Federal Oil and Gas Lease Expirations for Cessation of Production

This Information Bulletin reminds Bureau of Land Management (BLM) offices of the applicable requirements related to cessation of production under the Mineral Leasing Act at 30 U.S.C. 226(i) and the implementing regulations at 43 CFR 3107.22 and 3107.23 for Federal oil and gas leases.

I. Production Has Ceased and There is No Well Capable of Production in Paying Quantities on the Lease (43 CFR 3107.22)

The regulation at 43 CFR 3107.22 (Cessation of production) provides:

A lease in its extended term because of production (and lacking a well capable of production in paying quantities) will not expire upon cessation of production, if, within 60 calendar days of cessation of production, reworking or drilling operations on the leasehold are commenced and are thereafter conducted with reasonable diligence during the period of nonproduction. If these reworking or drilling operations fail to result in production in paying quantities, the lease will expire by operation of law, effective as of the date paying production ceased.

This regulation applies when a lease is in its extended term because it has already been in production but does not contain a well capable of production in paying quantities. Even under these circumstances, the lease will not immediately expire due to production cessation because if the lessee, within 60 calendar days of production cessation, commences reworking or drilling operations and conducts those operations with reasonable diligence, the lease will not expire. The lessee is in the best position to know when the production has ceased and there is no well capable of production in paying quantities on the lease. If the lessee does not reestablish production within 60 calendar days of production cessation, the lease will expire by operation of law as of the date the production ended. No notice to the lessee from BLM is required before a lease expires under these conditions.

As a reminder, for a lease where the production has ceased and the lease does not have a well capable of producing in paying quantities under 43 CFR 3107.22, offices with Federal oil and gas leases should: 

1. Remember that the Regulation at 43 CFR 3107.22 Applies Only When No Well Is Capable of Production in Paying Quantities

Remember that the regulation at 43 CFR 3107.22 applies only if the lease has no well capable of production in paying quantities (e.g., all wells plugged and/or all production equipment has been removed based on inspection findings). In these cases, the lease expires by operation of law if the lessee does not reestablish production within 60 calendar days of cessation of production without the need for any notice from the BLM. BLM has no authority to extend this 60-day time period.

2. Send an Annual Reminder of the Requirements under 43 CFR 3107.22

BLM offices will send an annual reminder, as shown in the attached draft certified letter, to all current lessees and operators with a known address about the requirements in 43 CFR 3107.22. This is a courtesy notice and does not change the requirements under the law or the lease. Oil and gas companies are already under constructive notice that the requirements in this regulatory provision exist and, therefore, should already be aware of and comply with these requirements independently.

II. Production Has Ceased But There is a Well Capable of Production in Paying Quantities on the Lease

In contrast, the regulation at 43 CFR 3107.23 (Leases capable of production in paying quantities) provides:

No lease for lands on which there is a well capable of producing oil or gas in paying quantities will expire because the lessee fails to produce the same, unless the lessee fails to place the lease in production within a period of not less than 60 calendar days as specified by the authorized officer after receipt of notice by certified mail from the authorized officer to do so. Such production must be continued unless and until a suspension of production is granted by the authorized officer.

This regulation applies when the lease is not producing but still contains a well capable of production in paying quantities. Under these circumstances, the lessee has 60 days or a longer period of time identified in the notice to restart production from the date on which the lessee receives notice from the BLM about the lack of production (i.e., a cessation notice). If the lessee fails to place the lease in production within the time period specified in the notice, the BLM will then issue a termination notice to the lessee because of the lessee’s failure to put the well back into producing status. In the alternative, the lessee could seek a suspension of production from the BLM before the time period specified in the production cessation notice ends.  

As a reminder for a lease where the production has ceased but there is a well capable of producing in paying quantities on lease under 43 CFR 3107.23, offices with Federal oil and gas leases should: 

1. Send a Timely Notice under 43 CFR 3107.23

If production has ceased on a lease, but the lease contains a well capable of producing in paying quantities (e.g., shut-in wells), or if it is not clear a lease contains a well capable of producing in paying quantities (e.g. production has declined, but BLM does not have enough information to make a determination that the well is no longer capable of producing in paying quantities), issue a notice to the lessee. This notice will provide the lessee with a reasonable time, i.e., not less than 60 calendar days, to reestablish production before lease expiration. 

When circumstances make restoring production more complex than routine (e.g., lack of equipment, delayed rig schedules, pending permits, weather conditions, or extensive well workovers), the authorized officer should provide a notice period longer than 60 calendar days to allow reasonable time for reestablishing production.

2. Email a Courtesy Copy 

If the lessee has not returned the lease to production, email a courtesy copy of the previously provided notice to the operator and lessees at least 10 days before the end of the time period specified in the notice that is provided for in section 3107.23. The regulations do not provide for granting extensions of the deadline specified in the notice. 

3. Consider Suspension Requests When Appropriate

Under 43 CFR 3103.42(a), the lessee may request a suspension of production, which, if granted, would pause the lease term. Offices should consider whether such requests meet the standards provided for in that regulation in making a determination whether to grant it. 

Please contact Peter Cowan, Senior Mineral Leasing Specialist, at [email protected] or 
505-954-2016, for clarification or assistance.