BLM Proposes New Rule to Regulate Venting, Flaring, and Leaks of Natural Gas Produced from Federal & Indian Leases

On November 30, 2022, the U.S. Bureau of Land Management (“BLM”) proposed new rules that would regulate the venting, flaring, and leaks of natural gas during oil and gas production activities on federal and Indian oil and gas leases (“Proposed Rule”). BLM is accepting public comments on the Proposed Rule through January 30, 2023.

Currently, BLM regulates venting and flaring of natural gas produced from federal and Indian leases through Notice to Lessees (“NTL”) 4A. In 2016, BLM finalized a rule that regulated venting, flaring, and leaks of natural gas during oil and gas production activities on federal and Indian oil and gas leases (the “2016 Rule”). In 2018, BLM attempted to administratively replace its 2016 Rule with another rule (the “2018 Rule”). Federal courts, however, vacated both rules in 2020, thus restoring NTL 4A as the governing source of authority over vented and flared gas from federal and Indian leases.

Earlier this year, Congress enacted a statutory provision affecting when royalty is due on vented and flared gas. In section 50263 of the Inflation Reduction Act of 2022, Public Law No. 117-169, Congress mandated that, for all federal leases issued after August 16, 2022, royalty is due on all produced gas, except (a) gas vented or flared for not longer than 48 hours in an emergency situation that poses a danger to human health, safety, or the environment; (b) gas used or consumed within a lease, unit, or communitized area for the benefit of the lease, unit, or communitized area; and (c) gas that is unavoidably lost.

The Proposed Rule attempts to rectify the legal infirmities in the 2016 and 2018 Rules and incorporate the legislative change. Most notably:

• Like its predecessors, the Proposed Rule defines whether gas is “avoidably lost” and thus royalty bearing, or “unavoidably lost” and thus royalty-free.
• The Proposed Rule would allow BLM to evaluate potential flaring when approving applications for permits to drill (“APDs”). It would allow BLM to attach conditions of approval to APDs to require reasonable measures to prevent waste of natural gas. The Proposed Rule would also require operators to submit waste minimization plans with APDs and would allow BLM to defer or deny APDs to avoid unreasonable and undue waste.
• The Proposed Rule contains provisions specifically addressing two comment reasons for flaring: emergencies and limited pipeline capacity.
  • The Proposed Rule narrowly defines “emergency situations” and allows only 48 hours of royalty-free flaring in emergency situations
  • The Proposed Rule would allow for royalty-free flaring of up to 1,050 Mcf of oil-gas per month, per lease, unit, or communitized area (“CA”) because of pipeline capacity constraints, midstream processing failures, or similar events.
  • The Proposed Rule would allow BLM to require operators to curtail or shut-in production when significant flaring occurs because of pipeline capacity constraints, midstream processing failures, or similar events.
• The Proposed Rule contains similar operational limitations and equipment requirements as the 2016 Rule, including limitations on flaring during well completions and initial production tests; equipment requirements for pneumatic controllers and storage vessels; and leak detection and repair (“LDAR”) requirements.
  • The Proposed Rule would reduce the volumes of royalty-free flaring that may occur during well completions and initial production tests from the volumes of royalty-free flaring authorized by NTL 4A.
• Citing safety concerns, the Proposed Rule would prohibit venting except in specified circumstances.
• The Proposed Rule would allow states and Tribes to apply for variances from specific provisions.

These proposals are described in more detail below.

Notably, the Proposed Rule is narrower in scope than the 2016 Rule. Whereas the 2016 Rule applied to all oil and gas wells within a unit or communitized area with federal or Indian leases, the Proposed Rule’s provisions relating to safety, pneumatic equipment, storage tanks, and LDAR at sections 3179.6, 3179.201, 3179.203, and 3179.301 - .303 only apply to operations “on a [f]ederal or Indian lease.” The Proposed Rule does not define “on a [f]ederal or Indian lease,” thus raising a question of whether the final rule would apply to surface facilities physically within the boundary of a lease or to wells that penetrate federal or Indian leases, regardless of the location of surface facilities. The remaining provisions of the Proposed Rule apply to all operations producing federal and Indian oil and gas because they have the potential to impact royalty revenues more significantly.

