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[Federal Register Volume 78, Number 167 (Wednesday, August 28, 2013)]
[Proposed Rules]
[Pages 53083-53103]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20764]

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DEPARTMENT OF THE INTERIOR

Bureau of Indian Affairs

25 CFR Part 226

[BIA-2013-0003; 134/A0A511010/AAK1001000]
RIN 1076-AF17

Leasing of Osage Reservation Lands for Oil and Gas Mining

AGENCY: Bureau of Indian Affairs, Interior.

ACTION: Proposed rule.

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SUMMARY: The Bureau of Indian Affairs is proposing to revise the 
regulations addressing oil and gas mining on reservation land of the 
Osage Nation. This rule updates the leasing procedures and rental, 
production, and royalties requirements for oil and gas on Osage Mineral 
lands and is the result of a negotiated rulemaking.

DATES: Comments on this proposed rule must be received by October 28, 
2013. Comments on the information collections contained in this 
proposed regulation are separate from those on the substance of the 
rule. Comments on the information collection burden should be received 
by September 27, 2013 to ensure consideration, but must be received no 
later than October 28, 2013.

ADDRESSES: You may submit comments by any of the following methods:

--Federal rulemaking portal: The rule is listed under the agency name 
``Bureau of Indian Affairs'' and has been assigned Docket ID ``BIA-
2013-0003'' at http://www.regulations.gov.
--Email: osageregneg@bia.gov. Include the number 1076-AF17 in the 
subject line of the message.
--Mail or hand-delivery: Mr. Eddie Streater, Designated Federal 
Officer, Bureau of Indian Affairs, P.O. Box 8002, Muscogee, OK 74402. 
Include the number 1076-AF17 on the outer envelope.

    We cannot ensure that comments received after the close of the 
comment period (see DATES) will be included in the docket for this 
rulemaking and considered. Comments sent to an address other than those 
listed above will not be included in the docket for this rulemaking.
    Comments on the information collections contained in this proposed 
regulation are separate from those on the substance of the rule. Send 
comments on the information collection burden to OMB by facsimile to 
(202) 395-5806 or email to the OMB Desk Officer for the Department of 
the Interior at OIRA_submission@omb.eop.gov. Please send a copy of 
your comments to the person listed in the FOR FURTHER INFORMATION 
CONTACT section of this notice.

FOR FURTHER INFORMATION CONTACT: Mr. Eddie Streater, Designated Federal 
Officer, Bureau of Indian Affairs, P.O. Box 8002, Muscogee, OK 74402; 
telephone (918) 781-4608; fax (918) 718-4604; or email 
osageregneg@bia.gov. Additional information on the negotiated 
rulemaking can be found at: http://www.bia.gov/osageregneg.

SUPPLEMENTARY INFORMATION:

I. Executive Summary of Rule

    This rule updates the oil and gas regulations governing Osage 
County. It is intended to strengthen the management and administration 
of the Osage mineral estate for the benefit of the Osage. These 
provisions provide updated reporting and inspection requirements, 
further specify lessee obligations with respect to operations, revise 
royalty rate calculations and update the amounts for bonds, fines and 
penalties.

II. Background

    On October 14, 2011, the United States and the Osage Nation 
(formerly known as the Osage Tribe) signed a Settlement Agreement to 
resolve litigation regarding alleged mismanagement of the Osage 
Nation's oil and gas mineral estate, among other claims. In the 
Settlement Agreement, the parties agreed that it would be mutually 
beneficial ``to address means of improving the trust management of the 
Osage Mineral Estate, the Osage Tribal Trust Account, and Other Osage 
Accounts.'' The parties agreed that a review and revision of the 
existing regulations is warranted to better assist the Bureau of Indian 
Affairs (BIA) in managing the Osage Mineral Estate. The parties agreed 
to engage in a negotiated rulemaking for this purpose. For additional 
information on the negotiated rulemaking, please visit http://www.bia.gov/osageregneg/. The Committee submitted its report to BIA on 
April 25, 2013. BIA has based this proposed rule on the report.

III. Detailed Explanation of Revisions

    This rule revises 25 CFR part 226 by changing all references to the 
``Osage Tribal Council'' to the ``Osage Minerals Council'' because the 
Osage Tribal Council no longer exists and the Osage Minerals Council 
has the authority to make decisions regarding the Osage minerals 
estate. To avoid confusion in terminology, this rule changes all

[[Page 53084]]

references to ``lease cancellation'' to ``lease termination,'' unless 
it is a voluntary lease cancellation by a lessee. In addition, this 
rule adds the term ``other marketable product'' to the regulations to 
ensure that the regulations do not leave a gap as to other minerals.
    In Sec.  226.1, this rule:
     Inserts definition of ``lease'' because the prior 
regulations did not include a definition;
     Changes references to a ``contract'' or ``agreement'' to 
``lease'';
     Adds the phrase ``or an authorized representative'' to all 
lessee definitions to clarify that an authorized representative of a 
lessee is bound by the regulations;
     Deletes the definition of ``major purchaser'' because it 
is no longer necessary due to changes in the provisions dealing with 
royalty payments;
     Combines the definitions for ``casinghead gas'' and 
``natural gas'' for simplification to make one new definition of ``raw 
natural gas'' or ``gas'';
     Adds new definitions for ``avoidably lost,'' 
``condensate,'' ``drainage,'' ``marketable condition,'' ``maximum 
ultimate economic recovery,'' ``natural gas liquids,'' ``notice to 
lessee,'' ``onshore oil and gas order,'' ``other marketable product,'' 
``production in paying quantities,'' and ``waste of oil and gas or 
other marketable product'' to define new terms being introduced in the 
proposed regulations.
    This rule also adds new sections and redesignates other sections, 
as shown in the table below.

------------------------------------------------------------------------
 Current 25 CFR section     Proposed  section         Proposed change
------------------------------------------------------------------------
N/A....................  226.2 (New)............  Clarifies what
                                                   requirements govern
                                                   oil and gas
                                                   activities in Osage
                                                   County.
N/A....................  226.3 (New)............  Clarifies the types of
                                                   notices and orders
                                                   BIA can issue.
N/A....................  226.4 (New)............  More clearly
                                                   delineates and
                                                   specifies the
                                                   responsibilities of
                                                   the Superintendent
                                                   with respect to
                                                   management and
                                                   administration of the
                                                   Osage mineral estate.
226.2..................  226.5..................  Breaks each current
                                                   requirement into its
                                                   own paragraph for
                                                   readability and
                                                   extends the time for
                                                   a successful bidder
                                                   to deposit his
                                                   payment; requires
                                                   that payment be made
                                                   in a specified form
                                                   other than cash;
                                                   increases the filing
                                                   fee for submitting a
                                                   completed lease form;
                                                   enumerates the
                                                   circumstances in
                                                   which a portion of
                                                   the bonus bid will be
                                                   forfeited; requires
                                                   that the
                                                   Superintendent post
                                                   legal descriptions
                                                   within 30 days of a
                                                   lease sale; and
                                                   allows the Osage
                                                   Minerals Council to
                                                   request comparables
                                                   from the
                                                   Superintendent for
                                                   lease sales.
226.3..................  226.6..................  Increases the filing
                                                   fee.
226.4..................  226.7..................  Amends the provision
                                                   to allow the
                                                   Superintendent to
                                                   specify how and where
                                                   payment is made.
226.5..................  226.8..................  (No substantive
                                                   change.)
226.6..................  226.9..................  Amends the current
                                                   provision to allow
                                                   personal bonds as
                                                   well as surety bonds
                                                   and specifies the
                                                   requirements for
                                                   personal and surety
                                                   bonds; the bonding
                                                   amount was changed
                                                   from a per lease area
                                                   bond to requiring
                                                   that a $5,000 per
                                                   well bond is required
                                                   for up to 25 wells.
226.6(d)...............  226.10.................  Moves provision
                                                   allowing the
                                                   Superintendent to
                                                   increase the amount
                                                   of a required bond to
                                                   its own section.
                                                   Clarifies the
                                                   conditions for
                                                   increasing a bond.
N/A....................  226.11 (New)...........  Specifies the
                                                   circumstances in
                                                   which the
                                                   Superintendent must
                                                   release a bond.
226.7..................  226.12.................  (No substantive
                                                   change.)
226.8..................  226.13.................  (No substantive
                                                   change.)
226.9..................  226.14.................  Increases rental
                                                   rates; clarifies the
                                                   lessee's
                                                   responsibility for
                                                   diligent development;
                                                   adds new procedures
                                                   for determining
                                                   diligent development
                                                   of a lease; and adds
                                                   in new procedures for
                                                   automatic termination
                                                   of a lease for
                                                   failure to diligently
                                                   develop.
N/A....................  226.15 (New)...........  Sets forth the
                                                   lessee's obligation
                                                   relating to drainage,
                                                   which is not included
                                                   in the current
                                                   regulations.
N/A....................  226.16 (New)...........  Specifies the
                                                   Superintendent's
                                                   remedies when
                                                   drainage has
                                                   occurred.
226.10.................  226.17.................  (No substantive
                                                   change.)
226.11.................  (See below)............  Divides into several
                                                   new sections for
                                                   simplicity and
                                                   readability, as shown
                                                   below.
226.11(a)..............  226.18.................  Amends the royalty
                                                   rate calculation for
                                                   oil, subject to a
                                                   price adjustment for
                                                   gravity.
226.11(a)..............  226.19.................  Specifies how the
                                                   gravity adjustment is
                                                   calculated.
226.11(b)..............  226.20.................  Amends the royalty
                                                   rate calculation for
                                                   gas and specifies how
                                                   gross proceeds are
                                                   calculated.
N/A....................  226.21.................  Provides that royalty
                                                   is due on all oil and
                                                   gas avoidably lost
                                                   and sets forth the
                                                   procedure for such
                                                   determination.
226.11(c)..............  226.22.................  Amends the date for
                                                   payment of royalty
                                                   and adds a new
                                                   provision for
                                                   adjusting minimum
                                                   royalty.
N/A....................  226.23 (New)...........  Addresses minimum
                                                   royalty for other
                                                   marketable products.
226.12.................  226.24.................  Amends the references
                                                   to royalty consistent
                                                   with the new proposed
                                                   changes.
226.13(a)..............  226.25.................  Describes how royalty
                                                   payments are made,
                                                   extends the deadline
                                                   for reporting, and
                                                   adds a provision
                                                   allowing the
                                                   Superintendent to set
                                                   an alternative rate
                                                   for late charges
                                                   after consultation
                                                   with the Osage
                                                   Minerals Council.
226.13(b)..............  226.26.................  Describes what reports
                                                   are required to be
                                                   submitted to the
                                                   Superintendent and
                                                   adds new provisions
                                                   further specifying
                                                   the format of reports
                                                   and information
                                                   required to be
                                                   submitted and
                                                   includes a new
                                                   provision requiring
                                                   that the Osage
                                                   Minerals Council
                                                   receive copies of
                                                   reports.
226.14.................  226.27.................  Extends the due date
                                                   in paragraph (b) for
                                                   a purchaser to submit
                                                   reporting statement
                                                   for oil and gas sold.
226.15.................  (See below)............  Divides in to several
                                                   new sections for
                                                   simplicity and
                                                   readability, as shown
                                                   below.
226.15(a)..............  226.28.................  (No substantive
                                                   change.)
226.15(b)..............  226.29.................  (No substantive
                                                   change.)
226.15(c)..............  226.30.................  (No substantive
                                                   change.)
226.15(d)..............  226.31.................  (No substantive
                                                   change.)
226.15(e)..............  226.32.................  (No substantive
                                                   change.)
N/A....................  226.33 (New)...........  More clearly specifies
                                                   the general
                                                   requirements
                                                   governing leasing
                                                   operations.
226.16.................  226.34.................  (No substantive
                                                   change.)
226.17.................  226.35.................  (No substantive
                                                   change.)
226.18.................  226.36.................  Reformats for
                                                   readability; adds new
                                                   requirements for
                                                   notice to surface
                                                   owners before
                                                   conducting certain
                                                   activities; deletes
                                                   the requirements for
                                                   notice depending on
                                                   surface owner
                                                   residence; and
                                                   applies new uniform
                                                   standards regardless
                                                   of residence within
                                                   or outside Osage
                                                   County.
226.19(a)..............  226.37.................  (No substantive
                                                   change.)

[[Page 53085]]

 
226.19(b), (c).........  226.38.................  (No substantive
                                                   change.)
226.19(d)..............  226.39.................  Increases tank siting
                                                   fees and area of
                                                   occupancy.
226.20.................  226.40.................  (No substantive
                                                   change.)
226.21.................  226.41.................  (No substantive
                                                   change.)
N/A....................  226.42 (New)...........  Further specifies the
                                                   lessee's obligation
                                                   for production.
N/A....................  226.43 (New)...........  Requires documentation
                                                   for transportation of
                                                   oil, gas or other
                                                   marketable product to
                                                   enable the
                                                   Superintendent to
                                                   inspect and confirm
                                                   proper
                                                   transportation.
226.22.................  226.44.................  (No substantive
                                                   change.)
N/A....................  226.45 (New)...........  Further clarifies and
                                                   specifies the
                                                   lessee's
                                                   environmental
                                                   responsibilities and
                                                   obligations while
                                                   conducting
                                                   operations.
N/A....................  226.46 (New)...........  Requires certain
                                                   safety standards for
                                                   lessee operations and
                                                   equipment.
226.23.................  226.47.................  (No substantive
                                                   change.)
226.24.................  226.48.................  (No substantive
                                                   change.)
226.25.................  226.49.................  Deletes the
                                                   requirements that
                                                   wells be plugged if
                                                   no apportionment
                                                   agreement is
                                                   accepted, making the
                                                   Superintendent's
                                                   decision on
                                                   apportionment final.
226.26.................  226.50.................  (No substantive
                                                   change.)
226.27.................  226.51.................  Adds a general
                                                   provision to require
                                                   that gas used by the
                                                   tribe must be
                                                   odorized and treated
                                                   to ensure human and
                                                   public safety.
226.28.................  226.52.................  (No substantive
                                                   change.)
226.29.................  226.53.................  Deletes the fee for
                                                   submitting an
                                                   application to plug a
                                                   well; requires no
                                                   fee.
226.30.................  226.54.................  Divides paragraph (b)
                                                   into two provisions,
                                                   thereby adding a
                                                   paragraph (c). Adds a
                                                   new paragraph (d)
                                                   requiring that lessee
                                                   maintain records for
                                                   a period of 6 years,
                                                   unless notified to
                                                   maintain certain
                                                   records for a longer
                                                   period.
226.31.................  226.55.................  (No substantive
                                                   change.)
226.32.................  226.56.................  Reformats for
                                                   readability.
226.33.................  226.57.................  (No substantive
                                                   change.)
226.34.................  226.58.................  Adds a requirement
                                                   that wells and tank
                                                   batteries also be
                                                   marked with lessee's
                                                   name.
226.35.................  226.59.................  (No substantive
                                                   change.)
226.36.................  226.60.................  Adds new paragraphs
                                                   (b)-(f) to require
                                                   safety precautions
                                                   for drilling wells
                                                   generally, drilling
                                                   vertical wells,
                                                   maintaining and
                                                   controlling high
                                                   pressure or loss of
                                                   circulation in wells,
                                                   protecting fresh
                                                   water and other
                                                   minerals and ensuring
                                                   safety and protection
                                                   when hydrogen sulfide
                                                   gas is present at
                                                   certain levels.
226.37.................  226.61.................  (No substantive
                                                   change.)
226.38.................  226.62.................  Adds new paragraphs
                                                   (b)-(d) specifying
                                                   requirements for
                                                   measuring,
                                                   calibrating and
                                                   adjusting meters,
                                                   including notice to
                                                   and follow-up by the
                                                   Superintendent; adds
                                                   new provisions that
                                                   require notification
                                                   to the Superintendent
                                                   when an oil tank is
                                                   ready for removal or
                                                   for witnessing
                                                   gaugings, and adds
                                                   that repeated
                                                   failures to comply
                                                   with the new
                                                   provisions subject
                                                   the lessee to lease
                                                   termination after
                                                   consultation with the
                                                   Osage Minerals
                                                   Council.
226.39.................  226.63.................  Adds new paragraphs
                                                   requiring measurement
                                                   of gas to be done in
                                                   accordance with BLM
                                                   Onshore Oil and Gas
                                                   Order 5, and
                                                   specifying lessee's
                                                   obligations for
                                                   calibrating,
                                                   inspecting and
                                                   adjusting meters,
                                                   including
                                                   notification and
                                                   inspection by the
                                                   Superintendent. Also,
                                                   adds a provision that
                                                   repeated failures to
                                                   comply will subject
                                                   the lease to
                                                   termination after
                                                   consultation with the
                                                   Osage Minerals
                                                   Council.
226.40.................  226.64.................  (No substantive
                                                   change.)
N/A....................  226.65 (New)...........  Specifies safety and
                                                   other requirements to
                                                   ensure proper site
                                                   security.
226.41.................  226.66.................  Adds requirements to
                                                   ensure that all
                                                   reporting of
                                                   incidents is done in
                                                   a timely manner.
226.42.................  226.67.................  Increases the fine
                                                   from $500 to $1000
                                                   and adds provisions
                                                   allowing for fine
                                                   adjustments and
                                                   termination of a
                                                   lease for failure to
                                                   comply with the
                                                   regulations after
                                                   consultation with the
                                                   Osage Minerals
                                                   Council.
226.43.................  226.68.................  Increases fines that
                                                   are currently $50 to
                                                   $150; fines that are
                                                   $100 to $250; fines
                                                   that are $200 to
                                                   $400; and fines that
                                                   are $500 to $1000.
                                                   Adds a new fine of
                                                   $500 per day for
                                                   failure to maintain
                                                   adequate bonding and
                                                   a new fine of up to
                                                   $1000 per day (not to
                                                   exceed 20 days) for
                                                   failure of a
                                                   transporter to carry
                                                   proper documentation.
226.43(j)..............  226.69.................  More clearly sets
                                                   forth the criminal
                                                   procedures for
                                                   providing false,
                                                   misleading, or
                                                   inaccurate
                                                   information.
N/A....................  226.70 (New)...........  Explains how fees and
                                                   penalties are scaled,
                                                   including specifying
                                                   the interest rate for
                                                   late fees.
226.44.................  226.71.................  (No substantive
                                                   change.)
226.45.................  226.72.................  (No substantive
                                                   change.)
226.46.................  226.73.................  (No substantive
                                                   change.)
------------------------------------------------------------------------

