[Federal Register Volume 72, Number 84 (Wednesday, May 2, 2007)]
[Rules and Regulations]
[Pages 24358-24446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-7991]



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Part II





Department of the Interior





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Bureau of Land Management



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43 CFR Parts 3000, 3200, and 3280



Geothermal Resource Leasing and Geothermal Resources Unit Agreements; 
Final Rule

Federal Register / Vol. 72, No. 84 / Wednesday, May 2, 2007 / Rules 
and Regulations

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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3000, 3200, and 3280

[W0-310 9131 PP]
RIN 1004-AD86


Geothermal Resource Leasing and Geothermal Resources Unit 
Agreements

AGENCY: Bureau of Land Management, Interior.

ACTION: Final rule.

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SUMMARY: This final rule revises the Bureau of Land Management's 
geothermal resources leasing and unit agreement regulations to 
implement the Energy Policy Act of 2005. The rule restructures 
regulations concerning the general geothermal leasing process and 
revises regulations on royalties and readjustment of lease terms, 
conditions, and rentals. The rule also revises regulations on lease 
duration and work commitment requirements, annual rental and credit of 
rental towards royalty, unit and communitization agreements, and 
acreage limitations. Additional revisions required by the Energy Policy 
Act include various technical corrections. Other changes in sections 
unaffected by changes in the statute clarify existing procedures, 
improve grammatical construction, conform the regulations to new 
administrative regulatory standards, and correct existing errors.

DATES: This rule is effective June 1, 2007.

ADDRESSES: Further information or questions regarding this final rule 
should be addressed in writing to the Director (WO-300), Bureau of Land 
Management, 1849 C St., NW., Washington DC 20240.

FOR FURTHER INFORMATION CONTACT: Kermit Witherbee at (202) 452-0385 or 
Ian Senio at (202) 452-5049. Persons who use a telecommunications 
device for the deaf (TDD) may contact these persons through the Federal 
Information Relay Service (FIRS) at 1-800-877-8339, 24 hours a day, 7 
days a week.

SUPPLEMENTARY INFORMATION:

I. Background
II. Discussion of Final Rule and Responses to Comments on Proposed 
Rule
III. Procedural Matters

I. Background

    On July 21, 2006, the Bureau of Land Management (BLM) published a 
proposed rule to amend existing geothermal resources leasing and unit 
agreement regulations (71 FR 41542). This final rule adopts most of the 
provisions of the proposed rule and in so doing implements the 
geothermal energy provisions of the Energy Policy Act of 2005 (Pub. L. 
109-58) (Energy Policy Act), which became law on August 8, 2005. 
Sections 221 through 236 of this Act address geothermal development and 
substantially amend the Geothermal Steam Act of 1970. The Geothermal 
Steam Act of 1970, as amended, 30 U.S.C. 1001-1028, provides the 
authority for the BLM to allow for the exploration, development, and 
utilization of geothermal resources on BLM-managed public lands, as 
well as geothermal resources on lands managed by other surface 
management agencies, such as the United States Forest Service.
    One of the more significant changes in the Energy Policy Act is the 
general requirement, with a few exceptions, for geothermal resources to 
be offered through a competitive leasing process. Lands not 
successfully sold in the competitive process can be leased 
noncompetitively.
    The Energy Policy Act also made significant changes in the way 
royalties are assessed on Federal leases. As discussed in the preamble 
to the proposed rule (71 FR at 41543), these changes were similar to, 
and in some cases identical to, recommendations in a 2005 report from 
the Geothermal Valuation Subcommittee (Subcommittee) of the Minerals 
Management Service's (MMS) Royalty Policy Committee (RPC). To simplify 
the valuation methodology for royalty purposes, the Energy Policy Act 
requires a royalty based on the ``gross proceeds'' from the sale of 
electricity from Federal geothermal leases issued after August 8, 2005 
(other than leases issued in response to applications that were pending 
on that date for which the lessee does not elect to be subject to the 
royalty regulations required by the Energy Policy Act) multiplied by a 
royalty rate established by the BLM, rather than on the ``net back'' 
system that was used prior to the Energy Policy Act. Lessees who use 
geothermal resources directly will pay fees according to a fee schedule 
established by the MMS. Under the new law, existing lessees have the 
opportunity to convert the royalty provisions in their leases to those 
of the Energy Policy Act. The MMS is publishing a final rule to 
implement the changes in the Energy Policy Act simultaneously with 
BLM's final rule. The BLM and the MMS have worked together to 
coordinate their regulations.
    References to the MMS regulations appear throughout the BLM's final 
rule because the BLM and the MMS share responsibility with regard to 
the geothermal program. The BLM holds lease sales, issues geothermal 
leases, and generally administers the leases. The BLM establishes the 
terms of the leases, including royalty rates, and enforces the lease 
terms. The MMS is responsible for collecting rents (other than the 
first year's rent) and royalties, and for enforcing the royalty 
obligations. The MMS regulations contain provisions that carry out its 
responsibilities. Appropriate cross-references are contained both in 
the BLM and the MMS regulations.
    Other changes made by the Energy Policy Act include restructured 
lease terms (length of time a lease is in effect) and lease term 
extensions, and provisions for leases for exclusive direct use of 
geothermal resources, without sale, that may be issued 
noncompetitively. The Act also increases the maximum acreage of an 
individual lease and gives the Secretary of the Interior greater 
authority to require lessees to commit to unit agreements to conserve 
geothermal resources.
    Most of the changes in the regulations of this part implement the 
new provisions of the Energy Policy Act. Other changes in sections 
unaffected by changes in the statute clarify existing procedures, 
improve grammatical construction, conform the regulations to new 
administrative or regulatory standards, and correct existing errors. 
Changes based on the Energy Policy Act and substantive changes 
unrelated to the change in statute were discussed in detail in the 
preamble to the proposed rule. Both the preamble to the proposed rule 
and this preamble set out the basis and purpose of this final rule. In 
this preamble, we explain how the final rule differs from the proposed 
rule and discuss comments received on the proposed rule and our 
responses. References in this preamble to the previous rule mean the 
rule that is currently codified in 43 CFR and not the proposed 
regulations.

II. Discussion of Final Rule and Responses to Comments on Proposed Rule

    The BLM received nine comments on the proposed rule published in 
the Federal Register on July 21, 2006 (71 FR 41542). In this section of 
the preamble, we respond to the substantive comments by subpart and/or 
section number. To facilitate understanding, we have also generally 
included a brief summary of what the subpart or section

[[Page 24359]]

provides. For additional explanation of the changes made to each 
section, please refer to the proposed rule at 71 FR 41543-41565.
    Many of the comments received addressed both the BLM proposed rule 
and the MMS proposed rule. The BLM referred to the MMS any comments it 
received regarding the MMS rule. For responses to those comments, 
please see the MMS final rule being published simultaneously with this 
final rule.

Subpart 3200--Geothermal Resources Leasing

    In subpart 3200, we changed the definitions section and added three 
sections to the end of the subpart.
Definitions
    Section 3200.1 contains definitions of terms used throughout parts 
3200 and 3280. As explained in the proposed rule, we removed the 
definitions of terms and concepts that are no longer used or were not 
used previously, added new definitions for terms or concepts that are 
new in this rule, and clarified other terms. The definitions we deleted 
were: ``additional term,'' ``cooperative agreement,'' ``extended 
term,'' and ``pay instead of produce in commercial quantities.'' The 
new terms defined are: ``initial extension,'' ``additional extension,'' 
``direct use,'' ``direct use lease,'' ``gross proceeds,'' ``commercial 
production or generation of electricity,'' and ``commercial 
production.'' Terms clarified are: ``geothermal exploration permit'' 
and ``geothermal steam and associated geothermal resources.''
    In this final rule, we revise the definition of ``commercial 
production or generation of electricity,'' by adding language to 
clarify that the term includes electricity or energy that is required 
to produce the resource, as well as that required to convert the 
resource into electrical energy for sale. This was the BLM's intent in 
the proposed rule. We also specify that the use of resources in this 
manner must be reasonable in order to discourage waste of the resource 
and to conform to the parallel MMS provision at 30 CFR 
202.351(b)(2)(ii). As explained in the preamble to the proposed rule 
(71 FR 41543), the definition of this term is important in determining 
whether geothermal resource production is subject to royalties or 
direct use fees, as referenced in 30 U.S.C. 1004(b), or neither. The 
BLM believes it is more appropriate to consider these components as 
part of the electrical generation process, both: (1) To encourage the 
production of geothermal resources (by not imposing a fee for a 
necessary cost of electricity generation); and (2) Because measurement 
of such usage would be difficult and expensive and the amount of moneys 
generated through the collection of fees would be quite small relative 
to the measurement effort. The BLM expects that an initial evaluation 
will occur at the permitting stage of whether the amount of the 
electricity used to produce the resource and to convert the resource 
into electricity is likely to be reasonable.
    In reviewing subpart 3205 of the proposed rule (Direct Use 
Leasing), we concluded that, in accordance with the statutory 
provisions at 30 U.S.C. 1003(f), the definition of a ``direct use 
lease'' should include that such a lease is issued noncompetitively. 
Section 3205.6 of the proposed (and final) rule provides, mirroring the 
statute, that the BLM may issue a direct use lease only if, among other 
things, it ``determines there is no competitive interest in the 
resource * * *.'' If the BLM determines that land for which an 
applicant applied for a direct use lease is open for geothermal leasing 
and is appropriate for exclusive direct use operations (see definition 
of ``direct use''), and that there is competitive interest, it will 
include the land in a competitive lease sale with lease stipulations 
limiting operations to exclusive direct use. Unlike a direct use lease 
that is issued noncompetitively, under a competitive lease that is 
limited to exclusive direct use, the resource may be sold (but it may 
not used by the operator or a purchaser for the commercial generation 
of electricity), and the acreage restrictions will be those applicable 
to competitive leases rather than direct use leases. We have thus 
revised the definition of ``direct use lease'' to read as follows: 
``Direct use lease means a lease issued noncompetitively in an area BLM 
designates as available exclusively for direct use of geothermal 
resources, without sale, for purposes other than commercial generation 
of electricity.''
    We received no comments on this section and, except for revising 
the definition of ``direct use lease'' as discussed above, have adopted 
it as proposed.
Types of Leases
    Final section 3200.6 provides general information about the two 
types of geothermal leases that are issued under this rule: (1) Leases 
that may be used for any type of geothermal use, such as commercial 
generation of electricity or direct use of the resource, issued either 
competitively under subpart 3203 or noncompetitively under subpart 
3204; and (2) Leases that may only be used for direct use without sale, 
i.e., direct use leases issued under proposed subpart 3205. We received 
no comments on this section and have adopted it as proposed. We discuss 
permitted uses under different types of leases in more detail in the 
discussion of subpart 3205 (Direct Use Leasing), below.
Transition Rules
    The Energy Policy Act at 30 U.S.C. 1005(d), directed that the 
Secretary by regulation establish transition rules for leases issued 
before August 8, 2005. The only transition requirement in that section 
was that leases nearing the end of their terms on August 8, 2005, must 
be allowed 2-year extensions under certain circumstances.
    Under the authority of 30 U.S.C. 1005(d), final sections 3200.7 and 
3200.8 contain transition rules, addressing how this final rule applies 
to: (1) Leases issued before August 8, 2005, the enactment date of the 
Energy Policy Act; and (2) Leases issued on or after August 8, 2005, 
but based on lease applications pending on August 8, 2005.
    Final section 3200.7(a)(1) makes leases issued before August 8, 
2005, generally subject to parts 3200 and 3280, except they are subject 
to the regulations in effect on August 8, 2005 (43 CFR parts 3200 and 
3280 (2004)), with regard to regulatory provisions relating to 
royalties, minimum royalties, rentals, primary term and lease 
extensions, diligence and annual work requirements, and renewals. Final 
section 3200.7(a)(1) and 3200.8(a) include a citation to 43 CFR parts 
3200 and 3280 (2004) to clarify that these were the regulations in 
effect on August 8, 2005. The substance of the 2004 edition of 43 CFR 
parts 3200 and 3280 is the same as the 2005 and 2006 editions of the 
CFR for those parts.
    Final section 3200.7(a)(2) provides that the lessee of a lease 
issued before August 8, 2005, may elect generally to be subject to all 
of the new regulations in parts 3200 and 3280, so long as the lessee 
makes such an election no later than 18 months after the effective date 
of this rule, i.e., no later than December 1, 2008. The provision notes 
that changes relating to royalty terms are possible only under the 
royalty conversion rules of final section 3212.25. As explained in the 
preamble to the proposed rule (71 FR 41544), this provision allowing an 
existing lessee to elect to be governed by the new regulations is 
within the BLM's authority under 30 U.S.C. 1005(d), and was prompted by 
the statutory provision at 30 U.S.C. 1003(d)(2) allowing such an 
election to lessees whose lease applications were pending on August 8, 
2005.

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    In reviewing this section during drafting of the final rule, we 
became aware that the language was confusing regarding whether a lessee 
could make an election under section 3200.7(a)(2) without also 
obtaining a conversion of royalty terms under section 3212.25. We have 
therefore added a sentence to this section clarifying that a lessee 
seeking to make an election under section 3200.7(a)(2) must also obtain 
a royalty rate conversion under section 3212.25 to make the election 
under section 3200.7(a)(2) effective. This section alternatively allows 
a lessee to convert only the royalty rate terms of the lease under 
subpart 3212.
    Section 3200.7 provides that a lessee that does not convert lease 
terms relating to royalties may apply for a production incentive under 
final subpart 3212 (if eligible under that subpart). In addition, the 
section provides that the lessee of a lease issued before August 8, 
2005, that was within 2 years of the end of its term on that date, may 
apply to extend the lease for up to 2 years, to allow achievement of 
production under the lease or to allow the lease to be included in a 
producing unit.
    Final section 3200.8 addresses geothermal lease applications 
pending on August 8, 2005, and the status of leases issued pursuant to 
such applications. The section provides that such leases are subject to 
parts 3200 and 3280, except that they are subject to the regulations in 
effect on August 8, 2005 (43 CFR parts 3200 and 3280 (2004)), with 
regard to regulatory provisions relating to royalties, minimum 
royalties, rentals, primary term and lease extensions, diligence and 
annual work requirements, and renewals. However, such lessees may elect 
to be subject to the new regulations in their entirety. Under such an 
election, the royalty rate for such leases will convert to those 
specified in sections 3211.17(a) and 3211.18(a) and not under the 
process in section 3212.25.
    One commenter asked whether someone could top-file over a lease 
application that was pending on August 8, 2005, and whether the BLM 
could convert the land to a KGRA (Known Geothermal Resource Area).
    The informal answer given to this question at a public meeting in 
Reno, Nevada on August 31, 2006, was that a noncompetitive lease 
application pending on August 8, 2005, would have priority. However, if 
two or more noncompetitive lease applications filed before August 8, 
2005, overlap in area, it is possible that the BLM, in processing the 
applications under the previous regulations, may reclassify the area as 
a KGRA and require a competitive sale.
    Another comment addressing proposed sections 3200.7 and 3200.8 
noted that in referencing the transition provisions that also apply in 
the MMS rules, the BLM does not define or use the same transition terms 
(i.e., Class I, Class II, and Class III leases) as does the MMS (see 
the MMS final rule, 30 CFR 206.351). The commenter suggested that it 
might provide clarity if the BLM regulations utilized the same 
terminology as the MMS since the two rules have interrelated 
provisions.
    We did not change the proposed rule in response to this comment. 
The MMS's classification system was designed to describe types of 
leases for royalty purposes only. In its final rule the MMS has revised 
its lease class definitions, but neither the proposed nor the final MMS 
class definitions fully describe the categories of leases for the BLM's 
purposes. For example, the MMS:
    (1) Class I leases include both: (a) Leases existing on August 8, 
2005 (existing leases), for which the lessee has not converted the 
royalty terms under section 3212.25; and (b) Leases issued pursuant to 
lease applications pending on August 8, 2005 (pending applications), 
for which the lessee has not made an election under section 3200.8(b). 
The BLM must, however, distinguish between these two sub-categories 
because non-converting existing leases are eligible for production 
incentives under section 3212.18, whereas leases issued pursuant to 
pending applications that do not elect to be subject to the new 
regulations are not eligible for production incentives;
    (2) Class II leases do not distinguish between direct use leases 
under subpart 3205, which are restricted to direct use of the resource, 
and regular leases under subparts 3203 or 3204, which may have direct 
use. Nor does the Class II designation distinguish between leases 
issued pursuant to application or competitive sale after August 8, 
2005, and those issued in response to pending applications where the 
lessee elects to be subject to the new regulations under section 
3200.8(b); and
    (3) Class III leases do not distinguish between: (a) Existing 
leases that convert only under section 3212.25 (royalty conversion 
only); and (b) Existing leases that convert under section 3200.7(a)(2) 
(electing to be subject to all new regulations, which must include a 
conversion under section 3212.25).
    None of the foregoing distinctions is necessary for the MMS royalty 
purposes, but the BLM must make these distinctions in explaining to 
different categories of lessees what options Congress made available to 
them. For these reasons, the BLM did not use the MMS classification 
system in its proposed rule. We did not change the rule in response to 
this comment.

Subpart 3201--Available Lands

    Subpart 3201 addresses which lands are available for geothermal 
leasing and which lands are not available for geothermal leasing. It is 
substantively unchanged from the previous subpart. We made one minor 
change to section 3201.10 to make it clear that public lands and 
acquired lands that are administered by the Department of the Interior 
are available for leasing unless they are withdrawn from such use. We 
received no comments on this subpart.

Subpart 3202--Lessee Qualifications

    Subpart 3202 addresses who may hold geothermal leases, 
qualifications to hold a geothermal lease, whether other persons are 
allowed to act on an applicant's behalf, and what happens if an 
applicant for a lease dies. The subpart is substantively unchanged from 
the previous subpart. We received no comments on this subpart and have 
adopted it as proposed.

Subpart 3203--Competitive Leasing

    Subpart 3203 explains the new process for competitive leasing, 
which requires competitive leasing to the highest responsible qualified 
bidder except as otherwise specified. This differs from the previous 
process, which provided for competitive bidding only for lands within a 
KGRA or lands from terminated, expired, or relinquished leases, or at 
the BLM's discretion when there was public interest.
    One commenter objected to ``leasing the geothermal resource for 
free.'' The BLM disagrees that the geothermal resource will be leased 
for free. In accordance with the statute, final subpart 3203 provides 
that companies will pay bonus bids for competitive leases, and final 
subpart 3211 provides that lessees will pay rentals and either 
royalties or fees. Regarding the costs the government incurs, final 
section 3203.12, discussed below, provides that nominators of lands 
must pay a fee of $100 per nomination plus $.10 per acre, and final 
sections 3203.17 and 3204.10 provide that lease applicants must pay a 
processing fee to reimburse the government's processing costs.
    One commenter stated that geothermal development is more akin to 
minerals development than to oil and gas development in that the rights 
to develop the land need to be secured before significant exploration 
can occur

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because of the risk and capital cost involved. To facilitate leasing 
and exploration within shorter timeframes, the commenter recommended 
categorical exclusions to expedite exploration permits and greater use 
of lease stipulations to address environmental or other issues, even if 
such stipulations made future development of the leasehold contingent 
on subsequent permitting and National Environmental Policy Act (NEPA) 
processes. Another commenter indicated that the timeframes for 
compliance with the NEPA slow down the overall process and suggested 
that a developer could do an environmental assessment to comply with 
the NEPA after the developer has been issued a lease.
    We did not change the rule in response to these comments. The 
Energy Policy Act did not address requirements under the NEPA with 
regard to geothermal leasing, and the suggested changes are beyond the 
scope of these regulations and the July 2006 proposed rule.
    Final section 3203.5 explains the three stages of the competitive 
leasing process and summarizes the four specific circumstances in which 
leases would be issued on a non-competitive basis that are addressed in 
detail at subparts 3204 and 3205.
    One commenter submitted an article entitled ``What We Have Lost,'' 
authored and endorsed by numerous individuals in the geothermal 
industry. The article contends that competitive leasing will remove the 
incentive for companies, large or small, to invest in pre-lease 
exploration and project assessments, and maintains that an all-
competitive leasing process does not fit geothermal resource 
development.
    As the commenter realizes, the statute mandates competitive 
leasing. Any revision of the system prescribed by the statute would 
have to occur through Congressional action.
    One commenter asked if land can be included in a competitive lease 
sale only through the nomination process. In considering this question, 
the BLM concluded that there may be instances where it would be in the 
public interest to include land in a competitive sale that has not been 
nominated. In response to this comment, we have revised the language of 
sections 3203.5 and 3203.10 to clarify that the BLM may include land in 
a competitive lease sale on its own initiative. We have also revised 
the language of section 3203.13 to provide that the BLM may hold a 
competitive lease sale on its own initiative even in a state where no 
nominations are pending. Examples of when competitive sale of lands 
that have not been nominated might be in the public interest include 
adding to a lease sale parcels which might otherwise be drained by 
wells on adjacent acreage, or putting up for competitive sale land for 
which the BLM received an application for a direct use lease where the 
BLM determines that there is competitive interest.
    Final section 3203.10 describes the process for nominating lands 
for competitive sale. In accordance with the statutory amendments, it 
increases to 5,120 acres (from the previous 2,560 acres) the maximum 
size of a lease, unless the area to be leased includes an irregular 
subdivision. This section also explains how a nominator must describe 
the lands nominated. These land description provisions were previously 
found at section 3204.11. The only change from those provisions is a 
clarification that lands surveyed under the public land rectangular 
survey system are to be described to the nearest aliquot part. This 
section also makes clear that a nominator may submit more than one 
nomination, as long as each nomination satisfies the acreage and land 
description requirements and includes the required filing fee, and that 
the BLM may reconfigure lands to be included in each parcel offered for 
sale.
    Two commenters stated that the proposed rule did not address the 
situation of geothermal projects that contain both Federal and non-
federal lands, which one commenter said constituted the majority of its 
projects. These commenters were concerned that a competitive leasing 
system could result in a developer having to wait up to 2 years to find 
out whether it is able to acquire a lease to Federal land parcels 
adjacent to or intermixed with non-federal lands on which leases could 
be speedily acquired. They stated that if a developer cannot control 
the entire resource, it cannot secure financial backing to build a 
power plant. They recommended revising the regulations to provide for 
``direct''--by which they apparently meant ``non-competitive'' but not 
exclusive direct use--leasing of Federal lands in a number of scenarios 
which would provide effective control to a holder of non-federal 
interests.
    The commenters appear to be suggesting that an entity that already 
controls the majority of leases overlying a geothermal resource area 
should have the right to acquire a lease on any contiguous Federal 
lands. We did not change the rule in response to these comments because 
the statute requires a competitive leasing process except in specific 
circumstances. The circumstances under which Congress decided to allow 
noncompetitive leasing do not include the leasing of adjacent or 
intermixed Federal lands. Implementing this suggestion would require 
statutory change. We note that once all of the Federal and private 
lands are leased, control of the resource can be achieved through 
commitment of all the lands, both Federal and private, to a unit. The 
unit provisions are in subpart 3280 and are discussed below.
    The commenters also suggested that a less-favored alternative to 
noncompetitive leasing of adjacent or intermixed lands would be to 
grant the ``contiguous resource owner'' a right of first refusal in a 
competitive lease sale. In informal discussions at the public meeting 
on the proposed geothermal rule in Reno, a BLM representative may have 
indicated agreement with the suggestion that a contiguous resource 
owner might be able to obtain a right of first refusal. A careful 
reading of the statute, however, makes it clear that it does not 
provide a right of first refusal as an option to any bidder in a 
competitive lease sale. The language of the statute is: ``Except as 
otherwise specifically provided by this Act, all land to be leased that 
is not subject to leasing under subsection (c) [noncompetitive leasing 
when no bids are received in a competitive lease sale] shall be leased 
* * * to the highest responsible qualified bidder * * *.'' 30 U.S.C. 
1003(b)(1). The specific exceptions to including land in a competitive 
lease sale involve lands subject to mining claims, leases issued 
pursuant to applications pending when the statutory amendments were 
enacted, and direct use leases. Because Congress did not provide an 
exception for resource owners of contiguous or intermixed lands, the 
Department has no authority to make such an exception.
    One commenter asked how lease nominations would be prioritized in 
terms of processing under the NEPA, and whether all of the pending 
lease applications would be administered before the BLM began working 
on nominated lands.
    As explained at the public meeting in Reno, prioritization in terms 
of NEPA processing is not within the scope of these regulations. In 
general, nominations are processed on a ``first-in, first-out'' basis. 
However, the BLM may establish priorities based on the adequacy of 
existing NEPA documents in order to issue leases as efficiently as 
possible. In such circumstances, it is possible that newer nominations 
could be processed ahead of older ones. The BLM will begin processing 
nominated lands as the nominations are received.

[[Page 24362]]

    Final section 3203.11 implements the new statutory provision, at 30 
U.S.C. 1003(e), that the BLM may offer parcels as a block at a 
competitive sale when it is reasonable to expect that a geothermal 
resource that can be produced as one unit underlies those parcels.
    One commenter inquired ``who, when and how'' it will be determined 
that leases should be issued as a block to avoid the ``checkerboard'' 
ownerships often arising through the competitive process. In response 
to this comment, we have revised the language of section 3203.11(a) to 
clarify that a nominator may request that leases be issued as a block 
or the BLM may offer leases as a block on its own initiative, and that, 
in either case, the BLM will offer parcels as a block only if 
information is available indicating that a geothermal resource that 
could be produced as one unit can reasonably be expected to underlie 
such parcels. The timing of block requests would be at the time of 
nomination by the nominator, or by the time of the sale notice if by 
the BLM's initiative. At the time of nomination, a nominator could 
bring to the BLM's attention any concerns it may have that checkerboard 
ownership of the parcels could impede development of the geothermal 
resource. The BLM may take that into consideration in deciding whether 
to offer the nominated lands as a block or as individual parcels.
    One commenter suggested that proposed section 3203.11 be 
strengthened by requiring that block nominations be accompanied by 
geologic and scientific data sufficient to show that the nominated 
lands will most likely contain geothermal resources from the same pool 
or structure, and not rely solely on the BLM's general knowledge of the 
area. We believe that proposed section 3203.11 already addresses the 
commenter's concern by requiring that a nominator submit information to 
support its request. In response to this comment, however, we moved the 
language in section 3203.11(b) of the proposed rule, that ``BLM may 
request that you provide additional information'' to section (a) to 
clarify that it pertains to nomination block requests, and we 
strengthened it by replacing ``request'' with ``require'' so that it 
reads: ``BLM may require that you provide additional information.'' The 
BLM will not offer parcels as a block unless it determines that a 
geothermal resource that could be produced as one unit can reasonably 
be expected to underlie such parcels, and will consider available 
information to make that determination.
    Final Sec.  3203.12 provides for a filing fee for nominations of 
lands. In this final rule, the amount of the fee--$100 per nomination 
plus $0.10 per acre of lands nominated--was moved from proposed section 
3203.12 to the fee schedule at section 3000.12 as explained in the 
preamble to the proposed rule (71 FR 41545). We also made a conforming 
amendment to section 3000.12. As with all fees in the fee schedule in 
section 3000.12, these amounts will be adjusted annually according to 
the change in the Implicit Price Deflator for Gross Domestic Product by 
way of publication of a final rule in the Federal Register, and will 
subsequently be posted on the BLM Web site (http://www.blm.gov) (see 
section 3000.12(a)).
    One commenter stated that government agencies incur costs with 
leasing operations and those costs should be covered. The commenter 
wrote that the BLM and others agencies need these funds to monitor 
nearby springs and monitor the effects of the extraction.
    The BLM agrees that the costs it incurs as a result of leasing 
operations should be reimbursed by the lessees. For this reason, final 
section 3203.12 requires a filing fee for nominations of land, as 
further discussed below, and final sections 3203.17, 3204.10, 3205.10, 
and 3211.10 provide that lease applicants must pay a processing fee to 
reimburse the government's processing costs. We did not change the rule 
in response to this comment. We discuss monitoring below in connection 
with final section 3206.11 in response to another part of this 
commenter's comments.
    Two commenters opposed the concept of nomination fees. One 
commenter stated that the nomination process gives the BLM the benefit 
of a company's exploration expertise, providing the BLM and the public 
with valuable insights for which the BLM should not charge a fee. The 
commenter asked at the public meeting in Reno whether a nomination was 
limited in acreage, that is, whether the $100 filing fee was per lease, 
and in later written comments stated that the fee ``is `per parcel,'' 
which has apparently been interpreted as `per lease.' '' The commenter 
suggested that charging a nomination fee further discourages geothermal 
development on Federal lands. Another commenter suggested that the 
nomination fee should only cover administrative costs, and that these 
funds should be retained by the local BLM office for that specific 
purpose.
    We did not change the rule in response to these comments. As 
explained in the preamble to the proposed rule, the BLM is authorized 
to charge reasonable filing fees under Section 304(a) of the Federal 
Land Policy and Management Act of 1976, 43 U.S.C. 1734(a) (71 FR 
41545). Congress gave no indication in its amendments to the Geothermal 
Steam Act that it intended to insulate geothermal nominators from fees. 
The general Federal policy regarding fees, also discussed in the 
preamble to the proposed rule, is to charge a processing fee that 
recovers the agency's reasonable processing costs, which corresponds to 
the suggestion by the second commenter just cited. The BLM does not at 
this time have the data necessary to determine its actual costs of 
processing nominations, but our experience indicates that those costs 
far exceed $100 per nomination and $0.10 per acre. In order to 
discourage frivolous nominations, we proposed this nominal filing fee 
(see Solicitor's M--Opinion No. M-36987, ``BLM's Authority to Recover 
Costs of Minerals Document Processing,'' at n.6). We will collect data 
on the actual costs of processing these nominations and expect to 
propose a processing fee to cover reasonable agency costs in the 
future.
    One commenter at the August 31, 2006, public meeting in Reno asked 
whether a nomination of lands for a competitive sale is limited in 
acreage. The response correctly noted that, as provided in proposed and 
final section 3203.10(b), a nomination may not exceed 5,120 acres 
(unless the area to be leased includes an irregular subdivision), which 
is the maximum size of a lease (see section 3206.12). We want to 
clarify, however, that the nomination fee is per nomination, not per 
lease. Proposed and final section 3203.12 states that a nominator must 
submit the filing fee ``with your nomination.'' While each nomination 
is limited to the maximum acreage of a lease, in ``parceling'' the land 
before the lease sale (see explanation below) BLM may decide to offer 
the nominated lands as more than one lease. Thus, the $100-per-
nomination filing fee could cover more than one eventual lease, but 
cannot cover more than 5,120 acres (with the exception noted).
    There also appears to be some confusion regarding the terminology 
of ``nomination,'' ``lease,'' and ``parcel.'' After nomination, but 
prior to the lease sale, the BLM will prepare the nominated lands for 
competitive sale. This process, often referred to as ``parceling,'' 
involves: subdividing nominated areas into areas that do not

[[Page 24363]]

exceed the maximum allowed size for a lease; accurately describing the 
lands in conformance with the legal land system; and attaching 
appropriate stipulations from the land use plans. Thus, the fee is 
neither ``per parcel'' nor ``per lease,'' but ``per nomination.'' It is 
possible that after parceling, lands offered in a competitive sale may 
not be configured as originally nominated. In general, the BLM refers 
to lease offerings as parcels.
    Regarding the comment that fees collected should be retained by the 
local BLM office, we explained in the preamble to the final minerals 
cost recovery rule (70 FR 58861, October 7, 2005) that the ``BLM 
intends to structure its budget processes to return fees collected to 
the BLM office which processes the actions.'' Thus, the BLM has already 
addressed future implementation of this suggestion.
    Final section 3203.13 provides that the BLM will hold a competitive 
lease sale at least once every 2 years in states where nominations are 
pending, and allows for a sale to include lands in more than one state. 
As explained above, we have also added language to clarify that the BLM 
may include land in a competitive lease sale on its own initiative. As 
explained in the preamble to the proposed rule (71 FR 41545), we 
deleted the provision at previous section 3205.13 regarding the fair 
market value of bids because we concluded that the competitive bidding 
process itself is a reflection of the fair market value of the lease. 
Moreover, eliminating this bidding floor may encourage more competitive 
bidding, which both serves the Energy Policy Act policy of encouraging 
development of geothermal resources and is economically beneficial to 
the United States to the extent leases are issued competitively, 
because competitive leases are issued with bonus bids and have higher 
rental rates.
    A number of commenters urged that proposed section 3203.13 be 
revised to require more frequent lease sales. These commenters noted 
that the statute requires that lease sales be held at minimum every 2 
years and does not establish a cap that would prevent more frequent 
leasing. Various reasons were cited in support of holding lease sales 
more frequently, e.g.: Long delays in the leasing process would make 
financing difficult or impossible and stunt development; The geothermal 
production tax credit has only a 2-year window; Leasing only every 2 
years would not accomplish the goals of the Energy Policy Act; and 
Competitors could spend the time waiting for a lease sale proving up 
the resource to know how to outbid the nominator. Some commenters 
suggested that the regulations should require the BLM to hold quarterly 
lease sales, as in the oil and gas program, in any state where there 
are nominations pending, and require that the BLM process all lease 
nominations within 6 months. One commenter suggested that geothermal 
lease sales be held in conjunction with quarterly oil and gas lease 
sales. A commenter also recommended that the BLM require quarterly 
publication of the status of pending lease nominations and the reason 
for further delay if the tract has not been put forward for leasing 
after 6 months. One commenter suggested that the rule provide that 2 
years is the maximum, but that the BLM will attempt to hold a lease 
sale every 60 days.
    We did not change the rule in response to these comments. As the 
commenters noted, section 3203.13 provides the same time frame as the 
statute at 30 U.S.C. 1003(b). As the commenters also acknowledged, 
nothing in the statute or the regulations precludes more frequent lease 
sales. The quarterly competitive sales for oil and gas are mandated by 
statute. Congress made the decision not to impose a similar mandate for 
geothermal leasing, and we decline to add such a mandate in these 
regulations. We recognize that more frequent lease sales may benefit 
geothermal development and we expect that BLM state offices will 
schedule sales as frequently as feasible when lands are available for 
leasing. The decision whether to hold geothermal lease sales in 
conjunction with some oil and gas lease sales will be made on a state-
by-state basis. Regarding the comment that competitors could spend time 
before a lease sale exploring the potential resource, we note that pre-
leasing exploration is available to the nominator as well as to 
competitors.
    Final sections 3203.14 and 3203.15 describe how the BLM will notify 
the public of competitive lease sales, the types of information the BLM 
will include in a notice of sale, and how the BLM will conduct the 
sale. Unlike the previous regulations at subpart 3205, this final rule 
does not restrict the competitive sale process to sealed bids, but is 
flexible enough to allow other competitive sale formats, such as oral 
auctions. We anticipate that most sales will be conducted through oral 
auctions.
    In order to protect the bidding process, we added at section 
3203.15(c) a standard auction requirement that a bid may not be 
withdrawn and that a bid constitutes a legally binding commitment. This 
is current BLM practice both in the geothermal and oil and gas leasing 
programs.
    We received no comments on sections 3203.14 and 3203.15 and have 
adopted them as proposed.
    Final section 3203.17 provides information related to the payment 
obligations of a successful bidder. Because the proposed competitive 
sale process is no longer restricted to sealed bids, a bidder will not 
have to submit any payments unless at the end of the sale it is the 
high bidder. This section provides that a successful bidder must pay 
twenty percent of the bid, the total first year's rental, and the 
processing fee by close of business on the day of the sale or such 
other time as the BLM may specify. While the general expectation is 
that these payments will be made on the day of the sale, the section 
allows the BLM to specify another time for payments to be made if 
circumstances so require, such as, for example, the following business 
day. This section also adds personal checks to the list of financial 
instruments that may be used to make it easier for the successful 
bidder to make payments immediately after the sale. Final section 
3203.17(c), like previous section 3205.16, requires that the balance of 
the bid be submitted within 15 calendar days after the sale.
    Two commenters objected that same day payment is not practical, nor 
possible in some cases, since the amount of the successful bid is not 
known prior to auction. One suggested that provision should be made for 
a 5-business-day settlement period for bids.
    We did not change the rule in response to these comments. The 
regulations at section 3203.17 provide that payment may be made by 
personal check, as well as other specified means, and that the BLM may 
specify another time for payment. We believe that these provisions 
provide ample opportunity for a lessee to make payment as directed 
under the regulation. We note that the regulations for oil and gas 
lease sales require payment by close of business on the day of sale, 
and experience shows that companies are able to comply with this 
provision.
    Final section 3203.18 cross-references subpart 3204, which 
addresses noncompetitive leasing other than direct use leases.

Subpart 3204--Noncompetitive Leasing Other Than Direct Use Leases

    Final subpart 3204 describes when and how the BLM will issue 
noncompetitive geothermal leases. The most common method of obtaining 
noncompetitive leases under this subpart will be applying for parcels 
of land that did not receive bids in a competitive sale. This subpart 
does not address noncompetitive leases for lands

[[Page 24364]]

available exclusively for direct use of geothermal resources, which are 
covered in final subpart 3205.
    Final section 3204.5 lists the four types of lands available for 
noncompetitive leasing: (1) Parcels of land that did not receive bids 
in a competitive sale; (2) Lands available exclusively for direct use, 
addressed at final subpart 3205; (3) Lands subject to mining claims, 
addressed at final section 3204.12; and (4) Lands for which a lease 
application was pending on August 8, 2005, if the applicant so chooses.
    One commenter suggested that oil and gas leases be allowed to 
include the rights to geothermal resources underlying their oil and gas 
leases, at least for a grandfathered period. The commenter expressed 
concern that if the geothermal rights were put up for competitive bid, 
someone else could acquire them and drill geothermal wells among the 
oil and gas wells, interfering with oil and gas production.
    Oil and gas leases do not include the right to develop the 
geothermal resources; they are authorized under separate statutes and 
processes and a separate geothermal lease would have to be obtained. 
The commenter may have meant to suggest that oil and gas lessees be 
allowed to acquire geothermal leases for underlying resources on a 
noncompetitive basis. However, the statute allows noncompetitive 
leasing only in the four situations listed above. An oil and gas 
operator could apply for a noncompetitive direct use lease for the 
underlying geothermal resources, but if the BLM determined that there 
was competitive interest in a direct use lease, or that the area was 
appropriate for commercial generation of electricity from the 
geothermal resources, it would hold a competitive lease sale. It is 
thus possible that another entity could acquire a lease for the 
geothermal resources underlying the oil and gas lease. It is possible 
that lease stipulations could be inserted to avoid interference with a 
senior oil and gas lease. The statute at 30 U.S.C. 1016 contains 
requirements to avoid interference to protect both geothermal interests 
and other uses.
    Final section 3204.10 requires an applicant for a noncompetitive 
lease to submit a processing fee and advance rent. The advance rent 
will be refunded if the application is rejected or withdrawn. These 
provisions are substantively the same as previous section 3204.12. We 
received no comments on this section and have adopted it as proposed.
    Final section 3204.11 explains the procedures for noncompetitive 
leasing of lands for which no bid is received in a competitive lease 
sale. This implements the statutory requirement at 30 U.S.C. 1003(c). 
For efficiency of administration, in the first 30 days following the 
competitive sale, applications will be accepted only for parcels as 
configured in the sale notice. To provide equal opportunity during the 
first 24 hours after the lease sale, all applications received for a 
particular parcel on the first business day after the competitive sale 
will be considered as simultaneously filed, and the BLM will select one 
at random to receive a lease offer. A fair market value bid is not 
required for a noncompetitive lease. It would be difficult for the BLM 
to determine what an appropriate bid should be in a noncompetitive 
situation; moreover, allowing leases to be obtained without a bid 
should encourage additional geothermal exploration and development. We 
received no comments on section 3204.11 and have adopted it as 
proposed.
    Final section 3204.12 implements the statutory provision at 30 
U.S.C. 1003(b)(3) that allows a mining claimant with an approved plan 
of operations to apply for a noncompetitive geothermal lease. One 
commenter asked if a developer has a mining claim on acreage with an 
approved plan of operations, whether there is the same required 2-year 
waiting period following a competitive lease sale as lands that do not 
have a mining claim.
    We did not change the rule in response to this comment. Under final 
section 3204.12, the 2-year noncompetitive window following a 
competitive lease sale does not apply to a mining claimant with an 
approved plan of operations. A mining claimant with an approved plan of 
operations may file a noncompetitive lease application at any time up 
to the point that the BLM has accepted a bid for a lease on those 
lands.
    Final section 3204.13 implements a portion of the statutory 
provision at 30 U.S.C. 1003(d)(2) that allows lease applications 
pending on August 8, 2005, to be processed under then-existing policies 
and procedures unless the applicant elects for the lease to be subject 
to the new leasing procedures. We received no comments on this section 
and have adopted it as proposed.
    Final section 3204.14 governs the amendment of noncompetitive lease 
applications. It provides that an applicant may amend an application at 
any time before the BLM issues a lease if the amended application meets 
the requirements in this subpart and does not add lands not included in 
the original application. To add lands, an applicant must file a new 
application. (The withdrawal of lands from noncompetitive lease 
applications is covered by final section 3204.15, discussed below.) 
This is a change from the previous regulations, as discussed in the 
preamble to the proposed rule, because the BLM decided that adding 
lands to an application was equivalent to submitting a new application, 
requiring a change in the priority date. We received no comments on 
this section and have adopted it as proposed.
    Final section 3204.15 provides that for 30 days after a competitive 
lease sale, the BLM will not accept partial withdrawals of 
noncompetitive lease applications, but will only accept withdrawals of 
entire noncompetitive lease applications. As explained in the preamble 
to the proposed rule, this is a change from previous section 3204.17, 
and is parallel to the provision at final section 3204.11 restricting 
noncompetitive applications for reconfigured lease parcels for the 
first 30 days following a competitive sale. After 30 days, partial and 
whole withdrawals will be allowed at any time before the BLM issues the 
lease. Final section 3204.15 also provides (as did section 3204.17 of 
the previous regulations) that if a partial withdrawal results in 
failure to meet the minimum acreage required for a lease in final 
section 3206.12, the BLM will reject the lease application.

Subpart 3205--Direct Use Leasing

    The Energy Policy Act provides the authority for the BLM to issue 
noncompetitive leases solely for the direct use of geothermal resources 
under certain conditions. Subpart 3205 is a new subpart added to 
describe these conditions and the process for applying for a direct use 
lease. This subpart implements the provisions of 30 U.S.C. 1003(f). 
``Direct use lease'' as used in this subpart has a specific meaning. As 
discussed above in relation to section 3200.1 (Definitions), we have 
revised the definition of ``direct use lease'' to clarify that such a 
lease is issued noncompetitively. The new definition of ``direct use 
lease'' is ``a lease issued noncompetitively in an area BLM designates 
as available exclusively for direct use of geothermal resources, 
without sale, for purposes other than commercial generation of 
electricity.'' Competitive leases also allow direct use, but they are 
not direct use leases. Unlike a direct use lease, under a competitive 
lease that the BLM has decided to limit to exclusive direct use, the 
resource may be sold (but it may not be used by the

[[Page 24365]]

operator or a purchaser for the commercial generation of electricity), 
and the acreage restrictions will be those applicable to competitive 
leases rather than direct use leases.
    Thus, permitted uses under different types of leases are as 
follows: (1) A lessee with a direct use lease may only use the resource 
directly itself; (2) A lessee with a competitive lease that is 
restricted to exclusive direct use may either use the resource directly 
itself or sell the resource to a purchaser who will use it only for 
direct use; (3) A lessee with either a competitive lease or a 
noncompetitive lease obtained following a sale that is not restricted 
to exclusive direct use may use the resource directly itself, sell the 
resource for direct use, use the resource for the commercial generation 
of electricity, or sell the resource for the commercial generation of 
electricity.
    Final section 3205.6 addresses the conditions under which the BLM 
issues direct use leases. This section explains that a direct use lease 
may be issued to the first qualified applicant only for lands that: (1) 
Are open for geothermal leasing; (2) Are appropriate for exclusive 
direct use, without sale, for purposes other than commercial generation 
of electricity; (3) Do not include more acreage than reasonably 
necessary for the proposed use; (4) Have been the subject of a 
published notice that did not result in a nomination; and (5) Are of no 
competitive interest, as determined by the BLM. The BLM will make the 
determination of whether the lands are appropriate for a direct use 
lease on a case-by-case basis at the time of application. The advantage 
of a direct use lease is that it may be issued noncompetitively to the 
first qualified applicant and may allow additional lands to be made 
available for geothermal leasing that would not be available, for 
environmental or other reasons, if the geothermal resource could be 
used for the commercial generation of electricity.
    We revised the title of section 3205.6 from that in the proposed 
rule, to read ``When may BLM issue a direct use lease to an 
applicant?'', instead of ``When will'', to reflect the statutory 
language and the language of the regulatory text. We also added a 
paragraph (b) to the section to clarify that if the BLM determines that 
land for which an applicant has applied under this subpart is open for 
geothermal leasing and is appropriate only for exclusive direct use 
operations (see definition of ``direct use''), but determines that 
there is competitive interest in the resource, it will include the land 
in a competitive lease sale with lease stipulations limiting operations 
to exclusive direct use.
    Numerous comments were received opposing direct use leasing. One 
commenter predicted that direct use leasing could cause ``major 
headaches and legal entanglements down the road'' because improved 
technology or discovery of high-temperature resources would cause a 
direct use lessee to wish to produce electricity from the lease for 
sale offsite. The commenter suggested that because the statute permits, 
but does not require, direct use leasing, the BLM should ``just say 
no'' to such leasing. Another commenter agreed, asking what the BLM 
would do if a direct use lessee wanted to generate electricity, 
hypothesizing that if a direct use lessee found the resource was 
electrical grade, others would know and would want to file a nomination 
for a lease for electrical generation on the lease which the lessee had 
spent a great deal of money to obtain. The commenter also asked what 
the BLM would do if a lessee were generating electricity and wanted to 
drill wells for a greenhouse or other direct use.
    Congress provided a detailed process for the Secretary to allow 
limited noncompetitive direct use leasing in certain areas. We have 
interpreted the statutory provisions to allow for limited direct use 
leasing on certain lands which: (1) Would otherwise not be open to 
geothermal development at all due to potential impacts to other 
resource values; or (2) The BLM determines do not have potential for 
commercial electrical generation. We agree that it is possible that 
improved exploration, technology, or energy economics could cause a 
direct use lease to have the potential for commercial generation of 
electricity. However, the statute is clear that Congress intended that 
leases permitting commercial generation of electricity are to be 
offered through competitive lease sales. We would therefore not allow 
commercial electrical generation on a direct use lease. If a direct use 
lessee found an electrical grade resource, it would continue to have 
the right to develop the resource for direct use for the duration of 
its lease. As was pointed out at the public meeting in Reno, nothing 
prevents a lessee with an unrestricted competitive lease from using the 
resource for direct use as well as for electrical generation. We 
envision direct use leases as providing a streamlined, simpler 
noncompetitive process for development of geothermal areas that would 
otherwise not be developed.
    One commenter expressed concern regarding the administration of 
units that contain both regular and direct use leases.
    The BLM, in determining what areas are appropriate for direct use 
leases, will make every effort to avoid issuing direct use leases in 
areas with electrical generation potential. We would avoid including a 
direct use lease in a unit with leases that generate commercial 
electricity, because a direct use lease does not convey the rights to 
develop the resource commercially. It is possible that a unit could be 
formed entirely of direct use leases.
    One commenter believed there were two problems that direct use 
leasing and a direct use fee schedule were designed to address, and 
that both could have been resolved without direct use leasing. First, 
the commenter suggested that direct use leasing would not solve the 
problem of undesirable features being built (i.e., power plants and 
transmission lines), because direct use itself could involve 
undesirable features (e.g., a direct use meat packing plant with 
feedlots, holding pens, and traffic). Second, the commenter suggested 
that the perceived problem of an overly-burdensome royalty rate for 
direct use under the previous system was created by the institution of 
all-competitive leasing, and could have been solved by retaining the 
prior leasing system and providing for a fee on all direct use and a 
royalty on power generation, keeping noncompetitive rentals at $1 per 
acre.
    Regarding the second part of this comment, it appears that the 
commenter may be confused regarding when the direct use fee schedule 
applies. In fact, as the commenter suggested was appropriate, the fee 
schedule applies to all direct use of the resource regardless of the 
type of lease. We also note that the rental for noncompetitive leases 
under these new regulations remains at $1 per acre for the first 10 
years. The first part of the comment, and arguments that the new 
competitive leasing system should be revised, should, as the commenter 
recognized, be addressed by Congress.
    We did not change the rule in response to these comments.
    Final section 3205.7 addresses the statutory acreage restrictions 
applicable to a direct use lease, which must not cover more than the 
quantity of acreage reasonably necessary for the proposed use, and in 
no case may exceed 5,120 acres, except in the case of an irregular 
subdivision. We received no comments on this section and have adopted 
it as proposed.
    Final section 3205.10 explains the procedures for applying for a 
direct use lease and the types of information to be submitted with an 
application. The

[[Page 24366]]

information that is submitted is used by the BLM to determine if the 
requested acreage is necessary for the intended operation as described 
in section 3205.7. This section would also require the submission of a 
nonrefundable processing fee for noncompetitive lease applications, as 
required by section 3204.12 of the current regulations.
    One commenter stated that newcomers to the industry may not 
understand that, under section 3205.10, a direct use lessee is 
permitted to produce electricity on the lease, but only to serve the 
load of the direct use facility, and suggested that this should be 
spelled out.
    To clarify the rule in response to this comment, we revised the 
last sentence of section 3205.10(a) to utilize the defined phrase 
``commercial generation of electricity,'' instead of the proposed 
language ``to commercially generate electricity.'' The sentence now 
reads: ``You may not sell the geothermal resource and you may not use 
it for the commercial generation of electricity.'' The definition of 
``commercial generation of electricity'' is ``generation of electricity 
that is sold or is subject to sale, including the electricity or energy 
that is required to convert geothermal energy into electrical energy 
for sale.'' Electricity that is produced on a direct use lease only to 
serve the load of the direct use facility does not fall within this 
definition and, as the commenter correctly pointed out, such use is 
permitted.
    A commenter stated that precluding the sale of the geothermal 
resource from a direct use lease seems counterproductive, because a 
purchaser might also use the resource for direct use and not for the 
commercial generation of electricity. The commenter asked whether, for 
example, a lessee could produce the resource and sell it to a direct 
use or power generation facility if it served only those facilities and 
was not sold into the power grid, or whether a lessee could use the 
resource directly itself, then sell the effluent to a third party for 
use in an adjacent district heating system not owned by the production 
lessee. The answer to these questions is no; a direct use lessee may 
not sell the resource even if it would not be used for commercial 
generation of electricity after sale. The BLM is constrained in 
drafting its regulations by the language of the statute, which provides 
that direct use leasing must be ``exclusively for direct use of 
geothermal resources, without sale for purposes other than commercial 
generation of electricity * * *.'' 30 U.S.C. 1003(f). Please note the 
use of the phrase ``without sale'' in the statutory language. The BLM 
does not have discretion to allow sale of the resource by a direct use 
lessee. A potential lessee who is interested in selling the resource 
for any purpose should nominate the lands for a competitive lease sale. 
We did not change the rule in response to this comment.
    One commenter was concerned that a direct use lessee would be 
prohibited from selling the business or property that uses the resource 
that is produced or producible from the lease, or would be prohibited 
from transferring the lease and the resource producible therefrom.
    A direct use lessee may assign (transfer) the lease. However, the 
lease and the business to which it supplies the geothermal resource 
must be transferred together to the same entity. This is because the 
statute prohibits sale of the resource from a direct use lease. We did 
not change the rule in response to this comment.
    One commenter expressed concern that information required by 
section 3205.10(b) to apply for a direct use lease would not be 
available until after the lease was issued and the lessee could drill 
wells. The BLM disagrees. Because the statute limits a direct use 
geothermal lease to the quantity of acreage reasonably necessary for 
the proposed use, the BLM must obtain the information necessary to make 
this determination in advance of lease issuance. The BLM expects that 
the applicant will be able to explain the nature and scope of the 
intended use, which is what this section requires. The language of the 
regulation recognizes that the information provided is not necessarily 
complete or final, but will be based on anticipated production and 
development. We did not change the rule in response to this comment.
    Final section 3205.12 addresses direct use lease applications for 
lands managed by an agency other than the BLM. The BLM will forward a 
copy of such an application to the other agency. If that agency 
consents to leasing and recommends that the lands are appropriate for a 
direct use lease, the BLM will consider that consent and recommendation 
in determining whether to issue the lease. This section requires that 
the BLM obtain the consent of the surface management agency before 
issuing a direct use lease. We received no comments on this section and 
have adopted it as proposed.
    Final sections 3205.13 and 3205.14 allow an applicant for a direct 
use lease to withdraw its application at any time or amend its 
application, without adding new lands, prior to lease issuance. To add 
new lands, an applicant must file a new application (see discussion of 
final section 3204.14, above). We received no comments on these 
sections and have adopted them as proposed.
    Final section 3205.15 discusses how the BLM will inform an 
applicant of its decision to approve or deny a direct use lease 
application. We received no comments on this section and have adopted 
it as proposed.

Subpart 3206--Lease Issuance

    Final subpart 3206 addresses lease issuance in general.
    Final section 3206.10 is nearly identical to previous section 
3206.10, with the addition of a provision notifying applicants that all 
payments must be made before the BLM will issue a lease. This addition 
reflects current BLM practice. We received no comments on this section 
and have adopted it as proposed.
    Final section 3206.11 discusses what the BLM must do before issuing 
a lease. The section is unchanged from the previous regulations except 
for changing the words ``will not significantly impact'' at the 
beginning of paragraph (b), to ``will not have a significant adverse 
impact on,'' which more closely tracks the language of 30 U.S.C. 
1026(c).
    One commenter voiced a concern regarding safeguarding thermal 
features of national parks.
    Both the Geothermal Steam Act and the regulations already provide 
safeguards for thermal features of national parks. Final section 
3206.11(b), in accordance with 30 U.S.C. 1026(a), provides that before 
issuing a lease, the BLM must determine that lease development will not 
have a significant adverse impact on any significant thermal feature of 
National Park System units. Moreover, the Geothermal Steam Act at 30 
U.S.C. 1026(b) provides that the Secretary must maintain a monitoring 
program for significant thermal features within units of the National 
Park System. We did not change the rule in response to this comment.
    Final section 3206.12 addresses minimum and maximum lease sizes, 
which were addressed in the previous regulations at section 3204.14. 
The maximum lease size increased from 2,560 acres to 5,120 acres, as 
provided at 30 U.S.C. 1006. We received no comments on this section and 
have adopted it as proposed.
    Final section 3206.13 addresses the maximum acreage that one lessee 
may hold, which was addressed in the previous regulations at section 
3206.12. This section is identical to the first sentence of previous 
section 3206.12

[[Page 24367]]

and implements 30 U.S.C. 1006, which sets the limit at 51,200 acres in 
any one State. The remainder of section 3206.12 of the previous 
regulations was deleted because the Energy Policy Act amendments 
deleted those provisions in the statute. We received no comments on 
this section and have adopted it as proposed.
    Final section 3206.14 explains how the BLM computes acreage 
holdings. This section is identical to previous section 3206.13, except 
for minor editorial changes. We received no comments on this section 
and have adopted it as proposed.
    Final section 3206.15, explaining how the BLM will charge acreage 
holdings if the United States owns only a fractional interest in the 
geothermal resources, is identical to previous section 3206.14, except 
for minor editorial changes. We received no comments on this section 
and have adopted it as proposed.
    Final section 3206.16 explains that acreage is not chargeable 
against the acreage limitations if it is included in any approved unit 
agreement or development or drilling contract. These exclusions 
implement 30 U.S.C. 1017(d) and (g)(2) and were addressed at section 
3206.15 in the previous regulations. The reference in the previous 
regulations to cooperative agreements was deleted because they are no 
longer mentioned in this part. We received no comments on this section 
and have adopted it as proposed.
    Final section 3206.17 addresses what the BLM does if a lessee's 
holdings exceed the maximum acreage limits set in final section 
3206.13. This section is identical to section 3206.16 of the previous 
regulations. We received no comments on this section and have adopted 
it as proposed.
    Final section 3206.18 addresses when the BLM issues a lease. It is 
identical to section 3206.18 of the previous regulations, except for a 
minor editorial change. We received no comments on this section and 
have adopted it as proposed.

Subpart 3207--Lease Terms and Extensions

    Final subpart 3207 explains the new system of lease terms and 
extensions provided at 30 U.S.C. 1005.
    Final section 3207.5 summarizes the new lease terms (length of time 
a lease is in effect) and lease term extensions, which include: (1) A 
10-year primary term and two 5-year extensions of the primary term; (2) 
A five-year drilling extension; (3) A production extension of up to 35 
years; and (4) A renewal term of up to 55 years. We received no 
comments on this section and have adopted it as proposed.
    Final sections 3207.10, 3207.11, and 3207.12 address the primary 
term of a lease and explain the requirements for obtaining and 
continuing extensions of the primary term. As explained in the preamble 
to the proposed rule (71 FR 41547), we interpret the statute as giving 
the BLM authority to prescribe work requirements that must be completed 
by the end of the 10th lease year, in accord with the statutory 
language relating to work requirements and in order to give effect to 
the statutory 10-year primary term, and to provide a basis for deciding 
whether the BLM will grant the initial 5-year extension. We note that 
work requirements relating to the initial and additional extensions of 
the primary term are addressed in different paragraphs of 30 U.S.C. 
1005. Paragraph (a)(2) of section 1005 mandates that for each year of 
an initial 5-year extension lessees must satisfy work requirements 
under paragraph (b) or make payments in lieu of minimum work 
requirements under paragraph (c). Paragraph (a)(3) provides that a 
lessee must be granted an additional 5-year extension if it satisfied 
the requirements of the initial extension; paragraph (b) then mandates 
minimum work requirements for each year after the 10th year of the 
lease.
    Final section 3207.11 establishes work requirements that a lessee 
must meet within the 10-year primary term for a lessee to be eligible 
for the initial 5-year extension of the primary term. The BLM 
formulated its list of potential types of work that could be performed 
to meet the work requirements based on the statutory provision, at 30 
U.S.C. 1005(b)(2). The provisions require that the work should 
establish a geothermal potential or, if that potential has been 
established, should confirm the existence of producible geothermal 
resources. The amount of work that must be performed is quantified as a 
minimum dollar expenditure per acre, as it was in the previous 
regulations (see previous sections 3210.13 (diligent exploration 
requirements) and 3208.14 (significant expenditures)).
    For the work requirements that must be completed by the end of the 
10th year of the lease, final section 3207.11(a) requires a $40 per 
acre expenditure over the 10-year period of the primary term of the 
lease, which is the same expenditure that was required at section 
3210.13 of the previous regulations for diligent exploration during the 
primary term. For work requirements for each year of the initial 5-year 
extension, final section 3207.12(a) requires an annual dollar 
expenditure of $15 per acre, which is the same as was required at 
section 3208.14 of the previous regulations for significant 
expenditures during a first lease extension. For work requirements for 
years 16 through 19 of the additional 5-year extension, final section 
3207.12(c) requires an annual dollar expenditure of $25 per acre. No 
work is required for the 20th year because the lessee must obtain 
either a drilling extension (section 3207.14) or a production extension 
(section 3207.15) to hold the lease beyond the 20th year. We determined 
that the dollar expenditure for work requirements should increase 
enough during an additional extension to motivate a lessee to put a 
lease into production if it is not already producing in commercial 
quantities by the end of the 15th year. As the annual expenditure 
requirement increases $11 per acre after the 10th lease year (from $40 
over a 10-year period, or an average of $4 per acre per year, to $15 
per acre per year), we require in final section 3207.12(c) that the 
expenditure increase by a nearly equivalent amount--$10 per acre--after 
the 15th lease year (from $15 to $25 per acre per year). We believe 
this level of increase serves the purpose of encouraging diligent 
development of the resource.
    One commenter asked whether a lessee's own work on a lease would 
count toward satisfaction of the work requirement if the lessee was a 
geologist qualified to do valuable work on a lease.
    As was true under the previous regulations, a lessee's work on a 
lease may count toward satisfaction of the work requirement as long as 
it is engaged in activities that establish a geothermal potential or 
confirm the existence of producible geothermal resources. A lessee's 
geologic work on a lease may count if it results in original, 
independent data, for example, mapping or preparing geological cross-
sections of the lease area. The dollar expenditure under such 
circumstances would be calculated by the equivalent cost of paying a 
professional geologist for similar maps or cross-sections.
    Final sections 3207.11(b) and 3207.12(d) allow a lessee to make 
minimum annual payments instead of performing the work requirements, as 
provided in the statute at 30 U.S.C. 1005(c). These sections provide 
that a lessee may make a payment equivalent to the required work 
expenditure, such that the total of the payment and the value of the 
work performed equals the dollar value of the expenditure that would 
otherwise be required. As provided in the statute, these sections also 
allow the BLM to limit the number of years that it accepts such 
payments, if it determines that payments in lieu of

[[Page 24368]]

work requirements will impair achievement of diligent development of 
the geothermal resource. We concluded that such impairment 
determinations are more appropriately made on a case-by-case basis and 
therefore we did not include in the rule a specific limit on the number 
of years that the BLM will accept such payments.
    The final rule takes a different approach than the previous rule 
regarding the amount of payments that are allowable in lieu of work 
performance, in that it does not allow payments in a lesser amount than 
the value of the required work. We believe this change furthers the 
statutory purpose of encouraging the development of geothermal 
resources.
    The final rule also includes an automatic inflation adjustment for 
the minimum work requirements and for monetary payments in lieu of the 
work performance. Final sections 3207.11(f) and 3207.12(i) provide that 
the dollar amount of the requirements will be adjusted automatically 
every three calendar years based on the Implicit Price Deflator for 
Gross Domestic Product that is published annually by the U.S. 
Department of Commerce. Because the adjustments will simply be based on 
a mathematical formula, the adjustments will be made in succeeding 
final rules without notice and comment, which is the procedure that the 
BLM used in its cost recovery rule published on October 7, 2005 (70 FR 
58872).
    One commenter objected to the inclusion of an inflation adjustment 
for these payments, suggesting that such an adjustment is not 
authorized by law. We disagree with the comment. The statute authorizes 
the Secretary of the Interior to set reasonable work requirements 
(``The Secretary shall issue regulations prescribing minimum work 
requirements for geothermal leases * * *.'') and in lieu payments (``In 
lieu of the minimum work requirements * * * the Secretary shall by 
regulation establish minimum annual payments * * *'') 30 U.S.C. 
1005(b)(2) and (c). It is within the Secretary's discretion to choose a 
reasonable approach to setting such requirements and payments. Nothing 
in the statute precludes the inclusion of an inflation adjustment, 
which is a widely-used and generally accepted approach. We did not 
change the rule in response to this comment.
    Final sections 3207.11(b) and 3207.12(d) provide that a lessee is 
exempt from work requirements if it submits documentation to the BLM 
showing that it has produced or utilized geothermal resources in 
commercial quantities. This implements 30 U.S.C. 1005(f), which 
provides that minimum work requirements do not apply after the date on 
which the geothermal resource is utilized in commercial quantities.
    Final sections 3207.11(c) and (e) and 3207.12(f) and (g) provide 
timeframes for a lessee to submit information to the BLM showing that 
it has met the work requirements or paid or produced in lieu thereof, 
explain the type of information that must be submitted, and explain the 
BLM's approval process.
    Final section 3207.12(e) provides that if a lessee expends an 
amount greater than the dollar expenditure required in that year on 
suitable development activities, the lessee may apply any excess 
payment to any subsequent year within that same 5-year extension 
period. This is similar to section 3208.14(a) of the previous 
regulations.
    Except for the comment regarding inclusion of an inflation 
adjustment discussed above, we received no comments on sections 
3207.10, 3207.11, and 3207.12 and have adopted them as proposed.
    Final section 3207.13 exempts from the work requirements a lessee 
whose lease overlies a mining claim when: (1) The mining claim has a 
plan of operations approved by the appropriate Federal land management 
agency; and (2) Development of the geothermal resource would interfere 
with the mining operations. This implements 30 U.S.C. 1005(e). We 
received no comments on this section and have adopted it as proposed.
    Final sections 3207.14 and 3207.15 implement the 5-year drilling 
and 35-year production extensions provided for in the statute at 30 
U.S.C. 1005(g). As explained in the preamble to the proposed rule (71 
FR 41548), we conclude that the language in the statute supports 
applying the 5-year drilling and 35-year production extensions to 
individual leases, as well as to leases under cooperative or unit 
agreements. We received no comments on these sections and have adopted 
them as proposed.
    Final section 3207.14 addresses qualifications for a drilling 
extension. As explained in the preamble to the proposed rule (71 FR 
41548-41549), a lessee who submits information showing that it has met 
the applicable requirements (work activities or payment or production 
in lieu thereof) will continue in the primary term through the 20th 
year. Because the statute provides for a drilling extension only if a 
lessee is engaged in qualifying drilling operations at the time the 
primary term ends (see 30 U.S.C. 1005(g)), final section 3207.14 allows 
the drilling extension only if: (1) A lessee was drilling over the end 
of the 20th lease year (when the primary term would end due to lease 
expiration); or (2) A lessee had failed to submit information showing 
that it had met the requirements for an extension of the primary term 
and was drilling over the end of a year subsequent to the 10th year (in 
which case the primary term would terminate due to a failure to comply 
with requirements). The section further specifies that to qualify for 
the drilling extension, the lessee must be drilling a well for the 
purposes of commercial production to a target that the BLM determines 
is adequate, based on the local geology and type of proposed 
development. The lease will expire if, at the end of the 5-year 
drilling extension, the lessee does not qualify for a production 
extension (i.e., if the lessee is not producing or utilizing the 
geothermal resource in commercial quantities--see discussion of final 
section 3207.15, below). We received no comments on this section and 
have adopted it as proposed.
    Final section 3207.15 provides a production extension of up to 35 
years for a lease that is: (1) Actually producing geothermal resources 
in commercial quantities; or (2) Has a well capable of producing 
geothermal resources in commercial quantities and the lessee is making 
diligent efforts to utilize the resource. This reflects the definition 
at 30 U.S.C. 1005(h) of ``produced or utilized in commercial 
quantities,'' which is also defined at section 3200.1. The section also 
specifies the types of information a lessee must provide to the BLM for 
the BLM to determine whether to grant a production extension. A lessee 
with a BLM-approved utilization plan allowing for seasonal operation 
would be eligible for the production extension as long as it was 
producing or utilizing the geothermal resource in commercial quantities 
during the periods that the utilization plan provided for operations. 
We received no comments on this section. In the final rule we added a 
cross-reference to section 3212.15 to make it clear that a lease will 
not terminate if it satisfies the conditions in that section.
    Final section 3207.16 provides for a preferential right of renewal 
of a lease for a second term that is equal to the length of the primary 
term including the initial and additional extensions (a total of 20 
years) plus the length of the production extension (up to 35 years) for 
a total renewal period of up to 55 years. A renewal could be granted 
under such terms and conditions as the BLM deems appropriate, if at the 
end of the production extension, the lessee is

[[Page 24369]]

producing or utilizing geothermal resources in commercial quantities 
and the lands are not needed for any other purpose. This provision 
implements 30 U.S.C. 1005(g). This section also specifies that the 
renewal term continues only so long as the lessee is producing or 
utilizing geothermal resources in commercial quantities. The term 
``produced or utilized in commercial quantities'' is defined in 
proposed section 3200.1. We received no comments on this section and 
have adopted it as proposed.
    Final section 3207.17 provides that leases committed to a unit 
agreement that would expire before the unit term would expire may be 
extended to match the term of the unit if unit development has been 
diligently pursued. Paragraph (a) of this section is virtually 
identical to the previous regulation at section 3208.10(a)(4), with a 
slight change in wording to remove any implication that the holder of 
the expiring lease must be the one to have diligently pursued unit 
development. Final sections 3207.17 (b) and (c) establish procedures 
for these circumstances. Under final section 3207.17 (b), to extend the 
term of a lease committed to a unit, the unit operator must send to the 
BLM a request for lease extension at least 60 days before the lease 
expires showing that unit development has been diligently pursued. In 
the final rule we amended the paragraph (b) to make it clear that BLM 
may require the operator to submit additional information prior to 
approving the application. Final section 3207.17 (c) provides that 
within 30 days after receiving your complete extension request, the BLM 
will notify the unit operator whether it approves the request. Under 
final paragraph (c), the 30 days will begin running after BLM has 
received all information necessary to act on the application.
    Final section 3207.18 provides that a lease that is eliminated from 
a unit is eligible for an extension if it meets the requirements for 
such extensions. We received no comments on this section. In the final 
rule we removed the references to drilling and production extensions 
because lands eliminated from a unit may also be eligible for an 
initial or additional extension of the primary term.

