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Subpart 3101 ® General Information

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COMMENTS ON THE PROPOSED RULE AT 43 CFR 3100, ET AL.

LEASING AND AGREEMENTS

SUBPART 3101 GENERAL INFORMATION

Section 3101.5 What terms do I need to know to understand BLM’s oil and gas regulations?

Abandonment": The definition should include the intent to relinquish the well.

"Bona fide purchaser": Is defined as one holding "an interest" in a federal lease. Since the revised definition of an "interest" excludes overriding royalties and other interests in production, it is conceivable that the bona fide purchaser protection set forth in proposed Section 3144.20 and .21 would be construed as not applying to overriding royalties. In the past, when there has been a violation of the statute or regulations by a party who retained only an overriding royalty interest, the Bureau of Land Management has sought cancellation of those interests unless they were in the hands of a bona fide purchaser. The bona fide purchaser protection contained in the Mineral Leasing Act should extend to overriding royalty interests. The definition needs to clarify as to what violations could preclude a person from operating on Federal Lands. A bona fide purchaser or seller should not be prevented from doing business on Federal lands if they have minor violations such a INCs on other leases. There must be a level of significance to prohibit such actions. The bona fide purchaser definition should retain the characteristics of the existing regulations. A purchase should be a bona fide purchaser status even thought the lease may be subject to cancellation. When there is a definition, as here, it should not be redefined in another place in the regulations, such as at Section 3144.20. A "bona fide purchaser" should not be defined in two places.

Recommendation: Expand definition to include one holding an overriding royalty interest, and insert "significant" after "notice of". Add a purchaser shall be a bona fide purchaser even though a lease is subject to cancellation. Delete the later definition in Section 34144.20 and refer back to the definition section to avoid conflicting definitions.

"Committed lease": The proposed regulations contain a definition for "committed lease" for purposes of a commitment to a communitization agreement or unit agreement. This is useful as in the past the definition of fully committed and partially committed has been handled only in the Manual. However, the definition of "committed lease" would eliminate any opportunity for the Bureau of Land Management to treat a lease as fully committed where all but say, for example, 1% of the mineral interest has committed to the unit agreement. Also, this definition makes no reference to overriding royalties which means that any lease where an overriding royalty interest remains uncommitted will not be deemed uncommitted to the unit if all the working interests have committed.

Recommendation: The language should be changed to read "where all or substantially all the owners of record title and working interest" have agreed in writing.

"Completion operations": The definition is unclear.

Recommendation: Delete the phrase "or service."

"Condition of approval": There is a typographical error in the definition; the term "Re-enter" should be used instead of "Renter."

"Derelict well": Add a new definition for "derelict well" as written below:

Recommendation: "A well that is not properly drilling, producing, shut-in, temporarily inactive, temporarily abandoned, or in use as a service well. This new term is needed to distinguish temporarily inactive wells that are in compliance with BLM requirements, from wells that are known to be out of compliance and further, may pose threats to the environment or public safety."

Recommendation: Change accordingly.

"Drainage": The definition is based on migration rather than depletion. Depletion of hydrocarbons is drainage, not mere migration.

Recommendation: Delete "migration" and replace it with "depletion."

"Federal lease": The definition states that it is one issued under the "mineral leasing laws." However, the proposed rule does not define "mineral leasing laws."

Recommendation: Add a definition for "mineral leasing laws." Add that the lease is of "Federal Lands".

"H₂S": The definition applies to a H₂S public protection plan; however, the state’s regulatory agencies require H₂S plans and this is an unnecessary duplication of regulation.

Recommendation: Delete in its entirety or amend definition wherein: i) Public protection plan is italicized and ii) insert "in accordance with the respective state’s regulatory policy in which operations are occurring" after "a written plan". Highlight the entire phrase being defined.

"Injection well": The definition does not include one used to inject for gas storage.

Recommendation: Insert "or used for injection into storage" after " operation of oil or gas".

"Marketable condition": The definition is unnecessary.

Recommendation: Delete the definition in its entirety.

"Orphan Well": Add a definition for "orphan well" as written below:

Recommendation: "Any well that has an outstanding public liability whose owner(s), operating rights or record title owner(s) are unknown because they are deceased, out of business or cannot otherwise be located." BLM needs to distinguish orphan wells and derelict wells from other wells that are properly shut-in, temporarily abandoned, or out of service. BLM's use of the term "orphan well" in the sentence "A significant source of orphan wells is temporarily abandoned wells" (from page 66845 of the Federal Register) reflects the need for clarification of this term."

"Participating area": The proposed definition is: "the lands that contain at least one well that meets the productivity criteria established in an exploratory unit agreement." We believe that the definition should be tied to the area approved by the BLM for allocation of production since there is often a difference of opinion among working interest owners as to whether particular lands have been proven productive by a given well. In addition, the well should be tied to its economic performance.

Recommendation: Amend the language as follows:

"Participating area means the lands, as approved by BLM from time to time, which contain at least one well that meets the paying well determination established in an exploratory unit agreement and to which production is allocated in the manner prescribed in the unit agreement. A participating area may be particular to separate producing intervals or areas."

"Paying well": The definition on a lease basis is "a well with sufficient production capacity to recover the cost of day-to-day operating expenses with a profit, no matter how small." Our concern with the use of the phrase "day-to-day" is that it creates the impression that whether a well is capable of producing in paying quantities must be determined on a daily basis. For example, a particular lease may not produce enough production over three successive months to cover its operating costs for those three months but, when examined over a calendar year, the well does produce in paying quantities. A new definition needs to be added for a Paying Well Determination for unit and inserted in lieu of subparagraph (2).

Recommendation: Amend "Paying well" to read as follows: "Äon a lease basis, a well with sufficient production capacity to recover the operating expenses with a profit, no matter how small." Add the following as a new definition: "Paying Well Determination means on a Participating Area or unit basis, a well with sufficient production capacity to return a reasonable profit over the cost of drilling, equipping, completing and operating that well."

"Person": The definition is obviously designed to encompass any entitle that might hold title to a federal lease. We recommend that the definitional phrase included limited liability companies. We note that the definition of "person" includes an association, which is defined earlier as any entity other than a corporation that is permitted under state law to hold property in its name. Therefore, we believe the definition of "person" could actually be limited to "any individual, corporation, or association."

Recommendation: Include limited liability companies in the definitional phrase.

"Production phase": The definition pertains only to crude oil and does not address natural gas production.

Recommendation: Insert "and/or natural gas" after "crude oil".

"Prospectively valuable deposit": We have not located where the phrase "prospectively valuable deposit" is used in the text of the regulations.

Recommendation: If it is not used, then the definition should be deleted.

"Public lands": Any distinction between the definition of "Federal lands" and "Public lands" should be made in both definitions.

Recommendation: State the distinction, if any between "Federal lands" and "Public lands" in a clear manner.

"Reclamation": The proposed definition is vague and exceedingly broad so that a particular lessee might be required to go to extraordinary (and unnecessary) lengths to establish "healthy ecological conditions."

Recommendation: The following definition is more appropriate:

"Reclamation means returning disturbed land and water to as near to their predisturbed condition as is reasonably practical."

"Record title": The definition reads "legal ownership of an oil and gas lease recorded in BLM’s records." The word "recorded" in the context of real property records is a term of art referring to the filing of a document in accordance with the recording statute of the given state.

Recommendation: Amend the definition to read: "Ä legal ownership of an oil and gas lease as reflected in BLM’s records."

