Oil and Gas Leasing; National Petroleum Reserve-Alaska, 6430-6444 [E8-1647]

Agencies

• DEPARTMENT OF THE INTERIOR
• Bureau of Land Management
• Land Management Bureau

[Federal Register Volume 73, Number 23 (Monday, February 4, 2008)]
[Rules and Regulations]
[Pages 6430-6444]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-1647]


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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Part 3130

[WO-310-1310-PP-241A]
RIN 1004-AD78


Oil and Gas Leasing; National Petroleum Reserve--Alaska

AGENCY: Bureau of Land Management, Interior.

ACTION: Final rule.

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SUMMARY: The Bureau of Land Management (BLM) is amending its 
regulations at 43 CFR part 3130 pertaining to oil and gas resources in 
the National Petroleum Reserve--Alaska (NPR-A). The rule makes oil and 
gas administrative procedures in NPR-A consistent with Section 347 of 
the Energy Policy Act of 2005. The rule amends the administrative 
procedures for the efficient transfer, consolidation, segregation, 
suspension, and unitization of Federal leases in the NPR-A. The rule 
also changes the way the BLM processes lease renewals, lease 
extensions, lease expirations, lease agreements, exploration 
incentives, lease consolidations, and termination of administration for 
conveyed lands in the NPR-A. Finally, the rule makes the NPR-A 
regulation on additional bonding consistent with the regulations that 
apply outside of the NPR-A.

DATES: This rule is effective March 5, 2008.

ADDRESSES: Further information or questions regarding this final rule 
should be addressed in writing to the Director (WO-300), Bureau of Land 
Management, 1849 C St., NW., Washington DC 20240.

FOR FURTHER INFORMATION CONTACT: Greg Noble, Chief, Energy Branch, the 
BLM's Alaska State Office at (907) 267-1429 or Ian Senio at the BLM's 
Division of Regulatory Affairs at (202) 452-5049. Persons who use a 
telecommunications device for the deaf (TDD) may contact these persons 
through the Federal Information Relay Service (FIRS) at 1-800-877-8339, 
24 hours a day, 7 days a week, to leave a message or question with the 
above individuals. You will receive a reply during normal business 
hours.

SUPPLEMENTARY INFORMATION:

I. Background
II. Discussion of the Final Rule and Responses to Comments on the 
Proposed Rule
III. Procedural Matters

I. Background

    Part 3130 of 43 Code of Federal Regulations (CFR) contains the 
regulations that apply to oil and gas leasing in the NPR-A authorized 
under the Naval Petroleum Reserves Production Act of 1976, as amended 
(NPRPA), (42 U.S.C. 6501 et seq.).
    On April 11, 2002 (67 FR 17866), the BLM published a final rule 
that applies to operations under Federal oil and gas leases in NPR-A 
and added a new subpart allowing the formation of oil and gas units in 
the NPR-A.
    On August 8, 2005, the President signed the Energy Policy Act of 
2005 (EPAct of 2005) (Pub. L. 109-58). Section 347 of the EPAct of 2005 
amends the NPRPA. These amendments require that the BLM revise our 
existing regulations on:
    (A) Lease extensions and renewals;
    (B) Participation in oil and gas units;
    (C) Production allocation;
    (D) Termination of administration of conveyed mineral estate; and
    (E) Waiver, suspension, and reduction of rental or minimum royalty 
or reduction of the royalty rate.
    On May 22, 2007, the BLM published a proposed rule to amend 
existing regulations pertaining to oil and gas resources in the NPR-A 
(72 FR 28636). This final rule is substantially the same as the 
proposed rule. However, the final rule differs in some respects from 
the proposed rule. Some changes are the result of public comment on the 
proposed rule, and others are to make the rule clearer and more 
consistent with the EPAct of 2005.

II. Discussion of the Final Rule and Responses to Comments on the 
Proposed Rule

Section 3130.0-3 Authority

    This final rule amends the authority section by adding a reference 
to the Energy Policy Act of 2005 (Pub. L.109-58) in a new paragraph 
(d). We received no substantive comment on this section and it remains 
as proposed.

Section 3130.0-5 Definitions

    The EPAct of 2005 uses three terms that we also use in this final 
rule. All three terms are used in the provisions having to do with the 
methodology for allocating production among committed tracts in a unit 
in the NPR-A (see section 3137.23(g)). If the unit included non-Federal 
land, the methodology must take into account reservoir heterogeneity 
and area variation in reservoir producibility. This section of the rule 
defines the terms ``production allocation methodology,'' ``reservoir 
heterogeneity,'' and ``variation in reservoir producibility'' in a 
manner consistent with normal usage in the field. In the final rule we 
revised the definitions of ``production allocation methodology'' and 
``variation in reservoir producibility'' based on a commenter's 
suggestions. The definition of ``reservoir heterogeneity'' remains as 
proposed.
    One commenter suggested modifying the definition of ``production 
allocation methodology'' to make it clear that all production from a 
participating area would be allocated to committed tracts forming the 
participating area. We agree that the suggested modification provides 
added clarity and in the final rule revised the definition based on 
this comment.
    The commenter also suggested changing the definition for 
``variation in reservoir producibility'' by deleting the sentence, 
``This can be dependent on where the well penetrates the reservoir'', 
and replacing it with ``These differences can result from variations in 
the thickness of the reservoir, porosity, and the amount of connected 
pore space.'' We accept the comment and

[[Page 6431]]

have revised the definition in the final rule.

Section 3133.3 Under what circumstances will BLM waive, suspend, or 
reduce the rental or minimum royalty or reduce the royalty rate on my 
NPR-A lease?