Previous Subpart 3208--Extending the Primary Lease Term

    Previous subpart 3208 is removed because under this final rule the 
subject of extensions of lease terms is addressed in subpart 3207 for 
leases issued: (1) After August 8, 2005 (other than for leases issued 
in response to applications that were pending on that date for which no 
election is made under section 3200.8(b)(1)); and (2) Before August 8, 
2005, for which an election is made under section 3200.7(a)(2). 
Although removed from the CFR, the substance of previous subpart 3208 
(43 CFR subpart 3208 (2004)) will continue to have vitality for leases 
issued before August 8, 2005, for which no election is made under 
section 3200.7(a)(2), and for leases issued in response to applications 
pending on that date for which no election is made under section 
3200.8(b)(1). As discussed in an earlier section of this preamble, 
leases in these two categories continue to operate under certain 
provisions of the rules in effect on August 8, 2005, unless they elect 
otherwise.
    We received no comments on the removal of this subpart.

Previous Subpart 3209--Conversion of Lease Producing Byproducts

    Previous subpart 3209 is removed because lease conversions that 
subpart covered are no longer allowable under the Energy Policy Act. We 
received no comments on the removal of this subpart.

Subpart 3210--Additional Lease Information

    Final sections 3210.10 and 3210.11 on lease segregation remain 
substantively unchanged from the previous sections. We received no 
comments on these sections and have adopted them as proposed.
    Final section 3210.12 references new lease size limits. In other 
respects, it is substantively unchanged from the previous section. The 
preamble to the proposed rule mistakenly implied that the processing 
fee for lease consolidations was new in this rule. In fact, that fee 
had been previously added by the minerals cost recovery rule (see 70 FR 
58854 (October 7, 2005)). We received no comments on this section and 
have adopted it as proposed.
    This final rule removes previous sections 3210.13, 3210.14, 
3210.15, and 3210.16, all of which pertained to the previous diligent 
exploration requirements. Work requirements are addressed in the final 
rule in subpart 3207 for leases issued: (1) After August 8, 2005 (other 
than for leases issued in response to applications that were pending on 
that date for which no election is made under section 3200.8(b)(1)); 
and (2) Before August 8, 2005, for which an election is made under 
section 3200.7(a)(2). Despite the removal of these sections, the 
substantive terms of the cited sections (in the 2004 edition of the 
CFR) continue to apply to leases in effect before August 8, 2005, and 
leases issued on or after August 8, 2005, in response to applications 
pending on that date, unless the lessees elect under section 
3200.7(a)(2) or section 3200.8(b)(1) to be subject to the regulatory 
requirements of this final rule. We received no comments on the removal 
of these sections.
    Final section 3210.13 on leasing or locating minerals on a 
geothermal lease remains substantively unchanged from previous section 
3210.17. We received no comments on this section and have adopted it as 
proposed.
    Final section 3210.14, which provides that the BLM may readjust the 
terms and conditions of a lease, replaces previous sections 3210.18, 
3210.19, and 3210.20 that related to the same topic. It implements 30 
U.S.C. 1007, as revised.
    One commenter objected to allowing the BLM to readjust the terms 
and conditions of a lease. The commenter stated that allowing such 
changes after the lease is issued creates uncertainty for the developer 
and could create financing issues.
    We did not change the rule in response to this comment. As 
discussed below, these provisions are not substantively changed from 
the previous regulations (see previous sections 3210.18 and 3210.20). 
The statutory provision providing that the Secretary may readjust lease 
terms and conditions at not less than 10-year intervals and may 
readjust rentals and royalties at not less than 20-year intervals 
beginning 35 years after production (30 U.S.C. 1007) was not changed by 
the Energy Policy Act amendments, except for the removal of the 22.5 
percent royalty cap previously included in 30 U.S.C. 1007(b). The final 
rule implements the new statutory provision.
    Final section 3210.14(a) addresses readjustment of lease terms and 
conditions other than rentals and royalties; it replaces previous 
section 3210.18. With one exception, paragraph 3210.14(a) is 
substantively unchanged from previous section 3210.18. Previous section 
3210.18 provided that once the BLM and the other agency reached 
agreement, the BLM would readjust the terms of the lease. It did not 
state, as the statute requires at 30 U.S.C. 1007(c), that the other 
agency must approve the readjustment. Final section 3210.14(a)(2) 
clarifies that the other agency must approve the proposed readjustment.
    Final section 3210.14(b) addresses readjustment of rentals and 
royalties; it replaces previous section 3210.20(a). The previous 22.5 
percent royalty cap for readjusted leases was removed from

[[Page 24370]]

the rules because that cap is no longer in the statute.
    Final sections 3210.14(c), (d), and (e) implement the procedures of 
30 U.S.C. 1007(b), and are somewhat different than the procedures in 
previous sections 3210.19 and 3210.20. Under previous sections 
3210.19(a) and 3210.20(b), the BLM notified lessees in writing of 
proposed readjustments and provided the lessee 30 days to object in 
writing to the new terms. The previous rules provided further that if a 
lessee: (1) Did not object, the proposed new terms would become part of 
the existing lease; or (2) Did object, the BLM would issue an 
appealable final decision on the new terms and conditions. The previous 
rules, however, did not expressly mention certain concepts contained in 
the statute that are described below.
    Under final sections 3210.14(c) and (d), the BLM will give a lessee 
a written proposal to readjust the rentals, royalties, or other terms 
and conditions of its lease. The lessee will have 30 days after 
receiving the proposal to file with the BLM an objection in writing to 
the proposed new terms and conditions. If the lessee does not object in 
writing or relinquish its lease, it will conclusively be deemed to have 
agreed to the proposed new terms and conditions. This concept, implied 
but not expressly stated in the previous rules, is taken directly from 
the statute. The BLM will then issue a written decision under final 
section 3210.14(d), setting the date that the new terms and conditions 
become effective as part of the lease. This decision will be in full 
force and effect under its own terms, and the lessee is not authorized 
to appeal the decision to the Department's Office of Hearings and 
Appeals.
    We made a minor revision to proposed section 3210.14(c), changing 
the word ``adjust'' to ``readjust,'' to be consistent with language of 
the statute at 30 U.S.C. 1007 and the language of the other paragraphs 
of section 3210.14.
    Final section 3210.14(e) establishes procedures for the situations 
where a lessee files a timely objection to the proposed readjustment, 
and is intended to implement a portion of 30 U.S.C. 1007(b) that was 
not addressed in previous regulations.
    We revised the language of proposed section 3210.14(e)(1) in this 
final rule to correct an error in the proposed rule. The section as 
proposed referred only to ``readjusted rental and royalty terms'':

    If you file a timely objection in writing, BLM may issue a 
written decision making the readjusted rental and royalty terms 
effective no sooner than 90 days after we receive your objections, 
unless we reach an agreement with you as to the readjusted terms of 
your lease that makes such terms effective sooner.

    However, the intent, as was clear from proposed paragraphs (c), 
(d), and (e) taken as a whole, was to refer to not just readjusted 
rental and royalty terms, but to all readjusted terms and conditions. 
Therefore, in this final rule we substituted the words ``readjusted 
terms and conditions'' for ``readjusted rental and royalty terms,'' and 
for clarity also revised the end of the sentence to refer to 
``readjusted terms and conditions'' rather than the shorthand 
``readjusted terms.'' Final section 3210.14(e)(1) thus reads:

    If you file a timely objection in writing, BLM may issue a 
written decision making the readjusted terms and conditions 
effective no sooner than 90 days after we receive your objections, 
unless we reach an agreement with you as to the readjusted terms and 
conditions of your lease that makes them effective sooner.

    Under final section 3210.14(e)(2), if the BLM does not reach an 
agreement with the lessee by 60 days after receiving the lessee's 
objections, then either the lessee or the BLM may terminate the lease, 
upon giving the other party 30 days' notice in writing. This provision 
is contained in 30 U.S.C. 1007(b), but did not appear in the previous 
regulations. The final rule clarifies that a lease termination under 
paragraph (e)(2) does not affect a lessee's obligations that accrued 
under the lease when it was in effect, including those specified in 
section 3200.4.
    Unlike a BLM decision under final section 3210.14(d), a lessee may 
appeal a BLM readjustment decision under final section 3210.14(e)(1). 
Final section 3210.15 addresses such appeals.
    For consistency, we revised the language of proposed section 
3210.15, which referred to ``lease terms and conditions, or rental or 
royalty rate'' to use the same phrase used in final section 3210.14(c): 
``rentals, royalties, or other terms and conditions of your lease.''
    Final section 3210.15 provides that if a lessee appeals the BLM's 
decision under section 3210.14(e)(2) to readjust rentals, royalties, or 
other terms and conditions of its lease, the decision will be effective 
during the appeal. If the lessee wins its appeal and the BLM must 
change its decision, the lessee will receive a refund or credit for any 
overpaid rents or royalties.
    In summary, the BLM will provide a lessee 30 days to object to a 
proposed readjustment decision. If the lessee objects, the BLM may 
issue a written decision making the readjusted terms and conditions 
effective no sooner than 90 days after receiving the objection. A 
lessee will have 30 days to appeal that decision under Office of 
Hearings and Appeals regulations. In addition to the appeal process, 
the BLM and the lessee can attempt to negotiate an agreement within 60 
days after the BLM receives the objection. If an agreement is reached, 
the appeal will be withdrawn. If an agreement is not reached, either 
the lessee or the BLM may terminate the lease on 30 days' notice in 
writing, even if an appeal is pending.
    We revised sections 3210.14 and 3210.15 as discussed above to 
correct an error in the proposed rule and to make the wording 
consistent.
    Final sections 3210.16 and 3210.17, relating to drainage of 
geothermal resources, are substantively unchanged from previous 
sections 3210.22 and 3210.23. We received no comments on these sections 
and have adopted them as proposed.

Subpart 3211--Filing and Processing Fees, Rent, Direct Use Fees, and 
Royalties

    Final subpart 3211 incorporates changes made by the Energy Policy 
Act to lease rental rates, royalty rates, and minimum royalty 
requirements.
    Final section 3211.10 addresses processing and filing fees. 
Paragraph (b) references existing 43 CFR 3000.12 for the amount of the 
fees. The BLM expects to update section 3000.12 from time to time to 
reflect actual costs associated with these activities. We received no 
comments on this section and have adopted it as proposed.
    Final section 3211.11 establishes rental rates for geothermal 
leases. The new lease rental rates are taken directly from 30 U.S.C. 
1004(a)(3)(A) and (B). The Energy Policy Act significantly changed 
rental rates from those in the previous regulations. The rental for new 
noncompetitive leases (that is, leases issued on or after August 8, 
2005, other than leases issued in response to applications that were 
pending on that date for which no election is made under section 
3200.8(b)(1)) remains at $1 per acre per year for the first 10 years; 
the rental for new competitive leases is $2 per acre the first year and 
increases from $2 per acre per year to $3 per acre per year from years 
2 through 10. Starting with the eleventh year, the rental rate for all 
new leases increases to $5 per acre per year. Final section 3211.11(e) 
addresses fractional mineral interests in the same way as did previous 
section 3211.13.
    Although we received no comments on proposed section 3211.11, we 
restructured it and added language to

[[Page 24371]]

clarify that for leases issued before August 8, 2005, for which no 
election is made under section 3200.7(a)(2), and for leases issued in 
response to applications pending on August 8, 2005, for which no 
election is made under section 3200.8(b)(1), the rental rate is the 
rate prescribed in the regulations in effect on August 8, 2005 (43 CFR 
3211.10 (2004)). This is not a substantive change from the proposal, 
but is added as a convenience for persons trying to understand the 
rental structure for existing and new leases.
    Final section 3211.12 is virtually the same as previous section 
3211.12. The Energy Policy Act did not make any changes regarding to 
whom the rent is paid for the first year and subsequent years. We 
received no comments on this section and have adopted it as proposed.
    Final section 3211.13 addresses when rental payments are due and 
replaces previous section 3211.11. The rule provides that rent is 
always due in advance. The MMS must receive annual rental payments for 
the upcoming year by the anniversary date of each lease year. If less 
than a full year remains on a lease, a lessee must still pay a full 
year's rent by the anniversary date of the lease. The payment of rent 
in advance is required by 30 U.S.C. 1004(a)(3). As this was also 
required in the original Geothermal Steam Act of 1970, there are no 
substantial changes to this portion of the provision. The reference in 
previous section 3211.11 to the automatic termination of leases by 
operation of law is not included in the new section because the statute 
has changed in this regard. Lease termination for non-payment of rental 
is addressed in final section 3213.14 of this rule and is discussed 
later in this preamble and in the preamble to the proposed rule at 71 
FR 41557-41558.
    One commenter requested a clarification of how rent will be 
credited towards royalty, as provided in section 3211.15, in light of 
the requirement of section 3211.13 that rent is due in advance. The 
commenter is referred to the MMS rule at 43 CFR 218.303 for this 
clarification. In addition to the explanation in the MMS rule text, the 
preamble to the proposed MMS rule provided a thorough explanation of 
the process, including examples (71 FR 41522). We did not change the 
rule in response to this comment.
    Final section 3211.14 addresses whether a lessee must always pay 
rent on a lease. Although we received no comments on proposed section 
3211.14, we restructured it and added language to clarify that only 
leases issued on or after August 8, 2005 (other than leases issued in 
response to applications that were pending on that date for which no 
election is made under section 3200.8(b)(1)), and leases issued before 
August 8, 2005, for which an election is made under section 
3200.7(a)(2), will always pay rental. As explained in the preamble to 
the proposed rule (71 FR 41550), the Energy Policy Act does not provide 
for payment of royalties in lieu of rent, or for minimum royalties 
during production. It provides that lessees will pay rental every year, 
and allows a credit of rents against royalties, as provided in this 
rule at section 3211.15.
    The language we added to section 3211.14 explains that leases 
issued before August 8, 2005, for which no election is made under 
section 3200.7(a)(2), and leases issued in response to applications 
pending on that date for which no election is made under section 
3200.8(b)(1), continue to be subject to the rental and minimum royalty 
provisions of the previous regulations (43 CFR subpart 3211 (2004)). 
While final sections 3200.7(a) and 3200.8(a) already provide that such 
leases are subject to the previous regulations in this regard, for 
clarity we included specific information in subpart 3211 as well. The 
previous regulations provided that the lessee pays rent until the lease 
achieves production in commercial quantities, or until lands in the 
lease are within the participating area of a unit agreement or 
cooperative plan, at which time the lessee pays royalties for lands 
within the participating area and rent for lands outside the 
participating area (see 43 CFR 3211.14, 3211.15, and 3211.17 (2004)).
    Final section 3211.15, together with applicable MMS regulations, 
implement 30 U.S.C. 1004(e), which requires that the advance rental 
payments on new leases be credited towards royalty due on production in 
that lease year. The rule provides that a lessee may credit rental 
towards royalty under the MMS proposed regulations at 30 CFR 218.303. 
Under the statute the rental credit against royalty is allowed only for 
rent paid before the first day of the year for which the rental is 
owed. In other words, no credit is allowable for rent paid after the 
lease anniversary date, even if the lease is not terminated. Thus, 
although lessees are allowed to maintain their leases by paying rent 
plus a late fee within 45 days of the lease anniversary date, they may 
not credit such late rental payments against royalties.
    Also, the Energy Policy Act does not provide for rental paid in 
excess of royalty to be carried over from one lease year as a credit 
against royalty for production in another year. Because rental is 
always due on a lease, the rental payment effectively becomes the 
equivalent of a minimum royalty payment that was required prior to the 
Energy Policy Act.
    Final section 3211.16 provides that rental paid cannot be credited 
against fees owed for direct use of geothermal resources. This 
provision also appears in the final MMS regulations at 30 CFR 218.304. 
This section is based on the Energy Policy Act, which provides at 30 
U.S.C. 1004(e) that annual rentals ``shall be credited to the amount of 
royalty that is required to be paid under the lease for that year.'' 
Please note the use of the word ``royalty'' in this provision of the 
statute.
    Two commenters objected to the BLM's interpretation of 30 U.S.C. 
1004(e) as providing for crediting rentals only against royalties and 
not against direct use fees. These commenters asserted that the 
statutory language was discretionary, that the BLM had chosen an 
unnecessarily strict and ``nit picking'' interpretation, and that the 
BLM's interpretation runs counter to the Energy Policy Act's goal of 
encouraging direct use development.
    We did not change the proposed rule in response to these comments 
because we do not believe that Congress intended the word ``royalty'' 
at 30 U.S.C. 1004(e) to include direct use fees. As explained in the 
preamble to the proposed rule (71 FR 41551), a clear distinction exists 
in the statute between ``royalties'' and ``fees.'' Congress provided at 
30 U.S.C. 1004(b) that fees are ``in lieu of royalties,'' thus 
differentiating the two. Direct use fee payments are different from 
royalty payments, and are therefore not included in the statutory 
provision for rental credits.
    Final section 3211.17 establishes royalty rates on geothermal 
resources that are used in the commercial generation of electricity 
from or attributable to a geothermal lease. The Energy Policy Act (30 
U.S.C. 1004(a)(1)(A) and (B)) provides for a royalty on the sale of 
electricity produced from geothermal resources ranging from 1 percent 
to 2.5 percent of gross proceeds for the first 10 years of production, 
and from 2 percent to 5 percent of gross proceeds thereafter (the MMS 
defines ``gross proceeds'' in 30 CFR part 206, subpart H.). The BLM 
interprets this section of the Energy Policy Act to apply to situations 
in which the lessee or its affiliate sells electricity generated by use 
of geothermal resources produced from or attributed to the lease. 
Although the statute establishes an allowable royalty range, actual 
royalty rates are to be

[[Page 24372]]

established by regulation (30 U.S.C. 1004(c)).
    The royalty rates established under final sections 3211.17(a)(1)(i) 
and (ii), for geothermal resources that a lessee or its affiliate uses 
to generate electricity that it sells, are the same as the proposed 
rates: (1) 1.75 percent for the first 10 years of production from a 
lease; and (2) 3.5 percent for production in subsequent years. Final 
section 3211.17(a)(1)(iii) reiterates the language in the Energy Policy 
Act that the percentages in paragraphs (a)(1)(i) and (a)(1)(ii) must be 
applied to the gross proceeds from the sale of electricity, and 
specifies that gross proceeds must be determined in accordance with 
applicable MMS regulations.
    Final section 3211.17(a) applies to leases issued on or after 
August 8, 2005, except for leases issued in response to lease 
applications that were pending on that date for which the lessee does 
not make an election under section 3200.8(b) to be subject to these new 
regulations. In this final rule, we changed the wording of proposed 
section 3211.17(a) to clarify that the election such a lessee may make 
is to be subject to all of the new rules; if no election is made, the 
lessee will be subject to the regulations in effect on August 8, 2005, 
with regard to the provisions specified at section 3200.8(a), including 
royalties.
    The methodology for establishing royalty prescribed in 30 U.S.C. 
1004(a)(1)(A) and (B) represents a significant change from the way 
royalty was previously determined. For leases issued before August 8, 
2005, that do not convert royalty terms under section 3212.25, and for 
leases issued in response to applications that were pending on August 
8, 2005, that do not make an election under section 3200.8(b)(1), a 
royalty rate in the range from 10 percent to 15 percent of the value of 
the geothermal resource will apply. Historically, arm's-length sales of 
geothermal resources from a lessee to a third party utility were common 
and the arm's-length transaction established the value of the resource. 
For most situations where there was no sale of geothermal resources (as 
is the case for virtually all existing leases), the value of the 
geothermal resource was artificially derived using the ``netback'' 
method developed by the MMS, a method that in practice has often 
resulted in almost no royalty being paid and has been cumbersome for 
both the MMS and the lessees. For example, the Geysers Geothermal Field 
lessees informed the MMS that the netback method was unworkable, and 
negotiated with the MMS to adopt a simpler ``percent of gross 
proceeds'' method instead.
    The Energy Policy Act simplifies the way in which royalty is valued 
by basing royalties on a percentage of gross proceeds derived from the 
sale of electricity. Section 1004(c) of the Act requires that in 
establishing royalty rates the Secretary must seek to provide a 
simplified administrative system, encourage new development, and 
achieve revenue neutrality for a period of 10 years when compared to 
the valuation methods in the previous regulations. The BLM has 
interpreted the revenue-neutrality requirement to require the 
calculation of a royalty rate that achieves program-wide revenue 
neutrality for the first 10 years of production when compared to 
royalty revenues that would have been received during those 10 years 
under the previous netback system. Under this interpretation, this 
revenue-neutrality requirement does not apply to the royalty rate after 
the first 10 years of production.
    In establishing the proposed royalty rates, the BLM relied on the 
rates recommended by the MMS RPC Subcommittee. The RPC, established 
under the Federal Advisory Committee Act, makes recommendations on 
issues related to royalties on Federal resources and consists of 
representatives from Federal and state governments, industry, and the 
public at large. The Subcommittee was formed to address the MMS's 
geothermal royalty valuation regulations in an effort to simplify the 
language and reduce administrative costs to the geothermal industry. 
The Subcommittee was composed of members from one industry association, 
several geothermal producers, and two of the major states affected. The 
MMS and BLM representatives served as technical advisors to the 
Subcommittee.
    The Subcommittee asked the MMS to calculate the equivalent gross 
proceeds rates for all geothermal plants paying royalties under the 
netback method in 2003 and 2004. The MMS determined that the equivalent 
gross proceeds rate was 3.64 percent in 2003, and 3.94 percent in 2004, 
with an average of 3.79 percent for the 2 years (Royalty Policy 
Committee, Geothermal Valuation Subcommittee Report, May 2005 (``RPC 
Report''), page 10).
    The Subcommittee recommended rates of 1.75 percent for the first 10 
years of production, and 3.5 percent thereafter. The Subcommittee 
reported that, ``[u]nder the netback method, historically during the 
beginning years of an electrical generation project (between 1-10 
years), lessees pay a very low percentage of the gross proceeds from 
the sale of electricity and in later years of the project (after 10 
years), the percentage increases * * *. The recommended proposal [1.75 
percent and 3.5 percent] * * * attempts to replicate this historical 
trend under the netback method over the long term.'' (RPC Report, page 
10). The report stated that ``[f]or new leases, the proposal is 
expected to increase revenues over the next 10 years and may be revenue 
neutral over the long run.'' (RPC Report, page 11). However, it went on 
to state that there was ``[r]isk of a negative revenue impact for the 
government if electricity prices are higher and/or costs are lower than 
anticipated; and risk of negative impact on companies if prices are 
lower and/or costs higher than anticipated.'' (RPC Report, page 12).
    The BLM retained a contractor, Advanced Resources International, 
Inc. (ARI), to assess whether the proposed 1.75 percent royalty rate 
was consistent with the statutory requirement for revenue neutrality 
over a 10-year period. ARI recently completed for the BLM a technical 
memorandum entitled ``Geothermal Development on Federal Lands: 
Projection of Royalty Impacts Resulting from the Energy Policy Act of 
2005'' (ARI Report). The ARI Report is publicly available and has been 
included in the Administrative Record for this rulemaking. A summary of 
the ARI Report follows, much of it derived from the ARI Report 
Executive Summary.
    The ARI developed an analysis to compare the Energy Policy Act 
gross proceeds royalty rate method with the netback method to determine 
under what conditions the two would be revenue neutral. Focusing on the 
western states of California, Nevada, Utah, and Idaho, the analysis 
considered technology (binary and flash plants), potential areas of 
development, electricity prices and markets, plant sizes relative to 
the technology used, and financial parameters such as capital costs, 
operating and maintenance costs, and discount rate. The analysis 
assumed a 30-year project life. ``Type'' projects were developed based 
on these parameters. To obtain a programmatic view, the various states 
were weighted based on where development might occur (California was 
divided into two domains). ARI calibrated (checked) the analysis using 
historical data.
    The ARI modeled nine programmatic cases for analysis to capture a 
spectrum of potential development on BLM lands. The differences between 
the various cases derive from adjusting those parameters to which the 
model was most sensitive, i.e., the relative amount of binary plant 
development (as

[[Page 24373]]

compared to the total of binary plus flash plant development), future 
electricity prices, and capital costs. Scenarios modeled include 
``base,'' ``low,'' ``intermediate,'' ``targeted'' (to achieve a 1.75 
percent royalty rate during the first 10 years of production) and 
``high'' cases. For each case, the model derived a revenue-neutral 
royalty rate for the first 10 years of production (or, for the targeted 
cases, adjusted appropriate parameters that would result in the 
targeted rate), as well as an accompanying revenue-neutral royalty rate 
for production after the first 10 years. All parameters used in the 
modeling were based on empirical data. The ARI Report did not recommend 
any particular set of royalty rates, but concluded instead that ``[i]t 
is reasonable to expect that all scenarios modeled in the cases could 
be achievable (including targeted scenarios) depending upon geothermal 
resources, future market conditions and technology'' (ARI Report, page 
1).
    The ARI Report base case assumes: (1) 65 percent of future 
geothermal development will use binary technology; (2) future 
electricity prices will remain flat (incorporating price supports in 
the applicable geographic domains under the California Renewable Energy 
Program); and (3) capital expenditures for plant construction (CAPEX) 
will be an average of data published by the Geothermal Energy 
Association (explained in ARI report, section 2.2.7, page 7). The ARI 
Report includes an explanation of all the parameters the model uses.
    The ARI also performed an historical analysis of a sample of 
existing geothermal leases paying royalties under the netback system to 
determine the equivalent royalty they paid during the first 10 years of 
their production (see the ARI Report, Section 2.3 on p. 8). The BLM and 
the MMS supplied electricity sales and royalty revenue data to the 
contractor for nine non-Standard Offer 4 contracts for Nevada. 
(Standard Offer 4 contracts had a unique price structure, and would not 
be applicable to future geothermal leases.) This sample was based on 
the data that was readily available to the BLM. ARI examined this data 
for the first 10 years of the project lives to determine the actual 
effective netback royalty rate. The binary plants showed an effective 
royalty rate of 0.61 percent; for flash technology, the effective 
royalty rate was 3.52 percent. For this portfolio of binary and flash 
technologies, the effective royalty rate for the first 10 years of 
project lives was 1.11 percent as a weighted average. ARI compared 
these historical percentages to the percentages derived when the same 
data was run in its model and found that the percentages were very 
close.
    After thorough consideration of both the RPC Report and the ARI 
Report, the BLM determined that its proposed royalty rate of 1.75% for 
the first 10 years of production meets the statutory requirement for 
revenue neutrality. Both the RPC Report and the ARI Report support the 
conclusion that estimates of revenue neutrality are extremely sensitive 
to potential changes in electricity prices and capital expenditures, 
and the ARI Report indicated that the estimates are also very sensitive 
to the relative mix of geothermal technology that will be employed in 
the future. None of these variables can be predicted with absolute 
accuracy. Based on the professional judgment of the BLM geothermal 
program staff, the model assumed that binary technology would account 
for no less than 50% of new geothermal plants; the assumed percentage 
of binary plants in the cases analyzed in the model ranged from 50% to 
65%. Regarding capital costs, while the model's base case based its 
capital expenditures estimate on an average of published data, the data 
showed that actual capital expenditures varied from that average by up 
to a third or more (ARI Report, page 16 n.17). The assumed capital 
expenditures in the cases analyzed in the model deviated from the base 
case by no more than 12%. The ARI Report cited to a recent article on a 
geothermal operation in Alaska that provides some evidence that 
geothermal capital costs could decline if operators begin substituting 
mass-produced parts (ARI Report, page 16 n. 24). Electricity prices, 
too, cannot be predicted with accuracy, especially considering the 
increasing prevalence of government-mandated use of renewable energy 
sources such as geothermal energy. As noted, California already has a 
Renewable Energy Program that contains price support provisions (which 
the model took into account), and Nevada is considering draft 
legislation that could enhance prices for renewable energy in the 
future.
    The ARI Report demonstrates the impact of potential changes in any 
of these variables. For example, Targeted Case A (ARI Report, page 1, 
Table, column 5), changed predictions for two of the three parameters 
just discussed: It changed the binary plant proportion from 65% to 50%, 
and lowered the capital expenditures prediction by 8%. It used the same 
electricity price prediction as the base case. If future geothermal 
production met those parameters, the model shows that the revenue-
neutral royalty rate for the first 10 years of production would be 
1.76% and the revenue-neutral rate for years 11-30 would be 3.57%. 
These rates are nearly identical to the rates recommended by the RPC 
and proposed by the BLM in its proposed rule.
    The modeling exercise makes clear that a revenue-neutral royalty 
rate is not simply one number that can be determined with mathematical 
certainty, but instead could be within a range of rates, depending on 
reasonable assumptions as to what the future holds. The ARI Report 
shows that other changes in the parameters, corresponding to other 
potential scenarios for future development, result in different 
revenue-neutral royalty rates, some higher and some lower than the 
BLM's proposed rates. The four targeted scenarios show that the 1.75% 
royalty rate for the first 10 years of production could result in 
revenue-neutrality in a number of different future scenarios. As noted 
above, all parameter variations used in the model were based on 
empirical data, and the ARI report concluded that ``[i]t is reasonable 
to expect that all scenarios modeled in the cases could be achievable 
(including targeted scenarios) depending upon geothermal resources, 
future market conditions and technology'' ARI Report, page 1.
    The 1.75% rate is clearly within the reasonable range of rates that 
would meet the statutory mandate to seek revenue neutrality for the 
first 10 years of production. While the BLM's interpretation of the 
statute is that there is no mandate of revenue-neutrality after the 
10th year, the 3.5% rate for subsequent years is, nevertheless, also 
within the reasonable range of revenue-neutral rates. These rates have 
the additional advantage of being recommended by the RPC Subcommittee, 
which carefully gathered input from many interested parties. 
Consequently, the BLM believes that these rates, to which 
representatives of the geothermal industry agreed, will also work to 
encourage geothermal development.
    As noted above, the royalty rate required by the Energy Policy Act, 
at 30 U.S.C. 1004(a)(1)(A), requires a royalty of 1 percent to 2.5 
percent of gross proceeds from the sale of electricity ``during the 
first 10 years of production under the lease.'' The BLM interprets this 
language to mean that the 10-year period to which the 1.75 percent 
royalty rate applies starts during the month for which commercial 
operation is first achieved, and continues for 120 consecutive months, 
unless a suspension of operations and

[[Page 24374]]

production is granted under subpart 3212.
    Final section 3211.17(a)(2) sets the royalty rate for the arm's-
length sale of resources at 10 percent of gross proceeds from that 
sale. The Energy Policy Act is silent regarding the situation where the 
lessee sells the resource to an unaffiliated purchaser that produces 
electricity, rather than selling the electricity itself. To address 
these situations, the BLM is using the recommendations found in the RPC 
Report (page 9) which recommended that the lessee ``pay a royalty on 
the geothermal resources sold under arm's-length conditions to a plant 
that generates electricity based on a royalty rate in the lease 
multiplied by the gross proceeds the lessee derives from the sale of 
the geothermal resources.'' The Geothermal Steam Act, prior to the 
amendments of the Energy Policy Act, required a royalty rate of 10 to 
15 percent, and current BLM practice is to issue all leases with a 
royalty rate of 10 percent. Section 2 of the standard lease terms 
listed on the BLM Form 3200-24, ``Offer to Lease and Lease for 
Geothermal Resources,'' sets the royalty rate at 10 percent. The 10 
percent royalty rate is thus the current practice, and the Subcommittee 
Report concluded that it would cause ``[n]o change in royalty 
valuation.''
    While the 10 percent royalty rate in the case of an arm's-length 
sale of resources for the commercial generation of electricity may 
appear to require higher payments by a lessee than the 1.75 and 3.5 
percent that are required for ``no-sales'' situations in section 
3211.17(a)(1), the actual amount of royalty paid will be roughly 
equivalent. This is because the 10 percent rate applies to the gross 
proceeds from the sale of the geothermal resource, whereas the 1.75 and 
3.5 percent rates for electrical generation apply to the gross proceeds 
from the sale of electricity. The electricity generated represents a 
refined product with a much higher value than the heat resource 
entering a power plant. Therefore, 1.75 and 3.5 percent of a high-value 
product will be roughly equivalent to 10 percent of a lower value 
product. Because the proposed 10 percent royalty on the gross proceeds 
from an arm's-length sale of resource required by section 3211.17(a)(2) 
is the same as the royalty that would be required under existing lease 
terms, the provisions of this paragraph are revenue neutral.
    We received no comments on section 3211.17(a) and, except for the 
clarification change discussed above, have adopted it as proposed.
    Final section 3211.17(b) establishes the royalty rates for leases 
issued before August 8, 2005, where the lessee chooses to convert the 
royalty terms of the lease. As discussed earlier, the royalty rates 
will continue under the existing terms of such leases unless a lessee 
converts to the royalty terms of the new statute under final section 
3212.25. Eligibility for and procedures for such conversions are 
discussed later in this preamble in the discussion of subpart 3212.
    In this final rule we revised section 3211.17(b). For clarity, we 
separated proposed section 3211.17(b)(1) into two parts. Final section 
3211.17(b)(1) addresses leases that have produced geothermal resources 
for the commercial generation of electricity, or to which geothermal 
resource production for the commercial generation of electricity has 
been attributed. Final section 3211.17(b)(2) addresses leases that have 
not produced geothermal resources, and to which geothermal resource 
production for the commercial generation of electricity has not been 
attributed. We replaced the word ``previously'' with the phrase ``prior 
to submitting a request to modify the royalty rate terms of the lease 
under section 3212.26.'' We moved the information that was contained in 
proposed section 3211.17(b)(2), regarding application of MMS rules, to 
final section 3211.17(b)(1)(i) and (ii). These paragraphs are further 
discussed below.
    Conversion of the royalty terms of existing geothermal leases is 
governed by Section 224(e) of the Energy Policy Act. That section does 
not make the royalty rate ranges in 30 U.S.C. 1004(a)(1) applicable to 
existing leases that convert to new royalty terms. Instead, the royalty 
conversion language in Section 224(e)(1)(B) of the Energy Policy Act 
requires that except for leases where the geothermal resource is used 
for a direct use to which a fee schedule applies, royalties are to be 
computed on a percentage of the gross proceeds from the sale of 
electricity. Under the statute, the royalty rate is to be set at the 
percent of gross proceeds to ``yield total royalty payments equivalent 
to payments that would have been received for comparable production 
under the royalty rate in effect for the lease before the date of 
enactment * * * .''
    In the final rule, we divided converting leases that have already 
produced geothermal resources for the commercial generation of 
electricity into two categories under section 3211.17(b)(1). Under 
section 3211.17(b)(1)(i), where a lessee or its affiliate uses 
geothermal resources to generate and sell electricity, the BLM will 
establish a royalty rate by determining a percentage of gross proceeds 
from the sale of electricity that it expects will result in the same 
total amount of royalty to be paid over the life of the lease as would 
be paid under the current valuation method. The determination of such a 
royalty rate will be done on a case-by-case basis and will be based on 
the information submitted by the applicant. We added the words ``over 
the life of the lease'' to the regulatory text to clarify that the 
statutory phrase ``total royalty payments'' means total payments during 
the existence of the lease, and not just during a particular period of 
production.
    In this final rule, we added the category covered by section 
3211.17(b)(1)(ii), where a lessee or its affiliate sells geothermal 
resources at arm's length to a purchaser who uses those resources to 
generate electricity. We provided that in such a case, the royalty rate 
is the rate specified in the lease instrument. This is a change from 
the proposed rule, in which we proposed to establish a revenue neutral 
royalty rate for this category of leases by applying to the gross 
proceeds of the purchaser's eventual sale of electricity a rate that 
would result in the same total amount of royalty as would be paid under 
the current valuation method. In reviewing MMS's draft final rule, it 
was discovered that the MMS rule would apply the rate that BLM sets to 
the gross proceeds from the lessee's sale of the resource rather than 
to the gross proceeds from the purchaser's sale of electricity.
    As discussed above, for converting leases, section 224(e)(1)(B) of 
the Energy Policy Act requires that royalties be computed on a 
percentage of the gross proceeds from the sale of electricity, to 
achieve over the life of the lease ``total royalty payments equivalent 
to payments that would have been received for comparable production 
under the royalty rate in effect for the lease'' before enactment of 
the amendments. Under the previous BLM and MMS rules, arm's-length 
sales of geothermal resources from a lessee to a third party utility 
established the value of the resource. There was no need to 
artificially derive a value for the geothermal resource through the 
``netback'' method. Thus, any successful method of applying a royalty 
rate to the gross proceeds of electricity generated by the purchaser in 
an attempt to achieve royalty payments equivalent to existing payments 
for arm's-length resource sales would result in the same outcome as 
applying the rate in the

[[Page 24375]]

existing lease to the gross proceeds from the sale of the resource. 
Because the existing method achieves the equivalent royalty payments 
mandated by the statute, we determined that for the sale of the 
geothermal resource under arm's-length contracts this method complies 
with the statute.
    A royalty rate modification under section 3212.25 will thus have no 
immediate effect on an existing lessee that only sells geothermal 
resources to commercial generators of electricity. However, if such a 
lessee elects to be subject to all of the new regulations under section 
3200.7(a)(2), it must obtain a royalty modification, which requires 
that the rate be addressed in section 3211.17.
    In light of this revision of the final rule clarifying that MMS 
will apply the royalty rate for converting leases to the gross proceeds 
from the sale of the resource and not to the gross proceeds of 
electricity generated by the purchaser, it is no longer necessary that 
a request to modify royalty terms under section 3212.26 include 
documentation that a lessee selling the resource has access to the 
purchaser's gross proceeds derived from the sale of electricity. We 
therefore did not include that provision in final section 
3212.26(a)(2).
    Final section 3211.17(b)(2) establishes the royalty rates for 
leases that elect to convert to the royalty terms of the Energy Policy 
Act, but have never produced geothermal resources. In these cases, 
because the BLM will have no data on which it could base a 
determination of a revenue-neutral royalty rate, it will assign the 
royalty rates in final section 3211.17(a)(1) (1.75 percent for the 
first 10 years and 3.5 percent thereafter) or 3211.17(a)(2) (10 percent 
of the gross proceeds from the sale of the resource), whichever is 
applicable. In this final rule we added the reference to section 
3211.17(a)(2) to account for arm's length sales of the resource. 
Because the royalty rates in section 3211.17(a) were derived to be 
revenue neutral, the BLM has concluded that this meets the intent of 
section 224(e)(1)(B) of the Energy Policy Act.
    One commenter stated that in proposed section 3211.17, ``BLM sets 
the royalty rate for leases that previously did not produce geothermal 
resources for commercial generation of electricity from Class II and 
III leases at 1.75 percent'' and objected that no explanation was 
offered as to why the 1.75 percent rate would result in the same level 
of royalty revenue.
    First, we want to clarify that the proposed rule at section 
3211.17(b)(1) and the final rule at section 3211.17(b)(1)(ii) sets the 
royalty rates for leases issued before August 8, 2005, that elect to 
convert to the royalty terms of the Energy Policy Act, but have never 
produced geothermal resources for the commercial generation of 
electricity, not at 1.75% for the life of the lease, but at 1.75% for 
the first 10 years of production, and 3.5% thereafter, as provided at 
sections 3211.17(a)(1)(i) and (ii). These are the same royalty rates 
that will be applied to new leases.
    In establishing a process for setting royalty rates for existing 
leases that elect to convert to the royalty terms of the Energy Policy 
Act, the BLM distinguished between existing leases that have produced 
and those that have not produced. Under final section 3211.17(b)(1)(i), 
for existing leases that have a history of production, the BLM will 
determine on a case-by-case basis a royalty rate that will meet the 
statutory requirements. Under final section 3211.17(b)(1)(2), for 
existing leases that have never produced, the BLM will apply the same 
royalty rates that it will apply to new leases. The reason for this 
distinction is that those leases that have produced geothermal 
resources for the commercial generation of electricity, and which have 
been subject to royalty payments under the netback method, can provide 
enough data to perform a case-specific revenue analysis. From this 
analysis, a new royalty rate can be established for that case that will 
yield an equivalent amount of royalty. In contrast, for leases that 
have never produced electricity and that have never paid royalty under 
the netback method, there are no data available for a revenue analysis. 
Actual data are especially critical for royalty calculations under the 
netback method, because the calculation is highly dependent on the type 
of facility that is built and requires very specific input data, such 
as operation and maintenance costs, capital investment, bond yield 
rates, electricity sales price, and transmission line costs. The BLM 
concluded that equivalent royalty calculations for leases that have 
never produced would be unacceptably speculative. The BLM believes that 
the royalty rates applicable to new leases, established in section 
3211.17(a)(1), which are intended to be revenue neutral on a 
programmatic basis, are a reasonable revenue-neutral surrogate and 
should apply in this situation. We did not change the rule in response 
to this comment.
    The same commenter said that ``the proposed rules imply that the 
BLM prescribed rates are not applicable to a Class I lease that 
previously produced geothermal resources which is being converted to a 
Class II or Class III lease'' and suggested that the BLM add specific 
language to section 3211.17 to ensure that the BLM's rates are still 
applicable.
    The commenter appears to be confused regarding how the BLM will 
determine royalty rates for leases issued before August 8, 2005, that 
have produced geothermal resources and elect to convert to the royalty 
terms of the Energy Policy Act. The statute does not allow the BLM 
simply to apply to such leases the royalty rates that will apply to new 
leases. Section 224(e) of the Energy Policy Act provides an entirely 
different process for existing lessees that wish to convert to the new 
royalty terms than the process provided for new leases. Section 
224(e)(1)(B) requires ``that royalties be computed on a percentage of 
the gross proceeds from the sale of electricity, at a royalty rate that 
is expected to yield total royalty payments equivalent to payments that 
would have been received for comparable production under the royalty 
rate in effect for the lease before'' August 8, 2005 (i.e., under the 
``netback'' system). To implement this requirement, the BLM proposed at 
section 3211.17(b)(1) that it would seek to establish a rate to yield 
total royalty payments equivalent to those that would have been paid 
for that lease under the previous system, by which it meant it would 
determine the rates on a case-by-case basis. The BLM decided that a 
case-by-case system of determining rates was necessary because 
equivalent rates under the netback system are highly individualistic 
and must take into account the specific situation of each lease. In 
response to this comment, we added language to section 3211.17(b)(1)(i) 
to clarify that royalty rates for converting leases will be determined 
on a case-by-case basis.
    One commenter stated that the lack of a cap on the royalty rates in 
section 3211.17(b) was inconsistent with the Energy Policy Act, ``which 
set ranges for royalties (section 224(a)(1)) and which govern all 
federal leases including those being readjusted.'' The commenter also 
stated that a cap would be consistent with the recommendations of the 
RPC.
    We disagree that the statute provides for a cap in determining 
modified royalty rates under Section 224 of the Energy Policy Act. 
Section 224(a)(1), cited by the commenter, which provides both a floor 
and a cap for royalty rates, amends Section 5 of the Geothermal Steam 
Act, at 30 U.S.C. 1004. Section 224(a)(2), which also amends 30 U.S.C. 
1004, provides that in establishing royalty rates under that section, 
the Secretary must seek, among other things, to achieve a revenue-
neutral royalty rate over a 10-year period. Thus,

[[Page 24376]]

the floor and cap do apply to the establishment of revenue-neutral 
rates for new leases under 30 U.S.C. 1004. However, Section 
224(e)(1)(B) of the Act, which as discussed above, mandates a specific 
approach to modifying royalty rates for existing leases, does not amend 
30 U.S.C. 1004; it is, in fact, a separate uncodified amendment. 
Therefore, the establishment of royalty rates under Section 
224(e)(1)(B) is not subject to the royalty rate range provided at 
Section 224(a)(1) and codified at 30 U.S.C. 1004. We note, moreover, 
that if the cap at 30 U.S.C. 1004 did apply to modified existing 
leases, the floor would also apply. Because of the structure of the 
previous netback system, we believe it is likely that many existing 
leases for which a modified royalty rate is determined under Section 
224(e)(1)(B) may have an equivalent royalty rate under the 1% floor. 
Thus it is likely that the lack of a specific range could work to the 
advantage of lessees.
    Final section 3211.17(c) addresses royalty rates for existing 
leases and leases issued in response to applications pending on August 
8, 2005, that choose not to convert to the royalty terms of the Energy 
Policy Act. The royalty rates for these leases have already been 
established in existing lease instruments. This paragraph does not 
establish new requirements, but is included for completeness and 
convenience of the reader. In this final rule, we changed the wording 
of proposed section 3211.17(c) to clarify that the election that may be 
made by lessees of leases issued in response to applications pending on 
August 8, 2005, is to be subject to all of the new rules. If no 
election is made, the lessee will be subject to the regulations in 
effect on August 8, 2005, with regard to the provisions specified at 
section 3200.8(a), including royalties. Except for the changes 
discussed above, we adopted sections 3211.17(b) and (c) as proposed.
    Final section 3211.18 implements 30 U.S.C. 1004(b) and Section 
224(e)(1)(A) of the Energy Policy Act and addresses the royalty rates 
for the direct use of production from or attributable to a geothermal 
lease.
    Final section 3211.18(a) establishes rates for leases issued after 
August 8, 2005 (other than leases issued in response to applications 
that were pending on that date for which the lessee does not make an 
election under section 3200.8(b)), and for existing leases whose 
royalty terms are modified under section 3212.25. We revised the 
language of this section to clarify that the election that may be made 
by the lessee of a lease issued in response to an application that was 
pending on August 8, 2005, is to be subject to the new regulations. If 
no election is made, the lessee will be subject to the regulations in 
effect on August 8, 2005, with regard to the provisions specified at 
section 3200.8(a), including royalties.
    Final section 3211.18(a)(1) provides that a royalty rate does not 
apply to the direct use of geothermal resource production that a lessee 
or its affiliate does not sell. Instead, a lessee will pay direct use 
fees according to a schedule published by the MMS (see the MMS 
regulations at 30 CFR 206.356 for the schedule). The direct use fee 
schedule applies to traditional direct uses such as greenhouse heating, 
space heating, and industrial heating applications, as well as to non-
commercial generation of electricity as described under final section 
3211.18(c), below.
    Under final section 3211.18(a)(2), a lessee who produces a 
geothermal resource and sells it at arm's length to a purchaser who 
uses it for direct use purposes is required to pay a royalty of 10 
percent, which will be applied to the gross proceeds derived from the 
arm's-length sale under applicable MMS regulations at 30 CFR part 206, 
subpart H. Section 3211.18(a)(2) maintains the royalty rate of 10 
percent that was found in previous 43 CFR 3211.10.
    The Energy Policy Act does not address situations where a lessee 
sells geothermal resources in an arm's-length sale to a purchaser who 
utilizes such resources for direct use purposes. Under 30 U.S.C. 
1004(b)(1)(B), the required schedule of fees applies only to those 
situations where the lessee ``does not sell'' geothermal resources. 
Because the royalty provisions in section 1004(a)(1) of the Act 
specifically refer to electrical generation, they do not cover sale for 
direct use, either. To the extent that a gap exists in the statute, we 
have filled that gap with respect to new leases under the rulemaking 
authority of 30 U.S.C. 1023.
    Similarly, a gap exists under the royalty conversion provisions of 
Section 224(e)(1) of the Energy Policy Act. Section 224(e)(1)(A) 
establishes the royalties for converted leases that meet the 
requirements of 30 U.S.C. 1004(b), i.e., leases whose geothermal 
resources are used for direct use purposes where no sale of the 
geothermal resources occurs. Section 224(e)(1)(B) of the Energy Policy 
Act establishes the royalties for converted leases that involve the 
sale of electricity (royalties are to be based on a percentage of gross 
proceeds from the sale of electricity). Neither subparagraph 
establishes the royalty rate for converted leases where a lessee sells 
geothermal resources in an arm's-length sale to a purchaser who 
utilizes such resources for direct use purposes. Thus, under final 
section 3211.18(a)(2), we filled that gap with respect to converted 
leases under the rulemaking authority of 30 U.S.C. 1023. The rate BLM 
has established under this final rule is the same as the rate for such 
sales under the previous regulations and is the same as for arm's 
length sales of geothermal resources for electrical generation under 
these regulations.
    The Energy Policy Act, at 30 U.S.C. 1004(b)(3), requires that if a 
state, tribal, or local government is the lessee and uses geothermal 
resources without sale and for public purposes other than commercial 
generation of electricity, the Secretary must charge only a nominal fee 
for use of the resource. Final section 3211.18(a)(3) addresses this 
provision of the statute by referencing the MMS rules that implement 
this provision (see 30 CFR 206.366). The fee that the MMS sets must be 
paid in addition to the rental due on the lease.
    Final section 3211.18(b) clarifies that for leases issued before 
August 8, 2005, that do not convert the royalty terms of their lease, 
and for leases issued in response to applications pending on August 8, 
2005, where the lessee does not make an election under section 
3200.8(b), the royalty rate is established in the lease form and those 
leases will continue to be subject to existing royalty rates. This 
paragraph does not establish new requirements, but is included for 
completeness and convenience of the reader. We amended the language of 
this section to clarify that the election that may be made by the 
lessee of a lease issued in response to an application that was pending 
on August 8, 2005, is to be subject to the new regulations. If no 
election is made, the lessee will be subject to the regulations in 
effect on August 8, 2005, with regard to the provisions specified at 
section 3200.8(a), including royalties.
    Final section 3211.18(c) clarifies the BLM's interpretation of the 
meaning of non-commercial generation of electricity. If a lessee 
generates electricity that is used solely for the operation of a direct 
use facility and does not sell the electricity, this is considered a 
direct use subject to the direct use fee schedule.
    The Energy Policy Act, at 30 U.S.C. 1004(b)(1), restricts the use 
of the direct use fee schedule to situations where the resource is not 
sold and is used ``for a purpose other than the commercial generation 
of electricity.'' As discussed earlier, the statute requires a royalty 
based on a percentage of gross proceeds for commercial generation of 
electricity

[[Page 24377]]

(30 U.S.C. 1004(a)(1)(A) and (B)). However, the statute does not 
expressly address non-commercial generation of electricity, such as 
electricity generated to run fans, pumps, lights, automatic valves, and 
instrumentation in direct use facilities. If electricity is not sold, 
there are no gross proceeds on which to base a royalty. The BLM does 
not believe the intent of the Energy Policy Act is to allow the use of 
Federal geothermal resources to generate non-commercial electricity 
without compensation. Therefore, as a permissible interpretation of the 
statute, the BLM construes the non-commercial generation of electricity 
to be a direct use of the resource subject to the direct use fee 
schedule.
    One commenter objected to the imposition of direct use fees under 
section 3211.18 in situations where the geothermal resource was 
cascaded from an electrical generation project that already pays 
royalty.
    The BLM rejects the comment. The Energy Policy Act, at 30 U.S.C. 
1004(b)(1), requires a direct use fee ``for geothermal resources, that 
a lessee or its affiliate--(A) uses for a purpose other than the 
commercial generation of electricity; and (B) does not sell.'' The 
definition of geothermal resources includes heat or other associated 
energy found in geothermal formations. In applications where hot water 
or steam is first sent through an electrical generation facility and 
then into a direct use facility, the heat entering the direct use 
facility is still considered a geothermal resource. In other words, the 
heat entering the direct use facility is ``left over'' heat from the 
geothermal formation that was not used by the electrical generation 
facility. It thus meets the definition of a geothermal resource and is 
used for a purpose other than the commercial generation of electricity. 
Therefore, if it is not sold, it is subject to direct use fees. Under 
the previous regulations as well (see previous section 3211.16), the 
BLM assessed royalties on all uses of heat energy, including those that 
could be characterized as ``cascaded.'' We did not change the rule in 
response to this comment.
    Final section 3211.19 addresses the royalty rate on byproducts 
derived from geothermal resources produced from or attributable to a 
geothermal lease. We restructured this section in the final rule to 
differentiate between leases that will be governed by these final 
regulations and those that will remain subject in part to the previous 
regulations. Final section 3211.19(a)(1) implements 30 U.S.C. 
1004(a)(2) by setting the proposed royalty rate on byproducts listed in 
the first section of the Mineral Leasing Act (MLA), 30 U.S.C. 181, to 
be the same as the royalty rates in the MLA and implementing 
regulations, for geothermal leases subject to these final regulations. 
We deleted the list of byproducts included as examples in the proposed 
rule. The list mistakenly included oil and gas, which are excluded 
under the definition of ``byproducts'' at final section 3200.1. All 
minerals listed at 30 U.S.C. 181 that are not excluded under the 
definition of ``byproducts'' and are physically possible to produce as 
geothermal byproducts are covered by this subsection. We also deleted 
the example in paragraph (a)(1) of this section because it is not 
necessary.
    In the proposed rule at section 3211.19(b), we proposed maintaining 
the previous royalty rate of 5% on byproducts that are not listed in 
the MLA, such as gold, silver, zinc, etc. The rationale for this was 
that there was an apparent gap in the statute; in its amendments to 30 
U.S.C. 1004, the Energy Policy Act had removed the language of previous 
30 U.S.C. 1004(b) that established royalties of up to 5% for such 
byproducts. We stated that, because it was not clear whether Congress 
intended to establish such royalties at zero, or to leave it to the 
Secretary to set an appropriate royalty rate for such byproducts, we 
proposed a 5% royalty rate relying on the general policy under Section 
102(a)(9) of the Federal Land Policy and Management Act (FLPMA), 43 
U.S.C. 1701(a)(9), that we should receive fair market value for the use 
of the public lands and their resources. In the proposed rule we 
solicited comments on whether the rate was fair and based upon an 
acceptable interpretation of the statute.
    We received one comment objecting to the 5% royalty on byproducts 
that are not listed in the MLA. The commenter stated that Congress, by 
narrowing the scope of the language in the Geothermal Steam Act 
regarding royalties on byproducts, showed a clear intent not to impose 
a royalty on byproducts that would not be royalty-bearing if they were 
produced from the public lands, in accordance with testimony that 
industry representatives had presented on this issue. We accept this 
comment. After further consideration, we agree that because Section 228 
of the Energy Policy Act specifically deleted the former statutory 
language that provided for a royalty on all byproducts and substituted 
language that limits royalties on byproducts to those listed in the 
MLA, the better interpretation is that Congress intended to eliminate 
royalties on byproducts that are not listed in the MLA. We therefore 
revised the final rule to reflect this interpretation.
    Final section 3211.19(a) implements the Energy Policy Act 
amendments with regard to leases issued on or after August 8, 2005 
(other than leases issued in response to applications that were pending 
on that date for which no election is made under Sec.  3200.8(b)(1)), 
and leases issued before August 8, 2005, for which an election is made 
under Sec.  3200.7(a)(2). Final section 3211.19(b) provides that for 
leases issued before August 8, 2005, for which no election is made 
under Sec.  3200.7(a)(2), and for leases issued in response to 
applications pending on that date for which no election is made under 
Sec.  3200.8(b)(1), the royalty on all byproducts is the rate 
prescribed in the lease instrument, or if none is prescribed in the 
lease instrument, the rate prescribed in the previous regulations at 43 
CFR 3211.10(b) (2004).
    Final section 3211.20 provides that a lessee may credit advanced 
royalty toward royalty due under the MMS regulations at 30 CFR 
218.305(c). This provision, and the MMS rule, implement 30 U.S.C. 
1004(f)(2), which allows for crediting advanced royalty payments 
towards royalty due on production. We received no comments on this 
section and have adopted it as proposed.
    In the proposed rule, we proposed removing previous section 3211.17 
(``When do I owe minimum royalty?'') because minimum royalties no 
longer apply to new leases. In this final rule, we decided to include a 
section with the same title, final section 3211.21, with a paragraph 
(a) explaining that leases under the new regulations do not owe minimum 
royalty, and a paragraph (b) providing that minimum royalties do apply 
to certain older leases and incorporating the substance of previous 
section 3211.17. This section has been added for convenience and to 
facilitate understanding of when minimum royalties continue to apply. 
This section is not intended to add new requirements.
    Final section 3211.21(b) clarifies that the leases to which that 
paragraph applies owe minimum royalty either when the royalty on actual 
production would be less than $2.00 per acre or when the lease is in a 
period of non-production, as long as the lease remains in effect. 
Previous section 3211.17 implied, but did not clearly state, that 
minimum royalties apply to periods of non-production. However, previous 
section 3211.14 stated that once a lease achieved production in 
commercial quantities it would begin paying royalties instead of rent. 
There is no

[[Page 24378]]

exception to this obligation to pay regular or minimum royalty instead 
of rent. The BLM has always charged minimum royalties in periods of 
non-production, as well as in periods of low production. We have made 
this explicit in this final regulation.

