Leasing of Osage Reservation Lands for Oil and Gas Mining, 39572-39582 [2016-14127]

Agencies

• DEPARTMENT OF THE INTERIOR
• Bureau of Indian Affairs

[Federal Register Volume 81, Number 117 (Friday, June 17, 2016)]
[Rules and Regulations]
[Pages 39572-39582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14127]



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DEPARTMENT OF THE INTERIOR

Bureau of Indian Affairs

25 CFR Part 226

[167A2100DD/AAKC001030/A0A501010.999900]
RIN 1076-AF17


Leasing of Osage Reservation Lands for Oil and Gas Mining

AGENCY: Bureau of Indian Affairs, Interior.

ACTION: Final rule.

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SUMMARY: The Bureau of Indian Affairs (BIA) previously published a 
final rule ``Leasing of Osage Reservation Lands for Oil and Gas 
Mining'' on May 11, 2015, but due to a court order enjoining the final 
rule and subsequent remand, that version of the rule never became 
effective. This final rule amends the Code of Federal Regulations to 
reinstate the version of the rule that was in effect prior to the 2015 
final rule because that prior version of the rule remains operative.

DATES: This final rule is effective as of June 17, 2016.

FOR FURTHER INFORMATION CONTACT: Mr. Eddie Streater, Designated Federal 
Officer, BIA, (918) 781-4608.

SUPPLEMENTARY INFORMATION: The BIA published the final rule, ``Leasing 
of Osage Reservation Lands for Oil and Gas Mining,'' on May 11, 2015 at 
80 FR 26994. The effective date of the final rule was July 10, 2015. On 
July 1, 2015, the Osage Minerals Council and Osage Producers 
Association filed suit in the U.S. District Court for the Northern 
District of Oklahoma, Case No. 15-cv-00367-GKF-PJC, seeking to enjoin 
implementation of the final rule. On August 10, 2015, the Court entered 
an Order enjoining the final rule. The BIA determined that a voluntary 
remand of the final rule was appropriate. On November 19, 2015, the 
Court entered the Judgment of Remand. The version of 25 CFR part 226 in 
effect prior to publication of the final rule on May 11, 2015, remains 
operative. See 55 FR 33116 (Aug. 14, 1990). This final rule reinserts 
into the Code of Federal Regulations that version of 25 CFR part 226 
that was in effect prior to the May 11, 2015 final rule publication.

Procedural Requirements

A. Regulatory Planning and Review (E.O. 12866 and 13563)

    Executive Order 12866 provides that the Office of Information and 
Regulatory Affairs in the Office of Management and Budget will review 
all significant rules. The Office of Information and Regulatory Affairs 
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 rule in a manner consistent 
with these requirements.

B. Regulatory Flexibility Act

    This document will not have a significant economic effect on a 
substantial number of small entities under the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) because this rule reinstates the existing, 
operative rule.

C. Small Business Regulatory Enforcement Fairness Act

    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act. This rule:
    (a) Does not have an annual effect on the economy of $100 million 
or more;
    (b) Will not cause a major increase in costs or prices for 
consumers, individual industries, Federal, State, or local government 
agencies, or geographic regions;
    (c) Does 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.

D. Unfunded Mandates Reform Act

    This rule does not impose an unfunded mandate on State, local, or 
tribal governments or the private sector of more than $100 million per 
year. The rule does not have a significant or unique effect on State, 
local, or tribal governments or the private sector. A statement 
containing the information required by the Unfunded Mandates Reform Act 
(2 U.S.C. 1531 et seq.) is not required.

E. Takings (E.O. 12630)

    This rule does not affect a taking of private property or otherwise 
have taking implications under Executive Order 12630. A takings 
implication assessment is not required.

F. Federalism (E.O. 13132)

    Under the criteria in section 1 of Executive Order 13132, this rule 
does not have sufficient Federalism implications to warrant the 
preparation of a Federalism summary impact statement. A Federalism 
summary impact statement is not required.

G. Civil Justice Reform (E.O. 12988)

    This rule complies with the requirements of Executive Order 12988. 
Specifically, this rule:
    (a) Meets the criteria of section 3(a) requiring that all 
regulations be reviewed to eliminate errors and ambiguity and be 
written to minimize litigation; and
    (b) Meets the criteria of section 3(b)(2) requiring that all 
regulations be written in clear language and contain clear legal 
standards.

H. Consultation With Indian Tribes (E.O. 13175 and Departmental Policy)

    The Department of the Interior strives to strengthen its 
government-to-government relationship with Indian Tribes through a 
commitment to consultation with Indian Tribes and recognition of their 
right to self-governance and tribal sovereignty. We have evaluated this 
rule under the Department's consultation policy and under the criteria 
in Executive Order 13175 and have determined that is has no substantial 
direct effects on the Osage Nation or other federally recognized Indian 
Tribes and that consultation under the Department's tribal consultation 
policy is not required.

I. Paperwork Reduction Act

    This rule does not contain information collection requirements, and 
a submission to the Office of Management and Budget under the Paperwork 
Reduction Act (44 U.S.C. 3501 et seq.) is not required. We may not 
conduct or sponsor, and you are not required to respond to, a 
collection of information unless it displays a currently valid OMB 
control number.

J. National Environmental Policy Act

    This rule does not constitute a major Federal action significantly 
affecting the

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quality of the human environment. A detailed statement under the 
National Environmental Policy Act of 1969 (NEPA) is not required 
because the rule is covered by a categorical exclusion. This rule is 
excluded from the requirement to prepare a detailed statement because 
it is a regulation of an administrative nature. (For further 
information, see 43 CFR 46.210(i).) We have also determined that the 
rule does not involve any of the extraordinary circumstances listed in 
43 CFR 46.215 that would require further analysis under NEPA.

K. Effects on the Energy Supply (E.O. 13211)

    This rule is not a significant energy action under the definition 
in Executive Order 13211. A Statement of Energy Effects is not 
required.

L. Clarity of This Regulation

    We are required by Executive Orders 12866 (section 1(b)(12)), and 
12988 (section 3(b)(1)(B)), and 13563 (section 1(a)), and by the 
Presidential Memorandum of June 1, 1998, to write all rules in plain 
language. This means that each rule we publish must:
    (a) Be logically organized;
    (b) Use the active voice to address readers directly;
    (c) Use common, everyday words and clear language rather than 
jargon;
    (d) Be divided into short sections and sentences; and
    (e) Use lists and tables wherever possible.
    If you feel that we have not met these requirements, send us 
comments by one of the methods listed in the ADDRESSES section. To 
better help us revise the rule, your comments should be as specific as 
possible. For example, you should tell us the numbers of the sections 
or paragraphs that you find unclear, which sections or sentences are 
too long, the sections where you think lists or tables would be useful, 
etc.

M. Administrative Procedure Act

    Section 553(b) of the Administrative Procedure Act (APA) provides 
that, when an agency for good cause finds that ``notice and public 
procedure . . . are impracticable, unnecessary, or contrary to the 
public interest,'' the agency may issue a rule without providing notice 
and an opportunity for public comment. BIA finds that there is good 
cause to promulgate this rule without providing for public comment 
because the final rule published in May 2015 never took effect and the 
rule being published today remains the operative rule. Accordingly, it 
would serve no purpose to provide an opportunity for public comment on 
this rule. Thus, notice and public comment is impracticable and 
unnecessary.

List of Subjects in 25 CFR Part 226

    Indians--lands.

    For the reasons stated in the preamble, the Department of the 
Interior, Bureau of Indian Affairs, amends Title 25 of the Code of 
Federal Regulations by revising part 226 to read as follows:

PART 226--LEASING OF OSAGE RESERVATION LANDS FOR OIL AND GAS MINING

Sec.
226.1 Definitions.

Leasing Procedure, Rental and Royalty

226.2 Sale of leases.
226.3 Surrender of lease.
226.4 Form of payment.
226.5 Leases subject to current regulations.
226.6 Bonds.
226.7 Provisions of forms made a part of the regulations.
226.8 Corporation and corporate information.
226.9 Rental and drilling obligations.
226.10 Term of lease.
226.11 Royalty payments.
226.12 Government reserves right to purchase oil.
226.13 Time of royalty payments and reports.
226.14 Contracts and division orders.
226.15 Unit leases, assignments and related instruments.