The BIA invites comments on all of the proposed changes, but would also 
like comments specifically addressing the following:
     Whether the impact of changes in the regulations on 
existing leases as set forth in proposed section 226.8 (changes in 
regulations) needs to be clarified;
     Whether there should be a specific reference to nationwide 
bonding in proposed section 226.9 (bonding) and/or comments on the 
current proposed bonding amount;
     Whether proposed section 226.18 (royalty) should include a 
deduction for transportation costs;
     Whether to extend the time period for automatic 
termination of a lease that does not produce in paying quantities from 
90 consecutive days to 180 consecutive days (or some other time period) 
in proposed section 226.14 (e)(1) (requirements for rental, drilling 
and production).

IV. Procedural Requirements

A. Regulatory Planning and Review (E.O. 12866 and 13563)

    Executive Order (E.O.) 12866 provides that the Office of 
Information and Regulatory Affairs (OIRA) at the Office of Management 
and Budget (OMB) will review all significant rules. OIRA has determined 
that this rule is not significant.
    E.O. 13563 reaffirms the principles of E.O. 12866 while calling for

[[Page 53086]]

improvements in the nation's regulatory system to promote 
predictability, to reduce uncertainty, and to use the best, most 
innovative, and least burdensome tools for achieving regulatory ends. 
The E.O. directs agencies to consider regulatory approaches that reduce 
burdens and maintain flexibility and freedom of choice for the public 
where these approaches are relevant, feasible, and consistent with 
regulatory objectives. E.O. 13563 emphasizes further that regulations 
must be based on the best available science and that the rulemaking 
process must allow for public participation and an open exchange of 
ideas. We have developed this rule in a manner consistent with these 
requirements. This rule is also part of the Department's commitment 
under the Executive Order to reduce the number and burden of 
regulations and provide greater notice and clarity to the public.

B. Regulatory Flexibility Act

    The Department of the Interior certifies that this rule will not 
have a significant economic effect on a substantial number of small 
entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

C. Small Business Regulatory Enforcement Fairness Act

    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act. It will not result in the 
expenditure by State, local, or tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. The 
rule's requirements will not result in a major increase in costs or 
prices for consumers, individual industries, Federal, State, or local 
government agencies, or geographic regions. Nor will this rule have 
significant adverse effects on competition, employment, investment, 
productivity, innovation, or the ability of the U.S.-based enterprises 
to compete with foreign-based enterprises because the rule is limited 
to management and administration of the Osage mineral estate.

D. Unfunded Mandates Reform Act

    This rule does not impose an unfunded mandate on State, local, or 
tribal governments or the private sector of more than $100 million per 
year. The rule does not have a significant or unique effect on State, 
local, or tribal governments or the private sector. A statement 
containing the information required by the Unfunded Mandates Reform Act 
(2 U.S.C. 1531 et seq.) is not required.

E. Takings (E.O. 12630)

    Under the criteria in Executive Order 12630, this rule does not 
affect individual property rights protected by the Fifth Amendment nor 
does it involve a compensable ``taking.'' A takings implication 
assessment is therefore not required.

F. Federalism (E.O. 13132)

    Under the criteria in Executive Order 13132, this rule has no 
substantial direct effect on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.

G. Civil Justice Reform (E.O. 12988)

    This rule complies with the requirements of Executive Order 12988. 
Specifically, this rule has been reviewed to eliminate errors and 
ambiguity and written to minimize litigation; and is written in clear 
language and contains clear legal standards.

H. Consultation With Indian Tribes (E.O. 13175)

    In accordance with the President's memorandum of April 29, 1994, 
``Government-to-Government Relations with Native American Tribal 
Governments,'' Executive Order 13175 (59 FR 22951, November 6, 2000), 
and 512 DM 2, we have evaluated the potential effects on federally 
recognized Indian tribes and Indian trust assets. This rule was 
developed by negotiated rulemaking with representatives of the affected 
tribe.

I. Paperwork Reduction Act

    This rule includes information collections requiring approval under 
the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. These 
information collections have not been approved previously because the 
last update to 25 CFR part 226 was prior to amendments to the PRA 
subjecting these information collection requirements to OMB approval.
    OMB Control Number: 1076-NEW.
    Title: Leasing of Osage Reservation Lands for Oil and Gas Mining.
    Brief Description of Collection: This part contains leasing 
procedures and requirements and rental, production, and royalty 
requirements for leasing the reservation lands of the Osage Nation for 
oil and gas mining. The Secretary must perform the information 
collection requests in this part to obtain the information necessary to 
complete leasing transactions and monitor leased property. Responses to 
these information collection requests are required to obtain a benefit 
(e.g., commercial transactions).
    Type of Review: New information collection.
    Respondents: Indians, businesses, and tribal authorities.
    Number of Respondents: 965.
    Frequency of Collection: On occasion.
    Estimated Hours per Response: Ranges from 15 minutes to 8 hours 
(see table below).
    Estimated Total Annual Responses: 14,414.
    Estimated Total Annual Burden Hours: 21,932.
    Non-Hour Cost Burden: $496.
    The table showing the burden of the information collection is 
included below for your information.

----------------------------------------------------------------------------------------------------------------
                                  Information                          Annual      Hourly burden   Total annual
          Section                 collection         Respondents      responses     per response   hourly burden
----------------------------------------------------------------------------------------------------------------
226.5......................  Lessee must submit               160             160           0.5               80
                              completed lease
                              form.
226.9......................  Lessee must submit               160             160           0.5               80
                              bonds.
226.13.....................  Corporate lessees                150             150           0.25            * 38
                              must submit
                              evidence of is
                              officers' authority
                              to execute papers
                              and a copy of its
                              Articles of
                              Incorporation.
226.26, 226.27(a)..........  Lessee must provide              700           8,400           0.5            4,200
                              certified monthly
                              reports covering
                              operations and on
                              value of all oil/
                              gas used off
                              premises for
                              development and
                              operation.
226.27(b)..................  Purchaser of oil or               45             540           0.5              270
                              gas to furnish
                              statement of gross
                              barrels of oil or
                              gross Mcf of gas
                              sold and sales
                              price per barrel or
                              gross McF during
                              the preceding month.
226.28.....................  Submit agreement to                1               1           1                  1
                              unitize or
                              terminate
                              unitization of oil
                              or gas leases to
                              Secretary.

[[Page 53087]]

 
226.29.....................  Submit assignment or             500             500           0.5              250
                              transfer of lease
                              to Secretary.
226.34(b), 226.52..........  Lessee must submit               600             600           8              4,800
                              applications on BIA
                              forms for well
                              drilling, treating,
                              or workover
                              operations,
                              removing casing
                              from well.
                              Application to shut
                              down or plug well,
                              with justification.
226.36.....................  Lessee must notify               160             160           1                160
                              and request meeting
                              with surface owners
                              by certified mail,
                              provide copy to
                              Superintendent, and
                              provide info at
                              meeting.
226.40, 226.41.............  Any person claiming                1               1           1                  1
                              an interest in the
                              leased tract or in
                              damages must
                              provide a statement
                              showing the claimed
                              interest.
226.43.....................  Drivers must carry                60              60           0.5               30
                              documentation
                              showing the amount,
                              origin and intended
                              first purchaser of
                              the oil or gas or
                              marketable product.
226.45(d)..................  Lessee must submit a             160             160           5                800
                              contingency plan,
                              when required.
226.54.....................  Lessee must keep a               700             700           1                700
                              full and correct
                              account of all
                              operations,
                              receipts, and
                              disbursements and
                              make reports
                              thereof, as
                              required, make
                              available for
                              inspection, and
                              maintain for 6 yrs.
226.56.....................  Lessee must keep                 700             700           1                700
                              records of
                              drilling,
                              redrilling,
                              deepening,
                              repairing,
                              treating, plugging
                              or abandonment of
                              all wells and
                              furnish reports as
                              required in manner
                              and method
                              specified by
                              Superintendent.
226.56.....................  Lessee must transmit             700             700           8              5,600
                              to Superintendent
                              applicable
                              information of
                              completion of
                              operations on any
                              well on BIA forms;
                              a copy of
                              electrical,
                              mechanical or
                              radioactive log, or
                              other types of
                              survey of well
                              bore, and core
                              analysis of well.
226.56.....................  Upon request, Lessee             700             700           2              1,400
                              must furnish plat
                              of wells in manner,
                              form, and method
                              prescribed by
                              Superintendent.
226.65.....................  Lessee must maintain             700             700           4              2,800
                              site security plan,
                              including facility
                              diagram.
226.66.....................  Lessee must report                22              22           1                 22
                              accidents, fires,
                              vandalism including
                              an estimate of the
                              volume of oil
                              involved.
                                                  --------------------------------------------------------------
    Total..................  ....................  ..............          14,414  .............          21,932
----------------------------------------------------------------------------------------------------------------

    BIA invites comments on the information collection requirements in 
the proposed regulation. You may submit comments to OMB by facsimile to 
(202) 395-5806 or you may send an email to the attention of the OMB 
Desk Officer for the Department of the Interior: OIRA_submission@omb.eop.gov. Please send a copy of your comments to the 
person listed in the FOR FURTHER INFORMATION CONTACT section of this 
notice. Note that the request for comments on the rule and the request 
for comments on the information collection are separate.
    To best ensure consideration of your comments on the information 
collection, we encourage you to submit them by September 27, 2013; 
while OMB has 60 days from the date of publication to act on the 
information collection request, OMB may choose to act on or after 30 
days. Comments on the information collection should address: (a) The 
necessity of this information collection for the proper performance of 
the functions of the agency, including whether the information will 
have practical utility; (b) the accuracy of the agency's estimate of 
the burden (hours and cost) of the collection of information, including 
the validity of the methodology and assumptions used; (c) ways we could 
enhance the quality, utility and clarity of the information to be 
collected; and (d) ways we could minimize the burden of the collection 
of the information on the respondents, such as through the use of 
automated collection techniques or other forms of information 
technology. Please note that an agency may not sponsor or request, and 
an individual need not respond to, a collection of information unless 
it has a valid OMB Control Number.

J. National Environmental Policy Act

    This rule does not constitute a major Federal action significantly 
affecting the quality of the human environment. It is categorically 
excluded from further review under 43 CFR 46.210(i) because these are 
regulations ``whose environmental effects are too broad, speculative, 
or conjectural to lend themselves to meaningful analysis and will later 
be subject to the NEPA process either collectively or case by case.'' 
No extraordinary circumstances exist that would require greater NEPA 
review.

K. Effects on the Energy Supply (E.O. 13211)

    This rule is not a significant energy action under the definition 
in Executive Order 13211. A Statement of Energy Effects is not 
required.

L. Clarity of This Regulation

    We are required by Executive Orders 12866 and 12988 and by the 
Presidential Memorandum of June 1, 1998, to write all rules in plain 
language. This means that each rule we publish must:
    (a) Be logically organized;
    (b) Use the active voice to address readers directly;
    (c) Use clear language rather than jargon;

[[Page 53088]]

    (d) Be divided into short sections and sentences; and
    (e) Use lists and tables wherever possible.
    If you feel that we have not met these requirements, send us 
comments by one of the methods listed in the ``COMMENTS'' section. To 
better help us revise the rule, your comments should be as specific as 
possible. For example, you should tell us the numbers of the sections 
or paragraphs that are unclearly written, which sections or sentences 
are too long, the sections where you believe lists or tables would be 
useful, etc.

M. Public Availability of Comments

    Before including your address, phone number, email address, or 
other personal identifying information in your comment, you should be 
aware that your entire comment--including your personal identifying 
information--may be made publicly available at any time. While you can 
ask us in your comment to withhold your personal identifying 
information from public review, we cannot guarantee that we will be 
able to do so.

List of Subjects in 25 CFR Part 226

    Indians-lands.

    For the reasons stated in the preamble, the Department of the 
Interior, Bureau of Indian Affairs, proposes to amend part 226 in Title 
25 of the Code of Federal Regulations by revising part 226 to read as 
follows:

PART 226--LEASING OF OSAGE RESERVATION LANDS FOR OIL AND GAS MINING

Sec.
226.1 Definitions.
226.2 What requirements govern oil and gas activities?
Subpart A--Leasing Procedure
226.3 What orders and notices can BIA issue?
226.4 What responsibilities does the Superintendent have?
226.5 What are the requirements for lease sales and approvals?
226.6 How does a lessee surrender a lease?
226.7 What forms of payment are acceptable?
226.8 How do changes in the current regulations impact leases?
226.9 What are the bonding requirements for leases?
226.10 Can the Superintendent increase the amount of the bond 
required?
226.11 When can the Superintendent release a bond?
226.12 What forms are made a part of the regulations?
226.13 What information must a corporation submit?
Subpart B--Rental, Production and Royalty

Rental, Drilling and Production Obligations

226.14 What are the requirements for rental, drilling, and 
production?
226.15 What are the lessee's obligations regarding drainage?
226.16 What can the Superintendent do when drainage occurs?