Subpart 3212--Lease Suspensions, Cessation of Production, Royalty Rate 
Reductions and Energy Policy Act Royalty Rate Conversions

    The title of final subpart 3212 has been expanded to better reflect 
all subject matter within this subpart.
Lease Suspensions
    Final section 3212.10 addresses the difference between a suspension 
of operations and production and a suspension of operations. Under 
final section 3212.10(a), a suspension of operations and production is 
a temporary relief from production obligations that a lessee may 
request from the BLM.
    This section removes economic conditions as a basis for concluding 
that continued operations are unjustifiable. The BLM believes that a 
lessee should not be able to hold a lease indefinitely merely because 
it is uneconomic to conduct operations. This would not promote the 
development and recovery of geothermal resources. In circumstances 
where geothermal operations are expected to become economic, the new 
statute provides that a lessee that is subject to the new statutory 
provisions could cease production for as much as 10 years in aggregate 
and yet hold its lease through the payment of advanced royalty (see 
discussion of final section 3212.15(a)(1), below).
    Final section 3212.10(b) explains that a suspension of operations 
is when the BLM, on its own initiative, orders a lessee to stop 
production temporarily in the interest of conservation. The regulatory 
text more closely follows the statute at 30 U.S.C. 1010 than did the 
previous regulation. We received no comments on section 3212.10, and 
have adopted it as proposed.
    Final section 3212.11 remains substantively unchanged from the 
previous regulation except that the final rule clarifies that unit 
obligations may be separately suspended under subpart 3287. We received 
no comments on this section, and have adopted it as proposed.
    Final section 3212.12 is similar to the previous section except 
that paragraph (b) clarifies that a lessee cannot unilaterally 
terminate a suspension that the BLM ordered. The reference to 
``minimum'' royalties has also been removed because, as specified under 
final section 3211.21(a), minimum royalties are no longer required for 
certain categories of leases. For leases identified under final section 
3211.21(b), minimum royalties will continue to apply and will need to 
resume upon termination of a suspension. We received no comments on 
this section, and have adopted it as proposed.
    Final section 3212.13 is substantively similar to the previous rule 
except that during a suspension of operations, the BLM may also suspend 
lease or royalty obligations if it determines that a lessee would be 
denied all beneficial use of its lease during the period of the 
suspension. Although we received no comments on this section, the final 
rule makes it clear that the BLM has discretion to suspend a lease or 
royalty obligations. The proposal could have been misinterpreted to 
mean that BLM is required to suspend the rental or royalty obligations.
    Final section 3212.14 removes the previous reference to ``minimum'' 
royalties and substitutes the word ``terminate'' for the previous word 
``cancel,'' because the remedy referred to should be a termination, not 
a cancellation. As noted above, the resumption of ``rental and 
royalty'' payments may include minimum royalty payments under final 
section 3211.21 for certain categories of leases. We received no 
comments on this section, and have adopted it as proposed.
Lease Requirements and Payments Due During a Cessation of Production
    Final section 3212.15 addresses whether, and under what 
circumstances, a lease can remain in full force and effect if a lessee 
ceases production and the BLM does not grant a suspension. Section 
3212.15 implements 30 U.S.C. 1004(f)(1) and (3).
    In part, the intent of final section 3212.15 is to allow temporary 
cessations of production, lasting more than a month, without lease 
termination and without a lessee having to apply for a suspension of 
operations and production. Thus, under this final rule, the BLM will 
not consider production stoppages of less than one full calendar month 
to be a cessation of production. The BLM added this limitation for 
several reasons:
    (1) Routine maintenance, such as plant overhauls, is an inherent 
part of producing a geothermal resource. While overhauls and other 
maintenance can last more than a month, most maintenance operations 
only require plant shut down for a period of days or weeks. Because 
maintenance is an inherent part of producing a geothermal resource, 
performing maintenance for less than a month is still considered to be 
``production;''
    (2) From an administrative standpoint, tracking shutdowns lasting 
less than a month would be expensive and cumbersome. The reports that 
the BLM receives are all based on calendar months. If a lease was shut 
down for an entire calendar month, the reports required by subpart 3270 
would indicate zero production and this would alert the BLM to consider 
implementing this section of the regulations. However, if a lease 
produced for part of a month, the reports would indicate some quantity 
of production. The only way the BLM could determine if the lease was 
not producing for part of a month would be a physical inspection of the 
lease and a review of the metering records to determine when the lease 
was shut-in; and
    (3) If a lease produces for any portion of a month, royalty would 
be due. As long as a lessee is diligently producing from its lease, 
there is no need to collect a royalty on actual production for a 
portion of a month and an advanced royalty for cessation of production 
for the remainder of the month. Accordingly, final section 3212.15 will 
only apply if an operation is shut down for more than a calendar month.
    Final section 3212.15 contains separate paragraphs, each of which 
describe a set of circumstances under which a cessation of production 
could occur without lease termination. In this final rule, we 
redesignate proposed section 3212.15(a) as final section 3212.15(a)(1) 
and add a new section 3212.15(a)(2) that is discussed below. This has 
been done because only certain categories of leases are subject to the 
advanced royalty provisions of the new statute, and others can maintain 
their leases in other ways, as discussed below.
    Final section 3212.15(a)(1) implements 30 U.S.C. 1004(f)(1), which 
allows the payment of advanced royalty in lieu of production. This 
paragraph applies to leases issued on or after August 8, 2005 (other 
than leases issued in response to applications pending on that date for 
which no election is made under section 3200.8(b)(1)), and to leases 
issued before August 8, 2005, for which an election to all of the terms 
of the regulation is made under section 3200.7(a)(2). For such leases, 
under the final rule, once commercial production is achieved, a lessee 
will be allowed to keep a lease in effect for a total of 10 years with 
no production, without having to apply for a suspension of

[[Page 24379]]

operations, if the lessee continues to pay advanced royalty under the 
final MMS regulations at 30 CFR 218.305. The BLM has interpreted 30 
U.S.C. 1004(f)(1) to allow a total of 120 months (10 years) of advanced 
royalty payments, whether consecutive or not. As explained in the MMS 
rule at 30 CFR 218.305, the amount of advanced royalties due during a 
cessation of production for leases subject to the new statutory 
provision is no longer the ``minimum royalty'' referenced in previous 
sections 3211.17 and 3212.14, but is based upon an historical average 
monthly royalty rate.
    Because 43 CFR 3207.15 (implementing 30 U.S.C. 1005(g) and (h)) 
provides for maintaining the lease through a production extension if 
the lessee has a well capable of production and makes diligent efforts 
to utilize the resource, we interpret the cessation of production 
provision at 43 CFR 3212.15(a)(1) as not requiring a well capable of 
production or diligent efforts to utilize the resource, as long as the 
lessee pays advanced royalties.
    A lessee will continue to be required to pay rentals during the 
period for which it pays advanced royalty. The BLM has reached this 
conclusion because the section of the Energy Policy Act that 
establishes rental obligations, 30 U.S.C. 1004(a)(3), specifies that 
rentals are paid for each year of a lease, without exception. To 
understand the manner in which rental payments and rental credits will 
affect advanced royalty calculations and payments, see the final MMS 
rule.
    Because the statutory language of 30 U.S.C. 1004(f)(1) is specific 
to leases on which royalty was previously paid, final section 
3212.15(a)(1) does not apply to direct use operations where the lessee 
pays direct use fees instead of royalties. The Energy Policy Act does 
not contain an ``advanced fee'' counterpart for direct use. Therefore, 
a lessee using the geothermal resource for seasonal operations in a 
greenhouse, for example, could not pay advanced royalties during the 
months of the year when no production occurs to maintain its lease in 
effect. However, if the BLM approved the seasonal operations as part of 
the lessee's utilization plan, it would not be considered a cessation 
of production. If seasonal operations were not approved, the lessee 
would need a lease suspension to maintain the lease in effect.
    Under final section 3212.15(a)(1), the term ``commercial 
production'' has a different meaning than the term ``produced or 
utilized in commercial quantities,'' because the advanced royalty 
section is not intended to apply to leases that have a well capable of 
production without having actually produced geothermal resources; it is 
only intended to apply to leases that have achieved actual production 
or are receiving allocated production through some type of agreement.
    Although we did not receive a comment on this issue, in reviewing 
the proposed rule we recognized that a provision needed to be added to 
account for those leases that continue to be subject to the royalty 
provisions in effect on August 8, 2005, and do not have the opportunity 
to pay advanced royalties. Although these regulations allow leases 
issued before August 8, 2005, and leases issued based upon applications 
pending on August 8, 2005, to elect to be subject to all of the 
regulations of 43 CFR parts 3200 and 3280, some lessees may choose not 
to make such an election and will remain subject to the earlier royalty 
provisions. Those lessees will not be able to pay advanced royalties to 
maintain their leases.
    However, such lessees had recourse under the earlier rules to 
maintain their leases by paying minimum royalties. Thus, for leases 
issued before August 8, 2005, for which no election is made under 
section 3200.7(a)(2), and for leases issued in response to applications 
pending on August 8, 2005, for which no election is made under section 
3200.8(b)(1), final section 3212.15(a)(2) has been added to address the 
conditions necessary for a lease to remain in effect during the period 
in which there is no production and the lessee does not have an 
approved suspension. Under such circumstances, a lease will remain in 
effect if the lessee: (1) Continues to make minimum royalty payments as 
specified in final section 3211.21(b); (2) Maintains a well capable of 
production in commercial quantities; (3) Continues to make diligent 
efforts to utilize the geothermal resource; and (4) Satisfies any other 
applicable requirements. This practice was allowable under, but not 
well articulated in, the previous regulations (previous section 
3211.17, now restored in substance as final sections 3211.21 and 
3212.14).
    Final section 3212.15(b) specifies other circumstances that would 
allow leases to remain in full force and effect without having to pay 
advanced royalties if production ceases. This section includes 
situations when the BLM: (1) Requires or causes the cessation of 
production; or (2) Determines that the cessation of production is 
required or otherwise caused by the Secretary of the Air Force, Army, 
or Navy; by a state or a political subdivision of a state; or by a 
force majeure event. This section implements 30 U.S.C. 1004(f)(3). We 
received no comments on this section, and have adopted it as proposed.
    Final section 3212.15(c) allows lessees to keep their leases in 
effect (without paying advanced royalties) during extended outages due 
to maintenance activities that are necessary to maintain operations. 
For this paragraph to apply, the maintenance would be required to last 
more than one calendar month and would require the BLM approval before 
the end of the first month in which no production occurs. To obtain 
approval, the lessee must demonstrate to the BLM's satisfaction that 
the cessation is part of required maintenance. The basis for this 
provision is that maintenance required to maintain operations is a 
production activity, not a cessation of operations. Required 
maintenance activities under this paragraph could include overhauling a 
power plant, re-drilling or re-working wells that are critical to plant 
operation, or repairing and improving gathering systems or transmission 
lines that necessitate the discontinuation of production. It should be 
noted that the application of paragraph (c) of this section does not 
affect a lessee's obligations to pay rentals or minimum royalties, 
whichever is applicable.
    One comment requested an alternative to obtaining prior approval 
for maintenance activities lasting more than 1 month, as required in 
final section 3212.15(c). The commenter alluded to ``upset'' conditions 
for which it would be impossible to plan in advance or to obtain prior 
approval. We accept the comment. The intent of the proposed requirement 
was twofold: (1) To ensure that maintenance lasting more than a 
calendar month is not misconstrued to be a cessation of production 
requiring advanced royalties to be paid; and (2) The filing of a 
Geothermal Sundry Notice would give the BLM the opportunity to review 
the reason for the extended outage to ensure that it meets the criteria 
for maintenance. However, the intent of the requirement does not 
necessarily require that a Geothermal Sundry Notice be filed in advance 
of the outage. As long as the BLM is made aware of the outage prior to 
the end of the first month where there will be no reported production 
on a lease, the need for a payment of advanced royalty will be averted. 
Therefore, the last sentence of final section 3212.15(c) was changed to 
read: ``You must obtain BLM approval by submitting a Geothermal Sundry 
Notice if the activity will require more

[[Page 24380]]

than 1 calendar month to be classified as maintenance under this 
paragraph. The Geothermal Sundry Notice must be received by BLM before 
the end of the first calendar month in which there will be no 
production.''
    For those lessees subject to the royalty provisions in effect on 
August 8, 2005, lessees would continue to be subject to applicable 
minimum royalty obligations during maintenance periods, and could keep 
their leases in effect by satisfying the requirements of final section 
3212.15(a)(2) instead of under final section 3212.15(c).
    Final section 3212.16 replaces previous section 3212.15 and 
provides the standards for reduction, suspension, or waiver of rental 
or royalties. It is similar to the previous section, but more closely 
follows the statutory provision at 30 U.S.C. 1012. Paragraph (b) makes 
clear that the BLM will not approve a royalty reduction, suspension, or 
waiver unless all royalty interest owners other than the United States 
accept a similar reduction, suspension, or waiver. This provision was 
in the previous regulations at section 3212.16(b). We received no 
comments on this section.
    Final section 3212.17 specifies the information that must be 
included with a request for a royalty or rental rate reduction, 
suspension, or waiver. It includes the information in previous section 
3212.16, but clarifies that all of the information must be submitted. 
We received no comments on this section, and have adopted it as 
proposed.
Production Incentives
    The Energy Policy Act (at Section 224(c) and (d)) establishes 
production incentives for new facilities and qualified expansion 
projects that are put into commercial operation by August 8, 2011. The 
incentives are in the form of a 4-year, 50 percent reduction in royalty 
from what otherwise would be due. Final sections 3212.18 through 
3212.24, and final MMS regulations at 30 CFR 218.307, implement these 
statutory provisions.
    If a project is defined as a ``new facility,'' all of the 
production from that facility is subject to the 50 percent reduction in 
royalty that would otherwise be due. If a project is defined as a 
``qualified expansion project,'' only the additional electricity 
generated as a result of the project is subject to the reduced royalty. 
Qualifying a project as a ``new facility'' would generally be more 
difficult and would typically result in more capital expenditure than 
an expansion project. Although a ``qualified expansion project'' may be 
easier to achieve, strict monthly production targets would be 
established that the project must meet in order to qualify.
    Final section 3212.18 provides a general description of the 
requirements for obtaining a production incentive.
    The production incentives will only be available for those leases 
that were issued before August 8, 2005, and that do not convert their 
royalty provisions under final section 3212.25. Because Section 224(c) 
of the Energy Policy Act specifically refers to reductions in royalty, 
the BLM has interpreted this to mean that the incentives are intended 
only for the commercial generation of electricity and not for direct 
use projects.
    The BLM received one comment requesting clarification of section 
3212.18 regarding the types of leases for which production incentives 
apply, and referring to the new classification of leases in the final 
MMS rule at 30 CFR 206.351.
    The production incentives discussed in section 3212.18 are only 
available for leases that were in effect prior to August 8, 2005, and 
on which the royalty terms were not converted under section 3212.25 
(equivalent to part of MMS Class 1). These criteria are listed in 
sections 3212.18(a) and (b), respectively. In addition, production 
incentives are only available for leases that provide for the 
commercial generation of electricity (section 3212.18(d)). Because no 
changes to these regulations were requested by the commenter, no 
changes were made. However, the MMS has made changes to its final rule 
to clarify these class designations.
    Final section 3212.19 requires lessees seeking a production 
incentive to submit a written request. The BLM does not anticipate 
developing a specific application form for production incentive 
requests; a lessee can make the request in a letter. The letter can 
provide a description of the project and whether the applicant prefers 
the project to be considered a new facility or a qualified expansion 
project. If the applicant is requesting the project to be considered as 
a new facility, the letter should include sufficient technical 
justification to support the general criteria set forth in section 
3212.22. If the applicant is requesting the project to be considered as 
a qualified expansion project, the letter should describe the 
anticipated amount of capital expenditure (section 3212.21(a)) and the 
estimated increase in net generation resulting from the project 
(section 3212.21(b)). The letter should include sufficient technical 
detail to support these estimates. We received no comments on this 
section, and have adopted it as proposed.
    Final section 3212.20 describes how the BLM will review a request 
for a production incentive. The BLM will review incentive requests on a 
case-by-case basis to determine whether a proposed project meets the 
criteria for a qualified expansion project under final section 3212.21 
or a new facility under final section 3212.22 (see the discussions 
below of the criteria for qualified expansion projects and new 
facilities). If the request does not meet the criteria for the type of 
project the lessee requests, the BLM will determine whether it meets 
the criteria for the other type of production incentive project.
    Under final section 3212.20(b), if the BLM determines that a lessee 
has a qualified expansion project, the BLM will, as part of its 
approval, provide the lessee with a schedule of monthly target net 
generation amounts. Projects must generate greater than these amounts 
to qualify for the production incentive. These amounts will quantify 
the required 10 percent increase in net generation over the projected 
net generation without the project. The schedule will be specific to 
the facility or facilities that are affected by the project and will 
cover the 48-month time period during which the production incentive 
may apply. The lessee will receive the production incentive only for 
those months in which its net generation exceeds the monthly target. 
Averaging of production to achieve production targets will not be 
allowed (see the preamble discussion of section 3212.23). We received 
no comments on this section. However, in the final rule we make it 
clear that net generation must exceed the monthly target to qualify for 
the production incentive, as required by the Energy Policy Act.
    Final section 3212.21 specifies the criteria necessary to establish 
a qualified expansion project for the purpose of obtaining a production 
incentive. Because one goal of the Energy Policy Act is to encourage 
new projects that will increase the amount of electricity generated 
from geothermal resources, the BLM will not approve projects for this 
incentive that do not involve significant capital expenditure. 
Specifically, the BLM is concerned that this provision of the Energy 
Policy Act could be abused if, for instance, a lessee simply opens 
production valves to achieve the required increase in generation. 
Examples of activities involving substantial capital expenditure could 
include: (1) The drilling of additional wells; (2) Retrofitting 
existing wells and collection systems to increase production rates; (3)

[[Page 24381]]

Retrofitting turbines or power plant components to increase efficiency; 
(4) Adding additional generation capacity to existing plants; and (5) 
Enhanced recovery projects such as augmented injection. Projects that 
are not associated with substantial capital expenditure, such as 
opening production valves or operating existing equipment at higher 
rates, would not be considered to be qualified expansion projects.
    While the Energy Policy Act specifically refers to ``expansion of 
the facility'' in relation to qualified expansion projects, the BLM 
broadly interprets this to mean the expansion of any portion of a 
geothermal project that will result in increased generation. This 
includes not only expansion to the power plant, but also projects in 
the well field, such as additional drilling, workovers, and enhanced 
geothermal projects, such as augmented injection or acid and fracture 
stimulation.
    Under Section 224(d) of the Energy Policy Act, a qualified 
expansion project must increase ``production'' by more than 10 percent 
over the average monthly production during the previous 5 years, taking 
into consideration production trends that occurred in those 5 years. 
The BLM interprets this provision to mean that if 5 years of data are 
not available, the project could not be classified as a qualified 
expansion project. In addition, the BLM interprets the term 
``production'' to mean ``net generation,'' because this meets the 
intent of the statute to increase the amount of useable electricity 
from geothermal resources. The following graph illustrates these 
requirements:
    If a lessee satisfies the criteria for a qualified expansion 
project, the BLM will perform a reservoir analysis of the 5 years of 
data that is submitted and, from that analysis, will develop a monthly 
schedule of target net generation amounts. The lessee could perform its 
own reservoir analysis and develop a schedule of target generation 
amounts and submit it to BLM for review. The BLM could modify this 
schedule. Whichever schedule BLM approves, net generation must exceed 
these target amounts to qualify for a reduced royalty for that month. 
Because the production incentive is only in effect for 4 years, a 
schedule will cover the 48-month period for which the production 
incentive may be applied. We received no comments on this section, and 
have adopted it as proposed.
[GRAPHIC] [TIFF OMITTED] TR02MY07.000

    Final section 3212.22 identifies criteria for determining whether a 
project qualifies as a ``new facility.'' Because the BLM does not have 
a formal definition for ``facility'' and because of the high degree of 
variation in projects, each application will be considered on a case-
by-case basis based on the factors described in the rule. Factors 
listed in support of concluding that a project qualifies as a new 
facility include: (1) The project requires a new site license or 
facility construction permit if it is on Federal lands; (2) The project 
requires a new Commercial Use Permit; (3) The project includes at least 
one new turbine-generator unit; (4) The project involves a new sales 
contract; (5) The project involves a new or substantially larger 
footprint; or (6) The project is not contiguous to an existing project.
    Generally, a new facility will not be: (1) Authorized only with a 
Geothermal Drilling Permit; (2) Constructed entirely within the 
footprint of an existing facility; or (3) Involve only well field 
projects such as drilling new wells, increasing injection, and enhanced 
recovery projects.
    If the BLM determines that a proposed project could be approved 
either as a ``new facility'' or as ``qualified expansion project,'' the 
BLM will approve the application under the category requested by the 
applicant. If a project does not qualify as a ``new facility,'' the BLM 
will automatically review it, with no action necessary on the 
applicant's part, to see if it will qualify as a ``qualified expansion 
project.'' We received no comments on this section, and have adopted it 
as proposed.
    Final section 3212.23 describes how production incentives apply to 
qualified expansion projects. The Energy Policy Act, at Section 224(d), 
requires a production incentive to be granted if a qualified expansion 
project resulted in greater than a 10 percent increase in production. 
However, that section of the Act is silent on how long the 10 percent 
increase would have to be maintained. The BLM is concerned that a 
project could exceed the target increase for a short period, yet obtain 
the production incentive for the entire allowable 4 year period. The 
BLM believes the intent of the production incentive is to encourage 
projects that would result in a sustainable increase in production. 
Therefore, final section 3212.23

[[Page 24382]]

authorizes a reduced royalty only for those months where the qualified 
expansion project exceeds the BLM-established net generation targets.
    The Energy Policy Act at Section 224(c)(1)(b), requires the 
production incentive to be applied to ``qualified expansion geothermal 
energy,'' which is further defined in Section 224(d)(1) of the Energy 
Policy Act as being a ``production'' increase as a result of the 
expansion of the facility. The BLM interprets this to mean that the 
reduced royalty only applies to the increase in net generation 
resulting from a qualified expansion project. To define the increase in 
net generation, final section 3212.23 includes an equation that uses 
the target generation amounts defined in final section 3212.20 as a 
basis. The denominator of the equation (1.1) in section 3212.23 
converts the target generation amount to the baseline generation amount 
which represents the amount of electricity that would have been 
generated without the qualified expansion project. In the final rule we 
revised the description of the formula to make it clear exactly which 
production qualifies for the incentive. The following bar graph 
illustrates the application of the incentive for qualified expansion 
projects:
[GRAPHIC] [TIFF OMITTED] TR02MY07.001

    Under final section 3212.24, for projects that qualify as ``new 
facilities,'' the royalty on all the net generation from the facility 
will be reduced by 50 percent for the 48-month period following the 
commencement of commercial operation, regardless of the amount of 
electricity generated. To simplify the administration and tracking of 
the production incentives, the production incentive takes effect on the 
first day of the month following the commencement of commercial 
operation of the project. In the final rule we added a sentence to the 
end of paragraph (a) to make it clear that the incentive applies to the 
entire commercial generation of electricity from the new facility. The 
amount of the production incentive for new facilities is established by 
the final MMS regulations. We received no comments on this section, and 
with the exception of adding the clarifying language, have adopted it 
as proposed.
Energy Policy Act Royalty Rate Conversions
    Final section 3212.25(a) implements Section 224(e) of the Energy 
Policy Act, allowing lessees of geothermal leases issued before August 
8, 2005, to request that the BLM modify their leases to convert the 
royalty rate terms of their leases to the royalty and direct use fee 
terms in the Energy Policy Act. Final section 3212.25(a) also provides 
that, if the BLM modifies the royalty rate terms of a lease, the new 
royalty rates and direct use fees will apply to all future production 
from or allocated to that lease. Final section 3212.25(b) references 
final sections 3211.17 and 3211.18 and applicable MMS regulations for 
the specific royalty rates and direct use fees that will apply to a 
modified lease.
    One commenter suggested that language be added to section 3212.25 
to clarify that once a lessee decides to convert the royalty terms of 
its lease under this subpart, that the decision is irreversible. This 
comment is accepted because the intent of Section 224(e) of the Energy 
Policy Act is clearly to make the change in royalty terms permanent. 
Adding language to this effect in section 3212.25(a) will clarify the 
intent. Section 3212.25(a) has been changed to read in part: ``You may 
withdraw your request before it is granted, but once you accept the new 
terms, you may not apply to revert to the earlier royalty rates. If 
your request to modify is granted, the new royalty rate or direct use 
fees will apply to all geothermal resources produced from your lease 
for as long as your lease remains in effect.''
    In reviewing the comments received, the BLM was concerned that the 
first sentence of section 3212.25(a) could be construed to mean that 
certain entities besides the lessee could submit a request to modify 
the royalty terms of a lease. This confusion may arise because

[[Page 24383]]

the MMS definition of lessee (30 CFR 206.351) includes anyone ``who has 
been assigned an obligation to make royalty, fee, or other payments 
required * * * .'' The MMS definition also includes affiliates of the 
lessee who use the geothermal resource to generate electricity, in a 
direct use process, to recover byproducts, or who sell or transport 
lease production. The intent of section 3212.25(a) is that only the 
entity holding record title interest in a geothermal lease (the 
``lessee'' as defined in the BLM regulations at 43 CFR 3200.5) can be 
granted a modification in royalty terms of the lease. To make this 
change, we modified this section to make it clear that ``you'' refers 
to the lessee.
    In implementing Section 224(e) of the Energy Policy Act, the BLM 
construes the statute to mean that the only royalty term in the lease 
that will be converted is the royalty rate on production from, or 
allocated to, the lease. This is emphasized in the final rule by use in 
a number of places of the phrase ``royalty rate terms'' instead of the 
proposed phrase ``royalty terms.''
    Other lease and statutory terms pertaining to ``royalty'' exist, 
such as ``minimum royalty'' (see final section 3211.21 incorporating 
previous sections 3211.10 and 3211.17) and ``advanced royalty'' during 
cessation of production (final section 3212.15(a)(1)). Under the final 
rule, these terms will not be converted under an application to convert 
royalty rate terms pursuant to final section 3212.25. Also, the royalty 
rate for byproducts will not be modified under a section 3212.25 
conversion. This is because Section 224(e)(2) of the Energy Policy Acts 
specifies that the modification that may be made under that section 
relates to royalties that will be computed ``on a percentage of the 
gross proceeds from the sale of electricity * * *.'' Because byproducts 
are unrelated to the generation of electricity, the section does not 
apply to byproducts. In this final rule, we added a sentence to section 
3212.25(a) to clarify this. As explained above, we also restructured 
final section 3211.19, relating to byproducts, to differentiate between 
leases that will be governed by these final regulations and those that 
will remain subject in part to the previous regulations. However, as 
discussed earlier, a lessee of a lease issued before August 8, 2005, 
can choose to make all of its lease terms subject to the new provisions 
adopted in this rule by making an election under section 3200.7(a)(2).
    For example, under the final rule, if the lessee of a lease issued 
prior to August 8, 2005, elects to convert the royalty rate terms of 
the lease under section 3212.25, the lessee will be subject to the new 
royalty rate on gross proceeds for the commercial generation of 
electricity and direct use fee schedule for direct use operations. 
Unless that lessee makes an election under section 3200.7(a)(2), 
however, the lessee will continue to be subject to the minimum royalty 
and byproduct royalty provisions of the previous regulations and will 
not be required to pay rental once commercial production begins. In 
addition, the lessee will not be able to keep its lease in effect by 
paying advanced royalty under section 3212.15(a)(1) if it ceases 
production for more than a calendar month, but would need to satisfy 
one of the other provisions of section 3212.15 to keep its lease in 
effect during a period of no production.
    This interpretation as it relates to the non-conversion of minimum 
royalty and advance royalty provisions is based upon possible 
complications that could occur if some, but not all, of the other 
provisions changed. For example, under the Geothermal Steam Act, prior 
to the amendments made by the Energy Policy Act, rental on a lease was 
only due until the lease began actual production or was deemed to have 
a well capable of production. At that point, the greater of actual 
royalty on production or minimum royalty was due every month. If the 
BLM were to include the minimum royalty terms in the conversion under 
final section 3212.25, lessees electing to convert the royalty terms of 
their lease would no longer pay minimum royalty because there is no 
minimum royalty provision in the Energy Policy Act. But, once a lease 
had a well deemed capable of production, the rental commitments of the 
existing lease terms would end; therefore, unless the rental provisions 
of the new statute applied, the lessee would not pay rental or minimum 
royalty during a period on non-production. The BLM does not believe it 
was the intent of the Energy Policy Act to allow lessees to hold a 
lease without making some type of payment. Section 224(e) of the Energy 
Policy Act does not allow lessees to apply to change the rental terms 
of existing leases; only the royalty rate term.
    In addition, if lessees did not convert the requirement at previous 
section 3211.10 for minimum royalty payment, then becoming subject to 
the payment of advanced royalties as well when production ceases for 
more than a calendar month would be burdensome and redundant. Absent a 
suspension, in cases where an existing lessee does not produce for a 
calendar month, the previous minimum royalty provisions require that 
minimum royalty be paid (see previous sections 3211.10 and 3211.17 and 
final section 3211.21). The BLM believes that Congress did not intend 
for one lessee to pay both minimum royalty and advanced royalty if 
production ceases.
    The BLM received no comments on its interpretation. Except for the 
addition of the clarification discussed above regarding byproducts, 
this section has been adopted as proposed. As already noted, however, 
existing lessees do have the option to elect to make all of the terms 
of their leases subject to these regulations (see section 3200.7), so 
that, in addition to a converted royalty rate, their leases would also 
be subject, for instance, both to both continual rental obligations and 
advanced royalty, instead of minimum royalties during a cessation of 
production.
    Section 224(e) of the Energy Policy Act requires any lessee wishing 
to convert the royalty rate terms of its lease to apply to the BLM. 
Final section 3212.26 establishes an application process and requires 
certain types of information to be submitted together with the 
application. For electrical generation, the lessee must submit enough 
information to allow the BLM to determine how much royalty the lessee 
would have paid under the netback method, if that is the current method 
the lessee is using. As mentioned earlier, in situations where a lessee 
or its affiliate is selling geothermal resources at arm's length, 
before those resources are used to generate electricity, the lessee 
would be required to document in its application that it has access to 
the purchaser's gross proceeds derived from the sale of the 
electricity. From the information contained in the application, the BLM 
will calculate a new royalty rate that will result in the same amount 
of royalty.
    Final section 3212.26(c) states that the BLM must receive an 
application to convert no later than 18 months following the effective 
date of the applicable final rule. For direct use operations, the 
applicable final rule is the MMS rule at 30 CFR 206.356(b)(1) (direct 
use fee schedule); for the commercial generation of electricity, the 
applicable final rule is this rule, and the application deadline is 
December 1, 2008. This section implements Section 224(e)(2) of the 
Energy Policy Act. If both the MMS and the BLM final rules are made 
effective on the same day, then all applications will have to be 
received no later than December 1, 2008. We received no comments 
suggesting changes to this section, and have adopted it as proposed.

[[Page 24384]]

    Final section 3212.27 implements Section 224(e)(3) and (4) of the 
Energy Policy Act, and also requires the BLM to consult with the MMS in 
implementing the royalty conversion provision. The BLM will also review 
an application to ensure that the lessee has suitable meters necessary 
to determine the royalty due under the modified lease terms.
    The final rule will allow lessees who have requested a modification 
of the royalty terms of their lease 30 days to reject the modified 
royalty rate that the BLM determines. Without a review period, lessees 
would essentially be committing themselves to a new royalty rate at the 
time they requested the modification, without knowing what the new 
royalty rate would be. This could involve some risk for lessees, and 
the BLM felt this risk would be a disincentive for lessees to apply for 
a conversion of royalty terms. In addition, if there were no review 
period, the only recourse lessees would have to a royalty percentage 
they found objectionable would be an appeal to the Interior Board of 
Land Appeals (IBLA). The BLM believes it is in the public interest to 
get as many leases as possible off the netback system, and that 
offering a review period would help facilitate this goal.
    In the final rule the BLM has adopted a process in final section 
3212.27(d) to allow the BLM to comply with the time specified in 
Section 224(e)(3)(A) of the Energy Policy Act and issue a lease 
modification no later than 180 days after the date of receipt of a 
complete application under section 3212.25. The revised procedure is as 
follows: (1) No later than 140 days after the day on which the BLM 
determines it received a complete request with all necessary 
information, the BLM will send the lessee written notification of the 
proposed royalty rate that the BLM determines to be revenue neutral; 
(2) No later than 30 days after the date of receipt of the BLM 
notification, the lessee may reject the proposed royalty rate in 
writing; and (3) If the lessee rejects the proposed rate, the BLM must 
receive written notification from the lessee no later than 30 days of 
the date after receipt of the BLM's notification.
    The rule provides flexibility by specifying that the BLM will 
accept a faxed rejection notification received within the 30-day time 
limit, if followed by a written confirmation that the BLM must receive 
no later than the 179th day following the day on which it determines 
the complete request was received. The time frames specified will allow 
the BLM to issue the lease modification within the statutory time 
frame. The rule also provides that if a lessee rejects the proposed 
royalty rate on a timely basis: (1) The BLM will not issue a decision 
modifying the royalty rate terms of the lease; (2) The existing royalty 
rate terms in the lease continue to apply; and (3) The lessee may not 
reapply for a royalty rate term conversion under section 3212.25 of 
this part. Finally, the rule provides that unless timely written 
notification is received from the lessee rejecting the proposed rate, 
the BLM will issue a decision modifying the royalty rate terms of the 
lease no later than 180 days after the day on which the BLM determines 
a complete request was received. The effective date of the new royalty 
rate is the first day of the month following the date on which the 
decision was issued. For example, a decision issued on July 21st, will 
become effective on August 1st. The BLM decision establishing the 
royalty rate will be appealable to the IBLA, but allowing the applicant 
to reject the new royalty rate completely before it is finalized and 
maintain the existing rate may serve to limit the number of appeals.
    One commenter requested that the 180-day period for the BLM to 
respond to a request for modification of royalty terms (section 
3212.27(d)) be reduced to 120 days. We did not change the rule in 
response to this comment. As mentioned above, the 180-day time frame is 
required by statute. In light of the 30-day review period now being 
afforded the lessee, the potential complexity of the economic analyses, 
and the expected volume of lease conversion requests, the BLM does not 
feel that 120 days would offer sufficient time to process requests.
    The BLM received a comment asking for clarification of a site-
specific issue regarding pre-paid royalty. We reject this comment 
because it addresses a specific and unique situation. These regulations 
preserve the royalty terms for existing leases unless a lessee chooses 
to convert the lease. It is not appropriate to address in these 
regulations specific circumstances arising under existing leases. To 
the extent the commenter raises a valuation issue, it should consult 
with the MMS.
    One commenter commended the BLM and the MMS for using the royalty 
rates recommended by the MMS Royalty Policy Committee. The BLM 
acknowledges the comment and recognizes that use of these recommended 
royalty rates in the proposed rule reflects a consensus reached by our 
stakeholders.

Subpart 3213--Relinquishment, Termination, and Cancellation

    Final sections 3213.10 and 3213.11, relating to lease 
relinquishment, contain minor changes from the previous sections. We 
received no comments on these sections, and with the exception of minor 
changes, have adopted them as proposed.
    Final section 3213.12, relating to the minimum size of a remaining 
lease following a partial relinquishment, is amended to create an 
exception for direct use leases. The exception is necessary because, 
under 30 U.S.C. 1003(g)(1), the size of direct use leases could easily 
be less than 640 acres. We received no comments on this section, and 
have adopted it as proposed.
    Final section 3213.13 contains some editorial changes. For the most 
part, it remains substantively unchanged from the previous regulation, 
but clarifies that surface and other resources need to be reclaimed as 
well as restored. We received no comments on this section, and have 
adopted it as proposed.
    Final section 3213.14 implements 30 U.S.C. 1004(g), regarding the 
termination of a lease for failure to pay rentals on time. This section 
represents a substantial change from the procedures under previous 
sections 3213.14 through 3213.20, which were based on statutory 
language that was removed by the Energy Policy Act. Under previous 
section 3213.14 (which implemented previous 30 U.S.C. 1004(c)), failure 
to pay the full rental amount by the anniversary date of the lease 
resulted in automatic termination of the lease by operation of law. No 
grace period was provided for late payment. Previous section 3213.15 
(which implemented a proviso in previous 30 U.S.C. 1004(c)) provided 
that a lease will not terminate if the MMS receives a timely rental 
payment that is deficient by a nominal amount. Under the previous rule, 
the MMS notified the lessee of the nominal deficiency and provided a 
date by which a further payment must be paid. If the payment was not 
made in the time allowed, the BLM terminated the lease as of the 
anniversary date of the lease. Previous sections 3213.17, 3213.18, 
3213.19, and 3213.20 contained a process for petitioning for lease 
reinstatement if a lease terminated for failure to pay rent on time. 
These regulatory provisions were also based on previous 30 U.S.C. 
1004(c). The Energy Policy Act removed the provisions of 30 U.S.C. 
1004(c) relating to lease termination, replacing them with the 
provisions of current 30 U.S.C. 1004(g), described below. The new

[[Page 24385]]

statute contains no express process to petition for lease 
reinstatement.
    Under the revised statute at 30 U.S.C. 1004(g)(1), a 45-day grace 
period beginning on the date of the failure to pay the rental (the 
lease anniversary date) is provided for a lessee to pay its rent in 
full before the BLM will terminate a lease. The Secretary must 
terminate any lease with respect to which rental is not paid in full on 
the expiration of the 45-day period beginning on the date of the 
failure to pay the rental. Unlike the previous statute, the new statute 
contains no exception for timely rental payments that are deficient by 
a nominal amount. The section provides further, at 30 U.S.C. 
1004(g)(3), that a lease that would have otherwise terminated upon 
expiration of the 45-day period will not terminate if the lessee pays 
to the Secretary, before the end of that period, the amount of rental 
due plus a late fee equal to 10 percent of the amount due. Final 
section 3213.14(a) implements this statutory provision. This provision 
also makes clear that, if the MMS does not receive a lessee's rental 
plus the late fee by the end of the 45-day period described above, the 
BLM will terminate the lease. We received no comments on this section, 
and have adopted it as proposed.
    Under 30 U.S.C. 1004(g)(2), the Secretary is required to 
``promptly'' notify a lessee that has not paid rental required under 
the lease, that the lease will be terminated at the end of the 45-day 
period referred to in 30 U.S.C. 1004(g)(1). The MMS will provide this 
notification. The legislative intent of this paragraph appears to be 
that the Secretary should put a lessee on notice that it has a grace 
period to pay rental before its lease will be terminated for failure to 
pay. From a logistical standpoint, however, this legislative intent may 
be frustrated. For instance, it may take the MMS a considerable amount 
of time to notify lessees that the lease anniversary date has passed 
and that the MMS has not received the rental payment when it was due. 
If, for example, it were to take the MMS 30 days to provide the 
required notification, a lessee would only have 15 days' notice to pay 
within the 45-day timeframe required by paragraph (1) of the Act. As a 
further example, it is possible in certain circumstances that the MMS 
notification would not occur until after the expiration of the 45-day 
period, and after the BLM lease termination.
    The BLM is concerned that the practical difficulties with providing 
a lessee with adequate notice could lead to the unintended consequence 
of having leases terminate without the lessees being provided adequate 
notice to pay their overdue rental. Such an outcome would seem to be 
inconsistent with the requirement that the Secretary ``promptly'' 
notify the lessee of the unpaid rental. Final section 3213.14(b) 
addresses this situation and provides a remedy that the BLM believes to 
be consistent with Congressional intent. The final rule ensures that 
lessees have at least 30-days notice to pay overdue rental in full. It 
provides that if a lessee receives the MMS notification of the non-
payment of rental less than 30 days before the end of the 45-day 
period, the lessee will have a full 30 days from receipt of the notice 
to pay its rental in full. If the MMS receives the rent plus the 10 
percent late fee within 30 days after the lessee received the 
notification, the BLM will either not terminate the lease for non-
payment of rental or will reinstate a lease that was terminated under 
final section 3213.14(a). In other words, every lessee will have no 
less than 30 days notice to either avoid a lease termination or to have 
its lease reinstated if it were terminated at the end of the 45-day 
period.
    The statutory basis for final section 3213.14(b) is as follows: The 
statute does not expressly address the situation where, in practice, 
the ``prompt'' notification would compress the actual notice to a 
lessee to less than 30 days. The final rule more fully implements the 
Congressional intent of providing adequate notice to a lessee. 
Moreover, under 30 U.S.C. 1023, the Secretary may prescribe regulations 
that it may deem appropriate to carry out the provisions of the Act, 
and may include, without limitation, rules to prevent waste, conserve 
geothermal resources, and protect the public interest. Final section 
3213.14(b) furthers all of these goals, and also implements 
Congressional intent to provide a fair grace period to a lessee who 
fails to pay rent on time. Although not directly applicable, this 
section is consistent with the intent of 30 U.S.C. 1011 that a lease 
not be terminated for any violation unless the lessee has 30 days' 
notice to correct the violation. We received no comments on this 
section, and have adopted it as proposed.
    Final section 3213.15 carries forward the text of previous section 
3213.16. Previous sections 3213.15, 3213.17, 3213.18, 3213.19, and 
3213.20 have been removed because they do not reflect the current 
statute. We received no comments on removing these sections and have 
made these revisions as proposed.
    Previous sections 3213.21 and 3213.22, relating to lease 
expiration, have been removed because these matters are covered in 
subpart 3207, relating to terms and extensions of leases. We received 
no comments on removing these sections and have adopted the changes as 
proposed.
    Final sections 3213.16, 3213.17, 3213.18, and 3213.19 clarify the 
provisions and terminology of previous sections 3213.23, 3213.24, and 
3213.25, relating to lease cancellation and termination. Lease 
cancellation means undoing the lease as if it never existed. 
Cancellation is covered by final section 3213.16 and is limited to 
situations when the BLM issues a lease in error. In other 
circumstances, the previous rules used the term ``cancel'' when the 
appropriate term should have been ``terminate.'' Thus, final section 
3213.17 describes situations where the BLM could terminate (not cancel) 
a lease as of a particular date. Conforming changes are made to other 
provisions of the final regulations by replacement of the word 
``cancellation'' with the word ``termination.'' The rule also clarifies 
that ``cancellation'' does not apply to non-payment of rent which, as 
explained above, would be covered by final section 3213.14. In response 
to a request by the MMS, the BLM has clarified in final section 3213.17 
that among the bases for lease termination is the nonpayment of 
royalties or fees under 30 CFR 206 and 218. This is not new in 
substance, but a reminder to lessees of the possible consequences of 
not making correct payments to the MMS.
    Final section 3213.19 addresses circumstances where the BLM 
notifies a lessee that its lease is being terminated because of a 
violation. It clarifies the procedures of the previous section 3213.25 
by specifying that a hearing may be requested in the context of the 
appeal of a proposed lease termination. It also follows the statutory 
text of 30 U.S.C. 1011 in that a lessee may avoid lease termination by 
diligently proceeding to correct a violation, but also states that it 
is insufficient to make a good faith attempt to correct the violation 
without actually correcting it. We received no comments on sections 
3213.16, 3213.17, 3213.18, and 3213.19, and have adopted the change in 
terminology as proposed.

Subpart 3214--Personal and Surety Bonds and Subpart 3215--Bond Release, 
Termination, and Cancellation

    Subparts 3214 and 3215 address bonding of geothermal operations. 
Most sections of the final subparts remain substantively unchanged from 
their previous counterparts. Changes have been implemented to clarify

[[Page 24386]]

terminology, and improve grammar and readability. The changes are 
explained below.
    In final section 3214.12(c), we specify that the bond must cover 
rent in addition to royalty because under the Energy Policy Act rents 
continue for the life of the lease and do not stop when commercial 
production begins, as was the case under previous regulations. Such a 
requirement was implied in the proposed rule under section 3214.12(d), 
which requires the bond to cover compliance with the requirements of 
section 3200.4.
    In final section 3214.14(b), we provide that the bond may be 
increased to ensure the reclamation of the surface ``and other 
resources.'' The previous regulation did not expressly include ``other 
resources.'' We received one comment requesting clarification of this 
language, stating a concern that it was ambiguous and open-ended. The 
BLM disagrees. Rather than just surface reclamation, we are concerned 
that the lessee's operations could result in other environmental 
damage, such as to groundwater, and we want to make sure that the bond 
covers all appropriate reclamation and remediation.
    In final section 3214.18, the title has been clarified to match the 
content of the section. Final section 3214.18(b) clarifies that 
reclamation responsibilities extend to resources other than the 
surface, and final section 3214.18(d) expressly mentions royalties as 
well as rents. We received no comments on this section, and have 
adopted it as proposed.
    Final section 3215.13 has been reorganized for clarity. It also 
clarifies that even after bond termination, a surety and any other bond 
provider remain responsible for obligations that accrued during the 
period of liability while a bond was in effect. We received no comments 
on this section, and have adopted it as proposed.

Subpart 3216--Transfers

    Subpart 3216 addresses geothermal lease transfers. The final 
subpart is substantively unchanged from the previous subpart. Minor 
changes have been adopted to clarify terminology, and improve grammar 
and readability.
    We received one comment related to the last sentence in section 
3216.13, ``What are my responsibilities after I transfer my interest?'' 
While this provision was unchanged from the previous regulations, we 
accept the commenter's observation that the provision is ambiguous and 
have clarified the last two sentences of 3216.13 to read: ``You also 
remain responsible for plugging and abandoning any wells that were 
drilled or existing on the lease while you held your interest. You must 
carry out this responsibility upon the BLM's determination at any 
future time that the wells must be plugged and abandoned.''
    Final section 3216.14 has been changed to indicate that the filing 
fees for transfers are found in 43 CFR 3000.12. We received no comments 
on this section, and except for the change mentioned above, have 
adopted it as proposed.
    Final section 3216.19 recognizes that direct use leases have 
different size constraints than regular geothermal leases. Thus, the 
final section relating to the size of allowable lease transfers 
contains an exception for direct use leases. We received no comments on 
this section, and have adopted it as proposed.

Subpart 3217--Cooperative Agreements

    Subpart 3217 addresses cooperative agreements. The final subpart 
has few substantive changes from the previous subpart. Changes have 
been proposed to clarify terminology, and improve grammar and 
readability.
    Subpart 3217 describes two types of cooperative agreements, unit 
and communitization agreements, and addresses the requirements of 
Federal lessees who join with others to conserve the geothermal 
resource under unit and communitization agreements. The Energy Policy 
Act, at 30 U.S.C. 1017(e), specifically authorizes the pooling of land 
under communitization agreements in order to develop geothermal 
resources where operators cannot successfully develop tracts 
independently. The BLM cannot approve these agreements unless the BLM 
determines them to be in the public interest.
    Final section 3217.10, describing unit agreements, has been revised 
to more closely follow the statutory language at 30 U.S.C. 1017(a). The 
term ``cooperative plan'' is removed from the previous section 3217.10 
because the agency does not require approval of a cooperative plan and 
does not use that term in a regulatory context.
    Sections 3217.11 through 3217.13 are substantively unchanged from 
the previous regulations.
    The term ``operating contracts'' is removed from final sections 
3217.14 and 3217.15, leaving the statutory terms ``drilling contract'' 
and ``development contract,'' both of which appear in 30 U.S.C. 
1017(g). The BLM uses the terms ``drilling contract'' and ``development 
contract'' interchangeably to describe the agreement parties use to 
cooperatively explore under a communitization agreement. Final section 
3217.14(b) includes reference to regional exploration, which typically 
describes the scope of drilling or development contracts. This section 
has also been revised to make it clear that drilling or development 
contracts are limited to exploration activities. Final section 
3217.14(c) is added to acknowledge current BLM practice of coordinating 
the review of a proposed drilling or development contract with the 
appropriate state agencies. Final section 3217.14(d) has been changed 
to more accurately reflect a provision of the Energy Policy Act that 
requires the BLM to determine that approval of a drilling or 
development contract best serves or is necessary for the conservation 
of natural resources, public convenience or necessity, or the interests 
of the United States.
    Section 3217.15 remains substantively unchanged from the previous 
regulations. We received no comments related to subpart 3217, and so 
the changes are adopted as proposed.

Subpart 3250--Exploration Operations--General; Subpart 3251--
Exploration Operations: Getting BLM Approval; Subpart 3252--Conducting 
Exploration Operations; Subpart 3253--Reports: Exploration Operations; 
Subpart 3254--Inspection, Enforcement, and Noncompliance for 
Exploration Operations; Subpart 3255--Confidential, Proprietary 
Information; and Subpart 3256--Exploration Operations Relief and 
Appeals

    Subparts 3250 through 3256 contain provisions regulating geothermal 
exploration of Federal lands. Minor changes to these subparts clarify 
existing terminology and procedures and make the subparts more 
readable.
    Several changes are adopted throughout these subparts to make it 
clear that an approved Notice of Intent to Conduct Geothermal Resource 
Exploration Operations would be equivalent to a permit. In most cases 
the terms ``Notice of Intent'' or ``Notice of Intent to Conduct 
Geothermal Resource Exploration Operations'' have been substituted for 
the terms ``exploration permit'' or ``permit.''
    Final section 3250.10 is substantively unchanged from existing 
regulations and the proposed rule.
    Final section 3250.11, addressing the general question related to 
where exploration can occur, has been moved from previous section 
3251.11 of the subpart addressing exploration approval. This 
necessitates the renumbering of subpart 3251.

[[Page 24387]]

    Final sections 3250.12 and 3250.13 are substantively unchanged from 
the previous regulations and the proposed rule.
    The content of final section 3250.14 has been taken from the 
previous section 3250.11. This reorganization provides a more logical 
sequence of general questions related to the regulation of exploration 
operations.
    There are no substantive changes to sections 3251.10 through 
3251.15. As mentioned previously, the content of previous section 
3251.11 has been moved to final section 3250.11 and the remaining 
sections have been renumbered to correspond to final sections 3251.10 
through 3251.14.
    Final section 3251.15(b) revises the previous section 3251.16(b) to 
ensure that bond release cannot occur unless operators not only have 
reclaimed the land surface, but also, if necessary, resolved other 
environmental, cultural, scenic, or recreational issues. Reclamation 
includes resolving the impacts of geothermal exploration activities on 
other resource values in addition to reclamation of the surface (see 
discussion and answer to comment related to section 3214.14(b)).
    We received no comments on the changes to subparts 3250 through 
3256, and have adopted these sections as proposed.
    One commenter suggested expanding the use of categorical exclusions 
(CXs) under the NEPA to expedite exploration permits. Since the 
adoption of new categorical exclusions involves coordination and 
approval by the Council on Environmental Quality (CEQ), and was not 
part of the proposed rule, consideration of this request is beyond the 
scope of this final rule.

Subpart 3260--Geothermal Drilling Operations--General; Subpart 3261--
Drilling Operations: Getting a Permit; Subpart 3262--Conducting 
Drilling Operations; Subpart 3263--Well Abandonment; Subpart 3264--
Reports--Drilling Operations; Subpart 3265--Inspection, Enforcement, 
and Noncompliance for Drilling Operations; Subpart 3266--Confidential, 
Proprietary Information; and Subpart 3267--Geothermal Drilling 
Operations Relief and Appeals

    Subparts 3260 through 3267 establish permitting and operations 
procedures for drilling and testing geothermal wells as well as 
producing or injecting geothermal resources. These subparts also 
address other types of geothermal well operations. No substantive 
changes were proposed to these subparts. Changes have been adopted to 
clarify terminology and improve grammar and readability.
    We received no comments on the proposed minor changes to subparts 
3260 through 3267, and have adopted them as proposed.
    The BLM received some general comments related to environmental 
concerns, the NEPA, and permitting. As a general matter, the comments 
concerning the NEPA raise issues beyond the scope of these regulations. 
The NEPA process is governed by other regulations (40 CFR parts 1500 
through 1508), in addition to our operations permit requirements in the 
various subparts in parts 3250, 3260, and 3270, none of which are 
substantively changed by the rule being promulgated today. The Energy 
Policy Act did not make changes to portions of the statute relating to 
surface use rights or permit requirements, and therefore these matters, 
and the environmental studies and timeframes associated with these 
requirements, are beyond the scope of this rule.

Subpart 3270--Utilization of Geothermal Resources--General; Subpart 
3271--Utilization Operations: Getting a Permit; Subpart 3272--
Utilization Plan and Facility Construction Permit; Subpart 3273--How to 
Apply for a Site License; Subpart 3274--Applying for and Obtaining a 
Commercial Use Permit; Subpart 3275--Conducting Utilization Operations; 
Subpart 3276--Reports: Utilization Operations; Subpart 3277--
Inspections, Enforcement, and Noncompliance; Subpart 3278--
Confidential, Proprietary Information; and Subpart 3279--Utilization 
Relief and Appeals

    The regulations in subparts 3270 through 3279 address the 
permitting and operating requirements for the utilization of geothermal 
resources. Except as referenced below, no other substantive changes 
from the previous rules are made to these subparts. Changes have been 
adopted to clarify terminology and improve grammar and readability. The 
final rule adopts the proposed rule without substantive change.
    Final section 3275.14 removes the previous requirement in section 
3275.14(c)(3) to measure the temperature out of a facility because this 
information is no longer needed for the valuation of direct use 
operations using the MMS fee schedules. For ``no-sales'' situations, 
lessees with leases issued under the Energy Policy Act and with leases 
converting to the new royalty terms under sections 3212.25 or 3200.8 
are no longer required to calculate the amount of heat displaced by the 
geothermal resource to compensate the Federal Government for the use of 
the geothermal resource. Instead, lessees will use a direct use fee 
schedule that is based only on inlet temperature and the monthly volume 
or mass produced (see the MMS regulation to be codified at 30 CFR 
206.356). In developing the direct use fee schedule, the MMS assumed a 
fixed outlet temperature of 130 [deg]F, which greatly simplifies the 
metering system and the calculations.
    For situations involving the arms-length sale of geothermal 
resources to a direct use facility and for leases issued under the 
previous royalty terms which do not convert to the new royalty terms, 
final section 3275.14(d) gives the BLM the authority to require outlet 
temperature recorders on a case-by-case basis, if needed.
    One comment related to proposed section 3275.21, which provided 
that the BLM may order a lessee to drill and produce wells on its lease 
when the BLM finds it necessary to protect Federal interests, prevent 
drainage, or ensure that lease development and production occur in 
accordance with sound operating practices. The commenter asserted that 
it should be the developer's choice to drill, not the BLM's, and that 
the BLM should not be in a position to cause a developer to expend that 
kind of money. The BLM disagrees, and finalizes the rule as proposed. 
This provision is unchanged from the previous regulations. The BLM has 
the authority and responsibility to require the lessee to comply with 
lease terms that require a lessee to drill and produce to protect 
Federal interests, prevent drainage, or ensure that lease development 
and production occur in accordance with sound operating practices.
    Final section 3276.14 eliminates the requirements of previous 
section 3276.14(a) to report a daily breakdown of flow, average 
temperature in, and average temperature out. The information 
requirements in previous sections 3276.14(d) and (e) are also 
eliminated. The purpose of the data was to allow the calculation and 
verification of thermal energy displaced, which was the basis for 
valuation in the previous MMS regulations. For leases issued under the 
Energy Policy Act, and for existing leases that convert to the new 
royalty terms of the Energy Policy Act under sections 3212.25 or 
3200.8, direct use operations are valued using the MMS fee schedule 
that determines fees due as a function of inlet temperature and monthly 
volume or mass produced. Therefore, collection of the data is no longer 
necessary.

[[Page 24388]]

    For situations where the resource is sold under an arm's length 
contract for use in a direct use facility and for leases issued with 
the previous royalty terms that do not convert to the royalty terms of 
the Energy Policy Act, the daily breakdown of flow, average temperature 
in, and average temperature out may still be required. However, the BLM 
believes these situations will be relatively rare and can be handled on 
a case-by-case basis under section 3276.14(d).

Part 3280--Geothermal Resources Unit Agreements

    This final rule revises previous part 3280. For the most part, the 
final rule adopts the rules as proposed. The following identifies and 
discusses changes from the proposed rule.
    The final rule implements the Energy Policy Act relating to unit 
agreements, specifically 30 U.S.C. 1017. Additionally, the final rule 
updates procedural requirements related to unit agreement 
administration. The rule clarifies the BLM's expanded authority 
regarding unitization, as provided under the Energy Policy Act. Under 
the rule, the BLM may require: (1) The formation of a unit agreement; 
(2) Existing Federal leases to commit to a unit agreement; (3) New 
leases to contain a provision requiring the lessee to agree to commit 
to a unit agreement if the BLM so requires; and (4) A modification of 
the rate of resource exploration or development within a unit. The rule 
also establishes that a majority interest of owners in a Federal lease 
has the authority to commit the lease to a unit agreement.
    Other provisions of this rule do not change previous procedure or 
practice, but clarify and articulate unit agreement requirements. These 
provisions include: (1) Setting out application procedures for unit 
area designations and unit agreements, in the order each step typically 
occurs; (2) Identifying the BLM's procedures for reviewing applications 
and making final decisions regarding unit area designations, unit 
agreements, and participating areas; (3) Explaining the BLM procedures 
for administering a unit agreement once it is in effect; (4) Specifying 
how a unit operator can receive the BLM approval to modify unit terms, 
including those related to unit contraction; and (5) Establishing 
minimum initial and continuing unit development requirements and 
conditions for terminating the unit agreement. The final rule 
standardizes existing practices, assures consistent BLM procedures, and 
informs the public how the BLM handles unit agreements. These 
provisions are described in greater detail below.

Subpart 3280--Geothermal Resources Unit Agreements: General

    Final section 3280.1 explains that the purpose and scope of part 
3280 is to provide holders of Federal and non-Federal geothermal leases 
and owners of non-Federal mineral interests the opportunity to unite 
under a Federal geothermal unit agreement to explore for and develop 
geothermal resources in a manner that is necessary or advisable in the 
public interest. To be consistent with the statute, the final rule uses 
the phrase ``necessary or advisable in the public interest,'' derived 
from 30 U.S.C. 1017(a), rather than the proposed phrase ``meeting the 
public interest.''
    This rule removes previous section 3280.0-3 as unnecessary. The 
authority citation for the part follows the Table of Contents for part 
3280, and the discussion of functions within the Interior Department is 
covered by the Department of the Interior Departmental Manual.
    Final section 3280.2 includes definitions from previous section 
3280.0-5, with certain revisions. Unnecessary definitions of terms such 
as ``agreement'' and ``cooperative agreement'' are removed. Several 
definitions are added, including definitions for the terms ``unit 
contraction provision,'' ``plan of development,'' ``public interest,'' 
``reasonably proven to produce'' and ``unit well.''
    A minor change from the proposal was made to the final definition 
of the term ``unit well.'' Instead of stating that a unit well is 
located on a ``lease committed to the unit agreement,'' the final rule 
provides that a unit well is located on ``unitized land,'' a defined 
term.
    The BLM's policy regarding the formation of units, previously 
included in section 3280.0-2, is revised and included in final section 
3280.3. The new section sets forth the policy contained in 30 U.S.C. 
1017(a) that, for the purpose of more properly conserving the natural 
resources of any geothermal reservoir, field, or like area, or any part 
thereof, lessees and their representatives can unite with each other, 
or jointly or separately with others, in collectively adopting and 
operating under a unit agreement for the reservoir, field, or like 
area, or any part thereof, including direct use resources, if 
determined and certified by the BLM to be necessary or advisable in the 
public interest. The BLM has decided not to adopt the proposed 
parenthetical phrase ``whether or not any part of the geothermal 
reservoir, field, or like area, is subject to any unit agreement'' 
because it does not appear to contribute substantially to the stated 
policy.
    Final section 3280.4 addresses the BLM's authority to require the 
formation of a unit agreement and to require Federal leases to be 
committed to a unit agreement. It implements 30 U.S.C. 1017(a)(3) and 
(b). Final section 3280.4(a) provides that the BLM can initiate the 
formation of a unit agreement, or require an existing Federal lease to 
commit to a unit agreement, if it is in the public interest. This 
implements a statutory provision and does not require the consent of a 
lessee. Modification of lease terms to facilitate creation and 
operation of the unit, however, does require lessee consent (30 U.S.C. 
1017(a)(4) and final section 3280.5).
    Final section 3280.4(b) states that the BLM can require that 
Federal leases becoming effective on or after August 8, 2005, contain a 
provision stating that the BLM can require commitment of the lease to a 
unit agreement. Under this provision the BLM can also prescribe the 
unit agreement to which such lease will be required to commit in order 
to protect the rights of all parties in interest, including the United 
States. This provision implements 30 U.S.C. 1017(b)(2).
    As mentioned above, final section 3280.5 provides that the BLM can, 
with the consent of the lessees involved, establish, alter, change, or 
revoke rates of operations (including drilling, operations, production, 
and other requirements) of the leases, and make conditions with respect 
to the leases in connection with the creation and operation of any such 
unit agreement as the BLM can consider necessary or advisable to secure 
the protection of the public interest. This implements 30 U.S.C. 
1017(a)(4)(A). The rule also provides that if leases to be included in 
a unit have unlike lease terms, the leases will not be required to be 
modified to be in the same unit. This implements 30 U.S.C. 
1017(a)(4)(B).
    One commenter had a number of questions concerning the 
applicability of the new final regulations to leases and units in 
existence on August 8, 2005. Specifically, the commenter asked: Are the 
new unit provisions applicable to existing leases within an existing 
unit? What if they are pre-August 8, 2005, leases? Can the existing 
unit be declared void even though the existing unit agreement does not 
provide for this? The commenter also asserted that paragraphs 3280.5(a) 
and (b) would be inconsistent in their application, since (b) negates 
(a).

[[Page 24389]]

    To clarify these provisions of the final rule, any BLM-approved 
unit agreements in effect prior to June 1, 2007 will continue to be 
administered subject to the terms of the unit agreement, and will not 
be voided or canceled unless that remedy is warranted under the 
agreement. If the unit operator seeks the BLM's approval for a 
modification of the agreement, such modification will be made under the 
regulations in effect when the BLM acts upon the modification request. 
Also, the new regulations will govern unit matters not expressly 
addressed in existing agreements. The BLM actions taken after June 1, 
2007 on new unit applications or on applications pending on June 1, 
2007 will be governed by the new rules.
    As to leases within units, leases in effect prior to August 8, 
2005, will be administered as provided under final section 3200.7, 
which sets out which regulations apply to each lease. As mentioned 
above, leases with unlike terms are not required to be modified to be 
included in a unit.
    The BLM does not agree that section 3280.5(b) negates section 
3280.5(a). Although the BLM cannot require that leases be modified to 
be included in a unit, the BLM may obtain the consent of lessees to 
establish, alter, change, or revoke rates of operations (including 
drilling, operations, production, and other requirements) of the 
leases, and make conditions with respect to the leases, with the 
consent of the lessees, in connection with the creation and operation 
of any such unit agreement as the BLM may consider necessary or 
advisable to protect the public interest. Lessees will generally have 
an incentive to provide such consent because under final section 
3281.19, the BLM cannot approve a unit agreement that does not protect 
the public interest.
    Final section 3280.6 provides that the BLM can require a unit 
agreement that applies to lands owned by the United States to contain a 
provision under which the BLM or an entity designated in the unit 
agreement can alter or modify, from time to time, the rate of resource 
exploration, development, or production quantity or rate under the unit 
agreement. This final section implements 30 U.S.C. 1017(c).
    Final section 3280.7 clarifies that the BLM cannot require lands 
that are not under Federal administration to be committed to a unit.

Subpart 3281--Application, Review, and Approval of a Unit Agreement

    Final subpart 3281 reorganizes the application, review, and 
decision procedures for unit area designation and the unit agreement 
into a sequential, step-by-step, description. The final regulations 
describe in detail the steps to follow and the information a 
prospective unit operator has to submit, as well as the process the BLM 
follows to make application decisions. The first step is for the BLM to 
designate the unit area.
    Final section 3281.1 makes clear that before a unit agreement is 
effective, the BLM must designate the unit area and approve the unit 
agreement.
    Final section 3281.2 provides a list of information that the unit 
operator must submit before the BLM can make a unit area designation. 
The prospective unit operator will be required to submit a geologic 
report, a map of the final unit area, a list of leases and tracts 
located in the final unit area, and any other information the BLM 
requires.
    Final section 3281.3 provides more detail on the types of geologic 
information the unit operator should provide to document that the final 
unit area is geologically contiguous and suitable for exploration, 
development, and production of the resource.
    Final section 3281.4 makes it clear that final unit areas are not 
required to be of a specific size or shape, but the size can cause the 
BLM to require the drilling of more than one unit well to meet minimum 
initial unit obligations.
    Final section 3281.5 explains how the BLM will resolve conflicts 
between unit applications that contain overlapping areas. If separate 
unit applications overlap, the BLM can: (1) Approve the unit 
application designation which best meets public interest requirements; 
(2) Designate a different unit area; or (3) Require revision of the 
applications. The BLM will not approve any final unit agreement if it 
included lands committed to another unit agreement already in effect.
    A change from the proposal is included in final section 3281.5(b) 
to make it clear that the BLM can reject an application or a portion of 
an application for a unit. This revision provides the BLM with greater 
flexibility when reviewing unit applications. Should a unit application 
involve lands already committed to a unit agreement, this revision will 
allow the BLM either to reject only the overlapping portion of the 
application, or to reject the entire application.
    A commenter expressed concern about how the BLM, under section 
3281.5, will handle a unit area application that overlaps an existing 
approved unit area and agreement. The commenter's concern is misplaced. 
Final section 3281.5(a) only describes procedures for reviewing 
competing unit applications, not situations where an application is 
filed for a new unit in the area of an existing effective unit. Once a 
unit is in effect, the BLM will not accept the submittal of a new unit 
application which includes lands located in an effective unit.
    The commenter's concerns are pertinent, however, to a situation in 
which an expansion of an existing unit is proposed. The commenter 
asserted that lessees in an existing unit that would be overlapped by a 
new or expanded unit should have a voice in the formation of the new or 
expanded unit. The commenter suggested that at the very least the rule 
should require the unit operator in the original unit to consult with 
the lessees in its unit before expanding the unit to allow existing 
lessees to refuse joinder to protect their lease interest and to 
conserve the resource. The commenter asserted that if existing lessees 
are not given this protection by regulation, the methods of operation 
of the existing unit could be jeopardized contrary to their unit 
agreement, and the lessees' shares of the revenues could otherwise be 
diluted or reduced without their consent or justification since these 
are apportioned on the basis of leased acreage in the unit. The 
commenter stated that this situation has to be clearly defined by 
regulation, and not left to the BLM's discretion. Finally the commenter 
said that the amendments to the Geothermal Steam Act do not prohibit 
the BLM from adopting such a regulation.
    The BLM has not made any revisions based on the comment because the 
regulations address these concerns. Subpart 3281 specifies that the BLM 
must designate a unit area prior to it becoming effective. As required 
through the designation review process, each prospective unit operator 
must contact all lessees located within each respective unit area for 
unit commitment. This requirement has been in effect since geothermal 
unitization was initiated, and it should continue to provide all 
potential lessees with adequate information regarding unit proposals. 
Although a lessee is not required to agree to the expansion, the 
commenter is correct that under section 3280.4 the BLM can require a 
Federal lessee to commit to a unit, but only if all involved interests 
are protected.
    Expanding a unit area does not affect individual revenue share. 
Only revising the participating area changes revenue share. The 
establishment or revision of a participating area is based on the 
informational requirements found in subpart 3282. This information, 
based primarily on well testing information,

[[Page 24390]]

provides a strong indication of the portion of the unit area that 
contains resources proven to be commercial. While expanding the 
participating area to include additional acreage and resources may 
reduce the percentage of total revenues to individual lessees, this 
short-term reduction in revenue should be balanced by the addition of 
commercially proven resources that will ultimately be recovered and 
shared by all lessees in the participating area.
    Final section 3281.6 describes how the BLM determines whether to 
approve unit designation and how the BLM notifies operators of the 
decision. Among other considerations, the BLM determines if the 
geologic basis for the unit area is sound for the development of the 
unit area. This is the principal factor in deciding whether the unit 
area will be designated.
    Under the rule, if the BLM approves a unit area designation, the 
prospective unit operator initiates the steps required for unit 
agreement approval. Final section 3281.7 describes the information a 
unit operator must submit to the BLM for unit agreement approval.
    Consistent with previous section 3281.3, the prospective unit 
operator is required to provide an opportunity for all owners of 
mineral rights and lease interests to join the unit under final section 
3281.8 and then supply the BLM with documentation of the commitment 
status of each lease or tract as required by final section 3281.9. 
Documentation includes a signed joinder agreement or evidence the 
interest owners were offered an opportunity to join the unit. Under 30 
U.S.C. 1017(a)(2) and section 3281.9(b), a majority interest of owners 
in a lease can commit the lease to a unit agreement.
    Final section 3281.10 explains that the BLM reviews the commitment 
status documentation to insure that the prospective unit operator has 
sufficient control of the unit area to conduct resource development in 
the public interest.
    Final section 3281.11 addresses the required qualifications of a 
prospective unit operator. The qualification requirements for unit 
operators have not changed. This is consistent with previous section 
3282.1.
    One commenter described what it thought was an inconsistency in the 
proposal. The commenter asserted that the text of proposed section 
3281.11(b), which stated that a unit operator is not required to have 
an interest in the unit area, was inconsistent with proposed section 
3281.10 that stated that the unit operator must have sufficient control 
of the unit area. We agree that the proposal may have been unclear and 
have made a clarifying change. Under final section 3281.11(b), a unit 
operator is not required to have an interest in any leases committed to 
the unit agreement. However, as stated at section 3281.10(a)(2), the 
BLM will determine if the unit operator has sufficient control of the 
leases committed to the unit agreement to effectively develop the 
resources occurring in the unit area in the public interest. Such 
control may be demonstrated by ownership interests, the terms of the 
unit agreement and other relevant documents, or by other appropriate 
indicia of control.
    Final section 3281.12 explains that owners of geothermal rights and 
lease interests committed to the unit are the parties who nominate a 
unit operator; however, the BLM must determine if the nominee meets the 
qualifications before it designates the unit operator.
    Final section 3281.13 addresses the formats or models for unit 
agreements. This section allows a unit applicant the flexibility to 
create a unit agreement that best matches the specific development 
scenario or energy market conditions in an area. The prospective unit 
operator can use the model unit agreement in final section 3286.1, the 
model with variances noted, or another format that meets the 
requirements outlined in the next two final regulatory sections. While 
previous regulations at section 3281.1 allowed for variances from a 
model unit agreement, the final regulations clearly describe the 
information that needs to be in a unit agreement should the applicant 
choose not to use the model agreement.
    Final section 3281.14(a) is adopted as proposed (with the 
modification discussed below). Final section 3281.14(b) was not 
contained in the previous rules or the proposed rule, but has been 
added for the reasons discussed below. Proposed section 3281.14(b) has 
been redesignated and adopted as final section 3281.14(c).
    Final 3281.14 does not change previous procedures related to the 
required provisions in a unit agreement. Previous regulations required 
the unit applicant to determine the minimum requirements of a unit 
agreement by following the model agreement. Listing the minimum 
requirements and terms for unit agreement should assist applicants in 
determining what terms and conditions are required in a unit agreement.
    One commenter noted that the term (meaning ``duration,'' for 
purposes of this comment) of a unit agreement appears to differ from 
the term of a lease. The commenter asserted that the terms should not 
conflict, but should be consistent with each other, and that lease 
terms should be tied to production like unit terms.
    The BLM has made clarifying changes to section 3281.14 in response 
to this comment. Except for the proposed model agreement, the proposed 
rule did not specify a term for a unit agreement. In the one section of 
the proposed rule addressing the issue, proposed section 3281.14(a)(5) 
required a unit agreement to specify a term, which the proposed rule 
characterized as ``typically 5 years.'' Also, that section of the 
proposal did not specify the basis for extending the term of a unit 
agreement. Article 18.1 of the proposed model agreement, on the other 
hand, unequivocally stated that the term of a unit agreement is in fact 
(not just ``typically'') 5 years, and also specifically provided for 
extensions. Proposed Article 18.1 specified that unit agreements would 
be extended if ``unitized substances are produced or utilized in 
commercial quantities, in which event the agreement shall continue for 
so long as unitized substances are produced or utilized in commercial 
quantities.'' This basis for extension, i.e., tying units to 
production, appears to be what the commenter was seeking.
    To make the issue clear and eliminate the differences between 
proposed section 3281.14(a)(5) and proposed Article 18.1 of the Model 
Agreement, the final rule does not include the ``typically 5 years'' 
language in final section 3281.14(a)(5), but instead adds a new 
paragraph (b) to section 3281.14 to clarify the term of a unit and the 
bases for extension. Final section 3281.14(b) contains the substance of 
Article 18.1 of the Model Agreement. Although repetitive, final Article 
18.1 is adopted as proposed so as not to confuse persons relying on the 
model agreement.
    As to the commenter's concern over the differences in duration 
between leases and units, this difference has not caused problems since 
the Geothermal Steam Act went into effect in 1970. The initial term of 
a unit has always been 5 years since the Geothermal Steam Act was made 
effective. There are numerous options for the extension of terms of 
either a lease or a unit so that either may remain in effect. By 
statute, leases have always had a primary period of 10 years that may 
be extended. For instance, once a lease goes into production, the term 
of the lease is extended for as long as production continues. 
Additionally, as provided at section 3207.17(a), the BLM may extend the 
term of a lease to match that of the unit if the lease would expire 
prior to the unit (see section 3207.15 for details of production 
extensions for leases, and sections 3284.5 and 3284.11, describing how

[[Page 24391]]

unit operations affect lease extensions). The term of the unit may also 
be extended further if drilling occurs outside of the participating 
area, but inside of the unit area. Because the terms of both a unit and 
the terms of the leases located in the participating area are extended 
as long as production continues, the different durations of the initial 
terms do not cause significant problems.
    Final section 3281.15 lists the minimum initial unit obligation 
information that the unit agreement must contain. To meet the minimum 
initial unit obligation, the unit operator must diligently drill and 
complete at least one unit well. The information required by this 
section is used to insure that the well is: (1) Located on a tract 
committed to the unit agreement; (2) Drilled to the depth or geologic 
formation specified in the unit agreement, unless commercial resources 
are found at a shallower depth; and (3) Completed within the timeframe 
specified in the unit agreement. Depending on the size of the unit, the 
BLM can require the drilling of more than one unit well to meet the 
minimum initial unit obligation. Since the unit well, by definition, 
must be designed to produce or utilize resources in commercial 
quantities, the completion of a narrow diameter well can satisfy the 
initial obligation only if the well is capable of production in 
commercial quantities. The BLM will make this determination on a case-
by-case basis. Other exploration operations, such as drilling 
temperature gradient wells, can also be used to satisfy part of the 
minimum initial unit obligation.
    Final section 3281.16 clarifies the previous practice to submit 
Plans of Development for the unit at the time of unit designation, and 
for future activities not addressed in a previous Plan of Development. 
Plans of Development must be submitted to the BLM for future unit 
activities until the time a producible unit well is completed and 
begins commercial operations.
    Final section 3281.17 describes the information that a unit 
operator must include in a Plan of Development. While the scope and 
types of activities described in the Plan of Development may vary, a 
Plan of Development must include the completion of at least one unit 
well.
    Final section 3281.18 makes it clear that the BLM will not 
designate a unit area until the Plan of Development ensures that unit 
activities will meet the public interest requirements.
    Final section 3281.19 discusses the BLM's response to a final unit 
agreement. In all instances, the BLM's review of a final unit agreement 
must conclude that approval of the unit complies with these regulations 
and is in the public interest. This section of the final rule also 
requires the BLM to coordinate the review of a final unit agreement 
with appropriate State and other Federal surface management agencies. 
This is consistent with current practice. Under this section the BLM 
provides the applicant with written notification of unit rejection or 
approval.
    Final section 3281.20 establishes the effective date of an 
agreement as the first day of the month following the BLM approval. The 
unit operator has the option of requesting that the effective date be 
the first day of the month in which the BLM approved the agreement, or 
a different date if agreed to by the BLM.

