Vol. 80 Monday, 

No. 90 May 11, 2015 

Part II 

Department of the Interior 

Bureau of Indian Affairs 

25 CFR Part 226 

Leasing of Osage Reservation Lands for Oil and Gas Mining; Final Rule 


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26994 Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Rules and Regulations 

DEPARTMENT OF THE INTERIOR 

Bureau of Indian Affairs 

25 CFR Part 226 

[156A2100DD/AAKC001030/

A0A501010.999900 253G] 

RIN 1076–AF17 

Leasing of Osage Reservation Lands 

for Oil and Gas Mining 

AGENCY: Bureau of Indian Affairs, 

Interior. 

ACTION: Final rule. 

SUMMARY: The Bureau of Indian Affairs 

is issuing its final revisions to the 

regulations addressing mineral 

development of the Osage minerals 

estate. This rule updates the leasing 

procedures and the rental, operations, 

safety and royalty requirements for oil 

and gas production on Osage mineral 

lands and is the result of a negotiated 

rulemaking. 

DATES: This rule is effective on July 10, 

2015. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Eddie Streater, Designated Federal 

Officer, Bureau of Indian Affairs, P.O. 

Box 8002, Muscogee, OK 74402; 

telephone (918) 781–4608; fax (918) 

718–4604; or email osageregneg@

bia.gov. Additional information on the 

negotiated rulemaking can be found at: 

http://www.bia.gov/osageregneg. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary of Rule 

II. Background 

III. Detailed Explanation of Revisions 

IV. Explanation of Changes Made in 

Response to Departmental Review 

V. Comments on the Proposed Rule and 

Responses 

A. Overview/General 

B. Comments Related to Section 226.1 

C. Comments Related to Section 226.3 

D. Comments Related to Section 226.4 

E. Comments Related to Section 226.5 

F. Comments Related to Section 226.6 

G. Comments Related to Section 226.8 

H. Comments Related to Section 226.9 

I. Comments Related to Section 226.14 

J. Comments Related to Section 226.15 

K. Comments Related to Section 226.18 

L. Comments Related to Section 226.19 

M. Comments Related to Section 226.20 

N. Comments Related to Section 226.25 

O. Comments Related to Section 226.27 

P. Comments Related to Section 226.29 

Q. Comments Related to Section 226.33 

R. Comments Related to Section 226.34 

S. Comments Related to Section 226.35 

T. Comments Related to Section 226.36 

U. Comments Related to Section 226.37 

V. Comments Related to Section 226.38 

W. Comments Related to Section 226.39 

X. Comments Related to Section 226.40 

Y. Comments Related to Section 226.41 

Z. Comments Related to Section 226.45 

AA. Comments Related to Section 226.46 

BB. Comments Related to Section 226.47 

CC. Comments Related to Section 226.48 

DD. Comments Related to Section 225.53 

EE. Comments Related to Section 226.56 

FF. Comments Related to Section 226.57 

GG. Comments Related to Section 226.59 

HH. Comments Related to Section 226.60 

II. Comments Related to Section 226.62 

JJ. Comments Related to Section 226.63 

KK. Comments Related to Section 226.65 

LL. Comments Related to Section 226.66 

MM. Subpart F (226.67 to 226.70) 

NN. Abandoned Wells 

V. Procedural Requirements 

A. Regulatory Planning and Review (E.O. 

12866 and 13563) 

B. Regulatory Flexibility Act 

C. Small Business Regulatory Enforcement 

Fairness Act 

D. Unfunded Mandates Reform Act 

E. Takings (E.O. 12630) 

F. Federalism (E.O. 13132) 

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

H. Consultation with Indian Tribes (E.O. 

13175) 

I. Paperwork Reduction Act 

J. National Environmental Policy Act 

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

13211) 

I. Executive Summary of Rule 

This rule updates the existing oil and 

gas regulations governing Osage County, 

Oklahoma as set forth in 25 CFR part 

226. It is intended to strengthen the 

management and administration of the 

Osage mineral estate for the benefit of 

the Osage. These provisions strengthen 

the rule’s reporting and inspection 

requirements, offer more specificity 

regarding a lessee’s obligations with 

respect to its mining operations, and 

adjust royalty rate calculations and 

bonding amounts, in order to protect the 

best interests of the Osage mineral 

estate, ensure safety, and discourage 

future regulatory violations. 

II. Background 

On October 14, 2011, the United 

States and the Osage Nation (formerly 

known and referred to in Rule 226 as 

the ‘‘Osage Tribe’’) signed a Settlement 

Agreement to resolve litigation 

regarding the United States’ alleged 

mismanagement of the Osage Nation’s 

oil and gas mineral estate, along with 

other unrelated claims. In the 

Settlement Agreement, the parties 

agreed ‘‘to address means of improving 

the trust management of the Osage 

Mineral Estate, the Osage Tribal Trust 

Account, and Other Osage Accounts.’’ 

The parties agreed that a review and 

revision of the existing regulations is 

warranted to better assist the Bureau of 

Indian Affairs (BIA or Bureau) in 

managing the Osage mineral estate. The 

parties agreed to engage in a negotiated 

rulemaking for this purpose. Pursuant to 

the required, applicable procedures, 

after the Tribal Trust Settlement was 

executed, the Department of the Interior 

(Department) established a Negotiated 

Rule Making Committee in July 2012 

and commenced structured negotiations 

on the amendment and revision of Rule 

226. For additional information on this 

negotiated rulemaking process, please 

visit http://www.bia.gov/osageregneg/. 

The Negotiated Rule Making 

Committee submitted its report to BIA 

on April 25, 2013. On August 28, 2013, 

BIA published a proposed rule based on 

the Committee’s report. See 78 FR 

53083. In order to provide additional 

time for parties to comment on the 

proposed rule, BIA extended the 

original comment deadline until 

November 18, 2013. See 78 FR 68859 

(November 1, 2013). After a thorough 

evaluation of the many comments by 

various stakeholders with respect to the 

proposed rule, BIA revised and 

amended the proposed rule to 

incorporate those changes and 

amendments that BIA considered 

meritorious and beneficial in preparing 

the final rule as published herein. 

III. Detailed Explanation of Revisions 

This final rule revises the existing 

rule for ‘‘Leasing of Osage Reservation 

Lands for Oil and Gas Mining’’ with the 

textual and substantive changes as set 

forth in Table 1. The BIA’s additional 

revisions to the proposed rule that 

resulted from the comment period and 

BIA’s consideration and evaluation of 

those comments (as set forth in Section 

IV below) were adopted in BIA’s final 

rule as published herein and as set forth 

in Table 2. 


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Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Rules and Regulations 26995 

TABLE 1 

Current 25 CFR section Final rule section Final rule change 

Part 226 ......................... Part 226 ...................... Throughout the final rule the use of ‘‘Osage Tribal Council’’ has been deleted and replaced 

with ‘‘Osage Minerals Council’’ (‘‘OMC’’) because the former no longer exists and the latter holds the authority to make decisions regarding the Osage minerals estate. Similarly, 

all references to ‘‘lease cancellation’’ in the existing rule have been changed to ‘‘lease termination,’’ unless the reference in the final rule is to a voluntary lease cancellation by a 

lessee. Also, to clarify time deadlines, all references to due dates are to be uniformly calculated by calendar days, unless specifically noted otherwise. In addition, the final rule 

adds the term ‘‘other marketable product’’ to existing references to oil and gas in order 

that other minerals will not leave a gap and resulting in unregulated minerals. 

226.1 ............................. 226.1 ........................... The final rule deletes the terms ‘‘contract’’ and ‘‘agreement’’ and substitutes the term 

‘‘lease’’; provides definition for a ‘‘lease;’’ clarifies that ‘‘an authorized representative of a 

lessee’’ is bound by those regulations that apply to the lessee represented; deletes the 

definition for ‘‘major purchaser’’ because it is no longer relevant; replaces and combines 

the definitions for ‘‘casinghead gas’’ and ‘‘natural gas’’ into one definition for ‘‘raw natural 

gas’’ and ‘‘gas’’; adds definitions for the additional following new terms: ‘‘avoidably lost,’’ 

‘‘condensate,’’ ‘‘drainage,’’ ‘‘marketable condition,’’ ‘‘maximum ultimate economic recovery,’’ ‘‘natural gas liquids,’’ ‘‘notice to lessee,’’ ‘‘onshore oil and gas order,’’ ‘‘other marketable product,’’ ‘‘production in paying quantities,’’ ‘‘surface owner,’’ and ‘‘waste of oil and 

gas or other marketable product’’. 

N/A ................................ 226.2 (New) ................ The final rule sets forth sources of governing requirements for activities in Osage County related to oil and gas and the development of ‘‘other marketable products’’. 

N/A ................................ 226.3 (New) ................ The final rule sets forth the authority of Bureau of Indian Affairs (‘‘BIA’’) to issue certain notices and orders after consultation with the OMC. 

N/A ................................ 226.4 (New) ................ The final rule enumerates the responsibilities and authority of the Superintendent with respect to management and administration of the Osage mineral estate. 

226.2 ............................. 226.5 ........................... The final rule breaks the prior regulation into subparts and removes references to oil and 

gas in paragraphs (b) and (d), extends the time for a successful bidder to deposit his/her 

payment, requires that payment be made in a specified form other than cash; increases 

the filing fee for submitting a completed lease form; enumerates the circumstances in 

which a portion of the bonus bid will be forfeited; requires that the Superintendent post 

legal descriptions within 30 days of a lease sale; and authorizes the OMC to request comparable lease sales data from the Superintendent. 

226.3 ............................. 226.6 ........................... The final rule increases the filing fee, adds requirements regarding lessee’s responsibility for 

plugging and abandoning wells upon surrender, and deletes the reference to allowing surrender of separate horizons. 

226.4 ............................. 226.7 ........................... The final rule amends the provision to allow the Superintendent to specify the manner and 

method of payments due under a lease or regulation. 

226.5 ............................. 226.8 ........................... No substantive change from current rule. 

226.6 ............................. 226.9 ........................... The final rule sets forth each bonding requirement in its own paragraph to improve readability, it adds personal bonds to surety bonds as acceptable bonding methods, it sets 

forth the requirements for personal and surety bonds and changes the bonding amount 

from a per lease-area bond to a $5,000 per well bond for up to 25 wells. The final rule 

also adds back in nationwide bonding, which was not in the proposed rule. 

226.6(d) ......................... 226.10 ......................... The final rule moves the provision allowing the Superintendent to increase the amount of a 

required bond to its own section and amends the previous provision under which the Superintendent can increase the amount of a bond. 

N/A ................................ 226.11 (New) .............. The final rule sets forth the circumstances under which the Superintendent must release a 

bond. 

226.7 ............................. 226.12 ......................... No substantive change from current rule. 

226.8 ............................. 226.13 ......................... No substantive change from current rule. 

226.9 ............................. 226.14 ......................... The final rule sets forth each current requirement in its own paragraph to improve readability. It also increases rental rates, clarifies the lessee’s responsibility for diligent development, adds a new provision allowing the Osage Minerals Council to request a determination as to the diligent development of a lease and new procedures for the automatic 

termination of a lease for failure to diligently develop. 

N/A ................................ 226.15 (New) .............. The final rule sets forth lessee’s new obligations to protect land from drainage of its oil or 

gas content by wells outside the lease 

N/A ................................ 226.16 (New) .............. The final rule specifies the Superintendent’s new remedies for requiring protective action 

once drainage has occurred. 

226.10 ........................... 226.17 ......................... No substantive change from current rule. 

226.11 ........................... (See below) ................ The final rule divides the current section on royalties into several new sections to improve 

readability, as shown below. 

226.11(a) ....................... 226.18 ......................... The final rule clarifies that royalty may be taken in-kind. It also amends the royalty rate calculation for oil, subject to a price adjustment for gravity. 

N/A ................................ 226.19 (new) ............... The final rule sets forth how the gravity adjustment is calculated. 

226.11(b) ....................... 226.20 ......................... The final rule amends the royalty rate calculation for gas and specifies how gross proceeds 

are calculated; allows the Superintendent to direct that gross proceeds be calculated in an 

alternative manner where reasonable cost of processing cannot be obtained; and adds a 

minimum royalty provision. 

N/A ................................ 226.21 (new) ............... The final rule provides that royalty must be paid for any oil and gas avoidably lost and allows the Superintendent to determine the volume and quality of the lost oil and gas. 


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TABLE 1—Continued 

Current 25 CFR section Final rule section Final rule change 

226.11(c) ....................... 226.22 ......................... The final rule amends the date for payment of royalties and adds provision for adjusting the 

minimum royalty. 

226.11(e) ....................... 226.23 (New) .............. The final rule sets forth the minimum royalty due for ‘‘other marketable products’’ and clarifies that it is in addition to any royalty that may be due on oil or gas. 

226.12 ........................... 226.24 ......................... The final rule amends the reference to royalty payment to ensure that the federal government purchases oil consistent with the new requirements. 

226.13(a) ....................... 226.25 ......................... The final rule requires lessees to provide a written agreement when purchaser is the party 

responsible for payment; provides procedure for making royalty payments and late payments; describes how royalty payments are made; and deletes the provision allowing the 

Osage Minerals Council to waive late charges with approval of the Superintendent. 

226.13(b), (c) ................. 226.26 ......................... The final rule sets forth those reports that lessees must submit to the Superintendent and 

further specifies the format and content of those reports. The final rule also adds a requirement that the Osage Minerals Council be copied on all such reports, as well as establishing the date that the monthly reports are due. 

226.14 ........................... 226.27 ......................... The final rule sets forth each current requirement for division orders in its own paragraph to 

improve readability. It also extends the due date in paragraph (b) for submitting the reporting statement for oil and gas sold should the due date fall on a weekend or holiday. 

226.15 ........................... (See below) ................ The final rule divides the current section on lease unitizations and assignments into several 

new sections to improve readability, as shown below. 

226.15(a) ....................... 226.28 ......................... No substantive change from current rule. 

226.15(b) ....................... 226.29 ......................... The final rule sets forth each current requirement in its own paragraph to improve readability. It also adds provisions relating to the responsibilities and liabilities of assignors and 

assignees and deletes the provisions that allowed for the assignment of separate lease 

horizons. 

226.15(c) ....................... 226.30 ......................... No substantive change from current rule. 

226.15(d) ....................... 226.31 ......................... No substantive change from current rule. 

226.15(e) ....................... 226.32 ......................... No substantive change from current rule. 

N/A ................................ 226.33 (New) .............. Sets forth the general requirements governing leasing operations. 

226.16 ........................... 226.34 ......................... The final rule sets forth each current requirement in its own paragraph to improve readability 

and adds specific reference to the existing requirement that the Superintendent comply 

with the National Environmental Policy Act and the National Historic Preservation Act 

where applicable. 

226.17 ........................... 226.35 ......................... No substantive change from current rule. 

226.18 ........................... 226.36 ......................... The final rule reformats this section to improve readability. It also adds requirements for notice to surface owners before lessees conduct certain activities and eliminates any difference in notice based on the surface owner’s residence status as within or outside 

Osage County. 

226.19(a) ....................... 226.37 ......................... The final rule sets forth in its own paragraph each current aspect of a lessee’s rights and responsibilities in using the surface of the land to improve readability. It also adds a provision requiring notification to the lessee and surface owner before the Superintendent sets 

the routing of pipelines, electric lines, etc. 

226.19(b), (c) ................. 226.38 ......................... The final rule sets forth each current requirement with respect to commencement money 

into its own paragraph to improve readability. It also increases the amount of commencement money the lessee must pay the surface owner. 

226.19(d) ....................... 226.39 ......................... The final rule increases per tank siting fees and provides for arbitration to determine fees to 

be paid for tanks occupying more than 2500 sq. feet if the parties are unable to agree. 

226.20 ........................... 226.40 ......................... No substantive change from current rule. 

226.21 ........................... 226.41 ......................... No substantive change from current rule. 

N/A ................................ 226.42 (New) .............. The final rule sets forth additional obligations with respect to lessee’s obligation for production and marketability. 

N/A ................................ 226.43 (New) .............. The final rule requires documentation for transportation of oil, gas or other marketable product to enable the Superintendent to inspect and confirm proper transportation. 

226.22 ........................... 226.44 ......................... The final rule sets forth each current requirement in its own paragraph to improve its readability. It also adds provisions in paragraph (e) clarifying that pits or tanks used for collecting deleterious fluids must have fencing and be removed and reclaimed immediately 

after operations. 

N/A ................................ 226.45 (New) .............. The final rule sets forth a lessee’s specific environmental responsibilities and obligations 

while conducting operations. 

N/A ................................ 226.46 (New) .............. The final rule requires certain safety standards and equipment for lessee operations, as well 

as compliance with the National Electric Code. 

226.23 ........................... 226.47 ......................... The final rule adds a provision requiring the Superintendent to notify or attempt to notify surface owners before decisions are made with respect to easements of leased premises. 

226.24 ........................... 226.48 ......................... No substantive change from current rule. 

226.25 ........................... 226.49 ......................... The final rule has reformatted this section on the responsibility of other types of lessees 

when they are not the lessee drilling in order to improve its readability. It also deletes 

prior/current requirements that wells be plugged if no apportionment agreement is accepted, making the Superintendent’s decision on apportionment final. 

226.26 ........................... 226.50 ......................... No substantive change from current rule. 

226.27 ........................... 226.51 ......................... The final rule adds general requirement that gas for tribal use must be odorized and treated 

to ensure public safety. 


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TABLE 1—Continued 

Current 25 CFR section Final rule section Final rule change 

226.28 ........................... 226.52 ......................... The final rule provides new standards for determining whether a well may be permanently 

abandoned on a showing that it is incapable of future profitable production, as opposed to 

being capable of producing in paying quantities. 

226.29 ........................... 226.53 ......................... The final rule has reformatted this section to improve its readability. In paragraph (a), it also 

eliminates an exception for termination of a lease, other than for cause. In paragraph (c), 

it also adds a requirement that a Superintendent’s orders for plugging a well must be in 

writing, as well as eliminating the fee for submitting an application to plug a well. 

226.30 ........................... 226.54 ......................... The final rule divides paragraph (b) into two provisions, thereby adding a paragraph (c). It 

also adds paragraph (d), which requires that lessees maintain records for a period of 6 

years, unless notified to maintain certain records for a longer period. 

226.31 ........................... 226.55 ......................... The final rule deletes the provision applying when several parties own a lease jointly allowing the designation of a representative be made by the party in charge of operations when 

several parties own a lease jointly, to requiring that all of the parties must jointly designate 

the representative. 

226.32 ........................... 226.56 ......................... The final rule reformats this section to improve its readability. 

226.33 ........................... 226.57 ......................... No substantive change from current rule. 

226.34 ........................... 226.58 ......................... The final rule adds a requirement that wells and tank batteries be marked with lessee’s 

name. 

226.35 ........................... 226.59 ......................... No substantive change from current rule. 

226.36 ........................... 226.60 ......................... The final rule adds paragraphs (b)–(f), which require safety precautions for drilling wells generally, drilling vertical wells, maintaining and controlling high pressure or loss of circulation 

in wells, protecting fresh water and other minerals and ensuring safety and protection 

when hydrogen sulfide gas is present at certain levels by adopting BLM On-Shore Oil and 

Gas Order 6. 

226.37 ........................... 226.61 ......................... No substantive change from current rule. 

226.38 ........................... 226.62 ......................... The final rule adds paragraphs (b)–(d), which specify requirements for measuring, calibrating 

and adjusting meters, including notice to and follow-up by the Superintendent; require notification to the Superintendent when an oil tank is ready for removal or for witnessing 

gaugings, and provide that repeated failures to comply with the new provisions subject the 

lessee to lease termination after consultation with the Osage Minerals Council. 

226.39 ........................... 226.63 ......................... The final rule adds paragraphs requiring measurement of gas to be done in accordance with 

BLM Onshore Oil and Gas Order 5, specify a lessee’s obligations for calibrating, inspecting and adjusting meters, including notification and inspection by the Superintendent, and 

provide that repeated failures to comply will subject the lease to termination after consultation with the Osage Minerals Council. 

226.40 ........................... 226.64 ......................... No substantive change from current rule. 

N/A ................................ 226.65 (New) .............. The final rule sets forth specific safety and other requirements to ensure proper site security. 

226.41 ........................... 226.66 ......................... The final rule adds requirements to ensure that incidents are reported in a timely manner, 

that notification is provided when environmental or other types of accidents occur, specifying who must be notified, including impacted surface owners. 

226.42 ........................... 226.67 ......................... The final rule allows lease provisions for different fines and penalties, and it deletes the provision allowing the Osage Minerals Council to waive late charges. 

226.43 ........................... 226.68 ......................... No substantive change from current rule. 

226.44 ........................... 226.69 ......................... No substantive change from current rule. 

226.45 ........................... 226.70 ......................... No substantive change from current rule. 

226.46 ........................... 226.71 ......................... The final rule adds information concerning approval of OMB and the assigned OMB Control 

Number. 

Table 2 below sets forth the 

substantive changes made in the final 

rule to the text of the proposed rule as 

published August 28, 2013. The basis 

for each of these changes is discussed in 

the next section of this preamble. 

TABLE 2 

Section Final rule’s change to proposed rule 

226.1 .................................... The final rule adds a definition for ‘‘surface owner’’, references ‘‘other marketable product’’ in the definition of 

‘‘lease’’ and ‘‘Osage Minerals Council’’ and amends the definition of ‘‘waste of oil or gas or other marketable 

product.’’ 

226.2 .................................... The final rule adds a reference to other marketable products. 

226.3 .................................... The final rule deletes the reference in 226.3(a) to the Administrative Procedure Act and replaces it with ‘‘applicable law and regulations’’ and also adds the phrase ‘‘where appropriate’’ after the reference to consultation with 

the Osage Minerals Council because not all of the items listed in the provision are subject to the APA or the 

Department’s Consultation Policy. 

226.4(a)(4) ............................ The final rule deletes reference to ‘‘other’’ as unnecessary. 

226.4(a)(10) .......................... The final rule adds the phrase ‘‘unless otherwise approved by the Superintendent’’ at the end. 

226.4(b) ................................ The final rule removes provisions that allowed the Superintendent to issue oral orders.

226.4(c) ................................ The final rule adds a requirement that any history of noncompliance be documented. 

226.5(a)(4) (ii) ...................... The final rule removes the phrase ‘‘twenty five percent of the bonus bid’’ at the beginning of the provision and 

adds a reference to paragraph 5 in subparagraph (c). 


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TABLE 2—Continued 

Section Final rule’s change to proposed rule 

226.5(b) ................................ Deletes references to oil and gas as unnecessary. 

226.5(d) ................................ Language added to end of the provision to clarify that the environmental analyses will be completed in accordance with existing Bureau procedures. 

226.5(f) ................................. Amends the reference to corporation 

226.6 .................................... The final rule deletes the reference to ‘‘surrender of a separate horizon’’ in (b)(4). It also adds a paragraph (c) 

that requires the Superintendent to determine that wells have been plugged and abandoned or that legal liability therefore has been otherwise assumed before approving surrender or partial surrender of a lease. 

226.9 .................................... The final rule adds paragraph (f), which allows for a bond for nationwide coverage in lieu of a surety or personal 

bond. 

226.11 .................................. Paragraph (c) was deleted. 

226.14 .................................. The final rule changed time period for non-production of a lease from 90 days to 120 days in paragraph (e) and 

the deadline for requesting a temporary suspension of operations to 20 days prior to the expiration of the 120- 

day period, rather than the 45th day in which the lease has not produced. The final rule also deletes waiver 

language and adds a requirement of good cause in order for the Superintendent to extend a temporary extension. 

226.15 .................................. In paragraph (b), the final rule replaces the reference to ‘‘in paying quantities’’ with ‘‘for a reasonable profit’’. It 

also adds that assignors are liable for drainage upon determination of the Superintendent 

226.18 .................................. Paragraph (a) of the final rule was amended to allow royalty to be taken in kind. In paragraph (b) the provision 

regarding time for payment was deleted, and in subparagraph (b)(2) the reference to NYMEX was moved to 

subparagraph (b)(1). 

226.20 .................................. In paragraph (b) of the final rule, the calculation for determining gross proceeds was amended and a method for 

determining the heating value of gas was added. In paragraph (c) the reference to 1206.173 was replaced with 

a reference to 1206.180(a)–(b). 

226.20 .................................. The final rule defines how the minimum royalty is to be calculated, and it deletes paragraph (d). 

226.25 .................................. In paragraph (a), the final rule adds a provision requiring that the Superintendent be notified if the purchaser is 

the responsible party for making payment. In paragraph (b), it deletes the provision stating ‘‘unless otherwise 

provided by the Osage Minerals Council and approved by the Superintendent,’’ in an effort to standardize and 

ensure prompt, consistent payments. Paragraph (c) was revised to reference back to paragraph (a) and to delete language allowing other rates to be set and the waiver of late fees. 

226.27 .................................. In paragraph (a) at the end, the words ‘‘his lease’’ are replaced with ‘‘Section 226.25’’. In paragraph (b), the provision allowing the Superintendent to authorize extensions was deleted. 

226.29 .................................. The final rule deletes the provision allowing assignment of separate horizons. It also adds paragraphs (a)(i) and 

(a)(ii), which specify the liability and obligations of both the assignor and assignee when a lease is assigned. 

226.34 .................................. The final rule explicitly requires compliance with NEPA and NHPA. 

226.36 .................................. In paragraph (b), the final rule requires the Superintendent to notify or attempt to notify both the surface owner 

and the lessee of their opportunity to meet and submit information before the Superintendent issues a decision. 

226.37 .................................. The final rule adds a requirement that the Superintendent to notify or attempt to notify both the surface owner 

and lessee before setting routes. 

226.40(a) .............................. The final rule deletes the last sentences referencing a court of competent jurisdiction and replaces it with an express reference to 226.41, which provides for the same relief after compliance with the dispute resolution provisions. 

226.44 .................................. The final rule adds requirements for pits or tanks containing deleterious fluids in order to protect the environment. 

226.46 .................................. The final rule adds a requirement for compliance with the National Electric Code. 

226.47 .................................. The final rule adds a requirement for the Superintendent to notify or attempt to notify both surface owner and lessee before easements are granted. 

226.52 .................................. The final rule amends the provision allowing wells to be permanently abandoned if they are no longer capable of 

producing in paying quantities rather than for lack of further profitable production. 

226.53 .................................. In paragraph (a), the final rule deletes the provision that creates an exception for termination of a lease other 

than for cause, and paragraph (c) adds a requirement that the Superintendent’s orders for plugging a well be in 

writing. 

226.55(b) .............................. In the final rule, the provision allowing the designation of the parties’ representative to be made by the ‘‘party in 

charge of operations’’ was deleted and changed to require that all of the parties must jointly designate a representative. 

226.62 .................................. The final rule in paragraph (c) deletes the provision regarding penalties and the adjustment provision for penalties. 

226.66 .................................. The final rule clarifies that accidents include environmental and other types of accidents. It also requires the reporting of thefts within one business day, rather than ‘‘promptly’’ and requires lessees to notify, or attempt to 

notify, the surface owner or agent in writing. 

Subpart F (226.67–68) ......... The final rule reverts to the language in the current/prior version of the regulation and deletes the Committee’s 

recommendations for penalties for violations of lease terms, instead adding a provision that the lease can 

specify alternative fines and penalties. In 226.68(j) the provision regarding criminal penalties was deleted as 

unnecessary because criminal laws are applicable irrespective of their inclusion or reference within these regulations. 

IV. Explanation of Changes Made in 

Response to Departmental Review 

In drafting the final rule, the 

Department made revisions to the 

proposed rule based on its own internal 

review, in addition to its review and 

analysis of the public comments. This 

section sets forth those the changes 

made as a result of that internal review. 

In Section 226.1, the Department added 

references to ‘‘other marketable 

product’’ in the definitions of ‘‘lease’’ 

and ‘‘Osage Mineral Council’’ in order 

to fully incorporate the addition of the 

term ‘‘other marketable product’’ into 


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Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Rules and Regulations 26999 

the regulations. Without these changes, 

the Department was concerned that 

‘‘other marketable product’’ would not 

have been fully and consistently 

referenced as part of the Osage minerals 

estate, which was the original intent of 

the Negotiated Rulemaking Committee. 

For the same reason, references to 

‘‘other marketable product’’ were added 

to Section 226.2 and the words ‘‘oil and 

gas’’ were deleted from 226.5(b) and (d), 

so that the provision references all 

leases generally. 

The Department revised the definition 

of ‘‘waste of oil or gas or other 

marketable product’’ to clarify that 

waste only occurs after the 

Superintendent makes a specific 

finding. The Department was concerned 

that without that change, the regulations 

would suggest that any production 

without the advance approval of the 

Superintendent would be considered 

waste, resulting in unnecessary 

administrative burdens. 

In 226.3, the Department qualified 

that that consultation with the Osage 

Minerals Council is required where 

appropriate and notes that consultation 

must be conducted in accordance with 

the Department’s Tribal Consultation 

Policy where applicable. Similarly, the 

notice and comment requirements of the 

Administrative Procedure Act (APA) do 

not apply to each of the proposed 

actions and the reference to requiring 

adherence to the APA has been removed 

to avoid any presumption that 

notwithstanding the limitations of the 

APA, it automatically applies. Rather, it 

should be noted that the APA only 

applies where required by law. For 

example, notices to lessees (NTLs) are 

interpretive rules that are not subject to 

the notice and comment requirements of 

the APA. See e.g., Perez v. Mortgage 

Bankers Assoc., No. 13–1041, ll U.S. 

ll (March 9, 2015). 

The Department deleted the word 

‘‘other’’ from 226.4(a)(4) because it was 

confusing. The Superintendent is 

responsible for approving and 

monitoring all lease proposals, not 

‘‘other’’ lease proposals. 

The phrase ‘‘unless otherwise 

approved by the Superintendent’’ was 

added to the end of Section 226.4(a)(10) 

because as drafted it did not allow the 

Superintendent to approve actions that 

might have adverse effects on other 

mineral resources. However, there might 

be instances where the Osage Minerals 

Council wants to allow certain mining 

to have adverse effects on other lesser 

mineral resources, and the Department 

determined that the Superintendent 

must retain discretion to approve those 

actions depending on the 

circumstances. 

In Section 226.5(a)(4)(ii), the phrase 

‘‘twenty five percent of the bonus bid’’ 

at the beginning of the provision was 

deleted because it was inconsistent with 

subsection (a)(3). That subsection 

requires that a minimum deposit of 

twenty five percent of the cash bonus be 

offered, but it is possible for additional 

amounts to be deposited, and the intent 

of Section 226.5(a)(4)(ii) is for all of the 

deposit to be forfeited under certain 

circumstances. Section 226.5(a)(4)(ii)(C) 

was amended to add a reference to 

subsection 5 for clarification purposes. 

