Onshore Oil and Gas Operations; Federal and Indian Oil and Gas Leases; Site Security, 40767-40836 [2015-16737]

Agencies

• DEPARTMENT OF THE INTERIOR
• Bureau of Land Management

[Federal Register Volume 80, Number 133 (Monday, July 13, 2015)]
[Proposed Rules]
[Pages 40767-40836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16737]



[[Page 40767]]

Vol. 80

Monday,

No. 133

July 13, 2015

Part III





Department of the Interior





-----------------------------------------------------------------------





Bureau of Land Management





-----------------------------------------------------------------------





43 CFR Parts 3160 and 3170





Onshore Oil and Gas Operations; Federal and Indian Oil and Gas Leases; 
Site Security; Proposed Rule

Federal Register / Vol. 80 , No. 133 / Monday, July 13, 2015 / 
Proposed Rules

[[Page 40768]]


-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3160 and 3170

[15X.LLWO300000.L13100000.NB0000]
RIN 1004-AE15


Onshore Oil and Gas Operations; Federal and Indian Oil and Gas 
Leases; Site Security

AGENCY: Bureau of Land Management, Interior.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would replace Onshore Oil and Gas Order No. 
3, Site Security (Order 3), with new regulations that would be codified 
in the Code of Federal Regulations (CFR). Order 3 establishes minimum 
standards for oil and gas facility site security. It includes 
provisions intended to ensure that oil and gas produced from Federal 
and Indian (except Osage Tribe) oil and gas leases are properly and 
securely handled, so as to ensure accurate measurement, production 
accountability, and royalty payments, and to prevent theft and loss. 
Order 3 was issued in 1989.
    The changes proposed as part of this proposed rule would allow the 
BLM to strengthen its policies governing production verification and 
accountability by updating Order 3's requirements to address changes in 
technology and industry practices that have occurred in the 25 years 
since Order 3 was issued, and to respond to recommendations made by the 
Government Accountability Office (GAO) with respect to the BLM's 
production verification efforts. The proposed rule addresses Facility 
Measurement Points (FMPs), site facility diagrams, the use of seals, 
bypasses around meters, documentation, recordkeeping, commingling, off-
lease measurement, and the reporting of incidents of unauthorized 
removal or mishandling of oil and condensate. The proposed rule also 
identifies certain acts of noncompliance that would result in an 
immediate assessment. Finally, it sets forth a process for the BLM to 
consider variances from the requirements of this proposed regulation.
    The BLM believes these proposed changes will enhance its overall 
production verification and accountability efforts. As part of those 
efforts, the BLM also anticipates that it will separately propose new 
regulations to update and replace Onshore Oil and Gas Orders Nos. 4 
(Order 4) and 5 (Order 5) related to measurement of oil and gas, 
respectively.

DATES: Send your comments on this proposed rule to the BLM on or before 
September 11, 2015. The BLM is not obligated to consider any comments 
received after the above date in making its decision on the final rule.
    As explained later, the changes that follow would establish 
proposed new information collection requirements that must be approved 
by OMB. If you wish to comment on the information collection 
requirements in this proposed rule, please note that the OMB is 
required to make a decision concerning the collection of information 
contained in this proposed rule between 30 and 60 days after 
publication of this proposed rule in the Federal Register. Therefore, a 
comment to OMB on the proposed information collection requirements is 
best assured of being considered if OMB receives it by August 12, 2015.

ADDRESSES: Mail: U.S. Department of the Interior, Director (630), 
Bureau of Land Management, Mail Stop 2134 LM, 1849 C St., NW., 
Washington, DC 20240, Attention: 1004-AE15. Personal or messenger 
delivery: 20 M Street SE., Room 2134LM, Washington, DC 20003. Federal 
eRulemaking Portal: https://www.regulations.gov. Follow the instructions 
at this Web site.
    Comments on the information collection burdens: Fax: Office of 
Management and Budget (OMB), Office of Information and Regulatory 
Affairs, Desk Officer for the Department of the Interior, fax (202) 
395-5806. Electronic mail: oira_docket@omb.eop.gov. Please indicate 
``Attention: OMB Control Number 1004-XXXX,'' regardless of the method 
used to submit comments on the information collection burdens. If you 
submit comments on the information collection burdens, you should also 
provide the BLM with a copy of those comments, at one of the addresses 
shown above, so that we can summarize all written comments and address 
them in the final rule.

FOR FURTHER INFORMATION CONTACT: Michael Wade, BLM Colorado State 
Office, at 303-239-3737. For questions relating to regulatory process 
issues, please contact Faith Bremner, BLM Washington Office, at 202-
912-7441. Persons who use a telecommunications device for the deaf 
(TDD) may call the Federal Information Relay Service (FIRS) at 1-800-
877-8339 to contact the above individuals during normal business hours. 
FIRS is available 24 hours a day, 7 days a week to leave a message or 
question with the above individual. You will receive a reply during 
normal business hours.

SUPPLEMENTARY INFORMATION:
I. Public Comment Procedures
II. Background
III. Discussion of the Proposed Rule
IV. Procedural Matters

I. Public Comment Procedures

    If you wish to comment on the proposed rule, you may submit your 
comments by any one of several methods specified (see ADDRESSES above). 
If you wish to comment on the information collection requirements, you 
should send those comments directly to the OMB as outlined (see 
ADDRESSES); however, we ask that you also provide a copy of those 
comments to the BLM.
    Please make your comments as specific as possible by confining them 
to issues for which comments are sought in this notice, and explain the 
basis for your comments. The comments and recommendations that will be 
most useful and likely to influence agency decisions are:
    1. Those supported by quantitative information or studies; and
    2. Those that include citations to, and analyses of, the applicable 
laws and regulations.
    The BLM is not obligated to consider or include in the 
Administrative Record for the rule comments received after the close of 
the comment period (see DATES) or comments delivered to an address 
other than those listed above (see ADDRESSES).
    Comments, including names and street addresses of respondents, will 
be available for public review at the address listed under ADDRESSES 
during regular hours (7:45 a.m. to 4:15 p.m.), Monday through Friday, 
except holidays.
    Before including your address, phone number, email address, or 
other personal identifying information in your comment, you should be 
aware that your entire comment--including your personal identifying 
information--may be made publicly available at any time. While you can 
ask us in your comment to withhold your personal identifying 
information from public review, we cannot guarantee that we will be 
able to do so.

II. Background

    Under applicable law, royalties are owed on all production removed 
or sold from Federal and Indian oil and gas leases. The basis for those 
royalty payments is the measured production from those leases. In 
fiscal year (FY) 2014, onshore Federal oil and gas leases produced 
about 148 million barrels of oil, 2.48 trillion cubic feet of natural 
gas, and 2.9 billion gallons of natural gas

[[Page 40769]]

liquids, with a market value of more than $27 billion and generating 
royalties of almost $3.1 billion. Nearly half of these revenues were 
distributed to the States in which the leases are located. 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.
    Given the magnitude of this production and the BLM's statutory and 
management obligations, it is critically important that the BLM ensure 
that operators accurately measure, properly report, and account for 
that production. The BLM is proposing updates to Order 3's requirements 
because they are necessary to reflect changes in oil measurement 
practices and technology since Order 3 was first promulgated.\1\ 
Specifically, this proposed rule is designed to ensure the proper and 
secure handling of production from Federal and Indian (except Osage) 
oil and gas leases. The proper handling of production is essential to 
the accurate measurement, proper reporting, and accountability that are 
necessary to ensure that the American public, as well as Indian tribes 
and allottees, receive the royalties to which they are entitled on oil 
and gas produced from Federal and Indian leases, respectively.
---------------------------------------------------------------------------

    \1\ This proposed rule would replace Order 3, which was 
published in the Federal Register on February 24, 1989 (54 FR 8056), 
and which has been in effect since March 27, 1989.
---------------------------------------------------------------------------

    Order 3 is one of seven Onshore Oil and Gas Orders that the BLM 
issued under its regulations at 43 CFR part 3160.\2\ Order 3 primarily 
supplements the regulations at 43 CFR 3162.4 (records and reports), 
3162.5 (environmental safety), 3162.7 (disposition and measurement of 
oil and gas production and site security on Federal and Indian (except 
Osage Tribe) oil and gas leases), subpart 3163 (non-compliance, 
assessments, and civil penalties), and subpart 3165 (relief, conflicts, 
and appeals). To date, the BLM's Onshore Orders have been published in 
the Federal Register, both for public comment and in final form, but 
they have not been codified in the CFR. With this rule, the BLM is now 
proposing to replace Order 3 and update and codify the requirements 
regarding site security, as explained below.
---------------------------------------------------------------------------

    \2\ These regulations provide for the issuance of Onshore Oil 
and Gas Orders to ``implement and supplement'' the regulations found 
in part 3160. 43 CFR 3164.1(a). The Onshore Orders apply nationwide 
to all Federal onshore and Indian (except Osage Tribe) oil and gas 
leases.
---------------------------------------------------------------------------

    In 2007, the Secretary appointed an independent panel--the 
Subcommittee on Royalty Management (Subcommittee)--to review the 
Department's procedures and processes related to the management of 
mineral revenues and to provide advice to the Department based on that 
review.\3\ In a report dated December 17, 2007, the Subcommittee 
determined that the BLM's guidance regarding production accountability 
is ``unconsolidated, outdated, and sometimes insufficient'' 
(Subcommittee report, p. 30). The Subcommittee report found that this 
results in inconsistent and outmoded approaches to production 
accountability tasks and potential reductions in royalty revenue.
---------------------------------------------------------------------------

    \3\ The Subcommittee was commissioned to report to the Royalty 
Policy Committee, which is chartered under the Federal Advisory 
Committee Act to provide advice to the Secretary and other 
departmental officials responsible for managing mineral leasing 
activities and to provide a forum for the public to voice concerns 
about mineral leasing activities.
---------------------------------------------------------------------------

    The Subcommittee report expressed concern that the applicable ``BLM 
policy and guidance is outdated'' and ``some policy memoranda have 
expired'' (Subcommittee report, p. 31). For example, the BLM issued 
Order 3 in 1989 and has not updated it since, even though BLM and 
industry practices and technologies have changed significantly in the 
intervening 25 years. The Subcommittee also expressed concern that 
``BLM policy and guidance have not been consolidated in a single 
document or publication'', which has led to the ``BLM's 31 oil and gas 
field offices using varying policy and guidance'' (id.). For example, 
``some BLM State Offices have issued their own `Notices to Lessees' for 
oil and gas operations'' (id.). While the Subcommittee recognized that 
such Notices to Lessees may have a positive effect on some oil and gas 
field operations, it also observed that they necessarily ``lack a 
national perspective and may introduce inconsistencies among State 
[Offices]'' (id.).
    The Subcommittee specifically recommended that the BLM re-evaluate 
its regulations and update its policy and guidance on production 
accountability, including requiring that requests to commingle 
production from multiple leases, unit participating areas (PAs), or 
communitization agreements identify allocation among zones 
(Subcommittee report, p. 32). The Subcommittee also recommended that 
the BLM re-evaluate its policies and guidance for royalty-free use of 
gas in lease operations. It also specifically recommended that the BLM 
establish a workgroup to evaluate Order 3. In response, the Department 
formed a fluid minerals team, comprised of Departmental employees who 
are oil and gas experts. Based on its review, the team determined that 
Order 3 should be updated.
    In addition to the Subcommittee report, the GAO issued findings and 
recommendations addressing similar issues in 2010 (Report to 
Congressional Requesters, Oil and Gas Management, Interior's Oil and 
Gas Production Verification Efforts Do Not Provide Reasonable Assurance 
of Accurate Measurement of Production Volumes GAO-10-313 (GAO Report 
10-313)).
    The GAO found that Interior's measurement regulations and policies 
do not provide reasonable assurance that oil and gas are accurately 
measured. Regarding matters relevant to Order 3, the report found that 
the BLM lacks regulatory or policy requirements for operators to 
clearly identify measurement points, creating challenges for the BLM in 
verifying production (GAO Report 10-313, p. 34). It also found that the 
BLM does not have sufficient national policies and a consistent process 
for approving arrangements that allow operators to commingle production 
from multiple Federal, Indian, State, and private leases, which also 
makes it difficult for the agency to verify production (GAO Report 10-
313, p. 36). The GAO specifically recommended that: (1) The BLM develop 
guidance clarifying when Federal oil and gas may be commingled and 
establish standardized measurement methods for such circumstances so 
that production can be adequately measured and verified; (2) BLM staff 
confirm that commingling agreements are consistent with Interior 
guidance before they are approved, and that the agreements facilitate 
key production verification activities; and (3) The BLM track all 
onshore meters, including information about meter location, 
identification number, and owner to help ensure that Interior is 
consistently tracking where and how oil and gas are measured.
    The GAO reiterated some of these concerns in 2015 (Report to 
Congressional Requesters, Oil and Gas Resources, Interior's Production 
Verification Efforts and Royalty Data Have Improved, But Further 
Actions Needed GAO-15-39 (GAO Report 15-39)). In the 2015 report, the 
GAO acknowledged the improvements BLM had made in its processes and 
policies (e.g., issuing additional guidance regarding commingling 
approvals in 2013), but reiterated its view of the importance of the 
BLM undertaking an

[[Page 40770]]

update of its regulations related to measurement and site security (GAO 
Report 15-39, pp. 31-32).
    Based in part on its concerns that the BLM's production 
verification efforts do ``. . . not provide reasonable assurance that 
operators are accurately measuring and reporting'' the volumes of oil 
and gas produced from Federal and Indian leases, the GAO included the 
BLM's onshore oil and gas program on its High Risk List in 2011 (Report 
to Congressional Committees, High Risk Series, An Update, GAO-11-278 
(GAO Report 11-278), p. 15). Because the GAO's recommendations have not 
yet been fully implemented, the onshore oil and gas program has 
remained on the High Risk List in subsequent updates in 2013 (Report to 
Congressional Committees, High Risk Series, An Update, GAO-13-283) and 
2015 (Report to Congressional Committees, High Risk Series, An Update, 
GAO-15-290).
    In addition to concerns expressed by other parties, the BLM also 
recognizes, based on its own field experience, that its site security 
requirements need to be strengthened. For example, on the issue of the 
point of royalty measurement, it is not uncommon for a BLM inspector, a 
lease operator, and field employees to all have different 
understandings of where that point is on a given lease because Order 3 
does not require operators to formally identify and obtain BLM approval 
for a specific measurement point. One result of this confusion is that 
BLM inspectors sometimes drive out to remote locations to witness 
calibrations on meters that they believed were measuring production for 
purposes of determining royalty when, in fact, they were not. The 
inspectors may not discover the discrepancies until months or even 
years later, during audits when operators submit their production 
accountability paperwork and the meter information does not match. This 
can create needless uncertainties in production accounting and 
verification and can increase the time spent on individual inspections 
and audits by both operators and the BLM, which strains the BLM's 
limited resources, while also requiring additional response and 
resources on the part of operators.
    Similarly, with respect to existing commingling approvals, the BLM 
recognizes that in the absence of uniform national guidance, some of 
the existing BLM-approved commingling agreements may not provide the 
production data that the BLM needs to independently verify production 
that is attributable to the Federal or Indian leases covered by those 
agreements. The absence of this data limits the BLM's ability to 
fulfill its obligation to ensure that all production from Federal and 
Indian (except Osage Tribe) oil and gas leases is properly accounted 
for and that royalties are properly calculated.
    Many of the provisions in this proposed rule were developed in 
response to the BLM's experience and the recommendations made by the 
Subcommittee and the GAO. Others were developed by the BLM to enhance 
and clarify some of Order 3 requirements in response to changes in 
technology and industry practice, and changes to applicable statutory 
requirements. The provisions discussed below also respond to comments 
received during a series of public meetings held by the BLM on April 24 
and 25, 2013, to discuss proposed revisions to Orders 3, 4, and 5. In 
aggregate, these provisions will help ensure that the production of 
Federal and Indian (except Osage Tribe) oil and gas is adequately 
accounted for. By replacing the patchwork of guidance developed by BLM 
state and field offices, the provisions of this proposed rule would 
also provide operators with a level of consistency as to the 
requirements applicable to their operations on Federal and Indian 
(except Osage Tribe) lands nationwide.

III. Discussion of the Proposed Rule

A. General Overview

    The following table provides an overview of the changes 
contemplated as part of this proposed rule and identifies the 
substantive proposed changes relative to Order 3.
BILLING CODE 4310-84-C

[[Page 40771]]

[GRAPHIC] [TIFF OMITTED] TP13JY15.110


[[Page 40772]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.111


[[Page 40773]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.112


[[Page 40774]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.113


[[Page 40775]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.114


[[Page 40776]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.115


[[Page 40777]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.116

BILLING CODE 4310-84-P

B. Section-by-Section Analysis

    This proposed rule would be codified primarily in a new 43 CFR 
subpart 3173 within a new part 3170. The BLM is also concurrently 
preparing and anticipates issuing separate proposed rules to update and 
replace Onshore Oil and Gas Order 4 (oil measurement) and Onshore Oil 
and Gas Order 5 (gas measurement). Those proposed rules are anticipated 
to be codified at new 43 CFR subparts 3174 and 3175, respectively. As a 
result, the proposed rule also includes a new subpart 3170 that would 
contain definitions of certain terms and common provisions, i.e., 
provisions prohibiting by-pass of and tampering with meters; procedures 
for obtaining variances from the requirements of a particular rule; 
requirements for recordkeeping, records retention, and submission; and 
administrative appeal procedures.
    In addition, the proposed rule would also make several changes to 
various provisions in 43 CFR part 3160. Proposed changes to 43 CFR 
3162.3-2, 3162.4-1, 3162.6, 3162.7-1, 3163.2, and 3163.5 are discussed 
in connection with the proposed new subpart 3170 or 3173 provision to 
which the particular change relates. Other changes to provisions in 
part 3160 are discussed at the end of this section-by-section analysis.
Subpart 3170--Onshore Oil and Gas Operations; General and Related 
Provisions
Section 3170.1 Authority
    Proposed Sec.  3170.1 would identify the various grants of 
rulemaking authority in the Federal and Indian mineral leasing statutes 
and related statutes that give the Secretary authority to promulgate 
this rule.
Section 3170.2 Scope
    Proposed Sec.  3170.2 would explain that the regulations in part 
3170 would apply to all Federal onshore and Indian oil and gas leases 
(except those of the Osage Tribe), and, with certain exceptions, to 
agreements for oil and gas under the Indian Mineral Development Act and 
agreements under a Tribal Energy Resource Agreement entered into with 
the Secretary. In addition, State or private tracts committed to a 
federally approved unit or communitization agreement as defined by or 
established under 43 CFR subpart 3105 or 43 CFR part 3180 also would be 
subject to the rule.
Section 3170.3 Definitions and Acronyms
    This proposed section would define terms and acronyms used in more 
than one of the subparts of part 3170 that the BLM has proposed here 
(subpart 3173) or anticipates proposing (subparts 3174 (oil 
measurement) and 3175 (gas measurement)).
    Of these new terms, the proposed definition of ``facility 
measurement point (FMP)'' merits discussion here; other terms are 
discussed below. Under the proposed rule, an FMP is a ``BLM-approved 
point where oil or gas produced from a Federal or Indian lease, unit, 
or CA is measured and the measurement affects the calculation of the 
volume or quality of production on which royalty is owed.'' As 
explained below, the proposed rule sets forth a process for an operator 
of a new or an existing facility to apply for approval of an FMP and 
issuance of an FMP number in proposed Sec.  3173.12. Because proposed 
Sec.  3173.12 would require operators of existing facilities to apply 
for an FMP in stages over a 27-month period, it will require 3 years 
from the effective date of the final rule for the BLM to receive, 
evaluate, and act on FMP applications for existing facilities. 
Therefore, for purposes of compliance with other provisions of this 
proposed rule, during this interim period, the proposed definition of 
an FMP makes clear that an FMP ``also includes a meter or measurement 
facility used in the determination of the volume or quality of royalty-
bearing oil or gas produced before BLM approval of an FMP under Sec.  
3173.12 of this part.''
    While meters used in determining the volume or quality of 
production include allocation meters,\4\ the proposed

[[Page 40778]]

definition of FMP does not include allocation facilities that are part 
of a commingling and allocation approval issued pursuant to proposed 
Sec.  3173.15 below or that were approved after July 9, 2013. Since 
July 9, 2013, under BLM Instruction Memorandum (IM) 2013-152, issued on 
that date, BLM authorized officers may approve only those commingling 
requests that: (1) Have no royalty impacts (e.g., commingled properties 
have the same mineral ownership, royalty rate, and revenue 
distribution); (2) Involve ``low-volume properties'' \5\; or (3) 
Involve circumstances where overriding considerations of continued 
production outweigh the potential inaccuracies of the allocation 
method. As explained below, proposed Sec.  3173.15 carries forward the 
requirements of IM 2013-152 related to the approval of commingling 
requests. For commingling requests that meet these requirements, it is 
not necessary for the allocation facilities to meet the applicable oil 
measurement or gas measurement standard. Thus, it is not necessaryfor 
these facilities (i.e., those approved after July 9, 2013 or pursuant 
to proposed 3173.15) to be regarded as FMPs. Allocation meters or 
facilities approved before July 9, 2013, must meet the standards of the 
applicable current Order and would have to meet the standards of the 
proposed rules according to the prescribed timeframes for compliance; 
therefore, they will continue to be FMPs.
---------------------------------------------------------------------------

    \4\ An allocation meter is a meter that measures production from 
a particular lease, unit, unit PA, or CA that is commingled with 
production from other leases, units, unit PAs, or CAs before the 
point of royalty measurement, i.e., the meter that measures the 
production for purposes of determining royalty. The production 
measured at the point of royalty measurement is then allocated back 
to the respective contributing properties on the basis of each 
allocation meter's proportion of the total production measured by 
all allocation meters.
    \5\ As explained below, ``low-volume properties'' include 
leases, unit PAs, or CAs that do not produce sufficient volumes for 
the operator to realize from continued production a sufficient rate 
of return on the investment required to achieve non-commingled 
measurement, such that a prudent operator would opt to plug a well 
or shut in the lease, unit PA, or CA if the commingling request were 
not approved. In these situations, the economic considerations of 
continued production outweigh the inaccuracies of the allocation 
method.
---------------------------------------------------------------------------

Section 3170.4 Prohibitions Against By-Pass and Tampering
    Proposed Sec.  3170.4 would strengthen the existing prohibition 
against meter by-passes in section III.D. of Order 3 by adding language 
that would prohibit tampering with any measurement device, component of 
a measurement device, or measurement process. Tampering would include 
any adjustment or alteration to the meter or measurement device or 
measurement process that could introduce bias into the measurement or 
affect the BLM's ability to independently verify volumes or qualities 
reported. Examples of tampering include installing an orifice plate in 
a gas meter with the bevel upstream, adjusting a transducer to read 
higher or lower than a certified test device, entering incorrect 
information into the configuration log of an electronic gas measurement 
system, submitting derived integral values on a volume statement in 
lieu of raw data, or making analogous adjustments or alterations to an 
oil measurement system.
Section 3170.5 Industry Standards Incorporated by Reference



Sec.  3170.5  would be reserved for potential future incorporation by 
reference of standards that would apply to more than one of the 
subparts of part 3170.