Subpart 3282--Participating Areas

    Final subpart 3282 defines several procedural requirements 
regarding participating areas.
    Section 3282.1 of the final rule defines a participating area as 
those portions of the unit area the BLM determines: (1) Are reasonably 
proven to produce in commercial quantities; or (2) Support production 
in commercial quantities such as through pressure support from 
injection wells.
    Final section 3282.2 explains that commercial operations cannot 
begin before the BLM approval of a participating area. This is 
necessary to ensure proper allocation of production and royalties 
within the unit.
    Final section 3282.3 specifies that a unit operator must propose a 
participating area the earlier of 30 days before starting commercial 
operation, or 60 days after the BLM determines a well will produce or 
utilize geothermal resources in commercial quantities.
    Final section 3282.4 describes the general information (e.g., maps 
showing all tracts and lease information) that the unit operator must 
submit to the BLM when applying for a participating area.
    Final section 3282.5 describes the technical information (e.g., 
interpretations of well performance and geology documenting the tracts 
contributing to production) that the unit operator must submit to the 
BLM when applying for a participating area.
    Final section 3282.6 specifies the circumstances requiring a unit 
operator to apply to revise a participating area boundary. This final 
section also allows unit operators to request a delay in modifying 
participating area boundaries when active drilling is not complete.
    Information on the establishment of an effective date for new or 
revised participating areas is contained in final section 3282.7. This 
section provides flexibility in establishing the effective date of a 
participating area, provided the date is not earlier than the effective 
date of the unit agreement.
    Final section 3282.8 establishes the following three reasons for 
rejection of a revision of a participating area: (1) If the unit 
operator does not supply the required information; (2) If the 
information does not support approval; or (3) If the revision reduces 
the size of the participating area because of resource depletion in a 
certain area within the participating area. The third reason is 
included as a matter of equity because a lessee should not lose the 
benefit of unitization if its resources are depleted before other 
resources in the participating area. To provide otherwise would serve 
as a disincentive to having a lease's resources developed early in the 
life of a participating area.
    Final section 3282.9 provides that production must be allocated 
equally to all lands in a participating area that are committed to the 
unit agreement. For instance, if a lessee owns or controls full 
interest in 100 acres within a participating area of 1000 acres, that 
lessee will be allocated 10 percent of the production from the 
participating area.
    Final section 3282.10(a) specifies that unleased Federal lands 
located within the participating area receive a proportionate 
allocation of production for royalty purposes as if the acreage were 
committed to the participating area. Final section 3282.10(b) specifies 
that the unit operator is primarily liable for paying, and must pay, 
royalty to the United States for the allocated production on these 
unleased Federal lands. The phrase ``is primarily liable for paying'' 
is added as a clarification. The proposed rule established the unit 
operator payment obligation, but did not expressly mention liability.
    The final rule also clarifies that in the event the unit operator 
does not pay any royalties owed for production from unleased Federal 
lands, each lessee of lands committed to the participating area is 
responsible for paying such royalties in the same proportion as that 
lessee's percentage of surface acreage within the participating area, 
excluding the unleased acreage. This secondary responsibility imposed 
upon the lessees is justified because if the lessees receive benefits 
from the resource produced from unleased Federal lands, they should 
also retain some responsibility to ensure that royalties are paid to 
the United States for such production.

[[Page 24392]]

    Proposed section 3282.10(b) would have provided that if the BLM is 
not allowed to lease the unleased Federal lands in the participating 
area because of restrictions based on planning decisions or other 
statutory requirements, the lands would not receive an allocation of 
production. The BLM has decided not to adopt proposed section 
3282.10(b). The final rule requires that any unleased Federal lands in 
the participating area must receive an allocation of production for 
royalty purposes. The BLM has concluded that if a unit operator is 
draining the resource from unleased Federal lands, payment of a 
proportionate royalty to the United States serves the public interest, 
regardless of whether the BLM can actually lease the lands. Removal of 
the proposed restriction does not open withdrawn lands to leasing or 
entry, but assures that the United States will receive a fair return if 
federally-owned resources from the unleased lands are produced from 
wells on adjoining leases.
    One commenter asserted that if a developer has private lands and 
needs peripheral stranded Federal lands, he should be allowed to 
unitize to include those unleased Federal lands. The BLM agrees that 
unleased Federal lands may be included in a geothermal unit and in the 
participating area so that drainage from such lands from geothermal 
wells on adjoining lands may be considered to be allocated production 
from the unit and appropriate payments are made to the United States 
under section 3282.10. Although it can receive payments attributable to 
production of geothermal resources from unleased Federal lands, the 
United States will not be responsible for any portion of the costs of 
such production without statutory authorization and appropriation of 
funds for that purpose. Moreover, no surface disturbance on or other 
entry into the unleased Federal lands may occur without express BLM 
authorization separate and apart from approval of the unit and 
participating area.
    If the unleased Federal lands contain geothermal resources into 
which a well needs to be drilled to develop the geothermal resources 
fully, a person can attempt to have such lands leased by nominating 
such Federal lands to be included in a geothermal lease sale. If the 
unleased Federal lands are only necessary for the placement of surface 
facilities related to development of geothermal resources on adjacent 
leases or tracts, a person can apply to use the Federal surface under 
the BLM's right-of-way regulations under 43 CFR part 2800 or for a 
lease, permit, or easement under 43 CFR part 2920, whichever is 
applicable. However, if the lands are withdrawn or otherwise restricted 
from leasing, entry, or surface occupancy, such development and uses of 
the lands may not be possible.
    Final section 3282.11 explains that the BLM may determine that a 
participating area can continue where only intermittent production is 
occurring, provided such a determination is in the public interest. The 
regulations describe direct use facilities that only utilize geothermal 
resources during winter months as an example of intermittent production 
that the BLM considers to be in the public interest.
    Final section 3282.12 provides that a participating area will 
terminate when the unit operator either permanently stops commercial 
operations, or 60 days after receiving notification from the BLM that 
operations are not being conducted in accordance with the unit 
agreement, participating area approval, or the public interest. If the 
unit operator can demonstrate that the BLM's reason for termination is 
in error or the situation warranting the termination has been 
rectified, the BLM may decide not to terminate the participating area.

Subpart 3283--Modifications to the Unit Agreement

    Final subpart 3283 establishes how to modify a unit agreement. This 
final rule adds new provisions to specify the conditions under which a 
unit operator can request an extension of the unit contraction date 
and/or a partial contraction of the unit area. Providing this 
flexibility for unit administration decisions by the BLM is necessary 
since a unit operator can spend substantial amounts of money 
discovering commercial resources which cannot be immediately developed 
due to conditions beyond the operator's control. An inability to place 
portions of a unit into production can subject leases to termination 
where either commercial resources have been found or monitoring or 
injection wells not directly involved in production are located. 
Termination would reduce additional exploration and development in the 
unit area, which is contrary to the public interest.
    Final section 3283.1 provides that a unit operator can request a 
modification of the unit agreement after all unit interests have agreed 
to the change in the agreement. After review, the BLM notifies the unit 
operator in writing of the BLM's decision and effective date of 
approval, if applicable.
    Final section 3283.2 discusses circumstances under which the unit 
operator can request the BLM to revise contraction provisions of a unit 
agreement. Contraction provisions of a unit agreement describe how 
lands are removed from the unit agreement as exploration and 
development activities determine which lands are not capable of 
producing geothermal resources in commercial quantities. Under this 
section, an operator can also propose an extension of the unit 
contraction date and/or a partial contraction of the unit area. This 
section outlines both the information the operator must provide and 
information the operator should provide to the BLM in support of a 
request to revise contraction provisions of the unit area. The BLM will 
approve the request if we determine that revision is in the public 
interest. The BLM may also add conditions to the approval such as 
requiring an annual renewal or setting the timing and conditions for 
when phased contractions or termination of the revision can occur.
    Final section 3283.3 addresses how a unit operator will know the 
status of a unit contraction revision request. Under the final rule, 
the BLM will notify the unit operator in writing of its decision. If 
the BLM approves the request, it will specify the term of the 
contraction extension and/or which lands will remain in the unit 
agreement. The BLM may require the unit operator to update the 
information required by final section 3282.3. Also, the BLM could 
terminate the participating area contraction revision if, in the public 
interest, it finds it necessary to do so.
    Final section 3283.4 addresses adding or removing lands from an 
agreement when the BLM determines, based on information submitted by 
the unit operator, that new or additional geologic information modifies 
the basis for the unit boundary. Once the BLM notifies the unit 
operator of approval of the revision to the unit, the unit operator 
must notify all interest owners in the unit area revision.
    Final section 3283.5 implements 30 U.S.C. 1017(f), which requires 
review of unit agreements at 5-year intervals to eliminate any lands in 
the unit area not necessary for unit operations. A commenter stated 
that a requirement for the BLM to review all unit agreements every 5 
years is burdensome and potentially unnecessary. The commenter asserted 
that, given the BLM's limited resources, this appears to be a poor 
allocation of funds, particularly since there does not appear to be any 
history of problems to justify this priority. The BLM did not make 
changes to the rule based on this comment. The 5-year review

[[Page 24393]]

requirement is necessary to implement a statutory obligation.
    Final section 3283.6 describes the purpose of the periodic review, 
the basis for eliminating lands from the unit, and the consequences of 
elimination on leased lands.
    A commenter objected to the standard for eliminating leases from a 
geothermal unit. The commenter stated that the term ``not reasonably 
necessary'' is too subjective a basis for eliminating lands from a 
unit. The commenter requested that the regulation should include 
identifiable criteria for making such decisions.
    The BLM did not change the rule based on the comment. This standard 
in final section 3283.6 comes from the 1988 amendment of the Geothermal 
Stream Act, and is the wording the BLM has used in the regulations 
since then. The BLM reviews the type and intensity of unit resource 
exploration and development to ensure that it is being conducted within 
operational and environmental standards and meets public interest 
requirements. The BLM is not aware it has caused an issue at any time 
when units have been reviewed. The wording is intended to provide the 
BLM flexibility in administering units given the broad range of 
development issues that may occur. Under the rule, any BLM 
determination to eliminate lands from a unit must be based on 
scientific evidence, and occur only for the purpose of conserving and 
properly managing the geothermal resources. To safeguard against misuse 
of this provision, section 3283.6(c) provides that the BLM will not 
eliminate any lands from a unit until the unit operator, the lessee, 
and any other person with a legal interest in such lands, have been 
given reasonable notice and opportunity to comment. The final rule uses 
the active voice to clarify that it is the BLM that provides the notice 
and opportunity for comment. The proposal was not clear because it used 
the passive voice.
    Final section 3283.7 provides that unit operators may be changed 
only with the BLM's written approval.
    Final section 3283.8 describes the requirements for a new operator. 
The new operator must meet the qualification requirements of these 
regulations, submit evidence of adequate bonding for Federal lands, and 
provide to the BLM written acceptance of the unit terms and conditions. 
A minor change from the proposal is included in final paragraph (a) to 
clarify that the ``qualification'' requirements are the ones to be met.
    Final section 3283.9 provides that the change of unit operator is 
effective when the BLM approves the new operator in writing.
    Final section 3283.10 explains that the initial unit operator 
remains responsible for all duties and responsibilities until the BLM 
approves the new unit operator. This section also makes it clear that 
initial unit operators remain responsible for liabilities and 
obligations that accrue before a new unit operator is approved.
    Final section 3283.11 acknowledges that a unit agreement does not 
modify stipulations in Federal leases. While certain lease obligations 
are altered by commitment of lands to a unit, lease stipulations, such 
as those designed to protect the environment or other resources, are 
not superseded by the terms of a unit agreement.
    Final section 3283.12 specifies that transferees and successors in 
interest acquiring Federal geothermal leases committed to a unit 
agreement are bound by the terms and conditions of the unit agreement.

Subpart 3284--Unit Operations

    Final subpart 3284 discusses unit operations, unit operator 
responsibilities for those operations, and how the BLM administers 
operational situations.
    Final section 3284.1 acknowledges current practice that all phases 
of unit operations are required to comply with the terms and conditions 
of the unit agreement and operational standards and orders identified 
in the exploration (subpart 3250), drilling (subpart 3260), and 
production and utilization (subpart 3270) subparts of this rule.
    Responsibilities of the unit operator are described in final 
section 3284.2. In general, the unit operator has primary 
responsibility to diligently explore and drill for, and to produce and 
inject, unitized geothermal resources. A separate entity can own and 
operate utilization facilities located within the unit area, but only 
the unit operator is authorized to produce and inject unitized 
resources and supply geothermal resources to any utilization 
facilities, regardless of whether the location of such facilities is 
within the unit. Other working interests are not authorized to conduct 
any drilling activities under subpart 3260 on leases committed to a 
unit agreement without the BLM approval. The unit operator works with 
the BLM and the MMS to make unit changes and must insure all moneys 
owed to the Federal Government for geothermal activities are paid.
    Final section 3284.3 discusses what happens to the unit agreement 
and leases committed to the agreement if the minimum initial unit 
obligations are not met and how unit operations can affect extension of 
lease terms. If the initial unit well obligations are not met or the 
unit operator relinquishes the agreement before meeting the initial 
unit obligations, the agreement will be voided as if it was never in 
effect, any lease segregations that occurred as a result of unit 
formation become invalid, and any extensions issued will be 
retroactively voided to the date the unit became effective.
    Final section 3284.4 addresses actions necessary to maintain a unit 
agreement after a unit well has been completed. If a unit well is 
determined by the BLM to be producible, the unit operator must submit a 
final participating area application and, if no additional wells are 
drilled, the unit area will contract to conform to the participating 
area. If a unit well does not produce or utilize geothermal resources 
in commercial quantities, the unit operator must continue drilling unit 
wells within the time specified in the agreement until a unit well is 
completed that the BLM determines produces or utilizes geothermal 
resources in commercial quantities. Failure to meet this obligation to 
drill subsequent wells results in the unit terminating at that time.
    Final section 3284.5 explains how commitment of lands to a unit 
agreement affects lease terms. Under final section 3284.5(a), lease 
extensions granted based on commitment to the unit agreement remain in 
force while the unit is in effect. Under final section 3207.17, a lease 
can receive an extension if it was committed to a unit agreement and 
would expire prior to the unit term expiring. Therefore, we added a 
cross-reference to section 3207.17 in final section 3284.5(a). If the 
unit operator has diligently pursued unit development, a lease can 
receive an extension to match the term of the unit. Final section 
3284.5(b) is adopted as proposed, but corrects a mistaken cross-
reference that was contained in the proposed rule.
    Final section 3284.6 addresses drilling done by working interest 
owners other than the unit operator. The BLM may approve drilling 
outside the participating area only when the BLM determines the unit 
operator is not diligently developing the resource and drilling is in 
the public interest. Should a working interest owner complete a well 
which will produce or utilize geothermal resources in commercial 
quantities, the unit operator must apply to include the well in the 
participating area and operate the well.

[[Page 24394]]

    Final section 3284.7 allows a lessee or operator to conduct 
operations on an uncommitted Federal lease located within a unit if the 
BLM determines that it is in the public interest and does not 
unnecessarily affect unit operations.
    Final section 3284.8 establishes that a unit can only have one 
operator. Given the nature of most geothermal resources, multiple unit 
operators would likely violate the purpose of the unit agreement that 
all of the resources within the unit be developed as if they were part 
of one operation. If multiple operators of a unit were allowed, then 
they could separately develop the resource, the resource would not 
necessarily be conserved, and the public interest would not be served. 
In effect, the purpose of having a unit would be defeated.
    One commenter expressed concern about the possibility of two unit 
operators if multiple units exist on overlapping land. As stated 
earlier, the BLM will not approve separate unit agreements with 
overlapping lands, so that the situation about which the commenter is 
concerned will not occur. However, in advance of unit approval, 
multiple prospective unit operators may propose a variety of unit 
areas. The designation review and final approval process is designed to 
insure the unit agreement which is finally made effective by the BLM 
best meets public interest requirements.
    Final section 3284.9 allows the BLM to set or modify the rate of 
production or injection within the unit area to ensure protection of 
Federal resources.
    One commenter asserted that in a unit, it should be the developer's 
choice to direct injection or production rates and that the BLM should 
not be in a position to tell how the plant should be operated. The BLM 
disagrees with the comment. This provision is essentially unchanged 
from the previous regulations, with the exception of the addition of 
the qualifying phrase ``to ensure protection of Federal resources.'' 
The BLM has always had the authority to direct the lessee's injection 
or production rates to ensure that the lessee protects Federal 
resources. Article 10.5 of the previous model unit agreement specified 
that the BLM has the authority to modify the rate of prospecting and 
development conducted by the unit operator, as well as the quantity and 
rate of production. This authority is necessary to ensure protection 
and conservation of the Federal resources. In practice, exercise of 
this retained authority has led to few, if any, unresolved disputes.
    Final section 3284.10 articulates the unit operator's 
responsibility to prevent drainage of the unit area and ensure 
compensation (royalties) for drainage of geothermal resources from 
unitized land by wells not subject to the unit agreement.
    Final section 3284.11 establishes that development and production 
from the unit, regardless of location within the unit, fulfills the 
diligent development requirements for all leases within the unit.
    Final section 3284.12 requires unit operators to notify the BLM 
within 30 days of a change in the commitment status of any lease or 
tract within the unit, regardless of ownership.

Subpart 3285--Unit Termination

    Unit agreement termination is discussed in final subpart 3285.
    Final section 3285.1 provides that the BLM may terminate a unit 
agreement if the unit operator does not comply with any term or 
condition of the unit agreement.
    Final section 3285.2 allows a unit operator to request BLM approval 
of a voluntary unit agreement termination after the initial unit 
obligation well is completed and before starting commercial operations. 
This can occur when the appropriate percentage of working interest 
owners, as specified in the unit agreement, agree to the termination. 
If commercial operations are occurring, the unit will remain in effect 
until all commercial operations cease.

Subpart 3286--Model Unit Agreement

    Subpart 3286 provides a model unit agreement. Applicants for unit 
agreements are not required to use this model (see final section 
3281.13). For the most part, the final rule adopts the revisions to the 
previous model agreement as proposed. Changes either from the previous 
rule or from the proposed rule are discussed below.
    Article 1.1 of the final model agreement clarifies that it is the 
U.S. Department of the Interior regulations that are accepted, 
including both BLM and, where applicable, MMS regulations. Article 1.2 
of the final model agreement clarifies that BLM operating regulations 
are accepted for non-federal lands within the unit and are made part of 
the unit agreement. The proposed model agreement did not expressly 
identify which agency's rules were accepted. The BLM views this as a 
non-substantive change because it is a clarification of what was 
intended in both the previous and proposed rules.
    This rule adopts several revisions to Articles IV and XI of the 
previous model unit agreement. In these Articles, the previous model 
agreement referred to a ``Plan of Operation.'' The term ``Plan of 
Development'' is used in the final model agreement, instead, to replace 
Plan of Operation. This change clarifies overall permit application 
requirements since a Plan of Operation is part of the well drilling and 
testing application (sections 3261.11 and 3261.12), and is not related 
to the review of a unit agreement. The requirements of the Plan of 
Development are not substantially changed from those of the previous 
Plan of Operation.
    Article IV of the final unit model agreement addresses automatic 
contraction of the participating area. Under Article IV, unitized lands 
that are not entitled to be within a participating area on the fifth 
anniversary of the effective date of the initial participating area are 
eliminated automatically from the unit agreement effective as of the 
fifth anniversary, with one exception. Under the exception, lands are 
not automatically eliminated from the unit agreement if diligent 
drilling operations are in progress on an exploratory well on the fifth 
anniversary. Under such circumstances, the lands covered by the 
exploratory drilling are not eliminated from the unit area for as long 
as exploratory drilling operations are continued diligently, with not 
more than 6 months elapsing between the completion of one exploratory 
well and the commencement of the next exploratory well. The previous 
rule required the unit to contract to the participating area if no more 
than 4 months, rather than 6 months, elapsed between exploratory wells. 
The expansion from 4 months to 6 months is referenced in a number of 
places in Article IV of the Model Agreement in the final rule. 
Expansion of this time frame to 6 months before contraction occurs 
provides the unit operator with greater flexibility, particularly when 
attempting to obtain drilling equipment. In addition, Article 4.6 
provides that the BLM can authorize a specified time period in excess 
of 6 months between the completion of one exploratory well and the 
beginning of another without elimination of lands from the unit.
    An editorial change from the proposed rule was made in final 
Article 4.7 to insert a word that was missing from the proposed rule.
    We are adopting several modifications to previous Article XI. A 
unit operator was previously required to initiate drilling an 
exploratory well within 6 months after the effective date of the unit 
agreement. This rule modifies this requirement to allow the unit 
operator to conduct exploration operations as well as drilling a well 
to meet unit diligent development requirements. A

[[Page 24395]]

unit operator must complete at least one unit exploration well before 
the end of the term of the unit agreement or the unit will be voided 
and leases will not receive any benefit of unit commitment. Article XI 
of the previous model agreement specified that the BLM can only grant a 
single extension of drilling obligations of no longer than 4 months. 
The final rule modifies the model to allow the BLM to grant multiple 
extensions of time frames to meet public interest requirements. This 
greater flexibility in unit administration is needed to cover a wide 
variety of development issues facing unit operators that are beyond 
their control. Language in Articles 11.5 and 11.7 referring to the 
``actual production of unitized substances'' is changed to ``completing 
a well capable of producing or utilizing unitized substances in 
commercial quantities.'' This change allows the minimum initial unit 
obligation to be met either through the timely completion of a 
producible unit well or the initiation of actual production of unitized 
resources.
    The final rule substantially shortens Article XV of the model 
agreement, related to rents and royalties. Final Article XV does not 
repeat substantive regulatory requirements related to rentals, 
royalties, rental credits, etc., which are addressed in final subpart 
3211. This is not intended as a substantive change because these 
matters are addressed fully in both the BLM and the MMS rules (see, 
e.g., 43 CFR subpart 3211 and 30 CFR part 306, subpart H, and 30 CFR 
318.303) and in the applicable lease instruments themselves. The key 
point that both the proposed and final Article XV contain is that 
nothing in the model agreement operates to relieve the lessees of any 
land from their respective lease obligations for the payment of any 
rental or royalty due under their leases. Repeating the requirements in 
the model agreement would have been complex because geothermal units 
can consist of leases subject to different rental and royalty terms. A 
restatement in Article XV might not have been complete or accurate. 
Final Article XV retains Article 15.1 from the previous and proposed 
model agreements related to unitized leases on non-Federal land. Final 
Article 15.3 also states, as was contained in proposed Articles 15.3 
and 15.5, that rentals and royalties may be paid by working interest 
owners or by a unit operator.
    Final Article 17.7 has been modified from the proposal to reflect 
that lease extensions occur through ``regulation'' as well as by 
``law.'' A sentence has been added to that Article stating that the BLM 
has adopted a procedure in final section 3207.17 for granting lease 
extensions for leases committed to a unit to match the term of the 
unit. The sentence provides that if it is appropriate for the BLM to 
extend the term of a lease to match the term of the unit, the unit 
operator shall take the actions required for such extension under 43 
CFR 3207.17. Under that section, the unit operator must send the BLM a 
request to extend the term of a lease committed to a unit at least 60 
days before the lease expires.
    We are also adopting editorial revisions to the model agreement. 
For instance, references in the previous model agreement to the 
``Director'' are changed to the ``Authorized Officer,'' the person 
within the BLM with the authority to make final decisions.
    We are removing the following sections in subpart 3286 because the 
BLM does not require submission of information in the specified formats 
and the information contained in these sections is found elsewhere in 
the final rule: section 3286.1-1 Model Exhibit ``A''; section 3286.1-2 
Model Exhibit ``B''; section 3286.2 Model unit bond; section 3286.3 
Model designation of successor operator; and section 3286.4 Model 
change of operator by assignment.

Subpart 3287--Relief and Appeals

    This subpart addresses situations where unit operators seek relief 
from the obligations of the unit agreement and wish to appeal a BLM 
decision under this part.
    Final section 3287.1 allows a unit operator to request a suspension 
of any or all obligations under the unit agreement.
    Final section 3287.2 lists the circumstances that may warrant the 
granting of a suspension of unit obligations. Typically they include 
situations beyond the unit operator's control, such as accidents, labor 
strikes, or Acts of God. Under this provision, the BLM can decide not 
to grant a suspension of unit obligations, especially the minimum 
initial obligation, when lengthy or indefinite periods of time are 
involved. For example, the BLM might not approve a suspension of 
minimum initial drilling obligations due to a unit operator's inability 
to obtain an electrical sales contract or when poor economics affect 
the electrical generation market, limiting the opportunity to obtain 
viable sales contracts.
    Final section 3287.3 describes how a suspension of unit obligations 
affects the terms of the unit agreement. This section explains that the 
BLM has the discretion to toll certain provisions of the unit agreement 
while allowing others to remain in effect. The BLM specifies the terms 
of the suspension. The rule obligates the unit operator to notify all 
interests in the agreement of any suspension that is granted and the 
terms of the suspension. The wording of the final notification 
provision has been changed from the proposed rule to clarify that unit 
interests are to be notified of any suspension granted, and not just of 
changes in unit agreement obligations.
    Final section 3287.4 allows a unit operator to appeal decisions the 
BLM makes regarding unit agreement administration or operations.

IV. Procedural Matters

Effective Date

    This rule becomes effective 30 days following publication, rather 
than 60 days, because the Department and the Geothermal Industry are 
interested in having competitive geothermal lease sales as soon as 
possible. Lease sales cannot be held until these rules become effective 
because it is these rules that prescribe key terms and conditions of 
new leases, such as royalty rates and rentals. In addition, the statute 
authorizes 2 year extensions of leases issued before August 8, 2005 
that were within 2 years of the end of their terms on August 8, 2005. 
Having this rule become effective sooner will assure that lessees of 
such leases will have sufficient time to apply for any necessary 
extensions.

Executive Order 12866, Regulatory Planning and Review

    This final rule will not have an effect of $100 million or more on 
the economy. It will not adversely affect in a material way the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local, or tribal governments or 
communities. The regulatory changes in the nomination and leasing 
process, royalty system, and diligence requirements are the only 
provisions in the rule with potential economic impacts. However, as 
explained in the Regulatory Flexibility Act Threshold Analysis that 
follows, the royalty provisions are intended to be revenue-neutral 
program-wide for the next 10 years, and should not have any significant 
economic impact.
    These regulations will not create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency. 
This rule does not change the relationships of the geothermal program 
with other

[[Page 24396]]

agencies' actions. These relationships are included in agreements and 
memoranda of understanding that would not change with this rule. We 
coordinated closely with the MMS in preparing the rule.
    These regulations do not alter the budgetary effects of 
entitlements, grants, user fees, or loan programs or the right or 
obligations of their recipients; nor do they raise novel legal or 
policy issues.

Regulatory Flexibility Act

    This rule will not have a significant economic effect on a 
substantial number of small entities as defined under the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) (RFA). The Threshold Analysis 
under the RFA follows.
    The U.S. Census Bureau does not identify the geothermal industry as 
a discrete industrial classification. Instead, firms involved in 
exploration and development of geothermal resources are included within 
other categories. For example, geothermal drilling is grouped with 
water well drilling; firms involved in the distribution of steam are 
included with steam and air-conditioning suppliers; and firms 
generating electricity from geothermal resources are grouped in an 
Other Electric Power Generation category. As a result, there is no 
practical way to use the U.S. Census Data to calculate the number of 
entities involved in the domestic geothermal industry.
    As of September 30, 2004, there were 259 noncompetitive Federal 
leases covering 364,506 acres in Arizona, California, Idaho, Nevada, 
Oregon, and Utah. Almost 300,000 of those acres are located in Nevada. 
There were also 140 competitive leases covering 186,683 acres in 
California, Nevada, New Mexico, Oregon and Utah. Approximately 170,000 
of those leased acres are located in California and Nevada.
    Although this rule will only affect entities involved in the 
exploration and development of energy and mineral resources from land 
where the geothermal resources are administered by the BLM, there is no 
practical way to determine which of these firms will hold leases or 
operate on Federal lands in the future. The extent to which any firm is 
actually affected by this rule depends on whether it holds leases or 
operates on Federal lands.
    The Small Business Administration (SBA) defines small entities 
involved in the geothermal industry as individuals, limited 
partnerships, or small companies considered at ``arm's length'' from 
the control of any parent companies, with fewer than 500 employees.
    U.S. Census data on firms by number of employees is not available. 
However, based on interviews of the BLM specialists involved in 
geothermal leasing activity and several industry representatives, and 
reviews of company reports, there appears to be only one known firm 
currently operating on Federal lands with more than 500 employees.
    Based on available information, the preponderance of firms involved 
in geothermal resource exploration and development on Federal lands are 
small entities as defined by SBA. Therefore, it is reasonable to 
conclude that this rule will affect a ``substantial number of small 
entities.''
    The regulatory changes in the nomination and leasing process, 
royalty system, and diligence requirements are the only provisions in 
the rule with potential economic impacts. However, the royalty 
provisions are intended to be revenue-neutral program-wide and should 
not have any net economic impact. The nomination filing fee is $100 per 
nomination, plus 10 cents for each acre of land nominated for 
competitive sale. This fee will have a negative financial impact on 
lessees, including small entities. The BLM is authorized to charge 
reasonable filing fees under Section 304(a) of the Federal Land Policy 
and Management Act of 1976, 43 U.S.C. 1734(a). While our general policy 
is to charge a processing fee that recovers the agency's reasonable 
processing cost, the BLM does not have data on our cost of processing 
nominations. In 2004, the BLM issued 29 competitive and noncompetitive 
geothermal leases, covering 45,706 acres. With the fees, the cost of 
acquiring those leases would have been increased by $2,900 due to the 
fixed nomination fee, and $4,570.60 due to the per acre fee, or an 
average of about $250 per lease. This nominal filing fee is not 
intended to reimburse the government for its processing costs, but 
instead to limit filings to serious applicants. We do not expect the 
fee to lead to any reduction in the number of serious applicants. 
Therefore, we do not anticipate any measurable reduction in economic 
activity due to the regulations.
    The regulations are intended to implement provisions of the Energy 
Policy Act related to geothermal leasing. Those provisions in the 
Energy Policy Act are primarily intended to promote the exploration and 
development of geothermal resources on Federal lands.
    The annual effect on the economy of the regulatory changes is less 
than $100 million, as shown earlier in this section, and will not 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local or tribal governments or communities. 
This rule will not create inconsistencies or otherwise interfere with 
an action taken or planned by another agency, also as discussed 
earlier. This rule does not change the relationships of the geothermal 
program with other agencies' actions. These relationships are included 
in agreements and memoranda of understanding that would not change with 
this rule. In addition, this rule does not materially affect the 
budgetary impacts of entitlements, grants, user fees, loan programs, or 
the rights and obligations of their recipients.
    Therefore, the BLM has determined under the RFA that this rule will 
not have a significant economic impact on a substantial number of small 
entities.

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. That is, it would not 
have an annual effect on the economy of $100 million or more; it would 
not result in major cost or price increases for consumers, industries, 
government agencies, or regions; and it would not have significant 
adverse effects on competition, employment, investment, productivity, 
innovation, or the ability of U.S.-based enterprises to compete with 
foreign-based enterprises. See the Executive Order 12866 and RFA 
discussions, above.

Unfunded Mandates Reform Act

    In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501, 
et seq.): This rule does not impose an unfunded mandate on state, 
local, or tribal governments or the private sector, in the aggregate, 
of $100 million or more per year; nor does this rule have a significant 
or unique effect on state, local, or tribal governments. The rule would 
impose no requirements on any of these entities. We have already shown, 
in the previous discussions and in the RFA threshold analysis, that the 
changes this rule makes will not have effects approaching $100 million 
per year on the private sector. Therefore, the BLM is not required to 
prepare a statement containing the information required by the Unfunded 
Mandates Reform Act (2 U.S.C. 1531 et seq.).

[[Page 24397]]

Executive Order 12630, Government Actions and Interference With 
Constitutionally Protected Property Rights (Takings)

    The final rule is not a government action capable of interfering 
with constitutionally protected property rights. A takings implication 
assessment is not required, since the rule is essentially 
administrative and does not authorize any specific activities that 
would result in any effects on private property. Therefore, the 
Department of the Interior has determined that the rule would not cause 
a taking of private property or require further discussion of takings 
implications under this Executive Order.

Executive Order 13132, Federalism

    The final rule will not have a 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 
levels of government. It would not apply to states or local governments 
or state or local governmental entities. The management of Federal 
geothermal leases is the responsibility of the Secretary of the 
Interior. This rule does not alter any lease management or revenue 
sharing provisions with the states, nor does it impose any costs to the 
states. Therefore, in accordance with Executive Order 13132, the BLM 
has determined that this rule does not have sufficient Federalism 
implications to warrant preparation of a Federalism Assessment.

Executive Order 12988, Civil Justice Reform

    Under Executive Order 12988, we have determined that this rule 
would not unduly burden the judicial system and that it meets the 
requirements of sections 3(a) and 3(b)(2) of the Order.

Paperwork Reduction Act

    As required by the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 
3507(d)), the BLM submitted a copy of the new reporting or 
recordkeeping requirements to the Office of Management and Budget (OMB) 
for review. The BLM will not require collection of this information 
until the OMB has given its approval. The OMB has approved information 
collection requirements under OMB control numbers 1004-0074 which 
expires December 31, 2009, and 1004-0132 which expires March 31, 2007. 
At the OMB's request, the BLM is in the process of combining 
information collection 1004-0074 and ICR Reference Number 200607-1004-
001 into information collection 1004-0132.

National Environmental Policy Act

    The BLM has prepared an environmental assessment (EA) and has found 
that the rule would not constitute a major Federal action significantly 
affecting the quality of the human environment under Section 102(2)(C) 
of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 
4332(2)(C). The rule has no direct effect on BLM environmental 
activities and decisions. It deals primarily with changes in the 
leasing procedures and royalty provisions of the existing regulations. 
The rule will not change operational standards which regulate on the 
ground impacts. Therefore, an environmental impact statement is not 
required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    In accordance with Executive Order 13175, we have found that this 
rule may include policies that have tribal implications. The rule would 
make changes in the Federal geothermal leasing and management program, 
which does not apply on Indian tribal lands. At present, there are no 
geothermal leases or agreements on tribal or allotted Indian lands. If 
the Bureau of Indian Affairs should ever issue any leases or 
agreements, the BLM would then likely be responsible for the approval 
of any such proposed operations on all Indian (except Osage) geothermal 
leases and agreements. In light of this possibility, and because tribal 
interests could be implicated in geothermal leasing on Federal lands, 
the BLM contacted over 299 tribes who could potentially be impacted by 
this rule. We received only one response from a tribal representative, 
who requested that they be contacted upon publication of the final 
rule, but otherwise received no comments from Tribes on the rule.

Executive Order 13211, Actions Concerning Regulation That Significantly 
Affect Energy Supply, Distribution, or Use

    In accordance with Executive Order 13211, the BLM has determined 
that the rule is not likely to have a significant adverse effect on the 
supply, distribution, or use of energy. The changes could result in an 
increase in geothermal leasing and development, but any potential 
increases are only speculative. If geothermal leasing and development 
did increase, that would likely have a positive effect on energy 
supply.

Executive Order 13352--Facilitation of Cooperative Conservation

    In accordance with Executive Order 13352, the BLM has determined 
that this final rule will not impede facilitating cooperative 
conservation; takes appropriate account of and considers the interests 
of persons with ownership or other legally recognized interests in land 
or other natural resources; properly accommodates local participation 
in the Federal decision-making process; and provides that the programs, 
projects, and activities are consistent with protecting public health 
and safety. The changes are essentially administrative in nature and 
will not have a bearing on cooperative conservation issues.

Regulatory Flexibility Act Threshold Analysis

Introduction
    The Regulatory Flexibility Act (RFA) requires agencies to analyze 
the economic impact of proposed and final regulations and determine the 
extent to which there is a significant economic impact on a substantial 
number of small entities, and to consider regulatory alternatives that 
would achieve the agency's goal while minimizing the burden on small 
entities. The RFA establishes an analytical process for determining how 
public policy goals can best be achieved without erecting barriers to 
competition, stifling innovation, or imposing undue burdens on small 
entities. Executive Order 13272 reinforces executive intent that 
agencies give serious attention to impacts on small entities and 
develop regulatory alternatives to reduce the regulatory burden on 
small entities. To meet these requirements, the agency must either 
conduct a regulatory flexibility analysis or certify that the final 
rule will not have ``a significant economic impact on a substantial 
number of small entities.''
Number of Potentially Affected Entities
    Entities that will be directly affected by this Geothermal Resource 
Leasing rule will include most, if not all, firms involved in the 
exploration and development of geothermal resources on Federal lands. 
Such operators are a subset of entities involved in the domestic 
geothermal industry.
    The U.S. Census Bureau does not identify the geothermal industry as 
a discrete industrial classification. Instead firms involved in 
exploration and development of geothermal resources are included within 
other categories. For example, geothermal drilling is grouped with 
water well drilling; firms involved in the distribution of steam are

[[Page 24398]]

included with steam and air-conditioning suppliers; and firms 
generating electricity from geothermal resources are grouped in an 
``Other Electric Power Generation'' category. Therefore, there is no 
practical way to use the U.S. Census Data to calculate the number of 
entities involved in the domestic geothermal industry.
    There are a limited number of entities that currently hold Federal 
geothermal leases. As of May 19, 2006,\1\ there were 69 different 
geothermal lessees identified; however, many of these lessees are 
composed of the same firms, individuals, and partnerships.
---------------------------------------------------------------------------

    \1\ U.S. Department of the Interior, Bureau of Land Management, 
LR2000, June 1, 2006.
---------------------------------------------------------------------------

    The latest published Public Land Statistics \2\ data indicates 
there were 259 noncompetitive leases covering 364,506 acres in Arizona, 
California, Idaho, Nevada, Oregon and Utah. Almost 300,000 of those 
acres are located in Nevada. There were also 140 competitive leases 
covering 186,683 acres in California, Nevada, New Mexico, Oregon, and 
Utah. Approximately 170,000 of those leased acres are located in 
California and Nevada. During FY2004, 24 non-competitive geothermal 
leases were issued covering 37,453 acres, along with 5 competitive 
leases covering 8,253 acres.
---------------------------------------------------------------------------

    \2\ U.S. Department of the Interior, Bureau of Land Management, 
Public Land Statistics 2004, (http://www.blm.gov/natacq/pls04/).
---------------------------------------------------------------------------

    Geothermal leases are issued with a primary term of 10 years. After 
the primary term the lease may be extended twice for up to 5 years each 
time. Currently there are 29,801 leased acres in non-producing status 
that have been under lease for 11 to 15 years, and another 107,335 
acres that have been under lease for 16 to 19 years.\3\
---------------------------------------------------------------------------

    \3\ U.S. Department of the Interior, Bureau of Land Management, 
LR2000, June 1, 2006.
---------------------------------------------------------------------------

    Although this rule will only affect entities involved in the 
exploration and development of geothermal resources administered by the 
BLM, there is no way to determine which firms will hold leases or 
operate on Federal lands in the future. The extent to which the final 
rule has an actual impact on any firm depends on whether it holds 
leases or operates on Federal lands.
Impacted Small Entities
    The Small Business Administration (SBA) has developed size 
standards to carry out the purposes of the Small Business Act; those 
size standards can be found in 13 CFR 121.201. The SBA defines small 
entities involved in the geothermal industry as individuals, limited 
partnerships, or small companies considered at ``arm's length'' from 
the control of any parent companies, with fewer than 500 employees.
    U.S. Census data on firms by number of employees is not available. 
However, based on interviews of BLM specialists \4\ involved in 
geothermal leasing activity and several industry representatives, and 
reviews of company reports, there appears to be only one known firm 
currently operating on Federal lands with more than 500 employees.
---------------------------------------------------------------------------

    \4\ BLM contacts included Richard Estabrook (CA), Rich Hoops 
(NV), Sean Hagerty (CA), Donna Kauffman (OR), Connie Seare, (Utah) 
and Gloria Baca (NM).
---------------------------------------------------------------------------

    Based on available information, the preponderance of firms involved 
in geothermal resource exploration and development on Federal lands are 
small entities as defined by SBA. Therefore, it is reasonable to 
conclude that this rule will impact a ``substantial number of small 
entities.''
Direct Economic Impacts
    The changes to the geothermal rule fall into a number of different 
areas: competitive and noncompetitive leasing, direct use leases, 
royalties and rentals, lease terms and conditions, unit and 
communitization agreements, acreage limitations, and termination 
provisions. However, most of the new provisions in the final rule are 
specifically required by the Energy Policy Act of 2005.
    A major concern voiced by some industry representatives regarding 
the pending changes is that the requirement in the Energy Policy Act 
eliminated the process of applying for noncompetitive leases directly 
to BLM and required all leases to be offered competitively. The concern 
is that this provision will limit future exploration and development on 
Federal lands, and decrease competition within the industry. Their 
position is that noncompetitive leasing promotes innovation and the 
exploration of undeveloped resources. These concerns are worth noting; 
however, the requirement that all leases must first be offered 
competitively is included in the rule because it is a requirement of 
the law.
    This final rule provides for the following:
    <bullet> All parcels may be leased competitively for no minimum 
bid;
    <bullet> Royalties for most new leases will be a percentage of 
gross proceeds;
    <bullet> When lessees elect to convert existing leases to leases 
administered under these final regulations, royalty rates will be 
determined on a case-by-case basis to obtain revenue neutrality;
    <bullet> Nominations for competitive leasing will be charged filing 
fees;
    <bullet> Minimum dollar amounts will be set for the work commitment 
requirements and payments in lieu of work expenditures; and
    <bullet> Near-term production incentives will be provided.
Impact Significance
    In addition to determining if a substantial number of small 
entities are likely to be affected by this final rule, the BLM must 
also determine whether the rule is anticipated to have a significant 
economic impact on those small entities. The RFA does not define 
``significant.'' However, significance should be seen as relative to 
the size of the business, the size of the competitor's business, and 
the impact the regulation has on larger competitors.
    Royalty--The Energy Policy Act requires that the royalty on 
production from all future geothermal leases be a gross proceeds 
royalty. Based on a report \5\ prepared for the Minerals Management 
Service (MMS) on geothermal royalty valuation methods and a study \6\ 
prepared by Advanced Resources International, Inc., for the BLM, this 
final rule implements a gross proceeds lease royalty of 1.75% for years 
1 through 10 and 3.5% after year 10 for all future leases. This change 
is within the parameters mandated by the Energy Policy Act.
---------------------------------------------------------------------------

    \5\ Royalty Policy Committee, Geothermal Valuation Subcommittee 
Report, May 2005.
    \6\ Advanced Resources International, Inc., Geothermal 
Development on Federal Lands: Projection of Royalty Impacts 
Resulting from the Energy Policy Act of 2005, January 21, 2007.
---------------------------------------------------------------------------

    The Act also requires that for converted leases the royalty must be 
revenue neutral, i.e., the royalty rate applied to gross proceeds will 
generate no more (or less) revenue than the previous net proceeds 
royalty would generate if applied to those same leases.
    The Act also requires that charges for direct use of the geothermal 
resource be based on a fee schedule rather than a royalty. The MMS 
developed the fee schedule for direct use, and it is included in the 
MMS rule that is being finalized simultaneously with this BLM rule.
    Current electrical generation lessees that remain under the 
previous regulations will pay the same royalties as they have been 
paying all along. Electrical generation lessees who modify their 
existing leases to the new regulation's percentage of gross proceeds 
method should pay the same level of royalties as they have paid under 
the previous regulations.

[[Page 24399]]

    Program wide, the royalty rates for new electric generation lessees 
(1.75% for years 1 through 10 and 3.5% after year 10) should result in 
the same overall level of royalties as they would have paid under the 
previous regulations. Under the new royalty scheme, new electric 
generation lessees that use binary power plant technology will be 
subject to a royalty rate that is approximately 1% higher than the 
effective royalty rate under the previous regulations. Operations that 
employ flash technology will be subject to a royalty rate that is 
almost 2% lower than the previous effective royalty rate for that type 
of power generation plants.
    Lessees that currently use the resource only for direct use and do 
not sell the resource will have the option to convert their leases to 
the new fee schedule, which is expected to result in a reduction of 
$60,000 per year from the previous level of royalties, a 95-percent 
reduction. In addition, all new direct use lessees who do not sell the 
resources under the new regulations will use the same fee schedule, 
also paying about 95 percent less than they would have under the 
previous regulations. The MMS has estimated that the royalty changes 
will result in royalty decreases for the industry as a result of the 
lower fees for direct use.
    It should be noted that likely the most significant effect 
associated with changes in the royalty scheme are the accounting 
savings by converting from a netback to a gross proceeds royalty. This 
savings will be most pronounced for small entities that do not have a 
full time accounting department.
    Filing Fees--The nomination filing fee of $100 per nomination plus 
a $0.10 per acre fee will have a minor negative financial impact on 
lessees, including small entities. Based on Public Land Statistics data 
\7\, 29 competitive and noncompetitive geothermal leases, covering 
45,706 acres, were issued in 2004. With the fees, the cost of acquiring 
those leases would have been increased by $2,900 by the fixed 
nomination fee and $4,570.60 by the per acre fee, or an average cost of 
about $250 per lease. It is highly unlikely that cost increases of this 
magnitude will prevent operators from obtaining leases on lands they 
are interested in exploring and developing. However, due to the cost of 
these fees, operators may tend to minimize their nominations to only 
those parcels that they are truly interested in obtaining.
---------------------------------------------------------------------------

    \7\ U.S. Department of the Interior, Bureau of Land Management, 
Public Land Statistics 2004, (http://www.blm.gov/natacq/pls04/).
---------------------------------------------------------------------------

    Work Requirements--The final regulations require the operator to 
have made exploration expenditures of at least $40 per acre by the end 
of the tenth year. After the tenth year the expenditure requirement 
will be $15 per acre per year for years 11 to 15 and $25 per acre per 
year for years 16 through 19. The requirement differs from the previous 
regulatory requirement of $4 per acre for the 6th year, $6 per acre for 
the 7th year, $8 per acre for the 8th year, $10 per acre for the 9th 
year, $12 per acre for the 10th year, $15 per acre per year for years 
11 through 15, and $18 per acre per year for years 16 through 19.
    For the expenditure requirement, the required amount for the first 
15 years is essentially the same as the previous requirement. For the 
16th through 19th years the expenditure requirement will be 28 percent 
higher ($7.00 per acre) than the requirement under the previous 
regulations. However, the increase only applies to future Federal 
geothermal leases in the years 11 through 19. As discussed below, the 
lessees of those future leases could opt to make payments in lieu of 
expenditures.
    Payment in Lieu of Expenditure--Both sets of regulations allow the 
lessee to make payments to the government in lieu of actual work 
expenditures. Under the final regulations the payment in lieu of work 
expenditures will equal the required expenditure amount; $40 per acre 
by year 10, $15 per acre per year for years 11 through 15, and $25 per 
acre per year for years 16 through 19. Under the previous regulations 
the payment amount is $3 per year for years six through 15 and $6 per 
acre per year after year 15. For lessees, including small entities, 
that are not producing or actively developing their leases after the 
tenth year, this provision will increase the cost of holding leases. 
However, this increase in holding costs will only apply to future 
leases issued under the final regulations and those who elect to be 
subject to these regulations.
    Non-producing leases issued under these final regulations will by 
the 16th year of the lease term face higher expenditure and/or payment 
in lieu of expenditure requirements. Assuming leasing activity on par 
with what occurred in FY 2004, we would have approximately 45,000 acres 
leased per year under the final regulations. Assuming no production and 
no exploration expenditures on those leases, by the 16th year of those 
leases' term the lessees would need to pay the government $315,000 in 
payments in lieu of expenditures to hold those leases. This figure 
represents a highly unlikely worst case scenario in which all lessees 
simply hold on to their leases without ever attempting to explore or 
develop the geothermal resources.
    Near Term Incentives--The final regulations provide for near term 
production incentives for existing leases: There is a 4-year 50 percent 
reduction in the royalty for those leases that do not convert, which 
applies to new facilities or qualified expansion projects. The 
provision will have a positive impact on the lessees of these existing 
leases.
Regulatory Analysis
    Executive Order 12866, the Unfunded Mandates Reform Act (UMRA), and 
the Small Business and Regulatory Flexibility Act (SBRFA) require 
agencies to undertake an analysis of the benefits and costs associated 
with significant regulatory actions.
    The changes in the royalty system, nomination process and diligence 
requirements are the regulatory provisions with potential economic 
impacts. However, the royalty scheme is intended to be program-wide 
revenue-neutral and should not have any net economic impact. The filing 
fee will nominally increase the cost of acquiring a lease. Based on 
FY2004 data, the filing fee would increase the cost of obtaining a 
Federal geothermal lease by an average of $250. The payment in lieu of 
expenditure provision will increase the cost of holding future non-
producing Federal geothermal leases beyond the 15th year. As discussed 
above, for new leases that are not producing and are not being actively 
explored the payment in lieu of expenditure (holding cost) will 
increase by $7.00 per acre over the previous requirements. However, 
since these leases are neither producing nor being actively developed 
it is not anticipated any measurable reduction in economic activity 
will occur as a result of the final regulations.
    The final regulations are intended to implement certain provisions 
found in the Energy Policy Act related to geothermal leasing. Those 
provisions in the Act are primarily intended to promote the exploration 
and development of geothermal resources on Federal lands.
    The annual effect on the economy of the regulatory changes is less 
than $100 million and will not adversely affect in a material way the 
economy, a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or state, local, or tribal 
governments or communities. This rule will not create inconsistencies 
or otherwise interfere with an action taken or planned by another 
agency. This rule does not change the relationships of the

[[Page 24400]]

geothermal programs with other agencies' actions. These relationships 
are included in agreements and memoranda of understanding that will not 
change with this rule. In addition, this rule does not materially 
affect the budgetary impact of entitlements, grants, loan programs, or 
the rights and obligations of their recipients.
Authors
    The principal authors of this final rule are Rich Hoops-BLM Nevada 
State Office, Richard Estabrook--BLM Ukiah Field Office, Cheryl Seath--
BLM Bishop Field Office, Sean Hagerty--BLM California State Office, and 
assisted by Brenda Aird of the Assistant Secretary's Office, Kermit 
Witherbee-National Geothermal Program Manager, BLM's Division of 
Regulatory Affairs, and the Office of the Solicitor.

List of Subjects

43 CFR Part 3000

    Public lands--mineral resources, Reporting and recordkeeping 
requirements.

43 CFR Part 3200

    Geothermal energy, Government contracts, Mineral royalties, Public 
lands-mineral resources, Reporting and recordkeeping requirements, 
Surety bonds, Water resources.

43 CFR Part 3280

    Geothermal energy, Government contracts, Public lands-mineral 
resources, Reporting and recordkeeping requirements, Surety bonds.

    Dated: March 30, 2007.
Julie A Jacobson,
Deputy Assistant Secretary, Land and Minerals Management.

0
Accordingly, for the reasons stated in the preamble and under the 
authorities stated below, BLM amends 43 CFR parts 3000, 3200 and 3280 
as follows:

PART 3000--MINERALS MANAGEMENT: GENERAL

0
1. The authority citation for part 3000 continues to read as follows:

    Authority: 16 U.S.C. 3101 et seq.; 30 U.S.C. 181 et seq., 301-
306, 351-359, and 601 et seq.; 31 U.S.C. 9701; 40 U.S.C. 471 et 
seq.; 42 U.S.C. 6508; 43 U.S.C. 1701 et seq.; and Pub. L. 97-35, 95 
Stat. 357.


0
2. Amend the table in section 3000.12(a) by adding a new entry under 
``Geothermal (Part 3200):'' after ``Lease reinstatement'' as follows:


Sec.  3000.12  What is the fee schedule for fixed fees?

    (a) * * *

                      FY 2006 Processing Fee Table
------------------------------------------------------------------------
              Document/action                           Fees
------------------------------------------------------------------------
 
                                * * * * *
Geothermal (Part 3200):
 
                                * * * * *
Nomination of lands.......................  100 plus $0.10 per acre of
                                             lands nominated.
------------------------------------------------------------------------


0
3. Revise part 3200 to read as follows:

PART 3200--GEOTHERMAL RESOURCE LEASING

Subpart 3200--Geothermal Resource Leasing
Sec.
3200.1 Definitions.
3200.3 Changes in agency duties.
3200.4 What requirements must I comply with when taking any actions 
or conducting any operations under this part?
3200.5 What are my rights of appeal?
3200.6 What types of geothermal leases will BLM issue?
3200.7 What regulations apply to geothermal leases issued before 
August 8, 2005?
3200.8 What regulations apply to leases issued in response to 
applications pending on August 8, 2005?
Subpart 3201--Available Lands
3201.10 What lands are available for geothermal leasing?
3201.11 What lands are not available for geothermal leasing?
Subpart 3202--Lessee Qualifications
3202.10 Who may hold a geothermal lease?
3202.11 Must I prove I am qualified to hold a lease when filing an 
application to lease?
3202.12 Are other persons allowed to act on my behalf to file an 
application to lease?
3202.13 What happens if the applicant dies before the lease is 
issued?
Subpart 3203--Competitive Leasing
3203.5 What is the general process for obtaining a geothermal lease?
3203.10 How are lands included in a competitive sale?
3203.11 Under what circumstances may parcels be offered as a block 
for competitive sale?
3203.12 What fees must I pay to nominate lands?
3203.13 How often will BLM hold a competitive lease sale?
3203.14 How will BLM provide notice of a competitive lease sale?
3203.15 How does BLM conduct a competitive lease sale?
3203.17 How must I make payments if I am the successful bidder?
3203.18 What happens to parcels that receive no bids at a 
competitive lease sale?
Subpart 3204--Noncompetitive Leasing Other Than Direct Use Leases
3204.05 How can I obtain a noncompetitive lease?
3204.10 What payment must I submit with my noncompetitive lease 
application?
3204.11 How may I acquire a noncompetitive lease for lands that were 
not sold at a competitive lease sale?
3204.12 How may I acquire a noncompetitive lease for lands subject 
to a mining claim?
3204.13 How will BLM process noncompetitive lease applications 
pending on August 8, 2005?
3204.14 May I amend my application for a noncompetitive lease?
3204.15 May I withdraw my application for a noncompetitive lease?
Subpart 3205--Direct Use Leasing
3205.6 When may BLM issue a direct use lease to an applicant?
3205.7 How much acreage should I apply for in a direct use lease?
3205.10 How do I obtain a direct use lease?
3205.12 How will BLM respond to direct use lease applications on 
lands managed by another agency?
3205.13 May I withdraw my application for a direct use lease?
3205.14 May I amend my application for a direct use lease?
3205.15 How will I know whether my direct use lease will be issued?
Subpart 3206--Lease Issuance
3206.10 What must I do for BLM to issue a lease?
3206.11 What must BLM do before issuing a lease?
3206.12 What are the minimum and maximum lease sizes?
3206.13 What is the maximum acreage I may hold?
3206.14 How does BLM compute acreage holdings?
3206.15 How will BLM charge acreage holdings if the United States 
owns only a fractional interest in the geothermal resources in a 
lease?
3206.16 Is there any acreage which is not chargeable?
3206.17 What will BLM do if my holdings exceed the maximum acreage 
limits?
3206.18 When will BLM issue my lease?
Subpart 3207--Lease Terms and Extensions
3207.5 What terms (time periods) apply to my lease?
3207.10 What is the primary term of my lease?
3207.11 What work am I required to perform during the first 10 years 
of my lease for BLM to grant the initial extension of the primary 
term of my lease?
3207.12 What work am I required to perform each year for BLM to 
continue the initial and additional extensions of the primary term 
of my lease?

[[Page 24401]]

3207.13 Must I comply with the requirements of Sec. Sec.  3207.11 
and 3207.12 when my lease overlies a mining claim?
3207.14 How do I qualify for a drilling extension?
3207.15 How do I qualify for a production extension?
3207.16 When may my lease be renewed?
3207.17 How is the term of my lease affected by commitment to a 
unit?
3207.18 Can my lease be extended if it is eliminated from a unit?
Subpart 3210--Additional Lease Information
3210.10 When does lease segregation occur?
3210.11 Does a lease segregated from an agreement or plan receive 
any benefits from unitization of the committed portion of the 
original lease?
3210.12 May I consolidate leases?
3210.13 Who may lease or locate other minerals on the same lands as 
my geothermal lease?
3210.14 May BLM readjust the terms and conditions in my lease?
3210.15 What if I appeal BLM's decision to readjust my lease terms?
3210.16 How must I prevent drainage of geothermal resources from my 
lease?
3210.17 What will BLM do if I do not protect my lease from drainage?
Subpart 3211--Filing and Processing Fees, Rent, Direct Use Fees, and 
Royalties
3211.10 What are the processing and filing fees for leases?
3211.11 What are the annual lease rental rates?
3211.12 How and where do I pay my rent?
3211.13 When is my annual rental payment due?
3211.14 Will I always pay rent on my lease?
3211.15 How do I credit rent towards royalty?
3211.16 Can I credit rent towards direct use fees?
3211.17 What is the royalty rate on geothermal resources produced 
from or attributable to my lease that are used for commercial 
generation of electricity?
3211.18 What is the royalty rate on geothermal resource produced 
from or attributable to my lease that are used directly for purposes 
other than commercial generation of electricity?
3211.19 What is the royalty rate on byproducts derived from 
geothermal resources produced from or attributable to my lease?
3211.20 How do I credit advanced royalty towards royalty?
3211.21 When do I owe minimum royalty?
Subpart 3212--Lease Suspensions, Cessation of Production, Royalty Rate 
Reductions, and Energy Policy Act Royalty Rate Conversions
3212.10 What is the difference between a suspension of operations 
and production and a suspension of operations?
3212.11 How do I obtain a suspension of operations or a suspension 
of operations and production on my lease?
3212.12 How long does a suspension of operations or a suspension of 
operations and production last?
3212.13 How does a suspension affect my lease term and obligations?
3212.14 What happens when the suspension ends?
3212.15 Will my lease remain in full force and effect if I cease 
production and I do not have an approved suspension?
3212.16 Can I apply to BLM to reduce, suspend, or waive the royalty 
or rental of my lease?
3212.17 What information must I submit when I request that BLM 
suspend, reduce, or waive my royalty or rental?
3212.18 What are the production incentives for leases?
3212.19 How do I apply for a production incentive?
3212.20 How will BLM review my request for a production incentive?
3212.21 What criteria establish a qualified expansion project for 
the purpose of obtaining a production incentive?
3212.22 What criteria establish a new facility for the purpose of 
obtaining a production incentive?
3212.23 How will the production incentive apply to a qualified 
expansion project?
3212.24 How will the production incentive apply to a new facility?
3212.25 Can I convert the royalty rate terms of my lease in effect 
before August 8, 2005, to the terms of the Geothermal Steam Act, as 
amended by the Energy Policy Act of 2005?
3212.26 How do I submit a request to modify the royalty rate terms 
of my lease to the applicable terms prescribed in the Energy Policy 
Act of 2005?
3212.27 How will BLM or MMS review my request to modify the lease 
royalty rate terms?
Subpart 3213--Relinquishment, Termination, and Cancellation
3213.10 Who may relinquish a lease?
3213.11 What must I do to relinquish a lease?
3213.12 May BLM accept a partial relinquishment if it will reduce my 
lease to less than 640 acres?
3213.13 When does relinquishment take effect?
3213.14 Will BLM terminate my lease if I do not pay my rent on time?
3213.15 How will BLM notify me if it terminates my lease?
3213.16 May BLM cancel my lease?
3213.17 May BLM terminate my lease for reasons other than non-
payment of rentals?
3213.18 When is a termination effective?
3213.19 What can I do if BLM notifies me that my lease is being 
terminated because of a violation of the law, regulations, or lease 
terms?
Subpart 3214--Personal and Surety Bonds
3214.10 Who must post a geothermal bond?
3214.11 Who must my bond cover?
3214.12 What activities must my bond cover?
3214.13 What is the minimum dollar amount required for a bond?
3214.14 May BLM increase the bond amount above the minimum?
3214.15 What kind of financial guarantee will BLM accept to back my 
bond?
3214.16 Is there a special bond form I must use?
3214.17 Where must I submit my bond?
3214.18 Who will BLM hold liable under the lease and what are they 
liable for?
3214.19 What are my bonding requirements when a lease interest is 
transferred to me?
3214.20 How do I modify my bond?
3214.21 What must I do if I want to use a certificate of deposit to 
back my bond?
3214.22 What must I do if I want to use a letter of credit to back 
my bond?
Subpart 3215--Bond Release, Termination, and Collection
3215.10 When may BLM collect against my bond?
3215.11 Must I replace my bond after BLM collects against it?
3215.12 What will BLM do if I do not restore the face amount or file 
a new bond?
3215.13 Will BLM terminate or release my bond?
3215.14 When BLM releases my bond, does that end my 
responsibilities?
Subpart 3216--Transfers
3216.10 What types of lease interests may I transfer?
3216.11 Where must I file a transfer request?
3216.12 When does a transferee take responsibility for lease 
obligations?
3216.13 What are my responsibilities after I transfer my interest?
3216.14 What filing fees and forms does a transfer require?
3216.15 When must I file my transfer request?
3216.16 Must I file separate transfer requests for each lease?
3216.17 Where must I file estate transfers, corporate mergers, and 
name changes?
3216.18 How do I describe the lands in my lease transfer?
3216.19 May I transfer record title interest for less than 640 
acres?
3216.20 When does a transfer segregate a lease?
3216.21 When is my transfer effective?
3216.22 Does BLM approve all transfer requests?
Subpart 3217--Cooperative Agreements
3217.10 What are unit agreements?
3217.11 What are communitization agreements?
3217.12 What does BLM need to approve my communitization agreement?
3217.13 When does my communitization agreement go into effect?
3217.14 When will BLM approve my drilling or development contract?
3217.15 What does BLM need to approve my drilling or development 
contract?
Subpart 3250--Exploration Operations--General
3250.10 When do the exploration operations regulations apply?
3250.11 May I conduct exploration operations on my lease, someone 
else's lease, or unleased land?
3250.12 What general standards apply to exploration operations?

