    (1) The unique identifying number of each seal and the valve or 
meter component on which the seal is or was used;
    (2) The date of installation or removal of each seal;
    (3) For valves, the position (open or closed) in which it was 
sealed; and
    (4) The reason the seal was removed.


Sec.  3173.10  Form 3160-5, Sundry Notices and Reports on Wells.

    (a) The operator must submit a Form 3160-5, Sundry Notices and 
Reports on Wells (Sundry Notice) for the following:
    (1) Site facility diagrams (see Sec.  3173.11);
    (2) Request for an FMP number (see Sec.  3173.12);
    (3) Request for FMP amendments (see Sec.  3173.13(b));
    (4) Requests for approval of off-lease measurement (see Sec.  
3173.23);
    (5) Request to amend an approval of off-lease measurement (see 
Sec.  3173.23(k));
    (6) Requests for approval of CAAs (see Sec.  3173.15); and
    (7) Request to modify a CAA (see Sec.  3173.18).
    (b) The operator must submit all Sundry Notices electronically to 
the BLM office having jurisdiction over the lease, unit, or CA using 
WIS, unless the submitter:
    (1) Is a small business, as defined by the U.S. Small Business 
Administration; and
    (2) Does not have access to the Internet.


Sec.  3173.11  Site facility diagram.

    (a) A site facility diagram is required for all facilities.
    (b) Except for the requirement to submit a Form 3160-5, Sundry 
Notice, with the site facility diagram, no format is prescribed for 
site facility diagrams. The diagram should be formatted to fit on an 
8\1/2\ x 11 sheet of paper, if possible, and must be legible and 
comprehensible to an individual with an ordinary working knowledge of 
oil field operations (see Appendix A to subpart 3173). If more than one 
page is required, each page must be numbered (in the format ``N of X 
pages'').
    (c) The diagram must:
    (1) Reflect the position of the production and water recovery 
equipment, piping for oil, gas, and water, and metering or other 
measuring systems in relation to each other, but need not be to scale;
    (2) Commencing with the header, identify all of the equipment, 
including, but not limited to, the header, wellhead, piping, tanks, and 
metering systems located on the site, and include the appropriate 
valves and any other equipment used in the handling, conditioning, or 
disposal of production and water, and indicate the direction of flow;
    (3) Identify by API number the wells flowing into headers;
    (4) If another operator operates a co-located facility, depict the 
co-located facility(ies) on the diagram or list them as an attachment 
and identify them by company name, facility name(s), lease, unit PA, or 
CA number(s), and FMP number(s);
    (5) Indicate which valve(s) must be sealed and in what position 
during the production and sales phases and during the conduct of other 
production activities (e.g., circulating tanks or drawing off water), 
which may be shown by an attachment, if necessary;
    (6) When describing co-located facilities operated by one operator, 
include a skeleton diagram of the co-located facility(ies), showing 
equipment only. For storage facilities common to co-located facilities 
operated by one operator, one diagram is sufficient;
    (7) Clearly identify the lease, unit PA, or CA to which the diagram 
applies, the land description of the facility, and the name of the 
company submitting the diagram, with co-located facilities being 
identified for each lease, unit PA, or CA;
    (8) Clearly identify, on the diagram or as an attachment, all 
meters and measurement equipment. Specifically identify all approved 
and assigned FMPs; and
    (9) If the operator claims royalty-free use, clearly identify the 
equipment for which the operator claims royalty-free use. The operator 
must either:
    (i) For each engine, motor, or major component (e.g., compressor, 
separator, dehydrator, heater-treater, or tank heater) powered by 
production from the lease, unit PA, or CA, state the volume (oil or 
gas) consumed (per day or per month) and how the volume is determined; 
or
    (ii) Measure the volume used, by meter or tank gauge.
    (d) At facilities for which the BLM will assign an FMP number under

[[Page 81428]]

Sec.  3173.12, the operator must submit a new site facility diagram as 
follows:
    (1) For facilities that become operational after January 17, 2017, 
within 30 days after the BLM assigns an FMP; or
    (2) For a facility that is in service on or before January 17, 
2017, and that has a site facility diagram on file with the BLM that 
meets the minimum requirements of Onshore Oil and Gas Order 3, Site 
Security, an amended site facility diagram meeting the requirements of 
this section is not due until 30 days after the existing facility is 
modified, a non-Federal facility located on a Federal lease or 
federally approved unit or communitized area is constructed or 
modified, or there is a change in operator.
    (e) At facilities for which an FMP number is not required under 
Sec.  3173.12 (e.g., facilities that dispose of produced water), the 
operator must submit a new site facility diagram as follows:
    (1) For new facilities in service after January 17, 2017, the new 
site facility diagram must be submitted within 30 days after the 
facility becomes operational; or
    (2) For a facility that is in service on or before January 17, 
2017, and that has a site facility diagram on file with the BLM that 
meets the minimum requirements of Onshore Oil and Gas Order 3, Site 
Security, an amended site facility diagram meeting the requirements of 
this section is not due until 30 days after the existing facility is 
modified, a non-Federal facility located on a Federal lease or 
federally approved unit or communitized area is constructed or 
modified, or there is a change in operator.
    (f) After a site facility diagram has been submitted that complies 
with the requirements of this part, the operator has an ongoing 
obligation to update and amend the diagram within 30 days after such 
facility is modified, a non-Federal facility located on a Federal lease 
or federally approved unit or communitized area is constructed or 
modified, or there is a change in operator.


