[Federal Register Volume 62, Number 24 (Wednesday, February 5, 1997)]
[Rules and Regulations]
[Pages 5329-5332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2822]


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DEPARTMENT OF THE INTERIOR
Minerals Management Service

30 CFR Part 250

RIN 1010-AC19


Unitization

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

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SUMMARY: This rule amends the unitization regulations by removing the 
two model unit agreements--one for exploration, development, and 
production units and the other for development and production units. 
The model agreements will be available from the Regional Supervisor. 
The rule is written in ``plain English.'' We take this action to 
support the President's initiative to reform Government regulations. 
Our objective is to shorten the regulation and clarify the wording.

EFFECTIVE DATE: This rule is effective on March 7, 1997.

FOR FURTHER INFORMATION CONTACT: Judith M. Wilson, Engineering and 
Standards Branch, telephone (703) 787-1600.

SUPPLEMENTARY INFORMATION: The rules on unitization in 30 CFR part 250, 
implementing section 5(a)7 of the Outer Continental Shelf (OCS) Lands 
Act Amendments of 1978, are intended to prevent waste (defined in 
Sec. 250.2), conserve natural resources (protection of marine life was 
incorporated into conservation in 1971; also refers to deterring 
unnecessary facilities), and/or protect correlative rights. The rules 
include provisions to:
    <bullet> Explain the authority and requirements for unitization;
    <bullet> Provide for compulsory or voluntary unitization;
    <bullet> Explain requirements for competitive reservoir operations;
    <bullet> Explain how a lessee may request a determination of 
whether a reservoir is competitive;
    <bullet> Explain how to submit a joint development and production 
plan;
    <bullet> Explain the process for voluntary unitization;
    <bullet> Explain the process for compulsory unitization; and
    <bullet> Explain the role of a model agreement.
    This final rule does not intend any substantive changes to the 
regulations. It shortens existing regulations by removing the model 
unit agreements. The ``plain English'' clarifies the existing rule.
    There are two model unit agreements--one for exploration, 
development, and production units and the other for development and 
production units. The model agreements will be available from the 
Regional Supervisor. The Regional Supervisor

[[Page 5330]]

can still approve variations from the model agreements for good cause. 
If MMS changes the model unit agreements, MMS will publish the revised 
model unit agreements in the Federal Register.

Comments

    The Federal Register published the proposed rule on June 5, 1996 
(61 FR 28525). During the 74-day comment period, MMS received 10 sets 
of comments on the proposed rule. Six commenters did not agree with 
using ``plain English'' and removing the model unit agreements from the 
Code of Federal Regulations. Overall, those who opposed ``plain 
English'' are comfortable with the existing language and understand it. 
One specific comment on the proposed rule language included that it did 
not clarify that ``Pugh'' concepts (State law authorizes unitized 
leases to be segregated) do not apply to the OCS, and it omitted 
potential hydrocarbon accumulations from the definition of a unit area. 
Commenters concerned about removal of the model unit agreements 
expressed a need to operate in a climate of greater certainty. The four 
remaining comments support the proposed rule change.

Response to Comments

    We appreciate the comments we received on the proposed rule. While 
there was some opposition to using ``plain English,'' MMS supports the 
President's initiative, and we will continue to improve our regulations 
with ``plain English.'' ``Plain English'' allows us to express legal 
requirements clearly and accurately and communicate information to a 
wide audience.
    We incorporated many of the specific editorial comments in an 
effort to further clarify the rule. Regarding the ``Pugh'' concept, the 
1982 Department of the Interior (DOI) Solicitor's Opinion M-36927, 
concludes that the Secretary of the Interior does not have the legal 
authority to require segregation of unitized portions of leases from 
the remainder of leases. We clarified the language in the final rule to 
maintain that portions of leases, as well as whole leases, may be 
included in units.
    It continues to be our policy that we may approve exploratory units 
before a successful exploratory well is completed when geophysical data 
reasonably support including a lease in the unit. The unit area is 
limited to the leases that encompass the productive area of a 
reservoir, for reservoir units, or to the leases containing all or part 
of a geologic structure, i.e., a potential hydrocarbon accumulation.
    In Sec. 250.191(2)(c), we retain the word ``minimum'' for the 
number of leases, or portions of leases, in a unit area. Industry 
suggested we use the word ``appropriate.'' Our policy is designed to 
minimize the number of unitized leases necessary for efficient 
exploration, development, and production.
    The model unit agreements will be withdrawn. MMS will publish any 
``permanent'' changes made to those agreements in the Federal Register 
for public notice and comment.
    In this rulemaking, MMS is also correcting a typographical error in 
30 CFR part 250. The error occurs in Sec. 250.124(a)(3)(i). This 
technical amendment amends the sentence in paragraph (i) from ``All PSH 
or PSL'' to ``All PSH and PSL.'' This has always been the intent of the 
requirement.