To address confusion within Osage 

County regarding the applicability of 

environmental laws, Section 226.5(d) 

was amended to clarify that the Agency 

must comply with applicable laws, 

including the National Environmental 

Policy Act (NEPA), before issuing leases 

and will do so by following applicable 

BIA regulations. Section 226.5(f) was 

amended to delete the reference to 

ownership of stock and instead 

reference an employee who acquires an 

interest in a corporation or business 

entity holding a lease, because one 

cannot acquire an ‘‘interest in a lease’’ 

by merely owning stock in a company. 

In Section 226.6(b)(4), the Department 

deleted the reference to surrender of a 

separate horizon because the Osage 

Agency does not lease or sublease by 

separate horizons, in light of the 

administrative burdens those 

arrangements have caused in the past. 

Furthermore, allowing surrender of 

separate horizons causes similar 

problems and is not permitted 

elsewhere on other Indian and Federal 

lands. 

The Department deleted subsection 

(c) in 226.11 because it was repetitive of 

the prior paragraph and the release 

language was moved to the beginning 

for clarification. In 226.14(c), the 90 day 

timeline for a determination on diligent 

production was deleted because it is 

considered overly burdensome, 

administratively. Instead, a provision 

was added that allows the 

Superintendent to require the lessee and 

Osage Minerals Council to submit 

additional information so that he/she 

can make an informed determination. 

In Section 226.18, the Department 

amended subsection (a) to allow royalty 

to be taken in kind so that the provision 

is consistent with subsection (b). In 

226.18(b), the provision regarding time 

for payment was deleted because timing 

of payment is governed by Section 

226.25, and in subparagraph (b)(2) the 

provision relating to the availability of 

the average NYMEX daily price was 

moved to subparagraph (b)(1) to correct 

an error in the proposed rule. 

In Section 226.22, the Department 

revised how minimum royalty is 

calculated because, as set out in the 

proposed rule, the provision confuses 

separate lease concepts. Minimum 

royalty is a separate lease term and not 

a subset of royalty, and Section 226.22 

is not about underpayment of minimum 

royalty, but about the occurrence of a 

circumstance that triggers the obligation 

to pay minimum royalty. 

In Section 226.25, the Department 

added a requirement to subsection (a) 

that requires lessees to provide a written 

agreement if the purchaser has agreed to 

be the responsible party for making 

payments. This change is intended to 

reduce the administrative burden placed 

on the Superintendent when having to 

determine the responsible party. Also, a 

cross-reference to subsection (a) was 

added to subsection (c) for consistency. 

In addition, the phrase ‘‘unless 

otherwise provided by the Osage 

Minerals Council and approved by the 

Superintendent’’ was deleted to 

standardize and ensure prompt, 

consistent payments. For the same 

reason, and to aid in the administrative 

implementation of the provision, the 

Department deleted the provisions in 

subsection (c), allowing the 

Superintendent to set other rates for late 

fees and allowing the Osage Minerals 

Council to waive late fees, with 

approval by the Superintendent. 

In Section 226.27(a), the Department 

added that royalty payments on division 

orders or contracts must be made in 

accordance with Section 226.25, since it 

is Section 226.25 that governs payments 

of royalties and all leases are subject to 

the regulations. And, in subsection 

226.27(b,) the provision allowing the 

Superintendent to authorize extensions 

was deleted in order to reduce the 

considerable administrative burden on 

the Superintendent of having to 

consider requests for extensions on a 

case by case basis. 

The Department added provisions in 

226.29 to clarify liability for wells and 

related facilities once a lease is 

assigned. The Department found that 

there has been a concern both by surface 

owners during the negotiated 

rulemaking and the Office of Inspector 

General with respect to the 

abandonment of wells within Osage 

County. The new provisions regarding 

liability will provide additional 

protections for enforcement after a lease 

is assigned and provide greater clarity 

and transparency regarding lessee 

obligations. 

In 226.34, the Department added a 

new provision making clear that NEPA 

and the National Historic Preservation 

Act (NHPA) continue to apply within 


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Osage County. These are not new legal 

requirements and do not create new 

responsibilities over what is already 

required. However, the Department 

determined it was necessary to 

expressly recognize these 

responsibilities in the Rule given 

confusion within Osage County with 

respect to the Agency’s and lessees’ 

duties under NEPA and NHPA. The 

Department also added an express 

requirement that, where applicable, 

requires the lessee to submit certain 

information to aid the Agency in 

meeting its obligations under NEPA and 

NHPA. 

The Department amended Section 

226.52 to allow for the permanent 

abandonment of a well upon a showing 

that the well is no longer producing in 

paying quantities, rather than a showing 

of its lack of further profitable 

production of oil, because the standard 

for showing that a well is no longer 

producing in paying quantities is more 

objective, less administratively 

burdensome to determine, and 

consistent with the standard applied 

with respect to Indian leases outside of 

Osage County. 

V. Comments on the Proposed Rule and 

Responses 

A. Overview/General 

Several commenters stated that it was 

not necessary to change the regulations 

and that the proposed changes to the 

regulations would make oil and gas 

operations in Osage County more 

cumbersome and costly to the industry 

because the burden is being put entirely 

on the lessees. 

During the negotiated rulemaking it 

was explained that the United States 

was sued by the Osage for breach of 

trust with respect to management and 

administration of the Osage minerals 

estate. The United States settled with 

the Osage for $380 million and, as part 

of the settlement, agreed to engage in a 

negotiated rulemaking to revise the 

regulations governing Osage in order to 

improve the management and 

administration of the minerals estate. 

Further, not all of the regulations are 

being revised. To the extent that some 

of the regulations are revised, the 

Department acknowledges that there 

may be some additional upfront costs to 

ensure compliance with the regulations. 

However, the regulations are necessary 

to improve management and 

administration of the Osage mineral 

estate. Overall, given the Osage tribal 

trust litigation and resulting settlement, 

the Department had to balance the need 

to ensure that the regulations fulfill the 

United States trust responsibility to the 

Osage with some potential increased 

costs to industry. Moreover, this Rule 

brings Osage closer in line to how oil 

and gas operations are regulated on 

other Indian and Federal lands and 

reflects the availability of new 

technology and improved industry 

standards since the regulations were 

initially promulgated. 

Some commenters stated that the 

proposed regulations should not be 

approved because the Bureau is already 

short-staffed and has no budgetary 

resources to handle the additional work 

and explained that the proposed 

changes will threaten oil lessees and 

have negative impacts on Osage 

headright owners quarterly payments. 

These comments do not relate to the 

rule but to internal agency operations 

that are outside the scope of the 

rulemaking. However, the Osage Agency 

developed a staffing plan in 2013 to 

address concerns regarding lease 

enforcement and compliance issues. 

The Osage Agency requested additional 

funding as part of its Fiscal Year (FY) 

2014 and 2015 budgets, which will be 

incorporated into its base funding for 

the FY 2016 budget cycle. The Osage 

Agency has also created 13 additional 

positions for inspections, enforcement 

and lease compliance, lease 

management and oil and gas accounting. 

While compliance with the regulations 

may result in some additional upfront 

costs to both industry and the Bureau, 

the majority of the new regulations 

address shortfalls that resulted in the 

Osage’s lawsuit against the United 

States for breach of trust related to 

mismanagement of the Osage minerals 

estate, including royalty collection, 

auditing, accounting, record keeping, 

inspections and lease compliance. There 

was also no evidence presented to show 

that finalization of the rule would 

negatively impact royalty payments, 

rather the rule has increased protections 

for ensuring royalty collection and 

provisions to ensure that lessees are 

calculating royalty in a manner that 

minimizes third party manipulation. 

Some commenters suggested that 

management and enforcement of 

regulations governing surface use and 

lease violations is key. 

These comments relate to agency 

operations and implementation and do 

not relate to any particular regulation. 

The Department agrees that 

management and enforcement of the 

regulations is key and has worked over 

the last few years to address staffing 

concerns and budgetary limitations at 

the Osage Agency. 

Numerous commenters suggested that 

the Department restart the negotiated 

rulemaking process and include all 

affected parties as part of the Negotiated 

Rulemaking Committee. Some of these 

commenters suggested that the actual 

process of the rulemaking normally 

takes 2 years to ensure that all 

interested parties may be properly 

notified of the proposed rule changes, 

be given adequate time to comment and 

understand how new regulations will 

impact private citizens. Whereas, 

commenters stated that in this 

circumstance the rule making was 

pushed through in a little over seven 

months resulting in a lack of due 

process and a one-sided nature of the 

proposed rules. 

The Department does not believe it is 

necessary to restart the negotiated 

rulemaking process. Formation of the 

Negotiated Rulemaking Committee was 

first announced in the Federal Register 

on June 18, 2012, and the final 

Committee was announced on July 31, 

2012. All meetings of the Committee 

were published in the Federal Register 

at least thirty (30) days in advance, as 

well as, posted at the Osage Agency and 

the Osage Minerals Council offices. 

Throughout the process, the Committee 

provided extensive opportunity for 

public comment during meetings and 

also welcomed written comment 

between meetings. Issues raised during 

that process included, but were not 

limited to, the benchmark index, 

bonding fees and requirements, and 

commencement fees. Other matters were 

also discussed across multiple meetings, 

recorded in meeting summaries, and 

proposals to the regulations were 

adjusted where the Committee 

determined it appropriate, in multiple 

drafts of the regulations during that 

process. The administrative record 

shows, through the meeting summaries 

from the Committee meetings, that the 

Committee not only provided 

substantial time for public comment, 

but the Committee also engaged 

extensively with commenters in 

dialogue. Committee members asked 

questions and explored options with the 

commenter, and sought to reach an 

accommodation or revision where 

appropriate. Overall, the Committee 

provided 21 public comment sessions 

totaling some 18.25 hours of public 

comment during the eight meetings over 

its August 2012 to April 2013 process. 

On April 2, 2013, the Committee met for 

its final meeting and concurrence on a 

proposed package of revised regulations 

was reached between the Federal caucus 

and Osage caucus. 

The Department received numerous 

form letters generally opposing the 

regulations and suggesting that making 

the lessees within Osage County comply 

with Bureau of Land Management (BLM) 


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regulations will make Osage lose its 

appeal as a one-stop shop and asserting 

that the regulations will lengthen the 

drilling permitting process, diminish the 

Osage minerals estate and impact 

income generated. 

The Department acknowledges that 

some of the new provisions in the 

regulations are modeled after existing 

Federal regulations governing oil and 

gas on other Indian and Federal lands 

governed by BLM. However, under the 

rule, BLM is not delegated with the 

responsibility for oil and gas operations 

within Osage County. Rather, BIA has 

that responsibility. Additionally, it is 

relevant to note that some commenters 

noted their disagreement with the form 

letters submitted opposing the proposed 

regulations. 

At least one commenter requested 

that the Department amend the rules so 

that they properly recognize the State of 

Oklahoma’s primacy and exclusive role 

in environmental regulation of oil and 

gas exploration and production 

activities in Osage County as well as the 

State’s right to regulate the waters 

within its borders. The commenter 

asserted that the State is better 

equipped to design, administer and 

enforce laws and regulations related to 

oil and gas development. 

The United States holds the Osage 

mineral estate in trust pursuant to the 

Act of June 28, 1906 § 3, 34 Stat. 539, 

543–44, amended in relevant part by 

Act of March 2, 1929, 45 Stat. 1478 

(extending restricted trust status of 

mineral estate to 1959); Act of June 24, 

1938, 52 Stat. 1034 (extending restricted 

trust status of mineral estate to 1983); 

Act of Oct. 21, 1978, 92 Stat. 1660 

(extending restricted trust status of 

mineral estate in perpetuity). Thus, the 

United States, through the Department, 

has a non-delegable fiduciary obligation 

to manage the mineral estate for the 

benefit of the Osage. It is relevant to 

note that one commenter disputed the 

assertion that the State is better 

equipped to address oil and gas leasing 

in Osage County and explains that the 

Osage Nation and the United States 

have more experience and knowledge in 

administering and enforcing oil and gas 

leases in Osage County. The first lease 

in Osage County was developed in 1896, 

eleven years before creation of the State, 

and the United States has regulated and 

managed the Osage mineral estate since 

1896. 

At least one commenter objected to 

references to ‘‘reservation lands’’ in 

Osage County and asserts that the 

reservation was disestablished in Osage 

Nation v. Irby, 597 F.3d 1117 (10th Cir 

2010). 

This is a legal issue outside the scope 

of the rulemaking. The Department does 

not need to address the impacts, if any, 

of the Irby case in order to revise these 

regulations. The United States holds the 

Osage mineral estate in trust and the 

Secretary has authority under the Act of 

June 28, 1906, § 3, 34 Stat. 539, as 

amended, to promulgate regulations to 

manage and administer the mineral 

estate, and this Rule is being 

promulgated pursuant to that authority. 

At least one commenter requests that 

the Department and the Osage Minerals 

Council enter into a cooperative 

agreement with the State of Oklahoma 

to delegate responsibility for 

management and administration of oil 

and gas operations to the State. 

This comment does not relate to the 

revised regulations and is outside the 

scope of the rulemaking process. It is 

relevant to note that one commenter 

disagreed with the request for a 

cooperative agreement that gives the 

State administrative jurisdiction in 

Osage County and cites, 25 U.S.C. 1a & 

9, noting that Congress granted 

authority over Indian Affairs to the 

President. This commenter also cited 25 

CFR 1.4(a), for the proposition that the 

President, acting on his authority, has 

specifically excluded States from 

exercising jurisdiction over Indian 

property, including Indian water rights; 

and further cited legal precedent for the 

proposition that the Department cannot 

delegate authority to a State without 

tribal consent and the Osage Nation has 

not consented to such jurisdiction or 

delegation. See Assiniboine and Sioux 

Tribes of the Fort Peck Indian 

Reservation v. Bd. Of Oil and Gas 

Conservation of the State of Montana, 

792 F.2d 782 (9th Cir. 1986). 

At least one commenter suggested 

that the rule should reflect the separate 

and unique relationships (a) between 

the Department of the Interior, and the 

Osage headright holders, Osage Mineral 

Estate, and the Osage Minerals Council 

under the 1906 Act; and (b) between the 

Department and the Osage Nation 

under the 2004 Act. 

This comment does not relate to the 

revised regulations and is outside the 

scope of the rulemaking process. The 

United States holds the Osage mineral 

estate in trust under the Act of June 28, 

1906, § 3, 34 Stat. 539, as amended, and 

the revised regulations only pertain to 

the United States’ responsibilities to the 

Osage as defined in that Act. The 2004 

Act, Public Law 108–431, 118 Stat. 2609 

(Dec. 3, 2004) speaks to tribal 

membership issues for purposes other 

than those defined by the 1906 Act. 

At least one commenter suggested 

that the proposed rule likely violates 

Executive Orders 12866 and 13175 

because it adversely affects the Nation 

and its members. The proposed rule 

also has tribal implications and requires 

the Bureau to incur new costs that 

require consultation with the Nation. 

There is no evidence that the Bureau 

has consulted with the Nation. 

Pursuant to the Osage Tribal Trust 

Settlement, the Bureau is required to 

consult twice annually with the Osage 

Minerals Council, the duly elected 

governing body within the Osage Nation 

that oversees the Osage mineral estate. 

Throughout the Negotiated Rulemaking 

Process, the Bureau held its required 

consultations to discuss the rulemaking 

process and other issues with the Osage 

Minerals Council. During those 

meetings a tribal representative of the 

Nation was invited and present. 

Additionally, the Negotiated 

Rulemaking Committee was comprised 

of duly appointed members of the Osage 

Minerals Council. 

At least one commenter requested 

that the Bureau make more information 

available to surface owners and the 

public with respect to operations within 

Osage County, including but not limited 

to freshwater aquifer maps, well 

location maps, mineral lease-holder 

maps and contact information, and 

lease inspection reports. The commenter 

suggested that lessees should be 

required to report the amount and type 

of chemicals used in any hydraulic 

fracturing operation to 

www.fracfocus.org. 

These comments are not within the 

scope of this rulemaking. However, as 

an operational matter, the Bureau is 

exploring opportunities to make oil and 

gas operations more transparent by 

possibly developing a Web site that 

would contain pertinent information, 

consistent with the Freedom of 

Information Act requirements, with 

regards to oil and gas activities within 

the Osage County. 

At least one commenter suggested 

that the Department commit to regularly 

publish monthly statistical data, provide 

headright holders with detailed 

statements regarding operational and 

royalty data, provide all relevant data to 

the Minerals Council, and develop an 

accessible and auditable database. 

This comment is outside the scope of 

the rulemaking. The Osage Agency 

regularly provides detailed information 

regarding the Osage mineral estate to the 

Osage Minerals Council on a regular 

basis and, consistent with the Freedom 

of Information Act, headright holders 

may request information relating to the 

Osage mineral estate from the Osage 

Agency. 


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At least one commenter suggested 

that the mineral estate be independently 

audited under the auspices of the 

Department’s Office of Inspector 

General and that the audit results be 

provided to headright holders. 

This comment is outside the scope of 

the rulemaking process. The Department 

notes, however, that the Office of 

Inspector General (OIG) issued a 

publicly available report on the Osage 

Agency in October 2014 (No, CR–EV– 

BIA–0002–2013). That report states that 

the Osage Agency needs to institute 

substantial changes to improve the 

management and administration of the 

Osage mineral estate, and further 

provides that many of the OIG’s 

proposed recommendations and 

concerns will be addressed upon 

finalization of this rule. 

Some commenters requested that 

STRONGER should be invited to do an 

audit of the Osage Agency and provide 

recommendations for transparency, 

accountability and enforcement, as well 

as to strengthen regulations. 

This comment is outside the scope of 

the rulemaking. Moreover, STRONGER 

is an organization that focuses on State, 

not Federal, reviews of oil and gas 

regulations and best management 

practices. As noted in response to other 

comments, the Department’s OIG has 

recently performed an audit of the 

Osage Agency and has issued a public 

report providing specific 

recommendations to improve 

management and administration of the 

Osage mineral estate. That report notes 

that many of the areas in which 

improvement is needed will be 

addressed upon finalization of this rule, 

and other issues are being addressed 

operationally. In addition, the 

Negotiated Rulemaking Committee was 

comprised of a team of experts in all 

fields of Federal oil and gas operations 

(BLM, Office of Natural Resource 

Revenue (ONRR), BIA, and the Office of 

Indian Energy and Economic 

Development) to evaluate Osage Agency 

operations and to make 

recommendations for improving the 

management and administration of the 

Osage mineral estate. 

At least one commenter suggested 

that the Department of the Interior 

provide for full end-to-end accounting 

to headright holders of withdrawals to 

the Osage mineral estate, royalty 

payments made, expenses withdrawn, 

interest earned and quarterly 

disbursements to headright holders. 

This comment is outside of the scope 

of the rulemaking; however, the 

Department provides the Osage 

Minerals Council with a periodic 

statement, at least on a quarterly basis, 

that provides information regarding the 

source, type, and status of the funds in 

the mineral estate account, the 

beginning and ending balance for the 

period reported, all gains and losses in 

the account and all receipts and 

disbursements for the account. 

At least one commenter suggested 

that in any provision where the 

regulations require consultation with 

the Osage Minerals Council, such 

references should be replaced with 

‘‘approval by the Osage Minerals 

Council.’’ 

The Secretary, not the Osage Minerals 

Council, has been delegated the 

authority to manage the Osage mineral 

estate by Congress. Thus, while the 

Bureau is willing to consult with the 

Osage Minerals Council on matters 

relating to the Osage mineral estate, it 

must retain its ability to take corrective 

actions against lessees that are in 

violation of the regulations, including 

termination of the lease after 

consultation with the Osage Minerals 

Council (Sections 226.25(c), 226.62(b)– 

(c), 226.63(c), 226.67, and 226.70). In 

addition, the Department must retain 

the discretion to make changes to the 

regulations in the future. 

At least one commenter has requested 

that the reference to ‘‘for the benefit of 

the Osage’’ needs to be changed to ‘‘for 

the benefit of the Osage shareholder/

headright owner.’’ 

The phrase commented on is in the 

Executive Summary of the Rule that was 

proposed in the Federal Register on 

August 28, 2013, and is not a comment 

relating to the rule. 

B. Comments Related to Section 226.1 

At least one commenter suggested 

that the definition of ‘‘headright 

holders’’ be amended to reflect the 

distinction that Congress has made 

between (a) the Osage Mineral Estate 

and its headright holders and (b) the 

Osage Nation. 

The rule does not define ‘‘headright 

holders’’ and the Department does not 

believe it is necessary to define this 

term because it is defined in the 1906 

Act. Moreover, the distinction made by 

the commenter is not relevant to the 

rule. The rule only relates to the Osage 

mineral estate as defined in the 1906 

Act and not to other purposes. 

At least one commenter suggested 

that the definition of the ‘‘Osage 

Minerals Council’’ be amended to reflect 

the Council’s role as the elected 

representative of the Osage headright 

holders, composed of headright holders, 

and vested with authority to enter leases 

and take other actions related to the 

mineral estate. 

The Department believes the current 

definition of Osage Minerals Council in 

the Rule is consistent with this 

comment and reflects that the Osage 

Minerals Council is a duly elected 

governing body within the Osage 

Nation. 

At least one commenter sought 

clarification on the definition of ‘‘Other 

Marketable Product’’ because it is 

unclear whether language ‘‘for which 

there is a market’’ refers to a local 

market or any national or international 

market. For example, simply because 

carbon-dioxide may be selling in 

Montana, does not mean there is a 

willing buyer or market for an Osage 

lessee. 

The Department does not believe that 

there is a need to further expand the 

definition. ‘‘[F]or which there is a 

market’’ was intended to be left 

sufficiently broad to mean any market 

which there is a demand that makes it 

economically feasible to develop the 

non-hydrocarbon. 

At least one commenter suggested 

that the definition of ‘‘royalty’’ be 

amended to reflect the many diverse 

types of payments made by lessees 

included in the draft regulations, save 

for tank fees and fees to arbiters. 

Royalty is not defined in the 

definitions section of the rule, but is 

defined by the amount a lessee must pay 

on the amount of oil, gas, or other 

marketable product sold in accordance 

with Sections 226.18 through 226.23. 

Other fees paid under the regulations 

are for administrative costs or expenses. 

At least one commenter suggested 

that the definition of ‘‘Superintendent’’ 

be amended to reflect the ability of the 

Superintendent to delegate authority 

only to employees of the Bureau and 

enumerate an extensive set of duties 

and responsibilities. 

The Department does not believe that 

this level of specificity is required or 

necessary. The 1906 Act delegated to 

the Secretary of the Interior the 

responsibility to manage and administer 

the Osage mineral estate and such 

delegations are governed by applicable 

authority, including the Departmental 

Manual. If the Secretary delegates a 

specific duty to the Superintendent, the 

Superintendent may only further 

delegate that responsibility in 

accordance with the Departmental 

Manual. Further, to the extent that the 

Secretary delegates certain 

responsibilities to the Superintendent, 

those delegations may be changed by 

the Secretary, and this authority is 

expressly retained in the definition of 

‘‘Superintendent’’ in Section 226.1. 

At least one commenter suggested 

that the provision allowing the 


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Superintendent to delegate her authority 

needs to be clarified; it could be read to 

allow the Superintendent to delegate to 

the Osage Nation, which includes nonheadright owners. 

No changes were made in response to 

this comment. The question of the 

Superintendent’s authority to delegate is 

not controlled by the regulation but is 

an independent question of Federal 

authority. The Superintendent can only 

make delegations consistent with 

applicable authorities including 

Departmental Manuals. 

At least one commenter suggested 

that the term ‘‘surface owner’’ be 

defined in the regulations as ‘‘any 

person, firm, corporation or other entity 

that owns the surface of the land on 

which oil and gas development is 

proposed or occurs.’’ 

In response to this comment, a 

definition of ‘‘surface owner’’ was 

added to Section 226.1 to include ‘‘any 

person or entity that owns a surface 

estate within Osage County, irrespective 

of whether the surface estate is held in 

fee, restricted fee or trust status.’’ 

With respect to the definition of 

‘‘waste of oil or gas or other marketable 

product’’ (226.1), one commenter 

suggested clarification, noting that even 

using a reasonable and prudent 

operating standard, subcategory (1) ‘‘a 

reduction in quantity or quality of 

product from a reservoir’’ may prove so 

vague and open to interpretation that it 

will be both unworkable and subject to 

disagreement whenever such a claim is 

made. 

The definition of ‘‘waste of oil or gas 

or other marketable product’’ must be 

read in conjunction with Section 

226.21, which specifies who makes a 

determination regarding royalty 

payments for lost or avoidably wasted 

materials. Section 226.21 allows the 

lessee to submit information in support 

of his/her position that gas was not 

wasted or avoidably lost before a finding 

is made. This provision ensures that the 

Superintendent has all relevant 

information from the lessee before 

making a final decision. In addition, 

during the Negotiated Rulemaking when 

this provision was discussed by the 

Committee and the public, it was noted 

that the Superintendent’s decision is 

subject to appeal under 25 CFR part 2. 

At least one commenter noted that 

references to the ‘‘Osage Nation’’ in the 

rule diminish the rights of the headright 

owners because the Nation includes 

non-headright holders. The commenter 

also stated that the Osage Tribe (under 

the 1906 Act) is not the same as the 

Osage Nation today. 

The reference to the Osage Nation in 

the definition of Osage Minerals Council 

is an accurate reference because the 

Osage Minerals Council is a duly 

elected governing body within the larger 

Osage Nation. Only Osage headright 

holders are eligible to vote for 

candidates for the Osage Minerals 

Council. 

C. Comments Related to Section 226.3 

At least one commenter stated that 

the BLM regulations and on-shore oil 

and gas orders are onerous and costly 

to comply with and lessees don’t know 

how to navigate them. This commenter 

suggested that it cost them over $87,400 

for a drilling permit in Kay County, 

Oklahoma, and that following BLM 

requirements will make the decision to 

drill more cost-based rather than 

potential-based. 

Section 226.3 allows the Bureau, in 

consultation with the Osage Minerals 

Council, to adopt BLM onshore oil and 

gas orders, notices to lessees or related 

onshore oil and gas regulations, but 

does not require adoption. Prior to 

adoption, the Bureau must comply with 

the Administrative Procedure Act. This 

rule does adopt two BLM onshore oil 

and gas orders that relate to the 

measurement of gas in Section 

226.63(a), and hydrogen sulfide in 

Section 226.60(f), but neither of these 

relate to the drilling permit process. 

Moreover, while Section 226.34 

(previously numbered Section 226.16), 

which relates to drilling permits, was 

amended to expressly provide that 

National Environmental Policy Act and 

the National Historic Preservation Act 

apply, those statues are already 

applicable within Osage County. The 

amendment only makes clear that 

lessees must submit certain 

environmental information to assist the 

agency in complying with those laws. 

To the extent that the comment could be 

interpreted to imply that Section 226.60 

(previously numbered Section 226.36) is 

revised to add requirements regarding 

well safety, those requirements were 

adopted from the BLM regulations, but 

do not impact the drilling permit 

process. It is also relevant to note that 

the rule does not become effective until 

60 days after publication and the Bureau 

is working on a plan to educate lessees 

in Osage County regarding the changes 

to the regulations to ensure compliance 

and understanding of any new 

requirements before the rules go into 

effect. 

At least one commenter suggested 

that all seven of the BLM’s current 

onshore orders be adopted immediately 

and that future onshore orders be 

adopted automatically by the Bureau 

without consultation with the Osage 

Minerals Council. 

The Negotiated Rulemaking 

Committee reviewed all of the BLM’s 

onshore orders and after much 

discussion and public comment only 

recommended adopting Orders 5 and 6. 

However, the Committee recommended, 

and the final rule adopts the 

recommendation, that the Bureau be 

expressly provided the authority to 

adopt other onshore oil and gas orders 

in the future. The requirement that the 

Bureau consult with the Osage Minerals 

Council prior to any such future 

adoption is consistent with Executive 

Order 13175 on tribal consultation. In 

addition, the Bureau must comply with 

the Administrative Procedure Act in 

adopting any future onshore oil and gas 

orders. 

D. Comments Related to Section 226.4 

At least one commenter suggested 

that in Section 226.4(a)(10), the 

Superintendent’s responsibilities with 

respect to protection of the 

environment, public health, and safety 

need to be expanded and strengthened. 

The rule already adequately addresses 

this comment, however, an additional 

change was made to Section 224.44(e) to 

further address this and other comments 

related to safety and the environment. 

For example, in addition to Section 

226.4(a)(10), the rule has specific 

protections against hydrogen sulfide gas 

in Section 226.60(f), which was added 

during the negotiated rulemaking 

process to address concerns from the 

public regarding the existence of 

hydrogen sulfide within Osage County. 

Section 226.44 also provides additional 

requirements with respect to the lessee’s 

obligations for preventing pollution and 

an additional provision was added for 

safety, to require fences around pits and 

tanks and that removal and remediation 

of tank and pit sites occur immediately 

after completion of operations. Section 

225.45 provides additional requirements 

with respect to other environmental 

responsibilities. These are just some of 

the provisions that ensure lessees take 

steps to protect the environment and 

ensure public health and safety. 

At least one commenter opposed 

Section 226.4(b) of the proposed rule 

because it allows oral orders, which 

could risk creating additional 

uncertainty in the supervision of 

operations and could be misinterpreted 

and/or unclear. It was suggested that a 

written order clearly identifying specific 

violations, necessary corrective actions, 

and the time for compliance would 

ensure full compliance and create a 

record in the event of an enforcement 

action or surface owner lawsuit. 

The Department agrees that written 

orders are preferable and has removed 


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all references in the rule allowing oral 

orders so that it is clear that written 

orders must be issued. 

Some commenters suggested that the 

Bureau should inspect oil and gas leases 

at least once annually and that the 

Bureau should promptly address and 

more frequently inspect non-compliant 

leases. It was suggested that there is a 

general lack of day-to-day oversight and 

that most ranches have old scars or 

current pollution issues associated with 

oil and gas production and saltwater 

spills. Commenters also suggested 

posting information regarding 

inspections like the BLM does because 

it allows landowners and the public to 

see when wells are inspected and 

violations reported. 

To the extent that these comments 

relate to the rule, they are already 

addressed by the rule. In Section 

226.4(c), leases with a history of 

noncompliance must be reviewed at 

least once annually. The Bureau has 

also established a toll-free 24 hour 

hotline (855) 495–0373 for reporting 

spills or accidents and a tracking system 

has been created to ensure that all calls 

are responded to in a timely manner and 

other officials are notified as 

appropriate. The Bureau has also 

discussed creating a Web site for the 

Osage Agency where it can post the 

results of investigations and other 

information related to oil and gas 

operation in Osage County. However, 

this is being done outside the 

rulemaking and any information posted 

must be reviewed for compliance with 

the Freedom of Information Act. 