Avoidably & Unavoidably Lost Gas

Section 3179.4(c) of the Proposed Rule defines gas as “avoidably lost” if it is not “unavoidably lost.” Section 3179.4(a) and (b) then sets forth a variety of circumstances when gas is unavoidably lost. First, section 3179.4(a) and (b) defines gas as “unavoidably lost” when the operator “has not been negligent, . . . has taken prudent and reasonable steps to avoid waste, . . . and has complied fully with applicable laws, lease terms, regulations, provisions of a previously approved operating plan, and other written orders of the BLM.”

Second, section 3179.4(b) defines gas as unavoidably lost when it is lost from the following operations or sources, which are subject to operational limitations or constraints set forth in other provisions of the Proposed Rule:

• Well drilling, unless BLM determines gas was lost due to operator negligence as provided in section 3179.101;
• Well completion and related operations, subject to the limitations in section 3179.102;
• Initial production tests, subject to the limitations in section 3179.104;
• Emergency situations, subject to the limitations in section 3179.105;
• Normal operating losses from a natural-gas-activated pneumatic controller or pump, subject to requirements in section 3179.201;
• Normal operating losses from a storage vessel or other low-pressure production vessel that is in compliance with sections 3179.203 and 3174.5(b);
• Well venting in the course of downhole well maintenance and/or liquids unloading performed in compliance with section 3179.204;
• Leaks, when the operator has complied with LDAR requirements in sections 3179.301 and .302; and
• Pipeline capacity constraints, midstream processing facilities, or other similar events, subject to limitations in section 3179.8.

Additionally, section 3179.4(b) defines gas as unavoidably lost when it is lost from the following operations or sources, which are not subject other limitations or constraints set forth in other provisions of the Proposed Rule:

• Exploratory coalbed methane well dewatering;
• Facility and pipeline maintenance, such as when an operator must blow-down and depressurize equipment to perform maintenance or repairs;
• Flaring of gas from which at least 50 percent of natural gas liquids have been removed and captured for market; and
• Flaring of gas from a well not connected to a gas pipeline if BLM authorized the flaring in its approval of the APD.

Evaluation of Flaring at the APD Stage

Conditions of Approval to APDs

• The Proposed Rule would allow BLM to attach conditions of approvals to APDs specifying “reasonable measures” to prevent waste. § 3179.12(b).
• After approval of an APD, BLM may order an operator to implement additional “reasonable measures” to prevent waste. § 3179.12(c).
• The Proposed Rule describes “reasonable measures” to prevent waste as reflecting “factors including but not limited to relevant advances in technology and changes in industry practice.” § 3179.12(d).

Waste Minimization Plans

• The Proposed Rule would require operators to include with all APDs a waste minimization plan that demonstrates how the operator plans to capture gas upon the start of production or as soon thereafter after reasonably possible. § 3162.3-1(j).
• For oil wells, if BLM determines that drilling the could cause “unreasonable and undue waste,” BLM may approve an APD with conditions for gas capture or royalty payment. Alternatively, BLM may defer approving the APD to prevent waste.
  • BLM may deny the permit after deferring for two years if the potential for “unreasonable and undue waste” is not addressed. § 3162.3-1(k).
  • The Proposed Rule would define “unreasonable and undue waste” as “a frequent or ongoing loss of gas that could be avoided without causing an ultimately greater loss of equivalent total energy that would occur if the loss of gas were to continue unabated.” § 3179.3.
  • BLM explained that it views the concept of “unreasonable and undue waste” as informing BLM decision-making with respect to complicated waste prevention measures, such as delaying or denying a permit to drill or ordering a well to be shut-in due to excessive flaring. By contrast, BLM views the “avoidable/unavoidable loss” designation primarily as a means to determine when royalties must be paid on lost gas.

