BLM Publishes Final Rule to Improve Protection of Federal and Indian Mineral Resources From Drainage

The Bureau of Land Management today published a final rule that clarifies the obligations of Federal and Indian oil and gas lessees and operating rights owners to protect mineral resources from drainage.

The final rule, which appears in today's Federal Register, will ensure that the Federal government, and thus America's taxpayers, are compensated for the drainage of oil, gas, and related mineral resources from Federal mineral owners. The rule will also protect Indian mineral owners. Drainage occurs when production from nearby wells causes the migration of hydrocarbons and related fluid mineral resources. Drainage reduces production, which, in turn, reduces the royalties owed to taxpayers from such production.

While Federal and Indian oil and gas lessees have always been required – under the Mineral Leasing Act of 1920 – to protect against drainage, the final rule published today identifies when a lessee's responsibilities begin and end.

The final rule:

• Specifies that all who hold interest in the mineral record title or operating rights are "jointly and severally" liable for protecting Federal or Indian mineral resources from drainage, including the payment of any required compensatory royalties.
  
  
• States that the duty of a lessee or operator to pay compensatory royalties for drainage begins at a reasonable time after a prudent operator could have known that drainage was occurring.
  
  
• Informs lessees and operators of their duty to monitor wells in the same or adjacent spacing units (areas where no more than one well will be drilled) and to gather sufficient information to determine if drainage is occurring.
  
  
• Informs responsible parties of their duty to protect mineral resources from drainage by drilling a protective well, by entering into a protective agreement, or by paying compensatory royalties.
  
  
• Clarifies the responsibilities of a Federal oil and gas lessee that has assigned its lease interest to another company for well abandonment and site reclamation. The rule authorizes the BLM to require reclamation by any company that has held a Federal lease during the life of an oil or gas well.

Copies of the final rule can be obtained from any of the BLM's State Offices or its Washington, D.C., Office. The rule is also accessible from the BLM's Internet Home Page (www.blm.gov) or at the Federal Register Web page (www.access.gpo.gov).

The BLM administers about 49,000 oil and gas leases, of which some 25,000 are in producing status. Production from BLM-managed land accounts for about 5 percent of the nation's oil and 12 percent of its natural gas.

The BLM, an agency of the U.S. Department of the Interior, manages more land -- 264 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 and a workforce of some 9,000 full-time, permanent employees, also administers 700 million acres of sub-surface mineral estate throughout the nation. The BLM preserves open space by managing the public lands for multiple uses, including outdoor recreation, livestock grazing, and mining, and by conserving natural, historical, cultural, and other resources found on the public lands.