Additionally, the Office of Inspector 

General (OIG) issued a publicly 

available report on the Osage Agency in 

October 2014 (No, CR–EV–BIA–0002– 

2013) that discovered some of the same 

concerns, but many of the OIG’s 

proposed recommendations and 

concerns will be addressed upon 

finalization of this rule. The Bureau is 

also making a number of operational 

changes that are discussed in that report 

in order to strengthen the management 

and administration of the Osage mineral 

estate. 

At least one commenter suggested 

that a new subsection should be added 

to Section 226.4 to require the 

Superintendent to adopt rules 

prohibiting Osage mineral headright 

holders from working in the lease 

inspection division of the Bureau to 

avoid conflicts of interest. 

Congress has recognized that Indian 

tribes and their members should have 

direct involvement in federal programs 

enacted for their benefit. Under 25 

U.S.C. 472, Congress recognized that 

Indians should be involved in the dayto-day operations affecting them and the 

Bureau of Indians Affairs must apply 

Indian preference to positions open in 

the Osage Agency. The Department is 

not persuaded by the assertion that 

Osage headright holders who may be 

employed by the Osage Agency will 

refuse to enforce regulations simply to 

advance their alleged personal selfinterests. In any event, employees are 

accountable to their supervisors and 

ultimately to the Secretary. If there are 

issues with non-compliance, members 

of the public may contact the 

Department to report such violations. 

E. Comments Related to Section 226.5 

At least one commenter suggested 

that Section 226.5(c) be revised to 

require the Superintendent to notify the 

surface owner beneath whose land 

minerals are leased. 

This comment is adequately 

addressed in the rule. The Negotiated 

Rulemaking Committee agreed in 

response to similar public comments 

raised in the negotiated rulemaking 

process that surface owners should have 

access to information regarding whether 

an oil and gas lease covers their surface 

estate. Thus, as proposed and adopted 

in the final rule, Section 226.5(c) 

requires that the Superintendent post at 

the Agency, within 30 days following 

approval of a lease, a legal description 

of the mineral estate that was leased. 

This ensures that surface owners have 

access to information regarding lands 

leased, while reducing the burden of the 

Osage Agency in locating and notifying 

each individual surface owner. 

F. Comments Related to Section 226.6 

At least one commenter suggested 

that in Section 226.6(a), regulatory 

language be included clarifying that a 

lessee that surrenders its lease is still 

liable for plugging, abandonment, and 

reclamation obligations associated with 

the lease area. 

In response to this and other 

comments concerning abandoned and 

unplugged wells, the Department has 

added a paragraph (c) to Section 226.6, 

to require the Superintendent to ensure 

that the lessee has either plugged all 

wells and reclaimed the surface, in 

accordance with the regulations, or 

show in writing that upon surrender the 

future liability for all wells located 

within the lease or portion of the lease 

to be surrendered has been transferred 

to another party. 

G. Comments Related to Section 226.8 

Some commenters suggested that the 

terms of an oil and gas agreement 

should be given primacy so that the 

regulations recognize that in the event 

of a conflict between the regulations and 

an oil and gas agreement, the terms of 

the oil and gas agreement control. These 

commenters expressed a lack of clarity 

in the intent behind Section 226.8 and 

proposed to make clear whether 226.8 

includes a pre-existing lease. One such 

commenter requested leaving existing 

leases as they are (highest posted price) 

and only making new leases subject to 

NYMEX, stating that otherwise there 

will be legal challenges. 

The Department does not believe a 

change in the rule is needed to address 

this comment. Section 226.8 has only 

been renumbered in the rule (previously 

numbered as Section 226.7). That 

provision specifies that amendments or 

changes to the regulations cannot 

change the terms of pre-existing 

approved leases with respect to the term 

of the lease, rate of royalty, rental or 

acreage, unless otherwise approved of 

by the parties and the Superintendent. 

Thus, the rate of royalty in pre-existing 

approved leases will not change as a 

result of the rule, but the provision 

describing how royalty is calculated 

(i.e., NYMEX at Cushing), could 

properly apply to pre-existing leases. 

This rule could also affect such matters 

as lease operations and maintenance 

requirements, reporting requirements, 

and other aspects of pre-existing leases 

other than the key lease terms specified 

in Section 226.8. 

H. Comments Related to Section 226.9 

Some commenters noted that the 

proposed rule requires each lessee to 

pay a new and unique bond for the 

development of the Osage minerals 

estate and does not include recognition 

or acceptance of already established 

and sufficiently protective nationwide 

bonds regularly posted by lessees. These 

commenters suggested that not allowing 

a nationwide bond would be completely 

atypical and singularly applicable to the 

Osage Agency and could hinder 

development. 

The Department agrees with this 

comment and has added the provision 

allowing nationwide bonds back into 

Section 226.9 of the rule. 

Several commenters objected to the 

increase in the amount of bonding 

required and asserted that requiring 

bonding at $5,000 per well is 

unaffordable. Some argued that lessees 

will have to plug wells because they 

won’t be able to afford bonding or that 

the new amount will tie up capital 

available to the lessee to develop 

production. 

The Department disagrees with this 

comment and in reviewing the record 

has found that there is a need for 

increased bonding. The Department 


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found that the Committee looked at the 

actual cost to plug wells and tried to 

find a balance between covering the cost 

of plugging a well while, at the same 

time, not overly burdening lessees. The 

original bonding amounts were based on 

a quarter section and did not correspond 

in any way to plugging and remediation 

costs related to wells, which must be 

done on a per well basis. The new 

regulation ties bonding to the number of 

wells and caps the per well bonding 

requirement at 25 wells for all leases, 

corresponding more directly to the fact 

that plugging costs are incurred on a per 

well basis. While some commenters 

requested that the Department include 

an allowance for nationwide bonding, 

none of public comments justified an 

alternative bonding amount. Thus, the 

Department found that overall, the 

Committee recommendation was 

reasonable and reduces administrative 

costs because the per well bonding 

streamlines implementation. The 

Department also found it necessary to 

maintain per well bonding requirements 

in light of a recent report on the Osage 

Agency issued by the Department OIG, 

which discussed and noted the 

historical failure to plug wells in Osage 

County and the need to ensure that this 

problem is addressed in the future. 

Some commenters argued that 

limiting bonding to $5,000 per well for 

up to 25 wells is inadequate to ensure 

sufficient remediation and 

recommended no less than $5,000 for 

shallow wells (less than 3,000 feet in 

depth) and $10,000 for deep wells 

(deeper than 3,000 feet) and deletion of 

any cap. Some of these commenters 

requested that the per-well bonding 

amount should be defined as an amount 

sufficient to cover 125% of the cost of 

(i) plugging a single well and (ii) 

reclaiming the well site and surrounding 

land impacted thereby. 

The Department believes that the rule 

sufficiently balances the need for 

increased bonding with the fact that 

bonding is only for insurance purposes 

and does not eliminate the lessee’s 

obligations to plug abandoned wells and 

remediate surface lands in coordination 

with surface owners. Bonding is only 

intended to provide assurances to the 

Bureau that the lessee has incentive to 

plug a well and is not intended to create 

complete upfront funding for the 

plugging of a well at an unknown time 

in the future. Nor is bonding intended 

to cover surface remediation. To the 

extent that a surface owner is 

unsatisfied with remediation on the part 

of a lessee, he or she may seek damages 

in accordance with Sections 226.40–41, 

or pursue any other legal remedies 

available to him or her. The Department 

found that the Committee considered, 

but rejected after substantial public 

comment in opposition, the notion to 

require bonding at 125 percent the cost 

of plugging a well. 

Some commenters requested that a 

final rule provide a grandfather 

provision for bonds on existing leases 

that would also apply to any new leases 

that the same lessee may acquire. 

The Department has concluded that it 

is necessary to make changes to bonding 

with Osage County and there have been 

historical problems with adequate 

bonding in Osage County as found in 

the recent report issued by the OIG in 

October 2014. The Department found 

that the issue of bonding was discussed 

throughout the negotiated rulemaking 

process and that members of the 

Committee and the public noted that the 

current rate of bonding does not relate 

at all to the fact that costs for plugging 

occur on a per well and not per lease 

basis. Moreover, members of the public 

have commented that they believe there 

is a problem throughout Osage County 

with abandoned and unplugged wells 

and current bonding rates were not 

sufficient to address or encourage 

remedying these issues. Thus, the 

Department believes that it is reasonable 

to adopt the revised bonding amounts 

proposed by the Negotiated Rulemaking 

Committee to better relate bonding to 

the cost of plugging a well and 

incentivize lessees to plug wells that 

will no longer be used so that they can 

get a release of their bond. The rule also 

provides new provisions for ensuring 

that the Bureau releases bonds in a 

timely manner. 

Some commenters asserted that most 

insurance companies won’t write oil 

and gas lease bonds now and the new 

regulation will make it more difficult. 

The Department does not believe that 

the rule will make it more difficult to 

obtain oil and gas lease bonds. 

Moreover, while the amount of bonding 

has increased, the rule caps the amount 

of the increased bond to a maximum of 

25 wells. The rule allows for different 

ways to acquire a bond, including the 

ability to obtain a surety bond that 

meets the requirements of the rule, and 

the Department has further revised the 

rule to allow nationwide bonds, which 

are accepted elsewhere on other Indian 

and Federal lands. While the 

Department understands that there may 

be some lessees that for various reasons 

may not be able to get a bond, the 

Negotiated Rulemaking Committee 

discussed that some of the issues related 

to those failures were due in part to 

defaults caused by particular lessees 

and are not attributable to the cost of 

bonding. Bonding is a requirement 

throughout the oil and gas industry and 

those who want to engage in oil and gas 

operations must expect to be required to 

provide assurance that they will 

properly plug and reclaim their well 

sites. 

Some commenters asserted that 

bonding at $5,000 per well is 

unaffordable and will cause small 

lessees to go out of business because 

most wells are either not able to produce 

enough to cover the bonding amount or 

are inactive and pose no threat the 

environment. 

For many of the reasons addressed in 

other responses to comments on 

bonding, no additional changes are 

necessary in response to this comment. 

In addition, the unused and unplugged 

or abandoned wells do pose a threat to 

the environment such as possible 

pollution of fresh water formations due 

to migration of oil, gas, saltwater and 

other substances. For example, 

abandoned wells can provide pathways 

for oil, gas or brine-laden water to 

contaminate groundwater supplies or to 

travel up to the surface due to the 

deterioration of the casing or surface 

equipment deterioration or malfunction. 

If the production is insufficient to cover 

the cost of bonding, the Department is 

concerned that the production will also 

be insufficient to cover the cost of 

plugging and reclamation. Thus the 

increase in surety amounts will help 

ensure the operator’s diligence in 

plugging and abandoning and 

reclaiming the surface. 

At least one commenter suggests that 

there should be a ceiling to the bonding 

requirement, like the State of 

Oklahoma’s cap at $25,000 per lessee. 

This comment is already addressed by 

the rule, which does provide a cap for 

bonding in Section 226.9(c) at $5,000 

per well for a maximum of 25 wells per 

lessee for all leases held within Osage 

County. Additionally, in response to 

public comment, the rule was further 

revised to allow nationwide bonding. 

At least one commenter suggested 

that the cap on bonding amounts should 

be eliminated from the regulations. 

The Department disagrees with this 

comment because it is generally 

accepted within the oil and gas industry 

that bonding is for insurance purposes 

and is not intended to cover the entirety 

of the costs associated with plugging 

and remediation of every well site, 

rather bonding provides an incentive to 

perform plugging and remediation of 

well sites and screens out unreliable 

lessees who fail to perform these duties 

because lessees that default on their 

responsibilities will not be able to get a 

bond in the future. 


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At least one commenter suggests 

bonding should follow the Oklahoma 

Energy Resources Board model used in 

the rest of the State of Oklahoma. 

No changes to the rule are necessary 

with respect to this comment. The 

Oklahoma Energy Resources Board 

(OERB) does not bond or plug wells. 

The OERB is a State-incorporated 

surface restoration agency that lessees in 

the State of Oklahoma voluntarily 

contribute to for remediation and 

reclamation of abandoned well sites at 

no cost to surface owners. The Bureau 

has met with OERB and confirmed that 

OERB has historically been willing to 

operate within Osage County and 

currently works with surface owners 

and the Bureau for Remediation within 

Osage County in accordance with its 

normal process and procedures. The 

goal of the regulation is to prevent 

orphan wells that will further burden 

OERB and the responsible operators 

who fund it. 

Some commenters noted that they are 

generally pleased with the proposed 

regulations but noted their concerns 

with plugging wells. Specifically, 

commenters stated that bonding needs 

to be more proactive and well sites 

remediated because the proposed 

regulations do not address current 

abandoned wells and, rather than 

plugging the wells, lessees often just 

pass wells to the next lessee when they 

assign or sell their lease. 

This is an issue that cannot entirely 

be addressed in the regulations, which 

govern on-going oil and gas operations. 

The Department recognizes that there is 

an issue with respect to abandoned 

wells within Osage County and works 

with the Osage Minerals Council to 

address these issues. The Osage 

Minerals Council has contracted with 

the Bureau to take over the function of 

plugging orphaned or abandoned wells 

and currently operates the program 

within Osage County. In addition, as 

mentioned in previous responses, OERB 

operates in Osage County to remediate 

the surface area around orphaned or 

abandoned wells that have been 

plugged. To the extent that this issue 

can be remedied in the future by the 

rule, the Department has increased 

bonding to more closely relate to costs 

associated with plugging a well and 

reclamation (on a per well basis) to 

provide an incentive to ensure lessees 

properly plug and abandon wells and 

has also added a provision, Section 

226.6(c), requiring that before a lease 

can be surrendered or partially 

surrendered, the lessee retains any past 

liability incurred within the lease or 

partial lease to be surrendered, and 

must show that he has either properly 

plugged and abandoned all wells and/or 

that another party is taking full legal 

liability for the wells within the lease or 

partial lease to be surrendered. In 

addition, a new provision was added as 

Section 226.29(a)(i), clarifying that the 

assignment is subject to the continuing 

obligations of the assignor to meet its 

plugging and abandonment obligations, 

and a new Section 226.29(a)(ii) was 

added making clear that the assignee 

retains all responsibility for all 

unplugged wells under the lease or 

partial lease assigned. 

To address the abandoned well issue 

within Osage County, one commenter 

suggested that a company fund be 

established whereby lessees would pay 

in the value of 2 barrels of oil per year 

for each active well less than 4,500 feet 

and 3 barrels of oil for wells less than 

7,500 feet and the fund would be used 

to plug abandoned wells. 

The Department does not believe this 

is an issue within the scope of the 

rulemaking. The regulations govern ongoing oil and gas operations. To the 

extent that there are historical issues 

with respect to abandoned wells and 

well sites, the Department can explore 

with the Osage Minerals Council 

whether or not a voluntary fund could 

be established to address the historical 

issues. The Department also reiterates 

that as stated in responses to other 

comments, OERB does operate within 

Osage County to remediate abandoned 

well sites and the Osage Minerals 

Council currently operates the program 

for plugging abandoned wells. 

I. Comments Related to Section 226.14 

Numerous comments were received 

objecting to the termination for nonproduction in Section 226.14(e). 

Commenters suggested that the 

timeframe for termination for 

nonproduction needs to be increased 

and/or kept at one year and not 90 days. 

One commenter noted that if a 

particular well produces very little, it is 

necessary to have the time to evaluate 

the upper and lower potential of the 

well regarding future oil and gas 

opportunities, as well as the ability to 

shut the well in for short periods when 

the price of the oil or gas becomes 

uneconomical to produce at that well 

without the lease being terminated. 

Another noted that the 90-day 

requirement will prevent companies 

from purchasing tracts because they will 

not have time to put the tracts into 

production. One commenter suggests 

that a more reasonable requirement 

would be a 180 day period, with notice 

to the Superintendent that the lessee 

needs an extension 20 days prior to the 

expiration of the 180 day period. Some 

commenters noted that people have 

other full time jobs and can’t get work 

done quickly and it sometimes takes a 

few months to get work done. Another 

commenter stated that the one-year 

termination provision has been working 

fine and it is expensive to hire people 

to fix problems and lessees don’t always 

have the money. Some commenters 

noted that oftentimes equipment is 

backordered or weather causes delay 

and they wouldn’t be able to comply 

with the 90-day requirement. 

In response to comments, the 

Department has further revised the rule 

to change the time period for 

termination for non-production from 90 

days to 120 days and require that 

requests for extension of time be 

submitted at least 20 days prior to 

expiration of the 120-day period, but 

given the additional time for nonproduction and the need to reduce 

administrative burdens in enforcing this 

provision, the Department deleted the 

provision allowing the Superintendent 

to waive the 20 days advance notice 

requirement. For clarification purposes, 

the Department also added a standard 

for extending temporary suspensions to 

require good cause. The Department 

found that there was substantial 

discussion on this issue during the 

negotiated rulemaking and the Osage 

representatives on the Committee were 

opposed to allowing nonproduction for 

periods of 180 days or more. Although 

the Osage representatives on the 

Committee also rejected a 120-day 

timeframe during the negotiated 

rulemaking process, the Department had 

to balance the concerns of the Osage 

representatives with the concerns of the 

lessees regarding operation 

contingencies and its ability to 

administratively manage leases for 

nonproduction. The Department did not 

view as relevant, concerns that a lessee 

may have another job that inhibits his 

or her ability to produce within a 

particular timeframe or concerns that a 

particular lessee may not be able to 

afford equipment or staff because 

Section 226.14(c) states that all lessees 

have an obligation to diligently develop 

their lease. The Department also found 

that concerns regarding the ability to 

put a well into production were 

misplaced because Section 226.14(e) 

only contemplates termination for 

nonproduction after the primary term of 

the lease when the lessee is expected to 

begin production. 

At least one commenter suggested 

that lessees aren’t in a rush to do 

business in Osage County and the 

Bureau needs to encourage lessees to 

keep their properties up, not terminate 

them. 


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No response is necessary to this 

comment because it is not substantive 

and does not provide any 

recommendations. 

At least one commenter objected to 

226.14(e) on the basis that some wells 

only produce one barrel per day and oil 

will not be picked up for sale within 90 

days or for at least six months, and 

under this provision this producing well 

would be considered non-producing 

because no sale took place within 90 

days and that is unfair. 

This comment misinterprets Section 

226.14(e), which does not provide that 

wells that are producing in paying 

quantities would be terminated for 

nonproduction within the prescribed 

timeframe. It is understood that sales are 

intermittent in nature and that a well 

may be producing but that a sale may 

not occur within 90 or 120 days. So long 

as the lessee reports production, the 

lease will continue, it is only the failure 

to produce, not the failure to sell, that 

terminates a lease under this provision. 

The regulations, however, expressly 

provide that all lessees have an 

obligation to diligently develop their 

leases as set forth in Section 226.14(c). 

A commenter stated that the 

requirement to drill on every quarter 

section in order to hold a lease exposes 

lessee to excessive financial risk and 

causes excessive impacts to the land 

and wildlife. Leases should instead be 

structured to allow focused drilling. 

This comment does not accurately 

characterize Section 226.14(a). Section 

226.14(a) requires a lessee to place a 

well in production within the land 

embraced by a lease within 12 months 

of the date of approval of the lease, or 

as otherwise provided for in the lease 

terms, but does not require a lessee to 

drill in every quarter section. A lease 

may encompass an entire quarter 

section or a larger land area. Lessees are 

required to act prudently in addition to 

diligently developing the mineral estate. 

The rule also includes provisions to 

ensure that lessees conduct all 

operations in a manner that protects 

other natural resources, environmental 

quality, life and property. See Section 

226.33. 

At least one comment was received 

suggesting that the factors in Section 

226.14, governing when the 

Superintendent may impose restrictions 

as to time of drilling and rate of 

production, should be expanded to 

encompass environmental, public 

health and safety concerns, and the 

interests of the Osage Tribe, because 

activity should not unduly interfere with 

surface uses. 

The Department disagrees with this 

comment. The Osage mineral estate is 

held in trust by the United States and 

was reserved by the United States for 

the purpose of mineral development. 

The rule also does not change the basic 

premise of law that a surface estate is 

subservient to a dominant mineral 

estate. The rule recognizes that a lessee 

is permitted to use as much of the 

surface estate that is reasonable for 

operations. See Section 226.37. Thus, 

the regulations provide limitations on 

size of drilling sites (Section 

226.38(a)(3)) and require that lessees 

conduct operations to protect other 

natural resources and environmental 

quality, life and property (Sections 

226.33(a)(2)–(3) & 226.45), and require 

lessees to take certain steps to prevent 

pollution (Section 226.44). At the same 

time, lessees have an affirmative 

obligation to diligently produce a lease 

(Sections 226.14(c) & 226.33(a)(4)) in 

accordance with the overall statutory 

and regulatory framework. In the event 

that a lessee is violating the regulations, 

the Superintendent has authority to take 

actions to remedy the violations 

(Sections 226.67 & 226.68). 

J. Comments Related to Section 226.15 

At least one commenter objected to 

226.15 with respect to drainage 

asserting that drilling offset wells to 

prevent drainage is not necessary 

because the Nation owns all the 

minerals in Osage County. Drilling offset 

wells would not only require 

considerable time, resources and 

expense, but this unnecessary drilling 

could adversely affect environmental 

damage. It was suggested that the 

Bureau should consider removing this 

section entirely or narrowing its scope to 

clarify the conditions where offset wells 

are necessary and also ensure that there 

is an appeal process to protect against 

arbitrary decision making. 

Under the 1906 Act, the mineral 

estate is held in trust by the United 

States for the benefit of the Osage. 

However, the drainage provision in the 

Rule is intended to ensure diligent 

development of all lease sites because 

not all leases have the same royalty rate. 

Thus, if a lessee holds multiple leases 

next to each other, the drainage 

provision will ensure that the lessee is 

not able to focus drilling only the lease 

site that has a lower royalty rate to the 

detriment of the Osage. However, to 

further clarify the provision and reduce 

the burden on lessees, subsection (b) 

was revised to clarify that drainage does 

not occur if the lessee can show that it 

could not produce a paying quantity of 

oil or gas ‘‘for a reasonable profit’’, 

rather than ‘‘in paying quantities.’’ 

Usually ‘‘in paying quantities’’ only 

means enough to recover day to day 

operational costs. Subsection (d) was 

also amended to clarify that an assignee 

is responsible for drainage even if it 

would not be economic, at the time of 

assignment, to drill an offset well, to 

ensure that the Osage are protected if a 

lease is assigned. The Department also 

notes that 226.16(d)(1) is intended to 

clarify that a well drilled to protect 

against drainage must be in continuous 

production and the obligation to pay 

compensatory royalty can be revived if 

the protective wells cease production. 

K. Comments Related to Section 226.18 

Several commenters suggested that 

measuring oil royalties based on 

NYMEX pricing is unattainable and that 

it is unfair to require lessees to pay a 

royalty based on a price they cannot 

obtain. One commenter suggested that 

NYMEX will gouge small lessees and 

others suggested that NYMEX will hurt 

Osage shareholders. A few commenters 

suggested, rather than NYMEX, royalty 

rates should be commensurate and 

competitive with those found in the 

region and in similar places around the 

country. One commenter suggested that 

only if the rule required lessees to be 

paid NYMEX prices would it be fair. 

Another noted that it is okay to use 

market center price as a reference point, 

but the market center price must be 

adjusted for location and quality. 

Another stated that because many wells 

in Osage County are stripper wells and 

produce low volumes and are only 

profitable under the existing 

regulations, NYMEX would harm 

profitability and shorten production life 

of leases, and suggested instead that 

royalty should be based only on the 

price paid to lessees, allowing the 

competitive marketplace to set the 

prices. One commenter noted that 

NYMEX will cost as much or more than 

$3 per barrel more than what is being 

paid now. 

In the Osage Tribal Trust Settlement, 

the Department agreed to engage in a 

negotiated rulemaking and, among other 

things, identify appropriate revisions to 

the methods for calculating royalty for 

oil and gas. The Negotiated Rulemaking 

Committee reviewed various indices to 

utilize for calculating royalty. The 

Committee sought a price benchmark 

that (1) was appropriate for oil sold in 

Osage County, (2) accurately reflected 

the oil market in Oklahoma, (3) was 

widely published, and (4) independent. 

The committee found that NYMEX was 

the only benchmark that met all four 

criteria. After public comment, the 

Committee decided to propose NYMEX 

at Cushing, Oklahoma, as the index for 

calculating oil royalties. The Bureau had 

the ONRR review and evaluate NYMEX 


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at Cushing to determine whether it was 

an appropriate market center for Osage 

County. The ONRR’s report 

recommends using NYMEX at Cushing 

based on its review and analysis of price 

data from Osage County and the 

surrounding area coupled with ONRR’s 

experience using different index prices 

for Federal oil valuation. Specifically, 

ONRR found that NYMEX is widely 

used and accepted by the industry and 

is representative of the value of oil and 

gas received on and near Osage County. 

ONRR also found that because Osage 

County is so close to Cushing, 

Oklahoma, adjusting NYMEX for 

location is unnecessary. The rule, in 

Section 226.19 (gravity adjustment 

table) also provides for adjustments to 

NYMEX based on the quality of the oil. 

The Department also found that during 

the public comment process in the 

negotiated rulemaking meetings 

virtually no alternative indices for 

royalty valuation of oil were suggested 

by the public, other than keeping the 

highest posted price. The Department 

found that the Committee explained to 

the public that a change in royalty was 

needed because some on the Committee 

did not believe that the highest posted 

price was protective of the trust 

beneficiary and that highest posted 

price was subject to manipulation and 

did not protect the trust beneficiary 

from non-arms-length transactions. The 

Department is required to establish 

regulations concerning Indian oil 

valuation based on its federal trust 

responsibility to act in the best interests 

of the Indian beneficiary, including a 

duty to maximize revenue for Indian 

tribes and Indian mineral beneficiaries. 

The Department also found that during 

the negotiated rulemaking, a staff 

member to the Committee noted that in 

his view since 1994, the highest posted 

price was often below sale prices for 

many lessees and, as a result, Osage 

headright holders were not always 

receiving the full royalty amount that 

they were due. In conjunction with the 

Report from the ONRR and the 

recommendations from the Committee, 

the Department has determined that 

utilizing NYMEX at Cushing, Oklahoma 

to calculate royalty payments for oil 

protects the interests of head right 

holders and is not overly 

administratively burdensome to 

implement or enforce. 

A commenter suggested that the oil 

royalty benchmark be established at the 

highest rate that the market will bear on 

the basis of the sale of West Texas 

Intermediate (WTI) crude, not NYMEX 

futures contracts. Similarly, a 

commenter suggested the gas royalty 

benchmark be established at the highest 

rate that the market will bear. Both 

would allow leases to be competitively 

bid or negotiated to acquire the 

maximum ultimate economic recovery. 

The Department agrees that there is 

merit to the use of WTI as the pricing 

benchmark for Osage oil. That was 

considered during the sub-committee 

evaluation of the various benchmark 

options. Use of WTI was ultimately 

rejected by the Committee because it 

would require location differential 

pricing and transportation adjustments 

that did not satisfy the request for 

simplicity and the need to minimize 

administrative burdens. Furthermore, 

WTI did not mirror the Oklahoma 

market as well as NYMEX settlement at 

Cushing. Benchmarks based on 

weighted average prices of arms-length 

transactions in a given market area are 

generally considered a fair 

representation of market value. Terms 

that require ‘‘the highest rate the market 

will bear’’ are, by their very nature, 

dismissive of transactions that occur 

below that threshold. As such, they 

would be unfair to parties that are able 

to negotiate satisfactory arms-length 

agreements below ‘‘the highest rate the 

market will bear.’’ Pricing based on such 

terms would not be considered fair 

market value. 

Several commenters requested that a 

transportation allowance for trucking or 

piping oil to Cushing should be factored 

into the calculations when the lessee 

uses the Cushing posted price in 

accordance with Section 226.18(b)(1). 

Some of these commenters stated that 

transportation allowances are also 

appropriate when, under Section 

226.18(b)(2), a lessee sells oil in a 

location other than Cushing and the 

actual sales price exceeds the Cushing 

price because of the transportation costs 

incurred by the lessee. Other 

commenters suggested that 

transportation costs need to be taken 

into account because of the economic 

fact that there is a cost involved if you 

want to sell oil. 

The Bureau had the ONRR review and 

evaluate NYMEX at Cushing, Oklahoma, 

to determine whether it was an 

appropriate market center for Osage 

County. The ONRR’s report 

recommends using NYMEX at Cushing 

based on its review and analysis of price 

data from Osage County and ONRR’s 

experience in using this process for 

Federal oil valuation. The ONRR also 

found that because Osage County is so 

close to Cushing, Oklahoma, adjusting 

NYMEX for location is unnecessary. The 

ONRR recommended against allowing 

transportation deductions and noted 

that eliminating transportations 

deductions would: (1) Increase revenue 

to the Osage, (2) reduce litigation costs 

to the Tribe and industry, (3) provide 

certainty to the industry and assure 

more contemporaneous compliance and 

(4) reduce administrative costs to the 

Federal government and the industry. 

Based on those recommendations and 

the Bureau’s desire to reduce 

administrative costs while at the same 

time fulfilling its trust responsibility, 

the Department decided against 

allowing transportation allowances. The 

Department also found that there was 

discussion of whether to allow 

transportation allowances during the 

negotiated rulemaking, but the 

Committee also chose not to allow for 

such deductions for a variety of reasons, 

including the difficulty in developing a 

simple formula and the administrative 

burdens of enforcing accurate 

transportation deductions. 

One commenter noted that under 

Section 226.18(c), for royalty taken in 

kind, a lessee can be required to supply 

free storage for a period of 60 days, and 

this subsection should provide that if 

the lessor elects to exercise this right, 

the lessee should be indemnified or held 

harmless for losses of such oil by causes 

beyond the lessee’s control. 

Section 226.18(c) was previously 

numbered as Section 226.11(a)(3), and 

has not been revised through this 

rulemaking. No further changes are 

necessary to this provision at this time 

and the Department has not been 

provided with sufficient information to 

reasonably support a change. 

L. Comments Related to Section 226.19 

One commenter requested that 

Section 226.19 be clarified to provide 

that the Superintendent must comply 

with the rulemaking notice and 

comment process before the 

Superintendent may publish new gravity 

adjustments ‘‘based on substantial 

evidence, that market conditions so 

warrant.’’ 

No changes are necessary in response 

to this comment because actions of the 

Department must comply with the 

Administrative Procedure Act. 

Moreover, it is uncertain whether or not 

the Superintendent would publish new 

gravity adjustments in the future or 

what process the Superintendent would 

follow to do so. If and when that occurs 

in the future, any final decision may be 

challenged in accordance with the 

Administrative Procedure Act. 

One commenter suggested that the 

Department of the Interior should not 

allow any exceptions or deductions that 

are not specifically permitted by the 

1906 Act or other applicable laws. 


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It is unclear whether this commenter 

was referring to deductions for oil 

(Section 226.19) or gas (Section 226.20). 