Operations

226.16 Commencement of operations.
226.17 How to acquire permission to begin operations on a restricted 
homestead allotment.
226.18 Information to be given surface owners prior to commencement 
of drilling operations.
226.19 Use of surface of land.
226.20 Settlement of damages claimed.
226.21 Procedure for settlement of damages claimed.
226.22 Prohibition of pollution.
226.23 Easements for wells off leased premises.
226.24 Lessee's use of water.
226.25 Gas well drilled by oil lessees and vice versa.
226.26 Determining cost of well.
226.27 Gas for operating purposes and tribal use.

Cessation of Operations

226.28 Shutdown, abandonment, and plugging of wells.
226.29 Disposition of casings and other improvements.

Requirements of Lessees

226.30 Lessees subject to Superintendent's orders; books and records 
open to inspection.
226.31 Lessee's process agents.
226.32 Well records and reports.
226.33 Line drilling.
226.34 Wells and tank batteries to be marked.
226.35 Formations to be protected.
226.36 Control devices.
226.37 Waste of oil and gas.
226.38 Measuring and storing oil.
226.39 Measurement of gas.
226.40 Use of gas for lifting oil.
226.41 Accidents to be reported.

Penalties

226.42 Penalty for violation of lease terms.
226.43 Penalties for violation of certain operating regulations.

Appeals and Notices

226.44 Appeals.
226.45 Notices.
226.46 Information collection.

    Authority:  Sec. 3, 34 Stat. 543; secs. 1, 2, 45 Stat. 1478; 
sec. 3, 52 Stat. 1034, 1035; sec. 2(a), 92 Stat. 1660.


Sec.  226.1  Definitions.

    As used in this part 226, terms shall have the meanings set forth 
in this section.
    (a) Secretary means the Secretary of the Interior or his authorized 
representative acting under delegated authority.
    (b) Osage Tribal Council means the duly elected governing body of 
the Osage Nation or Tribe of Indians of Oklahoma vested with authority 
to lease or take other actions on oil and gas mining pertaining to the 
Osage Mineral Estate.
    (c) Superintendent means the Superintendent of the Osage Agency, 
Pawhuska, Oklahoma, or his authorized representative acting under 
delegated authority.
    (d) Oil lessee means any person, firm, or corporation to whom an 
oil mining lease is made under the regulations in this part.
    (e) Gas lessee means any person, firm, or corporation to whom a gas 
mining lease is made under the regulations in this part.
    (f) Oil and gas lessee means any person, firm, or corporation to 
whom an oil and gas mining lease is made under the regulations in this 
part.
    (g) Primary term means the basic period of time for which a lease 
is issued during which the lease contract may be kept in force by 
payment of rentals.
    (h) Major purchaser means any one of the minimum number of 
purchasers taking 95 percent of the oil in Osage County, Oklahoma. Any 
oil purchased by a purchaser from itself, its subsidiaries, 
partnerships, associations, or other corporations in which it has a 
financial or management interest shall be excluded from the 
determination of a major purchaser.

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    (i) Casinghead gas means gas produced from an oil well as a 
consequence of oil production from the same formation.
    (j) Natural gas means any fluid, either combustible or 
noncombustible, recovered at the surface in the gaseous phase and/or 
hydrocarbons recovered at the surface as liquids which are the result 
of condensation caused by reduction of pressure and temperature of 
hydrocarbons originally existing in a reservoir in the gaseous phase.
    (k) Authorized representative of an oil lessee, gas lessee, or oil 
and gas lessee means any person, group, or groups of persons, 
partnership, association, company, corporation, organization or agent 
employed by or contracted with a lessee or any subcontractor to conduct 
oil and gas operations or provide facilities to market oil and gas.
    (l) Oil well means any well which produces one (1) barrel or more 
of crude petroleum oil for each 15,000 standard cubic feet of natural 
gas.
    (m) Gas well means any well which:
    (1) Produces natural gas not associated with crude petroleum oil at 
the time of production or
    (2) Produces more than 15,000 standard cubic feet of natural gas to 
each barrel of crude petroleum oil from the same producing formation.

Leasing Procedure, Rental and Royalty


Sec.  226.2  Sale of leases.

    (a) Written application, together with any nomination fee, for 
tracts to be offered for lease shall be filed with the Superintendent.
    (b) The Superintendent, with the consent of the Osage Tribal 
Council, shall publish notices for the sale of oil leases, gas leases, 
and oil and gas leases to the highest responsible bidder on specific 
tracts of the unleased Osage Mineral Estate. The Superintendent may 
require any bidder to submit satisfactory evidence of his good faith 
and ability to comply with all provisions of the notice of sale. 
Successful bidders must deposit with the Superintendent on day of sale 
a check or cash in an amount not less than 25 percent of the cash bonus 
offered as a guaranty of good faith. Any and all bids shall be subject 
to the acceptance of the Osage Tribal Council and approval of the 
Superintendent. Within 20 days after notification of being the 
successful bidder, and said bidder must submit to the Superintendent 
the balance of the cash bonus, a $10 filing fee, and the lease in 
completed form. The Superintendent may extend the time for the 
completion and submission of the lease form, but no extension shall be 
granted for remitting the balance of moneys due. If the bidder fails to 
pay the full cash consideration within said period or fails to file the 
completed lease within said period or extention thereof, or if the 
lease is rejected through no fault of the Osage Tribal Council or the 
Superintendent, 25 percent of the cash bonus bid will be forfeited for 
the use and benefits of the Osage Tribe. The Superintendent may reject 
a lease made on an accepted bid, upon evidence satisfactory to him of 
collusion, fraud, or other irregularity in connection with the notice 
of sale. The Superintendent may approve oil leases, gas leases, and oil 
and gas leases made by the Osage Tribal Council in conformity with the 
notice of sale, regulations in this part, bonds, and other instruments 
required.
    (c) Each oil and/or gas lease and activities and installations 
associated therewith subject to these regulations shall be assessed and 
evaluated for its environmental impact prior to its approval by the 
Superintendent.
    (d) Lessee shall accept a lease with the understanding that a 
mineral not covered by his lease may be leased separately.
    (e) No lease, assignment thereof, or interest therein will be 
approved to any employee or employees of the Government and no such 
employee shall be permitted to acquire any interest in leases covering 
the Osage Mineral Estate by ownership of stock in corporations having 
leases or in any other manner.
    (f) The Osage Tribal Council may utilize the following procedures 
among others, in entering into a mining lease. A contract may be 
entered into through competitive bidding as outlined in Sec.  226.2(b), 
negotiation, or a combination of both. The Osage Tribal Council may 
also request the Superintendent to undertake the preparation, 
advertisement and negotiation. The Superintendent may approve any such 
contract made by the Osage Tribal Council.


Sec.  226.3  Surrender of lease.

    Lessee may, with the approval of the Superintendent and payment of 
a $10 filing fee, surrender all or any portion of any lease, have the 
lease cancelled as to the portion surrendered and be relieved from all 
subsequent obligations and liabilities. If the lease, or portion being 
surrendered, is owned in undivided interests by more than one party, 
then all parties shall join in the application for cancellation: 
Provided, That if this lease has been recorded, Lessee shall execute a 
release and record the same in the proper office. Such surrender shall 
not entitle Lessee to a refund of the unused portion of rental paid in 
lieu of development, nor shall it relieve Lessee and his sureties of 
any obligation and liability incurred prior to such surrender: Provided 
further, That when there is a partial surrender of any lease and the 
acreage to be retained is less than 160 acres or there is a surrender 
of a separate horizon, such surrender shall become effective only with 
the consent of the Osage Tribal Council and approval of the 
Superintendent.


Sec.  226.4  Form of payment.