Lease Term

226.17 What is the term of a lease?

Royalty Payments

226.18 What is the royalty rate for oil?
226.19 How is the gravity adjustment calculated?
226.20 How is the royalty on gas calculated?
226.21 Who determines royalty on lost or wasted minerals?
226.22 What is the minimum royalty payment for all leases?
226.23 What royalty is due on other marketable products?
226.24 What purchase options does the Federal Government have?
226.25 How are royalty payments made?
226.26 What reports are required to be provided?
226.27 Can a lessee enter into royalty payment contracts and 
division orders?

Unit Leases, Assignments and Related Instruments

226.28 When is unitization allowed?
226.29 How are leases assigned?
226.30 Are overriding royalty agreements allowed?
226.31 When are drilling contracts allowed?
226.32 When can an oil lease and a gas lease be combined?
Subpart C--Operations
226.33 What are the general requirements governing operations?
226.34 What requirements apply to commencement of operations on a 
lease?
226.35 How does a lessee acquire permission to begin operations on a 
restricted homestead allotment?
226.36 What kind of notice and information is required to be given 
surface owners prior to commencement of drilling operations?
226.37 How much of the surface may a lessee use?
226.38 What commencement money must the lessee pay to the surface 
owner?
226.39 What fees must lessee pay to a surface owner for tank siting?
226.40 What is a settlement of damages claimed?
226.41 What is the procedure for settlement of damages claimed?
226.42 What are a lessee's obligations for production?
226.43 What documentation is required for transportation of oil or 
gas or other marketable product?
226.44 What are a lessee's obligations for preventing pollution?
226.45 What are a lessee's other environmental responsibilities?
226.46 What safety precautions must a lessee take?
226.47 When can the Superintendent grant easements for wells off 
leased premises?
226.48 A lessee's use of water.
226.49 What are the responsibilities of an oil lessee when a gas 
well is drilled and vice versa?
226.50 How is the cost of drilling a well determined?
226.51 What are the requirements for using gas for operating 
purposes and tribal uses?
Subpart D--Cessation of Operations
226.52 When can a lessee shutdown, abandon, and plug a well?
226.53 When must a lessee dispose of casings and other improvements?
Subpart E--Requirements of Lessees
226.54 What general requirements apply to lessees?
226.55 When must a lessee designate process agents?
226.56 What are the lessee's record and reporting requirements for 
wells?
226.57 What line drilling limitations must a lessee comply with?
226.58 What are the requirements for marking wells and tank 
batteries?
226.59 What precautions must a lessee take to ensure natural 
formations are protected?
226.60 What are a lessee's obligations to maintain control of wells?
226.61 How does a lessee prevent waste of oil and gas and other 
marketable products?
226.62 How does a lessee measure and store oil?
226.63 How is gas measured?
226.64 When can a lessee use of gas for lifting oil?
226.65 What site security standards apply to oil and gas and other 
marketable product leases?
226.66 What are a lessee's reporting requirements for accidents, 
fires, theft, and vandalism?
Subpart F--Penalties
226.67 What are the penalties for violations of lease terms?
226.68 What are the penalties for violation of certain operating 
regulations?
226.69 What are the penalties for providing false, inaccurate, or 
misleading information; or engaging in unlawful acts?
226.70 How are fees and penalties scaled?
Subpart G--Appeals and Notices
226.71 Who can file an appeal?
226.72 Are the notices by the Superintendent binding?
226.73 Information collection.

    Authority: Sec. 3, 34 Stat. 543; secs. 1, 2, 45 Stat. 1478; sec. 
3, 52 Stat. 1034, 1035; sec. 2(a), 92 Stat. 1660.

Sec.  226.1  Definitions.

    As used in this part, terms shall have the meanings set forth in 
this section.
    Authorized representative of an oil lessee, gas lessee, or oil and 
gas lessee means any person, group, or groups of persons, partnership, 
association,

[[Page 53089]]

company, corporation, organization or agent employed by or contracted 
with a lessee or any subcontractor to conduct oil and gas operations or 
provide facilities to market oil and gas.
    Avoidably lost means the venting or flaring of produced gas or 
other marketable product without the prior authorization, approval, 
ratification, or acceptance of the Superintendent and the loss of 
produced oil or gas or other marketable product when the Superintendent 
determines that such loss occurred as a result of:
    (1) Negligence on the part of the lessee; or
    (2) The failure of the lessee to take all reasonable measures to 
prevent and/or control the loss; or
    (3) The failure of the lessee to comply fully with the applicable 
lease terms and regulations, applicable orders and notices, or the 
written orders of the Superintendent; or
    (4) Any combination of the foregoing.
    Condensate means liquid hydro-carbons (normally exceeding 40 
degrees of API gravity) recovered at the surface without resorting to 
processing. Condensate is the mixture of liquid hydrocarbons that 
results from condensation of petroleum hydrocarbons existing initially 
in a gaseous phase in an underground reservoir.
    Drainage means the migration of hydrocarbons, inert gases, or 
associated resources caused by production from other wells.
    Gas lessee means any person, firm, or corporation to whom a gas 
mining lease is made under the regulations in this part, or an 
authorized representative.
    Gas well means any well that:
    (1) Produces raw natural gas not associated with crude petroleum 
oil at the time of production; or
    (2) Produces more than 15,000 standard cubic feet of raw natural 
gas to each barrel of crude petroleum oil from the same producing 
formation.
    Lease means any contract approved by the United States under the 
Act of June 28, 1906 (34 Stat. 539), as amended, that authorizes 
exploration for, extraction of, or removal of oil or gas.
    Marketable condition means a condition in which lease products are 
sufficiently free from impurities and otherwise so conditioned that a 
purchaser will accept them under a sales contract typical for the field 
or area.
    Maximum ultimate economic recovery means the recovery of oil and 
gas and any other marketable product from leased lands that a prudent 
lessee could be expected to make from that field or reservoir given 
existing knowledge of reservoir and other pertinent facts and using 
common industry practices for primary, secondary or tertiary recovery 
operations.
    Natural gas liquids (NGLs) means those gas plant products 
consisting of ethane, propane, butane, or heavier liquid hydrocarbons.
    Notice to lessees (NTLs) means a written notice issued or adopted 
by the Superintendent. NTLs implement the regulations in this part and 
operating orders, and serve as instructions on specific item(s) of 
importance.
    Oil and gas lessee means any person, firm, or corporation to whom 
an oil and gas mining lease is made under the regulations in this part, 
or an authorized representative.
    Oil lessee means any person, firm, or corporation to whom an oil 
mining lease is made under the regulations in this part, or an 
authorized representative.
    Oil well means any well that produces one barrel or more of crude 
petroleum oil for each 15,000 standard cubic feet of raw natural gas.
    Onshore oil and gas order means a formal order issued or adopted by 
the Director of the Bureau of Indian Affairs that implements and 
supplements the regulations in this part.
    Osage Minerals Council means the duly elected governing body of the 
Osage Nation or Tribe of Indians of Oklahoma vested with authority to 
enter into leases or take other actions on oil and gas mining 
pertaining to the Osage Mineral Estate.
    Other marketable product means a non-hydrocarbon product, including 
but not limited to helium, nitrogen, and carbon-dioxide, for which 
there is a market.
    Primary term means the basic period of time for which a lease is 
issued during which the lease contract may be kept in force by payment 
of rentals.
    Production in paying quantities means production from a lease of 
oil and/or gas of sufficient value to exceed direct operating costs and 
the cost of lease rentals or minimum royalties.
    Raw natural gas or gas means gas produced from oil and gas wells, 
including all natural gas liquids before any treating or processing.
    Secretary means the Secretary of the Interior or the Secretary's 
authorized representative acting under delegated authority.
    Superintendent means the Superintendent of the Osage Agency, 
Pawhuska, Oklahoma, or the Superintendent's authorized representative 
acting under delegated authority, or such other person as the Secretary 
or Superintendent may delegate to fulfill the responsibilities and 
exercise the authorities under this part.
    Waste of oil or gas or other marketable product means any act or 
failure to act by the lessee that is not sanctioned by the 
Superintendent as necessary for proper development and production and 
that results in:
    (1) A reduction in the quantity or quality of oil and gas or other 
marketable product ultimately producible from a reservoir under prudent 
and proper operations; or
    (2) Avoidable surface loss of oil or gas or other marketable 
product.

Sec.  226.2  What requirements govern oil and gas activities?

    All oil and gas activities conducted in Osage County are subject 
to:
    (a) The regulations in this part;
    (b) Lease terms;
    (c) Orders of the Superintendent; and
    (d) All other applicable laws, regulations, and authorities.

Subpart A--Leasing Procedure

Sec.  226.3  What orders and notices can BIA issue?

    (a) In accordance with the Administrative Procedure Act, the Bureau 
of Indian Affairs (BIA), after consultation with the Osage Minerals 
Council, is authorized to:
    (1) Issue and make effective in Osage County oil and gas orders or 
notices to lessees (NTLs); or
    (2) Adopt onshore oil and gas orders, NTLs, or related oil and gas 
regulations issued by the Bureau of Land Management.
    (b) Adoptions by the Bureau of Indian Affairs shall remain in 
effect according to their terms and shall not be modified by any action 
of the Bureau of Land Management unless the Director issues further 
orders to that effect in accordance with the Administrative Procedure 
Act.

Sec.  226.4  What responsibilities does the Superintendent have?

    (a) The Superintendent is authorized and directed to:
    (1) Approve unitization, communitization, gas storage and other 
contractual agreements;
    (2) Assess compensatory royalty;
    (3) Approve suspensions of operations or production, or both;
    (4) Approve and monitor other lessee proposals for drilling, 
development or production of oil and gas and any other marketable 
product;
    (5) Perform administrative reviews;
    (6) Impose monetary assessments or penalties;

[[Page 53090]]

    (7) Provide technical information and advice relative to oil and 
gas and any other marketable product development and operations;
    (8) Approve, inspect, and regulate the operations that are subject 
to the regulations in this part;
    (9) Require compliance with lease terms, with the regulations in 
this title and all other applicable regulations and laws; and
    (10) Require that all operations be conducted in a manner which 
protects natural resources and environmental quality, protects life and 
property, and results in the maximum ultimate recovery of oil and gas 
and any other marketable product with minimum waste and with minimum 
adverse effect on the ultimate recovery of other mineral resources.
    (b) The Superintendent may issue written or oral orders to govern 
specific lease operations. Any oral orders shall be confirmed in 
writing by the Superintendent within 10 working days from issuance 
thereof. Before approving operations on a leasehold, the Superintendent 
shall determine that the lease is in effect, that acceptable bond 
coverage has been provided, and that the proposed plan of operations is 
sound.
    (c) The Superintendent shall establish procedures to ensure that 
each lease site which has a history of noncompliance with applicable 
provisions of law or regulations, lease terms, orders or directives 
shall be inspected at least once annually.

Sec.  226.5  What are the requirements for lease sales and approvals?

    (a) The steps in a lease sale are as follows:
    (1) A written application, together with any nomination fee, for 
tracts to be offered for lease shall be filed with the Superintendent.
    (2) The Superintendent, with the consent of the Osage Minerals 
Council, shall publish notices for the sale of oil leases, gas leases, 
and oil and gas leases to the highest responsible bidder on specific 
tracts of the unleased Osage Mineral Estate. The Superintendent may 
require any bidder to submit satisfactory evidence of his good faith 
and ability to comply with all provisions of the notice of sale.
    (3) A successful bidder must deposit with the Superintendent within 
5 days following the sale, a cashier's check, money order, or 
electronic funds transfer in an amount not less than 25 percent of the 
cash bonus offered as a guaranty of good faith. Any and all bids shall 
be subject to acceptance by the Osage Minerals Council and approval by 
the Superintendent.
    (4) Within 20 days after being notified, the successful bidder must 
submit to the Superintendent the balance of the bonus, a $75 filing 
fee, and a completed lease form.
    (i) The Superintendent may extend the deadline for submitting the 
completed lease form, but no extension shall be granted for remitting 
the balance of moneys due.
    (ii) Twenty-five percent of the bonus bid will be forfeited for the 
use and benefit of the Osage Mineral Estate if any of the following 
occur:
    (A) The bidder fails to pay the full consideration by the required 
deadline; or
    (B) The bidder fails to file the completed lease by the required 
deadline or extension thereof; or
    (C) The lease is rejected through no fault of the Osage Minerals 
Council or the Superintendent.
    (5) The Superintendent may reject a lease made on an accepted bid, 
upon satisfactory evidence of collusion, fraud, or other irregularity 
in connection with the notice of sale.
    (b) The Superintendent may approve oil leases, gas leases, and oil 
and gas leases made by the Osage Minerals Council in conformity with 
the notice of sale, regulations in this part, bonds, and other 
instruments required.
    (c) Within 30 days following approval of a lease, the 
Superintendent shall post at the Agency, a legal description of the 
Mineral Estate that was leased.
    (d) Prior to approval by the Superintendent, each oil and/or gas 
lease and activities and installations associated therewith subject to 
these regulations shall be assessed and evaluated for its environmental 
impact.
    (e) The lessee shall accept a lease with the understanding that a 
mineral not covered by the lease may be leased separately.
    (f) No lease, assignment thereof, or interest therein will be 
approved to any employee or employees of the Government and no such 
employee shall be permitted to acquire any interest in leases covering 
the Osage Mineral Estate by ownership of stock in corporations having 
leases or in any other manner.
    (g) The Osage Minerals Council may utilize the following procedures 
among others, in entering into a lease:
    (1) A lease may be entered into through competitive bidding as 
outlined in Sec.  226.5(a)(2), negotiation, or a combination of both;
    (2) The Osage Minerals Council may request the Superintendent 
undertake the preparation, advertisement and negotiation of leases; 
and/or
    (3) The Osage Minerals Council may request the Superintendent to 
provide information regarding the current estimated value of any or all 
or each of the leases to the Osage Minerals Council based on comparable 
sales of Federal, Indian, State, and private leases.
    (h) The Superintendent may approve any lease made by the Osage 
Minerals Council.

Sec.  226.6  How does a lessee surrender a lease?

    (a) The lessee may, with the approval of the Superintendent and 
payment of a $75 filing fee, surrender all or any portion of any lease, 
have the lease cancelled as to the portion surrendered and be relieved 
from all subsequent obligations and liabilities.
    (b) If the lease, or portion, being surrendered is owned in 
undivided interests by more than one party, then the following 
requirements apply:
    (1) All parties shall join in the application for cancellation;
    (2) If the lease has been recorded, then the lessee shall execute a 
release and record the same in the proper office;
    (3) Surrender shall not the entitle the lessee to a refund of the 
unused portion of rental paid in lieu of development, nor shall it 
relieve the lessee and his or her sureties of any obligation and 
liability incurred prior to the surrender;
    (4) When there is a partial surrender of any lease and the acreage 
to be retained is less than 160 acres, or there is a surrender of a 
separate horizon, the surrender shall become effective only with 
consent of the Osage Minerals Council and approval of the 
Superintendent.

Sec.  226.7  What forms of payment are acceptable?