Regardless, the only deduction 

allowance for royalty paid on oil is 

based on a gravity adjustment. See 

Section 226.19. No deductions are 

allowed for royalties paid on residue gas 

produced on a lease, and the only 

deduction allowed for royalties on 

natural gas are the ‘‘reasonable cost for 

processing not to exceed 50 percent of 

actual sales value of natural gas liquids 

produced from the lease (including drip 

condensate).’’ See Section 226.20(c). 

M. Comments Related to Section 226.20 

One commenter noted that 226.20(a), 

which provides that royalties would be 

assessed and measured before water 

vapor is removed from the gas and the 

gas is in a marketable condition, and 

asserts that this would artificially inflate 

meter volumes without increasing the 

volume of gas produced. 

The Department is confused by this 

comment because nowhere does 226.20 

state that gas volumes must be 

determined prior to removing water 

vapor. It is assumed that the commenter 

was actually referring to 226.20(b). The 

requirement in 226.20(b) was added to 

prohibit adjustment to the measured 

volume of gas for assumed water vapor 

content. This requirement does not 

prohibit the physical removal of water 

vapor or placing the gas into marketable 

condition prior to measurement, 

however. We agree with the commenter 

that the wording was unclear and have 

changed the wording in 226.20(b) to 

clarify this and have also added specific 

technical requirements that were 

previously missing to address 

calculating the heating volume of gas to 

aid the lessee in complying with this 

section. 

One commenter stated that Section 

226.20(c) establishes a dual accounting 

system, but the use of a dual accounting 

system to calculate gross proceeds is an 

issue that is more properly addressed 

and negotiated by the Nation and the 

lessee in the lease document at the time 

it is signed. Empowering the 

Superintendent to change this 

calculation system on such short notice 

introduces substantial uncertainty into 

the calculation of royalties, 

discouraging prospective lessees from 

entering into agreements with the 

Nation. 

The Department disagrees with this 

comment. The Department did find that 

the reference for dual accounting in the 

proposed rule (30 CFR 1206.173) was 

incorrect and has added the correct 

reference (30 CFR 1206.180(a)–(b)). 

However, the purpose of the provision 

is so that if the actual reasonable cost of 

processing as required by this section 

cannot be determined, the lessee is 

required to perform the accounting for 

comparison (dual accounting) as 

outlined in 30 CFR 1206.180(a)–(b). On 

other Indian and Federal lands outside 

of Osage County, approval for the 

alternative methodology rests with 

ONRR, not the tribe. In Osage County, 

unless otherwise delegated, ensuring 

compliance with those same provisions 

is now vested in the Superintendent 

because this rule makes them applicable 

to Osage. In all cases, the application of 

alternative methodologies for 

accounting are directly tied to the lack 

of transparency of processing costs and 

an inability to determine those costs for 

allowance purposes. The requirement 

does not interfere with any agreements 

the lessee has or will make. 

One commenter asserted that Section 

226.20 requires a double royalty to be 

paid where gas produced from one well 

is used for lift purposes on another 

well—solely because it passes the point 

of metering on both wells—and 

disagreed with this, noting that it is 

widely accepted that gas used on-site for 

beneficial purposes of the lease is not 

royalty-bearing and this proposal would 

run counter to that principle. 

Section 226.20 requires only that all 

gas removed from the lease be metered 

before removal and subject to a royalty 

of not less than 20 percent, unless 

otherwise approved. That regulation 

ensures that the Osage get royalty for 

any gas moved off the lease site, even if 

it is used for operations at another 

location. The regulation does not 

prohibit gas developed from a lease site 

from being used for operations on the 

same lease site. On the other hand, 

Section 226.63 does require that all gas 

be measured in accordance with BLM 

Onshore Oil and Gas Order 5, to ensure 

that all gas that is required to be 

measured is properly accounted for, but 

royalty payments on gas are controlled 

by Sections 226.20, 226.21 & 226.22. 

A commenter expressed support for 

the attempt to provide for a royalty on 

residual and other marketable products 

and urged that the meaning of the 

relevant calculation be made clear. 

The Department is not certain it 

understands this comment, but notes 

that the determination of royalty on 

other marketable products is explained 

in Section 226.23, which is a provision 

that was contained in the prior 

regulations, but revised in the final rule 

to clarify that royalty due on other 

marketable products is in addition to 

any royalty that may be due on oil and 

gas in accordance with the regulations. 

N. Comments Related to Section 226.25 

At least one commenter suggested 

that the due date for royalty payments 

doesn’t need to be changed to 

accommodate any entity other than the 

Bureau. 

The due date for royalty was changed 

to make it consistent with the date that 

royalty payments are due to the ONRR, 

in the event that the Secretary delegates 

royalty collections and audits to ONRR 

to aid the Bureau in its management and 

administration of the Osage mineral 

estate. ONRR has the capacity to 

provide assistance to the Bureau 

without the Bureau having to duplicate 

services that ONRR already provides on 

other Indian and Federal lands. 

O. Comments Related to Section 226.27 

At least one commenter objected to 

Section 226.27(a)(2), which requires the 

Superintendent to approve all division 

order and sales contracts before 

production may ‘‘be removed from the 

leased premises.’’ It was suggested that 

this provision would impose a 

substantial administrative burden on 

the Bureau when they already face 

backlogs and uncertain funding. 

Section 226.27(a)(2) was not 

substantively changed through this 

rulemaking, but was renumbered (from 

Section 226.14(a) in the old regulations 

to Section 226.27(a)(2)) and reformatted 

for readability only. Issues relating to 

staffing and funding are also outside the 

scope of this rulemaking, although the 

Bureau has worked with the Osage 

Agency over the last few years to 

address budget shortfalls and staffing 

needs. 

P. Comments Related to Section 226.29 

At least one commenter objects to the 

provision in Section 226.29(a) that 

requires lease assignments to be 

approved by both the Superintendent 

and the Osage Minerals Council because 

no procedure or standard is specified 

for obtaining those approvals or 

appealing the decisions. It is also not 

clear what happens if there is a 

disagreement between the 

Superintendent and the Minerals 

Council. 

The regulations have always required 

lease assignments to be approved by 

both the Osage Minerals Council and 

the Superintendent. This rule does not 

change that requirement, but deletes the 

provision allowing lessees to assign 

separate horizons because the 

Department found, in reviewing the 

rule, that such assignments do not 

generally occur at Osage and when they 

did, they were so administratively 

burdensome that the Agency could not 


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monitor those assignments. As a general 

matter, the Minerals Council is the 

entity that enters into and approves all 

leases and assignments in accordance 

with their governing authority and 

procedures. Once the Minerals Council 

approves a lease or lease assignment, it 

is submitted to the Superintendent for 

federal review and approval. Any final 

decision of the Superintendent is 

governed by 25 CFR part 2 and the 

Administrative Procedure Act. 

Q. Comments Related to Section 226.33 

One commenter requested that there 

should be additional restrictions to 

protect natural resources and public 

safety and the restrictions should 

provide sufficient detail to allow lessees 

to comply and the Bureau to enforce. 

The commenter also suggested that best 

management practices should be 

developed to protect wildlife and other 

natural resources. 

This comment is already addressed in 

Section 226.33 of the final rule, which 

requires that lessees conduct all 

operations in a manner that protects 

other natural resources and 

environmental quality and protects life 

and property while also balancing those 

responsibilities with the requirement to 

maximize production of oil, gas and 

other marketable products. Sections 

226.44–226.45 also provide additional 

protections for the prevention of 

pollution and environmental concerns 

and were added in response to similar 

concerns raised during the negotiated 

rulemaking process. To the extent that 

the commenter desires the Bureau to 

develop best management practices 

outside the regulations, those comments 

are beyond the scope of the rulemaking. 

However, the Bureau is currently 

engaged in a process with the U.S. 

Environmental Protection Agency (EPA) 

to revise and update an existing Osage 

Lessees Manual that addresses 

environmental protection and response, 

including best management practices. 

The Osage Minerals Council, Osage 

Nation, State of Oklahoma, lessees, and 

surface owners were involved in the 

public listening sessions as part of that 

process. Moreover, the rule does not 

replace other applicable environmental 

laws or regulations and EPA is 

responsible for overseeing certain 

aspects of oil and gas operations within 

Osage County. 

R. Comments Related to Section 226.34 

One commenter noted that the Bureau 

should not approve a lease, installation, 

permit or other activity until an 

environmental impact assessment has 

been completed and any issues have 

been resolved. To that end, the Bureau 

should regularly consult with Federal, 

State, and local wildlife agencies to 

reduce conflicts between wildlife 

conservation and oil and gas 

production. 

Notwithstanding the regulations, the 

Bureau is required to ensure compliance 

with the National Environmental Policy 

Act (NEPA), 42 U.S.C. 4321 et seq. 

Further, Section 226.5(d) makes clear 

that before approval of each oil and/or 

gas lease and activities and installations 

associated therewith must be assessed 

and evaluated for its environmental 

impact. Although the Bureau already 

undertakes environmental reviews 

before approving certain actions, 

Section 226.34 has been further 

amended to expressly note that the 

NEPA is part of the environmental 

compliance review and must be 

completed before the Superintendent 

may grant authority under a lease to 

conduct certain operations. 

S. Comments Related to Section 226.35 

At least one commenter suggested 

that Section 226.35 as written appears 

to reverse the ancient rule that the 

surface estate is subservient to the 

subsurface/mineral estate, thereby 

giving the surface owner a veto over 

mineral development. In particular, 

paragraph (b) only provides that the 

Superintendent will endeavor to bring 

the parties to terms so that a lessee may 

develop on a restricted homestead and 

this is different than allowing the lessor 

to enter upon surface lands and utilize 

subsurface rights and would delay 

development. Additionally, paragraph 

(c) provides that when no agreement 

between a surface owner and lessee can 

be reached for surface usage, the 

Minerals Council can make a final 

binding decision, but this paragraph 

does not include a requirement that the 

Minerals Council recognize the legal 

subservience of a surface owner’s right 

or take into account the reasonableness 

of the lessee’s request, or apply 

standard methods of valuation to the 

interests being adjudicated. This 

commenter notes that it is also unclear 

what appeals rights a lessee has to such 

determinations. 

Section 226.35 (previously numbered 

226.17) was not substantively changed 

in the rule. References to the ‘‘Osage 

Tribal Council’’ to the ‘‘Osage Minerals 

Council’’ were changed because the 

Osage Tribal Council no longer exists 

and it is the Osage Minerals Council 

that oversees the Osage Mineral Estate. 

Moreover, Section 226.35 governs the 

use of restricted homestead and not all 

surface lands within Osage County. The 

Bureau has a unique role with respect 

to operations that occur on a restricted 

homestead and this section ensures that 

the appropriate procedures are followed 

to enable the Bureau to participate in a 

decision impacting the restricted 

homestead in order to protect the 

restricted surface owner to which the 

United States has a trust responsibility, 

but those provisions do not change the 

legal principles related to the surface 

and subsurface mineral estate that are 

applicable in Osage County. 

T. Comments Related to Section 226.36 

One commenter stated that Section 

226.36 should also require that no 

operations may begin until the lessee 

can meet and negotiate in good faith 

with the surface owner to ensure the 

health and safety of the lessee and the 

health and safety of others using the 

State’s wildlife management area. 

No change has been made in response 

to this comment. Section 226.36 only 

relates to commencement of operations, 

and Section 226.33 of the rule provides 

that lessees are required to comply with 

all applicable laws and regulations, 

including protecting natural resources 

and environmental quality, and life and 

property during their operations. To the 

extent a surface owner believes that a 

lessee is engaged in operations that are 

harmful to the health and safety of 

humans, such actions should be 

reported immediately to the proper 

authorities and the Bureau maintains a 

24-hour hotline for such purposes. 

One commenter disagreed with 

provision allowing the Superintendent 

to set routes of ingress and egress in 

Section 226.36(b)(2) if no agreement 

between lessee and surface owner can 

be made and suggests using an unbiased 

alternative decision maker. 

In response to comments, we have 

further revised Section 226.36(b)(2) to 

allow both the surface owner and the 

lessee to meet with and submit 

information regarding such routes 

before a final determination is made. 

This will allow for the consideration of 

relevant parties before making a 

determination, which provides added 

protection for all parties. 

At least one comment was received 

noting that it is not clear how Section 

226.36(b), requiring the lessee to meet 

with the surface owner or his/her 

representative, is met when there are 

tracts with multiple or numerous 

surface owners. The commenter 

proposes that the Bureau qualify that 

this provision is met by meeting with the 

majority owner(s). 

No change has been made in response 

to this comment. A particular lease 

could include multiple tracts of land 

that are owned by different surface 

owners and the owners of each surface 


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estate must be separately met with to 

ensure proper notice and due process. 

U. Comments Related to Section 226.37 

Some commenters suggested requiring 

lessees to meet prior to operations and 

enter into a written surface use 

agreement to address, among other 

things: (a) Identify and limit the size 

and locations of well pads, roads, 

pipelines and power lines; (b) govern the 

timing and scope of operations to 

minimize disturbance to landowner’s 

operations; and (c) outline reclamation 

and clean up obligations. In addition, 

some of these commenters suggested 

that lessees should adhere to BLM best 

practices and that any dispute should 

be governed by arbitration. 

Section 226.36(a) already requires the 

lessee to notify or attempt to notify 

surface owners prior to commencement 

of certain operations and Section 

226.36(b) requires that lessee request a 

meeting with surface owners to provide 

information regarding location of wells, 

route of ingress and egress and contact 

information for damage claims. In 

response to comments, however, the 

Department has added a requirement to 

Section 226.36(b)(2), which requires 

that in the event that the surface owner 

and lessee cannot agree on a route of 

ingress or egress, both the surface owner 

and the lessee will be notified by the 

Superintendent and provided with an 

opportunity to meet and/or to submit 

any information in conjunction with 

that process. In addition, Section 

226.37, governing use of surface lands, 

already provides standards for surface 

use without the need for an additional 

requirement of surface use plans 

between the surface owner and lessee. 

The rule has always implicitly provided 

that the lessee and surface owner should 

work together regarding locations of 

well pads, roads, pipelines and electric 

lines and expressly provides a process 

for the routing of rights-of-ways 

including, for example, pipelines and 

electric lines, in the event that the 

surface owner and lessee cannot agree 

on a particular route. However, in 

response to comments, the Department 

has also added a requirement to Section 

226.37(a) (similar to Section 

226.36(b)(2)) to provide that the 

Superintendent will notify or attempt to 

notify both the surface owner and lessee 

and provide them with an opportunity 

to meet and/or to submit any 

information in conjunction with that 

process. In addition, Section 226.38 

provides limitations regarding the size 

of drilling sites that lessees must follow 

in conducting operations. 

A commenter suggested that Section 

226.37(c) should also include a clause 

specifying the lessee’s operational 

obligations be expanded beyond 

‘‘workmanlike manner’’ to include 

avoiding waste, degradation of 

environmental quality, avoidable 

nuisance, threats to public safety and 

health. 

The rule sufficiently addresses this 

comment without requiring a change to 

Section 226.37(c). Section 226.37 

governs the use of surface lands 

generally, but is not the only provision 

in the regulation regarding a lessee’s 

duties and obligations. Section 

226.33(a)(2)–(3) already requires that 

that the lessee conduct operations in a 

manner that protects other natural 

resources and environmental quality 

and that protects life and property. 

Section 226.44 further specifies 

requirements that lessees must follow to 

prevent pollution, and Section 226.45 

delineates lessee’s other environmental 

responsibilities. In addition, Section 

226.46 provides that a lessee must 

perform all operations and maintain 

equipment in a safe and workmanlike 

manner and take all precautions 

necessary to provide adequate 

protection for the health and safety of 

life and the protection of property. 

V. Comments Related to Section 226.38 

Some comments were received 

objecting to the amount of 

commencement money in Section 

226.38 as grossly inadequate and stating 

it should be significantly increased to 

fairly compensate landowners for 

immediate and long term impacts and 

loss of land as a result of well pads, 

roads, pipelines, power lines, tanks and 

other infrastructure and operations. 

Commencement money is not 

intended to compensate surface owners 

for all damages to land as a result of oil 

and gas operations. Rather, it is 

intended to provide an upfront payment 

to surface owners that will be credited 

towards future damages. The rule has a 

process in Section 226.40, by which 

surface owners may seek additional 

damages. A number of commenters also 

raised concerns that increased 

commencement fees would be overly 

burdensome to smaller lessees. 

However, the commencement fees are 

intended to provide all surface owners, 

regardless of whether the lessee is a 

small or large producer, with the same 

up front compensation for the initial use 

of surface lands. During the rulemaking 

the Committee heard from many surface 

owners that the amount of 

commencement money was inadequate 

to the surface cover damage the surface. 

Thus, there is a need to balance these 

concerns while ensuring that surface 

owners are treated equally and receive 

some measure of compensation before 

they are able to recover damages for 

actual impacts to the surface as a result 

of oil and gas operations. An increase in 

commencement fees in conjunction 

with the ability of surface owners to 

continue to recover full damages strikes 

this balance. 

At least one commenter suggested 

that no geophysical, geologic 

exploration or surveying or staking 

activities be allowed without the lessee 

entering into a written agreement with 

the surface owner regarding seismic 

activities. 

Section 226.38 governs 

commencement of operations and 

provides that a lessee may commence 

operations, including seismic activities, 

once the commencement fees are paid 

in accordance with that section. This 

section in particular, has been revised 

from the previous regulations to 

increase the fees in response to surface 

owner comments during the negotiated 

rulemaking process, but the majority of 

the section was not revised. The 

Department found that there was 

discussion during the negotiated 

rulemaking with respect to the concept 

of requiring some kind of a surface use 

agreement before operations could 

begin, but ultimately the Committee did 

not propose that approach. Based on the 

record, the Department believes the rule 

contains sufficient standards governing 

the use of surface lands (Sections 

226.36(b) & 226.37), including 

provisions aimed at ensuring that 

surface owners are notified of 

operations (Section 226.5(c); Section 

226.36; 226.38(b)) and have the 

opportunity to participate in the process 

where applicable. See e.g., Section 

226.37(a). In addition, the rule 

continues to allow surface owners to 

seek compensation for damages caused 

by operations and provides an 

arbitration process to settle disputes 

between surface owners and lessees. See 

Section 226.40. 

Some comments were received 

requesting that the Bureau recognize 

that a surety performance bond is 

generally required by the surface owner 

prior to conducting oil and gas 

activities—a requirement that is 

applicable in the State of Oklahoma 

under State law. 

Oil and gas operations within Osage 

County are governed by federal law, 

including the 1906 Act and its 

implementing regulations. Under the 

rule, Section 226.38 requires 

commencement fees, rather than a 

surety performance bond, be paid to 

surface owners before operations may 

begin. During the negotiated rulemaking 

in response to public comment, the 


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Committee agreed to propose increases 

in the amount of commencement money 

due and this rule adopts those 

recommendations. Moreover, the 

regulations have always provided that 

the lessee and surface owner must 

negotiate settlement of damages after 

commencement of operations and these 

provisions remain unchanged in the 

final rule. 

At least one comment was received 

objecting to the increase commencement 

fees in Section 226.38(a) on the basis 

that it will only destroy small lessees 

who work in an old oil field. 

No evidence was submitted to support 

this comment. Further, this issue was 

discussed during the Negotiated 

Rulemaking Committee and this change 

was made in response to surface owner 

complaints regarding damages and 

lessee complaints regarding access. In 

particular, the Negotiated Rulemaking 

Committee explained that the increase 

in the commencement fee from $300 to 

$2,500 was made because $300 is an 

outdated amount and is creating 

development issues between the surface 

owners and lessees, as evidenced by the 

recurring issue in Osage County of 

surface owners blocking lessee access to 

lease sites because they believe the 

commencement fees are insufficient. 

Thus, the Committee increased the 

commencement fee to $2,500 to help 

mitigate this issue and believed it is a 

fair amount that would be applied to 

future damages, while at the same time 

balancing concerns of surface owners 

who are concerned about immediate 

damages to their surface estate. 

Committee members agreed that this fee 

should be paid before beginning 

operations, not at the time of permitting. 

W. Comments Related to Section 226.39 

A commenter suggested that Section 

226.39, re: tank fees, be folded into the 

commencement money provision at 

Section 226.38(a). 

Commencement money is not 

intended to cover fees for the siting of 

tanks. At the time that a lessee 

commences operations, he or she may 

not know how many tanks will be sited 

on the well site. Section 226.39 provides 

that when a tank is sited on a well site, 

the lessee will pay the requisite fees in 

accordance with that section. This 

provision ensures that the surface owner 

will be compensated for the siting of a 

tank at the time they are placed on a 

well site, while allowing the lessee to 

begin operations after the payment of 

commencement fees and before he or 

she may know how many tanks will be 

placed at the well site. 

X. Comments Related to Section 226.40 

One commenter noted that in his/her 

view, Section 226.40(a), regarding 

compensation to surface owners for 

damages encompassing ‘‘all other 

surface damages as may be occasioned 

by operations,’’ is open-ended and 

could result in needless confrontations 

or litigation. The commenter suggests 

narrowing the provision to provide for 

damages to ‘‘growing crops [and] any 

improvements on the lands.’’ 

Section 226.40(a) was not changed 

substantively from the prior regulations 

(original 226.20(a)). Moreover, this 

comment contradicts the purpose of the 

damage provisions in the rule, which 

are intended to be broad enough to 

cover any claims for damages that a 

surface owner may have against a lessee. 

The provision is not intended to take a 

position on whether a particular claim 

for damages does or does not have 

merit, but allows for such issues to be 

worked out between the surface owner 

and the lessee. 

Y. Comments Related to Section 226.41 

At least one commenter suggested 

that damage claims should be settled by 

the terms of surface use agreements and 

then, secondarily, by arbitration in 

Section 226.41. 

For the reasons stated in responses to 

other comments, the rule does not 

require a surface use agreement. The 

rule does provide for a surface owner to 

be compensated for damages as a result 

of operations and arbitration may be 

sought if issues between the surface 

owner and lessee cannot be resolved. 

Nothing in the rule prohibits the surface 

owner and lessee from discussing issues 

related to operations early in the process 

to minimize disagreements. 

Z. Comments Related to Section 226.45 

Some commenters raised concerns 

that the proposed regulations fail to 

protect the land, environment, public 

health and safety and property rights of 

surface owners and suggested language 

to expand environmental protections. 

This comment was addressed during 

the negotiated rulemaking and there is 

no need to further revise the rule. In 

response to similar public comments 

during the negotiated rulemaking, the 

Committee proposed, and the 

Department is enacting in the final rule, 

several new provisions aimed 

specifically at protection of the land, 

environment, and public health and 

safety. Those provisions include, for 

example, clarifying and specifying the 

lessee’s environmental responsibilities 

and obligations while conducting 

operations (Section 226.45), adding 

compliance with BLM Onshore Oil and 

Gas Order 6 regarding H2S safety 

(Section 226.60(f)), adding requirements 

for ensuring well safety (Section 

226.60(b)–(e)), site security (Section 

226.65), and safety standards for lessee 

operations and equipment (Section 

226.46). Moreover, the regulations have 

always had provisions regarding 

damages to surface lands and an 

arbitration process for resolving 

disputes that remain in the rule. It is 

relevant to note that one commenter 

specifically noted that the proposed rule 

does provide protections for the surface 

owner, for example, Section 226.38 

requires lessees to remit a $2,500 

commencement fee for each well drilled 

which is credited to the final settlement, 

and is an increase from the past rule of 

only $300. In addition, the payment of 

commencement fees does not affect the 

surface owner’s ability to seek 

additional monies for damages and 

Section 226.40 allows a surface owner 

to seek additional monies for damages. 

Specifically, Section 226.41 provides for 

an impartial arbitrator to resolve issues 

and allows for arbitration awards to be 

challenged in a court of competent 

jurisdiction. Lastly, all Osage leases 

require the lessee to conduct operations 

consistent with a prudent operator 

standard and failure to abide by that 

standard or regulations specifically 

aimed at protecting the environment can 

subject the lease to termination under 

Sections 226.67 and 226.68. 

AA. Comments Related to Section 

226.46 

A commenter suggested that a specific 

reference in Section 226.46 be made to 

prohibit leaving REDA cable on the 

ground. 

The Department agrees that there is a 

need to address this issue, and has 

further revised Section 226.46 to 

include a provision requiring lessees to 

comply the National Electric Code with 

regard to the running and maintenance 

of electrical lines to ensure that 

minimum standards are required. 

BB. Comments Related to Section 

226.47 

A commenter suggested that in 

Section 226.47, the granting of 

easements for wells off the leased 

premises be at the consent of surface 

owners as well as the Osage Minerals 

Council. 

The Department disagrees with this 

comment. However, the Department 

does agree that a surface owner should 

be able to submit information as part of 

the process and has revised Section 

226.47 to provide that the 

Superintendent will notify or attempt to 


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notify the affected surface owner(s) and 

provide an opportunity to meet and/or 

submit information before an easement 

is granted. 

CC. Comments Related to Section 

226.48 

Several comments were received 

asserting that all of the surface water 

within Osage County belongs to the 

State of Oklahoma, so all permits for 

surface and groundwater should be 

stopped. 

Section 226.48 governs the use of 

surface water and was not substantively 

changed as part of this rule. The 

ownership of surface water is a legal 

question that does not need to be, and 

cannot be, resolved as part of this 

rulemaking process. 

Several comments were received 

suggesting that Section 226.48 in its 

current form authorizes the unpermitted use of surface water in Osage 

County and, in effect, the regulation 

purports to preempt the State of 

Oklahoma’s regulatory authority. These 

comments propose amending Section 

226.48 to state that Oklahoma law 

applies to all uses of water within Osage 

County. These commenters also suggest 

that all use of water must be permitted 

by the State, including use in oil and gas 

exploration, production or other 

operations otherwise shortages could 

occur for those using the same water 

source pursuant to an Oklahoma Water 

Resources Board permit. 

As noted above, Section 226.48 

governs the use of surface water and 

was not substantively changed as part of 

this rule. The ownership of surface 

water is a legal question that does not 

need to be, and cannot be, resolved as 

part of this rulemaking process. 

Comments were also received expressly 

disputing any comments asserting that 

all water use is subject to State law and 

this commenter notes that the Osage 

Nation’s ownership and regulatory 

control of reserved waters within Osage 

County is a historical fact and without 

question, which is made clear by the 

creation of the Osage Reservation in 

1872 and the Osage Mineral Estate in 

1906. This comment further supports 

leaving Section 226.48 unchanged; 

moreover Section 226.48 was originally 

codified in 1974 and has remained 

unchanged for over 40 years. 

DD. Comments Related to Section 

225.53 

A commenter suggested that a lessee’s 

permanent improvements and personal 

property should be removed from the 

site when a well is abandoned, that 

there should be an upper limit of 

perhaps three years up to which wells 

can be ‘‘shut in,’’ and that the lessee 

should remediate a site within 90 days 

of well plugging. 

These comments are adequately 

addressed in the rule to the extent 

necessary. Section 226.53(a) makes clear 

that any permanent improvements 

become the property of the surface 

owner and the only portion of that 

provision that was deleted was the 

exception for permanent improvement 

to become part of the surface when 

termination of a lease is for something 

other than cause, because it did not 

make sense to have such an exception 

as a legal matter. To the extent that a 

surface owner has been damaged by the 

siting of a permanent improvement, the 

regulations have always contemplated 

that the surface owner would seek 

damages in accordance with the 

damages provisions. Section 226.53(a) 

also already requires that a lessee 

remove all personal property within 90 

days of termination of the lease. And, 

Section 225.53(c) requires that a lessee 

must plug all wells that are to be 

abandoned and Section 225.53(d)(4) 

requires that within 90 days of plugging 

the well, the lessee must clean up the 

premises around the well. 

EE. Comments Related to Section 226.56 

One commenter requested that the 

Bureau ensure that well records and 

subsurface data required to be reported 

in Section 226.56 be made accessible in 

a database to the public and be accurate 

to ensure that groundwater is properly 

protected. The commenter suggests that 

all new wells should be logged and the 

electronic logs should be required and 

incorporated into the database. 

This comment is outside the scope of 

the regulations and relates to the 

internal procedures for how the Bureau 

should store information required to be 

submitted under the regulations and 

how such information is or can be 

disseminated to the public. However, 

Section 226.60(e) already requires the 

lessee to protect freshwater from 

contamination and the Bureau will 

further consider this comment as it 

considers the development of a Web site 

for information related to oil and gas 

operations within Osage County and 

evaluates the information that could be 

posted for the benefit of the public 

consistent with the Freedom of 

Information Act. 

FF. Comments Related to Section 226.57 

A commenter suggested that in 

Section 226.57, minimum setbacks 

between oilfield activities and boundary 

lines of leased land, public roads, 

watering places, and dwellings, 

granaries, and barns be increased. 

This rule did not change Section 

226.57 and it remains substantively the 

same as in the current regulations 

(previously found at Section 226.33). 

The Department also found a lack of 

information submitted in conjunction 

with this comment justifying the need to 

have an across the board minimum 

setback beyond 300 feet of the leased 

land boundary and 200 feet of public 

highways, established watering places, 

dwellings, granaries and barns. 

Moreover, it is relevant to note that 

Section 226.57 provides minimum 

setbacks and the lessee and surface 

owner may further discuss the need for 

an increase in the setback in any 

particular circumstance. 

GG. Comments Related to Section 

226.59 

A commenter suggested that the 

Bureau should undertake a 

comprehensive review and update of its 

freshwater data/maps and, until then, 

surface casing should be required to a 

depth 200 feet below that recommended 

by the Bureau’s current data/maps. 

This comment does not relate directly 

to the rule and no change to the rule is 

necessary. Section 226.59 specifies that 

the lessee must take certain precautions 

to prevent damage or pollution to 

freshwater. The Department agrees that 

the Bureau should endeavor to work 

with the best available data regarding 

freshwater data and maps applicable in 

Osage County and it will work with the 

United States Geological Survey and 

EPA to ensure that it has the most up 

to date information. The Bureau must 

review and approve operations 

consistent with the best available 

information it has available and it 

would be arbitrary to require all surface 

casings to go to a depth greater than 200 

feet irrespective of the data and 

information available to the Bureau. 

Instead, Section 226.59 gives the 

Superintendent broad authority to take 

necessary steps to protect fresh water or 

other mineral bearing formations 

depending on particular circumstances. 

For example, in some instances 

depending on the hydrology in a 

particular area, the Superintendent may 

require surface casing to a depth greater 

than 200 feet. In other areas within 

Osage County, the hydrology may be 

such that freshwater and other mineral 

bearing formations are adequately 

protected if surface casing are set at a 

depth less than 200 feet. Nothing in the 

rule prohibits a person or entity from 

submitting for consideration by the 

Superintendent, information relating to 

the depth of nearby residential water 

wells that may require setting the 

depths for a particular well deeper than 


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shown on the best available maps that 

the Bureau has on file. 

