REVISED BLM WASTE PREVENTION/METHANE REGULATIONS FINALIZED

Effective November 27, 2018, the revised Bureau of Land Management (BLM) regulations pertaining to waste prevention will take effect. 83 Fed. Reg. 49,184 (Sept. 28, 2018). This final rulemaking eliminates several of the more onerous burdens imposed by the regulations adopted at the end of the previous Administration. 82 Fed. Reg. 83,008 (Nov. 18, 2016) (the “2016 Rule”). The 2016 Rule (sometimes called the methane rule) was officially effective as of January 17, 2017, although many of its provisions called for delayed implementation. The 2016 Rule has been the subject of conflicting rulings from the federal courts in the District of Wyoming (now in the Tenth Circuit Court of Appeals) and the Northern District of California (and briefly in the Ninth Circuit Court of Appeals). Although the adoption of the new final rule would appear to moot that litigation, the States of California and New Mexico, followed by Sierra Club and a number of other non-governmental organizations, filed new lawsuits challenging the 2018 final rule in the U.S. District Court for the Northern District of California. State of California, et al. v. Zinke, et al., Case No. 4:18-cv-05712-YGR (filed Sept. 18, 2018); Sierra Club, et al. v. Zinke, et al., Case No. 4:18-cv-05984-SBA (filed Sept. 28, 2018). Western Energy Alliance and Independent Petroleum Association of America have moved to intervene in the State of California case. This post describes the terms of the 2018 rule that will take effect November 27, 2018, barring an injunction or order vacating the 2018 rule from the federal court in California.

The new rule supersedes those portions of NTL-4A pertaining to venting and flaring of gas, unavoidably and avoidably lost gas, and waste prevention. However, it is similar in many respects to the guidance contained in NTL-4A. For example, it continues the rule that royalty is due on all avoidably lost oil and gas but, conversely, is not due on unavoidably lost oil and gas. 83 Fed. Reg. 49,212, to be codified  at 43 C.F.R. § 3179.5. The rule defines “avoidably lost” production (43 C.F.R. § 3179.4(a)) and “unavoidably lost” production (43 C.F.R. § 3179.4(b)). Essentially, no lost production is treated as avoidably lost unless it is gas that is vented or flared without BLM approval or it is oil or gas that is lost due to negligence by the operator or failure by the operator to take all reasonable measures to prevent or control the loss or to fully comply with applicable lease terms, regulations or orders of the BLM. The operator must flare, rather than vent, lost gas except under the following circumstances:

(1) when flaring is technically infeasible (such as gas that is not readily combustible or the volumes are too small to flare);

(2) when gas is vented through normal operation of a natural gas-activated pneumatic controller or pump;

(3) in an emergency when the loss of gas is uncontrollable or venting is necessary for safety;

(4) when gas vapor is vented from a storage tank or other low pressure production vessel, unless the BLM determines that recovery of the gas vapors is warranted;

(5) when the gas is vented during downhole well maintenance or liquids unloading operations;

(6) when gas venting is necessary to allow non-routine facility and pipeline maintenance; or

(7) when a release of gas is unavoidable (as defined in § 3179.4) and flaring is prohibited by Federal, State, local or tribal law, regulation or enforceable permit term.

43 C.F.R. § 3179.6.

Gas may be flared royalty free during the initial production test of each completed interval in a well for the first 30 days of such test (unless the BLM approves a longer test period) or until the operator has flared 50 MMcf of gas, whichever occurs first. § 3179.101. However, gas flared during subsequent well tests, or gas flared or vented during an emergency, is royalty free only for a period of 24 hours unless BLM approves a longer period. §§ 3179.102-103. Gas vented or flared during downhole well maintenance and well purging is royalty free for a period not to exceed 24 hours, provided that the procedures described in the regulation for minimization of loss are implemented. § 3179.104.

In addition to the foregoing periods for royalty free venting or flaring, vented or flared oil-well gas is royalty free if it is vented or flared pursuant to rules or orders of the applicable state conservation agency or tribe. § 3179.201(a). The preamble to the rule notes that the states in which 99% of federal oil and 98% of federal gas are produced have statutory or regulatory restrictions on venting and flaring (New Mexico, Wyoming, North Dakota, Colorado, Utah, California, Montana, Alaska, Texas and Oklahoma). However, with respect to Indian leases, vented or flared oil-well gas will be treated as royalty free if vented or flared in compliance with applicable State or tribal rules or orders “only to the extent it is consistent with the BLM’s trust responsibility.” § 3179.201(b). Therefore, operators may want to seek assurances from the applicable tribe and BLM that venting or flaring in conformance with a State’s or tribe’s rules satisfies BLM’s trust responsibility to the Indian lessor.

The 2018 rule eliminates a number of requirements that were included in the 2016 Rule that industry contended were, in effect, air quality regulations beyond BLM’s authority to regulate in the name of waste prevention. For example, the requirements to include waste minimization plans when filing applications for permit to drill, to capture specified percentages of oil-well gas, to reduce or control leaks from pneumatic controllers and pneumatic diaphragm pumps and storage vessels, and to inspect all equipment for gas leaks on specified schedules using specified leak detection devices and to repair any detected leaks within 30 days have all been removed from the rule. The plaintiffs in the litigation described above contend that the BLM failed to provide a reasoned rationale for eliminating these and other requirements that had been included in the 2016 Rule and that their repeal was therefore arbitrary and capricious. It will be at least several months before a ruling is made by the U.S. District Court for the Northern District of California.