01-8852. Oil and Gas Leasing: Onshore Oil and Gas Operations

AGENCY:

Bureau of Land Management, Interior.

ACTION:

Final rule; partial further delay of effective date and request for comments.

SUMMARY:

In accordance with the memorandum of January 20, 2001, from the Assistant to the President and Chief of Staff, entitled “Regulatory Review Plan,” 66 FR 7701 (January 24, 2001), the Bureau of Land Management (BLM) temporarily delayed for 60 days until April 10, 2001, the effective date of the rule entitled “Oil and Gas Leasing: Onshore Oil and Gas Operations,” published in the Federal Register on January 10, 2001 (66 FR 1883). This action partially delays the April 10, 2001, effective date published in the Federal Register on February 8, 2001 (66 FR 9527), by delaying the effective date for 120 days of 43 CFR 3162.2-7 of the final rule. It also delays for 120 days removal of current 43 CFR 3162.2(a). We do so in order to seek further public comments.

DATES:

The effective date for removal of 43 CFR 3162.2(a) and the addition of 43 CFR 3162.2-7, originally published in the Federal Register on January 10, 2001 (66 FR 1892-1893), delayed until April 10, 2001, in the Federal Register on February 8, 2001 (66 FR 9527), is further delayed for 120 days until August 8, 2001, for the purpose of seeking further public comments. You may submit comments on or before June 11, 2001.

ADDRESSES:

If you wish to comment, you may submit comments by any one of these methods:

(1) You may mail comments to the Bureau of Land Management, Administrative Record, 1849 “C” Street, NW, Room 401LS, Washington, D.C. 20240.

(2) You may deliver comments to Room 401, 1620 L Street, NW, Washington, D.C. 20036.

(3) You may also comment via the Internet to [e-mail]. Please submit comments as an ASCII file avoiding the use of special characters and any form of encryption. Please also include “ATTN: AC54” and your name and return address in your Internet message. If you do not receive a confirmation from the system that we have received your Internet message, contact us directly at [phone].

FOR FURTHER INFORMATION CONTACT:

Donnie Shaw, Fluid Minerals Group, Bureau of Land Management, Mail Stop 401LS, 1849 “C” Street, NW, Washington, D.C. 20240; telephone [phone] (Commercial or FTS). Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8330, 24 hours a day, seven days a week, except holidays, for assistance in reaching Mr. Shaw.

SUPPLEMENTARY INFORMATION:

To the extent that 5 U.S.C. 553 applies to this action, the action is exempt from notice and comment because it constitutes a rule of procedure under 5 U.S.C. 553(b)(A). Alternatively, the Department's implementation of this action without opportunity for public comment, effective immediately upon publication today in the Federal Register, is based on the good cause exceptions in 5 U.S.C. 553(b)(3)(B) and 553(d)(3), in that seeking public comment is impractical, unnecessary and contrary to the public interest inasmuch as it cannot be accomplished before April 10, 2001. However, the Department is seeking public comment on whether further rulemaking to modify the promulgated rule is needed. The effective date was delayed for 60 days with a new effective date of April 10, 2001, to give Department officials the opportunity for further review and consideration of new regulations, consistent with the Assistant to the President's memorandum of January 20, 2001. The Department is further delaying the effective date of two discrete provisions to permit further review, consideration, and public comments on the addition of § 3162.2-7 published on January 10, 2001. The provisions of § 3162.2-7, concerning the joint and several liability of multiple lessees or operating rights owners for drainage protection, including compensatory royalties, were the subject of intense debate during the notice and comment period on this rule. The BLM is delaying the effectiveness of this provision, and retaining in effect for another 120 days the current provision of § 3162.2(a) concerning the duty of operating rights owners to protect the lessor against drainage, in order to consider further comments on these issues from the regulated industry, Indian mineral owners, State, local and Tribal governments, and members of the general public.

Commenters raised a serious legal issue as to the compatibility of the joint and several provisions of § 3162.2-7 with provisions of the Royalty Simplification and Fairness Act. The Secretary wants to permit the public an opportunity to present more extensive legal argument as to whether it is correct to interpret the Royalty Simplification and Fairness Act to not apply to compensatory royalty payments because they are not royalties or payment obligations, but damages for nonperformance of an obligation to drill a protective well. See the legal analysis at 63 FR 1937 and 66 FR 1886.

We particularly encourage the public to respond to the following questions:

1. Should the obligation to drill a protective well be considered a joint and several liability of the holders of operating rights? If the duty to drill a protective well is not joint and several, what proportion of the interest holders in the lease must be unable or unwilling to contribute to the cost of the well to justify a refusal of the operator or operating rights owner to drill a protective well?

2. If the obligation to drill a protective well is joint and several among operating rights owners, does BLM's acceptance of compensatory royalties in satisfaction of that obligation convert the obligation into a “payment obligation” owed pro rata under the Royalty Simplification and Fairness Act? Was the Royalty Simplification and Fairness Act intended to cover compensatory royalty payments?

3. If one or more parties who hold undivided interest in the record title or operating rights for the same lease do not exercise due diligence in fulfilling its share of drainage obligations for that lease, who should be responsible for compensating the Government for those unfulfilled obligations?

4. Does the treatment of the drainage protection obligation as a joint and several obligation affect the willingness of investors to acquire operating rights interests in a lease? Does it affect the willingness of lessees to retain an interest in record title when transferring operating rights to another party?

5. Does the classification of the drainage obligation as joint and several, or proportionate to interest, depend on whether it involves an Indian lease rather than a Federal lease? Can BLM adopt a rule, consistent with the Secretary's trust responsibilities, under which an Indian mineral lessor receives less than full compensation for the royalty value of oil and gas drained without a protective well being drilled pursuant to the terms of the lease, because some interests in the lease are held by persons who are insolvent or otherwise do not contribute toward the compensation?

6. What provisions would you suggest concerning record title owner and operating rights owner lease liability to protect the public interest?

Dated: April 5, 2001.

Piet deWitt,

Acting Assistant Secretary, Land and Minerals Management.