    The EPAct of 2005 addresses the circumstances under which the BLM 
would consider waiving, suspending, or reducing the rental or minimum 
royalty or reducing the royalty rate on an NPR-A lease. This rule 
amends the existing regulations by revising paragraphs (a) and (a)(2) 
to state that the BLM could waive, suspend, or reduce the rental or 
minimum royalty or reduce the royalty rate on an NPR-A lease if it was 
necessary to promote development or the BLM determined that the lease 
could not be successfully operated under the terms of the lease.
    Also, as a result of changes made to the NPRPA by the EPAct of 
2005, this rule changes existing paragraph (b) by requiring the BLM to 
consult with the State of Alaska and the North Slope Borough within 10 
days of receiving an application for waiver, suspension, or reduction 
of rental or minimum royalty or reduction of the royalty rate. Under 
new paragraph (b), the BLM would not approve an application for these 
benefits (under Sec.  3133.4) until at least 30 days after the 
consultation is completed.
    This rule adds a new paragraph (c) to this section. Under this new 
paragraph, if a lease included land that was made available for 
acquisition by a regional corporation (as defined in 43 U.S.C. 1602) 
under Section 1431(o) of the Alaska National Interest Lands 
Conservation Act (16 U.S.C. 3101 et seq.), the BLM would only approve a 
waiver, suspension, or reduction of rental or minimum royalty or a 
reduction of the royalty rate if the regional corporation concurred. 
This change is necessary because the EPAct of 2005 requires concurrence 
from the regional corporation prior to approval of these actions.
    One commenter expressed support for the changes in section 3133.3 
that allow the BLM to waive, suspend, or reduce the rental, royalty, or 
minimum royalty on an NPR-A lease if the BLM believes it is needed to 
promote development. The commenter believes that some exploration and 
development incentives will be necessary for the successful development 
of the NPR-A.
    In the final rule we revised sections 3133.3 and 3133.4 to be 
consistent with the NPRPA and the EPAct of 2005. Both Acts specifically 
grant the Secretary the authority to waive, suspend, or reduce the 
rental or minimum royalty, or to reduce the royalty rate on NPR-A 
leases. Neither Act grants the Secretary authority to waive or suspend 
the royalty on NPR-A leases, as the current and proposed regulations 
state, and the final rule makes this clear.

Section 3133.4 How do I apply for a waiver, suspension or reduction of 
rental or minimum royalty or a reduction of the royalty rate for my 
NPR-A lease?

    Under this rule, existing paragraphs (a)(6) and (a)(7) have new 
requirements that an applicant who is applying for a waiver, 
suspension, or reduction of rental or minimum royalty or a reduction of 
the royalty rate demonstrate that the waiver, suspension, reduction of 
the rental or minimum royalty or a reduction of the royalty rate 
encourages the greatest ultimate recovery of oil or gas or it is in the 
interest of conservation, and all the facts demonstrate that the 
applicant cannot successfully operate the lease under its terms. These 
new requirements are the result of changes that the EPAct of 2005 made 
to NPRPA.
    This rule also makes a minor editorial change to existing paragraph 
(a)(6) (new paragraph (a)(7)) by replacing ``can't'' with ``cannot.''
    In addition to the revision discussed in section 3133.3, in the 
final rule we also revised section 3133.4(a)(5) by adding language from 
previous section 3133.4(a)(7) concerning providing to the BLM, as part 
of the application, the amount of overriding royalty and payments out 
of production or other similar interests applicable to the lease. While 
not specifically listed in the proposed rule, this information would 
have been required under section (a)(5) or (a)(8) of the proposed rule, 
but we have included it in the final rule to make it clear that this 
information is needed in order for BLM to complete an evaluation of the 
``expenses and costs'' of operating the lease. The changes are not 
significant and do not change the meaning or effect of the regulations. 
We have also made a grammatical correction to proposed sections 
3133.4(a)(6) and (a)(7) by deleting the second ``that'' in the first 
sentence of each section. These edits have no substantive effect on the 
regulation.

Section 3134.1-2 Additional Bonds

    Changes to the existing paragraph (a) on additional bonding allow 
the BLM to require additional bonding for all NPR-A leases, not only 
leases in special areas, using the criteria of section 3104.5(b) of the 
existing regulations. This rule adds a cross reference to existing 
section 3104.5(b), which allows the BLM to require an increase in the 
amount of any NPR-A lease bond if the BLM determined that the operator 
posed a risk due to factors, including, but not limited to:
    (A) A history of previous violations;
    (B) A notice from the Minerals Management Service (MMS) that there 
are uncollected royalties due; or
    (C) The total cost of plugging existing wells and reclaiming lands 
exceeds the present bond amount based on the estimates determined by 
the BLM.
    The previous regulations only allow the BLM to increase the bonding 
amount in the Special Areas as defined in the NPRPA. This rule allows 
the BLM to increase the bonding amount on all NPR-A leases and would 
make the NPR-A oil and gas regulations consistent with the regulations 
that currently apply to Federal oil and gas leases outside of the NPR-A 
We received no substantive comment on this section and it remains as 
proposed.

Section 3135.1-4 Effect of Transfer of a Tract

    This rule revises paragraph (a) of this section to make the 
existing provisions clearer. This would not change the meaning or 
intent of this paragraph.
    This rule revises the provisions on segregation in paragraph (b) of 
this section by changing the standard that the BLM applies when 
determining if a segregated lease should continue in full force and 
effect. The existing standard is that a segregated lease remains in 
full force and effect if the BLM determines that oil and gas is being 
produced in paying quantities from that segregated portion of the lease 
area or so long as drilling or well reworking operations, either actual 
or constructive, are being conducted. The new standard is that a lease 
continues in full force and effect as long as the activities on the 
segregated lease support lease extension under the regulations in 
section 3135.1-5. That section is revised by this rule as well and it 
is discussed further below. We received no substantive comment on this 
section and it remains as proposed.

Section 3135.1-5 Extension of Lease

    Existing regulations on lease extensions require that the BLM 
extend the term of a lease beyond its primary term so long as:
    (A) Oil or gas is produced from the lease in paying quantities; or
    (B) Drilling or reworking operations, actual or constructive, as 
approved by the BLM, are being conducted on the lease.
    This rule adds a new condition to paragraph (a) of this section 
under

[[Page 6432]]

which the BLM would grant a lease extension in cases where the BLM has 
determined in writing that oil or gas is capable of being produced in 
paying quantities from the lease.
    The rule amends existing paragraph (a) by breaking it into 
subparagraphs so that it is easier to read. The last sentence of 
paragraph (a) is rewritten to make it clear that the BLM approves 
drilling or reworking operations, actual or constructive, rather than 
the Secretary.
    This rule also adds a new paragraph (b) to this section that 
explains that NPR-A leases expire on the 30th anniversary of the 
original issuance date of the lease unless oil or gas is being produced 
in paying quantities from the lease. The new paragraph further explains 
that if a lease contains a well that is capable of production, but the 
lease does not produce the oil or gas due to circumstances beyond the 
lessee's control, the lessee may apply for a suspension under section 
3135.2. If the BLM approved the suspension, the lease would not expire 
on the 30th anniversary of the original issuance date of the lease. 
These changes are in response to changes to NPRPA made by the EPAct of 
2005.
    This rule amends what is now paragraph (c) (paragraph (b) of the 
existing regulation) by making it clear that the directional wells 
discussed in that paragraph are the BLM-approved directional wells. 
This is a clarification of existing practice.
    One commenter supported the proposed change to this section that 
provides for lease extensions based on a well that is capable of 
producing oil or gas in paying quantities. Another commenter suggested 
revising section 3135.1-5 to make it clear that leases that are part of 
a unit can be extended as described in existing subpart 3137. While it 
is true that leases committed to a unit can be extended under sections 
3137.10 and 3137.111, we did not modify final section 3135.1-5 as the 
commenter suggested. We believe, as the commenter implies, that 
existing regulations address the issue of extensions of leases 
committed to a unit. The commenter was also concerned about how leases 
that are only partially within a unit may be extended. All portions of 
a lease have the same expiration date and benefit equally from 
extensions. If a lease is segregated, the segregated portion of the 
lease would likely have different lease terms than the ``parent'' 
lease. The regulations do not address segregation of leases as a result 
of unitization. If segregation is appropriate it is addressed in the 
unit agreement. If segregation occurs, sections 3135.1-4 through 
3135.1-6 describe how the segregated, non-unit lease may be extended or 
renewed.

