Suspensions of Operations and/or Production

IM 2023-012
Instruction Memorandum
In Reply Refer To:

3103, 3165 (HQ310) P 

Expires:

09/30/2026

To:

All Field Officials

From:

Assistant Director, Energy, Minerals and Realty Management

Subject:

Suspensions of Operations and/or Production

Program Area:

Federal Oil and Gas Leasing and Operations.

Purpose:

This Instruction Memorandum (IM) supplements existing policy and guidance for the Bureau of Land Management (BLM) offices that review requests for suspensions of operations and/or production for federal oil and gas leases. The IM reiterates and emphasizes specific policies that offices must consider when processing suspension requests and when monitoring lease suspensions to ensure that lease suspensions are warrantedThis IM is not applicable to Indian leases on trust or restricted Indian lands, which fall under the auspices of the Bureau of Indian Affairs and its existing policies and procedures.

This IM informs the agency’s organization, procedures, and practice, and is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or equity by a party against the United States, its departments, agencies, instrumentalities or entities, its officers or employees, or any other person.

Administrative or Mission Related:

Mission Related

Policy/Action:

This IM sets out this policy to ensure that BLM offices that administer suspensions of oil and gas leases are doing so in accordance with the Mineral Leasing Act of 1920, as amended (MLA) (30 U.S.C. § 181 et seq.), the implementing regulations, and other applicable laws. The BLM offices have discretion when determining whether a suspension of operations and/or production is warranted. The lessee/operating rights owner has the burden of demonstrating that the requested suspension will meet the requisite legal and regulatory standards. The BLM offices must consider the following items when processing lease suspension requests: 

  1. Existing Authorities and Policies

The MLA identifies two types of suspensions. Under Section 17(i) of the MLA, 30 U.S.C. § 226(i), the BLM may suspend either operations or production, while suspensions under Section 39 of the MLA, 30 U.S.C. § 209, suspend both operations and production. Section 17 suspensions halt the term of the lease, but rental, and, if applicable, royalty payments continue. Section 39 suspensions of operation and production halt the term of the lease as well as any rental and royalty payment obligations during the duration of the suspension. 

The regulations regarding suspensions of operations and/or production are found in 43 CFR § 3103.4-4 - Suspension of operations and/or production and 43 CFR § 3165.1 - Relief from operating and producing requirements. Section 3103.4-4(a) states, in part: 

A suspension of all operations and production may be directed or consented to by the authorized officer only in the interest of conservation of natural resources. A suspension of operations only or a suspension of production only may be directed or consented to by the authorized officer in cases where the lessee is prevented from operating on the lease or producing from the lease despite the exercise of due care and diligence, by reason of force majeure, that is, by matters beyond the reasonable control of the lessee. 

Section 3165.1(b) provides the requirements for a suspension request: 

The application for suspension shall be filed with the authorized officer prior to the expiration date of the lease; shall be executed by all operating rights owners or, in the case of a Federal unit approved under part 3180 of this title, by the unit operator on behalf of the committed tracts, or by all operating rights owners of such tracts; and shall include a full statement of the circumstances that makes such relief necessary. 

Offices are reminded to ensure that the request is executed by all operating rights owners and not just the operator. 

 Policy applicable to the evaluation and processing of requests for suspensions of operations and/or production is found in the following BLM documents: 

  1. Difference Between Section 39 and Section 17(i) Suspensions

The major distinction between the two types of suspensions is whether the need for the suspension is based on action by the BLM for conservation of natural resources (Section 39) or situations that are simply beyond the control of the lessee (Section 17(i)). For further explanation of the meaning and application of the phrase “in the interest of conservation of natural resources” refer to Appendix 1 of MS 3160-10, rel. 3-150. 

Suspensions under Section 39 of the MLA suspend both operations and production activities. Section 39 suspensions may be directed or granted by the Authorized Officer (AO) only in the interest of conservation of natural resources. The BLM is obligated to grant a suspension of operations and production where BLM’s own actions or inactions prevent a lessee from commencing drilling operations during the primary or extended term of its lease. The BLM is under no such obligation when the lessee’s inability to commence drilling prior to lease expiration cannot be attributed to any order, delay, or inaction by any federal agency. The BLM has the authority to grant a Section 39 suspension in the exercise of its informed discretion after making the necessary finding that a suspension is in the interest of conservation of natural resources. Refer to Vaquero Energy Inc., 185 Interior Board of Land Appeals (IBLA) 233 (2015). Section 39 suspensions toll the running of the lease term, suspend the rental or minimum royalty requirements, and add the period of suspension to the term of the lease. 