Executive Order (E.O.) 12866

    This rule is not a significant rule requiring the Office of 
Management and Budget (OMB) review under E.O. 12866.

Regulatory Flexibility Act

    Since this amendment has no economic effects, DOI has determined 
that this rule will have no effect on a substantial number of small 
entities.

Paperwork Reduction Act

    The information collection requirements in 30 CFR Part 250, Subpart 
M, Unitization, are approved by OMB as required by the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.). The OMB control number 
is 1010-0068. The Paperwork Reduction Act of 1995 provides that an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number.
    MMS collects the information under regulations implementing the OCS 
Lands Act. MMS uses the information to determine if unitized operations 
will conserve natural resources, prevent waste, and protect correlative 
rights and Government interests. The information is required to obtain 
or retain a benefit as specified in the OCS Lands Act. MMS will protect 
information considered confidential or proprietary under applicable law 
and under regulations at 30 CFR 250.18 (Data and information to be made 
available to the public) and 30 CFR part 252 (OCS Oil and Gas 
Information Program).
    MMS estimates the annual reporting burden to be approximately 2,424 
hours, an average of 45.7 hours per response. This includes the time 
for reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
information collection. MMS received no comments on the information 
collection aspects of the proposed rule during the public comment 
period.
    You may direct comments on the burden estimate or any other aspect 
of this collection to the Information Collection Clearance Officer, 
Mail Stop 2053, Minerals Management Service, 381 Elden Street, Herndon, 
VA 20170-4817; and to the Office of Information and Regulatory Affairs, 
Office of Management and Budget, Desk Officer for the Department of the 
Interior (OMB No. 1010-0068), Room 10102, 725 17th Street NW., 
Washington, D.C. 20503.

Takings Implication Assessment

    The DOI certifies that this rule does not represent a governmental 
action capable of interference with constitutionally protected property 
rights. A Takings Implication Assessment prepared pursuant to E.O. 
12630, Governmental Actions and Interference with Constitutionally 
Protected Property Rights, is not required.

Unfunded Mandates Reform Act of 1995

    The DOI has determined and certifies according to the Unfunded 
Mandates Reform Act, 2 U.S.C. 1502 et seq., that this rule will not 
impose a cost of $100 million or more in any given year on State, 
local, and tribal governments, or the private sector.

E.O. 12988

    DOI has certified to OMB that this rule meets the applicable civil 
justice reform standards provided in sections 3(b)(2) of E.O. 12988.

National Environmental Policy Act

    MMS has examined the rulemaking and has determined that this rule 
does not constitute a major Federal action significantly affecting the 
quality of the human environment pursuant to section 102(2)(c) of the 
National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(c)).

List of Subjects in 30 CFR Part 250

    Continental shelf, Environmental impact statements, Environmental 
protection, Government contracts, Incorporation by reference, 
Investigations, Mineral royalties, Oil and gas development and 
production, Oil and gas exploration, Oil and gas reserves, Penalties, 
Pipelines, Public lands--mineral resources, Public lands--rights-of-
way, Reporting and recordkeeping requirements, Sulphur development and 
production, Sulphur exploration, Surety bonds.


[[Page 5331]]


    Dated: January 27, 1997.

Sylvia V. Baca,
Assistant Secretary, Land and Minerals Management.

    For the reasons stated in the preamble, the Minerals Management 
Service amends 30 CFR part 250 as follows:

PART 250--OIL AND GAS AND SULFUR OPERATIONS IN THE OUTER 
CONTINENTAL SHELF

    1. The authority citation for part 250 continues to read as 
follows:

    Authority: 43 U.S.C. 1334.

Subpart H--Oil and Gas Production Safety Systems

    2. In Sec. 250.124, paragraph (a)(3)(i) is revised as follows:


Sec. 250.124  Production safety-system testing and records.

    (a) * * *
    (3) * * *
    (i) All PSH and PSL,
* * * * *

Subpart M--Unitization

    3. Subpart M is revised to read as follows:

Subpart M--Unitization

Sec.
250.190  What is the purpose of this subpart?
250.191  What are the requirements for unitization?
250.192  What if I have a competitive reservoir on a lease?
250.193  How do I apply for voluntary unitization?
250.194  How will MMS require unitization?

Subpart M--Unitization


Sec. 250.190  What is the purpose of this subpart?