    Sums due under a lease contract and/or the regulations in this part 
shall be paid by cash or check made payable to the Bureau of Indian 
Affairs and delivered to the Osage Agency, Pawhuska, Oklahoma 74056. 
Such sums shall be a prior lien on all equipment and unsold oil on the 
leased premises.


Sec.  226.5  Leases subject to current regulations.

    Leases issued pursuant to this part shall be subject to the current 
regulations of the Secretary, all of which are made a part of such 
leases: Provided, That no amendment or change of such regulations made 
after the approval of any lease shall operate to affect the term of the 
lease, rate of royalty, rental, or acreage unless agreed to by both 
parties and approved by the Superintendent.


Sec.  226.6  Bonds.

    Lessees shall furnish with each lease a corporate surety bond 
acceptable to the Superintendent as follows:
    (a) A bond on Form D shall be filed with each lease submitted for 
approval. Such bond shall be in an amount of not less than $5,000 for 
each quarter section or fractional quarter section covered by said 
lease: Provided, however, That one bond in the penal sum or not less 
than $50,000 may be filed on Form G covering all oil, gas and 
combination oil and gas leases not in excess of 10,240 acres to which 
Lessee is or may become a party.
    (b) In lieu of the bonds required under paragraph (a) of this 
section, a bond in the penal sum of $150,000 may be filed on Form 5-
5438 for full nationwide coverage of all leases, without geographic or 
acreage limitation, to which the Lessee is or may become a party.
    (c) A bond on Form H shall be filed in an amount of not less than 
$5,000 covering a lease acquired through assignment where the assignee 
does not have a collective bond on form G or nationwide bond, or the 
corporate surety does not execute its consent to remain bound under the 
original bond given to secure the faithful performance of the terms and 
conditions of the lease.

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    (d) The right is specifically reserved to increase the amount of 
bonds prescribed in paragraphs (a) and (c) of this section in any 
particular case when the Superintendent deems it proper. The nationwide 
bond may be increased at any time in the discretion of the Secretary.


Sec.  226.7  Provisions of forms made a part of the regulations.

    Leases, assignments, and supporting instruments shall be in the 
form prescribed by the Secretary, and such forms are hereby made a part 
of the regulations.


Sec.  226.8  Corporation and corporate information.

    (a) If the applicant for a lease is a corporation, it shall file 
evidence of authority of its officers to execute papers; and with its 
first application it shall also file a certified copy of its Articles 
of Incorporation and, if foreign to the State of Oklahoma, evidence 
showing compliance with the corporation laws thereof.
    (b) Whenever deemed advisable the Superintendent may require a 
corporation to file any additional information necessary to carry out 
the purpose and intent of the regulations in this part, and such 
information shall be furnished within a reasonable time.


Sec.  226.9  Rental and drilling obligations.

    (a) Oil leases, gas leases, and combination oil and gas leases. 
Unless Lessee shall complete and place on production a well producing 
and selling oil and/or gas in paying quantities on the land embraced 
within the lease within 12 months from the date of approval of the 
lease, or as otherwise provided in the lease terms, or 12 months from 
the date the Superintendent consents to drilling on any restricted 
homestead selection, the lease shall terminate unless rental at the 
rate of not less than $1 per acre for an oil or gas lease, or not less 
than $2.00 per acre for a combination oil and gas lease, shall be paid 
before the end of the first year of the lease. The lease may also be 
held for the remainder of its primary term without drilling upon 
payment of the specified rental annually in advance, commencing with 
the second lease year. The lease shall terminate as of the due date of 
the rental unless such rental shall be received by the Superintendent, 
or shall have been mailed as indicated by postmark on or before said 
date. The completion of a well producing in paying quantities shall, 
for so long as such production continues, relieve Lessee from any 
further payment of rental, except that should such production cease 
during the primary term the lease may be continued only during the 
remaining primary term of the lease by payment of advance rental which 
shall commence on the next anniversary date of the lease. Rental shall 
be paid on the basis of a full year and no refund will be made of 
advance rental paid in compliance with the regulations in this part: 
Provided, That the Superintendent in his discretion may order further 
development of any leased acreage or separate horizon if, in his 
opinion, a prudent operator would conduct further development. If 
Lessee refuses to comply, the refusal will be considered a violation of 
the lease terms and said lease shall be subject to cancellation as to 
the acreage or horizon the further development of which was ordered: 
Provided further, That the Superintendent may impose restrictions as to 
time of drilling and rate of production from any well or wells when in 
his judgment, such action may be necessary or proper for the protection 
of the natural resources of the leased land and the interests of the 
Osage Tribe. The superintendent may consider, among other things, 
Federal and Oklahoma laws regulating either drilling or production. If 
a lessee holds both an oil lease and a gas lease covering the same 
acreage, such lessee is subject to the provisions of this section as to 
both the oil lease and the gas lease.
    (b) The Superintendent may, with the consent of and under terms 
approved by the Osage Tribal Council, grant an extension of the primary 
term of a lease on which the actual drilling of a well shall have 
commenced within the term thereof or for the purpose of enabling Lessee 
to obtain a market for his oil and/or gas production.


Sec.  226.10  Term of lease.

    Leases issued hereunder shall be for a primary term as established 
by the Osage Tribal Council, approved by the Superintendent, and so 
stated in the notice of sale of such leases and so long thereafter as 
the minerals specified are produced in paying quantities.


Sec.  226.11  Royalty payments.

    (a) Royalty on oil--(1) Royalty rate. Lessee shall pay or cause to 
be paid to the Superintendent, as royalty, the sum of not less than 
162/3 percent of the gross proceeds from sales after deducting the oil 
used by Lessee for development and operation purposes on the lease: 
Provided, That when the quantity of oil taken from all the producing 
wells on any quarter-section or fraction thereof, according to the 
public survey, during any calendar month is sufficient to average one 
hundred or more barrels per active producing well per day the royalty 
on such oil shall be not less than 20 percent. The Osage Tribal Council 
may, upon presentation of justifiable economic evidence by Lessee, 
agree to a revised royalty rate subject to approval by the 
Superintendent, applicable to additional oil produced from a lease or 
leases by enhanced recovery methods, which rate shall not be less than 
121/2 percent of the gross proceeds from sale of oil produced by 
enhanced recovery processes, other than gas injection, after deducting 
the oil used by Lessee for development and operating purposes on the 
lease or leases.
    (2) Unless the Osage Tribal Council, with approval of the 
Secretary, shall elect to take the royalty in kind, payment is owing at 
the time of sale or removal of the oil, except where payments are made 
on division orders, and settlement shall be based on the actual selling 
price, but at not less than the highest posted price by a major 
purchaser (as defined in Sec.  226.1(h)) in Osage County, Oklahoma, who 
purchases production from Osage oil leases.
    (3) Royalty in kind. Should Lessor, with approval of the Secretary, 
elect to take the royalty in kind, Lessee shall furnish free storage 
for royalty oil for a period not to exceed 60 days from date of 
production after notice of such election.
    (b) Royalty on gas--(1) Oil lease. All casinghead gas shall belong 
to the oil Lessee subject to any rights under existing gas leases. All 
casinghead gas removed from the lease from which it is produced shall 
be metered unless otherwise approved by the Superintendent and be 
subject to a royalty of not less than 162/3 percent of the market value 
of the gas and all products extracted therefrom, less a reasonable 
allowance for manufacture or processing. If an oil Lessee supplies 
casinghead gas produced from one lease for operation and/or development 
of other leases, either his/hers or others, a royalty of not less than 
162/3 percent shall be paid on the market value of all casinghead gas 
so used. All casinghead gas not utilized by the oil Lessee may, with 
the approval of the Superintendent, be utilized or sold by the gas 
Lessee, subject to the prescribed royalty of not less than 162/3 
percent of the market value.
    (2) Gas lease. Lessee shall pay a royalty of not less than 162/3 
percent of the market value of all natural gas and products extracted 
therefrom produced and sold from his lease. Natural gas used in the 
reasonable and prudent

[[Page 39576]]

operation and development of said lease shall be exempted from royalty 
payment.
    (3) Combination oil and gas lease. Lessee shall pay royalty as 
provided in paragraphs (b)(1) and (2) of this section.
    (c) Minimum royalty. In no event shall the royalty paid from 
producing leases during any year be less than an amount equal to the 
annual rental specified for the lease. Any underpayment of minimum 
royalty shall be due and payable within 45 days following the end of 
the lease year. After the primary term, Lessee shall submit with his 
payment evidence that the lease is producing in paying quantities. The 
Superintendent is authorized to determine whether the lease is actually 
producing in paying quantities or has terminated for lack of such 
production. Payment for any underpayment not made within the time 
specified shall be subject to a late charge at the rate of not less 
than 11/2 percent per month for each month or fraction thereof until 
paid.