"Sales phase": The definition pertains only to crude oil and does not address natural gas production.

Recommendation: Insert "and/or natural gas" after "condensate".

"Shut-in": The definition appears to include temporarily abandoned wells.

Recommendation: Re-draft definition as follows:

"Shut-in with respect to wells means any well capable of producing in paying quantities or capable of service use, but not currently producing or not being used due to an intentional closing of the valves by the operator to prevent production due to mechanical problems or a lack of market."

"Temporarily abandoned": The definition may include shut-in wells.

Recommendation: Re-draft definition to accommodate for wells shut-in because of lack of market.

Section 3101.11 - Who must comply with the lease terms, regulations, orders and Notices to Lessees (NTL’s) BLM issues?

This regulation requires interest owners and operators to comply with the lease terms, regulations and BLM’s orders and NTL’s. The preamble to the regulation states that the proposed rule incorporates all of the existing onshore orders and national Notices to Lessees to make one complete document. Therefore, since BLM’s orders and NTL’s are not defined in the definition section of the proposed regulation, it is unclear as to what these terms refer.

Recommendation: Add "BLM’s orders and "NTL’s" as definitions under Section 3101.5.

We presume that the last sentence of this section means that the interest owner and operator are responsible if their agents, contractors or subcontractors do not comply with the lease terms and regulations; however, the reference to "they" is unclear.

Recommendation: In the last sentence delete "they" and insert "their agents, contractors or subcontractors".

Section 3101.12 - As a record title owner, what are my obligations?

We strongly object to the language in paragraph (a) of this proposed rule that each record title owner "is jointly and severally liable for nonmonetary lease obligations, including the obligation to protect the lease from drainage and to pay compensatory royalty that may be owed." This rule establishes a departure from the rules previously set forth by the Interior Board of Land Appeals that each owner is liable only for its proportionate share of any compensatory royalty. The proposed rule is particularly inappropriate as applied to record title owners as there may be instances where a record title owner owns no operating rights in the drained formation and thus could not protect the lease from drainage by drilling a well but could still have liability for payment of a compensatory royalty. In that case, the record title owner is powerless to compel the drilling of a protection well.

Recommendation: This section should be amended to provide that the payment of compensatory royalty should continue to be treated as any other monetary obligation and, as set forth in the Royalty Fairness Act, a debt owed only pro rata by each owner.

The last two sentences of paragraph (a) state that the obligation for monetary obligations "such as paying rent" is proportionate to the party’s interest. These statements may lead to the incorrect conclusion by some parties that so long as they pay their proportionate share of rental, the lease will not automatically terminate for failure to timely pay the full amount of rental due.

Recommendation: The reference to rentals should be eliminated or make it clear that the proportionate liability language here does not alter the requirement that the full rental be paid.

Section 3101.14 - Does BLM warrant title to the oil and gas deposits when it issues a lease or approves subsequent lease actions or lease operations?

Although we can recognize BLM’s unwillingness to warrant title when it issues an oil and gas lease, the language in proposed Section 3101.14 should not be relied upon to excuse BLM from refunding any payments theretofore made by the purported lessee.

Recommendation: A statement to that effect should be included in this section.

Section 3101.16 - What requirements must I follow in addition to the regulations in parts 3100 through 3190?

Paragraph (c) contains a reference to NTL’s which again are not defined anywhere.

Recommendation: Add "NTL’s" as a defined term and the word "and" after subparagraph (e)(3) should be deleted.

SUBPART 3102 RECORDKEEPING

Section 3102.10 What records must I keep?

This section is confusing and unclear as to whether it creates a substantive requirement to keep any specific records in addition to those reports required to be submitted by Section 3103.10 and the provisions referred to therein. For example, Section 3102.10 purports to require accurate and complete records to be kept on "drilling" operations. Section 3103.10 specifically refers to spud notices, electric and other logs, surface casing and BOP test notices, drill stem test reports, and production start-up notices. Does Section 3102.10 create a substantive requirement to keep records relating to drilling other than the reports addressed in Section 3103.10? Similarly, Section 3102.10 requires a person to keep "required schematic diagrams." Are these the same as, or in addition to, the site facility diagrams referred to in Section 3103.10 and Section 3152.51?

Recommendation: Section 3102.10 should be deleted. Alternatively, if it is BLM’s intent to add substantive requirements to keep certain types of records in addition to the reports and notifications otherwise required by the proposed rules, the rule should identify any such records with much greater specificity.

Section 3102.11 How long must I keep records?

This section imposes a seven-year record retention policy for owners of interests in Federal leases, while owners of interests in Indian leases would only be subject to a six-year record retention policy. 30 CFR Section 212.50 similarly requires a six-year retention policy for MMS’ purposes. It is unclear why a longer retention policy should apply to federal lessees, and also whether this section is necessary in light of the broad language of 30 CFR Section 212.50.

Recommendation: This section should be deleted in its entirety. Alternatively, it should be modified to apply the same six-year retention policy to federal lessees.

SUBPART 3103 REPORTS, SUBMISSIONS, AND NOTIFICATIONS

As a starting point, research regarding the current Title 43, Part 3100 ® Oil and Gas Leasing was conducted. The format of current regulations does not contain a subpart that provides a detailed listing of commonly used forms. Discussion of such forms is embedded in the applicable subpart. An attempt to conduct a side-by-side comparison of the old rule with the new rule is, therefore, impossible.

Subpart 3103, together with Subparts 3101, 3102 and 3104, would "lay out general requirements and explanations of the proposed 3100 regulationsÄ. Subpart 3103 would identify reports, submissions, and notifications BLM requires and the forms which must be used. It would also include a cross reference to the pertinent section of the regulation to which the record pertains."

Subpart 3103 allows for oral notification of the start and completion of certain activities. "The notifications are necessary to ensure proper monitoring and inspection by BLM of lease operations.

Subpart 3103 contains a table of "common records you must keep, reports you must submit, notifications you must provide BLM, and when you must submit them." The table follows a logical sequence of events beginning with Bond requirements, and ending with Well Abandonment Notice. In achieving one of its goals, the agency provides some flexibility by allowing for an alternative method of data submission if a specific BLM form is not used. The list of records is not all-inclusive; there may be other records not listed that are required by the regulations. Following the table is a very helpful section entitled "Form Description" that describes the forms listed above.

Section 3103.10 ® What reports and notifications must I submit to BLM?

Problem: Certain notices are to be provided orally. What constitutes an oral notification?

Recommendation: Define oral notification under general terms as "Notice by a telephone call to an authorized representative in the appropriate BLM office, either by communicating with such representative directly or by leaving a message on his telephone answering machine. You may, at your option, confirm such oral notification in writing."

SUBPART 3105 LESSEE QUALIFICATIONS

Section 3105.20 What is the acreage limitation for holding, owning or controlling oil and gas lease interests on public domain lands?

Same information as old regulations, except left out option language under (b) (see 3105.25)

Recommendation: Add option language under (b) "...or 200,000 acres in options in each of the two leasing districts."

Section 3105.25 What effect do options have on lease acreage holding limitations?

(a) Is a partial duplication of 3105.20 (it shows the option limitation for all states but Alaska). Existing rule 3100.3-2 show option acreage to be chargeable to both the grantor and the option holder - now appears to be only chargeable to option holder.

Recommendation: Option language should be added to 3105.20(b) (See 3105.20 above)

Recommendation: Delete 3105.25(a)

Recommendation: Delete "(b)" from the beginning of the remaining sentence.