Sec.  3173.12  Applying for a facility measurement point.

    (a)(1) Unless otherwise approved, the FMP(s) for all Federal and 
Indian leases, unit PAs, or CAs must be located within the boundaries 
of the lease, unit, or communitized area from which the production 
originated and must measure only production from that lease, unit PA, 
or CA.
    (2) Off-lease measurement or commingling and allocation of Federal 
or Indian production requires prior approval (see 43 CFR 3162.7-2, 
3162.7-3, 3173.15, 3173.16, 3173.24, and 3173.25).
    (b) The BLM will not approve as an FMP a gas processing plant 
tailgate meter located off the lease, unit, or communitized area.
    (c) The operator must submit separate applications for approval of 
an FMP that measures oil produced from a lease, unit PA, or CA, or 
under a CAA that complies with the requirements of this subpart, and an 
FMP that measures gas produced from the same lease, unit PA, or CA, or 
under a CAA that complies with the requirements of this subpart. This 
requirement applies even if the measurement equipment or facilities are 
at the same location.
    (d) For a permanent measurement facility that comes into service 
after January 17, 2017, the operator must apply for approval of the FMP 
before any production leaves the permanent measurement facility. This 
requirement does not apply to temporary measurement equipment used 
during well testing operations. After timely submission and prior to 
approval of an FMP request, an operator must use the lease, unit PA, or 
CA number for reporting production to ONRR, until the BLM assigns an 
FMP number, at which point the operator must use the FMP number for all 
reporting to ONRR as set forth in Sec.  3173.13.
    (e) For a permanent measurement facility in service on or before 
January 17, 2017, the operator must apply for BLM approval of an FMP 
within the time prescribed in this paragraph, based on the production 
level of any one of the leases, unit PAs, or CAs, whether or not they 
are part of a CAA. The deadline to apply for an FMP approval applies to 
both oil and gas measurement facilities measuring production from that 
lease, unit PA, or CA.
    (1) For a stand-alone lease, unit PA, or CA that produced 10,000 
Mcf or more of gas per month or 100 bbl or more of oil per month, by 
January 17, 2018.
    (2) For a stand-alone lease, unit PA, or CA that produced 1,500 Mcf 
or more, but less than 10,000 Mcf of gas per month, or 10 bbl or more, 
but less than 100 bbl of oil per month, by January 17, 2019.
    (3) For a stand-alone lease, unit PA, or CA that produced less than 
1,500 Mcf of gas per month or less than 10 bbl of oil per month, 
January 17, 2020.
    (4) For a stand-alone lease, unit PA, or CA that has not produced 
for a year or more before January 17, 2017, the operator must apply for 
an FMP prior to the resumption of production.
    (5) The production levels identified in paragraphs (e)(1) through 
(3) of this section should be calculated using the average production 
of oil or gas over the 12 months preceding the effective date of this 
section or over the period the lease, unit PA, or CA has been in 
production, whichever is shorter.
    (6) If the operator of any facility covered by this section applies 
for an FMP approval by the deadline in this paragraph, the operator may 
continue using the lease, unit PA, or CA number for reporting 
production to ONRR, until the BLM's assigns an FMP number, at which 
point the operator must use the FMP number for all reporting to ONRR as 
set forth in Sec.  3173.13.
    (7) If the operator fails to apply for an FMP approval by the 
deadline in this paragraph, the operator will be subject to an INC and 
may also be subject to an assessment of a civil penalty under 43 CFR 
part 3160, subpart 3163, together with any other remedy available under 
applicable law or regulation.
    (f) All requests for FMP approval must include the following:
    (1) A complete Sundry Notice requesting approval of each FMP;
    (2) The applicable Measurement Type Code specified in WIS;
    (3) Information about the equipment used for oil and gas 
measurement, including, for:
    (i) ``Gas measurement,'' specify operator/purchaser/transporter 
unique station number, primary element (meter tube) size or serial 
number, and type of secondary device (mechanical or electronic);
    (ii) ``Oil measurement by tank gauge,'' specify oil tank number or 
tank serial number and size in barrels or gallons for all tanks 
associated with measurement at an FMP; and
    (iii) ``Oil measurement by LACT or CMS,'' specify whether the 
equipment is LACT or CMS and the associated oil tank number or tank 
serial number and size in barrels or gallons (there may be more than 
one tank associated with an FMP);
    (4) Where production from more than one well will flow to the 
requested FMP, list the API well numbers associated with the FMP; and
    (5) FMP location by land description.
    (g) Request for approval of an FMP may be submitted concurrently 
with separate requests for off-lease measurement and/or CAA.