Section 3135.1-6 Lease Renewal

    This rule would add a new section on lease renewals to the existing 
NPR-A regulations that is based on changes the EPAct of 2005 made to 
the NPRPA. The EPAct of 2005 and this section address lease renewals in 
two parts: those leases that have a discovery of hydrocarbons and those 
leases that do not have a discovery.
    With a Discovery. Under this section, at any time after the fifth 
year of the primary term of a lease, the BLM could approve a 10-year 
lease renewal for a lease on which there has been a well drilled and a 
discovery of hydrocarbons, even if the BLM had determined that the well 
is not capable of producing oil or gas in paying quantities. Under this 
section the BLM must receive the lessee's application for lease renewal 
no later than 60 days prior to the expiration of the primary term of 
the lease.
    This section requires that the renewal application provide 
evidence, and a certification by the lessee, that the lessee has 
discovered oil or gas on the leased lands in such quantities that a 
prudent operator would hold the lease for potential future development.
    Under this section, the BLM approves applications if it determines 
that a discovery was made and that a prudent operator would hold the 
lease for future development. The BLM may approve the lease renewal on 
the condition that the lessee drills one or more additional wells or 
acquires and analyzes more well data, seismic data, or geochemical 
survey data prior to the end of the primary term of the lease.
    Under this section lease renewals are effective on the day 
following the end of the primary term of the lease.
    Without a Discovery. Under this section, at any time after the 
fifth year of the primary term of a lease, the BLM could approve an 
application for a 10-year lease renewal for a lease on which there has 
not been a discovery of oil or gas. The BLM must receive the lessee's 
application no later than 60 days prior to the expiration of the 
primary term of the lease.
    Under this rule, the renewal application must:
    (A) Provide sufficient evidence that the lessee has diligently 
pursued exploration that warrants continuation of the lease with the 
intent of continued exploration or future potential development of the 
leased land. The application must show the lessee has drilled one or 
more wells or acquired seismic or geochemical data indicating a 
probability of future success, and the application must include a plan 
for future exploration; or
    (B) Show that all or part of the lease is part of a unit agreement 
covering a lease that qualifies for renewal without a discovery and 
that the lease has not been previously contracted out of the unit.
    Under this section the BLM approves renewal applications if it 
determines that the application satisfied the requirements of paragraph 
(b)(2)(A) or (B) of this section. If the BLM approved the application 
for lease renewal, the applicant would be required to submit to the BLM 
a fee of $100 per acre within 5 business days of receiving notification 
of the renewal approval.
    Lease renewals are effective on the day following the end of the 
primary term of the lease. The BLM may approve the lease renewal on the 
condition that the lessee drills one or more additional wells or 
acquires and analyzes more well data, seismic data, or geochemical 
survey data prior to the end of the primary term of the lease.
    The renewed lease is subject to the terms and conditions applicable 
to new oil and gas leases issued under the Integrated Activity Plan in 
effect on the date that the BLM issues the decision to renew the lease.
    One commenter supported the renewal provisions in section 3135.1-6, 
but suggested defining the term ``discovery'' and offered a definition. 
We did not define the term ``discovery'' in the final rule based on 
this comment. We believe section 3135.1-6(a)(2) adequately describes 
what is necessary for the BLM to consider a request for lease renewal 
``with a discovery.'' We did revise this section to indicate that the 
discovery well(s) could be drilled by the lessee or the operator. Under 
this final rule, discovery wells must be drilled on the lease after 
lease issuance. This makes it clear that the wells can be drilled by 
the lessee as operator or another operator designated by the lessee.

Section 3135.1-7 Consolidation of Leases

    This rule revises the consolidation provisions in existing 
regulations having to do with the term of a consolidated lease. Under 
the existing regulations, the term of a consolidated lease is extended 
beyond the primary term of the lease only as long as oil or gas is 
produced in paying quantities or approved constructive or actual 
drilling or reworking operations are conducted on the lease. Under 
paragraph (d) of this rule, the term of consolidated leases are 
extended or renewed, as appropriate, under the extension or renewal

[[Page 6433]]

provisions of the regulations. The change recognizes that the new 
standards in the extension and renewal provisions of this rule apply to 
consolidated leases.
    This rule amends paragraph (e) of the existing regulation by making 
it clear that the highest of the royalty or rental rates of any 
original lease apply to the consolidated lease. This is consistent with 
existing policy and practice.
    In the final rule we revised section 3135.1-7(e). The proposed rule 
stated that ``The highest of the royalty or rental rates of any 
original lease shall apply to the consolidated lease.'' The final rule 
says ``The highest royalty and rental rates of the original leases 
shall apply to the consolidated lease.'' The revision makes the final 
rule clearer, but has no effect on the intent of the proposed rule.

Section 3135.1-8 Termination of Administration for Conveyed Lands and 
Segregation

    This rule adds a new section concerning the waiver of 
administration for conveyed lands in a lease. This new section is 
necessary because of changes that the EPAct of 2005 made to the NPRPA. 
Under this new section, the BLM is required to terminate administration 
of any oil and gas lease if all of the mineral estate is conveyed to a 
regional corporation. The regional corporation would then assume the 
lessor's obligation to administer any oil and gas lease.
    This section explains that if a conveyance of the mineral estate 
does not include all of the land covered by an oil and gas lease, the 
lease would be segregated into two leases, one of which will cover only 
the mineral estate conveyed. The regional corporation would assume 
administration of the lease within the conveyed mineral estate.
    Under this rule, if the regional corporation assumed administration 
of a lease under paragraph (a) or (b) of this section, all lease terms, 
the BLM regulations, and the BLM orders in effect on the date of 
assumption would continue to dictate the lessee's obligations under the 
lease.
    All such obligations will be enforceable by the regional 
corporation as the lessor until the lease terminates.
    In a case in which a conveyance of a mineral estate described in 
paragraph (b) of this section does not include all of the land covered 
by the oil and gas lease, a person who owns part of the mineral estate 
covered by the lease is entitled to the revenues associated with its 
mineral rights, including all royalties resulting from oil and gas 
produced from or allocated to that part of the mineral estate. We 
received no substantive comment on this section and with the exception 
of replacing ``Arctic Slope Regional Corporation'' and ``ASRC'' with 
``regional corporation'' (see the discussion of final section 3137.11 
for an explanation of this change), it remains as proposed.