Section 3170.6 Variances
    Proposed Sec.  3170.6 would make the BLM's existing process and 
regulations for granting variances from the minimum standards of this 
rule more clear and uniform.
    Proposed Sec.  3170.6(a)(1) through (3) would prescribe the 
requirements for submitting a request for a variance from a requirement 
in the regulations in part 3170. Importantly, paragraph (a)(2) would 
require that a request for a variance be submitted as a separate 
document from any plans or applications. A request for a variance 
``buried'' in another document, such as a request submitted as part of 
a master development plan, application for permit to drill, right-of-
way application, or other applications for approval rather than 
submitted separately would not be considered. Approval of a plan or 
application that contains a request for a variance would not constitute 
approval of the variance.
    Proposed Sec.  3170.6(a)(4) would strengthen and standardize the 
criteria the BLM uses for granting variances. Under Order 3, the AO is 
required to make only one determination--whether or not the variance 
request meets or exceeds the objectives of the applicable minimum 
standard. Under this proposed paragraph, the AO still would have to 
make that determination before granting a variance. Additionally, the 
proposed change would require the AO to make two more determinations 
before granting a variance--that issuing a variance would not adversely 
affect royalty income or production accountability and is consistent 
with maximum ultimate economic recovery.
    Proposed Sec.  3170.6(a)(5) and (6) would specify that granting or 
denying a variance is entirely within the BLM's discretion, and that a 
variance from a requirement in a regulation does not constitute a 
variance to any other regulations, including Onshore Oil and Gas 
Orders.
    Proposed Sec.  3170.6(b) would make clear that the BLM has the 
right to rescind a variance or modify any condition of approval of a 
variance due to changes in Federal law, technology, regulation, BLM 
policy, field operations, noncompliance, or other reasons.
Section 3170.7 Required Recordkeeping, Records Retention and Records 
Submission
    Proposed Sec.  3170.7 would update BLM regulations to reflect the 
records retention requirement for Federal oil and gas leases that 
Congress established in 1996 amendments to the Federal Oil and Gas 
Royalty Management Act (FOGRMA).
    Paragraphs (a) and (b) would establish the coverage of the records-
retention requirement relative to both persons covered and the time 
period in which records are generated. Purchasers and transporters 
would be held to the same minimum standards as operators for 
recordkeeping, records retention, and records submission--i.e., to 
maintain all records that are relevant to determining the quality, 
quantity, disposition, and verification of production from Federal and 
Indian leases. Section 103(a) of FOGRMA, 30 U.S.C. 1713(a), requires 
persons involved in transporting and purchasing oil or gas through the 
point of first sale or the point of royalty computation, whichever is 
later (along with persons involved in producing or selling), to 
``establish and maintain any records, make any reports, and provide any 
information that the Secretary may, by rule, reasonably require.'' 
Order 3, however, does not expressly require transporters and 
purchasers to establish and maintain any records (except for the 
requirement in section III.C.2.c. that truck drivers transporting 
production have information about the load in their possession (see 30 
U.S.C. 1712(c)(1)).
    Under proposed Sec.  3170.7(c), records pertaining to Federal 
leases, units, or CAs would have to be maintained for at least 7 years, 
subject to applicable statutory requirements for further retention 
under certain circumstances (see 30 U.S.C. 1724(f)), as required under 
the 1996 amendments to FOGRMA. Under proposed Sec.  3170.7(d), records 
pertaining to Indian leases, units, or CAs would have to be maintained 
for at least 6 years, subject to applicable statutory requirements for

[[Page 40779]]

further retention under certain circumstances (see 30 U.S.C. 1713(b)). 
The records-retention requirement on Indian leases would be unchanged 
because the 1996 amendments, by their express terms, applied only to 
Federal leases and not to Indian leases.
    Proposed Sec.  3170.7(e) would address the relationship of these 
two requirements for units and CAs that contain both Federal and Indian 
leases.
    Proposed Sec.  3170.7(f) would require the record holders to 
maintain an audit trail.
    Under proposed Sec.  3170.7(g) and (h), purchasers and transporters 
also would be required to place the new FMP numbers on all records 
associated with Federal and Indian leases, units, or CAs, after the BLM 
has assigned them, and to provide these records to the BLM upon 
request.
    These changes are proposed to ensure that all records--whether they 
are created by lessees, operators, transporters, or purchasers--are 
clear, accurate, and readily available to the BLM. Under existing 
requirements, if BLM staff, in the course of auditing and verifying 
production, needs to review transporter or purchaser records, staff 
typically must ask the operator or lessee to provide the documents. 
Many transporters and purchasers have their own internal systems for 
identifying sales measurement points, with which operators may not be 
familiar. Sometimes operators do not maintain their own records 
properly, preferring instead to rely on the transporters' and 
purchasers' records. This has the potential to create long delays when 
transporters and purchasers fail to respond quickly to operators' 
document requests. Sometimes operators go out of business or are 
acquired by other companies and their records are destroyed, making it 
impossible for BLM staff to verify production. The BLM believes that it 
is important for everyone involved in the production and sale of oil 
and gas produced from Federal and Indian leases to be responsible for 
maintaining and providing their own records.
    If a purchaser or transporter fails to maintain and submit records 
as required under this proposed rule, the purchaser or transporter 
would be subject to civil penalties under Section 109 of FOGRMA, 30 
U.S.C. 1719. Consequently, the BLM is proposing to amend its civil 
penalty rules at 43 CFR 3163.2 to designate the first sentence of 
paragraph (a) of the existing Sec.  3163.2 as paragraph (a)(1), and to 
add a new paragraph (a)(2). The second sentence of the existing 
paragraph (a) (pertaining to the maximum amount of the penalty if the 
violation is not corrected within 20 days of the date of notice) would 
be redesignated as paragraph (b)(1). The existing paragraph (b) 
(pertaining to the maximum amount of the penalty if the violation is 
not corrected within 40 days of the date of notice) would be 
redesignated as paragraph (b)(2). References to purchasers and 
transporters would be added to the penalty amount provisions in 
paragraph (b).
    Similarly, the BLM proposes to add to the notice requirements of 
existing regulations at 43 CFR 3165.3 a provision regarding notice to a 
purchaser or transporter (who is not an operating rights owner or 
operator) of failure to comply with records maintenance or production 
requirements. The BLM proposes to divide the several sentences of the 
existing paragraph (a) into numbered subparagraphs. After the first 
sentence, which would be redesignated as paragraph (a)(1) (and 
rephrased into active voice), the BLM proposes to add a new paragraph 
(a)(2). Enforcement of recordkeeping violations taken against an entity 
other than the lessee or operator under these proposed provisions also 
would be addressed in the proposed inspection and enforcement handbook 
being developed. These enforcement actions would include the issuance 
of Incidents of Noncompliance (INCs) and the assessment of civil 
penalties.
    In 43 CFR 3162.4-1, the BLM is proposing to revise paragraph (a) to 
reflect that the new recordkeeping requirements also would apply to 
``source records'' that are relevant to ``determining and verifying the 
quality, quantity, and disposition of production from or allocable to 
Federal or Indian leases.'' Paragraph (d) would be revised to establish 
the new records retention period, and would mirror for part 3160 the 
provisions in paragraphs (c) through (e) of proposed Sec.  3170.7. A 
new paragraph (e) would be added that would list the ``record holders'' 
who would be subject to the new recordkeeping requirements. 
Additionally, the BLM is proposing to remove paragraph (f) from 43 CFR 
3162.7-1, Disposition of production, which refers to the 6-year 
retention period, since the initial statutory retention period is now 7 
years, as would be prescribed in the proposed amendment to Sec.  
3162.4-1 and in proposed Sec.  3170.7.
Section 3170.8 Appeal Procedures
    Proposed Sec.  3170.8 would provide that BLM decisions, orders, 
assessments, or other actions under the proposed part 3170 are 
administratively appealable (first to the BLM State Director and then 
to the Interior Board of Land Appeals) under 43 CFR 3165.3(b), 3165.4, 
and part 4.
Section 3170.9 Enforcement
    Proposed Sec.  3170.9 would provide that noncompliance with any 
requirements of part 3170 or any order issued thereunder may result in 
enforcement actions under 43 CFR subpart 3163 or any other remedy 
available under applicable law or regulation.
Subpart 3173--Requirements for Site Security and Production Handling 
and Related Provisions
Section 3173.1 Definitions and Acronyms
    Section 3173.1 of the proposed rule would define the terms and 
acronyms that are unique to proposed subpart 3173. The section would 
adopt the same definitions of some of the terms defined in Order 3, 
with some minor revisions to either simplify or clarify those 
definitions. Several of the terms defined in Order 3 would be defined 
in proposed Sec.  3170.3.
    The proposed rule adds a definition of ``low-volume property,'' 
which is intended to define one category of circumstances under which 
commingled measurement of production from a lease, unit PA, or CA may 
be justified, even though it would not meet the conditions of proposed 
Sec.  3173.14(a)(1) regarding mineral interest ownership of commingled 
production. The proposed rule also provides a definition for ``land 
description.''
Section 3173.2 Storage and Sales Facilities--Seals
    Paragraphs (a) and (b) of proposed Sec.  3173.2 would require any 
lines entering or leaving any oil storage tank or storage facility to 
have valves capable of being effectively sealed. These paragraphs would 
prescribe which valves must be effectively sealed during which 
operational phases (production, sales, water draining, or hot oiling). 
Paragraph (c) identifies the specific types of valves that are not 
considered ``appropriate valves'' (i.e., valves that must be sealed 
during the production phase or the sales phase) for purposes of this 
requirement. The requirements of paragraphs (a) through (c) would 
largely correspond to the existing requirements in Order 3, with some 
refinements.
    Paragraph (d) would prohibit tampering with an ``appropriate 
valve,'' and would provide that tampering may result in assessment of a 
civil penalty for knowingly or willfully preparing, maintaining, or 
submitting false,

[[Page 40780]]

inaccurate, or misleading information under Section 109(d)(1) of 
FOGRMA, 30 U.S.C. 1719(d)(1), and 43 CFR 3163.2(f)(1), or for knowingly 
or willfully taking, removing, or diverting oil or gas from a lease 
without valid legal authority under Section 109(d)(2) of FOGRMA, 30 
U.S.C. 1719(d)(2), and 43 CFR 3163.2(f)(2).
Section 3173.3 Oil Measurement System Components--Seals
    Proposed Sec.  3173.3 would identify a nonexclusive list of the 
components used in LACT meters or Coriolis oil measurement systems that 
must be effectively sealed to indicate tampering.
Section 3173.4 Federal Seals
    Paragraph (a) of proposed Sec.  3173.4 would codify the authority 
in section IV of Order 3 for the BLM to place a Federal seal on any 
appropriate valve, sealing device, or oil meter system component that 
does not comply with the requirements of proposed Sec.  3713.2 or Sec.  
3173.3. Paragraph (b) clarifies that the placement of a Federal seal 
does not relieve the operator of the requirement to comply with Sec.  
3713.2 or Sec.  3173.3. Paragraph (c) would prohibit the removal of a 
Federal seal without BLM approval.
Section 3173.5 Removing Production From Tanks for Sale and 
Transportation by Truck
    Consistent with the existing requirements of section III.C.1.c. of 
Order 3, paragraphs (a) and (b) of proposed Sec.  3173.5 would identify 
who must possess the information that would be required by Sec.  
3174.12 of this part (which the BLM intends to propose separately) when 
production is removed from storage tanks for transportation by truck. 
Paragraph (c) would make the purchaser or transporter responsible for 
the entire contents of a tank until it is resealed.
Section 3173.6 Water-Draining Operations
    Proposed Sec.  3173.6 would require that specific information be 
recorded when water is drained from tanks that hold hydrocarbons. Under 
existing regulations, the operator is required to record only the date, 
seal number removed, new seal number installed, and the reason for 
draining. The operator currently is not required to record the volume 
of hydrocarbons that are in the tank before and after water is drained. 
This could lead to hydrocarbons being drained with the water and 
removed without proper measurement and accounting, and without 
royalties being paid. This proposed rule would require operators to 
record the volume of hydrocarbons that are in the tank both before and 
after water is drained.
Section 3173.7 Hot Oiling, Clean-up, and Completion Operations
    Proposed Sec.  3173.7 would require that specific information be 
recorded when hydrocarbons are removed from storage and used on the 
lease, unit, or CA for hot oiling, clean-up, and completion operations, 
including the volume of hydrocarbons removed from storage and expected 
to be returned to storage.
    Under existing requirements, the operator is required to record 
only the date, seal number removed, new seal number installed, and 
reason for removing oil for hot-oiling, clean-up, or completion 
operations. The operator currently is not required to record the volume 
of hydrocarbons that is removed from storage and is expected to be 
returned. This could lead to the volume of produced hydrocarbons being 
counted twice; first when it was initially produced then later after it 
is returned to storage.
Section 3173.8 Report of Theft or Mishandling of Production
    Paragraph (a) of proposed Sec.  3173.8 would require transporters 
and purchasers, along with operators, to report incidents of theft and 
mishandling of production to the BLM whenever they or their employees 
discover it. Such reports may be made orally or through a ``written 
incident report.'' In the proposed rule any oral reports must be 
followed by a written report within 10 business days. This reporting 
requirement is important because sometimes transporters and purchasers 
are the first ones to discover theft and mishandling of production or 
to recognize suspicious activity. Proposed paragraph (b) would specify 
the information that must be included in a written incident report.
Section 3173.9 Required Recordkeeping for Inventory and Seal Records
    Paragraph (a) of proposed Sec.  3173.9 would require operators to 
measure and record the total observed volume in storage at the end of 
each calendar month. Proposed paragraph (b) would specify the records 
that an operator must maintain for each seal.
Section 3173.10 Form 3160-5, Sundry Notices and Reports on Wells
    Proposed Sec.  3173.10 would require all parties involved in 
Federal and Indian oil and gas production to submit a Form 3160-5 
electronically to the BLM for their site facility diagrams, requests 
for FMP designations, requests for CAAs, requests for off-lease 
measurement, and any amendments to the diagrams or requests. This 
would, in the long run, increase efficiencies throughout BLM field 
offices for both the BLM and operators by making the diagrams easier to 
track and more accessible to inspectors in the field. This new 
requirement would also make it easier for the BLM to keep track of 
equipment and operational changes at a given facility and ensure that 
the parties are complying with Federal laws, rules, and regulations, 
while at the same time reducing the need for operators to respond to 
requests for information and making what information is needed easier 
to submit. Operators who are small businesses that do not have access 
to the Internet would be exempt from this requirement. BLM notes that 
the Office of Natural Resources Revenue (ONRR) already requires 
operators producing oil and gas from onshore Federal and Indian leases 
onshore to file their monthly Oil and Gas Operations Reports (OGORs) 
electronically, and thus this requirement is expected to be relatively 
easy to implement.
    This proposed rule would increase the number of companies and 
company representatives using the e-filing capabilities of the BLM's 
Automated Fluid Minerals Support System (AFMSS). Currently, filing 
parties inconsistently use this e-filing system because it is not 
required. Preliminary estimates are that the BLM would see a tenfold 
increase in e-filings, from 500 to 5,000.
Section 3173.11 Site Facility Diagrams
    Paragraphs (a) through (c) of proposed Sec.  3171.11 would set 
forth the requirements for the content and format of site facility 
diagrams. These requirements are important because inspection and 
verification of company-submitted site facility diagrams is one of the 
BLM's primary mechanisms for ensuring operators are complying with 
measurement regulations and policy. The requirements in the proposed 
section would update and replace Order 3's Site Security Plan. 
Currently, the BLM requires operators to provide generalized diagrams 
showing each piece of equipment being used at a facility, including 
connections between each piece of equipment, valve positions on 
production storage tanks (sales valves, drain valves, equalizers, and 
overflow valves), and their relative positions to each other. Tank 
valve positions (open or closed) are dependent upon whether the tank is 
in

[[Page 40781]]

the production, sales, or drain phase of operations.
    Under proposed Sec.  3173.11, new site facility diagrams would, in 
addition to the drawings, include important and specific information 
such as the FMP number; land description; Federal or Indian lease, 
unit, or CA number; site equipment with any corresponding serial 
identification numbers and manufacturer's consumption ratings; a 
reasonable royalty-free use determination; and a signature block. This 
more detailed information would provide the BLM with a more useful tool 
to achieve improved production accountability.
    In addition to the requirements above, proposed Sec.  3173.11(c) 
would also allow the BLM, for the first time, to verify royalty-free-
use volumes reported by the operator on OGORs. Under the applicable 
statutes and lease terms, the portion of the oil and gas produced that 
is used to power operations on the lease, CA, or unit, such as using 
natural gas to power drilling and pumping equipment, is not royalty-
bearing. This use of oil and gas is referred to as ``royalty-free 
use.''
    Currently, operators provide estimates of their royalty-free-use 
volumes to ONRR each month, but the BLM lacks an ability to verify 
those estimates. Proposed Sec.  3173.1(c)(11) would require operators 
to report to the BLM on their site facility diagrams what equipment is 
being used on the lease and how they determine the volume of oil or gas 
used royalty free by that equipment (based on equipment manufacturers' 
fuel-use ratings), if the volume is not measured. This new requirement 
would provide greater consistency in how the volume of oil and gas used 
royalty free is determined and enable the BLM to more easily verify 
those volumes. This requirement enhances production accountability and 
responds to key recommendations made by the GAO (Report 10-313). 
Requiring this information to be reported on the more detailed facility 
diagram would ultimately save time because it would eliminate the need 
for the BLM to obtain the information in connection with a production 
accountability review.
    Proposed 3173.11(d) would require the operator of an existing 
facility (i.e., one in service before the effective date of the final 
rule) to submit a new site facility diagram that complies with the 
requirements of this proposed section within 30 days of obtaining an 
FMP number under proposed Sec.  3173.12 below. Under proposed Sec.  
3173.11(e), operators of existing facilities that do not require an FMP 
number, but for which a diagram would be required under the proposed 
rule (for example, facilities that dispose of produced water), would 
have 60 days after the effective date of the final rule to submit 
compliant diagrams.
Section 3173.12 Applying for a Facility Measurement Point
    Section 3173.12 of the proposed rule would, for the first time, 
establish a formal nationwide process for designating and approving the 
point at which oil or gas must be measured for the purpose of 
determining royalty. Currently, the BLM does not have a formal, written 
process for designating measurement points on the leases it manages. 
(Some Field Offices have their own internal policies for establishing 
these points.) This lack of uniform guidance across Field Offices has 
resulted in instances of confusion about the location of royalty 
measurement points, which interferes with the production verification 
process. This proposed section would require operators to obtain BLM 
approval of FMPs for all measurement points used to determine 
royalties. The BLM would approve an FMP that meets the requirements of 
this proposed rule (the most important elements of which would be 
identification of the wells associated with the FMP, the measurement 
method, and component information). The BLM would assign each FMP a 
unique identifying number, which the operator, transporter, or 
purchaser would then use when reporting production results to ONRR.
    The Bureau of Safety and Environmental Enforcement (BSEE) already 
assigns a similar FMP number for offshore oil and gas leases, which the 
operator, transporter, or purchaser must then use when reporting 
production results to ONRR. The changes in this proposed rule would 
make BLM practices consistent with existing BSEE and ONRR practices, 
for production reporting without having to create an entirely new 
numbering system.
    Paragraph (a)(1) of this proposed section would provide that the 
FMP(s) for a lease, unit PA, or CA would have to be located within the 
boundaries of the lease, unit, or CA from which the oil or gas is 
produced, and must measure only production from that lease, unit PA, or 
CA, unless otherwise approved. Proposed paragraph (a)(2) would provide 
that off-lease measurement, commingling, or allocation of production 
requires prior approval under 43 CFR 3162.7-2 and 3162.7-3 and proposed 
Sec. Sec.  3173.15, 3173.16, 3173.24, and 3173.25 of this proposed 
rule.
    Proposed paragraph (b) would provide that the BLM will not approve 
a meter at the tailgate of a gas processing plant located off the 
lease, unit, or CA as an FMP. This continues existing uniform practice.
    Proposed paragraph (c) would provide that the operator must apply 
for approval of separate FMP numbers for an FMP that measures oil 
produced from a particular lease, unit PA, CA, or CAA and an FMP that 
measures gas produced from the same lease, unit PA, CA, or CAA, even if 
the measurement equipment or facilities are at the same location. In 
the numbering system for FMPs in use by both ONRR and BSEE (for 
offshore leases), the first pair of numbers in the FMP number specifies 
whether the FMP measures oil or measures gas. The BLM would not approve 
the same FMP number for a facility that measures oil and a facility 
that measures gas.
    Proposed paragraph (d) would require the operator to obtain 
approval for the FMP for a new measurement facility (i.e., one coming 
into service after the effective date of the final rule) before any 
production leaves the facility.
    Proposed paragraph (e) would provide that for existing production 
measurement facilities, an operator would have 9 months, 18 months or 
27 months from the effective date of the final rule within which to 
apply for BLM approval of its FMP, depending on the production level of 
the lease, unit PA, CA, or CAA that the measurement facility serves. 
The prescribed application deadline would apply to both oil and gas 
measurement facilities measuring production from that lease, unit PA, 
CA, or CAA. The BLM proposes to require applications for FMPs for 
existing measurement facilities that serve operations with the highest 
production volumes first. For stand-alone leases, unit PAs, CAs, and 
CAAs that produce 6,000 Mcf or more of gas per month, or 40 barrels or 
more of oil per month, the BLM is proposing that the operator would 
have to apply for approval of the FMP(s) within 9 months after the 
effective date of the final rule. For stand-alone leases, unit PAs, 
CAs, or CAAs that produce 3,000 Mcf or more but less than 6,000 Mcf of 
gas per month, or 20 barrels or more but less than 40 barrels of oil 
per month, the operator would have to apply for approval of the FMP(s) 
within 18 months after the effective date of the final rule. For stand-
alone leases, unit PAs, CAs, or CAAs that produce less than 3,000 Mcf 
of gas per month and less than 20 barrels of oil per month, the 
operator would have to apply for approval of the FMP(s) within 27

[[Page 40782]]

months after the effective date of the final rule. These thresholds 
would be calculated as an average over the 12 months preceding the 
effective date of the final rule or the period the lease, unit, CA, or 
CAA has been in production, whichever is shorter.
    If the operator applies for an FMP approval by the required date, 
the operator could continue to use the existing measurement points 
until the BLM acts on the application. If the operator fails to apply 
for an FMP approval by the required date, the operator would be subject 
to an incident of noncompliance and assessment of civil penalty under 
43 CFR subpart 3163, together with any other remedy available under 
applicable law or regulation.
    The BLM specifically solicits comments regarding its proposed 
threshold volumes and required periods for submitting applications for 
FMP approvals. Should the BLM consider alternative application periods 
or volume thresholds? If so, what periods of time would be appropriate 
for what production volume levels and on what basis? Based on comments 
received and further review, the BLM may prescribe different 
application periods in the final rule.
    Proposed paragraph (f) would prescribe the information that a 
request for FMP approval would have to include. Proposed paragraph (g) 
would allow concurrent requests for FMP approval and requests for 
approval of off-lease measurement or commingling. Under proposed 
paragraph (h), the BLM will assign a number to the FMP if it approves a 
request.
    This proposed section would implement one of the GAO's 
recommendations that the Interior Department consistently track where 
and how oil and gas are measured, including information about meter 
location, identification number, and owner. Operators would be required 
to obtain approval from the BLM for the location of the FMP at which 
oil or gas is measured. The BLM would then tie the FMP numbers to other 
appropriate approvals, such as site facility diagrams, off- lease 
measurement, commingling, and royalty-free use (if volumes used royalty 
free are measured).
    Operators, purchasers, and transporters would be required to label 
each FMP with the assigned number, to use the FMP number on related 
documents or records, and to use the number for production reporting to 
ONRR. Related documents or records would include, but would not be 
limited to, calibration reports, gas analysis, sales statements, 
manifests, seal records, and approvals.
    The BLM estimates there are approximately 120,000 existing oil and 
gas facilities associated with Federal and Indian leases. Many 
facilities would have one FMP for oil and one FMP for gas, resulting in 
approximately 220,000 FMPs. We anticipate that designating FMPs for 
almost all operators would not require any physical changes to existing 
facilities other than the signage requirements discussed below. The 
only exception would be in some instances of commingling or off-lease 
measurement, which are discussed below in connection with proposed 
Sec. Sec.  3173.14 through 3173.21 (commingling) and proposed 
Sec. Sec.  3173.22 through 3173.28 (off-lease measurement).
    In connection with its creation of a new FMP system, the BLM is 
proposing to revise its existing well and facility identification 
provisions at 43 CFR 3162.6(b) and (c) to include a signage requirement 
for wells on Federal and Indian lands and facilities at which Federal 
or Indian oil or gas is measured or processed. Additional proposed 
revisions to Sec.  3162.6 would:
    (1) Make the surveyed-location language in paragraphs (b) and (c) 
consistent, including a new reference to longitude and latitude; and 
(2) Remove a sentence in paragraph (b) that provided a grace period for 
well signs that were in existence on the effective date of the earlier 
rulemaking
    (2) in which that section was promulgated.
Section 3173.13 Requirements for Approved Facility Measurement Points
    Proposed Sec.  3173.13 sets forth the requirements that would be 
applicable to all approved FMPs. Proposed paragraphs (a) and (b) would 
require operators to stamp or stencil FMP numbers on a fixed plate on 
specified measurement equipment within 30 days after BLM approval of 
the FMP, and maintain that stamp/stencil in a legible condition. Under 
proposed paragraph (c), the operator would be required to use any 
assigned FMP numbers in reporting and recordkeeping on the first day of 
the month after an FMP is assigned. Finally, proposed paragraph (d) 
would require an operator to file a Sundry Notice in connection with 
any changes or modifications to an approved FMP.
Sections 3173.14 through 3173.21 Commingling and Allocation Approvals
    As explained below, Sec. Sec.  3173.14 through 3173.21 of the 
proposed rule would restrict the instances in which the BLM would 
approve commingling and would establish standards that an operator 
would need to meet to obtain an approval. Current regulations (43 CFR 
3162.7-2 and 3162.7-3) require BLM approval before commingling 
production from a Federal or Indian lease with production from other 
sources; however, there are no regulations addressing how or under what 
circumstance commingling should be approved. The requirements proposed 
in these sections are consistent with and would codify the policy 
outlined by the BLM in 2013 with respect to commingling approvals in IM 
2013-152, ``Reviewing Requests for Surface and Downhole Commingling of 
Oil and Gas Produced from Federal and Indian Leases.'' The principal 
substantive difference between the provisions proposed below and the 
BLM's existing IM is that the proposed rule would establish a procedure 
for the BLM to review existing CAAs when the operator applies for 
approval of an FMP. In contrast, the IM focuses solely on new 
commingling arrangements.
Section 3173.14 Conditions for Commingling and Allocation Approval 
(Surface and Downhole)
    Commingling, for the purpose of this proposed rule, is the 
combining of production from multiple sources (leases, unit PAs, CAs, 
or non-Federal or non-Indian properties) before measurement for royalty 
purposes. For example, an operator may have multiple leases or 
properties in the same vicinity with a single sales point for all the 
production from those leases or properties. While the volume measured 
at the sales point is used to determine royalty due, an allocation 
method is employed to determine what percentage of that volume is 
attributable to each lease or property. The allocation percentage is 
typically determined by dividing the volume or rate of production from 
a lease, unit PA, or CA by the total volume or rate from all sources. 
Allocation by volume is determined using allocation meters; allocation 
by rate is determined through periodic well testing.
    Industry often uses the term ``commingling'' to mean any combining 
of production before measurement. The industry informal usage could 
include the combining of production from more than one well on a single 
lease, unit PA, or CA, and the combining of downhole production from 
multiple formations, even if they are within the same lease, unit PA, 
or CA and have the same ownership. For the purpose of this proposed 
rule, none of these examples would be considered commingling and