Sec.  3173.13  Requirements for approved facility measurement points.

    (a) For an existing facility in service on or before January 17, 
2017, an operator must start using an FMP number for reporting 
production to ONRR on its OGOR for the fourth production month after 
the BLM assigns

[[Page 81429]]

the FMP number(s), and every month thereafter. (For example, for a 
facility that is assigned an FMP number on January 15, 2016, the 
effective date of the FMP is the May production report.) For a new 
facility in service after January 17, 2017, an operator must start 
using an FMP number for reporting production to ONRR on its OGOR for 
the first production month after the BLM assigns the FMP number(s), and 
every month thereafter. (For example, for a facility that is assigned 
an FMP number on January 15, 2016, the effective date of the FMP is the 
February production report.)
    (b)(1) The operator must file a Sundry Notice that describes any 
changes or modifications made to the FMP within 30 days after the 
change. This requirement does not apply to temporary modifications 
(e.g., for maintenance purposes). These include any changes and 
modifications to the information listed on an application submitted 
under Sec.  3173.12.
    (2) The description must include details such as the primary 
element, secondary element, LACT/CMS meter, tank number(s), and wells 
or facilities using the FMP.
    (3) The Sundry Notice must specify what was changed and the 
effective date, and include, if appropriate, an amended site facility 
diagram (see Sec.  3173.11).


Sec.  3173.14  Conditions for commingling and allocation approval 
(surface and downhole).

    (a) Subject to the exceptions provided in paragraph (b) of this 
section, the BLM may grant a CAA only if the proposed allocation method 
used for any such commingled measurement does not have the potential to 
affect the determination of the total volume or quality of production 
on which royalty owed is determined for all the Federal or Indian 
leases, unit PAs, or CAs which are proposed for commingling, and only 
if the following criteria are met:
    (1) The proposed commingling includes production from more than 
one:
    (i) Federal lease, unit PA, or CA, where each lease, unit PA, or CA 
proposed for commingling has 100 percent Federal mineral interest, the 
same fixed royalty rate and, and the same revenue distribution;
    (ii) Indian tribal lease, unit PA, or CA, where each lease, unit 
PA, or CA proposed for commingling is wholly owned by the same tribe 
and has the same fixed royalty rate;
    (iii) Federal unit PA or CA where each unit PA or CA proposed for 
commingling has the same proportion of Federal interest, and which 
interest is subject to the same fixed royalty rate and revenue 
distribution. (For example, the BLM could approve a commingling request 
under this paragraph where an operator proposes to commingle two 
Federal CAs of mixed ownership and both CAs are 50 percent Federal/50 
percent private, so long as the Federal interests have the same royalty 
rates and royalty distributions.); or
    (iv) Indian unit PA or CA where each unit PA or CA proposed for 
commingling has the same proportion of Indian interests, and which 
interest is held by the same tribe and has the same fixed royalty rate; 
and
    (2) The operator or operators provide a methodology acceptable to 
BLM for allocation among the properties from which production is to be 
commingled (including a method for allocating produced water), with a 
signed agreement if there is more than one operator;
    (3) For each of the leases, unit PAs, or CAs proposed for inclusion 
in the CAA, the applicant demonstrates to the AO that a lease, unit PA, 
or CA proposed for inclusion is producing in paying quantities (or, in 
the case of Federal leases, capable of production in paying quantities) 
pending approval of the CAA; and
    (4) The FMP(s) for the proposed CAA measure production originating 
only from the leases, unit PAs, or CAs in the CAA.
    (b) The BLM may also approve a CAA in instances where the proposed 
commingling of production involves production from Federal or Indian 
leases, unit PAs, or CAs that do not meet the criteria of paragraph 
(a)(1) of this section (e.g., the commingling of leases, unit PAs, or 
CAs with different royalty rates or different distributions of revenue, 
or where the commingling involves multiple mineral ownerships). In 
order to be approved, a CAA under this subparagraph must meet the 
requirements of paragraphs (a)(2) through (4) of this section and at 
least one of the following conditions:
    (1) The Federal or Indian lease, unit PA, or CA meets the 
definition of an economically marginal property. However, if the BLM 
determines that a Federal or Indian lease, unit PA, or CA included in a 
CAA ceases to be an economically marginal property, then this condition 
is no longer met;
    (2) The average monthly production over the preceding 12 months for 
each Federal or Indian lease, unit PA, or CA proposed for the CAA on an 
individual basis is less than 1,000 Mcf of gas per month, or 100 bbl of 
oil per month;
    (3) A CAA that includes Indian leases, unit PAs, or CAs has been 
authorized under tribal law or otherwise approved by a tribe;
    (4) The CAA covers the downhole commingling of production from 
multiple formations that are covered by separate leases, unit PAs, or 
CAs, where the BLM has determined that the proposed commingling from 
those formations is an acceptable practice for the purpose of achieving 
maximum ultimate economic recovery and resource conservation; or
    (5) There are overriding considerations that indicate the BLM 
should approve a commingling application in the public interest 
notwithstanding potential negative royalty impacts from the allocation 
method. Such considerations could include topographic or other 
environmental considerations that make non-commingled measurement 
physically impractical or undesirable, in view of where additional 
measurement and related equipment necessary to achieve non-commingled 
measurement would have to be located.


