Oil and Gas and Sulphur Operations on the Outer Continental Shelf (OCS)-Suspension of Operations (SOO's) for Ultra-Deep Drilling, 7451-7455 [05-2747]

Agencies

• DEPARTMENT OF THE INTERIOR
• Minerals Management Service

[Federal Register Volume 70, Number 29 (Monday, February 14, 2005)]
[Proposed Rules]
[Pages 7451-7455]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-2747]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 250

RIN 1010-AD09


Oil and Gas and Sulphur Operations on the Outer Continental Shelf 
(OCS)--Suspension of Operations (SOO's) for Ultra-Deep Drilling

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Proposed rule.

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SUMMARY: The MMS proposes to modify its regulations at 30 CFR 250.175, 
which govern SOO's for oil and gas leases on the OCS. The proposed 
revision will allow MMS to grant SOO's to lessees or operators who plan 
to drill ultra-deep wells. MMS proposes this revision because of the 
added complexity and costs associated with planning and drilling an 
ultra-deep well. MMS expects that this revision will lead to increased 
drilling of ultra-deep wells and increased domestic production.

DATES: MMS will consider all comments received by March 16, 2005. MMS 
may not fully consider comments received after March 16, 2005.

ADDRESSES: You may submit comments on the rulemaking by any of the 
following methods listed below. Please use the RIN 1010-AD09 as an 
identifier in your message. See also Public Comment Policy under 
Procedural Matters.
     MMS's Public Connect on-line commenting system, https://
ocsconnect.mms.gov. Follow the instructions on the Web site for 
submitting comments.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions on the Web site for submitting comments.
     E-mail MMS at rules.comments@mms.gov. Use the RIN in the 
subject line.
     Fax: 703-787-1093. Identify with RIN.
     Mail or hand-carry comments to the Department of the 
Interior; Minerals Management Service; Attention: Rules Processing Team 
(RPT); 381 Elden Street, MS-4024; Herndon, Virginia 20170-4817. Please 
reference ``Oil and Gas and Sulphur Operations on the Outer Continental 
Shelf (OCS)--Suspension of Operations (SOO's) for Ultra-deep Drilling-- 
AD09'' in your comments.
    You may also send comments on the information collection aspects of 
this rule directly to the Office of

[[Page 7452]]

Management and Budget (OMB) via: OMB e-mail: (OIRA--
DOCKET@omb.eop.gov); mail or hand carry to the Office of Information 
and Regulatory Affairs, OMB Attention: Desk Officer for the Department 
of the Interior (1010-AD09) or by fax (202) 395-6566. Please also send 
a copy to MMS.

FOR FURTHER INFORMATION CONTACT: Amy C. White, Regulations and 
Standards Branch at (703) 787-1665.