Section 3105.28 What if I exceed the acreage limitation?

Defines references to number of days as calendar days. Subparagraph (b) is a Big Change. Previously "lease(s) or interests therein shall be subject to cancellation or forfeiture". Now it

states that you have an opportunity to voluntarily reduce your acreage holdings to the amount of acreage allowed. If you do not, BLM may seek a court order to cancel or require you to forfeit.

Recommendation: Keep

Section 3105.29 How does BLM compute chargeable acreage?

Recommend removing (a)(1) as it is essentially same as (a)(2) - (a)(1) says if you own 100% of acreage, you get charged for all - (a)(2) says if you own an undivided interest in the acreage you get charged for your proportionate part.

(3) adds in language on associations

(3) adds a good clarifying statement "If you are a corporation, you are not charged for the acreage owned by your stockholders

(4) is new

Recommendation: Keep

SUBPART 3120 LEASING (GENERAL)

Section 3120.40 For Federal lands, what types of leases does BLM issue or administer?

BLM does not issue or administer (h) Private leases. However, if the intent is where BLM acquires fee lands subject to existing fee leases, then BLM needs to address situations where BLM acquires State lands subject to existing state leases.

Recommendation: Delete (h) Private leases or add State leases as described above; and delete "For Federal Lands," in the subtitle. This is redundant. Theoretically, the proposed rule change only affects federal lands.

Section 3120.41 For each type of lease, what is the primary lease term, maximum lease size, administrative filing fee, and advance annual rental?

Nice chart, However, the only change seems to be on Non-competitive reduces acreage from 10,240 to 2,560

Recommendation:Do not reduce acreage

SUBPART 3121 COMPETITIVE LEASING

Section 3121.10 How does BLM provide notice of what lands are available for competitive oil and gas leasing?

This section specifies 90 calendar days instead of 90 days.

Recommendation: Keep

Section 3121.21 What other rules must I follow when I submit my nomination letter?

This section mirrors 3120.34 - you must not combine public domain and acquired minerals in the same parcel nominated. Subparagraph(c) seems less restrictive but you have to show BLM that a larger area is necessary. Existing rules 3110.3-3 give more detailed account of what it would take to get BLM to agree.

Recommendation: Keep existing regulatory language.

SUBPART 3122 COMPETITIVE LEASE SALE

Section 3122.11 How are competitive oil and gas lease sales conducted?

Subparagraph (a) is an improvement, (b) and (c) should be removed - duplication of 3122.15 (a) and (b)

Recommendation:Keep (a) and remove (b) and (c).

Section 3122.15 What documents must I submit on the day of the sale if I am the winning bidder of a parcel?

Unnecessary if (b) and (c) are kept under 3122.11

Recommendation: Keep 3122.15 and remove (b) and (c) of 3122.11

Section 3122.17 What must I pay per parcel at the sale if I am the winning bidder?

Subparagraph (a) needs to be reworded to be more concise - some duplication, Subparagraph (b), once (a) is reworded (b) is unnecessary.

Recommendation:New wording for (a): "If you are the winning bidder of a parcel, by the close of official business hours on the day of the sale, or other time specified in the Notice of Competitive Lease Sale, at the BLM State Office with jurisdiction over the parcels on the sale notice, you must payÄ"

Section 3122.20 When is the balance of my bonus bid due?

Changed 10 working days to 10 business days.

Recommendation: Keep

Section 3122.21 What happens if BLM does not receive the balance of my bonus bid within 10 business days following the date of the sale?

Nice clarification by adding language addressing being postmarked or dated receive by courier or other delivery service. However, this language belongs in Section 3122.20.

Recommendation: Delete 3122.21 and redraft 3122.20 to incorporate language addressing payment being postmarked or dated receive by courier or other delivery services.

Section 3122.30 Under what circumstances will BLM reject my bid?

Subparagraph (a) reword same as 3122.21 and remove 3122.21, remainder is OK.

Recommendation: Add to 3122.21 "If BLM does not receive your payment on the day of the sale as provided in 3122.17Ä"

Section 3122.40 If a parcel receives no bid at the competitive lease sale, is it available for noncompetitive leasing?

Need a new part at the beginning of Competitive Lease sale discussing what lands must be leased competitively - place language in all of Subparagraph (b) because Subparagraph (a) seems to be a duplicate of 3123.10 and Subparagraph (c) should be relocated under the noncompetitive section.

Recommendation: Remove 3122.40 and place language as indicated above.

SUBPART 3123 NONCOMPETITIVE LEASING

Section 3123.31 How do I describe the lands in my noncompetitive offer for public domain or acquired minerals that I file within the two years after the sale?

Qualified bidders should be allowed the option to describe the lands by the parcel number or by the legal description of that portion of the acreage if less than the entire acreage in the parcel. If less than the entire acreage is described, the parcel number should be identified and it should be noted that less than all acreage is being offered. A qualified bidder would have to pay rental on acreage that it did not desire and would not be given a refund of the payment when the undesired acreage is relinquished. Requiring a noncompetitive offer be as to the entire parcel would have a chilling effect on leasing, would raise barriers against leasing to small operators or individuals, and development of minerals would be decreased.

Recommendation: Section 3123.31 should be amended as follows:

"(a) Your noncompetitive lease offer must describe the lands by the parcel number indicated in the Notice of Competitive Lease Sale, or the legal description.

(b) You may combine more than one parcel from more than one sale notice on an offer, but our lease offer must--

(~~1) Include entire parcels~~;

(21) Be within a six square mile area, unless you show BLM that a larger area is necessary; and

(32) Not exceed ~~2,560~~ 10,240 acres for the lower 48 states and 5,760 acres for Alaska."

Section 3123.40 How do I file a noncompetitive offer?

Improvement - now only have to file in duplicate. Subparagraph (a) defines duplicate as (an original and one copy)

Recommendation: Keep

SUBPART 3124 LEASE ADMINISTRATION AND RENEWALS

Section 3124.20 What if the lands I am leasing are within an existing unit agreement?

Subparagraph (a) is OK, Subparagraph (b) in existing rules state that you could operate your lease independently, but would have to conform to the terms and provisions of UA; proposed regulations state that BLM can reject the reasons not to join the unit and make you join the unit or not approve your new lease.

Recommendation: Subparagraph (a) is OK; Subparagraph (b) delete and keep same as existing rules.

Section 3124.30 May I consolidate leases?

Subparagraph (a) is an improvement and Subparagraph (b) is duplication of 3124.10(e).

Recommendation: Keep (a); Remove (b)

Section 3124.32 How many copies of my application must I file and where must I file it?

States you must file an original and a duplicate - does this mean we should file 2 originals and 1 copy? See definition in 3123.40

Recommendation:Define "duplicate"

Section 3124.41 For how many years will BLM renew my lease if it was not issued under Section 14 of the Mineral Leasing Act?

Subparagraph (a) is an improvement; the last sentence in Subparagraph (b) discusses extensions, not renewals. This is confusing to the reader.

Recommendation: Remove last sentence of Subparagraph (b).

Section 3124.43 Who may file a renewal lease application?

Fewer restrictions - now the operating rights owners can file application, previously had to be made by the lessee and could be joined in or consented to by the operator.

Recommendation: Keep

Section 3124.44 How must I file my renewal lease application?

Improvement - changes 90 days to 90 calendar days.