Some commenters suggested that, in 

Section 226.56(a) and/or 226.59, lessees 

be mandated to report freshwater well 

drilling data to the Bureau and the 

Oklahoma Water Resources Board, that 

the Bureau require water well testing 

within 2,000 feet of oil or gas wellbores, 

and that lessees be required to keep 

cement well logs for all cement jobs 

across the freshwater zone. 

This rule did not change Section 

226.59 and it remains substantively the 

same (previously found at Section 

226.35). Further, Section 226.59 gives 

the Superintendent broad authority to 

address these types of concerns on a 

case by case basis because the 

regulations allow the Superintendent to 

take necessary steps to protect fresh 

water or other mineral bearing 

formations depending on the particular 

circumstances. 

HH. Comments Related to Section 

226.60 

A commenter suggested that well 

control requirements in Section 226.60 

are insufficient and that, instead, BLM 

Onshore Oil and Gas Order No. 2 

should be substituted. 

No further revision to Section 226.60 

is necessary in response to this 

comment. Section 226.60 was 

recommended by the Negotiating 

Rulemaking Committee in an attempt to 

balance the need to have additional 

safeguards for maintaining well control 

and the Committee specifically 

reviewed and examined BLM rules and 

procedures. The Department found that 

that section combines existing language 

from the regulations with language from 

BLM regulations governing well control. 

For example, paragraph (a) is text from 

the old regulations, but paragraphs (b) 

through (e) were adopted consistent 

with BLM regulations regarding well 

control. The Department believes that 

these new provisions provide additional 

protections to ensure well control that 

have not been in place before in Osage 

County. Moreover, if appropriate, under 

Section 226.3, in accordance with the 

Administrative Procedure Act the 

Bureau can adopt BLM’s Onshore Oil 

and Gas Order No. 2 in the future. 

Several commenters raised concerns 

regarding the venting of hydrogen 

sulfide gas at any level, and the flaring 

of hydrogen sulfide in excess of 10 parts 

per million. Some of these commenters 

suggested that if short term flaring must 

be slowed, the lessee should be required 

to use the best current flaring 

technology for the oil and gas industry, 

and any flaring of natural gas should be 

done in a manner to eliminate the 

visibility of the flame and a produced 

light using a closed-combustion 

chamber system. Other commenters 

suggested using current best industry 

standards for flaring following 

American Petroleum Institute guidelines 

and utilizing ‘‘clean burn variable tip 

flare’’ technology. 

These comments are adequately 

addressed in Section 226.60(f) of the 

rule and no further change in necessary. 

Section 226.60(f) requires compliance 

with BLM Onshore Oil and Gas Order 

No. 6. This Order identifies the Bureau 

of Land Management’s requirements 

and minimum standards of performance 

expected from operators when 

conducting operations involving oil or 

gas that is known or could reasonably be 

expected to contain hydrogen sulfide 

(H2S) or which results in the emission 

of sulfur dioxide (S02) as a result of 

flaring H2S. This Order also identifies 

the gravity of violations, probable 

corrective action(s), and normal 

abatement periods. In addition, the 

Bureau has been working with EPA to 

develop an Environmental Compliance 

Manual for Osage County and has 

received comments from the public to 

include in that manual best 

management practices, including best 

practices for venting and flaring 

hydrogen sulfide gas. 

II. Comments Related to Section 226.62 

A commenter suggested that the 

Department should require more 

detailed and timely reporting in both the 

final rule and in OMB-approved forms. 

This reporting would be offset by the 

Department requiring routine 

inspections of all withdrawals from tank 

batteries and contemporaneous 

recordation of all of the appropriate 

data, periodic facility inspection, and 

spot inspection for compliance. The 

commenter also recommended that 

inspections be performed by qualified 

Bureau officers; that periodic, random, 

and risk-based inspections be 

performed; and that the Bureau inspect 

all oil withdrawals. 

The rule contains mechanisms that 

allow the Bureau to more efficiently 

perform inspections. For example, in 

Section 226.62(c), lessees are required to 

give notice to the Superintendent before 

a purchaser is notified to remove a tank 

of oil to allow Bureau employees to 

perform periodic and random 

inspections to ensure accountability. In 

addition, under Section 226.63(c), a 

lessee must provide 48 hour notice 

before a lessee calibrates or adjusts gas 

meters. Osage County is approximately 

1.5 million acres and the Bureau cannot 

inspect all oil withdrawals or be at 

every gas meter calibration, but the 

notification system is intended to 

provide a better system that will enable 

Bureau employees to plan where they 

should be on any given day to ensure 

that field inspections include areas 

where tanks are ready to be picked up 

by lessees or meters will be calibrated. 

The Department has determined that the 

additional burden on the public of 

requiring more detail or increased 

frequency in reporting under the 

Paperwork Reduction Act is not clearly 

justified by any potential benefit. To the 

extent that the commenter suggests that 

Bureau employees be trained, such 

comments are outside the scope of the 

rulemaking. However, the Departmental 

employees must meet certain 

qualifications before they are hired by 

the Bureau and field inspectors are 

participating in the BLM’s PET 

certification training. 

JJ. Comments Related to Section 226.63 

Some comments were received 

suggesting that wells on a lease already 

have a meter at the well or near the 

wellhead and requiring installation of 

meters at other locations is unnecessary. 

The Negotiated Rulemaking 

Committee made the recommendation 

to adopt the standards in On-Shore Oil 

and Gas Order 5 because the regulations 

were too vague and did not provide 

guidance to lessees for the measurement 

of gas. This has resulted in lessees 

utilizing different standards for the 

measurement of gas, which has caused 

concern with respect to proper 

accounting of gas production and proper 

payment of royalties for gas. Ensuring 

proper measurement of gas was also an 

issue in the tribal trust litigation against 

the United States and was one of the 

issues that the Committee was tasked 

with addressing in this rulemaking. 

Adoption of On-Shore Oil and Gas 

Order 5, in Section 226.63, now 

specifies uniform standards consistent 

with how gas is measured on all other 

Indian and Federal lands. In particular, 

On-Shore Oil and Gas Order 5 requires 

lessees to measure gas on the lease, unit, 

unit participating area or communitized 

area and that any measurements at 

locations off the lease, unit, unit 

participating area, or communitized area 

must be approved by the 

Superintendent. To the extent that a 

lessee already has installed meters on 

their lease consistent with On-Shore Oil 

and Gas Order 5, no changes will be 

required. However, the Department 

believes this change is necessary to 

bring uniformity throughout Osage 

County in the measurement of gas and 

ensure that it is fulfilling its trust 

responsibility to the beneficiaries of the 

Osage mineral estate. 


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Some comments were received 

suggesting that the requirement in 

Section 226.62(c) to call the Bureau 

prior to running a tank of oil seems to 

serve no purpose. It was noted that if the 

intent is to inspect more runs, then the 

tribe will need to employ more 

inspectors, if there is no intent to 

inspect then this is another futile 

exercise in useless record keeping. 

The requirement that a lessee give 

notice to the Superintendent before a 

tank of oil is removed by a purchaser 

was added by the Negotiated 

Rulemaking Committee to specifically 

address concerns that the Bureau needs 

to more efficiently inspect and monitor 

operations within Osage County in 

order to verify accuracy of tank sales. 

Given that Osage County consists of 1.5 

million acres, the Department agrees 

with the Committee that requiring 

notice will enable it to better assess 

where field inspectors need to be on any 

given day to maximize the number of 

inspections that can be done, rather 

than sending out field inspectors to 

random locations in the hopes of 

finding tanks that are full and will be 

picked up, as is the current practice. 

The Bureau has also created more 

positions for inspectors within Osage 

County to address staffing shortfalls. 

During discussions on this topic in the 

Negotiated Rulemaking, it was noted 

that lessees have to make calls to inform 

a purchaser that a tank is ready and the 

Department determined that the burden 

of calling the Bureau in addition to the 

purchaser seemed minimal. 

At least one commenter suggested 

that if the Bureau wants compliance 

with the current regulations, it would 

request more funds to install electronic 

monitoring of tanks. 

This comment is outside the scope of 

and does not relate to the rulemaking, 

rather it concerns internal budgetary 

operations. 

KK. Comments Related to Section 

226.65 

Some commenters noted that 

importing the requirements for site 

security plans that the BLM requires on 

other Indian and Federal lands will be 

too labor-intensive to afford for small 

lessees within Osage County. 

The Department received numerous 

comments regarding public safety 

concerns around well sites from surface 

owners and found that the site security 

plan requirements were added by the 

Committee to specifically address these 

concerns. Site security plans are not 

intended to be costly or labor intensive 

and are generally required for oil and 

gas operations on all other Indian and 

Federal lands. 

Several commenters noted that in 

their view, the new requirement for site 

security plans is duplicative of the SPCC 

Plans required by the EPA. 

The SPCC plans are required by the 

EPA and are submitted to the EPA only 

to prevent a spill of oil into navigable 

waters or shorelines, whereas site 

security plans are required by the 

Bureau and submitted for all oil and gas 

operations to proactively address a 

multitude of public safety concerns. For 

these reasons, the site security plans are 

not duplicative of the SPCC Plans. The 

site security plans will help promote 

lessee compliance with EPA’s 

requirement for SPCC plans regarding 

oil spills, because lessees will have 

information more readily available from 

the site security plans to assist them in 

completing an SPCC Plan. 

Some commenters suggested that the 

requirement in site security plans 

requiring that all valves have seals is 

‘‘ridiculous,’’ ‘‘arbitrary’’ and ‘‘totally 

impracticable’’ and that lessees can’t 

keep records for six years. Others noted 

that most lessees don’t have the 

manpower or time to comply with this 

requirement and it would add costs that 

could force early abandonment. 

No evidence has been presented 

regarding estimated increased costs in 

relation to this comment. The United 

States has a legal obligation to maintain 

records regarding operations for which 

it is responsible. The Department must 

be able to go back for at least six years 

and collect documents and data related 

to operations because the statute of 

limitations for damage claims on behalf 

of or against the Department is six years. 

Furthermore, the Department finds it 

relevant that on all other Indian and 

Federal lands, the United States requires 

lessees adhere to minimum site security 

standards for oil and gas operations. The 

requirements in Section 226.65 were 

added in response to concerns from 

surface owners regarding well site 

safety, as well as, from the members of 

the Osage Minerals Council, who were 

concerned with ensuring accountability 

of oil and gas production. In response to 

these concerns, the provisions in 

Section 226.65(b) were added to provide 

a minimum standard for ensuring 

accountability regarding oil and gas 

operations. The rule is intended to bring 

Osage County in line with minimum 

requirements that are used on all other 

Indian and Federal lands. Section 

226.65 mirrors the standard applicable 

to other Indian and Federal lands for oil 

and gas operations that is found in the 

BLM’s regulations. In particular the 

Department finds paragraph (b) 

addressed concerns from the Osage 

Minerals Council relating to ensuring 

that there are uniform safeguards 

regarding accountability for oil and gas 

production within Osage County and it 

provides transparency and ensures that 

lessees are all following a minimum 

standard. Additionally, the Department 

has discovered through the negotiated 

rulemaking process and public 

comments that there are genuine 

concerns regarding well site safety and 

the new requirement in Section 

226.65(c) will help with transparency 

and ensure that lessees have a uniform 

standard to comply with and are aware 

of their responsibilities. 

At least one commenter noted that 

site security plans will not stop stealing 

in Osage County. 

This comment does not suggest any 

changes to the rule. However, the 

Department’s intended purpose of 

Section 226.65(b) is to provide a 

minimum standard to aid in 

accountability of oil and gas production 

and Section 226.65(c) adds new 

protections regarding site security that 

have not previously been required of all 

lessees. 

Some commenters suggested that 

surface owners should be consulted 

regarding site security and proposed site 

security plans should be included in 

surface use agreements. 

The Osage mineral estate is unique in 

that the entire subsurface is held in trust 

by the United States for the benefit of 

the Osage Tribe. Notwithstanding that, 

the public, including surface owners, 

were able to participate in the 

Negotiated Rulemaking process and the 

Committee added the site security 

provisions to the regulations in direct 

response to surface owner concerns. In 

addition, the Department has never 

required surface use agreements in 

Osage County, but there are provisions 

for the surface owner to work with the 

lessees and collect damages for use of 

surface lands. The Department 

encourages surface owners and lessees 

to work together to address issues 

related to surface lands. 

LL. Comments Related to Section 226.66 

A commenter suggested that lessees 

be required to report accidents, fires, 

theft, vandalism, and environmental 

accidents to the Superintendent, the 

surface owner(s), and law enforcement 

(in case of theft) within one business 

day of discovery. 

In response to this comment, the 

Department has further revised Section 

226.66 (previously numbered 226.41) to 

require that, in addition to requiring 

lessees to report fires, theft, and 

vandalism, lessees also report 

environmental accidents to the 

Superintendent and within one business 


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day after discovery provide notice to 

local law enforcement agencies and 

internal company security. The 

revisions also require the lessee to 

provide or attempt to provide notice to 

the surface owner or the current 

resident/occupant in writing by U.S. 

mail of any such incidents. 

MM. Subpart F (226.67 to 226.70) 

One commenter recommended 

including a requirement that all sums 

due be paid to the Bureau. 

This comment is outside the scope of 

the regulatory process. The AntiDeficiency Act, 31 U.S.C. 1341, requires 

that fees and penalties be transmitted to 

the United States Treasury. Absent 

specific legislation to the contrary, the 

Osage Agency must comply with the 

Anti-Deficiency Act and remit fees and 

penalties to the United States Treasury. 

Some commenters noted that fines in 

Subpart F of the Rule should be paid to 

the shareholder/headright owner and 

not the Bureau of Indian Affairs. 

The Bureau does not keep fines that 

are collected, but is required to transmit 

those to the United States Treasury in 

accordance with the Anti-Deficiency 

Act. 

Some commenters suggested that 

heavy fines will make Osage a less 

attractive place. 

Fines are not mandatory, but are only 

imposed when a lease is not operating 

in accordance with the regulations. 

Fines are intended to deter violations 

and encourage lessees to comply with 

the regulations. 

A commenter suggested that a penalty 

of $1,000/day should be levied for 

environmental pollution. 

The Department has decided not to 

change the fines and penalties section of 

the rule and the fines and penalties as 

stated in the prior regulations remain 

intact, unless otherwise set forth in a 

lease. To further encourage lessees to 

comply with the regulations, the 

Department has, however, deleted the 

provision in 226.67 allowing the Osage 

Minerals Council to waive late fees. 

NN. Abandoned Wells 

Some comments regarding abandoned 

wells, abandoned pump-jacks and 

exposed pipes on land noted that these 

conditions cause damage and a hazard 

and stated that the existing 

requirements to clean-up abandoned 

wells needs to be enforced. 

To the extent that these comments can 

be addressed by the rule, the 

Department has further revised Section 

226.46 to include a provision requiring 

lessees to comply with the National 

Electric Code with regard to the running 

and maintenance of electrical lines to 

ensure that minimum standards are 

required. If surface owners or others 

have concerns regarding exposed pipes 

or other health and safety issues they 

may contact the Bureau through its 

reporting hotline at 1–855–495–0373. 

Surface owners can contact OERB at 1– 

800–664–1301 and consistent with their 

process, OERB can remediate 

abandoned well sites in Osage County. 

V. Procedural Requirements 

A. Regulatory Planning and Review 

(E.O. 12866 and 13563) 

Executive Order (E.O.) 12866 provides 

that the Office of Information and 

Regulatory Affairs (OIRA) at the Office 

of Management and Budget (OMB) will 

review all significant rules. OIRA has 

determined that this rule is not 

significant. 

E.O. 13563 reaffirms the principles of 

E.O. 12866 while calling for 

improvements in the nation’s regulatory 

system to promote predictability, to 

reduce uncertainty, and to use the best, 

most innovative, and least burdensome 

tools for achieving regulatory ends. The 

E.O. directs agencies to consider 

regulatory approaches that reduce 

burdens and maintain flexibility and 

freedom of choice for the public where 

these approaches are relevant, feasible, 

and consistent with regulatory 

objectives. E.O. 13563 emphasizes 

further that regulations must be based 

on the best available science and that 

the rulemaking process must allow for 

public participation and an open 

exchange of ideas. We have developed 

this rule in a manner consistent with 

these requirements. This rule is also 

part of the Department’s commitment 

under the Executive Order to reduce the 

number and burden of regulations and 

provide greater notice and clarity to the 

public. 

B. Regulatory Flexibility Act 

The Department of the Interior 

certifies that this rule will not have a 

significant economic effect on a 

substantial number of small entities 

under the Regulatory Flexibility Act (5 

U.S.C. 601 et seq.). 

C. Small Business Regulatory 

Enforcement Fairness Act 

This rule is not a major rule under 5 

U.S.C. 804(2), the Small Business 

Regulatory Enforcement Fairness Act. It 

will not result in the expenditure by 

State, local, or tribal governments, in the 

aggregate, or by the private sector, of 

$100 million or more in any one year. 

The rule’s requirements will not result 

in a major increase in costs or prices for 

consumers, individual industries, 

Federal, State, or local government 

agencies, or geographic regions. Nor will 

this rule have significant adverse effects 

on competition, employment, 

investment, productivity, innovation, or 

the ability of the U.S.-based enterprises 

to compete with foreign-based 

enterprises because the rule is limited to 

management and administration of the 

Osage mineral estate. 

D. Unfunded Mandates Reform Act 

This rule does not impose an 

unfunded mandate on State, local, or 

tribal governments or the private sector 

of more than $100 million per year. The 

rule does not have a significant or 

unique effect on State, local, or tribal 

governments or the private sector. A 

statement containing the information 

required by the Unfunded Mandates 

Reform Act (2 U.S.C. 1531 et seq.) is not 

required. 

E. Takings (E.O. 12630) 

Under the criteria in Executive Order 

12630, this rule does not affect 

individual property rights protected by 

the Fifth Amendment nor does it 

involve a compensable ‘‘taking.’’ A 

takings implication assessment is 

therefore not required. 

F. Federalism (E.O. 13132) 

Under the criteria in Executive Order 

13132, this rule has no substantial direct 

effect on the States, on the relationship 

between the national government and 

the States, or on the distribution of 

power and responsibilities among the 

various levels of government. 

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

This rule complies with the 

requirements of Executive Order 12988. 

Specifically, this rule has been reviewed 

to eliminate errors and ambiguity and 

written to minimize litigation, and is 

written in clear language and contains 

clear legal standards. 

H. Consultation With Indian Tribes 

(E.O. 13175) 

In accordance with the President’s 

memorandum of April 29, 1994, 

‘‘Government-to-Government Relations 

with Native American Tribal 

Governments,’’ Executive Order 13175 

(59 FR 22951, November 6, 2000), and 

512 DM 2, we have evaluated the 

potential effects on federally recognized 

Indian tribes and Indian trust assets. 

This rule was developed by negotiated 

rulemaking with representatives of the 

affected tribe. 

I. Paperwork Reduction Act 

This rule includes information 

collections requiring approval under the 


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Paperwork Reduction Act (PRA), 44 

U.S.C. 3501 et seq. These information 

collections have not been approved 

previously because the last update to 25 

CFR 226 was prior to amendments to 

the PRA subjecting these information 

collection requirements to OMB 

approval. In the Federal Register of 

August 28, 2013, the Department 

published the proposed rule and invited 

comments on the proposed collection of 

information. The Department submitted 

the information collection request to the 

Office of Management and Budget 

(OMB) for review and approval. The 

OMB did not approve this collection of 

information, but instead, filed comment. 

In filing comment on this collection of 

information, OMB requested that, before 

publication of the final rule, the 

Department provide all comments on 

the recordkeeping and reporting 

requirements in the proposed rule, the 

Department’s response to these 

comments, and a summary of any 

changes to the information collections. 

We did not receive any public 

comments regarding the information 

collection burden estimates in response 

to publication of the proposed rule in 

the Federal Register; however, some of 

the comments on the rule related to 

information collections in sections 

226.65 and 226.66. In response to 

comments on 226.66, the final rule 

specifies that reports of theft must occur 

within one business day of discovery, 

rather than ‘‘promptly’’ and the final 

rule adds a requirement to notify the 

surface owner under this section. The 

new requirement to notify the surface 

owner resulted in a small increase in the 

number of responses (14,436, as 

compared to the proposed estimate of 

14,414) and hour burden (21,954, as 

compared to the proposed estimate of 

21,932). 

OMB has approved the information 

collections in this final rule and 

assigned it OMB Control No. 1076– 

0180. This approval will expire on 03/ 

31/2018. Questions or comments 

concerning this information collection 

should be directed to the person listed 

in the FOR FURTHER INFORMATION

CONTACT section of this preamble. 

OMB Control Number: 1076–0180. 

Title: Leasing of Osage Reservation 

Lands for Oil and Gas Mining, 25 CFR 

226. 

Brief Description of Collection: This 

part contains leasing procedures and 

requirements and rental, production, 

and royalty requirements for leasing the 

reservation lands of the Osage Nation 

for oil and gas mining. The Secretary 

must perform the information collection 

requests in this part to obtain the 

information necessary to complete 

leasing transactions and monitor leased 

property. Responses to these 

information collection requests are 

required to obtain a benefit (e.g., 

commercial transactions). 

Type of Review: New information 

collection. 

Respondents: Indians, businesses, and 

tribal authorities. 

Number of Respondents: 965. 

Frequency of Collection: On occasion. 

Estimated Hours per Response: 

Ranges from 15 minutes to 8 hours (see 

table below). 

Estimated Total Annual Responses: 

14,436. 

Estimated Total Annual Burden 

Hours: 21,954. 

Non-Hour Cost Burden: $496. 

The table showing the burden of the 

information collection is included 

below for your information. 

Section Information collection Respondents Annual 

responses 

Hourly 

burden per 

response 

Total 

annual 

hourly 

burden 

226.5 ............................. Lessee must submit completed lease form ....... 160 160 0 .5 80 

226.9 ............................. Lessee must submit bonds ................................ 160 160 0 .5 80 

226.13 ........................... Corporate lessee must submit evidence of its 

officers’ authority to execute papers and a 

copy of its Articles of Incorporation.

150 150 0 .25 * 38 

226.26, 226.27(a) ......... Lessee must provide certified monthly reports 

covering operations and on value of all oil/

gas used off premises for development and 

operation.

700 8,400 0 .5 4,200 

226.27(b) ...................... Purchaser of oil or gas to furnish statement of 

gross barrels of oil or gross Mcf of gas sold 

and sales price per barrel or gross Mcf during 

the preceding month.

45 540 0 .5 270 

226.28 ........................... Submit agreement to unitize or terminate unitization of oil or gas leases to Secretary.1 1 1 1 

226.29 ........................... Submit assignment or transfer of lease to Secretary.500 500 0 .5 250 

226.34(b), 226.52 ......... Lessee must submit applications on BIA forms 

for well drilling, treating, or workover operations, removing casing from well. Application 

to shut down or plug well, with justification.

600 600 8 4,800 

226.36 ........................... Lessee must notify and request meeting with 

surface owners by certified mail, provide copy 

to Superintendent, and provide info at meeting.

160 160 1 160 

226.40, 226.41 .............. Any person claiming an interest in the leased 

tract or in damages must provide a statement 

showing the claimed interest.

1 1 1 1 

226.43 ........................... Drivers must carry documentation showing the 

amount, origin and intended first purchaser of 

the oil or gas or marketable product.

60 60 0 .5 30 

226.45(d) ...................... Lessee must submit a contingency plan, when 

required.

160 160 5 800 


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Section Information collection Respondents Annual 

responses 

Hourly 

burden per 

response 

Total 

annual 

hourly 

burden 

226.54 ........................... Lessee must keep a full and correct account of 

all operations, receipts, and disbursements 

and make reports thereof, as required, make 

available for inspection, and maintain for 6 

years.

700 700 1 700 

226.56 ........................... Lessee must keep records of drilling, redrilling, 

deepening, repairing, treating, plugging or 

abandonment of all wells and furnish reports 

as required in manner and method specified 

by Superintendent.

700 700 1 700 

226.56 ........................... Lessee must transmit to Superintendent applicable information of completion of operations 

on any well on BIA forms; a copy of electrical, mechanical or radioactive log, or other 

types of survey of well bore, and core analysis of well.

700 700 8 5,600 

226.56 ........................... Upon request, Lessee must furnish plat of wells 

in manner, form, and method prescribed by 

Superintendent.

700 700 2 1,400 

226.65 ........................... Lessee must maintain site security plan, including facility diagram.700 700 4 2,800 

226.66 ........................... Lessee must report accidents, fires, vandalism 

including an estimate of the volume of oil involved and notify surface owner.

22 44 1 44 

Total ............................................................. ........................ 14,436 .......................... 21,954 

J. National Environmental Policy Act 

This rule does not constitute a major 

Federal action significantly affecting the 

quality of the human environment. It is 

categorically excluded from further 

review under 43 CFR 46.210(i) because 

these are regulations ‘‘whose 

environmental effects are too broad, 

speculative, or conjectural to lend 

themselves to meaningful analysis and 

will later be subject to the NEPA process 

either collectively or case by case.’’ No 

extraordinary circumstances exist that 

would require greater NEPA review. 

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

13211) 

This rule is not a significant energy 

action under the definition in Executive 

Order 13211. A Statement of Energy 

Effects is not required. 

List of Subjects in 25 CFR Part 226 

Indians—lands. 

For the reasons stated in the 

preamble, the Department of the 

Interior, Bureau of Indian Affairs, 

revises part 226 in Title 25 of the Code 

of Federal Regulations to read as 

follows: 

PART 226—LEASING OF OSAGE 

RESERVATION LANDS FOR OIL AND 

GAS MINING 

Sec. 

226.1 Definitions. 

226.2 What requirements govern? 

Subpart A—Leasing Procedure 

226.3 What orders and notices can BIA 

issue? 

226.4 What responsibilities does the 

Superintendent have? 

226.5 What are the requirements for lease 

sales and approvals? 

226.6 How does a lessee surrender a lease? 

226.7 What forms of payment are 

acceptable? 

226.8 How do changes in the current 

regulations impact leases? 

226.9 What are the bonding requirements 

for leases? 

226.10 Can the Superintendent increase the 

amount of the bond required? 

226.11 When can the Superintendent 

release a bond? 

226.12 What forms are made a part of the 

regulations? 

226.13 What information must a 

corporation submit? 

Subpart B—Rental, Production and Royalty 

Rental, Drilling and Production Obligations 

226.14 What are the requirements for rental, 

drilling, and production? 

226.15 What are the lessee’s obligations 

regarding drainage? 

226.16 What can the Superintendent do 

when drainage occurs? 

Lease Term 

226.17 What is the term of a lease? 

Royalty Payments 

226.18 What is the royalty rate for oil? 

226.19 How is the gravity adjustment 

calculated? 

226.20 How is the royalty on gas 

calculated? 

226.21 Who determines royalty on lost or 

wasted minerals? 

226.22 What is the minimum royalty 

payment for all leases? 

226.23 What royalty is due on other 

marketable products? 

226.24 What purchase options does the 

Federal Government have? 

226.25 How are royalty payments made? 

226.26 What reports are required to be 

provided? 

226.27 Can a lessee enter into royalty 

payment contracts and division orders? 

Unit Leases, Assignments and Related 

Instruments 

226.28 When is unitization allowed? 

226.29 How are leases assigned? 

226.30 Are overriding royalty agreements 

allowed? 

226.31 When are drilling contracts allowed? 

226.32 When can an oil lease and a gas 

lease be combined? 

Subpart C—Operations 

226.33 What are the general requirements 

governing operations? 

226.34 What requirements apply to 

commencement of operations on a lease? 

226.35 How does a lessee acquire 

permission to begin operations on a 

restricted homestead allotment? 

226.36 What kind of notice and information 

is required to be given surface owners 

prior to commencement of drilling 

operations? 

226.37 How much of the surface may a 

lessee use? 

226.38 What commencement money must 

the lessee pay to the surface owner? 

226.39 What fees must lessee pay to a 

surface owner for tank siting? 


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226.40 What is a settlement of damages 

claimed? 

226.41 What is the procedure for settlement 

of damages claimed? 

226.42 What are a lessee’s obligations for 

production? 

226.43 What documentation is required for 

transportation of oil or gas or other 

marketable product? 

226.44 What are a lessee’s obligations for 

preventing pollution? 

226.45 What are a lessee’s other 

environmental responsibilities? 

226.46 What safety precautions must a 

lessee take? 

226.47 When can the Superintendent grant 

easements for wells off leased premises? 

226.48 A lessee’s use of water. 

226.49 What are the responsibilities of an 

oil lessee when a gas well is drilled and 

vice versa? 

226.50 How is the cost of drilling a well 

determined? 

226.51 What are the requirements for using 

gas for operating purposes and tribal 

uses? 

Subpart D—Cessation of Operations 

226.52 When can a lessee shutdown, 

abandon, and plug a well? 

226.53 When must a lessee dispose of 

casings and other improvements? 

Subpart E—Requirements of Lessees 

226.54 What general requirements apply to 

lessees? 

226.55 When must a lessee designate 

process agents? 

226.56 What are the lessee’s record and 

reporting requirements for wells? 

226.57 What line drilling limitations must a 

lessee comply with? 

226.58 What are the requirements for 

marking wells and tank batteries? 

226.59 What precautions must a lessee take 

to ensure natural formations are 

protected? 

226.60 What are a lessee’s obligations to 

maintain control of wells? 

226.61 How does a lessee prevent waste of 

oil and gas and other marketable 

products? 

226.62 How does a lessee measure and store 

oil? 

226.63 How is gas measured? 

226.64 When can a lessee use gas for lifting 

oil? 

226.65 What site security standards apply 

to oil and gas and other marketable 

product leases? 

226.66 What are a lessee’s reporting 

requirements for accidents, fires, theft, 

and vandalism? 

Subpart F—Penalties 

226.67 What are the penalties for violations 

of lease terms? 

226.68 What are the penalties for violation 

of certain operating regulations? 

Subpart G—Appeals and Notices 

226.69 Who can file an appeal? 

226.70 Are the notices by the 

Superintendent binding? 

226.71 Information collection. 

Authority: Sec. 3, 34 Stat. 543; secs. 1, 2, 

45 Stat. 1478; sec. 3, 52 Stat. 1034, 1035; sec. 

2(a), 92 Stat. 1660. 

§ 226.1 Definitions. 

As used in this part, terms have the 

meanings set forth in this section. 

Authorized representative of an oil 

lessee, gas lessee, or oil and gas lessee 

means any person, group, or groups of 

persons, partnership, association, 

company, corporation, organization, or 

agent employed by or contracted with a 

lessee or any subcontractor to conduct 

oil and gas operations or provide 

facilities to market oil and gas. 