[[Page 40783]]

this proposed rule would not affect any of them.
    The BLM generally uses the term ``downhole commingling'' to refer 
to combining production between intervals within a wellbore (see 43 CFR 
3162.3-2). Downhole commingling requires BLM approval under that 
section as a subsequent well operation; however, unless the approval 
under Sec.  3162.3-2 includes combining production from different 
leases, unit PAs, or CAs, or production from different geologic 
formations within the same lease, unit PA, or CA that have different 
ownership, an operator would not need a separate approval for downhole 
commingling with respect to production measurement under this proposed 
rule.
    Operators apply for commingling approval for several reasons, 
including: (1) It can simplify accounting to have the sales point be 
the same as the point of royalty measurement; (2) Lower operating costs 
can be achieved by reducing the number of meters required (when using 
well testing as the allocation method); and (3) Lower operating costs 
can also be achieved by eliminating the need for separate plumbing and 
surface equipment (pipelines, separators, dehydrators, compressors, 
tanks, etc.).
    Commingling can also have some advantages for the BLM: (1) More 
accurate measurement can sometimes be achieved from a meter measuring 
combined flows due to better-conditioned, more consistent, and higher 
flow rates than from a single low-volume meter measuring erratic flow 
with a high potential for multiple phases of fluid; (2) The 
environmental footprint can be reduced by reducing the need for 
duplicate surface equipment; and (3) Production accounting can be 
simplified by reducing the number of meters to inspect and verify.
    However, these advantages may be realized without potential 
negative effects on royalty only if the leases, unit PAs, and CAs being 
commingled are all 100 percent Federal or are leased 100 percent by the 
same Indian tribe and are all at the same fixed royalty rate. In that 
situation, the allocation method is irrelevant because the total amount 
of Federal or Indian royalty due will be the same regardless of how it 
is allocated to the individual leases, unit PAs, or CAs included in the 
commingling approval. Consequently, the BLM can ensure accurate 
measurement and proper reporting by inspecting and verifying only the 
sales/royalty meter(s).
    On the other hand, if the properties being commingled are not 100 
percent Federal or leased 100 percent by the same Indian tribe, or have 
different royalty rates, then the method of allocation will affect the 
royalty due. The same is true of Indian allotted leases in virtually 
all circumstances. The ownership of Indian allotted leases has 
descended from the original allottees through several generations to 
numerous current owners, each owning a small percentage of the royalty 
interest. A situation in which two allotted leases have the same lessor 
ownership (i.e., the royalty interests are owned by the same individual 
allottees in identical proportions) would be extremely rare. 
Consequently, the method of allocation would affect the royalty due in 
essentially all circumstances involving allotted leases.
    Because the allocation method in these instances has royalty 
implications, the BLM would have to be able to ensure accurate 
measurement and proper reporting of all meters or facilities involved 
in the allocation process. This includes the sales meters and all 
allocation meters or facilities. Approval of commingling in these 
situations would greatly increase the workload for the BLM because 
there could be dozens of allocation meters involved, all of which would 
be subject to inspection and verification. In addition, the allocation 
methods are often complex and prone to errors and adjustments which 
increase the risk of mis-measurement and mis-reporting if commingling 
were to be permitted.
    Commingling production from Federal or Indian leases with 
production from State or private properties that are not part of a unit 
or CA introduces additional complexities. Unlike a unit or CA, where 
the BLM has explicit authority over measurement points on non-Federal 
or non-Indian properties included in the agreement, the BLM has no 
authority over measurement points on non-Federal or non-Indian lands 
whose production would be commingled with production from Federal or 
Indian leases where no unit or CA exists. Therefore, it would be 
impossible, as a practical matter, for the BLM to verify that the 
allocation percentages are correct, regardless of how they were 
determined.
    Not only does commingling in situations where there are potential 
impacts to royalty make verification more difficult, it also increases 
the uncertainty of volume and quality measurements of oil and gas 
removed or sold from the lease, unit PA, or CA. When royalty is based 
on allocated volumes (whether determined by allocation meter or well 
testing), it is virtually impossible to achieve or verify the required 
uncertainty level for the allocated volumes. For example, when 
allocation is done by well testing,\6\ the royalty-bearing volume of 
oil and gas is calculated by multiplying the oil and gas measured at 
the central point of royalty measurement by the allocation percentage 
obtained through well testing. The uncertainty of the measurement of 
the allocated volume is the combined uncertainty of the volume 
measurement at the central point of royalty measurement and the 
uncertainty inherent in the allocation percentage. The BLM currently 
has no standards for well testing and, even if it did, the fact that 
the production remains unmeasured for 29 out of 30 days (in the case of 
monthly well testing) results in an indeterminate level of uncertainty. 
For allocation by allocation meter, the uncertainty of the allocation 
percentage is the cumulative uncertainty of every allocation meter and 
the central point of royalty measurement.
---------------------------------------------------------------------------

    \6\ Well testing involves periodic testing of the production 
rate for a well, lease, unit, or CA--for example, for 1 or 2 days of 
each production month. Commingled volumes are then allocated back to 
the contributing properties according to the relative production 
rates measured for each of the contributing properties.
---------------------------------------------------------------------------

    Based on these considerations, and to ensure that the BLM can 
verify the measurements on which royalty is based, paragraph (a) of 
proposed Sec.  3173.14 would generally prohibit the commingling of 
production from Federal or Indian leases, unit PAs, or CAs, unless all 
the properties proposed for commingling were 100 percent Federal or 
leased 100 percent by the same Indian tribe, and at the same fixed 
royalty rate.
    Proposed paragraph (b) sets forth the proposed rule's only two 
exceptions that would allow commingling outside these circumstances (in 
other words, where commingling would be allowed if, for example, there 
is a combination of Federal and non-Federal ownership, or Indian 
allotted leases are involved, etc.). First, under proposed paragraph 
(b)(1), the BLM would consider approving commingling for certain low-
volume properties. These would be leases, unit PAs, or CAs that do not 
produce sufficient volumes for the operator to realize, from continued 
production, a sufficient rate of return on the investment required to 
achieve non-commingled measurement of volumes produced from the lease, 
unit PA, or CA, such that a prudent operator would opt to plug a well 
or shut-in the lease, unit PA, or CA if the commingling request were 
not approved. In the absence of information demonstrating a different 
rate, a rate of return less than 10 percent (calculated before Federal,

[[Page 40784]]

State, and local taxes) will be regarded as not sufficient to achieve 
non-commingled measurement. The BLM may accept a different rate of 
return if the operator provides sufficient justification. The BLM is 
seeking comments on the suitability of this rate of return for defining 
a low-volume property. The BLM would also define a low-volume property 
as a lease, unit PA, or CA where the cost required to achieve non-
commingled production would exceed the net present value of the royalty 
projected from the lease, unit PA, or CA proposed for commingling over 
the equipment life.
    Second, under proposed Sec.  3173.14(b)(2), the BLM is also 
proposing to consider approving commingling where overriding 
considerations indicate that the BLM should approve a commingling 
application notwithstanding potential negative royalty impacts from 
commingled measurement. Such situations could include topographic or 
other environmental considerations that make non-commingled measurement 
physically impractical or undesirable, in view of where additional 
measurement and related equipment necessary to achieve non-commingled 
measurement would have to be located. Proposed paragraph (b)(3) would 
require the AO to determine whether approving the commingling would be 
in the public interest, taking into account relevant environmental 
considerations and production verifiability and accountability.
    In connection with these proposed changes, the BLM is proposing to 
revise 43 CFR 3162.3-2 to differentiate between the combining of 
production between intervals within a wellbore on the same lease, unit 
PA, or CA (downhole commingling)--which does not affect production 
accountability--and the combining of production from different leases, 
unit PAs or CAs--which does. Proposed revisions to 43 CFR 3162.3-2(a) 
would make it clear that operators who wish to combine production 
between intervals within a wellbore on the same lease, unit PA, or CA 
could continue to seek approval for this activity under that section, 
and would not need a separate approval under this proposed rule.
Section 3173.15 Applying for a Commingling and Allocation Approval
    Section 3173.15 of the proposed rule would establish the 
requirements operators must follow when requesting a CAA and the 
information they would need to include.
Section 3173.16 Existing Commingling and Allocation Approvals
    Under proposed Sec.  3173.16, the BLM would be required to review 
an existing CAA upon receipt of an operator's request for assignment of 
an FMP number to a facility associated with the CAA. Proposed paragraph 
(a) would require the BLM to review the existing CAA for consistency 
with the minimum standards and requirements under proposed Sec.  
3173.14. The AO would notify the operator in writing of any 
inconsistencies or deficiencies.
    Under proposed paragraph (b), the operator would have 20 business 
days to correct any inconsistencies or deficiencies. Under proposed 
paragraph (c), the BLM could impose new or amended conditions of 
approval (COAs) on an existing CAA to make it compliant with the 
requirements of this proposed rule. If the operator fails to correct 
the deficiencies identified by the BLM, proposed paragraph (d) would 
allow the AO to terminate the CAA. Under proposed paragraph (e), if the 
BLM approved a new CAA to replace an existing agreement, it would be 
effective on the first day of the month following its approval.
    The BLM estimates that there are currently approximately 2,600 
surface commingling approvals nationally, approximately 300 of which 
involve commingling production from Federal or Indian leases with 
production from State or private properties. It is also estimated that 
there are another approximately 8,000 downhole commingling approvals, 
400 of which involve commingling production from Federal or Indian 
leases with production from State or private properties.
    The BLM is proposing a review of existing commingling approvals for 
two reasons. First, many existing commingling approvals are old and are 
not well documented. Operators are sometimes unaware of existing 
commingling approvals or the provisions in the approvals. Second, many 
approvals have involved allocation methods that are difficult or 
impossible to inspect and verify for a variety of reasons, including a 
lack of a well-defined allocation method, overly-complex or 
unverifiable allocation methods, and the inclusion of properties with 
allocation meters over which the BLM has no jurisdiction.
    The following are some common existing commingling situations that 
would likely not be approved under this proposed rule unless an 
operator could show that it meets one of the exceptions identified 
above. In addition to describing these situations, the discussion below 
also identifies alternative arrangements that would help minimize 
surface impacts:

    Example 1: Commingling production from Federal or Indian leases 
with production from State or private properties, using allocation 
meters on each property.

    Under the proposed rule, commingling in this situation would not be 
approved due to the mixed ownership. However, because existing 
allocation meters on Federal leases or federally approved units or CAs 
are already subject to the applicable BLM oil and gas measurement 
requirements, those meters generally could be used as FMPs to determine 
royalty value directly instead of being used to determine allocation 
percentages. As a result, there would be little or no additional 
surface impacts or significant economic impacts from disallowing such 
commingling, as the measurement for purposes of royalty would simply 
occur at the meters that previously had served as allocation meters.

    Example 2:  Commingling production from Federal or Indian leases 
with production from State or private properties, using well testing 
as the allocation method.

    Under the proposed rule, commingling in this situation again would 
not be approved due to mixed ownership. The operator would be required 
to install FMPs to measure the oil and gas sold or removed from each 
lease, unit PA, or CA. (If there is more than one Federal lease with 
the same fixed royalty rate or more than one Indian tribal lease 100 
percent owned by the same tribe at the same fixed royalty rate, the BLM 
could approve commingling production from the Federal leases only or 
from the Indian leases only, but not from both Federal leases and 
Indian leases.) Installing additional FMPs could require some 
additional surface disturbance for measurement and treatment equipment. 
However, well testing typically requires both a test separator and 
equipment to measure the oil and gas produced during the well test. 
While permanent separation and measurement equipment for an FMP may 
require more surface area than the test equipment, the effect on 
surface area disturbance should be minimal.

    Example 3: A liquids-gathering system collects commingled 
production from properties including both Federal or Indian leases 
and State or private lands, and pipes it to a central off-lease 
facility for processing and measurement.

    This situation often arises as a result of environmental mitigation 
measures designed to reduce surface impacts,

[[Page 40785]]

especially those resulting from tanker-truck traffic transporting oil 
from tanks located on the lease, unit PA, or CA. Under the proposed 
rule, commingling in this situation again would not be approved due to 
mixed ownership. Instead, there would be at least two alternatives that 
would ensure that the BLM could verify production and at the same time 
minimize surface impacts:
    First, under the proposed rule, a CAA could be obtained for those 
Federal or Indian leases, unit PAs, and CAs meeting the requirements of 
Sec.  3173.14 of this proposed rule. Separate lines would be needed to 
keep Federal or Indian production segregated from State or private 
production until it was measured at a central processing facility. An 
off-lease measurement approval under Sec. Sec.  3173.22 through 3173.24 
of this proposed rule would also be required. Some additional surface 
disturbance would be necessary for the additional pipeline and 
duplicate separation and measurement equipment at the central location. 
However, this alternative would eliminate the need for tanks (and the 
resulting truck traffic), separators, and measurement equipment on-
site. If a CAA were not practical, then separate pipelines would be 
needed for each Federal or Indian lease, unit PA, or CA.
    Second, a CAA could be obtained for those Federal or Indian leases, 
unit PAs, and CAs meeting the requirements of Sec. Sec.  3173.22 
through 3173.24 of this proposed rule. The Federal or Indian oil and 
gas could be separated and measured on one of the Federal or Indian 
leases, units PAs, or CAs and then either removed by separate 
pipelines, or recombined into a single stream and removed in a single 
pipeline. This would require at least two sets of separators and 
measurement equipment on the producing properties--one set for the 
Federal or Indian production, and one set for the State and private 
production. As with the previous option, however, there would be no 
tanks on the properties, thereby eliminating truck traffic. This 
scenario would require that the oil be measured at the outlet of a 
separator with no associated tank. While this adds some complexity, it 
has proven to be feasible using technology such as Coriolis meters. If 
a CAA were not practical, then individual separation and measurement 
equipment would be needed for each Federal or Indian lease, unit PA, or 
CA.
Section 3173.17 Relationship of a Comingling and Allocation Approval to 
Royalty-Free Use of Production
    Section 3173.17 of the proposed rule would clarify that approval of 
a CAA does not constitute approval of off-lease royalty-free use of 
production as fuel in facilities located at an FMP approved under the 
CAA. Under the currently applicable rule (see Notice to Lessees and 
Operators of Onshore Federal and Indian Oil and Gas Leases No. 4A (NTL-
4A), 44 FR 76600 (Dec. 27, 1979), which implements judicial decisions 
construing relevant statutory provisions and lease terms), the lessee 
or operator may claim royalty-free use only for gas or oil used on the 
same lease, on the unit for the same unit PA, or on the same CA from 
which the gas or oil was produced. Thus, if an FMP approved under a CAA 
is located on one of the leases or CAs or units whose production flows 
to the FMP, the lessee or operator generally may claim royalty-free use 
only for that portion of the gas or oil used as fuel in facilities at 
the FMP that corresponds to the portion of the total production flowing 
to the FMP that is allocable to that lease, CA, or unit, unless the BLM 
approves ``off-lease'' royalty-free use of production from other 
Federal leases, CAs, or units whose production flows to the FMP (see 
discussion below). Similarly, if the FMP is not on any of the leases or 
CAs or units whose production flows to the FMP, the lessee or operator 
may not claim royalty-free use for any of the production used as fuel, 
absent BLM approval. The lessee or operator could seek such approval 
for ``off-lease'' royalty-free use by separate application, as 
discussed further below.
Section 3173.18 Modification of a Commingling and Allocation Approval
    Section 3173.18(a) of the proposed rule identifies the 
circumstances under which all operators who are parties to a CAA may 
request a modification, including: Changes to the allocation schedule; 
inclusion of additional leases, unit PAs, or CAs; termination of a 
lease, unit, or PA within the CAA; or a change in operator. Proposed 
Sec.  3173.18(b) would identify the information that must be submitted 
in connection with a modification request.
Section 3173.19 Effective Date of a Commingling and Allocation Approval
    Section 3173.19(a) and (b) of the proposed rule would identify the 
effective date of a CAA after the approval of an application or 
modification, respectively. Proposed Sec.  3173.19(c) would clarify 
that a CAA does not modify any of the terms of any leases, unit PAs, or 
CAs
Section 3173.20 Terminating a Commingling and Allocation Approval
    Section 3173.20(a) of the proposed rule would provide that any 
operator who is a party to a CAA may unilaterally terminate it by 
submitting a Sundry Notice to the BLM. The operator would be required 
to identify new FMPs for its lease(s), unit PA(s), or CA(s) in the 
Sundry Notice.
    Proposed paragraph (b) would authorize the BLM to terminate an 
approved CAA for any reason. By way of illustration, the proposed rule 
identifies certain circumstances in which the BLM might exercise that 
authority, such as when there have been changes in technology, 
regulation, or policy, or the operator has not complied with the terms 
of the CAA. Proposed paragraph (c) would provide for automatic 
termination of a CAA if only one lease, unit PA, or CA remains in the 
CAA.
    After termination, proposed paragraph (d) would require the BLM to 
notify in writing all operators who are party to the CAA of the 
effective date of the termination and the reasons for it. Under 
proposed paragraph (e), upon termination, each lease, unit PA, or CA, 
would revert to separate on-lease measurement, unless off-lease 
measurement is approved under Sec. Sec.  3173.22 through 3173.28 of 
this proposed rule.
Section 3173.21 Combining Production Downhole in Certain Circumstances
    Section 3173.21 of the proposed rule would identify certain 
circumstances in which downhole comingling would be subject to the 
requirements of this proposed rule. Under proposed paragraph (a)(1), 
the combination of production from a single well drilled into different 
hydrocarbon pools or geologic formations under separate adjacent 
properties, regardless of ownership, where none of the pools or 
formations are common to more than one of the properties, would 
constitute commingling under the proposed rule. If, on the other hand, 
the pools or geologic formations are common to more than one property, 
then under proposed paragraph (a)(2), the operator would be required to 
establish a unit PA or communitization agreement as opposed to 
obtaining a CAA. Proposed paragraph (b) would clarify that combining 
production downhole from different geologic formations on the same 
lease from a single well, while requiring AO approval, is not

[[Page 40786]]

considered commingling for purposes of this proposed rule, unless those 
formations have different ownership.
Sections 3173.22 through 3173.28 Off-Lease Measurement Approvals
    Sections 3173.22 through 3173.28 of the proposed rule would 
establish the circumstances in which the BLM would approve measurement 
of production off the lease, unit, or CA (referred to as ``off-lease 
measurement''). Under the BLM's existing regulations (43 CFR 3162.7-2 
(oil) and 43 CFR 3162.7-3 (gas)), all measurement must be on-lease, 
unit, or CA, unless otherwise authorized by the BLM. However, there are 
currently no national standards that operators must meet when applying 
for off-lease measurement. Neither Order 3 nor other regulations 
address how or under what circumstances the BLM will approve off-lease 
measurement. The proposed provisions below would provide such 
standards.
Section 3713.22 Requirements for Off-Lease Measurement
    Off-lease measurement has led to much confusion over the location 
of measurement points. Many existing meters measure commingled Federal, 
private, and State production, which the operators allocate back to the 
individual lease, unit PA, CA, or CAA located upstream. These off-lease 
central-delivery-point allocation systems have led to significant 
discrepancies between operator-allocated volumes, which operators 
report to ONRR, and the volumes that the BLM calculates during follow-
up audits. In the absence of a national standard for off-lease 
measurement, BLM State Offices have created their own standards, which 
are not consistent.
    Section 3173.22 of this proposed rule would establish conditions 
under which off-lease measurement would be approved. Under this 
proposed section, the BLM would allow off-lease measurement of 
production only from a single Federal or Indian lease, unit PA, CA, or 
CAA, and only at an approved FMP. This proposal could restrict the 
types of situations in which off-lease measurement could occur, and 
therefore could result in the construction of facilities (i.e., meters) 
that previously would not have been required under existing practice. 
Although the BLM generally prefers to limit the number of facilities 
and surface disturbances that occur on Federal leases, the BLM believes 
that limiting the use of off-lease measurement would provide for more 
accurate accounting of oil and gas production as required by Section 
101(a) of FOGRMA, 30 U.S.C. 1711(a).
Section 3173.23 Applying for Off-Lease Measurement
    Section 3173.23 of the proposed rule would establish the 
requirements operators must follow when applying for an off-lease 
measurement approval or amending an existing approval, including 
required supporting information and related documentation.
Section 3173.24 Effective Date of an Off-Lease Measurement Approval
    Proposed Sec.  3173.24 would provide that off-lease measurement 
approvals are effective immediately, unless the BLM specifies a 
different effective date in the approval.
Section 3173.25 Existing Off-Lease Measurement Approval
    Under this proposed section, an existing off-lease measurement 
approval would be reviewed upon receipt of an operator's request for 
the assignment of an FMP number to a facility associated with the off-
lease measurement approval. Proposed Sec.  3173.25(a) would require the 
BLM to review the existing off-lease measurement approval for 
consistency with the minimum standards and requirements in proposed 
Sec.  3173.22. The AO would notify the operator in writing of any 
inconsistencies or deficiencies. Under proposed paragraph (b), the 
operator would have to correct the inconsistencies or deficiencies 
within 20 business days. Under proposed paragraph (c), in connection 
with approving the requested FMP, the BLM could impose new or amended 
COAs on an existing off-lease measurement approval to make it 
consistent with the requirements of this proposed rule. If the operator 
fails to correct the deficiencies, proposed paragraph (d) would allow 
the AO to terminate the off-lease measurement approval. Under proposed 
paragraph (e), if the BLM approves a new off-lease measurement 
arrangement, that new arrangement would be effective on the first day 
of the month following its approval.
    The BLM estimates that for FY 2014, there were approximately 25,404 
producing onshore Federal and Indian leases, unit PAs, and CAs. Of 
those, approximately 1,500 have off-lease measurement approvals where 
there is no commingling (in situations, for example, where the well is 
located in difficult-to-access or environmentally sensitive area). The 
BLM anticipates that a few of these off-lease measurement points may 
not meet the minimum standards of this rule and would not be re-
approved. If any existing off-lease measurement point is not re-
approved under the proposed rule, the lessee or operator would be 
required to move the measurement facilities back on-lease or install 
new measurement facilities on-lease.
Section 3173.26 Relationship of Off-Lease Measurement Approval to 
Royalty-Free Use of Production
    Section 3173.26 of the proposed rule would clarify that approval of 
off-lease measurement does not constitute approval of off-lease 
royalty-free use of production as fuel in facilities located at an 
approved off-lease FMP. Under NTL-4A, as noted above, the lessee or 
operator may claim royalty-free use only for gas or oil used on the 
same lease, on the unit for the same unit PA, or on the same CA from 
which the gas or oil was produced. Thus, the lessee or operator may not 
claim royalty-free use for any of the production used as fuel at an 
off-lease FMP, absent BLM approval. The lessee or operator could seek 
such approval by separate application.
Section 3173.27 Termination of Off-Lease Measurement Approval
    Section 3173.27(a) of the proposed rule would provide that an 
operator may terminate an off-lease measurement arrangement through the 
submittal of a Sundry Notice to the BLM, which would have to identify 
the new FMPs for the lease(s), unit(s), or CA(s) that had been subject 
to the off-lease measurement approval. Proposed paragraph (b) of this 
section would authorize the BLM to terminate an approved off-lease 
measurement arrangement for any reason. By way of illustration, this 
proposed paragraph would identify certain circumstances under which the 
BLM might exercise that authority. Proposed paragraph (c) would provide 
that the BLM would notify the operator in writing of the termination of 
the off-lease measurement approval, the reasons for termination, and 
the effective date of the termination. Under proposed paragraph (d), 
after termination, each lease, unit, or CA that was subject to the off-
lease measurement approval would revert to on-lease measurement.
Section 3173.28 Instances Not Constituting Off-Lease Measurement, for 
which No Approval Is Required
    Section 3173.28 of the proposed rule would identify two 
circumstances that would not be considered off-lease measurement for 
purposes of the proposed rule. The first is where an FMP is located on 
a well pad of a directionally-drilled well that produces oil or gas 
from a lease, unit, or CA on which the well pad is not located. The

[[Page 40787]]

second is where a lease, unit, or CA is made up of separate non-
contiguous tracts. If production is moved from one tract to another 
tract within the same lease, unit, or CA, and the production is not 
diverted during movement between the tracts before the FMP (except for 
production used royalty-free), measurement would not be considered to 
be off-lease measurement.
Section 3173.29 Immediate Assessments for Certain Violations
    Proposed Sec.  3173.29 would expand the number and types of 
violations that would be subject to immediate assessments. Currently, 
BLM regulations at 43 CFR 3163.1(b) identify three violations that 
warrant immediate assessments. Section IV. of Order 3 identifies one 
further violation that results in an immediate assessment. The existing 
immediate assessments are not civil penalties and are separate from the 
civil penalties authorized under Section 109 of FOGRMA, 30 U.S.C. 1719.
    The authority for the BLM to impose these assessments was explained 
in the preamble to the final rule in which 43 CFR 3163.1 was originally 
promulgated in 1987:

    The provisions providing assessments have been promulgated under 
the Secretary of the Interior's general authority, which is set out 
in Section 32 of the Mineral Leasing Act of 1920, as amended and 
supplemented (30 U.S.C. 189), and under the various other mineral 
leasing laws. Specific authority for the assessments is found in 
Section 31(a) of the Mineral Leasing Act (30 U.S.C. 188(a)), which 
states, in part ``. . . the lease may provide for resort to [sic] 
appropriate methods for the settlement of disputes or for remedies 
for breach of specified conditions thereof.'' All Federal onshore 
and Indian oil and gas lessees must, by the specific terms of their 
leases which incorporate the regulations by reference, comply with 
all applicable laws and regulations. Failure of the lessee to comply 
with the law and applicable regulations is a breach of the lease, 
and such failure may also be a breach of other specific lease terms 
and conditions. Under Section 31(a) of the Act and the terms of its 
leases, the BLM may go to court to seek cancellation of the lease in 
these circumstances. However, since at least 1942, the BLM (and 
formerly the Conservation Division, U.S. Geological Survey), has 
recognized that lease cancellation is too drastic a remedy, except 
in extreme cases. Therefore, a system of liquidated damages was 
established to set lesser remedies in lieu of lease cancellation.
    The BLM recognizes that liquidated damages cannot be punitive, 
but are a reasonable effort to compensate as fully as possible the 
offended party, in this case the lessor, for the damage resulting 
from a breach where a precise financial loss would be difficult to 
establish. This situation occurs when a lessee fails to comply with 
the operating and reporting requirements. The rules, therefore, 
establish uniform estimates for the damages sustained, depending on 
the nature of the breach.