    This subpart explains how Outer Continental Shelf (OCS) leases are 
unitized. If you are an OCS lessee, use the regulations in this subpart 
for both competitive reservoir and unitization situations. The purpose 
of joint development and unitization is to:
    (a) Conserve natural resources;
    (b) Prevent waste; and/or
    (c) Protect correlative rights, including Federal royalty 
interests.


Sec. 250.191  What are the requirements for unitization?

    (a) Voluntary unitization. You and other OCS lessees may ask the 
Regional Supervisor to approve a request for voluntary unitization. The 
Regional Supervisor may approve the request for voluntary unitization 
if unitized operations:
    (1) Promote and expedite exploration and development; or
    (2) Prevent waste, conserve natural resources, or protect 
correlative rights, including Federal royalty interests, of a 
reasonably delineated and productive reservoir.
    (b) Compulsory unitization. The Regional Supervisor may require you 
and other lessees to unitize operations if unitized operations are 
necessary to:
    (1) Prevent waste;
    (2) Conserve natural resources; or
    (3) Protect correlative rights, including Federal royalty 
interests, of a reasonably delineated and productive reservoir.
    (c) Unit area. The area that a unit includes is the minimum number 
of leases that will allow the lessees to minimize the number of 
platforms, facility installations, and wells necessary for efficient 
exploration, development, and production of mineral deposits, oil and 
gas reservoirs, or potential hydrocarbon accumulations. A unit may 
include whole leases or portions of leases.
    (d) Unit agreement. You, the other lessees, and the unit operator 
must enter into a unit agreement. The unit agreement must: allocate 
benefits to unitized leases, designate a unit operator, and specify the 
effective date of the unit agreement. The unit agreement must terminate 
when: the unit no longer produces unitized substances, and the unit 
operator no longer conducts drilling or well-workover operations 
(Sec. 250.13) under the unit agreement, unless the Regional Supervisor 
orders or approves a suspension of production under Sec. 250.10.
    (e) Unit operating agreement. The unit operator and the owners of 
working interests in the unitized leases must enter into a unit 
operating agreement. The unit operating agreement must describe how all 
the unit participants will apportion all costs and liabilities incurred 
maintaining or conducting operations. When a unit involves one or more 
net-profit-share leases, the unit operating agreement must describe how 
to attribute costs and credits to the net-profit-share lease(s), and 
this part of the agreement must be approved by the Regional Supervisor. 
Otherwise, you must provide a copy of the unit operating agreement to 
the Regional Supervisor, but the Regional Supervisor does not need to 
approve the unit operating agreement.
    (f) Extension of a lease covered by unit operations. If your unit 
agreement expires or terminates, or the unit area adjusts so that no 
part of your lease remains within the unit boundaries, your lease 
expires unless:
    (1) Its initial term has not expired;
    (2) You conduct drilling, production, or well-reworking operations 
on your lease consistent with applicable regulations; or
    (3) MMS orders or approves a suspension of production or operations 
for your lease.
    (g) Unit operations. If your lease, or any part of your lease, is 
subject to a unit agreement, the entire lease continues for the term 
provided in the lease, and as long thereafter as any portion of your 
lease remains part of the unit area, and as long as operations continue 
the unit in effect.
    (1) If you drill, produce or perform well-workover operations on a 
lease within a unit, each lease, or part of a lease, in the unit will 
remain active in accordance with the unit agreement. Following a 
discovery, if your unit ceases drilling activities for a reasonable 
time period between the delineation of one or more reservoirs and the 
initiation of actual development drilling or production operations and 
that time period would extend beyond your lease's primary term or any 
extension under Sec. 250.13, the unit operator must request and obtain 
MMS approval of a suspension of production under Sec. 250.10 in order 
to keep the unit from terminating.
    (2) When a lease in a unit agreement is beyond the primary term and 
the lease or unit is not producing, the lease will expire unless:
    (i) You conduct a continuous drilling or well reworking program 
designed to develop or restore the lease or unit production; or
    (ii) MMS orders or approves a suspension of operations under 
Sec. 250.10.


Sec. 250.192  What if I have a competitive reservoir on a lease?

    (a) The Regional Supervisor may require you to conduct development 
and production operations in a competitive reservoir under either a 
joint Development and Production Plan or a unitization agreement. A 
competitive reservoir has one or more producing or producible well 
completions on each of two or more leases, or portions of leases, with 
different lease operating interests. For purposes of this paragraph, a 
producible well completion is a well which is capable of production and 
which is shut in at the well head or at the surface but not necessarily 
connected to production facilities and from which the operator plans 
future production.