Avoidably lost means the venting or 

flaring of produced gas or other 

marketable product without the prior 

authorization, approval, ratification, or 

acceptance of the Superintendent and 

the loss of produced oil or gas or other 

marketable product when the 

Superintendent determines that such 

loss occurred as a result of: 

(1) Negligence on the part of the 

lessee; or 

(2) The failure of the lessee to take all 

reasonable measures to prevent and/or 

control the loss; or 

(3) The failure of the lessee to comply 

fully with the applicable lease terms 

and regulations, applicable orders and 

notices, or the written orders of the 

Superintendent; or 

(4) Any combination of the foregoing. 

Condensate means liquid hydrocarbons (normally exceeding 40 degrees 

of API gravity) recovered at the surface 

without resorting to processing. 

Condensate is the mixture of liquid 

hydrocarbons that results from 

condensation of petroleum 

hydrocarbons existing initially in a 

gaseous phase in an underground 

reservoir. 

Drainage means the migration of 

hydrocarbons, inert gases, or associated 

resources caused by production from 

other wells. 

Gas lessee means any person, firm, or 

corporation to whom a gas mining lease 

is made under the regulations in this 

part, or an authorized representative. 

Gas well means any well that: 

(1) Produces raw natural gas not 

associated with crude petroleum oil at 

the time of production; or 

(2) Produces more than 15,000 

standard cubic feet of raw natural gas to 

each barrel of crude petroleum oil from 

the same producing formation. 

Lease means any contract approved 

by the United States under the Act of 

June 28, 1906 (34 Stat. 539), as 

amended, that authorizes exploration 

for, extraction of, or removal of oil or 

gas or other marketable product. 

Marketable condition means a 

condition in which lease products are 

sufficiently free from impurities and 

otherwise so conditioned that a 

purchaser will accept them under a 

sales contract typical for the field or 

area. 

Maximum ultimate economic 

recovery means the recovery of oil and 

gas and any other marketable product 

from leased lands that a prudent lessee 

could be expected to make from that 

field or reservoir given existing 

knowledge of reservoir and other 

pertinent facts and using common 

industry practices for primary, 

secondary or tertiary recovery 

operations. 

Natural gas liquids (NGLs) means 

those gas plant products consisting of 

ethane, propane, butane, or heavier 

liquid hydrocarbons. 

Notice to lessees (NTLs) means a 

written notice issued or adopted by the 

Superintendent. NTLs implement the 

regulations in this part and operating 

orders, and serve as instructions on 

specific item(s) of importance. 

Oil and gas lessee means any person, 

firm, or corporation to whom an oil and 

gas mining lease is made under the 

regulations in this part, or an authorized 

representative. 

Oil lessee means any person, firm, or 

corporation to whom an oil mining lease 

is made under the regulations in this 

part, or an authorized representative. 

Oil well means any well that produces 

one barrel or more of crude petroleum 

oil for each 15,000 standard cubic feet 

of raw natural gas. 

Onshore oil and gas order means a 

formal order issued or adopted by the 

Director of the Bureau of Indian Affairs, 

which implements and supplements the 

regulations in this part. 

Osage Minerals Council means the 

duly elected governing body of the 

Osage Nation or Tribe of Indians of 

Oklahoma vested with authority to enter 

into leases or take other actions on oil 

and gas mining and other marketable 

products pertaining to the Osage 

mineral estate. 

Other marketable product means a 

non-hydrocarbon product, including but 

not limited to helium, nitrogen, and 

carbon-dioxide, for which there is a 

market. 

Primary term means the basic period 

of time for which a lease is issued 

during which the lease contract may be 

kept in force by payment of rentals. 

Production in paying quantities 

means production from a lease of oil 

and/or gas of sufficient value to exceed 

direct operating costs and the cost of 

lease rentals or minimum royalties. 

Raw natural gas or gas means gas 

produced from oil and gas wells, 


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including all natural gas liquids before 

any treating or processing. 

Secretary means the Secretary of the 

Interior or the Secretary’s authorized 

representative acting under delegated 

authority. 

Superintendent means the 

Superintendent of the Osage Agency, 

Pawhuska, Oklahoma, or the 

Superintendent’s authorized 

representative acting under delegated 

authority, or such other person as the 

Secretary or Superintendent may 

delegate to fulfill the responsibilities 

and exercise the authorities under this 

part. 

Surface owner means any person or 

entity that owns a surface estate within 

Osage County, irrespective of whether 

the surface estate is held in fee, 

restricted fee or trust status. 

Waste of oil or gas or other 

marketable product means any act or 

failure to act by the lessee that the 

Superintendent finds was not necessary 

for proper development and production 

and that results in: 

(1) A reduction in the quantity or 

quality of oil and gas or other 

marketable product ultimately 

producible from a reservoir under 

prudent and proper operations; or 

(2) Avoidable surface loss of oil or gas 

or other marketable product. 

§ 226.2 What requirements govern? 

All oil and gas activities or activities 

related to development of other 

marketable products conducted in 

Osage County are subject to: 

(a) The regulations in this part; 

(b) Lease terms; 

(c) Orders of the Superintendent; and 

(d) All other applicable laws, 

regulations, and authorities. 

Subpart A—Leasing Procedure 

§ 226.3 What orders and notices can BIA 

issue? 

(a) In accordance with applicable laws 

and regulations, the Bureau of Indian 

Affairs (BIA), after consultation with the 

Osage Minerals Council where 

appropriate, is authorized to: 

(1) Issue and make effective in Osage 

County oil and gas orders or notices to 

lessees (NTLs); or 

(2) Adopt onshore oil and gas orders, 

NTLs, or related oil and gas regulations 

issued by the Bureau of Land 

Management. 

(b) Adoptions by the Bureau of Indian 

Affairs remain in effect according to 

their terms and cannot be modified by 

any action of the Bureau of Land 

Management unless the Director issues 

further orders to that effect in 

accordance with the Administrative 

Procedure Act where applicable. 

§ 226.4 What responsibilities does the 

Superintendent have? 

(a) The Superintendent is authorized 

and directed to: 

(1) Approve unitization, 

communitization, gas storage and other 

contractual agreements; 

(2) Assess compensatory royalty; 

(3) Approve suspensions of operations 

or production, or both; 

(4) Approve and monitor lessee 

proposals for drilling, development or 

production of oil and gas and any other 

marketable product; 

(5) Perform administrative reviews; 

(6) Impose monetary assessments or 

penalties; 

(7) Provide technical information and 

advice relative to oil and gas and any 

other marketable product development 

and operations; 

(8) Approve, inspect, and regulate the 

operations that are subject to the 

regulations in this part; 

(9) Require compliance with lease 

terms, with the regulations in this title 

and all other applicable regulations and 

laws; and 

(10) Require that all operations be 

conducted in a manner which protects 

natural resources and environmental 

quality, protects life and property, and 

results in the maximum ultimate 

recovery of oil and gas and any other 

marketable product with minimum 

waste and with minimum adverse effect 

on the ultimate recovery of other 

mineral resources unless otherwise 

approved by the Superintendent. 

(b) The Superintendent may issue 

written orders to govern specific lease 

operations. Before approving operations 

on a leasehold, the Superintendent must 

determine that the lease is in effect, that 

acceptable bond coverage has been 

provided, and that the proposed plan of 

operations is sound. 

(c) The Superintendent must establish 

procedures to ensure that each lease site 

which has a documented history of 

noncompliance with applicable 

provisions of law or regulations, lease 

terms, orders or directives be inspected 

at least once annually. 

§ 226.5 What are the requirements for 

lease sales and approvals? 

(a) The steps in a lease sale are as 

follows: 

(1) A written application, together 

with any nomination fee, for tracts to be 

offered for lease shall be filed with the 

Superintendent. 

(2) The Superintendent, with the 

consent of the Osage Minerals Council, 

shall publish notices for the sale of oil 

leases, gas leases, and oil and gas leases 

to the highest responsible bidder on 

specific tracts of the unleased Osage 

mineral estate. The Superintendent may 

require any bidder to submit satisfactory 

evidence of his/her good faith and 

ability to comply with all provisions of 

the notice of sale. 

(3) A successful bidder must deposit 

with the Superintendent within 5 

business days following the sale, a 

cashier’s check, money order, or 

electronic funds transfer in an amount 

not less than 25 percent of the cash 

bonus offered as a guaranty of good 

faith. Any and all bids are subject to 

acceptance by the Osage Minerals 

Council and approval by the 

Superintendent. 

(4) Within 20 days after being 

notified, the successful bidder must 

submit to the Superintendent the 

balance of the bonus, a $75 filing fee, 

and a completed lease form. 

(i) The Superintendent may extend 

the deadline for submitting the 

completed lease form, but no extension 

will be granted for remitting the balance 

of monies due. 

(ii) The deposit will be forfeited for 

the use and benefit of the Osage mineral 

estate if any of the following occur: 

(A) The bidder fails to pay the full 

consideration by the required deadline; 

or 

(B) The bidder fails to file the 

completed lease by the required 

deadline or extension thereof; or 

(C) The lease is rejected, pursuant to 

subsection 5, through no fault of the 

Osage Minerals Council or the 

Superintendent. 

(5) The Superintendent may reject a 

lease made on an accepted bid, upon 

satisfactory evidence of collusion, fraud, 

or other irregularity in connection with 

the notice of sale. 

(b) The Superintendent may approve 

leases made by the Osage Minerals 

Council in conformity with the notice of 

sale, regulations in this part, bonds, and 

other instruments required. 

(c) Within 30 calendar days following 

approval of a lease, the Superintendent 

shall post at the Agency, a legal 

description of the mineral estate that 

was leased. 

(d) Prior to approval by the 

Superintendent, each oil and/or gas 

lease shall be assessed and evaluated for 

their environmental impact in 

accordance with Bureau regulations 

implementing the National 

Environmental Policy Act and other 

applicable laws. 

(e) The lessee accepts a lease with the 

understanding that a mineral not 

covered by the lease may be leased 

separately. 

(f) No lease, assignment thereof, or 

interest therein will be approved to any 

employee or employees of the 


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Government and no such employee is 

permitted to acquire any interest in a 

corporation or other business entity 

holding a lease of the Osage mineral 

estate. 

(g) The Osage Minerals Council may 

utilize the following procedures among 

others, in entering into a lease: 

(1) A lease may be entered into 

through competitive bidding as outlined 

in paragraph (a)(2) of this section, 

negotiation, or a combination of both; 

(2) The Osage Minerals Council may 

request the Superintendent undertake 

the preparation, advertisement and 

negotiation of leases; and/or 

(3) The Osage Minerals Council may 

request the Superintendent to provide 

information regarding the current 

estimated value of any or all or each of 

the leases to the Osage Minerals Council 

based on comparable sales of Federal, 

Indian, State, and private leases. 

(h) The Superintendent may approve 

any lease made by the Osage Minerals 

Council. 

§ 226.6 How does a lessee surrender a 

lease? 

(a) The lessee may, with the approval 

of the Superintendent and payment of a 

$75 filing fee, surrender all or any 

portion of any lease, have the lease 

cancelled as to the portion surrendered 

and be relieved from all future 

obligations and liabilities. 

(b) If the lease, or portion, being 

surrendered is owned in undivided 

interests by more than one party, then 

the following requirements apply: 

(1) All parties must join in the 

application for cancellation; 

(2) If the lease has been recorded, then 

the lessee must execute a release and 

record the same in the proper office; 

(3) Surrender does not entitle the 

lessee to a refund of the unused portion 

of rental paid in lieu of development, 

nor does it relieve the lessee and his or 

her sureties of any obligation and 

liability incurred prior to the surrender; 

(4) When there is a partial surrender 

of any lease and the acreage to be 

retained is less than 160 acres, the 

surrender is effective only with consent 

of the Osage Minerals Council and 

approval of the Superintendent. 

(c) The Superintendent cannot 

approve the surrender or partial 

surrender of a lease until a 

determination has been made that all 

wells have either been properly plugged 

and abandoned, and/or the future legal 

liability for plugging and abandoning 

wells within the lease or partial lease to 

be surrendered has been assumed in 

writing by another financially 

responsible party. 

§ 226.7 What forms of payment are 

acceptable? 

Sums due under a lease contract and/ 

or the regulations in this part must be 

paid in the manner and method 

specified by the Superintendent, unless 

otherwise specified in these regulations. 

Such sums constitute a prior lien on all 

equipment and unsold oil on the leased 

premises. 

§ 226.8 How do changes in the current 

regulations impact leases? 

Leases issued pursuant to this part are 

subject to the current regulations of the 

Secretary, all of which are made a part 

of such leases: Provided, that no 

amendment or change of such 

regulations made after the approval of 

any lease operates to affect the term of 

the lease, rate of royalty, rental, or 

acreage unless agreed to by both parties 

and approved by the Superintendent. 

§ 226.9 What are the bonding 

requirements for leases? 

Lessees shall furnish surety bonds or 

personal bonds acceptable to the 

Superintendent as follows: 

(a) The per-well ‘‘Bonding Amount’’ 

shall be $5,000. 

(b) A surety bond or personal bond 

equal to the Bonding Amount must be 

filed at the time an Application for 

Permit to Drill is approved and/or the 

lessee acquires liability for existing 

wells on a lease. 

(c) A lessee must at all times maintain 

on file with the Superintendent surety 

bonds and/or personal bonds in an 

amount equal to the Bonding Amount 

times the number of wells on the 

lessee’s leases, up to a maximum of 25 

wells. 

(d) To meet the requirements of this 

section, a surety bond must be issued by 

a qualified surety company approved by 

the Department of the Treasury (see 

Department of the Treasury Circular No. 

570). 

(e) Personal bonds must be 

accompanied by at least one of the 

following: 

(1) A certificate of deposit issued by 

a financial institution, the deposits of 

which are federally insured, explicitly 

granting the Secretary full authority to 

demand immediate payment in case of 

default in the performance of the terms 

and conditions of the lease. The 

certificate must explicitly indicate on its 

face that Secretarial approval is required 

prior to redemption of the certificate of 

deposit by any party. 

(2) A cashier’s check. 

(3) A certified check. 

(4) Negotiable Treasury securities of 

the United States of a value equal to the 

amount specified in the bond. 

Negotiable Treasury securities must be 

accompanied by a proper conveyance to 

the Superintendent of full authority to 

sell such securities in case of default in 

the performance of the terms and 

conditions of a lease. 

(5) An irrevocable letter of credit 

issued by a financial institution, the 

deposits of which are Federally insured, 

for a specific term, identifying the 

Superintendent as sole payee with full 

authority to demand immediate 

payment in the case of default in the 

performance of the terms and conditions 

of a lease. Letters of credit are subject 

to the following conditions: 

(i) The letter of credit must be issued 

only by a financial institution organized 

or authorized to do business in the 

United States; 

(ii) The letter of credit must be 

irrevocable during its term. A letter of 

credit used as security for any lease 

upon which drilling has taken place and 

final approval of all abandonment has 

not been given must be collected by the 

Superintendent if not replaced by other 

suitable bond or letter of credit at least 

30 calendar days before its expiration 

date; 

(iii) The letter of credit must be 

payable to the Superintendent upon 

demand, in part or in full, upon receipt 

from the Superintendent of a notice of 

attachment stating the basis therefor, 

e.g., default in compliance with the 

lease terms and conditions or failure to 

file a replacement in accordance with 

paragraph (c)(5)(ii) of this section; 

(iv) The initial expiration date of the 

letter of credit must be at least 1 year 

following the date it is filed; and 

(v) The letter of credit must contain a 

provision for automatic renewal for 

periods of not less than 1 year in the 

absence of notice to the Superintendent 

at least 90 calendar days prior to the 

originally stated or any extended 

expiration date. 

(f) In lieu of a surety or personal bond 

required under this section, a bond in 

the penal sum of $150,000 may be filed 

with the Superintendent for full 

nationwide coverage of all leases to 

which the Lessee is or may become a 

party. 

§ 226.10 Can the Superintendent increase 

the amount of the bond required? 

(a) The Superintendent may require 

an increase in the amount of any bond 

in appropriate circumstances, including, 

but not limited to, a history of previous 

violations, uncollected royalties due, or 

when the total cost of plugging existing 

wells and reclaiming lands exceeds the 

present bond amount based on the 

estimates determined by the 

Superintendent. 


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(b) The increase in bond amount may 

be to any level specified by the 

Superintendent, but in no 

circumstances shall it exceed the total of 

the estimated costs of plugging and 

reclamation, the amount of uncollected 

royalties due, plus the amount of 

monies owed to the lessor due to 

previous violations remaining 

outstanding. 

§ 226.11 When can the Superintendent 

release a bond? 

Within 45 calendar days of receiving 

written notice from a lessee that a well 

has been plugged or a lease has expired, 

the Superintendent must release the 

bond upon confirming that: 

(a) The well has been properly 

plugged and the well site has been 

reclaimed, or the lease site has been 

reclaimed; 

(b) All property has been removed 

(unless otherwise agreed to in writing 

by the surface owner). 

§ 226.12 What forms are made a part of the 

regulations? 

Leases, assignments, and supporting 

instruments must be in the form 

prescribed by the Secretary, and such 

forms are hereby made a part of the 

regulations. 

§ 226.13 What information must a 

corporation submit? 

(a) If the applicant for a lease is a 

corporation, it must file evidence of 

authority of its officers to execute 

papers; and with its first application it 

must also file a certified copy of its 

Articles of Incorporation and, if foreign 

to the State of Oklahoma, evidence 

showing compliance with the 

corporation laws thereof. 

(b) Whenever deemed advisable, the 

Superintendent may require a 

corporation to file any additional 

information necessary to carry out the 

purpose and intent of the regulations in 

this part, and such information must be 

furnished within a reasonable time. 

Subpart B—Rental, Production and 

Royalty 

Rental, Drilling and Production 

Obligations 

§ 226.14 What are the requirements for 

rental, drilling, and production? 

(a) Oil leases, gas leases, and 

combination oil and gas leases. Unless 

the lessee completes and places in 

production a well producing and selling 

oil and/or gas in paying quantities on 

the land embraced within the lease 

within 12 months from the date of 

approval of the lease, or as otherwise 

provided in the lease terms, or 12 

months from the date the 

Superintendent consents to drilling on 

any restricted homestead selection, the 

lease will terminate unless rental at the 

rate of not less than $3 per acre for an 

oil or gas lease, or not less than $6 per 

acre for a combination oil and gas lease, 

is paid at the beginning of the first year 

of the lease. 

(1) The lease may also be held for the 

remainder of its primary term without 

drilling upon payment of the specified 

rental annually in advance, 

commencing with the second lease year. 

(2) The lease will terminate as of the 

due date of the rental unless such rental 

is received by the Superintendent on or 

before said date. 

(3) The completion of a well 

producing in paying quantities will, for 

so long as such production continues, 

relieve the lessee from any further 

payment of rental, except that, should 

such production cease during the 

primary term the lease may be 

continued only during the remaining 

primary term of the lease by payment of 

advance rental which will be due on the 

next anniversary date of the lease. 

Rental must be paid on the basis of a 

full year and no refund will be made of 

advance rental paid in compliance with 

the regulations in this part. 

(b) The Superintendent may, with the 

consent of and under terms approved by 

the Osage Minerals Council, grant an 

extension of the primary term of a lease 

on which actual drilling of a well has 

commenced within the term thereof, or 

for the purpose of enabling the lessee to 

obtain a market for his/her oil and/or 

gas production. 

(c) Irrespective of whether the lessee 

has drilled or paid rental, the 

Superintendent in his/her discretion 

may order further development of any 

leased acreage or a specific horizon in 

any lease term if, in his/her opinion, a 

prudent lessee would conduct further 

development. A prudent lessee will 

diligently develop the minerals 

underlying the leasehold. The Osage 

Minerals Council has the right to 

request a determination of whether 

there is diligent development by the 

Superintendent as to any lease and may 

submit any materials or analysis to 

support its request. Upon receipt of a 

request, the Superintendent will 

evaluate the request and may require 

additional information be submitted by 

the lessee and the Osage Minerals 

Council before making a final 

determination. 

(d) If the lessee refuses to comply 

with an order by the Superintendent to 

diligently develop its leasehold as a 

result of a determination under 

paragraph (c) of this section, the refusal 

will be considered a violation of the 

lease terms and said lease will be 

terminated as to the acreage or horizon 

the further development of which was 

ordered, after any appeal of an order. 

The Superintendent will promptly 

notify the lessee of such termination. 

(e) Except for a lease during its 

primary term for which rental payment 

has been paid, a lease that does not 

produce in paying quantities for 120 

consecutive calendar days is thereby 

terminated by operation of law, effective 

immediately. The Superintendent will 

notify the lessee of such termination. 

(1) The Superintendent has the 

authority before termination to approve 

in writing a temporary suspension of 

operations tolling the 120-day period for 

a specified number of days, due to force 

majeure, other hardship, or other 

extenuating circumstance. 

(2) Any request for a temporary 

suspension of operations must be made 

in writing to the Superintendent at least 

20 calendar days prior to the expiration 

of the 120-day period in which the lease 

has not produced in paying quantities. 

(3) The Superintendent, for good 

cause, may extend in writing the time of 

any temporary suspension of operations. 

(4) The Superintendent must provide 

a copy of any decision under this 

paragraph (e) to the Osage Minerals 

Council at the same time it is delivered 

to the lessee. 

(f) Whenever the Osage Minerals 

Council identifies any lease that has 

terminated or may be subject to 

termination for any reason, the Osage 

Minerals Council has the right to 

request in writing appropriate action by 

the Superintendent, including but not 

limited to the issuance of a notice of 

termination to the lessee, and may 

submit any materials or analysis in 

support of its request. Upon receipt of 

such a request, within 90 calendar days 

the Superintendent must either take the 

requested action or issue a written 

decision responsive to the request. 

(g) The Superintendent may impose 

restrictions as to time of drilling and 

rate of production from any well or 

wells when the Superintendent judges 

these restrictions to be necessary or 

proper for the protection of the natural 

resources of the leased land and the 

interests of the Osage mineral estate. 

The Superintendent may consider, 

among other things, Federal and 

Oklahoma laws regulating either drilling 

or production. 

(h) If a lessee holds both an oil lease 

and a gas lease covering the same 

acreage, such lessee is subject to the 

provisions of this section as to both the 

oil lease and the gas lease. 


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§ 226.15 What are the lessee’s obligations 

regarding drainage? 

(a) Where lands in any leases are 

being drained of their oil or gas content 

by wells outside the lease, the lessee 

must drill or modify and produce all 

wells necessary to protect the leased 

lands from drainage within a reasonable 

time after the earlier of when the lessee 

knew or should have known of the 

drainage. In lieu of drilling or modifying 

necessary wells, the lessee may, with 

the consent of the Superintendent, pay 

compensatory royalty for drainage that 

has occurred or is occurring. 

(b) Actions under paragraph (a) of this 

section are not required if the lessee 

proves to the Superintendent that when 

it first knew or had constructive notice 

of drainage it could not produce a 

paying quantity of oil or gas from a 

protective well on the lease for a 

reasonable profit above the cost of 

drilling, completing and operating the 

protective well. 

(c) A lessee has constructive notice 

that drainage may be occurring when 

well completion or first production 

reports for the draining well are 

publicly available, or, if the lessee 

operates or owns any interest in the 

draining well or lease, upon completion 

of drill stem, production, pressure 

analysis, or flow tests of the draining 

well. 

(d) If a lessee assigns its interest in a 

lease or transfers its operating rights, it 

is liable for drainage that occurs before 

the date the assignment or transfer is 

approved by the Superintendent. Any 

lessee who acquires an interest in a 

lease on which the Superintendent has 

determined that the assignor was 

required to take action under paragraph 

(a) of this section is liable for paying 

compensatory royalties associated with 

production occurring on and after the 

date the assignment or transfer is 

approved by the Superintendent. 

§ 226.16 What can the Superintendent do 

when drainage occurs? 

(a) The Superintendent may send a 

demand letter by certified mail, return 

receipt requested, or personally serve 

the lessee with notice, if the 

Superintendent believes that drainage is 

occurring. However, the lessee’s 

responsibility to take protective action 

arises when it first knew or had 

constructive notice of the drainage, even 

when that date precedes the demand 

letter. 

(b) Since the time required to drill 

and produce a protective well varies 

according to the location and conditions 

of the oil and gas reservoir, the 

Superintendent will determine this on a 

case-by-case basis. The Superintendent 

will consider several factors, including, 

but not limited to: 

(1) The time required to evaluate the 

characteristics and performance of the 

draining well; 

(2) Rig availability; 

(3) Well depth; 

(4) Required environmental analysis; 

(5) Special lease stipulations that 

provide limited time frames in which to 

drill; and 

(6) Weather conditions. 

(c) If the Superintendent determines 

that a lessee did not take protective 

action in a timely manner, the lessee 

will owe compensatory royalty for the 

period of the delay. 

(d) The Superintendent will assess 

compensatory royalty beginning on the 

first day of the month following the 

earliest reasonable time the lessee 

should have taken protective action and 

continuing until: 

(1) The lessee drills sufficient 

economic protective wells and the wells 

remain in continuous production; 

(2) The draining well stops producing; 

or 

(3) The lessee relinquishes its interest 

in the lease. 

Lease Term 

§ 226.17 What is the term of a lease? 

Leases issued under this part are for 

a primary term as established by the 

Osage Minerals Council, approved by 

the Superintendent, and so stated in the 

notice of sale of such leases and so long 

thereafter as the minerals specified are 

produced in paying quantities. 

Royalty Payments 

§ 226.18 What is the royalty rate for oil? 

(a) The lessee must deliver to the 

Superintendent a royalty on production 

removed or sold from the lease, that 

proportion specified in the notice of sale 

(but not less than 20 percent) of the 

amount or value of the oil determined 

under paragraph (b) of this section. 

(b) Unless the Osage Minerals 

Council, with approval of the 

Superintendent, elects to take the 

royalty in kind, the settlement value per 

barrel is the greater of: 

(1) The average NYMEX daily price of 

oil at Cushing, Oklahoma, for the month 

in which the produced oil was sold, 

adjusted for gravity using the scale 

applicable under § 226.19. The 

applicable average NYMEX daily price 

of oil at Cushing, Oklahoma and gravity 

adjustment scale will be available from 

the Superintendent upon request, on or 

before the fifth day of the month 

following production; or 

(2) The actual selling price for the 

transaction as adjusted for gravity. 

(c) Should the lessor, with approval of 

the Secretary, elect to take the royalty in 

kind, the lessee must furnish free 

storage for royalty oil for a period not 

to exceed 60 calendar days from date of 

production after notice of such election. 

§ 226.19 How is the gravity adjustment 

calculated? 

(a) The gravity adjustment of Average 

Daily NYMEX Price of oil at Cushing, 

Oklahoma under § 226.18(b)(1) is a 

deduction from the price per barrel, as 

follows: 

If the gravity of the oil is . . . the rate is . . . for each . . . 

(1) At or between 40.0 and 44.9 degrees ......... zero. 

(2) At or between 35.0 and 39.9 degrees ......... $ 0.02 ................................................................ degree or fraction thereof below 40.0. 

(3) Below 35.0 degrees ..................................... $ 0.10 plus an additional $ 0.015 one-tenth of one degree below 35.0. 

(4) Above 44.9 degrees ..................................... $ 0.015 .............................................................. for each one-tenth of one degree above 44.9. 

(b) The Superintendent may, on or 

before the fifth day of the month 

following production, publish a gravity 

adjustment scale for oil of gravity below 

40.0 degrees or above 44.9 degrees that 

supersedes this paragraph, but only if 

the Superintendent determines, based 

on substantial evidence, that market 

conditions so warrant. 

§ 226.20 How is the royalty on gas 

calculated? 

(a) All gas removed from the lease 

from which it is produced must be 

metered before removal unless 

otherwise approved by the 

Superintendent and be subject to a 

royalty of not less than 20 percent of the 

gross proceeds of the gas. Unless the 

Osage Minerals Council, with approval 

of the Superintendent, elects to take the 

royalty in kind, gross proceeds must be 


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calculated under paragraph (b) of this 

section; except that the Superintendent 

may direct (and the Osage Minerals 

Council may request that the 

Superintendent direct) any lessee, upon 

no less than 30 calendar days notice, to 

calculate gross proceeds at the higher 

royalty value of paragraph (b) or 

paragraph (c) of this section. 

(b) Under this paragraph, gross 

proceeds of the gas must be determined 

by multiplying the measured volume of 

gas at the well (Mcf), times the heating 

volume of the gas (MMBtu/Mcf), times 

the index price of the gas ($/MMBtu) for 

Oklahoma Zone 1 published by the 

Department of the Interior’s Office of 

Natural Resources Revenue. If that 

Monthly Index Price ceases to be 

published and/or is not otherwise 

available, the price must be calculated 

in a comparable manner to be 

determined by the Superintendent. The 

heating value of the gas shall be 

calculated in accordance with American 

Petroleum Institute MPMS Chapter 14, 

Section 5, and shall be reported under 

the following conditions: Dry (no water 

vapor), real, gross, and adjusted 

pressure of 14.73 psi and a temperature 

of 60 degrees Fahrenheit. If any lessee 

supplies gas produced from one lease 

for operation and/or development of any 

other lease, including another lease held 

by the same lessee, the royalty 

calculated under this section must be 

paid on all gas so used. 

(c) Under this paragraph, gross 

proceeds of the gas will be 100 percent 

of the actual proceeds from sales of all 

residue gas produced from the lease and 

one hundred percent of the actual 

proceeds from sales of all natural gas 

liquids produced from the lease minus 

the actual, reasonable cost of processing 

not to exceed 50 percent of the actual 

sales value of the natural gas liquids 

(including drip condensate). If the 

actual reasonable cost of processing 

cannot be obtained, upon approval by 

the Superintendent, the lessee may 

determine such cost in accordance with 

the alternative methodology and 

procedures in 30 CFR 1206.180(a) or (b). 

No other deductions of any kind, 

whether monetary or volumetric or 

otherwise, for any purpose, including 

but not limited to compression, 

dehydration, gathering, treating, or 

transportation are allowed. 

§ 226.21 Who determines royalty on lost or 

wasted minerals? 

Royalty is due on all oil and gas 

wasted or avoidably lost, the volume 

and quality of which will be determined 

by the Superintendent after taking into 

consideration information provided by 

the lessee, but resolving all doubts about 

volume and quality in favor of the 

lessor. 

§ 226.22 What is the minimum royalty 

payment for all leases? 

Minimum royalty will be owed in the 

event the royalty paid from producing 

leases during any year is less than the 

annual rental specified for the lease. 

Minimum royalty is due and payable at 

the end of the lease year in an amount 

equal to the annual rental less the 

amount paid in royalty on production. 

(a) After the primary term, the lessee 

must submit with his/her payment 

evidence that the lease is producing in 

paying quantities. 

(b) The Superintendent is authorized 

to determine whether the lease is 

actually producing in paying quantities 

or has terminated for lack of such 

production. 

(c) Payment for any underpayment 

not made within the time specified is 

subject to a late charge at the rate of not 

less than 11⁄2 percent per month for each 

month or fraction thereof until paid, or 

such other rate as may be set by the 

Superintendent after consultation with 

the Osage Minerals Council. 