SUPPLEMENTARY INFORMATION: Background
    When an oil and gas lease is issued on the OCS, the lessee has 
flexibility to schedule activities during the primary term. At the end 
of the primary term, the lease can continue in force only by 
production, suspension, drilling, or well-reworking operations as 
approved by the Regional Supervisor. MMS regulations at 30 CFR 250.172, 
250.173, and 250.175 authorize SOO's before the discovery of oil or gas 
only in limited circumstances.
    Generally, when a lease reaches the end of the primary term, the 
lessee must be producing or conducting other leaseholding operations to 
extend the lease beyond its primary term. When leaseholding operations 
are not maintaining the lease at the end of the primary term, the 
operator may request a Suspension of Production (SOP) if oil or gas was 
discovered, and if there is a commitment to proceed to development and 
production.
    Most leases have a primary term of 5 years, although a longer 
period (10 years) is provided in deep water. Some leases in 
intermediate depths have primary terms of 8 years, with a requirement 
to drill an initial well in the first 5 years. Under most 
circumstances, the primary lease term provides sufficient time to 
acquire and interpret geophysical information needed to determine the 
presence of oil or natural gas, drill a well, and for the operator to 
determine whether or not to continue with development and production. 
However, there are cases when a company recognizes that there is a 
potential hydrocarbon reservoir below 25,000 feet true vertical depth 
subsea (TVD SS). The high cost of drilling a well to such depths 
warrants completing additional data analysis before drilling.
    In 2002, MMS amended the rules at 30 CFR 250.175 (67 FR 44357, July 
2, 2002) to provide for an SOO if additional time is needed to allow a 
lessee to analyze areas beneath or adjacent to salt sheets. MMS adopted 
this provision in the belief that when a lessee conducts significant 
work, additional time may be warranted to allow the lessee to benefit 
from the work conducted. Lessees used the change to expand their 
exploration in deep areas affected by salt sheets. The rule included 
well-defined, specific criteria for determining when a lease is 
eligible for a suspension. In establishing the new provision for an 
SOO, there was some fear that the rule would be used as a means of 
avoiding diligence. Thus far, this has not been a problem--in large 
part due to the use of well-defined specific criteria for eligibility.
    While the rule issued in 2002 encouraged drilling under salt 
sheets, that rule does not address situations where salt does not 
exist. Information from industry indicates that large accumulations of 
hydrocarbons may exist at depths greater than 25,000 feet TVD SS in 
water depths less than 800 meters. Many lessees are reluctant to spend 
the money to drill to these depths without sufficient data analysis.
    The current regulations (see 30 CFR 250.175(b)) allow the lessee or 
operator to request an SOO if: (1) By the end of the third year of the 
primary term, geophysical information was gathered that indicated the 
presence of a salt sheet; (2) all or a portion of a hydrocarbon-bearing 
formation may lie beneath or adjacent to the salt sheet; and (3) the 
salt sheet interferes with identifying the potential hydrocarbon-
bearing formation. In August 2004, MMS issued NTL No. 2004-G16, 
providing additional guidance for granting SOO's to lessees or 
operators who planned to drill an ultra-deep well beneath or adjacent 
to a salt sheet. The NTL allowed the lessee or operator planning to 
drill an ultra-deep well to request the SOO if this geologic 
information was gathered by the end of the fifth year of the primary 
term, instead of at the end of the third year. In addition, the 
operator had to submit a reasonable working schedule leading to the 
commencement of drilling. This proposed rule will replace the NTL, and 
also allow the lessee or operator to request an SOO in areas where a 
salt sheet does not exist.
    Allowing a lessee additional time for this data analysis encourages 
companies to consider ultra-deep exploration. A successful development 
will generate more activity at lease sales and increase drilling on 
existing leases.
    MMS recognizes that a lessee knows the length of the lease term 
when it obtains a lease. When a lease expires, another lessee can 
acquire a new lease of the same tract and receive a new 5-year term to 
explore. MMS considered these factors, and believes that the need to 
encourage drilling to significantly deeper depths warrants the proposed 
rule change. Successful wells benefit not only the companies that 
drilled the wells, but also the public by increasing domestic energy 
sources. In addition, the drilling of successful wells will encourage 
other companies to acquire leases and to pursue ultra-deep exploration 
in U.S. waters.

Proposed Regulation

    MMS is proposing to amend the regulations that govern oil and gas 
leases to allow an SOO in limited situations to encourage drilling 
ultra-deep wells to depths of at least 25,000 feet TVD SS. This rule 
would allow lessees or operators to apply for SOO's under the following 
circumstances:
     The lease has either a 5-year primary term, or an 8-year 
primary term with a requirement to drill within the first 5 years;
     The lessee or operator has plans to drill an ultra-deep 
well (at least 25,000 feet TVD SS) on the lease;
     Before the end of the fifth year of the primary term, the 
lessee or operator must have acquired and interpreted geophysical 
information that indicates that all or a portion of a potential 
hydrocarbon-bearing formation is ultra-deep and includes full 3-D depth 
migration over the entire lease area.
     Before requesting the suspension, the lessee or operator 
has conducted, or is conducting, additional data processing or 
interpretation of the geophysical information with the objective of 
identifying a potential ultra-deep hydrocarbon-bearing formation.
     The lessee or operator demonstrates that additional time 
is necessary to complete current processing or interpretation of 
existing geophysical data or information; acquire, process, or 
interpret new geologic and/or geophysical data or information, that 
would impact the decision to drill the same geologic structure or 
stratigraphic trap; or drill into the potential hydrocarbon-bearing 
formation identified as a result of the activities conducted in 
previous paragraphs.
    Leases issued with 10-year primary terms are not included in this 
proposed rule because MMS feels that 10 years is sufficient to explore 
and develop such deep prospects.