Section 3137.5 What terms do I need to know to understand this subpart?

    This rule makes one change to the definition of ``participating 
area'' by replacing the word ``contain'' with the phrase ``are proven 
to be productive by.'' Existing regulations imply that every committed 
tract within a participating area must contain a well that meets the 
productivity criteria specified in the unit agreement. The rule makes 
it clear that the participating area consists of tracts that have been 
proven productive by a well meeting the productivity criteria, but that 
not every committed tract in the participating area would necessarily 
contain a well meeting the productivity criteria. We received no 
substantive comment on this section and it remains as proposed.

Section 3137.11 What consultation must BLM perform if lands in the unit 
area are owned by a regional corporation or the State of Alaska?

    This rule adds a new section on consultation if lands in a unit are 
owned by a regional corporation or the State of Alaska. This section is 
based on changes that the EPAct of 2005 made to the NPRPA. The new 
section requires that if the BLM administers a unit containing tracts 
where the mineral estate is owned by a regional corporation or the 
State of Alaska, or if a proposed unit contains tracts where the 
mineral estate is owned by a regional corporation or the State of 
Alaska, the BLM will consult with and provide opportunities for 
participation with respect to the creation or expansion of the unit by:
    (A) A regional corporation, if the unit acreage contains the 
regional corporation's mineral estate; or
    (B) The State of Alaska, if the unit acreage contains the state's 
mineral estate.
    The EPAct of 2005 requires that the BLM provide opportunity for 
participation by the State of Alaska or the regional corporation in the 
creation and expansion of units if those units include acreage in which 
the State of Alaska or the regional corporation has an interest in the 
mineral estate. If a proposed oil and gas unit included lands where one 
or both of these entities owned an interest in the mineral estate, the 
BLM will require the unit proponent to allow the State of Alaska and/or 
the regional corporation to participate in the negotiations of the unit 
agreement terms and the unit agreement area. This allows the State of 
Alaska and the regional corporation to protect their interests in the 
unit agreement before they commit their tracts to the unit.
    Similarly, if a unit expansion is proposed, and the existing unit 
or the acreage included in the expansion included lands in which the 
State of Alaska or a regional corporation owned a mineral interest, the 
State of Alaska or the regional corporation will participate in the 
negotiation of the terms of the expanded unit and in the determination 
of the expanded unit area. ``Participation'' in this case does not mean 
sharing of revenues or production. Instead, the term means 
participation by the regional corporation or the state, as applicable, 
in the process of government oversight, through consultation, of the 
unit's creation or expansion.
    The BLM received two comments addressing proposed section 3137.11. 
One commenter suggested that the BLM should incorporate language in the 
regulations that would give the BLM the option to request that the 
regional corporation and/or the State of Alaska join the unit 
agreement, as negotiated by the BLM, if the non-federal ownership 
comprises less than 10% of the surface acreage of the proposed unit. We 
made no changes to the final rule as a result of this comment. The 
EPAct of 2005 requires the BLM to provide non-federal entities 
opportunities for participation in the creation and expansion of units 
and does not condition this requirement on the percentage of lands 
involved.
    Another commenter noted that this ``opportunity for participation'' 
has the potential to complicate unit negotiations, but conceded that 
this would be the case with any unit agreement involving multiple 
mineral owners. We agree that having more parties participating in 
negotiating the initial terms of a unit agreement or the modified terms 
necessary to expand a unit has the potential to complicate 
negotiations, but we made no changes to the final rule as a result of 
this comment. The EPAct of 2005 created a statutory requirement for a 
process that would have been necessary in almost any case. While it is 
the BLM's responsibility to consult with and provide non-federal 
mineral owners an opportunity to participate in unit negotiations 
involving the creation and expansion of units, it will be the 
responsibility of the proposed unit operator to propose terms in the 
unit agreement that are acceptable to the mineral interests involved if 
commitment of those mineral interests

[[Page 6434]]

is necessary for the unit operator to have effective control of unit 
operations. The BLM will not approve a unit unless the proposed unit 
operator has sufficient commitment of mineral interests to demonstrate 
effective control of the unitized area. At any point after the non-
federal mineral owners have had the opportunity to negotiate unit 
terms, the BLM will review the agreement, if it is submitted by a 
qualified unit operator. The BLM will approve the unit agreement if the 
unit operator will have effective control of the unit area, it is in 
the interest of conservation of the natural resources, it is determined 
to be necessary or advisable in the public interest, it meets all 
mandatory terms described in these regulations, and it complies with 
all special conditions that may be in effect for the NPR-A.
    The same commenter requested clarification as to who would be the 
administrator of a unit agreement and suggested that the rule state 
that the BLM will be the administrator of a unit if a well drilled on a 
BLM lease leads to the application for a unit. The location of the 
initial well or well leading to the application for a unit does not 
determine who will administer the unit and we did not revise this 
section as a result of this comment. If the BLM approves a unit, the 
BLM will be the administrator of the unit and subpart 3137 will apply. 
The BLM can also commit lands to a unit administered by the State and/
or regional corporation as provided for in section 3137.15.
    One commenter suggested that all references to ``Arctic Slope 
Regional Corporation'' be changed to ``regional corporation'' to 
conform to other references in the regulations. We agree and have made 
these changes in the final rule.

Section 3137.21 What must I include in an NPR-A unit agreement?

    The rule makes one minor change to section 3137.21(a)(3) by 
replacing the word ``proposed'' with the word ``anticipated.'' Existing 
regulations assume that in all cases the applicant would be in a 
position to propose the participating area size and well locations at 
the application stage. The wording change recognizes that at the early 
application stage in the process an applicant may not be able to 
propose the participating area size or anticipated well locations. 
Using the word ``anticipated'' instead of ``proposed'' better reflects 
on-the-ground circumstances.
    This rule adds a new paragraph (a)(5) to this section that requires 
unit agreements that contain the regional corporation's mineral estate 
or the state's mineral estate to acknowledge that, with respect to 
those two entities, the BLM consulted with them and provided 
opportunities for participation in the creation of the unit and that 
the BLM will consult with them and provide opportunities for 
participation in the expansion of the unit, as appropriate. Existing 
regulations do not contain this consultation requirement, which is now 
necessary due to changes to NPRPA made by the EPAct of 2005.
    This rule also makes a minor editorial change to existing paragraph 
(a)(5) (renumbered paragraph (a)(6)) by adding ``that'' between 
``subpart'' and ``you.''
    We received one comment on section 3137.21. The commenter wanted to 
confirm that, by approving the unit agreement, the BLM would be 
simultaneously ratifying the statement required by section 
3137.21(a)(5), (i.e., acknowledgement that the BLM consulted with and 
provided opportunities to the State of Alaska and/or the regional 
corporation for participation in the creation of the unit and that the 
BLM will consult with and provide opportunities to the State of Alaska 
and/or the regional corporation for participation in the expansion of 
the unit when state and/or regional corporation mineral estate is 
involved). We did not revise the final rule as a result of this 
comment, but we agree with the commenter that, by approving the unit 
agreement, the BLM would be confirming that the requirements of section 
3137.21(a)(5) have been met.