[[Page 24402]]

3250.13 What additional BLM orders or instructions govern 
exploration?
3250.14 What types of operations may I propose in my application to 
conduct exploration?
Subpart 3251--Exploration Operations: Getting BLM Approval
3251.10 Do I need a permit before I start exploration operations?
3251.11 What is in a complete Notice of Intent to Conduct Geothermal 
Resource Exploration Operations application?
3251.12 What action will BLM take on my Notice of Intent to Conduct 
Geothermal Resource Exploration Operations?
3251.13 Once I have an approved Notice of Intent, how can I change 
my exploration operations?
3251.14 Do I need a bond for conducting exploration operations?
3251.15 When will BLM release my bond?
Subpart 3252--Conducting Exploration Operations
3252.10 What operational standards apply to my exploration 
operations?
3252.11 What environmental requirements must I meet when conducting 
exploration operations?
3252.12 How deep may I drill a temperature gradient well?
3252.13 How long may I collect information from my temperature 
gradient well?
3252.14 How must I complete a temperature gradient well?
3252.15 When must I abandon a temperature gradient well?
3252.16 How must I abandon a temperature gradient well?
Subpart 3253--Reports: Exploration Operations
3253.10 Must I share with BLM the data I collect through exploration 
operations?
3253.11 Must I notify BLM when I have completed my exploration 
operations?
Subpart 3254--Inspection, Enforcement, and Noncompliance for 
Exploration Operations
3254.10 May BLM inspect my exploration operations?
3254.11 What will BLM do if my exploration operations are not in 
compliance with my permit, other BLM approvals or orders, or the 
regulations in this part?
Subpart 3255--Confidential, Proprietary Information
3255.10 Will BLM disclose information I submit under these 
regulations?
3255.11 When I submit confidential, proprietary information, how can 
I help ensure it is not available to the public?
3255.12 How long will information I give BLM remain confidential or 
proprietary?
3255.13 How will BLM treat Indian information submitted under the 
Indian Mineral Development Act?
3255.14 How will BLM administer information concerning other Indian 
minerals?
3255.15 When will BLM consult with Indian mineral owners when 
information concerning their minerals is the subject of a FOIA 
request?
Subpart 3256--Exploration Operations Relief and Appeals
3256.10 How do I request a variance from BLM requirements that apply 
to my exploration operations?
3256.11 How may I appeal a BLM decision regarding my exploration 
operations?
Subpart 3260--Geothermal Drilling Operations--General
3260.10 What types of geothermal drilling operations are covered by 
these regulations?
3260.11 What general standards apply to my drilling operations?
3260.12 What other orders or instructions may BLM issue?
Subpart 3261--Drilling Operations: Getting a Permit
3261.10 How do I get approval to begin well pad construction?
3261.11 How do I apply for approval for drilling operations and well 
pad construction?
3261.12 What is an operations plan?
3261.13 What is a drilling program and how do I apply for drilling 
program approval?
3261.14 When must I give BLM my operations plan?
3261.15 Must I give BLM my drilling permit application, drilling 
program, and operations plan at the same time?
3261.16 Can my operations plan, drilling permit, and drilling 
program apply to more than one well?
3261.17 How do I amend my operations plan or drilling permit?
3261.18 Do I need to file a bond before I build a well pad or drill 
a well?
3261.19 When will BLM release my bond?
3261.20 How will BLM review applications submitted under this 
subpart and notify me of its decision?
3261.21 How do I get approval to change an approved drilling 
operation?
3261.22 How do I get approval for subsequent well operations?
Subpart 3262--Conducting Drilling Operations
3262.10 What operational requirements must I meet when drilling a 
well?
3262.11 What environmental requirements must I meet when drilling a 
well?
3262.12 Must I post a sign at every well?
3262.13 May BLM require me to follow a well spacing program?
3262.14 May BLM require me to take samples or perform tests and 
surveys?
Subpart 3263--Well Abandonment
3263.10 May I abandon a well without BLM's approval?
3263.11 What information must I give to BLM to approve my Sundry 
Notice for abandoning a well?
3263.12 How will BLM review my Sundry Notice to abandon my well and 
notify me of their decision?
3263.13 What must I do to restore the site?
3263.14 May BLM require me to abandon a well?
3263.15 May I abandon a producible well?
Subpart 3264--Reports--Drilling Operations
3264.10 What must I submit to BLM after I complete a well?
3264.11 What must I submit to BLM after I finish subsequent well 
operations?
3264.12 What must I submit to BLM after I abandon a well?
3264.13 What drilling and operational records must I maintain for 
each well?
3264.14 How do I notify BLM of accidents occurring on my lease?
Subpart 3265--Inspection, Enforcement, and Noncompliance for Drilling 
Operations
3265.10 What part of my drilling operations may BLM inspect?
3265.11 What records must I keep available for inspection?
3265.12 What will BLM do if my operations do not comply with my 
permit and applicable regulations?
Subpart 3266--Confidential, Proprietary Information
3266.10 Will BLM disclose information I submit under these 
regulations?
3266.11 When I submit confidential, proprietary information, how can 
I help ensure it is not available to the public?
3266.12 How long will information I give BLM remain confidential or 
proprietary?
Subpart 3267--Geothermal Drilling Operations Relief and Appeals
3267.10 May I request a variance from any BLM requirements that 
apply to my drilling operations?
3267.11 How may I appeal a BLM decision regarding my drilling 
operations?
Subpart 3270--Utilization of Geothermal Resources--General
3270.10 What types of geothermal operations are governed by these 
utilization regulations?
3270.11 What general standards apply to my utilization operations?
3270.12 What other orders or instructions may BLM issue?
Subpart 3271--Utilization Operations: Getting a Permit
3271.10 What do I need to start preparing a site and building and 
testing a utilization facility on Federal land leased for geothermal 
resources?
3271.11 Who may apply for a permit to build a utilization facility?
3271.12 What do I need to start preliminary site investigations that 
may disturb the surface?
3271.13 How do I obtain approval to build pipelines and facilities 
connecting the well field to utilization facilities not located on 
Federal lands leased for geothermal resources?
3271.14 What do I need to start building and testing a utilization 
facility if it is not on Federal lands leased for geothermal 
resources?
3271.15 How do I get a permit to begin commercial operations?

[[Page 24403]]

Subpart 3272--Utilization Plan and Facility Construction Permit
3272.10 What must I submit to BLM in my utilization plan?
3272.11 How do I describe the proposed utilization facility?
3272.12 What environmental protection measures must I include in my 
utilization plan?
3272.13 How will BLM review my utilization plan and notify me of its 
decision?
3272.14 How do I get a permit to build or test my facility?
Subpart 3273--How To Apply for a Site License
3273.10 When do I need a site license for a utilization facility?
3273.11 When is a site license unnecessary?
3273.12 How will BLM review my site license application?
3273.13 What lands are not available for geothermal site licenses?
3273.14 What area does a site license cover?
3273.15 What must I include in my site license application?
3273.16 What is the annual rent for a site license?
3273.17 When may BLM reassess the annual rent for my site license?
3273.18 What facility operators must pay the annual site license 
rent?
3273.19 What are the bonding requirements for a site license?
3273.20 When will BLM release my bond?
3273.21 What are my obligations under the site license?
3273.22 How long will my site license remain in effect?
3273.23 May I renew my site license?
3273.24 When may BLM terminate my site license?
3273.25 When may I relinquish my site license?
3273.26 When may I assign or transfer my site license?
Subpart 3274--Applying for and Obtaining a Commercial Use Permit
3274.10 Do I need a commercial use permit to start commercial 
operations?
3274.11 What must I give BLM to approve my commercial use permit 
application?
3274.12 How will BLM review my commercial use permit application?
3274.13 May I get a permit even if I cannot currently demonstrate I 
can operate within required standards?
Subpart 3275--Conducting Utilization Operations
3275.10 How do I change my operations if I have an approved facility 
construction or commercial use permit?
3275.11 What are a facility operator's obligations?
3275.12 What environmental and safety requirements apply to facility 
operations?
3275.13 How must the facility operator measure the geothermal 
resources?
3275.14 What aspects of my geothermal operations must I measure?
3275.15 How accurately must I measure my production and utilization?
3275.16 What standards apply to installing and maintaining meters?
3275.17 What must I do if I find an error in a meter?
3275.18 May BLM require me to test for byproducts associated with 
geothermal resource production?
3275.19 How do I apply to commingle production?
3275.20 What will BLM do if I waste geothermal resources?
3275.21 May BLM order me to drill and produce wells on my lease?
Subpart 3276--Reports: Utilization Operations
3276.10 What are the reporting requirements for facility and lease 
operations involving Federal geothermal resources?
3276.11 What information must I include for each well in the monthly 
report of well operations?
3276.12 What information must I give BLM in the monthly report for 
facility operations?
3276.13 What additional information must I give BLM in the monthly 
report for flash and dry steam facilities?
3276.14 What information must I give BLM in the monthly report for 
direct use facilities?
3276.15 How must I notify BLM of accidents occurring at my 
utilization facility?
Subpart 3277--Inspections, Enforcement, and Noncompliance
3277.10 When will BLM inspect my operations?
3277.11 What records must I keep available for inspection?
3277.12 What will BLM do if I do not comply with all BLM 
requirements pertaining to utilization operations?
Subpart 3278--Confidential, Proprietary Information
3278.10 When will BLM disclose information I submit under these 
regulations?
3278.11 When I submit confidential, proprietary information, how can 
I help ensure it is not available to the public?
3278.12 How long will information I give BLM remain confidential or 
proprietary?
Subpart 3279--Utilization Relief and Appeals
3279.10 When may I request a variance from BLM requirements 
pertaining to utilization operations?
3279.11 How may I appeal a BLM decision regarding my utilization 
operations?

    Authority: 30 U.S.C. 1001-1028; 43 U.S.C. 1701 et seq.; and Pub. 
L. 109-58.

Subpart 3200--Geothermal Resource Leasing


Sec.  3200.1  Definitions.

    For purposes of this part and part 3280:
    Acquired lands means lands or mineral estates that the United 
States obtained by deed through purchase, gift, condemnation or other 
legal process.
    Act means the Geothermal Steam Act of 1970, as amended (30 U.S.C. 
1001 et seq.).
    Additional extension means the period of years added to the primary 
term of a lease beyond the first 10 years and subsequent 5-year initial 
extension of a geothermal lease. The additional extension may not 
exceed 5 years.
    Byproducts are minerals (exclusive of oil, hydrocarbon gas, and 
helium), found in solution or in association with geothermal steam, 
that no person would extract and produce by themselves because they are 
worth less than 75 percent of the value of the geothermal steam or 
because extraction and production would be too difficult.
    Casual use means activities that ordinarily lead to no significant 
disturbance of Federal lands, resources, or improvements.
    Commercial operation means delivering Federal geothermal resources, 
or electricity or other benefits derived from those resources, for 
sale. This term also includes delivering resources to the utilization 
point, if you are utilizing Federal geothermal resources for your own 
benefit and not selling energy to another entity.
    Commercial production means production of geothermal resources when 
the economic benefits from the production are greater than the cost of 
production.
    Commercial production or generation of electricity means generation 
of electricity that is sold or is subject to sale, including the 
electricity or energy that is reasonably required to produce the 
resource used in production of electricity for sale or to convert the 
resource into electrical energy for sale.
    Commercial quantities means either:
    (1) For production from a lease, a sufficient volume (in terms of 
flow and temperature) of the resource to provide a reasonable return 
after you meet all costs of production; or
    (2) For production from a unit, a sufficient volume (in terms of 
flow and temperature) of the resource to provide a reasonable return 
after you meet all costs of drilling and production.
    Commercial use permit means BLM authorization for commercially 
operating a utilization facility and/or utilizing Federal geothermal 
resources.
    Development or drilling contract means a BLM-approved agreement 
between one or more lessees and one or more entities that makes 
resource exploration more efficient and protects the public interest.
    Direct use means utilization of geothermal resources for 
commercial,

[[Page 24404]]

residential, agricultural, public facilities, or other energy needs 
other than the commercial production or generation of electricity. 
Direct use may occur under either a regular geothermal lease or a 
direct use lease.
    Direct use lease means a lease issued noncompetitively in an area 
BLM designates as available exclusively for:
    (1) Direct use of geothermal resources, without sale; and
    (2) Purposes other than commercial generation of electricity.
    Exploration operations means any activity relating to the search 
for evidence of geothermal resources, where you are physically present 
on the land and your activities may cause damage to those lands. 
Exploration operations include, but are not limited to, geophysical 
operations, drilling temperature gradient wells, drilling holes used 
for explosive charges for seismic exploration, core drilling or any 
other drilling method, provided the well is not used for geothermal 
resource production. It also includes related construction of roads and 
trails, and cross-country transit by vehicles over public land. 
Exploration operations do not include the direct testing of geothermal 
resources or the production or utilization of geothermal resources.
    Facility construction permit means BLM permission to build and test 
a utilization facility.
    Facility operator means the person receiving BLM authorization to 
site, construct, test, and/or operate a utilization facility. A 
facility operator may be a lessee, a unit operator, or a third party.
    Geothermal drilling permit means BLM written permission to drill 
for and test Federal geothermal resources.
    Geothermal exploration permit means BLM written permission to 
conduct only geothermal exploration operations and associated surface 
disturbance activities under an approved Notice of Intent to Conduct 
Geothermal Resource Exploration Operations, and includes any necessary 
conditions BLM imposes.
    Geothermal resources operational order means a formal, numbered 
order, issued by BLM, that implements or enforces the regulations in 
this part.
    Geothermal steam and associated geothermal resources means:
    (1) All products of geothermal processes, including indigenous 
steam, hot water, and hot brines;
    (2) Steam and other gases, hot water, and hot brines resulting from 
water, gas, or other fluids artificially introduced into geothermal 
formations;
    (3) Heat or other associated energy found in geothermal formations; 
and
    (4) Any byproducts.
    Gross proceeds means gross proceeds as defined by the Minerals 
Management Service at 30 CFR 206.351.
    Initial extension means a period of years, no longer than 5 years, 
added to the primary term of a geothermal lease beyond the first 10 
years of the lease, provided certain lease obligations are met.
    Interest means ownership in a lease of all or a portion of the 
record title or operating rights.
    Known geothermal resource area (KGRA) means an area where BLM 
determines that persons knowledgeable in geothermal development would 
spend money to develop geothermal resources.
    Lessee means a person holding record title interest in a geothermal 
lease issued by BLM.
    MMS means the Minerals Management Service of the Department of the 
Interior.
    Notice to Lessees (NTL) means a written notice issued by BLM that 
implements the regulations in this part, part 3280, or geothermal 
resource operational orders, and provides more specific instructions on 
geothermal issues within a state, district, or field office. Notices to 
Lessees may be obtained by contacting the BLM State Office that issued 
the NTL.
    Operating rights (working interest) means any interest held in a 
lease with the right to explore for, develop, and produce leased 
substances.
    Operating rights owner means a person who holds operating rights in 
a lease. A lessee is an operating rights owner if the lessee did not 
transfer all of its operating rights. An operator may or may not own 
operating rights.
    Operations plan, or plan of operations means a plan which fully 
describes the location of proposed drill pad, access roads and other 
facilities related to the drilling and testing of Federal geothermal 
resources, and includes measures for environmental and other resources 
protection and mitigation.
    Operator means any person who has taken responsibility in writing 
for the operations conducted on leased lands.
    Person means an individual, firm, corporation, association, 
partnership, trust, municipality, consortium, or joint venture.
    Primary term means the first 10 years of a lease, not including any 
periods of suspension.
    Produced or utilized in commercial quantities means the completion 
of a well that:
    (1) Produces geothermal resources in commercial quantities; or
    (2) Is capable of producing geothermal resources in commercial 
quantities so long as BLM determines that diligent efforts are being 
made toward the utilization of the geothermal resource.
    Public lands means the same as defined in 43 U.S.C. 1702(e).
    Record title means legal ownership of a geothermal lease 
established in BLM's records.
    Relinquishment means the lessee's voluntary action to end the lease 
in whole or in part.
    Secretary means the Secretary of the Interior or the Secretary's 
delegate.
    Site license means BLM's written authorization to site a 
utilization facility on leased Federal lands.
    Stipulation means additional conditions BLM attaches to a lease or 
permit.
    Sublease means the lessee's conveyance of its interests in a lease 
to an operating rights owner. A sublessee is responsible for complying 
with all terms, conditions, and stipulations of the lease.
    Subsequent well operations are those operations done to a well 
after it has been drilled. Examples of subsequent well operations 
include: cleaning the well out, surveying it, performing well tests, 
chemical stimulation, running a liner or another casing string, 
repairing existing casing, or converting the well from a producer to an 
injector or vice versa.
    Sundry notice is your written request to perform work not covered 
by another type of permit, or to change operations in your previously 
approved permit.
    Surface management agency means any Federal agency, other than BLM, 
that is responsible for managing the surface overlying Federally-owned 
minerals.
    Temperature gradient well means a well authorized under a 
geothermal exploration permit drilled in order to obtain information on 
the change in temperature over the depth of the well.
    Transfer means any conveyance of an interest in a lease by 
assignment, sublease, or otherwise.
    Unit agreement means an agreement to explore for, produce and 
utilize separately-owned interests in geothermal resources as a single 
consolidated unit. A unit agreement defines how costs and benefits will 
be allocated among the holders of interest in the unit area.
    Unit area means all tracts committed to an approved unit agreement.
    Unit operator means the person who has stated in writing to BLM 
that the interest owners of the committed leases have designated it as 
operator of the unit area.
    Unitized substances means geothermal resources recovered from lands 
committed to a unit agreement.

[[Page 24405]]

    Utilization Plan or plan of utilization means a plan which fully 
describes the utilization facility, including measures for 
environmental protection and mitigation.
    Waste means:
    (1) Physical waste, including refuse; or
    (2) Improper use or unnecessary dissipation of geothermal resources 
through inefficient drilling, production, transmission, or utilization.


Sec.  3200.3  Changes in agency duties.

    There are many leases and agreements currently in effect, and that 
will remain in effect, involving Federal geothermal resources leases 
that specifically refer to the United States Geological Survey, USGS, 
Minerals Management Service, MMS, or Conservation Division. These 
leases and agreements may also specifically refer to various officers 
such as Supervisor, Conservation Manager, Deputy Conservation Manager, 
Minerals Manager, and Deputy Minerals Manager. Those references must 
now be read to mean either the Bureau of Land Management or the 
Minerals Management Service, as appropriate. In addition, many leases 
and agreements specifically refer to 30 CFR part 270 or a specific 
section of that part. Effective December 3, 1982, references in such 
leases and agreements to 30 CFR part 270 should be read as references 
to this part 3200, which is the successor regulation to 30 CFR part 
270.


Sec.  3200.4  What requirements must I comply with when taking any 
actions or conducting any operations under this part?

    When you are taking any actions or conducting any operations under 
this part, you must comply with:
    (a) The Act and the regulations of this part;
    (b) Geothermal resource operational orders;
    (c) Notices to lessees;
    (d) Lease terms and stipulations;
    (e) Approved plans and permits;
    (f) Conditions of approval;
    (g) Verbal orders from BLM that will be confirmed in writing;
    (h) Other instructions from BLM; and
    (i) Any other applicable laws and regulations.


Sec.  3200.5  What are my rights of appeal?

    (a) If you are adversely affected by a BLM decision under this 
part, you may appeal that decision under parts 4 and 1840 of this 
title.
    (b) All BLM decisions or approvals under this part are immediately 
effective and remain in effect while appeals are pending unless a stay 
is granted in accordance with Sec.  4.21(b) of this title.


Sec.  3200.6  What types of geothermal leases will BLM issue?

    BLM will issue two types of geothermal leases:
    (a) Geothermal leases (competitively issued under subpart 3203 or 
noncompetitively issued under subpart 3204) which may be used for any 
type of geothermal use, such as commercial generation of electricity or 
direct use of the resource.
    (b) Direct use leases (issued under subpart 3205).


Sec.  3200.7  What regulations apply to geothermal leases issued before 
August 8, 2005?

    (a) General applicability. (1) Leases issued before August 8, 2005, 
are subject to this part and part 3280, except that such leases are 
subject to the BLM regulations in effect on August 8, 2005 (43 CFR 
parts 3200 and 3280 (2004)), with regard to regulatory provisions 
relating to royalties, minimum royalties, rentals, primary term and 
lease extensions, diligence and annual work requirements, and renewals.
    (2) The lessee of a lease issued before August 8, 2005, may elect 
to be subject to all of the regulations in this part and part 3280, 
without regard to the exceptions in paragraph (a)(1) of this section. 
Such an election must occur no later than December 1, 2008. Any such 
election as it pertains to lease terms relating to royalty rates must 
be made under the royalty rate conversion provisions of subpart 3212. A 
lessee must obtain a royalty conversion under subpart 3212 to make an 
election under this paragraph effective.
    (b) Royalty rate conversion and production incentives. The lessee 
of a lease issued before August 8, 2005, may:
    (1) Choose to convert lease terms relating to royalty rates under 
subpart 3212; or
    (2) If it does not convert lease terms relating to royalty rates, 
apply for a production incentive under subpart 3212 (if eligible under 
that subpart).
    (c) Two year extension. The lessee of a lease issued before August 
8, 2005, may apply to extend a lease that was within 2 years of the end 
of its term on August 8, 2005, for up to 2 years to allow achievement 
of production under the lease or to allow the lease to be included in a 
producing unit.


Sec.  3200.8  What regulations apply to leases issued in response to 
applications pending on August 8, 2005?

    (a) Any leases issued in response to applications that were pending 
on August 8, 2005, are subject to this part and part 3280, except that 
such leases are subject to the BLM regulations in effect on August 8, 
2005 (43 CFR parts 3200 and 3280 (2004)), with regard to regulatory 
provisions relating to royalties, minimum royalties, rentals, primary 
term and lease extensions, diligence and annual work requirements, and 
renewals.
    (b)(1) The lessee of a lease issued pursuant to an application that 
was pending on August 8, 2005, may elect to be subject to all of the 
regulations in this part and part 3280, without regard to the 
exceptions in paragraph (a) of this section.
    (2) For leases issued on or after August 8, 2005, and before June 
1, 2007, an election under paragraph (b)(1) of this section must occur 
no later than December 1, 2008.
    (3) For leases issued on or after June 1, 2007, the lease applicant 
must make its election under paragraph (b)(1) of this section and 
notify BLM before the lease is issued.

Subpart 3201--Available Lands


Sec.  3201.10  What lands are available for geothermal leasing?

    (a) BLM may issue leases on:
    (1) Lands administered by the Department of the Interior, including 
public and acquired lands not withdrawn from such use;
    (2) Lands administered by the Department of Agriculture with its 
concurrence;
    (3) Lands conveyed by the United States where the geothermal 
resources were reserved to the United States; and
    (4) Lands subject to Section 24 of the Federal Power Act, as 
amended (16 U.S.C. 818), with the concurrence of the Secretary of 
Energy.
    (b) If your activities under your lease or permit might adversely 
affect a significant thermal feature of a National Park System unit, 
BLM will include stipulations to protect this thermal feature in your 
lease or permit. These stipulations will be added, if necessary, when 
your lease or permit is issued, extended, renewed or modified.


Sec.  3201.11  What lands are not available for geothermal leasing?

    BLM will not issue leases for:
    (a) Lands where the Secretary has determined that issuing the lease 
would cause unnecessary or undue degradation of public lands and 
resources;
    (b) Lands contained within a unit of the National Park System, or 
otherwise administered by the National Park Service;
    (c) Lands within a National Recreation Area;
    (d) Lands where the Secretary determines after notice and comment

[[Page 24406]]

that geothermal operations, including exploration, development or 
utilization of lands, are reasonably likely to result in a significant 
adverse effect on a significant thermal feature within a unit of the 
National Park System;
    (e) Fish hatcheries or wildlife management areas administered by 
the Secretary;
    (f) Indian trust or restricted lands within or outside the 
boundaries of Indian reservations;
    (g) The Island Park Geothermal Area; and
    (h) Lands where Section 43 of the Mineral Leasing Act (30 U.S.C. 
226-3) prohibits geothermal leasing, including:
    (1) Wilderness areas or wilderness study areas administered by BLM 
or other surface management agencies;
    (2) Lands designated by Congress as wilderness study areas, except 
where the statute designating the study area specifically allows 
leasing to continue; and
    (3) Lands within areas allocated for wilderness or further planning 
in Executive Communication 1504, Ninety-Sixth Congress (House Document 
96-119), unless such lands are allocated to uses other than wilderness 
by a land and resource management plan or are released to uses other 
than wilderness by an Act of Congress.

Subpart 3202--Lessee Qualifications


Sec.  3202.10  Who may hold a geothermal lease?

    You may hold a geothermal lease if you are:
    (a) A United States citizen who is at least 18 years old;
    (b) An association of United States citizens, including a 
partnership;
    (c) A corporation organized under the laws of the United States, 
any state or the District of Columbia; or
    (d) A domestic governmental unit.


Sec.  3202.11  Must I prove I am qualified to hold a lease when filing 
an application to lease?

    You do not need to submit proof that you are qualified to hold a 
lease under Sec.  3202.10 at the time you submit an application to 
lease, but BLM may ask you in writing for information about your 
qualifications at any time. You must submit the additional information 
to BLM within 30 days after you receive the request.


Sec.  3202.12  Are other persons allowed to act on my behalf to file an 
application to lease?

    Another person may act on your behalf to file an application to 
lease. The person acting for you must be qualified to hold a lease 
under Sec.  3202.10, and must do the following:
    (a) Sign the application;
    (b) State his or her title;
    (c) Identify you as the person he or she is acting for; and
    (d) Provide written proof of his or her qualifications and 
authority to take such action, if BLM requests it.


Sec.  3202.13  What happens if the applicant dies before the lease is 
issued?

    If the applicant dies before the lease is issued, BLM will issue 
the lease to either the administrator or executor of the estate or the 
heirs. If the heirs are minors, BLM will issue the lease to either a 
legal guardian or trustee, provided that the legal guardian or trustee 
is qualified to hold a lease under Sec.  3202.10.

Subpart 3203--Competitive Leasing


Sec.  3203.5  What is the general process for obtaining a geothermal 
lease?

    (a) The competitive geothermal leasing process consists of the 
following steps:
    (1)(i) Entities interested in geothermal development nominate lands 
by submitting to BLM descriptions of lands they seek to be included in 
a lease sale; or
    (ii) BLM may include land in a competitive lease sale on its own 
initiative.
    (2) BLM provides notice of the parcels to be offered, and the time, 
location, and process for participating in the lease sale.
    (3) BLM holds the lease sale and offers leases to the successful 
bidder.
    (b) BLM will issue geothermal leases to the highest responsible 
qualified bidder after a competitive leasing process, except for 
situations where noncompetitive leasing is allowed under subparts 3204 
and 3205, which include:
    (1) Lease applications pending on August 8, 2005;
    (2) Lands for which no bid was received in a competitive lease 
sale;
    (3) Direct use lease applications for which no competitive interest 
exists; and
    (4) Lands subject to mining claims.


Sec.  3203.10  How are lands included in a competitive sale?

    (a) A qualified company or individual may nominate lands for 
competitive sale by submitting an applicable BLM nomination form.
    (b) A nomination is a description of lands that you seek to be 
included in one lease. Each nomination may not exceed 5,120 acres, 
unless the area to be leased includes an irregular subdivision. Your 
nomination must provide a description of the lands nominated by legal 
land description.
    (1) For lands surveyed under the public land rectangular survey 
system, describe the lands to the nearest aliquot part within the legal 
subdivision, section, township, and range;
    (2) For unsurveyed lands, describe the lands by metes and bounds, 
giving courses and distances, and tie this information to an official 
corner of the public land surveys, or to a prominent topographic 
feature;
    (3) For approved protracted surveys, include an entire section, 
township, and range. Do not divide protracted sections into aliquot 
parts;
    (4) For unsurveyed lands in Louisiana and Alaska that have water 
boundaries, discuss the description with BLM before submission; and
    (5) For fractional interest lands, identify the United States 
mineral ownership by percentage.
    (c) You may submit more than one nomination, as long as each 
nomination separately satisfies the requirements of paragraph (b) of 
this section and includes the filing fee specified in Sec.  3203.12.
    (d) BLM may reconfigure lands to be included in each parcel offered 
for sale.
    (e) BLM may include land in a lease sale on its own initiative.


Sec.  3203.11  Under what circumstances may parcels be offered as a 
block for competitive sale?

    (a) As part of your nomination, you may request that lands be 
offered as a block at competitive sale by:
    (1) Specifying that the lands requested will be associated with a 
project or unit: and
    (2) Including information to support your request. BLM may require 
that you provide additional information.
    (b) BLM may offer parcels as a block in response to a request under 
paragraph (a) of this section or on its own initiative. BLM will offer 
parcels as a block only if information is available to BLM indicating 
that a geothermal resource that could be produced as one unit can 
reasonably be expected to underlie such parcels.


Sec.  3203.12  What fees must I pay to nominate lands?

    Submit with your nomination a filing fee for nominations of lands 
as found in the fee schedule in Sec.  3000.12 of this chapter.


Sec.  3203.13  How often will BLM hold a competitive lease sale?

    BLM will hold a competitive lease sale at least once every 2 years 
for lands available for leasing in a state that has nominations 
pending. A sale may include lands in more than one state. BLM may hold 
a competitive lease sale

[[Page 24407]]

in a state that has no nominations pending.


Sec.  3203.14  How will BLM provide notice of a competitive lease sale?

    (a) The lands available for competitive lease sale under this 
subpart will be described in a Notice of Competitive Geothermal Lease 
Sale, which will include:
    (1) The lease sale format and procedures;
    (2) The time, date, and place of the lease sale; and
    (3) Stipulations applicable to each parcel.
    (b) At least 45 days before conducting a competitive lease sale, 
BLM will post the Notice in the BLM office having jurisdiction over the 
lands to be offered, and make it available for posting to surface 
managing agencies having jurisdiction over any of the included lands.
    (c) BLM may take other measures of notification for the competitive 
sale such as:
    (1) Issuing news releases;
    (2) Notifying interested parties of the lease sale;
    (3) Publishing notice in the newspaper; or
    (4) Posting the list of parcels on the Internet.


Sec.  3203.15  How does BLM conduct a competitive lease sale?

    (a) BLM will offer parcels for competitive bidding as specified in 
the sale notice.
    (b) The winning bid will be the highest bid by a qualified bidder.
    (c) You may not withdraw a bid. Your bid constitutes a legally 
binding commitment by you.
    (d) BLM will reject all bids and re-offer a parcel if:
    (1) BLM determines that the high bidder is not qualified; or
    (2) The high bidder fails to make all payments required under Sec.  
3203.17.


Sec.  3203.17  How must I make payments if I am the successful bidder?

    (a) You must make payments by personal check, cashier's check, 
certified check, bank draft, or money order payable to the ``Department 
of the Interior--Bureau of Land Management'' or by other means deemed 
acceptable by BLM.
    (b) By the close of official business hours on the day of the sale 
or such other time as BLM may specify, you must submit for each parcel:
    (1) Twenty percent of the bid;
    (2) The total amount of the first year's rental; and
    (3) The processing fee for competitive lease applications found in 
the fee schedule in Sec.  3000.12 of this chapter.
    (c) Within 15 calendar days after the last day of the sale, you 
must submit the balance of the bid to the BLM office conducting the 
sale.
    (d) If you fail to make all payments required under this section, 
or fail to meet the qualifications in Sec.  3202.10, BLM will revoke 
acceptance of your bid and keep all money that has been submitted.


Sec.  3203.18  What happens to parcels that receive no bids at a 
competitive lease sale?

    Lands offered at a competitive lease sale that receive no bids will 
be available for leasing in accordance with subpart 3204.

Subpart 3204--Noncompetitive Leasing Other Than Direct Use Leases


Sec.  3204.5  How can I obtain a noncompetitive lease?

    (a) Lands offered at a competitive lease sale that receive no bids 
will be available for noncompetitive leasing for a 2-year period 
beginning the first business day following the sale.
    (b) You may obtain a noncompetitive lease for lands available 
exclusively for direct use of geothermal resources, under subpart 3205.
    (c) The holder of a mining claim may obtain a noncompetitive lease 
for lands subject to the mining claim under Sec.  3204.12.
    (d) If your lease application was pending on August 8, 2005, you 
may obtain a noncompetitive lease under the leasing process in effect 
on that date, unless you notify BLM in writing that you elect for the 
lease application to be subject to the competitive leasing process 
specified in this subpart. If you elect for your lease application to 
be subject to the competitive leasing process in this subpart, your 
application will be considered a nomination for future competitive 
lease offerings for the lands in your application. An election made 
under this paragraph is not the same as an election made under Sec.  
3200.8.


Sec.  3204.10  What payment must I submit with my noncompetitive lease 
application?

    Submit the processing fee for noncompetitive lease applications 
found in the fee schedule in Sec.  3000.12 of this chapter for each 
lease application, and an advance rent in the amount of $1 per acre (or 
fraction of an acre). BLM will refund the advance rent if we reject the 
lease application or if you withdraw the lease application before BLM 
accepts it. If the advance rental payment you send is less than 90 
percent of the correct amount, BLM will reject the lease application.


Sec.  3204.11  How may I acquire a noncompetitive lease for lands that 
were not sold at a competitive lease sale?

    (a) For a 2-year period following a competitive lease sale, you may 
file a noncompetitive lease application for lands on which no bids were 
received, on a form available from BLM. Submit 2 executed copies of the 
applicable form to BLM. At least one form must have an original 
signature. We will accept only exact copies of the form on one 2-sided 
page.
    (1) For 30 days after the competitive geothermal lease sale, 
noncompetitive applications will be accepted only for parcels as 
configured in the Notice of Competitive Geothermal Lease Sale.
    (2) Subsequent to the 30-day period specified in paragraph (a)(1) 
of this section, you may file a noncompetitive application for any 
available lands covered by the competitive lease sale.
    (b)(1) All applications for a particular parcel under this section 
will be considered simultaneously filed if received in the proper BLM 
office any time during the first business day following the competitive 
lease sale. You may submit only one application per parcel. An 
application will not be available for public inspection the day it is 
filed. BLM will randomly select an application among those accepted on 
the first business day to receive a lease offer.
    (2) Subsequent to the first business day following the competitive 
lease sale, the first qualified applicant to submit an application will 
be offered the lease. If BLM receives simultaneous applications as to 
date and time for overlapping lands, BLM will randomly select one to 
receive a lease offer.


Sec.  3204.12  How may I acquire a noncompetitive lease for lands 
subject to a mining claim?

    If you hold a mining claim for which you have a current approved 
plan of operations, you may file a noncompetitive lease application for 
lands within the mining claim, on a form available from BLM. Submit two 
(2) executed copies of the applicable form to BLM, together with 
documentation of mining claim ownership and the current approved plan 
of operations for the mine. At least one form must have an original 
signature. We will accept only exact copies of the form on one 2-sided 
page.


Sec.  3204.13  How will BLM process noncompetitive lease applications 
pending on August 8, 2005?

    Noncompetitive lease applications pending on August 8, 2005, will 
be processed under policies and procedures existing on that date unless

[[Page 24408]]

the applicant notifies BLM in writing that it elects for the lease 
application to be subject to the competitive leasing process specified 
in this subpart, in which case the application will be considered a 
nomination for future competitive lease offerings for the lands in the 
application.


Sec.  3204.14  May I amend my application for a noncompetitive lease?

    You may amend your application for a noncompetitive lease at any 
time before we issue the lease, provided your amended application meets 
the requirements in this subpart and does not add lands not included in 
the original application. To add lands, you must file a new 
application.


Sec.  3204.15  May I withdraw my application for a noncompetitive 
lease?

    During the 30-day period after the competitive lease sale, BLM will 
only accept a withdrawal of the entire application. Following that 30-
day period, you may withdraw your noncompetitive lease application in 
whole or in part at any time before BLM issues the lease. If a partial 
withdrawal causes your lease application to contain less than the 
minimum acreage required under Sec.  3206.12, BLM will reject the 
application.

Subpart 3205--Direct Use Leasing


Sec.  3205.6  When may BLM issue a direct use lease to an applicant?

    (a) BLM may issue a direct use lease to an applicant if the 
following conditions are satisfied:
    (1) The lands included in the lease application are open for 
geothermal leasing;
    (2) BLM determines that the lands are appropriate for exclusive 
direct use operations, without sale, for purposes other than commercial 
generation of electricity;
    (3) The acreage covered by the lease application is not greater 
than the quantity of acreage that is reasonably necessary for the 
proposed use;
    (4) BLM has published a notice of the land proposed for a direct 
use lease for 90 days before issuing the lease;
    (5) During the 90-day period beginning on the date of publication, 
BLM did not receive any nomination to include the lands in the next 
competitive lease sale following that period for which the lands would 
be eligible;
    (6) BLM determines there is no competitive interest in the 
resource; and
    (7) The applicant is the first qualified applicant.
    (b) If BLM determines that the land for which an applicant has 
applied under this subpart is open for geothermal leasing and is 
appropriate only for exclusive direct use operations, but determines 
that there is competitive interest in the resource, it will include the 
land in a competitive lease sale with lease stipulations limiting 
operations to exclusive direct use.


Sec.  3205.7  How much acreage should I apply for in a direct use 
lease?

    You should apply for only the amount of acreage that is necessary 
for your intended operation. A direct use lease may not cover more than 
the quantity of acreage that BLM determines is reasonably necessary for 
the proposed use. In no case may a direct use lease exceed 5,120 acres, 
unless the area to be leased includes an irregular subdivision.


Sec.  3205.10  How do I obtain a direct use lease?

    (a) You may file an application for a direct use lease for any 
lands on which BLM manages the geothermal resources, on a form 
available from BLM. You may not sell the geothermal resource and you 
may not use it for the commercial generation of electricity.
    (b) In your application, you must also provide information that 
will allow BLM to determine how much acreage is reasonably necessary 
for your proposed use, including:
    (1) A description of all anticipated structures, facilities, wells, 
and pipelines including their size, location, function, and associated 
surface disturbance;
    (2) A description of the utilization process;
    (3) A description and analysis of anticipated reservoir production, 
injection, and characteristics to the extent required by BLM; and
    (4) Any additional information or data that we may require.
    (c) Submit with your application the nonrefundable processing fee 
for noncompetitive lease applications found in the fee schedule in 
Sec.  3000.12 of this chapter for each direct use lease application.


Sec.  3205.12  How will BLM respond to direct use lease applications on 
lands managed by another agency?

    BLM will respond to a direct use lease application on lands managed 
by another surface management agency by forwarding the application to 
that agency for its review. If that agency consents to lease issuance 
and recommends that the lands are appropriate for direct use 
operations, without sale, for purposes other than commercial generation 
of electricity, BLM will consider that consent and recommendation in 
determining whether to issue the lease. BLM may not issue a lease 
without the consent of the surface management agency.


Sec.  3205.13  May I withdraw my application for a direct use lease?

    You may withdraw your application for a direct use lease any time 
before issuance of a lease.


Sec.  3205.14  May I amend my application for a direct use lease?

    You may amend your application for a direct use lease at any time 
before we issue the lease, provided your amended application meets the 
requirements in this subpart and does not add lands. To add lands, you 
must file a new application.


Sec.  3205.15  How will I know whether my direct use lease will be 
issued?

    (a) If BLM decides to issue you a direct use lease, it will do so 
in accordance with this subpart and subpart 3206.
    (b) If BLM decides to deny your application for a direct use lease, 
it will advise you of its decision in writing.

Subpart 3206--Lease Issuance


Sec.  3206.10  What must I do for BLM to issue a lease?

    Before BLM issues any lease, you must:
    (a) Accept all lease stipulations;
    (b) Make all required payments to BLM;
    (c) Sign a unit joinder or waiver, if applicable; and
    (d) Comply with the maximum limit on acreage holdings (see 
Sec. Sec.  3206.12 and 3206.16).


Sec.  3206.11  What must BLM do before issuing a lease?

    For all leases, BLM must:
    (a) Determine that the land is available; and
    (b) Determine that your lease development will not have a 
significant adverse impact on any significant thermal feature within 
any of the following units of the National Park System:
    (1) Mount Rainier National Park;
    (2) Crater Lake National Park;
    (3) Yellowstone National Park;
    (4) John D. Rockefeller, Jr. Memorial Parkway;
    (5) Bering Land Bridge National Preserve;
    (6) Gates of the Arctic National Park and Preserve;
    (7) Katmai National Park;
    (8) Aniakchak National Monument and Preserve;
    (9) Wrangell-St. Elias National Park and Preserve;

[[Page 24409]]

    (10) Lake Clark National Park and Preserve;
    (11) Hot Springs National Park;
    (12) Big Bend National Park (including that portion of the Rio 
Grande National Wild Scenic River within the boundaries of Big Bend 
National Park);
    (13) Lassen Volcanic National Park;
    (14) Hawaii Volcanoes National Park;
    (15) Haleakala National Park;
    (16) Lake Mead National Recreation Area; and
    (17) Any other significant thermal features within National Park 
System units that the Secretary may add to the list of these features, 
in accordance with 30 U.S.C. 1026(a)(3).


Sec.  3206.12  What are the minimum and maximum lease sizes?

    Other than for direct use leases (the size for which is addressed 
in Sec.  3205.7), the smallest lease we will issue is 640 acres, or all 
lands available for leasing in the section, whichever is less. The 
largest lease we will issue is 5,120 acres, unless the area to be 
leased includes an irregular subdivision. A lease must embrace a 
reasonably compact area.


Sec.  3206.13  What is the maximum acreage I may hold?

    You may not directly or indirectly hold more than 51,200 acres in 
any one state.


Sec.  3206.14  How does BLM compute acreage holdings?

    BLM computes acreage holdings as follows:
    (a) If you own an undivided lease interest, your acreage holdings 
include the total lease acreage:
    (b) If you own stock in a corporation or a beneficial interest in 
an association which holds a geothermal lease, your acreage holdings 
will include your proportionate part of the corporation's or 
association's share of the total lease acreage. This paragraph applies 
only if you own more than 10 percent of the corporate stock or a 
beneficial interest in the association; and
    (c) If you own a lease interest, you will be charged with the 
proportionate share of the total lease acreage based on your share of 
the lease ownership. You will not be charged twice for the same acreage 
where you own both record title and operating rights for the lease. For 
example, if you own 50 percent record title interest in a 640 acre 
lease and 25 percent operating rights, you are charged with 320 acres.


Sec.  3206.15  How will BLM charge acreage holdings if the United 
States owns only a fractional interest in the geothermal resources in a 
lease?

    Where the United States owns only a fractional interest in the 
geothermal resources of the lands in a lease, BLM will only charge you 
with the part owned by the United States as acreage holdings. For 
example, if you own 100 percent of record title in a 100 acre lease, 
and the United States owns 50 percent of the mineral estate, you are 
charged with 50 acres.


Sec.  3206.16  Is there any acreage which is not chargeable?

    BLM does not count leased acreage included in any approved unit 
agreement, drilling contract, or development contract as part of your 
total state acreage holdings.


Sec.  3206.17  What will BLM do if my holdings exceed the maximum 
acreage limits?

    BLM will notify you in writing if your acreage holdings exceed the 
limit in Sec.  3206.13. You have 90 days from the date you receive the 
notice to reduce your holdings to within the limit. If you do not 
comply, BLM will cancel your leases, beginning with the lease most 
recently issued, until your holdings are within the limit.


Sec.  3206.18  When will BLM issue my lease?

    BLM issues your lease the day we sign it. Your lease goes into 
effect the first day of the next month after the issuance date.

Subpart 3207--Lease Terms and Extensions


Sec.  3207.5  What terms (time periods) apply to my lease?

    Your lease may include a number of different time periods. Not 
every time period applies to every lease. These periods include:
    (a) A primary term consisting of:
    (1) Ten years;
    (2) An initial extension of the primary term for up to 5 years;
    (3) An additional extension of the primary term for up to 5 years;
    (b) A drilling extension of 5 years under Sec.  3207.14;
    (c) A production extension of up to 35 years; and
    (d) A renewal period of up to 55 years.


Sec.  3207.10  What is the primary term of my lease?

    (a) Leases have a primary term of 10 years.
    (b) BLM will extend the primary term for 5 years if:
    (1) By the end of the 10th year of the primary term in paragraph 
(a), you have satisfied the requirements in Sec.  3207.11; and
    (2) At the end of each year after the 10th year of the lease, you 
have satisfied the requirements in Sec.  3207.12(a) or (d) for that 
year.
    (c) BLM will extend the primary term for 5 additional years if:
    (1) You satisfied the requirements of Sec.  3207.12(b) or (d); and
    (2) At the end of each year of the second 5-year extension you 
satisfy the requirements in Sec.  3207.12(c) or (d) for that year.
    (d) If you do not satisfy the annual requirements during the 
initial or additional extension of your primary term, your lease 
terminates or expires.


Sec.  3207.11  What work am I required to perform during the first 10 
years of my lease for BLM to grant the initial extension of the primary 
term of my lease?

    (a) By the end of the 10th year, you must expend a minimum of $40 
per acre in development activities that provide additional geologic or 
reservoir information, such as:
    (1) Geologic investigation and analysis;
    (2) Drilling temperature gradient wells;
    (3) Core drilling;
    (4) Geochemical or geophysical surveys;
    (5) Drilling production or injection wells;
    (6) Reservoir testing; or
    (7) Other activities approved by BLM.
    (b) In lieu of the work requirement in paragraph (a) of this 
section, you may:
    (1) Make a payment to BLM equivalent to the required work 
expenditure such that the total of the payment and the value of the 
work you perform equals $40 per acre (or fraction thereof) of land 
included in your lease; or
    (2) Submit documentation to BLM that you have produced or utilized 
geothermal resources in commercial quantities.
    (c) Prior to the end of the 10th year of the primary term, you must 
submit detailed information to BLM demonstrating that you have complied 
with paragraph (a) or (b) of this section. Describe the activities by 
type, location, date(s) conducted, and the dollar amount spent on those 
operations. Include all geologic information obtained from your 
activities in your report. Submit additional information that BLM 
requires to determine compliance within the timeframe that we specify. 
We must approve the type of work done and the expenditures claimed in 
your report before we can credit them toward your requirements.

[[Page 24410]]

    (d) If you do not perform development activities, make payments, or 
document production or utilization as required by this section, your 
lease will expire at the end of the 10-year primary term.
    (e) If you complied with paragraph (c) of this section, but BLM has 
not determined by the end of the 10th year whether you have complied 
with the requirements of paragraph (a) or (b) of this section, upon 
request we will suspend your lease effective immediately before its 
expiration in order to determine your compliance. If we determine that 
you have complied, we will lift the suspension and grant the first 5-
year extension of the primary term effective on the first day of the 
month following our determination of compliance. If we determine that 
you have not complied, we will terminate the suspension and your lease 
will expire upon the date of the termination of the suspension.
    (f) Every 3 calendar years the dollar amount of the work 
requirements and the amount to be paid in lieu of such work required by 
this section will automatically be updated. The update will be based on 
the change in the Implicit Price Deflator-Gross Domestic Product for 
those 3 years.


Sec.  3207.12  What work am I required to perform each year for BLM to 
continue the initial and additional extensions of the primary term of 
my lease?

    (a) To continue the initial extension of the primary term of your 
lease, in each of lease years 11, 12, 13, and 14, you must expend a 
minimum of $15 per acre (or fraction thereof) per year in development 
activities that establish a geothermal potential or confirm the 
existence of producible geothermal resources. Such activities include, 
but are not limited to:
    (1) Geologic investigation and analysis;
    (2) Drilling temperature gradient wells;
    (3) Core drilling;
    (4) Geochemical or geophysical surveys;
    (5) Drilling production or injection wells;
    (6) Reservoir testing; or
    (7) Other activities approved by BLM.
    (b) For BLM to grant the additional extension of the primary term 
of your lease, in year 15 you must expend a minimum of $15 per acre (or 
fraction thereof) in development activities that provide additional 
geologic or reservoir information, such as those described in paragraph 
(a) of this section.
    (c) To continue the additional extension of the primary term of 
your lease, in each of lease years 16, 17, 18, and 19, you must expend 
a minimum of $25 per acre (or fraction thereof) per year in development 
activities that provide additional geologic or reservoir information, 
such as those described in paragraph (a) of this section.
    (d) In lieu of the work requirements in paragraphs (a), (b), and 
(c) of this section, you may:
    (1) Submit documentation to BLM that you have produced or utilized 
geothermal resources in commercial quantities; or
    (2) Make a payment to BLM equivalent to the required annual work 
expenditure such that the total of the payment and the value of the 
work you perform equals $15 or $25 per acre per year of land included 
in your lease, as applicable. BLM may limit the number of years that it 
will accept such payments if it determines that further payments in 
lieu of the work requirements would impair achievement of diligent 
development of the geothermal resources.
    (e) Under paragraph (a) or paragraph (b) of this section, if you 
expend an amount greater than the amount specified, you may apply any 
payment in excess of the specified amount to any subsequent year within 
the applicable 5-year extension of the primary term. An excess payment 
during the first 5-year extension period may not be applied to any year 
within the second 5-year extension period.
    (f) You must submit information to BLM showing that you have 
complied with the applicable requirements in this section no later 
than:
    (1) 60 days after the end of years 11, 12, 13, and 14;
    (2) 60 days before the end of year 15; and
    (3) 60 days after the end of years 16, 17, 18, and 19.
    (g) In your submission, describe your activities by type, location, 
date(s) conducted, and the dollar amount spent on those operations. 
Include all geologic information obtained from your activities in your 
report. We must approve the type of work done and the expenditures 
claimed in your report before we can credit them toward your 
requirements. We will notify you if you have not met the requirements.
    (h) If you do not comply with the requirements of this section in 
any year of a 5-year extension of the primary term, BLM will terminate 
your lease at the end of that year unless you qualify for a drilling 
extension under Sec.  3207.13.
    (i) Every three calendar years the dollar amount of the work 
requirements and the amount to be paid in lieu of such work required by 
this section will automatically be updated. The update will be based on 
the change in the Implicit Price Deflator-Gross Domestic Product for 
those three years.


Sec.  3207.13  Must I comply with the requirements of Sec. Sec.  
3207.11 and 3207.12 when my lease overlies a mining claim?

    (a) BLM will exempt you from complying with the requirements of 
Sec. Sec.  3207.11 and 3207.12 when you demonstrate to BLM that:
    (1) The mining claim has a plan of operations approved by the 
appropriate Federal land management agency; and
    (2) Your development of the geothermal resource on the lease would 
interfere with the mining operations.
    (b) The exemption provided under paragraph (a) of this section 
expires upon termination of the mining operations.


Sec.  3207.14  How do I qualify for a drilling extension?

    (a) BLM will extend your lease for 5 years under a drilling 
extension if at the end of the 10th year or any subsequent year of the 
initial or additional extension of the primary term you:
    (1) Have not met the requirements that you must satisfy for BLM to 
grant or to continue the initial or additional extensions of your 
primary lease term under Sec.  3207.12, or your lease is in its 20th 
year;
    (2) Commenced drilling a well before the end of such year for the 
purposes of testing or producing a geothermal reservoir; and
    (3) Are diligently drilling to a target that BLM determines is 
adequate, based on the local geology and type of development you 
propose.
    (b) The drilling extension is effective on the first day following 
the expiration or termination of the primary term.
    (c) At the end of your drilling extension, your lease will expire 
unless you qualify for a production extension under Sec.  3207.15.


Sec.  3207.15  How do I qualify for a production extension?

    (a) BLM will grant a production extension of up to 35 years, if you 
are producing or utilizing geothermal resources in commercial 
quantities.
    (b) Before granting a production extension, BLM must determine that 
you:
    (1) Have a well that is actually producing geothermal resources in 
commercial quantities; or
    (2)(i) Have completed a well that is capable of producing 
geothermal resources in commercial quantities; and
    (ii) Are making diligent efforts toward utilization of the 
resource.
    (c) To qualify for a production extension under paragraph (b)(2) of 
this

[[Page 24411]]

section, unless BLM specifies otherwise you must demonstrate on an 
annual basis that you are making diligent efforts toward utilization of 
the resource.
    (d) BLM will make the determinations required under paragraphs 
(b)(1) and (b)(2)(i) of this section based on the information you 
provide under subparts 3264 and 3276 and any other information that BLM 
may require you to submit.
    (e) For BLM to make the determination required under paragraph 
(b)(2)(ii) of this section, you must provide BLM with information, such 
as:
    (1) Actions you have taken to identify and define the geothermal 
resource on your lease;
    (2) Actions you have taken to negotiate marketing arrangements, 
sales contracts, drilling agreements, or financing for electrical 
generation and transmission projects;
    (3) Current economic factors and conditions that would affect the 
decision of a prudent operator to produce or utilize geothermal 
resources in commercial quantities on your lease; and
    (4) Other actions you have taken, such as obtaining permits, 
conducting environmental studies, and meeting permit requirements.
    (f) Your production extension will begin on the first day of the 
month following the end of the primary term (including the initial and 
additional extensions) or the drilling extension.
    (g) Your production extension will continue for up to 35 years as 
long as the geothermal resource is being produced or utilized in 
commercial quantities. If you fail to produce or utilize geothermal 
resources in commercial quantities, BLM will terminate your lease 
unless you meet the conditions set forth in Sec.  3212.15 or Sec.  
3213.19.


Sec.  3207.16  When may my lease be renewed?

    You have a preferential right to renew your lease for a second term 
of up to 55 years, under such terms and conditions as BLM deems 
appropriate, if at the end of the production extension you are 
producing or utilizing geothermal resources in commercial quantities 
and the lands are not needed for any other purpose. The renewal term 
will continue for up to 55 years if you produce or utilize geothermal 
resources in commercial quantities and satisfy other terms and 
conditions BLM imposes.


Sec.  3207.17  How is the term of my lease affected by commitment to a 
unit?

    (a) If your lease is committed to a unit agreement and its term 
would expire before the unit term would, BLM may extend your lease to 
match the term of the unit. We will do this if unit development has 
been diligently pursued while your lease is committed to the unit.
    (b) To extend the term of a lease committed to a unit, the unit 
operator must send BLM a request for lease extension at least 60 days 
before the lease expires showing that unit development has been 
diligently pursued. BLM may require additional information.
    (c) Within 30 days after receiving your complete extension request, 
BLM will notify the unit operator whether we approve.


Sec.  3207.18  Can my lease be extended if it is eliminated from a 
unit?

    If your lease is eliminated from a unit under Sec.  3283.6, it is 
eligible for an extension if it meets the requirements for such 
extension.

Subpart 3210--Additional Lease Information


Sec.  3210.10  When does lease segregation occur?

    (a) Lease segregation occurs when:
    (1) A portion of a lease is committed to a unit agreement while 
other portions are not committed; or
    (2) Only a portion of a lease remains in a participating area when 
the unit contracts. The portions of the lease outside the participating 
area are eliminated from the unit agreement and segregated as of the 
effective date of the unit contraction.
    (b) BLM will assign the original lease serial number to the portion 
within the agreement. BLM will give the lease portion outside the 
agreement a new serial number, and the same lease terms as the original 
lease.


Sec.  3210.11  Does a lease segregated from an agreement or plan 
receive any benefits from unitization of the committed portion of the 
original lease?

    The new segregated lease stands alone and does not receive any of 
the benefits provided to the portion committed to the unit. We will not 
give you an extension for the eliminated portion of the lease based on 
status of the lands committed to the unit, including production in 
commercial quantities or the existence of a producible well.


Sec.  3210.12  May I consolidate leases?

    BLM may approve your consolidation of two or more adjacent leases 
that have the same ownership and same lease terms, including expiration 
dates, if the combined leases do not exceed the size limitations in 
Sec.  3206.12. We may consolidate leases that have different 
stipulations if all other lease terms are the same. You must include 
the processing fee for lease consolidations found in the fee schedule 
in Sec.  3000.12 of this chapter with your request to consolidate 
leases.


Sec.  3210.13  Who may lease or locate other minerals on the same lands 
as my geothermal lease?

    Anyone may lease or locate other minerals on the same lands as your 
geothermal lease. The United States reserves the ownership of and the 
right to extract helium, oil, and hydrocarbon gas from all geothermal 
steam and associated geothermal resources. In addition, BLM allows 
mineral leasing or location on the same lands that are leased for 
geothermal resources, provided that operations under the mineral 
leasing or mining laws do not unreasonably interfere with or endanger 
your geothermal operations.


Sec.  3210.14  May BLM readjust the terms and conditions in my lease?

    (a)(1) Except for rentals and royalties (readjustments of which are 
addressed in paragraph (b) of this section, BLM may readjust the terms 
and conditions of your lease 10 years after you begin production of 
geothermal resources from your lease, and at not less than 10-year 
intervals thereafter, under the procedures of paragraphs (c), (d), and 
(e) of this section.
    (2) If another Federal agency manages the lands' surface, we will 
ask that agency to review the related terms and conditions and propose 
any readjustments. Once BLM and the surface managing agency reach 
agreement and the surface managing agency approves the proposed 
readjustment, we will follow the procedures in paragraphs (c), (d), and 
(e) of this section.
    (b) BLM may readjust your lease rentals and royalties at not less 
than 20-year intervals beginning 35 years after we determine that your 
lease is producing geothermal resources in commercial quantities. BLM 
will not increase your rentals or royalties by more than 50 percent 
over the rental or royalties you paid before the readjustment.
    (c) BLM will give you a written proposal to readjust the rentals, 
royalties, or other terms and conditions of your lease. You will have 
30 days after you receive the proposal to file with BLM an objection in 
writing to the proposed new terms and conditions.
    (d) If you do not object in writing or relinquish your lease, you 
will conclusively be deemed to have agreed

[[Page 24412]]

to the proposed new terms and conditions. BLM will issue a written 
decision setting the date that the new terms and conditions become 
effective as part of your lease. This decision will be in full force 
and effect under its own terms, and you are not authorized to appeal 
the BLM decision to the Office of Hearings and Appeals.
    (e)(1) If you file a timely objection in writing, BLM may issue a 
written decision making the readjusted terms and conditions effective 
no sooner than 90 days after we receive your objections, unless we 
reach an agreement with you as to the readjusted terms and conditions 
of your lease that makes them effective sooner.
    (2) If BLM does not reach an agreement with you by 60 days after we 
receive your objections, then either the lessee or BLM may terminate 
your lease, upon giving the other party 30 days' notice in writing. A 
termination under this paragraph does not affect your obligations that 
accrued under the lease when it was in effect, including those 
specified in Sec.  3200.4.


Sec.  3210.15  What if I appeal BLM's decision to readjust my lease 
terms?

    If you appeal BLM's decision under Sec.  3210.14(e)(1) to readjust 
the rentals, royalties, or other terms and conditions of your lease, 
the decision is effective during the appeal. If you win your appeal and 
we must change our decision, you will receive a refund or credit for 
any overpaid rents or royalties.


Sec.  3210.16  How must I prevent drainage of geothermal resources from 
my lease?

    You must prevent the drainage of geothermal resources from your 
lease by diligently drilling and producing wells that protect the 
Federal geothermal resource from loss caused by production from other 
properties.


Sec.  3210.17  What will BLM do if I do not protect my lease from 
drainage?

    BLM will determine the amount of geothermal resources drained from 
your lease. MMS will bill you for a compensatory royalty based on our 
findings. This royalty will equal the amount you would have paid for 
producing those resources. All interest owners in a lease are jointly 
and severally liable for drainage protection and any compensatory 
royalties.

Subpart 3211--Filing and Processing Fees, Rent, Direct Use Fees, 
and Royalties


Sec.  3211.10  What are the processing and filing fees for leases?

    (a) Processing or filing fees are required for the following 
actions:
    (1) Nomination of lands for competitive leasing;
    (2) Competitive lease application;
    (3) Noncompetitive lease application (including application for 
direct use leases);
    (4) Assignment and transfer of record title or operating right;
    (5) Name change, corporate merger, or transfer to heir/devisee;
    (6) Lease consolidation; and
    (7) Lease reinstatement.
    (b) The amounts of these fees can be found in Sec.  3000.12 of this 
chapter.


Sec.  3211.11  What are the annual lease rental rates?

    (a) BLM calculates annual rent based on the amount of acreage 
covered by your lease. To determine lease acreage for this section, 
round up any partial acreage up to the next whole acre. For example, 
the annual rent on a 2,456.39 acre lease is calculated based on 2,457 
acres.
    (b) For leases issued on or after August 8, 2005 (other than leases 
issued in response to applications that were pending on that date for 
which no election is made under Sec.  3200.8(b)(1)), and for leases 
issued before August 8, 2005, for which an election is made under Sec.  
3200.7(a)(2), the rental rate is as follows:
    (1) If you obtained your lease through a competitive lease sale, 
then your annual rent is $2 per acre for the first year, and $3 per 
acre for the second through tenth year;
    (2) If you obtained your lease noncompetitively, then your annual 
rent is $1 per acre for the first 10 years; and
    (3) After the tenth year, your annual rent will be $5 per acre, 
regardless of whether you obtained your lease through a competitive 
lease sale or noncompetitively.
    (c) For leases issued before August 8, 2005, for which no election 
is made under Sec.  3200.7(a)(2), and for leases issued in response to 
applications pending on that date for which no election is made under 
Sec.  3200.8(b)(1), the rental rate is the rate prescribed in the 
regulations in effect on August 8, 2005 (43 CFR 3211.10 (2004)).
    (d) For leases in which the United States owns only a fractional 
interest in the geothermal resources, BLM will prorate the rents 
established in paragraphs (a), (b), and (c) of this section, based on 
the fractional interest owned by the United States. For example, if the 
United States owns 50 percent of the geothermal resources in a 640 acre 
lease, you pay rent based on 320 acres.


Sec.  3211.12  How and where do I pay my rent?

    (a) First year. Pay BLM the first year's rent in advance. You may 
use a personal check, cashier's check, or money order made payable to 
the Department of the Interior--Bureau of Land Management. You may also 
make payments by credit card or electronic funds transfer with our 
prior approval.
    (b) Subsequent years. For all subsequent years, make your rental 
payments to MMS. See MMS regulations at 30 CFR part 218.


Sec.  3211.13  When is my annual rental payment due?

    Your rent is always due in advance. MMS must receive your annual 
rental payment by the anniversary date of the lease each year. See the 
MMS regulations at 30 CFR part 218, which explain when MMS considers a 
payment as received. If less than a full year remains on a lease, you 
must still pay a full year's rent by the anniversary date of the lease. 
For example, the rent on a 2,000-acre lease for the 11th year, would be 
$10,000 ($5 per acre), due prior to the 10th anniversary of the lease.


Sec.  3211.14  Will I always pay rent on my lease?

    (a) For leases issued on or after August 8, 2005 (other than leases 
issued in response to applications that were pending on that date for 
which no election is made under Sec.  3200.8(b)(1)), and for leases 
issued before August 8, 2005, for which an election is made under Sec.  
3200.7(a)(2), you must always pay rental, whether you are in a unit or 
outside of a unit, whether your lease is in production or not, and 
whether royalties or direct use fees apply to your production.
    (b) For leases issued before August 8, 2005, for which no election 
is made under Sec.  3200.7(a)(2), and for leases issued in response to 
applications pending on that date for which no election is made under 
Sec.  3200.8(b)(1), you must pay rent for all the lands in your lease 
until:
    (1) Your lease achieves production in commercial quantities, at 
which time you pay royalties; or
    (2) Lands in your lease are within the participating area of a unit 
agreement or cooperative plan, at which time you pay rent for lands 
outside the participating

[[Page 24413]]

area and pay royalties for lands within the participating area.