Other Possible Solutions

    MMS considered using current regulations to grant suspensions for 
ultra-deep drilling. However, MMS determined that the current 
regulations regarding SOO's and SOP's are not adequate to address 
ultra-deep drilling in all situations. An SOP applies only when there 
is a commitment to produce

[[Page 7453]]

proven reserves, as required by 30 CFR 250.171. An SOO may be requested 
under 30 CFR 250.175(a) for situations where a delay in lease holding 
operations occurs because of situations that are beyond the control of 
the company, such as weather and accidents. If the target depth for 
potential drilling is beneath or adjacent to a salt sheet, an SOO may 
be requested under 30 CFR 250.175(b). Also, pursuant to 30 CFR 
250.180(e), NTL 2000-G22 provides for a lease term extension by 
allowing additional time beyond the 180-days between lease holding 
operations to refine subsalt imaging techniques and to process and 
interpret the imaging. None of these regulations addresses granting a 
suspension to allow for the additional time involved in the planning 
for drilling an ultra-deep well not associated with a salt sheet.
    MMS also considered longer primary lease terms as a way to provide 
more time to companies that drill to deep depths. However, when leases 
are issued it is impossible to determine which ones may be suitable for 
ultra-deep drilling.

Questions

    MMS is interested in comments on this proposed rule from any 
interested parties. The questions on which MMS seeks comments include:
     Is the proposed rule easy to read and understand?
     Is the proposed rule well organized?
    You can send your responses to these questions and other comments 
to MMS by any of the methods described in the ADDRESSES paragraph.

Procedural Matters

    Public Comment Policy: All submissions received must include the 
agency name and Regulation Identifier Number (RIN) for this rulemaking. 
Our practice is to make comments, including names and addresses of 
respondents, available for public review during regular business hours. 
Individual respondents may request that we withhold their address from 
the record, which we will honor to the extent allowable by law. There 
may be circumstances in which we would withhold from the record a 
respondent's identity, as allowable by the law. If you wish us to 
withhold your name and/or address, you must state this prominently at 
the beginning of your comment. However, we will not consider anonymous 
comments. Except for proprietary information, we will make all 
submissions from organizations or businesses, and from individuals 
identifying themselves as representatives or officials of organizations 
or businesses, available for public inspection in their entirety.

Regulatory Planning and Review (Executive Order 12866)

    This document is not a significant rule as determined by the Office 
of Management and Budget (OMB) and is not subject to review under 
Executive Order 12866.
    The major economic effect of the proposed rule would involve 
business decisions made by oil and gas producers. MMS expects that a 
project to drill an ultra-deep well will need to compete with other 
high risk projects in deep water or in other countries. By increasing 
the potential benefits resulting from drilling high risk, ultra-deep 
wells, lessees would be more likely to drill these wells in the U.S. 
instead of drilling in other high risk areas. These decisions are based 
on marginal cost and benefit differences among projects, and are driven 
by many factors. Whether this rule is issued is only one of the 
factors. Lessees or operators will not request a suspension unless it 
is in their financial interest. Therefore, this proposed rule change 
would not impose a cost on the lessee or operator.
    There are other financial considerations that would result directly 
from this proposed rule. Drilling a well to 25,000 or more feet TVD SS 
is a significant occurrence, and MMS does not anticipate an immediate 
drastic increase in drilling to that depth. This proposed rule change, 
combined with any applicable deep-gas royalty relief, would be expected 
to increase drilling activities into areas deeper than 25,000 feet TVD 
SS. Ultra-deep drilling activity is expected to gradually increase in 
subsequent years. MMS estimates that this proposal would result in 10 
suspension requests per year, averaged over the 5 years following the 
effective date of a final rule; and that most of the requests will be 
in water depths of less than 200 meters. MMS economic analysis assumes 
that a suspension will result, on average, in each suspended lease 
remaining active for 2 years longer than without the suspension.
    Of the leases in water depths of less than 200 meters that expired 
in 2000, approximately half received new bids within 2 years, with an 
average high bid of approximately $556,000. The delayed expiration of 
the leases for which SOO's are requested under this proposed change 
will result in a delay in reoffering the tracts. If the anticipated 10 
leases that would have expired without a suspension were to be offered 
in a lease sale, MMS estimates that five would receive bids at an 
average of $556,000 per lease, for a total of $2,780,000. This proposed 
rule is estimated to result in a 2-year delay in the receipt of that 
$2,780,000 in bonus revenues.
    However, this delay in receiving re-leasing revenues would be 
partially offset by increased government revenue due to the continued 
collection of rents. The extra rent generated by the anticipated 
suspended leases will be $500,000 ($5.00 rent per acre x 5,000 acres x 
10 leases x 2 years). The greater potential effect of this proposed 
rule is the additional royalties collected if large reservoirs of 
hydrocarbons are discovered in ultra-deep areas, as well as the effect 
of success on bonuses and rents in future lease sales.
    The presently quantifiable effects of this proposed rule are small 
compared to the potential for an increase in energy production. There 
are more than 3,000 active leases in water depths less than 200 meters. 
In any given year, this change is expected to affect less than 0.35 
percent of those leases. The main effect of this proposed rule would be 
the potential impact on energy and domestic production if a large 
reservoir of hydrocarbons is discovered.
    (1) This proposed rule would not have an annual effect of $100 
million or more on the economy. It would not adversely affect in a 
material way the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, or tribal 
governments or communities.
    (2) This proposed rule would not create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency. 
Issuance of a suspension for a lease does not interfere with the 
ability of other agencies to exercise their authority.
    (3) This proposed rule would not alter the budgetary effects of 
entitlements, grants, user fees, or loan programs or the rights or 
obligations of their recipients. This change will have no effect on the 
rights of the recipients of entitlements, grants, user fees, or loan 
programs.
    (4) This proposed rule would not raise novel legal or policy 
issues.