Sec.  3173.15  Applying for a commingling and allocation approval.

    To apply for a CAA, the operator(s) must submit the following, if 
applicable, to the BLM office having jurisdiction over the leases, unit 
PAs, or CAs from which production is proposed to be commingled:
    (a) A completed Sundry Notice for approval of commingling and 
allocation (if off-lease measurement is a feature of the commingling 
and allocation proposal, then a separate Sundry Notice under Sec.  
3173.23 is not necessary as long as the information required under 
Sec.  3173.23(b) through (e) and, where applicable, Sec.  3173.23(f) 
through (i) is included as part of the request for approval of 
commingling and allocation);
    (b) A completed Sundry Notice for approval of off-lease measurement 
under Sec.  3173.23, if any of the proposed FMPs are outside the 
boundaries of any of the leases, units, or CAs from which production 
would be commingled (which may be included in the same Sundry Notice as 
the request for approval of commingling and allocation), except as 
provided in paragraph (a) of this section;
    (c) A proposed allocation agreement, including an allocation 
methodology (including allocation of produced water), with an example 
of how the methodology is applied, signed by each operator of each of 
the leases, unit PAs, or CAs from which production would be included in 
the CAA;
    (d) A list of all Federal or Indian lease, unit PA, or CA numbers 
in the

[[Page 81430]]

proposed CAA, specifying the type of production (i.e., oil, gas, or 
both) for which commingling is requested;
    (e) A topographic map or maps of appropriate scale showing the 
following:
    (1) The boundaries of all the leases, units, unit PAs, or 
communitized areas whose production is proposed to be commingled; and
    (2) The location of existing or planned facilities and the relative 
location of all wellheads (including the API number) and piping 
included in the CAA, and existing FMPs or FMPs proposed to be installed 
to the extent known or anticipated;
    (f) A surface use plan of operations (which may be included in the 
same Sundry Notice as the request for approval of commingling and 
allocation) if new surface disturbance is proposed for the FMP and its 
associated facilities are located on BLM-managed land within the 
boundaries of the lease, units, and communitized areas from which 
production would be commingled;
    (g) A right-of-way grant application (Standard Form 299), filed 
under 43 CFR part 2880, if the proposed FMP is on a pipeline, or under 
43 CFR part 2800, if the proposed FMP is a meter or storage tank. This 
requirement applies only when new surface disturbance is proposed for 
the FMP, and its associated facilities are located on BLM-managed land 
outside any of the leases, units, or communitized areas whose 
production would be commingled;
    (h) Written approval from the appropriate surface-management 
agency, if new surface disturbance is proposed for the FMP and its 
associated facilities are located on Federal land managed by an agency 
other than the BLM;
    (i) A right-of-way grant application for the proposed FMP, filed 
under 25 CFR part 169, with the appropriate BIA office, if any of the 
proposed surface facilities are on Indian land outside the lease, unit, 
or communitized area from which the production would be commingled;
    (j) Documentation demonstrating that each of the leases, unit PAs, 
or CAs proposed for inclusion in the CAA is producing in paying 
quantities (or, in the case of Federal leases, is capable of production 
in paying quantities) pending approval of the CAA; and
    (k) All gas analyses, including Btu content (if the CAA request 
includes gas) and all oil gravities (if the CAA request includes oil) 
for previous periods of production from the leases, units, unit PAs, or 
communitized areas proposed for inclusion in the CAA, up to 6 years 
before the date of the application for approval of the CAA. Gas 
analysis and oil gravity data is not needed if the CAA falls under 
Sec.  3173.14(a)(1).


Sec.  3173.16  Existing commingling and allocation approvals.