§ 226.23 What royalty is due on other 

marketable products? 

A royalty on other marketable 

products must be paid at the rate of not 

less than 20 percent of the actual sales 

value of the other marketable products 

sold, in addition to any other royalty 

due on oil or gas. 

§ 226.24 What purchase options does the 

Federal Government have? 

Any of the executive departments of 

the United States Government have the 

option to purchase all or any part of the 

oil produced from any lease at not less 

than the price as defined in § 226.18. 

§ 226.25 How are royalty payments made? 

(a) Royalty payments due may be paid 

by either the purchaser or the lessee, 

provided that the lessee must provide a 

written agreement to the Superintendent 

if the purchaser has agreed to be the 

responsible party for making royalty 

payments. 

(b) All payments are due by the end 

of the month following the month 

during which the oil and gas is 

produced and sold, except when the last 

day of the month falls on a weekend or 

holiday. In such cases, payments are 

due on the first business day of the 

succeeding month. All payments must 

cover the sales of the preceding month. 

(c) Failure to make such payments 

subjects the responsible party as 

provided in paragraph (a) of this section 

to a late charge at the rate of not less 

than 11⁄2 percent for each month or 

fraction thereof until paid. 

§ 226.26 What reports are required to be 

provided? 

The lessee must furnish certified 

monthly reports covering all operations 

in a form specified by the 

Superintendent, whether there has been 

production or not, indicating therein the 

total amount of oil, raw natural gas, and 

other products subject to royalty 

payment, by the end of the month 

following the month during which the 

oil and gas is produced and sold, except 

when the last day of the month falls on 

a weekend or holiday. In such cases, 

reports are due on the first business day 

of the succeeding month. 

(a) Reports covering oil production 

must include the date of each sale of oil, 

well or lease identity, lessee, purchaser, 

volume of oil sold, gravity of oil sold, 

price paid per barrel for the sale, 40- 

degree price used for the sale, gravity 

adjustment scale used for the sale, and 

total amount paid for the sale. 

(b) Reports covering gas production 

must contain the total volume of raw 

natural gas measured at the well, the 

BTU value of raw natural gas produced 

at the well, the periodic gas analysis 

applicable to the sale, and the total 

value paid for the raw natural gas, 

residue gas, natural gas liquids, and 

condensate. 

(c) Report forms must be submitted in 

.csv (comma separated value) or ASCII 

format, or such other equivalent format 

specified by the Superintendent. The 

Superintendent must specify the 

method of transmittal. The 

Superintendent may specify that lessees 

must submit the reports and information 

required by this section directly to other 

agencies within the Department of the 

Interior, in lieu of the Superintendent. 

(d) The Superintendent must provide 

to the Osage Minerals Council copies of 

all reports under this section on at least 

a quarterly basis in the format originally 

received by the lessee. Upon written 

request by the Osage Minerals Council, 

the Superintendent will require lessees 

to provide to the Osage Minerals 

Council copies of run tickets. 

(e) Failure to remit reports subjects 

the lessee to further penalties as 

provided in § 226.67 and § 226.68 and 

subjects any royalty payment contract or 

division order to termination. 

§ 226.27 Can a lessee enter into royalty 

payment contracts and division orders? 

(a) The lessee may enter into division 

orders or contracts with the purchasers 

of oil, gas, or derivatives therefrom that 

will provide for the purchaser to make 

payment of royalty in accordance with 


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§ 226.25. The following requirements 

apply in these cases: 

(1) The division orders or contracts do 

not relieve the lessee from responsibility 

for the payment of the royalty should 

the purchaser fail to pay. 

(2) No production may be removed 

from the leased premises until a 

division order and/or contract and its 

terms are approved by the 

Superintendent: 

(3) The Superintendent may grant 

temporary permission to run oil or gas 

from a lease pending the approval of a 

division order or contract. 

(4) The lessee must file a certified 

monthly report and pay royalty on the 

value of all oil and gas used off the 

premises for development and operating 

purposes. 

(5) The lessee is responsible for the 

correct measurement and reporting of 

all oil and/or gas taken from the leased 

premises. 

(b) The lessee must require the 

purchaser of oil and/or gas from its lease 

or leases to furnish the Superintendent, 

a statement reporting the gross barrels of 

oil and/or gross Mcf of gas sold and 

sales price per barrel and/or gross Mcf 

during the preceding month, by the end 

of the month following the month 

during which the oil and gas is 

produced and sold, except when the last 

day of the month falls on a weekend or 

holiday. In such cases, statements are 

due on the first business day of the 

succeeding month. 

Unit Leases, Assignments and Related 

Instruments 

§ 226.28 When is unitization allowed? 

The Osage Minerals Council and the 

lessee or lessees, may, with the approval 

of the Superintendent, unitize or merge, 

two or more oil or oil and gas leases into 

a unit or cooperative operating plan to 

promote the greatest ultimate recovery 

of oil and gas from a common source of 

supply or portion thereof embracing the 

lands covered by such lease or leases. 

(a) The cooperative or unit agreement 

is subject to the regulations in this part 

and applicable laws governing the 

leasing of the Osage mineral estate. 

(b) Any agreement between the parties 

in interest to terminate a unit or 

cooperative agreement as to all or any 

portion of the lands included must be 

submitted to the Superintendent for his/ 

her approval. 

(c) Upon approval of unit termination 

under paragraph (b) of this section, the 

leases included under the cooperative or 

unit agreement will be restored to their 

original terms. 

(d) For the purpose of preventing 

waste and to promote the greatest 

ultimate recovery of oil and gas from a 

common source of supply or portion 

thereof, all oil leases, oil and gas leases, 

and gas leases issued under this part 

may be required to join a unit 

development plan affecting the leased 

lands by the Superintendent with the 

consent of the Osage Minerals Council. 

This plan must adequately protect the 

rights of all parties in interest, including 

the Osage mineral estate. 

§ 226.29 How are leases assigned? 

Leases or any interest therein may be 

assigned or transferred only with the 

approval of the Superintendent. The 

assignee must be qualified to hold such 

lease under existing rules and 

regulations and furnish a satisfactory 

bond conditioned for the faithful 

performance of the covenants and 

conditions thereof. 

(a) The lessee must assign either his/ 

her entire interest in a lease or legal 

subdivision thereof, or an undivided 

interest in the whole lease: Provided, 

however, that the Superintendent may 

approve an assignment that covers only 

a portion of a lease with the consent of 

the Osage Minerals Council. Approval 

by the Superintendent of a lease 

assignment or transfer of an interest in 

a lease or legal subdivision, is subject to 

the following: 

(1) After the Superintendent approves 

the assignment or transfer, the lessee 

who made the assignment will continue 

to be responsible, jointly and severally 

with the assignee, for lease obligations 

that accrued before the approval date, 

whether or not they were identified at 

the time of the assignment or transfer. 

This includes paying compensatory 

royalties for drainage. It also includes 

responsibility for plugging wells and 

abandoning facilities that were drilled, 

installed, or used before the effective 

date of the assignment or transfer. 

(2) The assignee agrees to comply 

with the terms of the original lease as it 

applies to the rights that were acquired. 

Among other obligations, the assignee 

must plug and abandon all unplugged 

wells, reclaim the lease site, and remedy 

all environmental problems in existence 

that a purchaser exercising reasonable 

diligence should have known at the 

time of the transfer. The assignee must 

also maintain a bond in accordance with 

these regulations. 

(b) If a lease is divided by the 

assignment of an entire interest in any 

part, each part will become a separate 

lease and the assignee is bound to 

comply with all the terms and 

conditions of the original lease. 

(c) A fully executed copy of the 

assignment must be filed with the 

Superintendent within 30 calendar days 

after the date of execution by all parties. 

If requested within the 30-day period, 

the Superintendent may grant an 

extension of 15 calendar days. 

(d) A filing fee of $75 must 

accompany each assignment. 

§ 226.30 Are overriding royalty 

agreements allowed? 

Agreements creating overriding 

royalties or payments out of production 

are not considered as an interest in a 

lease as such term is used in § 226.29. 

Agreements creating overriding royalties 

or payments out of production are 

hereby authorized and the approval of 

the Department of the Interior or any 

agency thereof is not required with 

respect thereto, but nothing in any such 

agreement modifies any of the 

obligations of the lessee under its lease 

and the regulations in this part. All such 

obligations are to remain in full force 

and effect, the same as if free of any 

such royalties or payments. 

(a) The existence of agreements 

creating overriding royalties or 

payments out of production, whether or 

not actually paid, will not be considered 

in justifying the shutdown or 

abandonment of any well. 

(b) Agreements creating overriding 

royalties or payments out of production 

need not be filed with the 

Superintendent unless incorporated in 

assignments or instruments required to 

be filed pursuant to § 226.29. 

§ 226.31 When are drilling contracts 

allowed? 

The Superintendent is authorized to 

approve drilling contracts with a 

stipulation that such approval does not 

in any way bind or require the 

Department to approve subsequent 

assignments that may be contemplated 

or provided for in the particular drilling 

contract approved by the Department. 

Approval merely authorizes entry on the 

lease for the purpose of development 

work. 

§ 226.32 When can an oil lease and a gas 

lease be combined? 

A lessee owning both an oil lease and 

gas lease covering the same acreage is 

authorized to convert such leases to a 

combination oil and gas lease. 

Subpart C—Operations 

§ 226.33 What are the general 

requirements governing operations? 

(a) The lessee must comply with 

applicable laws and regulations; with 

the lease terms; and with orders and 

instructions of the Superintendent. 

These include, but are not limited to, 

conducting all operations in a manner 

that: 


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(1) Ensures the proper handling, 

measurement, disposition, and site 

security of leasehold production; 

(2) Protects other natural resources 

and environmental quality; 

(3) Protects life and property; and 

(4) Results in maximum ultimate 

economic recovery of oil and gas and 

other marketable products with 

minimum waste and with minimum 

adverse effect on ultimate recovery of 

other mineral resources. 

(b) The lessee must permit properly 

identified authorized representatives of 

the Superintendent to enter upon, travel 

across, and inspect lease sites and 

records normally kept on the lease 

pertinent thereto without advance 

notice. Inspections normally will be 

conducted during those hours when 

responsible persons are expected to be 

present at the operation being inspected. 

Such permission must include access to 

secured facilities on such lease sites for 

the purpose of making any inspection or 

investigation for determining whether 

there is compliance with applicable law, 

the regulations in this part, and any 

applicable orders, notices or directives. 

(c) For the purpose of making any 

inspection or investigation, the 

Superintendent has the same right to 

enter upon or travel across any lease site 

as the lessee. 

§ 226.34 What requirements apply to 

commencement of operations on a lease? 

(a) No operations are permitted upon 

any tract of land until a lease covering 

such tract is approved by the 

Superintendent. The Superintendent 

may, however, grant authority to any 

party under such lease, consistent with 

the regulations in this part that he or she 

deems proper, to conduct geophysical 

and geological exploration work. 

(b) The lessee must submit 

applications on forms to be furnished by 

the Superintendent and secure approval 

before: 

(1) Well drilling, treating, or workover 

operations are started on the leased 

premises. 

(2) Removing casing from any well. 

(c) The lessee must notify the 

Superintendent a reasonable time in 

advance of starting work, of intention to 

drill, redrill, deepen, plug, or abandon 

a well. 

(d) Prior to approving any operations 

under this section, the Superintendent 

will determine whether an 

environmental assessment or other 

information is required to comply with 

applicable laws such as the National 

Environmental Policy Act. If an 

environmental assessment is deemed 

necessary, the Superintendent will 

notify the lessee that it must submit a 

draft environmental assessment, which 

will be reviewed and evaluated by the 

Superintendent before deciding whether 

to prepare an Environmental Impact 

Statement or issue a Finding of No 

Significant Impact. The Superintendent 

will also notify the lessee of any other 

information that must be submitted, 

such as cultural resources survey 

reports/archeological surveys when 

needed to comply with the National 

Historic Preservation Act and the 

Secretary’s Standards and Guidelines 

for Archeology and Historic 

Preservation. 

§ 226.35 How does a lessee acquire 

permission to begin operations on a 

restricted homestead allotment? 

(a) The lessee may conduct operations 

within or upon a restricted homestead 

selection only with the written consent 

of the Superintendent. 

(b) If the allottee is unwilling to 

permit operations on his/her homestead, 

the Superintendent will cause an 

examination of the premises to be made 

with the allottee and lessee or his/her 

representative. Upon finding that the 

interests of the Osage mineral estate 

require that the tract be developed, the 

Superintendent will endeavor to have 

the parties agree upon the terms under 

which operations on the homestead may 

be conducted. 

(c) In the event the allottee and lessee 

cannot reach an agreement, the matter 

must be presented by all parties before 

the Osage Minerals Council, and the 

Council will make its recommendations. 

Such recommendations will be 

considered as final and binding upon 

the allottee and lessee. A guardian may 

represent the allottee. Where no one is 

authorized or where no person is 

deemed by the Superintendent to be a 

proper party to speak for a person of 

unsound mind or feeble understanding, 

the Principal Chief of the Osage Nation 

will represent him. 

(d) If the allottee or his/her 

representative does not appear before 

the Osage Minerals Council when 

notified by the Superintendent, or if the 

Council fails to act within 10 calendar 

days after the matter is referred to it, the 

Superintendent may authorize the 

lessee to proceed with operations in 

conformity with the provisions of his/

her lease and the regulations in this 

part. 

§ 226.36 What kind of notice and 

information is required to be given surface 

owners prior to commencement of drilling 

operations? 

(a) The lessee must notify or attempt 

to notify the surface owner in one 

general written notification sent by 

certified mail with a copy to the 

Superintendent that it plans to begin 

conducting the following activities over 

the term of its lease: Archeological or 

biological surveys, or staking of wells. 

(b) No operations of any kind may 

commence until the lessee or its 

authorized representative meets with 

the surface owner or his/her 

representative. The lessee must request 

the meeting in writing by certified mail 

and provide a copy of the letter to the 

Superintendent. Unless waived by the 

Superintendent or otherwise agreed to 

between the lessee and surface owner, 

such meeting must be held at least 10 

calendar days prior to the 

commencement or any operations. At 

such meeting lessee or its authorized 

representative must comply with the 

following requirements: 

(1) Indicate the location of the well or 

wells to be drilled. 

(2) Arrange for a route of ingress and 

egress. Upon failure to agree on a route 

of ingress and egress, said route will be 

set by the Superintendent after the 

Superintendent has notified or 

attempted to notify both the surface 

owner and lessee in writing of their 

opportunity to meet and submit 

information for consideration before a 

final decision is made. 

(3) Furnish to said surface owners the 

name and address of the party or 

representative upon whom the surface 

owner must serve any claim for damages 

which he may sustain from mineral 

development or operations, and as to 

the procedure for settlement thereof as 

provided in § 226.41. 

(4) Where the drilling is to be on 

restricted land, the lessee or its 

authorized representative must meet 

with and provide the information in 

paragraphs (b)(1)–(3) of this section to 

the Superintendent. 

(5) When the surface owner or its 

representative cannot be contacted at 

the last known address or has not 

accepted a meeting request within 30 

calendar days of receipt of the request, 

the Superintendent is required to 

authorize lessee, in writing, to proceed 

with operations. 

§ 226.37 How much of the surface may a 

lessee use? 

The lessee or its authorized 

representative has the right to use so 

much of the surface of the land within 

the Osage mineral estate as may be 

reasonable for operations and 

marketing. This includes, but is not 

limited to the right to, lay and maintain 

pipelines, electric lines, pull rods, other 

appliances necessary for operations and 

marketing, and the right-of-way for 

ingress and egress to any point of 

operations. 


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(a) If the lessee and surface owner are 

unable to agree as to the routing of 

pipelines, electric lines, etc., said 

routing will be set by the 

Superintendent after the Superintendent 

has notified or attempted to notify both 

the surface owner and lessee in writing 

of their opportunity to meet and submit 

information for consideration before a 

final decision is made. 

(b) The right to use water for lease 

operations is established by § 226.48. 

(c) The lessee must conduct its 

operations in a workmanlike manner, 

commit no waste and allow none to be 

committed upon the land, nor permit 

any avoidable nuisance to be 

maintained on the premises under its 

control. 

§ 226.38 What commencement money 

must the lessee pay to the surface owner? 

(a) Before commencing actual 

exploration and/or development, the 

lessee must pay or tender to the surface 

owner commencement money in the 

amount of $25 per shot hole for 

explosive source (for the acquisition of 

Single Fold (100 per cent Seismic)), or 

$400 per linear mile for surface source 

data acquisition. For the purpose of 

conducting a 3D seismic survey, the 

lessee must pay commencement money 

in the amount of $10 per acre occupied 

during the time the survey is conducted. 

The lessee must also pay 

commencement money in the amount of 

$2500 for each well. 

(1) After payment of commencement 

money the lessee will be entitled to 

immediate possession of the drilling 

site. 

(2) Commencement money will not be 

required for the redrilling of a well 

which was originally drilled under the 

current lease. 

(3) A drilling site must be held to the 

minimum area essential for operations 

and not exceed one and one-half acres 

in area unless authorized by the 

Superintendent. 

(4) Commencement money is a credit 

toward the settlement of the total 

damages. 

(5) Acceptance of commencement 

money by the surface owner does not 

affect its right to compensation for 

damages as described in § 226.40, 

occasioned by the drilling and 

completion of the well for which it was 

paid. 

(6) Since actual damage to the surface 

from operations cannot necessarily be 

ascertained prior to the completion of a 

well as a serviceable well or dry hole, 

a damage settlement covering the 

drilling operation need not be made 

until after completion of drilling 

operations. 

(b) Where the surface is restricted 

land, commencement money must be 

paid to the Superintendent for the 

landowner. All other surface owners 

must be paid or tendered such 

commencement money directly. 

(1) Where such surface owners are 

neither residents of Osage County, nor 

have a representative located therein, 

such payment must be made or tendered 

to the last known address of the surface 

owner at least 5 calendar days before 

commencing drilling operation on any 

well. 

(2) If the lessee is unable to reach the 

owner of the surface of the land for the 

purpose of tendering the 

commencement money or if the owner 

of the surface of the land refuses to 

accept the same, the lessee must deposit 

such amount with the Superintendent 

by check payable to the Bureau of 

Indian Affairs. The Superintendent 

must thereupon advise the owner of the 

surface of the land by mail at his/her 

last known address that the 

commencement money is being held for 

payment to him upon his/her written 

request. 

§ 226.39 What fees must lessee pay to a 

surface owner for tank siting? 

The lessee must pay fees for each tank 

sited at the rate of $500 per tank, except 

that: 

(a) No payment is due for a tank 

temporarily set on a well location site 

for drilling, completing, or testing; and 

(b) The sum to be paid for a tank 

occupying an area more than 2500 

square feet will be agreed upon between 

the surface owner and lessee or, on 

failure to agree, the same will be 

determined by arbitration as provided 

by § 226.41. 

§ 226.40 What is a settlement of damages 

claimed? 

(a) The lessee or its authorized 

representative or geophysical permittee 

must pay for all damages to growing 

crops, any improvements on the lands, 

and all other surface damages as may be 

occasioned by operations. 

Commencement money will be credited 

toward the settlement of the total 

damages occasioned by the drilling and 

completion of the well for which it was 

paid. Such damages must be paid to the 

owner of the surface and by him 

apportioned among the parties 

interested in the surface, whether as 

owner, surface lessee, or otherwise, as 

the parties may mutually agree or as 

their interests may appear. If the lessee 

or its authorized representative and 

surface owner are unable to agree 

concerning damages, the same will be 

determined by arbitration as provided 

by § 226.41. 

(b) Surface owners must notify their 

lessees or tenants of the regulations in 

this part and of the necessary procedure 

to follow in all cases of alleged damages. 

If so authorized in writing, surface 

lessees or tenants may represent the 

surface owners. 

(c) In settlement of damages on 

restricted land, all sums due and 

payable must be paid to the 

Superintendent for credit to the account 

of the Indian entitled thereto. The 

Superintendent will make the 

apportionment between the Indian 

landowner or owners and surface lessee 

of record. 

(d) Any person claiming damages to 

an interest in any leased tract, must 

furnish to the Superintendent a 

statement in writing showing its 

claimed interest. Failure to furnish such 

statement will constitute a waiver of 

notice and estop said person from 

claiming any part of such damages after 

the same has been disbursed. 

§ 226.41 What is the procedure for 

settlement of damages claimed? 

Where the surface owner or his/her 

lessee suffers damage due to the oil and 

gas operations and/or marketing of oil or 

gas by lessee or its authorized 

representative, the procedure for 

recovery is as follows: 

(a) The party or parties aggrieved will, 

as soon as possible after the discovery 

of any damages, serve written notice to 

lessee or its authorized representative. 

The written notice must describe the 

nature and location of the alleged 

damages, the date of occurrence, the 

names of the party or parties causing 

said damages, and the amount of 

damages. This requirement does not 

limit the time within which action may 

be brought in the courts to less than the 

90-day period allowed by section 2 of 

the Act of March 2, 1929 (45 Stat. 1478, 

1479). 

(b) If the alleged damages are not 

adjusted at the time of such notice, the 

lessee or its authorized representative 

must try to adjust the claim with the 

party or parties aggrieved within 20 

calendar days from receipt of the notice. 

If the claimant is the owner of restricted 

property and a settlement results, a copy 

of the settlement agreement must be 

submitted to the Superintendent for 

approval. If the settlement agreement 

concerning the restricted property is 

approved by the Superintendent, 

payment must be made to the 

Superintendent for the benefit of said 

claimant. 

(c) If the parties fail to adjust the 

claim within the 20 calendar days 


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specified, then within 10 calendar days 

thereafter each of the interested parties 

must appoint an arbitrator who 

immediately upon their appointment 

must agree upon a third arbitrator. If the 

two arbitrators fail to agree upon a third 

arbitrator within 10 calendar days, they 

must immediately notify the parties in 

interest. If said parties cannot agree 

upon a third arbitrator within 5 calendar 

days after receipt of such notice, the 

Superintendent will appoint the third 

arbitrator. 

(d) As soon as the third arbitrator is 

appointed, the arbitrators must meet; 

hear the evidence and arguments of the 

parties; and examine the lands, crops, 

improvements, or other property alleged 

to have been injured. Within 10 

calendar days they will render their 

decision as to the amount of the damage 

due. The arbitrators will be 

disinterested persons. The fees and 

expenses of the third arbitrator must be 

borne equally by the claimant and the 

lessee or its authorized representative. 

Each lessee or its authorized 

representative and claimant must pay 

the fee and expenses for the arbitrator 

appointed by him. 

(e) When an act of an oil or gas lessee 

or its authorized representative results 

in injury to both the surface owner and 

his/her lessee, the parties aggrieved 

must join in the appointment of an 

arbitrator. Where the injury complained 

of is chargeable to more than one oil or 

gas lessee, or its authorized 

representative, all such chargeable 

lessees or representatives must join in 

the appointment of an arbitrator. 

(f) Any two of the arbitrators may 

make a decision as to the amount of 

damage due. The decision must be in 

writing and served forthwith upon the 

parties in interest. Each party has 90 

calendar days from the date the decision 

is served in which to file an action in 

a court of competent jurisdiction. If no 

such action is filed within said time and 

the award is against the lessee or its 

authorized representative, he/she must 

pay the same, together with interest at 

an annual rate established for the 

Internal Revenue Service from date of 

award, within 10 calendar days after the 

expiration of said period for filing an 

action. 

(g) The lessee or its authorized 

representative must file with the 

Superintendent a report on each 

settlement agreement, setting out the 

nature and location of the damage, date, 

and amount of the settlement, and any 

other pertinent information. 

§ 226.42 What are a lessee’s obligations 

for production? 

(a) The lessee must put into 

marketable condition at no cost to the 

lessor, all oil, gas, and other marketable 

products produced from the leased land. 

(b) Where oil accumulates in a pit, 

such oil must either be: 

(1) Recirculated through the regular 

treating system and returned to the 

stock tanks for sale; or 

(2) Pumped into a stock tank without 

treatment and measured for sale in the 

same manner as from any sales tank in 

accordance with applicable orders and 

notices. 

(c) In the absence of prior approval 

from the Superintendent, no oil may be 

pumped into a pit except in an 

emergency. Each such pumping 

occurrence must be reported to the 

Superintendent and the oil promptly 

recovered in accordance with applicable 

orders and notices. 

§ 226.43 What documentation is required 

for transportation of oil or gas or other 

marketable product? 

(a) Any person engaged in 

transporting by motor vehicle any oil 

from any lease site, or allocated to any 

such lease site, must carry on his/her 

person, in his/her vehicle, or in his/her 

immediate control, documentation 

showing at a minimum; the amount, 

origin, and intended first purchaser of 

the oil. 

(b) Any person engaged in 

transporting any oil or gas or other 

marketable product by pipeline 

produced from or allocated to any lease 

site, must maintain documentation 

showing, at a minimum, the amount, 

origin, and intended first purchaser of 

such oil or gas or other marketable 

product. 

(c) On any lease site, any authorized 

representative of the Superintendent 

who is properly identified may stop and 

inspect any motor vehicle that he/she 

has probable cause to believe is carrying 

oil produced from or allocated to any 

such lease site, to determine whether 

the driver possesses proper 

documentation for the load of oil. 

(d) Any authorized representative of 

the Superintendent who is properly 

identified and who is accompanied by 

an appropriate law enforcement officer, 

or an appropriate law enforcement 

officer alone, may stop and inspect any 

motor vehicle which is not on a lease 

site if he/she has probable cause to 

believe the vehicle is carrying oil 

produced from or allocated to a lease 

site, to determine whether the driver 

possesses proper documentation for the 

load of oil. 

§ 226.44 What are a lessee’s obligations 

for preventing pollution? 

(a) All lessees, contractors, drillers, 

service companies, pipe pulling and 

salvaging contractors, or other persons, 

must at all times conduct their 

operations and drill, equip, operate, 

produce, plug, and abandon all wells 

drilled for oil or gas, service wells or 

exploratory wells (including seismic, 

core, and stratigraphic holes) in a 

manner that will prevent pollution and 

the migration of oil, gas, salt water, or 

other substance from one stratum into 

another, including any fresh water 

bearing formation. 

(b) Pits for drilling mud or deleterious 

substances used in the drilling, 

completion, recompletion, or workover 

of any well must be constructed and 

maintained to prevent pollution of 

surface and subsurface fresh water. 

These pits must be enclosed with a 

fence of at least four strands of barbed 

wire, or an approved substitute, 

stretched taut to adequately braced 

corner posts, unless the surface owner, 

user, or the Superintendent gives 

consent to the contrary. Immediately 

after completion of operations, pits must 

be emptied, reclaimed, and leveled 

unless otherwise requested by surface 

owner or user. 

(c) Drilling pits must be adequate to 

contain mud and other material 

extracted from wells and must have 

adequate storage to maintain a supply of 

mud for use in emergencies. 

(d) No earthen pit, except those used 

in the drilling, completion, 

recompletion or workover of a well, may 

be constructed, enlarged, reconstructed 

or used without approval of the 

Superintendent. Unlined earthen pits 

may not be used for the storage of salt 

water or other deleterious substances. 

(e) Deleterious fluids other than fresh 

water drilling fluids used in drilling or 

workover operations, which are 

displaced or produced in well 

completion or stimulation procedures, 

including, but not limited to, fracturing, 

acidizing, swabbing, and drill stem 

tests, must be collected into a pit lined 

with plastic of at least 30 mil or a metal 

or fiberglass tank and maintained 

separately from above-mentioned 

drilling fluids to allow for separate 

disposal. These pits or tanks must be 

enclosed with a fence of at least four 

strands of barbed wire, or an approved 

substitute, stretched taut to adequately 

braced corner posts, unless the surface 

owner or the Superintendent gives 

consent to the contrary. Immediately 

after completion of operations, tanks 

must be removed and any pits must be 

emptied, reclaimed, and leveled unless 

otherwise requested by surface owner. 


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§ 226.45 What are a lessee’s other 

environmental responsibilities? 

(a) The lessee must conduct 

operations in a manner which protects 

the mineral resources, other natural 

resources, and environmental quality. 

The lessee must comply with the 

pertinent orders of the Superintendent 

and other standards and procedures as 

set forth in the applicable laws, 

regulations, lease terms and conditions, 

and the approved drilling plan or 

subsequent operations plan. 

(b) The lessee must exercise due care 

and diligence to assure that leasehold 

operations do not result in undue 

damage to surface or subsurface 

resources or surface improvements. 

(1) All produced water must be 

disposed of by injection into the 

subsurface, in approved pits, or by other 

methods which have been approved by 

the Superintendent. 

(2) Upon the conclusion of operations, 

the lessee must reclaim the disturbed 

surface in a manner approved or 

prescribed by the Superintendent. 

(c) All spills or leakages of oil, gas, 

other marketable products, produced 

water, toxic liquids, or waste materials, 

blowouts, fires, personal injuries, and 

fatalities must be reported by the lessee 

to the Superintendent as soon as 

discovered, but not later than the next 

business day. 

(1) The lessee must exercise due 

diligence in taking necessary measures, 

subject to approval by the 

Superintendent, to control and remove 

pollutants and to extinguish fires. 

(2) A lessee’s compliance with the 

requirements of the regulations in this 

part does not relieve the lessee of the 

obligation to comply with other 

applicable laws and regulations. 

(d) When required by the 

Superintendent, a contingency plan 

must be submitted describing 

procedures to be implemented to protect 

life, property, and the environment. 

(e) The lessee’s liability for damages 

to third parties is governed by 

applicable law. 

§ 226.46 What safety precautions must a 

lessee take? 

The lessee must perform operations 

and maintain equipment in a safe and 

workmanlike manner, including 

compliance with National Electrical 

Code for the installation, running, 

maintenance and use of all electric 

lines. The lessee must take all 

precautions necessary to provide 

adequate protection for the health and 

safety of life and the protection of 

property. Such precautions do not 

relieve the lessee of the responsibility 

for compliance with other pertinent 

health and safety requirements under 

applicable laws or regulations. 

§ 226.47 When can the Superintendent 

grant easements for wells off leased 

premises? 

The Superintendent, with the consent 

of the Osage Minerals Council, may 

grant commercial and noncommercial 

easements for wells off the leased 

premises to be used for purposes 

associated with oil and gas production; 

provided that the Superintendent 

notifies or attempts to notify both the 

surface owner and lessee in writing of 

their opportunity to meet with and 

submit information for consideration 

before a final decision is made. Rents 

payable to the Osage mineral estate for 

such easements must be in an amount 

agreed to by Grantee and the Osage 

Minerals Council, subject to the 

approval of the Superintendent. The 

Grantee is responsible for all damages 

resulting from the use of such wells and 

settlement for any damages must be 

made as provided in § 226.41. 

§ 226.48 A lessee’s use of water. 