[[Page 5332]]

    (b) You may request that the Regional Supervisor make a preliminary 
determination whether a reservoir is competitive. When you receive the 
preliminary determination, you have 30 days (or longer if the Regional 
Supervisor allows additional time) to concur or to submit an objection 
with supporting evidence if you do not concur. The Regional Supervisor 
will make a final determination and notify you and the other lessees.
    (c) If you conduct drilling or production operations in a reservoir 
determined competitive by the Regional Supervisor, you and the other 
affected lessees must submit for approval a joint plan of operations. 
You must submit the joint plan within 90 days after the Regional 
Supervisor makes a final determination that the reservoir is 
competitive. The joint plan must provide for the development and/or 
production of the reservoir. You may submit supplemental plans for the 
Regional Supervisor's approval.
    (d) If you and the other affected lessees cannot reach an agreement 
on a joint Development and Production Plan within the approved period 
of time, each lessee must submit a separate plan to the Regional 
Supervisor. The Regional Supervisor will hold a hearing to resolve 
differences in the separate plans. If the differences in the separate 
plans are not resolved at the hearing and the Regional Supervisor 
determines that unitization is necessary under Sec. 250.191(b), MMS 
will initiate unitization under Sec. 250.194.


Sec. 250.193  How do I apply for voluntary unitization?

    (a) You must file a request for a voluntary unit with the Regional 
Supervisor. Your request must include:
    (1) A draft of the proposed unit agreement;
    (2) A proposed initial plan of operation;
    (3) Supporting geological, geophysical, and engineering data; and
    (4) Other information that may be necessary to show that the 
unitization proposal meets the criteria of Sec. 250.190.
    (b) The unit agreement must comply with the requirements of this 
part. MMS will maintain and provide a model unit agreement for you to 
follow. If MMS revises the model, MMS will publish the revised model in 
the Federal Register. If you vary your unit agreement from the model 
agreement, you must obtain the approval of the Regional Supervisor.
    (c) After the Regional Supervisor accepts your unitization 
proposal, you, the other lessees, and the unit operator must sign and 
file copies of the unit agreement, the unit operating agreement, and 
the initial plan of operation with the Regional Supervisor for 
approval.


Sec. 250.194  How will MMS require unitization?

    (a) If the Regional Supervisor determines that unitization of 
operations within a proposed unit area is necessary to prevent waste, 
conserve natural resources of the OCS, or protect correlative rights, 
including Federal royalty interests, the Regional Supervisor may 
require unitization.
    (b) If you ask MMS to require unitization, you must file a request 
with the Regional Supervisor. You must include a proposed unit 
agreement as described in Secs. 250.191(d) and 250.193(b); a proposed 
unit operating agreement; a proposed initial plan of operation; 
supporting geological, geophysical, and engineering data; and any other 
information that may be necessary to show that unitization meets the 
criteria of Sec. 250.190. The proposed unit agreement must include a 
counterpart executed by each lessee seeking compulsory unitization. 
Lessees who seek compulsory unitization must simultaneously serve on 
the nonconsenting lessees copies of:
    (1) The request;
    (2) The proposed unit agreement with executed counterparts;
    (3) The proposed unit operating agreement; and
    (4) The proposed initial plan of operation.
    (c) If the Regional Supervisor initiates compulsory unitization, 
MMS will serve all lessees of the proposed unit area with a proposed 
unitization plan and a statement of reasons for the proposed 
unitization.
    (d) The Regional Supervisor will not require unitization until MMS 
provides all lessees of the proposed unit area written notice and an 
opportunity for a hearing. If you want MMS to hold a hearing, you must 
request it within 30 days after you receive written notice from the 
Regional Supervisor or after you are served with a request for 
compulsory unitization from another lessee.
    (e) MMS will not hold a hearing under this paragraph until at least 
30 days after MMS provides written notice of the hearing date to all 
parties owning interests that would be made subject to the unit 
agreement. The Regional Supervisor must give all lessees of the 
proposed unit area an opportunity to submit views orally and in writing 
and to question both those seeking and those opposing compulsory 
unitization. Adjudicatory procedures are not required. The Regional 
Supervisor will make a decision based upon a record of the hearing, 
including any written information made a part of the record. The 
Regional Supervisor will arrange for a court reporter to make a 
verbatim transcript. The party seeking compulsory unitization must pay 
for the court reporter and pay for and provide to the Regional 
Supervisor within 10 days after the hearing three copies of the 
verbatim transcript.
    (f) The Regional Supervisor will issue an order that requires or 
rejects compulsory unitization. That order must include a statement of 
reasons for the action taken and identify those parts of the record 
which form the basis of the decision. Any adversely affected party may 
appeal the final order of the Regional Supervisor under 30 CFR part 
290.

[FR Doc. 97-2822 Filed 2-4-97; 8:45 am]
BILLING CODE 4310-MR-P