    Sums due under a lease contract and/or the regulations in this part 
shall be paid in the manner and method specified by the Superintendent, 
unless otherwise specified in these regulations. Such sums shall be a 
prior lien on all equipment and unsold oil on the leased premises.

Sec.  226.8  How do changes in the current regulations impact leases?

    Leases issued pursuant to this part shall be subject to the current 
regulations of the Secretary, all of which are made a part of such 
leases: Provided, that no amendment or change of such regulations made 
after the approval of any lease shall operate to affect the term of the 
lease, rate of royalty, rental, or acreage unless agreed to by both 
parties and approved by the Superintendent.

[[Page 53091]]

Sec.  226.9  What are the bonding requirements for leases?

    Lessees shall furnish surety bonds or personal bonds acceptable to 
the Superintendent as follows:
    (a) The per-well ``Bonding Amount'' shall be $5,000.
    (b) A surety bond or personal bond equal to the Bonding Amount 
shall be filed at the time an Application for Permit to Drill is 
approved and/or the lessee acquires liability for existing wells on a 
lease.
    (c) A lessee shall at all times maintain on file with the 
Superintendent surety bonds and/or personal bonds in an amount equal to 
the Bonding Amount times the number of wells on the lessee's leases, up 
to a maximum of 25 wells.
    (d) To meet the requirements of this section, a surety bond must be 
issued by a qualified surety company approved by the Department of the 
Treasury (see Department of the Treasury Circular No. 570).
    (e) Personal bonds shall be accompanied by at least one of the 
following:
    (1) A certificate of deposit issued by a financial institution, the 
deposits of which are Federally insured, explicitly granting the 
Secretary full authority to demand immediate payment in case of default 
in the performance of the terms and conditions of the lease. The 
certificate shall explicitly indicate on its face that Secretarial 
approval is required prior to redemption of the certificate of deposit 
by any party.
    (2) A cashier's check.
    (3) A certified check.
    (4) Negotiable Treasury securities of the United States of a value 
equal to the amount specified in the bond. Negotiable Treasury 
securities shall be accompanied by a proper conveyance to the 
Superintendent of full authority to sell such securities in case of 
default in the performance of the terms and conditions of a lease.
    (5) An irrevocable letter of credit issued by a financial 
institution, the deposits of which are Federally insured, for a 
specific term, identifying the Superintendent as sole payee with full 
authority to demand immediate payment in the case of default in the 
performance of the terms and conditions of a lease. Letters of credit 
shall be subject to the following conditions:
    (i) The letter of credit shall be issued only by a financial 
institution organized or authorized to do business in the United 
States;
    (ii) The letter of credit shall be irrevocable during its term. A 
letter of credit used as security for any lease upon which drilling has 
taken place and final approval of all abandonment has not been given 
shall be collected by the Superintendent if not replaced by other 
suitable bond or letter of credit at least 30 days before its 
expiration date;
    (iii) The letter of credit shall be payable to the Superintendent 
upon demand, in part or in full, upon receipt from the Superintendent 
of a notice of attachment stating the basis therefor, e.g., default in 
compliance with the lease terms and conditions or failure to file a 
replacement in accordance with paragraph (c)(5)(ii) of this section;
    (iv) The initial expiration date of the letter of credit shall be 
at least 1 year following the date it is filed; and
    (v) The letter of credit shall contain a provision for automatic 
renewal for periods of not less than 1 year in the absence of notice to 
the Superintendent at least 90 days prior to the originally stated or 
any extended expiration date.

Sec.  226.10  Can the Superintendent increase the amount of the bond 
required?

    (a) The Superintendent may require an increase in the amount of any 
bond in appropriate circumstances, including, but not limited to, a 
history of previous violations, uncollected royalties due, or when the 
total cost of plugging existing wells and reclaiming lands exceeds the 
present bond amount based on the estimates determined by the 
Superintendent.
    (b) The increase in bond amount may be to any level specified by 
the Superintendent, but in no circumstances shall it exceed the total 
of the estimated costs of plugging and reclamation, the amount of 
uncollected royalties due, plus the amount of monies owed to the lessor 
due to previous violations remaining outstanding.

Sec.  226.11  When can the Superintendent release a bond?

    Within 45 calendar days of receiving written notice from a lessee 
that a well has been plugged or a lease has expired, the Superintendent 
shall confirm that:
    (a) The well has been properly plugged and the well site has been 
reclaimed,or the lease site has been reclaimed;
    (b) All property has been removed (unless otherwise agreed to in 
writing by the surface owner); and
    (c) All wells have been properly plugged, and then release the 
bond.

Sec.  226.12  What forms are made a part of the regulations?

    Leases, assignments, and supporting instruments shall be in the 
form prescribed by the Secretary, and such forms are hereby made a part 
of the regulations.

Sec.  226.13  What information must a corporation submit?

    (a) If the applicant for a lease is a corporation, it shall file 
evidence of authority of its officers to execute papers; and with its 
first application it shall also file a certified copy of its Articles 
of Incorporation and, if foreign to the State of Oklahoma, evidence 
showing compliance with the corporation laws thereof.
    (b) Whenever deemed advisable, the Superintendent may require a 
corporation to file any additional information necessary to carry out 
the purpose and intent of the regulations in this part, and such 
information shall be furnished within a reasonable time.

Subpart B--Rental, Production and Royalty

Rental, Drilling and Production Obligations

Sec.  226.14  What are the requirements for rental, drilling, and 
production?

    (a) Oil leases, gas leases, and combination oil and gas leases. 
Unless the lessee shall complete and place in production a well 
producing and selling oil and/or gas in paying quantities on the land 
embraced within the lease within 12 months from the date of approval of 
the lease, or as otherwise provided in the lease terms, or 12 months 
from the date the Superintendent consents to drilling on any restricted 
homestead selection, the lease shall terminate unless rental at the 
rate of not less than $3 per acre for an oil or gas lease, or not less 
than $6 per acre for a combination oil and gas lease, is paid at the 
beginning of the first year of the lease. These dollar amounts shall be 
adjusted as specified in Sec.  226.70.
    (1) The lease may also be held for the remainder of its primary 
term without drilling upon payment of the specified rental annually in 
advance, commencing with the second lease year.
    (2) The lease shall terminate as of the due date of the rental 
unless such rental shall be received by the Superintendent on or before 
said date.
    (3) The completion of a well producing in paying quantities shall, 
for so long as such production continues, relieve the lessee from any 
further payment of rental, except that, should such production cease 
during the primary term the lease may be continued only during the 
remaining primary term of the lease by payment of advance rental which 
shall commence on the next anniversary date of the lease. Rental shall 
be paid on the basis of a full year and no refund will be made of 
advance rental paid in

[[Page 53092]]

compliance with the regulations in this part.
    (b) The Superintendent may, with the consent of and under terms 
approved by the Osage Minerals Council, grant an extension of the 
primary term of a lease on which actual drilling of a well shall have 
commenced within the term thereof, or for the purpose of enabling the 
lessee to obtain a market for his oil and/or gas production.
    (c) Irrespective of whether the lessee has drilled or paid rental, 
the Superintendent in his discretion may order further development of 
any leased acreage or separate horizon in any lease term if, in his 
opinion, a prudent lessee would conduct further development. A prudent 
lessee will diligently develop the minerals underlying the leasehold. 
The Osage Minerals Council shall have the right to request a 
determination of whether there is diligent development by the 
Superintendent as to any lease and may submit any materials or analysis 
to support its request. Upon receipt of a request, the Superintendent 
shall issue such a determination within 90 days.
    (d) If the lessee refuses to comply with an order by the 
Superintendent to diligently develop its leasehold as a result of a 
determination under paragraph (c) of this section, the refusal will be 
considered a violation of the lease terms and said lease shall be 
terminated as to the acreage or horizon the further development of 
which was ordered, after any appeal of an order. The Superintendent 
shall promptly notify the lessee of such termination.
    (e) Except for a lease during its primary term for which rental 
payment has been paid, a lease that does not produce in paying 
quantities for 90 consecutive days is thereby terminated, effective 
immediately. The Superintendent shall notify the lessee of such 
termination.
    (1) The Superintendent shall have the authority before termination 
to approve in writing a temporary suspension of operations tolling the 
90-day period for a specified number of days, due to force majeure, 
other hardship, or other extenuating circumstance.
    (2) Any request for a temporary suspension of operations shall be 
made in writing to the Superintendent no later than the 45th day that 
the lease has not produced in paying quantities. The Superintendent may 
waive this requirement.
    (3) The Superintendent in his discretion may extend in writing the 
time of any temporary suspension of operations.
    (4) The Superintendent shall provide a copy of any decision under 
this paragraph (e) to the Osage Minerals Council at the same time it is 
delivered to the lessee.
    (f) Whenever the Osage Minerals Council identifies any lease that 
has terminated or may be subject to termination for any reason, the 
Osage Minerals Council shall have the right to request in writing 
appropriate action by the Superintendent, including but not limited to 
the issuance of a notice of termination to the lessee, and may submit 
any materials or analysis in support of its request. Upon receipt of 
such a request, within 90 days the Superintendent shall either take the 
requested action or issue a written decision responsive to the request.
    (g) The Superintendent may impose restrictions as to time of 
drilling and rate of production from any well or wells when the 
Superintendent judges these restrictions to be necessary or proper for 
the protection of the natural resources of the leased land and the 
interests of the Osage Mineral Estate. The Superintendent may consider, 
among other things, Federal and Oklahoma laws regulating either 
drilling or production.
    (h) If a lessee holds both an oil lease and a gas lease covering 
the same acreage, such lessee is subject to the provisions of this 
section as to both the oil lease and the gas lease.

Sec.  226.15  What are the lessee's obligations regarding drainage?

    (a) Where lands in any leases are being drained of their oil or gas 
content by wells outside the lease, the lessee shall drill or modify 
and produce all wells necessary to protect the leased lands from 
drainage within a reasonable time after the earlier of when the lessee 
knew or should have known of the drainage. In lieu of drilling or 
modifying necessary wells, the lessee may, with the consent of the 
Superintendent, pay compensatory royalty for drainage that has occurred 
or is occurring.
    (b) Actions under paragraph (a) of this section are not required if 
the lessee proves to the Superintendent that when it first knew or had 
constructive notice of drainage it could not produce a sufficient 
quantity of oil or gas from a protective well on the lease in paying 
quantities above the cost of drilling and completing the protective 
well.
    (c) A lessee has constructive notice that drainage may be occurring 
when well completion or first production reports for the draining well 
are publicly available, or, if the lessee operates or owns any interest 
in the draining well or lease, upon completion of drill stem, 
production, pressure analysis, or flow tests of the draining well.
    (d) If a lessee assigns its interest in a lease or transfers its 
operating rights, it is liable for drainage that occurs before the date 
the assignment or transfer is approved by the Superintendent. Any 
lessee who acquires an interest in a lease that is being drained is 
liable for all drainage obligations accruing on and after the date the 
assignment or transfer is approved by the Superintendent.

Sec.  226.16  What can the Superintendent do when drainage occurs?

    (a) The Superintendent may send a demand letter by certified mail, 
return receipt requested, or personally serve the lessee with notice, 
if the Superintendent believes that drainage is occurring. However, the 
lessee's responsibility to take protective action arises when it first 
knew or had constructive notice of the drainage, even when that date 
precedes the demand letter.
    (b) Since the time required to drill and produce a protective well 
varies according to the location and conditions of the oil and gas 
reservoir, the Superintendent will determine this on a case-by-case 
basis. The Superintendent will consider several factors, including, but 
not limited to:
    (1) The time required to evaluate the characteristics and 
performance of the draining well;
    (2) Rig availability;
    (3) Well depth;
    (4) Required environmental analysis;
    (5) Special lease stipulations that provide limited time frames in 
which to drill; and
    (6) Weather conditions.
    (c) If the Superintendent determines that a lessee did not take 
protective action in a timely manner, the lessee will owe compensatory 
royalty for the period of the delay.
    (d) The Superintendent will assess compensatory royalty beginning 
on the first day of the month following the earliest reasonable time 
the lessee should have taken protective action and continuing until:
    (1) The lessee drills sufficient economic protective wells and the 
wells remain in continuous production;
    (2) The draining well stops producing; or
    (3) The lessee relinquishes its interest in the lease.

Lease Term

Sec.  226.17  What is the term of a lease?

    Leases issued under this part shall be for a primary term as 
established by the Osage Minerals Council, approved by the 
Superintendent, and so stated in the

[[Page 53093]]

notice of sale of such leases and so long thereafter as the minerals 
specified are produced in paying quantities.

Royalty Payments

Sec.  226.18  What is the royalty rate for oil?

    (a) The lessee shall pay or cause to be paid to the Superintendent, 
as royalty, the sum of not less than 20 percent of the value of the oil 
determined under paragraph (b) of this section.
    (b) Unless the Osage Minerals Council, with approval of the 
Secretary, shall elect to take the royalty in kind, payment is owing at 
the time of sale or removal of the oil, except where payments are made 
on division orders, and settlement value per barrel shall be the 
greater of:
    (1) The average NYMEX daily price of oil at Cushing, Oklahoma, for 
the month in which the produced oil was sold, adjusted for gravity 
using the scale applicable under Sec.  226.19; or
    (2) The actual selling price as adjusted for gravity. The 
applicable average NYMEX daily price of oil at Cushing, Oklahoma and 
gravity adjustment scale shall be available from the Superintendent 
upon request, on or before the fifth day of the month following 
production.
    (c) Should the lessor, with approval of the Secretary, elect to 
take the royalty in kind, the lessee shall furnish free storage for 
royalty oil for a period not to exceed 60 days from date of production 
after notice of such election.

Sec.  226.19  How is the gravity adjustment calculated?

    (a) The gravity adjustment of Average Daily NYMEX Price of oil at 
Cushing, Oklahoma under Sec.  226.18(b)(1) shall be a deduction from 
the price per barrel, as follows:

------------------------------------------------------------------------
If the gravity of the oil is
            . . .               the rate is . . .      for each . . .
------------------------------------------------------------------------
(1) Between 40.0 and 44.9     zero.                 ....................
 degrees.
(2) Between 35.0 and 39.9     $0.02...............  degree or fraction
 degrees.                                            thereof below 40.0.
(3) Below 35.0 degrees......  $0.10 plus an         one-tenth of one
                               additional $0.015.    degree below 35.0.
(4) Above 44.9 degrees......  $0.015..............  for each one-tenth
                                                     of one degree above
                                                     44.9.
------------------------------------------------------------------------

    (b) The Superintendent may, on or before the fifth day of the month 
following production, publish a gravity adjustment scale for oil of 
gravity below 40.0 degrees or above 44.9 degrees that supersedes this 
paragraph, but only if the Superintendent determines, based on 
substantial evidence, that market conditions so warrant.

Sec.  226.20  How is the royalty on gas calculated?