Common Flaring Events – Emergencies & Pipeline Capacity

Emergencies

• The Proposed Rule would allow 48 hours of royalty-free flaring or venting in “emergency situations.” § 3179.105(a).
• The Proposed Rule defines an “emergency situation” as “a temporary, infrequent, and unavoidable situation in which the loss of gas is necessary to avoid a danger to human healthy safety, or the environment.” § 3179.105(a).
• The Proposed Rule affirmatively states the following situations are not emergencies:
  • Recurring failures of the same piece of equipment;
  • The operator’s failure to install appropriate equipment of a sufficient capacity to accommodate production conditions;
  • Failure to limit production when the production rate exceeds the capacity of the related equipment, pipeline, or gas plant, or exceeds sales contract volumes of oil or gas;
  • Scheduled maintenance; or
  • Operator negligence.

Pipeline Capacity & Midstream Processing Failures

• The Proposed Rule allows for royalty-free flaring of up to 1,050 Mcf of oil-well gas per month, per lease, unit, or CA because of pipeline capacity constraints, midstream processing failures, or other similar events that prevent produced gas from being transported through the connected pipeline. § 3179.8(a).
• The Proposed Rule would allow BLM to order an operator to curtail or shut in production where “substantial volumes” of oil-well gas is flared. § 3179.8(b).
  • The Proposed Rule expressly states that BLM will not order curtailment or a shut-in of production unless the operator has reported flaring of more than 4,000 Mcf per month for three consecutive months and the flaring is ongoing. § 3179.8(b).
• The Proposed Rules would allow BLM to order curtailment or a shut-in of production, resulting in adverse effects to production of non-federal or non-Indian oil and gas, only if the applicable unit or communitization agreement allows BLM to regulate the rate of production.

Flaring and Venting During Drilling and Production

• Well drilling – §3179.101.
  • BLM may determine that operator negligence caused the loss of well control and thus loss of gas. In that circumstance, lost gas is availably lost and royalty bearing.
• Well completion and related operations – § 3179.102.
  • For new completions that are hydraulically fractured, the Proposed Rule allows 10,000 Mcf of gas to be flared royalty-free during well completion, post-completion, and fluid recovery operations.
  • For recompletions of wells connected to a gas pipeline, the Proposed Rule allows 5,000 Mcf of gas to be flared royalty-free during well completion, post-completion, and fluid recovery operations.
• Initial production testing – § 3179.103.
  • The Proposed Rule allows royalty-free flaring during initial production tests for 30 days or until the operator flares 20,000 Mcf, whichever occurs first.
    • The 20,000 Mcf includes volumes flared during well completions and related operations under § 3179.102.
  • BLM may extend the 30-day period up to an additional 60 days because of well or equipment problems or because of a need for further testing.
  • BLM may increase the 20,000 Mcf limit by up to an additional 30,000 Mcf for exploratory oil wells in remote locations where additional information is needed in advance of development of pipeline infrastructure.
• Subsequent well tests – § 3179.104.
  • The Proposed Rule would allow royalty-free flaring for 24 hours for subsequent well tests unless BLM approves a longer period.

Equipment and Well Maintenance Requirements

• Pneumatic controllers and pumps – § 3179.201.
  • One year after the final rule takes effect, natural gas-activated pneumatic controllers and pneumatic diaphragm pumps with a bleed rate that exceeds 6 standard cubic feet (scf) per hour may not be used on leases, unit participating areas (“PAs”), or CAs that are producing at least 120 Mcf or 20 barrels of oil per month.
• Tanks – § 3179.203.
  • One year after the final rule takes effect, all oil storage vessels must be equipped with a vapor-recovery system or other mechanism to avoid the intentional loss of natural gas, unless the operator determines that a vapor-recovery system or other mechanism is technically or economically infeasible.
    • When a storage vessel is not equipped with a vapor-recovery system or other mechanism, the operator must submit a sundry notice to BLM with an annual compositional analysis production from the storage vessel. The compositional analysis must meet requirements identified in § 3179.203(c).
  • Operators must flare, rather than vent, of gas released from an oil storage vessel when practical and safe.
  • Operators may commingle vapors from multiple storage vessels to a single flare without BLM’s prior approval.
  • BLM will impose an immediate assessments of $1,000 for a thief hatch left open and unattended.
• Downhole well maintenance and liquids unloading – § 3179.204.
  • Gas vented or flared during well maintenance and well purging is royalty-free for a period not to exceed 24 hours per event.
    • “Well purging” means blowing accumulated liquids out of a wellbore by reservoir gas pressure, whether manually or by an automatic control system, where gas is vented to the atmosphere. It does not apply to wells equipped with a plunger lift system.
  • Gas vented or flared from a plunger lift system and/or an automated well control system is royalty free.
  • Operators must minimize gas losses during well maintenance and well purging.
    • For wells equipped with a plunger lift system and/or an automated well control system, minimizing gas less includes optimizing the operation of the system to minimize gas losses, to the extent possible.
    • For liquids unloading by manual well purging, the person conducting the well purging must remain on-site throughout the event.