Section 3137.23 What must I include in my NPR-A unitization 
application?

    This rule adds to the existing regulation a provision requiring in 
the unit application a discussion of the proposed methodology for 
allocating production among the committed tracts. If the unit includes 
non-Federal oil and gas mineral estate, new paragraph (g) requires that 
the application explain how the methodology would take into account 
reservoir heterogeneity and area variation in reservoir producibility. 
These changes are necessary because of changes that the EPAct of 2005 
made to the NPRPA. Also, as discussed earlier, the terms ``reservoir 
heterogeneity'' and ``variation in reservoir producibility'' are 
defined in section 3130.0-5 of this rule. We received no substantive 
comment on this. We made one grammatical change to this section by 
revising existing paragraph (d) to make it grammatically correct.

Section 3137.41 What continuing development obligations must I define 
in a unit agreement?

    This rule amends the section on continuing development obligations 
by requiring that a unit agreement provide for the submission of 
supplemental or additional plans of development which obligate the 
operator to a program of exploration and development. The existing 
regulations require that the unit agreement actually obligate the 
operator to a program of exploration and development. The change 
recognizes that at the early stages of a unit agreement, an operator 
would not be able to identify the program of exploration and 
development and therefore it might not be possible for an operator to 
commit to one at that time. The rule allows an operator to submit plans 
of development later in the process, allowing the operator to collect 
additional data prior to requiring the operator to obligate itself to a 
program of exploration and development. We received no substantive 
comment on this section and it remains as proposed.

Section 3137.80 What are participating areas and how do they relate to 
the unit agreement?

    This rule makes two changes to this section. The first change 
revises paragraph (a) of the section by replacing ``that contain'' with 
``that are proven to be productive by.'' The existing regulations imply 
that every committed tract within a participating area must contain a 
well that meets the productivity criteria specified in the unit 
agreement. The revision makes it clear that a participating area 
contains committed tracts in a unit area that are proven to be 
productive by a well meeting the productivity criteria specified in the 
unit agreement, but that not every committed tract in the participating 
area would necessarily contain a well meeting the productivity 
criteria.
    The second change this rule makes is to paragraph (b) of this 
section. Under the new rule, an applicant is required to include ``a 
description of the anticipated participating area(s) size in the unit 
agreement'' rather than merely stating that the unit area ``contain'' a 
well meeting the productivity criteria (see existing section 
3137.80(a)). This change makes it clear that the application must 
contain a description of the anticipated participating area size. We 
received no substantive comment on this section and it remains as 
proposed.

[[Page 6435]]

Section 3137.81 What is the function of a participating area?

    The rule revises paragraph (a) of this section by changing how the 
BLM allocates production, for royalty purposes, to each committed tract 
within the participating area. Under existing regulations, the BLM 
allocates to each committed tract within the participating area in the 
same proportion as that tract's surface acreage in the participating 
area to the total acreage in the participating area. Under this rule, 
the BLM allocates production for royalty purposes to each committed 
tract within the participating area using the allocation methodology 
agreed to in the unit agreement (see section 3137.23(g)). This change 
allows for variations in the reservoir geology and producibility when 
calculating allocations for royalty purposes. We received no 
substantive comment on this section and it remains as proposed.

Section 3137.85 What is the effective date of a participating area or 
modified allocation schedule?

    This rule revises paragraph (b) of this section by changing how the 
BLM determines the effective date of a modified participating area or 
modified allocation schedule. Under existing regulations, the effective 
date of a modified participating area or modified allocation schedule 
is the earlier of the first day of the month in which you: (1) Complete 
a new well meeting the productivity criteria; or (2) Should have known 
you need to revise the allocation schedule. Under this rule, the 
effective date of a modified participating area or allocation schedule 
is the earlier of the first day of the month in which you file a 
proposal for modification or such other date as may be provided in the 
unit agreement. It has been common practice with oil and gas units 
administered by the State of Alaska to allow for an earlier effective 
date when participating areas or allocation schedules are modified.
    The rule allows the BLM to approve an earlier effective date of the 
participating area, if it is warranted, consistent with the approach 
that the State of Alaska takes. Under this rule, rather than just 
determining a fair, current allocation of a revised participating area, 
the BLM is able to approve an effective date back in time. This allows 
corrections of past, errant allocations rather than just moving forward 
with a fair allocation from the time new information is acquired. This 
method of ``backward-looking'' reallocation creates a greater 
administrative workload for the BLM and the MMS, but it is the superior 
approach because it allows for corrections of allocations that were 
incorrect and helps to ensure that parties to the unit are treated 
equitably. We received no substantive comment on this section and it 
remains as proposed.

Section 3137.111 When will BLM extend the primary term of all leases 
committed to a unit agreement or renew all leases committed to the 
unit?

    This rule revises this section by adding lease renewals to this 
section and referencing the rule governing extensions (43 CFR 3135.1-
5). The EPAct of 2005 addresses lease renewals and provides for a 
renewal fee of $100 per acre for each lease in the unit that is renewed 
without a discovery under 43 CFR 3135.1-6 of this rule. Renewals are 
addressed under 43 CFR 3135.1-6 of this rule. This section incorporates 
those changes in this section of the NPR-A unit regulations. As a 
result of these changes and because the EPAct of 2005 addresses 
extensions and lease renewals, existing section 3137.111 is superseded 
by the statutory provisions that this rule implements. We received no 
substantive comment on this section and it remains as proposed.

Section 3137.131 What happens if the unit terminated before the unit 
operator met the initial development obligations?

Section 3137.134 What happens to committed leases if the unit 
terminates?

    These two existing sections address what happens to leases in a 
unit in the event a unit terminates. This rule revises these sections 
by adding the option of a lessee applying for a renewal upon unit 
termination and by adding a cross-reference to the lease renewal 
provisions in these final regulations. We received no substantive 
comments on these sections, but made minor changes to the final rule to 
make it clear that it is not enough to qualify for extension or renewal 
but that the BLM had to have granted the extension or renewal.