    Upon receipt of an operator's request for assignment of an FMP 
number to a facility associated with a CAA existing on January 17, 
2017, the AO will review the existing CAA and take the following 
action:
    (a) The AO will grandfather the existing CAA and associated off-
lease measurement, where applicable, if the existing CAA meets one of 
the following conditions:
    (1) The existing CAA involves downhole commingling that includes 
Federal or Indian leases, unit PAs, or CAs; or
    (2) The existing CAA is for surface commingling and the average 
production rate over the previous 12 months for each Federal or Indian 
lease, unit PA, and CA included in the CAA is:
    (i) Less than 1,000 Mcf per month for gas; or
    (ii) Less than 100 bbl per month for oil.
    (b) If the existing CAA does not meet the conditions of paragraphs 
(a)(1) or (a)(2) of this section, the AO will review the CAA for 
consistency with the minimum standards and requirements for a CAA under 
Sec.  3173.14.
    (1) The AO will notify the operator in writing of any 
inconsistencies or deficiencies with an existing CAA. The operator must 
correct any inconsistencies or deficiencies that the AO identifies, 
provide the additional information that the AO has requested, or 
request an extension of time from the AO, within 20 business days after 
receipt of the AO's notice. When the AO is satisfied that the operator 
has corrected any inconsistencies or deficiencies, the AO will 
terminate the existing CAA and grant a new CAA based on the operator's 
corrections.
    (2) The AO may terminate the existing CAA and grant a new CAA with 
new or amended COAs to make the approval consistent with the 
requirements under Sec.  3173.14 in connection with approving the 
requested FMP. If the operator appeals any COAs of the new CAA, the 
existing CAA approval will continue in effect during the pendency of 
the appeal.
    (3) If the existing CAA does not meet the standards and 
requirements of Sec.  3173.14 and the operator does not correct the 
deficiencies, the AO may terminate the existing CAA under Sec.  3173.20 
and deny the request for an FMP number for the facility associated with 
the existing CAA.
    (c) If the AO grants a new CAA to replace an existing CAA under 
paragraph (b) of this section, the new CAA is effective on the first 
day of the month following its approval. Any new allocation percentages 
resulting from the new CAA will apply from the effective date of the 
CAA forward.


Sec.  3173.17  Relationship of a commingling and allocation approval to 
royalty-free use of production.

    A CAA does not constitute approval of off-lease royalty-free use of 
production as fuel in facilities located at an FMP approved under the 
CAA.


Sec.  3173.18  Modification of a commingling and allocation approval.

    (a) A CAA must be modified when there is:
    (1) A modification to the allocation agreement;
    (2) Inclusion of additional leases, unit PAs, or CAs are proposed 
in the CAA; or
    (3) Termination of or permanent production cessation from any of 
the leases, unit PAs, or CAs within the CAA.
    (b) To request a modification of a CAA, all operators must submit 
to the AO:
    (1) A completed Sundry Notice describing the modification 
requested;
    (2) A new allocation methodology, including an allocation 
methodology which includes allocation of produced water and an example 
of how the methodology is applied, if appropriate; and
    (3) Certification by each operator in the CAA that it agrees to the 
CAA modification.
    (c) A change in operator does not trigger the need to modify a CAA.


Sec.  3173.19  Effective date of a commingling and allocation approval.

    (a) If the BLM approves a CAA, the effective date of the CAA is the 
first day of the month following first production through the FMPs for 
the CAA.
    (b) If the BLM approves a modification, the effective date is the 
first day of the month following approval of the modification.
    (c) A CAA does not modify any of the terms of the leases, units, or 
CAs covered by the CAA.


Sec.  3173.20  Terminating a commingling and allocation approval.

    (a) The AO may terminate a CAA for any reason, including, but not 
limited to, the following:
    (1) Changes in technology, regulation, or BLM policy;

[[Page 81431]]

    (2) Operator non-compliance with the terms or COAs of the CAA or 
this subpart; or
    (3) The AO determines that a lease, unit, or CA subject to the CAA 
has terminated, or a unit PA subject to the CAA has ceased production.
    (b) If only one lease, unit PA, or CA remains subject to the CAA, 
the CAA terminates automatically.
    (c) An operator may terminate its participation in a CAA by 
submitting a Sundry Notice to the BLM. The Sundry Notice must identify 
the FMP(s) for the lease(s), unit PA(s), or CA(s) previously subject to 
the CAA. Termination by one operator does not mean the CAA terminates 
as to all other participating operators, so long as one of the other 
provisions of this subpart is met and the remaining operators submit a 
Sundry Notice requesting a new CAA as outlined in paragraph (e) of this 
section.
    (d) The AO will notify in writing all operators who are a party to 
the CAA of the effective date of the termination and any 
inconsistencies or deficiencies with their CAA approval that serve as 
the reason(s) for termination. The operator must correct any 
inconsistencies or deficiencies that the AO identifies, provide the 
additional information that the AO has requested, or request an 
extension of time from the AO, within 20 business days after receipt of 
the BLM's notice, or the CAA is terminated.
    (e) If a CAA is terminated, each lease, unit PA, or CA that was 
included in the CAA may require a new FMP number(s) or a new CAA. 
Operators will have 30 days to apply for a new FMP number (Sec.  
3173.12) or CAA (Sec.  3173.15), if applicable. The existing FMP number 
may be used for production reporting until a new FMP number is assigned 
or CAA is approved.


