Federal leaseholders should expect to see a series of final rules issued by the Bureau of Land Management (BLM) in 2024, aimed at updating BLM’s land management and environmental regulations. While many of the underlying proposed rules were labeled as “updates” to existing regulations, they each contain potential hurdles to federal oil and natural gas development and access to new federal leases.
A brief summary of the proposed rules, released in 2023, and what to expect in 2024.
BLM Waste Prevention Rule
BLM’s waste prevention draft rule is an update to its 2016 and 2018 rule revisions, which were both struck down by federal courts as exceeding BLM’s statutory authority. The revised draft rule modifies the existing standard that lessees exercise reasonable diligence, skill and care in the operation of a lease and take all reasonable precautions to prevent waste. Instead, the draft rule puts caps on venting and flaring, even for natural gas that would otherwise qualify as unavoidably lost. Based on the proposed rule, economic considerations will no longer hold much weight—if any—in the determination of “waste”, and “avoidably” and “unavoidably lost” gas.
The proposed rule continues BLM’s theme of trying to regulate air quality through rulemaking, which is under the Environmental Protection Agency’s (EPA) purview, and not BLM’s. Further, the proposed rule would require upstream producers to provide information on the midstream system that it would have no way of knowing.
BLM has been working through comments and preparing the final rule with an eye toward withstanding expected challenges to the rule in federal district courts. While BLM may raise limitations on what is “avoidable” versus “unavoidably lost” gas, it will likely not continue with the current practice of a prudent operator standard and an economic balance. Further, expect to continue to see restrictions aimed at air quality and climate change despite this being under EPA’s control.
The proposed rule, titled “Waste Prevention, Production Subject to Royalties, and Resource Conservation,” 87 Fed. Reg. 73588 (Nov. 30, 2022), is available here.
BLM Conservation Rule
BLM’s draft rule on conservation and landscape health proposes to make conservation one of the multiple uses BLM manages for under the Federal Land and Policy Management Act (FLPMA), without Congress actually authorizing BLM to do so.
FLPMA requires BLM to manage federal lands for “multiple use and sustained yield” of resources, and defines major uses of the public land as mineral exploration and production, livestock grazing, rights-of-way, fish and wildlife development, recreation and timber. In managing lands for conservation as a multiple use, BLM would expand FLPMA and prioritize conservation on par with developing our nation’s resources, thus bypassing FLPMA’s mandate to manage the public lands “in a manner which recognizes our Nation’s need for domestic sources of mineral, food, timber, and fiber.”
Expect BLM to issue a final rule making conservation one of the multiple uses of public lands. Although beyond BLM’s authority under FLPMA, the current Administration is intent on weaving conservation and land preservation in all of its rulemakings.
The proposed rule, titled “Conservation and Landscape Health,” 88 Fed. Reg. 19583 (April 3, 2023), is available here.
BLM Leasing Rule
In the draft rule, BLM proposed raising the minimum bonding requirements by a factor of 15 for individual federal leases, raising the minimum amount from $10,000 to $150,000, and by a factor of 20 for statewide bonds, raising the minimum amount from $25,000 to $500,000. The proposal, which would require the updated bonding amounts in place 1 year after the final rule’s effective date for individual lease bonds and 2 years after enactment for statewide bonds, also removes the option for unit and nationwide bonds.
The bonding and surety proposals are part of a larger rulemaking by BLM to update and “enhance the administration of the Federal onshore oil and gas program” to be in line with recent legislation. However, as seen with the bonding proposals, the rulemaking goes beyond recent legislation by adding and raising routine fees as well as providing additional hurdles to obtaining federal leases and diligently developing those leases.
Additional key topics addressed in the BLM rulemaking include:
- Codifying expression of interest fees, and increasing required bonus bids, royalty, and rental rates.
- Instituting preference criteria to reduce the number of leases offered with alternative resource options for the lands.
- Penalizing operators for not developing leases within the first 5 years of a federal lease’s primary term by raising rental rates by $1 each subsequent year of non-development.
- Restricting extensions for approved applications for permit to drill.
- Restricting availability of lease extensions and suspensions.
While bonding options may not be as limited as in the proposed rule, federal leaseholders should expect updated bonding requirements and increased fees. Additionally, companies will need to watch for new restrictions on development, fees for non-development, and limitations on the ability to extend leases and APDs. Further, BLM will likely maintain its preference criteria in reviewing expressions of interest, making it more difficult to obtain federal leases in certain areas.
The proposed rule, titled “Fluid Mineral Leases and Leasing Process,” 88 Fed. Reg. 47562 (July 24, 2023), is available here. BLM also provided a fact sheet on the bonding proposal, available here.
BLM National Petroleum Reserve – Alaska Rule
While not relevant outside of the National Petroleum Reserve – Alaska (NPR-A), the BLM’s proposed rule on protecting the NPR-A is worthy of watching. This draft rule proposes to exceed Congressional direction to develop by providing BLM with multiple additional options for managing the NPR-A for the conservation of surface resources.
If finalized as drafted, the rule would allow BLM to provide surface resources “maximum protection” to the preclusion of development on existing federal leases, and would preclude new leases on lands designated or even merely proposed for such maximum protection via special area classification. This draft rule is an extreme of the other proposed BLM rules in that the NPR-A’s underlying Congressional designation was for the development of oil and natural gas resources. The contemplated provisions would modify Congress’s intent without the necessary Congressional authority to do so.
Even companies that do not operate in the NPR-A should be watching this rule as it could lay the foundation for BLM to restrict federal leaseholders rights across the lower 48.
The proposed rule, titled “Management and Protection of the National Petroleum Reserve in Alaska,” 88 Fed. Reg. 62025 (Sept. 8, 2023), is available here.
For more information about BLM’s proposed rule and potential implications, please contact Theresa Sauer.