[Federal Register Volume 61, Number 44 (Tuesday, March 5, 1996)]
[Proposed Rules]
[Pages 8537-8538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4975]
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DEPARTMENT OF THE INTERIOR
Bureau of Land Management
43 CFR Chapter II
[WO-310-3110-02 1A]
Promotion of Development, Reduction of Royalty for Marginal Gas
Properties
AGENCY: Bureau of Land Management, Interior.
ACTION: Notice of request for information and suggestions regarding an
incentive for producers of marginal gas from Federal leases.
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SUMMARY: The Bureau of Land Management (BLM) is seeking public comments
and suggestions on a possible incentive for producers of marginal gas
from Federal leases. The incentive would encourage continued production
through a possible reduction in Federal royalties for producers of
marginally economic gas properties. If the comments indicate that such
a reduction in royalties is warranted and will result in a greater
ultimate recovery of gas resources (without a net loss in revenues to
the states and/or the Federal government), the BLM will initiate a
public outreach program in order to discuss comments and suggestions
received as a result of this request. Based upon those meetings, the
BLM will prepare a proposed rule for subsequent publication.
DATES: Written comments should be received on or before June 3, 1996.
ADDRESSES: Dr. John W. Bebout, Senior Technical Specialist, Bureau of
Land Management (WO-301), 1849 C Street, NW, Washington, D.C. 20240.
FOR FURTHER INFORMATION CONTACT: Dr. John W. Bebout (BLM) (202) 452-
0340.
SUPPLEMENTARY INFORMATION: The United States has a vast and diverse
natural gas resource base. In their 1992 study entitled The Potential
for Natural
[[Page 8538]]
Gas in the United States, the National Petroleum Council (NPC)
concluded that the technically recoverable natural gas resource base is
1,295 trillion cubic feet (TCF) for the lower 48 states. Of this
amount, 600 TCF was believed to be recoverable in the future at a
wellhead price of $2.50 per million British thermal unit (1990
dollars). According to the NPC (Marginal Wells, July 1994), however,
the wellhead price on a current basis trended upward to a high of $2.66
per thousand cubic feet (MCF) during the 1974-1984 period and has
declined to around $1.60-$1.80 per MCF over the last eight years.
There is a legitimate concern that low gas prices will result in
premature abandonment of the marginal properties with the concurrent
loss of potentially recoverable reserves as well as royalties, taxes
and employment opportunities. A 1992 study by the Interstate Oil and
Gas Compact Commission estimated that there were approximately 215,000
idle or shut-in oil, gas and injection wells in the United States at
that time. The NPC believes that as many as 50 percent of these wells
are gas and injection wells. While some of these wells are undoubtedly
shut-in or temporarily abandoned while waiting for pipeline
connections, a large portion of these gas wells are idle because they
are uneconomical to produce as a result of low producing rates, low gas
prices and/or high operating costs (NPC, Marginal Wells, July 1994).
It is clear that whatever combination of price and cost factors
currently define the economic limit of a marginal gas well, production-
based incentives will improve gas well economics and extend their
lives. Because premature abandonment of marginal wells results in the
loss of domestic reserves, such incentives may be the only way to
maintain the economic viability of the production and resources that
these wells represent.
Comments and suggestions on a reduction in Federal royalties should
concentrate not only on the value of a royalty rate reduction for
producers of marginal gas, but also on how the royalty rate reduction
might best be implemented. Respondents should particularly consider the
following issues:
1. The need for economic relief for marginal gas properties.
Respondents, both for and against the proposal, should document any
economic arguments to the extent practicable. The documentation should
include all economic assumptions used for estimated costs, profits,
effects on employment, etc. The BLM would especially appreciate
detailed source citations for verification and reference.
2. A workable definition of a ``marginal'' gas property. Before its
repeal, the Natural Gas Policy Act of 1978 defined a ``stripper'' gas
well as one producing 60,000 cubic feet of gas or less per day (MCF/D).
For Minerals Management Service accounting purposes, however, any
proposal for royalty reductions should be based on a property (i.e.,
units, communitization agreements, leases, etc.) rather than a well-by-
well basis.
3. Discouraging false reporting and manipulation. Proposals should
describe measures to discourage manipulation of production rates in
order to qualify for a royalty reduction. In addition, it would be
useful to the BLM if respondents would suggest possible requirements
for qualification and the time frames for subsequent qualification
periods, if applicable.
4. Minimal administrative burden. All proposals should be designed
in a manner which minimizes the administrative burden placed upon the
government and private industry. For example, consideration might be
given to a notification process rather than a formal application
process.
5. Minimal Program Overlap. When preparing proposals, special
consideration should be given to avoiding overlap with existing
programs such as the Heavy Oil and Stripper Property royalty rate
reductions.
Dated: February 26, 1996.
Sylvia V. Baca,
Deputy Assistant Secretary of the Interior.
[FR Doc. 96-4975 Filed 3-4-96; 8:45 am]
BILLING CODE 4310-84-P