Recommendation:Keep

SUBPART 3125 EXCHANGE LEASES

Section 3125.11 How must I file an exchange lease application?

Only have to file in duplicate now, not triplicate.

Recommendation:Keep and what is definition of duplicate? Two originals, one original and one copy?

Subpart 3126 - Railroad Right-of-Way Leases

Section 3126.12 How must I file a lease application under this subpart?

Improvement

Recommendation:Keep and what is definition of duplicate? Two originals, one original and one copy?

Section 3126.13 What information must my application include?

Requires more information than existing regulations. Must supply plat or map and give them names and addresses of all mineral owners and lessees.

Recommendation: Use existing rules.

Section 3126.14 Who must BLM notify that I filed an application to lease the oil and gas under the right-of-way?

Federal oil and gas leases should be issued to those who are willing to make a monetary investment as a commitment to their project, not to those who are reacting to others ideas and commitments.

Recommendation: Delete in its entirety.

Section 3126.16 What must I include in my bid for compensation?

The proposed regulation cites information required to be same as 3126.13 (b)(c)(d)(e) and states that you should provide the amount of compensation you offer to pay. Appears to be the same as stated in 3126.13 (f).

Recommendation:Delete the last sentence in (a) and add (f) after (e) in the first sentence.

Section 3126.17 Who must BLM notify that I have filed an application for compensation?

Proposed rule is more onerous than existing regulations. BLM will also require the holder to provide notice to anyone who acquired the owner’s right to lease or tell BLM who it is so they can provide notice. However, Federal oil and gas leases should be issued to those who are willing to make a monetary investment as a commitment to their project, not to those who are reacting to others ideas and commitments

Recommendation: Delete in its entirety.

Section 3126.18 May BLM request offers to lease or for compensation?

BLM may solicit offers from the public; however, they should not be obligated to provide notice as outlined in Sections 3126.14 and 3126.17

Recommendation: Amend as set forth below:

"BLM may request offers to lease or offer compensation for oil and gas underlying a right-of-way subject to this subpart. ~~BLM will provide notice under Secs. 3126.14 and 3126.17(a)."~~

Section 3126.20 What is the term of my lease or agreement?

Same as in chart 3120.41

Recommendation: Remove, duplication

SUBPART 3129 RECORD TITLE, OPERATING RIGHTS AND ESTATE TRANSFERS, NAME CHANGES AND MERGERS

Section 3129.10 What is a transfer?

Unnecessary since it is addressed in definitions under section 3101.5.

Recommendation: Remove

Section 3129.13 What must I include in my transfer application?

Unnecessary as it just refers you to 3129.30.

Recommendation:Remove

Section 3129.16 May I file a record title transfer limited to a specific depth, formation, zone or defined deposit or fluid mineral?

Good, should help everyone understand that there is a difference between record title and operating rights.

Recommendation:Keep

Section 3129.17 May I file my operating rights transfer to a specific depth?

Good, should help everyone understand what operating rights are.

Recommendation:Keep Section 3129.21 May I file a mass transfer?

Existing rules provide that you send in 3 originals plus 1 copy for each lease affected. Whereas, the proposed rules provide that you send 3 signed originals for each lease. Existing rules are more in line with the intent of the preamble to reduce paperwork and administrative burden. This section is creating unnecessary additional paperwork and costly administrative burden. The proposed rule does not provide a mechanism that expedites a mass transfer, because it is the same as filing an assignment for each lease covered!

Recommendation: Rewrite proposed rule as follows: "You may file a mass transfer by providing BLM with 3 originals, plus 1 copy for each lease affected."

Section 3129.30 What forms must I use to transfer lease interests, how many copies must I file, what is the filing fee per lease or document, and where must I file them?

The Chart says number of copies required - do they mean copies or originals? They may mean originals. Also, couldn’t 3129.37 be worked into the chart instead of standing alone?

Recommendation: Clarify whether copies or originals required on chart & incorporate terms of 3129.37 into chart.

Section 3129.31 Are filing fees refundable?

Improvement - lets everyone know that if they pay too much on filing fees then they can get that part refunded

Recommendation:Keep

Section 3129.34 May I file a record title transfer containing less than 640 acres?

Similar to existing regulations but states that BLM may request additional information before approving the transfer.

Recommendation:Remove the last sentence.

Section 3129.35 What must I submit to BLM to transfer the rights or interests of a decedent to its heir, devisee or estate?

Only a request for approval was required before, now they want probate or will, executor’s authority, proof of death and heirship. Also, before you may be required to submit bond rider, now you must file a bond rider.

Recommendation: Keep the same as existing rules.

Section 3129.36 What must I submit to BLM for a merger or name change?

New? - Evidence that the state has acted on your request for a name change or merger.

Recommendation:Delete Subparagraph (a).

Section 3129.37 Where must I file documentation of estate, merger and name changes?

See Section 3129.30.

Recommendation: Remove and consolidate information into chart in 3129.30

Section 3129.38 As the transferee, what should I file to show I am qualified to hold Federal lease interests?

This is an unnecessary duplication of Section 3105.15.

Recommendation:Delete in its entirety.

Section 3129.39 When must I file transfers with BLM?

Title needs to be changed - same as 3129.11.

Recommendation: Change the title and keep or combine this information into the chart under section 3129.30.

Section 3129.40 May I transfer an interest before BLM issues the lease?

Much improved, now it is understandable.

Recommendation:Keep

Section 3129.50 When will BLM require a new bond for a transfer?

Unnecessary as covered under 3107.12 "When must I file a bond?"

Recommendation: Delete in its entirety.

Section 3129.51 If I transfer my lease, when do my obligations under the lease end?

If the acquiring party accepts all responsibilities for reclamation and BLM approves the applicable assignment, then the assignor should be relieved or discharged of any liability associated with such reclamation.

Recommendation: Rewrite the last sentence of Section 3129.51 as follows: "As the assignor or transferor, you remain responsible for plugging wells you drilled and abandoning facilities installed or used prior to the effective date of the assignment or transfer unless evidence is furnished to transfer the complete liability to the assignee as prescribed in 3129.52."

Section 3129.52 If I acquire a lease by an assignment or transfer, what obligations do I agree to assume?

Confusing, 3129.51 says the assignor remains responsible for plugging wells you drilled and abandoned; 3129.52 says assignee must plug all unplugged wells, reclaim the lease site and remedy all environmental problems in existence and knowable to a purchaser exercising reasonable diligence at the time he receives the assignment.

Recommendation: Rewrite entire section as follows: "If you acquire a Federal lease interest by assignment or transfer, you agree to comply with the terms of the original lease insofar as it applies to the lands and zones in which you acquired your interest. ~~during your lease tenure, notwithstanding any terms of your assignment or sublease~~. ~~Also,~~ You must plug and abandon all unplugged wells, reclaim the lease site, and remedy all environmental problems in existence and knowable to a purchaser exercising reasonable diligence at the time you receive the assignment or transfer. You are also liable for any obligations you agreed to assume from the transferor as part of the transfer agreement. You must also maintain an adequate bond to ensure performance of these responsibilities.

Section 3129.60 When will BLM deny or disapprove a transfer to me?

There must be a measure of significance of a violation and proof that a party has not tried to resolve the perceived problem.

Recommendation:Amend Section 3129.60 (a)(3) as follows:

"Are in significant violation after due process of the reclamation requirements or other

standards established under Section 17(g) of the Mineral Leasing Act, as amended; or"

Section 3129.61 Must I file assignments of rights to production with the BLM?