Sec.  3173.21   Combining production downhole in certain circumstances.

    (a)(1) Combining production from a single well drilled into 
different hydrocarbon pools or geologic formations (e.g., a directional 
well) underlying separate adjacent properties (whether Federal, Indian, 
State, or private), where none of the hydrocarbon pools or geologic 
formations underlie or are common to more than one of the respective 
properties, constitutes commingling for purposes of Sec. Sec.  3173.14 
through 3173.20.
    (2) If any of the hydrocarbon pools or geologic formations underlie 
or are common to more than one of the properties, the operator must 
establish a unit PA (see 43 CFR part 3180) or CA (see 43 CFR 3105.2-1-
3105.2-3), as applicable, rather than applying for a CAA.
    (b) Combining production downhole from different geologic 
formations on the same lease, unit PA, or CA in a single well requires 
approval of the AO (see 43 CFR 3162.3-2), but it is not considered 
commingling for production accounting purposes.


Sec.  3173.22  Requirements for off-lease measurement.

    The BLM will consider granting a request for off-lease measurement 
if the request:
    (a) Involves only production from a single lease, unit PA, CA, or 
CAA;
    (b) Provides for accurate production accountability;
    (c) Is in the public interest (considering factors such as BMPs, 
topographic and environmental conditions that make on-lease measurement 
physically impractical, and maximum ultimate economic recovery); and
    (d) Occurs at an approved FMP. A request for approval of an FMP 
(see Sec.  3173.12) may be filed concurrently with the request for off-
lease measurement.


Sec.  3173.23  Applying for off-lease measurement.

    To apply for approval of off-lease measurement, the operator must 
submit the following to the BLM office having jurisdiction over the 
leases, units, or communitized areas:
    (a) A completed Sundry Notice;
    (b) Justification for off-lease measurement (considering factors 
such as BMPs, topographic and environmental issues, and maximum 
ultimate economic recovery);
    (c) A topographic map or maps of appropriate scale showing the 
following:
    (1) The boundary of the lease, unit, unit PA, or communitized area 
from which the production originates; and
    (2) The location of existing or planned facilities and the relative 
location of all wellheads (including the API number for each well) and 
piping included in the off-lease measurement proposal, and existing 
FMPs or FMPs proposed to be installed to the extent known or 
anticipated;
    (d) The surface ownership of all land on which equipment is, or is 
proposed to be, located;
    (e) If any of the proposed off-lease measurement facilities are 
located on non-federally owned surface, a written concurrence signed by 
the owner(s) of the surface and the owner(s) of the measurement 
facilities, including each owner's name, address, and telephone number, 
granting the BLM unrestricted access to the off-lease measurement 
facility and the surface on which it is located, for the purpose of 
inspecting any production, measurement, water handling, or 
transportation equipment located on the non-Federal surface up to and 
including the FMP, and for otherwise verifying production 
accountability. If the ownership of the non-Federal surface or of the 
measurement facility changes, the operator must obtain and provide to 
the AO the written concurrence required under this paragraph from the 
new owner(s) within 30 days of the change in ownership;
    (f) A right-of-way grant application (Standard Form 299), filed 
under 43 CFR part 2880, if the proposed off-lease FMP is on a pipeline, 
or under 43 CFR part 2800, if the proposed off-lease FMP is a meter or 
storage tank. This requirement applies only when new surface 
disturbance is proposed for the FMP and its associated facilities are 
located on BLM-managed land;
    (g) A right-of-way grant application, filed under 25 CFR part 169 
with the appropriate BIA office, if any of the proposed surface 
facilities are on Indian land outside the lease, unit, or communitized 
area from which the production originated;
    (h) Written approval from the appropriate surface-management 
agency, if new surface disturbance is proposed for the FMP and its 
associated facilities are located on Federal land managed by an agency 
other than the BLM;
    (i) An application for approval of off-lease royalty-free use (if 
required under applicable rules), if the operator proposes to use 
production from the lease, unit, or CA as fuel at the off-lease 
measurement facility without payment of royalty;
    (j) A statement that indicates whether the proposal includes all, 
or only a portion of, the production from the lease, unit, or CA. (For 
example, gas, but not oil, could be proposed for off-lease 
measurement.) If the proposal includes only a portion of the 
production, identify the FMP(s) where the remainder of the production 
from the lease, unit, or CA is measured or is proposed to be measured; 
and
    (k) If the operator is applying for an amendment of an existing 
approval of off-lease measurement, the operator must submit a completed 
Sundry Notice required under paragraph (a) of this section, and 
information required under paragraphs (b) through (j) of this section 
to the extent the information previously submitted has changed.