    (a) All gas removed from the lease from which it is produced shall 
be metered before removal unless otherwise approved by the 
Superintendent and be subject to a royalty of not less than 20 percent 
of the gross proceeds of the gas. Unless the Osage Minerals Council, 
with approval of the Secretary, shall elect to take the royalty in 
kind, gross proceeds shall be calculated under paragraph (b) of this 
section; except that the Superintendent may direct (and the Osage 
Minerals Council may request that the Superintendent direct) any 
lessee, upon no less than 30 days notice, to calculate gross proceeds 
at the higher royalty value of paragraph (b) or paragraph (c) of this 
section.
    (b) Under this paragraph, gross proceeds of the gas shall be 
determined by multiplying the entire volume of gas at the well times 
the heating value of the gas measured in MMBtu as determined by 
periodic gas analysis, times the Monthly Index Price in dollars per 
MMBtu for Oklahoma Zone 1 published by the Department of the Interior's 
Office of Natural Resources Revenue. If that Monthly Index Price ceases 
to be published and is not otherwise available, the price shall be 
calculated in a comparable manner to be determined by the 
Superintendent. If any lessee supplies gas produced from one lease for 
operation and/or development of any other lease, including another 
lease held by the same lessee, the royalty calculated under this 
section shall be paid on all gas so used.
    (c) Under this paragraph, gross proceeds of the gas shall be 100 
percent of the actual proceeds from sales of all residue gas produced 
from the lease and one hundred percent of the actual proceeds from 
sales of all natural gas liquids produced from the lease (including 
drip condensate) minus the actual, reasonable cost of processing not to 
exceed 50 percent of the actual sales value of the natural gas liquids 
(including drip condensate). If the actual reasonable cost of 
processing cannot be obtained, upon approval by the Superintendent, the 
lessee may determine such cost in accordance with the alternative 
methodology and procedures in 30 CFR 1206.173. There shall be no other 
deductions of any kind, whether monetary or volumetric or otherwise, 
for any purpose, including but not limited to compression, dehydration, 
gathering, treating, or transportation.

Sec.  226.21  Who determines royalty on lost or wasted minerals?

    Royalty on minerals wasted or avoidably lost. Royalty shall be due 
on all oil and gas wasted or avoidably lost, the volume and quality of 
which shall be determined by the Superintendent after taking into 
consideration information provided by the lessee, but resolving all 
doubts about volume and quality in favor of the lessor.

Sec.  226.22  What is the minimum royalty payment for all leases?

    Royalty paid from producing leases during any year shall not be 
less than an amount equal to the annual rental specified for the lease. 
Any underpayment of minimum royalty shall be due and payable at the end 
of the lease year.
    (a) After the primary term, the lessee shall submit with his 
payment evidence that the lease is producing in paying quantities.
    (b) The Superintendent is authorized to determine whether the lease 
is actually producing in paying quantities or has terminated for lack 
of such production.
    (c) Payment for any underpayment not made within the time specified 
shall be subject to a late charge at the rate of not less than 1\1/2\ 
percent per month for each month or fraction thereof until paid, or 
such other rate as may be set by the Superintendent after consultation 
with the Osage Minerals Council.
    (d) The minimum royalty shall be adjusted in the same manner as the 
annual rental, consistent with Sec. Sec.  226.14(a) and 226.70.

Sec.  226.23  What royalty is due on other marketable products?

    A royalty on other marketable products shall be paid at the rate of 
not less than 20 per cent of the actual sales value of the other 
marketable products sold, irrespective of any other royalty due on oil 
or gas.

[[Page 53094]]

Sec.  226.24  What purchase options does the Federal Government have?

    Any of the executive departments of the U.S. Government shall have 
the option to purchase all or any part of the oil produced from any 
lease at not less than the price as defined in Sec.  226.18.

Sec.  226.25  How are royalty payments made?

    (a) Royalty payments due may be paid by either the purchaser or the 
lessee.
    (b) Unless otherwise provided by the Osage Minerals Council and 
approved by the Superintendent, all payments shall be due by the end of 
the month following the month during which the oil and gas is produced 
and sold, except when the last day of the month falls on a weekend or 
holiday. In such cases, payments are due on the first business day of 
the succeeding month. All payments shall cover the sales of the 
preceding month.
    (c) Failure to make such payments shall subject the lessee or 
purchaser, whoever is responsible for royalty payment, to a late charge 
at the rate of not less than 1\1/2\ percent for each month or fraction 
thereof until paid, or such other rate as may be set by the 
Superintendent after consultation with the Osage Minerals Council. The 
Osage Minerals Council, subject to the approval of the Superintendent, 
may waive the late charges.

Sec.  226.26  What reports are required to be provided?

    The lessee shall furnish certified monthly reports covering all 
operations in a form specified by the Superintendent, whether there has 
been production or not, indicating therein the total amount of oil, raw 
natural gas, and other products subject to royalty payment, by the end 
of the month following the month during which the oil and gas is 
produced and sold, except when the last day of the month falls on a 
weekend or holiday. In such cases, reports are due on the first 
business day of the succeeding month.
    (a) Reports covering oil production shall include the date of each 
sale of oil, well or lease identity, lessee, purchaser, volume of oil 
sold, gravity of oil sold, price paid per barrel for the sale, 40-
degree price used for the sale, gravity adjustment scale used for the 
sale, and total amount paid for the sale.
    (b) Reports covering gas production shall contain the total volume 
of raw natural gas measured at the well, the BTU value of raw natural 
gas produced at the well, the periodic gas analysis applicable to the 
sale, and the total value paid for the raw natural gas, residue gas, 
natural gas liquids, and condensate.
    (c) Report forms shall be submitted in .csv (comma separated value) 
or ASCII format, or such other equivalent format specified by the 
Superintendent. The Superintendent shall specify the method of 
transmittal. The Superintendent may specify that lessees shall submit 
the reports and information required by this section directly to other 
federal agencies within the Department of the Interior, in lieu of the 
Superintendent.
    (d) The Superintendent shall provide to the Osage Minerals Council 
copies of all reports under this section on at least a quarterly basis 
in the format originally received by the lessee. Upon written request 
by the Osage Minerals Council, the Superintendent shall require lessees 
to provide to the Osage Minerals Council copies of run tickets.
    (e) Failure to remit reports shall subject the lessee to further 
penalties as provided in Sec. Sec.  226.67 and 226.68 and shall subject 
any royalty payment contract or division order to termination.

Sec.  226.27  Can a lessee enter into royalty payment contracts and 
division orders?

    (a) The lessee may enter into division orders or contracts with the 
purchasers of oil, gas, or derivatives therefrom that will provide for 
the purchaser to make payment of royalty in accordance with his lease. 
The following requirements apply in these cases:
    (1) The division orders or contracts shall not relieve the lessee 
from responsibility for the payment of the royalty should the purchaser 
fail to pay.
    (2) No production shall be removed from the leased premises until a 
division order and/or contract and its terms are approved by the 
Superintendent:
    (3) The Superintendent may grant temporary permission to run oil or 
gas from a lease pending the approval of a division order or contract.
    (4) The lessee shall file a certified monthly report and pay 
royalty on the value of all oil and gas used off the premises for 
development and operating purposes.
    (5) The lessee shall be responsible for the correct measurement and 
reporting of all oil and/or gas taken from the leased premises.
    (b) The lessee shall require the purchaser of oil and/or gas from 
its lease or leases to furnish the Superintendent, a statement 
reporting the gross barrels of oil and/or gross Mcf of gas sold and 
sales price per barrel and/or gross McF during the preceding month, by 
the end of the month following the month during which the oil and gas 
is produced and sold, except when the last day of the month falls on a 
weekend or holiday. In such cases, statements are due on the first 
business day of the succeeding month. The Superintendent may authorize 
an extension of time, not to exceed 10 days, for furnishing this 
statement.

Unit Leases, Assignments and Related Instruments

Sec.  226.28  When is unitization allowed?

    The Osage Minerals Council and the lessee or lessees, may, with the 
approval of the Superintendent, unitize or merge, two or more oil or 
oil and gas leases into a unit or cooperative operating plan to promote 
the greatest ultimate recovery of oil and gas from a common source of 
supply or portion thereof embracing the lands covered by such lease or 
leases.
    (a) The cooperative or unit agreement shall be subject to the 
regulations in this part and applicable laws governing the leasing of 
the Osage Mineral Estate.
    (b) Any agreement between the parties in interest to terminate a 
unit or cooperative agreement as to all or any portion of the lands 
included shall be submitted to the Superintendent for his approval.
    (c) Upon approval under paragraph (b) of this section, the leases 
included under the cooperative or unit agreement shall be restored to 
their original terms.
    (d) For the purpose of preventing waste and to promote the greatest 
ultimate recovery of oil and gas from a common source of supply or 
portion thereof, all oil leases, oil and gas leases, and gas leases 
issued under this part shall be subject to any unit development plan 
affecting the leased lands that may be required by the Superintendent 
with the consent of the Osage Minerals Council. This plan shall 
adequately protect the rights of all parties in interest, including the 
Osage Mineral Estate.

Sec.  226.29  How are leases assigned?

    Approved leases or any interest therein may be assigned or 
transferred only with the approval of the Superintendent. The assignee 
must be qualified to hold such lease under existing rules and 
regulations and shall furnish a satisfactory bond conditioned for the 
faithful performance of the covenants and conditions thereof.
    (a) The lessee must assign either his entire interest in a lease or 
legal subdivision thereof, or an undivided interest in the whole lease: 
Provided, that when an assignment covers only a portion of a lease or 
covers interests in separate horizons, such assignment shall be subject 
to both the consent of the Osage Minerals Council and approval of the 
Superintendent.

[[Page 53095]]

    (b) If a lease is divided by the assignment of an entire interest 
in any part, each part shall be considered a separate lease and the 
assignee shall be bound to comply with all the terms and conditions of 
the original lease.
    (c) A fully executed copy of the assignment shall be filed with the 
Superintendent within 30 days after the date of execution by all 
parties. If requested within the 30-day period, the Superintendent may 
grant an extension of 15 days.
    (d) A filing fee of $75 shall accompany each assignment.

Sec.  226.30  Are overriding royalty agreements allowed?

    Agreements creating overriding royalties or payments out of 
production shall not be considered as an interest in a lease as such 
term is used in Sec.  226.29. Agreements creating overriding royalties 
or payments out of production are hereby authorized and the approval of 
the Department of the Interior or any agency thereof shall not be 
required with respect thereto, but such agreements shall be subject to 
the condition that nothing in any such agreement shall be construed as 
modifying any of the obligations of the lessee under its lease and the 
regulations in this part. All such obligations are to remain in full 
force and effect, the same as if free of any such royalties or 
payments.
    (a) The existence of agreements creating overriding royalties or 
payments out of production, whether or not actually paid, shall not be 
considered in justifying the shutdown or abandonment of any well.
    (b) Agreements creating overriding royalties or payments out of 
production need not be filed with the Superintendent unless 
incorporated in assignments or instruments required to be filed 
pursuant to Sec.  226.29.

Sec.  226.31  When are drilling contracts allowed?

    The Superintendent is authorized to approve drilling contracts with 
a stipulation that such approval does not in any way bind the 
Department to approve subsequent assignments that may be provided for 
in said contracts. Approval merely authorizes entry on the lease for 
the purpose of development work.

Sec.  226.32  When can an oil lease and a gas lease be combined?

    A lessee owning both an oil lease and gas lease covering the same 
acreage is authorized to convert such leases to a combination oil and 
gas lease.

Subpart C--Operations

Sec.  226.33  What are the general requirements governing operations?

    (a) The lessee shall comply with applicable laws and regulations; 
with the lease terms; and with orders and instructions of the 
Superintendent. These include, but are not limited to, conducting all 
operations in a manner that:
    (1) Ensures the proper handling, measurement, disposition, and site 
security of leasehold production;
    (2) Protects other natural resources and environmental quality;
    (3) Protects life and property; and
    (4) Results in maximum ultimate economic recovery of oil and gas 
and other marketable products with minimum waste and with minimum 
adverse effect on ultimate recovery of other mineral resources.
    (b) The lessee shall permit properly identified authorized 
representatives of the Superintendent to enter upon, travel across, and 
inspect lease sites and records normally kept on the lease pertinent 
thereto without advance notice. Inspections normally will be conducted 
during those hours when responsible persons are expected to be present 
at the operation being inspected. Such permission shall include access 
to secured facilities on such lease sites for the purpose of making any 
inspection or investigation for determining whether there is compliance 
with applicable law, the regulations in this part, and any applicable 
orders, notices or directives.
    (c) For the purpose of making any inspection or investigation, the 
Superintendent shall have the same right to enter upon or travel across 
any lease site as the lessee.

Sec.  226.34  What requirements apply to commencement of operations on 
a lease?

    (a) No operations shall be permitted upon any tract of land until a 
lease covering such tract shall have been approved by the 
Superintendent. The Superintendent may grant authority to any party 
under such lease, consistent with the regulations in this part that he 
or she deems proper, to conduct geophysical and geological exploration 
work.
    (b) The lessee shall submit applications on forms to be furnished 
by the Superintendent and secure approval before:
    (1) Well drilling, treating, or workover operations are started on 
the leased premises.
    (2) Removing casing from any well.
    (c) The lessee shall notify the Superintendent a reasonable time in 
advance of starting work, of intention to drill, redrill, deepen, plug, 
or abandon a well.

Sec.  226.35  How does a lessee acquire permission to begin operations 
on a restricted homestead allotment?

    (a) The lessee may conduct operations within or upon a restricted 
homestead selection only with the written consent of the 
Superintendent.
    (b) If the allottee is unwilling to permit operations on his 
homestead, the Superintendent will cause an examination of the premises 
to be made with the allottee and lessee or his representative. Upon 
finding that the interests of the Osage Mineral Estate require that the 
tract be developed, the Superintendent will endeavor to have the 
parties agree upon the terms under which operations on the homestead 
may be conducted.
    (c) In the event the allottee and lessee cannot reach an agreement, 
the matter shall be presented by all parties before the Osage Minerals 
Council, and the Council shall make its recommendations. Such 
recommendations shall be considered as final and binding upon the 
allottee and lessee. A guardian may represent the allottee. Where no 
one is authorized or where no person is deemed by the Superintendent to 
be a proper party to speak for a person of unsound mind or feeble 
understanding, the Principal Chief of the Osage Tribe shall represent 
him.
    (d) If the allottee or his representative does not appear before 
the Osage Minerals Council when notified by the Superintendent, or if 
the Council fails to act within 10 days after the matter is referred to 
it, the Superintendent may authorize the lessee to proceed with 
operations in conformity with the provisions of his lease and the 
regulations in this part.

Sec.  226.36  What kind of notice and information is required to be 
given surface owners prior to commencement of drilling operations?

    (a) The lessee shall notify or attempt to notify the surface owner 
in one general written notification sent by certified mail with a copy 
to the Superintendent, that it plans to begin conducting the following 
activities over the term of its lease: Archeological or biological 
surveys, or staking of wells.
    (b) No operations of any kind shall commence until the lessee or 
its authorized representative shall meet with the surface owner or his/
her representative. The lessee must request the meeting in writing by 
certified mail and provide a copy of the letter to the Superintendent. 
Unless waived by the Superintendent or otherwise agreed to

[[Page 53096]]

between the lessee and surface owner, such meeting shall be held at 
least 10 calendar days prior to the commencement or any operations. At 
such meeting lessee or its authorized representative shall comply with 
the following requirements:
    (1) Indicate the location of the well or wells to be drilled.
    (2) Arrange for a route of ingress and egress. Upon failure to 
agree on a route of ingress and egress, said route shall be set by the 
Superintendent.
    (3) Furnish to said surface owners the name and address of the 
party or representative upon whom the surface owner shall serve any 
claim for damages which he may sustain from mineral development or 
operations, and as to the procedure for settlement thereof as provided 
in Sec.  226.41.
    (4) Where the drilling is to be on restricted land, lessee or its 
authorized representative in the manner provided above shall meet with 
the Superintendent.
    (5) When the surface owner or its representative cannot be 
contacted at the last known address or has not accepted a meeting 
request within 30 calendar days of receipt of the request, the 
Superintendent shall, in writing, authorize lessee to proceed with 
operations.

Sec.  226.37  How much of the surface may a lessee use?