III. Procedural Matters

Executive Order 12866, Regulatory Planning and Review

    In accordance with the criteria in Executive Order 12866, this rule 
is not a significant regulatory action. The Office of Management and 
Budget makes the final determination under Executive Order 12866.
    a. This rule will not have an annual economic effect of $100 
million or adversely affect an economic sector, productivity, jobs, the 
environment, or other units of government (see below). A cost-benefit 
and economic analysis is not required.
    b. This rule will not create inconsistencies with other agencies' 
actions. These rule changes are administrative in nature and will not 
effect other agencies' actions. There are provisions in the rule that 
require the BLM to consult with or request concurrence from the state, 
North Slope Borough, or the regional corporation before approving 
certain actions. These provisions are to the benefit of these other 
agencies because they help ensure that their rights are protected. 
These provisions will more than likely help ensure that the actions 
taken under this rule would not create inconsistencies with those 
agencies' actions.
    c. This rule will not materially affect entitlements, grants, user 
fees, loan programs, or the rights and obligations of their recipients. 
The one fee this rule implements (lease renewals without a discovery) 
is a per-acre fee mandated by Congress. As stated below, when compared 
to the scope and cost of operations in NPR-A, this fee is not 
significant.
    d. This rule will not raise novel legal or policy issues. All of 
the NPR-A oil and gas regulation changes that this rule implements are 
currently addressed similarly in other existing BLM regulations or 
policies.
    The following discusses the potential impacts of the rule changes:

Waiver, Suspension, or Reduction of the Rental or Minimum Royalty or 
Reduction of the Royalty Rate

    The rule adds a provision that allows the BLM to waive, suspend, or 
reduce the rental or minimum royalty or reduce the royalty rate on an 
NPR-A lease if it is necessary to promote development or the BLM 
determines that the lease can not be successfully operated under the 
terms of the lease. The BLM will not allow for any of these to take 
place unless it is necessary to promote development or if we determine 
that the lease can not be successfully operated under the terms of the 
lease.
    Operators will benefit from this provision since they will be able 
to continue to operate their leases. The Federal Government will 
benefit since producible wells will not be shut in and the Federal 
Government will continue to receive revenue from wells that might 
otherwise be shut in, which may result in waste of Federal oil and gas. 
Furthermore, since this provision may reduce the risk of investment to 
lessees, it may result in higher bonus bids for new leases. State, 
local and tribal governments and communities will be positively 
affected since wells that

[[Page 6436]]

would under other circumstances be shut in, will continue to produce, 
providing jobs and revenues to local areas. Any impacts on the economy, 
productivity, competition or jobs are anticipated to be positive, but 
they are too speculative to predict.
    Also, as a result of changes made to the NPRPA by the EPAct of 
2005, the rule changes existing regulations by requiring the BLM to 
consult with the State of Alaska and the North Slope Borough within 10 
days of receiving an application for waiver, suspension, or reduction 
of rental or minimum royalty or reduction of royalty. This provision 
could increase costs slightly for the BLM, the State of Alaska, and the 
North Slope Borough because under this rule these parties will be 
involved in consultation that is currently not required. However, 
consultation will help ensure that the rights of the state and the 
North Slope Borough are protected.
    The rule adds a new provision to the regulations stating that if a 
lease includes land that is made available for acquisition by a 
regional corporation under the Alaska National Interest Lands 
Conservation Act, the BLM will only approve a waiver, suspension, or 
reduction of rental or minimum royalty or a reduction of the royalty 
rate if the regional corporation concurs. This change is necessary 
because the EPAct requires concurrence from the regional corporation 
prior to approval of these actions. Concurrence by the regional 
corporation is not currently required. Therefore, this provision could 
minimally increase administrative costs for the Federal Government and 
for the regional corporation; however, requiring concurrence would help 
ensure that the rights of the regional corporation are protected.

Additional Bonding

    Changes to the bonding regulations allow the BLM to require 
additional bonding under certain circumstances. The existing 
regulations only allow BLM to increase the bonding amount in the 
Special Areas as defined in the NPRPA. This rule allows the BLM to 
require an increase in the amount of an NPR-A lease bond for any NPR-A 
lease if the BLM determines that the operator poses a risk due to 
factors, including, but not limited to:
    (A) A history of previous violations;
    (B) A notice from the MMS that there are uncollected royalties due; 
or
    (C) The total cost of plugging existing wells and reclaiming lands 
exceeds the present bond amount based on the estimates determined by 
the BLM.
    The rule change makes the existing regulations on bonding of NPR-A 
leases consistent with the Mineral Leasing Act regulations that 
currently apply to Federal oil and gas leases outside of the NPR-A. The 
BLM has used this authority on lands leased under the Mineral Leasing 
Act. The increases have most often been based on the significant 
liabilities that an operator has under a single bond. Under these 
circumstances, the average bond increase has been about 200 percent. 
While it is not possible, at this time, to predict how much any 
specific bond amount might be increased once this provision is 
effective, increasing an area-wide NPR-A bond ($300,000) by 200 percent 
would make the increased bond amount $900,000. This is more consistent 
with bonding of other agencies on the North Slope than is the area-wide 
bond amount under existing regulations. For example, the State of 
Alaska requires bonding of $700,000 for multiple oil wells and the MMS 
requires bonding of $3,000,000 for offshore development.
    This provision will economically impact only those operators who 
have a history of previous violations, those who have uncollected 
royalties that are due, and those who have leases where the total cost 
of plugging existing wells and reclaiming lands exceeds the present 
bond amount based on the estimates determined by the BLM. We expect the 
economic impact to these operators to be minimal when compared to the 
value of an oil and gas lease in the NPR-A, and when compared to the 
additional protection the Federal Government and Federal lands will 
receive.
    A typical development in NPR-A is expected to produce approximately 
20,000 barrels per day or 7,300,000 barrels per year. With a market 
price of $60 per barrel\1\ in the lower 48 states and approximately $8 
in transportation costs per barrel to get the oil from NPR-A to the 
lower 48 states, the wellhead price would be approximately $52 per 
barrel.
---------------------------------------------------------------------------

    \1\ According to the Alaska Department of Revenue, Tax Division, 
the per-barrel price for oil between January 2005 and April 2006 
fluctuated between $41.12 and $67.74 per barrel. We cannot predict 
price fluctuations in the future; however, $60 represents an 
estimate of average prices expected.
---------------------------------------------------------------------------

    A typical bond amount for a lease in the NPR-A is approximately 
$300,000. Raising the bonding requirement from $300,000 to $900,000, 
makes the annual bonding fee the operator will pay go from 
approximately $3,000 per year to $9,000 per year (the cost of a surety 
bond is approximately 1% per year), an increase of $6,000 per year.
    How does that compare to other costs the operator faces? The 
transportation cost to get the production to the lower 48 states is 
approximately $58,400,000 per year. Receipts at the wellhead are 
approximately $379,600,000 per year. The lifting costs are about 
$33,000,000. Royalties are approximately $47,450,000 per year. We 
anticipate that a $6,000 increase in costs per year will have minimal 
impact on the operator.