Sec.  3211.15  How do I credit rent towards royalty?

    You may credit rental towards royalty under MMS regulations at 30 
CFR 218.303.


Sec.  3211.16  Can I credit rent towards direct use fees?

    No. You may not credit rental towards direct use fees. See MMS 
regulations at 30 CFR 218.304.


Sec.  3211.17  What is the royalty rate on geothermal resources 
produced from or attributable to my lease that are used for commercial 
generation of electricity?

    (a) For leases issued on or after August 8, 2005 (other than leases 
issued in response to applications that were pending on that date for 
which the lessee does not make an election under Sec.  3200.8(b)(1)), 
the royalty rate is the rate prescribed in this paragraph.
    (1) If you or your affiliate sell(s) electricity generated by use 
of geothermal resources produced from or attributed to your lease, 
then:
    (i) For the first 10 years of production, the royalty rate is 1.75 
percent;
    (ii) After the first 10 years of production, the royalty rate is 
3.5 percent; and
    (iii) You must apply the rate established under this paragraph to 
the gross proceeds derived from the sale of electricity under 
applicable MMS rules at 30 CFR part 206, subpart H.
    (2) If you or your affiliate sell(s) geothermal resources produced 
from or attributed to your lease at arm's length to a purchaser who 
uses those resources to generate electricity, then the royalty rate is 
10 percent. You must apply that rate to the gross proceeds derived from 
the arm's-length sale of the geothermal resources under applicable MMS 
rules at 30 CFR part 206, subpart H.
    (b) For leases issued before August 8, 2005, whose royalty terms 
are modified to the terms prescribed in the Energy Policy Act of 2005 
under Sec.  3212.25, BLM will establish royalty rates under paragraphs 
(b)(1) and (b)(2) of this section.
    (1) For leases that, prior to submitting a request to modify the 
royalty rate terms of the lease under section 3212.26, produced 
geothermal resources for the commercial generation of electricity, or 
to which geothermal resource production for the commercial generation 
of electricity was attributed:
    (i) If you or your affiliate uses geothermal resources produced 
from or attributed to your lease to generate and sell electricity, BLM 
will establish a rate on a case-by-case basis that it expects will 
yield total royalty payments over the life of the lease equivalent to 
those that would have been paid under the royalty rate in effect for 
the lease before August 5, 2005. The rate is not limited to the range 
of rates specified in 30 U.S.C. 1004(a)(1). You must apply the rate 
that BLM establishes to the gross proceeds derived from the sale of 
electricity under applicable MMS rules at 30 CFR part 206, subpart H.
    (ii) If you or your affiliate sells geothermal resources produced 
from or attributed to your lease at arm's length to a purchaser who 
uses those resources to generate electricity, the royalty rate is the 
rate specified in the lease instrument. You must apply that rate to the 
gross proceeds derived from the arm's-length sale of the geothermal 
resources under applicable MMS rules at 30 CFR part 206, subpart H.
    (2) For leases that, prior to submitting a request to modify the 
royalty rate terms of the lease under section 3212.26, did not produce 
geothermal resources for the commercial generation of electricity, and 
to which geothermal resource production for the commercial generation 
of electricity was not attributed, BLM will establish royalty rates 
equal to those set forth in paragraph (a)(1) or (a)(2) of this section, 
whichever is applicable.
    (c) For leases issued before August 8, 2005, whose royalty terms 
are not modified to the terms prescribed in the Energy Policy Act of 
2005 under Sec.  3212.25, and for leases issued in response to 
applications pending on that date for which the lessee does not make an 
election under Sec.  3200.8(b)(1), the royalty rate is the rate 
prescribed in the lease instrument.


Sec.  3211.18  What is the royalty rate on geothermal resources 
produced from or attributable to my lease that are used directly for 
purposes other than commercial generation of electricity?

    (a) For leases issued on or after August 8, 2005 (other than leases 
issued in response to applications that were pending on that date for 
which the lessee does not make an election under Sec.  3200.8(b)), and 
for leases issued before August 8, 2005, whose royalty terms are 
modified to the terms prescribed in the Energy Policy Act of 2005 under 
Sec.  3212.25:
    (1) If you or your affiliate use(s) the geothermal resources 
directly and do(es) not sell those resources at arm's length, no 
royalty rate applies. Instead, you must pay direct use fees according 
to a schedule published by MMS under MMS regulations at 30 CFR 206.356.
    (2) If you or your affiliate sell(s) the geothermal resources at 
arm's length to a purchaser who uses the resources for purposes other 
than commercial generation of electricity, your royalty rate is 10 
percent. You must apply that royalty rate to the gross proceeds derived 
from the arm's-length sale under applicable MMS regulations at 30 CFR 
part 206, subpart H.
    (3) If you are a lessee and you are a state, tribal, or local 
government, no royalty rate applies. Instead you must pay a nominal fee 
established under MMS rules at 30 CFR 206.366.
    (b) For leases issued before August 8, 2005, whose royalty terms 
are not modified to the terms prescribed in the Energy Policy Act of 
2005 under Sec.  3212.25, and for leases issued in response to 
applications pending on that date for which the lessee does not make an 
election under Sec.  3200.8(b), the royalty rate is the rate prescribed 
in the lease instrument.
    (c) For purposes of this section, direct use of geothermal 
resources includes generation of electricity that is not sold 
commercially and that is used solely for the operation of a facility 
unrelated to commercial electrical generation.


Sec.  3211.19  What is the royalty rate on byproducts derived from 
geothermal resources produced from or attributable to my lease?

    (a) For leases issued on or after August 8, 2005 (other than leases 
issued in response to applications that were pending on that date for 
which no election is made under Sec.  3200.8(b)(1)), and for leases 
issued before August 8, 2005, for which an election is made under Sec.  
3200.7(a)(2):
    (1) The royalty rate for byproducts derived from geothermal 
resource production that are identified in Section 1 of the Mineral 
Leasing Act (MLA), as amended (30 U.S.C. 181), is the royalty rate that 
is prescribed in the MLA or in the regulations implementing the MLA for 
production of that mineral under a lease issued under the MLA; and
    (2) For a byproduct that is not identified in 30 U.S.C. 181, no 
royalty is due.
    (b) For leases issued before August 8, 2005, for which no election 
is made under Sec.  3200.7(a)(2), and for leases issued in response to 
applications pending on that date for which no election is made under 
Sec.  3200.8(b)(1), the royalty on all byproducts is the rate 
prescribed in the lease instrument, or if none is prescribed in the 
lease instrument, the rate prescribed in 43 CFR 3211.10(b) (2004).

[[Page 24414]]

Sec.  3211.20  How do I credit advanced royalty towards royalty?

    You may credit advanced royalty toward royalty under MMS 
regulations at 30 CFR 218.305(c).


Sec.  3211.21  When do I owe minimum royalty?

    (a) You do not owe minimum royalties for:
    (1) Leases issued on or after August 8, 2005 (other than for leases 
issued in response to applications that were pending on that date for 
which no election is made under Sec.  3200.8(b)(1)); and
    (2) Leases issued before August 8, 2005, for which an election is 
made under Sec.  3200.7(a)(2).
    (b) For leases issued before August 8, 2005, for which no election 
is made under Sec.  3200.7(a)(2), and for leases issued in response to 
applications pending on that date for which no election is made under 
Sec.  3200.8(b)(1), you owe minimum royalty of $2.00 per acre (to be 
paid to MMS) when:
    (1) You have not begun actual production following the BLM's 
determination that you have a well capable of commercial production; or
    (2) The value of actual production is so low that royalty you would 
pay under the scheduled rate is less than $2.00 per acre (this applies 
to situations of no production, as long as the lease remains in 
effect).

Subpart 3212--Lease Suspensions, Cessation of Production, Royalty 
Rate Reductions, and Energy Policy Act Royalty Conversions


Sec.  3212.10  What is the difference between a suspension of 
operations and production and a suspension of operations?

    (a) A suspension of operations and production is a temporary relief 
from production obligations which you may request from BLM. Under this 
paragraph you must cease all operations on your lease.
    (b) A suspension of operations is when BLM orders you, to stop 
production temporarily in the interest of conservation.


Sec.  3212.11  How do I obtain a suspension of operations or a 
suspension of operations and production on my lease?

    (a) If you are the operator, you may request in writing that BLM 
suspend your operations and production for a producing lease. Your 
request must fully describe why you need the suspension. BLM will 
determine if your suspension is justified and, if so, will approve it.
    (b) BLM may suspend your operations on any lease in the interest of 
conservation.
    (c) A suspension under this section may include leases committed to 
an approved unit agreement. If leases committed to a unit are 
suspended, the unit operator must continue to satisfy unit terms and 
obligations, unless BLM also suspends unit terms and obligations, in 
whole or in part, under subpart 3287.


Sec.  3212.12  How long does a suspension of operations or a suspension 
of operations and production last?

    (a) BLM will state in your suspension notice how long your 
suspension of operations or operations and production is effective.
    (b) During a suspension, you may ask BLM in writing to terminate 
your suspension. You may not unilaterally terminate a suspension that 
BLM ordered. A suspension of operations and production that we approved 
upon your request will automatically terminate when you begin or resume 
authorized production or drilling operations.
    (c) If we receive information showing that you must resume 
operations to protect the interests of the United States, we will 
terminate your suspension and order you to resume production.
    (d) If a suspension terminates, you must resume paying rents and 
royalty (see Sec.  3212.14).


Sec.  3212.13  How does a suspension affect my lease term and 
obligations?

    (a) If BLM approves a suspension of operations and production:
    (1) Your lease term is extended by the length of time the 
suspension is in effect; and
    (2) You are not required to drill, produce geothermal resources, or 
pay rents or royalties during the suspension. We will suspend your 
obligation to pay lease rents or royalties beginning the first day of 
the month following the date the suspension is effective.
    (b) If BLM orders you to suspend your operations;
    (1) Your lease term is extended by the length of time the 
suspension is in effect; and
    (2) Your lease rental or royalty obligations are not suspended, 
except that BLM may suspend your rental or royalty obligations if you 
will be denied all beneficial use of your lease during the period of 
the suspension.


Sec.  3212.14  What happens when the suspension ends?

    When the suspension ends, you must resume rental and royalty 
payments that were suspended, beginning on the first day of the lease 
month after BLM terminates the suspension. You must pay the full rental 
amount due on or before the next lease anniversary date. If you do not 
make the rental payments on time, BLM will refund your balance and 
terminate the lease.


Sec.  3212.15  Will my lease remain in effect if I cease production and 
I do not have an approved suspension?

    In the absence of a suspension issued under Sec.  3212.11, if you 
cease production for more than one calendar month on a lease that is 
subject to royalties and that has achieved commercial production 
(through actual or allocated production), your lease will remain in 
effect only if the circumstances described in paragraphs (a), (b), or 
(c) of this section apply:
    (a)(1) For leases issued on or after August 8, 2005 (other than 
leases issued in response to applications pending on that date for 
which no election is made under Sec.  3200.8(b)(1)), and for leases 
issued before August 8, 2005, for which an election is made under Sec.  
3200.7(a)(2), your lease will remain in effect if, during the period in 
which there is no production, you continue to pay a monthly advanced 
royalty under MMS regulations at 30 CFR 218.305. This option is 
available only for an aggregate of 10 years (120 months, whether 
consecutive or not).
    (2) For leases issued before August 8, 2005, for which no election 
is made under Sec.  3200.7(a)(2), and for leases issued in response to 
applications pending on August 8, 2005, for which no election is made 
under Sec.  3200.8(b)(1), your lease will remain in effect if, during 
the period in which there is no production you:
    (i) Continue to make minimum royalty payments as specified in Sec.  
3211.21(b) of this part;
    (ii) Maintain a well capable of production in commercial 
quantities;
    (iii) Continue to make diligent efforts to utilize the geothermal 
resource; and
    (iv) Satisfy any other applicable requirements.
    (b) The Secretary:
    (1) Requires or causes the cessation of production; or
    (2) Determines that the cessation in production is required or 
otherwise caused by:
    (i) The Secretary of the Air Force, Army, or Navy;
    (ii) A state or a political subdivision of a state; or
    (iii) Force majeure.
    (c) The discontinuance of production is caused by the performance 
of maintenance necessary to maintain operations. Such maintenance is

[[Page 24415]]

considered a production activity, not a cessation of production, and 
maintenance may include activities such as overhauling your power 
plant, re-drilling or re-working wells that are critical to plant 
operation, or repairing and improving gathering systems or transmission 
lines, that necessitate the discontinuation of production. You must 
obtain BLM approval by submitting a Geothermal Sundry Notice if the 
activity will require more than one calendar month, for it to be 
classified as maintenance under this paragraph. The BLM must receive 
the Geothermal Sundry Notice before the end of the first calendar month 
in which there will be no production.


Sec.  3212.16  Can I apply to BLM to reduce, suspend, or waive the 
royalty or rental of my lease?

    (a) You may apply for a suspension, reduction, or waiver of your 
rent or royalty for any lease or portion thereof. BLM may grant your 
request in the interest of conservation and to encourage the greatest 
ultimate recovery of geothermal resources, if we determine that:
    (1) Granting the request is necessary to promote development; or
    (2) You cannot successfully operate the lease under its current 
terms.
    (b) BLM will not approve a rental or royalty reduction, suspension, 
or waiver unless all rental or royalty interest owners other than the 
United States accept a similar reduction, suspension, or waiver.


Sec.  3212.17  What information must I submit when I request that BLM 
suspend, reduce, or waive my royalty or rental?

    (a) Your request for suspension, reduction, or waiver of the 
royalty or rental must include all information BLM needs to determine 
if the lease can be operated under its current terms, including:
    (1) The type of reduction you seek;
    (2) The serial number of your lease;
    (3) The names and addresses of the lessee and operator;
    (4) The location and status of wells;
    (5) A summary of monthly production from your lease; and
    (6) A detailed statement of expenses and costs.
    (b) If you are applying for a royalty or rental reduction, 
suspension, or waiver, you must also provide to BLM a list of names of 
royalty and rental interest owners other than the United States, the 
amounts of royalties or payments out of production and rent paid to 
them, and every effort you have made to reduce these payments.


Sec.  3212.18  What are the production incentives for leases?

    You will receive a production incentive in the form of a temporary 
50 percent reduction in your royalties under MMS regulations at 30 CFR 
218.307 if:
    (a) Your lease was in effect prior to August 8, 2005;
    (b) You do not convert the royalty rates of your lease under Sec.  
3212.25;
    (c) By August 7, 2011, production from or allocated to your lease 
is utilized for commercial production in a:
    (1) New facility (see Sec.  3212.22); or
    (2) Qualified expansion project (see Sec.  3212.21); and
    (d) The production from your lease is used for the commercial 
generation of electricity.


Sec.  3212.19  How do I apply for a production incentive?

    Submit to BLM a written request for a production incentive 
describing a project that may qualify as a new facility or qualified 
expansion project. Identify whether you are requesting that the project 
be considered as a new facility (see Sec.  3212.22) or as a qualified 
expansion project (see Sec.  3212.21) and explain why your project 
qualifies under these regulations. The request must be received no 
later than August 7, 2011.


Sec.  3212.20  How will BLM review my request for a production 
incentive?

    (a) BLM will review your request on a case-by-case basis to 
determine whether your project meets the criteria for a qualified 
expansion project under Sec.  3212.21 or a new facility under Sec.  
3212.22. If it does not meet the criteria for the type of project you 
requested, we will determine whether it meets the criteria for the 
other type of production incentive project.
    (b) If BLM determines that you have a qualified expansion project, 
we will, as part of our approval, provide you with a schedule of 
monthly target net generation amounts that you must exceed to qualify 
for the production incentive. These amounts will quantify the required 
10 percent increase in net generation over the projected net generation 
without the project. The schedule will be specific to the facility or 
facilities that are affected by the project and will cover the 48-month 
time period during which your production incentive may apply.
    (c) If BLM determines that you have met the criteria for a new 
facility, we will provide you with written notification of this 
determination.


Sec.  3212.21  What criteria establish a qualified expansion project 
for the purpose of obtaining a production incentive?

    A qualified expansion project must meet the following criteria:
    (a) It must involve substantial capital expenditure. Examples 
include the drilling of additional wells, retrofitting existing wells 
and collection systems to increase production rates, retrofitting 
turbines or power plant components to increase efficiency, adding 
additional generation capacity to existing plants, and enhanced 
recovery projects such as augmented injection. Projects that are not 
associated with substantial capital expenditure, such as opening 
production valves and operating existing equipment at higher rates, do 
not qualify as expansion projects.
    (b) The project must have the potential to increase the net 
generation by more than 10 percent over the projected generation 
without the project, using data from the previous 5 years. If 5 years 
of data are not available, it is not a qualified expansion project.


Sec.  3212.22  What criteria establish a new facility for the purpose 
of obtaining a production incentive?

    (a) Criteria for determining whether a project is a new facility 
for the purpose of obtaining a production incentive include:
    (1) The project requires a new site license or facility 
construction permit if it is on Federal lands;
    (2) The project requires a new Commercial Use Permit;
    (3) The project includes at least one new turbine-generator unit;
    (4) The project involves a new sales contract;
    (5) The project involves a new site or substantially larger 
footprint; and
    (6) The project is not contiguous to an existing project.
    (b) Generally, a new facility will not:
    (1) Be permitted only with a Geothermal Drilling Permit;
    (2) Be constructed entirely within the footprint of an existing 
facility; or
    (3) Involve only well-field projects such as drilling new wells, 
increasing injection, and enhanced recovery projects.


Sec.  3212.23  How will the production incentive apply to a qualified 
expansion project?

    (a) The production incentive will begin on the first day of the 
month following the commencement of commercial operation of the 
qualified expansion project. The incentive will be in effect for up to 
48 consecutive months, applicable only to those months in which the 
actual generation from the facility or facilities affected by

[[Page 24416]]

the project exceeds the target generation established by BLM. The 
amount of the production incentive is established in MMS regulations at 
30 CFR 218.307.
    (b) The production incentive will apply only to the increase in net 
generation. The increase in generation for any month in which the 
production incentive is in effect will be determined as follows:
[GRAPHIC] [TIFF OMITTED] TR02MY07.002

where:

i is a month for which a production incentive is in effect;
[Delta]Gi is the increase in generation for month i to which the 
production incentive applies;
G<INF>a,i</INF> is the actual generation in month i;
G<INF>t,i</INF> is the target generation in month i, as provided in 
Sec.  3212.19(b).


Sec.  3212.24  How will the production incentive apply to a new 
facility?

    (a) If BLM determines that your project qualifies as a new 
facility, the production incentive will begin on the first day of the 
month following the commencement of commercial operations at that 
facility, and will be in effect for 48 consecutive months. The 
incentive applies to the entire commercial generation of electricity 
from the new facility.
    (b) The amount of the production incentive is established in MMS 
regulations at 30 CFR 218.307.


Sec.  3212.25  Can I convert the royalty rate terms of my lease in 
effect before August 8, 2005, to the terms of the Geothermal Steam Act, 
as amended by the Energy Policy Act of 2005?

    (a) If a lease was in effect before August 8, 2005, the lessee may 
submit to BLM a request to modify the royalty rate terms of your lease 
to the applicable royalty rate or direct use fee terms prescribed in 
the Geothermal Steam Act as amended by the Energy Policy Act of 2005. 
You may withdraw your request before it is granted, but once you accept 
the new terms, you may not revert to the earlier royalty rates. If your 
request to modify is granted, the new royalty rate or direct use fees 
will apply to all geothermal resources produced from your lease for as 
long as your lease remains in effect. A modification under this section 
does not affect the royalty rate for byproducts.
    (b)(1) The royalty rate for leases whose terms are modified and 
production from which is used for commercial generation of electricity 
is prescribed in Sec.  3211.17(b).
    (2) The direct use fees or royalty rate for leases whose terms are 
modified and production from which is used directly for purposes other 
than commercial generation of electricity is prescribed in Sec.  
3211.18(a) of this part and MMS regulations at 30 CFR 206.356.


Sec.  3212.26  How do I submit a request to modify the royalty rate 
terms of my lease to the applicable terms prescribed in the Energy 
Policy Act of 2005?

    (a) You must submit a written request to BLM that contains the 
serial numbers of the leases whose terms you wish to modify and:
    (1) For direct use operations, any other information that BLM may 
require; or
    (2) For commercial electrical generation operations, for each month 
during the 10-year period preceding the date of your request (or from 
when electrical generation operations began if less than 10 years 
before the date of your request):
    (i) The gross proceeds received by you or your affiliate from the 
sale of electricity;
    (ii) The amount of royalty paid;
    (iii) The amount of generating and transmission deductions 
subtracted from the gross proceeds to derive the royalty value if you 
are using the geothermal netback procedure under MMS regulations to 
calculate royalty value; and
    (iv) Any other information that BLM may require.
    (b) BLM must receive your request no later than:
    (1) For leases whose geothermal resource production is used 
directly for purposes other than commercial generation of electricity, 
18 months after the effective date of the schedule of fees established 
by MMS under 30 CFR 206.356(b); or
    (2) For leases whose geothermal resource production is used for 
commercial generation of electricity, December 1, 2008.


Sec.  3212.27  How will BLM or MMS review my request to modify the 
lease royalty rate terms?

    After you submit your request to modify the royalty rate terms 
under Sec.  3212.25, BLM will:
    (a) Review your application, and if BLM determines that:
    (1) Your application is complete and contains all necessary 
information, we will notify you of the date on which your complete 
request was received; or
    (2) Your request is not complete or does not contain all necessary 
information, we will notify you of the additional information that is 
required;
    (b) Analyze the data you submitted to establish a royalty rate if 
the geothermal resources are used for commercial electrical generation;
    (c) Consult with MMS and any state or local governments that may be 
affected by the change in royalty rate terms; and
    (d)(1) No later than 140 days after the day on which we determine a 
complete request with all necessary information was received, BLM will 
send you written notification of the proposed royalty rate that BLM 
determines to be revenue neutral.
    (2) If you reject the proposed rate, we must receive written 
notification from you no later than 30 days after the date of your 
receipt of our notification. BLM will accept a faxed notification 
received within the 30-day time limit. However, following the fax, you 
must submit to BLM written notification which BLM must receive no later 
than the 179th day following the day on which BLM determines we 
received your complete request.
    (3) If you reject the proposed royalty rate on a timely basis:
    (i) BLM will not issue a decision modifying the royalty rate terms 
of your lease;
    (ii) The existing royalty rate terms in your lease continue to 
apply; and
    (iii) You may not reapply for a royalty rate term conversion under 
Sec.  3212.25.
    (4) Unless timely written notification is received from you 
rejecting the proposed rate, BLM will issue a decision modifying the 
royalty rate terms of your lease no later than 180 days after the day 
on which we determine a complete request was received. The effective 
date of the new royalty rate is the first day of the month following 
the date on which the decision was issued. For example, a decision 
issued on July 21, will become effective on August 1.

Subpart 3213--Relinquishment, Termination, and Cancellation


Sec.  3213.10  Who may relinquish a lease?

    Only the record title owner may relinquish a lease in full or in 
part. If there is more than one record title owner for a lease, all 
record title owners must sign the relinquishment.


Sec.  3213.11  What must I do to relinquish a lease?

    Send BLM a written request that includes the serial number of each 
lease you are relinquishing. If you are relinquishing the entire lease, 
no legal description of the land is required. If you are relinquishing 
part of the lease, you must describe the lands to be relinquished. BLM 
may require additional information if necessary.

[[Page 24417]]

Sec.  3213.12  May BLM accept a partial relinquishment if it will 
reduce my lease to less than 640 acres?

    Except for direct use leases, lands remaining in your lease must 
contain at least 640 acres, or all of your leased lands must be in one 
section, whichever is less. Otherwise, we will not accept your partial 
relinquishment. BLM will only allow an exception if it will further 
development of the resource. The size of direct use leases is addressed 
in Sec.  3205.07.


Sec.  3213.13  When does relinquishment take effect?

    (a) If BLM determines your relinquishment request meets the 
requirements of Sec. Sec.  3213.11 and 3213.12, your relinquishment is 
effective the day we receive it.
    (b) Notwithstanding the relinquishment, you and your surety 
continue to be responsible for:
    (1) Paying all rents and royalties due before the relinquishment 
was effective;
    (2) Plugging and abandoning all wells on the relinquished land;
    (3) Restoring and reclaiming the surface and other resources; and
    (4) Complying with Sec.  3200.4.


Sec.  3213.14  Will BLM terminate my lease if I do not pay my rent on 
time?

    (a) If MMS does not receive your second and subsequent year's 
rental payment in full by the lease anniversary date, MMS will notify 
you that the rent payment is overdue. You have 45 days after the 
anniversary date to pay the rent plus a 10 percent late fee. If MMS 
does not receive your rental plus the late fee by the end of the 45-day 
period, BLM will terminate your lease.
    (b) If you receive notification from MMS under paragraph (a) of 
this section more than 15 days after the lease anniversary date, BLM 
will reinstate a lease that was terminated under paragraph (a) of this 
section if MMS receives the rent plus a 10 percent late fee within 30 
days after you receive the notification.


Sec.  3213.15  How will BLM notify me if it terminates my lease?

    BLM will send you a notice of the termination by certified mail, 
return receipt requested.


Sec.  3213.16  May BLM cancel my lease?

    (a) BLM may cancel your lease if it was issued in error.
    (b) If BLM cancels your lease because it was issued in error, the 
cancellation is effective when you receive it.


Sec.  3213.17  May BLM terminate my lease for reasons other than non-
payment of rentals?

    BLM may terminate your lease for reasons other than non-payment of 
rentals, after giving you 30 days written notice, if we determine that 
you violated the requirements of Sec.  3200.4, including, but not 
limited to the nonpayment of royalties and fees under 30 CFR parts 206 
and 218.


Sec.  3213.18  When is a termination effective?

    If BLM terminates your lease because we determined that you 
violated the requirements of Sec.  3200.4, the termination takes effect 
30 days after the date you receive notice of our determination.


Sec.  3213.19  What can I do if BLM notifies me that my lease is being 
terminated because of a violation of the law, regulations, or lease 
terms?

    (a) You can prevent termination of your lease if, within 30 days 
after receipt of our notice:
    (1) You correct the violation; or
    (2) You show us that you cannot correct the violation during the 
30-day period and that you are making a good faith attempt to correct 
the violation as quickly as possible, and thereafter you diligently 
proceed to correct the violation.
    (b)(1) You may appeal the lease termination. You have 30 days after 
receipt of our notice to file an appeal (see parts 4 and 1840 of this 
title). We will stay the termination of your lease while your appeal is 
pending.
    (2) You are entitled to a hearing on the violation or the proposed 
lease termination if you request the hearing when you file the appeal. 
The period for correction of the violation will be extended to 30 days 
after the decision on appeal is made if the decision concludes that a 
violation exists.

Subpart 3214--Personal and Surety Bonds


Sec.  3214.10  Who must post a geothermal bond?

    (a) The lessee or operator must post a bond with BLM before 
exploration, drilling, or utilization operations begin.
    (b) Before we approve a lease transfer or recognize a new 
designated operator, the lessee or operator must file a new bond or a 
rider to the existing bond, unless all previous operations on the land 
have already been reclaimed.


Sec.  3214.11  Who must my bond cover?

    Your bond must cover all record title owners, operating rights 
owners, operators, and any person who conducts operations on your 
lease.


Sec.  3214.12  What activities must my bond cover?

    Your bond must cover:
    (a) Any activities related to exploration, drilling, utilization, 
or associated operations on a Federal lease;
    (b) Reclamation of the surface and other resources;
    (c) Rental and royalty payments; and
    (d) Compliance with the requirements of Sec.  3200.4.


Sec.  3214.13  What is the minimum dollar amount required for a bond?

    The minimum bond amount varies depending on the type of activity 
you are proposing and whether your bond will cover individual, 
statewide, or nationwide activities. The minimum dollar amounts and 
bonding options for each type of activity are found in the following 
regulations:
    (a) Exploration operations--see Sec.  3251.15;
    (b) Drilling operations--see Sec.  3261.18; and
    (c) Utilization operations--see Sec. Sec.  3271.12 and 3273.19.


Sec.  3214.14  May BLM increase the bond amount above the minimum?

    (a) BLM may increase the bond amount above the minimums referenced 
in Sec.  3214.13 when:
    (1) We determine that the operator has a history of noncompliance;
    (2) We previously had to make a claim against a surety because any 
one person who is covered by the new bond failed to plug and abandon a 
well and reclaim the surface in a timely manner;
    (3) MMS has notified BLM that a person covered by the bond owes 
uncollected royalties; or
    (4) We determine that the bond amount will not cover the estimated 
reclamation cost.
    (b) We may increase bond amounts to any level, but we will not set 
that amount higher than the total estimated costs of plugging wells, 
removing structures, and reclaiming the surface and other resources, 
plus any uncollected royalties due MMS or moneys owed to BLM due to 
previous violations.


Sec.  3214.15  What kind of financial guarantee will BLM accept to back 
my bond?

    We will not accept cash bonds. We will only accept:
    (a) Corporate surety bonds, provided that the surety company is 
approved by the Department of Treasury (see Department of the Treasury 
Circular No. 570, which is published in the Federal Register every year 
on or about July 1); and
    (b) Personal bonds, which are secured by a cashier's check, 
certified check, certificate of deposit, negotiable securities such as 
Treasury notes, or an

[[Page 24418]]

irrevocable letter of credit (see Sec. Sec.  3214.21 and 3214.22).


Sec.  3214.16  Is there a special bond form I must use?

    You must use a BLM-approved bond form (Form 3000-4, or Form 3000-
4a, June 1988 or later editions) for corporate surety bonds and 
personal bonds.


Sec.  3214.17  Where must I submit my bond?

    File personal or corporate surety bonds and statewide bonds in the 
BLM State Office that oversees your lease or operations. You may file 
nationwide bonds in any BLM State Office. File bond riders in the BLM 
State Office where your underlying bond is located. For personal or 
corporate surety bonds, file one originally-signed copy of the bond.


Sec.  3214.18  Who will BLM hold liable under the lease and what are 
they liable for?

    BLM will hold all interest owners in a lease jointly and severally 
liable for compliance with the requirements of Sec.  3200.4 for 
obligations that accrue while they hold their interest. Among other 
things, all interest owners are jointly and severally liable for:
    (a) Plugging and abandoning wells;
    (b) Reclaiming the surface and other resources;
    (c) Compensatory royalties assessed for drainage; and
    (d) Rent and royalties due.


Sec.  3214.19  What are my bonding requirements when a lease interest 
is transferred to me?

    (a) Except as otherwise provided in this section, if the lands to 
be transferred to you contain a well or any other surface disturbance 
which the original lessee did not reclaim, you must post a bond under 
this subpart before BLM will approve the transfer.
    (b) If the original lessee does not transfer all interest in the 
lease to you, you may become a co-principal on the original bond, 
rather than posting a new bond.
    (c) You do not need to post an additional bond if:
    (1) You previously furnished a statewide or nationwide bond 
sufficient to cover the lands transferred; or
    (2) The operator provided the original bond, and the operator does 
not change.


Sec.  3214.20  How do I modify my bond?

    You may modify your bond by submitting a rider to the BLM State 
Office where your bond is held. There is no special form required.


Sec.  3214.21  What must I do if I want to use a certificate of deposit 
to back my bond?

    Your certificate of deposit must:
    (a) Be issued by a Federally-insured financial institution 
authorized to do business in the United States;
    (b) Include on its face the statement, ``This certificate cannot be 
redeemed by any party without approval by the Secretary of the Interior 
or the Secretary's delegate;'' and
    (c) Be payable to the Department of the Interior, Bureau of Land 
Management.


Sec.  3214.22  What must I do if I want to use a letter of credit to 
back my bond?

    Your letter of credit must:
    (a) Be issued by a Federally-insured financial institution 
authorized to do business in the United States;
    (b) Be payable to the Department of the Interior--Bureau of Land 
Management;
    (c) Be irrevocable during its term and have an initial expiration 
date of no sooner than 1 year after the date we receive it;
    (d) Be automatically renewable for a period of at least 1 year 
beyond the end of the current term, unless the issuing financial 
institution gives us written notice, at least 90 days before the letter 
of credit expires, that it will no longer renew the letter of credit; 
and
    (e) Include a clause authorizing the Secretary of the Interior to 
demand immediate payment, in part or in full:
    (i) If you do not meet your obligations under the requirements of 
Sec.  3200.4; or
    (ii) Provide substitute security for a letter of credit which the 
issuer has stated it will not renew before the letter of credit 
expires.

Subpart 3215--Bond Release, Termination, and Collection


Sec.  3215.10  When may BLM collect against my bond?

    If you fail to comply with the requirements listed at Sec.  3200.4, 
we may collect money from the bond to correct your noncompliance. This 
amount can be as large as the face amount of the bond. Some examples of 
when we will collect against your bond are when you do not properly or 
in a timely manner:
    (a) Plug and abandon a well;
    (b) Reclaim the lease area;
    (c) Pay outstanding royalties; or
    (d) Pay assessed royalties to compensate for drainage.


Sec.  3215.11  Must I replace my bond after BLM collects against it?

    If BLM collects against your bond, before you conduct any further 
operations you must either:
    (a) Post a new bond equal to the value of the original bond; or
    (b) Restore your existing bond to the original face amount.


Sec.  3215.12  What will BLM do if I do not restore the face amount or 
file a new bond?

    If we collect against your bond and you do not restore it to the 
original face amount, we may shut in any well(s) or utilization 
facilities covered by that bond and may terminate affected leases.


Sec.  3215.13  Will BLM terminate or release my bond?

    (a) BLM does not cancel or terminate bonds. We may inform you that 
your existing bond is insufficient.
    (b) The bond provider may terminate your bond provided it gives you 
and BLM 30-days notice. The bond provider remains responsible for 
obligations that accrued during the period of liability while the bond 
was in effect.
    (c) BLM will release a bond, terminating all liability under that 
bond, if:
    (1) The new bond that you file covers all existing liabilities and 
we accept it; or
    (2) After a reasonable period of time, we determine that you paid 
all royalties, rents, penalties, and assessments, and satisfied all 
permit and lease obligations.
    (d) If an adequate bond is not in place, do not conduct any 
operations until you provide a new bond that meets our requirements.


Sec.  3215.14  When BLM releases my bond, does that end my 
responsibilities?

    When BLM releases your bond, we relinquish the security but we 
continue to hold the lessee or operator responsible for noncompliance 
with applicable requirements under the lease. Specifically, we do not 
waive any legal claim we may have against any person under the 
Comprehensive Environmental Response, Compensation, and Liability Act 
of 1980 (42 U.S.C. 9601 et seq.), or other laws and regulations.

Subpart 3216--Transfers


Sec.  3216.10  What types of lease interests may I transfer?

    You may transfer record title or operating rights, but you need BLM 
approval before your transfer is effective (see Sec.  3216.21).


Sec.  3216.11  Where must I file a transfer request?

    File your transfer in the BLM State Office that handles your lease.


Sec.  3216.12  When does a transferee take responsibility for lease 
obligations?

    After BLM approves your transfer, the transferee is responsible for 
performing all lease obligations accruing after the date of the 
transfer, and for plugging

[[Page 24419]]

and abandoning wells which exist and are not plugged and abandoned at 
the time of the transfer.


Sec.  3216.13  What are my responsibilities after I transfer my 
interest?

    After you transfer an interest in a lease you are still responsible 
for rents, royalties, compensatory royalties, and other obligations 
that accrued before your transfer became effective. You also remain 
responsible for plugging and abandoning any wells that were drilled or 
existing on the lease while you held your interest. You must carry out 
this responsibility upon the BLM's determination at any future time 
that the wells must be plugged and abandoned.


Sec.  3216.14  What filing fees and forms does a transfer require?

    With each transfer request you must send BLM the correct form and 
pay the transfer fee required by this section. When you calculate your 
fee, make sure it covers the full amount. For example, if you are 
transferring record title for three leases, submit $225 with the 
application.
    Use the following chart to determine the number and types of forms 
required. The applicable transfer fees are in the fee schedule in Sec.  
3000.12 of this chapter.

----------------------------------------------------------------------------------------------------------------
         Type of transfer               Form required?            Form No.               Number of copies
----------------------------------------------------------------------------------------------------------------
(a) Record Title..................  Yes..................  3000-3...............  2 executed copies.
(b) Operating Rights..............  Yes..................  3000-3(a)............  2 executed copies.
(c) Estate Transfers..............  No...................  N/A..................  1 List of Leases.
(d) Corporate Mergers.............  No...................  N/A..................  1 List of Leases.
(e) Name Changes..................  No...................  N/A..................  1 List of Leases.
----------------------------------------------------------------------------------------------------------------

Sec.  3216.15  When must I file my transfer request?

    (a) File a request to transfer record title or operating rights 
within 90 days after you sign an agreement with the transferee. If BLM 
receives your request more than 90 days after signing, we may require 
you to re-certify that you still intend to complete the transfer.
    (b) There is no specific time deadline for filing estate transfers, 
corporate mergers, and name changes. File them within a reasonable 
time.


Sec.  3216.16  Must I file separate transfer requests for each lease?

    File two copies of a separate request for each lease for which you 
are transferring record title or operating rights. The only exception 
is if you are transferring more than one lease to the same transferee, 
in which case you file two copies of one transfer request.


Sec.  3216.17  Where must I file estate transfers, corporate mergers, 
and name changes?

    (a) If you have posted a bond for any Federal lease, you must file 
estate transfers, corporate mergers, and name changes in the BLM State 
Office that maintains your bond.
    (b) If you have not posted a bond, you must file estate transfers, 
corporate mergers, and name changes in the State Office having 
jurisdiction over the lease.


Sec.  3216.18  How do I describe the lands in my lease transfer?

    (a) If you are transferring an interest in your entire lease, you 
do not need to give BLM a legal description of the land.
    (b) If you are transferring an interest in a portion of your lease, 
describe the lands that are transferred in the same way they are 
described in the lease.


Sec.  3216.19  May I transfer record title interest for less than 640 
acres?

    Except for direct use leases, you may transfer record title 
interest for less than 640 acres only if your transfer includes an 
irregular subdivision or all of the lands in your lease are in a 
section. We may make an exception to the minimum acreage requirements 
if it is necessary to conserve the resource.


Sec.  3216.20  When does a transfer segregate a lease?

    If you transfer 100 percent of the record title interest in a 
portion of your lease, BLM will segregate the transferred portion from 
the original lease and give it a new serial number with the same terms 
and conditions as those in the original lease.


Sec.  3216.21  When is my transfer effective?

    Your transfer is effective the first day of the month after we 
approve it.


Sec.  3216.22  Does BLM approve all transfer requests?

    BLM will not approve a transfer if:
    (a) The lease account is not in good standing;
    (b) The transferee does not qualify to hold a lease under this 
part; or
    (c) An adequate bond has not been provided.

Subpart 3217--Cooperative Agreements


Sec.  3217.10  What are unit agreements?

    Under unit agreements, lessees unite with each other, or jointly or 
separately with others, in collectively adopting and operating under 
agreements to conserve the resources of any geothermal reservoir, 
field, or like area, or any part thereof. BLM will only approve unit 
agreements that we determine are in the public interest. Unit agreement 
application procedures are provided in part 3280 of this chapter.


Sec.  3217.11  What are communitization agreements?

    Under communitization agreements (also called drilling agreements), 
operators who cannot independently develop separate tracts due to well-
spacing or well development programs may cooperatively develop such 
tracts. Lessees may ask BLM to approve a communitization agreement or, 
in some cases, we may require the lessees to enter into such an 
agreement.


Sec.  3217.12  What does BLM need to approve my communitization 
agreement?

    For BLM to approve a communitization agreement, you must give us 
the following information:
    (a) The location of the separate tracts comprising the drilling or 
spacing unit;
    (b) How you will prorate production or royalties to each separate 
tract based on total acres involved;
    (c) The name of each tract operator; and
    (d) Provisions for protecting the interests of all parties, 
including the United States.


Sec.  3217.13  When does my communitization agreement go into effect?

    (a) Your communitization agreement is effective when BLM approves 
and signs it.
    (b) Before we approve the agreement:
    (1) All parties must sign the agreement; and
    (2)(i) We must determine that the tracts cannot be independently 
developed; and
    (ii) That the agreement is in the public interest.

[[Page 24420]]

Sec.  3217.14  When will BLM approve my drilling or development 
contract?

    BLM may approve a drilling or development contract when:
    (a) One or more geothermal lessees enter into the contract with one 
or more persons; or
    (b) Lessees need the contract for regional exploration of 
geothermal resources;
    (c) BLM has coordinated the review of the proposed contract with 
appropriate state agencies; and
    (d) BLM determines that approval best serves or is necessary for 
the conservation of natural resources, public convenience or necessity, 
or the interests of the United States.


Sec.  3217.15  What does BLM need to approve my drilling or development 
contract?

    For BLM to approve your drilling or development contract, you must 
send us:
    (a) The contract and a statement of why you need it;
    (b) A statement of all interests held by the contracting parties in 
that geothermal area or field;
    (c) The type of operations and schedule set by the contract;
    (d) A statement that the contract will not violate Federal 
antitrust laws by concentrating control over the production or sale of 
geothermal resources; and
    (e) Any other information we may require to make a decision about 
the contract or to attach conditions of approval.

Subpart 3250--Exploration Operations--General


Sec.  3250.10  When do the exploration operations regulations apply?

    (a) The exploration operations regulations contained in this 
subpart and subparts 3251 through 3256 apply to geothermal exploration 
operations:
    (1) On BLM-administered public lands, whether or not they are 
leased for geothermal resources; and
    (2) On lands whose surface is managed by another Federal agency, 
where BLM has leased the subsurface geothermal resources and the lease 
operator wishes to conduct exploration. In this case, we will consult 
with the surface managing agency regarding surface use and reclamation 
requirements before we approve the exploration operations.
    (b) These regulations do not apply to:
    (1) Unleased land administered by another Federal agency;
    (2) Unleased geothermal resources whose surface land is managed by 
another Federal agency;
    (3) Privately owned land; or
    (4) Casual use activities.


Sec.  3250.11  May I conduct exploration operations on my lease, 
someone else's lease, or unleased land?

    (a) You may request BLM approval to explore any BLM-managed public 
lands open to geothermal leasing, even if the lands are leased to 
another person. A BLM-approved exploration permit does not give you 
exclusive rights.
    (b) If you wish to conduct operations on your lease, you may do so 
after we have approved your Notice of Intent to Conduct Geothermal 
Resource Exploration Operations. If the lands are already leased, your 
operations may not unreasonably interfere with or endanger those other 
operations or other authorized uses, or cause unnecessary or undue 
degradation of the lands.


Sec.  3250.12  What general standards apply to exploration operations?

    BLM-approved exploration operations must:
    (a) Meet all operational and environmental standards;
    (b) Protect public health, safety, and property;
    (c) Prevent unnecessary impacts on surface and subsurface 
resources;
    (d) Be conducted in a manner consistent with the principles of 
multiple use; and
    (e) Comply with the requirements of Sec.  3200.4.


Sec.  3250.13  What additional BLM orders or instructions govern 
exploration?

    BLM may issue the following types of orders or instructions:
    (a) Geothermal resource operational orders that contain detailed 
requirements of nationwide applicability;
    (b) Notices to lessees that contain detailed requirements on a 
statewide or regional basis;
    (c) Other orders and instructions specific to a field or area;
    (d) Conditions of approval contained in an approved Notice of 
Intent; and
    (e) Verbal orders that BLM will confirm in writing.


Sec.  3250.14  What types of operations may I propose in my application 
to conduct exploration?

    (a) You may propose any activity fitting the definition of 
``exploration operations'' in Sec.  3200.1. Submit Form 3200-9, Notice 
of Intent to Conduct Geothermal Resource Exploration Operations, 
together with the information required under Sec.  3251.11, and BLM 
will review your proposal.
    (b) The exploration operations regulations do not address drilling 
wells intended for production or injection, which is covered in subpart 
3260, or geothermal resources utilization, which is covered in subpart 
3270.

Subpart 3251--Exploration Operations: Getting BLM Approval


Sec.  3251.10  Do I need a permit before I start exploration 
operations?

    BLM must approve a Notice of Intent to Conduct Geothermal Resource 
Exploration Operations (NOI) before you conduct exploration operations. 
The approved NOI, including any necessary conditions for approval, 
constitutes your permit.


Sec.  3251.11  What information is in a complete Notice of Intent to 
Conduct Geothermal Resource Exploration Operations application?

    To obtain approval of exploration operations on BLM-managed lands, 
your application must:
    (a) Include a complete and signed Form 3200-9, Notice of Intent to 
Conduct Geothermal Resource Exploration Operations that describes the 
lands you wish to explore;
    (b) For operations other than drilling temperature gradient wells, 
describe your exploration plans and procedures, including the 
approximate starting and ending dates for each phase of operations;
    (c) For drilling temperature gradient wells, describe your drilling 
and completion procedures, and include, for each well or for several 
wells you propose to drill in an area of geologic and environmental 
similarity:
    (1) A detailed description of the equipment, materials, and 
procedures you will use;
    (2) The depth of each well;
    (3) The casing and cementing program;
    (4) The circulation media (mud, air, foam, etc.);
    (5) A description of the logs that you will run;
    (6) A description and diagram of the blowout prevention equipment 
you will use during each phase of drilling;
    (7) The expected depth and thickness of fresh water zones;
    (8) Anticipated lost circulation zones;
    (9) Anticipated temperature gradient in the area;
    (10) Well site layout and design;
    (11) Existing and planned access roads or ancillary facilities; and
    (12) Your source of drill pad and road building material and water 
supply.
    (d) Show evidence of bond coverage (see Sec.  3251.15);
    (e) Estimate how much surface disturbance your exploration may 
cause;

[[Page 24421]]

    (f) Describe the proposed measures you will take to protect the 
environment and other resources;
    (g) Describe methods to reclaim the surface; and
    (h) Include all other information BLM may require.


Sec.  3251.12  What action will BLM take on my Notice of Intent to 
Conduct Geothermal Resource Exploration Operations?

    (a) When BLM receives your Notice of Intent to Conduct Geothermal 
Resource Exploration Operations, we will make sure it is complete and 
signed, and review it for compliance with the requirements of Sec.  
3200.4.
    (b) If the proposed operations are located on lands described under 
Sec.  3250.10(a)(2), we will consult with the Federal surface 
management agency before approving your Notice of Intent.
    (c) We will check your Notice of Intent for technical adequacy and 
we may require additional information.
    (d) We will notify you if we need more information to process your 
Notice of Intent, and suspend the review of your Notice of Intent until 
we receive the information.
    (e) After our review, we will notify you whether we approved or 
denied your Notice of Intent and of any conditions of approval.


Sec.  3251.13  Once I have an approved Notice of Intent, how can I 
change my exploration operations?

    Send BLM a complete and signed Form 3260-3, Geothermal Sundry 
Notice, which fully describes the requested changes. Do not proceed 
with the change in operations until you receive written approval from 
BLM.


Sec.  3251.14  Do I need a bond for conducting exploration operations?

    (a) You must not start any exploration operations on BLM-managed 
lands until we approve your bond. You may meet the requirement for an 
exploration bond in two ways:
    (1) If you have an existing nationwide or statewide oil and gas 
exploration bond, provide a rider in an amount we have specified to 
include geothermal resources exploration operations; or
    (2) If you must file a new bond for geothermal exploration, the 
minimum amounts are:
    (i) $5,000 for a single operation;
    (ii) $25,000 for all of your operations within a state; and
    (iii) $50,000 for all of your operations on public lands 
nationwide.
    (b) See subparts 3214 and 3215 for additional details on bonding 
procedures.


Sec.  3251.15  When will BLM release my bond?

    BLM will release your bond after you request it and we determine 
that you have:
    (a) Plugged and abandoned all wells;
    (b) Reclaimed the land and, if necessary, resolved other 
environmental, cultural, scenic, or recreational issues; and
    (c) Complied with the requirements of Sec.  3200.4.

Subpart 3252--Conducting Exploration Operations


Sec.  3252.10  What operational standards apply to my exploration 
operations?

    You must keep exploration operations under control at all times by:
    (a) Conducting training during your operation to ensure that your 
personnel are capable of performing emergency procedures quickly and 
effectively;
    (b) Using properly maintained equipment; and
    (c) Using operational practices that allow for quick and effective 
emergency response.


Sec.  3252.11  What environmental requirements must I meet when 
conducting exploration operations?

    (a) You must conduct your exploration operations in a manner that:
    (1) Protects the quality of surface and subsurface waters, air, and 
other natural resources, including wildlife, soil, vegetation, and 
natural history;
    (2) Protects the quality of cultural, scenic, and recreational 
resources;
    (3) Accommodates other land uses, as BLM deems necessary; and
    (4) Minimizes noise.
    (b) You must remove or, with our permission, properly store all 
equipment and materials not in use.
    (c) You must provide and use pits, tanks, and sumps of adequate 
capacity. They must be designed to retain all materials and fluids 
resulting from drilling temperature gradient wells or other operations, 
unless we have specified otherwise in writing. When they are no longer 
needed, you must properly abandon pits and sumps in accordance with 
your exploration permit.
    (d) BLM may require you to submit a contingency plan describing 
procedures to protect public health, safety, property, and the 
environment.


Sec.  3252.12  How deep may I drill a temperature gradient well?

    (a) You may drill a temperature gradient well to any depth that we 
approve in your exploration permit or sundry notice. In all cases, you 
may not flow test the well or perform injection tests of the well 
unless you follow the procedures for geothermal drilling operations in 
subparts 3260 through 3267.
    (b) BLM may modify your permitted depth at any time before or 
during drilling, if we determine that the bottom hole temperature or 
other information indicates that drilling to the original permitted 
depth could directly encounter the geothermal resource or create risks 
to public health, safety, property, the environment, or other 
resources.


Sec.  3252.13  How long may I collect information from my temperature 
gradient well?

    You may collect information from your temperature gradient well for 
as long as your permit allows.


Sec.  3252.14  How must I complete a temperature gradient well?

    Complete temperature gradient wells to allow for proper 
abandonment, and to prevent interzonal migration of fluids. Cap all 
tubing when not in use.


Sec.  3252.15  When must I abandon a temperature gradient well?

    When you no longer need it, or when BLM requires you to.


Sec.  3252.16  How must I abandon a temperature gradient well?

    (a) Before abandoning your well, submit a complete and signed 
Sundry Notice, Form 3260-3, describing how you plan to abandon wells 
and reclaim the surface. Do not begin abandoning wells or reclaiming 
the surface until BLM approves your Sundry Notice.
    (b) You must plug and abandon your well for permanent prevention of 
interzonal migration of fluids and migration of fluids to the surface. 
You must reclaim your well location according to the terms of BLM 
approvals and orders.

Subpart 3253--Reports: Exploration Operations


Sec.  3253.10  Must I share with BLM the data I collect through 
exploration operations?

    (a) For exploration operations on your geothermal lease, you must 
submit all data you obtain as a result of the operations with a signed 
notice of completion of exploration operations under Sec.  3253.11, 
unless we approve a later submission.
    (b) For exploration operations on unleased lands or on leased lands 
where you are not the lessee or unit operator, you are not required to 
submit data. However, if you want your exploration operations to count 
toward your diligent exploration expenditure requirement

[[Page 24422]]

(see Sec.  3210.13), or if you are making significant expenditures to 
extend your lease (see Sec.  3208.14), you must send BLM the resulting 
data under the rules of those sections.


Sec.  3253.11  Must I notify BLM when I have completed my exploration 
operations?

    After you complete exploration operations, send to BLM a complete 
and signed notice of completion of exploration operations, describing 
the exploration operations, well history, completion and abandonment 
procedures, and site reclamation measures. You must send this to BLM 
within 30 days after you:
    (a) Complete any geophysical exploration operations;
    (b) Complete the drilling of temperature gradient well(s) approved 
under your approved Notice of Intent to conduct exploration;
    (c) Plug and abandon a temperature gradient well; and
    (d) Plug shot holes and reclaim all exploration sites.

Subpart 3254--Inspection, Enforcement, and Noncompliance for 
Exploration Operations


Sec.  3254.10  May BLM inspect my exploration operations?

    BLM may inspect your exploration operations to ensure compliance 
with the requirements of Sec.  3200.4 and the regulations in this 
subpart.


Sec.  3254.11  What will BLM do if my exploration operations are not in 
compliance with my permit, other BLM approvals or orders, or the 
regulations in this part?

    (a) BLM will issue you a written Incident of Noncompliance and 
direct you to correct the problem within a set time. If the 
noncompliance continues or is serious in nature, we will take one or 
more of the following actions:
    (1) Correct the problem at your expense;
    (2) Direct you to modify or shut down your operations; or
    (3) Collect all or part of your bond.
    (b) We may also require you to take actions to prevent unnecessary 
impacts on the lands. If so, we will notify you of the nature and 
extent of any required measures and the time you have to complete them.
    (c) Noncompliance may result in BLM terminating your lease, if 
appropriate under Sec. Sec.  3213.17 through 3213.19.

Subpart 3255--Confidential, Proprietary Information


Sec.  3255.10  Will BLM disclose information I submit under these 
regulations?

    All Federal and Indian data and information submitted to the BLM 
are subject to part 2 of this title. Part 2 includes the regulations of 
the Department of the Interior covering public disclosure of data and 
information contained in Department records. Certain mineral 
information not protected from disclosure under part 2 may be made 
available for inspection without a Freedom of Information Act (FOIA) 
request.


Sec.  3255.11  When I submit confidential, proprietary information, how 
can I help ensure it is not available to the public?

    When you submit data and information that you believe to be exempt 
from disclosure by 43 CFR part 2, you must clearly mark each page that 
you believe contains confidential information. BLM will keep all data 
and information confidential to the extent allowed by 43 CFR 2.13(c).


Sec.  3255.12  How long will information I give BLM remain confidential 
or proprietary?

    The FOIA (5 U.S.C. 552) does not provide a finite period of time 
during which information may be exempt from public disclosure. BLM will 
review each situation individually and in accordance with part 2 of 
this title.


Sec.  3255.13  How will BLM treat Indian information submitted under 
the Indian Mineral Development Act?

    Under the Indian Mineral Development Act of 1982 (IMDA) (25 U.S.C. 
2101 et seq.), the Department of the Interior will hold as privileged 
proprietary information of the affected Indian or Indian tribe:
    (a) All findings forming the basis of the Secretary's intent to 
approve or disapprove any Minerals Agreement under IMDA; and
    (b) All projections, studies, data, or other information concerning 
a Minerals Agreement under IMDA, regardless of the date received, 
related to:
    (1) The terms, conditions, or financial return to the Indian 
parties;
    (2) The extent, nature, value, or disposition of the Indian mineral 
resources; or
    (3) The production, products, or proceeds thereof.


Sec.  3255.14  How will BLM administer information concerning other 
Indian minerals?

    For information concerning Indian minerals not covered by Sec.  
3255.13, BLM will withhold such records as may be withheld under an 
exemption to the FOIA when it receives a request for information 
related to tribal or Indian minerals held in trust or subject to 
restrictions on alienation.


Sec.  3255.15  When will BLM consult with Indian mineral owners when 
information concerning their minerals is the subject of a FOIA request?

    (a) We use the standards and procedures of Sec.  2.15(d) of this 
title before making a decision about the applicability of FOIA 
exemption 4 to information obtained from a person outside the United 
States Government.
    (b) BLM will notify the Indian mineral owner(s) identified in the 
records of the Bureau of Indian Affairs (BIA), and BIA, and give them a 
reasonable period of time to state objections to disclosure. BLM will 
issue this notice following consultation with a submitter under Sec.  
2.15(d) of this title if:
    (1) BLM determines that the submitter does not have an interest in 
withholding the records that can be protected under FOIA; and
    (2) BLM has reason to believe that disclosure of the information 
may result in commercial or financial injury to the Indian mineral 
owner(s), but is uncertain that such is the case.

Subpart 3256--Exploration Operations Relief and Appeals


Sec.  3256.10  How do I request a variance from BLM requirements that 
apply to my exploration operations?

    (a) You may submit a request for a variance for your exploration 
operations from any requirement in Sec.  3200.4. Your request must 
include enough information to explain:
    (1) Why you cannot comply with the regulatory requirement; and
    (2) Why you need the variance to control your well, conserve 
natural resources, or protect public health and safety, property, or 
the environment.
    (b) BLM may approve your request orally or in writing. If we give 
you an oral approval, we will follow up with written confirmation.


Sec.  3256.11  How may I appeal a BLM decision regarding my exploration 
operations?

    You may appeal a BLM decision regarding your exploration operations 
in accordance with Sec.  3200.5.

Subpart 3260--Geothermal Drilling Operations--General


Sec.  3260.10  What types of geothermal drilling operations are covered 
by these regulations?

    (a) The regulations in subparts 3260 through 3267 establish 
permitting and

[[Page 24423]]

operating procedures for drilling wells and conducting related 
activities for the purposes of performing flow tests, producing 
geothermal fluids, or injecting fluids into a geothermal reservoir. 
These subparts also address redrilling, deepening, plugging back, and 
other subsequent well operations.
    (b) The operations regulations in subparts 3260 through 3267 do not 
address conducting exploration operations, which are covered in subpart 
3250, or geothermal resources utilization, which is covered in subpart 
3270.


Sec.  3260.11  What general standards apply to my drilling operations?

    Your drilling operations must:
    (a) Meet all environmental and operational standards;
    (b) Prevent unnecessary impacts on surface and subsurface 
resources;
    (c) Conserve geothermal resources and minimize waste;
    (d) Protect public health, safety, and property; and
    (e) Comply with the requirements of Sec.  3200.4.


Sec.  3260.12  What other orders or instructions may BLM issue?

    BLM may issue:
    (a) Geothermal resource operational orders for detailed 
requirements that apply nationwide;
    (b) Notices to Lessees for detailed requirements on a statewide or 
regional basis;
    (c) Other orders and instructions specific to a field or area;
    (d) Permit conditions of approval; and
    (e) Oral orders, which will be confirmed in writing.

Subpart 3261--Drilling Operations: Getting a Permit


Sec.  3261.10  How do I get approval to begin well pad construction?

    (a) If you do not have an approved geothermal drilling permit, Form 
3260-2, apply using a completed and signed Sundry Notice, Form 3260-3, 
to build well pads and access roads. Send us a complete operations plan 
(see Sec.  3261.12) and an acceptable bond with your Sundry Notice. You 
may start well pad construction after we approve your Sundry Notice.
    (b) If you already have an approved drilling permit and you have 
provided an acceptable bond, you do not need any further permission 
from BLM to start well pad construction, unless you intend to change 
something in the approved permit. If you propose a change in an 
approved permit, send us a completed and signed Sundry Notice so we may 
review your proposed change. Do not proceed with the change until we 
approve your Sundry Notice.


Sec.  3261.11  How do I apply for approval of drilling operations and 
well pad construction?

    (a) Send to BLM:
    (1) A completed and signed drilling permit application, Form 3260-
2;
    (2) A complete operations plan (Sec.  3261.12);
    (3) A complete drilling program (Sec.  3261.13); and
    (4) An acceptable bond (Sec.  3261.18).
    (b) Do not start any drilling operations until after BLM approves 
the permit.


Sec.  3261.12  What is an operations plan?

    An operations plan describes how you will drill for and test the 
geothermal resources covered by your lease. Your plan must tell BLM 
enough about your proposal to allow us to assess the environmental 
impacts of your operations. This information should generally include:
    (a) Well pad layout and design;
    (b) A description of existing and planned access roads;
    (c) A description of any ancillary facilities;
    (d) The source of drill pad and road building material;
    (e) The water source;
    (f) A statement describing surface ownership;
    (g) A description of procedures to protect the environment and 
other resources;
    (h) Plans for surface reclamation; and
    (i) Any other information that BLM may require.


Sec.  3261.13  What is a drilling program and how do I apply for 
drilling program approval?

    (a) A drilling program describes all the operational aspects of 
your proposal to drill, complete, and test a well.
    (b) Send to BLM:
    (1) A detailed description of the equipment, materials, and 
procedures you will use;
    (2) The proposed/anticipated depth of the well;
    (3) If you plan to directionally drill your well, also send us:
    (i) The proposed bottom hole location and distances from the 
nearest section or tract lines;
    (ii) The kick-off point;
    (iii) The direction of deviation;
    (iv) The angle of build-up and maximum angle; and
    (v) Plan and cross section maps indicating the surface and bottom 
hole locations;
    (4) The casing and cementing program;
    (5) The circulation media (mud, air, foam, etc.);
    (6) A description of the logs that you will run;
    (7) A description and diagram of the blowout prevention equipment 
you will use during each phase of drilling;
    (8) The expected depth and thickness of fresh water zones;
    (9) Anticipated lost circulation zones;
    (10) Anticipated reservoir temperature and pressure;
    (11) Anticipated temperature gradient in the area;
    (12) A plat certified by a licensed surveyor showing the surveyed 
surface location and distances from the nearest section or tract lines;
    (13) Procedures and durations of well testing; and
    (14) Any other information we may require.


Sec.  3261.14  When must I give BLM my operations plan?

    Send us a complete operations plan before you begin any surface 
disturbance on a lease. You do not need to submit an operations plan 
for subsequent well operations or altering existing production 
equipment, unless these activities will cause more surface disturbance 
than originally approved, or we notify you that you must submit an 
operations plan. Do not start any activities that will result in 
surface disturbance until we approve your drilling permit or Sundry 
Notice.


Sec.  3261.15  Must I give BLM my drilling permit application, drilling 
program, and operations plan at the same time?

    You may submit your completed and signed drilling permit 
application and complete drilling program and operations plan either 
together or separately.
    (a) If you submit them together and we approve your drilling 
permit, the approved drilling permit will authorize both the pad 
construction and the drilling and testing of the well.
    (b) If you submit the operations plan separately from the drilling 
permit application and program, you must:
    (1) Submit the operations plan before the drilling permit 
application and drilling program to allow BLM time to comply with 
National Environmental Policy Act (NEPA); and
    (2) Submit a completed and signed Sundry Notice for well pad and 
access road construction. Do not begin construction until we approve 
your Sundry Notice.


Sec.  3261.16  Can my operations plan, drilling permit, and drilling 
program apply to more than one well?

    (a) Your operations plan and drilling program can sometimes be 
combined to cover several wells, but your drilling

[[Page 24424]]

permit cannot. To include more than one well in your operations plan, 
give us adequate information for all well sites, and we will combine 
your plan to cover those well sites that are in areas of similar 
geology and environment.
    (b) Your drilling program may also apply to more than one well, 
provided you will drill the wells in the same manner, and you expect to 
encounter similar geologic and reservoir conditions.
    (c) You must submit a separate geothermal drilling permit 
application for each well.


Sec.  3261.17  How do I amend my operations plan or drilling permit?

    (a) If BLM has not yet approved your operations plan or drilling 
permit, send us your amended plan and completed and signed permit 
application.
    (b) To amend an approved operations plan or drilling permit, submit 
a completed and signed Sundry Notice describing your proposed change. 
Do not start any amended operations until after BLM approves your 
drilling permit or Sundry Notice.


Sec.  3261.18  Do I need to file a bond with BLM before I build a well 
pad or drill a well?

    Before starting any operation, you must:
    (a) File with BLM either a surety or personal bond in the following 
minimum amount:
    (1) $10,000 for a single lease;
    (2) $50,000 for all of your operations within a state; or
    (3) $150,000 for all of your operations nationwide;
    (b) Get our approval of your surety or personal bond; and
    (c) To cover any drilling operations on all leases committed to a 
unit, either submit a bond for that unit in an amount we specify, or 
provide a rider to a statewide or nationwide bond specifically covering 
the unit in an amount we specify.
    (d) See subparts 3214 and 3215 for additional details on bonding 
procedures.


Sec.  3261.19  When will BLM release my bond?

    BLM will release your bond after you request it and we determine 
that you have:
    (a) Plugged and abandoned all wells;
    (b) Reclaimed the surface and other resources; and
    (c) Met all the requirements of Sec.  3200.4.


Sec.  3261.20  How will BLM review applications submitted under this 
subpart and notify me of its decision?

    (a) When we receive your operations plan, we will make sure it is 
complete and review it for compliance with the requirements of Sec.  
3200.4.
    (b) If another Federal agency manages the surface of your lease, we 
will consult with it before we approve your drilling permit.
    (c) We will review your drilling permit and drilling program or 
your Sundry Notice for well pad construction, to make sure they conform 
with your operations plan and any mitigation measures we developed 
while reviewing your plan.
    (d) We will check your drilling permit and drilling program for 
technical adequacy and may require additional information.
    (e) We will check your drilling permit for compliance with the 
requirements of Sec.  3200.4.
    (f) If we need any further information to complete our review, we 
will contact you in writing and suspend our review until we receive the 
information.
    (g) After our review, we will notify you as to whether your permit 
has been approved or denied, as well as any conditions of approval.


Sec.  3261.21  How do I get approval to change an approved drilling 
operation?

