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BLM finalizes oil, gas measurement rules Agency says changing technologies, industry practices, safety issues addressed; will ensure proper royalties to tribes, government KRISTEN NELSON Petroleum News
The federal Bureau of Land Management said Oct. 17 that it has finalized three rules for oil and gas measurement and reporting on production from federal onshore leases. The agency said the rules will ensure that oil and natural gas produced from federal and Indian leases are accurately measured and accounted for so proper royalties are paid. While Indian tribes and individual Indian allotment owners keep 100 percent of royalties from leases on their lands, other royalties are split between the U.S. Treasury and the state where the production occurs.
BLM said the total value of production last year was nearly $20 billion, with more than $2 billion in royalty revenue from federal leases and nearly $600 million from tribal and allotted leases.
The agency said the rules address changing technologies and industry practices and will also contribute to safety.
The regulations are effective 60 days after publication in the Federal Register, and BLM said stakeholder briefings on the updated rules will be scheduled.
Alaska impact In Alaska the rule changes appear to impact Hilcorp Alaska, the major Cook Inlet producer, and ConocoPhillips which has production from CD-5 in the National Petroleum Reserve-Alaska.
In Cook Inlet, three of Hilcorp’s onshore fields currently produce from federal leases: Beaver Creek, Kenai and Swanson River. Two other Hilcorp fields on federal leases, Birch Hill and Sterling, showed no production in August, the most recent month for which Alaska Oil and Gas Conservation Commission production data is available.
In addition to CD5, ConocoPhillips is working to bring other NPR-A production online, starting with Greater Mooses Tooth.
Original rules 25 years old The rules represent the first comprehensive update of BLM’s measurement rules since they were issued 25 years ago, the agency said, and conclude a seven-year effort to address concerns about the adequacy of BLM’s prior measurement rules raised by the Government Accountability Office, the Department of the Interior’s Office of the Inspector General and the Secretary’s Royalty Policy Committee.
“The conclusion of this rulemaking effort is a significant milestone in the BLM’s effort to modernize its oil and gas program,” Janice Schneider, assistant secretary for Land and Minerals Management, said in a statement. The updated rules, she said, “create a durable framework for the future that will support the responsible development and management of the nation’s oil and gas resources and ensure that both the American public and tribes receive a fair return for these resources.”
“These new rules provide a strong foundation for our oil and gas program that will ensure we are meeting our obligation to the American people and to the tribes we work with,” said BLM Director Neil Kornze. He said the new rules allow BLM to be responsive to new technology, a particularly important change “because changing technology often provides opportunities to make oilfield operations safer and more efficient.”
Rule change costs One of the rules addresses site security, strengthening BLM’s production accountability program. The agency estimates ongoing compliance costs of about $11.7 million annually, some $3,200 per regulated entity. In addition there are one-time costs of some $31.2 million or $8,400 per regulated entity, with the one-time costs spread over three years.
BLM said it estimates changes from the proposed rule to the final resulted in a reduction of some $90 million in potential one-time compliance costs, largely attributable to modifications in site facility diagram requirements. There was also a $1.8 million savings in potential ongoing annual compliance between the proposed and final rules.
The rule change for oil measurement addresses use of new oil meter technology, proper measurement documentation and recordkeeping.
BLM estimates a one-time transition cost of $4.6 million spread over three years for implementation of this rule and ongoing annual costs of $3.3 million, for an aggregate cost of some $1,538 per affected entity for the first three years and $1,242 per entity thereafter. BLM did not provide an estimate of cost changes from proposed to final for this rule.
The third rule covers natural gas measurement and addresses new gas meter technology, requirements for hardware and software, requirements for recordkeeping and reporting, overall measurement performance standards and a mechanism for BLM to review new gas measurement technology and approve it for use.
BLM estimates one-time transition costs of $23.3 million, about $6,300 per affected entity, phased in over three years, and ongoing annual costs of $12.1 million or $3,300 per entity. The one-time compliance costs are estimated to be some $9.6 million less under the final rule, compared to the proposed rule, and ongoing annual costs $34 million less than the proposed rule.
Overall, BLM estimates that changes from the proposed rules reduced one-time compliance costs by nearly $100 million, with annual costs estimated to be reduced by $32 million.
BLM said it estimates that the rules will cost $12,856 per operator per year for the first three years and $7,654 per year thereafter.
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