Regulatory Flexibility (RF) Act

    The Department certifies that this proposed rule would not have a 
significant economic effect on a substantial number of small entities 
under the RF Act (5 U.S.C. 601 et seq.).
    This proposed change would affect lessees and operators of leases 
in the OCS. This includes about 130 different companies. These 
companies are generally classified under the North

[[Page 7454]]

American Industry Classification System (NAICS) code 211111, which 
includes companies that extract crude petroleum and natural gas. For 
this NAICS code classification, a small company is one with fewer than 
500 employees. Based on these criteria, an estimated 70 percent of 
these companies are considered small. This proposed rule, therefore, 
would affect a substantial number of small entities.
    This proposed rule would not create a cost to any small companies, 
since it provides a suspension only when one is requested. Small 
companies could be affected by the delay in the expiration of leases 
and the availability of the tract to be leased again. As discussed 
earlier, this would be a very small portion of the available leases. 
The proposed rule would not affect the ability of a small company to 
participate in OCS exploration, development, and production.
    Comments are important. The Small Business and Agriculture 
Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were 
established to receive comments from small business about Federal 
agency enforcement actions. The Ombudsman will annually evaluate the 
enforcement activities and rate each agency's responsiveness to small 
business. If you wish to comment on the actions of MMS, call 1-888-734-
3247. You may comment to the Small Business Administration without fear 
of retaliation. Disciplinary action for retaliation by an MMS employee 
may include suspension or termination from employment with the 
Department of the Interior.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

    This is not a major rule under the SBREFA (5 U.S.C. 804(2)). This 
proposed rule:
    (a) Would not have an annual effect on the economy of $100 million 
or more.
    (b) Would not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions.
    (c) Would 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.
    This proposed rule is not expected to have a significant effect. As 
discussed under procedural matters, Regulatory Planning and Review 
(Executive Order 12866), each year this change is estimated to increase 
rental receipts by $500,000, offsetting a 2-year delay in receipt of 
$2,780,000 in bonus revenues. This amount is not a significant effect 
for companies that do business on the OCS.

Paperwork Reduction Act (PRA) of 1995

    The PRA provides that an agency may not conduct or sponsor a 
collection of information unless it displays a currently valid OMB 
control number. Until OMB approves a collection of information and 
assigns a control number, you are not required to respond. The 
revisions to 30 CFR part 250 subpart A refer to, but do not change, 
information collection requirements in current regulations. OMB has 
approved the referenced information collection requirements under OMB 
control number 1010-0114, current expiration date of October 31, 2007. 
The proposed rule would impose no new paperwork requirement, and an OMB 
form 83-I submission to OMB under the PRA is not required.

Federalism (Executive Order 13132)

    With respect to Executive Order 13132, the proposed rule would not 
have Federalism implications. It would not substantially and directly 
affect the relationship between the Federal and State governments. To 
the extent that State and local governments have a role in OCS 
activities, this proposed change would not affect that role.