[[Page 81432]]

Sec.  3173.24  Effective date of an off-lease measurement approval.

    If the BLM approves off-lease measurement, the approval is 
effective on the date that the approval is issued, unless the approval 
specifies a different effective date.


Sec.  3173.25  Existing approved off-lease measurement.

    (a) Upon receipt of an operator's request for assignment of an FMP 
number to a facility associated with an off-lease measurement approval 
existing on January 17, 2017, the AO will review the existing approved 
off-lease measurement for consistency with the minimum standards and 
requirements for an off-lease measurement approval under Sec.  3173.22. 
The AO will notify the operator in writing of any inconsistencies or 
deficiencies.
    (b) The operator must correct any inconsistencies or deficiencies 
that the AO identifies, provide any additional information the AO 
requests, or request an extension of time from the AO, within 20 
business days after receipt of the AO's notice. The extension request 
must explain the factors that will prevent the operator from complying 
within 20 days and provide a timeframe under which the operator can 
comply.
    (c) The AO may terminate the existing off-lease measurement 
approval and grant a new off-lease measurement approval with new or 
amended COAs to make the approval consistent with the requirements for 
off-lease measurement under Sec.  3173.22 in connection with approving 
the requested FMP. If the operator appeals the new off-lease 
measurement approval, the existing off-lease measurement approval will 
continue in effect during the pendency of the appeal.
    (d) If the existing off-lease measurement approval does not meet 
the standards and requirements of Sec.  3173.22 and the operator does 
not correct the deficiencies, the AO may terminate the existing off-
lease measurement approval under Sec.  3173.27 and deny the request for 
an FMP number for the facility associated with the existing off-lease 
measurement approval.
    (e) If the existing off-lease measurement approval under this 
section is consistent with the requirements under Sec.  3173.22, then 
that existing off-lease measurement is grandfathered and will be part 
of its FMP approval.
    (f) If the BLM grants a new off-lease measurement approval to 
replace an existing off-lease measurement approval, the new approval is 
effective on the first day of the month following its approval.


Sec.  3173.26  Relationship of off-lease measurement approval to 
royalty-free use of production.

    Approval of off-lease measurement does not constitute approval of 
off-lease royalty-free use of production as fuel in facilities located 
at an FMP approved under the off-lease measurement approval.


Sec.  3173.27  Termination of off-lease measurement approval.

    (a) The BLM may terminate off-lease measurement approval for any 
reason, including, but not limited to, the following:
    (1) Changes in technology, regulation, or BLM policy; or
    (2) Operator non-compliance with the terms or conditions of 
approval of the off-lease measurement approval or Sec. Sec.  3173.22 
through 3173.26.
    (b) The BLM will notify the operator in writing of the effective 
date of the termination and any inconsistencies or deficiencies with 
its off-lease measurement approval that serve as the reason(s) for 
termination. The operator must correct any inconsistencies or 
deficiencies that the BLM identifies, provide any additional 
information the AO requests, or request an extension of time from the 
AO within 20 business days after receipt of the BLM's notice, or the 
off lease measurement approval terminates on the effective date.
    (c) The operator may terminate the off-lease measurement by 
submitting a Sundry Notice to the BLM. The Sundry Notice must identify 
the new FMP(s) for the lease(s), unit(s), or CA(s) previously subject 
to the off-lease measurement approval.
    (d) If off-lease measurement is terminated, each lease, unit PA, or 
CA that was subject to the off-lease measurement approval may require a 
new FMP number(s) or a new off-lease measurement approval. Operators 
will have 30 days to apply for a new FMP number or off-lease 
measurement approval, whichever is applicable. The existing FMP number 
may be used for production reporting until a new FMP number is assigned 
or off-lease measurement is approved.


Sec.  3173.28  Instances not constituting off-lease measurement, for 
which no approval is required.

    (a) If the approved FMP is located on the well pad of a 
directionally or horizontally drilled well that produces oil and gas 
from a lease, unit, or communitized area on which the well pad is not 
located, measurement at the FMP does not constitute off-lease 
measurement. However, if the FMP is located off of the well pad, 
regardless of distance, measurement at the FMP constitutes off-lease 
measurement, and BLM approval is required under Sec. Sec.  3173.22 
through 3173.26.
    (b) If a lease, unit, or CA consists of more than one separate 
tract whose boundaries are not contiguous (e.g., a single lease 
comprises two or more separate tracts), measurement of production at an 
FMP located on one of the tracts is not considered to be off-lease 
measurement if:
    (1) The production is moved from one tract within the same lease, 
unit, or communitized area to another area of the lease, unit, or 
communitized area on which the FMP is located; and
    (2) Production is not diverted during the movement between the 
tracts before the FMP, except for production used royalty free.