Effect of Transfer of a Tract-Segregation

    This rule changes the standard that the BLM applies when 
determining if a segregated lease should continue in full force and 
effect. The existing standard is that a segregated lease remains in 
full force and effect if the BLM determines that oil and gas is being 
produced in paying quantities from that segregated portion of the lease 
area or so long as drilling or well reworking operations, either actual 
or constructive, are being conducted. The new standard is that a lease 
will continue in full force and effect as long as oil or gas is 
produced or is capable of being produced from the lease in paying 
quantities or drilling or reworking operations, actual or constructive, 
as approved by the BLM, are being conducted on the lease. We anticipate 
that this rule change will have the same economic impact as discussed 
under the ``Lease Extension'' and ``Lease Renewal'' sections since the 
segregated lease will be able to be extended or renewed based on the 
same criteria used for all NPR-A leases.

Lease Extension

    Existing regulations on lease extensions require that the BLM 
extend the term of a lease beyond its primary term so long as:
    (A) Oil or gas is produced from the lease in paying quantities; or
    (B) Drilling or reworking operations, actual or constructive, as 
approved by the BLM, are being conducted on the lease.
    This final rule adds a new condition under which the BLM will grant 
a lease extension in cases where the BLM has determined that oil or gas 
is capable of being produced in paying quantities from the lease.
    This rule also adds a new provision that explains that NPR-A leases 
expire on the 30th anniversary of the original issuance date of the 
lease unless oil or gas is being produced from the lease. This 
provision is required by the EPAct of 2005.
    Prior to the EPAct of 2005, NPR-A lease terms were fixed at 10 
years. Longer lease terms as a result of extensions are preferable 
since there are harsh climatic conditions and a short

[[Page 6437]]

``winter only'' exploration window in the NPR-A that make it difficult 
to operate in that region. Extensions of lease terms allow operators 
additional time to deal with these conditions. Under the existing 
regulations, the long lead time between exploration and production on 
the North Slope (6-8 years) reduces the incentive for operators to 
explore on leases with less than 6-8 years left in their primary term. 
The new rule provides incentives for operators to continue exploration 
in the later years of the primary term of the lease. The timeframe for 
bringing a gas discovery to production is even longer. Without a gas 
pipeline to the North Slope, operators currently have little incentive 
to explore in gas-prone areas or to further delineate gas discoveries. 
The new rule may have the effect of increasing the value of the NPR-A 
leases, increasing the level of exploration activity, and increasing 
the likelihood of eventual production from NPR-A leases. The value of 
these benefits, if any, is too speculative to predict. These changes 
also have minor administrative savings and economic benefit to 
operators and to the Federal Government since lessees will not be 
required to file for lease extensions as frequently and since the 
Federal Government will not be required to process those lease 
extensions.

Lease Renewal

    This final rule adds a new section on lease renewals based on 
changes the EPAct of 2005 made to the NPRPA. The rule addresses lease 
renewals in two parts: those leases that have a discovery of 
hydrocarbons and those leases that do not have a discovery.
    With a Discovery. Under this section, the BLM may approve a 10-year 
lease renewal for a lease on which there has been a well drilled and a 
discovery of hydrocarbons, even if the BLM had determined that the well 
is not capable of producing oil or gas in paying quantities. This 
section requires that the applicant provide evidence that oil or gas 
has been discovered on the leased lands in such quantities that a 
prudent operator would hold the lease for potential future development. 
This regulatory change is required by the EPAct of 2005.
    The economic impact of this provision will be positive. Existing 
regulations do not provide for lease renewals, but do provide for lease 
extensions if there is actual production or as long as drilling and 
reworking operations are being conducted. This provision allows for 
lease renewal for a 10-year term if a discovery was made and a prudent 
operator would hold the lease for future development. This provision 
provides an incentive for an operator to explore, even if there is not 
enough time to meet the current conditions for lease extensions. This 
change allows the lessee another 10 years to explore and develop the 
lease without having to compete for the lease again in a subsequent 
lease sale. Leases in the NPR-A typically are either 5,760 or 11,520 
acres and the average high bid is approximately $70 per acre. The 
Federal Government may be foregoing between $400,000 and $800,000 for 
each of these lease renewals, since lessees who were granted a lease 
renewal would not be required to compete for a new lease for the same 
lands. In exchange for this ``opportunity cost'' the lease has a much 
greater likelihood of being developed and developed sooner.
    It is also possible that without the option of renewal, the lease 
which has been explored without a paying well discovery would have less 
value and not receive bids in the next sale. In this case, the United 
States would lose the value of lease rental ($60,000-$150,000 per 
year). Lease bonuses and lease rentals are both lesser considerations 
for the United States in realizing the value of leased lands, however. 
The value of potential production from an NPR-A lease far exceeds 
either of these revenue streams. A typical North Slope development 
produces about 20,000 barrels of oil per day. At a $60 per barrel oil 
price, the United States would collect between $45 and $60 million 
dollars per year in royalties. If the renewals make the likelihood of 
development greater, the identified ``opportunity costs'' are viewed as 
beneficial to the United States.
    Furthermore, this could reduce risk of investment to the lessee, 
which may increase bonus bids on future leases.
    Without a Discovery. Under this section, the BLM could approve an 
application for a 10-year lease renewal for a lease on which there has 
not been a discovery of oil or gas.
    Under this rule, the renewal application must:
    (A) Provide sufficient evidence that the lessee has diligently 
pursued exploration that warrants continuation of the lease with the 
intent of continued exploration or future potential development of the 
leased land; or
    (B) Show that all or part of the lease is part of a unit agreement 
covering a lease that qualifies for renewal without a discovery and 
that the lease has not been previously contracted out of the unit.
    If the BLM approves an application for lease renewal, the applicant 
will be required to submit to the BLM a fee of $100 per acre within 5 
working days of receiving notification of the renewal approval. This 
fee is mandated by the EPAct of 2005.
    As discussed above, existing regulations do not allow for lease 
renewals, only lease extensions if there is actual production or as 
long as drilling and reworking operations are being conducted. This new 
provision allows for lease renewal without a discovery under certain 
circumstances and would require that lessees pay a fee of $100 per acre 
for the renewal. The economic impact of this provision will be minimal. 
As with lease renewal with a discovery, this provision provides the 
lessee with incentive to explore, even if there is not sufficient time 
to take actions to qualify for a lease extension. As discussed above, 
the cost to obtain the lease in a subsequent sale will likely be around 
$70 per acre. The new rule allows the lessee to retain the lease 
without competition or the risk of loss of the lease, for a cost above 
what it might cost in a competitive lease sale, but it allows the 
operator to seamlessly pursue exploration. This is likely to have the 
effect of accelerating the eventuality of bringing the lease into 
production. It is also possible, as discussed above, that without the 
option of renewal the lease which has been explored without a discovery 
would have less value and not receive bids in the next sale. In this 
case the United States would lose the value of lease rental ($60,000-
$150,000 per year). Furthermore, nothing compels a lessee to apply for 
a lease renewal and pay the per acre fee. If the lessee believes the 
lease may be valuable, but not worth $100 per acre, he can relinquish 
the lease and try to obtain it at a lower price in a subsequent 
competitive lease sale. Operators may still apply for lease extensions 
under the revised provisions of this rule. Operators may also apply for 
a renewal under other provisions of this rule and avoid paying the fee 
by a discovery and a showing that a prudent operator would hold the 
lease for future development.
    The new rule has the effect of allowing the government to be 
compensated for the lease without having the administrative costs of 
conducting a new lease sale. The new rule also increases the likelihood 
of production and royalty payments at an earlier date. The value of 
potential production from an NPR-A lease far exceeds the value of lease 
bonuses. A typical North Slope development produces about 20,000 
barrels of oil per day. At a $60 per barrel oil price, the United 
States would collect between