Leak Detection and Repair (LDAR) Requirements

• LDAR programs – § 3179.301.
  • Operators must maintain LDAR programs.
  • LDAR inspections must occur annually.
    • For leases in effect when the final rule takes effect and on which operations have commenced, the operator must conduct an initial inspection within one year of the effective date of the final rule.
    • For other leases, the operator must conduct an initial inspection within one year of commence of operations.
  • Operators must submit a sundry notice to BLM describing their LDAR programs.
    • For leases in effect when the final rule takes effect, the operator must submit the sundry notice within six months of the effective date of the rule.
    • For new leases, the operator must submit the sundry notice within six month of a lease’s issuance.
    • BLM will review the LDAR program and notify the operator if BLM deems the program to be inadequate.
• Leak repair – § 3179.302.
  • Leaks must be repaired as soon as practicable and within 30 calendar days after discovery, unless the repair is technically infeasible (including unavailability of parts), would require a pipeline blowdown, a compressor shutdown, or a well shut-in, or would be unsafe to conduct during operation of the unit.
  • If the repair is delayed over 30 days, the operator must submit a sundry notice notifying BLM of the cause. BLM will not approve delays of over two years.
  • The operator must verify the effectiveness of a repair within 30 days of completing the repair.
• Leak detection inspection recordkeeping and reporting – § 3179.303.
  • By March 31 of each year, operators must submit an annual summary report to BLM on the previous year’s inspection activities.
  • Operators must retain records related to leak inspection and repair as specified in the rule.

Venting Prohibition

Citing safety concerns, section 3179.6 of the Proposed Rule would require operators to flare, rather than vent, gas that is not captured, except:

• When flaring is technically infeasible, such as when volumes are too small to flare;
• Under emergency conditions, when the loss of gas is uncontrollable or venting is necessary for safety;
• When gas is vented through a natural-gas-activated pneumatic controller or pump, a storage vessel, downhole well maintenance or liquids unloading activities, or a leak;
• When venting is necessary to allow non-routine facility and pipeline maintenance; and
• When release of gas is necessary and flaring is prohibited by federal, state, local, or tribal law or regulation, or the term of a permit.

Measurement Requirements

• The Proposed Rule would impose specific measurement requirements on high-pressure flares flaring 1,050 Mcf or more per month. § 3179.9(b). The Proposed Rule would allow estimation of volumes flared from other flares. § 3179.9(c).
• The Proposed Rule would allow gas produced from multiple leases, unit PAs, or communitized areas to be combined at a single flare using an allocation method approved by BLM. § 3179.9(d).
• The Proposed Rule specifies that measurement points for flared volumes are not facility measurement points. § 3179.9(e).

Variance Procedures

• Section 3179.401 would allow States and Tribes may apply for variances from any provision of the BLM’s final rule. BLM has discretion to approve such a request if BLM finds that State, local, or Tribal regulations or rules would perform at least equally well as the provision of BLM’s rule from which the variance is sought to a) reduce waste of oil and gas; b) reduce environmental impacts from venting and/or flaring of gas; c) assure appropriate royalty payments to the United States or beneficial Indian owners; and d) ensure the safe and responsible production and oil and gas.