60-Day Letters and Last Production Memos
United States Department of the Interior
BUREAU OF LAND MANAGEMENT
Utah State Office
440 West 200 South
STE. 500
Salt Lake City, UT 84101
August 8, 2016
In Reply Refer To: 3100 (UT-922)P
EMS TRANSMISSION 08/08/2016
Information Bulletin No.2016-021
To: District Managers and Field Managers
Attn: Oil and Gas Program Staff
From: Deputy State Director, Lands and Minerals
Subject: 60-Day Letters and Last Production Memos
Program Area: Federal Oil and Gas Operations
Purpose: This Information Bulletin (IB) offers supplemental guidance for issuing 60-day lettersand Last Production Memos to oil and gas operators and lessees of Federal agreements and leases. This IB highlights and provides clarification to the corresponding H-3107-1 - Continuation, Extension, or Renewal of Leases Handbook, 43 CFR Subpart 3107 and Manual Section 3107, as well as providing example 60-day letters.
Federal Lease
Primary Term
A lease shall not extend beyond its primary term if production in paying quantities has not been established prior to the expiration of the primary term of the lease unless the Authorized Officer (AO) is satisfied that the lease has future beneficial use.
Extended Term
If a Federal lease is in its extended term, and the AO has determined that there are no wells on the lease capable of producing oil or gas in paying quantities, the lease will terminate upon cessation of production unless within 60 days thereafter, reworking or drilling operations on the lease are commenced and are conducted with reasonable diligence and the lease resumes production in paying quantities. The 60-day period commences upon receipt of a determination from the AO that the lease is not capable of producing oil or gas in paying quantities.
Held By Production
A Federal lease which is in Held by Production (HBP) status must either continuously be producing oil or gas in paying quantities or be shown to be capable of producing oil and gas in paying quantities to maintain its active lease status. If the AO has determined that the lease is not capable of producing oil or gas in paying quantities, a 60-day letter will be issued to the designated operator. The lease will not terminate upon cessation of production if, within 60 days thereafter, reworking or drilling operations on the lease are commenced and are conducted with reasonable diligence and the lease resumes production in paying quantities. If the conditions of the 60-day letter are not met, a last production memo shall be sent to the Utah State Office Fluid Minerals Section (UT922).
Communitization Agreement
Primary Term
A Communitization Agreement (CA) remains in effect for an initial period of two years regardless of production status. If production in paying quantities is not established during the primary term of the CA, the agreement will automatically terminate.
Held By Production
A CA in its extended term must continuously be capable of producing oil or gas in paying quantities. If the AO determines that the CA is not capable of producing in paying quantities, a 60-day letter shall be sent to the designated CA operator.
Failure by the operator to reestablish production in paying quantities within 60 days of receipt of a 60-day letter shall result in the termination of the CA, at which point a last production memo should be sent to UT922.
Unit Agreement
A 60 day letter shall be written for a Unit Agreement when it is no longer capable of producing oil or gas of sufficient value to exceed the direct operating costs, lease rentals and minimum royalties due. Therefore, it is only appropriate to write a 60-day letter when the Unit is not capable of producing unitized substances in sufficient value to exceed direct operating costs and the costs of lease rentals or minimum royalty.
In cases where all completions in the formation on which the Participating Area (PA)is based are abandoned, but there is another PA subject to the Unit that is capable of producing unitized substances in sufficient value to exceed direct operating costs and the costs of lease rentals or minimum royalty, a last production memo should be sent to UT922.
A 60-day letter shall be issued to the designated unit operator via certified mail, once the AO has made the determination that the Unit is no longer capable of producing in paying quantities. It is the responsibility of the designated Unit operator to inform all other affected parties of the receipt of a 60-day letter.
60-Day Letters
60-day letters shall be addressed to the lessee or agreement operator, and sent via certified mail, return receipt requested, with additional copies sent to all affected parties as necessary.
Last Production Memos
A last production memo shall be submitted to UT922 when a Federal lease is in its extended term and the lease operator did not take any action within 60 days of receipt of the 60-day letter.
The date of last production is to be considered the date the operator received the letter indicating the AO has made the determination that the Lease or Unit is no longer capable of producing oil or gas in paying quantities.
Tracking of 60-Day Letter Time-Frames
Each office should develop and implement a tracking system to ensure that 60-day letter timeframes are not exceeded and to ensure that in the event an operator fails respond in a timely manner, additional requisite steps may be performed.
Contact: Michael Riches, Petroleum Engineer, Utah State Office, (801) 539-4072.
Signed by: Authenticated by:
Kent Hoffman; Doug York
DSD, Lands and Minerals; State Records Manager
3 Attachments:
1 – CA 60-day letter example
2 – Last production memo example
3 – Glossary of Terms