What is an assignment of right to production?

Recommendation: Delete - if necessary to mention put under 3129.63 as another document that the BLM will not accept.

Section 3129.62 May I file a lien against a lease for monies owed me?

No reference is made in the existing rules. However, BLM should not keep filing fees if a party erroneously files a lien with BLM.

Recommendation:Amend Section 3129.62 as follows:

"BLM will not accept liens against Federal leases. If you attempt to file a lien with BLM, we will return it and ~~retain~~ any filing fee you submitted."

Section 3129.63 Must I file transfers of overriding royalty interest, not profit or production payments with BLM?

BLM records are public records and if a party wishes to file a transfer of overriding royalty interest, not profit or production payments with BLM, then BLM should accept them.

Recommendation:Amend Section 3129.63 as follows: "No. However if filed, the BLM

will ~~not~~ accept and file transfers of overriding royalty interest, net profit, or production

payments." ~~If you file any of these transfers with BLM, we will return them and retain any~~

~~filing fee you submitted.~~

SUBPART 3130 RESERVOIR MANAGEMENT

Section 3130.10--Who establishes well spacing for Federal and Indian minerals?

While the BLM has primary authority to establish well spacing on federal or Indian Lands, there are many situations where federal or Indian minerals are contained in common accumulations of hydrocarbons that also include state and privately owned minerals. Historically, the states have regulated such pools to ensure that proper oil and gas conservation principles are applied. The BLM should acknowledge the role of the states in regulating common accumulations of hydrocarbons and should provide that the BLM will establish well spacing (and provide for production restrictions) in cooperation with the state oil and gas regulatory authority. In order to eliminate redundancies, BLM should defer to state spacing determinations. BLM should enter into MOUs with states with regard to spacing. BLM should not do its own spacing unless there is a determination that the state spacing is not proper. Spacing should be left to states to determine.

Subparagraph (b) for Indian minerals, BLM must approve spacing, except for Osage leases. In the case of Oklahoma Indian leases subject to district court approval, spacing orders of the Oklahoma Corporation Commission apply when approved by the Secretary.

Specific exceptions to BLM approval of spacing for Indian minerals are provided under this proposed regulation. The exceptions are most likely the result of specifically enacted laws, treaties, or caselaw. A cross-reference to the source of the exceptions would be helpful to practitioners who are unfamiliar with the specific circumstances giving rise to the exceptions.

Recommendation: Rewrite the proposed rule to reflect that BLM shall cooperate with the state oil and gas regulatory authorities through Memoranda of Understanding (MOU) in establishing well spacing or production restrictions. BLM shall defer to state spacing determinations, when possible. BLM may do spacing determinations if there is an objection by an interest owner to the state spacing determination and if the BLM determines that the state determination was not proper.

Section 3130.11--Must I follow a spacing program when I drill a well on Federal or Indian lands?

Subparagraph (b) BLM may waive spacing requirements on Federal and Indian lands.

The proposed regulation is ambiguous. That "BLM may waive spacing" is inconsistent with the language under Section 3130.10 that BLM will either "concur with the spacing set by an appropriate state authority" or "issue its own spacing order." How can the BLM "concur" with state spacing or "issue" its own order and yet still be able to "waive" spacing? Is the regulation actually intended simply to reiterate that "state spacing orders do not necessarily apply to Federal or Indian minerals?"

Recommendation: BLM should clarify what it means to "waive spacing requirements." Refer to comments at section 3130.10.

Section 3130.12--What setback applies to a well I drill on a Federal or Indian lease or agreement?

What is the purpose of subsection "c?" Is it to retain BLM’s discretion to approve bottom hole locations closer than 200 feet to a lease, agreement, or spacing unit boundary line? If so--why not just say so?

Recommendation: BLM clarify the purpose and intent of subsection "c."

SUBPART 3132 OIL & GAS AGREEMENTS: GENERAL

Subpart 3132 is helpful to the reader and is a quick reference of the various Oil & Gas

Agreements BLM administers.

Recommendation: Keep Subpart 3132 as is drafted.

SUBPART 3133 COMMUNITIZATION AGREEMENTS (CA)

Section 3133.11 How do I apply for a CA? {existing regulation 3105.2-3(a)}

This regulation itemizes elements of the CA and is similar to those required under current regulation Section 3105.2-3(a), however, the PR does not provide guidance as to other terms or any other required provisions to be incorporated in the agreement that protects the interest of the parties committed thereto. Also, the PR accepts certification from the operator that all the necessary parties have committed to the CA. Certification may be vulnerable to abuse. Submitting executed instruments to the BLM establishes an official record of commitment.

Recommendation: i) Amend section title to read as follows: "What am I required to submit in a request for approval of a CA?" ii) Delete Section 3133.11(a)(1)-(6) and insert existing regulation Section 3105.2-3(a) with the following addition: "The model communitization agreement set forth in Section 3133.19 hereof is acceptable for use in all cases. Unique situations requiring special provisions should be clearly identified, since these and other special conditions may necessitate a modification of the model form set forth in Section 3133.19 of this title. Any proposed special provisions or modifications of the model agreement should be submitted for preliminary consideration so that any necessary revision may be prescribed prior to execution by the necessary parties."

Section 3133.12 When is a CA effective and what is its term? {existing regulation Section 3105.2-3(b)}

Parts (a)(1)-(3) are acceptable as proposed. However, part (b) of this regulation will grant provisional approval of the agreement, and the CA will become effective upon meeting the public interest requirement. More often than not, a well that predicates the establishment of a CA has been drilled prior to the approval of the agreement. Therefore, provisional approval will not be applicable in most cases.

Recommendation: Delete Section 3133.12(b) and (c) and insert as a new section 3133.12(b) existing regulation Section 3105.2-3(c).

Section 3133.13 When does a CA meet the public interest requirement? {existing regulation 3105.2-3(c)}

If amended as recommended, this section will be covered in revised Section 3133.12(b).

Recommendation: Delete Section 3133.13 in its entirety.

Section 3133.14 When does a CA terminate? {existing regulation 3105.2-3(c)}

If amended as recommended, this section will be covered in revised Section 3133.12(b).

Recommendation: Delete Section 3133.14 in its entirety.

Section 3133.15 What is the effect of a CA on my lease term? {existing regulation 3105.2-3(c)}

If amended as recommended, this section will be covered in revised Section 3133.12(b).

Recommendation: Delete Section 3133.15 in its entirety.

Section 3133.16 Will BLM allow more than one operator for a CA? (existing regulation -new section)

This is a new section proposed under the PR. Past BLM philosophy regarding this issue has typically been negative. Confusion and duplicity are often the by-products of multiple operators.

Recommendation: Delete Section 3133.16 in its entirety.

Section 3133.19 What form communitization agreement must I use? (existing regulation -new section)

To date Title CFR 43 has not published a model form communitization agreement. However, the BLM has adopted a model form and has required its use. Logic would dictate that a consistent form of CA would be desirable.

Recommendation: Adopt and publish in the PR as a new Section 3133.19 the Communitization Agreement attached as Appendix 1, of the BLM Manual 3160-9 Communitization (7/7/88). (Note: This section may be bettered by being re-numbered and listed first under Section 3133).

SUBPART 3134 SUBSURFACE STORAGE

Section 3134.10 Will BLM allow subsurface storage agreements covering Federally owned lands?