    (a) Send BLM a Sundry Notice, form 3260-3, describing the proposed 
changes. Do not proceed with the changes until we have approved them in 
writing, except as provided in paragraph (c) of this section. If your 
operations such as redrilling, deepening, drilling a new directional 
leg, or plugging back a well would significantly change your approved 
permit, BLM may require you to send us a new drilling permit (see 43 
CFR 3261.13). A significant change would be, for example, redrilling 
the well to a completely different target, especially a target in an 
unknown area.
    (b) If your changed drilling operation would cause additional 
surface disturbance, we may also require you to submit an amended 
operations plan.
    (c) If immediate action is required to properly continue drilling 
operations, or to protect public health, safety, property or the 
environment, BLM may provide oral approval to change an approved 
drilling operation. However, you must submit a written Sundry Notice 
within 48 hours after we orally approve your change.


Sec.  3261.22  How do I get approval for subsequent well operations?

    Send BLM a Sundry Notice describing your proposed operation. For 
some routine work, such as cleanouts, surveys, or general maintenance 
(see Sec.  3264.11(b)), we may waive the Sundry Notice requirement. 
Contact your local BLM office to ask about waivers for subsequent well 
operations. Unless you receive a waiver, you must submit a Sundry 
Notice. Do not start your operations until we grant a waiver or approve 
the Sundry Notice.

Subpart 3262--Conducting Drilling Operations


Sec.  3262.10  What operational requirements must I meet when drilling 
a well?

    (a) When drilling a well, you must:
    (1) Keep the well under control at all times by:
    (i) Conducting training during your operation to maintain the 
capability of your personnel to perform emergency procedures quickly 
and effectively;
    (ii) Using properly maintained equipment; and
    (iii) Using operational practices that allow for quick and 
effective emergency response.
    (b) You must use sound engineering principles and take into account 
all pertinent data when:
    (1) Selecting and using drilling fluid types and weights;
    (2) Designing and implementing a system to control fluid 
temperatures;
    (3) Designing and using blowout prevention equipment; and
    (4) Designing and implementing a casing and cementing program.
    (c) Your operation must always comply with the requirements of 
Sec.  3200.4.


Sec.  3262.11  What environmental requirements must I meet when 
drilling a well?

    (a) You must conduct your operations in a manner that:
    (1) Protects the quality of surface and subsurface water, air, 
natural resources, wildlife, soil, vegetation, and natural history;
    (2) Protects the quality of cultural, scenic, and recreational 
resources;
    (3) Accommodates, as necessary, other land uses;
    (4) Minimizes noise; and
    (5) Prevents property damage and unnecessary or undue degradation 
of the lands.
    (b) You must remove or, with BLM's approval, properly store all 
equipment and materials that are not in use.
    (c) You must retain all fluids from drilling and testing the well 
in properly designed pits, sumps, or tanks.
    (d) When you no longer need a pit or sump, you must abandon it and 
restore the site as we direct.
    (e) BLM may require you to give us a contingency plan showing how 
you will protect public health and safety, property, and the 
environment.

[[Page 24425]]

Sec.  3262.12  Must I post a sign at every well?

    Yes. Before you begin drilling a well, you must post a sign in a 
conspicuous place and keep it there throughout operations until the 
well site is reclaimed. Put the following information on the sign:
    (a) The lessee or operator's name;
    (b) Lease serial number;
    (c) Well number; and
    (d) Well location described by township, range, section, quarter-
quarter section or lot.


Sec.  3262.13  May BLM require me to follow a well spacing program?

    BLM may require you to follow a well spacing program if we 
determine that it is necessary for proper development. If we require 
well spacing, we will consider the following factors when we set well 
spacing:
    (a) Hydrologic, geologic, and reservoir characteristics of the 
field, minimizing well interference;
    (b) Topography;
    (c) Interference with multiple use of the land; and
    (d) Environmental protection, including ground water.


Sec.  3262.14  May BLM require me to take samples or perform tests and 
surveys?

    (a) BLM may require you to take samples or to test or survey the 
well to determine:
    (1) The well's mechanical integrity;
    (2) The identity and characteristics of formations, fluids, or 
gases;
    (3) Presence of geothermal resources, water, or reservoir energy;
    (4) Quality and quantity of geothermal resources;
    (5) Well bore angle and direction of deviation;
    (6) Formation, casing, or tubing pressures;
    (7) Temperatures;
    (8) Rate of heat or fluid flow; and
    (9) Any other necessary well information.
    (b) See Sec.  3264.11 for information on reporting requirements.

Subpart 3263--Well Abandonment


Sec.  3263.10  May I abandon a well without BLM's approval?

    (a) You must have a BLM-approved Sundry Notice documenting your 
plugging and abandonment program before you start abandoning any well.
    (b) You must also notify the local BLM office before you begin 
abandonment activities, so that we may witness the work. Contact your 
local BLM office before starting to abandon your well to find out what 
notification we need.


Sec.  3263.11  What information must I give BLM to approve my Sundry 
Notice for abandoning a well?

    Send us a Sundry Notice with:
    (a) All the information required in the well completion report (see 
Sec.  3264.10), unless we already have that information;
    (b) A detailed description of the proposed work, including:
    (1) Type, depth, length, and interval of plugs;
    (2) Methods you will use to verify the plugs (tagging, pressure 
testing, etc.);
    (3) Weight and viscosity of mud that you will use in the uncemented 
portions;
    (4) Perforating or removing casing; and
    (5) Restoring the surface; and
    (c) Any other information that we may require.


Sec.  3263.12  How will BLM review my Sundry Notice to abandon my well 
and notify me of their decision?

    (a) When BLM receives your Sundry Notice, we will make sure it is 
complete and review it for compliance with the requirements of Sec.  
3200.4. We will notify you if we need more information or require 
additional procedures. If we need any further information to complete 
our review, we will contact you in writing and suspend our review until 
we receive the information. If we approve your Sundry Notice, we will 
send you an approved copy once our review is complete. Do not start 
abandonment of the well until we approve your Sundry Notice.
    (b) BLM may orally approve plugging procedures for a well requiring 
immediate action. If we do, you must submit the information required in 
Sec.  3263.11 within 48 hours after we give oral approval.


Sec.  3263.13  What must I do to restore the site?

    You must remove all equipment and materials and restore the site 
according to the terms of your permit or other BLM approval.


Sec.  3263.14  May BLM require me to abandon a well?

    If we determine that your well is no longer needed for geothermal 
resource production, injection, or monitoring, or if we determine that 
the well is not mechanically sound, BLM may order you to abandon the 
well. In either case, if you disagree you may explain to us why the 
well should not be abandoned. We will consider your reasons before we 
issue any final order.


Sec.  3263.15  May I abandon a producible well?

    (a) You may abandon a producible well only after you receive BLM's 
approval. Before abandoning a producing well, send BLM the information 
listed in Sec.  3263.11. We may also require you to explain why you 
want to abandon the well.
    (b) BLM will deny your request if we determine that the well is 
needed:
    (1) To protect a Federal lease from drainage; or
    (2) To protect the environment or other resources of the United 
States.

Subpart 3264--Reports--Drilling Operations


Sec.  3264.10  What must I submit to BLM after I complete a well?

    You must submit a Geothermal Well Completion Report, Form 3260-4, 
within 30 days after you complete a well. Your report must include the 
following:
    (a) A complete, chronological well history;
    (b) A copy of all logs;
    (c) Copies of all directional surveys; and
    (d) Copies of all mechanical, flow, reservoir, and other test data.


Sec.  3264.11  What must I submit to BLM after I finish subsequent well 
operations?

    (a) Submit to BLM a subsequent well operations report within 30 
days after completing operations. At a minimum, this report must 
include:
    (1) A complete, chronological history of the work done;
    (2) A copy of all logs;
    (3) Copies of all directional surveys;
    (4) The results of all sampling, tests, or surveys we require you 
to make (see Sec.  3262.14);
    (4) Copies of all mechanical, flow, reservoir, and other test data; 
and
    (5) A statement of whether you achieved your goals. For example, if 
the well was acidized to increase production, state whether the 
production rate increased when you put the well back on line.
    (b) We may waive this reporting requirement for work we determine 
to be routine, such as cleanouts, surveys, or general maintenance. To 
request a waiver, contact BLM. If you do not receive a waiver, you must 
submit the report.


Sec.  3264.12  What must I submit to BLM after I abandon a well?

    Send us a well abandonment report within 30 days after you abandon 
a well. If you plan to restore the site at a later date, you may submit 
a separate report within 30 days after completing

[[Page 24426]]

site restoration. The well abandonment report must contain:
    (a) A complete chronology of all work done;
    (b) A description of each plug, including:
    (1) Type and amount of cement used;
    (2) Depth that the drill pipe or tubing was run to set the plug;
    (3) Depth to top of plug; and
    (4) If the plug was verified, whether it was done by tagging or 
pressure testing; and
    (c) A description of surface restoration procedures.


Sec.  3264.13  What drilling and operational records must I maintain 
for each well?

    You must keep the following information for each well, and make it 
available for BLM to inspect, upon request:
    (a) A complete and accurate drilling log, in chronological order;
    (b) All other logs;
    (c) Water or steam analyses;
    (d) Hydrologic or heat flow tests;
    (e) Directional surveys;
    (f) A complete log of all subsequent well operations, such as 
cementing, perforating, acidizing, and well cleanouts; and
    (g) Any other information regarding the well that could affect its 
status.


Sec.  3264.14  How do I notify BLM of accidents occurring on my lease?

    You must orally inform us of all accidents that affect operations 
or create environmental hazards within 24 hours of the accident. When 
you contact us, we may require you to submit a written report fully 
describing the incident.

Subpart 3265--Inspection, Enforcement, and Noncompliance for 
Drilling Operations


Sec.  3265.10  What part of my drilling operations may BLM inspect?

    (a) BLM may inspect all of your Federal drilling operations 
regardless of surface ownership. We will inspect your operations for 
compliance with the requirements of Sec.  3200.4.
    (b) BLM may inspect all of your maps, well logs, surveys, records, 
books, and accounts related to your Federal drilling operations.


Sec.  3265.11  What records must I keep available for inspection?

    You must keep a complete record of all aspects of your activities 
related to your drilling operation available for our inspection. Store 
these records in a place which makes them conveniently available to us. 
Examples of records which we may inspect include:
    (a) Well logs and maps;
    (b) Records, books, and accounts related to your Federal drilling 
operations;
    (c) Directional surveys;
    (d) Records pertaining to casing type and setting;
    (e) Records pertaining to formations penetrated;
    (f) Well test results;
    (g) Records pertaining to characteristics of the geothermal 
resource;
    (h) Records pertaining to emergency procedure training; and
    (i) Records pertaining to operational problems.


Sec.  3265.12  What will BLM do if my operations do not comply with my 
permit and applicable regulations?

    (a) We will issue you a written Incident of Noncompliance, 
directing you to take required corrective action within a specific time 
period. If the noncompliance continues or is of a serious nature, we 
will take one or more of the following actions:
    (1) Enter your lease, and correct any deficiencies at your expense;
    (2) Collect all or part of your bond;
    (3) Direct modification or shutdown of your operations; and
    (4) Take other enforcement action under subpart 3213 against a 
lessee who is ultimately responsible for noncompliance.
    (b) Noncompliance may result in BLM terminating your lease. See 
Sec. Sec.  3213.17 through 3213.19.

Subpart 3266--Confidential, Proprietary Information


Sec.  3266.10  Will BLM disclose information I submit under these 
regulations?

    All Federal and Indian data and information submitted to the BLM 
are subject to part 2 of this title. Part 2 includes the Department of 
the Interior regulations covering public disclosure of data and 
information contained in Department records. Certain mineral 
information not protected from disclosure under part 2 of this title 
may be made available for inspection without a Freedom of Information 
Act (FOIA) request. BLM will not treat surface location, surface 
elevation, or well status information as confidential.


Sec.  3266.11  When I submit confidential, proprietary information, how 
can I help ensure that it is not available to the public?

    When you submit data and information that you believe to be exempt 
from disclosure by part 2 of this title, you must clearly mark each 
page that you believe contains confidential information. BLM will keep 
all data and information confidential to the extent allowed by Sec.  
2.13(c) of this title.


Sec.  3266.12  How long will information that I give BLM remain 
confidential or proprietary?

    The FOIA does not provide a finite period of time during which 
information may be exempt from public disclosure. BLM reviews each 
situation individually and in accordance with part 2 of this title.

Subpart 3267--Geothermal Drilling Operations Relief and Appeals


Sec.  3267.10  How do I request a variance from BLM requirements that 
apply to my drilling operations?

    (a) You may file a request for a variance from the requirements of 
Sec.  3200.4 for your approved drilling operations. Your request must 
include enough information to explain:
    (1) Why you cannot comply with the requirements of Sec.  3200.4; 
and
    (2) Why you need the variance to control your well, conserve 
natural resources, or protect public health and safety, property, or 
the environment.
    (b) We may approve your request orally or in writing. If BLM gives 
you an oral approval, we will follow up with written confirmation.


Sec.  3267.11  How may I appeal a BLM decision regarding my drilling 
operations?

    You may appeal our decisions regarding your drilling operations in 
accordance with Sec.  3200.5.

Subpart 3270--Utilization of Geothermal Resources--General


Sec.  3270.10  What types of geothermal operations are governed by 
these utilization regulations?

    (a) The regulations in subparts 3270 through 3279 of this part 
cover the permitting and operating procedures for the utilization of 
geothermal resources. This includes:
    (1) Electrical generation facilities;
    (2) Direct use facilities;
    (3) Related utilization facility operations;
    (4) Actual and allocated well field production and injection; and
    (5) Related well field operations.
    (b) The utilization regulations in subparts 3270 through 3279 do 
not address conducting exploration operations, which is covered in 
subpart 3250, or drilling wells intended for production or injection, 
which is covered in subpart 3260.


Sec.  3270.11  What general standards apply to my utilization 
operations?

    Your utilization operations must:
    (a) Meet all operational and environmental standards;
    (b) Prevent unnecessary impacts on surface and subsurface 
resources;

[[Page 24427]]

    (c) Result in the maximum ultimate recovery of geothermal 
resources;
    (d) Result in the beneficial use of geothermal resources, with 
minimum waste;
    (e) Protect public health, safety, and property; and
    (f) Comply with the requirements of Sec.  3200.4.


Sec.  3270.12  What other orders or instructions may BLM issue?

    BLM may issue:
    (a) Geothermal resource operational orders, for detailed 
requirements that apply nationwide;
    (b) Notices to lessees, for detailed requirements on a statewide or 
regional basis;
    (c) Other orders and instructions specific to a field or area;
    (d) Permit conditions of approval; and
    (e) Oral orders, which BLM will confirm in writing.

Subpart 3271--Utilization Operations: Getting a Permit


Sec.  3271.10  What do I need to start preparing a site and building 
and testing a utilization facility on Federal land leased for 
geothermal resources?

    In order to use Federal land to produce geothermal power, you must 
obtain a site license and construction permit from BLM before you start 
preparing the site. Send BLM a plan that shows what you want to do, and 
draft a proposed site license agreement that you think is fair and 
reasonable. We will review your proposal and decide whether to give you 
a permit and license to proceed with work on the site.


Sec.  3271.11  Who may apply for a permit to build a utilization 
facility?

    The lessee, the facility operator, or the unit operator may apply 
to build a utilization facility.


Sec.  3271.12  What do I need to start preliminary site investigations 
that may disturb the surface?

    (a) You must:
    (1) Fully describe your proposed operations in a Sundry Notice; and
    (2) File a bond meeting the requirements of either Sec.  3251.14 or 
Sec.  3273.19. See subparts 3214 and 3215 for additional details on 
bonding procedures.
    (b) Do not begin the site investigation or surface disturbing 
activity until BLM approves your Sundry Notice and bond.


Sec.  3271.13  How do I obtain approval to build pipelines and 
facilities connecting the well field to utilization facilities not 
located on Federal lands leased for geothermal resources?

    Before constructing pipelines and well field facilities on Federal 
lands leased for geothermal resources, you as lessee, unit operator, or 
facility operator must submit to BLM a utilization plan and facility 
construction permit addressing any pipelines or facilities. Do not 
start construction of your pipelines or facilities until BLM approves 
your facility construction permit.


Sec.  3271.14  What do I need to do to start building and testing a 
utilization facility if it is not located on Federal lands leased for 
geothermal resources?

    (a) You do not need a BLM permit to construct a facility located on 
either:
    (1) Private land; or
    (2) Lands where the surface is privately owned and BLM has leased 
the underlying Federal geothermal resources, when the facility will 
utilize Federal geothermal resources.
    (b) Before testing a utilization facility that is not located on 
Federal lands leased for geothermal resources, send us a Sundry Notice 
describing the testing schedule and the quantity of Federal geothermal 
resources you expect to be delivered to the facility during the 
testing. Do not start delivering Federal geothermal resources to the 
facility until we approve your Sundry Notice.


Sec.  3271.15  How do I get a permit to begin commercial operations?

    Before using Federal geothermal resources, you as lessee, operator, 
or facility operator must send us a completed commercial use permit 
(see Sec.  3274.11). This also applies when you use Federal resources 
allocated through any form of agreement. Do not start any commercial 
use operations until BLM approves your commercial use permit.

Subpart 3272--Utilization Plans and Facility Construction Permits


Sec.  3272.10  What must I submit to BLM in my utilization plan?

    Submit to BLM an application describing:
    (a) The proposed facilities as required by Sec.  3272.11; and
    (b) The anticipated environmental impacts and how you propose to 
mitigate those impacts, as required by Sec.  3272.12.


Sec.  3272.11  How do I describe the proposed utilization facility?

    Your submission must include:
    (a) A generalized description of all proposed structures and 
facilities, including their size, location, and function;
    (b) A generalized description of proposed facility operations, 
including estimated total production and injection rates; estimated 
well flow rates, pressures, and temperatures; facility net and gross 
electrical generation; and, if applicable, interconnection with other 
utilization facilities. If it is a direct use facility, send us the 
information we need to determine the amount of resource utilized;
    (c) A contour map of the entire utilization site, showing 
production and injection well pads, pipeline routes, facility 
locations, drainage structures, existing and planned access, and 
lateral roads;
    (d) A description of site preparation and associated surface 
disturbance, including the source for site or road building materials, 
amounts of cut and fill, drainage structures, analysis of all site 
evaluation studies prepared for the site(s), and a description of any 
additional tests, studies, or surveys which are planned to assess the 
geologic suitability of the site(s);
    (e) The source, quality, and proposed consumption rate of water to 
be used during facility operations, and the source and quantity of 
water to be used during facility construction;
    (f) The methods for meeting air quality standards during facility 
construction and operation, especially standards concerning non-
condensable gases;
    (g) An estimated number of personnel needed during construction and 
operation of the facility;
    (h) A construction schedule;
    (i) A schedule for testing of the facility and/or well equipment, 
and for the start of commercial operations;
    (j) A description of architectural landscaping or other measures to 
minimize visual impacts; and
    (k) Any additional information or data that we may require.


Sec.  3272.12  What environmental protection measures must I include in 
my utilization plan?

    (a) Describe, at a minimum, your proposed measures to:
    (1) Prevent or control fires;
    (2) Prevent soil erosion;
    (3) Protect surface or ground water;
    (4) Protect fish and wildlife;
    (5) Protect cultural, visual, and other natural resources;
    (6) Minimize air and noise pollution; and
    (7) Minimize hazards to public health and safety during normal 
operations.
    (b) If BLM requires it, you must also describe how you will monitor 
your facility operations to ensure that they comply with the 
requirements of Sec.  3200.4, and applicable noise, air, and water 
quality standards, at all times. We will consult with other involved 
surface management agencies, if any, regarding

[[Page 24428]]

monitoring requirements. You must also include provisions for 
monitoring other environmental parameters we may require.
    (c) Based on what level of impacts that BLM finds your operations 
may cause, we may require you to collect data concerning existing air 
and water quality, noise, seismicity, subsidence, ecological systems, 
or other environmental information for up to 1 year before you begin 
operating. BLM must approve your data collection methodologies, and 
will consult with any other surface managing agencies involved.
    (d) You must also describe how you will abandon utilization 
facilities and restore the site, in order to comply with the 
requirements of Sec.  3200.4.
    (e) Finally, you must submit any additional information or data 
that BLM may require.


Sec.  3272.13  How will BLM review my utilization plan and notify me of 
its decision?

    (a) When BLM receives your utilization plan, we will make sure it 
is complete and review it for compliance with Sec.  3200.4.
    (b) If another Federal agency manages the surface of your lease, we 
will consult with that agency as part of the plan review.
    (c) If we need any further information to complete our review, we 
will contact you in writing and suspend our review until we receive the 
information.
    (d) We will notify you in writing of our decision on your plan.


Sec.  3272.14  How do I get a permit to build or test my facility?

    (a) Before building or testing a utilization facility, you must 
submit to BLM a:
    (1) Utilization plan;
    (2) Completed and signed facility construction permit; and
    (3) Completed and signed site license. (See subpart 3273.)
    (b) Do not start building or testing your utilization facility 
until we have approved both your facility construction permit and your 
site license.
    (c) After our review, we will notify you whether we have approved 
or denied your permit, as well as of any conditions we require for 
conducting operations.

Subpart 3273--How To Apply for a Site License


Sec.  3273.10  When do I need a site license for a utilization 
facility?

    You must obtain a site license approved by BLM, unless your 
facility will be located on lands leased as described in Sec.  3273.11. 
Do not start building or testing your utilization facility on public 
lands leased for geothermal resources until BLM has approved both your 
facility construction permit (see Sec.  3272.14) and your site license. 
The facility operator must apply for the license.


Sec.  3273.11  When is a site license unnecessary?

    You do not need a site license if your facility will be located:
    (a) On private land or on split estate land where the United States 
does not own the surface; or
    (b) On Federal land not leased for geothermal resources. In this 
situation, the Federal surface management agency will issue you the 
permit you need.


Sec.  3273.12  How will BLM review my site license application?

    (a) When BLM receives your site license application, we will make 
sure it is complete. If we need more information for our review, we 
will ask you for that information and stop our review until we receive 
the information.
    (b) If your site license is located on geothermal leases where the 
surface is managed by the Department of Agriculture, we will consult 
with that agency and obtain concurrence before we approve your 
application. The agency may require additional license terms and 
conditions.
    (c) If the land is subject to section 24 of the Federal Power Act, 
we will issue the site license with the terms and conditions requested 
by the Federal Energy Regulatory Commission.
    (d) If another Federal agency manages the surface, we will consult 
with them to determine if they recommend additional license terms and 
conditions.
    (e) After our review, we will notify you whether we approved or 
denied your license, as well as any additional conditions we require.


Sec.  3273.13  What lands are not available for geothermal site 
licenses?

    BLM will not issue site licenses under these regulations for lands 
that are not leased or not available for geothermal leasing (see Sec.  
3201.11).


Sec.  3273.14  What area does a site license cover?

    A site license covers a reasonably compact tract of Federal land, 
limited to as much of the surface as is necessary to utilize geothermal 
resources. That means the site license area will only include the 
utilization facility itself and other necessary structures, such as 
substations and processing, repair, or storage facility areas.


Sec.  3273.15  What must I include in my site license application?

    Your site license application must include:
    (a) A description of the boundaries of the land applied for, as 
determined by a certified licensed surveyor. Describe the land by legal 
subdivision, section, township and range, or by approved protraction 
surveys, if applicable;
    (b) The affected acreage;
    (c) A non-refundable filing fee of $50;
    (d) A site license bond (see Sec.  3273.19);
    (e) The first year's rent, if applicable (see Sec.  3273.18); and
    (f) Documentation that the lessee or unit operator accepts the 
siting of the facility, if the facility operator is neither the lessee 
nor the unit operator.


Sec.  3273.16  What is the annual rent for a site license?

    BLM will specify the annual rent in your license and the date you 
must pay it, if you are required to pay rent (see Sec.  3273.18). Your 
rent will be at least $100 per acre or fraction thereof for an 
electrical generation facility, and at least $10 per acre or fraction 
thereof for a direct use facility. Send the first year's rent to BLM, 
and all subsequent rental payments to MMS under 30 CFR part 218.


Sec.  3273.17  When may BLM reassess the annual rent for my site 
license?

    BLM may reassess the rent for lands covered by the license, 
beginning with the 10th year and every 10 years after that.


Sec.  3273.18  What facility operators must pay the annual site license 
rent?

    If you are a lessee siting a utilization facility on your own 
lease, or a unit operator siting a utilization facility on leases 
committed to the unit, you are not required to pay rent. Only a 
facility operator who is not also a lessee or unit operator must pay 
rent.


Sec.  3273.19  What are the bonding requirements for a site license?

    (a) For an electrical generation facility, the facility operator 
must submit a surety or personal bond to BLM for at least $100,000 that 
meets the requirements of subpart 3214.BLM may increase the required 
bond amount. See subparts 3214 and 3215 for additional details on 
bonding procedures.
    (b) For a direct use facility, the facility operator must submit a 
surety or personal bond to BLM that meets the requirements of subpart 
3214 in an amount BLM will specify.
    (c) The bond's terms must cover compliance with the requirements of 
Sec.  3200.4.
    (d) Until BLM approves your bond, do not start construction, 
testing, or any

[[Page 24429]]

other activity that would disturb the surface.


Sec.  3273.20  When will BLM release my bond?

    We will release your bond after you request it and we determine 
that you have:
    (a) Removed the utilization facility and all associated equipment;
    (b) Reclaimed the land; and
    (c) Met all the requirements of Sec.  3200.4.


Sec.  3273.21  What are my obligations under the site license?

    As the facility operator, you:
    (a) Must comply with the requirements of Sec.  3200.4;
    (b) Are liable for all damages to the lands, property, or resources 
of the United States caused by yourself, your employees, or your 
contractors or their employees;
    (c) Must indemnify the United States against any liability for 
damages or injury to persons or property arising from the occupancy or 
use of the lands authorized under the site license; and
    (d) Must restore any disturbed surface, and remove all structures 
when they are no longer needed for facility construction or operation. 
This includes the utilization facility if you cannot operate the 
facility and you are not diligent in your efforts to return the 
facility to operation.


Sec.  3273.22  How long will my site license remain in effect?

    (a) The primary term of a site license is 30 years, with a 
preferential right to renew the license under terms and conditions set 
by BLM.
    (b) If your lease on which the licensed site is located ends, you 
may apply for a facility permit under Section 501 of FLPMA, 43 U.S.C. 
1761, if your facility is on BLM-managed lands. Otherwise, you must get 
permission from the surface management agency to continue using the 
surface for your facility.


Sec.  3273.23  May I renew my site license?

    (a) You have a preferential right to renew your site license under 
terms and conditions BLM determines.
    (b) If your site license is located on leased lands managed by the 
Department of Agriculture, we will consult with the surface management 
agency and obtain concurrence before renewing your license. The agency 
may require additional license terms and conditions. If another Federal 
agency manages the surface, we will consult with them before granting 
your renewal.


Sec.  3273.24  When may BLM terminate my site license?

    (a) BLM may terminate a site license by written order. We may 
terminate your site license if you:
    (1) Do not comply with the requirements of Sec.  3270.11; or
    (2) Do not comply with the requirements of Sec.  3200.4.
    (b) To prevent termination, you must correct the violation within 
30 days after you receive a correction order from BLM, unless we 
determine that:
    (1) The violation cannot be corrected within 30 days; and
    (2) You are diligently attempting to correct it.


Sec.  3273.25  When may I relinquish my site license?

    You may request approval to relinquish your site license by sending 
BLM a written notice requesting relinquishment review and approval. We 
will not approve the relinquishment until you comply with Sec.  
3273.21.


Sec.  3273.26  When may I assign or transfer my site license?

    You may assign or transfer your site license in whole or in part. 
Send BLM your completed and signed transfer application and a $50 
filing fee. Your application must include a written statement that the 
transferee will comply with all license terms and conditions, and that 
the lessee accepts the transfer. The transferee must submit a bond 
meeting the requirements of Sec.  3273.19. The transfer is not 
effective until we approve the bond and site license transfer.

Subpart 3274--Applying for and Obtaining a Commercial Use Permit


Sec.  3274.10  Do I need a commercial use permit to start commercial 
operations?

    You must have a commercial use permit approved by BLM before you 
begin commercial operations from a Federal lease, a Federal unit, or a 
utilization facility.


Sec.  3274.11  What must I give BLM to approve my commercial use permit 
application?

    Submit a completed and signed commercial permit form, to BLM, 
containing the following information:
    (a) The design specifications, and the inspection and calibration 
schedule of production, injection, and royalty meters;
    (b) A schematic diagram of the utilization site or individual well, 
showing the location of each production and royalty meter. If the sales 
point is located off the utilization site, give us a generalized 
schematic diagram of the electrical transmission or pipeline system, 
including meter locations;
    (c) A copy of the sales contract for the sale and/or utilization of 
geothermal resources;
    (d) A description and analysis of reservoir, production, and 
injection characteristics, including the flow rates, temperatures, and 
pressures of each production and injection well;
    (e) A schematic diagram of each production and injection well 
showing the wellhead configuration, including meters;
    (f) A schematic flow diagram of the utilization facility, including 
interconnections with other facilities, if applicable;
    (g) A description of the utilization process in sufficient detail 
to enable BLM to determine whether the resource will be utilized in a 
manner consistent with law and regulations;
    (h) The planned safety provisions for emergency shutdown to protect 
public health, safety, property, and the environment. This should 
include a schedule for the testing and maintenance of safety devices;
    (i) The environmental and operational parameters that will be 
monitored during the operation of the facility and/or well(s); and
    (j) Any additional information or data that we may require.


Sec.  3274.12  How will BLM review my commercial use permit 
application?

    (a) When BLM receives your completed and signed commercial use 
permit application, we will make sure it is complete and review it for 
compliance with Sec.  3200.4.
    (b) If another Federal agency manages the surface of your lease, we 
will consult with that agency before we approve your commercial use 
permit.
    (c) We will review your commercial use permit to make sure it 
conforms with your utilization plan and any mitigation measures we 
developed while reviewing your plan.
    (d) We will check your commercial use permit for technical 
adequacy, and will ensure that your meters meet the accuracy standards 
(see Sec. Sec.  3275.14 and 3275.15).
    (e) If we need any further information to complete our review, we 
will contact you in writing and suspend our review until we receive the 
information.
    (f) After our review, we will notify you whether your permit has 
been approved or denied, as well as any conditions of approval.

[[Page 24430]]

Sec.  3274.13  May I get a permit even if I cannot currently 
demonstrate I can operate within required standards?

    Yes, but we may limit your operations to a prescribed set of 
activities and a set period of time, during which we will give you a 
chance to show you can operate within environmental and operational 
standards, based on actual facility and well data you collect. Send us 
a Sundry Notice to get BLM approval for extending your permit. If 
during this set time period you still cannot demonstrate your ability 
to operate within the required standards, we will terminate your 
authorization. You must then stop all operations and restore the 
surface to the standards we set in the termination notice.

Subpart 3275--Conducting Utilization Operations


Sec.  3275.10  How do I change my operations if I have an approved 
facility construction or commercial use permit?

    Send BLM a completed and signed Sundry Notice describing your 
proposed change. Until we approve your Sundry Notice, you must continue 
to comply with the original permit terms.


Sec.  3275.11  What are a facility operator's obligations?

    You must:
    (a) Keep the facility in proper operating condition at all times 
by;
    (1) Conducting training during your operation to ensure that your 
personnel are capable of performing emergency procedures quickly and 
effectively;
    (2) Using properly maintained equipment; and
    (3) Using operational practices that allow for quick and effective 
emergency response.
    (b) Base the design of the utilization facility siting and 
operation on sound engineering principles and other pertinent geologic 
and engineering data;
    (c) Prevent waste of, or damage to, geothermal and other energy and 
minerals resources; and
    (d) Comply with the requirements of Sec.  3200.4.


Sec.  3275.12  What environmental and safety requirements apply to 
facility operations?

    (a) You must perform all utilization facility operations in a 
manner that:
    (1) Protects the quality of surface and subsurface waters, air, and 
other natural resources, including wildlife, soil, vegetation, and 
natural history;
    (2) Prevents unnecessary or undue degradation of the lands;
    (3) Protects the quality of cultural, scenic, and recreational 
resources;
    (4) Accommodates other land uses as much as possible;
    (5) Minimizes noise;
    (6) Prevents injury; and
    (7) Prevents damage to property.
    (b) You must monitor facility operations to identify and address 
local environmental resources and concerns associated with your 
facility or lease operations.
    (c) You must remove or, with BLM approval, properly store all 
equipment and materials not in use.
    (d) You must properly abandon the facility and reclaim any 
disturbed surface to standards approved or prescribed by us, when the 
land is no longer needed for facility construction or operation.
    (e) When we require, you must submit a contingency plan describing 
procedures to protect public health and safety, property, and the 
environment.
    (f) You must comply with the requirements of Sec.  3200.4.


Sec.  3275.13  How must the facility operator measure the geothermal 
resources?

    The facility operator must:
    (a) Measure all production, injection and utilization in accordance 
with methods and standards approved by BLM (see Sec.  3275.15);
    (b) Maintain and test all metering equipment. If your equipment is 
defective or out of tolerance, you must promptly recalibrate, repair, 
or replace it; and
    (c) Determine the amount of production and/or utilization in 
accordance with methods and procedures approved by BLM (see Sec.  
3275.17).


Sec.  3275.14  What aspects of my geothermal operations must I measure?

    (a) For all well operations, you must measure wellhead flow, 
wellhead temperature, and wellhead pressure.
    (b) For all electrical generation facilities, you must measure:
    (1) Steam and/or hot water flow entering the facility;
    (2) Temperature of the water and/or steam entering the facility;
    (3) Pressure of the water and/or steam entering the facility;
    (4) Gross electricity generated;
    (5) Net electricity at the facility tailgate;
    (6) Electricity delivered to the sales point; and
    (7) Temperature of the steam and/or hot water exiting the facility.
    (c) For direct use facilities, you must measure:
    (1) Flow of steam and/or hot water; and
    (2) Temperature of the steam or water entering the facility.
    (d) We may also require additional measurements, depending on the 
type of facility, the type and quality of the resource, and the terms 
of the sales contract.


Sec.  3275.15  How accurately must I measure my production and 
utilization?

    It depends on whether you use a meter to calculate Federal 
production or royalty, and what quantity of resource you are measuring.
    (a) For meters that you use to calculate Federal royalty:
    (1) If the meter measures electricity, it must have an accuracy of 
<plus-minus>0.25% or better of reading;
    (2) If the meter measures steam flowing at more than 100,000 lbs/hr 
on a monthly basis, it must have an accuracy reading of <plus-minus>2 
percent or better;
    (3) If the meter measures steam flowing at less than 100,000 lbs/hr 
on a monthly basis, it must have an accuracy reading of <plus-minus>4 
percent or better;
    (4) If the meter measures water flowing at more than 500,000 lbs/hr 
on a monthly basis, it must have an accuracy reading of <plus-minus>2 
percent or better;
    (5) If the meter measures water flowing at 500,000 lbs/hr or less 
on a monthly basis, it must have an accuracy reading of <plus-minus>4 
percent or better;
    (6) If the meter measures heat content, it must have an accuracy 
reading of <plus-minus>4 percent, or better; or
    (7) If the meter measures two-phase flow at any rate, BLM will 
determine and inform you of the meter accuracy requirements. You must 
obtain our prior written approval before installing and using meters 
for two-phase flow.
    (b) Any meters that you do not use to calculate Federal royalty are 
considered production meters, which must maintain an accuracy of <plus-
minus>5 percent or better.
    (c) We may modify these requirements as necessary to protect the 
interests of the United States.


Sec.  3275.16  What standards apply to installing and maintaining 
meters?

    (a) You must install and maintain all meters that we require, 
either according to the manufacturer's recommendations and 
specifications or paragraphs (b) through (e) of this section, whichever 
are more restrictive.
    (b) If you use an orifice plate to calculate Federal royalty, the 
orifice plate installation must comply with ``API Manual of Petroleum 
Measurement Standards, Chapter 14, Section 3, Part 2, Fourth Edition, 
April 2000.''
    (c) For meters used to calculate Federal royalty, you must 
calibrate the meter against a known standard as follows:
    (1) You must annually calibrate meters measuring electricity;

[[Page 24431]]

    (2) You must calibrate meters measuring steam or hot water flow 
with a turbine, vortex, ultrasonics, or other linear devices, every 6 
months, or as recommended by the manufacturer, whichever is more 
frequent; and
    (3) You must calibrate meters measuring steam or hot water flow 
with an orifice plate, venturi, pitot tube, or other differential 
device, every month, and you must inspect and repair the primary device 
(orifice plate, venturi, pitot tube) annually.
    (d) You must use calibration equipment that is more accurate than 
the equipment you are calibrating.
    (e) BLM may modify any of these requirements as necessary to 
protect the resources of the United States.


Sec.  3275.17  What must I do if I find an error in a meter?

    (a) If you find an error in a meter used to calculate Federal 
royalty, you must correct the error immediately and notify BLM by the 
next working day of its discovery.
    (b) If the meter is not used to calculate Federal royalty, you must 
correct the error and notify us within 3 working days after its 
discovery.
    (c) If correcting the error will cause a change in the sales 
quantity of more than 2 percent for the month(s) in which the error 
occurred, you must adjust the sales quantity for that month(s) and 
submit an amended facility report to us within 3 working days.


Sec.  3275.18  May BLM require me to test for byproducts associated 
with geothermal resource production?

    You must conduct any tests we require, including tests for 
byproducts, if we find it necessary to require such tests for a given 
operation.


Sec.  3275.19  How do I apply to commingle production?

    To request approval to commingle production, send us a completed 
and signed Sundry Notice. We will review your request to commingle 
production from wells on your lease with production from your other 
leases or from leases where you do not have an interest. Do not 
commingle production until we have approved your Sundry Notice.


Sec.  3275.20  What will BLM do if I waste geothermal resources?

    We will determine the amount of any resources you have lost through 
waste. If you did not take all reasonable precautions to prevent waste, 
we will require you to pay compensation based on the value of the lost 
production. If BLM finds that you have not adequately corrected the 
situation, we will follow the noncompliance procedures in Sec.  
3277.12.


Sec.  3275.21  May BLM order me to drill and produce wells on my lease?

    BLM may order you to drill and produce wells on your lease when we 
find it necessary to protect Federal interests, prevent drainage, or 
ensure that lease development and production occur in accordance with 
sound operating practices.

Subpart 3276--Reports: Utilization Operations


Sec.  3276.10  What are the reporting requirements for facility and 
lease operations involving Federal geothermal resources?

    (a) When you begin commercial production and operation, you must 
notify BLM in writing within 5 business days.
    (b) Submit completed and signed monthly reports thereafter to BLM 
as follows:
    (1) If you are a lessee or unit operator supplying Federal 
geothermal resources to a utilization facility on Federal land leased 
for geothermal resources, submit a monthly report of well operations 
for all wells on your lease or unit;
    (2) If you are the operator of a utilization facility on Federal 
land leased for geothermal resources, submit a monthly report of 
facility operations;
    (3) If you are both a lessee or unit operator and the operator of a 
utilization facility on Federal land leased for geothermal resources, 
you may combine the requirements of paragraphs (b)(1) and (b)(2) of 
this section into one report; or
    (4) If you are a lessee or unit operator supplying Federal 
geothermal resources to a utilization facility not located on Federal 
land leased for geothermal resources, and the sales point for the 
resource utilized is at the facility tailgate, submit all the 
requirements of paragraphs (b)(1) and (b)(2) of this section. You may 
combine these into one report.
    (c) Unless BLM grants a variance, your reports must be received by 
BLM by the end of the month following the month that the report covers. 
For example, the report covering the month of July is due by August 31.


Sec.  3276.11  What information must I include for each well in the 
monthly report of well operations?

    (a) Any drilling operations or changes made to a well;
    (b) Total production or injection in thousands of pounds (klbs);
    (c) Production or injection temperature in degrees Fahrenheit (deg. 
F);
    (d) Production or injection pressure in pounds per square inch 
(psi). You must also specify whether this is gauge pressure (psig) or 
absolute pressure (psia);
    (e) The number of days the well was producing or injecting;
    (f) The well status at the end of the month;
    (g) The amount of steam or hot water lost to venting or leakage, if 
the amount is greater than 0.5 percent of total lease production. We 
may modify this standard by a written order describing the change;
    (h) The lease number or unit name where the well is located;
    (i) The month and year to which the report applies;
    (j) Your name, title, signature, and a phone number where BLM may 
contact you; and
    (k) Any other information that we may require.


Sec.  3276.12  What information must I give BLM in the monthly report 
for facility operations?

    (a) For all electrical generation facilities, include in your 
monthly report of facility operations:
    (1) Mass of steam and/or hot water, in klbs, used or brought into 
the facility. For facilities using both steam and hot water, you must 
report the mass of each;
    (2) The temperature of the steam or hot water in deg. F;
    (3) The pressure of the steam or hot water in psi. You must also 
specify whether this is psig or psia;
    (4) Gross generation in kilowatt hours (kwh);
    (5) Net generation at the tailgate of the facility in kwh;
    (6) Temperature in deg. F and volume of the steam or hot water 
exiting the facility;
    (7) The number of hours the plant was on line;
    (8) A brief description of any outages; and
    (9) Any other information we may require.
    (b) For electrical generation facilities where Federal royalty is 
based on the sale of electricity to a utility, in addition to the 
information required under paragraph (a) of this section, you must 
include the following information in your monthly report of facility 
operations:
    (1) Amount of electricity delivered to the sales point in kwh, if 
the sales point is different from the tailgate of the facility;
    (2) Amount of electricity lost to transmission;
    (3) A report from the utility purchasing the electricity 
documenting

[[Page 24432]]

the total number of kwh delivered to the sales point during the month, 
or monthly reporting period if it is not a calendar month, and the 
number of kwh delivered during diurnal and seasonal pricing periods; 
and
    (4) Any other information we may require.


Sec.  3276.13  What additional information must I give BLM in the 
monthly report for flash and dry steam facilities?

    In addition to the regular monthly report information required by 
Sec.  3276.12, send to BLM:
    (a) Steam flow into the turbine in klbs; for dual flash facilities, 
you must separate the steam flow into high pressure steam and low 
pressure steam;
    (b) Condenser pressure in psia;
    (c) Condenser temperature in deg. F;
    (d) Auxiliary steam flow used for gas ejectors, steam seals, pumps, 
etc., in klbs;
    (e) Flow of condensate out of the plant (after the cooling towers) 
in klbs; and
    (f) Any other information we may require.


Sec.  3276.14  What information must I give BLM in the monthly report 
for direct use facilities?

    (a) Total monthly flow through the facility in thousands of gallons 
(kgal) or klbs;
    (b) Monthly average temperature in, in deg. F;
    (c) Number of hours that geothermal heat was used; and
    (d) Any other information we may require.


Sec.  3276.15  How must I notify BLM of accidents occurring at my 
utilization facility?

    You must orally inform us of all accidents that affect operations 
or create environmental hazards within 24 hours after each accident. 
When you contact us, we may require you to submit a written report 
fully describing the incident.

Subpart 3277--Inspections, Enforcement, and Noncompliance


Sec.  3277.10  When will BLM inspect my operations?

    BLM may inspect all operations to ensure compliance with the 
requirements of Sec.  3200.4. You must give us access during normal 
operating hours to inspect all facilities utilizing Federal geothermal 
resources.


Sec.  3277.11  What records must I keep available for inspection?

    (a) The operator or facility operator must keep all records and 
information pertaining to the operation of your utilization facility, 
royalty and production meters, and safety training available for BLM 
inspection for a period of 6 years following the time the records and 
information are created.
    (b) This requirement also pertains to records and information from 
meters located off your lease or unit, when BLM needs them to 
determine:
    (1) Resource production to a utilization facility; or
    (2) The allocation of resource production to your lease or unit.
    (c) Store all of these records in a place where they are 
conveniently available.


Sec.  3277.12  What will BLM do if I do not comply with all BLM 
requirements pertaining to utilization operations?

    (a) We will issue you a written Incident of Noncompliance, 
directing you to take required corrective action within a specific time 
period. If the noncompliance continues or is serious in nature, BLM 
will take one or more of the following actions:
    (1) Enter the lease, and correct any deficiencies at your expense;
    (2) Collect all or part of your bond;
    (3) Order modification or shutdown of your operations; and
    (4) Take other enforcement action against a lessee who is 
ultimately responsible for the noncompliance.
    (b) Noncompliance may result in BLM terminating your lease (see 
Sec. Sec.  3213.17 through 3213.19).

Subpart 3278--Confidential, Proprietary Information


Sec.  3278.10  When will BLM disclose information I submit under these 
regulations?

    All Federal and Indian data and information submitted to BLM are 
subject to part 2 of this title. Part 2 includes the regulations of the 
Department of the Interior covering public disclosure of data and 
information contained in Department records. Certain mineral 
information not protected from disclosure under part 2 may be made 
available for inspection without a Freedom of Information Act (FOIA) 
request. Examples of information we will not treat as confidential 
include:
    (a) Facility location;
    (b) Facility generation capacity; or
    (c) To whom you are selling electricity or produced resources.


Sec.  3278.11  When I submit confidential, proprietary information, how 
can I help ensure it is not available to the public?

    When you submit data and information that you believe to be exempt 
from disclosure under part 2 of this title, you must clearly mark each 
page that you believe contains confidential information. BLM will keep 
all data and information confidential to the extent allowed by Sec.  
2.13(c) of this title.


Sec.  3278.12  How long will information I give BLM remain confidential 
or proprietary?

    The FOIA does not provide a finite period of time during which 
information may be exempt from public disclosure. BLM will review each 
situation individually and in accordance with part 2 of this title.

Subpart 3279--Utilization Relief and Appeals


Sec.  3279.10  When may I request a variance from BLM requirements 
pertaining to utilization operations?

    (a) You may file a request with BLM for a variance for your 
approved utilization operations from the requirements of Sec.  3200.4. 
Your request must include enough information to explain:
    (1) Why you cannot comply with the requirements; and
    (2) Why you need the variance to operate your facility, conserve 
natural resources, or protect public health and safety, property, or 
the environment.
    (b) We may approve your request orally or in writing. If we give 
you oral approval, we will follow up with written confirmation.


Sec.  3279.11  How may I appeal a BLM decision regarding my utilization 
operations?

    You may appeal our decision affecting your utilization operations 
in accordance with Sec.  3200.5.

0
4. Revise part 3280 to read as follows:

PART 3280--GEOTHERMAL RESOURCES UNIT AGREEMENTS

Subpart 3280--Geothermal Resources Unit Agreements--General
Sec.
3280.1 What is the purpose and scope of this part?
3280.2 Definitions.
3280.3 What is BLM's general policy regarding the formation of unit 
agreements?
3280.4 When may BLM require Federal lessees to unitize their leases 
or require a Federal lessee to commit a lease to a unit?
3280.5 May BLM require the modification of lease requirements in 
connection with the creation and operation of a unit agreement?
3280.6 When may BLM require a unit operator to modify the rate of 
exploration, development, or production?
3280.7 Can BLM require an owner or lessee of lands not under Federal 
administration to unitize their lands or leases?

[[Page 24433]]

Subpart 3281--Application, Review, and Approval of a Unit Agreement
3281.1 What steps must I must follow for BLM to approve my unit 
agreement?
3281.2 What documents must the unit operator submit to BLM before we 
may designate a unit area?
3281.3 What geologic information may a unit operator use in 
proposing a unit area?
3281.4 What are the size and shape requirements for a unit area?
3281.5 What happens if BLM receives applications that include 
overlapping unit areas?
3281.6 What action will BLM take after reviewing a proposed unit 
area designation?
3281.7 What documents must a unit operator submit to BLM before we 
will approve a unit agreement?
3281.8 Must a unit operator provide working interests within the 
designated unit area the opportunity to join the unit?
3281.9 How does a unit operator provide documentation to BLM of 
lease and tract commitment status?
3281.10 How will BLM determine that I have sufficient control of the 
proposed unit area?
3281.11 What are the unit operator qualifications?
3281.12 Who designates the unit operator?
3281.13 Is there a format or model a unit operator must use when 
proposing a unit agreement?
3281.14 What minimum requirements and terms must be incorporated 
into the unit agreement?
3281.15 What is the minimum initial unit obligation a unit agreement 
must contain?
3281.16 When must a Plan of Development be submitted to BLM?
3281.17 What information must be provided in the Plan of 
Development?
3281.18 What action will BLM take in reviewing the Plan of 
Development?
3281.19 What action will BLM take on a proposed unit agreement?
3281.20 When is a unit agreement effective?
Subpart 3282--Participating Area
3282.1 What is a participating area?
3282.2 When must the unit operator have a participating area 
approved?
3282.3 When must the unit operator submit an application for BLM 
approval of a proposed initial participating area?
3282.4 What general information must the unit operator submit with a 
proposed participating area application?
3282.5 What technical information must the unit operator submit with 
a proposed participating area application?
3282.6 When must the unit operator propose to revise a participating 
area boundary?
3282.7 What is the effective date of an initial participating area 
or revision of an existing participating area?
3282.8 What are the reasons BLM would not approve a revision of the 
participating area boundary?
3282.9 How is production allocated within a participating area?
3282.10 When will unleased Federal lands in a participating area 
receive a production allocation?
3282.11 May a participating area continue if there is intermittent 
unit production?
3282.12 When does a participating area terminate?
Subpart 3283--Modifications to the Unit Agreement
3283.1 When may the unit operator modify the unit agreement?
3283.2 When may the unit operator revise the unit contraction 
provision of a unit agreement?
3283.3 How will the unit operator know the status of a unit 
contraction revision request?
3283.4 When may the unit operator add lands to or remove lands from 
a unit agreement?
3283.5 When will BLM periodically review unit agreements?
3283.6 What is the purpose of BLM's periodic review?
3283.7 When may unit operators be changed?
3283.8 What must be filed with BLM to change the unit operator?
3283.9 When is a change of unit operator effective?
3283.10 If there is a change in the unit operator, when does the 
previous operator's liability end?
3283.11 Do the terms and conditions of a unit agreement modify 
Federal lease stipulations?
3283.12 Are transferees and successors in interest of Federal 
geothermal leases bound by the terms and conditions of the unit 
agreement?
Subpart 3284--Unit Operations
 3284.1 What general standards apply to operations within a unit?
3284.2 What are the principal operational responsibilities of the 
unit operator?
3284.3 What happens if the minimum initial unit obligations are not 
met?
3284.4 How are unit agreement terms affected after completion of the 
initial unit well?
3284.5 How do unit operations affect lease extensions?
3284.6 May BLM authorize a working interest owner to drill a well on 
lands committed to the unit?
3284.7 May BLM authorize operations on uncommitted Federal leases 
located within a unit?
3284.8 May a unit have multiple operators?
3284.9 May BLM set or modify production or injection rates?
3284.10 What must a unit operator do to prevent or compensate for 
drainage?
3284.11 Must the unit operator develop and operate on every lease or 
tract in the unit to comply with the obligations in the underlying 
leases or agreements?
3284.12 When must the unit operator notify BLM of any changes of 
lease and tract commitment status?
Subpart 3285--Unit Termination
3285.1 When may BLM terminate a unit agreement?
3285.2 When may BLM approve a voluntary termination of a unit 
agreement?
Subpart 3286--Model Unit Agreement
3286.1 Model Unit Agreement.
Subpart 3287--Relief and Appeals
3287.1 May the unit operator request a suspension of unit 
obligations or development requirements?
3287.2 When may BLM grant a suspension of unit obligations?
3287.3 How does a suspension of unit obligations affect the terms of 
the unit agreement?
3287.4 May a decision made by BLM under this part be appealed?

    Authority: 30 U.S.C. 1001-1028 and 43 U.S.C. 1701 et seq.

Subpart 3280--Geothermal Resources Unit Agreements--General


Sec.  3280.1  What is the purpose and scope of this part?

    (a) The purpose of this part is to provide holders of Federal and 
non-Federal geothermal leases and owners of non-Federal mineral 
interests the opportunity to unite under a Federal geothermal unit 
agreement to explore for and develop geothermal resources in a manner 
that is necessary or advisable in the public interest.
    (b) These regulations identify:
    (1) The procedures a prospective unit operator must follow to 
receive BLM approval for unit area designation and a Federal geothermal 
unit agreement;
    (2) The operational requirements a unit operator must meet once the 
unit agreement is approved; and
    (3) The procedures BLM will follow in reviewing, approving, and 
administering a Federal geothermal unit agreement.


Sec.  3280.2  Definitions.

    The following terms, as used in this part or in any agreement 
approved under the regulations in this part, have the following 
meanings unless otherwise defined in such agreement:
    Minimum initial unit obligation means the requirement to complete 
at least one unit well within the timeframe specified in the unit 
agreement. If this requirement is not met, BLM deems the unit void as 
though it was never in effect.
    Participating area means that part of the unit area that BLM deems 
to be productive from a horizon or deposit, and to which production 
would be allocated in the manner described in the unit agreement, 
assuming that all lands are committed to the unit agreement.
    Plan of development means the document a unit operator submits to 
BLM defining how the unit operator will diligently pursue unit 
exploration

[[Page 24434]]

and development to meet both initial and subsequent unit development 
and public interest obligations.
    Public interest means operations within a geothermal unit resulting 
in:
    (1) Diligent development;
    (2) Efficient exploration, production and utilization of the 
resource;
    (3) Conservation of natural resources; and
    (4) Prevention of waste.
    Reasonably proven to produce means a sufficient demonstration, 
based on scientific and technical information, that lands are 
contributing to unit production in commercial quantities or are 
providing reservoir pressure support for unit production.
    Unit agreement means an agreement for the exploration, development, 
production, and utilization of separately owned interests in the 
geothermal resources made subject thereto as a single consolidated unit 
without regard to separate ownerships, which provides for the 
allocation of costs and benefits on a basis defined in the agreement or 
plan.
    Unit area means the area described in a unit agreement as 
constituting the land logically subject to development under such 
agreement.
    Unit contraction provision means a term of a unit agreement 
providing that the boundaries of the unit area will contract to the 
size of the participating area, by having those lands outside of the 
participating area removed. BLM will contract the unit area if 
additional unit wells are not drilled and completed within the 
timeframe specified in the unit agreement.
    Unit operator means the person, association, partnership, 
corporation, or other business entity designated under a unit agreement 
to conduct operations on unitized land as specified in such agreement.
    Unit well means a well that is:
    (1) Designed to produce or utilize geothermal resources in 
commercial quantities;
    (2) Drilled and completed to the bona fide geologic objective 
specified in the unit agreement, unless a commercial resource is found 
at a shallower depth; and
    (3) Located on unitized land.
    Unitized land means the part of a unit area committed to a unit 
agreement.
    Unitized substances means deposits of geothermal resources 
recovered from unitized land by operation under and pursuant to a unit 
agreement.
    Working interest means the interest held in geothermal resources or 
in lands containing the same by virtue of a lease, operating agreement, 
fee title, or otherwise, under which, except as otherwise provided in a 
unit agreement, the owner of such interest is vested with the right to 
explore for, develop, produce, and utilize such resources. The right 
delegated to the unit operator as such by the unit agreement is not to 
be regarded as a working interest.


Sec.  3280.3  What is BLM's general policy regarding the formation of 
unit agreements?

    For the purpose of more properly conserving the natural resources 
of any geothermal reservoir, field, or like area, or any part thereof, 
lessees and their representatives may unite with each other, or jointly 
or separately with others, in collectively adopting and operating under 
a unit agreement for the reservoir, field, or like area, or any part 
thereof, including direct use resources, if BLM determines and 
certifies this to be necessary or advisable in the public interest.


Sec.  3280.4  When may BLM require Federal lessees to unitize their 
leases or require a Federal lessee to commit a lease to a unit?

    (a) BLM may initiate the formation of a unit agreement, or require 
an existing Federal lease to commit to a unit agreement, if in the 
public interest.
    (b) BLM may require that Federal leases that become effective on or 
after August 8, 2005, contain a provision stating that BLM may require 
commitment of the lease to a unit agreement, and may prescribe the unit 
agreement to which such lease must commit to protect the rights of all 
parties in interest, including the United States.


Sec.  3280.5  May BLM require the modification of lease requirements in 
connection with the creation and operation of a unit agreement?

    (a) BLM may, with the consent of the lessees involved, establish, 
alter, change, or revoke rates of operations (including drilling, 
operations, production, and other requirements) of the leases, and make 
conditions with respect to the leases, in connection with the creation 
and operation of any such unit agreement as BLM may consider necessary 
or advisable to secure the protection of the public interest.
    (b) If leases to be included in a unit have unlike lease terms, 
such leases need not be modified to be in the same unit.


Sec.  3280.6  When may BLM require a unit operator to modify the rate 
of exploration, development, or production?

    BLM may require a unit agreement applying to lands owned by the 
United States to contain a provision under which BLM or an entity 
designated in the unit agreement may alter or modify, from time-to-
time, the rate of resource exploration or development, or production 
quantity or rate, under the unit agreement.


Sec.  3280.7  Can BLM require an owner or lessee of lands not under 
Federal administration to unitize their lands or leases?

    BLM cannot require the commitment of lands or leases not under 
Federal administration or jurisdiction to a Federal unit.

Subpart 3281--Application, Review, and Approval of a Unit Agreement


Sec.  3281.1  What steps must I follow for BLM to approve my unit 
agreement?

    Before a unit agreement becomes effective, BLM must designate the 
unit area and approve the unit agreement. Procedures for designating 
the unit area are set forth in Sec. Sec.  3281.2 through 3281.6. 
Procedures for approving the unit agreement are set forth in Sec. Sec.  
3281.7 through 3281.17.


Sec.  3281.2  What documents must the unit operator submit to BLM 
before we may designate a unit area?

    (a) The unit operator must submit the following documents before 
BLM may designate a proposed unit area:
    (1) A report detailing the geologic information and interpretation 
that indicates, to the satisfaction of BLM, the proposed area is 
geologically appropriate for unitization;
    (2) A map showing:
    (i) The proposed unit area;
    (ii) All leases (including Federal, state, or private) and tracts 
(unleased privately owned land or mineral rights);
    (iii) The Federal lease number and lessee; and
    (iv) An individual unit tract number;
    (3) A list which includes the following information as to each 
Federal, state, and private lease, and tracts of unleased land, to be 
included in the unit:
    (i) The lease number;
    (ii) The legal land description of each lease and tract;
    (iii) The acreage of each lease or tract;
    (iv) The lessor and lessee of each lease;
    (v) The mineral rights owner of any unleased tract; and
    (vi) The total number of acres:
    (A) In the unit area;
    (B) Under Federal administration; and
    (C) In private or other (such as state) ownership; and
    (4) Any other information BLM may require.
    (b) Before submitting any documents, ask BLM how many copies are 
required.

[[Page 24435]]

Sec.  3281.3  What geologic information may a unit operator use in 
proposing a unit area?

    (a) A unit operator may use any reasonable geologic information 
necessary to justify its proposed unit area. The information must 
document that the proposed unit area is:
    (1) Geologically contiguous; and
    (2) Suitable for resource exploration, development and production 
under a unit agreement.
    (b) BLM will decide which information and interpretations are 
acceptable. BLM's acceptance of the information and interpretations may 
vary depending on the types and level of geologic information available 
for the area.


Sec.  3281.4  What are the size and shape requirements for a unit area?

    There are no specific size or shape requirements for a unit area, 
except that it must meet the requirements of Sec.  3281.3. The size of 
the unit area may affect the minimum initial unit obligation 
requirements (see Sec.  3281.15(b)).


Sec.  3281.5  What happens if BLM receives applications that include 
overlapping unit areas?

    (a) If BLM receives unit area applications that include overlapping 
lands, we will request that each prospective unit operator resolve the 
issue with the other operator(s). If the prospective operators cannot 
reach a resolution, BLM may:
    (1) Return all unit applications and request all applicants to 
revise their proposed unit areas;
    (2) Designate any unit area proposal that is geologically 
appropriate for unitization and best meets public interest 
requirements; or
    (3) Designate a different area for unitization when doing so is in 
the public interest.
    (b) BLM will reject either an application or a portion of an 
application that includes lands already in an approved unit area.


Sec.  3281.6  What action will BLM take after reviewing a proposed unit 
area designation?

    (a) BLM will approve the unit area designation in writing and 
notify the prospective unit operator once we determine that:
    (1) We have received the information required at Sec.  3281.2;
    (2) Information available to BLM documents that the area is 
geologically appropriate for unitization; and
    (3) Unitization is appropriate to conserve the natural resources of 
a geothermal reservoir, field, or like area, or part thereof.
    (b) BLM will notify a prospective unit operator in writing if we do 
not designate a proposed unit area.


Sec.  3281.7  What documents must a unit operator submit to BLM before 
we will approve a unit agreement?

    After BLM approves a unit area designation, a unit operator must 
submit the following information in order for BLM to approve a unit 
agreement:
    (a) Documentation of tract commitment (see Sec. Sec.  3281.8 and 
3281.9);
    (b) The unit agreement (see Sec.  3281.15);
    (c) The map required by Sec.  3281.2(a)(2), if any modifications 
have occurred since the unit area was designated;
    (d) The list required by Sec.  3281.2(a)(3) indicating whether each 
lease or tract is committed to the unit agreement; and
    (e) The plan of development.


Sec.  3281.8  Must a unit operator provide working interests within the 
designated unit area the opportunity to join the unit?

    After BLM designates a unit area, the unit operator must invite all 
owners of mineral rights (leased or unleased) and lease interests 
(record title and operating rights) in the designated unit area to join 
the unit. The unit operator must provide the lease interests and 
mineral rights owners 30 days to respond. If an interest or owner does 
not respond, the unit operator must provide BLM with written evidence 
that all the interests or owners were invited to join the unit. BLM 
will not approve a unit agreement proposal if this evidence is not 
submitted.


Sec.  3281.9  How does a unit operator provide documentation to BLM of 
lease and tract commitment status?

    (a) The unit operator must provide documentation to BLM of the 
commitment status of each lease and tract in the designated unit area. 
The documentation must include a joinder or other comparable document 
signed by the lessee or mineral rights owner, or evidence that an 
opportunity to join was offered and no response was received (see Sec.  
3281.8).
    (b) A majority interest of owners of any single Federal lease has 
authority to commit the lease to a unit agreement.


Sec.  3281.10  How will BLM determine that I have sufficient control of 
the proposed unit area?

    (a) BLM will determine whether:
    (1) A unit operator has sufficient control of the proposed unit 
area by reviewing the number and location of leases and tracts 
committed and their geologic potential for development in relation to 
the entire proposed unit area; and
    (2) The committed tracts provide the unit operator with sufficient 
control of the unit area to conduct resource exploration and 
development in the public interest.
    (b) If BLM determines that the unit operator does not have 
sufficient control of the unit area, we will not approve the unit 
agreement.


Sec.  3281.11  What are the unit operator qualifications?

    (a) Before BLM will approve a unit agreement, the unit operator 
must:
    (1) Meet the same qualifications as a lessee (see Sec.  3202.10 of 
this chapter); and
    (2) Demonstrate sufficient control of the unit area (see Sec.  
3281.10).
    (b) A unit operator is not required to have an interest in any 
lease committed to the unit agreement.


Sec.  3281.12  Who designates the unit operator?

    The owners of geothermal rights and lease interests committed to 
the unit agreement will nominate a unit operator. Before designating 
the unit operator, BLM must also determine whether the prospective unit 
operator meets the requirements of Sec.  3281.11.


Sec.  3281.13  Is there a format or model a unit operator must use when 
proposing a unit agreement?

    When proposing a unit agreement, submit to BLM:
    (a) The model unit agreement (see Sec.  3286.1);
    (b) The model unit agreement with variances noted; or
    (c) Any unit agreement format that contains all the terms and 
conditions BLM requires (see Sec. Sec.  3281.14 and 3281.15).


Sec.  3281.14  What minimum requirements and terms must be incorporated 
into the unit agreement?

    (a) The unit agreement must, at a minimum:
    (1) State who the unit operator is, and that the unit operator and 
participating lessees accept the unit terms and obligations set forth 
in the agreement and applicable BLM regulations;
    (2) State the size and general location of the unit area;
    (3) Include procedures for revising the unit area or participating 
area(s);
    (4) Include procedures for amending the unit agreement;
    (5) State the effective date and term of the unit, as provided in 
paragraph (b) of this section;
    (6) Incorporate the minimum initial unit obligations, as specified 
in Sec.  3281.15;
    (7) State that BLM may require a modification of the rate of 
resource

[[Page 24436]]

exploration or development, or the production quantity or rate, within 
the unit area;
    (8) State that the agreement is subject to periodic BLM review;
    (9) State that BLM will deem the unit agreement as void as if it 
were never in effect if the minimum initial unit obligations are not 
met;
    (10) Include a plan of development; and
    (11) Include a unit contraction provision.
    (b) The unit agreement must provide that it terminates 5 years 
after its effective date unless:
    (1) BLM extends such date of expiration;
    (2) Unitized substances are produced or utilized in commercial 
quantities in which event the agreement continues for so long as 
unitized substances are produced or utilized in commercial quantities; 
or
    (3) BLM terminates the agreement under subpart 3285 of this part 
before the end of the 5 year period.
    (c) The agreement may include any other provisions or terms that 
BLM and the unit operator agree are necessary for proper resource 
exploration and development, and management of the unit area.


Sec.  3281.15  What is the minimum initial unit obligation a unit 
agreement must contain?