    The lessee or its authorized representative shall have the right to 
use so much of the surface of the land within the Osage Mineral Estate 
as may be reasonable for operations and marketing. This includes, but 
is not limited to the right to, lay and maintain pipelines, electric 
lines, pull rods, other appliances necessary for operations and 
marketing, and the right-of-way for ingress and egress to any point of 
operations.
    (a) If the lessee and surface owner are unable to agree as to the 
routing of pipelines, electric lines, etc., said routing shall be set 
by the Superintendent.
    (b) The right to use water for lease operations is established by 
Sec.  226.48.
    (c) The lessee shall conduct its operations in a workmanlike 
manner, commit no waste and allow none to be committed upon the land, 
nor permit any avoidable nuisance to be maintained on the premises 
under its control.

Sec.  226.38  What commencement money must the lessee pay to the 
surface owner?

    (a) Before commencing actual exploration and/or development, the 
lessee shall pay or tender to the surface owner commencement money in 
the amount of $25 per shot hole for explosive source (for the 
acquisition of Single Fold (100 per cent Seismic)), or $400 per linear 
mile for surface source data acquisition. For the purpose of conducting 
a 3D seismic survey, the lessee shall pay commencement money in the 
amount of $10 per acre occupied during the time the survey is 
conducted. The lessee shall also pay commencement money in the amount 
of $2500 for each well.
    (1) After payment of commencement money the lessee shall be 
entitled to immediate possession of the drilling site.
    (2) Commencement money will not be required for the redrilling of a 
well which was originally drilled under the current lease.
    (3) A drilling site shall be held to the minimum area essential for 
operations and shall not exceed one and one-half acres in area unless 
authorized by the Superintendent.
    (4) Commencement money shall be a credit toward the settlement of 
the total damages.
    (5) Acceptance of commencement money by the surface owner does not 
affect its right to compensation for damages as described in Sec.  
226.40, occasioned by the drilling and completion of the well for which 
it was paid.
    (6) Since actual damage to the surface from operations cannot 
necessarily be ascertained prior to the completion of a well as a 
serviceable well or dry hole, a damage settlement covering the drilling 
operation need not be made until after completion of drilling 
operations.
    (b) Where the surface is restricted land, commencement money shall 
be paid to the Superintendent for the landowner. All other surface 
owners shall be paid or tendered such commencement money direct.
    (1) Where such surface owners are neither residents of Osage 
County, nor have a representative located therein, such payment shall 
be made or tendered to the last known address of the surface owner at 
least 5 days before commencing drilling operation on any well.
    (2) If the lessee is unable to reach the owner of the surface of 
the land for the purpose of tendering the commencement money or if the 
owner of the surface of the land refuses to accept the same, the lessee 
shall deposit such amount with the Superintendent by check payable to 
the Bureau of Indian Affairs. The superintendent shall thereupon advise 
the owner of the surface of the land by mail at his last known address 
that the commencement money is being held for payment to him upon his 
written request.

Sec.  226.39  What fees must lessee pay to a surface owner for tank 
siting?

    The lessee shall pay fees for each tank sited at the rate of $500 
per tank, except that:
    (a) No payment shall be due for a tank temporarily set on a well 
location site for drilling, completing, or testing; and
    (b) The sum to be paid for a tank occupying an area more than 2500 
square feet shall be agreed upon between the surface owner and lessee 
or, on failure to agree, the same shall be determined by arbitration as 
provided by Sec.  226.41.

Sec.  226.40  What is a settlement of damages claimed?

    (a) The lessee or its authorized representative or geophysical 
permittee shall pay for all damages to growing crops, any improvements 
on the lands, and all other surface damages as may be occasioned by 
operations. Commencement money shall be a credit toward the settlement 
of the total damages occasioned by the drilling and completion of the 
well for which it was paid. Such damages shall be paid to the owner of 
the surface and by him apportioned among the parties interested in the 
surface, whether as owner, surface lessee, or otherwise, as the parties 
may mutually agree or as their interests may appear. If the lessee or 
its authorized representative and surface owner are unable to agree 
concerning damages, the same shall be determined by arbitration. 
Nothing herein contained shall be construed to deny any party the right 
to file an action in a court of competent jurisdiction if he is 
dissatisfied with the amount of the award.
    (b) Surface owners shall notify their lessees or tenants of the 
regulations in this part and of the necessary procedure to follow in 
all cases of alleged damages. If so authorized in writing, surface 
lessees or tenants may represent the surface owners.
    (c) In settlement of damages on restricted land, all sums due and 
payable shall be paid to the Superintendent for credit to the account 
of the Indian entitled thereto. The Superintendent will make the 
apportionment between the Indian landowner or owners and surface lessee 
of record.
    (d) Any person claiming an interest in any leased tract or in 
damages thereto, must furnish to the Superintendent a statement in 
writing showing said claimed interest. Failure to furnish such

[[Page 53097]]

statement shall constitute a waiver of notice and estop said person 
from claiming any part of such damages after the same shall have been 
disbursed.

Sec.  226.41  What is the procedure for settlement of damages claimed?

    Where the surface owner or his lessee suffers damage due to the oil 
and gas operations and/or marketing of oil or gas by lessee or its 
authorized representative, the procedure for recovery shall be as 
follows:
    (a) The party or parties aggrieved shall, as soon as possible after 
the discovery of any damages, serve written notice to lessee or its 
authorized representative as provided by Sec.  226.36. Written notice 
shall contain the nature and location of the alleged damages, the date 
of occurrence, the names of the party or parties causing said damages, 
and the amount of damages. It is not intended by this requirement to 
limit the time within which action may be brought in the courts to less 
than the 90-day period allowed by section 2 of the Act of March 2, 1929 
(45 Stat. 1478, 1479).
    (b) If the alleged damages are not adjusted at the time of such 
notice, the lessee or its authorized representative shall try to adjust 
the claim with the party or parties aggrieved within 20 days from 
receipt of the notice. If the claimant is the owner of restricted 
property and a settlement results, a copy of the settlement agreement 
shall be submitted to the Superintendent for approval. If the 
settlement agreement concerning the restricted property is approved by 
the Superintendent, payment shall be made to the Superintendent for the 
benefit of said claimant.
    (c) If the parties fail to adjust the claim within the 20 days 
specified, then within 10 days thereafter each of the interested 
parties shall appoint an arbitrator who immediately upon their 
appointment shall agree upon a third arbitrator. If the two arbitrators 
shall fail to agree upon a third arbitrator within 10 days, they shall 
immediately notify the parties in interest. If said parties cannot 
agree upon a third arbitrator within 5 days after receipt of such 
notice, the Superintendent shall appoint the third arbitrator.
    (d) As soon as the third arbitrator is appointed, the arbitrators 
shall meet; hear the evidence and arguments of the parties; and examine 
the lands, crops, improvements, or other property alleged to have been 
injured. Within 10 days they shall render their decision as to the 
amount of the damage due. The arbitrators shall be disinterested 
persons. The fees and expenses of the third arbitrator shall be borne 
equally by the claimant and the lessee or its authorized 
representative. Each lessee or its authorized representative and 
claimant shall pay the fee and expenses for the arbitrator appointed by 
him.
    (e) When an act of an oil or gas lessee or its authorized 
representative results in injury to both the surface owner and his 
lessee, the parties aggrieved shall join in the appointment of an 
arbitrator. Where the injury complained of is chargeable to more than 
one oil or gas lessee, or its authorized representative, all such 
chargeable lessees or representatives shall join in the appointment of 
an arbitrator.
    (f) Any two of the arbitrators may make a decision as to the amount 
of damage due. The decision shall be in writing and shall be served 
forthwith upon the parties in interest. Each party shall have 90 days 
from the date the decision is served in which to file an action in a 
court of competent jurisdiction. If no such action is filed within said 
time and the award is against the lessee or its authorized 
representative, he/she shall pay the same, together with interest at an 
annual rate established for the Internal Revenue Service from date of 
award, within 10 days after the expiration of said period for filing an 
action.
    (g) The lessee or its authorized representative shall file with the 
Superintendent a report on each settlement agreement, setting out the 
nature and location of the damage, date, and amount of the settlement, 
and any other pertinent information.

Sec.  226.42  What are a lessee's obligations for production?

    (a) The lessee shall put into marketable condition at no cost to 
the lessor, all oil, gas, and other marketable products produced from 
the leased land.
    (b) Where oil accumulates in a pit, such oil must either be:
    (1) Recirculated through the regular treating system and returned 
to the stock tanks for sale; or
    (2) Pumped into a stock tank without treatment and measured for 
sale in the same manner as from any sales tank in accordance with 
applicable orders and notices.
    (c) In the absence of prior approval from the Superintendent, no 
oil should be pumped into a pit except in an emergency. Each such 
occurrence must be reported to the Superintendent and the oil promptly 
recovered in accordance with applicable orders and notices.

Sec.  226.43  What documentation is required for transportation of oil 
or gas or other marketable product?

    (a) Any person engaged in transporting by motor vehicle any oil 
from any lease site, or allocated to any such lease site, shall carry 
on his/her person, in his/her vehicle, or in his/her immediate control, 
documentation showing at a minimum; the amount, origin, and intended 
first purchaser of the oil.
    (b) Any person engaged in transporting any oil or gas or other 
marketable product by pipeline from any lease site, or allocated to any 
lease site, shall maintain documentation showing, at a minimum, the 
amount, origin, and intended first purchaser of such oil or gas or 
other marketable product.
    (c) On any lease site, any authorized representative of the 
Superintendent who is properly identified may stop and inspect any 
motor vehicle that he/she has probable cause to believe is carrying oil 
from any such lease site, or allocated to such lease site, to determine 
whether the driver possesses proper documentation for the load of oil.
    (d) Any authorized representative of the Superintendent who is 
properly identified and who is accompanied by an appropriate law 
enforcement officer, or an appropriate law enforcement officer alone, 
may stop and inspect any motor vehicle which is not on a lease site if 
he/she has probable cause to believe the vehicle is carrying oil from a 
lease site, or allocated to a lease site, to determine whether the 
driver possesses proper documentation for the load of oil.

Sec.  226.44  What are a lessee's obligations for preventing pollution?

    (a) All lessees, contractors, drillers, service companies, pipe 
pulling and salvaging contractors, or other persons, shall at all times 
conduct their operations and drill, equip, operate, produce, plug, and 
abandon all wells drilled for oil or gas, service wells or exploratory 
wells (including seismic, core, and stratigraphic holes) in a manner 
that will prevent pollution and the migration of oil, gas, salt water, 
or other substance from one stratum into another, including any fresh 
water bearing formation.
    (b) Pits for drilling mud or deleterious substances used in the 
drilling, completion, recompletion, or workover of any well shall be 
constructed and maintained to prevent pollution of surface and 
subsurface fresh water. These pits shall be enclosed with a fence of at 
least four strands of barbed wire, or an approved substitute,

[[Page 53098]]

stretched taut to adequately braced corner posts, unless the surface 
owner, user, or the Superintendent gives consent to the contrary. 
Immediately after completion of operations, pits shall be emptied, 
reclaimed, and leveled unless otherwise requested by surface owner or 
user.
    (c) Drilling pits shall be adequate to contain mud and other 
material extracted from wells and shall have adequate storage to 
maintain a supply of mud for use in emergencies.
    (d) No earthen pit, except those used in the drilling, completion, 
recompletion or workover of a well, shall be constructed, enlarged, 
reconstructed or used without approval of the Superintendent. Unlined 
earthen pits shall not be used for the storage of salt water or other 
deleterious substances.
    (e) Deleterious fluids other than fresh water drilling fluids used 
in drilling or workover operations, which are displaced or produced in 
well completion or stimulation procedures, including, but not limited 
to, fracturing, acidizing, swabbing, and drill stem tests, shall be 
collected into a pit lined with plastic of at least 30 mil or a metal 
tank and maintained separately from above-mentioned drilling fluids to 
allow for separate disposal.

Sec.  226.45  What are a lessee's other environmental responsibilities?

    (a) The lessee shall conduct operations in a manner which protects 
the mineral resources, other natural resources, and environmental 
quality. The lessee shall comply with the pertinent orders of the 
Superintendent and other standards and procedures as set forth in the 
applicable laws, regulations, lease terms and conditions, and the 
approved drilling plan or subsequent operations plan.
    (b) The lessee shall exercise due care and diligence to assure that 
leasehold operations do not result in undue damage to surface or 
subsurface resources or surface improvements.
    (1) All produced water must be disposed of by injection into the 
subsurface, in approved pits, or by other methods which have been 
approved by the Superintendent.
    (2) Upon the conclusion of operations, the lessee shall reclaim the 
disturbed surface in a manner approved or prescribed by the 
Superintendent.
    (c) All spills or leakages of oil, gas, other marketable products, 
produced water, toxic liquids, or waste materials, blowouts, fires, 
personal injuries, and fatalities shall be reported by the lessee to 
the Superintendent as soon as discovered, but not later than the next 
business day.
    (1) The lessee shall exercise due diligence in taking necessary 
measures, subject to approval by the Superintendent, to control and 
remove pollutants and to extinguish fires.
    (2) A lessee's compliance with the requirements of the regulations 
in this part shall not relieve the lessee of the obligation to comply 
with other applicable laws and regulations.
    (d) When required by the Superintendent, a contingency plan shall 
be submitted describing procedures to be implemented to protect life, 
property, and the environment.
    (e) The lessee's liability for damages to third parties shall be 
governed by applicable law.

Sec.  226.46  What safety precautions must a lessee take?

    The lessee shall perform operations and maintain equipment in a 
safe and workmanlike manner. The lessee shall take all precautions 
necessary to provide adequate protection for the health and safety of 
life and the protection of property. Such precautions shall not relieve 
the lessee of the responsibility for compliance with other pertinent 
health and safety requirements under applicable laws or regulations.

Sec.  226.47  When can the Superintendent grant easements for wells off 
leased premises?

    The Superintendent, with the consent of the Osage Minerals Council, 
may grant commercial and noncommercial easements for wells off the 
leased premises to be used for purposes associated with oil and gas 
production. Rents payable to the Osage Mineral Estate for such 
easements shall be in an amount agreed to by Grantee and the Osage 
Minerals Council, subject to the approval of the Superintendent. 
Grantee shall be responsible for all damages resulting from the use of 
such wells and settlement for any damages shall be made as provided in 
Sec.  226.41.

Sec.  226.48  A lessee's use of water.

    The lessee or his contractor may, with the approval of the 
Superintendent, use water from streams and natural water courses to the 
extent that such use does not diminish the supply below the 
requirements of the surface owner from whose land the water is taken. 
Similarly, the lessee or his contractor may use water from reservoirs 
formed by the impoundment of water from such streams and natural water 
courses, if such use does not exceed the quantity to which they 
originally would have been entitled had the reservoirs not been 
constructed. The lessee or his/her contractor may install necessary 
lines and other equipment within the Osage Mineral Estate to obtain 
such water. Any damage resulting from such installation shall be 
settled as provided in Sec.  226.41.

Sec.  226.49  What are the responsibilities of an oil lessee when a gas 
well is drilled and vice versa?

