On July 13,2015, the Bureau of Land Management (BLM) published proposed regulations in the FEDERAL REGISTER that would update how it measures, accounts, and calculates royalty payments for oil and gas produced on Indian and federal lands. To provide some perspective on the importance of these proposed regulations, we note that BLM reports that in FY 2014, “Leases on tribal and Indian lands produced 56 million barrels of oil, 240 billion cubic feet of natural gas, 182 million gallons of natural gas liquids, with a market value of over $6 billion and generating royalties of over $1 billion that were all distributed to the applicable tribes and individual allottee owners.” Comments are due by September 11, 2015.
Why Updated Regulations Are Needed. The BLM said that the updates are needed because the current regulations were written in 1989 and do not reflect technological industry advancements such as horizontal drilling. Also, a 2015 Government Accountability Office (GAO) report concluded that management of federal oil and gas resources was a high-risk area because the Interior Department did not have reasonable assurance that it was collecting its share of revenue from oil and gas produced on federal lands and waters. GAO-15-290. Two GAO reports in 2015 and 2014 concluded that the Interior Department needed to take action to ensure a better return on federal oil and gas resources. GAO-15-39, GAO-14-50. According to Assistant Secretary Janice M. Schneider, “These updates will help ensure that oil and gas produced from leases overseen by the BLM is properly measured, that American taxpayers receive fair value for public resources, and that Indian tribes and allottees, states and local governments receive the full royalties they are due.”
The Proposed Rule Would:
• Establish uniform procedures for designating official points for oil and gas measurement for royalty accounting purposes, known as facility measurement points, that are applicable to new and existing leases;
• Codify existing guidance related to approving commingling, i.e., the combining of production from multiple leases, unit Participating Areas (PA), Communitized Areas (CA), or fee or State properties before the point of royalty measurement;
• Establish conditions for the approval of off-lease oil and gas measurement;
• Update requirements related to the use of valve and drain seals, prohibitions on the use of meter by-passes, and reporting requirements;
• Require operators of new and existing oil and gas facilities to provide new site facility diagrams designed to help BLM meet its oversight responsibilities; and
• Require purchasers and transporters to comply with the same standards as operators with respect to records.
Tribal Consultation. Prior to the publication of the proposed rule, the BLM consulted with Indian tribes in Tulsa, Oklahoma, Farmington, New Mexico, and Billings, Montana in 2011 as well as a 2013 tribal workshop and webcast.
A copy of the proposed rule is here: http://www.gpo.gov/fdsys/pkg/FR-2015-07-13/pdf/2015-16737.pdf Please contact us if you would like further information on the proposed rule or would like assistance in providing comments to the Bureau of Land Management.