Section 17(i) suspensions are either suspensions of operations or suspensions of production, but not both. The BLM may direct or consent to Section 17(i) suspensions in cases where the lessee is prevented from operating or producing from the lease, despite the exercise of care and diligence, by reason of force majeure, that is, matters beyond the reasonable control of the lessee. Section 17(i) suspensions toll the running of the lease terms and add the period of suspension to the term of the lease, but do not suspend the rental or minimum royalty requirements. 

A Section 17(i) suspension also differs in that it is available only for leases that have a well capable of production. It does not apply to leases on which there has been no drilling. Refer to Appendix 2 of MS 3160-10, rel. 3-150, and Savoy Energy, LP, 178 IBLA 313, 325 (2010). 

  1. Suspensions Based on Applications for Permit to Drill (APDs) Filed Late in the Primary Term of a Lease 

Operating rights owners often submit requests for suspensions of operations and production late in the primary term of a lease. Lessees and operating rights owners are entitled to full enjoyment of the primary term of the lease. They are also responsible for timely filing required plans and necessary applications. Lessees and operating rights owners should not assume the BLM will grant a suspension merely to relieve them of their obligations of diligence and timeliness when complying with these and related requirements. Refer to Vaquero Energy Inc., 185 IBLA 233, 237 (2015). 

In general, the BLM should not grant a suspension for a lease where the applicant cites, as the basis for the suspension, a pending APD filed less than 90 days prior to the expiration date of the lease. The BLM’s average processing time for APDs has fluctuated over the years. Typically, the time from operator submission to the BLM’s final disposition of the APD has exceeded 90 days (refer to Table 12 of FY21 Oil and Gas Statistics). Therefore, it is reasonable to expect a diligent operator to file an APD more than 90 days prior to lease expiration. The fact that a late-filed APD is pending near the lease termination date does not, in and of itself, constitute force majeure under 43 CFR 3103.4-4. Particularly if an office typically processes APDs in less than 90 days, the office retains the flexibility to grant a requested suspension for late-filed APDs, to the extent that the timing of the APD filing reflects an exercise of due care and diligence on the part of the operator. Even though the offices may deny a request for suspension based on the timing of the APD filing, BLM must process the APD as it would under normal circumstances. 

Likewise, an APD and related requests for suspensions are generally not timely filed where a lease contains timing restrictions, such as wildlife protection stipulations, and the APD and related suspension request did not account for the stipulations. For example, if the lessee files an APD less than 30 days before a timing stipulation starts and the lease will expire prior to the stipulation’s end, the lessee would likely be precluded from drilling the well prior to lease expiration even if the BLM timely approves the APD, due to the APD processing time and the time it takes the lessee to build the location and commence drilling. If a suspension is requested in this situation, the office should deny the suspension, since the applicant was plainly on notice of the stipulation and was obligated to account for its implications when exercising diligence in development of the lease and complying with its terms. Thus, offices must always review the lease stipulations when considering a suspension request to determine whether the lessee has timely filed the application for which the suspension request applies.

If an office approves a suspension on the grounds that an APD is pending, the office should ensure that the APD is processed as quickly as practical. This may mean prioritizing the relevant APD ahead of other pending applications. In some situations, this processing may allow for earlier termination of the suspension. 

  1. Leasing Delays 

The BLM will authorize Section 39 lease suspensions where the efficient exploration and development of the lease or leases cannot occur due to their proximity to unleased federal lands needed to complete lease blocks on a geologic play. A suspension of operations and production under Section 39 is available for leases soon to expire that are in areas where the adjacent (including diagonally adjacent) federal tracts necessary to conduct logical exploration and development are not yet available for lease. There are two key considerations under this policy: 1) the lease(s) must expire soon, and 2) the unleased lands are part of the nature of the geologic play.  

Whether a lease is soon to expire is left to the discretion of the AO. The IBLA has, for example, affirmed a BLM decision denying suspensions for leases with more than five years left in the primary term of the leases. Refer to Double Eagle Petroleum and Mining Co. IBLA 99-77 (1999). In exercising this discretion, the reviewing office must consider what it deems a reasonable amount of time for the lessee to develop the lease(s) after the BLM issues leases for the adjacent lands. This consideration will depend upon the specific nature of the geologic play, the extent of the specific play, any lease stipulations, the anticipated development pace in the area, and application processing times.

The second key consideration is the geologic play. With the improvements in horizontal well drilling and hydraulic fracturing, much contemporary development is based on resource plays (e.g., shale plays) as opposed to conventional geologic plays. Operators are developing many resource plays on a spacing unit basis, thus rendering the potential for development independent of the availability of adjacent unleased lands. The AO must consider the type of geologic play the operator is developing when evaluating a suspension request. If the request is based on a geologic play, the suspension request must contain supporting geologic information, including any geophysical surveys, and other pertinent information. 