    Prior to drilling, an oil or gas lessee shall notify the other 
lessees of its intent to drill. When an oil lessee in drilling a well 
encounters a formation or zone having indications of possible gas 
production, or the gas lessee in drilling a well encounters a formation 
or zone having indication of possible oil production, the lessee shall 
immediately notify the other lessee and the Superintendent. The lessee 
drilling the well shall obtain all information that a prudent lessee 
would utilize to evaluate the productive capability of such formation 
or zone.
    (a) Gas well to be turned over to gas lessee. If an oil lessee 
drills a gas well, it shall, without removing from the well any of the 
casing or other equipment, immediately shut the well in and notify the 
gas lessee and the Superintendent.
    (1) If the gas lessee does not, within 45 days after receiving 
notice and determining the cost of drilling, elect to take over such 
well and reimburse the oil lessee the cost of drilling, including all 
damages paid and the cost in-place of casing, tubing, and other 
equipment, the oil lessee shall immediately confine the gas to the 
original stratum. The disposition of such well and the production 
therefrom shall then be subject to the approval of the Superintendent.
    (2) If the oil lessee and gas lessee cannot agree on the cost of 
the well, the Superintendent will apportion the cost between the oil 
and gas lessees.
    (b) Oil well to be turned over to oil lessee. If a gas lessee 
drills an oil well, then it must immediately, without removing from the 
well any of the casing or other equipment, notify the oil lessee and 
the Superintendent.
    (1) If the oil lessee does not, within 45 days after receipt of 
notice and cost of drilling, elect to take over the well, it must 
immediately notify the gas lessee. From that point, the Superintendent 
must approve the disposition of the well, and any gas produced from it.
    (2) If the oil lessee chooses to take over the well, it must pay to 
the gas lessee:
    (i) The cost of drilling the well, including all damages paid; and
    (ii) The cost in place of casing and other equipment.

[[Page 53099]]

    (3) If the oil lessee and the gas lessee cannot agree on the cost 
of the well, the Superintendent will apportion the cost between the oil 
and gas lessees.
    (c) Lands not leased. If a gas lessee drills an oil well upon lands 
not leased for oil purposes or vice versa, the Superintendent may, 
until such time as said lands are leased, permit the lessee who drilled 
the well to operate and market the production therefrom. When said 
lands are leased, the lessee who drilled and completed the well shall 
be reimbursed by the oil or gas lessee for the cost of drilling said 
well, including all damages paid and the cost of in-place casing, 
tubing, and other equipment. If the lessee does not elect to take over 
said well as provided above, the disposition of such well and the 
production therefrom shall be determined by the Superintendent. In the 
event the oil lessee and gas lessee cannot agree on the cost of the 
well, such cost shall be apportioned between the oil and gas lessee by 
the Superintendent.

Sec.  226.50  How is the cost of drilling a well determined?

    The term ``cost of drilling'' as applied where one lessee takes 
over a well drilled by another, shall include all reasonable, usual, 
necessary, and proper expenditures. A list of expenses mentioned in 
this section shall be presented to proposed purchasing lessee within 10 
days after the completion of the well. In the event of a disagreement 
between the parties as to the charges assessed against the well that is 
to be taken over, such charges shall be determined by the 
Superintendent.

Sec.  226.51  What are the requirements for using gas for operating 
purposes and tribal uses?

    All gas used in accordance with this section must first be odorized 
and treated in accordance with industry standards for safe use.
    (a) Gas to be furnished oil lessee. The lessee of a producing gas 
lease shall furnish the oil lessee sufficient gas for operating 
purposes at a rate to be agreed upon, or on failure to agree, the rate 
shall be determined by the Superintendent: Provided, that the oil 
lessee shall at his own expense and risk, furnish and install the 
necessary connections to the gas lessee's well or pipeline. All such 
connections shall be reported in writing to the Superintendent.
    (b) Use of gas by Osage Tribe. (1) Gas from any well or wells shall 
be furnished to any Tribal-owned building or enterprise at a rate not 
to exceed the price less the royalty being received or offered by a gas 
purchaser. This requirement shall be subject to the determination by 
the Superintendent that gas in sufficient quantities is available above 
that needed for lease operation and that no waste would result. In the 
absence of a gas purchaser, the rate to be paid by the Osage Tribe 
shall be determined by the Superintendent based on prices being paid by 
purchasers in the Osage Mineral Estate. The Osage Tribe is to furnish 
all necessary materials and labor for such connection with the lessee's 
gas system. The use of such gas shall be at the risk of the Osage Tribe 
at all times.
    (2) Any member of the Osage Tribe residing in Osage County and 
outside a corporate city is entitled to the use at his own expense of 
not to exceed 400,000 cubic feet of gas per calendar year for his 
principal residence at a rate not to exceed the amount paid by a gas 
purchaser plus 10 percent. This requirement shall be subject to the 
determination by the Superintendent that gas in sufficient quantities 
is available above that needed for lease operation and that no waste 
would result. In the absence of a gas purchaser, the amount to be paid 
by the Tribal member shall be determined by the Superintendent. Gas to 
Tribal members shall not be royalty free. The Tribal member is to 
furnish all necessary material and labor for such connection to the 
lessee's gas system, and shall maintain his own lines. The use of such 
gas shall be at the risk of the Tribal member at all times.
    (3) Gas furnished by the lessee under paragraphs (b)(1) and (2) of 
this section may be terminated only with the approval of the 
Superintendent. A written application for termination must be made to 
the Superintendent showing justification.

Subpart D--Cessation of Operations

Sec.  226.52  When can a lessee shutdown, abandon, and plug a well?

    No well shall be abandoned until its lack of further profitable 
production of oil and/or gas has been demonstrated to the satisfaction 
of the Superintendent. The lessee shall not shut down, abandon, or 
otherwise discontinue the operation or use of any well for any purpose 
without the written approval of the Superintendent. All applications 
for such approval shall be submitted to the Superintendent on forms 
furnished by the Superintendent.
    (a) Application for authority to permanently shut down or 
discontinue the use or operation of a well shall set forth the 
justification, probable duration, the means by which the well bore is 
to be protected, and the contemplated eventual disposition of the well. 
The method of conditioning such well shall be subject to the approval 
of the Superintendent.
    (b) Prior to permanent abandonment of any well, the oil lessee or 
the gas lessee, as the case may be, shall offer the well to the other 
for his recompletion or use under such terms as may be mutually agreed 
upon but not in conflict with the regulations. Failure of the lessee 
receiving the offer to reply within 10 days after receipt thereof shall 
be deemed a rejection of the offer. If, after indicating acceptance, 
the two parties cannot agree on the terms of the offer within 30 days, 
the disposition of such well shall be determined by the Superintendent.
    (c) The Superintendent is authorized to shut in a lease when the 
lessee fails to comply with the terms of the lease, the regulations, 
and/or orders of the Superintendent.

Sec.  226.53  When must a lessee dispose of casings and other 
improvements?

    (a) Upon termination of a lease, permanent improvements, unless 
otherwise provided by written agreement with the surface owner and 
filed with the Superintendent, shall remain a part of said land and 
become the property of the surface owner upon termination of the lease, 
other than by termination for cause. Exceptions include personal 
property not limited to tools, tanks, pipelines, pumping and drilling 
equipment, derricks, engines, machinery, tubing, and the casings of all 
wells. When any lease terminates, all such personal property shall be 
removed within 90 days or such reasonable extension of time as may be 
granted by the Superintendent. Otherwise, the ownership of all casings 
shall revert to lessor and all other personal property and permanent 
improvements to the surface owner. Nothing herein shall be construed to 
relieve the lessee of responsibility for removing any such personal 
property or permanent improvements from the premises if required by the 
Superintendent and restoring the premises as nearly as practicable to 
the original state.
    (b) Upon termination of lease for cause. When there has been a 
termination for cause, the lessor shall be entitled and authorized to 
take immediate possession of the lease premises and all permanent 
improvements and all other equipment necessary for the operation of the 
lease.
    (c) Wells to be abandoned shall be promptly plugged as prescribed 
by the Superintendent. Applications to plug

[[Page 53100]]

shall include a statement affirming compliance with Sec.  226.52 and 
shall set forth reasons for plugging, a detailed statement of the 
proposed work, including the kind, location, and length of plugs (by 
depth), plans for mudding and cementing, testing, parting and removing 
casing, and any other pertinent information: Provided, that the 
Superintendent may give oral permission and instructions pending 
receipt of a written application to plug a newly drilled hole. The 
lessee shall submit a written application for authority to plug a well.
    (d) The lessee shall plug and fill all dry or abandoned wells in a 
manner to confine the fluid in each formation bearing fresh water, oil, 
gas, salt water, and other minerals, and to protect it against invasion 
of fluids from other sources. Mud-laden fluid, cement, and other plugs 
shall be used to fill the hole from bottom to top.
    (1) If a satisfactory agreement is reached between the lessee and 
the surface owner, subject to the approval of the Superintendent, the 
lessee may condition the well for use as a fresh water well and shall 
so indicate on the plugging record.
    (2) The manner in which plugging material shall be introduced and 
the type of material so used shall be subject to the approval of the 
Superintendent.
    (3) Within 10 days after plugging, the lessee shall file with the 
Superintendent a complete report of the plugging of each well.
    (4) When any well is plugged and abandoned, the lessee shall, 
within 90 days, clean up the premises around such well to the 
satisfaction of the Superintendent.

Subpart E--Requirements of Lessees

Sec.  226.54  What general requirements apply to lessees?

    (a) The lessee shall comply with all orders or instructions issued 
by the Superintendent. The Superintendent or his representative may 
enter upon the leased premises for the purpose of inspection.
    (b) The lessee shall keep a full and correct account of all 
operations, receipts, and disbursements and make reports thereof, as 
required.
    (c) The lessee's books and records shall be available to the 
Superintendent for inspection.
    (d) The lessee shall maintain and preserve records for 6 years from 
the day on which the relevant transaction recorded occurred unless the 
Superintendent notifies the lessee of an audit or investigation 
involving the records and that they must be maintained for a longer 
period. When an audit or investigation is underway, records shall be 
maintained until the lessee is released in writing from the obligation 
to maintain the records.

Sec.  226.55  When must a lessee designate process agents?

    (a) Before actual drilling or development operations are commenced 
on leased lands, the lessee or assignee, if not a resident of the State 
of Oklahoma, shall appoint a local or resident representative within 
the State of Oklahoma on whom the Superintendent may serve notice or 
otherwise communicate in securing compliance with the regulations in 
this part, and shall notify the Superintendent of the name and post 
office address of the representative appointed.
    (b) Where several parties own a lease jointly, one representative 
or agent shall be designated whose duties shall be to act for all 
parties concerned. Designation of such representative should be made by 
the party in charge of operations.
    (c) In the event of the incapacity or absence from the State of 
Oklahoma of such designated local or resident representative, the 
lessee shall appoint a substitute to serve in his stead. In the absence 
of such representative or appointed substitute, any employee of the 
lessee upon the leased premises or person in charge of drilling or 
related operations thereon shall be considered the representative of 
the lessee for the purpose of service of orders or notices as herein 
provided.

Sec.  226.56  What are the lessee's record and reporting requirements 
for wells?

    (a) The lessee shall keep accurate and complete records of the 
drilling, redrilling, deepening, repairing, treating, plugging, or 
abandonment of all wells. These records shall show:
    (1) All the formations penetrated, the content and character of the 
oil, gas, other marketable product, or water in each formation, and the 
kind, weight, size, landed depth, and cement record of casing used in 
drilling each well;
    (2) The record of drill-stem and other bottom hole pressure or 
fluid sample surveys, temperature surveys, directional surveys, and the 
like;
    (3) The materials and procedure used in the treating or plugging of 
wells or in preparing them for temporary abandonment; and
    (4) Any other information obtained in the course of well operation.
    (b) The lessee shall take such samples and make such tests and 
surveys as may be required by the Superintendent to determine 
conditions in the well or producing reservoir and to obtain information 
concerning formations drilled, and shall furnish such reports as 
required in the manner and method specified by the Superintendent.
    (c) Within 10 days after completion of operations on any well, the 
lessee shall transmit to the Superintendent:
    (1) All applicable information on forms furnished by the 
Superintendent;
    (2) A copy of the electrical, mechanical or radioactive log, or 
other types of survey of the well bore; and
    (3) The core analysis obtained from the well.
    (d) The lessee shall also submit other reports and records of 
operations as may be required and in the manner, form, and method 
prescribed by the Superintendent.
    (e) The lessee shall measure production of oil, gas, other 
marketable product, and water from individual wells at reasonably 
frequent intervals to the satisfaction of the Superintendent.
    (f) Upon request and in the manner, form and method prescribed by 
the Superintendent, the lessee shall furnish a plat showing the 
location, designation, and status of all wells on the leased lands, 
together with such other pertinent information as the Superintendent 
may require.

Sec.  226.57  What line drilling limitations must a lessee comply with?

    The lessee shall not drill within 300 feet of the boundary line of 
leased lands, or locate any well or tank within 200 feet of any public 
highway, any established watering place, or any building used as a 
dwelling, granary, or barn, except with the written permission of the 
Superintendent. Failure to obtain advance written permission from the 
Superintendent shall subject the lessee to termination of the lease 
and/or plugging of the well.

Sec.  226.58  What are the requirements for marking wells and tank 
batteries?

    The lessee shall clearly and permanently mark all wells and tank 
batteries in a conspicuous place with the number, legal description, 
operator's name, lessee's name, and telephone number, and shall take 
all necessary precautions to preserve these markings.

Sec.  226.59  What precautions must a lessee take to ensure natural 
formations are protected?

    The lessee shall, to the satisfaction of the Superintendent, take 
all proper precautions and measures to prevent damage or pollution of 
oil, gas, fresh water, or other mineral bearing formations.

[[Page 53101]]

Sec.  226.60  What are a lessee's obligations to maintain control of 
wells?

    (a) In drilling operations in fields where high pressures, lost 
circulation, or other conditions exist which could result in blowouts, 
the lessee shall install an approved gate valve or other controlling 
device in proper working condition for use until the well is completed. 
At all times, preventative measures must be taken in all well 
operations to maintain proper control of subsurface strata.
    (b) Drilling wells. The lessee shall take all necessary precautions 
to keep each well under control at all times, and shall utilize and 
maintain materials and equipment necessary to insure the safety of 
operating conditions and procedures.
    (c) Vertical drilling. The lessee shall conduct drilling operations 
in a manner so that the completed well does not deviate significantly 
from the vertical without the prior written approval of the 
Superintendent. Significant deviation means a projected deviation of 
the well bore from the vertical of 10[deg] or more, or a projected 
bottom hole location which could be less than 200 feet from the spacing 
unit or lease boundary. Any well which deviates more than 10[deg] from 
the vertical or could result in a bottom hole location less than 200 
feet from the spacing unit or lease boundary without prior written 
approval must be reported promptly to the Superintendent. In these 
cases, a directional survey is required.
    (d) High pressure or loss of circulation. The lessee shall take 
immediate steps and utilize necessary resources to maintain or restore 
control of any well in which the pressure equilibrium has become 
unbalanced.
    (e) Protection of fresh water and other minerals. The lessee shall 
isolate freshwater-bearing and other usable water containing 5,000 ppm 
or less of dissolved solids and other mineral-bearing formations and 
protect them from contamination. Tests and surveys of the effectiveness 
of such measures shall be conducted by the lessee using procedures and 
practices approved or prescribed by the Superintendent.
    (f) Whenever applicable given the circumstances, the lessee shall 
conduct activities in accordance with the standards and procedures set 
forth in Bureau of Land Management Onshore Order 6, Hydrogen Sulfide 
Operations, and any amendments thereto.

Sec.  226.61  How does a lessee prevent waste of oil and gas and other 
marketable products?