Takings (Executive Order 12630)

    With respect to Executive Order 12630, the proposed rule would not 
have significant Takings implications. A Takings Implication Assessment 
is not required. The rulemaking is not a governmental action capable of 
interfering with constitutionally protected property rights.

Energy Supply, Distribution, or Use (Executive Order 13211)

    This is not a significant rule and is not subject to review by OMB 
under Executive Order 13211. The proposed rule may potentially increase 
energy supplies, but given the uncertainty associated with the drilling 
of successful wells, the effect on energy supply, distribution, or use 
is not considered to be significant at this time. Thus, a Statement of 
Energy Effects is not required.

Civil Justice Reform (Executive Order 12988)

    With respect to Executive Order 12988, the Office of the Solicitor 
has determined that this proposed rule would not unduly burden the 
judicial system, and meets the requirements of sections 3(a) and 
3(b)(2) of the Executive Order.

National Environmental Policy Act (NEPA) of 1969

    MMS analyzed this proposed rule using the criteria of the NEPA and 
516 Departmental Manual, Chapter 2, and concluded that the preparation 
of an environmental analysis which would result in the issuance of a 
FONSI or the preparation of an environmental impact statement would not 
be required.

Unfunded Mandate Reform Act (UMRA) of 1995 (Executive Order 12866)

    This proposed rule would not impose an unfunded mandate on State, 
local, or tribal governments or the private sector of more than $100 
million per year. The proposed rule would not have a significant or 
unique effect on State, local, or tribal governments or the private 
sector. A statement containing the information required by the UMRA (2 
U.S.C. 1531 et seq.) is not required. This is because the proposal 
would not affect State, local, or tribal governments, and the effect on 
the private sector is small.

List of Subjects in 30 CFR Part 250

    Continental shelf, Environmental impact statements, Environmental 
protection, Government contracts, Investigations, Mineral royalties, 
Oil and gas development and production, Oil and gas exploration, Oil 
and gas reserves, Penalties, Pipelines, Public lands--mineral 
resources, Public lands--right-of-way, Reporting and recordkeeping 
requirements, Sulphur development and production, Sulphur exploration, 
Surety bonds.

    Dated: February 2, 2005.
Rebecca W. Watson,
Assistant Secretary--Land and Minerals Management.
    For the reasons stated in the preamble, MMS proposes to amend 30 
CFR 250 as follows:

PART 250--OIL AND GAS AND SULPHUR OPERATIONS IN THE OUTER 
CONTINENTAL SHELF

    1. The authority citation for Part 250 continues to read as 
follows:

    Authority: 43 U.S.C. 1331, et seq.
    2. In Sec.  250.175, add a new paragraph (c) to read as follows:


Sec.  250.175  When may the Regional Supervisor grant an SOO?

* * * * *
    (c) The Regional Supervisor may grant an SOO for drilling below 
25,000 feet true vertical depth, subsea (TVD SS),

[[Page 7455]]

when all of the following conditions are met:
    (1) The lease was issued with a primary lease term of:
    (i) 5 years; or
    (ii) 8 years with a requirement to drill within 5 years.
    (2) Before the end of the fifth year of the primary term, you or 
your predecessor in interest must have acquired and interpreted 
geophysical information that:
    (i) Indicates that all or a portion of a potential hydrocarbon-
bearing formation lies below 25,000 feet TVD SS; and
    (ii) Includes full 3-D depth migration over the entire lease area.
    (3) Before requesting the suspension, you have conducted or are 
conducting additional data processing or interpretation of the 
geophysical information with the objective of identifying a potential 
hydrocarbon-bearing formation below 25,000 feet TVD SS.
    (4) You demonstrate that additional time is necessary to:
    (i) Complete current processing or interpretation of existing 
geophysical data or information;
    (ii) Acquire, process, or interpret new geophysical and/or 
geological data or information that would impact the decision to drill 
the same geologic structure or stratigraphic trap, as determined by the 
Regional Supervisor, identified in paragraphs (c)(2) and (c)(3) of this 
section; or
    (iii) Drill into the potential hydrocarbon-bearing formation 
identified as a result of the activities conducted in paragraphs 
(c)(2), (c)(3), and (c)(4) of this section.

[FR Doc. 05-2747 Filed 2-11-05; 8:45 am]
BILLING CODE 4310-MR-P