53 FR 5384, 5387 (Feb. 20, 1987). The immediate assessments reflect a 
recognition that the BLM continues to incur costs associated with 
correcting violations of lease terms and regulations.
    The additional assessments in this proposed rule address violations 
that pose particular threats to the integrity of the BLM's production 
accounting system. These are violations that significantly increase the 
BLM's workload and enforcement costs. Accordingly, the BLM proposes to 
make the 10 violations listed in proposed Sec.  3173.29 subject to 
immediate assessments.
    Three immediate assessments would apply to purchasers and 
transporters as well as operators. This extension is being proposed 
because they pertain to operational functions on the lease site that a 
purchaser or transporter may, in some circumstances, perform instead of 
the operator--e.g., removing a Federal seal without authorization 
(proposed Sec.  3173.4) or failure to report theft or mishandling of 
production (proposed Sec.  3173.8). Extending responsibility to 
purchasers and transporters with respect to functions they perform also 
implements the site security provisions of Section 102(b) of FOGRMA, 30 
U.S.C. 1712(b), which require operators to develop and comply with site 
security plans, or minimum site security measures that the Secretary 
deems appropriate, that are designed to protect the oil or gas produced 
or stored on an onshore lease site from theft. Thus, the authority for 
these requirements is found in both the general rulemaking authority of 
the various mineral leasing statutes (including the MLA at 30 U.S.C. 
189 and the Mineral Leasing Act for Acquired Lands at 30 U.S.C. 359) 
and the rulemaking authority in Section 301(a) of FOGRMA, 30 U.S.C. 
1751(a).
    The recordkeeping requirements imposed on purchasers and 
transporters in Sec.  3170.7 of the proposed rule discussed above are 
imposed under Section 103(a) of FOGRMA, 30 U.S.C. 1713(a). Similar to 
the authority granted in the MLA at 30 U.S.C. 189, the general 
rulemaking authority of FOGRMA Section 301(a) provides authority for 
the BLM to impose immediate assessments on purchasers and transporters 
who fail to follow the proposed new requirements for recordkeeping and 
records maintenance.
    All of the immediate assessments under this proposed rule would be 
set at $1,000 per violation. The BLM chose the $1,000 figure because it 
generally approximates what it would cost the agency on average to 
identify and document a violation and verify remedial action and 
compliance.

Enforcement Actions

    This proposal would remove the enforcement, corrective action, and 
abatement period provisions of Order 3. In their place, the BLM would 
develop an internal inspection and enforcement handbook that would 
provide direction to BLM inspectors on how to classify a violation--as 
either major or minor--what the corrective action should be, and what 
the timeframes for correction should be. The proposed rule would take 
the approach that the violation's severity and corrective action 
timeframes should be decided on a case-by-case basis, determined based 
on the definitions in the regulations. In deciding how severe a 
violation is, BLM inspectors must take into account whether a violation 
could result in ``immediate, substantial, and adverse impacts on public 
health and safety, the environment, production accountability, or 
royalty income.'' (Definition of ``major violation,'' 43 CFR 3160.0-5.) 
The AO would use the enforcement handbook in conjunction with 43 CFR 
subpart 3163, which provides for assessments and civil penalties when 
lessees and operators fail to remedy their violations in a timely 
fashion, and for immediate assessments for certain violations.

Elimination of Self Inspections

    The BLM is proposing to eliminate the self-inspection provision of 
Order 3, section III.F., because it has been impractical for the BLM to 
enforce. Order 3 requires a lessee or operator to establish an 
inspection program for the purpose of periodically measuring production 
volumes and assuring that there is compliance with the BLM's minimum 
site security requirements. However, Order 3's language is vague and 
the BLM has never supplemented it with internal guidance or enforcement 
policy. As a result, the BLM determined this requirement was of limited 
utility. In lieu of reworking or updating this requirement, this 
proposed rule would strengthen recordkeeping requirements for 
operators, transporters, and purchasers, which the BLM believes will 
ultimately accomplish the same results and be of more use going 
forward.

[[Page 40788]]

Miscellaneous changes to other BLM regulations in 43 CFR part 3160

    As noted at the beginning of this section-by-section analysis, the 
BLM is proposing other changes to provisions in 43 CFR part 3160. Some 
of those have already been discussed above in connection with 
provisions of this proposed rule to which they relate. The remaining 
proposed revisions are those noted here.
    1. The authority citation for part 3160 would be corrected to 
include 25 U.S.C. 396, the grant of rulemaking authority to the 
Secretary for allotted Indian leases, which does not appear in the 
current print edition of the CFR.
    2. Section 3160.0-3, Authority, would be updated to include the 
amendments to the Federal Oil and Gas Royalty Management Act of 1982 
enacted by the Federal Oil and Gas Royalty Simplification Act of 1996.
    3. Section 3161.1, Jurisdiction, would be updated to include 
references to FMPs, the Indian Mineral Development Act, and Tribal 
Energy Resource Agreements. The revisions would also mirror the new 
language in proposed Sec.  3170.2.
    4. Section 3162.3-2 would be revised by adding a new paragraph (d), 
which would refer operators to proposed provisions in subpart 3173 for 
details on how to apply for approval of FMPs, surface or subsurface 
commingling from different leases, unit PAs and CAs, or off-lease 
measurement.
    5. Section 3162.4-3, the provisions regarding the no-longer-used 
Form 3160-6 (the monthly report of operations) would be removed.
    6. Section 3162.6, Well and facility identification, would be 
revised to correct the misspelled word ``indentification'' in paragraph 
(a) to read ``identification.'' Paragraph (b) would be revised to 
remove a provision allowing abbreviated sign designations and a 
``grandfathering'' provision for old well signs. Paragraph (c) would be 
revised to extend signage requirements to include facilities at which 
oil or gas produced from Federal or Indian leases is stored or 
processed. The fifth sentence of the current paragraph (c) would become 
the new paragraph (d), with its wording revised. The current paragraph 
(d) would become paragraph (e).
    7. Section 3162.7-5, Site security on Federal and Indian (except 
Osage) oil and gas leases, would be removed. The provisions in the 
proposed rule that correspond to, or cover the same subject matter as, 
the several paragraphs in Sec.  3162.7-5 are shown in the following 
table:
BILLING CODE 4310-84-C

[[Page 40789]]

[GRAPHIC] [TIFF OMITTED] TP13JY15.117

BILLING CODE 4310-84-P
    8. Section 3163.2, Civil penalties, would be rewritten to address 
purchasers and transporters who are not operating rights owners. 
Paragraph (k) would be amended to change ``shall'' to ``will'' and to 
remove the references to ``other liquid hydrocarbons,'' because other 
liquid hydrocarbons would be encompassed within the definition of the 
term ``oil'' in proposed Sec.  3170.3.
    9. Section 3164.1, Onshore Oil and Gas Orders, would be revised to 
remove the reference to Order No. 3, Site Security, from the table in 
paragraph (b) because the Order would be replaced by this codified 
proposed rule.

Onshore Order Public Meetings, April 23-24, 2013

    On April 24 and 25, 2013, the BLM held a series of public meetings 
to discuss proposed revisions to Orders 3, 4, and 5. The meetings were 
webcast so tribal members, industry, and the public across the country 
could participate and ask questions either in person or over the 
internet. Following the forum, the BLM opened a 36-day informal comment 
period, during which 13 comment letters were submitted. The following 
summarizes comments the BLM received relating to Order 3 and our 
response:
    1. The BLM should use the API number or the LR (Legacy Rehost) 2000 
system serial number rather than create a new FMP numbering system.
    The BLM disagrees with this comment and believes that this 
suggestion would be unworkable. The BLM and State regulators use API 
numbers to identify individual wells while at the same time the BLM 
uses LR 2000 system serial numbers to identify leases. The BLM's 
proposed FMP numbering system would be used to identify facilities 
(meters) that serve any number of wells and leases, and whose 
measurements affect the calculation of the volume or quality of 
production on which royalty is owed. The FMP numbers would be based on 
an FMP numbering system that the former Minerals Management Service 
developed for offshore production reporting. ONRR continues to use that 
system. The FMP numbering system used by ONRR will generate numbers 
that indicate whether a lease is onshore or offshore, the mineral 
produced (oil or gas), whether the measurement is commingled or off-
lease, and other relevant information. The BLM believes that using the 
same FMP numbering system for production reporting for onshore leases 
likely will save time and

[[Page 40790]]

money by developing a system compatible with that already in use by 
ONRR.
    2. Clarify the level of detail on site facility diagrams involving 
royalty-free use.
    The BLM agrees with this comment. In light of this suggestion, the 
BLM is proposing that the operator identify each piece of equipment 
powered by production from the lease, unit, or CA. If the operator 
claims royalty-free volumes, the diagram (or an attachment) would have 
to state the estimated volume the equipment consumes per day and per 
month, how the volume is determined, the equipment manufacturer's name, 
rated use, and equipment serial number. (Alternatively, the royalty-
free volume used by the equipment could be measured.) The proposed rule 
includes a number of general sample site facility diagrams.
    3. Reduce the level of detail required on site facility diagrams 
for equipment used to determine quality and quantity of production.
    The BLM agrees with this comment. The proposed rule would require 
the operator to submit the relevant information regarding meters and 
other measurement equipment when it requests an FMP designation or 
amends an existing FMP. Thus, requiring this information on the site 
facility diagrams is unnecessary.
    4. ``Grandfather'' existing approvals for off-lease measurement and 
commingling, and ``grandfather'' existing site facility diagrams.
    The BLM believes that a ``grandfathering'' approach is not 
workable. ``Grandfathering'' would result in a patchwork of multiple 
and incompatible requirements. The BLM would have to track which 
approvals were grandfathered. The BLM is proposing to update 
commingling approval requirements because existing requirements have 
proven problematic in ensuring and verifying accurate measurement. If 
existing approvals were ``grandfathered,'' updated requirements would 
come into effect only incrementally and over many years as new 
facilities came on line and older facilities were modified.
    5. ``Grandfather'' existing equipment and Order 3 requirements.
    The BLM disagrees with this comment. Grandfathering is generally 
unworkable for two reasons. First, grandfathering results in two tiers 
of equipment--older equipment that must meet the standards of a rule 
that is no longer in effect and newer equipment that has to meet the 
standards of the new rule. This not only requires the BLM to maintain, 
inspect against, and enforce two sets of regulations (one of which no 
longer applies to equipment coming into service), but also to track 
which FMPs have been grandfathered and which are subject to the new 
regulations. Second, the purpose for promulgating new regulations is to 
ensure accurate and verifiable measurement of oil and gas removed or 
sold from Federal and Indian leases. In lieu of grandfathering, the BLM 
has proposed grace periods for bringing existing facilities into 
compliance with the proposed standards (see Sec. Sec.  3173.12, 
3173.16, and 3173.25). These grace periods would be tied to volumes 
measured by the soon-to-be-designated FMPs, giving lower-volume 
operations more time to apply for their FMPs.
    6. Determine if commingling is economically justified by using net 
present value of investment cost of non-commingled measurement in lieu 
of a rate-of-return method (used in this proposed rule), and that if 
the net present value of the investment cost was less than 1.5 times 
the investment, then commingling should be approved.
    The BLM requested clarification of this comment to analyze the 
potential impacts of the proposed method. However, the BLM received no 
response to its inquiry. Consequently, the BLM does not believe it has 
an adequate basis on which to propose such a method. In connection with 
this proposed rule, the BLM would be interested in any information 
regarding alternate methods for determining if commingling is 
economically justified.
    7. The economic analysis of a request for commingling approval 
should consider all costs of lease development and not just the costs 
associated with achieving non-commingled measurement.
    The BLM disagrees with this comment. The BLM believes this would be 
unworkable, time-consuming, and expensive, as well as inaccurate with 
respect to the issue addressed. The BLM would not have access to all of 
the drilling and development costs, the calculations would be 
inordinately complex, and those costs in any event are not 
determinative of whether commingled measurement is economically 
justified. Whether commingled measurement is economically justified is 
a function of the marginal cost difference between commingled 
measurement and non-commingled measurement.
    8. The BLM should not take enforcement actions against purchasers 
and transporters for not maintaining and submitting records.
    The BLM disagrees with this comment. The requirement for purchasers 
and transporters to maintain records is imposed by FOGRMA. This 
proposed rule would affect approximately 200-300 purchasers and 
transporters, but as explained earlier, the BLM believes it is 
necessary to support the BLM's production verification and 
accountability efforts.
    9. Immediate assessments are arbitrary, ambiguous, and unnecessary.
    The BLM disagrees with this comment. The specific immediate 
assessments proposed and the reasons for proposing them are discussed 
earlier.
    10. The BLM Enforcement Manual should be made public.
    The BLM agrees with this comment. The Enforcement Manual will be 
posted on the BLM Web site at approximately the same time as the 
effective date of the final rule.

IV. Procedural Matters

Executive Orders 12866 and 13563, Regulatory Planning and Review

    Executive Order 12866 provides that the Office of Information and 
Regulatory Affairs (OIRA) will review all significant rules. OIRA has 
determined that this rule is not significant.
    Executive Order 13563 reaffirms the principles of E.O. 12866 while 
calling for improvements in the nation's regulatory system to promote 
predictability, to reduce uncertainty, and to use the best, most 
innovative, and least burdensome tools for achieving regulatory ends. 
The executive order directs agencies to consider regulatory approaches 
that reduce burdens and maintain flexibility and freedom of choice for 
the public where these approaches are relevant, feasible, and 
consistent with regulatory objectives. E.O. 13563 emphasizes further 
that regulations must be based on the best available science and that 
the rulemaking process must allow for public participation and an open 
exchange of ideas. We have developed this proposed rule in a manner 
consistent with these requirements.
    1. The proposed rule would not have an annual effect on the economy 
of $100 million or more or adversely affect in a material way the 
economy, a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, or tribal 
governments or communities.
    The requirement for more detailed site facility diagrams is the 
most significant proposed provision that could increase the cost 
associated with the development of Federal and Indian

[[Page 40791]]

oil and gas leases. The BLM already requires Federal and Indian oil and 
gas producers to provide generalized diagrams that show each piece of 
equipment that is used at a facility, including connections between 
each piece of equipment, and valve positions on production storage 
tanks. Under this proposed rule, operators would be required to submit 
new diagrams that also show additional information. Companies may incur 
additional costs associated with verifying and submitting this 
information and new diagrams.
    The BLM estimates that 3,700 operators would submit approximately 
125,000 new diagrams when the requirement is first implemented and that 
it would take the BLM approximately 3 years to process the submissions. 
The total one-time cost to the regulated community would be 
approximately $63.3 million, spread over 3 years. An operator would be 
required to submit the new diagrams for a facility that is in service 
before the final rule's effective date within 30 days after the BLM 
assigns the FMP number(s) to that facility. An operator would be 
required to submit the new diagrams for a new facility (i.e., one not 
yet in service on the effective date of the final rule) within 30 days 
after construction of the facility. On an ongoing basis, the BLM 
estimates operators would submit about 5,000 new diagrams per year for 
a total annual cost to the regulated community of $2.5 million. Once 
incorporated into the submission and review process, this requirement 
should not significantly change costs for the BLM, lessees, operators, 
purchasers, or transporters.
    Another proposed administrative change in this rule would require 
operators, within 27 months after the effective date of the final rule, 
to obtain BLM-issued FMP numbers, which would be used for labeling 
facilities and for reporting. Currently, companies have their own 
individualized internal systems for identifying facilities where 
production is measured for determining royalty. The BLM anticipates 
that 3,700 operators would submit 220,000 initial applications for the 
new FMP numbers, which operators would then stamp or stencil on a fixed 
plate. It would take the BLM approximately 3 years to process the FMP 
applications. The BLM estimates there would be a total one-time cost to 
the regulated community of approximately $55.7 million to convert to 
the new numbering system, which would be spread over 3 years. On an 
ongoing basis, the BLM anticipates operators would submit approximately 
4,000 new and amended FMP applications each year, for an approximate 
cost to the regulated community of $1 million per year.
    This proposed rule would establish new requirements associated with 
lessees and operators commingling production from different leases, 
CAs, or PAs, and in some instances existing commingling approvals would 
be modified. Of the approximately 10,541 existing commingling 
approvals, the BLM anticipates that only 710 of them would not meet the 
new requirements because they include private and State leases whose 
production is commingled with production from Federal or Indian oil and 
gas leases. Under the proposed rule, the BLM would modify or terminate 
these unless the operator could demonstrate that the cost of achieving 
non-commingled measurement would not be economically recoverable based 
on the low volume of oil and gas produced or could show other 
extenuating circumstances.
    The BLM estimates that 50 percent, or 355, of the existing 
approvals that do not meet the proposed new requirements would remain 
in place due to their low production volumes and the other 50 percent 
would be terminated or modified. Measuring equipment, most likely 
allocation meters, serving the terminated arrangements would have to be 
converted into FMPs and updated to meet the new oil and gas measurement 
standards that the BLM anticipates proposing as separate rules that 
would be codified at new 43 CFR subparts 3174 and 3175. The costs for 
upgrading measuring equipment would be most appropriately discussed in 
the preambles and economic analyses supporting those proposed rules. 
Operators could incur some administrative costs associated with 
converting allocation meters into FMPs if they wish to continue to use 
these facilities for their own internal allocation purposes. For new 
and modified commingling agreements, we anticipate the proposed 
revision would increase industry costs by about $5.1 million per year.
    Proposed new records management requirements could, depending on 
individual business practices, have a small direct economic impact on 
lessees, operators, transporters, and purchasers. These minor added 
expenses would primarily relate to incorporating the new requirements 
into existing records management practices and procedures. An estimated 
200 to 300 purchasers and transporters would have new recordkeeping 
responsibilities under this proposed rule. It is highly probable that 
purchasers and transporters are already compiling records that would, 
for the most part, satisfy the proposed requirements. The BLM believes 
that these new recordkeeping requirements would impose a minimal cost 
on the regulated community.
    Expanded recordkeeping requirements pertaining to water-draining 
and hot-oiling operations would cost lessees and operators 
approximately $1.2 million per year in annual ongoing costs. This 
change would enhance production accountability by making it easier for 
the BLM to verify the volumes of water that operators drain from 
storage tanks and the volumes of oil that they temporarily remove from 
storage, use for operational purposes, and then return to storage.
    The fifth and final provision that would involve a direct cost to 
the regulated community is a proposal that would establish new 
requirements that would apply to lessees and operators who measure 
production off-lease, but who are not part of any commingling approval. 
Of the approximately 1,500 existing off-lease measurement approvals, 
the BLM estimates that less than 5 percent would be terminated or 
modified because they do not meet the standards of the proposed rule. 
Operators of those leases, CAs, or units that do not meet the new 
requirements would have to install and maintain new meters on the 
lease, CA, or unit. The BLM estimates that the cost of moving or 
installing new meters on the lease, CA, or unit would be $20,000 per 
measurement point, for a one-time total cost to industry of $1.6 
million.
    This proposed rule would increase the number of categories of 
violations where immediate assessments could be imposed. The BLM 
anticipates enforcement actions and immediate assessments would 
continue to be relatively infrequent occurrences.
    To accommodate the issuance of FMP numbers and the inclusion of 
purchasers and transporters within certain of the rule's requirements, 
the BLM would need to enhance AFMSS, the BLM's main oil and gas data 
system. The BLM would also experience an increased workload associated 
with issuing FMP numbers, diagram reviews, and other administrative 
requirements. The BLM estimates a one-time cost, spread over a 3-year 
period, to the BLM of about $29.1 million to implement the proposed 
changes. On an ongoing basis the BLM estimates its costs would increase 
by about $3.4 million per year.
    In total, the BLM estimates these requirements would increase 
operator

[[Page 40792]]

annual expenses by approximately $13.5 million. In addition, there 
would be a one-time cost to implement the new provisions of about 
$121.5 million. The one-time implementation costs would be spread over 
3 years, or about $40 million per year.
    2. The proposed rule would not create inconsistencies with other 
agencies' actions. It would not change the relationships of the BLM to 
other agencies and their actions.
    3. The proposed rule would not materially affect entitlements, 
grants, user fees, or loan programs, or the rights and obligations of 
their recipients. The proposed rule does not address any of these 
programs or issues.
    4. The proposed rule would not raise novel legal or policy issues 
arising out of legal mandates, the President's priorities, or the 
principles set forth in the Executive Order.

Regulatory Flexibility Act

    The BLM certifies that this proposed rule would not have a 
significant economic effect on a substantial number of small entities 
as defined under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
The Small Business Administration (SBA) has developed size standards to 
carry out the purposes of the Small Business Act and those size 
standards can be found at 13 CFR 121.201. Small entities for mining, 
including the extraction of crude oil and natural gas, are defined by 
the SBA as an individual, limited partnership, or small company 
considered being at ``arm's length'' from the control of any parent 
companies, with fewer than 500 employees.
    Of the 6,628 domestic firms involved nationwide in oil and gas 
extraction, 99 percent, or 6,530, had fewer than 500 employees. There 
are another 10,160 firms involved nationwide in drilling and other 
support functions. Of the firms providing support functions, 98 percent 
of those firms had fewer than 500 employees. Based on this national 
data, the preponderance of firms involved in developing on-shore oil 
and gas resources are small entities as defined by the SBA.
    In addition to lessees and operators, the BLM must consider the 
size of the purchasers' and transporters' firms. There are multiple 
North American Industry Classification System (NAICS) categories that 
could include firms involved in the purchasing and transporting of 
petroleum from Federal and Indian leases. For example, some purchasers 
could be petroleum refiners. For petroleum refiners, the SBA standard 
says a small business cannot have more than 1,500 employees or more 
than 125,000 barrels per calendar day total Operable Atmospheric Crude 
Oil Distillation capacity. Capacity includes owned or leased facilities 
as well as facilities under a processing agreement or an arrangement 
such as an exchange agreement or a throughput agreement. For 
wholesalers, including petroleum wholesalers, the SBA standard for a 
small entity is one that has fewer than 100 employees. For truck 
transporters, the SBA defines a small entity as a firm with less than 
$27.5 million in annual receipts. For natural gas pipeline operators, 
the standard is a maximum of $27.5 million in receipts per year. For 
crude oil pipelines the standard is fewer than 1,500 employees.
    As discussed above, national data, including number of firms, 
number of employees by firm, and annual receipts by firm, is not 
discretely identified for purchasers and transporters of petroleum or 
natural gas. The potentially affected purchasers and transporters would 
likely be a minor component in any number of the relevant NAICS 
categories. Of the few NAICS categories where reported employment, 
receipt, and production data matches up with the SBA size standards, 
the preponderance of the firms would be considered small entities as 
defined by the SBA.
    Based on the available national data, the preponderance of firms 
involved in developing, producing, purchasing, and transporting oil and 
gas from Federal and Indian lands are small entities as defined by the 
SBA. As such, it appears a substantial number of small entities would 
be potentially affected by the proposed rule to some degree.
    Using the best available government data, the BLM estimates there 
are approximately 3,700 lessees and operators conducting operations on 
Federal and Indian lands that could be affected by the proposed rule. 
Additionally, the BLM estimates there are approximately 200 to 300 
purchasers and transporters operating on Federal and Indian lands that 
potentially could be affected by this proposed rule.
    In addition to determining whether a substantial number of small 
entities are likely to be affected by this rule, the BLM must also 
determine whether the rule is anticipated to have a significant 
economic impact on those small entities. Based on its analysis, the BLM 
anticipates the cost of implementing the proposed provisions to 
potentially reduce the average annual net income of impacted small 
entities by less than 0.001 percent. Except for the electronic filing 
requirement, all of the proposed provisions would apply to entities 
regardless of size. However, entities with the greatest activity would 
likely experience the greatest increase in compliance costs. As a 
general matter, smaller business entities are more likely to operate a 
smaller number of sites and FMPs for which they would have to submit 
the information and documentation that this proposed rule would 
require. Copies of the analysis can be obtained from the contact person 
listed earlier (see FOR FURTHER INFORMATION CONTACT).
    Based on the available information, we conclude that the proposed 
rule would not have a significant impact on a substantial number of 
small entities. Therefore, a final Regulatory Flexibility Analysis is 
not required, and a Small Entity Compliance Guide is not required.

Small Business Regulatory Enforcement Fairness Act

    This proposed rule is not a major rule under 5 U.S.C. 804(2), the 
Small Business Regulatory Enforcement Fairness Act. This rule would not 
have an annual effect on the economy of $100 million or more. As 
explained in the discussion above concerning Executive Order 12866, 
Regulatory Planning and Review, changes in the proposed rule would 
increase the ongoing cost associated with the development of Federal 
and Indian oil and gas resources by an estimated $13.5 million annually 
for all operators together. In addition, there would be a one-time cost 
to implement the new provisions of about $121.5 million. The one-time 
implementation costs would be spread over 3 years, or about $40 million 
per year.
    This rule proposes to replace Order 3 to ensure that oil and gas 
produced from Federal and Indian leases is properly and securely 
handled so that these resources are accurately accounted for.
    This proposed rule:
     Would not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, tribal, or local 
government agencies, or geographic regions; and
     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.