Requires applicant to "demonstrate" that storage is necessary to avoid waste or promote conservation. It should be recognized that the process of storing oil or gas for future use alone, in and of itself, avoids waste and promotes conservation. Storage should be allowed for market reasons.

Recommendation: Amend Section 3134.10 as follows:

"BLM will allow you to use either leased or unleased Federally-owned lands for the subsurface storage of oil and gas, whether or not the oil or gas you intend to store is produced from Federally-owned lands, ~~if you demonstrate that storage is necessary to--~~

~~Avoid waste; or~~ Promote conservation of natural resources."

Section 3134.11 How do I apply for a subsurface storage agreement?

Subparagraph (4) appears to be contradictory to the preamble because the concept of "appraised value" is new; therefore it does implement new policy. Previously, fees have been based on set injection and/or withdrawal ® not as a percentage of income generated by operator. Should clarify.

Recommendation: Amend Subparagraph (4) as follows: "Proposed storage fees or rentals will be the amount agreed to by you and BLM. The fees or rentals must be based on the appraised value of the subsurface storage, injection and withdrawal volumes, and rental income or other income generated by the operator for letting or subletting the storage facilities;"

Subparagraph (5) states: "The payment of royalty for native oil or gasÄthat is produced when the store oil or gas is withdrawn." However, does not address the amount of royalty to be paid by the operator.

Recommendation: Amend Subparagraph (5) as follows: "The payment of royalty for native oil or gas (oil or gas that exists in the formation before injection and that is produced when the stored oil or gas is withdrawn) will be paid as per the agreement between the BLM and the operator."

Section 3134.12 What must I pay for storage?

The agreement will provide for storage fees. The storage fees will include rentals. Royalties are separate from storage and will paid only on native oil and gas from the underlying lease.

Recommendation: Amend Section 3134.12 as follows: "You must pay ~~any combination of~~ storage fees~~, rentals or royalties~~ to which you and BLM agree. The royalty you pay on production of native oil and gas from leased lands will be the royalty as agreed to by BLM and the operator."

SUBPART 3135 DEVELOPMENT CONTRACTS

Section 3135.10 ® What is a development contract?

The definition of a development contract calls it an "agreement among two or more persons". The term "persons" indicates individuals.

The description of the intent of a development contract includes the term "jointly explore and develop". Exploration and development in a development contract is very often conducted by each of the parties independent of the other(s). Even though the parties under the contract are both or all striving to accomplish the same goal, which is the exploration and development of the area ® their activities and operations are not necessarily conducted "jointly" in every respect. It is commonplace for the parties to a development contract to have independent ideas and plans, all exploring and developing on their own.

The definition has the development contract covering a "large area" which is contradictory to the 1988 Task Force recommendation. The area and/or primary objective should cover relatively unexplored areas, depths or formations.

The re-write states that "BLM may not approve a development contract if it is more appropriate to unitize." This provision adds a restriction that is not in the current regulation, The Oil and Gas Development Contract Task Force Report, March 1988 ("Task Force Report") or the IM No. 95-146. No explanation is given as to what conditions would need to exist to make an area "more appropriate to unitize." There are no current regulations that require "unitization" in lieu of any other development options available to a lessee. It should be at the discretion of the lessee to determine its choice of plan for development of an area that best suits its scientific and financial criteria.

Recommendation: In the first sentence after "two or more" delete the "persons" and insert "parties". This is in accordance with IM No. 95-146.

In the second sentence after "parties agree to" delete "jointly" and after "explore and develop a" delete "large area" and insert " a relatively unexplored area, depths or formations". These changes will i) remove the implication that operations will require joint participation and ii) maintain the intent of the development contract as set forth in the Task Force Report and IM No. 95-146.

The last sentence should be deleted so as not to add an unnecessary restriction on the BLM’s authority to decide the appropriateness of an application for a development contract. If it is not deemed appropriate to completely delete this sentence, then there should be, at minimum, a description of circumstances or conditions, which would exist making an area "more appropriate to unitize".

Section 3135.11 ® When will BLM approve a development contract?

This section is purportedly to be a combination of 43CFR3105.3, IM No. 95-146 and The Task Force Report. However, this section contains language that is not consistent with the "cross-walk".

Recommendation: Delete Subparagraphs a. (2) and a. (3) and replace with a new a. (2) that states "Provide information which is beneficial to BLM’s planning, resources and reservoir management programs and are of benefit to the public."

Section 3135.13 ® How do I apply for a development contract?

This section is not in line with the "cross-walk", nor the IM No. 95-146 and The Task Force Report, March 1988.

Subparagraph (b) under this section requires that a list of all owners be supplied including record title and operating rights for all areas and leases in the contract. Under current policy as established by the Task Force Report, the applicant is only required to list all "federal" leases in the area held by only the parties entering into the development contract. Typically, if more information is available, such information is included in materials presented at appropriate application meeting; but it has not been required in the past. It is not uncommon for an area covered by a development contract to expand across 300,000 acres or more. The cost of accumulating detailed or even cursory information, in some cases could be extraordinary and is not warranted for BLM’s approval of a Development Contract. The Task Force Report which states in part "No minimum lease acreage position is required within a development contract other than the proponent must have leased lands within the proposal" and "Effective control as applied to unit agreements is not required." It would also be an extraordinary expense to set forth such data in "list" format. Contrary to the preamble, this section does implement new policy or procedure.

Subparagraph (e) states "Penalty provisions for failure to adhere to the contract" should be included in the application. This is contrary to the Task Force Report and not necessary. The Task Force recommendations specifically state "Penalty provisions for failure to adhere to the contract performance should be avoided, if at all possible." Section 3135.19 Subparagraph (b) of the proposed rules provides that termination of the contract and implementation of Section 3105.28 is the result of a failure to adhere to the contract.

Recommendation: Delete Subparagraph (b) in its entirety and replace it with the following:

"A list of all mineral rights (leased or unleased) and lease interest (record title and operating rights) owned or controlled in the contract area for all parties subject to the development contract."

Delete Subparagraph (e) in its entirety.

Section 3135.14 ® How many Federal lessees must enter into a development contract?

This section requires that a contract include provisions to address performance obligations "should any party default . . ." Currently the development contracts are written with a "commitment" provision which is to be complied with on a contract basis --- not a "party" basis. This would be a change in policy if contracts were now required to be written with specific definition of a given "party’s" obligation as opposed to a "contract" obligation.

Recommendation: This section should be changed to read as follows: "At least one Federal lessee must enter into the contract and provisions must be made to address performance obligations in the event any party’s default or withdraw from the contract results in performance obligations not being met (see Section 3135.19)."

Section 3135.17 ® What must I do to satisfy my obligations under a development contract?

This section is written appropriately, however, the question does not clearly fit the answer.

Recommendation: Re-draft the question as: "What are the general obligations required by the BLM of a lessee under a development contract?"

Section 3135.18 ® What information in my proposal will be held confidentially?

It is not clear whether the term "work and dollar commitments" would include information provided to BLM through annual reporting which was obtained under the work commitments or interpretation thereof. BLM, upon the party(s) request, has historically maintained confidential status (a Task Force recommendation) to all data delivered under these circumstances. Current policy and procedures are in accordance with recommendations from the Task Force Report.

Recommendation: The following sentence should be added at the end of the provision: "In addition, if requested by any party to the development contract, information and data collected or provided by the parties to the development contract either through their performance of these commitments or otherwise, and any interpretations thereof, shall remain confidential and shall not be made public record. "

Section 3135.19 ® When does a development contract terminate?