Sec.  226.12  Government reserves right to purchase oil.

    Any of the executive departments of the U.S. Government shall have 
the option to purchase all or any part of the oil produced from any 
lease at not less than the highest posted price as defined in Sec.  
226.11.


Sec.  226.13  Time of royalty payments and reports.

    (a) Royalty payments due may be paid by either purchaser or Lessee. 
Unless otherwise provided by the Osage Tribal Council and approved by 
the Superintendent, all payments shall be due by the 25th day of each 
month and shall cover the sales of the preceding month. Failure to make 
such payments shall subject Lessee or purchaser, whoever is responsible 
for royalty payment, to a late charge at the rate of not less than 11/2 
percent for each month or fraction thereof until paid. The Osage Tribal 
Council, subject to the approval of the Superintendent, may waive the 
late charges.
    (b) Lessee shall furnish certified monthly reports by the 25th of 
each following month covering all operations, whether there has been 
production or not, indicating therein the total amount of oil, natural 
gas, casinghead gas, and other products subject to royalty payment.
    (c) Failure to remit payments or reports shall subject Lessee to 
further penalties as provided in Sec. Sec.  226.42 and 226.43 and shall 
subject the division order to cancellation.


Sec.  226.14  Contracts and division orders.

    (a) Lessee may enter into division orders or contracts with the 
purchasers of oil, gas, or derivatives therefrom which will provide for 
the purchaser to make payment of royalty in accordance with his lease: 
Provided, That such division orders or contracts shall not relieve 
Lessee from responsibility for the payment of the royalty should the 
purchaser fail to pay. No production shall be removed from the leased 
premises until a division order and/or contract and its terms are 
approved by the Superintendent: Provided further, That the 
Superintendent may grant temporary permission to run oil or gas from a 
lease pending the approval of a division order or contract. Lessee 
shall file a certified monthly report and pay royalty on the value of 
all oil and gas used off the premises for development and operating 
purposes. Lessee shall be responsible for the correct measurement and 
reporting of all oil and/or gas taken from the leased premises.
    (b) Lessee shall require the purchaser of oil and/or gas from his/
her lease or leases to furnish the Superintendent, no later than the 
25th day of each month, a statement reporting the gross barrels of oil 
and/or gross Mcf of gas sold during the preceding month. The 
Superintendent may authorize an extension of time, not to exceed 10 
days, for furnishing this statement.


Sec.  226.15  Unit leases, assignments and related instruments.

    (a) Unitization of leases. The Osage Tribal Council and Lessee or 
Lessees, may, with the approval of the Superintendent, unitize or 
merge, two or more oil or oil and gas leases into a unit or cooperative 
operating plan to promote the greatest ultimate recovery of oil and gas 
from a common source of supply or portion thereof embracing the lands 
covered by such lease or leases. The cooperative or unit agreement 
shall be subject to the regulations in this part and applicable laws 
governing the leasing of the Osage Mineral Estate. Any agreement 
between the parties in interest to terminate a unit or cooperative 
agreement as to all or any portion of the lands included shall be 
submitted to the Superintendent for his approval. Upon approval the 
leases included thereunder shall be restored to their original terms: 
Provided, That for the purpose of preventing waste and to promote the 
greatest ultimate recovery of oil and gas from a common source of 
supply or portion thereof, all oil leases, oil and gas leases, and gas 
leases issued heretofore and hereafter under the provisions of the 
regulations in this part shall be subject to any unit development plan 
affecting the leased lands that may be required by the Superintendent 
with the consent of the Osage Tribal Council, and which plan shall 
adequately protect the rights of all parties in interest including the 
Osage Mineral Estate.
    (b) Assignments. Approved leases or any interest therein may be 
assigned or transferred only with the approval of the Superintendent. 
The assignee must be qualified to hold such lease under existing rules 
and regulations and shall furnish a satisfactory bond conditioned for 
the faithful performance of the covenants and conditions thereof. 
Lessee must assign either his entire interest in a lease or legal 
subdivision thereof, or an undivided interest in the whole lease: 
Provided, That when an assignment covers only a portion of a lease or 
covers interests in separate horizons such assignment shall be subject 
to both the consent of the Osage Tribal Council and approval of the 
Superintendent. If a lease is divided by the assignment of an entire 
interest in any part, each part shall be considered a separate lease 
and the assignee shall be bound to comply with all the terms and 
conditions of the original lease. A fully executed copy of the 
assignment shall be filed with the Superintendent within 30 days after 
the date of execution by all parties. If requested within the 30-day 
period, the Superintendent may grant an extension of 15 days. A filing 
fee of $10 shall accompany each assignment.
    (c) Overriding royalty. Agreements creating overriding royalties or 
payments out of production shall not be considered as an interest in a 
lease as such term is used in paragraph (b) of this section. Agreements 
creating overriding royalties or payments out of production are hereby 
authorized and the approval of the Department of the Interior or any 
agency thereof shall not be required with respect thereto, but such 
agreements shall be subject to the condition that nothing in any such 
agreement shall be construed as modifying any of the obligations of 
Lessee under his lease and the regulations in this part. All such 
obligations are to remain in full force and effect, the same as if free 
of any such royalties or payments. The existence of agreements creating 
overriding royalties or payments out of production, whether or not 
actually paid, shall not be considered in justifying the shutdown or 
abandonment of any well. Agreements creating overriding royalties or 
payments out of production need not be filed with the Superintendent 
unless incorporated in assignments or instruments required to be filed

[[Page 39577]]

pursuant to paragraph (b) of this section. An agreement creating 
overriding royalties or payment out of production shall be suspended 
when the working interest income per active producing well is equal to 
or less than the operational cost of the well, as determined by the 
Superintendent.
    (d) Drilling contracts. The Superintendent is authorized to approve 
drilling contracts with a stipulation that such approval does not in 
any way bind the Department to approve subsequent assignments that may 
be provided for in said contracts. Approval merely authorizes entry on 
the lease for the purpose of development work.
    (e) Combining leases. The lessee owning both an oil lease and gas 
lease covering the same acreage is authorized to convert such leases to 
a combination oil and gas lease.

Operations


Sec.  226.16  Commencement of operations.

    (a) No operations shall be permitted upon any tract of land until a 
lease covering such tract shall have been approved by the 
Superintendent: Provided, That the Superintendent may grant authority 
to any party under such rules, consistent with the regulations in this 
part that he deems proper, to conduct geophysical and geological 
exploration work.
    (b) Lessee shall submit applications on forms to be furnished by 
the Superintendent and secure his approval before:
    (1) Well drilling, treating, or workover operations are started on 
the leased premises.
    (2) Removing casing from any well.
    (c) Lessee shall notify the Superintendent a reasonable time in 
advance of starting work, of intention to drill, redrill, deepen, plug, 
or abandon a well.


Sec.  226.17  How to acquire permission to begin operations on a 
restricted homestead allotment.