Unfunded Mandates Reform Act

    In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 
et seq.), the BLM finds that:
     This proposed rule would not ``significantly or uniquely'' 
affect small governments. A Small Government Agency Plan is 
unnecessary.

[[Page 40793]]

     This proposed rule would not produce a Federal mandate of 
$100 million or greater in any single year.
    The proposed rule is not a ``significant regulatory action'' under 
the Unfunded Mandates Reform Act. The changes proposed in this rule 
would not impose any requirements on any non-Federal governmental 
entity.

Executive Order 12630, Governmental Actions and Interference With 
Constitutionally Protected Property Rights (Takings)

    Under Executive Order 12630, the proposed rule would not have 
significant takings implications. A takings implication assessment is 
not required. This proposed rule would set minimum standards for 
ensuring that oil and gas produced from Federal and Indian (except the 
Osage Tribe) oil and gas leases are properly and securely handled, so 
as to prevent theft and loss and to enable accurate measurement and 
production accountability. All such actions are subject to lease terms 
which expressly require that subsequent lease activities be conducted 
in compliance with applicable Federal laws and regulations. The 
proposed rule conforms to the terms of those Federal leases and 
applicable statutes, and as such the proposed rule is not a 
governmental action capable of interfering with constitutionally 
protected property rights. Therefore, the proposed rule would not cause 
a taking of private property or require further discussion of takings 
implications under this Executive Order.

Executive Order 13132, Federalism

    In accordance with Executive Order 13132, the BLM finds that the 
proposed rule would not have significant Federalism effects. A 
Federalism assessment is not required. This proposed rule would not 
change the role of or responsibilities among Federal, State, and local 
governmental entities. It does not relate to the structure and role of 
the states and would not have direct, substantive, or significant 
effects on states.

Executive Order 13175, Consultation and Coordination with Indian Tribal 
Governments

    Under Executive Order 13175, the President's memorandum of April 
29, 1994, ``Government-to-Government Relations with Native American 
Tribal Governments'' (59 FR 22951), and 512 Departmental Manual 2, the 
BLM evaluated possible effects of the proposed rule on federally 
recognized Indian tribes. The BLM approves proposed operations on all 
Indian onshore oil and gas leases (other than those of the Osage 
Tribe). Therefore, the proposed rule has the potential to affect Indian 
tribes. In conformance with the Secretary's policy on tribal 
consultation, the BLM held three tribal consultation meetings to which 
more than 175 tribal entities were invited. The consultations were held 
in:
     Tulsa, Oklahoma on July 11, 2011;
     Farmington, New Mexico on July 13, 2011; and
     Billings, Montana on August 24, 2011.
     In addition, the BLM hosted a tribal workshop and webcast 
on April 24, 2013.


The purpose of these meetings was to solicit initial feedback and 
preliminary comments from the tribes. Comments from the tribes will 
continue to be accepted and consultation will continue as this 
rulemaking proceeds. To date, the tribes have expressed concerns about 
the subordination of tribal laws, rules, and regulations to the 
proposed rule; tribes' representation on the Department of the 
Interior's Gas and Oil Measurement Team; and the BLM's Inspection and 
Enforcement program's ability to enforce the terms of this proposed 
rule. While the BLM will continue to address these concerns, none of 
the concerns expressed affect the substance of the proposed rule.

Executive Order 12988, Civil Justice Reform

    Under Executive Order 12988, the Office of the Solicitor has 
determined that the proposed rule would not unduly burden the judicial 
system and meets the requirements of Sections 3(a) and 3(b)(2) of the 
Order. The Office of the Solicitor has reviewed the proposed rule to 
eliminate drafting errors and ambiguity. It has been written to 
minimize litigation, provide clear legal standards for affected conduct 
rather than general standards, and promote simplification and burden 
reduction.

Executive Order 13352, Facilitation of Cooperative Conservation

    Under Executive Order 13352, the BLM has determined that this 
proposed rule would not impede the facilitation of cooperative 
conservation and would take appropriate account of and consider the 
interests of persons with ownership or other legally recognized 
interests in land or other natural resources. This rulemaking process 
will involve Federal, State, local and tribal governments, private for-
profit and nonprofit institutions, other nongovernmental entities and 
individuals in the decision-making via the public comment process for 
the proposed rule. The process would provide that the programs, 
projects, and activities are consistent with protecting public health 
and safety.

Paperwork Reduction Act

 I. Overview
    The Paperwork Reduction Act (PRA) (44 U.S.C. 3501-3521) provides 
that an agency may not conduct or sponsor, and a person is not required 
to respond to, a ``collection of information,'' unless it displays a 
currently valid control number. Collections of information include 
requests and requirements that an individual, partnership, or 
corporation obtain information, and report it to a Federal agency. 44 
U.S.C. 3502(3); 5 CFR 1320.3(c) and (k).
    This proposed rule contains information collection requirements 
that are subject to review by OMB under the PRA. Collections of 
information include any request or requirement that persons obtain, 
maintain, retain, or report information to an agency, or disclose 
information to a third party or to the public (44 U.S.C. 3502(3) and 5 
CFR 1320.3(c)). In accordance with the PRA, the BLM is inviting public 
comment on proposed new information collection requirements for which 
the BLM is requesting a new OMB control number.
    Some of the proposed requirements would add new uses and burdens 
for BLM Form 3160-5, Sundry Notices and Reports on Wells. Form 3160-5 
has been approved by OMB for uses enumerated at 43 CFR 3162.3-2, and is 
one of 17 information collection activities that are included in 
control number 1004-0137, Onshore Oil and Gas Operations (43 CFR part 
3160) (expiration date January 31, 2018). After promulgating a final 
rule and receiving approval (in the form of a new control number) from 
the OMB, the BLM intends to ask OMB to combine the activities 
associated with the new control number with existing Control Number 
1004-0137.
    The information collection activities in this proposed rule are 
described below along with estimates of the annual burdens. Included in 
the burden estimates are the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing each component of the proposed information 
collection requirements.
    The information collection request for this proposed rule has been 
submitted to OMB for review under 44 U.S.C. 3507(d). A copy of the 
request can be obtained from the BLM by electronic

[[Page 40794]]

mail request to Jennifer Spencer at j35spenc@blm.gov or by telephone 
request to 202-912-7146. You may also review the information collection 
request online at https://www.reginfo.gov/public/do/PRAMain.
    The BLM requests comments on the following subjects:
    1. Whether the collection of information is necessary for the 
proper functioning of the BLM, including whether the information will 
have practical utility;
    2. The accuracy of the BLM's estimate of the burden of collecting 
the information, including the validity of the methodology and 
assumptions used;
    3. The quality, utility, and clarity of the information to be 
collected; and
    4. How to minimize the information collection burden on those who 
are to respond, including the use of appropriate automated, electronic, 
mechanical, or other forms of information technology.
    If you want to comment on the information collection requirements 
of this proposed rule, please send your comments directly to OMB, with 
a copy to the BLM, as directed in the ADDRESSES section of this 
preamble. Please identify your comments with ``OMB Control Number 1004-
XXXX.'' OMB is required to make a decision concerning the collection of 
information contained in this proposed rule between 30 to 60 days after 
publication of this document in the Federal Register. Therefore, a 
comment to OMB is best assured of having its full effect if OMB 
receives it by August 12, 2015.
 II. Summary of Proposed Information Collection Requirements
    Title: Oil and Gas Facility Site Security.
    Forms: Form 3160-5, Sundry Notices and Reports on Wells.
    OMB Control Number: None. This is a new collection of information.
    Description of Respondents: Holders of Federal and Indian (except 
Osage Tribe) oil and gas leases, operators, purchasers, transporters, 
and any other person directly involved in producing, transporting, 
purchasing, or selling, including measuring, oil or gas through the 
point of royalty measurement or the point of first sale.
    Respondents' Obligation: Required to obtain or retain a benefit.
    Frequency of Collection: On occasion.
    Abstract: This proposed rule would establish minimum security 
standards for Federal and Indian (except Osage Tribe) oil and gas 
leases.
    Estimated Total Annual Burden Hours: The proposed rule would result 
in 147,181 estimated responses and 849,452 estimated hours of burden 
annually. Of these totals, 127,876 responses and 782,902 hours would be 
for new uses of Sundry Notices.
III. New Uses of Sundry Notices (Form 3160-5)
A. Variance Requests
    This proposed rule includes a new Sec.  3170.6, which would 
authorize any party subject to the regulations in 43 CFR part 3170 to 
request a variance from any of the regulations in part 3170. Those 
would include the proposed new subpart 3173 set forth above. While 
proposed Sec.  3170.6 states that a request for a variance should be 
filed using the BLM's electronic system, it also allows the use of 
Sundry Notices. Thus, Sec.  3170.6 represents a new use of Form 3160-5, 
Sundry Notices and Reports on Wells.
B. Information Collection Activities Listed in Proposed Sec.  3173.10
    Proposed Sec.  3173.10 would list additional information collection 
requirements that would be new uses of Sundry Notices. These 
requirements would apply to all parties involved in Federal and Indian 
(except Osage Tribe) oil and gas production. As discussed below, other 
proposed regulations provide detail on these requirements.
1. Submission of Site Facility Diagrams for Existing Facilities
    Proposed Sec.  3173.11(d) would apply to facilities in service 
before the effective date of the final rule. Operators of each such 
facility would be required to submit a new site facility diagram that 
complies with paragraphs (a) through (c) of Sec.  3173.11 within 30 
days after the BLM assigns an FMP number. The requirements of 
paragraphs (a) through (c) are described in detail below.
    Proposed Sec.  3173.11(e) would apply to facilities that are in 
service before the effective date of the final rule, and for which the 
BLM will not assign an FMP (e.g., facilities that dispose of produced 
water). Operators of each such facility would be required to submit a 
new site facility diagram within 60 days after the effective date of 
the final rule.
2. Site Facility Diagrams for New or Modified Facilities
    Proposed Sec.  3173.11(c)(2) would require a site facility diagram 
for all new facilities and for modification of a facility. Each site 
facility diagram would be required to:
     Be submitted electronically to the BLM with a completed 
Sundry Notice for each lease, unit PA, or CA through the BLM's Well 
Information System (WIS) or other system identified by the BLM;
     Be submitted within 30 days of completion of construction 
of a new facility, when existing facilities are modified, or when a 
non-Federal facility located on a Federal lease or federally approved 
unit or CA is constructed or modified;
     Reflect the position of the production and water recovery 
equipment, piping for oil, gas, and water, and metering or other 
measuring systems in relation to each other, but need not be to scale;
     Commencing with the header, identify all of the equipment, 
including, but not limited to, the header, wellhead, piping, tanks, and 
metering systems located on the site, and include the appropriate 
valves and any other equipment used in the handling, conditioning, or 
disposal of production and water, and indicate the direction of flow;
     Identify by API number the wells flowing into headers;
     Indicate which valve(s) must be sealed and in what 
position during the production and sales phases and during the conduct 
of other production activities (e.g., circulating tanks or drawing off 
water), which may be shown by an attachment, if necessary;
     Clearly identify the lease, unit PA, or CA to which the 
diagram applies and the land description of the facility, and the name 
of the company submitting the diagram, with co-located facilities being 
identified for each lease, unit PA, or CA; and
     Clearly identify on the diagram, or an attachment, all 
meters and measurement equipment. Specifically identify all approved 
and assigned FMPs.
    If another operator operates a co-located facility, the site 
facility diagram would be required to depict the co-located facilities 
or list them as an attachment and identify them by company name, 
facility name(s), lease, unit PA, or communitization agreement number, 
and FMP number(s).
    When describing co-located facilities operated by one operator, the 
site facility diagram would be required to include a skeleton diagram 
of the co-located facility, showing equipment only. For storage 
facilities common to co-located facilities operated by one operator, 
one diagram would be sufficient.
    If the operator claims royalty-free use, the site facility diagram 
would be required to clearly identify on the diagram or as an 
attachment, the equipment for which the operator claims royalty-free 
use.

[[Page 40795]]

3. Application for Approval of an FMP for Existing Measurement 
Facilities
    Section 3173.12 of the proposed rule would require operators to 
obtain an FMP number for all measurement points where the measurement 
affects the calculation of the volume or quality of production on which 
royalty is owed, and thus establish a standardized process for BLM 
approval of the point at which oil or gas must be measured for the 
purpose of determining royalty. The deadline for submitting a request 
for an FMP number for facilities in service on or before the effective 
date of the final rule would depend on the production level of the 
lease, unit PA, CA, or CAA.
    For stand-alone leases, unit PAs, CAs, and CAAs that produce 6,000 
Mcf or more of gas per month, or 40 barrels or more of oil per month, 
the operator would have to apply for approval of the FMP(s) within 9 
months after the effective date of the final rule. For stand-alone 
leases, unit PAs, CAs, or CAAs that produce 3,000 Mcf or more but less 
than 6,000 Mcf of gas per month, or 20 barrels or more but less than 40 
barrels of oil per month, the operator would have to apply for approval 
of the FMP(s) within 18 months after the effective date of the final 
rule. For stand-alone leases, unit PAs, CAs, or CAAs that produce less 
than 3,000 Mcf of gas per month and less than 20 barrels of oil per 
month, the operator would have to apply for approval of the FMP(s) 
within 27 months after the effective date of the final rule. These 
thresholds would be calculated as an average over the 12 months 
preceding the effective date of the final rule or the period the lease, 
unit, CA, or CAA has been in production, whichever is shorter.
    Proposed Sec.  3173.12(f) would require all applications for 
approval of an FMP to include the following:
     A complete Sundry Notice;
     The applicable Measurement Type Code specified in the 
BLM's Well Information System (WIS) or any successor electronic system;
     For gas and oil, a list of the measurement component names 
and the manufacturer, model, and serial number of each component;
     For gas, the gas sampling method (i.e., spot, composite, 
or on-line gas chromatograph); and
     Where production from more than one well will flow to the 
requested FMP, a list of the API well numbers associated with the FMP.
4. Request for Approval of an FMP for a New Measurement Facility
    Proposed Sec.  3173.12(d) would require operators to obtain 
approval of an FMP for new measurement facilities (i.e., measurement 
facilities coming into service after the effective date of the final 
rule) before any production leaves the facility.
5. Modifications to an FMP
    Proposed Sec.  3173.13(d)(1) would require operators with an 
approved FMP to submit a Sundry Notice that details any modifications 
to the FMP within 20 business days after the change. These details 
would include, but would not be limited to, the old and new meter 
manufacturer, serial number(s), owner's name, tank number(s), and wells 
or facilities using the FMP. The Sundry Notice would be required to 
specify what was changed, why the change was made, the effective date, 
and include, if appropriate, an amended site facility diagram.
6. Request for Approval of a CAA
    Proposed Sec.  3173.15 would require the following information:
     A completed Sundry Notice seeking approval of commingling 
and allocation, and of off-lease measurement, if any of the proposed 
FMPs are outside the boundaries of any of the leases, units, or CAs 
whose production would be commingled;
     A proposed allocation agreement and a proposed allocation 
schedule (including allocation of produced water) signed by each 
operator of each of the leases, unit PAs, or CAs whose production would 
be included in the CAA;
     A list of all Federal or Indian lease, unit PA, or 
communitization agreement numbers in the proposed CAA, specifying the 
type of production (i.e., oil, gas, or both) for which commingling is 
requested;
     A map or maps showing the boundaries of all the leases, 
units, unit PAs, or CAs whose production is proposed to be commingled; 
the proposed location by land description for the FMP used to measure 
the commingled production; and a map or diagram of existing or planned 
facilities that shows the location of all wellheads, production 
facilities, flow lines (including water flow lines), and FMPs existing 
or proposed to be installed to the extent known or anticipated;
     Documentation demonstrating that each of the leases, unit 
PAs, or CAs proposed for inclusion in the CAA is producing in paying 
quantities (or, in the case of Federal leases, is capable of production 
in paying quantities) pending approval of the CAA; and
     All gas analyses, including Btu content (if the CAA 
request includes gas) and all oil gravities (if the CAA request 
includes oil) for previous periods of production from the leases, 
units, unit PAs, or CAs proposed for inclusion in the CAA, up to 6 
years before the date of the application for approval of the CAA.
    For existing facilities, site facility diagrams clearly showing any 
proposed change to current site facility diagrams would be required. 
For all new proposed facilities (including water handling facilities), 
the application for approval of a CAA would be required to include a 
schematic or engineering drawing showing the relative location of 
pipes, tanks, meters, separators, dehydrators, compressors, and other 
equipment.
    If new surface disturbance is proposed on one or more of the 
leases, units, or CAs and the surface is managed by the BLM, the 
application would be required to include a request for approval of the 
proposed surface disturbance.
    If new surface disturbance is proposed on BLM-managed land outside 
any of the leases, units, or CAs whose production would be commingled, 
the application would be required to include a right-of-way grant 
application, under 43 CFR part 2880 if the FMP is on a pipeline, or 
under 43 CFR part 2800, if the FMP is a storage tank. Applications for 
rights-of-way are authorized under control number 0596-0082.
    If new surface disturbance is proposed on Federal land managed by 
an agency other than the BLM, the application would be required to 
include written approval from the appropriate surface-management 
agency.
7. Response to Notice of Insufficient CAA
    Proposed Sec.  3173.16 would provide that upon receipt of a request 
for an FMP number for a facility associated with a CAA existing on the 
effective date of the final rule, the BLM would review the existing CAA 
for consistency with proposed Sec.  3173.14. The BLM would then notify 
the operator of any inconsistencies or deficiencies. The operator would 
be obligated to correct the flaws, or provide additional information, 
within 20 business days of receiving the notice.
8. Request to Modify a CAA
    Proposed Sec.  3173.18 would provide that a CAA may be modified at 
the request of all the operators who are parties to the CAA. The 
following information would be required in a request to modify a CAA:

[[Page 40796]]

     A completed Sundry Notice describing the modification 
requested;
     A new allocation schedule, if appropriate; and
     Certification by each operator that it agrees to the CAA 
modification.
9. Request for Approval of Off-Lease Measurement
    Proposed Sec.  3173.23(a) through (j) would require the following 
information in an application for approval of off-lease measurement:
     A completed Sundry Notice;
     Justification for off-lease measurement;
     A topographic map of appropriate scale showing the 
following: The boundary of the lease(s), unit(s), or CA(s) from which 
the production originates; the location by land description of all 
wells, pipelines, facilities, and FMPs associated with the proposal, 
with equipment identified as existing or proposed; and the surface 
ownership of all land on which equipment is, or is proposed to be, 
located;
     A schematic or engineering drawing for all new proposed 
facilities showing the relative location of pipes, tanks, meters, 
separators, dehydrators, compressors, and other equipment; and
     A statement that indicates whether the proposal includes 
all, or only a portion of, the production from the lease, unit, or CA 
and if the proposal includes only a portion of the production, the 
application would be required to identify the FMP(s) where the 
remainder of the production from the lease, unit, or CA is measured or 
is proposed to be measured.
    For existing facilities, the application would be required to 
include site facility diagrams clearly showing any proposed change to 
current site facility diagrams.
    If any of the proposed off-lease measurement facilities are located 
on non-federally owned surface, the application would be required to 
include a written concurrence signed by the owner(s) of the surface and 
the owner(s) of the measurement facilities, including each owner(s)' 
name, address, and telephone number, granting the BLM unrestricted 
access to the off-lease measurement facility and the surface on which 
it is located, for the purpose of inspecting any production, 
measurement, water handling, or transportation equipment located on the 
non-Federal surface up to and including the FMP, and for otherwise 
verifying production accountability.
    If the proposed off-lease FMP consists of a storage tank or is on a 
pipeline, a right-of-way grant application would be required. 
Applications for rights-of-way are authorized under control number 
0596-0082.
    If the operator proposes to use production from the lease, unit or 
CA as fuel at the off-lease measurement facility without payment of 
royalty, the application would be required to include an application 
for approval of off-lease royalty-free use under applicable rules.
10. Response to Notice of Insufficient Off-Lease Measurement Approval
    Proposed Sec.  3173.25 provides that upon receipt of an operator's 
request for assignment of an FMP number to a facility associated with 
an off-lease measurement approval existing on the effect date of the 
final rule, the BLM would review the existing approval for consistency 
with the requirements listed at proposed Sec.  3173.22. The BLM would 
notify the operator of any inconsistencies or deficiencies. The 
operator would be obligated to correct any of the identified flaws 
within 20 business days of receiving the notice.
11. Request to Amend Approval of Off-Lease Measurement
    Proposed Sec.  3173.23(k) provides that to apply for an amendment 
of an existing approval of off-lease measurement, the operator must 
submit the information listed at paragraphs (a) through (j) of proposed 
Sec.  3173.23 to the extent the previously submitted information has 
changed.
IV. Other Proposed Information Collection Activities
A. Required Records Submission
    Proposed Sec.  3170.7(h) would apply to lessees, operators, 
purchasers, transporters, and any other person directly involved in 
producing, transporting, purchasing, selling, or measuring oil or gas 
through the point of royalty measurement of the point of first sale, 
whichever is later. Those parties would be required to submit all 
records that are relevant to determining the quality, quantity, 
disposition, and verification of production attributable to Federal or 
Indian leases upon request, in accordance with a regulation, written 
order, Onshore Order, NTL, or COA.
B. Water-Draining Records
    Proposed Sec.  3173.6 would require submission of information when 
water is drained from a production storage tank. The operator, 
purchaser, or transporter, as appropriate, would have to submit the 
following information:
     Federal or Indian lease, unit PA, or CA number(s);
     FMP number associated with the tank;
     The tank location by land description;
     The unique tank number and nominal capacity;
     Date and time for opening gauge;
     Opening gauge and color cut measurements;
     Name of the person and company draining the tank;
     Unique identifying number of each seal removed;
     Time of the closing gauge;
     Closing gauge measurement; and
     Unique identifying number of each seal installed.
C. Hot Oiling, Clean-up, and Completion Records
    Proposed Sec.  3173.7 would require the submission of information 
during hot oil, clean-up, or completion operations, or any other 
situation where the operator removes oil from storage, temporarily uses 
it for operational purposes, and then returns it to storage on the same 
lease, unit PA, or CA. The operator would have to submit the following 
information:
     Federal or Indian lease, unit PA, or communitization 
agreement number(s);
     FMP number associated with the tank or group of tanks;
     The tank location by land description;
     The unique tank number and nominal capacity;
     Date and time of the opening gauge;
     Opening gauge measurement;
     Name of the person and company removing production from 
the tank;
     Unique identifying number of each seal removed;
     Time of the closing gauge;
     Closing gauge measurement;
     Unique identifying number of each seal installed;
     How the oil was used; and
     Where the oil was used (i.e., well or facility name and 
number).
D. Report of Theft or Mishandling of Production
    Proposed 3173.8 would require operators, purchasers, or 
transporters to submit a report no later than the next business day 
after discovery of an incident of apparent theft or mishandling of 
production. A written incident report would have to follow an oral 
report within 10 business days of the oral report. The incident report 
would include the following information:
     Company name and name of the person reporting the 
incident;
     Lease, unit PA, or communitization agreement number, well 
or facility name

[[Page 40797]]

and number, and FMP number, as appropriate;
     Land description of the facility location where the 
incident occurred;
     The estimated volume of production removed;
     The manner in which access was obtained to the production 
or how the mishandling occurred;
     The name of the person who discovered the incident; and
     The date and time of the discovery of the incident.
E. Required Recordkeeping for Inventory and Seal Records
    Proposed Sec.  3173.9 would require operators to measure and record 
at the end of each calendar month an inventory consisting of total 
observed volume in storage.
    For each seal, the operator would be required to maintain a record 
that includes the unique identifying number of each seal and the valve 
or meter component on which the seal is or was used; the date of 
installation or removal of each seal; for valves, the position (open or 
closed) in which it was sealed; and the reason the seal was removed.
V. Burden Estimates
    The following table details the proposed information collection 
activities that would be new uses of Form 3160-5, Sundry Notices and 
Reports on Wells.
BILLING CODE 4310-84-C
[GRAPHIC] [TIFF OMITTED] TP13JY15.118


[[Page 40798]]


    The following table details the rest of the proposed information 
collection activities.
[GRAPHIC] [TIFF OMITTED] TP13JY15.119

    The proposed rule would remove \7\ 43 CFR 3162.7-5, which would 
result in the removal of three information collection activities from 
control number 1004-0137, as shown in the following table:
---------------------------------------------------------------------------

    \7\ Section 3162.4-1 is merely descriptive. Section 3162.7-5 is 
prescriptive.
[GRAPHIC] [TIFF OMITTED] TP13JY15.120


[[Page 40799]]


BILLING CODE 4310-84-P
    The proposed rule would result in the following program changes to 
1004-0137 due to the removal of 43 CFR 3162.75, and due to the addition 
of new requirements.
    1. The total estimated burdens would be 147,181 responses and 
849,452 hours. Of those totals, 127,876 responses and 782,902 hours 
would be due to new uses of Sundry Notices.
    2. The proposed rule would remove 43 CFR 3162.7-5, which would 
result in the removal of three information collection activities from 
control number 1004-0137 that represent a total of 93,500 estimated 
responses and 95,500 burden hours.
    3. The net estimated burdens for the proposed rule would be 53,681 
responses and 753,952 hours.