The question is not complete when reviewed in conjunction with the answer. The question merely asks "when" does a development contract terminate? The answer covers "when" but it also covers "what happens when".

It would seem appropriate to allow the BLM to grant extensions of the work commitment deadlines if it deems circumstances warrant additional time. This section would be an appropriate place to list this authority.

Recommendation: The question should be changed to:

"When does a development contract terminate and what happens when it does terminate?"

In Subparagraph (a) (2) after the word "years", insert a period and add the following sentence: "Extensions may be granted to time required to perform work commitments, if, in the opinion of the Authorized Officer of the BLM, circumstances warrant."

SUBPART 3136 DRAINAGE COMPENSATION AGREEMENTS

The preamble states "Proposed section 3136.10 cross-references regulatory requirements in a proposed rule on oil and gas drainage that was published in the Federal Register on January 13, 1998 (63 FR 1936). This final rule would incorporate the drainage rule and cross-reference it in this section." In this regard, below are comments addressing the proposed rule that was published in 63 FR 1936, insofar as it may apply to this proposed rule change affecting Drainage Compensation Agreements.

Protective well is defined as "Äa well drilled by or on the behalf of the lessee to prevent or offset drainage of oil and gas resources from its Federal lease by a producing well on adjacent or nearby lands." Definition for protective well expands that portion of the definition of drainage from "production from wells on adjacent lands" to "a producing well on adjacent or nearby lands". "Nearby lands" is not defined, and is not used elsewhere in the rules.

Recommendation: Definition should be limited to "adjacent lands".

Section 3100.22 What is my responsibility for protecting my lease on Federal lands from drainage?

Subparagraphs (a) and (b) do not indicate proximity to the draining well.

Recommendation: Subparagraphs (a) and (b) should include "adjacent" before "non-Federal lands" and "Federal leases" to clarify and be consistent with the definition of "Drainage" and "Protective well".

Section 3100.23 What may BLM require me to do to protect the oil and gas lease from drainage?

Subparagraph (b) does not establish BLM’s authority or jurisdiction over lands causing such drainage if adjacent lands are Fee; and does not address the unwillingness of owners of lease containing the draining well to execute such agreements.

Recommendation: Delete subparagraph (b) in its entirety.

Note, the above comments are not to be construed as complete comments associated with BLM’s proposed rule on oil and gas drainage that was published in the Federal Register on January 13, 1998 (63 FR 1936).

Section 3136.10 What is a drainage compensation agreement?

Does not clarify whom these parties may be; i.e. drained parties, as well as, those parties draining in addition to the BLM.

Recommendation: Clarify "any other person" as the person contractually obligated to protect BLM from drainage.

Section 3136.11 How are the terms of a drainage compensation agreement determined?

Subparagraph (b) does not address partial consent or non-consent by the owners to the agreement.

Recommendation: Provide mechanisms or incentives for full consent. Such as longer extended lease terms.

SUBPART 3137 UNIT AGREEMENTS (UA)

The proposed rules and regulations for Unit Agreements will be detrimental to Industry, BLM and to the development of oil and gas reserves on Federal Lands. All incentives for risk and financial commitments that were available under 43 CFR 3180 have been removed under the proposed rule. The proposed rule will add costs, delays and complexity. The current rule on Unit Agreements is a proven, streamlined and an uncomplicated process for both Industry and BLM, which is based on science rather than on subjectivity (environmental issues should not be a consideration for unit formation because NEPA process is not triggered). Favoritism could place disproportionate obligations from operator to operator. While, BLM perceives that the new rule will be advantageous, Industry believes that the new rule will hinder development, result in waste, preclude conservation of resources and reduce royalty revenue to the public.

Part of the argument used by BLM to revise the unitization regulations is to streamline the process. BLM, through Secretarial Order has had the proposed unitization process available for the past 3 years; however, industry has not actively pursued this process because of its complexity.

BLM should retain the existing rule under 43 CFR 3180 (model form) and develop the proposed process as an option to the model form at 43 CFR 3137. If the proposed rule is adopted, the following industry comments must be considered.

Section 3137.10 What agreements does this Subparagraph cover? (Existing regulation Section 3186.1)

The proposed rule introduces regulations relative to enhanced recovery unit agreements. Absent prior regulations, BLM offices in the Rocky Mountain Region have adopted a general form unit agreement for secondary operations, which slightly differs from State office to State Office. Further the issue of State Statutes and their effect on Federal leases has often been the source of great debate. Currently, the BLM and its State counterparts have developed relationships that work in concert with each other. Further, unlike current BLM guidelines (which also differ from State office to State Office), the proposed rule does not define a minimum threshold of Federal participation to establish what governmental agency has administrative jurisdiction over enhanced recovery agreements. Pursuant to existing regulation Section 3181.1 relative to exploratory unit agreements, proposed unit areas encompassing more than 10% Federal lands must be administered by the BLM. This regulation has been the basis of each BLM office’s own interpretation as it pertains to enhanced recovery agreements as well. Further, some BLM offices use 10% Federal lands on an acreage basis and other BLM offices use 10% of Federal participation when the allocation formula is applied as the limit to establish administrative jurisdiction. In addition, the proposed rule in Section 3137.10(b)(1) falsely states that enhanced recovery units should have the same characteristics as Section 3137.10(a)(3) which is allocation of unit production on a participating area basis. Enhanced recovery units allocate production on the basis of a specific formula.

Recommendation: Amend Section 3137.10(1) to read as follows: "(1) Among interest owners of Federal leases and owners of non-Federal mineral interests when Federal lands constitute more than 10% of the total unit area." Also, amend Section 3137.10(b)(1) as follows: "(1) Among interest owners of Federal leases and owners of non-Federal mineral interests when Federal lands constitute more than 10% participation of unit production and provides Federal lessees with the benefits listed in Section 3132.12."

Section 3137.11 How are the terms of an exploratory unit agreement determined? (Existing regulation Section 3186.1)

Contrary to the proposed rule authors, it is perceived that negotiations of the terms of the unit agreement will be lengthy and is unnecessary due to the existence of the current model form unit agreement (see Section 3186.1).

Recommendation: Amend the section title to read as follows: "What form of unit agreement must I use?" Delete the contents under Section 3137.11 and insert the current model form unit agreement published in Section 3186.1.

Section 3137.12 How are the terms of an enhanced recovery unit agreement determined? (existing regulation - new section)

Current regulation does not regulate the process or formation of BLM administered enhanced recovery agreements. As a result, the BLM has adopted as internal guidelines, the application and designation process currently utilized for exploratory units. Each BLM office has also adopted a form unit agreement for use in their respective jurisdictions. Although the application for designation of an enhanced recovery is therefore, subject to comment and revision upon BLM review, historically, it has been the task and responsibility of the parties to the unit agreement to negotiate among themselves the provisions of the unit agreement that are consistent with the requirements established by State Statute. It was then the BLM’s responsibility to insure that each agreement was in the public’s interest as to the Federal leases involved.

Recommendation: Amend the section title to read as follows: "What form of enhanced recovery agreement must I use?" Delete the contents under Section 3137.12 and insert a mutually (BLM/State/Industry) agreed upon model form unit agreement for enhanced recovery operations.

Section 3137.13 What must I include in a unitization application? (Existing regulation -Section 3181.2 and Section 3186.1)

It is crucial and logical that exploratory unit areas continue to be based and defined on geological principles. This philosophy lends more protection to the parties entitled to participate in the development of all or part of an oil or gas pool, field or like area.