    (a) Lessee may conduct operations within or upon a restricted 
homestead selection only with the written consent of the 
Superintendent.
    (b) If the allottee is unwilling to permit operations on his 
homestead, the Superintendent will cause an examination of the premises 
to be made with the allottee and lessee or his representative. Upon 
finding that the interests of the Osage Tribe require that the tract be 
developed, the Superintendent will endeavor to have the parties agree 
upon the terms under which operations on the homestead may be 
conducted.
    (c) In the event the allottee and lessee cannot reach an agreement, 
the matter shall be presented by all parties before the Osage Tribal 
Council, and the Council shall make its recommendations. Such 
recommendations shall be considered as final and binding upon the 
allottee and lessee. A guardian may represent the allottee. Where no 
one is authorized or where no person is deemed by the Superintendent to 
be a proper party to speak for a person of unsound mind or feeble 
understanding, the Principal Chief of the Osage Tribe shall represent 
him.
    (d) If the allottee or his representative does not appear before 
the Osage Tribal Council when notified by the Superintendent, or if the 
Council fails to act within 10 days after the matter is referred to it, 
the Superintendent may authorize lessee to proceed with operations in 
conformity with the provisions of his lease and the regulations in this 
part.


Sec.  226.18  Information to be given surface owners prior to 
commencement of drilling operations.

    Except for the surveying and staking of a well, no operations of 
any kind shall commence until the lessee or his/her authorized 
representative shall meet with the surface owner or his/her 
representative, if a resident of and present in Osage County, Oklahoma. 
Unless waived by the Superintendent or otherwise agreed to between the 
lessee and surface owner, such meeting shall be held at least 10 days 
prior to the commencement or any operations, except for the surveying 
and staking of the well. At such meeting lessee or his/her authorized 
representative shall comply with the following requirements:
    (a) Indicate the location of the well or wells to be drilled.
    (b) Arrange for route of ingress and egress. Upon failure to agree 
on route ingress and egress, said route shall be set by the 
Superintendent.
    (c) Impart to said surface owners the name and address of the party 
or representative upon whom the surface owner shall serve any claim for 
damages which he may sustain from mineral development or operations, 
and as to the procedure for settlement thereof as provided in Sec.  
226.21.
    (d) Where the drilling is to be on restricted land, lessee or his 
authorized representative in the manner provided above shall meet with 
the Superintendent.
    (e) When the surface owner or his/her representative is not a 
resident of, or is not physically present in, Osage County, Oklahoma, 
or cannot be contacted at the last known address, the Superintendent 
may authorize lessee to proceed with operations.


Sec.  226.19  Use of surface of land.

    (a) Lessee or his/her authorized representative shall have the 
right to use so much of the surface of the land within the Osage 
Mineral Estate as may be reasonable for operations and marketing. This 
includes but is not limited to the right to lay and maintain pipelines, 
electric lines, pull rods, other appliances necessary for operations 
and marketing, and the right-of-way for ingress and egress to any point 
of operations. If Lessee and surface owner are unable to agree as to 
the routing of pipelines, electric lines, etc., said routing shall be 
set by the Superintendent. The right to use water for lease operations 
is established by Sec.  226.24. Lessee shall conduct his/her operations 
in a workmanlike manner, commit no waste and allow none to be committed 
upon the land, nor permit any unavoidable nuisance to be maintained on 
the premises under his/her control.
    (b) Before commencing a drilling operation, Lessee shall pay or 
tender to the surface owner commencement money in the amount of $25 per 
seismic shot hole and commencement money in the amount of $300 for each 
well, after which Lessee shall be entitled to immediate possession of 
the drilling site. Commencement money will not be required for the 
redrilling of a well which was originally drilled under the currently 
lease. A drilling site shall be held to the minimum area essential for 
operations and shall not exceed one and one-half acres in area unless 
authorized by the Superintendent. Commencement money shall be a credit 
toward the settlement of the total damages. Acceptance of commencement 
money by the surface owner does not affect his/her right to 
compensation for damages as described in Sec.  226.20, occasioned by 
the drilling and completion of the well for which it was paid. Since 
actual damage to the surface from operations cannot necessarily be 
ascertained prior to the completion of a well as a serviceable well or 
dry hole, a damage settlement covering the drilling operation need not 
be made until after completion of drilling operations.
    (c) Where the surface is restricted land, commencement money shall 
be paid to the Superintendent for the landowner. All other surface 
owners shall be paid or tendered such commencement money direct. Where 
such surface owners are not residents of Osage County nor have a 
representative

[[Page 39578]]

located therein, such payment shall be made or tendered to the last 
known address of the surface owner at least 5 days before commencing 
drilling operation on any well: Provided, That should lessee be unable 
to reach the owner of the surface of the land for the purpose of 
tendering the commencement money or if the owner of the surface of the 
land shall refuse to accept the same, lessee shall deposit such amount 
with the Superintendent by check payable to the Bureau of Indian 
Affairs. The superintendent shall thereupon advise the owner of the 
surface of the land by mail at his last known address that the 
commencement money is being held for payment to him upon his written 
request.
    (d) Lessee shall also pay fees for tank sites not exceeding 50 feet 
square at the rate of $100 per tank site or other vessel: Provided, 
That no payment shall be due for a tank temporarily set on a well 
location site for drilling, completing, or testing. The sum to be paid 
for a tank occupying more than 50 feet square shall be agreed upon 
between the surface owner and lessee or, on failure to agree, the same 
shall be determined by arbitration as provided by Sec.  226.21.


Sec.  226.20  Settlement of damages claimed.

    (a) Lessee or his authorized representative or geophysical 
permittee shall pay for all damages to growing crops, any improvements 
on the lands, and all other surface damages as may be occasioned by 
operations. Commencement money shall be a credit toward the settlement 
of the total damages occasioned by the drilling and completion of the 
well for which it was paid. Such damages shall be paid to the owner of 
the surface and by him apportioned among the parties interested in the 
surface, whether as owner, surface lessee, or otherwise, as the parties 
may mutually agree or as their interests may appear. If lessee or his 
authorized representative and surface owner are unable to agree 
concerning damages, the same shall be determined by arbitration. 
Nothing herein contained shall be construed to deny any party the right 
to file an action in a court of competent jurisdiction if he is 
dissatisfied with the amount of the award.
    (b) Surface owners shall notify their lessees or tenants of the 
regulations in this part and of the necessary procedure to follow in 
all cases of alleged damages. If so authorized in writing, surface 
lessees or tenants may represent the surface owners.
    (c) In settlement of damages on restricted land all sums due and 
payable shall be paid to the Superintendent for credit to the account 
of the Indian entitled thereto. The Superintendent will make the 
apportionment between the Indian landowner or owners and surface Lessee 
of record.
    (d) Any person claiming an interest in any leased tract or in 
damages thereto, must furnish to the Superintendent a statement in 
writing showing said claimed interest. Failure to furnish such 
statement shall constitute a waiver of notice and estop said person 
from claiming any part of such damages after the same shall have been 
disbursed.


Sec.  226.21  Procedure for settlement of damages claimed.