Section 39 suspensions are applicable for leases within an approved Drilling and Spacing Unit (DSU) that contains unleased federal tracts. In many of these scenarios, the operator cannot develop the DSU without a lease for the unleased federal tracts. The well(s) necessary for logical development of the DSU will penetrate and produce from the unleased lands, and, therefore, an unleased lands account is not appropriate. For requests based on DSUs, BLM should ensure that the request includes the pertinent spacing information in the suspension request before BLM processes the request. 

For suspension requests based on unleased federal tracts, the applicant has the burden of demonstrating that a suspension is appropriate. Offices should verify that the unleased tracts are specified in filed Expressions of Interest (EOIs). If associated EOIs have not been submitted, the office may deem the absence of EOIs to constitute a lack of diligence supporting a denial of the suspension request, or the office may include, as a condition of suspension approval, a requirement that the applicant file EOIs for the unleased tracts. In the alternative, BLM may, on its own volition, add the unleased tracts to an upcoming lease sale.

  1. Termination of Suspensions 

43 CFR § 3165.1(c) states: “Suspensions will terminate when they are no longer justified in the interest of conservation, when such action is in the interest of the lessor, or as otherwise stated by the authorized officer in the approval letter.” This language provides the BLM with discretion when determining a termination date for a suspension. Guidance provided in
MS 3160-10, rel. 3-150, recommends that the AO should grant a suspension for an indefinite term, rather than a definite term, because it is difficult to predict the period of delay. However, when appropriate, the AO should consider using a definite term (e.g., one year) to facilitate tracking. Also, a definite term shifts some of the burden of monitoring suspension termination to the lessee/operating rights owner. The operating rights owner can submit a request to extend the suspension before the suspension termination date when the circumstances that warranted the suspension are still applicable, and the operating rights owner has met any diligence requirements or other conditions of approval in the original approval. 

Offices must track suspension termination dates and timely terminate suspensions when they are no longer warranted or authorized. Offices should grant and lift a suspension on the first day of the month to ensure easier calculation for future rental payments. However, BLM recognizes that the agency may not have this flexibility to begin or end a suspension on the first of the month, e.g., cases where suspensions are required by the courts.

Budget Impact:

Minimal, as it does require some staff effort to review lease suspensions.

Background:

In June 2018, the U.S. Government Accountability Office (GAO) issued a final report entitled, “BLM Could Improve Oversight of Lease Suspensions with Better Data and Monitoring Procedures” (GAO-18-411). Oil and gas leases on federal lands generate billions of dollars in rents and royalty payments each year, but these revenues decline if leases are suspended (i.e., the lease term is placed on hold). In response to GAO recommendations, BLM issued policy in PIM 2019-007 requiring State Offices (SOs) to regularly review suspended leases and monitor lease suspensions to ensure that lease suspensions in effect are warranted. SOs are required to annually submit lease suspension review reports by March 31st to HQ-310 documenting the efforts made to monitor lease suspensions. HQ-310 will review these annual reports to determine if there are inconsistencies among offices when approving or denying suspension requests, and to address data entry errors. The BLM developed a report called, “CR Oil and Gas Lease Suspensions,” which is available to users from the Mineral and Land Records System (MLRS) Reports. SOs should review this report at the beginning of every calendar year to verify that data entry into MLRS accurately reflects the leases in a suspended status.  

Manual/Handbook Sections Affected:

The MS 3160-10, rel. 3-150 – Suspensions of Operations and/or Production; H-3103-1, rel. 3-306 – Fees, Rentals, and Royalty (also known as the BLM Oil and Gas Adjudication Handbook) will incorporate the policy contained in this IM in its next revision to these handbooks. 

Contact:

If you have questions or concerns regarding this IM, please contact Nicholas Douglas at  970-256-4944. For program questions, your staff may contact Lonny Bagley, Acting Chief, Division of Fluid Minerals (HQ-310) at 307-261-7777 (lbagley@blm.gov) or Will Lambert, Petroleum Engineer (HQ-310) at 406-896-5328 (wlambert@blm.gov). 

Coordination:

This policy was coordinated with the DOI Office of the Solicitor, and the BLM Headquarters Energy, Minerals, and Realty Management Directorate (HQ-300), Division of Fluid Minerals (HQ-310), and SOs. 

Signed By

Nicholas Douglas
Assistant Director
Energy, Minerals and Realty Management

Authenticated By

Ambyr Fowler
Division of Regulatory Affairs and Directives (HQ-630)

Fiscal Year

2023