BLM proposes revised regulations for NPR-A

Revised rules for oil and gas leasing and units would bring Alaska petroleum reserve into compliance with 2005 Energy Policy Act

Alan Bailey

Petroleum News

The U.S. Bureau of Land Management has published in the Federal Register a series of proposed changes to the federal regulations that apply to oil and gas operations in the National Petroleum Reserve-Alaska. Designed primarily to meet the terms of the 2005 Energy Policy Act, the revised regulations clarify some lease-related issues and bring some regulations more into line with leasing and unitization procedures in other regions and jurisdictions.

“While the BLM and the Interior Department believe they must aggressively push development of clean energies in order to diversify our domestic energy portfolio, the reality is that there will remain a substantial demand for petroleum in the U.S. for years to come,” said BLM Acting Director Jim Hughes. “These proposals will provide the framework to develop the NPR-A’s resources so as to help ensure the country’s energy security.”

BLM took over management of NPR-A, a 23 million-acre region at the northwest corner of Alaska, in 1976 under the terms of the Naval Petroleum Reserves Production Act. And, although the federal government owns much of the subsurface land in NPR-A, Arctic Slope Regional Corp., the Alaska Native regional corporation for northern Alaska, also owns some substantial subsurface acreage within the reserve.

The region is highly prospective for oil and gas — companies such as ConocoPhillips, Anadarko Petroleum, Talisman Energy and Petro-Canada have actively explored the northern part of the reserve in recent years. ConocoPhillips has made three significant oil discoveries in northeastern NPR-A, while FEX, Talisman’s Alaska subsidiary, announced significant oil discoveries in two wells in northwestern NPR-A in the 2006-07 winter drilling season.

In 2002 BLM published a final rule for regulations governing operations under federal oil and gas leases, including new rules for forming oil and gas units in the reserve. But the Energy Policy Act requires changes to those regulations.

Royalties and rentals

If land in the lease has been made available for acquisition by a Native regional corporation, the regional corporation would have to concur with the rental or royalty reduction.

In the future BLM would require lease bonding for the whole of NPR-A, rather than just for some special areas as at present. And the agency could increase the amount of the bonding for an operator whose track record indicates the existence of higher than normal risks or where estimated well plugging and land reclamation costs exceed the normal bond amount.

Under the proposed regulations, BLM would grant a lease extension if the agency “has determined in writing that oil or gas is capable of being produced in paying quantities from the lease.” The existing regulations only require a lease extension if oil or gas is being produced from the lease in paying quantities or if the operator is conducting drilling or rework operations. In addition, BLM would under the new regulations suspend the eventual expiry of a lease, if the lease contains a well that is capable of production but the operator is not producing oil or gas due to “circumstances beyond the lessee’s control.”

The new conditions for lease extension would also apply to a segregated lease, formed by the transfer of title to a portion of a lease. Additionally, the conditions would apply to the extension of a consolidated lease, formed from multiple leases (the new regulations also clarify the rules for determining rentals and royalties in consolidated leases).

The new regulations would enable a lease renewal after the fifth year of the primary term of a lease in the event of a hydrocarbon discovery (BLM is inviting comments on what constitutes a “discovery”). BLM could also renew a lease if the lease operator submits a renewal application containing adequate justification. That justification must include evidence either of adequate exploration progress or of the lease being part of a unit agreement covering a lease that qualifies for renewal without a discovery.

BLM proposes adding new regulations that cater to the possibility of leased federal land being conveyed to the Arctic Slope Regional Corp. In the event of ASRC obtaining title to the subsurface of a federal NPR-A lease, ASRC would take over administration of the lease from BLM, under the lease terms at the time that ASRC assumed administration. And the regulations would also cover the possibility of ASRC acquiring title to the land within just part of a federal NPR-A lease.

In the event of a unit straddling federal land and land owned by ASRC or the State of Alaska, BLM would have to consult with the other land owners with respect to the creation or expansion of the unit (the state owns land adjacent to NPR-A). Unit agreements must acknowledge those consultations.

An applicant for a unit would be able to “anticipate” participating areas in the unit, rather than specifically propose the participating areas, as in the current regulations. The new regulations clarify some of the language that defines what is meant by a participating area. And a unit application would have to include “a discussion of the proposed methodology for allocating production among the committed tracts.”

Changes to the rules for oil and gas production allocation from participating areas in a unit would recognize the potential for geologic variations within a participating area. And new rules would provide BLM with some additional flexibility in determining the effective date for a participating area change.

The new regulations would provide a unit operator with time to collect data prior to having to submit a unit development plan. And a lessee would be able to apply for a unit renewal upon unit termination.

Comments on the proposed new regulations must be submitted to BLM on or before July 23.