    Where the surface owner or his lessee suffers damage due to the oil 
and gas operations and/or marketing of oil or gas by lessee or his 
authorized representative, the procedure for recovery shall be as 
follows:
    (a) The party or parties aggrieved shall, as soon as possible after 
the discovery of any damages, serve written notice to Lessee or his 
authorized representative as provided by Sec.  226.18. Written notice 
shall contain the nature and location of the alleged damages, the date 
of occurrence, the names of the party or parties causing said damages, 
and the amount of damages. It is not intended by this requirement to 
limit the time within which action may be brought in the courts to less 
than the 90-day period allowed by section 2 of the Act of March 2, 1929 
(45 Stat. 1478, 1479).
    (b) If the alleged damages are not adjusted at the time of such 
notice, Lessee or his authorized representative shall try to adjust the 
claim with the party or parties aggrieved within 20 days from receipt 
of the notice. If the claimant is the owner of restricted property and 
a settlement results, a copy of the settlement agreement shall be filed 
with the Superintendent. If the settlement agreement is approved by the 
Superintendent, payment shall be made to the Superintendent for the 
benefit of said claimant.
    (c) If the parties fail to adjust the claim within the 20 days 
specified, then within 10 days thereafter each of the interested 
parties shall appoint an arbitrator who immediately upon their 
appointment shall agree upon a third arbitrator. If the two arbitrators 
shall fail to agree upon a third arbitrator within 10 days, they shall 
immediately notify the parties in interest. If said parties cannot 
agree upon a third arbitrator within 5 days after receipt of such 
notice, the Superintendent shall appoint the third arbitrator.
    (d) As soon as the third arbitrator is appointed, the arbitrators 
shall meet; hear the evidence and arguments of the parties; and examine 
the lands, crops, improvements, or other property alleged to have been 
injured. Within 10 days they shall render their decision as to the 
amount of the damage due. The arbitrators shall be disinterested 
persons. The fees and expenses of the third arbitrator shall be borne 
equally by the claimant and Lessee or his authorized representative. 
Each Lessee or his authorized representative and claimant shall pay the 
fee and expenses for the arbitrator appointed by him.
    (e) When an act of an oil or gas lessee or his authorized 
representative results in injury to both the surface owner and his 
lessee, the parties aggrieved shall join in the appointment of an 
arbitrator. Where the injury complained of is chargeable to one or more 
oil or gas Lessee, or his authorized representative, such lessee or 
said representative shall join in the appointment of an arbitrator.
    (f) Any two of the arbitrators may make a decision as to the amount 
of damage due. The decision shall be in writing and shall be served 
forthwith upon the parties in interest. Each party shall have 90 days 
from the date the decision is served in which to file an action in a 
court of competent jurisdiction. If no such action is filed within said 
time and the award is against Lessee or his/her authorized 
representative, he/she shall pay the same, together with interest at an 
annual rate established for the Internal Revenue Service from date of 
award, within 10 days after the expiration of said period for filing an 
action.
    (g) Lessee or his authorized representative shall file with the 
Superintendent a report on each settlement agreement, setting out the 
nature and location of the damage, date, and amount of the settlement, 
and any other pertinent information.


Sec.  226.22  Prohibition of pollution.

    (a) All operators, contractors, drillers, service companies, pipe 
pulling and salvaging contractors, or other persons, shall at all times 
conduct their operations and drill, equip, operate, produce, plug and 
abandon all wells drilled for oil or gas, service wells or exploratory 
wells (including seismic, core and stratigraphic holes) in a manner 
that will prevent pollution and the migration of oil, gas, salt water 
or other substance from one stratum into another, including any fresh 
water bearing formation.
    (b) Pits for drilling mud or deleterious substance used in the 
drilling, completion, recompletion, or workover of any well shall be 
constructed and maintained to prevent pollution of

[[Page 39579]]

surface and subsurface fresh water. These pits shall be enclosed with a 
fence of at least four strands of barbed wire, or an approved 
substitute, stretched taut to adequately braced corner posts, unless 
the surface owner, user, or the Superintendent gives consent to the 
contrary. Immediately after completion of operations, pits shall be 
emptied and leveled unless otherwise requested by surface owner or 
user.
    (c) Drilling pits shall be adequate to contain mud and other 
material extracted from wells and shall have adequate storage to 
maintain a supply of mud for use in emergencies.
    (d) No earthen pit, except those used in the drilling, completion, 
recompletion or workover of a well, shall be constructed, enlarged, 
reconstructed or used without approval of the Superintendent. Unlined 
earthen pits shall not be used for the continued storage of salt water 
or other deleterious substances.
    (e) Deleterious fluids other than fresh water drilling fluids used 
in drilling or workover operations, which are displaced or produced in 
well completion or stimulation procedures, including but not limited to 
fracturing, acidizing, swabbing, and drill stem tests, shall be 
collected into a pit lined with plastic of at least 30 mil or a metal 
tank and maintained separately from above-mentioned drilling fluids to 
allow for separate disposal.


Sec.  226.23  Easements for wells off leased premises.

    The Superintendent, with the consent of the Osage Tribal Council, 
may grant commercial and noncommercial easements for wells off the 
leased premises to be used for purposes associated with oil and gas 
production. Rental payable to the Osage Tribe for such easements shall 
be an amount agreed to by Grantee and the Osage Tribal Council subject 
to the approval of the Superintendent. Grantee shall be responsible for 
all damages resulting from the use of such wells and settlement 
therefor shall be made as provided in Sec.  226.21.


Sec.  226.24  Lessee's use of water.

    Lessee or his contractor may, with the approval of the 
Superintendent, use water from streams and natural water courses to the 
extent that same does not diminish the supply below the requirements of 
the surface owner from whose land the water is taken. Similarly, Lessee 
or his contractor may use water from reservoirs formed by the 
impoundment of water from such streams and natural water courses, 
provided such use does not exceed the quantity to which they originally 
would have been entitled had the reservoirs not been constructed. 
Lessee or his contractor may install necessary lines and other 
equipment within the Osage Mineral Estate to obtain such water. Any 
damage resulting from such installation shall be settled as provided in 
Sec.  226.21.


Sec.  226.25  Gas well drilled by oil lessees and vice versa.

    Prior to drilling, the oil or gas lessee shall notify the other 
lessees of his/her intent to drill. When an oil lessee in drilling a 
well encounters a formation or zone having indications of possible gas 
production, or the gas lessee in drilling a well encounters a formation 
or zone having indication of possible oil production, he/she shall 
immediately notify the other lessee and the Superintendent. Lessee 
drilling the well shall obtain all information which a prudent operator 
utilizes to evaluate the productive capability of such formation or 
zone.
    (a) Gas well to be turned over to gas lessee. If the oil lessee 
drills a gas well, he/she shall, without removing from the well any of 
the casing or other equipment, immediately shut the well in and notify 
the gas lessee and the Superintendent. If the gas lessee does not, 
within 45 days after receiving notice and cost of drilling, elect to 
take over such well and reimburse the oil lessee the cost of drilling, 
including all damages paid and the cost in-place of casing, tubing, and 
other equipment, the oil lessee shall immediately confine the gas to 
the original stratum. The disposition of such well and the production 
therefrom shall then be subject to the approval of the Superintendent. 
In the event the oil lessee and gas lessee cannot agree on the cost of 
the well, such cost shall be apportioned between the oil and gas lessee 
by the Superintendent. If such apportionment is not accepted, the well 
shall be plugged by the oil and gas lessee who drilled the well.
    (b) Oil well to be turned over to oil lessee. If the gas lessee 
drills an oil well, he/she must immediately, without removing from the 
well any of the casing or other equipment, notify the oil lessee and 
the superintendent.
    (1) If the oil lessee does not, within 45 days after receipt of 
notice and cost of drilling, elect to take over the well, he/she must 
immediately notify the gas lessee. From that point, the superintendent 
must approve the disposition of the well, and any gas produced from it.
    (2) If the oil lessee chooses to take over the well, he/she must 
pay to the gas lessee:
    (i) The cost of drilling the well, including all damages paid; and
    (ii) The cost in place of casing and other equipment.
    (3) If the oil lessee and the gas lessee cannot agree on the cost 
of the well, the superintendent will apportion the cost between the oil 
and gas lessees. If the lessees do not accept the apportionment, the 
oil or gas lessee who drilled the well must plug the well.
    (c) Lands not leased. If the gas lessee shall drill an oil well 
upon lands not leased for oil purposes or vice versa, the 
Superintendent may, until such time as said lands are leased, permit 
the lessee who drilled the well to operate and market the production 
therefrom. When said lands are leased, the lessee who drilled and 
completed the well shall be reimbursed by the oil or gas lessee, for 
the cost of drilling said well, including all damages paid and the cost 
in-place of casing, tubing, and other equipment. If the lessee does not 
elect to take over said well as provided above, the disposition of such 
well and the production therefrom shall be determined by the 
Superintendent. In the event the oil lessee and gas lessee cannot agree 
on the cost of the well, such cost shall be apportioned between the oil 
and gas lessee by the Superintendent. If such apportionment is not 
accepted, the well shall be plugged by the oil and gas lessee who 
drilled the well.


Sec.  226.26  Determining cost of well.

    The term ``cost of drilling'' as applied where one lessee takes 
over a well drilled by another, shall include all reasonable, usual, 
necessary, and proper expenditures. A list of expenses mentioned in 
this section shall be presented to proposed purchasing lessee within 10 
days after the completion of the well. In the event of a disagreement 
between the parties as to the charges assessed against the well that is 
to be taken over, such charges shall be determined by the 
Superintendent.