Recommendation: Delete the contents under Section 3137.13 in their entirety and insert the current existing regulation Section 3181.2.

Similar to the application and designation process of exploratory units, BLM adopted guidelines requiring unit proponents to also submit an application for designation of enhanced recovery unit agreements. In an effort to promote consistency, it would be advantageous to incorporate similar regulations for such an application/designation process for BLM administered enhanced recovery units.

Recommendation: Add as a new Subparagraph under Section 3137.13 the current existing regulation Section 3181.2 modified to address enhanced recovery units.

Section 3137.14 As the unit operator, what must I certify in my unitization application? (Existing regulation -Section 3181.3 and Section 3186.1)

Redundant section. This issue will be covered in the recommend revision to Section 3137.13.

Recommendation: Delete Section 3137.14 in its entirety.

Section 3137.15 As the unit operator, must I provide the BLM with evidence of commitment status in my unitization application? (Existing regulation -Section 3181.3)

Recommendation: Amend the section title to read as follows: "As the unit operator, what must I provide the BLM as evidence of commitment status in my request for final unit approval?" Delete the contents under Section 3137.15 in its entirety and insert the current existing regulation Section 3183.3.

Section 3137.16 When is a unit agreement effective? (Existing regulation - Section 3186.1 sec. 20)

Recommendation: Delete the contents under Section 3137.16 in its entirety and insert the current existing regulation Section 3183.4(a).

Section 3137.17 How will the parties to the unit know if the BLM provisionally approves the unit agreement? (existing regulation - new section)

This section is consistent with current BLM procedure.

Recommendation: Delete the word "provisionally" from the section title.

Section 3137.18 Why would the BLM reject a unitization application? (existing regulation - new section)

This section is unnecessary and will be addressed in Section 3137.13 if amended as recommended.

Recommendation: Delete Section 3137.18 in its entirety.

Section 3137.20 What must an exploratory unit agreement include? (Existing regulation - Section 3186.1)

For many years, the current model form unit agreement has demonstrated that it is more than adequate to suit the needs and goals of both the industry and the BLM. If amended as recommended this section is unnecessary and will be covered by Section 3137.11.

Recommendation: Delete Section 3137.20 in its entirety.

Section 3137.21 What must an enhanced recovery unit agreement include? (existing regulation - new section)

See comment and recommendation under Section 3137.12.

Recommendation: Delete Section 3137.21 in its entirety

Section 3137.22 Will BLM accept or approve other terms? (existing regulation - new section)

Recommendation:Delete the contents under Section 3137.22 in its entirety and insert the following: "The applicable model unit agreement set forth in Section 3137.11 or Section 3137.12 hereof is acceptable for use in all cases. Unique situations requiring special provisions should be clearly identified, since these and other special conditions may necessitate a modification of the applicable model form set forth in Section 3137.11 or Section 3137.12 of this title. Any proposed special provisions or modifications of the model agreement should be submitted for preliminary consideration so that any necessary revision may be prescribed prior to execution by the necessary parties."

Section 3137.30 Are there any optional provisions that I may include in a unit agreement? (Existing regulation - Section 3186.1 (3)

Part (a) of this section will be partially addressed in Section 3137.13 if amended as recommended.

Recommendation: Amend part (a) to read as follows: "Unless modified to the contrary as provided for in Section 3137.22, and approved by the authorized officer, the unit agreement will cover all formations, requires unanimous consent of the committed parties for modification of the terms and provisions of the model form unit agreement, and allows for only one operator at a time."

Part (b) of this section would be a new section proposed under the proposed rule. Past BLM philosophy regarding this issue has typically been negative. Confusion and duplicity are often the by-products of multiple operators.

Recommendation: Delete Section 3137.30(b) in its entirety.

Section 3137.31 What are the requirements for multiple operators? (existing regulation - new section)

Recommendation:Delete Section 3137.31 in its entirety as it is redundant.

Section 3137.32 How can parties modify their unit agreements? (existing regulation - new section)

If amended as proposed this section will be covered by Section 3137.30(a)

Recommendation: Delete Section 3137.32 in its entirety.

Section 3137.33 What must I submit to BLM if I propose to modify a unit area or change the commitment status of a lease? (existing regulation - new section)

Addressed in the model form unit agreement. (See proposed revision Section 3137.11, sections 2 and 28)

Recommendation: Delete Section 3137.33 in its entirety.

Section 3137.34 What effect do other BLM oil and gas agreements have on the unit agreement? (existing regulation - new section)

Acceptable as proposed.

Section 3137.40 What are the size and configuration requirements for a unit area? (Existing regulation - Section 3181.2)

This section is unnecessary and will be addressed in Section 3137.13 if amended as recommended.

Recommendation: Delete section 3137.40 in its entirety.

Section 3137.50 What initial unit obligations must I define in an exploratory unit agreement? (Existing regulation - Section 3186.1 sec. 9)

This section is unnecessary and will be addressed in section 3137.13 if amended as recommended.

Recommendation: Delete section 3137.50 in its entirety.

Section 3137.51 What must I do to meet initial unit obligations and fulfill the public interest requirements in an exploratory unit? (Existing regulation - Section 3186.1 sec. 9)

This section will be covered by Section 3137.54 if amended as recommended.

Recommendation: Delete Section 3137.51 in its entirety.

Section 3137.52 What enhancement obligations must I define in an enhanced recovery unit agreement? (Existing regulation - Section 3186.1 sec. 9)

The assumption that there should be "enhancement obligations" in an enhanced recovery unit agreement is totally without merit. Although, it is not unusual to drill additional wells in an enhanced recovery unit, more often than not, an oil and gas pool, field or the like has been fully developed and/or adequately defined. Therefore, an enhancement obligation in the form of further drilling would not be applicable. In addition the amount and type of enhanced recovery operations would be detailed in the typical application for designation of an enhanced recovery unit (See revised Section 3137.13). Further, most state statutes dictate that the basis for enhanced recovery unitization is that the provisions of the agreement are "fair and equitable" and that the costs of implementation of an enhanced recovery project will not exceed the anticipated profits. Therefore, there should not be any applicable timeframes.

Recommendation: Delete Section 3137.52 in its entirety.

Section 3137.53 What must I do to meet enhancement obligations and fulfill the public interest requirement in an enhanced recovery unit? (existing regulation - new section)

This section is unnecessary.

Recommendation: Delete Section 3137.53 in its entirety.

Section 3137.54 What happens if I do not meet initial unit obligations in an exploratory unit agreement or enhancement obligations in an enhanced recovery unit? (Existing regulation - Section 3186.1 subparts 9 and 20)

Recommendation: Delete the contents under Section 3137.54 in their entirety and insert the current existing regulation Section 3183.4(b). Also, insert a "?" after the words "exploratory unit agreement", and delete from the section title the words "or enhancement obligations in an enhanced recovery unit?"

Section 3137.55 What are continuing development obligations? (existing regulation - new section)

The issue under this section is covered in the recommend revision to Section 3137.13.

Recommendation: Delete Section 3137.55 in its entirety.

Section 3137.56 How must I define continuing development obligations in the unit agreement? (existing regulation - new section)

The issue under this section is covered in the recommend revision to Section 3137.13.

Recommendation: Delete Section 3137.56 in its entirety.

Section 3137.57 Must I perform additional development outside established participating areas to fulfill continuing development obligations? (existing regulation - new section)