The lessee or his/her contractor may, 

with the approval of the 

Superintendent, use water from streams 

and natural water courses to the extent 

that such use does not diminish the 

supply below the requirements of the 

surface owner from whose land the 

water is taken. Similarly, the lessee or 

his/her contractor may use water from 

reservoirs formed by the impoundment 

of water from such streams and natural 

water courses, if such use does not 

exceed the quantity to which they 

originally would have been entitled had 

the reservoirs not been constructed. The 

lessee or his/her contractor may install 

necessary lines and other equipment 

within the Osage mineral estate to 

obtain such water. Any damage 

resulting from such installation must be 

settled as provided in § 226.41. 

§ 226.49 What are the responsibilities of 

an oil lessee when a gas well is drilled and 

vice versa? 

Prior to drilling, an oil or gas lessee 

must notify the other lessees of its intent 

to drill. When an oil lessee in drilling 

a well encounters a formation or zone 

having indications of possible gas 

production, or the gas lessee in drilling 

a well encounters a formation or zone 

having indication of possible oil 

production, the lessee must 

immediately notify the other lessee and 

the Superintendent. The lessee drilling 

the well must obtain all information that 

a prudent lessee would utilize to 

evaluate the productive capability of 

such formation or zone. 

(a) Gas well to be turned over to gas 

lessee. If an oil lessee drills a gas well, 

it must, without removing from the well 

any of the casing or other equipment, 

immediately shut the well in and notify 

the gas lessee and the Superintendent. 

(1) If the gas lessee does not, within 

45 calendar days after receiving notice 

and determining the cost of drilling, 

elect to take over such well and 

reimburse the oil lessee the cost of 

drilling, including all damages paid and 

the cost in-place of casing, tubing, and 

other equipment, the oil lessee must 

immediately confine the gas to the 

original stratum. The disposition of 

such well and the production therefrom 

will then be subject to the approval of 

the Superintendent. 

(2) If the oil lessee and gas lessee 

cannot agree on the cost of the well, the 

Superintendent will apportion the cost 

between the oil and gas lessees. 

(b) Oil well to be turned over to oil 

lessee. If a gas lessee drills an oil well, 

then it must immediately, without 

removing from the well any of the 

casing or other equipment, notify the oil 

lessee and the Superintendent. 

(1) If the oil lessee does not, within 45 

calendar days after receipt of notice and 

cost of drilling, elect to take over the 

well, it must immediately notify the gas 

lessee. From that point, the 

Superintendent must approve the 

disposition of the well, and any gas 

produced from it. 

(2) If the oil lessee chooses to take 

over the well, it must pay to the gas 

lessee: 

(i) The cost of drilling the well, 

including all damages paid; and 

(ii) The cost in place of casing and 

other equipment. 

(3) If the oil lessee and the gas lessee 

cannot agree on the cost of the well, the 

Superintendent will apportion the cost 

between the oil and gas lessees. 

(c) Lands not leased. If a gas lessee 

drills an oil well upon lands not leased 

for oil purposes or vice versa, the 

Superintendent may, until such time as 

said lands are leased, permit the lessee 

who drilled the well to operate and 

market the production therefrom. When 

said lands are leased, the lessee who 

drilled and completed the well must be 

reimbursed by the oil or gas lessee for 

the cost of drilling said well, including 

all damages paid and the cost of inplace casing, tubing, and other 

equipment. If the lessee does not elect 

to take over said well as provided above, 

the disposition of such well and the 

production therefrom will be 

determined by the Superintendent. In 

the event the oil lessee and gas lessee 

cannot agree on the cost of the well, 

such cost will be apportioned between 


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the oil and gas lessee by the 

Superintendent. 

§ 226.50 How is the cost of drilling a well 

determined? 

The term ‘‘cost of drilling’’ as applied 

where one lessee takes over a well 

drilled by another, includes all 

reasonable, usual, necessary, and proper 

expenditures. A list of expenses 

mentioned in this section must be 

presented to proposed purchasing lessee 

within 10 calendar days after the 

completion of the well. In the event of 

a disagreement between the parties as to 

the charges assessed against the well 

that is to be taken over, such charges 

will be determined by the 

Superintendent. 

§ 226.51 What are the requirements for 

using gas for operating purposes and tribal 

uses? 

All gas used in accordance with this 

section must first be odorized and 

treated in accordance with industry 

standards for safe use. 

(a) Gas to be furnished to oil lessee. 

The lessee of a producing gas lease must 

furnish the oil lessee sufficient gas for 

operating purposes at a rate to be agreed 

upon, or on failure to agree, the rate will 

be determined by the Superintendent: 

Provided, that the oil lessee must at his/ 

her own expense and risk, furnish and 

install the necessary connections to the 

gas lessee’s well or pipeline. All such 

connections must be reported in writing 

to the Superintendent. 

(b) Use of gas by Osage Tribe. (1) Gas 

from any well or wells must be 

furnished to any Tribal-owned building 

or enterprise at a rate not to exceed the 

price being received or offered by a gas 

purchaser, less royalty. This 

requirement is subject to the 

determination by the Superintendent 

that gas in sufficient quantities is 

available above that needed for lease 

operation and that no waste would 

result. In the absence of a gas purchaser, 

the rate to be paid by the Osage Nation 

will be determined by the 

Superintendent based on prices being 

paid by purchasers in the Osage mineral 

estate. The Osage Nation is to furnish all 

necessary materials and labor for such 

connection with the lessee’s gas system. 

The use of such gas is at the risk of the 

Osage Nation at all times. 

(2) Any member of the Osage Nation 

residing in Osage County and outside a 

corporate city is entitled to the use at 

his/her own expense of not to exceed 

400,000 cubic feet of gas per calendar 

year for his/her principal residence at a 

rate not to exceed the amount paid by 

a gas purchaser plus 10 percent. This 

requirement is subject to the 

determination by the Superintendent 

that gas in sufficient quantities is 

available above that needed for lease 

operation and that no waste would 

result. In the absence of a gas purchaser, 

the amount to be paid by the Tribal 

member will be determined by the 

Superintendent. Gas delivered to Tribal 

members is not royalty free. The Tribal 

member is to furnish all necessary 

material and labor for such connection 

to the lessee’s gas system, and must 

maintain his/her own lines. The use of 

such gas is at the risk of the Tribal 

member at all times. 

(3) Gas furnished by the lessee under 

paragraphs (b)(1) and (2) of this section 

may be terminated only with the 

approval of the Superintendent. A 

written application for termination must 

be made to the Superintendent showing 

justification. 

Subpart D—Cessation of Operations 

§ 226.52 When can a lessee shutdown, 

abandon, and plug a well? 

No well may be permanently 

abandoned until it is no longer 

producing oil and/or gas in paying 

quantities and such a showing has been 

demonstrated to the satisfaction of the 

Superintendent. The lessee may not 

shut down, abandon, or otherwise 

discontinue the operation or use of any 

well for any purpose without the 

written approval of the Superintendent. 

All applications for such approval must 

be submitted to the Superintendent on 

forms furnished by the Superintendent. 

(a) An application for authority to 

permanently shut down or discontinue 

the use or operation of a well must set 

forth the justification, the means by 

which the well bore is to be protected, 

and the contemplated eventual 

disposition of the well. The method of 

conditioning such well is subject to the 

approval of the Superintendent. 

(b) Prior to permanent abandonment 

of any well, the oil lessee or the gas 

lessee, as the case may be, must offer the 

well to the other for his/her 

recompletion or use under such terms as 

may be mutually agreed upon but not in 

conflict with the regulations. Failure of 

the lessee receiving the offer to reply 

within 10 calendar days after receipt 

thereof will be deemed a rejection of the 

offer. If, after indicating acceptance, the 

two parties cannot agree on the terms of 

the offer within 30 calendar days, the 

disposition of such well will be 

determined by the Superintendent. 

(c) The Superintendent is authorized 

to shut in a lease when the lessee fails 

to comply with the terms of the lease, 

the regulations, and/or orders of the 

Superintendent. 

§ 226.53 When must a lessee dispose of 

casings and other improvements? 

(a) Upon termination of a lease, 

permanent improvements, unless 

otherwise provided by written 

agreement with the surface owner and 

filed with the Superintendent, remain a 

part of said land and become the 

property of the surface owner upon 

termination of the lease. This rule does 

not apply to personal property, 

including but not limited to, tools, 

tanks, pipelines, pumping and drilling 

equipment, derricks, engines, 

machinery, tubing, and the casings of all 

wells. When any lease terminates, all 

such personal property must be 

removed within 90 calendar days or 

such reasonable extension of time as 

may be granted by the Superintendent. 

Otherwise, the ownership of all casings 

reverts to the lessor and all other 

personal property and permanent 

improvements to the surface owner. 

This should not be construed to relieve 

the lessee of responsibility for removing 

any such personal property or 

permanent improvements from the 

premises if required by the 

Superintendent and restoring the 

premises as nearly as practicable to the 

original state. 

(b) Upon termination of lease for 

cause. When there has been a 

termination for cause, the lessor is 

entitled and authorized to take 

immediate possession of the lease 

premises and all permanent 

improvements and all other equipment 

necessary for the operation of the lease. 

(c) Wells to be abandoned must be 

promptly plugged as prescribed in 

writing by the Superintendent. 

Applications to plug must include a 

statement affirming compliance with 

§ 226.52 and must set forth reasons for 

plugging, a detailed statement of the 

proposed work, including the kind, 

location, and length of plugs (by depth), 

plans for mudding and cementing, 

testing, parting and removing casing, 

and any other pertinent information. 

The lessee must submit a written 

application for authority to plug a well. 

(d) The lessee must plug and fill all 

dry or abandoned wells in a manner to 

confine the fluid in each formation 

bearing fresh water, oil, gas, salt water, 

and other minerals, and to protect it 

against invasion of fluids from other 

sources. Mud-laden fluid, cement, and 

other plugs must be used to fill the hole 

from bottom to top. 

(1) If a satisfactory agreement is 

reached between the lessee and the 

surface owner, subject to the approval of 

the Superintendent, the lessee may 

condition the well for use as a fresh 


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water well and must so indicate on the 

plugging record. 

(2) The manner in which plugging 

material will be introduced and the type 

of material used is subject to the 

approval of the Superintendent. 

(3) Within 10 calendar days after 

plugging, the lessee must file with the 

Superintendent a complete report of the 

plugging of each well. 

(4) When any well is plugged and 

abandoned, the lessee must, within 90 

calendar days, clean up the premises 

around such well to the satisfaction of 

the Superintendent. 

Subpart E—Requirements of Lessees 

§ 226.54 What general requirements apply 

to lessees? 

(a) The lessee must comply with all 

orders or instructions issued by the 

Superintendent. The Superintendent or 

his/her representative may enter upon 

the leased premises for the purpose of 

inspection. 

(b) The lessee must keep a full and 

correct account of all operations, 

receipts, and disbursements and make 

reports thereof, as required. 

(c) The lessee’s books and records 

must be available to the Superintendent 

for inspection. 

(d) The lessee must maintain and 

preserve records for 6 years from the 

day on which the transaction recorded 

occurred unless the Superintendent 

notifies the lessee of an audit or 

investigation involving the records and 

that they must be maintained for a 

longer period. When an audit or 

investigation is underway, records must 

be maintained until the lessee is 

released in writing from the obligation 

to maintain the records. 

§ 226.55 When must a lessee designate 

process agents? 

(a) Before actual drilling or 

development operations are commenced 

on leased lands, the lessee or assignee, 

if not a resident of the State of 

Oklahoma, must appoint a local or 

resident representative within the State 

of Oklahoma on whom the 

Superintendent may serve notice or 

otherwise communicate in securing 

compliance with the regulations in this 

part, and notify the Superintendent of 

the name and post office address of the 

representative appointed. 

(b) Where several parties own a lease 

jointly, the parties must designate one 

representative or agent whose duties are 

to act for all parties concerned. 

(c) The lessee must appoint a 

substitute to serve in his/her stead in 

the event of the incapacity or absence 

from the State of Oklahoma of such 

designated local or resident 

representative. In the absence of such 

representative or appointed substitute, 

any employee of the lessee upon the 

leased premises or person in charge of 

drilling or related operations thereon 

will be considered the representative of 

the lessee for the purpose of service of 

orders or notices as herein provided. 

§ 226.56 What are the lessee’s record and 

reporting requirements for wells? 

(a) The lessee must keep accurate and 

complete records of the drilling, 

redrilling, deepening, repairing, 

treating, plugging, or abandonment of 

all wells. These records must show: 

(1) All the formations penetrated, the 

content and character of the oil, gas, 

other marketable product, or water in 

each formation, and the kind, weight, 

size, landed depth, and cement record 

of casing used in drilling each well; 

(2) The record of drill-stem and other 

bottom hole pressure or fluid sample 

surveys, temperature surveys, 

directional surveys, and the like; 

(3) The materials and procedure used 

in the treating or plugging of wells or in 

preparing them for temporary 

abandonment; and 

(4) Any other information obtained in 

the course of well operation. 

(b) The lessee must take such samples 

and make such tests and surveys as may 

be required by the Superintendent to 

determine conditions in the well or 

producing reservoir and to obtain 

information concerning formations 

drilled, and furnish such reports as 

required in the manner and method 

specified by the Superintendent. 

(c) Within 10 calendar days after 

completion of operations on any well, 

the lessee must transmit to the 

Superintendent: 

(1) All applicable information on 

forms furnished by the Superintendent; 

(2) A copy of the electrical, 

mechanical or radioactive log, or other 

types of surveys of the well bore; and 

(3) The core analysis obtained from 

the well. 

(d) The lessee must also submit other 

reports and records of operations as may 

be required and in the manner, form, 

and method prescribed by the 

Superintendent. 

(e) The lessee must measure 

production of oil, gas, other marketable 

product, and water from individual 

wells at reasonably frequent intervals to 

the satisfaction of the Superintendent. 

(f) Upon request and in the manner, 

form and method prescribed by the 

Superintendent, the lessee must furnish 

a plat showing the location, designation, 

and status of all wells on the leased 

lands, together with such other 

pertinent information as the 

Superintendent may require. 

§ 226.57 What line drilling limitations must 

a lessee comply with? 

The lessee may not drill within 300 

feet of the boundary line of leased lands, 

or locate any well or tank within 200 

feet of any public highway, any 

established watering place, or any 

building used as a dwelling, granary, or 

barn, except with the written 

permission of the Superintendent. 

Failure to obtain advance written 

permission from the Superintendent 

will subject the lessee to termination of 

the lease and/or plugging of the well. 

§ 226.58 What are the requirements for 

marking wells and tank batteries? 

The lessee must clearly and 

permanently mark all wells and tank 

batteries in a conspicuous place with 

the number, legal description, operator’s 

name, lessee’s name and telephone 

number, and must take all necessary 

precautions to preserve these markings. 

§ 226.59 What precautions must a lessee 

take to ensure natural formations are 

protected? 

The lessee must, to the satisfaction of 

the Superintendent, take all proper 

precautions and measures to prevent 

damage or pollution of oil, gas, fresh 

water, or other mineral bearing 

formations. 

§ 226.60 What are a lessee’s obligations to 

maintain control of wells? 

(a) In drilling operations in fields 

where high pressures, lost circulation, 

or other conditions exist which could 

result in blowouts, the lessee must 

install an approved gate valve or other 

controlling device in proper working 

condition for use until the well is 

completed. At all times, preventative 

measures must be taken in all well 

operations to maintain proper control of 

subsurface strata. 

(b) Drilling wells. The lessee must take 

all necessary precautions to keep each 

well under control at all times, and 

must utilize and maintain materials and 

equipment necessary to insure the safety 

of operating conditions and procedures. 

(c) Vertical drilling. The lessee must 

conduct drilling operations in a manner 

so that the completed well does not 

deviate significantly from the vertical 

without the prior written approval of 

the Superintendent. Significant 

deviation means a projected deviation of 

the well bore from the vertical of 10° or 

more, or a projected bottom hole 

location which could be less than 200 

feet from the spacing unit or lease 

boundary. Any well which deviates 

more than 10° from the vertical or could 


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result in a bottom hole location less 

than 200 feet from the spacing unit or 

lease boundary without prior written 

approval must be reported promptly to 

the Superintendent. In these cases, a 

directional survey is required. 

(d) High pressure or loss of 

circulation. The lessee must take 

immediate steps and utilize necessary 

resources to maintain or restore control 

of any well in which the pressure 

equilibrium has become unbalanced. 

(e) Protection of fresh water and other 

minerals. The lessee must isolate 

freshwater-bearing and other usable 

water containing 5,000 ppm or less of 

dissolved solids and other mineralbearing formations and protect them 

from contamination. Tests and surveys 

of the effectiveness of such measures 

must be conducted by the lessee using 

procedures and practices approved or 

prescribed by the Superintendent. 

(f) The lessee must conduct activities 

in accordance with the standards and 

procedures set forth in Bureau of Land 

Management Onshore Oil and Gas Order 

No. 6, Hydrogen Sulfide Operations. 

§ 226.61 How does a lessee prevent waste 

of oil and gas and other marketable 

products? 

(a) The lessee must conduct all 

operations in a manner that will prevent 

waste of oil and gas and other 

marketable products and must not 

wastefully utilize oil or gas or other 

marketable products. 

(b) The Superintendent has the 

authority to impose such requirements 

as he deems necessary to prevent waste 

of oil and gas and other marketable 

products and to promote the greatest 

ultimate recovery of oil and gas and 

other marketable products. 

(c) For purposes of this section, waste 

includes, but is not limited to, the 

inefficient, excessive or improper use or 

dissipation of reservoir energy which 

would reasonably reduce or diminish 

the quantity of oil or gas or other 

marketable product that might 

ultimately be produced, or the 

unnecessary or excessive surface loss or 

destruction, without beneficial use, of 

oil, gas or other marketable product. 

§ 226.62 How does a lessee measure and 

store oil? 

(a) All production run from the lease 

must be measured according to methods 

and devices approved by the 

Superintendent. Facilities suitable for 

containing and measuring accurately all 

crude oil produced from the wells must 

be provided by the lessee and must be 

located on the leasehold unless 

otherwise approved by the 

Superintendent. The lessee must furnish 

to the Superintendent a copy of 100- 

percent capacity tank table for each 

tank. Meters and installations for 

measuring oil must be approved. 

(b) The lessee must ensure that each 

Lease Automatic Custody Transfer 

(LACT) meter is inspected, calibrated, 

and adjusted at least twice in each 

calendar year. Each inspection, 

calibration, and adjustment must be 

separated by a period of not less than 

five months. The lessee must give the 

Superintendent at least 48 hours prior 

notice of all LACT meter inspections, 

calibrations, and adjustments. The 

Superintendent has the right to witness, 

unannounced, all LACT meter 

inspections, calibrations, and 

adjustments. The lessee must fully 

cooperate with such witnessing. If the 

Superintendent is not present, then he 

may request records relating to all LACT 

meter inspections, calibrations, and 

adjustments. Repeated failures to 

comply with this subparagraph will 

render the lease subject to termination 

after consultation with the Osage 

Minerals Council. 

(c) When a tank of oil is ready for 

removal by the purchaser, the lessee 

must ensure that the Superintendent is 

informed of that fact before the 

purchaser is so informed via an 

electronic or telephonic method 

established by the Superintendent for 

reporting pursuant to this subparagraph. 

Repeated failures to inform the 

Superintendent will render the lease 

subject to termination after consultation 

with the Osage Minerals Council. 

(d) The Superintendent has the right 

to witness all gaugings, unannounced, 

on each lease. The lessee must fully 

cooperate with such gaugings and 

repeated failures to comply will render 

the lease subject to termination after 

consultation with the Osage Minerals 

Council. 

§ 226.63 How is gas measured? 

(a) All gas required to be measured 

must be measured in accordance with 

the standards, procedures, and practices 

set forth in Bureau of Land Management 

Onshore Oil and Gas Order No. 5, 

Measurement of Gas. To the extent that 

Onshore Oil and Gas Order 5 conflicts 

with any provision of these regulations, 

these regulations control. 

(b) All gas, required to be measured, 

must be measured by orifice meter 

unless otherwise agreed to in writing by 

the Superintendent. All gas meters must 

be approved by the Superintendent and 

installed at the expense of the lessee or 

purchaser at such places as may be 

agreed to in writing by the 

Superintendent. For computing the 

volume of all gas produced, sold or 

subject to royalty, the standard of 

pressure is 14.65 pounds to the square 

inch, and the standard of temperature is 

60 degrees F. All measurements of gas 

must be adjusted by computation to 

these standards, regardless of the 

pressure and temperature at which the 

gas was actually measured, unless 

otherwise authorized in writing by the 

Superintendent. 

(c) The lessee must ensure that each 

meter is inspected, calibrated, and 

adjusted at least twice in each calendar 

year. Each inspection, calibration and 

adjustment must be separated by a 

period of not less than five months 

apart. The lessee must give the 

Superintendent at least 48 hours prior 

notice of all meter inspections, 

calibrations, and adjustments. The 

Superintendent has the right to witness, 

unannounced, all meter inspections, 

calibrations, and adjustments. The 

lessee must fully cooperate with such 

witnessing. If the Superintendent is not 

present, he may request records relating 

to all meter inspections, calibrations, 

and adjustments. Repeated failures to 

comply with this subparagraph will 

render the lease subject to termination 

after consultation with the Osage 

Minerals Council. 

§ 226.64 When can a lessee use gas for 

lifting oil? 

The lessee must not use raw natural 

gas from a distinct or separate stratum 

for the purpose of flowing or lifting oil, 

except where the lessee has an approved 

right to both the oil and the gas, and 

then only with the approval of the 

Superintendent of such use and of the 

manner of its use. 

§ 226.65 What site security standards 

apply to oil and gas and other marketable 

product leases? 

(a) Definitions. The following 

definitions apply to terms used in this 

section. 

Appropriate valves. Those valves in a 

particular piping system, i.e., fill lines, 

equalizer or overflow lines, sales lines, 

circulating lines, and drain lines that 

must be sealed during a given operation. 

Effectively sealed. The placement of a 

seal in such a manner that the position 

of the sealed valve may not be altered 

without the seal being destroyed. 

Production phase. That period of time 

or mode of operation during which 

crude oil is delivered directly to or 

through production vessels to the 

storage facilities and includes all 

operations at the facility other than 

those defined as being in the sales 

phase. 

Sales phase. That period of time or 

mode of operation during which crude 


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oil is removed from the storage facilities 

for sales, transportation or other 

purposes. 

Seal. A device, uniquely numbered, 

which completely secures a valve. 

(b) Minimum standards. Each lessee 

must comply with the following 

minimum standards to assist in 

providing accountability for oil or gas 

production: 

(1) All lines entering or leaving oil 

storage tanks must have valves capable 

of being effectively sealed during the 

production and sales operations unless 

otherwise modified by other 

subparagraphs of this paragraph. Any 

equipment needed for effective sealing, 

excluding the seals, must be located at 

the site. For a minimum of 6 years the 

lessee must maintain a record of seal 

numbers used and must document on 

which valves or connections they were 

used as well as when they were 

installed and removed. The site facility 

diagram(s) must show which valves will 

be sealed in which position during both 

the production and sales phases of 

operation. 

(2) Each LACT system must employ 

meters that have non-resettable 

totalizers. There may not be any by-pass 

piping around the LACT. All 

components of the LACT that are used 

for volume or quality determinations of 

the oil must be effectively sealed. For 

systems where production may only be 

removed through the LACT, no sales or 

equalizer valves need be sealed. 

However, any valves which may allow 

access for removal of oil before 

measurement through the LACT must be 

effectively sealed. 

(3) There must not be any by-pass 

piping around gas meters. Equipment 

which permits changing the orifice plate 

without bleeding the pressure off the gas 

meter run is not considered a by-pass. 

(4) For oil measured and sold by hand 

gauging, all appropriate valves must be 

sealed during the production or sales 

phase, as applicable. 

(5) Circulating lines having valves 

which may allow access to remove oil 

from storage and sales facilities to any 

other source except through the treating 

equipment back to storage must be 

effectively sealed as near the storage 

tank as possible. 

(6) The lessee, with reasonable 

frequency, must inspect all leases to 

determine production volumes and that 

the minimum site security standards are 

being met. The lessee must retain 

records of such inspections and 

measurements for 6 years from 

generation. Such records and 

measurements must be available to the 

Superintendent upon request. 

(7) Any lessee may request the 

Superintendent to approve a variance 

from any of the minimum standards 

prescribed by this section. The variance 

request must be submitted in writing to 

the Superintendent who may consider 

such factors as regional oil field facility 

characteristics and fenced, guarded 

sites. The Superintendent may approve 

a variance if the proposed alternative 

will ensure measures equal to or in 

excess of the minimum standards 

provided in paragraph (b) of this section 

will be put in place to detect or prevent 

internal and external theft, and will 

result in proper production 

accountability. 

(c) Site security plans. (1) Site security 

plans, which include the lessee’s plan 

for complying with the minimum 

standards enumerated in paragraph (b) 

of this section for ensuring 

accountability of oil/condensate 

production are required for all facilities 

and the lessee must maintain such 

facilities in compliance with the plan. 

For new facilities, notice must be given 

that it is subject to a specific existing 

plan, or a notice of a new plan must be 

submitted, no later than 60 days after 

completion of construction or first 

production, whichever is earlier, and on 

that date the facilities must be in 

compliance with the plan. At the 

lessee’s option, a single plan may 

include all of the lessee’s leases, units, 

and communitized areas, provided the 

plan clearly identifies each lease, unit, 

or communitized area included within 

the scope of the plan and the extent to 

which the plan is applicable to each 

lease, unit, or communitized area so 

identified. 

(2) The lessee must retain the plan 

and notify the Superintendent of its 

completion and which leases, units, and 

communitized areas are involved. Such 

notification is due at the time the plan 

is completed as required by paragraph 

(c)(1) of this section. Such notification 

must include the location and normal 

business hours of the office where the 

plan will be maintained. Upon request, 

plans must be made available to the 

Superintendent. 

(3) The plan must include the 

frequency and method of the lessee’s 

inspection and production volume 

recordation. The Superintendent may, 

upon examination, require adjustment 

of the method or frequency of 

inspection. 

(d) Site facility diagrams. (1) Facility 

diagrams are required for all facilities 

which are used in storing oil/

condensate. Facility diagrams must be 

filed within 60 calendar days after new 

measurement facilities are installed or 

existing facilities are modified. 

(2) No format is prescribed for facility 

diagrams. They are to be prepared on 

81⁄2′′ x 11′′ paper, if possible, and be 

legible and comprehensible to a person 

with ordinary working knowledge of oil 

field operations and equipment. The 

diagram need not be drawn to scale. 

(3) A site facility diagram must 

accurately reflect the actual conditions 

at the site and must, commencing with 

the header if applicable, clearly identify 

the vessels, piping, metering system, 

and pits, if any, which apply to the 

handling and disposal of oil, gas and 

water. The diagram must indicate which 

valves must be sealed and in what 

position during the production or sales 

phase. The diagram must clearly 

identify the lease on which the facility 

is located and the site security plan to 

which it is subject, along with the 

location of the plan. 

§ 226.66 What are a lessee’s reporting 

requirements for accidents, fires, theft, and 

vandalism? 

Lessees must make a complete report 

to the Superintendent of all accidents 

environmental or otherwise, fires, or 

acts of theft and vandalism occurring on 

the leased premises as soon as 

discovered, but not later than the next 

business day. Said report must include 

an estimate of the volume of oil 

involved. Lessees also are expected to 

report such thefts within one business 

day to local law enforcement agencies, 

internal company security. Lessees must 

also notify or attempt to notify the 

surface owner or his/her designated 

agent in writing by U.S. mail of any 

such incident covered under this 

section. 

Subpart F—Penalties 

§ 226.67 What are the penalties for 

violations of lease terms? 

Unless otherwise set forth in a lease, 

violations of any of the terms or 

conditions of any lease or of the 

regulations in this part will subject the 

lease to termination by the 

Superintendent, or Lessee to a fine of 

not more than $500 per day for each day 

of such violation or noncompliance 

with the orders of the Superintendent, 

or to both such fine and termination of 

the lease. Fines not received within 10 

business days after notice of the 

decision will be subject to late charges 

at the rate of not less than 11⁄2 percent 

per month for each month or fraction 

thereof until paid. 

§ 226.68 What are the penalties for 

violation of certain operating regulations? 

Unless otherwise set forth in a lease, 

in lieu of the penalties provided under 

§ 226.67, penalties may be imposed by 


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27034 Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Rules and Regulations 

the Superintendent for violation of 

certain sections of the regulations of this 

part as follows: 

(a) For failure to obtain permission to 

start operations required by § 226.34(a), 

$50 per day. 

(b) For failure to file records required 

by § 226.56, $50 per day until 

compliance is met. 

(c) For failure to mark wells or tank 

batteries as required by § 226.58, $50 

per day for each well or tank battery. 

(d) For failure to construct and 

maintain pits as required by 

§ 226.44(b)–(d), $50 for each day after 

operations are commenced on any well 

until compliance is met. 

(e) For failure to comply with § 226.60 

regarding control of wells, $100 per day. 

(f) For failure to notify 

Superintendent before drilling, 

redrilling, deepening, plugging, or 

abandoning any well, as required by 

§§ 226.34(b)–(c) and 226.49, $200 per 

day. 

(g) For failure to properly care for and 

dispose of deleterious fluids as provided 

in § 226.44(e), $500 per day until 

compliance is met. 

(h) For failure to file plugging reports 

as required by § 226.53(d) and for failure 

to file reports as required by § 226.26, 

$50 per day for each violation until 

compliance is met. 

(i) For failure to perform or start an 

operation within 5 calendar days after 

ordered by the Superintendent in 

writing under authority provided in this 

part, if said operation is thereafter 

performed by or through the 

Superintendent, the actual cost of 

performance thereof, plus 25 percent. 

Subpart G—Appeals and Notices 

§ 226.69 Who can file an appeal? 

Any person, firm or corporation 

aggrieved by any decision or order 

issued by or under the authority of the 

Superintendent, by virtue of the 

regulations in this part, may appeal 

pursuant to 25 CFR part 2. 

§ 226.70 Are the notices by the 

Superintendent binding? 

Notices and orders issued by the 

Superintendent to the representative are 

binding on the lessee. The 

Superintendent may in his/her 

discretion increase the time allowed in 

his/her orders and notices. 

§ 226.71 Information collection. 

The collections of information in this 

part have been approved by the Office 

of Management and Budget under 44 

U.S.C. 3501 et seq. and assigned OMB 

Control Number 1076–0180. Response is 

required to obtain or retain a benefit. A 

Federal agency may not conduct or 

sponsor, and you are not required to 

respond to, a collection of information 

unless it displays a currently valid OMB 

Control Number. 

Dated: May 4, 2015. 

Kevin K. Washburn, 

Assistant Secretary—Indian Affairs. 

[FR Doc. 2015–11314 Filed 5–8–15; 8:45 am] 

BILLING CODE 4337–15–P 


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