National Environmental Policy Act

    The BLM has prepared a draft environmental assessment (EA) that 
concludes that the proposed rule would not constitute a major Federal 
action significantly affecting the quality of the human environment 
under Sec.  102(2)(C) of the National Environmental Policy Act (NEPA), 
42 U.S.C. 4332(2)(C). Under the draft EA, a detailed statement under 
NEPA is therefore not required. A copy of the draft EA can be viewed at 
www.regulations.gov (use the search term 1004-AE15, open the Docket 
Folder, and look under Supporting Documents) and at the address 
specified in the ADDRESSES section.
    The proposed rule would not affect the environment significantly 
because, for the most part, the revisions to the requirements of Order 
3 proposed here would involve changes that are of an administrative, 
technical, or procedural nature that would apply to the BLM's and the 
lessee's and/or operator's management processes. For example, operators 
would now be required to maintain records generated for Federal leases 
for at least 7 years, consistent with statutory requirements. 
Similarly, the proposed rule would require more detailed information on 
site facility diagrams such as information about the manufacturer, 
model, and serial number of equipment, and information regarding 
royalty free use. The submission of this additional information would 
not result in any on-the-ground effects. However, compliance with some 
of these requirements may result in additional surface disturbing 
activities (e.g., additional surface disturbance might be required if 
an operator with an existing off lease measurement authorization had to 
move those measurement facilities back on lease because they did not 
comply with the requirements of this proposed rule.) Such surface 
disturbing activities would be conducted in accordance with existing 
surface operating standards and guidelines for oil and gas exploration 
and development and include appropriate Best Management Practices 
(BMP). The BLM will consider any new information we receive during the 
public comment period for the proposed rule that may inform our 
analysis of the potential environmental impacts of the proposed rule.

Executive Order 13211, Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This proposed rule would not have a substantial direct effect on 
the nation's energy supply, distribution or use, including a shortfall 
in supply or price increase. Changes in this proposed rule would 
strengthen the BLM's accountability requirements for operators under 
Federal and Indian oil and gas leases. As discussed above, these 
changes would increase recordkeeping requirements, place additional 
restrictions on CAAs and on off-lease measurement, and provide for 
significant new immediate assessments for violations of the 
regulations. All of these changes are administrative in nature and 
would have a one-time transition cost of an average of about $32,800 
per regulated entity and an ongoing annual average cost of about $3,600 
per entity per year. Entities with the greatest activity (e.g., 
numerous FMPs) would incur higher costs.
    The BLM expects that the proposed rule would not result in a net 
change in the quantity of oil and gas that is produced from oil and gas 
leases on Federal and Indian lands.

Information Quality Act

    In developing this proposed rule, the BLM did not conduct or use a 
study, experiment, or survey requiring peer review under the 
Information Quality Act (Pub. L. 106-554, Appendix C Title IV, Sec.  
515, 114 Stat. 2763A-153).

Clarity of the Regulations

    Executive Order 12866 requires each agency to write regulations 
that are simple and easy to understand. The BLM invites your comments 
on how to make these proposed regulations easier to understand, 
including answers to questions such as the following:
    1. Are the requirements in the proposed regulations clearly stated?
    2. Do the proposed regulations contain technical language or jargon 
that interferes with their clarity?
    3. Does the format of the proposed regulations (grouping and order 
of sections, use of headings, paragraphing, etc.) aid or reduce their 
clarity?
    4. Would the regulations be easier to understand if they were 
divided into more (but shorter) sections?
    5. Is the description of the proposed regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble helpful in 
understanding the proposed regulations? How could this description be 
more helpful in making the proposed regulations easier to understand?
    Please send any comments you have on the clarity of the regulations 
to the address s specified in the ADDRESSES section.

Authors

    The principal author of this proposed rule is Michael Wade, Senior 
Oil and Gas Compliance Specialist, BLM, Washington Office. Contributing 
authors include:
    Steve McCracken, Petroleum Engineering Technician, BLM, Great 
Falls Field Office; Darla McMillan, Petroleum Engineering 
Technician, BLM, Moore Field Office; Leslie Peterson, Petroleum 
Engineer, BLM, Royal Gorge Field Office; Loren Wickstorm, Petroleum 
Engineering Technician, BLM, Dolores Field Office; Cris Carey, ONRR, 
Denver Office; Luke Lundmark, ONRR, Denver Office; and Vicky 
Stafford, ONRR, Denver Office. The team was assisted by Rich 
Estabrook, Petroleum Engineer Washington Office; Faith Bremner, 
Division of Regulatory Affairs, BLM, Washington Office; and Geoffrey 
Heath, Office of the Solicitor, DOI, Washington Office.

List of Subjects

43 CFR part 3160

    Administrative practice and procedure; Government contracts; 
Indians-lands; Mineral royalties; Oil and gas exploration; Penalties; 
Public lands--mineral resources; Reporting and recordkeeping 
requirements.

43 CFR part 3170

    Government contracts; Indians-lands; Mineral royalties; Oil and gas 
exploration; Penalties; Public lands--mineral resources; Reporting and 
recordkeeping requirements.

    Dated: July 1, 2015.__
Janice M. Schneider,
Assistant Secretary,
    Land and Minerals Management.

43 CFR Chapter II

    For the reasons set out in the preamble, the Bureau of Land 
Management proposes to amend 43 CFR chapter II as follows:

[[Page 40800]]

PART 3160--ONSHORE OIL AND GAS OPERATIONS

0
1. Revise the authority citation for part 3160 to read as follows:

Authority: 25 U.S.C. 396, 396d and 2107; 30 U.S.C. 189, 306, 359, and 
1751; and 43 U.S.C. 1732(b), 1733 and 1740.
0
2. Amend Sec.  3160.0-3 by removing the words ``the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C. 1701)'' and adding in their 
place the words ``the Federal Oil and Gas Royalty Management Act of 
1982, as amended by the Federal Oil and Gas Royalty Simplification Act 
of 1996 (30 U.S.C. 1701 et seq.)''.
0
3. Revise Sec.  3161.1 to read as follows:


Sec.  3161.1  Jurisdiction.

    The regulations in this part apply to:
    (a) All Federal and Indian onshore oil and gas leases (other than 
those of the Osage Tribe);
    (b) All onshore facility measurement points where Federal or Indian 
oil or gas is measured;
    (c) Indian Mineral Development Act agreements for oil and gas, 
unless specifically excluded in the agreement;
    (d) Leases and other business agreements for the development of 
tribal energy resources under a Tribal Energy Resource Agreement 
entered into with the Secretary, unless specifically excluded in the 
lease, other business agreement, or Tribal Energy Resource Agreement; 
and
    (e) State or private tracts committed to a federally approved unit 
or communitization agreement as defined by or established under 43 CFR 
subpart 3105 or 43 CFR part 3180.
0
4. Amend Sec.  3162.3-2 by adding paragraph (d) to read as follows:


Sec.  3162.3-2  Subsequent well operations.

* * * * *
    (d) For details on how to apply for approval of a facility 
measurement point; approval for surface or subsurface commingling from 
different leases, unit participating areas and communitized areas; or 
approval for off-lease measurement, see 43 CFR 3173.12, 3173.15, and 
3173.23, respectively.
0
5. Amend Sec.  3162.4-1 by revising paragraphs (a) and (d) and adding 
paragraph (e) to read as follows:


Sec.  3162.4-1  Well records and reports.

    (a) The operator must keep accurate and complete records with 
respect to:
    (1) All lease operations, including, but not limited to, drilling, 
producing, redrilling, repairing, plugging back, and abandonment 
operations;
    (2) Production facilities and equipment (including schematic 
diagrams as required by applicable orders and notices); and
    (3) Determining and verifying the quantity, quality, and 
disposition of production from or allocable to Federal or Indian leases 
(including source records).
* * * * *
    (d) All records and reports required by this section must be 
maintained for the following time periods:
    (1)(i) For Federal leases and units or communitized areas that 
include Federal leases, but do not include Indian leases, 7 years after 
the records are generated.
    (ii) If a judicial proceeding or demand involving such records is 
timely commenced, the record holder must maintain such records until 
the final nonappealable decision in such judicial proceeding is made, 
or with respect to that demand is rendered, unless the Secretary or the 
applicable delegated State authorizes in writing an earlier release of 
the requirement to maintain such records.
    (2)(i) For Indian leases, and units or communitized areas that 
include Indian leases, but do not include Federal leases, 6 years after 
the records are generated.
    (ii) If the Secretary or his/her designee notifies the record 
holder that the Department has initiated or is participating in an 
audit or investigation involving such records, the record holder must 
maintain such records until the Secretary or his designee releases the 
record holder from the obligation to maintain the records.
    (3)(i) For units and communitized areas that include both Federal 
and Indian leases, if the Secretary or his/her designee has notified 
the record holder within 6 years after the records are generated that 
an audit or investigation involving such records has been initiated, 
but a judicial proceeding or demand is not commenced within 7 years 
after the records are generated, the record holder must retain all 
records regarding production from the unit or communitized area until 
the Secretary or his/her designee releases the record holder from the 
obligation to maintain the records.
    (ii) If a judicial proceeding or demand is commenced within 7 years 
after the records are generated, the record holder must retain all 
records regarding production from the unit or communitized area until 
the final nonappealable decision in such judicial proceeding is made, 
or with respect to that demand is rendered, or until the Secretary or 
his designee releases the record holder from the obligation to maintain 
the records, whichever is later, unless the Secretary or his designee 
authorizes in writing a release of the requirement to maintain such 
records before a final nonappealable decision is made or rendered.
    (e) Record holders include lessees, operators, purchasers, 
transporters, and any other person directly involved in producing, 
transporting, purchasing, or selling, including measuring, oil or gas 
through the point of royalty measurement or the point of first sale, 
whichever is later. Record holders must maintain records generated 
during or for the period for which the lessee or operator has an 
interest in or conducted operations on the lease, or in which a person 
is involved in transporting, purchasing, or selling production from the 
lease, for the period of time required in paragraph (d) of this 
section.


Sec.  3162.4-3  [Removed]

0
6. Remove Sec.  3162.4-3.
0
7. Amend Sec.  3162.6 as follows:
0
a. In paragraph (a), revise the word ``indentification'' to read 
``identification''; and
0
b. Revise paragraphs (b) and (c), redesignate paragraph (d) as 
paragraph (e), and add a new paragraph (d).
    The revisions and addition read as follows:


Sec.  3162.6  Well and facility identification.

* * * * *
    (b) For wells located on Federal and Indian lands, the operator 
must properly identify, by a sign in a conspicuous place, each well, 
other than those permanently abandoned. The well sign must include the 
well number, the name of the operator, the lease serial number, and the 
surveyed location (the quarter-quarter section, section, township and 
range or other authorized survey designation acceptable to the 
authorized officer, such as metes and bounds or longitude and 
latitude). When specifically requested by the authorized officer, the 
sign must include the unit or communitization agreement name or number. 
The authorized officer may also require the sign to include the name of 
the Indian allottee lessor(s) preceding the lease serial number.
    (c) All facilities at which oil or gas produced from a Federal or 
Indian lease is stored, measured, or processed must be clearly 
identified with a sign that contains the name of the operator, the 
lease serial number or communitization or unit agreement identification 
number, as appropriate, and the surveyed location (the quarter-quarter 
section, section, township and range or other authorized survey 
designation acceptable to the authorized officer,

[[Page 40801]]

such as metes and bounds or longitude and latitude). On Indian leases, 
the sign also must include the name of the appropriate tribe and 
whether the lease is tribal or allotted. For situations of 1 tank 
battery servicing 1 well in the same location, the requirements of this 
paragraph and paragraph (b) of this section may be met by 1 sign as 
long as it includes the information required by both paragraphs. In 
addition, each storage tank must be clearly identified by a unique 
number. With regard to the quarter-quarter designation and the unique 
tank number, any such designation established by state law or 
regulation satisfies this requirement.
    (d) All signs must be maintained in legible condition and must be 
clearly apparent to any person at or approaching the storage, 
measurement, or transportation point.
* * * * *


Sec.  3162.7-1  [Amended]

0
8. Amend Sec.  3162.7-1 by removing paragraph (f).


Sec.  3162.7-5  [Removed]

0
9. Remove Sec.  3162.7-5.
0
10. Amend Sec.  3163.2 by revising paragraphs (a), (b), and (k), to 
read as follows:


Sec.  3163.2  Civil penalties.

    (a)(1) Whenever an operating rights owner or operator, as 
appropriate, fails or refuses to comply with any applicable 
requirements of the Federal Oil and Gas Royalty Management Act, any 
mineral leasing law, any regulation thereunder, or the terms of any 
lease or permit issued thereunder, the authorized officer will notify 
the operating rights owner or operator, as appropriate, in writing of 
the violation, unless the violation was discovered and reported to the 
authorized officer by the liable person or the notice was previously 
issued under Sec.  3163.1 of this subpart.
    (2) Whenever a purchaser or transporter who is not an operating 
rights owner or operator fails or refuses to comply with 30 U.S.C. 1713 
or applicable rules or regulations regarding records relevant to 
determining the quality, quantity, and disposition of oil or gas 
produced from or allocable to a Federal or Indian oil and gas lease, 
the authorized officer will notify the purchaser or transporter, as 
appropriate, in writing of the violation.
    (b)(1) If the violation is not corrected within 20 days of such 
notice or report, or such longer time as the authorized officer may 
agree to in writing, the operating rights owner, operator, purchaser, 
or transporter, as appropriate, will be liable for a civil penalty of 
up to $500 per violation for each day such violation continues, dating 
from the date of such notice or report. Any amount imposed and paid as 
assessments under Sec.  3163.1(a)(1) will be deducted from penalties 
under this section.
    (2) If the violation specified in paragraph (a) of this section is 
not corrected within 40 days of such notice or report, or a longer 
period as the authorized officer may agree to in writing, the operating 
rights owner, operator, purchaser, or transporter, as appropriate, will 
be liable for a civil penalty of up to $5,000 per violation for each 
day the violation continues, not to exceed a maximum of 60 days, dating 
from the date of such notice or report. Any amount imposed and paid as 
assessments under Sec.  3163.1(a)(1) of this subpart will be deducted 
from penalties under this section.
* * * * *
    (k) If the violation continues beyond the 20-day maximum specified 
in paragraph (d) of this section, the authorized officer will revoke 
the transporter's authority to remove crude oil from any Federal or 
Indian lease under the authority of that authorized officer or to 
remove any crude oil allocated to such lease site. This revocation of 
the transporter's authority will continue until compliance is achieved 
and any related penalty paid.


Sec.  3164.1  [Amended]

0
11. Amend Sec.  3164.1, in paragraph (b), by removing the third entry 
in the chart (the reference to Order No. 3, Site Security).
0
12. Amend Sec.  3165.3 by revising paragraphs (a) and (d) to read as 
follows:


Sec.  3165.3  Notice, State Director review and hearing on the record.

    (a) Notice. (1) Whenever an operating rights owner or operator, as 
appropriate, fails to comply with any provisions of the lease, the 
regulations in this part, applicable orders or notices, or any other 
appropriate order of the authorized officer, the authorized officer 
will issue a written notice or order to the appropriate party and the 
lessee(s) to remedy any defaults or violations.
    (2) Whenever any purchaser or transporter, who is not an operating 
rights owner or operator, fails or refuses to comply with 30 U.S.C. 
1713 or applicable rules or regulations regarding records relevant to 
determining the quality, quantity, and disposition of oil or gas 
produced from or allocable to a Federal or Indian oil and gas lease, 
applicable orders or notices, or any other appropriate orders of the 
authorized officer, the authorized officer will give written notice or 
order to the purchaser or transporter to remedy any violations.
    (3) Written orders or a notice of violation, assessment, or 
proposed penalty will be issued and served by personal service by the 
authorized officer, or by certified mail, return receipt requested. 
Service will be deemed to occur when the document is received or 7 
business days after the date it is mailed, whichever is earlier.
    (4) Any person may designate a representative to receive any notice 
of violation, order, assessment, or proposed penalty on that person's 
behalf.
    (5) In the case of a major violation, the authorized officer will 
make a good faith effort to contact such designated representative by 
telephone, to be followed by a written notice or order. Receipt of a 
notice or order will be deemed to occur at the time of such verbal 
communication, and the time of notice and the name of the receiving 
party will be documented in the file. If the good faith effort to 
contact the designated representative is unsuccessful, notice of the 
major violation or order may be given to any person conducting or 
supervising operations subject to the regulations in this part.
    (6) In the case of a minor violation, the authorized officer will 
only provide a written notice or order to the designated 
representative.
    (7) A copy of all orders, notices, or instructions served on any 
contractor or field employee or designated representative will also be 
mailed to the operator. Any notice involving a civil penalty against an 
operator will be mailed to the operator, with a copy to the operating 
rights owner.
* * * * *
    (d) Action on request for State Director review. The State Director 
will issue a final decision within 10 business days after the receipt 
of a complete request for administrative review or, where oral 
presentation has been made, within 10 business days after the oral 
presentation. The State Director's decision represents the final Bureau 
decision from which further review may be obtained as provided in 
paragraph (c) of this section for proposed penalties, and in Sec.  
3165.4 for all other decisions.
0
13. Add part 3170 to read as follows:

PART 3170--ONSHORE OIL AND GAS PRODUCTION

Subpart 3170--Onshore Oil and Gas Production: General
Sec.

[[Page 40802]]

3170.1 Authority.
3170.2 Scope.
3170.3 Definitions and acronyms.
3170.4 Prohibitions against by-pass and tampering.
3170.5 [Reserved].
3170.6 Variances.
3170.7 Required recordkeeping, records retention, and records 
submission.
3170.8 Appeal procedures.
3170.9 Enforcement.
Subpart 3171--[Reserved]
Subpart 3172--[Reserved]
Subpart 3173--Requirements for Site Security and Production Handling
3173.1 Definitions and acronyms.
3173.2 Storage and sales facilities--seals.
3173.3 Oil measurement system components--seals.
3173.4 Federal seals.
3173.5 Removing production from tanks for sale and transportation by 
truck.
3173.6 Water-draining operations.
3173.7 Hot oiling, clean-up, and completion operations.
3173.8 Report of theft or mishandling of production.
3173.9 Required recordkeeping for inventory and seal records.
3173.10 Form 3160-5, Sundry Notices and Reports on Wells.
3173.11 Site facility diagram.
3173.12 Applying for a facility measurement point.
3173.13 Requirements for approved facility measurement points.
3173.14 Conditions for commingling and allocation approval (surface 
and downhole).
3173.15 Applying for a commingling and allocation approval.
3173.16 Existing commingling and allocation approvals.
3173.17 Relationship of a commingling and allocation approval to 
royalty-free use of production.
3173.18 Modification of a commingling and allocation approval.
3173.19 Effective date of a commingling and allocation approval.
3173.20 Terminating a commingling and allocation approval.
3173.21 Combining production downhole in certain circumstances.
3173.22 Requirements for off-lease measurement.
3173.23 Applying for off-lease measurement.
3173.24 Effective date of an off-lease measurement approval.
3173.25 Existing off-lease measurement approval.
3173.26 Relationship of off-lease measurement approval to royalty-
free use of production.
3173.27 Termination of off-lease measurement approval.
3173.28 Instances not constituting off-lease measurement, for which 
no approval is required.
3173.29 Immediate assessments.
    Appendix to Subpart 3173


Sec.  3170.1  Authority.

    The authorities for promulgating the regulations in this part are 
the Mineral Leasing Act, 30 U.S.C. 181 et seq.; the Mineral Leasing Act 
for Acquired Lands, 30 U.S.C. 351 et seq.; the Indian Mineral Leasing 
Act, 25 U.S.C. 396a et seq.; the Act of March 3, 1909, 25 U.S.C. 396; 
and the Indian Mineral Development Act, 25 U.S.C. 2101 et seq. Each of 
these statutes gives the Secretary the authority to promulgate 
necessary and appropriate rules and regulations. See 30 U.S.C. 189; 30 
U.S.C. 359; 25 U.S.C. 396d; 25 U.S.C. 396; and 25 U.S.C. 2107. The 
Secretary has delegated this authority to the Bureau of Land Management 
(BLM). For Indian leases, the delegation of authority to the BLM 
appears at 25 CFR parts 211, 212, 213, 225, and 227. In addition, 
various provisions of the Federal Oil and Gas Royalty Management Act, 
as amended, 30 U.S.C. 1701 et seq., provide additional authority 
regarding records, inspection, and enforcement for onshore oil and gas 
operations, in addition to granting rulemaking authority at 30 U.S.C. 
1751.


Sec.  3170.2  Scope.

    The regulations in this part apply to:
    (a) All Federal onshore and Indian oil and gas leases (other than 
those of the Osage Tribe);
    (b) Indian Mineral Development Act (IMDA) agreements for oil and 
gas, unless specifically excluded in the agreement or unless the 
relevant provisions of the rule are inconsistent with the agreement;
    (c) Leases and other business agreements for the development of 
tribal energy resources under a Tribal Energy Resource Agreement 
entered into with the Secretary, unless specifically excluded in the 
lease, other business agreement, or Tribal Energy Resource Agreement;
    (d) State or private tracts committed to a federally approved unit 
or communitization agreement as defined by or established under 43 CFR 
subpart 3105 or 43 CFR part 3180; and
    (e) All onshore facility measurement points where oil or gas 
produced from the leases or agreements identified earlier in this 
section is measured.


Sec.  3170.3  Definitions and acronyms.

    (a) As used in this part, the term:
    Allocation means a method or process by which production is 
measured at a central point and apportioned to the individual lease, 
unit or unit Participating Area (PA), or Communitized Area (CA) from 
which the production originated.
    API MPMS (followed by a number) means the American Petroleum 
Institute Manual of Petroleum Measurement Standards, with the number 
referring to the Chapter and Section in that manual.
    Audit trail means all source records necessary to verify and 
recalculate the volume and quality of oil and gas production measured 
at facility measurement points (FMPs) and reported to the Office of 
Natural Resources Revenue (ONRR).
    Authorized officer (AO) has the same meaning as defined in 43 CFR 
3000.0-5.
    By-pass means any piping or other arrangement around or avoiding a 
meter or other measuring device or method (or component thereof) at an 
FMP that allows oil or gas to flow without measurement. Equipment that 
permits the changing of the orifice plate of a gas meter without 
bleeding the pressure off the gas meter run (e.g., senior fitting) is 
not considered to be a by-pass.
    Commingling, for production accounting and reporting purposes, 
means combining production from multiple leases, unit PAs, or CAs, or 
combining production from one or more leases, unit PAs, or CAs with 
production from State, local governmental, or private properties before 
the point of royalty measurement. Combining production from multiple 
wells on a single lease, unit PA, or CA before measurement is not 
considered commingling for production accounting purposes. Combining 
production downhole from different geologic formations on the same 
lease, unit PA, or CA is not considered commingling for production 
accounting purposes.
    Communitized area (CA) means the area committed to a BLM approved 
communitization agreement.
    Communitization agreement means an agreement to combine a lease or 
a portion of a lease that cannot otherwise be independently developed 
and operated in conformity with an established well spacing or well 
development program, with other tracts for purposes of cooperative 
development and operations.
    Condition of Approval (COA) means a site-specific requirement 
included in the approval of an application that may limit or modify the 
specific actions covered by the application. Conditions of approval may 
minimize, mitigate, or prevent impacts to public lands or resources.
    Days means consecutive calendar days, unless otherwise indicated.
    Facility means:
    (i) A site and associated equipment used to process, treat, store, 
or measure production from or allocated to a

[[Page 40803]]

Federal or Indian lease, unit, or CA that is located upstream of or at 
(and including) the approved point of royalty measurement; and
    (ii) A site and associated equipment used to store, measure, or 
dispose of produced water that is located on a lease, unit, or CA.
    Facility measurement point (FMP) means a BLM-approved point where 
oil or gas produced from a Federal or Indian lease, unit, or CA is 
measured and the measurement affects the calculation of the volume or 
quality of production on which royalty is owed. It includes, but is not 
limited to, the approved point of royalty measurement and measurement 
points relevant to determining the allocation of production to Federal 
or Indian leases, unit PAs, or CAs. However, allocation facilities that 
are part of a commingling and allocation approval underSec.  3173.15 or 
that are part of a commingling and allocation approval approved after 
July 9, 2013, are not FMPs. An FMP also includes a meter or measurement 
facility used in the determination of the volume or quality of royalty-
bearing oil or gas produced before BLM approval of an FMP under Sec.  
3173.12 of this part. An FMP must be located on the lease, unit, or CA 
unless the BLM approves measurement off the lease, unit, or CA. The BLM 
will not approve a gas processing plant tailgate meter located off the 
lease, unit, or CA, as an FMP.
    Gas means any fluid, either combustible or noncombustible, 
hydrocarbon or non-hydrocarbon, that has neither independent shape nor 
volume, but tends to expand indefinitely and exists in a gaseous state 
under metered temperature and pressure conditions.
    Incident of Noncompliance (INC) means documentation that identifies 
violations and notifies the recipient of the notice of required 
corrective actions or potential assessments of civil penalties.
    Lease has the same meaning as defined in 43 CFR 3160.0-5.
    Lessee has the same meaning as defined in 43 CFR 3160.0-5.
    NIST traceable means an unbroken and documented chain of 
comparisons relating measurements from field or laboratory instruments 
to a known standard maintained by the National Institute of Standards 
and Technology (NIST).
    Notice to lessees and operators (NTL) has the same meaning as 
defined in 43 CFR 3160.0-5.
    Off-lease measurement means measurement at an FMP that is not 
located on the lease, unit, or CA from which the production came.
    Oil means a mixture of hydrocarbons that exists in the liquid phase 
at the temperature and pressure at which it is measured. Condensate is 
considered to be oil for purposes of this part. Natural gas liquids 
extracted from a gas stream upstream of the approved point of royalty 
measurement are considered to be oil for purposes of this part.
    (i) Clean Oil or Pipeline Oil means oil that is of such quality 
that it is acceptable to normal purchasers.
    (ii) Slop oil means oil that is of such quality that it is not 
acceptable to normal purchasers and is usually sold to oil reclaimers. 
Oil that can be made acceptable to normal purchasers through special 
treatment that can be economically provided at the existing or modified 
facilities or using portable equipment at or upstream of the FMP is not 
slop oil.
    (iii) Waste oil means oil that has been determined by the AO to be 
of such quality that it cannot be treated economically and put in a 
marketable condition with existing or modified lease facilities or 
portable equipment, cannot be sold to reclaimers, and has been 
determined by the AO to have no economic value.
    Operator has the same meaning as defined in 43 CFR 3160.0-5.
    Participating area (PA) has the same meaning as defined in 43 CFR 
3180.0-5.
    Point of royalty measurement means a BLM-approved FMP at which the 
volume and quality of oil or gas which is subject to royalty is 
measured. The point of royalty measurement is to be distinguished from 
meters that determine only the allocation of production to particular 
leases, unit PAs, CAs, or non-Federal and non-Indian properties. The 
point of royalty measurement is also known as the point of royalty 
settlement.
    Production means oil or gas removed from a well bore and any 
products derived therefrom.
    Production Measurement Team (PMT) means a panel of members from the 
BLM (which may include BLM-contracted experts) that reviews changes in 
industry measurement technology and standards to determine whether 
regulations should be updated and provides guidance on measurement 
technologies not addressed in current regulation. The purpose of the 
PMT is to act as a central advisory body to ensure that oil and gas 
produced from Federal and Indian leases is accurately measured and 
properly reported.
    Purchaser means any person or entity who legally takes ownership of 
oil or gas in exchange for financial or other consideration.
    Source record means any unedited and original record, document, or 
data that is used to determine volume and quality of production, 
regardless of format or how it was created or stored (e.g., paper or 
electronic). It includes, but is not limited to, raw and unprocessed 
data (e.g., instantaneous and continuous information used by flow 
computers to calculate volumes); gas charts; measurement tickets; 
calibration, verification, prover, and configuration reports; pumper 
and gauger field logs; volume statements; event logs; seal records; and 
gas analyses.
    Statistically significant means the difference between two data 
sets that exceeds the threshold of significance.
    Threshold of significance means the maximum difference between two 
data sets (a and b) that can be attributed to uncertainty effects. The 
threshold of significance is determined as follows:
[GRAPHIC] [TIFF OMITTED] TP13JY15.121


where:
Ts = Threshold of significance, in percent
Ua = Uncertainty (95 percent confidence) of data set a, 
in percent
Ub = Uncertainty (95 percent confidence) of data set b, 
in percent

    Total observed volume (TOV) means the total measured volume of all 
oil, sludges, sediment and water, and free water at the measured or 
observed temperature and pressure.
    Transporter means any person or entity who legally moves or 
transports oil or gas from an FMP.
    Uncertainty means the statistical range of error that can be 
expected between a measured value and the true value of what is being 
measured. Uncertainty is determined at a 95 percent confidence level 
for the purposes of this part.
    Unit means the land within a unit area as defined in 43 CFR 3180.0-
5.
    Unit PA means the unit participating area, if one is in effect, the 
exploratory unit if there is no associated participating area, or an 
enhanced recovery unit.
    Variance means an approved alternative to a provision or standard 
of a regulation, Onshore Oil and Gas Order, or NTL.
    (b) As used in this part, the following additional acronyms apply:
    API means American Petroleum Institute.
    BLM means the Bureau of Land Management.
    CMS means Coriolis Measurement System.