Sec.  226.27  Gas for operating purposes and tribal use.

    (a) Gas to be furnished oil lessee. Lessee of a producing gas lease 
shall furnish the oil lessee sufficient gas for operating purposes at a 
rate to be agreed upon, or on failure to agree the rate shall be 
determined by the Superintendent: Provided, That the oil lessee shall 
at his own expense and risk, furnish and install the necessary 
connections to the gas lessee's well or pipeline. All such

[[Page 39580]]

connections shall be reported in writing to the Superintendent.
    (b) Use of gas by Osage Tribe. (1) Gas from any well or wells shall 
be furnished any Tribal-owned building or enterprise at a rate not to 
exceed the price less royalty being received or offered by a gas 
purchaser: Provided, That such requirement shall be subject to the 
determination by the Superintendent that gas in sufficient quantities 
is available above that needed for lease operation and that no waste 
would result. In the absence of a gas purchaser the rate to be paid by 
the Osage Tribe shall be determined by the Superintendent based on 
prices being paid by purchasers in the Osage Mineral Estate. The Osage 
Tribe is to furnish all necessary material and labor for such 
connection with Lessee's gas system. The use of such gas shall be at 
the risk of the Osage Tribe at all times.
    (2) Any member of the Osage Tribe residing in Osage County and 
outside a corporate city is entitled to the use at his own expense of 
not to exceed 400,000 cubic feet of gas per calendar year for his 
principal residence at a rate not to exceed the amount paid by a gas 
purchaser plus 10 percent: Provided, That such requirement shall be 
subject to the determination by the Superintendent that gas in 
sufficient quantities is available above that needed for lease 
operation and that no waste would result. In the absence of a gas 
purchaser the amount to be paid by the Tribal member shall be 
determined by the Superintendent. Gas to Tribal members is not royalty 
free. The Tribal member is to furnish all necessary material and labor 
for such connection to Lessee's gas system, and shall maintain his own 
lines. The use of such gas shall be at the risk of the Tribal member at 
all times.
    (3) Gas furnished by Lessee under paragraphs (b)(1) and (2) of this 
section may be terminated only with the approval of the Superintendent. 
Written application for termination must be made to the Superintendent 
showing justification.

Cessation of Operations


Sec.  226.28  Shutdown, abandonment, and plugging of wells.

    No productive well shall be abandoned until its lack for further 
profitable production of oil and/or gas has been demonstrated to the 
satisfaction of the Superintendent. Lessee shall not shut down, 
abandon, or otherwise discontinue the operation or use of any well for 
any purpose without the written approval of the Superintendent. All 
applications for such approval shall be submitted to the Superintendent 
on forms furnished by him/her.
    (a) Application for authority to permanently shut down or 
discontinue use or operation of a well shall set forth justification, 
probable duration the means by which the well bore is to be protected, 
and the contemplated eventual disposition of the well. The method of 
conditioning such well shall be subject to the approval of the 
Superintendent.
    (b) Prior to permanent abandonment of any well, the oil lessee or 
the gas lessee, as the case may be, shall offer the well to the other 
for his recompletion or use under such terms as may be mutually agreed 
upon but not in conflict with the regulations. Failure of the Lessee 
receiving the offer to reply within 10 days after receipt thereof shall 
be deemed as rejection of the offer. If, after indicating acceptance, 
the two parties cannot agree on the terms of the offer within 30 days, 
the disposition of such well shall be determined by the Superintendent.
    (c) The Superintendent is authorized to shut in a lease when the 
lessee fails to comply with the terms of the lease, the regulations, 
and/or orders of the Superintendent.


Sec.  226.29  Disposition of casings and other improvements.

    (a) Upon termination of lease, permanent improvements, unless 
otherwise provided by written agreement with the surface owner and 
filed with the Superintendent, shall remain a part of said land and 
become the property of the surface owner upon termination of the lease, 
other than by cancellation. Exceptions include personal property not 
limited to tools, tanks, pipelines, pumping and drilling equipment, 
derricks, engines, machinery, tubing, and the casings of all wells: 
Provided, That when any lease terminates, all such personal property 
shall be removed the word ``terminates''; and in the last sentence of 
the paragraph, within 90 days or such reasonable extension of time as 
may be granted by the Superintendent. Otherwise, the ownership of all 
casings shall revert to Lessor and all other personal property and 
permanent improvements to the surface owner. Nothing herein shall be 
construed to relieve lessee of responsibility for removing any such 
personal property or permanent improvements from the premises if 
required by the Superintendent and restoring the premises as nearly as 
practicable to the original state.
    (b) Upon cancellation of lease. When there has been a cancellation 
for cause, Lessor shall be entitled and authorized to take immediate 
possession of the lease premises and all permanent improvements and all 
other equipment necessary for the operation of the lease.
    (c) Wells to be abandoned shall be promptly plugged as prescribed 
by the Superintendent. Applications to plug shall include a statement 
affirming compliance with Sec.  226.28(b) and shall set forth reasons 
for plugging, a detailed statement of the proposed work including kind, 
location, and length of plugs (by depth), plans for mudding and 
cementing, testing, parting and removing casing, and any other 
pertinent information: Provided, That the Superintendent may give oral 
permission and instructions pending receipt of a written application to 
plug a newly drilled hole. Lessee shall remit a fee of $15 with each 
written application for authority to plug a well. This fee will be 
refunded if permission is not granted.
    (d) Lessee shall plug and fill all dry or abandoned wells in a 
manner to confine the fluid in each formation bearing fresh water, oil, 
gas, salt water, and other minerals, and to protect it against invasion 
of fluids from other sources. Mud-laden fluid, cement, and other plugs 
shall be used to fill the hole from bottom to top: Provided, That if a 
satisfactory agreement is reached between Lessee and the surface owner, 
subject to the approval of the Superintendent, Lessee may condition the 
well for use as a fresh water well and shall so indicate on the 
plugging record. The manner in which plugging material shall be 
introduced and the type of material so used shall be subject to the 
approval of the Superintendent. Within 10 days after plugging, Lessee 
shall file with the Superintendent a complete report of the plugging of 
each well. When any well is plugged and abandoned, Lessee shall, within 
90 days, clean up the premises around such well to the satisfaction of 
the Superintendent.

Requirements of Lessees


Sec.  226.30  Lessees subject to Superintendent's orders; books and 
records open to inspection.

    Lessee shall comply with all orders or instructions issued by the 
Superintendent. The Superintendent or his representative may enter upon 
the leased premises for the purpose of inspection. Lessee shall keep a 
full and correct account of all operations, receipts, and disbursements 
and make reports thereof, as required. Lessee's

[[Page 39581]]

books and records shall be available to the Superintendent for 
inspection.


Sec.  226.31  Lessee's process agents.

    (a) Before actual drilling or development operations are commenced 
on leased lands, Lessee or Assignee, if not a resident of the State of 
Oklahoma, shall appoint a local or resident representative within the 
State of Oklahoma on whom the Superintendent may serve notice or 
otherwise communicate in securing compliance with the regulations in 
this part, and shall notify the Superintendent of the name and post 
office address of the representative appointed.
    (b) Where several parties own a lease jointly, one representative 
or agent shall be designated whose duties shall be to act for all 
parties concerned. Designation of such representative should be made by 
the party in charge of operations.
    (c) In the event of the incapacity or absence from the State of 
Oklahoma of such designated local or resident representative, Lessee 
shall appoint a substitute to serve in his stead. In the absence of 
such representative or appointed substitute, any employee of Lessee 
upon the leased premises or person in charge of drilling or related 
operations thereon shall be considered the representative of Lessee for 
the purpose of service of orders or notices as herein provided.


Sec.  226.32  Well records and reports.

