Final Rule Requires Stripper Well Operators to Retain Records

In response to Inspector General concerns, the Bureau of Land Management announced today that it is requiring operators of “stripper” oil wells (wells that produce fewer than 15 barrels of oil per day) to retain production records for seven years from the last date that the operator claims a reduced royalty rate under the current stripper oil royalty rate reduction program.  The new requirement, published in today’s Federal Register, is effective immediately.

Tom Lonnie, BLM’s Assistant Director for Minerals, Realty, and Resource Protection, welcomed this action noting, “This final regulation promotes responsible government and safeguards both the state and taxpayer interest in public resources.”

Current regulations do not require the retention of records that document an operator’s eligibility for the reduced rate.  The new regulations will enable the BLM, Minerals Management Service or/and the States to examine the annual records of the stripper oil property’s production to determine if the well has been qualified to receive this rate.

The BLM initiated the Stripper Well Royalty Rate Reduction Program in 1992 to encourage small oil wells to stay in operation and boost oil production.  Absent this initiative, many of these wells would have been shut-in and the oil lost to future production.  To accomplish this, the BLM provided a production incentive for these operators in the form of a reduced royalty rate.  In 1997 the program was re-evaluated and after completing an assessment, the BLM extended it indefinitely in 1998.  The royalty rate for stripper oil leases varies between 0.5 percent and 11.7 percent, depending on the property’s oil production rate.  Typically, the federal government collects a 12.5 percent royalty on non-stripper leases.  As of 2004, the stripper well program involved 615 operators, 3,891 leases, 24.9 million barrels of oil, and $52.9 million in royalty relief to the operators.

The BLM manages more land – 261 million surface acres – than any other Federal agency.  Most of this public land is located in 12 Western states, including Alaska.  The bureau, with a budget of about $1.8 billion, also administers 700 million acres of sub-surface mineral estate throughout the nation.  The agency’s multiple-use mission is to sustain the health and productivity of the public lands for the use and enjoyment of present and future generations.  The BLM accomplishes this by managing such activities as outdoor recreation, livestock grazing, mineral development, and energy production, and by conserving natural, historical, cultural, and other resources on public lands.

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