    (a) The lessee shall conduct all operations in a manner that will 
prevent waste of oil and gas and other marketable products and shall 
not wastefully utilize oil or gas or other marketable products.
    (b) The Superintendent shall have the authority to impose such 
requirements as he deems necessary to prevent waste of oil and gas and 
other marketable products and to promote the greatest ultimate recovery 
of oil and gas and other marketable products.
    (c) For purposes of this section, waste includes, but is not 
limited to, the inefficient excessive or improper use or dissipation of 
reservoir energy which would reasonably reduce or diminish the quantity 
of oil or gas or other marketable product that might ultimately be 
produced, or the unnecessary or excessive surface loss or destruction, 
without beneficial use, of oil, gas or other marketable product.

Sec.  226.62  How does a lessee measure and store oil?

    (a) All production run from the lease shall be measured according 
to methods and devices approved by the Superintendent. Facilities 
suitable for containing and measuring accurately all crude oil produced 
from the wells shall be provided by the lessee and shall be located on 
the leasehold unless otherwise approved by the Superintendent. The 
lessee shall furnish to the Superintendent a copy of 100-percent 
capacity tank table for each tank. Meters and installations for 
measuring oil must be approved.
    (b) The lessee must ensure that each Lease Automatic Custody 
Transfer (LACT) meter is inspected, calibrated, and adjusted at least 
twice in each calendar year, no less than five months apart. The lessee 
must ensure that the Superintendent is given 48 hours prior notice of 
all LACT meter inspections, calibrations, and adjustments. The 
Superintendent shall have the right to witness, unannounced, all LACT 
meter inspections, calibrations, and adjustments. The lessee shall 
fully cooperate with such witnessing. If the Superintendent is not 
present, then he may request records relating to all LACT meter 
inspections, calibrations, and adjustments. Repeated failures to comply 
with this subparagraph shall render the lease subject to termination 
after consultation with the Osage Minerals Council.
    (c) When a tank of oil is ready for removal by the purchaser, the 
lessee shall ensure that the Superintendent is informed of that fact 
before the purchaser is so informed via an electronic or telephonic 
method established by the Superintendent for reporting pursuant to this 
subparagraph. Failure to comply with the provisions of this 
subparagraph shall subject the lessee to a penalty of $500. This dollar 
amount shall be adjusted as specified in Sec.  226.70. Repeated 
failures to inform the Superintendent shall render the lease subject to 
termination after consultation with the Osage Minerals Council.
    (d) The Superintendent shall have the right to witness all 
gaugings, unannounced, on each lease. The lessee shall fully cooperate 
with such gaugings and repeated failures to comply shall render the 
lease subject to termination after consultation with the Osage Minerals 
Council.

Sec.  226.63  How is gas measured?

    (a) All gas required to be measured shall be measured in accordance 
with the standards, procedures, and practices set forth in Bureau of 
Land Management Onshore Oil and Gas Order 5, Measurement of Gas, and 
any amendments thereto. To the extent that Onshore Oil and Gas Order 5 
conflicts with any provision of these regulations, these regulations 
shall control.
    (b) All gas, required to be measured, shall be measured by meter 
(preferably of the orifice meter type) unless otherwise agreed to in 
writing by the Superintendent. All gas meters must be approved by the 
Superintendent and installed at the expense of the lessee or purchaser 
at such places as may be agreed to in writing by the Superintendent. 
For computing the volume of all gas produced, sold or subject to 
royalty, the standard of pressure shall be 14.65 pounds to the square 
inch, and the standard of temperature shall be 60 degrees F. All 
measurements of gas shall be adjusted by computation to these 
standards, regardless of the pressure and temperature at which the gas 
was actually measured, unless otherwise authorized in writing by the 
Superintendent.
    (c) The lessee must ensure that each meter is inspected, 
calibrated, and adjusted at least twice in each calendar year, no less 
than five months apart. The lessee must ensure that the Superintendent 
is given 48 hours prior notice of all meter inspections, calibrations, 
and adjustments. The Superintendent shall have the right to witness, 
unannounced, all meter inspections, calibrations, and adjustments. The 
lessee shall fully cooperate with such witnessing or be subject to 
lease termination. If the Superintendent is not present, he may request 
records relating to all meter inspections, calibrations, and 
adjustments. Repeated failures to comply with this subparagraph shall 
render the lease subject to termination

[[Page 53102]]

after consultation with the Osage Minerals Council.

Sec.  226.64  When can a lessee use of gas for lifting oil?

    The lessee shall not use raw natural gas from a distinct or 
separate stratum for the purpose of flowing or lifting the oil, except 
where the lessee has an approved right to both the oil and the gas, and 
then only with the approval of the Superintendent of such use and of 
the manner of its use.

Sec.  226.65  What site security standards apply to oil and gas and 
other marketable product leases?

    (a) Definitions. The following definitions apply to terms used in 
this section.
    Appropriate valves. Those valves in a particular piping system, 
i.e., fill lines, equalizer or overflow lines, sales lines, circulating 
lines, and drain lines that shall be sealed during a given operation.
    Effectively sealed. The placement of a seal in such a manner that 
the position of the sealed valve may not be altered without the seal 
being destroyed.
    Production phase. That period of time or mode of operation during 
which crude oil is delivered directly to or through production vessels 
to the storage facilities and includes all operations at the facility 
other than those defined by the sales phase.
    Sales phase. That period of time or mode of operation during which 
crude oil is removed from the storage facilities for sales, 
transportation or other purposes.
    Seal. A device, uniquely numbered, which completely secures a 
valve.
    (b) Minimum Standards. Each lessee shall comply with the following 
minimum standards to assist in providing accountability of oil or gas 
production:
    (1) All lines entering or leaving oil storage tanks shall have 
valves capable of being effectively sealed during the production and 
sales operations unless otherwise modified by other subparagraphs of 
this paragraph, and any equipment needed for effective sealing, 
excluding the seals, shall be located at the site. For a minimum of 6 
years the lessee shall maintain a record of seal numbers used and shall 
document on which valves or connections they were used as well as when 
they were installed and removed. The site facility diagram(s) shall 
show which valves will be sealed in which position during both the 
production and sales phases of operation.
    (2) Each LACT system shall employ meters that have non-resettable 
totalizers. There shall be no by-pass piping around the LACT. All 
components of the LACT that are used for volume or quality 
determinations of the oil shall be effectively sealed. For systems 
where production may only be removed through the LACT, no sales or 
equalizer valves need be sealed. However, any valves which may allow 
access for removal of oil before measurement through the LACT shall be 
effectively sealed.
    (3) There shall be no by-pass piping around gas meters. Equipment 
which permits changing the orifice plate without bleeding the pressure 
off the gas meter run is not considered a by-pass.
    (4) For oil measured and sold by hand gauging, all appropriate 
valves shall be sealed during the production or sales phase, as 
applicable.
    (5) Circulating lines having valves which may allow access to 
remove oil from storage and sales facilities to any other source except 
through the treating equipment back to storage shall be effectively 
sealed as near the storage tank as possible.
    (6) The lessee, with reasonable frequency, shall inspect all leases 
to determine production volumes and that the minimum site security 
standards are being met. The lessee shall retain records of such 
inspections and measurements for 6 years from generation. Such records 
and measurements shall be available to the Superintendent upon request.
    (7) Any lessee may request the Superintendent to approve a variance 
from any of the minimum standards prescribed by this section. The 
variance request shall be submitted in writing to the Superintendent 
who may consider such factors as regional oil field facility 
characteristics and fenced, guarded sites. The Superintendent may 
approve a variance if the proposed alternative will ensure measures 
equal to or in excess of the minimum standards provided in paragraph 
(b) of this section will be put in place to detect or prevent internal 
and external theft, and will result in proper production 
accountability.
    (c) Site security plans. (1) Site security plans, which include the 
lessee's plan for complying with the minimum standards enumerated in 
paragraph (b) of this section for ensuring accountability of oil/
condensate production are required for all facilities and such 
facilities shall be maintained in compliance with the plan. For new 
facilities, notice shall be given that it is subject to a specific 
existing plan, or a notice of a new plan shall be submitted, no later 
than 60 days after completion of construction or first production, and 
on that date the facilities shall be in compliance with the plan. At 
the lessee's option, a single plan may include all of the lessee's 
leases, units, and communitized areas, provided the plan clearly 
identifies each lease, unit, or communitized area included within the 
scope of the plan and the extent to which the plan is applicable to 
each lease, unit, or communitized area so identified.
    (2) The lessee shall retain the plan, but shall notify the 
Superintendent of its completion and which leases, units, and 
communitized areas are involved. Such notification is due at the time 
the plan is completed as required by paragraph (c)(1) of this section. 
Such notification shall include the location and normal business hours 
of the office where the plan will be maintained. Upon request, all 
plans shall be made available to the Superintendent.
    (3) The plan shall include the frequency and method of the lessee's 
inspection and production volume recordation. The Superintendent may, 
upon examination, require adjustment of the method or frequency of 
inspection.
    (d) Site facility diagrams. (1) Facility diagrams are required for 
all facilities which are used in storing oil/condensate. Facility 
diagrams shall be filed within 60 days after new measurement facilities 
are installed or existing facilities are modified.
    (2) No format is prescribed for facility diagrams. They are to be 
prepared on 8\1/2\'' x 11'' paper, if possible, and be legible and 
comprehensible to a person with ordinary working knowledge of oil field 
operations and equipment. The diagram need not be drawn to scale.
    (3) A site facility diagram shall accurately reflect the actual 
conditions at the site and shall, commencing with the header if 
applicable, clearly identify the vessels, piping, metering system, and 
pits, if any, which apply to the handling and disposal of oil, gas and 
water. The diagram shall indicate which valves shall be sealed and in 
what position during the production or sales phase. The diagram shall 
clearly identify the lease on which the facility is located and the 
site security plan to which it is subject, along with the location of 
the plan.

Sec.  226.66  What are a lessee's reporting requirements for accidents, 
fires, theft, and vandalism?

    Lessees shall make a complete report to the Superintendent of all 
accidents, fires, or acts of theft and vandalism occurring on the 
leased premises as soon as discovered, but not later than the next 
business day. Said report shall include an estimate of the volume of 
oil

[[Page 53103]]

involved. Lessees also are expected to report such thefts promptly to 
local law enforcement agencies and internal company security.

Subpart F--Penalties

Sec.  226.67  What are the penalties for violations of lease terms?

    Violation of any of the terms or conditions of any lease or of the 
regulations in this part shall subject the lease to termination by the 
Superintendent after consultation with the Osage Minerals Council; or 
the lessee to a fine of not more than $1000 per day for each day of 
noncompliance with the written orders of the Superintendent; or to both 
such fine and lease termination. The dollar amount of penalties under 
this section shall be adjusted as specified in Sec.  226.70. All 
penalties and fines shall be paid to the Superintendent in the form of 
a money order, cashier's check or electronic funds transfer.

Sec.  226.68  What are the penalties for violation of certain operating 
regulations?

    In lieu of the penalties provided under Sec.  226.67, penalties may 
be imposed by the Superintendent for violation of certain sections of 
the regulations of this part as follows, with the dollar amounts in 
this section adjusted as specified in Sec.  226.70:
    (a) For failure to obtain permission to start operations required 
by Sec.  226.34(a), $150 per day.
    (b) For failure to file records required by Sec.  226.56, $150 per 
day until compliance is met.
    (c) For failure to mark wells or tank batteries as required by 
Sec.  226.58, $150 per day for each well or tank battery.
    (d) For failure to construct and maintain pits as required by Sec.  
226.44(b) and (d), $150 for each day after operations are commenced on 
any well until compliance is met.
    (e) For failure to comply with Sec.  226.60 regarding control of 
wells, $250 per day.
    (f) For failure to notify Superintendent before drilling, 
redrilling, deepening, plugging, or abandoning any well, as required by 
Sec. Sec.  226.34(b) through (c) and 226.49, $400 per day.
    (g) For failure to properly care for and dispose of deleterious 
fluids as provided in Sec.  226.44(e), $1,000 per day until compliance 
is met.
    (h) For failure to file plugging reports as required by Sec.  
226.53(d) and for failure to file reports as required by Sec.  226.26, 
$150 per day for each violation until compliance is met.
    (i) For failure to perform or start an operation within 5 days 
after ordered by the Superintendent in writing under authority provided 
in this part, if said operation is thereafter performed by or through 
the Superintendent, the actual cost of performance thereof, plus 25 
percent.
    (j) For failure to maintain adequate bonding as required by Sec.  
226.9, $500 per day.
    (k) Whenever a transporter fails to permit inspection for proper 
documentation by any authorized representative of the Superintendent, 
the transporter shall be liable for a civil penalty of up to $1,000 per 
day for the violation, not to exceed a maximum of 20 days, dating from 
the date of notice of the failure to permit inspection and continuing 
until the proper documentation is provided.

Sec.  226.69  What are the penalties for providing false, inaccurate, 
or misleading information; or engaging in unlawful acts?

    (a) The lessee or its authorized representative is hereby notified 
that criminal procedures are provided by 18 U.S.C. 1001 for knowingly 
filing fraudulent reports and information.
    (b) Any person shall be liable for a civil penalty of up to $25,000 
per violation for each day such violation continues, not to exceed a 
maximum of 20 days if he/she:
    (1) Knowingly or willfully prepares, maintains or submits false, 
inaccurate or misleading reports, notices, affidavits, records, data or 
other written information required by this part; or
    (2) Knowingly or willfully takes or removes, transports, uses or 
diverts any oil or gas or other marketable product from any lease 
without having valid legal authority to do so; or
    (3) Purchases, accepts, sells, transports or conveys to another any 
oil or gas or other marketable product knowing or having reason to know 
that such oil or gas was stolen or unlawfully removed or diverted from 
a lease.
    (c) The dollar amount of penalties under this section shall be 
adjusted as specified in Sec.  226.70.

Sec.  226.70  How are fees and penalties scaled?

    (a) Whenever the settlement value for a barrel of oil under Sec.  
226.18 in any month is greater than $100 in the month preceding the 
assessment of any dollar amount in Sec. Sec.  226.14, 226.62(c), 
226.67, and 226.68, the dollar amount shall be adjusted by dividing by 
100 and multiplying by the Settlement Price for Oil for the preceding 
month.
    (b) Fines and penalties under this part that are not received 
within 10 days after notice of the fine or penalty shall be subject to 
late charges at the rate of not less than 1\1/2\ percent per month for 
each month or fraction thereof until paid, or such other rate as may be 
set by the Superintendent after consultation with the Osage Minerals 
Council. The Osage Minerals Council, subject to the approval of the 
Superintendent, may waive the late charge.

Subpart G--Appeals and Notices

Sec.  226.71  Who can file an appeal?

    Any person, firm or corporation aggrieved by any decision or order 
issued by or under the authority of the Superintendent, by virtue of 
the regulations in this part, may appeal pursuant to 25 CFR part 2.

Sec.  226.72  Are the notices by the Superintendent binding?

    Notices and orders issued by the Superintendent to the 
representative shall be binding on the lessee. The Superintendent may 
in his/her discretion increase the time allowed in his/her orders and 
notices.

Sec.  226.73  Information collection.

    The collections of information in this part have been approved by 
the Office of Management and Budget under 44 U.S.C. 3501 et seq. and 
assigned OMB Control Number 1076-0XXX. Response is required to obtain a 
benefit. A Federal agency may not conduct or sponsor, and you are not 
required to respond to, a collection of information unless it displays 
a currently valid OMB Control Number.

    Dated: August 16, 2013.
Kevin K. Washburn,
Assistant Secretary--Indian Affairs.
[FR Doc. 2013-20764 Filed 8-27-13; 8:45 am]
BILLING CODE 4310-02-P
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