[[Page 6438]]

$45 and $60 million dollars per year in royalties.
    This provision could lower the risk of investment to the lessee and 
possibly result in higher bonus bids at future lease sales. Like other 
changes this rule makes, any benefits of this provision are too 
speculative to predict.

Lease Consolidation

    This rule revises the consolidation provisions in existing 
regulations having to do with the term of a consolidated lease. Under 
existing regulations, the term of a consolidated lease is extended 
beyond the primary term of the lease only as long as oil or gas is 
produced in paying quantities or approved constructive or actual 
drilling or reworking operations are conducted on the lease. Under this 
rule, the term of a consolidated lease will be extended or renewed, as 
appropriate, under the extension or renewal provisions of the 
regulations. The change recognizes that the new standards in the 
extension and renewal provisions of this rule apply to consolidated 
leases. We expect that this rule change will have the same economic 
impacts as discussed under the ``Lease Extension'' and ``Lease 
Renewal'' sections above, i.e., it could have the effect of increasing 
the value of the NPR-A leases, increasing the level of exploration 
activity, increasing the likelihood of production from NPR-A leases, 
and increasing future bonus bids.

Termination of Administration for Conveyed Lands and Segregation

    This rule adds a new section concerning the waiver of 
administration for conveyed lands in a lease. This new section is 
necessary because of changes that the EPAct of 2005 made to the NPRPA. 
Under this new section, the BLM is required to terminate administration 
of any oil and gas lease if all of the mineral estate is conveyed to a 
regional corporation. The regional corporation would then assume the 
lessor's obligation to administer any oil and gas lease. This provision 
does not provide the authority to convey the mineral estate to the 
regional corporation, only that once a conveyance is made, the BLM 
would no longer administer any oil and gas lease. This change will have 
a minor positive economic impact on the Federal Government because 
costs for administration of these types of leases would no longer be 
borne by the BLM. Under this final rule, the regional corporation would 
be responsible for administration and likewise be responsible for 
administrative costs.
    This section explains that if a conveyance of the mineral estate 
does not include all of the land covered by an oil and gas lease, the 
lease would be segregated into two leases, one of which will cover only 
the mineral estate conveyed. The regional corporation would assume 
administration of the lease within the conveyed mineral estate. The 
segregation of a lease would not impair the mineral estate owners' 
rights to royalties for oil and gas produced from, or allocated to, 
their portions of land covered by the lease. This provision is purely 
administrative in nature and will have a minimal economic impact. We 
expect that it will decrease administrative costs for the Federal 
Government and increase the administrative costs to regional 
corporations for leases that have been conveyed.

Change to the Definition of Participating Area

    This rule makes one change to the definition of ``participating 
area'' by replacing the word ``contain'' with the phrase ``are proven 
to be productive by.'' Existing regulations are not clear that a 
committed tract does not need to contain a well that meets the 
productivity criteria specified in the unit agreement. Instead, a unit 
well meeting the productivity criteria proves that the committed tract 
is productive. This change has no economic impact since this change 
merely clarifies existing policy.

Consultation If Lands in the Unit Area Are Owned by the Regional 
Corporation or the State of Alaska

    This rule adds a new section on consultation if lands in a unit are 
owned by a regional corporation or the State of Alaska. This section is 
based on changes that the EPAct of 2005 made to the NPRPA. The new 
section requires that if the BLM administers a unit containing tracts 
where the mineral estate is owned by a regional corporation or the 
State of Alaska, or if a proposed unit contains tracts where the 
mineral estate is owned by a regional corporation or the State of 
Alaska, the BLM will consult with and provide opportunities for 
participation with respect to the creation or expansion of the unit by:
    (A) The regional corporation, if the unit acreage contains the 
regional corporation's mineral estate; or
    (B) The State of Alaska, if the unit acreage contains the state's 
mineral estate.
    The rule will have minor economic impacts on the BLM, the State of 
Alaska, and the regional corporation. All parties involved in the 
consultation could incur minor additional costs; however, consultation 
will help ensure that the rights of all parties to the unit are 
protected.

NPR-A Unitization Application

    The final rule requires the unit application to explain the 
proposed methodology for allocating production among the committed 
tracts. If a unit includes non-Federal mineral estate, the applicant is 
required to explain how the methodology would take into account 
reservoir heterogeneity and area variation in reservoir producibility. 
These changes are necessary because of changes that the EPAct of 2005 
made to the NPRPA. The economic impacts of this provision are expected 
to be minor, but not measurable, since the change will impact different 
unit agreements differently. However, the rule will help to ensure fair 
allocation of production among unit participants and ensure that the 
Federal Government receives the correct royalty payment.

Continuing Development Obligations in a Unit Agreement

    This final rule amends the provisions on continuing development 
obligations in existing regulations by requiring that a unit agreement 
provide for the submission of supplemental or additional plans of 
development which obligate the operator to a program of exploration and 
development. The existing regulations require that the unit agreement 
actually obligate the operator to a program of exploration and 
development.
    The change recognizes that at the early stages of a unit agreement, 
an operator may not be able to identify the program of exploration