Sec.  3173.29  Immediate assessments for certain violations.

    Certain instances of noncompliance warrant the imposition of 
immediate assessments upon discovery, as prescribed in the following 
table. Imposition of these assessments does not preclude other 
appropriate enforcement actions:

Table 1 to Sec.   3173.29--Violations Subject to an Immediate Assessment
------------------------------------------------------------------------
                                                            Assessment
                        Violation                           amount per
                                                          violation  ($)
------------------------------------------------------------------------
1. An appropriate valve on an oil storage tank was not             1,000
 sealed, as required by Sec.   3173.2...................
2. An appropriate valve or component on an oil metering            1,000
 system was not sealed, as required by Sec.   3173.3....
3. A Federal seal is removed without prior approval of             1,000
 the AO or AR, as required by Sec.   3173.4.............
4. Oil was not properly measured before removal from               1,000
 storage for use on a different lease, unit, or CA, as
 required by Sec.   3173.7(b)...........................

[[Page 81433]]

 
5. An FMP was bypassed, in violation of Sec.   3170.4...           1,000
6. Theft or mishandling of production was not reported             1,000
 to the BLM, as required by Sec.   3173.8...............
7. Records necessary to determine quantity and quality             1,000
 of production were not retained, as required by Sec.
 3170.7.................................................
8. FMP application was not submitted, as required by               1,000
 Sec.   3173.12.........................................
9. (i) For facilities that begin operation after January           1,000
 17, 2017, BLM approval for off-lease measurement was
 not obtained before removing production, as required by
 Sec.   3173.23.........................................
(ii) Facilities that were in operation on or before
 January 17, 2017, are subject to an assessment if they
 do not have an existing BLM approval for off-lease
 measurement.
10. (i) For facilities that begin operation after                  1,000
 January 17, 2017, BLM approval for surface commingling
 was not obtained before removing production, as
 required by Sec.   3173.15.............................
(ii) Facilities that were in operation on or before
 January 17, 2017, are subject to an assessment if they
 do not have an existing BLM approval for surface
 commingling.
11. (i) For facilities that begin operation after                  1,000
 January 17, 2017, BLM approval for downhole commingling
 was not obtained before removing production, as
 required by Sec.   3173.15.............................
(ii) Facilities that were in operation on or before
 January 17, 2017, are subject to an assessment if they
 do not have an existing BLM approval for downhole
 commingling.
------------------------------------------------------------------------

Appendix A to Subpart 3173--Examples of Site Facility Diagrams

I. Diagrams

1. Site Facility Diagrams and Sealing of Valve Introduction
2. Diagrams

------------------------------------------------------------------------
          Diagrams                           Description
------------------------------------------------------------------------
I-A........................  Gas well without separation equipment.
I-B........................  Gas well with separation equipment.
I-C........................  Single operator with co-located facilities
                              single oil tank, gas, and water storage.
I-D........................  Oil sales with multiple oil tanks, gas, and
                              water storage.
I-E........................  Co-located facilities with multiple
                              operators, oil sales by liquid meter
                              (Lease Automatic Custody Transfer or
                              Coriolis Measurement System), gas, and
                              water storage.
I-F........................  On-lease gas plant, with oil sales by
                              liquid meter, Liquefied Petroleum Gas
                              (LPG)/Natural Gas Liquids (NGL) sales by
                              liquid meter, inlet gas, tailgate gas,
                              flared or vented and plant process gas
                              used.
I-G........................  Enhanced recovery water injection or other
                              water disposal facility.
I-H........................  Pod Facility.
I-I........................  On-lease with gas measurement after the
                              Joule-Thomson Plant (JT-Skid), oil sales
                              by liquid meter, Liquefied Petroleum Gas
                              (LPG)/Natural Gas Liquids (NGL) sales by
                              liquid meter.
I-J........................  On-lease with gas measurement before the
                              Joule-Thomson Plant (JT-Skid) and oil
                              sales by liquid meter.
------------------------------------------------------------------------
Note: No FMP number required for Liquefied Petroleum Gas (LPG)/Natural
  Gas Liquids (NGL) liquid meter.

1. Site Facility Diagrams and Sealing of Valves Introduction
Introduction

    Appendix A is provided not as a requirement but solely as an 
example to aid operators, purchasers and transporters in determining 
what valves are considered ``appropriate valves'' subject to the 
seal requirements of this rule, and to aid in the preparation of 
facility diagrams. It is impossible to include every type of 
equipment that could be used or situation that could occur in 
production activities. In making the determination of what is an 
``appropriate valve,'' the entire facility must be considered as a 
whole, including the facility size, the equipment type, and the on-
going activities at the facility.

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[FR Doc. 2016-25407 Filed 11-16-16; 8:45 am]
BILLING CODE 4310-84-C