[[Page 40804]]

    OGOR means Oil and Gas Operations Report (Form ONRR-4054 or any 
successor report).
    ONRR means the Office of Natural Resources Revenue, U.S. Department 
of the Interior, and includes any successor agency.
    WIS means Well Information System or any successor electronic 
system.


Sec.  3170.4  Prohibitions against by-pass and tampering.

    (a) All by-passes are prohibited.
    (b) Tampering with any measurement device, component of a 
measurement device, or measurement process is prohibited.
    (c) Any by-pass or tampering with a measurement device, component 
of a measurement device, or measurement process may, together with any 
other remedies provided by law, result in an assessment of civil 
penalties for knowingly or willfully:
    (1) Taking, removing, transporting, using, or diverting oil or gas 
from a lease site without valid legal authority under 30 U.S.C. 
1719(d)(2) and 43 CFR. 3163.2(f)(2); or
    (2) Preparing, maintaining, or submitting false, inaccurate, or 
misleading reports, records, or information under 30 U.S.C. 1719(d)(1) 
and 43 CFR 3163.2(f)(1).


Sec.  3170.5  [Reserved]


Sec.  3170.6  Variances.

    (a) Any party subject to a requirement of a regulation in this part 
may request a variance from that requirement.
    (1) A request for a variance must include the following:
    (i) Identification of the specific requirement from which the 
variance is requested;
    (ii) Identification of the length of time for which the variance is 
requested, if applicable;
    (iii) An explanation of the need for the variance;
    (iv) A detailed description of the proposed alternative;
    (v) A showing that the proposed alternative will produce a result 
that meets or exceeds the objectives of the applicable requirement for 
which the variance is requested; and
    (vi) The FMP number(s) for which the variance is requested, if 
applicable.
    (2) A request for a variance must be submitted as a separate 
document from any plans or applications. A request for a variance that 
is submitted as part of a master development plan, application for 
permit to drill, right-of-way application, or applications for approval 
of other types of operations rather than submitted separately will not 
be considered. Approval of a plan or application that contains a 
request for a variance does not constitute approval of the variance. 
This paragraph does not prohibit submitting a separate request for a 
variance simultaneously with a plan or application.
    For plans or applications that are contingent upon the approval of 
the variance request, we encourage the simultaneous submission of the 
request for variance and the plan or application.
    (3) The party requesting the variance must submit the request and 
any supporting documents to the BLM Field Office having jurisdiction 
over the lands described in the application. The operator should file 
the request using the BLM's electronic system. If electronic filing is 
not possible or practical, the operator may submit a request for 
variance on the Form 3160-5, Sundry Notices and Reports on Wells 
(Sundry Notice) to the BLM Field Office having jurisdiction.
    (4) The AO, after considering all relevant factors, may approve the 
variance, or approve it with COAs, only if the AO determines that:
    (i) The proposed alternative meets or exceeds the objectives of the 
applicable requirement(s) of the regulation;
    (ii) Approving the variance will not adversely affect royalty 
income and production accountability; and
    (iii) Issuing the variance is consistent with maximum ultimate 
economic recovery as defined in 43 CFR 3160.0-5.
    (5) The decision whether to grant or deny the variance request is 
entirely within the BLM's discretion.
    (6) A variance from the requirements of a regulation in this part 
does not constitute a variance to provisions of other regulations, 
including Onshore Oil and Gas Orders.
    (b) The BLM reserves the right to rescind a variance or modify any 
COA of a variance due to changes in Federal law, technology, 
regulation, BLM policy, field operations, noncompliance, or other 
reasons. The BLM will provide a written justification if it rescinds a 
variance or modifies a COA.


Sec.  3170.7  Required recordkeeping, records retention, and records 
submission.

    (a) Lessees, operators, purchasers, transporters, and any other 
person directly involved in producing, transporting, purchasing, 
selling, or measuring oil or gas through the point of royalty 
measurement or the point of first sale, whichever is later, must retain 
all records, including source records, that are relevant to determining 
the quality, quantity, disposition, and verification of production 
attributable to Federal or Indian leases for the periods prescribed in 
paragraphs (c) through (e) of this section.
    (b) This retention requirement applies to records generated during 
or for the period for which the lessee or operator has an interest in 
or conducted operations on the lease, or in which a person is involved 
in transporting, purchasing, or selling production from the lease.
    (c)(1) For Federal leases, and units or CAs that include Federal 
leases but do not include Indian leases, the record holder must 
maintain records for 7 years after the records are generated.
    (2) If a judicial proceeding or demand involving such records is 
timely commenced, the record holder must maintain such records until 
the final nonappealable decision in such judicial proceeding is made, 
or with respect to that demand is rendered, unless the Secretary or his 
designee or the applicable delegated State authorizes in writing an 
earlier release of the requirement to maintain such records.
    (d)(1) For Indian leases, and units or CAs that include Indian 
leases but do not include Federal leases, the record holder must 
maintain records for 6 years after the records are generated.
    (2) If the Secretary or his designee notifies the record holder 
that the Department of the Interior has initiated or is participating 
in an audit or investigation involving such records, the record holder 
must maintain such records until the Secretary or his designee releases 
the record holder from the obligation to maintain the records.
    (e)(1) For units and CAs that include both Federal and Indian 
leases, if the Secretary or his designee has notified the record holder 
within 6 years after the records are generated that an audit or 
investigation involving such records has been initiated, but a judicial 
proceeding or demand is not commenced within 7 years after the records 
are generated, the record holder must retain all records regarding 
production from the unit or CA until the Secretary or his designee 
releases the record holder from the obligation to maintain the records.
    (2) If a judicial proceeding or demand is commenced within 7 years 
after the records are generated, the record holder must retain all 
records regarding production from the unit or CA until the final 
nonappealable decision in such judicial proceeding is made, or with 
respect to that demand is rendered, or until the Secretary or his 
designee releases the record holder from the obligation to maintain the 
records, whichever is later, unless the Secretary or his designee 
authorizes in writing a release of the requirement to maintain

[[Page 40805]]

such records before a final nonappealable decision is made or rendered.
    (f) The lessee, operator, purchaser, and transporter must maintain 
an audit trail.
    (g) All records, including source records that are used to 
determine quality, quantity, disposition and verification of production 
attributable to a Federal or Indian lease, unit PA, or CA, must include 
the FMP number and the name of the company that created the record. For 
existing measurement facilities, in the interim period before the 
assignment of an FMP number, all records must include the following 
information:
    (1) The name of the operator;
    (2) The lease, unit PA, or communitization agreement number; and
    (3) The well or facility name and number.
    (h) Upon request of the AO, the operator, purchaser, or transporter 
must provide such records to the AO as may be required by regulation, 
written order, Onshore Order, NTL, or COA.
    (i) All records must be legible.
    (j) All records requiring a signature must also have the signer's 
printed name.


Sec.  3170.8  Appeal procedures.

    BLM decisions, orders, assessments, or other actions under the 
regulations in this part are administratively appealable under the 
procedures prescribed in 43 CFR 3165.3(b), 3165.4, and part 4.


Sec.  3170.9  Enforcement.

    Noncompliance with any of the requirements of this part or any 
order issued under this part may result in enforcement actions under 43 
CFR subpart 3163 or any other remedy available under applicable law or 
regulation.

Subpart 3171--[Reserved]

Subpart 3172--[Reserved]

Subpart 3173--Requirements for Site Security and Production 
Handling


Sec.  3173.1  Definitions and acronyms.

    (a) As used in this subpart, the term:
    Access means the ability to:
    (i) Add liquids to or remove liquids from, any tank or piping 
system, through a valve or combination of valves or by moving liquids 
from one tank to another tank; or
    (ii) Enter any component in a measuring system affecting the 
accuracy of the measurement of the quality or quantity of the liquid 
being measured.
    Appropriate valves means those valves that must be sealed during 
the production or sales phase (e.g., fill lines, equalizer, overflow 
lines, sales lines, circulating lines, or drain lines).
    Authorized representative (AR) has the same meaning as defined in 
43 CFR 3160.0-5.
    Business day means any day Monday through Friday, excluding Federal 
holidays.
    Effectively sealed means the placement of a seal in such a manner 
that the sealed component cannot be accessed, moved, or altered without 
the seal being broken.
    Land description means the geographical coordinates referenced to 
the National Spatial Reference System, North American Datum 1983 or 
latest edition, in feet and direction from the nearest two adjacent 
section lines, or, if not within the Rectangular Survey System, the 
nearest two adjacent property lines, generated from the BLM's current 
Geographic Coordinate database (Public Land Survey System).
    Low-volume property means a lease, unit PA, or CA that does not 
produce sufficient volumes for the operator to realize from continued 
production a sufficient rate of return on the investment required to 
achieve non-commingled measurement of volumes produced from that lease, 
unit PA, or CA, such that a prudent operator would opt to plug a well 
or shut-in the lease, unit PA, or CA if the commingling request were 
not approved. The volumes produced from a lease, unit PA, or CA include 
all volumes produced and are not limited to volumes allocated to 
Federal leases or the Federal interest. In the absence of information 
demonstrating a different rate, a rate of return less than 10 percent 
(before Federal, State, and local taxes) will be regarded as not 
sufficient. A lease, unit PA, or CA may also be regarded as a low-
volume property if the operator demonstrates that the cost of the 
capital expenditures required to achieve measurement of non-commingled 
production from that property is more than the net present value (NPV) 
of the projected royalty from continued production from the lease, CA, 
or unit PA over the life of the equipment.
    Maximum ultimate economic recovery has the same meaning as defined 
in 43 CFR 3160.0-5.
    Mishandling means unmeasured or unaccounted-for removal of 
production from a facility.
    Piping means a tubular system (e.g., metallic, plastic, fiberglass, 
or rubber) used to move fluids (liquids and gases).
    Production phase means that event during which oil is delivered 
directly to or through production equipment to the storage facilities 
and includes all operations at the facility other than those defined by 
the sales phase.
    Sales phase means that event during which oil is removed from 
storage facilities for sale at an FMP.
    Seal means a uniquely numbered device which completely secures 
either a valve or those components of a measuring system that affect 
the quality or quantity of the oil being measured.
    (b) As used in this subpart, the following additional acronyms 
apply:
    BMPs means Best Management Practices.
    Btu means British thermal unit.
    CAA means commingling and allocation approval.


Sec.  3173.2  Storage and sales facilities--seals.

    (a) All lines entering or leaving any oil storage tank must have 
valves capable of being effectively sealed during the production and 
sales phases unless otherwise provided under this subpart. During the 
production phase, all appropriate valves that allow unmeasured 
production to be removed from storage must be effectively sealed in the 
closed position. During any other phase (sales, water drain, hot 
oiling), and prior to taking the top tank gauge measurement, all 
appropriate valves that allow unmeasured production to enter or leave 
the sales tank must be effectively sealed in the closed position (see 
Appendix to Subpart 3173). Each unsealed or ineffectively sealed 
appropriate valve is a separate violation.
    (b) Valves or combinations of valves and tanks that provide access 
to the production before it is measured for sales are considered 
appropriate valves and are subject to the seal requirements of this 
subpart (see Appendix to 3173). If there is more than one valve on a 
line from a tank, the valve closest to the tank must be sealed. All 
appropriate valves must be in an operable condition and accurately 
reflect whether the valve is open or closed.
    (c) The following are not considered appropriate valves and are not 
subject to the sealing requirements of this subpart:
    (1) Valves on production equipment (e.g., separator, dehydrator, 
gun barrel, or wash tank);
    (2) Valves on water tanks, provided that the possibility of access 
to production in the sales and storage tanks does not exist through a 
common circulating, drain, overflow, or equalizer system;
    (3) Valves on tanks that contain oil that has been determined by 
the AO or AR to be waste or slop oil;

[[Page 40806]]

    (4) Sample cock valves used on piping or tanks with a Nominal Pipe 
Size of 1 inch or less in diameter;
    (5) When a single tank with a nominal capacity of 500 barrels (bbl) 
or less is used for collecting marginal production of oil produced from 
a single well (i.e., production that is less than 3 bbl per day), the 
requirement for the fill-line valve to be sealed during shipment is 
waived, but all other seal requirements of this subpart apply;
    (6) Gas line valves used on piping with a Nominal Pipe Size of 1 
inch or less used as tank bottom ``roll'' lines are not required to be 
sealed, provided there is no access to the contents of the storage tank 
and the roll lines cannot be used as equalizer lines;
    (7) Valves on tank heating systems which use a fluid other than the 
contents of the storage tank (i.e., steam, water, or glycol);
    (8) Valves used on piping with a Nominal Pipe Size of 1 inch or 
less connected directly to the pump body or used on pump bleed off 
lines;
    (9) Tank vent-line valves; and
    (10) Sales, equalizer, or fill-line valves on systems where 
production may be removed only through approved oil metering systems 
(e.g., lease automatic custody transfer and CMS). However, any valve 
which allows access for removing oil before it is measured through the 
metering system must be effectively sealed (see Appendix to 3173).
    (d) Tampering with any appropriate valve is prohibited. Tampering 
with an appropriate valve may result in an assessment of civil 
penalties for knowingly or willfully preparing, maintaining, or 
submitting false, inaccurate, or misleading reports, records, or 
written information under 30 U.S.C. 1719(d)(1) and 43 CFR 3163.2(f)(1), 
or knowingly or willfully taking, removing, transporting, using, or 
diverting oil or gas from a lease site without valid legal authority 
under 30 U.S.C. 1719(d)(2) and 43 CFR 3163.2(f)(2), together with any 
other remedies provided by law.


Sec.  3173.3  Oil measurement system components--seals.

    (a) Components used for quantity or quality determination of oil 
must be effectively sealed to indicate tampering, including, but not 
limited to, the following components (see Sec. Sec.  3174.8(a) (lease 
automatic custody transfer meters) and 3174.9(d) (Coriolis measurement 
systems) of this part):
    (1) Sample probe;
    (2) Sampler volume control;
    (3) All valves on lines entering or leaving the sample container, 
excluding the safety pop-off valve (if so equipped). Each valve must be 
sealed in the open or closed position, as appropriate;
    (4) Meter assembly, including the counter head and meter head;
    (5) Temperature averager/flow computer;
    (6) Back pressure valve downstream of the meter;
    (7) Any drain valves in the system;
    (8) Manual sampling valves (if so equipped);
    (9) Valves on diverter lines larger than 1'' in nominal diameter;
    (10) Right-angle drive;
    (11) Totalizer; and
    (12) Prover connections.
    (b) Each missing or ineffectively sealed component is a separate 
violation.


Sec.  3173.4  Federal seals.

    (a) In addition to any INC issued for a seal violation, the AO or 
AR may place one or more Federal seals on any appropriate valve, 
sealing device, or oil metering system component that does not comply 
with the requirements in Sec. Sec.  3173.2 and 3173.3 of this subpart 
if the operator is not present, refuses to cooperate with the AO or AR, 
or is unable to correct the noncompliance.
    (b) The placement of a Federal seal does not constitute compliance 
with the requirements of Sec. Sec.  3173.2 and 3173.3 of this subpart.
    (c) A Federal seal may not be removed without the approval of the 
AO or AR.


Sec.  3173.5  Removing production from tanks for sale and 
transportation by truck.

    (a) When a single truck load constitutes a completed sale, the 
driver must possess documentation containing the information required 
in Sec.  3174.12 of this part.
    (b) When multiple truckloads are involved in a sale and the oil 
measurement method is based on the difference between the opening and 
closing gauges, the driver of the last truck must possess the 
documentation containing the information required in Sec.  3174.12 of 
this part. All other drivers involved in the sale must possess a trip 
log or manifest.
    (c) After the seals have been broken, the purchaser or transporter 
is responsible for the entire contents of the tank until it is 
resealed.


Sec.  3173.6  Water-draining operations.

    When water is drained from a production storage tank, the operator, 
purchaser, or transporter, as appropriate, must document the following 
information:
    (a) Federal or Indian lease, unit PA, or CA number(s);
    (b) FMP number associated with the tank;
    (c) The tank location by land description;
    (d) The unique tank number and nominal capacity;
    (e) Date and time for opening gauge;
    (f) Opening gauge and color cut measurements;
    (g) Name of the person and company draining the tank;
    (h) Unique identifying number of each seal removed;
    (i) Time of the closing gauge;
    (j) Closing gauge measurement; and
    (k) Unique identifying number of each seal installed.


Sec.  3173.7  Hot oiling, clean-up, and completion operations.

    (a) During hot oil, clean-up, or completion operations, or any 
other situation where the operator removes oil from storage, 
temporarily uses it for operational purposes, and then returns it to 
storage on the same lease, unit PA, or CA, the operator must document 
the following information:
    (1) Federal or Indian lease, unit PA, or communitization agreement 
number(s);
    (2) FMP number associated with the tank or group of tanks;
    (3) The tank location by land description;
    (4) The unique tank number and nominal capacity;
    (5) Date and time of the opening gauge;
    (6) Opening gauge measurement;
    (7) Name of the person and company removing production from the 
tank;
    (8) Unique identifying number of each seal removed;
    (9) Time of the closing gauge;
    (10) Closing gauge measurement;
    (11) Unique identifying number of each seal installed;
    (12) How the oil was used; and
    (13) Where the oil was used (i.e., well or facility name and 
number).
    (b) During hot oiling, line flushing, or completion operations or 
any other situation where the operator removes production from storage 
for use on a different lease, unit PA, or CA, the production is 
considered sold and must be measured in accordance with the applicable 
requirements of this subpart and reported as sold to ONRR on the OGOR 
(30 CFR part 1210 subpart C).


Sec.  3173.8  Report of theft or mishandling of production.

    (a) No later than the next business day after discovery of an 
incident of apparent theft or mishandling of production, the operator, 
purchaser, or transporter must report the incident to

[[Page 40807]]

the AO. All oral reports must be followed up with a written incident 
report within 10 business days of the oral report.
    (b) The incident report must include the following information:
    (1) Company name and name of the person reporting the incident;
    (2) Lease, unit PA, or communitization agreement number, well or 
facility name and number, and FMP number, as appropriate;
    (3) Land description of the facility location where the incident 
occurred;
    (4) The estimated volume of production removed;
    (5) The manner in which access was obtained to the production or 
how the mishandling occurred;
    (6) The name of the person who discovered the incident; and
    (7) The date and time of the discovery of the incident.


Sec.  3173.9  Required recordkeeping for inventory and seal records.

    (a) At the end of each calendar month, the operator must measure 
and record an inventory consisting of TOV in storage;
    (b) For each seal, the operator must maintain a record that 
includes:
    (1) The unique identifying number of each seal and the valve or 
meter component on which the seal is or was used;
    (2) The date of installation or removal of each seal;
    (3) For valves, the position (open or closed) in which it was 
sealed; and
    (4) The reason the seal was removed.


Sec.  3173.10  Form 3160-5, Sundry Notices and Reports on Wells.

    (a) The operator must submit a Form 3160-5, Sundry Notices and 
Reports on Wells (Sundry Notice) for the following:
    (1) Site facility diagrams (see Sec.  3173.11 of this subpart);
    (2) Request for an FMP number (see Sec.  3173.12 of this subpart);
    (3) Request for FMP amendments (see Sec.  3173.13 of this subpart);
    (4) Requests for approval of off-lease measurement (see Sec.  
3173.23 of this subpart);
    (5) Request to amend an approval of off-lease measurement (see 
Sec.  3173.23(k) of this subpart);
    (6) Requests for approval of proposed CAAs (see Sec.  3173.15 of 
this subpart); and
    (7) Request to modify a CAA (see Sec.  3173.18 of this subpart).
    (b) The operator must submit all Sundry Notices electronically to 
the BLM office having jurisdiction over the lease, unit, or CA using 
the BLM's WIS, or other electronic system the BLM designates, unless 
the submitter:
    (1) Is a small business, as defined by the U.S. Small Business 
Administration; and
    (2) Does not have access to the Internet.


Sec.  3173.11  Site facility diagram.

    (a) A site facility diagram is required for all facilities.
    (b) Except for the requirement to submit a Form 3160-5 with the 
site facility diagram, no format is prescribed for site facility 
diagrams. The diagram should be formatted to fit on an 8\1/2\ x 11 
sheet of paper, if possible, and must be legible and comprehensible to 
an individual with an ordinary working knowledge of oil field 
operations (See Appendix to 3173). If more than one page is required, 
each page must be numbered (in the format ``N of X pages'').
    (c) The diagram must:
    (1) Be submitted within 30 days of completion of construction of a 
new facility, when existing facilities are modified, or when a non-
Federal facility located on a Federal lease or federally approved unit 
or CA is constructed or modified;
    (2) Reflect the position of the production and water recovery 
equipment, piping for oil, gas, and water, and metering or other 
measuring systems in relation to each other, but need not be to scale;
    (3) Commencing with the header, identify all of the equipment, 
including, but not limited to, the header, wellhead, piping, tanks, and 
metering systems located on the site, and include the appropriate 
valves and any other equipment used in the handling, conditioning, or 
disposal of production and water, and indicate the direction of flow;
    (4) Identify by API number the wells flowing into headers;
    (5) If another operator operates a co-located facility, depict the 
co-located facilities on the diagram or list them as an attachment and 
identify them by company name, facility name(s), lease, unit PA, or 
communitization agreement number, and FMP number(s);
    (6) Indicate which valve(s) must be sealed and in what position 
during the production and sales phases and during the conduct of other 
production activities (e.g., circulating tanks or drawing off water), 
which may be shown by an attachment, if necessary;
    (7) When describing co-located facilities operated by one operator, 
include a skeleton diagram of the co-located facility, showing 
equipment only. For storage facilities common to co-located facilities 
operated by one operator, one diagram is sufficient;
    (8) Clearly identify the lease, unit PA, or CA to which the diagram 
applies and the land description of the facility, and the name of the 
company submitting the diagram, with co-located facilities being 
identified for each lease, unit PA, or CA;
    (9) Clearly identify on the diagram, or an attachment, all meters 
and measurement equipment. Specifically identify all approved and 
assigned FMPs.
    (10) If the operator claims royalty-free use, clearly identify on 
the diagram or as an attachment, the equipment for which the operator 
claims royalty-free use. The operator must either:
    (i) For each engine, motor, or major component (e.g., compressor, 
separator, dehydrator, heater-treater, or tank heater) powered by 
production from the lease, unit, or CA, state the volume (oil or gas) 
consumed per day and per month, how the volume is determined, the 
equipment manufacturer's name, rated use, and equipment serial number; 
or
    (ii) Measure the volume used by meter or tank gauge.
    (11) Each diagram must contain a signature block certifying ``I 
(print company representative's name) representing (print company name) 
certify the accuracy and completeness of the information contained 
within this site facility diagram. (signature of company 
representative) on (date signed) (printed name of company 
representative).'' The person certifying must have the authority to act 
on behalf of the operator or lessee and possess knowledge of the 
accuracy and completeness of the information presented in the diagram.
    (d) For a facility in service before [EFFECTIVE DATE OF THE FINAL 
RULE], the operator must submit a new site facility diagram that 
complies with this section within 30 days after the BLM assigns an FMP 
number under Sec.  3173.12 of this subpart; and
    (e) For facilities in service before [EFFECTIVE DATE OF THE FINAL 
RULE], for which the BLM will not assign an FMP number under Sec.  
3173.12 of this subpart (e.g., facilities that dispose of produced 
water), the operator must submit a new site facility diagram by [DATE 
60 DAYS AFTER THE EFFECTIVE DATE OF THE FINAL RULE].