    (a) Lessee shall keep accurate and complete records of the 
drilling, redrilling, deepening, repairing, treating, plugging, or 
abandonment of all wells. These records shall show all the formations 
penetrated, the content and character of oil, gas, or water in each 
formation, and the kind, weight, size, landed depth and cement record 
of casing used in drilling each well; the record of drill-stem and 
other bottom hole pressure or fluid sample surveys, temperature 
surveys, directional surveys, and the like; the materials and procedure 
used in the treating or plugging of wells or in preparing them for 
temporary abandonment; and any other information obtained in the course 
of well operation.
    (b) Lessee shall take such samples and make such tests and surveys 
as may be required by the Superintendent to determine conditions in the 
well or producing reservoir and to obtain information concerning 
formations drilled, and shall furnish reports thereof as required by 
the Superintendent.
    (c) Within 10 days after completion of operations on any well, 
Lessee shall transmit to the Superintendent the applicable information 
on forms furnished by the Superintendent; a copy of electrical, 
mechanical or radioactive log, or other types of survey of the well 
bore; and core analysis obtained from the well. Lessee shall also 
submit other reports and records of operations as may be required and 
in the manner and form prescribed by the Superintendent.
    (d) Lessee shall measure production of oil, gas, and water from 
individual wells at reasonably frequent intervals to the satisfaction 
of the Superintendent.
    (e) Upon request and in the manner and form prescribed by the 
Superintendent, Lessee shall furnish a plat showing the location, 
designation, and status of all wells on the leased lands, together with 
such other pertinent information as the Superintendent may require.


Sec.  226.33  Line drilling.

    Lessee shall not drill within 300 feet of boundary line of leased 
lands, nor locate any well or tank within 200 feet of any public 
highway, any established watering place, or any building used as a 
dwelling, granary, or barn, except with the written permission of the 
Superintendent. Failure to obtain advance written permission from the 
Superintendent shall subject lessee to cancellation of his/her lease 
and/or plugging of the well.


Sec.  226.34  Wells and tank batteries to be marked.

    Lessee shall clearly and permanently mark all wells and tank 
batteries in a conspicuous place with number, legal description, 
operator, and telephone number, and shall take all necessary 
precautions to preserve these markings.


Sec.  226.35  Formations to be protected.

    Lessee shall, to the satisfaction of the Superintendent, take all 
proper precautions and measures to prevent damage or pollution of oil, 
gas, fresh water, or other mineral bearing formations.


Sec.  226.36  Control devices.

    In drilling operations in fields where high pressures, lost 
circulation, or other conditions exist which could result in blowouts, 
lessee shall install an approved gate valve or other controlling device 
which is in proper working condition for use until the well is 
completed. At all times preventative measures must be taken in all well 
operations to maintain proper control of subsurface strata.


Sec.  226.37  Waste of oil and gas.

    Lessee shall conduct all operations in a manner that will prevent 
waste of oil and gas and shall not wastefully utilize oil or gas. The 
Superintendent shall have the authority to impose such requirements as 
he deems necessary to prevent waste of oil and gas and to promote the 
greatest ultimate recovery of oil and gas. Waste as applied herein 
includes, but is not limited to, the inefficient excessive or improper 
use or dissipation of reservoir energy which would reasonably reduce or 
diminish the quantity of oil or gas that might ultimately be produced, 
or the unnecessary or excessive surface loss or destruction, without 
beneficial use, of oil and/or gas.


Sec.  226.38  Measuring and storing oil.

    All production run from the lease shall be measured according to 
methods and devices approved by the Superintendent. Facilities suitable 
for containing and measuring accurately all crude oil produced from the 
wells shall be provided by Lessee and shall be located on the leasehold 
unless otherwise approved by the Superintendent. Lessee shall furnish 
to the Superintendent a copy of 100-percent capacity tank table for 
each tank. Meters and installations for measuring oil must be approved, 
and tests of their accuracy shall be made when directed by the 
Superintendent.


Sec.  226.39  Measurement of gas.

    All gas, required to be measured, shall be measured by meter 
(preferably of the orifice meter type) unless otherwise agreed to by 
the Superintendent. All gas meters must be approved by the 
Superintendent and installed at the expense of Lessee or purchaser at 
such places as may be agreed to by the Superintendent. For computing 
the volume of all gas produced, sold or subject to royalty, the 
standard of pressure shall be 14.65 pounds to the square inch, and the 
standard of temperature shall be 60 degrees F. All measurements of gas 
shall be adjusted by computation to these standards, regardless of the 
pressure and temperature at which the gas was actually measured, unless 
otherwise authorized in writing by the Superintendent.


Sec.  226.40  Use of gas for lifting oil.

    Lessee shall not use natural gas from a distinct or separate 
stratum for the purpose of flowing or lifting the oil, except where 
said Lessee has an approved right to both the oil and the gas, and then 
only with the approval of the Superintendent of such use and of the 
manner of its use.

[[Page 39582]]

Sec.  226.41  Accidents to be reported.

    Lessee shall make a complete report to the Superintendent of all 
accidents, fires, or acts of theft and vandalism occurring on the 
leased premises.

Penalties


Sec.  226.42  Penalty for violation of lease terms.

    Violation of any of the terms or conditions of any lease or of the 
regulations in this part shall subject the lease to cancellation by the 
Superintendent, or Lessee to a fine of not more than $500 per day for 
each day of such violation or noncompliance with the orders of the 
Superintendent, or to both such fine and cancellation. Fines not 
received within 10 days after notice of the decision shall be subject 
to late charges at the rate of not less than 11/2 percent per month for 
each month or fraction thereof until paid. The Osage Tribal Council, 
subject to the approval of the Superintendent, may waive the late 
charge.


Sec.  226.43  Penalties for violation of certain operating regulations.

    In lieu of the penalties provided under Sec.  226.42, penalties may 
be imposed by the Superintendent for violation of certain sections of 
the regulations of this part as follows:
    (a) For failure to obtain permission to start operations required 
by Sec.  226.16(b), $50 per day until permission is obtained.
    (b) For failure to file records required by Sec.  226.32, $50 per 
day until compliance is met.
    (c) For failure to mark wells and tank batteries as required by 
Sec.  226.34, $50 for each well and tank battery.
    (d) For failure to construct and maintain pits as required by Sec.  
226.22, $50 for each day after operations are commenced on any well 
until compliance is met.
    (e) For failure to comply with Sec.  226.36 regarding valve or 
other approved controlling device, $100.
    (f) For failure to notify Superintendent before drilling, 
redrilling, deepening, plugging, or abandoning any well, as required by 
Sec. Sec.  226.16(c) and 226.25, $200.
    (g) For failure to properly care for and dispose of deleterious 
fluids as provided in Sec.  226.22, $500 per day until compliance is 
met.
    (h) For failure to file plugging reports as required by Sec.  
226.29 and for failure to file reports as required by Sec.  226.13, $50 
per day for each violation until compliance is met.
    (i) For failure to perform or start an operation within 5 days 
after ordered by the Superintendent in writing under authority provided 
in this part, if said operation is thereafter performed by or through 
the Superintendent, the actual cost of performance thereof, plus 25 
percent.
    (j) Lessee or his/her authorized representative is hereby notified 
that criminal procedures are provided by 18 U.S.C. 1001 for knowingly 
filing fraudulent reports and information.

Appeals and Notices


Sec.  226.44  Appeals.

    Any person, firm or corporation aggrieved by any decision or order 
issued by or under the authority of the Superintendent, by virtue of 
the regulations in this part, may appeal pursuant to 25 CFR part 2.


Sec.  226.45  Notices.

    Notices and orders issued by the Superintendent to the 
representative and/or operator shall be binding on the lessee. The 
Superintendent may in his/her discretion increase the time allowed in 
his/her orders and notices.


Sec.  226.46  Information collection.

    The Office of Management and Budget has determined that the 
information collection requirements contained in this part need not be 
submitted for clearance pursuant to 44 U.S.C. 3501 et seq.

    Dated: June 6, 2016.
Lawrence S. Roberts,
Acting Assistant Secretary--Indian Affairs.
[FR Doc. 2016-14127 Filed 6-16-16; 8:45 am]
 BILLING CODE 4337-15-P