    (a) The unit agreement must:
    (1) Require the unit operator to drill, within the timeframe 
specified in the unit agreement, at least one unit well on a tract 
committed to the unit agreement;
    (2) Specify the location and the minimum depth and/or geologic 
structure to which the initial unit well will be drilled; and
    (3) Require the unit operator, upon completing a unit well, to 
provide to BLM in a timely manner the information required at Sec.  
3264.10 of this chapter.
    (b) Depending on the size of the proposed unit area, BLM may 
require the minimum initial unit agreement obligation to include the 
drilling of more than one unit well.
    (c) If necessary to aid in the evaluation of drilling locations, 
BLM and the unit operator may agree to include types of exploration 
operations as part of the initial unit obligation. An example of such 
work is drilling temperature gradient wells.
    (d) BLM will not consider any work done prior to unit approval for 
the purpose of meeting initial unit obligations.


Sec.  3281.16  When must a Plan of Development be submitted to BLM?

    (a) The prospective unit operator must submit an initial Plan of 
Development at the time the unit area is proposed for designation.
    (b) Subsequent Plans of Development that were not already provided 
must be submitted to address future unit activities to be conducted 
throughout the term of the unit agreement. For example, if the Plan 
only addressed activities until a unit well is completed, the 
subsequent Plan must address activities including the drilling of 
additional unit wells until a producible well is completed. Once a 
producible well is completed, the Plan or subsequent Plan must address 
those activities related to utilizing the resource.
    (c) There is no requirement to submit a Plan of Development once 
unitized resources begin commercial operation.


Sec.  3281.17  What information must be provided in the Plan of 
Development?

    (a) The Plan of Development must state the types of and timeframes 
for activities the unit operator will conduct in diligent pursuit of 
unit exploration and development. The Plan may address those activities 
that will be conducted until the minimum initial unit obligation is 
met, or it may address all activities that will occur through the term 
of the unit agreement.
    (b) The Plan of Development may specify that the activities will be 
conducted in phases during the term of the unit agreement. For example, 
the number, location, and depth of temperature gradient wells, and the 
timeframe for the completion of these wells, may be the first phase. A 
second phase may include drilling of observation or slim-hole wells to 
a greater depth than that specified in the first phase. Completion of 
the unit well may be the third phase. In all cases, the Plan of 
Development must include the completion of at least one unit well.


Sec.  3281.18  What action will BLM take in reviewing the Plan of 
Development?

    BLM will review the Plan of Development to ensure that the types of 
activities and the timeframes for their completion meet public interest 
requirements. If BLM determines that the Plan of Development does not 
meet these requirements, BLM will negotiate with the prospective unit 
operator to revise the proposed activities. BLM will not designate a 
unit area until the Plan of Development meets applicable requirements.


Sec.  3281.19  What action will BLM take on a proposed unit agreement?

    BLM will:
    (a) Review the proposed unit agreement to ensure that the public 
interest is protected and that the agreement conforms to applicable 
laws and regulations;
    (b) Coordinate the review of a proposed unit agreement with 
appropriate state agencies, and other Federal surface management 
agencies, if applicable;
    (c) Approve the unit agreement and provide the unit operator with 
signed copies of the agreement, if we determine:
    (1) That the unit operator has submitted all required information;
    (2) That the unit agreement and the unit operator satisfy all 
required terms and conditions, including the requirements specified at 
Sec. Sec.  3281.14 and 3281.15, and conform with all applicable laws 
and regulations; and
    (3) That the unit agreement is necessary or advisable to meet the 
public interest;
    (d) Notify the unit operator in writing if we reject the unit 
agreement proposal; and
    (e) Reject any unit application that includes lands already 
committed to an approved unit agreement.


Sec.  3281.20  When is a unit agreement effective?

    The effective date of the unit agreement approval is the first day 
of the month following the date BLM approves and signs it. The unit 
operator may request that the effective date be the first day of the 
month in which the agreement is signed by BLM, or a more appropriate 
date agreed to by BLM.

Subpart 3282--Participating Area


Sec.  3282.1  What is a participating area?

    (a) A participating area is the combined portion of the unitized 
area which BLM determines:
    (1) Is reasonably proven to produce geothermal resources; or
    (2) Supports production in commercial quantities, such as pressure 
support from injection wells.
    (b) The size and configuration of all participating areas and 
revisions are not effective until BLM approves them.


Sec.  3282.2  When must the unit operator have a participating area 
approved?

    You must have an established BLM-approved participating area to 
allocate production and royalties before beginning commercial 
operations under a unit agreement to allocate production within the 
unit.


Sec.  3282.3  When must the unit operator submit an application for BLM 
approval of a proposed initial participating area?

    The unit operator must submit an application for BLM approval of a 
proposed participating area no later than:

[[Page 24437]]

    (a) 60 days after receiving BLM's determination identified in Sec.  
3281.15(a)(3) that a unit well will produce or utilize in commercial 
quantities; or
    (b) 30 days before the initiation of commercial operations, 
whichever occurs earlier.


Sec.  3282.4  What general information must the unit operator submit 
with a proposed participating area application?

    The unit operator must submit the following information with a 
participating area application:
    (a) Technical information supporting its application (see Sec.  
3282.5);
    (b) The information required in Sec.  3281.2(a)(2) and (3) for the 
lands in the proposed participating area; and
    (c) Any other information BLM may require.


Sec.  3282.5  What technical information must the unit operator submit 
with a proposed participating area application?

    At a minimum, the unit operator must submit the following technical 
information with a proposed participating area application:
    (a) Documentation that the participating area includes:
    (1) The production and injection wells necessary for unit 
operations;
    (2) Unit wells that are capable of being produced or utilized in 
commercial quantities; and
    (3) The area each well drains or supplies pressure communication.
    (b) Data, including logs, from production and injection well 
testing, if not previously submitted under Sec.  3264.10 of this 
chapter;
    (c) Interpretations of well performance, and reservoir geology and 
structure, that document that the lands are reasonably proven to 
produce; and
    (d) Any other information BLM may require.


Sec.  3282.6  When must the unit operator propose to revise a 
participating area boundary?

    (a) The unit operator must submit a written application to BLM to 
revise a participating area boundary no later than 60 days after 
receipt of the BLM determination described herein, when either:
    (1) A well is completed that BLM has determined will produce or 
utilize in commercial quantities, and such well:
    (i) Is located outside of an existing participating area; or
    (ii) Drains an area outside the existing participating area; or
    (2) An injection well located outside of an existing participating 
area is put into use that BLM has determined provides reservoir 
pressure support to production.
    (b) The unit operator may submit a written application for a 
revision of a participating area when new or additional technical 
information or revised interpretations of any information provides a 
basis for revising the boundary.
    (c) The unit operator may submit a written request to BLM to delay 
a participation area revision decision when drilling multiple wells in 
the unit is actively pursued or the drilling is providing additional 
technical information. A delay will not affect the effective date of 
any participation area revision (see Sec.  3282.7). The request must 
include:
    (1) The well locations;
    (2) Anticipated spud and completion dates of each well;
    (3) The timing of well testing and analyses of technical 
information; and
    (4) The anticipated date BLM will receive the participation area 
revision for review.
    (d) BLM will provide the unit operator with a written decision on 
the application to revise a participating area or the request to delay 
a participating area revision decision by BLM.


Sec.  3282.7  What is the effective date of an initial participating 
area or revision of an existing participating area?

    (a) BLM will establish the appropriate effective date of an initial 
participating area or any revision to a participating area. The 
effective date may be, but is not limited to, the first day of the 
month in which:
    (1) A well is completed that causes the participating area to be 
formed or revised;
    (2) Commercial operations start; or
    (3) New or additional technical information becomes known that 
provides a basis for revising the boundary (such as when production 
from, or injection to, an area outside the participating area first 
became known).
    (b) The unit operator may request BLM to approve a specific 
effective date for the participating area or revision, but the date may 
not be earlier than the effective date of the unit.


Sec.  3282.8  What are the reasons BLM would not approve a revision of 
the participating area boundary?

    BLM will not approve a revision of the participating area boundary:
    (a) If the unit operator does not submit the required information;
    (b) If BLM determines that the new or additional technical 
information does not support a boundary revision; or
    (c) If it reduces the size of a participating area because of 
depletion of the resource.


Sec.  3282.9  How is production allocated within a participating area?

    Allocation of production to each committed lease or tract within a 
participating area is in the same proportion as that lease's or tract's 
surface acreage within the participating area.


Sec.  3282.10  When will unleased Federal lands in a participating area 
receive a production allocation?

    Unleased Federal lands within a participating area are treated as 
follows:
    (a) For royalty purposes only, you must allocate production to 
unleased Federal lands in the participating area as if the acreage were 
committed to the participating area.
    (b) The unit operator is primarily liable for paying and must pay 
royalty to the United States for such allocated production based on a 
rate not less than the highest royalty rate for any Federal lease in 
the participating area. In the event the unit operator does not pay any 
royalties owed under this paragraph, each lessee of lands committed to 
the participating area is responsible for paying such royalties in the 
same proportion as that lessee's percentage of surface acreage within 
the participating area, excluding the unleased acreage.


Sec.  3282.11  May a participating area continue if there is 
intermittent unit production?

    A participating area may continue if there is intermittent unit 
production only if BLM determines that intermittent production is in 
the public interest. For example, a direct use facility may only 
require production to occur during winter months.


Sec.  3282.12  When does a participating area terminate?

    A participating area terminates when either:
    (a) The unit operator permanently stops operations in or affecting 
the participating area; or
    (b) Sixty (60) days after BLM notifies the unit operator in writing 
that we have determined that operations in the participating area are 
not being conducted in accordance with the unit agreement, the 
participating area approval, or the public interest. If before the 
expiration of the 60 days, the unit operator demonstrates to BLM's 
satisfaction that the basis for BLM's determination is erroneous or has 
been rectified, BLM will not terminate the participating area.

[[Page 24438]]

Subpart 3283--Modifications to the Unit Agreement


Sec.  3283.1  When may the unit operator modify the unit agreement?

    (a) The unit operator may propose to modify a unit agreement by 
submitting an application to BLM that:
    (1) Identifies the proposed change and the reason for the change; 
and
    (2) Certifies that all necessary unit interests have agreed to the 
change.
    (b) BLM will send the unit operator written notification of BLM's 
decision regarding the application. Proposed modifications to a unit 
agreement will not become effective until BLM approves them. BLM's 
approval may be made effective retroactively to the date the 
application was complete. BLM may approve a different effective date, 
including a date the unit operator requests and for which the unit 
operator provides acceptable justification.


Sec.  3283.2  When may the unit operator revise the unit contraction 
provision of a unit agreement?

    (a) The unit operator may submit to BLM a request to revise the 
unit contraction provision of a unit agreement, if the unit operator 
has either:
    (1) Commenced commercial operations of unitized resources; or
    (2) Completed a unit well that produces or utilizes geothermal 
resources in commercial quantities.
    (b) The request may propose an extension of the unit contraction 
date and/or a partial contraction of the unit area, and must include 
the following information:
    (1) The period for which the revision is requested; and
    (2) Whether an extension of the unit contraction date and/or a 
partial contraction of the unit area is requested.
    (c) The request should address the following factors when 
applicable:
    (1) Economic constraints that limit the opportunity to drill and 
utilize the resource from additional wells;
    (2) Reservoir monitoring or injection wells that BLM determines are 
necessary for unit operations are not located in the participating 
area;
    (3) An inability to drill additional wells is due to circumstances 
beyond the unit operator's control, and a unit well that has produced 
or utilized in commercial quantities already is located in the unit;
    (4) The types and intensity of unit operations already conducted in 
the unit area;
    (5) The availability of viable electrical or resource sales 
contracts;
    (6) The opportunity to utilize the resource economically; or
    (7) Any other information that supports revision of the unit 
contraction provision.
    (d) BLM will consider the factors discussed along with any other 
information submitted, and will approve the request if we determine 
that the revision is in the public interest. The approval may be 
subject to conditions such as requiring an annual renewal, or setting 
the timing and conditions for when phased contractions or termination 
of the revision may occur.


Sec.  3283.3  How will the unit operator know the status of a unit 
contraction revision request?

    BLM will notify the unit operator in writing of our decision. If we 
approve the request, we:
    (a) Will specify the term of the contraction extension and/or which 
lands will remain in the unit agreement;
    (b) May require the unit operator to update the informational 
requirements of subpart 3282; and
    (c) May terminate the participating area contraction revision if we 
find termination is necessary in the public interest.


Sec.  3283.4  When may the unit operator add lands to or remove lands 
from a unit agreement?

    (a) The unit operator may request BLM to designate the addition or 
removal of lands to or from a unit agreement.
    (b) In order for BLM to complete a review of the unit area revision 
request, the unit operator must submit to BLM the information required 
in Sec. Sec.  3281.2, 3281.3, and 3281.7.
    (c) BLM will:
    (1) Review the request;
    (2) Determine whether the information provided is sufficient and 
whether the new or additional geologic information or interpretation 
provides an acceptable basis for the unit boundary change; and
    (3) Notify the unit operator in writing of our decision.
    (d) If BLM approves the revision, the unit operator must notify all 
owners of lease interests or mineral rights of the unit area revision.


Sec.  3283.5  When will BLM periodically review unit agreements?

    BLM will periodically review all unit agreements to determine 
compliance with Sec.  3283.6 in accordance with the following schedule:
    (a) Not later than 5 years after the approval of each unit 
agreement; and
    (b) At least every 5 years following the initial unit review.


Sec.  3283.6  What is the purpose of BLM's periodic review?

    (a) BLM must review all unit agreements to determine whether any 
leases, or portions of leases, committed to any unit are no longer 
reasonably necessary for unit operations, and eliminate from inclusion 
in the unit agreement any such lands it determines not reasonably 
necessary for unit operations.
    (b) The elimination will be based on scientific evidence, and occur 
only for the purpose of conserving and properly managing the geothermal 
resources.
    (c) BLM will not eliminate any lands from a unit until BLM provides 
the unit operator, the lessee, and any other person with a legal 
interest in such lands, with reasonable notice and an opportunity to 
comment.
    (d) Any lands eliminated from a unit under this section are 
eligible for a lease extension under subpart 3207 of part 3200 of this 
chapter if the lands meet the requirements for the extension.


Sec.  3283.7  When may unit operators be changed?

    Unit operators may be changed only with BLM's written approval.


Sec.  3283.8  What must be filed with BLM to change the unit operator?

    To change the unit operator, the new operator must:
    (a) Meet the qualification requirements of Sec.  3281.11;
    (b) Submit to BLM evidence of acceptable bonding under Sec. Sec.  
3214.13 of this chapter; and
    (c) File with BLM written acceptance of the unit terms and 
obligations.


Sec.  3283.9  When is a change of unit operator effective?

    The change is effective when BLM approves the new unit operator in 
writing.


Sec.  3283.10  If there is a change in the unit operator, when does the 
previous operator's liability end?

    (a) The previous unit operator remains responsible for all duties 
and obligations of the unit agreement until BLM approves a new unit 
operator. The change of the unit operator does not release the previous 
unit operator from any liability for any obligations that accrued 
before the effective date of the change (see Sec.  3215.14 of this 
chapter).
    (b) The new unit operator is responsible for all unit duties and 
obligations after BLM approves the change.

[[Page 24439]]

Sec.  3283.11  Do the terms and conditions of a unit agreement modify 
Federal lease stipulations?

    Nothing in a unit agreement modifies stipulations included in any 
Federal lease.


Sec.  3283.12  Are transferees and successors in interest of Federal 
geothermal leases bound by the terms and conditions of the unit 
agreement?

    The terms and conditions of the unit agreement are binding on 
transferees and successors in interest to Federal geothermal leases 
committed to a unit agreement.

Subpart 3284--Unit Operations


Sec.  3284.1  What general standards apply to operations within a unit?

    All unit operations must comply with:
    (a) The terms and conditions of the unit agreement; and
    (b) The standards and orders listed in the following chart:

------------------------------------------------------------------------
                                    Regulations on      Regulations on
                                      Operational          Orders or
        Type of operation           Standards  (43     Instructions  (43
                                         CFR)                CFR)
------------------------------------------------------------------------
Exploration.....................      Sec.   3250.12      Sec.   3250.13
Drilling........................      Sec.   3260.11      Sec.   3260.12
Production or Utilization.......      Sec.   3270.11      Sec.   3270.12
------------------------------------------------------------------------

Sec.  3284.2  What are the principal operational responsibilities of 
the unit operator?

    The unit operator is responsible for:
    (a) Diligently drilling for and developing in the public interest 
the geothermal resource occurring in the unit area. Only the unit 
operator is authorized to conduct:
    (1) Any phase of drilling authorized under subpart 3260 of this 
chapter, unless another person is specifically authorized by BLM to 
conduct drilling (see Sec.  3284.3);
    (2) Resource development activities such as production and 
injection; and
    (3) Delivery of the resource for commercial operation. An entity 
other than the unit operator, such as a facility operator, may purchase 
or utilize the resource produced from the unit.
    (b) Providing written notification to BLM within 30 days after any 
changes to the commitment status of any lease or tract in the unit area 
(see Sec. Sec.  3281.9 and 3284.12); and
    (c) Insuring that the Federal Government receives all royalties, 
direct use fees, and rents for activities within the participating 
area.


Sec.  3284.3  What happens if the minimum initial unit obligations are 
not met?

    (a) If the unit operator does not drill a well designed to produce 
or utilize geothermal resources in commercial quantities within the 
timeframe specified in the unit agreement, or the unit operator 
relinquishes the unit agreement before meeting the minimum initial unit 
obligations:
    (1) BLM will deem the unit agreement void as though it was never in 
effect;
    (2) BLM will deem any lease extension based upon the existence of 
the unit as void retroactive to the date the unit was effective; and
    (3) Any lease segregations based on the unit become invalid.
    (b) BLM will send the unit operator a written decision confirming 
that the unit agreement is void.


Sec.  3284.4  How are unit agreement terms affected after completion of 
the initial unit well?

    (a) Upon completion of a unit well that BLM determines will produce 
or utilize geothermal resources in commercial quantities, the unit 
operator must submit a proposed participating area application under 
Sec.  3282.3, and no additional drilling to meet unit obligations is 
required. If no additional drilling in the unit occurs, the unit area 
will contract to the participating area as specified in the unit 
agreement.
    (b) If a unit operator drills a well designed to produce or utilize 
geothermal resources in commercial quantities, but the well will not 
produce commercially or is not producible, the unit operator must 
continue drilling additional wells within the timeframes specified in 
the unit agreement until a unit well is completed that BLM determines 
will produce or utilize geothermal resources in commercial quantities. 
BLM may terminate a unit if additional wells are not drilled within the 
timeframes specified in the unit agreement.
    (c) The unit agreement will expire if no well that BLM determines 
will produce or utilize geothermal resources in commercial quantities 
is completed within the timeframes specified in the unit agreement.
    (d) BLM will send the unit operator a written decision confirming 
that the unit agreement has been terminated or has expired.


Sec.  3284.5  How do unit operations affect lease extensions?

    (a) Once the minimum initial unit obligation is met, lease 
extensions approved under Sec.  3207.17 of this chapter based upon unit 
commitment will remain in effect until the unit is relinquished, 
expires, terminates, or the lease on which the initial unit obligation 
was met is eliminated from the unit.
    (b) As long as there are commercial operations within the unit or 
there exists a unit well that BLM has determined is producing or 
utilizing geothermal resources in commercial quantities, lease 
extensions for any leases or portions of leases within the 
participating area will remain in effect as long as operations meet the 
requirements of Sec.  3207.15 of this chapter.


Sec.  3284.6  May BLM authorize a working interest owner to drill a 
well on lands committed to the unit?

    (a) BLM may authorize a working interest owner to drill a well on 
the interest owner's lease only if it is located outside of an 
established participating area. However, BLM will only do so upon 
determining that:
    (1) The unit operator is not diligently pursuing unit development; 
and
    (2) Drilling the well is in the public interest.
    (b) If BLM determines that a working interest has completed a well 
that will produce or utilize geothermal resources in commercial 
quantities, the unit operator must:
    (1) Apply to revise the participating area to include the well; and
    (2) Operate the well.


Sec.  3284.7  May BLM authorize operations on uncommitted Federal 
leases located within a unit?

    BLM may authorize a lessee/operator to conduct operations on an 
uncommitted Federal lease located within a unit if the lessee/operator 
demonstrates to our satisfaction that operations on the lease are:
    (a) In the public interest; and
    (b) Will not unnecessarily affect unit operations.

[[Page 24440]]

Sec.  3284.8  May a unit have multiple operators?

    A unit may have only one operator.


Sec.  3284.9  May BLM set or modify production or injection rates?

    BLM may set or modify the quantity, rate, or location of production 
or injection occurring under a unit agreement to ensure protection of 
Federal resources.


Sec.  3284.10  What must a unit operator do to prevent or compensate 
for drainage?

    The unit operator must take all necessary measures to prevent or 
compensate for drainage of geothermal resources from unitized land by 
wells on land not subject to the unit agreement (see Sec. Sec.  3210.16 
and 3210.17 of this chapter).


Sec.  3284.11  Must the unit operator develop and operate on every 
lease or tract in the unit to comply with the obligations in the 
underlying leases or agreements?

    The unit operator is not required to develop and operate on every 
lease or tract in the unit agreement to comply with the obligations in 
the underlying leases or agreement. The development and operation on 
any lands subject to a unit agreement is considered full performance of 
all obligations for development and operation for every separately 
owned lease or tract in the unit, regardless of whether there is 
development of any particular tract of the unit area.


Sec.  3284.12  When must the unit operator notify BLM of any changes of 
lease and tract commitment status?

    The unit operator must provide updated documentation of commitment 
status (see Sec. Sec.  3281.8 through 3281.10) of all leases and tracts 
to BLM whenever a change in commitment, such as the expiration of a 
private lease, occurs. The unit operator must submit the documentation 
to BLM within 30 days after the change occurs. The unit operator must 
also notify all lessees and mineral interest owners of these changes.

Subpart 3285--Unit Termination


Sec.  3285.1  When may BLM terminate a unit agreement?

    BLM may terminate a unit agreement if the unit operator does not 
comply with any term or condition of the unit agreement.


Sec.  3285.2  When may BLM approve a voluntary termination of a unit 
agreement?

    BLM may approve the voluntary termination of a unit agreement at 
any time:
    (a) After receiving a signed certification agreeing to the 
termination from a sufficient number of the working interest owners 
specified in the unit agreement who together represent a majority 
interest in the unit agreement; and
    (b)(1) After the completion of the initial unit obligation well but 
before the establishment of a participating area; or
    (2) After a participating area is established, upon receipt of 
information providing adequate assurance that:
    (i) Diligent development and production of known commercial 
geothermal resources will occur; and
    (ii) The public interest is protected.

Subpart 3286--Model Unit Agreement


Sec.  3286.1  Model Unit Agreement.

    A unit agreement may use the following language:

    Unit Agreement for the Development and Operation of the ------ 
Unit Area, County of ------, State of ------.

Table of Contents

Article I--Enabling Act and Regulations
Article II--Definitions
Article III--Unit Area and Exhibits
Article IV--Contraction and Expansion of Unit Area
Article V--Unitized Land and Unitized Substances
Article VI--Unit Operator
Article VII--Resignation or Removal of Unit Operator
Article VIII--Successor Unit Operator
Article IX--Accounting Provisions and Unit Operating Agreement
Article X--Rights and Obligations of Unit Operator
Article XI--Plan of Development
Article XII--Participating Areas
Article XIII--Allocation of Unitized Substances
Article XIV--Relinquishment of Leases
Article XV--Rentals
Article XVI--Operations on Nonparticipating Land
Article XVII--Leases and Contracts Conformed and Extended
Article XVIII--Effective Date and Term
Article XIX--Appearances
Article XX--No Waiver of Certain Rights
Article XXI--Unavoidable Delay
Article XXII--Postponement of Obligations
Article XXIII--Nondiscrimination
Article XXIV--Counterparts
Article XXV--Subsequent Joinder
Article XXVI--Covenants Run With the Land
Article XXVII--Notices
Article XXVIII--Loss of Title
Article XXIX--Taxes
Article XXX--Relation of Parties
Article XXXI--Special Federal Lease Stipulations and/or Conditions

    This Agreement entered into as of the ------ day of ------, 20 
------, by and between the parties subscribing, ratifying, or 
consenting hereto, and herein referred to as the ``parties hereto''. 
Whereas the parties hereto are the owners of working, royalty, or 
other geothermal resources interests in land subject to this 
Agreement; and
    Whereas the Geothermal Steam Act of 1970 (84 Stat. 1566), as 
amended, hereinafter referred to as the ``Act'' authorizes Federal 
lessees and their representatives to unite with each other, or 
jointly or separately with others, in collectively adopting and 
operating under a unit agreement for the purpose of more properly 
conserving the natural resources of any geothermal resources 
reservoir, field, or like area, or any part thereof, whenever 
determined and certified by the Secretary of the Interior to be 
necessary or advisable in the public interest; and
    Whereas the parties hereto hold sufficient interest in the ----
-- Unit Area covering the land herein described to effectively 
control operations therein; and
    Whereas, it is the purpose of the parties hereto to conserve 
natural resources, prevent waste, and secure other benefits 
obtainable through development and operations of the area subject to 
this Agreement under the terms, conditions, and limitations herein 
set forth;
    Now, therefore, in consideration of the premises and the 
promises herein contained, the parties hereto commit to this 
agreement their respective interests in the below-defined Unit Area, 
and agree severally among themselves as follows:

Article I--Enabling Act and Regulations

    1.1 The Act and all valid pertinent U.S. Department of the 
Interior regulations, including operating and unit plan regulations, 
heretofore or hereafter issued thereunder are accepted and made a 
part of this agreement as to Federal lands.
    1.2 As to non-Federal lands, the Bureau of Land Management 
(``BLM'') geothermal resources operating regulations in effect as of 
the effective date hereof governing drilling and producing 
operations, not inconsistent with the laws of the State in which the 
non-Federal land is located, are hereby accepted and made a part of 
this agreement.

Article II--Definitions

    2.1 The following terms shall have the meanings here indicated:
    (a) Geothermal Lease. A lease issued under the act of December 
24, 1970 (84 Stat. 1566), as amended, pursuant to the leasing 
regulations contained in 43 CFR Group 3200 and, unless the context 
indicates otherwise, ``lease'' shall mean a geothermal lease.
    (b) Unit Area. The area described in Article III of this 
Agreement.
    (c) Unit Operator. The person, association, partnership, 
corporation, or other business entity designated under this 
Agreement to conduct operations on Unitized Land as specified 
herein.
    (d) Participating Area. That area of the Unit deemed to be 
productive as described in Article 12.1 herein and areas committed 
to the Unit by the Authorized Officer needed for support of 
operations of the Unit Area. The production allocated for lands used 
for support of operations shall be approved by the Authorized 
Officer pursuant to Articles 12.1 and 13.1 herein.

[[Page 24441]]

    (e) Working Interest. The interest held in geothermal resources 
or in lands containing the same by virtue of a lease, operating 
agreement, fee title, or otherwise, under which, except as otherwise 
provided in this Agreement, the owner of such interest is vested 
with the right to explore for, develop, produce and utilize such 
resources. The right delegated to the Unit Operator as such by this 
Agreement is not to be regarded as a Working Interest.
    (f) Secretary. The Secretary of the Interior or any person duly 
authorized to exercise powers vested in that officer.
    (g) Director. The Director of the Bureau of Land Management or 
any person duly authorized to exercise powers vested in that 
officer.
    (h) Authorized Officer. Any person authorized by law or by 
lawful delegation of authority in the Bureau of Land Management to 
perform the duties described.

Article III--Unit Area and Exhibits

    3.1 The area specified on the map attached hereto marked 
``Exhibit A'' is hereby designated and recognized as constituting 
the Unit Area, containing ------ acres, more or less. The above-
described Unit Area shall be expanded, when practicable, to include 
therein any additional lands or shall be contracted to exclude lands 
whenever such expansion or contraction is deemed to be necessary or 
advisable to conform with the purposes of this Agreement.
    3.2 Exhibit A attached hereto and made a part hereof is a map 
showing the boundary of the Unit Area, the boundaries and identity 
of tracts and leases in said area to the extent known to the Unit 
Operator.
    3.3 Exhibit B attached hereto and made a part thereof is a 
schedule showing to the extent known to the Unit Operator the 
acreage, percentage, and kind of ownership of geothermal resources 
interests in all lands in the Unit Area.
    3.4 Exhibits A and B shall be revised by the Unit Operator 
whenever changes in the Unit Area render such revision necessary, or 
when requested by the authorized officer, and not less than five 
copies of the revised Exhibits shall be filed with the authorized 
officer.

Article IV--Contraction and Expansion of Unit Area

    4.1 Unless otherwise specified herein, the expansion and/or 
contraction of the Unit Area contemplated in Article 3.1 hereof 
shall be effected in the following manner:
    (a) The Unit Operator, either on demand of the authorized 
officer or on its own motion and after prior concurrence by the 
authorized officer, shall prepare a notice of proposed expansion or 
contraction describing the contemplated changes in the boundaries of 
the Unit Area, the reasons therefore, and the proposed effective 
date thereof, preferably the first day of a month subsequent to the 
date of notice.
    (b) Said notice shall be delivered to the authorized officer, 
and copies thereof mailed to the last known address of each Working 
Interest Owner, Lessee, and Lessor whose interests are affected, 
advising that 30 days will be allowed to submit any objections to 
the Unit Operator.
    (c) Upon expiration of the 30-day period provided in the 
preceding item 4.1(b), Unit Operator shall file with the authorized 
officer evidence of mailing of the notice of expansion or 
contraction and a copy of any objections thereto that have been 
filed with the Unit Operator, together with an application in 
sufficient number, for approval of such expansion or contraction and 
with appropriate joinders.
    (d) After due consideration of all pertinent information, the 
expansion or contraction shall, upon approval by the authorized 
officer, become effective as of the date prescribed in the notice 
thereof.
    4.2 Unitized Leases, insofar as they cover any lands excluded 
from the Unit Area under any of the provisions of this Article IV, 
may be maintained and continued in force and effect in accordance 
with the terms, provisions, and conditions contained in the Act, and 
the lease or leases and amendments thereto, except that operations 
and/or production under this Unit Agreement shall not serve to 
maintain or continue the excluded portion of any lease.
    4.3 All legal subdivisions of unitized lands (i.e., 40 acres by 
Governmental survey or its nearest lot or tract equivalent in 
instances of irregular surveys), no part of which is entitled to be 
within a Participating Area on the 5th anniversary of the effective 
date of the initial Participating Area established under this 
Agreement, shall be eliminated automatically from this Agreement 
effective as of said 5th anniversary. Such lands shall no longer be 
a part of the Unit Area and shall no longer be subject to this 
Agreement, unless diligent drilling operations are in progress on an 
exploratory well on said 5th anniversary, in which event such lands 
shall not be eliminated from the Unit Area for as long as 
exploratory drilling operations are continued diligently with not 
more than six (6) months time elapsing between the completion of one 
exploratory well and the commencement of the next exploratory well.
    4.4 An exploratory well, for the purposes of this Article IV, is 
defined as any well, regardless of surface location, projected for 
completion:
    (a) In a zone or deposit below any zone or deposit for which a 
Participating Area has been established and is in effect; or
    (b) At a subsurface location under Unitized Lands not entitled 
to be within a Participating Area.
    4.5 In the event an exploratory well is completed during the six 
(6) months immediately preceding the 5th anniversary of the initial 
Participating Area established under this Agreement, lands not 
entitled to be within a Participating Area shall not be eliminated 
from this Agreement on said 5th anniversary, provided the drilling 
of another exploratory well is commenced under an approved Plan of 
Development within six (6) months after the completion of said well. 
In such event, the land not entitled to be in participation shall 
not be eliminated from the Unit Area so long as exploratory drilling 
operations are continued diligently with not more than six (6) 
months time elapsing between the completion of one exploratory well 
and the commencement of the next exploratory well.
    4.6 With prior approval of the authorized officer, a specified 
period of time in excess of six (6) months may be allowed to elapse 
between the completion of one well and the commencement of the next 
well without the automatic elimination of nonparticipating acreage.
    4.7 Unitized lands proved productive by drilling operations that 
serve to delay automatic elimination of lands under this Article IV 
shall be incorporated into a Participating Area (or Areas) in the 
same manner as such lands would have been incorporated in such areas 
had such lands been proven productive during the year preceding said 
5th anniversary.
    4.8 In the event nonparticipating lands are retained under this 
Agreement after the 5th anniversary of the initial Participating 
Area as a result of exploratory drilling operations, all legal 
subdivisions of unitized land (i.e., 40 acres by Government survey 
or its nearest lot or tract equivalent in instances of irregular 
Surveys), no part of which is entitled to be within a Participating 
Area, shall be eliminated automatically as of the 183rd day, or such 
later date as may be established by the authorized officer, 
following the completion of the last well recognized as delaying 
such automatic elimination beyond the 5th anniversary of the initial 
Participating Area established under this Agreement.

Article V--Unitized Land and Unitized Substances

    5.1 All land committed to this Agreement shall constitute land 
referred to herein as ``Unitized Land.'' All geothermal resources in 
and produced from any and all formations of the Unitized Land are 
unitized under the terms of this agreement and herein are called 
``Unitized Substances.''

Article VI--Unit Operator

    6.1 ------ is hereby designated as Unit Operator, and by 
signature hereto as Unit Operator agrees and consents to accept the 
duties and obligations of Unit Operator for the discovery, 
development, production, distribution, and utilization of Unitized 
Substances as herein provided. Whenever reference is made herein to 
the Unit Operator, such reference means the Unit Operator acting in 
that capacity and not as an owner of interest in Unitized 
Substances, and the term ``Working Interest Owner,'' when used 
herein, shall include or refer to Unit Operator as the owner of a 
Working Interest when such an interest is owned by it.

Article VII--Resignation or Removal of Unit Operator

    7.1 The Unit Operator shall have the right to resign. Such 
resignation shall not become effective so as to release Unit 
Operator from the duties and obligations of Unit Operator or 
terminate Unit Operators rights, as such, for a period of six (6) 
months after notice of its intention to resign has been served by 
Unit Operator on all Working Interest Owners and the authorized 
officer, nor until all wells then drilled hereunder are placed in a 
satisfactory condition for suspension or abandonment, whichever is 
required by the authorized officer, unless a new Unit

[[Page 24442]]

Operator shall have been selected and approved and shall have taken 
over and assumed the duties and obligations of Unit Operator prior 
to the expiration of said period.
    7.2 The Unit Operator may, upon default or failure in the 
performance of its duties or obligations hereunder, be subject to 
removal by the same percentage vote of the owners of Working 
Interests as herein provided for the selection of a new Unit 
Operator. Such removal shall be effective upon notice thereof to the 
authorized officer.
    7.3 The resignation or removal of Unit Operator under this 
Agreement shall not terminate its right, title, or interest as the 
owner of a Working Interest or other interest in Unitized 
Substances, but upon the resignation or removal of Unit Operator 
becoming effective, such Unit Operator shall deliver possession of 
all wells, equipment, material, and appurtenances used in conducting 
the unit operations to the new duly qualified successor Unit 
Operator or, if no such new unit operator is elected, to the common 
agent appointed to represent the Working Interest Owners in any 
action taken hereunder, to be used for the purpose of conducting 
operations hereunder.
    7.4 In all instances of resignation or removal, until a 
successor Unit Operator is selected and approved as hereinafter 
provided, the Working Interest Owners shall be jointly responsible 
for performance of the duties and obligations of Unit Operator, and 
shall not later than 30 days before such resignation or removal 
becomes effective appoint a common agent to represent them in any 
action to be taken hereunder.
    7.5 The resignation or removal of Unit Operator shall not 
release Unit Operator from any liability for any default by it 
hereunder occurring prior to the effective date of its resignation 
or removal.

Article VIII--Successor Unit Operator

    8.1 If, prior to the establishment of a Participating Area 
hereunder, the Unit Operator shall resign as Operator, or shall be 
removed as provided in Article VII, a successor Unit Operator may be 
selected by vote of the more than one-half of the owners of the 
Working Interests in Unitized Substances, based on their respective 
shares, on an acreage basis, in the Unitized Land.
    8.2 If, after the establishment of a Participating Area 
hereunder, the Unit Operator shall resign as Unit Operator, or shall 
be removed as provided in Article VII, a successor Unit Operator may 
be selected by a vote of more than one-half of the owners of the 
Working Interests in Unitized Substances, based on their respective 
shares, on a participating acreage basis; provided that, if a 
majority but less than 60 percent of the Working Interest in the 
Participating Lands is owned by a party to this agreement, a 
concurring vote of one or more additional Working Interest Owners 
owning 10 percent or more of the Working Interest in the 
participating land shall be required to select a new Unit Operator.
    8.3 The selection of a successor Unit Operator shall not become 
effective until:
    (a) The Unit Operator so selected shall accept in writing the 
duties, obligations, and responsibilities of the Unit Operator; and
    (b) The selection shall have been approved by the authorized 
officer.
    8.4 If no successor Unit Operator is selected and qualified as 
herein provided, the authorized officer at his or her election may 
declare this Agreement terminated.

Article IX--Accounting Provisions and Unit Operating Agreement

    9.1 Costs and expenses incurred by Unit Operator in conducting 
unit operations hereunder shall be paid and apportioned among and 
borne by the owners of Working Interests; all in accordance with the 
agreement or agreements entered into by and between the Unit 
Operator and the owners of Working Interests, whether one or more, 
separately or collectively.
    9.2 Any agreement or agreements entered into between the Working 
Interest Owners and the Unit Operator as provided in this Article, 
whether one or more, are herein referred to as the ``Unit Operating 
Agreement.''
    9.3 The Unit Operating Agreement shall provide the manner in 
which the Working Interest Owners shall be entitled to receive their 
respective share of the benefits accruing hereto in conformity with 
their underlying operating agreements, leases, or other contracts, 
and such other rights and obligations, as between Unit Operator and 
the Working Interest Owners.
    9.4 Neither the Unit Operating Agreement nor any amendment 
thereto shall be deemed either to modify any of the terms and 
conditions of this Agreement or to relieve the Unit Operator of any 
right or obligation established under this Agreement.
    9.5 In case of any inconsistency or conflict between this 
Agreement and the Unit Operating Agreement, this Agreement shall 
govern.
    9.6 Three true copies of any Unit Operating Agreement executed 
pursuant to this Article IX shall be filed with the authorized 
officer prior to approval of this Agreement.

Article X--Rights and Obligations of Unit Operator

    10.1 The right, privilege, and duty of exercising any and all 
rights of the parties hereto that are necessary or convenient for 
exploring, producing, distributing, or utilizing Unitized Substances 
are hereby delegated to and shall be exercised by the Unit Operator 
as provided in this Agreement in accordance with a Plan of 
Development approved by the authorized officer.
    10.2 Upon request by Unit Operator, acceptable evidence of title 
to geothermal resources interests in the Unitized Land shall be 
deposited with the Unit Operator and together with this Agreement 
shall constitute and define the rights, privileges, and obligations 
of Unit Operator.
    10.3 Nothing in this Agreement shall be construed to transfer 
title to any land or to any lease or operating agreement, it being 
understood that the Unit Operator, in its capacity as Unit Operator, 
shall exercise the rights of possession and use vested in the 
parties hereto only for the purposes specified in this Agreement.
    10.4 The Unit Operator shall take such measures as the 
authorized officer deems appropriate and adequate to prevent 
drainage of Unitized Substances from Unitized Land by wells on land 
not subject to this Agreement.
    10.5 The authorized officer is hereby vested with authority to 
alter or modify, from time to time, in the authorized officer's 
discretion, the rate of prospecting and development and the quantity 
and rate of production under this Agreement.

Article XI--Plan of Development

    11.1 Concurrently with the submission of this Agreement to BLM 
for approval, the Unit Operator shall submit to BLM an acceptable 
initial Plan of Development. Said plan shall be as complete and 
adequate as the authorized officer may determine to be necessary for 
timely exploration and/or development, and to insure proper 
protection of the environment and conservation of the natural 
resources of the Unit Area.
    11.2 Prior to the expiration of the initial Plan of Development, 
or any subsequent Plan of Development, Unit Operator shall submit 
for approval of the authorized officer an acceptable subsequent Plan 
of Development for the Unit Area which, when approved by the 
authorized officer, shall constitute the exploratory and/or 
development drilling and operating obligations of Unit Operator 
under this Agreement for the period specified therein.
    11.3 Any Plan of Development submitted hereunder shall:
    (a) Specify the number and locations of any exploration 
operations to be conducted or wells to be drilled, and the proposed 
order and time for such operations or drilling; and
    (b) To the extent practicable, specify the operating practices 
regarded as necessary and advisable for proper conservation of 
natural resources and protection of the environment in compliance 
with section 1.1 of this Agreement.
    11.4 The Plan of Development submitted concurrently with this 
Agreement for approval shall prescribe that the Unit Operator shall 
begin to drill a unit well identified in the Plan of Development 
approved by the authorized officer, unless on such effective date a 
well is being drilled conformably with the terms hereof, and 
thereafter continue such drilling diligently until the ------ 
formation has been tested or until at a lesser depth unitized 
substances shall be discovered that can be produced in commercial 
quantities (i.e., quantities sufficient to repay the costs of 
drilling, completing, and producing operations, with a reasonable 
profit) or the Unit Operator shall at any time establish to the 
satisfaction of the authorized officer that further drilling of said 
well would be unwarranted or impracticable; provided, however, that 
the Unit Operator shall not in any event be required to drill said 
well to a depth in excess of ------ feet.
    11.5 The initial Plan of Development and/or subsequent Plan of 
Development submitted under this Article shall provide that the Unit 
Operator shall initiate a continuous drilling program providing for 
drilling of no less than one well at a time, and allowing no more 
than six (6) months time to elapse between completion and testing of 
one well and the beginning of the

[[Page 24443]]

next well, until a well capable of producing or utilizing Unitized 
Substances in commercial quantities is completed to the satisfaction 
of the authorized officer, or until it is reasonably proven that the 
Unitized Land is incapable of producing Unitized Substances in 
commercial quantities in the formations drilled under this 
Agreement.
    11.6 The authorized officer may modify the exploration operation 
or drilling requirements of the initial or subsequent Plans of 
Development by granting reasonable extensions of time when, in his 
or her opinion, such action is warranted and in the public interest.
    11.7 Until a well capable of producing or utilizing Unitized 
Substances in commercial quantities is completed, the failure of 
Unit Operator in a timely manner to conduct any exploration 
operations or drill any of the wells provided for in Plans of 
Development required under this Article XI or to submit a timely and 
acceptable subsequent Plan of Development, shall, after notice of 
default or notice of prospective default to Unit Operator by the 
authorized officer, and after failure of Unit Operator to remedy any 
actual default within a reasonable time (as determined by the 
authorized officer), result in automatic termination of this 
Agreement effective as of the date of the default, as determined by 
the authorized officer.
    11.8 Separate Plans of Development may be submitted for separate 
productive zones, subject to the approval of the authorized officer. 
Also subject to the approval of the authorized officer, Plans of 
Development shall be modified or supplemented when necessary to meet 
changes in conditions or to protect the interest of all parties to 
this Agreement.

Article XII--Participating Areas

    12.1 Prior to the commencement of production of Unitized 
Substances, the Unit Operator shall submit for approval by the 
authorized officer a schedule (or schedules) of all land then 
regarded as reasonably proven to be productive from a pool or 
deposit discovered or developed; all lands in said schedule (or 
schedules), on approval of the authorized officer, will constitute a 
Participating Area (or Areas), effective as of the date production 
commences or the effective date of this Unit Agreement, whichever is 
later. Said schedule (or schedules) shall also set forth the 
percentage of Unitized Substances to be allocated, as herein 
provided, to each tract in the Participating Area (or Areas), and 
shall govern the allocation of production, commencing with the 
effective date of the Participating Area.
    12.2 A separate Participating Area shall be established for each 
separate pool or deposit of Unitized Substances or for any group 
thereof that is produced as a single pool or deposit, and any two or 
more Participating Areas so established may be combined into one, on 
approval of the authorized officer. The effective date of any 
Participating Area established after the commencement of actual 
production of Unitized Substances shall be the first of the month in 
which is obtained the knowledge or information on which the 
establishment of said Participating Area is based, unless a more 
appropriate effective date is proposed by the Unit Operator and 
approved by the authorized officer.
    12.3 Any Participating Area (or Areas) established under 12.1 or 
12.2 above shall, subject to the approval of the authorized officer, 
be revised from time to time to:
    (a) Include additional land then regarded as reasonably proved 
to be productive from the pool or deposit for which the 
Participating Area was established;
    (b) Include lands necessary to unit operations;
    (c) Exclude land then regarded as reasonably proved not to be 
productive from the pool or deposit for which the Participating Area 
was established; or
    (d) Exclude land not necessary to unit operations; and
    (e) Revise the schedule (or schedules) of allocation percentages 
accordingly.
    12.4 Subject to the limitation cited in 12.1 hereof, the 
effective date of any revision of a Participating Area established 
under Articles 12.1 or 12.2 shall be the first of the month in which 
is obtained the knowledge or information on which such revision is 
predicated; provided, however, that a more appropriate effective 
date may be used if justified by the Unit Operator and approved by 
the authorized officer.
    12.5 No land shall be excluded from a Participating Area on 
account of depletion of the Unitized Substances, except that any 
Participating Area established under the provisions of this Article 
XII shall terminate automatically whenever all operations are 
abandoned in the pool or deposit for which the Participating Area 
was established.
    12.6 Nothing herein contained shall be construed as requiring 
any retroactive adjustment for production obtained prior to the 
effective date of the revision of a Participating Area.

Article XIII--Allocation of Unitized Substances

    13.1 All Unitized Substances produced from a Participating Area 
established under this Agreement shall be deemed to be produced 
equally, on an acreage basis, from the several tracts of Unitized 
Land within the Participating Area established for such production.
    13.2 For the purpose of determining any benefits accruing under 
this Agreement, each Tract of Unitized Land shall have allocated to 
it such percentage of said production as the number of acres in the 
Tract included in the Participating Area bears to the total number 
of acres of Unitized Land in said Participating Area.
    13.3 Allocation of production hereunder for purposes other than 
settlement of the royalty obligations of the respective Working 
Interest Owners shall be on the basis prescribed in the Unit 
Operating Agreement, whether in conformity with the basis of 
allocation set forth above or otherwise.
    13.4 The Unitized Substances produced from a Participating Area 
shall be allocated as provided herein, regardless of whether any 
wells are drilled on any particular part or tract of said 
Participating Area.

Article XIV--Relinquishment of Leases

    14.1 Pursuant to the provisions of the Federal leases and 43 CFR 
subpart 3213, a lessee of record shall, subject to the provisions of 
the Unit Operating Agreement, have the right to relinquish any of 
its interests in leases committed hereto, in whole or in part; 
provided, that no relinquishment shall be made of interests in land 
within a Participating Area without the prior approval of the 
authorized officer.
    14.2 A Working Interest Owner may exercise the right to 
surrender, when such right is vested in it by any non-Federal lease, 
sublease, or operating agreement, provided that each party who will 
or might acquire the Working Interest in such lease by such 
surrender or by forfeiture is bound by the terms of this Agreement, 
and further provided that no relinquishment shall be made of such 
land within a Participating Area without the prior written consent 
of the non-Federal Lessor.
    14.3 If, as the result of relinquishment, surrender, or 
forfeiture, the Working Interests become vested in the fee owner or 
lessor of the Unitized Substances, such owner may:
    (a) Accept those Working Interest rights and obligations subject 
to this Agreement and the Unit Operating Agreement, or
    (b) Lease the portion of such land as is included in a 
Participating Area established hereunder, subject to this Agreement 
and the Unit Operating Agreement, and provide for the independent 
operation of any part of such land that is not then included within 
a Participating Area established hereunder.
    14.4 If the fee owner or lessor of the Unitized Substances does 
not, (1) accept the Working Interest rights and obligations subject 
to this Agreement and the Unit Operating Agreement, or (2) lease 
such lands as provided in 14.3 above within six (6) months after the 
relinquished, surrendered, or forfeited Working Interest becomes 
vested in said fee owner or lessor, the Working Interest benefits 
and obligations accruing to such land under this Agreement and the 
Unit Operating Agreement shall be shared by the owners of the 
remaining unitized Working Interests in accordance with their 
respective Working Interest ownerships, and such owners of Working 
Interests shall compensate the fee owner or lessor of Unitized 
Substances in such lands by paying sums equal to the rentals, 
minimum royalties, and royalties applicable to such lands under the 
lease or leases in effect when the Working Interests were 
relinquished, surrendered, or forfeited.
    14.5 Subject to the provisions of 14.4 above, an appropriate 
accounting and settlement shall be made for all benefits accruing to 
or payments and expenditures made or incurred on behalf of any 
surrendered or forfeited Working Interest subsequent to the date of 
surrender or forfeiture, and payment of any moneys found to be owing 
by such an accounting shall be made as between the parties within 
thirty (30) days.
    14.6 In the event no Unit Operating Agreement is in existence 
and a mutually acceptable agreement cannot be consummated between 
the proper parties, the authorized officer may prescribe such

[[Page 24444]]

reasonable and equitable conditions of agreement as he deems 
warranted under the circumstances.
    14.7 The exercise of any right vested in a Working Interest 
Owner to reassign such Working Interest to the party from whom it 
was obtained shall be subject to the same conditions as set forth in 
this Article XIV in regard to the exercise of a right to surrender.

Article XV--Rentals

    15.1 ny unitized lease on non-Federal land containing provisions 
that would terminate such lease unless (1) drilling operations are 
commenced upon the land covered thereby within the time therein 
specified or (2) rentals are paid for the privilege of deferring 
such drilling operations, the rentals required thereby shall, 
notwithstanding any other provisions of this Agreement, be deemed to 
accrue as to the portion of the lease not included within a 
Participating Area and become payable during the term thereof as 
extended by this Agreement, and until the required drillings are 
commenced upon the land covered thereby.
    15.2 Nothing herein operates to relieve the lessees of any land 
from their respective lease obligations for the payment of any 
rental or royalty due under their leases.
    15.3 Rental and royalty due on the leases committed to the Unit 
shall be paid by Working Interest Owners responsible under existing 
contracts, laws, and regulations, or by the Unit Operator.

Article XVI--Operations on Nonparticipating Land

    16.1 Any party hereto owning or controlling the Working Interest 
in any Unitized Land having a regular well location may, with the 
approval of the authorized officer and at such party's sole risk, 
costs, and expense, drill a well to test any formation of deposit 
for which a Participating Area has not been established or to test 
any formation or deposit for which a Participating Area has been 
established if such location is not within said Participating Area, 
unless within 30 days of receipt of notice from said party of his 
intention to drill the well, the Unit Operator elects and commences 
to drill such a well in like manner as other wells are drilled by 
the Unit Operator under this Agreement.
    16.2 If any well drilled by a Working Interest Owner other than 
the Unit Operator proves that the land upon which said well is 
situated may properly be included in a Participating Area, such 
Participating Area shall be established or enlarged as provided in 
this Agreement, and the well shall thereafter be operated by the 
Unit Operator in accordance with the terms of this Agreement and the 
Unit Operating Agreement.

Article XVII--Leases and Contracts Conformed and Extended

    17.1 The terms, conditions, and provisions of all leases, 
subleases, and other contracts relating to exploration, drilling, 
development, or utilization of geothermal resources on lands 
committed to this Agreement, are hereby expressly modified and 
amended only to the extent necessary to make the same conform to the 
provisions hereof. Otherwise said leases, subleases, and contracts 
shall remain in full force and effect.
    17.2 The parties hereto consent that the Secretary shall, by his 
or her approval hereof, modify and amend the Federal leases 
committed hereto to the extent necessary to conform said leases to 
the provisions of this Agreement.
    17.3 The development and/or operation of lands subject to this 
Agreement under the terms hereof shall be deemed full performance of 
any obligations for development and operation with respect to each 
and every separately owned tract subject to this Agreement, 
regardless of whether there is any development of any particular 
tract of the Unit Area.
    17.4 Drilling and/or producing operations performed hereunder 
upon any tract of Unitized Lands will be deemed to be performed upon 
and for the benefit of each and every tract of Unitized Land.
    17.5 Suspension of operations and/or production on all Unitized 
Lands pursuant to direction or consent of the Secretary or his duly 
authorized representative shall be deemed to constitute such 
suspension pursuant to such direction or consent as to each and 
every tract of Unitized Land. A suspension of operations and/or 
production limited to specified lands shall be applicable only to 
such lands.
    17.6 Subject to the provisions of Article XV hereof and 17.10 of 
this Article, each lease, sublease, or contract relating to the 
exploration, drilling, development, or utilization of geothermal 
resources of lands other than those of the United States committed 
to this Agreement, is hereby extended beyond any such term provided 
therein so that it shall be continued for and during the term of 
this Agreement.
    17.7 Subject to the lease renewal and the readjustment provision 
of the Act, any Federal lease committed hereto may, as to the 
Unitized Lands, be continued for the term so provided in such lease, 
or as extended by law or regulation. If it is appropriate for BLM to 
extend the term of a lease to match the term of the unit, the Unit 
Operator shall take the actions required for such extension under 43 
CFR 3207.17, This subsection shall not operate to extend any lease 
or portion thereof as to lands excluded from the Unit Area by the 
contraction thereof.
    17.8 Each sublease or contract relating to the operations and 
development of Unitized Substances from lands of the United States 
committed to this Agreement shall be continued in force and effect 
for and during the term of the underlying lease.
    17.9 Any Federal lease heretofore or hereafter committed to any 
such unit plan embracing lands that are in part within and in part 
outside of the area covered by any such plan shall be segregated 
into separate leases as to the lands committed and the lands not 
committed, as of the effective date of unitization.
    17.10 In the absence of any specific lease provision to the 
contrary, any lease, other than a Federal lease, having only a 
portion of its land committed hereto shall be segregated as to the 
portion committed and the portion not committed, and the provisions 
of such lease shall apply separately to such segregated portions, 
commencing as of the effective date hereof. In the event any such 
lease provides for a lump-sum rental payment, such payment shall be 
prorated between the portions so segregated in proportion to the 
acreage of the respective tracts.
    17.11 Upon termination of this Agreement, the leases covered 
hereby may be maintained and continued in force and effect in 
accordance with the terms, provisions, and conditions of the Act, 
the lease or leases, and amendments thereto.

Article XVIII--Effective Date and Term

    18.1 This Agreement shall become effective upon approval by the 
Secretary or his duly authorized representative, and shall terminate 
five (5) years from said effective date unless:
    (a) Such date of expiration is extended by the authorized 
officer;
    (b) Unitized Substances are produced or utilized in commercial 
quantities in which event this Agreement shall continue for so long 
as Unitized Substances are produced or utilized in commercial 
quantities; or
    (c) This Agreement is terminated prior to the end of said five 
(5) year period as heretofore provided.
    18.2 This Agreement may be terminated at any time by the owners 
of a majority of the Working Interests on an acreage basis, with the 
approval of the authorized officer. Notice of any such approval 
shall be given by the Unit Operator to all parties hereto.

Article XIX--Appearances

    19.1 Unit Operator shall, after notice to other parties 
affected, have the right to appear for and on behalf of any and all 
interests affected hereby before the Department of the Interior, and 
to appeal from decisions, orders or rulings issued under the 
regulations of said Department, or to apply for relief from any of 
said regulations or in any proceedings relative to operations before 
the Department of the Interior or any other legally constituted 
authority: Provided, however, that any interested parties shall also 
have the right, at their own expense, to be heard in any such 
proceeding.

Article XX--No Waiver of Certain Rights

    20.1 Nothing contained in this Agreement shall be construed as a 
waiver by any party hereto of the right to assert any legal or 
constitutional right or defense pertaining to the validity or 
invalidity of any law of the State wherein lands subject to this 
Agreement are located, or of the United States, or regulations 
issued thereunder, in any way affecting such party, or as a waiver 
by any such party of any right beyond his or its authority to waive.

Article XXI--Unavoidable Delay

    21.1 The obligations imposed by this Agreement requiring Unit 
Operator to commence or continue drilling or to produce or utilize 
Unitized Substances from any of the land covered by this Agreement, 
shall be suspended while, but only so long as, Unit Operator, 
despite the exercise of due care and diligence, is prevented from 
complying with

[[Page 24445]]

such obligations, in whole or in part, by strikes, Acts of God, 
Federal or other applicable law, Federal or other authorized 
governmental agencies, unavoidable accidents, uncontrollable delays 
in transportation, inability to obtain necessary materials in open 
market, or other matters beyond the reasonable control of Unit 
Operator, whether similar to matters herein enumerated or not.
    21.2 No unit obligation that is suspended under this section 
shall become due less than thirty (30) days after it has been 
determined that the suspension is no longer applicable.
    21.3 Determination of creditable ``Unavoidable Delay'' time 
shall be made by the Unit Operator, subject to approval by the 
authorized officer.

Article XXII--Postponement of Obligations

    22.1 Notwithstanding any other provisions of this Agreement, the 
Authorized officer, on his own initiative or upon appropriate 
justification by Unit Operator, may postpone any obligation 
established by and under this Agreement to commence or continue 
drilling or to operate on or produce Unitized Substances from lands 
covered by this Agreement when, in his judgment, circumstances 
warrant such action.

Article XXIII--Nondiscrimination

    23.1 In connection with the performance of work under this 
Agreement, the Operator agrees to comply with all of the provisions 
of section 202(1) to (7) inclusive, of Executive Order 11246 (30 FR 
12319), as amended by Executive Order 11375 (32 FR 14303), which are 
hereby incorporated by reference in this Agreement.

Article XXIV--Counterparts

    24.1 This Agreement may be executed in any number of 
counterparts, no one of which needs to be executed by all parties, 
or may be ratified or consented to by separate instruments in 
writing specifically referring hereto, and shall be binding upon all 
parties who have executed such a counterpart, ratification, or 
consent hereto, with the same force and effect as if all such 
parties had signed the same document.

Article XXV--Subsequent Joinder

    25.1 If the owner of any substantial interest in geothermal 
resources under a tract within the Unit Area fails or refuses to 
subscribe or consent to this Agreement, the owner of the Working 
Interest in that tract may withdraw said tract from this Agreement 
by written notice delivered to the authorized officer and the Unit 
Operator prior to the approval of this Agreement by the authorized 
officer.
    25.2 Any geothermal resources interests in lands within the Unit 
Area not committed hereto prior to approval of this Agreement may 
thereafter be committed by the owner or owners thereof subscribing 
or consenting to this Agreement, and, if the interest is a Working 
Interest, by the owner of such interest also subscribing to the Unit 
Operating Agreement.
    25.3 After operations are commenced hereunder, the right of 
subsequent joinder, as provided in this Article XXV, by a Working 
Interest Owner is subject to such requirements or approvals, if any, 
pertaining to such joinder, as may be provided for in the Unit 
Operating Agreement. Joinder to the Unit Agreement by a Working 
Interest Owner at any time must be accompanied by appropriate 
joinder to the Unit Operating Agreement, if more than one committed 
Working Interest Owner is involved, in order for the interest to be 
regarded as committed to this Unit Agreement.
    25.4 After final approval hereof, joinder by a nonworking 
interest owner must be consented to in writing by the Working 
Interest Owner committed hereto and responsible for the payment of 
any benefits that may accrue hereunder in behalf of such nonworking 
interest. A nonworking interest may not be committed to this 
Agreement unless the corresponding Working Interest is committed 
hereto.
    25.5 Except as may otherwise herein be provided, subsequent 
joinders to this Agreement shall be effective as of the first day of 
the month following the filing with the authorized officer of duly 
executed counterparts of all or any papers necessary to establish 
effective commitment of any tract to this Agreement, unless 
objection to such joinder is duly made within sixty (60) days by the 
authorized officer.

Article XXVI--Covenants Run With the Land

    26.1 The covenants herein shall be construed to be covenants 
running with the land with respect to the interest of the parties 
hereto and their successors in interest until this Agreement 
terminates, and any grant, transfer, or conveyance, of interest in 
land or leases subject hereto shall be and hereby is conditioned 
upon the assumption of all privileges and obligations hereunder by 
the grantee, transferee, or other successor in interest.
    26.2 No assignment or transfer of any Working Interest or other 
interest subject hereto shall be binding upon Unit Operator until 
the first day of the calendar month after Unit Operator is furnished 
with the original, photostatic, or certified copy of the instrument 
of transfer.

Article XXVII--Notices

    27.1 All notices, demands, or statements required hereunder to 
be given or rendered to the parties hereto shall be deemed fully 
given if given in writing and personally delivered to the party or 
sent by postpaid registered or certified mail, addressed to such 
party or parties at their respective addresses set forth in 
connection with the signatures hereto, or to the ratification or 
consent hereof, or to such other address as any such party may have 
furnished in writing to the party sending the notice, demand, or 
statement.

Article XXVIII--Loss of Title

    28.1 In the event title to any tract of Unitized Land shall fail 
and the true owner cannot be induced to join in this Agreement, such 
tract shall be automatically regarded as not committed hereto, and 
there shall be such readjustment of future costs and benefits as may 
be required on account of the loss of such title.
    28.2 In the event of a dispute as to title to any royalty, 
Working Interest, or other interests subject hereto, payment or 
delivery on account thereof may be withheld without liability for 
interest until the dispute is finally settled: Provided, That, as to 
Federal land or leases, no payments of funds due the United States 
shall be withheld, but such funds shall be deposited as directed by 
the authorized officer to be held as unearned money pending final 
settlement of the title dispute, and then applied as earned or 
returned in accordance with such final settlement.

Article XXIX--Taxes

    29.1 The Working Interest Owners shall render and pay for their 
accounts and the accounts of the owners of nonworking interests all 
valid taxes on or measured by the Unitized Substances in and under, 
or that may be produced, gathered, and sold or utilized from, the 
land subject to this Agreement after the effective date hereof.
    29.2 The Working Interest Owners on each tract may charge a 
proper proportion of the taxes paid under 29.1 hereof to the owners 
of nonworking interests in said tract, and may reduce the allocated 
share of each royalty owner for taxes so paid. No taxes shall be 
charged to the United States or the State of ------ or to any lessor 
who has a contract with his lessee which requires the lessee to pay 
such taxes.

Article XXX--Relation of Parties

    30.1 It is expressly agreed that the relation of the parties 
hereto is that of independent contractors, and nothing in this 
Agreement contained, expressed, or implied, nor any operations 
conducted hereunder, shall create or be deemed to have created a 
partnership or association between the parties hereto or any of 
them.

Article XXXI--Special Federal Lease Stipulations and/or Conditions

    31.1 Nothing in this Agreement shall modify special lease 
stipulations and/or conditions applicable to lands of the United 
States. No modification of the conditions necessary to protect the 
lands or functions of lands under the jurisdiction of any Federal 
agency is authorized except with prior consent in writing whereby 
the authorizing official specifies the modification permitted.
    In witness whereof, the parties hereto have caused this 
Agreement to be executed and have set opposite their respective 
names the date of execution.
    Unit operator (as unit operator and as working interest owner):

By:
Name:
Title:
Date:

Subpart 3287--Relief and Appeals


Sec.  3287.1  May the unit operator request a suspension of unit 
obligations or development requirements?

    The unit operator may provide a written request to BLM to suspend 
any or all obligations under the unit agreement. BLM will specify the 
term of

[[Page 24446]]

the suspension and any requirements the unit operator must meet for the 
suspension to remain in effect.


Sec.  3287.2  When may BLM grant a suspension of unit obligations?

    (a) BLM may grant a suspension of unit obligations when, despite 
the exercise of due care and diligence, the unit operator is prevented 
from complying with such obligations, in whole or in part, by:
    (1) Acts of God;
    (2) Federal, state, or municipal laws;
    (3) Labor strikes;
    (4) Unavoidable accidents;
    (5) Uncontrollable delays in transportation;
    (6) The inability to obtain necessary materials or equipment in the 
open market; or
    (7) Other circumstances that BLM determines are beyond the 
reasonable control of the unit operator, such as agency timeframes 
required to complete environmental documents.
    (b) BLM may deny the request for suspension of unit obligations 
when the suspension would involve a lengthy or indefinite period. For 
example, BLM might not approve a suspension of initial drilling 
obligations due to a unit operator's inability to obtain an electrical 
sales contract, or when poor economics affect the electrical generation 
market, limiting the opportunity to obtain a viable sales contract. BLM 
may grant a suspension of subsequent drilling obligations when it is in 
the public interest.


Sec.  3287.3  How does a suspension of unit obligations affect the 
terms of the unit agreement?

    (a) BLM may suspend any terms of the unit agreement during the 
period a suspension is effective. During the period of the suspension, 
the involved unit terms are tolled. The suspension may not relieve the 
unit operator of its responsibility to meet other requirements of the 
unit agreement. For example, the unit operator may continue to be 
required to diligently develop or produce the resource during a 
suspension of drilling obligations.
    (b) The unit operator must ensure all interests in the agreement 
are notified of any suspension granted and the terms of the suspension.


Sec.  3287.4  May a decision made by BLM under this part be appealed?

    A unit operator or any other adversely affected person may appeal a 
BLM decision regarding unit administration or operations in accordance 
with Sec.  3200.5 of this chapter.

[FR Doc. E7-7991 Filed 5-1-07; 8:45 am]
BILLING CODE 4310-84-P