Sec.  3173.12  Applying for a facility measurement point.

    (a)(1) Unless otherwise approved, the FMP(s) for all Federal and 
Indian leases, unit PAs, or CAs must be located within the boundaries 
of the lease, unit, or CA from which the production originated

[[Page 40808]]

and must measure only production from that lease, unit PA, or CA.
    (2) Off-lease measurement, commingling, or allocation of Federal or 
Indian production requires prior approval (see 43 CFR 3162.7-2, 3162.7-
3, 3173.15, 3173.16, 3173.23, and 3173.24).
    (b) The BLM will not approve a gas processing plant tailgate meter 
located off the lease, unit, or CA as an FMP.
    (c) The operator must separately apply for approval of separate FMP 
numbers for an FMP that measures oil produced from a lease, unit PA, 
CA, or CAA and an FMP that measures gas produced from the same lease, 
unit PA, CA, or CAA, even if the measurement equipment or facilities 
are at the same location.
    (d) For a measurement facility that comes into service after 
[EFFECTIVE DATE OF THE FINAL RULE], the operator must obtain BLM 
approval for the FMP before any production leaves the facility.
    (e) For a measurement facility in service on or before [EFFECTIVE 
DATE OF THE FINAL RULE], the operator must apply for BLM approval of an 
FMP within the time prescribed in this paragraph, based on the 
production level of the lease, unit PA, CA, or CAA that the facility 
serves. The required time to apply for approval of an FMP applies to 
both oil and gas measurement facilities measuring production from that 
lease, unit PA, CA, or CAA.
    (1) For a stand-alone lease, unit PA, CA, or CAA that produces 
6,000 Mcf or more of gas per month or 40 barrels or more of oil per 
month, by [DATE 9 MONTHS AFTER THE EFFECTIVE DATE OF THE FINAL RULE].
    (2) For a stand-alone lease, unit PA, CA, or CAA that produces 
3,000 Mcf or more but less than 6,000 Mcf of gas per month or 20 
barrels or more but less than 40 barrels of oil per month, by [DATE 18 
MONTHS AFTER THE EFFECTIVE DATE OF THE FINAL RULE].
    (3) For a stand-alone lease, unit PA, CA, or CAA that produces less 
than 3,000 Mcf of gas per month and less than 20 barrels of oil per 
month, [DATE 27 MONTHS AFTER THE EFFECTIVE DATE OF THE FINAL RULE].
    (4) Calculate the production levels prescribed in paragraphs (e)(1) 
through (3) of this section as an average over the 12 months preceding 
the effective date of this section or the period the lease, unit PA, 
CA, or CAA has been in production, whichever is shorter.
    (5) If the operator applies for an FMP approval by the date 
required under this paragraph, the operator may continue to use the 
existing measurement points until the BLM acts on the application.
    (6) If the operator fails to apply for an FMP approval by the date 
required under this paragraph, the operator will be subject to an 
incident of noncompliance and assessment of civil penalty under 43 CFR 
subpart 3163, together with any other remedy available under applicable 
law or regulation.
    (f) All requests for FMP approval must include the following:
    (1) A complete Sundry Notice for approval of the FMP;
    (2) The applicable Measurement Type Code specified in WIS;
    (3) For gas and oil, a list of the measurement component names and 
the manufacturer, model, and serial number of each component. For 
example:
    (i) ``Gas measurement,'' electronic flow computer--manufacturer, 
model, serial number; primary element (holder, e.g., senior fitting)--
manufacturer, serial number, size; transducer (static, differential and 
temperature)--manufacturer, model, serial number, upper range limit; 
temperature chart recorder--model, serial number, etc.;
    (ii) ``Oil measurement by tank gauge,'' oil tank--tank number and/
or serial number (there may be more than one tank associated with an 
FMP); and
    (iii) ``Oil measurement by LACT,'' totalizer--model, serial number, 
temperature averager--model, serial number, etc.
    (iv) ``Oil measurement by CMS,'' Coriolis meter--manufacturer, 
model, size serial number; transducer (pressure and temperature)--
manufacturer, model, upper range limit; tertiary device, manufacturer, 
model.
    (4) For gas, the gas sampling method (i.e., spot, composite, or on-
line gas chromatograph);
    (5) Where production from more than one well will flow to the 
requested FMP, list the API well numbers associated with the FMP.
    (g) FMP approval may be requested concurrently with requests for 
off-lease measurement or commingling and allocation approval.
    (h) If the FMP request is approved, the BLM will assign an FMP 
number.


Sec.  3173.13  Requirements for approved facility measurement points.

    (a) Within 30 days after BLM approval, the operator must stamp or 
stencil the FMP number on a fixed plate:
    (1) For gas, either on the meter run or meter house, and, as 
required in 43 CFR 3175.101(b)(4)(i), on the flow computer display; and
    (2) For oil measured by:
    (i) LACT, on the non-resettable totalizer;
    (ii) CMS, on the Coriolis meter and on the display of the tertiary 
device; or
    (iii) Tank, on the pipeline, tank, or valve closest to the tank 
where the connection for removal or delivery is made.
    (b) The operator must maintain the stamped or stenciled FMP number 
in a legible condition. The FMP number must be clearly visible to any 
person at or approaching the FMP and clearly identified with each FMP;
    (c) Beginning on the first day of the month after the FMP number is 
assigned, the operator must use the FMP number in recordkeeping, as 
required by this subpart;
    (d)(1) The operator must file a Sundry Notice that details any 
modifications to the FMP within 20 business days after the change.
    (2) These details include, but are not limited to, the old and new 
meter manufacturer, serial number(s), owner's name, tank number(s), and 
wells or facilities using the FMP.
    (3) The Sundry Notice must specify what was changed, why the change 
was made, the effective date, and include, if appropriate, an amended 
site facility diagram (see Sec.  3173.11 of this subpart).


Sec.  3173.14  Conditions for commingling and allocation approval 
(surface and downhole).

    (a) With the exceptions stated in paragraph (b) of this section, 
the BLM will grant a CAA only if:
    (1) The proposed commingling includes production from only:
    (i) Federal leases, unit PAs, or CAs with 100 percent Federal 
mineral ownership and the same fixed royalty rate and revenue 
distribution; or
    (ii) Indian tribal leases, unit PAs, or CAs wholly owned by the 
same tribe and with the same fixed royalty rate;
    (2) There is a signed agreement prescribing an allocation method 
among the properties whose production is to be commingled (including a 
method for allocating produced water);
    (3) For each of the leases, unit PAs, or CAs proposed for inclusion 
in the CAA, the applicant demonstrates to the AO that a lease, unit PA, 
or CA proposed for inclusion is producing in paying quantities (or, in 
the case of Federal leases, capable of production in paying quantities) 
pending approval of the CAA; and
    (4) The FMP(s) for the proposed CAA measure production originating 
only from the leases, unit PAs, or CAs in the CAA.
    (b) The BLM will consider proposed commingling of production from 
Federal or Indian leases, unit PAs, or

[[Page 40809]]

CAs with less than 100 percent Federal or same Indian tribal ownership, 
or proposed commingling of production from one or more Federal or 
Indian leases, unit PAs, or CAs with production from State or private 
properties, only if the proposed commingling meets the conditions of 
subparagraphs (a)(2) through (4) of this section and if:
    (1) The Federal or Indian lease, unit PA, or CA meets the 
definition of a low-volume property; or
    (2) There are overriding considerations which indicate that the BLM 
should approve a commingling application notwithstanding potential 
negative royalty impacts from commingled measurement. Such 
considerations could include topographic or other environmental 
considerations that make non-commingled measurement physically 
impractical or undesirable, in view of where additional measurement and 
related equipment necessary to achieve non-commingled measurement would 
have to be located; and
    (3) In either case, the AO determines that the requested CAA is in 
the public interest, taking into account relevant environmental 
considerations and the BLM's ability to verify and account for the 
production proposed to be commingled.


Sec.  3173.15  Applying for a commingling and allocation approval.

    To apply for a CAA, the operator(s) must submit the following 
information, if applicable, to the BLM office having jurisdiction over 
the leases, unit PAs, or CAs whose production is proposed to be 
commingled:
    (a) A completed Sundry Notice for approval of:
    (1) Commingling and allocation; and
    (2) Off-lease measurement under Sec.  3173.23 of this subpart, if 
any of the proposed FMPs are outside the boundaries of any of the 
leases, units, or CAs whose production would be commingled (which may 
be included in the same Sundry Notice as the request for approval of 
commingling and allocation);
    (b) A proposed allocation agreement and a proposed allocation 
schedule (including allocation of produced water) signed by each 
operator of each of the leases, unit PAs, or CAs whose production would 
be included in the CAA;
    (c) A list of all Federal or Indian lease, unit PA, or 
communitization agreement numbers in the proposed CAA, specifying the 
type of production (i.e., oil, gas, or both) for which commingling is 
requested;
    (d) A map or maps showing the following:
    (1) The boundaries of all the leases, units, unit PAs, or CAs whose 
production is proposed to be commingled;
    (2) The proposed location by land description for the FMP used to 
measure the commingled production; and
    (3) A map or diagram of existing or planned facilities that shows 
the location of all wellheads, production facilities, flow lines 
(including water flow lines), and FMPs existing or proposed to be 
installed to the extent known or anticipated;
    (e) For existing facilities, site facility diagrams clearly showing 
any proposed change to current site facility diagrams (see Sec.  
3173.11 of this subpart);
    (f) A schematic or engineering drawing for all new proposed 
facilities (including water handling facilities) showing the relative 
location of pipes, tanks, meters, separators, dehydrators, compressors, 
and other equipment;
    (g) If new surface disturbance is proposed on one or more of the 
leases, units, or CAs and the surface is BLM-managed land, a request to 
the AO for approval of the proposed surface disturbance (by Sundry 
Notice if the affected land is leased, or in an application for right-
of-way if the affected land is unleased land within a CA or unit);
    (h) If new surface disturbance is proposed on BLM-managed land 
outside any of the leases, units, or CAs whose production would be 
commingled, a right-of-way grant application, under 43 CFR part 2880 if 
the FMP is on a pipeline, or under 43 CFR part 2800, if the FMP is a 
storage tank;
    (i) If new surface disturbance is proposed on Federal land managed 
by an agency other than the BLM, written approval from the appropriate 
surface-management agency;
    (j) Documentation demonstrating that each of the leases, unit PAs, 
or CAs proposed for inclusion in the CAA is producing in paying 
quantities (or, in the case of Federal leases, is capable of production 
in paying quantities) pending approval of the CAA; and
    (k) All gas analyses, including Btu content (if the CAA request 
includes gas) and all oil gravities (if the CAA request includes oil) 
for previous periods of production from the leases, units, unit PAs, or 
CAs proposed for inclusion in the CAA, up to 6 years before the date of 
the application for approval of the CAA.


Sec.  3173.16  Existing commingling and allocation approvals.

    (a) Upon receipt of an operator's request for assignment of an FMP 
number to a facility associated with a CAA existing on the effective 
date of this subpart, the AO will review the existing CAA for 
consistency with the minimum standards and requirements for a CAA under 
Sec.  3173.14 of this subpart. The AO will notify the operator in 
writing of any inconsistencies or deficiencies.
    (b) The operator must correct any inconsistencies or deficiencies 
that the AO identifies, or provide additional information, within 20 
business days of receipt of the AO's notice.
    (c) The AO may impose new or amended COAs on an existing 
commingling approval to make the approval consistent with the 
requirements for a CAA under Sec.  3173.14 of this subpart in 
connection with approving the requested FMP. If the operator appeals 
one of more of the new COAs, the existing FMP approval will continue in 
effect during the pendency of the appeal.
    (d) If the existing commingling approval does not meet the 
standards and requirements of Sec.  3173.14 of this subpart and the 
operator does not correct the deficiencies, the AO may terminate the 
existing commingling approval under Sec.  3173.20 of this subpart and 
deny the request for an FMP number for the facility associated with the 
existing commingling approval.
    (e) If the BLM approves a new CAA to replace an existing CAA, the 
new CAA is effective on the first day of the month following its 
approval.


Sec.  3173.17  Relationship of a commingling and allocation approval to 
royalty-free use of production.

    A CAA does not constitute approval of off-lease royalty-free use of 
production as fuel in facilities located at an FMP approved under the 
CAA. The operator may seek such approval under applicable rules.


Sec.  3173.18  Modification of a commingling and allocation approval.

    (a) At the request of all the operators who are a party to a CAA, 
the CAA may be modified when:
    (1) There is a change in the allocation schedule (including 
allocation of produced water) resulting from a change in relative 
production from wells subject to the CAA or addition or elimination of 
a well from the CAA;
    (2) Additional leases, unit PAs, or CAs are proposed for inclusion 
in the CAA;
    (3) A lease, unit PA, or communitization agreement within the

[[Page 40810]]

CAA terminates, or a unit PA within the CAA ceases production; or
    (4) There is a change in operator.
    (b) To request a modification of a CAA, all operators must submit 
to the AO:
    (1) A completed Sundry Notice describing the modification 
requested;
    (2) A new allocation schedule, if appropriate; and
    (3) Certification by each operator that it agrees to the CAA 
modification.


Sec.  3173.19  Effective date of a commingling and allocation approval.

    (a) If the BLM approves a commingling application, the effective 
date is the first day of the month following first production through 
the FMP(s) for the CAA.
    (b) If the BLM approves a modification, the effective date is the 
first day of the month following approval of the modification.
    (c) A CAA does not modify any of the terms of the leases, units, or 
communitization agreements covered by the CAA.


Sec.  3173.20  Terminating a commingling and allocation approval.

    (a) Any operator who is party to a CAA may unilaterally terminate 
the CAA by submitting a Sundry Notice to the BLM. The Sundry Notice 
must identify the new FMP(s) for the lease(s), unit PA(s), or CA(s) 
operated by that operator.
    (b) The BLM may terminate the CAA for any reason, including, but 
not limited to, the following:
    (1) Changes in technology, regulation, or BLM policy;
    (2) Non-compliance with the terms or COAs of the CAA or this 
subpart; or
    (3) The BLM determines that a lease, unit, or communitization 
agreement subject to the CAA has terminated, or a unit PA subject to 
the CAA has ceased production.
    (c) If only one lease, unit PA, or CA remains subject to the CAA, 
the CAA terminates automatically.
    (d) The BLM will notify in writing all operators who are a party to 
the CAA of the CAA termination, the reason for the termination, and the 
effective date of the termination.
    (e) If a CAA is terminated, each lease, unit PA, or CA that was 
included in the CAA will revert to separate measurement. The separate 
measurement must be on the lease, unit, or CA unless off-lease 
measurement is approved.


Sec.  3173.21  Combining production downhole in certain circumstances.

    (a)(1) Combining production from a single well (e.g., a directional 
well) drilled into different hydrocarbon pools or geologic formations 
underlying separate adjacent properties (whether Federal, Indian, 
State, or private), where none of the hydrocarbon pools or geologic 
formations underlie or are common to more than one of the respective 
properties, constitutes commingling for purposes of Sec. Sec.  3173.14 
through 3173.20.
    (2) If any of the hydrocarbon pools or geologic formations underlie 
or are common to more than one of the properties, the operator must 
establish a unit PA (see 43 CFR part 3180) or communitization agreement 
(see 43 CFR 3105.2-1-3105.2-3), as applicable, rather than applying for 
a CAA.
    (b) Combining production downhole from different geologic 
formations on the same lease from a single well requires approval of 
the AO (see 43 CFR 3162.3-2), but it is not considered commingling for 
production accounting purposes, unless the respective geologic 
formations have different ownership.


Sec.  3173.22  Requirements for off-lease measurement.

    Off-lease measurement must:
    (a) Involve only production from a single lease, unit PA, or CA or 
from a single CAA;
    (b) Provide for accurate production accountability;
    (c) Be in the public interest (considering factors including, but 
not limited to, BMPs and maximum ultimate economic recovery); and
    (d) Occur at an approved FMP. A request for approval of an FMP (see 
Sec.  3173.13 of this subpart) may be filed concurrently with the 
request for off-lease measurement.


Sec.  3173.23  Applying for off-lease measurement.

    To apply for approval of off-lease measurement, the operator must 
submit the following to the BLM office having jurisdiction over the 
leases, units, or CAs:
    (a) A completed Sundry Notice. The Sundry Notice should include a 
request for a CAA if the proposed off-lease measurement is associated 
with a proposed CAA (see Sec.  3173.15 of this subpart);
    (b) Justification for off-lease measurement (e.g., necessary for 
economic or physical accessibility reasons, or BMPs);
    (c) A topographic map of appropriate scale showing the following:
    (1) The boundary of the lease(s), unit(s), or CA(s) from which the 
production originates;
    (2) The location by land description of all wells, pipelines, 
facilities, and FMPs associated with the proposal, with equipment 
identified as existing or proposed; and
    (3) The surface ownership of all land on which equipment is, or is 
proposed to be, located.
    (d) A schematic or engineering drawing for all new proposed 
facilities showing the relative location of pipes, tanks, meters, 
separators, dehydrators, compressors, and other equipment;
    (e) For existing facilities, site facility diagrams clearly showing 
any proposed change to current site facility diagrams (see Sec.  
3173.11 of this subpart);
    (f) If any of the proposed off-lease measurement facilities are 
located on non-federally owned surface, a written concurrence signed by 
the owner(s) of the surface and the owner(s) of the measurement 
facilities, including each owner(s)' name, address, and telephone 
number, granting the BLM unrestricted access to the off-lease 
measurement facility and the surface on which it is located, for the 
purpose of inspecting any production, measurement, water handling, or 
transportation equipment located on the non-Federal surface up to and 
including the FMP, and for otherwise verifying production 
accountability. If the ownership of the non-Federal surface or of the 
measurement facility changes, the operator must obtain and provide to 
the AO the written concurrence required under this paragraph from the 
new owner(s);
    (g) A right-of-way grant application, filed under 43 CFR part 2880 
if the proposed off-lease FMP is on a pipeline, or under 43 CFR part 
2800 if the proposed off-lease FMP is a storage tank;
    (h) A right-of-way grant application, filed under 25 CFR part 169, 
if any of the proposed surface facilities are on Indian land outside 
the lease, unit, or CA from which the production originated;
    (i) An application for approval of off-lease royalty-free use under 
applicable rules, if the operator proposes to use production from the 
lease, unit, or CA as fuel at the off-lease measurement facility 
without payment of royalty; and
    (j) A statement that indicates whether the proposal includes all, 
or only a portion of, the production from the lease, unit, or CA. (For 
example, gas, but not oil, could be proposed for off-lease 
measurement.) If the proposal includes only a portion of the 
production, identify the FMP(s) where the remainder of the production 
from the lease, unit, or CA is measured or is proposed to be measured.
    (k) To apply for an amendment of an existing approval of off-lease

[[Page 40811]]

measurement, the operator must submit a completed Sundry Notice 
required under paragraph (a) of this section, and information required 
under paragraphs (b) through (j) of this section to the extent the 
information previously submitted has changed.


Sec.  3173.24  Effective date of an off-lease measurement approval.

    If the BLM approves off-lease measurement, the approval is 
effective on the date that the approval is issued, unless the approval 
specifies a different effective date.


Sec.  3173.25  Existing off-lease measurement approval.

    (a) Upon receipt of an operator's request for assignment of an FMP 
number to a facility associated with an off-lease measurement approval 
existing on [EFFECTIVE DATE OF THE FINAL RULE], the AO will review the 
existing off-lease measurement approval for consistency with the 
minimum standards and requirements for an off-lease measurement 
approval under Sec.  3173.22 of this subpart. The AO will notify the 
operator in writing of any inconsistencies or deficiencies.
    (b) The operator must correct any inconsistencies or deficiencies 
that the AO identifies, or provide additional information, within 20 
business days of receipt of the AO's notice.
    (c) The AO may impose new or amended COAs on an existing off-lease 
measurement approval to make the approval consistent with the 
requirements for off-lease measurement under Sec.  3173.22 of this 
subpart in connection with approving the requested FMP. If the operator 
appeals one of more of the new COAs, the existing FMP approval will 
continue in effect during the pendency of the appeal.
    (d) If the existing off-lease measurement approval does not meet 
the standards and requirements of Sec.  3173.22 of this subpart and the 
operator does not correct the deficiencies, the AO may terminate the 
existing off-lease measurement approval under Sec.  3173.27 of this 
subpart and deny the request for an FMP number for the facility 
associated with the existing off-lease measurement approval.
    (e) If the BLM approves a new off-lease measurement arrangement to 
replace an existing off-lease measurement approval, the new arrangement 
is effective on the first day of the month following its approval.


Sec.  3173.26  Relationship of off-lease measurement approval to 
royalty-free use of production.

    Approval of off-lease measurement does not constitute approval of 
off-lease royalty-free use of production as fuel in facilities located 
at an FMP approved under the off-lease measurement approval. The 
operator may seek such approval under applicable rules.


Sec.  3173.27  Termination of off-lease measurement approval.

    (a) The operator may terminate the off-lease measurement by 
submitting a Sundry Notice to the BLM. The Sundry Notice must identify 
the new FMP(s) for the lease(s), unit(s), or CA(s) previously subject 
to the off-lease measurement approval.
    (b) The BLM may terminate off-lease measurement approval for any 
reason, including, but not limited to, the following:
    (1) Changes in technology, regulation, or BLM policy; or
    (2) Non-compliance with the terms or conditions of approval of the 
off-lease measurement approval or Sec. Sec.  3173.22 through 3173.26 of 
this subpart.
    (c) The BLM will notify the operator in writing that the off-lease 
measurement approval has been terminated, the reason for the 
termination, and the effective date of the termination.
    (d) If off-lease measurement is terminated, each lease, unit, or CA 
that was subject to the off-lease measurement will revert to 
measurement on the respective lease, unit, or CA.


Sec.  3173.28  Instances not constituting off-lease measurement, for 
which no approval is required.

    (a) If the approved FMP is located on the well pad of a 
directionally drilled well that produces oil and gas from a lease, 
unit, or CA on which the well pad is not located, measurement at the 
FMP does not constitute off-lease measurement. However, if the FMP is 
located off of the well pad, regardless of distance, measurement at the 
FMP constitutes off-lease measurement, and BLM approval is required 
under Sec. Sec.  3173.22 through 3173.26 of this subpart.
    (b) If a lease, unit, or CA consists of more than one separate 
tract whose boundaries are not contiguous (e.g., a single lease 
comprised of two or more separate tracts), measurement of production at 
an FMP located on one of the tracts is not considered to be off-lease 
measurement if:
    (1) The production is moved from one tract to another tract within 
the same lease, unit, or CA to another area of the lease, unit, or CA 
on which the FMP is located; and
    (2) Production is not diverted during the movement between the 
tracts before the FMP, except for production used royalty free.


Sec.  3173.29  Immediate assessments.

    Certain instances of noncompliance warrant the imposition of 
immediate assessments upon discovery, as prescribed in the following 
table. Imposition of these assessments does not preclude other 
appropriate enforcement actions:
BILLING CODE 4310-84-P

[[Page 40812]]

[GRAPHIC] [TIFF OMITTED] TP13JY15.122


[[Page 40813]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.123


[[Page 40814]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.124


[[Page 40815]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.125


[[Page 40816]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.126


[[Page 40817]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.127


[[Page 40818]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.128


[[Page 40819]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.129


[[Page 40820]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.130


[[Page 40821]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.131


[[Page 40822]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.132


[[Page 40823]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.133


[[Page 40824]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.134


[[Page 40825]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.135


[[Page 40826]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.136


[[Page 40827]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.137


[[Page 40828]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.138


[[Page 40829]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.139


[[Page 40830]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.140


[[Page 40831]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.141


[[Page 40832]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.142


[[Page 40833]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.143


[[Page 40834]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.144


[[Page 40835]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.145


[[Page 40836]]


[GRAPHIC] [TIFF OMITTED] TP13JY15.146

[FR Doc. 2015-16737 Filed 7-10-15; 4:15 pm]
 BILLING CODE 4310-84-P